ASML Holding N.V. — 2012 Form 20-F
Business context and reporting period. ASML designs, manufactures, sells and services semiconductor lithography systems. This is the audited annual report for the fiscal year ended December 31, 2012, prepared under U.S. GAAP; it is not a standalone fourth-quarter filing. Unless noted otherwise, financial amounts below are in euros.
Financial results and position
| Metric | 2012 | 2011 |
|---|---|---|
| Net sales | EUR 4,731.6 million | EUR 5,651.0 million |
| Gross profit / gross margin | EUR 2,005.3 million / 42.4% | EUR 2,449.4 million / 43.3% |
| Operating income / operating margin | EUR 1,156.8 million / 24.4% | EUR 1,641.2 million / 29.0% |
| Net income / net margin | EUR 1,146.3 million / 24.2% | EUR 1,467.0 million / 26.0% |
| Basic earnings per share | EUR 2.70 | EUR 3.45 |
| Operating cash flow | EUR 703.5 million | EUR 2,070.4 million |
| Cash and cash equivalents | EUR 1,767.6 million | EUR 2,731.8 million |
| Short-term investments | EUR 930.0 million | None reported |
| Working capital | EUR 3,745.6 million | EUR 3,473.8 million |
| Long-term debt, including current portion | EUR 759.5 million | EUR 736.4 million |
| Total assets / shareholders’ equity | EUR 7,410.5 million / EUR 4,066.9 million | EUR 7,260.8 million / EUR 3,444.2 million |
Capital expenditures were EUR 171.9 million. Investing cash outflow was EUR 1,119.8 million, mainly reflecting purchases of short-term investments and deposits with the Dutch government. Financing cash outflow was EUR 545.6 million, including EUR 3,728.3 million returned through the synthetic share buyback and EUR 535.4 million of other share repurchases, partly offset by EUR 3,853.9 million of customer-program share proceeds. The EUR 500 million revolving credit facility was undrawn at year-end; the EUR 600 million principal Eurobond is due in 2017.
Material changes versus 2011
- Sales fell 16.3%; system sales declined 22.2% and systems sold fell to 170 from 222. Management attributed weaker demand chiefly to Memory customers amid contraction in the PC market. Service and field-option sales rose 21.2% to EUR 929.9 million.
- Operating income fell EUR 484.4 million, with lower system volumes the primary driver. Gross margin declined 0.9 percentage points amid higher EUV-related infrastructure and manufacturing costs, lower factory utilization, and inventory obsolescence costs.
- Net cash from operations decreased by EUR 1,366.9 million, reflecting lower sales and reduced accrued liabilities, including lower EUV customer down payments. Cash declined, while EUR 930.0 million was held in short-term investments.
- SG&A increased 19.0% to EUR 259.3 million, including Customer Co-Investment Program and proposed Cymer transaction costs, as well as IT costs. R&D remained broadly flat at EUR 589.2 million.
- The effective tax rate was 0.4%, versus 11.0%, primarily due to a EUR 92.5 million release of unrecognized tax benefits following tax audits. This materially supported 2012 earnings.
- System backlog excluding EUV declined to 46 systems valued at EUR 1,214.1 million from 71 systems and EUR 1,732.5 million.
Outlook, commentary and risks
- Management expected 2013 net sales to be in line with 2012, supported by lithography-intensive 14–20 nm logic and foundry transitions. It forecast first-quarter 2013 sales of about EUR 850 million, gross margin of about 38%, R&D costs of EUR 185 million and SG&A of EUR 63 million, including EUR 6 million of pending Cymer acquisition costs.
- ASML planned its first NXE:3300B EUV shipment in Q2 2013 and targeted a maximum of 11 potential shipments for the year. EUV commercialization remained dependent on light-source power and availability, related technical progress, and mask and photoresist infrastructure.
- Expected 2013 capital expenditures were approximately EUR 369.8 million, mainly for EUV capacity and 450 mm activities. Management stated that cash, investments, operating cash generation and borrowing capacity should meet current requirements, including planned capex.
- The proposed Cymer acquisition, announced in October 2012, was still subject to regulatory and other closing conditions; management expected completion in the first half of 2013. The consideration was USD 20 in cash plus 1.1502 ASML shares per Cymer share. Failure to close or integrate the acquisition could delay EUV development.
- Intel, TSMC and Samsung committed a combined EUR 1.38 billion for R&D from 2013–2017 and acquired shares representing 23% of ASML after the synthetic buyback. Funding supports EUV and 450 mm development; ASML retains development control and owns resulting IP. Customer-related shareholding, governance rights and commercial credits merit attention.
- Key exposures include semiconductor cyclicality and order timing; significant customer and geographic concentration (the largest customer represented 26.1% of sales, and Taiwan 31.3%); dependence on Zeiss for critical optics and a limited supplier base; foreign-exchange movements; and competition and execution risks in EUV and 450 mm technology.
- Inventory obsolescence provisions rose to EUR 130.9 million in 2012 from EUR 60.3 million. The filing also identifies EUR 1.64 billion of purchase obligations, mostly due within one year, although many supplier contracts allow delays or cancellations. The Nikon patent cross-license transition period runs through 2014; parties may bring certain claims beginning in 2015.
- The Board proposed a 2012 dividend of EUR 0.53 per share, subject to shareholder approval. The filing reports effective disclosure controls and internal control over financial reporting; the auditor issued unqualified opinions on the financial statements and controls.
Important facts for investors to verify
- Whether 2013 sales and gross-margin performance met management’s outlook, and how orders and cancellations affected backlog.
- Whether Cymer closed on the expected terms and schedule, and whether integration improved EUV source performance and delivery prospects.
- Whether EUV tools achieved planned shipments, productivity, light-source power and customer adoption; assess associated costs and inventory provisions.
- How much of the EUR 1.38 billion customer R&D commitments is recognized as income, and how customer commercial discounts or credits affect reported margins.
- Whether customer concentration, receivable exposure and Taiwan sales concentration changed; the three largest customers represented 58.9% of receivables and finance receivables at year-end.
- Whether operating cash flow recovered and liquidity remained adequate after buybacks, capex and contractual purchase commitments; also monitor the 2017 Eurobond maturity.
- The sustainability of the unusually low 2012 tax rate and the proposed dividend, which required AGM approval.