STMicroelectronics — Annual Report 2001

Apr 9, 2001

FORM 6-K SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16 OF THE SECURITIES EXCHANGE ACT OF 1934 For the month of April 2001 STMicroelectronics N.V. ----------------------------------------------- (Translation of registrant's name into English) Route de Pre-Bois, ICC Bloc A, 1215 Geneva 15, Switzerland ---------------------------------------------------------- (Address of principal executive offices) [Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F] Form 20-F X Form 40-F --- --- [Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934] Yes No X --- --- [If "Yes" is marked, indicate below the file number assigned to the Registrant in connection with Rule 12g3-2(b): 82-______] Enclosures: Shareholder materials for STMicroelectronics's Annual General Meeting on April 25, 2001, including: (i) Message from the President; (ii) Report of the Supervisory Board; (iii) STMicroelectronics' 2000 Unconsolidated Financial Statements; and (iv) STMicroelectronics' 2000 Consolidated Financial Statements. Message From The President The year 2000 was a record-setting period for STMicroelectronics in which we posted strong operating results across all major applications, product groups and geographies. This excellent performance was characterized by the highest annual revenues, gross profit, operating profit and net earnings in our history. Importantly, ST is now at a new level in terms of market position and recognition, giving us a broader platform from which to compete successfully in our strategically-targeted applications. To put this in perspective, ST's revenues increased 54.5% in 2000 to over $7.8 billion, a growth rate that significantly outpaced that of the semiconductor industry, which gained approximately 37% on a year-over-year basis. Profitability growth was even greater, further evidence of the operating leverage that ST has enjoyed during the last several years. Gross profit reached a record $3.6 billion, an increase of 79.7% over 1999 levels, and gross margin was 46% for the year, significantly above the 39.6% reported for 1999. The substantial progress made at the gross margin level in 2000 illustrated two important strengths: our ability to enrich our portfolio with new and more value-added applications; and the efficiency of our worldwide manufacturing machine which continues to be a very strong competitive advantage for the Company. Operating profit grew by 165.5% to almost $1.8 billion, and represented 22.8% of net revenues. This was achieved after absorbing record Research and Development expenditures of over $1 billion, or 13.1% of net revenues. Net earnings for the year 2000 reached over $1.4 billion, up 163% from 1999 levels and equating to earnings per diluted share of $1.58, a 155% year-over-year increase. Return on equity was a record 27.2%, significantly above the average ROE of 19.5% that was achieved in the years since the company became public. In 2000, we took advantage of strong market conditions to make important investments to fuel the Company's future growth. In addition to the ongoing research and development spending focused on developing new technologies, ST invested a record $3.3 billion in 2000 to expand and modernize our global manufacturing machine and upgrade our IT systems and infrastructure. Taken as a percentage of sales, ST's 2000 capital expenditures were probably the highest in the semiconductor industry. Additionally, we completed acquisitions last year for a total consideration of $240 million, adding to the Company's already extensive intellectual property portfolio. Thus, ST entered 2001 with significant investments and start-up costs behind it, as well as a strong balance sheet to support continued market share growth. We also bring an exceptional level of strategic customer alliances which accounted for 43.5% of ST's 2000 net revenues and an excellent product mix, illustrated by differentiated product revenues of $4.95 billion in 2000, or 63.3% of the Company's total net revenues for the year. These are among the strengths we count upon to enable ST to adjust to rapidly-changing industry conditions. Today the market is in flux, responding to excessive inventory build-ups in many sectors. Economic forecasts diverge widely on whether we are facing a "soft landing" or a true recession. STMicroelectronics' success within a broad range of business and market conditions is well-documented. We have enjoyed an above-average track record in times of cyclical industry downturns, yet have posted exceptional growth during periods of favorable market conditions. We believe that this combination of relative resiliency and outperformance on the upside is a consequence of several factors: o BALANCE The diversity of our products, targeted applications and geographic mix all come together to provide strong growth potential without the risks associated with a one product or one application company. o CUSTOMERS The success of the companies that comprise our network of strategic alliances and key customers reflect positively on ST's products, aptitude and TQM culture. o MANUFACTURING The systematic application of manufacturing science, strict adherence to TQM and modular capital investment programs give ST a global manufacturing machine that is among the most efficient in the industry. o FINANCIAL POSITION The Company's financial strength is reflected by: internal cash generation which amounted to $2.6 billion in 2000; its cash and cash equivalents position of $2.3 billion at year-end 2000; and, ST's proven ability to access the capital markets in order to finance growth. o CORPORATE CULTURE None of the above-cited competitive advantages can lead to success without a cohesive corporate culture that rewards individual dedication, innovative thinking, customer service and excellent execution. As a global company, ST is committed to putting the individual at the center of the business enterprise and to maintaining its leadership in protecting the environment. We take particular pride in our Company's worldwide leadership role in the area of environmental preservation. Our strong commitment to this cause is part of our fundamental belief in the ethical obligations of business enterprises to Society. ST remains determined to protect the world's severely-threatened environment for the benefit of today's inhabitants as well as to ensure the welfare of future generations. This ethical position is strongly supported by our conviction that environmentally-minded companies are intrinsically more competitive and therefore able to generate higher returns for their shareholders. ST's history and performance demonstrate the validity of this assumption. In fact, ST is the top ranked semiconductor company on the Dow Jones Sustainability Group Index, which identifies companies that "not only manage the standard economic factors affecting their business, but the environmental and social factors as well." Additionally, we were the only semiconductor company to receive a AAA rating in eco-efficiency from Innovest Strategic Value Advisors and were recipients of both the EPA Climate Protection Award in 1999 and the Akira Inoue Award for Outstanding Achievement in Environmental, Health and Safety in the Semiconductor Industry in the year 2000. Gartner-Dataquest has ranked ST as the world's 6th largest semiconductor company, based on year 2000 revenues. This is a formidable achievement, having been 14th only 5 years ago. If you extract from the list those companies that generate a majority of their total revenues from semiconductor sales, the three largest are: Intel, Texas Instruments and STMicroelectronics, in that order. The year 2001 will be challenging. We are confident, however, that the past will be a precursor for the future, enabling ST to once again distinguish itself by outperforming the markets we serve. To this end we will rely on our fundamental strengths as well as the ongoing support of all of our stakeholders. I would like to personally extend my appreciation to everyone who contributed to ST's record performance in 2000 and to reaffirm our commitment to our employees, strategic partners, customers and shareholders. Pasquale Pistorio President and Chief Executive Officer Report of the Supervisory Board of STMicroelectronics N.V. ----------------------- The year 2000 was an outstanding period for the Company. While the semiconductor industry experienced very significant growth of approximately 35%, the Company's revenue growth reached 54.5%, raising the Company's position to be among the six largest semiconductor companies in the world. These results illustrate clearly the development strategy of STMicroelectronics. This strategy associates growth and financial results and is decided by the Supervisory Board in close connection with the CEO of the Company. Therefore, upon proposal by the Managing Board, we propose to the General Meeting of Shareholders to adopt the annual accounts for the financial year 2000 and to distribute out of the Company's profits realized during that year a cash dividend of US$ 0.04 