Form 20-F
United States
Securities and Exchange Commission
Washington, D.C. 20549
Form 20-F
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
for the fiscal year ended December 31, 2016
Commission file number 001-33463
ASML HOLDING N.V.
(Exact Name of Registrant as Specified in Its Charter)
THE NETHERLANDS
(Jurisdiction of Incorporation or Organization)
DE RUN 6501
5504 DR VELDHOVEN
THE NETHERLANDS
(Address of Principal Executive Offices)
Craig DeYoung
Telephone: +1 480 696 2762
E-mail: craig.deyoung@asml.com
2650 W Geronimo Place
Chandler, AZ 85224, USA
(Name, Telephone, E-mail, and / or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of each class
Ordinary Shares
(nominal value EUR 0.09 per share)
Name of each exchange on which registered
The NASDAQ Stock Market LLC
Securities registered or to be registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None
(Title of Class)
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.
429,941,232 Ordinary Shares
(nominal value EUR 0.09 per share)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes (x) No ( )
If this report is an annual or transition report, indicate by check mark if the registrant
is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
Yes ( ) No (x)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 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 whether the registrant has submitted electronically
and posted on its corporate web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes (x) No ( )
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.
See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer (x) Accelerated filer ( ) Non-accelerated filer ( )
Indicate by check mark which basis of accounting the registrant has used to prepare
the financial statements included in this filing:
U.S. GAAP (x) International Financial Reporting Standards as issued by the
International Accounting Standards Board ( ) Other ( )
If "Other" has been checked in response to the previous question, indicate by checkmark
which financial statement item the registrant has elected to follow.
Item 17 ( ) Item 18 ( )
If this is an annual report, indicate by check mark whether the registrant is a
shell company (as defined in Rule 12b-2 of the Exchange Act)
Yes ( ) No (x)
Name and address of person authorized to receive notices and communications
from the Securities and Exchange Commission:
James A. McDonald
Skadden, Arps, Slate, Meagher & Flom (UK) LLP
40 Bank Street, Canary Wharf London E14 5DS England
ASML ANNUAL REPORT 2016
Contents
Part I
1
1
1
16
24
24
34
40
41
42
43
Item 1 Identity of Directors, Senior Management and Advisors
Item 2 Offer Statistics and Expected Timetable
Item 3 Key Information
A. Selected Financial Data
B. Capitalization and Indebtedness
C. Reasons for the Offer and Use of Proceeds
D. Risk Factors
Item 4 Information on the Company
A. History and Development of the Company
B. Business Overview
C. Organizational Structure
D. Property, Plant and Equipment
Item 4A Unresolved Staff Comments
Item 5 Operating and Financial Review and Prospects
Executive Summary
A. Operating Results
B. Liquidity and Capital Resources
C. Research and Development, Patents and Licenses, etc.
D. Trend Information
E. Off-Balance Sheet Arrangements
F. Tabular Disclosure of Contractual Obligations
G. Safe Harbor
Item 6 Directors, Senior Management and Employees
A. Directors and Senior Management
B. Compensation
C. Board Practices
D. Employees
E. Share Ownership
Item 7 Major Shareholders and Related Party Transactions
A. Major Shareholders
B. Related Party Transactions
C. Interests of Experts & Counsel
Item 8 Financial Information
A. Consolidated Statements and Other Financial Information
B. Significant Changes
Item 9 The Offer and Listing
A. Offer and Listing Details
B. Plan of Distribution
C. Markets
D. Selling Shareholders
E. Dilution
F. Expenses of the Issue
Item 10 Additional Information
A. Share Capital
B. Memorandum and Articles of Association
C. Material Contracts
D. Exchange Controls
E. Taxation
F. Dividends and Paying Agents
G. Statement by Experts
H. Documents on Display
I. Subsidiary Information
ASML ANNUAL REPORT 2016
49
50
Part II
51
51
51
51
Item 11 Quantitative and Qualitative Disclosures About Market Risk
Item 12 Description of Securities Other Than Equity Securities
Item 13 Defaults, Dividend Arrearages and Delinquencies
Item 14 Material Modifications to the Rights of Security Holders and Use of Proceeds
Item 15 Controls and Procedures
Item 16
A. Audit Committee Financial Expert
B. Code of Ethics
C. Principal Accountant Fees and Services
D. Exemptions from the Listing Standards for Audit Committees
E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
F. Change in Registrant’s Certifying Accountant
G. Corporate Governance
H. Mine Safety Disclosure
Part III
56
56
56
Item 17 Financial Statements
Item 18 Financial Statements
Item 19 Exhibits
D-1
Definitions
ASML ANNUAL REPORT 2016
ASML ANNUAL REPORT 2016
Part I
Special Note Regarding Forward-Looking Statements
In addition to historical information, this Annual Report contains statements relating to our future business and/or results. These
statements include certain projections and business trends that are "forward-looking" within the meaning of the Private Securities
Litigation Reform Act of 1995. You can generally identify these statements by the use of words like "may", "will", "could", "should",
"project", "believe", "anticipate", "expect", "plan", "estimate", "forecast", "potential", "intend", "continue" and variations of these
words or comparable words. They appear in a number of places throughout this Annual Report and include statements with
respect to our outlook, including expected customer demand in specified market segments including memory, logic and foundry,
expected trends, systems backlog and bookings, IC unit demand, expected financial results, including expected sales levels,
including expected service and field options sales, gross margin, SG&A and R&D expenses, other income, expected tax rate,
expected capital expenditures and repayment obligations, annual revenue and EPS opportunity and potential, customer, partner
and industry roadmaps, including shrink roadmaps, the planned acquisition of a minority stake in Zeiss and its expected benefits,
including the funding of the transaction and future funding of Zeiss by ASML, the development of High-NA and the expected
production of higher performance microchips at lower costs, the acquisition of HMI and its expected benefits, including expected
contribution to ASML's results, the provision of e-beam metrology capability and its effect on holistic lithography solutions,
including the introduction of a new class of pattern fidelity control and the improvement of customers’ control strategy, expected
growth of our service business, expected shipments of systems, productivity of our tools and systems, including EUV productivity
targets and goals, and system performance, including EUV system performance (such as endurance and availability of EUV
systems), the development of EUV technology and EUV industrialization, the number of EUV systems expected to be shipped and
recognized in revenue and timing of shipment, expected use of EUV systems in high volume manufacturing and revenue
recognition, expected industry trends and expected trends in the business environment, including the expected continuation of
Moore's law, dividend policy, our proposed dividend and plans to repurchase shares and the current share repurchase plan.
These forward-looking statements are not historical facts, but rather are based on current expectations, estimates, assumptions
and projections about the business and our future financial results and readers should not place undue reliance on them. Forward-
looking statements do not guarantee future performance, and actual results may differ materially from projected results as a result
of certain risks, and uncertainties. These risks and uncertainties include, without limitation, those described under Item 3.D. "Risk
Factors". These forward-looking statements are made only as of the date of this Annual Report. We do not undertake to update or
revise the forward-looking statements, whether as a result of new information, future events or otherwise.
