F-1 1 d879650df1.htm FORM F-1 FORM F-1
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As filed with the Securities and Exchange Commission on July 15, 2015.

Registration No. 333-            .

 

 

 

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Form F-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

UTAC Holdings Ltd.

(Company Registration Number 201023865R)

(Exact name of Registrant as specified in its charter)

 

 

 

 

Singapore 3674 Not Applicable

(State or other jurisdiction of

incorporation or organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification Number)

22 Ang Mo Kio Industrial Park 2,

Singapore 569506

(65) 6481-0033

(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)

 

 

Law Debenture Corporate Services Inc.

400 Madison Avenue, 4th Floor

New York, New York 10017

212-750-6474

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

Copies to:

 

Michael W. Sturrock, Esq.

Sharon Lau, Esq.

Latham & Watkins LLP

9 Raffles Place

42-02 Republic Plaza

Singapore 048619

(65) 6536-1161

 

Rajeev P. Duggal, Esq.

Skadden, Arps, Slate, Meagher & Flom LLP

6 Battery Road

Suite 23-02

Singapore 049909

(65) 6434-2900

 

 

Approximate date of commencement of proposed sale to the public:    As soon as practicable after the effective date of this registration statement.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.  ¨

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

 

 

CALCULATION OF REGISTRATION FEE

 

 

Title of Each Class of

Securities to be Registered(1)

 

Proposed

Maximum
Aggregate

Offering Price(2)

 

Amount of

Registration Fee

Ordinary shares, no par value

  $350,000,000   $40,670

 

 

(1)

American Depositary Shares, or ADSs, evidenced by American depositary receipts issuable upon deposit of the ordinary shares registered hereby will be registered under a separate registration statement on Form F-6 (Registration No. 333-            ). Each ADS represents            ordinary shares.

(2)

Includes (a) ordinary shares represented by ADSs initially offered and sold outside the United States that may be resold from time to time in the United States either as part of the distribution or within 40 days after the later of the effective date of this registration statement and the date the securities are first bona fide offered to the public, and (b) additional ordinary shares represented by ADSs that are issuable upon the exercise of the underwriters’ option to purchase additional ADSs to cover over-allotments, if any.

(3)

Estimated solely for the purposes of computing the amount of the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended.

 

 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission acting pursuant to such Section 8(a) may determine.

 

 

 


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The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and we are not soliciting offers to buy these securities in any state where the offer or sale is not permitted.

 

PRELIMINARY PROSPECTUS (Subject to Completion)

            , 2015

 

LOGO

UTAC Holdings Ltd.

AMERICAN DEPOSITARY SHARES

REPRESENTING              ORDINARY SHARES

 

 

This is the initial public offering of American Depositary Shares, or ADSs, representing ordinary shares of UTAC Holdings Ltd. We are offering              ADSs.

Prior to this offering, there has been no public market for our ADSs or ordinary shares. It is currently estimated that the initial public offering price per ADS will be between $             and $            . We will apply for listing of our ADSs on either the New York Stock Exchange or the Nasdaq Global Select Market under the symbol “UTAC.”

 

 

Investing in our ADSs involves risks. See “Risk Factors” beginning on page 15.

 

 

 

     Per ADS      Total  

Initial public offering price

   $                    $                

Underwriting discount and commission

   $                    $                

Proceeds, before expenses

   $                    $                

We have granted the underwriters the right to purchase up to an additional              ADSs to cover over-allotments.

Neither the Securities and Exchange Commission nor any state securities commission or any other regulator has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The underwriters expect to deliver the ADSs against payment in U.S. dollars on or about             .

 

 

(the underwriters listed below are listed in alphabetical order)

 

BofA Merrill Lynch

 

Citigroup

  Credit Suisse

            , 2015


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TABLE OF CONTENTS

     Page  

Regulation

     136   

Management

     146   

Principal Shareholders

     154   

Related Party Transactions

     156   

Description of Certain Indebtedness

     157   

Description of Share Capital

     163   

Comparison of Shareholder Rights

     171   

Description of American Depositary Shares

     183   

Shares Eligible For Future Sale

     190   

Material Tax Considerations

     193   

Underwriting

     200   

Legal Matters

     207   

Experts

     208   

Where You Can Find More Information

     209   

Glossary of Technical Terms

     210   

Index to Consolidated Financial Statements

     F-1   
 

 

You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with information different from that contained in this prospectus. If anyone provides you with different or inconsistent information, you should not rely on it. We are not, regardless of the time of delivery of this prospectus or the time of sale of the ADSs, making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. We are offering to sell ADSs and seeking offers to buy ADSs, only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or any sale of the ADSs.

We have not taken any action to permit a public offering of the ADSs outside the United States or to permit the possession or distribution of this prospectus outside the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about and observe any restrictions relating to the offering of the ADSs and the distribution of this prospectus outside of the United States.

This prospectus contains estimates and information concerning the semiconductor industry, both historical and projected, including market position, market share, market size, and growth rates of the markets in which we participate, which IBS Inc., or IBS, a third-party research firm, has been commissioned by us to provide. Where we have not attributed such industry information to a particular source, the information has been provided by IBS based on IBS’s internal analyses, estimates and subjective judgments, and assuming an orderly market environment for projections. We have paid IBS more than a nominal fee for such services.

Certain other industry information has been derived from and attributed to the report from Gartner Inc, or Gartner, entitled “Market Share: Semiconductor Devices and Applications, Worldwide, 2014 Published: March 2015,” or the Gartner Report. The Gartner Report described herein represents data, research opinion or viewpoints published, as part of a syndicated subscription service, by Gartner, and are not representations of fact. The Gartner Report speaks as of its original publication date (and not as of the date of this prospectus) and the opinions expressed in the Gartner Report are subject to change without notice.

This prospectus contains breakdowns of sales by product categories and end-markets. These breakdowns have been prepared based on our management’s determination of the product categories and end-markets that are served by our customers. In respect of sales breakdown by product categories, sales were allocated based on management’s determination of their dominant product category. In respect of sales breakdown by end-markets, sales were allocated based on management’s determination of their dominant end-market applications.

 

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Until             , 2015 (the 25th day after the date of this prospectus), all dealers that buy, sell or trade ADSs, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers’ obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

When we refer to “U.S. dollars” and “$” in this document, we are referring to United States dollars, the legal currency of the United States. Certain amounts and percentages have been rounded; consequently, certain figures may add up to be more or less than the total amount and certain percentages may add up to be more or less than 100% due to rounding. In particular and without limitation, amounts expressed in millions contained in this prospectus have been rounded to a single decimal place for the convenience of readers.

 

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PROSPECTUS SUMMARY

The following is a summary of material information discussed in this prospectus. This summary may not contain all the details concerning our business, the ADSs or other information that may be important to you. You should carefully review this entire prospectus, including the “Risk Factors” section and our financial statements and the related notes included elsewhere in this prospectus, before making an investment decision. As used in this prospectus, unless the context otherwise indicates, the references to “we,” “us,” “our,” “our company” or “our group” are to UTAC Holdings Ltd. and its subsidiaries collectively, and references to “our holding company” or “UTAC Holdings” are to UTAC Holdings Ltd. on a standalone basis. For the definition of some of the semiconductor and other terms used in this prospectus, please see the glossary at the end of this prospectus. Unless otherwise indicated or the context otherwise requires, the financial and operating data included in this prospectus is as of December 31, 2014.

Overview

We are a leading independent provider of assembly and test services for a broad range of semiconductor chips (also known as integrated circuits) with diversified end-uses, including in communications devices (such as smartphones, Bluetooth and WiFi), consumer devices, computing devices, automotive applications and industrial and medical applications. We believe our diversity across end-markets positions us well to benefit from the growing proliferation of connectivity between devices, also known as the Internet of Things.

We offer our customers a full range of semiconductor assembly and test services in the following key product categories: analog, mixed-signal and logic, and memory. We also integrate our service offerings to provide full turnkey solutions, including wafer probing, wafer processing, assembly, testing and the direct shipment of semiconductors to users designated by our customers. In addition, we also provide test development services.

Our customers are primarily fabless companies, integrated device manufacturers and wafer foundries. Our expertise in assembly and test services accumulated through years of engineering experience has allowed us to develop long-standing and well-established relationships with our customers, many of whom are leaders in their respective product categories. In 2014, our top ten customers by sales were Panasonic, Broadcom, Texas Instruments, Maxim Integrated, Taiwan Semiconductor Manufacturing Company, SanDisk, Microchip Technology, STMicroelectronics, Formosa Advanced Technologies Co., Ltd, or FATC, and Power Integrations.

We are headquartered in Singapore, with production facilities located in Singapore, Thailand, Taiwan, China, Indonesia and Malaysia. In China, our facilities are located in Dongguan and Shanghai. As of December 31, 2014, our office and manufacturing space at our facilities covered an area of approximately 275,770 square meters, and we operated 3,024 wire bonders and 1,673 testers. In addition to our assembly and test facilities, we have a global sales network focused on five regions: United States, Japan, Taiwan and China, rest of Asia and Europe, with sales offices and employees located in each of these regions.

Customers that we classify as operating in the communications end-markets accounted for approximately 39.7%, computing end-markets accounted for approximately 18.9%, consumer end-markets accounted for approximately 15.7%, automotive end-markets accounted for approximately 9.0% and industrial, medical and other end-markets accounted for approximately 16.7% of our sales in 2014, respectively. Based on our management’s determination of the dominant product categories that are served by our customers, in 2014, the analog, mixed-signal and logic, memory and other product categories accounted for 47.8%, 36.8%, 7.6% and 7.8%, respectively, of our assembly sales, and 12.0%, 62.6%, 17.9% and 7.5%, respectively, of our test sales.

Our Chief Executive Officer, Dr. William John Nelson, joined us in October 2012. Following his arrival and the recruitment of many of the current members of our senior management team including Mr. Douglas J. Devine, our Chief Financial Officer, Mr. Asif R. Chowdhury, our Senior Vice President of Product Line and Marketing, Mr. Jeffrey R. Osmun, our Senior Vice President of Worldwide Sales and Dr. Frank R. Myers, our Senior Vice President of Operations, we renewed our focus on operational and fiscal discipline, customers and

 

 

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growth in our business. Under our new management, we streamlined our operations through the centralization of our business management, sales, marketing, procurement, research and development and quality functions. In addition, we successfully completed the acquisition from Panasonic of its semiconductor assembly and test facilities in Singapore, Indonesia and Malaysia. This acquisition equipped us with new automotive and industrial capabilities, and diversified the services we offer and the end-markets we serve.

In 2014, we had sales of $860.3 million, an increase of 15.0% compared to sales of $748.4 million in 2013. In 2014, 66.1% of our sales were from assembly services and 33.9% of our sales were from test services. In 2014, our analog, mixed-signal and logic, memory and other product categories accounted for 35.7%, 45.5%, 11.1% and 7.7% of our sales, respectively.

Our adjusted EBITDA was $252.4 million in 2014, an increase of 22.1% compared to adjusted EBITDA of $206.8 million in 2013. Our adjusted EBITDA margin for 2014 was 29.3% compared to our adjusted EBITDA margin for 2013 of 27.6%.

Our Strengths

 

   

Advanced test capabilities enable full turnkey solutions.    We are a leading provider of advanced semiconductor test capabilities. In 2014, we derived 33.9% of our sales from test services, which represents a higher proportion of our sales than that of our key competitors indicating our strength in test. Our significant process knowhow accumulated over 17 years of engineering experience in the provision of test services has enabled us to secure and retain many of our key customers and we believe this knowhow positions us well to further grow our market share in the outsourced test services segment as well as to continue to grow our turnkey services.

 

   

Leadership in analog and mixed-signal semiconductors.    We believe we are a leader in service and technology with respect to assembly and test services in analog, and mixed-signal and logic products, and this leadership differentiates us from our competitors and provides us with a platform for continued growth.

 

   

Well-positioned capabilities and products across multiple attractive end-markets.    We provide services for semiconductors for a well-diversified range of end-markets including communications, consumer, computing, automotive, and industrial and medical. We believe the breadth of products and services we offer in these end-markets is a key driver of our strong market position in the overall outsourced semiconductor assembly and test industry.

 

   

Long-standing and well-established partnerships with leading industry players.    We believe our strength in assembly and test capabilities has enable us to develop long-standing and symbiotic relationships with the majority of our customers, many of whom are leaders in their respective product categories in the semiconductor market. We believe the depth of our relationships allows us to grow market share with our existing customers, which in turn results in customer loyalty and retention.

 

   

Streamlined cost structure and investment discipline for capital expenditure.    We have a highly disciplined and conservative capital expenditure policy. We plan our capital expenditure based on expected sales and seek to invest only when we believe there are opportunities to generate certain expected returns on investment.

 

   

Proven track record in strategic acquisitions and integration.    We have in the past successfully executed and integrated several strategic acquisitions. Each acquisition has brought us unique strengths, capabilities, intellectual property portfolios and expanded our customer base. We believe our proven track record in identifying, acquiring and integrating attractive targets will serve us well when we consider opportunities for further inorganic growth in our industry which continues to witness consolidation.

 

 

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Experienced management team.    We have an experienced senior management team. Since our recent senior management hires, we have streamlined our operations through the coordination and centralization of our marketing, sales, research and development and procurement activities, and we have also implemented consistent quality standards across all our manufacturing plants.

Our Strategy

 

   

Continue to strengthen relationships and further grow our share of business with existing customers.    Our new management team has been highly focused on and has been successful in strengthening our existing relationships and increasing our share of wallet with our key customers. We intend to maintain and further improve our strategic relationships with these key customers by continuing to offer high-quality customer services on competitive terms with a strong focus on increasing the volume of products we service which will lead to an improvement in the utilization of our existing facilities.

 

   

Seek new customer relationships within high growth end-markets.    We intend to leverage on our expertise and long track record in assembly, test and turnkey solutions to complement our growth with existing customers by developing new, mutually dependent strategic relationships with global semiconductor players that are currently not our customers.

 

   

Capitalize on opportunities to grow through selective acquisitions.    We believe that market conditions favor consolidation in the outsourced semiconductor assembly and test industry as well as an increase in outsourcing. We believe our proven track record in identifying, acquiring and integrating attractive targets will serve us well as we intend to continue to pursue selective acquisition opportunities.

 

   

Maintain discipline on capital expenditure and prudent cost management.    We intend to continue to exercise capital discipline and make prudent investments in new equipment. Our policy is that incremental capital expenditure must meet stringent pre-specified financial criteria such as expected payback period and profitability thresholds before being approved. We intend to continue to focus on test services and further build on our leadership position.

Risk Factors

Our business is subject to numerous risks and uncertainties that may materially affect our business, financial condition, results of operations and prospects, as more fully described in the section entitled “Risk Factors,” immediately following this prospectus summary. These include:

 

   

the cyclicality of the semiconductor industry;

 

   

our reliance on certain major customers;

 

   

Panasonic’s ability to fulfill its contractual obligations under the contract manufacture agreement and our ability to enforce our contractual obligations against Panasonic;

 

   

our history of substantial losses;

 

   

our ability to manage our geographically diverse manufacturing facilities and expand our business;

 

   

our significant indebtedness affecting our operations, and our ability to repay or refinance our indebtedness as it falls due;

 

   

increased competition from other companies and our ability to maintain and increase our market share;

 

   

pending litigation by certain holders of our senior secured notes, litigation relating to our intellectual property and other potential legal liabilities;

 

   

our ability to successfully develop new technologies;

 

 

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our ability to acquire equipment and supplies necessary to meet our business needs;

 

   

our ability to generate sufficient cash to meet our capital expenditure requirements;

 

   

our ability to hire and maintain qualified personnel;

 

   

fires, natural disasters, acts of terrorism and other developments outside our control;

 

   

the political stability of our local region; and

 

   

general local and global economic conditions.

Corporate Structure

We are headquartered in Singapore, with production facilities located in Singapore, Thailand, Taiwan, China, Indonesia and Malaysia. Our production facilities:

 

   

in Singapore, are operated by United Test and Assembly Center Ltd and UTAC Manufacturing Services Singapore Pte Ltd;

 

   

in Thailand, are operated by UTAC Thai Limited;

 

   

in Taiwan, are operated by UTAC (Taiwan) Corporation;

 

   

in China, are operated by UTAC Dongguan Ltd and UTAC (Shanghai) Co., Ltd.;

 

   

in Indonesia, are operated by PT UTAC Manufacturing Services Indonesia; and

 

   

in Malaysia, are operated by UTAC Manufacturing Services Malaysia Sdn Bhd.

 

 

 

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As of the date of this prospectus, UTAC Holdings is fully owned by Global A&T Holdings, and the chart below summarizes the corporate legal structure of UTAC Holdings:

 

 

LOGO

 

Notes:

 

(1)

Facility that we acquired from Panasonic on June 2, 2014.

 

(2)

Significant subsidiary, as such term is defined under Rule 1-02 of Regulation S-X of the Securities Act.

 

 

Corporate Information

UTAC Holdings was incorporated in Singapore as a public company limited by shares under the Singapore Companies Act on November 9, 2010 as Cerisier Limited and subsequently changed its name to UTAC Holdings Ltd. on June 14, 2011. Our registered office and our principal executive offices are located at 22 Ang Mo Kio Industrial Park 2, Singapore 569506. Our telephone number at this location is (65) 6481-0033. Our principal website address is www.utacgroup.com. The information contained on our website does not form part of this prospectus. Our agent for service of process in the United States is Law Debenture Corporate Services Inc., located at 400 Madison Avenue, 4th Floor, New York, New York 10017.

 

 

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The Offering

 

Offering price

We currently anticipate that the initial public offering price will be between $             and $             per ADS.

 

ADSs offered

             ADSs(1)

 

ADSs outstanding immediately after this offering

             ADSs(1)

 

Ordinary shares outstanding immediately after this offering

             ordinary shares (or              ordinary shares if the underwriters exercise their over-allotment option in full).

 

The ADSs

Each ADS represents              ordinary shares.

 

 

The depositary will hold ordinary shares underlying your ADSs. You will have rights as provided in the deposit agreement.

 

 

We do not expect to pay dividends in the foreseeable future. If, however, we declare dividends on our ordinary shares, the depositary will pay you the cash dividends and other distributions it receives on our ordinary shares after deducting its fees and expenses in accordance with the terms set forth in the deposit agreement.

 

 

You may turn in your ADSs to the depositary in exchange for ordinary shares. The depositary will charge you fees for any exchange.

 

 

We may amend or terminate the deposit agreement without your consent. If you continue to hold your ADSs, you agree to be bound by the deposit agreement as amended.

 

 

To better understand the terms of the ADSs, you should carefully read the “Description of American Depositary Shares” section of this prospectus. You should also read the deposit agreement, which is filed as an exhibit to the registration statement that includes this prospectus.

 

Over-allotment option

We have granted to the underwriters an option, exercisable within 30 days from the date of this prospectus, to purchase up to an aggregate of              additional ADSs.

 

Use of proceeds

We expect that we will receive net proceeds of approximately $             million from this offering, based on an assumed initial public offering price of $             per ADS, the mid-point of the estimated range of the initial public offering price shown on the cover page of this prospectus, after deducting the underwriting discounts and commissions and estimated offering expenses payable by us. We intend to use the net proceeds received by us from this offering mainly to retire certain of our indebtedness outstanding under our 10.0% senior secured notes due 2019, or senior secured notes, as well as for general corporate purposes. See “Use of Proceeds.”

 

 

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Lock-up

We and our principal shareholders will agree with the underwriters, with certain exceptions, not to sell or transfer any ADSs, ordinary shares or securities convertible into or exercisable for ordinary shares for a period of 180 days after the date of this prospectus. See “Underwriting.”

 

Risk factors

See “Risk Factors” and other information included in this prospectus for a discussion of factors you should carefully consider before deciding to invest in the ADSs.

 

Payment and settlement

The ADSs are expected to be delivered against payment on             . The ADSs will be deposited with a custodian for, and registered in the name of a nominee of, The Depository Trust Company, or DTC, in New York. In general, beneficial interests in the ADSs will be shown on, and transfers of those beneficial interests will be effected only through, records maintained by DTC and its direct and indirect participants.

 

Listing

We will apply for listing of the ADSs on the New York Stock Exchange or the Nasdaq Global Select Market.

 

Depositary

 

Proposed New York Stock Exchange or Nasdaq Global Select Market symbol

UTAC

 

Note:

 

(1)

Unless otherwise specifically stated, the information throughout this prospectus does not take into account the possible issuance of additional ADSs to the underwriters pursuant to their option to purchase additional ADSs to cover over-allotments.

 

 

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Summary Consolidated Financial and Other Data

The following summary consolidated statement of comprehensive income data for the years ended December 31, 2012, 2013, and 2014, summary consolidated balance sheet data as of December 31, 2012, 2013, and 2014 and summary consolidated statement of cash flows data for the years ended December 31, 2012, 2013, and 2014 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. The financial data set forth below should be read in conjunction with, and are qualified by reference to, “Selected Consolidated Financial and Other Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and notes thereto included elsewhere in this prospectus. Our consolidated financial statements are prepared and presented in accordance with International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board, or IASB.

Our consolidated financial statements as of and for the year ended December 31, 2014 include the results of UMS and its subsidiaries from June 2, 2014. Between January 1, 2012 and June 1, 2014, the results of operations of UMS and its subsidiaries were not consolidated in our consolidated financial statements as they were not our subsidiaries. As a result of the size of the business of UMS and its subsidiaries relative to that of our existing business at the time of our acquisition of UMS and its subsidiaries, our consolidated financial statements as of and for the year ended December 31, 2014 and subsequent periods are not fully comparable to our consolidated financial statements as of and for the years ended December 31, 2012 and 2013. Our results of operations have varied and may continue to vary significantly from year to year and are not necessarily indicative of the results of any future periods. As such, you should not use such comparisons as a basis for your investment or to predict our future performance.

 

 

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Summary Consolidated Statement of Comprehensive Income Data

 

   
     Year Ended December 31,  
     2012     2013     2014  
     (in $ millions, except per share data)  

Sales

     930.1        748.4        860.3   

Cost of sales

     (795.2     (650.7     (702.1
  

 

 

   

 

 

   

 

 

 

Gross profit

  134.9      97.7      158.1   

Other income

  8.5      7.7      8.5   

Other (losses)/gains – net

  (1.3   29.6      77.9   

Expenses:

Selling, general and administrative

  (63.9   (57.7   (83.9

Research and development

  (18.8   (12.3   (12.5

Finance

  (79.6   (120.7   (125.2

Others

  (12.2   (16.4   (13.5

Share of profit/(loss) of associated company

  0.7      (4.5     
  

 

 

   

 

 

   

 

 

 

(Loss)/profit before income tax

  (31.7   (76.5   9.4   

Income tax expense

  (13.7   (2.5   (12.8
  

 

 

   

 

 

   

 

 

 

Loss after tax

  (45.4   (78.9   (3.4
  

 

 

   

 

 

   

 

 

 

Other comprehensive income/(loss):

Items that may be reclassified subsequently to profit or loss:

Cash flow hedges

Fair value gains/(losses)

  11.3      (1.5     

Reclassification

  3.5      0.4      1.1   

Currency translation differences arising from consolidation

  *      *      *   

Items that will not be reclassified subsequently to profit or loss:

Remeasurements on post-employment benefit obligation

  (0.1   (1.8   (0.1
  

 

 

   

 

 

   

 

 

 

Other comprehensive income/(loss), net of tax

  14.7      (2.9   1.0   
  

 

 

   

 

 

   

 

 

 

Total comprehensive loss

  (30.7   (81.9   (2.4
  

 

 

   

 

 

   

 

 

 

(Loss)/profit attributable to:

Equity holder of UTAC Holdings

  (47.1   (80.3   (5.0

Non-controlling interests

  1.7      1.3      1.6   
  

 

 

   

 

 

   

 

 

 
  (45.4   (78.9   (3.4
  

 

 

   

 

 

   

 

 

 

Total comprehensive (loss)/income attributable to:

Equity holder of UTAC Holdings

  (32.5   (83.1   (4.0

Non-controlling interests

  1.9      1.2      1.6   
  

 

 

   

 

 

   

 

 

 
  (30.7   (81.9   (2.4
  

 

 

   

 

 

   

 

 

 

Loss per ordinary share:

Basic ($)

  (0.06   (0.10   (0.01

Diluted ($)

  (0.06   (0.10   (0.01

Proforma profit/(loss) per ordinary share(1):

Basic ($)

Diluted ($)

Supplemental information:

Gross profit margin(2)

  14.5   13.1   18.4

EBITDA(3)

  227.5      212.3      301.1   

Adjusted EBITDA(3)

  239.7      206.8      252.4   

Adjusted EBITDA margin(3)(4)

  25.8   27.6   29.3

Adjusted EBITDA less cash capital expenditure(3)

  140.1      156.5      130.6   

 

Notes:

 

(1)

Proforma profit/(loss) per ordinary share attributable to ordinary shareholders is calculated based on the weighted average number of shares outstanding during the period adjusted to give effect to shares subsequently issued or assumed to be issued had the issuance and sale of ADSs taken place at the beginning of the periods presented.

 

(2)

Gross profit margin represents gross profit as a percentage of sales.

 

(3)

See “Non-IFRS Measures” below.

 

(4)

Adjusted EBITDA margin represents adjusted EBITDA as a percentage of sales.

 

*

Amount insignificant.

 

 

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Summary Consolidated Balance Sheet Data

 

     Year Ended December 31,  
     2012     2013     2014  
     (in $ millions)  

Cash and bank deposits

     201.2        217.9 (1)      301.2 (1) 

Trade and other receivables

     138.4        106.7        130.8   

Property, plant and equipment

     656.0        536.2        587.3   

Goodwill

     643.4        643.4        643.4   

Intangible assets

     81.6        65.3        57.3   

Total assets

     1,794.4        1,627.3        1,795.0   

Trade and other payables

     128.7        132.2        217.4   

Borrowings(2)

     1,164.0        1,093.9        1,105.0   

Total liabilities

     1,349.0        1,265.5        1,438.3   

Share capital

     510.9        510.9        510.9   

Capital reserve

     187.1        187.1        187.1   

Other reserves

     (3.6     (6.7     (5.7

Accumulated losses

     (254.9     (334.9     (339.9

Non-controlling interests

     5.9        5.4        4.3   

Total equity

     445.4        361.8        356.7   

Summary Consolidated Statement of Cash Flows Data

 

     Year Ended December 31,  
     2012     2013     2014  
     (in $ millions)  

Net cash provided by operating activities

     219.7        184.1        224.4   

Net cash used in investing activities

     (93.1     (33.6     (32.6

Net cash used in financing activities

     (194.7     (133.9     (116.6

Net (decrease)/increase in cash and cash equivalents

     (68.1     16.6        75.2   

Cash and cash equivalents at beginning of financial year

     269.3        201.2        217.8   
  

 

 

   

 

 

   

 

 

 

Cash and cash equivalents at end of financial year

  201.2      217.8 (1)    293.0 (1) 
  

 

 

   

 

 

   

 

 

 

 

Notes:

 

(1)

The differences in the figures between cash and bank deposits and the cash and cash equivalents at the end of financial year are due to cash subject to restrictions.

 

(2)

These amounts include (i) as of December 31, 2012, finance leases and bank borrowings, and (ii) as of December 31, 2013 and 2014, finance leases and our indebtedness under the senior secured notes, after deducting unamortized loan facility and related issuance costs. As of December 31, 2014, the total indebtedness outstanding under the senior secured notes without deducting unamortized loan facility and related issuance costs was $1,127.3 million.

Non-IFRS Measures

EBITDA, adjusted EBITDA and adjusted EBITDA less our cash outflows in respect of capital expenditure, or cash capital expenditure, may not be comparable to similarly titled measures reported by other companies due to potential inconsistencies in the method of calculation.

We have included EBITDA because we believe it is an indicative measure of our operating performance and is used by investors and analysts to evaluate companies in our industry. We define EBITDA as profit/(loss) adjusted for (i) income tax expense/credit; (ii) finance expenses; and (iii) depreciation and amortization, which represent depreciation of property, plant and equipment and amortization of intangible assets.

 

 

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We have included adjusted EBITDA because we believe it is a more indicative measure of our baseline performance as it excludes certain charges that our management considers to be outside of our core operating results. We define adjusted EBITDA as EBITDA adjusted for (i) impairment/write-off of available-for-sale financial assets and property, plant and equipment; (ii) business acquisition-related costs; (iii) restructuring costs; (iv) the gain or loss on account of the liquidation of subsidiaries; (v) legal settlement fees; (vi) write off of previous expenses related to an initial public offering; (vii) share of loss of an associated company; (viii) non-cash fair value loss/gain on derivative instruments; (ix) transitional services; and (x) other one-time expenditure, and gain, such as bargain purchase on acquisition of subsidiaries and gain from sale of building in Singapore.

We have included adjusted EBITDA less cash capital expenditure, as we believe that it is indicative of the cash flows that are provided from our operations after taking into account the cash used to purchase property, plant and equipment.

EBITDA, adjusted EBITDA and adjusted EBITDA less cash capital expenditure are not measures of financial performance or liquidity under IFRS or U.S. GAAP and should not be considered as alternatives to total profit, operating profit or any other performance measures derived in accordance with IFRS or U.S. GAAP or as an alternative to cash flow from operating activities as a measure of liquidity.

The following table reconciles our loss after tax to EBITDA, adjusted EBITDA and adjusted EBITDA less cash capital expenditure, in each case, for the periods indicated:

 

     Year Ended
December 31,
 
     2012     2013     2014  
     (in $ millions)  

Loss after tax

     (45.4     (78.9     (3.4

Add/(deduct):

      

Income tax expense

     13.7        2.5        12.8   

Finance expenses

     79.6        120.7        125.2   

Depreciation of property, plant and equipment

     162.9        151.7        149.9   

Amortization of intangible assets

     16.7        16.4        16.6   
  

 

 

   

 

 

   

 

 

 

EBITDA

  227.5      212.3      301.1   
  

 

 

   

 

 

   

 

 

 

Add/(deduct):

Impairment and write-off of available for sale financial assets and property plant and equipment

  2.7      1.9      8.6 (1) 

Business acquisition-related costs

            4.5   

Restructuring costs(2)

  6.2      13.7      3.4   

Loss on write-off of net assets on liquidation of subsidiaries

  0.3             

Legal settlement fees

  2.3             

Share of (profit)/loss of associated company

  (0.7   4.5        

Fair value gain on derivative financial instruments

  (0.6          

Bargain purchase on acquisition of a subsidiary

            (41.4 )(3) 

Write-off of expenditure on initial public offering

  2.2             

Gain on extinguishment of borrowings, net of expenses

       (21.1 )(4)      

Write-back of unclaimed monies from the previous shareholders of a subsidiary

       (4.8     

Redemption liabilities

       0.3        

Gain on sale of building in Singapore

            (28.6 )(5) 

Capital return from previously written off investment

            (0.7 )(6) 

Dividend income

            (0.1

Transitional services

            5.7 (7) 
  

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

  239.7      206.8      252.4   
  

 

 

   

 

 

   

 

 

 

(Deduct):

Cash capital expenditure

  (99.6   (50.3   (121.8
  

 

 

   

 

 

   

 

 

 

Adjusted EBITDA less cash capital expenditure

  140.1      156.5      130.6   
  

 

 

   

 

 

   

 

 

 

 

Notes:

 

(1)

This amount represents the impairment and write-off of property, plant and equipment following our impairment exercise in the third quarter of 2014.

