STATS ChipPAC Reports Third Quarter 2012 Results

SINGAPORE--25 OCTOBER 2012, UNITED STATES--(Marketwire - Oct 25, 2012) -  STATS ChipPAC Ltd. ("STATS ChipPAC" or the "Company") (SGX-ST: STATSChP), a leading semiconductor test and advanced packaging service provider, today announced results for the third quarter 2012.

Tan Lay Koon, President and Chief Executive Officer of STATS ChipPAC, said, "Third quarter revenue of 2012 decreased by 3.4% to $408.3 million compared to the prior quarter, and was affected by delay in supply of advanced silicon node wafers for high end smartphones and weakness in the PC and consumer end markets, offset by higher demand in the wireless communication market." 

Gross margin for the third quarter of 2012 was 16.0% compared to 17.0% in the second quarter of 2012 and 17.0% in the third quarter of 2011. Operating margin before goodwill and equipment impairment and flood related income (expenses) for the third quarter of 2012 was 6.5% of revenue compared to 7.9% in the second quarter of 2012 and 8.3% in the third quarter of 2011. In the third quarter of 2012, goodwill and equipment impairment of $27.9 million was recorded in connection with the Malaysia plant to mainly align with the transition of technology in certain customers from leaded wirebonding to advanced packaging.

Net income(1) for the third quarter of 2012 was $3.2 million compared to net income of $8.9 million in the second quarter of 2012 and $18.0 million in the third quarter of 2011. The net income in the third quarter of 2012 included $26.7 million of property damage insurance settlement as compensation for plant and equipment damages arising from the flooding of the Thailand plant and $27.9 million of goodwill and equipment impairment. 

John Lau, Chief Financial Officer of STATS ChipPAC, said, "Gross profit for the third quarter of 2012 was $65.2 million or 16.0% of revenue, compared to $71.7 million or 17.0% in the second quarter of 2012 and $75.2 million or 17.0% in the third quarter of 2011. Our adjusted EBITDA(2) in the third quarter of 2012 including $26.7 million insurance settlement was 29.9% of revenue, compared to 23.0% in the second quarter of 2012 and 24.3% in the third quarter of 2011. Capital spending in the third quarter of 2012 was $159.6 million or 39.1% of revenue compared to $96.8 million or 22.9% in the second quarter of 2012 and $70.3 million or 15.9% in the third quarter of 2011. The third quarter of 2012 capital spending was focused on capacity expansion in advanced wafer level packaging and turnkey test for the high end smartphones market and included $13.2 million for the new factory building in Singapore. We ended the third quarter of 2012 with cash, cash equivalents and marketable securities of $195.5 million and debt of $842.4 million compared to $238.1 million and $810.3 million as of the end of fourth quarter of 2011, respectively. We have received cash of $37.1 million in October 2012 from the property damage insurance settlement and proceeds from the associated company divestment."

Outlook
Tan Lay Koon commented, "Based on current visibility, we expect net revenues in the fourth quarter of 2012 to be approximately 2% to 8% increase compared to the prior quarter, with adjusted EBITDA² in the range of 21% to 27% of revenue. We expect capital expenditure(3) in the fourth quarter of 2012 to be approximately $40 million to $50 million."

The outlook is subject to a number of risks and uncertainties that could cause actual events or results to differ materially from those disclosed in the outlook statements. These statements are based on our management's beliefs and assumptions, which involve judgments about future trends, events and conditions, all of which are subject to change and many of which are beyond our control. Please refer to our Financial Statements for the three and nine months ended 23 September 2012 filed with the Singapore Exchange Securities Trading Limited ("SGX-ST") for the major assumptions made in preparing our outlook for the fourth quarter of 2012. Investors should consider these assumptions and make their own assessment of the future performance of STATS ChipPAC and note that there may not be a direct correlation between the net income of the Company with adjusted EBITDA as a percentage of revenue.

