<PAGE> 1
ST ASSEMBLY TEST SERVICES LTD AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1999 AND JUNE 30, 2000
(UNAUDITED)
IN THOUSANDS OF US DOLLARS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1999 2000
------------ --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 16,568 $256,680
Accounts receivable, net 37,404 50,201
Amounts due from ST affiliates 6,532 6,453
Other receivables 9,572 7,779
Inventories 11,313 12,198
Prepaid expenses 7,079 15,786
-------- --------
Total current assets 88,468 349,097
Property, plant and equipment, net 251,298 343,327
Other receivables 1,835 --
Prepaid expenses 10,364 21,760
-------- --------
Total Assets $351,965 $714,184
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt $ 60,000 $ --
Current installments of long-term debt 7,420 14,829
Accounts payable 13,070 10,410
Amounts due to ST and ST affiliates 5,533 2,688
Accrued operating expenses 20,559 13,896
Other payables 55,238 70,703
Income taxes payable 678 1,805
-------- --------
Total current liabilities 162,498 114,331
Deferred grant 1,923 2,761
Long-term debt, excluding current installments 46,360 37,074
-------- --------
Total Liabilities 210,781 154,166
-------- --------
SHAREHOLDERS' EQUITY
Share capital 129,827 159,137
Additional paid-in capital 26,305 385,932
Accumulated other comprehensive loss (9,731) (9,731)
Retained earnings (deficit) (5,217) 24,680
-------- --------
Total Shareholders' Equity 141,184 560,018
-------- --------
Total Liabilities and Shareholders' Equity $351,965 $714,184
-------- --------
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
1
<PAGE> 2
ST ASSEMBLY TEST SERVICES LTD AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 1999 AND 2000
(UNAUDITED)
IN THOUSANDS OF US DOLLARS (EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED JUNE 30,
-----------------------------------
1999 2000
-------- --------
<S> <C> <C>
Net revenues $ 45,616 $ 75,759
Cost of revenues (30,455) (50,412)
-------- --------
Gross profit 15,161 25,347
-------- --------
Operating expenses:
Selling, general and administrative 6,515 9,747
Research and development 1,536 4,276
Stock-based compensation 858 99
Other general expenses (net) -- (227)
-------- --------
Total operating expenses 8,909 13,895
-------- --------
Operating income 6,252 11,452
-------- --------
Other income (expense):
Interest income (expense), net (1,458) 2,920
Foreign currency exchange gain (loss) 222 (398)
Other non-operating income, net 941 1,175
-------- --------
Total other income (expense) (295) 3,697
-------- --------
Income before income taxes 5,957 15,149
Income tax expense (273) (1,050)
-------- --------
Net income $ 5,684 $ 14,099
======== ========
Basic and diluted net income per ordinary share $ 0.007 $ 0.014
======== ========
Basic and diluted net income per ADS $ 0.07 $ 0.14
======== ========
Ordinary shares (in thousands) used in per ordinary
share calculation:
-- basic 769,039 982,913
-- effect of dilutive options 8,499 11,785
-------- --------
-- diluted 777,538 994,698
======== ========
ADS (in thousands) used in per ADS calculation:
-- basic 76,904 98,291
-- effect of dilutive options 850 1,179
-------- --------
-- diluted 77,754 99,470
======== ========
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
2
<PAGE> 3
ST ASSEMBLY TEST SERVICES LTD AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 2000
(UNAUDITED)
IN THOUSANDS OF US DOLLARS (EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30,
---------------------------------
1999 2000
-------- --------
<S> <C> <C>
Net revenues $ 82,293 $147,935
Cost of revenues (58,890) (95,466)
-------- --------
Gross profit 23,403 52,469
-------- --------
Operating expenses:
Selling, general and administrative 11,971 19,333
Research and development 2,766 6,894
Stock-based compensation 1,757 346
Other general expenses (net) (2) (233)
-------- --------
Total operating expense 16,492 26,340
-------- --------
Operating income 6,911 26,129
-------- --------
Other income (expense):
Interest income (expense), net (2,856) 3,072
Foreign currency exchange gain 2,379 462
Other non-operating income, net 1,134 1,773
-------- --------
Total other income 657 5,307
-------- --------
Income before income taxes 7,568 31,436
Income tax expense (512) (1,539)
-------- --------
Net income $ 7,056 $ 29,897
======== ========
Basic net income per ordinary share $ 0.009 $ 0.032
Diluted net income per ordinary share $ 0.009 $ 0.031
Basic net income per ADS $ 0.09 $ 0.32
Diluted net income per ADS $ 0.09 $ 0.31
Ordinary shares (in thousands) used in per ordinary
share calculation:
-- basic 769,005 941,265
-- effect of dilutive options 6,555 13,189
-------- --------
-- diluted 775,560 954,454
======== ========
ADS (in thousands) used in per ADS calculation:
-- basic 76,900 94,126
-- effect of dilutive options 656 1,319
-------- --------
-- dilute 77,556 95,445
======== ========
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
3
<PAGE> 4
ST ASSEMBLY TEST SERVICES LTD AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 2000
(UNAUDITED)
IN THOUSANDS OF US DOLLARS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30,
---------------------------------
1999 2000
-------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 7,056 $ 29,897
Adjustments to reconcile net income to net cash provided by
Depreciation and amortization 25,200 31,837
Gain on sale of property, plant and equipment (2) (233)
Provision for doubtful accounts receivable -- 301
Provision for stock obsolescence 553 (348)
Unrealized foreign currency exchange loss (gain) (2,335) 2,687
Changes in working capital:
Accounts receivable (2,362) (13,098)
Amounts due from ST affiliates (57) 79
Inventories 1,699 (537)
Other receivables and prepaid expenses (1,152) 5,217
Accounts payable 315 (2,660)
Amounts due to ST and ST affiliates (196) (2,845)
Accrued operating expenses and other payables 5,436 (4,426)
-------- ---------
Net cash provided by operating activities 34,155 45,871
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant and equipment (22,456) (137,576)
Sale of property, plant and equipment -- 5,955
-------- ---------
Net cash used by investing activities (22,456) (131,621)
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of short-term debt -- (60,000)
Proceeds from issuance of shares 65 388,591
-------- ---------
Net cash provided by financing activities 65 328,591
-------- ---------
Net increase in cash and cash equivalents for the period 11,764 242,841
Effect of exchange rate changes on cash and cash equivalents -- (2,729)
Cash and cash equivalents at beginning of the period 12,692 16,568
-------- ---------
Cash and cash equivalents at end of the period $ 24,456 $ 256,680
======== =========
SUPPLEMENTARY CASH FLOW INFORMATION
Cash paid:
Interest paid 1,820 2,123
Income taxes paid 97 412
Non-cash item:
Share issue subscriptions receivable $ 1,235 --
======== =========
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
4
<PAGE> 5
ST ASSEMBLY TEST SERVICES LTD AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
1. BASIS OF PREPARATION
(A) ACCOUNTING PRINCIPLES
The interim condensed consolidated financial statements of the Company
have been prepared in conformity with generally accepted accounting
principles in the United States ("US GAAP"). Certain information and
footnote disclosures normally included in Financial Statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. The results
of operations reflect the interim adjustments, all of which are of a
normalrecurring nature and which, in the opinion of management, are
necessary for a fair presentation of the results for such interim periods.
The results of operations in these unaudited condensed consolidated
financial statements are not necessarily indicative of the results to be
expected for the full year. These unaudited condensed consolidated
financial statements should be read in conjunction with the audited
condensed consolidated financial statements included in the Company's
Annual Report on Form 20-F for the year ended December 31, 1999.
(B) PRINCIPLES OF CONSOLIDATION
The interim condensed consolidated financial statements included the
financial statements of ST Assembly Test Services Ltd and its subsidiary.
All significant intercompany balances and transactions have been eliminated
in consolidation.
(C) USE OF ESTIMATES IN THE FINANCIAL STATEMENTS
The preparation of the interim condensed consolidated financial statements
in accordance with US GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported revenues and expenses during the
reporting period. Actual results could differ from these estimates.
(D) SIGNIFICANT CUSTOMERS AND CONCENTRATION OF CREDIT RISKS
The Company has a number of major customers in North America, Europe and
Asia. During the three month periods ended June 30, 1999 and 2000, the five
largest customers collectively accounted for approximately 70.4% and 74.5%
of revenues, respectively. During the six month periods ended June 30, 1999
and 2000, the five largest customers collectively accounted for
approximately 72.8% and 73.5% respectively. The Company anticipates that
significant customer concentration will continue for the foreseeable
future, although the companies that constitute the Company's largest
customers may change. The Company believes that the concentration of its
credit risk in trade receivables is mitigated substantially by its credit
evaluation process, credit policies and credit control and collection
procedures.
