UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________________
FORM 20-F
_____________________________________
o | Registration Statement pursuant to Section 12(b) or (g) of the Securities Exchange Act of 1934. |
x | Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. |
For the fiscal year ended December 31, 2012
o | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. |
o | Shell company report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. |
Date of event requiring this shell company report
For the transition period from to
Commission File Number: 0-13355
____________________________________________
ASM INTERNATIONAL NV
(Exact name of Registrant as specified in its charter)
___________________________________________
The Netherlands
(jurisdiction of incorporation or organization)
Versterkerstraat 8, 1322 AP, Almere, the Netherlands
(Address of principal executive offices)
Richard Bowers
Telephone: (602) 432-1713
Fax: (602) 470-2419
Email: dick.bowers@asm.com
Address: 3440 E. University Dr., Phoenix, AZ 85034, USA
(Name, Telephone, Email and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of each class | Name of each exchange on which registered | |
Common Shares, par value € 0.04 | The NASDAQ Stock Market LLC |
Securities registered or to be registered pursuant to
Section 12(g) of the Act: None
Securities for which there is a reporting obligation pursuant to
Section 15(d) of the Act: None
____________________________
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report: 63,095,986 common shares; 0 preferred shares.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No o
If this annual report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes o No x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.
Large accelerated filer x | Accelerated filer o | Non-accelerated filer o |
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP x International Financial Reporting Standards as issued by the International
Accounting Standards Board o Other o
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow:
Item 17 o Item 18 o
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes o No x
TABLE OF CONTENTS
Item 1 | ||
Item 2 | ||
Item 3 | ||
Item 4 | ||
Item 4A | ||
Item 5 | ||
Item 6 | ||
Item 7 | ||
Item 8 | ||
Item 9 | ||
Item 10 | ||
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Item 13 | ||
Item 14 | ||
Item 15 | ||
Item 17 | ||
Item 18 | ||
Item 19 | ||
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PART I
As used in this report, the terms “we,” “us,” “our,” “ASMI,” and “ASM International” mean ASM International NV and its subsidiaries, unless the context indicates another meaning, and the term “common shares” means our common shares, par value €0.04 per share. Since we are a Netherlands company, the par value of our common shares is expressed in euros (“€”). The terms “United States” and “US” refer to the United States of America.
Forward Looking Safe Harbor Statement
Some of the information in this report constitutes forward-looking statements within the meaning of the United States federal securities laws, including the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements include, among others, statements regarding future revenue, sales, income, expenditures, sufficiency of cash generated from operations, maintenance of a substantial interest in ASM Pacific Technology Ltd, business strategy, product development, product acceptance, market penetration, market demand, return on investment in new products, product shipment dates, corporate transactions, restructurings, liquidity and financing matters, currency fluctuations, litigation involving intellectual property, shareholder matters, and outlooks. These statements may be found under Item 4, “Information on the Company,” Item 5, “Operating and Financial Review and Prospects” and elsewhere in this report. Forward-looking statements are statements other than statements of historical fact and typically are identified by use of terms such as “may,” “could,” “should,” “project,” “believe,” “anticipate,” “expect,” “plan,” “estimate,” “forecast,” “potential,” “intend,” “continue” and similar words, although some forward-looking statements are expressed differently. You should be aware that these statements involve risks and uncertainties and our actual results could differ materially from those contained in the forward-looking statements due to a number of factors, including the matters discussed in Item 4, “Information on the Company” and the risks discussed in Item 3.D, “Risk factors.” The risks described are not the only ones facing ASMI. Some risks are not yet known and some that we do not currently believe to be material could later become material. Each of these risks could materially affect our business, revenues, income, assets, liquidity and capital resources. All statements are made as of the date of this report, and we assume no obligation to update or revise any forward-looking statements to reflect future developments or circumstances.
Item 1. Identity of Directors, Senior Management and Advisors
Not applicable.
Item 2. Offer Statistics and Expected Timetable
Not applicable.
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Item 3. Key Information
A. Selected consolidated financial data.
The following selected financial data has been derived from ASMI’s historical audited consolidated financial statements. The selected financial data should be read in conjunction with Item 5, “Operating and Financial Review and Prospects” and Item 18, “Financial Statements,” and the accompanying notes for the corresponding fiscal years:
(EUR thousands, except per share data) | 2008 | 2009 | 2010 | 2011 | 2012 | |||||||||||||||
Consolidated Statements of Operations data: | ||||||||||||||||||||
Net sales | 747,362 | 590,739 | 1,222,900 | 1,634,334 | 1,418,067 | |||||||||||||||
Cost of sales | (477,100 | ) | (409,224 | ) | (673,322 | ) | (1,063,708 | ) | (977,638 | ) | ||||||||||
Gross profit | 270,262 | 181,515 | 549,578 | 570,626 | 440,429 | |||||||||||||||
Operating expenses: | ||||||||||||||||||||
Selling, general and administrative | (126,591 | ) | (107,777 | ) | (130,596 | ) | (174,107 | ) | (200,799 | ) | ||||||||||
Research and development, net | (75,011 | ) | (62,806 | ) | (78,785 | ) | (129,400 | ) | (149,219 | ) | ||||||||||
Amortization of other intangible assets | (475 | ) | (401 | ) | (357 | ) | (911 | ) | (1,264 | ) | ||||||||||
Impairment of goodwill | (1,395 | ) | — | — | — | — | ||||||||||||||
Impairment of property, plant and equipment | — | — | — | (8,038 | ) | — | ||||||||||||||
Restructuring expenses | (7,068 | ) | (35,687 | ) | (11,201 | ) | — | (891 | ) | |||||||||||
Total operating expenses | (210,540 | ) | (206,671 | ) | (220,939 | ) | (312,456 | ) | (352,173 | ) | ||||||||||
Operating income: | ||||||||||||||||||||
Gain on bargain purchase | — | — | — | 109,279 | — | |||||||||||||||
Earnings (loss) from operations | 59,722 | (25,156 | ) | 328,640 | 367,450 | 88,256 | ||||||||||||||
Interest income | 4,047 | 1,018 | 1,221 | 2,902 | 1,989 | |||||||||||||||
Interest expense | (7,745 | ) | (8,556 | ) | (15,677 | ) | (13,497 | ) | (12,113 | ) | ||||||||||
Gain (loss) resulting from early extinguishment of debt | 7,956 | (1,759 | ) | (3,609 | ) | (824 | ) | (2,209 | ) | |||||||||||
Accretion interest expense convertible notes | — | (4,286 | ) | (6,010 | ) | (4,401 | ) | (4,469 | ) | |||||||||||
Revaluation conversion option | — | (24,364 | ) | (19,037 | ) | (4,378 | ) | — | ||||||||||||
Foreign currency exchange results | 785 | (1,384 | ) | (65 | ) | 5,604 | (3,957 | ) | ||||||||||||
Result on investments | — | — | — | — | (766 | ) | ||||||||||||||
Earnings (loss) from continuing operations before income taxes | 64,765 | (64,487 | ) | 285,463 | 352,856 | 66,731 | ||||||||||||||
Income tax expense | (12,144 | ) | (3,786 | ) | (42,939 | ) | (36,692 | ) | (26,300 | ) | ||||||||||
Earnings (loss) from continuing operations before dilution on investment in subsidiary | 52,621 | (68,273 | ) | 242,524 | 316,164 | 40,431 | ||||||||||||||
Gain on dilution of investment in subsidiary (1) | 4,088 | — | — | — | — | |||||||||||||||
Net earnings (loss) | 56,709 | (68,273 | ) | 242,524 | 316,164 | 40,431 | ||||||||||||||
Net earnings (loss) for allocation between shareholders of the parent and non-controlling interest | ||||||||||||||||||||
Allocation of net earnings (loss) | ||||||||||||||||||||
Shareholders of the parent | 18,411 | (107,517 | ) | 110,639 | 186,770 | 7,149 | ||||||||||||||
Non-controlling interest | 38,298 | 39,244 | 131,884 | 129,394 | 33,282 | |||||||||||||||
Earnings per Share data: | ||||||||||||||||||||
Basic net earnings (loss) per share | € | 0.35 | € | (2.08 | ) | € | 2.11 | € | 3.38 | € | 0.13 | |||||||||
Diluted net earnings (loss) per share: | € | 0.35 | € | (2.08 | ) | € | 2.09 | € | 3.16 | € | 0.13 | |||||||||
Basic weighted average number of shares (thousands) | 52,259 | 51,627 | 52,435 | 55,210 | 56,108 | |||||||||||||||
Diluted weighted average number of shares (thousands) | 52,389 | 51,627 | 61,494 | 64,682 | 56,767 |
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(EUR thousands, except per share data) | 2008 | 2009 | 2010 | 2011 | 2012 | |||||||||||||||
Consolidated Statements of Operations data: | ||||||||||||||||||||
Other data: | ||||||||||||||||||||
Number of common shares outstanding at year end (in thousands) | 54,275 | 51,745 | 52,932 | 55,377 | 63,096 | |||||||||||||||
Dividends declared on common shares (3) | — | — | — | € | 0.40 | € | 0.50 | |||||||||||||
Number of preferred shares outstanding at year end (thousands) | 21,985 | — | — | — | — | |||||||||||||||
Consolidated Balance Sheet data: | — | |||||||||||||||||||
Cash and cash equivalents | 157,277 | 293,902 | 340,294 | 390,250 | 290,475 | |||||||||||||||
Total assets | 767,798 | 851,700 | 1,214,117 | 1,582,221 | 1,499,506 | |||||||||||||||
Net current assets (2) | 372,029 | 419,535 | 509,867 | 739,252 | 690,283 | |||||||||||||||
Total debt | 153,682 | 265,430 | 215,681 | 195,409 | 80,623 | |||||||||||||||
Capital stock | 2,171 | 2,070 | 2,117 | 2,215 | 2,584 | |||||||||||||||
Total shareholders’ equity | 317,902 | 241,229 | 411,460 | 659,796 | 741,876 | |||||||||||||||
Cash Flow data: | ||||||||||||||||||||
Cash flow from operating activities | 137,402 | 62,652 | 259,884 | 216,581 | 42,480 | |||||||||||||||
Cash flow from investing activities | (33,009 | ) | (15,493 | ) | (100,566 | ) | (70,035 | ) | (71,891 | ) | ||||||||||
Cash flow from financing activities | (121,538 | ) | 90,890 | (123,027 | ) | (78,537 | ) | (73,489 | ) |
_________________
(1) | Following the adoption of ASC 810(-10 45-23) in 2009 results on dilution of investments in subsidiaries are accounted for directly in equity. The 2009 results and changes in equity have been adjusted accordingly. |
(2) | Net current assets is calculated as the difference between total current assets, including cash and cash equivalents, and total current liabilities. |
(3) | The dividends are related to the preceding financial year. |
Exchange Rate Information
We publish our consolidated financial statements in euros. In this Annual Report, references to “€”, “euro” or “EUR” are to euros, and references to “$”, “US dollar”, “USD” or “US$” are to United States dollars.
The following table sets forth, for each period indicated, specified information regarding theUS. dollar per euro exchange rates based on the rates of the European Central Bank, referred to as the “reference rate.” On March 15, 2013, the reference rate was 1.3086 U.S dollars per euro. Prior to January 1, 2009, the exchange rate was based on the noon buying rate in New York City for cable transfers payable in euros as certified for customs purposes by the Federal Reserve Bank of New York, which is often referred to as the “noon buying rate.”
US Dollar per Euro Exchange Rate
September 2012 | October 2012 | November 2012 | December 2012 | January 2013 | February 2013 | March 2013 1 | |||||||||||||||
High | 1.3095 | 1.3120 | 1.2994 | 1.3302 | 1.3550 | 1.3644 | 1.3090 | ||||||||||||||
Low | 1.2568 | 1.2877 | 1.2694 | 1.2905 | 1.3012 | 1.3077 | 1.2937 |
Years Ended December 31, | |||||||||||||||
2008 | 2009 | 2010 | 2011 | 2012 | |||||||||||
Average exchange rate 2 | 1.4695 | 1.3963 | 1.3207 | 1.4000 | 1.2932 |
(1) | Through March 15, 2013. |
(2) | Average of the exchange rates on the last day of each month during the period presented. |
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B. Capitalization and indebtedness.
Not applicable.
C. Reasons for the offer and use of proceeds.
Not applicable.
D. Risk factors.
You should carefully consider each of the risks and uncertainties described below and all other information contained in this Annual Report on Form 20-F. In order to help assess the major risks in our business, we have identified many, but not all, of these risks, which may not be in order of likelihood or materiality. Due to the scope of our operations, a wide range of factors both known and unknown could materially affect future developments and performance.
If any of the following risks are realized, our business, financial condition, cash flow or results of operations could be materially and adversely affected, and as a result, the trading price of our common stock could be materially and adversely impacted. These risk factors should be read in conjunction with other information set forth in this Report, including without limitation Item 4 Information on the Company, Item 5 Operating and Financial Review and Prospects, and our Consolidated Financial Statements and related notes.
RISKS RELATED TO OUR INDUSTRY
The industry in which we operate is highly cyclical.
We sell our products to the semiconductor manufacturing industry, which is subject to sudden, extreme, cyclical variations in product supply and demand. Starting late in 2008 and continuing in 2009, this industry experienced a dramatic and unprecedented decline in demand for semiconductor devices due to the worldwide economic downturn, which led to significant layoffs, plant closings, reduced capital expenditures and other cost reduction measures by semiconductor manufacturers. These conditions caused a substantial decrease in the demand for our products, which represent capital expenditures for our customers although a pick-up in demand was evident in the second half of 2009 and continued through 2010. During 2011 order intake was mixed in the uncertain global climate and industry conditions. While overall industry conditions were generally decent during the first half of 2012, the second half experienced a weakening and slowing of the market which impacted ASMI. The timing, length and severity of these cycles cannot be predicted and future downturns may result in changes in the semiconductor manufacturing industry and the manner in which we must conduct our business in ways that cannot now be predicted.
Semiconductor manufacturers may contribute to the severity of downturn and upturn cycles by misinterpreting the conditions in the industry and over-investing or under-investing in semiconductor manufacturing capacity and equipment. In any event, the lag between changes in demand for semiconductor devices and changes in demand for our products by semiconductor manufacturers accentuates the intensity of these cycles in both expansion and contraction phases. We may not be able to respond timely and effectively to these industry cycles in the expansion and contraction phases.
Industry downturns historically have been characterized by reduced demand for semiconductor devices and equipment, production over-capacity and a decline in average selling prices. During periods of declining demand, we must quickly and effectively reduce expenses. However, our ability to reduce expenses is limited by our need for continued investment in engineering and research and development and extensive ongoing customer service and support requirements. In addition, in a downturn, our ability to reduce inventories quickly is limited by the long lead time for production and delivery of some of our products, reduced sales, order cancellations and delays, and delays associated with reducing deliveries from our supplier pipeline. During an extended downturn, a portion of our inventory may have to be written down as excess or obsolete if it is not sold in a timely manner.
Industry upturns have been characterized by fairly abrupt increases in demand for semiconductor devices and equipment and insufficient production capacity. During a period of increasing demand and rapid growth, we must be able to quickly increase manufacturing capacity to meet customer demand and hire and assimilate a sufficient number of additional qualified personnel, and fund such increase of manufacturing capacity. Our inability to quickly respond in times of increased demand, because of the effect, for example, of our ongoing programs to reduce
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expenses and regulate the rate of purchases from our suppliers, could harm our reputation and cause some of our existing or potential customers to place orders with our competitors rather than us.
Our industry along with global financial markets and regions have been in flux since 2008. In particular, financial turmoil in the Eurozone has recently been unsettling, including the debt burden of certain nations and their ability to meet future obligations, euro currency stability, and the continued suitability of the euro as a single currency. These concerns could possibly result in the reintroduction of individual currencies or even the dissolution of the euro itself. If the euro ended, the contractual and legal consequences for holders of euro denominated obligations cannot be predicted; however, these possible developments and fluid market perceptions could negatively affect the value of euro denominated obligations and assets. These financial concerns in Europe as well as the health of the overall global financial markets and an uncertain or a weaker or deteriorating global economy could also adversely impact our business, financial condition and operating results, such as lower sales due to decreased capital purchases by our customers, financial instability or insolvency of suppliers and customers, and other such similar or related adverse effects.
Our industry is subject to rapid technological change and we may not be able to forecast or respond to commercial and technological trends in time to avoid competitive harm.
Our future success depends upon commercial acceptance of products incorporating new technologies we are developing, such as new plasma enhanced and atomic layer deposition processes, new epitaxy processes and new materials and chemistries. The semiconductor industry and the semiconductor equipment industry are subject to rapid technological change and frequent introductions of enhancements to existing products which can result in significant write-downs and impairment charges and costs. Technological changes have had and will continue to have a significant impact on our business. Our operating results and our ability to remain competitive are affected by our ability to accurately anticipate customer and market requirements and develop technologies and products to meet these requirements. Our success in developing, introducing and selling new and enhanced products depends upon a variety of factors, including, without limitation:
• | successful innovation of processes and equipment; |
• | accurate technology and product selection; |
• | timely and efficient completion of product design, development and qualification; |
• | timely and efficient implementation of manufacturing and assembly processes; |
• | successful product performance in the field; |
• | effective and timely product support and service; and |
• | effective product sales and marketing. |
We may not be able to accurately forecast or respond to commercial and technical trends in the semiconductor industry or to the development of new technologies and products by our competitors. Our competitors may develop technologies and products that are more effective than ours or that may be more widely accepted. We may also experience delays and technical and manufacturing difficulties in future introductions or volume production of new systems or enhancements. Significant delays can occur between a product’s introduction and the commencement of volume production of that product. Any of these events could materially and negatively impact our operating results and our ability to generate the return we intend to achieve on our investments in new products.
If we fail to adequately invest in research and development, we may be unable to compete effectively.
We have limited resources to allocate to research and development, and must allocate our resources among a wide variety of projects in our Front-end and Back-end businesses. If we have insufficient cash flow from our businesses to support the necessary level of research and development, we will have to fund such expenditures by diminishing our cash balances, or utilizing our credit facilities or reducing our level of research and development expenses.
Because of intense competition in our industry and constant technological evolution, the consequences of failing to invest in strategic developments are significant. In order to enhance the benefits obtained from our research and development expenditures, we have contractual and other relationships with independent research institutes. If we
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fail to adequately invest in research and development or lose our ability to collaborate with these independent research entities, we may be unable to compete effectively in the Front-end and Back-end markets in which we operate.
We face intense competition from companies which have greater resources than we do, and potential competition from new companies entering the market in which we compete. If we are unable to compete effectively with these companies, our market share may decline and our business could be harmed.
We face intense competition in both the Front-end and Back-end segments of the semiconductor equipment industry from other established companies. Our primary competitors in the Front-end business include Applied Materials, LAM Research Corporation, Tokyo Electron, Kokusai, and Jusung. Our primary competitors in the Back-end business include Kulicke & Soffa, ESEC, Shinkawa, Apic Yamada, BE Semiconductor Industries, Towa, Shinko and Mitsui. A number of our competitors have substantially greater financial, technological, engineering, manufacturing, marketing and distribution resources, which may enable them to:
• | better withstand periodic downturns in the semiconductor industry; |
• | compete more effectively on the basis of price, technology, service and support; |
• | more quickly develop enhancements to and new generations of products; and |
• | more effectively retain existing customers and attract new customers. |
In addition, new companies may enter the markets in which we compete, further increasing competition in the semiconductor equipment industry.
We believe that our ability to compete successfully depends on a number of factors, including, without limitation:
• | our success in developing new products and enhancements; |
• | performance of our products; |
• | quality of our products; |
• | ease of use of our products; |
• | reliability of our products; |
�� | cost of ownership of our products; |
• | our ability to ship products in a timely manner; |
• | quality of the technical service we provide; |
• | timeliness of the services we provide; |
• | responses to changing market and economic conditions; and |
• | price of our products and our competitors’ products. |
Some of these factors are outside our control. We may not be able to compete successfully in the future, and increased competition may result in price reductions, reduced profit margins, loss of market share, and inability to generate cash flows that are sufficient to maintain or expand our development of new products.
Industry alliances may not select our equipment.
Our customers are entering into alliances or other forms of cooperation with one another to expedite the development of processes and other manufacturing technologies. One of the results of this cooperation may be the definition of a system or particular tool set for a certain function or a series of process steps that uses a specific set of manufacturing equipment. These decisions could work to our disadvantage if a competitor’s equipment becomes
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the standard equipment for such function or process. Even if our equipment was previously used by a customer, that equipment may be displaced in current and future applications by the equipment standardized through such cooperation. These forms of cooperation may have a material adverse effect on our business, financial condition and results of operations.
RISKS RELATED TO OUR BUSINESS
Our customers face challenges in economic downturns and if they cannot perform their obligations to us our financial results will suffer.
We face increased payment and performance risk in economic downturns from our customers. If any of our customers become insolvent or commence bankruptcy or similar proceedings, our receivables from such customers may become uncollectible. In order to promote sales, we may be required to provide extended payment terms, financing arrangements or other modified sale terms for some customers, which will increase our sales expenses and further increase our exposure to customer credit risk, all in an environment of downward pressure on average selling prices. Even though we may be a secured creditor in these arrangements with rights in the underlying equipment, the equipment may have only limited value upon a customer default, especially if activity in our markets remains at low levels, which may result in substantial write-downs upon any such default.
If we do not accurately evaluate our customers’ creditworthiness in connection with sales financing arrangements involving increased exposure to customer payment risk, our bad debt expense will increase. If we are too cautious in our sales practices because of this, we may lose sales. In either case, our results of operations and financial condition would be negatively affected.
We derive a significant percentage of our revenue from sales to a small number of large customers, and if we are not able to retain these customers, or if they reschedule, reduce or cancel orders, or fail to make payments, our revenues would be reduced and our financial results would suffer.
Our largest customers account for a significant percentage of our revenues. Our largest customer accounted for 8.8% of our consolidated net sales in 2012. Our largest customer accounted for 33.6% and 4.9% of our Front-end and Back-end 2012 net sales, respectively. Our ten largest customers accounted for 31.6% of our consolidated net sales in 2012. Our ten largest customers accounted for 75.3% and 25.1% of our Front-end and Back-end 2012 net sales, respectively. Sales to and the relative importance of these large customers have varied significantly from year to year and will continue to fluctuate in the future. These sales also may fluctuate significantly from quarter to quarter. We may not be able to retain our key customers or they may cancel purchase orders or reschedule or decrease their level of purchases from us, which would reduce our revenues and negatively affect our financial results, perhaps materially. In addition, any difficulty in collecting amounts due from one or more key customers could harm our financial results.
We may need additional funds to finance our future growth and ongoing research and development activities. If we are unable to obtain such funds, we may not be able to expand our business as planned.
In the past, we have experienced capital constraints that adversely affected our operations and ability to compete, particularly in our Front-end business. We may require additional capital to finance our future growth and fund our ongoing research and development activities particularly with regard to our Front-end business. We have only limited ability to reallocate funds from our Back-end business to our Front-end business and some limitations on our ability to reallocate funds among our Front-end businesses.
If we raise additional funds through the issuance of equity securities, the percentage ownership of our existing shareholders would be diluted. If we finance our capital requirements with debt, we may incur significant interest costs. Additional financing may not be available to us when needed or, if available, may not be available on terms acceptable to us, particularly in times of global or European financial crisis or uncertainty that may dramatically affect the availability of bank and other sources of debt financing.
If we are unable to raise needed additional funds, we may have to reduce the amount we spend on research and development, slow down our introduction of new products, reduce capital expenditures necessary to support future growth and/or take other measures to reduce expenses which could limit our growth and ability to compete.
Our products (primarily in the Front-end) generally have long sales cycles and implementation periods, which increase our costs of obtaining orders and reduce the predictability of our earnings.
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Our products are technologically complex. Prospective customers generally must commit significant resources to test and evaluate our products and to install and integrate them into larger systems. In addition, customers often require a significant number of product presentations and demonstrations, in some instances evaluating equipment on site, before reaching a sufficient level of confidence in the product’s performance and compatibility with the customer’s requirements to place an order. As a result, our sales process is often subject to delays associated with lengthy approval processes that typically accompany the design and testing of new products. Accordingly, the sales cycles of our products often last for many months or even years, thereby requiring us to invest significant resources in attempting to complete sales.
Long sales cycles also subject us to other risks, including customers’ budgetary constraints, internal acceptance reviews and cancellations. In addition, orders expected in one quarter could shift to another because of the timing of customers’ purchase decisions. The time required for our customers to incorporate our products into their systems can vary significantly with the needs of our customers and generally exceeds several months, which further complicates our planning processes and reduces the predictability of our earnings from operations.
Our ability to compete could be jeopardized if we are unable to protect our intellectual property rights from challenges by third parties; claims or litigation regarding intellectual property rights could require us to incur significant costs.
Our success and ability to compete depend in large part upon protecting our proprietary technology. We rely on a combination of patent, trade secret, copyright and trademark laws, nondisclosure and other contractual agreements and technical measures to protect our proprietary rights and confidential information. These agreements and measures may not be sufficient to protect our technology from third party infringement or to protect us from the claims of others. In addition, patents issued to us may be challenged, invalidated or circumvented, rights granted to us under patents may not provide competitive advantages to us, and third parties may assert that our products infringe their patents, copyrights or trade secrets. Third parties could also independently develop similar products or duplicate our products.
Intellectual property laws may not adequately support our proprietary rights or may change in an unfavorable manner. Patent rights may not be granted or construed as we expect, and key patents may expire resulting in technology becoming available that may hurt our competitive position.
In addition, monitoring unauthorized use of our products is difficult and we cannot be certain that the steps we have taken will prevent unauthorized use of our technology. The laws of some countries in which our products are or may be developed, manufactured or sold, including various countries in Asia, may not protect our products or intellectual property rights to the same extent as do the laws of the Netherlands and the United States and thus make the possibility of piracy of our technology and products more likely in such countries. If competitors are able to use our technology as their own, our ability to compete effectively could be harmed.
In past years, there has been substantial litigation regarding patent and other intellectual property rights in our semiconductor and related technology industries. In the future, litigation may be necessary to enforce patents issued to us, to protect trade secrets or know-how owned by us or to defend us against claimed infringement of the rights of others and to determine the scope and validity of the proprietary rights of others.
Claims that our products infringe the proprietary rights of others would force us to defend ourselves and possibly our customers or suppliers against the alleged infringement. Such claims, if successful, could subject us to significant liability for damages and potentially invalidate our proprietary rights. Regardless of the outcome, patent infringement litigation is time-consuming and expensive to resolve and diverts management time and attention.
Intellectual property litigation could force us to do one or more of the following, any one of which could severely harm our business with adverse financial consequences:
• | forfeit proprietary rights; |
• | stop manufacturing or selling our products that incorporate the challenged intellectual property; |
• | obtain from the owner of the infringed intellectual property right a license to sell, produce, use, have sold, have produced or have used the relevant technology, which license may not be available on reasonable terms or at all or may involve significant royalty payments; |
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• | pay damages, including potential treble damages and attorney’s fees in some circumstances; or |
• | redesign those products that use the challenged intellectual property. |
We license the use of some patents from a competitor pursuant to a settlement agreement; if the agreement is terminated, our business could be adversely affected.
In October 1997, we entered into an agreement to settle mutual patent infringement litigation with Applied Materials, which was amended and restated in 1998, pursuant to which Applied Materials agreed to grant us a worldwide, non-exclusive and royalty-bearing license to use all of the litigated patents and certain additional patents that were not part of the litigation. In return we agreed to pay Applied Materials a settlement fee and to grant it a worldwide, non-exclusive and royalty-free license to use a number of our patents including but not limited to those patents which we were enforcing in the litigation. All licenses granted by Applied Materials to us expire at the end of the life of the underlying patents which expire at various times through approximately 2016. Our obligation to pay certain royalties to Applied Materials generally continues until the expiration of the corresponding underlying patent to the extent we practice such patent. In addition, the settlement agreement included covenants for limited periods during which the parties would not litigate the issue of whether certain of our products infringe any of Applied Materials’ patents that were not licensed to us under the settlement agreement. These covenants, which lasted for different periods of time for different products, have expired. Upon the occurrence of an event of default or other specified events, including, among other things, our failure to pay royalties, a change of control of ASM International, and improper use of the licenses, Applied Materials may terminate the settlement agreement, including the licenses included in the agreement.
Additional litigation with Applied Materials regarding the operation of the settlement agreement or other matters could occur. Litigation with Applied Materials, which has greater financial resources than we do, could negatively impact our earnings and financial position.
Our net earnings could be negatively impacted by currency fluctuations.
Our assets, liabilities and operating expenses and those of our subsidiaries are to a large extent denominated in the currency of the country where each entity is established. Our financial statements, including our Consolidated Financial Statements, are expressed in euros. The translation exposures that result from the inclusion of financial statements of our subsidiaries that are expressed in the currencies of the countries where the subsidiaries are located are not hedged. As a result, our assets, liabilities and operating expenses are exposed to fluctuations of various foreign currency exchange rates.
In addition, foreign currency fluctuations may affect the prices of our products. Prices for our products for sales to our customers throughout the world are currently denominated in various foreign currencies including, but not limited to, U.S. dollar, euro, Japanese yen and Chinese Yuan. If there is a significant devaluation of the currency in a specific country, the prices of our products will increase relative to that country’s currency, and could increase relative to prices of our competitors, and our products may be less competitive in that country. Also, we cannot be sure that our international customers will continue to be willing to place orders denominated in these currencies. If they do not, our revenue and earnings from operations could be subject to additional foreign exchange rate fluctuations.
Although we monitor our exposure to currency fluctuations, these fluctuations could negatively impact our financial position, net earnings and cash flow.
Substantially all of our equipment orders are subject to operating, performance, safety, economic specifications and other contractual obligations. We occasionally experience unforeseen difficulties in compliance with these criteria, which can result in increased design, installation and other costs and expenses.
Substantially all of our equipment sales are conditioned on our demonstration, and our customer’s acceptance, that the equipment meets specified operating and performance criteria, either before shipment or after installation in a customer’s facility. We occasionally experience difficulties demonstrating compliance with such terms, which can lead to unanticipated expenses for the performance of the contract or the redesign, modification and testing of the equipment and related software. To the extent this occurs in the future, our cost of goods sold and earnings from operations will be adversely affected. If we are not able to demonstrate compliance with the particular contract or the performance and operating specifications in respect of specific equipment, we may have to pay penalties to the
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customer, issue credit notes to the customer and/or take other remedial action, including payment of damages or adjusted pricing, any one of which could negatively affect our earnings from operations.
We are subject to various legal proceedings and claims, the outcomes of which are uncertain. If we fail to accurately evaluate the probability of loss or the amount of possible losses, an adverse outcome may materially and adversely affect our financial condition and results of operations.
We are party to various legal proceedings and claims generally incidental to our business including without limitation intellectual property and product liability claims, as disclosed in Note 22 of Notes to Consolidated Financial Statements included elsewhere in this report. For each of these proceedings and claims, our management evaluates, based on the relevant facts and legal principles, the likelihood of an unfavorable outcome and whether the amount of the loss can be reasonably estimated, in connection with our determination of whether or not to record a charge to earnings. Significant subjective judgments are required in these evaluations, including judgments regarding the validity of asserted claims and the likely outcome of legal, arbitration and administrative proceedings. The outcome of these proceedings is subject to a number of factors beyond our control. In addition, estimates of the potential costs associated with legal, arbitration and administrative proceedings frequently cannot be subjected to any sensitivity analysis, as damage estimates or settlement offers by claimants may bear little or no relation to the eventual outcome. Finally, in any particular proceeding, even where we believe that we would ultimately prevail, we may agree to settle or to terminate a claim or proceeding where we believe that doing so, when taken together with other relevant commercial considerations, is more cost-effective than engaging in an expensive and protracted contest. If we do not accurately assess the probability of an unfavorable outcome or the range of possible loss, an unfavorable outcome could have a material adverse impact on our financial condition and results of operations.
If our products are found to be defective, we may be required to recall and/or replace them, which could be costly and result in a material adverse effect on our business, financial position and net earnings.
One or more of our products may be found to be defective after we have already shipped the products in volume, requiring a product replacement or recall. We may also be subject to product returns and product liability claims that could impose substantial costs and have a material and adverse effect on our business, financial position and net earnings.
Although we currently are a substantial shareholder of ASM Pacific Technology, we no longer have a majority interest, as a consequence we do not control ASM Pacific Technology, which prevents us from consolidating its results of operations with ours as from the cease of control date of March 15, 2013. This event has a significant negative effect on our consolidated earnings from operations.
We in the past derived a significant portion of our net sales, earnings from operations and net earnings from the consolidation of the results of operations of ASM Pacific Technology in our results. ASM Pacific Technology is a Cayman Islands limited liability company that is based in Hong Kong and listed on the Hong Kong Stock Exchange. As of December 31, 2012, we owned 51.96% of ASM Pacific Technology through our wholly-owned subsidiary, ASM Pacific Holding BV and the remaining 48.04% was owned by the public. In March 2013, we sold a 12% stake so we now own 40.08% of ASM Pacific Technology. Accordingly from March 15, 2013 we are no longer able to consolidate ASM Pacific Technology's results of operations in ours. Instead, our proportionate share of ASM Pacific Technology’s earnings will be reflected as a separate line-item called “share of results from investments” in our Consolidated Statements of Operations. We will no longer be able to consolidate the assets and liabilities of ASM Pacific Technology and will have to reflect the net investment in ASM Pacific Technology in the line-item “investments” in our Consolidated Balance Sheet. This event will have a significant negative effect on our consolidated earnings from operations, although our net earnings will be reduced only to the extent of the reduction of our ownership interest in ASM Pacific Technology.
The ASM Pacific Technology shares we own are partly pledged as security for our revolving credit facility.
Although we are a substantial shareholder, ASM Pacific Technology is not obligated to pay dividends to us and may take actions or enter into transactions that are detrimental to us.
Certain directors of ASM Pacific Technology are directors of ASM International. However, they are under no obligation to take any actions that are beneficial to us. Issues and conflicts of interest therefore may arise which might not be resolved in our best interest.
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In addition, the directors of ASM Pacific Technology are under no obligation to declare a payment of dividends to shareholders. As a shareholder of ASM Pacific Technology, we cannot compel the payment or amount of dividends. With respect to the payment of dividends, the directors must consider the financial position of ASM Pacific Technology after the dividend. Cash dividends received from ASM Pacific Technology totaled €65.6 million, €86.9 million, and €29.6 million in 2010, 2011, and 2012, respectively. In the past, we have used these dividends in our Front-end business. In November 2006, we announced our commitment that for at least the years 2007, 2008 and 2009 we would not use these cash dividends to support our Front-end business, but instead would use such dividends to retire outstanding convertible debt, repurchase our common shares, pay dividends on our common shares, or purchase shares of ASM Pacific Technology. At our 2010 Annual General Meeting, we announced that we would continue this commitment for at least another two years through 2011. See Item 5, “Operating and Financial Review and Prospects—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.”
The directors of ASM Pacific Technology owe their fiduciary duties to ASM Pacific Technology, and may approve transactions to which we are a party only if the transactions are commercially beneficial to ASM Pacific Technology. Further, under the listing rules of the Hong Kong Stock Exchange, directors who are on the boards of both ASM Pacific Technology and ASM International are not permitted to vote on a transaction involving both entities. This would disqualify all affiliates of ASM International who serve on the board of ASM Pacific Technology from voting on any such transaction.
As a shareholder of ASM Pacific Technology, we can vote our shares in accordance with our own interests. However, we may not be entitled to vote on transactions involving both us and ASM Pacific Technology under the listing rules of the Hong Kong Stock Exchange and the Hong Kong Takeovers Code. In particular, under the Hong Kong Takeovers Code we would be excluded from voting on a takeover transaction requiring shareholder approval if we have an interest in such transaction.
We may not be able to recruit or retain qualified personnel or integrate qualified personnel into our organization. Consequently, we could experience reduced sales, delayed product development and diversion of management resources.
Our business and future operating results depend in part upon our ability to attract and retain qualified management, technical, sales and support personnel for our operations on a worldwide basis. Competition for qualified personnel is intense, and we cannot guarantee that we will be able to continue to attract and retain qualified personnel particularly during sustained economic upturns in the industry. Availability of qualified technical personnel varies from country to country, and may affect the operations of our subsidiaries in some parts of the world. Our operations could be negatively affected if we lose key executives or employees or are unable to attract and retain skilled executives and employees as needed. In particular, if our growth strategies are successful, we may not have sufficient personnel to manage that growth and may not be able to attract the personnel needed. We have agreements with some, but not all, key employees restricting their ability to compete with us after their employment terminates. We do not maintain insurance to protect against the loss of key executives or employees. Our future growth and operating results will depend on:
• | our ability to continue to broaden our senior management group; |
• | our ability to attract, hire and retain skilled employees; and |
• | the ability of our officers and key employees to continue to expand, train and manage our employee base. |
We have in the past experienced intense competition for skilled personnel during market expansions and believe competition will be intense if the semiconductor market experiences a sustained expansion. Consequently, we generally attempt to minimize reductions in skilled personnel in reaction to industry downturns, which reduces our ability to lower costs by payroll reduction.
Because the costs to semiconductor manufacturers of switching from one semiconductor equipment supplier to another can be high, it may be more difficult to sell our products to customers having a competing installed base, which could limit our growth in sales and market share.
We believe that once a semiconductor manufacturer has selected a supplier’s equipment for a particular product line, that manufacturer generally continues to rely on that supplier for future equipment requirements, including new generations of similar products. Changing from one equipment supplier to another is expensive and requires a
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substantial investment of resources by the customer. Accordingly, it is difficult to achieve significant sales to a customer using another supplier’s equipment. Our inability to sell our products to potential customers who use another supplier’s equipment could adversely affect our ability to increase revenue and market share.
Our reliance on a limited number of suppliers and a single manufacturing facility in our Front-end could result in disruption of our operations.
We outsource a portion of the manufacturing of our Front-end business to a limited number of suppliers. If our suppliers were unable or unwilling to deliver products in a timely manner to us in the quantities we require for any reason, including without limitation, capital constraints, natural disaster, labor unrest, capacity constraints, supply chain management problems or contractual disputes, we may be unable to fill customer orders on a timely basis, which could negatively affect our customer relationships and financial performance. Many of our suppliers face economic challenges in a depressed or difficult global economy, which increases our risk of disruption from a supplier’s failure to perform its obligations to us in a timely manner.
We have shifted an increasing portion of our Front-end manufacturing to our Front-end Manufacturing Singapore (FEMS) facility. If this facility experiences a manufacturing disruption for any reason, including without limitation, natural disaster, labor unrest, capacity constraints, supply chain management problems or contractual disputes, our ability to timely meet our customers’ needs may be impaired, which would negatively affect our customer relationships and financial performance.
We operate worldwide; economic, political, military or other events in a country where we make significant sales or have significant operations could interfere with our success or operations there and harm our business.
We market and sell our products and services throughout the world. A substantial portion of our manufacturing employees and operations are in the People’s Republic of China and the success of our business depends substantially on those operations. In addition, we have operating facilities in the Netherlands, the United States, Japan, Hong Kong, Singapore, Malaysia and South Korea. Our operations are subject to risks inherent in doing business internationally, including, without limitation:
• | unexpected changes in regulatory or legal requirements or changes in one country in which we do business which are inconsistent with regulations in another country in which we do business; |
• | potentially adverse tax consequences; |
• | fluctuations in foreign currency exchange rates and foreign currency controls; |
• | political conditions and instability; |
• | economic conditions and instability; |
• | terrorist activities; |
• | human health emergencies, such as the outbreak of infectious diseases or viruses; |
• | tariffs and other trade barriers, including current and future import and export restrictions and compliance requirements, and freight rates; |
• | difficulty in staffing, coordinating and managing international operations; |
• | burden of complying with a wide variety of foreign laws and licensing requirements; |
• | differences in intellectual property right protection; |
• | differences in rights to enforce agreements; |
• | differences in commercial payment terms and practices; and |
• | business interruption and damage from natural disasters, such as earthquakes, tsunamis and floods. |
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These factors could increase our costs of doing business in a particular region or result in delays or cancellations of purchase orders or disrupt our supply chain, any of which could materially and adversely impact our business and operating results.
Environmental laws and regulations may expose us to liability and increase our costs.
Our operations are subject to many environmental laws and regulations wherever we operate governing, among other things, air emissions, wastewater discharges, the use and handling of hazardous substances, waste disposal and the investigation and remediation of soil and groundwater contamination. To the extent such regulations or directives apply to our business throughout the world, these measures could adversely affect our manufacturing costs or product sales by forcing us or our suppliers to change production processes or use more costly or scarce materials. As with other companies engaged in similar activities, we face inherent risks of environmental liability in our current and historical manufacturing R&D activities. Accordingly, costs associated with such future environmental compliance or remediation obligations could adversely affect our business.
Any acquisitions or investments we may make could disrupt our business and harm our financial condition.
We may consider from time to time additional investments in complementary businesses, products or technologies, such as the recent acquisition by ASM Pacific Technology of the SEAS Business in early 2011. We may not be able to successfully integrate these businesses, products, technologies or personnel that we might acquire in the future, and accordingly we may not realize the anticipated benefits from such acquisitions. In particular, our operation of acquired businesses involves numerous risks, including without limitation:
• | problems integrating the purchased operations, technologies or products; |
• | unanticipated costs and liabilities for which we are not able to obtain indemnification from the sellers; |
• | diversion of management’s attention from our core business; |
• | adverse effects on existing business relationships with customers; |
• | risks associated with entering markets in which we have no, or limited, prior experience; |
• | risks associated with installation, service and maintenance of equipment of which we have limited or no prior experience; |
• | limited technical documentation of the equipment developed in the acquired company; and |
• | potential loss of key employees, particularly those of the acquired organizations. |
In addition, in the event of any future acquisitions of such businesses, products or technologies, we could:
• | issue shares that would dilute our current shareholders’ percentage ownership; |
• | incur debt; |
• | assume liabilities; |
• | incur impairment expenses related to goodwill and other intangible assets; or |
• | incur substantial accounting write-offs. |
RISKS RELATED TO AN INVESTMENT IN OUR SHARES
ASMI announced the sale of a 12% stake in ASM PT and reported on outcome study into causes of non-recognition by the markets of the value of the combined businesses of the Company.
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On March 15, 2013, ASMI sold a 12% stake in ASM PT. The shares were sold in a partial secondary placement raising proceeds of €422 million. The Company intends to distribute approximately 65% of the cash proceeds to ASMI shareholders; a proposal thereto will be placed on the agenda of the upcoming AGM scheduled for May 16, 2013. The remaining proceeds will be used to further strengthen the business of the Company. As of today, the Company continues to be the largest shareholder of ASM PT with a 40% stake.
At the Annual General Meeting of Shareholders (AGM) held in May 2012, the Company announced that it would carry out a study into the causes of the lack of recognition by the markets of the value of the combined businesses (Front-end and Back-end) of the Company. Following that announcement, the Company appointed financial advisors to assist the Company in carrying out the study.
The study was initiated shortly after the 2012 AGM and was recently completed. Each of the Company's financial advisors independently carried out an investigation involving frequent discussions with the Company's Management Board and legal and tax advisors. The advisors also presented their findings to the Company's Supervisory Board.
No single or predominant factor was identified in causing the valuation discrepancy. However, a number of causes and circumstances were identified as potentially influencing the valuation discrepancy, including a holding company discount related to the current corporate structure.
Subsequently, an analysis was conducted by the Company in close cooperation with its advisors of the various potential courses of action, including those suggested by shareholders. The alternatives that were investigated included a full or partial placement or sale of the Company's stake in ASM PT, a spin-off of shares in ASM PT and several merger alternatives.
As part of this analysis, the Company carefully considered the interests of the Company, its shareholders, as well as other relevant stakeholders. The Company has also taken into account the various operational connections between the Front-end business and Back-end business, as well as potential accounting, legal and tax implications and execution risks.
The Management Board and the Supervisory Board of the Company concluded that a partial secondary placement of 8% to 12% of ASM PT shares was the most suitable step to be taken to address the non-recognition by the markets of the value of the combined businesses of the Company. This course of action was chosen taking into account, amongst others, equity market capacity, tax efficiency and ongoing corporate stability at ASMI and ASM PT. This step provides flexibility for further action, if deemed appropriate.
The Management and Supervisory Boards of the Company have proceeded with this proposed action and the Board of Directors of ASM PT has expressed its support to this proposal. In addition thereto, certain major shareholders of the Company representing approximately 27% of the total outstanding shares in the Company were consulted in advance with regard to this proposed action and have expressed support thereof.
The Company will further report on the outcome of the study at the upcoming 2013 AGM, which is scheduled to take place May 16, 2013.
Lehman Bros. liquidation administrators have notified us that our common shares purchased by Lehman and held by Lehman in custody accounts on our behalf may have a shortfall.
During 2008, we engaged Lehman to repurchase ordinary ASMI shares on the Euronext and Nasdaq markets. As of September 15, 2008, Lehman had purchased and held 2,552,071 shares for our account. Lehman went into bankruptcy administration on September 15, 2008, and we subsequently filed a submission giving notice of our proprietary interest in the shares believed to be held in custody by Lehman. At our May 2009 AGM, our shareholders resolved to cancel all of these treasury shares and we so notified Lehman of the cancellation. However we were notified in September 2010 by the Lehman administrators that there is a possible shortfall in the number of shares held by Lehman as reflected in the statements of our accounts with Lehman. To the extent the number of treasury shares held by Lehman as of the date of their cancellation is lower than
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2,552,071 only such lower number of shares have been cancelled and the shortfall of shares may still be considered outstanding. The Lehman administrators report that some time prior to its bankruptcy, Lehman put into a segregated client omnibus account a cash sum on our behalf of $6,758,796, which the administrators apparently regard as money to which we have a proprietary right in lieu of some or all of the missing shares. We are uncertain at this time as to the accuracy of the shortfall of shares, the sufficiency of this cash sum to cover the value of any such discrepancy, and our entitlement to all or a portion of such sum when distributions are determined and made since there is likely to also be a shortfall in Lehman assets subject to proprietary rights. Given the magnitude of the overall Lehman administration, the timeline for clarity and resolution of this item is expected to be considerable, perhaps up to several years. For additional information, see Note 19 to the consolidated financial statements.
Our founder who is also Chairman of the Board of ASM Pacific Technology controls approximately 17.98% of the voting power which gives him significant influence over matters voted on by our shareholders, including the election of members of our Supervisory Board and Management Board and makes it substantially more difficult for a shareholder group to remove or elect such members without his support.
Our founder, Arthur H. del Prado, controlled approximately 17.98% of the voting power of our outstanding common shares as of December 31, 2012. Accordingly, he has significant influence on the outcome of matters submitted to a shareholder vote, such as the election of the members of our Supervisory Board and Management Board. Persons nominated by the Supervisory Board for appointment by the shareholders to the Supervisory Board or Management Board at a general meeting of shareholders will be elected if they receive a majority of the votes cast at the meeting. Nominees to the Supervisory Board or Management Board who are not proposed by the Supervisory Board are appointed if they receive the affirmative vote of a majority of the votes cast at the meeting, provided such affirmative votes represent at least one third of our issued capital. Members of the Supervisory and Management Boards may be removed only by the affirmative vote of a majority of the votes cast at a meeting, and, unless such removal is recommended by the Supervisory Board, the affirmative votes must represent at least one third of our issued capital. This makes it difficult for a group of shareholders to remove or elect members of our Supervisory Board or Management Board without the support of our founder.
Our anti-takeover provisions may prevent a beneficial change of control.
The Company has granted to Stichting Continuïteit ASM International (“Stichting”), a non-membership organization with a board composed of three members independent of ASMI, the right to acquire and vote our preferred shares. The objective of Stichting is to serve the interests of the Company. To that objective Stichting may, among other things, acquire, own and vote our preferred shares in order to maintain our independence and/or continuity and/or identity. This may prevent a change of control from occurring that shareholders may otherwise support. On May 14, 2008, Stichting exercised this right in response to a perceived threat to our continuity and acquired shares of our preferred stock representing 29.9% of the total voting power of our outstanding capital shares at that time. These shares were retired in 2009 and a new right was issued to Stichting to acquire and vote preferred shares in certain situations in the future. For additional information regarding Stichting, see Item 7, “Major Shareholders and Related Party Transactions.”
The voting power of Stichting makes it more difficult for a shareholder or a group of shareholders to cause us to enter into a change of control transaction not supported by Stichting, even if such transaction offers our shareholders an opportunity to sell their shares at a premium over the market price.
We must offer a possible change of control transaction to Applied Materials first.
Pursuant to our 1997 settlement agreement with Applied Materials, as amended and restated in 1998, if we desire to effect a change of control transaction, as defined in the settlement agreement which generally involves our Front-end operations and not our holdings in ASMPT, with a competitor of Applied Materials, we must first offer the change of control transaction to Applied Materials on the same terms as we would be willing to accept from that competitor pursuant to a bona fide arm’s-length offer made by that competitor.
Our stock price has fluctuated and may continue to fluctuate widely.
The market price of our common shares has fluctuated substantially in the past. Between January 1, 2012 and December 31, 2012, the sale price of our common shares, as reported on the NASDAQ Global Select Market, ranged from a low of US$29.39 to a high of US$40.35. The market price of our common shares will continue to be
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subject to significant fluctuations in the future in response to a variety of factors, including the risk factors discussed in this report and the following, without limitation:
• | future announcements concerning our business or that of our competitors or customers; |
• | the introduction of new products or changes in product pricing policies by us or our competitors; |
• | litigation regarding proprietary rights or other matters; |
• | changes in analysts’ earnings estimates and recommendations; |
• | developments in the financial markets; |
• | quarterly fluctuations in operating results; |
• | hedge fund and shareholder activist activities; |
• | general economic, political and market conditions, such as recessions or foreign currency fluctuations; and |
• | general conditions in the semiconductor and semiconductor equipment industries. |
In addition, public stock markets frequently experience substantial price and trading volume volatility, particularly in the high technology sectors of the market. This volatility has significantly affected the market prices of securities of many technology companies for reasons frequently unrelated to or disproportionately impacted by the operating performance of these companies. These broad market fluctuations may adversely affect the market price of our common shares.
Our quarterly revenues and earnings from operations have varied significantly in the past and may vary in the future due to a number of factors, including, without limitation:
• | cyclicality and other economic conditions in the semiconductor industry; |
• | production capacity constraints; |
• | the timing of customer orders, cancellations and shipments; |
• | the length and variability of the sales cycle for our products; |
• | the introduction of new products and enhancements by us and our competitors; |
• | the emergence of new industry standards; |
• | product obsolescence; |
• | disruptions in sources of supply; |
• | our ability to time our expenditures in anticipation of future orders; |
• | our ability to fund our capital requirements; |
• | changes in our pricing and pricing by our suppliers and competitors; |
• | our product and revenue mix; |
• | seasonal fluctuations in demand for our products; |
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• | foreign currency exchange rate fluctuations; e.g. appreciation of the euro versus the Japanese yen and U.S. dollar, which would negatively affect the competitiveness of those manufacturing activities that are domiciled in countries whose currency is the euro; and |
• | economic conditions generally or in various geographic areas where we or our customers do business. |
In addition, in our Front-end segment we derive a substantial portion of our net sales from products that have a high average selling price and significant lead times between the initial order and delivery of the product. The timing and recognition of net sales from customer orders can cause significant fluctuations in our earnings from operations from quarter to quarter. Gross margins realized on product sales vary depending upon a variety of factors, including the mix of products sold during a particular period, negotiated selling prices, the timing of new product introductions and enhancements and manufacturing costs. A delay in a shipment near the end of a fiscal quarter or year, due, for example, to rescheduling or cancellations by customers or to unexpected manufacturing difficulties experienced by us, may cause sales in a particular period to fall significantly below our expectations and may materially adversely affect our earnings from operations for that period. Further, our need to continue expenditures for research and development and engineering make it difficult for us to reduce expenses in a particular quarter even if our sales goals for that quarter are not met. Our inability to adjust spending quickly enough to compensate for any sales shortfall would magnify the adverse impact of a sales shortfall on our earnings from operations. In addition, announcements by us or our competitors of new products and technologies could cause customers to defer purchases of our existing systems, which could negatively impact our financial position and net earnings.
As a result of these factors, our revenues or earnings from operations may vary significantly from quarter to quarter. Any shortfall in revenues or earnings from operations from levels expected by securities analysts and investors could cause a decrease in the trading price of our common shares.
Item 4. Information on the Company
The information in this Item 4 should be read in conjunction with the risks discussed under Item 3.D., “Risk Factors.”
A. History and development of the Company.
ASM International NV was incorporated on March 4, 1968 as a Netherlands naamloze vennootschap, or public limited liability company, and was previously known as Advanced Semiconductor Materials International NV. Our principal executive offices are located at Versterkerstraat 8, 1322 AP, Almere, the Netherlands. Our telephone number at that location is +31 8810 08810. Our authorized agent in the United States is our subsidiary, ASM America Inc, a Delaware corporation, located at 3440 East University Drive, Phoenix, Arizona 85034.
