ASM International reports final fourth quarter 2004 and full year 2004 operating results

 

 

BILTHOVEN, THE NETHERLANDS, February 24, 2005 - ASM International N.V. (NASDAQ: ASMI and Euronext Amsterdam: ASM) reports today its final 2004 fourth quarter and full year results.

 

The net earnings for the year ended December 31, 2004 were € 24.0 million or € 0.47 basic net earnings per share and € 0.46 diluted net earnings per share, compared to a net loss of € (32.1) million or € (0.65) basic and diluted net loss per share for the year ended December 31, 2003. The net loss for the year ended December 31, 2003 included € 6.5 million restructuring charges in our Front-end segment.

 

The net earnings for the fourth quarter of 2004 amounted to € 1.4 million, or € 0.03 basic and diluted net earnings per share, compared to a net loss of € (6.2) million or € (0.12) basic and diluted net loss per share for the same period in 2003. The net loss for the fourth quarter of 2003 included € 6.0 million restructuring charges in our Front-end segment.

 

On a consolidated level 2004 was a year of recovery. ASMI experienced increased order levels in the second half of 2003 and the first half of 2004 which resulted in increased sales levels, while the order intake and sales weakened in the second half of 2004. The Back-end segment achieved record sales in the first half of 2004, measured in the reporting currency of the Back-end segment, the Hong Kong dollar, but experienced a sharp decrease of order intake and sales in the second half of 2004. The Front-end segment achieved increased sales for each quarter in 2004 and experienced only a moderate slow-down of bookings in the fourth quarter of 2004.

 

Overall, ASMI achieved a positive performance in each quarter of 2004, with earnings from operations of € 88.4 million for the full year 2004, compared to € 14.2 million for the full year 2003.

 

In December 2004 we strengthened the Company's financial position by issuing US$ 150.0 million of 4.25% convertible subordinated notes, which are listed on Euronext Amsterdam. The notes were issued to ensure that the Company has sufficient liquidity to deal with the maturity of the US$ 115.0 million 5% convertible subordinated notes, which are due November 2005.

 

The consolidated financial statements include the operations of our 100% subsidiary ASM NuTool, Inc. (NuTool) as from June 2, 2004 and our 100% subsidiary Genitech Inc. (Genitech) as from August 5, 2004.

 

The following table shows the operating performance of 2004 in comparison to 2003 and the percentage change:

 

(euro millions)	2003 (1)	2004	% Change
Net sales	581.9	754.2	29.6 %
Gross profit margin	201.3	281.7	40.0 %
Gross profit margin %	34.6%	37.4%	2.8 (2)
Selling, general and administrative expenses	(108.0)	(107.0)	(0.9)%
Research and development expenses	(79.1)	(84.9)	7.4  %
Amortization of purchased technology and other intangible     assets	-	(1.4)	na
Earnings from operations	14.2	88.4	522.5 %
Net earnings (loss)	(32.1)	24.0	na
New orders for the year	637.9	742.0	16.3 %
Backlog at the end of the year	199.0	186.8	(6.1)%
(1)  Includes restructuring charges of € 6.5 million in our Front-end segment. (2)  Percentage points change.

 

Net sales

 

The following table shows our net sales for Front-end and Back-end segments and the percentage change between the years 2003 and 2004:

 

(euro millions)	Year ended December 31,
	2003	2004	% Change
Front-end	286.5	355.6	24.1%
Back-end	295.4	398.7	35.0%
Total net sales	581.9	754.2	29.6%

 

In 2004, net sales of wafer processing equipment (Front-end segment) represented 47.1% of total net sales. Net sales of assembly and packaging equipment and materials (Back-end segment) represented 52.9% of consolidated ASMI net sales in 2004.

 

In 2004, sales levels in our Front-end segment continued to increase quarter over quarter as a result of the strong order intake, which started in the fourth quarter of 2003. In 2004 the order intake in Front-end continued to be strong with more orders than sales in the first three quarters of 2004. The order intake in the fourth quarter for the Front-end segment weakened somewhat as a result of the reduced demand industry wide. In the Back-end segment the strong order intake in the fourth quarter of 2003 and the first half of 2004 resulted in record sales levels in the first half of 2004. The abrupt decrease in demand for the Back-end products in the second half of 2004 resulted in a sharp decrease of sales levels. In the second half of 2004, net sales in the Front-end segment increased by 10.0% compared to the first half of 2004, while net sales in the Back-end segment for the second half of 2004 decreased 32.8% compared to the first half of 2004.