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 Financial Data
The following selected consolidated financial data should be read in conjunction with Item 5 "Operating and Financial Review and
Prospects" and Item 18 "Financial Statements".
On May 30, 2013, we acquired 100 percent of the issued share capital of Cymer. Financial information presented in our Annual
Report includes Cymer from May 30, 2013 onwards.
On November 22, 2016, we acquired 100 percent of the issued share capital of HMI. Financial information presented in our Annual
Report includes HMI from November 22, 2016 onwards.
A summary of all abbreviations, technical terms and definitions (of capitalized terms) used in this Annual Report is set forth on
pages D-1 through D-5.
ASML ANNUAL REPORT 2016
1
Five-Year Financial Summary
Year ended December 31
(in thousands, except per share data)
2012
EUR
2013
EUR
2014
EUR
2015
EUR
2016
EUR
Consolidated Statements of Operations data
Net sales
4,731,555
5,245,326
5,856,277
6,287,375
6,794,752
Cost of sales
(2,726,298)
(3,068,064)
(3,259,903)
(3,391,631)
(3,750,272)
Gross profit
2,005,257
2,177,262
2,596,374
2,895,744
3,044,480
Other income
—
64,456
81,006
83,200
93,777
Research and development costs
(589,182)
(882,029)
(1,074,035)
(1,068,077)
(1,105,763)
Selling, general and administrative costs
(259,301)
(311,741)
(321,110)
(345,732)
(374,760)
Income from operations
1,156,774
1,047,948
1,282,235
1,565,135
1,657,734
Interest and other, net
(6,196)
(24,471)
(8,600)
(16,515)
33,644
Income before income taxes
1,150,578
1,023,477
1,273,635
1,548,620
1,691,378
Provision for income taxes
(4,262)
(7,987)
(76,995)
(161,446)
(219,484)
Net income
1,146,316
1,015,490
1,196,640
1,387,174
1,471,894
Earnings per share data
Basic net income per ordinary share
Diluted net income per ordinary share 1
2.70
2.68
2.36
2.34
2.74
2.72
3.22
3.21
3.46
3.44
Number of ordinary shares used in computing per share
amounts (in thousands)
Basic
Diluted 1
424,096
426,986
429,770
433,446
437,142
439,693
430,639
432,644
425,598
427,684
1.
The calculation of diluted net income per ordinary share assumes the exercise of options issued under our stock option plans and the issuance of shares under our
share plans for periods in which exercises or issuances would have a dilutive effect. The calculation of diluted net income per ordinary share does not assume
exercise of such options or issuance of shares when such exercises or issuance would be anti-dilutive.
ASML ANNUAL REPORT 2016
2
Five-Year Financial Summary
As of and for the year ended December 31
(in thousands)
2012
EUR
2013
EUR
2014
EUR
2015
EUR
2016
EUR
Consolidated Balance Sheets data
Cash and cash equivalents
1,767,596
2,330,694
2,419,487
2,458,717
Short-term investments
930,005
679,884
334,864
950,000
Working capital 1
3,745,559
4,156,917
4,257,335
4,600,529
2,906,868
1,150,000
5,276,833
Total assets
7,410,478
11,513,730
12,203,945
13,295,031
17,205,961
Long-term debt 2
759,490
Shareholders’ equity
4,066,893
Share capital
37,470
1,074,570
6,922,427
40,092
1,154,137
1,129,685
7,512,590
8,388,831
39,426
38,786
3,319,465
9,820,481
39,391
Consolidated Statements of Cash Flows data
Depreciation and amortization 3
186,620
Impairment
3,234
228,775
13,057
254,644
10,528
296,884
2,287
356,928
3,466
Net cash provided by operating activities
703,478
1,054,173
1,025,206
2,025,580
1,665,906
Purchase of property, plant and equipment 4
(171,878)
Purchase of short-term investments
(1,379,997)
(210,804)
(904,856)
Maturity of short-term investments
449,992
1,195,031
Cash used for derivative financial instruments
Loans issued and other investments
—
—
—
—
Acquisition of subsidiary (net of cash acquired)
(10,292)
(443,712) 5
Net cash used in investing activities
(1,119,833)
Dividend paid
(188,892)
Purchase of treasury shares
(535,373)
(368,341)
(216,085)
(300,000)
Net proceeds from issuance of shares
3,907,666 6
31,822
Net proceeds from issuance of notes
Repurchase of notes
—
—
740,445 8
(368,303) 10
Capital repayment
(3,728,324) 11
—
(358,280)
(504,756)
849,776
—
—
—
(371,770)
(316,338)
(950,000)
(2,520,000)
334,864
2,320,000
(171,899)
—
—
(15,034)
(7,427)
(2,641,295)
(16,212)
(1,159,913)
(3,188,478)
(267,962)
(700,000)
39,679
(302,310)
(564,887)
33,230
—
—
—
—
—
—
(445,865)
(400,000)
582,742 7
2,230,619 9
—
—
Net cash from (used in) financing activities
(545,583)
Net increase (decrease) in cash and cash equivalents
(964,186)
(113,111)
563,098
(928,439)
(833,946)
1,963,639
88,793
39,230
448,151
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
Working capital is calculated as the difference between total current assets and total current liabilities.
Long-term debt includes the current portion of long-term debt.
In 2016, depreciation and amortization includes EUR 290.8 million of depreciation of property, plant and equipment (2015: EUR 243.0 million, 2014: EUR 209.5
million, 2013: EUR 197.1 million and 2012: EUR 179.3 million), EUR 63.5 million of amortization of intangible assets (2015: EUR 51.2 million, 2014: EUR 43.9 million,
2013: EUR 27.6 million and 2012: EUR 6.1 million) and EUR 2.6 million of amortization of underwriting commissions and discount related to the bonds and credit
facility (2015: EUR 2.7 million, 2014: EUR 1.2 million, 2013: EUR 4.1 million and 2012: EUR 1.2 million).
In 2016, an amount of EUR 21.6 million (2015: EUR 91.0 million, 2014: EUR 95.5 million, 2013: EUR 115.9 million, 2012: EUR 204.8 million) of the additions in
property, plant and equipment relates to non-cash transfers from inventory. Since the transfers between inventory and property, plant and equipment are non-cash
events, these are not reflected in the Consolidated Statements of Cash Flows data. For further details see Note 12 to the Financial Statements.
In addition to the cash paid in relation to the acquisition of Cymer, we issued 36,464,576 shares for an amount of EUR 2,346.7 million (non-cash event) as part of the
consideration paid.
