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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
[ ] 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, 1999
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from to
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Commission File Number: 0-13355
ASM INTERNATIONAL N.V.
fka ADVANCED SEMICONDUCTOR MATERIALS INTERNATIONAL N.V.
(Exact name of Registrant as specified in its charter)
The Netherlands
(Jurisdiction of incorporation or organization)
Jan van Eycklaan 10, 3723 BC Bilthoven, the Netherlands
(Address of principal executive offices)
Securities registered or to be registered pursuant to
Section 12(b) of the Act: None
Securities registered or to be registered pursuant to
Section 12(g) of the Act: Common Shares
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: 40,107,784 common shares; no preferred shares.
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
Indicate by check mark which financial statement item the registrant
has elected to follow:
Item 17 Item 18 x
----- -----
Copies of notices and communications from the Securities and Exchange Commission
should be sent to:
P. Robert Moya, Esq. Rinse de Jong
Quarles & Brady LLP ASM International N.V.
One East Camelback Road, Suite 400 Jan van Eycklaan 10
Phoenix, Arizona 85012 3723 BC Bilthoven
(Telephone: (602) 230-5500) The Netherlands
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
Some of the information in this report contains forward-looking
statements within the meaning of the United States federal securities laws.
These statements include, among others, statements regarding future
expenditures, sufficiency of cash generated from operations, maintenance of
majority interest in ASM Pacific Technology, product development, product
acceptance, market penetration, market demand, return on investment in new
products, facility completion dates and product shipment dates. These statements
may be found under "Description of Business," "Description of Business-Issues
and Risks" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations." Forward-looking statements typically are identified by
use of terms such as "believe," "anticipate," "estimate," "expect," "intend,"
"plan," "will," "may" and similar words, although some forward-looking
statements are expressed differently. You should be aware that our actual
results could differ materially from those contained in the forward-looking
statements due to a number of factors, including the matters discussed under
"Description of Business-Issues and Risks" and in other sections of this report,
which address various factors that could cause our actual results to differ from
those in the forward-looking statements.
Introduction
We are a leader in the design, manufacture and sale of equipment and
solutions used to produce semiconductor devices, or integrated circuits. We
enable our customers to lower their production costs by providing leading-edge
technology solutions and efficient manufacturing processes. Our production
equipment and solutions are used by both the front-end and back-end segments of
the semiconductor market. Front-end equipment performs various fabrication
processes in which multiple thin films, or layers, of electronically 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 believe that the front-end and back-end react
to different market forces in the highly cyclical semiconductor industry and
that operating in both segments reduces the impact of business cycles on our
operations.
Our front-end facilities in the Netherlands, the United States and
Japan enable us to adapt our products to local specifications and to interact
closely with customers in the world's major semiconductor design and wafer
processing markets: Europe, North America and Asia. Our products in the
front-end market segment grow or deposit thin films onto wafers primarily using
a process called chemical vapor deposition, or CVD. CVD deposits films on the
wafer's surface through chemical reactions using gases at high temperatures.
Front-end operations accounted for approximately 44% of our net sales in 1999.
Our back-end business is conducted through our facilities in Hong Kong,
Singapore and China, close to where most assembly and packaging operations are
located. Our products in the back-end market assemble and package individual
dies into finished semiconductor devices using stand alone and automated lines
of equipment. We also manufacture leadframes, copper carriers on which dies are
mounted as part of the back-end assembly process. Back-end operations accounted
for approximately 56% of our net sales in 1999.
Our front-end business is conducted through wholly-owned subsidiaries,
the most significant of which are ASM Europe, B.V., located in the Netherlands,
ASM America, Inc., located in the United States, ASM Microchemistry Ltd.,
located in Finland, and ASM Japan K.K., located in Japan. Our back-end business
is conducted through a majority-owned subsidiary, ASM Pacific Technology
Limited, with principal operations in Hong Kong, Singapore and China. As of
December 31, 1999, we owned 50.01% of the outstanding equity of ASM Pacific
Technology.
As used in this report, the terms "we," "us," "our," and ASM
International mean ASM International N.V. and its subsidiaries, unless the
context indicates another meaning, and the term "common shares" means our common
shares, par value Nlg. 0.01 per share. Since we are a Netherlands company, the
par value of our common shares is expressed in Netherlands guilders, or "Nlg."
We were incorporated on March 4, 1968 as a Netherlands naamloze
vennootschap, or public limited liability company, and were known as Advanced
Semiconductor Materials International N.V. until November 1996. Our principal
executive offices are located at Jan van Eycklaan 10, 3723 BC Bilthoven, the
Netherlands. Our telephone number at that location is (011) (31) 30 229 84 11.
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Industry Background
A. GENERAL.
Semiconductor equipment sales depend significantly upon the level of
capital expenditures by semiconductor manufacturers, which in turn depends
significantly upon the current and anticipated market supply and demand for
semiconductor devices and products using semiconductor devices. Growth in the
semiconductor market is being fueled by rapidly expanding end-user demand for
smaller, less-expensive and better-performing electronic products which has led
to an increased concentration of semiconductor devices in electronic products.
Worldwide semiconductor device sales were expected to reach $155 billion in
1999, as estimated by Dataquest, an independent market research company. From
1999 to 2002, Dataquest estimates that the semiconductor industry will grow at a
compounded annual growth rate, or CAGR, of 17.4% per year. Worldwide
semiconductor equipment sales were expected to reach $28.7 billion in 1999 as
estimated by VLSI Research, Inc., or VLSI, an independent market research
company. From 1999 to 2002, VLSI estimates that the semiconductor equipment
industry will grow at a CAGR of 28.4% per year.
B. SEMICONDUCTOR MANUFACTURING PROCESS
The semiconductor equipment market is comprised of two segments: the
front-end and the back-end.
Front-end Processes. During front-end wafer processing, multiple thin
films of either electronically insulating material, also called dielectrics, or
conductive material are grown or deposited on a wafer measuring 100 mm, or four
inches, to 300mm, or twelve inches, in diameter. A finished wafer may contain a
few dozen to several thousand individual dies. Each die consists of a series of
layers which together form the millions of microscopic transistors and other
components which interact to perform specific electronic functions. 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 processes
are repeated on each layer as the wafer is processed. The number and precise
order of the process steps varies depending upon the complexity and design of
the device. The performance of the device is determined in part by the various
electrical characteristics of the materials used in the layers of the device and
the wafer. The front-end production phase is capital intensive, generally
requiring multiple units and a range of different types of processing equipment
in a fabrication line. The various steps involved in front-end processing are
described below.
- - Epitaxy involves the deposition of silicon or silicon compounds on the
wafer, continuing and perfecting the crystal structure of the bare wafer
underneath. Epitaxy improves the electrical characteristics of the wafer
surface, making it suitable for highly complex microprocessors and memory
devices.
- - Ion Implantation is a process in which wafers are bombarded with ions to
introduce dopant atoms, or impurities, into the wafer to improve its
electrical characteristics. Silicon conducts little or no electricity. In
order to have electrical current within a layer, it is necessary to place
small amounts of impurities into the layer.
- - Diffusion and Oxidation are high-temperature processes which change the
electrical characteristics of layers. Diffusion is used to make impurities
introduced by ion implantation electrically active. Oxidation forms a
silicon oxide layer on the wafer's surface, which acts as an insulative or
protective layer over the wafer's surface.
- - Low Pressure Chemical Vapor Deposition, or LPCVD, performs CVD under high
temperature, low pressure conditions to deposit insulating or conductive
layers.
- - Plasma Enhanced Chemical Vapor Deposition, or PECVD, performs CVD enhanced
by the use of an electrically-charged vapor, or plasma, at lower
temperatures. After the first metal layer has been deposited on the wafer,
LPCVD and diffusion can no longer be used because they will melt the metal.
Any subsequent deposition must be performed at low temperatures.
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- - Atomic Layer Chemical Vapor Deposition, or ALCVD, is an advanced CVD
technology which deposits single atomic layers on wafers one at a time at
low temperatures. This process is used to create ultra-thin films of
exceptional quality and flatness.
- - Rapid Thermal Processing, or RTP, is used to expose single wafers to heat
over a short period of time.
- - Physical Vapor Deposition, or PVD, deposits a thin layer of metal on the
wafer surface for electrical contacts and wires through a process called
"sputtering."
- - Lithography is used to print the various layer patterns of the
semiconductor device on the uppermost layer of the wafer. These patterns
determine the functions of the semiconductor device.
- - Etch reproduces the pattern imprinted by lithography by removing excess
material from the uppermost layer of the wafer.
- - Clean removes undesirable contaminants from the wafer's surface.
- - Chemical Mechanical Planarazition, or CMP, is a relatively new technology
which planarizes, or levels, layers deposited on wafers by polishing them
with a chemical solution called slurry. Planarization reduces the vertical
height differences of the various layers. This increases the number of
layers which can be processed without introducing reliability problems.
- - Metrology is used to measure the width of lines on semiconductor devices,
the thickness of layers, the surface profiles of layers, and certain
electrical properties of layers.
- - Probing is a process in which electrical and functional tests are performed
on each die and defective ones are marked.
Back-end Processes. The back-end manufacturing process consists of
cutting the processed wafer into individual dies, mounting them on carriers such
as leadframes and connecting them to the appropriate electrical leads. Wire
bonding onto leadframes is the most common interconnection method, although
alternative interconnection techniques and materials, such as ceramic packages,
flip chips and different chip-scale packaging methods, are available. After the
assembly process, the dies are packaged to protect them from environmental
influences and prepare them for use, resulting in completed semiconductor
devices. Each of these steps is described below.
Materials:
- - Leadframes are produced by stamping or etching a pattern through a strip of
copper and then plating a portion of the pattern with silver to enable
reliable wire bonding.
Assembly:
- - Die Separation separates the dies on the wafer into individual units using
wafer saws.
- - Die Bonding mounts the dies onto carriers such as leadframes using a die
bonder.
- - Wire Bonding attaches extremely thin gold or aluminum wires between the die
and the leadframe for electrical connections using a wire bonder.
- - Unit Inspection inspects each die throughout the assembly process and prior
to packaging.
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Packaging:
- - Encapsulation or Molding encases the dies in a protective housing, often
epoxy, using transfer molds.
- - Plating coats exposed tips of leads in order to improve their ability to be
soldered onto printed circuit boards.
- - Trim and Form cuts away the excess portion of the leadframe and bends the
leads into the desired shape, resulting in the completed semiconductor
device.
- - Final Testing tests the performance of the completed semiconductor device.
C. INDUSTRY TRENDS
To create increased demand for semiconductor devices, semiconductor
manufacturers have sought to enhance the performance, decrease the size, and
lower the cost of semiconductor devices. These goals are being achieved by
introducing new materials and technologies, reducing line widths, increasing
wafer size and improving yield. The number of dies that can be processed in a
fixed number of manufacturing steps is increasing, leading to lower cost by
leveraging the costs of equipment over more units. New technologies and
materials, and line width reductions, require advanced, and frequently changing,
manufacturing solutions, resulting in many challenges for semiconductor
equipment suppliers.
Decreasing the line widths in semiconductor devices makes them both
faster and smaller. Since more devices with smaller line widths can be placed on
a wafer, cost per unit also decreases. Currently, line widths of 0.18 microns
are moving into production and the industry is preparing to transition to 0.13
and 0.10 microns. A micron is 1/25,000 of an inch.
Semiconductor manufacturers are also seeking to reduce the cost of
producing semiconductor devices by increasing the diameter of the wafers on
which the semiconductor devices are being layered. The maximum diameter of
wafers is in the process of increasing from 200mm, or eight inches, the current
industry standard, which was introduced in the early 1990s, to 300mm, or twelve
inches. The move toward larger wafer sizes is driven by cost efficiency, since a
300mm wafer holds approximately 2.4 times more dies than a conventional 200mm
wafer. Although this development is still at an early stage, significant
investments are being made by semiconductor equipment manufacturers to develop
processes and equipment compatible with this larger wafer size and pilot lines
have been announced by leading semiconductor manufacturers.
Furthermore, in order to increase performance, new materials are being
used to produce semiconductor devices, such as copper interconnects for better
conductivity, which in turn require new isolation layers. Semiconductor
equipment manufacturers are using existing as well as new manufacturing methods
of deposition, cleaning and lithography to enable the use of such new materials.
To achieve improved yield, semiconductor devices must be manufactured
in environments with very low levels of contaminants. Semiconductor equipment
manufacturers have responded to this requirement by offering equipment that
isolates, within a controlled mini-environment, several chambers corresponding
to different steps of the semiconductor manufacturing process and by developing
factory automation which reduces human involvement. Developments in metrology
are also contributing to improvements in yield. The measurements conducted by
metrology equipment are becoming a more integral part of the semiconductor
manufacturing process. Semiconductor manufacturers are requiring equipment that
can make more precise and new kinds of measurements, and provide results of
these measurements faster by integration of the measurement tools into the
processing equipment.
Technological developments in the front-end have resulted in the need
for new solutions in the back end. For example, shrinking dies and line widths
require wire bonders that are capable of attaching finer wires in smaller
spaces. In addition, semiconductor manufacturers are looking to automation and
integration of back-end equipment as ways to reduce costs and increase
productivity.
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Over the coming years, these trends, which fuel the growth of the
semiconductor equipment industry, are expected to create the need for new
equipment solutions.
D. PRODUCTS.
We design, manufacture and sell products used in both front-end wafer
processing and back-end assembly, packaging and materials. The following table
sets forth the main manufacturing processes used in the front-end and back-end
market segments and indicates the markets in which we participate.
<TABLE>
<CAPTION>
FRONT-END BACK-END
-------------------------------------------------- ---------------------------------------------------
DEPOSITION OTHER PROCESSES TESTING MATERIALS ASSEMBLY PACKAGING
--------------- ------------------ --------------- -------------- ------------------- ----------------
<S> <C> <C> <C> <C> <C>
Diffusion
Epitaxy* and Metrology* Leadframe Die Separation Encapsulation*
Oxidation* Manufacture*
-------------------------------------------------------------------------------------------------------
Low Pressure Ion Probing Manufacture Die Bonding* Package
CVD* Implantation of Other Plating
Materials
--------------- ------------------ --------------- -------------- ------------------- ----------------
Plasma Lithography Wire Bonding* Trim and Form*
Enhanced CVD*
--------------- ------------------ --------------- -------------- ------------------- ----------------
Atomic Etch Unit Final Testing
Layer CVD* Inspection*
--------------- ------------------ --------------- -------------- ------------------- ----------------
Physical
Vapor Clean**
Deposition
(PVD)
--------------- ------------------ --------------- -------------- ------------------- ----------------
Chemical
Rapid Thermal Mechanical
Processing* Planarization
(RTP) (CMP)
--------------- ------------------ --------------- -------------- ------------------- ----------------
</TABLE>
*Indicates markets in which we participate.
**We participate in advanced cleaning technologies integrated with our
deposition equipment.
Front-end Products
The following table lists our principal front-end equipment and the
years in which initial production units were first made available to customers.
<TABLE>
<CAPTION>
------------------------------------ ---------------- ----------------------------------- ---------------
KEY YEAR
PRODUCT FAMILY PROCESSES PRODUCTS INTRODUCED
------------------------------------ ---------------- ----------------------------------- ---------------
<S> <C> <C> <C>
Epsilon One(1) 1988
Single Wafer Thermal - Epitaxy Epsilon Two(1) 1990
CVD Systems - CVD Epsilon 2000 1997
Epsilon 2500 1997
Epsilon 3000 (300mm) 1997
- -----------------------------------------------------------------------------------------------------------
- LPCVD Advance 400 series 1994
Vertical Batch - Diffusion Advance 600 UHV 1996
Processing Systems - Oxidation Advance 412 (200 and 300mm) 1998
- -----------------------------------------------------------------------------------------------------------
</TABLE>
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<TABLE>
<S> <C> <C> <C>
Single Wafer Plasma Eagle 10 (2 chambers) 1993
Enhanced CVD - PECVD Eagle 10 Trident (3 chambers) 1997
Systems Eagle 12 Rapid Fire (300mm) 1998
- --------------------------------------------------------------------------------------------------------------
F 120(3) 1998
Single Wafer Atomic - ALCVD F 450 and F 950(3) 1997
Layer CVD Systems Pulsar 2000 (200 and 300mm) 1999(2)
- --------------------------------------------------------------------------------------------------------------
Single Wafer RTP - Anneal
Systems - Oxidation Levitor 1999(2)
- --------------------------------------------------------------------------------------------------------------
Polygon 8200 1997(2)
Single Wafer Cluster - Cluster Vapor Clean Module 1999(2)
Systems and Modules Processes Epsilon 2500 Module(4) 1997(2)
Pulsar 2000 Module(4) 1999(2)
</TABLE>
(1) This product has been replaced by the Epsilon 2000 and Epsilon 2500.
Although it is no longer sold, it still forms an important part of our
installed base and generates service and spare parts revenue.
(2) We have introduced this product and expect to ship the first commercial
unit sometime in 2000.
(3) Used for non-wafer applications such as flat panel displays and magnetic
heads.
(4) The Epsilon and Pulsar modules share the same reactor section as the
Epsilon and Pulsar single wafer stand-alone systems.
Single Wafer Thermal CVD Systems. Our Epsilon products heat wafers to
high temperatures using infrared lamps, forming a film on the surface of the
wafer by applying CVD. The main current use of the Epsilon is for epitaxy of
silicon and silicon germanium alloys. Silicon germanium alloys are used in the
fast-growing telecommunications market. We believe that the Epsilon 2000 is
leading the industry in silicon germanium applications with a large installed
base. We also believe that a high productivity version of the Epsilon, the
Epsilon 2500, offers the highest throughput in the industry for epitaxial
silicon applications. Our Epsilon 3000 produced the first commercial 300mm
wafers with epitaxial layers in 1997.
Vertical Batch Processing Systems. The Advance 400 series and Advance
412 vertical batch processing systems process up to 150 wafers at a time at high
temperatures. These reactors load wafers into a carrier, which is pushed into
the heated reactor for diffusion, oxidation or LPCVD processing. The Advance
reactors feature dual carriers and a large work in process wafer storage
station. We believe our Advance reactors achieve the lowest production cost per
wafer in the industry. The Advance 600 is an ultra-high vacuum, or UHV, vertical
batch reactor. The Advance 600 processes up to 100 wafers per carrier. Wafers
are handled and processed in an extremely clean UHV atmosphere to guarantee
cleanliness of the deposited material. Up to two reactors can be clustered on a
single UHV wafer handler. The Advance 600 is mainly used in a process to enhance
the surface area in a dynamic random access memory, or DRAM, capacitor
structure. This product enables our customers to make smaller memory cells, and
therefore smaller semiconductor devices.
Single Wafer Plasma Enhanced CVD Systems. The Eagle 10 and Eagle 12
series reactors are single wafer systems which deposit films on wafers using
PECVD. The Eagle systems are mostly used for depositing insulators, such as
silicon oxide and silicon nitride, used in interconnect circuits. The Eagle 10
Trident and Eagle 12 Rapidfire (300mm) have three chambers configured for
enhanced productivity. The simplicity of these systems results in low cost, high
reliability and low maintenance requirements. The Eagle reactors also perform a
new insulating film deposition process with a low dielectric constant, or "k"
value, of 2.7 called Aurora 2.7. This process reduces the interaction between
adjacent conductors such as copper lines, and increases the speed of the
circuitry.
Single Wafer Atomic Layer CVD Systems. Our ALCVD product is being
introduced in the semiconductor market but is already in commercial production
in the markets for flat panel displays and magnetic heads. We offer both stand
alone equipment and modules that can be integrated with our cluster systems. At
the end of 1999, our installed base amounted to 45 systems, many of which are in
research and development areas.
Single Wafer RTP Systems. We are bringing to the market a new hardware
solution for process steps that require RTP. This new product is called Levitor.
In the Levitor, the wafer floats on a cushion of gas and does not require lamps
for heating. Compared to existing lamp-based RTP systems, we believe the Levitor
allows very fast heating and cooling of the wafers and offers an efficient and
cost-effective solution. We expect to install the first
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systems during 2000 with some selected customers to further test and finalize
the concept. We do not expect to make commercial sales of RTP before the end of
2000.
Single Wafer Cluster Systems and Modules. For selected new processes
such as gate stacks and barrier and seed layers for dual damascene, several
layers have to be deposited on the wafer without allowing them to be
contaminated by air. Our Polygon single wafer systems allow the integration of
up to four modules on a single vacuum handler. We currently have available the
Epsilon 2500 module, based on the Epsilon 2500 reaction chamber, the Pulsar 2000
ALCVD module, and a vapor clean module to clean unwanted oxide from the incoming
wafer with a patented process.
Back-end Products
The following table lists our principal back-end products, and the
years in which initial production units were first made available to customers.
<TABLE>
<CAPTION>
- ------------------------------------ ---------------------------------- --------------------- ----------------
KEY YEAR
PRODUCT FAMILY PROCESSES PRODUCTS INTRODUCED
- ------------------------------------ ---------------------------------- --------------------- ----------------
<S> <C> <C> <C>
AD809 1990
Die Bonding AD829 1994
Assembly AD819 1998
AD889 1998
-------------------------------------------------------------------------
Epoxy Curing CO109 1990
-------------------------------------------------------------------------
AB356 1995
Wire Bonding AB510 1997
AB559A 1997
AB339 1997
- --------------------------------------------------------------------------------------------------------------
EM649 1997
Encapsulation PMC109 1999
Packaging IDEALmold 2000
-------------------------------------------------------------------------
Trim and Form MP209 1996
BGA209 1996
- --------------------------------------------------------------------------------------------------------------
Full integration of the above
Automated Systems assembly and packaging steps IDEALine 1999
into one system
- --------------------------------------------------------------------------------------------------------------
Materials Manufacture of carriers on which Leadframes 1975
dies Are mounted
- --------------------------------------------------------------------------------------------------------------
</TABLE>
Die bonding. We manufacture several die bonding models to address
several markets including semiconductor and optoelectronic devices. The AD889
features an automatic wafer handling system, programmable epoxy dispensing
system and sophisticated inspection and pattern recognition systems. The AD889
has a high throughput at relatively low cost. The AD829 and AD809 models address
the large market for die sizes under 30 mils square. A mil is 1/1000 of an inch.
In addition to the simple semiconductor device market, the small die category
includes optoelectronic devices. The model AD819 is a high precision machine
designed for laser diode optoelectronic devices. Machines may be configured to
operate stand-alone or connected to epoxy curing ovens and wire bonders.
Wire bonding. We introduced our AB339 gold wire bonder in early 1997.
The AB339 has fine pitch capability, an ultralight bond head, advanced pattern
recognition software and automatic wire bond inspection capability. We have
enjoyed market success with the AB339 due to its industry leading fine pitch
capability and favorable price/performance ratio. The AB510 and AB559A are
ultrasonic wedge bonders used for aluminum wire bonding at room temperature on
printed circuit boards. These machines address the consumer products market
which focuses on cost effective solutions. The AB356 is a gold wire bonder that
serves the large substrate/hybrid device market. In 2000, we will launch a new
generation of gold wire bonder, the AB339 Eagle. This machine will offer
significant output increase over existing models.
Encapsulation. The EM649 features a very fast load/unload time, and
uses modular components for rapid product conversion and adaptable system
configuration, which makes it very flexible. The EM649 is offered in stand alone
and in-line configurations. In 2000 we have introduced the IDEALmold,
specifically designed to be manufactured in a modular format allowing customers
to specify the system capacity from two to eight leadframes.
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This product specifically addresses the in-line market which requires molding
systems of varying capacities to allow for proper line balancing. The PMC109
allows customers to directly transfer encapsulated semiconductor devices to a
high capacity multi-chamber oven for continuous automatic post mold curing of
epoxy molding compound.
