20-F

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 20-F

¨ Registration Statement pursuant to Section 12(b) or (g) of the Securities Exchange Act of 1934

x Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended December 31, 2003

¨ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from                      to                     

Commission File Number: 0-13355

ASM INTERNATIONAL N.V.

(Exact name of Registrant as specified in its charter)

The Netherlands

(jurisdiction of incorporation or organization)

Jan van Eycklaan 10, 3723 BC Bilthoven, the Netherlands

(Address of principal executive offices)

Securities registered or to be registered pursuant to

Section 12(b) of the Act: None

Securities registered or to be registered pursuant to

Section 12(g) of the Act: Common Shares, par value € 0.04

Securities for which there is a reporting obligation pursuant to

Section 15(d) of the Act: None

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report: 50,061,647 common shares; no preferred shares.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No ¨

Indicate by check mark which financial statement item the registrant has elected to follow:

Item 17 ¨ Item 18 x

TABLE OF CONTENTS

		Page
PART I		2
Item 1.	Identity of Directors, Senior Management and Advisors	2
Item 2.	Offer Statistics and Expected Timetable	2
Item 3.	Key Information	2
Item 4.	Information on the Company	17
Item 5.	Operating and Financial Review and Prospects overview	40
Item 6.	Directors, Senior Management and Employees	54
Item 7.	Major Shareholders and Related Party Transactions	60
Item 8.	Financial Information	63
Item 9.	The Offer and Listing	65
Item 10.	Additional Information	66
Item 11.	Quantitative and Qualitative Disclosures about Market Risk	75
Item 12.	Description of Securities Other Than Equity Securities	78
PART II		79
Item 13.	Defaults, Dividend Arrearages and Delinquencies	79
Item 14.	Material Modification to the Rights of Security Holders and Use of Proceeds	79
Item 15.	Controls and Procedures	79
Item 16A.	Audit Committee Financial Expert	79
Item 16B.	Code of Ethics	79
Item 16C.	Principal Accountant Fees and Services	79
Item 16D.	Exemptions from the Listing Standards for Audit Committees	80
Item 16E.	Purchases of Equity Securities by the Issuer and Affiliated Purchasers	80
PART III		81
Item 17.	Financial Statements	81
Item 18.	Financial Statements	81
Item 19.	Exhibits(*)	81

SIGNATURES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

EX-8.1

EX-11.1

EX-12.1

EX-12.2

EX-13.1

EX-14.1

Part I.

As used in this report, the terms “we,” “us,” “our,” “ASM” and “ASM International” mean ASM International N.V. and its subsidiaries, unless the context indicates another meaning, and the term “common shares” means our common shares, par value € 0.04 per share. Since we are a Netherlands company, the par value of our common shares is expressed in euros (“€”).

Item 1. Identity of Directors, Senior Management and Advisors

Not applicable.

Item 2. Offer Statistics and Expected Timetable

Not applicable.

Item 3. Key Information

A. Selected consolidated financial data.

You should read the following selected financial data in conjunction with “Operating and Financial Review and Prospects” and our financial statements and the notes thereto included elsewhere in this report. The selected consolidated financial data presented below as of and for the years ended December 31, 2002 and 2003 have been derived from our audited consolidated financial statements included elsewhere in this report. The selected consolidated financial data presented below as of and for the years ended December 31, 1999, 2000 and 2001 have been derived from our audited consolidated financial statements which are not included in this report.

	1999			2000			2001			2002			2003
	(Euros in thousands, except per share data (1))
Consolidated Statements of Operations Data:
Net sales	€	414,495		€	935,212		€	561,064		€	518,802		€	581,868
Costs of sales		(244,485	)		(518,027	)		(337,743	)		(328,077	)		(380,597	)
Gross profit		170,010			417,185			223,321			190,725			201,271
Operating expenses:
Selling, general and administrative		(83,170	)		(147,318	)		(111,851	)		(108,393	)		(108,019	)
Research and development, net		(47,145	)		(73,800	)		(79,661	)		(88,334	)		(79,053	)
Amortization of goodwill		(340	)		(4,295	)		(7,558	)		—			—
Total operating expenses		(130,655	)		(225,413	)		(199,070	)		(196,727	)		(187,072	)
Earnings (loss) from operations		39,355			191,772			24,251			(6,002	)		14,199
Interest income		913			4,699			3,690			1,336			1,393
Interest expense		(13,210	)		(8,236	)		(5,031	)		(9,627	)		(11,692	)
Foreign currency transaction gains (losses)		3,689			1,942			357			(2,125	)		(2,479	)
Income taxes		(1,274	)		(22,830	)		(4,711	)		1,165			(7,112	)
Minority interest		(18,519	)		(71,107	)		(13,373	)		(15,890	)		(24,570	)
Gain on dilution of investment in subsidiary		145			1,822			915			1,281			941
Net earnings (loss) before cumulative effect of change in accounting principle	€	11,099		€	98,062		€	6,098		€	(29,862	)	€	(29,320	)
Cumulative effect of change in accounting principle, net of tax (1)		—			(3,790	)		—			—			—
Net earnings (loss)	€	11,099		€	94,272		€	6,098		€	(29,862	)	€	(29,320	)
Basic net earnings (loss) per share from operations	€	1.06		€	4.10		€	0.50		€	(0.12	)	€	0.29
Diluted net earnings (loss) per share from operations	€	0.98		€	3.95		€	0.49		€	(0.12	)	€	0.29
Basic net earnings (loss) per share:
Before cumulative effect of change in accounting principle	€	0.30		€	2.09		€	0.12		€	(0.61	)	€	(0.59	)
Cumulative effect of change in accounting principle (1)		—			(0.08	)		—			—			—
After cumulative effect of change in accounting principle	€	0.30		€	2.01		€	0.12		€	(0.61	)	€	(0.59	)
Diluted net earnings (loss) per share:
Before cumulative change of accounting principle	€	0.29		€	2.02		€	0.12		€	(0.61	)	€	(0.59	)
Cumulative change of accounting principle		—			(0.08	)		—			—			—
After cumulative effect of change in accounting principle	€	0.29		€	1.94		€	0.12		€	(0.61	)	€	(0.59	)
Basic weighted average number of shares		37,301			46,810			48,944			49,170			49,642
Diluted weighted average number of shares		40,664			48,703			49,958			49,170			49,642
	1999			2000			2001			2002			2003
Pro forma amounts assuming the new accounting principle is applied retroactively (1)
Net earnings (loss)	€	8,881		€	98,062		€	6,098		€	(29,862	)	€	(29,320	)
Net earnings (loss) per share:
Basic	€	0.24		€	2.09		€	0.12		€	(0.61	)	€	(0.59	)
Diluted	€	0.23		€	2.02		€	0.12		€	(0.61	)	€	(0.59	)

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	December 31,
	1999	2000	2001	2002	2003
	(Euros in thousands)
Consolidated Balance Sheet Data:
Cash and cash equivalents	14,153	106,805	107,577	70,991	154,857
Total assets	425,035	777,940	757,065	653,841	672,301
Total debt	119,893	76,280	160,858	147,057	207,623
Total shareholders’ equity	65,552	308,322	320,910	265,542	214,932

⁽¹⁾ The cumulative effect of the change in the accounting principle relates to the effect on prior years of the impact of the adoption of SEC Staff Accounting Bulletin 101, effective as of January 1, 2000, which sets forth guidelines on the timing of revenue recognition of sales. The pro forma amounts presented assume that these accounting principles were applied retroactively.

RATIO OF EARNINGS TO FIXED CHARGES

The following table sets forth our historical ratio of earnings to fixed charges for the periods indicated:

	Year Ended December 31,
	2001		2002		2003
Ratio of earnings to fixed charges(1)	5.6	x	—	(2)	1.1	x

⁽¹⁾ The ratio of earnings to fixed charges is computed by dividing:

• earnings (loss) before income taxes and minority interest plus fixed charges; by

• by fixed charges.

Fixed charges consist of interest expense.

⁽²⁾ Earnings, as calculated for purposes of the ratio, were not sufficient to cover the fixed charges. The coverage deficiency was €16,418 for the year 2002.

Exchange Rate Information

The following table sets forth, for each period indicated, specified information regarding the United States dollar per euro exchange rates based on the noon buying rate in New York City for cable transfers payable in euros as certified for customs purposes by the Federal Reserve Bank of New York, which is often referred to as the “noon buying rate.” On March 12, 2004, the noon buying rate was 1.2191 United States dollars per euro.

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U.S. Dollar per Euro Exchange Rate

	Months of
	September 2003	October 2003	November 2003	December 2003	January 2004	February 2004
High	1.1650	1.1833	1.1995	1.2597	1.2853	1.2848
Low	1.0845	1.1596	1.1417	1.1956	1.2389	1.2426

	Years Ended December 31,
	1999	2000	2001	2002	2003
Average exchange rate (1)	1.0588	0.9207	0.8909	0.9453	1.1411

⁽¹⁾ Average of the exchange rate on the last day of each month during the period presented.

B. Capitalization and indebtedness.

Not applicable.

C. Reasons for the offer and use of proceeds.

Not applicable.

D. Risk factors.

Some of the information in this report constitutes forward-looking statements within the meaning of the United States federal securities laws, including the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements include, among others, statements regarding future expenditures, sufficiency of cash generated from operations, maintenance of majority interest in ASM Pacific Technology Ltd. (“ASM Pacific Technology”), business strategy, product development, product acceptance, market penetration, market demand, return on investment in new products and product shipment dates. These statements may be found under “Operating and Financial Review and Prospects,” and elsewhere in this report. Forward-looking statements typically are identified by use of terms such as “believe,” “anticipate,” “estimate,” “expect,” “intend,” “plan,” “will,” “may” and similar words, although some forward-looking statements are expressed differently. You should be aware that these statements involve risks and uncertainties and our actual results could differ materially from those contained in the forward-looking statements due to a number of factors, including the matters discussed in “Item 4. Information on the Company” and the following discussion of risks.

RISKS RELATED TO OUR INDUSTRY

Our business could be adversely affected by the cyclical nature of the semiconductor industry.

We sell our products to the semiconductor industry, which is subject to sudden, extreme, cyclical variations in product supply and demand. Since late 2000, the semiconductor industry has been in a cyclical downturn characterized by reduced demand for products, lower average selling prices, reduced investment in semiconductor capital equipment and other factors all of which have resulted in lower sales and earnings for our business. The timing, length and severity of these cycles are difficult to predict. In some cases, these cycles have lasted more than a year. The latest downturn has lasted longer than past cycles and, although conditions in the industry improved in the fourth quarter of 2003, the market remains volatile and hard to predict. Semiconductor manufacturers may contribute to the severity of these cycles by misinterpreting the conditions in the industry and over-investing or under-investing in semiconductor manufacturing capacity and equipment. We may not be able to respond effectively to these industry cycles.

Downturns in the semiconductor industry often occur in connection with, or anticipation of, maturing product cycles and declines in general economic conditions. Industry downturns have been

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characterized by reduced demand for semiconductor devices and equipment, production over-capacity and a decline in average selling prices. During a period of declining demand, we must be able to quickly and effectively reduce expenses and motivate and retain key employees. Our ability to reduce expenses in response to any downturn in the semiconductor industry is limited by our need for continued investment in engineering and research and development and extensive ongoing customer service and support requirements. In addition, the long lead time for production and delivery of some of our products creates a risk that we may incur expenditures or purchase inventories for products, which we cannot sell. During periods of extended downturn, a portion of our inventory may be written down if it is not sold.

Industry upturns have been characterized by fairly abrupt increases in demand for semiconductor devices and equipment and insufficient production capacity. During a period of increasing demand and rapid growth, we must be able to quickly increase manufacturing capacity to meet customer demand and hire and assimilate a sufficient number of additional qualified personnel. Our inability to quickly respond in times of increased demand could harm our reputation and cause some of our existing or potential customers to place orders with our competitors rather than us.

Our industry is subject to rapid technological change and we may not be able to forecast or respond to commercial and technological trends in time to avoid competitive harm.

Our growth strategy and future success depend upon commercial acceptance of products incorporating technologies we are developing, such as atomic layer chemical vapor deposition, rapid thermal processing, low-k dielectrics and silicon or silicon-germanium epitaxy. The semiconductor industry and the semiconductor equipment industry are subject to rapid technological change and frequent introductions of enhancements to existing products. Technological changes have had and will continue to have a significant impact on our business. Our operating results and our ability to remain competitive are affected by our ability to accurately anticipate customer and market requirements and develop technologies and products to meet these requirements. Our success in developing, introducing and selling new and enhanced products depends upon a variety of factors, including:

• successful innovation of processes and equipment;

• accurate technology and product selection;

• timely and efficient completion of product design and development;

• timely and efficient implementation of manufacturing and assembly processes;

• successful product performance in the field;

• effective and timely product support and service; and

• effective product sales and marketing.

We may not be able to accurately forecast or respond to commercial and technical trends in the semiconductor industry or to the development of new technologies and products by our competitors. Our competitors may develop technologies and products that are more effective than ours or that may be more widely accepted. In addition, we may incur substantial unanticipated costs to ensure the functionality and reliability of our current and future products. If our products are unreliable or do not meet our customers’ expectations, then we may experience reduced orders, higher manufacturing costs, delays in collecting accounts receivable, and/or additional service and warranty expense. We have experienced delays from time to time in the introduction of, and some technical and manufacturing difficulties with, some of our systems and enhancements. We may also experience delays and technical and manufacturing difficulties in future introductions or volume production of new systems or enhancements. Significant delays can occur between a product’s introduction and the commencement of volume production of that product.

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Any of these events could negatively impact our ability to generate the return we intend to achieve on our investments in new products.

If we fail to adequately invest in research and development, we may be unable to compete effectively.

We have limited resources to allocate to research and development, and must allocate our resources among a wide variety of projects in our front-end and back-end businesses. Because of intense competition in our industry, the cost of failing to invest in strategic developments is high. In order to enhance the benefits obtained from our research and development expenditures, we have contractual and other relationships with independent research institutes. If we fail to adequately invest in research and development or lose our ability to collaborate with these independent research entities, we may be unable to compete effectively in the front-end and back-end markets in which we operate.

We face intense competition from companies which have greater resources than we do, and potential competition from new companies entering the market in which we compete. If we are unable to compete effectively with these companies, our market share may decline and our business could be harmed.

We face intense competition in both the front-end and back-end segments of the semiconductor equipment industry from other established companies. Our primary competitors in the front-end business include Applied Materials, Novellus, Tokyo Electron, and Kokusai. Our primary competitors in the back-end business include Kulicke & Soffa, ESEC, Shinkawa, Apic Yamada, BE Semiconductor, Towa, Shinko and Mitsui. A number of our competitors have significantly greater financial, technological, engineering, manufacturing, marketing and distribution resources than we do. Their greater capabilities in these areas may enable them to:

• better withstand periodic downturns in the semiconductor industry;

• compete more effectively on the basis of price and technology;

• more quickly develop enhancements to, and new generations of products; and

• more effectively retain existing customers and attract new customers.

In addition, new companies may enter the markets in which we compete, further increasing competition in the semiconductor equipment industry.

We believe that our ability to compete successfully depends on a number of factors, including:

• our success in developing new products and enhancements;

• performance of our products;

• quality of our products;

• ease of use of our products;

• reliability of our products;

• cost of ownership of our products;

• our ability to ship products in a timely manner;

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• quality of the technical service we provide;

• timeliness of the services we provide;

• responses to changing market and economic conditions; and

• price of our products and our competitors’ products.

Some of these factors are outside our control. We may not be able to compete successfully in the future, and increased competition may result in price reductions, reduced profit margins, loss of market share, and inability to generate cash flows that are sufficient to maintain or expand our development of new products.

RISKS RELATED TO OUR BUSINESS

Our quarterly revenues and operating results fluctuate due to a variety of factors, which may result in volatility or a decrease in the price of our common shares.

Our quarterly revenues and operating results have varied significantly in the past and may vary in the future due to a number of factors, including:

• cyclicality and other economic conditions in the semiconductor industry;

• production capacity constraints;

• the timing of customer orders, cancellations and shipments;

• the length and variability of the sales cycle for our products;

• the introduction of new products and enhancements by us and our competitors;

• the emergence of new industry standards;

• product obsolescence;

• disruptions in sources of supply;

• our ability to time our expenditures in anticipation of future orders;

• our ability to fund our capital requirements;

• changes in our pricing and pricing by our suppliers and competitors;

• our product and revenue mix;

• seasonal fluctuations in demand for our products;

• exchange rate fluctuations;

• further appreciation of the euro versus the U.S. dollar, which would negatively affect the competitiveness of our manufacturing activities that are domiciled in countries whose currency is the euro; and

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• economic conditions generally or in various geographic areas where we or our customers do business.

In addition, we derive a substantial portion of our net sales from products that have a high average selling price and significant lead times between the initial order and delivery of the product. The timing and recognition of net sales from customer orders can cause significant fluctuations in our operating results from quarter to quarter. Gross margins realized on product sales vary depending upon a variety of factors, including the mix of products sold during a particular period, negotiated selling prices, the timing of new product introductions and enhancements and manufacturing costs. A delay in a shipment near the end of a fiscal quarter or year, due, for example, to rescheduling or cancellations by customers or to unexpected manufacturing difficulties experienced by us, may cause sales in a particular period to fall significantly below our expectations and may materially adversely affect our operating results for that period. Further, our need to continue expenditures for research and development and engineering make it difficult for us to reduce expenses in a particular quarter even if our sales goals for that quarter are not met. Our inability to adjust spending quickly enough to compensate for any sales shortfall would magnify the adverse impact of a sales shortfall on our operating results. In addition, announcements by us or our competitors of new products and technologies could cause customers to defer purchases of our existing systems, which could negatively impact our earnings and our financial position.

As a result of these factors, our operating results may vary significantly from quarter to quarter. Any shortfall in revenues or net income from levels expected by securities analysts and investors could cause a decrease in the trading price of our common shares.

Our products generally have long sales cycles and implementation periods, which increase our costs in obtaining orders and reduce the predictability of our earnings.

Our products are technologically complex. Prospective customers generally must commit significant resources to test and evaluate our products and to install and integrate them into larger systems. In addition, customers often require a significant number of product presentations and demonstrations, in some instances evaluating equipment on site, before reaching a sufficient level of confidence in the product’s performance and compatibility with the customer’s requirements to place an order. As a result, our sales process is often subject to delays associated with lengthy approval processes that typically accompany the design and testing of new products. The sales cycles of our products often last for many months or even years. Longer sales cycles require us to invest significant resources in attempting to make sales and delay the generation of revenue.

Long sales cycles also subject us to other risks, including customer’s budgetary constraints, internal acceptance reviews and cancellations. In addition, orders expected in one quarter could shift to another because of the timing of customer’s purchase decisions. The time required for our customers to incorporate our products into their systems can vary significantly with the needs of our customers and generally exceeds several months, which further complicates our planning processes and reduces the predictability of our operating results.

Substantially all of our equipment orders are subject to operating or performance specifications. We occasionally experience unforeseen difficulties in compliance with these criteria, which can result in increased design, installation and other costs and expenses.

Substantially all of our equipment sales are conditioned on our demonstration, and our customer’s acceptance, that the equipment meets specified operating and performance criteria, either before shipment or after installation in a customer’s facility. We occasionally experience unforeseen difficulties in demonstrating compliance with these criteria, which can lead to unanticipated expenses for the redesign, modification and testing of the equipment and related software. To the extent this occurs in the future, our cost of goods sold and operating income will be adversely effected. If we are not able to demonstrate compliance with the performance and operating specifications in respect of specific equipment, we may

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have to pay penalties to the customer, issue credit notes to the customer and/or take other remedial action, including payment of damages, any one of which could negatively affect our operating income.

We derive a significant percentage of our revenue from sales to a small number of large customers, and if we are not able to retain these customers, or they reschedule, reduce or cancel orders, our revenues would be reduced and our financial results would suffer.

Our largest customers account for a significant percentage of our revenues. Our largest customer accounted for 18.5% and our ten largest customers accounted for 46.5% of our net sales in 2003. Sales to and the relative importance of these large customers have varied significantly from year to year and will continue to fluctuate in the future. These sales also may fluctuate significantly from quarter to quarter. We may not be able to retain our key customers or they may cancel purchase orders or reschedule or decrease their level of purchases from us. Any substantial decrease or delay in sales to one or more of our key customers could harm our sales and financial results. In addition, any difficulty in collecting amounts due from one or more key customers could harm our financial results.

We may need additional funds to finance our future growth, and ongoing research and development activities. If we are unable to obtain such funds, we may not be able to expand our business as planned.

In the past, we have experienced severe capital constraints that adversely affected our operations and ability to compete. We may require substantial additional capital to finance our future growth and fund our ongoing research and development activities beyond 2004. Our capital requirements depend on many factors, including acceptance of and demand for our products, and the extent to which we invest in new technology and research and development projects.

If we raise additional funds through the issuance of equity securities, the percentage ownership of our existing shareholders would be diluted. If we finance our capital requirements we may incur significant interest costs. Additional financing may not be available to us when needed or, if available, may not be available on terms acceptable to us.

If we are unable to raise needed additional funds, we may have to reduce the amount we spend on research and development, slow down our introduction of new products, reduce capital expenditures necessary to support future growth and/or take other measures to reduce expenses which could limit our growth and ability to compete.

We may not be able to recruit or retain qualified personnel or integrate qualified personnel into our organization. Consequently, we could experience reduced sales, delayed product development and diversion of management resources.

Our business and future operating results depend in part upon our ability to attract and retain qualified management, technical, sales and support personnel for our operations on a worldwide basis. Competition for qualified personnel is intense, and we cannot guarantee that we will be able to continue to attract and retain qualified personnel particularly during sustained economic upturns in the industry. Availability of qualified technical personnel varies from country to country, and may affect the operations of our subsidiaries in some parts of the world. Our operations could be negatively affected if we lose key executives or employees or are unable to attract and retain skilled executives and employees as needed. In particular, if our growth strategies are successful, we may not have sufficient personnel to manage that growth and may not be able to attract the personnel needed. We do not maintain insurance to protect against the loss of key executives or employees. Further, we have agreements with some, but not all, employees, restricting their ability to compete with us after their employment terminates. Our future growth and operating results will depend on:

• our ability to continue to broaden our senior management group;

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• our ability to attract, hire and retain skilled employees; and

• the ability of our officers and key employees to continue to expand, train and manage our employee base.

In response to recent market conditions, we have enacted a hiring freeze and have reduced personnel. Although we are not currently focused on attracting new key personnel, we have in the past experienced the intense competition for skilled personnel during market expansions and believe competition will again be intense if the semiconductor market continues its current trend toward a sustained rebound. Consequently, we generally attempt to minimize reductions in skilled personnel as a reaction to industry downturns, which reduces our ability to lower costs by payroll reduction. We continue to monitor market and economic developments and are ready to implement further measures if circumstances warrant.

Although we are a majority shareholder, ASM Pacific Technology is not obligated to pay dividends to us and may take actions or enter into transactions that are detrimental to us.

ASM Pacific Technology is a Cayman Islands limited liability company that is based in Hong Kong and listed on the Hong Kong Stock Exchange. As of December 31, 2003, we owned 53.87% of ASM Pacific Technology through our wholly-owned subsidiary, Advanced Semiconductor Materials (Netherlands Antilles N.V.), a Netherlands Antilles company, and the remaining 46.13% was owned by the public.

Although three of the five directors of ASM Pacific Technology are affiliates of ASM International, they are under no obligation to take any actions that are beneficial to us. Issues and conflicts of interest therefore may arise which might not be resolved in our best interests.

In addition, the directors of ASM Pacific Technology are under no obligation to declare a payment of dividends to shareholders. As a shareholder of ASM Pacific Technology, we can approve the payment of dividends, but cannot compel their payment or size. With respect to the payment of dividends, the directors must consider the financial position of ASM Pacific Technology after the dividend. Since a portion of our cash flows available for front-end is derived from the dividends we receive from ASM Pacific Technology, its failure to declare dividends in any year would negatively impact the cash position of our front-end segment for that year and reduce cash available to service our indebtedness. Cash dividends received from ASM Pacific Technology totaled € 35.7 million, € 29.5 million, and € 24.1 million in 2001, 2002 and 2003, respectively.

The directors of ASM Pacific Technology owe their fiduciary duties to ASM Pacific Technology, and may approve transactions to which we are a party only if the transactions are commercially beneficial to ASM Pacific Technology. Further, under the listing rules of the Hong Kong Stock Exchange, directors who are on the boards of both ASM Pacific Technology and ASM International are not permitted to vote on a transaction involving both entities. This would disqualify all three of the affiliates of ASM International who currently serve on the board of ASM Pacific Technology from voting on any such transaction.

As a shareholder of ASM Pacific Technology, we can vote our shares in accordance with our own interests. However, we may not be entitled to vote on transactions involving both us and ASM Pacific Technology under the listing rules of the Hong Kong Stock Exchange and the Hong Kong Takeover Code. For example, under the Hong Kong Takeover Code, we would be excluded from voting if we were directly involved in a takeover of ASM Pacific Technology in a transaction requiring a shareholder vote.

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Our reliance on a limited number of suppliers could result in disruption of our operations.

We outsource a substantial majority of the manufacturing of our front-end business to a limited number of suppliers. We are in the process of developing additional internal and external sources of supply for these manufacturing processes in the future, including an additional front-end supply source in Singapore. If our suppliers were unable or unwilling to deliver products to us in the quantities we require for any reason, including natural disaster, labor unrest, capacity constraints, supply chain management problems or contractual disputes, we may be unable to fill customer orders on a timely basis, which could negatively affect our financial performance and customer relationships.

Because the costs to semiconductor manufacturers of switching from one semiconductor equipment supplier to another can be high, it may be more difficult to sell our products to new customers which could limit our growth in sales and market share.

We believe that once a semiconductor manufacturer has selected a supplier’s equipment for a particular product line, that manufacturer generally continues to rely on that supplier for future equipment requirements, including new generations of similar products. Changing from one equipment supplier to another is expensive and requires a substantial investment of resources by the customer. Accordingly, it is difficult to achieve significant sales to a customer using another supplier’s equipment. Our inability to sell our products to potential customers who use another supplier’s equipment could adversely affect our ability to increase revenue and market share.

Our ability to compete could be jeopardized if we are unable to protect our intellectual property rights from challenges by third parties; claims or litigation regarding intellectual property rights could require us to incur significant costs.

Our success and ability to compete depend in large part upon protecting our proprietary technology. We rely on a combination of patent, trade secret, copyright and trademark laws, nondisclosure and other contractual agreements and technical measures to protect our proprietary rights. These agreements and measures may not be sufficient to protect our technology from third party infringements, or to protect us from the claims of others. In addition, patents issued to us may be challenged, invalidated or circumvented, rights granted to us under patents may not provide competitive advantages to us, and third parties may assert that our products infringe their patents, copyrights or trade secrets. Third parties could also independently develop similar products or duplicate our products.

In addition, monitoring unauthorized use of our products is difficult and we cannot be certain that the steps we have taken will prevent unauthorized use of our technology. The laws of some countries in which our products are or may be developed, manufactured or sold, including various countries in Asia, may not protect our products or intellectual property rights to the same extent as do the laws of the Netherlands and the United States and thus make the possibility of piracy of our technology and products more likely in these countries. If competitors are able to use our technology as their own, our ability to compete effectively could be harmed.

In recent years, there has been substantial litigation regarding patent and other intellectual property rights in semiconductor-related industries. We are currently involved in patent litigation proceedings in the United States with Applied Materials, Inc. involving claims and counter-claims over certain patent infringement unrelated to our 1997 settlement with Applied Materials discussed below. In addition, in April 2003, we and our subsidiary, ASM America, entered into a binding memorandum of understanding regarding the settlement of mutual patent infringement claims between ASM America and Genus, Inc. In the future, additional litigation may be necessary to enforce patents issued to us, to protect trade secrets or know-how owned by us or to defend us against claimed infringement of the rights of others and to determine the scope and validity of the proprietary rights of others. For additional information regarding this matter, see Note N to Notes to Consolidated Financial Statements elsewhere in this report.

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Claims that our products infringe the proprietary rights of others would force us to defend ourselves and possibly our customers or suppliers against the alleged infringement. Such claims, if successful, could subject us to significant liability for damages and invalidate our proprietary rights. Regardless of the outcome, patent infringement litigation is time-consuming and expensive to resolve and diverts management time and attention.

Intellectual property litigation could force us to do one or more of the following, any one of which could severely harm our business:

• forfeit our proprietary rights;

• stop manufacturing or selling our products that incorporate the challenged intellectual property;

• obtain from the owner of the infringed intellectual property right a license to sell or use the relevant technology, which license may not be available on reasonable terms or at all or may involve significant royalty payments;

• pay damages, including treble damages and attorney’s fees in some circumstances; or

• redesign those products that use the challenged intellectual property.

We license the use of some patents from a competitor pursuant to a settlement agreement; if the agreement is terminated, our business could be adversely affected.

In October 1997, we entered into an agreement to settle mutual patent infringement litigation with Applied Materials, Inc., which was amended and restated in 1998, pursuant to which Applied Materials agreed to grant us a worldwide, non-exclusive and royalty-bearing license to use all of the litigated patents and certain additional patents that were not part of the litigation. In return we agreed to pay Applied Materials US$ 80.0 million and to grant it a worldwide, non-exclusive license to use a number of our patents including but not limited to those patents which we were enforcing in the litigation. All licenses expire at the end of the life of the underlying patents. Our obligation to pay certain royalties to Applied Materials continues until the expiration of the corresponding underlying patent. In addition, the settlement agreement included covenants for limited periods during which the parties would not litigate the issue of whether certain of our products infringe any of Applied Materials’ patents that were not licensed to us under the settlement agreement. The covenants which lasted for different periods of time for different products, have expired. Upon the occurrence of an event of default or other specified events, including, among other things, our failure to pay royalties, a change of control of ASM International, and improper use of the licenses, Applied Materials may terminate the settlement agreement, including the licenses included in the agreement.

We are currently involved in patent infringement litigation with Applied Materials involving claims that are unrelated to and patents which are not the subject of our settlement agreement with Applied Materials. Additional litigation with Applied Materials regarding other matters or the operation of the settlement agreement itself could occur. Litigation with Applied Materials, which has greater financial resources than we do, could negatively impact our earnings and financial position. For additional information regarding our litigation with Applied Materials, see Note N to Notes to Consolidated Financial Statements elsewhere in this report.

We operate worldwide; economic, political, military or other events in a country where we make significant sales or have significant operations could interfere with our success or operations there and harm our business.

We market and sell our products and services throughout the world. We have assembly facilities in the Netherlands, the United States, Japan, Hong Kong and Singapore, and manufacturing facilities in

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the People’s Republic of China and Malaysia. We are subject to risks inherent in doing business internationally. In particular, the September 11, 2001 attacks in New York and Washington, D.C. disrupted commerce throughout the United States and other parts of the world. The occurrence of future similar attacks throughout the world and military action taken and to be taken by the United States and other nations in Iraq and elsewhere may cause significant disruption to commerce throughout the world or in regions where we have operations. In addition, outbreaks of highly infectious diseases or viruses, such as Severe Acute Respiratory Syndrome or the Avian Flu, in East Asian countries or other areas of the world may disrupt the economies, financial markets and business activities in East Asia and elsewhere, including areas where we have operations, such as our back-end operations located in the Guangdong province in the People’s Republic of China. To the extent that such disruptions further slow the global economy or, more particularly, result in delays or cancellations of purchase orders, our business and results of operations could be materially and adversely affected. We are unable to predict whether these risks or the responses thereto will result in any long-term commercial disruptions or if such activities or responses will have a long-term material adverse effect on our business, results of operations or financial condition.

We are subject to other risks related to international business, including:

• unexpected changes in regulatory requirements or changes in one country in which we do business which are inconsistent with regulations in another country in which we do business;

• fluctuations in exchange rates and currency controls;

• political conditions and instability, particularly in the countries in which our manufacturing facilities are located;

• economic conditions and instability;

• tariffs and other trade barriers, including current and future import and export restrictions, and freight rates;

• difficulty in staffing, coordinating and managing international operations;

• burden of complying with a wide variety of foreign laws and licensing requirements;

• difficulty in protecting intellectual property rights in some foreign countries;

• limited ability to enforce agreements and other rights in some foreign countries;

• longer accounts receivable payment cycles in some countries; and

• business interruption and damage from natural disasters.

Our operational results could be negatively impacted by currency fluctuations.

Our assets, liabilities and operating expenses and those of our subsidiaries are to a large extent denominated in the currency of the country where each entity is established. Our financial statements, including our consolidated financial statements, are expressed in euros. The translation exposures that result from the inclusion of financial statements of our subsidiaries that are expressed in the currencies of the countries where the subsidiaries are located are not hedged. As a result, our operational results are exposed to fluctuations of various exchange rates. These net translation exposures are taken into account in determining shareholder’s equity.

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In addition, foreign currency fluctuations may affect the prices of our products. Prices for our products are currently denominated in United States dollars, euros and Japanese yen for sales to our customers throughout the world. If there is a significant devaluation of the currency in a specific country, the prices of our products will increase relative to that country’s currency and our products may be less competitive in that country. Also, we cannot be sure that our international customers will continue to be willing to place orders denominated in these currencies. If they do not, our revenue and operating results will be subject to additional foreign exchange rate fluctuations.

Although we monitor our exposure to currency fluctuations, these fluctuations could negatively impact our earnings, cash flow and financial position.

If our products are found to be defective, we may be required to recall and/or replace them, which could be costly and result in a material adverse effect on our business, financial condition and results of operations.

One or more of our products may be found to be defective after we have already shipped the products in volume, requiring a product replacement or recall. We may also be subject to product returns and product liability claims that could impose substantial costs and have a material and adverse effect on our business, financial condition and results of operations.

Environmental laws and regulations may expose us to liability and increase our costs.

Our operations are subject to many environmental laws and regulations wherever we operate governing, among other things, air emissions, wastewater discharges, the use and handling of hazardous substances, waste disposal and the investigation and remediation of soil and groundwater contamination. In February 2003, the European Commission published a directive on waste electrical and electronic equipment (“WEEE”) (Directive 2002/96/EC, which was amended in December 2003 by Directive 2003/108/EC). In principal, the directive results in “take-back” obligations of manufacturers and/or the responsibility of manufacturers for the financing of the collection, recovery and disposal of electrical and electronic equipment by requiring that European Union Member States adopt appropriate measures to minimize WEEE disposal and achieve high levels of collection separation of WEEE by August 13, 2004. Producers of WEEE will have to provide for the financing of the collection, treatment, recovery and environmentally sound disposal of WEEE by August 13, 2005. Another directive of the European Commission (Directive 2002/95/EC) provides for a ban on the use of lead and some flame retardants in manufacturing electronic components. These measures could adversely affect our manufacturing costs or product sales by forcing us or our suppliers to change production processes or use more costly materials. Our customers may require us to conform to the new standards in advance of their implementation by the European Union Member States.

As with other companies engaged in similar activities, we face inherent risks of environmental liability in our current and historical manufacturing activities. Costs associated with future environmental compliance or remediation obligations could adversely affect our business.

Although we currently are a 53.87% shareholder of ASM Pacific Technology, we may not be able to maintain our majority interest, which, if other circumstances are such that we do not control ASM Pacific Technology, would prevent us from consolidating its results of operations with ours. This event would have a significant negative effect on our consolidated net earnings from operations.

We derive a significant portion of our net sales, earnings from operations and net earnings from the consolidation of the results of operations of ASM Pacific Technology with our results. If we do not maintain our majority interest in ASM Pacific Technology, and if other circumstances are such that we do not control it through other means, we would no longer be able to consolidate its results of operations with ours. Any such determination of whether we could continue to consolidate would be based on

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whether we still have a “controlling financial interest” within the meaning of United States generally accepted accounting principles. If we were to become unable to consolidate the results of operations of ASM Pacific Technology with our results, the results of operations of ASM Pacific Technology would no longer be included in our earnings from operations. Instead, our proportionate share of ASM Pacific Technology’s earnings would be reflected as a separate line-item called “share of results from investments” in our consolidated statements of operations. We would no longer be able to consolidate the assets and liabilities of ASM Pacific Technology and would have to reflect the net investment in ASM Pacific Technology in the line-item “investments” in our consolidated balance sheet. This event would have a significant negative effect on our consolidated earnings from operations, although our net earnings would be reduced only by an amount that reflects the reduction of our ownership interest in ASM Pacific Technology.

We maintain our majority interest in ASM Pacific Technology by purchasing shares from time to time as necessary. ASM Pacific Technology has an employee share incentive program pursuant to which it can issue up to an aggregate of 5.0% of its total issued shares, excluding shares subscribed for or purchased under the program, to directors and employees as an incentive. When ASM Pacific Technology issues shares pursuant to this program, our ownership interest is diluted. If the current maximum amount of shares are issued under this program, our ownership interest would continue to be above 50.0%. However, our interest could further be diluted if ASM Pacific Technology issues additional equity. Any such decision by ASM Pacific Technology to issue additional shares requires the approval of a majority of shareholders, which means that, at present, our approval would be required. Although we intend to continue to purchase shares of ASM Pacific Technology if necessary to maintain our majority interest, we may be unable to do so if we do not have sufficient financial resources at that time.

Our directors and officers control approximately 24.4% of our voting power which gives them significant influence over matters voted on by our shareholders, including the election of directors, and may make it more difficult for a shareholder group to remove or elect directors not supported by management.

Our directors and officers controlled approximately 24.4% of our voting power as of December 31, 2003. Accordingly, in the event they were to vote together in connection with matters submitted to a shareholder vote, such as the appointment of our management board by the shareholders, they would have significant influence on the outcome of those matters and on our direction and future operations. This makes it more difficult for a group of shareholders to remove or elect directors not supported by management.

Any investments we may make could disrupt our business and harm our financial condition.

We intend to consider investments in complementary businesses, products or technologies. In the event of any future acquisition of such a business, product or technology, we could:

• issue shares that would dilute our current shareholders’ percentage ownership;

• incur debt;

• assume liabilities;

• incur impairment expenses related to goodwill and other intangible assets; or

• incur large and immediate accounting write-offs.