5
<PAGE> 6
RISKS AND UNCERTAINTIES
The Company's future results of operations include a number of risks and
uncertainties. Factors that could affect the Company's future operating
results and cause actual results to vary materially from expectations
include, but are not limited to, dependence on the high cyclical nature of
both the semiconductor and the communications and personal computer
industries, competitive pricing and declines in average selling prices,
reliance on a small group of principal customers, timing and volume of
orders relative to the Company's production capacity, availability of
manufacturing capacity and fluctuations in manufacturing yields,
availability of financing, competition, dependence on raw material and
equipment suppliers, exchange rate fluctuations, dependence on key
personnel, enforcement of intellectual property rights, environmental
regulations and fluctuations in quarterly operating results.
2. INVENTORIES
Inventories at December 31, 1999 and June 30, 2000 consist of (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1999 2000
------------ --------
<S> <C> <C>
Raw materials $ 8,440 $ 8,769
Factory supplies 1,268 1,449
Work-in-progress 2,360 2,695
Finished goods 348 40
12,416 12,953
------- -------
Allowance for inventory obsolescence (1,103) (755)
------- -------
$11,313 $12,198
------- -------
</TABLE>
6
<PAGE> 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
FORWARD LOOKING STATEMENTS
Certain of the statements in this Form 6-K are forward-looking statements
that involve a number of risks and uncertainties that could cause actual results
to differ materially. Factors that could cause actual results to differ include:
general business and economic conditions and the state of the semiconductor
industry; demand for end-use applications products such as communications
equipment and personal computers; decisions by customers to discontinue
outsourcing of test and assembly services; changes in customer order patterns;
rescheduling or cancellation of customer orders; changes in product mix;
capacity utilization; level of competition; pricing pressures; continued success
in technological innovation; delays in acquiring or installing new equipment;
shortages in supply of key components; litigation and other risks described in
"Item 9. Management's Discussion and Analysis of Financial Condition and Results
of Operations - Risk Factors." section in the Form 20-F we filed on March 30,
2000.
OVERVIEW
We are a leading independent provider of a full range of semiconductor test
and assembly services, including:
- testing, including final testing and wafer probe, on a diverse
selection of test platforms, as well as additional test related
services such as burn-in process support, reliability testing, thermal
and electrical characterization, dry pack and tape and reel;
- assembly of leaded and laminate packages, as well as additional
assembly related services such as package design and leadframe and
substrate design;
- pre-production services, such as package development, supply chain
management and test software and related hardware development; and
- drop shipment services.
We derive revenues from test services and assembly of leaded and laminate
packages. Net revenue represents the invoiced value of services rendered,
excluding goods and services tax, net of returns, trade discounts and
allowances. We recognize revenue upon shipment of semiconductors for which we
have provided services.
The semiconductor industry is characterized by price erosion which can
impact our revenue and gross margin, unless we improve our capacity utilization
and reduce costs. Prices of our products of a given level of technology decline
over the product life cycle, commanding a premium in the earlier stages and
declining towards the end of the cycle. We have to continue to develop and offer
increasingly complex test and assembly services that meet the requirements of
our customers.
Our results of operations are generally affected by the capital-intensive
nature of our business. Most of our costs are fixed, as our variable costs are
primarily the costs of materials, payroll and supplies. Our primary fixed costs
are for test and assembly equipment. Increases or decreases in capacity
utilization rates can have a significant effect on gross profit margins since
the unit cost of test and assembly services generally decreases as fixed
charges, such as depreciation expense for the equipment, are allocated over a
larger number of units. Depreciation expense and cost of leasing for production
7
<PAGE> 8
equipment as a percentage of revenues was 23.2% and 24.2% for the three months
ended June 30, 1999 and June 30, 2000, respectively, and 25.2% and 22.9% for the
six months ended June 30, 1999 and June 30, 2000, respectively. We begin
depreciating our equipment when it is placed into service. Often, there is a gap
between when our equipment is placed into service and when it achieves high
levels of utilization. As a result, placing into service new equipment can cause
our gross profit margins to vary significantly from quarter to quarter. Our
results of operations are also affected by declines over time in the average
selling prices for packages. At times in the past, we have been able to offset,
at least in part, the effect of such declines on our gross profit margins by
successfully developing and marketing new higher margin packages, such as
advanced leadframe and laminate packages, and by taking advantage of economies
of scale and higher productivity resulting from higher volumes. However, we
cannot assure you that we will be successful at offsetting any such declines in
the future.