Net proceeds from issuance of shares include an amount of EUR 3,853.9 million related to the share issuances in connection to the CCIP. See Note 27 to the
Financial Statements.
Net proceeds from issuance of shares includes an amount of EUR 536.6 million which is included in the consideration transfered for the acquisition of HMI. For
further details see Note 2.
Net proceeds from issuance of notes relate to the total cash proceeds of EUR 740.4 million (net of incurred transaction costs) from the issuance of our EUR 750
million 3.375 percent senior notes due 2023.
Net proceeds from issuance of notes relate to the total cash proceeds of EUR 2,230.6 million (net of incurred transaction costs) from the issuance of our EUR 500
million 0.625 percent senior notes due 2022, our EUR 1,000 million 1.375 percent senior notes due 2026 and our EUR 750 million 1.625 percent senior notes due
2027.
Repurchase of notes relates to the net cash outflows of EUR 368.3 million for the partial repurchase of our EUR 600 million 5.75 percent senior notes due 2017
including the partial unwinding of the related interest rate swaps.
The capital repayment was made in connection with the synthetic buyback relating to the CCIP. The difference of EUR 125.6 million between the capital repayment of
EUR 3,728.3 million and the net proceeds from issuance of shares of EUR 3,853.9 million in the CCIP relates to the capital repayment on ASML’s treasury shares
which was part of the synthetic share buyback in November 2012.
ASML ANNUAL REPORT 2016
3
Five-Year Financial Summary
As of and for the year ended December 31
2012
2013
2014
2015
2016
Ratios and other data
Gross profit as a percentage of net sales
Income from operations as a percentage of net sales
Net income as a percentage of net sales
Shareholders’ equity as a percentage of total assets
Income taxes as a percentage of income before
income taxes
Sales of systems (in units)
ASP of system sales (in millions EUR)
42.4
24.4
24.2
54.9
0.4
170
22.4
41.5
20.0
19.4
60.1
0.8
157
25.4
44.3
21.9
20.4
61.6
6.0
136
31.2
46.1
24.9
22.1
63.1
10.4
169
25.1
44.8
24.4
21.7
57.1
13.0
157
29.1
Value of systems backlog (in millions EUR) 1
1,214.1
1,953.3
2,772.4
3,184.3
3,961.3
Systems backlog (in units) 1
ASP of systems backlog (in millions EUR)1
46
26.4
56
34.9
82
33.8
79
40.3
83
47.7
Value of booked systems (in millions EUR) 1
3,312.3
4,644.0
4,902.2
4,639.0
5,396.3
Net bookings (in units) 1
ASP of booked systems (in millions EUR) 1
Number of payroll employees (in FTEs)
Number of temporary employees (in FTEs)
Increase (decrease) net sales in percentage
144
23.0
8,497
2,139
(16.3)
166
28.0
10,360
2,865
10.9
157
31.2
11,318
2,754
11.6
165
28.1
12,168
2,513
7.4
160
33.7
13,991
2,656
8.1
407,165
440,852
432,935
427,987
429,941
Number of ordinary shares issued and outstanding (in
thousands)
Closing ASML share price on Euronext Amsterdam (in
EUR)
Volatility 260 days as percentage of our shares listed
on Euronext Amsterdam (in EUR) 2
Closing ASML share price on NASDAQ (in USD)
Volatility 260 days as percentage of our shares listed
on NASDAQ (in USD) 3
48.00
28.64
64.39
30.05
68.04
23.98
93.70
24.01
Dividend per ordinary share (in EUR)
Dividend per ordinary share (in USD)
0.53
0.69
5
0.61
0.84
5
89.50
27.49
107.83
26.01
0.70
0.76
5
82.55
33.62
88.77
28.94
1.05
1.21
5
106.65
25.47
112.20
26.85
1.20 4
1.28 4,6
1.
2.
3.
4.
5.
6.
Our systems backlog and net bookings include all system sales orders for which written authorizations have been accepted (for EUV starting with the NXE:3350B).
Volatility represents the variability in our share price on Euronext Amsterdam as measured over the 260 business days of each year presented (source: Bloomberg
Finance LP).
Volatility represents the variability in our share price on NASDAQ as measured over the 260 business days of each year presented (source: Bloomberg Finance LP).
Subject to approval of the AGM to be held on April 26, 2017.
The dividend per ordinary share in USD has been adjusted compared to the relevant Annual Reports for such years to reflect the actual exchange rates at time of
dividend payment.
The exchange rate used to express the proposed dividend per ordinary share in USD is the exchange rate of USD/EUR 1.07 as of January 29, 2017.
ASML ANNUAL REPORT 2016
4
Exchange Rate Information
We publish our Financial Statements in euro. A portion of our assets, liabilities, net sales and costs is, and historically has been,
denominated in currencies other than the euro. For a discussion of the impact of exchange rate fluctuations on our financial
condition and results of operations, see Item 3.D. "Risk Factors – Fluctuations in foreign exchange rates could harm our results of
operations", Item 11 "Quantitative and Qualitative Disclosures About Market Risk", Note 1 and Note 4 to our Financial Statements.
The following are the Noon Buying Rates certified by the Federal Reserve Bank for customs purposes, expressed in US dollars per
euro.
Calendar year
Period End
Period Average 1
Period High
Period Low
2012
2013
2014
2015
1.32
1.29
1.35
1.21
1.38
1.33
1.38
1.28
1.21
1.33
1.39
1.21
1.09
1.10
1.20
1.05
2016
1.06
1.10
1.15
1.04
2017 2
1.07
1.06
1.07
1.04
1.
2.
The average of the Noon Buying Rates on the last business day of each month during the period presented.
Through January 29, 2017.
Months of
Period High
Period Low
August
2016
September
2016
October
2016
November
2016
December
2016
January
2017
1.13
1.11
1.13
1.12
1.12
1.09
1.11
1.06
1.08
1.04
1.07
1.04
B. Capitalization and Indebtedness
Not applicable.
C. Reasons for the Offer and Use of Proceeds
Not applicable.
D. Risk Factors
In conducting our business, we face many risks that may interfere with our business objectives. It is important to understand the
nature of these risks and the impact they may have on our business, financial condition and results of operations. Some of the
more relevant risks are described below. These risks are not the only ones that we face. Some risks may not yet be known to us
and certain risks that we do not currently believe to be material could become material in the future.
Risks related to the semiconductor industry
The semiconductor industry is highly cyclical and we may be adversely affected by any downturn
As a supplier to the global semiconductor industry, we are subject to the industry’s business cycles, of which the timing, duration
and volatility are difficult to predict. The semiconductor industry has historically been cyclical. Sales of our lithography systems,
services and Holistic Lithography products depend in large part upon the level of capital expenditures by semiconductor
manufacturers. These capital expenditures depend upon a range of competitive and market factors, including:
•
•
•
•
•
•
•
The current and anticipated market demand for semiconductors and for products utilizing semiconductors;
Semiconductor prices;
Semiconductor production costs and manufacturing capacity utilization of semiconductor manufacturers;
Semiconductor equipment industry capacity and utilization;
Changes in semiconductor inventory levels;
General economic conditions; and
Access to capital.