Our operation of any acquired business will also involve numerous risks, including:

• problems integrating the purchased operations, technologies or products;

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• unanticipated costs and liabilities for which we are not able to obtain indemnification from the sellers;

• diversion of management’s attention from our core business;

• adverse effects on existing business relationships with customers;

• risks associated with entering markets in which we have no, or limited, prior experience; and

• potential loss of key employees, particularly those of the acquired organizations.

We may not be able to successfully integrate any businesses, products or technologies or personnel that we might acquire in the future and also may not realize any anticipated benefits from those acquisitions.

Our anti-takeover provisions may prevent a beneficial change of control.

Our shareholders have granted to Stichting Continuïteit ASM International, or Stichting, a non-membership organization with a board composed of our President and Chief Executive Officer, the Chairman of our Supervisory Board and three independent members, the right to acquire and vote our preferred shares to maintain the continuity of our company. Toward that objective, Stichting will evaluate, when called for, whether a takeover offer is in our best interest, and may, if it determines that such action is appropriate, acquire preferred shares with voting power equal to 50.0% of the voting power of the outstanding common shares. This is likely to be sufficient to enable it to prevent a change of control from occurring. For additional information regarding Stichting, see Item 7 - Major Shareholders and Related Party Transactions.

These provisions may prevent us from entering into a change of control transaction that may otherwise offer our shareholders an opportunity to sell shares at a premium over the market price.

We must offer a possible change of control transaction to Applied Materials, Inc. first.

Pursuant to our 1997 settlement agreement with Applied Materials, Inc., one of our competitors, as amended and restated in 1998, if we desire to effect a change of control transaction, as defined in the settlement agreement, with a competitor of Applied Materials, we must first offer the change of control transaction to Applied Materials on the same terms as we would be willing to accept from that competitor pursuant to a bona fide arm’s-length offer made by that competitor.

Our stock price has fluctuated and may continue to fluctuate widely.

The market price of our common shares has fluctuated substantially in the past. Between January 1, 2003 and December 31, 2003, the sales price of our common shares, as reported on the Nasdaq National Market, ranged from a low of $9.61 to a high of $20.58. The market price of our common shares will continue to be subject to significant fluctuations in the future in response to a variety of factors, including the risk factors discussed in this report.

Furthermore, stock prices for many companies, and high technology companies in particular, fluctuate widely for reasons that may be unrelated to their operating results.

Those fluctuations and general economic, political and market conditions, such as recessions or international currency fluctuations, may adversely affect the market price of our common shares.

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Item 4. Information on the Company

The information in this Item 4 should be read in conjunction with the risks discussed under Item 3.D “Risk Factors.”

A. History and development of the company.

ASM International N.V. was incorporated on March 4, 1968 as a Netherlands naamloze vennootschap, or public limited liability company, and was previously known as Advanced Semiconductor Materials International N.V. Our principal executive offices are located at Jan van Eycklaan 10, 3723 BC Bilthoven, the Netherlands. Our telephone number at that location is (011) (31) 30 229 84 11. Our authorized agent in the United States is our subsidiary, ASM America, Inc., a Delaware corporation, located at 3440 East University Drive, Phoenix, Arizona 85034.

B. Business overview.

Introduction

We design, manufacture and sell equipment and systems used to produce semiconductor devices, or integrated circuits. Our production equipment and systems are used by both the front-end and back-end segments of the semiconductor manufacturing industry. Front-end equipment performs various fabrication processes in which thin films, or layers, of electronically insulating or conductive material are grown or deposited onto a round slice of silicon, called a wafer. Back-end equipment separates these processed wafers into numerous individual dies, each containing the circuitry of a single semiconductor device, and assembles, packages and tests the dies in order to create semiconductor devices. We believe that the front-end and back-end react differently to market forces in the highly cyclical semiconductor industry and that operating in both segments reduces the impact of business cycles on our operations.

Our front-end facilities in the Netherlands, the United States and Japan enable us to interact closely with customers in the world’s major semiconductor design and wafer processing markets: Europe, North America and Asia. Our products in the front-end market segment grow or deposit thin films onto wafers primarily using a process called chemical vapor deposition, or CVD. CVD deposits films on the wafer’s surface through chemical reactions using gases and vapors at elevated temperatures. Front-end operations accounted for 51.4% of our net sales in 2002 and 49.2% of our net sales in 2003.

Our back-end business facilities are located in Hong Kong, Singapore, the People’s Republic of China and Malaysia, close to where most assembly and packaging operations are located. Our products in the back-end market assemble and package individual dies into finished semiconductor devices using stand alone and automated lines of equipment. We also manufacture leadframes, which are copper carriers on which dies are mounted as part of the back-end assembly process. Back-end operations accounted for 48.6% of our net sales in 2002 and 50.8% of our net sales in 2003.

Our front-end business is conducted through wholly-owned subsidiaries, the most significant of which are ASM Europe B.V., located in the Netherlands, ASM America, Inc., located in the United States, and ASM Japan K.K., located in Japan. Our back-end business is conducted through our majority-owned subsidiary, ASM Pacific Technology, Ltd., with principal operations in Hong Kong, Singapore, the People’s Republic of China and Malaysia. As of December 31, 2003, we own 53.87% of the outstanding equity of ASM Pacific Technology.

Industry Background

Semiconductor devices are the key enablers of the electronic age. Starting with the invention of the transistor, constant advances in design and manufacture of these devices have made possible the extraordinary variety of smart products widely available today but unheard of just a few years ago. Two products in particular were spawned by the evolution in semiconductor technology: the personal computer and the mobile telephone, which together have revolutionized communication and information sharing.

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These products were made possible by advances in integrated circuits (large numbers of individual transistors and components designed as a system) that allow increasingly large numbers of operations to be performed by increasingly small devices in decreasing fractions of a second. The markets for personal computers and mobile phones demand increased performance and functionality. This, plus the constant increase in the number of applications for semiconductor devices, has created continuing demand for devices that are smaller, faster, more energy efficient and cheaper. The mobile phone and other wireless communication devices have accelerated this demand because smaller size and lower power consumption are particularly important.

In the early stages of the semiconductor industry, semiconductor device manufacturers developed their own production equipment. However, the diverging skill sets of increasingly complex electronic circuit design and the physics and material science aspect of semiconductor manufacturing gave rise to specialized equipment manufacturers that focus on specific areas of semiconductor equipment design and production. The semiconductor equipment industry has grown with the demand for semiconductor devices and developed specialized expertise to address the technological challenges in the manufacturing process.

The primary focus in achieving better performing integrated circuits has been to reduce the size of individual transistors to increase the number of transistors that can fit within a given size device. Shrinking reduces the power needed to activate the transistors and increases speed by reducing the distance between, and within, transistors. Shrinking also reduces the cost of each device, as the same number of process steps are amortized over a large number of devices. The primary focus in reducing cost has been to increase the size of the wafer (the silicon substrate upon which semiconductors are built) so that more devices can be produced in each production cycle. In order to implement these advances in technology through shrinking devices or increasing wafer size, device manufacturers must upgrade their equipment. As a result, semiconductor equipment companies develop tools along a broadly defined technology roadmap and once tools for each step of the new production process have been established, semiconductor manufacturers can build new lines to incorporate the latest technology. Because semiconductor manufacturers are subject to business and consumer purchase patterns that are driven by demand for new products or applications and larger macroeconomic factors, they attempt to time the large increase in supply created by a new fabrication facility with the demand factors for their end products. The inherent difficulty in matching new supply and the ever-shortening product life-cycles results in the high volatility associated with the semiconductor industry.

Semiconductor Manufacturing Processes

The semiconductor equipment market is composed of two segments: the front-end and the back-end. The back-end is also referred to as assembly and packaging. In the front-end, three subsegments can be considered: wafer manufacturing, Front-End-of-Line (FEOL) wafer processing and Back-End-of-Line (BEOL) wafer processing. We develop technology and manufacture equipment used by semiconductor manufacturers in each segment and subsegment of the market.

In the wafer manufacturing segment a large single crystal of very pure silicon is grown from molten silicon. The crystal is then sliced into a large number of thin slices, or wafers, of single crystalline silicon. These slices are polished to an atomic level flatness before the next steps are executed. For advanced applications, some layers are deposited on the wafer for later use, either by epitaxy or diffusion/oxidation (described below). Epitaxial wafers are even flatter and contain less defects at the surface than polished wafers. Some wafers are made with an embedded electrically insulating layer, such as silicon oxide, just below a very thin top layer of pure silicon. These special wafers are called Silicon-on Insulator or SOI wafers and are used for the most advanced microprocessors. The finished wafers, still without pattern on them, are shipped to the integrated device manufacturers, known as wafer processing factories or “fabs.”

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During FEOL and BEOL wafer processing, multiple thin films of either electrically insulating material, also called dielectrics, or conductive material are grown or deposited on a silicon wafer. First, several material deposition and processing cycles are used in the FEOL to build the basic transistor. Second, several deposition and processing cycles are used in the BEOL to electrically connect the hundreds of millions of transistors. Patterning of the layers with lithography and etching (described below) creates the transistors and connecting wires, which together make up the integrated circuit. Each integrated circuit is a “chip” or a “die” on the wafer. A finished wafer may contain a few dozen to several thousand individual dies. Front-end processes are performed either one wafer at a time in single wafer processing systems or many wafers at a time in batch processing systems. Multiple processes are repeated on each layer as the wafer is processed. The number and precise order of the process steps vary depending upon the complexity and design of the device. The performance of the device is determined in part by the various electrical characteristics of the materials used in the layers of the device and the wafer. Simple devices may have as few as 10 layers, while complex devices may have as many as 100 layers. The front-end production phase is capital intensive, requiring multiple units and a range of different types of processing equipment in a fabrication line.

In the back-end, or assembly and packaging, segment wafers are cut into individual dies or chips. These chips or dies are mounted in a hermetically sealed package with as many as 1,500 separate electrical leads for connection to printed circuit boards and other components of a finished product.

The primary steps involved in wafer processing are described below. These steps are repeated depending on the function of the device which determines its complexity. Complex microprocessors typically are composed of more than 100 layers of conducting, insulating or semiconducting material.

We are most active in developing and manufacturing the equipment used by semiconductor manufacturers in the deposition processes, i.e., those steps which involve creation of insulating, conducting and semiconducting layers on the wafer surface.

The following is an alphabetical list of the principal front-end processes used by semiconductor manufacturers:

• Atomic Layer Deposition (ALD) is an advanced technology which deposits single atomic layers on wafers one at a time at low temperatures. This process is used to create ultra-thin films of exceptional quality and flatness.

• Chemical Mechanical Polishing (CMP) is a technology which planarizes, or levels, layers deposited on wafers by polishing them with a chemical solution called slurry. Planarization reduces the vertical height differences of the various layers. This increases the number of layers which can be processed without introducing reliability problems.

• Chemical Vapor Deposition (CVD) is a technique in which one or more gaseous reactors are used to form a solid insulating or conducting layer on the surface of a wafer. Several forms of CVD exist, each used for a particular application. These different forms are explained below.

• Clean removes undesirable contaminants from the wafer’s surface.

• Diffusion and Oxidation are high-temperature processes that change the electrical characteristics of layers. Diffusion is used to make impurities introduced by ion implantation electrically active. Oxidation forms a silicon oxide layer on the wafer’s surface, which acts as an insulative or protective layer over the wafers surface.

• Electrochemical Mechanical Deposition (ECMD^™) deposits a layer of metal through a process called electroplating, while simultaneously planarizing the surface.

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• Electroplating deposits a layer of metal from a liquid solution of a metal salt by passing an electrical current.

• Epitaxy involves the deposition of silicon or silicon compounds on the wafer, continuing and perfecting the crystal structure of the bare wafer underneath. Epitaxy improves the electrical characteristics of the wafer surface, making it suitable for highly complex microprocessors and memory devices.

• Etch reproduces the pattern imprinted by lithography by removing excess material from the uppermost layer of the wafer.

• Ion Implantation is a process in which wafers are bombarded with ions to introduce dopant atoms, or impurities, into the wafer to improve its electrical characteristics. Silicon conducts little or no electricity. In order to have electrical current within a layer, it is necessary to place small amounts of impurities into the layer.

• Lithography is used to print the various layer patterns of the semiconductor device on the uppermost layer of the wafer. These patterns determine the functions of the semiconductor device.

• Low Pressure Chemical Vapor Deposition (LPCVD) performs CVD under high temperature, low pressure conditions to deposit insulating or conductive layers.

• Metal Organic Chemical Vapor Deposition (MOCVD) is a special CVD process which employs metal-organic compounds to deposit metal films. Metal-organic compounds are used to more easily turn the metals into a metal containing vapor.

• Metrology is used to measure the width of lines on semiconductor devices, the thickness of layers, the surface profiles of layers, and certain electrical properties of layers.

• Plasma Enhanced Chemical Vapor Deposition (PECVD) performs CVD by the use of a vapor containing electrically charged particles or plasma. The plasma makes the vapor more reactive.

• Physical Vapor Deposition (PVD) deposits a thin layer of metal on the wafer surface for electrical contacts and wires through a process called “sputtering.”

• Probing is a process in which electrical and functional tests are performed on each die and defective ones are marked.

• Rapid Thermal Chemical Vapor Deposition (RTCVD) is a technique similar to LPCVD, but deposits a film on one wafer at a time.

• Rapid Thermal Processing (RTP) is used to expose single wafers to heat over a short period of time.

The front-end process is complete when all of the layers have been deposited and patterned on the wafer. The introduction of even trace levels of foreign particles can make a device or even an entire wafer unusable. To reduce the level of foreign particles, front-end processing is performed in clean rooms with ultra low contaminant levels. Once the front-end processing is complete, the entire wafer is shipped to a back-end facility where it is assembled, packaged and tested before final shipment of the semiconductor chip to the end customer. Back-end processes do not require the same level of contaminant control and are performed in different facilities than front-end processes.

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The assembly and packaging or back-end process consists of sawing or dicing the processed wafer into individual dies, mounting them on carriers such as leadframes and connecting them to the appropriate electrical leads. Wire bonding onto leadframes is the most common interconnection method, although alternative interconnection techniques and materials, such as ceramic packages, flip chips and different chip-scale packaging methods, are available. After the assembly process, the dies are packaged or encapsulated to protect them from environmental influences and prepare them for use, resulting in completed semiconductor devices.

The primary processes in the back-end segment are described below. We are active in developing and manufacturing assembly and packaging equipment, as well as in the manufacturing of materials such as leadframes.

The following is an alphabetical list of the principal back-end processes used by semiconductor manufacturers:

• Die Bonding mounts the dies onto carriers such as leadframes using a die bonder.

• Die Inspection inspects every die for proper performance before the next steps are undertaken.

• Die Separation separates the dies on the wafer into individual units using wafer saws.

• Encapsulation or Molding encases the dies in a protective housing, often epoxy, using transfer molds.

• Leadframes are produced by stamping a pattern through a strip of copper or iron-nickel alloy. For high precision (and fast turnaround purposes) leadframes are usually produced by an etching process. This is required when the space between the leads is finer than the thickness of the material.

• Leadframe plating deposits a thin layer of gold or silver on appropriate places, in order to allow a wire to be attached to its surface.

• Packaging deals with the housing of the chip to protect it from environmental influences and to finalize the product for industrial use.

• Product Testing tests the performance of the completed semiconductor device.

• Trim and Form cuts away the excess portion of the leadframe and bends the leads into the desired shape, resulting in the completed semiconductor device.

• Unit Inspection inspects every mounted chip before encapsulation and inspects each die throughout the assembly process and prior to packaging.

• Wire Bonding attaches extremely thin gold or aluminum wires between the die and the leadframe for electrical connections using a wire bonder.

Industry Trends

The continuous demand for smaller, faster and cheaper semiconductors drives the technology advances in the material fabrication process. The size of the transistors is measured by the individual feature sizes, or line widths, and current leading-edge devices are produced with line widths as small as 130 nanometers (one billionth of a meter). The industry is ramping up from pilot to high volume production of devices with 90nm feature sizes and critical process equipment is now being developed and tested for line widths at or below 65nm. Today, we support 130nm technology equipment and are

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supporting the 90nm volume ramp. In addition, we are working on developing 65nm and even some 45nm and 32nm technology in our laboratories. New equipment orders are predominantly for 300mm and 200mm wafer processing.

In developing and piloting these advanced tools, the industry has encountered new physical barriers that require different solutions. In lithography, the most advanced light sources are based on 193nm wavelengths resulting in feature sizes that now are smaller than the wavelength of the light source. This is similar to painting a thin line with a thick brush. In order to increase device speeds, the focus has shifted to the interconnection layer between the transistors. This layer historically has been aluminum, but the superior performance of copper has resulted in a shift toward copper. Copper is not as easy to work with because it can contaminate and so a barrier layer must be placed around it to avoid contamination of the other layers. New methods of depositing ultra-thin layers of copper, including Atomic Layer Depositions and Metal Organic Chemical Vapor Deposition are being developed to address these challenges.

The move to copper and low-k (insulating) materials is still in its infancy, with less than 10% of semiconductor wafers currently using copper connections. Most advanced chips with 90nm feature size transistors now use copper and low-k technology at least in a part of the interconnect structure. The trend is toward harder dielectrics, lower k-values and a more extensive use of low-k materials. Harder dielectrics are more resistant to the necessary polishing step. Still lower forces during the polishing step are desirable. NuTool, Inc., a Milpitas, California-based company, in which we have an equity investment, manufactures copper deposition and low force CMP equipment to address this need.

Understanding the mechanical forces inherent in packaging processes is a key consideration in the industry’s transition to copper and low-k interconnect structures. For example, applying force that exceeds the cohesive strength of the low-k dielectric, or the adhesive strength of one of the interfaces in a stack, will result in failure.

As the only major semiconductor equipment supplier with extensive competencies in both front-end and back-end segments, we believe we are uniquely positioned to benefit from further synergies between these segments, and to provide an ultimate seamless solution that could improve semiconductor production processes.

The industry seeks to improve transistor performance as well by introducing new materials and device designs. For example, Silicon-Germanium (SiGe) now is critical to the formation of high-frequency transistors used in broadband and wireless telecommunications. An even more advanced form of this process, Silicon-Germanium-Carbon, further reduces power consumption of RF chips, while maintaining operating frequency.

The next generation of ultra-thin transistors will require new process technology such as the use of silicon-on-insulator, or SOI wafers. SOI is an advanced isolation technology, which will be used in advanced, low power microprocessors. Either on SOI wafers or on regular silicon wafers, layers of SiGe and strained Silicon are also deposited to further increase the speed of transistors. It has been found that electrons move faster through a strained Silicon layer in a Metal Oxide Semiconductor transistor (MOS). Strained Silicon technology also uses the SiGe knowledge developed for Bipolar Complementary Metal Oxide Semiconductor (BiCMOS) technology, thus effectively leveraging related research and development investments.

For line-widths below 90nm, new and extremely thin gate dielectrics are needed. Atomic Layer Deposition is a convenient technique to produce insulators of high-K dielectric materials with reduced leakage. For electronic manufacturers, the lower power advantages provided by high-k gate insulator electronics will extend the battery-life of electronic products, which in turn will accelerate advances in portable electronics.

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Semiconductor manufacturers are also seeking to reduce the cost of producing semiconductor devices by increasing the diameter of the wafers on which the semiconductor devices are being layered. The maximum diameter of wafers is increasing from the current industry standard introduced in the early 1990s of 200mm, or about eight inches, to 300mm, or about twelve inches. The move toward larger wafer sizes is driven by cost efficiency, since a 300mm wafer holds more than 2.25 times more dies than a conventional 200mm wafer. Presently, most large semiconductor companies have committed to 300mm facilities or have teamed with others to undertake the 300mm transition.

The industry faces the dual challenges of increasingly small line widths and larger wafer sizes. Historically, once an equipment manufacturer’s product has been designed into a semiconductor manufacturer’s production line, it is very difficult for a different equipment manufacturer to displace them. In the current environment however, the massive shifts in technology and size create opportunities to replace incumbent suppliers. Most of the equipment for 90nm technology has now been selected for ramp-up, and we are participating in this ramp with platforms for vertical furnaces, epitaxy, and low-k materials. For 65nm technology, we are fully involved in the industry leader’s development programs. Thus our investments in technology over the last five years have provided us with a strong technology platform from which we have and, we believe, will continue to successfully compete for orders.

To achieve improved yield, semiconductor equipment manufacturers have focused on in-process metrology as a way to isolate and improve specific steps in the manufacture of devices. The measurements conducted by metrology equipment are becoming a more integral part of the semiconductor manufacturing process. Semiconductor manufacturers are requiring equipment that can make more precise and new kinds of measurements, and provide results of these measurements faster by integration of the measurement tools into the processing equipment. We have responded by integrating certain metrology functions in our A412 vertical furnaces and plan to expand integrated metrology to more products.

Technological developments in the front-end process have resulted in the need for new technology in the back-end process. The ability to place millions of transistors onto a thumbnail size device has created the opportunity to place entire systems on a chip. Instead of many individual components and simple circuits interconnected on a printed circuit board, these systems can now be constructed into one integrated circuit. In addition, computer systems are more interactive with the external environment and therefore require a greater number of input/output (I/O) pins. The challenge for back-end equipment providers is to connect an increasing number of I/O pins on a package that is constantly decreasing in size. Wire bonding has been at the forefront of this transition as this process connects each of the I/O pins on the individual dies to the external package. Wire bonding must not only address decreasing wire diameters but also increasing throughput to reduce the overall cost of the device. For integrated circuits with very high I/O counts, the industry has developed ball grid array (BGA) and flip-chip packaging that use the entire surface of a die and not just the periphery of the device to attach I/Os. In addition, semiconductor manufacturers are looking to automation and integration of back-end equipment as ways to reduce costs and increase productivity.

We believe the steady advance of semiconductor technology in front-end and back-end processes will continue and will consequently drive the demand for new equipment systems.

Products

We design, manufacture and sell products used by semiconductor manufacturers in both front-end wafer processing and back-end assembly, packaging and materials.

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The following table sets forth the main manufacturing processes used in the front-end and back-end market segments and indicates the markets in which we participate:

FRONT-END			BACK-END
Deposition	Other Processes	Testing	Materials	Assembly	Packaging
Epitaxy*	Diffusion and Oxidation*	Metrology*** Integrated Metrology**	Leadframe Manufacture*	Die Separation	Encapsulation*
Low Pressure CVD* Rapid Thermal CVD*, and Metal Organic CVD*	Ion Implantation	Probing	Manufacture of Other Materials	Die Bonding*	Package Plating
Plasma Enhanced CVD*	Lithography			Wire Bonding*	Trim and Form*
Atomic Layer Deposition (ALD*) and Plasma Enhanced ALD*	Etch			Unit* Inspection	Product Testing
Physical Vapor Deposition (PVD)	Clean**
Electro Plating***	Rapid Thermal Processing* (RTP)
	Chemical Mechanical Polishing (CMP)***

* Indicates markets in which we participate.

** We participate by integrating advanced cleaning technologies and integrated metrology into our deposition equipment.

*** We participate through our investment in NuTool (EP and CMP) and NanoPhotonics (Metrology).

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Front-end Products

The following table lists our principal front-end equipment products and the years in which initial production units were first made available to customers:

PRODUCT FAMILY	KEY PROCESSES	PRODUCTS(1)	YEAR INTRODUCED
Single Wafer Thermal CVD Systems	•       Epitaxy •       CVD •       RTCVD	Epsilon® One(2) thermal CVD system	1988
		Epsilon® Two(2) thermal CVD system	1990
		Epsilon® 2000 thermal CVD system	1997
		Epsilon® 2500 thermal CVD system	1997
		Epsilon® 3000 (300mm) thermal CVD system	1997
Vertical Batch Processing Systems	•       LPCVD •       Diffusion •       Oxidation •       ALD	A400™ processing system	1994
		A412™ processing system (200 and 300mm)	1998
		A4ALD™ processing system	2002
Single Wafer Plasma Enhanced CVD Systems	•       PECVD	Eagle® 10 system (2 chambers)	1993
		Eagle® 10 TRIDENT system (3 chambers)	1997
		Eagle® 12 Rapidfire™ system (300mm)	1998
		Dragon™ 2300 system	2002
Single Wafer RTP Systems	•       Anneal •       Oxidation	Levitor® 4000 system	2000
		Levitor® 4300 system (200mm and 300mm)	2003
Single Wafer Atomic Layer Deposition Modules and Systems	•       Clean •       RTCVD •       ALD	Epsilon® 2500 or 3000 module(3)	1997
		Pulsar® 2000 module(3)(4)	1999
		Pulsar® 3000 module (200mm and 300mm)	2001
Platforms	•       Clustered processes	Polygon™ 8200, platform	1997
		Polygon™ 8300, platform (300mm)	2001
Enabling process chemistries	•       RTCVD •       LPCVD •       PECVD	New Technology™	2002
		Aurora®	1999

⁽¹⁾ Epsilon^®, Advance^®, Dragon^™, Eagle^®, Pulsar^®, Levitor^®, Aurora^®, Polygon^™, Rapidfire^™, A400^™, A412^™, A4ALD^™ and New Technology^™, are used, pending or registered as ASM trademarks in the US and/or other countries.

⁽²⁾ This product has been replaced by the Epsilon 2000 and Epsilon 2500. Although it is no longer sold, it still forms an important part of our installed base and generates service and spare parts revenue.

⁽³⁾ The Epsilon module shares the same reactor section as the Epsilon single wafer stand-alone systems.

⁽⁴⁾ This product has been replaced by the Pulsar 3000. Although it is no longer sold it still forms an important part of our installed base and generates service and spare parts revenue.

Single Wafer Thermal CVD Systems

Our Epsilon^® products heat wafers to high temperatures using infrared lamps, forming a film on the surface of a single wafer by applying CVD. The main current use of the Epsilon^® is for epitaxy of silicon and silicon-germanium alloys.

The high productivity version of the Epsilon, the Epsilon^® 2500, offers the highest throughput in the industry for epitaxial silicon applications. Our Epsilon^® 3000 is the first 300 mm SiGe System used for manufacturing of strained silicon layers. We offer both stand-alone equipment and modules that can be integrated with our Polygon^™ system.

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Vertical Batch Processing Systems

The Advance^® 400 series vertical batch processing systems process up to 150 wafers at a time to high temperatures. These reactors load wafers into a carrier, which is pushed into the heated reactor for diffusion, oxidation or CVD processing. The A400^™ vertical batch processing system and the A412^™ 300mm version have demonstrated to be the most productive systems of their kind in the industry. The A4ALD^™ processing system, enabling ALD technology specifically developed for a batch reactor, is a good alternative for thicker films to the Pulsar^® single wafer ALD products. Thus, the availability of A4ALD effectively extends the application area of ALD. The A412^™ Smart Batch^™ is a batch furnace offering cycle times equivalent to that of a single wafer system.

Single Wafer Plasma Enhanced CVD Systems

The Eagle^® series reactors are single wafer systems that deposit films on wafers using a plasma. The Eagle^® 10 and the Eagle^® 10 TRIDENT systems are most often utilized for depositing insulators, such as silicon oxide, silicon nitride, and low-k dielectric films used in interconnect circuits. The Eagle^® 10 TRIDENT and the Eagle^® 12 Rapidfire^™ (300mm) systems each have three chambers configured for enhanced productivity. The simplicity of these systems results in low cost, high reliability and low maintenance. Our Aurora^® low-k films are made in the Eagle PECVD systems and are now being used in 90nm device manufacturing. The Dragon^™ 2300, introduced in 2002, demonstrates high wafer throughput, high uptime, low energy consumption and cost of operating, while offering what we believe is the smallest footprint of any high volume manufacturing tool for CVD wafer processing.

Single Wafer RTP Systems

In our RTP product, the Levitor^® reactor, the wafer floats on a cushion of gas and does not require lamps for heating. Compared to existing lamp-based RTP systems, the Levitor reactor allows very fast heating and cooling of the wafers and a more efficient and cost-effective solution. The product is currently being evaluated by two European research and development labs and two end-users. Large numbers of demonstrations have been run in our application labs, including demonstrations on transparent glass wafers for displays.

Single Wafer Atomic Layer Deposition Systems, Cluster Systems and Modules

Our Pulsar^® module for atomic layer deposition is already in commercial production in the markets for magnetic heads. It is currently being selected for advanced (<90nm) device manufacturing. With the Pulsar^® 3000 reactors (200 and 300mm), we offer modules that can be integrated with our Polygon^™ cluster systems. Our proprietary ALD processes (ALCVD^™) are the most advanced in the industry and in development for e.g. high-k gate applications.

Enabling Process Chemistries

In 2002, we introduced an enabling chemical vapor deposition (CVD) technology, named—“New Technology^™”—that can utilize the hardware of ASM’s Epsilon^® reactor, Polygon^™ cluster tools, or A400^™ or A412^™ series batch processing systems in combination with proprietary software, hardware and chemistry solutions. Based on a new precursor, called Silcore^®, New Technology^™ can produce silicon containing layers with better properties, and at higher rates of deposition.

In 1999, we introduced Aurora^® as a chemistry for low-k production. This chemistry is currently leading in low-k production for 90 nm devices.

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Back-end or Assembly Packaging Products

The following table lists our principal back-end products, and the years in which initial production units were first made available to customers:

PRODUCT FAMILY	KEY PROCESSES	PRODUCTS	YEAR INTRODUCED
Assembly	Die Bonding and Die Sorting	AS896	2003
		MS896A	2002
		AD829A	1999
		AD896	2001
		AD8930	2002
		AD898	2002
		AD8912	2002
		SD890	2003
		AD819	2000
		AD900	2002
	Wire Bonding	AB520A	2003
		AB559A	2001
Assembly		Eagle60	2002
		Hummingbird™	2003
		Twin Eagle60™	2004
Packaging	Encapsulation and Packaging Processing	DS500	2000
		IDEALmold™	2000
	Trim and Form	MP209	1996
		BGA289	1998
		CS500	1999
Packaging		CS8000	2002
		CS9000	2003
		CS1200	2004
		BPLine	2000
Automated Systems	Full integration of the above assembly and packaging steps into one system	IDEALine™	1999
Materials	Manufacture of carriers on which dies are mounted	Leadframes	1980
IDEALmold™, IDEALine™, Hummingbird™ and TwinEagle60™ are used, pending or registered as ASM trademarks in the US and/or other countries.

Die Bonding and Dies Sorting

We manufacture several die bonding models as well as die sorting equipments to address various markets including semiconductor and optoelectronic devices. The AD8912 epoxy die bonder for 12” wafers continues the path undertaken by ASM to provide customers with the highest quality and best cost/performance systems on the market. With its capability to handle up to 12” wafers, fully automatic operation, epoxy writer, pre and post bond inspection and wafer mapping, the AD8912 is able to provide the customer with exceptional operational results. A new and innovative system is the AD900, high speed flip chip die bonder for IC applications. The AD829A, AD8930 and AD898 models address the large market for die sizes under 30 mils square. A mil is 1/1000 of an inch. The AD896 is addressing the market of Chip on Board (COB) technology. In addition to the semiconductor device market, the small die category includes optoelectronic devices. The model AD819 is a high precision machine designed for laser diode optoelectronic devices. Specific for optoelectronic market is the newly developed die sorter AS896 as well as the mapping sorter MS896A. The AS896 is featuring dual linear bond heads giving highly precise placement and high speed sorting features. Our new automated soft solder die bonder SD890 can offer smart solutions to all power devices packages. Machines may be configured to operate stand-alone or connected to epoxy curing ovens and wire bonders.

Wire Bonding

We introduced our Eagle60 gold wire bonder in 2002. This is the successor to our acclaimed AB339Eagle generation bonder. The Eagle60 offers significant output increase over existing models. It has the industry leading ultra fine pitch capability and favorable price/performance ratio as well as an ultra light bond head, advanced pattern recognition software and automatic wire bonder inspection

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capability. We introduced also our latest generation dual bond head systems TwinEagle60^™ for ultra high speed and fine pitch capabilities. The AB520A and AB559A are ultrasonic wedge bonders used for aluminum wire bonding at room temperature on printed circuit boards. These machines address the consumer products’ market which focuses on cost effective solutions. The Hummingbird^™ represents an innovative solution to Stud Bumper demand for large wafer size up to 12 inch.

Encapsulation

The IDEALmold^™, introduced in 2000, specifically designed to be manufactured in a modular format allowing customers to specify the system capacity from two to eight leadframes. This product specifically addresses the in-line market which requires molding systems of varying capacities to allow for proper line balancing. The IDEALmold^™ can be configured as a very flexible stand-alone system as well. The DS500 is a high precision dispensing system, which allows customers to directly dispense epoxy encapsulated on to bear chips for various applications.

Trim and Form

Our MP209 is a high speed, motorized trim and form equipment catering to different packages. The modular set-up of the system allows integration of third party testing marking and inspection functions, which in turn allows more cost-efficient production for our customers. The CS8000 is an Integrated Singulation System linked to the customer’s chosen singulation tool to provide Pick and Place with Vision Inspection capability for processing of QFN, Chip Array or CSPBGA packages. It can be configured for package inspection, ball inspection, market inspection or all.

Automated Systems

The IDEALine^™ integrates back-end assembly and packaging equipment. We believe we are the only manufacturer of back-end equipment capable of offering such an extensive integrated line using our own equipment. These lines integrate serial process steps with mechanical and software linkages. Offered in a modular format, customers may integrate some or all of the following processes that we supply: die bonding and inspection, epoxy curing, wire bonding and inspection, encapsulation, post mold curing and trimming and forming. In addition, we work with third party suppliers to offer various additional processes.

Research and Development

We believe that our future success depends to a large extent upon our ability to develop new products and add improved features to existing products. Accordingly, our product development policies and local activities are directed toward expanding and improving present product lines to incorporate technology advances and enable timely penetration of new markets for automated semiconductor processing, assembly and packaging equipment. These activities require the application of physics, chemistry, process technology, electrical engineering, precision mechanical engineering and software development. We are also continuing to develop new applications as well as software and hardware for our back-end products.

Our net research and development expenses, as a percentage of net sales, were 14.2%, 17.0% and 13.6% during 2001, 2002 and 2003, respectively. We expect to continue investing significant resources in research and development to enhance our product offerings.

Our research and development activities are conducted in the principal semiconductor markets of the world, which enables us to draw on innovative and technical capabilities on an international basis. Each geographic center provides expertise for specific products or technologies. This approach, combined with interactions between the individual centers, permits efficient allocation of technical resources and allows for customer orientation combined with the necessary product specialization.

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BUSINESS SEGMENT	LOCATION	NUMBER OF R & D EMPLOYEES AS OF DECEMBER 31, 2003
front-end	Almere/Bilthoven, the Netherlands	84
	Leuven, Belgium (IMEC)	21
	Espoo, Finland	8
	Phoenix, Arizona, United States	84
	Tama, Japan	74
back-end	Hong Kong, the People’s Republic of China	330
	Singapore	227

As part of our research and development activities, we are engaged in various formal and informal arrangements with customers and institutes. These arrangements are made on a development program basis and allow us to develop products that meet customer requirements and obtain access to new technology and expertise. We currently are engaged in joint development programs with several customers for 300mm applications of our Eagle^®, Polygon^™, Epsilon^® and Advance^® A412^™ products. In cooperation with NuTool, Inc., a United States supplier of copper plating and CMP equipment, in which we have an equity investment, we are developing production solutions for copper applications.

We participate in European programs focusing on developing the production technology for semiconductor devices with line widths of 65 and 45nm. We are the project manager in a number of projects that were awarded under the IST (Information Society Technologies) program, as part of Framework 5 and 6, an initiative of the European Union. We are a leading partner in several development programs sponsored by Micro Electronics Development for European Applications, MEDEA+, a Eureka initiative. In MEDEA+ we are currently working on the development of contactless RTP processing, integration of metrology in batch processing systems and on a multitude of process solutions for the 65nm generation. Mr. Arthur H. del Prado, our President and Chief Executive Officer, is a member of the board of MEDEA+.

The integration of new product solutions into process modules is done in ASM Europe’s application laboratory, which shares the Interuniversity MicroElectronics Center (IMEC) clean rooms in Leuven, Belgium. This integration within IMEC’s facilities gives us access to all the additional process steps needed to create sub-micron devices, including sub-micron patterning. Development of customer applications usually occurs with the active participation of IMEC, suppliers of complementary and non-critical equipment, and end-users of our products.

In addition to cooperating with third parties such as customers and other equipment companies in research and development projects, we enter into projects with technical universities, particularly in the Netherlands, Japan and Finland. As part of these projects, we may sell our equipment to customers who will use grants or research loans to acquire these products or we may receive grants or research loans directly. We have received such loans in the past from the Netherlands government, of which € 12.2 million was outstanding at December 31, 2003. These loans have to be repaid only from the sales proceeds of the products developed with this assistance at repayment rates of up to 100% of the amounts of the loans. Our subsidiary, ASM Microchemistry, has received similar loans from the Finnish government.

Manufacturing and Suppliers

Our manufacturing operations consist of the fabrication and assembly of various critical components, product assembly, quality control and testing.

In the front-end process, we outsource the manufacture of major subsystems and subassemblies and some design, assembly and testing functions to specialized companies. We believe that outsourcing enables us to minimize our fixed costs and capital expenditures while also providing the ability to rapidly increase production capacity. We also work closely with our suppliers to achieve mutual cost reduction

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through joint design efforts. Although we work with a limited number of suppliers, we seek not to rely on a sole supplier, and have back-up suppliers for most subsystems and subassemblies that are outsourced.

In addition, we purchase the metrology equipment that we integrate into some of our front-end products from NanoPhotonics. As of March 12, 2004 we had a 23.6% equity interest in NanoPhotonics and our Chief Executive Officer had a 43.8% interest. See “Item 5. Operating and Financial Review and Prospects” and “Item 7. Major Shareholders and Related Party Transactions.”

Our back-end operations are vertically integrated to insure quality production of component parts where the quality of subassemblers does not otherwise meet our standards. The manufacturing activities in Hong Kong and Singapore consist primarily of assembling and testing components and subassemblies manufactured at our main manufacturing facilities in the People’s Republic of China and Malaysia.

Marketing and Sales

We sell and market our products with the objective of developing and maintaining an ongoing, highly interactive service and support relationship with our customers. Our marketing strategy includes advertising and participating in various industry trade shows. We provide prospective customers with extensive process and product data, provide opportunities for tests on demonstration equipment and, if required, install evaluation equipment at the customer’s site. Once equipment has been installed, we support our customers with, among other things, extensive training, on-site service, spare parts and process support. All of this is further supported by in-house development to enhance the productive life of existing equipment. We make hardware improvements available in the form of retrofit kits as well as joint development of new applications with our customers. We encourage our engineers to submit technical papers to relevant magazines and to give lectures in symposia.

