FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 OF
THE SECURITIES EXCHANGE ACT OF 1934
For the month of April 2001
STMicroelectronics N.V.
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(Translation of registrant's name into English)
Route de Pre-Bois, ICC Bloc A, 1215 Geneva 15, Switzerland
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(Address of principal executive offices)
[Indicate by check mark whether the registrant files or will file
annual reports under cover of Form 20-F or Form 40-F]
Form 20-F X Form 40-F
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[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]
Yes No X
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[If "Yes" is marked, indicate below the file number assigned to the
Registrant in connection with Rule 12g3-2(b): 82-______]
Enclosures:
Shareholder materials for STMicroelectronics's Annual General Meeting
on April 25, 2001, including:
(i) Message from the President;
(ii) Report of the Supervisory Board;
(iii) STMicroelectronics' 2000 Unconsolidated Financial Statements; and
(iv) STMicroelectronics' 2000 Consolidated Financial Statements.
Message From The President
The year 2000 was a record-setting period for STMicroelectronics in
which we posted strong operating results across all major applications, product
groups and geographies. This excellent performance was characterized by the
highest annual revenues, gross profit, operating profit and net earnings in our
history. Importantly, ST is now at a new level in terms of market position and
recognition, giving us a broader platform from which to compete successfully in
our strategically-targeted applications.
To put this in perspective, ST's revenues increased 54.5% in 2000 to
over $7.8 billion, a growth rate that significantly outpaced that of the
semiconductor industry, which gained approximately 37% on a year-over-year
basis.
Profitability growth was even greater, further evidence of the
operating leverage that ST has enjoyed during the last several years. Gross
profit reached a record $3.6 billion, an increase of 79.7% over 1999 levels, and
gross margin was 46% for the year, significantly above the 39.6% reported for
1999. The substantial progress made at the gross margin level in 2000
illustrated two important strengths: our ability to enrich our portfolio with
new and more value-added applications; and the efficiency of our worldwide
manufacturing machine which continues to be a very strong competitive advantage
for the Company.
Operating profit grew by 165.5% to almost $1.8 billion, and represented
22.8% of net revenues. This was achieved after absorbing record Research and
Development expenditures of over $1 billion, or 13.1% of net revenues.
Net earnings for the year 2000 reached over $1.4 billion, up 163% from
1999 levels and equating to earnings per diluted share of $1.58, a 155%
year-over-year increase. Return on equity was a record 27.2%, significantly
above the average ROE of 19.5% that was achieved in the years since the company
became public.
In 2000, we took advantage of strong market conditions to make
important investments to fuel the Company's future growth. In addition to the
ongoing research and development spending focused on developing new
technologies, ST invested a record $3.3 billion in 2000 to expand and modernize
our global manufacturing machine and upgrade our IT systems and infrastructure.
Taken as a percentage of sales, ST's 2000 capital expenditures were probably the
highest in the semiconductor industry. Additionally, we completed acquisitions
last year for a total consideration of $240 million, adding to the Company's
already extensive intellectual property portfolio.
Thus, ST entered 2001 with significant investments and start-up costs
behind it, as well as a strong balance sheet to support continued market share
growth. We also bring an exceptional level of strategic customer alliances which
accounted for 43.5% of ST's 2000 net revenues and an excellent product mix,
illustrated by differentiated product revenues of $4.95 billion in 2000, or
63.3% of the Company's total net revenues for the year.
These are among the strengths we count upon to enable ST to adjust to
rapidly-changing industry conditions. Today the market is in flux, responding to
excessive inventory build-ups in many sectors. Economic forecasts diverge widely
on whether we are facing a "soft landing" or a true recession.
STMicroelectronics' success within a broad range of business and market
conditions is well-documented. We have enjoyed an above-average track record in
times of cyclical industry downturns, yet have posted exceptional growth during
periods of favorable market conditions. We believe that this combination of
relative resiliency and outperformance on the upside is a consequence of several
factors:
o BALANCE The diversity of our products, targeted applications and
geographic mix all come together to provide strong growth
potential without the risks associated with a one product or one
application company.
o CUSTOMERS The success of the companies that comprise our network
of strategic alliances and key customers reflect positively on
ST's products, aptitude and TQM culture.
o MANUFACTURING The systematic application of manufacturing science,
strict adherence to TQM and modular capital investment programs
give ST a global manufacturing machine that is among the most
efficient in the industry.
o FINANCIAL POSITION The Company's financial strength is reflected
by: internal cash generation which amounted to $2.6 billion in
2000; its cash and cash equivalents position of $2.3 billion at
year-end 2000; and, ST's proven ability to access the capital
markets in order to finance growth.
o CORPORATE CULTURE None of the above-cited competitive advantages
can lead to success without a cohesive corporate culture that
rewards individual dedication, innovative thinking, customer
service and excellent execution. As a global company, ST is
committed to putting the individual at the center of the business
enterprise and to maintaining its leadership in protecting the
environment.
We take particular pride in our Company's worldwide leadership role in
the area of environmental preservation. Our strong commitment to this cause is
part of our fundamental belief in the ethical obligations of business
enterprises to Society. ST remains determined to protect the world's
severely-threatened environment for the benefit of today's inhabitants as well
as to ensure the welfare of future generations.
This ethical position is strongly supported by our conviction that
environmentally-minded companies are intrinsically more competitive and
therefore able to generate higher returns for their shareholders. ST's history
and performance demonstrate the
validity of this assumption. In fact, ST is the top ranked semiconductor company
on the Dow Jones Sustainability Group Index, which identifies companies that
"not only manage the standard economic factors affecting their business, but the
environmental and social factors as well." Additionally, we were the only
semiconductor company to receive a AAA rating in eco-efficiency from Innovest
Strategic Value Advisors and were recipients of both the EPA Climate Protection
Award in 1999 and the Akira Inoue Award for Outstanding Achievement in
Environmental, Health and Safety in the Semiconductor Industry in the year 2000.
Gartner-Dataquest has ranked ST as the world's 6th largest
semiconductor company, based on year 2000 revenues. This is a formidable
achievement, having been 14th only 5 years ago. If you extract from the list
those companies that generate a majority of their total revenues from
semiconductor sales, the three largest are: Intel, Texas Instruments and
STMicroelectronics, in that order.
The year 2001 will be challenging. We are confident, however, that the
past will be a precursor for the future, enabling ST to once again distinguish
itself by outperforming the markets we serve. To this end we will rely on our
fundamental strengths as well as the ongoing support of all of our stakeholders.
I would like to personally extend my appreciation to everyone who
contributed to ST's record performance in 2000 and to reaffirm our commitment to
our employees, strategic partners, customers and shareholders.
Pasquale Pistorio
President and Chief Executive Officer
Report of the Supervisory Board of
STMicroelectronics N.V.
-----------------------
The year 2000 was an outstanding period for the Company. While the semiconductor
industry experienced very significant growth of approximately 35%, the Company's
revenue growth reached 54.5%, raising the Company's position to be among the six
largest semiconductor companies in the world. These results illustrate clearly
the development strategy of STMicroelectronics. This strategy associates growth
and financial results and is decided by the Supervisory Board in close
connection with the CEO of the Company.
Therefore, upon proposal by the Managing Board, we propose to the General
Meeting of Shareholders to adopt the annual accounts for the financial year 2000
and to distribute out of the Company's profits realized during that year a cash
dividend of US$ 0.04 per share issued and outstanding as of April 27, 2001
payable on May 11, 2001. This amount of dividend represents an increase over
last year and takes into account the three-for-one stock split of the shares
issued and outstanding as of May 5, 2000.
Among the most important events of the year 2000, we would like to inform the
General Meeting of Shareholders that, in November 2000, the Company sold senior
zero coupon convertible bonds due 2010 in the international capital markets and
the Company thereby raised US$ 1,480 million that will be used to develop its
investments which have been strongly enhanced in order to increase the Company's
profits and market share.
During the year 2000, the Supervisory Board was significantly involved in the
expansion of the Company and therefore the number of meetings of the Board and
of its Committees was increased.
The Compensation Committee met five times and granted to a much larger number of
executives the benefit of stock options as an incentive to the development of
the Company. In addition, some of the external acquisitions have included a
grant of stock options to the new employees.
During the year 2000, the Audit Committee considered the recommendations of the
Blue Ribbon Committee issued by the U.S. Securities and Exchange Commission and,
after electing a new President, adopted a new Audit Charter in accordance with
the recommendations of the said Committee. During the year, a meeting was held
before each financial period and the Committee examined, in cooperation with the
Auditors of the Company, the quarterly accounts, in particular the Company's
auditing practices, litigation-related risks, the execution by the Company of
the Auditors' recommendations regarding corporate auditing rules and the
independence of the Company's external Auditors
2
The Strategic Committee examined, together with the Company's CEO, every subject
of material importance for the Company, in particular its growth and acquisition
activities, strategic partnerships, cross license agreements and asset
purchases.
A Monitoring Committee was also specially appointed to oversee the zero coupon
bond offering.
Therefore, we propose to the General Meeting of Shareholders the main following
items:
1. to adopt the annual accounts for the financial year 2000 and to distribute a
cash dividend of US$ 0.04 per share;
2. to approve the Employee Stock Purchase Plan in order for the Plan to qualify
under section 423 of the U.S. Internal Revenue Code. The first tranche of
the three year employee plan was offered in 2000 and subscribed to by 4,830
employees for a total number of 559,929 shares out of the 750,000 shares
offered;
3. to approve a new five year Stock Option Plan 2001 for directors, managers
and selected employees of the Company and its group under which options can
be granted in respect of no more than 60 million ordinary shares;
With respect to the incentive policy as defined upon proposal of the
Managing Board, we note that during the five year term of the Stock Option
Plan 1995, 31,448,591 stock options were granted, among which 7,570,890 in
2000.
4. as announced sometime ago, to increase the number of members of the
Supervisory Board to nine by appointing Mr. Douglas John Dunn as an
independent member of the Supervisory Board, effective as of April 25, 2001.
We expect that this new member will reinforce the existing strength of the
Supervisory Board to face new industrial, technological and financial
developments of the Company.
March 13, 2001
----------------
Jean-Pierre NOBLANC Bruno STEVE
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Remy DULLIEUX Alessandro OVI
------------------------------- --------------------------------
Francis GAVOIS Riccardo GALLO
------------------------------- --------------------------------
Tom de WAARD Robert WHITE
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STMICROELECTRONICS N.V.