 

 

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(2)

The restructuring costs comprised primarily of severance payments to our employees.

 

(3)

On June 2, 2014, we completed the acquisition from Panasonic of equity interests of 100.0% in USG2 and UMY, and an equity interest of 99.98% in UID, for a consideration of $96.5 million. As the fair value of consideration of $83.6 million was less than the fair value of the identifiable net assets of the acquired subsidiaries of $125.1 million, in each case determined at the time of the acquisition, we recognized a gain on bargain purchase of $41.4 million. See “History and Corporate Structure – Acquisition of Semiconductor Assembly and Test Businesses from Panasonic and Related Contract Manufacture Agreement and Other Agreements” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies – Gain on bargain purchase from business combination” for further details.

 

(4)

We recognized a gain of $21.1 million due to the extinguishment of the second priority term loans in exchange for the issuance of $502.3 million in aggregate principal amount of 10.0% senior secured notes due 2019 on September 30, 2013.

 

(5)

We recognized a gain on the disposal of one of our Singapore facilities in 2014.

 

(6)

In 2014, we received a return of capital from a company that we had previously invested in 2000, which had previously been written off.

 

(7)

This amount represents the fees payable to Panasonic for certain transitional services that Panasonic provided to us in connection with our acquisition of the three facilities from Panasonic. See “History and Corporate Structure – Acquisition of Semiconductor Assembly and Test Businesses from Panasonic and Related Contract Manufacture Agreement and Other Agreements” for further details.

The following table sets forth a reconciliation of net cash provided by operating activities to adjusted EBITDA less cash capital expenditure for the periods indicated:

 

     Year Ended December 31,  
     2012     2013     2014  
     (in $ millions)  

Net cash provided by operating activities

     219.7        184.1        224.4   

Add/(Deduct):

      

Changes in working capital

     (7.0     (11.5     (5.6

Tax paid

     17.8        16.8        10.4   

Government grant received

     (0.5     (0.4     (0.1

Interest income

     1.5        1.0        1.1   

Net gain on disposal of property, plant and equipment

     1.5        2.6        9.2 (1) 

Government grant income

     0.6        0.3        0.2   

Capital return from previously written off investment

                   (0.7

Intangible assets written off

            (0.1       

Write-off of overpayment by customers

            0.2          

Business acquisition-related cost

                   4.5   

Restructuring cost(2)

     6.2        13.7        3.4   

Transitional services(3)

                   5.7   
  

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

  239.7      206.8      252.4   
  

 

 

   

 

 

   

 

 

 

Less: cash capital expenditure

  (99.6   (50.3   (121.8
  

 

 

   

 

 

   

 

 

 

Adjusted EBITDA less cash capital expenditure

  140.1      156.5      130.6   
  

 

 

   

 

 

   

 

 

 

 

Notes:

 

(1)

Net gain on disposal of property, plant and equipment after deducting the gain on sale of building in Singapore of $28.6 million in 2014.

 

(2)

The restructuring costs comprised primarily of severance payments to our employees.

 

(3)

This amount represents the fees payable to Panasonic for certain transitional services that Panasonic provided to us in connection with our acquisition of the three facilities from Panasonic. See “History and Corporate Structure – Acquisition of Semiconductor Assembly and Test Businesses from Panasonic and Related Contract Manufacture Agreement and Other Agreements” for further details.

 

 

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Quarterly Financial Information

The following table sets forth our unaudited results of operations for the eight fiscal quarters ended December 31, 2014. This information should be read in conjunction with our audited consolidated financial statements and the related notes included elsewhere in this prospectus. The unaudited results of operations have been derived from our financial statements not included in this prospectus. Our results of operations have varied and may continue to vary significantly from quarter to quarter and are not necessarily indicative of the results of any future periods.

 

    2013     2014  
    March     June     September     December     March     June     September     December  
    (in $ millions)  

Sales

    201.0        192.8        181.6        172.9        160.7        203.4        256.6        239.5   

Cost of sales

    (172.6     (169.7     (156.1     (152.3     (140.6     (168.8     (202.2     (190.4

Gross profit

    28.4        23.2        25.5        20.7        20.0        34.6        54.4        49.1   

Other income

    1.9        1.0        1.5        3.3        1.9        1.4        1.7        3.5   

Other gain/(loss) – net

    0.6        1.5        19.9        7.7        (0.7     41.6        32.8        4.2   

Expenses:

               

Selling, general and administrative

    (15.9     (16.0     (11.7     (14.1     (15.7     (20.0     (23.9     (24.2

Research and development

    (2.9     (3.3     (3.0     (3.1     (2.8     (3.1     (3.4     (3.2

Finance

    (29.6     (30.0     (30.1     (30.9     (30.0     (30.7     (30.7     (33.8

Others

    (2.7     (0.9     (4.9     (7.9     (2.8     (0.1     (9.6     (1.1

Share of loss of associated company

    (0.2     (0.6     (0.6     (3.1                            

(Loss)/profit before tax

    (20.5     (25.0     (3.5     (27.5     (30.0     23.7        21.2        (5.5

Income tax (expense)/credit

    (1.5     (0.3     (1.0     0.4        (1.2     (2.3     (4.8     (4.6

(Loss)/profit after tax

    (22.0     (25.3     (4.4     (27.1     (31.2     21.4        16.4        (10.0

Non-IFRS Quarterly Financial Data

               

(Loss)/profit after tax

    (22.0     (25.3     (4.4     (27.1     (31.2     21.4        16.4        (10.0

Add/(deduct):

               

Income tax expense/(credit)

    1.5        0.3        1.0        (0.4     1.2        2.3        4.8        4.6   

Finance expense

    29.6        30.0        30.1        30.9        30.0        30.7        30.7        33.8   

Depreciation of property, plant and equipment

    39.6        38.3        37.2        36.5        34.4        35.2        40.5        39.8   

Amortization of intangibles assets

    4.2        4.1        4.1        4.1        4.1        4.0        4.0        4.5   

EBITDA

    52.9        47.4        68.0        44.0        38.5        93.6        96.4        72.7   

Add/(deduct):

               

Impairment and write-off of property, plant and equipment

                  0.3        1.7        *               8.6 (1)        

Business acquisition-related costs

                                4.0        0.3        0.1          

Restructuring costs(2)

    2.5        1.2        4.4        5.5        2.4        0.1        0.9          

Share of loss of associated company

    0.2        0.6        0.6        3.1                               

Bargain purchase gain on acquisition of a subsidiary

                                       (41.4 )(3)               

Gain on extinguishment of borrowings, net of expenses

                  (21.1 )(4)                                    

Write-back of unclaimed monies from the previous shareholders of a subsidiary

                         (4.8                            

Redemption liabilities

                         0.3                               

Gain on sale of building in Singapore

                                              (28.6 )(5)        

Capital return from previously

written off investment

                                                     (0.7 )(6) 

Dividend Income

                                       (0.1              

Transitional services(7)

                                       0.8        2.4        2.4   

Adjusted EBITDA

    55.6        49.2        52.2        49.8        44.9        53.3        79.8        74.4   

 

Notes:

 

(1)

This amount represents the impairment and write-off of property, plant and equipment following our impairment exercise in the third quarter of 2014.

 

(2)

The restructuring costs comprised primarily of severance payments to our employees.

 

 

 

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(3)

On June 2, 2014, we completed the acquisition from Panasonic of equity interests of 100.0% in USG2 and UMY, and an equity interest of 99.98% in UID, for a consideration of $96.5 million. As the fair value of consideration of $83.6 million was less than the fair value of the identifiable net assets of the acquired subsidiaries of $125.1 million, in each case determined at the time of the acquisition, we recognized a gain on bargain purchase of $41.4 million. See “History and Corporate Structure – Acquisition of Semiconductor Assembly and Test Businesses from Panasonic and Related Contract Manufacture Agreement and Other Agreements” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies – Gain on bargain purchase from business combination” for further details.

 

(4)

We recognized a gain of $21.1 million due to the extinguishment of the second priority term loans in exchange for the issuance of $502.3 million in aggregate principal amount of 10.0% senior secured notes due 2019 on September 30, 2013.

 

(5)

We recognized a gain on the disposal of one of our Singapore facilities in 2014.

 

(6)

In 2014, we received a return of capital from a company that we had previously invested in 2000, which had previously been written off.

 

(7)

This amount represents the fees payable to Panasonic for certain transitional services that Panasonic provided to us in connection with our acquisition of the three facilities from Panasonic. See “History and Corporate Structure – Acquisition of Semiconductor Assembly and Test Businesses from Panasonic and Related Contract Manufacture Agreement and Other Agreements” for further details.

 

*

Amount insignificant.

 

 

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RISK FACTORS

You should carefully consider the risks described below before making an investment decision. Additional risks not presently known to us or that we currently deem immaterial may also impair our business operations. Our business, financial condition or results of operations could be materially and adversely affected by any of these risks. The trading price and value of the ADSs could decline due to any of these risks, and you may lose all or part of your investment. This prospectus also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including the risks faced by us described below and elsewhere in this prospectus.

Risks Relating to Our Business

We are dependent on the highly cyclical semiconductor and electronics industries, and volatility downturns in these industries could have a material adverse effect on our business and results of operations.

The semiconductor and electronics industries are highly cyclical and are characterized by significant fluctuations in end-market demand, which is driven by and connected with the product cycles of the end-products in which integrated circuits are used and the timing of releases of new products. Any significant downturn in the condition of the semiconductor industry and global economic conditions which adversely affect the demand for our services or any decline in demand for use of semiconductor devices, such as consumer electronics, telecommunication devices or computing devices, would have a material adverse effect on our business and operating results. In addition, any variation in order levels from our customers and service fee rates caused by fluctuations in demand will also result in volatility in our sales and net profit, which could have a material adverse effect on our results of operations. Please see “– We depend on a small number of customers in a limited segment of the market for a substantial portion of our sales” for a discussion on how the loss of key customers could have a material adverse effect on us.

From time to time, the semiconductor and electronics industries have experienced significant, and sometimes prolonged, downturns. These downturns often occur during periods of decline in general economic conditions. Global financial markets experienced significant disruptions in 2008, which resulted in recessions in a number of economies. The recovery from the lows of 2008 and 2009 has been uneven and is facing new challenges, including a European sovereign debt crisis that began in 2011 and continuing high unemployment rates in many parts of the world. It is unclear what the long-term impact of the European sovereign debt crisis will be and uncertainty remains over the long-term effects of the expansionary monetary and fiscal policies that have been adopted by the central banks and financial authorities of some of the world’s leading economies. There have also been concerns over unrest in the Middle East and Africa and geopolitical tensions in Russia and Ukraine, which have resulted in significant market volatility and recent concern over falling oil prices. During any significant downturn, demand for our products and services may be adversely affected, we may face pressure to reduce our prices, and we may need to further rationalize capacity and attempt to reduce our fixed costs. If we are unable to reduce our costs sufficiently to offset reductions in prices and sales volumes, our margins and earnings will suffer and we could incur significant losses, as we have in the past, which would result in a material adverse effect on our business, financial condition and results of operations.

Our business, results of operations and financial condition have fluctuated from quarter to quarter and may fluctuate significantly as a result of factors outside of our control.

Many factors, some of which are outside of our control, including variations in demand and orders from our customers and the impact of adverse economic conditions, could lead to significant variability of our quarterly or annual operating results or have a material adverse effect on our sales, gross profit, operating results and cash flows. Our profitability and ability to generate cash from operations is principally dependent upon customer demand, which is driven in part by our ability to compete successfully with other assembly and test service providers and continue to attract more business from our customers and our customers’ preferences. Our competitiveness and profitability is also dependent on our ability to develop, or obtain access to, advances in

 

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assembly or test technologies or processes. In addition, the utilization of our equipment, product mix, our ability to manage our capital expenditures in response to market conditions and our ability to control our costs including labor, material, overhead and financing costs, also significantly affect our financial condition and results of operations.

In addition to these factors, our sales, gross profit, net profit, cash flows, EBITDA and adjusted EBITDA have also historically fluctuated significantly from quarter to quarter as a result of several other factors, over which we have little or no control and which we expect to continue to impact our business. These include fluctuations in demand in the semiconductor industry and key end-markets, the competitiveness of our key customers in their respective end-markets, such as, the competitiveness of Panasonic Corporation, or Panasonic, in the automotive industry, inventory reductions by our customers, changes in average selling prices which can occur quickly due to the general absence of long term agreements on price, evolving assembly and test technologies and potential difficulties in developing and transitioning to new technologies, restructuring charges, asset write-offs and impairments. Moreover, because of the size of the business of UMS and its subsidiaries relative to that of our existing business at the time of our acquisition of UMS and its subsidiaries from Panasonic, our results of operations for 2014 are not fully comparable to our results of operations for prior years and subsequent periods, and you should not use such comparisons as a basis for your investment or to predict our future performance.

Due to this cyclicality and as a result of our acquisition of UMS and its subsidiaries from Panasonic, we believe that period-to-period comparisons of our results of operations may not be meaningful, and you should not rely on those comparisons to predict our future performance. The volatility and fluctuations in operating performance we have experienced as a result of the factors listed above also make it more challenging for us to forecast our operating results, make business decisions and identify risks that may affect our business, sources and uses of cash, financial condition and results of operations. To the extent our results of operations are below the expectations of public market analysts and investors in the future, or if there are significant fluctuations in our financial results, the market price of the ADSs could decline materially.

We depend on a small number of customers in a limited segment of the market for a substantial portion of our sales.

We are dependent on a small group of customers for a substantial portion of our sales. For the years ended December 31, 2012, 2013 and 2014, our 10 largest customers by sales, in aggregate, accounted for 66.0%, 62.5% and 68.2%, respectively, of our sales. In 2014, our largest customers were Panasonic and Broadcom, each of whom accounted for more than 10% of our sales. In that same year, our three largest customers accounted for 38.2% of our sales, and our five largest customers accounted for 49.7% of our sales. In 2015, Broadcom and one of our other customers, Avago Technologies Limited, or Avago, announced that Avago will acquire Broadcom and the acquisition is expected to be completed in 2016. Our results of operations are primarily affected by demand for our services by our customers, who are in turn affected by changes in their market shares in the markets in which they compete and changing consumer demand. We anticipate that a small number of customers will continue to account for a significant portion of our sales in the foreseeable future. In particular, we expect Panasonic to continue to be one of our largest customers particularly as a result of our contract manufacture agreement with Panasonic which by its terms expires only in 2019. The loss of one or more of our key customers, or reduced orders from any of our key customers due to a consolidation in the industry or otherwise, could have a material adverse effect on our business, financial condition and results of operations. For example, our memory product category sales were $172.1 million, $115.1 million and $95.3 million in 2012, 2013 and 2014, respectively. The decrease in our memory product category sales was primarily due to reduced demand from Nanya, which was a key memory customer prior to 2013 when it changed its strategy and insourced more of its assembly and test requirements. In addition, any new customers that we are able to attract to use our services (to mitigate any loss of a key customer) usually require us to pass a lengthy and rigorous qualification process that can take more than nine months to complete with the consequence that we typically only realize any meaningful sales contributions from such customers approximately one to two years or longer from the time we commence the qualification process.

 

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The majority of our sales are derived from customers whom we classify as operating in the communications, consumer, computing, automotive and industrial, medical and other end-markets. Customers that we classify as operating in the communications end-markets accounted for approximately 39.7% of our sales in 2014, computing end-markets accounted for approximately 18.9% of our sales in 2014, consumer end-markets accounted for approximately 15.7% of our sales in 2014, automotive end-markets accounted for approximately 9.0% of our sales in 2014 and industrial, medical and other end-markets accounted for approximately 16.7% of our sales in 2014. In 2014, assembly and test services accounted for 66.1% and 33.9% of our sales, respectively. A substantial portion of our sales of assembly services was derived from the analog product category, and the majority of our sales of test services were derived from the mixed-signal and logic product categories. Factors affecting these end-markets or product categories in general or any significant decrease in demand in such end-markets or product categories could have a material adverse effect on our business, financial condition and results of operations.

It may be difficult for us to attract new customers and as a result, our business, financial condition and results of operations may be adversely affected.

Our ability to attract new customers is important to our ongoing success. In line with industry practice, new customers usually require us to pass a lengthy and rigorous qualification process which in most cases is conducted at a significant cost to us and the customer. Additionally, customers may also require us to invest in new specialized or customized equipment for our products and services. As a result, customers are generally reluctant to qualify new assembly and test service providers and it may be difficult for us to attract new major customers or enter new markets. We are also required by our existing customers to undergo stringent evaluation processes when introducing new types of services. If we fail to satisfy any customer’s ongoing evaluation process, that customer may cease to use our services, causing our customer base to become more concentrated. Furthermore, we believe that once customers have selected the services of a particular assembly and test company, they generally rely on that vendor for specific applications and, to the extent possible, subsequent generations of those applications. Accordingly, it may be difficult to achieve significant sales from a potential customer once that customer has selected another vendor’s assembly and test services. In addition, due to the lengthy and rigorous qualification process that we undertake in connection with acquiring new customers, we typically only realize any meaningful sales contributions from such customers approximately one to two years or longer from the time we commence the qualification process. Any failure to attract new customers and the length of time required to realize sales from new customers could adversely affect our business, financial condition and results of operations.

We have not received the full amount of revenues expected to be generated by the contract manufacture agreement with Panasonic in the first year of operations of our Singapore, Indonesia and Malaysia semiconductor assembly and test businesses since our acquisition of these businesses from Panasonic, and Panasonic may not be able to fulfill their subsequent commitments stipulated under the contract manufacture agreement; and we may choose not or be unable to enforce our contractual rights against Panasonic.

Panasonic has undertaken, in the contract manufacture agreement entered into with us in May 2014 in connection with our acquisition of their Singapore, Indonesia and Malaysia semiconductor assembly and test facilities, to purchase over the five-year term of the agreement ending on June 30, 2019, services and products from us aggregating not less than $1,045.0 million in amounts invoiced and calculated in accordance with the terms of the agreement (such amounts referred to as “eligible revenue” under the agreement). This aggregate purchase commitment has been agreed to be fulfilled by, among other things, various annual committed purchase amounts. Although Panasonic is not contractually entitled to terminate this agreement except in the event of insolvency or a material breach of contract on our part, there can be no assurance that Panasonic will perform its obligations under this agreement.

In particular, for the first commitment period under this agreement which commenced on June 2, 2014 and ended on March 31, 2015, Panasonic generated $175.0 million of eligible revenue, which represented a shortfall of $11.0 million from the annual commitment for this first period. As a result, Panasonic paid us liquidated

 

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damages of $4.6 million of which $4.5 million was received prior to March 31, 2015, which was less than the agreed amount of liquidated damages payable under the contract manufacture agreement. We agreed to accept a lower amount of liquidated damages from Panasonic in exchange for certain amendments to the contract manufacture agreement, from which we believe we will benefit. There is a possibility that Panasonic may continue to fail to meet its commitment for the second annual period under the agreement ending March 31, 2016 and in the future, which would result in Panasonic again being obliged to pay us liquidated damages under the terms of the contract manufacture agreement. If this occurs, there can be no assurance that such payment will be made in full on a timely basis, or at all, which may be materially detrimental to our business, financial condition, cash flows, results of operations and prospects.

Moreover, whenever Panasonic is unable to fulfill its commitments under the contract manufacture agreement, it is only liable to pay liquidated damages in an amount equal to 50% of the difference between the relevant commitment and the eligible revenue generated. The failure of Panasonic to purchase services and products up to the annual committed amounts under the contract for the first commitment period resulted in reduced revenues from these acquired facilities compared to revenues internally projected by us based on commitments from Panasonic under the contract manufacture agreement. Continued failure of Panasonic to meet its purchase commitments under the contract will result in further reduced revenues from these acquired facilities, which may have a material adverse impact on our business, results of operations, financial condition and prospects. Further, if Panasonic is unable to fulfill either at least 80% of its interim commitment or its entire annual commitment, it must pay us liquidated damages in an amount equal to 50% of the difference between the relevant commitment and the relevant eligible revenue generated for the duration of the relevant commitment (such amounts referred to as “liquidated damages”). The payment of liquidated damages, if any, are required to be made within 30 days of our provision of statements to Panasonic of the amounts due, and are typically expected to be made between September to November (for any failure to meet its interim commitment) and/or March to May (for any failure to meet its annual commitment) of each year, which can result in inconsistency and lumpiness in our cash flows and results of operations from period to period. There is no assurance Panasonic will be able to meet its subsequent annual or aggregate commitments under the contract manufacture agreement. Any deviation from the agreed terms in the contract manufacture agreement and/or shortfall in payment by Panasonic could be significant and have a material adverse effect on our business financial condition, results of operations and prospects.

Further, we will continue to incur operating expenses for the maintenance of our acquired facilities from Panasonic and may invest in capital expenditures in these facilities as we execute our growth strategies. Any continued decline in expected revenues from Panasonic, the key customer for these acquired facilities, could materially and adversely affect our business and operations as well as financial condition, results of operations and prospects, particularly where we have made investments in these facilities.

Panasonic is our largest customer for the year ended December 31, 2014 and is expected to continue to be our largest customer for the next few years. This relationship may hinder our willingness or ability to bring an action against Panasonic or exercise our right of set off for breach of the contract manufacture agreement since any legal action is likely to adversely impact our existing relationship with Panasonic and may even result in the cessation of all relationships with us, causing a material adverse impact on our business, financial condition, results of operations and prospects. Moreover, even if we intend to enforce our contractual rights against Panasonic, there is no assurance that Panasonic will pay all or any liquidated damages owed to us.

In addition, there is no assurance that Panasonic will continue their business dealings with us or at the same level after the expiry of the contract manufacture agreement, and the loss of Panasonic as a key customer could have a material adverse effect on our business, financial condition, results of operations and prospects.

Please see “Business – Contract Manufacture Agreement with Panasonic” for further details of the contract manufacture agreement.

 

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Other than Panasonic, our customers generally do not place purchase orders significantly in advance and do not have long-term contractual commitments to purchase our services, which makes us vulnerable to sudden changes in customer demand and may result in us incurring unnecessary costs.

As is customary in our industry, except for our long-term contract manufacture agreement with Panasonic, our customers generally do not place purchase orders in advance of when they require our services and are generally not obligated, pursuant to any long-term contractual commitment or otherwise, to purchase any minimum amount of our products or use any minimum level of our assembly or test services or to provide us with binding forecasts for any period, although we may from time to time be required to commit capacity we agree with our customers. If we fail to honor our agreement to commit capacity based on our customers’ requirements, our reputation may suffer and our customers may cancel their orders.

In addition, our customers often reduce, cancel or delay their purchases of assembly and test services for a variety of reasons including industry-wide and customer-specific reasons. This makes it difficult for us to forecast our sales for any future period as our customers might not continue to place orders with us in future periods at the same levels as in prior periods. However, our expenses are based in part on our expectations of future sales and we may be unable to adjust costs in a timely manner to compensate for any sales shortfalls. In some cases, our customers are not responsible for any unused common or standard materials or components purchased by us that result from actual orders being smaller than previously forecast by the customer. If we face a reduction or cancellation of orders, or if we are not able to utilize the unused materials or components resulting from such reduced or cancelled orders, our business, financial condition and results of operations may be adversely affected.

We have experienced substantial losses in the past and may do so in the future.

We recorded a loss before tax of $76.5 million in 2013 and loss before tax of $31.7 million in 2012. Our accumulated losses were $339.9 million as of December 31, 2014. The losses we incurred in 2012 and 2013 were primarily on account of the finance expenses we incurred on our borrowings, and partly due to the decline in sales for each of those years. In 2012, we experienced a decline in sales primarily due to weakening global market conditions, and in 2013, our decline in sales was primarily due to weakness in demand in our memory business as Nanya, which is one of our key memory customers, changed its strategy and insourced more of its assembly and test requirements, loss in our share of wallet with respect to some customers in our analog assembly business, customers ceasing to use our assembly and test services for certain products that we no longer service in Singapore and closure of our facility at Chengdu. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for a discussion of our results of operations for 2012 and 2013. We cannot assure you that we will not incur further losses in the future.

We may not successfully continue to manage our geographically diverse manufacturing facilities.

We have significantly expanded our assembly and test operations in recent years. For example, in 2014 we acquired Panasonic’s Singapore, Indonesia and Malaysia semiconductor assembly and test facilities, which brought us assembly and test capabilities in image sensors and power packages. In 2005, we acquired UltraTera Corporation (now known as UTC), a company focused on memory devices, and in 2006 and 2010, we acquired NS Electronics Bangkok (now known as UTL) and ASAT Limited (now known as UHK), respectively, which had strengthened our position and intellectual property portfolio in QFN packages. As a result of our expansion, we have implemented and plan to continue to implement additional operational and financial controls and hire and train additional personnel. We may face difficulties in hiring personnel with sufficient experience or expertise in our manufacturing locations where there is a shortage of skilled workers, for example, in Thailand, China and Indonesia.

Further, as a result of our expansion and geographically diverse manufacturing operations in Singapore, Thailand, Taiwan, China, Indonesia and Malaysia, we seek to implement a strategy of centralizing business management, our legacy information technology systems at various facilities and other key functions in order to integrate our existing businesses and to institute a single high quality service standard across our group as our

 

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manufacturing facilities have historically tended to operate more autonomously with less coordination among the various facilities. The difficulties of implementing our current strategy are increased by the necessity to coordinate geographically dispersed organizations, integrate personnel with disparate business backgrounds and combining different corporate cultures. From time to time, we also evaluate the performance of our facilities and we may decide to close facilities that are under-utilized or unprofitable. For example, we closed our facility in Chengdu in 2012 due to under-utilization of the facility. Our inability to successfully implement any of our strategies or the closure of under-utilized or unprofitable facilities, could have a negative impact our business, financial condition, results of operations or cash flows.

We may not be able to expand our business into new jurisdictions or new regions, and may be exposed to potential risks arising from any material acquisitions, investments and joint ventures that we undertake in the future.

A key element of our growth strategy is the acquisition of, and investment in, complementary businesses or assets from time to time. We may also seek to expand our business organically in the jurisdictions in which we operate. The success of our inorganic expansion strategy depends on a number of factors, including our ability to identify suitable opportunities for acquisitions, whether we are able to complete an acquisition on terms that are satisfactory to us, the economic, business or other strategic objectives and goals of the company or business compared to those of our group, our ability to maintain business relationships with customers, suppliers, employees and other favorable business relationships of the acquired operations and restructuring or terminating unfavorable relationships, our ability to finance the acquisition consistent with our credit arrangements and in a manner that would optimize our capital structure, and our ability to integrate successfully the acquired company or business with our group. For example, our current strategy of centralizing business management and other key functions may make it difficult to successfully integrate our existing businesses or any new businesses or assets we acquire in the future. We may also have difficulty managing our expansion into new geographic markets where we have limited knowledge and understanding of the local economy, an absence of business relationships, or unfamiliarity with local governmental and permitting procedures and regulations. We may not succeed in expanding our business into new jurisdictions or in existing jurisdictions in which we operate on a timely basis or in achieving profitability in these locations.

We must overcome significant regulatory and legal barriers before we can begin operations in any new jurisdiction. In addition to significant regulatory barriers, we may also encounter problems conducting operations in new jurisdictions with different cultures and legal systems where historical practices may not align with our business practices and corporate policies. Any of these factors could adversely affect our ability to successfully expand our business, and our failure to effectively manage any expansion may adversely affect our business, financial condition, results of operations and prospects.

These investments may also involve risks associated with the possibility that the other shareholders or joint venture partners may have economic or business interests or goals that are inconsistent with ours, take actions contrary to our policies or objectives, be unable or unwilling to fulfill their obligations under the relevant joint venture or shareholders’ agreements or have financial difficulties. In addition, the laws in these jurisdictions relating to foreign investment could be altered in a manner that may result in an adverse effect on our business and results of operations.

If we undertake any material acquisitions, investments and joint ventures in the future, our management’s attention and resources from our existing business and expose us to potential risks. For example, any failure to manage our growth effectively, including any inability or unforeseen difficulties in implementing financial and management controls and reporting systems and procedures, could lead to inefficiencies and redundancies which will negatively impact our business, operations and profitability. Similarly, any difficulties encountered in the acquisition and integration process may have an adverse effect on our business, financial condition and results of operations.

 

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We operate in a highly competitive industry, and we may not be able to compete successfully.

The outsourced semiconductor assembly and test industry is very competitive and requires us to be capable of assembling and testing increasingly complex semiconductor packages as well as to be able to bring technologically advanced semiconductor packages to market as quickly as our competitors. We compete with large multinational companies, some of which are much larger in size than us, small niche market competitors and new entrants to the industry. Many of our competitors have significant manufacturing capacity, financial resources, research and development capabilities, marketing and other capabilities and have longer operating histories than ours. These companies have also established relationships with many of our current or potential customers. In addition, increases in the manufacturing capacities of new entrants or our current competitors, or the consolidation of our existing competitors resulting in an increase in their resources and capabilities, may force us to lower our prices.

We may face difficulties competing against such competitors for market share, volume production, price competitiveness and the standard and scope of services offered, such as our technical and engineering competence, quality of service, production yields, cycle time, time-to-market and ability to simplify our customers’ supply chain logistics. In the event that we are not able to compete successfully against our existing or potential competitors, our business, financial condition and results of operations could be adversely affected.

Decisions by our customers who are integrated device manufacturers to curtail outsourcing may adversely affect our business.

