ASM International NV (ASMI, or the Company) is a Dutch public liability company domiciled in the Netherlands with its principal operations in Europe, the United States of America, and Asia. The Company dedicates its resources to the research, development, manufacturing, marketing and servicing of equipment and materials used to produce mainly semiconductor devices. The Company is registered at Versterkerstraat 8, 1322 AP Almere, the Netherlands.
The Company's shares are listed for trading on the Euronext Amsterdam Stock Exchange (symbol ASM).
The accompanying Consolidated financial statements include the financial statements of ASM International NV, and its consolidated subsidiaries (together referred to as ASMI, or the Company). ASMI's subsidiaries are listed in Note 2 and associates are listed in Note 6.
The consolidated financial statements for the year ended December 31, 2017 have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union and also comply with the financial reporting requirements included in Section 362(9) of Part 9, Book 2 of the Dutch Civil Code.
The financial statements have been prepared by the Management Board of the Company and authorized for issue on March 16, 2018 and will be submitted for adoption to the Annual General Meeting of Shareholders (AGM) on May 28, 2018.
The financial statements will be filed at the Trade Register of the Chamber of Commerce in Almere, the Netherlands within eight days of adoption by the 2018 AGM.
The accompanying Consolidated financial statements are presented in Euro (EUR), which is the Company's functional currency. All amounts have been rounded to the nearest thousand, unless otherwise indicated.
The Consolidated financial statements have been prepared under the historical cost convention, unless otherwise indicated. The Company applies the going concern basis in preparing its financial statements.
Historical cost is generally based on the fair value of the consideration given in exchange for goods and services.
A number of the Company’s accounting policies and disclosures require the measurement of fair values, for both financial and non-financial assets and liabilities.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique.
The Company has an established approach with respect to the measurement of fair values. If third-party information, such as broker quotes or pricing services, is used to measure fair values, the Company assesses and documents the evidence obtained from the third parties to support the conclusion that such valuations meet the requirements of IFRS, including the level in the fair value hierarchy in which such valuations should be classified.
Fair values are categorized into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows:
Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).
Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
If the inputs used to measure the fair value of an asset or a liability fall into different levels of the fair value hierarchy, then the fair value measurement is categorized in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement.
Further information about the assumptions made in measuring fair values is included in the following Notes:
In preparing these Consolidated financial statements, management has made judgments, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to estimates are recognised prospectively.
Information about assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment to the carrying amounts of assets and liabilities within the year ended December 31, 2017 is included in the following Notes:
A critical accounting policy is defined as one that is both material to the presentation of ASMI’s Consolidated financial statements and that requires management to make difficult, subjective or complex judgments that could have a material effect on ASMI’s financial condition or results of operations. Specifically, these policies have the following attributes: (1) ASMI is required to make assumptions about matters that are highly uncertain at the time of the estimate; and (2) different estimates ASMI could reasonably have used, or changes in the estimate that are reasonably likely to occur, could have a material effect on ASMI’s financial condition or results of operations.
Estimates and assumptions about future events and their effects cannot be determined with certainty. ASMI bases its estimates on historical experience and on various other assumptions believed to be applicable and reasonable under the circumstances. These estimates may change as new events occur, as additional information is obtained, and as ASMI’s operating environment changes. These changes have historically been minor and have been included in the consolidated financial statements as soon as they became known. In addition, management is periodically faced with uncertainties, the outcomes of which are not within its control and will not be known for prolonged periods of time. Based on a critical assessment of its accounting policies and the underlying judgments and uncertainties affecting the application of those policies, management believes that ASMI’s Consolidated financial statements are fairly stated in accordance with IFRS, and provide a meaningful presentation of ASMI’s financial condition and results of operations. An analysis of specific sensitivity to changes of estimates and assumptions is included in the Notes to the financial statement.
Management believes that the following accounting policies are critical:
The Company adopted new and/or revised standards and interpretations that came into effect from January 1, 2017. The initial application of those standards and interpretations does not have any material impact on the Consolidated financial statements.
The Company has consistently applied the following accounting policies to all periods presented in these Consolidated financial statements.
The Consolidated financial statements include the accounts of ASMI and all of its subsidiaries where ASMI holds a controlling interest. Non-controlling interest is disclosed separately, where appropriate, in the Consolidated financial statements.
Control is achieved when ASMI has:
ASMI reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control listed above.
As from the date these criteria are met, financial data of the relevant subsidiary are included in the consolidation and deconsolidated from the date on which ASMI's control ceases.
Upon loss of control, ASMI derecognizes the assets and liabilities of the subsidiary. Any surplus or deficit arising on the loss of control is recognized in profit or loss. If ASMI retains any interest in this subsidiary, then such interest is measured at fair value at the date on which control is lost. Subsequently, it is accounted for as an equity-accounted investee or as an available-for-sale financial asset, depending on the level of influence retained.
Subsidiaries are entities controlled by the Company. The financial statements of subsidiaries are included in the Consolidated financial statements from the date on which control commences until the date on which control ceases.