per share issued and outstanding as of April 27, 2001 payable on May 11, 2001. This amount of dividend represents an increase over last year and takes into account the three-for-one stock split of the shares issued and outstanding as of May 5, 2000. Among the most important events of the year 2000, we would like to inform the General Meeting of Shareholders that, in November 2000, the Company sold senior zero coupon convertible bonds due 2010 in the international capital markets and the Company thereby raised US$ 1,480 million that will be used to develop its investments which have been strongly enhanced in order to increase the Company's profits and market share. During the year 2000, the Supervisory Board was significantly involved in the expansion of the Company and therefore the number of meetings of the Board and of its Committees was increased. The Compensation Committee met five times and granted to a much larger number of executives the benefit of stock options as an incentive to the development of the Company. In addition, some of the external acquisitions have included a grant of stock options to the new employees. During the year 2000, the Audit Committee considered the recommendations of the Blue Ribbon Committee issued by the U.S. Securities and Exchange Commission and, after electing a new President, adopted a new Audit Charter in accordance with the recommendations of the said Committee. During the year, a meeting was held before each financial period and the Committee examined, in cooperation with the Auditors of the Company, the quarterly accounts, in particular the Company's auditing practices, litigation-related risks, the execution by the Company of the Auditors' recommendations regarding corporate auditing rules and the independence of the Company's external Auditors 2 The Strategic Committee examined, together with the Company's CEO, every subject of material importance for the Company, in particular its growth and acquisition activities, strategic partnerships, cross license agreements and asset purchases. A Monitoring Committee was also specially appointed to oversee the zero coupon bond offering. Therefore, we propose to the General Meeting of Shareholders the main following items: 1. to adopt the annual accounts for the financial year 2000 and to distribute a cash dividend of US$ 0.04 per share; 2. to approve the Employee Stock Purchase Plan in order for the Plan to qualify under section 423 of the U.S. Internal Revenue Code. The first tranche of the three year employee plan was offered in 2000 and subscribed to by 4,830 employees for a total number of 559,929 shares out of the 750,000 shares offered; 3. to approve a new five year Stock Option Plan 2001 for directors, managers and selected employees of the Company and its group under which options can be granted in respect of no more than 60 million ordinary shares; With respect to the incentive policy as defined upon proposal of the Managing Board, we note that during the five year term of the Stock Option Plan 1995, 31,448,591 stock options were granted, among which 7,570,890 in 2000. 4. as announced sometime ago, to increase the number of members of the Supervisory Board to nine by appointing Mr. Douglas John Dunn as an independent member of the Supervisory Board, effective as of April 25, 2001. We expect that this new member will reinforce the existing strength of the Supervisory Board to face new industrial, technological and financial developments of the Company. March 13, 2001 ---------------- Jean-Pierre NOBLANC Bruno STEVE ------------------------------- -------------------------------- Remy DULLIEUX Alessandro OVI ------------------------------- -------------------------------- Francis GAVOIS Riccardo GALLO ------------------------------- -------------------------------- Tom de WAARD Robert WHITE ------------------------------- -------------------------------- STMICROELECTRONICS N.V. ANNUAL REPORT DECEMBER 31, 2000 STMICROELECTRONICS N.V. ANNUAL REPORT DECEMBER 31, 2000 CONTENTS Page ---- DIRECTOR'S REPORT 1 BALANCE SHEET AS AT DECEMBER 31, 2000 2 STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 2000 3 NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2000 4 - 12 OTHER INFORMATION 13 AUDITORS' REPORT 14 APPENDIX STMicroelectromcs N.V. Consolidated financial statements December 31, 2000 STATUTORY DIRECTOR Pasquale Pistorio SUPERVISORY DIRECTORS Jean-Pierre Noblanc Bruno Steve Remy Dullieux Alessandro Ovi Robert M. White Riccardo Gallo Tom de Waard Francis Gavois STMICROELECTRONICS N.V. DIRECTOR'S REPORT DECEMBER 31, 2000 The director's report is available on request at the Company's office. Amsterdam, February 1, 2001 STMICROELECTRONICS N.V. BALANCE SHEET AS AT DECEMBER 31, 2000 (after proposed appropriation of income) 2000 1999 USD'000 USD'000 ASSETS - ------ FIXED ASSETS Intangible fixed assets 101 512 74 754 Tangible fixed assets 6 130 1 005 Financial fixed assets 5 689 864 3 521 880 --------- --------- Total fixed assets 5 797 506 3 597 639 --------- --------- CURRENT ASSETS Inventories 19 358 19 151 Trade receivables 272 765 121 732 Receivable from shareholder - 755 Group companies 342 918 326 152 Other receivables 53 850 41 632 Securities 35 156 - Cash 2 149 197 1 737 333 --------- --------- Total current assets 2 873 244 2 246 755 --------- --------- TOTAL ASSETS 8 670 750 5 844 394 --------- --------- SHAREHOLDERS' EQUITY AND LIABILITIES - ------------------------------------ SHAREIHOLDERS' EQUITY Issued and paid in capital 861 149 910 983 Additional paid in capital 1 294 672 1 000 155 Retained earnings 2 920 289 2 399 641 Cumulative translation adjustment (403 564) (294 090) Income for the year 1 452 103 547 252 --------- --------- Total shareholders' equity 6 124 649 4 563 941 --------- --------- LONG TERM LIABILITIES Long term loans 2 342 630 1 124 064 Deferred revenues 6 000 - --------- --------- Total long term liabilities 2 348 630 1 124 064 --------- --------- SHORT TERM LIABILITIES Bank overdraft 69 919 Trade payables 10 011 4 731 Taxes 75 774 49 003 Payable to shareholder - 693 Group companies 97 214 95 578 Accrued liabilities 14 403 5 465 --------- --------- Total short term liabilities 197 471 156 389 --------- --------- TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES 8 670 750 5 844 394 --------- --------- -2- STMICROELECTRONICS N.V. STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 2000 2000 1999 USD'000 USD'OOO Income after taxes 394 789 140 470 Income from subsidiaries 1 057 314 406 782 --------- ------- NET INCOME 1 452 103 547 252 --------- ------- The accompanying notes form an integral part of the accounts. -3- STMICROELECTRONICS N.V. NOTES TO THE FINANCIAL STATEMENTS AS AT DECEMBER 31, 2000 1. GENERAL A description of STMicroelectronics N.V. ("the Company"), its activities and group structure are included in the attached consolidated financial statements, prepared for United States reporting purposes, which also apply to the company-only financial statements. The Company holds investments in subsidiaries operating in the semiconductor manufacturing industry. Additionally, the Company operates through a branch in Switzerland, which markets a broad range of semiconductor integrated circuits and devices used in a wide variety of microelectronic applications. In accordance with Article 402, Title 9, Book 2 of the Dutch Civil Code the statement of income is presented in abbreviated form. 2. BASIS OF PRESENTATION Management of the Company is of the opinion that the functional currency of the Company is the US dollar. Furthermore, the reporting currency of the subsidiaries is also the US dollar. Accordingly, the financial statements of the Company are expressed in US dollars. 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES General The annual accounts are prepared in accordance with accounting principles generally accepted in the Netherlands. The accounting principles as described in the notes to the consolidated financial statements also apply to the Company-only financial statements, unless indicated otherwise. Consolidation The consolidated financial statements of the Company for the year ended December 31, 2000, which are attached, have been prepared in accordance with accounting principles generally accepted in the United States. In management's opinion, the attached consolidated financial statements do not differ materially from those which would have been prepared, had generally accepted Dutch accounting principles been applied, except for the additional disclosures as presented in Notes 17 and 18. -4- Foreign currencies The share capital of the Company is denominated in Euro and the year-end balance is translated into US dollars at the year-end exchange rate (Euro/USD 0.9305). The translation differences are taken to the non-distributable cumulative translation adjustment account. Other non-current assets Other non-current assets consist of underwriting and issuance costs related to the zerocoupon subordinated convertible notes. These costs are amortized straight-line over the life of the notes being 10 years. 4. INTANGIBLE FIXED ASSETS