We are dependent on sales of assembly and test services outsourced to us by our customers, and our strategy for expanding our business includes offering turnkey solutions to our customers. A significant portion of our sales is from customers who are integrated device manufacturers, which have their own in-house assembly and test capacity. These customers continually evaluate our assembly and test services against their own in-house capabilities. As a result, at any time, these integrated device manufacturers may decide to shift some or all of their outsourced assembly and test services to internal capacity. In the event of a downturn in the semiconductor industry, these integrated device manufacturers may respond by shifting some outsourced assembly and test services to internally serviced capacity. For example, we experienced a decrease in our memory product category sales in 2014 from 2013, and in 2013 from 2012, primarily as a result of the continued reduced demand from Nanya, which was a key memory customer, as it changed its strategy and insourced more of its assembly and test requirements.

Moreover, these integrated device manufacturers may prefer to rely on internal sources for assembly and test services due to their desire to realize higher utilization of their existing assembly and test equipment, their unwillingness to disclose proprietary technology, their possession of more advanced test or assembly technologies and the guaranteed availability of their own assembly and test capacity. Any shifts or slowdowns in outsourcing could have a material adverse effect on our business, financial condition, results of operations and prospects.

We face several risks associated with the management and integration of the semiconductor assembly and test facilities in Singapore, Indonesia and Malaysia acquired from Panasonic.

We acquired three semiconductor assembly and test facilities in Singapore, Indonesia and Malaysia from Panasonic on June 2, 2014. As part of this acquisition, we entered into a contract manufacture agreement with Panasonic under which Panasonic has undertaken to purchase various annual committed amounts of services and products from us. We seek to maintain business and operational continuity at these facilities by continuing to operate these facilities based on the same customized processes and standards instituted by Panasonic prior to our acquisition. While we believe that the facilities currently satisfy the standards required by Panasonic under the contract manufacture agreement, there is no assurance these facilities will continue to maintain such standards and any failure to supply the services and products to Panasonic in accordance with the contract manufacture agreement may result in compensation payable to Panasonic or termination of the contract manufacture agreement.

 

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In addition, we also entered into a guarantee facility in connection with this acquisition under which various restrictions were placed on these semiconductor facilities, such as the requirement for UMS and its subsidiaries to maintain a consolidated minimum cash balance of at least $12.0 million as of the end of each financial quarter, and prohibitions on UMS Holdings and its subsidiaries from extending any loans, credit and various other forms of financial indebtedness to any person (with certain permitted exceptions, such as trade credit extended to customers on normal commercial terms and in the ordinary course of business, and intra-group loans, security over which is generally required to be granted to the finance parties under the guarantee facility). UMS Holdings and its direct and indirect subsidiaries are also not permitted to enter into any transactions with or make any payment to Global A&T Electronics or its subsidiaries (subject to certain exceptions, such as disposals and acquisitions of assets made on arm’s length terms, and payments of up to an aggregate of $4.0 million per annum for management services pursuant to a management services agreement entered into by UMS and USG1), or pay dividends (subject to certain exceptions). These restrictions may prohibit us from efficiently deploying our cash flow from these facilities to our other operations (including to Global A&T Electronics and its subsidiaries).

A significant portion of the capacity at the Singapore, Indonesia and Malaysia facilities that we acquired from Panasonic, has been dedicated to semiconductor products that Panasonic outsources to us under the contract manufacture agreement. These products include ceramic leadless chip carrier and ceramic land grid array image sensor packages, transistor outline packages, laser detector hologram units, small outline transistors and integrated circuit cards. We may face challenges in efficiently managing our resources and utilizing our existing capacity. If we do not receive sufficient demand from Panasonic for our services at these facilities, we may be unable to service products at these facilities from our other existing or new customers in sufficient quantities to maintain or increase utilization, or at all. We seek to eventually integrate these facilities through the harmonization of the processes and management at these facilities with our other facilities, and to service products from our existing or new customers at these facilities by upgrading its existing equipment. The challenges in integrating these facilities include:

 

   

sourcing for new customers or increasing the demand from existing customers to use the services provided by these facilities;

 

   

the covenants under our guarantee facility restricting us from efficiently deploying our cash flow contributed by new customers to these facilities to our other operations (including to Global A&T Electronics and its subsidiaries);

 

   

improving the lower equipment utilization rates through the increase in sales and volume of products that we service, and reducing the high costs incurred, at such facilities that previously operated as subsidiaries of a larger conglomerate which prioritized stability in operations;

 

   

adhering to the quality and process execution standards that meet customer expectations;

 

   

developing and preserving a uniform culture, values and work environment in our operations;

 

   

recruiting, training and retaining sufficient skilled management and employees; and

 

   

developing and improving our internal administrative infrastructure, including our financial, operational, communications and other internal systems.

If we are unable to effectively manage or integrate these facilities or increase the equipment utilization rates at these facilities, our business and results of operations may be materially and adversely affected.

Our indebtedness could adversely affect our financial condition and restrict our ability to pursue our business strategies.

As of December 31, 2014, we had significant indebtedness and our total borrowings were $1,105.0 million (after deducting unamortized loan facility and related issuance costs). We had negative net tangible book value of $344.0 million as of December 31, 2014 because our total liabilities exceeded total tangible assets. Our net tangible book value represents the amount of our tangible assets, less the amount of our total liabilities. Our finance expenses were $79.6 million, $120.7 million and $125.2 million in 2012, 2013 and 2014, respectively,

 

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representing 59.0%, 123.5% and 79.2%, respectively, of our gross profit in each of those periods. We intend to reduce our indebtedness by using the net proceeds from this offering. See “Use of Proceeds.”

Our degree of leverage may have important consequences to you, including the following:

 

   

we may have difficulty satisfying our obligations under our existing indebtedness, which could in turn result in an event of default. The lenders under such facilities could then vote to accelerate the payment of the indebtedness and foreclose upon our assets securing such indebtedness. Other creditors might then accelerate the payment of other indebtedness;

 

   

we may be required to dedicate a substantial portion of our cash flow from operations to required payments of indebtedness, thereby reducing the availability of cash flow for working capital, capital expenditures and other general corporate activities;

 

   

covenants relating to our indebtedness may limit our ability to obtain additional financing for working capital, capital expenditures and other general corporate activities;

 

   

covenants relating to our indebtedness may limit our flexibility in planning for, or reacting to, changes in our business and the semiconductor industry;

 

   

we may be unable to obtain funding for acquisitions of new businesses and projects;

 

   

we may be more vulnerable than our competitors to the impact of economic downturns and adverse developments in our business;

 

   

we may be placed at a competitive disadvantage against any less leveraged competitors; and

 

   

our indebtedness also exposes us to fluctuations in interest rates as certain of our borrowings are at variable rates of interest.

The occurrence of any of these events could have a material adverse effect on our business, financial position and results of operations.

We may not be able to generate sufficient cash flows to meet our debt service obligations or obligation to pay the remaining installments of the consideration payable to Panasonic for the three semiconductor facilities that we acquired. Our ability to generate cash depends on many factors beyond our control and we may need to access the credit market to meet our liquidity requirements.

Our ability to make scheduled payments on or refinance our debt obligations and installments payments for the consideration payable to Panasonic for the three semiconductor facilities we acquired depends on our financial condition and operating performance, which are subject to prevailing economic, industry and competitive conditions and to certain financial, business, legislative, regulatory and other factors beyond our control. We may be unable to maintain a level of cash flow from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on our indebtedness or the installments due to Panasonic. In addition, although we expect to derive a significant portion of sales from our long-term contract manufacture agreement with Panasonic, Panasonic was unable to fulfill its first annual commitment to us, and any continued failure of Panasonic to meet its purchase commitments under the contract will result in further reduced cash flow generated from these acquired facilities, which may have a material adverse impact on our business, results of operations, financial condition and prospects. Moreover, there are various covenants in the guarantee facility that impose certain restrictions on the cash from operations that we obtain from such facilities, such as a requirement for UMS and its subsidiaries to maintain a consolidated minimum cash balance of least $12.0 million as of the end of each financial quarter, and prohibitions against entering into any transactions with or making any payment to Global A&T Electronics or its subsidiaries (subject to certain exceptions) or making dividend payments (subject to certain exceptions). For details of such restrictions, see “– Our credit facilities and debt instruments, including the indenture, senior revolving credit facility and guarantee facility contain covenants limiting our financial and operating flexibility” and “Description of Certain Indebtedness – Guarantee Facility.”

 

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If our cash flow and capital resources are insufficient to fund our debt service and other financial obligations, we could face substantial liquidity problems and could be forced to reduce or delay investments and capital expenditures or to dispose of material assets or operations, seek additional debt or equity capital or restructure or refinance our indebtedness.

Our ability to obtain external indebtedness could be impacted by our debt ratings. Any increase in our level of debt, change in status of debt from unsecured to secured debt, or deterioration in our operating results and our industry may cause a reduction in our current debt rating. Any downgrade in our current debt rating could impair our ability to obtain additional financing on acceptable terms. Furthermore, the credit markets have recently experienced adverse conditions. Continuing volatility in the credit markets may increase costs associated with issuing debt instruments due to increased spreads over relevant interest rate benchmarks or affect our ability to access those markets. If we cannot service our indebtedness, we may have to take actions such as selling assets, seeking additional equity or reducing or delaying capital expenditures, strategic acquisitions, investments and alliances. We cannot assure you that any such actions, if necessary, could be effected on commercially reasonable terms or at all.

Our credit facilities and debt instruments, including the indenture, senior revolving credit facility and guarantee facility contain covenants limiting our financial and operating flexibility.

The indenture pursuant to which the senior secured notes were issued, or the indenture, the senior revolving credit facility that we obtained in February 2013, or the senior revolving credit facility, and the guarantee facility that we obtained in connection with our acquisition of the semiconductor facilities from Panasonic, or the guarantee facility, and certain finance leases that we have entered into, contain covenants that restrict our ability to engage in activities that may be in our long-term interests. For example, there are covenants, subject to certain thresholds or exceptions, on us against:

 

   

creating liens on assets;

 

   

making investments, loans or advances;

 

   

incurring additional indebtedness;

 

   

effecting mergers or consolidation;

 

   

selling assets or entering into sale and leaseback transactions;

 

   

paying dividends and distributions, repurchasing share capital or making other restricted payments; and

 

   

entering into transactions with affiliates.

The covenants under the indenture, senior revolving credit facility and guarantee facility could limit our ability to pursue our growth plans, restrict our flexibility in planning for, or reacting to, changes in our business and industry and increase our vulnerability to general adverse economic and industry conditions. In addition, the indenture and senior revolving credit facility contain restrictions on Global A&T Electronics and its subsidiaries from entering into transactions with its affiliates (which includes UMS Holdings and its direct and indirect subsidiaries). We may enter into additional financing arrangements in the future, which could further restrict our flexibility. Any defaults of covenants contained in the indenture, senior revolving credit facility and guarantee facility may lead to an event of default and to cross-defaults. Other creditors might then accelerate the payment of other indebtedness. If any of our creditors accelerate the payment of their indebtedness, we may not have sufficient assets to satisfy our obligations under the indenture, senior revolving credit facility and guarantee facility or our other indebtedness.

Our guarantee facility also requires UMS and its subsidiaries to maintain a consolidated minimum cash balance of at least $12.0 million as of the end of each financial quarter, and prohibits UMS Holdings, and UMS and its direct and indirect subsidiaries from extending any loans, credit and various other forms of financial indebtedness to any person (with certain permitted exceptions, such as trade credit extended to customers of USG2, UMY and UID on normal commercial terms and in the ordinary course of business, and certain intra-group loans, security over which is generally required to be granted to the finance parties under the guarantee

 

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facility). UMS Holdings, and UMS and its direct and indirect subsidiaries are also not permitted to enter into any transactions with or make any payment to Global A&T Electronics or its subsidiaries (subject to certain exceptions, such as disposals and acquisitions of certain assets made on arm’s length terms, and payments of up to an aggregate of $4.0 million per annum for management services pursuant to the management services agreement entered into by UMS and USG1 in connection with the acquisition of USG2, UMY and UID from Panasonic, in each case subject to certain conditions), or making dividend payments (subject to certain exceptions). Certain amounts received by UMS Holdings and any of its subsidiaries under the contract manufacture agreement between UMS and Panasonic are also to be credited into specified bank accounts, which have been charged to secure our obligations under the guarantee facility.

Please see “Description of Certain Indebtedness” for further details relating to the covenants under the indenture, senior revolving credit facility and guarantee facility.

Pending litigation by certain holders of senior secured notes issued by our wholly-owned subsidiary, Global A&T Electronics Ltd., and guaranteed by certain of Global A&T Electronics’ subsidiaries, may expose us to significant liabilities, result in negative publicity and have a material adverse effect on our reputation, business, financial condition, results of operations and prices of our securities.

In November 2013, Global A&T Electronics received letters purportedly from certain holders of Global A&T Electronics’ senior secured notes, alleging, among other things, that the issuance of $502.3 million in aggregate principal amount of senior secured notes on September 30, 2013 resulted in defaults under the indenture. Following these letters, a complaint was filed in the Supreme Court of the State of New York, New York County, by certain purported holders of Global A&T Electronics’ existing senior secured notes, alleging certain claims in relation to the issuance of $502.3 million in aggregate principal amount of additional senior secured notes, which are treated as a single series with the existing senior secured notes, to lenders of term loans under Global A&T Electronics’ previous second priority floating rate loan facility and second priority fixed rate loan facility. These second priority lenders had, on September 30, 2013, agreed to cancel and terminate all outstanding principal amounts due to them under the second priority loan agreements in exchange for such additional senior secured notes.

The plaintiffs allege that the September 30, 2013 exchange transaction caused an event of default under the indenture and seek monetary damages and other relief, including an injunction “unwinding” the September 30, 2013 transaction and/or “subordinating the liens” securing the senior secured notes issued on September 30, 2013 to the liens on those senior secured notes issued on February 7, 2013. We have and intend to continue to vigorously defend this lawsuit. However, there are no assurances that we will be successful in our defense. If the litigation is decided adversely to us, there could be several material and adverse consequences including acceleration of our obligations and our senior secured notes and certain other indebtedness, monetary damages and rescission orders. On May 30, 2014, Global A&T Electronics filed a motion to dismiss the plaintiffs’ complaint. The motion to dismiss was heard by the court on January 13, 2015, but has not yet been decided. See “Business – Legal Proceedings.”

Regardless of the outcome, this litigation could have an adverse impact on us as significant legal costs have been and will likely to continue to be incurred and as a result of diversion of management’s time and other resources. Also, any negative publicity arising from these claims is likely to damage our brand and reputation, harm our ability to attract and retain customers and result in a material adverse impact on our business, financial condition, results of operations and prospects and adversely affect our ability to raise debt financing in the future. Any adverse outcome from these proceeding including but not limited to monetary damages which may be awarded to the plaintiffs will result in a material and adverse impact to our business, financial condition, results of operations, prospects and the prices of our securities.

We are and may be subject to certain intellectual property-related litigation and may in the future be subject to intellectual property rights disputes.

The semiconductor assembly and test industry is characterized by frequent litigation regarding patent and other intellectual property rights. As the number and scope of patents and other intellectual property rights in our

 

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industry increase, companies in our industry face an increasing number of patent infringement claims as part of their ordinary course of business. Litigation may be necessary in order to enforce our patents or other intellectual property rights or to defend us against claimed infringement of the rights of others, which may result in protracted litigation, incurrence of further costs and diversion of our management’s attention from our operations.

If any litigation or patent infringement claim is made against us, we could be required to stop using certain processes or other intellectual property, cease production of infringing packages, or using, importing or selling them, attempt to acquire licenses to use the infringed technology, pay substantial damages or develop non-infringing technologies.

Regardless of whether such claims are valid, we could be required to expend valuable resources to defend any claims alleging our infringement of patents or other intellectual property rights and consequently incur substantial costs. If we fail to obtain necessary licenses or if litigation relating to patent infringement or other intellectual property matters occurs, we may be adversely affected.

On September 30, 2010, Tessera, Inc., or Tessera, filed a complaint against UTC in the United States District Court of the Northern District of California. The suit relates to a contractual dispute as to whether UTC’s patent license agreement with Tessera obligates it to continue paying royalties to Tessera. On April 4, 2014, Amkor Technology, Inc., or Amkor, filed a complaint against Global A&T Electronics and certain of its subsidiaries in the Superior Court of Arizona. The suit relates to patent licenses between Amkor and certain of Global A&T Electronics’ subsidiaries and payment of royalties by one of our subsidiaries. On July 8, 2014, Tessera identified patents that it contends cover UTC’s packages, and the parties are presently in the process of discovery concerning Tessera’s patent claims. On January 30, 2015, the magistrate judge issued a ruling denying Tessera’s request for discovery concerning the testing services that UTC provides for packages made by other companies. On May 26, 2015, the court issued an order denying Tessera’s motion for leave to amend its complaint to add a claim concerning UTC’s testing services. In addition, on May 26, 2015 the court issued an order scheduling the trial of the suit (if a trial is needed) to begin on February 23, 2016 and the parties will engage in expert discovery until July 17, 2015, followed by the filing of summary judgment motions that will be heard on September 24, 2015. On March 24, 2015, we filed a motion to dismiss the claims and the court will hear oral argument on our motion to dismiss on September 18, 2015. See “Business – Legal Proceedings.” Any adverse outcome from any proceedings with Tessera or Amkor could have a material adverse effect on our business, financial condition and results of operations.

We may be exposed to liabilities under various anti-corruption laws.

We operate in a number of countries that have a reputation for presenting business ethics and corruption risks. Our business in those countries, as well as our acquisitions and relationships and dealings with third parties, including consultants and other agents we may engage from time to time, expose us to potential risks and liability under anti-corruption laws.

We are committed to doing business in accordance with all applicable anti-corruption laws and have adopted a Code of Conduct and policies which are consistent and in compliance with applicable anti-corruption and anti-bribery laws and regulations. See “Management – Code of Business Conduct and Ethics” for further details.

We are subject to the continued risk that we, our affiliated entities or our or their respective officers, directors, employees and agents may take actions, or have taken actions, that may be determined to be in violation of relevant anti-corruption laws. There is no assurance that our efforts have been or will be completely effective in ensuring our compliance with all applicable anti-corruption laws or other legal requirements, or that we have not violated and will not violate such laws. If it is ever determined that improper payments were made, whether in future periods or based on new facts that come to light with respect to past periods, we could be subject to fines and other penalties that may be imposed by applicable regulatory authorities. See “– If we fail to maintain an effective system of internal controls, we may not be able to complete our analysis of our internal control over financial reporting in a timely manner, accurately report financial results or prevent fraud or other liabilities” for a description of certain issues we have identified at one of our facilities.

 

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Any violation of anti-corruption or other laws could result in substantial fines, sanctions, civil and/or criminal penalties, curtailment of operations in certain jurisdictions, and could adversely affect our business, results of operations, financial condition or prospects. Moreover, actual or alleged violations or any investigation of potential violations by U.S. or foreign authorities could adversely damage our reputation and ability to do business. In addition, relevant governmental authorities may seek to hold our company liable for anti-bribery violations committed by companies in which we invest or that we acquire. Furthermore, detecting, investigating, and resolving actual or alleged violations is expensive and can consume significant time and attention of our senior management.

Average selling prices of assembly and test services have historically declined and may continue to do so, which may affect our profitability.

The average selling prices of our assembly and test services have declined historically in line with industry trends. Our contract manufacture agreement with Panasonic also requires us to apply certain reductions to the purchase price in each year for the duration of the agreement, to extend rebates of between 2% and 10% of the relevant eligible revenue generated that meets and/or exceeds the relevant annual or interim commitments by Panasonic and to share any cost reductions we achieve under the agreement, which may result a steeper decline in our average selling prices. Please see “Business – Major Customers – Contract Manufacture Agreement with Panasonic” for details on our contract manufacture agreement with Panasonic. In addition, any additional investments to increase in capacity by other assembly and test service providers without a corresponding increase in demand for outsourced assembly and test services could result in a steeper decline in average selling prices. Our ability to maintain or increase our profitability will continue to be dependent, in large part, upon our ability to offset decreases in average selling prices by realizing cost savings, reduction in our cost structure and improving our labor productivity, increasing unit volumes assembled or tested, or shifting to higher margin assembly and test services. If we are unable to do so, our business, financial condition and results of operations could be materially and adversely affected.

We may not be able to anticipate, develop, acquire or access cutting-edge technology, which would affect our ability to render advanced services at competitive prices and limit our ability to compete effectively.

The semiconductor assembly and test market is characterized by rapid technological change and increasing complexity. We must be able to offer our customers assembly and test services in line with technological advancements in the semiconductor industry. Advances in technology typically lead to rapid and significant price declines and decreased margins for older products and may also affect demand for test services. Technological advances could also cause our test or assembly capabilities to be less competitive with new technologies and, sometimes, to become obsolete. We seek to identify strategic intellectual property for our operations and focus on acquiring or developing such intellectual property that can enhance our capability. In particular, our acquisition of ASAT Limited (now known as UHK) in 2010 and NS Electronics Bangkok (now known as UTL) in 2006 strengthened our position and intellectual property portfolio in QFN packages, and our acquisition of UltraTera Corporation (now known as UTC) equipped us with a portfolio of patents in the memory product category.

If we fail to anticipate technological trends, keep up with advanced assembly and test service technology, and acquire or access technology developed by others in a timely manner, we may not be able to produce advanced products at competitive prices, we could lose our existing customers or may fail to acquire potential customers demanding these advanced services. We could also miss opportunities to benefit from the higher average selling prices that tend to be derived from newer and emerging assembly and test services. In order to remain competitive, we must be able to upgrade or migrate our testing equipment to respond to changing technological requirements. In addition, if we invest in anticipation of technological changes that do not materialize, we may be unable to recover the costs of such investments.

There is also a risk that our competitors may adopt new technology before we do, in which case our customers may use the services of our competitors instead of our services, which could have a material adverse impact on our business, results of operations and prospects.

 

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We may not be able to pass on increases in prices of the materials and components we use for our operations, and any increase in energy and labor costs, to our customers.

A number of materials used in our assembly services are commodities and their prices fluctuate from time to time. In particular, gold is one of the principal materials used in our assembly services and accounted for 7.8% of our total cost of sales in 2014. The average cost of gold per troy ounce for our operations has fluctuated significantly from an approximate average of $1,678 per troy ounce in 2012, $1,624 per troy ounce in 2013 and $1,251 per troy ounce in 2014. From time to time, we enter into derivative contracts to partially manage our exposure to fluctuating gold prices through gold forward contracts if the opportunity arises. There is no assurance that these hedging arrangements will provide adequate protection and it is possible that we may incur losses under these arrangements in the future as a result of fluctuations in gold prices. There can also be no assurance that the price of gold will continue to decrease. In the event that the price of gold increases, we may attempt to negotiate pricing increments with our customers but there is no assurance that we will be able to successfully offset such increases in gold prices whether partially or at all.

Employee compensation expenditures (including direct and indirect labor) for our assembly and test business have also increased due to wage inflation and the expansion of our workforce. Certain of our employees in Singapore, Indonesia and Malaysia are unionized, and our employee compensation costs may increase if we agree to wage increases in any future wage negotiations with the unions. The expenses that we incur for our electricity and utilities for our facilities are also significant and may increase if our energy conservation efforts do not fully offset any increase in our electricity and utilities costs. In addition, certain of our manufacturing facilities located in countries which historically had lower utilities costs may experience an increase in its utilities costs if the relevant local government ceases to subsidize energy costs or increase its energy tariffs.

We may attempt to pass on increased prices of materials and components, and increased costs in labor and energy, to our customers, but there can be no assurance that such efforts will be successful. If we are unable to pass on such increased prices and costs or successfully reduce or mitigate such increases, our business, financial condition and results of operations could be adversely affected.

We depend on third-party suppliers for the materials and components required for our assembly services and any inability of our suppliers to supply such materials and components could adversely affect our operations.

We depend on third-party suppliers located in Asia for the materials and components such as gold, copper, substrates, lead-frames, molding compound and epoxy that we require for our assembly services. There are a limited number of suppliers that possess the technical capability to supply certain materials and components in our industry. In 2014, our top five material and components suppliers, in aggregate, accounted for approximately 16.6% of our total material and components purchases. We have entered into purchase agreements with all our preferred suppliers and we generally purchase our materials on a short-term basis through the issuance of purchase orders. Although we have in place alternative suppliers for a majority of our materials and components, we cannot assure you that our primary and alternative suppliers will not become insolvent, experience financial difficulties or be adversely affected by natural disasters. Moreover, we may not be able to obtain materials and components from alternative suppliers at acceptable prices or in sufficient quantities or acceptable quality or terms. For example, we encountered some problems with securing a steady supply of lead-frames and substrates for our Thai plants due to the floods in 2011. Any such difficulties could have a material adverse effect on our business, financial condition and results of operations.

Our industry is highly capital intensive and we may not generate sufficient cash to meet our capital expenditure requirements and our capital expenditure may also not fulfill expected returns.

Semiconductor assembly and test is capital intensive and requires investment in expensive equipment. Furthermore, to remain competitive, we improve our facilities and process technologies from time to time and conduct ongoing research and development. Although we are actively exploring new techniques for updating and extending the usable life of our equipment in order to increase our throughput without incurring significant additional capital expenditure, our level of capital expenditure may prove greater in the future than historical

 

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capital expenditure levels. In 2012, 2013 and 2014, our cash outflows in respect of capital expenditure, or cash capital expenditure, was $99.6 million, $50.3 million and $121.8 million, respectively. If we were unable to generate sufficient cash from our operations or raise sufficient capital to meet our capital expenditure requirements, we may become less competitive and our business, financial condition and results of operations could be materially and adversely affected.

The equipment and test programs that we use to carry out our testing services are customized to accommodate the requirements of specific types of semiconductors. Testers, in particular, are also relatively costly and tester depreciation represents a significant percentage of our costs. In 2012, 2013 and 2014, we acquired 11 testers, 16 testers and 81 testers, respectively. We believe that the success and profitability of our testing operations depends to a large extent on the volumes of the products that we test, and our ability to perceive trends with respect to the tester capabilities that will be required for our target end-markets and by our customers in the future. We also work closely with our customers to align our tester investments with their product roadmaps and we seek to invest in tester models whose capabilities can be upgraded as our customers’ products become increasingly sophisticated. If we are unable to accurately perceive trends in tester capabilities or keep pace with improvements in our customers’ products, we may not be able to recover our investments in equipment and test programs, which may negatively affect our business, financial condition and results of operations.

We have high fixed costs, and if we are unable to increase our sales, pricing levels or the volume of products for which we provide assembly and test services, our profitability could be adversely affected.

As a result of the capital intensive nature of our business, our operations are characterized by high fixed costs. We incurred depreciation expenses of $162.9 million, $151.7 million and $149.9 million for 2012, 2013 and 2014, which represented 17.5%, 20.3% and 17.4%, respectively, of our sales for each of those periods. We expect to continue to incur substantial depreciation and other expenses in connection with our acquisition of assembly and test equipment and facilities. Our profitability depends in part not only on absolute pricing levels for our services but also on the volume and variety of products for which we provide assembly and test services. In periods of low demand, equipment utilization rates tend to be lower, causing reduced gross profit margins. Our overall equipment utilization rate in 2013 was generally lower compared to 2012, and our gross profit margin was 13.1% in 2013 compared to 14.5% in 2012. The decrease in our gross profit margin was primarily due to a decline in our test sales, and to a lesser extent, our assembly sales. The factors affecting our gross profit margin and equipment utilization rate in 2013 were primarily the weakness in demand in our memory business as Nanya, which was one of our key memory customers, changed its strategy and insourced more of its assembly and test requirements, loss in our share of wallet with respect to some customers in our analog assembly business, customers ceasing to use our assembly and test services for certain products that we no longer service in Singapore and closure of our facility at Chengdu.

Moreover, our customers do not commit to binding forecasts, which makes it difficult for us to schedule production at our facilities accurately and to utilize capacity optimally to achieve maximum efficiency. Insufficient equipment utilization could negatively impact our profitability. If we fail to successfully predict trends or if we purchase equipment based on a customer’s product roadmap and the customer terminates its relationship or reduces its business with us, we may not be able to fully utilize our equipment, which could decrease our sales and margins.

We may be unable to obtain assembly or test equipment or other materials and components when we require them or at reasonable costs, and any disruptions to our assembly and test processes may result in delays and increased costs.

The semiconductor assembly and test business requires investment in expensive equipment, including testers and wire bonders, manufactured by a limited number of suppliers principally located in the United States, Europe and Japan. The market for capital equipment used in semiconductor testing is characterized, from time to time, by intense demand, limited supply and long delivery cycles. Our equipment, materials and other suppliers typically require approximately four months to deliver the equipment that we require for our operations. Our

 

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operations and expansion plans are highly dependent upon our ability to obtain a significant amount of the required equipment from a limited number of suppliers at a reasonable cost. If we are unable to obtain adequate equipment in a timely manner and at a reasonable cost, we may be unable to fulfill our customers’ orders which could result in a loss of customers, curtailed operations and increased costs.

Our assembly and test processes are complex and involve a number of precise steps. Defective assembly and test can result from a number of factors, such as the level of contaminants in the manufacturing environment, human error, equipment malfunction, incorrect process condition setting, use of defective raw materials, and inadequate sample testing. If our equipment breaks down or needs to be repaired or replaced, it may cause significant disruption to our assembly and test operations, which could result in us being unable to fulfill our customer orders on time or at all. For example, in 2014, we experienced production delays in our Dongguan facility caused by a deionized water leak at the facility. Any problems in the future with equipment at our facilities may delay or impair our ability to fulfill our obligations, which could negatively affect our business, financial condition and results of operations.

We face potential liability for compensation claims, economic damage claims and the risk of negative publicity if our services fail to meet our customers’ specifications.

We rely on monitoring and other quality and reliability assurance protocols to ensure that the packages that we assemble or products we test are defect-free and meet customer standards and specifications. From time to time, defective assembly and testing can result from various factors such as, contaminants in the manufacturing environment, human error, equipment malfunction, incorrect process condition setting, use of defective raw materials and inadequate sample testing. In such instances, we incur additional costs to remedy these defects, including by making compensation to customers. We may re-assemble packages or re-test products that are returned to us based on our customers’ additional requirements in order to minimize fraud and the reoccurrence of defects. Our failure to effectively manage these defects and liability risks could cause us to incur additional repair or replacement costs and other economic losses, and our reputation and the market acceptance of our products and packages could be adversely affected.

The requirements of being a public company may strain our resources, divert management’s attention and affect our ability to attract and retain executive management and qualified board members.

