ASM International reports final fourth quarter 2005 and full year 2005 operating results

 

 

 

 

 

 

 

 

BILTHOVEN, THE NETHERLANDS, February 21, 2006 - ASM International N.V. (NASDAQ: ASMI and Euronext Amsterdam: ASM) reports today its final fourth quarter 2005 and full year 2005 operating results. These operating results have been prepared in accordance with accounting principles generally accepted in the United States of America ("US GAAP").

 

"Both Front-end and Back-end operations realized significant sales improvement in the fourth quarter of 2005 as compared to the third quarter of 2005. Excluding € 43.8 million restructuring charges, net income was € 16.6 million, or € 0.32 per share, for the fourth quarter. We ended the year in a strong position to benefit from capital investments in 300mm tools, 90 and 65nm high volume manufacturing and the development and testing of enabling technologies for 65 and 45nm nodes", commented Arthur del Prado, president and chief executive officer of ASMI. "In Back-end, ASM Pacific Technology's diversified products servicing broad applications provide resilience to industry swings while offering innovative solutions to the plethora of new assembly and packaging advancements challenging the industry today.

 

 

 

We will significantly reduce ASM NuTool to a small operation, focusing on process and intellectual property development with the intention of licensing these technologies in the future. In connection with this restructuring, we have recorded impairment charges for goodwill and property, plant and equipment, the write-down of inventories and other current assets and the recognition of contractual purchase commitments as of December 31, 2005 in the amount of € 36.8 million, after taxes. Of these charges € 36.2 million is non cash and € 0.6 million is accrued for as of December 31, 2005 and expected to be paid in cash in 2006. In the first quarter of 2006 we expect to recognize additional charges for, amongst others, one-time employee termination costs, the termination of operational lease obligations and settlement charges with former NuTool shareholders in the amount of approximately € 5.5 million. Approximately € 3.1 million will be paid in our common shares, and the remainder of approximately € 2.4 million will be paid in cash.

 

We have also implemented initiatives in our Front-end segment in the fourth quarter of 2005 to consolidate platforms used in our Capacitor Product group. We recorded one-time charges of € 7.0 million related to the impairment of property, plant and equipment, the write-down of inventory and other current assets and the recognition of contractual purchase commitments as of December 31, 2005. Of these charges € 6.3 million is non cash and € 0.7 million is accrued for as of December 31, 2005 and expected to be paid in cash in 2006.

 

 

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

 

 

The following table shows the operating performance for the fourth quarter of 2005 as compared to the third quarter of 2005 and the fourth quarter of 2004:

 

 

(euro million)
	Q4 2004	Q3 2005	Q4 2005	% Change Q3 2005 to Q4 2005	% Change Q4 2004 to Q4 2005
Net sales	162.6	174.5	234.0	34.1%	43.9%
Gross profit	55.9	62.1	81.2	30.9%	45.3%
Gross profit margin %	34.4%	35.6%	34.7%	(0.9)% (1)	0.3% (1)
Selling, general and administrative expenses	(24.9)	(26.6)	(26.7)	0.2%	7.2%
Research and development expenses	(22.2)	(23.7)	(32.2)	36.1%	45.2%
Amortization of purchased technology and other intangible assets	(0.4)	(0.4)	(0.5)	28.4%	36.2%
Impairment of goodwill	-	-	(31.0)	na	na
Earnings from operations	8.4	11.4	(9.2)	na	na
Net earnings (loss)	1.4	(6.3)	(27.2)	(331.9)%	na
Diluted net earnings (loss) per share	0.03	(0.12)	(0.52)	(333.3)%	na
New orders	127.0	201.5	232.3	15.3%	82.9%
Backlog at end of period	186.8	223.5	221.9	(0.7)%	18.8%
(1) Percentage point change

 

 

 

The following table shows the reconciliation between operating performance and operating performance excluding impairment and restructuring charges:

 

 

(euro million)
	Q4 2005	Impairment and restructuring charges	Q4 2005 excluding impairment and restructuring charges
Net sales	234.0	-	234.0
Gross profit	81.2	4.5	85.7
Gross profit margin %	34.7%	2.0%	36.7%
Selling, general and administrative expenses	(26.7)	0.1	(26.6)
Research and development expenses	(32.2)	7.6	(24.6)
Amortization of purchased technology and other intangible assets	(0.5)	-	(0.5)
Impairment of goodwill	(31.0)	31.0	-
Earnings from operations	(9.2)	43.2	34.0
Net earnings (loss)	(27.2)	43.8	16.6
Diluted net earnings (loss) per share	(0.52)	0.84	0.32

 

 

Impairment and restructuring charges were recorded in our Front-end segment.