B. Business overview.
Introduction
Our Business
We are an equipment supplier mainly to the semiconductor, LED and electronics manufacturing industry. We design, manufacture and sell equipment and services to our customers for the production of semiconductor devices, or integrated circuits, for the production of LEDs, and for electronics manufacturing in general. The semiconductor capital equipment market is composed of three major market segments: wafer processing equipment, assembly and packaging equipment, and test equipment. ASMI is mainly active in the wafer processing and assembly and packaging market segments. The wafer processing segment is referred to as “Front-end.” Assembly and packaging is referred to as “Back-end”. We also sell lead frames for semiconductor assembly. In addition, ASM AS, the surface-mount technology (“SMT”) business acquired in 2011 is offering SMT placement solutions for the global electronics manufacturing industries.
Front-end production systems perform processes on round slices of silicon, called wafers, which are typically 200mm or 300mm in diameter. During these processes, thin films, or layers, of various materials are grown or deposited onto the wafer. These films are electrically conductive, electrically insulating, or semiconducting. By depositing multiple layers of films, multi-level, integrated electrical circuits are created. Such circuits are referred to as “dies” or “chips.” There are many dies on each wafer. After testing the individual circuits for correct performance, the dies on the wafer are separated. Back-end production systems then assemble and connect one or more known
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good dies in a single package to form a complex semiconductor device that will perform calculations, store data and interface with its environment.
Our Front-end operations are conducted through wholly-owned subsidiaries, the most significant being ASM Front-End Manufacturing Singapore Pte Ltd. (“FEMS”), located in Singapore, ASM Europe BV (“ASM Europe”), located in the Netherlands, ASM America, Inc. (“ASM America”), located in the United States, ASM Japan K.K. (“ASM Japan”), located in Japan, and ASM Genitech Korea Ltd. (“ASM Genitech”) located in Korea.
Our Back-end and SMT equipment operations are conducted through ASM Pacific Technology Ltd. (“ASM Pacific Technology”), with principal operations in Hong Kong, the People’s Republic of China, Singapore, Germany and Malaysia. At December 31, 2012, we owned 51.96% of the outstanding equity of ASM Pacific Technology. In March 2013 we sold a 12% stake so we now own 40.08% of ASM Pacific Technology.
The location of our Front-end facilities allows us to interact closely with customers in the world’s major Front-end geographic market segments: Europe, North America, and Asia. The principal market we address in the Front-end is a portion of the deposition market segment. Our Front-end segment accounted for 28% of our net sales in 2011 and 26% of our net sales in 2012.
Our Back-end and SMT equipment facilities are in close proximity to where most customer assembly and packaging operations are located. The principal markets we address in Back-end are portions of the Bonding Equipment, Packaging Equipment and Integrated Assembly Systems segments, which segments include assembly and packaging equipment for LEDs. For the SMT equipment business, we mainly address the placement equipment market. We also manufacture and sell lead frames which are substrates connecting the various circuits on a chip to the devices in which the chips are installed. Our Back-end segment accounted for 72% of our net sales in 2011 and 74% of our net sales in 2012.
Industry Background and Major Business Trends
Semiconductor devices are the key enablers of the electronic age. Each semiconductor device can hold many individual components, most of which are transistors. For over 30 years now, the average number of components per integrated semiconductor device, at the optimum cost-per-component, has been increased by a factor of two every 18 to 24 months. This trend is generally referred to as Moore’s law. Increases in complexity, along with simultaneous reductions in the cost-per-component, have mainly been achieved by reducing the size of individual transistors, so that a larger number of transistors fit within a given size die. Today, transistors less than 22nm (1 nm is equal to one billionth of a meter) long are manufactured in high volume, and several billion transistors can be manufactured on a single die with an area of a few square centimeters.
A second development that has decreased the cost per device is the increased size of the wafer, so that more devices can be produced within one production cycle. Today, almost all of the newly installed semiconductor device fabrication capacity employs 300mm diameter wafers, with each wafer typically holding between a few dozen to several thousand individual circuits. A transition to 450mm diameter wafers is now being discussed for volume manufacturing around 2017-2019. The yield, or the fraction of dies that operates according to specifications, is one of the key variables that influences the cost at which integrated circuits can be manufactured. Large initial investments are needed to build an automated production line in an ultra-clean environment to achieve such high yield. The capital equipment in the production line is an important determinant for the yield of the factory, and the speed with which the yield can be optimized for new device generations.
Another trend is that towards vertical or 3D transistors. This trend also helps to keep the industry on track with Moore’s law (“more Moore”) because more functions can be stacked vertically on a wafer or chip than in two dimensions. Recent announcements have introduced “FinFET’s” and several 3D memory transistor architectures. Also on die level the trend is towards 3D by stacking several chips in one package. These chips can come from different supply chains, each optimized for its own performance and cost, enabling the manufacture of heterogeneous devices with even more integrated capability. This latter trend is sometimes referred to as “more than Moore.”
The trends outlined above are the main drivers of the broad semiconductor roadmap which semiconductor equipment companies track in developing new production systems and process technologies. These new systems and technologies must be developed well ahead of volume demand for the semiconductor devices they make. As a result, there is a large lead time between the investment in a new technology, and its commercial success. With the combination of a long lead time and the short product life-cycles comes the inherent difficulty of matching supply and demand, which results in the high volatility associated with the semiconductor equipment industry. In this highly
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cyclical industry, the Front-end and Back-end market segments have historically reacted differently to market forces.
The semiconductor industry was driven in 2012 by a US$1.88 trillion global electronics industry (VLSI Research Chip Insider February 4, 2013), that required approximately $248 billion (ibid.) in semiconductors. The semiconductor industry in turn, supported the approximately $45 billion (ibid.) semiconductor capital equipment industry, which supplies the needed production systems and services. The semiconductor industry declined in 2012 which led to a decline in the equipment business.
Our Strategy
Our strategic objective is to realize profitable, sustainable growth by capitalizing on our technological innovations, manufacturing infrastructure and sales and support offices located close to our global customers. The key elements of our strategy include:
• | Streamlining our Front-end and Back-end manufacturing by systematically reducing manufacturing costs through global sourcing and product platform consolidation. |
• | Maintaining our global reach through our global operating, sales and customer service organization and its facilities in key parts of the world in order to establish and maintain long-term customer relationships. |
• | Leveraging our Front-end and Back-end technology leadership and manufacturing capabilities through advancements in our products and processes early in the technology lifecycle. |
• | Expanding the scope and depth of our research and development capabilities through strategic alliances with independent research institutes, universities, customers and suppliers, and expanding our patent portfolio where this is deemed necessary and beneficial. |
Background of Semiconductor Manufacturing Processes
Overview
The process of manufacturing an integrated semiconductor, from raw material to finished device, includes amongst others the segments in which we participate: Front-end and Back-end.
Front-end Manufacturing Process
The Front-end manufacturing process, or wafer processing, can be divided in three distinct parts: wafer manufacturing, transistor formation (known as Front-end of the line (“FEOL”) processing), and interconnect formation (known as Back-end of the line (“BEOL”) processing). We develop and sell technology, develop, manufacture and sell equipment, and provide services used by semiconductor device manufacturers in each of these sections of Front-end manufacturing.
In the wafer manufacturing process, a large single crystal of very pure silicon is grown from molten silicon. The crystal is then sliced into a large number of thin slices, or wafers, of single crystalline silicon. These slices are polished to an atomic level flatness before the next steps are executed. For advanced applications, some layers are deposited on the wafer for later use, by either epitaxy or diffusion/oxidation (described below). Epitaxial wafers are even flatter and contain fewer defects at the surface than polished wafers.
During FEOL and BEOL wafer processing, multiple thin films of either electrically insulating material, also called dielectrics, or conductive material are modified, grown, or deposited on a silicon wafer. First, several material processing cycles are used in the FEOL to build the basic transistor and other components such as capacitors and resistors. Second, several processing cycles are used in the BEOL to electrically connect the large amount of transistors and components, and to build additional passive components such as capacitors, inductors and resistors. Patterning of deposited layers with lithography and etching (described below) creates the transistors, passive components and connecting wires, which together make up the integrated circuit. Each integrated circuit is on a single “chip” or a “die” on the wafer. A finished wafer may contain a few dozen to several thousand individual dies. Front-end processes are performed either one wafer at a time in single wafer processing systems or many wafers at a time in batch processing systems. Multiple deposition, and patterning processes are performed on the same wafer.
The number and precise order of the process steps vary depending upon the complexity and design of the integrated circuit. The performance of the circuit is determined in part by the various electrical characteristics of the
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materials used in the layers of the circuit and the wafer. Simple circuits may have as few as ten layers, while complex circuits may have more than one hundred layers. The Front-end manufacturing process is capital intensive, requiring multiple units of several different production systems. Many different but complementary methods are used to modify, grow, or deposit materials on the wafers. We are predominantly active in developing and manufacturing the equipment used by semiconductor device manufacturers in the deposition processes, i.e., those steps that involve the creation of insulating, conducting and semi-conducting layers on the wafer surface.
The Front-end manufacturing process is complete when all of the layers have been deposited and patterned on the wafer. As a last step, the correct electrical functioning of the integrated circuits on each die is confirmed by probing. Non-functioning circuits are marked so they can be eliminated before the Back-end processing (see next section). The introduction of even trace levels of foreign particles or material can make a circuit, or even an entire wafer, unusable. To reduce the level of foreign particles or material, Front-end processing is performed in clean rooms with ultra-low particle and contamination levels. Once the Front-end processing is complete, the entire wafer with multiple, functioning, integrated circuits is shipped to the Back-end facility where it is separated into dies, which are then bonded to a suitable substrate or lead frame, packaged, and tested before final shipment of the semiconductor device to the end customer. Back-end processes do not require the same level of contaminant control. These processes are performed in facilities that differ from facilities in which Front-end processes are performed.
Back-end Manufacturing Process
When the wafer with confirmed working integrated circuits is received in the Back-end facility, wafers are first cut (“diced”) into individual dies or chips. The individual dies are then attached to a lead frame or other substrate by a bonding process. The lead frame or substrate provides the interface between the electrical circuit on the die and the system in which the die is incorporated. Lead frames are produced by stamping or etching out a pattern on a strip of copper or iron-nickel alloy. High precision lead frames are produced by an etching process, also to achieve a shorter time to market. Stamped frames are typically used for very high volumes on mature designs. The electrical connection of the electrical circuit to the lead frame is made by wire bonding. As few as one or as many as a thousand or more separate wires are connected between the die and the lead frame.
After this assembly and wire bonding interconnection process, the dies are encapsulated to protect them from environmental influences. Singulated dies will then move through inspection, electrical test, marking and packing to prepare the tested and finished devices for shipment to the customer.
Another method used for chips with high pin count and speed is flip chip. The flip chip process eliminates the need for die and wire bonding. Instead, it involves populating the electrical interconnect points on a chip with small solder balls made of low melting point materials, a process called bumping. The substrate is designed such that it has an identical pattern to that of the device. Flip chip methods are increasingly being adopted. Among these methods is Thermal Compression flip chip Bonding with copper pillar bumping, using non-conductive paste.
Wafer level packaging (“WLP”) is another emerging technique that places all the protective layers, interconnections and interconnection points directly on the surface of the wafer, such that completely packaged devices are made at wafer level. After probing and dicing, the die can be separated and may be directly attached to printed circuit boards.
LED Manufacturing Process
Light Emitting Diodes (LEDs) are manufactured on sapphire or silicon carbide substrates of typically 2” to 4” in diameter. The LED is formed by depositing thin films on the substrate surface. Following this process electrical contacts are provided by a mask aligner. Individual dies are singulated by a laser scriber and a dicing machine. The individual LED dies are then tested and binned in different performance categories. Subsequently LED dies are attached to the package substrates. The electrodes of the LED die are connected to the leads of the package substrate with fine gold wire by a wire bonder. The packages are tested and sorted according to performance categories, and then taped to a reel for SMT processing.
The SMT Placement Process (Electronics Assembly)
Modern electronic modules are produced by placing various components and connectors on printed circuit boards. To ensure the precision and efficiency required to handle ever smaller components at ever lower cost, the placement process takes place on highly automated surface-mount technology (SMT) lines.
These SMT lines and the placement process in general can be divided into three main segments:
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• | The solder paste printer, which applies solder paste to the printed circuit board (PCB) in order to keep the components in place during the entire placement process. |
• | The placement machine, which places various components on the printed circuit board in predefined positions. A placement head, which can move along three axes and rotate around the Z-axis, uses suction to pick up a component from the tape or tray, checks the component’s position with the help of a camera system, computes its angle and offset from the nominal position, and places it onto the printed circuit board. When all components have been placed, a conveyor system moves the board to the next station and replaces it with a fresh, empty board. To increase the throughput rate, modern placement machines have several “revolver-type” placement heads, each of which is able to pick up and place multiple components per cycle in order to minimize the travel time between pick-up and placement positions. And thanks to their modular design, the machines can be configured with different feeder modules, placement heads, camera systems, etc. in order to best meet the specific production requirements. For products with many components and high line throughput requirements, multiple SMT placement machines are usually positioned in a line. |
• | The reflow oven, in which the solder paste is heated and hardened or adhesives are cured in order to create a permanent bond between the components and the printed circuit board’s conducting paths. Once all components have been placed, the PCB is transported into the reflow oven, where the board is heated to the appropriate processing temperature. The solder balls in the solder paste melt and create a mechanical as well as an electrical connection between the components and the printed circuit board. If the SMD components were glued on, the reflow oven is used to cure the adhesive at a temperature that is lower than the heat required to melt the solder paste. Once the adhesive has hardened, the boards are flow-soldered – usually after additional special components have been installed. |
Modern SMT lines contain additional systems and components such as quality control systems (e.g., automated optical inspection or AOI systems) or special process control systems (e.g., barcode readers).
Important Technology Trends for our Business
Technology Trends in Front-end and Back-end
The continuous demand for smaller, faster and cheaper semiconductor components drives the technology advances in the semiconductor manufacturing process. As the transistors in an integrated circuit become smaller, the cost-per-component decreases. Fortuitously, at the same time the operating speed of the transistor increases. Thus the minimum size of a single transistor in an integrated circuit is an extremely important parameter. This minimum size can be characterized by the so-called half-pitch, which is about equal to the smallest line width in the device. Today, our customers manufacture semiconductor devices having a half-pitch as small as 45 to 22 nanometers (one nanometer is one billionth of a meter). Our customers are qualifying and testing new critical processes to generate devices with line widths at or below 22 to 10nm, sometimes in a vertical 3D transistor architecture. Simultaneously, in our customers’ laboratories and several collaborative research environments advanced 10nm and 7nm design rule devices are being developed.
Today, most of the newly installed semiconductor device fabrication capacity employs 300mm wafers. A transition towards 450mm wafers is now planned. Early research in consortia is already taking place, while the first 450mm pilot factories are now expected to emerge around 2015 to 2016.
In developing faster and smaller devices, our Front-end customers’ major technology requirements are:
• | new thin film materials and device designs that can reduce the amount of power consumed in the device, increase the speed and reliability of the circuit, and increase the amount of charge that can be stored; |
• | reliable manufacturing of taller three-dimensional structures in devices; |
• | lithography of ever smaller feature sizes, now much smaller than the wavelength of visible light; and |
• | new manufacturing processes that reduce device variability and increase yield. |
Technological developments in the Front-end process have resulted in new requirements for the Back-end manufacturing process. The ability to place millions of transistors onto a thumbnail-size device with vastly increased functionality has created the first major trend: the need for more input/output terminals in the same or smaller
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space. The challenge for Back-end equipment suppliers is to connect this increasing number of terminals in a package that sometimes is barely larger than the chip. Wire bonding has been at the forefront of this transition, but for integrated circuits with very high terminal count, the industry has developed ball grid array (“BGA”) and flip chip packaging that use the entire surface of a die, and not just the perimeter.
A second major trend in the Back-end market segment is driven by the strong growth in demand for hand held devices. There is an ongoing need to build ever smaller and more complex packages at lower cost for this market. Individual dies must be packaged in areas that are just slightly larger than the individual dies they contain. These chip scale packages minimize the amount of space occupied by the end product on the circuit board.
A third major trend relates to the industry demand for a much higher level of integration, but still at lower cost and optimized yield. This has resulted in a requirement to place multiple dies into the same package. The assembly of a combination of “known good dies” in a package can lead to higher yield than the combination of the same functionality blocks on a single chip. Such a System-in-Package (“SiP”) is more than a simple collection of multiple dies: SiP products are fully functional systems or sub-systems. Moreover, devices from different supply chains, with sometimes entirely different feature sizes or technologies can be integrated this way. Dies can be placed next to and/or on top of each other, using stacked die bonding techniques and sometimes mixing flip chip and wire bonding techniques in the same package. SiP is an advanced package incorporating multiple devices into a single package. The devices can be integrated circuit dies, passive components and even pre-packaged dies, that are bonded together by wire bonding or by flip chip bonding. SiP may also incorporate stacked die bonding. It is a powerful package that creates highly integrated products at low cost, minimized size and high performance. Smaller form factor with more advanced functionality of emerging mobile electronic devices is driving the demand for SiP solutions.
Stacked die packages have grown significantly in recent years, achieving high density packaging at low cost, and are especially popular in memory manufacturing. Stacked die packages can be made in different configurations, including stair stacked and pyramid stacked packages. It appears that in the near future an increasing fraction of the value of the device will be in the package, at the cost of the fraction that is for the die.
In wire bonding of semiconductor packages, copper wire bonding technology is emerging as a replacement of gold wire bonding, thanks to the lower overall package cost compared to gold wire bonding. Higher electrical conductivity, reduced operating resistance and lower heat dissipation make copper wire bonding an ideal replacement of gold wire bonding. Copper also offers better thermal stability and mechanical properties that increase wire loop stability and bond strength. After overcoming several manufacturing challenges, copper wire bonding is now in production for a large range of package types, such as QFNs, BGAs, QFPs, TSSOPs, and SOICs. In addition, other alloy wire bonding technologies, such as silver alloy bonding are set to replace gold wire in semiconductors.
Technology Trends in Electronics Assembly
• | As a result of the above, new technological requirements for placement equipment arise from the component side as well as from downstream production processes and from the markets for end products. |
• | The trend toward integrating ever more complex functions in the smallest amount of space continues unabated and will keep playing a significant role in the development of placement equipment and SMT production techniques. Examples of this trend include: |
• | More use of dies, which can be placed closer together because of their lack of packaging, and package-on-package (PoP) designs, which are placed one on top of the other |
• | More optical circuitry for faster transmission rates |
• | More component diversity |
• | The market for LED placement equipment is a good example of some of these technological requirements: The setup processes and programs must be able to handle the different LED brightness categories and accommodate them with the addition of series resistors or by permitting only the placement of LEDs in the same brightness category. Since LED components are very fragile, they must be positioned with great care using special nozzle shapes. In addition, the placement machines and |
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conveyor systems must be able to process extra-long boards, because the multiple clusters of backlight units are often very large.
• | These and other developments in the component and PCB field pose ever tougher demands on the precision and flexibility of the placement equipment – from drives and gantries to feeders and vision systems to placement heads and pick-up systems. And since producers are also subject to increasing pressure in terms of costs and efficiency, this level of precision must be delivered even for high placement speeds and over long periods of time. Another challenge is the feeding of components directly from the wafer, which is a way of eliminating time-consuming and expensive process steps such as the packaging of dies and flip-chips. Other challenges are posed by the growth in selected application fields such as LED placement. |
• | New requirements arise also at the customer end. Shorter product life cycles and the rising number of product variants along with optimized logistics chains reduce the average lot sizes and make for shorter lead times. At the same time, today’s lines run at much higher speeds. As a result, each shift must be able to handle more and more product changeovers, which means that the associated setup procedures reduce the productivity of traditional SMT lines. |
• | In the process control area, customers want more features ranging from monitoring to full-fledged component traceability for sophisticated applications in medical technology, aerospace engineering and the automobile industry. But no matter which industry they serve, electronics manufacturers have to deal with huge competitive and cost pressures as well as a highly cyclical market environment. |
• | As far as recent trends in LED packaging are concerned, the sapphire or silicon carbide substrate for LED chip fabrication is migrating from 50mm to 100mm, some are moving to 150mm substrates in production. Larger substrates can produce more LED chips in a wafer. Some manufacturers are moving to silicon substrates to reduce cost. |
• | With reference to chip sizes, High Power LED increases the chip size to 1mm or above to increase the total output power for a single chip. Furthermore, as the LED efficiency increases, more chips move to 0.15mm to reduce the cost for small power application such as indicators. For package substrates, more High Power LED packages employ ceramic and silicon substrates for better heat dissipation. |
Our Response to Technology Trends
We develop and manufacture wafer processing systems and new thin film materials that enable our customers to produce devices that consume less power, are faster, show less variability, are more reliable and are able to store more electrical charge.
Today, our leading-edge high volume production systems support the manufacturing of semiconductor devices having a half-pitch as small as 45 to 22 nanometers (one nanometer is one billionth of a meter). At ASMI, and in close cooperation with our customers, we are qualifying and testing new critical process equipment for line widths of 32 to 15nm. Simultaneously, we are developing new 10 to 7nm technologies in our laboratories. Today, most of the newly installed semiconductor device fabrication capacity employs 300mm wafers. Accordingly, our system and process development and sales effort is concentrated in 300mm equipment. Initial developments of 450mm equipment have started in parallel.
In order to meet our customers’ needs, we have developed, and are still developing many new materials. For example, in the FEOL, high-k dielectrics and novel metal gate electrodes can improve the performance and reduce the power consumption of a device, thereby enhancing battery life. This same class of materials can also lead to larger charge storage in a smaller capacitor, critical for memories and RF circuits. Whereas in the recent past much focus has been on the development of the high-k dielectric, today as much focus is on new technologies and materials for the metal gate electrode and the gate sidewall passivation. Another example of new materials in the FEOL are our silicon-germanium (“SiGe”) and silicon-carbon (“SiC”) and silicon-carbon-phosphorous (“SiCP”) epitaxial materials that can increase the switching speed of the transistors and the circuit in which they are embedded by so-called strain engineering. This can be done without negatively affecting the power these transistors consume.
We expect that the creation of 3D vertical transistors will increase the demand for processes with better coverage of 3D structures. In response to this trend, we have developed and are still developing a variety of Atomic Layer
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Deposition (ALD) and epitaxy processes. ALD is an advanced technology that deposits atomic layers one at a time on wafers. This process is used to create ultra-thin films of exceptional quality and flatness. Plasma is sometimes used to enhance the process further (Plasma Enhanced ALD, or PEALD).
In the BEOL or interconnect process, a continued demand to improve the speed at which signals travel through thin copper wires has led to the development of a full suite of low-k materials. These low-k materials can decrease the amount of delay in signal propagation, resulting in, for example, faster microprocessors. Simultaneously these low-k materials can reduce the amount of power loss in the interconnections. We have been one of the leaders in successfully introducing these low-k materials in the market. We are continuing to develop improvements to this low-k technology to enable faster interconnect circuits.
We have also developed and sold new processes and wafer processing equipment to enable the creation of narrow lines having dimensions beyond the resolution of common lithography, and with low line width variability. For that purpose we have developed low temperature plasma enhanced ALD processes that are compatible with the photoresist processes that are common to lithography tools.
In addition to addressing the technology needs of our customers, the relentless drive of the industry to reduce cost corresponds to significant spending on development programs that further increase throughput, equipment reliability, and yield in our customer’s line, and further lower the cost of the wafer processing systems. In order to enable further efficiencies in our manufacturing process, we have improved, and will continue to improve the level of standardization in our equipment portfolio by migrating to common platforms, sub-assemblies and components. This requires a significant engineering effort.
For our Back-end customers, lead frame and wire bond technology continues to offer the most flexible method of connecting the die to the printed circuit board. Increasing pressure on the number of I/O terminals per unit area of silicon continues to drive down the distance between two adjacent interconnect points or pads, reducing the bond pad pitch and allowable wire diameter. In order to achieve lower manufacturing costs for lead frames, high density lead frames need to be produced. This can be achieved by maximizing strip unit density and manufacturing larger matrix lead frames.
The increasing I/O requirement has also resulted in the use of several rows of these pads on a single die. Production is now ongoing with a bond pad pitch of 30 microns. Wire bonding must not only address decreasing wire diameters and pitch, but also address the throughput to reduce the overall cost of the device. Future wire bonding platforms will be able to operate in an environment that requires the bond pad pitch to be at 25 microns. The increasing row count will require better control of the wire shapes and looping profiles to maintain signal integrity at high communication speeds. All of this must be achieved with the highest possible speed and reliability. In addition, semiconductor manufacturers are looking to automation and integration of Back-end equipment as ways to reduce costs and increase productivity.
Increasing pressure on the level of integration and reduction in size of handheld or mobile devices has given rise to several alternative assembly and bonding techniques and materials, such as flip chips and several chip-scale packaging methods. Stacked die packages, in which more than one die is stacked on top of another, to form a single device, play a major role in the handheld appliance market. We are responding to the need of stacked die packages by developing better wire bonding techniques, for example, by controlling the shape of the wire loop. We are currently developing methods of working with insulated wires, which will allow for more crossed connections in a device.
The newly developed ASM Die Bonder isLinDA offers a wide range of benefits with the sole target of producing highest speed and quality at lowest cost per die placement. Special handling and operating aspects of stacked and thin die are incorporated in the machine concept. The extremely fast vision system and the ultra-light pick and place head with innovative linear motor technology offer a significant increase in performance, product quality and yield.
In Electronics Assembly, in close coordination with customers and other partners, our SMT placement machines, under the brand name SIPLACE, are developed and manufactured to process a broad spectrum of components with high speed, precision and reliability. Our modular machine designs allow customers to flexibly adapt their SMT lines to shorter lead times, fluctuating workloads, frequent product changes and smaller lot sizes.
With their digital vision systems, intelligent SIPLACE X-feeders, head models, conveyor systems and linear drives, all current SIPLACE platforms use a shared pool of basic hardware modules to simplify the production and maintenance of the entire portfolio.
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To put the performance and flexibility of its machines to the best possible use, ASM Assembly Systems has developed the extensive SIPLACE software suite, which ranges from production scheduling to line and process control to monitoring, setup verification and traceability. In addition, the SIPLACE FACTS materials management system and the SIPLACE LES line execution system for setup-optimized production synchronization provide customers with powerful software solutions.
Products
Market Coverage
The table below indicates the major market segments of the semiconductor equipment industry. The principal market segments in which we participate are underlined.
Major Market Segment 1 | |||
Market Segment 1 | Test and related Systems | IC Fabrication Equipment or Front-end | IC Assembly Equipment or Back-end |
Automated Test Systems | MicroLithography and Mask Equipment | Assembly Inspection Equipment | |
Material Handling Systems | CMP Equipment | Dicing Equipment | |
Ion Implanters | Bonding Equipment | ||
Deposition and Related Tools 2 | Packaging Equipment | ||
Etching and Cleaning Tools | Integrated Assembly Systems | ||
Process Diagnostic Equipment | Leadframes 3 |
(1) | Based on VLSI Research Industry Segmentation (www.vlsiresearch.com). |
(2) | This segment also includes diffusion and oxidation furnaces. |
(3) | While the materials segment is not included by VLSI Research in the Back-end segment, lead frames are a significant component of our revenues. |
Front-end Segment Products
ASMI’s Front-end segment products come from a number of product platforms, with each platform designed to host and enable specified process technologies. The products in each product platform are linked through common technology elements of the platform, for example a common in-system software framework, common critical components, similar logistics (batch or single wafer processing), or a similar wafer processing environment (wet or dry). The following table lists our principal product platforms for the Front-end market, the main process technology that they enable, and the semiconductor device manufacturing solution for which the products from that platform are used.
Product Platform | ASMI Process Technology | Products |
Advance® Series | ALD, CVD, diffusion/oxidation, LPCVD | A400, A412, A4ALD, Vertical Furnace Systems |
XP (1) | ALD, PECVD, PEALD, Epitaxy | Pulsar® and EmerALD ALD Products, PECVD Products, PEALD Products, Intrepid® Epitaxy(2) |
XP8 (1) | PECVD, PEALD | Eagle® PEALD and Dragon PECVD |
Epsilon | Epitaxy, LPCVD | Epsilon 2000 and Epsilon 3200 (3) Single Wafer Epitaxy Systems |
Polygon® | ALD | Polygon 8200, Polygon 8300 (4) , Pulsar (4) Single Wafer Atomic Layer Deposition Systems |
(1) | The XP is our standard single wafer processing platform designed to accommodate multiple process application modules with common platform standards. In 2012 ASM launched the XP8 high productivity platform for PECVD and PEALD, based on our common XP platform standard with an expanded configuration that enables integration of up to 8 chambers on one wafer handling platform. |
(2) | In 2012 ASM launched the Intrepid XP tool which enables up to 4 Epitaxy process modules integrated on the XP platform. |
(3) | The functionality of the Polygon, Pulsar and EmerALD has merged with the XP platform starting in 2009. |
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Description of our Front-end Segment’s Product Platforms
Advance
The Advance is our Vertical Furnace, batch processing platform. Products built on this product platform are used for diffusion, oxidation, (LP)CVD and ALD. The product platform is used in many manufacturing steps, from the production of silicon wafers to the final anneal in interconnect. The A400 is a system for 150 and 200mm wafers, while the A412 is for 300mm wafers. The A412 systems feature two reactors above a rotating carousel, a dual-boat concept for high productivity, and a wide range of process applications with variable load sizes from 25 wafers for shortest cycle time requirements, up to 150 wafers for lowest cost requirements in a single run. In this series, we also offer the A4ALD, for atomic layer deposition of dielectrics and metals.
XP Platform
The XP is our high productivity common single wafer product platform, for 300mm. The XP platform will enable integration of sequential process steps on one platform. The XP is now available with Pulsar and EmerALD ALD modules, Intrepid Epitaxy modules, as well as PECVD and PEALD modules.
The XP common platform will benefit our customers through reduced operating costs since multiple ASM products now will use many of the same parts and consumables and a common control architecture improves ease of use. The XP common platform enables us to improve the coherency in our product portfolio.
XP8 Platform
The XP8 platform follows the basic architectural standards of the XP, but provides even higher productivity with up to 8 chambers integrated on a single wafer platform. The XP8 is now available with PECVD and PEALD modules.
Epsilon
The Epsilon is our platform for single wafer epitaxy. The Epsilon product platform offers a wide range of epitaxy products and materials for many applications, ranging from high temperature silicon used in silicon starting material manufacturing, to low temperature, selective or non-selective silicon, silicon germanium (“SiGe”), silicon-carbon (“SiC”) used in CMOS devices and silicon germanium carbon (“SiGeC”) used in bipolar devices. The Epsilon 2000 is a single wafer, single reactor system for 150mm and 200mm wafers. The Epsilon 3200 is a single wafer, single reactor system for 300mm wafers.
Polygon
The Polygon is a single wafer atomic layer deposition platform. It features a six-sided central vacuum handler, capable of hosting up to four reactors. The Polygon 8200 is used for 150 and 200mm wafers, and for magnetic head substrates. The Polygon 8300 is used for 300mm wafers. One or more Pulsar modules with ALD technology can be integrated onto the platform. Products built on this product platform are currently being used in, among others, ALD high-k gate dielectrics for high performance logic, metal-insulator-metal capacitors for system on a chip applications, and magnetic head gap fill.
Description of our Front-end Segment’s Process Technology Platforms
Depending on application, a process technology can be used in more than one product platform. Process technologies that are intended for use across multiple product platforms are called a process technology platform. The technologies in a process technology platform share a common knowledge base and patent portfolio. ALCVD, for example, is enabled on both our single wafer and batch product platforms. This gives us the principal ability to provide a single wafer tool for a certain application early in the lifecycle, when short development cycle times are needed, and later in the lifecycle switch to a batch tool for efficiencies in high volume production, using the same chemistry and maintaining basic materials properties.
ALCVD: Atomic Layer Deposition and Plasma Enhanced Atomic Layer Deposition
ALCVD is one of the newest technologies to deposit ultra-thin films of exceptional flatness and uniformity. This technology was brought into ASMI in 1999 with the acquisition of ASM Microchemistry, who first developed the thermal ALD technology. PEALD is an extension of this original ALD technology that uses plasma, which was brought into ASMI in 2001 through a partnership with Genitech and a subsequent acquisition in 2004. The use of plasma enables us to deposit high quality films at very low temperatures. Collectively ASMI refers to these two technologies as its ALCVD process technology platform. ALCVD is a very versatile technology platform that can be used to deposit high-k insulating materials, conductors, silicon oxide and silicon nitride. Selected ALCVD processes
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are released on our Polygon, XP, XP8 and Advance product platforms. We expect that the trends of continued scaling, and evolution towards three dimensional device structures plays into the strength of our ALCVD position.
LPCVD: novel chemistries
On our LPCVD process technology platform we have developed processes with new chemistries (under the trademark Silcore) that enable the deposition of silicon and silicon containing materials at low temperatures. We offer processes on our Intrepid module and Epsilon product platform for selective and non-selective epitaxy, single wafer LPCVD, and on our Advance 400 product platform for thin, smooth polycrystalline Si. Our strategy for the LPCVD process technology platform as a whole is to continue to qualify new chemistries developed by, and with, our chemical suppliers for all of our product platforms, well in advance of the development of our customers’ needs.
Back-end Segment Products
The following table lists ASM Pacific Technologies (“ASMPT”) principal products for the Back-end market and the main technologies that they enable.
Product Platform | ASMI Process Technology | Products |
Die Attach Equipment | Die Bonding | AD8312epoxy, ISLinDA stack die, AD830, AD838, AD838L, AD210. MCM12 multi chip, SD832D soft solder, IS898 glass attach Systems, AD211/AD220 Eutectic Die Bonder |
Scanning and Sorting Equipment | Die Sorting | AS899, MS100 Plus die sorting Systems; ES101/ES201 Automated Optical Inspection System |
Flip Chip Equipment | Flip Chip Bonding | AD9012A, , AD9012TS, AD9212 solder flip chip bonder, AD9312 TCB flip chip, AD9012TC, Hummingbird stud bumping Systems |
Wire Bonding Equipment | Thermosonic Gold/Copper Wire Bonding | TwinEagleXtremeGo/Cu iHawkXtreme GoCu EagleXtremeGoCu, A350 |
Wire Bonding Equipment | Ultrasonic Aluminum Wedge Bonding | Heavy Aluminum Wire Bonder AL501, AB530, AL512, AB559A rotating bond head, Leo-H |
Singulation Equipment | Singulation | Laser Scriber LS100 |
Encapsulation Equipment | Molding, Dispensing and Jetting | IDEALmold 3G mold and Osprey transfer molding Systems, IDEALcompress/ IDEALab Silicone Liquid Molding, DS500 dam-and-fill Systems, DS520 Jetting System, DS86 Dispense and Compensation System |
Post Encapsulation Equipment | Ball Placement, Testing and Marking, Trim and Form, Singulation, Binning | BP2000 ball placement, iSAP jig saw and sorting, MPhoenix, MP-TAB trim form system, FT2030S, FT-mini, FT2018, FV2030 Vision Inspection, SLS230 LED Testing & Sorting, SLT400/AT410 LED Taping, IP360 Package Sorting and Taping System |
Die and Flip Chip Bonding, and Die Sorting Products
ASMPT manufactures several die bonding models as well as die sorting equipment to address various markets including semiconductors and light emitting diodes (LED). The latest epoxy die bonder platform for 300mm wafers continues the path undertaken by ASMPT to provide customers with high quality cost-efficient systems. With its capability of handling up to 300mm wafers, fully automatic operation, epoxy writer, pre and post bond inspection and wafer mapping, this platform is able to provide customers with favorable operational results. Variations on this platform have been developed to address the requirements of the growing stacked die market. The ability to handle silicon devices down to 25 microns in thickness is a key feature for the future.
ASMPT's ISLinDA is a cutting edge 12” die bonder for stacked and thin die bonding capability. It is excellent in thin die handling employing various patented thin die ejecting systems. It can achieve high throughput and accuracy by a dual head system and a powerful vision system. To facilitate accurate factory automation during stacked die package manufacturing, it is also equipped with the intelligent iLaser system and bond arm system for automatic die layer and thickness detection.
The Twin832 is a high speed epoxy die bonder equipped with an innovative dual patented bond head system. It is suitable for handling a large range of IC/discrete packages, especially SiP, for multi-chip bonding for standalone or
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in-line machines. High density lead frames can be applied in the Twin832 as its large range of work-holder track width maximizes customer's productivity at low production cost.
Packaged device performance is continually pushed to higher levels. In critical applications, devices are increasingly utilizing flip chip interconnect methods to provide higher levels of electrical performance. Our flip chip platform provides high speed flip chip die bonding for IC applications. Variations of this platform have evolved to provide for the use of ultrasonics, heat force or the combination of these to affect the process. There continues to be a very large market in which the die and wafer sizes are relatively small, under 30 mils square. A mil is 1/1000 of an inch. Many of these devices are attached directly to printed circuit boards (Chip on Board, “COB”) or very large arrays. Therefore, many different handling methods are required. We have several systems addressing the various form factors represented in the market.To address the increasing adoption of flip chip technologies in mobile electronics, ASMPT newly developed a high precision Thermal Compression flip chip bonder - the AD9312. The AD9312 is equipped with innovative shared optics to achieve ultra high bonding accuracy. It is also adopting the intelligent bond head active tilting control and patented active vibration control for high quality bonding with excellent coplanarity and stability.
The LED business requires both high speed and high precision manipulation of very small devices. Many of these devices are assembled in arrays with a die attach process. In these arrays brightness and color must match. We have developed several platforms for sorting these devices and segregating them according to the customers’ requirements. The high power LED market for general purpose illumination continues to grow. These devices have unique thermal and electrical requirements that must be met by the die attach process. We have a new platform that addresses the use of soft solder in a special atmosphere that facilitates this special process. Machines may be configured to operate stand-alone or connected to epoxy curing ovens and wire bonders.
Wire Bonding Products
GoCu is ASMPT's state-of-the-art copper wire bonding solution. A series of ASMPT's high performance gold wire bonder can be upgradable for copper wire bonding, such as the Eagle Xtreme, the iHawk Xtreme, the Harrier Xtreme and the TwinEagle Xtreme. With GoCu, copper wire bonding can be faster and can also provide better aluminum remnant control than using gold. Together by offering a revolutionary solution for the second bond, GoCu provides an excellent copper wire bonding solution ready for customers' mass production.
The Eagle Xtreme and iHawk Xtreme gold wire bonders continue to extend the productivity of the process as well as exceed the industry roadmaps for required bond pad pitch. Additional features on the Eagle Xtreme allow it to deal with the complex wire geometries and extreme height variations that are prevalent in the stacked die packages being built today at higher productivity rates. The productivity envelope was enlarged with the introduction of our latest dual head platform, the TwinEagle Xtreme and Harrier Xtreme. This tool provides all the capabilities of our standard Xtreme but with higher output per floor space required.
We also extended our product portfolio in the wedge bonder area with newer, faster, more flexible systems to address the consumer products market that focuses on cost effective solutions. The expansion of the flip chip process has also provided us with opportunities to take advantage of our wire bonder technology to provide platforms capable of applying gold or copper stud bumps on wafers up to 300mm in diameter.
Encapsulation Products
Our auto molding product line continues to build on the success of our earlier automated multi-plunger molding systems. The IDEALmold serves the industry segment that requires very high throughput with production flexibility. The recent shift in lot sizes and package variability also required a new platform. We have met this requirement with our Osprey single strip molding system. With this platform, the emphasis is on quick material and package conversions for low volume, high mix situations. As with all ASMPT products, it can be configured for stand-alone or integrated in the IDEALine (see below) with many of our other Back-end products.
Post Encapsulation Products
Ball placement systems have seen strong growth as the ball grid array (“BGA”) package types continue to expand. These are the mainstream packages for microprocessors and other high performance chips found in computer systems today. Our early work in this area has allowed us to be the exclusive supplier of ball placement systems to the major provider of such components. As the number of package variants continues to increase along with the lead frame unit density, our post encapsulation products (“PEP”) have also evolved. The variation requires systems that are more flexible and faster to convert. The increased density has reduced the need for press speed but increased the emphasis on precision. The decrease in package thickness has dictated a change in the tooling
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methodology to provide more support throughout the trim, form, and singulation processes. Significant changes have been made in design to migrate to turret handling and offloading for small packages. These changes allow the incorporation of faster handling across more processes in a smaller footprint than the conventional linear approach. Significant inroads have been made in the incorporation of test heads into these lines so that units emerge ready to ship.
Automated Systems
The FT2018/ FT-Mini is our high speed turret based test handler for small discrete (FT2018) and mini discrete (FT-Mini) applications. Both FT2018/ FT-Mini are equipped with a highly accurate turret system and tape-and-reel system for high quality testing and finishing processes. The FT2018/ FT-Mini also offers intelligent features, such as iContact for package protection and iContact Plus for automatic position learning to have optimized contact level.
The IDEALine integrates Back-end assembly, packaging, and test handling equipment. Such lines can be fully controlled by computers minimizing operator intervention and providing better quality through more stringent process recipe control. We believe we are the only manufacturer of Back-end equipment capable of offering such an extensive integrated line using our own equipment. These lines integrate serial process steps with mechanical and software linkages. Offered in a modular format, customers may integrate some or all of the following processes that we supply: die bonding and inspection, epoxy curing, wire bonding and inspection, encapsulation, post mold curing, package singulation, test handling, inspection, laser marking, packing, and finishing.
SMT Products
The following table lists the ASM Pacific Technologies (“ASMPT”) principal product platforms for the SMT market and the main applications/industries they are targeted at.
Electronics Assembly Products (Hardware)
Type of Production | Applications/Industries | Platforms |
High-end/high-speed environments | Large EMS providers, telecommunication & IT products, LED placement | SIPLACE X SIPLACE CA |
High-quality/high-mix environments | Small and medium-sized EMS providers, machine controls, automobile industry, aerospace | SIPLACE SX |
Cost-sensitive high-volume environments | Medium-sized and large EMS providers | SIPLACE D |
Within the platforms, machines with different gantry and head configurations are available (e.g., SIPLACE Di1, SIPLACE Di2, SIPLACE Di4, or SIPLACE SX1, SIPLACE SX2, SIPLACE SX 4 etc.)
Electronics Assembly Products (Software)
Applications | Products |
Production planning, optimization and line control | SIPLACE Pro SICluster / SICluster Pro SIPLACE EDM |
Production monitoring, process control | SIPLACE OIS SIPLACE Feeder Manager SIPLACE Explorer |
Setup verification, traceability | SIPLACE Setup Center SIPLACE Traceability |
Order & materials management | SIPLACE FACTS |
Line execution & process synchronization | SIPLACE LES |
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The SIPLACE X Series is our powerful high-end SMT platform able to handle 01005 components, which is the smallest component size being processed today, with no slowdown in high-volume environments. The SIPLACE X-Series is an attractive solution for large EMS companies, mobile phone production and the growing LED placement market.
The SIPLACE CA Series is the first placement platform that can supply components directly from the wafer as well as with classic SMT feeder technologies. For the electronics manufacturer, this capability means increased flexibility and investment protection.
The highly flexible SIPLACE SX placement platform has special interchangeable gantries, intelligent feeders and innovative setup concepts, all of these make SIPLACE SX an ideal solution for high-mix environments. The key feature of this highly innovative solution is the “Capacity-on-Demand” function. The newly developed SIPLACE MultiStar placement head switches automatically between Collect & Place mode, Pick & Place mode and a special mixed mode, which is why it can be used for the fast placement of standard components as well as for the end-of-line placement of large components. Thanks to these properties, even high-mix lines can operate well balanced at all times for improved total line productivity.
With the digital SIPLACE Di-Series, which combines high-tech innovations with proven technologies, a favorable price-performance ratio and cost of ownership, SIPLACE offers a platform for highly cost-sensitive users in the standard and high-performance segment who require lots of flexibility and the latest technology.
Intellectual Property and Trademarks
Intellectual Property
Because of the rapid technological advances in the microelectronics field, our products must continually change and improve. Accordingly, we believe that our success will depend upon the technical competence and creative ability of our personnel as well as the ownership of and the ability to enforce our intellectual property rights.
We own and license patents that cover some of the key technologies, features and operations of our products and are registered in the principal countries where semiconductor devices or equipment are manufactured or sold. For instance, we have hundreds of issued patents that relate to our ALCVD process technology platform. As another example, we have a significant number of issued patents related to Silcore and other specialized LPCVD process chemistries.
The following table shows the number of patents for which we made an initial filing during the indicated year and the number of patents in force at the end of the indicated year. As part of a program to reduce cost, the patent portfolio was critically reviewed against the current business strategy in 2009. Cost control measures and stricter patent filing prioritization in 2010 resulted in a lower initial patent filing rate in 2010 compared to 2009. Increased R&D activity in 2011 resulted in a higher filing rate.
Segment | For year: | 2008 | 2009 | 2010 | 2011 | 2012 | ||||||||||
Front-end | Initial patent filings | 79 | 47 | 33 | 51 | 64 | ||||||||||
Patents in force at year end | 872 | 830 | 931 | 1,043 | 1,127 | |||||||||||
Back-end | Initial patent filings | 18 | 19 | 18 | 21 | 33 | ||||||||||
Patents in force at year end | 332 | 399 | 436 | 731 | 813 |
We have entered into worldwide, non-exclusive, non-transferable and non-assignable licenses with Applied Materials for patents related to epitaxy and certain chemicals used to deposit insulating layers for PECVD. We pay Applied Materials a royalty on sales of equipment that use certain patented technologies. A number of the licensed patents have already expired and the royalties related to these patents have ended. The remaining royalty bearing patents that we use expire at various times through 2013. Upon expiration of the patents, the technology may be used royalty-free by the public, including us. For further information, see Item 3.D, “Risk factors—We license the use of some patents from a competitor pursuant to a settlement agreement; if the agreement is terminated our business could be adversely affected.”
We have licensed our intellectual property in parts of our ALCVD process technology platform through non-exclusive, restricted field of use license agreements to a limited number of companies. In addition to generating revenue, we seek to accelerate market acceptance of our ALCVD technology through our licensing efforts.
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We have licensed our RTP portfolio of 61 issued patents and 11 pending patents to Levitech BV.
In the Back-end market, companies generally compete based on their cumulative expertise in applying well known technologies to improve productivity and cost-efficiency. As a result, we have historically filed fewer patents related to our Back-end operations. Due to increasing pressure on new technology development in the Back-end market, and the increasing fractional value of the package in the device, we expect the importance of patents in the Back-end market segment to increase over the following years. Wherever deemed necessary, ASM Pacific Technology will file for protection of its innovations.
Trademarks
ASM, the ASM International logo, Advance, Aurora, Dragon, Eagle, EmerALD, Epsilon, Polygon, Pulsar and Silcore are our registered trademarks. A400, A412, ALCVD, Atomic Layer CVD, Intrepid, NCP, PEALD, are our trademarks. “The Process of Innovation”, “The Switch Is On” and “Drive Innovation. Deliver Excellence.” are our service marks.
AB500B, Cheetah, DreamPAK, DRYLUB, EQUIPMANAGER, EQUIPMGR, FAB Farming, IDEAL Compress, IDEALine, IDEALsystem, IDEALab, IDEALNet, PGS, SMARTWALK, SOFTEC, SmartSurf, and Ultravac are registered trademarks of ASM Pacific Technology Ltd. Eagle60, Harrier, Hummingbird, IDEALmold, OSPREYLine, TwinEagle, SolarCSI, SolarWIS, SolarMTS, SolarLAS, NANOCU, SolarXchange, SolarATM and DYNAMAX are trademarks of ASM Pacific Technology.
SIPLACE is a trademark licensed from Siemens AG by ASM Pacific Technology in respect of its electronics assembly systems business.
Litigation
There has been substantial litigation regarding patent and other intellectual property rights in semiconductor-related industries. Although we have been involved in significant litigation in the past, we are at present not involved in any litigation which we believe is likely to have a material adverse effect on our financial position. In the future, additional litigation may be necessary to enforce patents issued to us, to protect trade secrets or know-how owned by us or to defend ASMI against claimed infringement of the rights of others and to determine the scope and validity of the proprietary rights of others. Any such litigation could result in substantial cost and diversion of effort by us, which could have a material adverse effect on our business, financial condition, and earnings from operations. Adverse determinations in such litigation could result in our loss of proprietary rights, subject us to significant liabilities to third parties, require us to seek licenses from third parties or prevent us from manufacturing or selling our products, any of which could have a material adverse effect on our business, financial condition and earnings from operations.
Research and Development
We believe that our future success depends to a large extent upon our ability to develop new products and add improved features to existing products. Accordingly, our global product development policies and local activities are for the most part directed toward expanding and improving present product lines to incorporate technology advances and reduce product cost, while simultaneously developing new products that can penetrate new markets. These activities require the application of physics, chemistry, materials science, chemical engineering, electrical engineering, precision mechanical engineering, software engineering, and system engineering.
Our net research and development expenses were €78.8 million, €129.4 million and €149.2 million in 2010, 2011 and 2012, respectively. We expect to continue investing significant resources in research and development in order to enhance our product offerings. Our research and development activities are chiefly conducted in the principal semiconductor markets of the world, which enables us to draw on innovative and technical capabilities on an international basis. Each geographic center provides expertise for specific products and/or technologies. This approach, combined with the interactions between the individual centers, permits efficient allocation of technical resources and customer interaction during development. In 2010, we formed a globally Platform Engineering group that addresses the needs for common platforms for the various products in our Front-end Segment. Selected resources in Belgium, Almere and Helsinki have been grouped under Corporate R&D, addressing the common needs for advanced materials research and process integration work for the 15nm to 7nm nodes.
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Segment | Location | Number of R&D employees as of December 31, 2012, exclusive of temporary workers | ||
Front-end | Almere, the Netherlands | 47 | ||
Leuven, Belgium | 24 | |||
Helsinki, Finland | 14 | |||
Phoenix, Arizona, United States | 105 | |||
Cheonan, South Korea | 37 | |||
Singapore | 4 | |||
Tama, Japan | 79 | |||
Back-end | Hong Kong, the People’s Republic of China | 500 | ||
Singapore | 351 | |||
Chengdu, the People’s Republic of China | 185 | |||
Munich, Germany | 187 | |||
United Kingdom | 1 | |||
Total | 1,534 |
As part of our research and development activities, we are engaged in various formal and informal arrangements with customers and institutes. At December 31, 2012, our Front-end segment was engaged in several formal joint development programs with customers for 300mm applications of our products. As part of these efforts, we may sell new products to customers at a significantly reduced margin, and invest significant resources in the joint development and subsequent product qualification. We sometimes also cooperate with other semiconductor capital equipment suppliers in complementary fields, in order to gain knowledge on the performance of our own deposition processes, in cooperation with other processes, either in bilateral or in publicly funded projects. In addition to cooperating with customers and other capital equipment suppliers, we also enter into research projects with technical universities and institutes (including for example TNO and IMEC, in the Netherlands and Belgium respectively).
We participate also in publicly funded programs, mainly in Europe, to develop the production technology for semiconductor devices with line widths of 15 and 11nm and below, and in More-than-Moore technologies. Among our current cooperative efforts are projects awarded under the Information Society Technologies (IST) seventh framework program. We are also a partner in several cluster development programs in the Eureka initiative by MEDEA+ (Micro Electronics Development for European Applications) and its successor CATRENE (Cluster for Application and Technology Research in Europe on Nano-Electronics.
In 2011 we renewed our strategic R&D partnership with the Interuniversity MicroElectronics Center (IMEC) in Leuven, Belgium. Our Epsilon, A412, Pulsar, EmerALD, Dragon and Eagle based products are involved in this partnership. In 2012 we significantly expanded our partnership with additional ALD and Epi capability. This gives us the opportunity to investigate, both jointly and independently, the integration of individual process steps in process modules and electrically active devices. We have been partnering with IMEC since 1990.
In December 2003, we commenced a five-year partnership with University of Helsinki that aims at further development of atomic layer deposition processes and chemistries. This partnership was extended for a second quinquennial in December 2008.
Manufacturing and Suppliers
Our manufacturing operations consist of the fabrication and assembly of various critical components, product assembly, quality control and testing.
In 2004, in order to reduce manufacturing costs in our Front-end operations we established FEMS, a manufacturing facility in Singapore, to manufacture certain generic subsystems and subassemblies for our Vertical Furnaces that we previously outsourced. In 2009 we started the transition of manufacturing of ASM products to be final assembled in Singapore, i.e. including final assembly, test and shipment of the system to the customer from the FEMS facility. We closed down our manufacturing operations in Almere, the Netherlands, at the end of 2009, and we closed our manufacturing facilities in Phoenix (US) and in Nagaoka (Japan) in 2010.
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With this transition we have also implemented a global organization for our procurement activities.
In 2012 we strengthened our organization with a global supply chain function, that includes, in addition to procurement, responsibility for supply chain quality and inventories.
Our Back-end operations are vertically integrated. The manufacturing activities in Hong Kong and Singapore consist primarily of assembling and testing components and subassemblies manufactured at our main manufacturing facilities in the People’s Republic of China and Malaysia.
