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<SEC-DOCUMENT>0001308179-05-000063.txt : 20050801
<SEC-HEADER>0001308179-05-000063.hdr.sgml : 20050801
<ACCEPTANCE-DATETIME>20050801154208
ACCESSION NUMBER:		0001308179-05-000063
CONFORMED SUBMISSION TYPE:	6-K
PUBLIC DOCUMENT COUNT:		3
CONFORMED PERIOD OF REPORT:	20050108
FILED AS OF DATE:		20050801
DATE AS OF CHANGE:		20050801

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			STMICROELECTRONICS NV
		CENTRAL INDEX KEY:			0000932787
		STANDARD INDUSTRIAL CLASSIFICATION:	SEMICONDUCTORS & RELATED DEVICES [3674]
		IRS NUMBER:				000000000
		STATE OF INCORPORATION:			P7
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		6-K
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	001-13546
		FILM NUMBER:		05988258

	BUSINESS ADDRESS:	
		STREET 1:		39 CHEMIN DU CHAMP DES FILLES
		STREET 2:		1228 PLAN-LES-OUATES
		CITY:			GENEVA
		STATE:			V8
		ZIP:			00000
		BUSINESS PHONE:		011 41 22 929 2929

	MAIL ADDRESS:	
		STREET 1:		39 CHEMIN DU CHAMP DES FILLES
		STREET 2:		1228 PLAN-LES-OUATES
		CITY:			GENEVA
		STATE:			V8
		ZIP:			00000

	FORMER COMPANY:	
		FORMER CONFORMED NAME:	SGS THOMSON MICROELECTRONICS NV
		DATE OF NAME CHANGE:	19950310
</SEC-HEADER>
<DOCUMENT>
<TYPE>6-K
<SEQUENCE>1
<FILENAME>stmicro.htm
<DESCRIPTION>ST MICROELECTRONICS FORM 6K
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STMICROELECTRONICS FORM 6-K
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<p align="center"><font size="2" face="Arial"><b>SECURITIES AND EXCHANGE COMMISSION<br></b>Washington, D.C. 20549</font></p>
<p align="center"><b><font face="Arial" size="5">FORM 6-K</font></b></p>
<p align="center"><font size="2" face="Arial"><b>REPORT OF FOREIGN PRIVATE ISSUER<br>PURSUANT TO RULE 13a-16 or 15d-16 OF<br>THE SECURITIES EXCHANGE ACT OF 1934</b></font></p>
<p align="center"><font size="2" face="Arial"><b>Report on Form 6-K dated August
  1, 2005</b></font></p>
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<p align="center"><font size="2" face="Arial"><b><font face="Arial" size="5">STMicroelectronics N.V.<br></font></b>(Name of Registrant)</font></p>
<p align="center"><font size="2" face="Arial">39, Chemin du Champ-des-Filles<br>1228 Plan-les-Ouates, Geneva, Switzerland<br>(Address of Principal Executive Offices)</font></p>
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<p align="justify"><font size="2" face="Arial">Indicate by check mark whether the registrant files or will file annual reports under cover of Form&nbsp;20-F or Form 40-F:</font></p>
<p align="center"><font size="2" face="Arial">Form 20-F <img src="tickedbox.gif" width="12" height="12">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Form
    40-F <img src="emptybox.gif" width="12" height="12"></font></p>
<p align="justify"><font size="2" face="Arial">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):</font></p>
<p align="center"><font size="2" face="Arial">Yes <img src="emptybox.gif" width="12" height="12">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;No
<img src="tickedbox.gif" width="12" height="12"></font></p>
<p align="justify"><font size="2" face="Arial">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:</font></p>
<p align="center"><font size="2" face="Arial">Yes <img src="emptybox.gif" width="12" height="12">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;No
    <img src="tickedbox.gif" width="12" height="12"></font></p>
<p align="justify"><font size="2" face="Arial">If &#8220;Yes&#8221; is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82- __________</font></p>
<p align="justify"><font size="2" face="Arial">&nbsp;Enclosure: STMicroelectronics N.V.&#8217;s Second Quarter and First Half 2005:</font></p>
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<font size="2" face="Arial">Operating and Financial Review and Prospects;</font></td>
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<font size="2" face="Arial">Unaudited Interim Consolidated Statements of Income, Balance Sheets, Statements of Cash Flow, and Statements of Changes in Shareholders&#8217; Equity and related Notes for the three months and six months ended July 2, 2005; and</font></td>
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<font size="2" face="Arial">Certifications pursuant to Sections 302 (Exhibits 12.1 and 12.2) and 906 (Exhibit 13.1) of the Sarbanes-Oxley Act of 2002, submitted to the Commission on a voluntary basis.</font></td>
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<p align="center">&nbsp;</p>
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<p align="center"><font size="2" face="Arial"><b>OPERATING AND FINANCIAL REVIEW AND PROSPECTS</b></font></p>
<p align="justify"><font size="2" face="Arial"><b>Overview</b></font></p>
<div style="text-indent:3%"><p align="justify"><font size="2" face="Arial"><i>The following discussion should be read in conjunction with our Unaudited Interim Consolidated Statements of Income, Balance Sheets, Statements of Cash Flow and Statements of Changes in Shareholders&#8217; Equity for the three months ended July 2, 2005 and Notes thereto included elsewhere in this Form 6-K. 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 &#8220;&#150;Critical Accounting Policies Using Significant Estimates&#8221;, &#8220;&#150;Business Outlook&#8221; and &#8220;Liquidity and
Capital Resources&#150;Financial Outlook&#8221;. 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 &#8220;Cautionary Note Regarding Forward-Looking Statements&#8221; and &#8220;Item 3. Key Information&#150;Risk Factors&#8221; included in our annual report on Form 20-F for the year ended December&nbsp;31, 2004 as filed with the U.S. Securities and Exchange Commission (the &#8220;Commission&#8221; or the &#8220;SEC&#8221;) on March&nbsp;23,&nbsp;2005 (the &#8220;Form 20-F&#8221;), as they may be updated in our SEC submissions from
time to time. We assume no obligation to update the forward-looking statements or such risk factors.</i></font></p></div>
<p align="justify"><font size="2" face="Arial"><b><i>Critical Accounting Policies Using Significant Estimates</i></b></font></p>
<div style="text-indent:3%"><p align="justify"><font size="2" face="Arial">The preparation of our Consolidated Financial Statements in accordance with accounting principles generally accepted in the United States of America (&#8220;U.S. GAAP&#8221;) requires us to make estimates and assumptions that have a significant impact on the results we report in our consolidated financial statements, which we discuss under the section &#8220;Results of Operations&#8221;. Some of our accounting policies require us to make difficult and subjective judgments that can affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of net revenue and expenses during the reporting period. The primary areas that require significant estimates and
judgments by management include, but are not limited to, sales returns and allowances; reserves for price protection to certain distributor customers; allowances for doubtful accounts; inventory reserves and normal manufacturing capacity thresholds to determine costs to be capitalized in inventory; accruals for warranty costs; litigation and claims; valuation of acquired intangibles; goodwill; investments and tangible assets as well as the impairment of their related carrying values; restructuring charges; other non-recurring special charges; assumptions used in calculating pension obligations and pro forma share-based compensation; assessment of hedge effectiveness of derivative instruments; deferred income tax assets, including required valuation allowances and liabilities; as well as
provisions for specifically identified income tax exposures. We base our estimates and assumptions on historical experience and on various other factors such as market trends and business plans that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. While we regularly evaluate our estimates and assumptions, our actual results may differ materially and adversely from our estimates. To the extent there are material differences between the actual results and these estimates, our future results of operations could be significantly affected.</font></p></div>
<div style="text-indent:3%"><p align="justify"><font size="2" face="Arial">We believe the following critical accounting policies require us to make significant judgments and estimates in the preparation of our consolidated financial statements:</font></p></div>
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    <td> <div align="justify"><font size="2" face="Arial"><b>Revenue recognition.</b>
        Our policy is to recognize revenues from sales of products to our customers
        when all of the following conditions have been met: (a) persuasive evidence
        of an arrangement exists; (b) delivery has occurred; (c) the selling price
        is fixed or determinable; and (d) collectibility is reasonably assured.
        This usually occurs at the time of shipment. We determine the amount of
        reported revenues based on certain judgments or estimates, and this amount
        of reported revenue may vary if we elect to make different judgments or
        estimates. </font></div></td>
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<td align="left"><div align="justify"><font size="2" face="Arial">Consistent with
        standard business practice in the semiconductor industry, price protection
        is granted to distribution customers on their existing inventory of our
        products to compensate them for declines in market prices. The ultimate
        decision to authorize a distributor refund remains fully within our control.
        We accrue a provision for price protection based on a rolling historical
        price trend computed on a monthly basis as a percentage of gross distributor
        sales. This historical price trend represents differences in recent months
        between the invoiced price and the final price to the distributor, adjusted
        if required, to accommodate a significant move in the current market price.
        The short outstanding inventory time period, visibility into the standard
        inventory product pricing (as opposed to certain customized products)
        and long distributor pricing history have enabled us to reliably estimate
        price protection provisions at period-end. We record the accrued amounts
        as a deduction of revenue at the time of the sale. If market conditions
        differ from our assumptions, this could have an impact on future periods;
        in particular, if market conditions were to deteriorate, net revenues
        could be reduced due to higher product returns and price reductions at
        the time these adjustments occur.</font></div></td>
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<p align="center"><font face="Arial" size="2">1</font></p>
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<td align="left"><div align="justify"><font size="2" face="Arial">Our customers
        occasionally return our products for technical reasons. Our standard terms
        and conditions of sale provide that if we determine that products are
        non-conforming, we will repair or replace the non-conforming products,
        or issue a credit or rebate of the purchase price. Quality returns are
        not related to any technological obsolescence issues and are identified
        shortly after sale in customer quality control testing. Quality returns
        are always associated with end-user customers, not with distribution channels.
        We provide for such returns when they are considered as probable and can
        be reasonably estimated. We record the accrued amounts as a reduction
        of revenue.</font></div></td>
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<td align="left"><font size="2" face="Arial">We do not have insurance against product claims and we record a provision for warranty costs as a charge against cost of sales based on historical trends of warranty costs incurred as a percentage of sales which we have determined to be a reasonable estimate of the probable losses to be incurred for warranty claims in a period. Any potential warranty claims are subject to our determination that we are at fault and liable for damages, and such claims usually must be submitted within a short period following the date of sale. This warranty is given in lieu of all other warranties, conditions or terms expressed or implied by statute or common law. We limit our liability to the price allocable to the products which gives rise to the
claims.</font></td>
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<td align="left"><div align="justify"><font size="2" face="Arial">We maintain
        an allowance for doubtful accounts for potential estimated losses resulting
        from our customers&#8217; inability to make required payments. We base
        our estimates on historical collection trends. In the first half of 2005,
        we recorded a provision of 1% of total receivables. In addition, we are
        required to evaluate our customers&#8217; credit ratings from time to
        time and take an additional provision for any specific account that we
        estimate as doubtful. Although we have determined that our most significant
        customers are creditworthy, if the financial condition of our customers
        were to deteriorate, resulting in an impairment of their ability to make
        payments, additional allowances could be required. </font></div></td>
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    <td> <div align="justify"><font size="2" face="Arial"><b>Goodwill</b> <b>and purchased
        intangible assets</b>. The purchase method of accounting for acquisitions
        requires extensive use of estimates and judgments to allocate the purchase
        price to the fair value of the net tangible and intangible assets acquired,
        including in-process research and development, which is expensed immediately.
        Goodwill and intangible assets deemed to have indefinite lives are not
        amortized but are instead subject to annual impairment tests. The amounts
        and useful lives assigned to other intangible assets impact future amortization.
        If the assumptions and estimates used to allocate the purchase price are
        not correct or if business conditions change, purchase price adjustments
        or future asset impairment charges could be required. As of July 2, 2005,
        the value of goodwill amounted to $223 million.</font></div></td>
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    <td> <div align="justify"><font size="2" face="Arial"><b>Impairment</b> <b>of
        goodwill</b>. Goodwill acquired in business combinations is not amortized
        and is instead subject to an impairment test performed on an annual basis,
        or more frequently if indicators of impairment exist, in order to assess
        the recoverability of its carrying value. Goodwill subject to potential
        impairment is tested at a level of reporting referred to as a reporting
        unit. We define our reporting units one level below the three semiconductor
        product groups under the caption &#8220;<i>Business Overview</i>&#8221;
        below. This impairment test determines whether the fair value of each
        reporting unit for which goodwill is allocated is lower than the total
        carrying amount of relevant net assets allocated to such reporting unit,
        including its allocated goodwill. If lower, the implied fair value of
        the reporting unit goodwill is then compared to the carrying value of
        the goodwill, and an impairment charge is recognized for any excess. In
        determining the fair value of a reporting unit, we usually estimate the
        expected discounted future cash flows associated with the reporting unit.
        Significant management judgments and estimates are used in forecasting
        the future discounted cash flows including: the applicable industry&#8217;s
        sales volume forecast and selling price evolution, the reporting unit&#8217;s
        market penetration, the market acceptance of certain new technologies
        and relevant cost structure. Our evaluations are based on financial plans
        updated with the latest available projections of the semiconductor market
        evolution, our sales expectations and our costs evaluation and are consistent
        with the plans and estimates that we use to manage our business. It is
        possible, however, that the plans and estimates used may be incorrect,
        and future adverse changes in market conditions or operating results of
        acquired businesses not in line with our estimates may require impairment
        of certain goodwill. In the first half of 2005, we recorded an impairment
        of goodwill of $39 million.</font></div></td>
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    <td> <div align="justify"><font size="2" face="Arial"><b>Intangible assets subject
        to amortization.</b> Intangible assets subject to amortization include
        the cost of technologies and licenses purchased from third parties, internally
        developed software which is capitalized and purchased software. Intangible
        assets subject to amortization are reflected net of any impairment losses.
        These are amortized over a period ranging from three to seven years. The
        carrying value of intangible assets subject to amortization is evaluated
        whenever changes in circumstances indicate that the carrying amount may
        not be recoverable. In determining recoverability, we initially assess
        whether the carrying value exceeds the undiscounted cash flows associated
        with the intangible assets. If exceeded, we then evaluate whether an impairment
        charge is required by determining if the asset&#8217;s carrying value
        also exceeds its fair value. An impairment loss is recognized for the
        excess of the carrying amount over the fair value. We normally estimate
        the fair value based on the projected discounted future cash flows associated
        with the intangible assets. Significant management judgments and estimates
        are required and used in the forecasts of future operating results that
        are used in the discounted cash flow method of valuation, including: the
        applicable industry&#8217;s sales volume forecast and selling price evolution,
        our market penetration, the market acceptance of certain</font></div></td>
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<p align="center"><font face="Arial" size="2">2</font></p>
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    <td> <div align="justify"><font size="2" face="Arial">new technologies and
        costs evaluation. Our evaluations are based on financial plans updated
        with the latest available projections of the semiconductor market evolution
        and our sales expectations and are consistent with the plans and estimates
        that we use to manage our business. It is possible, however, that such
        plans and estimates may be incorrect and that future adverse changes in
        market conditions or operating results of businesses acquired may not
        be in line with our estimates and may therefore require impairment of
        certain intangible assets. As of July 2, 2005, we have registered an impairment
        charge of $24 million, and the value of intangible assets subject to amortization
        amounted to $240 million.</font></div></td>
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    <td> <div align="justify"><font size="2" face="Arial"><b>Property, plant and equipment</b>.
        Our business requires substantial investments in technologically advanced
        manufacturing facilities, which may become significantly underutilized
        or obsolete as a result of rapid changes in demand and ongoing technological
        evolution. We estimate the useful life of our manufacturing equipment,
        which is the largest component of our long-lived assets, to be six years.
        This estimate is based on our experience with using equipment over time.
        Depreciation expense is a major element of our manufacturing cost structure.
        We begin to depreciate new equipment when it is put into use.</font></div></td>
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<td align="left"><div align="justify"><font size="2" face="Arial">We evaluate
        each period whether there is reason to suspect that tangible assets or
        groups of assets might not be recoverable. Several impairment indicators
        exist for making this assessment, such as: significant changes in the
        technological, market, economic or legal environment in which we operate
        or in the market to which the asset is dedicated; available evidence of
        obsolescence of the asset; strategic management decisions impacting production
        or an indication that its economic performance is, or will be, worse than
        expected. In determining the recoverability of assets to be held and used,
        we initially assess whether the carrying value exceeds the undiscounted
        cash flows associated with the tangible assets or group of assets. If
        exceeded, we then evaluate whether an impairment charge is required by
        determining if the asset&#8217;s carrying value also exceeds its fair
        value. We normally estimate this fair value based on independent market
        appraisals or the sum of discounted future cash flows, using market assumptions
        such as the utilization of our fabrication facilities and the ability
        to upgrade such facilities, change in the selling price and the adoption
        of new technologies. We also evaluate the continued validity of an asset&#8217;s
        useful life when impairment indicators are identified. Assets classified
        as held for disposal are reflected at the lower of their carrying amount
        or fair value less selling costs and are not depreciated during the selling
        period. Selling costs include incremental direct costs to transact the
        sale that we would not have incurred except for the decision to sell.</font></div></td>
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<td align="left"><div align="justify"><font size="2" face="Arial">Our evaluations
        are based on financial plans updated with the latest projections of the
        semiconductor market and of our sales expectations, from which we derive
        the future production needs and loading of our manufacturing facilities,
        and which are consistent with the plans and estimates that we use to manage
        our business. These plans are highly variable due to the high volatility
        of the semiconductor business and therefore are subject to continuous
        modifications. If the future evolution differs from the basis of our plans,
        both in terms of market evolution and production allocation to our manufacturing
        plants, this could require a further review of the carrying amount of
        our tangible assets resulting in a potential impairment loss. Factors
        we consider important which could trigger an impairment review include:
        significant negative industry trends, significant underutilization of
        the assets, and significant changes in how we use the assets in our plants.
        Since a significant portion of our tangible assets is carried by our European
        affiliates and their cost of operations are mainly denominated in euros
        while revenues primarily are denominated in U.S. dollars, the exchange
        rate dynamic may trigger impairment charges.</font></div></td>
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    <td> <div align="justify"><font size="2" face="Arial"><b>Inventory</b>. Inventory
        is stated at the lower of cost or net realizable value. Cost is computed
        by adjusting standard cost to approximate actual manufacturing costs on
        a quarterly basis; the cost is therefore dependent on our manufacturing
        performance. In the case of underutilization of our manufacturing facilities,
        we estimate the costs associated with the excess capacity; these costs
        are not included in the valuation of inventories but charged directly
        to cost of sales.</font></div></td>
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</tr>
</table>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
<tr valign="top">
<td width="3%"><font size="2" face="Arial">&nbsp;</font></td>
<td align="left"><div align="justify"><font size="2" face="Arial">The valuation
        of inventory requires us to estimate obsolete or excess inventory as well
        as inventory that is not of saleable quality. Provisions for obsolescence
        are estimated for excess uncommitted inventories based on the previous
        quarter sales, order backlog and production plans. To the extent that
        future negative market conditions generate order backlog cancellations
        and declining sales, or if future conditions are less favorable than the
        projected revenue assumptions, we could be required to record additional
        inventory provisions, which would have a negative impact on our gross
        margin.</font></div></td>
</tr>
<tr valign="top">
  <td>&nbsp;</td>
  <td align="left">&nbsp;</td>
</tr>
</table>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
<tr valign="top">
<td width="3%">
<font size="2" face="Arial">&#149;</font></td>
    <td> <div align="justify"><font size="2" face="Arial"><b>Restructuring charges.</b>
        We have undertaken, and we may continue to undertake, significant restructuring
        initiatives, which have required us, or may require us in the future,
        to develop formalized plans for our exiting activities or to dispose of
        our activities. We recognize the fair value of a liability for costs associated
        with an exit or disposal activity when a probable liability exists and
        it can be reasonably estimated. We record estimated charges for non-voluntary
        termination benefit arrangements such as severance and outplacement costs
        meeting the criteria for a liability as described above. Given the significance
        of and the timing of the execution of such activities, the process is
        complex and involves periodic reviews of estimates made at the time the
        original decisions were taken. As we operate in a highly cyclical industry,
        we continue to evaluate business conditions. If broader or new initiatives,
        which could include production curtailment or closure of </font></div></td>
</tr>
</table>
<p align="center"><font face="Arial" size="2">3</font></p>
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<div style="page-break-before:always"></div>
<page>
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  <tr valign="top">
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr valign="top">
    <td width="3%">&nbsp; </td>
    <td> <div align="justify"><font size="2" face="Arial">other manufacturing
        facilities, were to be taken, we may be required to incur additional charges
        as well as to change estimates of amounts previously recorded. The potential
        impact of these charges could be material and have a material adverse
        effect on our results of operations or financial condition. In the second
        quarter of 2005 and in the first half of 2005, the amount of restructuring
        charges and other related closure costs amounted to $22 million and $37
        million before taxes, respectively. </font></div></td>
  </tr>
  <tr valign="top">
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
</table>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
<tr valign="top">
<td width="3%">
<font size="2" face="Arial">&#149;</font></td>
    <td> <div align="justify"><font size="2" face="Arial"><b>Income</b> <b>taxes</b>.
        We are required to make estimates and judgments in determining income
        tax expense for financial statement purposes. These estimates and judgments
        also occur in the calculation of certain tax assets and liabilities and
        provisions.</font></div></td>
</tr>
<tr valign="top">
  <td>&nbsp;</td>
  <td>&nbsp;</td>
</tr>
</table>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
<tr valign="top">
<td width="3%"><font size="2" face="Arial">&nbsp;</font></td>
<td align="left"><div align="justify"><font size="2" face="Arial">We are required
        to assess the likelihood of recovery of our deferred tax assets. If recovery
        is not likely, we are required to record a valuation allowance against
        the deferred tax assets that we estimate will not ultimately be recoverable,
        which would increase our provision for income taxes. As of July 2, 2005,
        we believed that all of the deferred tax assets, net of valuation allowances,
        as recorded on our balance sheet, would ultimately be recovered. However,
        should there be a change in our ability to recover our deferred tax assets
        or in our estimates of the valuation allowance, or in the tax rates applicable
        in the various jurisdictions, this could have an impact on our future
        tax provision in the periods in which these changes could occur. </font></div></td>
</tr>
<tr valign="top">
  <td>&nbsp;</td>
  <td align="left">&nbsp;</td>
</tr>
</table>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
<tr valign="top">
<td width="3%"><font size="2" face="Arial">&nbsp;</font></td>
<td align="left"><div align="justify"><font size="2" face="Arial">In addition,
        the calculation of our tax liabilities involves dealing with uncertainties
        in the application of complex tax regulations. We recognize liabilities
        for anticipated tax audit issues based on our estimate that probable additional
        taxes will be due. We reverse the liability and recognize a tax benefit
        during the period if we ultimately determine that the liability is no
        longer necessary. We record an additional charge in our provision for
        taxes in the period in which we determine that the recorded tax liability
        is less than what we expect the ultimate assessment to be. </font></div></td>
</tr>
<tr valign="top">
  <td>&nbsp;</td>
  <td align="left">&nbsp;</td>
</tr>
</table>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
<tr valign="top">
<td width="3%">
<font size="2" face="Arial">&#149;</font></td>
    <td> <div align="justify"><font size="2" face="Arial"><b>Patent and other intellectual
        property litigation or claims</b>. As is the case with many companies
        in the semiconductor industry, we have from time to time received, and
        may in the future receive, communications alleging possible infringement
        of patents and other intellectual property rights of others. Furthermore,
        we may become involved in costly litigation brought against us regarding
        patents, mask works, copyrights, trademarks or trade secrets. In the event
        that the outcome of any litigation would be unfavorable to us, we may
        be required to take a license to the underlying intellectual property
        right under economically unfavorable terms and conditions, possibly pay
        damages for prior use, and/or face an injunction, all of which singly
        or in the aggregate could have a material adverse effect on our results
        of operations and ability to compete. We constantly monitor, with the
        support of our outside attorneys when deemed necessary or advisable, the
        chances of any such intellectual property claims being successfully asserted.
        We record a provision when we estimate that the claim could successfully
        be asserted in a court of law, when the resulting loss is considered probable
        and in the absence of a valid offset or counterclaim. See &#8220;Item
        3. <i>Key Information&#150;Risk Factors</i>&#150;We depend on patents
        to protect our rights to our technology&#8221; included in our Form 20-F,
        as may be updated from time to time in our public filings.</font></div></td>
</tr>
<tr valign="top">
  <td>&nbsp;</td>
  <td>&nbsp;</td>
</tr>
</table>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
<tr valign="top">
<td width="3%"><font size="2" face="Arial">&nbsp;</font></td>
<td align="left"><font size="2" face="Arial">ST is currently a party to legal proceedings with SanDisk Corporation (&#8220;SanDisk&#8221;). </font></td>
</tr>
<tr valign="top">
  <td>&nbsp;</td>
  <td align="left">&nbsp;</td>
</tr>
</table>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
<tr valign="top">
<td width="3%"><font size="2" face="Arial">&nbsp;</font></td>
<td align="left"><div align="justify"><font size="2" face="Arial">On October 15,
        2004, SanDisk filed a complaint against us in the United States International
        Trade Commission (the &#8220;ITC&#8221;) with respect to certain NAND
        memory products, alleging patent infringement and seeking an order excluding
        our NAND products from importation into the United States. On November
        15, 2004, the ITC instituted an investigation against us in response to
        the complaint. The trial is set for August 1<sup>st</sup> to August 5<sup>th</sup>
        2005 in Washington D.C. </font></div></td>
</tr>
<tr valign="top">
  <td>&nbsp;</td>
  <td align="left">&nbsp;</td>
</tr>
</table>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
<tr valign="top">
<td width="3%"><font size="2" face="Arial">&nbsp;</font></td>
<td align="left"><div align="justify"><font size="2" face="Arial">On October 15,
        2004, SanDisk also filed a complaint for patent infringement, and declaratory
        judgment of non-infringement and patent invalidity against us in the United
        States District Court for the Northern District of California. The complaint
        alleges that our products infringe a SanDisk U.S. patent and seeks a declaratory
        judgment that SanDisk does not infringe several of our U.S. patents. By
        order dated January 4, 2005, the court stayed SanDisk&#8217;s patent infringement
        claim pending an outcome in the ITC action discussed above. On January
        20, 2005, the court issued an order granting our motion to dismiss the
        declaratory judgment causes of action. SanDisk has appealed the order
        to the United States Court of Appeals for the Federal Circuit. </font></div></td>
</tr>
<tr valign="top">
  <td>&nbsp;</td>
  <td align="left">&nbsp;</td>
</tr>
</table>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
<tr valign="top">
<td width="3%"><font size="2" face="Arial">&nbsp;</font></td>
<td align="left"><div align="justify"><font size="2" face="Arial">On February
        4, 2005, we filed two complaints for patent infringement against SanDisk
        in the United States District Court for the Eastern District of Texas.
        The complaints allege that SanDisk products infringe seven of our U.S.
        patents. On March 28, 2005, SanDisk filed motions to dismiss, transfer,
        or sever and stay the cases. On April 22, 2005, SanDisk filed a counterclaim
        against us alleging that our products practice two SanDisk patents. On
        April 25 and 27, 2005, the court issued orders denying the motions to
        dismiss, transfer, or sever and stay the cases. </font></div></td>
</tr>
<tr valign="top">
  <td>&nbsp;</td>
  <td align="left">&nbsp;</td>
</tr>
</table>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
<tr valign="top">
<td width="3%"><font size="2" face="Arial">&nbsp;</font></td>
<td align="left"><div align="justify"><font size="2" face="Arial">On March 28,
        2005, SanDisk filed a complaint for declaratory judgment of non-infringement
        and patent invalidity against us in the United States District Court for
        the Northern District of California. The complaint seeks a declaratory
        judgment that SanDisk does not infringe several of our U.S. patents. On
        April 11, 2005, SanDisk voluntarily dismissed the case. </font></div></td>
</tr>
</table>
<p align="center"><font face="Arial" size="2">4</font></p>
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<div style="page-break-before:always"></div>
<page>
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<tr valign="top">
  <td>&nbsp;</td>
  <td align="left">&nbsp;</td>
</tr>
<tr valign="top">
<td width="3%"><font size="2" face="Arial">&nbsp;</font></td>
<td align="left"><font size="2" face="Arial">Based on our current assessment, made with support of our outside attorneys, we do not believe that the SanDisk litigation will have a material adverse effect on our financial position, cash flow, or results of operations. However, if we are unsuccessful in resolving these proceedings, or if the outcome of any other litigation or claim would be unfavorable to us, we may incur money damages, or an injunction or exclusion order.</font></td>
</tr>
<tr valign="top">
  <td>&nbsp;</td>
  <td align="left">&nbsp;</td>
</tr>
</table>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
<tr valign="top">
<td width="3%">
<font size="2" face="Arial">&#149;</font></td>
    <td> <div align="justify"><font size="2" face="Arial"><b>Other</b> <b>claims</b>.
        We are subject to the possibility of loss contingencies arising in the
        ordinary course of business. These include, but are not limited to: warranty
        costs on our products not covered by insurance, breach of contract claims,
        tax claims and provisions for specifically identified income tax exposures
        as well as claims for environmental damages. In determining loss contingencies,
        we consider the likelihood of a loss of an asset or the incurrence of
        a liability, as well as our ability to reasonably estimate the amount
        of such loss or liability. An estimated loss is recorded when it is probable
        that a liability has been incurred and the amount of the loss can be reasonably
        estimated. We regularly re-evaluate any losses and claims and determine
        whether they need to be readjusted based on the current information available
        to us. In the event of litigation that is adversely determined with respect
        to our interests or in the event we need to change our evaluation of a
        potential third-party claim based on new evidence or communications, this
        could have a material adverse effect on our results of operations or financial
        condition at the time it were to materialize.</font></div></td>
</tr>
</table>
<p align="justify"><font size="2" face="Arial"><b><i>Fiscal Year</i></b></font></p>
<div style="text-indent:3%"><p align="justify"><font size="2" face="Arial">Our fiscal year starts on January 1, and the first quarter of 2005 lasted until April 2, 2005. The second quarter of 2005 ended on July 2, 2005, and the third quarter of 2005 will end on October 1, 2005. The fourth quarter of 2005 will end on December&nbsp;31, 2005. </font></p></div>
<p align="justify"><font size="2" face="Arial"><b><i>Business Overview </i></b></font></p>
<div style="text-indent:3%"><p align="justify"><font size="2" face="Arial">The total available market is defined as the &#8220;TAM&#8221;, while the serviceable available market, the &#8220;SAM&#8221;, is defined as the market for products produced by us (which consists of the TAM and excludes PC motherboard major devices such as microprocessors (&#8220;MPU&#8221;), dynamic random access memories (&#8220;DRAMs&#8221;), and optoelectronics devices).  </font></p></div>
<div style="text-indent:3%"><p align="justify"><font size="2" face="Arial">Effective January 1, 2005, we realigned our product groups to increase market focus and realize the full potential of our products, technologies, sales and marketing channels. Beginning with the first quarter of 2005, we now report our sales and operating income in three segments:</font></p></div>
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<tr valign="top">
<td width="3%">
<font size="2" face="Arial">&#149;</font></td>
<td>
<font size="2" face="Arial">the Application Specific Product Groups (&#8220;ASG&#8221;) segment, comprised of three product groups &#150; our Home, Personal and Communication Sector (&#8220;HPC&#8221;), our Computer Peripherals Group (&#8220;CPG&#8221;) and our Automotive Product Group (&#8220;APG&#8221;).  Our new HPC Sector is comprised of the telecommunications, audio and digital consumer groups. Our CPG Group covers computer peripherals products, specifically disk drives and printers, and our APG Group now comprises all of our major complex products related to automotive applications;</font></td>
</tr>
<tr valign="top">
  <td>&nbsp;</td>
  <td>&nbsp;</td>
</tr>
</table>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
<tr valign="top">
<td width="3%">
<font size="2" face="Arial">&#149;</font></td>
<td>
<font size="2" face="Arial">the Memory Product Group (&#8220;MPG&#8221;) segment, comprised of our memories and Smart card businesses; and</font></td>
</tr>
<tr valign="top">
  <td>&nbsp;</td>
  <td>&nbsp;</td>
</tr>
</table>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
<tr valign="top">
<td width="3%">
<font size="2" face="Arial">&#149;</font></td>
<td>
<font size="2" face="Arial">the Micro, Linear and Discrete Group (&#8220;MLD&#8221;) segment, comprised of discrete and standard products plus standard microcontroller and industrial devices (including the programmable systems memories (&#8220;PSM&#8221;) division).</font></td>
</tr>
</table>
<div style="text-indent:3%">
  <p align="justify"><font size="2" face="Arial">Based upon most recently published
    estimates, in the first half of 2005, semiconductor industry revenues increased
    by approximately 7% for the TAM and approximately 5% for the SAM compared
    to the first half of 2004. In the second quarter of 2005, semiconductor industry
    revenue increased year-over-year by approximately 1% for the TAM and remained
    flat for the SAM. On a sequential basis, in the second quarter of 2005, the
    TAM and the SAM registered decreases of approximately 2% and 1%, respectively.</font></p>
</div>
<div style="text-indent:3%">
  <p align="justify"><font size="2" face="Arial">Our first half 2005 revenues
    were characterized by a significant sales volume increase and more favorable
    product mix, which did not translate in an equivalent revenue performance
    due to the persisting negative impact of pricing pressure. As a result, our
    revenues increased by approximately 1% to $4,245 million in the first half
    of 2005 from $4,201 million in the first half of 2004. Our year-over-year
    sales growth was driven primarily by wireless, automotive and computer peripherals
    applications, while consumer and industrial both declined. We have also registered
    an increase in order booking flows, since in the first half of 2005, our order
    booking flows (including frame orders, which are made pursuant to annual frame
    contracts with customers setting forth quantities and prices on specific products
    over the period), increased by approximately 12% compared to the same period
    in 2004. Our sales trend, however, was below the TAM and SAM growth rate of
    7% and 5% respectively, in the first half of 2005.</font></p>
</div>
<p align="center"><font face="Arial" size="2">5</font></p>
<hr noshade align="center" width="100%" size="2">
<div style="page-break-before:always"></div>
<page>
<div style="text-indent:3%">
  <p align="justify"><font size="2" face="Arial">On a year-over-year basis, our
    second quarter 2005 net revenues slightly decreased to $2,162 million. Several
    applications experienced double-digit year-over-year sales growth, including
    Wireless and Automotive with Data Storage enjoying strong double digit growth
    compared to the second quarter of 2004. These year-over-year increases were
    offset by sales declines in consumer applications and the distribution market.
    Our revenue performance in the second quarter of 2005 was below the TAM and
    the SAM performance of approximately 1% and 0%, respectively.</font></p>
</div>
<div style="text-indent:3%">
  <p align="justify"><font size="2" face="Arial">On a sequential basis, in the
    second quarter of 2005, we achieved a 3.8% increase in net revenues mainly
    generated by sales volume, which more than offset declines in average selling
    prices. Wireless and automotive applications were the primary drivers of this
    improvement. Our second quarter sales increase confirmed the improvement in
    certain key markets led by Wireless, which increased by 12% sequentially.
    Additionally, we saw increased design wins across several targeted markets,
    including automotive and computer peripherals, as well as digital consumer,
    where we are targeting to increase our product penetration. Our net revenues
    performance was firmly within the previously provided guidance, which indicated
    a sequential variation between -1% and plus 7% compared to sales in the first
    quarter of 2005. Our sales trend in the second quarter of 2005 was above the
    TAM and SAM, which registered decreases of approximately 2% and 1%, respectively.</font></p>
</div>
<div style="text-indent:3%"><p align="justify"><font size="2" face="Arial">Due to the negative impact of the declining sales prices and of the weaker U.S. dollar, our gross margin dropped to 32.9% in the first half of 2005 from 36.4% in the comparable period of 2004.  Increased sales volume and manufacturing improvements in the current year were unable to offset the declining sales prices and the negative impact of the weaker U.S. dollar.  A similar trend occurred in the year-over-year basis as our gross margin in the second quarter of 2005 dropped to 33.0% compared to 37.4% in the second quarter of 2004.</font></p></div>
<div style="text-indent:3%"><p align="justify"><font size="2" face="Arial">On a sequential basis, our gross margin increased slightly from 32.9% in the first quarter of 2005 to 33.0% in the second quarter of 2005.  This was the result of improved manufacturing efficiencies that were partially offset by the negative pricing pressure.  Our second quarter result was within the guidance that indicated a gross margin of approximately 33.5% plus or minus 1 percentage point.  The capacity utilization rates of our fabs were increasing in line with the higher volume of sales and higher booking levels. While our gross margin progression was limited by pricing pressure, we were encouraged by the underlying improvement during the second quarter.  With our initiatives currently well underway, we expect
to see sequential improvement in gross margin continuing and accelerating through the second half of 2005.</font></p></div>
<div style="text-indent:3%"><p align="justify"><font size="2" face="Arial">Our total impairment, restructuring charges and other closure costs were significantly higher in the first half of 2005 compared to the first half of 2004.  This increase relates to our restructuring and reorganization plans announced in May 2005 and in the first quarter of 2005.  Our operating expenses including selling, general and administrative expenses and research and development were also higher in the first half of 2005 compared to the first half of 2004 due to the significant resources invested during 2004 in research and development and in marketing activities and to the impact of the weaker U.S. dollar. </font></p></div>
<div style="text-indent:3%"><p align="justify"><font size="2" face="Arial">The combined impact of these and other factors resulted in an operating loss of $55 million in the first half of 2005, compared to an operating income of $259 million in the first half of 2004.  In the second quarter of 2005, we registered an operating income of $12 million compared to $179 million in the second quarter of 2004.</font></p></div>
<div style="text-indent:3%"><p align="justify"><font size="2" face="Arial">In the first half of 2005, we realized interest income compared to an expense in the prior year.  This was a combined result of rising interest rates on our available cash and the repurchase of our convertible notes in 2004.  In the first half of 2005, our income taxes resulted in a net benefit of $8 million.</font></p></div>
<div style="text-indent:3%"><p align="justify"><font size="2" face="Arial">In summary, our first half 2005 financial results, compared to first half 2004, were negatively impacted by the following factors:</font></p></div>
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<tr valign="top">
<td width="3%">
<font size="2" face="Arial">&#149;</font></td>
    <td> <div align="justify"><font size="2" face="Arial">negative pricing trends
        due to a persisting overcapacity in the industry, which translated into
        our average selling prices declining as a pure pricing effect by approximately
        6%;</font></div></td>
</tr>
<tr valign="top">
  <td>&nbsp;</td>
  <td>&nbsp;</td>
</tr>
</table>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
<tr valign="top">
<td width="3%">
<font size="2" face="Arial">&#149;</font></td>
    <td> <div align="justify"><font size="2" face="Arial">the impact of the weaker
        U.S. dollar exchange rate against the euro and other currencies, which
        translated into an increase in our cost of sales and in our operating
        expenses significantly higher than the favorable impact on our revenues;
        </font></div></td>
</tr>
<tr valign="top">
  <td>&nbsp;</td>
  <td>&nbsp;</td>
</tr>
</table>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
<tr valign="top">
<td width="3%">
<font size="2" face="Arial">&#149;</font></td>
    <td> <div align="justify"><font size="2" face="Arial">higher impairment, restructuring
        charges and other related closure costs of $100 million in the first half
        of 2005 compared to $45 million in the first half of 2004 due to the newly
        announced restructuring and reorganization activities; and</font></div></td>
</tr>
</table>
<p align="center"><font face="Arial" size="2">6</font></p>
<hr noshade align="center" width="100%" size="2">
<div style="page-break-before:always"></div>
<page>
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<tr valign="top">
  <td>&nbsp;</td>
  <td>&nbsp;</td>
</tr>
<tr valign="top">
<td width="3%">
<font size="2" face="Arial">&#149;</font></td>
    <td> <div align="justify"><font size="2" face="Arial">as previously announced
        and recorded in the first quarter of 2005, one-time compensation packages
        and special bonuses to our CEO and to a limited number of retired senior
        executives and related charges for a total amount of $24 million.</font></div></td>
</tr>
</table>
<div style="text-indent:3%"><p align="justify"><font size="2" face="Arial">Our first half 2005 financial results were favorably impacted compared to first half of 2004 by the following factors:</font></p></div>
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<tr valign="top">
<td width="3%">
<font size="2" face="Arial">&#149;</font></td>
<td>
<font size="2" face="Arial">higher sales volume and favorable product mix in our revenues;</font></td>
</tr>
<tr valign="top">
  <td>&nbsp;</td>
  <td>&nbsp;</td>
</tr>
</table>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
<tr valign="top">
<td width="3%">
<font size="2" face="Arial">&#149;</font></td>
<td>
<font size="2" face="Arial">continuous improvements of our manufacturing performance;</font></td>
</tr>
<tr valign="top">
  <td>&nbsp;</td>
  <td>&nbsp;</td>
</tr>
</table>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
<tr valign="top">
<td width="3%">
<font size="2" face="Arial">&#149;</font></td>
<td>
<font size="2" face="Arial">net interest income, and</font></td>
</tr>
<tr valign="top">
  <td>&nbsp;</td>
  <td>&nbsp;</td>
</tr>
</table>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
<tr valign="top">
<td width="3%">
<font size="2" face="Arial">&#149;</font></td>
<td>
<font size="2" face="Arial">a net income tax benefit.</font></td>
</tr>
</table>
<div style="text-indent:3%"><p align="justify"><font size="2" face="Arial">In summary, we made good progress in executing on our strategic initiatives during the second quarter of 2005.  On the product front, we completed the redeployment of approximately 1,000 Research and Development engineers to higher priority product programs.  Additionally, we are on track to realize the significant benefits from all of our cost reduction plans, including our most recently announced initiative in May 2005.  Moreover, we have concrete signs of the expansion of our key customer base, thanks to new design wins at several accounts.</font></p></div>
<div style="text-indent:3%">
  <p align="justify"><font size="2" face="Arial">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 &#8220;Cautionary Note on Forward-Looking Statements&#8221;
    herein and &#8220;<em>Item 3. Key</em><i> Information&#150;Risk Factors</i>&#8221;
    in our Form 20-F as may be updated from time to time in our SEC filings.</font></p>
</div>
<p align="justify"><font size="2" face="Arial"><b><i>Business Outlook </i></b></font></p>
<div style="text-indent:3%"><p align="justify"><font size="2" face="Arial">Looking to the second half of the year, within an environment of moderate industry growth, we believe we have the opportunity to expand sales in several key markets.  We are aiming that this environment, coupled with our ongoing initiatives, may allow for improved financial performance for the remainder of 2005 and into 2006.</font></p></div>
<div style="text-indent:3%"><p align="justify"><font size="2" face="Arial">With respect to the third quarter, based upon our present order visibility, we aim to sequentially grow our sales in a range between zero and 6% and to register a gross margin of approximately 34%, plus or minus one percentage point.  </font></p></div>
<div style="text-indent:3%"><p align="justify"><font size="2" face="Arial">This guidance is based on an effective currency exchange rate for us of approximately $1.28 = 1 Euro, which reflects current exchange rate levels of approximately $1.21 = 1 Euro, combined with the impact of existing hedging contracts.  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 <i>&#8220;Cautionary Note on Forward-Looking Statements&#8221;</i> herein and &#8220;<i>Item 3. Key Information&#150;Risk Factors</i>&#8221; in our Form 20-F as it may be updated from time to time in our SEC filings<b>.</b></font></p></div>
<p align="justify"><font size="2" face="Arial"><b><i>Other Developments</i></b></font></p>
<div style="text-indent:3%"><p align="justify"><font size="2" face="Arial">In January 2005, we decided to reduce our Access technology products for CPE modem products. This decision was intended to eliminate certain low-volume, non-strategic product families whose return in the current environment did not meet internal targets. This decision resulted in a total impairment charge of approximately $63 million in the first half of 2005, out of which $61 million related to impairment of intangible assets and goodwill related to the CPE product lines.</font></p></div>
<div style="text-indent:3%"><p align="justify"><font size="2" face="Arial">On February 28, 2005, we signed an advanced pricing agreement for the period 2001 through 2007 with the United States Internal Revenue Service resulting in a net one-time tax benefit of approximately $10 million in the first half of 2005.  In the second quarter of 2005, we benefited from a tax credit of $18 million in relation to the application of the ETI (Extraterritorial Income Exclusion) rules in the United States after notification in writing by the local authorities.</font></p></div>
<div style="text-indent:3%">
  <p align="justify"><font size="2" face="Arial">At our annual general meeting
    of shareholders held on March 18, 2005 (the &quot;2005 AGM&quot;), our shareholders
    approved the distribution of a cash dividend of $0.12 per common share in
    respect to the 2004 financial year, equivalent to the prior year&#8217;s cash
    dividend payment, for a total of approximately $107 million that was paid
    in the second quarter of 2005. In addition, the shareholders approved the
    appointment of our Supervisory Board and Managing Board members, amendments
    to our articles of association and to our 2001 Employee Stock Option Plan,
    as well as a new 2005 Supervisory Board member and professional stock-based
    compensation plan, among other resolutions. Our Supervisory Board is composed
    of Messrs. G&eacute;rald Arbola, Matteo del Fante, Tom de Waard, Didier Lombard,
    Bruno Steve and Antonino Turicchi, who were each appointed for a three-year
    term, as well as Messrs. Doug Dunn, Francis Gavois and Robert White, who were
    each appointed for a one-year term. Our Managing Board is composed of Mr.
    Carlo Bozotti, our President and Chief Executive Officer.</font></p>
</div>
<p align="center"><font face="Arial" size="2">7</font></p>
<hr noshade align="center" width="100%" size="2">
<div style="page-break-before:always"></div>
<page>
<div style="text-indent:3%">
  <div style="text-indent:3%"><p align="justify"><font size="2" face="Arial">After our annual general meeting
    of shareholders, the Supervisory Board met and appointed Mr. G&eacute;rald
    Arbola as Chairman of the Supervisory Board and Mr. Bruno Steve as Vice Chairman,
    each for a three-year term. In addition, the Supervisory Board appointed Mr.
    G&eacute;rald Arbola as Chairman of the Strategic Committee, Mr. Bruno Steve
    as Vice Chairman, and Messrs. Turicchi, Lombard and White as members.</font></p></DIV>
<div style="text-indent:3%"> <p align="justify"><font size="2" face="Arial">In line with our 2005 AGM shareholders' resolutions, we are
    transitioning our stock-based compensation plans from stock-option grants
    to non-vested stock awards. Pursuant to shareholders' resolutions adopted
    by the 2005 AGM, our Supervisory Board, upon the proposal of the Managing
    Board and recommendation of the Compensation Committee, took the following
    actions:</font></p></DIV>

<table width="100%" cellspacing="0" cellpadding="0" border="0">
  <tr valign="top">
    <td width="3%"> <font size="2" face="Arial">&#149;</font></td>
    <td><font size="2" face="Arial">accelerated the vesting of all of our outstanding
      stock options in July 2005 with no charge to our interim consolidated statements
      of income;</font></td>
  </tr>
  <tr valign="top">
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr valign="top">
    <td><font size="2" face="Arial">&#149;</font></td>
    <td>a<font size="2" face="Arial">mended our 2001 Employee Stock Option Plan
      with the aim of enhancing our ability to retain key employees and motive
      them to shareholder value creation;</font></td>
  </tr>
  <tr valign="top">
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr valign="top">
    <td><font size="2" face="Arial">&#149;</font></td>
    <td><font size="2" face="Arial">approved the vesting conditions, linked to
      our future performance and their continued service with us, to apply to
      non-vested stock awards granted to employees in 2005, the maximum number
      of which will be four million, within the remaining number of shares authorized
      for issuance pursuant to the original plan; and</font></td>
  </tr>
  <tr valign="top">
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr valign="top">
    <td><font size="2" face="Arial">&#149;</font></td>
    <td><font size="2" face="Arial">approved the terms and conditions of the 2005
      Supervisory Board Stock-Based Compensation Plan for members and professionals.</font></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="justify"><font size="2" face="Arial">We intend to use 4.1 million of our shares held by us in
    treasury (out of the 13.4 million currently available) to cover the four million
    non-vested stock award grants pursuant to the 2001 Employee Stock Option Plan
    as well as the granting of up to 100,000 non-vested shares to the sole member
    of our Managing Board that was also approved by shareholders at the 2005 AGM.</font></p>
</div>
<div style="text-indent:3%">
<p align="justify"><font size="2" face="Arial">In the first quarter of 2005,
    we recorded in our income statement a total charge of $24 million before tax
    ($20 million after tax) for the compensation packages and special bonuses
    granted to our former CEO and to a limited number of retired senior executives.
    </font></p>
</div>
<div style="text-indent:3%"><p align="justify"><font size="2" face="Arial">On May 16, 2005, we announced a new restructuring plan that will bring the cumulative reduction of our workforce outside Asia to a total of 3,000 people by mid-2006.  From these new measures estimated to cost between $100 to 130 million, we anticipate additional savings of $90&nbsp;million per year, at completion of the plan.  On June 8, 2005, we specified our restructuring efforts by announcing the following: our workforce reduction in Europe will represent 2,300 jobs of the 3,000 already announced, we will pursue the conversion of 6 inch production tools to 8 inches, we will optimize on a global scale our Electrical Wafer Sorting (EWS) activities, harmonize and rationalize our support functions and disengage from
certain activities.</font></p></div>
<div style="text-indent:3%"><p align="justify"><font size="2" face="Arial">Pursuant to the joint-venture agreement we signed in 2004 with Hynix Semiconductor Inc. to build a front-end memory-manufacturing facility in Wuxi City, Jiangsu Province, China, we made an initial contribution to the joint venture of $8 million in the second quarter of 2005.  Under the agreement, Hynix Semiconductor, Inc. will contribute $500 million for a 67% equity interest and we will contribute $250 million for a 33% equity interest.  In addition, we have committed to grant $250 million in long-term financing for the new joint venture guaranteed by the subordinated collateral of the joint-venture&#8217;s assets.</font></p></div>
<div style="text-indent:3%">
  <p align="justify"><font size="2" face="Arial">On June 30, 2005, we sold our
    interest in Upek Inc. (a spin-off of our former TouchChip business) for $13
    million and recorded in the second quarter of 2005 a gain amounting to $6
    million. Additionally, on June 30, 2005, we were granted warrants for 2 million
    shares of Upek, Inc. at an exercise price of $0.01 per share. The warrants
    are not limited in time but can only be exercised subject to certain conditions,
    such as a change of control or an initial public offering of Upek, Inc. with
    a valuation of the entire company at or over $39 million. We estimated that
    the exercise conditions were not met on July 2, 2005.</font></p>
</div>
<div style="text-indent:3%">
  <p align="justify"><font size="2" face="Arial">On August 6, 2005, the &euro;442
    million aggregate principal amount of 6&frac34;% mandatorily exchangeable
    notes, initially issued by France Telecom in 2002 and exchangeable into our
    common shares, will reach maturity. We have been informed that the exchange
    ratio will be 1.25 of our common shares per each &euro;20.92 principal amount
    of notes, resulting in the disposal by France Telecom of approximately 26.4
    million of our currently existing common shares.</font></p>
</div>
  <table width="650" border="0">
    <tr>
      <td><font size="2" face="Arial"><strong>Results of Operations</strong></font><strong></strong></td>
    </tr>
    <tr>
      <td>&nbsp;</td>
    </tr>
    <tr>
      <td><font size="2" face="Arial"><b><i>Segment Information </i></b></font></td>
    </tr>
  </table>
<div style="text-indent:3%"><p align="justify"><font size="2" face="Arial">We operate in two business areas: Semiconductors and Subsystems.</font></p></div>
<div style="text-indent:3%"><p align="justify"><font size="2" face="Arial">In the Semiconductors business area, we design, develop, manufacture and market a broad range of products, including discrete, memories and standard commodity components, application-specific integrated circuits (&#8220;ASICs&#8221;), full custom devices and semi-custom devices and application-specific standard products (&#8220;ASSPs&#8221;) for analog, digital, and mixed-signal applications.  In addition, we further participate in the manufacturing value chain of Smart card products through our Incard division, which includes the production and</font></p></div>
 <p align="center"><font face="Arial" size="2">8</font></p>
<hr noshade align="center" width="100%" size="2">
<div style="page-break-before:always"></div>
<page>
 <p align="justify"><font size="2" face="Arial">sale of both silicon chips and
      Smart cards. Our principal investment and resource allocation decisions
      in the Semiconductor business area are for expenditures on research and
      development and capital investments in front-end and back-end manufacturing
      facilities. </font></p>

<div style="text-indent:3%"><p align="justify"><font size="2" face="Arial">In the Semiconductors segment, effective January 1, 2005, we realigned our product groups to increase market focus and realize the full potential of our products, technologies, and sales and marketing channels.  Beginning with the first quarter of 2005, we now report our sales and operating income in three segments:</font></p></div>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
<tr valign="top">
<td width="3%">
<font size="2" face="Arial">&#149;</font></td>
<td>
<font size="2" face="Arial">Application Specific Product Groups (&#8220;ASG&#8221;) segment, comprised of three product groups &#150; Home, Personal and Communication Sector (&#8220;HPC&#8221;), Computer Peripherals Group (&#8220;CPG&#8221;) and new Automotive Product Group (&#8220;APG&#8221;);</font></td>
</tr>
<tr valign="top">
  <td>&nbsp;</td>
  <td>&nbsp;</td>
</tr>
</table>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
<tr valign="top">
<td width="3%">
<font size="2" face="Arial">&#149;</font></td>
<td>
<font size="2" face="Arial">Memory Products Group (&#8220;MPG&#8221;) segment; and </font></td>
</tr>
<tr valign="top">
  <td>&nbsp;</td>
  <td>&nbsp;</td>
</tr>
</table>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
<tr valign="top">
<td width="3%">
<font size="2" face="Arial">&#149;</font></td>
<td>
<font size="2" face="Arial">Micro, Linear and Discrete Group (&#8220;MLD&#8221;) segment. </font></td>
</tr>
</table>
<div style="text-indent:3%"><p align="justify"><font size="2" face="Arial">We have restated our results in prior periods for illustrative comparisons of our performance by product group and by period.  The segment information of 2004 has been restated using the same principles as the ones used for the current year.  Furthermore, the preparation of segment information in accordance with the new organization of the groups, due to the significant changes in the segment structure, requires management to make significant estimates, assumptions and judgments in determining the operating income of the new groups for the prior year, which can affect the reported amounts for 2004. </font></p></div>
<div style="text-indent:3%"><p align="justify"><font size="2" face="Arial">In the Subsystems business area, we design, develop, manufacture and market subsystems and modules for the telecommunications, automotive and industrial markets including mobile phone accessories, battery chargers, ISDN power supplies and in-vehicle equipment for electronic toll payment.  Based on its immateriality to our business as a whole, the Subsystems segment does not meet the requirements for a reportable segment as defined in Statement of Financial Accounting Standards No. 131, <i>Disclosures about Segments of an Enterprise and Related Information</i> (FAS 131).</font></p></div>
<div style="text-indent:3%"><p align="justify"><font size="2" face="Arial">The following tables present our consolidated net revenues and consolidated operating income by semiconductor product segment.  For the computation of the Groups&#8217; internal financial measurements, we use certain internal rules of allocation for the costs not directly chargeable to the Groups, including cost of sales, selling, general and administrative expenses and a significant part of research and development expenses. Additionally, in compliance with our internal policies, certain cost items are not charged to the Groups, including impairment, restructuring charges and other related closure costs, start-up costs of new manufacturing facilities, some strategic and special research and development programs or
other corporate-sponsored initiatives, including certain corporate level operating expenses and certain other miscellaneous charges. Starting in the first quarter of 2005, we allocated the start-up costs to expand our marketing and design presence in new developing areas to each Group, and we restated prior year results accordingly.</font></p></div>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
  <tr valign="top">
    <td align="left"><font size="1" face="Arial">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td colspan="3" align="center"><font size="1" face="Arial"><b>(unaudited)<br>
      Three Months Ended</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td colspan="3" align="center"><font size="1" face="Arial"><b>(unaudited)<br>
      Six Months Ended</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="center"><hr size="1" noshade>
    </td>
    <td align="left"><hr size="1" noshade>
    </td>
    <td align="center"><hr size="1" noshade>
    </td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="center"><hr size="1" noshade>
    </td>
    <td align="left"><hr size="1" noshade>
    </td>
    <td align="center"><hr size="1" noshade>
    </td>
    <td align="left"><font size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td align="left"><font size="1" face="Arial">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="center"><font size="1" face="Arial"><b>July 2, 2005</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="center"><font size="1" face="Arial"><b>June 26, 2004</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="center"><font size="1" face="Arial"><b>July 2, 2005</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="center"><font size="1" face="Arial"><b>June 26, 2004</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="center"><hr size="1" noshade>
    </td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="center"><hr size="1" noshade>
    </td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="center"><hr size="1" noshade>
    </td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="center"><hr size="1" noshade>
    </td>
    <td align="left"><font size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td align="left"><font size="1" face="Arial">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td colspan="3" align="center"><font size="1" face="Arial"><b>(in $ millions)</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td colspan="3" align="center"><font size="1" face="Arial"><b>(in $ millions)</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
  </tr>
<tr valign="top">
<td align="left"><font size="2" face="Arial"><b>Net revenues by product groups:</b></font></td>
<td align="left" width="2%"><font size="2">&nbsp;</font></td>
<td width="10%" align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td width="2%" align="left"><font size="2">&nbsp;</font></td>
<td width="10%" align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td width="2%" align="left"><font size="2">&nbsp;</font></td>
<td width="10%" align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td width="2%" align="left"><font size="2">&nbsp;</font></td>
<td width="10%" align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td width="2%" align="left"><font size="2">&nbsp;</font></td> </tr>
<tr valign="top" bgcolor="#eeeeee">
<td align="left"><font size="2" face="Arial">Application Specific Product Groups</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">1,235</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">1,180</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">2,423</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">2,341</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
</tr>
<tr valign="top">
<td align="left"><font size="2" face="Arial">Micro, Linear and Discrete Group</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">459</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">487</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">916</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">907</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
</tr>
<tr valign="top" bgcolor="#eeeeee">
<td align="left"><font size="2" face="Arial">Memory Product Groups</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">453</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">488</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">874</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">919</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
</tr>
<tr valign="top">
<td align="left"><font size="2" face="Arial">Others<sup>(1)</sup></font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">15</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">17</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">32</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">34</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
</tr>
<tr valign="top" bgcolor="#eeeeee">
  <td align="left"><font size="2" face="Arial"><b>Total consolidated net revenues</b></font></td>
  <td align="left"><font size="2">&nbsp;</font></td>
  <td align="right"><font size="2" face="Arial"><b>2,162</b></font></td>
  <td align="left"><font size="2">&nbsp;</font></td>
  <td align="right"><font size="2" face="Arial"><b>2,172</b></font></td>
  <td align="left"><font size="2">&nbsp;</font></td>
  <td align="right"><font size="2" face="Arial"><b>4,245</b></font></td>
  <td align="left"><font size="2">&nbsp;</font></td>
  <td align="right"><font size="2" face="Arial"><b>4,201</b></font></td>
  <td align="left"><font size="2">&nbsp;</font></td>
</tr>
<tr valign="top" bgcolor="">
  <td align="left"><font size="2">&nbsp;</font></td>
  <td align="left"><font size="2">&nbsp;</font></td>
  <td align="right"><font size="2">&nbsp;</font></td>
  <td align="left"><font size="2">&nbsp;</font></td>
  <td align="right"><font size="2">&nbsp;</font></td>
  <td align="left"><font size="2">&nbsp;</font></td>
  <td align="right"><font size="2">&nbsp;</font></td>
  <td align="left"><font size="2">&nbsp;</font></td>
  <td align="right"><font size="2">&nbsp;</font></td>
  <td align="left"><font size="2">&nbsp;</font></td>
</tr>
</table>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
<tr valign="top">
  <td colspan="2"><hr align="left" width="100" size="1">
</td>
  </tr>
<tr valign="top">
<td width="3%"><font size="2" face="Arial">
<font face="Arial" size="1">(1)</font></font></td>
<td align="left">
<font size="2" face="Arial"> <font face="Arial" size="1">Includes revenues from sales of subsystems and other products not allocated to product groups.</font>
</font></td>
</tr>
</table>
<p align="center"><font face="Arial" size="2">9</font></p>
<hr noshade align="center" width="100%" size="2">
<div style="page-break-before:always"></div>
<page>