ANNUAL REPORT
DECEMBER 31, 2000
STMICROELECTRONICS N.V.
ANNUAL REPORT
DECEMBER 31, 2000
CONTENTS Page
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DIRECTOR'S REPORT 1
BALANCE SHEET AS AT DECEMBER 31, 2000 2
STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 2000 3
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2000 4 - 12
OTHER INFORMATION 13
AUDITORS' REPORT 14
APPENDIX
STMicroelectromcs N.V.
Consolidated financial statements December 31, 2000
STATUTORY DIRECTOR
Pasquale Pistorio
SUPERVISORY DIRECTORS
Jean-Pierre Noblanc
Bruno Steve
Remy Dullieux
Alessandro Ovi
Robert M. White
Riccardo Gallo
Tom de Waard
Francis Gavois
STMICROELECTRONICS N.V.
DIRECTOR'S REPORT
DECEMBER 31, 2000
The director's report is available on request at the Company's office.
Amsterdam, February 1, 2001
STMICROELECTRONICS N.V.
BALANCE SHEET AS AT DECEMBER 31, 2000
(after proposed appropriation of income)
2000 1999
USD'000 USD'000
ASSETS
- ------
FIXED ASSETS
Intangible fixed assets 101 512 74 754
Tangible fixed assets 6 130 1 005
Financial fixed assets 5 689 864 3 521 880
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Total fixed assets 5 797 506 3 597 639
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CURRENT ASSETS
Inventories 19 358 19 151
Trade receivables 272 765 121 732
Receivable from shareholder - 755
Group companies 342 918 326 152
Other receivables 53 850 41 632
Securities 35 156 -
Cash 2 149 197 1 737 333
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Total current assets 2 873 244 2 246 755
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TOTAL ASSETS 8 670 750 5 844 394
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SHAREHOLDERS' EQUITY AND LIABILITIES
- ------------------------------------
SHAREIHOLDERS' EQUITY
Issued and paid in capital 861 149 910 983
Additional paid in capital 1 294 672 1 000 155
Retained earnings 2 920 289 2 399 641
Cumulative translation adjustment (403 564) (294 090)
Income for the year 1 452 103 547 252
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Total shareholders' equity 6 124 649 4 563 941
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LONG TERM LIABILITIES
Long term loans 2 342 630 1 124 064
Deferred revenues 6 000 -
--------- ---------
Total long term liabilities 2 348 630 1 124 064
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SHORT TERM LIABILITIES
Bank overdraft 69 919
Trade payables 10 011 4 731
Taxes 75 774 49 003
Payable to shareholder - 693
Group companies 97 214 95 578
Accrued liabilities 14 403 5 465
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Total short term liabilities 197 471 156 389
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TOTAL SHAREHOLDERS' EQUITY
AND LIABILITIES 8 670 750 5 844 394
--------- ---------
-2-
STMICROELECTRONICS N.V.
STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 2000
2000 1999
USD'000 USD'OOO
Income after taxes 394 789 140 470
Income from subsidiaries 1 057 314 406 782
--------- -------
NET INCOME 1 452 103 547 252
--------- -------
The accompanying notes form an integral part of the accounts.
-3-
STMICROELECTRONICS N.V.
NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2000
1. GENERAL
A description of STMicroelectronics N.V. ("the Company"), its activities
and group structure are included in the attached consolidated financial
statements, prepared for United States reporting purposes, which also
apply to the company-only financial statements. The Company holds
investments in subsidiaries operating in the semiconductor manufacturing
industry. Additionally, the Company operates through a branch in
Switzerland, which markets a broad range of semiconductor integrated
circuits and devices used in a wide variety of microelectronic
applications.
In accordance with Article 402, Title 9, Book 2 of the Dutch Civil Code
the statement of income is presented in abbreviated form.
2. BASIS OF PRESENTATION
Management of the Company is of the opinion that the functional currency
of the Company is the US dollar. Furthermore, the reporting currency of
the subsidiaries is also the US dollar. Accordingly, the financial
statements of the Company are expressed in US dollars.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General
The annual accounts are prepared in accordance with accounting principles
generally accepted in the Netherlands. The accounting principles as
described in the notes to the consolidated financial statements also
apply to the Company-only financial statements, unless indicated
otherwise.
Consolidation
The consolidated financial statements of the Company for the year ended
December 31, 2000, which are attached, have been prepared in accordance
with accounting principles generally accepted in the United States. In
management's opinion, the attached consolidated financial statements do
not differ materially from those which would have been prepared, had
generally accepted Dutch accounting principles been applied, except for
the additional disclosures as presented in Notes 17 and 18.
-4-
Foreign currencies
The share capital of the Company is denominated in Euro and the year-end
balance is translated into US dollars at the year-end exchange rate
(Euro/USD 0.9305). The translation differences are taken to the
non-distributable cumulative translation adjustment account.
Other non-current assets
Other non-current assets consist of underwriting and issuance costs
related to the zerocoupon subordinated convertible notes. These costs are
amortized straight-line over the life of the notes being 10 years.
4. INTANGIBLE FIXED ASSETS
Concessions,
licences and rights
of intellectual
Goodwill ownership Total
-------- --------- -----
HISTORICAL COST
Balance at January 1, 2000 31 664 58 095 89 759
Additions 5 858 38 585 44 443
------ ------ -------
Balance at December 31, 2000 37 522 96 680 134 202
------ ------ -------
ACCUMULATED AMORTIZATION
Balance at January 1, 2000 5 812 9 193 15 005
Charge for the year 6 636 11 049 17 685
------ ------ -------
Balance at December 31, 2000 12 448 20 242 32 690
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NET BOOK VALUE
At December 31, 2000 25 074 76 438 101 512
------ ------ -------
At December 31, 1999 25 852 48 902 74 754
------ ------ -------
-5-
5. TANGIBLE FIXED ASSETS
Furniture Computer
and and R&D
fixtures equipment Other Total
------- ------- ------- -------
USD'000 USD'000 USD'000 USD'000
HISTORICAL COST
Balance at January 1, 2000 838 817 453 2 108
Additions 258 5 674 32 5 969
----- ----- --- -----
Balance at December 31, 2000 1 096 6 491 490 8 077
----- ----- --- -----
ACCUMULATED DEPRECIATION
Balance at January 1, 2000 444 507 152 1 103
Charge for the year 190 554 100 844
----- ----- --- -----
Balance at December 31, 2000 634 1 061 252 1 947
----- ----- --- -----
NET BOOK VALUE
At December 31, 2000 462 5 430 238 6 130
----- ----- --- -----
NET BOOK VALUE
At December 31, 1999 394 310 301 1 005
----- ----- --- -----
6. FINANCIAL FIXED ASSETS
2000 1999
USD'000 USD'000
Investments in consolidated group companies 5 171 595 3 175 893
Investments 31 978 11 986
Long term intercompany loans 451 277 314 083
Other non-current assets 35 014 19 918
--------- ---------
5 689 864 3 521 880
--------- ---------
During 1997, the Company granted a USD 200 million loan to
STMicroelectronics Inc, United States repayable in full by December 31,
2000 and bearing an interest of three months LIBOR plus 0.25%. During
1998, the principal amount was increased up to a USD 300 million loan. An
amount of USD 90 million was repaid during 1999. The final maturity has
been extended up to December 31, 2001 for an amount of USD 150 million
and up to December 16, 2002 for an amount of USD 60 million bearing an
interest rate of three months LIBOR plus 1%.
-6-
6. FINANCIAL FIXED ASSETS (Continued)
On January 5, 1998, the Company granted a ITL 200 billion loan to
STMicroelectronics Srl., Italy repayable in full on the date falling
three years from draw down date, subject to extension to be agreed
between the parties 15 banking days before the final maturity. The loan
may be repaid in full or in part at any time before the final maturity
subject to 15 banking days prior notice confirmed in writing. The loan is
bearing an interest rate of 4%.
On December 1, 2000, the Company granted a Euro 113 million loan to
STMicroelectronics Srl (Italy) repayable in full on January 29, 2001
subject to extension to be agreed between the parties 15 banking days
time before the final maturity. The loan may be repaid in full or in part
at any time before the final maturity, subject to 15 days prior notice
confirmed in writing. This loan bears interest at 4%.
On June 14, 2000, the Company granted a USD 40 million loan to
STMicroelectronics Inc (Canada) repayable in full on the date falling
three years from the draw down date, being the final maturity. The loan
may be repaid in full or in part on an interest payment date by mutual
agreement between the parties and subject to a 5 banking days prior
written confirmation. The loan is bearing an interest rate of three
months LIBOR plus 1%.
Investments in consolidated group companies
2000 1999
USD'000 USD'000
Balance January 1 3 175 893 3 046 703
Income from investments 1 057 313 406 782
Dividends paid (71 904) (172 978)
Capital increase 1 200 921 214 877
Translation effect (190 628) (319 491)
--------- ---------
Balance December 31 5 171 595 3 175 893
--------- ---------
7. INVENTORIES
2000 1999
USD'000 USD'000
Finished goods 19 107 17 489
Work in progress 251 1 662
--------- ---------
Total inventories 19 358 19 151
--------- ---------
-7-
8. TRADE RECEIVABLES
Trade receivables mature within one year.
9. GROUP COMPANIES
2000 1999
USD'000 USD'000
Trade receivables 214 686 264 881
Other receivables 128 232 61 271
------- -------
Total group companies receivables 342 918 326 152
------- -------
2000 1999
USD'000 USD'000
Trade payables 51 380 73 443
Other payables 45 834 22 135
------- -------
Total group companies payables 97 214 95 578
------- -------
10. SHAREHOLDERS' EQUITY
Issued and Additional Cumulative Income
paid in paid in Retained translation for the
capital capital earnings adjustment year Total
------- ------- -------- ---------- ---- -----
USD'000 USD'000 USD'000 USD'000 USD'000 USD'000
Balance January 1, 2000 910 983 1 000 155 2 399 641 (294 090) 547 252 4 563 941
Appropriation of 1999
net income - - 547 252 - (547 252) -
Issuance of shares 21 058 294 517 - - - 315 575
Dividends paid - - (26 604) - - (26 604)
Net income - - - - 1 452 103 1 452 103
Translation effect and other
Comprehensive income (70 892) - - (109 474) - (180 366)
------- --------- --------- -------- --------- ---------
Balance December 31,2000 861 149 1 294 672 2 920 289 (403 564) 1 452 103 6 124 649
------- --------- --------- -------- --------- ---------
-8-
10. SHAREHOLDERS' EQUITY (Continued)
In June 1999 the Company changed the currency of its share capital from
Dutch Guilders to Euro. The effect of the change in par value was
recorded in retained earnings. The Euro equivalent of the issued share
capital at December 31, 2000 amounts to Euro 925,476,538 (1999: Euro:
904,201,000). For the changes in issued and paid in capital and
additional paid in capital we refer to the consolidated financial
statements of the Company as attached in the Appendix.