Investor Conference Call / Live Audio Webcast Details
A conference call has been scheduled for 8:00 a.m. in Singapore on Monday, 29 October 2012. During the call, time will be set-aside for analysts and investors to ask questions of executive officers.

The call may be accessed by dialing +65-6723-9381. A live audio webcast of the conference call will be available on STATS ChipPAC's website at www.statschippac.com. A replay of the call will be available 2 hours after the live call through 13 November 2012 at www.statschippac.com and by telephone at 800-616-3021. The conference ID number to access the conference call and replay is 34644137.

(1)  The net income in the third quarter of 2012, the second quarter of 2012 and the third quarter of 2011 included interest expense of $11.2 million from our offering of $600.0 million Senior Notes due 2015 to fund our capital reduction in 2010.

(2)  Adjusted EBITDA is not required by, or presented in accordance with, Singapore Financial Reporting Standards ("FRS"). We define adjusted EBITDA as net income attributable to STATS ChipPAC Ltd. plus income tax expense, interest expense, net, depreciation and amortisation, restructuring charges, share-based compensation, goodwill and equipment impairment, tender offer expenses and write-off of debt issuance cost. We present adjusted EBITDA as a supplemental measure of our performance. Management believes the non-FRS financial measure is useful to investors in enabling them to perform additional analysis.

(3)  Capital expenditure refers to acquisitions of production equipment, asset upgrades and infrastructure investments.

Forward-looking Statements
Certain statements in this release are forward-looking statements, including our outlook for the fourth quarter of 2012, that involve a number of risks and uncertainties that could cause actual events or results to differ materially from those described in this release. Factors that could cause actual results to differ include, but are not limited to, the timing and impact of the expected closure of the Thailand Plant as well as the estimated associated cost for the closure; the amount of the business interruption insurance claim due to flooding of the Thailand Plant; the ability to shift production to other manufacturing locations, shortages in supply of key components and disruption in supply chain; general business and economic conditions and the state of the semiconductor industry; prevailing market conditions; demand for end-use applications products such as communications equipment, consumer and multi-applications and personal computers; decisions by customers to discontinue outsourcing of test and packaging services; level of competition; our reliance on a small group of principal customers; our continued success in technological innovations; pricing pressures, including declines in average selling prices; intellectual property rights disputes and litigation; our ability to control operating expenses; our substantial level of indebtedness and access to credit markets; potential impairment charges; availability of financing; changes in our product mix; our capacity utilisation; delays in acquiring or installing new equipment; limitations imposed by our financing arrangements which may limit our ability to maintain and grow our business; returns from research and development investments; changes in customer order patterns; customer credit risks; disruption of our operations; loss of key management or other personnel; defects or malfunctions in our testing equipment or packages; rescheduling or cancelling of customer orders; adverse tax and other financial consequences if the taxing authorities do not agree with our interpretation of the applicable tax laws; classification of our Company as a passive foreign investment company; our ability to develop and protect our intellectual property; changes in environmental laws and regulations; exchange rate fluctuations; regulatory approvals for further investments in our subsidiaries; majority ownership by Temasek Holdings (Private) Limited ("Temasek") that may result in conflicting interests with Temasek and our affiliates; unsuccessful acquisitions and investments in other companies and businesses; labour union problems in South Korea; uncertainties of conducting business in China and changes in laws, currency policy and political instability in other countries in Asia; natural calamities and disasters, including outbreaks of epidemics and communicable diseases; the continued trading and listing of our ordinary shares on the Singapore Exchange Securities Trading Limited ("SGX-ST"). You should not unduly rely on such statements. We do not intend, and do not assume any obligation, to update any forward-looking statements to reflect subsequent events or circumstances.

Basis of Preparation of Results

The financial statements included in this release have been prepared in accordance with the Singapore Financial Reporting Standards ("FRS").