Reductions or delays in capital expenditures by our customers could have a material adverse effect on our business, financial
condition and results of operations.
ASML ANNUAL REPORT 2016
5
In an industry downturn, our ability to maintain profitability will depend substantially on whether we are able to lower our costs and
break-even level, which is the level of sales that we must reach in a year to achieve positive net income. If sales decrease
significantly as a result of an industry downturn and we are unable to adjust our costs over the same period, our net income may
decline significantly or we may suffer losses. As we need to keep certain levels of inventory on hand to meet anticipated product
and service demand, we may also incur increased costs related to inventory obsolescence in an industry downturn, and such
inventory obsolescence costs may be higher with our newer technology systems such as EUV. We have grown in terms of
employees, facilities and inventories in recent years, including through the acquisitions of Cymer and HMI, so it may be even more
difficult for us to reduce costs in order to respond to an industry downturn. In addition, industry downturns generally result in
overcapacity, resulting in downward pressure on sales prices and impairment of assets, including inventories, intangible assets,
and machinery and equipment, which in the past has had, and in the future could have, a material adverse effect on our business,
financial condition and results of operations.
Current and future deteriorations in the financial markets and the global economy in general can have a number of effects on our
business, including (i) declining business and consumer confidence resulting in reduced, or delayed purchase of our products or a
delay in transition to newer technology systems; (ii) reducing the availability of financial resources on favorable terms to finance the
future growth of our business, (iii) insolvency of key suppliers resulting in product delays, (iv) an inability of customers to obtain
credit to finance purchases of our products, delayed payments from our customers and/or customer insolvencies and (v) other
adverse effects that we cannot currently anticipate. If the financial markets and the global economy deteriorate, we are likely to
experience material adverse impacts on our business, financial condition and results of operations.
Conversely, in anticipation of periods of increasing demand for semiconductor manufacturing equipment, we must maintain
sufficient manufacturing capacity and inventory and we must attract, hire, integrate and retain a sufficient number of qualified
employees to meet customer demand. Our ability to predict the timing and magnitude of industry fluctuations is limited, and as our
products become increasingly sophisticated, the lead-time required to successfully deliver our systems has grown considerably.
Accordingly, we may not be able to effectively increase our production capacity to respond to an increase in customer demand in
an industry upturn resulting in lost sales, damage to customer relationships and we may lose market share.
We are also subject to trends in the key end markets of our customers - Memory and Logic, each of which exhibit different levels of
cyclicality. Trends in our end markets may be affected by a number of factors, including business conditions in their respective
markets (or in the economy generally), consumer confidence, competition, and changing consumer demand. Decreased demand in
the end-markets of any of our customers could cause our customers to reduce their purchases of our systems, which could have a
material adverse effect on our business, financial condition and results of operations.
Our business will suffer if we or the industry do not respond rapidly to commercial and technological changes in the
semiconductor industry
The semiconductor manufacturing industry is subject to:
•
•
•
•
•
•
Rapid change towards more complex and expensive technologies;
Frequent new product introductions and existing product enhancements;
Evolving industry standards;
An increasing role of software and system architecture in IC production;
Changes in customer requirements, including a heightened importance in system predictable availability and productivity; and
Collaboration or cost sharing arrangements for research and development activities.
Our success in developing new products and in enhancing our existing products depends on a variety of factors, including the
successful management of our and our suppliers' R&D programs and the timely completion of product development and design
relative to competitors. If we do not develop and introduce new and enhanced systems at competitive prices and on a timely basis,
our customers will not integrate our systems into the planning and design of new production facilities and upgrades of existing
facilities, which would have a material adverse effect on our business, financial condition and results of operations.
In particular, we are investing considerable financial and other resources to develop and introduce new products and product
enhancements, such as immersion, EUV and Holistic Lithography. If we or our suppliers are unable to successfully develop and
introduce these products and technologies, or if our customers do not fully adopt the new technologies, products or product
enhancements due to a preference for more established or alternative new technologies and products, due to a failure of our
products to meet their development roadmaps or for any other reason, this could result in customers continuing to use existing or
alternative technology systems, and we may not recoup all of our investments in these technologies or products, which could have
a material adverse effect on our business, financial condition and results of operations.
ASML ANNUAL REPORT 2016
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The success of EUV, which we believe is critical for keeping pace with Moore’s Law, which postulates that the number of
transistors on a chip doubles approximately every 24 months at equivalent costs, remains dependent on continuing technical
advances by us and our suppliers. These advances include, in particular, advances in technology related to the light source, source
power, system availability, and scanner performance, without which EUV systems cannot achieve the productivity and yield
required to economically justify the higher price of these systems. Other advances necessary for further development of EUV
technology include, in particular, advances in high numerical aperture (High-NA). A delay in these technological advances could
lead to a delay in the development of these systems or a delay in such systems meeting production requirements, which could
discourage or result in much slower adoption of this EUV technology and could delay purchases of these systems. High-NA, in
particular, which is a further extension of our EUV technology, requires significant resources for its development. If we are
unsuccessful in developing High-NA or if industry adoption is delayed or not achieved, this could impact our business and we may
be unable to recoup all investments we have made, which could have a material adverse effect on our results of operations. In
addition, the introduction of alternative technologies or processes by our competitors that compete with EUV could discourage
adoption of EUV technology.
In addition, our Holistic Lithography offering is focused on enhancing the performance of lithography systems, both in new
fabrication development and in existing installed base solutions. Our success in Holistic Lithography depends upon a variety of
factors including our ability to design and develop new applications, timely and efficient implementation of our services, product
performance and effective direct field support. If we are not successful in developing, marketing and implementing new
applications or enhancing our existing applications, our business may suffer.
If the technologies that we pursue to assist our customers in producing smaller and more efficient chips are not as effective as
those developed by our competitors, or if our customers adopt new technological architectures that are less focused on other
lithography products, this may adversely affect our business, financial condition and results of operations, and we would not
recoup the significant investments we have made in EUV and Holistic Lithography.
Furthermore, our systems are complex and may not perform according to specifications or quality standards. The increasing
complexity of our systems, particularly of EUV (including High-NA, when available), could lead to quality issues, which may result in
additional expenses and may damage our reputation and reduce demand for our products, any of which could have a material
adverse effect on our business, financial condition and results of operations. The increasing number of system upgrades as part of
our offering also contributes to the risk of quality issues.