The Company’s interests in equity-accounted investees comprise investments in associates.
Associates are those entities in which the Company has significant influence, but not control or joint control, over the financial and operating policies.
Interests in associates are accounted for using the equity method. They are initially recognized at cost, which includes transaction costs. Upon acquisition of the investment in an associate, any excess of the cost of the investment over the Company’s share of the net fair value of the identifiable assets and liabilities of the investee is recognized as goodwill, which is included in the carrying amount of the investment.
Subsequent to initial recognition, the consolidated financial statements include the Company's share of the profit or loss and other comprehensive income (OCI) of equity-accounted investees, until the date on which significant influence ceases.
Intra-group balances and transactions, and any unrealized income and expenses arising from intra-group transactions, are eliminated. Unrealized gains arising from transactions with equity-accounted investees are eliminated against the investment to the extent of the Company’s interest in the investee. Unrealized losses are eliminated in the same way as unrealized gains, but only to the extent that there is no evidence of impairment.
The individual financial statements of each group entity are presented in their local functional currency. For the purpose of the Consolidated financial statements, the results and financial position of each entity is expressed in euros, which is ASMI's functional currency and the presentation currency for the Consolidated financial statements.
In preparing the financial statements of the individual entities, transactions in foreign currencies are recorded at the exchange rates on the date of the transactions. At each balance sheet date, monetary items denominated in foreign currencies are translated at the rates prevailing on the balance sheet date. Non-monetary items carried at fair value that are denominated in foreign currencies are translated at the rates prevailing on the date when the fair value was determined.
Exchange rate differences arising on the settlement of monetary items, and on the translation of monetary items, are recognized in the Consolidated Statement of Profit or Loss in the period in which they arise. Exchange rate differences arising on the translation of non-monetary items carried at fair value are recognized in the Consolidated Statement of Profit or Loss for the period except for differences arising on the translation of non-monetary items in respect of which gains and losses are recognized directly in equity.
For the purpose of presenting Consolidated financial statements, assets and liabilities of foreign operations are translated into euro at the exchange rates at the reporting date. The income and expenses of foreign operations are translated into euro at the exchange rates at the dates of the transactions.
Foreign currency differences are recognized in OCI and accumulated in the translation reserve, except to the extent that the translation difference is allocated to non-controlling interest.
When a foreign operation is disposed of in its entirety or partially such that control or significant influence is lost, the cumulative amount in the translation reserve related to that foreign operation is reclassified to profit or loss as part of the gain or loss on disposal. If the Company disposes of part of its interest in a subsidiary but retains control, then the relevant proportion of the cumulative amount is reattributed to non-controlling interest. When the Company disposes of only part of an associate while retaining significant influence, the relevant proportion of the cumulative amount is reclassified to profit or loss.
The Back-end segment is still reported as a separate segment after the Company ceased control on March 15, 2013, since the full results of the Back-end segment are continued to be reviewed by our Chief Operating Decision Maker (CODM).
The Company organizes its activities in two operating segments, Front-end and Back-end. Operating segments are reported in a manner consistent with the internal reporting provided to the Chief Executive Officer (CEO), which is the CODM. Operating segments are in line with the reporting segments.
Accordingly, the asset and profit or loss information regarding the operations that comprise the segment are disclosed. The full financial results are reviewed by the CODM, the external reporting of the segment is on an equity method investment basis. The total of all segments' financial amounts are reconciled to the corresponding amounts reported in the Consolidated financial statements, eliminations are reflected in the reconciling column for amounts reported in excess of those amounts reflected in the Consolidated financial statements.
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, South Korea and Southeast Asia.
The Back-end segment manufactures and sells equipment and materials used in assembly and packaging, encompassing the processes in which silicon wafers are separated into individual circuits and subsequently assembled, packaged and tested. The segment is organized in ASM Pacific Technology Ltd, in which the Company holds a 25.18% interest, whilst the remaining shares are listed on the Stock Exchange of Hong Kong.
Items of property, plant and equipment are measured at cost, which includes capitalized borrowing costs, less accumulated depreciation and any accumulated impairment losses.
If significant parts of an item of property, plant and equipment have different useful lives, then they are accounted for as separate items (major components) of property, plant and equipment.
Depreciation is calculated to write off the cost of items of property, plant and equipment less their estimated residual values using the straight-line method over their estimated useful lives, and is generally recognized in profit or loss. The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis.
The estimated useful lives of property, plant and equipment for current and comparative periods are as follows:
|Land, building and leasehold improvements||0-25 years|
|Machinery equipment||2-10 years|
|Furniture and fixtures and other equipment||2-10 years|
An item of property, plant and equipment is recognized upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss on disposal of an item of property, plant and equipment is recognized in profit or loss.
The Company accounts for business combinations using the acquisition method when control is transferred to the Company. The consideration transferred in the acquisition is generally measured at fair value, as are the identifiable net assets acquired. Any goodwill that arises is tested annually for impairment. Transaction costs are expensed as incurred.