11. LONG TERM LOANS
In June 1998, the Company issued USD 513,852,000 face value of
zero-coupon subordinated convertible notes, due June 10, 2008, for net
proceeds of USD 421,873,000. The issue price of each note was USD 840.10
per USD 1000 principal amount at maturity. There are no periodic payments
of interest. The notes are convertible at any time by the holders at the
rate of 8,952 shares of the Company's common stock for each one thousand
dollar face value of the notes. The notes may be redeemed by the holders
on or after June 10, 2003 or by the Company on or after that date at the
book value, payable in cash. The notes are subordinated to all the other
existing and future indebtedness of the Company.
In September 1999, the Company issued USD 918,530,000 face value of
zero-coupon subordinated convertible notes, due September 22, 2009 for
net proceeds of USD 708,288,000. The issue price of each note was USD
784.84 per USD 1000 principal amount at maturity and represents a yield
to maturity of 2.4375% per year. Interest will not be paid prior to
maturity. The notes are convertible at any time by the holders at the
rate of 8.764 shares of the Company's common stock for each one thousand
dollar face value of the notes. The notes may be redeemed by the holders
on or after September 24, 2002 or by the Company on or after that date at
book value, payable in cash. The notes are subordinated to all other
existing and future indebtedness of the Company.
In November, 2000 the Company issued USD 2,145,923,000 face value of zero
coupon senior convertible bonds, due 2010, for net proceeds of USD
1,457,500,000. The debt discount of USD 665,923 is amortized
straight-line over the term of the debt and recorded as interest expense.
The notes are convertible at any time by the holders at the rate of 9.32
shares of the Company's common stock for each one thousand dollar face
value of the notes. The notes may be redeemed by the holders on November
16, 2005 or by the Company on or after that date at the book value,
payable in cash. The notes are unsubordinated to all the other existing
and future indebtedness of the Company.
12. LOANS AND BANKS
The Company has revolving line of credit agreements with several
financial institutions totalling USD 85,000,000 (1999: 105,300,000). At
December 31, 2000 no amounts were drawn on these available lines of
credit (1999: nil).
-9-
13. GUARANTEES
Guarantees given by the Company to banks of its subsidiaries amounted to
approximately USD 709,616,000 at December 31, 2000 (1999: USD
774,913,000).
14. WAGES, SALARIES AND SOCIAL CHARGES
2000 1999
USD'000 USD'000
Wages and salaries 16 134 12 938
Social charges 3 198 2 596
------ ------
19 332 15 534
------ ------
15. AVERAGE NUMBER OF EMPLOYEES
The average number of persons employed by the Company during the year
ended December 31, 2000 was 165 (1999: 90).
16. RENUMERATION TO BOARD OF DIRECTORS AND SUPERVISORY BOARD MEMBERS
In accordance with Article 383.1 no remuneration information of the
director is disclosed.
The aggregate cash compensation accrued for 2000 to members of the
Supervisory Board by the Company was approximately USD 505,000, and will
be paid in 2001 (1999: NLG 528,000). Information on the Supervisory Board
Option Plan, which was adopted in 1997, is presented in Note 10 of the
consolidated annual accounts of the Company.
17. CONSOLIDATED FINANCIAL STATEMENTS OF STMICROELECTRONICS N.V.
The consolidated financial statements of the Company for the year ended
December 31, 2000 are attached as an appendix to these parent Company
accounts.
-10-
18. ADDITIONAL DISCLOSURES FOR THE ATTACHED CONSOLIDATED FINANCIAL STATEMENTS
TO COMPLY WITH DUTCH REQUIREMENTS AND GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES 1N THE NETHERLANDS
Intangible fixed assets
Concessions,
licences and rights
of intellectual
Goodwill ownership Total
-------- --------- -----
HISTORICAL COST
Balance at January 1, 2000 67 417 202 560 269 977
Additions 49 481 112 972 162 453
------- ------- -------
Balance at December 31, 2000 116 898 315 532 432 430
------- ------- -------
ACCUMULATED AMORTIZATION
Balance at January 1, 2000 14 165 75 865 90 030
Charge for the year 9 226 47 053 56 275
------- ------- -------
Balance at December 31, 2000 23 391 122 918 146 309
------- ------- -------
NET BOOK VALUE
At December 31, 2000 93 507 192 614 286 121
------- ------- -------
At December 31, 1999 53 252 126 695 179 947
------- ------- -------
-11-
18. ADDITIONAL DISCLOSURES FOR THE ATTACHED CONSOLIDATED FINANCIAL STATEMENTS
TO COMPLY WITH DUTCH REQUIREMENTS AND GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES IN THE NETHERLANDS (Continued)
Tangible fixed assets
Tangible
fixed asset
under
construction
Other and
Land Machinery tangible prepayments
and and fixed on tangible
buildings buildings assets fixed assets Total
------- --------- ------- ------------ ----------
USD'000 USD'000 USD'000 USD'OOO USD'000
HISTORICAL COST
Balance at January 1, 2000 616 035 6 216 830 321 494 354 420 7 508 779
Additions, net 94 421 2 481 403 64 087 141 063 2 780 974
------- --------- ------- ------- ----------
Balance at December 31, 2000 710 456 8 698 233 385 581 495 483 10 289 753
------- --------- ------- ------- ----------
ACCUMULATED DEPRECIATION
Balance at January 1, 2000 132 973 3 266 819 235 968 - 3 635 760
Depreciation 11 449 423 035 18 438 - 452 922
------- --------- ------- ------- ----------
Balance at December 31, 2000 144 432 3 689 854 254 406 - 4 088 682
------- --------- ------- ------- ----------
NET BOOK VALUE
At December 31, 2000 566 034 5 008 379 131 175 495 483 6 201 071
------- --------- ------- ------- ----------
At December 31, 1999 483 062 2 950 011 85 526 354 420 3 873 019
------- --------- ------- ------- ----------
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-12 -
STMICROELECTRONICS N.V.
OTHER INFORMATION
DECEMBER 31, 2000
1. AUDITORS' REPORT
The report of the auditors, PricewaterhouseCoopers N. V., is presented
on page 14.
2. APPROPRIATION OF RESULT - PROVISIONS IN COMPANY'S ARTICLES OF
ASSOCIATION
The Managing Directors, with the approval of the Supervisory Board, are
allowed to allocate net income to a reserve fund. The Articles of
Association provide that the net result for the year, after deduction of
the aforementioned allocation to the reserve fund, is subject to the
disposition by the Annual General Meeting of Shareholders.
In the case that a net loss for the year exceeds retained earnings, no
dividend payments are allowed until the loss has been recovered from net
income in future years.
3. APPROPRIATION OF INCOME
Management proposes that the result for the year ended December 31, 2000
be appropriated to the accumulated reserves.
4. SUBSEQUENT EVENTS
There are no matters to report.
-------------------
-13-
PRICEWATERHOUSECOOPERS [LOGO]
AUDITORS' REPORT
Introduction
We have audited the 2000 financial statements of STMicroelectronics N.V.,
Amsterdam. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
Scope
We conducted our audit in accordance with auditing standards generally accepted
in the Netherlands. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
Opinion
In our opinion, the financial statements gives a true and fair view of the
financial positions of the Company as of December 31, 2000 and of the results
for the year then ended in accordance with accounting principles generally
accepted in the Netherlands and comply with the financial reporting requirements
included in Part 9, Book of the Dutch Civil Code.
PricewaterhouseCoopers N.V.
Amsterdam, February 1, 2001
-14-
[PRICEWATERHOUSCOOPERS LOGO]
STMicroelectronics N.V.
Consolidated Financial Statements
December 31, 2000
PricewaterhouseCoopers N.V. is a company with limited liability domiciled in
Amsterdam, where it is registered with the Trade Register under number 34107196.
Unless expressly stipulated otherwise in writing, all our agreements are subject
to the General Terms & Conditions of PricewaterhouseCoopers N.V., which have
been filed with the Amsterdam Chamber of Commerce under number 4220.
[PRICEWATERHOUSCOOPERS LOGO]
- --------------------------------------------------------------------------------
PricewaterhouseCoopers N.V.
Accountants
Strawinskylaan 3127
1077 ZX Amsterdam
Postbus 7067
1007 JB Amsterdam
Telephone (020) 568 41 00
Facsimile (020) 568 41 50
REPORT OF INDEPENDENT ACCOUNTANTS
To the Supervisory Board and Shareholders of
STMicroelectronics N.V.:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, of cash flows and of changes in shareholder's
equity present fairly, in all material respects, the financial position of
STMicroelectronics N.V. and its subsidiaries at December 31, 2000 and December
31, 1999, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 2000 in conformity with
accounting principles generally accepted in the United States of America. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
PricewaterhouseCoopers N.V.
Amsterdam, February 1, 2001
PncewaterhouseCoopers N.V. is a company with limited liability domiciled in
Amsterdam, where it is registered with the Trade Register under number 34107196.
Unless expressly stipulated otherwise in writing, all our agreements are subject
to the General Terms & Conditions of PricewaterhouseCoopers N.V., which have
been filed with the Amsterdam Chamber of Commerce under number 4220.
- 2 -
STMicroelectronics N.V.