 

Consolidated sales levels expressed in euro were negatively impacted by the strengthened euro against the US dollar and US dollar related currencies. The decline in exchange rates impacted our full year sales negatively by 7.1%.

 

 

Gross Profit Margin. The following table shows our gross profit and gross profit margin for Front-end and Back-end segments and the percentage point increase or decrease in gross profit as a percentage of net sales between the years 2003 and 2004:

 

(euro millions)		Year ended December 31,
	€ 2003		€ 2004	% 2003	% 2004	Increase or (decrease) (percentage points)
Front-end	72.9		104.0	25.4%	29.2%	3.8
Back-end	128.4		177.7	43.5%	44.6%	1.1
Total gross profit	201.3		281.7	34.6%	37.4%	2.8

 

The increase in gross profit margin for our Front-end segment is the result of the overall growth in sales volumes and the related increased utilization of our manufacturing capacity and changes in the product mix. Increased sales of 200mm systems have positively impacted the gross profit margin. In addition, we have realized a substantial improvement of the gross profit margins of our service activities. Service activities are a substantial part of our revenue streams and these revenues increase as our installed base grows.

 

The strong euro versus the US dollar and the strong competition continued to impact the margins on our Front-end segment vertical furnace products, for which manufacturing is mainly in euros and the majority of our sales are denominated in US dollars. We have established a manufacturing facility in Singapore which will lower our manufacturing costs and mitigate the impact of foreign currency transaction results on our margins. The facility in Singapore is expected to show its first contribution in 2005.

 

The increase in gross profit margin for our Back-end segment is the result of the higher sales volume of equipment and leadframes in 2004 when compared to 2003. One-time charges related to the consolidation of manufacturing activities in Malaysia and additional provisions on slow moving inventories related to new product introductions contributed negatively to the gross profit margin for our Back-end segment in the first half of 2004.

 

 

The gross profit margin for the fourth quarter of 2004 of 34.4% of net sales was 4.2 percentage points below the 38.6% gross profit margin realized in the third quarter of 2004. The decrease is caused primarily by the increase in the proportion of net sales accounted for by the Front-end segment in the fourth quarter of 2004 when compared to the third quarter of 2004.

 

Selling, General and Administrative Expenses. The following table shows ASMI's selling, general and administrative expenses for the Front-end and Back-end segments and the percentage change between the years 2003 and 2004:

 

(euro millions)	Year ended December 31,
	2003	2004	% Change
Front-end	63.9	61.1	(4.4)%
Back-end	44.1	45.9	4.1%
Total selling, general and administrative expenses	108.0	107.0	(0.9)%

 

The decrease in selling, general and administrative expenses in our Front-end segment is mainly due to the strengthened euro against the US dollar and US dollar related currencies, despite higher expenses resulting from growing activities and the need to further invest in the hiring and training of service engineers in our Front-end segment. In addition, restructuring charges included in selling, general and administrative expenses for Front-end operations amounted to € 4.6 million in 2003.

 

The increase in selling, general and administrative expenses in the Back-end segment is mainly the result of increased sales volumes, partially offset by positive translation differences from the strong euro against the US dollar and US dollar related currencies.

 

As a percentage of net sales, selling, general and administrative expenses decreased from 18.6% for the year 2003 to 14.2% in 2004.

 

In the fourth quarter of 2004, selling, general and administrative expenses were € 24.9 million, 11.0% below the € 28.0 million in expenses for the third quarter of 2004 and 23.9% below the € 32.8 million in the fourth quarter of 2003. Included in the fourth quarter of 2003 were restructuring charges for Front-end operations of € 4.4 million.

 

Research and Development Expenses. The following table shows ASMI's research and development expenses for Front-end and Back-end segments and the percentage change between the years 2003 and 2004:

 

(euro millions)	Year ended December 31,
		2003	2004	% Change
Front-end		54.2	57.6	6.3%
Back-end		24.9	27.3	9.6%
Total research and development expenses		79.1	84.9	7.3%

 

Research and development expenses have increased mainly as a result of the inclusion of the operations of our subsidiaries NuTool and Genitech in 2004. In addition, research and development credits received against research and development expenses decreased from € 3.0 million in 2003 to € 1.4 million in 2004. The increase in research and development expenses in our Front-end segment is partially compensated by the impact of the strengthened euro against the US dollar and US dollar related currencies. Restructuring expenses included in research and development expenses for our Front-end segment amounted to € 1.9 million in 2003. The increase in research and development expenses in our Back-end segment is mainly due to the introduction of new products and related increased spending for the procurement of components used in various engineering prototypes in 2004.

