ASM International reports 2004 and first half 2005 financial position and operating results in accordance with International Financial Reporting Standards

BILTHOVEN, THE NETHERLANDS, August 1, 2005 - ASM International N.V. (NASDAQ: ASMI and Euronext Amsterdam: ASM) reports today its 2004 and first half 2005 financial position and operating results in accordance with International Financial Reporting Standards.

 

 

ASMI's primary consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America ("US GAAP"). The Annual Report for 2004, including consolidated financial statements prepared in accordance with US GAAP, was published on February 24, 2005. US GAAP will continue to be the Company's primary set of accounting principles.

 

ASMI is required by European Regulations to also publish consolidated financial statements in accordance with International Financial Reporting Standards ("IFRS") from 2005 onwards. ASMI's first consolidated financial statements prepared in accordance with IFRS will be included in its Dutch Statutory Annual Report for 2005, including the consolidated financial statements of 2004 for comparison purposes. These consolidated financial statements replace the consolidated financial statements ASMI prepared through 2004 in accordance with accounting principles generally accepted in the Netherlands ("Dutch GAAP"), included in its Dutch Statutory Annual Reports through 2004.

 

This presentation includes an overview of the differences between IFRS and US GAAP applicable to ASMI. The IFRS standards expected to be applicable to the Dutch Statutory Annual Report for 2005 have been applied in preparing this presentation. These standards are subject to endorsement by the EU and interpretative guidance from the International Accounting Standards Board ("IASB"). Accordingly, this presentation is tentative and subject to change to reflect new interpretative guidance. ASMI's final 2004 financial statements prepared in accordance with IFRS will be included in its Dutch Statutory Annual Report for 2005.

 

Although IFRS has an impact on the way ASMI's consolidated financial statements are presented, IFRS does not have an impact on ASMI's business, business decisions, performance or cash flows.

 

 

ASMI has identified a number of differences between IFRS and US GAAP applicable to the Company. The differences relate to accounting for goodwill under IFRS 3 "Business Combinations," accounting for minority interest under IAS 27 "Consolidated and Separate Financial Statements," accounting for convertible subordinated notes under IAS 32 "Financial Instruments: Disclosure and Presentation," accounting for development expenses under IAS 38 "Intangible Assets" and accounting for option plans and share incentives under IFRS 2 "Share-based Payment."

 

The impact of these differences is summarized as follows:

 

(euro millions)	Equity as of January 1, 2004	Net earnings year ended December 31, 2004	Equity as of  December 31, 2004
US GAAP	204.6	24.0	256.7
Adjustments for IFRS:
Goodwill	(13.2)	-	(12.3)
Classification of minority interest	87.2	45.2	90.9
Convertible subordinated debt	32.1	(5.6)	44.7
Development expenses	-	-	-
Share-based payment	6.2	(1.8)	5.4
Total adjustments	112.3	37.8	128.7
IFRS	316.9	61.8	385.4
IFRS allocation of net earnings:
Shareholders		16.6
Minority interest		45.2

(euro millions)	Net earnings (loss) three months ended				Equity as of June 30, 2005
	March 31, 2004	March 31, 2005	June 30, 2004	June 30, 2005
US GAAP	14.6	(7.2)	4.4	0.5	268.3
Adjustments for IFRS:
Goodwill	-	-	-	-	(13.8)
Classification of minority interest	16.6	4.5	11.0	10.6	98.3
Convertible subordinated debt	(1.5)	(1.1)	(2.5)	(0.3)	43.4
Development expenses	-	4.7	-	5.3	10.5
Share-based payment	(0.1)	(0.4)	(0.9)	(0.1)	5.6
Total adjustments	15.0	7.7	7.6	15.5	144.0
IFRS	29.6	0.5	12.0	16.0	412.3
IFRS allocation of net earnings:
Shareholders	13.0	(4.0)	1.0	5.4
Minority interest	16.6	4.5	11.0	10.6

 

 

In addition, ASMI has identified differences between IFRS and US GAAP with respect to the presentation of pooled cash balances with banks and deferred tax assets.

 

 

IFRS 1 "First time adoption of IFRS" includes a transition option to apply IFRS 3 prospectively from the transition date (January 1, 2004). ASMI has elected to apply this option and accordingly, all accounting under Dutch GAAP for business combinations prior to January 1, 2004 is fixed at the transition date and the corresponding value of goodwill is fixed as well. As a result of amortization of goodwill under Dutch GAAP prior to January 1, 2004, the value of goodwill under IFRS as of January 1, 2004 is € 13.2 million lower when compared to the value of goodwill under US GAAP as of January 1, 2004. Since this balance relates to non-euro denominated acquisitions, this difference will fluctuate over time with currency rate fluctuations.

