Notes to the Consolidated financial statements
NOTE 1. GENERAL INFORMATION/SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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.
BASIS FOR ACCOUNTING
The Consolidated financial statements for the year ended December 2016 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 9, 2017 and will be submitted for adoption to the Annual General Meeting of Shareholders (AGM) on May 22, 2017.
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 2017 AGM.
FUNCTIONAL AND PRESENTATION CURRENCY
The accompanying Consolidated financial statements are presented in thousands of euros (EUR), which is the Company's functional currency. All financial information is presented in euro thousand unless stated otherwise, and has been rounded to the nearest thousand.
BASIS FOR MEASUREMENT
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.
USE OF ESTIMATES AND JUDGMENTS
The preparation of the Company's Consolidated financial statements requires management to make judgments, estimates and assumptions that affect the amounts reported in the financial statements and accompanying Notes. Actual results could differ materially from those estimates. We evaluate our estimates and underlying assumptions on an ongoing basis. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.
Information about assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment within the next financial year are described below and other relevant disclosures are disclosed in the following Notes:
CRITICAL ACCOUNTING POLICIES
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 are critical accounting policies:
- revenue recognition;
- evaluation of long-lived assets for impairment;
- evaluation of investments in associates for impairment;
- intangible assets; and
- income taxes.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Consolidated financial statements include the accounts of ASM International NV and all of its subsidiaries where ASMI holds a controlling interest. Non-controlling interest is disclosed separately, as appropriate, in the Consolidated financial statements.
Control exists when ASMI has:
- the power over an investee;
- exposure, or rights, to variable returns from its involvement with the investee; and
- the ability to use its power over the investee to affect the amount of the investor's returns.
As from the date that these criteria are met, the financial data of the relevant subsidiary are included in the consolidation. The financial data are deConsolidated from the date on which ASMI's control ceases.
Loss of control
Upon the loss of control, ASMI derecognizes the assets and liabilities of the subsidiary, any non-controlling interests and the other components of equity related to the subsidiary. Any surplus or deficit arising on the loss of control is recognized in profit or loss. If ASMI retains any interest in the previous 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.
Foreign currency translation
The individual financial statements of each group entity are presented in their functional currency. For the purpose of the Consolidated financial statements, the results and financial position of each entity are 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 rates of exchange prevailing 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, the assets and liabilities of our foreign subsidiaries (including comparatives) are expressed in euros using exchange rates prevailing on the balance sheet date. Income and cost items (including comparatives) are translated at the average exchange rates for the period. Exchange rate differences arising are classified as other comprehensive income in equity. Such translation differences are recognized in the Consolidated statement of profit or loss in the period in which the foreign operation is disposed. Currency differences on intercompany loans that have the nature of a long-term investment are also accounted for directly in equity.
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/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 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 39.19% interest, whilst the remaining shares are listed on the Stock Exchange of Hong Kong.
Fixed assets include goodwill, other intangible assets, property, plant and equipment, and evaluation tools at customers.
Property, plant and equipment are carried at cost, less accumulated depreciation and any impairment losses. Finance leased assets are recorded at the present value of future lease obligations. Depreciation is calculated using the straight-line method over the estimated useful lives. Leasehold improvements are depreciated over the lesser of the estimated useful life of the leasehold improvement or the term of the underlying lease. Any gain or loss on disposal of an item of property, plant and equipment is recognized in profit or loss.
Business combinations are accounted for under the acquisition method. The Company reviews its recorded goodwill and other intangible assets with indefinite lives for impairment each year on December 31 and whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
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.
Other intangible assets are carried at cost, less accumulated amortization and any impairment losses. Amortization is calculated using the straight-line method over the estimated useful lives.
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 technical feasibility of completing the intangible asset so that it will be available for use or sale;
- its intention to complete the intangible asset and use or sell it;
- its ability to use or sell the intangible asset;
- how the intangible asset will generate probable future economic benefits;
- the availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset; and
- its ability to reliably measure the expenditure attributable to the intangible asset during its development.
The Company capitalizes development expenses that meet the above-mentioned criteria in its Consolidated financial statements. 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. Other intangible assets with finite lives are amortized over the estimated useful lives using the straight-line method.
Evaluation tools at customers are systems generally delivered to customers under evaluation or a conditional purchase order 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 of the system, the purchase consideration is recognized as revenue. The carrying value of the evaluation system at that point in time 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).
Impairment of fixed assets
Each year on December 31, the Company reviews the carrying amounts of its tangible and intangible assets (other than goodwill) to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any).
If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is recognized immediately in the Consolidated Statement of Profit or Loss, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.
Where an impairment loss is subsequently reversed, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset in prior years. A reversal of an impairment loss is recognized immediately in the Consolidated Statement of Profit or Loss, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase.
Equity accounted investees
Equity accounted investees are investments in entities in which ASMI can exert significant influence but which ASMI does not control, generally by ASMI 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.
Inventories are stated at the lower of cost or net realizable value. The cost of inventories is based on standard cost principle. In the case of manufactured inventories, cost includes an appropriate share of production overheads based on normal operating capacity. Costs include net prices paid for materials purchased, charges for freight and custom duties, production labor costs and factory overhead. Allowances are made for slowmoving, 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.