<table width="100%" cellspacing="0" cellpadding="0" border="0">
  <tr valign="top">
    <td align="left">&nbsp;</td>
    <td align="left">&nbsp;</td>
    <td colspan="3" align="center">&nbsp;</td>
    <td align="left">&nbsp;</td>
    <td colspan="3" align="center">&nbsp;</td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="top">
    <td align="left"><font size="1" face="Arial">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td colspan="3" align="center"><font size="1" face="Arial"><b>(unaudited)<br>
      Three Months Ended</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td colspan="3" align="center"><font size="1" face="Arial"><b>(unaudited)<br>
      Six Months Ended</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="center"><hr size="1" noshade>
    </td>
    <td align="left"><hr size="1" noshade>
    </td>
    <td align="center"><hr size="1" noshade>
    </td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="center"><hr size="1" noshade>
    </td>
    <td align="left"><hr size="1" noshade>
    </td>
    <td align="center"><hr size="1" noshade>
    </td>
    <td align="left"><font size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td align="left"><font size="1" face="Arial">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="center"><font size="1" face="Arial"><b>July 2, 2005</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="center"><font size="1" face="Arial"><b>June 26, 2004</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="center"><font size="1" face="Arial"><b>July 2, 2005</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="center"><font size="1" face="Arial"><b>June 26, 2004</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="center"><hr size="1" noshade>
    </td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="center"><hr size="1" noshade>
    </td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="center"><hr size="1" noshade>
    </td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="center"><hr size="1" noshade>
    </td>
    <td align="left"><font size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td align="left"><font size="1" face="Arial">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td colspan="3" align="center"><font size="1" face="Arial"><b>(in $ millions)</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td colspan="3" align="center"><font size="1" face="Arial"><b>(in $ millions)</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
  </tr>
<tr valign="top">
<td align="left"><font size="2" face="Arial"><b>Operating income (loss) by product groups:</b></font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td colspan="3" align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td colspan="3" align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
</tr>
<tr valign="top" bgcolor="#eeeeee">
<td align="left"><font size="2" face="Arial">Application Specific Product Groups </font></td>
<td width="2%" align="left"><font size="2">&nbsp;</font></td>
<td width="10%" align="right"><font size="2" face="Arial">72</font></td>
<td width="2%" align="left"><font size="2">&nbsp;</font></td>
<td width="10%" align="right"><font size="2" face="Arial">118</font></td>
<td width="2%" align="left"><font size="2">&nbsp;</font></td>
<td width="10%" align="right"><font size="2" face="Arial">137</font></td>
<td width="2%" align="left"><font size="2">&nbsp;</font></td>
<td width="10%" align="right"><font size="2" face="Arial">236</font></td>
<td width="2%" align="left"><font size="2">&nbsp;</font></td>
</tr>
<tr valign="top">
<td align="left"><font size="2" face="Arial">Micro, Linear and Discrete Group</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">65</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">109</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">136</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">180</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
</tr>
<tr valign="top" bgcolor="#eeeeee">
<td align="left"><font size="2" face="Arial">Memory Product Groups</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">(66</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
<td align="right"><font size="2" face="Arial">29</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">(128</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
<td align="right"><font size="2" face="Arial">26</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
</tr>
<tr valign="top">
<td align="left"><font size="2">&nbsp;</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
</tr>
<tr valign="top" bgcolor="">
<td align="left"><font size="2" face="Arial">Total operating income of product groups</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">71</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">256</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">145</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">442</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
</tr>
<tr valign="top" bgcolor="#eeeeee">
<td align="left"><font size="2" face="Arial">Others<sup>(1)</sup></font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">(59</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
<td align="right"><font size="2" face="Arial">(77</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
<td align="right"><font size="2" face="Arial">(200</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
<td align="right"><font size="2" face="Arial">(183</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
</tr>
<tr valign="top">
<td align="left"><font size="2">&nbsp;</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
</tr>
<tr valign="top" bgcolor="#eeeeee">
<td align="left"><font size="2" face="Arial"><b>Total consolidated operating income (loss)</b></font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial"><b>12</b></font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial"><b>179</b></font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial"><b>(55</b></font></td>
<td align="left"><font size="2" face="Arial"><b>)</b></font></td>
<td align="right"><font size="2" face="Arial"><b>259</b></font></td>
<td align="left"><font size="2">&nbsp;</font></td>
</tr>
<tr valign="top" bgcolor="">
  <td align="left"><font size="2">&nbsp;</font></td>
  <td align="left"><font size="2">&nbsp;</font></td>
  <td align="right"><font size="2">&nbsp;</font></td>
  <td align="left"><font size="2">&nbsp;</font></td>
  <td align="right"><font size="2">&nbsp;</font></td>
  <td align="left"><font size="2">&nbsp;</font></td>
  <td align="right"><font size="2">&nbsp;</font></td>
  <td align="left"><font size="2">&nbsp;</font></td>
  <td align="right"><font size="2">&nbsp;</font></td>
  <td align="left"><font size="2">&nbsp;</font></td>
</tr>
</table>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
<tr valign="top">
  <td colspan="2"><hr align="left" width="100" size="1">
  </td>
  </tr>
<tr valign="top">
<td width="3%">
<font size="1" face="Arial">(1)</font></td>
<td>
<font size="2" face="Arial">
<font face="Arial" size="1">Operating income (loss) of &#8220;Others&#8221; includes items such as impairment, restructuring charges and other related closure costs, start-up costs, and other unallocated expenses, such as: strategic or special research and development programs, certain corporate-level operating expenses, certain patent claims and litigations, and other costs that are not allocated to the product groups, as well as operating earnings or losses of the Subsystems and Other Products Group.  Certain costs, mainly R&amp;D, formerly in the &#8220;Others&#8221; category, have been allocated to the groups; thus, the comparable amounts reported in this category in prior period reports may not be the same, while prior periods are reclassified accordingly in the above table.</font>
</font></td>
</tr>
</table>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
<tr valign="top">
  <td align="left">&nbsp;</td>
  <td align="left">&nbsp;</td>
  <td colspan="3" align="center">&nbsp;</td>
  <td align="left">&nbsp;</td>
  <td colspan="3" align="center">&nbsp;</td>
  <td align="left">&nbsp;</td>
</tr>
<tr valign="top">
  <td align="left"><font size="1" face="Arial">&nbsp;</font></td>
  <td align="left"><font size="1">&nbsp;</font></td>
  <td colspan="3" align="center"><font size="1" face="Arial"><b>(unaudited)<br>
    Three Months Ended</b></font></td>
  <td align="left"><font size="1">&nbsp;</font></td>
  <td colspan="3" align="center"><font size="1" face="Arial"><b>(unaudited)<br>
    Six Months Ended</b></font></td>
  <td align="left"><font size="1">&nbsp;</font></td>
</tr>
<tr valign="top">
  <td align="left"><font size="1">&nbsp;</font></td>
  <td align="left"><font size="1">&nbsp;</font></td>
  <td align="center"><hr size="1" noshade>
  </td>
  <td align="left"><hr size="1" noshade>
  </td>
  <td align="center"><hr size="1" noshade>
  </td>
  <td align="left"><font size="1">&nbsp;</font></td>
  <td align="center"><hr size="1" noshade>
  </td>
  <td align="left"><hr size="1" noshade>
  </td>
  <td align="center"><hr size="1" noshade>
  </td>
  <td align="left"><font size="1">&nbsp;</font></td>
</tr>
<tr valign="top">
  <td align="left"><font size="1" face="Arial">&nbsp;</font></td>
  <td align="left"><font size="1">&nbsp;</font></td>
  <td align="center"><font size="1" face="Arial"><b>July 2, 2005</b></font></td>
  <td align="left"><font size="1">&nbsp;</font></td>
  <td align="center"><font size="1" face="Arial"><b>June 26, 2004</b></font></td>
  <td align="left"><font size="1">&nbsp;</font></td>
  <td align="center"><font size="1" face="Arial"><b>July 2, 2005</b></font></td>
  <td align="left"><font size="1">&nbsp;</font></td>
  <td align="center"><font size="1" face="Arial"><b>June 26, 2004</b></font></td>
  <td align="left"><font size="1">&nbsp;</font></td>
</tr>
<tr valign="top">
  <td align="left"><font size="1">&nbsp;</font></td>
  <td align="left"><font size="1">&nbsp;</font></td>
  <td align="center"><hr size="1" noshade>
  </td>
  <td align="left"><font size="1">&nbsp;</font></td>
  <td align="center"><hr size="1" noshade>
  </td>
  <td align="left"><font size="1">&nbsp;</font></td>
  <td align="center"><hr size="1" noshade>
  </td>
  <td align="left"><font size="1">&nbsp;</font></td>
  <td align="center"><hr size="1" noshade>
  </td>
  <td align="left"><font size="1">&nbsp;</font></td>
</tr>
<tr valign="top">
  <td align="left"><font size="1" face="Arial">&nbsp;</font></td>
  <td align="left"><font size="1">&nbsp;</font></td>
  <td colspan="3" align="center"><font size="1" face="Arial"><b>(as percentages
        of net revenues)</b></font></td>
  <td align="left"><font size="1">&nbsp;</font></td>
  <td colspan="3" align="center"><font size="1" face="Arial"><b>(as percentages
        of net revenues)</b></font></td>
  <td align="left"><font size="1">&nbsp;</font></td>
</tr>
<tr valign="top">
<td align="left"><font size="2" face="Arial"><b>Operating income (loss) by product groups:</b></font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td colspan="3" align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td colspan="3" align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
</tr>
<tr valign="top" bgcolor="#eeeeee">
<td align="left"><font size="2" face="Arial">Application Specific Product Groups<sup>(1)</sup></font></td>
<td width="2%" align="left"><font size="2">&nbsp;</font></td>
<td width="10%" align="right"><font size="2" face="Arial">5.8%</font></td>
<td width="2%" align="left">&nbsp;</td>
<td width="10%" align="right"><font size="2" face="Arial">10.0%</font></td>
<td width="2%" align="left">&nbsp;</td>
<td width="10%" align="right"><font size="2" face="Arial">5.7%</font></td>
<td width="2%" align="left">&nbsp;</td>
<td width="10%" align="right"><font size="2" face="Arial">10.1%</font></td>
<td width="2%" align="left">&nbsp;</td>
</tr>
<tr valign="top">
<td align="left"><font size="2" face="Arial">Micro, Linear and Discrete Group<sup>(1)</sup></font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">14.2</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">22.4</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">14.8</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">19.8</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
</tr>
<tr valign="top" bgcolor="#eeeeee">
<td align="left"><font size="2" face="Arial">Memory Product Groups<sup>(1)</sup></font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">(14.6</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
<td align="right"><font size="2" face="Arial">5.9</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">(14.6</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
<td align="right"><font size="2" face="Arial">2.8</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
</tr>
<tr valign="top">
<td align="left"><font size="2" face="Arial">Others<sup>(2)</sup></font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">(2.7</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
<td align="right"><font size="2" face="Arial">(3.6</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
<td align="right"><font size="2" face="Arial">(4.7</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
<td align="right"><font size="2" face="Arial">(4.4</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
</tr>
<tr valign="top" bgcolor="#eeeeee">
<td align="left"><font size="2" face="Arial"><b>Total consolidated operating income (loss)</b><sup>(3)</sup></font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial"><b>0.6%</b></font></td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial"><b>8.2%</b></font></td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial"><b>(1.3%</b></font></td>
<td align="left"><font size="2" face="Arial"><b>)</b></font></td>
<td align="right"><font size="2" face="Arial"><b>6.2%</b></font></td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
</tr>
<tr valign="top" bgcolor="">
  <td align="left"><font size="2">&nbsp;</font></td>
  <td align="left"><font size="2">&nbsp;</font></td>
  <td align="right"><font size="2">&nbsp;</font></td>
  <td align="left"><font size="2">&nbsp;</font></td>
  <td align="right"><font size="2">&nbsp;</font></td>
  <td align="left"><font size="2">&nbsp;</font></td>
  <td align="right"><font size="2">&nbsp;</font></td>
  <td align="left"><font size="2">&nbsp;</font></td>
  <td align="right"><font size="2">&nbsp;</font></td>
  <td align="left"><font size="2">&nbsp;</font></td>
</tr>
</table>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
<tr valign="top">
  <td colspan="2"><hr align="left" width="100" size="1">
  </td>
  </tr>
<tr valign="top">
<td width="3%"><font size="2" face="Arial">
<font face="Arial" size="1">(1)</font></font></td>
<td align="left">
<font size="2" face="Arial"> <font face="Arial" size="1">As a percentage of net revenues per product group. </font>
</font></td>
</tr>
</table>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
<tr valign="top">
<td width="3%"><font size="2" face="Arial">
<font face="Arial" size="1">(2)</font></font></td>
<td align="left">
<font size="2" face="Arial"> <font face="Arial" size="1">As a percentage of total net revenues.  Includes operating income (loss) from sales of subsystems and other income (expenses) not allocated to product groups. </font>
</font></td>
</tr>
</table>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
<tr valign="top">
<td width="3%"><font size="2" face="Arial">
<font face="Arial" size="1">(3)</font></font></td>
<td align="left">
<font size="2" face="Arial"> <font face="Arial" size="1">As a percentage of total net revenues. </font>
</font></td>
</tr>
</table>
<table width="100%" border="0" cellpadding="0" cellspacing="0">
<tr valign="top">
  <td align="left">&nbsp;</td>
  <td align="left">&nbsp;</td>
  <td colspan="3" align="center">&nbsp;</td>
  <td align="left">&nbsp;</td>
  <td colspan="3" align="center">&nbsp;</td>
  <td align="left">&nbsp;</td>
</tr>
<tr valign="top">
  <td align="left"><font size="1" face="Arial">&nbsp;</font></td>
  <td align="left"><font size="1">&nbsp;</font></td>
  <td colspan="3" align="center"><font size="1" face="Arial"><b>(unaudited)<br>
    Three Months Ended</b></font></td>
  <td align="left"><font size="1">&nbsp;</font></td>
  <td colspan="3" align="center"><font size="1" face="Arial"><b>(unaudited)<br>
    Six Months Ended</b></font></td>
  <td align="left"><font size="1">&nbsp;</font></td>
</tr>
<tr valign="top">
  <td align="left"><font size="1">&nbsp;</font></td>
  <td align="left"><font size="1">&nbsp;</font></td>
  <td align="center"><hr size="1" noshade>
  </td>
  <td align="left"><hr size="1" noshade>
  </td>
  <td align="center"><hr size="1" noshade>
  </td>
  <td align="left"><font size="1">&nbsp;</font></td>
  <td align="center"><hr size="1" noshade>
  </td>
  <td align="left"><hr size="1" noshade>
  </td>
  <td align="center"><hr size="1" noshade>
  </td>
  <td align="left"><font size="1">&nbsp;</font></td>
</tr>
<tr valign="top">
  <td align="left"><font size="1" face="Arial">&nbsp;</font></td>
  <td align="left"><font size="1">&nbsp;</font></td>
  <td align="center"><font size="1" face="Arial"><b>July 2, 2005</b></font></td>
  <td align="left"><font size="1">&nbsp;</font></td>
  <td align="center"><font size="1" face="Arial"><b>June 26, 2004</b></font></td>
  <td align="left"><font size="1">&nbsp;</font></td>
  <td align="center"><font size="1" face="Arial"><b>July 2, 2005</b></font></td>
  <td align="left"><font size="1">&nbsp;</font></td>
  <td align="center"><font size="1" face="Arial"><b>June 26, 2004</b></font></td>
  <td align="left"><font size="1">&nbsp;</font></td>
</tr>
<tr valign="top">
  <td align="left"><font size="1">&nbsp;</font></td>
  <td align="left"><font size="1">&nbsp;</font></td>
  <td align="center"><hr size="1" noshade>
  </td>
  <td align="left"><font size="1">&nbsp;</font></td>
  <td align="center"><hr size="1" noshade>
  </td>
  <td align="left"><font size="1">&nbsp;</font></td>
  <td align="center"><hr size="1" noshade>
  </td>
  <td align="left"><font size="1">&nbsp;</font></td>
  <td align="center"><hr size="1" noshade>
  </td>
  <td align="left"><font size="1">&nbsp;</font></td>
</tr>
<tr valign="top">
  <td align="left"><font size="1" face="Arial">&nbsp;</font></td>
  <td align="left"><font size="1">&nbsp;</font></td>
  <td colspan="3" align="center"><font size="1" face="Arial"><b>(in $ millions)</b></font></td>
  <td align="left"><font size="1">&nbsp;</font></td>
  <td colspan="3" align="center"><font size="1" face="Arial"><b>(in $ millions)</b></font></td>
  <td align="left"><font size="1">&nbsp;</font></td>
</tr>
<tr valign="top">
<td align="left"><font size="2" face="Arial"><b>Reconciliation to consolidated operating income (loss):</b></font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td colspan="3" align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td colspan="3" align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
</tr>
<tr valign="top" bgcolor="#eeeeee">
<td align="left"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;Total operating income (loss) of product groups</font></td>
<td width="2%" align="left"><font size="2">&nbsp;</font></td>
<td width="10%" align="right"><font size="2" face="Arial">71</font></td>
<td width="2%" align="left"><font size="2">&nbsp;</font></td>
<td width="10%" align="right"><font size="2" face="Arial">256</font></td>
<td width="2%" align="left"><font size="2">&nbsp;</font></td>
<td width="10%" align="right"><font size="2" face="Arial">145</font></td>
<td width="2%" align="left"><font size="2">&nbsp;</font></td>
<td width="10%" align="right"><font size="2" face="Arial">442</font></td>
<td width="2%" align="left"><font size="2">&nbsp;</font></td>
</tr>
<tr valign="top">
<td align="left"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;Strategic and other research and development programs</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">(14</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
<td align="right"><font size="2" face="Arial">(12</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
<td align="right"><font size="2" face="Arial">(29</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
<td align="right"><font size="2" face="Arial">(33</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
</tr>
<tr valign="top" bgcolor="#eeeeee">
<td align="left"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;Start-up costs</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">(13</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
<td align="right"><font size="2" face="Arial">(9</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
<td align="right"><font size="2" face="Arial">(34</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
<td align="right"><font size="2" face="Arial">(32</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
</tr>
<tr valign="top">
<td align="left"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;Impairment, restructuring charges and other related closure costs</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">(22</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
<td align="right"><font size="2" face="Arial">(12</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
<td align="right"><font size="2" face="Arial">(100</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
<td align="right"><font size="2" face="Arial">(45</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
</tr>
<tr valign="top" bgcolor="#eeeeee">
<td align="left"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;One-time compensation and special contributions<sup>(1)</sup></font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">&#151;</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">&#151;</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">(22</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
<td align="right"><font size="2" face="Arial">&#151;</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
</tr>
<tr valign="top">
<td align="left"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;Loss on foreign exchange </font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">(4</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
<td align="right"><font size="2" face="Arial">&#151;</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">(7</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
<td align="right"><font size="2" face="Arial">(4</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
</tr>
<tr valign="top" bgcolor="#eeeeee">
<td align="left"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;Other non-allocated provisions<sup>(2)</sup></font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">(6</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
<td align="right"><font size="2" face="Arial">(44</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
<td align="right"><font size="2" face="Arial">(8</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
<td align="right"><font size="2" face="Arial">(69</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
</tr>
<tr valign="top">
<td align="left"><font size="2" face="Arial">Others</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">(59</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
<td align="right"><font size="2" face="Arial">(77</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
<td align="right"><font size="2" face="Arial">(200</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
<td align="right"><font size="2" face="Arial">(183</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
</tr>
<tr valign="top">
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
</tr>
<tr valign="top" bgcolor="#eeeeee">
<td align="left"><font size="2" face="Arial"><b>Total consolidated operating income (loss)</b></font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">12</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">179</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">(55</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
<td align="right"><font size="2" face="Arial">259</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
</tr>
<tr valign="top" bgcolor="">
  <td align="left"><font size="2">&nbsp;</font></td>
  <td align="left"><font size="2">&nbsp;</font></td>
  <td align="right"><font size="2">&nbsp;</font></td>
  <td align="left"><font size="2">&nbsp;</font></td>
  <td align="right"><font size="2">&nbsp;</font></td>
  <td align="left"><font size="2">&nbsp;</font></td>
  <td align="right"><font size="2">&nbsp;</font></td>
  <td align="left"><font size="2">&nbsp;</font></td>
  <td align="right"><font size="2">&nbsp;</font></td>
  <td align="left"><font size="2">&nbsp;</font></td>
</tr>
</table>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
<tr valign="top">
  <td colspan="2"><hr align="left" width="100" size="1">
  </td>
  </tr>
<tr valign="top">
<td width="3%">
<font size="1" face="Arial">(1)</font></td>
<td>
<font size="2" face="Arial">
<font face="Arial" size="1">The total charge for one-time compensation and special contributions was $24 million, of which $2 million was allocated to product groups.  The remaining $22 million was not allocated to product groups.</font>
</font></td>
</tr>
</table>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
<tr valign="top">
<td width="3%">
<font size="1" face="Arial">(2)</font></td>
<td>
<font size="2" face="Arial">
<font face="Arial" size="1">Includes unallocated expenses such as certain corporate level operating expenses and other costs that are not allocated to the product groups. </font>
</font></td>
</tr>
</table>
<p align="center"><font size="2" face="Arial">10</font></p>
<hr noshade align="center" width="100%" size="2">
<div style="page-break-before:always"></div>
<page>
<p align="justify"><font size="2" face="Arial"><b><i>Net revenues by location of order shipment and by market segment application</i></b></font></p>
<div style="text-indent:3%">
  <p align="justify"><font size="2" face="Arial">The tables below set forth information
    on our net revenues by location of order shipment and as a percentage of net
    revenues:</font></p>
</div>
<table width="100%" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td align="left"><font size="1" face="Arial">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td colspan="3" align="center"><font size="1" face="Arial"><b>(unaudited)<br>
      Three Months Ended</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td colspan="3" align="center"><font size="1" face="Arial"><b>(unaudited)<br>
      Six Months Ended</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="center"><hr size="1" noshade>
    </td>
    <td align="left"><hr size="1" noshade>
    </td>
    <td align="center"><hr size="1" noshade>
    </td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="center"><hr size="1" noshade>
    </td>
    <td align="left"><hr size="1" noshade>
    </td>
    <td align="center"><hr size="1" noshade>
    </td>
    <td align="left"><font size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td align="left"><font size="1" face="Arial">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="center"><font size="1" face="Arial"><b>July 2, 2005</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="center"><font size="1" face="Arial"><b>June 26, 2004</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="center"><font size="1" face="Arial"><b>July 2, 2005</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="center"><font size="1" face="Arial"><b>June 26, 2004</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="center"><hr size="1" noshade>
    </td>
    <td align="left">&nbsp;    </td>
    <td align="center"><hr size="1" noshade>
    </td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="center"><hr size="1" noshade>
    </td>
    <td align="left">&nbsp;    </td>
    <td align="center"><hr size="1" noshade>
    </td>
    <td align="left"><font size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td align="left"><font size="1" face="Arial">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td colspan="7" align="center"><font size="2" face="Arial"><b><font face="Arial" size="1">(in
            $ millions)</font></b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
  </tr>
<tr valign="top">
<td align="left"><font size="2" face="Arial"><b>Net Revenues by Location of Order Shipment<sup>(1)</sup></b></font></td>
<td width="2%" align="left"><font size="2">&nbsp;</font></td>
<td width="10%" align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td width="2%" align="left"><font size="2">&nbsp;</font></td>
<td width="10%" align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td width="2%" align="left"><font size="2">&nbsp;</font></td>
<td width="10%" align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td width="2%" align="left"><font size="2">&nbsp;</font></td>
<td width="10%" align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td width="2%" align="left"><font size="2">&nbsp;</font></td>
</tr>
<tr valign="top" bgcolor="#eeeeee">
<td align="left"><font size="2" face="Arial">Europe <sup>(2)</sup></font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td width="10%" align="right"><font size="2" face="Arial">701</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td width="10%" align="right"><font size="2" face="Arial">676</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td width="10%" align="right"><font size="2" face="Arial">1,380</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td width="10%" align="right"><font size="2" face="Arial">1,325</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
</tr>
<tr valign="top">
<td align="left"><font size="2" face="Arial">North America</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">302</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">318</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">586</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">620</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
</tr>
<tr valign="top" bgcolor="#eeeeee">
<td align="left"><font size="2" face="Arial">Asia/Pacific</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">943</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">923</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">1,849</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">1,777</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
</tr>
<tr valign="top">
<td align="left"><font size="2" face="Arial">Japan</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">73</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">101</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">147</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">188</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
</tr>
<tr valign="top" bgcolor="#eeeeee">
<td align="left"><font size="2" face="Arial">Emerging Markets <sup>(2)</sup></font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">143</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">154</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">283</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">291</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
</tr>
<tr valign="top">
<td align="left"><font size="2" face="Arial"><b>Total</b></font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial"><b>2,162</b></font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial"><b>2,172</b></font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial"><b>4,245</b></font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial"><b>4,201</b></font></td>
<td align="left"><font size="2">&nbsp;</font></td>
</tr>
<tr valign="top">
  <td align="left"><font size="1">&nbsp;</font></td>
  <td align="left"><font size="1">&nbsp;</font></td>
  <td colspan="7" align="center"><font size="1">&nbsp;</font></td>
  <td align="left"><font size="1">&nbsp;</font></td>
</tr>
<tr valign="top">
  <td align="left"><font size="1" face="Arial">&nbsp;</font></td>
  <td align="left"><font size="1">&nbsp;</font></td>
  <td colspan="7" align="center"><font size="2" face="Arial"><b><font face="Arial" size="1">(as
          a percentage of net revenues)</font></b></font></td>
  <td align="left"><font size="1">&nbsp;</font></td>
</tr>
<tr valign="top">
<td align="left"><font size="2" face="Arial"><b>Net Revenues by Location of Order Shipment<sup>(1)</sup></b></font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
</tr>
<tr valign="top" bgcolor="#eeeeee">
<td align="left"><font size="2" face="Arial">Europe <sup>(2)</sup></font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">32.4%</font></td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">31.1%</font></td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">32.5%</font></td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">31.5%</font></td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
</tr>
<tr valign="top">
<td align="left"><font size="2" face="Arial">North America</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">14.0</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">14.6</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">13.8</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">14.8</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
</tr>
<tr valign="top" bgcolor="#eeeeee">
<td align="left"><font size="2" face="Arial">Asia/Pacific</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">43.6</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">42.5</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">43.6</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">42.3</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
</tr>
<tr valign="top">
<td align="left"><font size="2" face="Arial">Japan</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">3.4</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">4.7</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">3.5</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">4.5</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
</tr>
<tr valign="top" bgcolor="#eeeeee">
<td align="left"><font size="2" face="Arial">Emerging Markets <sup>(2)</sup></font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">6.6</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">7.1</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">6.6</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">6.9</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
</tr>
<tr valign="top">
<td align="left"><font size="2" face="Arial"><b>Total</b></font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial"><b>100<b>%</b></b></font></td>
<td align="left"><font size="2" face="Arial"><b></b></font></td>
<td align="right"><font size="2" face="Arial"><b>100<b>%</b></b></font></td>
<td align="left"><font size="2" face="Arial"><b></b></font></td>
<td align="right"><font size="2" face="Arial"><b>100<b>%</b></b></font></td>
<td align="left"><font size="2" face="Arial"><b></b></font></td>
<td align="right"><font size="2" face="Arial"><b>100<b>%</b></b></font></td>
<td align="left"><font size="2" face="Arial"><b></b></font></td>
</tr>
<tr valign="top">
  <td align="left">&nbsp;</td>
  <td align="left">&nbsp;</td>
  <td align="right">&nbsp;</td>
  <td align="left">&nbsp;</td>
  <td align="right">&nbsp;</td>
  <td align="left">&nbsp;</td>
  <td align="right">&nbsp;</td>
  <td align="left">&nbsp;</td>
  <td align="right">&nbsp;</td>
  <td align="left">&nbsp;</td>
</tr>
</table>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
<tr valign="top">
  <td colspan="2"><hr align="left" width="100" size="1">
  </td>
  </tr>
<tr valign="top">
<td width="3%"><font size="2" face="Arial">
<font face="Arial" size="1">(1)</font></font></td>
<td align="left">
<font size="2" face="Arial"> <font face="Arial" size="1">Net revenues by location of order shipment are classified by location of customer invoiced.  For example, products ordered by U.S.-based companies to be invoiced to Asia/Pacific affiliates are classified as Asia/Pacific revenues.</font>
</font></td>
</tr>
</table>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
<tr valign="top">
<td width="3%"><font size="2" face="Arial">
<font face="Arial" size="1">(2)</font></font></td>
<td align="left">
<font size="2" face="Arial"> <font face="Arial" size="1">Since January 1, 2005, the region &#8220;Europe&#8221; includes the former East European countries that joined the European Union in 2004.  These countries were part of the Emerging Markets perimeter in the previous periods. Net revenues for Europe and Emerging Markets for prior periods were restated according to the new perimeter.</font>
</font></td>
</tr>
</table>
<div style="text-indent:3%">
  <p align="justify"><font size="2" face="Arial">The table below estimates, within
    a variance of 5%-to-10% in absolute dollar amounts, the relative weighing
    of each of our target market segments in percentages of net revenues:</font></p>
</div>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
  <tr valign="top">
    <td align="left"><font size="1" face="Arial">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td colspan="3" align="center"><font size="1" face="Arial"><b>(unaudited)<br>
      Three Months Ended</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td colspan="3" align="center"><font size="1" face="Arial"><b>(unaudited)<br>
      Six Months Ended</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="center"><hr size="1" noshade>
    </td>
    <td align="left"><hr size="1" noshade>
    </td>
    <td align="center"><hr size="1" noshade>
    </td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="center"><hr size="1" noshade>
    </td>
    <td align="left"><hr size="1" noshade>
    </td>
    <td align="center"><hr size="1" noshade>
    </td>
    <td align="left"><font size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td align="left"><font size="1" face="Arial">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="center"><font size="1" face="Arial"><b>July 2, 2005</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="center"><font size="1" face="Arial"><b>June 26, 2004</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="center"><font size="1" face="Arial"><b>July 2, 2005</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="center"><font size="1" face="Arial"><b>June 26, 2004</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="center"><hr size="1" noshade>
    </td>
    <td align="left">&nbsp;    </td>
    <td align="center"><hr size="1" noshade>
    </td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="center"><hr size="1" noshade>
    </td>
    <td align="left">&nbsp;    </td>
    <td align="center"><hr size="1" noshade>
    </td>
    <td align="left"><font size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td align="left"><font size="1" face="Arial">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td colspan="7" align="center"><font size="1" face="Arial"><b>(as percentages
          of net revenues)</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
  </tr>
<tr valign="top">
<td align="left"><font size="2" face="Arial"><b>Net Revenues by Market Segment Application:</b></font></td>
<td align="left" width="2%"><font size="2">&nbsp;</font></td>
<td width="10%" align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td width="2%" align="left"><font size="2">&nbsp;</font></td>
<td width="10%" align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td width="2%" align="left"><font size="2">&nbsp;</font></td>
<td width="10%" align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td width="2%" align="left"><font size="2">&nbsp;</font></td>
<td width="10%" align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td width="2%" align="left"><font size="2">&nbsp;</font></td>
</tr>
<tr valign="top" bgcolor="#eeeeee">
<td align="left"><font size="2" face="Arial">Automotive</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">17%</font></td>
<td align="left">&nbsp;</td>
<td align="right"><font size="2" face="Arial">15%</font></td>
<td align="left">&nbsp;</td>
<td align="right"><font size="2" face="Arial">17%</font></td>
<td align="left">&nbsp;</td>
<td align="right"><font size="2" face="Arial">15%</font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top">
<td align="left"><font size="2" face="Arial">Consumer</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">17</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">21</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">18</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">20</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
</tr>
<tr valign="top" bgcolor="#eeeeee">
<td align="left"><font size="2" face="Arial">Computer</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">17</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">15</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">17</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">16</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
</tr>
<tr valign="top">
<td align="left"><font size="2" face="Arial">Telecom</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">34</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">32</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">33</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">32</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
</tr>
<tr valign="top" bgcolor="#eeeeee">
<td align="left"><font size="2" face="Arial">Industrial and Other</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">15</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">17</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">15</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">17</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
</tr>
<tr valign="top">
<td align="left"><font size="2" face="Arial"><b>Total</b></font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial"><b>100%</b></font></td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial"><b>100%</b></font></td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial"><b>100%</b></font></td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial"><b>100%</b></font></td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
</tr>
</table>

<p align="justify"><hr align="left" width="100" size="1"><p></p>
<p align="center"><font face="Arial" size="2">11</font></p>
<hr noshade align="center" width="100%" size="2">
<div style="page-break-before:always"></div>
<page>

<div style="text-indent:3%"><p align="justify"><font size="2" face="Arial">The following table sets forth certain financial data from our consolidated statements of income, expressed in each case as a percentage of net revenues:</font></p></div>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
  <tr valign="top">
    <td align="left"><font size="1" face="Arial">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td colspan="3" align="center"><font size="1" face="Arial"><b>(unaudited)<br>
    Three Months Ended</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td colspan="3" align="center"><font size="1" face="Arial"><b>(unaudited)<br>
    Six Months Ended</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="center"><hr size="1" noshade>
    </td>
    <td align="left"><hr size="1" noshade>
    </td>
    <td align="center"><hr size="1" noshade>
    </td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="center"><hr size="1" noshade>
    </td>
    <td align="left"><hr size="1" noshade>
    </td>
    <td align="center"><hr size="1" noshade>
    </td>
    <td align="left"><font size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td align="left"><font size="1" face="Arial">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="center"><font size="1" face="Arial"><b>July 2, 2005</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="center"><font size="1" face="Arial"><b>June 26, 2004</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="center"><font size="1" face="Arial"><b>July 2, 2005</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="center"><font size="1" face="Arial"><b>June 26, 2004</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="center"><hr size="1" noshade>
    </td>
    <td align="left">&nbsp;    </td>
    <td align="center"><hr size="1" noshade>
    </td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="center"><hr size="1" noshade>
    </td>
    <td align="left">&nbsp;    </td>
    <td align="center"><hr size="1" noshade>
    </td>
    <td align="left"><font size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td align="left"><font size="1" face="Arial">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td colspan="3" align="center"><font size="1" face="Arial"><b>(as a percentage
          of net revenues)</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td colspan="3" align="center"><font size="1" face="Arial"><b>(as a percentage
          of net revenues)</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="">
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="right"><font size="1">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="right"><font size="1">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="right"><font size="1">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="right"><font size="1">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
<td align="left"><font size="2" face="Arial">Net sales</font></td>
<td width="2%" align="left"><font size="2">&nbsp;</font></td>
<td width="10%" align="right"><font size="2" face="Arial">99.9%</font></td>
<td width="2%" align="left">&nbsp;</td>
<td width="10%" align="right"><font size="2" face="Arial">100.0%</font></td>
<td width="2%" align="left">&nbsp;</td>
<td width="10%" align="right"><font size="2" face="Arial">99.9%</font></td>
<td width="2%" align="left">&nbsp;</td>
<td width="10%" align="right"><font size="2" face="Arial">100.0%</font></td>
<td width="2%" align="left">&nbsp;</td>
  </tr>
<tr valign="top">
<td align="left"><font size="2" face="Arial">Other revenues</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">0.1</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">&#151;</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">0.1</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">&#151;</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
</tr>
<tr valign="top" bgcolor="#eeeeee">
<td align="left"><font size="2" face="Arial"><b>Net revenues</b></font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial"><b>100.0</b></font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial"><b>100.0</b></font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial"><b>100.0</b></font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial"><b>100.0</b></font></td>
<td align="left"><font size="2">&nbsp;</font></td>
</tr>
<tr valign="top">
<td align="left"><font size="2" face="Arial">Cost of sales</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">(67.0</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
<td align="right"><font size="2" face="Arial">(62.6</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
<td align="right"><font size="2" face="Arial">(67.1</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
<td align="right"><font size="2" face="Arial">(63.6</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
</tr>
<tr valign="top" bgcolor="#eeeeee">
<td align="left"><font size="2" face="Arial"><b>Gross profit</b></font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial"><b>33.0</b></font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial"><b>37.4</b></font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial"><b>32.9</b></font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial"><b>36.4</b></font></td>
<td align="left"><font size="2">&nbsp;</font></td>
</tr>
<tr valign="top">
<td align="left"><font size="2" face="Arial">Selling, general and administrative</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">(11.8</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
<td align="right"><font size="2" face="Arial">(11.0</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
<td align="right"><font size="2" face="Arial">(12.2</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
<td align="right"><font size="2" face="Arial">(11.2</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
</tr>
<tr valign="top" bgcolor="#eeeeee">
<td align="left"><font size="2" face="Arial">Research and development</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">(19.6</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
<td align="right"><font size="2" face="Arial">(17.7</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
<td align="right"><font size="2" face="Arial">(19.5</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
<td align="right"><font size="2" face="Arial">(17.8</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
</tr>
<tr valign="top">
<td align="left"><font size="2" face="Arial">Other income and expenses, net</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">&#151;</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">0.2</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">(0.1</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
<td align="right"><font size="2" face="Arial">(0.1</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
</tr>
<tr valign="top" bgcolor="#eeeeee">
<td align="left"><font size="2" face="Arial">Impairment, restructuring charges and other related closure costs</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">(1.0</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
<td align="right"><font size="2" face="Arial">(0.6</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
<td align="right"><font size="2" face="Arial">(2.4</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
<td align="right"><font size="2" face="Arial">(1.1</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
</tr>
<tr valign="top">
<td align="left"><font size="2" face="Arial"><b>Operating income (loss)</b></font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial"><b>0.6</b></font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial"><b>8.3</b></font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial"><b>(1.3</b></font></td>
<td align="left"><font size="2" face="Arial"><b>)</b></font></td>
<td align="right"><font size="2" face="Arial"><b>6.2</b></font></td>
<td align="left"><font size="2">&nbsp;</font></td>
</tr>
<tr valign="top" bgcolor="#eeeeee">
<td align="left"><font size="2" face="Arial">Interest income (expense), net</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">0.4</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">(0.2</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
<td align="right"><font size="2" face="Arial">0.4</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">(0.2</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
</tr>
<tr valign="top">
<td align="left"><font size="2" face="Arial">Loss on extinguishment of convertible debt</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">&#151;</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">(0.2</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
<td align="right"><font size="2" face="Arial">&#151;</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">(0.1</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
</tr>
<tr valign="top" bgcolor="#eeeeee">
<td align="left"><font size="2" face="Arial"><b>Income (loss) before income taxes and minority interests</b></font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial"><b>1.0</b></font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial"><b>7.9</b></font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial"><b>(0.9</b></font></td>
<td align="left"><font size="2" face="Arial"><b>)</b></font></td>
<td align="right"><font size="2" face="Arial"><b>5.9</b></font></td>
<td align="left"><font size="2">&nbsp;</font></td>
</tr>
<tr valign="top">
<td align="left"><font size="2" face="Arial">Income tax benefit (expense)</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">0.2</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">(1.1</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
<td align="right"><font size="2" face="Arial">0.8</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">(0.5</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
</tr>
<tr valign="top" bgcolor="#eeeeee">
<td align="left"><font size="2" face="Arial"><b>Income (loss) before minority interests</b></font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial"><b>1.2</b></font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial"><b>6.8</b></font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial"><b>(0.1</b></font></td>
<td align="left"><font size="2" face="Arial"><b>)</b></font></td>
<td align="right"><font size="2" face="Arial"><b>5.4</b></font></td>
<td align="left"><font size="2">&nbsp;</font></td>
</tr>
<tr valign="top">
<td align="left"><font size="2" face="Arial">Minority interests</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">0.0</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">&#151;</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">&#151;</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">(0.1</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
</tr>
<tr valign="top" bgcolor="#eeeeee">
<td align="left"><font size="2" face="Arial"><b>Net income (loss)</b></font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial"><b>1.2%</b></font></td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial"><b>6.8%</b></font></td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial"><b>(0.1%</b></font></td>
<td align="left"><font size="2" face="Arial"><b>)</b></font></td>
<td align="right"><font size="2" face="Arial"><b>5.3%</b></font></td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
</tr>
</table>
<br>
<table width="650" border="0">
  <tr>
    <td height="18"><font size="2" face="Arial"><b>Second Quarter of 2005 vs.
      Second Quarter of 2004 and First Quarter of 2005 </b></font><strong></strong></td>
  </tr>
</table>
<div style="text-indent:3%">
  <p align="justify"><font size="2" face="Arial">Based upon most recently published
    estimates, in the second quarter of 2005, semiconductor industry revenues
    increased year-over-year by approximately 1% for the TAM and remained flat
    for the SAM. On a sequential basis, revenues in the second quarter of 2005
    decreased by approximately 2% for the TAM and 1% for the SAM.</font></p>
</div>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
  <tr valign="top">
    <td><font size="2" face="Arial">&nbsp;</font><font size="2" face="Arial"><i>Net
      Revenues</i></font></td>
  </tr>
</table>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
  <tr valign="top">
    <td align="left"><font size="1" face="Arial">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td colspan="5" align="center"><font size="1" face="Arial"><b>Quarter-ended</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td colspan="3" align="center"><font size="1" face="Arial"><b>% Variation</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td align="left">&nbsp;</td>
    <td align="left">&nbsp;</td>
    <td colspan="5" align="center"><hr size="1" noshade></td>
    <td align="left">&nbsp;</td>
    <td colspan="3" align="center"><hr size="1" noshade></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="top">
    <td align="left"><font size="1" face="Arial">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="center"><font size="1" face="Arial"><b>July 2, 2005</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="center"><font size="1" face="Arial"><b>April 2, 2005</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="center"><font size="1" face="Arial"><b>June 26, 2004</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="center"><font size="1" face="Arial"><b>Sequential</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="center"><font size="1" face="Arial"><b>Year-over-year</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td align="left">&nbsp;</td>
    <td align="left">&nbsp;</td>
    <td align="center"><hr size="1" noshade></td>
    <td align="left">&nbsp;</td>
    <td align="center"><hr size="1" noshade></td>
    <td align="left">&nbsp;</td>
    <td align="center"><hr size="1" noshade></td>
    <td align="left">&nbsp;</td>
    <td align="center"><hr size="1" noshade></td>
    <td align="left">&nbsp;</td>
    <td align="center"><hr size="1" noshade></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="top">
    <td align="left"><font size="1" face="Arial">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td colspan="5" align="center"><font size="1" face="Arial"><b>(unaudited,
          in $ millions)</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td colspan="3" align="left"><font size="1" face="Arial">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="">
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="right"><font size="1">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="right"><font size="1">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="right"><font size="1">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="right"><font size="1">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="right"><font size="1">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
  </tr>
<tr valign="top" bgcolor="#eeeeee">
<td align="left"><font size="2" face="Arial">Net sales</font></td>
<td width="2%" align="left"><font size="2">&nbsp;</font></td>
<td width="10%" align="right"><font size="2" face="Arial"><b>2,161</b></font></td>
<td width="2%" align="left"><font size="2">&nbsp;</font></td>
<td width="10%" align="right"><font size="2" face="Arial">2,081</font></td>
<td width="2%" align="left"><font size="2">&nbsp;</font></td>
<td width="10%" align="right"><font size="2" face="Arial">2,171</font></td>
<td width="2%" align="left"><font size="2">&nbsp;</font></td>
<td width="10%" align="right"><font size="2" face="Arial"><b>3.9%</b></font></td>
<td width="2%" align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td width="10%" align="right"><font size="2" face="Arial"><b>(0.4%</b></font></td>
<td width="2%" align="left"><font size="2" face="Arial"><b>)</b></font></td>
</tr>
<tr valign="top">
<td align="left"><font size="2" face="Arial">Other revenues</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial"><b>1</b></font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">2</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">1</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">&#151;</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">&#151;</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
</tr>
<tr valign="top" bgcolor="#eeeeee">
<td align="left"><font size="2" face="Arial">Net revenues</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial"><b>2,162</b></font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">2,083</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">2,172</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial"><b>3.8%</b></font></td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial"><b>(0.4%</b></font></td>
<td align="left"><font size="2" face="Arial"><b>)</b></font></td>
</tr>
</table>

<br>
<table width="600" border="0">
  <tr>
      <td><font size="2" face="Arial"><i>Sequential comparison</i></font></td>
  </tr>
</table>
<div style="text-indent:3%">
</div>
<div style="text-indent:3%">
<p align="justify"><font size="2" face="Arial">Our second quarter 2005 net revenues
    recorded a 3.8% increase resulting from a significant increase in sales volume
    that more than offset a further decline in selling prices. During the second
    quarter of 2005, due to ongoing pricing pressure in the semiconductor market,
    our average selling prices decreased by approximately 3%.</font></p>
</div>
<div style="text-indent:3%"><p align="justify"><font size="2" face="Arial">All product segments registered an increase in their net revenues.  Net revenues for ASG increased 3.9% mainly due to a more favorable product mix that more than compensated for the lower sales volume and for the average selling price decline.  Main net revenues increases were registered in Automotive, Imaging and Cellular communication, while Data storage net revenues decreased in line with seasonal patterns.  Net revenues for MLD slightly increased 0.5%, as a result of higher sales volumes in most of the product groups. MPG net revenues increased 7.6% mainly due to higher sales volumes and a more favorable product mix, particularly in Flash products.</font></p></div>
<div style="text-indent:3%">
  <p align="justify"><font size="2" face="Arial">Net revenues by segment market
    application mainly increased in Telecom, Automotive, Computer as well as Industrial
    and Other, by approximately 10%, 5%, 3% and 1% respectively, while Consumer
    decreased by approximately 4%. The foregoing are estimates within a variance
    of 5%-to-10% in absolute dollar amounts of the relative weighting of each
    of our targeted market segments.</font></p>
</div>
<p align="center"><font face="Arial" size="2">12</font></p>
<hr noshade align="center" width="100%" size="2">
<div style="page-break-before:always"></div>
<page>
<div style="text-indent:3%"><p align="justify"><font size="2" face="Arial">By location of order shipment, major increases in net revenues were registered in the America, Asia Pacific, Europe and Emerging Markets regions, where revenues increased by approximately 7%, 4% and 3% for both Europe and Emerging Markets, respectively, while Japan revenues decreased by 2%. </font></p></div>
<div style="text-indent:3%"><p align="justify"><font size="2" face="Arial">In the second quarter of 2005, we had several large customers, with the largest one, the Nokia group of companies, accounting for approximately 22% of our net revenues, increasing from the 20% it accounted for during the first quarter of 2005. Our top ten original equipment manufacturer customers accounted for approximately 49% of our net revenues in the second quarter of 2005 compared to approximately 48% of our net revenues in the first quarter of 2005.</font></p></div>
<table width="600" border="0">
  <tr>
    <td><font size="2" face="Arial"><i>Year-over-year comparison</i></font></td>
  </tr>
</table>
<div style="text-indent:3%"><p align="justify"><font size="2" face="Arial">Our second quarter 2005 net revenues slightly decreased compared to the second quarter of 2004. Our higher sales volume and improved product mix were more than offset by the negative impact of the decline in our average selling prices.  Due to ongoing pricing pressure in the semiconductor market, during the second quarter of 2005, our average selling prices decreased by approximately 6% compared to the second quarter of 2004. </font></p></div>
<div style="text-indent:3%"><p align="justify"><font size="2" face="Arial">With respect to our product segments, ASG net revenues increased while MLD and MPG net revenues registered a decrease.  ASG net revenues increase 4.6% due to higher sales volume and a more favorable product mix, mainly in Automotive, Data storage, Imaging and Cellular communication.  The volume increase and the more favorable product mix were partially offset by a persisting decline in average selling prices.  Net revenues for MLD decreased 5.7% mainly due to the decline in selling prices and a less favorable product mix that more than compensated for the sales volume increase.  Power MOSFETS, Standard Linear, Advanced Analog and Microcontrollers products benefited from a volume increase, while Discrete products
registered a decrease in sales volume.  MPG net revenues decreased 7.1% as a result of a significant decline in average selling prices, which was partially offset by the sales volume increase.  The major decrease in net revenues of MPG was mainly registered in Other Memory and Smart Card products while Flash registered a decline of approximately 2%.</font></p></div>
<div style="text-indent:3%">
  <p align="justify"><font size="2" face="Arial">Net revenues by segment market
    application increased in Computer by approximately 12% and in both Automotive
    and Telecom by 8%. Consumer and Industrial and Other, however, both decreased
    by approximately 16%. The foregoing are estimates within a variance of 5%-to-10%
    in absolute dollar amounts of the relative weighting of each of our targeted
    market segments.</font></p>
</div>
<div style="text-indent:3%"><p align="justify"><font size="2" face="Arial">By location of order shipment, there was a mixed trend; with Europe and Asia Pacific registering major increases in net revenues approximately 4% and 2% respectively, while Japan, Emerging Markets and America revenues decreased by 28%, 7% and 5%, respectively. </font></p></div>
<div style="text-indent:3%"><p align="justify"><font size="2" face="Arial">We had several large customers, with the largest one, the Nokia group of companies, accounting for approximately 22% of our second quarter 2005 net revenues, which was higher than the 15% it accounted for during the second quarter of 2004.  Our top ten original equipment manufacturer customers accounted for approximately 49% of our net revenues compared to approximately 43% of our net revenues in the second quarter of 2004.</font></p></div>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
  <tr valign="top">
    <td><font size="2" face="Arial">&nbsp;</font><font size="2" face="Arial"><i>Gross
      profit</i></font></td>
  </tr>
</table>
<table width="100%" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td align="left"><font size="1" face="Arial">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td colspan="5" align="center"><font size="1" face="Arial"><b>Quarter-ended</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td colspan="3" align="center"><font size="1" face="Arial"><b>% Variation</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td align="left">&nbsp;</td>
    <td align="left">&nbsp;</td>
    <td colspan="5" align="center"><hr size="1" noshade>
    </td>
    <td align="left">&nbsp;</td>
    <td colspan="3" align="center"><hr size="1" noshade>
    </td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="top">
    <td align="left"><font size="1" face="Arial">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="center"><font size="1" face="Arial"><b>July 2, 2005</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="center"><font size="1" face="Arial"><b>April 2, 2005</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="center"><font size="1" face="Arial"><b>June 26, 2004</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="center"><font size="1" face="Arial"><b>Sequential</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="center"><font size="1" face="Arial"><b>Year-over-year</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td align="left">&nbsp;</td>
    <td align="left">&nbsp;</td>
    <td align="center"><hr size="1" noshade>
    </td>
    <td align="left">&nbsp;</td>
    <td align="center"><hr size="1" noshade>
    </td>
    <td align="left">&nbsp;</td>
    <td align="center"><hr size="1" noshade>
    </td>
    <td align="left">&nbsp;</td>
    <td align="center"><hr size="1" noshade>
    </td>
    <td align="left">&nbsp;</td>
    <td align="center"><hr size="1" noshade>
    </td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="top">
    <td align="left"><font size="1" face="Arial">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td colspan="5" align="center"><font size="1" face="Arial"><b>(unaudited,
          in $ millions)</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td colspan="3" align="left"><font size="1" face="Arial">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="">
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="right"><font size="1">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="right"><font size="1">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="right"><font size="1">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="right"><font size="1">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="right"><font size="1">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
  </tr>
<tr valign="top" bgcolor="#eeeeee">
<td align="left"><font size="2" face="Arial">Cost of sales</font></td>
<td width="2%" align="left"><font size="2">&nbsp;</font></td>
<td width="10%" align="right"><font size="2" face="Arial">(1,448</font></td>
<td width="2%" align="left"><font size="2" face="Arial">)</font></td>
<td width="10%" align="right"><font size="2" face="Arial">(1,398</font></td>
<td width="2%" align="left"><font size="2" face="Arial">)</font></td>
<td width="10%" align="right"><font size="2" face="Arial">(1,360</font></td>
<td width="2%" align="left"><font size="2" face="Arial">)</font></td>
<td width="10%" align="right"><font size="2" face="Arial">(3.6%</font></td>
<td width="2%" align="left"><font size="2" face="Arial">)</font></td>
<td width="10%" align="right"><font size="2" face="Arial">(6.5%</font></td>
<td width="2%" align="left"><font size="2" face="Arial">)</font></td>
</tr>
<tr valign="top">
<td align="left"><font size="2" face="Arial">Gross profit</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">714</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">685</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">812</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">4.4%</font></td>
<td align="left">&nbsp;</td>
<td align="right"><font size="2" face="Arial">(12.1%</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
</tr>
<tr valign="top" bgcolor="#eeeeee">
<td align="left"><font size="2" face="Arial">Gross margin (as a percentage of net revenues)</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">33.0%</font></td>
<td align="left">&nbsp;</td>
<td align="right"><font size="2" face="Arial">32.9%</font></td>
<td align="left">&nbsp;</td>
<td align="right"><font size="2" face="Arial">37.4%</font></td>
<td align="left">&nbsp;</td>
<td align="right"><font size="2" face="Arial">&#151;</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">&#151;</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
</tr>
</table>
<div style="text-indent:3%">
  <p align="justify"><font size="2" face="Arial">Our gross profit increased sequentially
    despite continuous pricing pressure in memory and standard products but decreased
    by 12.1% on a year-over-year basis. Our gross margin slightly increased sequentially
    but decreased significantly on a year-over-year basis. On a sequential basis,
    our gross margin benefited from higher volumes and improved manufacturing
    performance that compensated for the continuing downward pressure on our selling
    prices. The dollar impact was marginal in the second quarter of 2005 since
    a substantial part of our cost of sales was still hedged at exchange rates
    of prior periods. On a year-over-year basis, major negative impacts on our
    gross margin originated in the strong decline in our average selling prices
    and the unfavorable effect of the U.S. dollar exchange rate, which exceeded
    the benefits from improved manufacturing efficiencies and higher sales volumes.</font></p>
</div>
<p align="center"><font face="Arial" size="2">13</font></p>
<hr noshade align="center" width="100%" size="2">
<div style="page-break-before:always"></div>
<page>