Goodwill represents the excess of the costs of an acquisition over the fair value of the amounts assigned to assets acquired and liabilities incurred or assumed of the acquired subsidiary at the date of acquisition. Goodwill on acquisition of subsidiaries is allocated to cash generating units (CGUs) for the purpose of impairment testing. The allocation is made to those CGUs that are expected to benefit from the business combination in which the goodwill arose. Goodwill is tested for impairment annually and whenever events or changes in circumstances indicate that the carrying amount of the goodwill may not be recoverable. If the recoverable amount of the CGU is less than the carrying amount of the unit, the impairment loss is recognized. An impairment loss recognized for goodwill is not reversed in a subsequent period. Goodwill is stated at cost less accumulated impairment losses.
The Company’s policy for goodwill arising on the acquisition of an associate is described in Note 6 'Investments in Associates'.
Other intangible assets include capitalized development expenses, software, purchased technology and remaining other intangible assets. Other intangible assets that are acquired by the Company with finite useful lives are measured at cost less accumulated amortization and any accumulated impairment losses.
Expenditure on research activities is recognized in profit or loss as incurred.
In determining the capitalization of development expenses, the Company makes estimates and assumptions based on expected future economic benefits generated by products that are the result of these development expenses. Other important estimates and assumptions are the required internal rate of return, the distinction between research, development and high-volume manufacturing and the estimated useful life.
Development expenses are capitalized when all of the following criteria are demonstrated:
The Company capitalizes development expenses that meet the above-mentioned criteria in its Consolidated financial statements. Subsequent to initial recognition, internally-generated intangible assets are reported at cost less accumulated amortization and accumulated impairment losses, on the same basis as intangible assets that are acquired separately.
Amortization of capitalized development expenses is calculated using the straight-line method over the estimated useful lives of the developed product. Amortization starts when the developed product is transferred to high-volume manufacturing.
Amortization method, useful life and residual value are reviewed at each reporting date and adjusted if appropriate.
The estimated useful lives of other intangible assets for current and comparative periods are as follows:
|Development cost||5 years|
|Purchased technology and other intangible assets||5-7 years|
Investments in associates are investments in entities in which ASMI can exert significant influence but which ASMI does not control, generally having between 20% and 50% of the voting rights. These entities are accounted for using the equity method and are initially recognized at cost. Dividend income from the Company’s associated companies is recognized when the right to receive payment is established. Their carrying value includes goodwill identified upon acquisition, net of any accumulated impairment.
When ASMI’s share of losses in an associate equals or exceeds its interest in the associate, including any other receivables for which settlement is neither planned nor likely to occur in the foreseeable future, ASMI does not recognize further losses, unless ASMI has obligations to or made payments on behalf of the associate.
At each reporting date, the Company determines if there is any objective evidence that the associate is impaired. An impairment, being the difference between the recoverable amount of the associate and its carrying value, is recognized in the Consolidated statement of profit or loss.
ASMI does not separately test associates' underlying assets for impairment. However, ASMI recognizes its share of any impairment charge recorded by an investee and considers the effect, if any, of the impairment on the basis difference in the assets giving rise to the investee’s impairment charge. A loss in value of an investment which is significant or prolonged will be recognized. Significant is defined as at least 20% over an uninterrupted period of nine months, or more than 40% on the reporting date. Prolonged is defined as measured below cost for more than a year.
Equity method investments are tested for prolonged decline in value. If the fair value of an investment is less than its carrying value, the Company determines whether the decline in value is temporary or prolonged. A prolonged decline in value is measured as of a balance sheet date. If after a prior recognized impairment the fair value is more than its carrying value, this impairment is reversed. The determination of whether an investment is impaired is made at the individual security level in each reporting period.
Evaluation tools at customers are systems generally delivered to customers under evaluation and include substantial customization by our engineers and R&D staff in the field. Evaluation tools are recorded at cost and depreciated using the straight-line method over their estimated useful life of five years, or their shorter economic life. The depreciation expenses are reported as cost of sales.
On final acceptance from the customer, the purchase consideration is recognized as revenue and the carrying value of the evaluation system is recognized as cost of sales. In the circumstance that the system is returned, at the end of the evaluation period, a detailed impairment review takes place, and future sales opportunities and additional costs are identified. It is only when the fair value is below the carrying value of the evaluation tool that an additional depreciation is recognized. The remaining carrying value is recognized as finished goods (inventory).
Inventories are stated at the lower of cost or net realizable value. Costs include net prices paid for materials purchased, charges for freight and custom duties, production labor costs and factory overhead. Allowances are made for slow-moving, obsolete or unsellable inventory.
Allowances for obsolescence of inventory are determined based on the expected demand as well as the expected market value of the inventory. We regularly evaluate the value of our inventory of components and raw materials, work in progress and finished goods, based on a combination of factors including the following: forecasted sales, historical usage, product end of life cycle, estimated current and future market values, service inventory requirements and new product introductions, as well as other factors. Purchasing requirements and alternative uses for the inventory are explored within these processes to mitigate inventory exposure. We record write-downs for inventory based on the above factors and take into account worldwide quantities and demand into our analysis.