Trim and Form. Our MP209 is a high speed, motorized trim and form
equipment catering to different packages. The modular set-up of the system
allows integration of third party testing, marking and inspection functions,
which in turn allows more cost efficient production for our customers. These
systems may also be integrated into our IDEALine.
Automated Systems. The IDEALine integrates back-end assembly and
packaging equipment. 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 and
trimming and forming. In addition we work with third party suppliers to offer
various additional processes.
Research and Development
We believe that our future success depends to a large extent upon our
ability to develop new products and to add improved features to existing
products. Accordingly, our centralized product development policies and local
activities are directed toward expanding and improving present product lines to
incorporate technological advances and enable timely penetration of new markets
for automated semiconductor processing, assembly and packaging equipment. These
activities require the application of physics, chemistry, process technology,
electrical engineering, precision mechanical engineering and software
development. We are also continuing to develop new applications as well as
software and hardware for our back-end products.
Our net research and development expenses were 11.4% of net sales
during 1999, 12.6% of net sales during 1998 and 12.1% of net sales during 1997.
We expect to continue investing significant resources in research and
development to enhance our product solutions.
Our research and development activities are conducted in the principal
semiconductor markets of the world, which enables us to draw on innovation and
technical capabilities on an international basis. Each geographic center
provides expertise for specific products or technologies. This approach,
combined with interactions between the individual centers, permits efficient
allocation of technical resources and allows for customer orientation combined
with the necessary product specialization.
<TABLE>
<CAPTION>
NUMBER OF & D
BUSINESS SEGMENT LOCATION EMPLOYEES
- ------------------------------------- -------------------------------------- -----------------------
<S> <C> <C>
Bilthoven, the Netherlands 32
Front-end Leuven, Belgium (IMEC) 19
Espoo, Finland 14
Phoenix, Arizona, United States 36
Tama, Japan 32
- ----------------------------------------------------------------------------------------------------
Hong Kong 246
Back-end
Singapore 155
- ------------------------------------- -------------------------------------- -----------------------
</TABLE>
As part of our research and development activities, we are engaged in
various formal and informal arrangements with customers and institutes. These
arrangements are made on a development program basis and allow us to develop
products that meet customer requirements and obtain access to new technology and
expertise. We currently are engaged in a development program with several
customers for 300mm applications of our Eagle products. The Eagle 10 was
developed in close collaboration with Japanese customers, while the Advance 400
product performance was enhanced in cooperation with a number of customers. The
A-600 UHV was further upgraded in cooperation with a major Japanese customer. In
cooperation with Semitool Inc., a United States supplier of copper plating
equipment, and the Inter-University Center for Microelectronics, also called
IMEC, we are developing production solutions for copper applications.
We participate in European programs focusing on developing the
production technology for semiconductor devices with line widths of 0.13 and
0.10 microns. We are the project manager in a number of projects that were
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awarded under the European Strategic Program for Research and Development in
Information Technology, or ESPRIT, an initiative of the European Union.
Furthermore, since 1990, the board of Micro Electronics Development for European
Applications, or MEDEA, an initiative of the European Union, and its predecessor
approved extensive development programs in which we are a leading partner. We
are currently working on a project with MEDEA in connection with possible uses
of our ALCVD technology. Mr. Arthur H. del Prado, our President and Chief
Executive Officer, is a member of the board of MEDEA.
The integration of new product solutions into process modules is done
in ASM Europe's application lab, which shares IMEC's clean rooms in Leuven,
Belgium. IMEC is an internationally recognized research laboratory with over 700
employees, which develops and enhances technology and integrated processes for
the semiconductor industry. IMEC is funded by contract research and European
grants. This integration within the IMEC facilities gives us access to all
additional process steps needed to create sub-micron devices, including
sub-micron patterning. Development programs on process for a customer
application are usually done with active participation of IMEC, suppliers of
complementary and non-critical equipment, and end-users of our products.
In addition to cooperating with third parties such as customers and
other equipment companies in research and development projects, we enter into
projects with technical universities, in particular in the Netherlands, Japan
and Finland. As part of these projects, we may sell our equipment to customers
who will use grants or research loans to acquire these products or we may
receive grants or research loans directly. We have received such loans in the
past from the Netherlands government, of which (euro)11.9 million was
outstanding at December 31, 1999, and are repaying these loans from the sales
proceeds of the products developed with their assistance up to one hundred
percent of the amounts of the loans. Our subsidiary, ASM Microchemistry,
received similar loans from the Finnish government.
Marketing and Sales
We sell and market our products with the objective of developing and
maintaining an ongoing, highly interactive service and support relationship with
our customers. Our marketing strategy includes advertising and participating in
various industry trade shows. We provide prospective customers with extensive
process and product data, provide opportunities for tests on demonstration
equipment and, if required, make evaluation equipment available 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 with our
customers of new applications. We encourage our engineers to submit technical
papers in relevant magazines and to give lectures in symposia.
We also install our equipment with semiconductor manufacturers for
evaluation in order to strengthen our existing customer relationships as well as
develop new 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 three to six 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.
Our sales process usually starts with high-level introduction meetings.
Early in the process we also meet with operational personnel to discuss the
intended uses of our equipment, technical requirements, solutions, and the
overall production process of the customer. Demonstrations and evaluation of
test results take time. Once we agree upon the technological terms of the sale,
the process continues with price and delivery negotiations and, when completed
successfully, with the issuance by the customer of a letter of intent to secure
a slot in the manufacturing and assembly planning schedule, followed by a
purchase order.
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.
10
<PAGE> 11
Each of our major product lines has a dedicated product manager,
responsible for positioning the product in the market, developing it over time
and evaluating its relative performance compared to the competition. Each
product manager sets priorities in terms of technical development and sales
support.
To execute the sales and service functions, we have established a
direct sales force for front-end products reporting on a geographical basis to
the managers in charge of Europe, North America, Southeast Asia and Japan. At
the end of 1999, the front-end units had 73 employees fully dedicated to sales
and marketing, representing 9.3% of total front-end staff. Dedicated support and
sales forces are maintained for our various geographic units, enabling us to
serve our global customers with an equally global organization. Each of our
geographic front-end units is responsible for sales of all of our front-end
products in its region.
In addition to the sales activities undertaken at the principal offices
of our various manufacturing units, we have sales offices located in Europe in
the United Kingdom, France and Germany, and in the United States in California,
Texas and Pennsylvania. In Japan, our sales offices are located in Tokyo and
Osaka.
We use sales agents in Malaysia and China for front-end products and to
support our sales efforts for ALCVD in the non-semiconductor markets, such as
flat panel displays and magnetic heads.
Sales of back-end equipment and materials are provided by our principal
offices in Hong Kong and Singapore, through direct sales offices in Taiwan, the
Philippines, Malaysia, Thailand, Japan, Europe and North America, and through
sales representatives in Korea and some parts of the United States. There are
241 staff members employed in sales and marketing of back-end products,
representing 5.2% of total back-end staff.
Customers
We sell our products predominantly to manufacturers of semiconductor
devices and manufacturers of silicon wafers. Our customers include most leading
semiconductor and wafer manufacturers. Our customers vary from independent
semiconductor manufacturers that sell their products on the open market, to
large electronic system companies that manufacture semiconductor devices for
their own use. While some semiconductor manufacturers have consolidated in
recent years, the number of foundries and semiconductor assemblers has been
expanding rapidly.
The following table lists customers accounting for (euro)2.5 million or
more of our net sales in 1999:
<TABLE>
<CAPTION>
- -------------------------- -------------------------- ------------------------------------------------------------
TYPE OF
SEGMENT CUSTOMER CUSTOMERS
- -------------------------- -------------------------- ------------------------------------------------------------
<S> <C> <C> <C> <C>
Infineon Motorola Sony
Technologies Nan-ya ST Microelectronics
Semiconductor Device Institut Fuer NEC Texas Instruments
Front-end Manufacturers Halbleite Philips UMC Group
Maxim Seiko Epson VLSI Technology
Mitsubishi Corp.
---------------------------------------------------------------------------------------
Wafer Manufacturers Wacker
- ------------------------------------------------------------------------------------------------------------------
Fairchild Linear Nichia
Semiconductor Device Lite-On Lucent Philips
Manufacturers Microchip ST Microelectronics
Back-end ---------------------------------------------------------------------------------------
AIC ASE NS Electronics
Assemblers Alphatec Carsem OSE
Amkor Anam Hana PT Astra
ST Assembly Test
Services
- -------------------------- -------------------------- -------------------- -------------- ------------------------
</TABLE>
Our largest customer accounted for approximately 11% of our net sales
in 1999. Our ten largest customers accounted for approximately 43% of our net
sales in 1999. 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, plans for new
fabrication facilities and new product introductions.
11
<PAGE> 12
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 customers for extended
periods of time to optimize the use of the equipment for the customer's specific
processes. For front-end, where the availability of field support is
particularly important for a sale, there are approximately 190 support staff
employees, or 23.8% of our total employees.
Manufacturing
Our manufacturing operations consist of the fabrication and assembly of
various critical components, product assembly, quality control and testing.
In the front-end, we outsource the manufacture of major subsystems and
subassemblies and some design, assembly and testing functions to specialized
companies. We believe that outsourcing enables us to minimize our fixed costs
and capital expenditures while also providing the ability to rapidly increase
production capacity. We also work closely with our suppliers to achieve mutual
cost reduction through joint design efforts.
Philips Machinefabrieken supplies a substantial majority of the major
subassemblies used in the manufacture of the Advance 400 and of the major
subassemblies used in the manufacturing of our Epsilon products. Although we
work with a limited number of suppliers, we seek not to rely on a sole supplier,
and have back-up suppliers for all subsystems and subassemblies that are
outsourced.
In addition, we purchase the metrology equipment that we integrate into
some of our front-end products from NanoPhotonics. We have a 24% equity interest
in NanoPhotonics and our President has a 44.5% interest. See "Certain
Transactions."
Our back-end operations are vertically integrated to insure quality
production of component parts where the quality of subassemblers does not
otherwise meet our standards. The manufacturing activities in Hong Kong and
Singapore consist primarily of assembling and testing components and
subassemblies manufactured at our main manufacturing facility in China. We
expect a new component manufacturing plant to commence production in Malaysia in
2000.
Facilities
To develop and manufacture products to local specifications and to
market and service products more effectively in the worldwide semiconductor
market, our front-end manufacturing facilities are located in Europe, the United
States and Japan and our back-end facilities are located in Hong Kong, China and
Singapore. In addition, we lease approximately 30,000 square feet of back-end
manufacturing space in Malaysia. The principal facilities are summarized below:
12
<PAGE> 13
<TABLE>
<CAPTION>
- ------------------------- ------------------- -------------------------------------------- --------------------
APPROXIMATE
BUSINESS AGGREGATE
SEGMENT LOCATION PRIMARY USES SQUARE FOOTAGE
- ------------------------- ------------------- -------------------------------------------- --------------------
<S> <C> <C> <C>
Bilthoven, the Wafer processing equipment manufacturing, 151,000
Netherlands marketing, research and executive offices
Front-end Phoenix, Arizona Wafer processing equipment manufacturing, 204,000
marketing, research and offices
Tama and Niigata, Wafer processing equipment manufacturing, 132,000
Japan marketing, research and offices
Espoo, Finland Wafer processing equipment manufacturing, 35,000
marketing, research and offices
- ---------------------------------------------------------------------------------------------------------------
Assembly and encapsulation equipment
Hong Kong manufacturing, leadframe plating, 211,000
marketing, research and offices
Back-end Singapore Assembly equipment and etched leadframe 362,000
manufacturing, marketing, research and
offices
Shenzhen, China Precision metal part and subassembly 523,000
fabrication, stamped leadframe
manufacturing and offices
- ------------------------- ------------------- -------------------------------------------- --------------------
</TABLE>
Our principal facilities in Arizona, Hong Kong, Singapore and China are
subject to leases expiring at various times from 2000 to 2020. Our Bilthoven
facilities are constructed on leased land with the earliest leases expiring in
the year 2029. The 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.
Competition
The semiconductor equipment industry is intensely competitive, and is
fragmented among companies of varying size, each with a limited number of
products serving a particular segment 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 are evaluating manufacturing equipment
based on a mixture of 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.
As the variety and complexity of available machinery increases, some
semiconductor manufacturers are looking 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 business are from the United
States and Japan. Our primary competitors in the back-end business 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 business include Applied Materials, Novellus, Tokyo
Electron and Kokusai. Our primary competitors in the back-end business include
Kulicke & Soffa, ESEC, Shinkawa, Apic Yamada, BE Semiconductor, Towa, Shinko and
Mitsui.
13
<PAGE> 14
Employees
As of December 31, 1999 we had 5,426 employees, including 534 employees
primarily involved in research and development activities, 314 in marketing and
sales, 295 in customer service, 275 in finance and administration, and 4,008 in
manufacturing.
The following table lists the total number of the employees and the
employees in our front-end and back-end business segments at the dates
indicated.
<TABLE>
<CAPTION>
December 31, Front-End Back-End Total
<S> <C> <C> <C>
- ----------------------------------------------------------------------
1997 860 3,654 4,514
- ----------------------------------------------------------------------
1998 756 3,680 4,436
- ----------------------------------------------------------------------
1999 798 4,628 5,426
- ----------------------------------------------------------------------
</TABLE>
Our Netherlands operation, which employs approximately 240 persons, 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. As a consequence of our decision to merge the manufacturing operations of
ASM America with those of ASM Europe in 1999, our number of employees in the
United States was reduced by approximately 75, whereas the number of employees
in the Netherlands was increased by approximately 50.
Patents and Trademarks
Because of the rapid technological advances in the microelectronics
field, we believe that our products will be subject to continuing change and
enhancement. Accordingly, we believe that our success will depend upon the
technical competence and creative ability of our personnel and the ownership of
patents.
We have patents some of which cover key technologies, features and
operations of our major front-end products, with many patents registered in
every major country where semiconductor devices or equipment are manufactured.
We own a number of patents and we have filed a number of patent applications for
semiconductor wafer processing equipment. We also own patents and have filed
patent applications for LPCVD, PECVD, ALCVD and epitaxial technology. The total
number of United States patents on our front-end products was approximately 60
at the end of 1999 compared to approximately 50 at the end of 1998. The total
number of United States and foreign patents on our front-end products was
approximately 130 at the end of 1999.
We have entered into worldwide, non-exclusive, non-transferable and
non-assignable licenses with Applied Materials for patents related to epitaxy
and some chemicals used to deposit insulating layers for PECVD. To maintain
these licenses, we pay Applied Materials a royalty on sales of equipment that
use the patented technology. Upon expiration of the patents, the technology may
be used royalty-free by the public, including us.
In the back-end industry, technological advancement is generally more
evolutionary than revolutionary in nature. Companies generally compete on their
cumulative expertise in applying well known technologies to improve productivity
and cost-efficiency, rather than their innovation of new technologies. In
practice, these skills are more difficult to patent. As a result, we do not file
many patents related to our back-end business, nor do we believe it would be
cost-effective or provide a competitive advantage to do so. We also own certain
trademarks and other proprietary information that we consider important to our
business.
There has been substantial litigation regarding patent and other
intellectual property rights in semiconductor-related industries. 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 us 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 operating results.
Furthermore, adverse determinations in this 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 operating results.
14
<PAGE> 15
Issues and Risks
We may from time to time make written or oral forward-looking
statements, including statements contained in this report and our filings
with the Securities and Exchange Commission and our reports to shareholders.
This report contains forward-looking statements made pursuant to the "safe
harbor" provisions of the Private Securities Litigation Reform Act of 1995. In
connection with these "safe harbor" provisions, we identify important factors
that could cause our actual results to differ materially from those contained in
any forward-looking statements made by or on behalf of us. Any such
forward-looking statement is qualified by reference to the other information in
this report and the following cautionary statements.
OUR QUARTERLY REVENUES AND OPERATING RESULTS FLUCTUATE DUE TO A VARIETY OF
FACTORS, WHICH MAY RESULT IN VOLATILITY OR A DECREASE IN THE PRICE OF OUR COMMON
SHARES.
Our quarterly revenues and operating results have varied significantly
due to a number of factors, including:
- cyclicality and other economic conditions in the semiconductor
industry;
- fluctuation in demand for our products;
- production capacity constraints;
- the timing of customer orders, cancellations and shipments;
- the length and variability of the sales cycle for our
products;
- seasonality in demand for our products;
- the introduction of new products and enhancements by us and
our competitors;
- disruptions in sources of supply;
- the timing of 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; and
- exchange rate fluctuations.
We expect our operating results to fluctuate in the future as a result
of these factors and a variety of other factors, including:
- the emergence of new industry standards;
- product obsolescence; and
- economic conditions generally or in various geographic areas
where we or our customers do business.
These factors are difficult or impossible to forecast.
15
<PAGE> 16
In addition, 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 operating results 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
operations for that period. In addition, our need to continue expenditures for
research, development and engineering make it difficult for us to reduce
expenses in a particular quarter if our sales goals for that quarter are not
met. The inability to adjust spending quickly enough to compensate for any sales
shortfall would magnify the adverse impact of that sales shortfall on our
results of 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 earnings and our financial
position.
As a result of these factors, our operating results may vary
significantly from quarter to quarter. Any shortfall in revenues or net income
from levels expected by securities analysts and investors could cause a decrease
in the trading price of our common shares.
OUR BUSINESS COULD BE ADVERSELY AFFECTED BY THE CYCLICAL NATURE OF THE
SEMICONDUCTOR INDUSTRY.
We sell our products to the semiconductor industry, which is subject to
sudden, extreme, cyclical variations in product supply and demand. The timing,
length and severity of these cycles are difficult to predict. In some cases,
these cycles have lasted more than a year. Semiconductor manufacturers may
contribute to these cycles by misinterpreting the conditions in the industry and
over- or under-investing in semiconductor manufacturing capacity and equipment.
We may not be able to respond effectively to these industry cycles.
Downturns in the semiconductor industry often occur in connection with,
or anticipation of, maturing product cycles for both semiconductor companies and
their customers and declines in general economic conditions. Industry downturns
have been characterized by reduced demand for semiconductor devices and
equipment, production over-capacity and accelerated decline in average selling
prices. During a period of declining demand, we must be able to quickly and
effectively reduce expenses and motivate and retain key employees. Our ability
to reduce expenses in response to any downturn in the semiconductor industry is
limited by our need for continued investment in engineering and research and
development and extensive ongoing customer service and support requirements. In
addition, although we order materials and subassemblies in response to firm
orders, the long lead time for production and delivery of some of our products
creates a risk that we may incur expenditures or purchase inventories for
products which we cannot sell. A downturn in the semiconductor industry could
therefore harm our sales and revenues if demand drops or our gross margins if
average selling prices decline, for both our front-end and back-end businesses.
Industry upturns have been characterized by abrupt increases in demand
for semiconductor devices and equipment and production under-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 qualified personnel. Our inability to ramp-up in times of
increased demand could harm our reputation and cause some of our existing or
potential customers to place orders with our competitors rather than us.
OUR ASSEMBLY AND MANUFACTURING FACILITIES MAY REACH FULL CAPACITY, CAUSING US TO
LOSE SOME OF OUR CUSTOMERS.
We have experienced capacity constraints and expect to continue
experiencing capacity constraints at our assembly and manufacturing facilities
for the foreseeable future. Our existing and potential customers have required
that we satisfy delivery schedules that are increasingly demanding. While we are
in the process of completing new plants in Malaysia and China and are
considering other alternatives to alleviate this issue, including increasing the
percentage of outsourced activities to Philips Machinefabrieken and to other
third parties, our capacity will likely remain constrained over the next few
quarters until we can bring new capacity on-line. In the interim, our lead times
for shipping products could increase, which could cause some of our existing and
potential customers to place
16
<PAGE> 17
orders with our competitors rather than us. In addition, it is possible that
Philips Machinefabrieken and the other companies to which we outsource may reach
full capacity, causing them to be unable to fulfill our requirements.
OUR INDUSTRY IS SUBJECT TO RAPID TECHNOLOGICAL CHANGE AND WE MAY NOT BE ABLE TO
FORECAST OR RESPOND TO COMMERCIAL AND TECHNICAL TRENDS.
Our growth strategy and future success is dependent upon commercial
acceptance of products incorporating technologies we are developing, such as
atomic layer chemical vapor deposition, rapid thermal processing, low-k
dielectrics and silicon germanium epitaxy. The semiconductor industry and the
semiconductor equipment industry are subject to rapid technological change and
frequent introductions of enhancements to existing products. Technological
trends have had and will continue to have a significant impact on our business.
Our results of operations and ability to remain competitive are largely based
upon our ability to accurately anticipate customer and market requirements. Our
success in developing, introducing and selling new and enhanced products depends
upon a variety of factors, including:
- accurate technology and product selection;
- timely and efficient completion of product design and
development;
- timely and efficient implementation of manufacturing and
assembly processes;
- product performance in the field; and
- product support and service and effective sales and marketing.
We may not be able to accurately forecast or respond to commercial and
technical trends in the semiconductor industry or to specific product
announcements by our competitors. Our competitors may be developing technologies
and products that are more effective than ours or that may otherwise achieve
more widespread acceptance. In addition, we may incur substantial unanticipated
costs to ensure the functionality and reliability of our current and future
products. If our products are unreliable or do not meet our customers'
expectations, then reduced orders, higher manufacturing costs, delays in
collecting accounts receivable, or additional service and warranty expense could
result. We have experienced delays from time to time in the introduction of, and
some technical and manufacturing difficulties with, some of our systems and
enhancements. 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
negatively impact our ability to generate the return we intend to achieve on our
investments in these new products.
WE FACE COMPETITION OR POTENTIAL COMPETITION FROM COMPANIES WITH GREATER
RESOURCES THAN OURS, AND IF WE ARE UNABLE TO COMPETE EFFECTIVELY WITH THESE
COMPANIES, OUR MARKET SHARE MAY DECLINE AND OUR BUSINESS COULD BE HARMED.
We face 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, Novellus, Tokyo
Electron, and Kokusai. Our primary competitors in the back-end business include
Kulicke & Soffa, ESEC, Shinkawa, Apic Yamada, BE Semiconductor, Towa, Shinko and
Mitsui. A number of our competitors have significantly greater financial,
technological, engineering, manufacturing, marketing and distribution resources
than we do. Their greater capabilities in these areas may enable them to:
- better withstand periodic downturns in the semiconductor
industry;
- compete more effectively on the basis of price and technology;
- more quickly develop enhancements to and new generations of
products; and
17
<PAGE> 18
- more effectively retain existing customers and obtain new
customers.
In addition, new companies may in the future 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:
- performance of our products;
- quality of our products;
- ease of use of our products;
- reliability of our products;
- cost of owning our products;
- our ability to ship products on the schedule required;
- quality of the technical service we provide;
- timeliness of the services we provide;
- our success in developing new products and enhancements;
- existing market and economic conditions; and
- price of our products and our competitors' products.
Many 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.
IF A SEMICONDUCTOR MANUFACTURER IS LOYAL TO ANOTHER SEMICONDUCTOR EQUIPMENT
SUPPLIER WE MAY BE UNABLE TO SELL OUR PRODUCTS TO THAT POTENTIAL CUSTOMER, AND
OUR SALES AND MARKET SHARE COULD SUFFER AS A RESULT.
We believe that once a semiconductor manufacturer has selected a
supplier's equipment for a particular product line, the general trend is that
the manufacturer will continue to rely on that supplier's equipment for future
equipment requirements, including new generations of similar products. Changing
from one equipment supplier to another is expensive and requires a substantial
investment of resources by the customer. Accordingly, we expect to experience
difficulty in achieving significant sales to a customer using another supplier's
equipment. However, at the same time, we cannot assure you that our existing
customers will continue to use our equipment in the future. Our inability to
sell our products to potential customers using another supplier's equipment
could make it difficult for us to increase our revenues or market share.