Marketing and Sales
We market and sell our products with the objective of developing and maintaining an ongoing, highly interactive service and support relationship with our customers. We provide prospective customers with extensive process and product data, provide opportunities for tests on demonstration equipment and, if required, install evaluation equipment at the customer’s site. Once equipment has been installed, we support our customers with, among other things, extensive training, on-site service, spare parts and process support. All of this is further supported by in-house development to enhance the productive life of existing equipment. We make hardware improvements available in the form of retrofit kits as well as joint development of new applications with our customers.
Because of the significant investment required to purchase our systems and their highly technical nature, the sales process is complex, requiring interaction with several levels of a customer’s organization and extensive technical exchanges, product demonstrations and commercial negotiations. As a result, the full sales cycle can be as long as 12 to 18 months for sales of Front-end equipment and 2 to 4 months for sales of Back-end equipment. Purchase decisions are generally made at a high level within a customer’s organization, and the sales process involves broad participation across our organization, from senior executive management to the engineers who designed the product.
To market our products, we operate demonstration and training centers where customers can examine our equipment in operation and can, if desired, process their wafers or individual dies for further in-house evaluation. Customers are also trained to properly use purchased equipment.
To execute the sales and service functions in the Front-end, we have established a global sales force, in which all regional units report directly into the global sales organization. We have sales offices located in Europe (in the Netherlands, France, Ireland, Germany and Italy), Israel, Taiwan, Korea, the People’s Republic of China, Singapore, the United States of America and Japan. At the end of 2012, 248 employees were employed in sales and marketing of Front-end products, representing 15 % of total Front-end segment staff.
Sales of Back-end equipment and materials are provided by our principal offices in Hong Kong and Singapore, through direct sales offices in the People’s Republic of China, Taiwan, the Philippines, Malaysia, Thailand, Japan, Europe and North America, and through sales representatives in South Korea and some parts of the United States. At the end of 2012, 566 employees were employed in sales and marketing of Back-end products, representing 4% of total Back-end segment staff.
Customers
We sell our products predominantly to manufacturers of semiconductor devices, manufacturers of silicon wafers and assembly companies. Our customers include most of the leading semiconductor and wafer manufacturers. Our customers vary from independent semiconductor manufacturers that design, manufacture, and sell their products on the open market, to large electronic systems companies that design and manufacture semiconductor devices for their own use, to semiconductor manufacturers, known as foundries that manufacture devices on assignment of other companies, including “fabless” companies that design chips but do not have wafer processing factories.
Our largest customer accounted for approximately 5.2%, 6.4% and 8.8% of our net sales in 2010, 2011 and 2012, respectively. For our Front-end segment this was 21.6%, 22.8% and 33.6% of our net sales in 2010, 2011 and 2012, respectively. For our Back-end segment this was 4.3%, 3.5% and 4.9% of our net sales in 2010, 2011 and 2012, respectively. Our ten largest customers accounted for approximately 27.9%, 27.9% and 31.6% of our net sales 2010, 2011 and 2012, respectively. For our Front-end segment this was 61.2%, 70.4% and 75.3% of our net sales in 2010, 2011 and 2012, respectively. For our Back-end segment this was 23.7%, 20.2% and 25.1% of our net sales 2010, 2011 and 2012, respectively. Historically, a significant percentage of our net sales in each year has been attributable to a limited number of customers; however, the largest customers for our products may vary from year to year depending upon, among other things, a customer’s budget for capital expenditures, timing of new fabrication facilities and new product introductions.
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The following table shows the distribution of net sales, by segment and geographic destination of the product:
SEGMENT | PERCENTAGE OF NET SALES | GEOGRAPHIC DESTINATION | PERCENTAGE OF NET SALES | ||||||||
Front-end | Back-end | ||||||||||
2012 | Front-end | 26.1% | S.E. Asia | 8.4 | % | 55.4 | % | ||||
Europe | 5.5 | % | 12.6 | % | |||||||
Back-end | 73.9% | United States | 9.3 | % | 4.6 | % | |||||
Japan | 2.9 | % | 1.3 | % | |||||||
SEGMENT | PERCENTAGE OF NET SALES | GEOGRAPHIC DESTINATION | PERCENTAGE OF NET SALES | ||||||||
Front-end | Back-end | ||||||||||
2011 | Front-end | 27.9% | S.E. Asia | 9.2 | % | 52.8 | % | ||||
Europe | 6.6 | % | 14.1 | % | |||||||
Back-end | 72.1% | United States | 9.1 | % | 2.3 | % | |||||
Japan | 3.0 | % | 2.9 | % | |||||||
SEGMENT | PERCENTAGE OF NET SALES | GEOGRAPHIC DESTINATION | PERCENTAGE OF NET SALES | ||||||||
Front-end | Back-end | ||||||||||
2010 | Front-end | 24.0% | S.E. Asia | 8.2 | % | 68.9 | % | ||||
Europe | 5.6 | % | 0.7 | % | |||||||
Back-end | 76.0% | United States | 7.5 | % | 1.7 | % | |||||
Japan | 2.7 | % | 4.7 | % |
Customer Service
We provide responsive customer technical assistance to support our marketing and sales. Technical assistance is becoming an increasingly important factor in our business as most of our equipment is used in critical phases of semiconductor manufacturing. Field engineers install the systems, perform preventive maintenance and repair services, and are available for assistance in solving customer problems. Our global presence permits us to provide these functions in proximity to our customers. We also maintain local spare part supply centers to facilitate quick support.
We provide maintenance during the product warranty period, usually one to two years, and thereafter perform maintenance pursuant to individual orders issued by the customer. In addition to providing ongoing service, our customer service operations are responsible for customer training programs, spare parts sales and technical publications. In appropriate circumstances, we will send technical personnel to customer locations to support the customer for extended periods of time in order to optimize the use of the equipment for the customer’s specific processes. For our Front-end operations, where the availability of field support is particularly important for a sale, 560 employees were employed in customer service at the end of 2012 representing 34% of total Front-end segment staff. For our Back-end operations 1,175 employees were employed in customer service at the end of 2012, representing 7% of total Back-end segment.
Competition
The semiconductor equipment industry is intensely competitive, and is fragmented among companies of varying size, each with a limited number of products serving particular segments of the semiconductor process. Technical specifications of the individual products are an important competitive factor, especially concerning capabilities for manufacturing of new generations of semiconductor devices. As each product category encompasses a specific blend of different technologies, our competitive position from a technology standpoint may vary within each category. Customers evaluate manufacturing equipment based on technical performance and cost of ownership over the life of the product. Main competitive factors include overall product performance, yield, reliability, maintainability, service, support and price. We believe that we are competitive with respect to each of these factors, and that our products are cost effective.
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As the variety and complexity of available machinery increases, some semiconductor manufacturers are attempting to limit their suppliers. In addition, semiconductor manufacturers are located throughout the world, and expect their equipment suppliers to have offices worldwide to meet their supply and service needs. Semiconductor equipment manufacturers with a more limited local presence are finding it increasingly difficult to compete in an increasingly global industry.
Our primary competitors in the Front-end market are from the United States, Japan and Korea. Our primary competitors in the Back-end market are from the United States, Europe and Japan. In each of our product lines, we compete primarily with two or three companies which vary from small to large firms in terms of the size of their net sales and range of products. Our primary competitors in the Front-end market include Applied Materials, LAM Research Corporation, Tokyo Electron, Kokusai, Wonik IPS and Jusung. Our primary competitors in the Back-end market include Kulicke & Soffa, ESEC, Shinkawa, Apic Yamada, BE Semiconductor Industries, Towa, Shinko and Mitsui. The primary competitors of SIPLACE in the placement market are Fuji, Panasonic, Juki, and Yamaha (Japan); Assembleon (Europe); and Universal (U.S.).
C. Organizational structure.
ASM International NV is a holding company that operates through its subsidiaries. Our major operating subsidiaries as of March 15, 2013 are:
Subsidiary Name and Location | Country of Incorporation | Percentage Owned by ASM International NV |
ASM Europe BV Almere, the Netherlands | The Netherlands | 100% |
ASM America, Inc. Phoenix, Arizona, United States | United States | 100% |
ASM Japan K.K. Tama, Japan | Japan | 100% |
ASM Front-End Manufacturing Singapore Pte. Ltd., Singapore | Singapore | 100% |
ASM Pacific Technology Ltd. Hong Kong, the People’s Republic of China | Cayman Islands | 40.08% |
See Exhibit 8.1 for a list of our main subsidiaries.
D. Property, plant and equipment.
To develop and manufacture products to local specifications and to market and service products more effectively in the worldwide semiconductor market, our Front-end facilities are located in the Netherlands, the United States, Japan and Singapore and our Back-end facilities are located in Hong Kong, the People’s Republic of China, Singapore and Malaysia. Our principal facilities are summarized below:
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SEGMENT | LOCATION | PRIMARY USES | APPROXIMATE AGGREGATE SQUARE FOOTAGE | |
Almere, the Netherlands | Executive offices of ASMI Marketing, research and offices | 139,000 | ||
Tama and Nagaoka, Japan | Wafer processing equipment marketing, research and offices | 80,000 | ||
Front-end | Phoenix, Arizona, United States | Wafer processing equipment marketing, research and offices | 130,000 | |
Singapore | Wafer processing equipment manufacturing and offices | 169,000 | ||
Cheonan, South Korea | Wafer processing equipment manufacturing, marketing, research and offices | 34,000 | ||
Helsinki, Finland | Wafer processing equipment research and offices | 6,000 | ||
Hong Kong, People’s Republic of China | Semiconductor assembly and encapsulation equipment manufacturing, marketing, research and offices | 280,000 | ||
Shenzhen, People’s Republic of China | Semiconductor assembly equipment parts and modules manufacturing, lead frame manufacturing and offices | 2,112,000 | ||
Back-end | Chengdu, People’s Republic of China | Semiconductor assembly equipment research and offices | 179,000 | |
Singapore | Semiconductor assembly equipment and etched lead frame manufacturing, marketing, research and offices | 403,000 | ||
Johor Bahru, Malaysia | Semiconductor assembly equipment parts and modules manufacturing, etched lead frame manufacturing and offices | 315,000 | ||
Munich, Germany | SMT equipment manufacturing, marketing, research and offices | 325,000 |
Our principal facilities in the Netherlands, the United States, Korea, Finland, Hong Kong, the People’s Republic of China, Singapore and Malaysia are subject to leases expiring at various times from 2012 to 2024. Some facilities we own are subject to mortgages. We believe that our facilities are maintained in good operating condition and are adequate for our present level of operations.
Back-end's new manufacturing plant in Huizhou has its second phase being fully-operational since September 2012. The second phase consists of one casting center with two automatic resin sand casting lines for steel and aluminum respectively and a metallurgy laboratory to support metallic material research and development and casting technology development, and one machining center building with CNC machines and CNC lathes.
The etched leadframe production facility in Fuyong Plant in China is fully-operational to support the growing China market.
Item 4A. Unresolved Staff Comments
None.
Item 5. Operating and Financial Review and Prospects
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
We are an equipment supplier mainly to the semiconductor, LED and electronics manufacturing industry . We design, manufacture and provide services to our customers for the production of semiconductor devices, or integrated circuits, for the production of LED's and for electronics manufacturing in general.
The semiconductor capital equipment market is composed of three major market segments: wafer processing equipment, assembly and packaging equipment, and test equipment. ASMI is mainly active in wafer processing (Front-end) and assembly and packaging (Back-end). Front-end equipment performs various fabrication processes
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in which multiple thin films of electrically insulating or conductive material are grown or deposited onto a round slice of silicon, called a wafer. Back-end equipment separates these processed wafers into numerous individual dies, each containing the circuitry of a single semiconductor device, and assembles packages and tests the dies in order to create semiconductor devices.
We conduct our Front-end business, which accounted for 26% of our net sales in 2012, through our principal facilities in the Netherlands, the United States, Japan and Singapore. We conduct our Back-end business, which accounted for 74% of our net sales in 2012, through our principal facilities in Hong Kong, the People's Republic of China, Singapore, Malaysia and Germany. Our Back-end operations are conducted through our 51.96% majority-owned subsidiary, ASM Pacific Technology, which ownership was decreased to 40.08% in March 2013.
We sell our products to the semiconductor manufacturing industry and the assembly (pick and placement) industry, which is subject to sudden, extreme, cyclical variations in product supply and demand.
2012 was a challenging year for ASM. We started the year with a low order book. Order intake in Q1 and Q2 was healthy. While the whole industry was expecting a strong second half of 2012, this didn't happen. As a consequence we ended the year again on a low order book level, below the level at the end of 2011. Towards the end of 2012 we saw strong order intake in our Front end activities, however order intake in the back end operations remained weak. As a consequence sales for the year ended at a level of €1,418 million, compared to a level of €1,634 million in 2011.
Sales in the Front-end show a decrease from €456 million to €370 million for the full year. This 19% decrease of net sales was driven by lower equipment sales, especially in the older, capacity-driven technologies. Our Back-end segment sales decreased from €1,178 million to €1,048 million. In this segment lower equipment sales in the so-called existing activities, were partly compensated by higher Leadframes sales. The Assembly System AS activities, acquired in 2011 of Siemens, contributed approximately €100 million less in sales revenue compared to 2011.
The gross margin for ASMI consolidated decreased from 34.9% in 2011 to 31.1% in 2012. Gross margin in our Front-end segment decreased from 37.8% in 2011 to 33.6% in 2012, while our Back-end segment showed a decrease from 33.8% to 30.2% for the same period. The decrease of the gross margin in our Front-end segment compared to last year is mainly attributable to product mix differences, lower loading of the factories and in-efficiencies. The latter especially had an impact on the first half year margin. The gross profit margin in the comparable Back-end segment decreased due to mix differences between equipment and lead frame sales, higher price pressure in the equipment sales and the lower loading of the factories.
The result from operations as a percentage of sales decreased from 22.5% in 2011 to 6.2% in 2012. In 2011 the purchase price allocation of the newly acquired Siemens Electronics Assembly System (SEAS) business, now called ASM Assembly Systems, resulted in a bargain purchase gain of €109 million, equal to 6% of sales. The operating margin of our Front-end segment decreased from 13.7% in 2011 to 0.4% in 2012. For the same period the operating margin of our Back-end segment, excluding the purchase price allocation, decreased from 18.1% to 8.4%.
Net earnings decreased from €187 million (€136 million excluding the bargain purchase gain of SEAS) in 2011 to €7 million in 2012.
The Company generated a positive operational cash flow in 2012 of €42 million compared to €217 million in 2011. Both the Front-end as the Back-end operations were generating a positive operational cash flow in 2012.
In October 2012, we exercised our right to call the outstanding 6.50% convertible subordinated notes (due 2014), resulting in conversion of all remaining notes at November 20, 2012.
A. Operating Results
Sales
Our Front-end sales are concentrated in the United States, Europe, Japan and Asia and our Back-end sales are concentrated in Asia and Europe.
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The following table shows the geographic distribution of Front-end and Back-end sales of both our segments for the years 2010, 2011 and 2012:
Year ended December 31, | |||||||||||||||||||||
(amounts in millions) | 2010 | 2011 | 2012 | ||||||||||||||||||
Front-end: | |||||||||||||||||||||
United States | € | 91.7 | 31.3 | % | € | 148.4 | 32.5 | % | € | 131.8 | 35.6 | % | |||||||||
Europe | 67.9 | 23.1 | 107.8 | 23.6 | 77.9 | 21.0 | |||||||||||||||
Taiwan | 35.1 | 12.0 | 37.8 | 8.3 | 47.2 | 12.7 | |||||||||||||||
Japan | 33.0 | 11.2 | 49.7 | 10.9 | 40.6 | 11.0 | |||||||||||||||
South Korea | 37.3 | 12.7 | 70.2 | 15.4 | 49.1 | 13.3 | |||||||||||||||
China | 21.5 | 7.3 | 23.6 | 5.2 | 16.1 | 4.3 | |||||||||||||||
Other | 6.9 | 2.4 | 18.6 | 4.1 | 7.7 | 2.1 | |||||||||||||||
€ | 293.4 | 100 | % | € | 456.1 | 100 | % | € | 370.4 | 100 | % | ||||||||||
Back-end: | |||||||||||||||||||||
People’s Republic of China | € | 350.0 | 37.7 | % | € | 527.6 | 44.8 | % | € | 445.8 | 42.6 | % | |||||||||
Europe | 8.3 | 0.9 | 230.2 | 19.5 | 177.9 | 17.0 | |||||||||||||||
Taiwan | 148.8 | 16.0 | 71.9 | 6.1 | 63.6 | 6.1 | |||||||||||||||
Malaysia | 112.1 | 12.1 | 84.0 | 7.1 | 93.5 | 8.9 | |||||||||||||||
South Korea | 97.8 | 10.5 | 41.4 | 3.5 | 36.2 | 3.5 | |||||||||||||||
Hong Kong | 39.9 | 4.3 | 26.7 | 2.3 | 27.6 | 2.6 | |||||||||||||||
Thailand | 42.1 | 4.5 | 32.5 | 2.8 | 42.7 | 4.1 | |||||||||||||||
Japan | 57.4 | 6.2 | 47.0 | 4.0 | 18.8 | 1.8 | |||||||||||||||
Singapore | 13.8 | 1.5 | 16.7 | 1.4 | 15.0 | 1.4 | |||||||||||||||
Philippines | 34.4 | 3.7 | 34.8 | 3.0 | 25.2 | 2.4 | |||||||||||||||
United States | 21.1 | 2.3 | 37.5 | 3.2 | 65.7 | 6.3 | |||||||||||||||
Other | 3.8 | 0.4 | 28.0 | 2.4 | 35.7 | 3.4 | |||||||||||||||
€ | 929.5 | 100 | % | € | 1,178.3 | 100 | % | € | 1,047.7 | 100 | % |
The sales cycle from quotation to shipment for our Front-end equipment generally takes several months, depending on capacity utilization and the urgency of the order. The acceptance period after installation may be as short as four to five weeks. However, if customers are unfamiliar with our equipment or are receiving new product models, the acceptance period may take as long as several months. The sales cycle is longer for equipment which is installed at the customer’s site for evaluation prior to sale. The typical trial period ranges from six months to one year after installation.
The sales cycle for Back-end products is typically shorter than for Front-end products. Generally, the majority of our Back-end equipment is built in standard configurations. These products are approximately 85% complete in anticipation of customer orders. Upon receipt of a customer’s order and specifications, the remaining 15% of the manufacturing is completed. This allows us to complete the assembly of our equipment in a short period of time. We therefore require between two to six weeks for final manufacturing, testing, crating, and shipment of our Back-end equipment. Our Back-end customers’ acceptance periods are generally shorter than those for Front-end equipment. Our local staff provide installation, training and technical support to our customers in all of our major markets.
A substantial portion of our Front-end sales is for equipping new or upgraded fabrication plants where device manufacturers are installing complete fabrication equipment. As a result our Front-end sales in this segment tend to be uneven across customers and financial periods. Sales to our ten largest Front-end customers accounted for 61.2%, 70.4% and 75.3% of Front-end net sales in 2010, 2011 and 2012, respectively. The composition of our ten largest Front-end customers changes from year to year. The largest Front-end customer from these ten accounted for 21.6%, 22.8% and 33.6% of Front-end net sales in 2010, 2011 and 2012, respectively.
Back-end sales per customer tend to be more level over time than Front-end sales, because Back-end operations can be scaled up in smaller increments at existing facilities. Sales to our ten largest Back-end customers accounted for 27.3%, 20.2% and 25.1% of Back-end net sales in this segment in 2010, 2011 and 2012, respectively. Because
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our Back-end customers’ needs are more level over time, the composition of our ten largest customers is more stable from year to year than in the Front-end segment. Our largest Back-end customer accounted for 4.3%, 3.5% and 4.9% of Back-end net sales 2010, 2011 and 2012, respectively.
Research and Development
We continue to invest heavily in research and development. As part of our research and development activities, we are engaged in various development programs with customers and research institutes these allow us to develop products that meet customer requirements and to obtain access to new technology and expertise. Research and development costs are expensed as incurred. The costs relating to prototypes and experimental models, which we may subsequently sell to customers are charged to the cost of sales. Our research and development operations in the Netherlands and the United States receive research and development grants and credits from various sources.
For a further discussion of research and development expenses see Item 4.B, “Business Overview—Research and Development” and “Results of Operations,” below.
Critical Accounting Policies and Estimates
The preparation of consolidated financial statements and related disclosures in conformity with generally accepted accounting principles in the US (“US GAAP”) requires management to make judgments, assumptions and estimates that affect the amounts reported. Note 1 of "Notes to Consolidated Financial Statements" describes the significant accounting policies used in the preparation of the consolidated financial statements. Some of these significant accounting policies are considered to be critical accounting policies.
A critical accounting policy is defined as one that is both material to the presentation of ASMI’s consolidated financial statements and that requires management to make difficult, subjective or complex judgments that could have a material effect on ASMI’s financial condition or results of operations. Specifically, these policies have the following attributes: (1) ASMI is required to make assumptions about matters that are highly uncertain at the time of the estimate; and (2) different estimates ASMI could reasonably have used, or changes in the estimate that are reasonably likely to occur, would have a material effect on ASMI’s financial condition or results of operations.
Estimates and assumptions about future events and their effects cannot be determined with certainty. ASMI bases its estimates on historical experience and on various other assumptions believed to be applicable and reasonable under the circumstances. These estimates may change as new events occur, as additional information is obtained and as ASMI’s operating environment changes. These changes have historically been minor and have been included in the consolidated financial statements as soon as they became known. In addition, management is periodically faced with uncertainties, the outcomes of which are not within its control and will not be known for prolonged periods of time. These uncertainties include those discussed in Item 3D, “Risk Factors.” Based on a critical assessment of its accounting policies and the underlying judgments and uncertainties affecting the application of those policies, management believes that ASMI’s consolidated financial statements are fairly stated in accordance with US GAAP, and provide a meaningful presentation of ASMI’s financial condition and results of operations.
An analysis of specific sensitivity to changes of estimates and assumptions are included in the notes to the financial statement.
Management believes that the following are critical accounting policies:
Revenue recognition
ASMI recognizes revenue when all four revenue recognition criteria have been met: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services have been rendered; (3) seller’s price to buyer is fixed or determinable; and (4) collectability is probable. Each sale arrangement may contain commercial terms that differ from other arrangements. In addition, we frequently enter into contracts that contain multiple deliverables. Judgment is required to properly identify the accounting units of the multiple deliverable transactions and to determine the manner in which revenue should be allocated among the accounting units. Moreover, judgment is used in interpreting the commercial terms and determining when all criteria of revenue recognition have been met in order for revenue recognition to occur in the appropriate accounting period. While changes in the allocation of the estimated sales price between the units of accounting will not affect the amount of total revenue recognized for a particular sales arrangement, any material changes in these allocations could impact the timing of revenue recognition.
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In 2009, the Financial Accounting Standards Board issued amended revenue recognition guidance for arrangements with multiple deliverables and certain software sold with tangible products. This new guidance eliminates the residual method of revenue recognition. It allows management to use a best estimate of selling price for individual elements of an arrangement when vendor specific evidence or third party evidence is unavailable. ASMI implemented this guidance beginning in the first quarter of 2011 for transactions that were initiated or materially modified during 2011. The implementation of the new guidance had no significant impact on reported net sales as compared to net sales under previous guidance. This was because the new guidance did not change the units of accounting within sales arrangements. Also, the elimination of the residual method for the allocation of arrangement consideration did not have a major impact on the amount and timing of reported net sales.
A major portion of our revenue is derived from contractual arrangements with customers that have multiple deliverables, such as equipment and installation. For each of the specified deliverables ASMI determines the selling price by using either vendor specific objective evidence ("VSOE"), third party evidence ("TPE") or by best estimate of the selling price ("BESP"). For transactions entered into, or materially modified, as of January 1, 2011, in which the Company is unable to establish relative selling price using VSOE or TPE, the Company uses BESP in its allocation of arrangement consideration. The total arrangement consideration is allocated at inception of the arrangement to all deliverables on the basis of their relative selling price. The revenue relating to the undelivered elements of the arrangements is deferred at their relative selling prices until delivery of these elements. On December 31, 2011 and December 31, 2012 we deferred revenues from installations in the amount of €6.3 million and €3.5 million respectively.
Our Front-end sales frequently involve sales of complex equipment, which may include customer-specific criteria, sales to new customers or sales of equipment with new technology. For each sale, the decision of whether to recognize revenue is, in addition to shipment and factory acceptance, based on: the contractual agreement with a customer, the experience with a particular customer, the technology and the number of similarly configured equipment previously delivered. Based on these criteria we may decide to defer revenue until completing installation at the customer’s site and obtaining final acceptance from the customer. On December 31, 2012 we deferred revenue from sales of equipment of €1.9 million. As of December 31, 2011 we had no deferred revenue from sales of equipment.
Warranty
We provide maintenance on our systems during the warranty period, which is usually one to two years. Costs of warranty include the cost of labor, material and related overhead necessary to repair a product during the warranty period. We accrue for the estimated cost of the warranty on products shipped in a provision for warranty, upon recognition of the sale of the product. The costs are estimated based on actual historical expenses incurred and on estimated future expenses related to current sales, and are updated periodically. Actual warranty costs are charged against the provision for warranty. The actual warranty costs may differ from estimated warranty costs, and we adjust our provision for warranty accordingly. Future warranty costs may exceed our estimates, which could result in an increase of our cost of sales.
Business combinations
ASC Topic 805 (“Business Combinations”) requires that companies record acquisitions under the purchase method of accounting. Accordingly, the purchase price is allocated to the tangible assets and liabilities and intangible assets acquired, based on their estimated fair values. The excess purchase price over the fair value is recorded as goodwill. Purchased intangibles with definite lives are amortized over their respective useful lives. When a bargain purchase incurs, which is the case when the fair value of the acquired business exceeds the purchase price, this surplus in fair value is recognized as a gain from bargain purchase.
Long-lived assets
Long-lived assets include goodwill, other intangible assets and property, plant and equipment.
Goodwill is tested for impairment annually on December 31 and whenever events or changes in circumstances indicate that the carrying amount of the goodwill may not be recoverable. Our Front-end impairment test and the determination of the fair value is based on a discounted future cash flow approach that uses our estimates of future revenues, driven by assumed market growth and estimated costs, as well as appropriate discount rates. These estimates are consistent with the plans and estimated costs we use to manage the underlying business. Our Back-end impairment test is based on the market value of the listed shares of ASMPT. The material assumptions used by management for the annual impairment test performed per December 31, 2012 were:
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• | For Front-end external market segment data, historical data and strategic plans to estimate cash flow growth per product line have been used; |
• | Cash flow projections for the first four years. After these four years perpetuity growth rates are set based on market maturity of the products. For maturing product the perpetuity growth rates used are 1% or less and for enabling technology products the rate used is 3% or less; |
• | An average discount rate of 22.7% (2011: 20.5%) representing the pre-tax weighted average cost of capital. This relatively high rate is a consequence of the current situation whereby certain production lines are in the early phase of the product life-cycle, hence reflecting a higher risk; |
• | For Back-end the market value of the listed shares of ASMPT on the Hong Kong Stock exchange was used in our analysis. |
Management believes that the fair value calculated reflects the amount a market participant would be willing to pay. Based on this analysis management believes that the fair value of the reporting units substantially exceeded its carrying value and that, therefore, goodwill was not impaired as of December 31, 2012.
The calculation of fair value involves certain management judgments and was based on our best estimates and projections at the time of our review. The value may be different if other assumptions are used. In future periods we may be required to record an impairment loss based on the impairment test performed, which may significantly affect our results of operations at that time. On December 31, 2012, we determined that a decrease in estimated cash flows of 10% and an increase of 10% of the discount rate used in calculating the fair value would not result in an impairment of the carrying value of goodwill.
Other intangible assets and property, plant and equipment are reviewed by us for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In performing the review for recoverability, we estimate the future undiscounted cash flows expected to result from the use of the asset and its eventual disposition. The cash flow estimates that we use include certain management judgments and are based on our best estimates and projections at the time of our review, and these may be different if other assumptions are used. In future periods, however, we may be required to record impairment losses, which may significantly affect our results of operations at that time. On December 31, 2012, we determined that a decrease in estimated cash flows of 10% would not result in an impairment of the carrying value of long-lived assets.
Allowance for doubtful accounts
ASMI maintains an allowance for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. This allowance is based on historical experience, credit evaluations, specific customer collection history and any customer-specific issues ASMI has identified. Changes in circumstances, such as an unexpected adverse material change in a major customer’s ability to meet its financial obligation to ASMI or its payment trends, may require us to further adjust our estimates of the recoverability of amounts due to ASMI, which could have an adverse material effect on ASMI’s financial condition and results of operations. On December 31, 2012 the allowance for doubtful accounts amounted to €8.6 million, which is 2.8% of our total accounts receivable.
Inventories
Inventories are stated at the lower of cost (first-in, first out method) or market value. Inventory in the newly acquired SEAS business is generally determined on the basis of an average method. Costs include net prices paid for materials purchased, charges for freight and custom duties, production labor costs and factory overhead. Allowances are made for slow moving, obsolete or unsellable inventory and are reviewed on a quarterly basis.
We regularly evaluate the value of our inventory of components and raw materials, work in progress and finished goods, based on a combination of factors. These include: forecasted sales, historical usage, product end of life cycle, estimated current and future market values, service inventory requirements and new product introductions, as well as other factors. Purchasing requirements and alternative uses for the inventory are explored within these processes to mitigate inventory exposure. We record write downs for inventory based on the above factors and take worldwide quantities and demand into account in our analysis.
On December 31, 2012 our allowance for inventory obsolescence amounted to €65.3 million, which is 16.2% of our total inventory. If circumstances related to our inventories change, our estimate of the values of inventories could materially change. On December 31, 2012, an increase of our overall estimate for obsolescence and lower market value by 10% of our total inventory balance would result in an additional charge to cost of sales of €40 million.
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Share-based compensation expenses
The cost relating to employee stock options is measured at fair value on the grant date. The grant-date fair value of stock options is determined using a Black-Scholes option valuation model. This Black-Scholes model requires the use of assumptions, including expected share price volatility, the estimated life of each award and the estimated dividend yield. The risk-free interest rate used in the model is determined, based on a euro government bond with a life equal to the expected life of the options.
December 31, | ||||||
2011 | 2012 | |||||
Expected life (years) | 7 | 7 | ||||
Risk free interest rate | 3.51 | % | 3.28 | % | ||
Dividend yield | 0.32 | 0.64 | ||||
Expected volatility | 40.9 | % | 42.0 | % |
Income taxes
We currently have significant deferred tax assets, which resulted primarily from operating losses incurred in prior years as well as other temporary differences. We have established a valuation allowance to reflect the likelihood of the realization of deferred tax assets. Based on available evidence, we regularly evaluate whether it is more likely than not that the deferred tax assets will not be realized. This evaluation includes our judgment on the future profitability and our ability to generate taxable income, changes in market conditions and other factors. On December 31, 2012, we believe that there is insufficient evidence to substantiate recognition of substantially all net deferred tax assets with respect to net operating loss carry forwards, and we have established a valuation allowance in the amount of €83.2 million. Future changes in facts and circumstances, if any, may result in a change of the valuation allowance to these deferred tax asset balances which may significantly influence our results of operations at that time. If our evaluation of the realization of deferred tax assets would indicate that an additional 10% of the net deferred tax assets as of December 31, 2012 is not realizable, this would result in an additional valuation allowance and an income tax expense of €0.8 million.
Consistent with the provisions of ASC 740, as of December 31,2012, ASMI has a liability of unrecognized tax benefits of €22.5 million (2011: €21.7 million). A reconciliation of the beginning balance on January 1, 2012 and the ending balance on December 31, 2012 of the liability for unrecognized tax benefits is as follows:
(euro millions) | |||
Balance January 1, 2012 | 21.7 | ||
Gross increases—tax positions in current year | 1.2 | ||
Foreign currency translation effect | (0.4 | ) | |
Balance December 31, 2012 | 22.5 |
Unrecognized tax benefits mainly relate to transfer pricing positions, operational activities in countries where we are not tax registered and tax deductible costs. We estimate that no interest and penalties are related to these unrecognized tax benefits. Unrecognized tax benefits would, if recognized, impact the Company’s effective tax rate. The Company provided for the amount of €22.5 million, representing managements best estimate to mitigate possible impact in case of an unfavorable outcome.
The calculation of our tax positions involves dealing with uncertainties in the application of complex tax laws. Our estimate for the potential outcome of any uncertain tax position is highly judgmental. Settlement of uncertain tax positions in a manner inconsistent with our estimates could have a material impact on our earnings, financial position and cash flows.
Results of operations
The following table shows certain Consolidated Statement of Operations data as a percentage of net sales for our Front-end and Back-end segments for the years 2010, 2011 and 2012:
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Year ended December 31, | |||||||||||||||||||||||||||
Front-end | Back-end | Total | |||||||||||||||||||||||||
2010 | 2011 | 2012 | 2010 | 2011 | 2012 | 2010 | 2011 | 2012 | |||||||||||||||||||
Net sales | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | |||||||||
Cost of sales | (60.9 | ) | (62.2 | ) | (66.4 | ) | (53.2 | ) | (66.2 | ) | (69.9 | ) | (55.1 | ) | (65.0 | ) | (68.9 | ) | |||||||||
Gross profit | 39.1 | 37.8 | 33.6 | 46.8 | 33.8 | 30.2 | 44.9 | 35.0 | 31.1 | ||||||||||||||||||
Selling, general and administrative expenses | (17.2 | ) | (13.4 | ) | (17.3 | ) | (8.6 | ) | (9.7 | ) | (13.1 | ) | (10.7 | ) | (10.7 | ) | (14.2 | ) | |||||||||
Research and development expenses | (12.5 | ) | (10.7 | ) | (15.8 | ) | (4.6 | ) | (6.9 | ) | (8.6 | ) | (6.4 | ) | (7.9 | ) | (10.5 | ) | |||||||||
Amortization of other intangible assets | (0.1 | ) | — | (0.1 | ) | — | (0.1 | ) | (0.1 | ) | — | (0.1 | ) | (0.1 | ) | ||||||||||||
Impairment of PP&E | — | — | — | — | (0.7 | ) | — | — | (0.5 | ) | — | ||||||||||||||||
Gain bargain purchase | — | — | — | — | 9.3 | — | — | 6.6 | — | ||||||||||||||||||
Restructuring expenses | (3.8 | ) | — | (0.2 | ) | — | — | — | (0.9 | ) | — | (0.1 | ) | ||||||||||||||
Earnings from operations | 5.4 | 13.7 | 0.2 | 33.6 | 25.9 | 8.4 | 26.9 | 22.5 | 6.2 | ||||||||||||||||||
Net interest income (expense) | (5.1 | ) | (2.7 | ) | (2.8 | ) | 0.1 | 0.1 | — | (1.2 | ) | (0.6 | ) | (0.7 | ) | ||||||||||||
Accretion of interest convertible | (2.1 | ) | (1.0 | ) | (1.2 | ) | — | — | — | (0.5 | ) | (0.3 | ) | (0.3 | ) | ||||||||||||
Revaluation conversion option | (6.5 | ) | (1.0 | ) | — | — | — | — | (1.6 | ) | (0.3 | ) | — | ||||||||||||||
Gain (expense) resulting from early extinguishment of debt | (1.2 | ) | (0.2 | ) | (0.6 | ) | — | — | — | (0.3 | ) | — | (0.2 | ) | |||||||||||||
Foreign currency exchange gains (losses) | (0.6 | ) | 1.8 | (0.8 | ) | 0.2 | (0.2 | ) | (0.1 | ) | — | 0.3 | (0.3 | ) | |||||||||||||
Result from investments | — | — | (0.2 | ) | — | — | — | — | — | (0.1 | ) | ||||||||||||||||
Earnings (loss) before income taxes and dilution | (10.1 | ) | 10.6 | (5.5 | ) | 33.9 | 25.7 | 8.3 | 23.3 | 21.6 | 4.7 | ||||||||||||||||
Income tax income / (expense) | (2.1 | ) | (1.0 | ) | (2.4 | ) | (4.0 | ) | (2.7 | ) | (1.7 | ) | (3.5 | ) | (2.2 | ) | (1.9 | ) | |||||||||
Net earnings (loss) | (12.2 | )% | 9.8 | % | (7.9 | )% | 29.9 | % | 23.0 | % | 6.6 | % | 19.8 | % | 19.4 | % | 2.9 | % | |||||||||
Allocation of net earnings (loss) | |||||||||||||||||||||||||||
Shareholders of the parent | 9.0 | % | 11.4 | % | 0.5 | % | |||||||||||||||||||||
Minority interest | 10.8 | % | 7.9 | % | 2.4 | % |
Year Ended December 31, 2012 Compared to Year Ended December 31, 2011
Net sales
The following table shows net sales of our Front-end and Back-end segments for the full year 2012 compared to the same period in 2011:
(EUR millions) | Full year | |||||||
2011 | 2012 | % Change | ||||||
Front-end | 456.1 | 370.4 | (19 | )% | ||||
Back-end | 1,178.3 | 1,047.7 | (11 | )% | ||||
ASMI consolidated | 1,634.3 | 1,418.1 | (13 | )% |
The decrease of net sales in the full year 2012 in our Front-end segment compared to the same period last year was driven by decreased equipment sales as a result of decreased activity at our customers. In our Back-end segment sales decreased due to a lower activity level in equipment sales (as well IC/DE equipment as assembly equipment).
The impact of currency changes year-over-year was an increase of 8%.
Gross profit margin
The following table shows gross profit and gross profit margin for the Front-end and Back-end segments for the full year 2012 compared to the same period in 2011:
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(EUR millions) | Full year | ||||||||||||
Gross profit | Gross profit margin | Increase or (decrease) percentage points | |||||||||||
2011 | 2012 | 2011 | 2012 | ||||||||||
Front-end | 172.3 | 124.5 | 37.8 | % | 33.6 | % | (4.2)pt | ||||||
Back-end | 398.3 | 315.9 | 33.8 | % | 30.2 | % | (4.6)pt | ||||||
ASMI consolidated | 570.6 | 440.4 | 34.9 | % | 31.1 | % | (4.5)pt |
The decrease of the gross margin in our Front-end segment compared to the same period last year is mainly attributable to efficiency losses and lower loading of our factories which caused under absorption and inventory corrections, on the one hand, and higher investments in evaluation tools, on the other. The gross profit margin in the Back-end segment decreased mainly due to mix differences (higher lead frame activities), increased price pressure and a lower activity level.
The impact of currency changes year-over-year was a increase of 8%.
Selling, general and administrative expenses
The following table shows selling, general and administrative expenses (SG&A) for our Front-end and Back-end segments for the full year 2012 compared to the same period in 2011:
(EUR millions) | Full year | |||||||
2011 | 2012 | % Change | ||||||
Front-end | 61.2 | 64.4 | 5 | % | ||||
Back-end | 113.8 | 137.6 | 21 | % | ||||
ASMI consolidated | 175.0 | 202.1 | 15 | % |
As a percentage of net sales, selling, general and administrative expenses (SG&A) were 14% in the full year 2012 and 10% in the same period of 2011.
For the full year 2012 selling, general and administrative expenses as a percentage of net sales of our Front-end segment, increased to 17% compared with 14% for the same period of 2011. The SG&A expenses include a provision of €2.1 million for Elpida. For the Back-end segment selling, general and administrative expenses as a percentage of net sales increased from 9% in 2011 to 13% in 2012. Cost increases mainly took place in the Back-end equipment and lead frames business, caused by a strengthening of the organization.
The impact of currency changes year-over-year was an increase of 8%.
Research and development expenses
The following table shows research and evelopment expenses for our Front-end and Back-end segments for the full year 2012 compared to the same period in 2011:
(EUR millions) | Full year | |||||||
2011 | 2012 | % Change | ||||||
Front-end | 48.5 | 58.7 | 21 | % | ||||
Back-end | 80.9 | 90.5 | 12 | % | ||||
ASMI consolidated | 129.4 | 149.2 | 15 | % |
As a percentage of net sales, research and development expenses were 10% in the full year 2012 compared to 7% for the same period of 2011.
The impact of currency changes year-over-year was an increase of 8%.
Impairment charge for property, plant and equipment
In 2011 the Company recorded an impairment charge of €8,038 related to machinery and equipment. The Company impaired certain items of property, plant and equipment related to the Back-end lead-frame business. The
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impairment loss was recognized based on the difference between the carrying value and the fair value of the relevant assets.
Restructuring expenses
In the fourth quarter of 2012 we started a cost reduction program in our Front-end operation. We are reducing headcount in our manufacturing organization in Singapore with 110 people. Related to these actions, an amount of €0.9 million in restructuring expenses was recorded in 2012.
Gain on bargain purchase
On January 7, 2011, ASMPT acquired the entire equity interest of 13 direct and indirect subsidiaries of Siemens Aktiengesellschaft (“SEAS Entities”). We recognized a gain of €109.3 million on the bargain purchase, representing the excess of the net fair value of the identifiable assets acquired and the liabilities assumed over the aggregate of the consideration transferred.
The gain on bargain purchase of €109 million was recognized upon completion of the acquisition of the SEAS entities. The gain on bargain purchase was mainly attributable to the depressed market value of the acquired business because of years of losses. These were due to the challenging economic environment and the bad global economic environment during the period of negotiation for the acquisition.
Earnings from operations
The following table shows earnings from operations for our Front-end and Back-end segments for the full year 2012 compared to the same period in 2011:
(EUR millions) | Full year | |||||||
2011 | 2012 | Change | ||||||
Front-end | ||||||||
Before special items | 62.6 | 1.4 | (61.2 | ) | ||||
Restructuring | — | (0.9 | ) | (0.9 | ) | |||
After special items | 62.6 | 0.5 | (62.1 | ) | ||||
Back-end | ||||||||
Before special items | 203.7 | 87.7 | (116.0 | ) | ||||
Impairment charges | (8.0 | ) | — | 8.0 | ||||
Gain bargain purchase SEAS | 109.3 | — | (109.3 | ) | ||||
After special items | 304.9 | 87.7 | (217.2 | ) | ||||
ASMI consolidated | 367.5 | 88.3 | (279.2 | ) |
The impact of currency changes year to year was an increase of 10%.
Net interest expense
Net interest expense amounted to €10.1 million in 2012 compared to the net interest expense of €10.6 million in 2011. This increase in net interest expenses resulted mainly from a higher average debt in the Back-end segment.
Accretion interest expense convertible notes
Both of our convertible bonds due in 2011 and 2014, included a component that creates a financial liability to the Company and a component that grants an option to the holder of the convertible note to convert it into common shares of the Company (“conversion option”). ASC 815 requires separate recognition of these components.
The fair value of the liability component is estimated using the prevailing market interest rate at the date of issue, for similar non-convertible debt. Subsequently, the liability is measured at amortized cost. The interest expense on the liability component is calculated by applying the market interest rate for similar non-convertible debt at the date of issue to the liability component of the instrument. The difference between this amount and the interest paid is added to the carrying amount of the convertible subordinated notes, thus creating a non-cash interest expense. For 2012 this accretion interest was €4.5 million (2011: €4.4 million).
Revaluation conversion option
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All convertible bonds include a component that creates a financial liability to the Company and a component that grants an option to the holder of the convertible note to convert it into common shares of the Company (“conversion option”). ASC 815 requires separate recognition of these components.
For the conversion options of the convertible bonds due 2011, the accounting is different from the conversion option of the convertible bonds due 2014. Since the convertible bonds due 2011 were denominated in US$ and the ASM International common shares to which they can be converted are denominated in Euro, these conversion options are recognized as a liability measured at fair value. The conversion option is measured at fair value through the income statement. For 2011, until early redemption in February 2011, this revaluation at fair value resulted in a loss of €4.4 million.
For the conversion options of the convertible bonds due 2014 the fixed-for-fixed principle is met as both the debt instrument (the bond) and the entity’s equity shares to which they can be converted are denominated in the functional currency (Euro). Based on the before mentioned criteria the conversion option qualifies as permanent equity.
Loss resulting from early extinguishment of debt
On October 3, 2012 we announced the redemption, per November 27, 2012, of all outstanding principal balance of our 6.50% Convertible Subordinated Notes due 2014, which resulted in the conversion of almost all outstanding notes prior to the redemption date. The loss from the early extinguishment of the notes of €2,209, which reflects the write-off of unamortized debt issuance costs, has been recorded as a loss from early extinguishment of debt in the Consolidated Statement of Operations for the year 2012.
On January 3, 2011 we announced the redemption of all outstanding principal balance of our 4.25% Convertible Subordinated Notes due 2011, which resulted in the conversion of almost all remaining notes prior to the redemption date. The loss from the early extinguishment of the notes of €824, which includes the write-off of unamortized issuance costs, has been recorded as a loss from early extinguishment of debt in the Consolidated Statement of Operations for the year 2011.
Income tax expense
Income tax expense decreased from €37 million in 2011 to €26 million in 2012, resulting from the balance of a decrease of result before tax in 2012 and the usage of a deferred tax position in Japan. This is related to the sale of certain IP to our Dutch IP Holding Company. While having a negative effect on our net result of €13.0 million, there are no cash flow effects. Moreover, it will reduce our tax payments in future years.
Net earnings allocated to the shareholders of the parent
The following table shows net earnings for our Front-end and Back-end segments for the full year 2012, compared to the same period in 2011:
(EUR millions) | Full year | |||||||
2011 | 2012 | Change | ||||||
Front-end | ||||||||
Before special items | 49.7 | (26.1 | ) | (75.8 | ) | |||
Restructuring | — | (0.9 | ) | (0.9 | ) | |||
Loss from early extinguishment of debt | (0.8 | ) | (2.2 | ) | (1.4 | ) | ||
Fair value change conversion options | (4.4 | ) | — | 4.4 | ||||
After special items | 44.5 | (29.1 | ) | (73.6 | ) | |||
Back-end | ||||||||
Before special items | 89.4 | 36.3 | (53.1 | ) | ||||
Impairment charges | (4.2 | ) | — | 4.2 | ||||
Gain bargain purchase SEAS | 57.0 | — | (57.0 | ) | ||||
After special items | 142.2 | 36.3 | (105.9 | ) | ||||
ASMI consolidated, total earnings1) | 186.8 | 7.2 | (179.6 | ) |
1)Allocated to the shareholders of the parent
Net earnings for the Back-end segment reflect our 51.96% ownership of ASM Pacific Technology.
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Subsequent events
Reduction shareholding ASMPT
On March 13, 2013, ASMI sold a 12% stake in ASM PT. The shares were sold in a partial secondary placement raising proceeds of €422 million. The Company intends to distribute approximately 65% of the cash proceeds to ASMI shareholders; a proposal thereto will be placed on the agenda of the upcoming AGM scheduled for May 16, 2013. The remaining proceeds will be used to further strengthen the business of the Company. As of today, the Company continues to be the largest shareholder of ASM PT with a 40% stake.
At the Annual General Meeting of Shareholders (AGM) held in May 2012, the Company announced that it would carry out a study into the causes of the lack of recognition by the markets of the value of the combined businesses (Front-end and Back-end) of the Company. Following that announcement the Company appointed Morgan Stanley and HSBC Bank plc to act as its financial advisers and to assist the Company in carrying out the study.
The study was initiated shortly after the 2012 AGM and has recently been completed. Each of the Company's financial advisers independently carried out an investigation involving frequent discussions with the Company's Management Board and legal and tax advisers. The advisers also presented their findings to the Company's Supervisory Board.
No single or predominant factor was identified in causing the valuation discrepancy. However, a number of causes and circumstances were identified as potentially influencing the valuation discrepancy, including a holding company discount related to the current corporate structure.
Subsequently, an analysis was conducted by the Company in close cooperation with its advisers of the various potential courses of action, including those suggested by shareholders. The alternatives that were investigated included a full or partial placement or sale of the Company's stake in ASM PT, a spin-off of shares in ASM PT and several merger alternatives.
As part of this analysis, the Company has carefully considered the interests of the Company, its shareholders as well as other relevant stakeholders. The Company has also taken into account the various operational connections between the Front-end business and the Back-end business as well as potential accounting, legal and tax implications and execution risks.
The Management Board and the Supervisory Board of the Company have concluded that a partial secondary placement of 8% to 12% of the Company's stake in ASM PT is the most suitable step to be taken to address the non-recognition by the markets of the value of the combined businesses of the Company. This course of action has been chosen taking into account, amongst others, equity market capacity, tax efficiency and ongoing corporate stability at ASMI and ASM PT. This step provides flexibility for further action, if deemed appropriate.
The Management and Supervisory Boards of the Company have resolved to proceed with this proposed action and the board of directors of ASM PT has expressed its support to this proposal. In addition thereto, certain major shareholders of the Company representing approximately 27% of the total outstanding shares in the Company have been consulted in advance with regard to this proposed action and have expressed support thereof.
The sale of the 12% stake causes ASMI's cease of control on ASMPT. According to general accepted accounting principles (both US GAAP and IFRS) the accounting of this sale consists of two separate transactions.
• | a sale of a 51.96% subsidiary |
• | a purchase of a 40.08% associate. |
The first transaction, the sale, will result in a substantial gain and the deconsolidation of ASMPT in the consolidated ASMI accounts. The purchase of the associate will, following a purchase price allocation, result in the recognition of the associate at fair value.
We are in the process of determining the financial impact, further information will be disclosed at the announcement of the Q1 2013 results.
The Company will further report on the outcome of the study at the upcoming 2013 AGM, which is scheduled to take place on May 16, 2013.
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Bankruptcy Elpida
The reorganization plan re the Elpida bankruptcy in Japan was approved by creditors and the Court in February 2013. The court approval order has been appealed, subject to resolution of the appeal, the amounts we will receive regarding our secured and unsecured claims are set and approved to be paid in installments over a seven year period. While the dates for the installment payments are not yet finalized as they are subject to certain funding conditions, the dates are anticipated to be set once the appeal is concluded and the installment payments to commence accordingly.
Information regarding the hedging of foreign currency net investments is provided in Item 11, and is incorporated herein by reference.
Year Ended December 31, 2011 Compared to Year Ended December 31, 2010
Net sales
The following table shows net sales of our Front-end and Back-end segments for the full year 2011 compared to the same period in 2010:
(EUR millions) | Full year | |||||||
2010 | 2011 | % Change | ||||||
Front-end | 293.4 | 456.1 | 55 | % | ||||
Back-end | ||||||||
Excluding ASM AS (comparable) | 929.5 | 734.4 | (21 | )% | ||||
ASM AS | — | 443.8 | n/a | |||||
Back-end total | 929.5 | 1,178.2 | 27 | % | ||||
ASMI consolidated | 1,222.9 | 1,634.3 | 34 | % |
The increase of net sales in the full year 2011 in our Front-end segment compared to last year was driven by increased equipment and higher spares and service sales amongst others due to strong inroads made with enabling new technologies in (PE)ALD and as a result of increased activity at our customers. In our Back-end segment record sales were realized due to the acquisition of SEAS (ASMAS).
The impact of currency changes year-over-year was a decrease of 5%.
Gross Profit Margin
The following table shows gross profit and gross profit margin for the Front-end and Back-end segments for the full year 2011 compared to the same period in 2010:
(EUR millions) | Full year | ||||||||||||
Gross profit | Gross profit margin | Increase or (decrease) percentage points | |||||||||||
2010 | 2011 | 2010 | 2011 | ||||||||||
Front-end | 114.6 | 172.3 | 39.1 | % | 37.8 | % | (1.3)pt | ||||||
Back-end | |||||||||||||
Excluding ASM AS (comparable) | 435.0 | 284.5 | 46.8 | % | 38.7 | % | (8.1)pt | ||||||
ASM AS | — | 113.8 | n/a | 25.6 | % | n/a | |||||||
Back-end total | 435.0 | 398.3 | 46.8 | % | 33.8 | % | (13.0)pt | ||||||
ASMI consolidated | 549.6 | 570.6 | 44.9 | % | 34.9 | % | (10.0)pt |
The decrease of the gross margin in our Front-end segment compared to the same period last year is mainly attributable to the product mix differences. The gross profit margin in the Back-end segment decreased due to mix differences between equipment and lead frame sales, the increase in raw material prices for its lead frame business, the acquisition of the AS business with its lower gross margin, and the lower trading in the course of 2011.
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Business combination accounting rules require us to account for inventories assumed from our acquisitions at their fair values. The revaluation of the acquired inventories increased both cost of sales and the gain on bargain purchase with €11.5 million.
The impact of currency changes year to year was a decrease of 5%.
Selling, General and Administrative Expenses
The following table shows selling, general and administrative expenses for our Front-end and Back-end segments for the full year 2011 compared to the same period in 2010:
(EUR millions) | Full year | |||||||
2010 | 2011 | % Change | ||||||
Front-end | 51.0 | 61.2 | 20 | % | ||||
Back-end | ||||||||
Excluding ASM AS (comparable) | 79.9 | 76.5 | (4 | )% | ||||
ASM AS | — | 35.0 | n/a | |||||
Acquisition related transaction costs | — | 2.4 | n/a | |||||
Back-end total | 79.9 | 113.8 | 43 | % | ||||
ASMI consolidated | 131.0 | 175.0 | 34 | % |
As a percentage of net sales, selling, general and administrative expenses were 11% in the full year of 2011, flat compared to the same period of 2010.