Because of the significant investment required to purchase our systems and their highly technical nature, the sales process is complex, requiring interaction with several levels of a customer’s organization and extensive technical exchanges, product demonstrations and commercial negotiations. As a result, the full sales cycle can be as long as 12 to 18 months for sales of front-end equipment and three to six months for sales of back-end equipment. Purchase decisions are generally made at a high level within a customer’s organization, and the sales process involves broad participation across our organization, from senior executive management to the engineers who designed the product.

Our sales process usually starts with high-level introduction meetings. Early in the process we also meet with operational personnel to discuss the intended uses of our equipment, technical requirements, solutions, and the overall production process of the customer. Demonstrations and evaluation of test results take time. Once we agree upon the technology elements of the sale, the process continues with price and delivery negotiations and, when completed successfully, with the issuance by the customer of a letter of intent to secure a slot in the manufacturing and assembly planning schedule, followed by a purchase order.

To market our products, we operate demonstration and training centers where customers can examine our equipment in operation and can, if desired, process their wafers or individual dies for further in-house evaluation. Customers are also trained to properly use purchased equipment.

Each of our major product lines has a dedicated product manager, responsible for positioning the product in the market, developing it over time and evaluating its relative performance compared to the competition. Each product manager sets priorities in terms of technical development and sales support.

To execute the sales and service functions, we have established a direct, integrated sales force for front-end products reporting on a geographical basis to the managers in charge of Europe, North America, Korea, Taiwan, Southeast Asia and Japan. At the end of 2003, the front-end units had 90 employees fully dedicated to sales and marketing, representing 7.6% of total front-end staff. Dedicated support and sales

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forces are maintained for our various geographic units, enabling us to serve our global customers with an equally global organization. Each of our geographic front-end units is responsible for sales of all of our front-end products in its region. We believe the integration of our sales force promotes cross selling of front-end products.

In addition to the sales activities undertaken at the principal offices of our various manufacturing units, we have sales offices located in Europe (in the United Kingdom, France, Ireland, Italy and Germany), and in the United States (in California, Texas and Pennsylvania). In Japan, our sales offices are located in Tokyo and Osaka.

We use independent sales agents in Malaysia and the People’s Republic of China for front-end products and to support our sales efforts for ALD equipment in the non-semiconductor markets in Japan, such as flat panel displays and magnetic heads.

Sales of back-end equipment and materials are provided by our principal offices in Hong Kong and Singapore, through direct sales offices in the People’s Republic of China, Taiwan, the Philippines, Malaysia, Thailand, Japan, Europe and North America, and through sales representatives in Korea and some parts of the United States. At the end of 2003, there were 197 staff members employed in sales and marketing of back-end products, representing 3.1% of total back-end staff.

Customers

We sell our products predominantly to manufacturers of semiconductor devices and manufacturers of silicon wafers. Our customers include most leading semiconductor and wafer manufacturers. Our customers vary from independent semiconductor manufacturers that sell their products on the open market, to large electronic system companies that manufacture semiconductor devices for their own use.

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The following table lists a sample of our customers:

CUSTOMERS
Agere Group	HP	Philips
Agilent	IBM	Powerchip Semiconductor
AIT	InfineonTechnologies	Promos Technologies
AMD	Intel	Samsung
Amkor Technology	Jiangsu Chanjiang Electronics	Siliconware Precision Ind.
ASAT	LG Group	Sony
ASE	Lingsen Precision Ind. Ltd.	Seiko Epson
Carsem	Matsushita Electronics	Shinetsu Handotai
Chartered	MEMC	ST Assembly Test Services Pte Ltd.
Chippac	Microchip Technology	ST Microelectronics
Cypress	Micron	Taiwan IC Packaging Corp.
Elpida Memory Corp	Mitsubishi	Texas Instruments
Fairchild Semiconductors	Motorola	Toshiba
Fujitsu	NEC	Trecenty Technologies
GEM Electronics	Nichia Kagaku Chemical	TSMC
Hana	NS Electronics Bangkok	UMC
He Jian Technology		Vishay
Hitachi

Our largest customer accounted for approximately 7.2%, 13.9% and 18.5% of our net sales in 2001, 2002 and 2003, respectively. Our ten largest customers accounted for approximately 35.5%, 39.6% and 46.5% of our net sales in 2001, 2002 and 2003, respectively. Historically, a significant percentage of our net sales in each year has been attributable to a limited number of customers; however, the largest customers for our products may vary from year to year depending upon, among other things, a customer’s budget for capital expenditures, timing of new fabrication facilities and new product introductions.

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The following table shows the distribution of net sales, by segment and geographic destination of the product:

SEGMENT	PERCENTAGE OF NET SALES 2003		GEOGRAPHIC DESTINATION	PERCENTAGE OF NET SALES
				front-end	back-end
front-end	49.2%		S.E. Asia	8.1%	46.9%
			Europe	10.4%	1.0%
back-end	50.8%		North and South America	20.1%	1.5%
			Japan	10.6%	1.4%
SEGMENT	PERCENTAGE OF NET SALES 2002		GEOGRAPHIC DESTINATION	PERCENTAGE OF NET SALES
				front-end	back-end
front-end	51.4	%	S.E. Asia	8.5%	41.3%
			Europe	10.5%	1.1%
back-end	48.6	%	North and South America	25.0%	4.4%
			Japan	7.4%	1.8%
SEGMENT	PERCENTAGE OF NET SALES 2001		GEOGRAPHIC DESTINATION	PERCENTAGE OF NET SALES
				front-end	back-end
front-end	60.0%		S.E. Asia	8.5%	34.0%
			Europe	18.1%	2.0%
back-end	40.0%		North and South America	18.5%	1.5%
			Japan	14.9%	2.5%

Customer Service

We provide responsive customer technical assistance to support our marketing and sales. Technical assistance is becoming an increasingly important factor in our business as most of our equipment is used in critical phases of semiconductor manufacturing. Field engineers install the systems, perform preventive maintenance and repair services, and are available for assistance in solving customer problems. Our global presence permits us to provide these functions in proximity to our customers. We also maintain local spare part supply centers to facilitate quick support.

We provide maintenance during the product warranty period, usually one to two years, and thereafter perform maintenance pursuant to individual orders issued by the customer. In addition to providing ongoing service, our customer service operations are responsible for customer training programs, spare parts sales and technical publications. In appropriate circumstances, we will send technical personnel to customer locations to support the customer for extended periods of time to optimize the use of the equipment for the customer’s specific processes. For our front-end business, where the availability of field support is particularly important for a sale, there are approximately 394 support staff employees, or 33.4% of our total front-end employees.

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Competition

The semiconductor equipment industry is intensely competitive, and is fragmented among companies of varying size, each with a limited number of products serving a particular segment of the semiconductor process. Technical specifications of the individual products are an important competitive factor, especially concerning capabilities for manufacturing of new generations of semiconductor devices. As each product category encompasses a specific blend of different technologies, our competitive position from a technology standpoint may vary within each category. Customers are evaluating manufacturing equipment based on a mixture of technical performance and cost of ownership over the life of the product. Main competitive factors include overall product performance, yield, reliability, maintainability, service, support and price. We believe that we are competitive with respect to each of these factors, and that our products are cost effective.

As the variety and complexity of available machinery increases, some semiconductor manufacturers are attempting to limit their suppliers. In addition, semiconductor manufacturers are located throughout the world, and expect their equipment suppliers to have offices worldwide to meet their supply and service needs. Semiconductor equipment manufacturers with a more limited local presence are finding it increasingly difficult to compete in an increasingly global industry.

Our primary competitors in the front-end business are from the United States and Japan. Our primary competitors in the back-end business are from the United States, Europe and Japan. In each of our product lines, we compete primarily with two or three companies which vary from small to large firms in terms of the size of their net sales and range of products. Our primary competitors in the front-end business include Applied Materials, Novellus, Tokyo Electron and Kokusai. Our primary competitors in the back-end business include Kulicke & Soffa, ESEC, Shinkawa, Apic Yamada, BE Semiconductor, Towa, Shinko and Mitsui.

Intellectual Property

Because of the rapid technological advances in the microelectronics field, we believe that our products will be subject to continuing change and enhancement. Accordingly, we believe that our success will depend upon the technical competence and creative ability of our personnel and the ownership of our intellectual property rights.

We own and license patents which cover some of the key technologies, features and operations of our major front-end products and are usually registered in the principal countries where semiconductor devices or equipment are manufactured. The following table shows the number of patents for which we made an initial filing during the indicated period and the number of patents in force as of the end of the indicated period:

	Year 1999	Year 2000	Year 2001	Year 2002	Year 2003
Initial patent filings	40	58	49	96	93
Issued patents	167	215	277	367	453

We have entered into worldwide, non-exclusive, non-transferable and non-assignable licenses with Applied Materials for patents related to epitaxy and some chemicals used to deposit insulating layers for PECVD. We pay Applied Materials a royalty on sales of equipment that use the patented technology. These patents expire at various times between 2004 and 2010. Upon expiration of the patents, the technology may be used royalty-free by the public, including us.

In the back-end market segment, companies generally compete on the basis of their cumulative expertise in applying well known technologies to improve productivity and cost-efficiency. As a result, we file fewer patents related to our back-end business but where possible, we file for protection of

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innovations made by our back-end subsidiary. We also own certain trademarks and other proprietary information that we consider important to our business.

There has been substantial litigation regarding patent and other intellectual property rights in semiconductor-related industries. We currently are involved in such matters and, in the future, additional litigation may be necessary to enforce patents issued to us, to protect trade secrets or know-how owned by us or to defend us against claimed infringement of the rights of others and to determine the scope and validity of the proprietary rights of others. Any such litigation could result in substantial cost and diversion of effort by us, which could have a material adverse effect on our business, financial condition and operating results. Adverse determinations in such litigation could result in our loss of proprietary rights, subject us to significant liabilities to third parties, require us to seek licenses from third parties or prevent us from manufacturing or selling our products, any of which could have a material adverse effect on our business, financial condition and operating results.

At present, we are not involved in any litigation which we believe is likely to have a materially adverse effect on our financial position. However, we are involved in proceedings, the outcome of which cannot be determined at present.

Genus Litigation

In June 2001, our subsidiary, ASM America, filed a lawsuit against Genus, Inc. in the U.S. District Court for the Northern District of California alleging infringement of three patents entitled Sequential Chemical Vapor Deposition (U.S. Patent No. 5,916,365), Methods for Growing Thin Films (U.S. Patent No. 6,015,590) and ASM America’s “showerhead” patent (U.S. Patent No. 4,798,165, entitled “Apparatus for Chemical Vapor Deposition Using an Axially Symmetric Gas Flow”). Genus responded by denying the allegations and bringing a counterclaim against ASM America and ASM International alleging antitrust violations and infringement of U.S. Patent No. 5,294,568 involving selective etching of native oxide. Genus’ antitrust claims were stayed until after trial on the patents at issue. In August 2002, the court ruled that Genus did not infringe the ‘365 patent. In January 2003, the court ruled that Genus did not infringe the ‘590 patent.

In April 2003, ASM International and ASM America entered into a binding memorandum of settlement with Genus settling this litigation. Pursuant to the memorandum:

• Genus granted to ASM International and ASM America a nonexclusive, worldwide, fully paid-up license under the ‘568 patent and directly related patents;

• ASM America granted to Genus a nonexclusive, worldwide, fully paid-up license under the ‘165, ‘365 and ‘590 patents and directly related patents, provided that the license for the ‘365 and ‘590 patents will be effective only upon completion of the appeal by ASM America of the lower court’s summary judgment rulings as described below;

• ASM America will have the right to appeal the summary judgment rulings in respect of the ‘365 and ‘590 patents and, if the appeals courts vacates either summary judgment ruling on the basis of a change in the lower court’s claim construction, Genus will pay ASM America the sum of US$ 1.0 million in respect of the above licenses for the ‘365 and ‘590 patents; and

• Genus, on the one hand, and ASM International and ASM America, on the other hand, agreed to refrain for a five year period from litigating patent and antitrust claims, although each party retains the right to recover damages incurred during the five year period if a suit is brought after the expiration of such period.

Genus, ASMI and ASM America stipulated to an Entry of Judgment and ASMI and ASM America filed a Notice of Appeal in January 2004, appealing the District Court’s rulings on the ‘590 and

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‘165 patents to the U.S. Court of Appeals for the Federal Circuit. Given the stage of the proceedings it is impossible to predict the outcome of the appeal.

Applied Materials Litigation

In response to a letter by Applied Materials, Inc. alleging that our Eagle reactors infringe various Applied Materials patents, ASMI and ASM America filed a declaratory judgment action against Applied Materials on August 27, 2002 in the U.S. District Court for the District of Arizona. The lawsuit seeks a declaration of non-infringement, invalidity or unenforceability of six Applied Materials patents relating to cleaning of reaction chambers and deposition of silicon nitride. Applied Materials responded on December 16, 2002 by denying the allegations and counterclaiming, as modified by supplemental answer filed July 21, 2003, for a declaratory judgment of infringement, including willful infringement, of all six patents and for damages and other relief, a preliminary or permanent injunction and costs. No trial date has been set. Given the stage of the proceedings, it is not possible to predict the outcome of the claims and counterclaims at this time, or the range of potential recovery or loss.

The Company and its subsidiary, ASM America, Inc., filed a lawsuit against Applied Materials on October 3, 2003 in the U.S. District Court for the Eastern District of Texas alleging infringement of six patents: U.S. Patent No. 6,418,945 entitled “Method and Device for Transferring Wafers”, U.S. Patent No. 6,572,924 entitled “Exhaust System for Vapor Deposition Reactor and Method of Using the Same”, U.S. Patent No. 6,579,374 entitled “Apparatus for Fabrication of Thin Films”, U.S. Patent No. 6,410,463 entitled “Method for Forming Film With Low Dielectric Constant on Semiconductor Substrate”, U.S. Patent No. 6,511,539 entitled “Apparatus and Method for Growth of a Thin Film”, and U.S. Patent No. 6,053,686 entitled “Device and Method for Load Locking for Semiconductor Processing”. Applied Materials counterclaimed in November 2004, alleging infringement of U.S. Patent No. 5,710,407 and the six patents at issue in the above noted litigation in Arizona. The Company and ASM America have filed a motion to dismiss the counterclaims as to the six patents currently pending in Arizona. Applied Materials has filed a motion to change venue to the District of Arizona. No trial date has been set. Given the stage of the proceedings, it is not possible to predict the outcome of the claims and counterclaims at this time, or the range of potential recovery or loss.

Corporate Governance

As we are listed on NASDAQ as well as on Euronext Amsterdam, we are required to comply with several corporate governance requirements and best practices set out by NASDAQ, the U.S. Securities and Exchange Commission (SEC), Euronext and the code recently issued by the Dutch Committee on Corporate Governance (Tabaksblat Code).

The Tabaksblat Code recommends that we outline in the 2003 Annual Report how we expect to apply the Code and which issues we foresee in its application. The Code will be effective for the financial year ending December 31, 2004.

We will endeavor to apply the Tabaksblat Code fully and have already investigated how we currently perform against the requirements of Tabaksblat. The Management Board and Supervisory Board are of the opinion that we already comply with a large number of the requirements and have already started actions on other areas as a result of the U.S. Sarbanes-Oxley Act of 2002. We foresee, however, the following issues in complying with the Tabaksblat Code requirements:

• Future new appointments will follow the recommended 4 year term for members of the Management Board. Existing appointments, which run for an indefinite period of time, will not be amended.

• All of our Members of the Supervisory and Management Board are fully aware of the limitations that apply to trading in listed securities when one is in the possession of material

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non-public information. These situations are addressed in applicable Dutch and foreign legislation.

• We are of the opinion that additional quarterly internal reporting of all trading in securities of Dutch listed companies would be a significant additional administrative burden without eliminating effectively the possibility of misuse. We will therefore make our Insider Trading policy as well as our Supervisory Board and Management Board rules even more explicit on this topic to reflect the spirit of this requirement, but we do not intend to start a formal additional quarterly reporting system.

• In most circumstances a maximum severance payment of one year for Management Board members is recommended. We want to reserve the right to agree to different amounts in case we deem this to be required by the circumstances. Deviations will however be disclosed to the Annual General Meeting of Shareholders.

• It is expected that as of May 2005, none of the members of the Supervisory Board will hold more supervisory board memberships within the meaning of the Tabaksblat Code than recommended by the same.

• We foresee a practical problem in harmonizing the prevailing U.S. and Dutch practices with regard to the registration date applicable to a shareholders meeting. We will evaluate and follow best practice on how other dual listed Dutch companies deal with this matter and we have the intention to comply, when possible.

• Only presentations to larger groups of analysts and/or investors will be announced and webcasted. It would not be feasible in practice to treat one-on-one meetings in the same manner. It is our policy however that no non-public material information will be provided during such meetings.

We will closely follow the developments and discuss with our peers how to best address the above as well as other areas of the Tabaksblat Code. At the Annual Meeting of Shareholders of 2005 we will consult our shareholders on our approach regarding the implementation of the Code.

We will also update our website in accordance with the requirements of the Code.

Management Board

The members of the Management Board will be appointed by the General Meeting of Shareholders from a binding nomination of at least two persons for every vacancy, to be drawn up by the Supervisory Board. The General Meeting of Shareholders may overrule a nomination of its binding nature by a resolution passed with a majority of at least two-thirds of the votes cast, representing more than one half of the issued share capital.

The members of the Management Board collectively manage the Company and are responsible for its performance. They are jointly and individually accountable for all decisions made by the Management Board.

Because of the requirements dictated by the Sarbanes- Oxley Act, we are putting special focus on our internal control systems. In addition, the Chief Executive Officer (CEO) and Chief Financial Officer (CFO) are required by the Sarbanes-Oxley Act to sign a certificate stating that our disclosure controls and procedures and, starting in 2005, controls over financial reporting are adequate and effective for us. These certificates will be filed with the SEC as Exhibits to the Form 20-F.

We are further improving our internal control procedures and practices to ensure that the financial reporting process is set up in such a manner that it can be audited, as required for 2005, under section 404 of the Sarbanes-Oxley Act.

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Supervisory Board

The Supervisory Board currently comprises five members who are appointed in the same way as the members of the Management Board. The Supervisory Board supervises the policy of the Management Board and the general course of our business and the management actions relating thereto. The Supervisory Board is supplied in a timely manner by the Management Board with all information that it requires for the performance of its task.

The Supervisory Board has drawn up the following profile for its own composition. The Board consists of at least three members. The members should operate independently of and critically with regard to each other, within a good relationship of mutual trust. They should be experienced in the management of an international, publicly listed company and have sufficient time available to fulfill the function of Supervisory Board member. The Supervisory Board members appoint a chairman from amongst their midst.

In order to more efficiently fulfill its role, the Supervisory Board has created the following committees:

Audit Committee. This committee has a supervisory task with regards to monitoring the integrity of our financial reports and risk management. The Audit Committee consists of Mr. den Hoed (Chairman), Mr. Baan and Mr. van Amerongen.

The Audit Committee shall focus on supervising the activities of the Management Board with respect to:

• the operation of the internal risk management and control systems, including supervision of the enforcement of the relevant legislation and regulations;

• our release of financial information;

• compliance with recommendations and observations of external auditors;

• our policy on tax planning;

• relations with the external auditor, including, in particular, its independence, remuneration and any non-audit services performed for us;

• our financing;

• the applications of information and communication technology (ICT).

Pursuant to the U.S. Sarbanes-Oxley Act, the Audit Committee should include at least one Financial Expert, who must have in-depth experience and knowledge of financial statements, international accounting principles and internal controls and procedures for financial reporting. At its July 28, 2003 meeting, the Supervisory Board concluded that Mr. den Hoed meets these requirements.

Nomination, Selection and Remuneration Committee. This committee advises the Supervisory Board on matters relating to the selection and nomination of new board members as well as the remuneration of the members of the Management Board. The committee monitors and evaluates the remuneration policy for the Management Board and some other senior executives of the company. This committee consists of Mr. van Amerongen (Chairman), Mr. Danneels and Mr. van den Hoek.

During the 2005 Annual General Meeting of Shareholders we intend to further comment on the remuneration policy for members of the Management Board.

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Internal Management and Control Systems

Code of Ethics. We have developed a Code of Ethics which will be applicable to all of our employees. This policy will be made available on our website and is filed as Exhibit 11.1 to this report.

Whistleblower Procedure. In early 2004 we will implement a whistleblower policy to ensure that any irregularities can be reported to the Management Board and/or the Supervisory Board without any fear of reprisal against the individual involved.

Business Risk and Internal Control Self Assessment. All Managing Directors and Finance Directors annually sign a detailed self assessment with regard to financial reporting, internal controls and ethical principles.

Disclosure Committee. The responsibility of the Disclosure Committee is to advise the CEO and CFO on their responsibilities according to section 302 of the Sarbanes-Oxley Act. It will base its conclusion on information obtained from the operational and financial review, the self assessments performed by management and input from risk management activities during the year.

Internal Audit. We do not have a separate Internal Audit function, as we feel that risk and control systems should be the responsibility of management, and as such be fully integrated into our business processes.

General Meeting of Shareholders

A General Meeting of Shareholders is held each year to discuss the annual report of the Managing Board about the affairs of the Company and to adopt the Annual Accounts. Extraordinary meetings will be held as often as the Managing Board or the Supervisory Board deems this desirable.

In the General Meeting of Shareholders, each ordinary share with a nominal value of € 0.04 gives the right to cast one vote, each preferential finance share with a nominal value of € 40.00 the right to cast one thousand votes and each preference share with a nominal value of € 40.00 the right to cast one thousand votes. Presently there are no preferential finance shares or preference shares outstanding.

The powers of the General Meeting of Shareholders are defined in our Articles of Association, which will be made available on our website. The main powers of the shareholders are to appoint, suspend and dismiss members of the Supervisory Board and the Board of Management, to adopt the financial statements, declare dividends and to discharge the Management and Supervisory Board from responsibility for the performance of their respective duties for the previous financial year, to appoint the external auditors, to adopt amendments to the Articles of Association, to issue shares and to repurchase or cancel outstanding shares.

C. Organizational structure.

The following chart presents the jurisdiction of incorporation of our significant subsidiaries and our percentage of ownership interest in those subsidiaries as of March 12, 2004:

Subsidiary Name and Location	Country of Incorporation	Percentage Owned by ASM International, N.V.
ASM Europe, B.V. Almere/Bilthoven, the Netherlands	The Netherlands	100%
ASM America, Inc. Phoenix, Arizona, United States	State of Delaware, United States of America	100%
ASM Japan, K.K. Tama, Japan	Japan	100%
ASM Pacific Technology Ltd. Hong Kong, the People’s Republic of China	The Cayman Islands	53.87%

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D. Property, plants and equipment.

To develop and manufacture products to local specifications and to market and service products more effectively in the worldwide semiconductor market, our front-end manufacturing facilities are located in Europe, the United States and Japan and our back-end facilities are located in Hong Kong, the People’s Republic of China, Singapore and Malaysia. Our principal facilities are summarized below:

BUSINESS SEGMENT	LOCATION	PRIMARY USES	APPROXIMATE AGGREGATE SQUARE FOOTAGE
front-end	Bilthoven, The Netherlands(1)	Executive offices of ASMI	11,000
	Tama and Niigata, Japan	Wafer processing equipment manufacturing, marketing, research and offices	341,000
	Phoenix, Arizona, USA	Wafer processing equipment manufacturing, marketing, research and offices	177,000
	Almere, The Netherlands	Wafer processing equipment manufacturing, marketing, research and offices	152,000
	Espoo, Finland	Wafer processing equipment research and offices	5,300
	Hong Kong, People’s Republic of China	Semiconductor assembly and encapsulation equipment manufacturing, marketing, research and offices	193,000
back-end	Shenzhen, People’s Republic of China	Semiconductor assembly equipment parts and modules manufacturing, leadframe manufacturing and offices	935,000
	Singapore	Semiconductor assembly equipment and etched leadframe manufacturing, marketing, research and offices	333,000
	Johor Bahru, Malaysia	Semiconductor assembly equipment parts and modules manufacturing and offices	38,000

⁽¹⁾ There is approximately 170,000 square feet of vacant space being held for sale after the relocation of manufacturing, marketing and research activities to our Almere facility in early 2004.

Our principal facilities in the Netherlands, the United States, Finland, Hong Kong, the People’s Republic of China, Singapore and Malaysia are subject to leases expiring at various times from 2004 to 2026. Some facilities we own are subject to mortgages. We are currently consolidating our front-end manufacturing operations located at our Bilthoven facility with and into our Almere facility. Our executive offices will remain in Bilthoven. We believe that our facilities are maintained in good operating condition and are adequate for our present level of operations.

Item 5. Operating and Financial Review and Prospects overview

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

We design, manufacture and sell equipment and systems used to produce semiconductor devices, or integrated circuits. Our production equipment and systems are used by both the front-end and back-end segments of the semiconductor market. Front-end equipment performs various fabrication processes in which multiple thin films of electrically insulating or conductive material are grown or deposited onto a round slice of silicon, called a wafer. Back-end equipment separates these processed wafers into numerous individual dies, each containing the circuitry of a single semiconductor device, and assembles packages and tests the dies in order to create semiconductor devices. We conduct our front-end business, which accounted for 49.2 % of our net sales in 2003, through our principal facilities in the Netherlands,

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the United States and Japan. We conduct our back-end business, which accounted for 50.8% of our net sales in 2003, through our principal facilities in Hong Kong, the People’s Republic of China, Singapore and Malaysia. Our back-end operations are conducted through our 53.87 % majority-owned subsidiary, ASM Pacific Technology Limited (“ASMPT”).

We sell our products worldwide to the semiconductor industry, which is subject to sudden and extreme cyclical variations in product supply and demand. Since late 2000, the semiconductor industry has been impacted by a severe cyclical downturn characterized by overcapacity and reduced demand for products, lower average selling prices across certain product lines, reduced investment in semiconductor capital equipment and other factors, all of which have led to lower sales and earnings for our business, in particular for capacity-driven purchases. During the last quarter of 2003 we saw a shift in order momentum, which is signaling a recovery in our industry. This apparent recovery already resulted in a significant improvement in sales and operating result in our back-end segment in the last months of 2003 compared to the earlier part of 2003. In our front-end segment this order momentum did not result in increased sales in the last months of 2003. Our backlog of € 199.0 million as of December 31, 2003, which is the highest level since June 30, 2001, is encouraging for our sales levels for the first quarter of 2004, although given the volatile market and order intake, the visibility of our sales level in the long term is still unclear.

To improve our margins in our front-end operations we initiated plans in 2003 to strategically increase our manufacturing capability in Asia. Our aim is to duplicate the efficiencies and low cost structure of our back-end assembly and packaging manufacturing operations, lowering costs and increasing production flexibility. We believe that the effects of these plans will start to materialize in the beginning of 2005.

To lower our fixed cost base we implemented restructuring plans including work force reduction in our front-end segment in the second half of 2003. As part of these plans we restructured our research and development activities in Finland, consolidated production facilities of our operations in the Netherlands and reduced work forces at other front-end segment subsidiaries. The restructuring has resulted in a reduction of our workforce by approximately 110 employees in the second half of 2003, and restructuring charges in the amount of € 6.5 million. In early 2004 the restructuring plans will be completed, and we expect a positive impact on our fixed cost levels in our front-end segment.

In our back-end segment we continued to benefit from our cost advantage due to the location of our manufacturing facilities, and as we are highly vertically integrated in this segment, we are able to adjust labor costs quickly in volatile market conditions. In an effort to further reduce our low cost structure, our back-end operations opened an integrated leadframe factory in Fu Yong, China, and phased out the remaining plating operations in Hong Kong. This new facility will help to reduce both manufacturing cycle time and labor costs.

The current transition in the industry to new processes and materials and to a larger, 300mm wafer size from the current 200mm wafer requires equipment providers to develop entirely new sets of tools and presents us with an opportunity to displace existing suppliers to major semiconductor manufacturers. We believe that we are well positioned and that our firm commitment to research and development, our readiness in new technologies, design-in wins at top-tier customers as well as our strategic partnerships provide us with a broad basis for substantial long-term market share gains.

In 2003 we focused further on working capital improvements, which resulted in a positive contribution to our cash flow from operating activities, in particular as a result of a significant reduction in our front-end inventory levels.

Due to the difficult market situation we kept our capital expenditures at a moderate level of € 30.0 million in 2003. We do expect this to increase in 2004 to about € 40.0 to € 50.0 million, including

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investments in new manufacturing facilities for our front-end segment in Asia, but we will monitor this closely in light of the market developments.

In 2003 we strengthened our balance sheet through a private placement of US$ 90.0 million in subordinated convertible notes, which are due in 2010. The proceeds were used to repay outstanding short-term debt and provided us with additional cash to execute our strategy. We believe that our cash on hand of € 154.9 million at the end of 2003 is adequate to fund our operations, our investments in capital expenditures and to fulfill our existing contractual obligations for the next 12 months.

Sales

Our front-end sales are concentrated in the United States, Europe, Japan and Southeast Asia and our back-end sales are concentrated in Southeast Asia.

The following table shows the geographic distribution of our front-end and back-end sales for the years 2001, 2002 and 2003:

	Year ended December 31,
(euro millions)	2001			2002			2003
		%			%			%
Front-end:
United States	103.9	30.9	%	129.7	48.6	%	117.2	40.9	%
Europe	101.7	30.2		54.7	20.5		60.4	21.1
Japan	83.5	24.8		38.4	14.4		61.6	21.5
Southeast Asia	47.5	14.1		44.1	16.5		47.3	16.5
	336.6	100.0	%	266.9	100.0	%	286.5	100.0	%
Back-end:
Taiwan	37.5	16.7	%	57.4	22.8	%	58.6	19.8	%
Malaysia	33.5	14.9		30.2	12.0		33.2	11.3
People’s Republic of China	29.6	13.2		36.4	14.5		47.0	15.9
Korea	11.4	5.1		22.3	8.8		39.2	13.3
Singapore	22.7	10.1		18.3	7.3		25.2	8.5
Philippines	20.2	9.0		13.1	5.2		24.2	8.2
Thailand	15.3	6.8		14.4	5.7		19.9	6.8
Hong Kong	17.1	7.6		17.8	7.1		19.8	6.7
Other	37.2	16.6		42.0	16.6		28.3	9.5
	224.5	100.0	%	251.9	100.0	%	295.4	100.0	%

The sales cycle from quotation to shipment for our front-end equipment generally takes several months, depending on capacity utilization and the urgency of the order. The acceptance period after installation may be as short as four to five weeks. However, if customers are unfamiliar with our equipment or are receiving new product models, the acceptance period may take as long as ten weeks or more. The sales cycle is longer for equipment which is installed at the customer’s site for evaluation prior to sale. The typical trial period ranges from six months to one year after installation.

The sales cycle for back-end products is typically shorter than for front-end products. Generally, the majority of our back-end equipment is built in standard configurations. We build back-end products that are approximately 85% complete in anticipation of customer orders. Upon receipt of a customer’s order and specifications, the remaining 15% of the manufacturing is completed. This allows us to complete the assembly of our equipment in a short period of time. We therefore require between two to six weeks for final manufacturing, testing, crating, and shipment of our back-end equipment. Our back-end customers’ acceptance periods generally are shorter than those for front-end equipment. We provide installation, training and technical support to our customers with local staff in all of our major markets.

A substantial portion of our front-end sales is for equipping new or upgraded fabrication plants where device manufacturers are installing a complete complement of fabrication equipment. As a result

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our front-end sales tend to be uneven across customers and financial periods. Sales to our ten largest front-end customers accounted for 48.6%, 62.7% and 65.3% of front-end net sales in 2001, 2002 and 2003, respectively. The composition of our ten largest front-end customers changes from year to year. The largest front-end customer accounted for 12.1%, 27.1% and 37.5% of front-end net sales in 2001, 2002 and 2003, respectively.

Back-end sales per customer tend to be more level over time than front-end sales, because back-end operations can be scaled up in smaller increments at existing facilities. Sales to our ten largest back-end customers accounted for 39.6%, 35.3% and 50.1% of back-end net sales in 2001, 2002 and 2003, respectively. Because our back-end customers’ needs are more level over time, the composition of our ten largest customers is more stable from year to year than in the front-end. Our largest back-end customer accounted for 10.7%, 7.1% and 16.9% of back-end net sales in 2001, 2002 and 2003, respectively.

Research and Development

We continued to invest in research and development at a high level. Although we slowed down some projects in line with the market developments, we continued most of our technology programs in 2003. As part of our research and development activities, we are engaged in various development programs with customers and research institutes that allow us to develop products that meet customer requirements and to obtain access to new technology and expertise. We expense rather than capitalize our research and development expenses. We charge to costs of sales the costs relating to prototype and experimental models, which we may subsequently sell to customers.

Our research and development operations in the Netherlands, Belgium, Finland and Singapore receive research and development grants and credits from various governmental sources. Some of the research and development grants we received in the Netherlands are contingently repayable to the extent we recognize sales of products to which the credit is related. We do not recognize a liability on our Balance Sheet in respect of these credits until we recognize sales of products to which the credit relates. These repayments vary and range from 1.0% to 4.0% of the realized sales, depending on the products sold. Our contingent repayments accrue at interest rates ranging from 5.0% to 8.0% per annum. Our contingent repayments, which are not recognized as a liability in the Balance Sheet, were € 11.0 million at December 31, 2002 and € 12.2 million at December 31, 2003. In 2001, 2002 and 2003 we made repayments in the amount of € 2.9 million, € 0.1 million and € 0.1 million, respectively.

Acquisitions and Strategic Investments

In October 2001, we entered into a strategic alliance with and made an equity investment of US$ 18.0 million (€ 20.3 million) in NuTool, Inc. (“NuTool”), a privately held semiconductor technology company located in Milpitas, California. In April 2003 an additional equity investment was made of US$ 1.4 million (€ 1.2 million), resulting in an equity interest of 15.7% at the end of December 31, 2003. The purchase price of the investments was determined in part by reference to prices paid by other recent strategic investors. NuTool provides innovative copper deposition technologies to the semiconductor industry. Its patented electrochemical mechanical deposition technology offers new process solutions for copper deposition and planarization, providing significant savings in integrated circuit manufacturing and enabling new integrated circuit designs and new process technologies. The strategic alliance with NuTool provides us with additional competitive solutions to address the industry’s transition to copper metallization.

Issuance of Convertible Subordinated Notes

In November and December 2001, we issued US$ 115.0 million in principal amount of 5.0% Convertible Subordinated Notes due on November 15, 2005 in a private offering. Interest is payable on May 15 and November 15 of each year. The notes are subordinated in right of payment to our existing and future senior debt. The notes are convertible into common shares at any time at a conversion rate of

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53.0504 shares per each US$ 1,000 principal amount of notes, subject to adjustment in certain circumstances. This is equivalent to an initial conversion price of approximately US$ 18.85 per share.

In May 2003, we issued US$ 90.0 million in principal amount of 5.25% Convertible Subordinated Notes due May 2010 in a private offering. Interest on the notes is payable on May 15 and November 15 of each year, beginning on November 15, 2003. The notes are subordinated in right of payment to all of our existing and future senior indebtedness. The notes are convertible, at the option of the holder, into shares of our common stock initially at a conversion rate of 52.0237 shares of common stock for each $1,000 principal amount of notes, subject to adjustment in certain circumstances. This is equivalent to an initial conversion price of approximately US$ 19.22 per share.

Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations are based upon our Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these Consolidated Financial Statements requires us to make certain estimates, judgments and assumptions that we believe are reasonable based upon the information available. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the Consolidated Financial Statements and the reported amounts of revenues and expenses during the periods presented. The significant accounting policies which we believe are the most critical to aid in fully understanding and evaluating our reported financial results include the following:

Revenue Recognition. We follow very specific and detailed guidelines in recognizing revenue following principles of revenue recognition described in United States Securities and Exchange Commission (“SEC”) Staff Topic 13, which includes interpretive guidance issued in Staff Accounting Bulletin No. 101 “Revenue Recognition in Financial Statements,” issued by the staff of the SEC in December 1999, and SAB No. 104 “Revenue Recognition,” issued by the staff of the SEC in December 2003, as well as guidance set forth in EITF 00-21 “Revenue Arrangements with Multiple Deliverables.” However, certain judgments affect the application of our revenue policy. Our transactions frequently involve the sale of complex equipment, which may include customer-specific criteria, transactions to new customers or transactions with new technology, as well as payment terms, linked to achieving certain milestones. Management must make the determination whether such a transaction is recognized as revenue based on the merits of the contractual agreements with a customer, the experience with a particular customer, the technology and the number of similarly configured products previously delivered.

We recognize revenue from equipment sales upon shipment of our products when it is proven prior to shipment that the equipment has met all of the customers’ criteria and specifications. The installation process is not believed to be essential to the functionality of our products. However, since under most of our sales contracts the timing of payment of a portion of the sales price is coincident with installation, such installation is not considered to be inconsequential or perfunctory. Therefore, at the time of shipment, we defer that portion of the sales price related to the fair value of installation. We believe we have an enforceable claim for the portion of the sales price not related to the fair value of the installation should we not fulfill our installation obligation. If this belief were changed by industry developments in the future, this portion would be deferred in future periods until final acceptance by the customer or until contractual conditions lapse. At December 31, 2003 we have deferred revenues related to the fair value of installations and equipment deliveries in the amount of € 10.2 million. Revenue results are difficult to predict, and any shortfall in revenue or delay in recognizing revenue could cause our operating results to vary significantly from quarter to quarter and could result in future operating losses.