 

In addition, IFRS requires the inclusion of contingent consideration in the cost of acquisition if it is probable and can be estimated reliably, while under US GAAP, contingent consideration is generally excluded from the cost of acquisition until the contingency is resolved. Under IFRS, the Company has accounted for contingent consideration with respect to the acquisitions completed in 2004, of € 1.9 million as of December 31, 2004 and € 2.1 million as of June 30, 2005 in both goodwill and accrued expenses.

 

 

IAS 27 requires ASMI to classify minority interest of third parties in the Company's subsidiaries in its equity. Under US GAAP, minority interest is classified between liabilities and equity. Accordingly, IAS 27 requires ASMI not to deduct minority interest from net earnings. Instead, the allocation of net earnings to shareholders and minority interest is presented below the consolidated statement of operations. Under US GAAP, minority interest in net earnings of subsidiaries is deducted from the Company's net earnings.

 

 

ASMI's convertible notes are compound financial instruments that include two components: a liability component (the note) and an equity component (the conversion option). IAS 32 requires a separation between these financial instruments. Accordingly, the conversion option is measured at fair value at issuance, separated from the liability and classified in equity. The liability is initially measured at fair value and subsequently measured at amortized cost. Under US GAAP and Dutch GAAP such a separation is not required. Subsequent to the initial separation, the liability component accrues over time to its nominal value, resulting in additional interest expenses.

 

The impact from the separation includes the following components:

 

 

The impacts are summarized as follows:

 

(euro millions)	Equity as of January 1, 2004	Net earnings year ended December 31, 2004	Equity as of December 31, 2004	Net earnings six months ended June 30, 2005	Equity as of June 30, 2005
Separation of conversion option	42.0	-	60.2	-	60.2
Changes in income taxes	10.2	7.8	18.0	-	18.0
Additional interest expense	(18.9)	(11.8)	(30.7)	(6.5)	(37.2)
Currency rate fluctuations	(1.2)	(1.6)	(2.8)	5.2	2.4
Total	32.1	(5.6)	44.7	(1.3)	43.4

 

Due to the early extinguishment of convertible subordinated debt in 2004 and in the six months ended June 30, 2005, the related conversion option classified in equity of € 4.0 million and € 1.1 million respectively was transferred from accumulated other comprehensive loss to retained earnings.

 

 

IAS 38 requires capitalization of development costs if, and only if, an entity can demonstrate all of the following:

 

 

US GAAP prohibits capitalization of research and development costs. Prior to December 31, 2004 ASMI's administrative systems did not distinguish between research costs and development costs and as a result, the Company could not demonstrate its ability to measure the expenditure attributable to the intangible asset during its development reliably. At January 1, 2005, the Company implemented a change to its administrative systems and is able to reliably capture development costs. As a result, from 2005 onwards the Company capitalizes development costs that meet the above-mentioned criteria in its consolidated financial statements prepared in accordance with IFRS. At June 30, 2005 the Company capitalized € 11.6 million in development costs and € 1.1 million in deferred tax liabilities.

 

 

IFRS 2 requires expensing the fair value of options. The Company adopted IFRS 2 at January 1, 2004 for options granted after November 7, 2002 and not yet vested at January 1, 2005. The impact on net earnings in 2004 and in the six months ended June 30, 2005, when prepared in accordance with IFRS, is an expense of € 1.4 million and € 0.4 million respectively.

 

In addition, IFRS 2 requires the expense of share-based payments to be recorded in the vesting period. Under US GAAP, ASMI records the expense of the employee share incentive scheme of ASM Pacific Technology Ltd. in the granting period. The impact on equity as of January 1, 2004, when prepared in accordance with IFRS, is an additional income of € 6.2 million of which € 2.9 million is allocated to minority interest. The impact on net earnings in 2004, when prepared in accordance with IFRS, is an expense of € 0.8 million, of which € 0.4 million is allocated to minority interest. The impact on net earnings in the six months ended June 30, 2005, when prepared in accordance with IFRS, is an additional income of € 0.2 million, of which € 0.1 million is allocated to minority interest.

 

 

 

ASM International N.V., headquartered in Bilthoven, the Netherlands, and its subsidiaries design and manufacture equipment and materials used to produce semiconductor devices. ASM International and its subsidiaries provide production solutions for wafer processing (Front-end segment) as well as assembly and packaging (Back-end segment) through facilities in the United States, Europe, Japan and Asia. ASM International's common stock trades on NASDAQ (symbol ASMI) and the Euronext Amsterdam Stock Exchange (symbol ASM). For more information, visit ASMI's website at http://www.asm.com.