<table width="100%" cellspacing="0" cellpadding="0" border="0">
  <tr valign="top">
    <td width="3%">&nbsp;</td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="top">
    <td colspan="2"><font size="2" face="Arial">&nbsp;</font><font size="2" face="Arial"><i>Selling,
      general and administrative expenses</i></font></td>
  </tr>
</table>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
  <tr valign="top">
    <td align="left"><font size="1" face="Arial">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td colspan="5" align="center"><font size="1" face="Arial"><b>Quarter-ended</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td colspan="3" align="center"><font size="1" face="Arial"><b>% Variation</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td align="left">&nbsp;</td>
    <td align="left">&nbsp;</td>
    <td colspan="5" align="center"><hr size="1" noshade>
    </td>
    <td align="left">&nbsp;</td>
    <td colspan="3" align="center"><hr size="1" noshade>
    </td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="top">
    <td align="left"><font size="1" face="Arial">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="center"><font size="1" face="Arial"><b>July 2, 2005</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="center"><font size="1" face="Arial"><b>April 2, 2005</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="center"><font size="1" face="Arial"><b>June 26, 2004</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="center"><font size="1" face="Arial"><b>Sequential</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="center"><font size="1" face="Arial"><b>Year-over-year</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td align="left">&nbsp;</td>
    <td align="left">&nbsp;</td>
    <td align="center"><hr size="1" noshade>
    </td>
    <td align="left">&nbsp;</td>
    <td align="center"><hr size="1" noshade>
    </td>
    <td align="left">&nbsp;</td>
    <td align="center"><hr size="1" noshade>
    </td>
    <td align="left">&nbsp;</td>
    <td align="center"><hr size="1" noshade>
    </td>
    <td align="left">&nbsp;</td>
    <td align="center"><hr size="1" noshade>
    </td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="top">
    <td align="left"><font size="1" face="Arial">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td colspan="5" align="center"><font size="1" face="Arial"><b>(unaudited,
          in $ millions)</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td colspan="3" align="left"><font size="1" face="Arial">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="">
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="right"><font size="1">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="right"><font size="1">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="right"><font size="1">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="right"><font size="1">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="right"><font size="1">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
  </tr>
<tr valign="top" bgcolor="#eeeeee">
<td align="left"><font size="2" face="Arial">Selling, general and administrative expenses</font></td>
<td width="2%" align="left"><font size="2">&nbsp;</font></td>
<td width="10%" align="right"><font size="2" face="Arial">(255</font></td>
<td width="2%" align="left"><font size="2" face="Arial">)</font></td>
<td width="10%" align="right"><font size="2" face="Arial">(265</font></td>
<td width="2%" align="left"><font size="2" face="Arial">)</font></td>
<td width="10%" align="right"><font size="2" face="Arial">(239</font></td>
<td width="2%" align="left"><font size="2" face="Arial">)</font></td>
<td width="10%" align="right"><font size="2" face="Arial">3.6%</font></td>
<td width="2%" align="left">&nbsp;</td>
<td width="10%" align="right"><font size="2" face="Arial">(6.5%</font></td>
<td width="2%" align="left"><font size="2" face="Arial">)</font></td>
</tr>
<tr valign="top">
<td align="left"><font size="2" face="Arial">As a percentage of net revenues</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">(11.8%</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
<td align="right"><font size="2" face="Arial">(12.7%</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
<td align="right"><font size="2" face="Arial">(11.0%</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
<td align="right"><font size="2" face="Arial">&#151;</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">&#151;</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
</tr>
</table>
<div style="text-indent:3%"><p align="justify"><font size="2" face="Arial">Our selling, general and administrative expenses decreased sequentially due to one-time compensation and related charges of $15 million recorded in the first quarter of 2005.  As a percentage of sales, however, second quarter of 2005 ratio at 11.8% was improving compared to the 12.7% of the first quarter of 2005 or 12.0% excluding the one-time compensation charges.  Our selling, general and administrative expenses increased on a year-over-year basis mainly due to the weaker U.S. dollar and to higher spending in marketing activities associated with our program to broaden our customer base.  </font></p></div>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
  <tr valign="top">
    <td><font size="2" face="Arial">&nbsp;</font><font size="2" face="Arial"><i>Research
      and development expenses</i></font></td>
  </tr>
</table>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
  <tr valign="top">
    <td align="left"><font size="1" face="Arial">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td colspan="5" align="center"><font size="1" face="Arial"><b>Quarter-ended</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td colspan="3" align="center"><font size="1" face="Arial"><b>% Variation</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td align="left">&nbsp;</td>
    <td align="left">&nbsp;</td>
    <td colspan="5" align="center"><hr size="1" noshade>
    </td>
    <td align="left">&nbsp;</td>
    <td colspan="3" align="center"><hr size="1" noshade>
    </td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="top">
    <td align="left"><font size="1" face="Arial">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="center"><font size="1" face="Arial"><b>July 2, 2005</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="center"><font size="1" face="Arial"><b>April 2, 2005</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="center"><font size="1" face="Arial"><b>June 26, 2004</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="center"><font size="1" face="Arial"><b>Sequential</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="center"><font size="1" face="Arial"><b>Year-over-year</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td align="left">&nbsp;</td>
    <td align="left">&nbsp;</td>
    <td align="center"><hr size="1" noshade>
    </td>
    <td align="left">&nbsp;</td>
    <td align="center"><hr size="1" noshade>
    </td>
    <td align="left">&nbsp;</td>
    <td align="center"><hr size="1" noshade>
    </td>
    <td align="left">&nbsp;</td>
    <td align="center"><hr size="1" noshade>
    </td>
    <td align="left">&nbsp;</td>
    <td align="center"><hr size="1" noshade>
    </td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="top">
    <td align="left"><font size="1" face="Arial">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td colspan="5" align="center"><font size="1" face="Arial"><b>(unaudited,
          in $ millions)</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td colspan="3" align="left"><font size="1" face="Arial">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="">
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="right"><font size="1">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="right"><font size="1">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="right"><font size="1">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="right"><font size="1">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="right"><font size="1">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
  </tr>
<tr valign="top" bgcolor="#eeeeee">
<td align="left"><font size="2" face="Arial">Research and development expenses</font></td>
<td width="2%" align="left"><font size="2">&nbsp;</font></td>
<td width="10%" align="right"><font size="2" face="Arial">(423</font></td>
<td width="2%" align="left"><font size="2" face="Arial">)</font></td>
<td width="10%" align="right"><font size="2" face="Arial">(404</font></td>
<td width="2%" align="left"><font size="2" face="Arial">)</font></td>
<td width="10%" align="right"><font size="2" face="Arial">(384</font></td>
<td width="2%" align="left"><font size="2" face="Arial">)</font></td>
<td width="10%" align="right"><font size="2" face="Arial">(4.8%</font></td>
<td width="2%" align="left"><font size="2" face="Arial">)</font></td>
<td width="10%" align="right"><font size="2" face="Arial">(10.1%</font></td>
<td width="2%" align="left"><font size="2" face="Arial">)</font></td>
</tr>
<tr valign="top">
<td align="left"><font size="2" face="Arial">As a percentage of net revenues</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">(19.6%</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
<td align="right"><font size="2" face="Arial">(19.4%</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
<td align="right"><font size="2" face="Arial">(17.7%</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
<td align="right"><font size="2" face="Arial">&#151;</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">&#151;</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
</tr>
</table>
<div style="text-indent:3%">
  <p align="justify"><font size="2" face="Arial">Our research and development
    expenses increased sequentially, mainly due to euro-denominated expenses reported
    in dollars at higher than prior period effective exchange rate, as well as
    accelerated technology development activities. On a year-over-year basis,
    our research and development expenses increased due to higher levels of investment
    in research and development activities as well as the actual U.S. dollar exchange
    rate impact. </font></p>
</div>
<div style="text-indent:3%"><p align="justify"><font size="2" face="Arial">The foregoing impacts translated into a slight sequential increase and a more significant increase on a year-over-year basis in R&amp;D expenses as a percentage of net revenues.  </font></p></div>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
  <tr valign="top">
    <td><font size="2" face="Arial">&nbsp;</font><font size="2" face="Arial"><i>Other
      income and expenses, net</i></font></td>
  </tr>
</table>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
  <tr valign="top">
    <td align="left"><font size="1" face="Arial">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td colspan="5" align="center"><font size="1" face="Arial"><b>Quarter ended</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td align="left">&nbsp;</td>
    <td align="left">&nbsp;</td>
    <td align="center"><hr size="1" noshade></td>
    <td align="left"><hr size="1" noshade></td>
    <td align="center"><hr size="1" noshade></td>
    <td align="left"><hr size="1" noshade></td>
    <td align="center"><hr size="1" noshade></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="top">
    <td align="left"><font size="1" face="Arial">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="center"><font size="1" face="Arial"><b>July 2, 2005</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="center"><font size="1" face="Arial"><b>April 2, 2005</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="center"><font size="1" face="Arial"><b>June 26, 2004</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td align="left">&nbsp;</td>
    <td align="left">&nbsp;</td>
    <td align="center"><hr size="1" noshade></td>
    <td align="left">&nbsp;</td>
    <td align="center"><hr size="1" noshade></td>
    <td align="left">&nbsp;</td>
    <td align="center"><hr size="1" noshade></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="top">
    <td align="left"><font size="1" face="Arial">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td colspan="5" align="center"><font size="1" face="Arial"><b>(unaudited,
          in $ millions)</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="">
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="right"><font size="1">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="right"><font size="1">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="right"><font size="1">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
  </tr>
<tr valign="top" bgcolor="#eeeeee">
<td align="left"><font size="2" face="Arial">Research and development funding</font></td>
<td width="2%" align="left"><font size="2">&nbsp;</font></td>
<td width="10%" align="right"><font size="2" face="Arial">13</font></td>
<td width="2%" align="left"><font size="2">&nbsp;</font></td>
<td width="10%" align="right"><font size="2" face="Arial">14</font></td>
<td width="2%" align="left"><font size="2">&nbsp;</font></td>
<td width="10%" align="right"><font size="2" face="Arial">13</font></td>
<td width="2%" align="left"><font size="2">&nbsp;</font></td>
</tr>
<tr valign="top">
<td align="left"><font size="2" face="Arial">Start-up costs</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">(12</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
<td align="right"><font size="2" face="Arial">(22</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
<td align="right"><font size="2" face="Arial">(9</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
</tr>
<tr valign="top" bgcolor="#eeeeee">
<td align="left"><font size="2" face="Arial">Exchange gain (loss) net</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">(5</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
<td align="right"><font size="2" face="Arial">14</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">8</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
</tr>
<tr valign="top">
<td align="left"><font size="2" face="Arial">Patent claim costs</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">(5</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
<td align="right"><font size="2" face="Arial">(5</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
<td align="right"><font size="2" face="Arial">(8</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
</tr>
<tr valign="top" bgcolor="#eeeeee">
<td align="left"><font size="2" face="Arial">Gain on sale of non-current assets</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">6</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">&#151;</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">1</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
</tr>
<tr valign="top">
<td align="left"><font size="2" face="Arial">Other, net</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">1</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">(7</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
<td align="right"><font size="2" face="Arial">(3</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
</tr>
<tr valign="top" bgcolor="#eeeeee">
<td align="left"><font size="2" face="Arial"><b>Other income and expenses, net</b></font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial"><b>(2</b></font></td>
<td align="left"><font size="2" face="Arial"><b>) </b></font></td>
<td align="right"><font size="2" face="Arial"><b>(6</b></font></td>
<td align="left"><font size="2" face="Arial"><b>)</b></font></td>
<td align="right"><font size="2" face="Arial"><b>2</b></font></td>
<td align="left"><font size="2">&nbsp;</font></td>
</tr>
<tr valign="top">
<td align="left"><font size="2" face="Arial">As a percentage of net revenues</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">&#151;</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">(0.3%</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
    <td align="right"><font size="2" face="Arial">0.2%</font></td>
<td align="left">&nbsp;</td>
</tr>
</table>
<div style="text-indent:3%">
  <p align="justify"><font size="2" face="Arial">&#8220;Other income and expenses,
    net&#8221; resulted in an expense of $2 million in the second quarter of 2005,
    compared to an expense of $6 million in the first quarter of 2005 and an income
    of $2 million in the second quarter of 2004 . The main items in the second
    quarter of 2005 were the realization of a gain of $6 million on the sale of
    our investment in Upek Inc. and the recognition of an exchange loss of $5
    million related to realized and unrealized exchange gains and losses related
    to transactions not designated as cash flow hedge denominated in foreign currencies.
    Start-up costs in the second quarter of 2005 were related to our 150-mm fab
    expansion in Singapore and the conversion to 200-mm fab in Agrate (Italy)
    and the build-up of the 300-mm fab in Catania (Italy). Patent claim costs
    included costs associated with several ongoing litigations and claims. Patent
    claim costs are categorized either as patent litigation costs or pre-litigation
    costs, amounting to $3 million and $2 million, respectively. </font></p>
</div>
<p align="center"><font face="Arial" size="2">14</font></p>
<hr noshade align="center" width="100%" size="2">
<div style="page-break-before:always"></div>
<page>

<table width="100%" cellspacing="0" cellpadding="0" border="0">
<tr valign="top">
  <td>&nbsp;</td>
  <td align="left">&nbsp;</td>
</tr>
<tr valign="top">
<td width="3%"><font size="2" face="Arial">&nbsp;</font></td>
<td align="left"><font size="2" face="Arial"><i>Impairment, restructuring charges and other related closure costs</i></font></td>
</tr>
</table>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
  <tr valign="top">
    <td align="left"><font size="1" face="Arial">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td colspan="5" align="center"><font size="1" face="Arial"><b>Quarter ended</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td align="left">&nbsp;</td>
    <td align="left">&nbsp;</td>
    <td align="center"><hr size="1" noshade>
    </td>
    <td align="left"><hr size="1" noshade>
    </td>
    <td align="center"><hr size="1" noshade>
    </td>
    <td align="left"><hr size="1" noshade>
    </td>
    <td align="center"><hr size="1" noshade>
    </td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="top">
    <td align="left"><font size="1" face="Arial">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="center"><font size="1" face="Arial"><b>July 2, 2005</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="center"><font size="1" face="Arial"><b>April 2, 2005</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="center"><font size="1" face="Arial"><b>June 26, 2004</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td align="left">&nbsp;</td>
    <td align="left">&nbsp;</td>
    <td align="center"><hr size="1" noshade>
    </td>
    <td align="left">&nbsp;    </td>
    <td align="center"><hr size="1" noshade>
    </td>
    <td align="left">&nbsp;    </td>
    <td align="center"><hr size="1" noshade>
    </td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="top">
    <td align="left"><font size="1" face="Arial">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td colspan="5" align="center"><font size="1" face="Arial"><b>(unaudited,
          in $ millions)</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="">
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="right"><font size="1">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="right"><font size="1">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="right"><font size="1">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
  </tr>
<tr valign="top" bgcolor="#eeeeee">
<td align="left"><font size="2" face="Arial">Impairment, restructuring charges and other related closure costs</font></td>
<td width="2%" align="left"><font size="2">&nbsp;</font></td>
<td width="10%" align="right"><font size="2" face="Arial">(22</font></td>
<td width="2%" align="left"><font size="2" face="Arial">)</font></td>
<td width="10%" align="right"><font size="2" face="Arial">(78</font></td>
<td width="2%" align="left"><font size="2" face="Arial">)</font></td>
<td width="10%" align="right"><font size="2" face="Arial">(12</font></td>
<td width="2%" align="left"><font size="2" face="Arial">)</font></td>
</tr>
<tr valign="top">
<td align="left"><font size="2" face="Arial">As a percentage of net revenues</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">(1.0%</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
<td align="right"><font size="2" face="Arial">(3.7%</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
<td align="right"><font size="2" face="Arial">(0.6%</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
</tr>
</table>
<div style="text-indent:3%"><p align="justify"><font size="2" face="Arial">Our impairment, restructuring charges and other related closure costs of $22 million for the second quarter of 2005 were composed of:</font></p></div>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
<tr valign="top">
<td width="3%">
<font size="2" face="Arial">&#149;</font></td>
<td>
<font size="2" face="Arial">our new restructuring plan announced in May 2005, which resulted in a $15 million charge for the accounting relevant portion of involuntary and voluntary employee termination benefits, mainly in Europe, and in a $1 million charge for the discontinuation in Europe and in Asia of our Field Programmable Gate Array (&#8220;FPGA&#8221;) non-core development program; and</font></td>
</tr>
<tr valign="top">
  <td>&nbsp;</td>
  <td>&nbsp;</td>
</tr>
</table>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
<tr valign="top">
<td width="3%">
<font size="2" face="Arial">&#149;</font></td>
    <td> <div align="justify"><font size="2" face="Arial">our ongoing 2003 restructuring
        plan and related manufacturing initiatives that generated restructuring
        charges of approximately $6 million, including $4 million restructuring
        charges related to the 150mm fab plan and $2 million restructuring charges
        related to back-end activities. </font></div></td>
</tr>
</table>
<div style="text-indent:3%">
  <p align="justify"><font size="2" face="Arial">In the first quarter of 2005,
    our impairment, restructuring charges and other related closure costs amounted
    to $78 million, including an impairment charge of $63 million mainly related
    to the discontinuation of our customer premises equipment (&#8220;CPE&#8221;)
    modem product line, restructuring charges and other related closure costs
    of $8 million related to our first quarter 2005 restructuring plan and $7
    million related to our 2003 restructuring plan. In the second quarter of 2004,
    our impairment, restructuring charges and other related closure costs amounted
    to $12 million and were mainly related to our 2003 restructuring plan.</font></p>
</div>
<div style="text-indent:3%"><p align="justify"><font size="2" face="Arial">See Note 7 to our Unaudited Interim Consolidated Financial Statements.</font></p></div>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
  <tr valign="top">
    <td><font size="2" face="Arial">&nbsp;</font><font size="2" face="Arial"><i>Operating
      income (loss)</i></font></td>
  </tr>
</table>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
  <tr valign="top">
    <td align="left"><font size="1" face="Arial">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="left"><font size="1" face="Arial">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="center"><font size="1" face="Arial"><b>Quarter ended</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="left"><font size="1" face="Arial">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td align="left">&nbsp;</td>
    <td align="left">&nbsp;</td>
    <td align="center"><hr size="1" noshade>
    </td>
    <td align="left"><hr size="1" noshade>
    </td>
    <td align="center"><hr size="1" noshade>
    </td>
    <td align="left"><hr size="1" noshade>
    </td>
    <td align="center"><hr size="1" noshade>
    </td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="top">
    <td align="left"><font size="1" face="Arial">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="center"><font size="1" face="Arial"><b>July 2, 2005</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="center"><font size="1" face="Arial"><b>April 2, 2005</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="center"><font size="1" face="Arial"><b>June 26, 2004</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td align="left">&nbsp;</td>
    <td align="left">&nbsp;</td>
    <td align="center"><hr size="1" noshade>
    </td>
    <td align="left">&nbsp;    </td>
    <td align="center"><hr size="1" noshade>
    </td>
    <td align="left">&nbsp;    </td>
    <td align="center"><hr size="1" noshade>
    </td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="top">
    <td align="left"><font size="1" face="Arial">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td colspan="5" align="center"><font size="1" face="Arial"><b>(unaudited,
          in $ millions)</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="">
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="right"><font size="1">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="right"><font size="1">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="right"><font size="1">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
  </tr>
<tr valign="top" bgcolor="#eeeeee">
<td align="left"><font size="2" face="Arial">Operating income (loss)</font></td>
<td width="2%" align="left"><font size="2">&nbsp;</font></td>
<td width="10%" align="right"><font size="2" face="Arial">12</font></td>
<td width="2%" align="left"><font size="2">&nbsp;</font></td>
<td width="10%" align="right"><font size="2" face="Arial">(68</font></td>
<td width="2%" align="left"><font size="2" face="Arial">)</font></td>
<td width="10%" align="right"><font size="2" face="Arial">179</font></td>
<td width="2%" align="left"><font size="2">&nbsp;</font></td>
</tr>
<tr valign="top">
<td align="left"><font size="2" face="Arial">As a percentage of net revenues</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">0.6%</font></td>
<td align="left">&nbsp;</td>
<td align="right"><font size="2" face="Arial">(3.2%</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
<td align="right"><font size="2" face="Arial">8.3%</font></td>
<td align="left">&nbsp;</td>
</tr>
</table>
<div style="text-indent:3%"><p align="justify"><font size="2" face="Arial">Our operating result translated from an operating loss of $68 million in the first quarter of 2005 to an operating income of $12 million in the second quarter of 2005, due to the following factors that positively impacted our profitability:</font></p></div>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
<tr valign="top">
<td width="3%">
<font size="2" face="Arial">&#149;</font></td>
<td>
<font size="2" face="Arial">higher sales volumes and improved manufacturing efficiencies that more than compensated for the further decline in our selling prices, and</font></td>
</tr>
<tr valign="top">
  <td>&nbsp;</td>
  <td>&nbsp;</td>
</tr>
</table>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
<tr valign="top">
<td width="3%">
<font size="2" face="Arial">&#149;</font></td>
<td>
<font size="2" face="Arial">the decrease in our total operating expenses from $753 million in the first quarter of 2005, which included the impairment of CPE and one-time compensation and related charges, to $702 million in the second quarter of 2005.</font></td>
</tr>
</table>
<div style="text-indent:3%"><p align="justify"><font size="2" face="Arial">With respect to our product segments, ASG improved its operating income in the second quarter of 2005 to $72 million compared to $65 million in the prior quarter.  MLD operating income decreased to $65 million in the second quarter of 2005 from $71 million in the first quarter of 2005, mainly due to the ongoing pricing pressure, while MPG registered an increase to $66 million in its operating loss in the second quarter of 2005, due to the negative pricing environment in Flash products. </font></p></div>
<div style="text-indent:3%"><p align="justify"><font size="2" face="Arial">Our operating income decreased on a year-over-year basis due to several factors that negatively impacted our profitability: </font></p></div>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
<tr valign="top">
<td width="3%">
<font size="2" face="Arial">&#149;</font></td>
<td>
<font size="2" face="Arial">the negative impact of the ongoing pricing pressure on our net revenues;</font></td>
</tr>
<tr valign="top">
  <td>&nbsp;</td>
  <td>&nbsp;</td>
</tr>
</table>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
<tr valign="top">
<td width="3%">
<font size="2" face="Arial">&#149;</font></td>
<td>
<font size="2" face="Arial">the negative impact of the U.S. dollar decline; and</font></td>
</tr>
<tr valign="top">
  <td>&nbsp;</td>
  <td>&nbsp;</td>
</tr>
</table>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
<tr valign="top">
<td width="3%">
<font size="2" face="Arial">&#149;</font></td>
    <td> <div align="justify"><font size="2" face="Arial">the increase in our total
        operating expenses from $633 million in the second quarter of 2004 to
        $702 million in the second quarter of 2005 due to the increase of impairment,
        restructuring charges and other related closure costs, the negative impact
        of the U.S. dollar, our continuing investment in research and development
        as well as higher spending in marketing activities.</font></div></td>
</tr>
</table>
<p align="center"><font face="Arial" size="2">15</font></p>
<hr noshade align="center" width="100%" size="2">
<div style="page-break-before:always"></div>
<page>
<div style="text-indent:3%"><p align="justify"><font size="2" face="Arial">These negative factors were partially compensated for by improved efficiencies in our manufacturing activities and higher volume of sales. </font></p></div>
<div style="text-indent:3%">
  <p align="justify"><font size="2" face="Arial">With respect to our product segments,
    in the second quarter of 2005, ASG registered an operating income of $72 million,
    significantly lower compared to the operating income of $118 million of the
    second quarter of 2004, as improved sales volume was offset by the negative
    impacts of ongoing pricing pressure and increased operating expenses. MLD
    operating income significantly decreased from $109 million in the second quarter
    of 2004 to $65 million in the second quarter of 2005 due to pricing pressure
    and increased operating expenses. In the second quarter of 2005, MPG registered
    an operating loss of $66&nbsp;million, compared to an operating income of
    $29 million in the second quarter of 2004, mainly due to the negative price
    impact. Besides, all the groups were negatively impacted by the decline in
    the value of the U.S. dollar.</font></p>
  </div>
<div style="text-indent:3%"></div>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
  <tr valign="top">
    <td align="left"><font size="2" face="Arial"><i>Interest income (expense),
      net</i></font></td>
    <td align="left">&nbsp;</td>
    <td align="left">&nbsp;</td>
    <td align="left">&nbsp;</td>
    <td align="center">&nbsp;</td>
    <td align="left">&nbsp;</td>
    <td align="left">&nbsp;</td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="top">
    <td align="left"><font size="1" face="Arial">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="left"><font size="1" face="Arial">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="center"><font size="1" face="Arial"><b>Quarter ended</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="left"><font size="1" face="Arial">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td align="left">&nbsp;</td>
    <td align="left">&nbsp;</td>
    <td align="center"><hr size="1" noshade> </td>
    <td align="left"><hr size="1" noshade> </td>
    <td align="center"><hr size="1" noshade> </td>
    <td align="left"><hr size="1" noshade> </td>
    <td align="center"><hr size="1" noshade> </td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="top">
    <td align="left"><font size="1" face="Arial">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="center"><font size="1" face="Arial"><b>July 2, 2005</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="center"><font size="1" face="Arial"><b>April 2, 2005</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="center"><font size="1" face="Arial"><b>June 26, 2004</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td align="left">&nbsp;</td>
    <td align="left">&nbsp;</td>
    <td align="center"><hr size="1" noshade> </td>
    <td align="left">&nbsp; </td>
    <td align="center"><hr size="1" noshade> </td>
    <td align="left">&nbsp; </td>
    <td align="center"><hr size="1" noshade> </td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="top">
    <td align="left"><font size="1" face="Arial">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td colspan="5" align="center"><font size="1" face="Arial"><b>(unaudited,
      in $ millions)</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="right"><font size="1">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="right"><font size="1">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="right"><font size="1">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td align="left"><font size="2" face="Arial">Interest income (expense), net</font></td>
    <td width="2%" align="left"><font size="2">&nbsp;</font></td>
    <td width="10%" align="right"><font size="2" face="Arial"><b>8</b></font></td>
    <td width="2%" align="left"><font size="2">&nbsp;</font></td>
    <td width="10%" align="right"><font size="2" face="Arial">7</font></td>
    <td width="2%" align="left"><font size="2">&nbsp;</font></td>
    <td width="10%" align="right"><font size="2" face="Arial">(3</font></td>
    <td width="2%" align="left"><font size="2" face="Arial">)</font></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="justify"><font size="2" face="Arial">Our interest income (expense), net slightly increased sequentially and substantially on a year-over-year basis.  The year-over-year improvement was a large improvement compared to the interest expense, net of $3 million in the second quarter of 2004, reflecting the decrease in interest expense due to our repurchases of our 2010 Bonds and our early redemption of the 2009 LYONs that occurred in 2004.  In addition, the interest rate on cash and cash equivalents has improved from approximately 1.2% in the second quarter of 2004 to 3.1% in the second quarter 2005, while the interest rate on the long-term debt decreased from 1.1% to 0.3%.</font></p>
</div>
<div style="text-indent:3%"></div>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
  <tr valign="top">
    <td align="left"><font size="2" face="Arial"><i>Income tax benefit (expense)</i></font></td>
    <td align="left">&nbsp;</td>
    <td align="left">&nbsp;</td>
    <td align="left">&nbsp;</td>
    <td align="center">&nbsp;</td>
    <td align="left">&nbsp;</td>
    <td align="left">&nbsp;</td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="top">
    <td align="left"><font size="1" face="Arial">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="left"><font size="1" face="Arial">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="center"><font size="1" face="Arial"><b>Quarter ended</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="left"><font size="1" face="Arial">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td align="left">&nbsp;</td>
    <td align="left">&nbsp;</td>
    <td align="center"><hr size="1" noshade> </td>
    <td align="left"><hr size="1" noshade> </td>
    <td align="center"><hr size="1" noshade> </td>
    <td align="left"><hr size="1" noshade> </td>
    <td align="center"><hr size="1" noshade> </td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="top">
    <td align="left"><font size="1" face="Arial">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="center"><font size="1" face="Arial"><b>July 2, 2005</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="center"><font size="1" face="Arial"><b>April 2, 2005</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="center"><font size="1" face="Arial"><b>June 26, 2004</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td align="left">&nbsp;</td>
    <td align="left">&nbsp;</td>
    <td align="center"><hr size="1" noshade> </td>
    <td align="left">&nbsp; </td>
    <td align="center"><hr size="1" noshade> </td>
    <td align="left">&nbsp; </td>
    <td align="center"><hr size="1" noshade> </td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="top">
    <td align="left"><font size="1" face="Arial">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td colspan="5" align="center"><font size="1" face="Arial"><b>(unaudited,
      in $ millions)</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="right"><font size="1">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="right"><font size="1">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="right"><font size="1">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td align="left"><font size="2" face="Arial">Income tax benefit (expense)</font></td>
    <td width="2%" align="left"><font size="2">&nbsp;</font></td>
    <td width="10%" align="right"><font size="2" face="Arial"><b>5</b></font></td>
    <td width="2%" align="left"><font size="2">&nbsp;</font></td>
    <td width="10%" align="right"><font size="2" face="Arial">31</font></td>
    <td width="2%" align="left"><font size="2">&nbsp;</font></td>
    <td width="10%" align="right"><font size="2" face="Arial">(23</font></td>
    <td width="2%" align="left"><font size="2" face="Arial">)</font></td>
  </tr>
</table>
<div style="text-indent:3%"><p align="justify"><font size="2" face="Arial">During the second quarter of 2005, we incurred an income tax benefit of $5 million, which was composed of a tax credit of $18 million credit in relation to the application of the Extraterritorial Income Exclusion (ETI) rules in the United States, an income tax charge of $10 million related to an increased provision on ongoing tax audits and a charge of $3 million as quarterly income taxes.</font></p></div>
<div style="text-indent:3%"><p align="justify"><font size="2" face="Arial">Excluding our tax credit and increased provision, our effective tax rate was 15.9% in the second quarter of 2005 compared 16.4% in the first quarter of 2005 and 13.4% in the second quarter of 2004. The effective tax rate for the second quarter of 2005 was computed on the basis of expected tax charges in each jurisdiction. Our tax rate is variable and depends on changes in the level of operating income within various local jurisdictions and on changes in the applicable taxation rates of these jurisdictions, as well as changes in estimated tax provisions due to new events. We currently enjoy certain tax benefits in some countries; as such benefits may not be available in the future due to changes in the local
jurisdictions, our effective tax rate could be different in future quarters and may increase in the coming years. </font></p></div>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
  <tr valign="top">
    <td><font size="2" face="Arial">&nbsp;</font><font size="2" face="Arial"><i>Net
      income (loss)</i></font></td>
  </tr>
</table>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
  <tr valign="top">
    <td align="left"><font size="1" face="Arial">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="left"><font size="1" face="Arial">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="center"><font size="1" face="Arial"><b>Quarter ended</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="left"><font size="1" face="Arial">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td align="left">&nbsp;</td>
    <td align="left">&nbsp;</td>
    <td align="center"><hr size="1" noshade>
    </td>
    <td align="left"><hr size="1" noshade>
    </td>
    <td align="center"><hr size="1" noshade>
    </td>
    <td align="left"><hr size="1" noshade>
    </td>
    <td align="center"><hr size="1" noshade>
    </td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="top">
    <td align="left"><font size="1" face="Arial">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="center"><font size="1" face="Arial"><b>July 2, 2005</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="center"><font size="1" face="Arial"><b>April 2, 2005</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="center"><font size="1" face="Arial"><b>June 26, 2004</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td align="left">&nbsp;</td>
    <td align="left">&nbsp;</td>
    <td align="center"><hr size="1" noshade>
    </td>
    <td align="left">&nbsp;    </td>
    <td align="center"><hr size="1" noshade>
    </td>
    <td align="left">&nbsp;    </td>
    <td align="center"><hr size="1" noshade>
    </td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="top">
    <td align="left"><font size="1" face="Arial">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td colspan="5" align="center"><font size="1" face="Arial"><b>(unaudited,
          in $ millions)</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="">
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="right"><font size="1">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="right"><font size="1">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="right"><font size="1">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
  </tr>
<tr valign="top" bgcolor="#eeeeee">
<td align="left"><font size="2" face="Arial">Net income (loss)</font></td>
<td width="2%" align="left"><font size="2">&nbsp;</font></td>
<td width="10%" align="right"><font size="2" face="Arial">26</font></td>
<td width="2%" align="left"><font size="2">&nbsp;</font></td>
<td width="10%" align="right"><font size="2" face="Arial">(31</font></td>
<td width="2%" align="left"><font size="2" face="Arial">)</font></td>
<td width="10%" align="right"><font size="2" face="Arial">148</font></td>
<td width="2%" align="left"><font size="2">&nbsp;</font></td>
</tr>
<tr valign="top">
<td align="left"><font size="2" face="Arial">As a percentage of net revenues</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">1.2%</font></td>
<td align="left">&nbsp;</td>
<td align="right"><font size="2" face="Arial">(1.5%</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
<td align="right"><font size="2" face="Arial">6.8%</font></td>
<td align="left">&nbsp;</td>
</tr>
</table>
<div style="text-indent:3%"><p align="justify"><font size="2" face="Arial">For the second quarter of 2005, we reported a net income of $26 million, compared to a net loss of $31 million in the first quarter of 2005 and a net income of $148 million in the second quarter of 2004.  Basic and diluted earnings per share for the second quarter of 2005 were $0.03 per share, respectively, compared to basic and diluted loss per share of $0.03 for the first quarter of 2005 and compared to basic and diluted earnings of $0.17 and $0.16 per share, respectively, for the second quarter of 2004. </font></p></div>
<p align="center"><font face="Arial" size="2">16</font></p>
<hr noshade align="center" width="100%" size="2">
<div style="page-break-before:always"></div>
<page>
<table width="650" border="0">
  <tr>
    <td><font size="2" face="Arial"><b>First Half of 2005 vs. First Half of 2004</b></font><strong></strong></td>
  </tr>
</table>
<div style="text-indent:3%">
  <p align="justify"><font size="2" face="Arial">Based upon most recently published
    estimates, in the first half of 2005, semiconductor industry revenue increased
    year-over-year by approximately 7% for the TAM and 5% for the SAM.</font></p>
</div>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
  <tr valign="top">
    <td align="left"><font size="2" face="Arial"><i>Net Revenues</i></font></td>
    <td align="left">&nbsp;</td>
    <td colspan="5" align="center"><font size="1" face="Arial"><b>Six Months Ended</b></font></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="top">
    <td align="left"><font size="1" face="Arial">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="center"><font size="1" face="Arial"><b>July 2, 2005</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="center"><font size="1" face="Arial"><b>June 26, 2004</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="center"><font size="1" face="Arial"><b>% Variation</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td align="left">&nbsp;</td>
    <td align="left">&nbsp;</td>
    <td align="center"><hr size="1" noshade> </td>
    <td align="left">&nbsp; </td>
    <td align="center"><hr size="1" noshade> </td>
    <td align="left">&nbsp; </td>
    <td align="center"><hr size="1" noshade> </td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="top">
    <td align="left"><font size="1" face="Arial">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td colspan="3" align="center"><font size="1" face="Arial"><b>(unaudited in
      $ millions)</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="left"><font size="1" face="Arial">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="">
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="right"><font size="1">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="right"><font size="1">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="right"><font size="1">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td align="left"><font size="2" face="Arial">Net sales</font></td>
    <td width="2%" align="left"><font size="2">&nbsp;</font></td>
    <td width="10%" align="right"><font size="2" face="Arial">4,242</font></td>
    <td width="2%" align="left"><font size="2">&nbsp;</font></td>
    <td width="10%" align="right"><font size="2" face="Arial">4,199</font></td>
    <td width="2%" align="left"><font size="2">&nbsp;</font></td>
    <td width="10%" align="right"><font size="2" face="Arial">1.0%</font></td>
    <td width="2%" align="left">&nbsp;</td>
  </tr>
  <tr valign="top">
    <td align="left"><font size="2" face="Arial">Other revenues</font></td>
    <td align="left"><font size="2">&nbsp;</font></td>
    <td align="right"><font size="2" face="Arial">3</font></td>
    <td align="left"><font size="2">&nbsp;</font></td>
    <td align="right"><font size="2" face="Arial">2</font></td>
    <td align="left"><font size="2">&nbsp;</font></td>
    <td align="right"><font size="2" face="Arial">&#151;</font></td>
    <td align="left"><font size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td align="left"><font size="2" face="Arial">Net revenues</font></td>
    <td align="left"><font size="2">&nbsp;</font></td>
    <td align="right"><font size="2" face="Arial">4,245</font></td>
    <td align="left"><font size="2">&nbsp;</font></td>
    <td align="right"><font size="2" face="Arial">4,201</font></td>
    <td align="left"><font size="2">&nbsp;</font></td>
    <td align="right"><font size="2" face="Arial">1.0%</font></td>
    <td align="left">&nbsp;</td>
  </tr>
</table>
<div style="text-indent:3%"><p align="justify"><font size="2" face="Arial">Our first half 2005 revenues increased 1.0% compared to the first half of 2004. This was mainly due to the higher sales volume and a more favorable product mix that were largely offset by the strong negative impact of the decline in selling prices.  The major increase in net revenues was registered in ASG; MLD net revenues slightly increased while MPG net revenues decreased.  During the first half of 2005, due to ongoing pricing pressure in the semiconductor market, our average selling prices decreased by approximately 6% compared to the first half of 2004.  </font></p></div>
<div style="text-indent:3%"><p align="justify"><font size="2" face="Arial">With respect to our product segments, in the first half of 2005, net revenues for ASG increased 3.5% over the first half of 2004, mainly due to ASG sales volume increase and more favorable product mix that were partially offset by the strong decline in our average selling prices. The increase in ASG net revenues was mainly due to higher sales in Automotive, Data storage, Imaging and Cellular communication, while Digital Consumer registered a decline.  First half 2005 net revenues for MLD slightly increased 1.0% compared to the first half of 2004, mainly due to volume increases in most of the product groups.  MLD net revenues were impacted by the negative price trend.  MPG net revenues in the first half of 2005
decreased 4.9% in comparison to the first half of 2004, as a result of the strong decline in selling prices, which could not be compensated by the sales volumes increases.  Smart Card revenues were increasing by approximately 4% while total Flash sales were decreasing by approximately 4%. </font></p></div>
<div style="text-indent:3%">
  <p align="justify"><font size="2" face="Arial">Net revenues by segment market
    application increased in Automotive by approximately 10%, Computer by 8% and
    Telecom by 5%, while Consumer and Industrial and Other decreased by 10% and
    9%, respectively. The foregoing are estimates within a variance of 5%-to-10%
    in absolute dollar amounts of the relative weighting of each of our targeted
    market segments.</font></p>
</div>
<div style="text-indent:3%"><p align="justify"><font size="2" face="Arial">By location of order shipment, major increases in net revenues were registered Asia Pacific and Europe, which revenues increased by approximately 4%, while Japan, North America and Emerging Markets regions&#8217; revenues decreased by 22%, 6% and 3%, respectively.</font></p></div>
<div style="text-indent:3%"><p align="justify"><font size="2" face="Arial">In the first half of 2005, we had several large customers, with the largest one, the Nokia group of companies, accounting for approximately 21% of our net revenues, significantly increasing from 15% it accounted for during the first half of 2004. Our top ten original equipment manufacturer customers accounted for approximately 48% of our net revenues in the first half of 2005 compared to approximately 43% of our net revenues in the first half of 2004. </font></p></div>
<p align="center"><font face="Arial" size="2">17</font></p>
<hr noshade align="center" width="100%" size="2">
<div style="page-break-before:always"></div>
<page>