CONSOLIDATED STATEMENT OF INCOME
Twelve months ended
---------------------------------------------
December 31, December 31, December 31,
In thousands of U.S. dollars except per share amounts 1998 1999 2000
- ------------------------------------------------------------------------------------------------------
Net sales 4 210 618 5 023 109 7 764 404
Other revenues 37 134 33 167 48 799
-------------------------------------------
Net revenues 4 247 752 5 056 276 7 813 203
Cost of sales -2 622 943 -3 054 476 -4 216 921
-------------------------------------------
Gross profit 1 624 809 2 001 800 3 596 282
Selling, general and administrative -488 072 -534 178 -703 675
Research and development -689 785 -835 964 -1 026 348
Other income and expenses 76 458 39 840 -83 533
-------------------------------------------
Operating income 523 410 671 498 1 782 726
Net interest income 8 691 35 624 46 703
-------------------------------------------
Income before income taxes and minority interests 532 101 707 122 1 829 429
Income tax expense -120 351 -157 214 -375 119
-------------------------------------------
Income before minority interests 411 750 549 908 1 454 310
-------------------------------------------
Minority interests -629 -2 656 -2 207
-------------------------------------------
Net income 411 121 547 252 1 452 103
-------------------------------------------
Earnings per share (Basic) 0.49 0.64 1.64
-------------------------------------------
Earnings per share (Diluted) 0.48 0.62 1.58
-------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements
- 3 -
STMicroelectronics N.V
CONSOLIDATED BALANCE SHEET
As at
---------------------------
December 31, December 31,
In thousands of U.S. dollars 1999 2000
- --------------------------------------------------------------------------------
Assets
Current assets
Cash and cash equivalents 1 823 086 2 295 703
Marketable securities - 35 155
Trade accounts and notes receivable 913 282 1 496 446
Inventories 619 402 876 476
Other receivables and assets 435 784 554 035
-----------------------------
Total current assets 3 791 554 5 257 815
-----------------------------
Intangible assets, net 179 947 286 121
Property, plant and equipment, net 3 873 019 6 201 071
Investments and other non-current assets 85 783 135 488
-----------------------------
4 138 749 6 622 680
-----------------------------
Total assets 7 930 303 11 880 495
-----------------------------
Liabilities and shareholders' equity
Current liabilities
Bank overdrafts 26 471 35 599
Current portion of long-term debt 96 669 105 972
Trade accounts and notes payable 998 881 1 745 553
Other payables and accrued liabilities 381 845 509 165
Accrued and deferred income tax 189 308 299 638
-----------------------------
Total current liabilities 1 693 174 2 695 927
-----------------------------
Long-term debt 1 348 477 2 700 482
Reserves for pension and termination indemnities 108 294 110 244
Other non-current liabilities 191 660 216 235
-----------------------------
1 648 431 3 026 961
-----------------------------
Total liabilities 3 341 605 5 722 888
-----------------------------
Commitments and contingencies
-----------------------------
Minority interests 24 757 32 958
-----------------------------
Common stock 1 112 680 1 133 739
Capital surplus 1 395 307 1 689 824
Accumulated result 2 551 817 3 977 316
Accumulated other comprehensive income -495 863 -676 230
-----------------------------
Shareholders' equity 4 563 941 6 124 649
-----------------------------
Total liabilities and shareholders' equity 7 930 303 11 880 495
-----------------------------
The accompanying notes are an integral part of these consolidated financial
statements
- 4 -
STMicroelectronics N.V.
CONSOLIDATED STATEMENT OF CASH FLOWS
Twelve months ended
-----------------------------------------------
December 31, December 31, December 31,
In thousands of U.S. dollars 1998 1999 2000
- ----------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income 411 121 547 252 1 452 102
Add (deduct) non-cash items:
Depreciation and amortization 704 004 806 789 1 108 180
Amortization of discount on convertible debt 4 657 12 576 29 077
Other non-cash items 5 240 4 285 10 133
Minority interest in net income of subsidiaries 629 2 656 2 207
Deferred taxes 34 333 28 711 -4 535
Changes in assets and liabilities:
Trade accounts and notes receivable -1l5 879 -164 564 -631 049
Inventories -18 807 -38 340 -299 993
Trade accounts and notes payable 45 982 208 899 579 436
Other assets and liabilities, net -58 733 61 018 186 214
-----------------------------------------------
Net cash provided by operating activities 1 012 547 1 469 282 2 431 772
-----------------------------------------------
Cash flows from investing activities:
Payment for purchases of tangible assets -947 253 -1 347 537 -3 317 600
Other investing activities -18 997 -190 290 -249 543
-----------------------------------------------
Net cash used in investing activities -966 250 -1 537 827 -3 567 143
-----------------------------------------------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 424 955 756 836 1 661 202
Repayment of long-term debt -72 396 -48 080 -87 223
Increase (decrease) in short-term facilities -233 261 -ll0 308 30 665
Capital increase 233 334 230 437 38 175
Dividends paid - -22 848 -26 603
-----------------------------------------------
Net cash provided by financing activities 352 632 806 037 1 616 216
-----------------------------------------------
Effect of changes in exchange rates -334 -15 158 -8 228
-----------------------------------------------
Net cash increase 398 595 722 334 472 617
-----------------------------------------------
Cash and cash equivalents at beginning of the period 702 157 1 100 752 1 823 086
-----------------------------------------------
Cash and cash equivalents at end of the period 1 100 752 1 823 086 2 295 703
-----------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements
- 5 -
STMicroelectronics N.V.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
In thousands of U.S. dollars, except per share amounts
Accumulated
Other
Common Capital Accumulated Comprehensive Shareholders'
Stock Surplus Result Income (Loss) Equity
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
Balance as of December 31, 1997 1 073 990 930 945 1 616 292 -313 781 3 307 446
Capital increase 22 753 204 581 227 334
Comprehensive income:
Net Income 411 121 411 121
Other comprehensive income, net of tax 137 409 137 409
---------
Comprehensive income 548 530
---------------------------------------------------------------------------------------
Balance as of December 31, 1998 1 096 743 1 135 526 2 027 413 -176 372 4 083 310
---------------------------------------------------------------------------------------
Capital increase 15 937 259 781 275 718
Comprehensive income:
Net Income 547 252 547 252
Other comprehensive loss, net of tax -319 491 -319 491
---------
Comprehensive income 227 761
Dividends, $0.027 per share -22 848 -22 848
---------------------------------------------------------------------------------------
Balance as of December 31, 1999 1 112 680 1 395 307 2 551 817 -495 863 4 563 941
---------------------------------------------------------------------------------------
Capital increase 21 059 294 517 315 576
Comprehensive income:
Net Income 1 452 103 1 452 103
Other comprehensive loss, net of tax -180 367 -180 367
---------
Comprehensive income 1 271 736
Dividends, $0.03 per share -26 604 -26 604
---------------------------------------------------------------------------------------
Balance as of December 31, 2000 1 133 739 1 689 824 3 977 316 -676 230 6 124 649
---------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements
- 6 -
STMICROELECTRONICS N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
(In thousands of U.S. dollars, except per share amounts)
1. THE COMPANY
STMicroelectronics N.V. (formerly known as SGS-THOMSON Microelectronics
N.V.) (the "Company") was formed in 1987 by the combination of the
semiconductor business of SGS Microelettronica (then owned by Societa
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. The Company designs, develops, manufactures and markets a broad
range of semiconductor integrated circuits and discrete devices that are
used in a wide variety of microelectronic applications.
The Company is registered in The Netherlands with its statutory domicile
in Amsterdam.
At December 31, 2000, the Company was 43.77% (December 31, 1999: 44.80%)
owned by STMicroelectronics Holding II B.V. and 56.23% by the public
(December 31, 1999: 55.20%).
At December 31, 1999, and at December 31, 2000, STMicroelectronics Holding
II B.V. was 100% owned by STMicroelectronics Holding N.V.
At December 31, 1999, STMicroelectronics Holding N.V. was owned as
follows:
- 50% by FT1CI, a French holding company, whose shareholders are
CEA-Industrie (51%) and France Telecom (49%).
- 50% by Finmeccanica, an Italian holding company, whose shareholders are
Istituto per la Ricostruzione Industriale S.p.a. (I.R.I.) (54.2%), the
Italian Ministry of Treasury (28.9%) and the public (16.9%).
At December 31, 2000, STMicroelectronics Holding N.V. was owned as
follows:
- 50% by FT1CI, a French holding company, whose shareholders are
CEA-Industrie (51%) and France Telecom (49%).
- 50% by Finmeccanica, an Italian holding company, whose shareholders are
Istituto per la Ricostruzione Industriale S.p.a. (I.R.I.) (5.0%), the
Italian Ministry of Treasury (32.4%) and the public (62.6%).
- 7 -
2. SUMMARY OF ACCOUNTING POLICIES
2.1) Principles of consolidation
The accompanying consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United
States of America (U.S. GAAP). The Company's consolidated financial
statements include the assets, liabilities and results of operations of
its majority-owned subsidiaries. The ownership of other interest holders
is reflected as minority interests. Intercompany balances and transactions
have been eliminated in consolidation.
2.2) Use of estimates
The preparation of financial statements in accordance with U.S. GAAP
requires management to make estimates and assumptions that affect the
amounts reported in the financial statements and accompanying notes to the
financial statements. Actual results could differ from those estimates and
may affect amounts reported in future periods.
2.3) Foreign currency
The U.S. dollar is the reporting currency for the Company because the
dollar is the currency of reference in terms of market pricing in the
world-wide semiconductor industry. Furthermore, there is no currency in
which the majority of transactions are denominated, and revenues from
external sales in U.S. dollars exceed revenues in any other currency.
The functional currency of each subsidiary throughout the group is
generally the local currency. For consolidation purposes, assets and
liabilities of these subsidiaries are translated at current rates of
exchange at the balance sheet date. Income and expense items are
translated at the average exchange rate for the period. The effects of
translating the financial position and results of operations from local
functional currencies are included in "other comprehensive income".
Assets, liabilities, revenue, expenses, gains or losses arising from
foreign currency transactions are recorded in the functional currency of
the recording entity at the exchange rate in effect at the date of the
transaction. At each balance sheet date, recorded balances denominated in
a currency other than the recording entity's functional currency are
translated at the exchange rate prevailing at that date. The related
exchange gains and losses are recorded in the income statement.
- 8 -
The Company conducts its business on a global basis in various major
international currencies. As a result, it is exposed to adverse movements
in foreign currency exchange rates. The Company utilizes foreign exchange
forward contracts and currency options to cover foreign currency exposure.
For the forward contracts and currency options that are considered
identifiable hedges, recognition of gains and losses is deferred until
settlement of the underlying commitments. Realized gains and losses are
recorded as other income or expense when the underlying exposure
materializes or the hedged transaction is no longer expected to occur. The
discount or premium on these forward contracts designated as a hedge, are
recorded as an asset or liability and amortized to interest expense over
the term of the contract. For the forward contracts and currency options
that are not considered identifiable hedges, recognition of gains and
losses is recognized at each reporting period, based on the fair market
value of the forward contract. Realized gains or losses are recorded as
other income and expense.
2.4) Reclassifications
Certain prior year amounts have been reclassified to conform with the
current year presentation.