Valuation of Goodwill. We perform an annual impairment test at December 31 of each year, and upon the occurrence of an indication that a potential impairment exists, in accordance with the requirements of Statement of Financial Accounting Standard (“SFAS”) No. 142, “Goodwill and Other Intangible Assets,” issued by the Financial Accounting Standards Board (“FASB”). Impairment is the condition that exists

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when the carrying amount of goodwill exceeds its implied fair value. Our impairment test and the determination of the implied fair value is based on a discounted future cash flow approach that uses our estimates of future revenues, driven by assumed market growth and estimated costs as well as appropriate discount rates. These estimates are consistent with the plans and estimated costs we use to manage the underlying business. As of the adoption of SFAS No. 142 at January 1, 2002 and at December 31, 2002 and December 31, 2003 we did not record an impairment loss as a result of our tests performed. The calculation of the implied fair value involves certain management judgments and was based on our best estimates and projections at the time of our review, and the value may be different if other assumptions are used. In future periods we may be required to record an impairment loss based on the impairment test performed, which may significantly affect our result of operations at that time. Our analysis as of December 31, 2003 indicated that a 10% decrease in the estimated discounted future cash flows would not have resulted in an impairment loss.

Valuation of Long-Lived Assets. In accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” we review our long-lived assets and certain recognized intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In performing the review for recoverability, we estimate the future undiscounted cash flows expected to result from the use of the asset and its eventual disposition. In 2002 and 2003, we reviewed our long-lived assets, for facts or circumstances, both internal and external, that may suggest impairment. Based on our review no such impairment was indicated for 2002. In 2003 we recorded an impairment charge of € 3.2 million related to the consolidation of manufacturing facilities in the Netherlands and the restructuring of our research and development activities in Finland. Our cash flow estimates used include certain management judgments and were based on our best estimates and projections at the time of our review, and may be different if other assumptions are used. In future periods, however, we may be required to record an impairment loss, which may significantly affect our results of operations at that time.

Valuation of Investments. We account for our 15.7% equity investment in NuTool, Inc. at cost. Under Accounting Principles Board Opinion (“APB”) No. 18 “The Equity Method of Accounting for Investments in Common Stock” we should review our investment for a decrease in value other than temporary if a series of operating losses or other factors may indicate such a decrease in value. We reviewed a potential decrease in value of NuTool, Inc. as of December 31, 2003 based on cash flow estimates, including projected future sales and market share, technology penetration and operating results, and concluded that no decrease in value occurred. In our cash flow estimates we used certain management judgments based on our best estimates and projections at the time of our review, and these may be different if other assumptions are used. In future periods, however, we may be required to record a decrease in value, which may significantly affect our results of operations at that time. Our investment in NuTool, Inc. and loan advances to NuTool, Inc. amounted to € 23.9 million at December 31, 2003. Our analysis as of December 31, 2003 indicated that a 10% decrease in the estimated cash flows would not have resulted in a decrease in value.

Valuation of Inventory. Inventories are valued at the lower of cost or market. 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. In the year ended December 31, 2003 we have charged € 6.9 million to cost of sales as a result of our analysis of the value of inventory. At December 31, 2003 our valuation allowance for inventory obsolescence and lower market value amounted to € 19.2 million, which is 11.6% of our total inventory. If circumstances related to our inventories change, our estimates of the value of inventory could materially change. At December 31, 2003, an increase of our overall estimate for obsolescence and lower market value by 10% of our total inventory balance would result in an additional charge to cost of sales of € 16.5 million.

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Accounting for Income Taxes. We currently have significant deferred tax assets, which resulted primarily from operating losses incurred in prior years as well as other temporary differences. SFAS No. 109, “Accounting for Income Taxes,” requires us to establish a valuation allowance to reflect the likelihood of the realization of deferred tax assets. Based on available evidence, we regularly evaluate whether it is more likely than not that the deferred tax assets will be realized. This evaluation includes our judgment on the future profitability and our ability to generate taxable income, changes in market conditions and other factors. At December 31, 2003, we believe that there is insufficient evidence to substantiate recognition of substantially all net deferred tax assets with respect to net operating loss carry forwards, and we have established a valuation allowance in the amount of € 105.7 million. Future changes in facts and circumstances, if any, may result in a change of the valuation allowance to these deferred tax asset balances which may significantly influence our results of operations at that time. If our evaluation of the realization of deferred tax assets would indicate that an additional 10% of the net deferred tax assets as of December 31, 2003 is not realizable, this would result in an additional valuation allowance and an income tax expense of € 0.9 million.

Results of Operations

The following table shows certain consolidated statement of income data as a percentage of net sales for our front-end and back-end segments for the years 2001, 2002 and 2003:

	Year ended December 31,
	Front-end						Back-end						Total
	2001		2002		2003		2001		2002		2003		2001		2002		2003
Net sales	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%
Cost of sales	(60.9	)	(67.8	)	(74.6	)	(59.2	)	(58.4	)	(56.5	)	(60.2	)	(63.2	)	(65.4	)
Gross profit	39.1		32.2		25.4		40.8		41.6		43.5		39.8		36.8		34.6
Selling and administrative expenses	(21.5	)	(24.6	)	(22.3	)	(17.6	)	(17.0	)	(15.0	)	(20.0	)	(20.9	)	(18.6	)
Research and development expenses	(16.5	)	(23.6	)	(18.9	)	(10.7	)	(10.1	)	(8.4	)	(14.2	)	(17.0	)	(13.6	)
Amortization of goodwill	(2.2	)	—		—		—		—		—		(1.3	)	—		—
Earnings (loss) from operations	(1.1	)	(16.0	)	(15.8	)	12.5		14.5		20.1		4.3		(1.1	)	2.4
Net interest expense	(1.4	)	(3.4	)	(3.8	)	1.4		0.3		0.1		(0.3	)	(1.6	)	(1.8	)
Foreign currency transaction gains (losses)	(0.1	)	(0.7	)	(0.6	)	0.4		(0.1	)	(0.2	)	0.1		(0.4	)	(0.4	)
Income tax benefit (expense)	(0.7	)	1.3		(0.5	)	(1.1	)	(0.9	)	(1.9	)	(0.8	)	0.2		(1.2	)
Minority interest	—		—		—		(6.0	)	(6.3	)	(8.3	)	(2.4	)	(3.1	)	(4.2	)
Gain on dilution of investment in subsidiary	0.3		0.5		0.3		—		—		—		0.2		0.2		0.2
Net earnings (loss)	(3.0	)%	(18.3	)%	(20.4	)%	7.2	%	7.5	%	9.8	%	1.1	%	(5.8	)%	(5.0	)%

Year Ended December 31, 2003 Compared to Year Ended December 31, 2002

Net Sales. The following table shows our net sales for our front-end and back-end segments and the percentage change for the year 2002 to 2003:

	Year ended December 31,
(euro millions)	2002	2003	% Change
Front-end	266.9	286.5	7.3	%
Back-end	251.9	295.4	17.3	%
Total net sales	518.8	581.9	12.2	%

At the end of 2003 we experienced increased order levels, which we believe is an indicator that the market for semiconductor equipment is recovering from the prolonged severe downturns in the industry that started late in 2000. The year 2003 was challenging for the semiconductor industry. Lack of visibility for most of the year kept semiconductor manufacturers extremely cautious in their ordering patterns. The increase in orders improved our sales levels only in the last months of 2003, in particular in our back-end segment, which typically is the first to benefit from increasing demand. In the second half

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of 2003, front-end sales decreased 3.7% and back-end sales increased 36.5%, both compared to the first half of 2003.

Consolidated sales levels expressed in euro were negatively impacted by the strong euro against the Japanese yen, the US dollar and currencies whose exchange rate is fixed to the US dollar. The decline in exchange rates impacted our sales negatively by 18.7%.

Gross Profit. The following table shows our gross profit margin for our front-end and back-end segments and the percentage change for the year 2002 to 2003:

	Year ended December 31,
	2002		2003		% Change
Front-end	32.2	%	25.4	%	(6.8	)%
Back-end	41.6	%	43.5	%	1.9	%
Total gross profit	36.8	%	34.6	%	(2.2	)%

The decrease in gross profit margin for our front-end segment is the result of competitive price pressure, the changes in the product mix and the impact of lower US dollar exchange rates. In particular, the weakening of the US dollar impacted our margins on our vertical furnace products, for which manufacturing is mainly in euros and the majority of our sales are dominated in US dollars. In addition, our consolidated low sales levels kept our margins at a low level due to overhead costs in our manufacturing facilities. The increase in gross profit margin for our back-end segment is the result of the higher sales volume in 2003 compared to 2002.

Selling, General and Administrative. The following table shows our selling, general and administrative expenses for our front-end and back-end segments and the percentage change for the year 2002 to 2003:

	Year ended December 31,
(euro millions)	2002	2003	% Change
Front-end	65.6	63.9	(2.6	)%
Back-end	42.8	44.1	3.0	%
Total selling, general and administrative expenses	108.4	108.0	(0.4	)%

In 2003, selling, general and administrative expenses were slightly below the level of 2002. Although the decrease is partly due to the strong euro against the Japanese Yen, the US dollar and US dollar related currencies, we also strongly focused on fixed cost control and more efficient operations in our front-end segment. In 2003, restructuring expenses included in selling, general and administrative expenses for our front-end segment amounted to € 4.6 million. In our back-end segment the increase was mainly the result of the increased sales volumes and related higher expenses for marketing expenses and other overhead expenses.

Research and Development. The following table shows our research and development expenses for our front-end and back-end segments and the percentage change for the year 2002 to 2003:

	Year ended December 31,
(euro millions)	2002	2003	% Change
Front-end	62.8	54.2	(13.7	)%
Back-end	25.5	24.9	(2.4	)%
Total research and development expenses	88.3	79.1	(10.5	)%

We received research and development credits against research and development expenses of € 3.0 million in 2002 and € 3.0 million in 2003. The decrease in research and development expenses for our front-end segment is the result of our timing in some of our research and development programs,

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which we believe will not affect our strong research and development commitment to the industry, and to a lesser extent, the impact of the strong euro against the Japanese Yen, the US dollar and US dollar related currencies. In 2003 we also restructured our research and development operations in Finland. Restructuring expenses included in research and development expenses for our front-end segment amounted to € 1.9 million in 2003. Our research and development expenses for our back-end segment continued at a high level, but also decreased due to the impact of the strong euro against the Hong Kong dollar.

Net Interest Expense. Net interest expense increased to a net expense of € (10.3) million in 2003 compared to a net expense of € (8.3) million in 2002. The increase is the result of higher net interest expenses resulting from increased borrowings, including the issuance of US$ 90.0 million in convertible subordinated debt in May 2003 and lower interest income on cash deposits due to lower interest rates. The increase was partially offset by the lower US dollar exchange rate.

Income Tax Benefit (Expense). We recorded a € (7.1) million tax expense in 2003, compared to a tax benefit of € 1.2 million in 2002. The income tax expense in 2003 reflects our increased net earnings in our back-end segment. As of December 31, 2003, we had a € 334.6 million net operating loss carry forward, which we can apply primarily against future earnings reported in the United States and the Netherlands. At December 31, 2003, the related deferred tax asset for the net operating loss carry forward amounted to € 113.1 million, for which we provided a valuation allowance of € 105.7 million.

Net Earnings (Loss). We realized a net loss of € 29.3 million in 2003 compared to a net loss of € 29.9 million in 2002. Our front-end segment reported a net loss of € 58.3 million in 2003 compared to a net loss of € 48.8 million in 2002, primarily due to lower gross margins in our front-end segment and € 6.5 million in restructuring expenses. Our portion of our back-end segment’s net earnings was € 29.0 million in 2003 compared to € 18.9 million in 2002.

Year Ended December 31, 2002 Compared to Year Ended December 31, 2001

Net Sales. The following table shows our net sales for our front-end and back-end segments and the percentage change for the year 2001 to 2002:

	Year ended December 31,
(euro millions)	2001	2002	% Change
Front-end	336.6	266.9	(20.7	)%
Back-end	224.5	251.9	12.2	%
Total net sales	561.1	518.8	(7.5	)%

In 2001 and 2002 the semiconductor equipment market was still impacted by the severe downturn in the industry, which started in late 2000. This resulted in reduced levels of capital spending by semiconductor manufacturers, in particular for capacity-driven purchases. Despite a decline in capacity-driven demand, we saw a continued interest in orders for new technology and 300mm systems in 2002, in particular for our front-end segment, where we were able to gain from design-in wins at top-tier customers. Sales in our back-end segment grew primarily due to increased customer interest in our new generation wire bonders and other equipment. Overall, the increased order activity and customer demand resulted in a growth in sales levels in the second half of 2002 as compared to the first half of 2002 and the second half of 2001, while sales levels in the first half of 2001 were still benefiting from our backlog at the end of 2000.

Gross Profit. The following table shows our gross profit margin for our front-end and back-end segments and the percentage change for the year 2001 to 2002:

	Year ended December 31,
	2001		2002		% Change
Front-end	39.1	%	32.2	%	(6.9	)%
Back-end	40.8	%	41.6	%	0.8	%
Total gross profit	39.8	%	36.8	%	(3.0	)%

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The decrease in gross profit margin for our front-end segment was the result of lower sales volumes, low margins on new technology shipments for 300mm systems, which were approximately 52% of our 2002 net sales and the impact of a lower exchange rate of the US dollar in 2002 as compared to 2001. The increase in gross profit margin for our back-end segment was the result of the higher sales volume in 2002 compared to 2001, the effect of which was partly offset by lower sales prices.

Selling, General and Administrative. The following table shows our selling, general and administrative expenses for our front-end and back-end segments and the percentage change for the year 2001 to 2002:

	Year ended December 31,
(euro millions)	2001	2002	% Change
Front-end	72.3	65.6	(9.3	)%
Back-end	39.6	42.8	8.1	%
Total selling, general and administrative expenses	111.9	108.4	(3.1	)%

In our front-end segment, we were able to reduce our expenses from the high level in the first half of 2001, by reducing headcount and other cost cutting programs, while in the second half of 2002, increasing demand for our new products required increased support staff and accompanying higher expenses. In our back-end segment, expenses of € 2.5 million were recorded related to the relocation of production facilities from Hong Kong to the mainland of the People’s Republic of China.

Research and Development. The following table shows our research and development expenses for our front-end and back-end segments and the percentage change for the year 2001 to 2002:

	Year ended December 31,
(euro millions)	2001	2002	% Change
Front-end	55.8	62.8	12.5	%
Back-end	23.9	25.5	6.7	%
Total research and development expenses	79.7	88.3	10.9	%

We received research and development credits against research and development expenses of € 5.6 million in 2001 and € 3.0 million in 2002. We continued to keep the research and development expenses at a high level despite the market circumstances and concentrated our investments in research and development on equipment and product solutions for the next generations of semiconductor devices.

Amortization of Goodwill. As of January 1, 2002, we adopted SFAS No. 142 “Goodwill and Other Intangible Assets.” This new accounting standard requires that goodwill not be amortized, but rather tested at least annually for impairment. Consequently, we stopped amortizing goodwill as of January 1, 2002. No impairment loss was recorded upon adoption of SFAS No. 142. We also tested goodwill for impairment at December 31, 2002, and concluded that goodwill was not impaired. Amortization of goodwill for the full year 2001 amounted to € 7.6 million.

Net Interest Expense. Net interest expense increased from a net expense of € (1.3) million in 2001 to a net expense of € (8.3) million in 2002. The increase in net interest expense in 2002 was the result of increased borrowings and the full impact of our US$ 115.0 million 5% convertible notes issued in November and December 2001.

Income Tax Benefit (Expense). We recorded a € 1.2 million tax benefit during 2002, compared to a tax expense of € (4.7) million in 2001. The reduced income taxes reflect our reduced net earnings. As of December 31, 2002, we had a € 296.6 million net operating loss carry forward, which we can apply

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primarily against future earnings reported in the United States and the Netherlands. At December 31, 2002, the related deferred tax asset for the net operating loss carry forward amounted to € 100.2 million, for which we provided a valuation allowance of € 91.5 million.

Net Earnings (Loss). We realized a net loss of € 29.9 million in 2002 compared to net earnings of € 6.1 million in 2001, primarily due to the lower sales volumes. Our front-end segment reported a net loss of € 48.8 million in 2002 compared to a net loss of € 10.0 million in 2001. Our portion of our back-end segment’s net earnings was € 18.9 million compared to € 16.1 million in 2001.

Backlog

Our backlog consists of orders of products by purchase orders or letters of intent for future periods, typically for up to one year. In some markets, such as Japan, it is common practice for letters of intent to be used instead of firm purchase orders. Under specific circumstances, customers can cancel or reschedule deliveries. In addition, purchase orders are subject to price negotiations and changes in quantities of products ordered as a result of changes in customers’ requirements. Depending on the complexity of an order, we generally ship our products within one to six months after receipt of an order. We include in the backlog only orders for which a delivery schedule has been specified and to which the customer has assigned an order number. Rescheduled deliveries are included in backlog if they have a firm delivery date.

The following table shows our level of new orders during the year and our backlog at the end of the year for our front-end and back-end segments and the percentage change for the year 2002 to 2003:

(euro millions)	2002	2003	% Change
Front-end:
New orders for the year ended	269.6	281.3	4.3	%
Backlog at the end of the year	109.9	104.7	(4.7	)%
Back-end:
New orders for the year ended	259.5	356.6	37.4	%
Backlog at the end of the year	33.0	94.3	185.8	%
Total
New orders for the year ended	529.1	637.9	20.6	%
Backlog at the end of the year	142.9	199.0	39.3	%

In the last quarter of 2003 we saw a shift in order momentum, which we believe is signaling a recovery in our industry. Our backlog of € 199.0 million as of December 2003 is at the highest level since June 30, 2001. The largest part of the backlog in front-end relates to 300mm equipment. We believe the backlog level is an encouraging indicator for our sales levels for the first quarter of 2004, although given the volatile market and order intake, the visibility of our sales levels for the long-term is still unclear.

Liquidity and Capital Resources

Our liquidity is affected by many factors, some of which are related to our ongoing operations and others of which are related to the semiconductor and semiconductor equipment industries and to the economies of the countries in which we operate. Although our cash requirements fluctuate based on the timing and extent of these factors, we believe that cash generated by operations, together with the liquidity provided by our existing cash resources and our financing arrangements, will be sufficient to fund working capital, capital expenditures and other ongoing business requirements for at least the next twelve months. The cyclicality of the industry could result in lower customer demand and continued fixed costs and as a result, cash generated by operations may be lower than forecasted. In such a situation we might need to further utilize our short-term credit facilities or investigate additional financing.

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At December 31, 2003, our principal sources of liquidity consisted of € 154.9 million in cash and cash equivalents and € 57.1 million in undrawn bank lines. Approximately € 52.5 million of the cash and cash equivalents and € 34.4 million of the undrawn bank lines are restricted to use in our back-end operations and € 22.7 million in undrawn bank lines are restricted to use in our front-end operations in Japan.

In May 2003, we issued US$ 90.0 million in principal amount of 5.25% convertible subordinated notes due in May 2010 in a private offering to strengthen our liquidity and capital structure. The proceeds were used to repay the outstanding debt balance of our multicurrency revolving credit facility and for general corporate purposes. The notes rank equally in right with the US$ 115.0 million 5.0% convertible subordinated notes issued in 2001. At December 31, 2003, none of the convertible subordinated notes have been converted or repurchased.

In December 2002, we entered into a multicurrency revolving credit facility with a consortium of banks in the amount of € 70.0 million to be utilized solely for our front-end operations, excluding Japan. In June 2003, we cancelled the credit facility, subsequent to repayment of the outstanding amount under the facility from the proceeds of the US$ 90.0 million 5.25% convertible subordinated notes, issued in May 2003.

In July 2003, our equity line with Canadian Imperial Holdings, Inc. (“CIHI”), pursuant to which we could sell up to an aggregate of US$ 65.0 million of newly issued common shares to CIHI expired unused.

During 2003, we generated net cash flows from operating activities of € 61.6 million, compared to generated cash flows from operating activities of € 16.4 million for 2002. The increase was primarily the result of the improved net results of our back-end segment, which contributed € 29.0 million to our net earnings in 2003 compared to € 18.9 million in 2002 and a positive net cash inflow in other assets and liabilities of € 20.7 million in 2003 compared to a net cash outflow of € 7.3 million in other assets and liabilities in 2002. Our focus on reducing inventory levels and purchase commitments with suppliers contributed positively in 2003 to our cash flows from operations. On the other hand the increased sales levels in 2003, in particular in the fourth quarter of 2003, increased the amount of outstanding receivables at December 31, 2003. As of December 31, 2003 we have entered into purchase commitments for delivery in 2004 with suppliers in the amount of € 84.9 million.

During 2003, we invested € 30.1 million in capital equipment and facilities, particularly for new development and demonstration equipment and to keep our facilities up to standard. Investments in capital equipment and facilities in 2002 were € 33.2 million. We expect capital expenditure in 2004 to be approximately at a level of € 40.0—€ 50.0 million, including investments in new manufacturing facilities for our front-end segment in Asia. Our capital expenditure commitments at December 31, 2002 were €3.3 million, and at December 31, 2003 were € 4.6 million.

In April 2003, we made an additional equity investment of € 1.2 million in NuTool and in November 2003 we provided NuTool with an interest bearing note receivable of € 2.4 million. We provided this note receivable to fund the operations and general corporate expenses of NuTool during the term of the negotiations of a proposed acquisition of NuTool as further discussed below in the section subsequent event and in Note X to the Consolidated Financial Statements. The note is repayable upon the consummation or termination of the proposed transaction.

Net cash provided by financing activities was € 70.0 million in 2003. During that period, we repaid € 1.3 million in short term bank facilities, € 3.6 million of long-term debt and received proceeds of € 91.2 million in new long-term and subordinated debt and received € 4.1 million from the issuance of common shares. In 2003, we paid € 20.4 million in dividends to minority shareholders of our subsidiary ASMPT. In 2002 net cash used in financing activities was € 13.5 million. During that period, we repaid € 3.1 million of long-term debt and received proceeds of € 0.6 million in new long-term loans and

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received € 2.1 million from the issuance of common shares. In 2002, we paid € 24.5 million dividends to minority shareholders of our subsidiary ASMPT.

We finance the operation of our front-end segment from operating cash flows, from dividends received from ASMPT, and from borrowings. We support borrowings of our front-end subsidiaries with guarantees.

Our back-end segment, which is conducted through ASMPT, our 53.87%-owned subsidiary, are entirely self-financed by ASMPT. However, the earnings, cash resources and borrowing capacity of ASMPT are not available to our front-end segment due to restrictions imposed by the Hong Kong Stock Exchange, on which the ASMPT common shares are listed.

We rely on dividends from ASMPT for a portion of our cash flow for use in our front-end operations. Cash dividends received from ASMPT during 2001, 2002 and 2003 were € 35.7 million, € 29.5 million and € 24.1 million.

Although several of the directors of ASMPT are affiliates of ASM International, they are under no obligation to declare dividends to shareholders or enter into transactions that are beneficial to us. As a majority shareholder, we can approve the payment of dividends, but cannot compel their payment or size.

The market value of our investment in ASMPT at the end of 2003 was approximately € 717.2 million, which is higher than the market value at the end of 2002, which was approximately € 390.7 million.

Contractual Obligations, Contingent Liabilities and Commitments

The following table summarizes our contractual obligations as at December 31, 2003 aggregated by type of contractual obligation:

	December 31, 2003
Contractual obligations (in millions of euro)	Total	Less than 1 year	1-3 years	3-5 years	More than 5 years
Notes payable to banks	23.7	23.7	—	—	—
Long-term debt	21.6	4.8	9.5	6.9	0.4
Convertible subordinated debt	162.3	—	91.0	—	71.3
Operating leases	29.6	6.7	9.3	4.7	8.9
Purchase obligations:
Purchase commitments to suppliers	84.9	84.9	—	—	—
Capital expenditure commitments	4.6	4.6	—	—	—
Total contractual obligations	326.7	124.7	109.8	11.6	80.6

Capital lease obligations of € 0.7 million are included in long-term debt. Long-term deferred tax liabilities of € 1.7 million are not included in the above table.

For a discussion of our contractual obligations for notes payable to banks, long-term debt, convertible subordinated debt and commitments and contingencies reference is made to Note H, I, J, M and N to the Consolidated Financial Statements.

We outsource a substantial portion of the manufacturing of our front-end operations to certain suppliers. As our products are technologically complex, the leadtimes for purchases from our suppliers can vary and can be as long as nine months. Generally contractual commitments are made for multiple

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modules or systems in order to reduce our purchase prices per module or system. For the majority of our purchase commitments we do have flexible delivery schedules depending on the market conditions, which allow us, to a certain extent, to delay delivery beyond originally planned delivery schedules.

At December 31, 2003 we had contingent payables of € 12.2 million related to research and development grants received. The grants received are repayable only to the extent we recognize sales of products to which the grants relate.

We believe that our current liquidity and available undrawn bank lines are sufficient to fulfill our existing contractual obligations for the next 12 months.

New Accounting Pronouncements

In April 2003, the FASB issued SFAS No. 149 “Amendment of Statement 133 on Derivative Instruments and Hedging Activities.” This Statement amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities.” The changes in this Statement require that contracts with comparable characteristics be accounted for similarly. This Statement is effective for contracts entered into or modified after June 30, 2003, and for hedging relationships designated after June 30, 2003. The adoption of SFAS No. 149 did not have a material impact on our financial position or results of operations.

In May 2003, the FASB issued SFAS No. 150 “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” This Statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classifies a financial instrument as a liability (or an asset in some circumstances) if certain conditions are met. This Statement is effective for financial instruments entered into or modified after May 31, 2003. The adoption of SFAS No. 150 did not have a material impact on our financial position or results of operations and the financial instruments in existence prior to May 31, 2003 were not materially affected by SFAS No. 150 as of the adoption date

In November 2002, the FASB issued FASB Interpretation No. 45 (“FIN 45”), “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” The disclosure provisions of FIN 45 are effective for financial statements of interim or annual periods that end after December 15, 2002. The provisions for initial recognition and measurement are effective on a prospective basis for guarantees that are issued or modified after December 31, 2002, irrespective of a guarantor’s year-end. The adoption of FIN 45 did not have a material impact on our financial position or results of operations.

In January 2003, the FASB released FASB Interpretation No. 46 (“FIN 46”), “Consolidation of Variable Interest Entities.” FIN 46 requires that all primary beneficiaries of variable interest entities consolidate that entity. FIN 46 is effective immediately for variable interest entities created after January 31, 2003 and to variable interest entities in which an enterprise obtains an interest after that date. It applies in the first fiscal year or interim period beginning after June 15, 2003 to variable interest entities in which an enterprise holds a variable interest it acquired before February 1, 2003. In December 2003, the FASB published a revision to FIN 46 (“FIN 46R”) to clarify some of the provisions of the interpretation and to defer the effective date of implementation for certain entities. Under the guidance of FIN 46R, entities that do not have interests in structures that are commonly referred to as special purpose entities are required to apply the provisions of the interpretation in financial statements for periods ending after March 14, 2004. We did not create a variable interest entity after January 31, 2003 and do not have a variable interest entity as of December 31, 2003. We expect that the full adoption of FIN 46R in 2004 will not have a material impact on our financial position or results of operations.

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Subsequent Event

On February 29, 2004 we entered into an agreement to acquire NuTool, a privately-held semiconductor equipment company based in Milpitas, California. We currently own preferred stock representing 15.7% of the fully-diluted common stock of NuTool. We will acquire the remaining 84.3% of NuTool in exchange for shares of our common stock. The number of shares to be issued will be determined based on the market value of our common stock as of the closing date of the transaction. Based on the market value of our common stock as of February 27, 2004, the number of ASMI common shares to be issued at closing would be less than 4% of our total shares outstanding, and up to an additional 2% would be issued over the next three years based on NuTool’s achievement of various performance targets. The transaction is subject to NuTool stockholder approval and is expected to close in May 2004.

NuTool has developed a patented Electrochemical Mechanical Deposition (ECMD^™) process, which is a unique planar copper deposition and copper removal technology. As the market for NuTool’s products is still early in its development, NuTool has limited revenues and is expected to require capital resources to fund its research and development and manufacturing activities in 2004 and 2005. We believe we will have adequate resources to fund these requirements without affecting our ability to execute our front-end strategic plan.

Item 6. Directors, Senior Management and Employees

A. Directors and senior management.

The names of our directors and senior management and those of our significant subsidiaries and the years of their birth are as follows:

Name	Year of Birth	Position
Paul C. van den Hoek**	1939	Chairman of the Supervisory Board (Expiring 2005)
Eric A. van Amerongen*,**	1953	Supervisory Director (Expiring 2006)
Adri Baan*	1942	Supervisory Director (Expiring 2005)
Johan M.R. Danneels**	1949	Supervisory Director (Expiring 2004)
Jacobus den Hoed RA*	1937	Supervisory Director (Expiring 2007)
Arthur H. del Prado	1931	Chairman of the Management Board, President and Chief Executive Officer
Patrick Lam See Pong	1948	Member of the Management Board, Vice President back-end Operations and Managing Director ASM Pacific Technology Ltd.
Robert L. de Bakker	1950	Member of the Management Board and Chief Financial Officer
Haijo D.J. Pietersma	1953	Member of the Management Board and Deputy to the Chief Executive Officer
Han F.M. Westendorp	1956	Chief Operating Officer front-end Operations
Rob W.J. Hollering	1955	Regional Manager front-end Operations Europe and General Manager ASM Europe B.V.
Chuck D. del Prado	1961	Regional Manager front-end Operations U.S.A., General Manager ASM America, Inc.
Fukumi Tomino	1949	Regional Manager front-end Operations Asia and Managing Director ASM Japan K.K.
Ivo J.M.M. Raaijmakers	1957	Chief Technology Officer of front-end Operations and Director of Research and Development

* Member of Audit Committee

** Member of the Nomination, Selection and Remuneration Committee

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Paul. C. van den Hoek became a Supervisory Director in March 1981 and is currently Chairman of the Supervisory Board. Mr. van den Hoek is a partner in the European law firm of Stibbe, which is our general legal counsel and has been with Stibbe since 1965. Mr. van den Hoek also serves on the board of directors of various European companies. At December 31, 2003, Mr. van den Hoek owned 300,000 of our common shares.

Eric A. van Amerongen was elected to the Supervisory Board in May 2002. Mr. van Amerongen serves as Chief Executive Officer of Koninklijke Swets & Zeitlinger. Before accepting this position, he had been active over 10 years in the position of Group Director of Thomson-CSF (France), Chief Executive Officer of Hollandse Signaal Apparaten B.V. and President and Chief Executive Officer Europe, Middle East and Africa for Lucent Technologies. Mr. van Amerongen also serves on the board of directors of various European companies.

Adri Baan was elected to the Supervisory Board in May 2001. Mr. Baan, who holds a master’s degree in physics from the University of Amsterdam, served as the Chief Executive Officer of the Business Electronics Division of Philips, N. V. from 1993 until March 2001, and served as a member of Philips Group Management Committee from 1996 and Board of Management from 1998 until March 2001. Mr. Baan further serves on the board of directors of various European Companies and is a director of Hesse-Noord Natie “Antwerpen” (Belgium).

Johan M.R. Danneels was elected to the Supervisory Board in May 2000. Mr. Danneels spent most of his career with Alcatel, and served most recently as Director of Industrial Coordination and Chief Executive Officer of Alcatel Microelectronics. Mr. Danneels serves as Groups Vice President of STMicroelectronics Belgium N.V.

Jacobus den Hoed RA became a Supervisory Director in June 1999. Mr. den Hoed is a certified accountant. He joined AKZO Nobel N.V., a global chemical company in 1969, and served in various financial management positions, most recently as Vice President and Chief Financial Officer from 1996 to 1998 when he retired. Mr. den Hoed serves on the board of directors of various European companies.

Arthur H. del Prado, our founder, has served as a Managing Director, President and Chief Executive Officer since our formation in 1968. Mr. del Prado is also a founder of ASM Lithography N.V. through a joint venture with Philips Electronics N.V. He serves as a director of MEDEA+, and previously served for many years as a director of its predecessor, JESSI. Mr. del Prado also serves on the board of directors of various European companies and on the board of the Netherlands-Japanese Trade Federation. Mr. del Prado is Chuck D. del Prado’s father.

Patrick Lam See-Pong became Vice President of our Asian Operations in March 1981 and a Managing Director in June 1995. Mr. Lam has been employed in various capacities with us since 1975. He holds a B.Sc. degree in electrical engineering from the University of Manitoba in Canada and an MBA from the Chinese University of Hong Kong.

Robert L. de Bakker became Chief Financial Officer in January 2001 and a Managing Director in May 2001. Prior to his joining ASM International, Mr. de Bakker was Chief Financial Officer of NKF Holding N.V., a Netherlands multinational public company, where he continued his activities after its merger at the end of 1999 with Draka Holding N.V., another Dutch multinational public company in the same sector of activity, industrial cables. Mr. de Bakker holds an MBA degree from the Amos Tuck School of Business Administration, Dartmouth College, New Hampshire, United States, as well as a degree in Business Administration from Erasmus University, Rotterdam, the Netherlands.

Haijo D.J. Pietersma joined us as the Deputy to the Chief Executive Officer in September 2002 and became a Managing Director in May 2003. Mr. Pietersma has spent most of his career at Ericsson Group in various management functions in the Netherlands and in Sweden. From 1994 to 1998 he was Chief Executive Officer of Ericsson, the Netherlands. From 1998 to 2001 he was Executive Vice

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President and member of the Management Board, responsible for the global activities of the Ericsson divisions “Business Communication Systems” and “Mobile Internet Systems & Applications.”

Rob W.J. Hollering joined us as General Manager of ASM Europe in August 2003. Before joining us, Mr. Hollering held a variety of management positions in different product divisions at Philips Electronics and ASM-Lithography. Mr. Hollering holds a Ph.D. in physics and mathematics from the University of Nijmegen, The Netherlands and an M.B.A. degree from the University of Rochester, New York, United States.

Chuck D. del Prado has been appointed as General Manager ASM America as of February 1, 2003. He joined us as Director Marketing, Sales & Service of ASM Europe in March 2001. Mr. del Prado worked with IBM Nederland N.V. at the marketing and sales department from 1989 to 1996. He worked in various management capacities at ASM Lithography from February 1996 to 2001 having roles in production, sales, manufacturing and logistics. Mr. Del Prado holds a Master of Science degree from the University of Twente in the Netherlands. Mr. Chuck D. del Prado is the son of Arthur H. del Prado.

Fukumi Tomino became Vice President Japanese Operations and Managing Director of ASM Japan in 1994 after having held roles in sales, marketing, engineering and process development since the founding of ASM Japan in 1982. He holds a Bachelor’s Degree in electro-communication from the University of Electro-Communication (Tokyo).

Han F.M. Westendorp became Chief Operating Officer of our front-end Operations in February 2003 after joining us as General Manager of ASM Europe in July 1999. Mr. Westendorp worked in various management capacities at Tokyo Electron Massachusetts from 1991 to mid-1999, most recently as Vice President of Metal CVD and Administration General Manager. Before joining Tokyo Electron, he worked with us on the development of our ion implantation technology. Mr. Westendorp holds a Ph.D. in Physics and Mathematics from the University of Utrecht in the Netherlands.

Ivo J.M.M. Raaijmakers became Chief Technology Officer of front-end Operations and Director of Research and Development in July 1999. He served as Vice President of Development for ASM America from July 1996 to July 1999. Since 1982 he has held various positions of increasing responsibility in technology development and management at Philips Research Labs, Novellus and Applied Materials since 1982, most recently with Applied Materials from 1993 to 1996. Mr. Raaijmakers holds a PhD and Master’s Degree in Physics from Eindhoven University of Technology in the Netherlands.

Under Netherlands law, supervisory directors have the duty to supervise and advise the managing directors. The supervisory directors are appointed by our shareholders generally for terms of four years. The supervisory directors can be re-elected twice, but are subject to mandatory retirement under our Articles of Association.

The managing directors are entrusted with our management under the supervision of the supervisory board and have the general authority to enter into binding agreements with third parties. Managing directors are nominated by the supervisory directors and elected by the common shareholders at the general meeting of shareholders. The shareholders may reject a binding nomination at the general meeting of shareholders by a supermajority vote of two-thirds of the total issued and outstanding shares eligible to vote. The shareholders may at any time suspend and dismiss managing directors by a super majority vote of two-thirds of the total issued and outstanding shares eligible to vote. A managing director can be suspended at any time by the supervisory board. There is no statutory term of office for managing directors. Compensation of managing directors is determined by the supervisory board. Currently, our managing directors are Arthur H. del Prado, Patrick Lam See-Pong, Robert L. de Bakker and Haijo D.J. Pietersma.

Our other officers serve at the discretion and under the direction of the managing directors.

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B. Compensation.

The following table sets forth as to all executive officers and directors information concerning all remuneration from us (including our subsidiaries) for services in all capacities during the fiscal year ended December 31, 2003:

Annual Compensation For The Year Ended December 31, 2003⁽¹⁾

Name and Principal Position	Annual Compensation			Long-Term Compensation	All Other Compensation
	Base Compensation	Bonus	Other	Securities Under Options/ SARS Granted
Paul C. van den Hoek	54	—	—	—	—
Eric A. van Amerongen	14	—	—	—	—
Adri Baan	14	—	—	—	—
Johan M.P. Danneels	14	—	—	—	—
Jacobus den Hoed RA	14	—	—	—	—
Arthur H. del Prado	302	—	—	—	—
Patrick Lam See-Pong	397	475	76	657	—
Robert L. de Bakker	186	—	19	—	—
Haijo D.J. Pietersma	413	—	25	—	—
All other officers and directors as a group (5 persons)(2)	802	—	40	—	30

⁽¹⁾ In thousands of euros unless indicated otherwise.

⁽²⁾ Sets forth as to all executive officers and directors, for which individual disclosure in the Netherlands, our home country, is not required, as a group, information concerning all remuneration from us (including our subsidiaries) for services in all capacities during the fiscal year ended December 31, 2003.

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We generally contribute to investment funds managed by outside fund managers on behalf of all of our employees. None of the funds so contributed are separately earmarked for directors or senior management.

We have granted stock options to certain key employees. For information regarding such options see Note L to the Consolidated Financial Statements. Options to purchase an aggregate of 642,500 common shares are held by our executive officers and directors at December 31, 2003. As of March 12, 2004, options to acquire 647,500 common shares were held by executive officers and directors at exercise prices ranging from US$ 4.06 – US$ 19.32 and € 7.20—€ 14.35, with expiration dates from December 18, 2004 to December 20, 2010.

C. Board practices.

The supervisory directors are elected by the shareholders of common stock at the annual general meeting of the shareholders and serve for a term of four years. The supervisory directors may be re-elected twice, but under our Articles of Association the supervisory director must resign at the end of the term in which he or she attains the age of 72.