For the full year of 2011 selling, general and administrative expenses as a percentage of net sales of our Front-end segment, were reduced to 13% compared with 17% for the full year of 2010. On a comparable base- excluding the AS business- for the period under review the selling, general and administrative expenses in the Back-end segment as a percentage of net sales increased from 9% in 2010 to 10% in 2011.
The impact of currency changes year to year was a decrease of 4%.
Research and Development Expenses
The following table shows research and development expenses for our Front-end and Back-end segments for the full year 2011 compared to the same period in 2010:
(EUR millions) | Full year | |||||||
2010 | 2011 | % Change | ||||||
Front-end | 36.5 | 48.5 | 33 | % | ||||
Back-end | ||||||||
Excluding ASM AS (comparable) | 42.3 | 43.3 | 2 | % | ||||
ASM AS | — | 37.5 | n/a | |||||
Back-end total | 42.3 | 80.8 | 91 | % | ||||
ASMI consolidated | 78.8 | 129.3 | 64 | % |
As a percentage of net sales, research and development expenses were 8% in the full year of 2011, an increase of 1%-point compared to the same period of 2010.
The impact of currency changes year to year was a decrease of 4%.
Impairment charge property, plant and equipment
In 2011 the Company recorded an impairment charge of €8,038 related to machinery and equipment. The Company impaired certain items of property, plant and equipment related to the Back-end lead frame business. The impairment loss was recognized based on the difference between the carrying value and the fair value of the relevant assets.
Gain on bargain purchase
On 7 January 2011, ASMPT acquired the entire equity interest of 13 direct and indirect subsidiaries of Siemens Aktiengesellschaft (“SEAS Entities”). We recognized a gain of €109.3 million on the bargain purchase representing
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the excess of the net fair value of the identifiable assets acquired and the liabilities assumed over the aggregate of the consideration transferred.
The gain on bargain purchase of €109 million was recognized upon completion of the acquisition of the SEAS entities. The gain on bargain purchase was mainly attributable to depressed market value of the acquired business because of years of losses due to challenging economic environment and the bad global economic environment during the period of negotiation of the acquisition.
Earnings from Operations
The following table shows earnings from operations for our Front-end and Back-end segments for the full year 2011 compared to the same period in 2010:
(EUR millions) | Full year | |||||||
2010 | 2011 | Change | ||||||
Front-end | ||||||||
Excluding impairments and restructuring | 27.1 | 62.6 | 35.5 | |||||
Restructuring | (11.2 | ) | — | 11.2 | ||||
Including impairments and restructuring | 15.9 | 62.6 | 46.7 | |||||
Back-end | ||||||||
Comparable | 312.8 | 164.8 | (148.0 | ) | ||||
ASM AS | — | 41.3 | 41.3 | |||||
Impairments | — | (8.0 | ) | (8.0 | ) | |||
Gain bargain purchase SEAS | — | 109.3 | 109.3 | |||||
Acquisition related transaction cost | — | (2.4 | ) | (2.4 | ) | |||
Back-end total | 312.8 | 304.9 | (7.9 | ) | ||||
ASMI consolidated | 328.6 | 367.5 | 38.9 |
The impact of currency changes year to year was a decrease of 6%.
Net Interest Expense
Net interest expense amounted to €10.6 million in 2011 compared to the net interest expense of €14.5 million in 2010. This decrease in net interest expenses mainly resulted from a lower average debt in 2011.
Accretion interest expense convertible notes
Both our convertible bonds due 2011 and 2014, include a component that creates a financial liability to the Company and a component that grants an option to the holder of the convertible note to convert it into common shares of the Company (“conversion option”). ASC 815 requires separate recognition of these components.
The fair value of the liability component is estimated using the prevailing market interest rate at the date of issue, for similar non-convertible debt. Subsequently, the liability is measured at amortized cost. The interest expense on the liability component is calculated by applying the market interest rate for similar non-convertible debt at the date of issue to the liability component of the instrument. The difference between this amount and the interest paid is added to the carrying amount of the convertible subordinated notes, thus creating a non-cash interest expense. For 2011 this accretion interest was €4.4 million (2010; €6.0 million).
Revaluation conversion option
All convertible bonds include a component that creates a financial liability to the Company and a component that grants an option to the holder of the convertible note to convert it into common shares of the Company (“conversion option”). ASC 815 requires separate recognition of these components.
For the conversion options of the convertible bonds due 2011 the accounting is different from that for the conversion option of the convertible bonds due 2014. As the convertible bonds due 2011 was denominated in USD and the ASM International common shares in which they can be converted to are denominated in Euro, these conversion options are recognized as a liability measured at fair value. The conversion option is measured at fair value through the income statement, for 2011, until early redemption in February 2011, this revaluation at fair value resulted in a loss of €4.4 million (2010: €19.0 million).
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For the conversion options of the convertible bonds due 2014 the fixed–for-fixed principle is met as both the debt instrument (the bond) and the entity’s equity shares in which they can be converted to are denominated in the functional currency (Euro). Based on the before mentioned criteria the conversion option qualifies as permanent equity.
Loss resulting from early extinguishment of debt
On January 3, 2011 we announced the redemption for all outstanding principal balance of our 4.25% Convertible Subordinated Notes due 2011, which resulted in the conversion of almost all remaining notes prior to the redemption date. The loss from the early extinguishment of the notes of €824, which includes the write-off of unamortized issuance costs, has been recorded as a loss from early extinguishment of debt in the Consolidated Statement of Operations for the year 2011.
In 2010 US$56.5 million convertible subordinated notes have been repurchased for a market value of US$74.6 million. The loss from the early extinguishment of the notes of €3,609, which includes the write-off of unamortized issuance costs and the amortization of unamortized interest expenses, has been recorded as a loss from early extinguishment of debt in the Consolidated Statement of Operations for the year 2010.
Income Tax Expense
Income tax expense decreased from €43 million in 2010 to €37 million in 2011, resulting from the balance of an increase of result before tax in 2011 and a release of certain valuation allowances.
Net Earnings allocated to the shareholders of the parent
The following table shows net earnings for our Front-end and Back-end segments for the full year, 2011 compared to the same period in 2010:
(EUR millions) | Full year | |||||||
2010 | 2011 | Change | ||||||
Front-end | ||||||||
Excluding special items | (1.8 | ) | 49.7 | 51.6 | ||||
Restructuring charges | (11.2 | ) | — | 11.2 | ||||
Loss from early extinguishment of debt | (3.6 | ) | (0.8 | ) | 2.8 | |||
Fair value change conversion options | (19.0 | ) | (4.4 | ) | 14.7 | |||
Special items | (33.8 | ) | (5.2 | ) | 28.6 | |||
Including special items | 35.7 | 44.5 | 80.2 | |||||
Back-end | ||||||||
Excluding special items | 146.3 | 89.4 | (56.9 | ) | ||||
Impairments | — | (4.2 | ) | (4.2 | ) | |||
Gain bargain purchase SEAS | — | 57.0 | 57.0 | |||||
Special items | — | 52.8 | 52.8 | |||||
Including special items | 146.3 | 142.2 | (4.1 | ) | ||||
ASMI consolidated, total earnings1) | 110.6 | 186.8 | 76.1 |
1)Allocated to the shareholders of the parent
Net earnings for the Back-end segment reflect our 52.17% ownership of ASM Pacific Technology.
Information regarding the hedging of foreign currency net investments is provided in Item 11, and is incorporated herein by reference.
B. Liquidity and Capital Resources
Our liquidity is affected by many factors, some of which are related to our ongoing operations and others of which are related to the semiconductor and semiconductor equipment industries, and to the economies of the countries in which we operate. Although our cash requirements fluctuate based on the timing and extent of these factors, we believe that cash generated by operations, together with the liquidity provided by our existing cash resources and our financing arrangements, will be sufficient to fund working capital, capital expenditures and other ongoing business requirements for at least the next twelve months.
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Cash flow
Net cash provided by operations in 2012 was €42 million as compared to €217 million for 2011. This decrease results mainly from lower net earnings. Net cash used in investing activities in 2012 of €72 million was at the same level compared to €70 million for 2011. Net cash used in financing activities in 2012 was €73 million compared to €79 million for the same period in 2011.
Debt
In October 2012, we exercised our right to call the outstanding 6.50% Convertible Subordinated Loan (due 2014), resulting in conversion of all remaining notes (€150 million) on November 27, 2012.
In July 2011 we finalized the increase and extension of ASMI’s existing standby revolving credit facility. The credit commitment was increased from €90 million to €150 million and the maturity date was extended from November 1, 2012 until July 31 2014. In the event all outstanding convertible bonds due November 6, 2014 are converted, repaid or replaced prior to June 30, 2014, the maturity date will be July 31, 2015. As per December 31, 2011 the amount outstanding of the 6.5% Convertible Subordinated Loan (due 2014) is €150 million. As a result of the dividend paid in 2011 the conversion rate decreased from €17.06 to €16.85. As a result of the dividend paid in 2012 the conversion rate decreased from €16.85 to €16.53.
In May 2010 the remaining outstanding US$16.9 million of our 5.25% Convertible bonds due 2010 were converted into common shares. In January, July and December 2010, respectively US$39.4 million, US$7.2 million and US$9.9 million of our 4.25% Convertible bonds due 2010 were repurchased. In January , 2011 we announced the redemption of all of the outstanding principal balance of our 4.25% Convertible Subordinated Notes due 2011, which resulted in the conversion of all remaining notes prior to the redemption date scheduled for February 15, 2011.
See notes 4, 5, 14, 17, 18 and 23 to our consolidated financial statements for discussion of our funding, treasury policies and our long-term debt.
Liquidity
On December 31, 2012, the Company’s principal sources of liquidity consisted of EUR 290 million in cash and cash equivalents and EUR 276 million in undrawn bank lines. Approximately EUR 145 million of the cash and cash equivalents and EUR 126 million of the undrawn bank lines are restricted to use for the Company’s Back-end operations.
For the most part, our cash and cash equivalents are not guaranteed by any governmental agency. We place our cash and cash equivalents with high quality financial institutions to limit our credit risk exposure.
On December 31, 2012 the net cash of ASMI, excluding Back-end, was €145 million (2011: €65 million). ASMI excluding Back-end is free of debt. Furthermore, ASMI, excluding Back-end, has available credit lines of €150 million.
Working capital
Net working capital, consisting of accounts receivable, inventories, other current assets, accounts payable, accrued expenses, advance payments from customers and deferred revenue, increased from €407 million December 31, 2011 to €448 million on December 31, 2012. The number of outstanding days of working capital, measured based on quarterly sales, increased from 106 days on December 31, 2011 to 126 days on December 31, 2012. For the same period, our Front-end segment increased from 100 days to 110 days and our Back-end segment increased from 109 days to 132 days.
Pension plans
The Company’s employees of the Front-end segment in the Netherlands, approximately 179 full-time employees (FTE), participate in a multi-employer union plan ”Bedrijfstakpensioenfonds Metalektro” (“PME”) determined in accordance with the collective bargaining agreements effective for the industry in which ASMI operates. This collective bargaining agreement has no expiration date. This multi-employer union plan covers approximately 1,220 companies and 150,000 contributing members. ASMI’s contribution to the multi-employer union plan is less than 5.0% of the total contribution to the plan as per the annual report for the year ended December 31, 2011. The plan monitors its risks on a global basis, not by company or employee, and is subject to regulation by Dutch governmental authorities. By law (the Dutch Pension Act), a multi-employer union plan must be monitored against specific criteria, including the coverage ratio of the plan assets to its obligations. This coverage ratio must exceed 104.25% for the total plan. Every company participating in a Dutch multi-employer union plan contributes a premium
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calculated as a percentage of its total pensionable salaries, with each company subject to the same percentage contribution rate. The premium can fluctuate yearly based on the coverage ratio of the multi-employer union plan. The pension rights of each employee are based upon the employee’s average salary during employment.
ASMI’s net periodic pension cost for this multi-employer union plan for any period is the amount of the required contribution for that period. A contingent liability may arise from, for example, possible actuarial losses relating to other participating entities because each entity that participates in a multi-employer union plan shares in the actuarial risks of every other participating entity. It can also arise from any responsibility under the terms of a plan to finance any shortfall in the plan if other entities cease to participate.
The coverage ratio of the multi-employer union plan increased to 93.9% as of December 31, 2012 (December 31, 2011: 90.0%). Because of the low coverage ratio, PME prepared and executed a so-called “Recovery Plan” which was approved by "De Nederlandsche Bank", the Dutch central bank, which is the supervisor of all pension companies in the Netherlands. Due to the low coverage ratio and according the obligation of the “Recovery Plan” the pension premium percentage is 24.0% in both 2011 and 2012. The coverage ratio is calculated by dividing the plan assets by the total sum of pension liabilities and is based on actual market interest.
ASMPT
Our Back-end segment, which is conducted through ASM Pacific Technology, our 51.96%-owned subsidiary on December 31, 2012 had a debt of €81 million. The cash resources and borrowing capacity of ASM Pacific Technology are not available to our Front-end segment, due to restrictions imposed by the Hong Kong Stock Exchange, on which the ASM Pacific Technology common shares are listed.
We historically relied on dividends from ASM Pacific Technology for a portion of our cash flow for use in our Front-end operations. Cash dividends received from ASM Pacific Technology during 2010, 2011 and 2012 were €65.6 million, €86.9 million and €29.6 million, respectively. In November 2006, we announced our commitment that for at least the next three years we would not use these cash dividends to support our Front-end business, but instead would use such dividends to retire outstanding convertible debt, repurchase our common shares, pay dividends on our common shares or, in the event of dilution resulting from the exercise of employee stock options in ASM Pacific Technology, purchase shares of ASM Pacific Technology to maintain our percentage ownership at its current level.
At our Annual General Meeting of Shareholders in May 2010 we decided to extend this policy for the years 2010 and 2011.
The following table shows the dividends received from ASM Pacific Technology and the use of those dividends within the Front-end business:
(EUR millions) | Dividends received from ASM Pacific Technology | Repurchased common shares of ASM International | Repurchased Convertible bonds | Dividend paid to shareholders of ASM International | Balance of dividends received | |||||||||
2007 | 49.1 | — | (32.9 | ) | (5.4 | ) | 10.8 | |||||||
2008 | 49.1 | (36.5 | ) | (27.1 | ) | — | (14.5 | ) | ||||||
2009 | 21.4 | — | (27.0 | ) | — | (5.6 | ) | |||||||
2010 | 65.6 | — | (55.8 | ) | — | 9.8 | ||||||||
2011 | 86.9 | — | — | (22.1 | ) | 64.8 | ||||||||
2012 | 29.6 | (40.6 | ) | — | (27.5 | ) | (38.5 | ) | ||||||
Total | 301.7 | (77.1 | ) | (142.8 | ) | (55.0 | ) | 26.8 |
Although certain directors of ASM Pacific Technology are directors of ASM International, ASM Pacific Technology is under no obligation to declare dividends to shareholders or enter into transactions that are beneficial to us. As a substantial shareholder, we can approve the payment of dividends, but cannot compel their payment or size.
The market value of our investment in ASM Pacific Technology at the end of 2012 was approximately €1,913 million. At the end of 2011 this was approximately €1,799 million.
C. Research and Development, Patents and Licenses, etc.
Research and development
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See Item 4.B. “Business Overview, Research and Development” and Item 5.A. “Operating Results, Operating and Financial Review and Prospects”.
Intellectual property matters
See Item 3.D. “Risk Factors, Our ability to compete could be jeopardized if we are unable to protect our intellectual property rights from challenges by third parties; claims or litigation regarding intellectual property rights could require us to incur significant costs.” and “We license the use of some patents from a competitor pursuant to a settlement agreement; if the agreement is terminated, our business could be adversely affected.” and Item 4.B. “Business Overview, Intellectual Property and Trademarks”.
D. Trend information
Backlog
Our backlog includes orders for which purchase orders or letters of intent have been accepted, typically for up to one year. Historically, orders have been subject to cancellation or rescheduling by customers. In addition, orders have been subject to price negotiations and changes in specifications as a result of changes in customers’ requirements. Due to possible customer changes in delivery schedules and requirements and to cancellation of orders, our backlog at any particular date is not necessarily indicative of actual sales for any succeeding period.
The following table shows the level of new orders during 2011 and 2012, and the backlog and book-to-bill ratios on December 31, 2011 and 2012:
(EUR millions, except book-to-bill ratio) | Full year | |||||||
2011 | 2012 | % Change | ||||||
Front-end: | ||||||||
New orders | 398.3 | 360.1 | (10 | )% | ||||
Backlog at December 31 | 105.1 | 91.7 | (13 | )% | ||||
Book-to-bill ratio (new orders divided by net sales) | 0.9 | 1.0 | ||||||
Back-end: | ||||||||
New orders | 971.2 | 1,017.1 | 5 | % | ||||
Backlog at December 31 | 225.5 | 197.5 | (12 | )% | ||||
Book-to-bill ratio (new orders divided by net sales) | 0.8 | 1.0 | ||||||
Total | ||||||||
New orders | 1,369.5 | 1,377.2 | 1 | % | ||||
Backlog at December 31 | 330.6 | 289.2 | (13 | )% | ||||
Book-to-bill ratio (new orders divided by net sales) | 0.8 | 1.0 |
Outlook
We have developed forecasts and projections of cash flows and liquidity needs for the upcoming year. This takes into account the current market conditions, reasonably possible changes in trading performance based on such conditions, and our ability to modify our cost structure as a result of changing economic conditions and sales levels. We have also considered in the forecasts the total cash balances amounting to €290.5 million as of December 31, 2012; available borrowings; the ability to renew debt arrangements and to access additional indebtedness; and whether or not we will maintain compliance with our financial covenants. Based on this, we believe that our cash on hand at the end of 2012 is adequate to fund our operations, our investments in capital expenditures and to fulfill our existing contractual obligations for the next twelve months.
E. Off-Balance Sheet Arrangements
We have contractual obligations, some of which are required to be recorded as liabilities in our consolidated financial statements, including long- and short-term debt. Other contractual arrangements, such as operating lease commitments and purchase obligations, are not generally required to be recognized as liabilities on our consolidated balance sheet, but are required to be disclosed.
F. Tabular Disclosure of Contractual Obligations
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The following table summarizes our contractual obligations as of December 31, 2012 aggregated by type of contractual obligation:
Total | Less than 1 year | 1-3 years | 3-5 years | More than 5 years | ||||||||||
Notes payable to banks 1 | 62,686 | 62,686 | — | — | — | |||||||||
Long-term debt 1 | 19,957 | 6,821 | 13,136 | — | — | |||||||||
Operating leases | 72,526 | 21,430 | 29,904 | 13,963 | 7,229 | |||||||||
Pension liabilities | 12,540 | 418 | 931 | 1,603 | 9,588 | |||||||||
Purchase obligations: | ||||||||||||||
Purchase commitments to suppliers | 141,908 | 139,221 | 2,687 | — | — | |||||||||
Capital expenditure commitments | 10,553 | 10,273 | 280 | — | — | |||||||||
Unrecognized tax benefits (ASC 740) | 22,511 | 22,511 | — | — | — | |||||||||
Total contractual obligations | 342,681 | 263,360 | 46,938 | 15,566 | 16,817 |
(1) | Including accrued interest based on the percentages at the reporting date. |
For a further discussion of our contractual obligations see Notes 14, 17, 18, 21, 23 and 26 to our Consolidated Financial Statements, which are incorporated herein by reference.
We outsource a substantial portion of the manufacturing of our Front-end operations to certain suppliers. As our products are technologically complex, the lead times for purchases from our suppliers can vary and can be as long as nine months. Generally, contractual commitments are made for multiple modules or systems in order to reduce our purchase prices per module or system. For the majority of our purchase commitments, we have flexible delivery schedules depending on the market conditions, which allow us, to a certain extent, to delay delivery beyond originally planned delivery schedules.
New Accounting Pronouncements
For information regarding new accounting pronouncements, see Note 1 to our "Consolidated Financial Statements", which is incorporated herein by reference.
Item 6. Directors, Senior Management and Employees
A. Directors and senior management.
The members of our Supervisory Board and Management Board and our other senior manager are as follows:
Name | Position | Year of Birth | Term Expires | |||
Gert-Jan Kramer 2 | Chairman of the Supervisory Board | 1942 | 2013 | |||
Johan M.R. Danneels 2 | Member of the Supervisory Board | 1949 | 2016 | |||
Heinrich W. Kreutzer 1 | Member of the Supervisory Board | 1949 | 2014 | |||
Jan C. Lobbezoo 1 | Member of the Supervisory Board | 1946 | 2013 | |||
Martin C.J. van Pernis 2 | Member of the Supervisory Board | 1945 | 2014 | |||
Ulrich H.R. Schumacher 1 | Member of the Supervisory Board | 1958 | 2016 | |||
Charles D. (Chuck) del Prado | Chairman of the Management Board, President and Chief Executive Officer | 1961 | 2014 | |||
Peter A.M. van Bommel | Member of the Management Board and Chief Financial Officer | 1957 | 2014 | |||
W.K. Lee | Chief Executive Officer of ASM Pacific Technology Ltd | 1954 | — |
(1) | Member of Audit Committee |
(2) | Member of Nomination, Selection and Remuneration Committee |
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Gert-Jan Kramer was elected to the Supervisory Board in May 2009 and is currently Chairman of the Supervisory Board. Until his retirement in 2005, Mr Kramer served as President and Chief Executive Officer of Fugro NV for more than 20 years. He is on the Supervisory Board of Damen Shipyards Group NV (Vice-Chairman), Fugro NV, Bronwaterleiding Doorn, Energie Beheer Nederland BV and the Delft Technical University (Chairman). He is also on the Board of the Service Organization Protestant Churches in the Netherlands (Chairman), Foundation of Friends of the Pieterskerk Leiden (Chairman) and the Pieterskerk Leiden (Chairman). Mr Kramer is on the Board of many cultural organizations, such as several museums and orchestras: the Foundation Beelden aan Zee, the Frans Hals Museum, De Nieuwe Kerk Amsterdam, the Amsterdam Sinfonietta (Chairman), the Hague Philharmonic (Chairman) and the Concertgebouw Fund Foundation.
Johan M.R. Danneels was initially elected a member of the Supervisory Board in May 2000 and was reappointed on May 15, 2012 for a period of four years. Mr Danneels is Chief Executive Officer at Essensium, the company he founded in 2005 as a spin off from the IMEC research institute. He was Chairman of IMEC from 2000 to 2005. Prior to that he spent 25 years at Alcatel. He held several management functions for all major product lines, was Corporate Executive Vice President of Alcatel NV, Chief Executive Officer of Alcatel Microelectronics and most recently Group Vice President of STMicroelectronics. He holds a PhD degree in Engineering from the Catholic University of Leuven, Belgium and a MBA degree from Boston University.
Heinrich W. Kreutzer was initially elected a member of the Supervisory Board in November 2006 and was reappointed on May 20, 2010 for a period of four years. Between 1999 and 2003 Mr Kreutzer was a member of the Management Board as Chief Operating Officer and Chief Technology Officer of Alcatel SEL AG. From 2004 to 2006 he was Managing Director of Kabel Deutschland GmbH in Munich, Germany. Prior to that he worked at several companies including General Telephone & Electronics in Waltham, USA and Alcatel in Stuttgart, Germany. Mr Kreutzer is currently on the Board of Directors of Micronas Semiconductor AG (Chairman) in Zurich, Switzerland, Micronas Semiconductor GmbH (Chairman) in Freiburg, Germany and BKtel Communications GmbH (Chairman), Germany. He holds a Master's degree in Engineering and a Master's degree in Economics, and studied at the Technical University of Berlin and the University of Hagen, Germany.
Jan C. Lobbezoo was elected a member of the Supervisory Board in May 2009. Mr Lobbezoo was Executive Vice-President and Chief Financial Officer of the semiconductor division of Royal Philips Electronics from 1994 to 2005. He was a member of the Board of TSMC for 12 years until 2007 and remains its advisor, specifically in the areas of US corporate governance, international reporting and financial review. He is on the Board of FEI, a US-based nano-technology equipment company and on the One-tier Board of TMC Group NV (Non-Executive Member). He is also on the Supervisory Board of Mapper Lithography BV (Chairman), Mutracx BV (Chairman), Salland Engineering BV (Chairman), ALSI NV and Point One Innovation Fund (Chairman). He holds a Master's degree in Business Economics from the Erasmus University Rotterdam, the Netherlands and is a Dutch Registered Accountant.
Martin C.J. van Pernis was elected a member of the Supervisory Board in May 2010. Mr Van Pernis joined Siemens in 1971 and retired from the Siemens Group at the end of 2009 as Chairman of the Management Board of Siemens Nederland NV. He is on the Supervisory Board of Batenburg Techniek NV (Chairman), Dutch Space BV - a subsidiary of EADS (Chairman), Aalberts Industries NV (Vice Chairman), Feyenoord Rotterdam NV, GGZ Delfland (Chairman), SFG/Vlietland Group (Chairman), The Platform "Vernieuwing Bouw" (Chairman) and President of The Royal Institute of Engineers - KIVI NIRIA.
Ulrich H.R. Schumacher was initially elected a member of the Supervisory Board in May 2008 and was reappointed on May 15, 2012 for a period of four years. Presently Mr Schumacher is Managing Director of CGS Consulting. From 1986 to 1999 he held various engineering and management positions at Siemens AG. Between 1996 and 1999 he was CEO and President of Siemens Semiconductor Group, and became President and CEO of Infineon Technologies AG after the spin off from Siemens Semiconductor Group in 1999. From 2004 to 2007 he was a Partner at Francisco Partners, a private equity investment company based in the U.S. Between 2007 and 2010 he was the CEO and President of Grace Semiconductor Manufacturing Corporation. Mr Schumacher is on the Supervisory Board of Siano Mobile Silicon and PACT XPP Technologies AG (Chairman). He holds a PhD degree in Electrical Engineering from the University of Aachen, Germany and has completed further education in Business Administration.
Charles D. (Chuck) del Prado was appointed a member of the Management Board in May 2006 and President and Chief Executive Officer on March 1, 2008. Between 1989 and 1996 Mr Del Prado held several marketing and sales positions at IBM Nederland NV. From 1996 to 2001 he worked in various management positions at ASML, in manufacturing and sales in Taiwan and the Netherlands. He was appointed Director Marketing, Sales & Service of
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ASM Europe in March 2001. From 2003 to 2007 he was President and General Manager of ASM America. From January 1, 2008 to February 29, 2008, he acted as Executive Vice President Front-end Operations at ASM America. He holds a Master's of Science degree in Industrial Engineering and Technology Management from the University of Twente, the Netherlands.
Peter A.M. van Bommel was appointed a member of the Management Board on July 1, 2010 and became Chief Financial Officer on September 1, 2010. Mr Van Bommel has more than twenty years of experience in the electronics and semiconductor industry. He spent most of his career at Philips, which he joined in 1979. From the mid-1990s until 2005 he acted as CFO of several business units of the Philips group. Between 2006 and 2008 he was CFO at NXP, formerly Philips Semiconductors. He was CFO of Odersun AG, a manufacturer of thin-film solar cells and modules until August 31, 2010. In April 2012 Mr Van Bommel was appointed a member of the Supervisory Board and a member of the Audit Committee of the Royal KPN NV. He holds a Master's degree in Economics from the Erasmus University Rotterdam, the Netherlands.
W.K. Lee became Chief Executive Officer of ASM Pacific Technology Ltd effective January 1, 2007 and has been General Manager Southern Region of ASM Pacific Technology since 1990. Mr Lee has been employed by ASM Pacific Technology for over 30 years. Prior to becoming in 1990 General Manager of ASM Pacific Technology's activities in Singapore, he was involved in product development. He was a member of the Management Board of the Company from January 1, 2007 to December 31, 2010. He holds a Bachelor's degree in Science and a Master's degree in Philosophy in Electronics from the Chinese University of Hong Kong, and a Master's degree in Business Administration from the National University of Singapore.
B. Compensation.
For information regarding remuneration of members of our Management Board and Supervisory Board, see Note 30 to our Consolidated Financial Statements, which is incorporated herein by reference.
For further information regarding remuneration of members of our Management Board, see our Remuneration Policy and Remuneration Reports, which are posted on our website (www.asm.com).
We have granted stock options to certain key employees. For information regarding such options see Note 20 to our Consolidated Financial Statements, which is incorporated herein by reference.
C. Board practices.
Under Netherlands law, the Supervisory Board has the duty to supervise and advise the Management Board. Persons nominated by the Supervisory Board to be appointed by the shareholders to the Supervisory Board are elected if they receive a majority of the votes cast at a meeting of shareholders. Nominees to the Supervisory Board who are not proposed by the Supervisory Board are appointed if they receive the affirmative vote of a majority of the votes cast at a meeting, which affirmative votes represent at least one third of our issued capital. A resolution to remove a member of the Supervisory Board, other than in accordance with a proposal of the Supervisory Board, shall require the affirmative vote of a majority of the votes cast, which affirmative votes represent at least one third our issued capital. The Supervisory Board members serve a four year term and may be re-elected after each term. The Supervisory Board members may be re-elected twice.
The Management Board is entrusted with our management under the supervision of the Supervisory Board and has the general authority to enter into binding agreements with third parties. Persons nominated by the Supervisory Board to be appointed by the shareholders to the Management Board are elected if they receive a majority of the votes cast at a meeting of shareholders. Nominees to the Management Board who are not proposed by the Supervisory Board are appointed if they receive the affirmative vote of a majority of the votes cast at a meeting, if such affirmative votes represent at least one third of our issued capital. A Management Board member may at any time be suspended by the Supervisory Board. A Management Board member may, in accordance with a proposal of the Supervisory Board, be dismissed by the General Meeting of Shareholders with a majority of the votes cast. A resolution to suspend or to dismiss a member of the Management Board, other than in accordance with a proposal of the Supervisory Board, shall require the affirmative vote of a majority of the votes cast at a meeting, which affirmative votes represent at least one third of our issued capital.
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The Audit Committee of the Supervisory Board has a supervisory task with regard to monitoring the integrity of our financial reports and risk management. The Audit Committee consists of Mr Lobbezoo (Chairman), Mr Kreutzer and Mr Schumacher. The Audit Committee supervises the activities of the Management Board with respect but not limited to:
• | the operation of the internal risk management and control systems, including supervision of the enforcement of the relevant legislation and regulations, and supervising the operation of codes of conduct; |
• | our release of financial information; |
• | compliance with recommendations and observations of external auditors; |
• | our policy on tax planning; |
• | relations with the external auditor, including, in particular, its independence, remuneration and any non-audit services performed for us; |
• | our financing and financial position; and |
• | the applications of information and communication technology (ICT). |
The Audit Committee meets periodically to nominate a firm to be appointed as independent auditors to audit the financial statements and to perform services related to the audit, review the scope and results of the audit with the independent auditors, review with management and the independent auditors our annual operating results and consider the adequacy of the internal accounting procedures and the effect of the procedures relating to the auditor’s independence.
The Nomination, Selection and Remuneration committee of the Supervisory Board advises the Supervisory Board on matters relating to the selection and nomination of the members of the Management Board and Supervisory Board. The committee further monitors and evaluates the remuneration policy for the Management Board. This committee consists of Mr Kramer (Chairman), Mr Danneels and Mr van Pernis.
We have entered into indemnity agreements with each of our Supervisory Board and Management Board members in which we agree to hold each of them harmless, to the extent permitted by law, from damage resulting from a failure to perform or a breach of duties by our board members, and to indemnify each of them for serving in any capacity for the benefit of the Company, except in the case of willful misconduct or gross negligence in certain circumstances.
D. Employees.
As of December 31, 2012, we had 17,404 employees, including 1,534 employees primarily involved in research and development activities, 814 in marketing and sales, 1,735 in customer service, 985 in finance and administration, and 12,336 in manufacturing.
The following table lists the total number of our employees and the number of our employees in our Front-end and Back-end business at the dates indicated, exclusive of temporary workers:
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Geographic Location | December 31, 2010 | December 31, 2011 | December 31, 2012 | |||||||||||||||||||||||
Front-end | Back-end | Total | Front-end | Back-end | Total | Front-end | Back-end | Total | ||||||||||||||||||
Europe | ||||||||||||||||||||||||||
The Netherlands | 148 | 10 | 158 | 165 | 9 | 174 | 176 | 3 | 179 | |||||||||||||||||
EMEA | 136 | 5 | 141 | 157 | 883 | 1,040 | 171 | 917 | 1,088 | |||||||||||||||||
United States | 361 | 10 | 371 | 457 | 87 | 544 | 535 | 92 | 627 | |||||||||||||||||
Japan | 180 | 21 | 201 | 182 | 21 | 203 | 177 | 22 | 199 | |||||||||||||||||
Southeast Asia | 625 | 15,203 | 15,828 | 670 | 13,563 | 14,233 | 577 | 14,734 | 15,311 | |||||||||||||||||
Total | 1,450 | 15,249 | 16,699 | 1,631 | 14,563 | 16,194 | 1,636 | 15,768 | 17,404 |
Our Dutch operations, which employed 166 persons as of March 15, 2013, is subject to standardized industry bargaining under Netherlands law, and is required to pay wages and meet conditions established as a result of negotiations between all Netherlands employers in their industry and unions representing employees of those employers. Additionally, management personnel in the Netherlands facilities meet as required by Netherlands law with a works council consisting of elected representatives of the employees to discuss working conditions and personnel policies as well as to explain major corporate decisions and to solicit their advice on major issues.
Many of our employees are highly skilled, and our continued success will depend in part upon our ability to continue to attract and retain these employees, who are in great demand. We believe that our employee relations are good.
E. Share ownership.
Information with respect to shares and options held by members of our Supervisory Board and Management Board is included in Item 7, “Major Shareholders and Related Party Transactions” and Notes 30 and 31 to our Consolidated Financial Statements, which are incorporated herein by reference. With the exception of Chuck del Prado, as of March 15, 2013, none of the members of our Supervisory Board or Management Board owned beneficially more than 1% of our outstanding common shares.
We maintain various stock option plans for the benefit of our employees. For information about our stock option plans, see Note 20 to our Consolidated Financial Statements, which is incorporated herein by reference.
Item 7. Major Shareholders and Related Party Transactions
A. Major shareholders.
The following table sets forth information with respect to the ownership of our common shares as of March 15, 2013 by each beneficial owner known to us of more than 5% of our common shares:
Number of Shares | Percent 1 | ||||
Arthur H. del Prado 1)2) | 11,346,323 | 17.96 | % | ||
Aberdeen Asset Managers Ltd 3) | 8,351,517 | 9.87 | % | ||
Capital Research and Management Company 4) | 3,237,708 | 5.13 | % |
___________________
(1) | Calculated on the basis of 63,169,136 Common Shares outstanding as of March 15, 2013, and without regard to options. |
(2) | Includes 3,039 common shares owned by Stichting Administratiekantoor ASMI, a trust controlled by Arthur H. del Prado and 713,000 common shares beneficially owned by Chuck D. del Prado, Arthur H. del Prado’s son. |
(3) | Based on the notification dated August 14, 2012. |
(4) | Based on the notification dated March 15, 2013. |
A “beneficial owner” of a security includes any person who, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise has or shares (i) voting power which includes the power to vote, or to direct the voting of, such security and/or (ii) investment power which includes the power to dispose, or to direct the
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disposition, of such security. In addition, a person shall be deemed to be the beneficial owner of a security if that person has the right to acquire beneficial ownership of such security, as defined above, within 60 days, including but not limited to any right to acquire: (i) through the exercise of any option, warrant or right; (ii) through the conversion of a security; or (iii) pursuant to the power to revoke, or pursuant to the automatic termination of, a trust, discretionary account, or similar arrangement.
Pursuant to the Dutch Financial Supervision Act ('Wet op het financieeltoezicht' or 'Wft'), legal entities as well as natural persons must immediately notify the Dutch Authority for the Financial Markets (AFM) when a shareholding equals or exceeds 5% of the issued capital. The AFM must be notified again when this shareholding subsequently reaches, exceeds or falls below a threshold. This can be caused by the acquisition or disposal of shares by the shareholder or because the issued capital of the issuing institution is increased or decreased. Thresholds are: 5%, 10%, 15%, 20%, 25%, 30%, 40%, 50%, 60%, 75% and 95%. The AFM incorporates the notifications in the public register, which is available on its website. Failure to disclose the shareholding qualifies as an offense, and may result in civil penalties, including suspension.
On May 28, 1997, we entered into an agreement with Stichting Continuïteit ASM International (Stichting), pursuant to which Stichting was granted an option to acquire up to a number of our preferred shares corresponding with a total par value equal to 50% of the par value of our common shares issued and outstanding at the date of the exercise of the option. Stichting is a non-membership organization organized under Netherlands law. The objective of Stichting is to serve the interests of the Company. To that objective Stichting may, amongst others, acquire, own and vote our preferred shares in order to maintain our independence and/or continuity and/or identity. The members of the board of Stichting are:
Michael J.C. van Galen (chairman) | Retired Managing Director, Breevast NV |
Rinze Veenenga Kingma | President Archeus Consulting BV |
Jan Klaassen | Emeritus Professor, Vrije Universiteit Amsterdam |
On May 14, 2008, Stichting exercised its right to acquire preferred shares in the Company and acquired 21,985 preferred shares representing 21,985,000 votes, which constituted 29.9% of the total voting power of our outstanding capital stock as of May 14, 2008. Stichting paid €219,850, which constituted one-fourth of the nominal value of the preferred shares acquired, in accordance with the option agreement. This amount was paid by Stichting using an existing credit line. On May 14, 2009, the Annual Meeting of Shareholders resolved to cancel the outstanding preferred shares and to reissue an option to Stichting Continuïteit to acquire preferred shares.
Except as described above regarding Stichting, we are unaware of any arrangement which we anticipate will result in a change in control of ASM International. All shares of our common stock (including shares held by major shareholders) entitle the holder to the same voting rights. Our preferred shares entitle the holder to 1,000 votes per share.
Of our 63.095.986 outstanding common shares at March 15, 2013, 2,142,039 are registered with us in the Netherlands, 56,056,253 are registered with our transfer agent in the Netherlands, ABN AMRO Bank NV, and 4,897,694 are registered with our transfer agent in the United States, Citibank, N.A., New York. Our common shares registered with Citibank, N.A., New York are listed on the NASDAQ Global Select Market under the symbol “ASMI.” As of March 15, 2013 there were approximately 125 record holders of our common shares registered with Citibank. ASM's Ordinary Shares are listed on NYSE Euronext in Amsterdam (symbol: ASM) and also trade on NASDAQ (symbol: ASM)
B. Related party transactions.
For information regarding related party transactions, see Note 31 to our Consolidated Financial Statements, which is incorporated herein by reference.
C. Interest of Experts & Counsel.
Not applicable.
Item 8. Financial Information
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A. Consolidated statements and other financial information
Consolidated financial statements
See Item 18, “Financial Statements.”
Legal proceedings
See Item 4.B., “Business Overview” and Note 22 to our Consolidated Financial Statements, which is incorporated herein by reference. See also Item 3.D, “Risk Factors—We are subject to various legal proceedings and claims, the outcomes of which are uncertain. If we fail to accurately evaluate the probability of loss or the amount of possible losses, an adverse outcome may materially and adversely affect our financial condition and results of operations.”
Dividend policy
ASMI aims, as part of its financing policy, to pay a sustainable annual dividend. Annually the Supervisory Board, upon proposal of the Management Board, will assess the amount of dividend that will be proposed to the Annual General Meeting of Shareholders. The decision that a dividend be proposed to the Annual General Meeting of Shareholders will be subject to the availability of distributable profits as well as retained earnings and may be affected by our potential future funding requirements. Accordingly, dividend payments may fluctuate and could decline or be omitted in any year.
In 2007, we paid an interim dividend of €0.10 per common share. We did not pay dividends in 2008, 2009, 2010 and in any year prior to 2007. In 2011, we paid a dividend of €0.40 per common share. In 2012, we paid a dividend of €0.50 per common share and we intend to propose to the forthcoming 2013 Annual General Meeting of Shareholders to declare a dividend of €0.50 per share and an extraordinary distribution of €4.25.
B. Significant changes
We in the past derived a significant portion of our net sales, earnings from operations and net earnings from the consolidation of the results of operations of ASM Pacific Technology in our results. ASM Pacific Technology is a Cayman Islands limited liability company that is based in Hong Kong and listed on the Hong Kong Stock Exchange. As of December 31, 2012, we owned 51.96% of ASM Pacific Technology through our wholly-owned subsidiary, ASM Pacific Holding BV and the remaining 48.04% was owned by the public. In March 2013, we sold a 12% stake so we now own 40.08% of ASM Pacific Technology. Accordingly from March 15, 2013, we are no longer able to consolidate ASM Pacific Technology's results of operations in ours. Instead, our proportionate share of ASM Pacific Technology’s earnings will be reflected as a separate line-item called “share of results from investments” in our Consolidated Statements of Operations. We will no longer be able to consolidate the assets and liabilities of ASM Pacific Technology and will have to reflect the net investment in ASM Pacific Technology in the line-item “investments” in our Consolidated Balance Sheet. This event will have a significant negative effect on our consolidated earnings from operations, although our net earnings will be reduced only to the extent of the reduction of our ownership interest in ASM Pacific Technology.
Item 9. The Offer and Listing
A. Offer and listing details.
The following table sets forth, for the periods indicated, the high and low closing prices of our common shares as reported on the NASDAQ Global Select Market and the high and low closing prices as reported on Euronext Amsterdam:
Price Range of Common Shares
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NASDAQ Closing Prices | Euronext Closing Prices | ||||||||||||||
High | Low | High | Low | ||||||||||||
Annual Information | |||||||||||||||
2008 | $ | 32.66 | $ | 6.60 | € | 20.96 | € | 5.00 | |||||||
2009 | 25.75 | 6.30 | 17.80 | 4.92 | |||||||||||
2010 | 35.09 | 19.10 | 26.50 | 15.32 | |||||||||||
2011 | 44.60 | 22.23 | 31.68 | 16.01 | |||||||||||
2012 | 40.35 | 29.39 | 32.89 | 22.64 | |||||||||||
Quarterly Information | |||||||||||||||
2011: | |||||||||||||||
First Quarter | $ | 41.64 | $ | 33.72 | € | 30.66 | € | 24.99 | |||||||
Second Quarter | 44.60 | 35.84 | 31.68 | 25.02 | |||||||||||
Third Quarter | 40.87 | 22.23 | 28.18 | 16.01 | |||||||||||
Fourth Quarter | 30.94 | 22.67 | 22.76 | 16.78 | |||||||||||
2012: | |||||||||||||||
First Quarter | $ | 38.84 | $ | 29.39 | € | 29.11 | € | 22.64 | |||||||
Second Quarter | 39.84 | 32.52 | 30.24 | 25.36 | |||||||||||
Third Quarter | 40.35 | 33.37 | 32.89 | �� | 26.11 | ||||||||||
Fourth Quarter | 36.55 | 31.73 | 27.64 | 24.39 | |||||||||||
Monthly Information | |||||||||||||||
September 2012 | $ | 37.54 | $ | 33.73 | € | 28.72 | € | 26.11 | |||||||
October 2012 | 35.68 | 31.73 | 27.43 | 24.39 | |||||||||||
November 2012 | 35.00 | 31.86 | 27.10 | 24.97 | |||||||||||
December 2012 | 36.55 | 34.27 | 27.64 | 26.30 | |||||||||||
January 2013 | 40.19 | 36.87 | 29.74 | 28.01 | |||||||||||
February 2013 | 40.93 | 38.66 | 30.49 | 29.42 | |||||||||||
March 2013 1 | 40.53 | 35.54 | 31.30 | 27.51 |
_________________
(1) | Through March 15, 2013. |
B. Plan of distribution.
Not applicable.
C. Markets.
Our common shares are listed on the NASDAQ Global Select Market under the symbol “ASMI” and listed on Euronext Amsterdam under the symbol “ASM.” See item 9.A. “Offer and listing Details”.
D. Selling shareholders.
Not applicable.
E. Dilution.
Not applicable.
F. Expenses of the issue.
Not applicable.
Item 10. Additional Information
A. Share capital.
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Not applicable.
B. Memorandum and articles of association.
The information required by Item 10.B. is incorporated by reference to Exhibit 1.1 in our Form 20-F filed with the United States Securities and Exchange Commission on March 16, 2007 and the Form 6-K filed on April 30, 2007. Our current Articles of Association are filed hereto as Exhibit 1.1.
C. Material contracts.
As discussed in Item 4, ASMPT acquired the SEAS business from Siemens AG. In January 2011 nominal consideration was paid by ASMPT to Siemens for the business as well as certain loan and equity commitments were made by ASMPT to fund the ongoing acquired business. A copy of the acquisition agreement was filed as Exhibit 4.13 to our Form 20-F filed on March 26, 2011.
D. Exchange controls.
There are no foreign exchange controls or other governmental laws, decrees or regulations in the Netherlands restricting the import or export of capital or affecting the remittance of dividends, interest or other payments to non-resident shareholders. Neither the laws of the Netherlands nor the Articles of Association of ASM International restrict remittances to non-resident shareholders or the right to hold or vote such securities.
E. Taxation
Summary of Dutch Tax Provisions Applicable to Nonresident Shareholders with a particular focus on U.S. Shareholders
The statements below briefly summarize the current Dutch tax laws, based on the laws as in force at January 1, 2012. The description is limited to the tax implications for shareholders who neither are nor are deemed to be a resident of the Netherlands for purposes of the relevant tax codes. The description does not address special rules that may apply to holders of special classes of shares and should not be interpreted as extending by implication to matters not specifically referred to in this document. As to individual tax consequences, shareholders are advised to consult their own tax advisors.
Withholding Tax
Dividends distributed by us generally are subject to a withholding tax imposed by the Netherlands at a rate of 15%. The expression “dividends distributed” includes, among other things:
• | direct and indirect distributions in cash or in kind, deemed and constructive distributions and repayments of paid-in capital which is not recognized as such for Dutch dividend withholding tax purposes; |
• | liquidation proceeds, proceeds of redemption of ordinary shares or consideration for the repurchase of ordinary shares by us, or one of our subsidiaries, to the extent that such consideration exceeds the average paid-in capital which is recognized as such for Dutch dividend withholding tax purposes; |
• | the par value of ordinary shares issued to a holder of ordinary shares or an increase in the par value of ordinary shares, as the case may be, to the extent that it does not appear that a contribution, which is recognized as such for Dutch dividend withholding tax purposes, has been made or will be made; and |
• | partial repayments of paid-in capital, which is recognized as such for Dutch dividend withholding tax purposes, to the extent there are net profits (zuivere winst). Exception to this rule may apply in case the general meeting of our shareholders has decided in advance to make such repayment and the par value of the ordinary shares concerned has been reduced by an amount equal to the repayment by way of an amendment to the articles of association. |
If a holder of ordinary shares resides in a country that signed a double taxation convention with the Netherlands and such convention is in effect, such holder of ordinary shares may, depending on the terms of that double taxation convention, be eligible for a full or partial exemption from, reduction or refund of Dutch dividend withholding tax. The Netherlands has concluded such a convention with the United States, among other countries.
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Under the Convention between the United States of America and the Kingdom of the Netherlands for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income (the “US Tax Treaty”) currently in effect, dividends we pay to a corporate holder of our common shares who is not, or is not deemed to be, a resident of the Netherlands for Dutch tax purposes but who is a resident of the United States as defined in the U.S. Tax Treaty may be eligible for a reduction of the 15% Netherlands withholding tax. In the case of certain U.S. corporate shareholders owning at least 10% of ASM International voting power, the Netherlands withholding tax may be reduced to 5%, provided that such shareholder does not have an enterprise or an interest in an enterprise that is, in whole or in part, carried on through a permanent establishment or permanent representative in the Netherlands to which the dividends are attributable. A full exemption of Netherlands withholding tax is applicable for a U.S. corporate shareholder owning at least 80% of voting power in the Company for a period of at least twelve months prior to the distribution, provided that this shareholder meets specific tests of the limitation of benefits clause of the U.S. Tax Treaty. The U.S. Tax Treaty provides for complete exemption from tax on dividends received by exempt pension trusts and exempt organizations, as defined therein. Except in the case of exempt organizations, the reduced dividend withholding rate can be applied at the source upon payment of the dividends, provided that the proper forms have been filed prior to the payment. Exempt organizations remain subject to the statutory withholding rate of 15% and are required to file an application for a refund of such withholding.
A holder who is not, or is not deemed to be, a resident of the Netherlands may only claim the benefits of the U.S. Tax Treaty if:
• | the holder is a resident of the United States as defined therein; and |
• | the holder’s entitlement to such benefits is not limited by the provisions of Article 26 (“limitation on benefits”) of the U.S. Tax Treaty. |
Under current Dutch law, in situations where we distribute dividends which we received ourselves (flow through dividends) from subsidiaries established in countries with which the Netherlands has concluded a tax treaty, we may be permitted under limited circumstances to deduct and retain from the withholding a portion of the amount that otherwise would be required to be remitted to the Dutch Tax Authorities. That portion generally may not exceed 3% of the total dividend distributed by us during the calendar year and the two preceding calendar years. If we retain a portion of the amount withheld from the dividends paid, the portion (which is not remitted to the tax authorities) might not be creditable against your domestic income tax or corporate income tax liability. We will endeavor to provide you with information concerning the extent to which we have applied the reduction described above to dividends paid to you and advise you to check the consequences thereof with your local tax advisor.
A refund, reduction, exemption or credit of Dutch dividend withholding tax on the basis of Dutch tax law or on the basis of a tax treaty between the Netherlands and another state, will be granted only if the dividends are paid to the beneficial owner of the dividends. The Dutch Supreme Court has defined that a person is a beneficial owner if: (i) that person is the legal owner of the dividend coupons and (ii) is in the position to freely dispose of the dividends so received and (iii), not acting in the capacity of an agent or fiduciary for someone else. A receiver of a dividend is not considered to be the beneficial owner of a dividend in an event of “dividend stripping” in which he has paid a consideration related to the receipt of such dividend. In general terms, “dividend stripping” can be described as the situation in which a foreign or domestic person (usually, but not necessarily, the original shareholder) has transferred his shares or his entitlement to the dividend distributions to a party that has a more favorable right to a refund or reduction of Dutch dividend withholding tax than the foreign or domestic person. In these situations, the foreign or domestic person (usually the original shareholder), by transferring his shares or his entitlement to the dividend distributions, avoids Dutch dividend withholding tax while retaining his “beneficial” interest in the shares and the dividend distributions. This regime may also apply to the transfer of shares or the entitlement to dividend distributions as described above, if the avoidance of dividend withholding tax is not the main purpose of the transfer.
Income Tax and Corporate Income Tax on Dividends
A nonresident individual or corporate shareholder will not be subject to Dutch income tax with respect to dividends distributed by us or with respect to capital gains derived from the sale, disposal or deemed disposal of our common shares, provided that:
• | such holder is neither resident nor deemed to be resident in the Netherlands nor has made an election for the application of the rules of the Dutch 2001 Income Tax Act as they apply to residents of the Netherlands; and |
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• | such holder does not have, and is not deemed to have, an enterprise or an interest in an enterprise which is, in whole or in part, carried on through a permanent establishment, a deemed permanent establishment, or a permanent representative in the Netherlands and to which enterprise or part of an enterprise the shares are attributable with the primary aim to avoid levying Dutch income tax or dividend withholding tax for others, nor does such holder carry out any other activities in the Netherlands that exceed regular asset management; |
• | such holder does not have a profit share in, or any other entitlement to the assets or income of an enterprise, other than by way of securities, which enterprise is effectively managed in the Netherlands and to which enterprise the shares are attributable; |
• | such holder does not carry out and has not carried out employment activities with which the holding of the shares is connected directly or indirectly; and |
• | such holder, individuals relating to such holder and some of their relations by blood or marriage in the direct line (including foster children) do not have a substantial interest or deemed substantial interest in us, or, if such holder has a substantial interest or a deemed substantial interest in us, it forms part of the assets of an enterprise. |
Generally, a nonresident holder will have a substantial interest if he, his partner, certain other relatives (including foster children) or certain persons sharing his household, alone or together, directly or indirectly:
• | hold shares representing 5% or more of our total issued and outstanding capital (or the issued and outstanding capital of any class of our shares), |
• | hold or have rights to acquire shares (including the right to convert notes or stock options into shares), whether or not already issued, that at any time (and from time to time) represent 5% or more of our total issued and outstanding capital (or the issued and outstanding capital of any class of our shares); or |
• | hold or own certain profit-participating rights that relate to 5% or more of our annual profit and/or to 5% or more of our liquidation proceeds. |
The same criteria apply to a nonresident entity, save for the extension to partners, certain other relatives, and certain persons sharing the holder’s household.
Gift and Inheritance Tax
In principle, liability for Dutch gift tax or inheritance tax arises in respect of any gifts of common shares by or inheritance of common shares from any person who resides in the Netherlands at the time of the gift or death.