 

Operating performance excluding impairment and restructuring charges is a non-GAAP financial measure. We believe it is a relevant measure as it provides a clear comparison of our operating performance between periods. Operating performance excluding impairment and restructuring charges, as defined by us, may not be comparable to similar titled measures reported by others. It should be considered in addition to, and not as a substitute for, other measures of financial performance reported in accordance with US GAAP.

 

The following table shows the operating performance excluding impairment and restructuring charges for the fourth quarter of 2005 as compared to the operating performance for third quarter of 2005 and the operating performance for the fourth quarter of 2004:

 

 

(euro million)
	Q4 2004	Q3 2005	Q4 2005 excluding  impairment and restructuring charges	% Change Q3 2005 to Q4 2005	% Change Q4 2004 to Q4 2005
Net sales	162.6	174.5	234.0	34.1%	43.9%
Gross profit	55.9	62.1	85.7	38.1%	53.3%
Gross profit margin %	34.4%	35.6%	36.7%	1.1% (1)	2.3% (1)
Selling, general and administrative expenses	(24.9)	(26.6)	(26.6)	(0.3)%	6.6%
Research and development expenses	(22.2)	(23.7)	(24.6)	4.1%	11.0%
Amortization of purchased technology and other intangible assets	(0.4)	(0.4)	(0.5)	28.4%	36.2%
Impairment of goodwill	-	-	-	na	na
Earnings from operations	8.4	11.4	34.0	199.5%	303.9%
Net earnings (loss)	1.4	(6.3)	16.6	na	1,094.3%
Diluted net earnings (loss) per share	0.03	(0.12)	0.32	na	na
New orders	127.0	201.5	232.3	15.3%	82.9%
Backlog at end of period	186.8	223.5	221.9	(0.7)%	18.8%
(1) Percentage point change

 

 

 

Net sales in the fourth quarter of 2005 were significantly higher as compared to both the third quarter of 2005 and the fourth quarter of 2004 and reached the highest level in 2005.

 

The strengthening of the US dollar and US dollar related currencies against the euro in the fourth quarter of 2005 compared to the fourth quarter of 2004 impacted sales positively by 4.8%.

 

The gross profit margin for the fourth quarter of 2005 of 36.7% of net sales was 1.1 percentage points above the 35.6% gross profit margin realized in the third quarter of 2005. The increase is caused primarily due to changes in the product mix and higher utilization of our manufacturing facilities.

 

As a percentage of net sales, selling, general and administrative expenses in the fourth quarter of 2005 were 11.4%, as compared to 15.3% in the third quarter of 2005 and 15.3% in the fourth quarter of 2004.

                                             

As a percentage of net sales, research and development costs in the fourth quarter of 2005 were 10.5%, as compared to 13.6% in the third quarter of 2005 and 13.6% in the fourth quarter of 2004.

 

Net interest expense was € 2.4 million in the fourth quarter of 2005, equal to net interest expenses in the third quarter of 2005 and down € 0.6 million as compared to net interest expenses in the fourth quarter of 2004. Net interest expenses for the fourth quarter of 2004 included a € 1.2 million loss related to the early extinguishment of € 16.1 million of the 2005 convertible notes.

The net earnings for the fourth quarter of 2005 amounted to € 16.6 million, or € 0.32 diluted net earnings per share, compared to net earnings of € 1.4 million or € 0.03 diluted net earnings per share for the same period in 2004.

 

For the fourth consecutive quarter, order intake improved when compared to the previous quarter.