A managing director is nominated by the supervisory directors and elected by the shareholders of common stock at the general meeting of shareholders. The shareholders may reject a binding nomination at the general meeting of shareholders by a supermajority vote of two-thirds of the total issued and outstanding shares eligible to vote. The shareholders may at any time suspend and dismiss managing directors by a super majority vote of two-thirds of the total issued and outstanding shares eligible to vote.

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A managing director can be suspended at any time by the supervisory board. There is no statutory term of office for managing directors.

We have not entered into any service contracts providing for benefits upon termination of employment with our directors.

We have an audit committee composed of Mr. den Hoed (Chairman), Mr. Baan and Mr. van Amerongen. The audit committee meets periodically to recommend a firm to be appointed as independent auditors to audit the financial statements and to perform services related to the audit, review the scope and results of the audit with the independent auditors, review with management and the independent auditors our annual operating results and consider the adequacy of the internal accounting procedures and the effect of the procedures relating to the auditor’s independence.

We have a nomination, selection and remuneration committee. This committee advises the Supervisory Board on matters relating to the selection and nomination of the members of the Management Board. The committee monitors and evaluates the remuneration policy for the Management Board and some other of our senior executives. This committee consists of Mr. Danneels (Chairman) and Mr. van den Hoek.

D. Employees.

As of December 31, 2003, we had 7,433 employees, including 828 employees primarily involved in research and development activities, 287 in marketing and sales, 683 in customer service, 390 in finance and administration, and 5,245 in manufacturing.

The following table lists the total number of our employees and the number of our employees in our front-end and back-end business at the dates indicated:

Geographic Location	December 31, 2001			December 31, 2002			December 31, 2003
	front-end	back-end	Total	front-end	back-end	Total	front-end	back-end	Total
Europe
The Netherlands	377	10	387	341	11	352	330	11	341
Other European countries	124	—	124	128	—	128	121	9	130
United States of America	327	10	337	429	10	439	394	9	403
Japan	226	17	243	245	19	264	254	19	273
Southeast Asia	71	4,785	4,856	83	5,280	5,363	80	6,206	6,286
Other		8	8	—	8	8	—	—	—
Total	1,125	4,830	5,955	1,226	5,328	6,554	1,179	6,254	7,433

Our Netherlands operation, which employs approximately 341 persons, is subject to standardized industry bargaining under Netherlands law, and is required to pay wages and meet conditions established as a result of negotiations between all Netherlands employers in their industry and unions representing employees of those employers. Additionally, management personnel in the Netherlands facilities meet as required by Netherlands law with a works council consisting of elected representatives of the employees to discuss working conditions and personnel policies as well as to explain major corporate decisions and to solicit their advice on major issues.

Many of our employees are highly skilled, and our continued success will depend in part upon our ability to continue to attract and retain these employees, who are in great demand. Because of the current market conditions in the semiconductor industry, we have enacted a worldwide hiring freeze and reduced our work force. We believe that our employee relations are good.

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E. Share ownership.

The following table presents information regarding the share ownership and option ownership of our share capital stock as of March 12, 2004 by our directors and senior management:

Name	Shares Owned		Options for Shares	Percentage of Outstanding(1)
Paul C. van den Hoek	*		—	*
Eric A. van Amerongen	—		—	—
Adri Baan
Johan M.R. Danneels	—		—	—
Jacobus den Hoed RA	—		—	—
Arthur H. del Prado	11,454,292	(2)	275,000	22.86	%
Patrick Lam See-Pong	*		*	*
Robert L. de Bakker	*		*	*
Haijo D. J. Pietersma	—		*	—
Rob W.J. Hollering	—		*	—
Chuck del Prado	*		*	*
Fukumi Tomino	*		*	*
Han F.M. Westendorp	—		*	—
Ivo J.M.M. Raaijmakers	*		*	*

* Less than 1%.

⁽¹⁾ Calculated on the basis of each individual’s actual shares held.

⁽²⁾ Includes 7,692,039 common shares owned by Stichting Administratiekantoor ASM International, a trust controlled by Mr. Arthur del Prado.

Item 7. Major Shareholders and Related Party Transactions

A. Major shareholders.

The following table sets forth information with respect to the ownership of our common shares as of March 12, 2004 certain information with respect to the ownership of our outstanding common shares by each beneficial owner of more than 5% of our common shares and by all of our officers and directors as a group:

	Number of Shares	Percent(1)
Stichting Administratiekantoor ASM International(2)	7,692,039	15.35	%
Capital Group International, Inc. and Capital Guardian Trust Company(3)	2,604,350	5.20	%
Capital Research and Management Co. and SMALLCAP World Fund, Inc.(3)(4)	3,325,600	6.64	%
All officers and directors as a group (13 persons)(5)	12,214,204	24.38	%

⁽¹⁾ Calculated from our 50,107,963 Common Shares outstanding as of March 12, 2004.

⁽²⁾ Trust controlled by our President, Arthur H. del Prado.

⁽³⁾ Derived from Schedule 13G filings as of February 13, 2004.

⁽⁴⁾ On February 24, 2004, SMALLCAP World Fund, Inc. filed a notice with the Netherlands Authority for the Financial Markets (Authority - FM) indicating that it holds 4.94% of our issued and outstanding shares, however, it did not include the number of issued and outstanding shares upon which the percentage was calculated.

⁽⁵⁾ Includes the 7,692,039 common shares shown in the table above that are owned by Stichting Administratiekantoor ASM International, a trust controlled by our President, Arthur H. del Prado, and 3,762,253 common shares owned by Mr. del Prado or members of his immediate family.

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On May 28, 1997, we entered into an agreement with Stichting Continuïteit ASM International, or Stichting, pursuant to which Stichting was granted an option to acquire up to that number of our preferred shares that has a total par value equal to 50% of the par value of our common shares issued and outstanding at the date of the exercise. Stichting is a non-membership organization organized under Netherlands law. The objective of Stichting is to own and vote our preferred shares in order to maintain our continuity in case of a takeover attempt. Toward that objective, Stichting will evaluate, when called for, whether a takeover offer is in our best interests. The Euronext Amsterdam Market in Amsterdam requires that a majority of the board members of Stichting be unrelated to us. As of December 31, 2003, the members of the board of Stichting are:

Arthur H. del Prado	President and Chief Executive Officer, ASM International N.V.
Paul C. van den Hoek	Chairman of the Supervisory Board, ASM International N.V.
Michiel J.C. van Galen	Former Managing Director, Breevast N.V.
Rinze Veenenga Kingma	President Archeus Consulting B.V.
Laurus Traas	Emeritus Professor, Vrije Universiteit Amsterdam

We are unaware of any arrangement which we anticipate will result in a change in control of ASM International. All shares of our common stock entitle the holder to the same voting rights.

Of our 50,107,963 outstanding common Shares at March 12, 2004, 9,064,039 are registered with us in the Netherlands, 13,572,856 shares are registered with a transfer agent in the Netherlands, ABN AMROBANK N.V., and 27,471,068 are registered with a transfer agent in the United States, Citibank, N.A., New York. Our common shares registered with Citibank, N.A., New York are quoted on the Nasdaq National Market under the symbol “ASMI.” As of March 12, 2004 there were approximately 206 record holders in the United States. The common shares registered with ABN AMRO Bank, Breda, the Netherlands, are in bearer form and are traded on the Euronext Amsterdam Market in Amsterdam under the symbol “ASM.”

B. Related party transactions.

In December 1999, we acquired 24.0% of the outstanding equity of NanoPhotonics AG, a German supplier of precision metrology equipment, for € 0.4 million, and our Chief Executive Officer also purchased a 44.5% interest in NanoPhotonics AG. We have a five-year option (expiring in December of 2004) to purchase the 44.5% interest from our Chief Executive Officer at the same price he paid for his interest in the initial transaction. Due to the issue of new shares by NanoPhotonics to third parties in 2003, we hold 23.61% interest in NanoPhotonics and our Chief Executive Officer holds an interest of 43.77% at December 31, 2003. At December 31, 2002 and December 31, 2003, we provided NanoPhotonics with additional financing of € 2.9 million and € 4.4 million, respectively. In 2002 and 2003, we purchased equipment from NanoPhotonics in the amount of € 0.2 million and € 0.2 million, respectively.

In March 2000, we made an interest-bearing loan to our Chief Executive Officer in connection with the exercise of stock options at an average interest rate for 2003 of 4.1%. The outstanding amount of the loan is € 2.1 million at December 31, 2003. The loan is secured by the shares received in the stock option exercise. We have custody of the shares until the loan is repaid.

In October 2001, we entered into a strategic alliance with and made an equity investment of US$ 18.0 million in NuTool, Inc., a privately held semiconductor technology company located in Milpitas,

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California. In April 2003, we made an additional investment of US$ 1.4 million in NuTool. Our total equity interest in NuTool as of December 31, 2003 is approximately 15.7%. The purchase price of the investment in 2001 and 2003 was determined by reference to prices paid by other recent strategic investors. In November 2003 we provided a 4.12% interest bearing note receivable of US$ 3.0 million to NuTool. We provided the note receivable to fund the operations and general corporate expenses of NuTool during the term of the negotiations of a proposed acquisition of NuTool as further discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Subsequent Event” and Note X to our audited consolidated financial statements found elsewhere in this report. NuTool provides innovative copper deposition technologies to the semiconductor industry. Its patented electrochemical mechanical deposition technology offers new process solutions for copper deposition and planarization, providing significant savings in integrated circuit manufacturing and enabling new integrated circuit designs and new process technologies. The strategic alliance with NuTool provides us with additional competitive solutions to address the industry’s transition to copper metallization. We have a seat on the board of NuTool, Inc. In 2002, we sold equipment to NuTool in the amount of € 0.7 million. In 2003 there were no other transactions.

The Chairman of the Supervisory Board, Mr. van den Hoek, is a partner in the European law firm of Stibbe. Another partner at Stibbe serves as our general legal counsel. Mr. van den Hoek has been with Stibbe since 1965. Mr. van den Hoek also serves on the board of directors of various European companies. The fees we paid to Stibbe for legal services amounted to € 0.1 million and € 0.3 million in 2002 and 2003, respectively.

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Item 8. Financial Information

Financial Highlights and Selected Comparative Financial Data

In euros and US dollars(1)	Year Ended December 31,
(millions, except per share data and full-time equivalents)	1999		2000		2001		2002		2003		2003
	€		€		€		€		€		US$
Operations:
Net sales:	414.5		935.2		561.1		518.8		581.9		733.0
Front-end	181.7		379.3		336.6		266.9		286.5		360.9
Back-end	232.8		555.9		224.5		251.9		295.4		372.1
Earnings (loss) from operations:	39.4		191.8		24.3		(6.0	)	14.2		17.9
Front-end	(0.8	)	34.5		(3.7	)	(42.7	)	(45.3	)	(57.0	)
Back-end	40.2		157.3		28.0		36.7		59.5		74.9
Net earnings (loss) before cumulative effect of change in accounting principle	11.1		98.1		6.1		(29.9	)	(29.3	)	(36.9	)
Cumulative effect of change in accounting principle, net of tax(2)	—		(3.8	)	—		—		—		—
Net earnings (loss)	11.1		94.3		6.1		(29.9	)	(29.3	)	(36.9	)
Balance sheet:
Net working capital(3)	116.9		212.3		214.6		199.8		154.4		194.5
Total assets	425.0		777.9		757.1		653.8		672.3		846.9
Net debt(4)	105.7		(30.5	)	53.3		76.1		52.8		66.5
Backlog:	183.7		345.6		132.6		142.9		199.0		250.7
Front-end	72.5		211.6		107.2		109.9		104.7		131.9
Back-end	111.2		134.0		25.4		33.0		94.3		118.8
Number of staff:
Full-time equivalents:	5,426		7,091		5,955		6,554		7,433		7,433
Front-end	798		1,064		1,125		1,226		1,179		1,179
Back-end	4,628		6,027		4,830		5,328		6,254		6,254
Per share data:
Net earnings (loss) per share from operations:
Basic	1.06		4.10		0.50		(0.12	)	0.29		0.36
Diluted	0.98		3.95		0.49		(0.12	)	0.29		0.36
Net earnings (loss) per share before cumulative effect of change in accounting principle(2) :
Basic	0.30		2.09		0.12		(0.61	)	(0.59	)	(0.74	)
Diluted	0.29		2.02		0.12		(0.61	)	(0.59	)	(0.74	)
Net earnings (loss) per share after cumulative effect of change in accounting principle(2):
Basic	0.30		2.01		0.12		(0.61	)	(0.59	)	(0.74	)
Diluted	0.29		1.94		0.12		(0.61	)	(0.59	)	(0.74	)
Weighted average number of shares used in computing per share amounts (in thousands):
Basic	37,301		46,810		48,944		49,170		49,642		49,642
Diluted	40,664		48,703		49,958		49,170		49,642		49,642
Pro forma amounts assuming the new accounting principle is applied retroactively:(2)
Net earnings (loss)	8.9		98.1		6.1		(29.9	)	(29.3	)	(36.9	)
Net earnings (loss) per share:
Basic	0.24		2.09		0.12		(0.61	)	(0.59	)	(0.74	)
Diluted	0.23		2.02		0.12		(0.61	)	(0.59	)	(0.74	)

⁽¹⁾ For the convenience of the reader, Financial Highlights and Selected Comparative Financial Data for 2003 have been converted into US dollars at the exchange rate of 1.2597 United States dollar per euro, which was the noon buying rate in New York City for cable transfers payable in euros at December 31, 2003.

⁽²⁾ The cumulative effect of change in accounting principle relates to the effect on prior years of the impact of the adoption of Staff Accounting Bulletin 101. This Bulletin, effective as of January 1, 2000, sets forth guidelines on the timing of revenue recognition of sales.

⁽³⁾ Net working capital includes accounts receivable, inventories, other current assets, accounts payable, accrued expenses, advance payments from customers and deferred revenue.

⁽⁴⁾ Net debt includes long-term debt, convertible subordinated debt and notes payable to banks, less cash and cash equivalents.

INDEPENDENT AUDITORS’ REPORT

To the Board of Directors and Shareholders of

ASM International N.V.

Bilthoven, the Netherlands

We have audited the consolidated financial statements of ASM International N.V. and subsidiaries (collectively, the “Company”) as of December 31, 2003 and 2002, and for each of the three years in the period ended December 31, 2003, and have issued our report thereon dated February 24, 2004, except for Note X, as to which the date is February 29, 2004 (which report expresses an unqualified opinion and includes an explanatory paragraph concerning the adoption of a new accounting principle in 2002). Our audits also included the consolidated financial statement schedules of the Company listed in Item 8 to Form 20-F. These consolidated financial statement schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion based on our audits. In our opinion, such consolidated financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein.

Deloitte Accountants

Amsterdam, The Netherlands

February 24, 2004

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SCHEDULE I

CONDENSED FINANCIAL STATEMENTS

ASM INTERNATIONAL N.V., HOLDING COMPANY

(Thousands of euro)

Condensed Balance Sheets of ASM International N.V.

	December 31,
	2001	2002		2003
Assets:
Total current assets	186,974	117,911		167,583
Investments	261,303	164,137		100,382
Loans due from investments	17,668	91,101		100,171
Total noncurrent assets	11,745	16,658		16,626
	477,690	389,807		384,762
Liabilities & Shareholders’ Equity
Total current liabilities	24,675	13,919		7,511
Total noncurrent liabilities	132,105	110,346		162,319
Total liabilities	156,780	124,265		169,830
Shareholders’ equity	320,910	265,542		214,932
	477,690	389,807		384,762
Condensed Statements of Earnings ASM International N.V.
	Year ended December 31,
	2001	2002		2003
Earnings (losses) subsidiaries	5,923	(26,381	)	(18,561	)
Earnings (losses) ASM International	175	(3,481	)	(10,759	)
Net earnings (loss)	6,098	(29,862	)	(29,320	)
Condensed Cash Flow Statements ASM International N.V.
	Year ended December 31,
	2001	2002		2003
Net cash provided by (used in) operating, financing or investing activities	47,593	(85,347	)	65,561
Cash and cash equivalents at the beginning of the year	45,862	93,455		8,108
Cash and cash equivalents at the end of the year	93,455	8,108		73,669

Notes to Condensed Financial Statements of ASM International N.V.:

Restrictions which limit the availability of retained earnings, net income for dividend purposes and other funds transfers from subsidiaries to ASM International N.V.:

ASM Pacific Technology

Subject to the availability of adequate funds, all the retained earnings of ASM Pacific Technology group can be distributed to its shareholders, including ASM International, on a basis proportional to shareholdings of each shareholder. Such retained earnings at December 31, 2003 according to Hong Kong GAAP amounts to approximately HK$ 1,136.7 million (€ 115.9 million). Other than the above, ASM Pacific Technology group is prohibited from making loans or advances, other than trade receivables in the normal course of business, to ASM International under the Hong Kong Stock Exchange Listing Rules.

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SCHEDULE II

VALUATION RESERVES

(Thousands of euro)

Class of valuation reserve	Balance at beginning of period	Charged or released to cost and expenses		Deductions		Currency translation effect		Balance at the end of period
Allowance for doubtful accounts:
Year ended 12/31/03	5,464	1,651		(820	)	(708	)	5,587
Year ended 12/31/02	6,952	133		(803	)	(818	)	5,464
Year ended 12/31/01	8,734	(2,055	)	(45	)	318		6,952

Item 9. The Offer and Listing

A. Offer and listing details.

The following table sets forth, for the periods indicated, the high and low closing prices of our common shares as reported on the Nasdaq National Market and the high and low closing price as reported on Euronext Amsterdam Market:

Price Range of Common Shares

	Nasdaq Closing Prices				Euronext Closing Prices
	High		Low		High		Low
Annual Information
1999	$	23.94	$	3.63	€	23.00	€	3.55
2000		35.63		9.31		38.00		10.75
2001		26.84		10.40		31.45		10.10
2002		28.34		6.50		31.90		7.00
2003		20.40		9.71		17.05		8.78
Quarterly Information
2002:
First Quarter	$	26.11	$	17.77	€	29.70	€	20.39
Second Quarter		28.34		14.02		31.90		14.69
Third Quarter		18.30		8.30		18.60		8.16
Fourth Quarter		14.99		6.50		15.20		7.00
2003:
First Quarter	$	14.31	$	9.71	€	13.80	€	8.78
Second Quarter		17.00		10.27		14.75		9.22
Third Quarter		18.90		14.50		17.05		12.45
Fourth Quarter		20.40		14.97		16.55		12.65
Monthly Information
September 2003	$	18.90	$	14.50	€	16.80	€	12.52
October 2003		17.90		14.97		15.29		12.62
November 2003		19.14		17.87		16.55		15.12
December 2003		20.40		17.90		16.39		14.96
January 2004		27.61		20.53		22.10		16.62
February 2004		25.56		23.05		20.40		18.27

B. Plan of distribution.

Not applicable.

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C. Markets.

Our common shares are quoted on The Nasdaq National market under the symbol “ASMI” and listed on the Euronext Amsterdam stock exchange under the symbol “ASM.”

D. Selling shareholders.

Not applicable.

E. Dilution.

Not applicable.

F. Expenses of the issue.

Not applicable.

Item 10. Additional Information

A. Share capital.

Not applicable.

B. Memorandum and articles of association.

Incorporated by reference to our Registration Statement on Form F-3 filed with the United States Securities and Exchange Commission on July 3, 2002 and filed as Exhibit 3.1 to our Form 6-K on November 6, 2001.

C. Material contracts.

No applicable.

D. Exchange controls.

There are no foreign exchange controls or other governmental laws, decrees or regulations in the Netherlands restricting the import or export of capital or affecting the remittance of dividends, interest or other payments to non-resident shareholders. Neither the laws of the Netherlands nor the Articles of Association of ASM International restrict remittances to non-resident shareholders or the right to hold or vote such securities.

E. Taxation.

Summary of Dutch Tax Provisions Applicable to Nonresident Shareholders with a particular focus on U.S. Shareholders

The statements below briefly summarize the current Dutch tax laws, based on the laws as in force at January 1, 2004. The description is limited to the tax implications for shareholders who neither are nor are deemed to be a resident of the Netherlands for purposes of the relevant tax codes. The description does not address special rules that may apply to holders of special classes of shares and should not be interpreted as extending by implication to matters not specifically referred to in this document. As to individual tax consequences, shareholders are advised to consult their own tax advisors.

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Withholding Tax

Dividends distributed by us generally are subject to a withholding tax imposed by the Netherlands at a rate of 25%. The expression “dividends distributed” includes, among other things:

• distributions in cash or in kind, deemed and constructive distributions and repayments of paid-in capital which is not recognized as such for Dutch dividend withholding tax purposes;

• liquidation proceeds, proceeds of redemption of ordinary shares or consideration for the repurchase of ordinary shares by us, or one of our subsidiaries, to the extent that such consideration exceeds the average paid-in capital which is recognized as such for Dutch dividend withholding tax purposes;

• the par value of ordinary shares issued to a holder of ordinary shares or an increase in the par value of ordinary shares, as the case may be, to the extent that it does not appear that a contribution, which is recognized as such for Dutch dividend withholding tax purposes, has been made or will be made; and

• partial repayments of paid-in capital, which is recognized as such for Dutch dividend withholding tax purposes, if and insofar as there are net profits (zuivere winst) unless the general meeting of our shareholders has resolved in advance to make such repayment and provided that the par value of the ordinary shares concerned has been reduced by an equal amount by way of an amendment to the articles of association.

If a holder of ordinary shares resides in a country other than the Netherlands and if a double taxation convention is in effect between the Netherlands and such other country, such holder of ordinary shares may, depending on the terms of that double taxation convention, be eligible for a full or partial exemption from, reduction or refund of Dutch dividend withholding tax. The Netherlands has concluded such a convention with the United States, among other countries.

Under the Convention between the United States of America and the Kingdom of the Netherlands for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income (the “US Tax Treaty”) currently in effect, dividends we pay to a holder of our common shares who is not, or is not deemed to be, a resident of the Netherlands for Dutch tax purposes but who is a resident of the United States as defined in the US Tax Treaty are generally eligible for a reduction of the 25% Dutch withholding tax to 15% or, in the case of certain US corporate shareholders owning at least 10% of ASM International voting power, to 5%, provided that such shareholder does not have an enterprise or an interest in an enterprise that is, in whole or in part, carried on through a permanent establishment or permanent representative in the Netherlands to which the dividends are attributable. The US Tax Treaty provides for complete exemption from tax on dividends received by exempt pension trusts and exempt organizations, as defined therein. Except in the case of exempt organizations, the reduced dividend withholding rate can be applied at the source upon payment of the dividends, provided that the proper forms have been filed prior to the payment. Exempt organizations remain subject to the statutory withholding rate of 25% and are required to file an application for a refund of such withholding.

A holder who is not, or is not deemed to be, a resident of the Netherlands may not claim the benefits of the US Tax Treaty unless:

• the holder is a resident of the United States as defined therein; and

• the holder’s entitlement to such benefits is not limited by the provisions of Article 26 (“limitation on benefits”) of the US Tax Treaty.

Under current Dutch law, we may be permitted under limited circumstances to deduct and retain from the withholding a portion of the amount that otherwise would be required to be remitted to the Dutch Tax Authorities. That portion generally may not exceed 3% of the total dividend distributed by us. If we

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retain a portion of the amount withheld from the dividends paid, the portion (which is not remitted to the tax authorities) might not be creditable against your domestic income tax or corporate income tax liability. We will endeavor to provide you with information concerning the extent to which we have applied the reduction described above to dividends paid to you and advise you to check the consequences thereof with your local tax advisor.

A refund, reduction, exemption or credit of Dutch dividend withholding tax on the basis of Dutch tax law or on the basis of a tax treaty between the Netherlands and another state, will be granted only if the dividends are paid to the beneficial owner of the dividends. A receiver of a dividend is not considered to be the beneficial owner of a dividend in an event of “dividend stripping” in which he has paid a consideration related to the receipt of such dividend. In general terms, “dividend stripping” can be described as the situation in which a foreign or domestic person (usually, but not necessarily, the original shareholder) has transferred his shares or his entitlement to the dividend distributions to a party that has a more favorable right to a refund or reduction of Dutch dividend withholding tax than the foreign or domestic person. In these situations, the foreign or domestic person (usually the original shareholder), by transferring his shares or his entitlement to the dividend distributions, avoids Dutch dividend withholding tax while retaining his “beneficial” interest in the shares and the dividend distributions.

Income Tax and Corporate Income Tax on Dividends

A nonresident individual or corporate shareholder will not be subject to Dutch income tax with respect to dividends distributed by us or with respect to capital gains derived from the sale, disposal or deemed disposal of our common shares, provided that:

• such holder is neither resident nor deemed to be resident in the Netherlands nor has made an election for the application of the rules of the Dutch 2001 Income Tax Act as they apply to residents of the Netherlands; and

• such holder does not have, and is not deemed to have, an enterprise or an interest in an enterprise which is, in whole or in part, carried on through a permanent establishment, a deemed permanent establishment, or a permanent representative in the Netherlands and to which enterprise or part of an enterprise the shares are attributable, nor does such holder carry out any other activities in the Netherlands that exceed regular asset management;

• such holder does not have a profit share in, or any other entitlement to the assets or income of an enterprise, other than by way of securities, which enterprise is effectively managed in the Netherlands and to which enterprise the shares are attributable;

• such holder does not carry out and has not carried out employment activities with which the holding of the shares is connected directly or indirectly; and

• such holder, individuals relating to such holder and some of their relations by blood or marriage in the direct line (including foster children) do not have a substantial interest or deemed substantial interest in an entity resident or deemed resident in the Netherlands, or, if such holder has a substantial interest or a deemed substantial interest, it forms part of the assets of an enterprise.

Generally, a nonresident holder will have a substantial interest if he, his partner, certain other relatives (including foster children) or certain persons sharing his household, alone or together, directly or indirectly:

• hold shares representing 5% or more of our total issued and outstanding capital (or the issued and outstanding capital of any class of our shares);

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• hold or have rights to acquire shares (including the right to convert notes or stock options into shares), whether or not already issued, that at any time (and from time to time) represent 5% or more of our total issued and outstanding capital (or the issued and outstanding capital of any class of our shares); or

• hold or own certain profit-participating rights that relate to 5% or more of our annual profit and/or to 5% or more of our liquidation proceeds.

The same criteria apply to a nonresident entity, save for the extension to partners, certain other relatives, and certain persons sharing the holder’s household.

Gift and Inheritance Tax

In principle, liability for Dutch gift tax or inheritance tax arises in respect of any gifts of common shares by or inheritance of common shares from any person who resides in the Netherlands at the time of the gift or death.

A gift or inheritance of common shares from a nonresident shareholder will not be subject to Dutch gift and inheritance tax, provided that:

• the nonresident shareholder does not have an enterprise or an interest in an enterprise that is, in whole or in part, carried on through a permanent establishment or a permanent representative in the Netherlands to which or to whom the common shares are attributable;

• the nonresident shareholder is not entitled to a share in the profits of an enterprise that is effectively managed in the Netherlands other than by way of securities or through an employment contract, the common shares being attributable to that enterprise; and

• the nonresident shareholder makes a gift of shares and dies within 180 days after the date of the gift, while being resident or deemed to be resident in the Netherlands at the time of his death.

For the purposes of Dutch gift and inheritance tax, a Dutch national is deemed to be a resident of the Netherlands if he resided in that country at any time during a period of ten years preceding the date of the gift or death, as the case may be. In addition, for the purposes of Dutch gift tax, a person not possessing Dutch nationality is also deemed to be a Dutch resident, irrespective of his nationality, if he was a Dutch resident at any time during a period of twelve months preceding the time at which the gift was made. The Netherlands has concluded a treaty with the United States, based on which double taxation on inheritances may be avoided if the inheritance is subject to Netherlands and/or US inheritance tax and the deceased was a resident of either the Netherlands or the United States.

Summary of US Federal Tax Provisions Applicable to United States Security Holders

The following is a general description of the material United States (“U.S.”) federal income tax consequences of the ownership and disposition of the common shares. This summary only applies to “U.S. Holders” (as defined below) that hold their shares as capital assets. This discussion does not purport to deal with all aspects of U.S. federal income taxation that may be relevant to holders of shares in view of their particular circumstances (for example, persons subject to the alternative minimum tax provisions of the Internal Revenue Code), and does not deal with holders subject to special rules, such as, but not limited to dealers in securities or foreign currencies, traders in securities that elect to use a mark-to-market method of accounting, certain financial institutions, tax exempt organizations, insurance companies, persons that actually or constructively own 10% or more of our voting stock, persons holding common shares as part of a straddle, hedging, conversion or constructive sale transaction or holders of common shares whose “functional currency” is not the U.S. dollar.

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This discussion is based on the Internal Revenue Code of 1986, as amended to the date hereof the “Internal Revenue Code”), final, temporary and proposed Treasury Department regulations promulgated thereunder, and administrative and judicial interpretations thereof, changes to any of which subsequent to the date hereof, possibly with retroactive effect may affect the tax consequences described herein. In addition, there can be no assurance that the Internal Revenue Service will not challenge one or more of the tax consequences described herein, and we have not obtained, nor do we intend to obtain, a ruling from the Internal Revenue Service or an opinion of counsel with respect to the U.S. federal income tax consequences of acquiring or holding shares. Prospective holders of shares should consult their own tax advisors as to the application of the U.S. federal income tax laws to their particular situation as well as any tax consequences that may arise under the U.S. federal estate or gift tax and any state, local and foreign tax laws from the ownership and disposition of the shares.

The following discussion is a summary of the tax rules applicable to U.S. Holders of shares and does not consider any U.S. federal income tax consequences to non-U.S. Holders. As used herein, “U.S. Holder” means a beneficial owner of shares that is (i) an individual who is a citizen or resident of the United States, (ii) a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the United States or any political subdivision thereof, (iii) an estate the income of which is subject to U.S. federal income taxation regardless of its source, (iv) a trust if a court within the United States is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust, or a trust in existence on August 20, 1996 that was treated as U.S. persons under the law in effect immediately prior to that date and that made a valid election to be treated as a U.S. person, or (v) any other person or entity that would be subject to U.S. federal income tax on a net income basis in respect of the common shares. A “non-U.S. Holder” is a beneficial owner of common shares that is not a U.S. Holder as so defined herein.

Taxation of Dispositions

A U.S. Holder will recognize gain or loss for U.S. federal income tax purposes upon the sale or other disposition of the shares in an amount equal to the difference between the amount realized and the U.S. Holder’s adjusted tax basis in the shares. For these purposes, a U.S. Holder’s adjusted tax basis in the shares generally will equal the U.S. dollar cost of such shares to such U.S. Holder. Subject to the passive foreign investment company rules described below, gain or loss realized by a U.S. Holder on such sale or other disposition generally will be treated as capital gain or loss, and will be long-term capital gain or loss if the shares were held for more than one year. Any such gain will generally be treated as U.S. source income for U.S. foreign tax credit purposes. Net long-term capital gain recognized by a U.S. Holder who is an individual generally is subject to reduced rates of taxation. The deduction of capital losses is subject to certain limitations. Prospective investors should consult their own tax advisors in this regard.

If we repurchase shares, the repurchase generally will be treated as a sale or exchange of the shares subject to the rules discussed above. However, under certain circumstances as provided in Section 302 of the Internal Revenue Code, the repurchase may be treated fully or partially as a dividend taxable as described below under “Taxation of Dividends.” U.S. Holders should consult their own tax advisors concerning the U.S. federal income tax consequences of a repurchase of their shares.

Taxation of Dividends

Subject to the passive foreign investment company rules described below, the gross amount of any distribution paid (before reduction for Netherlands withholding taxes) with respect to the shares, other than certain pro rata distributions of our shares, will be included in the gross income of a U.S. Holder as foreign source dividend income to the extent such distributions are paid out of our current or accumulated earnings and profits, as determined under U.S. federal income tax principles. The amount of any distribution of property other than cash will be the fair market value of such property on the date of

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distribution. If a U.S. Holder receives a dividend in euros, the amount of the dividend for U.S. federal income tax purposes will be the U.S. dollar value of the dividend, determined at the spot rate in effect on the date of such payment, regardless of whether the payment is later converted into U.S. dollars. In the case of such later conversion, the U.S. Holder may recognize U.S. source ordinary income or loss as a result of currency fluctuations between the date on which the dividend is paid and the date the dividend amount is converted to U.S. dollars. Distributions treated as dividends will not be eligible for the dividends received deduction generally allowed to corporations under the Internal Revenue Code. To the extent that the amount of any distribution exceeds our current and accumulated earnings and profits for a taxable year, the distribution will first be treated as a tax-free return of capital to the extent of the U.S. Holder’s adjusted tax basis in the shares (thereby increasing the amount of gain and decreasing the amount of loss to be recognized on the subsequent disposition of the shares), and to the extent that such distribution exceeds the U.S. Holder’s adjusted tax basis in the shares such excess will be taxed as capital gain. We do not maintain calculations of our earnings and profits under U.S. federal income tax principles, and therefore it may not be possible to determine that a distribution should not be treated as a dividend.

Dividends distributed by us generally are subject to a withholding tax imposed by the Netherlands at a rate of 25% (see “Summary of Dutch Tax Provisions Applicable to Nonresident Shareholders with a particular focus on US Shareholders – Withholding Tax”). Subject to certain conditions and limitations set forth in Sections 901 and 904 of the Internal Revenue Code, including certain holding period requirements, foreign tax withheld or paid with respect to dividends on common shares generally will be eligible for credit against a U.S. Holder’s U.S. federal income tax liability. Alternatively, a U.S. Holder may claim a deduction for such amount of withheld foreign taxes, but only for a year for which such U.S. Holder elects to do so with respect to all foreign income taxes. Under current Dutch law, we may be permitted under limited circumstances to deduct and retain from the withholding a portion of the amount that otherwise would be required to be remitted to the taxing authorities in the Netherlands (see “Summary of Dutch Tax Provisions Applicable to Nonresident Shareholders with a particular focus on US Shareholders – Withholding Tax”). This amount generally may not exceed 3% of the total dividend distributed by us. If we withhold an amount from dividends paid to a U.S. Holder that we then are not required to remit to any taxing authority in the Netherlands, the amount in all likelihood will not qualify as a creditable tax for U.S. federal income tax purposes. We will endeavor to provide U.S. Holders with information concerning the extent to which we have applied the reduction described above to dividends paid to U.S. Holders.

The overall limitation on foreign taxes eligible for credit is calculated separately with respect to specific classes of income. For this purpose, dividends distributed by us generally will be “passive income,” or, in the case of certain U.S. Holders, “financial services income.” To the extent such dividends on common shares are treated as capital gains, such gain would be U.S. source. Accordingly, a U.S. Holder would not be able to use the foreign tax credit arising from any Netherlands withholding taxes imposed on such distribution unless such credit can be applied (subject to applicable limitations) against U.S. tax due on other foreign source income in the appropriate category for foreign tax credit purposes.

The rules relating to the determination of the U.S. foreign tax credit are complex. U.S. Holders should consult their own tax advisors with respect to the availability of a foreign tax credit or deduction for foreign, including Netherlands, taxes withheld.

U.S. tax legislation enacted in 2003 (the “2003 Tax Act”) reduced to 15% the maximum tax rate for certain dividends received by individuals through taxable years beginning on or before December 31, 2008, so long as certain holding period requirements are met. Dividends received from “qualified foreign corporations” generally qualify for the reduced rate. A non-U.S. corporation (other than a foreign personal holding company, foreign investment company, or passive foreign investment company) generally will be considered to be a qualified foreign corporation if (I) the shares of the non-U.S. corporation are readily tradable on an established securities market in the United States or (II) the non-

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U.S. corporation is eligible with respect to substantially all of its income for the benefits of a comprehensive income tax treaty with the United States which contains an exchange of information program. The U.S. Tax Treaty has been identified as a qualifying treaty. Individual U.S. Holders should consult their tax advisors regarding the impact of the provisions of the 2003 Tax Act on their particular situations.

Anti-Deferral Tax Rules

The Internal Revenue Code contains various provisions that impose current U.S. federal income tax on certain foreign corporations or their U.S. shareholders if such corporations derive certain types of passive income and fail to make adequate distribution of profits to their U.S. shareholders. These provisions include the passive foreign investment company, foreign investment company, foreign personal holding company, personal holding company and controlled foreign corporation rules. While we do not believe that any of these rules will likely apply to us, we are not certain that we can avoid these tax rules because we cannot predict with any degree of certainty the amount and character of our future income or the amount of our shares any particular U.S. Holder will own. Accordingly, we will only briefly summarize those provisions and then only the rules that we believe would have the greatest likelihood of applying to us in the future.

Passive Foreign Investment Company

The passive foreign investment company (“PFIC”) provisions of the Internal Revenue Code can have significant tax effects on U.S. Holders. In general, a foreign corporation will be a PFIC in a particular tax year and for all succeeding tax years if:

• 75% or more of its gross income (including the foreign corporation’s pro rata share of the gross income of any U.S. or foreign company in which the corporation owns or is considered to own 25% or more of the shares by value) in a taxable year is passive income; or

• at least 50% of the average value of the corporation’s gross assets in a taxable year (average determined as of the end of each quarter of the corporation’s taxable year and ordinarily determined based on gross fair market value, including the proportionate share of the assets of any U.S. or foreign company in which the corporation owns or is considered to own 25% or more of the shares by value) produce, or are held for the production of, passive income.

If we were a PFIC for a taxable year during which a U.S. Holder owned our shares, and the U.S. Holder did not make an election either to treat us as a qualified electing fund (within the meaning of the Internal Revenue Code) for the first taxable year in the U.S. Holder’s holding period that we were a PFIC or to mark our shares to market, then the U.S. Holder would be subject to increased tax liability (possibly including an interest charge) upon the sale or other disposition of our shares or upon receipt of “excess distributions.” An “excess distribution” is generally, any distribution to the U.S. Holder in respect to the shares during a single taxable year that is greater than 125% of the average annual distributions received by the U.S. Holder in respect to our shares during the three preceding taxable years, or if shorter the U.S. Holder’s holding period for the shares.