2.5) Income recognition
* Sales
Revenue on sales of semiconductor products is recognized upon transfer of
the ownership of the goods at shipment. A portion of the Company's sales
are made to distributors who participate in certain programs common in the
semiconductor industry whereby the distributors are allowed to return
merchandise under certain circumstances and may receive future price
reductions. Provision is made at the time of sale for estimated product
returns and price protection which may occur under programs the Company
has with these customers.
* Fundings
Government fundings are recognized as the related costs are incurred,
commencing when the fundings' contract is signed with the relevant
government department or agency. Government fundings for research and
development are included in "other income and expenses". Government
fundings for capital expenditures are deducted from the cost of the
related fixed assets and reduce depreciation over the assets' remaining
estimated useful lives.
* Other revenue
Other revenue consists of co-development contract fees, certain contract
indemnity payments and patent royalty income. Other revenue is recognized
rateably over the term of the agreement.
In December 1999, the Securities and Exchange Commission released Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements"
("SAB 101"), providing
- 9 -
the staff's view on applying generally accepted accounting principles to
selected revenue recognition issues. The Company adopted SAB 101 in the
fourth quarter of 2000, as required. The adoption of SAB 101 did not have
a material effect on the Company's financial position or overall trends in
results of operations.
2.6) Advertising costs
Advertising costs are expensed as incurred. Advertising expenses for 1998,
1999 and 2000 were $16,012, $21,102 and $30,421, respectively.
2.7) Research and development
Research and development costs are charged to expense as incurred.
Research and development costs include costs incurred by the Company as
well as the Company's share of costs incurred by other research and
development interest groups.
2.8) Start-up costs
Start-up costs incurred in the Company's new manufacturing facilities,
before reaching a minimum level of production, are included in "other
income and expenses" in the accompanying consolidated statement of income.
2.9) Income taxes
The provision for current taxes represents the income taxes expected to be
payable for the current year. Deferred tax assets and liabilities are
recorded for all temporary differences arising between the tax and book
bases of assets and liabilities and for the benefits of tax credits and
loss carryforwards. Those deferred tax assets and liabilities are measured
using the enacted tax rates at which they are expected to be realized or
paid. A valuation allowance is provided where necessary to reduce deferred
tax assets to the amount expected to be "more likely than not" realized in
the future.
2.10) Earnings per share
Basic earnings per share are computed by dividing net income by the
weighted average number of common shares outstanding during the period.
Diluted earnings per share are computed by dividing net income (less
interest expense, net of tax effects, related to convertible debt) by the
weighted average number of common shares and common share equivalents
outstanding during the period. The weighted average shares used to compute
diluted earnings per share include the incremental shares of common stock
relating to outstanding options and convertible debt to the extent such
incremental shares are dilutive.
- 10 -
2.11) Cash equivalents
All highly liquid investments purchased with an original maturity of
ninety days or less are considered to be cash equivalents.
2.12) Marketable securities
Management determines the appropriate classification of debt and equity
securities at the time of purchase and reassesses the classification at
each reporting date. All marketable securities are classified as
available-for-sale and are reported at fair value with net unrealized
gains or losses reported as a separate component of comprehensive income
in the statement of shareholders' equity. Unrealized losses that are other
than temporary are recognized in net income. Gains and losses on
securities sold are determined based on the specific identification method
and are included in other income and expense.
2.13) Inventories
Inventories are stated at the lower of cost or market. Cost is computed on
a currently adjusted standard basis which approximates actual cost on a
current average basis.
2.14) Intangible assets
Intangible assets include the cost of technologies and licenses purchased
from third parties, amortized over a period ranging from three to seven
years, and goodwill acquired in business combinations amortized over its
estimated useful life, generally three to five years.
The carrying value of long-lived assets, including intangibles, is
evaluated whenever changes in circumstances indicate the carrying amount
of such assets may not be recoverable. In performing such review for
recoverability, the Company compares the expected future cash flow to the
carrying value of long-lived assets and identifiable intangibles. If the
anticipated undiscounted future cash flows are less than the carrying
amount of such assets, the Company recognizes an impairment loss for the
difference between the carrying amount of the assets and their estimated
fair value.
- 11 -
2.15) Property, plant and equipment
Property, plant and equipment are stated at cost, net of government
fundings. Major renewals and improvements are capitalized; minor
replacements, maintenance and repairs are charged to current operations.
Depreciation is computed using the straight-line method over the following
estimated useful lives:
Buildings 33 years
Leasehold improvements 10 years
Machinery and equipment 6 years
Computer and R&D equipment 3-6 years
Other 2-5 years
Assets subject to leasing agreements and classified as capital leases are
included in property, plant and equipment and depreciated over the shorter
of the estimated useful life or the lease term.
When property, plant or equipment is retired or otherwise disposed of, the
net book value of the asset is removed from the Company's books and the
net gain or loss is included in the determination of income.
2.16) Investments
The equity accounting method is used when the Company has both a 20% to
50% equity interest and the ability to exercise significant influence over
the investee. The Company also holds certain equity investments
constituting less than 20% ownership of the investee. These investments
are carried at historical cost. Although the market value of the
investments is not readily determinable, management believes the fair
value of these investments exceed their carrying amounts.
For those investments with readily determinable market values, the Company
has accounted for those investments as available-for-sale. These
investments are reported at fair value with the net unrealized gains or
losses reported as a separate component of comprehensive income in the
statement of shareholders' equity. Unrealized losses that are other than
temporary are recognized in net income.
2.17) Pension and termination indemnities
The Company sponsors various retirement plans for its employees; such
plans include both defined benefit and defined contribution plans. Upon
retirement, the Company's employees receive benefits provided by the
pension plan arrangements. These plans conform with local regulations and
practices of the countries in which the Company operates.
- l2 -
2.18) Comprehensive income
Comprehensive income is defined as the change in equity of a business
during a period from transactions and circumstances related to non-owner
sources, and includes all changes in equity except those resulting from
investment by owners and distributions to owners. In the Company's case,
"other comprehensive income" consists of foreign currency translation
adjustments and the unrealized gain or loss on marketable securities.
2.19) Stock splits
In May 1999, the Company's shareholders approved a two-for-one stock split
of the Company's common stock. The record date for the stock split was
June 16, 1999, and the distribution date was June 17, 1999. In April 2000,
the Company's shareholders approved a three-for-one stock split of the
Company's common stock. The record date for the stock split was May 5,
2000, and the distribution date was May 6, 2000. All earnings per share
amounts, references to common stock, shareholders' equity amounts and
stock option plan data have been restated as if the stock splits had
occurred as of the earliest period presented.
2.20) New accounting pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 (FAS 133), "Accounting for
Derivative Instruments and Hedging Activities". FAS 133 is required to be
adopted for fiscal years beginning after June 15, 2000. This statement
establishes accounting and reporting standards for derivative instruments
and requires recognition of all derivatives as assets or liabilities in
the balance sheet, and the measurement of those instruments at fair value.
The Company will adopt the standards required by this statement in the
first quarter of 2001. Management is in the process of fully evaluating
the impact, if any, that this new standard may have on future consolidated
results of operations, financial position, or financial statement
disclosure.
- 13 -
3. CONSOLIDATED ENTITIES
The consolidated financial statements include the accounts of
STMicroelectronics N.V. and the following entities as of December 31,
2000:
Percentage
Ownership
(Direct or
Legal Seat Name Indirect)
--------------------------------------------------------------------------------------------------------
United Kingdom London STMicroelectronics LTD 100
London Thomson Components LTD 100
Bristol STMicroelecrtonics E.E.I.G. 100
Canada Nepean STMicroelectronics (Canada), Inc. 100
Israel Netania W.S.I. Ltd. 100
Sweden Stockholm STMicroelectronics A.B. 100
Germany Munich STMicroelectronics GmbH 100
Switzerland Geneva STMicroelectronics S.A. 100
Malta Malta STMicroelectronics LTD 100
Spain Madrid STMicroelectronics S.A. 100
France Paris STMicroelectronics S.A. 100
Paris STMicroelectronics S.A.S. 100
Italy Milano STMicroelectronics S.R.L. 100
Catania CO.RI.M.ME. 100
Milano Accent S.R.L. 51
Singapore Singapore STMicroelectronics PTE LTD 100
Singapore STMicroelectronics ASIA PACIFIC PTE LTD 100
Malaysia Muar STMicroelectronics SDN BHD 100
Muar STMicroelectronics (Malaysia) SDN BHD 100
Japan Tokyo STMicroelectronics KK 100
Hong Kong Hong Kong STMicroelectronics LTD 100
Australia Sydney STMicroelectronics PTY LTD 100
United States Dallas STMicroelectronics Inc 100
Rancho Bernardo STMicroelectronics (RB), Inc. 100
Dallas STMicroelectronics Leasing Co. Inc. 100
La Jolla Metaflow Technologies Inc. 100
Wilsonville The Portland Group, Incorporated 100
Brazil Sao Paulo STMicroclectronics Ltda 100
Morocco Casablanca STMicroelectronics S.A. 100
Casablanca Electronic Holding S.A. 100
China Shenzhen Shenzhen STS Microelectronics Co. LTD 60
Shenzhen STMicroelectronics (Shenzen) Co. LTD. 100
India New Delhi STMicroelectronics PTE LTD 100
Finland Helsinki STMicroelectronics OY 100
--------------------------------------------------------------------------------------------------------
4. MARKETABLE SECURITIES AND CERTAIN INVESTMENTS
The marketable securities and certain investments had a cost basis of
$31,831 and a fair value of $42,093 at December 31, 2000. The unrealized
gain at December 31, 2000 related to these investments was $10,262. The
Company did not own any marketable securities or investments accounted for
at fair value at December 31, 1999. For fiscal years 1998, 1999 and 2000,
gross realized gains and losses were $0, $0 and $8,952, respectively.
- 14 -
5. TRADE ACCOUNTS AND NOTES RECEIVABLE
Trade accounts and notes receivable consist of the following:
December 31, December 31,
1999 2000
Trade accounts and notes receivable 924 872 1 512 270
Less valuation allowance -11 590 -15 824
--------- ---------
Total 913 282 1 496 446
--------- ---------
During 1998 no customer individually represented over ten percent of
consolidated net revenues. In 1999, one customer represented 11.4% of
consolidated net revenues and in 2000 one customer represented 13.4%
of consolidated net revenues.