A gift or inheritance of common shares from a nonresident shareholder will not be subject to Dutch gift and inheritance tax, provided that:
• | the nonresident shareholder does not have an enterprise or an interest in an enterprise that is, in whole or in part, carried on through a permanent establishment or a permanent representative in the Netherlands to which or to whom the common shares are attributable; |
• | the nonresident shareholder is not entitled to a share in the profits of an enterprise that is effectively managed in the Netherlands other than by way of securities or through an employment contract, the common shares being attributable to that enterprise; and |
• | the nonresident shareholder makes a gift of shares and does not die within 180 days after the date of the gift, while being resident or deemed to be resident in the Netherlands at the time of his death. |
For the purposes of Dutch gift and inheritance tax, a Dutch national is deemed to be a resident of the Netherlands if he resided in that country at any time during a period of ten years preceding the date of the gift or death, as the case may be. In addition, for the purposes of Dutch gift tax, a person not possessing Dutch nationality is also deemed to be a Dutch resident, irrespective of his nationality, if he was a Dutch resident at any time during a period of twelve months preceding the time at which the gift was made. The Netherlands has concluded a treaty with the United States, based on which double taxation on inheritances may be avoided if the inheritance is subject to
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Netherlands and/or U.S. inheritance tax and the deceased was a resident of either the Netherlands or the United States.
United States Federal Income Taxation
The following is a general description of select U.S. federal income tax consequences of the ownership and disposition of our common shares by a U.S. Holder (as defined below). This summary only applies to “U.S. Holders” (as defined below) that hold their shares as capital assets. This discussion does not purport to be a comprehensive description of all U.S. federal income taxation considerations that may be relevant to holders of shares in view of their particular circumstances, and does not deal with holders subject to special rules, such as, but not limited to, the alternative minimum tax provisions of the Internal Revenue Code of 1986 (“Internal Revenue Code”) or the Internal Revenue Code’s provisions applicable to dealers in securities or foreign currencies, traders in securities that elect to use a mark-to-market method of accounting, certain financial institutions, tax-exempt organizations, tax-qualified employer plans and other tax-qualified accounts, insurance companies, persons that actually or constructively own 10% or more of our voting stock, persons holding common shares as part of a straddle, hedging, conversion or constructive sale transaction or holders of common shares whose “functional currency” is not the U.S. dollar. This discussion does not address U.S. state and local or any other non-U.S. federal income tax consequences of the ownership and disposition of our common shares by a U.S. Holder.
This discussion is based on the Internal Revenue Code, as amended to the date hereof, final, temporary and proposed U.S. Treasury Department regulations promulgated thereunder, and administrative and judicial interpretations thereof, any or all of which could be changed subsequent to the date of this summary, possibly with retroactive effect. Any such change could affect the tax consequences described in this summary. We will not update this summary to reflect any such changes after the date of this annual report. In addition, there can be no assurance that the Internal Revenue Service will not challenge any tax treatment that is based upon or consistent with any discussion of tax consequences described in this summary, and we have not obtained, nor do we intend to obtain, a ruling from the Internal Revenue Service or an opinion of counsel with respect to the U.S. federal income tax consequences of acquiring or holding common shares. Prospective holders of shares should consult their own tax advisors as to the application of the U.S. federal income tax laws to their particular situation, as well as to any tax consequences that may arise under the U.S. federal estate or gift tax laws or under any state, local or foreign tax laws with respect to the ownership and disposition of our common shares. The U.S. tax advice contained herein was not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local provisions.
The following discussion is a summary of the tax rules applicable to U.S. Holders of common shares and does not consider any U.S. federal income tax consequences to non-U.S. Holders. As used in this summary, “U.S. Holder” means a beneficial owner of common shares that is (i) an individual citizen or resident alien of the United States (as defined for U.S. federal income tax purposes), (ii) a corporation (or any other entity taxable as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the United States or any State, (iii) an estate the income of which is subject to U.S. federal income taxation regardless of its source, or (iv) a trust if either (a) a court within the United States is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust, or (b) a valid election is in place to treat the trust as a U.S. person. A “non-U.S. Holder” is a beneficial owner of common shares that is not a U.S. Holder as so defined herein.
If a partnership (or other entity treated as a partnership for US federal income tax purposes) holds common shares, the tax treatment of a partner in that partnership generally will depend upon the status and tax residency of the partner and the activities of the partnership. Partners in a partnership that holds common shares are urged to consult their own tax advisor regarding the specific tax consequences of the owning and disposing of such common shares by the partnership.
Taxation of Dispositions
A U.S. Holder will recognize gain or loss for U.S. federal income tax purposes upon a taxable sale or other disposition of common shares. The amount of such gain or loss will equal the difference between the amount realized by the U.S. Holder and the U.S. Holder’s adjusted tax basis in the common shares. For these purposes, a U.S. Holder’s adjusted tax basis in the common shares generally will equal the U.S. dollar cost of the common shares to the U.S. Holder. Subject to the passive foreign investment company rules described below, gain or loss realized by a U.S. Holder on a sale or other disposition of common shares generally will be treated as capital gain or loss, and will be long-term capital gain or loss if the common shares were held for more than one year as of the date of the sale or other disposition. Except in certain circumstances, any such gain generally will be treated as
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U.S. source income for U.S. foreign tax credit purposes. Net long-term capital gain recognized by a U.S. Holder who is an individual generally is subject to reduced rates of taxation. The deduction of capital losses is subject to certain limitations. Prospective investors should consult their own tax advisors in this regard.
If we repurchase our common shares, the repurchase may qualify to be treated as a sale or exchange of the common shares subject to the rules discussed above. However, under certain circumstances as provided in Section 302 of the Internal Revenue Code, the repurchase may be treated fully or partially as a dividend taxable as described below under “Taxation of Distributions.” U.S. Holders should consult their own tax advisors concerning the U.S. federal income tax consequences of our repurchase of their common shares.
Taxation of Distributions
Subject to the anti-deferral tax rules described below, the gross amount (before reduction for Netherlands withholding taxes) of any distribution actually or constructively paid with respect to common shares will be included in the gross income of the U.S. Holder as foreign source dividend income to the extent the distributions are paid out of our current or accumulated earnings and profits, as determined under U.S. federal income tax principles. The amount of any distribution of property other than cash will be the fair market value of such property on the date of distribution. To the extent that the amount of any distribution exceeds our current and accumulated earnings and profits, the distribution will first be treated as a tax-free return of capital to the extent of the U.S. Holder’s adjusted tax basis in the common shares (thereby increasing the amount of gain or decreasing the amount of loss to be recognized on the subsequent disposition of the common shares), and to the extent that such distribution exceeds the U.S. Holder’s adjusted tax basis in the common shares such excess will be taxed as capital gain. We do not maintain calculations of our earnings and profits under U.S. federal income tax principles, and therefore it may not be possible to determine whether or to what extent a distribution should be treated as a dividend for U.S. federal income tax purposes. Distributions treated as dividends generally will not be eligible for the dividends received deduction allowed to corporations under the Internal Revenue Code. The availability of this deduction is subject to several complex limitations which are beyond the scope of this summary.
If a U.S. Holder receives a dividend in euros, the amount of the dividend for U.S. federal income tax purposes should be the U.S. dollar value of the dividend, determined at the spot rate in effect on the date of such payment, regardless of whether the payment is later converted into U.S. dollars. In the case of such later conversion, the U.S. Holder may recognize U.S. source ordinary income or loss as a result of currency fluctuations between the date on which the dividend is paid and the date the dividend amount is converted to U.S. dollars.
Dividends received by a U.S. Holder generally will be taxed at ordinary income rates. However, certain dividends received by individuals through taxable years beginning on or before December 31, 2012, may qualify to be taxed at capital gain rates (15% or less), provided (i) the recipient has held the underlying stock for more than 60 days during the 121 day period beginning 60 days before the ex-dividend date and (ii) the dividends are received from a “qualified foreign corporation.” A non-U.S. corporation (other than a non-U.S. corporation treated as a passive foreign investment company in the taxable year in which the dividend is paid, or the preceding taxable year) generally will be considered to be a “qualified foreign corporation” if (i) the shares of the non-U.S. corporation are readily tradable on an established securities market in the United States or (ii) the non-U.S. corporation is eligible with respect to substantially all of its income for the benefits of a comprehensive income tax treaty with the United States which contains an exchange of information program. We believe that we are, and will continue to be, a “qualified foreign corporation.” Individual U.S. Holders should consult their tax advisors regarding the impact of distributions paid with respect to their common shares in light of their particular situations.
Foreign Tax Credit
Dividends distributed by us generally are subject to a withholding tax imposed by the Netherlands at a rate of 15% (see “Summary of Dutch Tax Provisions Applicable to Nonresident Shareholders with a particular focus on U.S. Shareholders – Withholding Tax”). Subject to certain conditions and limitations set forth in the Internal Revenue Code, foreign withholding tax paid with respect to dividends on common shares generally will be eligible for credit against a U.S. Holder’s U.S. federal income tax liability. Alternatively, a U.S. Holder may claim a deduction for the amount of foreign withholding taxes, but only for a year for which the U.S. Holder elects to do so with respect to all foreign income taxes. Under current Dutch law, we may be permitted, under limited circumstances, to retain a portion of Netherlands taxes we withhold from dividends paid to our shareholders, rather than pay that portion of the withheld taxes to the taxing authorities in the Netherlands (see “Summary of Dutch Tax Provisions Applicable to Nonresident Shareholders with a particular focus on U.S. Shareholders – Withholding Tax”). This amount generally may not exceed 3% of the total dividend distributed by us during the calendar year and the two preceding calendar years. If we retain a portion of the Netherlands withholding taxes, the retained amount in all likelihood will not qualify
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as a creditable tax for U.S. federal income tax purposes. We will endeavor to provide U.S. Holders with information concerning the extent to which we retain any Netherlands taxes on dividends paid to U.S. Holders.
There are two principal classes (passive and general) of income for purposes of calculating foreign tax credit limitations. Dividends will generally constitute “passive category income” but could, in the case of certain U.S. Holders, constitute “general category income.” Except in certain circumstances, gain from a sale, exchange or other disposition of our common shares by a U.S. Holder will be treated as U.S. source income for foreign tax credit purposes. The rules relating to the determination of the U.S. foreign tax credit are complex and contain certain other limitations. U.S. Holders should consult their own tax advisors with respect to the availability of a foreign tax credit or deduction for foreign, including Netherlands, taxes withheld.
Anti-Deferral Tax Rules
The Internal Revenue Code contains various provisions that impose current U.S. federal income tax on the U.S. shareholders of certain foreign corporations if such corporations derive certain types of passive income and fail to make adequate distribution of profits to their U.S. shareholders. These provisions include the controlled foreign corporation(“CFC”) rules. Other provisions of the Internal Revenue Code impose potentially adverse tax consequences on the U.S. shareholders of a non-U.S. corporation that qualifies as a “passive foreign investment company” (“PFIC). While we do not believe that we should be classified as either a CFC or a PFIC, we are not certain that we can avoid these tax rules because we cannot predict with any degree of certainty the amount and character of our future income or the amount of our common shares any particular U.S. Holder will own. Accordingly, we will only briefly summarize those provisions and then only the rules that we believe may have the greatest likelihood of applying to us in the future.
Passive Foreign Investment Company.
As a foreign corporation with U.S. Holders, we could potentially be treated as a “passive foreign investment company” (“PFIC”) as defined in the Internal Revenue Code.
The PFIC provisions of the Internal Revenue Code can have significant adverse tax effects on U.S. Holders. In general, a foreign corporation will be a PFIC in a particular tax year and for all succeeding tax years if:
• | 75% or more of its gross income (including the foreign corporation’s pro rata share of the gross income of any U.S. or foreign company in which the corporation owns or is considered to own 25% or more of the shares by value) in a taxable year is passive income (which generally includes interest, dividends and certain rents and royalties); or |
• | at least 50% of the average value of the corporation’s gross assets in a taxable year (average determined as of the end of each quarter of the corporation’s taxable year and ordinarily determined based on gross fair market value, including the proportionate share of the assets of any U.S. or foreign company in which the corporation owns or is considered to own 25% or more of the shares by value) produce, or are held for the production of, passive income. |
Certain rules apply with respect to U.S. Holders who acquire shares of a foreign corporation that previously qualified as a PFIC (i.e., prior to the date that the U.S. Holder acquired the shares) but no longer qualifies as a PFIC as of the date the U.S. Holder acquires such shares. In addition, where a U.S. Holder acquires shares of a PFIC, it may be possible to file an election to "purge" the PFIC taint where certain other requirements are met.
If we were a PFIC for a taxable year during which a U.S. Holder owned our shares, then a U.S. Holder would likely incur increased tax liabilities (possibly including an interest charge) upon the sale or other disposition of our common shares or upon receipt of “excess distributions”. In such case, gain recognized by a U.S. Holder on a sale or other disposition of our common shares would be allocated ratably over the U.S. Holder’s holding period for the common shares. The amounts allocated to the taxable year of the sale or other disposition and to any year before we became a PFIC would be taxed as ordinary income. The amount allocated to each other taxable year would be subject to tax at the highest marginal income tax rate in effect for individuals or corporations, as appropriate, and an interest charge would be imposed on the amount allocated to that taxable year. Further, the rules provide essentially that any distribution in excess of 125 percent of the average of the annual distributions on common shares received by the U.S. Holder during the preceding three years or the U.S. Holder’s holding period, whichever is shorter, would be subject to taxation as described above. Although certain elections may be available (including a qualified electing fund election and a mark to market election) to U.S. Holders that might mitigate the adverse consequences resulting from PFIC status, in the event we are determined to be a PFIC in the current or a future taxable year we do not anticipate providing U.S. Holders with the information necessary to support a qualified electing fund election. In addition, if we are treated as a PFIC in a taxable year in which we pay a dividend, or in the
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preceding taxable year, the 15% capital gain rate (discussed above) currently applicable in the U.S. with respect to certain dividends paid to U.S. Holders on or before to December 31, 2012 would not apply.
We believe that we are not a PFIC, and we do not expect to become a PFIC. However, we cannot assure that we will not qualify as a PFIC in the current year or in the future. You may be required in some cases to report ownership of our shares on Internal Revenue Service Form 8938. In addition, if you own our shares during any year that we are a PFIC, you may be required to file Internal Revenue Service Form 8621.
The PFIC rules are very complex and U.S. Holders should consult their own tax advisors on this issue.
Controlled Foreign Corporation Rules
If more than 50% of the voting power or total value of all classes of our common shares is owned, directly or indirectly, by U.S. Holders, each of which owns 10% or more of the total combined voting power of all classes of our common shares, we could be treated as a controlled foreign corporation (“CFC”) under Subpart F of the Internal Revenue Code. This classification would result in many complex consequences, including the required inclusion into income by such 10% or greater shareholders of their pro rata shares of our “Subpart F Income,” as defined in the Internal Revenue Code. In addition, under Section 1248 of the Internal Revenue Code, gain from the sale or exchange of common shares by any U.S. Holder who is or was a 10% or greater U.S. shareholder at any time during the five-year period ending with the sale or exchange will be dividend income to the extent of our earnings and profits attributable to the common shares sold or exchanged and accumulated during the periods that we were a CFC. Under certain circumstances, a U.S. Holder that directly owns 10% or more of our voting common shares and is a corporation may be entitled to an indirect foreign tax credit for a portion of the amounts characterized as dividends under Section 1248 of the Internal Revenue Code. We believe that we are not a CFC and we will not become a CFC, however, we cannot assure you that we will not become a CFC in the future.
United States Backup Withholding Tax and Information Reporting
Under certain circumstances, a U.S. Holder may be subject to information reporting and backup withholding with respect to certain payments made in respect of the common shares and the proceeds received on the disposition of the common shares paid within the U.S. (and in certain cases, outside the U.S.). Such amounts may be subject to a 28% U.S. backup withholding tax unless the U.S. Holder otherwise establishes an exemption. For example, backup withholding generally will not apply to a U.S. Holder who (1) is a corporation or qualifies under certain other exempt categories and, when required, demonstrates that fact, or (2) furnishes a correct taxpayer identification number and makes certain other required certifications as provided by the backup withholding rules.
Backup withholding is not an additional tax. The amount of any backup withholding from a payment to a U.S. Holder will be allowed as a credit against the U.S. Holder’s U.S. federal income tax liability and may entitle a U.S. Holder to a refund, provided that the required information is furnished to the Internal Revenue Service.
The discussion set forth above is included for general information only and may not be applicable depending upon a holder’s particular situation. Holders should consult their tax advisors with respect to the tax consequences of the purchase, ownership and disposition of common shares including the tax consequences under state, local and other laws and the possible effects of changes in United States federal and other tax laws.
F. Dividends and paying agents.
Not Applicable.
G. Statement by experts.
Not Applicable.
H. Documents on display.
We are subject to certain reporting requirements of the U.S. Securities Exchange Act of 1934 (the “Exchange Act”). As a “foreign private issuer,” we are exempt from the rules under the Exchange Act prescribing certain disclosure and procedural requirements for proxy solicitations, and our officers, directors and principal shareholders are exempt from the reporting and “short-swing” profit recovery provisions contained in Section 16 of the Exchange Act, with respect to their purchases and sales of shares. In addition, we are not required to file reports and financial statements with the Commission as frequently or as promptly as companies that are not foreign private issuers whose securities are registered under the Exchange Act. However, we are required to file with the Commission,
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within four months after the end of each fiscal year, an annual report on Form 20-F containing financial statements audited by an independent accounting firm and interactive data comprising financial statements in extensible business reporting language which, with respect to our annual report on Form 20-F for the year ended December 31, 2012. We publish unaudited interim financial information after the end of each quarter. We furnish this quarterly financial information to the Commission under cover of a Form 6-K.
Documents we file with the Commission are publicly available at its public reference facilities at 100 F Street, N.E., Washington, DC 20549. Copies of the documents are available at prescribed rates by writing to the Public Reference Section of the Commission at 100 F Fifth Street, NE, Washington DC 20549. The Commission also maintains a website that contains reports and other information regarding registrants that are required to file electronically with the Commission. The address of this website is http://www.sec.gov. Please call the Commission at 1-800-SEC-0330 for further information on the operation of the public reference facilities.
I. Subsidiary information.
See Item 4.C. “Organizational Structure”.
Item 11. Quantitative and Qualitative Disclosures about Market Risk
We are exposed to market risks (including foreign exchange rate risk and interest rate risk), credit risk and liquidity risk. We use forward exchange contracts to hedge foreign exchange risk. We do not enter into financial instrument transactions for trading or speculative purposes.
Foreign exchange rate risk management
We conduct business in a number of foreign countries, with certain transactions denominated in currencies other than the functional currency of ASM International (euro) or one of our subsidiaries conducting the business. The purpose of the Company’s foreign currency management is to manage the effect of exchange rate fluctuations on revenues, costs and cash flows and assets and liabilities denominated in selected foreign currencies, in particular denominated in U.S. dollars.
We use forward exchange contracts to hedge its foreign exchange risk of anticipated sales or purchase transactions in the normal course of business, which occur within the next twelve months, for which it has a firm commitment from a customer or to a supplier. The terms of these contracts are consistent with the timing of the transactions being hedged. The hedges related to forecasted transactions are designated and documented at the inception of the hedge as cash flow hedges, and are evaluated for effectiveness quarterly. The effective portion of the gain or loss on these hedges is reported as a component of accumulated other comprehensive income in Shareholders’ Equity, and is reclassified into earnings when the hedged transaction affects earnings.
The majority of revenues and costs of our Front-end segment are denominated in Singapore dollars and U.S. dollars. Since foreign currency exposure is not significant, no forward exchange contracts are used. The effect of exchange rate fluctuations on revenues, costs and cash flows and assets and liabilities denominated in foreign currencies is periodically reviewed.
The majority of revenues and costs of our Back-end segment are denominated in Hong Kong dollars, Chinese Yuan and U.S. dollars. The functional currency of our Back-end segment (Hong Kong dollar) is linked to the U.S. dollar. The effect of exchange rate fluctuations on revenues, costs and cash flows and assets and liabilities denominated in foreign currencies is periodically reviewed.
Changes in the fair value of derivatives that do not qualify for hedge treatment, as well as the ineffective portion of any hedges, are recognized in earnings. We record all derivatives, including forward exchange contracts, on the balance sheet at fair value in other current assets or accrued expenses.
No unrealized gains were included in accumulated other comprehensive income as of December 31, 2012. Hedge ineffectiveness was insignificant for the years ended December 31, 2012 and December 31, 2011.
Furthermore, we might manage the currency exposure of certain receivables and payables using derivative instruments, such as forward exchange contracts (fair value hedges) and currency swaps, and non-derivative instruments, such as debt borrowings in foreign currencies. The gains or losses on these instruments provide an offset to the gains or losses recorded on receivables and payables denominated in foreign currencies. The derivative instruments are recorded at fair value and changes in fair value are recorded in earnings under foreign
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currency exchange gains (losses) in the Consolidated Statement of Operations. Receivables and payables denominated in foreign currencies are recorded at the exchange rate at the balance sheet date and gains and losses as a result of changes in exchange rates are recorded in earnings under foreign currency exchange gains (losses) in the Consolidated Statement of Operations.
We do not use forward exchange contracts for trading or speculative purposes.
To the extent that foreign currency fluctuations affect the value of our investments in our foreign affiliates, they are not hedged. The cumulative effect of these fluctuations is separately reported in Consolidated Shareholders’ Equity. For the year ended December 31, 2011, we recorded a favorable movement of €13.4 million. For the year ended December 31, 2012, we recorded a unfavorable movement of €6.6 million. See Note 19 to our Consolidated Financial Statements, which is incorporated herein by reference.
The following table summarizes our financial instruments as of December 31, 2012 and analyzes the sensitivity of the fair value of our financial instruments to an immediate change in foreign currency rates. Fair values represent the present value of forecasted future cash flows at market foreign currency exchange rates. The sensitivity analysis assumes an immediate 10% favorable or unfavorable change in all foreign currency exchange rates against the euro from their levels as of December 31 with all other variables kept constant. A favorable 10% change indicates a strengthening of the currency in which our financial instruments are denominated, primarily the U.S. dollar, against the euro and an unfavorable change indicates a weakening of the currency in which our financial instruments are denominated, primarily the U.S. dollar, against the euro. The selection of 10% favorable or unfavorable change in foreign currency exchange rates should not be construed as a prediction by us of future market events, but rather, to illustrate the potential impact of such an event. The modeling technique used to calculate the exposure does not take into account correlation among foreign currency exchange rates, or correlation among various markets (i.e., the foreign exchange, equity and fixed-income markets). Even though we believe it to be possible that all of the foreign currency exchange rates to which we are exposed would simultaneously change by more than 10%, we find it meaningful to “stress test” our exposure under this 10% fluctuation scenario and other hypothetical adverse market scenarios. Our actual experience may differ from the results in the table below due to the correlation assumptions utilized, or if events occur that were not included in the methodology, such as significant liquidity or market events.
Currency and notional amount | Carrying amount | Fair value | Sensitivity analysis | |||||||||||||
Favorable FX change of 10% | Unfavorable FX change of 10% | |||||||||||||||
(in millions) | ||||||||||||||||
As of December 31, 2012: | ||||||||||||||||
Notes payable to banks, due within twelve months | HK$ | 630.7 | 61.7 | 61.7 | 55.5 | 67.8 | ||||||||||
Long-term debt with maturities: | ||||||||||||||||
due November 29, 2015 | HK$ | 193.8 | 18.9 | 18.9 | 17.1 | 20.8 | ||||||||||
Foreign exchange contracts: | ||||||||||||||||
sale of currency contracts to be settled within twelve months: | US$ | 27.1 | 0.1 | 0.1 | 0.1 | 0.2 |
For long-term debt, the estimated fair values of our long-term debt are based on current interest rates available to us for debt instruments with similar terms and remaining maturities. The fair values of our convertible subordinated debt borrowings are based on our estimates. For forward exchange contracts, market values based on external quotes from banks have been used to determine the fair value.
The following tables analyze our sensitivity to a hypothetical 10% strengthening and 10% weakening of the U.S. dollar, Singapore dollar, Hong Kong dollar or Japanese yen against the euro as of December 31, 2012. This analysis includes foreign currency denominated monetary items and adjusts their translation at year end for a 10% increase and 10% decrease of the U.S. dollar, Singapore dollar, Hong Kong dollar or Japanese yen against the euro.
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A positive amount indicates an increase in equity. Recognized in equity is the revaluation effect of subsidiaries denominated in U.S. dollars, Singapore dollars, Hong Kong dollars and Japanese yen.
2011 | 2012 | ||||
Impact on equity | Impact on equity | ||||
10% increase of US dollar versus euro | 3,656 | 4,564 | |||
10% decrease of US dollar versus euro | (3,656 | ) | (4,564 | ) | |
10% increase of Singapore dollar versus euro | 5,028 | 5,868 | |||
10% decrease of Singapore dollar versus euro | (5,028 | ) | (5,868 | ) | |
10% increase of Hong Kong dollar versus euro | 66,702 | 56,693 | |||
10% decrease of Hong Kong dollar versus euro | (66,702 | ) | (56,693 | ) | |
10% increase of Japanese yen versus euro | 4,908 | 5,294 | |||
10% decrease of Japanese yen versus euro | (4,908 | ) | (5,294 | ) |
A hypothetical 10% strengthening or 10% weakening of any currency other than the US dollar, Singapore dollar, Hong Kong dollar or Japanese yen against the euro as of December 31, 2011 and December 31, 2012 would not result in a material impact on equity.
The following table analyzes our sensitivity to a hypothetical 10% strengthening and 10% weakening of the US dollar, Hong Kong dollar and Japanese Yen against the euro at average exchange rates for the years 2011 and 2012. A positive amount indicates an increase in net earnings.
2011 | 2012 | ||||
Impact on Net earnings | Impact on Net earnings | ||||
10% increase of U.S. dollar versus euro | 1,887 | 915 | |||
10% decrease of U.S. dollar versus euro | (1,887 | ) | (915 | ) | |
10% increase of Hong Kong dollar versus euro | 14,392 | 3,630 | |||
10% decrease of Hong Kong dollar versus euro | (14,392 | ) | (3,630 | ) | |
10% increase of Japanese yen versus euro | (519 | ) | 923 | ||
10% decrease of Japanese yen versus euro | 519 | (923 | ) |
A hypothetical 10% strengthening or 10% weakening of any currency other than the US dollar, Hong Kong dollar and Japanese Yen against the euro at average exchange rates for the years 2011 and 2012 would not result in a material impact on net earnings.
Interest risk
We are exposed to interest rate risk primarily through our borrowing activities. The Company does not enter into financial instrument transactions for trading or speculative purposes or to manage interest rate exposure. At December 31, 2012 the Company had €18,948 in long-term debt at fixed interest rates and €61,675 in other borrowings with variable short-term interest rates. A hypothetical change in the average interest rate by 10% on the portion of the Company’s debt bearing interest at variable rates would not result in a material change in interest expense at December 31, 2011 and December 31, 2012 borrowing levels.
Credit risk
Financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash and cash equivalents, accounts receivable and derivative instruments. These instruments contain a risk of counterparties failing to discharge their obligations. We monitor credit risk and manage credit risk exposure by type of financial instrument by assessing the creditworthiness of counterparties.
Our customers are semiconductor device manufacturers located throughout the world. We generally do not require collateral or other security to support financial instruments with credit risk.
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Concentrations of credit risk (whether on or off-balance sheet) that arise from financial instruments exist for groups of customers or counterparties when they have similar economic characteristics that would cause their ability to meet contractual obligations to be similarly affected by changes in economic or other conditions.
A significant percentage of our revenue is derived from a small number of large customers. Our largest customer accounted for approximately 8.8% of net sales in 2012 (2011: 6.4%; 2010: 5.2%) and the ten largest customers accounted for approximately 31.6% of net sales in 2011 (2011: 27.9%; 2010: 27.9%). Sales to these large customers also may fluctuate significantly from time to time depending on the timing and level of purchases by these customers. Significant orders from such customers may expose us to a concentration of credit risk and difficulties in collecting amounts due, which could harm our financial results. At December 31, 2012 one customer accounted for 6.5% of the outstanding balance in accounts receivable (2011: 4.5%; 2010: 6.0%).
We place our cash and cash equivalent and derivative instruments with high quality financial institutions to limit the amount of credit risk exposure.
The maximum credit exposure is equal to the carrying values of cash and cash equivalent and accounts receivable.
Item 12. Description of Securities Other Than Equity Securities
Not applicable.
PART II
Item 13. Defaults, Dividend Arrearages and Delinquencies
None.
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
Not applicable
Item 15. Controls and Procedures
(a) Disclosure Controls and Procedures: Our CEO and CFO, after evaluating the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) as of the end of the period covered by this Form 20-F, have concluded that as of December 31, 2012 our disclosure controls and procedures were effective.
(b) Management’s Annual Report on Internal Control Over Financial Reporting: Our management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. Internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of our financial reporting for external purposes in accordance with applicable generally accepted accounting principles. Internal control over financial reporting includes policies and procedures for maintaining records that in reasonable detail accurately and fairly reflect our transactions; providing reasonable assurance that transactions are recorded as necessary for preparation of our financial statements; providing reasonable assurance that receipts and expenditures of Company assets are made in accordance with management authorization; and providing reasonable assurance that unauthorized acquisition, use or disposition of Company assets that could have a material effect on our financial statements would be prevented or detected on a timely basis. Management, including our CEO and CFO, conducted an evaluation of the effectiveness of our internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f)) based on the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on this evaluation, management concluded that the Company’s internal control over financial reporting was effective as of December 31, 2012. Deloitte Accountants BV, an independent registered public accounting firm, has audited the Consolidated Financial Statements included in this annual report on Form 20-F and, as part of the audit, has issued an attestation report, included herein, on ASMI’s internal control over financial reporting.
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(c) Attestation Report of the Registered Public Accounting Firm: The attestation report of Deloitte Accountants BV is included in this annual report on Form 20-F and is incorporated by reference herein.
(d) Changes in Internal Control Over Financial Reporting: There were no changes to our internal control over financial reporting that occurred during the period covered by this Form 20-F that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations on Effectiveness of Controls
All internal control systems no matter how well designed and implemented have inherent limitations. Even systems determined to be effective may not prevent or detect misstatements or fraud and can only provide reasonable assurance with respect to disclosure and financial statement presentation and reporting. Additionally, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changed conditions and the degree of compliance with the policies or procedures may deteriorate.
Item 16.
A. Audit Committee Financial Expert
The Supervisory Board has determined that Mr Lobbezoo, an independent member of the Supervisory Board, qualifies as an Audit Committee Financial Expert. For Mr Lobbezoo’s experience see Item 6 “Directors, Senior Management and Employees”.
B. Code of Ethics
Our code of ethics applies to all of our employees worldwide, as well as our Supervisory Board and Management Board. The code of ethics is designed to promote honest and ethical conduct and timely and accurate disclosure in our periodic financial reports.
For further information, see the Code of Ethics and other related policies including our Rules Concerning Insider Trading, which are posted on our website (www.asm.com).
C. Principal Accountant Fees and Services
Audit fees
Deloitte Accountants BV (“Deloitte”), has served as our independent registered public accounting firm for each of the three financial years up to December 31, 2012. The following table sets out the aggregate fees for professional audit services and other services rendered by Deloitte Accountants BV and its member firms and/or affiliates in 2011 and 2012:
EUR thousands | As a % of total fees | ||||||||||
2011 | 2012 | 2011 | 2012 | ||||||||
Audit fees | 1,345 | 1,195 | 77 | % | 75 | % | |||||
Audit-related fees | 193 | 158 | 11 | % | 10 | % | |||||
Tax fees | 218 | 241 | 12 | % | 15 | % | |||||
Total | 1,756 | 1,594 | 100 | % | 100 | % |
Audit Committee pre-approval policies
The Audit Committee has determined that the provision of services by Deloitte described in the preceding paragraphs is compatible with maintaining Deloitte’s independence. All audit and permitted non-audit services provided by Deloitte during 2012 were pre-approved by the Audit Committee.
The Audit Committee has adopted the following policies and procedures for pre-approval of all audit and permitted non-audit services provided by our independent registered public accounting firm:
Audit Services
Management submits to the Audit Committee for pre-approval the scope and estimated fees for specific services directly related to performing the independent audit of our Consolidated Financial Statements for the current year.
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Audit-Related Services
The Audit Committee may pre-approve expenditures up to a specified amount for services included in identified service categories that are related extensions of audit services and are logically performed by the auditors. Additional services exceeding the specified pre-approved limits require specific Audit Committee approval.
Tax Services
The Audit Committee may pre-approve expenditures up to a specified amount per engagement and in total for identified services related to tax matters. Additional services exceeding the specified pre-approved limits, or involving service types not included in the pre-approved list, require specific Audit Committee approval.
Other Services
In the case of specified services for which utilizing our independent registered public accounting firm creates efficiencies, minimizes disruption, or preserves confidentiality, or for which management has determined that our independent registered public accounting firm possesses unique or superior qualifications to provide such services, the Audit Committee may pre-approve expenditures up to a specified amount per engagement and in total. Additional services exceeding the specified pre-approved limits, or involving service types not included in the pre-approved list, require specific Audit Committee approval.
D. Exemptions from the Listing Standards for Audit Committees
Not applicable.
E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
On May 15, 2012, the General Meeting of Shareholders authorized, for an 18-month period, to be calculated from the date of the General Meeting to cause the Company to repurchase its own shares up to a maximum of 10% of the number of common shares issued, at a price at least equal to the shares’ nominal value and at most a price equal to 110% of the share’s average closing price according to the listing on the NYSE Euronext Amsterdam stock exchange during the five trading days preceding the acquisition date.
1,500,000 shares were repurchased during 2012 under the authorization of May 15, 2012. These treasury shares were used for a part of the conversion of the subordinated debt as per November 27, 2012.
The maximum number of shares that may yet be purchased under the authorization takes into account any treasury shares held by the Company (at December 31, 2012 there are no treasury shares held by the Company) and the maximum number of common shares which the Company can hold is 10% of the number of common shares issued.
Of our treasury shares, 2,552,071 shares were held for our account by Lehman Brothers International (Europe) (“Lehman”), which was placed into administration on September 15, 2008. These shares were cancelled in 2009 by resolution of the 2009 Annual General Meeting of Shareholders.
During 2008, we engaged Lehman to repurchase ordinary ASMI shares on the Euronext and Nasdaq markets. As of September 15, 2008, Lehman had purchased and held 2,552,071 shares for our account. Lehman went into bankruptcy administration on September 15, 2008, and we subsequently filed a submission giving notice of our proprietary interest in the shares believed to be held in custody by Lehman. At our May 2009 AGM, our shareholders resolved to cancel all of these treasury shares and we so notified Lehman of the cancellation. However we were notified in September 2010 by the Lehman administrators that there is a possible shortfall in the number of shares held by Lehman as reflected in the statements of our accounts with Lehman. To the extent the number of treasury shares held by Lehman as of the date of their cancellation is lower than 2,552,071 only such lower number of shares have been cancelled and the shortfall of shares may still be considered outstanding. The Lehman administrators report that some time prior to its bankruptcy, Lehman put into a segregated client omnibus account a cash sum on our behalf of $6,758,796, which the administrators apparently regard as money to which we have a proprietary right in lieu of some or all of the missing shares. We are uncertain at this time as to the accuracy of the shortfall of shares, the sufficiency of this cash sum to cover the value of any such discrepancy, and our entitlement to all or a portion of such sum when distributions are determined and made since there is likely to also be a shortfall in Lehman assets subject to proprietary rights. Given the magnitude of the overall Lehman administration, the timeline for clarity and resolution of this item is expected to be considerable, perhaps up to several years. For additional information, see Note 19 to the Consolidated financial statements
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F. Change in Registrant’s Certifying Accountant
Not applicable.
G. Corporate Governance
Because we are a Netherlands public limited liability company, with principal executive offices outside of the U.S., some of our corporate practices vary from those required by the NASDAQ Listing Rules. Nasdaq Listing Rule 5615(3) permits a foreign private issuer to follow its home country practice in lieu of the corporate governance requirements of the Rule 5600 Series of the Nasdaq Listing Rules, with certain exceptions. Set forth below are descriptions of the home country practices that we follow in lieu of various Nasdaq Listing Rules:
(i) Listing Rule 5620(c): Quorum
Nasdaq Listing Rule 5620(c) requires an issuer to provide in its bylaws for a quorum for any meeting of the holders of common stock, and that such quorum may not be less than one-third of the outstanding common voting stock. It is the generally accepted business practice for Dutch companies not to provide for a quorum requirement in their articles, and there is no contrary requirement in the Dutch securities laws or under the rules of NYSE Euronext Amsterdam. Accordingly, our Articles of Association do not provide for a quorum other than for resolutions in relation to the limitation of pre-emptive rights of existing shareholders and the cancellation of outstanding shares, which quorum requirements correspond with mandatory Dutch law. Furthermore, pursuant to Dutch corporate law (section 2:120 sub 2 Dutch Civil Code) the validity of a resolution by the general meeting of shareholders does not depend on the proportion of the capital or shareholders represented at the meeting (i.e. quorum), unless the law or articles of association of a company otherwise provide. Accordingly, our Articles of Association provide that a resolution of the general or any extraordinary meeting of shareholders will be adopted upon the favorable vote of a majority of the votes cast at the meeting. In addition, our Articles of Association provide that in the case of a shareholder appointment of persons to, or dismissal of persons from, our Supervisory Board and Management Board not proposed by our Supervisory Board, such resolution requires the affirmative vote of a majority of the votes cast at an annual or extraordinary shareholders meeting, which affirmative votes represent at least one third of our issued capital. To this extent, our practice varies from the requirement of Listing Rule 5620(c).
(ii) Listing Rule 5620(b): Proxies
Nasdaq Listing Rule 5620(b) requires that an issuer shall solicit proxies and provide proxy statements for all meetings of shareholders. The solicitation of proxies and the distribution of proxy statements for meetings of shareholders are not required under Dutch law or by the rules of NYSE Euronext Amsterdam, and it is business practice for Dutch companies not to solicit proxies or distribute proxy statements in respect of European shareholders. Therefor, our practice in respect of the holders of shares other than our common shares listed on the NASDAQ Global Select Market varies from that required by Listing Rule 5620(b).
As to our common shares listed on the NASDAQ Global Select Market, which we refer to as New York registry shares, we prepare a proxy statement and solicit proxies from the holders of such shares since there are procedures in place under the Securities Exchange Act of 1934, as amended, for soliciting proxies from beneficial owners.
(iii) Listing Rule 5615(a)(3): Shareholder Approval of Equity Plans
Nasdaq Listing Rule 5635(c) requires shareholder approval prior to the issuance of securities in connection with equity-based compensation of officers, directors, employees or consultants. On December 30, 2011, our Supervisory Board adopted the ASM International NV 2011 Stock Option Plan for Members of the Management Board and the ASM International NV 2011 Stock Option Plan for Employees (the “Stock Option Plans”). In lieu of the specific shareholder approval prior to the issuance of securities in connection with equity-based compensation of officers, directors, employees or consultants, required by Nasdaq Listing Rule 5635(c), we followed Dutch company law regarding the issuance of shares or securities in connection with the remuneration of the management board and/or the employees of a Dutch listed public company (beursgenoteerde naamloze vennootschap).
According to Dutch company law, a Dutch public company may issue shares or grant rights to acquire shares pursuant to a resolution of the general meeting of shareholders or pursuant to a resolution of another corporate body designated by the general meeting of shareholders. Consistent with previous years, at our 2012 Annual General Meeting of Shareholders on May 15, 2012, our shareholders designated the Management Board as the competent body to issue common shares, subject to Supervisory Board approval, including granting rights to
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acquire common shares. Furthermore, our shareholders designated our Management Board as the competent body to issue common shares, subject to Supervisory Board approval, including granting rights to acquire common shares in connection with our stock option plans for employees and the stock option plan for the Management Board.
Pursuant to Dutch company law, the remuneration policy (including any amendments thereto) for the management board of a Dutch public company shall be determined by the general meeting of shareholders. Individual compensation of management board members shall be determined by the general meeting of shareholders unless the articles of association appoint another corporate body as such. Our Articles of Association provide that the individual compensation of Management Board members shall be determined by the Supervisory Board. Pursuant to Dutch company law, the remuneration (including any equity components) of employees is not subject to prior shareholder approval.
At our 2010 Annual General Meeting of Shareholders on May 20, 2010, our shareholders determined the remuneration policy of the Management Board. The remuneration policy includes a framework for the granting of stock options to the Management Board members, to be determined by the Supervisory Board. The remuneration policy is publicly available on our website: www.asm.com.
The Stock Option Plans provide the terms and conditions governing the procedures for the granting of stock options to employees and the Management Board. These terms and conditions include, among others, the determination of the exercise price and the vesting period. The Stock Option Plans do not grant rights to Management Board members or employees to acquire shares, nor do the Stock Option Plans provide for an obligation by us to grant such rights. The granting of rights to acquire shares through stock options is, with respect to members of our Management Board, determined by the Supervisory Board, and with respect to employees, determined by the Management Board.
PART III
Item 17. Financial Statements
Not Applicable.
Item 18. Financial Statements
See pages F-1 through F-52, which are incorporated herein by reference.
Item 19. Exhibits (*)
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Exhibit Number | Description | Incorporated by Reference to: | Included Herein: |
1.1 | English Informal Translation of ASM International NV’s Articles of Association, as amended | X | |
4.1 | 2001 Stock Option Plan | Exhibit 99.1 to the Registrant’s Form S-8 filed on April 30, 2002 | |
4.3 | Trust Deed and Rules of The ASM Pacific Technology Employee Share Incentive Scheme, dated March 23, 1990 | Exhibit 4.14 to the Registrant’s Form 20-F filed on April 17, 2003 | |
4.4 | Deed of Adherence Relating to Participation in the Employee Share Incentive Scheme of ASM Pacific Technology Limited, dated April 12, 1999 | Exhibit 4.15 to the Registrant’s Form 20-F filed on April 17, 2003 | |
4.5 | Supplemental Deed Relating to the Employee Share Incentive Scheme of ASM Pacific Technology Limited | Exhibit 4.16 to the Registrant’s Form 20-F filed on April 17, 2003 | |
4.6 | Overview of Remuneration of Members of the Management Board, dated May 20, 2010 | X | |
4.7 | Overview of Remuneration of Mr Peter van Bommel | Exhibit 4.7 to the Registrant’s Form 20-F filed on March 25, 2011 | |
4.8 | Form of Supervisory Board Member Indemnification Agreement | Exhibit 10.1 to the Registrant’s Form 20-F filed on March 16, 2007 | |
4.9 | Form of Management Board Member Indemnification Agreement | Exhibit 10.2 to the Registrant’s Form 20-F filed on March 16, 2007 | |
4.10 | Amended and Restated Settlement Agreement dated as of December 16, 1998 by and among ASM International NV, ASM America, Inc. and Applied Materials, Inc. ** | Exhibit 10.3 to the Registrant’s Form 20-F filed on March 16, 2007 | |
4.11 | Summary of the material elements of employment contract with Mr C.D. del Prado (effective as of March 1, 2008) | Exhibit 99.9 to the Registrant’s Form 6-K filed on May 20, 2008 | |
4.12 | Overview of remuneration of Mr W.K. Lee | Exhibit 4.13 to the Registrant’s Form 20-F filed on March 16, 2007 | |
4.13 | Master Sale and Purchase Agreement re SEAS acquisition dated July 28, 2010 | Exhibit 4.24 to the Registrant’s Form 20-F filed on March 25, 2011 | |
4.14 | ASM International NV 2011 Stock Option Plan for Members of the Management Board | Exhibit 4.14 to the Registrant's Form 20-F filed on March 28, 2012 |
Exhibit Number | Description | Incorporated by Reference to: | Included Herein: |
8.1 | Subsidiaries | X | |
12.1 | Certification of CEO pursuant to Rule 13a-14(a) | X | |
12.2 | Certification of CFO pursuant to Rule 13a-14(a) | X | |
13.1 | Certification of CEO and CFO pursuant to Rule 13a-14(b) and 18 U.S.C. 1350 | X | |
15.1 | Consent of Independent Registered Public Accounting Firm | X |
__________
* Pursuant to Instruction 2(b)(ii), the Registrant has omitted certain agreements with respect to long-term debt not exceeding 10% of consolidated total assets. The Registrant agrees to furnish a copy of any such agreements to the Securities Exchange Commission upon request.
** Redacted version, originally filed as an exhibit to Registrant’s Form 6-K filed February 11, 1999. Portions of the Agreement have been omitted pursuant to a request for confidential treatment.
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SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
ASM INTERNATIONAL NV | ||
Date: | April 4, 2013 | /S/ CHARLES D. DEL PRADO |
Charles D. del Prado | ||
Chief Executive Officer |
S-1
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
F-1
Report of Independent Registered Public Accounting Firm
To: the Supervisory Board and Shareholders of
ASM International NV
We have audited the accompanying consolidated balance sheets of ASM International NV and subsidiaries (the “Company”) as of December 31, 2012 and 2011, and the related consolidated statements of operations, comprehensive income, total equity, and cash flows for each of the three years in the period ended December 31, 2012. 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 in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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 audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of ASM International NV and subsidiaries at December 31, 2012 and 2011, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2012, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2012, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated April 4, 2013 expressed an unqualified opinion on the Company’s internal control over financial reporting.
/s/ Deloitte Accountants BV
Amsterdam, the Netherlands
April 4, 2013
F-2
Report of Independent Registered Public Accounting Firm
To: the Supervisory Board and Shareholders of
ASM International NV
We have audited the internal control over financial reporting of ASM International NV and subsidiaries (the “Company”) as of December 31, 2012, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2012, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year ended December 31, 2012 of the Company and our report dated April 4, 2013 expressed an unqualified opinion on those financial statements.
/s/ Deloitte Accountants BV
Amsterdam, the Netherlands
April 4, 2013
F-3
Consolidated Balance Sheets
December 31, | |||||||
(EUR thousands except per share data) | Notes | 2011 | 2012 | ||||
Assets | |||||||
Cash and cash equivalents | 4 | 390,250 | 290,475 | ||||
Accounts receivable, net | 6 | 330,891 | 304,840 | ||||
Inventories, net | 7 | 376,667 | 403,400 | ||||
Income taxes receivable | 907 | 890 | |||||
Deferred tax assets | 26 | 14,350 | 17,967 | ||||
Other current assets | 82,715 | 90,807 | |||||
Total current assets | 1,195,780 | 1,108,379 | |||||
Pledged cash | 5 | 20,000 | 20,000 | ||||
Debt issuance costs | 18 | 4,389 | 735 | ||||
Deferred tax assets | 26 | 13,072 | 5,955 | ||||
Other intangible assets, net | 8 | 14,776 | 13,915 | ||||
Goodwill, net | 9 | 52,131 | 51,888 | ||||
Evaluation tools at customers | 12 | 13,987 | 16,922 | ||||
Investments | 13 | 1,044 | 278 | ||||
Property, plant and equipment, net | 10 | 260,180 | 275,436 | ||||
Assets held for sale | 11 | 6,862 | 5,998 | ||||
Total assets | 1,582,221 | 1,499,506 | |||||
Liabilities and shareholders’ equity | |||||||
Notes payable to banks | 14 | 40,680 | 61,675 | ||||
Accounts payable | 157,549 | 151,761 | |||||
Provision for warranty | 15 | 42,684 | 38,623 | ||||
Accrued expenses and other | 16 | 152,891 | 132,060 | ||||
Income taxes payable | 54,878 | 27,625 | |||||
Deferred tax liabilities | 26 | 3,513 | 36 | ||||
Current portion of long-term debt | 17 | 4,332 | 6,316 | ||||
Total current liabilities | 456,527 | 418,096 | |||||
Pension liabilities | 20 | 9,887 | 12,540 | ||||
Deferred tax liabilities | 26 | 868 | 952 | ||||
Provision for warranty | 15 | 6,828 | 5,298 | ||||
Long-term debt | 17 | 15,319 | 12,632 | ||||
Convertible subordinated debt | 18 | 135,078 | — | ||||
Total liabilities | 624,507 | 449,518 | |||||
Commitments and contingencies | 21,22 | ||||||
Common shares: | |||||||
Authorized 110,000,000 shares, par value €0.04, issued and outstanding 55,377,020 and 63,095,986 shares | 2,215 | 2,584 | |||||
Financing preferred shares: | |||||||
Authorized 8,000 shares, par value € 40, none issued | — | — | |||||
Preferred shares: | |||||||
Authorized 118,000 shares, par value € 40, none issued | — | — | |||||
Capital in excess of par value | 376,217 | 480,152 | |||||
Retained earnings | 301,515 | 288,082 | |||||
Accumulated other comprehensive loss | (20,151 | ) | (28,942 | ) | |||
Total shareholders’ equity | 19 | 659,796 | 741,876 | ||||
Non-controlling interest | 297,918 | 308,112 | |||||
Total equity | 957,714 | 1,049,988 | |||||
Total liabilities and shareholders’ equity | 1,582,221 | 1,499,506 |
F-4
Consolidated Statements of Operations
See Notes to Consolidated Financial Statements.