-5- 5. TANGIBLE FIXED ASSETS

1. FINANCIAL FIXED ASSETS 2000 1999 USD'000 USD'000 Investments in consolidated group companies 5 171 595 3 175 893 Investments 31 978 11 986 Long term intercompany loans 451 277 314 083 Other non-current assets 35 014 19 918 --------- --------- 5 689 864 3 521 880 --------- --------- During 1997, the Company granted a USD 200 million loan to STMicroelectronics Inc, United States repayable in full by December 31, 2000 and bearing an interest of three months LIBOR plus 0.25%. During 1998, the principal amount was increased up to a USD 300 million loan. An amount of USD 90 million was repaid during 1999. The final maturity has been extended up to December 31, 2001 for an amount of USD 150 million and up to December 16, 2002 for an amount of USD 60 million bearing an interest rate of three months LIBOR plus 1%. -6- 6. FINANCIAL FIXED ASSETS (Continued) On January 5, 1998, the Company granted a ITL 200 billion loan to STMicroelectronics Srl., Italy repayable in full on the date falling three years from draw down date, subject to extension to be agreed between the parties 15 banking days before the final maturity. The loan may be repaid in full or in part at any time before the final maturity subject to 15 banking days prior notice confirmed in writing. The loan is bearing an interest rate of 4%. On December 1, 2000, the Company granted a Euro 113 million loan to STMicroelectronics Srl (Italy) repayable in full on January 29, 2001 subject to extension to be agreed between the parties 15 banking days time before the final maturity. The loan may be repaid in full or in part at any time before the final maturity, subject to 15 days prior notice confirmed in writing. This loan bears interest at 4%. On June 14, 2000, the Company granted a USD 40 million loan to STMicroelectronics Inc (Canada) repayable in full on the date falling three years from the draw down date, being the final maturity. The loan may be repaid in full or in part on an interest payment date by mutual agreement between the parties and subject to a 5 banking days prior written confirmation. The loan is bearing an interest rate of three months LIBOR plus 1%. Investments in consolidated group companies 2000 1999 USD'000 USD'000 Balance January 1 3 175 893 3 046 703 Income from investments 1 057 313 406 782 Dividends paid (71 904) (172 978) Capital increase 1 200 921 214 877 Translation effect (190 628) (319 491) --------- --------- Balance December 31 5 171 595 3 175 893 --------- --------- 7. INVENTORIES 2000 1999 USD'000 USD'000 Finished goods 19 107 17 489 Work in progress 251 1 662 --------- --------- Total inventories 19 358 19 151 --------- --------- -7- 8. TRADE RECEIVABLES Trade receivables mature within one year. 9. GROUP COMPANIES 2000 1999 USD'000 USD'000 Trade receivables 214 686 264 881 Other receivables 128 232 61 271 ------- ------- Total group companies receivables 342 918 326 152 ------- ------- 2000 1999 USD'000 USD'000 Trade payables 51 380 73 443 Other payables 45 834 22 135 ------- ------- Total group companies payables 97 214 95 578 ------- ------- 10. SHAREHOLDERS' EQUITY

-8- 10. SHAREHOLDERS' EQUITY (Continued) In June 1999 the Company changed the currency of its share capital from Dutch Guilders to Euro. The effect of the change in par value was recorded in retained earnings. The Euro equivalent of the issued share capital at December 31, 2000 amounts to Euro 925,476,538 (1999: Euro: 904,201,000). For the changes in issued and paid in capital and additional paid in capital we refer to the consolidated financial statements of the Company as attached in the Appendix. 11. LONG TERM LOANS In June 1998, the Company issued USD 513,852,000 face value of zero-coupon subordinated convertible notes, due June 10, 2008, for net proceeds of USD 421,873,000. The issue price of each note was USD 840.10 per USD 1000 principal amount at maturity. There are no periodic payments of interest. The notes are convertible at any time by the holders at the rate of 8,952 shares of the Company's common stock for each one thousand dollar face value of the notes. The notes may be redeemed by the holders on or after June 10, 2003 or by the Company on or after that date at the book value, payable in cash. The notes are subordinated to all the other existing and future indebtedness of the Company. In September 1999, the Company issued USD 918,530,000 face value of zero-coupon subordinated convertible notes, due September 22, 2009 for net proceeds of USD 708,288,000. The issue price of each note was USD 784.84 per USD 1000 principal amount at maturity and represents a yield to maturity of 2.4375% per year. Interest will not be paid prior to maturity. The notes are convertible at any time by the holders at the rate of 8.764 shares of the Company's common stock for each one thousand dollar face value of the notes. The notes may be redeemed by the holders on or after September 24, 2002 or by the Company on or after that date at book value, payable in cash. The notes are subordinated to all other existing and future indebtedness of the Company. In November, 2000 the Company issued USD 2,145,923,000 face value of zero coupon senior convertible bonds, due 2010, for net proceeds of USD 1,457,500,000. The debt discount of USD 665,923 is amortized straight-line over the term of the debt and recorded as interest expense. The notes are convertible at any time by the holders at the rate of 9.32 shares of the Company's common stock for each one thousand dollar face value of the notes. The notes may be redeemed by the holders on November 16, 2005 or by the Company on or after that date at the book value, payable in cash. The notes are unsubordinated to all the other existing and future indebtedness of the Company. 12. LOANS AND BANKS The Company has revolving line of credit agreements with several financial institutions totalling USD 85,000,000 (1999: 105,300,000). At December 31, 2000 no amounts were drawn on these available lines of credit (1999: nil). -9- 13. GUARANTEES Guarantees given by the Company to banks of its subsidiaries amounted to approximately USD 709,616,000 at December 31, 2000 (1999: USD 774,913,000). 14. WAGES, SALARIES AND SOCIAL CHARGES 2000 1999 USD'000 USD'000 Wages and salaries 16 134 12 938 Social charges 3 198 2 596 ------ ------ 19 332 15 534 ------ ------ 15. AVERAGE NUMBER OF EMPLOYEES The average number of persons employed by the Company during the year ended December 31, 2000 was 165 (1999: 90). 16. RENUMERATION TO BOARD OF DIRECTORS AND SUPERVISORY BOARD MEMBERS In accordance with Article 383.1 no remuneration information of the director is disclosed. The aggregate cash compensation accrued for 2000 to members of the Supervisory Board by the Company was approximately USD 505,000, and will be paid in 2001 (1999: NLG 528,000). Information on the Supervisory Board Option Plan, which was adopted in 1997, is presented in Note 10 of the consolidated annual accounts of the Company. 17. CONSOLIDATED FINANCIAL STATEMENTS OF STMICROELECTRONICS N.V. The consolidated financial statements of the Company for the year ended December 31, 2000 are attached as an appendix to these parent Company accounts. -10- 18. ADDITIONAL DISCLOSURES FOR THE ATTACHED CONSOLIDATED FINANCIAL STATEMENTS TO COMPLY WITH DUTCH REQUIREMENTS AND GENERALLY ACCEPTED ACCOUNTING PRINCIPLES 1N THE NETHERLANDS Intangible fixed assets