The Company classifies non-derivative financial assets into loans and receivables. The Company classifies non-derivative financial liabilities into other financial liabilities.
The Company initially recognizes receivables on the date when they are originated. Receivables comprise account (trade) and other receivables and cash and cash equivalents. Receivables are measured at amortized cost using the effective interest method, less any impairment. Financial assets and financial liabilities are initially recognized on the trade date when the entity becomes a party to the contractual provisions of the instrument.
The Company derecognizes a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all of the risks and rewards of ownership of the financial asset are transferred, or it neither transfers nor retains substantially all of the risks and rewards of ownership and does not retain control over the transferred asset. Any interest in such derecognizes a financial asset that is created or retained by the Company is recognized as a separate asset or liability.
The Company derecognizes a financial liability when its contractual obligations are discharged or cancelled, or expired.
Financial assets and financial liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Company currently has a legally enforceable right to offset the amounts and intends either to settle them on a net basis or to realize the asset and settle the liability simultaneously.
Loans and receivables are initially measured at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, they are measured at amortized cost using the effective interest method.
A significant percentage of our accounts receivable is derived from sales to a limited number of large multinational semiconductor device manufacturers located throughout the world. In order to monitor potential credit losses, we perform ongoing credit evaluations of our customers' financial condition. An allowance for doubtful accounts is maintained for potential credit losses based upon management's assessment of the expected collectability of all accounts receivable. The allowance for doubtful accounts is reviewed periodically to assess the adequacy of the allowance. In making this assessment, management takes into consideration any circumstances of which we are aware regarding a customer's inability to meet its financial obligations; and our judgments as to potential prevailing economic conditions in the industry and their potential impact on the Company's customers.
The allowance is based on historical experience, credit evaluations, specific customer collection history and any customer-specific issues ASMI has identified. Changes in circumstances, such as an unexpected adverse material change in a major customer’s ability to meet its financial obligation to ASMI or its payment trends, may require us to further adjust our estimates of the recoverability of amounts due to ASMI, which could have an adverse material effect on ASMI’s financial condition and results of operations.
Cash and cash equivalents consist of deposits held at call with banks, investments in money market funds that invest in debt securities of financial institutions and other short-term highly liquid investments with original maturity of three months or less. Bank overdrafts are included in notes payable to banks in current liabilities.
Other non-derivative financial liabilities are initially measured at fair value less any directly attributable transaction costs. Subsequent to initial recognition, these liabilities are measured at amortized cost using the effective interest method.
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares are recognized as a deduction from equity, net of any tax effects.
Preference share capital is classified as equity if it is non-redeemable, or redeemable only at the Company’s option, and any dividends are discretionary. Discretionary dividends thereon are recognized as distributions within equity upon approval by the Company’s shareholders.
Preference share capital is classified as a financial liability if it is redeemable on a specific date or at the option of the shareholders, or if dividend payments are not discretionary. Non-discretionary dividends thereon are recognized as interest expense in profit or loss as accrued.
When shares recognized as equity are repurchased, the amount of the consideration paid, which includes directly attributable costs, is recognized as a deduction from equity. Repurchased shares are classified as treasury shares and are presented in the treasury share reserve. When treasury shares are sold or reissued subsequently, the amount received is recognized as an increase in equity and the resulting surplus or deficit on the transaction is presented in a non-distributable capital reserve.
The associate ASMPT yearly issues common shares pursuant to their employee share incentive scheme. The effect of these issuances is a dilution of the Company's ownership in ASMPT. The Company recognizes the impact of these issuances directly into equity.
Comprehensive income consists of net earnings (loss) and other comprehensive income. Other comprehensive income includes gains and losses that are not included in net earnings, but are recorded directly in equity.
Provisions are recognized when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that the Group will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation.
Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The unwinding of the discount is recognized as finance cost.
Financial assets not classified as at fair value through profit or loss, including an interest in an equity-accounted investee, are assessed at each reporting date to determine whether there is objective evidence of impairment.
Objective evidence that financial assets are impaired includes, default or delinquency by a debtor, restructuring of an amount due to the Company on terms that the Company would not consider otherwise, indications that a debtor or issuer will enter bankruptcy, adverse changes in the payment status of borrowers or issuers, the disappearance of an active market for a security because of financial difficulties, or observable data indicating that there is a measurable decrease in the expected cash flows from a group of financial assets.
The Company considers evidence of impairment for these assets at both an individual asset and a collective level. All individually significant assets are individually assessed for impairment. Those found not to be impaired are then collectively assessed for any impairment that has been incurred but not yet individually identified.
The impairment method for account receivables is described at Note 9 Accounts Receivable.
An impairment loss in respect of an equity-accounted investee is measured by comparing the recoverable amount of the investment with its carrying amount. An impairment loss is recognized in profit or loss, and is reversed if there has been a favorable change in the estimates used to determine the recoverable amount
At each reporting date, the Company reviews the carrying amounts of its non-financial assets (other than biological assets, investment property, inventories and deferred tax assets) to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. Goodwill is tested annually for impairment.
For impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or CGUs. Goodwill arising from a business combination is allocated to CGUs or groups of CGUs that are expected to benefit from the synergies of the combination.
The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to sell. Value in use is based on the estimated future cash flows, discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or CGU.
An impairment loss is recognized if the carrying amount of an asset or CGU exceeds its recoverable amount.
Impairment losses are recognized in profit or loss. They are allocated first to reduce the carrying amount of any goodwill allocated to the CGU, and then to reduce the carrying amounts of the other assets in the CGU on a pro rata basis.
An impairment loss in respect of goodwill is not reversed. For other assets, an impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized.
The Company has various contractual obligations such as operating lease commitments, purchase commitments and commitments for capital expenditure. These obligations are generally not recognized as liabilities on the Company's statement of financial position but are disclosed in the Notes to the financial statements.
Revenue is measured at the fair value of the consideration received or receivable. Revenue is reduced for estimated customer returns, rebates and other similar allowances.
The Company's revenue includes revenue from contractual arrangements consisting of multiple deliverables, such as equipment and installation. The revenue for the total transaction is first allocated to its components, based on their relative selling prices. Then the revenue allocated to the undelivered component is deferred. The revenue from the undelivered element of the arrangement is deferred at the relative selling price until delivery of the element.
The Company's sales frequently involve complex equipment, which may include customer-specific criteria, sales to new customers or equipment with new technology. For each sale, the decision whether to recognize revenue is, in addition to shipment and factory acceptance, based on the contractual agreement with a customer, the experience with a particular customer, the technology and the number of similarly configured equipment previously delivered. Instead of recognizing revenue, the Company could decide to defer revenue recognition until completion of installation at the customer's site and obtaining final acceptance from the customer.
A major portion of our revenue is derived from contractual arrangements with customers that have multiple deliverables, such as installation. The revenue relating to the undelivered elements of the arrangements, the installation, is deferred until delivery of these elements.
The Company recognizes revenue when persuasive evidence exists, usually in the form of an arrangement, that the goods are delivered and titles have passed, at which time all the following conditions are satisfied:
In general, the Company recognizes revenue from sales of equipment upon shipment of equipment, only if testing at the factory has proved that the equipment has met substantially all of the customer's criteria and specifications.
Revenue from the sale of spare parts and materials is recognized when the goods are shipped.
The Company recognizes revenue from installation of equipment upon completion of installation at the customer's site. At the time of shipment, the Company defers that portion of the sales price related to the installation. The relative selling price of the installation process is measured based upon the per-hour amounts charged by third parties for similar installation services. Installation is completed when testing at the customer's site has proved that the equipment has met all of the customer's criteria and specifications. The completion of installation is signed-off by the customer (final acceptance). The revenue relating to the undelivered elements of the arrangements is deferred at their relative selling prices until delivery of these elements.
We provide training and technical support service to customers. Revenue related to such services is recognized when the service is rendered.
Freight charges billed to customers are recognized as revenue, the related costs are recognized as cost of sales. Revenues are recognized excluding the taxes levied on revenues.
Royalty revenue is recognized on an accrual basis in accordance with the substance of the relevant agreement (provided that it is probable that the economic benefits will flow to the Group and the amount of revenue can be measured reliably). Royalties determined on a time basis are recognized on a straight-line basis over the period of the agreement. Royalty arrangements that are based on production, sales and other measures are recognized by reference to the underlying arrangement.
Cost of sales comprise direct costs such as labor, materials, cost of warranty, depreciation, shipping and handling costs and related overhead costs. Cost of sales also includes third party commission, depreciation expenses of evaluation tools at customers, royalty payments and costs relating to prototype and experimental products, which the Company may subsequently sell to customers. Costs of warranty include the cost of labor and material necessary to repair a product during the warranty period.
We provide maintenance on our systems during the warranty period, on average one year. Costs of warranty include the cost of labor and material necessary to repair a product during the warranty period. We accrue for the estimated cost of the warranty on products shipped in a provision for warranty, upon recognition of the sale of the product. The costs are estimated based on historical expenses incurred and on estimated future expenses related to current sales, and are updated periodically. Actual warranty costs are charged against the provision for warranty. The actual warranty costs may differ from estimated warranty costs, and we adjust our provision for warranty accordingly. Future warranty costs may exceed our estimates, which could result in an increase of our cost of sales.
Income tax expense comprises current and deferred tax. It is recognized in the statement of profit or loss except to the extent that it relates to a business combination, or items recognized directly in equity or in other comprehensive income.
The current corporate income tax charge recognized in the Consolidated statement of profit or loss is calculated in accordance with the prevailing tax regulations and rates, taking into account non-taxable income and non-deductible expenses. The current income tax expense reflects the amount for the current reporting period that the Company expects to recover from or pay to the tax authorities. Current income tax related to items recognized directly in equity is recorded in equity and not in the Consolidated statement of profit or loss. ASMI’s management periodically evaluates positions taken in the tax returns regarding situations in which applicable tax regulations are subject to interpretation, and establishes provisions when deemed appropriate. Current tax also includes any tax arising from dividends.