Our operating expenses consist principally of selling, general and
administrative expenses which include payroll-related expenses for
administrative staff, facilities-related expenses, management fees to our parent
Singapore Technologies Pte Ltd, marketing expenses and provisions for bad debts
on accounts receivable. Our operating expenses also include research and
development expenditures, consisting primarily of payroll-related expenses,
depreciation expenses resulting from hardware and software purchases and
purchases of testers, and cost of materials used for the development of new
packages, or operating supplies.
Our quarterly results may vary significantly. Unfavorable changes may
adversely affect our business, financial condition and results of operations. In
addition, we intend to increase the level of operating expenses and investments
in manufacturing capacity in anticipation of future growth in net revenues. To
the extent our net revenues do not grow as anticipated, our financial condition
and operating results may be materially and adversely affected due to the fixed
nature of most of these expenses.
We were incorporated in Singapore in October 1994. As of June 30, 2000, we
were 72.4% owned by Singapore Technologies Pte Ltd and its affiliates.
RESULTS OF OPERATIONS
The following table sets forth certain financial data as a percentage of
net revenues for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------- -------------------------
1999 2000 1999 2000
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net revenues 100.0% 100.0% 100.0% 100.0%
Cost of revenues (66.8) (66.5) (71.6) (64.5)
----- ----- ----- -----
Gross profit 33.2 33.5 28.4 35.5
----- ----- ----- -----
Operating expenses:
Selling, general and administrative 14.3 13.0 14.5 13.1
Research and development 3.4 5.6 3.4 4.7
Stock-based compensation 1.9 0.1 2.1 0.2
Other general expenses (income), net -- (0.3) -- (0.2)
----- ----- ----- -----
Total operating expenses 19.6 18.4 20.0 17.8
----- ----- ----- -----
Operating income 13.6 15.1 8.4 17.7
Other income (expense):
Interest income (expense), net (3.2) 3.9 (3.5) 2.0
Foreign currency exchange gain (loss) 0.5 (0.5) 2.9 0.3
Other non-operating income, net 2.1 1.5 1.4 1.2
----- ----- ----- -----
Total other income (expense) (0.6) 4.9 0.8 3.5
----- ----- ----- -----
Income before income taxes 13.0 20.0 9.2 21.2
Income tax expense (0.6) (1.4) (0.6) (1.0)
----- ----- ----- -----
Net income 12.4% 18.6% 8.6% 20.2%
===== ===== ===== =====
</TABLE>
8
<PAGE> 9
THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THREE MONTHS ENDED JUNE 30, 2000
Net revenues. Net revenues increased 66.1% from $45.6 million in the three
months ended June 30, 1999 to $75.8 million in the three months ended June 30,
2000. This increase was primarily due to the increase in unit volumes for test
and assembly services. Net revenues from test services increased 57.9% from
$21.8 million in the three months ended June 30, 1999 to $34.3 million in the
three months ended June 30, 2000. The increase in test services net revenues was
attributable primarily to growth in test volumes reflecting increased demand and
expanded capacity. Revenues from assembly services increased 73.5% from $23.8
million in the three months ended June 30, 1999 to $41.4 million in the three
months ended June 30, 2000. This increase was primarily due to greater demand
for both leadframe and laminate packages.
Cost of revenues and Gross profit margin. Cost of revenues increased 65.5%
from $30.5 million in the three months ended June 30, 1999 to $50.4 million in
the three months ended June 30, 2000, primarily due to higher depreciation
expense and cost of leasing as a result of placing into service additional test
and assembly equipment and costs associated with increased test and assembly
unit volumes. Depreciation expense and cost of leasing for production equipment
increased from $10.6 million in the three months ended June 30, 1999 to $18.3
million in the three months ended June 30, 2000. Gross profit margin increased
from 33.2% in the three months ended June 30, 1999 to 33.5% in the three months
ended June 30, 2000. Gross profit margin in the three months ended June 30, 2000
declined from 37.6% in the three months ended March 31, 2000. The decline was
due to lower utilization as a result of weak wafer supply in the first two
months of the quarter coupled with the installation of additional equipment in
the quarter. In addition, overall margins were lower because of the higher
proportion of assembly revenue, which has lower margins, in the three months
ended June 30, 2000 compared to the prior quarter.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased 49.6% from $6.5 million, or 14.3% of net
revenue, in the three months ended June 30, 1999 to $9.7 million, or 13.0% of
net revenue, in the three months ended June 30, 2000. The increase was mainly
due to an increase in payroll-related expenses and professional fees.