Our 52-53 week fiscal year ends on the Sunday nearest and prior to 31 December. Our fiscal quarters end on a Sunday and are generally thirteen weeks in length. Our third quarter of 2012 ended on 23 September 2012, while our second quarter of 2012, third quarter of 2011 and fiscal year 2011 ended on 24 June 2012, 25 September 2011 and 25 December 2011, respectively. References to "$" are to the lawful currency of the United States of America.

Overall equipment utilisation for the second and third quarter of 2012 are adjusted for the suspension of the Thailand Plant capacity.

Commencing with the third quarter of 2012, we are reporting net revenues by the advanced packaging, wirebond packaging and test product lines to align with our business focus. We have similarly disclosed net revenues by advanced packaging, wirebond packaging and test for the second quarter of 2012 and the third quarter of 2011. We have previously reported net revenues by packaging-laminate, packaging-leaded, test and wafer level processing and other services.

About STATS ChipPAC Ltd.
STATS ChipPAC Ltd. is a leading service provider of semiconductor packaging design, assembly, test and distribution solutions in diverse end market applications including communications, digital consumer and computing. With global headquarters in Singapore, STATS ChipPAC has design, research and development, manufacturing or customer support offices in 10 different countries. STATS ChipPAC is listed on the SGX-ST. Further information is available at www.statschippac.com. Information contained in this website does not constitute a part of this release.

STATS ChipPAC Ltd.
Consolidated Income Statement
(Unaudited)
				Three Months Ended								Nine Months Ended
				23 September				25 September				23 September				25 September
				2012  $'000				2011 $'000				2012 $'000				2011 $'000
Net revenues					408,323				443,414				1,221,192				1,279,789
Cost of revenues					(343,145	)			(368,186	)			(1,021,675	)			(1,062,150	)
Gross profit					65,178				75,228				199,517				217,639
Operating expenses:
	Selling, general and administrative				24,997				24,683				75,711				75,114
	Research and development				12,518				13,709				36,744				39,406
	Restructuring charges				1,113				-				1,113				-
	Write-off of debt issuance costs				-				-				-				7,593
		Operating expenses			38,628				38,392				113,568				122,113
Goodwill impairment					24,100				-				24,100				-
Equipment impairment					3,819				-				3,819				-
Total operating expenses					66,547				38,392				141,487				122,113
Operating income (loss) before flood related income (expenses)					(1,369	)			36,836				58,030				95,526
	Property damage insurance settlement				26,741				-				26,741				-
	Flood related plan charges *				(1,908	)			-				(9,224	)			-
Operating income after flood related income (expenses)					23,464				36,836				75,547				95,526
Other income (expenses), net:
	Interest income				283				396				1,160				1,150
	Interest expense				(14,637	)			(14,911	)			(44,023	)			(45,065	)
	Foreign currency exchange gain (loss)				613				(1,076	)			226				2,537
	Share of loss of associate				(85	)			(476	)			(739	)			(151	)
	Other non-operating income, net				186				22				326				140
		Total other expenses, net			(13,640	)			(16,045	)			(43,050	)			(41,389	)
Income before income taxes					9,824				20,791				32,497				54,137
Income tax expense					(5,471	)			(1,892	)			(11,953	)			(7,175	)
Net income					4,353				18,899				20,544				46,962
Less: Net income attributable to the non-controlling interest					(1,184	)			(908	)			(5,674	)			(3,472	)
Net income attributable to STATS ChipPAC Ltd.					3,169				17,991				14,870				43,490
Net income per ordinary share attributable to STATS ChipPAC Ltd.:
	Basic			$	0.00			$	0.01			$	0.01			$	0.02
	Diluted			$	0.00			$	0.01			$	0.01			$	0.02
Ordinary shares (in thousands) used in per ordinary share calculation:
	Basic				2,202,218				2,202,218				2,202,218				2,202,218
	Diluted				2,202,218				2,202,229				2,202,223				2,202,232
Key Ratios and Information:
Gross Margin					16.0	%			17.0	%			16.3	%			17.0	%
Operating Expenses as a % of Revenue					9.5	%			8.7	%			9.3	%			9.5	%
Operating Margin before impairment expenses and flood related income (expenses)					6.5	%			8.3	%			7.0	%			7.5	%
Depreciation & Amortisation, including Amortisation of Debt Issuance Costs					70,545				74,013				212,269				221,819
Capital Expenditures					159,618				70,329				354,705				250,991