 

 

The following table shows the operating performance of 2005 in comparison to 2004 and the percentage change:

 

 

(euro million)	2004	2005	% Change
Net sales	754.2	726.4	(3.7)%
Gross profit margin	281.7	253.0	(10.2)%
Gross profit margin %	37.4%	34.8%	(2.6) (1)
Selling, general and administrative expenses	(107.0)	(101.2)	(5.5)%
Research and development expenses	(84.9)	(100.7)	18.6 %
Amortization of purchased technology and other intangible assets	(1.4)	(1.7)	25.8 %
Impairment of goodwill	-	(31.0)	na
Earnings from operations	88.4	18.4	(79.2)%
Net earnings (loss)	24.0	(40.2)	na
Diluted net earnings (loss) per share	0.46	(0.76)	na
New orders for the year	742.0	761.5	2.6 %
Backlog at the end of the year	186.8	221.9	18.8 %
(1)  Percentage points change.

 

The following table shows the reconciliation between operating performance and operating performance excluding impairment and restructuring charges:

 

 

(euro million)
	Front-end			Back-end	Total
	2005	Impairment and  restructuring charges	2005 excluding impairment and restructuring charges	2005	2005 excluding impairment and restructuringcharges
Net sales	359.6	-	359.6	366.8	726.4
Gross profit	87.4	4.5	91.9	165.6	257.5
Gross profit margin %	24.3%	1.3%	25.6%	45.2%	35.4%
Selling, general and administrative     expenses	(60.2)	0.1	(60.1)	(41.0)	(101.1)
Research and development expenses	(74.8)	7.6	(67.2)	(25.9)	(93.1)
Amortization of purchased technology and     other intangible assets	(1.7)	-	(1.7)	-	(1.7)
Impairment of goodwill	(31.0)	31.0	-	-	-
Earnings from operations	(80.3)	43.2	(37.1)	98.7	61.6
Net earnings (loss) before minority interest	(91.0)	43.8	(47.2)	94.4	47.2
Net earnings (loss)	(91.0)	43.8	(47.2)	50.8	3.6
Diluted net earnings per share					0.07

 

 

The following table shows the operating performance excluding impairment and restructuring charges for the full year 2005 as compared to the operating performance for the full year 2004, on a consolidated basis:

 

 

(euro million)	2004	2005	% Change
Net sales	754.2	726.4	(3.7)%
Gross profit margin	281.7	257.5	(8.6)%
Gross profit margin %	37.4%	35.4%	(2.0)(1)
Selling, general and administrative expenses	(107.0)	(101.1)	(5.6)%
Research and development expenses	(84.9)	(93.1)	9.7 %
Amortization of purchased technology and other intangible assets	(1.4)	(1.7)	25.8 %
Earnings from operations	88.4	61.6	(30.3)%
Net earnings	24.0	3.6	(84.9)%
Diluted net earnings per share	0.46	0.07	(84.8)%

 

 

 

The following table shows our net sales for Front-end and Back-end segments and the percentage change between the years 2004 and 2005:

 

 

(euro million)	2004	2005	% Change
Front-end	355.6	359.6	1.1%
Back-end	398.7	366.8	(8.0)%
Total net sales	754.2	726.4	(3.7)%

 

 

In 2005, net sales of wafer processing equipment (Front-end segment) represented 49.5% of total net sales. Net sales of assembly and packaging equipment and materials (Back-end segment) represented 50.5% of total net sales in 2005.

 

Due to strong sales from our Front-end segment in the fourth quarter of 2005, the sales level of 2005 ended 1.1% above the sales level of our Front-end segment of 2004.

 

In the Back-end segment sales levels increased quarter over quarter in 2005 after a weak second half of 2004.

 

In the second half of 2005, net sales in the Front-end segment increased by 7.4% compared to the first half of 2005, while net sales in the Back-end segment for the second half of 2005 increased 53.7% compared to the first half of 2005.

 

Consolidated sales levels expressed in euro were slightly 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 0.3%.

 

 

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 2004 and 2005:

 

 

(euro million)	€ 2004	€ 2005	% 2004	% 2005	Increase or (decrease) percentage points
Front-end	104.0	91.9	29.2%	25.6%	(3.6)
Back-end	177.7	165.6	44.6%	45.2%	0.6
Total gross profit	281.7	257.5	37.4%	35.4%	(2.0)

 

The gross profit margin of our Front-end segment in 2005 decreased as a result of changes in the product mix. Increased sales of 300mm systems have negatively impacted the gross profit margin.