OUR RELIANCE ON A PRIMARY SUPPLIER COULD RESULT IN DISRUPTION OF OUR OPERATIONS.
We are currently outsourcing a substantial majority of the
manufacturing of our front-end furnace and epitaxial reactors to a single
supplier, Philips Machinefabrieken Nederlands B.V. based in the Netherlands.
Sales of these products represented 27% of our total sales for 1999. If Philips
Machinefabrieken becomes unable to deliver products to us for any reason,
including natural disaster, labor unrest or supply chain management problems, we
18
<PAGE> 19
may be unable to fill customer orders on a timely basis, if at all, which could
negatively affect our financial performance and may also harm our reputation.
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 THEY
RESCHEDULE, REDUCE OR CANCEL ORDERS, OUR REVENUES WOULD BE REDUCED AND OUR
FINANCIAL RESULTS WOULD SUFFER.
Our largest customers account for a significant percentage of our
revenues. In 1999, sales to our single largest customer accounted for
approximately 11% of our total sales. During 1999, our ten largest customers
accounted for approximately 43% of our total sales. Sales to 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 these
customers may cancel purchase orders or reschedule or decrease their level of
purchases from us. Any substantial decrease or delay in sales to one or more of
our key customers could harm our sales and financial results. In addition, any
difficulty in collecting amounts due from one or more key customers could harm
our financial results.
OUR PRODUCTS GENERALLY HAVE LONG SALES CYCLES AND IMPLEMENTATION PERIODS, WHICH
INCREASES OUR COSTS IN OBTAINING ORDERS AND REDUCES THE PREDICTABILITY OF OUR
EARNINGS.
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. The sales cycles of
our products often last for many months or even years. Longer sales cycles
require us to invest significant resources in attempting to make sales and delay
the generation of revenue.
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
operating results.
OUR DEPENDENCE ON KEY PERSONNEL MAY NEGATIVELY IMPACT OUR ABILITY TO MANAGE
GROWTH.
We have historically encountered operational difficulties arising from
our having an insufficient number of key personnel, particularly management and
technical personnel. 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. 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 operational
personnel to manage that growth and may not be able to attract the personnel
needed. We do not maintain insurance to protect against the loss of key
executives or employees. Further, we have agreements with some, but not all,
employees, restricting their ability to compete with us after their employment
terminates. 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
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<PAGE> 20
- the ability of our officers and key employees to continue to
expand, train and manage our employee base.
WE ARE DEPENDENT UPON OUR WORLDWIDE SALES AND OPERATIONS; 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. We
have assembly facilities in the Netherlands, the United States, Japan, Hong Kong
and Singapore, and manufacturing facilities in China.
We are subject to the risks inherent in doing business internationally,
including:
- unexpected changes in regulatory requirements;
- fluctuations in exchange rates and currency controls;
- political and economic conditions and instability;
- imposition of trade barriers and restrictions, including
changes in tariff and freight rates;
- the difficulty of coordinating our management and operations
in several different countries;
- limited intellectual property protection in some countries;
- longer accounts receivable payment cycles in some countries;
- in the case of our operations in Asia, the risk of business
interruption and damage from earthquakes; and
- the burdens of complying with a variety of foreign laws.
In particular, our operations in China will be subject to the economic
and political uncertainties affecting that country. For example, the Chinese
economy has experienced significant growth in the past decade, but such growth
has been uneven across geographic and economic sectors and has recently been
slowing. This growth may continue to decrease and any slowdown may have a
negative effect on our business. The Chinese economy is also experiencing
deflation which may continue in the future.
OUR OPERATIONAL RESULTS COULD BE NEGATIVELY IMPACTED BY CURRENCY FLUCTUATIONS.
As of January 1, 1999, the Netherlands, the location of our
international headquarters, adopted a second legal currency, the Euro, in
addition to the Netherlands guilder. The Euro will become the sole currency in
2002. On December 31, 1998, the European Economic and Monetary Union permanently
fixed the exchange rate of the Netherlands guilder to the Euro at 1 Euro to
2.20371 Nlg.
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, the functional currency. 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 functional currencies
of those subsidiaries are not hedged. These net translation exposures are taken
into shareholders' equity. As a result, our operational results are exposed to
fluctuations of various exchange rates versus the Euro.
In addition, foreign currency fluctuations may affect the prices of our
products. Prices for our products are currently denominated in United States
dollars, Euros, Netherlands guilders and Japanese yen for sales to our customers
throughout the world. If there is a significant devaluation of the currency in a
specific country, the prices
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<PAGE> 21
of our products will increase relative to that country's currency 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 operating
results will be subject to foreign exchange fluctuations.
While our management monitors our exposure to currency fluctuations,
these fluctuations could negatively impact our earnings, cash flow and financial
position.
OUR ABILITY TO COMPETE COULD BE JEOPARDIZED IF WE ARE UNABLE TO PROTECT OUR
INTELLECTUAL PROPERTY RIGHTS FROM CHALLENGES BY THIRD PARTIES.
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, non-disclosure and other contractual agreements
and technical measures to protect our proprietary rights. These agreements and
measures may not be sufficient to protect our technology from third-party
infringements, or to protect us from the claims of others. In addition, patents
issued to us may be challenged, invalidated or circumvented, our rights granted
under those 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.
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 foreign 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 United States and thus make the possibility of piracy of our
technology and products more likely in these countries. If competitors are able
to use our technology, our ability to compete effectively could be harmed.
CLAIMS OR LITIGATION REGARDING INTELLECTUAL PROPERTY RIGHTS COULD SERIOUSLY HARM
OUR BUSINESS OR REQUIRE US TO INCUR SIGNIFICANT COSTS.
In recent years, there has been significant litigation in the United
States in the semiconductor equipment industry involving patents and other
intellectual property rights. In the past, we have been subject to claims and
litigation regarding alleged infringement of our competitors' intellectual
property rights. We could become subject to litigation in the future either to
protect our intellectual property rights or as a result of allegations that we
infringe others' intellectual property rights.
Approximately one year ago we received a notice of a claimed
infringement of a competitor's patent. After consultation with patent counsel,
we believe that the claim is without merit. Nonetheless, we have engaged in
discussions with the claimant concerning other potential business relationships
with the intent of achieving a mutually beneficial resolution of this matter. If
such discussions are not successful, then the allegation, any resulting lawsuit
or any relief which may be granted by the court in any such lawsuit could have
adverse effects of the types described in the list following the next paragraph.
This claim will and any other claims that our products infringe
proprietary rights would force us to defend ourselves and possibly our customers
or manufacturers against the alleged infringement. These claims and any
resulting lawsuit, if successful, have subjected us and could again subject us
to significant liability for damages and invalidation of our proprietary rights.
These lawsuits, regardless of their success, would likely be time-consuming and
expensive to resolve and would divert management time and attention. Any
potential intellectual property litigation could force us to do one or more of
the following:
- lose our proprietary rights;
- stop manufacturing or selling our products that incorporate
the challenged intellectual property;
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<PAGE> 22
- obtain from the owner of the infringed intellectual property
right a license to sell or use the relevant technology, which
license may not be available on reasonable terms or at all and
may involve significant royalty payments;
- pay damages, including treble damages and attorney's fees in
some circumstances; or
- redesign those products that use such technology.
If we are forced to take any of the foregoing actions, our business
could be severely harmed.
In October 1997, we entered into a settlement agreement to dismiss
patent infringement litigation with Applied Materials, the selling shareholder.
We entered into worldwide, non-exclusive and royalty-bearing license agreements
on all of the litigated patents and on additional patents that were not part of
the litigation. We granted Applied Materials worldwide, non-exclusive license
agreements on a number of our patents that we were enforcing during this
litigation. All licenses expire at the end of the life of the underlying
patents. In addition, the settlement agreement provides covenants for limited
periods during which the parties will 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. The covenants last for different
periods of time for different products and have already expired as to some
products. Applied Materials can file new litigation after these covenants
expire. Also, litigation between the parties on other matters or the operation
of the settlement agreement itself could occur. Future litigation with Applied
Materials, which has greater financial resources than we do, could negatively
impact our earnings and our financial position.
OUR OPERATIONS ARE SUBJECT TO ENVIRONMENTAL LAWS THAT MAY EXPOSE US TO
LIABILITIES FOR NONCOMPLIANCE.
We are subject to a variety of governmental regulations relating to the
use, storage, discharge, handling, manufacture and disposal of the toxic or
other hazardous chemical by-products of, and water used in, our manufacturing
processes. Environmental claims against us or our failure to comply with any
present or future regulations could result in:
- the assessment of damages or imposition of fines against us;
- the suspension of production of our products; or
- the cessation of our operations.
New regulations could require us to acquire costly equipment or to
incur other significant expenses. Our failure to control the use or adequately
restrict the discharge of hazardous substances could subject us to future
liabilities, which could negatively impact our earnings and financial position.
IF WE ARE NOT ABLE TO APPLY OUR NET OPERATING LOSSES AGAINST TAXABLE INCOME IN
FUTURE PERIODS, OUR FINANCIAL RESULTS WILL BE HARMED.
Our future net income and cash flow will be affected by our ability to
apply our net operating losses, which totaled approximately (euro)275.0 million
for tax reporting purposes as of December 31, 1999, against taxable income in
future periods. Changes in tax laws in the jurisdictions in which we operate may
limit our ability to utilize our net operating losses. Any limitation on our
ability to utilize our net operating losses could harm our financial results.
See Note G of Notes to Consolidated Financial Statements.
In addition, the use of our net operating losses available in the
United States could become subject to limitation under Section 382 of the United
States Internal Revenue Code in the event of an "ownership change." Under
Section 382, the maximum amount of net operating losses that we could use
annually against our United States taxable income following an "ownership
change" would be limited, generally, to the value of ASM America immediately
prior to the ownership change, subject to certain adjustments, multiplied by a
rate published monthly by the IRS, which was approximately 5.84% in March 2000.
We would have an ownership change generally if the percentage of our common
shares owned by 5% shareholders,
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<PAGE> 23
counting only 5% shareholders whose ownership has increased and treating certain
public groups as 5% shareholders, increases during a three-year testing period
by more than 50 percentage points.
ALTHOUGH WE ARE A MAJORITY 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.
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, 1999, we owned 50.01% of ASM Pacific Technology through our
wholly-owned subsidiary, ASM Netherlands Antilles N.V., a Netherlands Antilles
company, and the remaining 49.99% of ASM Pacific Technology was owned by the
public.
Although four of the six directors of ASM Pacific Technology are
affiliates of ASM International, they are under no obligation to enter into
transactions that are beneficial to us. Issues and conflicts of interest may
arise which might not be resolved in our best interests.
In addition, the directors of ASM Pacific Technology are under no
obligation to declare a payment of dividends to ASM Pacific Technology's
shareholders. As a shareholder of ASM Pacific Technology, we can approve the
payment of dividends, but cannot compel their payment or size. With respect to
the payment of dividends, the directors must consider the financial position of
ASM Pacific Technology after the dividend. Since a substantial portion of our
cash flows derives from the dividends we receive from ASM Pacific Technology,
its failure to declare dividends in any year would have a significant negative
impact on our cash position for that year.
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 three of the four affiliates of ASM International who currently serve
on the board of ASM Pacific Technology from voting on any such transaction. In
addition, an independent committee of the board of directors of ASM Pacific
Technology and the shareholders other than ASM International and its affiliates
must approve transactions involving both entities. Therefore, while our
interests and the interests of ASM Pacific Technology may be aligned to the
extent we are both part of the same corporate group, there can be no guarantee
that the directors of ASM Pacific Technology will not take any actions that
could be detrimental to us.
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 Takeover Code. For
example, under the Hong Kong Takeover Code, we would be excluded from voting if
we were directly involved in a takeover of ASM Pacific Technology.
ASM PACIFIC TECHNOLOGY IS A CONSOLIDATED SUBSIDIARY WHICH GENERATES A
SIGNIFICANT PORTION OF OUR NET SALES, EARNINGS FROM OPERATIONS AND NET EARNINGS;
ALTHOUGH WE CURRENTLY ARE A MAJORITY SHAREHOLDER, WE MAY NOT BE ABLE TO MAINTAIN
OUR MAJORITY INTEREST, IN WHICH CASE THERE IS A SIGNIFICANT RISK THAT WE WOULD
NO LONGER BE ABLE TO CONSOLIDATE ITS RESULTS OF OPERATIONS WITH OURS, WHICH
WOULD HAVE A SIGNIFICANT NEGATIVE EFFECT ON OUR CONSOLIDATED EARNINGS FROM
OPERATIONS.
We derive 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 with our results. As of December 31, 1999, we owned
50.01% of the equity of ASM Pacific Technology. If we do not maintain our
majority interest in ASM Pacific Technology, there is a significant risk that we
would no longer be able to consolidate its results of operations with ours. Any
such determination of whether we could continue to consolidate would be based on
whether we still have a "controlling financial interest" in ASM Pacific
Technology within the meaning of United States generally accepted accounting
principles. If we were to become unable to consolidate the results of operations
of ASM Pacific Technology with our results, the results of operations of ASM
Pacific Technology would no longer be included in our earnings from operations
but would instead be reflected as a separate line-item called "income from
minority interest" in our consolidated statements of operations. This would have
a significant negative effect on our
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<PAGE> 24
consolidated earnings from operations. We maintain our majority interest in ASM
Pacific Technology by purchasing shares on the open market from time to time as
necessary. ASM Pacific Technology has an employee share incentive program
pursuant to which it can issue up to an aggregate of five percent of its total
issued shares, excluding shares subscribed for or purchased under the program,
to directors and employees as an incentive. When ASM Pacific Technology issues
shares pursuant to this program, our ownership interest is diluted. In addition,
our controlling interest could be diluted if ASM Pacific Technology issues
additional equity. Although we intend to continue to purchase shares of ASM
Pacific Technology in the open market as necessary to maintain our majority
interest, we could lose our majority position if there is an insufficient number
of shares available for purchase, if we fail to purchase shares in a timely
manner, or if we do not have sufficient financial resources to purchase shares
when our interest falls below 50.0%.
OUR DIRECTORS AND OFFICERS CONTROL APPROXIMATELY 27% OF OUR VOTING POWER AND
THEREFORE HAVE SIGNIFICANT INFLUENCE OVER MATTERS DETERMINED BY OUR
SHAREHOLDERS.
Our directors and officers control approximately 27% of our voting power
as of February 29, 2000. Accordingly, in the event they vote together in
connection with matters submitted to a shareholder vote, such as the appointment
of our management board by the shareholders, they will have significant
influence on the outcome of those matters and on our direction and future
operations.
ANY ACQUISITIONS WE MAY MAKE COULD DISRUPT OUR BUSINESS AND SEVERELY HARM OUR
FINANCIAL CONDITION.
We intend to consider investments in complementary companies, products
or technologies. While we have no current agreements or specific plans to do so,
we may acquire businesses, products or technologies in the future. In the event
of any future acquisitions, we could:
- issue stock that would dilute our current shareholders'
percentage ownership;
- incur debt;
- assume liabilities;
- incur amortization expenses related to goodwill and other
tangible assets; or
- incur large and immediate accounting write-offs.
Our operation of any acquired business will also involve numerous
risks, including:
- 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; and
- potential loss of key employees, particularly those of the
purchased organizations.
We may not be able to successfully integrate any businesses, products
or technologies or personnel that we might acquire in the future and also may
not realize any anticipated benefits from those acquisitions.
IF WE FAIL TO ADEQUATELY INVEST IN RESEARCH AND DEVELOPMENT, WE MAY BE UNABLE TO
COMPETE EFFECTIVELY.
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<PAGE> 25
We have limited resources to allocate to research and development, and
must allocate our resources among a wide variety of projects in the front-end
and back-end. Because of intense competition in our industry, the cost of
failing to invest in strategic products is high. If we fail to adequately invest
in research and development, we may be unable to compete effectively in the
front-end and back-end markets in which we operate.
WE MAY NEED ADDITIONAL FUNDS TO FINANCE OUR FUTURE GROWTH, AND IF WE ARE UNABLE
TO OBTAIN SUCH FUNDS, WE MAY NOT BE ABLE TO EXPAND OUR BUSINESS AS PLANNED.
In recent years, we have experienced severe capital constraints that
may have seriously harmed our operations and ability to compete. We may require
substantial additional capital to finance our future growth and fund our ongoing
research and development activities beyond 2000. Our capital requirements depend
on many factors, including acceptance of and demand for our products, and the
extent to which we invest in new technology and research and development
projects.
To the extent that our existing sources of liquidity and cash flow from
operations are insufficient to fund our activities, we may need to raise
additional funds. 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 we may incur significant
interest costs. Additional financing may not be available to us when needed or,
if available, it may not be available on terms favorable to us.
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, 1999 and December 31, 1999, the sales price of our
common shares, as reported on the Nasdaq National Market, has ranged from a low
of $3.63 to a high of $24.38 and from a low of (euro)3.55 to a high of
(euro)24.00 as reported on the AEX-Stock Exchange in Amsterdam. The market price
of our common shares will continue to be subject to significant fluctuations in
the future in response to a variety of factors, including the risk factors
discussed above and the following:
- 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;
- developments in the financial markets;
- quarterly fluctuations in operating results; or
- general conditions in the semiconductor and semiconductor
equipment industries.
Furthermore, stock prices for many companies, and high technology
companies in particular, fluctuate widely for reasons that may be unrelated to
their operating results.
Those fluctuations and general economic, political and market
conditions, such as recessions or international currency fluctuations, may
adversely affect the market price of our common shares.
YOU MAY HAVE DIFFICULTY PROTECTING YOUR RIGHTS AS A SHAREHOLDER AND IN ENFORCING
CIVIL LIABILITIES BECAUSE WE ARE A NETHERLANDS LIMITED LIABILITY COMPANY.
25
<PAGE> 26
Our affairs are governed by our articles of association and by the laws
governing limited liability companies formed in the Netherlands. Our executive
offices and the majority of our assets are located outside the United States. In
addition, most of the members of our management board and supervisory board,
executive officers, and some of the experts named in this prospectus are
residents of jurisdictions other than the United States. As a result, it may be
difficult for investors to serve process within the United States upon us,
members of our management board or supervisory board, our executive officers, or
experts named in this prospectus or to enforce against them in United States
courts judgments of those courts, to enforce outside the United States judgments
obtained against them in United States courts, or to enforce in United States
courts judgments obtained against them in courts in jurisdictions outside the
United States, in any action, including actions that derive from the civil
liability provisions of the United States securities laws. In addition, it may
be difficult for investors to enforce, in original actions brought in courts in
jurisdictions located outside the United States, liabilities that derive from
the United States securities laws. For a more complete discussion of potential
difficulties in protecting your rights, see "Enforceability of Civil
Liabilities" later in this prospectus.
OUR ANTI-TAKEOVER PROVISIONS AND OUR SETTLEMENT AGREEMENT WITH APPLIED MATERIALS
MAY PREVENT A BENEFICIAL CHANGE IN CONTROL.
Our shareholders have granted to Stichting Continuiteit ASMI, or
Stichting, a non-membership organization with a board comprised of our President
and Chief Executive Officer, the Chairman of our Supervisory Board and three
independent members, the right to acquire and vote our preferred shares to
maintain the continuity of our company. Toward that objective, Stichting will
evaluate, when called for, whether a takeover offer is in our best interest, and
may if it determines appropriate acquire preferred shares with voting power
equal to 50% of the voting power of the outstanding common shares. This is
likely to be sufficient to enable it to prevent a change of control from
occurring.
Pursuant to a settlement agreement with Applied Materials, one of our
competitors and the selling shareholder under this prospectus, if we desire to
effectuate a change of control transaction, as defined in our settlement
agreement with Applied Materials, with a competitor of Applied Materials, we
must 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 arms-length offer made by that competitor. In case Applied Materials
rejects the offer, we are free for 90 days following receipt of Applied
Materials' rejection to enter into an agreement to sell at an equal or greater
price and upon terms which, in the aggregate, are no more favorable to the buyer
than those offered to Applied Materials.
These provisions may prevent us from being offered or entering into
change of control transactions that may otherwise offer you an opportunity to
sell your shares at a premium over the market price.
ITEM 2. DESCRIPTION OF PROPERTY
The description of the Company's facilities contained in "Item 1 -
Description of Business Manufacturing and Facilities" of this Form 20-F is
incorporated herein by this reference.
We also lease space for sales and service offices in Wokingham,
England; Haar, Germany; Montpellier, France; Austin, Texas; San Jose,
California; Taipei, Taiwan; Makati Manila, Philippines; Osaka, Kumamoto, Japan;
and certain other locations.
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<PAGE> 27
For further information regarding our obligations under leases, see Note L of
the Notes to Consolidated Financial Statements.
ITEM 3. LEGAL PROCEEDINGS
From time to time, we may be subject to litigation and claims incident
to our business. As of December 31, 1999, we are not involved in any litigation
which could materially affect our financial position.
ITEM 4. CONTROL OF REGISTRANT
We are not directly or indirectly owned or controlled by another
corporation or by any government.
The following table sets forth information with respect to the
ownership of our common shares as of February 29, 2000 certain information with
respect to the ownership of our outstanding common shares by each owner of more
than 10% of our common shares and by all of our officers and directors as a
group:
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT
---------------- -------
<S> <C> <C>
Stichting Administratiekantoor ASMI
Jan van Eycklaan 10,
3723 BC Bilthoven,
the Netherlands(1)............. 7,692,039 18.2%
All officers and directors as a group
(13 persons)(2)................ 11,501,425 27.2%
</TABLE>
- ----------
(1) Our President, Arthur H. del Prado controls Stichting
AdministrieKantoor ASMI, a foundation incorporated under the laws of
the Netherlands which has issued depositary receipts (certificaten van
aandelen) for the common shares held by it.
(2) Includes (a) the 7,692,039 common shares shown in the table above that
are owned by Stichting Administratiekantoor ASMI, a foundation
controlled by our President, Arthur H. del Prado, (b) 3,012,253 common
shares owned by Mr. del Prado including some shares owned indirectly
through members of his immediate family, and (c) 797,131 common shares
owned directly or indirectly by other officers and directors, 300,000
of which are owned by supervisory directors.
On May 28, 1997, we entered into an agreement with Stichting
Continuiteit ASMI, or Stichting, pursuant to which Stichting was granted an
option to acquire up to that number of our preferred shares that has a total par
value equal to 50% of the par value of our common shares issued and outstanding
at the date of the exercise. Stichting is a non-membership organization
organized under Netherlands law. The objective of Stichting is to own and vote
our preferred shares in order to maintain our continuity in case of a takeover
attempt. Toward that objective, Stichting will evaluate, when called for,
whether a takeover offer is in our best interests. The AEX-Stock Exchange in
Amsterdam requires that a majority of the board members of Stichting be
unrelated to us. As of December 31, 1999, the members of the board of Stichting
are:
<TABLE>
<S> <C>
Arthur H. del Prado President and Chief Executive Officer, ASM International
Paul C. van den Hoek Chairman of the Supervisory Board, ASM International
Michiel J.C. van Galen Consultant
Rinze Veenenga Kingma Consultant to the Executive Board, Delft Instruments N.V.
Laurus Traas Emeritus Professor, Amsterdam University
</TABLE>
We are unaware of any arrangement which it anticipates will result in a
change in its control.