As a public company, we will incur legal, accounting and other expenses that we did not previously incur. We will be subject to the reporting requirements of the Securities Exchange Act of 1934, the Sarbanes-Oxley Act, the Dodd-Frank Act, the New York Stock Exchange or Nasdaq Global Select Market listing requirements and other applicable securities rules and regulations. Compliance with these rules and regulations will increase our legal and financial compliance costs, make some activities more difficult, time-consuming or costly and increase demand on our systems and resources. The Exchange Act requires, among other things, that we file annual and current reports with respect to our business and operating results. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. Furthermore, the need to establish the corporate infrastructure demanded of a public company may divert the management’s attention from implementing our growth strategy, which could prevent us from improving our business, financial condition and results of operations. We have made, and will continue to make, changes to our internal controls and procedures for financial reporting and accounting systems to meet our reporting obligations as a public company. However, the measures we take may not be sufficient to satisfy our obligations as a public company. In addition, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly. For example, we expect these rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance, and consequently we may be required to incur substantial costs to maintain the same or similar coverage. These additional obligations could have a material adverse effect on our business, financial condition, results of operations and cash flow. Although we plan to hire additional employees to comply with these requirements, we may need to hire more employees than planned or engage outside consultants, which will further increase our costs and expenses.

 

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In addition, changing laws, regulations and standards relating to corporate governance and public disclosure are creating uncertainty for public companies, increasing legal and financial compliance costs and making some activities more time-consuming. These laws, regulations and standards are subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We intend to invest resources to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative expenses and a diversion of management’s time and attention from revenue-generating activities to compliance activities. If our efforts to comply with new laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to their application and practice, regulatory authorities may initiate legal proceedings against us and our business may be adversely affected.

We also expect that being a public company and compliance with these new rules and regulations will make it more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These factors could also make it more difficult for us to attract and retain qualified members of our board of directors, particularly to serve on our audit committee and compensation committee, and qualified executive officers.

As a result of disclosure of information in this prospectus and in filings required of a public company, our business and financial condition will become more visible, which we believe may result in threatened or actual litigation, including by competitors and other third parties. If such claims are successful, our business and operating results could be adversely affected, and, even if the claims do not result in litigation or are resolved in our favor, these claims, and the time and resources necessary to resolve them, could cause an adverse effect on our business, financial condition and results of operations.

If we fail to maintain an effective system of internal controls, we may not be able to complete our analysis of our internal control over financial reporting in a timely manner, accurately report financial results or prevent fraud or other liabilities.

Upon the completion of this offering, we will become a public company in the United States that is subject to certain requirements under the Sarbanes-Oxley Act. Section 404 of the Sarbanes-Oxley Act will require that we include in our annual report on Form 20-F a report from our management assessing the effectiveness of our internal control over financial reporting, beginning as early as our annual report for the fiscal year ending December 31, 2016. In addition, an independent registered public accounting firm must attest to and report on our management’s assessment.

Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with generally accepted accounting principles. We are currently in the process of reviewing, documenting and testing our internal control over financial reporting, but we are not currently in compliance with, and we cannot be certain when we will be able to implement the requirements of Section 404. We may encounter problems or delays in implementing any changes necessary to make a favorable assessment of our internal control over financial reporting. Even if our management concludes that our internal controls over financial reporting are effective, our independent registered public accounting firm may still decline to attest to our management’s assessment or may issue a report that is qualified, if it is not satisfied with our controls or the level at which our controls are documented, designed, operated or reviewed, or if it interprets the relevant requirements differently from us.

Internal controls may not prevent or detect misstatements because of their inherent limitations, including the possibility of human error, the circumvention or overriding of controls, fraud or corruption. Therefore, even effective internal controls can provide only reasonable assurance with respect to the preparation and fair presentation of financial statements. In addition, projections of any evaluation of effectiveness of internal controls to future periods are subject to the risk that the internal controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

 

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As part of our ongoing process of enhancing our internal controls, our management has made recent enhancements to our internal audit function, including the appointment of a new internal audit head in March 2014. Subsequent to these enhancements, in 2014, our internal audit department, in connection with a review at one of our non-U.S. facilities, identified a transaction in 2013 in which a local third party company that we had retained might have provided an improper payment of less than the equivalent of an aggregate of $50,000 to local government officials. Following our further investigation, we did not ascertain whether any such improper payment was in fact made. We have taken several measures to enhance our governance procedures and controls at the facility, including for example by adopting more robust third party diligence procedures, discontinuing festive period gifts to local government officials and reducing cash-based transactions used in the ordinary course of our operations. At the same facility, we also discovered inadequate internal controls, financial processes and documentation that did not meet our standards, and delays in making certain tax filings and payments to tax authorities. To address these inadequacies and also to assist us in our operations and our financial reporting, significant and extensive improvements continue to be made, including to various information technology systems, such as the standardization of our SAP system. We also intend to strengthen our documentation and internal controls processes by implementing various documentation and third party contracting policies. Over time, we intend to implement a global shared services model for accounting functions to improve controls, including specifically the relocation of certain aspects of the accounting controls and financial reporting for this facility to another facility which has a more experienced finance team. There is no assurance that such measures taken to address these issues will be successful, or that we will not discover similar or other inadequacies at the same or other facilities, and any inability to rectify any such inadequacies may materially and adversely affect our ability to operate our business effectively and may damage our reputation and have an adverse impact on our business and prospects.

In 2014, we completed our acquisition of three semiconductor assembly and test facilities in Singapore, Indonesia and Malaysia from Panasonic. We continue to integrate the acquired operations into our operations, including in relation to internal controls. Although we have extended our oversight and monitoring processes that support internal control over financial reporting to include the acquired operations, there is a risk that deficiencies may occur that could constitute significant deficiencies or in the aggregate a material weakness.

If we fail to remedy any deficiencies or maintain the adequacy of our internal controls, we could be subject to regulatory scrutiny, civil or criminal penalties or shareholder litigation. We may also need to incur additional costs and use additional management and other resources in an effort to comply with Section 404 and other requirements going forward. Any failure to maintain adequate internal controls and comply with the requirements of Section 404 could result in financial statements that do not accurately reflect our operating results or financial condition, subject us to regulatory scrutiny, impair our ability to raise capital, lower investor confidence and negatively affect the ADS price.

We may not be able to meet our guidance which could adversely impact the trading prices of the ADSs.

We intend to periodically provide guidance to investors with respect to certain financial information for future periods. As discussed above under “– Our business, results of operations and financial condition have fluctuated from quarter to quarter and may fluctuate significantly as a result of factors outside of our control,” our operating results and cash flows vary significantly and are difficult to accurately predict. Many factors, including global demand, industry inventory levels and customer forecasts which are generally non-binding, make it particularly difficult to predict future results. To the extent we fail to meet or exceed our own guidance for any reason, the trading prices of the ADSs may be adversely impacted. Moreover, even if we do meet or exceed that guidance, if investors do not react favorably, the trading prices of the ADSs may be adversely impacted.

 

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Any further write-off of some or all of the goodwill and other intangibles that we recorded or if we are required to record a charge to earnings in the future due to impairment of our long-lived assets may adversely affect our future financial condition and results of operations.

In accordance with IFRS, goodwill is not amortized but is reviewed annually or periodically for impairment and other intangibles with finite lives that are subject to amortization over their useful lives are also reviewed for impairment whenever there is any indication that these intangibles may be impaired.

We accounted for the acquisitions of USG1, UHK and their respective subsidiaries using the purchase method of accounting. The purchase price for the acquisition was allocated to identifiable tangible and intangible assets and assumed liabilities based on estimated fair values at the date of consummation of the acquisition. The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the net identifiable assets acquired is recorded as goodwill. We did not record any impairment loss on goodwill for the years ended December 31, 2012, 2013 and 2014. As of December 31, 2014, the carrying amount of goodwill in our consolidated financial statements in connection with our acquisitions of USG1, UTC, UTL and USC was approximately $643.4 million.

In addition, we may be required to record a charge to earnings in the future if we determine that our property, plant and equipment is impaired. As of December 31, 2014, the carrying amount of our property, plant and equipment was approximately $587.3 million. We recorded impairment charges of $0.9 million for 2012, $1.7 million for 2013 and $8.2 million for 2014. Any impairment of the value of goodwill, other intangibles or property, plant and equipment would result in a charge against earnings, which could materially adversely affect our future results of operations and financial position.

Significant fluctuations in exchange rates may adversely affect our financial condition and results of operations.

Our sales are generally denominated in U.S. dollars, and our operating expenses are generally incurred in U.S. dollars, Singapore dollars, Thai Baht, New Taiwan dollars, Chinese Renminbi, Japanese Yen and other currencies such as Indonesian Rupiah and Malaysian Ringgit. Our capital expenditures, which include investments in property, plant and equipment, are generally denominated in U.S. dollars and Japanese Yen. As a result, we could be adversely affected by significant fluctuations in foreign currency exchange rates. Although we also may from time to time enter into hedging agreements with banks for a proportion of our net currency requirements, a depreciation of the U.S. dollar against the Singapore dollar, the Japanese Yen and other currencies in which we incur expenses may increase our costs and, consequently, have a material adverse effect on our results of operations and financial condition. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Quantitative and Qualitative Disclosures about Market Risk – Foreign Exchange Risks.”

Loss of any key management or other employees could seriously harm us.

Our performance largely depends on our ability to retain key management, technical, customer support and sales personnel and to attract additional qualified personnel. During the past few years, we have recruited several new senior management personnel, including our Chief Executive Officer, Dr. William John Nelson, who joined us in October 2012, and our Chief Financial Officer, Mr. Douglas J. Devine, who joined us in January 2014, our Senior Vice President of Product Line and Marketing, Mr. Asif R. Chowdhury, who joined us in March 2014, our Senior Vice President of Worldwide Sales, Mr. Jeffrey R. Osmun, who joined us in January 2013 and our Senior Vice President of Operations, Dr. Frank R. Myers, who joined us in March 2013, to implement several strategic and operational initiatives. There is no assurance that such initiatives will be successful. In addition, we also consider our senior and mid-level managers and our technical personnel with specialized expertise in testing, equipment engineering, assembly development, assembly engineering and failure analysis to be important to our success. We plan to implement compensation policies, plans and programs for our executive officers and other employees prior to this offering. There is no assurance that we will be able to retain our key management and

 

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technical employees even if such compensation policies, plans and programs were in place. Any inability to retain our key management and technical employees or attract additional employees could disrupt our operations and could have a material adverse effect on our company.

We employ foreign workers at various facilities under work permits which are subject to the relevant government regulations. Consequently, our business could also be adversely affected if local regulations relating to the employment of foreign workers become significantly more restrictive or we are otherwise unable to attract or retain these workers at a reasonable cost.

Our intellectual property is important to our ability to succeed in our business but may be difficult to protect.

Our ability to compete successfully and achieve future growth in sales will depend, in part, on our ability to protect our proprietary technology. We seek to protect our intellectual property through the use of confidentiality and non-disclosure agreements and patent registrations.

As of December 31, 2014, we had a total of approximately 263 issued patents and 76 pending patent applications, and six U.S. provisional patent applications. Our existing patents are granted for prescribed periods of time and will expire in the future, and there is no assurance that we will be able to renew them. In addition, we cannot be certain that any of our applications for patents will be granted or, if granted, will not be challenged, invalidated or circumvented or will offer us adequate protection. Further, the laws of the jurisdictions in which we market our products have differing legal standards relating to the validity, enforceability and scope of protection of our intellectual property rights. Also, the steps we have taken to protect our proprietary rights may not be adequate.

Additionally, our competitors could develop patents or gain access to similar know-how and process technology, and any confidentiality and non-disclosure agreements upon which we rely to protect our proprietary information for our assembly and test services might not provide adequate protection. The occurrence of any of those events could reduce our profitability and affect our ability to succeed in our business.

We expect to have an ongoing need to obtain licenses for the proprietary technology of others, which subjects us to the payment of license fees and potential delays in the development and marketing of our products.

Our group companies have been licensed to use third-party patents in the operation of our business, of which less than 10.0% of our sales in 2014 were dependent on such third-party patents. We continue to develop and pursue patent protection for our own technologies but we may need to rely on such third-party license arrangements from time to time. To the extent these licenses are not perpetual and irrevocable, we believe that these licenses are renewable under normal commercial terms upon their expiration. However, we may be unable to utilize the technologies under these licenses if they are not extended or otherwise renewed or if any of these licenses are terminated by the licensor. Alternatively, if we are able to renew these license arrangements, they might not be renewed on the same terms. Any dispute with third-party licensors may also result in substantial payments by us or the licensors’ termination of relevant licenses. Any failure to extend or renew these license arrangements or termination of these license arrangements could cause us to incur substantial liabilities or to suspend the assembly and test services and processes that utilize these technologies, which may result in a loss of our existing customers. The fees associated with such licenses could adversely affect our financial condition and results of operations, and may also render our services less competitive. If for any reason we are unable to license necessary technology on acceptable terms, it may become necessary for us to develop alternative technology internally, which could be costly and delay the marketing and delivery of key products, or we may be unable to do so on a cost effective or timely basis or at all, and therefore could result in a loss of customers and have a material adverse effect on our business and results of operations.

Our research and development investments may not yield profitable and commercially viable test or assembly services and may not increase our sales.

We invest significant resources in research and development. For example, our research and development expenses (which includes employee compensation, depreciation of equipment and amortization of intangible

 

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assets) were $18.8 million, $12.3 million and $12.5 million for the years ended December 31, 2012, 2013 and 2014, which represented 10.8%, 5.9% and 5.3%, respectively, of total operating expenses. However, our research and development efforts may not yield commercially viable test or assembly services. The qualification process for new assembly and test services is conducted in various stages which may take several years to complete, and during each stage there is a substantial risk that we will have to abandon a potential assembly or test service which is no longer marketable and in which we have invested significant resources. Even in the event that we are able to qualify new assembly or test services, a significant amount of time would have elapsed between our investment in new test or assembly services and the receipt of any related sales. Our research and development investments may not yield profitable and commercially viable assembly or test services or increase our sales.

Failure of our customers to pay the amounts owed to us in a timely manner may adversely affect our financial condition and results of operations.

We generally provide payment terms ranging from 30 to 60 days. As a result, we generate significant trade receivables, net of allowance for impairment of trade receivables, from sales to our customers, representing 14.2%, 13.0% and 14.3% of sales as of December 31, 2012, 2013 and 2014, respectively. As of December 31, 2014, the largest amount owed by a single customer was 14.5% of our total trade receivables and our allowance for impairment of trade receivables was $0.1 million as of December 31, 2014. If any of our customers has insufficient liquidity, we could encounter significant delays or defaults in payments owed to us by such customers, and we may need to extend our payment terms or restructure the receivables owed to us, which could have a significant adverse effect on our financial condition. Any deterioration in the financial condition of our customers will increase the risk of uncollectible receivables.

We lease some of the land on which some of our facilities are situated. We may not be able to continue to renew our leases or renew such leases on terms as favorable as we have negotiated in the past or at all and our existing leases may be terminated.

Some of the land on which our facilities in Singapore, Thailand, Taiwan and China are leased from third parties and are due to expire in the near future, with the earliest lease for part of the land at our Taiwan facility expiring in August 2015. We could be subject to increased rental rates or new and unfavorable terms if we lease new premises or renew our lease at our current premises. For example, the land on which our assembly and test facility in Shanghai, China is located is held by us under a lease and such land is held by the owner subject to a mortgage that was entered into prior to our entering into the lease agreement. Under PRC law, if the mortgagee were to enforce its security interest in the property, the mortgagee could be entitled to take possession of the property without the obligation to assume the owner’s obligations under our lease. We have no agreement in place with the mortgagee allowing us to continue to lease the property in the event that it enforces its security interest in the property. If such mortgagee ultimately takes possession of the land, we could be required to renegotiate our lease for this property on terms less favorable than our current lease or relocate our operations in Shanghai. If we relocate our facilities to new premises, the costs associated with relocating our operations could be substantial. If we are unable to renew these leases or relocate to new facilities on commercially acceptable terms, we may suffer business disruption or our rental costs could increase, which in turn could have a material adverse effect on our business and results of operations.

Liabilities and obligations under environmental laws and regulations could require us to spend additional funds and could adversely affect our business, financial condition and results of operations.

We are subjected to a variety of environmental laws and regulations in the jurisdictions in which we conduct operations, including laws and regulations relating to the use, storage, discharge and disposal of hazardous materials and the chemical by-products of, and waste water discharges from, our assembly and test processes. Furthermore, our activities are also subject to regulatory requirements on the environmental impact of our production processes in Singapore, Thailand, Taiwan, China, Indonesia and Malaysia. For example, we are required to institute processes for the disposal of residuals, wastewater, gas and noise pollution. We may also be subject to liability under such laws and regulations for the investigation or clean-up of contamination caused by,

 

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or other damages associated with, the release of hazardous materials in connection with current or historical operations at our facilities or offsite locations. While we believe that we are currently in compliance with such laws and regulations, any failure to comply with such laws and regulations in the future could materially and adversely affect our ability to continue to provide our services and could subject us to liabilities that may have a material adverse effect on our business, financial condition and results of operations. While we believe that we do not face material liabilities associated with contamination conditions, should other yet unknown contamination conditions be identified in the future, we could face environmental liabilities that may have a material adverse effect on our business, financial condition and results of operations.

Any failure to maintain a clean room environment or any occurrence of fire, flood, earthquake or other calamities at any of our facilities or disruption to the global semiconductor supply chain could adversely affect us.

We conduct our assembly and test operations at our facilities in Singapore, Thailand, Taiwan, China, Indonesia and Malaysia, some of which are subject to natural disasters such as earthquakes, tsunamis, typhoons, floods and other calamities. Our assembly and test operations take place in areas where air purity, temperature and humidity are controlled. If we are unable to control our assembly or test environment, our assembly or test equipment may become non-functional, test results may be adversely affected or the assembled and tested semiconductors may become defective. Further, significant damage to or other impediments to operations at any of these facilities, whether as a result of fire, inclement weather, the outbreak of infectious diseases (such as MERS, SARS or avian flu), civil strife, industrial strikes, breakdowns of equipment, difficulties or delays in obtaining materials and equipment, natural disasters, terrorist incidents, industrial accidents or other causes could temporarily disrupt or even shut down our operations, which would have a material adverse effect on our business, financial condition and results of operations. For example, our operations in Taiwan are vulnerable to typhoons and earthquakes, which could cause plant closures and transportation interruptions. In the event of such a disruption or shutdown, we may be unable to reallocate production to other facilities in a timely or cost-effective manner, or at all, and may not have sufficient capacity to service customer demands in our other facilities.

In addition, some of the processes that we utilize in our operations place us at risk of fire and other damage. For example, highly flammable gases are used in the preparation of wafers holding semiconductor devices for flip chip assembly. While we maintain insurance policies for various types of property, casualty and other risks, we do not carry insurance for some of the above referred risks and with regard to the insurance we do maintain, we cannot assure you that it would be sufficient to cover all of our potential losses. Further, any events that cause disruptions in the global semiconductor supply chain, for example, the earthquake in Japan in the first quarter of 2011 that affected the operations of some of our customers and suppliers, could adversely affect our business, financial condition and results of operations.

We believe we are in material compliance with all applicable tax laws in the various jurisdictions where we are subject to tax, but our tax liabilities, including any arising from restructuring transactions, could be uncertain, and we could suffer adverse tax and other financial consequences if tax authorities do not agree with our interpretation of the applicable tax laws.

Although we are domiciled in Singapore, we and our subsidiaries collectively operate in multiple tax jurisdictions and pay income taxes according to the tax laws of these jurisdictions. Various factors, some of which are beyond our control, determine our effective tax rate and/or the amount we are required to pay, including changes in or interpretations of tax laws in any given jurisdiction and changes in geographical allocation of income. We accrue income tax liabilities and tax contingencies based upon our best estimate of the taxes ultimately expected to be paid after considering our knowledge of all relevant facts and circumstances, existing tax laws, our experience with previous audits and settlements, the status of current tax examinations and how the tax authorities view certain issues. Such amounts are included in income taxes payable, other noncurrent liabilities or deferred income tax liabilities, as appropriate, and updated over time as more information becomes available.

 

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We believe that we are filing tax returns and paying taxes in each jurisdiction where we are required to do so under the laws of such jurisdiction. However, we have in some cases failed to do so on a timely basis and there can be no assurances that we will not be subject to penalties as a result. Furthermore, it is possible that the relevant tax authorities in the jurisdictions where we do not file returns may assert that we are required to file tax returns and pay taxes in such jurisdictions. There can be no assurance that our subsidiaries will not be taxed in multiple jurisdictions in the future, and any such taxation in multiple jurisdictions could adversely affect our business, financial condition and results of operations.

In addition, we may from time to time be subject to enquiries from tax authorities of the relevant jurisdictions on various tax matters, including challenges to positions asserted on income and withholding tax returns for our business or on behalf of our employees. We cannot be certain that the tax authorities will agree with our interpretations or that the tax authorities will resolve any enquiries in our favor. To the extent the relevant tax authorities do not agree with our interpretation or the amount that we withhold, we may seek to enter into settlements with the tax authorities which may require significant payments and may adversely affect our results of operations or financial condition. We may also appeal against the tax authorities’ determinations to the appropriate governmental authorities, but we cannot be sure we will prevail. If we do not prevail, we may have to make significant payments or otherwise record charges (or reduce tax assets) that could adversely affect our results of operations, financial condition and cash flows. Similarly, any adverse or unfavorable determinations by tax authorities on pending enquiries could lead to increased taxation on us, that may adversely affect our business, financial condition and results of operations.

We have received preferential tax treatment in Singapore, Thailand and Taiwan. Such preferential tax treatment may not be available to us if the conditions attached to them are not complied with or are no longer applicable.

We enjoy certain tax holidays and other tax incentives in Singapore, Thailand and Taiwan, which are subject to certain conditions, such as achieving certain amounts of capital expenditure and headcount by certain dates. Our taxes in those jurisdictions could increase if we do not meet these conditions, or if tax rates applicable to us in those jurisdictions are otherwise increased. In Singapore, our subsidiaries, UHQ and UMS, have been granted a concessionary tax rate of 5% for qualifying activities for a four year period commencing from June 2, 2014. In Thailand, UTL has been granted certain tax exemptions up to 2018 for the assembly and testing of integrated circuits and components, including an exemption from payment of (i) import duty on machinery approved by the Board of Investment of Thailand, or BOI, (ii) income tax for certain operations for certain periods in an amount according to the conditions specified in the investment promotion certificates issued to UTL, and (iii) import duty on raw or essential materials used in the manufacturing of export products for a certain period. As a BOI promoted company, UTL must comply with certain conditions and restrictions provided for in the investment promotion certificates issued by the BOI.

In Taiwan, the Statute of Industrial Innovation allows UTC to enjoy tax credits on research and development. In particular, UTC may claim a credit of 15% of its research and development expenditures to offset up to 30% of its income tax in the relevant financial year. The tax credits cannot be carried forward and any unused tax credits will be forfeited. This tax incentive is effective from January 1, 2010 until December 31, 2019.

We regularly assess the likelihood of achieving the conditions attached to these preferential tax treatment and tax incentives. While we believe we have taken adequate steps to obtain reasonable assurance that these conditions will be satisfied, we cannot assure you that we would continue to be eligible for such preferential tax treatment in the future. If we do not satisfy all the conditions, we may be subject to a higher tax rate.

Regulations related to conflict minerals could adversely affect our business, financial condition and results of operations.

Rule 13p-1 under the Securities Exchange Act of 1934, as amended, or the CM Rule, requires every company that files periodic reports with the Securities and Exchange Commission, or the SEC, (including foreign

 

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private issuers such as UTAC Holdings) that manufactures, or contracts the manufacture of, a product, for which certain “conflict minerals” (including gold, tin, tantalum and tungsten) are necessary to the functionality or production of such product to disclose annually on a specialized disclosure report on Form SD whether it has any reason to believe that any of those conflict minerals used in products originated in the Democratic Republic of the Congo or an adjoining country (each referred to as a “Covered Country”) or are from recycled or scrap sources. Unless an issuer’s conflict minerals used in products manufactured during any calendar year came from recycled or scrap sources or did not originate in a Covered Country, the issuer is required to submit to the SEC by May 31 of the following calendar year a report that includes a description of the measures that it took to exercise due diligence on the source and chain of custody of its necessary conflict minerals. These measures are required to include, among other things, an independent private sector audit, or IPSA, of the report that is conducted in accordance with standards established by the Comptroller General of the United States. In April 2014, the United States Court of Appeals for the District of Columbia Circuit concluded, in litigation challenging the CM Rule and Form SD, that the CM Rule violates the First Amendment to the extent it requires issuers subject to the CM Rule to make certain disclosures addressing whether the conflict minerals necessary to their products were found to be “conflict free” (meaning they did not contain necessary conflict minerals that directly or indirectly finance or benefit armed groups in the Covered Countries). In light of this decision, pending any further action by the SEC or the courts, the staff of the SEC has stated that issuers subject to the CM Rule are not required to identify whether their products containing necessary conflict minerals are conflict free and that, unless the issuer voluntary decides to identify their products as conflict free, no IPSA is required as otherwise contemplated by the CM Rule.

We have conducted a preliminary analysis of our products and believe that certain conflict minerals are necessary to the functionality or production of one or more of our products. Based on the expected completion date of this offering, our first reporting period under the CM Rule will be the calendar year ended December 31, 2017 and any specialized report on Form SD (and related disclosures) that we may be required to file with respect to this reporting period would have to be filed with the SEC on or before May 31, 2018. Unless we are able to conclude that the necessary conflict minerals in our products manufactured from and after January 1, 2017 did not originate in a Covered Country or come from recycled or scrap sources, we will be required to conduct due diligence on the source and chain of custody of those necessary conflict minerals to determine whether our necessary conflict minerals are conflict free. As part of this process we may be required to retain a third party to conduct an IPSA on our due diligence effort. The costs required to comply with the CM Rule may be substantial. In addition, there may be a limited number of suppliers offering minerals that are conflict free and we cannot be sure that we will be able to obtain necessary conflict free minerals in sufficient quantities or at competitive prices. Any efforts to procure a source of conflict free minerals could also disrupt the supply chain for one or more of our products. If we are not able to confirm that our necessary conflict minerals are conflict free, we may suffer harm to our reputation with investors or customers for our products. Any one or more of these consequences of our efforts to comply with the CM Rule could adversely affect our business, financial condition or results of operations.

Risks Related to Countries Where We Operate

Disruptions in the international trading environment may seriously decrease our international sales.

A substantial portion of our sales is derived from sales to international customers, who are based in locations where we do not have any assembly and test facilities. The success and profitability of our international activities depend on certain factors beyond our control, such as general economic conditions, labor conditions, political stability, macro-economic regulating measures, tax laws, import duties, transportation difficulties, fluctuation of local currency and foreign exchange controls of the countries in which we sell our products, as well as the political and economic relationships among the jurisdictions where we manufacture and jurisdictions where our customers are headquartered. As a result, our services will continue to be vulnerable to disruptions in the international trading environment, including adverse changes in foreign government regulations, political unrest and international economic downturns.

 

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Any disruptions in the international trading environment may affect the demand for our assembly and test services and could change the terms upon which we provide our services in international markets, which could impact our business, financial condition and results of operations.

We are subject to various laws and regulations in the jurisdictions in which we operate. Any non-compliance with the relevant laws and regulations, introduction of new foreign exchange policies or political instability in jurisdictions in which we operate, particularly in Singapore, Thailand, Taiwan, China, Indonesia, Malaysia and Hong Kong, could have an adverse effect on our financial condition and results of operations or make it more difficult for us to operate successfully.

A significant portion of our operations and business are carried out in Singapore, Thailand, Taiwan, China, Indonesia, Malaysia and Hong Kong. Substantially all of our property, plant and equipment are located outside of the United States. Moreover, many of our customers and the vendors in our supply chain are located outside of the United States as well. As a result, we are subject to laws, rules and regulations in all these jurisdictions. These laws, rules and regulations, and the interpretation thereof, are subject to change from time to time.

We believe that we are currently in material compliance with all applicable laws, rules and regulations in jurisdictions where we operate. Where we have identified instances of non-compliance, we have taken steps to ensure material compliance, with the relevant laws, rules and regulations. We believe that none of the instances of non-compliance that we have identified are material. For example, we have not obtained certain construction certificates for a few buildings at one of our manufacturing sites and we have had delays in making certain tax filings and payments to tax authorities. However, there is no assurance that we have identified all instances of non-compliance, or that we can rectify past non-compliance, with relevant laws, rules and regulations. Consequently, it is possible that the relevant authorities may assert that we failed to comply with the relevant laws, rules and regulations in respect of our past activities. In the event that we are found to have not been in compliance with any such laws, rules, regulations, restrictions or licensing requirements, the potential consequences of such non-compliance could have an adverse effect on our financial condition and results of operations.

We are also subject to certain risks inherent in doing business in these jurisdictions, including regulatory limitations imposed by the respective governments, military and terrorist risks, disruptions or delays in shipments caused by customs brokers or government agencies, unexpected changes in regulatory requirements, tariffs, customs, duties and other trade barriers, difficulties in staffing and managing foreign operations and potentially adverse tax consequences resulting from changes in tax laws.

We are exposed to the risks of doing business in China. These risks include economic and political uncertainties, an uncertain legal environment, changes in foreign exchange and foreign investment regulations, restrictions on convertibility of the Chinese Renminbi into foreign currency and changes in the value of the Chinese Renminbi, or potential violations of labor rules and standards in China. In addition, the Chinese legal system is a codified legal system and, unlike common law jurisdictions such as the United States or Singapore, decided cases do not form part of the legal structure and thus have no binding effect. As such, the administration of Chinese laws and regulations may be subject to a certain degree of discretion by the authorities. This has resulted in the outcome of dispute resolution processes not having the level of consistency or predictability as in other jurisdictions.

Our business is also subject to the volatile economic and political conditions in Thailand and in Indonesia. Although we have not yet been affected by the events of recent years, there is no assurance that future disturbances will not affect our ability to conduct business or affect the value of the Thai Baht and/or the Indonesian Rupiah in ways that may be unfavorable to us. In particular, Indonesia has many political parties, without any one party winning a clear majority to date. The 2014 elections in Indonesia were concluded without violence and Mr. Joko Widodo was sworn in as President of Indonesia on October 20, 2014. However, as a newly democratic country, Indonesia continues to face various socio-political issues and has, from time to time, experienced political instability and social and civil unrest. Additionally, in Thailand, since the Royal Thai Army declared martial law nationwide and on May 22, 2014, the National Council for Peace and Order dissolved the senate and assumed control of the government. It is difficult to accurately predict the effects of the recent

 

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political upheaval or to determine whether the new government will seek to change Thailand’s legal and regulatory environment.

