ASML Holding N.V. — 2015 Form 20-F
Business context and reporting period. ASML designs, manufactures and services semiconductor lithography equipment and related metrology and software. This audited annual report covers the fiscal year ended December 31, 2015; it is not a standalone fourth-quarter report. Financial statements are prepared under U.S. GAAP and presented in euros.
Financial performance and position
| Metric | 2015 | 2014 | Change |
|---|---|---|---|
| Net sales | €6,287.4 million | €5,856.3 million | +7.4% |
| Gross profit / margin | €2,895.7 million / 46.1% | €2,596.4 million / 44.3% | Margin +1.8 percentage points |
| Operating income / margin | €1,565.1 million / 24.9% | €1,282.2 million / 21.9% | Margin +3.0 points |
| Net income / margin | €1,387.2 million / 22.1% | €1,196.6 million / 20.4% | +15.9% net income |
| Basic earnings per share | €3.22 | €2.74 | Up |
| Cash from operating activities | €2,025.6 million | €1,025.2 million | Nearly doubled |
| Cash and cash equivalents | €2,458.7 million | €2,419.5 million | +€39.2 million |
| Short-term investments | €950.0 million | €334.9 million | +€615.1 million |
| Long-term debt, including current portion | €1,129.7 million | €1,154.1 million | Down |
| Capital expenditures | €371.8 million | €358.3 million | Up slightly |
Sales growth came mainly from service and field-option sales, up 27.1% to €2,050.2 million, while system sales were nearly flat at €4,237.2 million. Systems sold increased to 169 from 136, but average selling price fell to €25.1 million from €31.2 million, reflecting a mix shift toward lower-priced systems and fewer EUV systems. Management attributed improved gross margin primarily to higher service sales and lower EUV system sales; it said EUV systems then contributed no gross profit.
Working capital was €4,600.5 million, versus €4,257.3 million. Shareholders’ equity was €8,388.8 million and total assets were €13,295.0 million. The company reported €700 million of available revolving credit, with none drawn at year-end; the facility maturity was extended to 2020 and its financial covenant removed. Eurobond principal repayments include €238.2 million in 2017 and €750 million in 2023. Operating cash flow rose substantially; investing activities used €1,159.9 million, including €371.8 million for property, plant and equipment and €950 million for short-term investments. Financing activities used €833.9 million, including €302.3 million in dividends and €564.9 million in treasury-share purchases.
Material changes and operating developments
- Net sales growth slowed to 7.4% from 11.6% in 2014. Service and field-option sales became a larger share of revenue, reaching 32.6% of total sales.
- Operating and net margins improved. The effective tax rate rose to 10.4% from 6.0%, partly because 2014 benefited from favorable tax settlements related to pre-acquisition agreements with Cymer.
- Systems backlog was €3,184.3 million, up from €2,772.4 million, although units fell to 79 from 82. Backlog average selling price rose to €40.3 million, partly due to the inclusion of additional EUV systems. Orders and backlog can be delayed or cancelled.
- Inventory obsolescence additions rose to €211.8 million from €162.8 million; management linked the increase mainly to technological changes and design revisions. Net inventory was €2,573.7 million.
- ASML repurchased 6.3 million shares for €564.9 million in 2015. A €1.05-per-share dividend for 2015 was proposed, subject to shareholder approval.
Outlook, management commentary and risks
- For first-quarter 2016, management expected sales of approximately €1.3 billion, gross margin of about 42%, R&D costs of about €275 million, other income of about €23 million, SG&A costs of about €90 million and an annualized effective tax rate of around 13%.
- Management expected second-quarter sales to increase significantly from the first-quarter level, as Logic customers prepared for a 10-nanometer node ramp and took leading-edge immersion-tool shipments. For 2016, it targeted shipment of six to seven EUV systems and further productivity and availability improvements.
- Long-term ambitions included an annual revenue opportunity of €10 billion by 2020 and potential EPS approximately three times 2014 levels by the end of the decade; these are targets, not guarantees.
- EUV adoption remains dependent on technical progress in source power, throughput, availability and scanner performance. Failure to meet customer performance milestones can delay adoption and revenue recognition; a portion of EUV revenue may be deferred pending milestones.
- Key business risks include semiconductor-industry cyclicality, reliance on a small number of customers and suppliers, and concentration in Taiwan and Asia. The largest customer represented 26.0% of 2015 sales; the three largest customers accounted for 58.3% of accounts receivable and finance receivables at year-end. Zeiss is the sole supplier of critical optics and represented 26.2% of system cost of sales, although ASML said Zeiss capacity did not constrain 2015 production.
- Other disclosed risks include foreign-exchange movements, intense competition, inventory obsolescence, development and adoption risks for new technology, cybersecurity, and potential patent disputes. From 2015, ASML and Nikon could bring certain patent claims under their cross-license arrangements; whether litigation will occur or its outcome was uncertain. The filing reported no significant changes since the financial statements and no subsequent events through February 4, 2016.
- Management stated that disclosure controls and internal control over financial reporting were effective at year-end; Deloitte issued an unqualified audit opinion on the financial statements and internal controls.
Important facts for investors to verify
- Confirm quarterly results separately: this filing reports full-year 2015 figures, not standalone Q4 financials.
- Track EUV customer acceptance, productivity, availability, shipment timing and deferred-revenue conversion, as well as whether EUV systems reach profitable production economics.
- Assess the quality and timing of backlog conversion, given lower backlog units and customers’ ability to reschedule or cancel orders.
- Monitor customer concentration, receivable exposure and demand from Taiwan and other Asian markets, alongside Zeiss and other critical-supplier capacity.
- Review inventory obsolescence, cash conversion, capital spending, debt maturities, the proposed dividend and the announced 2016–2017 share-buyback program of up to €1.5 billion.
- Evaluate exposure to currency movements, tax-rule changes affecting the Dutch Innovation Box, and potential Nikon-related patent claims.