If a U.S. Holder makes a qualified electing fund (“QEF”) election for all taxable years during which the U.S. Holder owned our shares and we were a PFIC, the PFIC rules described above will not apply to that U.S. Holder. Instead, the electing U.S. Holder is required for each taxable year to include in income a pro rata share of the ordinary earnings of the PFIC as ordinary income and a pro rata share of the net capital gain of the PFIC as long-term capital gain. The QEF election is made on a shareholder-by-shareholder basis and can be revoked only with the consent of the Internal Revenue Service. The QEF election, however, may only be made if the PFIC agrees to make available the information necessary to

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determine inclusions under the QEF rules and to assure compliance. If we are or become a PFIC, we may be unable or unwilling to satisfy the record keeping requirements that would enable a U.S. Holder to make a QEF election. A U.S. Holder that has made a QEF election is permitted, by election, to defer actual payment of the tax liability arising from a QEF inclusion. Generally, payment is deferred until the PFIC makes actual distributions of amounts previously included in the U.S. Holder’s income pursuant to the QEF election. A U.S. Holder that elects to defer tax on the QEF inclusion amount must pay interest on the deferred tax liability until the liability is actually paid at the normal rate for underpayments of tax. The deferral election is made on a year-by-year basis with respect to each year’s QEF inclusion.

In lieu of making a QEF election, a U.S. Holder of publicly traded PFIC shares could elect to mark the shares to market annually, in which case if the fair market value of the U.S. Holder’s PFIC shares exceeds the U.S. Holder’s adjusted tax basis in those shares as of the close of the U.S. Holder’s taxable year, the U.S. Holder will recognize the amount of the excess as ordinary income. Likewise, if the fair market value of the U.S. Holder’s PFIC shares is less than the U.S. Holder’s adjusted tax basis in those shares as of the close of the U.S. Holder’s taxable year, the U.S. Holder may recognize the difference as ordinary loss. Losses may be deducted only to the extent of net gain previously included in taxable income by the U.S. Holder under the election for prior taxable years. Provided that if the U.S. Holder has elected to mark our shares to market for all taxable years during which (i) the U.S. Holder owned our shares and (ii) we were a PFIC, the PFIC rules generally will not apply to such U.S. Holder.

If U.S. Holders own shares during any year in which we are a PFIC, the U.S Holders must file Internal Revenue Service Form 8621 and may be required to file Internal Revenue Service Form 5471.

We believe that we are not a PFIC, and we do not expect to become a PFIC. However, we cannot assure that we will not qualify as a PFIC in the future.

Foreign Personal Holding Company Rules

Special U.S. tax rules apply to a shareholder of a foreign personal holding company (“FPHC”). A foreign corporation will be classified as a FPHC for U.S. federal income tax purposes if the following two tests are satisfied:

• five or fewer individuals who are U.S. citizens or residents (a “U.S. Group”) actually or constructively own, under attribution rules, more than 50% of all classes of the corporation’s shares measured by voting power or value at any time during the corporation’s taxable year; and

• the corporation receives at least 60% (50% if the corporation has qualified as a foreign personal holding corporation in a prior taxable year) of its gross income regardless of source (foreign or domestic), as specifically adjusted, from passive sources (e.g., dividends, interest, gains from the sale or exchange of shares or securities, rents and royalties).

If we are a FPHC, each U.S. Holder that owned our shares on the last day of the our taxable year or if earlier, the last day of our taxable year on which a U.S. Group currently exists with respect to us, must include in gross income as dividends such U.S. Holder’s pro rata share the amount the U.S. Holder would have received if we had distributed a dividend equal to our undistributed foreign personal holding company income, as defined for U.S. federal income tax purposes. The imputed income is taxable as a dividend even if no cash dividend is actually paid.

We believe that we are not a FPHC, and we do not expect to become a FPHC. However, we can not assure you that we will not qualify as a FPHC in the future.

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Personal Holding Company Rules

A foreign corporation may be classified as a personal holding company (“PHC”) for U.S. federal income tax purposes if the following two tests are satisfied:

• If at any time during the last half of the foreign corporation’s taxable year, five or fewer individuals (without regard to their citizenship or residency) actually or constructively own, under attribution rules, more than 50% of the shares of the corporation by value; and

• 60% or more of the foreign corporation’s gross income derived from U.S. sources or effectively connected with a U.S. trade or business, as specifically adjusted, is from passive sources (e.g., dividends, interest, rents and royalties).

For tax year 2004, a PHC generally is taxed currently at a rate of 15.0% on its undistributed PHC income, which is calculated based generally on the PHC’s taxable income after deducting dividends paid and making certain other adjustments. The PHC tax on a foreign corporation is limited to the corporation’s U.S. source income. Even if we were to become a PHC, we do not expect to have material undistributed PHC income. However, we cannot assure you that we will not become a PHC because of uncertainties regarding the application of the constructive ownership rules and the possibility of changes in our shareholder base and income or other circumstances that could change the application of the PHC rules to us. In addition, if we become a PHC we cannot assure you that the amount of our PHC income will be immaterial.

Controlled Foreign Corporation Rules

If more than 50% of the voting power or total value of all classes of our shares is owned, directly or indirectly, by U.S. Holders, each of which owns 10% or more of the total combined voting power of all classes of our shares, we could be treated as a controlled foreign corporation (“CFC”) under Subpart F of the Internal Revenue Code. This classification would require such 10% or greater shareholders to include in income their pro rata shares of our “Subpart F Income,” as defined in the Internal Revenue Code. In addition, under Section 1248 of the Internal Revenue Code, as a result of this classification gain from the sale or exchange of shares by any U.S. Holder who is or was a 10% or greater shareholder at any time during the five year period ending with the sale or exchange will be dividend income to the extent of our earnings and profits attributable to the shares sold or exchanged and accumulated during the periods that we were a CFC. Under certain circumstances, a U.S. Holder that directly owns 10% or more of our voting shares and is a corporation may be entitled to an indirect foreign tax credit for amounts characterized as dividends under Section 1248 of the Internal Revenue Code. We believe that we are not a CFC and we will not become a CFC, however, we can not assure you that we will not become a CFC in the future.

United States Backup Withholding Tax and Information Reporting

Under certain circumstances, a U.S. Holder may be subject to information reporting and backup withholding with respect to certain payments made in respect of the shares and the proceeds received on the disposition of the shares paid within the U.S. (and in certain cases, outside the U.S.). Such amounts may be subject to a 28% U.S. backup withholding tax unless the U.S. Holder otherwise establishes an exemption. For example, backup withholding will not apply to a U.S. Holder who (1) is a corporation or comes within certain other exempt categories and, when required, demonstrates that fact, or (2) furnishes a correct taxpayer identification number and makes certain other required certifications as provided by the backup withholding rules.

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The amount of any backup withholding from a payment to a U.S. Holder will be allowed as a credit against the U.S. Holder’s U.S. federal income tax liability and may entitle a U.S. Holder to a refund, provided that the required information is furnished to the Internal Revenue Service.

* * *

The discussion set forth above is included for general information only and may not be applicable depending upon a holder’s particular situation. Holders should consult their tax advisors with respect to the tax consequences to them of the purchase, ownership and disposition of shares including the tax consequences under state, local and other tax laws and the possible effects of changes in U.S. federal and other tax laws.

F. Dividends and paying agents.

Not Applicable.

G. Statement by experts.

Not Applicable.

H. Documents on display.

Whenever a reference is made in this Form 20-F to any contract, agreement or other document, the reference may not be complete and you should refer to the copy of that contract, agreement or other document filed as an exhibit to one of our previous SEC filings.

We file annual and special reports and other information with the SEC. You may read and copy all or any portion of the registration statement and any other document we file with the SEC at the SEC’s public reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information about the public reference room. Commencing with filings made this year, such material may also be obtained at the Internet site the SEC maintains at http://www.sec.gov which contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC.

I. Subsidiary information.

Not Applicable.

Item 11. Quantitative and Qualitative Disclosures about Market Risk

We are exposed to market risk from changes in interest rates and foreign currency exchange rates, most notably fluctuations of the United States dollar, the Hong Kong dollar and the Japanese yen against the euro. We report our operating results and financial position in euros, while foreign affiliates report their operating results and financial position in their respective functional currencies. To the extent that foreign currency fluctuations affect the value of our investments in our foreign affiliates, they are not hedged. The cumulative effect of these fluctuations is separately reported in Shareholders’ Equity. For the years ended December 31, 2002 and 2003, we recorded an unfavorable movement of € 29.4 million and € 24.5 million, respectively.

Foreign exchange risk management

Our operations are exposed to foreign exchange risk arising from cash flows and financial instruments that are denominated in currencies other than the functional currency of ASM International or the respective subsidiary conducting the business. The purpose of our foreign currency management is to

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manage the effect of exchange rate fluctuations on certain foreign currency denominated revenues, costs and eventual cash flows and on foreign currency denominated assets and liabilities.

The terms of currency instruments used for hedging purposes are consistent with the timing of the transactions being hedged. We do not use derivative financial instruments for trading or speculative purposes. We use derivative financial instruments, such as forward exchange contracts, to hedge certain forecasted foreign currency denominated transactions expected to occur within the next 12 months. As a policy we only hedge anticipated foreign currency sales and purchase transactions for which we have a firm commitment to a customer or supplier. All hedges related to anticipated transactions are designated and documented at the inception of the hedge as cash flow hedges, and are evaluated for effectiveness quarterly. The effective portion of the gain or loss on these hedges is reported as a component of other comprehensive income in Shareholders’ Equity, and is reclassified into earnings when the hedged transaction affects earnings. An amount of approximately € 0.4 million included in other comprehensive income at December 31, 2003 will be reclassified to earnings within 12 months upon completion of the underlying transaction. If the underlying transaction being hedged fails to occur, or if a portion of any derivative is ineffective, the gain or loss is immediately recognized in earnings under foreign currency transaction gains (losses) on the Statement of Operations.

Furthermore, we continue to manage the currency exposure of certain receivables and payables using derivative instruments, such as forward exchange contracts and currency swaps, and nonderivative instruments, such as debt borrowings in foreign currencies. The gains or losses on these instruments provide an offset to the gains or losses recorded on the foreign currency receivables and payables. The derivative instruments are recorded at fair value and changes in fair value are recorded in earnings under net interest and other financial income (expenses) on the Statement of Operations. Foreign currency receivables and payables are recorded at the exchange rate at the balance sheet date and gains and losses as a result of changes in exchange rates are recorded in earnings under net interest and other financial income (expenses) on the Statement of Operations. The operations of our subsidiaries are generally financed with debt issued in the currency of the country in which each subsidiary is located in an effort to limit our foreign currency exposure.

The following tables summarize our financial instruments as of December 31, 2002 and 2003 and analyze the sensitivity of the fair value of our financial instruments to an immediate change in foreign currency rates. Fair values represent the present value of forecasted future cash flows at market exchange rates. The sensitivity analysis assumes an immediate 10% favorable or unfavorable change in all foreign currency exchange rates against the euro from their levels as of December 31 with all other variables kept constant. A favorable 10% change indicates a strengthening of the currency in which our financial instruments are dominated, primarily the US dollar, against the euro and an unfavorable change indicates a weakening of the currency in which our financial instruments are dominated, primarily the US dollar, against the euro. The selection of 10% favorable or unfavorable change in exchange rates should not be construed as a prediction by us of future market events, but rather, to illustrate the potential impact of such an event. The modeling technique used to calculate the exposure does not take into account correlation among foreign currency exchange rates, or correlation among various markets (i.e., the foreign exchange, equity and fixed-income markets). Even though we believe it to be possible that all of the foreign currency exchange rates to which we are exposed would simultaneously change by more than 10%, we find it meaningful to “stress test” our exposure under this 10% fluctuation scenario and other hypothetical adverse market scenarios. Our actual experience may differ from the results in the table below due to the correlation assumptions utilized, or if events occur that were not included in the methodology, such as significant liquidity or market events.

				Sensitivity analysis
	Currency and notional amount		Carrying amount	Fair value	Favorable change of 10%	Unfavorable change of 10%
	(in millions)		(in millions of euro)
As of December 31, 2002:
Notes payable to banks, due within twelve months	euro	10.0	10.0	10.0	10.0	10.0
	yen	2,068.5	16.5	16.5	14.9	18.2
Long-term debt with maturities:
due from 2003 – 2010	euro	4.9	4.9	5.1	4.9	4.9
due from 2004 – 2006	yen	722.4	5.8	5.8	5.2	6.4
due from 2003 – 2005	US$	0.1	0.1	0.1	0.1	0.1
Convertible subordinated debt, due November 15, 2005	US$	115.0	109.7	105.0	98.7	120.6
Foreign exchange contracts, settlement within twelve months:
purchase	US$	5.4	5.2	5.1	4.6	5.7
sale	US$	38.7	39.0	37.0	33.2	40.6
As of December 31, 2003:
Notes payable to banks, due within twelve months	yen	3.200	23.7	23.7	21.3	26.0
Long-term debt with maturities:
due from 2005 – 2010	euro	2.9	2.9	2.9	2.9	2.9
due from 2004 – 2008	yen	2,521.6	18.7	18.7	16.8	20.5
due from 2004 – 2006	US$	0.1	0.1	—	—	0.1
Convertible subordinated debt:
due November 15, 2005	US$	115.0	91.0	113.8	82.0	100.2
due May 15, 2010	US$	90.0	71.3	94.2	64.2	78.4
Foreign exchange contracts:
sale of currency contracts to be settled within twelve months:	US$	13.2	11.5	10.5	10.4	12.6

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For long-term debt, the estimated fair values of the Company’s long-term debt are based on current interest rates available to the Company for debt instruments with similar terms and remaining maturities.

The estimated fair values of the Company’s convertible subordinated debt borrowings are based on theoretical fair value calculations obtained from independent investment bankers.

For forward exchange contracts market values based on external quotes from banks have been used to determine the fair value.

As our borrowings are primarily in currencies other than the euro, a change in foreign currency exchange rates will have an impact on our net earnings. A hypothetical change of 10% in foreign currencies against the euro would result in a € 0.7 million change in interest expenses at December 31, 2002 borrowing levels and a € 0.9 million change in interest expenses at December 31, 2003 borrowing levels.

Interest risk

Our long-term and convertible subordinated debt borrowings outstanding have fixed interest rates. At December 31, 2002 and 2003 we had € 26.5 million and € 23.7 million, respectively, in other borrowings with variable short-term interest rates outstanding. We are exposed to interest rate risk primarily through our borrowing activities. We do not enter into financial instrument transactions for trading or speculative purposes or to manage interest rate exposure. A hypothetical change in the average

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interest rate by 10% on the portion of our debt bearing interest at variable rates would not result in a material change in interest expense at December 31, 2002 and December 31, 2003 borrowing levels.

Credit risk

Credit risk represents the accounting loss that would be recognized at the reporting date if counterparties failed completely to perform as contracted and from movements in interest rates and foreign exchange rates. We do not anticipate nonperformance by counterparties. We generally do not require collateral or other security to support financial instruments with credit risk. Concentrations of credit risk (whether on or off-balance sheet) that arise from financial instruments exist for groups of customers or counterparties when they have similar economic characteristics that would cause their ability to meet contractual obligations to be similarly affected by changes in economic or other conditions. Financial instruments on the balance sheet that potentially subject us to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable. We maintain a policy providing for the diversification of cash and cash equivalent investments and placement of investments in high quality financial institutions to limit the amount of credit risk exposure. A significant percentage of our revenue is derived from a limited number of large customers. Our largest customer accounted for approximately 18.5% of our net sales in 2003 and our ten largest customers accounted for approximately 46.5% of our net sales in 2003. Sales to these large customers also may fluctuate significantly from time to time depending on the timing and level of purchases from us. Significant orders from such customers may expose us to a concentration of credit risk and difficulties in collecting amounts due, which might harm our financial results and financial condition. At December 31, 2003, one customer accounted for 9.4% of the outstanding balance in accounts receivable.

Item 12. Description of Securities Other Than Equity Securities

Not applicable.

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Part II.

Item 13. Defaults, Dividend Arrearages and Delinquencies

None.

Item 14. Material Modification to the Rights of Security Holders and Use of Proceeds

None.

Item 15. Controls and Procedures

A. Evaluation of disclosure controls and procedures.

We have disclosure controls and procedures in place, which are designed to ensure that material information related to ASM International, including our consolidated subsidiaries, is made known to our management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”). We review our disclosure controls and procedures regularly and when necessary and make changes to ensure they are effective.

As of the end of the period covered by this report, an evaluation was carried out under the supervision and with the participation of our management, including the CEO and the CFO, of the effectiveness of our disclosure controls and procedures. Based upon that evaluation, the CEO and CFO have concluded that our disclosure controls and procedures are effective in causing material information to be collected and evaluated by the management of ASM International on a timely basis and to ensure that the quality and timeliness of our public disclosures complies with our SEC disclosure obligations.

B. Changes in internal controls.

There were no significant changes in our internal controls or in other factors that could significantly affect those controls after the date of our most recent evaluation.

Item 16A. Audit Committee Financial Expert

We have at least one audit committee financial expert serving on our audit committee, Mr. Jacobus den Hoed RA.

Item 16B. Code of Ethics

In 2004, we adopted a code of ethics that applies to all of our employees, including our Chief Executive Officer and President, and our Chief Financial Officer. A copy of this code of ethics has been filed as Exhibit 11.1 to this annual report. We expect to make a copy of our code of ethics available on our website during fiscal year 2004.

Item 16C. Principal Accountant Fees and Services

A. Audit fees.

Deloitte billed us an aggregate € 681,132 and € 726,742 for the audit of our consolidated financial statements for the years ended December 31, 2002 and 2003, respectively. These amounts accounted for 62% and 60% of the total fees billed to us by Deloitte in 2002 and 2003, respectively.

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B. Audit-related fees.

Deloitte billed us an aggregate of € 114,361 and € 235,186 for fees for audit related services for the years ended December 31, 2002 and 2003, respectively. These audit related services consist of SAS 100 review of the first quarter of 2003 and limited reviews of the second and third quarters of 2003 of our consolidated financial statements included in our quarterly reports on Form 6-K. These amounts accounted for 10% and 19% of the total fees billed to us by Deloitte in 2002 and 2003, respectively.

C. Tax fees.

Deloitte billed us an aggregate of € 205,869 and € 129,006 in 2002 and 2003, respectively, for tax services relating to tax compliance, tax planning and advice. These amounts accounted for 19% and 11% of the total fees billed to us by Deloitte in 2002 and 2003, respectively.

D. All other fees.

During the years ended December 31, 2002 and 2003, Deloitte billed us an aggregate of € 95,858 and € 125,415, respectively, for all other services consisting of Sarbanes-Oxley consultations, accounting consultations, due diligence related to our offering of US$ 90 million convertible subordinated notes, SAP R/3 testing and additional services. These amounts accounted for 9% and 10% of the total fees billed to us by Deloitte in 2002 and 2003, respectively.

E. Audit Committee Approval

The Audit Committee has determined that the provision of services by Deloitte described in the preceding paragraphs is compatible with maintaining Deloitte’s independence. The permissible non-audit services provided by Deloitte in 2003 were approved by our Audit Committee. In this context, a pre-approval procedure was implemented in 2003.

Item 16D. Exemptions from the Listing Standards for Audit Committees

Not applicable.

Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers

Not applicable.

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Part III.

Item 17. Financial Statements

Not Applicable.

Item 18. Financial Statements

See pages F-1 through F-34, incorporated herein by reference.

Item 19. Exhibits(*)

Exhibit Number	Description	Incorporated by Reference to:	Included Herein:
1.1	English translation of ASM International N.V.’s Compiled Articles of Association, as amended	Exhibit 3.1 to Registrant’s 6-K filed on November 6, 2001
4.1	1994 Stock Option Plan	Exhibit 99.1 to the Registrant’s S-8 filed October 25, 1999
4.2	Debenture Purchase Agreement Part 1	Exhibit 4.2 to the Registrant’s Form F-3 filed on December 13, 1999
4.3	Debenture Purchase Agreement Part 2	Exhibit 4.2 to the Registrant’s Form F-3 filed on December 13, 1999
4.4	Zero Coupon Debenture	Exhibit 4.3 to the Registrant’s Form F-3 filed on December 13, 1999
4.5	Common Stock Purchase Warrant	Exhibit 4.4 to the Registrant’s Form F-3 filed on December 13, 1999
4.6	Supplemental Common Stock Purchase Warrant	Exhibit 4.5 to the Registrant’s Form F-3 filed on December 13, 1999
4.7	Registration Rights Agreement	Exhibit 4.6 to the Registrant’s Form F-3 filed on December 13, 1999
4.8	Purchase Agreement dated November 14, 2001 between ASM International N.V. and CIBC World Markets Corp. for purchase of US$ 100 million of 5% Convertible Subordinated Notes	Exhibit 4.16 to the Registrant’s Form 20-F/A filed on May 10, 2002
4.9	Indenture Agreement dated November 19, 2001 between ASMI International N.V. and Citibank, N.A.	Exhibit 4.17 to the Registrant’s Form 20-F/A filed on May 10, 2002
4.10	2001 Stock Option Plan	Exhibit 99.1 to the Registrant’s Form S-8 filed on April 30, 2002
4.11	English translation of Robert L. de Bakker’s Employment Agreement	Exhibit 4.13 to the Registrant’s Form 20-F filed on April 17, 2003

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Exhibit Number	Description	Incorporated by Reference to:	Included Herein:
4.12	Trust Deed and Rules of The ASM Pacific Technology Employee Share Incentive Scheme, dated March 23, 1990	Exhibit 4.14 to the Registrant’s Form 20-F filed on April 17, 2003
4.13	Deed of Adherence Relating to Participation in the Employee Share Incentive Scheme of ASM Pacific Technology Limited, dated April 22, 1999	Exhibit 4.15 to the Registrant’s Form 20-F filed on April 17, 2003
4.14	Supplemental Deed Relating to the Employee Share Incentive Scheme of ASM Pacific Technology Limited	Exhibit 4.16 to the Registrant’s Form 20-F filed on April 17, 2003
4.15	Purchase Agreement dated April 28, 2003 between ASM International N.V. and Morgan Stanley for purchase of US$ 90.0 million of 5.25% Convertible Subordinated Notes	Exhibit 4.17 to the Registrant’s Form F-3 filed on July 25, 2003
4.16	Indenture Agreement dated May 6, 2003 between ASM International N.V. and Citibank N.A.	Exhibit 4.18 to the Registrant’s Form F-3 filed on July 25, 2003
4.17	Registration Rights Agreement dated May 6, 2003	Exhibit 4.19 to the Registrant’s Form F-3 filed on July 25, 2003
8.1	Subsidiaries		X
11.1	Code of Ethics		X
12.1	Certification of CEO pursuant to Rule 13a-14(a)		X
12.2	Certificate of CFO pursuant to Rule 13a-14(a)		X
13.1	Certificate of CEO and CFO pursuant to Rule 13a-14(b) and 18 U.S.C. 1350		X
14.1	Auditor’s Consent		X

* Pursuant to Item 19.2(b)(1) of Form 20-F, the Registrant has omitted certain agreements with respect to long-term debt not exceeding 10% of consolidated total assets. The Registrant agrees to furnish a copy of any such agreements to the Securities Exchange Commission upon request.

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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

	Page
ASM International N.V
Independent Auditors’ Report of Deloitte Accountants	F-2
Consolidated Balance Sheets as of December 31, 2002 and 2003	F-3
Consolidated Statements of Operations for the years ended December 31, 2001, 2002 and 2003	F-4
Consolidated Statements of Comprehensive Income	F-5
Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2001, 2002 and 2003	F-5
Consolidated Statements of Cash Flows for the years ended December 31, 2001, 2002 and 2003	F-6
Notes to the Consolidated Financial Statements	F-7

F-1

INDEPENDENT AUDITORS’ REPORT

To the Board of Directors and Shareholders of

ASM International N.V.

Bilthoven, the Netherlands

We have audited the accompanying consolidated balance sheets of ASM International N.V. and subsidiaries (collectively, the “Company”) as of December 31, 2002 and 2003, and the related consolidated statements of operations, comprehensive income, shareholders’ equity, and cash flows for the three years in the period ended December 31, 2003. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2002 and 2003, and the results of its operations and its cash flows for the three years in the period ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note F to the consolidated financial statements, in 2002 the Company changed its method of accounting for goodwill.

Deloitte Accountants

Amsterdam, the Netherlands,

February 24, 2004, except for Note X, as to which the date is February 29, 2004

F-2

Consolidated Balance Sheets

		EUR
		December 31,
(thousands except share data)	Note	2002		2003
Assets
Cash and cash equivalents	C	70,991		154,857
Marketable securities	C	11		9
Accounts receivable (less allowance for doubtful accounts of € 5,464 and € 5,587)		132,818		144,900
Inventories	D	185,752		145,701
Income taxes receivable		1,840		873
Deferred tax assets	R	1,843		4,125
Other current assets		18,786		16,942
Total current assets		412,041		467,407
Property, plant and equipment, net	E	160,501		130,235
Goodwill	F	54,529		45,937
Deferred tax assets	R	2,781		136
Investments and loan advances	G	20,278		23,882
Debt issuance costs	J	3,711		4,704
Total Assets		653,841		672,301
Liabilities and Shareholders’ Equity
Notes payable to banks	H	26,548		23,680
Accounts payable		67,029		77,627
Accrued expenses		55,414		55,738
Advance payments from customers		6,290		9,601
Deferred revenue		8,851		10,173
Income taxes payable		5,560		7,618
Current portion of long-term debt	I	2,669		4,820
Total current liabilities		172,361		189,257
Deferred tax liabilities	R	1,050		1,740
Long-term debt	I	8,175		16,804
Convertible subordinated debt	J	109,665		162,319
Total liabilities		291,251		370,120
Commitments and contingencies	M,N
Minority interest in subsidiary		97,048		87,249
Shareholders’ Equity:
Common shares Authorized 110,000,000 shares, par value € 0.04, issued and outstanding 49,370,308 and 50,061,647 shares		1,975		2,002
Financing preferred shares Authorized 8,000 shares, par value € 40, none issued		—		—
Preferred shares Authorized 118,000 shares, par value € 40, none issued		—		—
Capital in excess of par value		254,999		259,122
Retained earnings		35,054		5,734
Accumulated other comprehensive loss		(26,486	)	(51,926	)
Total Shareholders’ Equity	K	265,542		214,932
Total Liabilities and Shareholders’ Equity		653,841		672,301

See Notes to Consolidated Financial Statements.

F-3

Consolidated Statements of Operations

		EUR
		Year ended
(thousands, except per share data)	Note	2001		2002		2003
Net sales	S	561,064		518,802		581,868
Cost of sales		(337,743	)	(328,077	)	(380,597	)
Gross profit	S	223,321		190,725		201,271
Operating expenses:
Selling, general and administrative		(111,851	)	(108,393	)	(108,019	)
Research and development, net	Q	(79,661	)	(88,334	)	(79,053	)
Amortization of goodwill	F	(7,558	)	—		—
Total operating expenses		(199,070	)	(196,727	)	(187,072	)
Earnings (loss) from operations	S	24,251		(6,002	)	14,199
Interest income		3,690		1,336		1,393
Interest expenses		(5,031	)	(9,627	)	(11,692	)
Foreign currency transaction gains (losses)		357		(2,125	)	(2,479	)
Earnings (loss) before income taxes and minority interest		23,267		(16,418	)	1,421
Income tax benefit (expense)	R	(4,711	)	1,165		(7,112	)
Earnings (loss) before minority interest		18,556		(15,253	)	(5,691	)
Minority interest		(13,373	)	(15,890	)	(24,570	)
Gain on dilution of investment in subsidiary	L	915		1,281		941
Net earnings (loss)		6,098		(29,862	)	(29,320	)
Net earnings (loss) per share:
Basic	U	0.12		(0.61	)	(0.59	)
Diluted	U	0.12		(0.61	)	(0.59	)
Weighted average number of shares used in computing per share amounts (in thousands):
Basic	U	48,944		49,170		49,642
Diluted	U	49,958		49,170		49,642

See Notes to Consolidated Financial Statements.

Consolidated Statements of Comprehensive Income

(thousands)	EUR
	Year ended December 31,
	2001		2002		2003
Net earnings (loss)	6,098		(29,862	)	(29,320	)
Other comprehensive income (loss):
Exchange rate changes for the year	5,091		(29,413	)	(24,455	)
Unrealized gains (losses) on derivative instruments	(451	)	1,788		(985	)
Total other comprehensive income (loss)	4,640		(27,625	)	(25,440	)
Comprehensive income (loss)	10,738		(57,487	)	(54,760	)

See Notes to Consolidated Financial Statements.

F-4

Consolidated Statements of Shareholders’ Equity

		EUR
(thousands, except for number of common shares)	Note	Number of common shares	Common shares	Capital in excess of par value		Retained earnings		Accumulated other comprehensive income (loss)		Total Shareholders’ Equity
Balance January 1, 2001		48,797,346	221	252,784		58,818		(3,501	)	308,322
Issuance of common shares:
For stock options	L	272,950	3	1,847		—		—		1,850
Change in par value per share	K	—	1,739	(1,739	)	—		—		—
Net earnings		—	—	—		6,098		—		6,098
Other comprehensive income		—	—	—		—		4,640		4,640
Balance December 31, 2001		49,070,296	1,963	252,892		64,916		1,139		320,910
Issuance of common shares:
.For stock options	L	300,012	12	2,107		—		—		2,119
Net loss		—	—	—		(29,862	)	—		(29,862	)
Other comprehensive loss		—	—	—		—		(27,625	)	(27,625	)
Balance December 31, 2002		49,370,308	1,975	254,999		35,054		(26,486	)	265,542
Issuance of common shares:
For stock options	L	691,339	27	4,123		—		—		4,150
Net loss		—	—	—		(29,320	)	—		(29,320	)
Other comprehensive loss		—	—	—		—		(25,440	)	(25,440	)
Balance December 31, 2003		50,061,647	2,002	259,122		5,734		(51,926	)	214,932

See Notes to Consolidated Financial Statements.

F-5

Consolidated Statements of Cash Flows

	EUR
	Year ended December 31,
(thousands)	2001		2002		2003
Cash flows from operating activities:
Net earnings (loss)	6,098		(29,862	)	(29,320	)
Adjustments to reconcile net earnings to net cash from operating activities:
Depreciation and amortization	42,763		40,091		34,415
Fixed asset impairment charge	—		—		3,242
Amortization debt issuance costs	173		1,448		1,509
Deferred income taxes	1,139		(5,369	)	924
Minority interest	13,373		15,890		24,570
Gain on dilution of investment in subsidiary	(915	)	(1,281	)	(941	)
Compensation expense Employee Share Incentive Scheme ASMPT	3,995		3,417		6,391
Increase (decrease) in allowance for doubtful receivables	(1,782	)	(670	)	123
Changes in other assets and liabilities:
Accounts receivable	103,787		(10,594	)	(29,838	)
Inventories	(18,026	)	(3,473	)	18,449
Other current assets	2,718		866		274
Accounts payable and accrued expenses	(79,424	)	3,098		21,162
Advance payments from customers	(7,314	)	1,077		4,908
Deferred revenue	(3,351	)	(2,443	)	1,620
Income taxes	(22,864	)	4,195		4,119
Net cash provided by operating activities	40,370		16,390		61,607
Cash flows from investing activities:
Capital expenditures	(71,563	)	(33,246	)	(30,078	)
Investments and loan advances	(20,278	)	—		(3,774	)
Proceeds from sale of property, plant and equipment	621		1,578		2,945
Sale (purchase) of marketable securities	—		(6	)	—
Net cash used in investing activities	(91,220	)	(31,674	)	(30,907	)
Cash flows from financing activities:
Notes payable to banks, net	3,095		11,409		(1,311	)
Proceeds from long-term debt and subordinated debt	127,849		595		91,191
Repayments of long-term debt and subordinated debt	(55,387	)	(3,139	)	(3,643	)
Proceeds from issuance of common shares	1,850		2,119		4,150
Dividends to minority shareholders	(29,838	)	(24,459	)	(20,397	)
Net cash provided by (used in) financing activities	47,569		(13,475	)	69,990
Exchange rate effects	4,053		(7,827	)	(16,824	)
Net increase (decrease) in cash and cash equivalents	772		(36,586	)	83,866
Cash and cash equivalents at beginning of year	106,805		107,577		70,991
Cash and cash equivalents at end of year	107,577		70,991		154,857
Supplemental disclosures of cash flow information
Cash paid during the year for:
Interest	1,491		8,295		9,693
Income taxes	26,436		8		2,069

See Notes to Consolidated Financial Statements.

F-6

Notes to Consolidated Financial Statements

(EUR in thousands, except per share data and unless otherwise stated)

NOTE A Summary of Significant Accounting Policies

Basis of Presentation - ASM International N.V. (‘ASMI’ or ‘the Company’) is a corporation domiciled in the Netherlands with its principal operations in Europe, the United States, Southeast Asia and Japan. The Company dedicates its resources to the research, development, manufacturing, marketing and servicing of equipment and materials used to produce semiconductor devices. The Company provides production solutions for the main areas of semiconductor production: wafer processing (Front-end), assembly and packaging (Back-end). The Company follows accounting principles generally accepted in the United States of America.

Principles of Consolidation - The Consolidated Financial Statements include the accounts of ASMI and its subsidiaries (‘the Company’), where ASMI holds a controlling interest. The minority interest of third parties is disclosed separately in the Consolidated Financial Statements. All intercompany profits, transactions and balances have been eliminated in consolidation. Intercompany profits included in inventory are recognized in the Statement of Operations upon the sale of the respective inventory to a third party.

Foreign Currency Translation - The financial information for subsidiaries outside the Netherlands is measured using local currencies as the functional currency of that subsidiary. Assets and liabilities of foreign subsidiaries are translated into euros at exchange rates prevailing at the end of the year. Revenues and costs relating to the operation of such subsidiaries are translated at average exchange rates during the year. Resulting translation adjustments are directly recorded in Shareholders’ Equity. Exchange rate differences on translations of other transactions in foreign currencies are reflected in the Statement of Operations.

Derivative Financial Instruments - The Company uses derivative instruments to manage certain exposures to foreign currency risks. The Company’s objectives for holding derivatives are to minimize these risks using the most effective methods to eliminate or reduce the impact of such exposure.

The Company follows SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended by SFAS No. 137 and SFAS No. 138. SFAS No. 133 establishes accounting and reporting standards for derivative instruments and hedging activities, and requires that all derivatives, including foreign currency exchange contracts, be recognized on the balance sheet at fair value. Changes in the fair value of derivatives that do not qualify for hedge treatment, as well as the ineffective portion of any hedges, are recognized in earnings. All of the Company’s derivative financial instruments are recorded at their fair value in other current assets or accrued expenses.

ASMI and its subsidiaries conduct business in a number of foreign countries, with certain transactions denominated in currencies other than the functional currency of the respective subsidiary conducting the business. The purpose of the Company’s foreign currency management is to manage the effect of exchange rate fluctuations on certain foreign currency denominated revenues, costs and eventual cash flows. The terms of currency instruments used for hedging purposes are generally consistent with the timing of the transactions being hedged. The Company does not use derivative financial instruments for trading or speculative purposes. The Company uses derivative financial instruments, such as forward exchange contracts, to hedge certain forecasted foreign currency denominated sales and purchase transactions expected to occur within the next twelve months. As a policy the Company only hedges forecasted foreign currency transactions for which we have a firm commitment from a customer or to a supplier. In accordance with SFAS No. 133, these hedges related to forecasted transactions are designated and documented at the inception of the hedge as cash flow hedges, and are evaluated for effectiveness quarterly. The effective portion of the gain or loss on these hedges is reported as a component of other comprehensive income in Shareholders’ Equity, and is reclassified into earnings when the hedged transaction affects earnings. All amounts included in other comprehensive income at December 31, 2003 will be reclassified to earnings within twelve months upon completion of the underlying transaction. If the underlying transaction being hedged fails to occur, or if a portion of any derivative is ineffective, the gain or loss is immediately recognized in earnings under foreign transaction gains (losses) in the Statement of Operations.

Furthermore, the Company continues to manage the currency exposure of certain receivables and payables using derivative instruments, such as forward exchange contracts and currency swaps, and nonderivative instruments, such as debt borrowings in foreign currencies. The gains or losses on these instruments provide an offset to the gains or losses recorded on the foreign currency receivables and payables. The derivative instruments are recorded at fair value and changes in fair value are recorded in earnings under foreign transaction gains (losses) on the Statement of

F-7

Operations. Foreign currency receivables and payables are recorded at the exchange rate at the balance sheet date and gains and losses as a result of changes in exchange rates are recorded in earnings under foreign transaction gains (losses) on the Statement of Operations.

Gains or losses recognized resulting from the ineffectiveness of cash flow and fair value hedges were not material for the years ended December 31, 2002 and 2003.

Cash and Cash Equivalents - Cash and cash equivalents include cash on hand, current accounts with banks, and short-term deposits with a maturity of three months or less at the date of purchase.

Marketable Securities - All investments in marketable securities are classified as available for sale which requires to report these investments at fair market value and record the unrealized gains and losses, after tax, as a component of Shareholders’ Equity. Realized gains and losses on securities sold are included in net earnings. There were no material unrealized gains and losses in the fiscal years presented.

Inventories - Inventories are stated at the lower of cost (first-in, first-out method) or market value. Costs include net prices paid for materials purchased, charges for freight and custom duties, direct wages of employees and charges for factory production overhead.

Property, Plant and Equipment - Property, plant and equipment are carried at cost, less accumulated depreciation. Capital 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 underlying property or the term of the capital lease.

Goodwill and Other Intangible Assets - In June 2001, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 141, “Business Combinations” and SFAS No. 142, “Goodwill and Other Intangible Assets.” SFAS No. 141 requires that all business combinations initiated after June 30, 2001 are accounted for under the purchase method and addresses the initial recognition and measurement of goodwill and other intangible assets acquired in a business combination. SFAS No. 142 addresses the initial recognition and measurement of intangible assets acquired outside of a business combination and the accounting for goodwill and other intangible assets subsequent to their acquisition. SFAS No. 142 provides that intangible assets with finite useful lives be amortized and that goodwill and intangible assets with indefinite lives not be amortized, but will rather tested at least annually for impairment. Goodwill represents the excess of the cost of an acquired entity over the net of the amounts assigned to assets acquired and liabilities assumed. The Company adopted SFAS No. 142 as of January 1, 2002, and as of that date stopped amortizing goodwill that resulted from business combinations completed prior to the adoption of SFAS No. 141. The Company tests its recorded goodwill for impairment each year on December 31 or if an event occurs or circumstances change that would indicate that the carrying amount exceeds the fair value of the goodwill. Based on the tests performed no impairment loss was recorded upon adoption of this standard as of January 1, 2002, and as of December 31, 2002 and December 31, 2003.