 

ASM Front-End Manufacturing Singapore ("FEMS") focuses on manufacturing generic subassemblies and components for Front-end systems at lower costs. At the end of 2005, most generic subassemblies for 300mm Vertical Furnaces and the first generic subassemblies for the 200mm Vertical Furnaces and 200mm Epitaxy systems were manufactured by FEMS. FEMS is expected to lower our manufacturing costs and mitigate the impact of foreign currency transaction results on our margins.

 

Although sales from our Back-end segment in 2005 decreased as compared to 2004, the gross profit margin increased slightly. 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 2004.

 

Selling, General and Administrative Expenses. The following table shows selling, general and administrative expenses for our Front-end and Back-end segments and the percentage change between the years 2004 and 2005:

 

 

(euro million)	2004	2005	% Change
Front-end	61.1	60.1	(1.8)%
Back-end	45.9	41.0	(10.6)%
Total selling, general and  administrative expenses	107.0	101.1	(5.6)%

 

Selling, general and administrative expenses in our Front-end segment continue to be stable as a result of the Company's focus on cost control.

 

The decrease in selling, general and administrative expenses in the Back-end segment is mainly the result of lower sales volumes.

 

As a percentage of net sales, selling, general and administrative expenses decreased from 14.2% for the year 2004 to 13.9% in 2005.

 

 

Research and Development Expenses. The following table shows research and development expenses for our Front-end and Back-end segments and the percentage change between the years 2004 and 2005:

 

 

(euro million)	2004	2005	% Change
Front-end	57.6	67.2	16.6 %
Back-end	27.3	25.9	(5.0)%
Total research and development expenses	84.9	93.1	9.7 %

 

The increase of research and development expenses in our Front-End segment is the result of increased research and development activities, the inclusion of the operations of the Company's subsidiaries ASM NuTool and ASM Genitech, which were acquired in June 2004 and August 2004 respectively, and the full consolidation of the operations of the Company's subsidiary NanoPhotonics as of January 1, 2005.

 

As a percentage of net sales, research and development expenses increased from 11.3% for the year 2004 to 12.8% in 2005.

 

Earnings from Operations amounted to earnings of € 61.6 million in 2005 compared to earnings of € 88.4 million in 2004. The decrease is mainly caused by lower sales levels and the 2.0% lower gross profit margin, while our operating expenses increased slightly.

 

Net Interest Expense amounted to € 10.4 million in 2005 compared to € 10.3 million in 2004. Net interest expenses for the year 2005 included a € 0.3 million loss related to the partial early extinguishment of 2005 convertible notes compared to a € 1.2 million loss related to the partial early extinguishment of 2005 convertible notes in 2004.

 

 

The following table shows the level of new orders during the year and the backlog at the end of the year for our Front-end and Back-end segments and the percentage change between the years 2004 and 2005:

 

 

(euro million)	2004	2005	% Change
Front-end:
New orders for the year	391.7	354.1	(9.6)%
Backlog at the end of the year	140.9	135.4	(3.9)%
Back-end:
New orders for the year	350.3	407.4	16.3%
Backlog at the end of the year	45.9	86.5	88.5%
Total
New orders for the year	742.0	761.5	2.6%
Backlog at the end of the year	186.8	221.9	18.8%

 

For the full year 2005, the ratio of new orders divided by net sales (book-to-bill ratio) was 1.05, compared to 0.98 for the full year 2004.

 

In the second half of 2005 the consolidated order intake improved slightly, showing a book-to-bill ratio of 1.06 compared to 1.03 in the first half of 2005. This improvement was attributable to the Front-end segment where the ratio increased from 0.93 in the first half of 2005 to 1.04 in the second half of 2005. Although bookings in our Back-end segment increased three consecutive quarters in 2005, the book-to-bill ratio decreased from 1.16 in the first half of 2005 to 1.08 in the second half of 2005.

 

The backlog of € 221.9 million as of December 31, 2005 is 18.8% higher than the backlog of € 186.8 million as of December 31, 2004 and 0.7% lower than the backlog of € 223.5 million as of September 30, 2005.