Current tax assets and liabilities are offset only if certain criteria are met.
Deferred income tax positions are recognized for temporary differences between the tax basis of assets and liabilities and their carrying values in ASMI’s Consolidated statement of financial position.
Deferred tax assets are recognized for all deductible temporary differences, the carry forward of unused tax credits and any unused tax losses. Deferred tax assets are recognized only to the extent that it is probable that future taxable profits will be available against which the temporary differences can be utilized. Both the recognized and unrecognized deferred tax assets are reassessed at each reporting date. Deferred tax assets are recorded for deductible temporary differences associated with investments in subsidiaries and are recorded only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilized.
Deferred tax liabilities are recognized for all taxable temporary differences except when they affect neither the profit or loss reported in the Consolidated statement of profit or loss nor the taxable profit or loss. Also, no deferred tax liabilities are recorded for taxable temporary differences associated with investments in subsidiaries when the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.
Deferred tax positions are stated at nominal value and are measured at the corporate income tax rates the Company expects to be applicable in the year when the asset is realized or liability is settled based on enacted or substantially enacted tax laws.
Deferred income tax assets and liabilities are netted if there is a legally enforceable right to set off current tax assets against current tax liabilities, deferred income tax assets and deferred income tax liabilities relate to income taxes levied by the same taxation authority on the same taxable entity, and there is an intention to settle on a net basis.
We recognize a liability for uncertain tax positions when it is probable that an outflow of economic resources will occur. Measurement of the liability for uncertain tax positions is based on management’s best estimate of the amount of tax benefit that will be lost.
The Company has retirement plans covering substantially all employees. The principal plans are defined contribution plans, except for the plans of the Company's operations in the Netherlands and Japan. The Company's employees in the Netherlands participate in a multi-employer defined benefit plan. Payments to defined contribution plans and the multi-employer plan are recognized as an expense in the Consolidated Statement of Profit or Loss as they fall due. The Company accounts for the multi-employer plan as if it were a defined contribution plan since the manager of the plan is not able to provide the Company with the required Company-specific information to enable the Company to account for the plan as a defined benefit plan.
The Company's employees in Japan participate in defined benefit plans. Pension costs in respect to this defined benefit plan are determined using the projected unit credit method. These costs primarily represent the increase in the actuarial present value of the obligation for pension benefits based on employee service during the year and the interest on this obligation in respect to employee service in previous years, net of the expected return on plan assets.
For the defined benefit plan the Company recognizes in its Consolidated statement of financial position an asset or a liability for the plan's over-funded status or underfunded status respectively. Actuarial gains and losses are recognized when incurred.
Obligations for contributions to defined contribution plans are expensed as the related service is provided. Prepaid contributions are recognized as an asset to the extent that a cash refund or a reduction in future payments is available.
The costs relating to employee stock options and shares (compensation expense) are recognized based upon the grant date fair value of the stock options or the shares. The fair value at grant date of employee stock options is estimated using a Black-Scholes option valuation model. This model requires the use of assumptions including expected stock price volatility, the estimated life of each award and the estimated dividend yield. The risk-free interest rate used in the model is determined, based on a euro government bond with a life equal to the expected life of the options. The estimated fair value at grant date of shares is based on the share price of the ASMI share at grant date minus the discounted value of expected dividends during the vesting period.
The grant date fair value of the stock options and shares is expensed on a straight-line basis over the vesting period, based on the Company’s estimate of stock options and shares that will eventually vest. The impact of the true up of the estimates is recognized in the Consolidated statement of profit or loss in the period in which the revision is determined. The total estimated share-based compensation expense, determined under the fair value based method is amortized proportionally over the option vesting periods.
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases. At inception of an arrangement, the Company determines whether the arrangement is or contains a lease.
Payments made under operating leases (net of any incentives received from the lessor) are recognized in the statement of profit or loss on a straight-line basis over the term of the lease.
In the current year, the Company has applied a number of amendments to IFRS issued by the International Accounting Standards Board (IASB) that are mandatorily effective for an accounting period that begins on or after January 1, 2017.
The amendments require disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities, including changes arising from cash flow as well as non-cash changes.
The Company has applied these amendments for the first time in the current year. The amendments require an entity to provide disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities, including both cash and non-cash changes. The Company currently has no liabilities arising from financing activities. As such, the application of these amendments has had no impact on the Company’s Consolidated financial statements.
The Company has applied these amendments for the first time in the current year. The amendments clarify how an entity should evaluate whether there will be sufficient future taxable profits against which it can utilize a deductible temporary difference.
The application of these amendments has had no impact on the Company’s Consolidated financial statements as the Company already assesses the sufficiency of future taxable profits in a way that is consistent with these amendments.