Investments - ASMI has certain strategic non-controlling investments in non-publicly traded companies. Investments with a capital investment of 20% or more of the voting stock of an investee is accounted for under the equity method, absent evidence to the contrary the Company has the ability to exercise significant influence over the investee. Conversely, an investment of less than 20% of the voting stock of an investee is accounted for under the cost method, unless significant influence can be demonstrated. Losses in value of our investments that are other than temporary are recognized in the Consolidated Statement of Operations as an operating expense.

Recoverability of Long-Lived Assets - In accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” long-lived assets and certain recognized intangible assets (except those not being amortized) to be held and used by the Company, and to long-lived assets and certain recognized intangible assets (including those not being amortized) to be disposed of, are required to be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In performing the review for recoverability, the Company estimates the future undiscounted cash flows expected to result from the use of the asset and its eventual disposition. If the undiscounted future cash flow is less than the carrying amount of the asset, the asset is deemed impaired. The amount of the impairment is measured as the difference between the carrying value and the fair value of the asset. Generally, long-lived assets and certain identifiable intangibles to be disposed of are reported at the lower of carrying amount or fair value less cost to sell.

F-8

Revenue Recognition - The Company follows guidance on revenue recognition as described in United States Securities and Exchange Commission (“SEC”) Staff Topic 13, which includes interpretive guidance issued in Staff Accounting Bulletin No. 101 “Revenue Recognition in Financial Statements, issued by the staff of the SEC in December 1999, and SAB No. 104 “Revenue Recognition, issued by the staff of the SEC in December 2003, and the guidance set forth in the consensus reached by the Emerging Issues Task Force (“EITF”) on Issue 00-21 “Revenue Arrangements with Multiple Deliverables”, which the Company adopted on July 1, 2003. The adoption of EITF 00-21 did not have a material impact on the Company’s financial position or results of operations.

Net revenues include product revenues derived primarily from sales of Front-end and Back-end equipment used by both segments of the semiconductor equipment market. The Company recognizes revenue from equipment sales upon shipment of its products when it is proven prior to shipment that the equipment has met all of the customers’ criteria and specifications. The installation process is not believed to be essential to the functionality of the products. However, since under most of the sales contracts, the timing of payment of a portion of the sales price is coincident with installation, such installation is not considered to be inconsequential or perfunctory. Therefore, at the time of shipment, the Company defers that portion of the sales price related to the fair value of installation at the time of shipment. The Company believes it has an enforceable claim for that portion of the sales price not related to the fair value of the installation should it not fulfill its installation obligation. The fair value of the installation process is measured based upon the per-hour amounts charged by third parties for similar installation services. When the Company can only satisfy the customer acceptance criteria or specifications at the customer’s location, revenue is deferred until final acceptance by the customer or until contractual conditions lapse. The Company provides training and technical support to customers. Revenue related to such services is recognized when the service is completed. Revenue from the sale of spare parts and materials is recognized when the goods are shipped.

Cost of Sales - Cost of sales includes direct costs as materials, labor and related overhead. Cost of sales also include cost of warranty, third party royalty payments and costs relating to prototype and experimental products, which we may subsequently sell to customers. The estimated costs of warranty on product shipments include the cost of labor, material and related overhead necessary to repair a product under the warranty period. The estimated costs are accrued in a warranty reserve and are estimated based on actual historical expenses incurred and on estimated probable future expenses related to current sales. Actual warranty costs are charged against the warranty reserve. The warranty reserve is included under accrued expenses in the Balance Sheet.

Restructuring - In June 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” This statement defines the accounting and reporting for costs associated with exit or disposal activities and is effective for exit and disposal activities that are initiated after December 31, 2002, and requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. The Company applied the statement in the accounting for its restructuring plans initiated in the second half of 2003.

Research and Development Expenses - Research and development costs are expensed as incurred. Costs, which relate to prototype and experimental models, which are sold to customers, are charged to cost of sales. Subsidies and other governmental credits to cover research and development costs relating to approved projects are recorded as research and development credits in the period when such project costs occur. The research and development expenses are presented net of the development credits. Technical development credits (Technische Ontwikkelings Kredieten or “TOK”), received from the government of the Netherlands, to offset the cost of certain research and development projects are contingently repayable to the extent sales of equipment developed in such projects occur. Such repayments are calculated as a percentage of sales and are charged to cost of sales. No such repayments are required if such sales do not occur (see Note Q).

Income Taxes - The Company accounts for income taxes under the provisions of SFAS No. 109, “Accounting for Income Taxes.” SFAS No. 109 requires recognition of deferred tax assets and liabilities for the estimated future tax consequences of events attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using currently enacted tax rates. The effect on deferred tax assets and liabilities of changes in tax rates is recognized in the Statement of Operations in the period in which the enacted rate changes. Deferred tax assets and liabilities are reduced through the establishment of a valuation allowance at such time as, based on available evidence, it is more likely than not that the deferred tax assets will not be realized.

Stock-Based Compensation - - ASMI accounts for its stock option and stock-based compensation plans using the intrinsic-value method prescribed in Accounting Principles Board Opinion (“APB”) No. 25, “Accounting for Stock Issued to Employees.” SFAS No. 123, “Accounting for Stock-Based Compensation,” amended by SFAS No. 148.

F-9

“Accounting for Stock-Based Compensation – Transition and Disclosure” allows companies to elect to recognize the fair value of stock options granted as an expense, or to account for stock options using the intrinsic value under APB No. 25 and provide pro forma disclosure of the impact of the fair value on net earnings (loss) and net earnings (loss) per share. As ASMI elected to follow APB No. 25, compensation expense is computed for each employee stock option granted as the amount by which the quoted market price of the ASMI common shares on the date of the grant exceeds the exercise price that the employee must pay to acquire the shares. For ASMI’s stock option plans no stock-based compensation expense is reflected in net earnings (loss), as all options granted under those plans had an exercise price equal to the market value of the underlying common shares on the date of grant. The following table illustrates the effect on net earnings (loss) if the Company had applied the fair value recognition provisions of SFAS No. 123, amended by SFAS No. 148:

	Year ended December 31,
	2001		2002		2003
Net earnings (loss):
As reported	6,098		(29,862	)	(29,320	)
Total stock-based compensation expense determined under fair value based method, net of related tax effect	(3,990	)	(4,648	)	(3,151	)
Pro forma	2,108		(34,510	)	(32,471	)
Basic earnings (loss) per share:
As reported	0.12		(0.61	)	(0.59	)
Pro forma	0.04		(0.70	)	(0.65	)
Diluted earnings (loss) per share:
As reported	0.12		(0.61	)	(0.59	)
Pro forma	0.04		(0.70	)	(0.65	)

The total estimated stock-based compensation expense, determined under the fair value based method, net of related tax effect, is amortized ratably over the option vesting periods and computed using the Black-Scholes option pricing model with the following weighted average assumptions:

	Year ended December 31,
	2001		2002		2003
Expected life (years)	3 - 10		3 - 10		3-10
Risk free interest rate	5.0	%	5.0	%	4.5	%
Dividend yield	—		—		—
Expected volatility	88.0	%	80.0	%	79.3	%
Assumed forfeitures	—		—		—

Based on the Black-Scholes option pricing model, the weighted average estimated fair value of employee stock options granted in US dollars were US$ 12.34 in 2001, US$ 10.58 in 2002 and US$ 10.70 in 2003. The weighted average estimated fair value of employee stock option granted in euros were € 10.99 in 2001, € 9.63 in 2002 and € 8.48 in 2003. For further information on ASMI’s stock option plans reference is made to Note L.

Sales of Shares by a Subsidiary - As further described in the Notes to Consolidated Financial Statements herein, from time to time, the consolidated subsidiary ASM Pacific Technology Ltd. (“ASMPT”) will issue common shares pursuant to their Employee Share Incentive Scheme. The effect of these issuances is a dilution of the ownership in ASMPT. The Company recognizes the impact of these issuances, and other qualifying issuances as discussed in the SEC’s Staff Accounting Bulletin “Accounting for Sales of Stock by a Subsidiary” (“SAB 51”), in the Statement of Operations as a gain (loss) on dilution of investment in subsidiary.

Net Earnings (Loss) per Share - Basic earnings (loss) per share is computed by dividing net earnings (loss) per share by the weighted average common shares outstanding for the year. Diluted earnings (loss) per share reflects the potential dilution that could occur if options issued under the Company’s stock option plan were exercised, outstanding warrants were exercised, and if the Company’s convertible subordinated debt borrowings were converted, unless the conversion would have an anti-dilutive effect. As a result of the losses incurred by the Company there is no difference between the basic and diluted loss per share for the year 2002 and 2003, as the effects of the exercise of stock options and warrants and the conversion of the convertible subordinated debt borrowings would be anti-dilutive (See note U).

F-10

Comprehensive Income (Loss) - Comprehensive income (loss) consists of net earnings (loss) and other comprehensive income (loss). Other comprehensive income (loss) includes gains and losses that are not included in net earnings (loss), but are recorded directly in Shareholders’ Equity. For the years 2001, 2002 and 2003 other comprehensive income (loss) included foreign currency translation adjustments and unrealized gains and losses on derivative financial instruments.

Reclassifications - Certain other reclassifications have been made to prior year Consolidated Financial Statements to conform to the current year presentation.

Use of Estimates - The preparation of the Company’s Consolidated Financial Statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the balance sheet dates and the reported amounts of revenue and expense during the reported periods. Actual results could differ from those estimates.

New Accounting Pronouncements - In April 2003, the FASB issued SFAS No. 149 “Amendment of Statement 133 on Derivative Instruments and Hedging Activities.” This Statement amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities.” The changes in this Statement require that contracts with comparable characteristics be accounted for similarly. This Statement is effective for contracts entered into or modified after June 30, 2003, and for hedging relationships designated after June 30, 2003. The adoption of SFAS No. 149 did not have a material impact on the Company’s financial position or results of operations.

In May 2003, the FASB issued SFAS No. 150 “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” This Statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classifies a financial instrument as a liability (or an asset in some circumstances) if certain conditions are met. This Statement is effective for financial instruments entered into or modified after May 31, 2003. The adoption of SFAS No. 150 did not have a material impact on the Company’s financial position or results of operations and the financial instruments in existence prior to May 31, 2003 were not materially affected by SFAS 150 as of the adoption date.

In November 2002, the FASB issued FASB Interpretation No. 45 (“FIN 45”), “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” The disclosure provisions of FIN 45 are effective for financial statements of interim or annual periods that end after December 15, 2002. The provisions for initial recognition and measurement are effective on a prospective basis for guarantees that are issued or modified after December 31, 2002, irrespective of a guarantor’s year-end. The adoption of FIN 45 did not have a material impact on the Company’s financial position or results of operations.

In January 2003, the FASB released FASB Interpretation No. 46 (“FIN 46”), “Consolidation of Variable Interest Entities.” FIN 46 requires that all primary beneficiaries of variable interest entities consolidate that entity. FIN 46 is effective immediately for variable interest entities created after January 31, 2003 and to variable interest entities in which an enterprise obtains an interest after that date. It applies in the first fiscal year or interim period beginning after June 15, 2003 to variable interest entities in which an enterprise holds a variable interest it acquired before February 1, 2003. In December 2003, the FASB published a revision to FIN 46 (“FIN 46R”) to clarify some of the provisions of the interpretation and to defer the effective date of implementation for certain entities. Under the guidance of FIN 46R, entities that do not have interests in structures that are commonly referred to as special purpose entities are required to apply the provisions of the interpretation in financial statements for periods ending after March 14, 2004. The Company did not create a variable interest entity after January 31, 2003 and does not have a variable interest entity as of December 31, 2003. The Company expects that the full adoption of FIN 46R in 2004 will not have a material impact on the Company’s financial position or results of operations.

F-11

NOTE B List of Significant Subsidiaries and Equity Investees

Name	Location	% Ownership December 31,
		2002		2003
ASM Europe B.V. (1)	Bilthoven, The Netherlands	100.00	%	100.00	%
ASM United Kingdom Sales B.V. (1)	Bilthoven, The Netherlands	100.00	%	100.00	%
ASM Germany Sales B.V. (1)	Bilthoven, The Netherlands	100.00	%	100.00	%
Advanced Semiconductor Materials (Netherlands Antilles) N.V.	Willemstad, Curacao, Netherlands Antilles	100.00	%	100.00	%
ASM France S.A.R.L.	Montpellier, France	100.00	%	100.00	%
ASM Belgium N.V.	Leuven, Belgium	100.00	%	100.00	%
ASM Italia S.r.l.	Agrate, Italy	100.00	%	100.00	%
ASM Microchemistry Oy	Helsinki, Finland	100.00	%	100.00	%
ASM Support and Services Ireland Ltd.	Dublin, Ireland	100.00	%	100.00	%
ASM America, Inc.	Phoenix, Arizona, USA	100.00	%	100.00	%
ASM Japan K.K.	Tokyo, Japan	100.00	%	100.00	%
ASM Wafer Process Equipment Ltd.	Quarry Bay, Hong Kong, People’s Republic of China	100.00	%	100.00	%
ASM China Ltd.	Shanghai, People’s Republic of China	100.00	%	100.00	%
ASM Wafer Process Equipment Singapore Pte Ltd.	Singapore	100.00	%	100.00	%
ASM Far East Marketing Ltd.	Hsin-Chu Hsien, Taiwan	100.00	%	100.00	%
ASM Korea Ltd.	SungNam-City, Korea	100.00	%	100.00	%
ASM Front-End Manufacturing Singapore Pte Ltd.	Singapore	—		100.00	%
NanoPhotonics AG	Mainz, Germany	24.00	%	23.61	%
ASM Pacific Technology Ltd.	Kwai Chung, Hong Kong, People’s Republic of China	54.11	%	53.87	%
ASM Assembly Automation Ltd. (2)	Kwai Chung, Hong Kong, People’s Republic of China	54.11	%	53.87	%
ASM Assembly Materials Ltd. (2)	Kwai Chung, Hong Kong, People’s Republic of China	54.11	%	53.87	%
ASM Technology Singapore Pte Ltd. (2)	Singapore	54.11	%	53.87	%
ASM Technology (M) Sdn. Bhd. (2)	Johor Bahru, Malaysia	54.11	%	53.87	%
ASM Semiconductor Material (Shenzhen) Co. Ltd. (2)	Shenzhen, People’s Republic of China	54.11	%	53.87	%
Shenzhen ASM Micro Electronic Technology Co. Ltd. (2)	Shenzhen, People’s Republic of China	54.11	%	53.87	%

⁽¹⁾ For its subsidiaries ASM International N.V. has filed statements at the Dutch Chamber of Commerce assuming joint and several liability in accordance with Article 403 of Book 2, Part 9 of the Netherlands Civil Code.

⁽²⁾ 100% subsidiaries of ASM Pacific Technology Ltd.

The names of certain relative insignificant subsidiaries have not been mentioned. With the exception of the equity investment in NanoPhotonics AG, the accounts of the above mentioned entities have been consolidated in the Consolidated Financial Statements.

NOTE C Cash and Cash Equivalents, Marketable Securities

At December 31, 2003, cash and cash equivalents and marketable securities of the Company’s subsidiary ASM Pacific Technology Ltd. (“ASMPT”) amounted to € 52,549 and are restricted to use in the operations of ASMPT.

NOTE D Inventories

Inventories consist of the following:

	December 31,
	2002		2003
Components and raw materials	86,268		73,610
Work in process	76,338		61,613
Finished goods	42,325		29,675
Total inventories, gross	204,931		164,898
Allowance for obsolescence and lower market value	(19,179	)	(19,197	)
Total inventories, net	185,752		145,701

F-12

NOTE E Property, Plant and Equipment

	Land, buildings and leasehold improvements		Machinery, equipment, furniture and fixtures		Total
At cost:
Balance January 1, 2003	86,373		276,046		362,419
Capital expenditures	5,674		24,404		30,078
Impairment charges	(1,733	)	(1,509	)	(3,242	)
Retirements and sales	(3,245	)	(22,350	)	(25,595	)
Reclassifications	(1,689	)	1,689		—
Translation effect	(8,055	)	(39,200	)	(47,255	)
Balance December 31, 2003	77,325		239,080		316,405
Accumulated depreciation:
Balance January 1, 2003	45,209		156,709		201,918
Depreciation for the year	5,007		29,408		34,415
Retirements and sales	(3,244	)	(19,406	)	(22,650	)
Translation effect	(4,852	)	(22,661	)	(27,513	)
Balance December 31, 2003	42,120		144,050		186,170
Property, plant and equipment, net:
January 1, 2003	41,164		119,337		160,501
December 31, 2003	35,205		95,030		130,235

Useful lives in years:	- Buildings and leasehold improvements	10-25
	- Machinery and equipment	2-10
	- Furniture and fixtures	2-10

The restructuring of production facilities and research and development activities in Europe, and the adverse change in the use of the related assets, has resulted in the recognition of an impairment charge for certain fixed assets. Reference is made to Note P.

NOTE F Goodwill

The changes in the amount of goodwill are as follows:

	Cost		Accumulated amortization		Carrying amount
Balance January 1, 2002	76,740		(12,434	)	64,306
Translation effect	(11,600	)	1,823		(9,777	)
Balance December 31, 2002	65,140		(10,611	)	54,529
Translation effect	(10,178	)	1,586		(8,592	)
Balance December 31, 2003	54,962		(9,025	)	45,937

The allocation of the carrying amount of goodwill is as follows:

	December 31,
	2002	2003
Front-end segment:
ASM Microchemistry Oy	3,560	3,560
NanoPhotonics AG	328	328
Back-end segment:
ASM Pacific Technology Ltd.	50,641	42,049
Total	54,529	45,937

F-13

ASM Pacific Technology Ltd. (“ASMPT”) - In 2000, the Company purchased in various transactions 5.0% of the outstanding common shares of ASMPT to maintain a majority interest in the shares of ASMPT of 54.88% after the 5.0% acquisition. The total purchase price of the acquired shares amounted to € 74,757 (or US$ 71.8 million at the time of purchase). The acquisition of these shares was accounted for using the purchase method and the excess of the purchase price over the fair value of the underlying net assets acquired in the amount of € 64,985 (or US$ 61.8 million at the time of purchase) has been recorded as goodwill. The fair value approximated the book value of such assets and liabilities of ASMPT at the date of purchase.

ASM Microchemistry Oy - In July 1999, the Company acquired all the outstanding shares of Microchemistry Oy. The acquisition was accounted for using the purchase method. Total consideration paid amounted to FIM (Finnish Marks) 23.2 million or € 3,868 and after adding the assets deficiency the recorded goodwill amounted to € 4,747.

NanoPhotonics AG - In December 1999, the Company acquired a 24.0% interest in NanoPhotonics AG, a German supplier of precision thin film metrology equipment, for € 407. An officer of the Company also purchased a 44.5% interest in NanoPhotonics. The Company has a five-year option to purchase the 44.5% interest from the officer at the same price he paid for his interest in the initial transaction. In exchange for this option, the Company granted the officer a five-year option to purchase 25,000 common shares in ASMI at the fair market value of the shares at the option grant date. Due to the issue of new shares by NanoPhotonics to third parties in 2003, the Company holds a 23.61% interest in NanoPhotonics and the officer of the Company holds an interest of 43.77% as of December 31, 2003.

Upon adoption of SFAS No. 142 as of January 1, 2002, the Company stopped amortizing goodwill that resulted from business acquisitions. The Company tests its recorded goodwill for impairment each year as of December 31 or if an event occurs or circumstances change that would indicate that the fair value of the goodwill exceeds its carrying amount. Based on the tests performed no impairment loss was recorded upon adoption of this standard as of January 1, 2002, and as of December 31, 2002 and December 31, 2003. A reconciliation of previously reported net earnings (loss) and earnings (loss) per share to the amounts adjusted for the exclusion of goodwill amortization is as follows:

	Year ended December 31,
	2001	2002		2003
Reported net earnings (loss)	6,098	(29,862	)	(29,320	)
Add back: amortization of goodwill	7,558	—		—
Adjusted net earnings (loss)	13,656	(29,862	)	(29,320	)
Reported basic net earnings (loss) per share	0.12	(0.61	)	(0.59	)
Amortization of goodwill per share	0.16	—		—
Adjusted basic net earnings (loss) per share	0.28	(0.61	)	(0.59	)
Reported diluted net earnings (loss) per share	0.12	(0.61	)	(0.59	)
Amortization of goodwill per share	0.15	—		—
Adjusted diluted net earnings (loss) per share	0.27	(0.61	)	(0.59	)

NOTE G Investments and Loan Advances

Investments and loan advances consist of the following:

	Investments	Loan advances		Total
Balance January 1, 2002	20,278	—		20,278
Additions, net	—	—		—
Balance December 31, 2002	20,278	—		20,278
Additions, net	1,229	2,545		3,774
Translation effect	—	(170	)	(170	)
Balance December 31, 2003	21,507	2,375		23,882

F-14

In October 2001, the Company entered into a strategic alliance with and made an equity investment in NuTool, Inc., a privately owned semiconductor equipment company. The Company made an equity investment of € 20,278 in this California-based company that is a provider of innovative copper deposition technologies. In April 2003 an additional equity investment was made of € 1,229. The total equity interest in NuTool, Inc. as of December 31, 2002 and December 31, 2003 was 15.4% and 15.7%, respectively. In November 2003 the Company provided a 4.12% interest bearing loan advance of US$ 3.0 million to NuTool, Inc. As of December 31, 2003 the loan advance amounted to € 2,375. The investment in NuTool, Inc. is accounted for under the cost method.

The investment in NanoPhotonics AG, which the Company acquired in 1999, is accounted for under the equity method. As of December 31, 2002 and December 31, 2003, the Company has provided loan advances to NanoPhotonics AG totaling € 2,943 and € 4,443, respectively. Due to the negative equity balances of NanoPhotonics AG as of December 31, 2002 and December 31, 2003, the investment and loan advances to NanoPhotonics AG are valued at zero. The total equity interest in NanoPhotonics AG as of December 31, 2002 and December 31, 2003 was 24.0% and 23.6%, respectively, and decreased due to the issue of new shares by NanoPhotonics AG to third parties. The effect of the dilution in ownership did not result in a gain or loss.

NOTE H Notes Payable to Banks

Information on notes payable to banks is as follows:

	December 31,
	2002	2003
Short-term debt outstanding in:
The Netherlands	10,000	—
Japan	16,548	23,680
	26,548	23,680
Short-term debt outstanding in local currencies is as follows:
	December 31,
	2002	2003
Euro	10,000	—
Japanese yen (in thousands)	2,068,502	3,200,000

ASMI and its individual subsidiaries borrow under separate short-term lines of credit with banks in the countries where they are located. The lines contain general provisions concerning renewal and continuance at the option of the banks. The weighted average interest rate of the outstanding notes payable was 2.35% at December 31, 2003.

Total short-term lines of credit amounted to € 80,790 at December 31, 2003. The amount outstanding at December 31, 2003 was € 23,680 and the undrawn portion totaled € 57,110. The undrawn portion includes € 34,429 relating to ASMPT, in which the Company holds a 53.87% interest, and such amount is limited solely for use in the operations of ASMPT. ASM Japan had € 22,644 available for borrowings under its bank lines, which are restricted for use in the ASM Japan operations. Total short-term facilities of ASM Japan in the amount of € 46,324 are guaranteed by ASMI.

The Company does not provide guarantees for borrowings of ASMPT and there are no guarantees from ASMPT to secure indebtedness of the Company. Under the rules of the Stock Exchange of Hong Kong, ASMPT is precluded from providing loans and advances other than trade receivables in the normal course of business, to ASMI or its affiliates.

F-15

NOTE I Long-term Debt

Long-term debt consists of the following:

	December 31,
	2002		2003
Term loans:
Japan, 1.7-3.3%, due 2005 – 2008	1,617		17,154
Finland, 1.0-3.0%, due 2005 – 2010	4,036		2,916
Mortgage loans:
The Netherlands, 5.4%, due 2006	908		—
Japan, 2.6%, due 2005 – 2006	2,971		874
Capital lease commitments:
United States, 7.2-14.0%, due 2004 – 2006	120		48
Japan, 0.3-0.5%, due 2004 – 2005	1,192		632
	10,844		21,624
Current portion	(2,669	)	(4,820	)
	8,175		16,804
Long-term debt, including the current portion, in local currencies is as follows:
	December 31,
	2002		2003
Euro	4,944		2,916
United States dollar (in thousands)	126		61
Japanese yen (in thousands)	722,375		2,521,562

Aggregate annual principal repayments for years subsequent to December 31, 2003 are:

2004	4,820
2005	5,491
2006	3,980
2007	3,453
2008	3,453
Thereafter	427
	21,624

The long-term loans offered by the Japanese banks to ASM Japan are collateralized by the real estate and other assets of ASM Japan, with additional parent guarantees provided by ASMI.

Capital lease commitments relate to commitments for equipment and machines.

NOTE J Convertible Subordinated Debt

Convertible subordinated debt consists of the following:

			December 31,
			2002	2003
5.0% convertible subordinated notes	US$	115.0 million	109,665	91,057
5.25% convertible subordinated notes	US$	90.0 million	—	71,262
			109,665	162,319

In November and December 2001, ASMI issued US$ 115.0 million in principal amount of 5.0% convertible subordinated notes due November 15, 2005 in a private offering. Interest is payable on May 15 and November 15 of each year. The notes are subordinated in right of payment to our existing and future senior debt. The notes are convertible into common shares at any time before their maturity at a conversion rate of 53.0504 shares per each US$ 1,000 principal amount of notes, subject to adjustment in certain circumstances. This is equivalent to an initial conversion price of US$ 18.85 per share. The Company may redeem, under certain conditions, some or all of the notes at any time after November 30, 2003 at a redemption price of US$ 1,000 per US$ 1,000 principal amount of notes, plus accrued and unpaid interest, if any, to, but excluding, the redemption date, if the closing price of the

F-16

Company’s common shares has exceeded 150% of the conversion price then in effect for at least 20 trading days within a period of 30 consecutive trading days ending on the trading day before the date of mailing of the redemption notice. With respect to any notes called for early redemption, ASMI is required to make an additional payment in cash or, at ASMI’s option, in common shares, or in a combination of cash and common shares, in an amount equal to US$ 199.44 per US$ 1,000 principal amount of notes, less the amount of any interest actually paid on the notes before the date of redemption. In the event of a change in control, ASMI may be required to repurchase the notes. At December 31, 2003, none of the US$ 115.0 million convertible subordinated notes have been converted or repurchased.

In May 2003, ASMI issued US$ 90.0 million in principal amount of 5.25% convertible subordinated notes due in May 2010 in a private offering. Interest on the notes is payable on May 15 and November 15 of each year. The notes are subordinated in right of payment to all of our existing and future senior indebtedness. The notes are convertible, at the option of the holder, into shares of our common stock initially at a conversion rate of 52.0237 shares of common stock for each $1,000 principal amount of notes, subject to adjustment in certain circumstances. This is equivalent to an initial conversion price of US$ 19.22 per share. On or after May 20, 2006, the Company may redeem any of the notes at a redemption price equal to 100% of the principal amount of the notes being redeemed, plus accrued and unpaid interest, if the closing price of our common shares has exceeded 150% of the conversion price for at least 20 trading days in any period of 30 consecutive trading days and if certain other conditions are satisfied. In the event of a change in control, the Company may be required to repurchase the notes. The US$ 115.0 million 5.0% convertible subordinated notes rank pari passu with the US$ 90.0 million convertible subordinated notes. At December 31, 2003, none of the US$ 90.0 million convertible subordinated notes have been converted or repurchased.

Other movements in the balance of the outstanding subordinated debt in the year ended December 31, 2003 related to the translation of the outstanding amounts in US dollars to euros.

The fees incurred for the issuance of the convertible subordinated notes are included as debt issuance costs in the Balance Sheet and amortized by the interest method as interest cost during the life of the debts.

NOTE K Shareholders’ Equity

The authorized capital of the Company amounts to 110,000,000 shares of € 0.04 par value common shares, 118,000 shares of € 40 par value preferred shares and 8,000 shares of € 40 par value financing preferred shares, of which 50,061,647 common shares and no preferred or financing preferred shares were outstanding as at December 31, 2003. There are currently no preferred or financing preferred shares issued. All shares have one vote per € 0.04 par value, except for shares the Company and its subsidiaries own, which have no voting rights.

Financing preferred shares are designed to allow ASMI to finance equity with an instrument paying a preferred dividend, linked to EURIBOR loans and government loans, without the dilutive effects of issuing additional common shares. Preferred and financing preferred shares are issued in registered form only and are subject to transfer restrictions. Essentially, a preferred or financing preferred shareholder must obtain the approval of our Supervisory Board to transfer shares. If the approval is denied, the Supervisory Board will provide a list of acceptable prospective buyers who are willing to purchase the shares at a cash price to be fixed by consent of the Supervisory Board and seller within two months after the approval is denied. If the transfer is approved, the shareholder must complete the transfer within three months, at which time the approval expires.

Preferred shares carry the right to a cumulative preferred dividend. Financing preferred shares are also entitled to a cumulative dividend based on the par value and share premium paid on such shares. Dividends distributable to common shareholders are limited to retained earnings of ASMI decreased by legal reserves of € 85,375, which must be maintained. At December 31, 2003, ASMI had no distributable retained earnings.

Change in Par Value

In October 2001, the Company changed the par value per common share from Nlg 0.01 to € 0.04 par value per common share. The change resulted in an increase of the outstanding amount of common shares and a decrease of the capital in excess of par value of € 1,739.

F-17

Warrants

In conjunction with US$ 20.0 million five-year zero-bond debentures issued on October 1, 1999, the Company issued 200,000 warrants on common shares of the Company at a price of US$ 9.81 per share, a premium to market at the date of issuance of 20.0%. At December 31, 2003 the 200,000 warrants have not been exercised.

NOTE L Employee Benefits

Pension plans

The Company has retirement plans covering substantially all employees. The principal plans are defined contribution plans, except that of the Company’s Japanese operations, which is a defined benefit pension plan. The Company has no major continuing obligations other than the payment of annual contributions. Aggregate retirement plan contributions including those for the Japanese operations were € 7,215 in 2001, € 7,924 in 2002 and € 7,745 in 2003. Employees of the Japanese operations terminating their employment are generally entitled to a lump-sum severance payment or to pension plan benefits based on years of service and certain other factors. Plan assets are held by a life insurance company. There are no unrecognized prior service costs.

The Company does not provide for any post retirement benefits other than pensions.

Employee Stock Option Plan

The Company has adopted various stock option plans and has entered into stock option agreements with various key management personnel. Under these plans, key employees may purchase a specific number of shares of the Company’s common stock. Options are priced at market value in euros or US dollars on the date of grant, are generally vesting in equal parts over a period of five years and generally expire after five or ten years. Under the 2001 Stock Option Plan the Company is authorized to issue 4,000,000 shares. At December 31, 2003, options to purchase 1,127,500 shares have been issued under the 2001 Stock Option Plan. Under previous plans no more options to purchase shares can be issued. Under the various stock option plans a total of 1,625,647 options to purchase common stock were outstanding at December 31, 2003, expiring at various dates through 2013.

The following is a summary of changes in options outstanding:

	Number of options		Weighted average exercise price in US$	Number of options		Weighted average exercise price in €
Balance January 1, 2001	1,227,379		7.42	448,600		9.95
Options granted	689,983		16.83	138,500		15.46
Options cancelled	(26,999	)	5.47	(10,650	)	17.95
Options exercised	(149,150	)	5.00	(123,800	)	8.27
Balance December 31, 2001	1,741,213		11.38	452,650		11.96
Options granted	155,500		14.81	180,000		14.34
Options cancelled	(80,000	)	10.59	(13,082	)	20.72
Options exercised	(286,093	)	6.86	(13,919	)	9.69
Balance December 31, 2002	1,530,620		12.61	605,649		12.53
Options granted	197,500		7.99	10,000		14.35
Options cancelled	(17,116	)	21.32	(9,667	)	15.39
Options exercised	(569,439	)	6.30	(121,900	)	7.67
Balance December 31, 2003	1,141,565		14.84	484,082		13.69

F-18

The average remaining contractual life of the outstanding options granted in 2003 is 8.27 years at December 31, 2003. The number of options exercisable at December 31, 2001 and 2002 were 1,011,441 and 1,067,467 respectively. At December 31, 2003 options outstanding and options exercisable classified by range of exercise price were:

	Options outstanding			Options exercisable
Range of exercise prices	Number outstanding	Weighted average remaining contractual life	Weighted average exercise price	Number exercisable	Weighted average exercise price
In US$		In years	In US$		In US$
4.00-10.00	160,615	3.68	6.64	156,765	6.61
10.00-15.00	186,500	7.97	11.47	66,400	10.83
15.00-20.00	741,450	2.83	16.78	390,550	16.44
20.00-30.00	53,000	7.66	23.34	16,600	24.88
4.00-30.00	1,141,565	4.02	14.84	630,315	13.63
In €		In years	In €		In €
6.00-10.00	47,000	2.59	7.17	37,000	7.20
10.00-15.00	230,000	3.87	11.81	102,000	11.80
15.00-20.00	197,082	3.06	16.95	80,203	17.13
20.00-30.00	10,000	2.35	23.23	5,000	23.87
6.00-30.00	484,082	3.39	13.69	224,203	13.21

Employee Share Incentive Scheme ASMPT

In 1989, the shareholders of ASMPT approved a plan to issue up to 5.0 percent of the total issued shares of ASMPT to directors and employees. This plan has been extended in 1999 for a term up to March 23, 2012. The directors annually may approve an amount of supplemental compensation to the designated directors and officers, which will be used to issue or purchase ASMPT’s common shares for the designees at current market value. In December 2003, 1,686,500 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. In 2002 and 2001, respectively 1,764,000 and 1,782,500 ASMPT shares were issued to certain directors and employees under the plan. The effect of this transaction on ASMI was a dilution of its ownership interest in ASMPT of 0.24% in 2003, 0.25% in 2002, and 0.26% in 2001. The shares issued under the plan in 2003 have diluted ASMI’s ownership in ASMPT to 53.87% as of December 31, 2003. In December 2003 the management of ASMPT has determined that 1,800,000 common shares will be allocated to employees for their services in the year 2003, which shares will be issued in the year 2004 upon the expiration of a defined qualification period. Total compensation expense related to the Employee Share Incentive Scheme of ASMPT of respectively € 3,995 in 2001, € 3,417 in 2002, and € 6,391 in 2003 were charged to the Statement of Operations. The dilution in ownership has resulted in a gain on the investment in ASMPT of € 915 in 2001, € 1,281 in 2002, and € 941 in 2003, which gain has been separately included in the Statement of Operations. Due to the participation exemption in the Netherlands no deferred income taxes have been provided for these gains.

NOTE M Commitments and Contingencies

Capital leases included in property, plant and equipment are as follows:

	December 31,
	2002		2003
Machinery and equipment	1,828		2,072
Furniture and fixtures	230		68
	2,058		2,140
Less accumulated depreciation	(1,149	)	(1,515	)
	909		625

F-19

The Company leases certain office and plant facilities and equipment under various operating lease arrangements. Original non-cancelable lease terms typically are between 1 and 15 years. At December 31, 2003 minimum rental commitments under capital leases and operating leases having initial or remaining non-cancelable terms in excess of one year are as follows:

	Capital leases		Operating leases
2004	529		6,711
2005	175		5,294
2006	2		4,053
2007	—		2,896
2008	—		1,792
Thereafter	—		8,862
Total	706		29,608
Less amount representing interest	(26	)
Present value of net minimum lease payments	680

Aggregate rental expense for operating leases was € 10,576 in 2001, € 10,165 in 2002 and € 10,151 in 2003. At December 31, 2003 the Company had entered into purchase commitments with suppliers in the amount of € 84,915 for purchases within the next 12 months. Commitments for capital expenditures at December 31, 2003 were € 4,572.

Change of Control Transaction

If the Company desires to effect a change of control transaction with a competitor of Applied Materials, Inc., the Company must, pursuant to a litigation settlement transaction in 1997, first offer the change of control transaction to Applied Materials, Inc., on the same terms as the Company would be willing to accept from that competitor pursuant to a bona fide arm’s-length offer by that competitor.

NOTE N Litigation and Environmental Matters

The Company is party to various legal proceedings generally incidental to its business and is subject to a variety of environmental and pollution control laws and regulations. As is the case with other companies in similar industries, the Company faces exposure from actual or potential claims and legal proceedings. Although the ultimate disposition of legal proceedings cannot be predicted with certainty, it is the opinion of the Company’s management that the outcome of any claim which is pending or threatened, either individually or on a combined basis, will not have a materially adverse effect on the financial position of the Company, but could materially affect the Company’s results of operations in a given year.

In June 2001, the Company’s subsidiary, ASM America, filed a lawsuit against Genus, Inc. in the U.S. District Court for the Northern District of California alleging infringement of three patents involving sequential chemical vapor deposition (U.S. Patents Nos. 5,916,365, 6,015,590 and 4,798,165). Genus responded by denying the allegations and counterclaimed alleging antitrust violations and infringement of U.S. Patent No. 5,294,568 involving selective etching of native oxide. After court rulings that Genus did not infringe the ‘365 or ‘590 patents, the parties entered into a binding memorandum in April 2003 settling the litigation. Pursuant to the memorandum Genus granted to the Company and ASM America a nonexclusive, worldwide, fully paid-up license under the ‘568 patent and directly related patents and ASM America granted to Genus a nonexclusive, worldwide, fully paid-up license under the ‘165, ‘365 and ‘590 patents and directly related patents, provided that the license for the ‘365 and ‘590 patents will be effective only upon completion of the appeal by ASM America of the lower court’s rulings of no infringement in respect of such patents. If the appeals court vacates either ruling on the basis of a change in the lower court’s claim construction, Genus must pay ASM America US$ 1.0 million. Genus and the Company also agreed to refrain for a five-year period from litigating patent and antitrust claims, although each party retains the right to recover damages incurred during such period if a suit is brought later. Genus, the Company and ASM America stipulated to an Entry of Judgment and the Company and ASM America filed a Notice of Appeal in January 2004, appealing the District Court’s rulings on the ‘590 and ‘165 patents to the U.S. Court of Appeals for the Federal Circuit. Given the stage of the proceedings it is not possible to predict the outcome of the appeal.