Year ended December 31, | ||||||||||
(EUR thousands, except per share data) | Notes | 2010 | 2011 | 2012 | ||||||
Net sales | 27 | 1,222,900 | 1,634,334 | 1,418,067 | ||||||
Cost of sales | (673,322 | ) | (1,063,708 | ) | (977,638 | ) | ||||
Gross profit | 27 | 549,578 | 570,626 | 440,429 | ||||||
Operating expenses: | ||||||||||
Selling, general and administrative | (130,596 | ) | (174,107 | ) | (200,799 | ) | ||||
Research and development, net | 24 | (78,785 | ) | (129,400 | ) | (149,219 | ) | |||
Amortization of other intangible assets | 8 | (357 | ) | (911 | ) | (1,264 | ) | |||
Impairment charge property, plant and equipment | 10 | — | (8,038 | ) | — | |||||
Restructuring expenses | 25 | (11,201 | ) | — | (891 | ) | ||||
Total operating expenses | (220,939 | ) | (312,455 | ) | (352,173 | ) | ||||
Operating income: | ||||||||||
Gain on bargain purchase | 3 | — | 109,279 | — | ||||||
Result from operations | 27 | 328,640 | 367,450 | 88,256 | ||||||
Interest income | 1,221 | 2,902 | 1,989 | |||||||
Interest expense | (15,677 | ) | (13,497 | ) | (12,113 | ) | ||||
Loss resulting from early extinguishment of debt | 18 | (3,609 | ) | (824 | ) | (2,209 | ) | |||
Accretion interest expense convertible notes | 18 | (6,010 | ) | (4,401 | ) | (4,469 | ) | |||
Revaluation conversion option | 18 | (19,037 | ) | (4,378 | ) | — | ||||
Foreign currency exchange gains (losses), net | (65 | ) | 5,604 | (3,957 | ) | |||||
Result on investments | — | — | (766 | ) | ||||||
Earnings before income taxes | 285,462 | 352,855 | 66,731 | |||||||
Income tax expense | 26 | (42,939 | ) | (36,692 | ) | (26,300 | ) | |||
Net earnings | 242,523 | 316,164 | 40,431 | |||||||
Net earnings (loss) for allocation between shareholders of the parent and non-controlling interest | ||||||||||
Allocation of net earnings: | ||||||||||
Shareholders of the parent | 110,639 | 186,770 | 7,149 | |||||||
Non-controlling interest | 131,884 | 129,394 | 33,282 | |||||||
Net earnings per share (in euro): | 29 | |||||||||
Basic net earnings from continuing operations | 2.11 | 3.38 | 0.13 | |||||||
Diluted net earnings from continuing operations | 2.09 | 3.16 | 0.13 | |||||||
Weighted average number of shares used in computing per share amounts (in thousands): | ||||||||||
Basic | 52,435 | 55,210 | 56,108 | |||||||
Diluted | 61,494 | 64,682 | 56,767 |
F-5
Consolidated Statements of Comprehensive Income
Year ended December 31, | |||||||||||
(EUR thousands) | Notes | 2010 | 2011 | 2012 | |||||||
Net earnings (loss) | 242,523 | 316,164 | 40,431 | ||||||||
Other comprehensive income (loss): | |||||||||||
Foreign currency translation effect | 41,309 | 18,062 | (10,110 | ) | |||||||
Unrealized gains (losses) on derivative instruments, net of tax | 136 | (13 | ) | — | |||||||
Actuarial loss | (87 | ) | 1,139 | (3,716 | ) | ||||||
Total other comprehensive income (loss) | 19 | 41,358 | 19,188 | (13,826 | ) | ||||||
Comprehensive income (loss) | 283,881 | 335,352 | 26,605 | ||||||||
Allocation of comprehensive income (loss): | |||||||||||
Common shareholders | 141,154 | 200,858 | (1,642 | ) | |||||||
Non-controlling interest | 19 | 142,727 | 134,494 | 28,247 |
F-6
Consolidated Statements of Total Equity
EUR | ||||||||||||||||||||||||||||
(thousands except for share data) | Note | Number of common shares | Common shares | Capital in excess of par value | Treasury shares at cost | Retained earnings | Accumulated other comprehensive income (loss) | Total shareholders’ equity | Non- controlling interest | Total equity | ||||||||||||||||||
Balance as of January 1, 2010 | 51,745,140 | 2,070 | 287,768 | — | 16,146 | (64,754 | ) | 241,230 | 144,684 | 385,914 | ||||||||||||||||||
Compensation expense stock options | — | — | 2,526 | — | — | — | 2,526 | — | 2,526 | |||||||||||||||||||
Conversion of debt into common shares | 18 | 878,491 | 35 | 17,614 | — | — | — | 17,649 | — | 17,649 | ||||||||||||||||||
Exercise stock options by issue of common shares | 19 | 308,250 | 12 | 3,932 | — | — | — | 3,944 | — | 3,944 | ||||||||||||||||||
Net earnings to common shareholders | — | — | — | — | 110,639 | — | 110,639 | 131,884 | 242,523 | |||||||||||||||||||
Other comprehensive income | 19 | — | — | — | — | — | 30,515 | 30,515 | 10,843 | 41,358 | ||||||||||||||||||
Other movements in non-controlling interest: | ||||||||||||||||||||||||||||
Dividend paid | — | — | — | — | — | — | — | (58,162 | ) | (58,162 | ) | |||||||||||||||||
Dilution | — | — | — | — | 4,957 | — | 4,957 | 6,518 | 11,475 | |||||||||||||||||||
Balance as of December 31, 2010 | 52,931,881 | 2,117 | 311,841 | — | 131,741 | (34,239 | ) | 411,460 | 235,767 | 647,227 |
F-7
EUR | ||||||||||||||||||||||||||||
(thousands except for share data) | Note | Number of common shares | Common shares | Capital in excess of par value | Treasury shares at cost | Retained earnings | Accumulated other comprehensive income (loss) | Total shareholders’ equity | Non- controlling interest | Total equity | ||||||||||||||||||
Compensation expense stock options | — | — | 1,872 | — | — | — | 1,872 | — | 1,872 | |||||||||||||||||||
Conversion of debt into common shares | 18 | 2,151,020 | 86 | 58,439 | — | — | — | 58,525 | — | 58,525 | ||||||||||||||||||
Exercise stock options by issue of common shares | 19 | 294,119 | 12 | 4,065 | — | — | — | 4,077 | — | 4,077 | ||||||||||||||||||
Net earnings to common shareholders | — | — | — | — | 186,770 | — | 186,770 | 129,395 | 316,165 | |||||||||||||||||||
Dividend paid to common shareholders | (22,262 | ) | (22,262 | ) | — | (22,262 | ) | |||||||||||||||||||||
Other comprehensive income | 19 | — | — | — | — | — | 14,088 | 14,088 | 5,100 | 19,188 | ||||||||||||||||||
Other movements in non-controlling interest: | ||||||||||||||||||||||||||||
Dividend paid | — | — | — | — | — | — | — | (79,474 | ) | (79,474 | ) | |||||||||||||||||
Dilution | — | — | — | — | 5,266 | — | 5,266 | 7,130 | 12,396 | |||||||||||||||||||
Balance as of December 31, 2011 | 55,377,020 | 2,215 | 376,217 | — | 301,515 | (20,151 | ) | 659,796 | 297,918 | 957,714 | ||||||||||||||||||
Compensation expense stock options | — | — | 3,242 | — | — | — | 3,242 | — | 3,242 | |||||||||||||||||||
Purchase of common shares | (1,500,000 | ) | — | — | (40,554 | ) | — | — | (40,554 | ) | — | (40,554 | ) | |||||||||||||||
Conversion of debt into newly issued common shares | 18 | 9,074,396 | 363 | 98,490 | 40,554 | — | — | 139,407 | — | 139,407 | ||||||||||||||||||
Exercise stock options by issue of common shares | 19 | 144,570 | 6 | 2,203 | — | — | — | 2,209 | — | 2,209 | ||||||||||||||||||
Net earnings to common shareholders | — | — | — | — | 7,149 | — | 7,149 | 33,282 | 40,431 | |||||||||||||||||||
Dividend paid to common shareholders | (27,519 | ) | (27,519 | ) | — | (27,519 | ) | |||||||||||||||||||||
Other comprehensive income | 19 | — | — | — | — | — | (8,791 | ) | (8,791 | ) | (5,035 | ) | (13,826 | ) | ||||||||||||||
Other movements in non-controlling interest: | ||||||||||||||||||||||||||||
Dividend paid | — | — | — | — | — | — | — | (27,024 | ) | (27,024 | ) | |||||||||||||||||
Dilution | — | — | — | — | 6,937 | — | 6,937 | 8,971 | 15,908 | |||||||||||||||||||
Balance as of December 31, 2012 | 63,095,986 | 2,584 | 480,152 | — | 288,082 | (28,942 | ) | 741,876 | 308,112 | 1,049,988 |
F-8
Consolidated Statements of Cash Flows
Note | Year ended December 31, | ||||||||||
(EURO thousands) | 2010 | 2011 | 2012 | ||||||||
Cash flows from operating activities: | |||||||||||
Net earnings (loss) | 242,523 | 316,164 | 40,431 | ||||||||
Adjustments required to reconcile net earnings(loss) to net cash from operating activities: | |||||||||||
Depreciation and amortization | 8,10 | 37,794 | 49,450 | 58,460 | |||||||
Impairments | 10 | — | 8,038 | — | |||||||
Gain on bargain purchase | — | (109,279 | ) | — | |||||||
Share-based compensation | 20 | 13,901 | 13,452 | 23,065 | |||||||
Non cash result components convertible bonds | 18 | 28,656 | 8,779 | 6,678 | |||||||
Result investments | — | — | 766 | ||||||||
Deferred income taxes | 4,092 | (27,691 | ) | (147 | ) | ||||||
Changes in assets and liabilities: | |||||||||||
Accounts receivable | (95,260 | ) | 67,293 | 17,905 | |||||||
Inventories | (77,236 | ) | 8,390 | (39,920 | ) | ||||||
Other current assets | (20,732 | ) | (20,335 | ) | (6,713 | ) | |||||
Accounts payable and accrued expenses | 104,485 | (94,601 | ) | (32,077 | ) | ||||||
Accruals for restructuring expenses | 1,863 | — | — | ||||||||
Payment restructuring expenses | (9,297 | ) | (3,159 | ) | — | ||||||
Current income taxes | 29,096 | 80 | (25,968 | ) | |||||||
Net cash provided by operating activities | 259,884 | 216,581 | 42,480 | ||||||||
Cash flows from investing activities: | |||||||||||
Capital expenditures | 10 | (102,974 | ) | (89,218 | ) | (68,162 | ) | ||||
Net purchase of intangible assets | 8 | (624 | ) | (7,051 | ) | (4,630 | ) | ||||
Acquisition of business | 9 | — | (994 | ) | — | ||||||
Cash acquired in business combination | 3 | — | 43,434 | — | |||||||
Pledged bank deposit in business combination | 5 | — | (20,000 | ) | — | ||||||
Proceeds from sale of property, plant and equipment | 10 | 3,032 | 3,794 | 901 | |||||||
Net cash used in investing activities | (100,566 | ) | (70,035 | ) | (71,891 | ) | |||||
Cash flows from financing activities: | |||||||||||
Debt redemption | (68,810 | ) | (23,096 | ) | (24,726 | ) | |||||
Debt proceeds, net | 42,173 | 47,677 | |||||||||
Purchase of treasury shares ASMI | — | — | (40,554 | ) | |||||||
Purchase of treasury shares ASMPT | — | — | (3,552 | ) | |||||||
Proceeds from issuance of shares and exercise of stock options | 3,945 | 4,122 | 2,209 | ||||||||
Dividends to common shareholders of ASMI | — | (22,262 | ) | (27,519 | ) | ||||||
Dividends to minority shareholders ASMPT | (58,162 | ) | (79,474 | ) | (27,024 | ) | |||||
Net cash used in financing activities | (123,027 | ) | (78,537 | ) | (73,489 | ) | |||||
Foreign currency translation effect | 10,096 | (18,052 | ) | 3,125 | |||||||
Net (decrease) increase in cash and cash equivalents | 46,387 | 49,956 | (99,775 | ) | |||||||
Cash and cash equivalents at beginning of year | 4 | 293,902 | 340,294 | 390,250 | |||||||
Cash and cash equivalents at end of year | 4 | 340,294 | 390,250 | 290,475 |
F-9
Note | Year ended December 31, | ||||||||||
(EURO thousands) | 2010 | 2011 | 2012 | ||||||||
Supplemental disclosures of cash flow information | |||||||||||
Cash paid during the year for: | |||||||||||
Interest | 14,786 | 10,742 | 10,124 | ||||||||
Income taxes | 9,751 | 39,929 | 52,425 | ||||||||
Supplemental on cash investing and financing activities: | |||||||||||
Subordinated debt converted | 18 | 13,473 | 32,202 | 150,000 | |||||||
Subordinated debt converted into number of shares | 18 | 878,491 | 2,151,020 | 9,074,396 |
See Notes to Consolidated Financial Statements.
F-10
Notes to Consolidated Financial Statements
1- General Information / Summary of Significant Accounting Policies
General information
ASM International NV (“ASMI” or “the Company”) is a Dutch public liability company domiciled in the Netherlands with its principal operations in Europe, the United States and Asia. The Company dedicates its resources to the research, development, manufacturing, marketing and servicing of equipment and materials used to produce mainly semiconductor devices.
We are an equipment supplier mainly to the semiconductor, LED and electronics manufacturing industry. We design, manufacture and sell equipment and services to our customers for the production of semiconductor devices, or integrated circuits, for the production of LEDs, and for electronics manufacturing in general.
The semiconductor capital equipment market is composed of three major market segments: wafer processing equipment, assembly and packaging equipment, and test equipment. ASMI is mainly active in the wafer processing and assembly and packaging market segments. We also sell lead frames for semiconductor assembly. In addition, ASM AS is offering surface-mount technology (“SMT”) placement tools for the global electronics manufacturing industries. The wafer processing segment is referred to as “Front-end.” Assembly and packaging and SMT is referred to as “Back-end.”
The Company’s shares are listed for trading on the NASDAQ (symbol ASMI) and the Euronext Amsterdam Stock Exchange (symbol ASM).
The accompanying consolidated financial statements include the financial statements of ASM International NV headquartered in Almere, the Netherlands, and its consolidated subsidiaries (together referred to as “ASMI” or the “Company”).
Basis of preparation
The Company follows accounting principles generally accepted in the United States of America (“US GAAP”) and applies the going concern basis in preparing its consolidated financial statements. Historical cost is used as the measurement basis unless otherwise indicated.
The accompanying consolidated financial statements are stated in thousands of Euros (“EUR”) unless indicated otherwise. Amounts in these financial statements are rounded to the nearest thousand Euro; therefore amounts may not equal (sub) totals due to rounding.
Use of estimates
The preparation of financial statements in conformity with US GAAP requires management to make judgments, estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ materially from those estimates. On an ongoing basis, ASMI evaluates its estimates. ASMI bases its estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities.
Consolidation
The consolidated financial statements include the accounts of ASMI NV and all of its subsidiaries where ASMI holds a controlling interest. The non-controlling interest is disclosed separately in the consolidated financial statements. All intercompany profits, transactions and balances have been eliminated in consolidation.
Subsidiaries are all entities over which ASMI has the power to govern the financial and operating policies.
As further described in the Notes to Consolidated Financial Statements herein, from time to time, the consolidated subsidiary ASM Pacific Technology Ltd (“ASMPT”) will issue common shares pursuant to their Employee Share Incentive Scheme. The effect of these issuances is a dilution of the ownership in ASMPT. Results on dilution of investments in subsidiaries are accounted for directly in equity.
Subsidiaries are fully consolidated from the date on which control is transferred to ASMI and are deconsolidated from the date on which ASMI’s control ceases.
F-11
Business combinations
ASC Topic 805 (“Business Combinations”) requires that companies record acquisitions under the purchase method of accounting. Accordingly, the purchase price is allocated to the tangible assets and liabilities and intangible assets acquired, based on their estimated fair values. The excess purchase price over the fair value is recorded as goodwill. Purchased intangibles with definite lives are amortized over their respective useful lives. When a bargain purchase incurs, which is the case when the fair value of the acquired business exceeds the purchase price, this surplus in fair value is recognized as a gain from bargain purchase.
Segment reporting
The Company organizes its activities in two operating segments, Front-end and Back-end. Operating segments are reported in a manner consistent with the internal reporting provided to the Chief Executive Officer (“CEO”), which is the chief operating decision maker (according to ASC 280).
The Front-end segment manufactures and sells equipment used in wafer processing, encompassing the fabrication steps in which silicon wafers are layered with semiconductor devices. The segment is a product driven organizational unit comprised of manufacturing, service, and sales operations in Europe, the United States, Japan and Southeast Asia. The Back-end segment manufactures and sells equipment and materials used in assembly and packaging, encompassing the processes in which silicon wafers are separated into individual circuits and subsequently assembled, packaged and tested. In January 2011 ASMPT acquired the surface-mount technology from Siemens. The segment is organized in ASM Pacific Technology Ltd., in which the Company holds a majority of 51.96% interest, whilst the remaining shares are listed on the Stock Exchange of Hong Kong.
Foreign currency translation
Items included in the financial statements of each ASMI’s entities are measured using the currency of the primary economic environment in which the entity operates (the functional currency). The consolidated financial information is presented in euro (EUR), which is the functional currency of the Company and the group’s presentation currency.
In the preparation of ASMI’s consolidated financial statements, assets and liabilities of foreign subsidiaries of which the functional currency is not the euro, are translated into euros at the exchange rate in effect on the respective balance sheet dates. Income and expenses are translated into euros based on the average exchange rates for the corresponding period. Resulting translation adjustments are directly recorded in shareholders’ equity. Currency differences on intercompany loans that have the nature of a long-term investment are also accounted for directly in shareholders’ equity.
Derivative financial instruments
ASMI and its subsidiaries conduct business in a number of foreign countries, with certain transactions denominated in currencies other than the functional currency of the Company (euro) or one of its subsidiaries conducting the business. The purpose of the Company’s foreign currency management is to manage the effect of exchange rate fluctuations on income, expenses, cash flows and assets and liabilities denominated in selected foreign currencies, in particular denominated in U.S. dollar.
The Company uses forward exchange contracts to hedge its foreign exchange risk of anticipated sales or purchase transactions in the normal course of business, which occur within the next twelve months, for which the Company has a firm commitment from a customer or to a supplier. The terms of these contracts are consistent with the timing of the transactions being hedged. The hedges related to forecasted transactions are designated and documented at the inception of the hedge as cash flow hedges, and are evaluated for effectiveness quarterly. The effective portion of the gain or loss on these hedges is reported as a component of accumulated other comprehensive income (loss) net of taxes in shareholders’ equity, and is reclassified into earnings when the hedged transaction affects earnings.
Changes in the fair value of derivatives that do not qualify for hedge treatment, as well as the ineffective portion of any hedges, are recognized in earnings. The Company records all derivatives, including forward exchange contracts, on the balance sheet at fair value in other current assets or accrued expenses and other.
Substantially all amounts, which are net of taxes, included in accumulated other comprehensive loss at December 31, of any year, will be reclassified to net earnings within the next twelve months, upon completion of the underlying transactions. If the underlying transaction being hedged fails to occur, or if a portion of any derivative is ineffective, the gain or loss is immediately recognized in earnings under foreign currency exchange gains (losses) in the consolidated statement of operations.
F-12
Furthermore, the Company might manage the currency exposure of certain receivables and payables using derivative instruments, such as forward exchange contracts (fair value hedges) and currency swaps, and non-derivative instruments, such as debt borrowings in foreign currencies. The gains or losses on these instruments provide an offset to the gains or losses recorded on receivables and payables denominated in foreign currencies. The derivative instruments are recorded at fair value and changes in fair value are recorded in earnings under foreign currency exchange gains (losses) in the consolidated statement of operations. Receivables and payables denominated in foreign currencies are recorded at the exchange rate at the balance sheet date and gains and losses as a result of changes in exchange rates are recorded in earnings under foreign currency exchange gains (losses) in the consolidated statement of operations.
The Company does not use forward exchange contracts for trading or speculative purposes.
Cash and cash equivalents
Cash and cash equivalents comprise deposits held at call with banks and other short-term highly liquid investments with original maturity of three months or less. Bank overdrafts are included in notes payable to banks in current liabilities.
Cash and cash equivalents of the Company’s subsidiary ASMPT are restricted to be used only in the operations of ASMPT.
Accounts receivable
Accounts receivable are stated at nominal value less an allowance for doubtful accounts.
A significant percentage of our accounts receivable is derived from sales to a limited number of large multinational semiconductor device manufacturers located throughout the world. In order to monitor potential credit losses, we perform ongoing credit evaluations of our customers’ financial condition. An allowance for doubtful accounts is maintained for potential credit losses based upon management’s assessment of the expected collectability of all accounts receivable. The allowance for doubtful accounts is reviewed periodically to assess the adequacy of the allowance. In making this assessment, management takes into consideration any circumstances of which we are aware regarding a customer’s inability to meet its financial obligations; and our judgments as to potential prevailing economic conditions in the industry and their potential impact on the Company’s customers.
Inventories
Inventories are stated at the lower of cost (first-in, first-out method) or market value. Inventory in the SMT business is generally determined on the basis of an average method. Costs include net prices paid for materials purchased, charges for freight and custom duties, production labor cost and factory overhead. Allowances are made for slow moving, obsolete or unsellable inventory.
Allowances for obsolescence of inventory are determined based on the expected demand as well as the expected market value of the inventory. We regularly evaluate the value of our inventory of components and raw materials, work in progress and finished goods, based on a combination of factors including the following: forecasted sales, historical usage, product end of life cycle, estimated current and future market values, service inventory requirements and new product introductions, as well as other factors. Purchasing requirements and alternative uses for the inventory are explored within these processes to mitigate inventory exposure. We record write downs for inventory based on the above factors and take into account worldwide quantities and demand into our analysis.
Evaluation tools at customers
Evaluation tools at customers (“evaluation tools”) are systems generally delivered to customers under evaluation or a conditional purchase order and include substantial customization by ASM engineers and ASM-R&D staff in the field. Evaluation tools are recorded at cost and depreciated over their useful life (5 years). The depreciation period may be shorter, depending on circumstances. The depreciation expenses are reported as Cost of sales.
On final acceptance of the system the purchase consideration is recognized as revenue. The carrying value of the evaluation tool at that point in time is recognized as cost of sales. In the circumstance that the system is returned, at the end of the evaluation period, a detailed impairment review takes place, and future sales opportunities and additional costs are identified. Only when the fair value is below the carrying value of the evaluation tool an additional depreciation is recognized. The remaining carrying value is recognized as finished goods (inventory).
Long-lived assets
F-13
Long-lived assets include goodwill, other intangible assets and property, plant and equipment. Property, plant and equipment are carried at cost, less accumulated depreciation and any accumulated impairment losses. Capital leased assets are recorded at the present value of future lease obligations. Depreciation is calculated using the straight-line method over the estimated useful lives. Leasehold improvements are depreciated over the lesser of the estimated useful life of the leasehold improvement or the term of the underlying lease.
Business combinations are accounted for under the purchase acquisition method. The Company tests its recorded goodwill and other intangible assets with indefinite lives for impairment each year on December 31 and whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
Goodwill is allocated to reporting units for purposes of impairment testing and tested for impairment on a two-step approach. The implied fair value of goodwill is determined. First the recoverability is tested by comparing the carrying amount of the goodwill with the fair value being the sum of the discounted future cash flows. If the carrying amount of the goodwill at reporting unit level is higher than the fair value of the goodwill, the second step should be performed. The goodwill impairment is measured as the excess of the carrying amount of the goodwill over its fair value.
Other intangible assets with finite lives are amortized over the estimated useful lives using the straight-line method.
Assets held for sale
A long-lived asset to be sold is classified as held for sale in the period in which all of the following criteria are met:
• | Management, having the authority to approve the action, commits to a plan to sell the asset. |
• | The asset is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such assets. |
• | An active program to locate a buyer and other actions required to complete the plan to sell the asset have been initiated. |
• | The sale of the asset is probable, and transfer of the asset is expected to qualify for recognition as a completed sale, within one year. |
• | The asset is being actively marketed for sale at a price that is reasonable in relation to its current fair value. |
If at any time these criteria are no longer met a long-lived asset classified as held for sale will be reclassified as held and used.
If during the initial one-year period, circumstances arise that previously were considered unlikely and, as a result, a long-lived asset previously classified as held for sale is not sold by the end of that period and all of the following conditions are met:
◦ | During the initial one-year period the entity initiated actions necessary to respond to the change in circumstances. |
◦ | The asset is being actively marketed at a price that is reasonable given the change in circumstances. |
the period required to complete the sale of a long-lived asset may be extended beyond one year.
Recoverability of long-lived assets
Long-lived assets (except those not being amortized) to be held and used by the Company are reviewed by the Company for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In performing the review for recoverability, the Company estimates the future undiscounted cash flows expected to result from the use of the asset. If the undiscounted future cash flow is less than the carrying amount of the asset, the asset is deemed impaired. The amount of the impairment is measured as the difference between the carrying value and the fair value of the asset. Long-lived assets and other intangibles (except those not being amortized) to be disposed of are reported at the lower of carrying amount or fair value less cost to sell.
Revenue recognition
The Company recognizes revenue when all four revenue recognition criteria have been met: persuasive evidence of an arrangement exists; delivery has occurred or services have been rendered; seller’s price to buyer is fixed or determinable; and collectability is reasonably assured.
F-14
Our Front-end sales frequently involve sales of complex equipment, which may include customer-specific criteria, sales to new customers or sales of equipment with new technology. For each sale, the decision whether to recognize revenue is, in addition to shipment and factory acceptance, based on: the contractual agreement with a customer; the experience with a particular customer; the technology and the number of similarly configured equipment previously delivered. Based on these criteria we may decide to defer revenue until completion of installation at the customer’s site and obtaining final acceptance from the customer. Revenue in our AS business on sales subjected to customer acceptance is not recognized until customer acceptance occurs.
A major portion of our revenue is derived from contractual arrangements with customers that have multiple deliverables, such as equipment and installation. When a sales arrangement contains multiple elements, such as equipment and installation,ASMI allocates revenue to each element based on a selling price hierarchy. The selling price for a deliverable is based on its vendor specific objective evidence (VSOE) if available, third party evidence (TPE) if VSOE is not available, or best estimated selling price (BESP) if neither VSOE nor TPE is available. ASMI generally utilizes the BESP due to the nature of our products. The total arrangement consideration is allocated at inception of the arrangement to all deliverables on the basis of their relative selling price. The revenue relating to the undelivered elements of the arrangements is deferred at their relative selling prices until delivery of these elements. At December 31, 2010, December 31, 2011 and December 31, 2012 we have deferred revenues from installations in the amount of €4.4 million, €6.3 million and €3.5 million respectively.
In general, we recognize revenue from sales of equipment upon transfer of title, which is upon shipment of the equipment, only if testing at the factory has proven that the equipment has met substantially all of the customer’s criteria and specifications
The Company recognizes revenue from installation of equipment upon completion of installation at the customer’s site. At the time of shipment, the Company defers that portion of the sales price related to the relative selling price of installation. The relative selling price of the installation process is measured based upon the per-hour amounts charged to clients parties for similar installation services. Installation is completed when testing at the customer’s site has proven that the equipment has met all of the customer’s criteria and specifications. The completion of installation is signed-off by the customer (“final acceptance”).
We provide training and technical support service to customers. Revenue related to such services is recognized when the service is rendered. Revenue from the sale of spare parts and materials is recognized when transfer of title took place, in general upon shipment of the goods. Freight charges billed to customers are recognized as revenue, the related costs are recognized as cost of sales. Revenues are recognized excluding the taxes levied on revenues.
Cost of sales
Cost of sales comprise direct costs such as labor, materials, cost of warranty, depreciation, shipping and handling costs and related overhead costs. Cost of sales also includes third party commission, depreciation expenses of evaluation tools at customers, royalty payments and costs relating to prototype and experimental products, which the Company may subsequently sell to customers. Costs of warranty include the cost of labor, material and related overhead necessary to repair a product during the warranty period.
Warranty
We provide maintenance on our systems during the warranty period, usually one to two years. Costs of warranty include the cost of labor, material and related overhead necessary to repair a product during the warranty period. We accrue for the estimated cost of the warranty on products shipped in a provision for warranty, upon recognition of the sale of the product. The costs are estimated based on actual historical expenses incurred and on estimated future expenses related to current sales, and are updated periodically.
Research and development costs
Research and development costs are expensed as incurred. Costs, which relate to prototype and experimental models and are sold to customers, are charged to cost of sales. Subsidies and other governmental credits to cover research and development costs relating to approved projects are recorded as research and development credits in the period when such project costs occur. The research and development expenses are presented net of the development credits.
Share-based compensation expenses
F-15
The cost relating to employee stock options (compensation expense) are recognized based upon the grant date fair value of the stock options. The fair value at grant date is estimated using a Black-Scholes option valuation model. This model requires the use of assumptions including expected stock price volatility, the estimated life of each award and the estimated dividend yield.
The grant date fair value of the stock options is expensed on a straight-line basis over the vesting period, based on the Company’s estimate of stock options that will eventually vest. The impact of the true up of the estimates is recognized in the consolidated statement of operations in the period in which the revision is determined.
For further information on ASMI’s employee stock option plans reference is made to Note 20.
Restructuring costs
Restructuring expenses are recognized for exit or disposal activities when the liability arising from restructuring plans is incurred. Reference is made to Note 25. Distinction is made in one-time employee termination expenses, contract termination expenses and other associated expenses. For the accounting on the distinguished elements of restructuring expenses we apply to the policy as mentioned below. The expenses have been charged to “restructuring expenses”.
One-time termination expenses represent the payments provided to employees that have become redundant and are terminated under the terms and conditions of a restructuring plan. A restructuring plan exists at the date the plan meets all of the following criteria and has been communicated to employees:
• | Management commits to the plan. |
• | The plan identifies the number of employees that become redundant and the expected completion date. |
• | The plan sets out the terms and conditions of the arrangement in sufficient detail to enable employees to determine the type and amount of benefits they will receive. |
• | Actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn. |
The timing of the recognition and measurement of a liability for one-time termination expenses depends on whether employees will be retained to render service beyond a minimum retention period.
Contract termination expenses are related to the termination of an operating lease or another contract. These expenses are distinguished in:
• | Expenses related to the termination of the contract before the end of its term. These expenses are recognized when the contract is terminated .The liability is measured at its fair value in accordance with the contract terms. |
• | Expenses related to contracts that will last for its remaining term without economic benefit to the entity. This is the case when a lease contract for premises is not terminated while the premises are not (completely) in use anymore. The liability is accrued for at the cease-use date, the date the company determined that it would no longer occupy the premises, which is conveyed to it under the contractual operating lease. The liability is measured at its fair value in accordance with the contract terms. |
Other costs related to restructuring include costs to consolidate or close facilities and relocate employees. A liability for other expenses related to a restructuring such as transition costs is recognized and measured in the period in which the liability is incurred. The costs incurred are directly related to the restructuring activity. The definition of exit costs excludes expected future operating losses.
Income taxes
The Company recognizes deferred tax assets and liabilities for the estimated future tax consequences of events attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using currently enacted tax rates. The effect on deferred tax assets and liabilities of changes in tax rates is recognized in the Consolidated Statement of Operations in the period in which the enacted rate changes.
F-16
Deferred tax assets are reduced through a valuation allowance at such time as, based on available evidence, it is more likely than not that the deferred tax assets will not be realized.
ASC 740 prescribes a two-step approach for recognizing and measuring tax positions taken or expected to be taken in a tax return. Prior to recognizing the benefit of a tax position in the financial statements, the tax position must be more-likely-than-not of being sustained based solely on its technical merits. Once this recognition threshold has been met, tax positions are recognized at the largest amount that is more-likely-than-not to be sustained. ASC 740 also provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition.
Pension plans and similar commitments
The Company has retirement plans covering substantially all employees. The principal plans are defined contribution plans, except for the plans of the Company’s operations in the Netherlands, Germany and Japan. The Company’s employees in the Netherlands participate in a multi-employer plan. Payment to defined contribution plans and the multi-employer plan are recognized as an expense in the Consolidated Statement of Operations as they fall due.
The Company’s employees in Germany and Japan participate in a defined benefit plan. Pension costs in respect of these defined benefit plans are determined using the projected unit credit method. These costs primarily represent the increase in the actuarial present value of the obligation for pension benefits based on employee service during the year and the interest on this obligation in respect of employee service in previous years, net of the expected return on plan assets. Obligations for retirement benefit and related net periodic pension costs are determined in accordance with actuarial valuations. These valuations rely on key assumptions including discount rates, expected return on plan assets, expected salary increases, mortality rates and health care trend rates. The discount rate assumptions are determined by reference to yields on high-quality corporate bonds of appropriate duration and currency at the end of the reporting period. In case such yields are not available, discount rates are based on government bonds yields. The expected returns on plan asset assumptions are determined on a uniform methodology, considering long-term historical returns and asset allocations. Due to changing market and economic conditions, the underlying key assumptions may differ from actual development and may lead to significant changes in retirement benefit obligations.
In accordance with ASC 715, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans" the Company recognizes in its Consolidated Balance Sheet an asset or a liability for the plan’s overfunded status or underfunded status respectively. The unfunded status is recognized as a liability. Actuarial gains and losses are recognized in other comprehensive income when incurred. Reference is made to Note 19 and Note 20.
Commitments and contingencies
The Company has various contractual obligations, some of which are required to be recorded as liabilities in the Company’s consolidated financial statements, including long- and short-term debt. Others, namely operating lease commitments, purchase commitments and commitments for capital expenditure, are generally not required to be recognized as liabilities on the Company’s balance sheet but are required to be disclosed. Reference is made to Note 21.
Comprehensive income
Comprehensive income consists of net earnings (loss) and other comprehensive income. Other comprehensive income includes gains and losses that are not included in net earnings, but are recorded directly in Shareholders’ Equity.
New accounting pronouncements
In June 2011, the FASB issued authoritative guidance on the presentation of comprehensive income (ASU 2011-05) to require an entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. This authoritative guidance eliminates the option to present the components of other comprehensive income as part of the statement of equity. This guidance was effective for ASMI for the year 2012, and has been applied retrospectively. The implementation of this authoritative guidance did not change the presentation of comprehensive Income. As a result of this application the deferral of the date as per ASU 2011-12 was not relevant for ASMI.
F-17
In May 2011, the FASB issued ASU 2011-04 “Fair Value Measurement (Topic 820)” to provide a consistent definition of fair value and ensure that the fair value measurement and disclosure requirements are similar between U.S. GAAP and International Financial Reporting Standards. This authoritative guidance limits the highest-and-best-use measure to non-financial assets, permits certain financial assets and liabilities with offsetting positions in market or counterparty credit risks to be measured at a net basis, and provides guidance on the applicability of premiums and discounts. This authoritative guidance also expands the disclosures on Level 3 inputs by requiring quantitative disclosure of the unobservable inputs and assumptions, as well as description of the valuation processes and the sensitivity of the fair value to changes in unobservable inputs. The new guidance was effective for ASMI in 2012. The implementation of this authoritative guidance did not have a material impact on ASMI’s financial position or results of operations.
In September 2011, the FASB issued ASU No. 2011-08, “Intangibles-Goodwill and Other (Topic 350).” The amendments in this ASU will allow an entity to first assess qualitative factors to determine whether it is necessary to perform the two-step Quantitative goodwill impairment test. Under these amendments, an entity would not be required to calculate the fair value of a reporting unit unless the entity determines based on a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. The ASU was effective for ASMI in 2012, but did not have any effect on ASMI’s consolidated financial statements. In July 2012, the FASB issued ASU 2012-02 " Testing indefinite-lived intangible assets for impairment". This ASU is an amendment on the guidance in ASC 350-30 on testing indefinite-lived intangible assets, other than goodwill, for impairment. This ASU was issued in response of feedback on ASU 2011-08. This new guidance will be effective on impairment tests performed for fiscal years beginning after September 15, 2012. The ASU will not have any effect on ASMI's consolidated financial statements.
In December 2011, the FASB issued ASU 2011-11 "Disclosures about offsetting assets and liabilities". Under the new guidance entities must disclose both gross information and net information on instruments and transactions eligible for offset on the balance sheet in accordance with the offsetting guidance in ASC 210-20-45 or ASC 815-10-45, and instruments and transactions subject to an agreement similar to a master netting arrangement. The new guidance will be effective for ASMI beginning January 1, 2013. We do not expect this new guidance to have material impact on our consolidated financial statements.
In October 2012, the FASB issued ASU 2012-04 "Technical corrections and improvements". This ASU makes certain technical correction to the FASB Accounting Standards Codification. The new guidance will be effective for fiscal years beginning after December 15, 2012. We do not expect this new guidance to have material impact on our consolidated financial statements.
2- List of Significant Subsidiaries
Name | Location | % Ownership December 31, | ||||
2011 | 2012 | |||||
ASM Europe BV 1 | Almere, the Netherlands | 100.00 | % | 100.00 | % | |
ASM United Kingdom Sales BV 1 | Almere, the Netherlands | 100.00 | % | 100.00 | % | |
ASM Germany Sales BV 1 | Almere, the Netherlands | 100.00 | % | 100.00 | % | |
ASM Pacific Holding BV1, 3 | Almere, the Netherlands | 100.00 | % | 100.00 | % | |
ASM France S.A.R.L. | Montpellier, France | 100.00 | % | 100.00 | % | |
ASM Belgium NV | Leuven, Belgium | 100.00 | % | 100.00 | % | |
ASM Italia Srl | Agrate, Italy | 100.00 | % | 100.00 | % | |
ASM Microchemistry Oy | Helsinki, Finland | 100.00 | % | 100.00 | % | |
ASM Services and Support Ireland Ltd | Dublin, Ireland | 100.00 | % | 100.00 | % | |
ASM Services and Support Israel Ltd | Tel Aviv, Israel | 100.00 | % | 100.00 | % | |
ASM America, Inc | Phoenix, Arizona, United States | 100.00 | % | 100.00 | % | |
ASM Japan KK | Tokyo, Japan | 100.00 | % | 100.00 | % | |
ASM Wafer Process Equipment Ltd | Quarry Bay, Hong Kong, People’s Republic of China | 100.00 | % | 100.00 | % | |
ASM China Trading Ltd | Shanghai, People’s Republic of China | 100.00 | % | 100.00 | % |
F-18
Name | Location | % Ownership December 31, | ||||
2011 | 2012 | |||||
ASM Wafer Process Equipment Singapore Pte Ltd | Singapore | 100.00 | % | 100.00 | % | |
ASM Front-End Sales & Services Taiwan Co, Ltd | Hsin-Chu, Taiwan | 100.00 | % | 100.00 | % | |
ASM Services & Support Malaysia SDN BDH | Kuala Lumpur, Malaysia | — | % | 100.00 | % | |
ASM Front-End Manufacturing Singapore Pte Ltd | Singapore | 100.00 | % | 100.00 | % | |
ASM NuTool, Inc | Phoenix, Arizona, United States | 100.00 | % | 100.00 | % | |
ASM Genitech Korea Ltd | Cheonan, South Korea | 100.00 | % | 100.00 | % | |
ASM IP Holding BV 1 | Almere, the Netherlands | 100.00 | % | 100.00 | % | |
ASM Pacific Technology Ltd | Kwai Chung, Hong Kong, People’s Republic of China | 52.17 | % | 51.96 | % | |
ASM Assembly Automation Ltd 2 | Kwai Chung, Hong Kong, People’s Republic of China | 52.17 | % | 51.96 | % | |
ASM Assembly Materials Ltd 2 | Kwai Chung, Hong Kong, People’s Republic of China | 52.17 | % | 51.96 | % | |
ASM Technology Singapore Pte Ltd 2 | Singapore | 52.17 | % | 51.96 | % | |
ASM Technology (M) Sdn Bhd 2 | Johor Bahru, Malaysia | 52.17 | % | 51.96 | % | |
ASM Semiconductor Materials (Shenzhen) Co. Ltd 2 | Shenzhen, People’s Republic of China | 52.17 | % | 51.96 | % | |
Edgeward Development Ltd 2 | Guernsey, Channel Islands | 52.17 | % | 51.96 | % | |
Shenzhen ASM Micro Electronic Technology Co. Ltd 2 | Shenzhen, People’s Republic of China | 52.17 | % | 51.96 | % | |
ASM Assembly Systems Management GmbH. 4 | Munich, Germany | 52.17 | % | 51.96 | % | |
ASM Assembly Systems Management GmbH & C o K G 4 | Munich, Germany | 52.17 | % | 51.96 | % | |
ASM Assembly Systems Ltd 4 | Shanghai, People’s Republic of China | 52.17 | % | 51.96 | % | |
ASM Pacific( Hong Kong) Ltd 4 | Kwai Chung, Hong Kong, People’s Republic of China | 52.17 | % | 51.96 | % | |
ASM Pacific (Holdings) Ltd | Kwai Chung, Hong Kong, People’s Republic of China | 52.17 | % | 51.96 | % | |
ASM Microelectronic Technical Services (Shanghai) Company Ltd | Shanghai, People’s Republic of China | 52.17 | % | 51.96 | % | |
ASM (Assembly Systems) GmbH & C o K G 4 | Vienna, Austria | 52.17 | % | 51.96 | % | |
ASM Assembly Systems, LLC 4 | Suwanee, United States | 52.17 | % | 51.96 | % | |
ASM Assembly Systems Pte. Ltd 4 | Singapore | 52.17 | % | 51.96 | % | |
ASM Technology (Huizhou) Ltd | People’s Republic of China | 52.17 | % | 51.96 | % | |
ASM Technology China Ltd | People’s Republic of China | 52.17 | % | 51.96 | % |
(1) | For these subsidiaries ASM International NV has filed statements at the Dutch Chamber of Commerce assuming joint and several liability in accordance with Article 403 of Book 2, Part 9 of the Netherlands Civil Code. |
(2) | 100% subsidiaries of ASM Pacific Technology Ltd. |
(3) | Established in 2008, ASM Pacific Holding BV is holding 51.96% of the shares in ASM Pacific Technology Ltd. |
(4) | 100% subsidiaries of ASM Pacific Technology Ltd., Acquired January 7, 2011. |
The accounts of the above mentioned entities and of certain insignificant subsidiaries not mentioned above have been consolidated in the Consolidated Financial Statements.
F-19
3- Acquisition
On January 7, 2011 ASMPT acquired the entire (voting) equity interest of SEAS Entities for a cash consideration of €36.5 million from Siemens Aktiengesellschaft. The principal activities of the SEAS Entities are development, production, sale and service of surface mount technology placement machines. We consider that the surface mount technology (“SMT”) industry is a natural field of expansion for ASMPT and an area to achieve significant synergies given it has similar engineering, technical and production process characteristics compared to the semiconductor equipment industry.
The headquarter of SEAS is located in Munich, Germany with production sites in Germany and Singapore. It also has marketing, sales and service offices in China, Unites States of America (“USA”), Austria, United Kingdom, France, Sweden, Italy, Mexico and Brazil.
Apart from the cash consideration paid, ASMPT entered into certain financial commitments to the ASM AS Entities and Siemens AG pursuant to the Master Sale and Purchase Agreement of the Acquisition entered into between Siemens AG and the Company (the “MSP Agreement”) which are summarized as set out below.
ASMPT undertook to pay an equity amount of €20.0 million as a capital injection to increase ASM AS KG’s registered limited partnership interest, and to grant ASM AS KG a revolving loan facility of up to €20.0 million for a period of at least three years from the completion of the acquisition subject to the terms and conditions as set out in the MSP Agreement (the “Loan Commitment”). ASMPT shall not alter, rescind, rewind or in any other way contradict the letter of support granted to ASM AS KG up to an amount of €120.0 million valid as for a duration of six years following the completion of the acquisition. The letter of support is to procure that ASM AS KG will for a period of six years after the completion of the acquisition be in position to fulfill its obligations towards its creditors when the obligations become due. ASMPT undertook to procure that ASM AS KG will not reduce or decrease the registered limited partnership interest of ASM AS KG for a period of three years following the completion of the acquisition.
Further, ASMPT undertook to Siemens AG that for a period of three years from date of the completion of the acquisition that the ASMPT would not directly or indirectly, (i) make, resolve, initiate, enable or accept any withdrawals from ASM AS KG or any of its partial or entire successors conducting the business or parts thereof (the “Sustained Business”), (ii) make, resolve on, initiate, enable or accept dividend payments or loan repayments by the Sustained Business, (iii) encumber, induce or impose the encumbrance of any assets of ASM AS KG or any of its successors other than in the ordinary course for the regular operative business of ASM AS KG, (iv) accept other non-arm’s length advantages from the Sustained Business, or (v) change, alter, rescind, rewind or in any other way contradict the equity commitment and loan commitment as set out in the MSP Agreement; (vi) impose transaction or management fees on the target companies; (vii)enter into any consultancy agreement in excess of €100; enter into any agreement or transaction which may result in a partial or entire change of the shareholding in the target companies or in the transfer of any asset relevant for the business from the target companies.
In addition, ASMPT undertook to Siemens AG that certain employment protection clauses of ASM AS KG as included in the MSP Agreement, including the maintenance of existing site in Munich, Germany and Munich as the headquarters of the group comprising principally the ASM AS Entities, and compliance with certain collective labor agreements, for a period of 3 years after closing date. ASMPT also undertook for a period of 3 years after closing date not to lay off any employees of SEAS KG for operational reason.
ASMPT also undertook to pay Siemens AG liquidated damages in the amount up to €20.0 million if ASMPT does not comply with its obligations in respect of the Sustained Business and employment protection as set out in the MSP Agreement and is not able to cure such non-compliance within a reasonable period of time. ASMPT agreed to provide Siemens AG with a bank guarantee which shall secure the obligations of ASMPT as set out above in an amount of not less than €20.0 million. The guarantee is to cover a period of four years and the aggregate expense to ASMPT would be €600,000 which represents part of the acquisition cost and is regarded as part of the consideration for the acquisition.
The following table summarizes the total purchase consideration and the identified assets and liabilities that were separately recognized in the purchase price allocation.
F-20
Carrying value of net assets acquired (excluding acquired cash) | Purchase price allocation | Fair value | ||||||
Inventories | 91,812 | 11,529 | 103,341 | |||||
Trade and other receivables | 132,418 | — | 132,418 | |||||
Current assets | 224,230 | 11,529 | 235,759 | |||||
Property, plant and equipment | 13,077 | 13,077 | ||||||
Intangible assets | 1,542 | 3,520 | 5,062 | |||||
Other non-current assets | 494 | — | 494 | |||||
Non-current assets | 15,113 | 3,520 | 18,633 | |||||
Total Assets | 239,343 | 15,049 | 254,392 | |||||
Trade and other payables | 151,624 | — | 151,624 | |||||
Short-term debt | 6,738 | — | 6,738 | |||||
Deferred tax liabilities | 16,199 | — | 16,199 | |||||
Current liabilities | 174,561 | — | 174,561 | |||||
Deferred tax liabilities | 4,428 | — | 4,428 | |||||
Other non-current liabilities | 10,699 | — | 10,699 | |||||
Non-current liabilities | 15,127 | — | 15,127 | |||||
Total liabilities | 189,688 | — | 189,688 | |||||
Identified net assets | 49,655 | 15,049 | 64,704 | |||||
Cash acquired | 81,075 | |||||||
145,779 | ||||||||
Total consideration | (36,500 | ) | ||||||
Gain bargain purchase | 109,279 |
The purchase price allocation resulted in the valuation of acquired technology. Acquisition related costs have been excluded from the cost of acquisition and recognized as an expense in the year when incurred as within the “general and administrative expenses” line item in the consolidated statement of operations. Cumulative acquisition related costs in respect of the acquisition amounted to €5.2 million of which €0.8 million, €3.6 million and €0.7 million incurred in respectively 2009, 2010 and 2011.
The gain from a bargain purchase of €109,279 was recognized upon completion of the acquisition of the SEAS entities in 2011. The gain from a bargain purchase on acquisition was mainly attributable to depressed market value of the acquired business because of years of losses due to challenging economic environment and the bad global economic environment during the period of negotiation of the acquisition.
Estimated future amortization expense associated with the intangible assets acquired SEAS at December 31, 2012 is as follows:
2013 | 1,012 | |
2014 | 1,012 | |
2015 | 1,012 |
The following unaudited pro forma summary presents information as if SEAS had been acquired as of January 1, 2009, the first day of the Company’s 2009 fiscal year. In addition to an adjustment to amortization expense to reflect the value of intangibles recorded for this acquisition. No adjustment was made to reduce historical interest income to reflect the Company’s use of available cash in this acquisition. The proforma amounts do not reflect any benefits from economies that might be achieved from combining the operations of the two companies.
The pro forma information presented below (in thousands, except per share data) does not necessarily reflect the actual results that would have occurred had the companies been combined during the periods presented, nor is it necessarily indicative of the future results of operations of the combined companies.
F-21
December 31, | |||||||
2009 | 2010 | ||||||
Net sales | 808,042 | 1,571,357 | |||||
Net income | (185,001 | ) | 271,240 | ||||
Basic earnings per share | € | (3.27 | ) | € | 2.40 | ||
Diluted earnings per share | € | (3.27 | ) | € | 2.33 |
Since the acquisition date, January 7, 2011, SEAS contributed €444 million to net sales and €53 million to result from operations as reported in the consolidated statement of operations for the year ended December 31, 2011.
4- Cash and Cash Equivalents
At December 31, 2012, cash and cash equivalents of the Company’s subsidiary ASMPT amounted to €145,414, which are restricted to be used only in the operations of ASMPT. No further restrictions on usage of cash and cash equivalents exist. The carrying amount approximates their fair value.
5- Pledged bank deposit
Pursuant to the Master Sale and Purchase Agreement of the acquisition (see note 3) entered into between ASMPT and Siemens Aktiengesellschaft , ASMPT provided a bank guarantee to Siemens AG upon completion of the acquisition for the purpose of securing certain obligations to an amount of €20 million. Per December 31, 2012, a bank deposit amounting to €20 million is pledged for the purpose of securing the bank guarantee. The pledged bank deposit will be released on January 7, 2015.
The pledged bank deposit carried interest at market rates of 0.1% (2011: 0.95%) per annum.
6- Accounts receivable
The carrying amount of accounts receivable is as follows:
Current | Overdue < 30 days | Overdue 31 – 60 days | Overdue 61 – 120 days | Overdue > 120 days | Total | ||||||||||||
December 31, 2011 | 264,224 | 31,529 | 12,126 | 13,579 | 9,433 | 330,891 | |||||||||||
December 31, 2012 | 223,546 | 38,666 | 13,537 | 13,954 | 15,137 | 304,840 |
In the total amount of accounts receivable for the year ended December 31, 2012, an amount of €42,588 relates to notes receivable.
The changes in the allowance for doubtful accounts receivable are as follows:
Balance January 1, 2010 | (8,968 | ) |
Charged to selling, general and administrative expenses | (461 | ) |
Utilization | 648 | |
Foreign currency translation effect | (523 | ) |
Balance December 31, 2010 | (9,304 | ) |
Charged to selling, general and administrative expenses | (356 | ) |
Utilization | 2,109 | |
Foreign currency translation effect | (50 | ) |
Balance December 31, 2011 | (7,601 | ) |
Charged to selling, general and administrative expenses | (2,825 | ) |
Utilization | 1,841 | |
Foreign currency translation effect | 34 | |
Balance December 31, 2012 | (8,551 | ) |
The carrying amount of the accounts receivable approximates their fair value.
F-22
7- Inventories
Inventories consist of the following:
December 31, | |||||
2011 | 2012 | ||||
Components and raw materials | 189,174 | 180,575 | |||
Work in process | 175,564 | 196,313 | |||
Finished goods | 70,918 | 91,799 | |||
Total inventories, gross | 435,656 | 468,687 | |||
Allowance for obsolescence | (58,989 | ) | (65,287 | ) | |
Total inventories, net | 376,667 | 403,400 |
The changes in the allowance for obsolescence are as follows:
Balance January 1, 2010 | (46,939 | ) |
Charged to cost of sales | (3,248 | ) |
Utilization | 14,628 | |
Foreign currency translation effect | (5,742 | ) |
Balance as of December 31, 2011 | (41,301 | ) |
Charged to cost of sales | (28,122 | ) |
Utilization | 12,526 | |
Foreign currency translation effect | (2,092 | ) |
Balance as of December 31, 2011 | (58,989 | ) |
Charged to cost of sales | (10,858 | ) |
Utilization | 3,569 | |
Foreign currency translation effect | 991 | |
Balance as of December 31, 2012 | (65,287 | ) |
8- Other Intangible Assets
Other intangible assets include purchased technology from third parties and software developed or purchased (including licences) for internal use. The changes in the amount of other intangible assets are as follows:
F-23
Software | Purchased technology and other intangible assets | Total | ||||||
At cost: | ||||||||
Balance January 1, 2011 | 14,433 | 3,192 | 17,625 | |||||
Additions | 3,417 | 3,682 | 7,099 | |||||
Acquisitions | 44 | 4,782 | 4,826 | |||||
Disposals | (104 | ) | (47 | ) | (151 | ) | ||
Foreign currency translation effect | 252 | 603 | 855 | |||||
Balance December 31, 2011 | 18,042 | 12,212 | 30,254 | |||||
Additions | 2,447 | 2,183 | 4,630 | |||||
Disposals | (10 | ) | — | (10 | ) | |||
Foreign currency translation effect | (133 | ) | (2 | ) | (135 | ) | ||
Balance December 31, 2012 | 20,346 | 14,393 | 34,739 | |||||
Accumulated amortization: | ||||||||
Balance January 1, 2011 | 7,809 | 3,011 | 10,820 | |||||
Amortization for the year | 2,901 | 1,570 | 4,471 | |||||
Disposals | (104 | ) | (47 | ) | (151 | ) | ||
Foreign currency translation effect | 179 | 159 | 338 | |||||
Balance December 31, 2011 | 10,785 | 4,693 | 15,478 | |||||
Amortization for the year | 2,784 | 2,634 | 5,418 | |||||
Disposals | (10 | ) | — | (10 | ) | |||
Foreign currency translation effect | (113 | ) | 51 | (62 | ) | |||
Balance December 31, 2012 | 13,446 | 7,378 | 20,824 | |||||
Other intangible assets, net: | ||||||||
December 31, 2011 | 7,257 | 7,519 | 14,776 | |||||
December 31, 2012 | 6,900 | 7,015 | 13,915 |
Other intangible assets are amortized over their useful lives of 3 to 7 years. Estimated amortization expenses relating to other intangible assets are as follows:
2013 | 5,696 | |
2014 | 4,046 | |
2015 | 2,499 | |
2016 | 1,182 | |
2017 | 492 | |
13,915 |
9- Goodwill
The changes in the carrying amount of goodwill are as follows:
Front-end | Back-end | Total | ||||||
Balance January 1, 2011 | 11,193 | 39,622 | 50,815 | |||||
Foreign currency translation effect | — | 1,316 | 1,316 | |||||
Balance December 31, 2011 | 11,193 | 40,938 | 52,131 | |||||
Foreign currency translation effect | 456 | (699 | ) | (243 | ) | |||
Balance December 31, 2012 | 11,649 | 40,239 | 51,888 |
The allocation of the carrying amount of goodwill is as follows:
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December 31, | |||||
2011 | 2012 | ||||
Front-end segment: | |||||
ASM Microchemistry Oy | 3,560 | 3,560 | |||
ASM Genitech Korea Ltd | 7,633 | 8,089 | |||
Back-end segment: | |||||
ASM Pacific Technology Ltd | 40,938 | 40,239 | |||
Total | 52,131 | 51,888 |
We perform an annual impairment test at December 31 of each year or if events or changes in circumstances indicate that the carrying amount of goodwill exceeds its fair value. Our Front-end impairment test and the determination of the fair value is based on a discounted future cash flow approach that uses our estimates of future revenues, driven by assumed market growth and estimated costs as well as appropriate discount rates. Our Back-end impairment test is based on the market value of the listed shares of ASMPT.
The material assumptions used for the fair value calculation of the reporting unit are:
• | An average discount rate of 22.7% ( 2011: 20.5%) representing the pre-tax weighted average cost of capital. This relative high rate is a consequence of the current situation whereby certain production lines are in the early phase of the product lifecycle, hence reflecting a higher risk. |
• | For Front- end external market segment data, historical data and strategic plans to estimate cash flow growth per product line have been used. |
• | Cash flow calculations are limited to five years of cash flow; after these five years perpetuity growth rates are set based on market maturity of the products. For maturing product the perpetuity growth rates used are 1% or less and for enabling technology products the rate used is 3% or less. |
• | For Back-end the market value of the listed shares of ASMPT on the Hong Kong Stock exchange has been used in our analysis. |
These estimates are consistent with the plans and estimated costs we use to manage the underlying business. Based on this analysis management believes that as per December 31, 2012 the fair value of the reporting units exceeded the carrying value.