Research and development expenses. Research and development expenses
increased 178.4% from $1.5 million, or 3.3% of net revenues, in the three months
ended June 30, 1999 to $4.3 million, or 5.6% of net revenues, in the three
months ended June 30, 2000. The increase was primarily attributable to the
addition of employees in research and development positions and an increase in
operating supplies.
Stock-based compensation. Stock-based compensation was $0.9 million in the
three months ended June 30, 1999 compared to $0.1 million in the three months
ended June 30, 2000. The difference is in part attributable to the impact of the
adoption by the company of a new employee share ownership scheme in December
1999.
Other income (expense). Other expense of $0.3 million in the three months
ended June 30, 1999 increased to other income of $3.7 million in the three
months ended June 30, 2000 primarily due to positive net interest income.
Interest expense, net for the three months ended June 30, 1999 was $1.5 million
compared to interest income, net of $2.9 million in the three months ended June
30, 2000. This was primarily due to the interest income from the proceeds of the
initial public offering and from the repayment of our loans of $60.0 million.
Income tax expense. Income tax expense increased from $0.3 million in the
three months ended June 30, 1999 to $1.1 million in the three months ended June
30, 2000 due to higher interest income. The
9
<PAGE> 10
current income tax expense for both periods is due to Singapore tax on rental
and interest income and U.S. tax on income generated by ST Assembly Test
Services, Inc. in the United States. We have been granted pioneer enterprise
status under the Singapore Economic Expansion Incentives (Relief from Income
Tax) Act, Chapter 86, for a five-year period from January 1, 1996. As a result,
during this period, income from subcontract assembly and testing of integrated
circuits, including wafer probe services, is exempt from Singapore income tax,
subject to compliance with the conditions stated in the pioneer certificate and
the Relief from Income Tax Act. Income from any other sources is taxed at
prevailing Singapore corporate tax rates. Our pioneer status is renewable for an
additional three years subject to compliance with certain conditions.
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 2000
Net revenues. Net revenues increased 79.8% from $82.3 million in the six
months ended June 30, 1999 to $147.9 million in the six months ended June 30,
2000. This increase was primarily due to the increase in unit volumes for test
and assembly services. Net revenues from test services increased 86.9% from
$37.1 million in the six months ended June 30, 1999 to $69.4 million in the six
months ended June 30, 2000. The increase in test services net revenues was
attributable primarily to growth in test volumes reflecting increased demand and
expanded capacity. Revenues from assembly services increased 73.9% from $45.1
million in the six months ended June 30, 1999 to $78.5 million in the six months
ended June 30, 2000. This increase was primarily due to greater demand for both
leadframe and laminate packages.
Cost of revenues and Gross profit margin. Cost of revenues increased 62.1%
from $58.9 million in the six months ended June 30, 1999 to $95.5 million in the
six months ended June 30, 2000, primarily due to higher depreciation expense and
cost of leasing as a result of placing into service additional test and assembly
equipment and costs associated with increased test and assembly unit volumes.
Depreciation expense and cost of leasing for production equipment increased from
$20.7 million in the six months ended June 30, 1999 to $33.9 million in the six
months ended June 30, 2000. Gross profit margin increased from 28.4% in the six
months ended June 30, 1999 to 35.5% in the six months ended June 30, 2000. The
increase in gross profit margin was attributable primarily to improved
utilization of materials and of test and assembly equipment.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased 61.5% from $12.0 million, or 14.5% of net
revenue, in the six months ended June 30, 1999 to $19.3 million, or 13.1% of net
revenue, in the six months ended June 30, 2000. The increase was mainly due to
an increase in payroll-related expenses and professional fees.
Research and development expenses. Research and development expenses
increased 149.2% from $2.8 million, or 3.4% of net revenues, in the six months
ended June 30, 1999 to $6.9 million, or 4.7% of net revenues, in the six months
ended June 30, 2000. The increase was primarily attributable to the addition of
employees in research and development positions and an increase in operating
supplies.
Stock-based compensation. Stock-based compensation was $1.8 million in the
six months ended June 30, 1999 compared to $0.3 million in the six months ended
June 30, 2000. The difference is in part attributable to the impact of the
adoption by the company of a new employee share ownership scheme in December
1999.