6. INVENTORIES
Inventories consist of the following:
December 31, December 31,
1999 2000
Raw materials 101 590 88 501
Work-in-process 395 320 588 263
Finished products 122 492 199 712
--------- ---------
Total 619 402 876 476
--------- ---------
- 15 -
7. OTHER RECEIVABLES AND ASSETS
Other receivables and assets consist of the following:
December 31, December 31,
1999 2000
Receivables from government agencies 152 237 139 418
Taxes and other government receivables 61 523 99 499
Down payment to suppliers 11 394 20 283
Loans to employees 3 557 3 914
Prepaid expenses 17 648 71 800
Sundry debtors 35 053 97 708
Deferred tax assets 73 079 71 651
Other 81 293 49 762
--------- ---------
Total 435 784 554 035
--------- ---------
Receivables from government agencies relate to research and development
contracts, industrialization contracts and capital expenditures.
8. INTANGIBLE ASSETS
Intangible assets consist of the following:
December 31, December 31,
1999 2000
Goodwill 67 417 116 898
Technologies and licenses 202 560 315 532
Less accumulated amortization -90 030 -146 309
--------- ---------
Total 179 947 286 121
--------- ---------
- 16 -
9. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
December 31, 1999 Gross Depreciation Net
----- ------------ ---
Land and buildings 616 035 -132 973 483 062
Machinery and equipment 6 216 830 -3 266 819 2 950 011
Other tangible fixed assets 321 494 -235 968 85 526
Construction in progress 354 420 - 354 420
---------- ------------ ---------
Total 7 508 779 -3 635 760 3 873 019
---------- ------------ ---------
December 31, 2000 Gross Depreciation Net
----- ------------ ---
Land and buildings 710 456 -144 422 566 034
Machinery and equipment 8 698 233 -3 689 854 5 008 379
Other tangible fixed assets 385 581 -254 406 131 175
Construction in progress 495 483 - 495 483
---------- ------------ ---------
Total 10 289 753 -4 088 682 6 201 071
---------- ------------ ---------
10. INVESTMENTS AND OTHER NON-CURRENT ASSETS
Investments and other non-current assets consist of the following:
December 31, December 31,
1999 2000
Investments 20 056 18 132
Long-term deposits and receivables 12 435 66 426
Deferred tax assets 33 373 15 916
Debt issuance costs, net 19 919 35 014
---------- ------------
Total 85 783 135 488
---------- ------------
- 17 -
11. SHAREHOLDERS' EQUITY
Public offerings of shares
In connection with a secondary offering of common stock in June 1998, the
Company issued 18,000,000 new shares of common stock, which resulted in an
increase in common stock and capital surplus of $20,378 and $188,320,
respectively. In connection with a secondary offering of common stock in
September 1999, the Company issued 8,970,000 new shares of common stock,
which resulted in an increase in common stock and capital surplus of
$9,740 and $207,027, respectively.
Outstanding shares
The authorized share capital of the Company is EUR 1,809,600,000,
consisting of 1,200,000,000 common shares and 540,000,000 preference
shares each with a nominal value of EUR 1.04. As of December 31, 1998,
1999 and 2000, the number of shares of common stock outstanding at a par
value of EUR 1.04 was 854,868,636 shares, 869,424,420 shares and
889,881,287 shares, respectively. There were no preference shares
outstanding as of December 31, 1998, 1999 and 2000.
Preference shares
In May 1999, the Company's shareholders approved the creation of
540,000,000 preference shares. The preference shares entitle a holder to
full voting rights and to a preferential right to dividends and
distributions upon liquidation. In May 1999, the Company entered into an
option agreement with ST Holding II B.V. in order to protect the Company
from a hostile takeover or other similar action. The option agreement
provides for 540,000,000 preference shares to be issued to ST Holding II
B.V. upon their request based on approval by the Company's Supervisory
Board. ST Holding II B.V. would be required to pay at least 25% of the par
value of the preference shares to be issued, and to retain ownership of at
least 33% of the Company's issued share capital.
Stock option plans
In 1995, the Shareholders voted to adopt the 1995 Stock Option Plan (the
"1995 Plan") whereby options for up to 33,000,000 shares may be granted in
installments over a five year period. Under the 1995 Plan, the options may
be granted to purchase shares of common stock at a price not lower than
the market price of the shares on the date of grant, and generally vest
over four years and are exercisable over a period of eight years.
In 1996, the Shareholders voted to adopt the Supervisory Board Option Plan
whereby each member of the Supervisory Board was eligible to receive,
during the three year period 1996-1998, 18,000 options for 1996 and 9,000
options for both 1997 and 1998, to purchase shares of common stock at the
closing market price of the shares on the date of the grant. In the same
three-year period, each professional of the Supervisory Board was eligible
to receive 9,000 options for 1996 and 4,500 options for both 1997 and
1998. Under the Plan, the options vest over one year and are exercisable
for a period expiring eight years from the date of grant.
- 18 -
In 1999, the Shareholders voted to renew the Supervisory Board Option Plan
whereby each member of the Supervisory Board may receive, during the three
year period 1999-2001, 18,000 options for 1999 and 9,000 options for both
2000 and 2001, to purchase shares of capital stock at the closing market
price of the shares on the date of the grant. In the same three-year
period, each professional of the Supervisory Board may receive 9,000
options for 1999 and 4,500 options for both 2000 and 2001. Under the Plan,
the options vest over one year and are exercisable for a period expiring
eight years from the date of grant.
A summary of stock option activity for the plans for the three years ended
December 31, 2000, follows:
Price Per Share
---------------
Number of Weighted
Shares Range Average
---------- ----- -------
Outstanding at December 31, 1997 12 000 180 $1.50 - $14.23 $8,48
Options granted:
1995 Plan 3 900 000 $12.03 $12.03
Supervisory Board Plan 90 000 $12.03 $12.03
Options cancelled -57 390 $6.04 - $14.23 $8.00
Options exercised -344 460 $1.54 - $ 9.00 $2.14
-------------------------------------------------
Outstanding at December 31, 1998 15 588 330 $1.54 - $14.23 $9.53
Options granted:
1995 Plan 8 878 200 $24.88 $24.88
Supervisory Board Plan 180 000 $24.88 $24.88
Options cancelled -161 640 $6.04 - $24.88 $14.30
Options exercised -2 767 200 $1.33 - $14.23 $5.47
-------------------------------------------------
Outstanding at December 31, 1999 21 717 690 $6.04 - $24.88 $16.41
Options granted:
1995 Plan 7 570 890 $50.69 - $62.01 $58.77
Supervisory Board Plan 103 500 $62.01 $62.01
Options cancelled -253 950 $6.04 - $62.01 $27.57
Options exercised -1 988 195 $6.04 - $24.88 $6.94
-------------------------------------------------
Outstanding at December 31, 2000 27 149 935 $6.04 - $62.01 $28.98
Stock options exercisable were as follows:
December 31, December 31, December 31,
1998 1999 2000
Options exercisable 820 920 2 631 330 5 149 338
Weighted average exercise price $4.92 $6.46 $9.72
The weighted average remaining contractual life of options outstanding as
of December 31, 1999 and December 31, 2000 was 6.4 and 6.1 years
respectively.
- 19 -
The range of exercise prices, the weighted average exercise price and the
weighted average remaining contractual life of options outstanding as of
December 31, 2000 was as follows:
Weighted
Weighted average
Option price average remaining
Number of shares range exercise price contractual life
---------------- ----- -------------- ----------------
3 017 360 $6.04 $6.04 3.2 years
3 657 455 $14.23 $14.23 4.7 years
3 885 840 $12.03 $12.03 5.6 years
8 918 100 $24.88 $24.88 6.7 years
126 840 $55.25 $55.25 7.1 years
5 391 700 $62.01 $62.01 7.5 years
70 000 $52.88 $52.88 7.7 years
2 019 640 $50.69 $50.69 7.9 years
63 000 $9.00 $9.00 3.8 years
The range of exercise prices, the weighted average exercise price and the
weighted average remaining contractual life of options exercisable as of
December 31, 2000 was as follows:
Weighted
Weighted average
Option price average remaining
Number of shares range exercise price contractual life
---------------- ----- -------------- ----------------
3 017 360 $6.04 $6.04 3.2 years
1 843 978 $14.23 $14.23 4.7 years
63 000 $9.00 $9.00 3.8 years
45 000 $12.03 $12.03 5.6 years
180 000 $24.88 $24.88 6.7 years
Employee stock purchase plans
In June 1998, the Company offered to certain of its employees world-wide
the right to acquire up to 2,400 shares of capital stock per employee, at
a price of $10.59 (63 French francs, 18,467 Italian lira) per share,
representing a discount of twelve percent from the market price. A total
of 1,729,794 shares were issued to participating employees world-wide as
a result of the offering. In November 2000, the Company offered to certain
of its employees world-wide the right to acquire up to 275 shares of
capital stock per employee, at a price of $38.675 (45 Euro) per share,
representing a discount of fifteen percent from the market price. A total
of 559,929 shares were issued to participating employees world-wide as a
result of the offering.
- 20 -
Fair value of stock-based compensation
The Company has various stock option plans and employee stock purchase
plans, as described above. The Company applies the intrinsic-value-based
method prescribed by Accounting Principles Board Opinion No. 25
"Accounting for Stock lssued to Employees" (APB 25), and related
Interpretations, in accounting for stock-based awards to employees. Under
APB 25, the Company generally recognizes no compensation expense with
respect to such awards.
Pro forma information regarding net income and earnings per share is
required by Statement of Financial Accounting Standards No. 123
"Accounting for Stock-Based Compensation" (FAS 123) as if the Company had
accounted for its stock-based awards to employees under the fair value
method prescribed by FAS 123. The fair value of the Company's stock-based
awards to employees was estimated using a Black-Scholes option pricing
model. The fair value was estimated using the following weighted-average
assumptions:
1998 1999 2000
Expected life (years) 5 5 5
Volatility 38.2% 41.0% 42.2%
Risk-free interest rate 5.4% 5.8% 6.0%
Dividend yield - 0.10% 0.05%
The weighted average fair value of options granted during 1998, 1999 and
2000 was $5.65, $11.08 and $27.12 per option, respectively.
If compensation cost for the Company's stock-based compensation plans had
been determined based on the fair value at the grant dates consistent with
FAS 123, the Company's net income and earnings per share would have been
adjusted to the pro forma amounts indicated below:
Year ended Year ended Year ended
Dec 31, 1998 Dec 31, 1999 Dec 31, 2000
------------ ------------ ------------
Net income
Pro forma 393 398 522 593 1 387 278
Pro forma earnings
per share
Basic 0.47 0.61 1.57
Diluted 0.46 0.59 1.51
These pro forma amounts include amortized fair values attributable to
stock-based awards granted after December 31, 1995 only, and are therefore
not representative of future pro forma amounts.