We also have significant production facilities located in Taiwan and a substantial part of our sales are derived from operations in Taiwan. Relations between Taiwan and China and other factors affecting military, political or economic conditions in Taiwan could have a material adverse effect on our financial condition and results of operations.

In addition, new policies and regulations implemented by the Malaysian government, including legislations and regulations enacted by the Ministry of Domestic Trade, Co-operatives and Consumerism, state governments and municipal councils, particularly those relating to a minimum wage increase, may have an impact, adverse or otherwise, on our business, prospects, financial condition and results of operations.

There can be no assurance that economic, political or legal developments in any of these jurisdictions would not have a material adverse effect on our business, financial condition and results of operations.

Our ability to make further investments in our subsidiaries may be dependent on regulatory approvals.

Our subsidiaries may require future equity-related financing, and any capital contributions to certain of our subsidiaries, such as USC and UDG, may require the approval of the relevant authorities in the jurisdiction in which the subsidiary is incorporated. The approvals are required by the investment commissions of the particular jurisdiction and relate to equity investments by foreign entities in local corporations. We may not be able to obtain any such approval in a timely manner or at all.

Risks Relating to Investments in Singapore Companies

We are incorporated in Singapore and our shareholders may have more difficulty in protecting their interests than they would as shareholders of a corporation incorporated in the United States.

Our corporate affairs are governed by our memorandum and articles of association and by the laws governing companies incorporated in Singapore. The rights of our shareholders and the responsibilities of the members of our board of directors under Singapore law are different from those applicable to a corporation incorporated in the United States. Therefore, our public shareholders may have more difficulty in protecting their interest in connection with actions taken by us, our management, members of our board of directors or our controlling shareholder than they would as shareholders of a corporation incorporated in the United States. For example, controlling shareholders in corporations incorporated in Delaware are subject to fiduciary duties while controlling shareholders in Singapore companies are not subject to such duties.

In addition, only persons who are registered as shareholders in our register of members are recognized under Singapore law as shareholders of our company. Only registered shareholders have legal standing to institute shareholder actions against us or otherwise seek to enforce their rights as shareholders. Investors in the ADSs who are not specifically registered as shareholders in our register of members (for example, where such shareholders hold shares indirectly through The Depository Trust Company) are required to become registered as shareholders in our register of members in order to institute or enforce any legal proceedings or claims against us, our directors or our executive officers relating to shareholder rights. Holders of book-entry interests in the ADSs may become registered shareholders by exchanging their book-entry interests in the ADSs for certificated shares and being registered in our register of members. Please see “Comparison of Shareholder Rights” for a discussion of certain differences between Singapore and Delaware corporation law.

It may be difficult for you to enforce any judgment obtained in the United States against us, our directors, senior management or our affiliates.

UTAC Holdings is a public company limited by shares and is incorporated under the laws of Singapore. A majority of our directors and senior management reside outside the United States. In addition, a majority of our assets and the assets of those persons are located outside the United States. As a result, it may be difficult to enforce in the United States any judgment obtained in the United States against us or any of these persons,

 

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including judgments based upon the civil liability provisions of the United States securities laws. In addition, in original actions brought in courts in jurisdictions located outside the United States, it may be difficult for investors to enforce liabilities based upon United States securities laws.

There is no treaty between the United States and Singapore providing for the reciprocal recognition and enforcement of judgments in civil and commercial matters and a final judgment for the payment of money rendered by any federal or state court in the United States based on civil liability, whether or not predicated solely upon the federal securities laws, would, therefore, not be automatically enforceable in Singapore. It is not clear whether a Singapore court may impose civil liability on us or our directors and officers who reside in Singapore in a suit brought in the Singapore courts against us or such persons with respect to a violation solely of the federal securities laws of the United States. In addition, holders of book-entry interests in the ADSs will be required to be registered shareholders as reflected in our register of members in order to have standing to bring a shareholder suit and, if successful, to enforce a foreign judgment against us, our directors or our executive officers in the Singapore courts. The administrative process of becoming a registered shareholder could result in delays prejudicial to any legal proceeding or enforcement action. In making a determination as to enforceability of a judgment of a state in, or a federal court of the USA in the state of New York, the Singapore courts would have regard to, among others whether the judgment was final and conclusive, given by a court of competent jurisdiction, expressed to be for a fixed sum of money, whether it was procured by fraud, or in breach of principles of natural justice, or whether the enforcement thereof would be contrary to public policy. Accordingly, there can be no assurance that the Singapore courts would enforce against us, our directors or our officers resident in Singapore judgments obtained in the United States which are predicated upon the civil liability provisions of the federal securities laws of the United States.

We are subject to the laws of Singapore, which differ in certain material respects from the laws of the United States.

As a Singapore-incorporated public company, we are required to comply with the laws of Singapore, certain of which are capable of extra-territorial application, as well as our memorandum and articles of association. In particular, we are required to comply with certain provisions of the Securities and Futures Act, Chapter 289 of Singapore, or the SFA, which prohibit certain forms of market conduct and information disclosures, and impose criminal and civil penalties on corporations, directors and officers in respect of any breach of such provisions.

The laws of Singapore and of the United States differ in certain significant respects. The rights of our shareholders and the obligations of our directors and officers under Singapore law are different from those applicable to a U.S.-incorporated company in material respects, and our shareholders may have more difficulty and less clarity in protecting their interests in connection with actions taken by our management, members of our board of directors or our controlling shareholders than would otherwise apply to a U.S.-incorporated company. See “Comparison of Shareholder Rights” for a discussion of certain differences between Singapore and Delaware corporation law.

In addition, the application of Singapore law, may in certain circumstances impose more restrictions on us, our shareholders, directors and officers than would otherwise be applicable to a U.S.-incorporated company. For example, the Singapore Companies Act requires directors to act with a reasonable degree of diligence and, in certain circumstances, imposes criminal liability for specified contraventions of particular statutory requirements or prohibitions. In addition, pursuant to the provisions of the Singapore Companies Act, shareholders holding 10% or more of our issued and outstanding voting rights may require the convening of an extraordinary general meeting of shareholders by our directors. If our directors fail to comply with such request within 21 days of the receipt thereof, the requisitioning shareholders holding more than 50% of the voting rights represented by the original requisitioning shareholders may proceed to convene such meeting, and we will be liable for the reasonable costs incurred by such requisitioning shareholders. We are also required by the Singapore Companies Act to deduct corresponding amounts from fees or other remuneration payable by us to such non-complying directors.

 

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For a limited period of time, our directors have general authority to allot and issue new shares on terms and conditions and with any preferences, rights or restrictions as may be determined by our board of directors in its sole discretion.

Under Singapore law, we may only allot and issue new shares with the prior approval of our shareholders in a general meeting. We expect that prior to the completion of this offering, Global A&T Holdings, as our controlling shareholder, will provide our directors with a general authority to allot and issue any number of new shares (whether as ordinary shares or preference shares) until the earlier of (i) the conclusion of our 2016 annual general meeting of shareholders, (ii) the expiration of the period within which the next annual general meeting is required to be held or (iii) the subsequent revocation or modification of such general authority by our shareholders acting at an extraordinary general meeting duly convened for such purpose. Subject to the general requirements of the Singapore Companies Act and our memorandum and articles of association, the general authority given to our directors by Global A&T Holdings to allot and issue shares may be exercised by our directors to allot and issue shares on such terms and subject to such conditions as they deem fit to impose. Any additional issuances of new shares by our directors may adversely impact the market price of the ADSs.

If Global A&T Holdings sells a controlling interest in our company to a third party in a private transaction, you may not realize any change-of-control premium on the ADSs and we may become subject to the control of a presently unknown third party.

Following this offering, Global A&T Holdings will have the ability, should it choose to do so, to sell some or all of the ADSs that it owns in a privately negotiated transaction, which, if sufficient in size, could result in a change of control of our company. The Singapore Code on Takeovers and Mergers, or the Singapore Code on Takeovers, requires a general offer to be made to all shareholders of our company in certain specific circumstances; however, there can be no assurance that any divestment by Global A&T Holdings of its ADSs in us would trigger the requirement to make a concurrent general offer, or that the new controlling shareholder would not be able to obtain a waiver from compliance with the provisions of the Singapore Code on Takeovers from the applicable Singapore regulatory authorities, which may prevent you from realizing any change-of-control premium on your investment in the ADSs. Additionally, if Global A&T Holdings privately sells a significant equity interest in our company, we may become subject to the control of a presently unknown third party. Such third party may have actual or potential conflicts of interest with those of other shareholders. If Global A&T Holdings sells a controlling interest in us to a third party, our indebtedness may be subject to acceleration and our commercial agreements (or terms thereof) and relationships may be adversely impacted, any of which may materially and adversely affect our ability to run our business as described herein and may have a material adverse effect on our business, financial condition and results of operations.

Risks Relating to the Ownership of the ADSs

We are controlled by Global A&T Holdings, which is controlled by Affinity Equity Partners and TPG Capital, and their interests may conflict with the interests of other holders of our securities.

We are a wholly-owned and controlled subsidiary of Global A&T Holdings, which is controlled by Affinity Equity Partners and TPG Capital, and will continue to be controlled by these shareholders immediately following this offering. As a result, Affinity Equity Partners and TPG Capital, through their holdings in Global A&T Holdings, have significant influence over any action requiring the approval of our shareholders, including the election of our directors, the adoption of amendments to our memorandum and articles of association, the issuance of additional shares or other equity securities, the declaration and payment of dividends and the approval of mergers, reorganizations and disposals of a substantial part of our assets or business undertakings. Their interests may be different from or conflict with the interests of our other shareholders and their control may result in the delay or prevention of a change of management or control of our company, even if such a transaction may be beneficial to our other shareholders. In addition, any substantial sale or perceived substantial sale of the ADSs over a short period of time after the expiry of the applicable moratorium period (where applicable) by such principal shareholders could cause the ADS price to fall. See also “– Future sales of the ADSs, and the availability of a large number of the ADSs for sale, could depress the ADS price.”

 

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Conflicts of interest may arise between certain of our principal shareholders, our directors and our company.

There can be no assurance that conflicts of interest will not arise between certain of our principal shareholders, certain of our directors and our company, and that such conflicts can be resolved. For example, six of our nine directors are officers or directors of either Affinity Equity Partners or TPG Capital, which controls our parent company, Global A&T Holdings. A person’s service as an officer or director of our company and another related entity could create potential or actual conflicts of interest when those individuals are faced with decisions that could have different implications for us and the other entity. For example, conflicts of interest may arise during decisions regarding our financial and dividend policy, compensation and benefit programs and determinations with respect to our tax returns, and over the allocation of our directors’ time and efforts between our company and another entity in general. These and other conflicts of interest may result in a material and adverse impact to our business, results of operations, financial condition and the prices of the ADSs.

We are unlikely to pay any dividends in the immediate future and we may not be able to do so in the future.

We are a holding company and our investments in our operating subsidiaries constitute all of our assets. We operate our business through these subsidiaries, which are located in various jurisdictions. Therefore, the availability of funds to pay dividends to our shareholders partly depends on dividends received from these subsidiaries. The ability of our subsidiaries to pay dividends or make other advances and transfers of funds will depend on any local law restrictions on declaration and payment of dividends (see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Exchange Controls” for further details), their results of operations and financial performance which, in turn, will depend on the successful implementation of our strategy and on financial, competitive, regulatory, general economic conditions, demand and other factors specific to our industry, many of which are beyond our control, as well as the availability of funds. Moreover, the terms of various credit arrangements entered into by such subsidiaries contain significant restrictions on the ability of these subsidiaries to pay dividends (see also “Description of Certain of Certain Indebtedness”). Statutory and other legal restrictions of the respective jurisdictions of incorporation of such subsidiaries may also prevent such subsidiaries from paying dividends.

As a foreign private issuer, we are permitted to, and we will, follow certain home country corporate governance practices in lieu of certain New York Stock Exchange or Nasdaq Global Select Market requirements applicable to U.S. issuers. This may afford less protection to holders of the ADSs.

As a foreign private issuer whose shares are listed on the New York Stock Exchange or the Nasdaq Global Select Market, we are permitted to follow certain home country corporate governance practices in lieu of certain New York Stock Exchange or Nasdaq Global Select Market requirements. A foreign private issuer must disclose in its annual reports filed with the SEC, each New York Stock Exchange or Nasdaq Global Select Market requirement with which it does not comply followed by a description of its applicable home country practice. As a company incorporated in Singapore and listed on the Nasdaq Global Select Market, we expect to follow our home country practice with respect to the composition of our board of directors and we do not expect a majority of our directors to be independent. Unlike the requirements of the New York Stock Exchange or Nasdaq Global Select Market, the corporate governance practice and requirements in Singapore do not require us to have a majority of our board of directors to be independent. Such Singapore home country practices may afford less protection to holders of the ADSs.

We may lose our foreign private issuer status which would then require us to comply with the Exchange Act’s domestic reporting regime and cause us to incur significant legal, accounting and other expenses.

We are a foreign private issuer and therefore we are not required to comply with all of the periodic disclosure and current reporting requirements of the Exchange Act applicable to U.S. domestic issuers. In order to maintain our current status as a foreign private issuer, either (a) a majority of our shares must be either directly or indirectly owned of record by non-residents of the United States or (b) (i) a majority of our executive officers or directors may not be United States citizens or residents, (ii) more than 50 percent of our assets cannot be located in the United States and (iii) our business must be administered principally outside the United States. If

 

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we lose this status, we would be required to comply with the Exchange Act reporting and other requirements applicable to U.S. domestic issuers, which are more detailed and extensive than the requirements for foreign private issuers. We may also be required to make changes in our corporate governance practices in accordance with various SEC and New York Stock Exchange or Nasdaq Global Select Market rules. The regulatory and compliance costs to us under U.S. securities laws if we are required to comply with the reporting requirements applicable to a U.S. domestic issuer may be significantly higher than the cost we would incur as a foreign private issuer. As a result, we expect that a loss of foreign private issuer status would increase our legal and financial compliance costs and would make some activities highly time consuming and costly. We also expect that if we were required to comply with the rules and regulations applicable to U.S. domestic issuers, it would make it more difficult and expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These rules and regulations could also make it more difficult for us to attract and retain qualified members of our board of directors.

Because the offering price for the ADSs is substantially higher than our book value per ADS, you will incur immediate and substantial dilution.

Purchasers of the ADSs will experience immediate and substantial dilution in net tangible book value per share from the public offering price per ADS. After giving effect to the sale of the ADSs offered by this prospectus, and after deducting the underwriting discounts and commissions and the estimated offering expenses payable by us in this offering, our net tangible book value as of December 31, 2014 would have been $             million, or $             per ADS. This represents an immediate dilution in net tangible book value of $             per ADS to investors in this offering. For a calculation of the dilution purchasers in this offering will incur, see “Dilution.”

Future sales of the ADSs, and the availability of a large number of the ADSs for sale, could depress the ADS price.

The sale of a significant number of the ADSs, ordinary shares or other equity securities in the public market after this offering, or the perception that such sales may occur, could materially and adversely affect the market price of the ADSs. These factors could also materially impair our ability to raise capital through equity offerings in the future. Upon completion of this offering, we will have              ADSs, or              ordinary shares outstanding. The ADSs offered in this offering will be freely tradable without restriction under the Securities Act, and shares held by our existing shareholders may also be sold in the public market in the future subject to the restrictions in Rule 144 and Rule 701 under the Securities Act and the applicable lock-up agreements. Although our principal shareholders, who will hold in aggregate ADSs representing             % of our issued share capital after the completion of this offering, assuming that the over-allotment option is not exercised, will be subject to a lock-up, any substantial sale or perceived substantial sale of the ADSs over a short period of time after the expiry of the applicable moratorium period (where applicable) by such principal shareholders could cause the ADS price to fall. Similar sales of ADSs by holders after vesting of awards or holders of options who have exercised their options under any incentive plan that we intend to implement could also cause the ADS price to fall. No such awards will vest prior to 180 days following the completion of this offering. Except as otherwise described in “Underwriting,” there are no restrictions on the ability of our principal shareholders to sell their shares on the New York Stock Exchange or Nasdaq Global Select Market, or otherwise.

The ADS price may be volatile in the future.

The ADSs may trade at prices significantly below the offering price and the price of the ADSs after this offering may fluctuate widely, depending on many factors, including perceived prospects for our business and operations, and the semiconductor industry in general, differences between our actual financial and operating results and those expected by investors and analysts, changes in analysts’ recommendations or perceptions, changes in conditions affecting the semiconductor industry, the general economic conditions or stock market sentiments or other events and factors, changes in market valuations and share prices of publicly-listed companies with businesses similar to us, broad stock market price fluctuations, variations in our results of

 

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operations, changes in general economic conditions, changes in accounting principles or other developments affecting us, our customers or our competitors.

An active trading market for the ADSs and ordinary shares may not develop, and you may not be able to sell your ADSs at or above the initial public offering price.

Prior to the completion of this offering, there has been no public market for the ADSs or ordinary shares underlying the ADSs. An active trading market for the ADSs may never develop or be sustained following this offering. If an active trading market does not develop, you may have difficulty selling your ADSs at an attractive price, or at all. The price for the ADSs in this offering will be determined by negotiations among our principal shareholders, us and representatives of the underwriters, and it may not be indicative of prices that will prevail in the open market following this offering. Consequently, you may not be able to sell the ADSs at or above the initial public offering price or at any other price or at the time that you would like to sell. An inactive market may also impair our ability to raise capital by selling the ADSs, and it may impair our ability to attract and motivate our employees through equity incentive awards.

If securities or industry analysts do not publish research or publish unfavorable or inaccurate research about our business, the ADS price and trading volume could decline.

The trading market for the ADSs will depend, in part, on the research and reports that securities or industry analysts publish about us or our business. We may be unable to sustain coverage by well-regarded securities and industry analysts. If either none or only a limited number of securities or industry analysts maintain coverage of our company, or if these securities or industry analysts are not widely respected within the general investment community, the trading price for the ADSs would be negatively impacted. In the event that we obtain securities or industry analyst coverage, if one or more of the analysts who cover us downgrade the ADSs or publish inaccurate or unfavorable research about our business, the ADS price would likely decline. If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, demand for the ADSs could decrease, which might cause the ADS price and trading volume to decline.

The voting rights of holders of ADSs are limited by the terms of the deposit agreement, and you may not be able to exercise your right to vote your ordinary shares.

As a holder of ADSs, you will only be able to exercise the voting rights with respect to the underlying ordinary shares in accordance with the provisions of the deposit agreement. Under the deposit agreement, you must vote by giving voting instructions to the depositary. Upon receipt of your voting instructions, the depositary will endeavor to vote the underlying ordinary shares in accordance with these instructions. You will not be able to directly exercise your right to vote with respect to the underlying shares unless you withdraw the shares. Under our amended and restated memorandum and articles of association which is currently in effect, the minimum notice period required for convening a general meeting is 14 days. When a general meeting is convened, you may not receive sufficient advance notice to withdraw the shares underlying your ADSs to allow you to vote with respect to any specific matter. If we ask for your instructions, the depositary will notify you of the upcoming vote and will arrange to deliver our voting materials to you. We cannot assure you that you will receive the voting materials in time to ensure that you can instruct the depositary to vote your shares. In addition, the depositary and its merchants are not responsible for failing to carry out voting instructions or for their manner of carrying out your voting instructions. This means that you may not be able to exercise your right to vote and you may have no legal remedy if the shares underlying your ADSs are not voted as you requested.

The depositary will give us a discretionary proxy to vote our ordinary shares underlying your ADSs if you do not give voting instructions, except in limited circumstances, which could adversely affect your interests.

Under the deposit agreement for the ADSs, if we timely ask for voting instructions but the depositary does not receive your instructions by the date it sets, the depositary will give us a discretionary proxy to vote our ordinary shares underlying your ADSs at shareholders’ meetings unless:

 

   

we have failed to timely provide the depositary with notice of meeting and related voting materials;

 

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we have instructed the depositary that we do not wish a discretionary proxy to be given;

 

   

we have informed the depositary that there is substantial opposition as to a matter to be voted on at the meeting; or

 

   

a matter to be voted on at the meeting would have a material adverse impact on shareholders.

The effect of this discretionary proxy is that if you do not give voting instructions, you cannot prevent our ordinary shares underlying your ADSs from being voted, except under the circumstances described above. This may make it more difficult for shareholders to influence the management of our company. Holders of our ordinary shares are not subject to this discretionary proxy.

You may not be able to participate in rights offerings and may experience dilution of your holdings.

We may, from time to time, distribute rights to our shareholders, including rights to acquire securities. Under the deposit agreement, the depositary will not distribute rights to holders of ADSs unless the distribution and sale of rights and the securities to which these rights relate are either exempt from registration under the Securities Act with respect to all holders of ADSs, or are registered under the Securities Act. The depositary may, but is not required to, attempt to sell these undistributed rights to third parties, and may allow the rights to lapse. We may be unable to establish an exemption from registration under the Securities Act, and we are under no obligation to file a registration statement with respect to these rights or underlying securities or to endeavor to have a registration statement declared effective. Accordingly, holders of ADSs may be unable to participate in our rights offerings and may experience dilution of their holdings as a result.

You may be subject to limitations on transfer of your ADSs.

Your ADSs are transferable on the books of the depositary. However, the depositary may close its books at any time or from time to time when it deems expedient in connection with the performance of its duties. The depositary may close its books from time to time for a number of reasons, including in connection with corporate events such as a rights offering, during which time the depositary needs to maintain an exact number of ADS holders on its books for a specified period. The depositary may also close its books in emergencies, and on weekends and public holidays in the United States. The depositary may refuse to deliver, transfer or register the transfers of the ADSs generally when our share register or the books of the depositary are closed, or at any time if we or the depositary think that it is advisable to do so because of any requirement of law or of any government or governmental body, or under any provision of the deposit agreement, or for any other reason in accordance with the terms of the deposit agreement. As a result, you may be unable to transfer your ADSs when you wish to.

We may be classified as a passive foreign investment company, which could result in adverse U.S. federal income tax consequences to U.S. Holders of the ADSs or ordinary shares.

Based on our historic and expected operations, composition of our assets and market capitalization (which will fluctuate from time to time), we do not believe we were a passive foreign investment company, or PFIC, for the taxable year ended December 31, 2014 and we do not expect to be classified as a PFIC for the current taxable year or for the foreseeable future. However, the determination of whether we are a PFIC is made annually. Therefore, it is possible we could be classified as a PFIC in the future due to changes in the composition of our assets or income, as well as changes in our market capitalization. In general, a non-U.S. corporation will be classified as a PFIC for any taxable year if at least (1) 75% of its gross income is classified as “passive income” or (2) 50% of its assets (determined on the basis of a quarterly average) produce or are held for the production of passive income. If we are a PFIC for any taxable year during which a U.S. Holder (as defined in “Material Tax Considerations – United States Federal Income Taxation”) holds a share, certain adverse U.S. federal income tax consequences could apply to such U.S. Holder. See “Material Tax Considerations – United States Federal Income Taxation – Passive Foreign Investment Company.”

 

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements that relate to our current expectations and views of future events. These forward-looking statements are contained principally in the sections entitled “Prospectus Summary,” “Risk Factors,” “Use of Proceeds,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Industry Overview” and “Business.” These statements relate to events that involve known and unknown risks, uncertainties and other factors, including those listed under “Risk Factors,” which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.

In some cases, these forward-looking statements can be identified by words or phrases such as “may,” “will,” “expect,” “anticipate,” “aim,” “estimate,” “intend,” “plan,” “believe,” “potential,” “continue,” “is/are likely to” or other similar expressions.

These forward-looking statements are subject to risks, uncertainties and assumptions, some of which are beyond our control. In addition, these forward-looking statements reflect our current views with respect to future events and are not a guarantee of future performance. Actual outcomes may differ materially from the information contained in the forward-looking statements as a result of a number of factors, including, without limitation, the risk factors set forth in “Risk Factors” and the following:

 

   

the cyclicality of the semiconductor industry;

 

   

our reliance on certain major customers;

 

   

Panasonic’s ability to fulfill its contractual obligations under the contract manufacture agreement and our ability to enforce our contractual obligations against Panasonic;

 

   

our history of substantial losses;

 

   

our ability to manage our geographical diverse facilities and expand our business;

 

   

our significant indebtedness affecting our operations, and our ability to repay or refinance our indebtedness as it falls due;

 

   

increased competition from other companies and our ability to maintain and increase our market share;

 

   

pending litigation by certain holders of our senior secured notes, litigation relating to our intellectual property and other potential legal liabilities;

 

   

our ability to successfully develop new technologies;

 

   

our ability to acquire equipment and supplies necessary to meet our business needs;

 

   

our ability to generate sufficient cash to meet our capital expenditure requirements;

 

   

our ability to hire and maintain qualified personnel;

 

   

fires, natural disasters, acts of terrorism and other developments outside our control;

 

   

the political stability of our local region; and

 

   

general local and global economic conditions.

The forward-looking statements made in this prospectus relate only to events or information as of the date on which the statements are made in this prospectus. Except as required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events. You should read this prospectus and the documents that we reference in this prospectus and have filed as exhibits to the registration statement, of which this prospectus is a part, completely and with the understanding that our actual future results or performance may be materially different from what we expect.

 

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ENFORCEABILITY OF CIVIL LIABILITIES

We are incorporated under the laws of the Republic of Singapore, and certain of our officers and directors are or will be residents outside the United States. Moreover, all or a substantial portion of our assets are located outside the United States. Although we are incorporated outside the United States, we have agreed to accept service of process in the United States through our agent designated for that purpose. Nevertheless, since all or a substantial portion of the assets owned by us are located outside the United States, any judgment obtained in the United States against us may not be collectible within the United States.

There is no treaty between the United States and Singapore providing for the reciprocal recognition and enforcement of judgments in civil and commercial matters and a final judgment for the payment of money rendered by any federal or state court in the United States based on civil liability, whether or not predicated solely upon the federal securities laws, would, therefore, not be automatically enforceable in Singapore. It is not clear whether a Singapore court may impose civil liability on us or our directors and officers who reside in Singapore in a suit brought in the Singapore courts against us or such persons with respect to a violation solely of the federal securities laws of the United States. In making a determination as to enforceability of a judgment of a federal court of the United States, the Singapore courts would have regard to, among other things, whether such judgment was final and conclusive or given by a court of competent jurisdiction, expressed to be for a fixed sum of money, whether such judgment was procured by fraud, whether such judgment was obtained in breach of principles of natural justice, or whether the enforcement thereof would be contrary to public policy. Accordingly, there can be no assurance that the Singapore courts would enforce against us, our directors or our officers resident in Singapore judgments obtained in the United States which are predicated upon the civil liability provisions of the federal securities laws of the United States.

In addition, holders of book-entry interests in our shares, represented by ADSs, will be required to exchange such interests for certificated shares and to be registered as shareholders in our register of members in order to have standing to bring a shareholder suit and, if successful, to enforce a foreign judgment against us, our directors or our executive officers in the Singapore courts. A holder of book-entry interests in our shares, represented by ADSs, may become a registered shareholder of our company by exchanging its interest in our shares, represented by ADSs, for certificated shares and being registered in our register of members. The administrative process of becoming a registered shareholder could result in delays prejudicial to any legal proceeding or enforcement action.

 

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USE OF PROCEEDS

We expect that we will receive net proceeds from this offering of approximately $             million, based on an assumed initial public offering price of $             per ADS, the mid-point of the estimated range of the initial public offering price shown on the cover page of this prospectus, after deducting the underwriting discounts and commissions and estimated offering expenses payable by us. If the underwriters exercise their option to purchase additional ADSs in full, our net proceeds will be approximately $             million after deducting the underwriting discounts and commissions and estimated offering expenses. A $1.00 increase/(decrease) in the assumed initial public offering price of $             per ADS would increase/(decrease) the net proceeds to us from this offering by approximately $             million, or approximately $             million if the underwriters exercise their option to purchase additional ADSs in full, assuming the number of ADSs offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us.

We intend to use the net proceeds received by us from this offering mainly to retire certain of our indebtedness outstanding under our senior secured notes, as well as for general corporate purposes.

Pending use of the net proceeds as described above, we intend to invest the net proceeds of this offering in short-term, interest-bearing bank deposits or money market funds.

 

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CAPITALIZATION

The following table sets forth our capitalization as of December 31, 2014:

 

   

on an actual basis; and

 

   

on an as adjusted basis to give effect to (i) the issuance and sale of the ADSs by us in this offering at an assumed initial public offering price of $             per ADS, the mid-point of the estimated public offering price range shown on the cover page of this prospectus, after deducting the underwriting discounts and commissions and estimated offering expenses payable by us and assuming no exercise of the underwriters’ option to purchase additional ADSs and (ii) the application of our net proceeds from the offering in the manner described in “Use of Proceeds.”

The as adjusted information below is illustrative only, and our capitalization following the completion of this offering is subject to adjustment based on the actual initial public offering price of the ADSs in this offering and other terms of this offering to be determined at pricing. You should read this table in conjunction with “Use of Proceeds,” “Selected Consolidated Financial Information,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes included elsewhere in this prospectus.

 

     As of December 31, 2014(4)  
     Actual     As Adjusted  
     (in $ millions)  

Total borrowings:

    

Senior secured notes(1)

     1,098.7     

Finance lease liabilities

     6.3     

Total borrowings

     1,105.0     

Equity:

    

Share capital

     510.9     

Capital reserves

     187.1     

Other reserves

     (5.7  

Accumulated losses

     (339.9  

Non-controlling interests

     4.3     

Total equity(2)

     356.7     
  

 

 

   

 

 

Total capitalization(3)

  1,461.7   
  

 

 

   

 

 

 

Notes:

 

(1)

This amount represented the indebtedness under our senior secured notes as of December 31, 2014, after deducting unamortized loan facility and related issuance costs of $28.6 million. The total indebtedness outstanding under the senior secured notes without deducting unamortized loan facility and related issuance costs was $1,127.3 million.

 

(2)

A $1.00 increase/(decrease) in the assumed initial public offering price of $             per ADS, the midpoint of the range set forth on the cover page of this prospectus, would increase/(decrease) each of share capital, total equity and total capitalization by $            .

 

(3)

In addition to the consolidated capitalization reflected in this table, as of December 31, 2014, we had $293.0 million of cash and cash equivalents on an actual basis and $             million of cash and cash equivalents on an as adjusted basis.

 

(4)

This table does not reflect the remaining consideration of $90.0 million that is payable in installments over five years to Panasonic for our acquisition of three semiconductor facilities in Singapore, Indonesia and Malaysia from Panasonic.

