Note 12. Investments and associates
The changes in the investment and associates are as follows:
|Net equity share||Other (In)tangible assets and fair value changes||Goodwill||Total associates|
|Balance January 1, 2013||278||–||–||–||–||278|
|40.08% investment in ASMPT March 15, 2013||–||255,701||227,010||898,599||1,381,310||1,381,310|
|Share in income of investments and associates||–||24,093||–||–||24,093||24,093|
|Other comprehensive income of investments and associates||–||480||–||–||480||480|
|Amortization recognized (in)tangible assets||–||–||(16,848)||–||(16,848)||(16,848)|
|Fair value changes||–||–||(39,807)||–||(39,807)||(39,807)|
|Dilution ASMPT share to 39.94%||–||3,587||–||–||3,587||3,587|
|Foreign currency translation effect||–||(8,940)||(8,824)||(45,433)||(63,197)||(63,197)|
|Balance December 31, 2013||278||264,750||161,531||517,394||943,675||943,953|
|Share in income of investments and associates||(278)||62,209||–||–||62,209||61,931|
|Other comprehensive income of investments and associates||–||(2,109)||–||–||(2,109)||(2,109)|
|Amortization recognized (in)tangible assets||–||–||(22,517)||–||(22,517)||(22,517)|
|Dilution ASMPT share to 39.75%||–||3,561||–||–||3,561||3,561|
|Allocation equity component convertible bond 1||–||9,947||–||–||9,947||9,947|
|Foreign currency translation effect||–||28,179||19,830||70,147||118,156||118,156|
|Balance December 31, 2014||–||346,563||158,844||587,541||1,092,948||1,092,948|
- -1- In 2014 convertible bonds were issued by ASMPT that containing both liability and conversion option components. These components are classified separately into respective items on initial recognition in accordance with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument. The conversion option classified as equity is determined by deducting the amount of the liability component from the fair value of the compound instrument as a whole. This is recognized and included in equity, net of income tax effects, and is not subsequently remeasured. In addition, the conversion option classified as equity will remain in equity until the conversion option is exercised.
- -2-Investments reflects the net equity value of the interest in Levitech BV resulting from the management buy-out in 2009 of the RTP business. ASM International NV obtained a 20% interest in Levitech BV. This value has been reduced in 2014 due to (start-up) losses of Levitech caused by the introduction of their advanced products in the market.
On March 13, 2013, the Company announced that it divested a controlling stake in its subsidiary ASM Pacific Technology Ltd ('ASMPT'). The sale of the shares officially closed on March 15, 2013. The Company sold 47,424,500 ordinary shares of ASMPT at a price of HK$90 per share to institutional or other professional investors through a partial secondary share placement, representing an 11.88% stake in ASMPT. The placement generated cash proceeds for the Company of HK$4,191,980 million (approximately €413 million).
The sale of the 11.88% stake caused ASMI to cease control of ASMPT. According to US GAAP the accounting of this sale consists of two separate transactions:
- a sale of a 51.96% subsidiary; and
- a purchase of a 40.08% associate.
These transactions resulted in a substantial gain and the deconsolidation of ASMPT. This gain consisted of two elements, the realized gain on the sale of the 11.88% stake amounting to €252 million and an unrealized re-measurement gain on the remaining 40.08% of the retained interest in ASMPT approximating €1,156 million. The purchase of the associate resulted in the recognition of the associate at fair value.
After the initial accounting of the sale transaction and related gains, subsequent accounting under IAS 28R, Investments in associates and joint ventures, requires that future income from ASMPT will need to be adjusted for the fair value adjustments arising the basis differences as if a business combination had occurred under IFRS 3R, Business combinations, i.e. a purchase price allocation ('PPA').
The purchase of the associate has been recognized at fair value, being the value of the ASMPT shares on the day of closing of the purchase transaction. US GAAP requires that the composition of such a fair value needs to be determined through a PPA. This process took place in the remaining period of 2013. The PPA resulted in the recognition of intangible assets for customer relationship, technology, trade name and product names. For inventories and property, plant & equipment a fair value adjustment was recognized.
The ASMPT investment is accounted for under the equity method on a go forward basis. Equity method investments are tested for prolonged impairment. An investment is considered impaired if the fair value of the investment is less than its amortized cost. The determination of whether an investment is impaired is made at the individual security level in each reporting period.
If the fair value of an investment is less than its cost or amortized cost at the balance sheet date, the Company determines whether the impairment is temporary or other prolonged. During the period after March 15, 2013 the ASMPT share traded for a longer period below the price at the close of sale. Based on this other than temporary share price decrease, the book value of our equity method investment in ASMPT was adjusted reflecting the share price on December 31, 2013 of HK$64.90 resulting in an impairment charge of €336 million.
In December 2014, 1,885,000 common shares of ASMPT were issued, for cash at par value of HK$0.10 per share, pursuant to the Employee Share Incentive Scheme of ASMPT. The shares issued under the plan in 2014 have diluted ASMI's ownership in ASMPT to 39.75% as of December 31, 2014.
At December 31, 2014, the book value of our equity method investment after the aforementioned impairment in ASMPT was €1,093 million. The historical cost basis of our 39.75% share of net assets on the books of ASMPT under IFRS was €347 million as of December 31, 2014, resulting in a basis difference of €746 million. €159 million of this basis difference has been allocated property, plant and equipment and intangibles assets. The remaining amount was allocated to equity method goodwill. Each individual, identifiable asset will periodically be reviewed for any indicators of potential impairment which, if required, would result in acceleration of basis difference amortization. We amortize the basis differences allocated to the assets on a straight-line basis, and include the impact within the results of our equity method investments. Amortization and depreciation are adjusted for related deferred tax impacts. Included in net income attributable to ASMI for 2014 was after-tax expense of €23 million, representing the depreciation and amortization of the basis differences.
The market value of our 39.75% investment ASMPT at December 31, 2014 approximates €1,257 million.
Summarized 100% earnings information for ASMPT equity method investment excluding basis adjustments:
|Income before income tax||673||2,028|
|Other comprehensive income||106||(353)|
Summarized 100% balance sheet information for ASMPT equity method investment excluding basis adjustments:
The ASMPT Board is responsible for ongoing monitoring of the performance of the Back-end activities. The actual results of the Back-end operating unit are discussed with the ASMPT Audit Committee, which includes the representative of ASMI. The ASMI representative reports to the ASMI Management Board and the Audit Committee of ASMI on a quarterly basis.
Our share of income taxes incurred directly by the equity companies is reported in result from investments and associates and as such is not included in income taxes in our consolidated financial statements.