Independent auditor's report on financial statements
To: The Shareholders and Supervisory Board of ASM International NV
Report on the Audit of the Financial Statements 2014
We have audited the accompanying financial statements 2014 of ASM International NV ("the Company"), based in Almere. The financial statements include the consolidated financial statements and the Company financial statements.
In our opinion:
- The consolidated financial statements give a true and fair view of the financial position of ASM International NV as at December 31, 2014, and of its result and its cash flows in the year 2014 in accordance with International Financial Reporting Standards as adopted by the European Union (IFRS-EU) and with Part 9 of Book 2 of the Dutch Civil Code.
- The Company financial statements give a true and fair view of the financial position of ASM International NV as at December 31, 2014 and of its result for the year 2014 in accordance with Part 9 of Book 2 of the Dutch Civil Code.
The consolidated financial statements comprise:
- the consolidated statement of financial position as at December 31, 2014;
- the following statements for 2014: consolidated statements of income, consolidated statements of comprehensive income, consolidated statements of total equity and consolidated statements of cash flows for the year then ended; and
- the notes comprising a summary of the significant accounting policies and other explanatory information.
The Company financial statements comprise:
- the Company balance sheet as at December 31, 2014;
- the statements of operations for the year 2014; and
- the notes comprising a summary of the accounting policies and other explanatory information.
Basis for Our Opinion
We conducted our audit in accordance with Dutch law, including the Dutch Standards on Auditing. Our responsibilities under those standards are further described in the "Our responsibilities for the audit of the financial statements" section as included in the appendix to our report.
We are independent of ASM International NV in accordance with the Verordening inzake de onafhankelijkheid van accountants bij assurance-opdrachten (ViO) and other relevant independence regulations in the Netherlands. Furthermore we have complied with the Verordening gedrags- en beroepsregels accountants (VGBA).
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Misstatements can arise from fraud or error and will be considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. The materiality affects the nature, timing and extent of our audit procedures and the evaluation of the effect of identified misstatements on our opinion.
Based on our professional judgement we determined the materiality for the financial statements as a whole at EUR 5 million. The materiality is based on 7.5% of the average of normalized profit before tax for the years 2011-2014. We have also taken into account misstatements and/or possible misstatements that in our opinion are material for the users of the financial statements for qualitative reasons. We established a lower materiality for certain account balances and disclosures based on qualitative reasons.
We agreed with the Supervisory Board that misstatements in excess of EUR 250,000, which are identified during the audit, would be reported to them, as well as smaller misstatements that in our view must be reported on qualitative grounds.
Scope of the Group Audit
ASM International NV is at the head of a group of entities. The financial information of this group is included in the consolidated financial statements of ASM International NV.
Because we are ultimately responsible for the opinion, we are also responsible for directing, supervising and performing the group audit. In this respect we have determined the nature and extent of the audit procedures to be carried out for group entities. Decisive were the size and/or risk profile of the group entities or operations. On this basis, we selected group entities for which an audit or review had to be carried out on the complete set of financial statements or specific items.
The group audit mainly focused on significant group entities in the Netherlands, United States, Singapore, Japan, and Korea, as well as on the associate ASM Pacific Technology. For the group entities that are consolidated, we have performed most of the audit procedures ourselves. We used component auditors in Japan, Korea, and Singapore to support us with specified audit procedures. The audit of ASMPT was performed by a group audit team from Deloitte Hong Kong. At the other (less significant) group entities we have performed review procedures or specific audit procedures.
By implementing the procedures mentioned above at group entities, together with additional procedures at group level, we have been able to obtain sufficient and appropriate audit evidence about the group's financial information to provide an opinion about the consolidated financial statements.
Our Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements. We have communicated the key audit matters to the Supervisory Board. The key audit matters are not a comprehensive reflection of all matters discussed.
These matters were addressed in the context of our audit on the financial statements as a whole and in forming our opinion thereon and we do not provide a separate opinion on these matters.
Total revenue for the year 2014 amounts to EUR 546 million. ASM International's revenue often consists of multiple elements. For revenue recognition purposes, the consideration received from customers is allocated to the various products and services contracted based on the relative selling price of these elements (multiple element arrangement accounting). This revenue allocation requires significant judgment and determines the timing and amount of revenue recognized in each reporting period. Focus areas mainly relate to multiple element arrangements, cut-off and delivery conditions, and installation services and the relation with final acceptances.