 

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DIVIDENDS AND DIVIDEND POLICY

Since UTAC Holdings’ incorporation, no dividends have been declared or paid. We currently intend to retain our earnings, if any, to finance the development and growth of our business and operations as well as expand our business and do not currently anticipate paying dividends in the near future.

Any future determination relating to our dividend policy will be made at the discretion of our board of directors and will depend on then existing conditions, including our financial condition, results of operations, contractual restrictions (including in the agreements governing our credit facilities or other debt instruments), capital requirements, business prospects and other factors our board of directors may deem relevant. We may, by ordinary resolution, declare dividends at a general meeting of shareholders, but we are restricted from paying dividends in excess of the amount recommended by our board of directors. Our board of directors may, without the approval of our shareholders, declare interim dividends but any final dividends we declare must be approved by an ordinary resolution of our shareholders at a general meeting. In addition, pursuant to Singapore law and our articles of association, no dividends may be paid except out of our profits available for distribution.

Because UTAC Holdings is a holding company, our ability to pay cash dividends may be limited by restrictions on our ability to obtain sufficient funds through dividends from subsidiaries. In particular, the agreements governing our credit facilities, debt instruments and finance leases contain restrictions on the ability of our subsidiaries to make cash dividends to us. See also “Risk Factors – Our credit facilities and debt instruments, including the indenture, senior revolving credit facility and guarantee facility contain covenants limiting our financial and operating flexibility” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Exchange Controls” for details.

If we pay any dividends, ADS holders will receive payment to the same extent as holders of our ordinary shares, subject to the terms of the deposit agreement, including the fees and expenses payable thereunder. See “Description of American Depositary Shares.” Cash dividends on our ordinary shares, if any, will be paid in U.S. dollars.

 

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DILUTION

Investors in the offering will experience an immediate dilution in net tangible book value per ADS.

As of December 31, 2014, we had net asset value of $356.7 million, or $0.45 per ordinary share outstanding as of that date. Our net asset value is determined by subtracting total liabilities from our total assets.

As of December 31, 2014, we had negative net tangible book value of $344.0 million, which represented negative net tangible book value of $0.43 per ordinary share outstanding as of that date, or $             per ADS, assuming ADSs had been issued as of such date. Net tangible book value is determined by subtracting the amount of our total liabilities from the amount of our total tangible assets. As of December 31, 2014, our total liabilities exceeded total tangible assets, and this resulted in a net tangible liability.

Dilution is determined by subtracting net tangible book value per ADS from the initial public offering price per ADS, after deducting the underwriting discounts and commissions and estimated offering expenses payable by us.

After (i) giving effect to the issuance and sale of ADSs in this offering at an assumed initial public offering price of $             per ADS, being the mid-point of the estimated public offering price range shown on the cover of this prospectus, and (ii) deducting the underwriting discounts and commissions and estimated offering expenses payable by us and assuming no exercise of the over-allotment option, our proforma net tangible book value as of December 31, 2014 would have been $             million, or $             per ADS. This represents an immediate dilution in net tangible book value of $             per ADS to new investors in this offering.

The following table illustrates such dilution:

 

     Per ordinary share     Per ADS  

Assumed initial public offering price

     N/A      $                

Net tangible book value as of December 31, 2014

   $ (0.43 )(1)    $                

Proforma net tangible book value after giving effect to the issuance and sale of ADSs in this offering at an assumed initial public offering price of $             per ADS, after deduction of underwriting discounts and commissions and estimated offering expenses payable by us (assuming the over-allotment option is not exercised)

   $                   $                

Amount of dilution in net tangible book value to new investors

     N/A      $                

Percentage dilution in net tangible book value to new investors

     N/A                    

 

Note:

 

(1)

Our net tangible book value was negative as our total liabilities exceeded our total tangible assets.

A $1.00 change in the assumed public offering price of $             per ADS would, in the case of an increase, increase and, in the case of a decrease, decrease our net tangible book value after giving effect to the offering by $             million, the net tangible book value per ordinary share and per ADS after giving effect to this offering by $             per ordinary share and $             per ADS, and the dilution in net tangible book value per ADS to new investors in this offering by $             per ADS, assuming no change to the number of ADSs offered by us as set forth on the cover page of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses and assuming no exercise of the over-allotment option.

Assuming the underwriters’ over-allotment option is exercised in full, our net tangible book value as of December 31, 2014 (after giving effect to this offering) would have been $             million, or $             per outstanding ordinary share and $             per ADS. This represents an immediate increase in proforma net tangible book value of $             per ordinary share and $             per ADS to our existing investors and an immediate dilution in net tangible book value of $             per ADS to new investors in this offering.

Assuming the over-allotment option is exercised in full, a $1.00 change in the assumed public offering price of $             per ADS would, in the case of an increase, increase and, in the case of a decrease, decrease our net tangible book value after giving effect to the offering by $             million, the net tangible book value per

 

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ordinary share and per ADS after giving effect to this offering by $             per ordinary share and $             per ADS, and the dilution in net tangible book value per ADS to new investors in this offering by $             per ADS, assuming no change to the number of ADSs offered by us as set forth on the cover page of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses.

The proforma information discussed above is illustrative only. Our net tangible book value following the completion of this offering is subject to adjustment based on the actual initial public offering price of the ADSs and other terms of this offering determined at pricing.

The table below summarizes as of June 30, 2014, after giving effect to the transactions described above, the number of ordinary shares purchased by existing investors, the ordinary shares purchased by new investors (in the form of ADSs) in this offering, the total consideration and the average price per share (i) paid to us by existing investors and (ii) to be paid by new investors purchasing the ADSs in this offering at an assumed initial public offering price of $             per ADS, being the midpoint of the estimated price range set forth on the cover of this prospectus, before deducting underwriting discounts and commissions and estimated offering expenses payable by us.

 

     Ordinary Shares
Purchased
    Total Consideration     Average
Price per
Share
     Average
Price per
ADS
equivalent
 
     Number    Percent     Amount      Percent       

Existing shareholders

                       $                                     $                    $                

New investors

                       $                                     $                    $                
  

 

  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total

  100.0 $                   100.0 $                
  

 

  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

A $1.00 increase/(decrease) in the assumed initial public offering price of $             per ADS (the midpoint of the price range set forth on the cover page of this prospectus) would increase/(decrease) the total consideration paid by new investors in this offering, total consideration paid by all shareholders and the average price per ADS by $             million, $             million and $            , respectively, assuming the number of ADSs offered by us, as set forth on the cover of this prospectus, remains the same, and before deducting the underwriting discounts and commissions and estimated offering expenses payable by us.

Assuming that the underwriters’ over-allotment option is exercised in full, the new investors will own             % of our outstanding shares and will have provided             % of the total amount paid to fund our company.

 

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SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA

The following summary consolidated statement of comprehensive income data for the years ended December 31, 2010, 2011, 2012, 2013, and 2014, summary consolidated balance sheet data as of December 31, 2010, 2011, 2012, 2013, and 2014 and summary consolidated statement of cash flows data for the years ended December 31, 2010, 2011, 2012, 2013, and 2014 have been derived from our consolidated financial statements. Our consolidated financial statements as of and for the years ended December 31, 2010 and 2011 are unaudited and are not included in this prospectus. Our audited consolidated financial statements as of and for the years ended December 31, 2012, 2013 and 2014 are included elsewhere in this prospectus. The financial data set forth below should be read in conjunction with, and are qualified by reference to, “Selected Consolidated Financial and Other Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and notes thereto included elsewhere in this prospectus. Our consolidated financial statements are prepared and presented in accordance with International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board, or IASB.

Our consolidated financial statements as of and for the year ended December 31, 2014 include the results of UMS Holdings and its subsidiaries from June 2, 2014. Between January 1, 2012 and June 1, 2014, the results of operations of UMS Holdings and its subsidiaries were not consolidated in our consolidated financial statements as they were not our subsidiaries. As a result of the size of the business of UMS Holdings and its subsidiaries relative to that of our existing business at the time of our acquisition of UMS Holdings and its subsidiaries, our consolidated financial statements as of and for the year ended December 31, 2014 and subsequent periods are not fully comparable to our consolidated financial statements as of and for the years ended December 31, 2012 and 2013. Our results of operations have varied and may continue to vary significantly from year to year and are not necessarily indicative of the results of any future periods. As such, you should not use such comparisons as a basis for your investment or to predict our future performance.

 

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Selected Consolidated Statement of Comprehensive Income Data

 

     Year Ended December 31,  
     2010     2011     2012     2013     2014  
     (in $ millions, except per share data)  

Sales

     944.5        981.4        930.1        748.4        860.3   

Cost of sales

     (757.0     (798.5     (795.2     (650.7     (702.1
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

  187.5      182.9      134.9      97.7      158.1   

Other income

  10.4      11.1      8.5      7.7      8.5   

Other gains/(losses) – net

  17.7      14.3      (1.3   29.6      77.9   

Expenses:

Selling, general and administrative

  (61.8   (68.0   (63.9   (57.7   (83.9

Research and development

  (17.9   (19.1   (18.8   (12.3   (12.5

Finance

  (78.5   (79.3   (79.6   (120.7   (125.2

Others

  (2.5   (18.8   (12.2   (16.4   (13.5

Share of (loss)/profit of associated company

  (1.9   (0.1   0.7      (4.5     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Profit/(loss) before income tax

  53.0      23.0      (31.7   (76.5   9.4   

Income tax expense

  (21.1   (8.3   (13.7   (2.5   (12.8
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Profit/(loss) after tax

  31.9      14.7      (45.4   (78.9   (3.4
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income/(loss):

Items that may be reclassified subsequently to profit or loss:

Cash flow hedges

Fair value gains/(losses)

  2.8      (6.6   11.3      (1.5     

Reclassification

  (0.7   (10.0   3.5      0.4      1.1   

Currency translation differences arising from consolidation

  *      *      *      *      *   

Items that will not be reclassified subsequently to profit or loss:

Remeasurements on post-employment benefit obligation

            (0.1   (1.8   (0.1
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income/(loss), net of tax

  2.2      (16.6   14.7      (2.9   1.0   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income/(loss)

  34.1      (1.8   (30.7   (81.9   (2.4
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Profit/(Loss) attributable to:

Equity holder of UTAC Holdings

  30.4      12.7      (47.1   (80.3   (5.0

Non-controlling interests

  1.5      2.1      1.7      1.3      1.6   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  31.9      14.7      (45.4   (78.9   (3.4
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income/(loss) attributable to:

Equity holder of UTAC Holdings

  32.6      (3.7   (32.5   (83.1   (4.0

Non-controlling interests

  1.5      1.9      1.9      1.2      1.6   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  34.1      (1.8   (30.7   (81.9   (2.4
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Profit/(loss) per ordinary share:

Basic ($)

  15,219,000 (1)    0.02      (0.06   (0.10   (0.01

Diluted ($)

  15,219,000 (1)    0.02      (0.06   (0.10   (0.01

Proforma profit/(loss) per ordinary share(2):

Basic ($)

Diluted ($)

Supplemental information:

Gross profit margin(3)

  19.9   18.6   14.5   13.1   18.4

EBITDA(4)

  277.3      274.9      227.5      212.3      301.1   

Adjusted EBITDA(4)

  271.8      277.4      239.7      206.8      252.4   

Adjusted EBITDA margin(4) (5)

  28.8   28.3   25.8   27.6   29.3

Adjusted EBITDA less cash capital expenditure(4)

  60.1      82.2      140.1      156.5      130.6   

 

Notes:

 

(1)

As of December 31, 2010, UTAC Holdings had fully paid up share capital of two ordinary shares, amounting to a total of S$2.00. On July 22, 2011, UTAC Holdings increased its share capital to 800,000,000 ordinary shares through the issuance of an additional 799,999,998 ordinary shares pursuant to a capital reorganization and a re-classification of $510.9 million from the capital reserve to the share capital of UTAC Holdings.

 

(2)

Proforma profit/(loss) per ordinary share attributable to ordinary shareholders is calculated based on the weighted average number of shares outstanding during the period adjusted to give effect to shares subsequently issued or assumed to be issued had the issuance and sale of ADSs taken place at the beginning of the period presented.

 

(3)

Gross profit margin represents gross profit as a percentage of sales.

 

(4)

See “– Non-IFRS Measures” below.

 

(5)

Adjusted EBITDA margin represents adjusted EBITDA as a percentage of sales.

 

*

Amount insignificant.

 

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Selected Consolidated Balance Sheet Data

 

     Year Ended December 31,  
     2010     2011     2012     2013     2014  
     (in $ millions)  

Cash and bank deposits

     288.1 (1)      269.4 (1)      201.2        217.9 (1)      301.2 (1) 

Trade and other receivables

     144.9        147.7        138.4        106.7        130.8   

Property, plant and equipment

     714.0        752.5        656.0        536.2        587.3   

Goodwill

     643.4        643.4        643.4        643.4        643.4   

Intangible assets

     114.2        97.5        81.6        65.3        57.3   

Total assets

     1,995.9        1,991.7        1,794.4        1,627.3        1,795.0   

Trade and other payables

     179.3        165.3        128.7        132.2        217.4   

Borrowings(2)

     1,275.7        1,275.6        1,164.0        1,093.9        1,105.0   

Total liabilities

     1,508.5        1,508.5        1,349.0        1,265.5        1,438.3   

Share capital

     * (3)      510.9 (3)      510.9        510.9        510.9   

Capital reserve

     698.0 (3)      187.1 (3)      187.1        187.1        187.1   

Other reserves

     2.2        (14.2     (3.6     (6.7     (5.7

Accumulated losses

     (220.5     (207.8     (254.9     (334.9     (339.9

Non-controlling interests

     7.8        7.3        5.9        5.4        4.3   

Total equity

     487.5        483.2        445.4        361.8        356.7   

Selected Consolidated Statement of Cash Flows Data

 

     Year Ended December 31,  
     2010     2011     2012     2013     2014  
     (in $ millions)  

Net cash provided by operating activities

     220.4        252.0        219.7        184.1        224.4   

Net cash used in investing activities

     (241.2     (175.3     (93.1     (33.6     (32.6

Net cash used in financing activities

     (68.6     (93.9     (194.7     (133.9     (116.6

Net (decrease)/increase in cash and cash equivalents

     (89.4     (17.1     (68.1     16.6        75.2   

Cash and cash equivalents at beginning of financial year

     375.8        286.4        269.3        201.2        217.8   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash and cash equivalents at end of financial year(1)

  286.4 (1)    269.3 (1)    201.2      217.8 (1)    293.0 (1) 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

Notes:

 

(1)

The differences in the figures between cash and bank deposits and the cash and cash equivalents at the end of financial year are due to cash subject to restrictions.

 

(2)

These amounts include (i) as of December 31, 2010, 2011 and 2012, finance leases and bank borrowings, and (ii) as of December 31, 2013 and 2014, finance leases and our indebtedness under the senior secured notes, after deducting unamortized loan facility and related issuance costs. As of December 31, 2014, the total indebtedness outstanding under the senior secured notes without deducting unamortized loan facility and related issuance costs was $1,127.3 million.

 

(3)

As of December 31, 2010, UTAC Holdings had fully paid-up share capital of two ordinary shares, amounting to a total of S$2.00. On July 22, 2011, UTAC Holdings increased its share capital to 800,000,000 ordinary shares through the issuance of an additional 799,999,998 ordinary shares pursuant to a capital reorganization and a re-classification of $510.9 million from the capital reserve to the share capital of UTAC Holdings.

 

*

Amount insignificant.

Non-IFRS Measures

EBITDA, adjusted EBITDA and adjusted EBITDA less cash capital expenditure may not be comparable to similarly titled measures reported by other companies due to potential inconsistencies in the method of calculation.

We have included EBITDA because we believe it is an indicative measure of our operating performance and is used by investors and analysts to evaluate companies in our industry. We define EBITDA as profit/(loss)

 

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adjusted for (i) income tax expense/credit; (ii) finance expenses; and (iii) depreciation and amortization, which represent depreciation of property, plant and equipment and amortization of intangible assets.

We have included adjusted EBITDA because we believe it is a more indicative measure of our baseline performance as it excludes certain charges that our management considers to be outside of our core operating results. We define adjusted EBITDA as EBITDA adjusted for (i) impairment/ write-off of available-for-sale financial assets and property, plant and equipment; (ii) business acquisition-related costs; (iii) restructuring costs; (iv) the gain or loss on account of the liquidation of subsidiaries; (v) legal settlement fees; (vi) write off of previous expenses related to an initial public offering; (vii) share of loss of an associated company; (viii) non-cash fair value loss/gain on derivative instruments; (ix) transitional services; and (x) other one-time expenditure, and gain, such as bargain purchase on acquisition of subsidiaries and gain from sale of building. We have included adjusted EBITDA less cash capital expenditure as we believe that it is indicative of the cash flows that are provided from our operations after taking into account the cash used to purchase property, plant and equipment.

EBITDA, adjusted EBITDA and adjusted EBITDA less cash capital expenditure are not measures of financial performance or liquidity under IFRS or U.S. GAAP and should not be considered as alternatives to total profit, operating profit or any other performance measures derived in accordance with IFRS or U.S. GAAP or as an alternative to cash flow from operating activities as a measure of liquidity.

The following table reconciles our profit/(loss) after tax to EBITDA, adjusted EBITDA and adjusted EBITDA less cash capital expenditure, in each case, for the periods indicated:

 

     Year Ended December 31,  
     2010     2011     2012     2013     2014  
     (in $ millions)  

Profit/(loss) after tax

     31.9        14.7        (45.4     (78.9     (3.4

Add/(deduct):

          

Income tax expense

     21.1        8.3        13.7        2.5        12.8   

Finance expenses

     78.5        79.3        79.6        120.7        125.2   

Depreciation of property, plant and equipment

     128.9        155.5        162.9        151.7        149.9   

Amortization of intangible assets

     16.8        17.0        16.7        16.4        16.6   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

  277.3      274.9      227.5      212.3      301.1   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Add/(deduct):

Impairment loss and write-off of available-for-sale financial assets and property plant and equipment

  1.8      13.2      2.7      1.9      8.6 (1) 

Share option expenses

  0.4                       

Business acquisition-related costs

  0.2                     4.5   

Restructuring costs(2)

  0.5      4.3      6.2      13.7      3.4   

(Gain)/loss on write-off of net liabilities/assets on liquidation of subsidiaries

       (0.7   0.3             

Legal settlement fees

            2.3             

Share of loss/(profit) of associated company

  1.9      0.1      (0.7   4.5        

Fair value (gain)/loss on derivative financial instruments

  (5.5   0.9      (0.6          

Bargain purchase gain on acquisition of a subsidiary

  (4.5   (14.8             (41.4 )(3) 

Write-off of expenditure on initial public offering

            2.2             

Gain on extinguishment of borrowings, net of expenses

                 (21.1 )(4)      

Write-back of unclaimed monies from the previous shareholder of a subsidiary

                 (4.8     

Redemption liabilities

                 0.3        

Gain on sale of building in Singapore

                      (28.6 )(5) 

Capital return from previously written off investment

                      (0.7 )(6) 

Dividend income

  (0.2   (0.6             (0.1

Transitional services

                      5.7 (7) 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

  271.8      277.4      239.7      206.8      252.4   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(Deduct):

Cash capital expenditures

  (211.7   (195.1   (99.6   (50.3   (121.8
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA less cash capital expenditures

  60.1      82.2      140.1      156.5      130.6   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Notes:

 

(1)

This amount represents the impairment and write-off of property, plant and equipment following our impairment exercise in the third quarter of 2014.

 

(2)

The restructuring costs comprised primarily of severance payments to our employees.

 

(3)

On June 2, 2014, we completed the acquisition from Panasonic of equity interests of 100.0% in USG2 and UMY, and an equity interest of 99.98% in UID, for a consideration of $96.5 million. As the fair value of the consideration was $83.6 million, which was less than the fair value of the identifiable net assets of the acquired subsidiaries of $125.1 million, in each case determined at the time of the acquisition, we recognized a gain on bargain purchase of $41.4 million. See “History and Corporate Structure – Acquisition of Semiconductor Assembly and Test Businesses from Panasonic and Related Contract Manufacture Agreement and Other Agreements” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies – Gain on bargain purchase from business combination” for further details.

 

(4)

We recognized a gain of $21.1 million due to the extinguishment of the second priority term loans in exchange for the issuance of $502.3 million in aggregate principal amount of 10.0% senior secured notes due 2019 on September 30, 2013.

 

(5)

We recognized a gain on the disposal of one of our Singapore facilities in 2014.

 

(6)

In 2014, we received a return of capital from a company that we had previously invested in 2000, which had previously been written off.

 

(7)

This amount represents the fees payable to Panasonic for certain transitional services that Panasonic provided to us in connection with our acquisition of the three facilities from Panasonic. See “History and Corporate Structure – Acquisition of Semiconductor Assembly and Test Businesses from Panasonic and Related Contract Manufacture Agreement and Other Agreements” for further details.

The following table sets forth a reconciliation of net cash provided by operating activities to adjusted EBITDA less cash capital expenditure for the periods indicated:

 

     Year Ended December 31,  
     2010     2011     2012     2013     2014  
     (in $ millions)  

Net cash provided by operating activities

     220.4        252.0        219.7        184.1        224.4   

Add/(Deduct):

          

Changes in working capital

     33.1        2.6        (7.0     (11.5     (5.6

Tax paid

     15.7        15.2        17.8        16.8        10.4   

Government grant received

     (0.1     (1.0     (0.5     (0.4     (0.1

Interest income

     1.0        1.3        1.5        1.0        1.1   

Net gain on disposal of property, plant and equipment

     0.7        1.5        1.5        2.6        9.2 (1) 

Government grant income

     0.2        1.0        0.6        0.3        0.2   

Capital return from previously written off investment

                                 (0.7

Gain on write-off of payables

            0.7                        

Intangible assets written off

            (0.2            (0.1       

Write-off of overpayment by customers

                          0.2          

Business acquisition-related cost

     0.2                             4.5   

Restructuring cost(2)

     0.5        4.3        6.2        13.7        3.4   

Transitional services(3)

                                 5.7   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

  271.8      277.4      239.7      206.8      252.4   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Less: cash capital expenditure

  (211.7   (195.1   (99.6   (50.3   (121.8
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA less cash capital expenditure

  60.1      82.2      140.1      156.5      130.6   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

Notes:

 

(1)

Net gain on disposal of property, plant and equipment after deducting a gain on sale of building in Singapore of $28.6 million in 2014.

 

(2)

The restructuring costs comprised primarily of severance payments to our employees.

 

(3)

This amount represents the fees payable to Panasonic for certain transitional services that Panasonic provided to us in connection with our acquisition of the three facilities from Panasonic. See “History and Corporate Structure – Acquisition of Semiconductor Assembly and Test Businesses from Panasonic and Related Contract Manufacture Agreement and Other Agreements” for further details.

 

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Quarterly Financial Information

The following table sets forth our unaudited results of operations for the eight fiscal quarters ended December 31, 2014. This information should be read in conjunction with our audited consolidated financial statements and the related notes included elsewhere in this prospectus. The unaudited results of operations have been derived from our financial statements not included in this prospectus. Our results of operations have varied and may continue to vary significantly from quarter to quarter and are not necessarily indicative of the results of any future periods.

 

     2013     2014  
     March     June     September     December     March     June     September     December  
     (in $ millions)  

Sales

     201.0        192.8        181.6        172.9        160.7        203.4        256.6        239.5   

Cost of sales

     (172.6     (169.7     (156.1     (152.3     (140.6     (168.8     (202.2     (190.4

Gross profit

     28.4        23.2        25.5        20.7        20.0        34.6        54.4        49.1   

Other income

     1.9        1.0        1.5        3.3        1.9        1.4        1.7        3.5   

Other gain/(loss) – net

     0.6        1.5        19.9        7.7        (0.7     41.6        32.8        4.2   

Expenses:

                

Selling, general and administrative

     (15.9     (16.0     (11.7     (14.1     (15.7     (20.0     (23.9     (24.2

Research and development

     (2.9     (3.3     (3.0     (3.1     (2.8     (3.1     (3.4     (3.2

Finance

     (29.6     (30.0     (30.1     (30.9     (30.0     (30.7     (30.7     (33.8

Others

     (2.7     (0.9     (4.9     (7.9     (2.8     (0.1     (9.6     (1.1

Share of loss of associated company

     (0.2     (0.6     (0.6     (3.1                            

(Loss)/profit before tax

     (20.5     (25.0     (3.5     (27.5     (30.0     23.7        21.2        (5.5

Income tax (expense)/credit

     (1.5     (0.3     (1.0     0.4        (1.2     (2.3     (4.8     (4.6

(Loss)/profit after tax

     (22.0     (25.3     (4.4     (27.1     (31.2     21.4        16.4        (10.0

Non-IFRS Quarterly Financial Data

                

(Loss)/profit after tax

     (22.0     (25.3     (4.4     (27.1     (31.2     21.4        16.4        (10.0

Add/(deduct):

                

Income tax expense/(credit)

     1.5        0.3        1.0        (0.4     1.2        2.3        4.8        4.6   

Finance expense

     29.6        30.0        30.1        30.9        30.0        30.7        30.7        33.8   

Depreciation of property, plant and equipment

     39.6        38.3        37.2        36.5        34.4        35.2        40.5        39.8   

Amortization of intangibles assets

     4.2        4.1        4.1        4.1        4.1        4.0        4.0        4.5   

EBITDA

     52.9        47.4        68.0        44.0        38.5        93.6        96.4        72.7   

Add/(deduct):

                

Impairment and write-off of property, plant and equipment

                   0.3        1.7        *               8.6 (1)        

Business acquisition-related costs

                                 4.0        0.3        0.1          

Restructuring costs(2)

     2.5        1.2        4.4        5.5        2.4        0.1        0.9          

Share of loss of associated company

     0.2        0.6        0.6        3.1                               

Bargain purchase gain on acquisition of a subsidiary

                                        (41.4 )(3)               

Gain on extinguishment of borrowings, net of expenses

                   (21.1 )(4)                                    

Write-back of unclaimed monies from the previous shareholders of a subsidiary

                          (4.8                            

Redemption liabilities

                          0.3                               

Gain on sale of building in Singapore

                                               (28.6 )(5)        

Capital return from previously written off investment

                                                      (0.7 )(6) 

Dividend Income

                                        (0.1              

Transitional services(7)

                                        0.8        2.4        2.4   

Adjusted EBITDA

     55.6        49.2        52.2        49.8        44.9        53.3        79.8        74.4   

 

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Notes:

 

(1)

This amount represents the impairment and write-off of property, plant and equipment following our impairment exercise in the third quarter of 2014.

 

(2)

The restructuring costs comprised primarily of severance payments to our employees.

 

(3)

On June 2, 2014, we completed the acquisition from Panasonic of equity interests of 100.0% in USG2 and UMY, and an equity interest of 99.98% in UID, for a consideration of $96.5 million. As the fair value of the consideration was $83.6 million which was less than the fair value of the identifiable net assets of the acquired subsidiaries of $125.1 million, in each case determined at the time of the acquisition, we recognized a gain on bargain purchase of $41.4 million. See “History and Corporate Structure – Acquisition of Semiconductor Assembly and Test Businesses from Panasonic and Related Contract Manufacture Agreement and Other Agreements” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies – Gain on bargain purchase from business combination” for further details.

 

(4)

We recognized a gain of $21.1 million due to the extinguishment of the second priority term loans in exchange for the issuance of $502.3 million in aggregate principal amount of 10.0% senior secured notes due 2019 on September 30, 2013.

 

(5)

We recognized a gain on the disposal of one of our Singapore facilities in 2014.

 

(6)

In 2014, we received a return of capital from a company that we had previously invested in 2000, which had previously been written off.

 

(7)

This amount represents the fees payable to Panasonic for certain transitional services that Panasonic provided to us in connection with our acquisition of the three facilities from Panasonic. See “History and Corporate Structure – Acquisition of Semiconductor Assembly and Test Businesses from Panasonic and Related Contract Manufacture Agreement and Other Agreements” for further details.

 

*

Amount insignificant.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

You should read the following discussion of our results of operations in conjunction with our historical consolidated financial statements as of and for the years ended December 31, 2012, 2013 and 2014, and the related notes thereto, and other financial information included elsewhere in this prospectus. Our results of operations have varied and may continue to vary significantly from year to year and are not necessarily indicative of the results of any future periods. Our consolidated financial statements as of and for the year ended December 31, 2014 include the results of UMS and its subsidiaries from June 2, 2014. Between January 1, 2012 and June 1, 2014, the results of operations of UMS and its subsidiaries were not consolidated in our consolidated financial statements as they were not our subsidiaries. As a result of the size of the business of UMS and its subsidiaries relative to that of our existing business at the time of our acquisition of UMS and its subsidiaries, our consolidated financial statements as of and for the year ended December 31, 2014 and subsequent periods are not fully comparable to our consolidated financial statements as of and for the years ended December 31, 2012 and 2013. As such, you should not use such comparisons as a basis for your investment or to predict our future performance.

This discussion contains forward-looking statements that reflect our current views with respect to future events and financial performance. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of factors such as those set forth under “Risk Factors,” “Special Note Regarding Forward-Looking Information” and elsewhere in this prospectus.

Overview

We are a leading independent provider of semiconductor assembly and test services for a broad range of integrated circuits with diversified uses, including in communications devices (such as smartphones, Bluetooth and WiFi), consumer devices, computing devices, automotive applications and industrial and medical applications. We provide assembly and test services primarily for three key semiconductor product categories, namely, analog, mixed-signal and logic, and memory.

On June 2, 2014, we completed the strategic acquisition from Panasonic of its semiconductor assembly and test facilities in Singapore, Indonesia and Malaysia. This acquisition has equipped us with new automotive and industrial capabilities, and diversified the services we offer and the end-markets we serve.

Our customers are primarily fabless companies, integrated device manufacturers and wafer foundries. Our expertise in assembly and test services accumulated through years of engineering experience has allowed us to develop long-standing and well-established relationships with our customers, many of whom are leaders in their respective product categories. In 2014, our top ten customers by sales were Panasonic, Broadcom, Texas Instruments, Maxim Integrated, Taiwan Semiconductor Manufacturing Company, SanDisk, Microchip Technology, STMicroelectronics, FATC and Power Integrations.

We are headquartered in Singapore, with production facilities located in Singapore, Thailand, Taiwan, China, Indonesia and Malaysia. In China, our facilities are located in Dongguan and Shanghai.