 

 

Net cash provided by operations was € 21.1 million for the fourth quarter of 2005 as compared to net cash used in operations of € 4.3 million for the fourth quarter of 2004. The development results from a net loss of € 27.2 million in the fourth quarter of 2005 as compared to net earnings of € 1.4 million in the fourth quarter of 2004, offset by minority interest of € 16.1 million and € 5.9 million respectively. Non cash impairment charges regarding goodwill and property, plant and equipment of € 36.4 million contributed positively to the cash flow from operations for the fourth quarter of 2005. Net cash used in investing activities was € 12.5 million for the fourth quarter of 2005 as compared to € 21.3 million for the fourth quarter of 2004. The decrease primarily results from decreased capital expenditures of € 11.8 million in the fourth quarter of 2005 compared to € 20.6 million in the fourth quarter of 2004.

 

Net cash provided by operations for 2005 was € 50.7 million as compared to € 74.9 million for 2004. The decrease results from decreased net earnings, partially offset by decreased working capital. Net cash used in investing activities for 2005 was € 45.6 million as compared to € 67.7 million for 2004. The decrease primarily results from decreased capital expenditures of € 44.6 million in 2005 compared to € 58.1 million in 2004. In 2004, we expanded our manufacturing facilities in Singapore for our Front-end operations and in Malaysia for our Back-end operations. 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 financing activities for 2005 was € 109.7 million as compared to net cash provided by financing activities of € 63.2 million for 2004. We repaid the remaining balance of US$ 94.3 million of our 5% convertible subordinated notes on due date November 15, 2005. In December 2004, we issued US$ 150.0 million of 4.25% convertible subordinated notes, which are due December 2011.

 

Net working capital, consisting of accounts receivable, inventories, other current assets, accounts payable, accrued expenses, advance payments from customers and deferred revenue, increased from € 189.2 million at December 31, 2004 to € 234.6 million at December 31, 2005. The increase is primarily the result of increased sales and manufacturing levels. The number of outstanding days of working capital, measured based on annual sales, increased from 92 days at December 31, 2004 to 118 days at December 31, 2005.

 

At December 31, 2005, the Company's principal sources of liquidity consisted of € 135.0 million in cash and cash equivalents, of which € 55.3 million was available for the Company's Front-end operations and € 79.7 million was restricted for use in the Company's Back-end operations. In addition, the Company also had € 75.5 million in undrawn bank facilities, of which € 37.1 million was available for Back-end and € 38.0 million was available for its Front-end operations in Japan.

 

 

 

Based on capital expenditure guidance from major device makers, we anticipate that 2006 should be a growth year for the semiconductor equipment industry. This fuels our optimism for both our Front-end and Back-end operations.

 

We reiterate that management's primary focus is to take our Front-end operations to profitable, sustainable growth. We believe that the previously announced restructuring of ASM NuTool, the consolidation of platforms in our Capacitor Product group, and our Front-end manufacturing program in Singapore are important steps on the road to profitability. A favourable industry environment would be an additional contributing factor toward reaching this strategic objective.

 

We are confident that our Back-end segment will continue to increase its market position and to once again outperform the industry in 2006, reflecting its broad product range, superior customer service and unique, vertically-integrated manufacturing model. 

 

Based on the current order backlog, we expect 2006 first quarter sales to be solid, for both Front-end and Back-end. Though the combined sales will be lower than the excellent sales in the fourth quarter of 2005, the sales will be higher than sales in any of the other quarters of 2005. We do not anticipate that our Front-end operations will reach breakeven in the first quarter, due in part to the additional restructuring charges for ASM NuTool that will be recognized in the first quarter. We expect that Back-end will continue to show strong operating results.

 

 

 

ASM INTERNATIONAL CONFERENCE CALL

 

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

                                  

 

  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    866.356.3377

International:                      +1    617.597.5392

Participation pass code is 195 90 089

 

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 8, 2006. The replay dial-in numbers are:

 

United States:                   +1     888.286.8010

International                      +1     617.801.6888

Participation pass code is 782 42 145

 

 

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.