ITEM 5. NATURE OF TRADING MARKET
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<PAGE> 28
Of our 42,220,979 outstanding Common Shares at February 29, 2000, 8,317,039 are
registered with us in the Netherlands, 11,530,722 shares are registered with a
transfer agent in the Netherlands, and 22,373,218 are registered with a transfer
agent in the United States. The common shares registered with Citibank, N.A.,
New York in the United States are quoted on the Nasdaq National Market under the
symbol "ASMI." As of February 29, 2000 our common shares listed on the Nasdaq
National Market were held by approximately 242 holders of record. The following
table sets forth, for the periods indicated, the high ask and low bid prices of
our common shares, as reported on the Nasdaq National Market:
<TABLE>
<CAPTION>
High Ask and Low Bid Prices
---------------------------
1999: High Low
---- ---
<S> <C> <C>
First Quarter $ 6.75 $ 3.63
Second Quarter $ 7.88 $ 3.69
Third Quarter $ 9.00 $ 7.00
Fourth Quarter $24.38 $ 7.50
1998:
First Quarter $13.13 $ 9.13
Second Quarter $11.25 $ 7.88
Third Quarter $ 9.75 $ 4.25
Fourth Quarter $ 6.38 $ 2.44
</TABLE>
The common shares registered with ABN AMRO Bank N.V., Breda, the
Netherlands, are issued either as bearer form or as registered shares at the
option of the shareholder and are traded on the AEX-Stock Exchange in Amsterdam
under the symbol "ASMI." As a consequence of the introduction of the Euro as the
second legal currency in the Netherlands and other European countries, the
AEX-Stock Exchange changed the pricing of our common shares from Netherlands
guilder to the Euro effective January 1, 1999. The Netherlands guilder has a
permanently fixed exchange rate of 1 Euro to 2.20371 Nlg. The following table
sets forth the high and low closing sales of our common shares, as reported on
the AEX-Stock Exchange:
<TABLE>
<CAPTION>
Closing Sales Prices
--------------------
1999: High Low
---- ---
<S> <C> <C>
First Quarter (euro) 5.60 (euro) 3.55
Second Quarter (euro) 7.70 (euro) 3.55
Third Quarter (euro) 8.40 (euro) 6.75
Fourth Quarter (euro)24.00 (euro) 7.00
1998:
First Quarter Nlg.27.80 Nlg.17.60
Second Quarter Nlg.23.50 Nlg.16.60
</TABLE>
28
<PAGE> 29
<TABLE>
<S> <C> <C>
Third Quarter Nlg.20.80 Nlg.7.90
Fourth Quarter Nlg.11.80 Nlg.4.40
</TABLE>
29
<PAGE> 30
ITEM 6. EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS
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 our Articles
of Association restrict remittances to non-resident shareholders or the right to
hold or vote such securities.
ITEM 7. TAXATION
The following is a brief summary of relevant Netherlands and United States tax
provisions. This summary does not address Netherlands tax consequences for
security holders who are residents of jurisdictions other than the United States
or the Netherlands. Such persons should consult their own tax advisors regarding
the tax consequences to them of purchasing, owning and disposing common shares.
SUMMARY OF NETHERLANDS TAX PROVISIONS APPLICABLE TO UNITED STATES SECURITY
HOLDERS
The following statements below represent a brief summary of the current
Netherlands tax laws, based on the law as in force at December 31, 1999. The
description is limited to the tax implications for a shareholder who is, or is
deemed to be, a resident of the United States and not the Netherlands for
purposes of the relevant tax codes. The description does not address residents
of other countries or special rules that may apply to special classes of holders
of shares and is not to be read as extending by implication to matters not
specifically referred to herein. As to individual tax consequences, each
shareholder should consult his own tax counsel.
Withholding Tax
In general, a dividend distributed by a company resident in the Netherlands is
subject to a withholding tax imposed by the Netherlands at a statutory rate of
25%. Dividends include dividends in cash or in kind, constructive dividends,
repayment of paid-in capital not recognized for Netherlands tax purposes and
liquidation proceeds in excess of paid-in capital recognized for Netherlands tax
purposes. Share dividends paid out of our paid-in-share premium, recognized as
capital for Netherlands tax purposes, are not subject to the above withholding
tax.
Any individual or corporation or any entity for Netherlands tax purposes, which
holds common shares and does not reside and is not deemed to reside in the
Netherlands, owning, or deemed to own, common shares may be eligible for a
partial or complete exemption from or a refund of the above withholding tax
under a tax convention that is in effect between the country of residence of
such individual or corporation and the Netherlands. The Netherlands has
concluded such tax conventions with several countries, including the United
States, Canada, Switzerland, Japan, all European Union member states, except
Portugal, and many other countries. For residents of the Netherlands Antilles
and Aruba, the tax arrangements of the Kingdom of the Netherlands may be
applicable.
Under the Tax Convention of December 18, 1992 concluded between the Netherlands
and the United States, or the U.S. Tax Treaty, dividends paid by us to a
resident of the United States, other than an exempt organization or exempt
pension trust, as discussed below, are generally eligible for a reduction of the
25% Netherlands withholding tax to 15%, or to 5% in the case of certain U.S.
corporate shareholders owning at least 10% of the voting power, 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 and to which enterprise or part of
an enterprise the common shares are attributable. The U.S. Tax Treaty provides
for a complete exemption from Netherlands withholding tax for dividends received
by exempt pension trusts and exempt organizations, as defined therein. Except in
the case of exempt organizations, such reduced dividend withholding rate, or
exemption from withholding for exempt pension trusts, can be applied at the
source upon payment of the dividends, provided that the proper forms have been
filed in advance of the payment. Exempt organizations remain subject to the
statutory withholding rate of 25% and are required to file for a refund of such
withholding.
A person may not claim the benefits of the U.S. Tax Treaty unless (i) he or she
is a resident of the United States as defined therein and (ii) such person's
entitlement to such benefits is not limited by the provisions of Article 26
("limitation on benefits") of the U.S. Tax Treaty.
No withholding tax applies to the sale or disposition of common shares to
persons other than us or our affiliates, as defined for purposes of Netherlands
tax law.
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Income Tax and Corporation Income Tax on Dividends
In the case of common shares held by a Netherlands-resident entity, any gains
derived from the transfer of common shares are subject to Netherlands
corporation tax, unless the entity in question qualifies for the participation
exemption. A non-resident individual or corporate shareholder will not be
subject to Netherlands income tax with respect to dividends distributed by us on
the or with respect to capital gains derived from the sale or disposition of our
common shares, provided that:
(a) the non-resident 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;
(b) the non-resident shareholder does not have a direct or indirect
substantial or deemed substantial interest in our share capital as defined
in the Netherlands tax code or, in the event the shareholder does have such
a substantial interest, such interest is a business asset; and
(c) the non-resident shareholder is not entitled to a share in the profits
of an enterprise effectively managed in the Netherlands other than by way of
securities or through an employment contract to which enterprise the common
shares are attributable.
In general terms, a substantial interest in our share capital does not exist if
the shareholder alone or together with certain relatives does not own, and has
not owned in the preceding five years, 5% or more of the aggregate paid-in
capital or of the paid-in capital of any class of our shares.
Net Wealth Tax
Corporations and other entities are not subject to wealth tax.
In general, an individual shareholder will be liable for 0.7% Netherlands wealth
tax regarding the common shares. A tax free threshold applies. Corporate
shareholders are not subject to Netherlands net wealth tax. A non-resident
individual shareholder is not subject to Netherlands net wealth tax with respect
to the common shares, provided that:
(a) the non-resident 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; and
(b) the non-resident shareholder is not entitled to a share in the profits
of an enterprise effectively managed in the Netherlands other than by way of
securities or through an employment contract to which enterprise the common
shares are attributable.
Gift and Inheritance Tax
In principle, liability for Netherlands 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 at the time of the gift or death in the Netherlands.
A gift or inheritance of common shares from a non-resident shareholder will not
be subject to Netherlands gift and inheritance tax, provided that;
(a) the non-resident 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;
(b) the non-resident shareholder is not entitled to a share in the profits
of an enterprise 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
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(c) the non-resident shareholder makes a gift of shares and dies within 180
days after the date of the gift, while being resident or deemed to be
resident in the Netherlands at the moment of his death.
For the purposes of Netherlands gift and inheritance tax, a Netherlands national
is deemed to be a resident of the Netherlands if he has been a resident thereof
at any time during the ten years preceding the date of the gift or death, as the
case may be. In addition, for the purposes of Netherlands gift tax, a person not
possessing Netherlands nationality is also deemed to be a Netherlands resident,
irrespective of his nationality, if he was a Netherlands resident therein at any
time in the twelve months preceding the time on which the gift was made.
SUMMARY OF NETHERLANDS TAX PROVISIONS APPLICABLE TO NETHERLANDS SECURITY HOLDERS
The following summary is intended as a general guide only. It is based on
certain aspects of current Netherlands tax law, including jurisprudence and
other regulations, in force on December 31, 1999, without prejudice to any
amendments introduced at a later date and implemented with a possible
retroactive effect. No conclusions may be drawn from the following summary as
regards topics that have not been included in this summary. This summary only
relates to prospective holders of common shares resident in the Netherlands for
tax purposes who hold their common shares as investments, and not as assets to
be realized in the course of a trade, and does not deal with certain categories
of shareholders.
This summary does not deal with all categories of shareholders and is not
intended as an exhaustive review of all tax aspects of holding our shares. Any
shareholder who is in doubt about his tax position is strongly recommended to
consult an appropriate professional tax advisor for information on the tax
consequences that the purchase, ownership and disposition of our common shares
may involve.
Dividend Tax
In general, under the 1965 Dividend Tax Act (Wet op de dividendbelasting 1965)
we are required to withhold 25% dividend tax on distributions payable by us to
our shareholders. The tax is withheld by us and paid to the Netherlands Tax
Authorities. The dividend tax withheld by us can generally be credited against
the Netherlands individual income tax and Netherlands corporate income tax.
Dividend tax does not apply to stock dividends that are debited from our share
premium account, to the extent that the share premium account has been
recognized as paid-in capital for Netherlands tax purposes.
We are generally not required to withhold dividend tax on dividend distributions
when the dividend is paid to corporate shareholders whose shareholding qualifies
for the participation exemption as defined in the 1969 Corporate Income Tax Act
(Wet op de vennootschapsbelasting 1969). Furthermore, dividend tax is not levied
when the dividend is paid to qualifying corporate shareholders resident in
European Union Member States, provided that these corporate shareholders have a
qualifying interest in our share capital, as defined in the 1965 Dividend Tax
Act and certain other conditions are met.
Individual and Corporate Income Tax for Resident Shareholders
When shares are owned by individual shareholders who are resident, or deemed
resident in the Netherlands, the taxation of income derived from the
shareholding and/or capital gains realized on the disposal of the shares depends
on various circumstances, including the tax status of the individual, the
percentage of the interest in our share capital held by the individual, and
certain other factors.
In general, a resident, or deemed resident, individual shareholder will be
subject to Netherlands individual income tax on the income derived from the
shareholding. Stock dividends, or bonus shares are not subject to Netherlands
individual income tax, provided that the stock dividends are debited from our
share premium account, as recognized for Netherlands tax purposes, and the
shareholder does not have an enterprise to which the shares are attributable.
For a resident or deemed resident individual shareholder, capital gains realized
on the disposal of shares are
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generally not subject to Netherlands taxation, provided that the shareholder
does not have an enterprise to which the shares are attributable; or a
substantial interest in us as described below.
The resident, or deemed resident, individual shareholder who holds, or is deemed
to hold, a substantial interest in our share capital, will in general be subject
to Netherlands individual income tax on both dividend income derived from the
shareholding and on capital gains realized on the disposal of the shares. Both
the dividend income and capital gains will be taxed at a flat rate of 25%. In
general, a substantial interest is considered to be held by a natural person
when he or she together with his or her spouse holds a direct or indirect
participating interest of 5% or more in our issued share capital. An option to
obtain at least 5% of the shares or a certificate that gives the right to at
least 5% of the profits also qualifies as a substantial interest. In this
context, the term "spouse" refers to any partner with whom the taxpayer
concerned has maintained a joint household for an uninterrupted period of at
least six months during a single calendar year, and who is registered as a
resident at the same address as the taxpayer concerned. Holders of common shares
who do not hold a substantial interest themselves also come under the
substantial interest regime if their spouse and/or first degree relatives and
in-laws directly related to them do hold a substantial interest.
Provided that for Netherlands individual income tax purposes the shares
constitute a source of income, interest payments relating to the financing of
the acquisition of a substantial shareholding are generally deductible at a rate
of 25%.
A resident, or deemed resident, individual shareholder who does not hold a
substantial interest in us may use his dividend exemption of Nlg. 1,000 per
annum, Nlg. 2,000 for married individuals.
When shares are owned by a corporate shareholder resident, or deemed resident,
in the Netherlands, income derived from the shareholding and capital gains
realized on the disposal of the shares are in principle subject to Netherlands
corporate income tax, unless the shareholding qualifies for the participation
exemption. In general the participation exemption applies when the shareholding
constitutes at least 5% of our nominal issued and paid-in share capital.
Net Wealth Tax
Netherlands net wealth tax applies to individuals only. Individuals who are
resident, or deemed resident, in the Netherlands are subject to Netherlands net
wealth tax on their net assets, when those assets comprise our shares. The
applicable tax rate is 0.7%. Certain exemptions are available and a tax-free
allowance is applicable.
Gift Tax, Estate or Inheritance Tax
Gift tax and estate or inheritance tax is generally due in the Netherlands when
shares are given as a gift or inherited, provided that the donor or deceased is
or was a resident or is or was deemed resident of the Netherlands. Here certain
deeming rules apply if the donor or deceased has, or had the Netherlands
nationality and was, or has been a resident of the Netherlands. Gift tax and
estate or inheritance tax is levied against the acquiring party. If the donor or
deceased is not or was not a resident, or is not or was not deemed resident, of
the Netherlands, no gift tax, or estate or inheritance tax will be levied,
provided that the donor or deceased does not or did not own an enterprise, or an
interest in an enterprise, whose business is entirety or partly carried on
through a permanent establishment, or representative in the Netherlands, to
which, or to whom, the shares are or were attributable. Furthermore, inheritance
tax will be levied in case of a gift of shares by an individual who at the time
of the gift was neither resident nor deemed to be resident in the Netherlands
and such individual dies within 180 days after the date of the gift, while being
resident or deemed to be resident in the Netherlands at the time of death.
Capital Tax
Capital tax at the rate of 0.9% will generally be due by our shareholders on
payments on shares issued by us.
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Taxes in the 21st Century
A legislative proposal on mainly individual income taxation was approved on
February 1, 2000 by the Second Chamber of Parliament. After approval by the
First Chamber of Parliament it will enter into force as of January 1, 2001.
This proposal will substantially change the taxation of investment income for
Netherlands resident individual shareholders not holding a substantial interest
in the common shares. Tax at a rate of 30% will be based on a fictitious yield
of 4% of the average market value of the common shares minus associated debt.
The fictitious yield will apply irrespective of actual income or capital gains.
The existing net wealth tax will be abolished.
The Netherlands income tax position for individuals holding our shares not
resident in the Netherlands will in principle remain unaltered.
SUMMARY OF US FEDERAL TAX PROVISIONS APPLICABLE TO UNITED STATES SECURITY
HOLDERS
The following is a general description of the material United States federal
income tax consequences of the ownership and disposition of the common shares.
This discussion does not purport to deal with all aspects of U.S. federal income
and estate taxation that may be relevant to holders in view of their particular
circumstances, nor does it deal with holders subject to special rules, such as
dealers in securities or currencies, financial institutions, tax exempt
organizations, insurance companies, persons holding common shares as part of a
hedging or conversion transaction or a straddle or holders of common shares
whose "functional currency" is not the U.S. dollar. Furthermore, this discussion
is based on current provisions of the Internal Revenue Code, and administrative
and judicial interpretations thereof as of the date hereof, all of which are
subject to change, possibly with retroactive effect. Prospective holders of
common 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 any state,
local and foreign tax consequences of the ownership and disposition of the
shares.
As used in this prospectus, "U.S. Holder" means a beneficial owner of shares
that is (i) an individual who is a citizen or resident of the U.S., (ii) a
corporation, partnership or other entity created or organized in the U.S. or
under the laws of the U.S. or of any state thereof, (iii) an estate the income
of which may be included in gross income for U.S. federal income tax purposes
regardless of its source, (iv) a trust if a court within the U.S. 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 some trusts in existence on August 20, 1996 that were treated as U.S.
persons under the law in effect immediately prior to that date and that make a
valid election to be treated as a U.S. person or (v) any other person or entity
that would be subject to U.S. federal income tax on a net income basis in
respect of the common shares.
Taxation of Dispositions
A U.S. Holder will recognize gain or loss for U.S. federal income tax purposes
upon the sale or other disposition of the shares in an amount equal to the
difference between the amount realized and the U.S. Holder's tax basis in the
shares. For these purposes, a U.S. Holder's tax basis in the shares generally
will equal the U.S. dollar cost of such shares to such U.S. Holder. Gain or loss
realized by a U.S. Holder on such sale or other disposition generally will be
treated as capital gain or loss, and will be long-term capital gain or loss if
the shares were held for more than one year. Any such gain generally would be
treated as 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 a maximum U.S. federal income tax rate of 20%. The
deduction of capital losses is subject to certain limitations. Prospective
investors should consult their own tax advisors in this regard.
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<PAGE> 35
Taxation of Dividends
The gross amount of any distribution, including any Netherlands taxes withheld
therefrom, with respect to the shares generally should be included in the gross
income of a U.S. Holder as foreign source dividend income to the extent paid out
of our current or accumulated earnings and profits, as determined under U.S.
federal income tax principles. To the extent that the amount of any distribution
exceeds our current and accumulated earnings and profits for a taxable year, 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 shares, and to the extent that
such distribution exceeds the U.S. Holder's adjusted tax basis in the shares
such excess will be taxed as capital gain. Distributions treated as dividends
will not be eligible for the dividends received deduction generally allowed to
corporations under the Internal Revenue Code. If a U.S. Holder receives a
dividend in Netherlands guilders or in Euros, the amount of the dividend for
U.S. federal income tax purposes will 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.
Credit for Foreign Taxes Withheld
Subject to certain conditions and limitations set forth in Sections 901 and 904
of the Code, including certain holding period requirements, foreign tax withheld
or 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 such amount of withheld
foreign taxes, but only for a year for which such U.S. Holder elects to do so
with respect to all foreign income taxes. The overall limitation on foreign
taxes eligible for credit is calculated separately with respect to specific
classes of income. 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.
Passive Foreign Investment Company
The foregoing discussion assumes that we are not currently, and will not be in
the future, classified as a "passive foreign investment company," or PFIC,
within the meaning of the Internal Revenue Code. Based on our current and
projected income, assets and activities, we do not believe we will be classified
as a PFIC for our current or any succeeding taxable year. However, if during any
taxable year, 75% or more of our gross income consists of certain types of
"passive" income, or if the average value during a taxable year of our "passive
assets," which generally are assets that produce passive income or assets held
for the production of passive income, is 50% or more of the average value of all
assets held by us, we will be classified as a PFIC for that year and in
succeeding years.
If we were classified as a PFIC, a U.S. Holder holding common shares generally
would be subject to increased tax liability (possibly including an interest
charge) upon the sale or other disposition of the shares or upon the receipt of
certain dividends, unless such U.S. Holder makes an election (1) to be taxed
currently on its pro rata portion of our income and gain, whether or not we
distribute such income or gain in the form of dividends or otherwise, or (2) to
mark its shares to market by accounting for any difference between such shares'
fair market value and adjusted basis at the end of the taxable year by either an
inclusion in income or a deduction from income. U.S. Holders should consult
their own tax advisors with respect to the PFIC issue and its applicability to
their particular situation.
Backup Withholding
In general, information reporting requirements will apply to dividends paid in
respect of the common shares and the proceeds received on the disposition of the
shares paid within the United States (and in certain cases, outside the United
States) to U.S. Holders, and such amounts may be subject to a 31% U.S. backup
withholding tax. Backup withholding will not apply, however, to a U.S. Holder
who (1) is a corporation or comes within certain other exempt categories and,
when required, demonstrates that fact, or (2) furnishes a correct taxpayer
identification number or certificate of foreign status and makes certain other
required certifications as provided by the backup withholding rules. 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 provided that
the required information is furnished to the Internal Revenue Service.
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SUMMARY OF US FEDERAL TAX PROVISIONS APPLICABLE TO NON-UNITED STATES SECURITY
HOLDERS
Holders of our shares that are not U.S. Holders ("Non-U.S. Holders") generally
will not be subject to U.S. federal income taxes, including U.S. withholding
taxes, on any gain realized on a sale, exchange or other disposition of the
shares unless, in the case of such sale, exchange or other disposition of the
shares, (i) such gain is effectively connected with the conduct by the Non-U.S.
Holder of a trade or business in the United States, and is attributable to a
permanent establishment maintained in the United States by such Non-U.S. Holder,
if an applicable tax treaty so requires as a condition for such Non-U.S. Holder
to be subject to U.S. taxation on a net income basis in respect of gain from the
sale or other disposition of shares, or (ii) in the case of gain realized by an
individual Non-U.S. Holder, the Non-U.S. Holder is present in the United States
for 183 days or more in the taxable year of sale and certain other conditions
are met.
A Non-U.S. Holder generally will not be subject to U.S. federal income or
withholding tax on dividends received on common shares, unless such income is
effectively connected with a trade or business of the Non-U.S. Holder in the
United States, and is attributable to a permanent establishment maintained in
the United States by such Non-U.S. Holder, if an applicable tax treaty so
requires as a condition for such Non-U.S. Holder to be subject to U.S. taxation
on a net income basis in respect of income from the shares.
Non-U.S. Holders may be required to comply with certification procedures in
order to establish non-U.S. status for purposes of the information reporting and
backup withholding rules. Treasury regulations recently issued by the IRS, that
are scheduled to be effective for payments after December 31, 2000, modify such
certification procedures in certain respects. Prospective investors should
consult their own tax advisors regarding the certification requirements for
Non-U.S. Holders owning shares.
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 to them of the
purchase, ownership and disposition of shares including the tax consequences
under state, local and other tax laws and the possible effects of changes in
United States federal and other tax laws.
ITEM 8. SELECTED FINANCIAL DATA
Incorporated herein by reference is Exhibit 1 to this Form 20-F
entitled "Financial Highlights and Selected Comparative Financial Data."
The following table sets forth the exchange rates between euros and
dollars for the past five years, using the U.S. dollar equivalent of 2.20371
Netherlands guilders, the permanently fixed guilder equivalent of 1 euro, as the
exchange rate between euros and dollars for periods prior to the introduction of
the euro on January 1, 1999. The exchange rates are derived from the noon buying
rate in New York City for cable transfers in foreign currencies as certified for
customs purposes by the Federal Reserve Bank of New York.
<TABLE>
<CAPTION>
U.S. DOLLAR EQUIVALENT
----------------------
Year Ended December 31, Average High Low Period close
- ----------------------- ------- ---- --- ------------
<S> <C> <C> <C> <C>
1995 1.3736 1.4392 1.2566 1.3742
1996 1.3079 1.3762 1.2592 1.2751
1997 1.1173 1.2737 1.0406 1.0866
1998 1.1109 1.2147 1.0549 1.1741
1999 1.0627 1.1812 1.0016 1.0070
</TABLE>
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We have not paid dividends on our common shares in any of the last five
years.
ITEM 9. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
See "Item 1-Description of Business- Issues and Risks" for important
factors that could cause our actual results to differ materially from those
contained in any forward-looking statement in the "Management's Discussion and
Analysis of Financial Condition and Result of Operations."
OVERVIEW
We are a leader in the design, manufacture and sale of equipment and
solutions used to produce semiconductor devices. Our production equipment and
solutions are used by both the front-end and back-end segments of the
semiconductor market. We were incorporated under the laws of the Netherlands in
1968. Throughout our history, we have conducted business through subsidiaries
located worldwide. We established our operations in Hong Kong in 1975, in the
United States in 1976, in Japan in 1982, and in Finland in 1999 through the
acquisition of Microchemistry Ltd. We completed our initial public offering in
the United States in 1981 and a secondary public offering in the United States
in 1983. Our common shares were listed on the AEX-Stock Exchange in Amsterdam in
1996.