We maintain in inventory a certain amount of parts and components for system production and when we stop producing a
particular model in favor of newer models, there is a risk that this inventory of parts and components may become obsolete,
particularly as a result of the rapid pace of technological change. In such cases, we seek to use such parts and components in new
systems, but in case we are not able to do so, this can result in impairments of inventory. Many of these parts and components are
particularly expensive and may only be used in a single type of system.
Cadence for the introduction of new systems is lengthening
Our lithography systems have become more complex and costly to develop and build, in particular with respect to our EUV
systems, including the further enhancement of EUV technology with High-NA. In addition, some of our customers have
experienced delays in implementing their product roadmaps, which has resulted in delayed demand of new systems. These factors
resulted in longer development cycles and a longer transition period (or cadence) both for our new systems and industry-wide,
increasing the risk of a slowing down of the overall transition period for new systems as predicted by Moore's Law. A lengthening
of the cadence for new system purchases by our customers could result in a slower adoption of EUV or any other new technology
as a result of delays in the development of new systems or a change in the customer's product roadmaps or investment outlook.
As a result of a lengthening of the cadence, our customers have purchased and may continue to purchase existing technology
systems rather than new leading-edge systems or may delay their investment in new systems to the extent that such investment is
not economical or required given their product cycles. A lengthening of the cadence for the introduction of our new systems can
also result in increased competition, as competitors may have more time to develop competing systems. In addition, longer
cadence means we face increasing competition from manufacturers who produce systems with lower performance levels than our
new systems, particularly with end-market customers who do not require smaller transistors. The change in cadence of our new
systems could result in a decrease in the number of new systems or technology we sell in a given year, which could have a material
adverse effect on our business, financial condition and results of operations.
ASML ANNUAL REPORT 2016
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Industry adoption of EUV technology for high volume production may be delayed
EUV represents the next-generation lithography technology for ASML, and we have made significant investments, including our
2013 acquisition of Cymer and our intended investment in Carl Zeiss SMT, to develop EUV technology. To date, we have only sold
a limited number of EUV systems. There are a number of development milestones to be met with respect to EUV systems for high
volume production. There are a number of factors that may inhibit or delay industry adoption of our EUV systems for high volume
production, including those set forth in this Risk Factors section. Any delay in industry adoption of our EUV systems for high
volume production could have a material adverse effect on our business, financial condition and results of operations. In addition,
for our EUV systems which we sell as part of our commercial sales, we defer a portion of the revenues pending completion of
performance milestones agreed with the customer, so to the extent that our systems fail to meet these milestones, our revenues
and profitability in certain periods may be lower.
We face intense competition
The semiconductor equipment industry is highly competitive. The principal elements of competition in our market are:
•
•
The technical performance characteristics of a lithography system;
The cost of ownership of lithography systems based on purchase price, maintenance costs, availability, productivity, and
customer service and support costs;
The exchange rate of the euro against the functional currency of our competitors and our customers, particularly against the
Japanese yen;
The strength and breadth of our portfolio of patents and other intellectual property rights; and
Our customers’ desire to obtain lithography equipment from more than one supplier.
•
•
•
Our competitiveness depends upon our ability to develop new and enhanced semiconductor equipment, related applications and
services that are competitively priced and introduced on a timely basis, as well as our ability to protect and defend our intellectual
property rights. See Item 4.B. "Business Overview - Intellectual Property", and Note 18 to the Financial Statements.
We compete primarily with Nikon and Canon in respect of systems. Each of Nikon and Canon has substantial financial resources
and broad patent portfolios. Each continues to introduce new products with improved price and performance characteristics that
compete directly with our products, which may cause a decline in our sales or a loss of market acceptance for our lithography
systems. In particular, we have experienced increased competition from Nikon and Canon in existing technologies such as
TWINSCAN XT systems, where end-market demand has increased. In addition, adverse market conditions, industry overcapacity
or a decrease in the value of the Japanese yen in relation to the euro or the US dollar, could further intensify price-based
competition in those regions that account for the majority of our sales, resulting in lower prices and margins and lower sales which
could have a material adverse effect on our business, financial condition and results of operations. We also face the risk of a
decline in sales if our products and services do not meet our customers' standards, which could result in decline in demand from or
loss of such customers.
We also compete with providers of software applications that support or enhance complex patterning solutions, including
lithography, such as KLA-Tencor Corporation. These applications effectively compete with our Holistic Lithography offering, which
has become an increasingly significant part of our business. The competition we face in our applications business may be higher
than for our systems, as there are more competitors and potential competitors in this market and such competitors may have
greater financial resources and more experience in this market than us. In addition to competitors in lithography, we may face
competition with respect to alternative technologies. If we fail to keep pace with Moore’s Law or in the event the delivery of new
technology is delayed, our customers may opt for other solutions in IC manufacturing as a substitute for purchasing our products.
In addition, the lengthening of the cadence for the introduction of our new systems can also result in increased competition, as
competitors may have more time to develop competing systems. In addition, longer cadence means we face increasing
competition from manufacturers who produce systems with lower performance levels than our new systems, particularly with end-
market customers who do not require smaller transistors.
Furthermore, a number of business combinations and strategic partnerships among our customers and research partners in the
semiconductor industry have occurred, and more could occur in the future. Consolidation among our customers and research
partners could affect industry dynamics and could adversely affect our business and margins, which could have a material adverse
effect on our business, financial condition and results of operations.
Risks related to ASML
The number of systems we can produce is limited by our dependence on a limited number of suppliers of key
components
We rely on outside vendors for components and subassemblies used in our systems including the design thereof, each of which is
obtained from a single supplier or a limited number of suppliers. Our reliance on a limited group of suppliers involves several risks,
including a potential inability to obtain an adequate supply of required components, reduced control over pricing and the risk of
untimely delivery of these components and subassemblies.
ASML ANNUAL REPORT 2016
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The number of lithography systems we are able to produce may be limited by the production capacity of Carl Zeiss SMT. Carl Zeiss
SMT is our single supplier of lenses, mirrors, illuminators, collectors and other critical optical components (which we refer to as
optics). If Carl Zeiss SMT is unable to maintain and increase production levels or if we are unable to maintain our business
relationship with Carl Zeiss SMT in the future we could be unable to fulfill orders, which could damage relationships with current
and prospective customers and have a material adverse effect on our business, financial condition and results of operations. If Carl
Zeiss SMT is to terminate its relationship with us or if Carl Zeiss SMT is unable to maintain production of optics over a prolonged
period, we would effectively cease to be able to conduct our business. See Item 4.B. "Business Overview—Manufacturing,
Logistics and Suppliers". In addition to Carl Zeiss SMT’s current position as a supplier of optics, a number of other critical
components such as drive lasers included in our CO2 lasers used in our EUV systems are available from only a limited number of
suppliers. We have recently agreed to acquire a 24.9% stake in Carl Zeiss SMT. This acquisition is not yet complete and is subject
to conditions. In addition, while we will have certain rights in the governance of Carl Zeiss SMT as a result of our intended
acquisition of the 24.9% stake, we will not control Carl Zeiss SMT, so we continue to face the risks described above with respect to
Carl Zeiss SMT, notwithstanding our recent agreement to acquire this interest in Carl Zeiss SMT. See “We have made a significant
investment in Carl Zeiss SMT, but we will not control Carl Zeiss SMT and may not achieve expected benefits of this transaction.”