In 2014, we had sales of $860.3 million, an increase of 15.0% compared to sales of $748.4 million in 2013. In 2014, 66.1% of our sales were from assembly services and 33.9% of our sales were from test services, and our analog, mixed-signal and logic, memory and other product categories accounted for 35.7%, 45.5%, 11.1% and 7.7% of our sales, respectively. Our adjusted EBITDA was $252.4 million in 2014, an increase of 22.1% compared to adjusted EBITDA of $206.8 million in 2013.

 

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Factors Affecting Our Results of Operations

The following key trends are important to understanding our business:

Changes in Demand from Our Customers

Our results of operations are primarily affected by demand for our services by our customers, who are in turn affected by changes in their market share in the markets in which they compete and changing consumer demand. Our customers allocate the semiconductor assembly and test services they outsource among a number of providers, and as a result, the demand for our services by our customers is dependent on our price competitiveness, quality levels, timeliness of delivery and the scope of services we offer compared against our competitors and our customers’ own in-house assembly and test capabilities. In 2013, we experienced a decrease in demand primarily due to reduced orders from our analog customers and because Nanya, which was a key customer in our memory business, changed its strategy and insourced more of its assembly and test requirements.

We entered into a contract manufacture agreement with Panasonic on May 30, 2014, under which Panasonic has undertaken to purchase various annual committed amounts of services and products from us at agreed prices over the five-year term of the agreement. Despite contributing to our sales for only seven months of 2014, Panasonic was our largest customer in 2014 and is expected to continue to be our largest customer for at least the next few years. As a result, changes in order levels from Panasonic and fluctuations in consumer demand in the end-markets in which Panasonic primarily uses our products, particularly the automotive, industrial and medical end-markets, will impact our results of operations. Further, if Panasonic fails to meet its purchase commitment, the liquidated damages it must pay under the contract manufacture agreement are required to be made within 30 days of our provision of statements to Panasonic of the amounts due, and are typically expected to be made between September to November (for any failure to meet its interim commitment) and/or March to May (for any failure to meet its annual commitment) of each year, which can result in inconsistency and lumpiness in our cash flows and results of operations from period to period.

Our new customers usually require us to pass a lengthy and rigorous qualification process that can take more than nine months to complete with the consequence that we typically only realize any meaningful sales contributions from such customers approximately one to two years or longer from the time we commence the qualification process.

Global macroeconomic conditions also have a significant impact on our results of operations because they affect consumer spending and demand generally. Our diversified product categories of analog, mixed-signal and logic, and memory partially mitigate our exposure to industry volatility as these product categories typically experience slightly different cycles due to different growth drivers and business dynamics. In 2014, our analog, mixed-signal and logic, and memory and other product categories accounted for 35.7%, 45.5%, 11.1% and 7.7% of our sales, respectively.

Sales Mix Impacting Margins

We price our assembly and test services primarily based on prevailing market prices, our materials and components costs, labor and overhead costs, and depreciation. The unit price charged for assembly services is generally higher than that for test services because assembly services use significantly more materials. On the other hand, test services generally have higher gross profit margins than assembly services because test services require minimal materials and components costs.

The sales mix between our assembly and test services have not historically experienced sharp fluctuations and are primarily affected by customer demand. Sales from our assembly business as a percentage of our sales were 68.5%, 67.0% and 66.1% in 2012, 2013 and 2014, respectively. Sales from our test business as a percentage of our sales were 31.5%, 33.0% and 33.9% in 2012, 2013 and 2014, respectively.

A substantial portion of the sales of our assembly services are derived from the analog product category, and the majority of the sales of our test services are derived from the mixed-signal and logic product category. Our analog assembly services command higher gross profit margins than our assembly services for other product

 

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categories and our mixed-signal and logic test services command higher gross profit margins than our test services for other product categories. As a result, our gross profit margins could be expected to improve if analog assembly services and mixed-signal logic test services represent a larger proportion of our sales.

Semiconductor product prices tend to decline over the product life cycle, commanding a premium in the early stages and declining towards the end of the cycle. Therefore, prices for assembly and test services also decline in line with the semiconductor product prices over the product life cycle. In addition, our pricing for assembly and test services have historically declined in line with industry trends. However, as we do not focus on early stage products, our average selling prices tend to decline relatively gradually compared to prices for services provided across the entire semiconductor product life cycle.

We have generally offset such declines in average selling prices over the last several years through:

 

   

cost savings realized through our procurement strategy;

 

   

reduction in our overhead cost structure and increase in labor productivity;

 

   

reduction in our energy use; and

 

   

increasing the output from our existing equipment base.

In the second half of 2014, our gross profit margins improved compared with the first half of 2014 primarily as a result of the contributions from the products and services of the three semiconductor facilities we acquired from Panasonic on June 2, 2014, which had higher prices and gross profit margins compared to our other facilities and pursuant to our contract manufacture agreement with Panasonic. Our contract manufacture agreement also requires us to apply certain reductions to the purchase price in each year for the duration of the agreement, and to extend rebates of between 2% and 10% of the relevant eligible revenue generated that meets and/or exceeds the relevant annual or interim commitments by Panasonic, which may result a steeper decline in our average selling prices.

Fixed Costs

Our operations, in particular our test operations, are capital intensive and characterized by relatively high fixed costs. We typically increase our capital expenditure only when we believe there is demand from customers for particular services and we have the flexibility of increasing or decreasing the levels of our capital expenditure in anticipation of any improvement or deterioration in market conditions. However, such flexibility in anticipating our capital expenditure requirements is limited because our customers typically only provide us with non-binding rolling forecasts of their service requirements for periods of up to six months.

As a result of our continual requirement to acquire and invest in assembly and test equipment, we expect to continue to incur substantial depreciation expenses, a substantial majority of which are included in our cost of sales. We incurred depreciation expenses of $162.9 million, $151.7 million and $149.9 million for 2012, 2013 and 2014 which represented 20.5%, 23.3% and 21.4%, respectively, of our cost of sales for each of those periods.

Due to our high fixed costs, our profitability depends substantially on the pricing levels of our services and our equipment utilization rate, which is dependent on the volume and variety of products for which we provide assembly and test services and our total installed equipment base. An increase in the volume of products, which in turn increases our equipment utilization rate, will generally result in a decrease in the unit cost of assembly and test services because fixed costs, such as depreciation expense and operating costs, are allocated over a larger number of units.

Our ability to manage our gross profit margins will continue to depend in part on our ability to effectively maintain or increase our equipment utilization. We intend to continue to optimize our equipment utilization through:

 

   

improvements in productivity and efficiency in our processes, maintenance and upgrading activities to extend the useful life of our equipment;

 

   

purchasing new equipment and retiring old and obsolete, or less efficient, equipment; and

 

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sourcing for new customers, maintain commitments from and/or obtaining increased commitments by customers for our services.

Materials and Components Costs

Substantially all of our materials and components costs are attributable to our assembly business because test operations use minimal materials and components. The principal materials used in our assembly business include gold, copper, molding compound and epoxy, and components include substrates and lead-frames. We intend to maintain a varied source of suppliers to obtain competitive prices for materials and components that we use and, where possible, we attempt to source from suppliers in close proximity to our manufacturing facilities with a view to reducing freight cost and the time required for delivery to our facilities.

We have developed copper wire bonding processes in line with the demand for copper wire bonders as a low cost, high performance manufacturing solution for fine-pitch and ultra-fine pitch bonding. As more of our customers transition from gold to copper, our exposure to the fluctuation in gold prices is expected to decrease. However, gold is still one of the principal materials used in our assembly services and accounted for 13.6%, 10.3% and 7.8% of our cost of sales for 2012, 2013 and 2014, respectively. The average cost of gold per troy ounce for our operations has fluctuated significantly from an approximate average of $1,678 per troy ounce in 2012 to $1,624 in 2013, and to $1,251 in 2014.

We may be able to offset a portion of the increased gold prices by passing through the price changes to our customers, but this will depend on the existing agreements with our customers or negotiations with our customers where we do not have any formal agreement. If gold prices decrease, our customers may also require that we reduce our prices. We may enter into certain gold forward contracts to hedge the gold price risk for part of our gold purchase volume if the opportunity arises, but expect to continue to be subject to significant fluctuations in the price of gold.

Employee Compensation

Employee compensation constitutes a significant part of the costs and expenses we incur for our assembly and test services. Employee compensation comprises of wages and salaries, employer’s contribution to employee contribution plans, post-employment pension benefits, long service award and termination benefits. This also includes the employment costs from our direct and indirect labor, and research and development personnel. We incurred employee compensation costs of $236.8 million, $198.5 million and $238.7 million for 2012, 2013 and 2014, respectively. As certain of our employees in Singapore, Indonesia and Malaysia are unionized, our employee compensation costs may increase if we agree to wage increases in any future wage negotiations with the unions. Our collective bargaining agreements with the employee unions in Indonesia and Malaysia are expected to expire on May 29, 2016 and October 31, 2016, respectively.

The increase in our employee compensation costs from 2013 to 2014 is mainly attributable to the increase in the number of employees that we hired in 2014 and wage increases for our existing employees. The decrease in our employee compensation costs from 2012 to 2013 is mainly attributable to the reduction in the number of employees on account of the decline in our business. For further details of our employee compensation costs, please refer to Note 8 to our audited consolidated financial statements included elsewhere in this prospectus.

Acquisitions

Other than organic growth, we have also grown our business and operations through acquisitions. Each acquisition may materially change our overall results of operations and financial profile, and may cause period to period comparisons of our financial statements not to be meaningful. For example, we acquired Panasonic’s Singapore, Indonesia and Malaysia semiconductor facilities on June 2, 2014 which equipped us with assembly and test capabilities for devices such as image sensors and power packages and added capabilities to our business in the automotive and industrial end-markets. Our acquisition of ASAT Limited (now known as UHK) in 2010 and NS Electronics Bangkok (now known as UTL) in 2006 strengthened our position and intellectual property portfolio in QFN packages. We may consider future acquisitions of, or investments in, complementary

 

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businesses or assets from time to time. Any of such acquisitions or investments could have a material effect on our business, financial condition and results of operations.

Long-Term Liabilities

One of our subsidiaries, Global A&T Electronics, had in February 2013 issued $625.0 million in aggregate principal amount of senior secured notes, and in September 2013 issued $502.3 million in aggregate principal amount of senior secured notes. On June 2, 2014, we completed the acquisition of Panasonic’s Singapore, Indonesia and Malaysia semiconductor facilities for a consideration of $96.5 million, of which $6.5 million was paid to Panasonic in 2014. The remaining consideration of $90.0 million is payable by installments over five years. The guarantee facility that we obtained in connection with this acquisition requires UMS and its subsidiaries to, among other things, maintain a consolidated minimum cash balance of at least $12.0 million as of the end of each financial quarter (subject to certain exceptions). See “– Total Borrowings – Long Term Borrowings” and “Description of Certain Indebtedness” for further details. Our finance expenses were $79.6 million, $120.7 million and $125.2 million in 2012, 2013 and 2014, representing 59.0%, 123.5% and 79.2%, respectively, of our gross profit in each of those periods. See also “– Liquidity and Capital Resources” for the impact of our borrowings on our net cash position.

Foreign Currency Fluctuations

Our sales are generally denominated in U.S. dollars. We are exposed to currency risk which arises primarily due to our operating expenses being generally denominated in other currencies such as Singapore dollars, Thai Baht, Chinese Renminbi, New Taiwan dollars and Japanese Yen. Because our receivables are denominated in U.S. dollars, changes in the exchange rates of these currencies or any other applicable currencies to the U.S. dollar will affect our cost of goods sold and operating margins and could result in exchange losses. We cannot fully predict the impact of future exchange rate fluctuations on our profitability.

Critical Accounting Policies

The preparation of consolidated financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Critical accounting policies reflect significant judgments and uncertainties and may result in materially different results under different assumptions and conditions.

Estimates and underlying assumptions are reviewed on an ongoing basis and are based on historical experience and other factors, including expectations of future events that we believe are reasonable under the current circumstances. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.

We believe that the application of the following accounting policies, which are important to our consolidated financial position and results of operations, requires significant judgments and estimates on the part of management. For a summary of all of our accounting policies, including the accounting policies discussed below, see Notes 2 and 3 to our audited consolidated financial statements included elsewhere in this prospectus.

Revenue recognition

Sales are presented, net of value-added tax, rebates and discounts, and after eliminating sales within our group, and are recognized when the amount of revenue and related cost can be reliably measured, and it is probable that the collectability of the related receivables can be reasonably assured during the financial year in which the services are rendered.

We principally provide assembly and test services of semiconductor chips (also known as integrated circuits). We provide full turnkey solutions, including wafer probing, wafer processing, assembly, testing and the

 

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direct shipment of semiconductors to users designated by our customers. In addition, we also provide test development services.

Sales are recognized when each stage of services has been completed. Each stage is performed as a whole and may not be separated or proportioned. Sales rebates and discounts are estimated based on management’s experience, and assessment of relevant factors, and is recorded as a deduction to revenue.

Goodwill

For the purpose of impairment testing of goodwill, goodwill is allocated to each of our cash-generating-units, being assembly and test services, which are expected to benefit from synergies arising from the business combination. The recoverable amounts from our cash-generating units are determined based on forecasted value-in-use calculations for five years. These calculations require the use of estimates.

If our estimated gross profit margin is lowered by 1.0% in each of the forecasted years with all other variables held constant, the recoverable amounts from our assembly services would be reduced by approximately $83.2 million, $53.6 million and $48.2 million for the years ended December 31, 2012, 2013 and 2014, respectively, and our test services would be reduced by $47.5 million, $26.2 million and $32.4 million for the years ended December 31, 2012, 2013 and 2014, respectively. The carrying amount of goodwill as of December 31, 2012, 2013 and 2014 would not be impaired.

If our estimated pre-tax discount rate applied to the discounted cash flows for our assembly and test services were raised by 1% holding all else constant, the recoverable amounts from our assembly services would be reduced by approximately $114.1 million, $86.8 million and $96.3 million for the years ended December 31, 2012, 2013 and 2014, respectively, and the recoverable amounts from our test services would be reduced by approximately $118.6 million, $95.7 million and $163.5 million for the years ended December 31, 2012, 2013 and 2014, respectively. The carrying amount of goodwill as of December 31, 2012, 2013 and 2014 would not be impaired.

Gain on bargain purchase from business combination

On June 2, 2014, we completed the acquisition of 100% equity interests in USG2 and UMY, and 99.98% equity interest in UID for a consideration of $96.5 million. As the fair value of the consideration was $83.6 million which was less than the fair value of the identifiable net assets of the acquired subsidiaries of $125.1 million, in each case determined at the time of the acquisition, we recognized a gain on bargain purchase of $41.4 million.

External consultants were engaged to assist in the fair value determination of the identifiable intangible assets and other significant assets or liabilities of the acquired subsidiaries. We made certain assumptions and applied our judgment in estimating the fair value of the acquired assets and liabilities, including the highest and best use of assets, of the subsidiaries. The external consultants used quoted market prices and other accepted valuation techniques, including the discounted cash flows and market multiple analysis to estimate the fair market value of the assets and liabilities of the acquired subsidiaries, and had used the depreciated replacement costs technique for valuing tangible assets. These estimates include assumptions on inputs within the discounted cash flow calculations related to forecasted revenues, cash flows, asset useful lives, industry economic factors and business strategies.

Prior to the recognition of a gain on a bargain purchase, we assess whether all the acquired assets and assumed liabilities have been identified. Thereafter, we review the procedures used to measure the amounts that IFRS requires to be recognized based on the excess of (i) the consideration transferred (ii) the fair value of the net identifiable assets acquired. As we are required to pay the remaining consideration of $90.0 million for the acquisition of the three subsidiaries from Panasonic over a period of five years, we recognize imputed interest on the installment payments payable to Panasonic each year, as part of our finance expenses.

 

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Impairment of property, plant and equipment

Property, plant and equipment are tested for impairment whenever there is any objective evidence or indication that these assets may be impaired.

Impairment charges of $0.9 million, $1.7 million and $8.2 million were recognized on certain plant and machinery for the financial years ended December 31, 2012, 2013 and 2014, respectively. The impairment charges recognized for these assets were due to events and circumstances that indicate that the carrying amount would exceed the recoverable amounts. The recoverable amounts of such plant and machinery were determined based on their fair value less the costs of selling such assets. Fair value was determined by reference to quotations from third party vendors for those plant and machinery that were identified for sale.

Uncertain tax positions

We are subject to various taxes in numerous jurisdictions in which we operate. These include taxes on income, property, goods and services, and other taxes. In determining the tax liabilities, we are required to estimate their tax payable position based on deductibility of certain expenses and exemptions of certain taxable income due to tax incentives granted in respective tax jurisdictions. We submit tax returns and claims with the appropriate government taxing authorities, which are subject to examination and agreement by those taxing authorities. We regularly re-assess the likelihood of adverse outcomes resulting from these examinations to determine adequacy of provision for taxes. We have open income tax assessments as of December 31, 2014. As we believe that the income tax positions are sustainable, we have not recognized any additional tax liability on these uncertain tax positions.

Key Components of Our Statement of Comprehensive Income

Our statement of comprehensive income comprises the following line items:

Sales

We generate sales from our semiconductor assembly and test operations. We generally recognize sales when we complete the assembly and test services provided to our customers.

The table below shows, for the periods indicated, the amount and percentage of our sales attributable to each of our assembly services and test services:

 

Services

   Year Ended December 31,  
   2012     2013     2014  
   Amount      Percentage
of sales
    Amount      Percentage
of sales
    Amount      Percentage
of sales
 
     (in $ millions, except percentages)  

Assembly

     636.7         68.5     501.5         67.0     568.3         66.1

Test

     293.4         31.5     246.9         33.0     292.0         33.9
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total

  930.1      100.0   748.4      100.0   860.3      100.0
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

 

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The following tables set forth our composition of sales by categories of semiconductor as a percentage of sales, which has been prepared based on our management’s determination of the dominant product categories that are served by our customers:

 

Product category

   Year Ended December 31,  
   2012     2013     2014  
   Amount      Percentage
of sales
    Amount      Percentage
of sales
    Amount      Percentage
of sales
 
     (in $ millions, except percentages)  

Analog

     337.4         36.3     283.7         37.9     306.8         35.7

Mixed-signal and logic

     420.6         45.2     349.6         46.7     391.8         45.5

Memory

     172.1         18.5     115.1         15.4     95.3         11.1

Others(1)

                                   66.4         7.7
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total

  930.1      100.0   748.4      100.0   860.3      100.0
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

 

Note:

 

(1)

Others include optical and other discrete devices.

 

     Year Ended December 31, 2014  

Product category and services

   Amount      Percentage of sales  
     (in $ millions, except percentages)  

Assembly:

     

Analog

     271.8         47.8

Mixed-signal and logic

     209.0         36.8

Memory

     43.0         7.6

Others

     44.5         7.8
  

 

 

    

 

 

 

Total

  568.3      100.0
  

 

 

    

 

 

 

Test:

Analog

  35.0      12.0

Mixed-signal and logic

  182.8      62.6

Memory

  52.3      17.9

Others

  21.9      7.5
  

 

 

    

 

 

 

Total

  292.0      100.0
  

 

 

    

 

 

 

End-markets

  

Communications

  341.5      39.7

Computing

  162.6      18.9

Consumer

  135.1      15.7

Automotive

  77.4      9.0

Industrial, medical and others

  143.7      16.7
  

 

 

    

 

 

 

Total

  860.3      100.0
  

 

 

    

 

 

 

Except for the memory product category, sales in all our product categories increased in 2014 compared to 2013 as a result of the seven months’ sales contribution from the three semiconductor facilities that we acquired from Panasonic on June 2, 2014. Our analog and mixed-signal and logic sales increased in 2014 from 2013 as we gained market share and business with our customers particularly in the second half of 2014. Sales from our memory product category declined to $95.3 million in 2014 from $115.1 million in 2013 due to the continued reduced demand from Nanya, which was a key customer in our memory business and in 2013 changed its strategy and insourced more of its assembly and test requirements. In connection with the continued reduced demand, we sold some memory equipment in 2014. The “others” product category primarily comprises optical devices and other discrete semiconductor devices which are attributable to the business of the three semiconductor assembly and test facilities we acquired from Panasonic on June 2, 2014.

 

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Sales in all our product categories declined in 2013 compared to 2012 as a result of weakness in demand in our memory business as Nanya, which is one of our key memory customers, changed its strategy and insourced more of its assembly and test requirements, loss in our share of wallet with respect to some customers in our analog assembly business, customers ceasing to use our assembly and test services for certain products that we no longer service in Singapore and closure of our facility at Chengdu (which was focused on assembly services).

We have a diversified customer base on the basis of geographical distribution. We account for geographical distribution of our sales based on the countries in which our customers are headquartered, which we classify into four regions: United States, Japan, Asia (excluding Japan) and Europe. The table below sets forth the geographic distribution of our sales:

 

     Year Ended December 31,  
     2012     2013     2014  

Geography

   Amount      Percentage
of sales
    Amount      Percentage
of sales
    Amount      Percentage
of sales
 
     (in $ millions, except percentages)  

United States

     546.5         58.8     475.9         63.6     484.6         56.3

Japan

     30.4         3.3     25.8         3.4     151.2         17.6

Asia (excluding Japan)

     254.6         27.4     171.8         23.0     148.9         17.3

Europe

     92.2         9.9     71.3         9.5     72.8         8.5

Others

     6.5         0.7     3.6         0.5     2.7         0.3
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total

  930.1      100.0   748.4      100.0   860.3      100.0
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Sales from our customers headquartered in Asia (excluding Japan) decreased in 2014 compared to 2013, due to the weakness in demand in our memory business and the discontinuation of our operations at Chengdu (which was focused on assembly services). Sales from our customers headquartered in Japan increased in 2014, as the three semiconductor assembly and test facilities we acquired from Panasonic on June 2, 2014 continue to provide services to Panasonic which is headquartered in Japan.

Sales in all of our geographies generally decreased in 2013 compared to 2012 due to weakness in demand in our memory business, loss in our share of wallet with respect to some customers in our analog assembly business, customers ceasing to use our assembly and test services for certain products that we no longer service in Singapore, weakness in demand from certain of our cell phone component suppliers in China and closure of our facility at Chengdu. In particular, we had lower sales from our customers headquartered in Asia (excluding Japan) in 2013 compared to 2012, primarily due to a decrease in sales from our memory product category as Nanya, which is one of our key memory customers, changed its strategy and insourced more of its assembly and test requirements.

Cost of Sales

Our cost of sales consists principally of the following:

 

   

direct materials and direct labor, which vary in line with the level of our sales;

 

   

indirect labor, indirect materials (being ancillary materials and other supplies used in the assembly and test process), utilities, equipment maintenance, operating supplies and tooling, which vary in part with the level of our sales; and

 

   

depreciation and general expenses incurred in maintaining our facilities, which are generally fixed and do not vary in line with our sales. Our depreciation expenses vary in line with the level of our capital expenditure, sales of equipment that has not been fully depreciated and the remaining useful life of the equipment. In 2014, our depreciation expense remained similar to the levels for 2013 as a result of the seven months’ depreciation expense attributable to the three semiconductor facilities that we acquired from Panasonic on June 2, 2014, being partially offset by our sale of certain equipment and other equipment having been fully depreciated in the same year.

 

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In most cases, the cost of the silicon die for our assembly services, typically the most costly component of the assembly services, is not reflected in our cost of sales because it is supplied by our customers on a consignment basis.

Our cost of sales for our assembly services is generally higher than that for our test services due to more materials being required for our assembly operations, while the depreciation expenses for our test services is generally higher than that for our assembly services due to higher capital expenditure on test equipment for our test operations. Our analog and mixed-signal and logic assembly operations generally have higher materials costs compared to our memory assembly operations.

In 2013 and 2014, we were also able to reduce our cost of sales as a result of our cost reduction initiatives which began in 2012. These cost reduction initiatives resulted in:

 

   

the adoption of annual cost reduction targets;

 

   

a decision to phase out low margin products from our Singapore facility to our Dongguan facility in 2012;

 

   

the closure of our facility in Chengdu (which was focused on assembly services) in 2012 due to under-utilization of the facility; and

 

   

the sale of one of our Singapore facilities in 2014 as we consolidated our Singapore operations into one facility.

These cost reduction initiatives enabled us to partially offset some of the decrease in our gross profit and gross profit margin in 2013 compared to 2012.

Other Income

Other income primarily consists of sales of scrap, service tooling (which relates to the design and building of lead-frames), interest income and rental income.

Other (Losses)/Gains – Net

Other (losses)/gains – net primarily consists of:

 

   

certain non-recurring items such as (i) gain on bargain purchase from our acquisition of the three semiconductor assembly and test facilities from Panasonic (which is explained above under “ – Critical Accounting Policies – Gain on bargain purchase from business combination,”) (ii) gain on extinguishment of our previous second priority term loans upon the issuance of our $502.3 million in aggregate principal amount of senior secured notes in September 2013, and (iii) write back of unclaimed monies from the previous shareholder of USG1; and

 

   

net gain on disposal of property, plant and equipment, which are not part of our sales, and currency translation losses or gains – net, which are a result of (i) the translation of foreign exchange gains and losses arising from our transactions in foreign currencies, and (ii) gains or losses from translations of our non-U.S. dollar denominated monetary assets and liabilities as at the end of the year.

 

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Expenses

Our expenses include selling, general and administrative expenses, research and development expenses, finance expenses and other expenses. The table below shows the amount and percentage of each expense component to our sales, and our expenses, for the years ended December 31, 2012, 2013 and 2014:

 

    Year Ended December 31,  
    2012     2013     2014  

Expenses

  Amount     Percentage
of sales
    Percentage
of expenses
    Amount     Percentage
of sales
    Percentage
of expenses
    Amount     Percentage
of sales
    Percentage
of expenses
 
    (in $ millions, except percentages)  

Selling, general and administrative

    63.9        6.9     36.6     57.7        7.7     27.9     83.9        9.8     35.7

Research and development

    18.8        2.0     10.8     12.3        1.6     5.9     12.5        1.5     5.3

Finance

    79.6        8.6     45.6     120.7        16.1     58.3     125.2        14.6     53.2

Others

    12.2        1.3     7.0     16.4        2.2     7.9     13.5        1.6     5.7
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  174.5      18.8   100.0   207.0      27.7   100.0   235.1      27.5   100.0
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Selling, general and administrative expenses primarily include salary, remuneration and other personnel related expenses for sales and marketing staff, administrative staff and directors, overheads such as freight and shipping, recruitment and training expenses, and depreciation expense.

Our research and development expenses are primarily associated with the development of advanced packages and assembly techniques to meet the individual needs of our customers and the development of high speed test capability, software and processes to enhance test accuracy and efficiency and to shorten test time of semiconductors. Our research and development expenses also include the compensation costs of our research and development personnel, depreciation of equipment and amortization of intangible assets, such as software. Our other intangible assets, including patents and licenses, customer relationships and favorable leasehold interest, are also amortized.

Finance expenses consist mainly of interest expense on borrowings related to the indebtedness under the indenture, previous senior term loan facilities and previous second priority term loans (that we obtained in connection with our acquisition of USG1), finance leases and imputed interest on the consideration payable to Panasonic in installments in connection with the acquisition of the three semiconductor assembly and test facilities from Panasonic.

Other expenses consist primarily of impairment loss of property, plant and equipment, and professional, legal and consultancy fees in relation to acquisitions and restructuring activities.

Share of Loss of Associated Company

Share of loss of associated company constitutes profits and losses from our 19.9% interest in Nepes Pte. Ltd. We have disposed of our interest in Nepes Pte. Ltd. in May 2014.

Income Tax Expense

Our income tax expense reflects the income tax expenses at the statutory rate in various applicable jurisdictions after taking into consideration, among others, any non-deductible expenses, tax incentives, and utilization of previously unrecognized investment allowances in each applicable jurisdiction. For further details of our policies on income taxes, refer to Note 2.21 to our consolidated financial statements included elsewhere in this prospectus.

Non-controlling Interests

Non-controlling interests are the part of the net results of operations and net assets of our subsidiaries, not attributable to interests owned directly or indirectly by our company.

 

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Results of Operations

 

     Year Ended December 31,  
     2012     2013     2014  
     (in $ millions, except percentages)  
     Amount     Percentage
of Sales
    Amount     Percentage
of Sales
    Amount     Percentage
of Sales
 

Sales

     930.1        100.0     748.4        100.0     860.3        100.0

Cost of sales

     (795.2     (85.5 %)      (650.7     (86.9 %)      (702.1     (81.6 %) 

Gross profit

     134.9        14.5     97.7        13.1     158.1        18.4

Other income

     8.5        0.9     7.7        1.0     8.5        1.0

Other (losses)/gains – net

     (1.3     (0.1 )%      29.6        4.0     77.9        9.1

Expenses:

            

Selling, general and administrative

     (63.9     (6.9 %)      (57.7     (7.7 %)      (83.9     (9.8 %) 

Research and development

     (18.8     (2.0 %)      (12.3     (1.6 %)      (12.5     (1.5 %) 

Finance

     (79.6     (8.6 %)      (120.7     (16.1 %)      (125.2     (14.6 %) 

Others

     (12.2     (1.3 %)      (16.4     (2.2 %)      (13.5     (1.6 %) 

Share of profit/(loss) of associated company

     0.7        0.1     (4.5     (0.6 %)               

(Loss)/profit before tax

     (31.7     (3.4 %)      (76.5     (10.2 %)      9.4        1.1

Income tax expense

     (13.7     (1.5 %)      (2.5     (0.3 %)      (12.8     (1.5 %) 

Loss after tax

     (45.4     (4.9 %)      (78.9     (10.5 %)      (3.4     (0.4 %) 

Non-controlling interests

     1.7        0.2     1.3        0.2     1.6        0.2

Loss after non-controlling interest

     (47.1     (5.1 %)      (80.3     (10.7 %)      (5.0     (0.6 %) 

Year Ended December 31, 2014 Compared to Year Ended December 31, 2013

Sales.    Sales increased 15.0% to $860.3 million in 2014 from $748.4 million in 2013. This was primarily due to (i) seven months of sales contribution from the three semiconductor facilities that we acquired from Panasonic on June 2, 2014, and (ii) an increase in sales from our analog product category.

Our assembly services sales increased 13.3% to $568.3 million in 2014 from $501.5 million in 2013, and our test services sales increased 18.3% to $292.0 million in 2014 from $246.9 million in 2013 in each case primarily due to seven months of sales contribution from the three semiconductor facilities that we acquired from Panasonic on June 2, 2014.