The Company has applied the amendments to IFRS 12 included in the Annual Improvements to IFRS 2014-2016 Cycle for the first time in the current year. The other amendments included in this package are not yet mandatorily effective and they have not been early adopted by the Company.
IFRS 12 states that an entity need not provide summarized financial information for interests in subsidiaries, associates or joint ventures that are classified (or included in a disposal group that is classified) as held for sale. The amendments clarify that this is the only concession from the disclosure requirements of IFRS 12 for such interests.
The application of these amendments has had no effect on the Company’s consolidated financial statements as none of the Company’s interests in these entities are classified, or included in a disposal group that is classified, as held for sale.
The Company has not applied the following new and revised IFRS that have been issued but are not yet effective:
1 Effective for annual periods beginning on or after January 1, 2018, with earlier application permitted.
2 Effective for annual periods beginning on or after January 1, 2019, with earlier application permitted.
3 Effective for annual periods beginning on or after a date to be determined.
IFRS 9 issued in November 2009 introduced new requirements for the classification and measurement of financial assets. IFRS 9 was subsequently amended in October 2010 to include requirements for the classification and measurement of financial liabilities and for derecognition, and in November 2013 to include the new requirements for general hedge accounting. Another revised version of IFRS 9 was issued in July 2014 mainly to include a) impairment requirements for financial assets and b) limited amendments to the classification and measurement requirements by introducing a ‘fair value through other comprehensive income’ (FVTOCI) measurement category for certain simple debt instruments.
All recognized financial assets that are within the scope of IFRS 9 are required to be subsequently measured at amortized cost or fair value.
All financial assets and financial liabilities will continue to be measured on the same bases as is currently adopted under IAS 39.
In relation to the impairment of financial assets, IFRS 9 requires an expected credit loss model, as opposed to an incurred credit loss model under IAS 39. The expected credit loss model requires an entity to account for expected credit losses and changes in those expected credit losses at each reporting date to reflect changes in credit risk since initial recognition. In other words, it is no longer necessary for a credit event to have occurred before credit losses are recognized.
In general, management anticipates that the application of the expected credit loss model of IFRS 9 will result in earlier recognition of credit losses for the respective items. However in general balances are considered to be recoverable and as a result this will not increase the amount of loss allowance recognized for these items.
Hedge accounting is not applied and as such management does not anticipate that the application of the IFRS 9 hedge accounting requirements will have a material impact on the Company’s Consolidated financial statements.
Based on an analysis of the Company’s financial assets and financial liabilities as at December 31, 2017 on the basis of the facts and circumstances that exist at that date, management of the Company have assessed the impact of IFRS 9 to the Company’s consolidated financial statements and as described above expects no material impact.
The new standard contains certain exemptions from full retrospective application, including an exemption from the requirement to restate comparative information about classification and measurement, including impairment.
We elected to use these exemptions and include a cumulative-effect adjustment in retained earnings as of the beginning of the first reporting period in which the standard is effective. We will therefore not restate prior year presented in our Consolidated financial statements upon adoption.
IFRS 15 establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. IFRS 15 will supersede the current revenue recognition guidance including IAS 18 Revenue, IAS 11 Construction Contracts and the related Interpretations when it becomes effective.
The core principle of IFRS 15 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.
Specifically, the Standard introduces a 5-step approach to revenue recognition:
Under IFRS 15, an entity recognizes revenue when (or as) a performance obligation is satisfied, i.e. when ‘control’ of the goods or services underlying the particular performance obligation is transferred to the customer.
Far more prescriptive guidance has been added in IFRS 15 to deal with specific scenarios. Furthermore, extensive disclosures are required by IFRS 15.
In April 2016, the IASB issued Clarifications to IFRS 15 in relation to the identification of performance obligations, principal versus agent considerations, as well as licensing application guidance.
The new standard is effective for interim and annual periods beginning after Janunary 1, 2018 and allows for either full retrospective adoption or modified retrospective adoption. We selected full retrospective adoption and will therefore restate 2017 presented in our Consolidated financial statements upon adoption in 2018.
We are finalizing our IFRS 15 implementation project comprising of two phases. Phase 1 involves a detailed analysis of the impact of the principles of the new standard on our major contracts with customers. Based on the contract analysis, a detailed concept has been developed for the transition of revenue recognition to the new principles, including the need for adjustments to existing processes and IT systems. The subsequent phase 2 of the project has served to implement the adjustments identified in phase 1. We have finalized the contract assessment and are finalizing the full qualitative impact analysis. We concluded that the timing of recognition for installation, conditional equipment sales and fixed fee royalties are to be impacted.
At this time, we cannot reasonably estimate the exact financial impact of implementing this new standard. However, for 2017 we expect an impact of our total net sales between 0% and 1.5% and an impact of our net earnings between 0% and 7.5% percent due to a shift in timing of revenue recognition.
IFRS 16 Leases was issued in January 2016. The standard has an effective date of January 1, 2019. IFRS 16 was endorsed in November 2017. IFRS 16 introduces a comprehensive model for the identification of lease arrangements and accounting treatments for both lessors and lessees. IFRS 16 will supersede the current lease guidance including IAS 17 Leases and the related interpretations when it becomes effective.