Designing and manufacturing some of these components and subassemblies that we use in our manufacturing processes is an
extremely complex process and could result in delays by our suppliers. Lead-times in obtaining components have increased as our
products have become more complex, and our failure to adequately predict demand for our systems or any delays in the shipment
of components can result in insufficient supply of components or, conversely, excess inventory or limiting our capabilities to react
fast to changing market conditions. A prolonged inability to obtain adequate deliveries of components or subassemblies, or any
other circumstance that requires us to seek alternative sources of supply, could significantly hinder our ability to deliver our
products in a timely manner, which could damage relationships with current and prospective customers and have a material
adverse effect on our business, financial condition and results of operations.
In addition, as we develop new technologies, such as EUV, this requires our suppliers to participate in the development process so
that the components they supply will meet the requirements of our development roadmap, and this may require significant R&D
spending and investment on the part of our suppliers, particularly with the long lead-time required for EUV components. If our
suppliers are unable to meet our technological and supply demands in line with our development roadmap, this may delay the
development and introduction of new products. In addition, our suppliers may not have or may not be willing to spend sufficient
financial resources to make the necessary R&D expenditures and investments to enable them (and therefore us) to maintain their
development roadmaps and ultimately meet our supply demands. In this case, we may co-invest with our suppliers to continue the
R&D required to continue development roadmaps. A failure to obtain adequate supplies of components and other product inputs
could lead us to acquire a supplier, which may be costly and involve risks associated with acquisitions.
A high percentage of net sales is derived from a few customers
Historically, we have sold a substantial number of lithography systems to a limited number of customers. We expect customer
concentration to increase because of continuing consolidation in the semiconductor manufacturing industry. In addition, although
Holistic Lithography constitutes an increasing portion of our revenue, a significant portion of those customers are the same
customers as those of our systems. Consequently, while the identity of our largest customers may vary from year to year, sales
may remain concentrated among relatively few customers in any particular year. In 2016, recognized net sales to our largest
customer accounted for EUR 1,646.2 million, or 24.2 percent of net sales, compared with EUR 1,633.6 million, or 26.0 percent of
net sales, in 2015. The loss of any significant customer or any significant reduction in orders by a significant customer may have a
material adverse effect on our business, financial condition and results of operations.
Additionally, as a result of our limited number of customers, credit risk on our receivables is concentrated. Our three largest
customers (based on net sales) accounted for EUR 655.3 million, or 51.8 percent of accounts receivable and finance receivables on
December 31, 2016, compared with EUR 704.1 million, or 58.3 percent on December 31, 2015.
As a result of the foregoing risks, business failure or insolvency of one of our main customers may have a material adverse effect on
our business, financial condition and results of operations.
ASML ANNUAL REPORT 2016
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We derive most of our revenues from the sale of a relatively small number of products
We derive most of our revenues from the sale of a relatively small number of lithography equipment systems (157 units in 2016 and
169 units in 2015), with an ASP per system in 2016 of EUR 29.1 million (EUR 32.4 million for new systems and EUR 4.0 million for
used systems) and an ASP per system in 2015 of EUR 25.1 million (EUR 28.5 million for new systems and EUR 5.1 million for used
systems). As a result, the timing of shipment and recognition of revenue for a particular reporting period from a small number of
system sales may have a material adverse effect on our business, financial condition and results of operations in that period.
Specifically, the failure to receive anticipated orders, or delays in shipments near the end of a particular reporting period, due, for
example, to:
•
•
•
•
• Manufacturing difficulties;
•
•
A downturn in the highly cyclical semiconductor industry;
Volatility in the Logic and Memory end-markets as a result of oversupply;
Shipment rescheduling;
Cancellation or order push-back by customers;
A delay in the development and delivery of new technology; or
Delays in deliveries by suppliers
may cause net sales in a particular reporting period to fall significantly below net sales in previous periods or below our expected
net sales, and may have a material adverse effect on our results of operations for that period. In particular, our published quarterly
earnings may vary significantly from quarter to quarter and may vary in the future and reduce our visibility on future sales for the
reasons discussed above.
The time window for new product introduction is short and is accompanied by potential design and production delays
and by significant costs
The development and initial production, installation and enhancement of the systems we produce is often accompanied by design
and production delays and related costs of a nature typically associated with the introduction and transition to full-scale
manufacturing of complex capital equipment. While we expect and plan for a corresponding learning-curve effect in our product
development cycle, we cannot predict with precision the time and expense required to overcome these initial problems and to
ensure full performance to specifications. Moreover, we anticipate that this learning-curve effect will continue to present
increasingly difficult challenges with each new generation of our products as a result of increasing technological complexity. In
particular, the development of an EUV volume production system is dependent on, and subject to the successful implementation
of, among other things, technology related to the light source, source power, system availability, scanner performance and other
technologies specific to EUV. There is a risk that we may not be able to introduce or bring to full-scale production new products as
quickly as we anticipate in our product introduction plans, which could have a material adverse effect on our business, financial
condition and results of operations.
As a result of the increased time required to introduce new technologies capable of full-scale production, in particular with respect
to EUV, we offer customers the ability to upgrade these systems in order for the market to accept new technology enhancements
and an increasing number of customers have opted for such upgrades. System upgrades can be complex and result in system
downtime costs and quality issues, which could negatively impact our business, financial condition and results of operations.
We are also dependent on our suppliers to maintain their development roadmaps to enable us to introduce new technologies on a
timely basis, and if they are unable to keep pace whether due to technological factors, lack of financial resources or otherwise, this
could prevent us from meeting our development roadmaps.
Additionally, in connection with our EUV production, we have made advanced payments to suppliers that we may not recoup if we
do not reach expected EUV sales levels in the future. We may make similar advance payments (or other investments in our
suppliers) to suppliers in connection with EUV or other technologies we develop, and we may not recoup those advanced
payments or other investments (e.g. if expected sales are not met). See Note 9 to our Financial Statements.
As lithography technologies become more complex, the success of our R&D programs becomes more uncertain, while
their cost rises
Our lithography systems have become increasingly complex, and accordingly, the costs to develop new products and technologies
have increased, and we expect such costs to continue to increase. This increase in costs requires us to continue obtaining
sufficient funding for our R&D programs. For example, we obtained partial funding for our EUV R&D program through the CCIP. We
may however, be unable to obtain this type of funding from customers in the future, or our customers may not show sufficient
support for a particular technological development, which could lead us to delay or reduce investments in the R&D programs
related to such development, in which case we may be unable or we may determine not to fund R&D investments necessary to
maintain our technological leadership. The increasing complexity of new technologies, which leads to increasing cost of R&D
programs for new technologies, also increases the risk that a new product or technology may not be successful.