We conduct our back-end operations through ASM Pacific Technology,
which was our wholly-owned subsidiary until 1988, when we completed an initial
public offering of 25% of its shares on the Hong Kong Stock Exchange. We have
since sold shares of ASM Pacific Technology on the open market, and as of
December 31, 1999, we owned 50.01% of its outstanding shares. ASM Pacific
Technology expanded operations with significant new production facilities in
Shenzhen, China in 1989 and Singapore in 1990, and is in the process of
completing new plants in China and Malaysia which we expect will become
operational during 2000.
The sales cycle from quotation to shipment for our front-end equipment
generally ranges from five to nine 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. If customers are unfamiliar with our equipment or
are receiving new product models, the acceptance period may take as long as ten
weeks. 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 typically is shorter than for
front-end. Generally, the majority of our back-end equipment is built in
standard configurations. We build back-end products that 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 generally are shorter than those for front-end equipment. We
provide installation, training and technical support to our customers with local
staff in all of our major markets.
We generally recognize revenue from the sale of products at the time of
shipment following an acceptance process at our own facilities. We rarely
experience equipment returns. We accrue costs for installation and warranty when
we recognize corresponding sales. We recognize revenue for services when we
perform the services.
Our front-end sales are primarily concentrated in the United States,
Europe, Japan and Southeast Asia. During 1999, equipment shipped to destinations
in these regions accounted for sales of (euro)52.1 million, 40.5 million,
(euro)42.0 million, and (euro)47.1 million, respectively. Our back-end sales,
which approximated (euro)232.8 million, are concentrated in Asia. Our ten
largest customers in 1999 accounted for approximately 43% of total sales.
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We invested approximately (euro)47.1 million in research and
development during 1999. As part of our research and development activities, we
are engaged in various development programs with customers and institutes that
allow us to develop products that meet customer requirements and to obtain
access to new technology and expertise. We expense rather than capitalize our
research and development expenses. We charge to costs of sales the costs which
relate to prototype and experimental models which we subsequently sell to
customers.
Our reported research and development expenses are after research and
development credits, which approximated (euro)3.3 million in 1999. Our
Netherlands and Singapore operations receive research and development grants and
credits from various governmental sources. The research and development grants
we received in the Netherlands are contingently repayable to the extent we
recognize sales of products to which the credit was related. These repayments
vary and range from 1.0% to 4.0% of the realized sales, depending on the
products sold, up to the amounts of the grants plus interest. Our actual and
contingent repayments accrue at interest rates ranging from 5.0% to 8.0% per
annum. Our contingent liability related to these possible repayments
approximated (euro)11.9 million at December 31, 1999.
In 1999, we merged the manufacturing activities of ASM America with
those of ASM Europe. The combined manufacturing activities are now located at
our ASM Europe location. As a consequence, we reduced ASM America's number of
employees by approximately 75, all of which were in manufacturing. Concurrently,
we added approximately 50 new positions at ASM Europe. In the first quarter of
1999 we incurred a one-time charge of approximately (euro)3.9 million for
redundancy, write-offs and occupancy costs. The remaining accrual at December
31, 1999 totaled (euro)2.5 million. We expect to utilize the majority of the
remaining accrual in 2000. We expect to recover these costs through synergies
and efficiencies by year-end 2000. Subsequent to 2000 we expect that the
restructuring will have a positive impact on earnings and cash flows. Recently,
ASM America began to manufacture the Polygon, a new product line for
clustering CVD processes.
Effective in July 1999, we purchased all of the outstanding shares of
Microchemistry, a company located in Finland, for an approximately (euro)3.9
million promissory note convertible at $10.00 per share into our common shares
and renamed the company ASM Microchemistry. Prior to our purchase,
Microchemistry developed the process to grow or deposit films one layer at a
time by means of ALCVD, and marketed ALCVD processes to manufacturers of flat
panel displays and tape magnetic head products. Following our acquisition, ASM
Microchemistry is shifting its focus to manufacturers of semiconductor devices.
In December 1999, we purchased a 24% interest in NanoPhotonics AG, a
German supplier of precision thin film metrology equipment. The technology
supplied by NanoPhotonics allows for the integration of high-resolution,
ellipsometric thin film metrology directly in a wafer-processing tool. We
believe that this investment will enable us to equip our batch and single wafer
equipment with integrated thin film metrology.
As of December 31, 1999, we had net operating loss tax carryforwards of
(euro)275 million which we can apply against earnings reported in the United
States and the Netherlands.
The market value of our investment in ASM Pacific Technology at the end
of 1999 was approximately (euro)333.9 million, which is substantially higher
than the market value at the end of 1998, which was approximately (euro)70.3
million).
RESULTS OF OPERATIONS
The following table sets forth in millions of Euros certain items from
our consolidated statement of operations:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Net sale front-end.................................... 152.6 132.9 181.7
Net sales back-end..................................... 169.0 155.2 232.8
Net sales.............................................. 321.6 288.1 414.5
Cost of sales.......................................... (182.3) (179.3) (244.5)
Gross profit........................................... 139.3 108.8 170.0
Operating expenses:
Selling, general and administrative.................. (74.7) (60.0) (83.5)
Research and development, net........................ (39.0) (36.3) (47.1)
Litigation settlement................................ (79.6)
</TABLE>
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<PAGE> 39
<TABLE>
<S> <C> <C> <C>
Total operating expenses.......................... (193.3) (96.3) (130.6)
Earnings (losses) from operations...................... (54.0) 12.5 39.4
Net interest and other financial income (expenses)..... (3.2) (5.4) (8.6)
Income taxes........................................... (2.8) (0.6) (1.3)
Minority interest in net earnings of subsidiaries...... (10.5) (6.3) (18.4)
Net earnings (loss).................................... (70.5) 0.2 11.1
</TABLE>
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
Net Sales. While the market for semiconductor equipment was still weak
in the first quarter of 1999, net sales increased in both front-end and back-end
segments during the second through fourth quarters of 1999 and consolidated
sales increased by 43.9% in 1999 compared to 1998. Front-end sales increased
36.8% from (euro)132.9 million in 1998 to (euro)181.7 million in 1999. Back-end
sales increased 49.9% from (euro)155.2 million in 1998 to (euro)232.8 million in
1999. The front-end sales increase was primarily due to higher sales of our
Eagle 10 products. The back-end sales increase was primarily due to increased
sales of equipment and to a lesser extent, leadframes. Pricing in the leadframe
market, which was depressed in 1998, improved in 1999.
Gross Profit. Our consolidated gross profit increased from 37.8% of net
sales in 1998 to 41.0% of net sales in 1999. The front-end business gross profit
increased from 39.4% of net sales in 1998 to 40.5% of net sales in 1999, while
the back-end business gross profit grew from 36.4% of net sales in 1998 to 41.4%
of net sales in 1999. Semiconductor equipment market growth in the second half
of 1999 led to an easing of pricing pressures experienced during 1998. In
addition, our introduction of new process technology helped improve our margins,
as did a technology lead in the wire bonder market.
Selling, General and Administrative. To keep pace with the general
semiconductor market expansion and to meet increasing customer orders in 1999,
selling, general and administrative expenses increased from (euro)60.0 million
in 1998 to (euro)83.5 million in 1999. Front-end and back-end selling, general
and administrative expenses increased from (euro)30.2 million and (euro)29.8
million in 1998 to (euro)48.9 million and (euro)34.6 million in 1999. Increased
costs primarily reflected expansion in personnel and the restructuring of the
ASM America manufacturing operations. However, selling, general and
administrative expenses as a percentage of net sales declined from 20.8% in 1998
to 20.1% in 1999.
Research and Development. Research and development expenses increased
by 30.0% from (euro)36.3 million in 1998 to (euro)47.1 million in 1999.
Front-end research and development expenses increased by 23.4% from (euro)23.7
million in 1998 to (euro)29.3 million in 1999 while back-end research and
development expenses increased 42.3% from (euro)12.6 million in 1998 to
(euro)17.8 million in 1999. Net research and development expenses declined from
12.6% of net sales in 1998 to 11.4% of net sales in 1999.
Net Interest and Other Financial Income (Expenses). Net interest and
other financial income (expenses) increased by 60.9% from an expense of
(euro)5.4 million in 1998 to an expense of (euro)8.6 million in 1999 due to the
repayment of a non-interest bearing short-term loan which became due in November
1998 with an interest-bearing, longer term loan with warrants. In addition, in
October 1999 we issued a zero-coupon $14.9 million debenture with a maturity
value of $20.0 million which accrued interest at 6% per annum, and which had
warrants attached. We also borrowed more frequently on our revolving lines of
credit to finance receivables and work-in-process which, on average, were larger
in 1999 than in 1998.
Taxes. We paid (euro)1.3 million in taxes during 1999, compared to
(euro)0.6 million in 1998. As of December 31, 1999, we have a (euro)275 million
net operating loss carryforward which we can apply against future earnings
reported in the United States and the Netherlands.
Net Earnings. Our net earnings in 1999 were approximately (euro)11.1
million compared to (euro)0.2 million in 1998. Our front-end operation reported
a net loss approximating (euro)7.8 million in 1999, including the (euro)3.9
million restructuring charge incurred in connection with moving manufacturing
operations from ASM America to ASM Europe. Our front-end operation's net loss in
1999 was larger than its net loss in 1998 approximating (euro)6.6 million. Our
portion of our back-end operation's net earnings approximated (euro)18.9 million
compared to (euro)6.8 million in 1998.
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<PAGE> 40
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
Net Sales. During 1998, the market for semiconductor equipment
contracted significantly. Our net sales declined 10.4% from (euro)321.6 million
in 1997 to (euro)288.1 million in 1998. Our net sales declined in both front-end
and back-end segments. Front-end sales declined by 12.9% from (euro)152.6
million in 1997 to (euro)132.9 million in 1998. Net sales declined primarily
because of declining sales of our plasma reactors and A600 UHV equipment. Net
sales were also lower as a result of the divestment of some smaller product
lines in 1997. Net sales of the back-end business declined 8.2% from (euro)169.0
million in 1997 to (euro)155.2 million in 1998. The back-end sales decrease was
primarily due to a decrease in sales of leadframes. Pricing pressures were
particularly severe in the leadframe market.
Gross Profits. Our consolidated gross profits declined from 43.3% of
net sales in 1997 to 37.8% of net sales in 1998. The front-end business gross
profits declined from 44.8% of net sales in 1997 to 39.4% of net sales in 1998,
while the back-end business' gross profits decreased from 40.1% of net sales in
1997 to 36.4% of net sales in 1998. Contraction of the semiconductor equipment
market in 1998 increased competition and created pricing pressures which led to
the decrease in gross profit.
Selling, General and Administrative. Our selling, general and
administrative costs declined by 19.6% from (euro)74.7 million in 1997
to (euro)60.0 million in 1998. Our selling, general and administrative costs
declined from 23.2% of net sales in 1997 to 20.8% of net sales in 1998. During
1998, we took certain cost reduction measures. Our front-end business reduced
the number of full-time employees from 860 at December 31, 1997 to 756 at
December 31, 1998 to match the decline in manufacturing activity and to take
advantage of outsourcing of non-critical activities.
Research and Development. Research and development expenses declined by
7.0% from (euro)39.0 million in 1997 to (euro)36.3 million in 1998. In an effort
to control costs during an industry downturn, we froze our hiring of research
and development personnel during 1998. Research and development expenses were
12.6% of net sales in 1998, an increase compared to research and development
costs of 12.1% of net sales in 1997. The increase as a percent of
net sales was primarily due to lower net sales in 1998. Front-end research and
development expenses declined from (euro)27.4 million in 1997 to (euro)23.7
million in 1998. Back-end research and development expenses increased from
(euro)11.6 million in 1997 to (euro)12.5 million in 1998.
Net Interest and Other Financial Income (Expenses). Net interest and
other financial income (expenses) increased by 65.2% from an expense of
(euro)3.2 million in 1997 to an expense of (euro)5.4 million in 1998 partly
because of lower foreign currency transaction gains and partly as a consequence
of the refinancing of a non-interest bearing short-term loan which became due in
November 1998 with an interest-bearing longer term loan.
Taxes. We paid (euro)0.6 million in taxes during 1998 compared to
(euro)2.8 million in 1997.
Net Earnings. Our net earnings in 1998 approximated (euro)0.2 million
compared to our net loss of (euro)70.5 million in 1997. The net loss in 1997
included a front-end operation litigation settlement expense of approximately
(euro)80.0 million. Our front-end business reported a net loss in 1998 of
(euro)6.6 million compared to the front-end net loss of (euro)82.0 million in
1997. Our portion of our back-end operation's net earnings was (euro)6.8 million
in 1998 compared to (euro)11.5 million in 1997. Back-end earnings were 4.4% of
back-end net sales in 1998 compared to a back-end net earnings margin of 6.8% in
1997.
BACKLOG
Our backlog of orders booked increased from approximately (euro)52.8
million at December 31, 1998 to approximately (euro)183.7 million at December
31, 1999, of which a substantial majority was for deliveries in the first and
second quarters of 2000. Our backlog at January 31, 2000 had grown to
(euro)240.5 million. Our backlog consists of orders of products by purchase
orders or letters of intent for future periods, typically for up to the next
twelve months. In markets such as Japan it is common practice for letters of
intent to be used in place of firm purchase orders. We sometimes allow customers
to cancel or reschedule deliveries. In addition, purchase orders are subject to
price negotiations and changes in quantities of products ordered as a result of
changes in customers' requirements. Depending on the complexity of an order, we
generally
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<PAGE> 41
ship our products from one to six months after receipt of an order. We include
in the backlog only orders for which a delivery schedule has been specified and
to which the customer has assigned an order number.
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 will 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 the arrangements governing our current indebtedness, will be sufficient to
fund working capital, capital expenditures and other ongoing business
requirements.
At December 31, 1999, our principal sources of liquidity consisted of
(euro)14.1 million in cash and cash equivalents and (euro)71.3 million in
undrawn bank lines. (euro)10.3 million of the cash and cash equivalents and
(euro)46.8 million of the undrawn bank lines are restricted to use in our
back-end operations.
During 1999, operating activities generated a net cash inflow of
(euro)46.9 million as compared to (euro)26.0 million during 1998. The increase
was primarily due to higher cash flow from operations, which was partially
offset by a net outflow of (euro)7.9 million in other assets and liabilities in
1999 compared to a (euro)1.6 million outflow in 1998. These outflows resulted
primarily from an increase in accounts receivable and inventories due to the
increase in business activities in 1999. Cash flow used in investment activities
amounted to (euro)26.8 million during 1999, a modest increase compared to
(euro)23.2 million in 1998. We expect to make investments in 2000 to complete
new plants in Malaysia and China and to maintain front-end infrastructure.
We entered into a Nlg. 45.0 million, 6% subordinated convertible loan
on December 4, 1998 with three lenders. During 1999, all three lenders converted
their loans into common shares which were subsequently listed on the AEX-Stock
Exchange in Amsterdam.
During 1998, we negotiated an extension of the original $80.0 million
convertible note provided by Applied Materials following the settlement of the
patent dispute in 1997. After paying Applied Materials $15.0 million in 1997 and
$20.0 million in 1998, the remaining balance of $45.0 million of the initial
interest-free subordinated convertible loan was replaced by an interest-bearing
note for which we provided security. The note was repayable in two installments:
$10.0 million was paid in 1999 and the remaining $35.0 million is due on
December 16, 2000. We expect to pay the remaining $35 million with the proceeds
from an intended offering. In addition, we issued a warrant to Applied Materials
to purchase 1.5 million of our common shares at a price of $5.375 per share. The
warrant is currently exercisable.
During 1998, we also negotiated an increase of Nlg. 15.0 million in our
bank loans in the Netherlands. Also, a term loan of Nlg. 40.0 million which was
due in November 1999 was extended to November 2000. As part of the same
agreement, the Nlg. 40.0 million overdraft facilities were given a fixed
termination date in November 2000. In February 2000, our lender increased our
overdraft facilities by Nlg. 35.0 million.
On October 1, 1999, we placed 6% zero-coupon debentures with a maturity
value of $20.0 million with a group of United States institutional investors.
The debentures have a five year maturity and are not convertible. The debentures
were discounted by 6% annual interest for a net purchase value of approximately
$14.9 million. We used the proceeds of the debenture placement for general
corporate purposes, including debt repayment and working capital.
As part of the debenture purchase agreement, the investors received
exercise warrants to purchase approximately two million common shares at an
initial exercise price of $9.81375 and supplemental warrants to purchase 200,000
additional common shares at the same price. The exercise warrants provided that
if our share price closed above approximately $20.44 for twenty consecutive
trading days, we could require the exercise of the warrants. We forced exercise
of the exercise warrants in February 2000. We issued 2,037,957 common shares
upon
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<PAGE> 42
exercise of the exercise warrants. The exercise price paid by the investors
consisted of the cancellation of all the outstanding debentures with an accrued
value of approximately $15.2 million and approximately $4.8 million paid in
cash.
The front-end business finances its operations from the cash flows
derived from its business activities and from collateralization of fixed and
current assets.
Back-end operations are entirely self-financed by ASM Pacific
Technology. The cash resources and borrowing capacity of ASM Pacific Technology
are not available to our front-end operations.
We support borrowings of our front-end subsidiaries with guarantees and
we have mortgaged our land and buildings and pledged trade receivables and
inventory in the Netherlands and pledged our shareholdings in our primary
front-end subsidiaries and in ASM Pacific Technology to secure our front-end
borrowings. The market value of our investment in ASM Pacific Technology at the
end of 1999 was approximately (euro)333.9 million, which is substantially higher
than the market value at the end of 1998, which was approximately (euro)70.3
million.
UPDATE ON YEAR 2000 COMPLIANCE
We did not experience any material difficulties in connection with the
changeover to the year 2000. Our in-house systems were switched off during the
actual changeover and a phased start-up of our systems and networks on January
1, 2000 did not reveal any issues, nor did the later normalized use of these
systems and networks. Access to and operation of our facilities were not
compromised.
We were asked to assist, and assisted, in the start-up of some older
units in our worldwide installed base. We are not aware of any
millennium-related disruption in connection with our products.
We estimate the total cost of our year 2000 compliance program at
approximately (euro)1.2 million, not including investments in software upgrades
that we had previously planned and accelerated in connection with the year 2000.
ITEM 9A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
We are exposed to currency fluctuations, most notably fluctuations of
the United States dollar, the Hong Kong dollar and the Japanese yen against the
Euro. To the extent that these fluctuations affect the value of our investments
in our affiliates, they are not hedged. The cumulative effect of these
fluctuations are separately reported in shareholders' equity and 1999 showed a
positive movement of (euro)9.5 million.
Currency
Currency fluctuations that affect operating cash flows are hedged as a
policy. We view exposures on a consolidated basis and sell off or cover excess
or short positions, using spot or forward contracts which are entered into with
commercial banks of good standing.
The operations of our subsidiaries are generally financed with debt
issued in our subsidiaries' respective functional currencies. Thus, we believe
we do not have significant currency exposure related to our borrowings.
Interest Rates
A considerable percentage of our outstanding debt bears interest which
is typically variable in nature. We are exposed to interest rate risk primarily
through our borrowing activities. We do not enter into financial instrument
transactions for trading or speculative purposes or to manage interest rate
exposure. Therefore, an adverse change in the average interest rate from 7% to
8% on the portion of our debt bearing interest at variable rates would result in
an annual increase in interest expense of approximately (euro)1.2 million at
December 31, 1999 borrowing levels.
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<PAGE> 43
The Netherlands, our country of domicile, is one of the countries that
participates in the use of the Euro, the new currency unit that has been
available since January 1, 1999. Until 2002, the participating countries will
allow both the Euro and local currencies as legal tender. However, we expect
that most businesses will convert sooner rather than later, stimulated by the
development of a Euro denominated capital market for both public and private
funding. Our European operations will therefore use the Euro as their functional
currency as soon as possible after its introduction. The actual introduction is
not critical for our business but will depend on availability of reliable
software for accounting, payroll and other internal functions and will be
achieved over a period of time, but before 2002. The introduction of the Euro
will not significantly affect our currency profile or rate as the Euro has a
fixed exchange risk against the Netherlands guilder.
Effective for fiscal year 1999, we changed our reporting currency from
Netherlands guilders to Euros. Prior year balances have been restated based on
the fixed exchange rate of (euro)1.00 to Nlg. 2.20371. The comparative balances
reported in Euros depict the same trends as would have been presented if we had
continued to present balances in Netherlands guilders. Balances for periods
prior to January 1, 1999 are not comparable to the balances of other companies
that report in Euros but restated amounts from a different currency than
Netherlands guilders due to the fixing of the exchange rate between the Euro and
the currencies of participating countries. See Note A of the Consolidated
Financial Statements.
ITEM 10. DIRECTORS AND OFFICERS OF REGISTRANT
The names of our directors and executive officers and those of some of our
subsidiaries and the years of their birth are as follows:
<TABLE>
<CAPTION>
NAME YEAR OF BIRTH POSITION
---- ------------- --------
<S> <C> <C>
Paul C. van den Hoek* 1939 Chairman of the Supervisory Board
Jacobus den Hoed RA* 1937 Supervisory Director
Ferdinand C. Rauwenhoff* 1930 Supervisory Director
Frans W. Saris 1942 Supervisory Director
Arthur H. del Prado 1931 Chairman of Management Board, President and Chief
Executive Officer
Patrick Lam See-Pong 1948 Member of the Management Board, Vice President Asian
Operations and Managing Director of ASM Pacific
Technology
Daniel Queyssac 1940 Chief Operating Officer of Front-end Operations and
President of ASM America
Rinse de Jong 1948 Vice President of Finance and Chief Financial Officer
Fukumi Tomino 1949 Vice President Japanese Operations and Managing
Director of ASM Japan
Hans Wunderl 1951 General Manager and Executive Vice President of ASM
America
Ernst Granneman 1946 Business Unit Manager for Rapid Thermal Processing
Ivo Raaijmakers 1957 Director of Research and Development and Chief
Technology Officer of Front-end Operations
Han Westendorp 1956 General Manager of ASM Europe
</TABLE>
* Member of Audit Committee
Paul C. van den Hoek became a Supervisory Director in March 1981 and is
now Chairman of the Supervisory Board. Mr. van den Hoek is a partner in the
European law firm of Stibbe Simont Monahan Duhot, which is our general legal
counsel. Mr. van den Hoek has been with Stibbe since 1965. Mr. van den Hoek
further serves on the boards of directors of various European companies.
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<PAGE> 44
Jacobus den Hoed RA became a Supervisory Director in June 1999. Mr. den
Hoed is a certified accountant. He joined AKZO Nobel N.V., a global chemical
company in 1969, and served in various financial management positions, most
recently as Vice President and Chief Financial Officer from 1996 to 1998 when he
retired. Mr. den Hoed serves on the boards of directors of various European
companies and since 1998 as a member of the board of directors of the
International Accounting Standards Committee, or IASC.
Ferdinand C. Rauwenhoff became a Supervisory Director in October 1991
and Vice-Chairman in 1999. Mr. Rauwenhoff holds an Engineering degree in physics
from Delft Technical University as well as a law degree from Leiden University.
He joined Philips in 1958 and served in various executive capacities worldwide.
In 1984 he was appointed chairman of the senior management committee of the
Netherlands Philips Companies, and retired in October 1990. Mr. Rauwenhoff
further serves on the boards of directors of various European companies.