<div style="text-indent:3%">
<table width="650" border="0">
  <tr>
    <td><font size="2" face="Arial"><i>Gross profit</i></font></td>
  </tr>
</table>
<br>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
  <tr valign="top">
    <td align="left">&nbsp;</td>
    <td align="left">&nbsp;</td>
    <td colspan="5" align="center"><font size="1" face="Arial"><b>Six Months Ended</b></font></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="top">
    <td align="left"><font size="1" face="Arial">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="center"><font size="1" face="Arial"><b>July 2, 2005</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="center"><font size="1" face="Arial"><b>June 26, 2004</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="center"><font size="1" face="Arial"><b>% Variation</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td align="left">&nbsp;</td>
    <td align="left">&nbsp;</td>
    <td align="center"><hr size="1" noshade> </td>
    <td align="left">&nbsp; </td>
    <td align="center"><hr size="1" noshade> </td>
    <td align="left">&nbsp; </td>
    <td align="center"><hr size="1" noshade> </td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="top">
    <td align="left"><font size="1" face="Arial">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td colspan="3" align="center"><font size="1" face="Arial"><b>(unaudited,
      in $ millions)</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="left"><font size="1" face="Arial">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="">
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="right"><font size="1">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="right"><font size="1">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="right"><font size="1">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td align="left"><font size="2" face="Arial">Cost of sales</font></td>
    <td width="2%" align="left"><font size="2">&nbsp;</font></td>
    <td width="10%" align="right"><font size="2" face="Arial">(2,846</font></td>
    <td width="2%" align="left"><font size="2" face="Arial">)</font></td>
    <td width="10%" align="right"><font size="2" face="Arial">(2,671</font></td>
    <td width="2%" align="left"><font size="2" face="Arial">)</font></td>
    <td width="10%" align="right"><font size="2" face="Arial">(6.6%</font></td>
    <td width="2%" align="left"><font size="2" face="Arial">)</font></td>
  </tr>
  <tr valign="top">
    <td align="left"><font size="2" face="Arial">Gross profit</font></td>
    <td align="left"><font size="2">&nbsp;</font></td>
    <td align="right"><font size="2" face="Arial">1,399</font></td>
    <td align="left"><font size="2">&nbsp;</font></td>
    <td align="right"><font size="2" face="Arial">1,530</font></td>
    <td align="left"><font size="2">&nbsp;</font></td>
    <td align="right"><font size="2" face="Arial">(8.6%</font></td>
    <td align="left"><font size="2" face="Arial">)</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td align="left"><font size="2" face="Arial">Gross margin (as a percentage
      of net revenues)</font></td>
    <td align="left"><font size="2">&nbsp;</font></td>
    <td align="right"><font size="2" face="Arial">32.9%</font></td>
    <td align="left">&nbsp;</td>
    <td align="right"><font size="2" face="Arial">36.4%</font></td>
    <td align="left">&nbsp;</td>
    <td align="left"><font size="2" face="Arial">&nbsp;</font></td>
    <td align="left"><font size="2">&nbsp;</font></td>
  </tr>
</table>
<div style="text-indent:3%"><p align="justify"><font size="2" face="Arial">Our gross margin in the first half of 2005 decreased to 32.9% compared to 36.4% in the first half of 2004, as a result of the continuing pricing pressure and the negative impact of the U.S. dollar decline, which more than offset the benefits achieved from improved manufacturing efficiencies and higher sales volumes. </font></p></div>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
  <tr valign="top">
    <td align="left"><font size="1" face="Arial">&nbsp;</font><font size="2" face="Arial"><i>Selling,
      general and administrative expenses</i></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td colspan="5" align="left"><div align="center"><font size="1" face="Arial"><b>Six
        Months Ended</b></font></div></td>
    <td align="left"><font size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td align="left"><font size="1" face="Arial">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="center"><font size="1" face="Arial"><b>July 2, 2005</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="center"><font size="1" face="Arial"><b>June 26, 2004</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="center"><font size="1" face="Arial"><b>% Variation</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td align="left">&nbsp;</td>
    <td align="left">&nbsp;</td>
    <td align="center"><hr size="1" noshade> </td>
    <td align="left">&nbsp; </td>
    <td align="center"><hr size="1" noshade> </td>
    <td align="left">&nbsp; </td>
    <td align="center"><hr size="1" noshade> </td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="top">
    <td align="left"><font size="1" face="Arial">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td colspan="3" align="center"><font size="1" face="Arial"><b>(unaudited,
      in $ millions)</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="left"><font size="1" face="Arial">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="">
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="right"><font size="1">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="right"><font size="1">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="right"><font size="1">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td align="left"><font size="2" face="Arial">Selling, general and administrative
      expenses</font></td>
    <td width="2%" align="left"><font size="2">&nbsp;</font></td>
    <td width="10%" align="right"><font size="2" face="Arial">(519</font></td>
    <td width="2%" align="left"><font size="2" face="Arial">)</font></td>
    <td width="10%" align="right"><font size="2" face="Arial">(469</font></td>
    <td width="2%" align="left"><font size="2" face="Arial">)</font></td>
    <td width="10%" align="right"><font size="2" face="Arial">(10.6%</font></td>
    <td width="2%" align="left"><font size="2" face="Arial">)</font></td>
  </tr>
  <tr valign="top">
    <td align="left"><font size="2" face="Arial">As a percentage of net revenues</font></td>
    <td align="left"><font size="2">&nbsp;</font></td>
    <td align="right"><font size="2" face="Arial">(12.2%</font></td>
    <td align="left"><font size="2" face="Arial">)</font></td>
    <td align="right"><font size="2" face="Arial">(11.2%</font></td>
    <td align="left"><font size="2" face="Arial">)</font></td>
    <td align="left"><font size="2" face="Arial">&nbsp;</font></td>
    <td align="left"><font size="2">&nbsp;</font></td>
  </tr>
</table>
<div style="text-indent:3%"><p align="justify"><font size="2" face="Arial">Our selling, general and administrative expenses increased by 10.6% in the first half of 2005 compared to the first half of 2004.  This increase was mainly related to </font></p></div>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
<tr valign="top">
<td width="3%">
<font size="2" face="Arial">&#149;</font></td>
<td>
<font size="2" face="Arial">the strongly negative impact of the decline of the U.S. dollar</font></td>
</tr>
<tr valign="top">
  <td>&nbsp;</td>
  <td>&nbsp;</td>
</tr>
</table>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
<tr valign="top">
<td width="3%">
<font size="2" face="Arial">&#149;</font></td>
    <td> <font size="2" face="Arial">the previously announced $15 million one-time
      compensation charges to be paid to the former CEO and three other retired
      senior executives as decided by our Supervisory Board and recorded in the
      first quarter of 2005, as well as </font></td>
</tr>
<tr valign="top">
  <td>&nbsp;</td>
  <td>&nbsp;</td>
</tr>
</table>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
<tr valign="top">
<td width="3%">
<font size="2" face="Arial">&#149;</font></td>
<td>
<font size="2" face="Arial">higher spending in marketing activities.</font></td>
</tr>
<tr valign="top">
  <td>&nbsp;</td>
  <td>&nbsp;</td>
</tr>
</table>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
<tr valign="top">
<td width="3%"><font size="2" face="Arial">&nbsp;</font></td>
    <td align="left"><font size="2" face="Arial">&nbsp;</font></td>
</tr>
</table>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
  <tr valign="top">
    <td align="left"><p><font size="1" face="Arial">&nbsp;</font><font size="2" face="Arial"><i>Research
        and development expenses</i></font></p>
      </td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td colspan="5" align="left"><div align="center"><font size="1" face="Arial"><b>Six
        Months Ended</b></font></div></td>
    <td align="left"><font size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td align="left"><font size="1" face="Arial">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="center"><font size="1" face="Arial"><b>July 2, 2005</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="center"><font size="1" face="Arial"><b>June 26, 2004</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="center"><font size="1" face="Arial"><b>% Variation</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td align="left">&nbsp;</td>
    <td align="left">&nbsp;</td>
    <td align="center"><hr size="1" noshade> </td>
    <td align="left">&nbsp; </td>
    <td align="center"><hr size="1" noshade> </td>
    <td align="left">&nbsp; </td>
    <td align="center"><hr size="1" noshade> </td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="top">
    <td align="left"><font size="1" face="Arial">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td colspan="3" align="center"><font size="1" face="Arial"><b>(unaudited,
      in $ millions)</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="left"><font size="1" face="Arial">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="">
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="right"><font size="1">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="right"><font size="1">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="right"><font size="1">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td align="left"><font size="2" face="Arial">Research and development expenses</font></td>
    <td width="2%" align="left"><font size="2">&nbsp;</font></td>
    <td width="10%" align="right"><font size="2" face="Arial">(827</font></td>
    <td width="2%" align="left"><font size="2" face="Arial">)</font></td>
    <td width="10%" align="right"><font size="2" face="Arial">(747</font></td>
    <td width="2%" align="left"><font size="2" face="Arial">)</font></td>
    <td width="10%" align="right"><font size="2" face="Arial">(10.7%</font></td>
    <td width="2%" align="left"><font size="2" face="Arial">)</font></td>
  </tr>
  <tr valign="top">
    <td align="left"><font size="2" face="Arial">As a percentage of net revenues</font></td>
    <td align="left"><font size="2">&nbsp;</font></td>
    <td align="right"><font size="2" face="Arial">(19.5%</font></td>
    <td align="left"><font size="2" face="Arial">)</font></td>
    <td align="right"><font size="2" face="Arial">(17.8%</font></td>
    <td align="left"><font size="2" face="Arial">)</font></td>
    <td align="left"><font size="2" face="Arial">&nbsp;</font></td>
    <td align="left"><font size="2">&nbsp;</font></td>
  </tr>
</table>
<div style="text-indent:3%"><p align="justify"><font size="2" face="Arial">In the first half of 2005, research and development expenses increased by 10.7% compared to the first half of 2004, due to the strongly negative impact of the decline of the U.S. dollar and higher levels of investment in research and development activities. In addition, in the first half of 2005, research and development expenses included a $5 million one-time termination charge for two former executives recorded in the first quarter of 2005.  Our research and development staff increased by approximately 100 people during the last twelve months to reach 9,700 people as of July 2, 2005. As a percentage of net revenues, research and development expenses grew at a higher rate than our net revenues, increasing from 17.8%
in the first half of 2004 up to 19.5% in the first half of 2005.</font></p></div>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
  <tr valign="top">
    <td align="left"><font size="2" face="Arial"><i>Other income and expenses,
      net</i></font></td>
    <td align="left">&nbsp;</td>
    <td colspan="3" align="center"><font size="1" face="Arial"><b>Six Months Ended</b></font></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="top">
    <td align="left"><font size="1" face="Arial">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="center"><font size="1" face="Arial"><b>July 2, 2005</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="center"><font size="1" face="Arial"><b>June 26, 2004</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td align="left">&nbsp;</td>
    <td align="left">&nbsp;</td>
    <td align="center"><hr size="1" noshade></td>
    <td align="left">&nbsp;</td>
    <td align="center"><hr size="1" noshade></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="top">
    <td align="left"><font size="1" face="Arial">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td colspan="3" align="center"><font size="1" face="Arial"><b>(unaudited,
      in $ millions)</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="">
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="right"><font size="1">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="right"><font size="1">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td align="left"><font size="2" face="Arial">Research and development funding</font></td>
    <td width="2%" align="left"><font size="2">&nbsp;</font></td>
    <td width="10%" align="right"><font size="2" face="Arial">27</font></td>
    <td width="2%" align="left"><font size="2">&nbsp;</font></td>
    <td width="10%" align="right"><font size="2" face="Arial">28</font></td>
    <td width="2%" align="left"><font size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td align="left"><font size="2" face="Arial">Start-up costs</font></td>
    <td align="left"><font size="2">&nbsp;</font></td>
    <td align="right"><font size="2" face="Arial">(34</font></td>
    <td align="left"><font size="2" face="Arial">)</font></td>
    <td align="right"><font size="2" face="Arial">(32</font></td>
    <td align="left"><font size="2" face="Arial">)</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td align="left"><font size="2" face="Arial">Exchange gain (loss) net</font></td>
    <td align="left"><font size="2">&nbsp;</font></td>
    <td align="right"><font size="2" face="Arial">9</font></td>
    <td align="left"><font size="2">&nbsp;</font></td>
    <td align="right"><font size="2" face="Arial">9</font></td>
    <td align="left"><font size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td align="left"><font size="2" face="Arial">Patent claim costs</font></td>
    <td align="left"><font size="2">&nbsp;</font></td>
    <td align="right"><font size="2" face="Arial">(10</font></td>
    <td align="left"><font size="2" face="Arial">)</font></td>
    <td align="right"><font size="2" face="Arial">(14</font></td>
    <td align="left"><font size="2" face="Arial">)</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td align="left"><font size="2" face="Arial">Gain on sale of non-current assets</font></td>
    <td align="left"><font size="2">&nbsp;</font></td>
    <td align="right"><font size="2" face="Arial">6</font></td>
    <td align="left"><font size="2">&nbsp;</font></td>
    <td align="right"><font size="2" face="Arial">6</font></td>
    <td align="left"><font size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td align="left"><font size="2" face="Arial">Other, net</font></td>
    <td align="left"><font size="2">&nbsp;</font></td>
    <td align="right"><font size="2" face="Arial">(6</font></td>
    <td align="left"><font size="2" face="Arial">)</font></td>
    <td align="right"><font size="2" face="Arial">(7</font></td>
    <td align="left"><font size="2" face="Arial">)</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td align="left"><font size="2" face="Arial"><b>Other income and expenses,
      net</b></font></td>
    <td align="left"><font size="2">&nbsp;</font></td>
    <td align="right"><font size="2" face="Arial"><b>(8</b></font></td>
    <td align="left"><font size="2" face="Arial"><b>) </b></font></td>
    <td align="right"><font size="2" face="Arial"><b>(10</b></font></td>
    <td align="left"><font size="2" face="Arial"><b>)</b></font></td>
  </tr>
  <tr valign="top">
    <td align="left"><font size="2" face="Arial">As a percentage of net revenues</font></td>
    <td align="left"><font size="2">&nbsp;</font></td>
    <td align="right"><font size="2" face="Arial">(0.1%</font></td>
    <td align="left"><font size="2" face="Arial">) </font></td>
    <td align="right"><font size="2" face="Arial">(0.1%</font></td>
    <td align="left"><font size="2" face="Arial">)</font></td>
  </tr>
</table>
<div style="text-indent:3%">
<p align="justify"><font size="2" face="Arial">&#8220;Other income and expenses,
    net&#8221; resulted in an expense of $8 million in the first half of 2005,
    compared to an expense of $10 million in the first half of 2004. The most
    important variation was the decrease in patent claim costs of $4 million.
    Start up costs in the first half of 2005 were related to our 150-mm fab expansion
    in Singapore and the conversion to 200-mm fab in Agrate (Italy) and build-up
    of our 300-mm fab in Catania (Italy). Patent claim costs included costs associated
    with several ongoing litigations and claims. Patent claim costs are categorized
    either as patent litigation costs or pre-litigation costs, amounting to $6
    million and $4 million, respectively. The</font></p>
</div>
<p align="center"><font face="Arial" size="2">18</font></p>
<hr noshade align="center" width="100%" size="2">
<div style="page-break-before:always"></div>
<page>
<p align="justify"><font size="2" face="Arial">sale of our share in Upek Inc.,
      in the second quarter of 2005, generated a gain of $6 million. The $6 million
      of miscellaneous charges of the first half of 2005 included a $4 million
      one-time contribution to a non-profitable charitable institution as decided
      by our Supervisory Board.</font></p>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
  <tr valign="top">
    <td align="left"><font size="2" face="Arial"><i>Impairment, restructuring
      charges and other related closure costs</i></font></td>
    <td align="left">&nbsp;</td>
    <td colspan="3" align="center"><font size="1" face="Arial"><b>Six Months Ended</b></font></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="top">
    <td align="left"><font size="1" face="Arial">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="center"><font size="1" face="Arial"><b>July 2, 2005</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="center"><font size="1" face="Arial"><b>June 26, 2004</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td align="left">&nbsp;</td>
    <td align="left">&nbsp;</td>
    <td align="center"><hr size="1" noshade> </td>
    <td align="left">&nbsp;</td>
    <td align="center"><hr size="1" noshade> </td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="top">
    <td align="left"><font size="1" face="Arial">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td colspan="3" align="center"><font size="1" face="Arial"><b>(unaudited,
      in $ millions)</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="">
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="right"><font size="1">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="right"><font size="1">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td align="left"><font size="2" face="Arial">Impairment, restructuring charges
      and other related closure costs</font></td>
    <td width="2%" align="left"><font size="2">&nbsp;</font></td>
    <td width="10%" align="right"><font size="2" face="Arial">(100</font></td>
    <td width="2%" align="left"><font size="2" face="Arial">)</font></td>
    <td width="10%" align="right"><font size="2" face="Arial">(45</font></td>
    <td width="2%" align="left"><font size="2" face="Arial">)</font></td>
  </tr>
  <tr valign="top">
    <td align="left"><font size="2" face="Arial">As a percentage of net revenues</font></td>
    <td align="left"><font size="2">&nbsp;</font></td>
    <td align="right"><font size="2" face="Arial">(2.4%</font></td>
    <td align="left"><font size="2" face="Arial">)</font></td>
    <td align="right"><font size="2" face="Arial">(1.1%</font></td>
    <td align="left"><font size="2" face="Arial">)</font></td>
  </tr>
</table>
<div style="text-indent:3%"><p align="justify"><font size="2" face="Arial">In the first half of 2005, we recorded impairment, restructuring charges and other related closure costs of $100 million. This expense was mainly composed of:</font></p></div>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
<tr valign="top">
<td width="3%">
<font size="2" face="Arial">&#149;</font></td>
    <td> <div align="justify"><font size="2" face="Arial">Our new restructuring plan
        announced in May 2005, which resulted in a $15 million charge for involuntary
        and voluntary employee termination benefits, mainly in Europe, and in
        a $1 million charge for the discontinuation of our Field Programmable
        Gate Array (&#8220;FPGA&#8221;) non-core development program in Asia and
        Europe. The total cost of this restructuring plan is estimated to be in
        a range of between $100 and $130 million and its completion is expected
        for mid-2006.</font></div></td>
</tr>
<tr valign="top">
  <td>&nbsp;</td>
  <td>&nbsp;</td>
</tr>
</table>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
<tr valign="top">
<td width="3%">
<font size="2" face="Arial">&#149;</font></td>
    <td> <div align="justify"><font size="2" face="Arial">Our restructuring and
        reorganization activities initiated in the first quarter of 2005, which
        generated the following charges: a $61 million impairment charge on goodwill
        and other intangible assets for the reduction of Access technology products
        for CPE, a $4 million charge for workforce termination benefits pursuant
        to the exit plan committed in one of our European subsidiaries, and a
        $6 million charge pursuant to the closure of certain sites in Germany
        and in the USA as well as the discontinuation of a development program
        in Singapore. These expenses of $6 million included a $3 million charge
        for employee termination benefits, a $2 million charge for impairment
        of technologies and other intangible assets and a $1 million charge for
        an unused lease. This restructuring plan has been fully completed.</font></div></td>
</tr>
<tr valign="top">
  <td>&nbsp;</td>
  <td>&nbsp;</td>
</tr>
</table>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
<tr valign="top">
<td width="3%">
<font size="2" face="Arial">&#149;</font></td>
    <td> <div align="justify"><font size="2" face="Arial">Our ongoing 2003 restructuring
        plan and related manufacturing initiatives generated restructuring charges
        of approximately $13 million. As of July&nbsp;2, 2005, we have incurred
        $294 million of the total expected approximate $350 million in pre-tax
        charges in connection with our restructuring plan which was announced
        in October 2003. We expect to incur the balance in the coming quarters,
        somewhat later than anticipated due to delays in customers&#8217; qualifications,
        and to complete the plan by mid-2006.</font></div></td>
</tr>
</table>
<div style="text-indent:3%"><p align="justify"><font size="2" face="Arial">In the first half of 2004, we incurred $45 million of impairment, restructuring charges and other related closure costs related to our 2003 restructuring plan.</font></p></div>
<div style="text-indent:3%"><p align="justify"><font size="2" face="Arial">See Note 7 to our Unaudited Interim Consolidated Financial Statements.</font></p></div>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
  <tr valign="top">
    <td align="left"><font size="2" face="Arial"><i>Operating income (loss)</i></font></td>
    <td align="left">&nbsp;</td>
    <td colspan="3" align="center"><font size="1" face="Arial"><b>Six Months Ended</b></font></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="top">
    <td align="left"><font size="1" face="Arial">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="center"><font size="1" face="Arial"><b>July 2, 2005</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="center"><font size="1" face="Arial"><b>June 26, 2004</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td align="left">&nbsp;</td>
    <td align="left">&nbsp;</td>
    <td align="center"><hr size="1" noshade> </td>
    <td align="left">&nbsp;</td>
    <td align="center"><hr size="1" noshade> </td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="top">
    <td align="left"><font size="1" face="Arial">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td colspan="3" align="center"><font size="1" face="Arial"><b>(unaudited,
      in $ millions)</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="">
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="right"><font size="1">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="right"><font size="1">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td align="left"><font size="2" face="Arial">Operating income (loss)</font></td>
    <td width="2%" align="left"><font size="2">&nbsp;</font></td>
    <td width="10%" align="right"><font size="2" face="Arial">(55</font></td>
    <td width="2%" align="left"><font size="2" face="Arial">)</font></td>
    <td width="10%" align="right"><font size="2" face="Arial">259</font></td>
    <td width="2%" align="left"><font size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td align="left"><font size="2" face="Arial">As a percentage of net revenues</font></td>
    <td align="left"><font size="2">&nbsp;</font></td>
    <td align="right"><font size="2" face="Arial">(1.3%</font></td>
    <td align="left"><font size="2" face="Arial">)</font></td>
    <td align="right"><font size="2" face="Arial">6.2%</font></td>
    <td align="left">&nbsp;</td>
  </tr>
</table>
<div style="text-indent:3%"><p align="justify"><font size="2" face="Arial">Our operating result translated from an operating income of $259 million in the first half of 2004 to an operating loss of $55 million in the first half of 2005, due to the factors negatively impacting our profitability as more fully described above.  See &#8220;<i>Business Overview</i>&#8221;. </font></p></div>
<div style="text-indent:3%">
  <p align="justify"><font size="2" face="Arial">In the first half of 2005, ASG
    registered an operating income of $137 million, significantly decreasing from
    the $236 million operating income of the first half of 2004, as improved sales
    volume was insufficient to compensate strong declines in selling prices and
    increased operating expenses. MLD operating income decreased to $136 million
    compared to $180 million in the first half of 2004 mainly due to pricing pressure
    and increased operating expenses. In the first half of 2005, MPG registered
    an operating loss of $128&nbsp;million compared to an operating income of
    $26 million in the first half of 2004, mainly due to the significant negative
    price impact on the sales. All the groups were negatively impacted by the
    decline in the value of the U.S. dollar.</font></p>
</div>
<table width="650" border="0">
  <tr>
    <td><font size="2" face="Arial"><i>Interest income (expense), net</i></font></td>
  </tr>
</table>
<br>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
  <tr valign="top">
    <td align="left">&nbsp;</td>
    <td align="left">&nbsp;</td>
    <td colspan="3" align="center"><font size="1" face="Arial"><b>Six Months Ended</b></font></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="top">
    <td align="left"><font size="1" face="Arial">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="center"><font size="1" face="Arial"><b>July 2, 2005</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="center"><font size="1" face="Arial"><b>June 26, 2004</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td align="left">&nbsp;</td>
    <td align="left">&nbsp;</td>
    <td align="center"><hr size="1" noshade> </td>
    <td align="left">&nbsp;</td>
    <td align="center"><hr size="1" noshade> </td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="top">
    <td align="left"><font size="1" face="Arial">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td colspan="3" align="center"><font size="1" face="Arial"><b>(unaudited,
      in $ millions)</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="right"><font size="1">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="right"><font size="1">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td align="left"><font size="2" face="Arial">Interest income (expense), net</font></td>
    <td width="2%" align="left"><font size="2">&nbsp;</font></td>
    <td width="10%" align="right"><font size="2" face="Arial">15</font></td>
    <td width="2%" align="left"><font size="2">&nbsp;</font></td>
    <td width="10%" align="right"><font size="2" face="Arial">(7</font></td>
    <td width="2%" align="left"><font size="2" face="Arial">)</font></td>
  </tr>
</table>
<div style="text-indent:3%">
  <p align="justify"><font size="2" face="Arial">The interest expense</font><font size="2" face="Arial">
    of $7 million of the first half of 2004 translated into an interest income
    of $15 million recorded in the first half of 2005, reflecting the decrease
    in interest expense due to the repurchases of our 2010 Bonds and our early
    redemption of the 2009 LYONs that occurred in 2004 as well as the increase
    in the interest receivable on our available cash due to rising interest rates.
    </font></p>
  </div>
<p align="center"><font face="Arial" size="2">19</font></p>
<hr noshade align="center" width="100%" size="2">
<div style="page-break-before:always"></div>
<page> <div style="text-indent:3%">
<table width="650" border="0">
  <tr>
    <td><font size="2" face="Arial"><i>Income tax benefit (expense)</i></font></td>
  </tr>
</table>
<br>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
  <tr valign="top">
    <td align="left">&nbsp;</td>
    <td align="left">&nbsp;</td>
    <td colspan="3" align="center"><font size="1" face="Arial"><b>Six Months Ended</b></font></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="top">
    <td align="left"><font size="1" face="Arial">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="center"><font size="1" face="Arial"><b>July 2, 2005</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="center"><font size="1" face="Arial"><b>June 26, 2004</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td align="left">&nbsp;</td>
    <td align="left">&nbsp;</td>
    <td align="center"><hr size="1" noshade> </td>
    <td align="left">&nbsp;</td>
    <td align="center"><hr size="1" noshade> </td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="top">
    <td align="left"><font size="1" face="Arial">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td colspan="3" align="center"><font size="1" face="Arial"><b>(unaudited,
      in $ millions)</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="right"><font size="1">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="right"><font size="1">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td align="left"><font size="2" face="Arial">Income tax benefit (expense)</font></td>
    <td width="2%" align="left"><font size="2">&nbsp;</font></td>
    <td width="10%" align="right"><font size="2" face="Arial">35</font></td>
    <td width="2%" align="left"><font size="2">&nbsp;</font></td>
    <td width="10%" align="right"><font size="2" face="Arial">(22</font></td>
    <td width="2%" align="left"><font size="2" face="Arial">)</font></td>
  </tr>
</table>
<div style="text-indent:3%"><p align="justify"><font size="2" face="Arial">During the first half of 2005, we incurred an income tax benefit of $35 million, which was mainly due to the reversal of certain tax provisions for about $10 million following the conclusion of an advanced pricing agreement for the period 2001 through 2007 with the United States Internal Revenue Service, to an income tax benefit of $18 million in the United States pursuant to the application of the ETI rules and to the net loss of the period.  Our tax rate is variable and depends on changes in the level of operating income within various local jurisdictions and on changes in the applicable taxation rates of these jurisdictions, as well as changes in estimated tax provisions due to new events. We currently enjoy
certain tax benefits in some countries; as such benefits may not be available in the future due to changes in the local jurisdictions, our effective tax rate could be different in future quarters and may increase in the coming years. </font></p></div>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
  <tr valign="top">
    <td><font size="2" face="Arial">&nbsp;</font><font size="2" face="Arial"><i>Net
      income (loss)</i></font></td>
  </tr>
</table>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
  <tr valign="top">
    <td align="left">&nbsp;</td>
    <td align="left">&nbsp;</td>
    <td colspan="3" align="center"><font size="1" face="Arial"><b>Six Months Ended</b></font></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="top">
    <td align="left"><font size="1" face="Arial">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="center"><font size="1" face="Arial"><b>July 2, 2005</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="center"><font size="1" face="Arial"><b>June 26, 2004</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td align="left">&nbsp;</td>
    <td align="left">&nbsp;</td>
    <td align="center"><hr size="1" noshade> </td>
    <td align="left">&nbsp;</td>
    <td align="center"><hr size="1" noshade> </td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="top">
    <td align="left"><font size="1" face="Arial">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td colspan="3" align="center"><font size="1" face="Arial"><b>(unaudited,
      in $ millions)</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="">
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="right"><font size="1">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="right"><font size="1">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="#eeeeee">
    <td align="left"><font size="2" face="Arial">Net income (loss)</font></td>
    <td width="2%" align="left"><font size="2">&nbsp;</font></td>
    <td width="10%" align="right"><font size="2" face="Arial">(5</font></td>
    <td width="2%" align="left"><font size="2" face="Arial">)</font></td>
    <td width="10%" align="right"><font size="2" face="Arial">225</font></td>
    <td width="2%" align="left"><font size="2">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td align="left"><font size="2" face="Arial">As a percentage of net revenues</font></td>
    <td align="left"><font size="2">&nbsp;</font></td>
    <td align="right"><font size="2" face="Arial">(0.1%</font></td>
    <td align="left"><font size="2" face="Arial">)</font></td>
    <td align="right"><font size="2" face="Arial">5.3%</font></td>
    <td align="left">&nbsp;</td>
  </tr>
</table>
<div style="text-indent:3%"><p align="justify"><font size="2" face="Arial">For the first half of 2005, we reported a net loss of $5 million, compared to net income of $225 million in the first half of 2004. Basic and diluted loss per share for the first half of 2005 was $0.01 per share compared to basic and diluted earnings of $0.25 and $0.24 per share, respectively, for the first half of 2004. </font></p></div>
<table width="100%" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td><font size="2" face="Arial">&nbsp;</font><font size="2" face="Arial"><b>Related-Party
      Transactions</b></font></td>
  </tr>
</table>
<div style="text-indent:3%"><p align="justify"><font size="2" face="Arial">On February 27, 2005, the board of directors of France Telecom appointed Didier Lombard, member of our Supervisory Board, as its Chairman and CEO.  France Telecom and its subsidiaries are our suppliers and we will therefore disclose the relevant transactions in our annual report.</font></p></div>
<div style="text-indent:3%"><p align="justify"><font size="2" face="Arial">At a meeting on April&nbsp;26,&nbsp;2005, the Managing Board informed the Supervisory Board about the renewal of a contract for the provision of various telecom-related services with EQUANT, a subsidiary of France Telecom. The Supervisory Board noted the Managing Board&#8217;s assessment of the positive commercial benefits of such contract.  Additionally, the Supervisory Board noted that the contract was concluded at normal and competitive conditions and was based on a long-standing proven business relationship between EQUANT and us, which was established before EQUANT became a controlled subsidiary of France Telecom.</font></p></div>
<table width="100%" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td><font size="2" face="Arial">&nbsp;</font><font size="2" face="Arial"><b>Impact
      of Changes in Exchange Rates</b></font></td>
  </tr>
</table>
<div style="text-indent:3%"><p align="justify"><font size="2" face="Arial">Our results of operations and financial condition can be significantly affected by material changes in exchange rates between the U.S. dollar and other currencies where we maintain our operations, particularly the euro, the Japanese yen and other Asian currencies.</font></p></div>
<div style="text-indent:3%"><p align="justify"><font size="2" face="Arial">As a market rule, the reference currency for the semiconductor industry is the U.S. dollar, and product prices are mainly denominated in U.S. dollars.  However, revenues for certain of our products (primarily dedicated products sold in Europe and Japan) that are quoted in currencies other than the U.S. dollar are directly affected by fluctuations in the value of the U.S. dollar.  Revenues for all other products, which are either quoted in U.S. dollars and billed in U.S. dollars or translated into local currencies for payment, tend not to be affected significantly by fluctuations in exchange rates, except to the extent that there is a lag between changes in currency rates and adjustments in the local currency
equivalent price paid for such products. As a result of the currency variations, the appreciation of the euro compared to the U.S. dollar increases in the short term our level of revenues when reported in U.S. dollars.</font></p></div>
<div style="text-indent:3%"><p align="justify"><font size="2" face="Arial">Certain significant costs incurred by us, such as manufacturing, labor costs and depreciation charges, selling, general and administrative expenses, and research and development expenses, are incurred in the currency of the jurisdictions in which our operations are located, and most of our operations are located in the euro zone or other currency areas. Currency exchange rate fluctuations affect our results of operations because our reporting currency is the U.S. dollar, while we receive a limited part of our revenues, and more importantly, incur the majority of our costs, in currencies other than the U.S. dollar.  In the first half of 2005, the average rate of U.S. dollar during the period declined in value,
particularly against the euro, causing us to report higher expenses and negatively impacting both our gross margin and operating income.  </font></p></div>
<p align="center"><font face="Arial" size="2">20</font></p>
<hr noshade align="center" width="100%" size="2">
<div style="page-break-before:always"></div>
<page>
<div style="text-indent:3%"><p align="justify"><font size="2" face="Arial">Our Consolidated Statement of Income for the first half of 2005 includes income and expense items translated at the average exchange rate for the period.  Our effective average rate of the euro to the U.S. dollar was &euro;1.00 for $1.30 in the first half of 2005 and each of the first and second quarters of 2005 compared to &euro;1.00 for $1.20 in the second quarter of 2004 and &euro;1.00 for $1.23 in the first half of 2004.  These effective exchange rates reflect the actual exchange rates combined with the impact of hedging contracts maturing in the period.  </font></p></div>
<div style="text-indent:3%"><p align="justify"><font size="2" face="Arial">Our principal strategy to reduce the risks associated with exchange rate fluctuations has been to balance as much as possible the proportion of sales to our customers denominated in U.S. dollars with the amount of raw 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. In order to further reduce the exposure to U.S. dollar exchange rate fluctuations, we have hedged certain line items on our income statement, in particular with respect to a portion of cost of goods sold, most of the research and development expenses and certain selling and general and administrative expenses, located in the
euro zone. As of July 2, 2005 these hedging contracts represent a deferred loss of $58 million after tax, registered in other comprehensive income in shareholders&#8217; equity, compared to deferred loss of $32 million after tax as of April 2, 2005 and a deferred profit of $59 million as of December 31, 2004.  As of July 2, 2005, the outstanding hedged amounts to cover manufacturing costs is &euro;470 million and to cover operating expenses is &euro;290 million, both at an average rate of about $1.30 per euro, maturing over the period from September 2005 to January 2006.  Our hedging policy is not intended to cover the full exposure.  In addition, we may not predict in a timely fashion the amount of future transactions in the volatile industry environment.  Consequently, our result of
operations has been and may continue to be impacted by significant fluctuations in exchange rates.  </font></p></div>
<div style="text-indent:3%"><p align="justify"><font size="2" face="Arial">In addition, in order to avoid potential exchange rate risks on our commercial transactions, from time to time, we may purchase or sell forward foreign currency exchange contracts and currency options to cover foreign currency exposure in payables or receivables at our affiliates.  Our management strategies to reduce exchange rate risks have served to mitigate, but not eliminate, the positive or negative impact of exchange rate fluctuations. No assurance may be given that our hedging activities will sufficiently protect us against declines in the value of the dollar, and if the value of the dollar increases, we will record losses in connection with the loss in value of the remaining forward hedging contracts at the
time.  For example, as a result of losses incurred in respect of hedging contracts in the first half of 2005, we recorded charge of $14 million to cost of sales.</font></p></div>
<div style="text-indent:3%"><p align="justify"><font size="2" face="Arial">Assets and liabilities of subsidiaries are, for consolidation purposes, translated into U.S. dollars at the period-end exchange rate.  Income and expenses are translated at the average exchange rate for the period. The balance sheet impact of such translation adjustments has been, and may be expected to be, significant from period to period since a large part of our assets and liabilities are accounted for in euro as their functional currency.  Adjustments resulting from the translation are recorded directly in shareholders&#8217; equity, and are shown as &#8220;accumulated other comprehensive income (loss)&#8221; in the consolidated statements of changes in shareholders&#8217; equity.  As of July 2, 2005, our
outstanding indebtedness was denominated principally in U.S. dollars and, to a limited extent, in euros and in Singapore dollars. </font></p></div>
<div style="text-indent:3%"><p align="justify"><font size="2" face="Arial">For a more detailed discussion, see &#8220;Item 3. <i>Key Information&#150;Risk Factors</i>&#150;Our financial results can be adversely affected by fluctuations in exchange rates, principally in the value of the U.S. dollar&#8221; as set forth in our Form 20-F.</font></p></div>
<table width="100%" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td><font size="2" face="Arial">&nbsp;</font><font size="2" face="Arial"><b>Liquidity
      and Capital Resources</b></font></td>
  </tr>
</table>
<div style="text-indent:3%"><p align="justify"><font size="2" face="Arial">Treasury activities are regulated by our policies, which define procedures, objectives and controls. The policies focus on the management of our financial risk in terms of exposure to currency rates and interest rates. Most treasury activities are centralized, with any local treasury activities subject to oversight from our head treasury office.  The majority of our cash and cash equivalents are held in U.S. dollars and are placed with financial institutions rated &#8220;A&#8221; or higher.  Marginal amounts are held in other currencies.  See &#8220;Item 11. Quantitative and Qualitative Disclosures about Market Risk&#8221; in our Form 20-F.  As of July 2, 2005, there had been no material changes in foreign currency
operations and hedging transactions exposures from those disclosed in our Form 20-F.</font></p></div>
<div style="text-indent:3%"><p align="justify"><font size="2" face="Arial">As of July 2, 2005, cash and cash equivalents totaled $1,075 million, compared to $1,950 million as of December 31, 2004 and marketable securities totaled $525 million as of July 2, 2005 compared to $0 million as of December 31, 2004. Our available cash decreased in the first half of 2005 due to the investment in marketable securities for $525 million, to $193 million negative net operating cash flow and to the payment of dividends of $107 million.  In the first half of 2005, we invested $525 million in credit-linked deposits issued by several primary banks in order to maximize the return on available cash.  These credit-linked deposits are reinvested by the banks in underlying instruments (&#8220;reference
debt&#8221;) that have been issued by different financial institutions with a minimum rating of &#8220;A-&#8221; and include a derivative instrument related to the underlying credit default swap of the credit-linked deposit.  We determined that this derivative element had no material impact on our interim Consolidated Financial Statements as of July 2, 2005. Interest on these instruments is paid quarterly and the interest rate is fixed every three months based on the LIBOR rate of the U.S. dollar plus a spread.  Interest is </font></p>
</div>
<p align="center"><font face="Arial" size="2">21</font></p>
<hr noshade align="center" width="100%" size="2">
<div style="page-break-before:always"></div>
<page>
  <p align="justify"><font size="2" face="Arial">payable through the final maturity
      of these instruments scheduled to occur by December 31, 2005, unless suspended
      by credit default of the reference debt. Additionally, the carrying value
      of the instruments depends on the non-default of the reference debt. The
  principal will be repaid at final maturity unless a default occurs, in which
      case repayment of principal would be reduced based on the decline in value
      of the defaulted debt. Changes in the instruments adopted to invest our
      liquidity in future periods may significantly affect our interest income/expense
      net.</font></p>
<table width="100%" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td height="19"><font size="2" face="Arial">&nbsp;<b><em>Liquidity</em></b></font></td>
  </tr>
</table>
<div style="text-indent:3%"><p align="justify"><font size="2" face="Arial">We maintain a significant cash position and a low debt to equity ratio, which provide us with adequate financial flexibility. As in the past, our cash management policy is to finance our investment needs mainly with net cash generated from operating activities. </font></p></div>
<div style="text-indent:3%"><p align="justify"><font size="2" face="Arial"><i>Net cash from operating activities</i>.  The major source of cash during the first half of 2005 and in prior periods was cash provided by operating activities.  Our net cash from operating activities totaled $768 million in the first half of 2005, compared to $1,061 million in the first half of 2004, a decrease due to the lower profitability level and more negative changes in assets and liabilities. </font></p></div>
<div style="text-indent:3%"><p align="justify"><font size="2" face="Arial">Changes in our operating assets and liabilities resulted in net cash used of $261 million in the first half of 2005, compared to net cash used of $56 million in the first half of 2004.  The main variations were due to the net cash used for inventory of $116 million and to a less favorable change in trade payables.  In the first half of 2005, the increase in our trade accounts receivable used net cash of $98 million, while it used $201 million of net cash in the first half of 2004. </font></p></div>
<div style="text-indent:3%"><p align="justify"><font size="2" face="Arial"><i>Net cash used in investing activities</i>.  Net cash used in investing activities was $1,486 million in the first half of 2005, compared to $1,972 million in the first half of 2004, due to the reduced investment in marketable securities.  In the first quarter of 2005, purchases of marketable securities amounted to $525 million compared to $1,030 in the first half of 2004.  In the first half of 2005, payments for tangible assets were $927 million, slightly increasing from the $908 million recorded in the first half of 2004.  See &#8220; &#150; Financial Outlook&#8221; below.</font></p></div>
<div style="text-indent:3%"><p align="justify"><font size="2" face="Arial"><i>Net operating cash flow</i>.  We define net operating cash flow as net cash from operating activities minus net cash used in investing activities, excluding payment for purchases of and proceeds from the sale of marketable securities.  We believe net operating cash flow provides useful information for investors because it measures our capacity to generate cash from our operating activities to sustain our investments for our operating activities. Net operating 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 net operating cash flow may differ from definitions used by
other companies.  Net operating cash flow is determined as follows from our Unaudited Interim Consolidated Statements of Cash Flow:</font></p></div>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
  <tr valign="top">
    <td align="left"><font size="1" face="Arial">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td colspan="3" align="center"><font size="1" face="Arial"><b><br>
      Six Months Ended</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td align="left">&nbsp;</td>
    <td align="left">&nbsp;</td>
    <td align="center"><hr size="1" noshade>
    </td>
    <td align="left"><hr size="1" noshade></td>
    <td align="center"><hr size="1" noshade>
    </td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="top">
    <td align="left"><font size="1" face="Arial">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="center"><font size="1" face="Arial"><b>July 2, 2005</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="center"><font size="1" face="Arial"><b>June 26, 2004</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td align="left">&nbsp;</td>
    <td align="left">&nbsp;</td>
    <td align="center"><hr size="1" noshade>
    </td>
    <td align="left">&nbsp;</td>
    <td align="center"><hr size="1" noshade>
    </td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="top">
    <td align="left"><font size="1" face="Arial">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td colspan="3" align="center"><font size="1" face="Arial"><b>(in $ millions)<br>
      unaudited</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="">
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="right"><font size="1">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="right"><font size="1">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
  </tr>
<tr valign="top" bgcolor="#eeeeee">
<td align="left"><font size="2" face="Arial">Net cash from operating activities</font></td>
<td width="2%" align="left"><font size="2">&nbsp;</font></td>
<td width="10%" align="right"><font size="2" face="Arial">768</font></td>
<td width="2%" align="left"><font size="2">&nbsp;</font></td>
<td width="10%" align="right"><font size="2" face="Arial">1,061</font></td>
<td width="2%" align="left"><font size="2">&nbsp;</font></td>
</tr>
<tr valign="top">
<td align="left"><font size="2" face="Arial">Net cash used in investing activities</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">(1,486</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
<td align="right"><font size="2" face="Arial">(1,972</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
</tr>
<tr valign="top" bgcolor="#eeeeee">
<td align="left"><font size="2" face="Arial">Payment for purchase of marketable securities</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">525</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">1,030</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
</tr>
<tr valign="top">
<td align="left"><font size="2" face="Arial">Net operating cash flow</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial"><b>(193</b></font></td>
<td align="left"><font size="2" face="Arial"><b>)</b></font></td>
<td align="right"><font size="2" face="Arial"><b>119</b></font></td>
<td align="left"><font size="2">&nbsp;</font></td>
</tr>
</table>
<div style="text-indent:3%"><p align="justify"><font size="2" face="Arial">We generated negative net operating cash flow of $193 million in the first half of 2005, compared to positive net operating cash flow of $119 million in the first half of 2004, as a result of the decrease of the net cash from our operating activities.  However, we sequentially improved our net operating cash flow from negative $216 million in the first quarter of 2005 to positive $23 million in the second quarter of 2005.  </font></p></div>
<div style="text-indent:3%"><p align="justify"><font size="2" face="Arial"><i>Net cash used in financing activities</i>.  Net cash used in financing activities was $138 million in the first half of 2005 compared to $428 million used in the first half of 2004.  The decrease in net cash used in financing activities is mainly due to the lower repayment of long-term debt amounting to $40 million in the first half of 2005 compared to $300 million in the first half of 2004, which included the repurchase of our 2010 Bonds for a total cash amount of $244 million in the second quarter of 2004.  The major item of cash used in financing activities in the first half of 2005 was the payment of the dividends amounting to $107 million equivalent to the amount paid in 2004. </font></p></div>
<p align="center"><font face="Arial" size="2">22</font></p>
<hr noshade align="center" width="100%" size="2">
<div style="page-break-before:always"></div>
<page>
<table width="100%" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td width="3%">&nbsp;</td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="top">
    <td colspan="2"><font size="2" face="Arial"><em>&nbsp;<b>Capital Resources</b></em></font></td>
  </tr>
</table>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
  <tr valign="top">
    <td width="3%">&nbsp;</td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="top">
    <td colspan="2"><font size="2" face="Arial">&nbsp;</font><font size="2" face="Arial"><i>Net
      financial position</i></font></td>
  </tr>
</table>
<div style="text-indent:3%"><p align="justify"><font size="2" face="Arial">We define our net financial position as the difference between our total cash position (cash, cash equivalents and marketable securities) net of total financial debt (bank overdrafts, current portion of long-term debt and long-term debt).  Net financial position is not a U.S. GAAP measure.  We believe our net financial position provides useful information for investors because it gives evidence of our global position either in terms of net indebtedness or net cash by measuring our capital resources based on cash, cash equivalents and marketable securities and the total level of our financial indebtedness.  The net financial position is determined as follows from our Unaudited Interim Consolidated Balance Sheet as of
July 2, 2005:</font></p></div>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
  <tr valign="top">
    <td align="left"><font size="1" face="Arial">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td colspan="3" align="center"><font size="1" face="Arial"><b>As of</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td align="left">&nbsp;</td>
    <td align="left">&nbsp;</td>
    <td align="center"><hr size="1" noshade>
    </td>
    <td align="left"><hr size="1" noshade>
    </td>
    <td align="center"><hr size="1" noshade>
    </td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="top">
    <td align="left"><font size="1" face="Arial">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="center"><font size="1" face="Arial"><b>July 2, 2005</b></font><font size="1"><br>
          <font face="Arial"><b>(unaudited)</b></font></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="center"><font size="1" face="Arial"><b>December 31, 2004</b></font><font size="1"><br>
          <font face="Arial"><b>(audited)</b></font></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td align="left">&nbsp;</td>
    <td align="left">&nbsp;</td>
    <td align="center"><hr size="1" noshade>
    </td>
    <td align="left">&nbsp;    </td>
    <td align="center"><hr size="1" noshade>
    </td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="top">
    <td align="left"><font size="1" face="Arial">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td colspan="3" align="center"><font size="1" face="Arial"><b>(in $ millions)</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="">
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="right"><font size="1">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="right"><font size="1">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
  </tr>
<tr valign="top" bgcolor="#eeeeee">
<td align="left"><font size="2" face="Arial">Cash and cash equivalents</font></td>
<td width="2%" align="left"><font size="2">&nbsp;</font></td>
<td width="10%" align="right"><font size="2" face="Arial">1,075</font></td>
<td width="2%" align="left"><font size="2">&nbsp;</font></td>
<td width="10%" align="right"><font size="2" face="Arial">1,950</font></td>
<td width="2%" align="left"><font size="2">&nbsp;</font></td>
</tr>
<tr valign="top">
<td align="left"><font size="2" face="Arial">Marketable securities</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">525</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">&#151;</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
</tr>
<tr valign="top">
<td align="left"><font size="2">&nbsp;</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
</tr>
<tr valign="top" bgcolor="#eeeeee">
<td align="left"><font size="2" face="Arial"><b>Total cash position</b></font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial"><b>1,600</b></font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial"><b>1,950</b></font></td>
<td align="left"><font size="2">&nbsp;</font></td>
</tr>
<tr valign="top">
<td align="left"><font size="2" face="Arial">Bank overdrafts</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">(34</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
<td align="right"><font size="2" face="Arial">(58</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
</tr>
<tr valign="top" bgcolor="#eeeeee">
<td align="left"><font size="2" face="Arial">Current portion of long-term debt</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">(150</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
<td align="right"><font size="2" face="Arial">(133</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
</tr>
<tr valign="top">
<td align="left"><font size="2" face="Arial">Long-term debt</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">(1,692</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
<td align="right"><font size="2" face="Arial">(1,767</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
</tr>
<tr valign="top">
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
</tr>
<tr valign="top" bgcolor="#eeeeee">
<td align="left"><font size="2" face="Arial"><b>Total financial debt</b></font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial"><b>(1,876</b></font></td>
<td align="left"><font size="2" face="Arial"><b>)</b></font></td>
<td align="right"><font size="2" face="Arial"><b>(1,958</b></font></td>
<td align="left"><font size="2" face="Arial"><b>)</b></font></td>
</tr>
<tr valign="top">
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
</tr>
<tr valign="top" bgcolor="">
<td align="left"><font size="2" face="Arial"><b>Net financial position</b></font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial"><b>(276</b></font></td>
<td align="left"><font size="2" face="Arial"><b>)</b></font></td>
<td align="right"><font size="2" face="Arial"><b>(8</b></font></td>
<td align="left"><font size="2" face="Arial"><b>)</b></font></td>
</tr>
</table>
<div style="text-indent:3%">
  <p align="justify"><font size="2" face="Arial">The net financial position (cash,
    cash equivalents and marketable securities net of total financial debt) as
    of July 2, 2005 was a net financial debt of $276 million, compared to the
    net financial debt of $8 million as of December 31, 2004. Such deterioration
    in the net financial position in the first half of 2005 was mainly due the
    negative net operating cash flow in the first half of 2005. As of July 2,
    2005, the aggregate amount of our long-term debt was $1,692 million, including
    $1,379 million of our negative yield zero-coupon senior convertible bonds
    due 2013 (&#8220;2013 Bonds&#8221;). Additionally, the aggregate amount of
    our available short-term credit facilities was approximately $1,865 million,
    under which $34 million was used as of July 2, 2005. Our long-term financing
    instruments contain standard covenants, but do not impose minimum financial
    ratios or similar obligations on us.</font></p>
</div>
<div style="text-indent:3%"><p align="justify"><font size="2" face="Arial">As of July 2, 2005, we have the following credit ratings on our 2013 Bonds:</font></p></div>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
<tr valign="top">
<td align="left"><font size="1" face="Arial">&nbsp;</font></td>
<td align="left">&nbsp;</td>
<td align="center"><font size="1" face="Arial"><b>Moody&#8217;s Investors<br>Service</b></font></td>
<td align="left">&nbsp;</td>
<td align="center"><font size="1" face="Arial"><b>Standard &amp; Poor&#8217;s</b></font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top">
  <td align="left">&nbsp;</td>
  <td align="left">&nbsp;</td>
  <td align="center"><hr size="1" noshade>
  </td>
  <td align="left">&nbsp; </td>
  <td align="center"><hr size="1" noshade>
  </td>
  <td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#eeeeee">
<td align="left"><font size="2" face="Arial">Zero Coupon Senior Convertible Bonds due 2013</font></td>
<td width="2%" align="left"><font size="2">&nbsp;</font></td>
<td width="10%" align="right"><font size="2" face="Arial">A3</font></td>
<td width="2%" align="left"><font size="2">&nbsp;</font></td>
<td width="10%" align="right"><font size="2" face="Arial">A&#150;</font></td>
<td width="2%" align="left"><font size="2">&nbsp;</font></td>
</tr>
</table>
<div style="text-indent:3%"><p align="justify"><font size="2" face="Arial">In the event of a downgrade of these ratings, we believe we would continue to have access to sufficient capital resources.  </font></p></div>
<p align="center"><font face="Arial" size="2">23</font></p>
<hr noshade align="center" width="100%" size="2">
<div style="page-break-before:always"></div>
<page>
<table width="100%" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td width="3%">&nbsp;</td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="top">
    <td colspan="2"><font size="2" face="Arial"><em>&nbsp;<b>Contractual Obligations,
      Commercial Commitments and Contingencies </b></em></font></td>
  </tr>
</table>
<div style="text-indent:3%"><p align="justify"><font size="2" face="Arial">Our contractual obligations, commercial commitments and contingencies as of July 2, 2005, and for each of the five years to come and thereafter, were as follows:</font></p></div>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
  <tr valign="top">
    <td align="left"><font size="1" face="Arial">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td colspan="15" align="center"><font size="1" face="Arial"><b>Payments due
          by period<br>
      (unaudited)</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td align="left">&nbsp;</td>
    <td align="left">&nbsp;</td>
    <td colspan="15" align="center"><hr size="1" noshade></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="top" bgcolor="">
    <td align="left"><font size="1" face="Arial">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="center"><font size="1" face="Arial"><b>Total</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="right"><font size="1" face="Arial"><b>2005</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="right"><font size="1" face="Arial"><b>2006</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="right"><font size="1" face="Arial"><b>2007</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="right"><font size="1" face="Arial"><b>2008</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="right"><font size="1" face="Arial"><b>2009</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="right"><font size="1" face="Arial"><b>2010</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="center"><font size="1" face="Arial"><b>Thereafter</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top" bgcolor="">
    <td align="left">&nbsp;</td>
    <td align="left">&nbsp;</td>
    <td align="center"><hr size="1" noshade></td>
    <td align="left">&nbsp;</td>
    <td align="right"><hr size="1" noshade></td>
    <td align="left">&nbsp;</td>
    <td align="right"><hr size="1" noshade></td>
    <td align="left">&nbsp;</td>
    <td align="right"><hr size="1" noshade></td>
    <td align="left">&nbsp;</td>
    <td align="right"><hr size="1" noshade></td>
    <td align="left">&nbsp;</td>
    <td align="right"><hr size="1" noshade></td>
    <td align="left">&nbsp;</td>
    <td align="right"><hr size="1" noshade></td>
    <td align="left">&nbsp;</td>
    <td align="center"><hr size="1" noshade></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="top">
    <td align="left"><font size="1" face="Arial">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td colspan="15" align="center"><font size="1" face="Arial"><b>($)</b></font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td align="left"><font size="1" face="Arial">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="left"><font size="1" face="Arial">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="left"><font size="1" face="Arial">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="left"><font size="1" face="Arial">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="left"><font size="1" face="Arial">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="left"><font size="1" face="Arial">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="left"><font size="1" face="Arial">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="left"><font size="1" face="Arial">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="left"><font size="1" face="Arial">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
  </tr>
<tr valign="top" bgcolor="#eeeeee">
<td align="left"><font size="2" face="Arial">Capital leases<sup>(2)</sup></font></td>
<td width="2%" align="left"><font size="2">&nbsp;</font></td>
<td width="6%" align="right"><font size="2" face="Arial"> $29</font></td>
<td width="2%" align="left"><font size="2">&nbsp;</font></td>
<td width="6%" align="right"><font size="2" face="Arial"> $2</font></td>
<td width="2%" align="left"><font size="2">&nbsp;</font></td>
<td width="6%" align="right"><font size="2" face="Arial"> $5</font></td>
<td width="2%" align="left"><font size="2">&nbsp;</font></td>
<td width="6%" align="right"><font size="2" face="Arial"> $5</font></td>
<td width="2%" align="left"><font size="2">&nbsp;</font></td>
<td width="6%" align="right"><font size="2" face="Arial"> $6</font></td>
<td width="2%" align="left"><font size="2">&nbsp;</font></td>
<td width="6%" align="right"><font size="2" face="Arial"> $5</font></td>
<td width="2%" align="left"><font size="2">&nbsp;</font></td>
<td width="6%" align="right"><font size="2" face="Arial"> $5</font></td>
<td width="2%" align="left"><font size="2">&nbsp;</font></td>
<td width="6%" align="right"><font size="2" face="Arial"> $1</font></td>
<td width="2%" align="left"><font size="2">&nbsp;</font></td>
</tr>
<tr valign="top">
<td align="left"><font size="2" face="Arial">Operating leases<sup>(1)</sup></font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">270</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">27</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">39</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">32</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">26</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">22</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">19</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">105</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
</tr>
<tr valign="top" bgcolor="#eeeeee">
<td align="left"><font size="2" face="Arial">Purchase obligations<sup>(1)</sup></font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">833</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">748</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">82</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">3</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">&#151;</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">&#151;</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">&#151;</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">&#151;</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
</tr>
<tr valign="top">
<td align="left"><font size="2" face="Arial">of which<i>:</i></font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
</tr>
<tr valign="top" bgcolor="#eeeeee">
<td align="left"><font size="2" face="Arial"><i>Equipment purchase</i></font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial"><i>543</i></font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial"><i>497</i></font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial"><i>46</i></font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial"><i>&#151;</i></font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial"><i>&#151;</i></font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial"><i>&#151;</i></font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial"><i>&#151;</i></font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial"><i>&#151;</i></font></td>
<td align="left"><font size="2">&nbsp;</font></td>
</tr>
<tr valign="top">
<td align="left"><font size="2" face="Arial"><i>Foundry purchase</i></font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial"><i>199</i></font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial"><i>199</i></font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial"><i>&#151;</i></font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial"><i>&#151;</i></font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial"><i>&#151;</i></font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial"><i>&#151;</i></font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial"><i>&#151;</i></font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial"><i>&#151;</i></font></td>
<td align="left"><font size="2">&nbsp;</font></td>
</tr>
<tr valign="top" bgcolor="#eeeeee">
<td align="left"><font size="2" face="Arial"><i>Software, technology licenses and design</i></font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial"><i>91</i></font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial"><i>52</i></font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial"><i>36</i></font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial"><i>3</i></font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial"><i>&#151;</i></font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial"><i>&#151;</i></font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial"><i>&#151;</i></font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial"><i>&#151;</i></font></td>
<td align="left"><font size="2">&nbsp;</font></td>
</tr>
<tr valign="top">
<td align="left"><font size="2" face="Arial">Joint Venture Agreement with Hynix Semiconductor Inc.<sup>(1)(4)</sup></font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">242</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">117</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">125</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">&#151;</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">&#151;</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">&#151;</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">&#151;</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">&#151;</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
</tr>
<tr valign="top" bgcolor="#eeeeee">
<td align="left"><font size="2" face="Arial">Other Obligations<sup>(1)</sup></font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">154</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">46</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">55</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">44</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">3</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">2</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">1</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">3</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
</tr>
<tr valign="top">
<td align="left"><font size="2" face="Arial">Long-term debt obligations<sup>(2)(3)</sup></font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">1,692</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">&#151;</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">109</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">82</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">50</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">22</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">15</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">1,414</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
</tr>
<tr valign="top" bgcolor="#eeeeee">
<td align="left"><font size="2" face="Arial">Pension obligations<sup>(2)</sup></font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">254</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">30</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">18</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">18</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">22</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">24</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">21</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">121</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
</tr>
<tr valign="top">
<td align="left"><font size="2" face="Arial">Other non-current liabilities<sup>(2)</sup></font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">20</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">1</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">6</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">2</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">3</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">3</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">3</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">2</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
</tr>
<tr valign="top" bgcolor="#eeeeee">
<td align="left"><font size="2" face="Arial"><b>Total</b></font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial"> <b><b>$</b>3,494</b></font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial"> <b><b>$</b>971</b></font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial"> <b><b>$</b>439</b></font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial"> <b><b>$</b>186</b></font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial"> <b><b>$</b>110</b></font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial"> <b><b>$</b>78</b></font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial"> <b><b>$</b>64</b></font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial"> <b><b>$</b>1,646</b></font></td>
<td align="left"><font size="2">&nbsp;</font></td>
</tr>
<tr valign="top">
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="left">&nbsp;</td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="left">&nbsp;</td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="left">&nbsp;</td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="left">&nbsp;</td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="left">&nbsp;</td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="left">&nbsp;</td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="left">&nbsp;</td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="left">&nbsp;</td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="left">&nbsp;</td>
</tr>
</table>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
<tr valign="top">
<td><hr align="left" width="100" size="1" noshade></td>
</tr>
</table>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
<tr valign="top">
<td width="3%"><font size="2" face="Arial">
<font face="Arial" size="1">(1)</font></font></td>
<td align="left">
<font size="2" face="Arial"> <font face="Arial" size="1">Items not reflected on the Unaudited Interim Consolidated Balance Sheet as of July 2, 2005.</font>
</font></td>
</tr>
</table>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
<tr valign="top">
<td width="3%"><font size="2" face="Arial">
<font face="Arial" size="1">(2)</font></font></td>
<td align="left">
<font size="2" face="Arial"> <font face="Arial" size="1">Items reflected on the Unaudited Interim Consolidated Balance Sheet as of July 2, 2005.</font>
</font></td>
</tr>
</table>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
<tr valign="top">
<td width="3%"><font size="2" face="Arial">
<font face="Arial" size="1">(3)</font></font></td>
<td align="left">
<font size="2" face="Arial"> <font face="Arial" size="1">See Note 12 to the Unaudited Interim Consolidated Financial Statements as of July 2, 2005 for additional information related to long-term debt and redeemable convertible securities, in particular, in respect to the noteholders&#8217; option to put our convertible bonds for earlier redemption in August 2006.</font>
</font></td>
</tr>
</table>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
<tr valign="top">
<td width="3%"><font size="2" face="Arial">
<font face="Arial" size="1">(4)</font></font></td>
<td align="left">
<font size="2" face="Arial"> <font face="Arial" size="1">These amounts correspond to our capital commitments to the joint venture, but not the additional $250 million in loans that we have committed to provide.</font>
</font></td>
</tr>
</table>
<div style="text-indent:3%"><p align="justify"><font size="2" face="Arial">Operating leases are mainly related to building leases.  The amount disclosed is composed of minimum payments for future leases from 2005 to 2010 and thereafter. We lease land, buildings, plants and equipment under operating leases that expire at various dates under non-cancelable lease agreements.</font></p></div>
<div style="text-indent:3%"><p align="justify"><font size="2" face="Arial">Purchase obligations are primarily comprised of purchase commitments for equipment, for outsourced foundry wafers and for software licenses.</font></p></div>
<div style="text-indent:3%"><p align="justify"><font size="2" face="Arial">We signed a joint-venture agreement with Hynix Semiconductor Inc. on November 16, 2004 to build a front-end memory-manufacturing facility in Wuxi City, Jiangsu Province, China. As the business license for the joint venture was obtained in April 2005, we paid $8 million of our initial capital contribution in June 2005 out of a total contribution of $250 million and expect to fulfill our remaining financial obligations later in 2005 and 2006.  In addition, we are committed to grant long-term financing for $250 million to the new joint venture guaranteed by subordinated collateral on the joint venture&#8217;s assets.  In addition, we have contingent future loading obligations to purchase product from the joint venture
not included above, because at this stage the amounts remain contingent and non-quantifiable.</font></p></div>
<div style="text-indent:3%">
  <p align="justify"><font size="2" face="Arial">Long-term debt obligations mainly
    consist of bank loans and convertible debt issued by us that is totally or
    partially redeemable for cash at the option of the holder. They include maximum
    future amounts that may be redeemable for cash at the option of the holder,
    at fixed prices. At the holder&#8217;s option, any outstanding 2013 Bond may
    be redeemed for cash on August 5, 2006, 2008 or 2010 for a total aggregate
    amount payable by us of $1,379 million on August 5, 2006 or $1,365 million
    on August&nbsp;5, 2008 or $1,352 million on August 5, 2010. The conversion
    ratio is $985.09 per $1,000 principal amount of 2013 Bonds at August 5, 2006,
    $975.28 at August 5, 2008 and $965.56 at August 5, 2010, subject to adjustments
    in certain circumstances.</font></p>
</div>
<div style="text-indent:3%"><p align="justify"><font size="2" face="Arial">Pension obligations consist of our best estimates of the amounts that will be payable by us for the retirement plans based on the assumption that our employees will work for us until they reach the age of retirement.  The final actual amount to be paid and related timings of such payments may vary significantly due to early retirements or terminations.  This amount does not include the additional pension plan of $8 million granted by our Supervisory Board to the CEO and to a limited number of retired senior executives in the first quarter of 2005, which was recorded as current liabilities, as we are willing to transfer this obligation to an insurance company.  We accrued the estimated premiums to expenses during the
first quarter of 2005.</font></p></div>
<div style="text-indent:3%"><p align="justify"><font size="2" face="Arial">Other non-current liabilities include future unused leases and miscellaneous contractual obligations.</font></p></div>
<div style="text-indent:3%"><p align="justify"><font size="2" face="Arial">Other obligations primarily relate to contractual firm commitments with respect to cooperation agreements.</font></p></div>
<p align="center"><font face="Arial" size="2">24</font></p>
<hr noshade align="center" width="100%" size="2">
<div style="page-break-before:always"></div>
<page>
<div style="text-indent:3%"><p align="justify"><font size="2" face="Arial">Other than those described above, there are no material off-balance sheet obligations, contractual obligations or other commitments. </font></p></div>
<table width="100%" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td><font size="2" face="Arial"><em>&nbsp;<b>Financial Outlook</b></em></font></td>
  </tr>
</table>
<div style="text-indent:3%"><p align="justify"><font size="2" face="Arial">We currently expect that capital spending for 2005 will be approximately $1.5 billion, significantly below the $2.05 billion spent in 2004.  In the first half of 2005, we incurred approximately $0.9 billion in capital spending.  We have the flexibility to modulate our investments up or down in response to changes in market conditions, and we are ready to accelerate or slow down investments in leading-edge technologies if market trends require.  As of July 2, 2005, we had a total of $543 million in outstanding commitments for equipment purchases for 2005 and 2006.</font></p></div>
<div style="text-indent:3%"><p align="justify"><font size="2" face="Arial">The most significant of our 2005 capital expenditure projects are expected to be (i) the capacity expansion of our 200-mm and 150-mm front-end facilities in Singapore; (ii) the completion of building and facilities for our 300-mm front-end plant in Catania (Italy); (iii) the conversion to 200-mm of our front-end facility in Agrate, Italy; (iv) the expansion of our 200-mm front-end facility in Phoenix, Arizona; (v) the expansion of the 300-mm front-end joint project with Philips Semiconductors International B.V. and Freescale Semiconductor, Inc. in Crolles (France); and (vi) the capacity expansion of our back-end plants in Muar (Malaysia), Toa Payoh (Singapore) and Malta. We will continue to monitor our level of
capital spending by taking into consideration factors such as trends in the semiconductor industry, capacity utilization and announced additions.  We expect to have significant capital requirements in the coming years and intend to continue to devote a substantial portion of our net revenues to research and development.  We plan to fund our capital requirements from cash provided by operations, available funds and available support from third parties (including state support), and may have recourse to borrowings under available credit lines and, to the extent necessary or attractive based on market conditions prevailing at the time, the issuing of debt or additional equity securities.  A substantial deterioration of our economic results and consequently of our profitability could generate
a deterioration of the cash generated by our operating activities. Therefore, there can be no assurance that, in future periods, we will generate the same level of cash as in the previous years to fund our capital expenditures for expansion plans, our working capital requirements, research and development and industrialization costs.</font></p></div>
<div style="text-indent:3%"><p align="justify"><font size="2" face="Arial">The holders of our 2013 Bonds may require us to redeem them on August 5, 2006 at a price of $985.09 per one thousand dollar face value. The conversion ratio is $985.09 per $1,000 principal amount of 2013 Bonds at August 5, 2006, $975.28 at August 5, 2008 and $965.56 at August 5, 2010, subject to adjustments in certain circumstances. The total redeemable amount will be equivalent to $1,379 million on August 5, 2006. There can be no assurance that additional financing will be available as necessary, or that any such financing, if available, will be on terms acceptable to us.  However, we believe that our ability to meet debt obligations is fully backed by existing liquidity as may be complemented by our cash flow
plan.</font></p></div>
<table width="100%" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td><font size="2" face="Arial">&nbsp;</font><font size="2" face="Arial"><b>Impact
      of Recently Issued U.S. Accounting Standards</b></font></td>
  </tr>
</table>
<div style="text-indent:3%"><p align="justify"><font size="2" face="Arial">In November 2004, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 151, <i>Inventory Costs, an amendment of ARB No. 43, Chapter 4</i> (&#8220;FAS 151&#8221;). The Standard requires abnormal amounts of idle capacity and spoilage costs to be excluded from the cost of inventory and expensed when incurred. The provisions of FAS 151 are applicable prospectively to inventory costs incurred during fiscal years beginning after June 15, 2005.  As costs associated with underutilization of manufacturing facilities have historically been charged directly to cost of sales, we believe that FAS 151 will have no material effect on our financial position or results of
operations.</font></p></div>
<div style="text-indent:3%"><p align="justify"><font size="2" face="Arial">In December 2004, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 153, <i>Exchanges of Nonmonetary Assets, an amendment of APB Opinion No. 29</i> (&#8220;FAS 153&#8221;). This Statement amends Opinion No. 29 to eliminate the exception to the basis measurement principle (fair value) for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of transactions that do not have commercial substance, that is, transactions that are not expected to result in significant changes in the cash flows of the reporting entity.  The Statement is effective prospectively for nonmonetary asset exchanges occurring in fiscal periods
beginning after June 15, 2005, with early application permitted. We have not had any nonmonetary exchanges of assets since FAS 153 was published and believe that FAS 153 will have no material effect on our financial position or results of operations.</font></p></div>
<div style="text-indent:3%"><p align="justify"><font size="2" face="Arial">In December 2004, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123 (revised 2004), <i>Share-Based Payment</i> (&#8220;FAS 123R&#8221;). This Statement revises FASB Statement No.&nbsp;123, <i>Accounting for Stock-Based Compensation</i> and supersedes APB Opinion No. 25, <i>Accounting for Stock Issued to Employees</i>, and its related implementation guidance. FAS 123R requires a public entity to measure the cost of share-based service awards based on the grant-date fair value of the award. That cost will be recognized over the period during which an employee is required to provide service in exchange for the award or the requisite service period, usually the vesting
period.  The grant-date fair value of employee share options and similar instruments will be estimated using option-pricing models adjusted for the unique characteristics of those </font></p>
</div>
 <p align="center"><font face="Arial" size="2">25</font></p>
<hr noshade align="center" width="100%" size="2">
<div style="page-break-before:always"></div>
<page>

<p align="justify"><font size="2" face="Arial">instruments. FAS 123R also requires
  more extensive disclosures than the previous standards relating to the nature
  of share-based payment transactions, compensation cost and cash flow effects.
  On April 14, 2005, the U.S. Securities and Exchange Commission amended the effective
  date of FAS 123R; the Statement now applies to all awards granted and to all
  unvested awards modified, repurchased, or cancelled during the first annual
  reporting period beginning after June 15, 2005. FAS 123R provides a choice of
  transition methods including the modified prospective application method, which
  allows discretionary restatement of interim periods during the calendar year
  of adoption, or the modified retrospective application method, which allows
  the restatement of the prior years presented. Each method requires the cumulative
  effect of initially applying FAS 123R to be recognized in the period of adoption.
  We will adopt FAS 123R in the first quarter of 2006 using the modified prospective
  application method. As a significant number of option grants are above current
  market prices, we previously disclosed that our previous equity-based compensation
  strategy based on stock-option grants was minimally effective in motivating
  and retaining key employees. Pursuant to authorization from our shareholders
  at our annual general meeting held on March&nbsp;18, 2005, our Supervisory Board
  approved in July 2005 the accelerated vesting of all previously granted and
  outstanding stock options, with no charge to our interim consolidated statements
  of income from this acceleration. In addition, we are transitioning our stock-based
  compensation plan from stock-option grants to non-vested stock awards, which
  shall be contingent upon financial performance requirements. We are still reviewing
  the impact of adoption of FAS 123R and will disclose the cumulative impact on
  our consolidated accumulated result from adopting FAS 123R when such review
  is finalized. The impact on our financial position and results of operations
  are illustrated in the information presented in note 15 to our Unaudited Interim
  Consolidated Financial Statements &#150; &#8220;Fair value of stock-based compensation&#8221;.</font></p>
<div style="text-indent:3%">
  <p align="justify"><font size="2" face="Arial">In May 2005, the Financial Accounting
    Standards Board issued Statement of Financial Accounting Standards No. 154,
    <i>Accounting Changes and Error Corrections</i> (&#8220;FAS 154&#8221;). This
    Statement supersedes Accounting Principles Board Opinion No. 20, Accounting
    Changes (&#8220;APB 20&#8221;) and Statement of Financial Accounting Standards
    No. 3, Reporting Accounting Changes in Interim Financial Statements (&#8220;FAS
    3&#8221;). This Statement requires entities that voluntary make a change in
    accounting principle to apply that change retrospectively to prior periods&#8217;
    financial statements, unless this would be impracticable, and to report the
    corresponding adjustment on the opening balance of retained earnings for that
    period rather than in net income, as previously required by APB 20. FAS 154
    also states that changes in the method of depreciation, amortization, or depletion
    of long-lived, non financial assets, must be accounted for as a change in
    accounting estimate and no more as a change in accounting principle. FAS 154
    does not change the accounting guidance contained in APB 20 for reporting
    a change in accounting estimate and the correction of an error in previously
    issued financial statements, but it makes a distinction between &#8220;retrospective
    application&#8221; of an accounting principle and the &#8220;restatement&#8221;
    of financial statements to reflect the correction of an error. The Statement
    is effective for accounting changes and corrections of errors made in fiscal
    years beginning after December 15th 2005; with early adoption permitted for
    accounting changes and corrections of errors made in fiscal years beginning
    after FAS 154 was issued. We adopted FAS 154 in the second quarter of 2005
    and reported neither correction of errors nor accounting changes that could
    have a material effect on our financial position or results of operations.</font></p>
</div>
<table width="100%" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td><font size="2" face="Arial">&nbsp;</font><font size="2" face="Arial"><b>Backlog
      and Customers</b></font></td>
  </tr>
</table>
<div style="text-indent:3%">
  <p align="justify"><font size="2" face="Arial">We began the third quarter of
    2005 with a backlog approximately 3% higher than we had entering the third
    quarter of 2004 and 12% higher than we had entering the second quarter of
    2005. In the second quarter of 2005, we had several large customers, with
    the Nokia Group of companies being the largest and accounting for approximately
    22% of our revenues. Total original equipment manufacturers (&#8220;OEMs&#8221;)
    accounted for approximately 82% of our net revenues, of which the top ten
    OEM customers accounted for approximately 49%. Distributors accounted for
    approximately 18% of our net revenues. We have no assurance that the Nokia
    Group of companies, or any other large customer, will continue to generate
    revenues for us at the same levels. If we were to lose one or more of our
    key customers, or if they were to significantly reduce their bookings, or
    fail to meet their payment obligations, our operating results and financial
    condition could be adversely affected.</font></p>
</div>
 <p align="center"><font face="Arial" size="2">26</font></p>
<hr noshade align="center" width="100%" size="2">
<div style="page-break-before:always"></div>
<page>
<table width="100%" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td width="3%">&nbsp;</td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="top">
    <td colspan="2"><font size="2" face="Arial">&nbsp;</font><font size="2" face="Arial"><b>Changes
      to Our Share Capital, Stock Option Grants and Other Matters </b></font></td>
  </tr>
</table>
<div style="text-indent:3%"><p align="justify"><font size="2" face="Arial">The following table sets forth changes to our share capital as of July 2, 2005:</font></p></div>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
<tr valign="bottom">
<td align="left"><font size="2" face="Arial"><font face="Arial" size="1">Year</font></font></td>
<td width="2%" align="left">&nbsp;</td>
<td width="12%" align="center"><font size="2" face="Arial"><font face="Arial" size="1">Transaction</font></font></td>
<td width="2%" align="left">&nbsp;</td>
<td width="6%" align="center"><font size="2" face="Arial"><font face="Arial" size="1">Number of<br>shares</font></font></td>
<td width="2%" align="left">&nbsp;</td>
<td width="7%" align="center"><font size="2" face="Arial"><font face="Arial" size="1">Nominal <br>value (euro)</font></font></td>
<td width="2%" align="left">&nbsp;</td>
<td width="9%" align="center"><font size="2" face="Arial"><font face="Arial" size="1">Cumulative <br>amount of <br>capital (euro)</font></font></td>
<td width="2%" align="left">&nbsp;</td>
<td width="9%" align="center"><font size="2" face="Arial"><font face="Arial" size="1">Cumulative <br>number <br>of shares</font></font></td>
<td width="2%" align="left">&nbsp;</td>
<td width="7%" align="center"><font size="2" face="Arial"><font face="Arial" size="1">Nominal value of increase/ reduction in capital</font></font></td>
<td width="2%" align="left">&nbsp;</td>
<td width="7%" align="center"><font size="2" face="Arial"><font face="Arial" size="1">Amount of issue premium (euro)</font></font></td>
<td width="2%" align="left">&nbsp;</td>
<td width="10%" align="center"><font size="2" face="Arial"><font face="Arial" size="1">Cumulative&#150; issue premium (euro)</font></font></td>
<td width="2%" align="left">&nbsp;</td> </tr>
<tr valign="bottom">
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="left">&nbsp;</td>
<td align="left"><hr size="1" noshade></td>
<td align="left">&nbsp;</td>
<td align="left"><hr size="1" noshade></td>
<td align="left">&nbsp;</td>
<td align="left"><hr size="1" noshade></td>
<td align="left">&nbsp;</td>
<td align="left"><hr size="1" noshade></td>
<td align="left">&nbsp;</td>
<td align="left"><hr size="1" noshade></td>
<td align="left">&nbsp;</td>
<td align="left"><hr size="1" noshade></td>
<td align="left">&nbsp;</td>
<td align="left"><hr size="1" noshade></td>
<td align="left">&nbsp;</td>
<td align="left"><hr size="1" noshade></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="bottom" bgcolor="#eeeeee">
<td align="left" valign="top"><font size="2" face="Arial">December 31, 2004</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="left"><font size="2" face="Arial">LYONs conversion </font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">1,761</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">1.04</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">941,521,357</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">905,308,997</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">1,831</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">46,225</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">1,708,949,494</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
</tr>
<tr valign="bottom">
<td align="left" valign="top"><font size="2" face="Arial">July 2, 2005</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="left"><font size="2" face="Arial">Conversion of bonds</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">59</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">1.04</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">941,521,418</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">905,309,056</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">61</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">1,448</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">1,708,950,942</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
</tr>
<tr valign="bottom" bgcolor="#eeeeee">
<td align="left" valign="top"><font size="2" face="Arial">July 2, 2005</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="left"><font size="2" face="Arial">Exercise of options</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">208,724</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">1.04</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">941,738,491</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">905,517,780</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">217,073</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">2,007,761</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">1,710,958,703</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
</tr>
</table>
<div style="text-indent:3%"><p align="justify"><font size="2" face="Arial">The following table summarizes the amount of stock options authorized to be granted exercised, cancelled and outstanding as of July 2, 2005: </font></p></div>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
  <tr valign="top">
    <td align="left"><font size="1" face="Arial">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td colspan="3" align="center"><font size="1" face="Arial">Employees</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td colspan="5" align="center"><font size="1" face="Arial">Supervisory Board</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="left"><font size="1" face="Arial">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td align="left">&nbsp;</td>
    <td align="left">&nbsp;</td>
    <td colspan="3" align="center"><hr size="1" noshade></td>
    <td align="left">&nbsp;</td>
    <td colspan="5" align="center"><hr size="1" noshade></td>
    <td align="left">&nbsp;</td>
    <td align="left"><hr size="1" noshade></td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="top" bgcolor="">
    <td align="left"><font size="1" face="Arial">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="center"><font size="1" face="Arial">1995 Plan</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="center"><font size="1" face="Arial">2001 Plan</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="center"><font size="1" face="Arial">1996</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="center"><font size="1" face="Arial">1999</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="center"><font size="1" face="Arial">2002</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="center"><font size="1" face="Arial">Total</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="right"><hr size="1" noshade></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="right"><hr size="1" noshade></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="right"><hr size="1" noshade></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="right"><hr size="1" noshade></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="right"><hr size="1" noshade></td>
    <td align="left"><font size="1">&nbsp;</font></td>
    <td align="right"><hr size="1" noshade></td>
    <td align="left"><font size="1">&nbsp;</font></td>
  </tr>
<tr valign="top" bgcolor="#eeeeee">
<td align="left"><font size="2" face="Arial">Remaining amount authorized to be granted</font></td>
<td width="2%" align="left"><font size="2">&nbsp;</font></td>
<td width="9%" align="right"><font size="2" face="Arial">&#151;</font></td>
<td width="2%" align="left"><font size="2">&nbsp;</font></td>
<td width="9%" align="right"><font size="2" face="Arial">15,676,536</font></td>
<td width="2%" align="left"><font size="2">&nbsp;</font></td>
<td width="9%" align="right"><font size="2" face="Arial">&#151;</font></td>
<td width="2%" align="left"><font size="2">&nbsp;</font></td>
<td width="9%" align="right"><font size="2" face="Arial">&#151;</font></td>
<td width="2%" align="left"><font size="2">&nbsp;</font></td>
<td width="9%" align="right"><font size="2" face="Arial">&#151;</font></td>
<td width="2%" align="left"><font size="2">&nbsp;</font></td>
<td width="9%" align="right"><font size="2" face="Arial">15,676,536</font></td>
<td width="2%" align="left"><font size="2">&nbsp;</font></td>
</tr>
<tr valign="top" bgcolor="">
<td align="left"><font size="2" face="Arial">Amount exercised</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">9,964,448</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">9,650</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">280,000</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">18,000</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">&#151;</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">10,272,098</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
</tr>
<tr valign="top" bgcolor="#eeeeee">
<td align="left"><font size="2" face="Arial">Amount cancelled</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">2,442,100</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">3,401,069</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">72,000</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">63,000</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">24,000</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">6,002,169</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
</tr>
<tr valign="top" bgcolor="">
<td align="left"><font size="2" face="Arial">Amount outstanding</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">19,155,393</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">44,323,464</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">48,500</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">342,000</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">372,000</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">64,241,357</font></td>
<td align="left"><font size="2">&nbsp;</font></td>
</tr>
</table>
<div style="text-indent:3%"><p align="justify"><font size="2" face="Arial">The Supervisory Board granted 29,200 options at an exercise price of $16.73 on January 31, 2005 and 13,000 options at an exercise price of $17.31 on March 17, 2005. There were no options granted in the second quarter of 2005.</font></p></div>
<div style="text-indent:3%">
  <p align="justify"><font size="2" face="Arial">In line with our 2005 AGM shareholders'
    resolutions, we are transitioning our stock-based compensation plans from
    stock-option grants to non-vested stock awards. Pursuant to shareholders'
    resolutions adopted by the 2005 AGM, our Supervisory Board, upon the proposal
    of the Managing Board and recommendation of the Compensation Committee, took
    the following actions:</font></p>
  <table width="100%" cellspacing="0" cellpadding="0" border="0">
    <tr valign="top">
      <td width="3%"> <font size="2" face="Arial">&#149;</font></td>
      <td><font size="2" face="Arial">accelerated the vesting of all of our outstanding
        stock options in July 2005 with no charge to our interim consolidated
        statements of income;</font></td>
    </tr>
    <tr valign="top">
      <td>&nbsp;</td>
      <td>&nbsp;</td>
    </tr>
    <tr valign="top">
      <td><font size="2" face="Arial">&#149;</font></td>
      <td>a<font size="2" face="Arial">mended our 2001 Employee Stock Option Plan
        with the aim of enhancing our ability to retain key employees and motive
        them to shareholder value creation;</font></td>
    </tr>
    <tr valign="top">
      <td>&nbsp;</td>
      <td>&nbsp;</td>
    </tr>
    <tr valign="top">
      <td><font size="2" face="Arial">&#149;</font></td>
      <td><font size="2" face="Arial">approved the vesting conditions, linked
        to our future performance and their continued service with us, to apply
        to non-vested stock awards granted to employees in 2005, the maximum number
        of which will be four million, within the remaining number of shares authorized
        for issuance pursuant to the original plan; and</font></td>
    </tr>
    <tr valign="top">
      <td>&nbsp;</td>
      <td>&nbsp;</td>
    </tr>
    <tr valign="top">
      <td><font size="2" face="Arial">&#149;</font></td>
      <td><font size="2" face="Arial">approved the terms and conditions of the
        2005 Supervisory Board Stock-Based Compensation Plan for members and professionals.</font></td>
    </tr>
  </table>
  <div style="text-indent:3%">
    <p align="justify"><font size="2" face="Arial">We intend to use 4.1 million
      of our shares held by us in treasury (out of the 13.4 million currently
      available) to cover the four million non-vested stock award grants pursuant
      to the 2001 Employee Stock Option Plan as well as the granting of up to
      100,000 non-vested shares to the sole member of our Managing Board that
      was also approved by shareholders at the 2005 AGM.</font></p>
  </div>
</div>
<table width="100%" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td><font size="2" face="Arial">&nbsp;</font><font size="2" face="Arial"><b>Disclosure
      Controls and Procedures</b></font></td>
  </tr>
</table>
<div style="text-indent:3%">
  <p align="justify"><font size="2" face="Arial">Our Chief Executive Officer and
    Chief Financial Officer, after evaluating the effectiveness of our disclosure
    controls and procedures (as defined in Exchange Act Rule 13a-14(c)) as of
    the end of the period covered by this report, have concluded that, as of such
    date, our disclosure controls and procedures were effective to ensure that
    material information relating to our company was made known to them by others
    within our company, particularly during the period when this Form 6-K was
    being prepared.</font></p>
</div>
<div style="text-indent:3%"><p align="justify"><font size="2" face="Arial">There were no significant changes in our internal controls over financial reporting or in other factors that could significantly affect these controls during the period covered by this report, nor were there any significant deficiencies or material weaknesses in our internal controls requiring corrective actions in addition to those taken from time to time.</font></p></div>
<table width="100%" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td><font size="2" face="Arial">&nbsp;</font><font size="2" face="Arial"><b>Other
      Reviews</b></font></td>
  </tr>
</table>
<div style="text-indent:3%"><p align="justify"><font size="2" face="Arial">We have sent this report to our Audit Committee, which had an opportunity to raise questions with our management and independent auditors before we submitted it to the Securities and Exchange Commission.</font></p></div>
<table width="100%" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td><font size="2" face="Arial">&nbsp;</font><font size="2" face="Arial"><b>Cautionary
      Note Regarding Forward-Looking Statements </b></font></td>
  </tr>
</table>
<div style="text-indent:3%"><p align="justify"><font size="2" face="Arial">Some of the statements contained in &#8220;Overview&#150;Business Outlook&#8221; and in &#8220;Liquidity and Capital Resources&#150;Financial Outlook&#8221; and elsewhere in this Form 6-K, 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&#8217;s </font></p>
</div>
 <p align="center"><font face="Arial" size="2">27</font></p>
<hr noshade align="center" width="100%" size="2">
<div style="page-break-before:always"></div>
<page>
  <p align="justify"><font size="2" face="Arial">current views and assumptions and
      involve known and unknown risks and uncertainties that could cause actual
      results, performance or events to differ materially from those in such
      statements due to, among other factors: </font></p>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
<tr valign="top">
<td width="3%">
<font size="2" face="Arial">&#149;</font></td>
<td>
<font size="2" face="Arial">future developments of the world semiconductor market, in particular the future demand for semiconductor products in the key application markets and from key customers served by our products;</font></td>
</tr>
<tr valign="top">
  <td>&nbsp;</td>
  <td>&nbsp;</td>
</tr>
</table>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
<tr valign="top">
<td width="3%">
<font size="2" face="Arial">&#149;</font></td>
<td>
<font size="2" face="Arial">pricing pressures, losses or curtailments of purchases from key customers as well as inventory adjustments from distributors;</font></td>
</tr>
<tr valign="top">
  <td>&nbsp;</td>
  <td>&nbsp;</td>
</tr>
</table>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
<tr valign="top">
<td width="3%">
<font size="2" face="Arial">&#149;</font></td>
    <td> <font size="2" face="Arial">changes in the exchange rates between the
      U.S. Dollar and the euro, compared to the current exchange rate of $1.21=1
      euro, and between the U.S. Dollar and the currencies of the other major
      countries in which we have our operating infrastructure;</font></td>
</tr>
<tr valign="top">
  <td>&nbsp;</td>
  <td>&nbsp;</td>
</tr>
</table>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
<tr valign="top">
<td width="3%">
<font size="2" face="Arial">&#149;</font></td>
<td>
<font size="2" face="Arial">our ability to develop new products in time to meet market demand for volume supplies;</font></td>
</tr>
<tr valign="top">
  <td>&nbsp;</td>
  <td>&nbsp;</td>
</tr>
</table>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
<tr valign="top">
<td width="3%">
<font size="2" face="Arial">&#149;</font></td>
<td>
<font size="2" face="Arial">our ability to complete, successfully and in a timely manner, our various announced initiatives to improve the efficiency of our research and development programs, our manufacturing and the reduction of our procurement costs;</font></td>
</tr>
<tr valign="top">
  <td>&nbsp;</td>
  <td>&nbsp;</td>
</tr>
</table>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
<tr valign="top">
<td width="3%">
<font size="2" face="Arial">&#149;</font></td>
<td>
<font size="2" face="Arial">the anticipated benefits of research &amp; development alliances and cooperative activities;</font></td>
</tr>
<tr valign="top">
  <td>&nbsp;</td>
  <td>&nbsp;</td>
</tr>
</table>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
<tr valign="top">
<td width="3%">
<font size="2" face="Arial">&#149;</font></td>
<td>
<font size="2" face="Arial">the ramp-up of volume production in new manufacturing technologies at our fabs;</font></td>
</tr>
<tr valign="top">
  <td>&nbsp;</td>
  <td>&nbsp;</td>
</tr>
</table>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
<tr valign="top">
<td width="3%">
<font size="2" face="Arial">&#149;</font></td>
<td>
<font size="2" face="Arial">the ability of our suppliers to meet our demands for products and to offer competitive pricing;</font></td>
</tr>
<tr valign="top">
  <td>&nbsp;</td>
  <td>&nbsp;</td>
</tr>
</table>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
<tr valign="top">
<td width="3%">
<font size="2" face="Arial">&#149;</font></td>
<td>
<font size="2" face="Arial">changes in the economic, social, or political environment, as well as natural events such as severe weather, health risks or earthquakes in the countries in which we and our key customers operate; </font></td>
</tr>
<tr valign="top">
  <td>&nbsp;</td>
  <td>&nbsp;</td>
</tr>
</table>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
<tr valign="top">
<td width="3%">
<font size="2" face="Arial">&#149;</font></td>
<td>
<font size="2" face="Arial">our ability to obtain required licenses on third-party intellectual property; and </font></td>
</tr>
<tr valign="top">
  <td>&nbsp;</td>
  <td>&nbsp;</td>
</tr>
</table>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
<tr valign="top">
<td width="3%">
<font size="2" face="Arial">&#149;</font></td>
<td>
<font size="2" face="Arial">make consistent changes in our taxation rate, tax provisions and deferred taxes.</font></td>
</tr>
</table>
<div style="text-indent:3%"><p align="justify"><font size="2" face="Arial">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 such forward-looking statements can be identified by the use of forward-looking terminology such as &#8220;believe&#8221;, &#8220;may&#8221;, &#8220;will&#8221;, &#8220;should&#8221;, &#8220;would be&#8221; or &#8220;anticipates&#8221; 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 &#8220;Item 3. <i>Key
Information&#150;Risk Factors</i>&#8221; in our Form 20-F. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described in this Form 6-K as anticipated, believed or expected. We do not intend, and do not assume any obligation, to update any industry information or forward-looking statements set forth in this Form 6-K to reflect subsequent events or circumstances.</font></p></div>
<div style="text-indent:3%"><p align="justify"><font size="2" face="Arial">Unfavorable changes in the above or other factors listed under &#8220;Risk Factors&#8221; from time to time in our Securities and Exchange Commission (&#8220;SEC&#8221;) filings, could have a material adverse effect on our business and/or financial condition.</font></p></div>
<p align="center"><font face="Arial" size="2">28</font></p>
<hr noshade align="center" width="100%" size="2">
<p>&nbsp;</p><div style="page-break-before:always"></div>
<page>