Our audit procedures included, amongst others, the review of significant contracts to assess the identification of all relevant products and services sold. We also focused on the allocation of revenue to the various elements in the contracts, as well as, the timing of the revenue recognized.
Inventory excess & obsolete inventory
The total inventory and related excess and obsolete provision as of December 31, 2014 amounts to EUR 126 million and EUR 19 million, respectively. The excess and obsolete provision mainly relates to raw materials and spare parts because finished products (and related work in process) are usually manufactured only when a client order is received.
We focused on this area because the gross inventory and related provision are material to the financial statements, involve a high level of judgment and are subject to uncertainty due to rapid technological changes. We evaluated, amongst others, the analyses and assessments made by management with respect to slow moving and obsolete stock and the expected demand and market value related to raw materials and spare parts.
Valuation of associate ASMPT
The associate book value of ASM Pacific Technology Limited ("ASMPT") as per December 31, 2014 amounts to EUR 1,093 million, including goodwill and other intangibles for an amount of EUR 747 million.
Under IFRS-EU, the Company is required to annually test goodwill for impairment and intangible fixed assets not yet available for use. For other intangible fixed assets with finite useful lives, the Company is required to assess whether impairment indicators exists.
We focused on this area because of the materiality of the investment, the valuation of which involves complex and subjective judgements made by management about near and long term prospects of the business of ASMPT. The impairment test uses the fair value of the listed shares of ASMPT as a starting point to assess whether any severe and other than temporary decline in value exists. Our audit procedures included assessing the reasonableness of the analysis' made by management as well as evaluating any qualitative factors that might be of influence on the business of the investment.
Responsibilities of Management and the Supervisory Board for the Financial Statements
Management is responsible for the preparation and fair presentation of the financial statements in accordance with IFRS-EU and Part 9 of Book 2 of the Dutch Civil Code, and for the preparation of the management board report in accordance with Part 9 of Book 2 of the Dutch Civil Code. Furthermore, management is responsible for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
As part of the preparation of the financial statements, management is responsible for assessing the Company's ability to continue as a going concern. Based on the financial reporting frameworks mentioned, management should prepare the financial statements using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so. Management should disclose events and circumstances that may cast significant doubt on the Company's ability to continue as a going concern in the financial statements.
The Supervisory Board is responsible for overseeing the Company's financial reporting process.
Our Responsibilities for the Audit of the Financial Statements
Our objective is to plan and perform the audit assignment in a manner that allows us to obtain sufficient and appropriate audit evidence for our opinion.
Our audit has been performed with a high, but not absolute, level of assurance, which means we may not have detected all errors and fraud.
For our responsibilities we refer to the appendix.
Report on Other Legal and Regulatory Requirements
Report on the management board report and the other information
Pursuant to legal requirements of Part 9 of Book 2 of the Dutch Civil Code (concerning our obligation to report about the management board report and other information):
- we have no deficiencies to report as a result of our examination whether the management board report, to the extent we can assess, has been prepared in accordance with Part 9 of Book 2 of the Dutch Civil Code, and whether the information as required by Part 9 of Book 2 of the Dutch Civil Code has been annexed;
- we report that the management board report, to the extent we can assess, is consistent with the financial statements.
We were appointed as auditor of ASM International NV by the shareholders meeting as of the audit for year 1969 and have operated as statutory auditor ever since that date.
Amsterdam, April 9, 2015
Deloitte Accountants B.V.
P.J.M.A. van de Goor
Enclosure: Appendix to the independent auditors report: Our responsibilities for the audit of the financial statements
Appendix to the independent auditor's report: Our responsibilities for the audit of the financial statements
We have exercised professional judgment and have maintained professional skepticism throughout the audit, in accordance with Dutch Standards on Auditing, ethical requirements and independence requirements. Our audit included e.g.:
- Identifying and assessing the risks of material misstatement of the financial statements, whether due to fraud or error, designing and performing audit procedures responsive to those risks, and obtaining audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control;
- Obtaining an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control;
- Evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management;
- Concluding on the appropriateness of management’s use of the going concern basis of accounting, and based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company ceasing to continue as a going concern;
- Evaluating the overall presentation, structure and content of the financial statements, including the disclosures;
- Evaluating whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
We communicate with the Supervisory Board regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant findings in internal control that we identify during our audit.
We provide the Supervisory Board with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated with the Supervisory Board, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter or, in extremely rare circumstances, when non-mentioning is in the public interest.