F-20

Following a letter from Applied Materials, Inc. to the Company alleging that the Company’s Eagle reactors infringe various Applied Materials patents, the Company and its subsidiary, ASM America, Inc., filed a declaratory judgment action against Applied Materials on August 27, 2002 in the U.S. District Court for the District of Arizona. The lawsuit seeks a declaration of non-infringement, invalidity or unenforceability of six Applied Materials patents relating to cleaning of reaction chambers and deposition of silicon nitride. Applied Materials responded on December 16, 2002 by denying the allegations and counterclaimed, as modified by supplemental answer filed July 21, 2003, for a judgment of infringement, including willful infringement, of all six patents and for damages and other relief. No trial date has been set. Given the stage of the proceedings, it is not possible to predict the outcome of the claims and counterclaims at this time, or the range of potential recovery or loss.

The Company and its subsidiary, ASM America, Inc., filed a lawsuit against Applied Materials on October 3, 2003 in the U.S. District Court for the Eastern District of Texas alleging infringement of six patents: U.S. Patent No. 6,418,945 entitled “Method and Device for Transferring Wafers”, U.S. Patent No. 6,572,924 entitled “Exhaust System for Vapor Deposition Reactor and Method of Using the Same”, U.S. Patent No. 6,579,374 entitled “Apparatus for Fabrication of Thin Films”, U.S. Patent No. 6,410,463 entitled “Method for Forming Film With Low Dielectric Constant on Semiconductor Substrate”, U.S. Patent No. 6,511,539 entitled “Apparatus and Method for Growth of a Thin Film”, and U.S. Patent No. 6,053,686 entitled “Device and Method for Load Locking for Semiconductor Processing”. Applied Materials counterclaimed in November 2003, alleging infringement of U.S. Patent No. 5,710,407 and the six patents at issue in the above noted litigation in Arizona. The Company and ASM America have filed a motion to dismiss the counterclaims as to the six patents currently pending in Arizona. Applied Materials has filed a motion to change venue to the District of Arizona. No trial date has been set. Given the stage of the proceedings, it is not possible to predict the outcome of the claims and counterclaims at this time, or the range of potential recovery or loss.

NOTE O Financial Instruments and Risk Management

Derivatives

The Company uses forward exchange contracts to hedge certain operational cash flow exposures resulting from changes in foreign currency exchange rates to occur within the next twelve months. The Company enters into these foreign exchange contracts to hedge anticipated sales or purchase transactions in the normal course of business for which we have a firm commitment from a customer or to a supplier. The terms of these contracts are consistent with the timing of the transactions being hedged. The Company does not use such instruments for trading or speculative purposes.

Furthermore, the Company continues to manage the currency exposure of certain receivables and payables using derivative instruments, such as forward exchange contracts and currency swaps, and nonderivative instruments, such as debt borrowings in foreign currencies. The gains or losses on these instruments provide an offset to the gains or losses recorded on the foreign currency receivables and payables. The derivative instruments are recorded at fair value and changes in fair value are recorded in earnings under foreign transaction gains (losses) on the Statement of Operations.

The Company estimates that € 352 unrealized gains included in accumulated other comprehensive income as of December 31, 2003 will be reclassified to net earnings within the next 12 months upon completion of the underlying transaction. Unrealized gains included in other comprehensive income as of December 31, 2002 of € 1,337 were reclassified to earnings in 2003. Hedge ineffectiveness was insignificant for the years ended December 31, 2002 and December 31, 2003.

F-21

The outstanding currency forward exchange contracts are as follows:

	Currency and notional amount (in thousands)			Forward contract value		Fair value		Difference between forward value and fair value		Included in accumulated other comprehensive income (loss)
December 31, 2002:
Cash flow hedges:
Purchase	US$	900		882		858		(24	)	(24	)
Sale	US$	(26,334	)	(26,388	)	(25,174	)	1,214		1,361
Other foreign currency contracts:
Purchase	US$	4,500		4,323		4,292		(31	)	—
Sale	US$	(12,349	)	(12,656	)	(11,800	)	856		—
December 31, 2003:
Cash flow hedges:
Sale	US$	(5,063	)	(4,375	)	(4,023	)	352		352
Other foreign currency contracts:
Sale	US$	(8,161	)	(7,122	)	(6,466	)	656		—

Long-term Debt and Subordinated Debt

At December 31, 2003 the Company had convertible subordinated debt borrowings outstanding of € 91,057 at a fixed interest rate, maturing in November 2005 and € 71,262 at a fixed interest rate, maturing in May 2010, and € 21,624 in long-term debt at fixed interest rates and € 23,680 in other borrowings with variable short-term interest rates. The Company is exposed to interest rate risk primarily through its borrowing activities. The Company does not enter into financial instrument transactions for trading or speculative purposes or to manage interest rate exposure.

The fair value amounts of our long-term debt and convertible subordinated debt are as follows:

	2002		2003
	Carrying amount	Fair value	Carrying amount	Fair value
Long-term debt, including current portion	10,844	10,955	21,624	21,598
Convertible subordinated debt	109,665	105,003	162,319	207,956

Methods and Assumptions Used in Estimating Fair Value Disclosure for Financial Instruments

For cash and cash equivalents, marketable securities, accounts receivable, notes payable to banks, accounts payable and accrued expenses, the carrying amounts approximate fair value due to their short maturities.

For long-term debt, the estimated fair values of the Company’s long-term debt are based on current interest rates available to the Company for debt instruments with similar terms and remaining maturities. The estimated fair values of the Company’s convertible subordinated debt borrowings are based on theoretical fair value calculations obtained from independent investment bankers.

For forward exchange contracts market values based on external quotes from banks have been used to determine the fair value.

Credit Risk

Credit risk represents the accounting loss that would be recognized at the reporting date if counterparties failed completely to perform as contracted and from movements in interest rates and foreign exchange rates. The Company does not anticipate nonperformance by counterparties. The Company generally does not require collateral or other security to support financial instruments with credit risk. Concentrations of credit risk (whether on or off-balance sheet) that arise from financial instruments exist for groups of customers or counterparties when they have similar economic characteristics that would cause their ability to meet contractual obligations to be similarly affected by changes in economic or other conditions. Financial instruments on the Balance Sheet that potentially subject the

F-22

Company to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable. The Company maintains a policy providing for the diversification of cash and cash equivalent investments and places its investments in high quality financial institutions to limit the amount of credit risk exposure. The Company derives a significant percentage of its revenue from a small number of large customers. Our largest customer accounted for approximately 18.5% of our net sales in 2003 and our ten largest customers accounted for approximately 46.5% of our net sales in 2003. Sales to these large customers also may fluctuate significantly from time to time depending on the timing and level of purchases from the Company. Significant orders from such customers may expose the Company to a concentration of credit risk and difficulties in collecting amounts due, which could harm the Company’s financial results. At December 31, 2003 one customer accounted for 9.4% of the outstanding balance in accounts receivable.

NOTE P Restructuring

In the second half of 2003 the Company implemented restructuring plans including work force reduction in its Front-end segment. As part of these plans the Company restructured its research and development activities at ASM Microchemistry in Finland, consolidated production facilities of its operations at ASM Europe B.V. in the Netherlands and reduction of work forces at other Front-end segment subsidiaries. The restructuring has resulted in a reduction of the workforce in the second half of 2003. Total restructuring charges in 2003 were € 6,478 covering employee terminations, operational lease contract termination costs and fixed asset impairment charges. Costs associated with the restructuring plans for which a liability has been incurred at December 31, 2003 have been included in the restructuring charges. In the first and second quarter of 2004 the Company expects an additional total charge related to severance payments and lease termination costs ranging from € 1.0 million to € 2.0 million upon completion of the restructuring program. Reference is made to Note E for disclosure of the fixed impairment charges.

The details of the restructuring charges for the year ended December 31, 2003 and the provision at December 31, 2003 are as follows:

	Selling, general and administrative expenses	Research and development expenses	Total restructuring charges	Charges with no cash outflow		Charges paid in 2003		Accrual December 31, 2003
Severance payments	1,318	285	1,603	—		(668	)	935
Operational lease contract termination costs	1,405	—	1,405	—		—		1,405
Fixed asset impairment charges	1,626	1,616	3,242	(3,242	)	—		—
Other	228	—	228			(122	)	106
	4,577	1,901	6,478	(3,242	)	(790	)	2,446

NOTE Q Research and Development

The Company’s Netherlands, Finnish and Singapore operations receive research and development grants and credits from various governmental sources. The amount of research and development credits offset against research and development expenses amounted to € 5,609, € 2,992 and € 3,022 in 2001, 2002 and 2003, respectively.

Some of the research and development grants received in the Netherlands are contingently repayable to the extent the Company recognizes sales of products to which the credit is related. The Company does not recognize a liability on its balance sheet in respect of these credits until it recognizes sales of products to which the credit relates, and is then charged to cost of sales when such sale is recorded. These repayments vary and range from 1.0% to 4.0% of the realized sales, depending on the products sold. The contingent repayments accrue at interest rates ranging from 5.0% to 8.0% per annum. The contingent repayments, which are not recognized as a liability in the Balance Sheet, were € 10,981 at December 31, 2002 and € 12,151 at December 31, 2003. In 2001, 2002 and 2003 the Company made TOK repayments in the amount of € 2,883, € 23 and € 48, respectively.

F-23

NOTE R Income Taxes

The components of earnings (loss) before income taxes and minority interest consist of:

	Year ended December 31,
	2001	2002		2003
The Netherlands	3,958	(24,223	)	(42,094	)
Other countries	19,309	7,805		43,515
	23,267	(16,418	)	1,421

The income tax benefit (expense) consists of:

	Year ended December 31,
	2001		2002		2003
Current:
The Netherlands	—		—		—
Other countries	(3,760	)	(4,445	)	(6,188	)
	(3,760	)	(4,445	)	(6,188	)
Deferred:
The Netherlands	—		—		—
Other countries	(951	)	5,610		(924	)
	(951	)	5,610		(924	)
Income tax benefit (expense)	(4,711	)	1,165		(7,112	)

The provisions for income taxes as shown in the Consolidated Statements of Operations differ from the amounts computed by applying the Netherlands statutory income tax rates to earnings before taxes.

A reconciliation of the provisions for income taxes and the amounts that would be computed using the statutory Netherlands income tax rates is set forth as follows:

	Year ended December 31,
	2001		2002		2003
Earnings before income taxes and minority interest	23,267		(16,418	)	1,421
Netherlands statutory tax rate	35.0	%	34.5	%	34.5	%
Income tax provision at statutory rate	(8,143	)	5,664		(490	)
Non-deductible expenses	(1,391	)	(876	)	(1,193	)
Foreign taxes at a rate other than the Netherlands statutory rate	4,199		6,990		11,173
Valuation allowance	(2,923	)	(14,662	)	(23,518	)
Non-taxable income	4,214		4,865		7,659
Other	(667	)	(816	)	(743	)
Income tax benefit (expense)	(4,711	)	1,165		(7,112	)

Non-taxable income relates primarily to our manufacturing operation in Singapore where income covering certain products is non-taxable under a tax incentive scheme granted by the Singapore tax authority. The tax exemption scheme has a term ending December 31, 2011.

F-24

Deferred income taxes consist of the following:

	December 31,
	2002		2003
Deferred tax assets:
Reserves and allowances	1,458		1,554
Net operating loss carry forwards	100,215		113,147
Other	239		327
Gross deferred tax assets	101,912		115,028
Less: valuation allowance	(91,532	)	(105,703	)
Net deferred tax assets	10,380		9,325
Deferred tax liabilities:
Depreciation	(3,109	)	(2,612	)
Research and development credits	(3,692	)	(4,192	)
Other	(5	)	—
Deferred tax liabilities	(6,806	)	(6,804	)
Net deferred income taxes	3,574		2,521

F-25

Deferred tax assets (liabilities) are classified in the balance sheet as follows:

	December 31,
	2002		2003
Deferred tax assets - current	1,843		4,125
Deferred tax assets - non-current	2,781		136
Deferred tax liabilities - non-current	(1,050	)	(1,740	)
	3,574		2,521

Based on tax filings, ASMI and its individual subsidiaries have net operating losses available at December 31, 2003, of € 334,565 for tax return purposes to reduce future income taxes, mainly in Europe and the United States. The Company believes that realization of its net deferred tax assets is dependent on the ability of the Company to generate taxable income in the future. Given the volatile nature of the semiconductor equipment industry, past experience, and the tax jurisdictions where the Company has net operating loss carry forwards, the Company believes that there is currently insufficient evidence to substantiate recognition of substantially all net deferred tax assets with respect to net operating loss carry forwards. Accordingly, a valuation allowance of € 91,532 in 2002 and € 105,703 in 2003 has been recorded.

The amounts and expiration dates of net operating loss carry forwards for tax purposes are as follows:

Expiration year	December 31 ,2003
2004	6,454
2005	447
2007	6,468
2008	943
2009	1,216
2017	58,554
2018	5,854
2019	1,107
2021	1,596
2022	16,559
2023	16,843
Unlimited	218,524
Net operating loss carry forwards	334,565

F-26

The Company has not provided for deferred foreign withholding taxes, if any, on undistributed earnings of its foreign subsidiaries. At December 31, 2003 undistributed earnings of subsidiaries, subject to withholding taxes, were approximately € 23,004. These earnings could become subject to foreign withholding taxes if they were remitted as dividends or if the Company should sell its interest in the subsidiaries. However, the Company believes that Netherlands tax credits would largely eliminate any foreign withholding tax that might otherwise be due.

F-27

NOTE S Disclosures about Segments and Related Information

The Company organizes its activities in two operating segments, Front-end and Back-end.

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 majority of 53.87% interest, whilst the remaining shares are listed on the Stock Exchange of Hong Kong. The segment’s main operations are located in Singapore, Hong Kong, the People’s Republic of China and Malaysia.

	Front-end		Back-end		Total
Year ended December 31, 2001
Net sales to unaffiliated customers	336,625		224,439		561,064
Gross profit	131,788		91,533		223,321
Earnings (loss) from operations	(3,771	)	28,022		24,251
Net interest income (expense)	(4,528	)	3,187		(1,341	)
Foreign currency transaction gains (losses)	(455	)	812		357
Income tax benefit (expense)	(2,156	)	(2,555	)	(4,711	)
Gain on dilution of investment in subsidiary	915		—		915
Minority interest	—		(13,373	)	(13,373	)
Net earnings (loss)	(9,995	)	16,093		6,098
Capital expenditures	49,691		21,872		71,563
Depreciation and amortization	20,894		21,869		42,763
Cash and cash equivalents	36,756		70,821		107,577
Capitalized goodwill	3,888		60,418		64,306
Other identifiable assets	340,103		245,079		585,182
Total assets	380,747		376,318		757,065
Total debt	156,707		4,151		160,858
Headcount in full-time equivalents (1)	1,125		4,830		5,955
Year ended December 31, 2002
Net sales to unaffiliated customers	266,915		251,887		518,802
Gross profit	85,819		104,906		190,725
Earnings (loss) from operations	(42,659	)	36,657		(6,002	)
Net interest income (expense)	(9,167	)	876		(8,291	)
Foreign currency transaction gains (losses)	(1,743	)	(382	)	(2,125	)
Income tax benefit (expense)	3,499		(2,334	)	1,165
Gain on dilution of investment in subsidiary	1,281		—		1,281
Minority interest	—		(15,890	)	(15,890	)
Net earnings (loss)	(48,789	)	18,927		(29,862	)
Capital expenditures	19,706		13,540		33,246
Depreciation	18,047		22,044		40,091
Cash and cash equivalents	13,876		57,115		70,991
Capitalized goodwill	3,888		50,641		54,529
Other identifiable assets	325,827		202,494		528,321
Total assets	343,591		310,250		653,841
Total debt	146,631		426		147,057
Headcount in full-time equivalents (1)	1,226		5,328		6,554

F-28

	Front-end		Back-end		Total
Year ended December 31, 2003
Net sales to unaffiliated customers	286,492		295,376		581,868
Gross profit	72,850		128,421		201,271
Earnings (loss) from operations	(45,275	)	59,474		14,199
Net interest income (expense)	(10,744	)	445		(10,299	)
Foreign currency transaction gains (losses)	(1,816	)	(663	)	(2,479	)
Income tax benefit (expense)	(1,400	)	(5,712	)	(7,112	)
Gain on dilution of investment in subsidiary	941		—		941
Minority interest	—		(24,570	)	(24,570	)
Net earnings (loss)	(58,294	)	28,974		(29,320	)
Capital expenditures	11,934		18,144		30,078
Depreciation	16,864		17,551		34,415
Impairment charges	3,242		—		3,242
Cash and cash equivalents	102,308		52,549		154,857
Capitalized goodwill	3,888		42,049		45,937
Other identifiable assets	271,013		200,494		471,507
Total assets	377,209		295,092		672,301
Total debt	207,623		—		207,623
Headcount in full-time equivalents (1)	1,179		6,254		7,433

⁽¹⁾ Headcount includes those employees with a fixed contract, and is exclusive of temporary workers.

There are no inter-segment transactions, other than charges for management services, which are based on actual cost. The accounting policies used to measure the net earnings and total assets in each segment are identical to those used in the Consolidated Financial Statements. The measurement methods used to determine reported segment earnings are consistently applied for all periods presented. There were no asymmetrical allocations to segments.

The geographical information of net sales to unaffiliated customers allocated to individual countries based in the location of the customer and the Company’s long-lived assets allocated to the individual countries in which the Company has operating units is summarized as follows:

	Europe	United States	Japan	Southeast Asia	Corporate	Consolidated
Year ended December 31, 2001
Net sales to unaffiliated customers	113,121	112,479	97,410	238,054	—	561,064
Long-lived assets	21,512	49,782	27,408	110,763	1,894	211,359
Year ended December 31, 2002
Net sales to unaffiliated customers	60,237	152,366	47,514	258,685	—	518,802
Long-lived assets	19,475	46,790	25,863	86,934	1,717	180,779
Year ended December 31, 2003
Net sales to unaffiliated customers	66,428	126,092	69,708	319,640	—	581,868
Long-lived assets	12,845	43,787	22,421	71,209	1,480	151,742

Long-lived assets includes the Company’s assets in property, plant and equipment and the Company’s investment in NuTool, Inc.

F-29

NOTE T Selected Operating Expenses and Additional Information

Personnel expenses for employees were as follows:

	Year ended December 31,
	2001	2002	2003
Wages, salaries and social charges	151,902	150,477	151,524
Pensions	7,215	7,924	7,745
	159,117	158,401	159,269

The average number of employees, exclusive of temporary workers, by geographic area during the year was as follows:

	Year ended December 31,
	2001	2002	2003
The Netherlands	355	324	343
Other European countries	146	123	127
United States of America	343	378	433
Far East	5,558	5,042	5,844
Japan	223	238	251
	6,625	6,105	6,998

NOTE U Earnings (Loss) per Share

The following represents a reconciliation of net earnings (loss) and weighted average number of shares outstanding (in thousands) for purposes of calculating basic and diluted net earnings (loss) per share:

	Year ended December 31,
	2001	2002		2003
Net earnings (loss) used for purpose of computing basic earnings per share	6,098	(29,862	)	(29,320	)
After-tax equivalent of interest expense on convertible notes	—	—		—
Net earnings (loss) used for purposes of computing diluted net earnings (loss) per share	6,098	(29,862	)	(29,320	)
Basic weighted average number of shares outstanding at the end of period used for purpose of computing basic earnings per share	48,944	49,170		49,642
Dilutive effect of stock options	922	—		—
Dilutive effect of exercisable warrants	92	—		—
Dilutive effect of convertible notes	—	—		—
Dilutive weighted average number of shares outstanding	49,958	49,170		49,642
Net earnings (loss) per share:
Basic	0.12	(0.61	)	(0.59	)
Diluted	0.12	(0.61	)	(0.59	)

No adjustments have been reflected in the diluted weighted average number of shares and net loss for the year ended December 31, 2002 and 2003 due to the loss reported for the year. For the year ended December 31, 2002, the effect of 957 stock options, 6,101 conversion rights, and 112 exercisable warrants to acquire common stock were anti-dilutive. For the year ended December 31, 2003, the effect of 335 stock options, 8,639 conversion rights, and 60 exercisable warrants to acquire common stock were anti-dilutive.

F-30

NOTE V Board Remuneration

Cash remuneration paid or accrued by ASM International N.V. or one of its subsidiaries for members of the Management Board and the Supervisory Board of the Company were as follows:

	Year ended December 31,
				2003	2002
	Base compensation	Bonuses	Pensions	Total	Total
Management Board:
A. H. del Prado	302	—	—	302	302
R. L. de Bakker	186	—	19	205	196
P. Lam See Pong	397	475	76	948	865
H.D.J. Pietersma	413	—	25	438	137
	1,298	475	120	1,893	1,500
Supervisory Board:
P. C. van den Hoek	54	—	—	54	41
E.A.van Amerongen	14	—	—	14	7
A. Baan	14	—	—	14	14
J. M. R. Danneels	14	—	—	14	14
J. den Hoed	14	—	—	14	14
F. C. Rauwenhoff	—	—	—	—	7
	110	—	—	110	97

All remuneration for Mr. P. Lam See Pong relates to the compensation he receives in his capacity of Managing Director of ASMPT.

Mr. Pietersma was appointed member of the Management Board on May 23, 2003. Mr. Pietersma joined the Company on September 8, 2002. The above remuneration includes all compensation paid or accrued since September 8, 2002.

The remuneration for Mr. van den Hoek, includes the compensation he receives as member of the Supervisory Board and the compensation he receives in his capacity of non-executive director of ASMPT.

For members of the Supervisory Board no stock options are issued. Stock options outstanding and movements in the outstanding options for members of the Management Board are as follows:

	Year of grant	Outstanding January 1, 2003	Granted in 2003	Exercised in 2003		Outstanding December 31, 2003	Exercise price		Remaining term, in years
A. H. del Prado	1999	25,000	—	—		25,000	US$	15.44	1
A. H. del Prado	2001	250,000	—	—		250,000	US$	19.32	3
R. L. de Bakker	2000	35,000	—	—		35,000	€	11.60	7
P. Lam See Pong	1993	42,000	—	(42,000	)	—	US$	0.50	—
P. Lam See Pong	1997	20,000	—	(20,000	)	—	US$	8.69	—
P. Lam See Pong	2001	100,000	—	—		100,000	US$	15.44	2
H.D.J. Pietersma	2002	100,000	—	—		100,000	€	11.20	4
		572,000	—	(62,000	)	510,000

The remuneration and stock option grants for the Management Board has been determined by the Supervisory Board. The options are granted for a term of five or ten years, and become exercisable in equal parts over a five year period. For the exercise of options new shares are issued. The remuneration for the Supervisory Board has been determined by the General Meeting of Shareholders.

F-31

In 2003, Mr. P. Lam See Pong in his capacity of Director of the Board of ASMPT was granted 180,000 shares in the share capital of ASMPT under the Employee Share Incentive Scheme of ASMPT. The shares will be issued in 2004. The market value of these shares at the date of grant amounted to € 657. In 2002 Mr. P. Lam See Pong was granted 180,000 shares in the share capital of ASMPT, which were issued in 2003. The market value of these shares at the date of grant amounted to € 349.

NOTE W Share Ownership and Related Party Transactions

The ownership or controlling interest of outstanding common shares of ASM International N.V. by members of the Management Board and Supervisory Board or members of their immediate family are as follows:

	December 31, 2002			December 31, 2003
	Shares owned	Percentage of shares outstanding		Shares owned	Percentage of shares outstanding
Management Board:
A. H. del Prado	3,762,253	7.62	%	3,762,253	7.52	%
R. L. de Bakker	35,000	0.07	%	35,000	0.07	%
P. Lam See Pong	445,300	0.90	%	395,300	0.79	%
Supervisory Board:
P. C. van den Hoek	300,000	0.61	%	300,000	0.60	%
Stichting Administratiekantoor ASMI	7,692,039	15.58	%	7,692,039	15.37	%

Stichting Administratiekantoor ASMI is a trust controlled by Mr. A.H. del Prado.

At December 31, 2003 Mr. Lam See Pong was owner of 2,970,000 shares in the share capital of ASMPT and Mr. P.C. van den Hoek was owner of 1,370,000 shares in the share capital of ASMPT. This represents 0.77% and 0.36% of the total outstanding shares of ASMPT, respectively.

On February 13, 2004 the Company received notification of beneficial ownership of 3,325,600 common shares or 6.6 % of the outstanding common shares of ASM International N.V. at December 31, 2003 from Capital Research and Management Company and SMALLCAP World Fund, Inc.

On February 13, 2004 the Company received notification of beneficial ownership of 2,604,350 common shares or 5.2% of the outstanding common shares of ASM International N.V. at December 31, 2003 from Capital Group International, Inc. and Capital Guardian Trust Company.

In December 1999, the Company acquired 24.0% of the outstanding equity of NanoPhotonics AG, a German supplier of precision metrology equipment, for € 407, and the Company’s Chief Executive Officer also purchased a 44.5% interest in NanoPhotonics AG. The Company has a five-year option to purchase the 44.5% interest from the Chief Executive Officer at the same price he paid for his interest in the initial transaction. Due to the issue of new shares by NanoPhotonics to third parties in 2003, the Company holds a 23.61% interest in NanoPhotonics and the Chief Executive Officer holds an interest of 43.77% at December 31, 2003. At December 31, 2002 and December 31, 2003, the Company has provided NanoPhotonics AG with additional financing of € 2,943 and € 4,443, respectively. In 2002 and 2003 the Company purchased equipment from NanoPhotonics AG in the amount of € 209 and € 245, respectively.

In March 2000, the Company made an interest-bearing loan to its Chief Executive Officer in connection with the exercise of stock options at an average interest rate for 2003 of 4.1%. The outstanding amount of the loan is € 2,125 at December 31, 2003 and is secured by the shares received in the stock option exercise. The Company has custody of the shares until the loan is repaid. The loan has been included under other assets in the Balance Sheet.

In October 2001, the Company entered into a strategic alliance with and made an equity investment in NuTool, Inc., a privately owned semiconductor equipment company. The Company made an equity investment of € 20,278 in this California-based company that is a provider of innovative copper deposition technologies. In April 2003 an additional equity investment was made of € 1,229. The total equity interest in NuTool, Inc., as of December 31,

F-32

2003 is approximately 15.7%. The purchase price of the investment in 2001 and 2003 was determined by reference to prices paid by other recent strategic investors. In November 2003 the Company provided a 4.12% interest bearing note receivable of US$ 3.0 million to NuTool, Inc. The Company provided this note receivable to fund the operations and general corporate expenses of NuTool, Inc. during the term of the negotiations of a proposed acquisition of NuTool, Inc as further discussed in Note X. The note is repayable upon the consummation or termination of the proposed transaction. The Company has a seat on the Board of NuTool, Inc. In 2002 the Company sold equipment in the amount of € 729 to NuTool, Inc. In 2003 there were no other transactions.

F-33

The Chairman of the Supervisory Board, Mr. van den Hoek is a partner in the European law firm of Stibbe. Another partner at Stibbe serves as the Company’s general legal counsel. Mr. van den Hoek has been with Stibbe since 1965. Mr. van den Hoek also serves on the boards of directors of various European companies. Fees for services to Stibbe amounted to € 80 and € 291 in 2002 and 2003, respectively.

NOTE X Subsequent Event

On February 29, 2004 the Company entered into an agreement to acquire NuTool, Inc., a privately-held semiconductor equipment company based in Milpitas, California. The Company currently owns preferred stock representing 15.7% of the fully-diluted common stock of NuTool. The Company will acquire the remaining 84.3% of NuTool in exchange for shares of its common stock. The number of shares to be issued will be determined based on the market value of the Company’s common stock as of the closing date of the transaction. Based on the market value of the Company’s common stock as of February 27, 2004, the number of the Company’s common shares to be issued at closing would be less than 4% of its total shares outstanding, and up to an additional 2% would be issued over the next three years based on NuTool’s achievement of various performance targets. The transaction is subject to NuTool stockholder approval and is expected to close in May 2004.

F-34

SIGNATURES

The registrant certifies that it meets all of the requirements for filing on Form 20-F and has duly caused and authorized the undersigned to sign this annual report on its behalf.

	ASM INTERNATIONAL N.V.
Date: March 18, 2004	/s/ Arthur H. del Prado
	Arthur H. del Prado Chief Executive Officer

EX-8.1

Exhibit 8.1

SUBSIDIARIES

Advanced Semiconductor Materials (Netherlands Antilles N.V.)

ASM Pacific Technology Limited (subsidiary of ASM Netherlands Antilles N.V.)

ASM Assembly Automation Limited (subsidiary of ASM Pacific Technology Limited)

ASM Assembly Materials Limited (subsidiary of ASM Pacific Technology Limited)

ASM Assembly Products B.V. (subsidiary of ASM Pacific Technology Limited)

ASM Assembly Technology Co. Limited (subsidiary of ASM Pacific Technology Limited)

ASM Pacific International Marketing Limited (subsidiary of ASM Pacific Technology Limited)

ASM Pacific Investments Limited (subsidiary of ASM Pacific Technology Limited)

ASM Pacific KOR Limited (subsidiary of ASM Pacific Technology Limited)

ASM Assembly Equipment Bangkok Limited (subsidiary of ASM Pacific Technology Limited)

ASM Semiconductor Material (Shenzhen) Co. Limited (subsidiary of ASM Pacific Technology Limited)

ASM Technology Singapore Pte. Limited (subsidiary of ASM Pacific Technology Limited)

ASM Technology (M) Sdn. Bhd. (subsidiary of ASM Pacific Technology Limited)

Capital Equipment Distribution Limited (subsidiary of ASM Pacific Technology Limited)

Shenzhen ASM Micro Electronic Technology Co. Limited (subsidiary of ASM Pacific Technology Limited)

Shenzhen ASM Precision Machinery Manufactory Limited (subsidiary of ASM Pacific Technology Limited)

ASM Assembly Equipment (M) Sdn. Bhd. (subsidiary of ASM Pacific Technology Limited)

ASM Assembly Equipment Trading (Shanghai) Co. Limited (subsidiary of ASM Pacific Technology Limited)

ASM Pacific (Bermuda) Limited (subsidiary of ASM Pacific Technology Limited)

ASM Asia Limited (subsidiary of ASM Pacific Technology Limited)

ASM America, Inc.

ASM Pacific Assembly Products Inc. (subsidiary of ASM America, Inc.)

ASM Front-End Manufacturing Singapore Pte Limited

ASM Japan K.K.

ASM Microchemistry Oy

NanoPhotonics AG

ASM Europe B.V.

ASM France SARL (subsidiary of ASM Europe B.V.)

ASM Belgium N.V. (subsidiary of ASM Europe B.V.)

ASM United Kingdom Sales B.V. (subsidiary of ASM Europe B.V.)

ASM Germany Sales B.V. (subsidiary of ASM Europe B.V.)

ASM Italia Srl (subsidiary of ASM Europe B.V.)

ASM Support and Services Ireland Ltd. (subsidiary of ASM Europe B.V.)

ASM China Limited

ASM Wafer Process Equipment Limited

ASM Wafer Process Equipment Singapore Pte Limited

ASM Far East Marketing Limited (subsidiary of ASM Wafer Process Equipment Limited)

ASM Korea Limited

EX-11.1

Exhibit 11.1

ASM International N.V.

Code of Ethics

Our Commitment to Quality

An integral part of ASM’s commitment to quality is in conducting our company’s business with integrity and honesty. We believe that a company’s reputation for ethical and fair business practices is the foundation upon which it can build long-term relationships and achievements. As a member of the global corporate community, and a leader in a technology industry that is helping to shape our future, we are keenly aware of our responsibility to uphold the highest standards in our business and accounting practices, that not only maintain the trust and credibility of our customers and shareholders, but promote the culture of ethical and responsible growth.

The following outlines the basic principles of ASM International’s Code of Ethics. Its provisions are applicable to all ASM employees, and include the obligations of all of our senior management, including the President and CEO, and CFO, who oversee and who are specifically responsible for our financial reporting. It is the responsibility of the Management Board and each Regional Manager to ensure that these principles are communicated to and observed by all ASM employees.

Standards of Conduct

We conduct our business with fairness, honesty, integrity and respect for the interests of our stakeholders in a wide variety of social, political and economic environments.

We will safeguard the company’s assets, exercising responsible use and control over any and all assets and resources entrusted. We will protect the Company’s confidential proprietary information, and the proprietary information of suppliers and customers.

Competition

ASM supports the principles of free enterprise and fair competition. We aim to meet customer’s needs, faster and better than our competitors. To this end ASM will compete vigorously but fairly and within the framework of applicable competition laws.

Conflicts of Interest

ASM employees must avoid activity that leads to a conflict of interest. This includes, but is not limited to acceptance and giving of personal gifts or hospitality, to or from ASM stakeholders, other than gifts of nominal value or reasonable hospitality given in the ordinary course of business. Any agreement or understanding regarding favours or benefits in exchange for the gifts must be avoided. Gifts of other than nominal value may not be accepted without full disclosure to and prior relevant clearance from the employee’s supervisor.

ASM and its employees will not pay or offer to pay bribes or illicit payments to government officials or candidates, or other parties, in order to obtain or retain business

Compliance with Laws and Regulations

We will uphold and comply with the applicable governmental laws, rules and regulations and respect the customs, of all the countries in which ASM operates.

Insider trading

Information that is not publicly-available and can be viewed by a reasonable investor as potentially having an affect on ASM’s stock price is considered “material” information. Under law, a person in possession of such information is considered an “insider.” Any person using such information to trade in ASM securities, or to cause others to execute trades, is in violation of securities laws, and will be subject to the consequences of such actions. Please refer to the ASM Insider Trading Policy for more information.

Finance and Accounting

Senior corporate and financial management will provide fair, accurate and timely and understandable financial disclosure in all documents filed with regulatory authorities in the US, Amsterdam and Hong Kong, and in public communications. Furthermore we ensure that all information is communicated objectively, disclosing all relevant information that could be deemed material.

Senior corporate and financial management will not influence accounting personnel, with regard to accounting judgments and estimates for the purpose of modifying reported financial results.

Records of transaction will be maintained in an accurate complete and timely manner in accordance with our accounting policies. No unrecorded funds or assets will be established or maintained.

Risk Management and Internal Controls

We give due consideration to assessing the business risks and the quality of our business controls, including internal controls over Financial reporting, as well as to implement control improvements.

Human Resources

At ASM, every employee has an equal opportunity for personal recognition and career development, regardless of personal background or belief. The same policy applies to recruitment of employees. No form of discrimination or harassment will be tolerated. An important part of this policy is selecting, rewarding and promoting people who demonstrate entrepreneurial behaviour and show individual initiative in combination with a high degree of knowledge and experience of the product, local market and culture.

Health, Safety and Environment

We are committed to protect, maintain and promote the safety, health and general well-being of our workforce. We provide a safe and secure work environment for all employees, and for the use of materials and equipment. We promote high standards of product safety, energy conservation and environmental quality, with an ongoing commitment to reduce emissions and waste in all our plants and facilities.

Whistleblowers

We encourage ASM employees to report to management promptly any breach or suspected breach of this code or other company guidelines.

In most cases, violations are reported to the next level of management. If not appropriately addressed, the violation should then be brought to the attention of a member of senior management, or the Management Board of Directors.

If an employee has any concerns regarding questionable accounting or auditing matters, he or she may also notify a member of the Audit Committee.

Any reports or complaints by employees under this code shall be strictly confidential and investigated promptly by management or the Audit Committee, as the case may be. ASM will not retaliate or undertake action against any employee for filing a report or complaint under this code of ethics or for assisting therein. Please refer to our Whistleblower policy for more information.

EX-12.1

Exhibit 12.1

I, Arthur H. del Prado, certify that:

1. I have reviewed this annual report on Form 20-F of ASM International N.V.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;

4. The company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the company and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(c) Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and

5. The company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting.

Date: March 18, 2004.

/s/ Arthur H. del Prado

Arthur H. del Prado

Chief Executive Officer

EX-12.2

Exhibit 12.2

I, Robert L. de Bakker, certify that:

1. I have reviewed this annual report on Form 20-F of ASM International N.V.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;

4. The company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the company and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(c) Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and

5. The company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting.

Date: March 18, 2004.

/s/ Robert L. de Bakker

Robert L. de Bakker

Chief Financial Officer

EX-13.1

Exhibit 13.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report on Form 20-F of ASM International N.V. (the “Company”) for the period ended December 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we, Arthur H. del Prado, Chief Executive Officer of the Company, and Robert L. de Bakker, Chief Financial Officer of the Company, each certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that to the best of our knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

By:	/s/ Arthur H. del Prado
	Arthur H. del Prado Chief Executive Officer March 18, 2004

By:	/s/ Robert L. de Bakker
	Robert L. de Bakker Chief Financial Officer March 18, 2004

A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

EX-14.1

Exhibit 14.1

Deloitte.

		Deloitte Accountants Busitel Orlyplein 10 1043 DP Amsterdam P.O. Box 58110 1040 HC Amsterdam The Netherlands Tel: +31 (20) 5824000 Fax: +31 (20) 5824026 www.deloitte.nl
Date	From	Reference
March 18, 2004	Karel Bakkes	OML\114\1142900\le9999

INDEPENDENT AUDITORS’ CONSENT

We consent to the incorporation by reference in Registration Statement No. 33-07111, 33-07109, 333-87262, 333-11060, 33-6184, 33-6185, 33-6186, 33-78628 and 33-93026 of ASM International N.V. on Form S-8 and Registration Statement No. 333-08080, 333-11502, 333-11234 and 333-107339 of ASM International N.V. on Form F-3 of our report dated February 24, 2004, except for Note X, as to which the date is February 29, 2004 (which report expresses an unqualified opinion and includes an explanatory paragraph concerning the adoption of a new accounting principle in 2002), and of our report dated February 24, 2004 relating to the consolidated financial statement schedules, appearing in and incorporated by reference in this Annual Report on Form 20-F of ASM International N.V., for the year ended December 31, 2003.

/s/ Deloitte Accountants