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<tr valign="top" bgcolor="#FFFFFF">
<td align="center"><font size="2" face="Arial"><b><a name="contents"></a>STMICROELECTRONICS N.V.</b></font></td>
<td align="left">&nbsp;</td>
<td align="left">&nbsp;</td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top">
<td align="left"></td>
<td align="left">&nbsp;</td>
<td align="right"></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="center"><font size="2" face="Arial"><b>UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS</b></font></td>
<td align="left">&nbsp;</td>
<td align="left">&nbsp;</td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="left"></td>
<td align="left" width="2%">&nbsp;</td>
<td width="5%" align="right"><font size="2" face="Arial"><b>Pages</b></font></td>
<td width="2%" align="left">&nbsp;</td> </tr>
<tr valign="top" bgcolor="#ffffff">
<td align="left"><a href="#pf2"><font size="2" face="Arial">Consolidated Statements of Income for the Three Months and the Six Months Ended July 2, 2005 and June 26, 2004 (unaudited)</font></a></td>
<td align="left">&nbsp;</td>
<td align="right"><a href="#pf2"><font size="2" face="Arial">F-2</font></a></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="left"><a href="#pf4"><font size="2" face="Arial">Consolidated Balance Sheets as of July 2, 2005 (unaudited) and December 31, 2004 (audited)</font></a></td>
<td align="left">&nbsp;</td>
<td align="right"><a href="#pf4"><font size="2" face="Arial">F-4</font></a></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#ffffff">
<td align="left"><a href="#pf5"><font size="2" face="Arial">Consolidated Statements of Cash Flows for the Six Months Ended July 2, 2005 and June 26, 2004 (unaudited)</font></a></td>
<td align="left">&nbsp;</td>
<td align="right"><a href="#pf5"><font size="2" face="Arial">F-5</font></a></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
    <td align="left"><a href="#pf6"><font size="2" face="Arial">Consolidated Statements
      of Changes in Shareholders&#8217; Equit<font face="Arial, Helvetica, sans-serif">y</font></font><font size="2" face="Arial, Helvetica, sans-serif">
      (unaudited)</font></a></td>
<td align="left">&nbsp;</td>
<td align="right"><a href="#pf6"><font size="2" face="Arial">F-6</font></a></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#ffffff">
<td align="left"><a href="#pf7"><font size="2" face="Arial">Notes to Interim Consolidated Financial Statements (unaudited)</font></a></td>
<td align="left">&nbsp;</td>
<td align="right"><a href="#pf7"><font size="2" face="Arial">F-7</font></a></td>
<td align="left">&nbsp;</td>
</tr>
</table>
<p align="center"><font size="2" face="Arial">F-1</font></p>

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<div style="page-break-before:always">
</div>
<a name="pf2">
</a>
<page>
<p><a href="#contents">
<font size="2">
Table of Contents</font></a></p>


<p align="center">

<b><font size=2 face="Arial">
STMicroelectronics N.V.</font></b></p>
<p align="center">

<b><font size="2" face="Arial">
CONSOLIDATED STATEMENTS OF INCOME</font></b></p>
<table width="100%" align="center" border=0 cellspacing=0 cellpadding=0>
<tr align="center">

   <td><b><font size="1">
&nbsp;</font></b></td>
   <td colspan=3><b><font size=1 face="Arial">
Three months ended</font></b></td>
   <td><b><font size="1">
&nbsp;</font></b></td>
</tr>
<tr align="center">

   <td><b><font size="1">
&nbsp;</font></b></td>
   <td colspan=3><b><font size=1 face="Arial">
(unaudited)</font></b></td>
   <td><b><font size="1">
&nbsp;</font></b></td>
</tr>
<tr align="center">

   <td><b><font size="1">
&nbsp;</font></b></td>
   <td colspan=3><hr noshade size=1></td>
   <td><b><font size="1">
&nbsp;</font></b></td>
</tr>
<tr align="center">

   <td><b><font size="1">
&nbsp;</font></b></td>
   <td width="9%">
<b><font size=1 face="Arial">
July 2,</font></b></td>
   <td width="3%">
<b><font size="1">
 &nbsp;</font></b></td>
   <td width="10%">
<b><font size=1 face="Arial">
June 26,</font></b></td>
   <td width="2%">
<b><font size="1">
&nbsp;</font></b></td>
</tr>
<tr align="center">

   <td align="left">
<b><font size=1 face="Arial">
In million of U.S. dollars except per share amounts</font></b></td>
   <td><b><font size=1 face="Arial">
2005</font></b></td>
   <td><b><font size="1">
&nbsp;</font></b></td>
   <td><b><font size=1 face="Arial">
2004</font></b></td>
   <td><b><font size="1">
&nbsp;</font></b></td>
</tr>
<tr>
   <td>&nbsp;</td>
   <td><hr noshade size=1></td>
   <td>&nbsp;</td>
   <td><hr noshade size=1></td>
   <td>&nbsp;</td>
</tr>
<tr bgcolor="#eeeeee">
   <td><font size=2 face="Arial">
Net sales</font></td>
   <td align="right">
<font size=2 face="Arial">
2,161</font></td>
   <td><font size="2">
&nbsp;</font></td>
   <td align="right">
<font size=2 face="Arial">
2,171</font></td>
   <td><font size="2">
&nbsp;</font></td>
</tr>
<tr>
   <td><font size=2 face="Arial">
Other revenues</font></td>
   <td align="right">
<font size=2 face="Arial">
1</font></td>
   <td><font size="2">
&nbsp;</font></td>
   <td align="right">
<font size=2 face="Arial">
1</font></td>
   <td><font size="2">
&nbsp;</font></td>
</tr>
<tr>
   <td><font size="2">
&nbsp;</font></td>
   <td><hr noshade size=1></td>
   <td><font size="2">
&nbsp;</font></td>
   <td><hr noshade size=1></td>
   <td><font size="2">
&nbsp;</font></td>
</tr>
<tr bgcolor="#eeeeee">
   <td><b><font size=2 face="Arial">
Net revenues</font></b></td>
   <td align="right">
<b><font size=2 face="Arial">
2,162</font></b></td>
   <td><font size="2">
&nbsp;</font></td>
   <td align="right">
<b><font size=2 face="Arial">
2,172</font></b></td>
   <td><font size="2">
&nbsp;</font></td>
</tr>
<tr>
   <td><font size=2 face="Arial">
Cost of sales</font></td>
   <td align="right">
<font size=2 face="Arial">
(1,448</font></td>
   <td><font size=2 face="Arial">
)</font></td>
   <td align="right">
<font size=2 face="Arial">
(1,360</font></td>
   <td><font size=2 face="Arial">
)</font></td>
</tr>
<tr>
   <td><font size="2">
&nbsp;</font></td>
   <td><hr noshade size=1></td>
   <td><font size="2">
&nbsp;</font></td>
   <td><hr noshade size=1></td>
   <td><font size="2">
&nbsp;</font></td>
</tr>
<tr bgcolor="#eeeeee">
   <td><b><font size=2 face="Arial">
Gross profit</font></b></td>
   <td align="right">
<b><font size=2 face="Arial">
714</font></b></td>
   <td><font size="2">
&nbsp;</font></td>
   <td align="right">
<b><font size=2 face="Arial">
812</font></b></td>
   <td><font size="2">
&nbsp;</font></td>
</tr>
<tr>
   <td><font size=2 face="Arial">
Selling, general and administrative</font></td>
   <td align="right">
<font size=2 face="Arial">
(255</font></td>
   <td><font size=2 face="Arial">
)</font></td>
   <td align="right">
<font size=2 face="Arial">
(239</font></td>
   <td><font size=2 face="Arial">
)</font></td>
</tr>
<tr bgcolor="#eeeeee">
   <td><font size=2 face="Arial">
Research and development</font></td>
   <td align="right">
<font size=2 face="Arial">
(423</font></td>
   <td><font size=2 face="Arial">
)</font></td>
   <td align="right">
<font size=2 face="Arial">
(384</font></td>
   <td><font size=2 face="Arial">
)</font></td>
</tr>
<tr>
   <td><font size=2 face="Arial">
Other income and expenses, net</font></td>
   <td align="right">
<font size=2 face="Arial">
(2</font></td>
   <td><font size=2 face="Arial">
)</font></td>
   <td align="right">
<font size=2 face="Arial">
2</font></td>
   <td><font size="2">
&nbsp;</font></td>
</tr>
<tr bgcolor="#eeeeee">
   <td><font size=2 face="Arial">
Impairment, restructuring charges and other related closure costs</font></td>
   <td align="right">
<font size=2 face="Arial">
(22</font></td>
   <td><font size=2 face="Arial">
)</font></td>
   <td align="right">
<font size=2 face="Arial">
(12</font></td>
   <td><font size=2 face="Arial">
)</font></td>
</tr>
<tr>
   <td><font size="2">
&nbsp;</font></td>
   <td><hr noshade size=1></td>
   <td><font size="2">
&nbsp;</font></td>
   <td><hr noshade size=1></td>
   <td><font size="2">
&nbsp;</font></td>
</tr>
<tr bgcolor="#eeeeee">
   <td><b><font size=2 face="Arial">
Operating income</font></b></td>
   <td align="right">
<b><font size=2 face="Arial">
12</font></b></td>
   <td><font size="2">
&nbsp;</font></td>
   <td align="right">
<b><font size=2 face="Arial">
179</font></b></td>
   <td><font size="2">
&nbsp;</font></td>
</tr>
<tr>
   <td><font size=2 face="Arial">
Interest income (expense), net</font></td>
   <td align="right">
<font size=2 face="Arial">
8</font></td>
   <td><font size="2">
&nbsp;</font></td>
   <td align="right">
<font size=2 face="Arial">
(3</font></td>
   <td><font size=2 face="Arial">
)</font></td>
</tr>
<tr bgcolor="#eeeeee">
   <td><font size=2 face="Arial">
Loss on extinguishment of convertible debt</font></td>
   <td align="right">
<font size=2 face="Arial">
0</font></td>
   <td><font size="2">
&nbsp;</font></td>
   <td align="right">
<font size=2 face="Arial">
(4</font></td>
   <td><font size=2 face="Arial">
)</font></td>
</tr>
<tr>
   <td><font size="2">
&nbsp;</font></td>
   <td><hr noshade size=1></td>
   <td><font size="2">
&nbsp;</font></td>
   <td><hr noshade size=1></td>
   <td><font size="2">
&nbsp;</font></td>
</tr>
<tr bgcolor="#eeeeee">
   <td><b><font size=2 face="Arial">
Income before income taxes and minority interests</font></b></td>
   <td align="right">
<b><font size=2 face="Arial">
20</font></b></td>
   <td><font size="2">
&nbsp;</font></td>
   <td align="right">
<b><font size=2 face="Arial">
172</font></b></td>
   <td><font size="2">
&nbsp;</font></td>
</tr>
<tr>
   <td><font size=2 face="Arial">
Income tax benefit (expense)</font></td>
   <td align="right">
<font size=2 face="Arial">
5</font></td>
   <td><font size="2">
&nbsp;</font></td>
   <td align="right">
<font size=2 face="Arial">
(23</font></td>
   <td><font size=2 face="Arial">
)</font></td>
</tr>
<tr>
   <td><font size="2">
&nbsp;</font></td>
   <td><hr noshade size=1></td>
   <td><font size="2">
&nbsp;</font></td>
   <td><hr noshade size=1></td>
   <td><font size="2">
&nbsp;</font></td>
</tr>
<tr bgcolor="#eeeeee">
   <td><b><font size=2 face="Arial">
Income before minority interests</font></b></td>
   <td align="right">
<b><font size=2 face="Arial">
25</font></b></td>
   <td><font size="2">
&nbsp;</font></td>
   <td align="right">
<b><font size=2 face="Arial">
149</font></b></td>
   <td><font size="2">
&nbsp;</font></td>
</tr>
<tr>
   <td><font size=2 face="Arial">
Minority interests</font></td>
   <td align="right">
<font size=2 face="Arial">
1</font></td>
   <td><font size="2">
&nbsp;</font></td>
   <td align="right">
<font size=2 face="Arial">
(1</font></td>
   <td><font size=2 face="Arial">
)</font></td>
</tr>
<tr>
   <td><font size="2">
&nbsp;</font></td>
   <td><hr noshade size=1></td>
   <td><font size="2">
&nbsp;</font></td>
   <td><hr noshade size=1></td>
   <td><font size="2">
&nbsp;</font></td>
</tr>
<tr bgcolor="#eeeeee">
   <td><b><font size=2 face="Arial">
Net income</font></b></td>
   <td align="right">
<b><font size=2 face="Arial">
26</font></b></td>
   <td><font size="2">
&nbsp;</font></td>
   <td align="right">
<b><font size=2 face="Arial">
148</font></b></td>
   <td><font size="2">
&nbsp;</font></td>
</tr>
<tr>
   <td><font size="2">
&nbsp;</font></td>
   <td><hr noshade size=2></td>
   <td><font size="2">
&nbsp;</font></td>
   <td><hr noshade size=2></td>
   <td><font size="2">
&nbsp;</font></td>
</tr>
<tr>
  <td>&nbsp;</td>
  <td>&nbsp;</td>
  <td>&nbsp;</td>
  <td>&nbsp;</td>
  <td>&nbsp;</td>
</tr>
<tr bgcolor="#eeeeee">
   <td><b><font size=2 face="Arial">
Earnings per share (Basic)</font></b></td>
   <td align="right">
<font size=2 face="Arial">
0.03</font></td>
   <td><font size="2">
&nbsp;</font></td>
   <td align="right">
<font size=2 face="Arial">
0.17</font></td>
   <td><font size="2">
&nbsp;</font></td>
</tr>
<tr>
   <td><font size="2">
&nbsp;</font></td>
   <td><hr noshade size=1></td>
   <td><font size="2">
&nbsp;</font></td>
   <td><hr noshade size=1></td>
   <td><font size="2">
&nbsp;</font></td>
</tr>
<tr bgcolor="#eeeeee">
   <td><b><font size=2 face="Arial">
Earnings per share (Diluted)</font></b></td>
   <td align="right">
<font size=2 face="Arial">
0.03</font></td>
   <td><font size="2">
&nbsp;</font></td>
   <td align="right">
<font size=2 face="Arial">
0.16</font></td>
   <td><font size="2">
&nbsp;</font></td>
</tr>
<tr>
   <td><font size="2">
&nbsp;</font></td>
   <td><hr noshade size=1></td>
   <td><font size="2">
&nbsp;</font></td>
   <td><hr noshade size=1></td>
   <td><font size="2">
&nbsp;</font></td>
</tr>
</table>
<p align="center"> <font size=2 face="Arial"> The accompanying notes are an integral
  part of these Unaudited Interim Consolidated Financial Statements</font></p>
<p align="right">&nbsp; </p>
<p align="center"><font face="Arial" size="2">F-2</font></p>

<hr noshade align="center" width="100%" size="2">




<div style="page-break-before:always">
</div>
<a name="p??">
</a>
<page>
<p><a href="#contents">
<font size="2">
Table of Contents</font></a></p>


<p align="center">
<b><font size=2 face="Arial">
STMicroelectronics N.V.</font></b></p>
<p align="center">
<b><font size="2" face="Arial">
CONSOLIDATED STATEMENTS OF INCOME</font></b></p>
<table width="100%" align="center" border=0 cellspacing=0 cellpadding=0>
<tr>
   <td><b><font size="1" face="Arial">
&nbsp;</font></b></td>
   <td align="center">
<font size="1">
&nbsp;</font></td>
   <td colspan=3 align="center">
<b><font size=1 face="Arial">
Six months ended</font></b></td>
   <td align="center">
<b><font size="1" face="Arial">
&nbsp;</font></b></td>
</tr>
<tr>
   <td><b><font size="1" face="Arial">
&nbsp;</font> </b></td>
   <td width="2%">
<b><font size="1" face="Arial">
 &nbsp;</font></b></td>
   <td colspan="3" align="center">
<b><font size=1 face="Arial">
(unaudited)&nbsp;&nbsp;</font></b></td>
   <td width="2%">
<b><font size="1" face="Arial">
&nbsp;</font></b></td>
</tr>
<tr>
  <td><font size="1">
&nbsp;</font></td>
  <td align="center">
<font size="1">
&nbsp;</font></td>
  <td colspan="3" align="center">
<hr noshade size=1></td>
  <td><font size="1">
&nbsp;</font></td>
</tr>
<tr>
   <td><b><font size="1" face="Arial">
&nbsp;</font></b></td>
   <td align="center">
<font size="1">
&nbsp;</font></td>
   <td width="10%" align="center">
<b><font size="1" face="Arial">
&nbsp;July 2,</font></b></td>
   <td width="2%">
<b><font size="1" face="Arial">
&nbsp;</font></b></td>
   <td width="10%" align="center">
<b><font size=1 face="Arial">
June 26,</font></b></td>
   <td><b><font size="1" face="Arial">
&nbsp;</font></b></td>
</tr>
<tr bgcolor="#ffffff">
   <td><b><font size=1 face="Arial">
In million of U.S. dollars except per share amounts</font></b></td>
   <td align="center">
<font size="1">
&nbsp;</font></td>
   <td align="center">
<b><font size="1" face="Arial">
&nbsp;2005</font></b></td>
   <td><b><font size="1" face="Arial">
&nbsp;</font></b></td>
   <td align="center">
<b><font size=1 face="Arial">
2004</font></b></td>
   <td><b><font size="1" face="Arial">
&nbsp;</font></b></td>
</tr>
<tr>
   <td>&nbsp;</td>
   <td>&nbsp;</td>
   <td><hr noshade size=1></td>
   <td>&nbsp;</td>
   <td><hr noshade size=1></td>
   <td>&nbsp;</td>
</tr>
<tr bgcolor="#eeeeee">
   <td><font size=2 face="Arial">
Net sales</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td align="right">
<font size=2 face="Arial">
4,242</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td align="right">
<font size=2 face="Arial">
4,199</font></td>
   <td><font size="2">&nbsp;</font></td>
</tr>
<tr>
   <td><font size=2 face="Arial">
Other revenues</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td align="right">
<font size=2 face="Arial">
3</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td align="right">
<font size=2 face="Arial">
2</font></td>
   <td><font size="2">&nbsp;</font></td>
</tr>
<tr>
   <td><font size="2">&nbsp;</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td><hr noshade size=1></td>
   <td><font size="2">&nbsp;</font></td>
   <td><hr noshade size=1></td>
   <td><font size="2">&nbsp;</font></td>
</tr>
<tr bgcolor="#eeeeee">
   <td><b><font size=2 face="Arial">
Net revenues</font></b></td>
   <td><font size="2">&nbsp;</font></td>
   <td align="right">
<b><font size=2 face="Arial">
4,245</font></b></td>
   <td><font size="2">&nbsp;</font></td>
   <td align="right">
<b><font size=2 face="Arial">
4,201</font></b></td>
   <td><font size="2">&nbsp;</font></td>
</tr>
<tr>
   <td><font size=2 face="Arial">
Cost of sales</font></td>
   <td align="right"><font size="2">&nbsp;</font>
</td>
   <td align="right">
<font size=2 face="Arial">
(2,846</font></td>
   <td><font size=2 face="Arial">
)</font></td>
   <td align="right">
<font size=2 face="Arial">
(2,671</font></td>
   <td><font size=2 face="Arial">
)</font></td>
</tr>
<tr>
   <td><font size="2">&nbsp;</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td><hr noshade size=1></td>
   <td><font size="2">&nbsp;</font></td>
   <td><hr noshade size=1></td>
   <td><font size="2">&nbsp;</font></td>
</tr>
<tr bgcolor="#eeeeee">
   <td><b><font size=2 face="Arial">
Gross profit</font></b></td>
   <td><font size="2">&nbsp;</font></td>
   <td align="right">
<b><font size=2 face="Arial">
1,399</font></b></td>
   <td><font size="2">&nbsp;</font></td>
   <td align="right">
<b><font size=2 face="Arial">
1,530</font></b></td>
   <td><font size="2">&nbsp;</font></td>
</tr>
<tr>
   <td><font size=2 face="Arial">
Selling, general and administrative</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td align="right">
<font size=2 face="Arial">
(519</font></td>
   <td><font size=2 face="Arial">
)</font></td>
   <td align="right">
<font size=2 face="Arial">
(469</font></td>
   <td><font size=2 face="Arial">
)</font></td>
</tr>
<tr bgcolor="#eeeeee">
   <td><font size=2 face="Arial">
Research and development</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td align="right">
<font size=2 face="Arial">
(827</font></td>
   <td><font size=2 face="Arial">
)</font></td>
   <td align="right">
<font size=2 face="Arial">
(747</font></td>
   <td><font size=2 face="Arial">
)</font></td>
</tr>
<tr>
   <td><font size=2 face="Arial">
Other income and expenses, net</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td align="right">
<font size=2 face="Arial">
(8</font></td>
   <td><font size=2 face="Arial">
)</font></td>
   <td align="right">
<font size=2 face="Arial">
(10</font></td>
   <td><font size=2 face="Arial">
)</font></td>
</tr>
<tr bgcolor="#eeeeee">
   <td><font size=2 face="Arial">
Impairment, restructuring charges and other related closure costs</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td align="right">
<font size=2 face="Arial">
(100</font></td>
   <td><font size=2 face="Arial">
)</font></td>
   <td align="right">
<font size=2 face="Arial">
(45</font></td>
   <td><font size=2 face="Arial">
)</font></td>
</tr>
<tr>
   <td><font size="2">&nbsp;</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td><hr noshade size=1></td>
   <td><font size="2">&nbsp;</font></td>
   <td><hr noshade size=1></td>
   <td><font size="2">&nbsp;</font></td>
</tr>
<tr bgcolor="#eeeeee">
   <td><b><font size=2 face="Arial">
Operating income (loss)</font></b></td>
   <td><font size="2">&nbsp;</font></td>
    <td align="right"> <b><font size=2 face="Arial"> (55)</font></b></td>
   <td><font size="2">&nbsp;</font></td>
   <td align="right">
<b><font size=2 face="Arial">
259</font></b></td>
   <td><font size="2">&nbsp;</font></td>
</tr>
<tr>
   <td><font size=2 face="Arial">
Interest income (expense), net</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td align="right">
<font size=2 face="Arial">
15</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td align="right">
<font size=2 face="Arial">
(7</font></td>
   <td><font size=2 face="Arial">
)</font></td>
</tr>
<tr bgcolor="#eeeeee">
    <td><font size=2 face="Arial"> Loss on extinguishment of convertible debt</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td align="right">
<font size=2 face="Arial">
0</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td align="right">
<font size=2 face="Arial">
(4</font></td>
   <td><font size=2 face="Arial">
)</font></td>
</tr>
<tr>
   <td><font size="2">&nbsp;</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td><hr noshade size=1></td>
   <td><font size="2">&nbsp;</font></td>
   <td><hr noshade size=1></td>
   <td><font size="2">&nbsp;</font></td>
</tr>
<tr bgcolor="#eeeeee">
   <td><b><font size=2 face="Arial">
Income (loss) before income taxes and minority interests</font></b></td>
   <td><font size="2">&nbsp;</font></td>
    <td align="right"> <b><font size=2 face="Arial"> (40)</font></b></td>
   <td><font size="2">&nbsp;</font></td>
   <td align="right">
<b><font size=2 face="Arial">
248</font></b></td>
   <td><font size="2">&nbsp;</font></td>
</tr>
<tr>
   <td><font size=2 face="Arial">
Income tax benefit (expense)</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td align="right">
<font size=2 face="Arial">
35</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td align="right">
<font size=2 face="Arial">
(22</font></td>
   <td><font size=2 face="Arial">
)</font></td>
</tr>
<tr>
   <td><font size="2">&nbsp;</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td><hr noshade size=1></td>
   <td><font size="2">&nbsp;</font></td>
   <td><hr noshade size=1></td>
   <td><font size="2">&nbsp;</font></td>
</tr>
<tr bgcolor="#eeeeee">
   <td><b><font size=2 face="Arial">
Income (loss) before minority interests</font></b></td>
   <td><font size="2">&nbsp;</font></td>
    <td align="right"> <b><font size=2 face="Arial"> (5)</font></b></td>
   <td><font size="2">&nbsp;</font></td>
   <td align="right">
<b><font size=2 face="Arial">
226</font></b></td>
   <td><font size="2">&nbsp;</font></td>
</tr>
<tr>
   <td><font size=2 face="Arial">
Minority interests</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td align="right">
<font size=2 face="Arial">
0</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td align="right">
<font size=2 face="Arial">
(1</font></td>
   <td><font size=2 face="Arial">
)</font></td>
</tr>
<tr>
   <td><font size="2">&nbsp;</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td><hr noshade size=1></td>
   <td><font size="2">&nbsp;</font></td>
   <td><hr noshade size=1></td>
   <td><font size="2">&nbsp;</font></td>
</tr>
<tr bgcolor="#eeeeee">
   <td><b><font size=2 face="Arial">
Net income (loss)</font></b></td>
   <td><font size="2">&nbsp;</font></td>
    <td align="right"> <b><font size=2 face="Arial"> (5)</font></b></td>
   <td><font size="2">&nbsp;</font></td>
   <td align="right">
<b><font size=2 face="Arial">
225</font></b></td>
   <td><font size="2">&nbsp;</font></td>
</tr>
<tr>
   <td><font size="2">&nbsp;</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td><hr noshade size=1></td>
   <td><font size="2">&nbsp;</font></td>
   <td><hr noshade size=1></td>
   <td><font size="2">&nbsp;</font></td>
</tr>
<tr>
  <td>&nbsp;</td>
  <td>&nbsp;</td>
  <td>&nbsp;</td>
  <td>&nbsp;</td>
  <td>&nbsp;</td>
  <td>&nbsp;</td>
</tr>
<tr bgcolor="#eeeeee">
   <td><b><font size=2 face="Arial">
Earnings (loss) per share (Basic)</font></b></td>
   <td><font size="2">&nbsp;</font></td>
    <td align="right"> <font size=2 face="Arial"> (0.01)</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td align="right">
<font size=2 face="Arial">
0.25</font></td>
   <td><font size="2">&nbsp;</font></td>
</tr>
<tr>
   <td><font size="2">&nbsp;</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td><hr noshade size=1></td>
   <td><font size="2">&nbsp;</font></td>
   <td><hr noshade size=1></td>
   <td><font size="2">&nbsp;</font></td>
</tr>
<tr bgcolor="#eeeeee">
   <td><b><font size=2 face="Arial">
Earnings (loss) per share (Diluted)</font></b></td>
   <td><font size="2">&nbsp;</font></td>
    <td align="right"> <font size=2 face="Arial"> (0.01)</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td align="right">
<font size=2 face="Arial">
0.24</font></td>
   <td><font size="2">&nbsp;</font></td>
</tr>
<tr>
   <td><font size="2">&nbsp;</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td><hr noshade size=1></td>
   <td><font size="2">&nbsp;</font></td>
   <td><hr noshade size=1></td>
   <td><font size="2">&nbsp;</font></td>
</tr>
</table>
<p align="center"> <font size=2 face="Arial"> The accompanying notes are an integral
  part of these Unaudited Interim Consolidated Financial Statements</font></p>

<p align="right">&nbsp; </p>
<p align="center"><font face="Arial" size="2">F-3</font></p>

<hr noshade align="center" width="100%" size="2">




<div style="page-break-before:always">
</div>
<a name="pf4"> </a>
<page>
<p><a href="#contents">
<font size="2">
Table of Contents</font></a></p>


<p align="center">
<b><font size=2 face="Arial">
STMicroelectronics N.V.</font></b></p>
<p align="center">
<b><font size=2 face="Arial">
CONSOLIDATED BALANCE SHEETS</font></b></p>
<table width="100%" align="center" border=0 cellspacing=0 cellpadding=0>
<tr>
   <td><font size="1" face="Arial">&nbsp;</font></td>
   <td align="center" width="10%"><b>
   <font size=1 face="Arial">
July 2,</font></b></td>
   <td align="center" width="2%"><font size="1" face="Arial">&nbsp;</font> </td>
   <td align="center" width="10%"><b>
   <font size=1 face="Arial">
December 31,</font></b></td>
   <td align="center" width="2%"><font size="1" face="Arial">&nbsp;</font> </td>
</tr>
<tr bgcolor="#ffffff">
   <td><b><font size=1 face="Arial">
In million of U.S. dollars</font></b></td>
   <td align="center"><b>
   <font size=1 face="Arial">
2005</font></b></td>
   <td align="center"><font size="1" face="Arial"> &nbsp;</font>    </td>
   <td align="center"><b>
   <font size=1 face="Arial">
2004</font></b></td>
   <td align="center"><font size="1" face="Arial">&nbsp;</font> </td>
</tr>
<tr>
  <td>&nbsp;</td>
  <td><hr noshade size=1>
  </td>
  <td>&nbsp;</td>
  <td><hr noshade size=1>
  </td>
  <td>&nbsp;</td>
</tr>
<tr>
   <td><font size="1" face="Arial">&nbsp;</font></td>
   <td align="center"><b><font size=1 face="Arial">
(unaudited)</font></b></td>
   <td><font size="1" face="Arial">&nbsp;</font></td>
   <td align="center"><b>
   <font size=1 face="Arial">
(audited)</font></b></td>
   <td><font size="1" face="Arial">&nbsp;</font></td>
</tr>
<tr>
   <td>&nbsp;</td>
   <td><hr noshade size=1></td>
   <td>&nbsp;</td>
   <td><hr noshade size=1></td>
   <td>&nbsp;</td>
</tr>
<tr>
   <td><b><font size=2 face="Arial">
Assets</font></b></td>
   <td>&nbsp;</td>
   <td>&nbsp;</td>
   <td>&nbsp;</td>
   <td>&nbsp;</td>
</tr>
<tr>
   <td><b><font size=2 face="Arial">
Current assets :</font></b></td>
   <td>&nbsp;</td>
   <td>&nbsp;</td>
   <td>&nbsp;</td>
   <td>&nbsp;</td>
</tr>
<tr bgcolor="#eeeeee">
   <td><font size=2 face="Arial">
Cash and cash equivalents</font></td>
   <td align="right">
<font size=2 face="Arial">
1,075</font></td>
   <td>&nbsp;</td>
   <td align="right">
<font size=2 face="Arial">
1,950</font></td>
   <td>&nbsp;</td>
</tr>
<tr>
   <td><font size=2 face="Arial">
Marketable securities</font></td>
   <td align="right">
<font size=2 face="Arial">
525</font></td>
   <td>&nbsp;</td>
   <td align="right">
<font size=2 face="Arial">
0</font></td>
   <td>&nbsp;</td>
</tr>
<tr bgcolor="#eeeeee">
   <td><font size=2 face="Arial">
Trade accounts receivable, net</font></td>
   <td align="right">
<font size=2 face="Arial">
1,468</font></td>
   <td>&nbsp;</td>
   <td align="right">
<font size=2 face="Arial">
1,408</font></td>
   <td>&nbsp;</td>
</tr>
<tr>
   <td><font size=2 face="Arial">
Inventories, net</font></td>
   <td align="right">
<font size=2 face="Arial">
1,363</font></td>
   <td>&nbsp;</td>
   <td align="right">
<font size=2 face="Arial">
1,344</font></td>
   <td>&nbsp;</td>
</tr>
<tr bgcolor="#eeeeee">
   <td><font size=2 face="Arial">
Deferred tax assets</font></td>
   <td align="right">
<font size=2 face="Arial">
154</font></td>
   <td>&nbsp;</td>
   <td align="right">
<font size=2 face="Arial">
140</font></td>
   <td>&nbsp;</td>
</tr>
<tr>
   <td><font size=2 face="Arial">
Other receivables and assets</font></td>
   <td align="right">
<font size=2 face="Arial">
653</font></td>
   <td>&nbsp;</td>
   <td align="right">
<font size=2 face="Arial">
785</font></td>
   <td>&nbsp;</td>
</tr>
<tr>
   <td>&nbsp;</td>
   <td><hr noshade size=1></td>
   <td>&nbsp;</td>
   <td><hr noshade size=1></td>
   <td>&nbsp;</td>
</tr>
<tr bgcolor="#eeeeee">
   <td><b><font size=2 face="Arial">
Total current assets</font></b></td>
   <td align="right">
<b><font size=2 face="Arial">
5,238</font></b></td>
   <td>&nbsp;</td>
   <td align="right">
<b><font size=2 face="Arial">
5,627</font></b></td>
   <td>&nbsp;</td>
</tr>
<tr>
   <td>&nbsp;</td>
   <td><hr noshade size=1></td>
   <td>&nbsp;</td>
   <td><hr noshade size=1></td>
   <td>&nbsp;</td>
</tr>
<tr bgcolor="#eeeeee">
   <td><font size=2 face="Arial">
Goodwill</font></td>
   <td align="right">
<font size=2 face="Arial">
223</font></td>
   <td>&nbsp;</td>
   <td align="right">
<font size=2 face="Arial">
264</font></td>
   <td>&nbsp;</td>
</tr>
<tr>
   <td><font size=2 face="Arial">
Other intangible assets, net</font></td>
   <td align="right">
<font size=2 face="Arial">
240</font></td>
   <td>&nbsp;</td>
   <td align="right">
<font size=2 face="Arial">
291</font></td>
   <td>&nbsp;</td>
</tr>
<tr bgcolor="#eeeeee">
   <td><font size=2 face="Arial">
Property, plant and equipment, net</font></td>
   <td align="right">
<font size=2 face="Arial">
6,618</font></td>
   <td>&nbsp;</td>
   <td align="right">
<font size=2 face="Arial">
7,442</font></td>
   <td>&nbsp;</td>
</tr>
<tr>
    <td><font size=2 face="Arial"> Long-term deferred tax assets</font></td>
   <td align="right">
<font size=2 face="Arial">
59</font></td>
   <td>&nbsp;</td>
   <td align="right">
<font size=2 face="Arial">
59</font></td>
   <td>&nbsp;</td>
</tr>
<tr bgcolor="#eeeeee">
   <td><font size=2 face="Arial">
Investments and other non-current assets</font></td>
   <td align="right">
<font size=2 face="Arial">
120</font></td>
   <td>&nbsp;</td>
   <td align="right">
<font size=2 face="Arial">
117</font></td>
   <td>&nbsp;</td>
</tr>
<tr>
   <td>&nbsp;</td>
   <td><hr noshade size=1></td>
   <td>&nbsp;</td>
   <td><hr noshade size=1></td>
   <td>&nbsp;</td>
</tr>
<tr bgcolor="#eeeeee">
   <td>&nbsp;</td>
   <td align="right">
<b><font size=2 face="Arial">
7,260</font></b></td>
   <td>&nbsp;</td>
   <td align="right">
<b><font size=2 face="Arial">
8,173</font></b></td>
   <td>&nbsp;</td>
</tr>
<tr>
   <td>&nbsp;</td>
   <td><hr noshade size=1></td>
   <td>&nbsp;</td>
   <td><hr noshade size=1></td>
   <td>&nbsp;</td>
</tr>
<tr bgcolor="#eeeeee">
   <td><b><font size=2 face="Arial">
Total assets</font></b></td>
   <td align="right">
<b><font size=2 face="Arial">
12,498</font></b></td>
   <td>&nbsp;</td>
   <td align="right">
<b><font size=2 face="Arial">
13,800</font></b></td>
   <td>&nbsp;</td>
</tr>
<tr>
   <td>&nbsp;</td>
   <td><hr noshade size=2></td>
   <td>&nbsp;</td>
   <td><hr noshade size=2></td>
   <td>&nbsp;</td>
</tr><tr>
   <td><b><font size=2 face="Arial">
Liabilities and shareholders' equity</font></b></td>
   <td>&nbsp;</td>
   <td>&nbsp;</td>
   <td>&nbsp;</td>
   <td>&nbsp;</td>
</tr>
<tr>
   <td><b><font size=2 face="Arial">
Current liabilities:</font></b></td>
   <td>&nbsp;</td>
   <td>&nbsp;</td>
   <td>&nbsp;</td>
   <td>&nbsp;</td>
</tr>
<tr bgcolor="#eeeeee">
   <td><font size=2 face="Arial">
Bank overdrafts</font></td>
   <td align="right">
<font size=2 face="Arial">
34</font></td>
   <td>&nbsp;</td>
   <td align="right">
<font size=2 face="Arial">
58</font></td>
   <td>&nbsp;</td>
</tr>
<tr>
   <td><font size=2 face="Arial">
Current portion of long-term debt</font></td>
   <td align="right">
<font size=2 face="Arial">
150</font></td>
   <td>&nbsp;</td>
   <td align="right">
<font size=2 face="Arial">
133</font></td>
   <td>&nbsp;</td>
</tr>
<tr bgcolor="#eeeeee">
   <td><font size=2 face="Arial">
Trade accounts payable</font></td>
   <td align="right">
<font size=2 face="Arial">
1,099</font></td>
   <td>&nbsp;</td>
   <td align="right">
<font size=2 face="Arial">
1,352</font></td>
   <td>&nbsp;</td>
</tr>
<tr>
   <td><font size=2 face="Arial">
Other payables and accrued liabilities</font></td>
   <td align="right">
<font size=2 face="Arial">
755</font></td>
   <td>&nbsp;</td>
   <td align="right">
<font size=2 face="Arial">
776</font></td>
   <td>&nbsp;</td>
</tr>
<tr bgcolor="#eeeeee">
   <td><font size=2 face="Arial">
Deferred tax liabilities</font></td>
   <td align="right">
<font size=2 face="Arial">
7</font></td>
   <td>&nbsp;</td>
   <td align="right">
<font size=2 face="Arial">
17</font></td>
   <td>&nbsp;</td>
</tr>
<tr>
   <td><font size=2 face="Arial">
Accrued income tax</font></td>
   <td align="right">
<font size=2 face="Arial">
167</font></td>
   <td>&nbsp;</td>
   <td align="right">
<font size=2 face="Arial">
176</font></td>
   <td>&nbsp;</td>
</tr>
<tr>
   <td>&nbsp;</td>
   <td><hr noshade size=1></td>
   <td>&nbsp;</td>
   <td><hr noshade size=1></td>
   <td>&nbsp;</td>
</tr>
<tr bgcolor="#eeeeee">
   <td><b><font size=2 face="Arial">
Total current liabilities</font></b></td>
   <td align="right">
<b><font size=2 face="Arial">
2,212</font></b></td>
   <td>&nbsp;</td>
   <td align="right">
<b><font size=2 face="Arial">
2,512</font></b></td>
   <td>&nbsp;</td>
</tr>
<tr>
   <td>&nbsp;</td>
   <td><hr noshade size=1></td>
   <td>&nbsp;</td>
   <td><hr noshade size=1></td>
   <td>&nbsp;</td>
</tr>
<tr>
  <td>&nbsp;</td>
  <td>&nbsp;</td>
  <td>&nbsp;</td>
  <td>&nbsp;</td>
  <td>&nbsp;</td>
</tr>
<tr bgcolor="#eeeeee">
   <td><font size=2 face="Arial">
Long-term debt</font></td>
   <td align="right">
<font size=2 face="Arial">
1,692</font></td>
   <td>&nbsp;</td>
   <td align="right">
<font size=2 face="Arial">
1,767</font></td>
   <td>&nbsp;</td>
</tr>
<tr>
   <td><font size=2 face="Arial">
Reserve for pension and termination indemnities</font></td>
   <td align="right">
<font size=2 face="Arial">
254</font></td>
   <td>&nbsp;</td>
   <td align="right">
<font size=2 face="Arial">
285</font></td>
   <td>&nbsp;</td>
</tr>
<tr bgcolor="#eeeeee">
   <td><font size=2 face="Arial">
Long-term deferred tax liabilities</font></td>
   <td align="right">
<font size=2 face="Arial">
46</font></td>
   <td>&nbsp;</td>
   <td align="right">
<font size=2 face="Arial">
63</font></td>
   <td>&nbsp;</td>
</tr>
<tr>
   <td><font size=2 face="Arial">
Other non-current liabilities</font></td>
   <td align="right">
<font size=2 face="Arial">
20</font></td>
   <td>&nbsp;</td>
   <td align="right">
<font size=2 face="Arial">
15</font></td>
   <td>&nbsp;</td>
</tr>
<tr>
   <td>&nbsp;</td>
   <td><hr noshade size=1></td>
   <td>&nbsp;</td>
   <td><hr noshade size=1></td>
   <td>&nbsp;</td>
</tr>
<tr bgcolor="#eeeeee">
   <td>&nbsp;</td>
   <td align="right">
<b><font size=2 face="Arial">
2,012</font></b></td>
   <td>&nbsp;</td>
   <td align="right">
<b><font size=2 face="Arial">
2,130</font></b></td>
   <td>&nbsp;</td>
</tr>
<tr>
   <td>&nbsp;</td>
   <td><hr noshade size=1></td>
   <td>&nbsp;</td>
   <td><hr noshade size=1></td>
   <td>&nbsp;</td>
</tr>
<tr bgcolor="#eeeeee">
   <td><b><font size=2 face="Arial">
Total liabilities</font></b></td>
   <td align="right">
<b><font size=2 face="Arial">
4,224</font></b></td>
   <td>&nbsp;</td>
   <td align="right">
<b><font size=2 face="Arial">
4,642</font></b></td>
   <td>&nbsp;</td>
</tr>
<tr>
   <td>&nbsp;</td>
   <td><hr noshade size=1></td>
   <td>&nbsp;</td>
   <td><hr noshade size=1></td>
   <td>&nbsp;</td>
</tr>
<tr>
   <td><font size=2 face="Arial">
Commitment and contingencies</font></td>
   <td>&nbsp;</td>
   <td>&nbsp;</td>
   <td>&nbsp;</td>
   <td>&nbsp;</td>
</tr>
<tr bgcolor="#eeeeee">
   <td><b><font size=2 face="Arial">
Minority interests</font></b></td>
   <td align="right">
<b><font size=2 face="Arial">
49</font></b></td>
   <td>&nbsp;</td>
   <td align="right">
<b><font size=2 face="Arial">
48</font></b></td>
   <td>&nbsp;</td>
</tr>
<tr>
   <td>&nbsp;</td>
   <td><hr noshade size=1></td>
   <td>&nbsp;</td>
   <td><hr noshade size=1></td>
   <td>&nbsp;</td>
</tr>
<tr>
   <td>&nbsp;</td>
   <td>&nbsp;</td>
   <td>&nbsp;</td>
   <td>&nbsp;</td>
   <td>&nbsp;</td>
</tr>
<tr bgcolor="#eeeeee">
   <td><font size=2 face="Arial">
Common stock (preferred stock:540,000,000 shares</font></td>
   <td align="right">
<font size=2 face="Arial">
1,150</font></td>
   <td>&nbsp;</td>
   <td align="right">
<font size=2 face="Arial">
1,150</font></td>
   <td>&nbsp;</td>
</tr>
<tr>
   <td><font size=2 face="Arial">
authorized, not issued; common stock:Euro 1.04 nominal</font></td>
   <td>&nbsp;</td>
   <td>&nbsp;</td>
   <td>&nbsp;</td>
   <td>&nbsp;</td>
</tr>
<tr>
   <td><font size=2 face="Arial">
value, 1,200,000,000 shares authorized, 905,517,780</font></td>
   <td>&nbsp;</td>
   <td>&nbsp;</td>
   <td>&nbsp;</td>
   <td>&nbsp;</td>
</tr>
<tr>
   <td><font size=2 face="Arial">
shares issued, 892,117,780 shares outstanding)</font></td>
   <td>&nbsp;</td>
   <td>&nbsp;</td>
   <td>&nbsp;</td>
   <td>&nbsp;</td>
</tr>
<tr bgcolor="#eeeeee">
   <td><font size=2 face="Arial">
Capital surplus</font></td>
   <td align="right">
<font size=2 face="Arial">
1,927</font></td>
   <td>&nbsp;</td>
   <td align="right">
<font size=2 face="Arial">
1,924</font></td>
   <td>&nbsp;</td>
</tr>
<tr>
   <td><font size=2 face="Arial">
Accumulated result</font></td>
   <td align="right">
<font size=2 face="Arial">
5,156</font></td>
   <td>&nbsp;</td>
   <td align="right">
<font size=2 face="Arial">
5,268</font></td>
   <td>&nbsp;</td>
</tr>
<tr bgcolor="#eeeeee">
   <td><font size=2 face="Arial">
Accumulated other comprehensive income</font></td>
   <td align="right">
<font size=2 face="Arial">
340</font></td>
   <td>&nbsp;</td>
   <td align="right">
<font size=2 face="Arial">
1,116</font></td>
   <td>&nbsp;</td>
</tr>
<tr>
   <td><font size=2 face="Arial">
Treasury stock</font></td>
   <td align="right">
<font size=2 face="Arial">
(348</font></td>
   <td><font size=2 face="Arial">
)</font></td>
   <td align="right">
<font size=2 face="Arial">
(348</font></td>
   <td><font size=2 face="Arial">
)</font></td>
</tr>
<tr>
   <td>&nbsp;</td>
   <td><hr noshade size=1></td>
   <td>&nbsp;</td>
   <td><hr noshade size=1></td>
   <td>&nbsp;</td>
</tr>
<tr bgcolor="#eeeeee">
   <td><b><font size=2 face="Arial">
Shareholders' equity</font></b></td>
   <td align="right">
<b><font size=2 face="Arial">
8,225</font></b></td>
   <td>&nbsp;</td>
   <td align="right">
<b><font size=2 face="Arial">
9,110</font></b></td>
   <td>&nbsp;</td>
</tr>
<tr>
   <td>&nbsp;</td>
   <td><hr noshade size=1></td>
   <td>&nbsp;</td>
   <td><hr noshade size=1></td>
   <td>&nbsp;</td>
</tr>
<tr>
  <td>&nbsp;</td>
  <td>&nbsp;</td>
  <td>&nbsp;</td>
  <td>&nbsp;</td>
  <td>&nbsp;</td>
</tr>
<tr bgcolor="#eeeeee">
   <td><b><font size=2 face="Arial">
Total liabilities and shareholders' equity</font></b></td>
   <td align="right">
<b><font size=2 face="Arial">
12,498</font></b></td>
   <td>&nbsp;</td>
   <td align="right">
<b><font size=2 face="Arial">
13,800</font></b></td>
   <td>&nbsp;</td>
</tr><tr>
   <td>&nbsp;</td>
   <td><hr noshade size=2></td>
   <td>&nbsp;</td>
   <td><hr noshade size=2></td>
   <td>&nbsp;</td>
</tr>
</table>
<p align="center"> <font size=2 face="Arial"> The accompanying notes are an integral
  part of these Unaudited Interim Consolidated Financial Statements</font></p>

<p align="right">&nbsp; </p>
<p align="center"><font face="Arial" size="2">F-4</font></p>

<hr noshade align="center" width="100%" size="2">




<div style="page-break-before:always">
</div>
<a name="pf5">
</a>
<page>
<p><a href="#contents">
<font size="2">
Table of Contents</font></a></p>