10- Property, Plant and Equipment
The changes in the amount of property, plant and equipment are as follows:
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Land, buildings and leasehold improvements | Machinery, equipment, furniture and fixtures | Total | ||||||
At cost: | ||||||||
Balance January 1, 2011 | 131,431 | 409,889 | 541,320 | |||||
Capital expenditures | 38,993 | 50,226 | 89,219 | |||||
Acquisition | 276 | 11,249 | 11,525 | |||||
Impairment | (1,416 | ) | (6,622 | ) | (8,038 | ) | ||
Retirements and sales | (9,361 | ) | (30,692 | ) | (40,053 | ) | ||
Reclassification | (235 | ) | 235 | — | ||||
Foreign currency translation effect | 8,186 | 20,665 | 28,851 | |||||
Balance December 31, 2011 | 167,874 | 454,950 | 622,824 | |||||
Capital expenditures | 23,355 | 44,807 | 68,162 | |||||
Retirements and sales | (278 | ) | (10,253 | ) | (10,531 | ) | ||
Reclassification | 428 | (748 | ) | (320 | ) | |||
Foreign currency translation effect | (3,499 | ) | (13,127 | ) | (16,626 | ) | ||
Balance December 31, 2012 | 187,880 | 475,629 | 663,509 | |||||
Accumulated depreciation: | ||||||||
Balance January 1, 2011 | 74,216 | 269,167 | 343,383 | |||||
Depreciation for the year | 9,170 | 30,815 | 39,985 | |||||
Retirements and sales | (9,310 | ) | (26,920 | ) | (36,230 | ) | ||
Foreign currency translation effect | 3,020 | 12,486 | 15,506 | |||||
Balance December 31, 2011 | 77,096 | 285,548 | 362,644 | |||||
Depreciation for the year | 12,420 | 35,282 | 47,702 | |||||
Retirements and sales | (81 | ) | (9,558 | ) | (9,639 | ) | ||
Reclassification | 3 | (323 | ) | (320 | ) | |||
Foreign currency translation effect | (2,061 | ) | (10,253 | ) | (12,314 | ) | ||
Balance December 31, 2012 | 87,377 | 300,696 | 388,073 | |||||
Property, plant and equipment, net: | ||||||||
December 31, 2011 | 90,778 | 169,402 | 260,180 | |||||
December 31, 2012 | 100,503 | 174,933 | 275,436 |
Useful lives in years: | Buildings and leasehold improvements | 10-25 | |
Machinery and equipment | 2-10 | ||
Furniture and fixtures | 2-10 |
In 2011 the Company recorded an impairment charge of 8,038 related to machinery and equipment. The Company impaired certain items of property, plant and equipment related to the Back-end lead frame business. The impairment loss of 8,038 was recognized based on the recoverable amount of the relevant assets.
11- Assets held for sale
The changes in the carrying value of assets held for sale are as follows:
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Japan | The Netherlands | Total | ||||||
Balance January 1, 2011 | 6,070 | 277 | 6,347 | |||||
Foreign currency translation effect | 515 | — | 515 | |||||
Balance December 31, 2011 | 6,585 | 277 | 6,862 | |||||
Foreign currency translation effect | (864 | ) | — | (864 | ) | |||
Balance December 31, 2012 | 5,721 | 277 | 5,998 |
In 2009 the decision was made to dispose certain items of property, plant and equipment. These assets represent a carrying value as per December 31, 2012 of 5,998. The assets held for sale are located in Japan and The Netherlands. In Japan (Tama) a building that was used for research and development activities was ceased to be used in December 2009. The carrying value of €4.8 million is lower than the fair value less cost to sell. Also in Japan, a piece of land that was purchased to build a research and development center has now been regarded as held for sale. The carrying value of €0.9 million is below the expected selling price. The expected selling prices were determined, based on various inputs and considerations, including an appraisal from an outside firm performed during 2011. In the Netherlands the former ASMI head office located in Bilthoven has been regarded as held for sale. The carrying value of €0.3 million is lower than the fair value less cost to sell. The expected selling prices were determined, based on various inputs and considerations, including an appraisal from an outside firm performed during 2009. During 2012 both the Japanese and the Dutch properties were under the interest of the market, though the assets have not been sold yet, mainly as a result of the economical circumstances and the earth quake in Japan in 2011 leading to a low level of interest of the markets in these assets, the outside firms maintain the expected selling prices.
12- Evaluation tools at customers
The changes in the amount of evaluation tools are as follows:
Balance January 1, 2011 | 6,644 | |
Evaluation tools shipped | 14,901 | |
Depreciation | (2,518 | ) |
Evaluation tools sold | (7,830 | ) |
Transfer from inventories | 1,913 | |
Foreign currency translation effect | 877 | |
Balance December 31, 2011 | 13,987 | |
Evaluation tools shipped | 11,120 | |
Depreciation | (3,798 | ) |
Evaluation tools sold | (3,277 | ) |
Foreign currency translation effect | (1,110 | ) |
Balance December 31, 2012 | 16,922 | |
Useful lives in years: | 5 |
Evaluation tools are systems delivered to customers under evaluation agreements. Evaluation tools are recorded at cost and depreciated over their useful life (5 years). The depreciation period may be shorter, depending on circumstances. The depreciation expenses are reported as Cost of sales.
13- Investments
The investment of €278 as per December 31, 2012 reflects the net equity value of the interest in Levitech BV Resulting from the management buy-out in 2009 of the RTP business, ASM International NV obtained a 20% interest in Levitech BV.
The changes in the investment are as follows:
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Balance December 31, 2011 | 1,044 | ||
Share of result | (766 | ) | |
Balance December 31, 2012 | 278 |
14- Notes Payable to Banks
Information on notes payable to banks is as follows:
December 31, | |||||
2011 | 2012 | ||||
Short-term debt outstanding in: | |||||
Japan | 7,734 | — | |||
ASMPT | 32,946 | 61,675 | |||
Total | 40,680 | 61,675 |
Short-term debt outstanding in local currencies is as follows (in thousands):
December 31, | |||||
2011 | 2012 | ||||
Japanese yen | 775,000 | — | |||
Hong Kong dollar | 331,144 | 630,686 |
ASMI and its individual subsidiaries borrow under separate short-term lines of credit with banks in the countries where they are located. The lines contain general provisions concerning renewal and continuance at the option of the banks. At December 31, 2012, short-term debt bears interest at LIBOR plus a margin per annum or HIBOR plus a margin per annum, at a weighted average effective interest rate of 1.64% (2011: 1.83%) per annum.
Total short-term lines of credit amounted to €337,567 at December 31, 2012. The amount outstanding at December 31, 2012 was €61,675 and the undrawn portion totaled €275,893. The undrawn portion includes the Company’s standby revolving credit facility of €150,000 with a consortium of banks. The facility is available through July 31, 2015. Once the facility is used, this usage is secured by a portion of the Company’s shareholding in ASMPT. The undrawn portion further includes €125,893 for ASMPT, which amount is restricted to be used only in the operations of ASMPT.
The credit facility of €150,000 includes two financial covenants: a minimum long-term committed capital and a total net debt/equity ratio. These financial covenants are measured twice each year, at June 30 and December 31. The minimum level of long-term committed capital for the year ended December 31, 2012 was €320 million, the long-term committed capital as per that date was €742 million. Long-term committed capital is defined as the consolidated total equity. The net debt/equity ratio should not exceed 2.0, whereby equity is defined as consolidated total equity. For the year ended December 31, 2012 net cash was €145 million and total equity €742 million. The Company is in compliance with these financial covenants as of June 30, 2012 and as of December 31, 2012.
ASMI does not provide guarantees for borrowings of ASMPT and there are no guarantees from ASMPT to secure indebtedness of ASMI. Under the rules of the Stock Exchange of Hong Kong, ASMPT is precluded from providing loans and advances other than trade receivables in the normal course of business, to ASMI or its non ASMPT subsidiaries.
15- Provision for Warranty
The changes in the amount of provision for warranty are as follows:
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Balance January 1, 2011 | 8,273 | |
Charged to cost of sales | 29,809 | |
Acquisitions | 33,733 | |
Deductions | (24,822 | ) |
Foreign currency translation effect | 2,519 | |
Balance December 31, 2011 | 49,512 | |
Charged to cost of sales | 26,527 | |
Deductions | (31,948 | ) |
Foreign currency translation effect | (170 | ) |
Balance December 31, 2012 | 43,921 | |
Non-current portion | (5,298 | ) |
Current portion | 38,623 |
Costs of warranty include the cost of labor, material and related overhead necessary to repair a product during the warranty period. The warranty period is usually one to two years. The Company accrues for the estimated cost of the warranty on its products shipped in the provision for warranty, upon recognition of the sale of the product. The costs are estimated based on actual historical expenses incurred and on estimated future expenses related to current sales, and are updated periodically. Actual warranty costs are charged against the provision for warranty.
16- Accrued Expenses and Other
Accrued expenses and other consist of the following:
December 31, | |||||
2011 | 2012 | ||||
Advance payments from customers | 29,621 | 29,350 | |||
Accrual for onerous contracts | 446 | 125 | |||
Deferred revenue | 6,340 | 5,938 | |||
Accrual for salaries, wages and related taxes and expenses | 60,039 | 56,246 | |||
Interest payable | 1,881 | 307 | |||
Payables arising from acquisition of property, plant and equipment | 20,509 | 14,027 | |||
Other | 34,055 | 26,067 | |||
152,891 | 132,060 |
The accrual for onerous contracts relates to operating lease contracts for buildings for which no economic benefits are expected. The accrual for onerous contracts is expected to be utilized by 2013.
17- Long-term Debt
Long-term debt consists of the following:
December 31, | |||||
2011 | 2012 | ||||
Term loans: | |||||
Japan, 1.2-2.0%, due 2012 – 2014 | 17,764 | — | |||
ASMPT, LIBOR+2.5% | — | 18,948 | |||
Mortgage loans: | |||||
Japan, 2.1-2.2%, due 2012 | 1,746 | — | |||
Capital lease commitments: | |||||
Japan, 1.8%, due 2012 | 141 | — | |||
19,651 | 18,948 | ||||
Current portion | (4,332 | ) | (6,316 | ) | |
Non-current portion | 15,319 | 12,632 |
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Long-term debt, including current portion, in local currencies is as follows (in thousands):
December 31, | |||||
2011 | 2012 | ||||
Japanese yen | 1,969,097 | — | |||
US dollar | — | 25,000 |
Aggregate annual principal repayments for years subsequent to December 31, 2012 are:
2013 | 6,316 | |
2014 | 6,316 | |
2015 | 6,316 | |
18,948 |
Capital lease commitments relate to commitments for equipment and machinery.
18- Convertible Subordinated Debt
As per 1 January 2009, ASMI applies ASC 815 “Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock”.
Our convertible bonds initially due 2011 and 2014, included a component that creates a financial liability to the Company and a component that grants an option to the holder of the convertible note to convert it into common shares of the Company (“conversion option”). ASC 815 requires separate recognition of these components.
For the conversion options of the convertible bonds due 2011 the accounting was different from that for the conversion option of the convertible bonds due 2014. As the convertible bonds due 2011 were denominated in USD and the ASM International common shares in which they can be converted to are denominated in Euro, these conversion options were recognized as a liability measured at fair value. The conversion option was measured at fair value through the income statement. For the conversion options of the convertible bonds due 2014 the fixed–for-fixed principle is met as both the debt instrument (the bond) and the Company’s equity shares, in which they can be converted to, are denominated in the same currency (Euro). Based on this criterion the conversion option qualifies as permanent equity.
The fair value of the liability component is estimated using the prevailing market interest rate at the date of issue, for similar non-convertible debt. Subsequently, the liability is measured at amortized cost. The interest expense on the liability component is calculated by applying the market interest rate for similar non-convertible debt at the date of issue to the liability component of the instrument. The difference between this amount and the interest paid is added to the carrying amount of the convertible subordinated notes, thus creating a non-cash interest expense. For the financial year 2012 this accretion interest expense was €4,469 (2011: €4,401).
On October 8, 2012 we initiated a full redemption for all of the outstanding principle balance of our 6.50% Convertible Subordinated notes due 2014, as per November 27, 2012. This proposal for redemption resulted in a full conversion of convertible notes into 9,074,396 common shares.
On December 31, 2010 we initiated a full redemption for all of the outstanding principal balance of our 4.25% Convertible Subordinated notes due 2011, as per February 15, 2011. This proposal for redemption resulted in an almost full conversion of convertible notes into common shares. Until conversion, the conversion option was valued at fair value resulting in a non-cash loss during 2011 of €4.4 million.
The changes in the outstanding amounts of convertible subordinated debt are as follows:
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4.25% convertible subordinated notes, due 2011 | 6.50% convertible unsecured notes, due 2014 | |||||
Liability at redemption value at date of issuance | 111,682 | 150,000 | ||||
Conversion component at date of issuance | (18,329 | ) | (23,601 | ) | ||
Liability component at date of issuance | 93,353 | 126,399 | ||||
Balance January 1, 2011 | 32,438 | 130,804 | ||||
Conversion of notes | (32,536 | ) | — | |||
Accrual of interest | 126 | 4,274 | ||||
Foreign currency translation effect | (29 | ) | — | |||
Balance December 31, 2011 | — | 135,078 | ||||
Conversion of notes | — | (139,407 | ) | |||
Accrual of interest | — | 4,329 | ||||
Balance December 31, 2012 | — | — |
4.25% convertible subordinated notes, due 2011 | 6.50% convertible subordinated notes, due 2014 | |||||
Nominal value in US$: | ||||||
December 31, 2011 | — | n/a | ||||
December 31, 2012 | — | — | ||||
Nominal value in €: | ||||||
December 31, 2011 | — | 150,000 | ||||
December 31, 2012 | — | — |
4.25% convertible subordinated notes, due 2011
In December 2004, ASMI issued US$150.0 million in principal amount of 4.25% convertible subordinated notes due in December 2011 in a private offering. Interest on the notes was payable on June 6 and December 6 of each year. The notes were subordinated in right of payment to all of the Company’s existing and future senior indebtedness. The notes were convertible, at the option of the holder, into shares of the Company’s common stock initially at a conversion rate of 48.0307 shares of common stock for each US$1,000 principal amount of notes, subject to adjustment in certain circumstances. This was equivalent to an initial conversion price of US$20.82 per share. Effective December 6, 2007, the conversion price was adjusted for the cash dividend paid in September 2007 to US$20.71 per share. On or after December 6, 2007, the Company could redeem any of the notes at a redemption price equal to 100% of the principal amount of the notes being redeemed, plus accrued and unpaid interest, if the closing price of the Company’s common shares exceeded 130% of the conversion price for at least 20 trading days in any period of 30 consecutive trading days. In the event of a change in control, the Company could be required to repurchase the notes.
In 2007, US$14.6 million of the US$150.0 million convertible subordinated notes were repurchased. The US$14.6 million were repurchased for a market value of US$19.4 million. The loss for the early extinguishment of the notes of €3,740, which includes the premium paid above par and the write-off of unamortized issuance costs, was recorded as expense from early extinguishment of debt in the Consolidated Statement of Operations for the year 2007.
In 2008 US$7.7 million in convertible subordinated notes were converted into 372,426 common shares of which 102,509 consisted of the treasury shares previously purchased by the Company and 269,917 newly issued common shares.
In 2009 US$26.3 million convertible subordinated notes were repurchased for a market value of US$33.7 million. The loss from the early extinguishment of the notes of €1,548 thousand, which includes the write-off of unamortized issuance costs and the amortization of unamortized interest expenses, was recorded as a loss from early extinguishment of debt in the Consolidated Statement of Operations for the year 2009.
F-31
In 2010 US$56.5 million convertible subordinated notes was repurchased for a market value of US$74.6 million. The loss from the early extinguishment of the notes of €3,609, which includes the write-off of unamortized issuance costs and the amortization of unamortized interest expenses, was recorded as a loss from early extinguishment of debt in the Consolidated Statement of Operations for the year 2010.
In 2010 US$7 thousand in convertible subordinated notes were converted into 337 common shares, newly issued by the Company.
On January 3, 2011 we announced that we initiated a full redemption for all of the outstanding principal balance of the 4.25% Convertible Subordinated Notes due 2011. The Notes which were not converted into common shares were redeemed on February 16, 2011, at a redemption price of 100.00% of the principal amount thereof, plus accrued and unpaid interest to February 15, 2011. The Notice of Redemption for the Notes was sent to all registered holders on January 3, 2011.
6.50% convertible subordinated notes, due 2014
In November 2009, ASMI issued €150.0 million in principal amount of 6.50% convertible unsecured notes due in November 2014 in a private offering. Interest on the notes is payable on February 6, May 6, August 6 and November 6 of each year. The notes are subordinated in right of payment to all of the Company’s existing and future senior indebtedness. The notes are convertible into shares of the Company’s common stock only, initially at a conversion rate of 58.5851 shares of common stock for each €1,000 principal amount of notes, subject to adjustment in certain circumstances. This is equivalent to an initial conversion price of €17.09 per share. As a result of the dividend paid on common shares during 2011 and 2012 the conversion price was adjusted to €16.85 and €16.53 respectively. On or after November 27, 2012, the Company could redeem any of the notes at a redemption price equal to 100% of the principal amount of the notes being redeemed, plus accrued and unpaid interest, if the closing price of the Company’s common shares had exceeded 130% of the conversion price for at least 20 trading days in any period of 30 consecutive trading days.
On October 8, 2012 we announced that we initiated a full redemption for all of the all outstanding 6.5% senior unsecured convertible bonds on November 27, 2012 at their principal amount, together with accrued but unpaid interest. The Notice of Redemption for the Notes was sent to all registered holders on October 8, 2012. Bondholders could exercise their right to convert their Bonds into ordinary shares ultimately on November 20, 2012. This proposal for redemption resulted in a full conversion of convertible notes into 9,074,396 common shares.
Conversion option
The conversion component of the subordinated notes qualifying as a liability was measured at fair value. The fair values for these options were determined using a Black-Scholes option valuation model.
Debt issuance costs
The fees incurred for the issuance of the convertible subordinated notes are included as debt issuance costs in the Consolidated Balance Sheet and amortized by the effective interest method as interest expense during the economic life of the debts. Upon the conversion of the 6.50% convertible unsecured notes the balance of the unamortized debt issuance costs impaired, an amount of €2,209 was recognized as loss from early extinguishment of debt in the Consolidated Statement of Operations for the year 2012.
19- Shareholders’ Equity
Common shares, preferred and financing preferred shares
The authorized capital of the Company amounts to 110,000,000 shares of €0.04 par value common shares, 118,000 shares of €40 par value preferred shares and 8,000 shares of €40 par value financing preferred shares, of which 63,095,986 common shares, no preferred and no financing preferred shares were outstanding as at December 31, 2012. All per December 31, 2012 outstanding common shares ware fully paid. All shares have one vote per €0.04 par value. Treasury shares held by the Company cannot be voted on.
F-32
Financing preferred shares are designed to allow ASMI to finance equity with an instrument paying a preferred dividend, linked to EURIBOR loans and government loans, without the dilutive effects of issuing additional common shares.
Preferred and financing preferred shares are issued in registered form only and are subject to transfer restrictions. Essentially, a preferred or financing preferred shareholder must obtain the approval of the Company’s Supervisory Board to transfer shares. If the approval is denied, the Supervisory Board will provide a list of acceptable prospective buyers who are willing to purchase the shares at a cash price to be fixed by consent of the Supervisory Board and seller within two months after the approval is denied. If the transfer is approved, the shareholder must complete the transfer within three months, at which time the approval expires.
Preferred shares are entitled to a cumulative preferred dividend based on the amount paid-up on such shares. Financing preferred shares are entitled to a cumulative dividend based on the par value and share premium paid on such shares. The preferred dividend on the amount paid-up was €5 for the year 2009, since 2009 no preferred dividend was paid.
In the event preferred shares are issued, the Management Board must, within two years after such preferred shares were issued, submit to the general meeting a proposal to annul the preferred shares. On May 14, 2008, 21,985 preferred shares were issued to Stichting Continuïteit ASM International (“Stichting”). The amount paid-up by Stichting was €220, which is the equivalent of one/fourth of the nominal value of the preferred shares. On May 14, 2009 the Annual Meeting of Shareholders resolved to cancel the outstanding preferred shares and to reissue an option to Stichting Continuïteit to acquire preferred shares.
During 2008, ASM engaged Lehman Bros (“Lehman”). to repurchase ordinary ASMI shares on the Euronext and Nasdaq markets on behalf of ASMI. As of September 15, 2008, at the time it went into bankruptcy administration, Lehman reported that it had purchased and held on our behalf 2,552,071 shares, which were accounted for as treasury shares accordingly. ASM filed a submission with the Lehman administrators giving notice of the shares held in custody by Lehman. At ASMI’s May 2009 Annual General Meeting, our shareholders resolved to cancel all of these treasury shares which, accordingly, was accounted for in our 2009 Annual Report as a reduction of the number of outstanding shares. Lehman was notified of the cancellation of shares at the time.
In September 2010, Lehman’s administrators notified us that there is a possible shortfall in the number of shares held by Lehman of 479,279 shares (out of the 2,552,071 shares), which cannot currently be accounted for by Lehman. During 2011 we received further information based on which we conclude that the possible shortfall in the number of shares held by Lehman is now reduced to 246,983 shares.
The Lehman administrators also reported a segregated collateral cash account of US$6,759, that ASMI may be entitled to in the absence of the shares. We have not been able to obtain additional information to confirm and understand the potential shortfall of shares or our ability to recover the US$6,759 from the Lehman bankruptcy proceedings in lieu of the shares. Accordingly, we are uncertain at this time as to the accuracy of the shortfall of shares, our ability to claim the collateral cash sum to cover the value of any such discrepancy, and our entitlement to all or a portion of such sum when distributions are determined and made by the administrator since there is likely to also be a shortfall in Lehman assets subject to proprietary rights. Given the magnitude of the overall Lehman administration, we believe it may take several years to obtain clarity or resolution about the potential shortfall or claim to cash. ASMI is in the process of filing a claim with the Lehman administrators to safeguard our interests.
Considering the factual and legal uncertainties, it is premature to conclude that the 246,983 shares should still be considered as outstanding or that ASMI has a US$6,759 receivable from Lehman. ASMI has, therefore, neither reversed the cancellation of these shares that we recorded in 2009, nor recorded a receivable from Lehman. If the shares would be considered as outstanding, the negative impact on our basic and diluted earnings per share (EUR 1) as at December 31, 2012 would have been €0.001 and €0.001 respectively per share.
Retained earnings
Distributions to common shareholders are limited to the extent the total amount of shareholders’ equity exceeds the amounts of nominal paid-in share capital (exclusive any share premium) and any reserves to be formed pursuant to law or the Company’s articles of association. The amounts are derived from the Statutory Financial Statements of ASM International NV.
Results on dilution of investments in subsidiaries are accounted for directly in equity. For 2012 and 2011 these dilution gains were €7,284 and €5,266 respectively.
F-33
Accumulated other comprehensive loss
The changes in the amount of accumulated other comprehensive loss are as follows:
Foreign currency translation effects | Unrealized gains (losses) on derivative instruments, net of tax | Unrecognized pension obligations, net of tax | Total | ||||||||
Balance January 1, 2011 | (33,687 | ) | 13 | (565 | ) | (34,239 | ) | ||||
Foreign currency translation effect on translation of foreign operations | 13,357 | — | — | 13,357 | |||||||
Increase in fair value of derivative instruments, net of tax | — | (13 | ) | — | (13 | ) | |||||
Actuarial loss | — | — | 744 | 744 | |||||||
Total change in accumulated other comprehensive loss | 13,357 | (13 | ) | 744 | 14,088 | ||||||
Balance December 31, 2011 | (20,330 | ) | — | 179 | (20,151 | ) | |||||
Foreign currency translation effect on translation of foreign operations | (6,994 | ) | — | — | (6,994 | ) | |||||
Actuarial loss | — | — | (1,797 | ) | (1,797 | ) | |||||
Total change in accumulated other comprehensive loss | (6,994 | ) | — | (1,797 | ) | (8,791 | ) | ||||
Balance December 31, 2012 | (27,324 | ) | — | (1,618 | ) | (28,942 | ) |
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
On May 15, 2012, the General Meeting of Shareholders authorized the Company, for an 18-month period, to be calculated from the date of the General Meeting, to repurchase its own shares up to the statutory maximum, at a price at least equal to the shares’ nominal value and at most a price equal to 110% of the share’s average closing price according to the listing on the Euronext Amsterdam stock exchange during the five trading days preceding the purchase date.
Per March 15, 2013, 1,500,000 shares were bought back under the authorization of May 15, 2012.
The maximum of shares that may yet be purchased under the program takes into account the treasury shares held by the Company (at December 31, 2012 there were no treasury shares held) and the maximum number of common shares which the Company can hold according to its Articles of Association. This maximum is 10% of the number of common shares issued.
20- Employee Benefits
Pension plans
Front-end
For the Front-end segment the Company has retirement plans covering substantially all employees. The principal plans are defined contribution plans, except for the plans of the Company’s operations in the Netherlands and Japan.
Multi-employer plan
The Company’s employees of the Front-end segment in the Netherlands, approximately 179 employees, participate in a multi-employer union plan ,“Bedrijfstakpensioenfonds Metalektro”, (“PME”) determined in accordance with the collective bargaining agreements effective for the industry in which ASMI operates. This collective bargaining agreement has no expiration date. This multi-employer union plan covers approximately 1,220 companies and 150,000 contributing members. ASMI’s contribution to the multi-employer union plan is less than 5.0% of the total contribution to the plan as per the annual report for the year ended December 31, 2012. The plan monitors its risks on a global basis, not by company or employee, and is subject to regulation by Dutch governmental authorities. By law (the Dutch Pension Act), a multi-employer union plan must be monitored against specific criteria, including the
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coverage ratio of the plan assets to its obligations. This coverage ratio must exceed 104.25% for the total plan. Every company participating in a Dutch multi-employer union plan contributes a premium calculated as a percentage of its total pensionable salaries, with each company subject to the same percentage contribution rate. The premium can fluctuate yearly based on the coverage ratio of the multi-employer union plan. The pension rights of each employee are based upon the employee’s average salary during employment.
ASMI’s net periodic pension cost for this multi-employer union plan for any period is the amount of the required contribution for that period. A contingent liability may arise from, for example, possible actuarial losses relating to other participating entities because each entity that participates in a multi-employer union plan shares in the actuarial risks of every other participating entity or any responsibility under the terms of a plan to finance any shortfall in the plan if other entities cease to participate.
The coverage ratio of the multi-employer union plan increased to 93.9% as of December 31, 2012 (December 31, 2011: 90.0%). Because of the low coverage ratio PME prepared and executed a so-called “Recovery Plan” which was approved by De Nederlandsche Bank, the Dutch central bank, which is the supervisor of all pension companies in the Netherlands. Due to the low coverage ratio and according the obligation of the “Recovery Plan” the pension premium percentage is 24.0% in both 2013 and 2012. The coverage ratio is calculated by dividing the plan assets by the total sum of pension liabilities and is based on actual market interest.
The Company accounts for the multi-employer plan as if it were a defined contribution plan as the manager of the plan, PME, stated that its internal administrative systems do not enable PME to provide the Company with the required Company-specific information in order to account for the plan as a defined benefit plan. The Company's net periodic pension cost for the multi-employer plan for a fiscal period is equal to the required contribution for that period.
Defined benefit plan
The Company’s employees of the Front-end segment in Japan participate in a defined benefit plan. The most recent actuarial valuations of plan assets and the present value of the defined benefit obligation were carried out at December 31, 2012. The present value of the defined benefit obligation and the related current service cost and passed service cost were measured using the Projected Unit Credit Method.
The funded status of the plan and the amounts not yet recognized in the Consolidated Statement of Operations and the amounts recognized in the Consolidated Balance Sheet are as follows:
December 31, | |||||
2011 | 2012 | ||||
Defined benefit obligations | (9,485 | ) | (8,357 | ) | |
Fair value of plan assets | 4,090 | 4,794 | |||
Funded status/(deficit) | (5,395 | ) | (3,563 | ) |
The changes in defined benefit obligations and fair value of plan assets are as follows:
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December 31, | |||||
2011 | 2012 | ||||
Defined benefit obligations | |||||
Balance January 1 | 8,805 | 9,485 | |||
Current service cost | 664 | 731 | |||
Interest on obligation | 107 | 121 | |||
Actuarial losses (gains) | (53 | ) | (436 | ) | |
Benefits paid | (176 | ) | (423 | ) | |
Curtailment and settlement | (630 | ) | — | ||
Foreign currency translation effect | 768 | (1,121 | ) | ||
Balance December 31 | 9,485 | 8,357 | |||
Fair value of plan assets | |||||
Balance January 1 | 3,189 | 4,090 | |||
Expected return on plan assets | 103 | 144 | |||
Actuarial losses (gains) | (219 | ) | 52 | ||
Company contribution | 852 | 1,544 | |||
Benefits paid | (176 | ) | (423 | ) | |
Foreign currency translation effect | 341 | (613 | ) | ||
Balance December 31 | 4,090 | 4,794 |
The net periodic benefit cost consists of the following:
December 31, | ||||||||
2010 | 2011 | 2012 | ||||||
Current service cost | 629 | 664 | 731 | |||||
Interest on obligation | 139 | 107 | 121 | |||||
Expected return on plan assets | (77 | ) | (103 | ) | (144 | ) | ||
Amortization deferred actuarial loss | 1 | 6 | 46 | |||||
Amortization of past service cost | — | (12 | ) | (55 | ) | |||
Net periodic pension benefit cost | 692 | 662 | 699 |
The actual return on plan assets was €(116) and €196 for the years ended December 31, 2011 and 2012 respectively.
The assumptions in calculating the actuarial present value of benefit obligations and net periodic benefit cost are as follows:
December 31, | ||||||||
2010 | 2011 | 2012 | ||||||
Discount rate for obligations | 1.25 | % | 1.25 | % | 1.55 | % | ||
Expected return on plan assets | 3.00 | % | 3.00 | % | 3.00 | % | ||
Expected rate of compensation increase | 2.93 | % | 2.93 | % | 2.93 | % |
The allocation of plan assets is as follows:
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December 31, | |||||||||||
2011 | 2012 | ||||||||||
Equity | 940 | 23 | % | 1,087 | 23 | % | |||||
Bonds | 2,488 | 61 | % | 2,957 | 62 | % | |||||
Loans | 368 | 9 | % | 463 | 10 | % | |||||
Real estate | 66 | 2 | % | 72 | 2 | % | |||||
Other | 228 | 6 | % | 215 | 4 | % | |||||
4,090 | 100 | % | 4,794 | 100 | % |
The investment strategy is determined based on an asset-liability study in consultation with investment advisers and within the boundaries given by regulatory bodies for pension funds. Equity securities consist primarily of publicly traded Japanese companies and common collective funds. Publicly traded equities are valued at the closing prices reported in the active market in which the individual securities are traded (level 1). Common collective funds are valued at the published price (level 1) per share multiplied by the number of shares held as of the measurement date.
Fixed income (bonds and loans) consists of corporate bonds, government securities and common collective funds. Corporate and government securities are valued by third-party pricing sources (level 2). Common collective funds are valued at the net asset value per share (level 2) multiplied by the number of shares held as of the measurement date.
Real estate fund and other values are primarily reported by the fund manager and are based on valuation of the underlying investments(level 3) which include inputs such as cost, discounted cash flows, independent appraisals and market based comparable data.
The plan assets do not include any of the Company’s shares.
Back-end
For the Back-end segment the ASMPT has retirement plans covering a substantial portion of its employees. The principal plans are defined contribution plans.
The plans for employees in Hong Kong are registered under the Occupational Retirement Schemes Ordinance (“ORSO Scheme”) and a Mandatory Provident Fund Scheme (“MPF Scheme”) established under the Mandatory Provident Fund Schemes Ordinance in December 2000. The assets of the schemes are held separately from those of ASMPT in funds under the control of trustees. The ORSO Scheme is funded by monthly contributions from both employees and ASMPT at rates ranging from 5% to 12.5% of the employee’s basic salary, depending on the length of services with ASMPT. For members of the MPF Scheme, ASMPT contributes 5% of relevant payroll costs to the MPF Scheme subject only to the maximum level of payroll costs amounting to HK$25,000 per employee, which contribution is matched by the employees.
The employees of ASMPT in Mainland China, Singapore and Malaysia are members of state managed retirement benefit schemes operated by the relevant governments. ASMPT is required to contribute a certain percentage of payroll costs to these schemes to fund the benefits. The only obligation of ASMPT with respect to these schemes is to make the specified contributions. The assets of the schemes are held separately from those of ASMPT in funds under the control of trustees, and in the case of Singapore and Malaysia, by the Central Provident Fund Board of Singapore and Employee Provident Fund of Malaysia respectively.
Certain ASM AS (the former SEAS) entities operate funded defined benefits pension scheme for all their qualified employees. Pension benefits provided by ASM AS Entities are currently organized primarily through defined benefit pension plans which cover virtually all German employees and certain foreign employees of ASM AS entities. Furthermore, ASM AS entities provide other post-employment benefits, which consist of transition payments and death benefits to German employees after retirement. These predominantly unfunded other post-employment benefit plans qualify as defined benefit plans. Defined benefit plans determine the entitlements of their beneficiaries. An employee’s final benefit entitlement at regular retirement age may be higher than the fixed benefits at the reporting date due to future compensation or benefit increases. The net present value of this ultimate future benefit entitlement for service already rendered is represented by the Defined Benefit Obligation (“DBO”), which is calculated with consideration of future compensation increases by actuaries. The DBO is calculated based on the projected unit credit method and reflects the net present value as of the reporting date of the accumulated pension
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entitlements of active employees, former employees with vested rights and of retirees and their surviving dependents with consideration of future compensation and pension increases.
In the case of unfunded plans, the recognized pension liability is equal to the DBO adjusted by unrecognized past service cost. In the case of funded plans, the fair value of the plan assets is offset against the benefit obligations. The net amount, after adjusting for the effects of unrecognized past service cost, is recognized as a pension liability or prepaid pension asset.
December 31, | |||||
2011 | 2012 | ||||
Defined benefit obligations | (22,303 | ) | (33,987 | ) | |
Fair value of plan assets | 21,364 | 27,035 | |||
Funded status/(deficit) | (939 | ) | (6,952 | ) |
The changes in defined benefit obligations and fair value of plan assets are as follows:
December 31, | |||||
2011 | 2012 | ||||
Defined benefit obligations | |||||
Balance January 1 | — | 22,303 | |||
Obligation assumed in the acquisition of SEAS | 22,305 | — | |||
Current service cost | 1,502 | 1,691 | |||
Interest on obligation | 898 | 1,095 | |||
Past service costs | — | 104 | |||
Actuarial losses (gains) | (2,662 | ) | 8,532 | ||
Benefits paid | (26 | ) | (55 | ) | |
Transfers | (65 | ) | 85 | ||
Contribution participants | 89 | 222 | |||
Foreign currency translation effect | 262 | 10 | |||
Balance December 31 | 22,303 | 33,987 | |||
Fair value of plan assets | |||||
Balance January 1 | — | 21,364 | |||
Fair value of plan assets at completion date of acquisition of SEAS | 22,199 | — | |||
Expected return | 673 | 853 | |||
Actuarial (losses) gains | (1,646 | ) | 2,981 | ||
Contribution participants | 89 | 222 | |||
Contribution employer | — | 1,615 | |||
Foreign currency translation effect | 49 | — | |||
Balance December 31 | 21,364 | 27,035 |
The actual return on plan assets was €973 for the year ended December 31, 2011 and €3,834 for the year ended December 31, 2012.
The investment strategy is determined based on an asset-liability study in consultation with investment advisers and within the boundaries given by regulatory bodies for pension funds. Equity securities consist primarily of publicly traded companies and common collective funds. Publicly traded equities are valued at the closing prices reported in the active market in which the individual securities are traded (level 1). Common collective funds are valued at the published price (level 1) per share multiplied by the number of shares held as of the measurement date.
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Fixed income (bonds and loans) consists of corporate bonds, government securities and common collective funds. Corporate and government securities are valued by third-party pricing sources (level 2). Common collective funds are valued at the net asset value per share (level 2) multiplied by the number of shares held as of the measurement date.
Real estate fund and other values are primarily reported by the fund manager and are based on valuation of the underlying investments(level 3) which include inputs such as cost, discounted cash flows, independent appraisals and market based comparable data.
The plan assets do not include any of the Company’s shares.
The assumptions in calculating the actuarial present value of benefit obligations and net periodic benefit cost are as follows:
December 31, | |||||
2011 | 2012 | ||||
Discount rate for obligations | 5.25 | % | 3.50 | % | |
Expected return on plan assets | 4.00 | % | 3.50 | % | |
Expected rate of compensation increase | 2.26 | % | 2.25 | % |
The allocation of plan assets is as follows:
December 31, | |||||||||||
2011 | 2012 | ||||||||||
Equity | 3,418 | 16 | % | 5,677 | 21 | % | |||||
Fixed income and corporate bonds | 17,519 | 82 | % | 20,817 | 77 | % | |||||
Cash and other assets | 427 | 2 | % | 541 | 2 | % | |||||
21,364 | 100 | % | 27,035 | 100 | % |
The plan assets do not include any of the Company’s shares.
Other post-employment benefit plans ASMPT
Employees who joined ASM Assembly Systems GmbH & Co. KG , a subsidiary located in Germany, on or before 30 September 1983, are entitled to transition payments and death benefits. In respect of the transition payments for the first six months after retirement, participants receive the difference between their final compensation and the retirement benefits payable under the corporate pension plan. Employees of the Group in France are entitled to retirement indemnity plans as required by the French labor laws.
The reconciliation of the funded status of the other post-employment benefit plans to the amount recognized in the consolidated statement of financial position per December 31, 2012 is as follows:
Defined benefit obligation (unfunded) | 1,634 |
The reconciliation of the changes in the benefit obligation for the other post-employment benefits for the year ended December 31, 2012 is as follows:
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December 31, | |||||
2011 | 2012 | ||||
Defined benefit obligations | |||||
Balance January 1 | 1,470 | 1,414 | |||
Current service cost | 63 | 45 | |||
Interest on obligation | 65 | 69 | |||
Actuarial losses / (gains) | (174 | ) | 372 | ||
Benefits paid | (18 | ) | (181 | ) | |
Transfers | — | (85 | ) | ||
Foreign currency translation effect | 8 | — | |||
Balance December 31 | 1,414 | 1,634 |
The components of the principal pension benefit plans and the other post-employment benefit plans recognized in the consolidated statement of operations in respect of these defined benefit plans and other post-employment benefits for year ended December 31, 2012 are as follows:
December 31, 2011 | December 31, 2012 | ||||||||||||||||
Principal defined benefit plans | Other post- employment benefit plans | Total | Principal defined benefit plans | Other post- employment benefit plans | Total | ||||||||||||
Current service cost | (1,502 | ) | (63 | ) | (1,565 | ) | (1,691 | ) | (45 | ) | (1,736 | ) | |||||
Interest on obligation | (897 | ) | (65 | ) | (962 | ) | (1,095 | ) | (69 | ) | (1,164 | ) | |||||
Past service cost | — | — | — | (104 | ) | — | (104 | ) | |||||||||
Expected return on plan assets | 673 | — | 673 | 853 | — | 853 | |||||||||||
Net periodic pension benefit cost | (1,726 | ) | (128 | ) | (1,854 | ) | (2,037 | ) | (114 | ) | (2,151 | ) |
Other retirement benefit obligations ASMPT
The consolidated statement of financial position also includes liabilities for other retirement benefit obligations consisting of liabilities for severance payments in Italy and Austria amounting to €353 as at December 31, 2012 (2011: €317).
Retirement plan costs for ASMI consolidated
ASMI expects to contribute €4,525 to the defined benefit plan in 2013. The Company expects to pay benefits for years subsequent to December 31, 2012 as follows:
Front-end segment | Back-end segment | Total | ||||||
2013 | 250 | 168 | 418 | |||||
2014 | 254 | 143 | 397 | |||||
2015 | 307 | 227 | 534 | |||||
2016 | 431 | 321 | 752 | |||||
2017 | 451 | 400 | 851 | |||||
Aggregate for the years 2018-2022 | 3,495 | 4,259 | 7,754 | |||||
Total | 5,188 | 5,518 | 10,706 |
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Retirement plan costs for ASMI consolidated consist of the following:
December 31, | ||||||||
2010 | 2011 | 2012 | ||||||
Defined contribution plans | 10,423 | 15,990 | 16,952 | |||||
Multi-employer plans | 1,207 | 1,111 | 1,420 | |||||
Defined benefit plans | 673 | 1,844 | 2,779 | |||||
Total retirement plan costs | 12,303 | 18,945 | 21,151 |
The Company does not provide for any significant post-retirement benefits other than pensions.
Employee Stock Option Plan
The Company has adopted various stock option plans and has entered into stock option agreements with various employees. Under these plans, employees may purchase a specific number of shares of the Company’s common stock. Options are priced at market value in euro or US dollars on the date of grant.
In 2011 a new Stock Option Plan was adopted. In the new plan to limit potential dilution, the amount of outstanding (vested and non-vested) options granted to the Management Board and to other employees will not exceed 7.5% of the issued ordinary share capital of ASMI. The new Stock Option Plan 2011 consists of two sub-plans: the ASMI Stock Option Plan for employees (ESOP) and the ASMI Stock Option for members of the Management Board (MSOP).
A leading principle of the option plans is that options are issued to employees and Management Board members once per annum as at 31 December of the relevant year, this includes the possible grant to newly hired employees. The number of options outstanding under the option plans or under any other plan or arrangement in aggregate may never exceed 7.5% of ASMI’s share capital. This is in accordance with the ASMI Remuneration Policy.
By resolution of the AGM of 15 May 2012 the formal authority to issue options and shares was allocated to the Management Board subject to the approval of the Supervisory Board. This authority is valid for 18 months and needs to be refreshed annually by the AGM to allow the continued application of the SOPS beyond 15 November 2013. The ESOP is principally administered by the Management Board and the MSOP is principally administered by the Supervisory Board. This complies with applicable corporate governance standards. However, the Supervisory Board has no power to represent the Company. For external purposes the Management Board remains the competent body under both SOPS. The SOPS envisage that the Supervisory Board, or—in the case of the ESOP—the Management Board with the approval of the Supervisory Board, will determine the number of options to be granted to the Management Board members and to employees as of 31 December of any financial year (the Grant date).
For employees and existing Management Board members the Grant Date for all options granted is 31 December of the relevant year. In each of these situations the three year Vesting Period starts at the Grant Date. The exercise price in euro of all options issued under the SOPS is determined on the basis of the market value of the ASMI shares in as at (i.e. immediately prior to) the Grant Date.
The exercise period is 4 years starting at the 3rd anniversary of the vesting date.
At December 31, 2012, options to purchase 1,396,005 shares have been issued under the 2011 Stock Option Plan representing 2.2% of the shares outstanding per December 31, 2012. Under previous plans no more options to purchase shares can be issued. Under the various stock option plans a total of 2,325,088 options to purchase common stock were outstanding at December 31, 2012, expiring at various dates through 2019. The number of options outstanding at December 31, 2011 and 2012 were 1,835,067 and 2,325,088 respectively.
The following is a summary of changes in options outstanding:
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Number of options | Weighted average exercise price in US$ | Number of options | Weighted average exercise price in € | ||||||||
Balance January 1, 2010 | 822,900 | 19.00 | 927,258 | 14.89 | |||||||
Options granted | 42,000 | 35.01 | 64,500 | 22.53 | |||||||
Options forfeited | (35,700 | ) | 19.73 | (67,185 | ) | 16.97 | |||||
Options exercised | (143,140 | ) | 16.83 | (165,110 | ) | 13.12 | |||||
Balance December 31, 2010 | 686,060 | 20.40 | 759,463 | 15.74 | |||||||
Options granted | — | — | 687,114 | 22.33 | |||||||
Options forfeited | (1,080 | ) | 16.65 | — | — | ||||||
Options exercised | (169,870 | ) | 19.10 | (126,620 | ) | 14.82 | |||||
Balance December 31, 2011 | 515,110 | 20.83 | 1,319,957 | 19.08 | |||||||
Options granted | — | — | 708,891 | 27.04 | |||||||
Options forfeited | (29,400 | ) | 20.63 | (44,500 | ) | 15.49 | |||||
Options exercised | (85,310 | ) | 20.42 | (59,660 | ) | 15.08 | |||||
Balance December 31, 2012 | 400,400 | 20.94 | 1,924,688 | 22.22 |
The weighted average fair values of employee stock options granted in US dollars were US$17.02 in 2010. The weighted average fair values of employee stock option granted in Euro were €13.94 in 2010, €10.43 in 2011 and €12.27 in 2012.
The weighted average remaining contractual life of the outstanding options granted in 2012 is 7 years at December 31, 2012.
The total intrinsic value of options exercised was €2,322, €4,307 and €2,220 for the years ended December 31, 2010, 2011 and 2012 respectively. In 2010, 2011 and 2012 new shares have been issued for the exercise of 308,250 options, 296,490 options and 144,970 options respectively.
On December 31, 2012 options outstanding and options exercisable classified by range of exercise prices are:
Options outstanding | Options exercisable | |||||||||||||
Range of exercise prices | Number outstanding | Weighted average remaining contractual life | Weighted average exercise price | Number exercisable | Weighted average exercise price | |||||||||
In US$ | In years | In US$ | In US$ | |||||||||||
1.00-10.00 | 50,000 | 6.13 | 7.50 | 18,000 | 7.41 | |||||||||
10.00-15.00 | 66,500 | 3.21 | 11.94 | 41,420 | 11.84 | |||||||||
15.00-20.00 | 30,900 | 4.54 | 18.35 | 18,500 | 17.98 | |||||||||
20.00-30.00 | 211,000 | 4.08 | 24.54 | 117,400 | 25.12 | |||||||||
30.00-40.00 | 42,000 | 4.00 | 35.01 | 16,800 | 35.01 | |||||||||
US$1.00-40.00 | 400,400 | 4.22 | 20.94 | 212,120 | 21.18 | |||||||||
In € | In years | In € | In € | |||||||||||
1.00-10.00 | 11,200 | 0.89 | 7.90 | 6,000 | 7.79 | |||||||||
10.00-15.00 | 130,500 | 3.07 | 12.65 | 127,060 | 12.69 | |||||||||
15.00-20.00 | 378,983 | 3.43 | 16.27 | 218,383 | 17.00 | |||||||||
20.00-25.00 | 655,614 | 6.00 | 22.33 | — | — | |||||||||
20.00-30.00 | 748,391 | 6.84 | 27.01 | 15,800 | 26.50 | |||||||||
€1.00-30.00 | 1,924,688 | 5.59 | 22.22 | 367,243 | 15.77 |
At December 31, 2012, the aggregate intrinsic value of all options outstanding and all options exercisable is €14,160 and €5,681 respectively.
The cost relating to employee stock options is measured at fair value on the grant date. The fair value was determined using the Black-Scholes option valuation model with the following weighted average assumptions:
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December 31, | |||||
2011 | 2012 | ||||
Expected life (years) | 7 | 7 | |||
Risk free interest rate | 3.51 | % | 3.28 | % | |
Dividend yield | 0.32 | % | 0.64 | % | |
Expected volatility | 40.9 | % | 41.98 | % |
The grant date fair value of the stock options is expensed on a straight-line basis over the vesting period, based on the Company’s estimate of stock options that will eventually vest. The impact of the true up of the estimates is recognized in the consolidated statement of operations in the period in which the revision is determined. We recorded compensation expenses of €2,526, €1,872 and €3,242 for 2010, 2011 and 2012 respectively.
Employee Share Incentive Scheme ASMPT
In 1989, the shareholders of ASMPT approved a plan to issue up to 5.0 percent of the total issued shares of ASMPT to directors and employees. This plan was extended in 1999 for a term up to March 23, 2010. At the annual general meeting of the ASMPT held on 24 April 2009, the shareholders approved to extend the period of the Scheme for a term of a further 10 years up to March 23, 2020 and allow up to 7.5% of the issued share capital of ASMPT from time to time (excluding any shares subscribed for or purchased pursuant to the Scheme since 23 March 1990) to be subscribed for or purchased pursuant to the Scheme during such extended period and that no more than 3.5% of the issued share capital of ASMPT from time to time (excluding any shares subscribed for or purchased pursuant to the Scheme since 23 March 1990) to be subscribed for or purchased pursuant to the Scheme for the period from 24 March 2010 to 23 March 2015.
The directors annually may approve an amount of supplemental compensation to the designated directors and officers, which will be used to issue or purchase ASMPT’s common shares for the designees at current market value.
On 21 March 2012, the directors resolved to grant, and the Company granted, a total of 1,950,300 shares (the “2012 Incentive Shares”) in the Company to certain employees and members of the management of the Group upon expiration of the defined qualification period. The vesting period of such grant, which is the qualification period, was from 21 March 2012 to 15 December 2012.
On 28 March 2012 (the “Adoption Date”), a Share Award Scheme was adopted by the Company to establish a trust to subscribe and purchase shares of the Company for the benefit of employees and members of the management of the Group under the Employee Share Incentive Scheme. The scheme is valid and effective for a period of 8 years commencing from the Adoption Date. Pursuant to the rules of the scheme, the Company has appointed a trustee, Law Debenture Trust (Asia) Limited, for purpose of administering the scheme and holding the awarded shares. As a result of such Share Award Scheme, 328,000 shares (the “2012 Awarded Share”) was allocated from the 2012 Incentive Shares as the 2012 Awarded Shares
On December 15, 2012, 1,607,400 common shares of ASMPT were issued, for cash at par value of HK$.10 per share, pursuant to the Employee Share Incentive Scheme of ASMPT and 14,900 shares were forfeited and unallocated by ASMPT. 328,000 shares of the 2012 Awarded Shares were vested on the same date.
In 2010 and 2011, respectively 1,726,900 and 1,518,100 ASMPT shares were issued to certain directors and employees under the plan. The effect of this transaction on ASMI was a dilution of its ownership interest in ASMPT of 0.21% in 2012, 0.19% in 2011 and 0.23% in 2010. The shares issued under the plan in 2012 have diluted ASMI’s ownership in ASMPT to 51.96% as of December 31, 2012.
The fair value of the 2012 Incentive shares granted was determined with reference to the market value of the shares at the grant date taking into account the expected dividends as the employees are not entitled to received dividends paid during the vesting period, while for the 2012 Awarded Shares, its fair value was determined with reference to the cost of purchase from the market included transaction costs, which is not significantly differenct from the fair value at the grant date.
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Total compensation expenses related to the Employee Share Incentive Scheme of respectively €11,375 in 2010, €11,580 in 2011 and €19,823 in 2012 were charged to the Consolidated Statement of Operations.
.
The fair value of the 2012 Incentive shares granted was determined with reference to the market value of the shares at the grant date taking into account the expected dividends as the employees are not entitled to received dividends paid during the vesting period, while for the 2012 Awarded Shares, its fair value was determined with reference to the cost of purchase from the market included transaction costs, which is not significantly differenct from the fair value at the grant date.
21- Commitments and Contingencies
Capital leases included in property, plant and equipment are as follows:
December 31, | |||||
2011 | 2012 | ||||
Machinery and equipment | 3,953 | 3,485 | |||
Furniture and fixtures | 389 | 344 | |||
4,342 | 3,829 | ||||
Less accumulated depreciation | (4,075 | ) | (3,829 | ) | |
267 | — |
At December 31, 2012 operating leases having initial or remaining non-cancelable terms in excess of one year are as follows:
Operating leases | ||
2013 | 21,430 | |
2014 | 17,548 | |
2015 | 12,356 | |
2016 | 8,539 | |
2017 | 5,424 | |
Years thereafter | 7,229 | |
Total | 72,526 |
Aggregate rental expense for operating leases was €10,173 in 2010, €22,335 in 2011 and €24,661 in 2012. At December 31, 2012 the Company had entered into purchase commitments with suppliers in the amount of €141,908 for purchases, of which €139,221 for purchases within the next 12 months. Commitments for capital expenditures at December 31, 2012 were €10,552.
Change of Control Transaction
Pursuant to our 1997 settlement agreement with Applied Materials, as amended and restated in 1998, if we desire to effect a change of control transaction, as defined in the settlement agreement which generally involves our Front-end operations and not our holdings in ASMPT, with a competitor of Applied Materials, we must first offer the change of control transaction to Applied Materials on the same terms as we would be willing to accept from that competitor pursuant to a bona fide arm’s-length offer made by that competitor.
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22- Litigation and Environmental Matters
The Company is a party to various legal proceedings incidental to its business and is subject to a variety of environmental and pollution control laws and regulations. As is the case with other companies in similar industries, the Company faces exposure from actual or potential claims and legal proceedings. Although the ultimate disposition of legal proceedings cannot be predicted with certainty, it is the opinion of the Company’s management that the outcome of any claim which is pending or threatened, either individually or on a combined basis, will not have a material effect on the financial position of the Company, its cash flows and result of operations.