IFRS 16 distinguishes leases and service contracts on the basis of whether an identified asset is controlled by a customer. Distinctions of operating leases (off balance sheet) and finance leases (on balance sheet) are removed for lessee accounting, and is replaced by a model where a right-of-use asset and a corresponding liability have to be recognized for all leases by lessees (i.e. all on balance sheet) except for short-term leases and leases of low value assets.
The right-of-use asset is initially measured at cost and subsequently measured at cost (subject to certain exceptions) less accumulated depreciation and impairment losses, adjusted for any remeasurement of the lease liability. The lease liability is initially measured at the present value of the lease payments that are not paid at that date. Subsequently, the lease liability is adjusted for interest and lease payments, as well as the impact of lease modifications, amongst others. Furthermore, the classification of cash flows will also be affected as operating lease payments under IAS 17 are presented as operating cash flows; whereas under the IFRS 16 model, the lease payments will be split into a principal and an interest portion which will be presented as financing and operating cash flows respectively.
In contrast to lessee accounting, IFRS 16 substantially carries forward the lessor accounting requirements in IAS 17, and continues to require a lessor to classify a lease either as an operating lease or a finance lease.
Furthermore, extensive disclosures are required by IFRS 16.
As at December 31, 2017, the Company has non-cancellable operating lease commitments of €19 million. IAS 17 does not require the recognition of any right-of-use asset or liability for future payments for these leases; instead, certain information is disclosed as operating lease commitments in Note 17.
A preliminary assessment indicates that these arrangements will meet the definition of a lease under IFRS 16, and hence the Company will recognize a right-of-use asset and a corresponding liability in respect of all these leases unless they qualify for low value or short-term leases upon the application of IFRS 16.
The new requirement to recognize a right-of-use asset and a related lease liability is expected to have an impact on the amounts recognized in the Company’s Consolidated financial statements and management is currently assessing its potential impact. Also, an impact is expected on our Consolidated statement of profit or loss. Result from operations is expected to increase, but the impact on income before income taxes is not expected to be material. It is not practicable to provide a reasonable estimate of the financial effect until management complete the review.
The amendments clarify the following:
The amendments are effective for annual reporting periods beginning on or after January 1, 2018 with earlier application permitted.
Management of the Company does not anticipate that the application of the amendments in the future will have a significant impact on the Company’s Consolidated financial statements as the Company does not have withholding tax arrangements with tax authorities in relation to share-based payments.
The amendments to IFRS 10 and IAS 28 deal with situations where there is a sale or contribution of assets between an investor and its associate or joint venture. Specifically, the amendments state that gains or losses resulting from the loss of control of a subsidiary that does not contain a business in a transaction with an associate or a joint venture that is accounted for using the equity method, are recognized in the parent’s profit or loss only to the extent of the unrelated investors’ interests in that associate or joint venture. Similarly, gains and losses resulting from the remeasurement of investments retained in any former subsidiary (that has become an associate or a joint venture that is accounted for using the equity method) to fair value are recognized in the former parent’s profit or loss only to the extent of the unrelated investors’ interests in the new associate or joint venture.
The effective date of the amendments has yet to be set by the IASB; however, earlier application of the amendments is permitted. Management of the Company anticipates that the application of these amendments may have an impact on the Company's Consolidated financial statements in future periods should such transactions arise.
Because the Company does not have investment property stated on the statement of financial position, management concluded that the amendments will have no impact.
The annual improvements include amendments to IFRS 1 and IAS 28 which are not yet mandatorily effective for the Company.
Both the amendments to IFRS 1 and IAS 28 are effective for annual periods beginning on or after January 1, 2018. Management of the Company does not anticipate that the application of the amendments in the future will have any impact on the Company’s Consolidated financial statements as the Company is neither a first-time adopter of IFRS nor a venture capital organization. Furthermore, the Company does not have any associate or joint venture that is an investment entity.
IFRIC 22 addresses how to determine the ‘date of transaction’ for the purpose of determining the exchange rate to use on initial recognition of an asset, expense or income, when consideration for that item has been paid or received in advance in a foreign currency which resulted in the recognition of a non-monetary asset or non-monetary liability (e.g. a non-refundable deposit or deferred revenue).
The Interpretation specifies that the date of transaction is the date on which the entity initially recognizes the non-monetary asset or non-monetary liability arising from the payment or receipt of advance consideration. If there are multiple payments or receipts in advance, the Interpretation requires an entity is to determine the date of transaction for each payment or receipt of advance consideration.
The Interpretation is effective for annual periods beginning on or after January 1, 2018 with earlier application permitted. Entities can apply the Interpretation either retrospectively or prospectively. Specific transition provisions apply to prospective application.
Management of the Company does not anticipate that the application of the amendments in the future will have an impact on the Company’s Consolidated financial statements. This is because the Company already accounts for transactions involving the payment or receipt of advance consideration in a foreign currency in a way that is consistent with the amendments.