* Flood related plan charges of $1.9 million in the third quarter of 2012 and $9.2 million in the first three quarters of 2012 primarily relate to depreciation on suspended production operations and labour and other expenses to support production shift from the Thailand plant to other manufacturing locations of STATS ChipPAC.

STATS ChipPAC Ltd.
Consolidated Statement of Financial Position (Unaudited)
				23 September			25 December
				2012			2011
				$'000			$'000
ASSETS
Current assets:
	Cash and cash equivalents			153,766			194,811
	Financial assets, available-for-sale			41,696			43,249
	Insurance settlement receivable			26,741			-
	Accounts receivable, net			247,611			223,082
	Other receivables			21,964			13,879
	Inventories			92,004			89,434
	Short-term restricted cash			-			58
	Prepaid expenses and other current assets			29,167			19,071
		Total current assets		612,949			583,584
Non-current assets:
	Property, plant and equipment, net			1,263,857			1,123,061
	Investment in associate			7,778			8,407
	Intangible assets			36,585			37,179
	Goodwill			381,487			405,587
	Long-term restricted cash			484			410
	Prepaid expenses and other non-current assets			3,229			5,550
		Total non-current assets		1,693,420			1,580,194
	Total assets			2,306,369			2,163,778
LIABILITIES
Current liabilities:
	Accounts and other payables			171,634			132,852
	Payables related to property, plant and equipment purchases			92,943			19,864
	Accrued operating expenses			115,834			150,342
	Income taxes payable			10,021			13,344
	Short-term borrowings			50,341			20,000
	Short-term amounts due to related parties			38			28
		Total current liabilities		440,811			336,430
Non-current liabilities:
	Long-term borrowings			792,077			790,339
	Deferred tax liabilities			52,164			49,509
	Other non-current liabilities			2,107			1,805
		Total non-current liabilities		846,348			841,653
	Total liabilities			1,287,159			1,178,083
EQUITY
	Share capital			873,666			873,666
	Retained earnings			97,278			82,408
	Other reserves			(1,379	)		(17,981	)
		Equity attributable to equity holders of STATS ChipPAC Ltd.		969,565			938,093
	Non-controlling interest			49,645			47,602
	Total equity			1,019,210			985,695
	Total liabilities and equity			2,306,369			2,163,778

STATS ChipPAC Ltd.
Other Supplemental Information
(Unaudited)
		3Q 2012			2Q 2012			3Q 2011
Net Revenues by Product Line
Advanced Packaging #		41.3	%		43.4	%		33.4	%
Wirebond Packaging		39.0	%		37.8	%		47.0	%
Test		19.7	%		18.8	%		19.6	%
		100.0	%		100.0	%		100.0	%
Net Revenues by End User Market
Communications		70.8	%		61.9	%		61.4	%
Personal Computers		8.6	%		11.6	%		14.3	%
Consumer, Multi-applications and Others		20.6	%		26.5	%		24.3	%
		100.0	%		100.0	%		100.0	%
Net Revenues by Region
United States of America		65.5	%		67.4	%		66.3	%
Asia		18.6	%		19.1	%		22.3	%
Europe		15.9	%		13.5	%		11.4	%
		100.0	%		100.0	%		100.0	%
Number of Testers		959			976			945
Number of Wirebonders		4,193			4,252			5,045
Overall Equipment Utilisation Rate		75	%		76	%		81	%

^# Advanced Packaging includes flip-chip and wafer level packaging.