23- Financial Instruments and Risk Management
Financial Instruments
Financial instruments include:
Financial assets:
December 31, | |||||
2011 | 2012 | ||||
Cash and cash equivalents | 390,250 | 290,475 | |||
Pledged cash deposits | 20,000 | 20,000 | |||
Accounts receivable | 330,891 | 304,840 | |||
Investments | 1,044 | 278 | |||
Derivative instruments designated in cash flow hedges | — | 145 |
Financial liabilities:
December 31, | |||||
2011 | 2012 | ||||
Notes payable to banks | 40,680 | 61,675 | |||
Accounts payable | 157,549 | 151,761 | |||
Current portion of long-term debt | 4,332 | 6,316 | |||
Long-term debt | 15,319 | 12,632 | |||
Convertible subordinated debt | 135,078 | — | |||
Derivative instruments designated in fair value hedges | 1,764 | — |
Gains or losses related to financial instruments are as follows:
Year ended December 31, | |||||
2011 | 2012 | ||||
Interest income | 2,902 | 1,989 | |||
Interest expense | (13,497 | ) | (12,113 | ) | |
Accretion interest expense convertible notes at amortized value | (4,401 | ) | (4,469 | ) | |
Loss resulting from early extinguishment of debt | (824 | ) | (2,209 | ) | |
Result from investments | — | (766 | ) | ||
Revaluation conversion option | (4,378 | ) | — | ||
Losses Foreign currency exchange, net | 7,040 | (3,957 | ) | ||
Addition to allowance for doubtful accounts receivable | (356 | ) | (2,825 | ) |
Fair value is the price that would be received to sell an asset pr paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASMI uses the following fair value hierarchy, which prioritizes the inputs to valuation techniques used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant
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to the fair value measurement:
Level 1. | Quoted prices in active markets that are accessible at the measurement date for identical assets and liabilities. |
Level 2. | Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. |
Level 3. | Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. |
There were no transfers between levels during the years ended December 31, 2012 and December 31, 2011.
The following table presents the Company’s financial assets and financial liabilities that are measured at fair value on a recurring basis.
At carrying value | At fair value Level 1 | Level 2 | Level 3 | Total | ||||||||||
December 31, 2011 | ||||||||||||||
Liabilities: | ||||||||||||||
Derivative financial instruments 1) | 1,764 | — | 1,764 | — | 1,764 | |||||||||
Total | 1,764 | — | 1,764 | — | 1,764 | |||||||||
December 31, 2012 | ||||||||||||||
Assets: | ||||||||||||||
Derivative financial instruments 1) | 145 | — | 145 | — | 145 | |||||||||
Total | 145 | — | 145 | — | 145 |
1) Derivative financial instruments consist of forward foreign exchange contracts.
The valuation technique used to determine the fair value of forward foreign exchange contracts (used for hedging purposes) approximates the Net Present Value technique which is the estimated amount that a bank would receive or pay to terminate the forward foreign exchange contracts at the reporting date, taking into account current interest rates and current exchange rates.
Financial Risk Factors
ASMI is exposed to a number of risk factors: market risks (including foreign exchange risk and interest rate risk), credit risk and liquidity risk. The Company uses forward exchange contracts to hedge its foreign exchange risk. The Company does not enter into financial instrument transactions for trading or speculative purposes.
Foreign Exchange Risk
ASMI and its subsidiaries conduct business in a number of foreign countries, with certain transactions denominated in currencies other than the functional currency of the Company (euro) or one of its subsidiaries conducting the business. The purpose of the Company’s foreign currency management is to manage the effect of exchange rate fluctuations on revenues, costs and cash flows and assets and liabilities denominated in selected foreign currencies, in particular denominated in US dollar.
We use forward exchange contracts to hedge its foreign exchange risk of anticipated sales or purchase transactions in the normal course of business, which occur within the next twelve months, for which the Company has a firm commitment from a customer or to a supplier. The terms of these contracts are consistent with the timing of the transactions being hedged. The hedges related to forecasted transactions are designated and documented at the inception of the hedge as cash flow hedges, and are evaluated for effectiveness quarterly. The effective portion of the gain or loss on these hedges is reported as a component of accumulated other comprehensive loss in Shareholders’ Equity, and is reclassified into earnings when the hedged transaction affects earnings.
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The majority of revenues and costs of the Company’s Back-end segment are denominated in Hong Kong dollars, Chinese Yuan and US dollars. The effect of exchange rate fluctuations on revenues, costs and cash flows and assets and liabilities denominated in foreign currencies is periodically reviewed.
Changes in the fair value of derivatives that do not qualify for hedge treatment, as well as the ineffective portion of any hedges, are recognized in earnings. The Company records all derivatives, including forward exchange contracts, on the balance sheet at fair value in other current assets or accrued expenses. If the underlying transaction being hedged fails to occur, or if a portion of any derivative is ineffective, the gain or loss is immediately recognized in earnings under foreign currency exchange gains (losses) in the Consolidated Statement of Operations. Hedge ineffectiveness was insignificant for the years ended December 31, 2011 and December 31, 2012.
Furthermore, the Company might manage the currency exposure of certain receivables and payables using derivative instruments, such as forward exchange contracts (fair value hedges) and currency swaps, and non-derivative instruments, such as debt borrowings in foreign currencies. The gains or losses on these instruments provide an offset to the gains or losses recorded on receivables and payables denominated in foreign currencies. The derivative instruments are recorded at fair value and changes in fair value are recorded in earnings under foreign currency exchange gains (losses) in the Consolidated Statement of Operations. Receivables and payables denominated in foreign currencies are recorded at the exchange rate at the balance sheet date and gains and losses as a result of changes in exchange rates are recorded in earnings under foreign currency exchange gains (losses) in the Consolidated Statement of Operations.
To the extent that exchange rate fluctuations impact the value of the Company’s investments in its foreign subsidiaries, they are not hedged. The cumulative effect of these fluctuations is separately reported in Consolidated Shareholders’ Equity. Reference is made to Note 19.
The outstanding forward exchange contracts are as follows:
Currency | Notional amount | Fair value | Included in accumulated other comprehensive income (loss) | |||||||
Euro | Euro | |||||||||
December 31, 2011 | ||||||||||
Liabilities | ||||||||||
Fair value hedge contracts: | ||||||||||
Short position | US$ | (56,975 | ) | 1,764 | — | |||||
December 31, 2012 | ||||||||||
Assets: | ||||||||||
Fair value hedge contracts: | ||||||||||
Short position | US$ | (27,100 | ) | (145 | ) | — |
For forward exchange contracts, market values based on external quotes from banks have been used to determine the fair value.
The following table analyzes the Company’s sensitivity to a hypothetical 10% strengthening and 10% weakening of the US dollar, Singapore dollar, Hong Kong dollar and Japanese yen against the euro as of December 31, 2011 and December 31, 2012. This analysis includes foreign currency denominated monetary items and adjusts their translation at year end for a 10% increase and 10% decrease of the US dollar, Singapore dollar, Hong Kong dollar or Japanese yen against the euro. A positive amount indicates an increase in equity. Recognized in equity is the revaluation effect of subsidiaries denominated in US dollar, Singapore dollar, Hong Kong dollar and Japanese yen.
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Impact on equity | |||||
2011 | 2012 | ||||
10% increase of US dollar versus euro | 3,656 | 4,564 | |||
10% decrease of US dollar versus euro | (3,656 | ) | (4,564 | ) | |
10% increase of Singapore dollar versus euro | 5,028 | 5,868 | |||
10% decrease of Singapore dollar versus euro | (5,028 | ) | (5,868 | ) | |
10% increase of Hong Kong dollar versus euro | 66,702 | 56,693 | |||
10% decrease of Hong Kong dollar versus euro | (66,702 | ) | (56,693 | ) | |
10% increase of Japanese yen versus euro | 4,908 | 5,294 | |||
10% decrease of Japanese yen versus euro | (4,908 | ) | (5,294 | ) |
A hypothetical 10% strengthening or 10% weakening of any currency other than the US dollar, Hong Kong dollar, Singapore dollar and Japanese yen against the euro as of December 31, 2011 and December 31, 2012 would not result in a material impact on equity.
The following table analyzes the Company’s sensitivity to a hypothetical 10% strengthening and 10% weakening of the US dollar, Hong Kong dollar and Japanese Yen against the euro at average exchange rates for the years 2011 and 2012. A positive amount indicates an increase in net earnings.
Impact on net earnings | |||||
2011 | 2012 | ||||
10% increase of Japanese yen versus euro | (519 | ) | 923 | ||
10% decrease of Japanese yen versus euro | 519 | (923 | ) | ||
10% increase of US dollar versus euro | 1,887 | 915 | |||
10% decrease of US dollar versus euro | (1,887 | ) | (915 | ) | |
10% increase of Hong Kong dollar versus euro | 14,392 | 3,630 | |||
10% decrease of Hong Kong dollar versus euro | (14,392 | ) | (3,630 | ) |
A hypothetical 10% strengthening or 10% weakening of any currency other than the US dollar, Hong Kong dollar and the Japanese yen against the euro at average exchange rates for the years 2011 and 2012 would not result in a material impact on net earnings.
Interest Risk
We are exposed to interest rate risk primarily through our borrowing activities. The Company does not enter into financial instrument transactions for trading or speculative purposes or to manage interest rate exposure. At December 31, 2012 the Company had €18,948 in long-term debt at fixed interest rates and €61,675 in other borrowings with variable short-term interest rates. A hypothetical change in the average interest rate by 10% on the portion of the Company’s debt bearing interest at variable rates would not result in a material change in interest expense at December 31, 2011 and December 31, 2012 borrowing levels.
Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents, accounts receivable and derivative instruments. These instruments contain a risk of counterparties failing to discharge their obligations. We monitor credit risk and manages credit risk exposure by type of financial instrument by assessing the creditworthiness of counterparties. We do not anticipate nonperformance by counterparties given their high creditworthiness.
The Company’s customers are semiconductor device manufacturers located throughout the world. We perform ongoing credit evaluations of our customers' financial condition. We take additional measures to mitigate credit risk when considered appropriate by means of down payments, letters of credit. We generally do not require collateral or other security to support financial instruments with credit risk.
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Concentrations of credit risk (whether on or off-balance sheet) that arise from financial instruments exist for groups of customers or counterparties when they have similar economic characteristics that would cause their ability to meet contractual obligations to be similarly affected by changes in economic or other conditions.
The Company derives a significant percentage of its revenue from a small number of large customers. The Company’s largest customer accounted for approximately 8.8% of net sales in 2012 (2011: 6.4%; 2010: 5.2%) and the ten largest customers accounted for approximately 31.6% of net sales in 2012 (2011: 27.9%; 2010: 27.9%). Sales to these large customers also may fluctuate significantly from time to time depending on the timing and level of purchases by these customers. Significant orders from such customers may expose the Company to a concentration of credit risk and difficulties in collecting amounts due, which could harm the Company’s financial results. At December 31, 2012 one customer accounted for 6.5% of the outstanding balance in accounts receivable (2011: 4.5%; 2010: 6.0%).
We invest our cash and cash equivalents in short-term deposits and derivative instruments with high-rated financial institutions. We only enter into transactions with a limited number of major financial institutions that have high credit ratings and we closely monitor the creditworthiness of our counterparties. Concentration risk is mitigated by limiting the exposure to a single counterparty.
The maximum credit exposure is equal to the carrying values of cash and cash equivalent and accounts receivable.
Liquidity Risk
The following table summarizes the Company’s contractual obligations as at December 31, 2012 aggregated by type of contractual obligation:
Total | Less than 1 year | 1-3 years | 3-5 years | More than 5 years | ||||||||||
Notes payable to banks 1 | 62,686 | 62,686 | — | — | — | |||||||||
Long-term debt 1 | 19,957 | 6,821 | 13,136 | — | — | |||||||||
Operating leases | 72,526 | 21,430 | 29,904 | 13,963 | 7,229 | |||||||||
Pension liabilities | 12,540 | 418 | 931 | 1,603 | 9,588 | |||||||||
Purchase obligations: | ||||||||||||||
Purchase commitments to suppliers | 141,908 | 139,221 | 2,687 | — | — | |||||||||
Capital expenditure commitments | 10,553 | 10,273 | 280 | — | — | |||||||||
Unrecognized tax benefits (ASC 740) | 22,511 | 22,511 | — | — | — | |||||||||
Total contractual obligations | 342,681 | 263,360 | 46,938 | 15,566 | 16,817 |
__________________
(1) | Including accrued interest based on the percentages at the reporting date. |
Total short-term lines of credit amounted to €337,567 at December 31, 2012. The amount outstanding at December 31, 2012 was €61,675 and the undrawn portion totaled €275,893. The undrawn portion includes the standby revolving credit facility of €150,000 with a consortium of banks. The facility, available through July 31, 2015, is secured by a portion of the Company’s shareholding in ASMPT. The undrawn portion includes €61,675 for ASMPT, which amount is restricted to be used only in the operations of ASMPT.
The Company uses notes payable to banks to manage short term liquidity and uses long-term debt and convertible subordinated debt to manage long term liquidity.
For the majority of purchase commitments, the Company has flexible delivery schedules depending on the market conditions, which allows the Company, to a certain extent, to delay delivery beyond originally planned delivery schedules.
24- Research and Development
Research and Development consists of the following:
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Year ended December 31, | ||||||||
2010 | 2011 | 2012 | ||||||
Research and development expenses | 79,331 | 130,153 | 150,118 | |||||
Research and development grants and credits | (546 | ) | (753 | ) | (899 | ) | ||
Total research and development expenses | 78,785 | 129,400 | 149,219 |
The Company’s operations in the Netherlands, Germany and the United States receive research and development grants and credits from various sources. The research and development grants and credits received from governmental sources in the Netherlands include a credit which is contingently repayable to the extent the Company recognizes sales of products to which the credit is related within an agreed upon period. The Company does not recognize a liability on the Consolidated Balance Sheet in respect of this credit until it recognizes sales of products to which the credit is related, within the agreed upon period and is then charged to cost of sales when such sales are recorded. The repayment amounts to 4.0% of the realized sales of these products.
With the disposal of our RTP business in 2009 the liability has been transferred to Levitech BV, the vehicle in which the management buy-out has been constructed. ASM International NV participates for 20% in Levitech BV. With the disposal of our RTP business we have licensed our RTP portfolio of 61 issued patents and 11 pending patents to Levitech BV.
25- Restructuring expenses
In the fourth quarter of 2012 we started a cost reduction program in our Front-end operation. We are reducing headcount in our manufacturing organization in Singapore with 110 people. Related to these actions, an amount of €0.9 million in restructuring expenses was recorded in 2012.
In 2009 ASMI started the implementation of a major restructuring in the Front-end segment (PERFORM!). The main components of the Company’s accelerated execution plans are:
• | The consolidation of our global Front-end manufacturing operations from Europe, the United States and Japan, into our Front-end manufacturing operations in Singapore by the end of 2010. This will be achieved by completing the previously announced transfer from Almere, the Netherlands, which was finalized during 2009; the phasing out the manufacturing operation in Phoenix, Arizona, in the first half of 2010; and by transferring manufacturing from Nagaoka, Japan, no later than the fourth quarter of 2010. |
• | The reduction of selling, general and administration expenses by making fundamental changes in our global support infrastructure. This includes a significant simplification and streamlining of our warehousing operations and the further strengthening of the global sales & service organization which was created last year. |
• | The leveraging of research and development and our product portfolio by reprioritization of strategic programs in order to maximize their potential. |
The following table summarizes the aggregated restructuring expenses by type:
Year ended December 31, | ||||||||
2010 | 2011 | 2012 | ||||||
Employee related expenses | 4,534 | — | 891 | |||||
Contract termination related expenses | 779 | — | — | |||||
Transition expenses | 3,806 | — | — | |||||
Other expenses | 2,082 | — | — | |||||
Total restructuring expenses | 11,201 | — | 891 |
Related to these execution plans, an amount of €11.2 million in restructuring expenses was recorded in 2010. These expenses were mainly costs for severance packages, retention costs, provisions for vacancy and other costs related to the transition of activities to Singapore.
26- Income Taxes
The components of earnings (loss) before income taxes and Non-controlling interest consist of:
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Year ended December 31, | ||||||||
2010 | 2011 | 2012 | ||||||
The Netherlands | (48,177 | ) | (3,450 | ) | (70,263 | ) | ||
Other countries | 333,639 | 356,305 | 136,994 | |||||
Earnings before income taxes and Non-controlling interest | 285,462 | 352,855 | 66,731 |
The income tax expense consists of:
Year ended December 31, | ||||||||
2010 | 2011 | 2012 | ||||||
Current: | ||||||||
The Netherlands | (505 | ) | (494 | ) | (110 | ) | ||
Other countries | (38,342 | ) | (64,684 | ) | (26,337 | ) | ||
(38,847 | ) | (65,178 | ) | (26,447 | ) | |||
Deferred: | ||||||||
The Netherlands | — | — | — | |||||
Other countries | (4,092 | ) | 28,486 | 147 | ||||
Income tax expense | (42,939 | ) | (36,692 | ) | (26,300 | ) |
The provisions for income taxes as shown in the Consolidated Statements of Operations differ from the amounts computed by applying the Netherlands statutory income tax rates to earnings before taxes. A reconciliation of the provisions for income taxes and the amounts that would be computed using the Netherlands statutory income tax rates is set forth as follows:
Year ended December 31, | ||||||||
2010 | 2011 | 2012 | ||||||
Earnings before income taxes and Non-controlling interest | 285,462 | 352,855 | 66,731 | |||||
Netherlands statutory income tax rate | 25.5 | % | 25.0 | % | 25.0 | % | ||
Income tax provision at statutory rate | (72,793 | ) | (88,214 | ) | (16,683 | ) | ||
Non-deductible expenses | (8,250 | ) | (8,228 | ) | (6,508 | ) | ||
Foreign taxes at a rate other than the Netherlands statutory rate | 24,198 | 12,983 | (2,699 | ) | ||||
Valuation allowance | (3,698 | ) | 17,991 | (14,876 | ) | |||
Non-taxable income | 18,536 | 30,156 | 4,887 | |||||
Other 1 | (932 | ) | (1,380 | ) | 9,579 | |||
Income tax expense | (42,939 | ) | (36,692 | ) | (26,300 | ) |
1) Other for 2012 consist of tax credits €3,163 and unwinding of temporary differences in the current year for which no deferred tax was recognized in prior years €5,549.
Included in non-taxable income for 2012 is €3,244 regarding the Company’s manufacturing operations in Singapore and other countries where income covering certain products is non-taxable or subject to concessional tax rates under tax incentive schemes granted by the local tax authority. The majority of these tax incentive schemes have terms ending by December 31, 2020.
On May 29, 2006 and June 8, 2009 the Singapore Economic Development Board (“EDB”) granted Pioneer Certificates to ASM Front End Manufacturing Singapore Pte Ltd (“FEMS”, a principal subsidiary of the Group,) to the effect that profits arising from certain manufacturing activities by FEMS of Front End equipment will in principle be exempted from tax for a period of 10 years effective from dates ranging between April 1, 2005 and July 1, 2008, subject to fulfillment of certain criteria during the period.
On July 12, 2010, the EDB granted a Pioneer Certificate to ASM Technology Singapore Pte Limited (“ATS”), a principal subsidiary of the Group, to the effect that profits arising from certain products will be exempted from tax for a period of 10 years effective from dates ranging between June 1, 2010 and January 1, 2012 across specified
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products, subject to fulfillment of certain criteria during the period. EDB had also granted a 5 year Development and Expansion Incentive (DEI) to ATS to the effect that the profits arising from certain existing products shall be subject a concessionary tax rate of 10% for a period of 5 years from January 1, 2011, subject to the fulfillment of certain criteria during the period.
On the same date, the EDB also granted ATS an International Headquarters (“IHQ”) Award to the effect that certain income arising from qualifying activities conducted by ATS, excluding income from business transactions with companies or end customers in Singapore, shall be subject to concessionary tax rate of 5% for a period of 10 years from January 1, 2011, subject to fulfillment of certain criteria during the period.
The Netherlands statutory tax rate amounted to 25.5% in 2010. For 2011 and 2012 this rate was 25.0%. Taxation for other jurisdictions is calculated at the rates prevailing in the relevant jurisdictions. The Company’s deferred tax assets and liabilities have been determined in accordance with these statutory income tax rates.
Deferred income taxes developed as follows:
January 1, 2011 | Acquisitions | Reclassifications | Consolidated statement of operations | Equity | Exchange differences | December 31, 2011 | ||||||||||||||
Deferred tax assets: | ||||||||||||||||||||
Reserves and allowances | 7,020 | 255 | 163 | 3,860 | (337 | ) | (546 | ) | 10,415 | |||||||||||
Net operating losses | 153,407 | 7,038 | — | (74,935 | ) | — | 1,210 | 86,720 | ||||||||||||
Depreciation | 2,331 | (1,164 | ) | — | (801 | ) | — | (3 | ) | 363 | ||||||||||
Other | 1,216 | (12,302 | ) | — | 18,438 | — | (961 | ) | 6,391 | |||||||||||
Gross deferred tax assets | 163,974 | (6,173 | ) | 163 | (53,438 | ) | (337 | ) | (300 | ) | 103,889 | |||||||||
Less: valuation allowance | (149,600 | ) | — | 73,010 | — | 123 | (76,467 | ) | ||||||||||||
Net deferred tax assets | 14,374 | (6,173 | ) | 163 | 19,572 | (337 | ) | (177 | ) | 27,422 | ||||||||||
Deferred tax liabilities: | (322 | ) | (13,295 | ) | (163 | ) | 8,914 | — | 485 | (4,381 | ) | |||||||||
Net deferred income taxes | 14,052 | (19,468 | ) | — | 28,486 | (337 | ) | 308 | 23,041 |
January 1, 2012 | Acquisitions | Reclassifications | Consolidated statement of operations | Equity | Exchange differences | December 31, 2012 | ||||||||||||||
Deferred tax assets: | ||||||||||||||||||||
Reserves and allowances | 10,415 | — | 3,985 | 4,928 | 1,730 | (736 | ) | 20,322 | ||||||||||||
Net operating losses | 86,720 | — | — | (2,303 | ) | — | (939 | ) | 83,478 | |||||||||||
Depreciation | 363 | — | 508 | 1,478 | — | (89 | ) | 2,260 | ||||||||||||
Other | 6,391 | — | (6,525 | ) | 1,345 | 28 | (127 | ) | 1,112 | |||||||||||
Gross deferred tax assets | 103,889 | — | (2,032 | ) | 5,448 | 1,758 | (1,891 | ) | 107,172 | |||||||||||
Less: valuation allowance | (76,467 | ) | — | (180 | ) | (6,442 | ) | — | (161 | ) | (83,250 | ) | ||||||||
Net deferred tax assets | 27,422 | — | (2,212 | ) | (994 | ) | 1,758 | (2,052 | ) | 23,922 | ||||||||||
Deferred tax liabilities: | (4,381 | ) | — | 2,212 | 1,142 | — | 39 | (988 | ) | |||||||||||
Net deferred income taxes | 23,041 | — | — | 148 | 1,758 | (2,013 | ) | 22,934 |
Deferred tax assets and liabilities are classified in the consolidated balance sheet as follows:
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December 31, | |||||
2011 | 2012 | ||||
Deferred tax assets—current | 14,350 | 17,967 | |||
Deferred tax assets—non-current | 13,072 | 5,955 | |||
Deferred tax liabilities—current | (3,513 | ) | (36 | ) | |
Deferred tax liabilities—non-current | (868 | ) | (952 | ) | |
23,041 | 22,934 |
Based on tax filings, ASMI and its individual subsidiaries have net operating losses available at December 31, 2012 of €318,477 for tax return purposes to reduce future income taxes, mainly in Europe. The Company believes that realization of its net deferred tax assets is dependent on the ability of the Company to generate taxable income in the future. Given the volatile nature of the semiconductor equipment industry, past experience, and the tax jurisdictions where the Company has net operating losses, the Company believes that there is currently insufficient evidence to substantiate recognition of substantially all net deferred tax assets with respect to net operating losses. Accordingly, a valuation allowance of €76,467 in 2011 and €83,250 in 2012 has been recorded.
The amounts and expiration dates of net operating losses for tax purposes are as follows:
Expiration year | Total of net operating losses for tax purposes | Net operating losses for which deferred tax assets are recognized | |||
2013 | 16,309 | — | |||
2014 | 37,607 | — | |||
2015 | — | — | |||
2016 | — | — | |||
2017 | 47,429 | — | |||
2018 | 47,293 | — | |||
2019 | 35,905 | — | |||
2020 | 147 | — | |||
2021 | 60,564 | 149 | |||
2022-2028 | — | — | |||
2029 | 22,374 | — | |||
2030 | 3,689 | — | |||
Unlimited | 47,160 | 80 | |||
Total | 318,477 | 229 |
The Company has not provided for deferred foreign withholding taxes, if any, on undistributed earnings of its foreign subsidiaries. At December 31, 2012 the undistributed earnings of subsidiaries, subject to withholding taxes, were approximately €82,596. These earnings could become subject to foreign (withholding) taxes if they were remitted as dividends and / or if the Company should sell its interest in the subsidiaries.
Consistent with the provisions of ASC 740, as of December 31, 2012, ASMI has a liability of unrecognized tax benefits of €22.5 million. A reconciliation of the beginning and ending balance of the liability for unrecognized tax benefits is as follows:
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Balance January 1, 2010 | 15,663 | |
Gross increases—tax positions in current year | 3,230 | |
Foreign currency translation effect | 1,164 | |
Balance December 31, 2010 | 20,057 | |
Gross increases—tax positions in current year | 950 | |
Foreign currency translation effect | 742 | |
Balance December 31, 2011 | 21,749 | |
Gross increases—tax positions in current year | 1,157 | |
Foreign currency translation effect | (395 | ) |
Balance December 31, 2012 | 22,511 |
Unrecognized tax benefits mainly relate to transfer pricing positions, operational activities in countries where the Company is not tax registered and tax deductible costs. The Company estimates that no interest and penalties are related to these unrecognized tax benefits. In the year ended December 31, 2012, no settlement with tax authorities and no reduction as a result of a lapse of statute of limitations occurred.
Unrecognized tax benefits of would, if recognized, impact the Company’s effective tax rate. The Company provided for the amount of €22,511 reflecting managements best estimate to mitigate possible impact in case of an unfavorable outcome. The unrecognized tax benefits are classified in the consolidated balance sheet under “accrued expenses and other” and are covered with purchased tax certificates which are classified in the consolidated balance sheet under “other current assets”.
A summary of open tax years by major jurisdiction is as follows:
Jurisdiction | |
Japan | 2009-2012 |
Hong Kong | 2006-2012 |
The Netherlands | 2011-2012 |
Singapore | 2006-2012 |
United States | 1997-2012 |
South Korea | 2007-2012 |
The calculation of the Company’s tax liabilities involves dealing with uncertainties in the application of complex tax laws. The Company’s estimate for the potential outcome of any unrecognized tax benefits is highly judgmental. Settlement of unrecognized tax benefits in a manner inconsistent with the Company’s expectations could have a material impact on the Company’s financial position, net earnings and cash flows. The Company is subject to tax audits in its major tax jurisdictions, local tax authorities may challenge the positions taken by the Company.
27- Disclosures about Segments and Related Information
The Company organizes its activities in two operating segments, Front-end and Back-end. Operating segments are reported in a manner consistent with the internal reporting provided to the Chief Executive Officer (“CEO”), which is the chief operating decision maker (according to ASC 280).
The Front-end segment manufactures and sells equipment used in wafer processing, encompassing the fabrication steps in which silicon wafers are layered with semiconductor devices. The segment is a product driven organizational unit comprised of manufacturing, service, and sales operations in Europe, the United States, Japan and Southeast Asia.
The Back-end segment manufactures and sells equipment and materials used in assembly and packaging, encompassing the processes in which silicon wafers are separated into individual circuits and subsequently assembled, packaged and tested. The segment is organized in ASM Pacific Technology Ltd., in which the Company holds a majority of 51.96% interest, whilst the remaining shares are listed on the Stock Exchange of Hong Kong. The segment’s main operations are located in Hong Kong, the People’s Republic of China, Singapore, Malaysia and Germany.
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Front-end | Back-end | Total | ||||||
Year Ended December 31, 2010 | ||||||||
Net sales to unaffiliated customers | 293,356 | 929,544 | 1,222,900 | |||||
Gross profit | 114,624 | 434,954 | 549,578 | |||||
Result from operations | 15,954 | 312,686 | 328,640 | |||||
Interest income | 615 | 605 | 1,221 | |||||
Interest expense | (15,677 | ) | — | (15,677 | ) | |||
Loss resulting from early extinguishment of debt | (3,609 | ) | — | (3,609 | ) | |||
Accretion interest expense convertible notes | (6,010 | ) | — | (6,010 | ) | |||
Revaluation conversion option | (19,037 | ) | — | (19,037 | ) | |||
Foreign currency exchange gains (losses), net | (1,809 | ) | 1,744 | (65 | ) | |||
Income tax expense | (6,106 | ) | (36,833 | ) | (42,939 | ) | ||
Net earnings (loss) | (35,679 | ) | 278,202 | 242,523 | ||||
Allocation of net earnings (loss): | ||||||||
Shareholders of the parent | 110,639 | |||||||
Non-controlling interest | 131,884 | |||||||
Capital expenditures | 17,653 | 85,320 | 102,974 | |||||
Net purchase of other intangibles | 43 | 582 | 625 | |||||
Depreciation property, plant and equipment | 8,930 | 21,700 | 30,630 | |||||
Amortization of other intangible assets | 2,338 | 397 | 2,735 | |||||
Depreciation evaluation tools at customers | 2,477 | — | 2,477 | |||||
Cash and cash equivalents | 142,420 | 197,874 | 340,294 | |||||
Capitalized goodwill | 11,193 | 39,622 | 50,815 | |||||
Other intangible assets | 6,089 | 715 | 6,804 | |||||
Other identifiable assets | 281,076 | 535,129 | 816,204 | |||||
Total assets | 440,777 | 773,340 | 1,214,117 | |||||
Total debt | 215,681 | — | 215,681 | |||||
Headcount in full-time equivalents 1 | 1,450 | 15,249 | 16,699 |
__________________
(1) | Headcount includes those employees with a fixed contract, and is exclusive of temporary workers. |
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Front-end | Back-end | Total | ||||||
Year Ended December 31, 2011 | ||||||||
Net sales to unaffiliated customers | 456,065 | 1,178,270 | 1,634,334 | |||||
Gross profit | 172,318 | 398,308 | 570,626 | |||||
Result from operations | 62,581 | 304,869 | 367,450 | |||||
Interest income | 976 | 1,925 | 2,902 | |||||
Interest expense | (13,142 | ) | (354 | ) | (13,497 | ) | ||
Loss resulting from early extinguishment of debt | (824 | ) | — | (824 | ) | |||
Accretion interest expense convertible notes | (4,401 | ) | — | (4,401 | ) | |||
Revaluation conversion option | (4,378 | ) | — | (4,378 | ) | |||
Foreign currency exchange gains (losses), net | 8,296 | (2,692 | ) | 5,604 | ||||
Income tax expense | (4,581 | ) | (32,111 | ) | (36,692 | ) | ||
Net earnings (loss) | 44,527 | 271,637 | 316,164 | |||||
Allocation of net earnings: | ||||||||
Shareholders of the parent | 186,770 | |||||||
Non-controlling interest | 129,394 | |||||||
Capital expenditures | 16,369 | 72,849 | 89,218 | |||||
Net purchase of other intangibles | 6,141 | 910 | 7,051 | |||||
Depreciation property, plant & equipment | 9,162 | 30,823 | 39,985 | |||||
Depreciation evaluation tools at customers | 2,518 | — | 2,518 | |||||
Amortization of other intangible assets | 2,655 | 1,815 | 4,471 | |||||
Impairment of property, plant and equipment | — | (8,038 | ) | (8,038 | ) | |||
Cash and cash equivalents | 228,114 | 162,136 | 390,250 | |||||
Capitalized goodwill | 11,193 | 40,939 | 52,131 | |||||
Other intangible assets | 9,643 | 5,133 | 14,776 | |||||
Other identifiable assets | 336,090 | 788,973 | 1,125,063 | |||||
Total assets | 585,040 | 997,181 | 1,582,221 | |||||
Total debt | 162,464 | 32,946 | 195,409 | |||||
Headcount in full-time equivalents 1 | 1,631 | 14,563 | 16,194 |
___________________
(1) | Headcount includes those employees with a fixed contract, and is exclusive of temporary workers. |
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Front-end | Back-end | Total | ||||||
Year Ended December 31, 2012 | ||||||||
Net sales to unaffiliated customers | 370,409 | 1,047,658 | 1,418,067 | |||||
Gross profit | 124,531 | 315,898 | 440,429 | |||||
Result from operations | 539 | 87,717 | 88,256 | |||||
Interest income | 1,015 | 974 | 1,989 | |||||
Interest expense | (11,381 | ) | (732 | ) | (12,113 | ) | ||
Loss resulting from early extinguishment of debt | (2,209 | ) | — | (2,209 | ) | |||
Accretion interest expense convertible notes | (4,329 | ) | (140 | ) | (4,469 | ) | ||
Revaluation conversion option | — | — | — | |||||
Foreign currency exchange gains (losses), net | (3,050 | ) | (907 | ) | (3,957 | ) | ||
Result on investments | (766 | ) | — | (766 | ) | |||
Income tax expense | (8,965 | ) | (17,335 | ) | (26,300 | ) | ||
Net earnings (loss) | (29,146 | ) | 69,577 | 40,431 | ||||
Allocation of net earnings: | ||||||||
Shareholders of the parent | 7,149 | |||||||
Non-controlling interest | 33,282 | |||||||
Capital expenditures | 21,973 | 46,189 | 68,162 | |||||
Net purchase of other intangibles | 2,042 | 2,588 | 4,630 | |||||
Depreciation property, plant & equipment | 10,968 | 36,829 | 47,797 | |||||
Depreciation evaluation tools at customers | 3,799 | — | 3,799 | |||||
Amortization of other intangible assets | 4,071 | 2,793 | 6,864 | |||||
Cash and cash equivalents | 145,061 | 145,414 | 290,475 | |||||
Capitalized goodwill | 11,649 | 40,239 | 51,888 | |||||
Other intangible assets | 9,049 | 4,866 | 13,915 | |||||
Other identifiable assets | 334,399 | 808,829 | 1,143,228 | |||||
Total assets | 500,158 | 999,348 | 1,499,506 | |||||
Total debt | — | 80,623 | 80,623 | |||||
Headcount in full-time equivalents 1 | 1,636 | 15,768 | 17,404 |
__________________
(1) | Headcount includes those employees with a fixed contract, and is exclusive of temporary workers. |
There are no inter-segment transactions, other than charges for management services, which are based on actual cost. The accounting policies used to measure the net earnings and total assets in each segment are identical to those used in the Consolidated Financial Statements. The measurement methods used to determine reported segment earnings are consistently applied for all periods presented. There were no asymmetrical allocations to segments.
Geographical information is summarized as follows:
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Europe | United States of America | Japan | Southeast Asia | Corporate | Consolidated | ||||||||||||
Year ended December 31, 2010 | |||||||||||||||||
Net sales to unaffiliated customers | 76,235 | 112,863 | 90,394 | 943,408 | — | 1,222,900 | |||||||||||
Long-lived assets | 1,978 | 9,395 | 19,409 | 167,020 | 135 | 197,937 | |||||||||||
Total assets | 40,470 | 85,065 | 92,547 | 839,720 | 156,315 | 1,214,117 | |||||||||||
Capital expenditures | 186 | 7,059 | 5,388 | 90,279 | 62 | 102,974 | |||||||||||
Purchase of intangible assets | — | — | — | 607 | 17 | 624 | |||||||||||
Year ended December 31, 2011 | |||||||||||||||||
Net sales to unaffiliated customers | 338,065 | 185,943 | 96,697 | 1,013,629 | — | 1,634,334 | |||||||||||
Long-lived assets | 16,021 | 13,110 | 18,273 | 212,605 | 171 | 260,180 | |||||||||||
Total assets | 406,586 | 131,498 | 120,717 | 733,571 | 189,849 | 1,582,221 | |||||||||||
Capital expenditures | 7,425 | 8,429 | 1,559 | 71,720 | 85 | 89,218 | |||||||||||
Purchase of intangible assets | 29 | 779 | 635 | 1,378 | 4,230 | 7,051 | |||||||||||
Year ended December 31, 2012 | |||||||||||||||||
Net sales to unaffiliated customers | 255,795 | 197,566 | 59,385 | 905,321 | — | 1,418,067 | |||||||||||
Long-lived assets | 17,587 | 22,567 | 17,313 | 217,849 | 120 | 275,436 | |||||||||||
Total assets | 473,561 | 128,484 | 71,838 | 717,986 | 107,637 | 1,499,506 | |||||||||||
Capital expenditures | 7,098 | 12,837 | 4,947 | 43,280 | — | 68,162 | |||||||||||
Purchase of intangible assets | 1,732 | 437 | 72 | 997 | 1,392 | 4,630 |
Long-lived assets for the years ended December 31, 2010, 2011 and 2012 consist of the Company’s property, plant and equipment.
28- Selected Operating Expenses and Additional Information
Personnel expenses for employees were as follows:
December 31, | ||||||||
2010 | 2011 | 2012 | ||||||
Wages and salaries | 236,746 | 318,944 | 353,437 | |||||
Social security | 17,402 | 42,622 | 47,124 | |||||
Pension expenses | 12,303 | 18,945 | 21,151 | |||||
266,451 | 380,511 | 421,712 |
The average number of employees, exclusive of temporary workers, by geographic area during the year was as follows:
December 31, | ||||||||
2010 | 2011 | 2012 | ||||||
The Netherlands | 170 | 167 | 178 | |||||
Other European countries | 139 | 993 | 1,057 | |||||
United States of America | 358 | 468 | 594 | |||||
Southeast Asia | 13,389 | 15,716 | 15,300 | |||||
Japan | 197 | 181 | 203 | |||||
14,253 | 17,525 | 17,332 |
29- Earnings per Share
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Basic net earnings per common share is computed by dividing net earnings by the weighted average ordinary shares outstanding for that period. Diluted net earnings per ordinary share reflects the potential dilution that could occur if stock options under the ASMI Option Plan were exercised and if convertible notes were converted, unless potential dilution would have an anti-dilutive effect.
The following represents a reconciliation of net earnings and weighted average number of shares outstanding (in thousands) for purposes of calculating basic and diluted net earnings per share:
December 31, | ||||||||
2010 | 2011 | 2012 | ||||||
Net earnings used for purpose of computing basic earnings per common share | 110,639 | 186,770 | 7,149 | |||||
After-tax equivalent of interest expense on convertible subordinated notes | 17,670 | 17,670 | — | |||||
Net earnings used for purposes of computing diluted net earnings per common share | 128,309 | 204,440 | 7,149 | |||||
Basic weighted average number of shares outstanding during the year used for purpose of computing basic earnings per share (thousands) | 52,435 | 55,210 | 56,108 | |||||
Dilutive effect of stock options | 282 | 570 | 659 | |||||
Dilutive effect of convertible subordinated notes | 8,777 | 8,902 | — | |||||
Dilutive weighted average number of shares outstanding | 61,494 | 64,682 | 56,767 | |||||
Net earnings per share: | ||||||||
Basic net earnings from continuing operations | 2.11 | 3.38 | 0.13 | |||||
Diluted net earnings from continuing operations | 2.09 | 3.16 | 0.13 |
For the year ended December 31, 2012, the effect of 8,231,432 conversion rights was anti-dilutive.
For the year ended December 31, 2011, 81,500 option rights were not in the money and therefore not implicated in the dilutive effect of stock options.
For the year ended December 31, 2010, the effect of 2,630,113 conversion rights was anti-dilutive.
During 2008, ASM engaged Lehman Bros (“Lehman”). to repurchase ordinary ASMI shares on the Euronext and Nasdaq markets on behalf of ASMI. As of September 15, 2008, at the time it went into bankruptcy administration, Lehman reported that it had purchased and held on our behalf 2,552,071 shares, which were accounted for as treasury shares accordingly. ASM filed a submission with the Lehman administrators giving notice of the shares held in custody by Lehman. At ASMI’s May 2009 Annual General Meeting, our shareholders resolved to cancel all of these treasury shares which, accordingly, was accounted for in our 2009 Annual Report as a reduction of the number of outstanding shares. Lehman was notified of the cancellation of shares at the time.
In September 2010, Lehman’s administrators notified us that there is a possible shortfall in the number of shares held by Lehman of 479,279 shares (out of the 2,552,071 shares), which cannot currently be accounted for by Lehman. During 2011 we received further information based on which we conclude that the possible shortfall in the number of shares held by Lehman is now reduced to 246,983 shares
The Lehman administrators also reported a segregated collateral cash account of US$6,759, that ASMI may be entitled to in the absence of the shares. We have not been able to obtain additional information to confirm and understand the potential shortfall of shares or our ability to recover the US$6,759 from the Lehman bankruptcy proceedings in lieu of the shares. Accordingly, we are uncertain at this time as to the accuracy of the shortfall of shares, our ability to claim the collateral cash sum to cover the value of any such discrepancy, and our entitlement to all or a portion of such sum when distributions are determined and made by the administrator since there is likely to also be a shortfall in Lehman assets subject to proprietary rights. Given the magnitude of the overall Lehman administration, we believe it may take several years to obtain clarity or resolution about the potential shortfall or claim to cash. ASMI has filed a claim with the Lehman administrators to safeguard our interests.
Considering the factual and legal uncertainties, it is premature to conclude that the 246,983 shares should still be considered as outstanding or that ASMI has a US$6,759 receivable from Lehman. ASMI has, therefore, neither reversed the cancellation of these shares that we recorded in 2009, nor recorded a receivable from Lehman. If the
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shares would be considered as outstanding, the negative impact on our basic and diluted earnings per share (eur 1) as at December 31, 2012 would have been €0.001 and €0.001 respectively per share.
30- Board Remuneration
The remuneration of members of the Management Board has been determined by the Supervisory Board.
The following table sets forth as to all current and former members of the Management Board of the Company, information concerning all remuneration from the Company (including its subsidiaries) for services in all capacities:
Base compensation | Bonuses | Pensions | Share based payment expenses 2) | Other | Total | ||||||||||||
Management Board: | |||||||||||||||||
C.D. del Prado | |||||||||||||||||
2012 3) | 510 | 177 | 76 | 398 | 59 | 1,220 | |||||||||||
2011 | 500 | 339 | 69 | 182 | 56 | 1,146 | |||||||||||
2010 | 500 | 559 | 84 | 365 | 41 | 1,549 | |||||||||||
P.A.M. van Bommel 1) | |||||||||||||||||
2012 3) | 367 | 144 | 88 | 325 | 59 | 983 | |||||||||||
2011 | 360 | 233 | 54 | 141 | 46 | 834 | |||||||||||
2010 | 140 | 150 | 26 | 71 | 4 | 391 |
1. | For the period July 1, 2010 through August 31, 2010 at 40% and for the period September 1, 2010 through December 31, 2010 full time. |
2. | These amounts represent the vesting expenses related to the financial year. |
3. | A one-time crisis levy of 16% as imposed by the Dutch government amounts to EUR 175 in total. This crisis tax levy is payable by the employer and is charged over income of employees exceeding a EUR 150 threshold in 2012. These expenses do not form part of the remuneration costs mentioned. |
Bonus
Each year, a variable cash incentive can be earned, based on achievement of specific challenging targets. These targets are for 75% based on company financial targets and for 25% based on non-financial targets. The on-target bonus percentage for the members of the Management Board is 75%, with a maximum pay-out of 125% of base salary.
Stock options
The members of the Management Board are eligible to receive stock options under the ASM International NV 2011 Stock Option Plan for members of the Management Board (“plan”) in order to focus on the long term interest of the company. Stock options vest in three years subject to continued employment and expire after seven years.
Pension benefit
The members of the Management Board are offered participation of the pension plan of the industry wide pension fund (“Bedrijfstakpensioenfonds Metalektro”) for the base salary up to the predetermined ceiling. For the base salary above the ceiling, the members of the Management Board are offered participation of a defined contribution plan, insured by Nationale Nederlanden.
Other compensation
Other compensation is covering compensation relative to use of a (company) car, a representation and expense allowance, social security premium and premium for health and disability insurance.
The following table shows the outstanding options to purchase ASM International NV common shares held by current and former members of the Management Board, and changes in such holdings during 2012:
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Year of grant | Outstanding January 1, 2012 | Granted in 2012 | Exercised in 2012 | Outstanding December 31, 2012 | Exercise price | End date | |||||||||||||
Current members: | |||||||||||||||||||
C.D. del Prado 1,5 | 2003 | 20,000 | — | — | 20,000 | US$ | 11.35 | Feb 1, 2013 | |||||||||||
C.D. del Prado 2 | 2007 | 19,645 | — | — | 19,645 | € | 19.47 | May 23, 2015 | |||||||||||
C.D. del Prado 2 | 2008 | 125,000 | — | — | 125,000 | € | 12.71 | Mar 31, 2016 | |||||||||||
C.D. del Prado 3 | 2009 | 50,000 | — | — | 50,000 | € | 15.09 | Dec 31, 2017 | |||||||||||
C.D. del Prado 4 | 2011 | 75,000 | — | — | 75,000 | € | 22.33 | Dec 31, 2018 | |||||||||||
C.D. del Prado 4 | 2012 | — | 60,000 | — | 60,000 | € | 27.04 | Dec 31, 2019 | |||||||||||
P.A.M. van Bommel 3 | 2010 | 25,000 | — | — | 25,000 | € | 16.27 | Aug 7, 2018 | |||||||||||
P.A.M. van Bommel 4 | 2011 | 53,000 | — | — | 53,000 | € | 22.33 | Dec 31, 2018 | |||||||||||
P.A.M. van Bommel 4 | 2012 | — | 40,000 | — | 40,000 | € | 27.04 | Dec 31, 2019 | |||||||||||
Former members: | |||||||||||||||||||
A.H. del Prado 2 | 2007 | 52,886 | — | — | 52,886 | € | 19.47 | May 23, 2015 | |||||||||||
J.F.M. Westendorp 2 | 2007 | 22,452 | — | — | 22,452 | € | 19.47 | May 23, 2015 | |||||||||||
J.F.M. Westendorp 3 | 2009 | 40,000 | — | — | 40,000 | € | 15.09 | Dec 31, 2017 | |||||||||||
482,983 | 100,000 | — | 582,983 |
1. | These options are granted for a term of ten years, and became exercisable in equal parts over a five year period. |
2. | These options are conditional. A percentage-not exceeding 150%-of the options which have been granted conditionally will become unconditional after three years, based on the total return of the Company's shares for the three years after the options are granted compared to the average total return of the shares of a relevant number of companies which are similar to the Company during the same three-year period. The options are granted for a term of eight years |
3. | These options are granted for a term of eight years, and become exercisable after a 3 year vesting period. |
4. | These options are granted for a term of seven years and become exercisable after a 3 year vesting period. |
5. | These options have been exercised on January 25, 2013 at a share price of €29.04. |
The fair value per option of options granted to current and former members of the Management Board was €16.92 in 2010, €10.43 in 2011 and €12.27 in 2012.
In 2012 no options to purchase ASM International NV common shares were exercised and as a result no new shares were issued for the exercise of these options.
The following table sets forth as to all current and former members of the Supervisory Board of the Company information concerning all remuneration (base compensation, no bonuses or pensions were paid) from the Company (including its subsidiaries) for services in all capacities:
Year ended December 31, | |||||
2011 | 2012 | ||||
Total | Total | ||||
Supervisory Board: | |||||
G.J. Kramer | 68 | 68 | |||
J.M.R. Danneels | 50 | 50 | |||
H.W. Kreutzer | 50 | 50 | |||
J.C. Lobbezoo | 53 | 53 | |||
M.C.J. van Pernis | 50 | 50 | |||
U.H.R. Schumacher | 50 | 50 | |||
321 | 321 |
The remuneration of members of the Supervisory Board has been determined by the General Meeting of Shareholders.
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No stock options have been issued to members of the Supervisory Board.
31- Share Ownership and Related Party Transactions
The ownership or controlling interest of outstanding common shares of ASM International NV by members of the Management Board and Supervisory Board or members of their immediate family are as follows:
December 31, 2011 | December 31, 2012 | ||||||||||
Shares owned | Percentage of Common shares outstanding | Shares owned | Percentage of Common shares outstanding | ||||||||
A.H. del Prado | 9,204,284 | 16.62 | % | 9,204,284 | 14.59 | % | |||||
C.D. del Prado (member of the Management Board) | 132,945 | 0.24 | % | 132,945 | 0.21 | % | |||||
Stichting Administratiekantoor ASMI | 2,142,039 | 3.87 | % | 2,142,039 | 3.39 | % |
Stichting Administratiekantoor ASMI is a trust controlled by Mr A.H. del Prado. The number of shares owned by Stichting Administratiekantoor ASMI includes 713,000 common shares which are beneficially owned by Mr C.D. del Prado.
The Company has a related party relationship with its subsidiaries, equity accounted investees and members of the Supervisory Board and the Management Board. Related party transactions are conducted on an at arm’s length basis with terms comparable to transactions with third parties. For transactions with the Supervisory Board and the Management Board see note 30 “Board Remuneration”.
The Group has no significant transactions or outstanding balances with its equity-accounted investees other than its equity-interest holdings.
32- Subsequent Events
Reduction shareholding ASMPT
On March 13, 2013, ASMI sold a 12% stake in ASM PT. The shares were sold in a partial secondary placement raising proceeds of €422 million. The Company intends to distribute approximately 65% of the cash proceeds to ASMI shareholders; a proposal thereto will be placed on the agenda of the upcoming AGM scheduled for May 16, 2013. The remaining proceeds will be used to further strengthen the business of the Company. As of today, the Company continues to be the largest shareholder of ASM PT with a 40% stake.
At the Annual General Meeting of Shareholders (AGM) held in May 2012, the Company announced that it would carry out a study into the causes of the lack of recognition by the markets of the value of the combined businesses (Front-end and Back-end) of the Company. Following that announcement the Company appointed Morgan Stanley and HSBC Bank plc to act as its financial advisers and to assist the Company in carrying out the study.
The study was initiated shortly after the 2012 AGM and has recently been completed. Each of the Company's financial advisers independently carried out an investigation involving frequent discussions with the Company's Management Board and legal and tax advisers. The advisers also presented their findings to the Company's Supervisory Board.
No single or predominant factor was identified in causing the valuation discrepancy. However, a number of causes and circumstances were identified as potentially influencing the valuation discrepancy, including a holding company discount related to the current corporate structure.
Subsequently, an analysis was conducted by the Company in close cooperation with its advisers of the various potential courses of action, including those suggested by shareholders. The alternatives that were investigated included a full or partial placement or sale of the Company's stake in ASM PT, a spin-off of shares in ASM PT and several merger alternatives.
As part of this analysis, the Company has carefully considered the interests of the Company, its shareholders as well as other relevant stakeholders. The Company has also taken into account the various operational connections between
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the Front-end business and the Back-end business as well as potential accounting, legal and tax implications and execution risks.
The Management Board and the Supervisory Board of the Company have concluded that a partial secondary placement of 8% to 12% of the Company's stake in ASM PT is the most suitable step to be taken to address the non-recognition by the markets of the value of the combined businesses of the Company. This course of action has been chosen taking into account, amongst others, equity market capacity, tax efficiency and ongoing corporate stability at ASMI and ASM PT. This step provides flexibility for further action, if deemed appropriate.
The Management and Supervisory Boards of the Company have resolved to proceed with this proposed action and the board of directors of ASM PT has expressed its support to this proposal. In addition thereto, certain major shareholders of the Company representing approximately 27% of the total outstanding shares in the Company have been consulted in advance with regard to this proposed action and have expressed support thereof.
The sale of the 12% stake causes ASMI's cease of control on ASMPT. According to general accepted accounting principles (both US GAAP and IFRS) the accounting of this sale consists of two separate transactions.
• | a sale of a 51.96% subsidiary |
• | a purchase of a 40.08% associate. |
The first transaction, the sale, will result in a substantial gain and the deconsolidation of ASMPT in the consolidated ASMI accounts. The purchase of the associate will, following a purchase price allocation, result in the recognition of the associate at fair value.
We are in the process of determining the financial impact, further information will be disclosed at the announcement of the Q1 2013 results.
The Company will further report on the outcome of the study at the upcoming 2013 AGM, which is scheduled to take place on May 16, 2013.
Bankruptcy Elpida
The reorganization plan re the Elpida bankruptcy in Japan was approved by creditors and the Court in February 2013. The court approval order has been appealed, subject to resolution of the appeal, the amounts we will receive regarding our secured and unsecured claims are set and approved to be paid in installments over a seven year period. While the dates for the installment payments are not yet finalized as they are subject to certain funding conditions, the dates are anticipated to be set once the appeal is concluded and the installment payments to commence accordingly.
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