<p align="center">
<b><font face="Arial">
<font size="2">STMicroelectronics N.V.</font></font></b></p>
<p align="center"><font size="2">
<b><font face="Arial">
CONSOLIDATED STATEMENTS OF CASH FLOWS</font></b></font></p>
<table width="100%" align="center" border=0 cellspacing=0 cellpadding=0>
<tr>
   <td><b><font size="1" face="Arial">&nbsp;</font></b></td>
   <td align="center">&nbsp;</td>
   <td colspan=3 align="center"><b><font size=1 face="Arial"> Six Months Ended</font></b></td>
   <td align="center"><b><font size="1" face="Arial">&nbsp;</font>
   </b></td>
</tr>
<tr>
   <td><b><font size="1" face="Arial"> &nbsp;</font></b></td>
   <td align="center"><b><font size="1" face="Arial">&nbsp;</font>
   </b></td>
   <td align="center" colspan=3><b><font size=1 face="Arial">
(unaudited)</font></b></td>
   <td align="center"><b><font size="1" face="Arial">&nbsp;</font>
   </b></td>
</tr>
<tr>
  <td>&nbsp;</td>
  <td align="center">&nbsp;</td>
  <td colspan="3" align="center"><hr noshade size=1></td>
  <td align="center">&nbsp;</td>
</tr>
<tr>
   <td><b><font size="1" face="Arial">&nbsp;</font></b></td>
   <td align="center" width="2%">&nbsp;  </td>
   <td align="center" width="10%"><b><font size="1"> <font face="Arial"> July
           2,&nbsp;</font>
   </font></b></td>
   <td align="center" width="2%"><b><font size="1" face="Arial">&nbsp;</font>
   </b></td>
   <td align="center" width="10%"><b>
   <font size=1 face="Arial">
June 26,</font></b></td>
   <td align="center" width="2%"><b><font size="1" face="Arial">&nbsp;</font>
   </b></td>
</tr>
<tr>
   <td bgcolor="#ffffff"><b><font size=1 face="Arial">
In million of U.S. dollars</font></b></td>
   <td align="center" bgcolor="#ffffff">&nbsp;</td>
   <td align="center" bgcolor="#ffffff"><b><font size="1"> <font face="Arial"> 2005&nbsp;</font>
   </font></b></td>
   <td align="center" bgcolor="#ffffff"><b><font size="1" face="Arial">&nbsp;</font>
   </b></td>
   <td align="center" bgcolor="#ffffff"><b>
   <font size=1 face="Arial">
2004</font></b></td>
   <td align="center" bgcolor="#ffffff"><b><font size="1" face="Arial">&nbsp;</font>
   </b></td>
</tr>
<tr>
  <td>&nbsp;</td>
  <td align="center">&nbsp;</td>
  <td align="center"><hr noshade size=1></td>
  <td align="center">&nbsp;</td>
  <td align="center"><hr noshade size=1></td>
  <td align="center">&nbsp;</td>
</tr>
<tr>
   <td><b><font size=2 face="Arial">
Cash flows from operating activities:</font></b></td>
   <td align="center"><font size="2">&nbsp;</font>
</td>
   <td align="center">     <font size="2">&nbsp;</font>
</td>
   <td align="center"><font size="2">&nbsp;</font>
</td>
   <td align="center"><font size="2">&nbsp;</font>
</td>
   <td align="center"><font size="2">&nbsp;</font>
</td>
</tr>
<tr>
   <td bgcolor="#eeeeee"><font size="2">&nbsp;&nbsp;&nbsp;<font face="Arial">
Net income (loss)</font></font></td>
   <td bgcolor="#eeeeee"><font size="2">&nbsp;</font></td>
   <td align="right" bgcolor="#eeeeee">
<font size="2" face="Arial">
(5</font></td>
   <td bgcolor="#eeeeee"><font size="2" face="Arial">
)</font></td>
   <td align="right" bgcolor="#eeeeee">
<font size="2" face="Arial">
225</font></td>
   <td bgcolor="#eeeeee"><font size="2">&nbsp;</font></td>
</tr>
<tr>
   <td><font size="2">&nbsp;&nbsp;&nbsp;<font face="Arial">
Items to reconcile net income and cash flows from operating activities:</font></font></td>
   <td><font size="2">&nbsp;</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td><font size="2">&nbsp;</font></td>
</tr>
<tr>
   <td bgcolor="#eeeeee"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><font face="Arial">
Depreciation and amortization</font></b></font></td>
   <td align="right" bgcolor="#eeeeee">&nbsp;</td>
   <td align="right" bgcolor="#eeeeee"><font size="2" face="Arial"> 1,003</font></td>
   <td bgcolor="#eeeeee"><font size="2">&nbsp;</font></td>
   <td align="right" bgcolor="#eeeeee">
<font size="2" face="Arial">
858</font></td>
   <td bgcolor="#eeeeee"><font size="2">&nbsp;</font></td>
</tr>
<tr>
   <td><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><font face="Arial">
Amortization of discount on convertible debt</font></b></font></td>
   <td><font size="2">&nbsp;</font></td>
   <td align="right">
<font size="2" face="Arial">
2</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td align="right">
<font size="2" face="Arial">
21</font></td>
   <td><font size="2">&nbsp;</font></td>
</tr>
<tr>
   <td bgcolor="#eeeeee"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><font face="Arial">
Loss on extinguishment of convertible debt</font></b></font></td>
   <td bgcolor="#eeeeee"><font size="2">&nbsp;</font></td>
   <td align="right" bgcolor="#eeeeee"><font size="2">
&#150;</font></td>
   <td bgcolor="#eeeeee"><font size="2">&nbsp;</font></td>
   <td align="right" bgcolor="#eeeeee">
<font size="2" face="Arial">
4</font></td>
   <td bgcolor="#eeeeee"><font size="2">&nbsp;</font></td>
</tr>
<tr>
   <td><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><font face="Arial">
Other non-cash items</font></b></font></td>
   <td><font size="2">&nbsp;</font></td>
   <td align="right"><font size="2">
&#150;</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td align="right">
<font size="2" face="Arial">
(5</font></td>
   <td><font size="2" face="Arial">
)</font></td>
</tr>
<tr>
   <td bgcolor="#eeeeee"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><font face="Arial">
Minority interest in net income of subsidiaries</font></b></font></td>
   <td bgcolor="#eeeeee"><font size="2">&nbsp;</font></td>
   <td align="right" bgcolor="#eeeeee"><font size="2">
&#150;</font></td>
   <td bgcolor="#eeeeee"><font size="2">&nbsp;</font></td>
   <td align="right" bgcolor="#eeeeee">
<font size="2" face="Arial">
1</font></td>
   <td bgcolor="#eeeeee"><font size="2">&nbsp;</font></td>
</tr>
<tr>
   <td><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><font face="Arial">
Deferred income tax</font></b></font></td>
   <td><font size="2">&nbsp;</font></td>
   <td align="right">
<font size="2" face="Arial">
(39</font></td>
   <td><font size="2" face="Arial">
)</font></td>
   <td align="right">
<font size="2" face="Arial">
(7</font></td>
   <td><font size="2" face="Arial">
)</font></td>
</tr>
<tr>
   <td bgcolor="#eeeeee"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><font face="Arial">
Impairment, restructuring charges and other related closure costs, net of cash payments</font></b></font></td>
   <td bgcolor="#eeeeee"><font size="2">&nbsp;</font></td>
   <td align="right" bgcolor="#eeeeee">
<font size="2" face="Arial">
68</font></td>
   <td bgcolor="#eeeeee"><font size="2">&nbsp;</font></td>
   <td align="right" bgcolor="#eeeeee">
<font size="2" face="Arial">
20</font></td>
   <td bgcolor="#eeeeee"><font size="2">&nbsp;</font></td>
</tr>
<tr>
   <td><font size="2">&nbsp;&nbsp;&nbsp;<font face="Arial">
Changes in assets and liabilities:</font></font></td>
   <td><font size="2">&nbsp;</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td><font size="2">&nbsp;</font></td>
</tr>
<tr>
   <td bgcolor="#eeeeee"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><font face="Arial">
Trade receivables, net</font></b></font></td>
   <td bgcolor="#eeeeee"><font size="2">&nbsp;</font></td>
   <td align="right" bgcolor="#eeeeee">
<font size="2" face="Arial">
(98</font></td>
   <td bgcolor="#eeeeee"><font size="2" face="Arial">
)</font></td>
   <td align="right" bgcolor="#eeeeee">
<font size="2" face="Arial">
(201</font></td>
   <td bgcolor="#eeeeee"><font size="2" face="Arial">
)</font></td>
</tr>
<tr>
   <td><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><font face="Arial">
Inventories, net</font></b></font></td>
   <td align="right">&nbsp;</td>
   <td align="right"><font size="2" face="Arial"> (116</font></td>
   <td><font size="2" face="Arial">
)</font></td>
   <td align="right">
<font size="2" face="Arial">
12</font></td>
   <td><font size="2">&nbsp;</font></td>
</tr>
<tr>
   <td bgcolor="#eeeeee"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><font face="Arial">
Trade payables</font></b></font></td>
   <td bgcolor="#eeeeee"><font size="2">&nbsp;</font></td>
   <td align="right" bgcolor="#eeeeee">
<font size="2" face="Arial">
47</font></td>
   <td bgcolor="#eeeeee"><font size="2">&nbsp;</font></td>
   <td align="right" bgcolor="#eeeeee">
<font size="2" face="Arial">
235</font></td>
   <td bgcolor="#eeeeee"><font size="2">&nbsp;</font></td>
</tr>
<tr>
   <td><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b><font face="Arial">
Other assets and liabilities, net</font></b></font></td>
   <td><font size="2">&nbsp;</font></td>
   <td align="right">
<font size="2" face="Arial">
(94</font></td>
   <td><font size="2" face="Arial">
)</font></td>
   <td align="right">
<font size="2" face="Arial">
(102</font></td>
   <td><font size="2" face="Arial">
)</font></td>
</tr>
<tr>
  <td>&nbsp;</td>
  <td align="center">&nbsp;</td>
  <td align="center"><hr noshade size=1></td>
  <td align="center">&nbsp;</td>
  <td align="center"><hr noshade size=1></td>
  <td align="center">&nbsp;</td>
</tr><tr>
   <td bgcolor="#eeeeee"><b><font size=2 face="Arial">
Net cash from operating activities</font></b></td>
   <td bgcolor="#eeeeee"><font size="2">&nbsp;</font></td>
   <td align="right" bgcolor="#eeeeee">
<b><font size="2" face="Arial">
768</font></b></td>
   <td bgcolor="#eeeeee"><font size="2">&nbsp;</font></td>
   <td align="right" bgcolor="#eeeeee">
<b><font size="2" face="Arial">
1,061</font></b></td>
   <td bgcolor="#eeeeee"><font size="2">&nbsp;</font></td>
</tr><tr>
  <td>&nbsp;</td>
  <td align="center">&nbsp;</td>
  <td align="center"><hr noshade size=1></td>
  <td align="center">&nbsp;</td>
  <td align="center"><hr noshade size=1></td>
  <td align="center">&nbsp;</td>
</tr>
<tr>
   <td><b><font size=2 face="Arial">
Cash flows from investing activities:</font></b></td>
   <td><font size="2">&nbsp;</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td><font size="2">&nbsp;</font></td>
</tr>
<tr>
   <td bgcolor="#eeeeee"><font size="2">&nbsp;&nbsp;&nbsp;<font face="Arial">
Payment for purchases of tangible assets</font></font></td>
   <td align="right" bgcolor="#eeeeee">&nbsp;</td>
   <td align="right" bgcolor="#eeeeee"><font size="2" face="Arial"> (927</font></td>
   <td bgcolor="#eeeeee"><font size="2" face="Arial">
)</font></td>
   <td align="right" bgcolor="#eeeeee">
<font size="2" face="Arial">
(908</font></td>
   <td bgcolor="#eeeeee"><font size="2" face="Arial">
)</font></td>
</tr>
<tr>
   <td><font size="2">&nbsp;&nbsp;&nbsp;<font face="Arial">
Payment for purchases of marketable securities</font></font></td>
   <td align="right">&nbsp;</td>
   <td align="right"><font size="2" face="Arial"> (525</font></td>
   <td><font size="2" face="Arial">
)</font></td>
   <td align="right">
<font size="2" face="Arial">
(1,030</font></td>
   <td><font size="2" face="Arial">
)</font></td>
</tr>
<tr>
   <td bgcolor="#eeeeee"><font size="2">&nbsp;&nbsp;&nbsp;<font face="Arial">
Investment in intangible and financial assets</font></font></td>
   <td bgcolor="#eeeeee"><font size="2">&nbsp;</font></td>
   <td align="right" bgcolor="#eeeeee">
<font size="2" face="Arial">
(34</font></td>
   <td bgcolor="#eeeeee"><font size="2" face="Arial">
)</font></td>
   <td align="right" bgcolor="#eeeeee">
<font size="2" face="Arial">
(31</font></td>
   <td bgcolor="#eeeeee"><font size="2" face="Arial">
)</font></td>
</tr>
<tr>
   <td><font size="2">&nbsp;&nbsp;&nbsp;<font face="Arial">
Payment for acquisitions, net of cash received</font></font></td>
   <td><font size="2">&nbsp;</font></td>
   <td align="right"><font size="2">
&#150;</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td align="right">
<font size="2" face="Arial">
(3</font></td>
   <td><font size="2" face="Arial">
)</font></td>
</tr>
<tr>
  <td>&nbsp;</td>
  <td align="center">&nbsp;</td>
  <td align="center"><hr noshade size=1></td>
  <td align="center">&nbsp;</td>
  <td align="center"><hr noshade size=1></td>
  <td align="center">&nbsp;</td>
</tr><tr>
   <td bgcolor="#eeeeee"><b><font size=2 face="Arial">
Net cash used in investing activities</font></b></td>
   <td align="right" bgcolor="#eeeeee">&nbsp;</td>
   <td align="right" bgcolor="#eeeeee"><b><font size="2" face="Arial"> (1,486</font></b></td>
   <td bgcolor="#eeeeee"><b><font size="2" face="Arial">
)</font></b></td>
   <td align="right" bgcolor="#eeeeee">
<b><font size="2" face="Arial">
(1,972</font></b></td>
   <td bgcolor="#eeeeee"><b><font size="2" face="Arial">
)</font></b></td>
</tr><tr>
  <td>&nbsp;</td>
  <td align="center">&nbsp;</td>
  <td align="center"><hr noshade size=1></td>
  <td align="center">&nbsp;</td>
  <td align="center"><hr noshade size=1></td>
  <td align="center">&nbsp;</td>
</tr>
<tr>
   <td><font size="2">&nbsp;</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td><font size="2">&nbsp;</font></td>
</tr>
<tr>
   <td><b><font size=2 face="Arial">
Cash flows from financing activities:</font></b></td>
   <td><font size="2">&nbsp;</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td><font size="2">&nbsp;</font></td>
</tr>
<tr>
   <td bgcolor="#eeeeee"><font size="2">&nbsp;&nbsp;&nbsp;<font face="Arial">
Proceeds from issuance of long-term debt</font></font></td>
   <td bgcolor="#eeeeee"><font size="2">&nbsp;</font></td>
   <td align="right" bgcolor="#eeeeee">
<font size="2" face="Arial">
25</font></td>
   <td bgcolor="#eeeeee"><font size="2">&nbsp;</font></td>
   <td align="right" bgcolor="#eeeeee"><font size="2">
&#150;</font></td>
   <td bgcolor="#eeeeee"><font size="2">&nbsp;</font></td>
</tr>
<tr>
   <td><font size="2">&nbsp;&nbsp;&nbsp;<font face="Arial">
Repayment of long-term debt</font></font></td>
   <td><font size="2">&nbsp;</font></td>
   <td align="right">
<font size="2" face="Arial">
(40</font></td>
   <td><font size="2" face="Arial">
)</font></td>
   <td align="right">
<font size="2" face="Arial">
(300</font></td>
   <td><font size="2" face="Arial">
)</font></td>
</tr>
<tr>
   <td bgcolor="#eeeeee"><font size="2">&nbsp;&nbsp;&nbsp;<font face="Arial">
Decrease in short-term facilities</font></font></td>
   <td bgcolor="#eeeeee"><font size="2">&nbsp;</font></td>
   <td align="right" bgcolor="#eeeeee">
<font size="2" face="Arial">
(19</font></td>
   <td bgcolor="#eeeeee"><font size="2" face="Arial">
)</font></td>
   <td align="right" bgcolor="#eeeeee">
<font size="2" face="Arial">
(37</font></td>
   <td bgcolor="#eeeeee"><font size="2" face="Arial">
)</font></td>
</tr>
<tr>
   <td><font size="2">&nbsp;&nbsp;&nbsp;<font face="Arial">
Capital increase</font></font></td>
   <td><font size="2">&nbsp;</font></td>
   <td align="right">
<font size="2" face="Arial">
3</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td align="right">
<font size="2" face="Arial">
16</font></td>
   <td><font size="2">&nbsp;</font></td>
</tr>
<tr>
   <td bgcolor="#eeeeee"><font size="2">&nbsp;&nbsp;&nbsp;<font face="Arial">
Dividends paid</font></font></td>
   <td align="right" bgcolor="#eeeeee">&nbsp;</td>
   <td align="right" bgcolor="#eeeeee"><font size="2" face="Arial"> (107</font></td>
   <td bgcolor="#eeeeee"><font size="2" face="Arial">
)</font></td>
   <td align="right" bgcolor="#eeeeee">
<font size="2" face="Arial">
(107</font></td>
   <td bgcolor="#eeeeee"><font size="2" face="Arial">
)</font></td>
</tr><tr>
  <td>&nbsp;</td>
  <td align="center">&nbsp;</td>
  <td align="center"><hr noshade size=1></td>
  <td align="center">&nbsp;</td>
  <td align="center"><hr noshade size=1></td>
  <td align="center">&nbsp;</td>
</tr>
<tr>
   <td bgcolor="#eeeeee"><b><font size=2 face="Arial">
Net cash used in financing activities</font></b></td>
   <td align="right" bgcolor="#eeeeee">&nbsp;</td>
   <td align="right" bgcolor="#eeeeee"><b><font size="2" face="Arial"> (138</font></b></td>
   <td bgcolor="#eeeeee"><b><font size="2" face="Arial">
)</font></b></td>
   <td align="right" bgcolor="#eeeeee">
<b><font size="2" face="Arial">
(428</font></b></td>
   <td bgcolor="#eeeeee"><b><font size="2" face="Arial">
)</font></b></td>
</tr><tr>
  <td>&nbsp;</td>
  <td align="center">&nbsp;</td>
  <td align="center"><hr noshade size=1></td>
  <td align="center">&nbsp;</td>
  <td align="center"><hr noshade size=1></td>
  <td align="center">&nbsp;</td>
</tr>
<tr>
   <td bgcolor="#eeeeee"><font size="2">&nbsp;&nbsp;&nbsp;<font face="Arial">
Effect of changes in exchange rates</font></font></td>
   <td bgcolor="#eeeeee"><font size="2">&nbsp;</font></td>
   <td align="right" bgcolor="#eeeeee">
<font size="2" face="Arial">
(19</font></td>
   <td bgcolor="#eeeeee"><font size="2" face="Arial">
)</font></td>
   <td align="right" bgcolor="#eeeeee">
<font size="2" face="Arial">
(3</font></td>
   <td bgcolor="#eeeeee"><font size="2" face="Arial">
)</font></td>
</tr><tr>
  <td>&nbsp;</td>
  <td align="center">&nbsp;</td>
  <td align="center"><hr noshade size=1></td>
  <td align="center">&nbsp;</td>
  <td align="center"><hr noshade size=1></td>
  <td align="center">&nbsp;</td>
</tr>
<tr>
   <td bgcolor="#eeeeee"><b><font size="2" face="Arial">
Net cash decrease</font></b></td>
   <td align="right" bgcolor="#eeeeee">&nbsp;</td>
   <td align="right" bgcolor="#eeeeee"><b><font size="2" face="Arial"> (875</font></b></td>
   <td bgcolor="#eeeeee"><b><font size="2" face="Arial">
)</font></b></td>
   <td align="right" bgcolor="#eeeeee">
<b><font size="2" face="Arial">
(1,342</font></b></td>
   <td bgcolor="#eeeeee"><b><font size="2" face="Arial">
)</font></b></td>
</tr><tr>
  <td>&nbsp;</td>
  <td align="center">&nbsp;</td>
  <td align="center"><hr noshade size=2></td>
  <td align="center">&nbsp;</td>
  <td align="center"><hr noshade size=2></td>
  <td align="center">&nbsp;</td>
</tr>
<tr>
   <td bgcolor="#eeeeee"><b><font size=2 face="Arial">
Cash and cash equivalents at beginning of the period</font></b></td>
   <td align="right" bgcolor="#eeeeee">&nbsp;</td>
   <td align="right" bgcolor="#eeeeee"><b><font size="2" face="Arial"> 1,950</font></b></td>
   <td bgcolor="#eeeeee"><font size="2">&nbsp;</font></td>
   <td align="right" bgcolor="#eeeeee">
<b><font size="2" face="Arial">
2,998</font></b></td>
   <td bgcolor="#eeeeee"><font size="2">&nbsp;</font></td>
</tr><tr>
  <td>&nbsp;</td>
  <td align="center">&nbsp;</td>
  <td align="center"><hr noshade size=1></td>
  <td align="center">&nbsp;</td>
  <td align="center"><hr noshade size=1></td>
  <td align="center">&nbsp;</td>
</tr>
<tr>
   <td bgcolor="#eeeeee"><b><font size=2 face="Arial">
Cash and cash equivalents at end of the period</font></b></td>
   <td align="right" bgcolor="#eeeeee">&nbsp;</td>
   <td align="right" bgcolor="#eeeeee"><b><font size="2" face="Arial"> 1,075</font></b></td>
   <td bgcolor="#eeeeee"><font size="2">&nbsp;</font></td>
   <td align="right" bgcolor="#eeeeee">
<b><font size="2" face="Arial">
1,656</font></b></td>
   <td bgcolor="#eeeeee"><font size="2">&nbsp;</font></td>
</tr><tr>
  <td>&nbsp;</td>
  <td align="center">&nbsp;</td>
  <td align="center"><hr noshade size=2></td>
  <td align="center">&nbsp;</td>
  <td align="center"><hr noshade size=2></td>
  <td align="center">&nbsp;</td>
</tr>
</table>
<p align="center"> <font size=2 face="Arial"> The accompanying notes are an integral
  part of these Unaudited Interim Consolidated Financial Statements</font></p>

<p align="right">&nbsp; </p>
<p align="center"><font face="Arial" size="2">F-5</font></p>

<hr noshade align="center" width="100%" size="2">
<div style="page-break-before:always">
</div>
<a name="pf6"> </a>
<page>
<p><a href="#contents">
<font size="2">
Table of Contents</font></a></p>


<p align="center">
<b><font size=2 face="Arial">
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY</font></b></p>
<table width="100%" align="center" border=0 cellspacing=0 cellpadding=0>
<tr>
   <td><b><font size=1 face="Arial">
In million of U.S. dollars, except per share amounts</font></b></td>
   <td align="center">&nbsp;</td>
   <td align="center">&nbsp;</td>
   <td align="center">&nbsp; </td>
   <td align="center">&nbsp;</td>
   <td align="center">&nbsp; </td>
   <td align="center">&nbsp; </td>
   <td align="center">&nbsp; </td>
   <td align="center">&nbsp; </td>
   <td align="center"><b>
   <font size=1 face="Arial">
Accumulated</font></b></td>
   <td align="center">&nbsp; </td>
   <td align="center">&nbsp; </td>
   <td align="center">&nbsp; </td>
</tr>
<tr>
   <td>&nbsp;</td>
   <td width="8%" align="center">&nbsp; </td>
   <td width="2%" align="center">&nbsp; </td>
   <td width="8%" align="center">&nbsp; </td>
   <td width="2%" align="center">&nbsp;</td>
   <td width="8%" align="center">&nbsp; </td>
   <td width="2%" align="center">&nbsp;  </td>
   <td width="8%" align="center">&nbsp; </td>
   <td width="2%" align="center">&nbsp; </td>
   <td width="8%" align="center"><b>
   <font size=1 face="Arial">
Other</font></b></td>
   <td width="2%" align="center">&nbsp; </td>
   <td width="8%" align="center">&nbsp; </td>
   <td width="2%">&nbsp; </td>
</tr>
<tr>
   <td>&nbsp;</td>
   <td align="center"><b><font size=1 face="Arial">
Common</font></b></td>
   <td align="center">&nbsp;</td>
   <td align="center"><b>
   <font size=1 face="Arial">
Capital</font></b></td>
   <td align="center">&nbsp;</td>
   <td align="center"><b><font size=1 face="Arial">
Treasury</font></b></td>
   <td align="center">&nbsp;</td>
   <td align="center"><b><font size=1 face="Arial">
Accumulated</font></b></td>
   <td align="center">&nbsp;</td>
   <td align="center"><b><font size=1 face="Arial">
Comprehensive</font></b></td>
   <td align="center">&nbsp;</td>
   <td align="center"><b>
   <font size=1 face="Arial">
Shareholders'</font></b></td>
   <td>&nbsp;</td>
</tr>
<tr>
   <td>&nbsp;</td>
   <td align="center"><b><font size=1 face="Arial">
Stock</font></b></td>
   <td align="center">&nbsp;</td>
   <td align="center"><b>
   <font size=1 face="Arial">
Surplus</font></b></td>
   <td align="center">&nbsp;</td>
   <td align="center"><b><font size=1 face="Arial">
Stock</font></b></td>
   <td align="center">&nbsp;</td>
   <td align="center"><b><font size=1 face="Arial">
Result</font></b></td>
   <td align="center">&nbsp;</td>
   <td align="center"><b><font size=1 face="Arial">
income (loss)</font></b></td>
   <td align="center">&nbsp;</td>
   <td align="center"><b>
   <font size=1 face="Arial">
Equity</font></b></td>
   <td>&nbsp;</td>
</tr>
<tr>
   <td>&nbsp;</td>
   <td><hr noshade size=1></td>
   <td>&nbsp;</td>
   <td><hr noshade size=1></td>
   <td>&nbsp;</td>
   <td><hr noshade size=1></td>
   <td>&nbsp;</td>
   <td><hr noshade size=1></td>
   <td>&nbsp;</td>
   <td><hr noshade size=1></td>
   <td>&nbsp;</td>
   <td><hr noshade size=1></td>
   <td>&nbsp;</td>
</tr>
<tr bgcolor="#eeeeee">
   <td><b><font size=2 face="Arial">
Balance as of December 31, 2003 (audited)</font></b></td>
   <td align="right">
<b><font size=2 face="Arial">
1,146</font></b></td>
   <td><font size="2">&nbsp;</font></td>
   <td align="right">
<b><font size=2 face="Arial">
1,905</font></b></td>
   <td align="right">&nbsp;</td>
   <td align="right">
<b><font size=2 face="Arial">
(348</font></b></td>
   <td><b><font size=2 face="Arial">
)</font></b></td>
   <td align="right">
<b><font size=2 face="Arial">
4,774</font></b></td>
   <td><font size="2">&nbsp;</font></td>
   <td align="right">
<b><font size=2 face="Arial">
623</font></b></td>
   <td><font size="2">&nbsp;</font></td>
   <td align="right">
<b><font size=2 face="Arial">
8,100</font></b></td>
   <td><font size="2">&nbsp;</font></td>
</tr>
<tr>
   <td>&nbsp;</td>
   <td><hr noshade size=2></td>
   <td>&nbsp;</td>
   <td><hr noshade size=2></td>
   <td>&nbsp;</td>
   <td><hr noshade size=2></td>
   <td>&nbsp;</td>
   <td><hr noshade size=2></td>
   <td>&nbsp;</td>
   <td><hr noshade size=2></td>
   <td>&nbsp;</td>
   <td><hr noshade size=2></td>
   <td>&nbsp;</td>
</tr><tr bgcolor="#eeeeee">
   <td><font size=2 face="Arial">
Capital increase</font></td>
   <td align="right">
<b><font size=2 face="Arial">
4</font></b></td>
   <td><font size="2">&nbsp;</font></td>
   <td align="right">
<b><font size=2 face="Arial">
19</font></b></td>
   <td>&nbsp;</td>
   <td><font size="2">&nbsp;</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td align="right">
<b><font size=2 face="Arial">
23</font></b></td>
   <td><font size="2">&nbsp;</font></td>
</tr>
<tr>
   <td><font size=2 face="Arial">
Comprehensive income:</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td>&nbsp;</td>
   <td><font size="2">&nbsp;</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td><font size="2">&nbsp;</font></td>
</tr>
<tr bgcolor="#eeeeee">
   <td><font size="2">&nbsp;&nbsp;&nbsp;<font face="Arial">
Net Income</font></font></td>
   <td><font size="2">&nbsp;</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td>&nbsp;</td>
   <td><font size="2">&nbsp;</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td align="right">
<b><font size=2 face="Arial">
601</font></b></td>
   <td><font size="2">&nbsp;</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td align="right">
<b><font size=2 face="Arial">
601</font></b></td>
   <td><font size="2">&nbsp;</font></td>
</tr>
<tr>
   <td><font size="2">&nbsp;&nbsp;&nbsp;<font face="Arial">
Other comprehensive income, net of tax</font></font></td>
   <td><font size="2">&nbsp;</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td>&nbsp;</td>
   <td><font size="2">&nbsp;</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td align="right">
<b><font size=2 face="Arial">
493</font></b></td>
   <td><font size="2">&nbsp;</font></td>
   <td align="right">
<b><font size=2 face="Arial">
493</font></b></td>
   <td><font size="2">&nbsp;</font></td>
</tr>
<tr>
   <td><font size="2">&nbsp;</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td>&nbsp;</td>
   <td><font size="2">&nbsp;</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td><hr noshade size=1></td>
   <td><font size="2">&nbsp;</font></td>
</tr>
<tr bgcolor="#eeeeee">
   <td><font size=2 face="Arial">
Comprehensive income</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td>&nbsp;</td>
   <td><font size="2">&nbsp;</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td align="right">
<b><font size=2 face="Arial">
1,094</font></b></td>
   <td><font size="2">&nbsp;</font></td>
</tr>
<tr>
   <td height="17"><font size=2 face="Arial">
Dividends, $0.12 per share</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td>&nbsp;</td>
   <td><font size="2">&nbsp;</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td align="right">
<font size=2 face="Arial">
(107</font></td>
   <td><font size=2 face="Arial">
)</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td align="right">
<font size=2 face="Arial">
(107</font></td>
   <td><font size=2 face="Arial">
)</font></td>
</tr>
<tr>
   <td>&nbsp;</td>
   <td><hr noshade size=1></td>
   <td>&nbsp;</td>
   <td><hr noshade size=1></td>
   <td>&nbsp;</td>
   <td><hr noshade size=1></td>
   <td>&nbsp;</td>
   <td><hr noshade size=1></td>
   <td>&nbsp;</td>
   <td><hr noshade size=1></td>
   <td>&nbsp;</td>
   <td><hr noshade size=1></td>
   <td>&nbsp;</td>
</tr><tr bgcolor="#eeeeee">
   <td><b><font size=2 face="Arial">
Balance as of December 31, 2004 (audited)</font></b></td>
   <td align="right">
<b><font size=2 face="Arial">
1,150</font></b></td>
   <td><font size="2">&nbsp;</font></td>
   <td align="right">
<b><font size=2 face="Arial">
1,924</font></b></td>
   <td align="right">&nbsp;</td>
   <td align="right">
<b><font size=2 face="Arial">
(348</font></b></td>
   <td><b><font size=2 face="Arial">
)</font></b></td>
   <td align="right">
<b><font size=2 face="Arial">
5,268</font></b></td>
   <td><font size="2">&nbsp;</font></td>
   <td align="right">
<b><font size=2 face="Arial">
1,116</font></b></td>
   <td><font size="2">&nbsp;</font></td>
   <td align="right">
<b><font size=2 face="Arial">
9,110</font></b></td>
   <td><font size="2">&nbsp;</font></td>
</tr>
<tr>
   <td><font size="2">&nbsp;</font></td>
   <td><hr noshade size=2></td>
   <td><font size="2">&nbsp;</font></td>
   <td><hr noshade size=2></td>
   <td>&nbsp;</td>
   <td><hr noshade size=2></td>
   <td><font size="2">&nbsp;</font></td>
   <td><hr noshade size=2></td>
   <td><font size="2">&nbsp;</font></td>
   <td><hr noshade size=2></td>
   <td><font size="2">&nbsp;</font></td>
   <td><hr noshade size=2></td>
   <td><font size="2">&nbsp;</font></td>
</tr>
<tr>
   <td><font size=2 face="Arial">
Capital increase</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td align="right">
<b><font size=2 face="Arial">
3</font></b></td>
   <td>&nbsp;</td>
   <td><font size="2">&nbsp;</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td align="right">
<b><font size=2 face="Arial">
3</font></b></td>
   <td><font size="2">&nbsp;</font></td>
</tr>
<tr>
   <td><font size=2 face="Arial">
Comprehensive income (loss):</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td>&nbsp;</td>
   <td><font size="2">&nbsp;</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td><font size="2">&nbsp;</font></td>
</tr>
<tr>
   <td><font size="2">&nbsp;&nbsp;&nbsp;<font face="Arial">
Net loss</font></font></td>
   <td><font size="2">&nbsp;</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td>&nbsp;</td>
   <td><font size="2">&nbsp;</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td align="right">
<b><font size=2 face="Arial">
(5</font></b></td>
   <td><b><font size=2 face="Arial">
)</font></b></td>
   <td><font size="2">&nbsp;</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td align="right">
<b><font size=2 face="Arial">
(5</font></b></td>
   <td><b><font size=2 face="Arial">
)</font></b></td>
</tr>
<tr bgcolor="#eeeeee">
   <td><font size="2">&nbsp;&nbsp;&nbsp;<font face="Arial">
Other comprehensive loss, net of tax</font></font></td>
   <td><font size="2">&nbsp;</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td>&nbsp;</td>
   <td><font size="2">&nbsp;</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td align="right">
<b><font size=2 face="Arial">
(776</font></b></td>
   <td><b><font size=2 face="Arial">
)</font></b></td>
   <td align="right">
<b><font size=2 face="Arial">
(776</font></b></td>
   <td><b><font size=2 face="Arial">
)</font></b></td>
</tr>
<tr>
   <td><font size="2">&nbsp;</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td>&nbsp;</td>
   <td><font size="2">&nbsp;</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td><hr noshade size=1></td>
   <td><font size="2">&nbsp;</font></td>
</tr>
<tr bgcolor="#eeeeee">
   <td><font size=2 face="Arial">
Comprehensive income (loss)</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td>&nbsp;</td>
   <td><font size="2">&nbsp;</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td align="right">
<b><font size=2 face="Arial">
(781</font></b></td>
   <td><b><font size=2 face="Arial">
)</font></b></td>
</tr>
<tr>
   <td><font size=2 face="Arial">
Dividends, $0.12 per share</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td>&nbsp;</td>
   <td><font size="2">&nbsp;</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td align="right">
<font size=2 face="Arial">
(107</font></td>
   <td><font size=2 face="Arial">
)</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td><font size="2">&nbsp;</font></td>
   <td align="right">
<font size=2 face="Arial">
(107</font></td>
   <td><font size=2 face="Arial">
)</font></td>
</tr>
<tr>
   <td>&nbsp;</td>
   <td><hr noshade size=1></td>
   <td>&nbsp;</td>
   <td><hr noshade size=1></td>
   <td>&nbsp;</td>
   <td><hr noshade size=1></td>
   <td>&nbsp;</td>
   <td><hr noshade size=1></td>
   <td>&nbsp;</td>
   <td><hr noshade size=1></td>
   <td>&nbsp;</td>
   <td><hr noshade size=1></td>
   <td>&nbsp;</td>
</tr>
<tr bgcolor="#eeeeee">
   <td><b><font size=2 face="Arial">
Balance as of July 2, 2005 (unaudited)</font></b></td>
   <td align="right">
<b><font size=2 face="Arial">
1,150</font></b></td>
   <td><font size="2">&nbsp;</font></td>
   <td align="right">
<b><font size=2 face="Arial">
1,927</font></b></td>
   <td align="right">&nbsp;</td>
   <td align="right">
<b><font size=2 face="Arial">
(348</font></b></td>
   <td><b><font size=2 face="Arial">
)</font></b></td>
   <td align="right">
<b><font size=2 face="Arial">
5,156</font></b></td>
   <td><font size="2">&nbsp;</font></td>
   <td align="right">
<b><font size=2 face="Arial">
340</font></b></td>
   <td><font size="2">&nbsp;</font></td>
   <td align="right">
<b><font size=2 face="Arial">
8,225</font></b></td>
   <td><font size="2">&nbsp;</font></td>
</tr><tr>
   <td>&nbsp;</td>
   <td><hr noshade size=2></td>
   <td>&nbsp;</td>
   <td><hr noshade size=2></td>
   <td>&nbsp;</td>
   <td><hr noshade size=2></td>
   <td>&nbsp;</td>
   <td><hr noshade size=2></td>
   <td>&nbsp;</td>
   <td><hr noshade size=2></td>
   <td>&nbsp;</td>
   <td><hr noshade size=2></td>
   <td>&nbsp;</td>
</tr>
</table>
<p align="center"> <font size=2 face="Arial"> The accompanying notes are an integral
  part of these Unaudited Interim Consolidated Financial Statements</font></p>

<p align="right">&nbsp; </p>
<p align="center"><font face="Arial" size="2">F-6</font></p>

<hr noshade align="center" width="100%" size="2">
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<page>
<a name="pf7"> </a>

<p><a href="#contents"><font size="2">Back to Contents</font></a></p>
<p align="center"><b><font face="Arial" size="4"> <font size="2">STMicroelectronics N.V.</font></font></b></p>
<p align="center"><font size="2"><b><font face="Arial">Notes to Interim Consolidated Financial Statements (unaudited)</font></b></font></p>
<p align="left"><font size="2" face="Arial"><b>1. The Company</b></font></p>
<p align="justify"><font size="2" face="Arial">STMicroelectronics N.V. (the &quot;Company&quot;)
  is registered in The Netherlands with its statutory domicile in Amsterdam. The
  Company was formed in 1987 with the original name of SGS-THOMSON Microelectronics
  by the combination of the semiconductor business of SGS Microelettronica (then
  owned by Societ&agrave; Finanziaria Telefonica (S.T.E.T.), an Italian corporation)
  and the non-military business of Thomson Semiconducteurs (then owned by Thomson-CSF,
  a French corporation) whereby each company contributed their respective semiconductor
  businesses in exchange for a 50% interest in the Company. </font></p>
<p align="justify"><font size="2" face="Arial">The Company is a global independent
  semiconductor company that designs, develops, manufactures and markets a broad
  range of semiconductor integrated circuits (&quot;ICs&quot;) and discrete devices.
  The Company offers a diversified product portfolio and develops products for
  a wide range of market applications, including automotive products, computer
  peripherals, telecommunications systems, consumer products, industrial automation
  and control systems. Within its diversified portfolio, the Company has focused
  on developing products that leverage its technological strengths in creating
  customized, system-level solutions with high-growth digital and mixed-signal
  content. </font></p>
<p align="left"><font size="2" face="Arial"><b>2. Fiscal year</b></font></p>
<p align="justify"><font size="2" face="Arial">The Company&#8217;s fiscal year
  ends on December 31. Interim periods are established for accounting purposes
  on a thirteen-week basis. In 2005, the Company&#8217;s first quarter ended on
  April 2, its second quarter ended on July 2, its third quarter will end on October
  1 and its fourth quarter on December 31. </font></p>
<p align="left"><font size="2" face="Arial"><b>3. Basis of Presentation</b></font></p>
<p align="justify"><font size="2" face="Arial">The accompanying Unaudited Interim
  Consolidated Financial Statements of the Company have been prepared in conformity
  with accounting principles generally accepted in the United States of America
  (&#8220;U.S. GAAP&#8221;), consistent in all material respects with those applied
  for the year ended December 31, 2004. The interim financial information is unaudited
  but reflects all normal adjustments which are, in the opinion of management,
  necessary to provide a fair statement of results for the periods presented.
  The results of operations for the interim period are not necessarily indicative
  of the results to be expected for the entire year. </font></p>
<p align="justify"><font size="2" face="Arial">All balances and values in the
  current and prior periods are in millions of dollars, except share and per-share
  amounts.</font></p>
<p align="justify"><font size="2" face="Arial">The accompanying Unaudited Interim
  Consolidated Financial Statements do not include certain footnotes and financial
  presentation normally required on an annual basis under U.S. GAAP. Therefore,
  these interim financial statements should be read in conjunction with the Consolidated
  Financial Statements in the Company&#8217;s Annual Report on Form 20-F for the
  year ended December 31, 2004.</font></p>


<p align="right">&nbsp;</p>
<p align="center"><font face="Arial" size="2">F-7</font></p><hr noshade align="center" width="100%" size="2">
<div style="page-break-before:always"></div>
<page>
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<p><a href="#contents"><font size="2">Back to Contents</font></a></p>
<p align="left"><font size="2" face="Arial"><b>4. Use of Estimates</b></font></p>
<p align="justify"><font size="2" face="Arial">The preparation of financial statements
  in accordance with U.S. GAAP requires management to make estimates and assumptions
  that affect the reported amounts of assets and liabilities at the date of the
  financial statements and the reported amounts of net revenue and expenses during
  the reporting period. The primary areas that require significant estimates and
  judgments by management include, but are not limited to, sales returns and allowances,
  allowances for doubtful accounts, inventory reserves and normal manufacturing
  capacity thresholds to determine costs capitalized in inventory, accruals for
  warranty costs, litigation and claims, valuation of acquired intangibles, goodwill,
  investments and tangible assets as well as the impairment of their related carrying
  values, restructuring charges, other non-recurring special charges, assumptions
  used in calculating pension obligations and pro-forma share-based compensation,
  assessment of hedge effectiveness of derivative instruments, deferred income
  tax assets including required valuation allowances and liabilities as well as
  provisions for specifically identified income tax exposures. The Company bases
  the estimates and assumptions on historical experience and on various other
  factors such as market trends and business plans that it believes to be reasonable
  under the circumstances, the results of which form the basis for making judgments
  about the carrying values of assets and liabilities. The actual results experienced
  by the Company could differ materially and adversely from management&#8217;s
  estimates. To the extent there are material differences between the estimates
  and the actual results, future results of operations could be significantly
  affected.</font></p>
<p align="left"><font size="2" face="Arial"><b>5. Recent Accounting Pronouncements</b></font></p>
<p align="justify"><font size="2" face="Arial">In November 2004, the Financial
  Accounting Standards Board issued Statement of Financial Accounting Standards
  No. 151, <i>Inventory Costs, an amendment of ARB No. 43, Chapter 4</i> (&#8220;FAS
  151&#8221;). The Standard requires abnormal amounts of idle capacity and spoilage
  costs to be excluded from the cost of inventory and expensed when incurred.
  The provisions of FAS 151 are applicable prospectively to inventory costs incurred
  during fiscal years beginning after June 15, 2005. As costs associated with
  underutilization of manufacturing facilities have historically been charged
  directly to cost of sales, the Company believes that FAS 151 will have no material
  effect on its financial position or results of operations.</font></p>
<p align="justify"><font size="2" face="Arial">In December 2004, the Financial
  Accounting Standards Board issued Statement of Financial Accounting Standards
  No. 153, <i>Exchanges of Nonmonetary Assets, an amendment of APB Opinion No.
  29 </i>(&#8220;FAS 153&#8221;). This Statement amends Opinion 29 to eliminate
  the exception to the basis measurement principle (fair value) for nonmonetary
  exchanges of similar productive assets and replaces it with a general exception
  for exchanges of transactions that do not have commercial substance, that is,
  transactions that are not expected to result in significant changes in the cash
  flows of the reporting entity. The Statement is effective prospectively for
  nonmonetary asset exchanges occurring in fiscal periods beginning after June
  15, 2005, with early application permitted. The Company has not had any nonmonetary
  exchanges of assets since FAS 153 was published and believes that FAS 153 will
  have no material effect on its financial position or results of operations.
  </font></p>


<p align="right">&nbsp;</p>
<p align="center"><font face="Arial" size="2">F-8</font></p><hr noshade align="center" width="100%" size="2">
<div style="page-break-before:always"></div>
<page>
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<p><a href="#contents"><font size="2">Back to Contents</font></a></p>
<p align="justify"><font size="2" face="Arial">In December 2004, the Financial
  Accounting Standards Board issued Statement of Financial Accounting Standards
  No. 123 (revised 2004), <i>Share-Based Payment</i> (&#8220;FAS 123R&#8221;).
  This Statement revises FASB Statement No. 123, <i>Accounting for Stock-Based
  Compensation</i> and supersedes APB Opinion No. 25, <i>Accounting for Stock
  Issued to Employees</i>, and its related implementation guidance. FAS 123R requires
  a public entity to measure the cost of share-based service awards based on the
  grant-date fair value of the award. That cost will be recognized over the period
  during which an employee is required to provide service in exchange for the
  award or the requisite service period, usually the vesting period. The grant-date
  fair value of employee share options and similar instruments will be estimated
  using option-pricing models adjusted for the unique characteristics of those
  instruments. FAS 123R also requires more extensive disclosures than the previous
  standards relating to the nature of share-based payment transactions, compensation
  cost and cash flow effects. On April 14, 2005, the U.S. Securities and Exchange
  Commission amended the effective date of FAS 123R; the Statement now applies
  to all awards granted and to all unvested awards modified, repurchased, or cancelled
  during the first annual reporting period beginning after June 15, 2005. FAS
  123R provides a choice of transition methods including the modified prospective
  application method, which allows discretionary restatement of interim periods
  during the calendar year of adoption, or the modified retrospective application
  method, which allows the restatement of the prior years presented. Each method
  requires the cumulative effect of initially applying FAS 123R to be recognized
  in the period of adoption. The Company will adopt FAS 123R in the first quarter
  of 2006 using the modified prospective application method. As a significant
  number of option grants are above current market prices, the Company believes
  their existing equity-based compensation strategy is minimally effective in
  motivating and retaining key-employees. Therefore, the Company is currently
  reviewing its share-based remunerations programs. In conjunction with this review,
  the Company decided to accelerate the vesting period of outstanding stock options,
  following authorization from the Company&#8217;s shareholders at the annual
  general meeting held on March 18, 2005. In addition, the Company is evaluating
  to base its share-based remuneration programs on nonvested shares. The Company
  will disclose the cumulative impact on its consolidated accumulated result from
  adopting FAS 123R when such review is finalized. The impact on the Company&#8217;s
  financial position and results of operations are further illustrated in the
  information presented in note 15 &#150; Fair value of stock-based compensation.
  </font></p>
<p align="justify"><font size="2" face="Arial">In May 2005, the Financial Accounting
  Standards Board issued Statement of Financial Accounting Standards No. 154,
  <i>Accounting Changes and Error Corrections </i>(&#8220;FAS 154&#8221;). This
  Statement supersedes Accounting Principles Board Opinion No. 20, <i>Accounting
  Changes</i> (&#8220;APB 20&#8221;) and Statement of Financial Accounting Standards
  No. 3, <i>Reporting Accounting Changes in Interim Financial Statements</i> (&#8220;FAS
  3&#8221;). This Statement requires entities that voluntary make a change in
  accounting principle to apply that change retrospectively to prior periods&#8217;
  financial statements, unless this would be impracticable, and to report the
  corresponding adjustment on the opening balance of retained earnings for that
  period rather than in net income, as previously required by APB 20. FAS 154
  also states that changes in the method of depreciation, amortization, or depletion
  of long-lived, non financial assets, must be accounted for as a change in accounting
  estimate and no more as a change in accounting principle. FAS 154 does not change
  the accounting guidance contained in APB 20 for reporting a change in accounting
  estimate and the correction of an error in previously issued financial statements,
  but it makes a distinction between &#8220;retrospective application&#8221; of
  an accounting principle and the &#8220;restatement&#8221; of financial statements
  to reflect the correction of an error. The Statement is effective for accounting
  changes and corrections of errors made in fiscal years beginning after December
  15, 2005, with early adoption permitted for accounting changes and corrections
  of errors made in fiscal years beginning after FAS 154 was issued. The Company
  early adopted FAS 154 in the second quarter of 2005 and did report neither corrections
  of errors nor accounting changes that could have a material effect on its financial
  position or results of operations. </font></p>


<p align="right">&nbsp;</p>
<p align="center"><font face="Arial" size="2">F-9</font></p><hr noshade align="center" width="100%" size="2">
<div style="page-break-before:always"></div>
<page>
<a name="p?"></a>
<p><a href="#contents"><font size="2">Back to Contents</font></a></p>
<p align="left"><font size="2" face="Arial"><b>6. Other Income and Expenses, Net</b></font></p>
<p align="left"><font size="2" face="Arial">Other income and expenses, net consisted of the following:</font></p>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
<tr valign="top">
<td align="left"><b><font size="1" face="Arial">&nbsp;</font></b></td>
<td align="left"><b><font size="1"> &nbsp;</font></b></td>
<td align="right"><b><font size="1">&nbsp;</font></b></td>
<td colspan="4" align="center"><b><font size="1" face="Arial">(unaudited)</font></b></td>
<td align="left"><b><font size="1">&nbsp;</font></b></td>
<td align="right"><b><font size="1">&nbsp;</font></b></td>
<td colspan="4" align="center"><b><font size="1" face="Arial">(unaudited)</font></b></td>
<td align="left"><b><font size="1">&nbsp;</font></b></td>
</tr>
<tr valign="top">
<td><b><font size="1">&nbsp;</font></b></td>
<td><b><font size="1">&nbsp;</font></b></td>
<td><hr noshade size="1"></td>
<td colspan="4"><hr noshade size="1"></td>
<td><b><font size="1">&nbsp;</font></b></td>
<td><hr noshade size="1"></td>
<td colspan="4"><hr noshade size="1"></td>
<td><b><font size="1">&nbsp;</font></b></td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="left"><b><font size="1" face="Arial">&nbsp;</font></b></td>
<td align="left"><b><font size="1">&nbsp;</font></b></td>
<td align="right"><b><font size="1">&nbsp;</font></b></td>
<td colspan="4" align="center"><b><font size="1" face="Arial">Three months ended</font></b></td>
<td align="left"><b><font size="1">&nbsp;</font></b></td>
<td align="right"><b><font size="1">&nbsp;</font></b></td>
<td colspan="4" align="center"><b><font size="1" face="Arial">Six months ended</font></b></td>
<td align="left"><b><font size="1">&nbsp;</font></b></td>
</tr>
<tr valign="top">
<td><b><font size="1">&nbsp;</font></b></td>
<td><b><font size="1">&nbsp;</font></b></td>
<td><hr noshade size="1"></td>
<td colspan="4"><hr noshade size="1"></td>
<td><b><font size="1">&nbsp;</font></b></td>
<td><hr noshade size="1"></td>
<td colspan="4"><hr noshade size="1"></td>
<td><b><font size="1">&nbsp;</font></b></td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="left"><b><font size="1" face="Arial">In million of U.S dollars          </font></b></td>
<td align="left" width="2%"><b><font size="1">&nbsp;</font></b></td>
<td width="1%" align="right"><b><font size="1">&nbsp;</font></b></td>
<td width="10%" align="center"><b><font size="1" face="Arial">July 2, 2005</font></b></td>
<td width="2%" align="left"><b><font size="1">&nbsp;</font></b></td>
<td width="1%" align="right"><b><font size="1">&nbsp;</font></b></td>
<td width="10%" align="center"><b><font size="1" face="Arial">June 26, 2004</font></b></td>
<td width="2%" align="left"><b><font size="1">&nbsp;</font></b></td>
<td width="1%" align="right"><b><font size="1">&nbsp;</font></b></td>
<td width="10%" align="center"><b><font size="1" face="Arial">July 2, 2005</font></b></td>
<td width="2%" align="left"><b><font size="1">&nbsp;</font></b></td>
<td width="1%" align="right"><b><font size="1">&nbsp;</font></b></td>
<td width="10%" align="center"><b><font size="1" face="Arial">June 26, 2004</font></b></td>
<td width="2%" align="left"><b><font size="1">&nbsp;</font></b></td>
</tr>
<tr valign="top">
<td>&nbsp;</td>
<td></td>
<td><hr noshade size="1"></td>
<td><hr noshade size="1"></td>
<td></td>
<td><hr noshade size="1"></td>
<td><hr noshade size="1"></td>
<td></td>
<td><hr noshade size="1"></td>
<td><hr noshade size="1"></td>
<td></td>
<td><hr noshade size="1"></td>
<td><hr noshade size="1"></td>
<td></td>
</tr>
<tr valign="top" bgcolor="#eeeeee">
<td align="left"><font size="2" face="Arial">Research and development funding</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial"><b>13</b></font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">13</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial"><b>27</b></font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">28</font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="left"><font size="2" face="Arial">Start-up costs</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial"><b>(12</b></font></td>
<td align="left"><font size="2" face="Arial"><b>)</b></font></td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">(9</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial"><b>(34</b></font></td>
<td align="left"><font size="2" face="Arial"><b>)</b></font></td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">(32</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
</tr>
<tr valign="top" bgcolor="#eeeeee">
    <td align="left"><font size="2" face="Arial">Exchange gain (loss), net</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial"><b>(5</b></font></td>
<td align="left"><font size="2" face="Arial"><b>)</b></font></td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">8</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial"><b>9</b></font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">9</font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="left"><font size="2" face="Arial">Patent claim costs</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial"><b>(5</b></font></td>
<td align="left"><font size="2" face="Arial"><b>)</b></font></td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">(8</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial"><b>(10</b></font></td>
<td align="left"><font size="2" face="Arial"><b>)</b></font></td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">(14</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
</tr>
<tr valign="top" bgcolor="#eeeeee">
<td align="left"><font size="2" face="Arial">Gain on sale of non-current assets</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial"><b>6</b></font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">1</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial"><b>6</b></font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">6</font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="left"><font size="2" face="Arial">Other, net</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial"><b>1</b></font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">(3</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial"><b>(6</b></font></td>
<td align="left"><font size="2" face="Arial"><b>)</b></font></td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">(7</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
</tr>
<tr valign="top">
<td>&nbsp;</td>
<td></td>
<td><hr noshade size="1"></td>
<td><hr noshade size="1"></td>
<td></td>
<td><hr noshade size="1"></td>
<td><hr noshade size="1"></td>
<td></td>
<td><hr noshade size="1"></td>
<td><hr noshade size="1"></td>
<td></td>
<td><hr noshade size="1"></td>
<td><hr noshade size="1"></td>
<td></td>
</tr>
<tr valign="top" bgcolor="#eeeeee">
<td align="left"><font size="2" face="Arial"><b>Total</b></font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial"><b>(2</b></font></td>
<td align="left"><font size="2" face="Arial"><b>)</b></font></td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">2</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial"><b>(8</b></font></td>
<td align="left"><font size="2" face="Arial"><b>)</b></font></td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">(10</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
</tr>
<tr valign="top">
<td>&nbsp;</td>
<td></td>
<td><hr noshade size="1"></td>
<td><hr noshade size="1"></td>
<td></td>
<td><hr noshade size="1"></td>
<td><hr noshade size="1"></td>
<td></td>
<td><hr noshade size="1"></td>
<td><hr noshade size="1"></td>
<td></td>
<td><hr noshade size="1"></td>
<td><hr noshade size="1"></td>
<td></td>
</tr>
</table>
<p align="justify"><font size="2" face="Arial">Start-up costs represent costs
  incurred in the start-up and testing of the Company's new manufacturing facilities,
  before reaching the earlier of a minimum level of production or 6-months after
  the fabrication line&#8217;s quality qualification. For the second quarter and
  first half of 2005, start-up costs mainly related to the 200mm fab in Agrate
  and the 300mm fab in Catania (Italy) and the 150mm fab in Ang Mo Kio (Singapore).
  For the same periods of 2004, start-up costs mainly related to the 300mm pilot
  line in Crolles (France), the launch of 150mm fab in Ang Mo Kio (Singapore),
  the upgrading of 200mm fab in Agrate (Italy) and the build-up of 300mm fab in
  Catania (Italy). </font></p>
<p align="justify"><font size="2" face="Arial">Fundings received by the Company
  are mainly from governmental agencies and income is recorded as recognized when
  all contractually required conditions are fulfilled. The Company&#8217;s primary
  sources for government funding are French, Italian and other European Union
  (&#8220;EU&#8221;) governmental entities. Such funding is generally provided
  to encourage research and development activities, industrialization and the
  economic development of underdeveloped regions. Certain specific contracts contain
  obligations to maintain a minimum level of employment and investment during
  a certain amount of time. There could be penalties if these objectives are not
  fulfilled. Other contracts contain penalties for late deliveries or for breach
  of contract, which may result in repayment obligations.</font></p>


<p align="right">&nbsp;</p>
<p align="center"><font face="Arial" size="2">F-10</font></p><hr noshade align="center" width="100%" size="2">
<div style="page-break-before:always"></div>
<page>
<a name="p?"></a>
<p><a href="#contents"><font size="2">Back to Contents</font></a></p>
<p align="justify"><font size="2" face="Arial">Patent claim costs correspond to
  patent litigation costs, which include legal and attorney fees and payment of
  claims, and patent pre-litigation costs, which are composed of consultancy fees
  and legal fees. Patent litigation costs are costs incurred in respect of pending
  litigation. Patent pre-litigation costs are costs incurred to prepare for licensing
  discussions with third parties with a view to concluding an agreement. Litigation
  may occur if such discussions are unsuccessful. In the second quarter of 2005,
  patent litigation costs and patent pre-litigation costs amounted to $3 million
  and $2 million respectively, while in the second quarter of 2004, they respectively
  totaled $7 million and $1 million. On a half-year basis, patent litigation costs
  amounted to $6 million in 2005 compared to $12 million on the previous year.
  For the six months ended 2005, patent pre-litigation totaled $4 million while
  they amounted to $2 million in the first half of 2004.</font></p>
<p align="justify"><font size="2" face="Arial">Exchange gain (loss), net includes
  the realized and unrealized exchange gains and losses related to transactions
  denominated in foreign currencies. It includes all transactions to cover exchange
  risk not designated as cash flow hedge. </font></p>
<p align="left"><font size="2" face="Arial"><b>7. Impairment, Restructuring Charges and Other Related Closure Costs</b></font></p>
<p align="justify"><font size="2" face="Arial">During the third quarter of 2003,
  the Company commenced a plan to restructure its 150mm fab operations and part
  of its back-end operations in order to improve cost competitiveness. The 150mm
  restructuring plan focuses on cost reduction by migrating a large part of European
  and U.S. 150mm production to Singapore and by upgrading production to a finer
  geometry 200mm wafer fabs. The plan includes the discontinuation of the production
  of Rennes (France), which was completed during 2004, the closure as soon as
  operationally feasible of the 150mm wafer pilot line in Castelletto (Italy)
  and the downsizing by approximately one-half of the 150mm wafer fab in Carrollton,
  Texas. Furthermore, the 150mm wafer fab production in Agrate (Italy) and Rousset
  (France) will be gradually phased-out in favor of 200mm wafer ramp-ups at existing
  facilities in these locations, which will be expanded or upgraded to accommodate
  additional finer geometry wafer capacity. This plan is currently on-going, with
  the majority of the steps already completed. The Company is expected to incur
  the balance of the restructuring charges related to this plan in the coming
  quarters, somewhat later than anticipated because of delays in customers&#8217;
  qualifications.</font></p>
<p align="justify"><font size="2" face="Arial">In January 2005, the Company decided
  to reduce its Access technology products for Customer Premises Equipment (&#8220;CPE&#8221;)
  modem products. This decision was intended to eliminate certain low volume,
  non-strategic product families whose returns in the current environment did
  not meet internal targets. Additional restructuring initiatives were also implemented
  in the first quarter of 2005 such as the closure of a research and development
  design center in Karlsruhe (Germany) and the discontinuation of a development
  project in Singapore. This plan has already been completed.</font></p>
<p align="justify"><font size="2" face="Arial">In May 2005, the Company announced
  additional restructuring efforts to improve profitability. These new initiatives
  are aimed at reducing the Company&#8217;s workforce outside Asia by 3,000 people
  by mid-2006, out of which 2,300 are planned in Europe. The Company plans to
  reorganize its European activities by optimizing on a global scale its EWS activities
  (wafer test); harmonizing its support functions; reducing its costs and rationalizing
  its activities outside its manufacturing areas and by disengaging from certain
  activities. </font></p>