-11- 18. ADDITIONAL DISCLOSURES FOR THE ATTACHED CONSOLIDATED FINANCIAL STATEMENTS TO COMPLY WITH DUTCH REQUIREMENTS AND GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN THE NETHERLANDS (Continued) Tangible fixed assets

------------------- -12 - STMICROELECTRONICS N.V. OTHER INFORMATION DECEMBER 31, 2000 1. AUDITORS' REPORT The report of the auditors, PricewaterhouseCoopers N. V., is presented on page 14. 2. APPROPRIATION OF RESULT - PROVISIONS IN COMPANY'S ARTICLES OF ASSOCIATION The Managing Directors, with the approval of the Supervisory Board, are allowed to allocate net income to a reserve fund. The Articles of Association provide that the net result for the year, after deduction of the aforementioned allocation to the reserve fund, is subject to the disposition by the Annual General Meeting of Shareholders. In the case that a net loss for the year exceeds retained earnings, no dividend payments are allowed until the loss has been recovered from net income in future years. 3. APPROPRIATION OF INCOME Management proposes that the result for the year ended December 31, 2000 be appropriated to the accumulated reserves. 4. SUBSEQUENT EVENTS There are no matters to report. ------------------- -13- PRICEWATERHOUSECOOPERS [LOGO] AUDITORS' REPORT Introduction We have audited the 2000 financial statements of STMicroelectronics N.V., Amsterdam. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. Scope We conducted our audit in accordance with auditing standards generally accepted in the Netherlands. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. Opinion In our opinion, the financial statements gives a true and fair view of the financial positions of the Company as of December 31, 2000 and of the results for the year then ended in accordance with accounting principles generally accepted in the Netherlands and comply with the financial reporting requirements included in Part 9, Book of the Dutch Civil Code. PricewaterhouseCoopers N.V. Amsterdam, February 1, 2001 -14- [PRICEWATERHOUSCOOPERS LOGO] STMicroelectronics N.V. Consolidated Financial Statements December 31, 2000 PricewaterhouseCoopers N.V. is a company with limited liability domiciled in Amsterdam, where it is registered with the Trade Register under number 34107196. Unless expressly stipulated otherwise in writing, all our agreements are subject to the General Terms & Conditions of PricewaterhouseCoopers N.V., which have been filed with the Amsterdam Chamber of Commerce under number 4220. [PRICEWATERHOUSCOOPERS LOGO] - -------------------------------------------------------------------------------- PricewaterhouseCoopers N.V. Accountants Strawinskylaan 3127 1077 ZX Amsterdam Postbus 7067 1007 JB Amsterdam Telephone (020) 568 41 00 Facsimile (020) 568 41 50 REPORT OF INDEPENDENT ACCOUNTANTS To the Supervisory Board and Shareholders of STMicroelectronics N.V.: In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, of cash flows and of changes in shareholder's equity present fairly, in all material respects, the financial position of STMicroelectronics N.V. and its subsidiaries at December 31, 2000 and December 31, 1999, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2000 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. PricewaterhouseCoopers N.V. Amsterdam, February 1, 2001 PncewaterhouseCoopers N.V. is a company with limited liability domiciled in Amsterdam, where it is registered with the Trade Register under number 34107196. Unless expressly stipulated otherwise in writing, all our agreements are subject to the General Terms & Conditions of PricewaterhouseCoopers N.V., which have been filed with the Amsterdam Chamber of Commerce under number 4220. - 2 - STMicroelectronics N.V. CONSOLIDATED STATEMENT OF INCOME

• 3 - STMicroelectronics N.V CONSOLIDATED BALANCE SHEET As at --------------------------- December 31, December 31, In thousands of U.S. dollars 1999 2000 - -------------------------------------------------------------------------------- Assets Current assets Cash and cash equivalents 1 823 086 2 295 703 Marketable securities - 35 155 Trade accounts and notes receivable 913 282 1 496 446 Inventories 619 402 876 476 Other receivables and assets 435 784 554 035 ----------------------------- Total current assets 3 791 554 5 257 815 ----------------------------- Intangible assets, net 179 947 286 121 Property, plant and equipment, net 3 873 019 6 201 071 Investments and other non-current assets 85 783 135 488 ----------------------------- 4 138 749 6 622 680 ----------------------------- Total assets 7 930 303 11 880 495 ----------------------------- Liabilities and shareholders' equity Current liabilities Bank overdrafts 26 471 35 599 Current portion of long-term debt 96 669 105 972 Trade accounts and notes payable 998 881 1 745 553 Other payables and accrued liabilities 381 845 509 165 Accrued and deferred income tax 189 308 299 638 ----------------------------- Total current liabilities 1 693 174 2 695 927 ----------------------------- Long-term debt 1 348 477 2 700 482 Reserves for pension and termination indemnities 108 294 110 244 Other non-current liabilities 191 660 216 235 ----------------------------- 1 648 431 3 026 961 ----------------------------- Total liabilities 3 341 605 5 722 888 ----------------------------- Commitments and contingencies ----------------------------- Minority interests 24 757 32 958 ----------------------------- Common stock 1 112 680 1 133 739 Capital surplus 1 395 307 1 689 824 Accumulated result 2 551 817 3 977 316 Accumulated other comprehensive income -495 863 -676 230 ----------------------------- Shareholders' equity 4 563 941 6 124 649 ----------------------------- Total liabilities and shareholders' equity 7 930 303 11 880 495 ----------------------------- The accompanying notes are an integral part of these consolidated financial statements - 4 - STMicroelectronics N.V. CONSOLIDATED STATEMENT OF CASH FLOWS

• 5 - STMicroelectronics N.V. CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY In thousands of U.S. dollars, except per share amounts