ASML ANNUAL REPORT 2016
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Furthermore, as the innovation cycle becomes more complex, developing new technology, including EUV technology, requires
increased R&D investments by our suppliers in order to meet the technology demands of us and our customers. Our suppliers may
not have, or may not be willing to invest in, the resources necessary to continue the development of the new technologies to the
extent such investments are necessary, which may result in our contributing funds to such R&D programs or limiting the R&D
investments that we can undertake. For example, in connection with our intended acquisition of a 24.9% stake in Carl Zeiss SMT,
we have agreed to make significant investments in Carl Zeiss SMT to fund programs for the development of High-NA. There is no
assurance that these investments will be sufficient to meet development timetables or that we will recoup the benefits of these
investments.
EUV is highly complex and remains under development
EUV technology is highly complex and further improvements in EUV technology are required for volume, production and shipment
of EUV systems, including improvements in predictable availability and source power (which we refer to as industrialization of EUV).
Such improvements will require further investment by us, our suppliers and our customers. In addition, the improvements in EUV
required for EUV industrialization are dependent on technological developments by our suppliers, partners, including Zeiss, and
customers. If our suppliers and partners do not advance the development and adoption of our EUV systems or if our customers do
not develop the required manufacturing sites to accommodate our EUV systems, this could lead to an extension of the timeline of
EUV development, which could have a material adverse effect on our business, financial condition and results of operations.
Failure to adequately protect the intellectual property rights upon which we depend could harm our business
We rely on intellectual property rights such as patents, copyrights and trade secrets to protect our proprietary technology and
applications. However, we face the risk that such measures could prove to be inadequate because:
•
•
•
•
•
Intellectual property laws may not sufficiently support our proprietary rights or may change in the future in a manner
adverse to us;
Patent rights may not be granted or interpreted as we expect;
Patents will expire which may result in key technology becoming widely available that may hurt our competitive position;
The steps we take to prevent misappropriation or infringement of our proprietary rights may not be successful; and
Third parties may be able to develop or obtain patents for broadly similar or similar competing technology.
In addition, legal proceedings may be necessary to enforce our intellectual property rights, to determine the validity and scope of
the proprietary rights of others, or to defend against claims of infringement. Any such proceedings may result in substantial costs
and diversion of management resources, and, if decided unfavorably to us, could have a material adverse effect on our business,
financial condition and results of operations.
A disruption in our information technology systems, including incidents related to cyber security, could adversely affect
our business operations
We rely on the accuracy, availability and security of our information technology systems. Despite the measures that we have
implemented, including those related to cyber security, our systems could be breached or damaged by computer viruses and
systems attacks, natural or man-made incidents, disasters or unauthorized physical or electronic access.
From time to time we experience cyber security attacks on our information technology systems, these attacks are increasing and
becoming more sophisticated, and may be perpetrated by computer hackers, cyber terrorists or other corporate espionage. These
attacks include malicious software (malware), attempts to gain unauthorized access to data, and other electronic security breaches
of our information technology systems as well as the information technology systems of our suppliers, customers and other service
providers that have led and could lead to disruptions in critical systems, unauthorized release of confidential or otherwise protected
information (including confidential information relating to our customers, employees and suppliers), and corruption of data. To date,
none of the attacks we have experienced has materially impacted our business or operations. Nevertheless, any system failure,
accident or security breach could result in business disruption, theft of our intellectual property, trade secrets (including our
proprietary technology), unauthorized access to, or disclosure of, customer, personnel or supplier information, or corruption of our
data and of our systems.
Moreover, there can be no assurance that such measures we have implemented will be sufficient to prevent a system failure,
accident or security breach from occurring. To the extent that our business is interrupted or data or proprietary technology or
customer data is lost, destroyed or inappropriately used or disclosed, this could adversely affect our competitive position,
relationships with customers, employees and suppliers and therefore our business, financial condition and results of operations. In
addition, we may be required to incur significant costs to protect against or repair the damage caused by these disruptions or
security breaches in the future.
In addition, from time to time, we implement updates to our information technology systems and software, which can disrupt or
shutdown our information technology systems. We may not be able to successfully integrate and launch these new systems as
planned without disruption to our operations. Information technology system disruptions, if not anticipated and appropriately
mitigated, could have a material adverse effect on our operations.
ASML ANNUAL REPORT 2016
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Defending against intellectual property claims brought by others could harm our business
In the course of our business, we are subject to claims by third parties alleging that our products or processes infringe upon their
intellectual property rights. If successful, such claims could limit or prohibit us from developing our technology and manufacturing
our products, which could have a material adverse effect on our business, financial condition and results of operations.
In addition, our customers may be subject to claims of infringement from third parties, alleging that our products used by such
customers in the manufacturing of semiconductor products and/or the processes relating to the use of our products infringe one or
more patents issued to such third parties. If such claims were successful, we could be required to indemnify customers for some or
all of any losses incurred or damages assessed against them as a result of such infringement, which could have a material adverse
effect on our business, financial condition and results of operations.
We also may incur substantial licensing or settlement costs, which although potentially strengthening or expanding our intellectual
property rights or limiting our exposure to intellectual property claims of third parties, may have a material adverse effect on our
business, financial condition and results of operations.
From late 2001 through 2004, ASML was a party to a series of civil litigation and administrative proceedings in which Nikon alleged
ASML’s infringement of Nikon patents generally relating to lithography. ASML in turn filed claims against Nikon. Pursuant to
agreements executed on December 10, 2004, ASML and Nikon agreed to settle all pending worldwide patent litigation between the
companies. The settlement included an exchange of releases, a patent cross-license agreement related to lithography equipment
used to manufacture semiconductor devices, and payments to Nikon by ASML. Under the Nikon Cross-License Agreement, ASML
and Nikon granted to each other a non-exclusive license for use in the manufacture, sale, and use of lithography equipment, under
their respective patents. The license granted relating to many of the patents of each party was perpetual, but the license relating to
certain other of the patents expired at the end of 2009. Each party had the right to select a limited number of the other party's
patents where the license for such patents expired in 2009 to be subject to a permanent covenant not to sue in respect of patent
infringement claims. In October 2016, the Patent Selection was completed.
In addition, the Nikon Cross-License Agreement provided that following the termination of some of the licenses granted in the
Nikon Cross-License Agreement on December 31, 2009, there would be a standstill period during which the parties agreed not to
bring patent infringement suits against each other. This standstill period ran from January 1, 2010 through December 31, 2014.