 

As a percentage of net sales, research and development expenses decreased from 13.6% for the year 2003 to 11.3% in 2004.

In the fourth quarter of 2004, research and development expenses were € 22.2 million, an increase of 2.5% when compared to € 21.6 million in the fourth quarter of 2003 and an increase of 0.4% when compared to € 22.1 million in the third quarter of 2004. Included in the fourth quarter of 2003 were restructuring charges for Front-end operations of € 1.6 million.

Amortization of Purchased Technology and Other Intangible Assets was € 0.4 million in the fourth quarter of 2004 and € 1.4 million in the year 2004. The amortization mainly relates to the amortization of purchased technology and other intangible assets from the acquisition of NuTool and Genitech. The amortization expense for 2004 includes € 0.5 million for purchased in-process research and development, which amount has been expensed in full.

 

Earnings from Operations amounted to earnings of € 88.4 million in 2004 compared to earnings of € 14.2 million in 2003. In the fourth quarter of 2004, the Company realized earnings from operations of € 8.4 million compared to earnings from operations of € 10.5 million in the fourth quarter of 2003. Included in earnings from operations for 2003 were € 6.5 million in restructuring expenses, of which € 0.5 million were recorded in the third quarter of 2003 and € 6.0 million in the fourth quarter of 2003.

 

Net Interest Expense of € 10.3 million in 2004 was similar to the expense in 2003, although the composition has changed significantly. The translation effect of our convertible notes denominated in US dollar had a positive impact on interest expenses, which was offset by a full year's charge of interest expenses on the US$ 90.0 million convertible notes issued in May 2003 and the US$ 150.0 million convertible notes issued in December 2004. Increased interest rates on our cash deposits also contributed positively. Net interest expenses for the fourth quarter of 2004 and the year 2004 also include a € 1.2 million loss related to the early extinguishment of € 16.1 million of the 2005 convertible notes.

 

 

The following table shows ASMI's level of new orders during the year and its backlog at the end of the year for the Front-end and Back-end segments and the percentage change between the years 2003 and 2004:

 

(euro millions)	2003	2004	% Change
Front-end:
New orders for the year	281.3	391.7	39.2%
Backlog at the end of the year	104.7	140.9	34.6%
Back-end:
New orders for the year	356.6	350.3	(1.8)%
Backlog at the end of the year	94.3	45.9	(51.3)%
Total
New orders for the year	637.9	742.0	16.3%
Backlog at the end of the year	199.0	186.8	(6.1)%

 

For the full year 2004, the ratio of new orders divided by net sales (book-to-bill ratio) was 0.98. In the second half of 2004 the consolidated order intake slowed down resulting in a book-to-bill ratio of 0.82 compared to 1.12 in the first half of 2004. This slow-down was attributable to the Back-end segment where the ratio decreased from 1.06 in the first half of 2004 to 0.61 in the second half of 2004. In the Front-end segment the order intake continued to keep momentum with a ratio of 1.21 in the first half of 2004 compared to a ratio of 1.00 in the second half of 2004.

 

The consolidated book-to-bill ratio decreased from 0.86 in the third quarter of 2004 to 0.78 in the fourth quarter of 2004.

 

The backlog of € 186.8 million as of December 31, 2004 is 6.1% lower than the backlog of € 199.0 million as of December 31, 2003 and 16.0% lower than the backlog of € 222.3 million as of September 30, 2004.

 

Liquidity and capital resources

 

Net cash provided by operations for 2004 was € 74.9 million as compared to cash provided of € 61.6 million for 2003. The increase results from improved net result, partially offset by increased working capital. Net cash used in investing activities for 2004 was € 67.7 million as compared to net cash used of € 30.9 million for 2003. The increase primarily results from increased capital expenditures of € 58.1 million in 2004 compared to € 30.1 million in 2003. We expanded our manufacturing facilities in Singapore for our Front-end operations and in Malaysia for our Back-end operations in 2004. In 2004, we also invested € 4.5 million in cash for the acquisition of new business and repurchased shares of our Back-end subsidiary, ASM Pacific Technology for € 4.5 million in cash.