Frans W. Saris became a Supervisory Director in June 1987. Professor
Saris was the director of the FOM Institute of Atomic and Molecular Physics in
Amsterdam from 1986 until 1995 and is now Director of the Netherlands Energy
Research Foundation at Petten, the Netherlands. He has served us as a consultant
in a number of technological areas. He holds a doctorate degree from Leiden
University in physics and is currently a professor of physics at the University
of Utrecht. Mr. Saris will retire at our annual meeting of shareholders in 2000.
He is not available for an additional term as Supervisory Director.
Arthur H. del Prado, our founder, has served as a Managing Director,
President and Chief Executive Officer since our formation in 1968. Mr. del Prado
is also a founder of ASM Lithography N.V. through a joint venture with Philips
Electronics N.V. He serves as a director of MEDEA, and previously served for
many years as a director of its predecessor, JESSI. Mr. del Prado further serves
on the board of directors of various European companies and on the board of the
Netherlands-Japanese Trade Federation.
Patrick Lam See-Pong became Vice President of our Asian Operations in
March 1981 and a Managing Director in June 1995. Mr. Lam has been employed in
various capacities with us since 1975. He holds a B.Sc. degree in electrical
engineering from the University of Manitoba in Canada and an MBA from the
Chinese University of Hong Kong.
Daniel Queyssac joined us as Chief Operating Officer for front-end
operations and President of ASM America in November 1996. Mr. Queyssac joined us
after a career at Motorola and SGS Thomson, now STMicroelectronics. His previous
positions included Vice President and Assistant General Manager of the New
Venture Group of SGS Thomson Microelectronics from 1993 to 1996, and President
of SGS Thomson Microelectronics in Phoenix, Arizona from 1980 to 1991.
Rinse de Jong joined us as Vice President of Finance and Chief
Financial Officer in February 1997. Mr. de Jong is a registered accountant. He
previously held senior management positions in Corporate Controlling, Treasury
and Corporate Finance at Reed Elsevier, the Anglo-Netherlands publishing group,
from 1978 to the end of 1996.
Fukumi Tomino became Vice President Japanese Operations and Managing
Director of ASM Japan in 1994 after having held roles in sales, marketing,
engineering and process development since the founding of ASM Japan in 1982. He
holds a Bachelor's Degree in electro-communication from the University of
Electro-Communication (Tokyo).
Hans Wunderl joined us in January 1991 as Director-Technical Operations
of the A-600 business unit. Mr. Wunderl started his international career at Data
General in the United States, France and the Netherlands and worked previously
at IBM in the Netherlands. In November 1992, Mr. Wunderl became General Manager
of ASM Europe located in Bilthoven, the Netherlands and in July 1999 he became
General Manager and Executive Vice President of ASM America. Mr. Wunderl holds
an engineering degree in electronics from the Technical University in Eindhoven.
Ernst Granneman became Business Unit Manager for Rapid Thermal
Processing in July 1999. He previously served as Director of Research and
Development and Chief Technology Officer for our front-end businesses from May
1992 to July 1999. Mr. Granneman joined us in October 1984 as Director of
Research and
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<PAGE> 45
Development for ASM Europe, and previously was employed at the Institute of
Atomic and Molecular Physics in Amsterdam, the Netherlands. Mr. Granneman also
serves as a part-time professor at the Technical University at Delft, the
Netherlands. Mr. Granneman holds an engineering degree in physics from the
Technical University at Delft and a doctorate degree in physics from the
University of Amsterdam.
Ivo Raaijmakers became Director of Research and Development and Chief
Technology Officer of Front-end Operations in July 1999. He served as Vice
President of Development for ASM America from July 1996 to July 1999. He
previously held various positions of increasing responsibility in technology
development and management at Philips Research Labs, Novellus and Applied
Materials since 1982, most recently with Applied Materials from 1993 to 1996.
Mr. Raaijmakers holds a Ph.D. and Master's Degree in Physics from Eindhoven
University of Technology in the Netherlands.
Han Westendorp joined us as General Manager of ASM Europe in July 1999.
Mr. Westendorp worked in various management capacities at Tokyo Electron
Massachusetts from 1991 to mid-1999, most recently as Vice President of Metal
CVD and Administration General Manager. Before joining Tokyo Electron, he worked
with us on the development of our ion implantation technology. Mr. Westendorp
holds a Ph.D. in Physics and Mathematics from the University of Utrecht in the
Netherlands.
Under Netherlands law, supervisory directors have the duty to supervise
and advise the managing directors. The supervisory directors are appointed by
our shareholders generally for terms of four years. The supervisory directors
can be re-elected twice, but are subject to mandatory retirement under
Netherlands law at the age of 72.
The managing directors are entrusted with our management under the
supervision of the supervisory board and have the general authority to enter
into binding agreements with third parties. Managing directors serve for
indefinite terms and are appointed and dismissed by the shareholders, but they
may also be suspended by the supervisory board. Compensation of managing
directors is determined by the supervisory board. Currently, our managing
directors are Arthur H. del Prado and Patrick Lam See-Pong.
Our other officers serve at the discretion and under the direction of
the managing directors.
ITEM 11. COMPENSATION OF DIRECTORS AND OFFICERS
The following table sets forth as to all executive officers and
directors as a group information concerning all remuneration from us (including
our subsidiaries) for services in all capacities during the fiscal year ended
December 31, 1999:
<TABLE>
<CAPTION>
CASH AND CASH-EQUIVALENT FORMS OF REMUNERATION
Insurance Benefits or Reimbursement,
Salaries and Directors' Fees Personal Benefits (1)
---------------------------- ------------------------------------
<S> <C> <C>
All directors and officers as a (euro) 2,292,597 (euro) 474,957
group (13 persons)
</TABLE>
- -------------------------
(1) Includes payments for personal pension plans.
ITEM 12. OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES
We have granted stock options to certain key employees. For information
regarding such options, incorporated herein by reference is Note P of the Notes
to Consolidated Financial Statements appearing elsewhere herein. Options to
purchase 1,372,000 common shares are held by our executive officers and
directors at
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<PAGE> 46
December 31, 1999. As of February 29, 2000, options to acquire 1,242,000 common
shares were held by executive officers and directors at exercise prices ranging
from $0.25 to $8.867, with expiration dates from November 15, 2002 to November
10, 2008, and 130,000 at exercise prices ranging from (euro) 7.20 to (euro)
8.44, with expiration dates from September 10, 2005 to February 1, 2007.
ITEM 13. CERTAIN TRANSACTIONS
In December 1999 we acquired 24% and our President acquired 44.5% of
the outstanding equity of NanoPhotonics, a German supplier of precision
metrology equipment. We have a five-year option to purchase our President's
44.5% interest at the price he paid in the initial transaction. In exchange for
this option, we granted him a five-year option to purchase 25,000 of our common
shares at $15.4375 representing fair market value at the date the option was
granted. Our President entered into this transaction at our request in order to
enable NanoPhotonics to retain certain beneficial financing arrangements. See
Note E of Notes to Consolidated Financial Statements.
PART II
ITEM 14. DESCRIPTION OF SECURITIES TO BE REGISTERED
Not applicable
PART III
ITEM 15. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 16. CHANGES IN SECURITIES AND CHANGES IN SECURITY FOR REGISTERED SECURITIES
Not applicable
PART IV
ITEM 17. FINANCIAL STATEMENTS
Not applicable
ITEM 18. FINANCIAL STATEMENTS
The following financial information is incorporated herein from
Exhibit 2 attached to this Form 20-F:
1. 1999 and 1998 Consolidated Balance Sheets.
2. 1999, 1998 and 1997 Consolidated Statements of Operations.
3. Consolidated Statements of Shareholders' Equity for 1999, 1998 and
1997.
4. 1999, 1998 and 1997 Consolidated Statements of Cash Flows.
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<PAGE> 47
5. Notes to Consolidated Financial Statements.
6. Report of independent auditors.
Additionally, Schedules III and VII are attached hereto and
incorporated by reference.
In particular, Schedule III discusses and discloses relevant
information regarding restrictions which limit the availability of retained
earnings, net income for dividend purposes, and other fund transfers from
subsidiaries to ASM International.
ITEM 19. FINANCIAL STATEMENTS AND EXHIBITS
a. Financial Statements. Reference is made to Item 18.
b. Exhibits
1. Financial Highlights and Selected Comparative Financial Data.
2. Financial Statements.
3. Consent of Deloitte & Touche Accountants to Schedules.
4. Consent of Deloitte & Touche Accountants to Financial
Statements.
47
<PAGE> 48
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the registrant certifies that it meets all of the requirements for
filing on Form 20-F and has duly caused this Annual Report to Shareholders to be
signed on its behalf by the undersigned, thereunto duly authorized.
ASM INTERNATIONAL N.V.
Date: March 14, 2000 /s/ Arthur H. Del Prado
------------------------------
Arthur H. del Prado
Managing Director and
Chief Executive Officer
<PAGE> 49
SCHEDULE III
CONDENSED FINANCIAL STATEMENTS ASM INTERNATIONAL N.V., HOLDING COMPANY
<TABLE>
<CAPTION>
(Thousands of Euro)
Condensed Balance Sheets of ASM International, N.V.
- ---------------------------------------------------
- -------------------------------------------------------------------------------------------------------
December 31,
1997 1998 1999
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets:
Total current assets 16,057 14,235 21,865
Investment in subsidiaries 64,752 66,895 90,707
Total noncurrent assets 29,232 30,991 42,800
- -------------------------------------------------------------------------------------------------------
110,041 112,121 155,372
- -------------------------------------------------------------------------------------------------------
Liabilities & shareholders' equity:
- -----------------------------------
Total current liabilities 70,728 19,670 87,947
Total noncurrent liabilities 23,293 71,987 1,873
- -------------------------------------------------------------------------------------------------------
Total liabilities 94,021 91,657 89,820
Shareholders' equity 16,020 20,464 65,552
- -------------------------------------------------------------------------------------------------------
110,041 112,121 155,372
- -------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Condensed Statement of Earnings ASM International N.V
- -----------------------------------------------------
- -------------------------------------------------------------------------------------------------------
Year ended December 31,
1997 1998 1999
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Earnings/(losses) subsidiaries (65,679) 4,871 18,786
Losses ASM International (4,797) (4,639) (7,687)
- -------------------------------------------------------------------------------------------------------
Net earnings (loss) (70,476) 232 11,099
- -------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Condensed Cash Flow Statement ASM International N.V.
- ----------------------------------------------------
- -------------------------------------------------------------------------------------------------------
Year ended December 31,
1997 1998 1999
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net cash provided by (used in) operating, financing or
activities (13,003) 623 1,565
- -------------------------------------------------------------------------------------------------------
Cash and cash equivalents at the beginning of the year 13,023 20 643
- -------------------------------------------------------------------------------------------------------
Cash and cash equivalents at the end of the year 20 643 2,208
- -------------------------------------------------------------------------------------------------------
</TABLE>
Notes to condensed Financial Statements of ASM International N.V.:
Restrictions which limit the availability of retained earnings, net
income for dividend purposes and other funds transfers from subsidiaries to ASM
International N.V. ("ASMI").
ASM Pacific Technology Limited ("ASMPT")
Subject to the availability of adequate funds, all the retained
earnings of ASMPT group can be distributed to its shareholders, including ASMI,
on a basis proportional to shareholdings of each shareholder. Such retained
earnings at December 31, 1999 according to Hong Kong GAAP amounts to
approximately HK$ 441.9 million. Other than the above, ASMPT group is prohibited
from making loans or advances, other than
<PAGE> 50
trade receivables in the normal course of business, to ASMI under the Hong Kong
Listing Rules. It should be noted that ASMPT group has pledged marketable
securities of approximately HK$ 47 million, bank deposits of approximately HK$ 2
million and fixed assets of approximately HK$ 200 million as at December 31,
1999 to secure general banking facilities granted to the group. These assets
will not be available for distribution without the prior consent of the banks.
<PAGE> 51
SCHEDULE VII - VALUATION RESERVES
(Thousands of Euro)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E Column F
Class of valuation reserve Balance at Additions Deductions Currency Balance at the
Beginning of charged to translation end of period
period cost and effect
expenses
<S> <C> <C> <C> <C> <C>
Allowance for doubtful
Accounts
Year ended 12/31/99 1,839 14 (569) 148 1,432
Year ended 12/31/98 3,331 1,715 (3,188) (19) 1,839
Year ended 12/31/97 1,112 2,359 (122) (18) 3,331
Provision for inventory
obsolescence
Year ended 12/31/99 10,131 2,029 (362) 1,281 13,079
Year ended 12/31/98 9,369 3,275 (2,067) (446) 10,131
Year ended 12/31/97 9,875 2,719 (3,861) 636 9,369
</TABLE>
<PAGE> 52
[DELOITTE & TOUCHE LETTERHEAD]
Date Reference
March 14, 2000 A. Sandler
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying consolidated financial statements of ASM
International N.V. as of December 31, 1999 and 1998, and for each of the three
years in the period ended December 31, 1999, and have issued our report thereon
dated February 18, 2000. Our audits also included the financial statements
schedules of ASM International N.V. relating to the Condensed Financial
Statements ASM International N.V., Holding Company Schedule and the Valuation
Reserves Schedule as included on the Form 20-F dated March 14, 2000. These
financial statement schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits. In
our opinion, such financial statement schedules, when considered in relation to
the basic financial statements taken as a whole, present fairly in all material
respects the information set forth therein.
/s/ Deloitte & Touche Accountants
<PAGE> 1
EXHIBIT 1 - FINANCIAL HIGHLIGHTS AND SELECTED COMPARATIVE FINANCIAL DATA
<TABLE>
<CAPTION>
In US Dollars and Euros(1)
Year ended December 31,
(millions, except per share data and
full-time equivalents) 1995 1996 1997 1998(2) 1999 1999
EUR EUR EUR EUR EUR US$
<S> <C> <C> <C> <C> <C> <C>
Operations
Net sales: 304.4 298.7 321.6 288.1 414.5 415.5
Front-End 155.4 163.9 152.6 132.9 181.7 182.2
Back-End 149.0 134.8 169.0 155.2 232.8 233.3
Earnings (loss) from operations,
before one-time charges: 56.3 45.0 25.7 12.5 43.2 43.3
Front-End 25.7 24.9 -- (1.6) 3.0 3.0
Back-End 30.6 20.1 25.7 14.1 40.2 40.3
One-time charges(3) -- -- (79.7) -- (3.9) (3.9)
Earnings (loss) from operations 56.3 45.0 (54.0) 12.5 39.3 39.4
Net earnings (loss) 33.4 31.0 (70.5) 0.2 11.1 11.2
- ---------------------------------------------------------------------------------------------------------
Balance sheet
Net working capital(4) 48.6 79.8 98.7 99.9 110.2 110.4
Total assets 233.9 277.7 328.6 282.9 425.0 426.0
Long term debt(5) 38.9 39.9 46.6 84.7 8.0 8.0
- ---------------------------------------------------------------------------------------------------------
Backlog: 137.8 79.1 110.5 52.8 183.7 184.1
Front-End 75.6 52.5 54.5 27.0 72.5 77.6
Back-End 62.2 26.6 56.0 25.8 111.2 111.5
- ---------------------------------------------------------------------------------------------------------
Staff
Full-time equivalents:(6) 4,037 4,140 4,514 4,436 5,426 5,426
Front-End 786 898 860 756 798 798
Back-End 3,251 3,242 3,654 3,680 4,628 4,628
Staff costs: 64.5 79.0 93.3 94.4 108.4 108.6
Front-End 33.2 42.5 49.4 42.8 51.5 51.6
Back-End 31.3 36.5 43.9 51.6 56.9 57.0
- ---------------------------------------------------------------------------------------------------------
Data per share
Earnings (loss) per share from operations,
before one-time charges:
Basic 1.79 1.42 0.78 0.37 1.16 1.16
Diluted(7) 1.66 1.34 0.78 0.36 1.06 1.06
Net earnings (loss) per share:
Basic 1.06 0.98 (2.12) 0.01 0.30 0.30
Diluted(7) 0.98 0.92 (2.12) 0.01 0.29 0.29
Weighted average number outstanding:
Basic 31,428 31,566 33,232 33,794 37,301 37,301
Diluted(7) 33,966 33,717 33,232 34,743 40,664 40,664
- ----------------------------------------------------------------------------------------------------------
</TABLE>
(1) For the convenience of investors, Financial Highlights and Selected
Comparative Financial Data for 1999 have been converted into US Dollars
using the exchange rate as of December 31, 1999 (US$1.00 = EUR 0.9977).
Balances prior to January 1, 1999 were restated from Netherlands guilders
into Euros using the fixed exchange rate as of January 1, 1999 (EUR 1.00 =
Nig 2.20371), see Note A to Consolidated Financial Statements.
(2) The 1998 Financial Statements have been restated. See Notes S to
Consolidated Financial Statements.
(3) One time charges reflect: 1999 - restructuring costs; for 1997 - litigation
settlement.
(4) Accounts receivable, inventories, other current assets, accounts payable,
accrued expenses and advance payments from customers.
(5) Long term debt includes subordinated long term debt.
(6) Number of staff, calculated on a full time basis.
(7) 1995 number of shares are restated to give effect to the March 1996 3-for-1
stock split. The calculation of diluted earnings per share includes an
assumed exercise of all common stock equivalents. Only instruments that have
a dilutive effect on net earnings are included in the calculation. Due to
the loss reported in 1997, no dilutive common stock equivalents have been
reflected in the dilutive weighted average number of shares for that year.
<PAGE> 1
EXHIBIT 2 - FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(thousands except share data) EUR
- -----------------------------------------------------------------------------------------
December 31,
1998 1999
------------ -------
<S> <C> <C>
Assets
Cash and cash equivalents 11,724 14,153
Marketable securities 7,293 5,709
Accounts receivable (less allowance for doubtful accounts of
(euro)1,839 and (euro)1,432) 84,194 149,115
Inventories 64,636 107,280
Other current assets 8,753 15,844
------- -------
Total current assets 176,600 292,101
Property, plant and equipment, net 105,551 127,176
Goodwill, net 799 5,758
------- -------
Total Assets 282,950 425,035
------- -------
Liabilities and Shareholders' Equity
------- -------
Notes payable to banks 38,039 22,667
Accounts payable 28,947 108,922
Accrued expenses 25,613 48,566
Advance payments from customers 3,127 4,595
Income taxes 1,983 3,887
Current portion of long-term debt 9,990 36,944
Current portion of subordinated debt 15,991 52,285
------- -------
Total current liabilities 123,690 277,866
Long-term debt 39,601 7,997
Subordinated debt 45,135 --
Deferred income taxes 3,613 3,490
------- -------
Total liabilities 212,039 289,353
Minority interest in subsidiary 50,447 70,130
Shareholders' Equity:
Common shares
Authorized 60,000,000 shares, par value NLG.01, issued and
outstanding 34,540,843 and 40,107,784 shares 157 182
Financing preferred shares
Authorized 900 shares, par value NLG100, issued none
Preferred shares
Authorized 6,900 shares, par value NLG100, issued none
Capital in excess of par value 78,927 103,443
Retained earnings (deficit) (46,553) (35,454)
Accumulated other comprehensive income (loss) (12,067) (2,619)
------- -------
Total Shareholders' Equity 20,464 65,552
------- -------
Total Liabilities and Shareholders' Equity 282,950 425,035
------- -------
</TABLE>
See Notes to Consolidated Financial Statements.
Prior-year balances were restated from Netherlands guilders into Euros using the
fixed exchange rate as of January 1, 1999 (EUR1.00 = Nlg2.20371).
<PAGE> 2
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
(thousands except per share data) EUR
- ----------------------------------------------------------------------------------------------------------
Year ended December 31,
--------------------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Net sales 321,582 288,111 414,495
Cost of sales (182,259) (179,326) (244,485)
-------- -------- --------
Gross profit 139,323 108,785 170,010
Operating expenses:
Selling, general and administrative costs (74,675) (60,017) (83,510)
Research and development, net (39,000) (36,277) (47,145)
Litigation settlement (79,669) -- --
-------- -------- --------
Total operating expenses (193,344) (96,294) (130,655)
-------- -------- --------
Earnings (loss) from operations (54,021) 12,491 39,355
Net interest and other financial income (expenses) (3,239) (5,350) (8,608)
-------- -------- --------
Earnings (loss) before income taxes and minority
interest in net earnings of subsidiary (57,260) 7,141 30,747
Income taxes (2,761) (648) (1,274)
-------- -------- --------
Earnings (loss) before minority interest in net
earnings of subsidiary (60,021) 6,493 29,473
Minority interest in net earnings of subsidiary (10,455) (6,261) (18,374)
-------- -------- --------
Net earnings (loss) (70,476) 232 11,099
-------- -------- --------
Net earnings (loss) per share:
Basic (2.12) 0.01 0.30
Diluted (2.12) 0.01 0.29
-------- -------- --------
Weighted average number of shares:
Basic 33,232 33,794 37,301
Diluted 33,232 34,743 40,664
-------- -------- --------
</TABLE>
See Notes to Consolidated Financial Statements.
Prior-year balances were restated from Netherlands guilders into Euros using the
fixed exchange rate as of January 1, 1999 (EUR1.00 = Nlg2.20371).
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
(thousands) EUR
- -----------------------------------------------------------------------------------
Year ended December 31,
------------------------------------
1997 1998 1999
------- ---- ------
<S> <C> <C> <C>
Net earnings (loss) (70,476) 232 11,099
Other comprehensive income (loss)
Exchange rate changes for the year 5,636 137 9,448
------- --- ------
Comprehensive income (loss) (64,840) 369 20,547
</TABLE>
See Notes to Consolidated Financial Statements.
Prior-year balances were restated from Netherlands guilders into Euros using the
fixed exchange rate as of January 1, 1999 (EUR1.00 = Nlg2.20371).
<PAGE> 3
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
(thousands, except for number of common shares) EUR
- --------------------------------------------------------------------------------------------------------------------------------
Accumulated Total
Number of Capital in Retained other com- Share-
common Common excess of earnings prehensive holders'
Shares shares par value (deficit) income (loss) Equity
---------- ------ ---------- --------- ------------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance December 31, 1996 33,058,293 150 74,807 23,691 (17,840) 80,808
Issuance of common shares:
For stock options 320,750 1 51 -- -- 52
Net earnings (loss) -- -- -- (70,476) -- (70,476)
Exchange rate changes for the year -- -- -- -- 5,636 5,636
---------- ----- ------- ------- ------- ------
Balance December 31, 1997 33,379,043 151 74,858 (46,785) (12,204) 16,020
Issuance of common shares:
For stock options 961,800 5 436 -- -- 441
Other 200,000 1 702 -- -- 703
Net earnings -- -- -- 232 -- 232
Fair value of warrants issued -- -- 2,455 -- -- 2,455
Debt conversion discount -- -- 476 -- -- 476
Exchange rate changes for the year -- -- -- -- 137 137
---------- ----- ------- ------- ------- ------
Balance December 31, 1998 34,540,843 157 78,927 (46,553) (12,067) 20,464
ISSUANCE OF COMMON SHARES:
FOR STOCK OPTIONS 169,900 1 495 -- -- 496
CONVERSION OF SUBORDINATED NOTES 5,397,041 24 24,021 -- -- 24,045
NET EARNINGS -- -- -- 11,099 -- 11,099
EXCHANGE RATE CHANGES FOR THE YEAR -- -- -- -- 9,448 9,448
---------- ----- ------- ------- ------- ------
BALANCE DECEMBER 31, 1999 40,107,784 182 103,443 (35,454) (2,619) 65,552
---------- ----- ------- ------- ------- ------
</TABLE>
See Notes to Consolidated Financial Statements.
Prior-year balances were restated from Netherlands guilders into Euros using the
fixed exchange rate as of January 1, 1999 (EUR1.00 = Nlg2.20371).