Other income (expense). Other income increased 707.8% from $0.7 million in
the six months ended June 30, 1999 to $5.3 million in the six months ended June
30, 2000 primarily due to positive net interest income. This was offset by a
foreign currency exchange gain of $0.5 million in the six months ended June 30,
2000 compared to a foreign exchange gain of $2.4 million in the six months ended
June
10
<PAGE> 11
30, 1999. Interest expense, net for the six months ended June 30, 1999 was $2.9
million compared to interest income, net of $3.1 million in the six months ended
June 30, 2000. This was primarily due to the interest income from the proceeds
of the initial public offering and from the repayment of our loans of $60.0
million.
Income tax expense. Income tax expense increased from $0.5 million in the
six months ended June 30, 1999 to $1.5 million in the six months ended June 30,
2000 due to higher interest income. The current income tax expense for both
periods is due to Singapore tax on rental and interest income and U.S. tax on
income generated by ST Assembly Test Services, Inc. in the United States.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2000, our principal sources of liquidity included $256.7
million in cash and cash equivalents and $55.0 million of unutilized credit
facilities, consisting of a $35.0 million short term loan from Den Danske Bank
and a $20.0 million working capital facility from Citibank N.A..
On June 5, 1998, we entered into a S$90.0 million ($54.3 million) long-term
loan agreement with the Economic Development Board. The long-term loan is
denominated in Singapore dollars and bears interest, payable semi-annually, at
1% over the prevailing rate per annum declared by the Central Provident Fund
Board, a statutory board of the Singapore Government. The prevailing rate at
June 30, 2000 was 2.5%. Principal is payable in seven semi-annual, equal
installments commencing September 1, 2000. The loan agreement specifies that the
proceeds are to be used solely for the financing of fixed productive assets in
the semiconductor business. This loan matures on September 1, 2003 and is
guaranteed by Singapore Technologies Pte Ltd. The loan agreement restricts us
from paying dividends, from incurring further indebtedness and from undertaking
any form of reconstruction, including amalgamation with another company, which
would result in a change in the control of the Company, in each case without
prior lender consent. To reduce our Singapore dollar exposure on this loan, in
the first quarter of 1999 we hedged the principal amount due under such loan and
incurred an additional annual financing charge of 1.7% of the principal amount
of such loan with respect to such hedging transaction. Subsequent to our initial
public offering, we terminated this arrangement and currently hold Singapore
dollar cash balances, proceeds from our initial public offering, as a hedge of
the principal amount due under the loan.
We have an uncommitted working capital facility with Citibank, N.A. for
$20.0 million. Interest on borrowings under this facility is charged at the
bank's prevailing rate.
We have two working capital facilities with Den Danske Bank. The first is a
committed facility expiring August 25, 2000 for $25.0 million with interest
charged on borrowings at 0.6% per annum above LIBOR. The second is an
uncommitted facility for $10.0 million with interest charged at a rate agreed on
the date of drawdown.
The $45.9 million of net cash provided by operating activities in the six
months ended June 30, 2000, was attributable to net operating cash generated,
before changes in operating working capital, of $64.1 million, offset by an
increase in operating working capital of $18.2 million.
Net cash used in investing activities for the six months ended June 30,
2000 was $131.6 million and represents amounts paid for property, plant and
equipment. We have increased our budgeted capital expenditures to $290.0 million
for 2000, of which $152.0 million was our capital expenditure for the six months
ended June 30, 2000. From time to time we may acquire or make investments in
additional businesses, products and technologies or establish joint ventures or
strategic partnerships that we believe will complement our current and future
business. Some of these acquisitions or investments could be
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material.
Net cash provided by financing activities was $328.6 million in the six
months ended June 30, 2000, primarily due to proceeds of $388.6 million from our
initial public offering, which was offset by the repayment of short term loans
of $60.0 million.
FOREIGN CURRENCY EXCHANGE EXPOSURE
We experience foreign currency exchange gains and losses arising from
transactions in currencies, principally the Singapore dollar and the Japanese
yen, other than our functional currency, the U.S. dollar.
We have adopted a hedging policy that we believe adequately covers any
material exposure to our non-U.S. dollar assets and liabilities. To minimize
foreign currency exchange risk, we selectively hedge our foreign currency
exposure through forward foreign currency swap contracts and options. However we
cannot assure you that sudden or rapid movement in exchange or interest rates
will not have a material adverse effect on our business, financial condition or
results of operations.
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