 

Net cash used in operations was € 4.3 million for the fourth quarter of 2004 as compared to net cash provided of € 38.3 million for the same period in 2003. The change results from increased working capital, partially offset by improved net result. Net cash used in investing activities was € 21.3 million for the fourth quarter of 2004 as compared to net cash used of € 14.3 million for the same period in 2003. The increase results from increased capital expenditures.

 

Net working capital, consisting of accounts receivable, inventories, other current assets, accounts payable, accrued expenses, advance payments from customers and deferred revenue, increased from € 154.4 million at December 31, 2003 to € 189.2 million at December 31, 2004. The increase is primarily the result of increased sales and manufacturing levels in our Front-end segment. The number of outstanding days of working capital, measured based on quarterly sales, increased from 87 days at December 31, 2003 to 107 days at December 31, 2004.

 

At December 31, 2004, the Company's principal sources of liquidity consisted of € 218.6 million in cash and cash equivalents, of which € 146.5 million was available for the Company's Front-end operations and € 72.1 million was restricted for use in the Company's Back-end operations. In addition, the Company also had € 67.9 million in undrawn bank facilities, of which € 32.1 million was available for Back-end and € 35.1 million was available for its Front-end operations in Japan.

 

In December 2004 we strengthened our balance sheet through a private placement of US$ 150.0 million of 4.25% convertible subordinated notes, which are due December 2011. The notes are convertible, at the option of the holder, into shares of the Company's common stock initially at a conversion rate of 48.0307 shares of common stock for each US$ 1,000 principal amount of notes, subject to adjustment in certain circumstances. This is equivalent to an initial conversion price of US$ 20.82 per share. The notes were issued to ensure that the Company has sufficient liquidity to deal with the maturity of the US$ 115.0 million 5% convertible subordinated notes, which are due November 2005. In December 2004 we repurchased US$ 16.1 million of the 2005 convertibles.

 

 

On the short term we expect net sales and net earnings in the first quarter of 2005 to be at lower levels than the fourth quarter of 2004. We believe that the momentum will improve as from the second quarter of 2005 onwards.

 

For the full year 2005 ASMI is optimistic in its outlook for sales levels of our Front-end wafer processing equipment. While there is nothing certain about the effect of global economic and market forces on demand for products, processes and services in our industry, the optimism is based on our success in recent years in tracking both the ITRS and major customer roadmaps. We have had success in seeding the new technologies applied to sub-micron device structures at leading customers, all of which, we believe, is bringing ASMI's Front-end operations to a new era of performance capability, enabling us to achieve growth and continuously higher market shares, and thus be more resilient to the industry's cycles. In 2005 we also expect to see the first contribution of our Front-end manufacturing facility in Singapore that will improve cost-effectiveness and strengthen gross profit margins.

 

We also are confident that our Back-end segment will continue to increase its market position and its historical pattern of outperforming the industry regardless of the semiconductor cycle stage.

 

We believe that the combined thrust in Front-end and the historical success we have had in Back-end, portends well for our performance in 2005 and beyond. Barring unforeseen circumstances and with some caution ASMI also reconfirms its earlier statement that we expect the Front-end segment to achieve increased annual sales as well as positive earnings from operations in 2005.

 

ASM INTERNATIONAL CONFERENCE CALL

 

ASM International will host an investor conference call and web cast on

                                   

FRIDAY, FEBRUARY 25, 2005 at

 

  9:00 a.m. US Eastern time

15:00 p.m  Continental European time.

 

The teleconference dial-in numbers are as follows:

 

United States:                     +1    866.800.8651

International:                       +1    617.614.2704

Participation pass code is 677 80 111

 

A simultaneous audio web cast will be accessible at www.asm.com.

 

The teleconference will be available for replay, beginning one hour after completion of the live broadcast, through March 4, 2005. The replay dial-in numbers are:

 

United States:                    +1     888.286.8010

International                       +1     617.801.6888

Participation pass code is 142 72 207

 

 

ASM International N.V., based in Bilthoven, the Netherlands, is a global company servicing one of the most important and demanding industries in the world. The Company possesses a strong technology base, state-of-the-art manufacturing facilities, a competent and qualified workforce and a highly trained, strategically distributed support network. ASM International 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.