<PAGE> 4
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(thousands) EUR
- ---------------------------------------------------------------------------------------------------------
Year ended December 31,
---------------------------------------
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Increase (decrease) in cash and cash equivalents:
Cash flows from operating
activities:
Net earnings (loss) (70,476) 232 11,099
Adjustments to reconcile net earnings (loss) to net cash
provided by (used in) operating activities:
Subordinated convertible note issued in settlement of
litigation 72,289 -- --
Depreciation and amortization 19,626 22,688 24,487
Amortization of discounted interest on subordinated
notes -- -- 1,421
Deferred income taxes 1,168 (56) (123)
Minority interest in net earnings of subsidiary 10,455 6,261 18,374
Increase (decrease) in allowance for doubtful
receivables 2,090 (1,492) (407)
Changes in other assets and liabilities:
Accounts receivable (22,214) 12,831 (64,514)
Inventories (15,159) 14,230 (42,644)
Other current assets (1,534) 850 (7,091)
Accounts payable and accrued expenses 15,716 (25,002) 102,928
Advance payments from customers 2,033 (2,573) 1,468
Income taxes 1,559 (1,935) 1,904
------- ------- -------
Net cash provided by operating activities 15,553 26,034 46,902
------- ------- -------
Cash flows from investing activities:
Capital expenditures (35,171) (24,142) (30,587)
Acquisition of business -- -- (1,267)
Proceeds from sale of property, plant and equipment 8,385 2,448 2,453
Proceeds from (purchase of) marketable securities 258 (1,538) 2,607
Investment in subsidiary (570) -- --
------- ------- -------
Net cash (used in) investing activities (27,098) (23,232) (26,794)
------- ------- -------
Cash flows from financing activities:
Notes payable to banks, net 16,760 (8,567) (15,372)
Proceeds from long-term debt and subordinated debt(1) 17,502 27,574 16,652
Repayments of long-term debt and subordinated debt(1) (19,838) (29,730) (19,690)
Proceeds from issuance of common shares 52 1,144 496
Dividends paid to minority shareholders (5,672) (5,526) (8,384)
------- ------- -------
Net cash provided by (used in) financing activities 8,804 (15,105) (26,298)
Exchange rate effects 4,159 (3,418) 8,619
------- ------- -------
Net increase (decrease) in cash and cash equivalents 1,418 (15,721) 2,429
Cash and cash equivalents at beginning of year 26,027 27,445 11,724
------- ------- -------
Cash and cash equivalents at end of year 27,445 11,724 14,153
------- ------- -------
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest 5,777 7,232 8,859
Income taxes 34 2,638 (505)
------- ------- -------
Non cash investing activities:
Acquisition of business through issuance of convertible
note -- -- (3,868)
------- ------- -------
Non cash financing activities:
Conversion of subordinated notes into common shares -- -- 24,045
------- ------- -------
</TABLE>
<PAGE> 5
(1) In 1998 the subordinated convertible note due to Applied Materials, Inc. was
restructured into a subordinated note including 1,500,000 warrants issued to
purchase 1.5 million of the Company's common shares. The net effect of the
restructuring has no impact on the cash flow statement.
See Notes to Consolidated Financial Statements.
Prior-year balances were restated from Netherlands guilders into Euros using the
fixed exchange rate as of January 1, 1999 (EUR1.00 = Nlg2.20371).
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(EUR in thousands)
NOTE A Summary of significant Accounting Policies
General - ASM International N.V. ('ASMI' or 'the Company') is a corporation
domiciled in the Netherlands with principal operations in Europe, the United
States, South East Asia and Japan. The Company dedicates its resources to the
research, development, manufacturing, marketing and servicing of equipment and
materials used to produce semiconductor devices. ASMI provides production
solutions for the main areas of semiconductor production: wafer processing
(Front-End), assembly and packaging (Back-End). The Company follows accounting
principles generally accepted in the United States of America. Effective
beginning of the year ended December 31, 1999, the Company changed its reporting
currency from Netherlands guilders to Euros (EUR or (euro)). Prior-year balances
have been restated using the fixed exchange rate as of January 1, 1999 (EUR1.00
= Nlg2.20371).
The comparative balances reported in Euros depict the same trends as would have
been presented if the Company had continued to present balances in Netherlands
guilders. Balances for periods prior to January 1, 1999 are not comparable to
the balances of other companies that report in Euros having restated amounts
from a different currency than Netherlands guilders.
Principles of Consolidation - The Consolidated Financial Statements include the
accounts of ASMI and its subsidiaries ('the Company'), all of which are more
than 50 percent owned. The minority interest of third parties is disclosed
separately in the Financial Statements. All material intercompany profits,
transactions and balances have been eliminated in consolidation.
Foreign Currency Translation - Assets and liabilities of foreign subsidiaries
are translated into Euros at exchange rates prevailing at the end of the year.
Revenues and costs relating to the operation of such subsidiaries are translated
at average exchange rates during the period. Resulting translation adjustments
are directly recorded in Shareholders' Equity. Foreign currency transaction
gains and losses generally are included in determining net earnings. From time
to time the Company enters into foreign currency exchange contracts as a hedge
against transactions denominated in foreign currencies. Gains and losses in
market value of such contracts are recognized as an offset against foreign
exchange gains or losses on the underlying transactions. A change in the market
value of a foreign exchange contract that is a hedge of a firm commitment is
deferred and included in the valuation of the completed transaction.
Revenue Recognition - The Company recognizes revenue from the sale of products
when the risks and rewards of ownership transfer to customers, which is
generally at the time of shipment. No significant obligations remain after the
product is shipped. Cost for installation and warranty are accrued when
corresponding sales revenues are recognized. Revenues for services are
recognized when performed.
Cash and Cash Equivalents - Cash and cash equivalents include cash on hand,
amounts due from banks on demand, and short-term deposits with a maturity of
three months or less at the date of purchase.
<PAGE> 6
Marketable Securities - The Company classifies all its investments in marketable
securities as available for sale which requires the Company to report these
investments at fair market value and record the unrealised gains and losses,
after tax, as a component of Shareholders' Equity. In the accompanying Financial
Statements the marketable securities are carried at cost which approximates fair
market value.
Inventories - Inventories are stated at the lower of cost (first-in, first-out
method) or market. Costs include net prices paid for materials purchased,
charges for freight and custom duties, direct wages of employees and charges for
factory production overhead.
Property, Plant and Equipment - Property, plant and equipment are carried at
cost (net of government grants), less accumulated depreciation. Capital leased
assets are recorded at the present value of future lease obligations.
Depreciation and amortization are calculated using the straight-line method over
the estimated useful lives.
Goodwill - The excess of the purchase price over the fair market value of net
assets acquired is amortized on a straight line basis over 10 years.
Recoverability of Long-lived Assets - In evaluating useful lives and carrying
values of long-lived assets, the Company uses undiscounted cash flows to assess
if it has impairment of assets. In the event that an impairment seems likely,
the fair value of the related asset is determined, and the Company would record
a charge to earnings based on comparing the asset's carrying value to the
estimated fair value.
Income Taxes - Deferred income taxes are provided for differences between the
tax base of certain assets and liabilities and the reported amounts in the
Financial Statements that will result in taxable or deductible amounts in future
years. The Company accounts for income taxes under the provision of SFAS No.
109, 'Accounting for Income Taxes'.
Stock-Based Compensation - In 1995, Statement of Financial Accounting Standards
No. 123 (FASB 123), 'Accounting for Stock-Based Compensation', was issued. This
is a standard that allows the Company to choose to apply the accounting method
as described in this Statement. However, the Company has decided not to apply
this accounting method, but instead to continue to apply the provisions of
Accounting Principles Board Opinion No. 25, 'Accounting for Stock Issued to
Employees'. Accordingly, no compensation expense has been recognized for its
stock based compensation plan (see Note P).
Research and Development Expenses - Research and development costs are expensed
as incurred. Costs which relate to prototype and experimental models which 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. Technical development credits (Technische Ontwikkelings Kredieten
or 'TOK's') received from the Netherlands government to offset the cost of
certain research and development projects are contingently repayable to the
extent sales of equipment developed in such projects occur. Such repayments are
calculated as a percentage of sales and are charged to cost of sales.
No such repayments are required if such sales do not occur (see Note M).
Comprehensive Income - Effective fiscal year 1998, the Company adopted Statement
of Financial Accounting Standards No. 130 (FASB 130), 'Reporting Comprehensive
Income'.
Segment Information - In June 1997, Statement of Financial Accounting Standards
No. 131 (FASB 131), 'Disclosures about Segments of an Enterprise and Related
Information' was issued. This statement was adopted by the Company in fiscal
1998 and redefines how operating segments are determined and requires
qualitative disclosures of certain financial and descriptive information about
the Company's operating segments. As a result of the adoption of this Standard,
the previously reported segmentation and related disclosure changed (see Note
Q).
New Accounting Pronouncements - In June 1998, the FASB issued SFAS No. 133,
'Accounting for Derivative Instruments and Hedging Activities', which
establishes accounting and reporting standards for derivative instruments and
requires that all derivatives be recognized as either assets or liabilities in
the statements of financial position. This pronouncement will become effective
for the Company for the year ending December 31, 2001. The
<PAGE> 7
Company has not yet completed its analysis of the specific additional
information which may be required under this new standard.
Use of Estimates - The preparation of the Company's consolidated financial
statements in conformity with generally accepted accounting principles
necessarily requires Management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the balance sheet dates and the reported amounts of
revenue and expense during the reported periods. Actual results could differ
from those estimates.
Reclassifications - Certain reclassifications have been made to prior year
Financial Statements to conform to the current year presentation.
<PAGE> 8
NOTE B Cash and Cash Equivalents, Marketable Securities
At December 31, 1999, cash and cash equivalents and marketable securities of
the Company's subsidiary ASM Pacific Technology Ltd ('ASMPT') amounting to
(euro)16,002 are restricted to use in the operations of this company only.
NOTE C Inventories
Inventories are comprised of the following:
<TABLE>
<CAPTION>
December 31,
-------------------------
1998 1999
------ -------
<S> <C> <C>
Components and raw materials 26,005 41,052
Work in process 29,195 50,612
Finished goods 9,436 15,616
------ -------
Inventories 64,636 107,280
------ -------
</TABLE>
NOTE D Property, Plant and Equipment
<TABLE>
<CAPTION>
Land, Machinery,
buildings equipment,
and im- furniture
provements and fixtures Total
---------- ------------ -------
<S> <C> <C> <C>
At cost:
Balance January 1, 1999 62,424 153,681 216,105
Capital expenditures 1,207 29,380 30,587
Retirements and sales (2) (8,087) (8,089)
Translation effect 10,760 26,756 37,516
------ ------- -------
Balance December 31, 1999 74,389 201,730 276,119
------ ------- -------
Accumulated depreciation:
Balance January 1, 1999 22,074 88,480 110,554
Depreciation for the year 4,790 19,357 24,147
Retirements and sales (70) (5,566) (5,636)
Translation effect 3,935 15,943 19,878
------ ------- -------
Balance December 31, 1999 30,729 118,214 148,943
------ ------- -------
Property, plant and equipment, net:
January 1, 1999 40,350 65,201 105,551
December 31,1999 43,660 83,516 127,176
------ ------- -------
</TABLE>
<PAGE> 9
Useful lives in years:
<TABLE>
<S> <C>
- -- Buildings and improvements 25 year
- -- Machinery and equipment 2-10 year
- -- Furniture and fixtures 2-10 year
</TABLE>
NOTE E Goodwill
<TABLE>
<S> <C>
At cost:
Balance January 1, 1999 892
Acquired 5,135
Translation effect 175
-----
Balance December 31, 1999 6,202
-----
Accumulated amortization:
Balance January 1, 1999 93
Amortization for the year 340
Translation effect 11
-----
Balance December 31, 1999 444
-----
Goodwill, net:
January 1, 1999 799
December 31, 1999 5,758
-----
</TABLE>
On August 27, 1999, the Company acquired all the outstanding shares of
Microchemistry Ltd. The acquisition was accounted for using the purchase method.
Total consideration paid amounted to FIM (Finnish Marks) 23.2 million
(approximately Euro 3.9 million) and after adding the asset deficiency recorded
goodwill totalled (euro)4,747.
In December 1999, the Company purchased a 24% interest in NanoPhotonics AG
for US$0.4 million. An officer in the Company also purchased a 44.5% interest at
the same time and at the same price per share. The Company has the option to
purchase the 44.5% interest from the officer at the same purchase price per
share as paid by the officer. In exchange for this option, the Company granted
the officer a five-year option to purchase 25,000 common shares in the Company
at the fair market value of the shares at the option grant date.
NOTE F Notes Payable to Banks
ASMI and its individual subsidiaries borrow under separate short-term lines of
credit with banks in the countries where they are located. The lines bear a
weighted average interest of 3.9 percent at December 31, 1999.
Total short-term lines of credit available amounted to (euro)93,937 at December
31, 1999. The amount outstanding aT December 31, 1999 was (euro)22,667 and the
unused portion totalled (euro)71,270. The unused portion includes (euro)46,810
relating to ASMPT and is solely authorized for use in that Company's operations.
The lines contain general provisions concerning renewal and continuance at the
option of the banks.
Information on notes payable to banks is as follows:
<TABLE>
<CAPTION>
Short-term debt outstanding in: December 31,
- ------------------------------- -------------------
1998 1999
------ ------
<S> <C> <C>
The Netherlands 6,078 12,223
U.S.A 4,281 --
</TABLE>
<PAGE> 10
<TABLE>
<S> <C> <C>
Japan 17,708 10,274
Hong Kong 9,972 170
------ ------
38,039 22,667
------ ------
</TABLE>
<TABLE>
<CAPTION>
Short-term debt outstanding in local currencies:
(thousands) December 31,
--------------------------------
1998 1999
------------ ---------
<S> <C> <C>
Netherlands Guilders 13,393 26,935
United States Dollars 4,999 --
Japanese Yens 2,350,000 1,053,140
Hong Kong Dollars 90,214 1,323
--------- ---------
</TABLE>
ASM International NV has guaranteed short term facilities and other
obligations of certain subsidiaries approximating (euro)18.2 million.
NOTE G Income Taxes
The components of earnings (loss) before income taxes, non-operating income and
minority interest consist of:
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------------------
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Netherlands (9,290) (1,218) (11,159)
Other countries (47,970) 8,359 41,906
------- ------ -------
(57,260) 7,141 30,747
</TABLE>
The provisions for income taxes consist of:
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------------
1997 1998 1999
------ ---- ------
<S> <C> <C> <C>
Current:
Netherlands (29) 33 (37)
Other countries (3,492) (344) (968)
------ ---- ------
(3,521) (311) (1,005)
Deferred:
Netherlands -- -- --
Other countries 760 (337) (269)
------ ---- ------
760 (337) (269)
------ ---- ------
Provision for income taxes (2,761) (648) (1,274)
------ ---- ------
</TABLE>
The provisions for income taxes as shown in the accompanying 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 statutory Netherlands' income tax rates is set forth below:
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------------
1997 1998 1999
------- ------ ------
<S> <C> <C> <C>
Taxes on earnings (loss) before income taxes and
</TABLE>
<PAGE> 11
<TABLE>
<S> <C> <C> <C>
minority
interest at the Netherlands' statutory income tax rate 20,041 (2,499) (10,761)
(35%) Non-deductible expenses (638) (569) (1,126)
Foreign taxes at a rate other than the Netherlands'
statutory rate 9,159 3,110 6,576
Net operating loss benefits not realized for tax purposes
nor recognized for financial statement purposes (31,335) (6,058) (8,531)
Utilisation of net operating loss carry forwards 103 538 3,513
Non-taxable income 109 2,176 8,215
Other (200) 2,654 840
------- ------ ------
Provision for income taxes (2,761) (648) (1,274)
------- ------ ------
</TABLE>
Deferred income taxes consist of the following:
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------------
1997 1998 1999
------ ------ ------
<S> <C> <C> <C>
Depreciation (5,121) (5,257) (5,274)
Reserves and allowances 168 64 51
Development credits (4,402) (4,223) (4,152)
Net operating loss carryforwards 5,718 5,873 5,909
Other (32) (70) (24)
------ ------ ------
Total deferred income tax (3,669) (3,613) (3,490)
------ ------ ------
</TABLE>
Substantially all of the net deferred tax liabilities are of a long term
nature.
Based on tax filings, ASMI and its individual subsidiaries have net
operating losses available at December 31, 1999, of (euro)275 million for tax
return purposes to reduce future income taxes. After deduction of a valuatiON
reserve for financial reporting purposes of (euro)90.2 million in 1999 and 79.9
million in 1998, the resulting deferred tax asset amounts to (euro)5.9 million
at the end of 1999 and to (euro)5.9 million at the end of 1998.
The Company has not provided for deferred foreign withholding taxes, if any,
on undistributed earnings of its foreign subsidiaries, because it considers such
earnings to be indefinitely invested in those subsidiaries.
NOTE H Long-term Debt
Long-term debt consists of the following
<TABLE>
<CAPTION>
December 31,
-----------------------
1998 1999
------ ------
<S> <C> <C>
Term loans:
The Netherlands, 5.16 - 6.75%, due 2000 24,958 24,958
Japan, 3.3%, due 2006 802 800
Hong Kong, 7.3 - 7.5%, due 2000 16,957 10,975
Finland, 1.0 - 3.0%, due 2004 - 2005 -- 2,545
Mortgage loans:
The Netherlands, 5.35 - 6.75%, due 2007 - 2026 2,369 2,121
Japan, 2.625%, due 2005 - 2006 2,897 3,232
Singapore, 6.075%, due 1999 1,285 --
Lease commitments, 5.75 - 9.23%, due 1999 - 2002 323 310
------ ------
49,591 44,941
Current portion 9,990 36,944
------ ------
</TABLE>
<PAGE> 12
<TABLE>
<S> <C> <C>
39,601 7,997
------ ------
</TABLE>
Long-term debt outstanding in local currencies:
<TABLE>
<CAPTION>
(thousands) December 31,
- --------------------------------------------------------------------------------
1998 1999
------- -------
<S> <C> <C>
Including current portion:
Netherlands Guilders 60,220 59,674
Finnish Marks -- 15,135
United States Dollars 349 311
Japanese Yen 491,050 413,270
Hong Kong Dollars 153,618 85,521
Singapore Dollars 2,476 --
------- -------
</TABLE>
Aggregate annual principal repayments for years subsequent to December 31, 1999
are:
<TABLE>
<S> <C>
2000 36,944
2001 1,431
2002 1,699
2003 1,641
2004 1,496
Thereafter 1,730
------
44,941
------
</TABLE>
The Company has pledged its majority ownership of ASMPT as collateral for
the NLG55.0 million ((euro)25.0 millION) term loan and certain credit facilities
in the Netherlands. The quoted market value of this ownership in ASMPT at
December 31, 1999 was (euro)333.9 million or NLG735.8 million (using a year-end
share price of HK$13.80 per share AND an exchange rate of HK$1 = (euro)0.1283).
The long-term facilities offered by Japanese banks to ASM Japan are secured
by the real estate and other assets of ASM Japan, with guarantees provided by
the Company. In Hong Kong and Singapore, ASMPT's term loans are self-secured by
the machinery and real estate they cover. ASMPT is precluded to provide loans
and advances other than trade receivables in the normal course of business, to
other ASM units under the rules of the Stock Exchange of Hong Kong. There are no
guarantees from ASMPT to secure indebtedness of the Company; nor does the
Company provide guarantees for the borrowings of ASMPT. In the U.S.A. the
long-term obligations relate to lease commitments on property, equipment and
machines.
Interest income, which is included in net interest and other financial
income (expenses), amounted to (euro)913, (euro)1,569 and (euro)1,157 in 1999,
1998 and 1997, respectively, and interest expense, which is also included in NET
interest and other financial income (expenses), amounted to (euro)13,210,
(euro)7,566 and (euro)5,838 in 1999, 1998 AND 1997, respectively.
NOTE I Subordinated Debt
The Company has a subordinated loan from 'De Nationale Investeringsbank
N.V.' (NIB) in the amount of NLG4.5 million bearing interest at 8.25 percent.
Repayments on the outstanding balance will be in equal bi-annual installments of
NLG1.5 million ending December 2000.
In 1994, the Company received a subordinated loan from an officer of the
Company who is also a major shareholder, in the amount of NLG3.0 million. This
subordinated loan enabled the Company to repurchase shares issued for the
repayment of principal and interest of the subordinated mandatory convertible
debentures, and thus limit shareholder dilution. This loan was originally due no
later than December 1997. However, repayment has been scheduled to the year
2000. Interest is payable quarterly based on three months AIBOR ('Amsterdam
InterBank Offered Rate') plus 2 percent.
<PAGE> 13
In connection with the settlement with Applied Materials, Inc. (see Note N),
the Company issued a subordinated convertible note to Applied Materials, Inc.
for US$80 million, of which US$15 million was paid in 1997. This note was
subordinated to notes payable to certain banks and was originally due November
2, 1998. Applied Materials, Inc. and ASM International N.V. have restructured
this note, with ASM paying US$20 million on December 23, 1998, and agreeing to
pay US$10 million on or before November 2, 1999 and US$35 million on or before
November 2, 2000. Applied Materials, Inc. received warrants to acquire 750,000
million shares of ASM (see Note J) as well as security for the note in the form
of a pledge on the shares of ASM Europe B.V., ASM America, Inc. and ASM Japan
K.K. Applied Materials, Inc. received a warrant to purchase an additional
750,000 shares contingent upon ASM International not repaying the outstanding
balance on or before February 15, 1999. Interest on this subordinated note is
based on prime rate of a major US financial institution plus 2 percentage points
and is due quarterly. The warrants issued represented a fair value at the date
of issuance of (euro)2.5 million, which haS been added to Shareholders' Equity
in 1998. The amount has been recorded as a discount to the outstanding note and
is amortized as an interest expense over the term of the note.
In December 1998, the Company issued a NLG45 million, 6% subordinated
convertible note, due December 4, 2003, which has been purchased by strategic
and financial investors. The conversion price has been set at NLG9.00 per common
share, the average of the share price on the AEX-Stock Exchange in Amsterdam
during a set period previous to concluding the contract, with protection clauses
for below market price stock issues and stock dividends. At the date of
issuance, the quoted market price of the common shares on the Amsterdam Exchange
exceeded the conversion price creating a debt conversion discount. The discount
amounted to (euro)476 of which (euro)334 has beEN expensed in 1998 and (euro)142
has been expensed in 1999 based on the terms of the contract. The note was fully
converted in 1999.
On August 27, 1999, the Company issued a FIM23 million (Finnish marks), 5%
subordinated convertible note, due August 26, 2002. The note was issued in
conjunction with the acquisition of all of the outstanding shares of
Microchemistry Ltd. The conversion price was set at US$10 per share, a premium
to market at the time of issuance of 33%. The note was fully converted in
November 1999.
On October 1, 1999, the Company issued US$20 million, five-year, zero-coupon
debentures. The debentures are discounted by 6% annual interest and the Company
received net proceeds of US$14.9 million. As part of the agreement, the
investors received 2,037,957 non-detachable exercise warrants and 200,000
supplemental warrants on common shares of the Company with an exercise price of
US$9.81 per share, a premium to market at the date of issuance of 20%. In
February 2000 the Company called the exercise of the 2,037,957 warrants and
cancelled the debentures in partial payment of the exercise price of the
warrants. The remaining portion of the exercise price of the warrants was
fulfilled by the investors contributing US$4.8 million in cash.