<p align="right">&nbsp;</p>
<p align="center"><font face="Arial" size="2">F-11</font></p><hr noshade align="center" width="100%" size="2">
<div style="page-break-before:always"></div>
<page>
<a name="p?"></a>
<p><a href="#contents"><font size="2">Back to Contents</font></a></p>
<p align="left"><font size="2" face="Arial">Impairment, restructuring charges and other related closure costs incurred in the second quarter of 2005 and the first half of 2005 are summarized as follows:</font></p>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
<tr valign="top" bgcolor="#FFFFFF">
<td align="left" valign="bottom"><font size="1" face="Arial"><b>Three months ended July 2, 2005</b></font></td>
<td width="2%" align="left" valign="bottom"><font size="1">&nbsp;</font></td>
<td width="1%" align="right" valign="bottom"><font size="1">&nbsp;</font></td>
<td width="10%" align="center" valign="bottom" bgcolor="#FFFFFF"><font size="1" face="Arial"><b>Impairment</b></font></td>
<td width="2%" align="left" valign="bottom"><font size="1">&nbsp;</font></td>
<td width="1%" align="right" valign="bottom"><font size="1">&nbsp;</font></td>
<td width="10%" align="center" valign="bottom" bgcolor="#FFFFFF"><font size="1" face="Arial"><b>Restructuring charges</b></font></td>
<td width="2%" align="left" valign="bottom"><font size="1">&nbsp;</font></td>
<td width="1%" align="right" valign="bottom"><font size="1">&nbsp;</font></td>
<td width="10%" align="center" valign="bottom" bgcolor="#FFFFFF"><font size="1" face="Arial"><b>Other related closure costs</b></font></td>
<td width="2%" align="left" valign="bottom"><font size="1">&nbsp;</font></td>
<td width="1%" align="right" valign="bottom"><font size="1">&nbsp;</font></td>
<td width="10%" align="center" valign="bottom" bgcolor="#FFFFFF"><font size="1" face="Arial"><b>Total  impairment, restructuring charges and other related closure costs</b></font></td>
<td width="2%" align="left"><font size="1">&nbsp;</font></td>
</tr>
<tr valign="top">
<td>&nbsp;</td>
<td></td>
<td><hr noshade size="1"></td>
<td><hr noshade size="1"></td>
<td></td>
<td><hr noshade size="1"></td>
<td><hr noshade size="1"></td>
<td></td>
<td><hr noshade size="1"></td>
<td><hr noshade size="1"></td>
<td></td>
<td><hr noshade size="1"></td>
<td><hr noshade size="1"></td>
<td></td>
</tr>
<tr valign="top" bgcolor="#eeeeee">
<td align="left"><font size="2" face="Arial">150mm fab operations</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">&#151;</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">(2</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">(1</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">(3</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="left"><font size="2" face="Arial">Back-end operations</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">&#151;</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">(2</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">&#151;</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">(2</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
</tr>
<tr valign="top" bgcolor="#eeeeee">
<td align="left"><font size="2" face="Arial">Intangible assets and investments</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">&#151;</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">&#151;</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">&#151;</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">&#151;</font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="left"><font size="2" face="Arial">2005 restructuring plan</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">&#151;</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">(16</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">&#151;</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">(16</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
</tr>
<tr valign="top" bgcolor="#eeeeee">
<td align="left"><font size="2" face="Arial">Other</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">&#151;</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">(1</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">&#151;</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">(1</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
</tr>
<tr valign="top">
  <td>&nbsp;</td>
  <td></td>
  <td><hr noshade size="1">
  </td>
  <td><hr noshade size="1">
  </td>
  <td></td>
  <td><hr noshade size="1">
  </td>
  <td><hr noshade size="1">
  </td>
  <td></td>
  <td><hr noshade size="1">
  </td>
  <td><hr noshade size="1">
  </td>
  <td></td>
  <td><hr noshade size="1">
  </td>
  <td><hr noshade size="1">
  </td>
  <td></td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="left"><font size="2" face="Arial">Total</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">&#151;</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">(21</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">(1</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">(22</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
</tr>
<tr valign="top">
<td>&nbsp;</td>
<td></td>
<td><hr noshade size="2"></td>
<td><hr noshade size="2"></td>
<td></td>
<td><hr noshade size="2"></td>
<td><hr noshade size="2"></td>
<td></td>
<td><hr noshade size="2"></td>
<td><hr noshade size="2"></td>
<td></td>
<td><hr noshade size="2"></td>
<td><hr noshade size="2"></td>
<td></td>
</tr>
<tr valign="top">
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top">
<td>&nbsp;</td>
<td></td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td></td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td></td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td></td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td></td>
</tr>
<tr valign="bottom" bgcolor="#FFFFFF">
<td align="left"><b><font size="1" face="Arial">Six months ended July 2, 2005</font></b></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="center"><b><font size="1" face="Arial">Impairment</font></b></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="center"><b><font size="1" face="Arial">Restructuring charges</font></b></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="center"><b><font size="1" face="Arial">Other related closure costs</font></b></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="center"><b><font size="1" face="Arial">Total  impairment, restructuring charges and other related closure costs</font></b></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top">
<td>&nbsp;</td>
<td></td>
<td><hr noshade size="1"></td>
<td><hr noshade size="1"></td>
<td></td>
<td><hr noshade size="1"></td>
<td><hr noshade size="1"></td>
<td></td>
<td><hr noshade size="1"></td>
<td><hr noshade size="1"></td>
<td></td>
<td><hr noshade size="1"></td>
<td><hr noshade size="1"></td>
<td></td>
</tr>
<tr valign="top" bgcolor="#eeeeee">
<td align="left"><font size="2" face="Arial">150mm fab operations</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">&#151;</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">(4</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">(5</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">(9</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="left"><font size="2" face="Arial">Back-end operations</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">&#151;</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">(2</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">&#151;</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">(2</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
</tr>
<tr valign="top" bgcolor="#eeeeee">
<td align="left"><font size="2" face="Arial">Intangible assets and investments</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">(63</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">&#151;</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">&#151;</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">(63</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="left"><font size="2" face="Arial">2005 restructuring plan</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">&#151;</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">(16</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">&#151;</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">(16</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
</tr>
<tr valign="top" bgcolor="#eeeeee">
<td align="left"><font size="2" face="Arial">Other</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">&#151;</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">(9</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">(1</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">(10</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
</tr>
<tr valign="top">
<td>&nbsp;</td>
<td></td>
<td><hr noshade size="1"></td>
<td><hr noshade size="1"></td>
<td></td>
<td><hr noshade size="1"></td>
<td><hr noshade size="1"></td>
<td></td>
<td><hr noshade size="1"></td>
<td><hr noshade size="1"></td>
<td></td>
<td><hr noshade size="1"></td>
<td><hr noshade size="1"></td>
<td></td>
</tr>
<tr valign="top" bgcolor="#eeeeee">
<td align="left"><font size="2" face="Arial">Total</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">(63</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">(31</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">(6</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">(100</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
</tr>
<tr valign="top">
<td>&nbsp;</td>
<td></td>
<td><hr noshade size="2"></td>
<td><hr noshade size="2"></td>
<td></td>
<td><hr noshade size="2"></td>
<td><hr noshade size="2"></td>
<td></td>
<td><hr noshade size="2"></td>
<td><hr noshade size="2"></td>
<td></td>
<td><hr noshade size="2"></td>
<td><hr noshade size="2"></td>
<td></td>
</tr>
</table>


<p align="right">&nbsp;</p>
<p align="center"><font face="Arial" size="2">F-12</font></p><hr noshade align="center" width="100%" size="2">
<div style="page-break-before:always"></div>
<page>
<a name="p?"></a>
<p><a href="#contents"><font size="2">Back to Contents</font></a></p>
<p align="left"><font size="2" face="Arial">Impairment, restructuring charges and other related closure costs incurred in the second quarter of 2004 and the first half of 2004 are summarized as follows:</font></p>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
<tr valign="bottom" bgcolor="#FFFFFF">
<td align="left"><font size="1" face="Arial"><b>Three months ended June 26, 2004</b></font></td>
<td width="2%" align="left"><font size="1">&nbsp;</font></td>
<td width="1%" align="right"><font size="1">&nbsp;</font></td>
<td width="10%" align="center"><font size="1" face="Arial"><b>Impairment</b></font></td>
<td width="2%" align="left"><font size="1">&nbsp;</font></td>
<td width="1%" align="right"><font size="1">&nbsp;</font></td>
<td width="10%" align="center"><font size="1" face="Arial"><b>Restructuring charges</b></font></td>
<td width="2%" align="left"><font size="1">&nbsp;</font></td>
<td width="1%" align="right"><font size="1">&nbsp;</font></td>
<td width="10%" align="center"><font size="1" face="Arial"><b>Other related closure costs</b></font></td>
<td width="2%" align="left"><font size="1">&nbsp;</font></td>
<td width="1%" align="right"><font size="1">&nbsp;</font></td>
<td width="10%" align="center"><font size="1" face="Arial"><b>Total  impairment, restructuring charges and other related closure costs</b></font></td>
<td width="2%" align="left"><font size="1">&nbsp;</font></td>
</tr>
<tr valign="top">
<td>&nbsp;</td>
<td></td>
<td><hr noshade size="1"></td>
<td><hr noshade size="1"></td>
<td></td>
<td><hr noshade size="1"></td>
<td><hr noshade size="1"></td>
<td></td>
<td><hr noshade size="1"></td>
<td><hr noshade size="1"></td>
<td></td>
<td><hr noshade size="1"></td>
<td><hr noshade size="1"></td>
<td></td>
</tr>
<tr valign="top" bgcolor="#eeeeee">
<td align="left"><font size="2" face="Arial">150mm fab operations</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">&#151;</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">&#151;</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">(9</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">(9</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="left"><font size="2" face="Arial">Back-end operations</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">&#151;</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">&#151;</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">(1</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">(1</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
</tr>
<tr valign="top" bgcolor="#eeeeee">
<td align="left"><font size="2" face="Arial">Intangible assets and investments</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">(1</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">&#151;</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">&#151;</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">(1</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="left"><font size="2" face="Arial">Other</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">&#151;</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">(1</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">&#151;</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">(1</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
</tr>
<tr valign="top">
<td>&nbsp;</td>
<td></td>
<td><hr noshade size="1"></td>
<td><hr noshade size="1"></td>
<td></td>
<td><hr noshade size="1"></td>
<td><hr noshade size="1"></td>
<td></td>
<td><hr noshade size="1"></td>
<td><hr noshade size="1"></td>
<td></td>
<td><hr noshade size="1"></td>
<td><hr noshade size="1"></td>
<td></td>
</tr>
<tr valign="top" bgcolor="#eeeeee">
<td align="left"><font size="2" face="Arial">Total</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">(1</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">(1</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">(10</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">(12</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
</tr>
<tr valign="top">
<td>&nbsp;</td>
<td></td>
<td><hr noshade size="2"></td>
<td><hr noshade size="2"></td>
<td></td>
<td><hr noshade size="2"></td>
<td><hr noshade size="2"></td>
<td></td>
<td><hr noshade size="2"></td>
<td><hr noshade size="2"></td>
<td></td>
<td><hr noshade size="2"></td>
<td><hr noshade size="2"></td>
<td></td>
</tr>
<tr valign="top">
  <td>&nbsp;</td>
  <td></td>
  <td>&nbsp;</td>
  <td>&nbsp;</td>
  <td></td>
  <td>&nbsp;</td>
  <td>&nbsp;</td>
  <td></td>
  <td>&nbsp;</td>
  <td>&nbsp;</td>
  <td></td>
  <td>&nbsp;</td>
  <td>&nbsp;</td>
  <td></td>
</tr>
<tr valign="top">
  <td>&nbsp;</td>
  <td></td>
  <td>&nbsp;</td>
  <td>&nbsp;</td>
  <td></td>
  <td>&nbsp;</td>
  <td>&nbsp;</td>
  <td></td>
  <td>&nbsp;</td>
  <td>&nbsp;</td>
  <td></td>
  <td>&nbsp;</td>
  <td>&nbsp;</td>
  <td></td>
</tr>
<tr valign="top">
  <td>&nbsp;</td>
  <td></td>
  <td>&nbsp;</td>
  <td>&nbsp;</td>
  <td></td>
  <td>&nbsp;</td>
  <td>&nbsp;</td>
  <td></td>
  <td>&nbsp;</td>
  <td>&nbsp;</td>
  <td></td>
  <td>&nbsp;</td>
  <td>&nbsp;</td>
  <td></td>
</tr>
<tr valign="bottom" bgcolor="#FFFFFF">
<td align="left"><font size="1" face="Arial"><b>Six months ended June 26, 2004</b></font></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1">&nbsp;</font></td>
<td align="center"><font size="1" face="Arial"><b>Impairment</b></font></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1">&nbsp;</font></td>
<td align="center"><font size="1" face="Arial"><b>Restructuring charges</b></font></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1">&nbsp;</font></td>
<td align="center"><font size="1" face="Arial"><b>Other related closure costs</b></font></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1">&nbsp;</font></td>
<td align="center"><font size="1" face="Arial"><b>Total  impairment, restructuring charges and other related closure costs</b></font></td>
<td align="left"><font size="1">&nbsp;</font></td>
</tr>
<tr valign="top">
<td>&nbsp;</td>
<td></td>
<td><hr noshade size="1"></td>
<td><hr noshade size="1"></td>
<td></td>
<td><hr noshade size="1"></td>
<td><hr noshade size="1"></td>
<td></td>
<td><hr noshade size="1"></td>
<td><hr noshade size="1"></td>
<td></td>
<td><hr noshade size="1"></td>
<td><hr noshade size="1"></td>
<td></td>
</tr>
<tr valign="top" bgcolor="#eeeeee">
<td align="left"><font size="2" face="Arial">150mm fab operations</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">&#151;</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">(25</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">(15</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">(40</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
</tr>
<tr valign="top" bgcolor="#ffffff">
<td align="left"><font size="2" face="Arial">Back-end operations</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">&#151;</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">&#151;</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">(2</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">(2</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
</tr>
<tr valign="top" bgcolor="#eeeeee">
<td align="left"><font size="2" face="Arial">Intangible assets and investments</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">(1</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">&#151;</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">&#151;</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">(1</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
</tr>
<tr valign="top" bgcolor="#ffffff">
<td align="left"><font size="2" face="Arial">Other</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">&#151;</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">(2</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">&#151;</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">(2</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
</tr>
<tr valign="top">
<td>&nbsp;</td>
<td></td>
<td><hr noshade size="1"></td>
<td><hr noshade size="1"></td>
<td></td>
<td><hr noshade size="1"></td>
<td><hr noshade size="1"></td>
<td></td>
<td><hr noshade size="1"></td>
<td><hr noshade size="1"></td>
<td></td>
<td><hr noshade size="1"></td>
<td><hr noshade size="1"></td>
<td></td>
</tr>
<tr valign="top" bgcolor="#eeeeee">
<td align="left"><font size="2" face="Arial">Total</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">(1</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">(27</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">(17</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">(45</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
</tr>
<tr valign="top">
<td>&nbsp;</td>
<td></td>
<td><hr noshade size="2"></td>
<td><hr noshade size="2"></td>
<td></td>
<td><hr noshade size="2"></td>
<td><hr noshade size="2"></td>
<td></td>
<td><hr noshade size="2"></td>
<td><hr noshade size="2"></td>
<td></td>
<td><hr noshade size="2"></td>
<td><hr noshade size="2"></td>
<td></td>
</tr>
</table>
<p align="left"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Impairment charges</font></p>
<p align="justify"><font size="2" face="Arial">In the first half of 2005, the
  Company recorded impairment charges of $63 million, all incurred in the first
  quarter of 2005 following the decision of the Company to reduce its Access technology
  products for Customer Premises Equipment (&#8220;CPE&#8221;) modem products.
  The Company reports CPE business as part of the Access reporting unit, included
  in the Application Specific Product Groups (&#8220;ASG&#8221;). Following the
  decision to discontinue a portion of this reporting unit, the Company, in compliance
  with FAS 142, <i>Goodwill and Other Intangible Assets</i>, reassessed the allocation
  of goodwill between the Access reporting unit and the business to be disposed
  of according to their relative fair values using market comparables. The reassessment
  resulted in a $39 million goodwill impairment. Additionally $22 million of purchased
  technologies were identified without an alternative use following the discontinuation
  of CPE product lines, which resulted in a total impairment charge of $61 million
  in the first quarter of 2005. Moreover, impairment charges of $2 million for
  technologies and other intangible assets were incurred pursuant to the decision
  of the Company to close its research and development design center in Karlsruhe
  (Germany) and the discontinuation of a development project in Singapore. </font></p>
<p align="left"><font size="2" face="Arial">No impairment charge was recorded during the second quarter of 2005.</font></p>


<p align="right">&nbsp;</p>
<p align="center"><font face="Arial" size="2">F-13</font></p><hr noshade align="center" width="100%" size="2">
<div style="page-break-before:always"></div>
<page>
<a name="p?"></a>
<p><a href="#contents"><font size="2">Back to Contents</font></a></p>
<p align="justify"><font size="2" face="Arial">In the first half of 2004, the
  Company recorded an impairment charge of $1 million incurred in the second quarter
  of 2004 on certain financial assets of the Company. </font></p>
<p align="justify"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Restructuring
  charges and other related closure costs</font></p>
<p align="justify"><font size="2" face="Arial">Provisions for restructuring charges
  and other related closure costs as at July 2, 2005 are summarized as follows:</font></p>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
<tr valign="bottom">
<td align="left"><b><font size="1" face="Arial">&nbsp;</font></b></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1">&nbsp;</font></td>
<td colspan="7" align="center"><b><font size="1" face="Arial">150mm fab operations</font></b></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1">&nbsp;</font></td>
<td align="center"><b><font size="1" face="Arial">Back-end operations</font></b></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1">&nbsp;</font></td>
<td align="center"><b><font size="1" face="Arial">2005 restructuring plan</font></b></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1">&nbsp;</font></td>
<td align="center"><b><font size="1" face="Arial">Other</font></b></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1">&nbsp;</font></td>
<td align="center"><b><font size="1" face="Arial">Total restructuring &amp; other
    related closure costs</font></b></td>
<td align="left"><font size="1">&nbsp;</font></td>
</tr>
<tr valign="bottom">
  <td align="left">&nbsp;</td>
  <td align="left">&nbsp;</td>
  <td align="right">&nbsp;</td>
  <td colspan="7" align="center"><hr noshade size="1"></td>
  <td align="left">&nbsp;</td>
  <td align="right">&nbsp;</td>
  <td align="center"><hr noshade size="1"></td>
  <td align="left">&nbsp;</td>
  <td align="right">&nbsp;</td>
  <td align="center"><hr noshade size="1"></td>
  <td align="left">&nbsp;</td>
  <td align="right">&nbsp;</td>
  <td align="center"><hr noshade size="1"></td>
  <td align="left">&nbsp;</td>
  <td align="right">&nbsp;</td>
  <td align="center"><hr noshade size="1"></td>
  <td align="left">&nbsp;</td>
</tr>
<tr valign="bottom">
<td align="left"><b><font size="1" face="Arial">&nbsp;</font></b></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1">&nbsp;</font></td>
<td align="center"><b><font size="1" face="Arial">Restructuring</font></b></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1">&nbsp;</font></td>
<td align="center"><b><font size="1" face="Arial">Other related closure costs</font></b></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1">&nbsp;</font></td>
<td align="center"><b><font size="1" face="Arial">Total</font></b></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1">&nbsp;</font></td>
<td align="left"><b><font size="1" face="Arial">&nbsp;</font></b></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1">&nbsp;</font></td>
<td align="left"><b><font size="1" face="Arial">&nbsp;</font></b></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1">&nbsp;</font></td>
<td align="left"><b><font size="1" face="Arial">&nbsp;</font></b></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1">&nbsp;</font></td>
<td align="left"><b><font size="1" face="Arial">&nbsp;</font></b></td>
<td align="left"><font size="1">&nbsp;</font></td>
</tr>
<tr valign="top" bgcolor="#ffffff">
  <td align="left">&nbsp;</td>
  <td align="left">&nbsp;</td>
  <td align="right">&nbsp;</td>
  <td align="right" bgcolor="#ffffff"><hr noshade size="1"></td>
  <td align="left">&nbsp;</td>
  <td align="right">&nbsp;</td>
  <td align="right" bgcolor="#ffffff"><hr noshade size="1"></td>
  <td align="left">&nbsp;</td>
  <td align="right">&nbsp;</td>
  <td align="right" bgcolor="#ffffff"><hr noshade size="1"></td>
  <td align="left">&nbsp;</td>
  <td align="right">&nbsp;</td>
  <td align="right" bgcolor="#ffffff"><hr noshade size="1"></td>
  <td align="left">&nbsp;</td>
  <td align="right">&nbsp;</td>
  <td align="right" bgcolor="#ffffff"><hr noshade size="1"></td>
  <td align="left">&nbsp;</td>
  <td align="right">&nbsp;</td>
  <td align="right" bgcolor="#ffffff"><hr noshade size="1"></td>
  <td align="left">&nbsp;</td>
  <td align="right">&nbsp;</td>
  <td align="right" bgcolor="#ffffff"><hr noshade size="1"></td>
  <td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#eeeeee">
<td align="left"><font size="2" face="serif"><b><font face="Arial">Provision as at December, 2004</font></b></font></td>
<td width="2%" align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td width="1%" align="right"><font size="2" face="Arial">&nbsp;</font></td>
<td width="8%" align="right"><font size="2" face="serif"><b><font face="Arial">36</font></b></font></td>
<td width="2%" align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td width="1%" align="right"><font size="2" face="Arial">&nbsp;</font></td>
<td width="8%" align="right"><font size="2" face="serif"><b><font face="Arial">1</font></b></font></td>
<td width="2%" align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td width="1%" align="right"><font size="2" face="Arial">&nbsp;</font></td>
<td width="8%" align="right"><font size="2" face="serif"><b><font face="Arial">37</font></b></font></td>
<td width="2%" align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td width="1%" align="right"><font size="2" face="Arial">&nbsp;</font></td>
<td width="8%" align="right"><font size="2" face="serif"><b><font face="Arial">&#151;</font></b></font></td>
<td width="2%" align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td width="1%" align="right"><font size="2" face="Arial">&nbsp;</font></td>
<td width="8%" align="right"><font size="2" face="serif"><b><font face="Arial">&#151;</font></b></font></td>
<td width="2%" align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td width="1%" align="right"><font size="2" face="Arial">&nbsp;</font></td>
<td width="8%" align="right"><font size="2" face="serif"><b><font face="Arial">3</font></b></font></td>
<td width="2%" align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td width="1%" align="right"><font size="2" face="Arial">&nbsp;</font></td>
<td width="8%" align="right"><font size="2" face="serif"><b><font face="Arial">40</font></b></font></td>
<td width="2%" align="left"><font size="2" face="Arial">&nbsp;</font></td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="left"><font size="2" face="serif"><font face="Arial">Charges incurred in 2005</font></font></td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">&nbsp;</font></td>
<td align="right"><font size="2" face="serif"><font face="Arial">4</font></font></td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">&nbsp;</font></td>
<td align="right"><font size="2" face="serif"><font face="Arial">5</font></font></td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">&nbsp;</font></td>
<td align="right"><font size="2" face="serif"><font face="Arial">9</font></font></td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">&nbsp;</font></td>
<td align="right"><font size="2" face="serif"><font face="Arial">2</font></font></td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">&nbsp;</font></td>
<td align="right"><font size="2" face="serif"><font face="Arial">16</font></font></td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">&nbsp;</font></td>
<td align="right"><font size="2" face="serif"><font face="Arial">10</font></font></td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">&nbsp;</font></td>
<td align="right"><font size="2" face="serif"><font face="Arial">37</font></font></td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
</tr>
<tr valign="top" bgcolor="#eeeeee">
<td align="left"><font size="2" face="serif"><font face="Arial">Amounts paid</font></font></td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">&nbsp;</font></td>
<td align="right"><font size="2" face="serif"><font face="Arial">(15</font></font></td>
<td align="left"><font size="2" face="serif"><font face="Arial">)</font></font></td>
<td align="right"><font size="2" face="Arial">&nbsp;</font></td>
<td align="right"><font size="2" face="serif"><font face="Arial">(6</font></font></td>
<td align="left"><font size="2" face="serif"><font face="Arial">)</font></font></td>
<td align="right"><font size="2" face="Arial">&nbsp;</font></td>
<td align="right"><font size="2" face="serif"><font face="Arial">(21</font></font></td>
<td align="left"><font size="2" face="serif"><font face="Arial">)</font></font></td>
<td align="right"><font size="2" face="Arial">&nbsp;</font></td>
<td align="right"><font size="2" face="serif"><font face="Arial">(2</font></font></td>
<td align="left"><font size="2" face="serif"><font face="Arial">)</font></font></td>
<td align="right"><font size="2" face="Arial">&nbsp;</font></td>
<td align="right"><font size="2" face="serif"><font face="Arial">(1</font></font></td>
<td align="left"><font size="2" face="serif"><font face="Arial">)</font></font></td>
<td align="right"><font size="2" face="Arial">&nbsp;</font></td>
<td align="right"><font size="2" face="serif"><font face="Arial">(9</font></font></td>
<td align="left"><font size="2" face="serif"><font face="Arial">)</font></font></td>
<td align="right"><font size="2" face="Arial">&nbsp;</font></td>
<td align="right"><font size="2" face="serif"><font face="Arial">(33</font></font></td>
<td align="left"><font size="2" face="serif"><font face="Arial">)</font></font></td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="left"><font size="2" face="serif"><font face="Arial">Currency translation effect</font></font></td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">&nbsp;</font></td>
<td align="right"><font size="2" face="serif"><font face="Arial">(3</font></font></td>
<td align="left"><font size="2" face="serif"><font face="Arial">)</font></font></td>
<td align="right"><font size="2" face="Arial">&nbsp;</font></td>
<td align="right"><font size="2" face="serif"><font face="Arial">&#151;</font></font></td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">&nbsp;</font></td>
<td align="right"><font size="2" face="serif"><font face="Arial">(3</font></font></td>
<td align="left"><font size="2" face="serif"><font face="Arial">)</font></font></td>
<td align="right"><font size="2" face="Arial">&nbsp;</font></td>
<td align="right"><font size="2" face="serif"><font face="Arial">&#151;</font></font></td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">&nbsp;</font></td>
<td align="right"><font size="2" face="serif"><font face="Arial">&#151;</font></font></td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">&nbsp;</font></td>
<td align="right"><font size="2" face="serif"><font face="Arial">&#151;</font></font></td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">&nbsp;</font></td>
<td align="right"><font size="2" face="serif"><font face="Arial">(3</font></font></td>
<td align="left"><font size="2" face="serif"><font face="Arial">)</font></font></td>
</tr>
<tr valign="top" bgcolor="#ffffff">
  <td align="left">&nbsp;</td>
  <td align="left">&nbsp;</td>
  <td align="right">&nbsp;</td>
  <td align="right" bgcolor="#ffffff"><hr noshade size="1"></td>
  <td align="left">&nbsp;</td>
  <td align="right">&nbsp;</td>
  <td align="right" bgcolor="#ffffff"><hr noshade size="1"></td>
  <td align="left">&nbsp;</td>
  <td align="right">&nbsp;</td>
  <td align="right" bgcolor="#ffffff"><hr noshade size="1"></td>
  <td align="left">&nbsp;</td>
  <td align="right">&nbsp;</td>
  <td align="right" bgcolor="#ffffff"><hr noshade size="1"></td>
  <td align="left">&nbsp;</td>
  <td align="right">&nbsp;</td>
  <td align="right" bgcolor="#ffffff"><hr noshade size="1"></td>
  <td align="left">&nbsp;</td>
  <td align="right">&nbsp;</td>
  <td align="right" bgcolor="#ffffff"><hr noshade size="1"></td>
  <td align="left">&nbsp;</td>
  <td align="right">&nbsp;</td>
  <td align="right" bgcolor="#ffffff"><hr noshade size="1"></td>
  <td align="left">&nbsp;</td>
</tr><tr valign="top" bgcolor="#eeeeee">
<td align="left"><font size="2" face="serif"><b><font face="Arial">Provision as at July 2, 2005</font></b></font></td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">&nbsp;</font></td>
<td align="right"><font size="2" face="serif"><b><font face="Arial">22</font></b></font></td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">&nbsp;</font></td>
<td align="right"><font size="2" face="serif"><b><font face="Arial">0</font></b></font></td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">&nbsp;</font></td>
<td align="right"><font size="2" face="serif"><b><font face="Arial">22</font></b></font></td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">&nbsp;</font></td>
<td align="right"><font size="2" face="serif"><b><font face="Arial">0</font></b></font></td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">&nbsp;</font></td>
<td align="right"><font size="2" face="serif"><b><font face="Arial">15</font></b></font></td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">&nbsp;</font></td>
<td align="right"><font size="2" face="serif"><b><font face="Arial">4</font></b></font></td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">&nbsp;</font></td>
<td align="right"><font size="2" face="serif"><b><font face="Arial">41</font></b></font></td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
</tr> <tr valign="top" bgcolor="#ffffff">
  <td align="left">&nbsp;</td>
  <td align="left">&nbsp;</td>
  <td align="right">&nbsp;</td>
  <td align="right" bgcolor="#ffffff"><hr noshade size="2"></td>
  <td align="left">&nbsp;</td>
  <td align="right">&nbsp;</td>
  <td align="right" bgcolor="#ffffff"><hr noshade size="2"></td>
  <td align="left">&nbsp;</td>
  <td align="right">&nbsp;</td>
  <td align="right" bgcolor="#ffffff"><hr noshade size="2"></td>
  <td align="left">&nbsp;</td>
  <td align="right">&nbsp;</td>
  <td align="right" bgcolor="#ffffff"><hr noshade size="2"></td>
  <td align="left">&nbsp;</td>
  <td align="right">&nbsp;</td>
  <td align="right" bgcolor="#ffffff"><hr noshade size="2"></td>
  <td align="left">&nbsp;</td>
  <td align="right">&nbsp;</td>
  <td align="right" bgcolor="#ffffff"><hr noshade size="2"></td>
  <td align="left">&nbsp;</td>
  <td align="right">&nbsp;</td>
  <td align="right" bgcolor="#ffffff"><hr noshade size="2"></td>
  <td align="left">&nbsp;</td>
</tr>
</table>
<p align="left"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;150mm fab operations:</font></p>
<p align="justify"><font size="2" face="Arial">Restructuring charges incurred
  in the first half of 2005 primarily related to $4 million in termination benefits
  for the sites of Agrate (Italy) and Rousset (France) and $5 million of other
  closure costs for the transfer of production from the sites of Rennes (France),
  Rousset (France) and Carrollton (USA). </font></p>
<p align="justify"><font size="2" face="Arial">During the first half of 2004,
  the Company recorded restructuring charges of $40 million for its 150mm fab
  operations, of which $31 million was incurred in the first quarter and $9 million
  in the second quarter, relating mainly to the discontinuation of Rennes, for
  which the exit plan was communicated to employees in March 2004. </font></p>
<p align="justify"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Back-end
  operations:</font></p>
<p align="justify"><font size="2" face="Arial">During the first half of 2005,
  $2 million involuntary termination benefits were paid in the Company&#8217;s
  back-end site in Morocco, all incurred in the second quarter of 2005. During
  the same period of 2004, transfer costs amounting to $2 million were paid for
  back-end sites in Morocco, of which $1 million were incurred in the second quarter
  of 2004.</font></p>
<p align="justify"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2005
  restructuring plan:</font></p>
<p align="justify"><font size="2" face="Arial">Pursuant to its announcement of
  new restructuring initiatives aimed at improving its competitiveness and financial
  performance, the Company started in the second quarter of 2005 to define a plan
  of reorganization and optimization of its activities. This plan focuses on workforce
  reduction, mainly in Europe, but will, whenever possible, encourage voluntary
  redundancy such as early retirement measures and other special termination arrangements
  with the employees. The plan also includes the non-renewal of some temporary
  positions. The Company recorded a total restructuring charge for its new restructuring
  plan amounting to $16 million, mainly related to involuntary and voluntary termination
  benefits. This total charge includes the provision for contractual and legal
  termination benefits for an estimated number of employees at one of the Company&#8217;s
  European subsidiaries. It also includes termination incentives for certain employees
  in Europe, who accepted special termination arrangements. In addition, the total
  charge includes a $1 million charge generated by the discontinuation of the
  Company&#8217;s Field Programmable Gate Array (&#8220;FPGA&#8221;) non-core
  development program.</font></p>


<p align="right">&nbsp;</p>
<p align="center"><font face="Arial" size="2">F-14</font></p><hr noshade align="center" width="100%" size="2">
<div style="page-break-before:always"></div>
<page>
<a name="p?"></a>
<p><a href="#contents"><font size="2">Back to Contents</font></a></p>
<p align="left"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other:</font></p>
<p align="justify"><font size="2" face="Arial">Pursuant to the decision of reducing
  its Access technology products for Customer Premises Equipment (&#8220;CPE&#8221;)
  modem products, the Company committed to an exit plan in Zaventem (Belgium)
  and recorded $4 million of workforce termination benefits in the first half
  of 2005.</font></p>
<p align="justify"><font size="2" face="Arial">In addition, charges totaling $2
  million were paid in the first half of 2005 and 2004 by the Company for voluntary
  termination benefits in France, of which $1 million were paid in the second
  quarter for each year. </font></p>
<p align="justify"><font size="2" face="Arial">Moreover, in order to rationalize
  its research and development sites, the Company decided in the first quarter
  of 2005 to cease its activities in two locations, Karlsruhe (Germany) and Malvern
  (USA). The Company incurred in the first half of 2005 $3 million restructuring
  charges corresponding to employee termination costs and $1 million of unused
  lease charges relating to the closure of these two sites. </font></p>
<p align="justify"><font size="2" face="Arial">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total
  impairment, restructuring charges and other related closure costs:</font></p>
<p align="justify"><font size="2" face="Arial">In the first half of 2005, total
  amounts paid for restructuring and related closure costs amounted to $33 million.
  </font></p>
<p align="justify"><font size="2" face="Arial">The 2003 restructuring plan and
  related manufacturing initiatives are expected to be completed in the coming
  quarters. Out of the total expected approximate $350 million pre-tax charge
  of the total plan for the front-end and back-end reorganization, $294 million
  has been incurred as of July 2, 2005 ($13 million in 2005, $76 million in 2004
  and $205 million in 2003). </font></p>
<p align="justify"><font size="2" face="Arial">The reorganization and restructuring
  actions taken in the first quarter of 2005 were fully completed in the second
  quarter of 2005 and generated impairment and restructuring charges that amounted
  to $71 million. </font></p>
<p align="justify"><font size="2" face="Arial">The total plan of restructuring
  actions announced in the second quarter of 2005 is estimated to be between $100
  and $130 million and is expected to be largely completed by mid-2006. This new
  plan generated in the second quarter of 2005 restructuring charges amounting
  to $16 million. </font></p>
<p align="justify"><font size="2" face="Arial">The total actual costs that the
  Company will incur may differ from these estimates based on the timing required
  to complete the restructuring plan, the number of people involved, the final
  agreed termination benefits and the costs associated with the transfer of equipment,
  products and processes.</font></p>


<p align="right">&nbsp;</p>
<p align="center"><font face="Arial" size="2">F-15</font></p><hr noshade align="center" width="100%" size="2">
<div style="page-break-before:always"></div>
<page>
<a name="p?"></a>
<p><a href="#contents"><font size="2">Back to Contents</font></a></p>
<p align="left"><font size="2" face="Arial"><b>8. Interest income (expense), net</b></font></p>
<p align="left"><font size="2" face="Arial">Interest income (expense), net consisted of the following:</font></p>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
<tr valign="top">
<td align="left"><b><font size="1" face="Arial">&nbsp;</font></b></td>
<td align="left"><font size="1" face="Arial"> &nbsp;</font></td>
<td align="right"><font size="1" face="Arial">&nbsp;</font></td>
<td colspan="4" align="center"><b><font size="1" face="Arial">(unaudited)</font></b></td>
<td align="left"><font size="1" face="Arial">&nbsp;</font></td>
<td align="right"><font size="1" face="Arial">&nbsp;</font></td>
<td colspan="4" align="center"><b><font size="1" face="Arial">(unaudited)</font></b></td>
<td align="left"><font size="1" face="Arial">&nbsp;</font></td>
</tr>
<tr valign="top">
<td>&nbsp;</td>
<td></td>
<td><hr noshade size="1"></td>
<td colspan="4"><hr noshade size="1"></td>
<td></td>
<td><hr noshade size="1"></td>
<td colspan="4"><hr noshade size="1"></td>
<td></td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="left"><b><font size="1" face="Arial">&nbsp;</font></b></td>
<td align="left"><font size="1" face="Arial">&nbsp;</font></td>
<td align="right"><font size="1" face="Arial">&nbsp;</font></td>
<td colspan="4" align="center"><b><font size="1" face="Arial">Three months ended</font></b></td>
<td align="left"><font size="1" face="Arial">&nbsp;</font></td>
<td align="right"><font size="1" face="Arial">&nbsp;</font></td>
<td colspan="4" align="center"><b><font size="1" face="Arial">Six months ended</font></b></td>
<td align="left"><font size="1" face="Arial">&nbsp;</font></td>
</tr>
<tr valign="top">
<td></td>
<td></td>
<td><hr noshade size="1"></td>
<td colspan="4"><hr noshade size="1"></td>
<td></td>
<td><hr noshade size="1"></td>
<td colspan="4"><hr noshade size="1"></td>
<td></td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="left"><b><font size="1" face="Arial">&nbsp;</font></b></td>
<td align="left" width="2%"><font size="1" face="Arial">&nbsp;</font></td>
<td width="1%" align="right"><font size="1" face="Arial">&nbsp;</font></td>
<td width="10%" align="center" bgcolor="#FFFFFF"><b><font size="1" face="Arial">July 2, 2005</font></b></td>
<td width="2%" align="left"><font size="1" face="Arial">&nbsp;</font></td>
<td width="1%" align="right"><font size="1" face="Arial">&nbsp;</font></td>
<td width="10%" align="center" bgcolor="#FFFFFF"><b><font size="1" face="Arial">June 26, 2004</font></b></td>
<td width="2%" align="left"><font size="1" face="Arial">&nbsp;</font></td>
<td width="1%" align="right"><font size="1" face="Arial">&nbsp;</font></td>
<td width="10%" align="center" bgcolor="#FFFFFF"><b><font size="1" face="Arial">July 2, 2005</font></b></td>
<td width="2%" align="left"><font size="1" face="Arial">&nbsp;</font></td>
<td width="1%" align="right"><font size="1" face="Arial">&nbsp;</font></td>
<td width="10%" align="center" bgcolor="#FFFFFF"><b><font size="1" face="Arial">June 26, 2004</font></b></td>
<td width="2%" align="left"><font size="1" face="Arial">&nbsp;</font></td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="left"><b><font size="1" face="Arial">In million of U.S dollars          </font></b></td>
<td align="left"><font size="1" face="Arial">&nbsp;</font></td>
<td align="right"><font size="1" face="Arial">&nbsp;</font></td>
<td align="left"><b><font size="1" face="Arial">&nbsp;</font></b></td>
<td align="left"><font size="1" face="Arial">&nbsp;</font></td>
<td align="right"><font size="1" face="Arial">&nbsp;</font></td>
<td align="left"><b><font size="1" face="Arial">&nbsp;</font></b></td>
<td align="left"><font size="1" face="Arial">&nbsp;</font></td>
<td align="right"><font size="1" face="Arial">&nbsp;</font></td>
<td align="left"><b><font size="1" face="Arial">&nbsp;</font></b></td>
<td align="left"><font size="1" face="Arial">&nbsp;</font></td>
<td align="right"><font size="1" face="Arial">&nbsp;</font></td>
<td align="left"><b><font size="1" face="Arial">&nbsp;</font></b></td>
<td align="left"><font size="1" face="Arial">&nbsp;</font></td>
</tr>
<tr valign="top">
<td>&nbsp;</td>
<td></td>
<td><hr noshade size="1"></td>
<td><hr noshade size="1"></td>
<td></td>
<td><hr noshade size="1"></td>
<td><hr noshade size="1"></td>
<td></td>
<td><hr noshade size="1"></td>
<td><hr noshade size="1"></td>
<td></td>
<td><hr noshade size="1"></td>
<td><hr noshade size="1"></td>
<td></td>
</tr>
<tr valign="top" bgcolor="#eeeeee">
<td align="left"><font size="2" face="Arial">Income</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial"><b>13</b></font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">10</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial"><b>25</b></font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">21</font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="left"><font size="2" face="Arial">Expense</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial"><b>(5</b></font></td>
<td align="left"><font size="2" face="Arial"><b>)</b></font></td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">(13</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial"><b>(10</b></font></td>
<td align="left"><font size="2" face="Arial"><b>)</b></font></td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">(28</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
</tr>
<tr valign="top">
<td>&nbsp;</td>
<td></td>
<td><hr noshade size="1"></td>
<td><hr noshade size="1"></td>
<td></td>
<td><hr noshade size="1"></td>
<td><hr noshade size="1"></td>
<td></td>
<td><hr noshade size="1"></td>
<td><hr noshade size="1"></td>
<td></td>
<td><hr noshade size="1"></td>
<td><hr noshade size="1"></td>
<td></td>
</tr>
<tr valign="top" bgcolor="#eeeeee">
<td align="left"><font size="2" face="Arial"><b>Total</b></font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial"><b>8</b></font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">(3</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial"><b>15</b></font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">(7</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
</tr>
<tr valign="top">
<td>&nbsp;</td>
<td></td>
<td><hr noshade size="2"></td>
<td><hr noshade size="2"></td>
<td></td>
<td><hr noshade size="2"></td>
<td><hr noshade size="2"></td>
<td></td>
<td><hr noshade size="2"></td>
<td><hr noshade size="2"></td>
<td></td>
<td><hr noshade size="2"></td>
<td><hr noshade size="2"></td>
<td></td>
</tr>
</table>
<p align="justify"><font size="2" face="Arial">Interest expense also included
  charges related to the amortization of issuance costs incurred by the Company
  for the outstanding convertible bonds.</font></p>
<p align="justify"><font size="2" face="Arial"><b>9. Marketable securities </b></font></p>
<p align="justify"><font size="2" face="Arial">In the first half of 2005, the
  Company invested $525 million of existing cash in credit-linked deposits issued
  by several primary banks in order to maximize the return on available cash.
  These credit-linked deposits are reinvested by the banks in underlying debt
  instruments (&#8220;reference debt&#8221;) that have been issued by different
  banks with a minimum rating of &#8220;A-&#8221; and include a derivative instrument
  related to the underlying credit default swap of the credit-linked deposits.
  The Company has determined that this derivative element does not have a material
  impact on the interim consolidated financial statements as of July 2, 2005.
  Interest on these instruments is paid quarterly and the interest rate is fixed
  every three months based on the LIBOR rate of the U.S. dollar plus a spread.
  Interest is payable through the final maturity of these instruments scheduled
  to occur before the 2005 year-end, unless suspended by credit default of the
  reference debt. Additionally, the carrying value of the instruments depends
  on the non-default of the reference debt. The principal will be repaid at final
  maturity unless a default occurs, in which case repayment of principal would
  be reduced based on the decline in value of the defaulted debt.</font></p>
<p align="justify"><font size="2" face="Arial"><b>10. Inventories, net</b></font></p>
<p align="justify"><font size="2" face="Arial">Inventories are stated at the lower
  of cost or net realizable value. Cost is computed by adjusting standard cost
  to approximate actual manufacturing costs on a quarterly basis; the cost is
  therefore dependent on the Company manufacturing performance. In the case of
  underutilization of its manufacturing facilities, the costs associated with
  the excess capacity are not included in the valuation of inventories but charged
  directly to cost of sales. </font></p>
<p align="justify"><font size="2" face="Arial">Provisions for obsolescence are
  estimated for uncommitted inventories based on the previous quarter sales, orders
  backlog and production plans.</font></p>


<p align="right">&nbsp;</p>
<p align="center"><font face="Arial" size="2">F-16</font></p><hr noshade align="center" width="100%" size="2">
<div style="page-break-before:always"></div>
<page>
<a name="p?"></a>
<p><a href="#contents"><font size="2">Back to Contents</font></a></p>
<p align="left"><font size="2" face="Arial">Inventories, net of reserve consisted of the following:</font></p>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
<tr valign="top">
<td align="left"><b><font size="1" face="Arial"> &nbsp;</font></b></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="center"><b><font size="1" face="Arial">(Unaudited)</font></b></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="center"><b><font size="1" face="Arial">(Audited)</font></b></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top">
<td></td>
<td></td>
<td><hr noshade size="1"></td>
<td><hr noshade size="1"></td>
<td></td>
<td><hr noshade size="1"></td>
<td><hr noshade size="1"></td>
<td></td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="left"><b><font size="1" face="Arial">In million of U.S. dollars</font></b></td>
<td align="left" width="2%">&nbsp; </td>
<td width="1%" align="right">&nbsp;</td>
<td width="10%" align="center" bgcolor="#FFFFFF"><b><font size="1" face="Arial">As at  July 2, 2005</font></b></td>
<td width="2%" align="left">&nbsp;</td>
<td width="1%" align="right">&nbsp;</td>
<td width="10%" align="center" bgcolor="#FFFFFF"><b><font size="1" face="Arial">As at December 31, 2004</font></b></td>
<td width="2%" align="left">&nbsp;</td> </tr>
<tr valign="top">
<td>&nbsp;</td>
<td></td>
<td><hr noshade size="1"></td>
<td><hr noshade size="1"></td>
<td></td>
<td><hr noshade size="1"></td>
<td><hr noshade size="1"></td>
<td></td>
</tr>
<tr valign="top" bgcolor="#eeeeee">
<td align="left"><font size="2" face="Arial">Raw materials</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial"><b>65</b></font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">70</font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="left"><font size="2" face="Arial">Work-in-process</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial"><b>898</b></font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">874</font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#eeeeee">
<td align="left"><font size="2" face="Arial">Finished products</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial"><b>400</b></font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">400</font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top">
<td>&nbsp;</td>
<td></td>
<td><hr noshade size="1"></td>
<td><hr noshade size="1"></td>
<td></td>
<td><hr noshade size="1"></td>
<td><hr noshade size="1"></td>
<td></td>
</tr>
<tr valign="top" bgcolor="#eeeeee">
<td align="left"><font size="2" face="Arial"><b>Total</b></font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial"><b>1,363</b></font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">1,344</font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top">
<td>&nbsp;</td>
<td></td>
<td><hr noshade size="2"></td>
<td><hr noshade size="2"></td>
<td></td>
<td><hr noshade size="2"></td>
<td><hr noshade size="2"></td>
<td></td>
</tr>
</table>
<p align="left"><font size="2" face="Arial"><b>11. Investments and other non-current assets</b></font></p>
<p align="left"><font size="2" face="Arial"> Investments and other non-current assets consisted of the following:</font></p>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
<tr valign="top">
<td align="left"><b><font size="1" face="Arial">&nbsp;</font></b></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="center"><b><font size="1" face="Arial">(Unaudited)</font></b></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="center"><b><font size="1" face="Arial">(Audited)</font></b></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top">
<td></td>
<td></td>
<td><hr noshade size="1"></td>
<td><hr noshade size="1"></td>
<td></td>
<td><hr noshade size="1"></td>
<td><hr noshade size="1"></td>
<td></td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="left"><b><font size="1" face="Arial">In million of U.S. dollars</font></b></td>
<td align="left" width="2%"><font size="1">&nbsp;</font></td>
<td width="1%" align="right"><font size="1">&nbsp;</font></td>
<td width="10%" align="center" bgcolor="#FFFFFF"><font size="1" face="Arial"><b>As at  July 2, 2005</b></font></td>
<td width="2%" align="left"><font size="1">&nbsp;</font></td>
<td width="1%" align="right"><font size="1">&nbsp;</font></td>
<td width="10%" align="center" bgcolor="#FFFFFF"><b><font size="1" face="Arial">As at December 31, 2004</font></b></td>
<td width="2%" align="left"><font size="1">&nbsp;</font></td> </tr>
<tr valign="top">
<td>&nbsp;</td>
<td></td>
<td><hr noshade size="1"></td>
<td><hr noshade size="1"></td>
<td></td>
<td><hr noshade size="1"></td>
<td><hr noshade size="1"></td>
<td></td>
</tr>
<tr valign="top" bgcolor="#eeeeee">
<td align="left"><font size="2" face="Arial">Equity-method investments</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial"><b>8</b></font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">6</font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="left"><font size="2" face="Arial">Cost investments</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial"><b>34</b></font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">34</font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#eeeeee">
<td align="left"><font size="2" face="Arial">Deposits and long-term receivables related to funding </font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial"><b>73</b></font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">69</font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="left"><font size="2" face="Arial">Debt issuance costs, net</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial"><b>5</b></font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">8</font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top">
<td>&nbsp;</td>
<td></td>
<td><hr noshade size="1"></td>
<td><hr noshade size="1"></td>
<td></td>
<td><hr noshade size="1"></td>
<td><hr noshade size="1"></td>
<td></td>
</tr>
<tr valign="top" bgcolor="#eeeeee">
<td align="left"><font size="2" face="Arial"><b>Total</b></font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial"><b>120</b></font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">117</font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top">
<td>&nbsp;</td>
<td></td>
<td><hr noshade size="2"></td>
<td><hr noshade size="2"></td>
<td></td>
<td><hr noshade size="2"></td>
<td><hr noshade size="2"></td>
<td></td>
</tr>
</table>
<p align="left"><font size="2" face="Arial"><i>SuperH Joint Venture</i></font></p>
<p align="justify"><font size="2" face="Arial">In 2001, the Company and Renesas
  Technology Corp. (previously known as Hitachi, Ltd.) formed a joint venture
  to develop and license RISC microprocessors. The joint venture, SuperH Inc.,
  was initially capitalized with the Company&#8217;s contribution of $15 million
  of cash plus internally developed technologies with an agreed intrinsic value
  of $14 million for a 44% interest. Renesas Technology Corp. contributed $37
  million of cash for a 56% interest. The Company accounts for its share in the
  SuperH, Inc. joint venture under the equity method based on the actual results
  of the joint venture. During 2002 and 2003, the Company made additional capital
  contributions on which accumulated losses have exceeded the Company&#8217;s
  total investment, which is shown at a zero carrying value at July 2, 2005.</font></p>
<p align="justify"><font size="2" face="Arial">In 2004, the shareholders agreed
  to restructure the joint venture by transferring the intellectual properties
  to each shareholder and continuing any further development individually. In
  March 2005, the Board of Directors decided to close the joint-venture. The Company
  estimates that no future losses exposure will result from this liquidation in
  excess of existing provisions. </font></p>


<p align="right">&nbsp;</p>
<p align="center"><font face="Arial" size="2">F-17</font></p><hr noshade align="center" width="100%" size="2">
<div style="page-break-before:always"></div>
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<p align="left"><font size="2" face="Arial"><i>UPEK Inc.</i></font></p>
<p align="justify"><font size="2" face="Arial">In the first quarter of 2004, the
  Company and Sofinnova Capital IV FCPR formed a new company, UPEK Inc., as a
  venture capitalist-funded spin-off of the Company&#8217;s TouchChip business.
  UPEK, Inc. was initially capitalized with the Company&#8217;s transfer of the
  business, personnel and technology assets related to the fingerprint biometrics
  business, formerly known as the TouchChip Business Unit, for a 48% interest.
  Sofinnova Capital IV FCPR contributed $11 million of cash for a 52% interest.
  The shareholder agreement requires Sofinnova Capital IV FCPR to additionally
  contribute $9 million within approximately 12 months from the first quarter
  of 2004. During the first quarter of 2005, such contribution was made by Sofinnova
  Capital IV FCPR, reducing the Company&#8217;s ownership to 33%. The Company
  accounted for its share in UPEK, Inc. under the equity method. </font></p>
<p align="justify"><font size="2" face="Arial">On June 30, 2005, the Company sold
  its interest in Upek Inc. for $13 million and recorded in the second quarter
  of 2005 a gain amounting to $6 million in &#8220;Other income and expenses,
  net&#8221; of its interim consolidated statement of income. Additionally, on
  June 30, 2005, the Company was granted warrants for 2,000,000 shares of Upek,
  Inc. at an exercise price of $0.01 per share. The warrants are not limited in
  time but can only be exercised in the event of a change of control or an Initial
  Public Offering of Upek Inc. with a valuation of the company at or over $39
  million. The Company estimated that such conditions for exercise were not met
  as at July 2, 2005. Therefore, the Company has estimated that such warrants
  have no material impact on its interim consolidated financial statements as
  at July 2, 2005.</font></p>
<p align="justify"><font size="2" face="Arial"><i>Hynix Joint Venture</i></font></p>
<p align="justify"><font size="2" face="Arial">Pursuant to the joint-venture agreement
  signed in 2004 by the Company with Hynix Semiconductor Inc. to build a front-end
  memory-manufacturing facility in Wuxi City, Jiangsu Province, China, the Company
  made an initial contribution to the joint venture of $8 million in the second
  quarter of 2005. Under the agreement, Hynix Semiconductor Inc. will contribute
  $500 million for a 67% interest and the Company will contribute $250 million
  for a 33% interest. In addition, the Company committed to grant $250 million
  in long-term financing to the new joint venture guaranteed by the subordinated
  collateral of the joint-venture&#8217;s assets. </font></p>
<p align="justify"><font size="2" face="Arial">The Company has identified the
  joint venture relationship as a Variable Interest Entity (VIE), but has determined
  that it is not the primary beneficiary of the VIE. The Company is accounting
  for its share in this joint venture under the equity method. </font></p>
<p align="justify"><font size="2" face="Arial"><i>DNP Photomask Europe S.p.A.</i></font></p>
<p align="justify"><font size="2" face="Arial">The Company entered into a joint
  venture agreement in 2002 with Dai Nippon Printing Co, Ltd for the development
  and production of photomask in which the Company holds a 19% interest. The joint
  venture, DNP Photomask Europe S.p.A, was initially capitalized with the Company&#8217;s
  contribution of &euro;2 million of cash. Dai Nippon Printing Co, Ltd contributed
  &euro;8 million of cash for an 81% interest. In the event of the liquidation
  of the joint-venture, the Company is required to repurchase the land at cost,
  and the facility at 10% of its net book value, if no suitable buyer is identified.
  No provision for this obligation has been registered so far. At July 2, 2005,
  the Company&#8217;s total capital investment in the joint venture is $10 million.
  The Company continues to maintain its 19% ownership of the joint venture, and
  accounts for this investment under the cost method.</font></p>


<p align="right">&nbsp;</p>
<p align="center"><font face="Arial" size="2">F-18</font></p><hr noshade align="center" width="100%" size="2">
<div style="page-break-before:always"></div>
<page>
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<p><a href="#contents"><font size="2">Back to Contents</font></a></p>
<p align="justify"><font size="2" face="Arial">The Company has identified the
  joint venture relationship as a Variable Interest Entity (VIE), but has determined
  that it is not the primary beneficiary of the VIE. The Company estimates that
  no future loss exposure will result from the joint venture.</font></p>
<p align="left"><font size="2" face="Arial"><b>12. Long-term Debt </b></font></p>
<p align="left"><font size="2" face="Arial">Long-term debt consisted of the following:</font></p>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
<tr valign="top">
<td align="left"><font size="1" face="Arial">&nbsp;</font></td>
<td align="left"><font size="1" face="Arial">&nbsp;</font></td>
<td align="right"><font size="1" face="Arial">&nbsp;</font></td>
<td align="center"><font size="1" face="Arial"><b>            (Unaudited)</b></font></td>
<td align="left"><font size="1" face="Arial">&nbsp;</font></td>
<td align="right"><font size="1" face="Arial">&nbsp;</font></td>
<td align="center"><font size="1" face="Arial"><b>(Audited)</b></font></td>
<td align="left"><font size="1" face="Arial">&nbsp;</font></td>
</tr>
<tr valign="top">
<td></td>
<td></td>
<td><hr noshade size="1"></td>
<td><hr noshade size="1"></td>
<td></td>
<td><hr noshade size="1"></td>
<td><hr noshade size="1"></td>
<td></td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="left"><b><font size="1" face="Arial">In million of U.S dollars          </font></b></td>
<td align="left" width="2%">&nbsp;</td>
<td width="1%" align="right">&nbsp;</td>
<td width="10%" align="center" bgcolor="#FFFFFF"><b><font size="1" face="Arial">As at  July 2, 2005</font></b></td>
<td width="2%" align="left">&nbsp;</td>
<td width="1%" align="right">&nbsp;</td>
<td width="10%" align="center" bgcolor="#FFFFFF"><b><font size="1" face="Arial">As at December 31, 2004</font></b></td>
<td width="2%" align="left">&nbsp;</td> </tr>
<tr valign="top">
<td>&nbsp;</td>
<td></td>
<td><hr noshade size="1"></td>
<td><hr noshade size="1"></td>
<td></td>
<td><hr noshade size="1"></td>
<td><hr noshade size="1"></td>
<td></td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="left"><font size="2" face="Arial"><b>Bank loans:</b></font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top">
<td align="left"></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#eeeeee">
<td align="left"><font size="2" face="Arial">2.52% (weighted average) due 2007, fixed interest rate</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">149</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">153</font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="left"><font size="2" face="Arial">2.45% (weighted average) due 2006, floating interest rate at Libor + 0.30</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">69</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">105</font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#eeeeee">
<td align="left"><font size="2" face="Arial">4.13% (weighted average) due 2007, floating interest rate</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">39</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">44</font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="left"><font size="2" face="Arial">4.05% (weighted average) due 2008, floating interest rate</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">25</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">&#151;</font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top">
<td align="left"></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="left"><font size="2" face="Arial"><b>Funding program loans:</b></font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top">
<td align="left"></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#eeeeee">
<td align="left"><font size="2" face="Arial">1.09% (weighted average), due 2009, fixed interest rate</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">83</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">102</font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="left"><font size="2" face="Arial">0.83%  (weighted average), due 2017, fixed interest rate</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">49</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">55</font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#eeeeee">
<td align="left"><font size="2" face="Arial">3.15% (weighted average), due 2012, fixed interest rate</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">13</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">14</font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="left"><font size="2" face="Arial">5.35% (weighted average), due 2006, fixed interest rate</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">7</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">13</font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top">
<td align="left"></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="left"><font size="2" face="Arial"><b>Capital leases:</b></font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top">
<td align="left"></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#eeeeee">
<td align="left"><font size="2" face="Arial">4.78% due 2011, fixed interest rate</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">29</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">35</font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top">
<td align="left"></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="left"><font size="2" face="Arial"><b>Convertible debt:</b></font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top">
<td align="left"></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#eeeeee">
<td align="left"><font size="2" face="Arial">-0.50% convertible bonds due 2013</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">1,379</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">1,379</font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top">
<td>&nbsp;</td>
<td></td>
<td><hr noshade size="1"></td>
<td><hr noshade size="1"></td>
<td></td>
<td><hr noshade size="1"></td>
<td><hr noshade size="1"></td>
<td></td>
</tr>
<tr valign="top" bgcolor="#eeeeee">
<td align="left"><font size="2" face="Arial"><b>Total  long-term debt</b></font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial"><b>1,842</b></font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">1,900</font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="left"><font size="2" face="Arial">Less current portion</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">150</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">133</font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top">
<td>&nbsp;</td>
<td></td>
<td><hr noshade size="1"></td>
<td><hr noshade size="1"></td>
<td></td>
<td><hr noshade size="1"></td>
<td><hr noshade size="1"></td>
<td></td>
</tr>
<tr valign="top" bgcolor="#eeeeee">
<td align="left"><font size="2" face="Arial"><b>Total long-term debt, less current portion</b></font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial"><b>1,692</b></font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">1,767</font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top">
<td>&nbsp;</td>
<td></td>
<td><hr noshade size="2"></td>
<td><hr noshade size="2"></td>
<td></td>
<td><hr noshade size="2"></td>
<td><hr noshade size="2"></td>
<td></td>
</tr>
</table>