- 21 -
Retained earnings
At December 31, 2000, the amount of retained earnings available to pay
dividends under Dutch law was approximately $5,263,500 (1999: $3,653,000).
Retained earnings for purposes of this calculation are based upon
generally accepted accounting principles in The Netherlands. The Company's
subsidiaries are subject to the laws of the countries in which they are
domiciled. These laws may restrict the ability of the subsidiaries to
transfer funds to the Company. Such restrictions are not considered to be
significant as of December 31, 2000.
Other comprehensive income
The accumulated balances related to each component of other comprehensive
income were as follows:
Foreign Accumulated
Currency Unrealized other
Translation gains (losses) comprehensive
gains (losses) on securities income (loss)
-------------- -------------- -------------
Balance as of December 31, 1997 -313 781 - -313 781
Other comprehensive income, net of tax 137 409 - 137 409
Balance as of December 31, 1998 -176 372 - -176 372
Other comprehensive income, net of tax -319 491 - -319 49l
Balance as of December 31, 1999 -495 863 - -495 863
Other comprehensive income, net of tax -190 629 10 262 -180 367
Balance as of December 31, 2000 -686 492 10 262 -676 230
- 22 -
12. EARNINGS PER SHARE
For the years ended December 31, 1998, 1999 and 2000 earnings per share
(EPS) was calculated as follows:
Year ended Year ended Year ended
Dec 31, 1998 Dec 31, 1999 Dec 31, 2000
-------------- -------------- -------------
Basic EPS
Net income 411 121 547 252 1 452 103
Weighted average shares outstanding 845 112 048 859 111 668 885 728 493
Basic EPS 0.49 0.64 1.64
Diluted EPS
Net income 411 121 547 252 1 452 103
Convertible debt interest, net of tax 4 566 13 387 28 204
-------------- -------------- -------------
Net income adjusted 415 687 560 639 1 480 307
Weighted average shares outstanding 845 112 048 859 111 668 885 728 493
Dilutive effect of stock options 3 795 378 7 995 558 13 831 539
Dilutive effect of convertible debt 15 425 754 34 116 684 36 499 180
-------------- -------------- -------------
Number of shares used in
calculating EPS 864 333 180 901 223 910 936 059 212
Diluted EPS 0.48 0.62 1.58
- 23 -
13. RETIREMENT PLANS
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.
December 31, December 31,
1999 2000
Change in benefit obligation:
Benefit obligation at beginning of year 87 949 102 363
Service cost 8 087 7 762
Interest cost 5 693 6 189
Benefits paid -3 110 -2 532
Actuarial losses 9 137 14 053
Foreign currency translation adjustments -3 656 -5 964
Other -1 737 634
-------- -------
Benefit obligation at end of year 102 363 122 505
-------- -------
Change in plan assets:
Plan assets at fair value at beginning of year 83 287 99 448
Actual return on plan assets 13 424 1 266
Employer contributions 8 080 2 777
Benefits paid -3 110 -2 532
Foreign currency translation adjustments -2 286 -6 076
Other 53 405
-------- -------
Plan assets at fair value at end of year 99 448 95 288
-------- -------
Funded status -2 915 -27 217
Unrecognized prior service cost 7 853 6 967
Unrecognized transition obligation -3 022 -2 3l0
Unrecognized net actuarial gain (loss) -2 034 16 957
-------- -------
Accrued benefit cost -118 -5 603
-------- -------
- 24 -
Net amount recognized in the balance sheet consists of the following:
December 31, December 31,
1999 2000
Prepaid benefit cost 5 663 7 423
Accrued benefit liability -8 005 -15 174
Intangible asset 2 224 2 148
-------------- -------------
Net amount recognized -118 -5 603
-------------- -------------
The components of the net periodic benefit cost includes the following:
December 31, December 31, December 31,
1998 1999 2000
Service cost 5 618 8 087 7 762
Interest cost 5 202 5 693 6 189
Expected return on plan assets -6 147 -5 956 -7 020
Amortization of unrecognized
transition obligation -366 -324 -303
Recognized gains and losses 56 503 70
Recognition of prior service cost 762 850 847
------------ ------------ ------------
Net periodic benefit cost 5 125 8 853 7 545
------------ ------------ ------------
The weighted average assumptions used in the determination of the net
pension cost for the pension plans were as follows:
Assumptions 1998 1999 2000
Discount rate 7.16% 6.30% 6.22%
Salary increase rate 4.49% 3.81% 4.15%
Expected rate of return on funds 8.42% 7.04% 6.20%
The Company also has defined contribution pension plans which provide
retirement benefits to certain of its employees. The benefit accrues to
the employees on a pro-rata basis, adjusted for inflation, during their
employment period and is based on the individuals' salary. As of December
31, 1999 and 2000, the Company accrued $100,290 and $99.961 respectively,
for these defined contribution pension plans. The annual cost of these
plans amounted to approximately $13,800, $15,200 and $18,000 in 1998, 1999
and 2000 respectively.
- 25 -
14. LONG-TERM DEBT
Long-term debt, all of which is unsecured, includes debt held by the
following subsidiaries:
December 31, December 31,
1999 2000
STMicroelectronics S.A. (France)
- 4.90% Bank loan due 2002 30 718 21 278
- 4.88% Bank loan due 2002 30 718 21 278
- 5.21 % Other bank loans 21 557 157 037
STMicroelectronics s.r.l. (Italy)
- 5.68% Bank loan due 2002 52 033 32 928
- 5.35% Bank loan due 2006 34 322 27 501
- 4.22% Other bank loans 95 234 57 955
STMicroelectronics N.V. (Netherlands)
- 1.75% Liquid Yield Option Notes (LYONS due 2008) 398 251 112 520
- 2.44% Liquid Yield Option Notes (LYONS due 2009) 725 813 743 371
- 3.75% Convertible Bonds (due 2010) - 1 486 738
STMicroelectronics (other countries)
- 6.53% Other bank loans 56 500 145 848
---------- ---------
Total long-term debt 1 445 146 2 806 454
Less current portion 96 669 105 972
---------- ---------
Long-term debt, less current portion 1 348 477 2 700 482
---------- ---------
Long-term debt is denominated in the following currencies:
December 31, December 31,
1999 2000
U.S. dollar 1 157 366 2 445 569
Italian lira 192 432 128 398
French franc 82 993 199 593
Other 12 355 32 894
---------- ---------
Total 1 445 146 2 806 454
---------- ---------
- 26 -
Aggregate future maturities of long-term debt outstanding are as follows:
December 31,
2000
2001 105 972
2002 111 572
2003 84 457
2004 57 555
2005 47 492
Thereafter 2 399 406
----------
Total 2 806 454
----------
In June 1998, the Company issued $513,852 face value of zero-coupon
subordinated convertible notes (LYONs), due 2008, for net proceeds of
$421,837. The notes are convertible at any time by the holders at the rate
of 53.712 shares of the Company's common stock for each one thousand
dollar face value of the notes. The notes may be redeemed by the holders
on June 10, 2003 or by the Company on or after that date at the book
value, payable in cash. The notes are subordinated to all the other
existing and future indebtedness of the Company.
In September 1999, the Company issued $918,530 face value of zero-coupon
subordinated convertible notes (LYONs), due 2009, for net proceeds of
$708,288. The notes are convertible at any time by the holders at the rate
of 26.292 shares of the Company's common stock for each one thousand
dollar face value of the notes. The notes may be redeemed by the holders
on September 22, 2004 or by the Company on or after that date at the book
value, payable in cash. The notes are subordinated to all the other
existing and future indebtedness of the Company.
In November 2000, the Company issued $2,145,923 face value of zero-coupon
unsubordinated convertible bonds, due 2010, for net proceeds of
$1,457,828. The debt discount of $665,923 is amortized straight-line over
the term of the debt and recorded as interest expense. The notes are
convertible at any time by the holders at the rate of 9.32 shares of the
Company's common stock for each one thousand dollar face value of the
notes. The notes may be redeemed by the holders on November 16, 2005 or by
the Company on or after that date at the book value, payable in cash. The
notes are unsubordinated to all the other existing and future indebtedness
of the Company.
During 1999, $52,476 face amount of convertible bonds were converted into
939,528 shares of common stock. During 2000, $333,580 face amount of
convertible bonds were converted into 17,908,743 shares of common stock.
Credit facilities
The Company has revolving line of credit agreements with several financial
institutions totaling $884,000. At December 31, 2000, amounts available
under the lines of credit are reduced by borrowings of $35,599 at an
average interest rate of 6.47%.
- 27 -
15. OTHER PAYABLES AND ACCRUED LIABILITIES
Other payables and accrued liabilities consist of the following:
December 31, December 31,
1999 2000
Taxes other than income taxes 64 950 50 228
Salaries and wages 111 125 181 516
Social charges 53 781 70 957
Advances received on fundings 38 686 10 562
Commercial rebates 23 775 32 755
Royalties payable 13 195 42 313
Other 76 333 120 834
---------- --------
Total 381 845 509 165
16. OTHER REVENUES
Other revenues consist of the following:
December 31, December 31, December 31,
1998 1999 2000
Licensing revenues 1 765 - -
Miscellaneous sales 27 833 30 205 41 229
Other 7 536 2 962 7 570
--------- ---------- --------
Total 37 134 33 167 48 799
--------- ---------- --------
- 28 -
17. OTHER INCOME AND EXPENSES
Other income and expenses consist of the following:
December 31, December 31, December 31,
1998 1999 2000
Research and development funding 63 531 60 352 42 065
Start-up costs -12 609 -24 736 -115 137
Exchange gain, net 19 019 14 653 15 767
Other 6 517 -10 429 -26 228
------------ ------------ ------------
Total 76 458 39 840 -83 533
------------ ------------ ------------
18. NET INTEREST INCOME
Net interest income consists of the following:
December 31, December 31, December 31,
1998 1999 2000
Income 54 294 81 888 111 403
Expense -45 603 -46 264 -64 700
------------ ------------ ------------
Total 8 691 35 624 46 703
------------ ------------ ------------
Cash paid for interest was $48,569 in 1998, $48,086 in 1999 and $64,681 in
2000. Capitalized interest was $5,487 in 1998, $8,317 in 1999 and $1,846
in 2000.