Subordinated Debt:
<TABLE>
<CAPTION>
(thousands) December 31,
- -------------------------------------------------------------------------------------
1998 1999
------ ------
<S> <C> <C>
Current:
subordinated loan NIB 2,042 2,042
subordinated loan related party -- 1,361
subordinated note Applied Materials 7,285 33,744
6% subordinated convertible note 6,664 --
6% zero-coupon debentures, less of(euro)4,817 unamortized
discount -- 15,138
------ ------
15,991 52,285
------ ------
subordinated loan NIB 1,361 --
subordinated loan related party 1,361 --
subordinated note Applied Materials 28,799 --
6 % subordinated convertible note 13,614 --
------ ------
45,135 --
------ ------
</TABLE>
<PAGE> 14
NOTE J Shareholders' Equity
The authorized capital of the Company amounts to NLG1,380,000. It is divided
into sixty million common shares, each with a par value of NLG0.01, nine hundred
financing preferred shares, each with a par value of NLG100, and six thousand
nine hundred preferred shares, each with a nominal value of NLG100.
Article 32 of the Articles of Association of ASM International N.V. (the
Company) provides the following with regard to distribution of profit:
Para 1-3:
First, a dividend equal to the promissory discount rate as established by De
Nederlandsche Bank N.V. (the Dutch Central Bank) as applicable on the first
stock exchange day of the financial year over which the dividend is distributed,
increased by one and a half, is paid on the paid up amount which had to be paid
on the preferred shares. If profits are insufficient, the dividend will be paid
from retained earnings with priority over any dividends. If retained earnings
are insufficient, the dividend deficit has to be made up in future years;
Para 4-6:
Second, a dividend is paid on financing preferred shares. The dividend is a
percentage of the par value, plus share premium paid, on the financing preferred
shares. The percentage and the period for its payment (the tenure of the
financing preferred shares) is determined by the Management Board, subject to
approval of the Supervisory Board. The percentage depends on the weighted
average return of Dutch government bonds with a weighted average remaining life
of no more than ten years, plus a premium not to exceed three percent. If
profits are insufficient, the dividend shall be paid from retained earnings. If
retained earnings are insufficient, the dividend deficit has to be made up in
future years;
Para 7:
After application of the provisions in the foregoing paragraphs, the Management
Board, subject to approval from the Supervisory Board, shall determine which
portion of the remaining profits is to be reserved. The profits which remain
after reservation are at the disposal of the General Meeting;
Para 9:
The Company can only make distributions to shareholders and other entitled
parties from the profits subject to distribution to the extent its Shareholders'
Equity exceeds the amount of the paid up and called up portion of the capital
increased by the reserves which must be maintained by virtue of the law;
Article 33, para 3 provides that dividend claims expire after the lapse of
five years.
SPECIAL STATUTORY CONTROL RIGHTS
Article 27, para 1 provides that each shareholder shall be entitled to cast
a number of votes equal to the nominal amount of his shares, such that each
share with a par value of one cent (NLG0.01) entitles the holder to a single
vote and each share with a par value of one hundred guilders (NLG100) entitles
the holder to ten thousand votes;
Article 29 provides that meetings of holders of preferred shares or of
financing preferred shares shall be convened as often as a decision by the
meeting of preferred shares or of financing preferred shares is desired, and
also as often as the Management Board and or the Supervisory Board shall decide
to hold such a meeting. Decisions at such meetings shall be made with an
absolute majority of votes and in the event of a tie, no decision shall be made;
<PAGE> 15
The following resolutions and actions can only be taken on a proposal by the
Management Board and the Supervisory Board:
- - the amendment of the Articles of the Company;
- - the dissolution of the Company.
INFORMATION REGARDING STICHTING CONTINUITEIT ASM INTERNATIONAL
The object of 'Stichting Continuiteit ASM International' ('Stichting') is to
own and vote the Company's preferred shares in order to maintain the continuity
of the Company. Toward that objective, Stichting will evaluate, when called for,
whether a take-over offer is in the best interest of the Company. In accordance
with the applicable regulations of the AEX-Stock Exchange, Stichting is managed
by majority vote of a five-person Board, not more than two of which (Directors
A) may be officers of the Company and at least three of which (Directors B) must
be independent from the Company. Directors A are appointed by the Management
Board, subject to the approval of the Supervisory Board, from among the
Management and Supervisory Boards. Directors B must be independent from the
Company and are appointed by the board of Stichting, subject to approval of the
Management Board with the consent of the Supervisory Board. The Company may not
provide financial support to Stichting.
The Company has, as approved in the General Meeting of May 28, 1997, granted
a right to purchase preferred shares to Stichting for a par value equal to the
par value of half of the outstanding common shares at the time of purchase. The
minimum purchase price of the preferred shares is 25% of the par value. The
shareholders must be informed about the Company's motives within four weeks
after issuance of preferred shares. Within two years after issuing preferred
shares, a proposal to withdraw or repurchase the shares must be submitted to
shareholders and, if not accepted, every two years thereafter. No preferred
shares are outstanding as per December 31, 1999.
The two directors of the Company who have been appointed to the Board of
Stichting are Messrs. P.C. van den Hoek, Chairman of the Supervisory Board and
A.H. del Prado, Chief Executive Officer.
WARRANTS
In December 1998, in conjunction with the restructuring of the subordinated
convertible note with Applied Materials, Inc. ('Applied Materials'), the Company
issued to Applied Materials warrants to purchase 1,500,000 of the Company's
common shares at a price of US$5.375 per share. As of December 31, 1998, Applied
Materials had a right to purchase 750,000 shares. They also had a right to
purchase an additional 750,000 shares, contingent upon the Company not repaying
all outstanding debt due to Applied Materials by February 15, 1999. At December
31, 1998 it was determined that the Company would be unable to repay the
outstanding debt by February 15, 1999 and, therefore, the entire fair market
value of the warrants amounting to Euro 2.5 million has been added to
Shareholders' Equity in 1998. The warrant became exercisable with respect to the
additional 750,000 shares on February 15, 1999. As of December 31, 1999 no
warrants have been exercised.
In conjunction with the US$20 million five-year zero-bond debentures issued
on October 1, 1999 (see Note I to Consolidated Financial Statements), the
Company has issued 2,037,957 non-detachable exercise warrants and 200,000
supplemental warrants on common shares of the Company at a price of US$9.81 per
share, a premium to market at the date of issuance of 20%. In February 2000 the
Company has called the exercise of the 2,037,957 warrants and cancelled the
debentures in partial payment of the exercise price of the warrants. The
remaining portion of the exercise price of the warrants was fulfilled by the
investors contributing US$4.8 million in cash.
NOTE K Pension Plans
The Company and its subsidiaries have retirement plans covering
substantially all employees. The principal plans are defined contribution plans,
except that of the Company's Japanese operations, which is a defined benefit
pension plan. The Company has no major continuing obligations other than the
payment of annual contributions.
<PAGE> 16
Aggregate retirement plan contributions including those for the Japanese
operations which are determined by an actuary were (euro)3,225 in 1999, 3,117 in
1998 and (euro)795 in 1997.
Employees of the Company's Japanese operations terminating their employment
are usually entitled to a lump-sum severance payment or to pension plan benefits
based on years of service and certain other factors. Plan assets are held as
general assets by a life insurance company. There are no unrecognized prior
service costs. The impact of the Japanese plan is not material to the Company.
The Company does not provide any post retirement benefits other than
pensions.
NOTE L Financial Instruments and Risk Management
For cash, cash equivalents, marketable securities, accounts receivable,
notes payable, accounts payable and accrued expenses, the carrying amounts
approximate fair value due to their short maturities.
The estimated fair values of the Company's other financial instruments are as
follows:
<TABLE>
<CAPTION>
1998 1999
- ----------------------------------------------------------------------------------------------
Carrying Fair CARRYING FAIR
Amount Value AMOUNT VALUE
-------- ----- -------- -----
<S> <C> <C> <C> <C>
Forward exchange contracts:
Sell foreign currency -- -- 10,674 10,381
Buy foreign currency -- -- 2,431 2,422
Long-term debt, including current portion:
Long-term debt 49,591 50,698 44,941 44,828
Subordinated debt 61,126 65,664 52,285 50,660
------ ------ ------ ------
</TABLE>
As of December 31, 1998 the Company did not have any forward exchange
contracts of significant value.
Financial Instruments which potentially subject the Company to concentration
of credit risk consisted principally of trade receivables. Concentration of
credit risk with respect to these receivables is limited due to the large number
of customers comprising the Company's customer base and their dispersion across
different geographic areas.
NOTE M Research and Development Credits
The Company's Netherlands and Singapore operations receive research and
development grants and credits from various governmental sources.
The amount of research and development credits offset against research and
development expenses amounted to (euro)3,293, (euro)5,235 and (euro)1,612 in
1999, 1998 and 1997, respectively.
The amounts received by the Company's Netherlands operations for TOK's are
contingently repayable to the extent sales of the products to which the credit
was related occur. The amount of repayment as a percentage of the realized sales
of the associated products varies from 1.0 to 4.0 percent. Actual and contingent
amounts repayable accrue interest varying from 5.0 to 8.0 percent per year. The
remaining amount contingently repayable was (euro)11,863 and (euro)12,067 at
December 31, 1999 and December 31, 1998, respectively.
In 1999, 1998 and 1997 the Company made TOK repayments in the amount of
(euro)1,411, (euro)1,319 and (euro)852 respectively.
NOTE N Commitments and Contingencies
The Company is liable under operating lease commitments for office and plant
facilities and equipment with lease terms ranging from one to fifteen years.
Capital leases included in property, plant and equipment are as follows:
<PAGE> 17
<TABLE>
<CAPTION>
December 31,
----------------------
1998 1999
---- ----
<S> <C> <C>
Machinery and equipment 483 225
Furniture and fixtures 304 354
787 579
Less accumulated depreciation (353) (292)
---- ----
434 287
---- ----
</TABLE>
At December 31, 1999, minimum rental commitments under capital leases and
operating leases having initial or remaining non-cancellable terms in excess of
one year are as follows:
<TABLE>
<CAPTION>
Capital Operating
leases leases
------- ---------
<S> <C> <C>
2000 158 7,758
2001 147 6,233
2002 64 4,378
2003 - 3,698
2004 - 2,864
Thereafter - 19,575
--- ------
Total 369 44,506
Less amount representing interest 59
--- ------
Present value of net minimum lease payments 310
--- ------
</TABLE>
Aggregate rental expense for operating leases in 1999 was (euro)8,039, in
1998 (euro)6,925 and in 1997 4,331.
Effective October 31, 1997, the Company, Advanced Semiconductor Materials
America, Inc. and Epsilon Technology, Inc. (collectively 'ASM') and Applied
Materials, Inc. ('Applied Materials') signed an agreement that resolved all
outstanding legal disputes with Applied Materials and dismissed with prejudice
all pending litigation between the companies.
The settlement required the Company to pay Applied Materials US$80 million
in the form of a convertible note due November 2, 1998 against which the Company
paid US$15 million in November 1997 (see Note I).
Effective December 16, 1998, following the restructuring of the convertible
note (see Note I), ASM and Applied Materials entered into an amended settlement
agreement, the terms of which are not materially different of the agreement,
dated October 31, 1997. The changes included the conversion of ASM's covenants
not to sue into licenses and an increase in certain TEOS related royalties.
The settlement agreement provides a cross license between the parties of the
patents in suit and certain other CVD and TEOS patents and requires ASM to pay
an ongoing royalty on certain semiconductor equipment for epitaxial and plasma
TEOS technologies. The settlement also provides covenants not to sue for patent
infringement for periods up to five years from the date of the settlement for
certain semiconductor systems and applications that are essentially unchanged
from those commercially available on July 1, 1997. If at the end of a covenant
period the product or application is no longer infringing, Applied Materials
cannot recover more than a reasonable royalty from the Company retroactive to
October 31, 1997. Applied Materials may not recover damages for such products
that were sold prior to October 31, 1997.
ASM and Applied Materials also represented and warranted that as of October
31, 1997, neither party was aware of any infringement of its patents by the
other party except for the patents that were asserted in the lawsuits that were
resolved by the settlement. The original settlement agreement was filed with the
United States Securities Exchange Commission on a 6-K-A on November 18, 1997.
The amended settlement agreement was filed on a 6-K-A on February 11, 1999.
<PAGE> 18
NOTE O Restructuring
In early 1999, the Company committed to a formal plan to exit its U.S.
manufacturing activities by merging the manufacturing related activities of ASM
America, Inc. with those of ASM Europe B.V. in the Netherlands. As a consequence
of the merger, ASM America's number of employees have been reduced by 75 with
approximately 50 new positions having been created in the Netherlands. The
Company incurred a one-time charge covering redundancy, write-offs and occupancy
costs of (euro)3,854. These restructuring costs have been recorded as selling,
general anD administrative expenses in the first quarter of 1999. The
(euro)1,855 accrual for contract terminations relates primarily to lease
obligations for property to be vacated. The utilization of this amount and the
remaining accrual as of December 31, 1999 can be summarized as follows:
<TABLE>
<CAPTION>
Non Amount Translation Remaining
Cash Cash Total utilized effect Accrual
---- ---- ----- -------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Lay-off and severance
payments 665 -- 665 585 13 93
Asset write-offs -- 708 708 -- 117 825
Legal contract terminations 1,855 -- 1,855 608 205 1,452
Other 626 -- 626 511 19 134
----- --- ----- ----- --- -----
Total 3,146 708 3,854 1,704 354 2,504
----- --- ----- ----- --- -----
</TABLE>
The Company expects the remaining cash payments and asset write-offs to be
made in the second quarter of 2000. For the legal contract terminations that
relate to lease obligations, such payments may be extended into future periods.
NOTE P Employee Stock Option Plan
During the past several years, the Company has adopted various stock option
plans and has entered into stock option agreements with various key management
personnel. Under these plans, key employees may purchase a specific number of
shares of the Company's common stock. Options are generally priced at market
value in Euro or USDollars on the date of grant and generally expire after five
or ten years. Shares subject to these agreements, which expire at various dates
through 2008, totalled 2,366,400 shares at December 31, 1999.
Following is a summary of changes in shares under option:
<TABLE>
<CAPTION>
Option price Option price
Number of per share in Number of per share in
Shares US dollars shares EUR
------- -------------- --------- -------------
<S> <C> <C> <C> <C>
Balance December 31, 1996 2,531,950 0.250 - 13.625 -- --
options granted 668,500 8.250 - 12.375 287,000 8.44 - 11.98
options cancelled (19,500) 0.750 - 0.501 -- --
options exercised (320,750) 0.250 - 2.333 -- --
--------- -------------- -------- -------------
Balance December 31, 1997 2,860,200 0.250 - 13.625 287,000 8.44 - 11.98
options granted 142,500 3.625 - 10.750 234,000 2.41 - 7.67
options cancelled (48,600) 1.458 - 7.000 (193,000) 11.98
</TABLE>
<PAGE> 19
<TABLE>
<S> <C> <C> <C> <C>
options exercised (961,800) 0.500 - 2.333 -- --
--------- -------------- -------- -------------
Balance December 31, 1998 1,992,300 0.250 - 13.625 328,000 2.41 - 8.44
options granted 230,000 5.625 - 15.625 75,000 6.90 - 19.20
options cancelled (80,000) 3.625 - 12.375 (9,000) 7.67
options exercised (114,700) 0.250 - 8.688 (55,200) 2.41 - 7.67
--------- -------------- -------- -------------
Balance December 31, 1999 2,027,600 0.250 - 15.625 338,800 7.67 - 19.20
--------- -------------- -------- -------------
</TABLE>
Had compensation cost been determined consistent with Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS
123"), pro forma net earnings, basic and diluted earnings per share would have
been as follows:
<TABLE>
<CAPTION>
Fiscal year Fiscal year FISCAL YEAR
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Expected life (years) 3 - 10 3 - 8 3 - 10
Risk free interest rate 6.5% 5.0% 5.0%
Volatility 55% 60% 85%
Assumed forfeitures -- -- --
Net earnings (loss):
As reported (70,476) 232 11,099
Pro forma (71,541) (1,389) 9,621
Basic earnings (loss) per share:
As reported (2.12) 0.01 0.30
Pro forma (2.15) (0.04) 0.26
Diluted earnings (loss) per share:
As reported (2.12) 0.01 0.29
Pro forma (2.15) (0.04) 0.25
------- ------ ------
</TABLE>
The average remaining contractual life of the outstanding options granted in
1999 is 7.3 years at December 31, 1999.
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
Weighted
Number Average Weighted Number Weighted
Range of Outstanding at Remaining Average Exercisable at Average
Exercise December 31, Contractual Exercise December 31, Exercise
Prices in US$ 1999 Life, in years Price in US$ 1999 Price in US$
------------- -------------- -------------- ------------ -------------- ------------
<S> <C> <C> <C> <C> <C>
0.25 -- 0.75 249,500 3.09 0.30 249,500 0.30
0.75 -- 1.50 3,000 4.38 0.96 3,000 0.96
1.50 -- 3.00 783,600 0.20 2.26 783,600 2.26
3.00 -- 6.00 367,000 8.36 5.22 163,400 5.31
6.00 -- 9.00 603,500 4.91 8.23 381,600 8.45
9.00 -- 14.00 324,800 5.51 9.26 105,360 10.21
14.00 -- 20.00 35,000 5.61 18.15 - -
-------------- --------- ---- ----- --------- -----
0.25 -- 20.00 2,366,400 3.79 5.23 1,686,460 4.16
-------------- --------- ---- ----- --------- -----
</TABLE>
In 1989, the shareholders of ASMPT approved a plan to issue up to 5 percent
of the total issued shares of ASMPT to directors and employees. 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 capital
shares for the designees at current market value.
<PAGE> 20
In 1999 1,796,000 common shares of ASMPT were issued, for cash at par,
pursuant to the Employee Share Incentive Scheme of ASMPT, thus diluting ASMI's
ownership from 50.25 to 50.01 percent. In 1998 and 1997, respectively 1,610,000
and 1,553,000 ASMPT shares were issued to certain directors and employees under
the plan (respectively 0.2% and 0.4% of the shares outstanding after the
issuance) and compensation of respectively HK$7.9 million ((euro)888) and HK$9.3
million ((euro)1,088) was charged to operations. The effect of this transaction
on ASMI Was a dilution of its ownership interest in ASMPT from 50.5 to 50.3
percent in 1998, and from 50.7 to 50.5 percent in 1997 taking into consideration
ASMI's purchase of shares at the end of 1997.
NOTE Q Disclosures about Segments and Related Information
The Company organizes its activities in two operating segments, Front-End
and Back-End.
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 South East 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 50.01 % interest, whilst the remaining shares are
listed on the Stock Exchange of Hong Kong. The segment's main operations are
located in Hong Kong, Singapore and the People's Republic of China.
<TABLE>
<CAPTION>
Front-End Back-End Total
--------- -------- --------
<S> <C> <C> <C>
Year ended 31 December, 1997
Net sales to unaffiliated customers 152,550 169,032 321,582
------- ------- -------
Earnings (loss) from operations (79,663) 25,642 (54,021)
Net interest and other financial income (expenses) (2,100) (1,139) (3,239)
Income tax (194) (2,567) (2,761)
Minority interest -- (10,455) (10,455)
Net earnings (loss) (81,957) 11,481 (70,476)
Capital expenditures 21,882 13,289 35,171
Total assets 142,899 185,690 328,589
Short term debt 64,428 9,772 74,200
Long term debt 27,058 19,553 46,611
------- ------- -------
Year ended 31 December, 1998
Net sales to unaffiliated customers 132,858 155,253 288,111
------- ------- -------
Earnings (loss) from operations (1,604) 14,095 12,491
Net interest and other financial income (expenses) (4,966) (384) (5,350)
Income tax (17) (631) (648)
Minority interest -- (6,261) (6,261)
Net earnings (loss) (6,587) 6,819 232
Capital expenditures 9,212 14,930 24,142
Total assets 119,060 163,890 282,950
Short term debt 18,415 8,845 27,260
Long term debt 76,491 9,421 85,912
------- ------- -------
Year ended 31 December, 1999
Net sales to unaffiliated customers 181,737 232,758 414,495
Earnings (loss) from operations (805) 40,160 39,355
</TABLE>
<PAGE> 21
<TABLE>
<S> <C> <C> <C>
Net interest and other financial income (expenses) (6,841) (1,767) (8,608)
Income tax (141) (1,133) (1,274)
Minority interest -- (18,374) (18,374)
Net earnings (loss) (7,787) 18,886 11,099
Capital expenditures 8,996 21,591 30,587
Total assets 182,268 242,767 425,035
Short term debt 79,431 10,975 90,406
Long term debt 7,997 -- 7,997
------- ------- -------
</TABLE>
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.
Segmentation of the business by geographic area, in which the Company has
operating units, in sales to unaffiliated customers and fixed assets is
summarised as follows:
<TABLE>
<CAPTION>
Europe United States Far East Japan Consolidated
------ ------------- -------- ----- ------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1997
Sales to unaffiliated customers 40,435 39,789 167,145 74,213 321,582
Fixed assets 9,886 12,445 72,958 16,097 111,386
------ ------ ------- ------ -------
Year ended December 31, 1998
Sales to unaffiliated customers 47,320 40,238 153,619 46,934 288,111
Fixed assets 8,055 10,339 69,665 18,291 106,350
------ ------ ------- ------ -------
Year ended December 31, 1999
Sales to unaffiliated customers 49,299 55,650 231,471 78,075 414,495
Fixed assets 16,286 9,230 87,048 20,370 132,934
------ ------ ------- ------ -------
</TABLE>
In 1999 one single customer accounted for 11 percent of the total net sales. In
1998 no transactions with a single customer exceeded 10 percent of total net
sales.
NOTE R Basic and Diluted Average Number of Shares Outstanding
The weighted average number of shares outstanding for 1999, 1998 and 1997 is as
follows:
<TABLE>
<CAPTION>
Year ended December 31
1997(1) 1998 1999
<S> <C> <C> <C>
Basic weighted average number of shares outstanding at the
end of period 33,232 33,794 37,301
Dilutive effect of stock options -- 949 934
Diluted effect of convertible notes -- -- 2,429
------ ------ ------
Diluted weighted average number of shares outstanding 33,232 34,743 40,664
------ ------ ------
</TABLE>
(1) Due to the net loss reported in 1997, no dilutive common stock equivalents
have been reflected in the dilutive weighted average number of shares for
that year.
<PAGE> 22
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
ASM International N.V.
Bilthoven, The Netherlands
We have audited the accompanying consolidated balance sheets of ASM
International N.V. and subsidiaries (collectively, the 'Company') as of December
31, 1999 and 1998, and the related consolidated statements of operations,
comprehensive income, shareholders' equity and cash flows for each of the three
years in the period ended December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards in the United States of America. 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 referred to above
present fairly, in all material respects, the financial position of ASM
International N.V. and subsidiaries as of December 31, 1999 and 1998, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1999, in conformity with generally accepted
accounting principles in the United States of America.
/s/ DELOITTE & TOUCHE ACCOUNTANTS
- ---------------------------------
Deloitte & Touche
Accountants
Amsterdam, the Netherlands,
February 18, 2000
<PAGE> 1
EXHIBIT 3
[DELOITTE & TOUCHE LETTERHEAD]
Date Reference
March 14, 2000 A. Sandler
INDEPENDENT AUDITORS' CONSENT
We consent to the inclusion in this Annual Report on Form 20-F of our
Independent Auditors' Report on the financial statement schedules of ASM
International N.V. for the year ended December 31, 1999.
/s/ Deloitte & Touche Accountants
- ---------------------------------
<PAGE> 1
EXHIBIT 4
[DELOITTE & TOUCHE LETTERHEAD]
Date Reference
March 14, 2000 A. Sandler
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation in ASM International N.V.'s Registration
Statements no.'s 33-6184, 33-6185, 33-6186, 33-78628 and 33-93026 on Form S-8
and no. 333-8080 and 333-11502 on Form F-3 of our report dated February 18,
2000, on the consolidated financial statements of ASM International N.V., which
are included in this annual report on Form 20-F of ASM International N.V., for
the year ended December 31, 1999.
/s/ Deloitte & Touche Accountants