• 6 - STMICROELECTRONICS N.V. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 (In thousands of U.S. dollars, except per share amounts) 1. THE COMPANY STMicroelectronics N.V. (formerly known as SGS-THOMSON Microelectronics N.V.) (the "Company") was formed in 1987 by the combination of the semiconductor business of SGS Microelettronica (then owned by Societa Finanziaria Telefonica (S.T.E.T.), an Italian corporation) and the non-military business of Thomson Semiconducteurs (then owned by Thomson-CSF, a French corporation) whereby each company contributed their respective semiconductor businesses in exchange for a 50% interest in the Company. The Company designs, develops, manufactures and markets a broad range of semiconductor integrated circuits and discrete devices that are used in a wide variety of microelectronic applications. The Company is registered in The Netherlands with its statutory domicile in Amsterdam. At December 31, 2000, the Company was 43.77% (December 31, 1999: 44.80%) owned by STMicroelectronics Holding II B.V. and 56.23% by the public (December 31, 1999: 55.20%). At December 31, 1999, and at December 31, 2000, STMicroelectronics Holding II B.V. was 100% owned by STMicroelectronics Holding N.V. At December 31, 1999, STMicroelectronics Holding N.V. was owned as follows: - 50% by FT1CI, a French holding company, whose shareholders are CEA-Industrie (51%) and France Telecom (49%). - 50% by Finmeccanica, an Italian holding company, whose shareholders are Istituto per la Ricostruzione Industriale S.p.a. (I.R.I.) (54.2%), the Italian Ministry of Treasury (28.9%) and the public (16.9%). At December 31, 2000, STMicroelectronics Holding N.V. was owned as follows: - 50% by FT1CI, a French holding company, whose shareholders are CEA-Industrie (51%) and France Telecom (49%). - 50% by Finmeccanica, an Italian holding company, whose shareholders are Istituto per la Ricostruzione Industriale S.p.a. (I.R.I.) (5.0%), the Italian Ministry of Treasury (32.4%) and the public (62.6%). - 7 - 2. SUMMARY OF ACCOUNTING POLICIES 2.1) Principles of consolidation The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP). The Company's consolidated financial statements include the assets, liabilities and results of operations of its majority-owned subsidiaries. The ownership of other interest holders is reflected as minority interests. Intercompany balances and transactions have been eliminated in consolidation. 2.2) Use of estimates The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes to the financial statements. Actual results could differ from those estimates and may affect amounts reported in future periods. 2.3) Foreign currency The U.S. dollar is the reporting currency for the Company because the dollar is the currency of reference in terms of market pricing in the world-wide semiconductor industry. Furthermore, there is no currency in which the majority of transactions are denominated, and revenues from external sales in U.S. dollars exceed revenues in any other currency. The functional currency of each subsidiary throughout the group is generally the local currency. For consolidation purposes, assets and liabilities of these subsidiaries are translated at current rates of exchange at the balance sheet date. Income and expense items are translated at the average exchange rate for the period. The effects of translating the financial position and results of operations from local functional currencies are included in "other comprehensive income". Assets, liabilities, revenue, expenses, gains or losses arising from foreign currency transactions are recorded in the functional currency of the recording entity at the exchange rate in effect at the date of the transaction. At each balance sheet date, recorded balances denominated in a currency other than the recording entity's functional currency are translated at the exchange rate prevailing at that date. The related exchange gains and losses are recorded in the income statement. - 8 - The Company conducts its business on a global basis in various major international currencies. As a result, it is exposed to adverse movements in foreign currency exchange rates. The Company utilizes foreign exchange forward contracts and currency options to cover foreign currency exposure. For the forward contracts and currency options that are considered identifiable hedges, recognition of gains and losses is deferred until settlement of the underlying commitments. Realized gains and losses are recorded as other income or expense when the underlying exposure materializes or the hedged transaction is no longer expected to occur. The discount or premium on these forward contracts designated as a hedge, are recorded as an asset or liability and amortized to interest expense over the term of the contract. For the forward contracts and currency options that are not considered identifiable hedges, recognition of gains and losses is recognized at each reporting period, based on the fair market value of the forward contract. Realized gains or losses are recorded as other income and expense. 2.4) Reclassifications Certain prior year amounts have been reclassified to conform with the current year presentation. 2.5) Income recognition * Sales Revenue on sales of semiconductor products is recognized upon transfer of the ownership of the goods at shipment. A portion of the Company's sales are made to distributors who participate in certain programs common in the semiconductor industry whereby the distributors are allowed to return merchandise under certain circumstances and may receive future price reductions. Provision is made at the time of sale for estimated product returns and price protection which may occur under programs the Company has with these customers. * Fundings Government fundings are recognized as the related costs are incurred, commencing when the fundings' contract is signed with the relevant government department or agency. Government fundings for research and development are included in "other income and expenses". Government fundings for capital expenditures are deducted from the cost of the related fixed assets and reduce depreciation over the assets' remaining estimated useful lives. * Other revenue Other revenue consists of co-development contract fees, certain contract indemnity payments and patent royalty income. Other revenue is recognized rateably over the term of the agreement. In December 1999, the Securities and Exchange Commission released Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB 101"), providing - 9 - the staff's view on applying generally accepted accounting principles to selected revenue recognition issues. The Company adopted SAB 101 in the fourth quarter of 2000, as required. The adoption of SAB 101 did not have a material effect on the Company's financial position or overall trends in results of operations. 2.6) Advertising costs Advertising costs are expensed as incurred. Advertising expenses for 1998, 1999 and 2000 were $16,012, $21,102 and $30,421, respectively. 2.7) Research and development Research and development costs are charged to expense as incurred. Research and development costs include costs incurred by the Company as well as the Company's share of costs incurred by other research and development interest groups. 2.8) Start-up costs Start-up costs incurred in the Company's new manufacturing facilities, before reaching a minimum level of production, are included in "other income and expenses" in the accompanying consolidated statement of income. 2.9) Income taxes The provision for current taxes represents the income taxes expected to be payable for the current year. Deferred tax assets and liabilities are recorded for all temporary differences arising between the tax and book bases of assets and liabilities and for the benefits of tax credits and loss carryforwards. Those deferred tax assets and liabilities are measured using the enacted tax rates at which they are expected to be realized or paid. A valuation allowance is provided where necessary to reduce deferred tax assets to the amount expected to be "more likely than not" realized in the future. 2.10) Earnings per share Basic earnings per share are computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted earnings per share are computed by dividing net income (less interest expense, net of tax effects, related to convertible debt) by the weighted average number of common shares and common share equivalents outstanding during the period. The weighted average shares used to compute diluted earnings per share include the incremental shares of common stock relating to outstanding options and convertible debt to the extent such incremental shares are dilutive. - 10 - 2.11) Cash equivalents All highly liquid investments purchased with an original maturity of ninety days or less are considered to be cash equivalents. 2.12) Marketable securities Management determines the appropriate classification of debt and equity securities at the time of purchase and reassesses the classification at each reporting date. All marketable securities are classified as available-for-sale and are reported at fair value with net unrealized gains or losses reported as a separate component of comprehensive income in the statement of shareholders' equity. Unrealized losses that are other than temporary are recognized in net income. Gains and losses on securities sold are determined based on the specific identification method and are included in other income and expense. 2.13) Inventories Inventories are stated at the lower of cost or market. Cost is computed on a currently adjusted standard basis which approximates actual cost on a current average basis. 2.14) Intangible assets Intangible assets include the cost of technologies and licenses purchased from third parties, amortized over a period ranging from three to seven years, and goodwill acquired in business combinations amortized over its estimated useful life, generally three to five years. The carrying value of long-lived assets, including intangibles, is evaluated whenever changes in circumstances indicate the carrying amount of such assets may not be recoverable. In performing such review for recoverability, the Company compares the expected future cash flow to the carrying value of long-lived assets and identifiable intangibles. If the anticipated undiscounted future cash flows are less than the carrying amount of such assets, the Company recognizes an impairment loss for the difference between the carrying amount of the assets and their estimated fair value. - 11 - 2.15) Property, plant and equipment Property, plant and equipment are stated at cost, net of government fundings. Major renewals and improvements are capitalized; minor replacements, maintenance and repairs are charged to current operations. Depreciation is computed using the straight-line method over the following estimated useful lives: Buildings 33 years Leasehold improvements 10 years Machinery and equipment 6 years Computer and R&D equipment 3-6 years Other 2-5 years Assets subject to leasing agreements and classified as capital leases are included in property, plant and equipment and depreciated over the shorter of the estimated useful life or the lease term. When property, plant or equipment is retired or otherwise disposed of, the net book value of the asset is removed from the Company's books and the net gain or loss is included in the determination of income. 2.16) Investments The equity accounting method is used when the Company has both a 20% to 50% equity interest and the ability to exercise significant influence over the investee. The Company also holds certain equity investments constituting less than 20% ownership of the investee. These investments are carried at historical cost. Although the market value of the investments is not readily determinable, management believes the fair value of these investments exceed their carrying amounts. For those investments with readily determinable market values, the Company has accounted for those investments as available-for-sale. These investments are reported at fair value with the net unrealized gains or losses reported as a separate component of comprehensive income in the statement of shareholders' equity. Unrealized losses that are other than temporary are recognized in net income. 2.17) Pension and termination indemnities The Company sponsors various retirement plans for its employees; such plans include both defined benefit and defined contribution plans. Upon retirement, the Company's employees receive benefits provided by the pension plan arrangements. These plans conform with local regulations and practices of the countries in which the Company operates. - l2 - 2.18) Comprehensive income Comprehensive income is defined as the change in equity of a business during a period from transactions and circumstances related to non-owner sources, and includes all changes in equity except those resulting from investment by owners and distributions to owners. In the Company's case, "other comprehensive income" consists of foreign currency translation adjustments and the unrealized gain or loss on marketable securities. 2.19) Stock splits In May 1999, the Company's shareholders approved a two-for-one stock split of the Company's common stock. The record date for the stock split was June 16, 1999, and the distribution date was June 17, 1999. In April 2000, the Company's shareholders approved a three-for-one stock split of the Company's common stock. The record date for the stock split was May 5, 2000, and the distribution date was May 6, 2000. All earnings per share amounts, references to common stock, shareholders' equity amounts and stock option plan data have been restated as if the stock splits had occurred as of the earliest period presented. 2.20) New accounting pronouncements In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133 (FAS 133), "Accounting for Derivative Instruments and Hedging Activities". FAS 133 is required to be adopted for fiscal years beginning after June 15, 2000. This statement establishes accounting and reporting standards for derivative instruments and requires recognition of all derivatives as assets or liabilities in the balance sheet, and the measurement of those instruments at fair value. The Company will adopt the standards required by this statement in the first quarter of 2001. Management is in the process of fully evaluating the impact, if any, that this new standard may have on future consolidated results of operations, financial position, or financial statement disclosure. - 13 - 3. CONSOLIDATED ENTITIES The consolidated financial statements include the accounts of STMicroelectronics N.V. and the following entities as of December 31, 2000:

• MARKETABLE SECURITIES AND CERTAIN INVESTMENTS The marketable securities and certain investments had a cost basis of $31,831 and a fair value of $42,093 at December 31, 2000. The unrealized gain at December 31, 2000 related to these investments was $10,262. The Company did not own any marketable securities or investments accounted for at fair value at December 31, 1999. For fiscal years 1998, 1999 and 2000, gross realized gains and losses were $0, $0 and $8,952, respectively. - 14 - 5. TRADE ACCOUNTS AND NOTES RECEIVABLE Trade accounts and notes receivable consist of the following: December 31, December 31, 1999 2000 Trade accounts and notes receivable 924 872 1 512 270 Less valuation allowance -11 590 -15 824 --------- --------- Total 913 282 1 496 446 --------- --------- During 1998 no customer individually represented over ten percent of consolidated net revenues. In 1999, one customer represented 11.4% of consolidated net revenues and in 2000 one customer represented 13.4% of consolidated net revenues. 6. INVENTORIES Inventories consist of the following: December 31, December 31, 1999 2000 Raw materials 101 590 88 501 Work-in-process 395 320 588 263 Finished products 122 492 199 712 --------- --------- Total 619 402 876 476 --------- --------- - 15 - 7. OTHER RECEIVABLES AND ASSETS Other receivables and assets consist of the following: December 31, December 31, 1999 2000 Receivables from government agencies 152 237 139 418 Taxes and other government receivables 61 523 99 499 Down payment to suppliers 11 394 20 283 Loans to employees 3 557 3 914 Prepaid expenses 17 648 71 800 Sundry debtors 35 053 97 708 Deferred tax assets 73 079 71 651 Other 81 293 49 762 --------- --------- Total 435 784 554 035 --------- --------- Receivables from government agencies relate to research and development contracts, industrialization contracts and capital expenditures. 8. INTANGIBLE ASSETS Intangible assets consist of the following: December 31, December 31, 1999 2000 Goodwill 67 417 116 898 Technologies and licenses 202 560 315 532 Less accumulated amortization -90 030 -146 309 --------- --------- Total 179 947 286 121 --------- --------- - 16 - 9. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consist of the following:

• INVESTMENTS AND OTHER NON-CURRENT ASSETS Investments and other non-current assets consist of the following: December 31, December 31, 1999 2000 Investments 20 056 18 132 Long-term deposits and receivables 12 435 66 426 Deferred tax assets 33 373 15 916 Debt issuance costs, net 19 919 35 014 ---------- ------------ Total 85 783 135 488 ---------- ------------ - 17 - 11. SHAREHOLDERS' EQUITY Public offerings of shares In connection with a secondary offering of common stock in June 1998, the Company issued 18,000,000 new shares of common stock, which resulted in an increase in common stock and capital surplus of $20,378 and $188,320, respectively. In connection with a secondary offering of common stock in September 1999, the Company issued 8,970,000 new shares of common stock, which resulted in an increase in common stock and capital surplus of $9,740 and $207,027, respectively. Outstanding shares The authorized share capital of the Company is EUR 1,809,600,000, consisting of 1,200,000,000 common shares and 540,000,000 preference shares each with a nominal value of EUR 1.04. As of December 31, 1998, 1999 and 2000, the number of shares of common stock outstanding at a par value of EUR 1.04 was 854,868,636 shares, 869,424,420 shares and 889,881,287 shares, respectively. There were no preference shares outstanding as of December 31, 1998, 1999 and 2000. Preference shares In May 1999, the Company's shareholders approved the creation of 540,000,000 preference shares. The preference shares entitle a holder to full voting rights and to a preferential right to dividends and distributions upon liquidation. In May 1999, the Company entered into an option agreement with ST Holding II B.V. in order to protect the Company from a hostile takeover or other similar action. The option agreement provides for 540,000,000 preference shares to be issued to ST Holding II B.V. upon their request based on approval by the Company's Supervisory Board. ST Holding II B.V. would be required to pay at least 25% of the par value of the preference shares to be issued, and to retain ownership of at least 33% of the Company's issued share capital. Stock option plans In 1995, the Shareholders voted to adopt the 1995 Stock Option Plan (the "1995 Plan") whereby options for up to 33,000,000 shares may be granted in installments over a five year period. Under the 1995 Plan, the options may be granted to purchase shares of common stock at a price not lower than the market price of the shares on the date of grant, and generally vest over four years and are exercisable over a period of eight years. In 1996, the Shareholders voted to adopt the Supervisory Board Option Plan whereby each member of the Supervisory Board was eligible to receive, during the three year period 1996-1998, 18,000 options for 1996 and 9,000 options for both 1997 and 1998, to purchase shares of common stock at the closing market price of the shares on the date of the grant. In the same three-year period, each professional of the Supervisory Board was eligible to receive 9,000 options for 1996 and 4,500 options for both 1997 and 1998. Under the Plan, the options vest over one year and are exercisable for a period expiring eight years from the date of grant. - 18 - In 1999, the Shareholders voted to renew the Supervisory Board Option Plan whereby each member of the Supervisory Board may receive, during the three year period 1999-2001, 18,000 options for 1999 and 9,000 options for both 2000 and 2001, to purchase shares of capital stock at the closing market price of the shares on the date of the grant. In the same three-year period, each professional of the Supervisory Board may receive 9,000 options for 1999 and 4,500 options for both 2000 and 2001. Under the Plan, the options vest over one year and are exercisable for a period expiring eight years from the date of grant. A summary of stock option activity for the plans for the three years ended December 31, 2000, follows:

The weighted average remaining contractual life of options outstanding as of December 31, 1999 and December 31, 2000 was 6.4 and 6.1 years respectively. - 19 - The range of exercise prices, the weighted average exercise price and the weighted average remaining contractual life of options outstanding as of December 31, 2000 was as follows: Weighted Weighted average Option price average remaining Number of shares range exercise price contractual life ---------------- ----- -------------- ---------------- 3 017 360 $6.04 $6.04 3.2 years 3 657 455 $14.23 $14.23 4.7 years 3 885 840 $12.03 $12.03 5.6 years 8 918 100 $24.88 $24.88 6.7 years 126 840 $55.25 $55.25 7.1 years 5 391 700 $62.01 $62.01 7.5 years 70 000 $52.88 $52.88 7.7 years 2 019 640 $50.69 $50.69 7.9 years 63 000 $9.00 $9.00 3.8 years The range of exercise prices, the weighted average exercise price and the weighted average remaining contractual life of options exercisable as of December 31, 2000 was as follows: Weighted Weighted average Option price average remaining Number of shares range exercise price contractual life ---------------- ----- -------------- ---------------- 3 017 360 $6.04 $6.04 3.2 years 1 843 978 $14.23 $14.23 4.7 years 63 000 $9.00 $9.00 3.8 years 45 000 $12.03 $12.03 5.6 years 180 000 $24.88 $24.88 6.7 years Employee stock purchase plans In June 1998, the Company offered to certain of its employees world-wide the right to acquire up to 2,400 shares of capital stock per employee, at a price of $10.59 (63 French francs, 18,467 Italian lira) per share, representing a discount of twelve percent from the market price. A total of 1,729,794 shares were issued to participating employees world-wide as a result of the offering. In November 2000, the Company offered to certain of its employees world-wide the right to acquire up to 275 shares of capital stock per employee, at a price of $38.675 (45 Euro) per share, representing a discount of fifteen percent from the market price. A total of 559,929 shares were issued to participating employees world-wide as a result of the offering. - 20 - Fair value of stock-based compensation The Company has various stock option plans and employee stock purchase plans, as described above. The Company applies the intrinsic-value-based method prescribed by Accounting Principles Board Opinion No. 25 "Accounting for Stock lssued to Employees" (APB 25), and related Interpretations, in accounting for stock-based awards to employees. Under APB 25, the Company generally recognizes no compensation expense with respect to such awards. Pro forma information regarding net income and earnings per share is required by Statement of Financial Accounting Standards No. 123 "Accounting for Stock-Based Compensation" (FAS 123) as if the Company had accounted for its stock-based awards to employees under the fair value method prescribed by FAS 123. The fair value of the Company's stock-based awards to employees was estimated using a Black-Scholes option pricing model. The fair value was estimated using the following weighted-average assumptions: 1998 1999 2000 Expected life (years) 5 5 5 Volatility 38.2% 41.0% 42.2% Risk-free interest rate 5.4% 5.8% 6.0% Dividend yield - 0.10% 0.05% The weighted average fair value of options granted during 1998, 1999 and 2000 was $5.65, $11.08 and $27.12 per option, respectively. If compensation cost for the Company's stock-based compensation plans had been determined based on the fair value at the grant dates consistent with FAS 123, the Company's net income and earnings per share would have been adjusted to the pro forma amounts indicated below: Year ended Year ended Year ended Dec 31, 1998 Dec 31, 1999 Dec 31, 2000 ------------ ------------ ------------ Net income Pro forma 393 398 522 593 1 387 278 Pro forma earnings per share Basic 0.47 0.61 1.57 Diluted 0.46 0.59 1.51 These pro forma amounts include amortized fair values attributable to stock-based awards granted after December 31, 1995 only, and are therefore not representative of future pro forma amounts. - 21 - Retained earnings At December 31, 2000, the amount of retained earnings available to pay dividends under Dutch law was approximately $5,263,500 (1999: $3,653,000). Retained earnings for purposes of this calculation are based upon generally accepted accounting principles in The Netherlands. The Company's subsidiaries are subject to the laws of the countries in which they are domiciled. These laws may restrict the ability of the subsidiaries to transfer funds to the Company. Such restrictions are not considered to be significant as of December 31, 2000. Other comprehensive income The accumulated balances related to each component of other comprehensive income were as follows:

• 22 - 12. EARNINGS PER SHARE For the years ended December 31, 1998, 1999 and 2000 earnings per share (EPS) was calculated as follows:

• 23 - 13. RETIREMENT PLANS The Company and its subsidiaries have a number of defined benefit pension plans covering employees in various countries. The plans provide for pension benefits, the amounts of which are calculated based on factors such as years of service and employee compensation levels. Eligibility is generally determined in accordance with local statutory requirements.

• 24 - Net amount recognized in the balance sheet consists of the following:

The weighted average assumptions used in the determination of the net pension cost for the pension plans were as follows:

The Company also has defined contribution pension plans which provide retirement benefits to certain of its employees. The benefit accrues to the employees on a pro-rata basis, adjusted for inflation, during their employment period and is based on the individuals' salary. As of December 31, 1999 and 2000, the Company accrued $100,290 and $99.961 respectively, for these defined contribution pension plans. The annual cost of these plans amounted to approximately $13,800, $15,200 and $18,000 in 1998, 1999 and 2000 respectively. - 25 - 14. LONG-TERM DEBT Long-term debt, all of which is unsecured, includes debt held by the following subsidiaries:

• 26 - Aggregate future maturities of long-term debt outstanding are as follows: December 31, 2000 2001 105 972 2002 111 572 2003 84 457 2004 57 555 2005 47 492 Thereafter 2 399 406 ---------- Total 2 806 454 ---------- In June 1998, the Company issued $513,852 face value of zero-coupon subordinated convertible notes (LYONs), due 2008, for net proceeds of $421,837. The notes are convertible at any time by the holders at the rate of 53.712 shares of the Company's common stock for each one thousand dollar face value of the notes. The notes may be redeemed by the holders on June 10, 2003 or by the Company on or after that date at the book value, payable in cash. The notes are subordinated to all the other existing and future indebtedness of the Company. In September 1999, the Company issued $918,530 face value of zero-coupon subordinated convertible notes (LYONs), due 2009, for net proceeds of $708,288. The notes are convertible at any time by the holders at the rate of 26.292 shares of the Company's common stock for each one thousand dollar face value of the notes. The notes may be redeemed by the holders on September 22, 2004 or by the Company on or after that date at the book value, payable in cash. The notes are subordinated to all the other existing and future indebtedness of the Company. In November 2000, the Company issued $2,145,923 face value of zero-coupon unsubordinated convertible bonds, due 2010, for net proceeds of $1,457,828. The debt discount of $665,923 is amortized straight-line over the term of the debt and recorded as interest expense. The notes are convertible at any time by the holders at the rate of 9.32 shares of the Company's common stock for each one thousand dollar face value of the notes. The notes may be redeemed by the holders on November 16, 2005 or by the Company on or after that date at the book value, payable in cash. The notes are unsubordinated to all the other existing and future indebtedness of the Company. During 1999, $52,476 face amount of convertible bonds were converted into 939,528 shares of common stock. During 2000, $333,580 face amount of convertible bonds were converted into 17,908,743 shares of common stock. Credit facilities The Company has revolving line of credit agreements with several financial institutions totaling $884,000. At December 31, 2000, amounts available under the lines of credit are reduced by borrowings of $35,599 at an average interest rate of 6.47%. - 27 - 15. OTHER PAYABLES AND ACCRUED LIABILITIES Other payables and accrued liabilities consist of the following:

• 28 -

• 29 - STMicroelectronics N.V. and its subsidiaries are individually liable for income tax. Tax losses can only offset profits generated by the taxable entity incurring such loss. Income tax expense is comprised of the following:

Permanent differences reflect mainly the effects of capital allowance programs and special tax incentive programs existing in some Asia Pacific and Mediterranean countries, and of various non-deductible items. Included in the line "Earnings of subsidiaries taxed at different rates" are benefits related to certain tax holidays totalling $41,758 in 1998, $49,911 in 1999, $225,193 in 2000. - 30 - Deferred tax assets and liabilities consist of the following:

As of December 31, 2000, the Company and its subsidiaries have net operating loss carryforwards of $66,323 which expire between 2001 and 2006. The Company paid $75,886 cash for income taxes in 1998, $99,930 cash for income taxes in 1999 and $242,929 cash for income taxes in 2000. - 31 - 20. COMMITMENTS Lease commitments The Company leases land, building, plant and equipment under non-cancellable lease agreements. As of December 31, 2000 the future minimum lease payments to which the Company was committed under operating leases were as follows: Year 2001 16 231 2002 12 524 2003 11 331 2004 9 681 2005 7 629 Thereafter 19 124 ---------- Total 76 520 ---------- Other commitments As of December 31, 2000, the Company had commitments of $1,670,263 for equipment purchases. 21. CONTINGENCIES The Company is involved in various lawsuits, claims, investigations and proceedings incidental to the normal conduct of its operations. These matters mainly include the risks associated with external patents utilization, various investigations, claims from customers and tax disputes. Management has accrued for these loss contingencies when the loss is probable and can be estimated. Management believes that these contingencies will not have a material adverse effect on the business, financial condition or results of operations of the Company. During 2000, the Company acquired a manufacturing facility. The terms of the agreement require the Company to pay additional amounts up to $40,000 if certain conditions are met during the next three years. The contingent payments have not been recorded as of December 31, 2000, as it is not beyond a reasonable doubt that the amounts will be paid. - 32 - 22. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT Financial instruments and derivatives are used exclusively for purposes other than trading. Foreign exchange forward contracts and currency options The Company enters into foreign exchange forward contracts and currency options to manage exposure to fluctuations in foreign currency exchange rates and to cover a portion of both its probable anticipated, but not firmly committed, transactions and transactions with firm foreign currency commitments. These transactions include international sales by various subsidiaries in foreign currencies, foreign currency denominated purchases, intercompany sales and other intercompany transactions. Such contracts outstanding as of December 31, 2000 have remaining terms of one to three months, maturing mainly during the first quarter of 2001. The notional amounts of foreign exchange forward contracts totaled $611,567 and $780,423 at December 31, 1999 and 2000, respectively. The principal currencies covered are the US dollar, the Euro, the Italian lira, the Japanese Yen, and the Swiss franc. The risk of loss associated with purchased options is limited to premium amounts paid for the option contracts. The risk of loss associated with forward contracts is equal to the exchange rate differential from the time the contract is entered into until the time it is settled. Concentration of credit risk Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of interest-bearing investments, financial instruments with off-balance sheet risks (primarily forward contracts), and trade receivables. The Company places its cash and cash equivalents and certain other financial instruments with a variety of high credit quality financial institutions and has not experienced any material losses relating to such instruments. The Company invests its excess cash in accordance with its investment policy which aims to minimize credit risk. The Company controls the credit risks associated with financial instruments through credit approvals, investment limits and centralized monitoring procedures but does not normally require collateral or other security from the parties to the financial instruments with off-balance sheet risk. Concentrations of credit risk with respect to trade receivables are limited due to the large number of customers and their dispersion across many geographic areas. The Company monitors the creditworthiness of its customers to which it grants credit terms in the normal course of business. The Company does not anticipate non-performance by counterparties which could have a significant impact on its financial position or results of operations. - 33 - Fair value of financial instruments The estimates of fair value were obtained using prevailing financial market information resulting from various valuation techniques. The methodologies used to estimate fair value are as follows: Cash and cash equivalents, accounts and notes receivable, bank overdrafts, short-term borrowings, accounts and notes payables The carrying amounts reflected in the consolidated financial statements are reasonable estimates of fair value because of the relatively short period of time between the origination of the instruments and their expected realization. Long-term debt and current portion of long-term debt The fair values of long-term debt were determined based on quoted market prices, and by estimating future cash flows on a borrowing-by-borrowing basis and discounting these future cash flows using the Company's incremental borrowing rates for similar types of borrowing arrangements. Foreign exchange forward contracts The fair values of these instruments are estimated based upon quoted market prices for the same or similar instruments.

• 34 - 23. RELATED PARTY TRANSACTIONS Transactions with significant shareholders and their affiliates were as follows:

• SEGMENT INFORMATION In June 1997, the United States Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 131, "Disclosure about Segments of an Enterprise and Related Information" (FAS 131), which the Company adopted effective December 31, 1998. FAS 131 requires that enterprises report certain information about operating segments. It also requires that enterprises report certain information about their products and services, the geographic areas in which they operate, and their major customers. The Company concluded that it has two principal businesses and operates in two segments: the Semiconductor segment and the Subsystems segment. In the Semiconductor segment, the Company designs, develops, manufactures and markets a broad range of products, including discrete, memories and standard commodity components, ASICSs (full custom devices and semicustom devices) and ASSPs for analog, digital, and mixed-signal applications. In the Subsystems segment, the Company designs, develops, manufactures and markets subsystems and modules for the Telecom, Automotive and Industrial markets including mobile phone accessories, battery chargers, ISDN power supplies and in-vehicle equipment for electronic toll payment. The Subsystems segment does not meet the requirements for a reportable segment as defined in FAS 131. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The following is a summary of operations by entities located within the indicated geographic areas for 1998, 1999 and 2000. Long-lived assets consist of net property and equipment and other intangible assets. - 35 -

• 36 - ------------------------- SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, STMicroelectronics N.V. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: April 9, 2001 STMicroelectronics N.V. By: /s/ Pasquale Pistorio ---------------------------------- Name: Pasquale Pistorio Title: President and Chief Executive Officer