19. INCOME TAX
Income before income tax expense is comprised of the following:
December 31, December 31, December 31,
1998 1999 2000
Loss recorded in The Netherlands -18 730 -17 494 -6 393
Income from foreign operations 550 831 724 616 1 835 822
------------ ------------ ------------
Income before income tax expense 532 101 707 122 1 829 429
------------ ------------ ------------
- 29 -
STMicroelectronics N.V. and its subsidiaries are individually liable for
income tax. Tax losses can only offset profits generated by the taxable
entity incurring such loss.
Income tax expense is comprised of the following:
December 31, December 31, December 31,
1998 1999 2000
Domestic taxes - current -3 886 -4 353 -7 585
Foreign taxes - current -82 132 -130 904 -342 837
------------ ------------ ------------
Current taxes -86 018 -135 257 -350 422
Deferred -34 333 -21 957 -24 697
------------ ------------ ------------
Income tax expense -120 351 -157 214 -375 119
------------ ------------ ------------
The principal items comprising the differences in income taxes computed at
The Netherlands statutory rate (35%) and the effective income tax rate are
the following:
Income tax expense is comprised of the following:
December 31, December 31, December 31,
1998 1999 2000
Income tax expense computed at
statutory rate -186 235 -247 493 -640 300
Benefit (deductions) for financial
reporting with no tax effect 7 864 -699 -13 349
Variation in valuation allowance 397 3 107 -7 185
Other tax and credits 2 995 8 549 -4 770
Earnings of subsidiaries taxed
at different rates 54 628 79 322 290 485
------------ ------------ ------------
Income tax expense -120 351 -157 214 -375 119
------------ ------------ ------------
Permanent differences reflect mainly the effects of capital allowance
programs and special tax incentive programs existing in some Asia Pacific
and Mediterranean countries, and of various non-deductible items. Included
in the line "Earnings of subsidiaries taxed at different rates" are
benefits related to certain tax holidays totalling $41,758 in 1998,
$49,911 in 1999, $225,193 in 2000.
- 30 -
Deferred tax assets and liabilities consist of the following:
December 31, December 31,
1999 2000
Tax loss carryforwards and capital allowances 74 321 22 672
Inventory 41 256 32 702
Other assets 111 447 67 375
------------ -----------
Total deferred tax assets 227 024 122 749
Valuation allowance -12 251 -5 066
------------ -----------
Deferred tax assets, net 214 773 117 683
------------ -----------
Fixed assets depreciation -272 184 -191 632
Other liabilities -52 979 -25 086
------------ -----------
Deferred tax liabilities -325 163 -216 718
------------ -----------
Net deferred income tax liability -110 390 -99 035
------------ -----------
Deferred income taxes were classified in the consolidated balance as
follows:
December 31, December 31,
1999 2000
Other receivables and assets 73 079 71 651
Investments and other non-current assets 33 373 15 916
Accrued and deferred income tax -31 072 -8 041
Other non-current liabilities -185 770 -178 561
------------ -----------
Net deferred income tax liability -110 390 -99 035
------------ -----------
As of December 31, 2000, the Company and its subsidiaries have net
operating loss carryforwards of $66,323 which expire between 2001 and
2006.
The Company paid $75,886 cash for income taxes in 1998, $99,930 cash for
income taxes in 1999 and $242,929 cash for income taxes in 2000.
- 31 -
20. COMMITMENTS
Lease commitments
The Company leases land, building, plant and equipment under
non-cancellable lease agreements. As of December 31, 2000 the future
minimum lease payments to which the Company was committed under operating
leases were as follows:
Year
2001 16 231
2002 12 524
2003 11 331
2004 9 681
2005 7 629
Thereafter 19 124
----------
Total 76 520
----------
Other commitments
As of December 31, 2000, the Company had commitments of $1,670,263 for
equipment purchases.
21. CONTINGENCIES
The Company is involved in various lawsuits, claims, investigations and
proceedings incidental to the normal conduct of its operations. These
matters mainly include the risks associated with external patents
utilization, various investigations, claims from customers and tax
disputes. Management has accrued for these loss contingencies when the
loss is probable and can be estimated. Management believes that these
contingencies will not have a material adverse effect on the business,
financial condition or results of operations of the Company.
During 2000, the Company acquired a manufacturing facility. The terms of
the agreement require the Company to pay additional amounts up to $40,000
if certain conditions are met during the next three years. The contingent
payments have not been recorded as of December 31, 2000, as it is not
beyond a reasonable doubt that the amounts will be paid.
- 32 -
22. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
Financial instruments and derivatives are used exclusively for purposes
other than trading.
Foreign exchange forward contracts and currency options
The Company enters into foreign exchange forward contracts and currency
options to manage exposure to fluctuations in foreign currency exchange
rates and to cover a portion of both its probable anticipated, but not
firmly committed, transactions and transactions with firm foreign currency
commitments. These transactions include international sales by various
subsidiaries in foreign currencies, foreign currency denominated
purchases, intercompany sales and other intercompany transactions. Such
contracts outstanding as of December 31, 2000 have remaining terms of one
to three months, maturing mainly during the first quarter of 2001.
The notional amounts of foreign exchange forward contracts totaled
$611,567 and $780,423 at December 31, 1999 and 2000, respectively. The
principal currencies covered are the US dollar, the Euro, the Italian
lira, the Japanese Yen, and the Swiss franc.
The risk of loss associated with purchased options is limited to premium
amounts paid for the option contracts. The risk of loss associated with
forward contracts is equal to the exchange rate differential from the time
the contract is entered into until the time it is settled.
Concentration of credit risk
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of interest-bearing
investments, financial instruments with off-balance sheet risks (primarily
forward contracts), and trade receivables. The Company places its cash and
cash equivalents and certain other financial instruments with a variety of
high credit quality financial institutions and has not experienced any
material losses relating to such instruments. The Company invests its
excess cash in accordance with its investment policy which aims to
minimize credit risk.
The Company controls the credit risks associated with financial
instruments through credit approvals, investment limits and centralized
monitoring procedures but does not normally require collateral or other
security from the parties to the financial instruments with off-balance
sheet risk. Concentrations of credit risk with respect to trade
receivables are limited due to the large number of customers and their
dispersion across many geographic areas. The Company monitors the
creditworthiness of its customers to which it grants credit terms in the
normal course of business. The Company does not anticipate non-performance
by counterparties which could have a significant impact on its financial
position or results of operations.
- 33 -
Fair value of financial instruments
The estimates of fair value were obtained using prevailing financial
market information resulting from various valuation techniques. The
methodologies used to estimate fair value are as follows:
Cash and cash equivalents, accounts and notes receivable, bank overdrafts,
short-term borrowings, accounts and notes payables
The carrying amounts reflected in the consolidated financial statements
are reasonable estimates of fair value because of the relatively short
period of time between the origination of the instruments and their
expected realization.
Long-term debt and current portion of long-term debt
The fair values of long-term debt were determined based on quoted market
prices, and by estimating future cash flows on a borrowing-by-borrowing
basis and discounting these future cash flows using the Company's
incremental borrowing rates for similar types of borrowing arrangements.
Foreign exchange forward contracts
The fair values of these instruments are estimated based upon quoted
market prices for the same or similar instruments.
1999 2000
----------------------- -----------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
------ ---------- ------ ----------
Balance sheet
- Bank loans
(including current portion) 321 082 323 482 463 825 465 922
- Convertible debt 1 124 064 2 521 752 2 342 629 2 859 756
Off-balance sheet
- Forward exchange contracts 10 412 7 939 8 886 10 943
- 34 -
23. RELATED PARTY TRANSACTIONS
Transactions with significant shareholders and their affiliates were as
follows:
December 31, December 31, December 31,
1998 1999 2000
Sales 5 608 19 033 196
Research and development expenses -16 215 -16 958 -13 663
Other purchases and expenses -12 406 -2 772 -17 991
Accounts receivable 1 872 6 222 774
Accounts payable 10 509 1 876 1 346
24. SEGMENT INFORMATION
In June 1997, the United States Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 131, "Disclosure
about Segments of an Enterprise and Related Information" (FAS 131), which
the Company adopted effective December 31, 1998. FAS 131 requires that
enterprises report certain information about operating segments. It also
requires that enterprises report certain information about their products
and services, the geographic areas in which they operate, and their major
customers. The Company concluded that it has two principal businesses and
operates in two segments: the Semiconductor segment and the Subsystems
segment. In the Semiconductor segment, the Company designs, develops,
manufactures and markets a broad range of products, including discrete,
memories and standard commodity components, ASICSs (full custom devices
and semicustom devices) and ASSPs for analog, digital, and mixed-signal
applications. In the Subsystems segment, the Company designs, develops,
manufactures and markets subsystems and modules for the Telecom,
Automotive and Industrial markets including mobile phone accessories,
battery chargers, ISDN power supplies and in-vehicle equipment for
electronic toll payment. The Subsystems segment does not meet the
requirements for a reportable segment as defined in FAS 131. The
accounting policies of the segments are the same as those described in the
summary of significant accounting policies.
The following is a summary of operations by entities located within the
indicated geographic areas for 1998, 1999 and 2000. Long-lived assets
consist of net property and equipment and other intangible assets.
- 35 -
Net revenues
December 31, December 31, December 31,
1998 1999 2000
France 474 580 451 243 651 116
Italy 171 143 174 087 249 588
Germany 444 362 470 554 611 115
Other European countries 737 112 828 879 1 484 654
USA 978 662 1 222 743 1 761 783
Singapore 1 261 165 1 669 129 2 277 772
Other countries 180 728 239 641 777 175
------------ ------------ ------------
Total 4 247 752 5 056 276 7 813 203
------------ ------------ ------------
Long-lived assets
December 31, December 31, December 31,
1998 1999 2000
France 1 169 273 1 239 540 1 889 729
Italy 899 689 1 117 241 1 650 506
Germany 1 134 1 094 1 620
Other European countries 19 922 236 202 345 359
USA 587 734 736 187 1 081 327
Singapore 216 817 245 386 649 116
Other countries 472 007 477 316 869 530
------------ ------------ ------------
Total 3 366 576 4 052 966 6 487 187
------------ ------------ ------------
- 36 -
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SIGNATURE
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.
Date: April 9, 2001 STMicroelectronics N.V.
By: /s/ Pasquale Pistorio
----------------------------------
Name: Pasquale Pistorio
Title: President and Chief
Executive Officer