<p align="right">&nbsp;</p>
<p align="center"><font face="Arial" size="2">F-19</font></p><hr noshade align="center" width="100%" size="2">
<div style="page-break-before:always"></div>
<page>
<a name="p?"></a>
<p><a href="#contents"><font size="2">Back to Contents</font></a></p>
<p align="left"><font size="2" face="Arial"><b>13. Earnings (Loss) per Share </b></font></p>
<p align="justify"><font size="2" face="Arial">Basic net earnings (loss) per share
  is computed based on net income (loss) available to common shareholders using
  the weighted-average number of common shares outstanding during the reported
  period; the number of outstanding shares does not include treasury shares. Diluted
  earnings (loss) per share is computed using the weighted-average number of common
  shares and dilutive potential common shares outstanding during the period, such
  as stock issuable pursuant to the exercise of stock options outstanding and
  the conversion of convertible debt. </font></p>
<p align="left"><font size="2" face="Arial">(In millions of U.S. dollars, except per share amounts): </font></p>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
<tr valign="top">
<td align="left"><b><font size="1" face="Arial">&nbsp;</font></b></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td colspan="4" align="center"><b><font size="1" face="Arial">(unaudited)</font></b></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td colspan="4" align="center"><b><font size="1" face="Arial">(unaudited)</font></b></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top">
<td>&nbsp;</td>
<td></td>
<td><hr noshade size="1"></td>
<td colspan="4"><hr noshade size="1"></td>
<td></td>
<td><hr noshade size="1"></td>
<td colspan="4"><hr noshade size="1"></td>
<td></td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="left"><b><font size="1" face="Arial">&nbsp;</font></b></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td colspan="4" align="center"><b><font size="1" face="Arial">Three Months Ended</font></b></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td colspan="4" align="center"><b><font size="1" face="Arial">Six Months Ended</font></b></td>
<td align="left">&nbsp;</td>
</tr> <tr valign="top">
<td>&nbsp;</td>
<td></td>
<td><hr noshade size="1"></td>
<td colspan="4"><hr noshade size="1"></td>
<td></td>
<td><hr noshade size="1"></td>
<td colspan="4"><hr noshade size="1"></td>
<td></td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="left"><b><font size="1" face="Arial">&nbsp;</font></b></td>
<td align="left" width="2%">&nbsp;</td>
<td width="1%" align="right">&nbsp;</td>
<td width="10%" align="center" bgcolor="#FFFFFF"><b><font size="1" face="Arial">July 2, 2005</font></b></td>
<td width="2%" align="left">&nbsp;</td>
<td width="1%" align="right">&nbsp;</td>
<td width="10%" align="center" bgcolor="#FFFFFF"><b><font size="1" face="Arial">June 26, 2004</font></b></td>
<td width="2%" align="left">&nbsp;</td>
<td width="1%" align="right">&nbsp;</td>
<td width="10%" align="center" bgcolor="#FFFFFF"><b><font size="1" face="Arial">July 2, 2005</font></b></td>
<td width="2%" align="left">&nbsp;</td>
<td width="1%" align="right">&nbsp;</td>
<td width="10%" align="center" bgcolor="#FFFFFF"><b><font size="1" face="Arial">June 26, 2004</font></b></td>
<td width="2%" align="left">&nbsp;</td> </tr>
<tr valign="top">
<td>&nbsp;</td>
<td></td>
<td><hr noshade size="1"></td>
<td><hr noshade size="1"></td>
<td></td>
<td><hr noshade size="1"></td>
<td><hr noshade size="1"></td>
<td></td>
<td><hr noshade size="1"></td>
<td><hr noshade size="1"></td>
<td></td>
<td><hr noshade size="1"></td>
<td><hr noshade size="1"></td>
<td></td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="left"><font size="2" face="Arial"><b>Basic Earnings (Loss) per Share:</b></font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#eeeeee">
<td align="left"><font size="2" face="Arial">Net income (loss)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">26</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">148</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">(5</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">225</font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="left"><font size="2" face="Arial">Weighted average shares outstanding </font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">892,010,623</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">891,369,659</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">891,969,235</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">890,797,105</font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top">
<td>&nbsp;</td>
<td></td>
<td><hr noshade size="1"></td>
<td><hr noshade size="1"></td>
<td></td>
<td><hr noshade size="1"></td>
<td><hr noshade size="1"></td>
<td></td>
<td><hr noshade size="1"></td>
<td><hr noshade size="1"></td>
<td></td>
<td><hr noshade size="1"></td>
<td><hr noshade size="1"></td>
<td></td>
</tr>
<tr valign="top" bgcolor="#eeeeee">
<td align="left"><font size="2" face="Arial"><b>Earnings (Loss) per Share (basic)</b></font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial"><b>0.03</b></font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial"><b>0.17</b></font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial"><b>(0.01</b></font></td>
<td align="left"><font size="2" face="Arial"><b>)</b></font></td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial"><b>0.25</b></font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top">
<td>&nbsp;</td>
<td></td>
<td><hr noshade size="1"></td>
<td><hr noshade size="1"></td>
<td></td>
<td><hr noshade size="1"></td>
<td><hr noshade size="1"></td>
<td></td>
<td><hr noshade size="1"></td>
<td><hr noshade size="1"></td>
<td></td>
<td><hr noshade size="1"></td>
<td><hr noshade size="1"></td>
<td></td>
</tr>
<tr valign="top">
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="left"><font size="2" face="Arial">Diluted Earnings (Loss) per Share:</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#eeeeee">
<td align="left"><font size="2" face="Arial">Net income (loss)</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">26</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">148</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">(5</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">225</font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#ffffff">
<td align="left"><font size="2" face="Arial">Interest expense on convertible debt, net of tax  </font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">1</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">1</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">&#151;</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">2</font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#eeeeee">
<td align="left"><font size="2" face="Arial">Net income (loss), adjusted </font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">27</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">149</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">(5</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">227</font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top">
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#eeeeee">
<td align="left"><font size="2" face="Arial">Weighted average shares outstanding </font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">892,010,623</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">891,369,659</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">891,969,235</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">890,797,105</font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="left"><font size="2" face="Arial">Dilutive effect of stock options </font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">726,642</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">3,746,052</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">&#151;</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">5,154,793</font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#eeeeee">
<td align="left"><font size="2" face="Arial">Dilutive effect of convertible debt </font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">41,880,101</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">41,880,160</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">&#151;</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">41,880,160</font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="left"><font size="2" face="Arial">Number of shares used in calculating Earnings (Loss) per Share </font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">934,617,366</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">936,995,871</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">891,969,235</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">937,832,058</font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top">
<td>&nbsp;</td>
<td></td>
<td><hr noshade size="1"></td>
<td><hr noshade size="1"></td>
<td></td>
<td><hr noshade size="1"></td>
<td><hr noshade size="1"></td>
<td></td>
<td><hr noshade size="1"></td>
<td><hr noshade size="1"></td>
<td></td>
<td><hr noshade size="1"></td>
<td><hr noshade size="1"></td>
<td></td>
</tr>
<tr valign="top" bgcolor="#eeeeee">
<td align="left"><font size="2" face="Arial"><b>Earnings (Loss) per Share (diluted)  </b></font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial"><b>0.03</b></font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial"><b>0.16</b></font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial"><b>(0.01</b></font></td>
<td align="left"><font size="2" face="Arial"><b>)</b></font></td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial"><b>0.24</b></font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top">
<td>&nbsp;</td>
<td></td>
<td><hr noshade size="2"></td>
<td><hr noshade size="2"></td>
<td></td>
<td><hr noshade size="2"></td>
<td><hr noshade size="2"></td>
<td></td>
<td><hr noshade size="2"></td>
<td><hr noshade size="2"></td>
<td></td>
<td><hr noshade size="2"></td>
<td><hr noshade size="2"></td>
<td></td>
</tr>
</table>
<p align="justify"><font size="2" face="Arial">As of July 2, 2005, common shares
  issued were 905,517,780 shares of which 13,400,000 shares were owned by the
  Company as treasury stock.</font></p>
<p align="justify"><font size="2" face="Arial">As of July 2, 2005, there were
  outstanding stock options exercisable into the equivalent of 64,241,357 common
  shares and convertible debt exercisable into the equivalent of 41,880,101 common
  shares.</font></p>
<p align="justify"><font size="2" face="Arial"><b>14. Retirement plans</b></font></p>
<p align="justify"><font size="2" face="Arial">The Company and its subsidiaries
  have a number of defined benefit pension plans covering employees in various
  countries. The plans provide for pension benefits, the amounts of which are
  calculated based on factors such as years of service and employee compensation
  levels. Eligibility is generally determined in accordance with local statutory
  requirements. </font></p>


<p align="right">&nbsp;</p>
<p align="center"><font face="Arial" size="2">F-20</font></p><hr noshade align="center" width="100%" size="2">
<div style="page-break-before:always"></div>
<page>
<a name="p?"></a>
<p><a href="#contents"><font size="2">Back to Contents</font></a></p>
<p align="left"><font size="2" face="Arial">The components of the net periodic benefit cost include the following: </font></p>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
<tr valign="top">
<td align="left"><b><font size="1" face="Arial">&nbsp;</font></b></td>
<td align="left"><font face="Arial"> &nbsp;</font></td>
<td align="right"><font face="Arial">&nbsp;</font></td>
<td colspan="4" align="center"><b><font size="1" face="Arial">(Unaudited)</font></b></td>
<td align="left"><font face="Arial">&nbsp;</font></td>
<td align="right"><font face="Arial">&nbsp;</font></td>
<td colspan="4" align="center"><b><font size="1" face="Arial">(Unaudited)</font></b></td>
<td align="left"><font face="Arial">&nbsp;</font></td>
</tr>
<tr valign="top">
  <td>&nbsp;</td>
  <td></td>
  <td><hr noshade size="1">
  </td>
  <td colspan="4"><hr noshade size="1">
  </td>
  <td></td>
  <td><hr noshade size="1">
  </td>
  <td colspan="4"><hr noshade size="1">
  </td>
  <td></td>
</tr>
<tr valign="top">
<td align="left"><b><font size="1" face="Arial">&nbsp;</font></b></td>
<td align="left"><font face="Arial">&nbsp;</font></td>
<td align="right"><font face="Arial">&nbsp;</font></td>
<td colspan="4" align="center"><b><font size="1" face="Arial">Three Months ended</font></b></td>
<td align="left"><font face="Arial">&nbsp;</font></td>
<td align="right"><font face="Arial">&nbsp;</font></td>
<td colspan="4" align="center"><b><font size="1" face="Arial">Six months ended</font></b></td>
<td align="left"><font face="Arial">&nbsp;</font></td>
</tr>
<tr valign="top">
  <td>&nbsp;</td>
  <td></td>
  <td><hr noshade size="1">
  </td>
  <td colspan="4"><hr noshade size="1">
  </td>
  <td></td>
  <td><hr noshade size="1">
  </td>
  <td colspan="4"><hr noshade size="1">
  </td>
  <td></td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="left"><b><font size="2" face="serif"><font size="1" face="Arial">In millions of U.S. dollars</font></font></b></td>
<td align="left" width="2%"><font face="Arial">&nbsp;</font></td>
<td width="1%" align="right"><font face="Arial">&nbsp;</font></td>
<td width="10%" align="center" bgcolor="#FFFFFF"><b><font size="2" face="serif"><font size="1" face="Arial">July 2, 2005</font></font></b></td>
<td width="2%" align="left"><font face="Arial">&nbsp;</font></td>
<td width="1%" align="right"><font face="Arial">&nbsp;</font></td>
<td width="10%" align="center" bgcolor="#FFFFFF"><b><font size="2" face="serif"><font size="1" face="Arial">June 26, 2004</font></font></b></td>
<td width="2%" align="left"><font face="Arial">&nbsp;</font></td>
<td width="1%" align="right"><font face="Arial">&nbsp;</font></td>
<td width="10%" align="center" bgcolor="#FFFFFF"><b><font size="2" face="serif"><font size="1" face="Arial">July 2, 2005</font></font></b></td>
<td width="2%" align="left"><font face="Arial">&nbsp;</font></td>
<td width="1%" align="right"><font face="Arial">&nbsp;</font></td>
<td width="10%" align="center" bgcolor="#FFFFFF"><b><font size="2" face="serif"><font size="1" face="Arial">June 26, 2004</font></font></b></td>
<td width="2%" align="left"><font face="Arial">&nbsp;</font></td>
</tr>
<tr valign="top">
  <td>&nbsp;</td>
  <td></td>
  <td><hr noshade size="1">
  </td>
  <td><hr noshade size="1">
  </td>
  <td></td>
  <td><hr noshade size="1">
  </td>
  <td><hr noshade size="1">
  </td>
  <td></td>
  <td><hr noshade size="1">
  </td>
  <td><hr noshade size="1">
  </td>
  <td></td>
  <td><hr noshade size="1">
  </td>
  <td><hr noshade size="1">
  </td>
  <td></td>
</tr>
<tr valign="top" bgcolor="#eeeeee">
<td align="left"><font size="2" face="serif"><font face="Arial">Service cost</font></font></td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">&nbsp;</font></td>
<td align="right"><font size="2" face="serif"><b><font face="Arial">5</font></b></font></td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">&nbsp;</font></td>
<td align="right"><font size="2" face="serif"><font face="Arial">4</font></font></td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">&nbsp;</font></td>
<td align="right"><font size="2" face="serif"><b><font face="Arial">6</font></b></font></td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">&nbsp;</font></td>
<td align="right"><font size="2" face="serif"><font face="Arial">8</font></font></td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="left"><font size="2" face="serif"><font face="Arial">Interest cost</font></font></td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">&nbsp;</font></td>
<td align="right"><font size="2" face="serif"><b><font face="Arial">4</font></b></font></td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">&nbsp;</font></td>
<td align="right"><font size="2" face="serif"><font face="Arial">3</font></font></td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">&nbsp;</font></td>
<td align="right"><font size="2" face="serif"><b><font face="Arial">7</font></b></font></td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">&nbsp;</font></td>
<td align="right"><font size="2" face="serif"><font face="Arial">6</font></font></td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
</tr>
<tr valign="top" bgcolor="#eeeeee">
<td align="left"><font size="2" face="serif"><font face="Arial">Expected return on plan assets</font></font></td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">&nbsp;</font></td>
<td align="right"><font size="2" face="serif"><b><font face="Arial">(3</font></b></font></td>
<td align="left"><font size="2" face="serif"><b><font face="Arial">)</font></b></font></td>
<td align="right"><font size="2" face="Arial">&nbsp;</font></td>
<td align="right"><font size="2" face="serif"><font face="Arial">(2</font></font></td>
<td align="left"><font size="2" face="serif"><font face="Arial">)</font></font></td>
<td align="right"><font size="2" face="Arial">&nbsp;</font></td>
<td align="right"><font size="2" face="serif"><b><font face="Arial">(6</font></b></font></td>
<td align="left"><font size="2" face="serif"><b><font face="Arial">)</font></b></font></td>
<td align="right"><font size="2" face="Arial">&nbsp;</font></td>
<td align="right"><font size="2" face="serif"><font face="Arial">(5</font></font></td>
<td align="left"><font size="2" face="serif"><font face="Arial">)</font></font></td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="left"><font size="2" face="serif"><font face="Arial">Amortization of net (gain) and loss</font></font></td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">&nbsp;</font></td>
<td align="right"><font size="2" face="serif"><b><font face="Arial">1</font></b></font></td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">&nbsp;</font></td>
<td align="right"><font size="2" face="serif"><font face="Arial">1</font></font></td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">&nbsp;</font></td>
<td align="right"><font size="2" face="serif"><b><font face="Arial">2</font></b></font></td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">&nbsp;</font></td>
<td align="right"><font size="2" face="serif"><font face="Arial">3</font></font></td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
</tr>
<tr valign="top">
  <td>&nbsp;</td>
  <td></td>
  <td><hr noshade size="1">
  </td>
  <td><hr noshade size="1">
  </td>
  <td></td>
  <td><hr noshade size="1">
  </td>
  <td><hr noshade size="1">
  </td>
  <td></td>
  <td><hr noshade size="1">
  </td>
  <td><hr noshade size="1">
  </td>
  <td></td>
  <td><hr noshade size="1">
  </td>
  <td><hr noshade size="1">
  </td>
  <td></td>
</tr>
<tr valign="top" bgcolor="#eeeeee">
<td align="left"><font size="2" face="serif"><font face="Arial">Net periodic benefit cost</font></font></td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">&nbsp;</font></td>
<td align="right"><font size="2" face="serif"><b><font face="Arial">7</font></b></font></td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">&nbsp;</font></td>
<td align="right"><font size="2" face="serif"><font face="Arial">6</font></font></td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">&nbsp;</font></td>
<td align="right"><font size="2" face="serif"><b><font face="Arial">9</font></b></font></td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="right"><font size="2" face="Arial">&nbsp;</font></td>
<td align="right"><font size="2" face="serif"><font face="Arial">12</font></font></td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
</tr>
<tr valign="top">
  <td>&nbsp;</td>
  <td></td>
  <td><hr noshade size="2">
  </td>
  <td><hr noshade size="2">
  </td>
  <td></td>
  <td><hr noshade size="2">
  </td>
  <td><hr noshade size="2">
  </td>
  <td></td>
  <td><hr noshade size="2">
  </td>
  <td><hr noshade size="2">
  </td>
  <td></td>
  <td><hr noshade size="2">
  </td>
  <td><hr noshade size="2">
  </td>
  <td></td>
</tr>
</table>

<p align="justify"><font size="2" face="Arial">Employer contributions expected
  to be paid in 2005 are consistent with the amounts disclosed in the consolidated
  financial statements for the year ended December 31, 2004.</font></p>
<p align="justify"><font size="2" face="Arial"><b>15. Fair value of stock-based
  compensation </b></font></p>
<p align="justify"><font size="2" face="Arial">At July 2, 2005, the Company has
  five stock-based employee and Supervisory Board compensation plans as well as
  an employee share purchase plan which are described in detail in Note 17 of
  the consolidated financial statements located at Item 18 of the Form 20-F. The
  Company applies the intrinsic-value-based method prescribed by Accounting Principles
  Board Opinion No. 25 <i>Accounting for Stock Issued to Employees </i>(APB 25),
  and related Interpretations, in accounting for stock-based awards to employees.
  No stock-based employee compensation cost is reflected in net income, as all
  options under those plans were granted at an exercise price equal to the market
  value of the underlying common stock on the date of grant. Pro forma information
  regarding net income and earnings per share (EPS) is required by Statement of
  Financial Accounting Standards Board No. 123 <i>Accounting for Stock-Based Compensation</i>
  (FAS 123) as if the Company had accounted for its stock-based awards to employees
  under the fair value method prescribed by FAS 123, which results in a charge
  for total stock-based employee expense, net of related tax effects. </font></p>
<p align="justify"><font size="2" face="Arial">The fair value of the Company's
  stock-based awards to employees was estimated using a Black-Scholes option-pricing
  model. Forfeitures of options are reflected in the pro forma charge as they
  occur. For those stock option plans with graded vesting periods, the Company
  has determined the historical exercise activity for such plans actually reflects
  that employees exercise the option after the close of the graded vesting period.
  Therefore, the Company recognizes the estimated pro forma charge for plans with
  graded vesting periods on a straight-line basis.</font></p>


<p align="right">&nbsp;</p>
<p align="center"><font face="Arial" size="2">F-21</font></p><hr noshade align="center" width="100%" size="2">
<div style="page-break-before:always"></div>
<page>
<a name="p?"></a>
<p><a href="#contents"><font size="2">Back to Contents</font></a></p>
<p align="left"><font size="2" face="Arial">The fair value was estimated using the following weighted-average assumptions:</font></p>
<table width="100%" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td align="left"><b><font size="1" face="Arial">&nbsp;</font></b></td>
    <td align="left"><font face="Arial"> &nbsp;</font></td>
    <td align="right"><font face="Arial">&nbsp;</font></td>
    <td colspan="4" align="center"><b><font size="1" face="Arial">(Unaudited)</font></b></td>
    <td align="left"><font face="Arial">&nbsp;</font></td>
    <td align="right"><font face="Arial">&nbsp;</font></td>
    <td colspan="4" align="center"><b><font size="1" face="Arial">(Unaudited)</font></b></td>
    <td align="left"><font face="Arial">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td>&nbsp;</td>
    <td></td>
    <td><hr noshade size="1">
    </td>
    <td colspan="4"><hr noshade size="1">
    </td>
    <td></td>
    <td><hr noshade size="1">
    </td>
    <td colspan="4"><hr noshade size="1">
    </td>
    <td></td>
  </tr>
  <tr valign="top">
    <td align="left"><b><font size="1" face="Arial">&nbsp;</font></b></td>
    <td align="left"><font face="Arial">&nbsp;</font></td>
    <td align="right"><font face="Arial">&nbsp;</font></td>
    <td colspan="4" align="center"><b><font size="1" face="Arial">Three Months
          ended</font></b></td>
    <td align="left"><font face="Arial">&nbsp;</font></td>
    <td align="right"><font face="Arial">&nbsp;</font></td>
    <td colspan="4" align="center"><b><font size="1" face="Arial">Six months
          ended</font></b></td>
    <td align="left"><font face="Arial">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td>&nbsp;</td>
    <td></td>
    <td><hr noshade size="1">
    </td>
    <td colspan="4"><hr noshade size="1">
    </td>
    <td></td>
    <td><hr noshade size="1">
    </td>
    <td colspan="4"><hr noshade size="1">
    </td>
    <td></td>
  </tr>
  <tr valign="top" bgcolor="#FFFFFF">
    <td align="left"><b><font size="2" face="serif"><font size="1" face="Arial">In
            millions of U.S. dollars</font></font></b></td>
    <td width="2%" align="left"><font face="Arial">&nbsp;</font></td>
    <td width="1%" align="right"><font face="Arial">&nbsp;</font></td>
    <td width="10%" align="center" bgcolor="#FFFFFF"><b><font size="2" face="serif"><font size="1" face="Arial">July
            2, 2005</font></font></b></td>
    <td width="2%" align="left"><font face="Arial">&nbsp;</font></td>
    <td width="1%" align="right"><font face="Arial">&nbsp;</font></td>
    <td width="10%" align="center" bgcolor="#FFFFFF"><b><font size="2" face="serif"><font size="1" face="Arial">June
            26, 2004</font></font></b></td>
    <td width="2%" align="left"><font face="Arial">&nbsp;</font></td>
    <td width="1%" align="right"><font face="Arial">&nbsp;</font></td>
    <td width="10%" align="center" bgcolor="#FFFFFF"><b><font size="2" face="serif"><font size="1" face="Arial">July
            2, 2005</font></font></b></td>
    <td width="2%" align="left"><font face="Arial">&nbsp;</font></td>
    <td width="1%" align="right"><font face="Arial">&nbsp;</font></td>
    <td width="10%" align="center" bgcolor="#FFFFFF"><b><font size="2" face="serif"><font size="1" face="Arial">June
            26, 2004</font></font></b></td>
    <td width="2%" align="left"><font face="Arial">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td>&nbsp;</td>
    <td></td>
    <td><hr noshade size="1">
    </td>
    <td><hr noshade size="1">
    </td>
    <td></td>
    <td><hr noshade size="1">
    </td>
    <td><hr noshade size="1">
    </td>
    <td></td>
    <td><hr noshade size="1">
    </td>
    <td><hr noshade size="1">
    </td>
    <td></td>
    <td><hr noshade size="1">
    </td>
    <td><hr noshade size="1">
    </td>
    <td></td>
  </tr>
<tr valign="top" bgcolor="#eeeeee">
<td align="left"><font size="2" face="Arial">Expected life (years)</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial"><b>&#151;</b></font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">6</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">6</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">6</font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="left"><font size="2" face="Arial">Volatility</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial"><b>&#151;</b></font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">55.7%</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">52.9%</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">55.7%</font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#eeeeee">
<td align="left"><font size="2" face="Arial">Risk-free interest rate</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial"><b>&#151;</b></font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">3.57%</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">3.84%</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">3.57%</font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="left"><font size="2" face="Arial">Dividend yield</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial"><b>&#151;</b></font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">0.5%</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">0.69%</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">0.5%</font></td>
<td align="left">&nbsp;</td>
</tr>
</table>
<p align="left"><font size="2" face="Arial">There were no options granted in the second quarter of 2005. The weighted average fair value of options granted in the second quarter of 2004 was $12.17. </font></p>
<p align="left"><font size="2" face="Arial">The following table illustrates the effect on net income (loss) and earnings (loss) per share if the Company had applied the fair value recognition provisions of FAS 123 to employee stock-based compensation, which consists of applying the amortization of the fair-value of stock-based compensation over the vesting period.</font></p>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
<tr valign="top">
<td align="left"><font size="1" face="Arial">&nbsp;</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1">&nbsp;</font></td>
<td colspan="4" align="center"><font size="1" face="Arial">(unaudited)</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1">&nbsp;</font></td>
<td colspan="4" align="center"><font size="1" face="Arial">(unaudited)</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
</tr>
<tr valign="top">
<td><font size="1">&nbsp;</font></td>
<td><font size="1">&nbsp;</font></td>
<td><hr noshade size="1"></td>
<td colspan="4"><hr noshade size="1"></td>
<td><font size="1">&nbsp;</font></td>
<td><hr noshade size="1"></td>
<td colspan="4"><hr noshade size="1"></td>
<td><font size="1">&nbsp;</font></td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="left"><font size="1" face="Arial">&nbsp;</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1">&nbsp;</font></td>
<td colspan="4" align="center"><font size="1" face="Arial">Three Months Ended</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
<td align="right"><font size="1">&nbsp;</font></td>
<td colspan="4" align="center"><font size="1" face="Arial">Six Months Ended</font></td>
<td align="left"><font size="1">&nbsp;</font></td>
</tr>
<tr valign="top">
  <td><font size="1">&nbsp;</font></td>
  <td><font size="1">&nbsp;</font></td>
  <td><hr noshade size="1">
  </td>
  <td colspan="4"><hr noshade size="1">
  </td>
  <td><font size="1">&nbsp;</font></td>
  <td><hr noshade size="1">
  </td>
  <td colspan="4"><hr noshade size="1">
  </td>
  <td><font size="1">&nbsp;</font></td>
</tr>
<tr valign="top" bgcolor="#FFFFFF">
<td align="left"><font size="1" face="Arial">&nbsp;</font></td>
<td align="left" width="2%"><font size="1">&nbsp;</font></td>
<td width="1%" align="right"><font size="1">&nbsp;</font></td>
<td width="10%" align="center" bgcolor="#FFFFFF"><font size="1" face="Arial"><b>July 2, 2005</b></font></td>
<td width="2%" align="left"><font size="1">&nbsp;</font></td>
<td width="1%" align="right"><font size="1">&nbsp;</font></td>
<td width="10%" align="center" bgcolor="#FFFFFF"><font size="1" face="Arial">June 26, 2004</font></td>
<td width="2%" align="left"><font size="1">&nbsp;</font></td>
<td width="1%" align="right"><font size="1">&nbsp;</font></td>
<td width="10%" align="center" bgcolor="#FFFFFF"><font size="1" face="Arial"><b>July 2, 2005</b></font></td>
<td width="2%" align="left"><font size="1">&nbsp;</font></td>
<td width="1%" align="right"><font size="1">&nbsp;</font></td>
<td width="10%" align="center" bgcolor="#FFFFFF"><font size="1" face="Arial">June 26, 2004</font></td>
<td width="2%" align="left"><font size="1">&nbsp;</font></td> </tr>
<tr valign="top">
  <td><font size="1">&nbsp;</font></td>
  <td><font size="1">&nbsp;</font></td>
  <td><hr noshade size="1">
  </td>
  <td><hr noshade size="1">
  </td>
  <td><font size="1">&nbsp;</font></td>
  <td><hr noshade size="1">
  </td>
  <td><hr noshade size="1">
  </td>
  <td><font size="1">&nbsp;</font></td>
  <td><hr noshade size="1">
  </td>
  <td><hr noshade size="1">
  </td>
  <td><font size="1">&nbsp;</font></td>
  <td><hr noshade size="1">
  </td>
  <td><hr noshade size="1">
  </td>
  <td><font size="1">&nbsp;</font></td>
</tr>
<tr valign="bottom" bgcolor="#eeeeee">
<td align="left"><font size="2" face="Arial">Net income (loss), as reported<b></b></font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">26</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">148</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">(5</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">225</font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="bottom" bgcolor="#FFFFFF">
  <td align="left"><font size="2" face="Arial">Deduct:</font></td>
  <td align="left">&nbsp;</td>
  <td align="right">&nbsp;</td>
  <td align="right">&nbsp;</td>
  <td align="left">&nbsp;</td>
  <td align="right">&nbsp;</td>
  <td align="right">&nbsp;</td>
  <td align="left">&nbsp;</td>
  <td align="right">&nbsp;</td>
  <td align="right">&nbsp;</td>
  <td align="left">&nbsp;</td>
  <td align="right">&nbsp;</td>
  <td align="right">&nbsp;</td>
  <td align="left">&nbsp;</td>
</tr>
<tr valign="bottom" bgcolor="#FFFFFF">
<td align="left"><font size="2" face="Arial">Total stock-based employee compensation expense, determined under FAS 123, net of related tax effects&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">(26</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">(46</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">(62</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">(87</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
</tr>
<tr valign="bottom">
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="bottom" bgcolor="#eeeeee">
<td align="left"><font size="2" face="Arial">Net income (loss) , pro forma</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">&#151;</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">102</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">(67</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">138</font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="bottom" bgcolor="#FFFFFF">
<td align="left"><font size="2" face="Arial">Earnings (loss) per share:</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="bottom" bgcolor="#FFFFFF">
<td align="left"><font size="2" face="Arial">     &nbsp;&nbsp;&nbsp;Basic, as reported </font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">0.03</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">0.17</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">(0.01</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">0.25</font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="bottom" bgcolor="#eeeeee">
<td align="left"><font size="2" face="Arial">     &nbsp;&nbsp;&nbsp;Basic, pro forma</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">&#151;</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">0.11</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">(0.08</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">0.15</font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="bottom">
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="left"><font size="2" face="Arial">&nbsp;</font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="bottom" bgcolor="#FFFFFF">
<td align="left"><font size="2" face="Arial">     &nbsp;&nbsp;&nbsp;Diluted, as reported</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">0.03</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">0.16</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">(0.01</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">0.24</font></td>
<td align="left">&nbsp;</td>
</tr>
<tr valign="bottom" bgcolor="#eeeeee">
<td align="left"><font size="2" face="Arial">     &nbsp;&nbsp;&nbsp;Diluted, pro forma</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">&#151;</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">0.11</font></td>
<td align="left">&nbsp;</td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">(0.08</font></td>
<td align="left"><font size="2" face="Arial">)</font></td>
<td align="right">&nbsp;</td>
<td align="right"><font size="2" face="Arial">0.15</font></td>
<td align="left">&nbsp;</td>
</tr>
</table>
<p align="justify"><font size="2" face="Arial">In connection with an overall change
  of the Company&#8217;s stock-based compensation policy, the Company decided
  to accelerate the vesting period of outstanding stock options. In addition,
  the Company is evaluating to base its share-based remuneration programs on nonvested
  shares.</font></p>


<p align="right">&nbsp;</p>
<p align="center"><font face="Arial" size="2">F-22</font></p><hr noshade align="center" width="100%" size="2">
<div style="page-break-before:always"></div>
<page>
<a name="p?"></a>
<p><a href="#contents"><font size="2">Back to Contents</font></a></p>
<p align="left"><font size="2" face="Arial"><b>16. Dividends   </b></font></p>
<p align="justify"><font size="2" face="Arial">At the Annual General Meeting of
  Shareholders on March 18, 2005, shareholders approved the distribution of $0.12
  per share in cash dividends. The dividend amount of $107 million was paid in
  the second quarter of 2005. </font></p>
<p align="justify"><font size="2" face="Arial">At the Annual General Meeting of
  Shareholders on April 23, 2004, shareholders approved the distribution of $0.12
  per share in cash dividends. The dividend amount of $107 million was paid in
  the second quarter of 2004. <b></b></font></p>
<p align="justify"><font size="2" face="Arial"><b>17. Treasury Stock</b></font></p>
<p align="justify"><font size="2" face="Arial">In 2002, the Company has repurchased
  13,400,000 own shares, for a total amount of $348 million, which were reflected
  at cost as a reduction of the shareholders&#8217; equity. The repurchased shares
  have been designated to be used for the Company&#8217;s employee stock option
  plan.</font></p>
<p align="justify"><font size="2" face="Arial">As of July 2, 2005, none of the
  common shares repurchased had been transferred to employees under the employee
  stock option plan.</font></p>
<p align="justify"><font size="2" face="Arial"><b>18. Contingencies</b></font></p>
<p align="justify"><font size="2" face="Arial">The Company is subject to the possibility
  of loss contingencies arising in the ordinary course of business. These include
  but are not limited to: warranty cost on the products of the Company not covered
  by insurance, breach of contract claims, claims for unauthorized use of third
  party intellectual property, tax claims and provisions for specifically identified
  income tax exposures as well as claims for environmental damages. In determining
  loss contingencies, the Company considers the likelihood of a loss of an asset
  or the incurrence of a liability as well as the ability to reasonably estimate
  the amount of such loss or liability. An estimated loss is recorded when it
  is probable that a liability has been incurred and when the amount of the loss
  can be reasonably estimated. The Company regularly reevaluates claims to determine
  whether provisions need to be readjusted based on the most current information
  available to the Company. Adverse changes in evaluations which result in adverse
  determinations with respect to the interests of the Company could have a material
  negative effect on the Company&#8217;s results of operations, cash flows or
  its financial position for the period in which they occur.</font></p>
<p align="justify"><font size="2" face="Arial"><b>19. Claims and Legal proceedings</b></font></p>
<p align="justify"><font size="2" face="Arial">The Company has received and may
  in the future receive communications alleging possible infringements, in particular
  in case of patents and similar intellectual property rights of others. Furthermore,
  the Company may become involved in costly litigation brought against the Company
  regarding patents, mask works, copyrights, trademarks or trade secrets. In the
  event that the outcome of any litigation would be unfavorable to the Company,
  the Company may be required to license the underlying intellectual property
  right at economically unfavorable terms and conditions, and possibly pay damages
  for prior use and/or face an injunction, all of which individually or in the
  aggregate could have a material adverse effect on the Company&#8217;s results
  of operations, cash flows or financial position and ability to compete.</font></p>


<p align="right">&nbsp;</p>
<p align="center"><font face="Arial" size="2">F-23</font></p><hr noshade align="center" width="100%" size="2">
<div style="page-break-before:always"></div>
<page>
<a name="p?"></a>
<p><a href="#contents"><font size="2">Back to Contents</font></a></p>
<p align="justify"><font size="2" face="Arial">The Company is involved in various
  lawsuits, claims, investigations and proceedings incidental to the normal conduct
  of its operations, other than external patent utilization. These matters mainly
  include the risks associated with claims from customers or other parties and
  tax disputes. The Company has accrued for these loss contingencies when the
  loss is probable and can be estimated. The Company regularly evaluates claims
  and legal proceedings together with their related probable losses to determine
  whether they need to be adjusted based on the current information available
  to the Company. Legal costs associated with claims are expensed as incurred.
  In the event of litigation which is adversely determined with respect to the
  Company&#8217;s interests, or in the event the Company needs to change its evaluation
  of a potential third-party claim, based on new evidence or communications, a
  material adverse effect could impact its operations or financial condition at
  the time it were to materialize.</font></p>
<p align="justify"><font size="2" face="Arial">During 2004, the Company has settled
  certain disputes with respect to claims and litigation relating to possible
  infringements of patents and similar intellectual property rights of others.
  An accrual of $10 million was recorded as at December 31, 2004 for such claims,
  which was paid in the first half of 2005 in accordance with the final settlements.
  No additional accrual has been recorded in 2005 since no other risks were estimated
  to result in a probable loss.</font></p>
<p align="justify"><font size="2" face="Arial">The Company is currently a party
  to legal proceedings with SanDisk Corporation (&#8220;SanDisk&#8221;). Based
  on management&#8217;s current assumptions made with support of the Company&#8217;s
  outside attorneys, the Company does not believe that the SanDisk litigation
  will result in a probable loss.</font></p>


<p align="right">&nbsp;</p>
<p align="center"><font face="Arial" size="2">F-24</font></p><hr noshade align="center" width="100%" size="2">
<div style="page-break-before:always">
<div style="text-indent:3%">
  <P style="margin-top:9pt; margin-bottom:9pt; line-height:11pt; font-family:Arial; font-size:9pt" align=center><B>SIGNATURES</B></P>
  <P style="margin-top:9pt; margin-bottom:9pt; text-indent:15.4pt; line-height:11pt; font-family:Arial; font-size:9pt" align=justify>Pursuant
    to the requirements of the Securities Exchange Act of 1934, STMicroelectronics
    N.V. has duly caused this report to be signed on its behalf by the undersigned,
    thereunto duly authorized.</P>
  <TABLE style="font-size:10pt" cellspacing=0 align=center>
    <TR>
      <TD valign=top width=43.2>&nbsp;</TD>
      <TD valign=top width=264>&nbsp;</TD>
      <TD valign=top width=60>&nbsp;</TD>
      <TD valign=top width=252><P style="margin:0pt; line-height:11pt; font-family:Arial; font-size:9pt"><B>STMicroelectronics
          N.V.</B></P></TD>
    </TR>
    <TR>
      <TD valign=top width=43.2>&nbsp;</TD>
      <TD valign=top width=264>&nbsp;</TD>
      <TD valign=top width=60>&nbsp;</TD>
      <TD valign=top width=252>&nbsp;</TD>
    </TR>
    <TR>
      <TD valign=top width=43.2><P style="margin:0pt; line-height:11pt; font-family:Arial; font-size:9pt">Date:</P></TD>
      <TD valign=top width=264><P style="margin:0pt; line-height:11pt; font-family:Arial; font-size:9pt">August
          1 , 2005</P></TD>
      <TD valign=top width=60><P style="margin:0pt; line-height:11pt; font-family:Arial; font-size:9pt">By:</P></TD>
      <TD valign=top width=252><P style="margin:0pt; line-height:11pt; font-family:Arial; font-size:9pt"><B>/s/
          Carlo Bozotti</B></TD>
    </TR>
    <TR>
      <TD valign=top width=43.2>&nbsp;</TD>
      <TD valign=top width=264>&nbsp;</TD>
      <TD valign=top width=60>&nbsp;</TD>
      <TD valign=top width=252>&nbsp;</TD>
    </TR>
    <TR>
      <TD valign=top width=43.2>&nbsp;</TD>
      <TD valign=top width=264>&nbsp;</TD>
      <TD valign=top width=60><P style="margin:0pt; line-height:11pt; font-family:Arial; font-size:9pt">Name:</P></TD>
      <TD valign=top width=252><P style="margin:0pt; line-height:11pt; font-family:Arial; font-size:9pt"><B>Carlo
          Bozotti</B></P></TD>
    </TR>
    <TR>
      <TD valign=top width=43.2>&nbsp;</TD>
      <TD valign=top width=264>&nbsp;</TD>
      <TD valign=top width=60><P style="margin:0pt; line-height:11pt; font-family:Arial; font-size:9pt">Title:</P></TD>
      <TD valign=top width=252><P style="margin:0pt; line-height:11pt; font-family:Arial; font-size:9pt"><B>President
          and Chief Executive and Sole Member of our Managing Board</B></P></TD>
    </TR>
    <TR>
      <TD valign=top width=43.2>&nbsp;</TD>
      <TD valign=top width=264>&nbsp;</TD>
      <TD valign=top width=60>&nbsp;</TD>
      <TD valign=top width=252>&nbsp;</TD>
    </TR>
  </TABLE>
  <p align="center">&nbsp;</p>
  <p align="center">&nbsp;</p>
</div>
<p align="justify"><font size="2" face="Arial">&nbsp;Enclosure: STMicroelectronics N.V.&#8217;s Second Quarter and First Half 2005: </font></p>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
<tr valign="top">
<td width="3%">
<font size="2" face="Arial">&#149;</font></td>
<td>
<font size="2" face="Arial">Operating and Financial Review and Prospects;</font></td>
</tr>
<tr valign="top">
  <td>&nbsp;</td>
  <td>&nbsp;</td>
</tr>
</table>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
<tr valign="top">
<td width="3%">
<font size="2" face="Arial">&#149;</font></td>
<td>
<font size="2" face="Arial">Unaudited Interim Consolidated Statements of Income, Balance
  Sheets, Statements of Cash Flow and Statements of Changes in Shareholders&#8217;
  Equity and related Notes; and </font></td>
</tr>
<tr valign="top">
  <td>&nbsp;</td>
  <td>&nbsp;</td>
</tr>
</table>
<table width="100%" cellspacing="0" cellpadding="0" border="0">
<tr valign="top">
<td width="3%">
<font size="2" face="Arial">&#149;</font></td>
    <td> <font size="2" face="Arial">Certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of
  2002, submitted to the Commission on a voluntary basis.<br></font></td>
</tr>
</table>
<p align="center">&nbsp;</p>
<p align="center"><font face="Arial" size="2">1</font></p>
<hr noshade align="center" width="100%" size="2">
<div style="page-break-before:always">
<P style="margin:0pt; font-family:Arial" align=right><B><font size="2">Exhibit
  12.1</font></B></P>
<P style="margin-top:10pt; margin-bottom:10pt; font-family:Arial" align=center><B>VOLUNTARY CERTIFICATION</B></P>
<P style="margin-top:0pt; margin-bottom:10pt; text-indent:27pt; font-family:Arial" align=justify><font size="2">I,
  Carlo Bozotti, certify that: </font></P>
<P align="justify" style="margin-top:0pt; margin-bottom:-12pt; text-indent:72pt; font-family:Arial"><font size="2">1.</font></P>
<P align="justify" style="margin-top:0pt; margin-bottom:10pt; text-indent:90pt; font-family:Arial"><font size="2">I
  have reviewed this report on Form 6-K of STMicroelectronics N.V.;</font></P>
<P align="justify" style="margin-top:0pt; margin-bottom:-12pt; text-indent:72pt; font-family:Arial"><font size="2">2.</font></P>
<P align="justify" style="margin-top:0pt; margin-bottom:10pt; text-indent:90pt; font-family:Arial"><font size="2">Based
  on my knowledge, this report does not contain any untrue statement of a material
  fact or omit to state a material fact necessary to make the statements made,
  in light of the circumstances under which such statements were made, not misleading
  with respect to the period covered by this report;</font></P>
<P align="justify" style="margin-top:0pt; margin-bottom:-12pt; text-indent:72pt; font-family:Arial"><font size="2">3.</font></P>
<P align="justify" style="margin-top:0pt; margin-bottom:10pt; text-indent:90pt; font-family:Arial"><font size="2">Based
  on my knowledge, the Unaudited Interim Consolidated Statements of Income, Balance
  Sheets, Statements of Cash Flow and Statements of Changes in Shareholders&#146;
  Equity and related Notes, and other financial information included in this report,
  fairly present in all material respects the financial condition, results of
  operations and cash flows of the company as of, and for, the periods presented
  in this report;</font></P>
<P align="justify" style="margin-top:0pt; margin-bottom:-12pt; text-indent:72pt; font-family:Arial"><font size="2">4.</font></P>
<P align="justify" style="margin-top:0pt; margin-bottom:10pt; text-indent:90pt; font-family:Arial"><font size="2">The
  company&#146;s other certifying officer and I are responsible for establishing
  and maintaining disclosure controls and procedures (as defined in Exchange Act
  Rules 13a-15(e) and 15d-15(e)) for the company and have:</font></P>
<P align="justify" style="margin-top:0pt; margin-bottom:-12pt; padding-left:90pt; text-indent:-36pt; font-family:Arial"><font size="2">a)</font></P>
<P align="justify" style="margin-top:0pt; margin-bottom:10pt; padding-left:90pt; font-family:Arial"><font size="2">Designed
  such disclosure controls and procedures, or caused such disclosure controls
  and procedures to be designed under our supervision, to ensure that material
  information relating to the company, including its consolidated subsidiaries,
  is made known to us by others within those entities, particularly during the
  period in which this report is being prepared;</font></P>
<P align="justify" style="margin-top:0pt; margin-bottom:-12pt; padding-left:90pt; text-indent:-36pt; font-family:Arial"><font size="2">b)</font></P>
<P align="justify" style="margin-top:0pt; margin-bottom:10pt; padding-left:90pt; font-family:Arial"><font size="2">Evaluated
  the effectiveness of the company&#146;s disclosure controls and procedures and
  presented in this report our conclusions about the effectiveness of the disclosure
  controls and procedures, as of the end of the period covered by this report
  based on such evaluation; and</font></P>
<P align="justify" style="margin-top:0pt; margin-bottom:-12pt; padding-left:90pt; text-indent:-36pt; font-family:Arial"><font size="2">c)</font></P>
<P align="justify" style="margin-top:0pt; margin-bottom:10pt; padding-left:90pt; font-family:Arial"><font size="2">Disclosed
  in this report any change in the company&#146;s internal control over financial
  reporting that occurred during the period covered by the report that has materially
  affected, or is reasonably likely to materially affect, the company&#146;s internal
  control over financial reporting; and</font></P>
<P align="justify" style="margin-top:0pt; margin-bottom:-12pt; text-indent:72pt; font-family:Arial"><font size="2">5.</font></P>
<P align="justify" style="margin-top:0pt; margin-bottom:10pt; text-indent:90pt; font-family:Arial"><font size="2">The
  company&#146;s other certifying officer and I have disclosed, based on our most
  recent evaluation of internal control over financial reporting, to the company&#146;s
  auditors and the audit committee of the company&#146;s board of directors (or
  persons performing the equivalent functions):</font></P>
<P align="justify" style="margin-top:0pt; margin-bottom:-12pt; padding-left:108pt; text-indent:-36pt; font-family:Arial"><font size="2">a)</font></P>
<P align="justify" style="margin-top:0pt; margin-bottom:10pt; padding-left:108pt; text-indent:-18pt; font-family:Arial"><font size="2">All
  significant deficiencies and material weaknesses in the design or operation
  of internal control over financial reporting which are reasonably likely to
  adversely affect the company&#146;s ability to record, process, summarize and
  report financial information; and</font></P>
<P align="justify" style="margin-top:0pt; margin-bottom:-12pt; padding-left:108pt; text-indent:-36pt; font-family:Arial"><font size="2">b)</font></P>
<P align="justify" style="margin-top:0pt; margin-bottom:10pt; padding-left:108pt; text-indent:-18pt; font-family:Arial"><font size="2">Any
  fraud, whether or not material, that involves management or other employees
  who have a significant role in the company&#146;s internal control over financial
  reporting.</font></P>
<P style="margin:0pt; font-family:Arial"><font size="2"><BR>
  </font></P>
<TABLE align="center" cellspacing=0 style="font-size:10pt">
  <TR>
    <TD valign=top width=352.533><P style="margin:0pt; font-family:Arial">&nbsp;</P></TD>
    <TD valign=top width=41.133><P style="margin:0pt; font-family:Arial">&nbsp;</P></TD>
    <TD valign=top width=208.067><P style="margin:0pt; font-family:Arial">&nbsp;</P></TD>
  </TR>
  <TR>
    <TD valign=top width=352.533><P style="margin:0pt; font-family:Arial"><font size="2">Date:&nbsp;August
        1 , 2005</font></P></TD>
    <TD valign=top width=41.133><P style="margin:0pt; font-family:Arial"><font size="2">By:&nbsp;</font></P></TD>
    <TD valign=top width=208.067><P style="margin:0pt; font-family:Arial"><font size="2"><B>/s/
        Carlo Bozotti</B></font></P></TD>
  </TR>
  <TR>
    <TD valign=top width=352.533><P style="margin:0pt; font-family:Arial">&nbsp;</P></TD>
    <TD valign=top width=41.133><P style="margin:0pt; font-family:Arial">&nbsp;</P></TD>
    <TD valign=top width=208.067><P style="margin:0pt; font-family:Arial">&nbsp;</P></TD>
  </TR>
  <TR>
    <TD valign=top width=352.533><P style="margin:0pt; font-family:Arial">&nbsp;</P></TD>
    <TD valign=top width=41.133><P style="margin:0pt; font-family:Arial"><font size="2">Name:</font></P></TD>
    <TD valign=top width=208.067><P style="margin:0pt; font-family:Arial"><font size="2"><B>Carlo
        Bozotti</B></font></P></TD>
  </TR>
  <TR>
    <TD valign=top width=352.533><P style="margin:0pt; font-family:Arial">&nbsp;</P></TD>
    <TD valign=top width=41.133><P style="margin:0pt; font-family:Arial"><font size="2">Title:</font></P></TD>
    <TD valign=top width=208.067><P style="margin:0pt; font-family:Arial"><font size="2"><B>President
        and Chief Executive Officer and Sole Member of our Managing Board</B></font></P></TD>
  </TR>
</TABLE>
<P style="margin:0pt; font-family:Arial"><font size="2"><BR>
  <BR>
  </font></P>
<P style="margin:0pt; font-family:Arial" align=center>&nbsp;</P>
<HR style="padding-top:7.2pt; padding-bottom:7.2pt" noshade size=1.333>
<P style="page-break-before:always; margin:0pt; font-family:Arial"><font size="2"><BR>
  </font></P>
<P style="margin-top:0pt; margin-bottom:10pt; font-family:Arial" align=right><font size="2"><B>Exhibit
  12.2</B></font></P>
<P style="margin-top:10pt; margin-bottom:10pt; font-family:Arial" align=center><font size="2"><B>VOLUNTARY
  CERTIFICATION</B></font></P>
<P align="justify" style="margin-top:0pt; margin-bottom:10pt; text-indent:72pt; font-family:Arial"><font size="2">I,
  Carlo Ferro, certify that: </font></P>
<P align="justify" style="margin-top:0pt; margin-bottom:-12pt; text-indent:72pt; font-family:Arial"><font size="2">1.</font></P>
<P align="justify" style="margin-top:0pt; margin-bottom:10pt; text-indent:90pt; font-family:Arial"><font size="2">I
  have reviewed this report on Form 6-K of STMicroelectronics N.V.;</font></P>
<P align="justify" style="margin-top:0pt; margin-bottom:-12pt; text-indent:72pt; font-family:Arial"><font size="2">2.</font></P>
<P align="justify" style="margin-top:0pt; margin-bottom:10pt; text-indent:90pt; font-family:Arial"><font size="2">Based
  on my knowledge, this report does not contain any untrue statement of a material
  fact or omit to state a material fact necessary to make the statements made,
  in light of the circumstances under which such statements were made, not misleading
  with respect to the period covered by this report;</font></P>
<P align="justify" style="margin-top:0pt; margin-bottom:-12pt; text-indent:72pt; font-family:Arial"><font size="2">3.</font></P>
<P align="justify" style="margin-top:0pt; margin-bottom:10pt; text-indent:90pt; font-family:Arial"><font size="2">Based
  on my knowledge, the Unaudited Interim Consolidated Statements of Income, Balance
  Sheets, Statements of Cash Flow and Statements of Changes in Shareholders&#146;
  Equity and related Notes, and other financial information included in this report,
  fairly present in all material respects the financial condition, results of
  operations and cash flows of the company as of, and for, the periods presented
  in this report;</font></P>
<P align="justify" style="margin-top:0pt; margin-bottom:-12pt; text-indent:72pt; font-family:Arial"><font size="2">4.</font></P>
<P align="justify" style="margin-top:0pt; margin-bottom:10pt; text-indent:90pt; font-family:Arial"><font size="2">The
  company&#146;s other certifying officer and I are responsible for establishing
  and maintaining disclosure controls and procedures (as defined in Exchange Act
  Rules 13a-15(e) and 15d-15(e)) for the company and have:</font></P>
<P align="justify" style="margin-top:0pt; margin-bottom:-12pt; padding-left:90pt; text-indent:-36pt; font-family:Arial"><font size="2">a)</font></P>
<P align="justify" style="margin-top:0pt; margin-bottom:10pt; padding-left:90pt; font-family:Arial"><font size="2">Designed
  such disclosure controls and procedures, or caused such disclosure controls
  and procedures to be designed under our supervision, to ensure that material
  information relating to the company, including its consolidated subsidiaries,
  is made known to us by others within those entities, particularly during the
  period in which this report is being prepared;</font></P>
<P align="justify" style="margin-top:0pt; margin-bottom:-12pt; padding-left:90pt; text-indent:-36pt; font-family:Arial"><font size="2">b)</font></P>
<P align="justify" style="margin-top:0pt; margin-bottom:10pt; padding-left:90pt; font-family:Arial"><font size="2">Evaluated
  the effectiveness of the company&#146;s disclosure controls and procedures and
  presented in this report our conclusions about the effectiveness of the disclosure
  controls and procedures, as of the end of the period covered by this report
  based on such evaluation; and</font></P>
<P align="justify" style="margin-top:0pt; margin-bottom:-12pt; padding-left:90pt; text-indent:-36pt; font-family:Arial"><font size="2">c)</font></P>
<P align="justify" style="margin-top:0pt; margin-bottom:10pt; padding-left:90pt; font-family:Arial"><font size="2">Disclosed
  in this report any change in the company&#146;s internal control over financial
  reporting that occurred during the period covered by the report that has materially
  affected, or is reasonably likely to materially affect, the company&#146;s internal
  control over financial reporting; and</font></P>
<P align="justify" style="margin-top:0pt; margin-bottom:-12pt; text-indent:72pt; font-family:Arial"><font size="2">5.</font></P>
<P align="justify" style="margin-top:0pt; margin-bottom:10pt; text-indent:90pt; font-family:Arial"><font size="2">The
  company&#146;s other certifying officer and I have disclosed, based on our most
  recent evaluation of internal control over financial reporting, to the company&#146;s
  auditors and the audit committee of the company&#146;s board of directors (or
  persons performing the equivalent functions):</font></P>
<P align="justify" style="margin-top:0pt; margin-bottom:-12pt; padding-left:90pt; text-indent:-36pt; font-family:Arial"><font size="2">a)</font></P>
<P align="justify" style="margin-top:0pt; margin-bottom:10pt; padding-left:90pt; font-family:Arial"><font size="2">All
  significant deficiencies and material weaknesses in the design or operation
  of internal control over financial reporting which are reasonably likely to
  adversely affect the company&#146;s ability to record, process, summarize and
  report financial information; and</font></P>
<P align="justify" style="margin-top:0pt; margin-bottom:-12pt; padding-left:90pt; text-indent:-36pt; font-family:Arial"><font size="2">b)</font></P>
<P align="justify" style="margin-top:0pt; margin-bottom:10pt; padding-left:90pt; font-family:Arial"><font size="2">Any
  fraud, whether or not material, that involves management or other employees
  who have a significant role in the company&#146;s internal control over financial
  reporting.</font></P>
<div align="justify">
  <TABLE align="center" cellspacing=0 style="font-size:10pt">
    <TR>
      <TD valign=top width=352.533><P style="margin:0pt; font-family:Arial">&nbsp;</P></TD>
      <TD valign=top width=41.133><P style="margin:0pt; font-family:Arial">&nbsp;</P></TD>
      <TD valign=top width=208.067><P style="margin:0pt; font-family:Arial">&nbsp;</P></TD>
    </TR>
    <TR>
      <TD valign=top width=352.533><P style="margin:0pt; font-family:Arial">Date:
          August 1, 2005</P></TD>
      <TD valign=top width=41.133><P style="margin:0pt; font-family:Arial">By:</P></TD>
      <TD valign=top width=208.067><P style="margin:0pt; font-family:Arial"><B>/s/
          Carlo Ferro </B></P></TD>
    </TR>
    <TR>
      <TD valign=top width=352.533><P style="margin:0pt; font-family:Arial">&nbsp;</P></TD>
      <TD valign=top width=41.133><P style="margin:0pt; font-family:Arial">&nbsp;</P></TD>
      <TD valign=top width=208.067><P style="margin:0pt; font-family:Arial">&nbsp;</P></TD>
    </TR>
    <TR>
      <TD valign=top width=352.533><P style="margin:0pt; font-family:Arial">&nbsp;</P></TD>
      <TD valign=top width=41.133><P style="margin:0pt; font-family:Arial">Name:</P></TD>
      <TD valign=top width=208.067><P style="margin:0pt; font-family:Arial"><B>Carlo
          Ferro </B></P></TD>
    </TR>
    <TR>
      <TD valign=top width=352.533><P style="margin:0pt; font-family:Arial">&nbsp;</P></TD>
      <TD valign=top width=41.133><P style="margin:0pt; font-family:Arial">Title:</P></TD>
      <TD valign=top width=208.067><P style="margin:0pt; font-family:Arial"><B>Executive
          Vice President and Chief Financial Officer</B></P></TD>
    </TR>
  </TABLE>
</div>
<P style="margin-top:10pt; margin-bottom:10pt; font-family:Arial" align=justify><BR>
  <BR>
</P>
<P style="margin:0pt; font-family:Arial" align=justify>&nbsp;</P>
<HR align="JUSTIFY" size=1.333 noshade style="padding-top:7.2pt; padding-bottom:7.2pt">
<P style="page-break-before:always; margin-top:10pt; margin-bottom:10pt; font-family:Arial" align=right><font size="2"><B>Exhibit
  13.1</B></font></P>
<P style="margin-top:0pt; margin-bottom:15pt; font-family:Arial" align=justify><font size="2">VOLUNTARY
  CERTIFICATION OF CARLO BOZOTTI, PRESIDENT AND CHIEF EXECUTIVE OFFICER AND SOLE
  MEMBER OF OUR MANAGING BOARD OF STMICROELECTRONICS N.V. AND CARLO FERRO, EXECUTIVE
  VICE PRESIDENT AND CHIEF FINANCIAL OFFICER OF STMICROELECTRONICS N.V., PURSUANT
  TO SECTION 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE
  SARBANES-OXLEY ACT OF 2002</font></P>
<P style="margin-top:0pt; margin-bottom:10pt; text-indent:27pt; font-family:Arial" align=justify><font size="2">In
  connection with the Report on Form 6-K of STMicroelectronics N.V. (the &#147;Company&#148;)
  for the period ending July 2, 2005, as submitted to the Securities and Exchange
  Commission on the date hereof (the &#147;Report&#148;), the undersigned hereby
  certify that to the best of our knowledge: </font></P>
<P style="margin-top:0pt; margin-bottom:10pt; text-indent:27pt; font-family:Arial" align=justify><font size="2">The
  Report fully complies with the requirements of Section 13(a) of the Securities
  Exchange Act of 1934; and</font></P>
<P style="margin-top:0pt; margin-bottom:10pt; text-indent:27pt; font-family:Arial" align=justify><font size="2">The
  information contained in the Report fairly presents, in all material respects,
  the financial condition and results of operations of the Company.</font></P>
<TABLE align="center" cellspacing=0 style="font-size:10pt">
  <TR><TD valign=top width=348.8><P style="margin:0pt; font-family:Arial">&nbsp;Date:August
        1, 2005</P>
</TD><TD valign=top width=48.6><P style="margin:0pt; font-family:Arial">By:</P>
</TD><TD valign=top width=204.333><P style="margin:0pt; font-family:Arial"><B>/s/
        Carlo Bozotti</B></P>
</TD></TR>
<TR><TD valign=top width=348.8>&nbsp;</TD><TD valign=top width=48.6><P style="margin:0pt; font-family:Arial">&nbsp;</P>
</TD><TD valign=top width=204.333><P style="margin:0pt; font-family:Arial">&nbsp;</P>
</TD></TR>
<TR><TD valign=top width=348.8>&nbsp;</TD><TD valign=top width=48.6><P style="margin:0pt; font-family:Arial">Name:&nbsp;&nbsp;</P>
</TD><TD valign=top width=204.333><P style="margin:0pt; font-family:Arial"><B>Carlo Bozotti</B></P>
</TD></TR>
<TR><TD valign=top width=348.8><P style="margin:0pt; font-family:Arial">&nbsp;</P>
</TD><TD valign=top width=48.6><P style="margin:0pt; font-family:Arial">Title:&nbsp;&nbsp;</P>
</TD><TD valign=top width=204.333><P style="margin:0pt; font-family:Arial"><B>President and Chief Executive Officer and Sole Member of our Managing Board </B></P>
</TD></TR>
<TR><TD valign=top width=348.8><P style="margin:0pt; font-family:Arial">&nbsp;</P>
</TD><TD valign=top width=48.6><P style="margin:0pt; font-family:Arial">&nbsp;</P>
</TD><TD valign=top width=204.333><P style="margin:0pt; font-family:Arial">&nbsp;</P>
</TD></TR>
<TR><TD valign=top width=348.8><P style="margin:0pt; font-family:Arial">&nbsp;Date:
        August 1, 2005</P>
</TD><TD valign=top width=48.6><P style="margin:0pt; font-family:Arial">By:</P>
</TD><TD valign=top width=204.333><P style="margin:0pt; font-family:Arial"><B>/s/
        Carlo Ferro</B></P>
</TD></TR>
<TR><TD valign=top width=348.8><P style="margin:0pt; font-family:Arial">&nbsp;</P>
</TD><TD valign=top width=48.6><P style="margin:0pt; font-family:Arial">&nbsp;</P>
</TD><TD valign=top width=204.333><P style="margin:0pt; font-family:Arial">&nbsp;</P>
</TD></TR>
<TR><TD valign=top width=348.8><P style="margin:0pt; font-family:Arial">&nbsp;</P>
</TD><TD valign=top width=48.6><P style="margin:0pt; font-family:Arial">Name:&nbsp;&nbsp;</P>
</TD><TD valign=top width=204.333><P style="margin:0pt; font-family:Arial"><B>Carlo Ferro</B></P>
</TD></TR>
<TR><TD valign=top width=348.8><P style="margin:0pt; font-family:Arial">&nbsp;</P>
</TD><TD valign=top width=48.6><P style="margin:0pt; font-family:Arial">Title:&nbsp;&nbsp;</P>
</TD><TD valign=top width=204.333><P style="margin:0pt; font-family:Arial"><B>Executive&nbsp;Vice&nbsp;President&nbsp;and<BR>
Chief Financial Officer</B></P>
</TD></TR>
</TABLE>
<P style="margin:0pt; font-family:Arial"><BR></P>
<P style="margin-top:0pt; margin-bottom:10pt; font-family:Arial"><BR>
</P>
<P style="margin:0pt; font-family:Times New Roman; font-size:12pt"><BR></P>

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