Accounts receivable are measured at initial recognition at fair value, and are subsequently measured at amortized cost using the effective interest rate 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
Cash and cash equivalents comprise 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.
Accounts payable are measured at initial recognition at fair value, and are subsequently measured at amortized cost using the effective interest rate method.
The Company recognizes revenue when persuasive evidence exists, usually in the form of an arrangement; that significant risks and rewards of ownership have been transferred to the buyer, there is no continuing managerial involvement with the goods sold, the amount of the revenue can be measured reliable, the recovery delivery has occurred or services have been rendered; seller's price to buyer is fixed or determinable; and collectability is reasonably assured. 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 that was allocated to the undelivered component is deferred. The revenue from the undelivered element of the arrangement is deferred at their relative selling prices until delivery of the element.
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.
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.
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. Revenue from the sale of spare parts and materials is recognized when the goods are shipped.
Revenue on royalties and licenses is recognized when due.
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.
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.
Cost of sales
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.
Retirement benefit costs
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 in which the company is the lessee and in which substantially all risks and rewards of ownership are retained by the lessor are classified as operating leases. 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.
Issuance of shares by an equity accounted investee
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.
Commitments and contingencies
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.
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.
Transactions eliminated on consolidation
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 Group’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.
Adoption of new and revised International Financial Reporting Standards
and Interpretations effective in 2016 or thereafter
Implementation of new and revised IFRS-EU in 2016 did not have a material impact on the Company's Consolidated financial statements.
At the date of authorization of these Consolidated financial statements, the following standards and interpretations have been issued, however they are not yet effective and/or have not yet been adopted by the EU and have not yet been adopted by us.
In July 2014, the IASB finalized the reform of financial instruments accounting and issued IFRS 9 (as revised in 2014), which will supersede IAS 39 Financial Instruments: Recognition and Measurement in its entirety (the IASB tentatively decided that the mandatory effective date of IFRS 9 will be no earlier than annual periods beginning on or after January 1, 2018). Compared to IFRS 9 (as revised in 2013), the 2014 version includes limited amendments to the classification and measurement requirements by introducing a 'fair value through other comprehensive income' measurement category for simple debt instruments. It also adds the impairment requirements relating to the accounting for an entity's expected credit losses on its financial assets and commitments to extend credit. The completed IFRS 9 (as revised in 2014) contains the requirements for: a) the classification and measurement of financial assets and financial liabilities; b) impairment methodology; and c) general hedge accounting. The actual impact of adopting IFRS 9 on the Company’s Consolidated financial statements in 2018 is not known and cannot be reliably estimated because it will be dependent on the financial instruments that the Company holds and economic conditions at that time as well as accounting elections and judgments that it will make in the future. The new standard will require ASMI to revise its accounting processes and internal controls related to reporting financial instruments and these changes are not yet complete.
IFRS 15 Revenue from Contracts with Customers was issued in May 2014. In April 2015, the effective date of this standard was postponed to January 1, 2018, with additional clarifications to the standard being issued in April 2016. IFRS 15 introduces new guidance on the recognition and measurement requirements of revenues. The standard applies to revenue from contracts with customers and also provides a model for the sale of some non-financial assets that are not an output of a company’s ordinary business activities. IFRS 15 provides more detailed requirements than the current standards. We are currently reviewing the extent of the impact of this new standard. We have started an IFRS 15 implementation project comprising 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 will be 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 will serve particularly to implement the adjustments identified in phase 1. We are in the process of the contract assessment and the full qualitative impact analysis is yet to be finalized, however the timing of recognition for installation, conditional equipment sales and fixed fee royalties are expected to be impacted. At this moment, the quantitative impact of IFRS 15 is not yet known.
IFRS 16 Leases was issued in January 2016. The standard has an effective date of January 1, 2019. Endorsement has not been scheduled yet. IFRS 16 will replace IAS 17 and introduces on balance sheet accounting for (almost) all leases. Therefore, assets in use under an operating lease contract, reported as off balance sheet obligation under IAS 17, will be recognized on the balance sheet. Paid lease fees will no longer be part of operating expenses but will become part of depreciation and interest expenses. The standard will have an impact on our Consolidated statement of financial position due to the recognition of the leased assets and corresponding financial liabilities. 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. We are currently reviewing the extent of the impact of this new standard.
Recognition of Deferred Tax Assets for Unrealized Losses (Amendments to IAS 12)
The amendments clarify the accounting for deferred tax assets for unrealized losses on debt instruments measured at fair value. The amendments are effective for annual periods beginning on or after 1 January 2017, with early adoption permitted. The Group is assessing the potential impact on its Consolidated financial statements resulting from the amendments. So far, the Group does not expect any significant impact.
Disclosure Initiative (Amendments to IAS 7)
The amendments require disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities, including both changes arising from cash flow and non-cash changes.
The amendments are effective for annual periods beginning on or after 1 January 2017, with early adoption permitted. To satisfy the new disclosure requirements, the Group intends to present a reconciliation between the opening and closing balances for liabilities with changes arising from financing activities.
The following changes to Standards following Amendments by the IASB and the Annual Improvement Cycles are not expected to have a significant impact on the Company’s Consolidated financial statements.
- Classification and Measurement of Share-based Payment Transactions (Amendments to IFRS 2).
- Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (Amendments to IFRS 10 and IAS 28).