Excluding the seven months’ sales contribution from the three semiconductor facilities that we acquired from Panasonic on June 2, 2014:

 

   

our sales decreased 1.9% to $734.1 million in 2014 from $748.4 million in 2013. This decrease in sales primarily resulted from the decrease in sales from our memory product category as Nanya, which was one of our key memory customers, changed its strategy and insourced more of its assembly and test requirements, which was partially mitigated by the increase in sales for our analog product category. SanDisk and FATC have become two key customers of our memory business.

 

   

our sales increased 9.6% to $388.7 million in the second half of 2014 compared to $354.6 million in the second half of 2013 primarily due to increased orders from our existing customers and experienced a recovery in demand for our services driven by analog products and wafer level chip scale packages.

Cost of sales.    Cost of sales increased 7.9% to $702.1 million in 2014 from $650.7 million in 2013. The increase in cost of sales was principally due to (i) increase in sales from our assembly services and to a lesser extent, sales from our test services, and (ii) cost of sales attributable to the semiconductor facilities that we acquired from Panasonic.

Cost of sales for our assembly services increased 7.9% to $480.2 million in 2014 from $445.1 million in 2013, and cost of sales for our test services increased 8.0% to $221.9 million in 2014 from $205.5 million in 2013. These increases were primarily due to the three semiconductor facilities that we acquired from Panasonic on June 2, 2014.

 

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Our cost of sales as a percentage of sales decreased to 81.6% in 2014 compared to 86.9% in 2013 primarily due to:

 

   

the cost of sales attributable to the three semiconductor facilities that we acquired from Panasonic as a proportion of sales from such facilities, being proportionally lower compared to the cost of sales as a proportion of sales from our other facilities;

 

   

lower material costs as a result of test services representing a higher proportion of our sales in 2014, compared to 2013; and

 

   

our cost reduction initiatives described under “– Key Components of Our Statement of Comprehensive Income – Cost of Sales.”

Excluding the seven months’ cost of sales contribution from the three semiconductor facilities that we acquired from Panasonic on June 2, 2014 (i) our cost of sales decreased 5.9% to $612.2 million in 2014 from $650.7 million in 2013, and (ii) our cost of sales as a percentage of sales decreased to 83.4% in 2014 compared to 86.9% in 2013.

Gross profit.    Gross profit increased 61.8% to $158.1 million in 2014 from $97.7 million in 2013.

Gross profit as a percentage of sales, or gross profit margin, was 18.4% in 2014 compared to 13.1% in 2013 primarily due to:

 

   

the gross profit margin of 28.7% attributable to the three semiconductor facilities we acquired from Panasonic (which was higher than our consolidated gross profit margin); and

 

   

the improved gross profit margin of 16.6% attributable to Global A&T Electronics and its subsidiaries primarily due to cost savings realized from our cost reduction initiatives and lower depreciation expense.

Excluding the results of operations attributable to the three semiconductor facilities that we acquired from Panasonic on June 2, 2014, our gross profit and gross profit margin increased to $121.9 million and 16.6%, respectively, in 2014 from $97.7 million and 13.1% in 2013.

We achieved increasing gross profit margins over the four fiscal quarters of 2014. Gross profit margin was 20.5% in the last quarter of 2014 compared to 12.0% in the last quarter of 2013 as a result of the increase in our sales and improvement in the utilization of our equipment, cost savings realized from our cost reduction initiatives, lower depreciation expense and the higher gross profit margin attributable to the three semiconductor facilities that we acquired from Panasonic. For the same reasons, our adjusted EBITDA increased to $74.4 million in the last quarter of 2014 from $49.8 million in the last quarter of 2013.

Gross profit for our assembly services increased 56.5% to $88.1 million in 2014 from $56.3 million in 2013, and gross profit margin for our assembly services was 15.5% in 2014 compared to 11.2% in 2013. This increase was primarily due to (i) the gross profit of $25.4 million and gross profit margin of 30.1% (which was higher than our consolidated gross profit margin) for assembly services attributable to the three semiconductor facilities we acquired from Panasonic on June 2, 2014, and (ii) lower material costs.

Gross profit for our test services increased 69.3% to $70.1 million in 2014 from $41.4 million in 2013, and our gross profit margin for our test services was 24.0% in 2014 compared to 16.8% in 2013. This increase was primarily due to (i) the gross profit of $10.8 million and gross profit margin of 25.9% (which was higher than our consolidated gross profit margin) for test services attributable to the three semiconductor facilities we acquired from Panasonic on June 2, 2014, (ii) lower depreciation expenses from Global A&T Electronics and its subsidiaries compared to 2013, resulting from fully depreciated assets and impairment of excess assets, and (iii) consolidation of our Singapore operations into one facility.

Other income.    Other income in 2014 increased 10.4% to $8.5 million compared to $7.7 million in 2013. This increase was primarily attributable to a 24.2% increase in sales of scrap to $4.1 million in 2014 from sales of scrap of $3.3 million in 2013.

 

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Other (losses)/gains – net.    Other (losses)/gains-net in 2014 increased to $77.9 million compared to $29.6 million in 2013 primarily due to:

 

   

a one-time gain of $41.4 million as the total consideration payable for the three semiconductor facilities we acquired from Panasonic was less than the fair value of the net assets of such facilities; and

 

   

an increase in the net gain on disposal of property, plant and equipment to $37.8 million in connection with the sale of one of our facilities in Singapore and sales of under-utilized memory equipment in 2014 from $2.6 million in 2013 in connection with the closure and sale of our facility in Chengdu (which was focused on assembly services).

Other (losses)/gains-net in 2013 included $21.1 million in connection with a gain due to the extinguishment of our previous second priority term loans in exchange for the issuance of $502.3 million in aggregate principal amount of senior secured notes on September 30, 2013.

Selling, general and administrative expenses.    Selling, general and administrative expenses increased 45.4% to $83.9 million in 2014 from $57.7 million in 2013 principally due to our acquisition of three semiconductor facilities from Panasonic on June 2, 2014, higher legal expenses, higher indirect labor cost due to variable staff compensation and new hires in our sales and marketing departments. For these reasons, selling, general and administrative expenses as a percentage of sales increased to 9.8% in 2014 compared to 7.7% in 2013.

Research and development expenses.    Research and development expenses increased 1.6% to $12.5 million in 2014 from $12.3 million in 2013.

Finance expenses.    Finance expenses increased 3.7% to $125.2 million from $120.7 million in 2013 primarily due to the fees payable under the guarantee facility we obtained in connection with the acquisition of the semiconductor facilities that we acquired from Panasonic and the imputed interest of $2.5 million on the installment payments payable to Panasonic in connection with the acquisition.

Other expenses.    Other expenses decreased 17.7% to $13.5 million in 2014 from $16.4 million in 2013 primarily due to lower severance expenses incurred in 2014 in connection with the reduction of headcount at UTC as part of our cost reduction initiative, which was partially offset by an impairment of $8.2 million for obsolete equipment in 2014.

Profit before tax.    Our profit before tax was $9.4 million in 2014 compared to loss before tax of $76.5 million in 2013.

Income tax expense.    Our income tax expense was $12.8 million in 2014 compared to $2.5 million in 2013 primarily due to increased profits at UTL and the capital gains tax on the equipment sales by UTC in 2014.

Year Ended December 31, 2013 Compared to Year Ended December 31, 2012

Sales.    Sales decreased 19.5% to $748.4 million in 2013 from $930.1 million in 2012. This was primarily due to (i) reduced demand for our assembly and test services from Nanya, which was a key customer in our memory product category that changed its strategy and insourced more of its assembly and test requirements, (ii) loss of our share of analog assembly business outsourced by our customers in our analog assembly business in the second half of 2013, which has since recovered in 2014, (iii) customers ceasing to use our assembly and test services following our decision to cease providing services for low margin assembly products from our Singapore facility, (iv) weakness in demand from certain of our cell phone component customers in China and (v) the closure of our facility at Chengdu (which was focused on assembly services) due to under-utilization.

These factors resulted in:

 

   

our assembly services sales decreasing 21.2% to $501.5 million in 2013 from $636.7 million in 2012;

 

   

our test services sales decreasing 15.8% to $246.9 million in 2013 from $293.4 million in 2012; and

 

   

decreasing sales from our assembly and test services through 2013, from $201.0 million in the first quarter of 2013 to $172.9 million in the last quarter of 2013.

 

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Cost of sales.    Cost of sales decreased 18.2% to $650.7 million in 2013 from $795.2 million in 2012. The decrease in cost of sales was primarily due to lower materials costs on account of lower assembly sales and cost savings achieved as a result of our cost reduction initiatives in 2012 described under “– Key Components of Our Statement of Comprehensive Income – Cost of Sales.” Our cost of sales as a percentage of sales increased to 86.9% in 2013 compared to 85.5% in 2012 due to a relatively larger decline in sales compared to the decline in our cost of sales. Our depreciation expenses decreased in 2013 compared to 2012 as a result of decreasing capital expenditure.

Cost of sales for our assembly services decreased 19.0% to $445.1 million in 2013 from $549.6 million in 2012, and cost of sales for our test services decreased 16.4% to $205.5 million in 2013 from $245.7 million in 2012. These decreases were primarily due to lower sales in 2013.

Gross profit.    Gross profit decreased 27.6% to $97.7 million in 2013 from $134.9 million in 2012. Gross profit margin was 13.1% in 2013 compared to 14.5% in 2012. The decrease in our gross profit margin was primarily due to a decline in test sales and to a lesser extent, a decline in assembly sales. The decrease in our gross profit margin would have been greater if not for our cost reduction initiatives described under “– Key Components of Our Statement of Comprehensive Income – Cost of Sales.”

Gross profit for our assembly services decreased 35.4% to $56.3 million in 2013 from $87.2 million in 2012, and gross profit for our test services decreased 13.2% to $41.4 million in 2013 from $47.7 million in 2012. These decreases were primarily due to lower sales in 2013. For the same reasons, gross profit margin for our assembly services was 11.2% in 2013 compared to 13.7% in 2012. Our gross profit margin for our test services was 16.8% in 2013 compared to 16.3% in 2012 primarily due to the cost reduction initiatives referred to above which had a greater effect on our test services compared to our assembly services.

Other income.    Other income in 2013 decreased 9.4% to $7.7 million compared to $8.5 million in 2012 primarily due to the decrease in rental income, sales of scrap and interest income in 2013 compared to 2012, which was offset by an increase in other miscellaneous income in 2013 compared to 2012.

Other (losses)/gains – net.    Other gains-net in 2013 was $29.6 million compared to other losses-net of $1.3 million in 2012, and consisted primarily of:

 

   

a gain of $21.1 million due to the extinguishment of the second priority term loans in exchange for the issuance of $502.3 million in aggregate principal amount of senior secured notes on September 30, 2013;

 

   

the write back of unclaimed monies (being the acquisition consideration payable by Global A&T Electronics in its acquisition of USG1) by the previous shareholders of USG1 of $4.8 million; and

 

   

a net gain on the disposal of property, plant and equipment of $2.6 million in connection with the closure and sale of our facility at Chengdu.

Selling, general and administrative expenses.    Selling, general and administrative expenses decreased 9.7% to $57.7 million in 2013 from $63.9 million in 2012 principally due to lower sales and the reduction in the number of our employees as part of our restructuring of our support operations. Selling, general and administrative expenses as a percentage of sales increased to 7.7% in 2013 compared to 6.9% in 2012 due to lower sales.

Research and development expenses.    Research and development expenses decreased 34.6% to $12.3 million in 2013 from $18.8 million in 2012 primarily due to the cost reduction initiatives referred to above.

Finance expenses.    Finance expenses were $120.7 million in 2013 compared to $79.6 million in 2012. Our finance expenses increased in 2013 compared to 2012 due to the senior secured notes, which have higher interest expenses than the debt which was refinanced and/or extinguished.

Other expenses.    Other expenses were $16.4 million in 2013 compared to $12.2 million in 2012. This increase was primarily due to the cost reduction initiatives referred to above.

 

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Share of loss of associated company.    In 2013, our share of loss of associated company was $4.5 million, compared to our share of profit of associated company of $0.7 million in 2012, as Nepes Pte. Ltd. was loss-making in 2013.

Loss before tax.    Our loss before tax was $76.5 million in 2013 compared to loss before tax of $31.7 million in 2012.

Income tax expense.    Our consolidated income tax expense was $2.5 million in 2013 compared to income tax expense of $13.7 million in 2012 primarily as a result of lower taxable profits.

Unaudited Quarterly Financial Information

The table below presents selected unaudited historical results of operations for the eight fiscal quarters ended December 31, 2014. This information should be read in conjunction with our audited financial statements and related notes included elsewhere in this prospectus. The unaudited results of operations have been derived from our financial statements not included in this prospectus. Our results of operations have varied and may continue to vary significantly from quarter to quarter and are not necessarily indicative of the results of any future periods.

 

     2013     2014  
     Mar     Jun     Sep     Dec     Mar     Jun     Sep     Dec  
     (in $ millions, except percentages)  

Sales

     201.0        192.8        181.6        172.9        160.7        203.4        256.6        239.5   

Gross profit

     28.4        23.2        25.5        20.7        20.0        34.6        54.4        49.1   

Gross profit margin

     14.1     12.0     14.0     12.0     12.4     17.0     21.2     20.5

(Loss)/profit before tax

     (20.5     (25.0     (3.5     (27.5     (30.0     23.7        21.2        (5.5

Adjusted EBITDA

     55.6        49.2        52.2        49.8        44.9        53.3        79.8        74.4   

Adjusted EBITDA margin

     27.7     25.5     28.7     28.8     27.9     26.2     31.1     31.1

Sales by product category

                

Analog

     74.4        70.6        70.9        67.9        66.3        75.3        87.0        78.2   

Mixed-signal and logic

     91.3        89.1        84.9        84.2        74.4        92.1        115.1        110.3   

Memory

     35.2        33.1        25.9        20.9        20.0        25.9        25.4        23.9   

Others

                                        10.1        29.2        27.1   

Total

     201.0        192.8        181.6        172.9        160.7        203.4        256.6        239.5   

Sales by product category (in percentages)

                

Analog

     37.0     36.6     39.0     39.3     41.3     37.0     33.9     32.7

Mixed-signal and logic

     45.4     46.2     46.7     48.7     46.3     45.3     44.8     46.0

Memory

     17.5     17.2     14.3     12.1     12.4     12.7     9.9     10.0

Others

                                        5.0     11.4     11.3

Total

     100.0 %      100.0 %      100.0 %      100.0 %      100.0 %      100.0 %      100.0 %      100.0 % 

Sales by service type

                

Assembly

     138.2        128.4        121.0        113.9        106.4        135.2        171.1        155.6   

Test

     62.8        64.4        60.7        59.1        54.3        68.2        85.6        83.9   

Total

     201.0        192.8        181.6        172.9        160.7        203.4        256.6        239.5   

Sales by service (in percentages)

                

Assembly

     68.8     66.6     66.6     65.8     66.2     66.5     66.7     65.0

Test

     31.2     33.4     33.4     34.2     33.8     33.5     33.3     35.0

Total

     100.0 %      100.0 %      100.0 %      100.0 %      100.0 %      100.0 %      100.0 %      100.0 % 

Liquidity and Capital Resources

Our operations are capital intensive. We have funded our operations and growth primarily through a mixture of short and long-term loans and cash flows from operations. As of December 31, 2014, our primary sources of liquidity included cash and cash equivalents (excluding restricted cash) of $293.0 million and our undrawn credit facilities under our senior revolving credit facility of $125.0 million, other undrawn facilities of $11.4 million

 

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and unutilized bank guarantee facilities of $1.9 million. As of the date of this prospectus, our senior revolving credit facility remains undrawn.

We believe that after taking into account the expected cash to be generated from operations, existing credit facilities and cash on hand, we have sufficient liquidity for our present and anticipated working capital needs, our debt service obligations, and other cash requirements, for at least the next 12 months. Our ability to continue to fund these items may be affected by general economic, competitive, and other factors, many of which are outside of our control. If our future cash flows from operations and other capital resources are insufficient to fund our liquidity needs, we may be forced to reduce or delay our capital expenditures, sell assets, obtain additional debt or equity capital, or refinance all or a portion of our debt.

The following table sets forth our consolidated cash flows with respect to operating activities, investing activities and financing activities for the periods indicated.

 

     Year Ended December 31,  
   2012      2013     2014  
   (in $ millions)  

Net cash provided by operating activities

     219.7         184.1        224.4   

Net cash used in investing activities

     (93.1      (33.6     (32.6

Net cash used in financing activities

     (194.7      (133.9     (116.6

Net (decrease)/increase in cash and cash equivalents

     (68.1      16.6        75.2   

Cash and cash equivalents at beginning of financial year

     269.3         201.2        217.8   
  

 

 

    

 

 

   

 

 

 

Cash and cash equivalents at end of financial year

  201.2      217.8 (1)    293.0 (1) 
  

 

 

    

 

 

   

 

 

 

 

Note:

 

(1)

The differences in the figures between cash and bank deposits and the cash and cash equivalents at the end of financial year are due to cash subject to restrictions.

Cash Flows from Operating Activities

We generated $224.4 million in net cash from our operating activities for the year ended December 31, 2014, an increase from $184.1 million for the year ended December 31, 2013. Our cash flows generated from operating activities are calculated by adjusting our loss after tax of $3.4 million by (i) non-cash and other items, such as $149.9 million of depreciation of property, plant and equipment, $125.2 million in finance expense, $41.4 million of gain on bargain purchase from our acquisition of the three semiconductor assembly and test facilities from Panasonic, $37.8 million of gain on disposal of property, plant and equipment, $16.6 million of amortization of intangible assets, $12.8 million in income tax expense and $8.2 million of impairment of property, plant and equipment, and (ii) changes in working capital described below.

Working capital sources of cash in 2014 primarily included an increase in cash of $29.6 million resulting from an increase in trade and other payables and a $2.7 million increase in cash resulting from a decrease in deposits which was offset by an increase in prepayments (such deposits and prepayments described under “other assets” in our consolidated financial statements included elsewhere in this prospectus), which was partially offset by a $21.8 million decrease in cash due to an increase in trade and other receivables and a $6.8 million decrease in cash resulting from an increase in inventories. These increases and decreases in cash flows were primarily due to the working capital sources and uses of cash attributable to the three semiconductor facilities that we acquired from Panasonic in 2014, which was also the primary cause of our increased trade and other payables and trade and other receivables. In 2014, we made cash payments of $10.4 million in respect of income tax expenses.

We generated $184.1 million in net cash from our operating activities for the year ended December 31, 2013, a decrease from $219.7 million for the year ended December 31, 2012. Our cash flows generated by operating activities for the year ended December 31, 2013 is calculated by adjusting our loss after tax of $78.9 million by (i) non-cash and other items such as $151.7 million of depreciation of property, plant and equipment, $120.7 million in finance expense, $21.1 million of gain on extinguishment of our previous second priority term loans upon the issuance of our $502.3 million in aggregate principal amount of senior secured notes

 

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in September 2013, $16.4 million of amortization of intangible assets and $2.5 million in income tax expense, and (ii) changes in working capital described below.

Working capital sources of cash in 2013 primarily included a $31.6 million increase in cash resulting from a decrease in trade and other receivables and a $10.0 million increase in cash resulting from a decrease in inventories, which was partially offset by the working capital use of cash of $27.1 million resulting from an decrease in trade and other payables. In 2013, we made cash payments of $16.8 million in respect of income tax expenses. Our trade and other receivables and inventories decreased in 2013 compared to 2012 due to lower sales. Our trade and other payables increased in 2013 compared to 2012 due to the higher accrued interest payable on our senior secured notes which were issued to refinance the previous senior term loan obtained in connection with our acquisition of USG1. This increase was partially offset by decreases in trade payables to non-related parties and accruals for operating expenses due to lower sales.

We generated $219.7 million in net cash from our operating activities for the year ended December 31, 2012. Our cash flows generated by operating activities for the year ended December 31, 2012 is calculated by adjusting our loss after tax of $45.4 million by (i) non-cash and other items such as $162.9 million of depreciation of property, plant and equipment, $79.6 million in finance expense, $16.7 million of amortization of intangible assets and $13.7 million in income tax expense, and (ii) changes in working capital described below.

Working capital sources of cash in 2012 primarily included a $13.6 million increase in cash resulting from a decrease in inventories and a $10.1 million increase in cash resulting from a decrease in trade and other receivables, which were partially offset by the working capital use of cash resulting from a $11.6 million decrease in trade and other payables and a $6.9 million decrease in cash resulting from an increase in prepayments and deposits (such prepayments and deposits are described under “other assets” in our consolidated financial statements included elsewhere in this prospectus). Our trade and other receivables, trade and other payables and inventories decreased in 2012 compared to 2011 due to lower sales. In 2012, we made cash payments of $17.8 million in respect of income tax expenses.

Cash Flows from Investing Activities

The primary uses of cash in, and the cash provided by, our investing activities for the years ended December 31, 2012, 2013 and 2014 primarily related to our purchases and disposals of property, plant and equipment in connection with our operations.

Net cash used in investing activities was $32.6 million during the year ended December 31, 2014. Cash flows from investing activities consisted primarily of $121.8 million used for the purchases of property, plant and equipment for our mixed-signal and logic assembly and test operations and $8.1 million placed in short-term deposits as restricted cash pursuant to the terms of our guarantee facility, which was partially offset by proceeds of $72.0 million from the disposal of certain of our property, plant and equipment and one of our facilities in Singapore as part of our cost reduction initiatives, and $24.1 million of net cash inflows from the three semiconductor facilities we acquired from Panasonic.

Net cash used in investing activities was $33.6 million during the year ended December 31, 2013. Cash flows from investing activities consisted primarily of $50.3 million used for the purchases of property, plant and equipment for our expansion in our wafer level chip scale package and our mixed-signal and logic testing operations, and $2.2 million to redeem the equity interest in our Chengdu subsidiary, which was partially offset by proceeds of $18.1 million from the disposal of certain equipment and the facilities and property of our Chengdu subsidiary.

Net cash used in investing activities was $93.1 million during the year ended December 31, 2012. Cash flows from investing activities consisted primarily of $99.6 million used for the purchases of property, plant and equipment for our analog assembly, memory testing and our mixed-signal and logic assembly and testing operations, which was partially offset by proceeds of $5.1 million from the disposal of certain equipment.

 

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Cash Flows from Financing Activities

The primary uses of cash in, and the cash provided by, our financing activities for the years ended December 31, 2012, 2013 and 2014 primarily relate to proceeds from the issuance of our senior secured notes and payment of financing fees related to such notes repayment of, and interest payments on, our borrowings.

Net cash used in financing activities was $116.6 million during the year ended December 31, 2014. Cash flows from financing activities principally consist of $110.4 million in interest payments.

Net cash used in financing activities was $133.9 million during the year ended December 31, 2013. Cash flows from financing activities principally included $607.5 million from proceeds of the issuance of our senior secured notes in February 2013 which was used to repay the previous senior term loan obtained in connection with our acquisition of USG1, $32.0 million in payment of financing fees in connection with the issuance of our senior secured notes, and $70.6 million in interest payment on our senior secured notes.

Net cash used in financing activities was $194.7 million during the year ended December 31, 2012. Cash flows from financing activities principally included $117.2 million in repayment of borrowings on our previous senior term loan and $73.7 million in interest payment.

Capital Expenditures

Capital expenditures represent purchases of property, plant and equipment, including, among other things, testers and wire bonders in any given period, excluding those we acquired through a business combination.

The expansion of our capacity through our capital expenditures from 2012 to 2014 allowed us to obtain new equipment and/or upgrade our existing equipment.

In 2014 and 2013, our cash capital expenditure was $121.8 million and $50.3 million, respectively, and related mainly to our mixed-signal and logic assembly and test equipment (including wafer level chip scale package assembly equipment). In 2014, assembly, test and other equipment accounted for 24.5%, 65.5% and 10.0% of our total capital expenditure. The following tables sets out the allocation of our capital expenditure in 2014 by types of equipment purchased.

 

     Year Ended December 31, 2014  
     Amount      Percentage  
     (in $ millions, except percentages)  

Types of equipment

  

Mixed-signal and logic(1)

     103.3         84.8

Analog

     6.5         5.3

Memory

     0.5         0.4

Infrastructure(2)

     11.5         9.5
  

 

 

    

 

 

 

Total

  121.8      100.0
  

 

 

    

 

 

 

 

Notes:

 

(1)

Our mixed-signal equipment capital expenditure consists primarily of $53.3 million for mixed-signal and logic testers, $37.6 million for wafer level chip scale equipment and $12.1 million for flip-chip equipment.

 

(2)

Costs related to (i) the consolidation of our Singapore operations and (ii) our information technology systems.

We increased our capital expenditure in 2014 from 2013 as we expected to achieve an increase in sales (and after taking into account the lead time required for our suppliers to deliver equipment to us), and we reduced our capital expenditure in 2013 compared to 2012 as we rationalized our capital expenditure as a result of our lower sales in that year.

In 2012, our cash capital expenditure was $99.6 million and related mainly to expansion in our analog assembly capacity, memory product testing capacity and our mixed-signal and logic assembly and testing capacity.

 

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As of December 31, 2014, we have committed to acquire approximately $57.0 million of assembly and test equipment, of which approximately $39.2 million of equipment has been delivered. Subject to market conditions and our financial performance for 2015, we currently expect our cash capital expenditure for 2015 to be in line with our capital expenditures in 2014 and will be focused on broadening our capabilities at our facilities, such as mixed-signal and logic testing in Taiwan and our analog capacity in Thailand. We plan our capital expenditure based on expected sales and seek to invest only when we believe there are opportunities to generate certain expected returns on investment.

We expect to fund our budgeted capital expenditure through existing cash and cash generated from operations. We periodically review our budgeted capital expenditure during the year. We may adjust our capital expenditures based on market conditions, the progress of our expansion plans and cash flow from operations.

Turnover Days/Credit Policy

The following table shows the turnover days for inventory, debtors and creditors for the years ended December 31, 2012, 2013 and 2014.

 

     Year Ended December 31,  
     2012      2013      2014  

Inventory turnover days(1)

     63         68         69   

Trade receivable turnover days(2)

     53         56         47   

Trade payable turnover days(3)

     79         76         63   

 

Notes:

 

(1)

Inventory turnover days are calculated using the following formula: average of the beginning and ending inventory balance of the financial year multiplied by 365 days divided by costs of inventories, which consists of direct materials, indirect materials and work-in-progress changes recognized as expense.

 

(2)

Trade receivable turnover days are calculated using the following formula: average of the beginning and ending trade receivable balance of the financial year multiplied by 365 days divided by sales.

 

(3)

Trade payable turnover days are calculated using the following formula: average of the beginning and ending trade payable and related accruals balance of the financial year multiplied by 365 days divided by total purchases arising from the acquisition of property, plant and equipment, incurrence of cost of sales, selling, general and administrative expenses and research and development expenses, excluding labor cost, depreciation and amortization expenses, movement in inventory and employee compensation expenses.

We continue to work on minimizing our inventory levels without compromising our commitments to our customers by managing orders on a back-to-back basis and using an enterprise resource planning software across our group to help us improve our visibility of inventory levels and inventory needs for production. In most cases, silicon die which are supplied to us by our customers on a consignment basis are not considered as part of our inventory.

In 2012, 2013 and 2014, our inventory turnover days were relatively stable at 63 days, 68 days and 69 days respectively.

Generally, credit limits and terms are pre-approved and set for all customers. We generally grant credit terms of 30 to 60 days. Any credit terms above 60 days must be approved by our Chief Financial Officer. In deciding the credit limits for customers, the relevant sales team first performs a credit assessment on the customer and sets the relevant limits based on the sales projection and financial health of the customer. All outstanding debtor balances are reviewed and followed through for collection on a weekly basis.

Our trade receivable turnover days were 47 days in 2014 compared to 56 days in 2013 because of improved collections from customers. Our trade receivable turnover days remained relatively constant at 56 days and 53 days in 2013 and 2012, respectively.

In 2014, our trade payable days were 63 days which decreased from 2013 and 2012 because of shortened payment cycles to our suppliers. In 2012 and 2013, our trade payable days remained relatively constant at 79 days and 76 days, respectively.

 

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Total Borrowings

As of December 31, 2014, the total amount outstanding under our long-term and short-term borrowings (including finance leases) was $1,105.0 million (after deducting unamortized loan facility and related issuance costs).

Long-Term Borrowings

The following table sets out certain details relating to our long-term borrowings (without including finance leases):

 

Facility

  

Borrower/ Issuer

   Amount
outstanding as of
December 31, 2014
    Total committed
amount
    

Interest rate

   Maturity
     ($ in millions)

Senior secured notes

   Global A&T Electronics      1,127.3 (1)      1,127.3       10.0%    February 2019

Senior revolving credit facility

   Global A&T Electronics             125.0       LIBOR + applicable margin(2)    February 7, 2018
or earlier(2)

 

Notes:

 

(1)

This amount represented the total indebtedness outstanding under our senior secured notes as of December 31, 2014, without deducting unamortized loan facility and related issuance costs of $28.6 million.

 

(2)

See “Description of Certain Indebtedness – Senior Revolving Credit Facility” for details of the applicable margin and maturity date.

See “Description of Certain Indebtedness” for further details of these facilities.

Short-Term Borrowings

Our short-term borrowings comprise primarily of conventional revolving credit facilities and trade financing facilities.

UTL currently has a revolving credit facility of up to 175.0 million Thai Baht with The Siam Commercial Bank Public Company Limited, or SCBPCL, which may be utilized for working capital purposes. As of December 31, 2014, this facility has not been utilized.

UTL also currently has bank guarantee facilities for an aggregate of up to 110.1 million Thai Baht with Krung Thai Bank Public Company Limited, which may be utilized for working capital purposes. As of December 31, 2014, guarantees of an aggregate amount of 46.6 million Thai Baht have been issued under this facility.

UTC has a letter of credit facility of an amount of $7.0 million with Ta Chong Bank, which has an undrawn balance of $6.0 million as of December 31, 2014.

UMY currently has a bank guarantee facility of up to Ringgit 1.2 million with Maybank Banking Berhad, which has been fully utilized as of December 31, 2014.

 

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Contractual Obligations

The following table summarizes our contractual obligations, namely, our long-term debt obligations, the deferred consideration payable for our acquisition of the three semiconductor facilities we acquired from Panasonic and fees payable to Panasonic for certain transitional services provided in connection with such acquisition, finance lease obligations (generally two to five years plant and machinery leases with options to purchase at the end of the lease term), operating lease obligations (including lease payments for land and buildings, and plant and machinery) and purchase obligations, as of December 31, 2014.