Damages resulting from claims for patent infringement occurring during the Cross-License Transition Period are limited to three
percent of the net sales price of applicable licensed products including optical components. For more information on the Nikon
Cross-License Agreement, see Item 4.B. "Business Overview - Intellectual Property."
Accordingly, from January 1, 2015, both Nikon and we are no longer prohibited under the agreement from bringing claims against
each other on the basis of infringement of patents subject to the Nikon Cross-License Agreement, other than perpetually licensed
patents. In addition, as described above, the Patent Selection was completed in October 2016. Therefore, there is now a defined
group of patents owned by each party for which the license granted to the other party has expired.
If Nikon files suit against us alleging patent infringement, we may incur substantial legal fees and expenses, and we may not
prevail. Similarly, if we file suit against Nikon alleging patent infringement, we may incur substantial legal fees and expenses, and
we may not prevail. Patent litigation is complex and may extend for a protracted period of time, giving rise to the potential for both
substantial costs and diverting the attention of key management and technical personnel. Potential adverse outcomes from patent
litigation may include, without limitation, payment of significant monetary damages, injunctive relief prohibiting the sale of products,
and/or settlement involving significant costs to be paid by us, any of which may have a material adverse effect on our business,
financial condition and/or results of operations. We are unable to predict at this time whether any such patent suit will in fact
materialize, or, if so, what its outcome might be.
We are subject to risks in our international operations
The majority of our sales are made to customers outside EMEA, see Note 20 to our Financial Statements. There are a number of
risks inherent in doing business in some of those regions:
•
•
•
•
•
Potentially adverse tax consequences;
Unfavorable political or economic environments;
Unexpected legal or regulatory changes;
An inability to effectively protect intellectual property; and
Adverse effects of foreign currency fluctuations.
If we are unable to manage successfully the risks inherent in our international activities, our business, financial condition and results
of operations could be materially and adversely affected.
ASML ANNUAL REPORT 2016
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In particular, 30.7 percent of our 2016 net sales and 24.7 percent of our 2015 net sales were derived from customers in Taiwan.
Taiwan has a unique international political status. The People’s Republic of China asserts sovereignty over Taiwan and does not
recognize the legitimacy of the Taiwanese government. Changes in relations between Taiwan and the People’s Republic of China,
Taiwanese government policies and other factors affecting Taiwan’s political, economic or social environment could have a material
adverse effect on our business, financial condition and results of operations. In addition, HMI, which we have acquired, is located in
Taiwan, and as a result, the risks we face as a result of doing business in Taiwan will increase. Furthermore, certain of our
manufacturing facilities as well as customers are located in South Korea. In particular, 23.3 percent of our 2016 net sales and 31.4
percent of our 2015 net sales were derived from customers in South Korea. There are tensions between the Republic of South
Korea and the Democratic People’s Republic of Korea (North Korea) since the division of the Korean Peninsula following World War
II. The worsening of relations between those two countries or the outbreak of war on the Korean Peninsula could have a material
adverse effect on our business, financial condition or results of operations.
In addition, the installation and servicing of our products requires us to travel to our customers’ premises. Natural disasters could
affect our ability to do so. For example, the Taiwanese earthquake in 2016 resulted in the disruption of our installation and servicing
of systems for our customers in Taiwan. Natural disasters in areas where our customers are located could prevent or disrupt the
installation or servicing of our systems. In addition, we have customers located in Israel. If the geopolitical environment prevents
travel to Israel, it could result in the disruption of our installation and servicing of systems for our customers.
Lastly, if there is a pandemic outbreak located near any of our customers, it could result in the disruption of our installation and
servicing of systems for our customers near the outbreak. Therefore, if there is a natural disaster, geopolitical conflict or pandemic
that prevents our ability to travel to our customers’ premises, our business, financial condition and results of operations may be
materially adversely effected.
We are dependent on the continued operation of a limited number of manufacturing facilities
All of our manufacturing activities, including subassembly, final assembly and system testing, take place in cleanroom facilities in
Veldhoven, the Netherlands, in Wilton, Connecticut and in San Diego, California, both in the United States, in Pyeongtaek, South-
Korea, in Beijing, China and in Linkou and Tainan, Taiwan. These facilities may be subject to disruption for a variety of reasons,
including work stoppages, fire, energy shortages, flooding or other natural disasters. We cannot ensure that alternative production
capacity would be available if a major disruption were to occur or that, if such capacity was available, it could be obtained on
favorable terms. Such a disruption could have a material adverse effect on our business, financial condition and results of
operations. In addition, some of our key suppliers, including Zeiss, have a limited number of manufacturing facilities, the disruption
of which may significantly and adversely affect our production capacity.
Because of labor laws and practices, any workforce reductions that we may seek to implement in order to reduce costs
company-wide may be delayed or suspended
The semiconductor market is highly cyclical and as a consequence we may need to implement workforce reductions in case of a
downturn, in order to adapt to such market changes. In accordance with labor laws and practices applicable in the jurisdictions in
which we operate, a reduction of any significance may be subject to formal procedures that can delay or may result in the
modification of our planned workforce reductions. For example, ASML Netherlands B.V., our operating subsidiary in the
Netherlands, has a Works Council, as required by Dutch law. If the Works Council renders contrary advice in connection with a
proposed workforce reduction in the Netherlands, but we nonetheless determine to proceed, we must temporarily suspend any
action while the Works Council determines whether to appeal to the Enterprise Chamber of the Amsterdam Court of Appeal. This
appeal process can cause a delay of several months and may require us to address any procedural inadequacies identified by the
Court in the way we reached our decision. Such delays could impair our ability to reduce costs company-wide to levels comparable
to those of our competitors. Also see Item 6.D. "Employees".
Fluctuations in foreign exchange rates could harm our results of operations
We are exposed to currency risks. We are particularly exposed to fluctuations in the exchange rates between the US dollar,
Japanese yen and the euro, as we incur costs of sales predominantly in euros with portions of our net sales and cost of sales also
denominated in US dollars.
In addition, a portion of our sales and costs are denominated in US and Taiwanese dollars, particularly following our acquisitions of
Cymer in 2013 and HMI in 2016, and a small portion of our operating results are denominated in currencies other than the euro and
the US or Taiwanese dollar. Our Financial Statements are expressed in euros. Accordingly, our results of operations are exposed to
fluctuations in exchange rates between the euro and such other currencies, and changes in currency exchange rates can result in
losses in our Financial Statements. In general, our customers generally run their businesses in US dollars and therefore a
weakening of the US dollar against the euro might impact the ability or desire of our customers to purchase our products.
ASML ANNUAL REPORT 2016
13
Furthermore, a strengthening of the euro particularly against the Japanese yen could further intensify price-based competition in
those regions that account for the majority of our sales, resulting in lower prices and margins and a material adverse effect on our
business, financial condition and results of operations.
We may be unable to make desirable acquisitions or to integrate successfully any businesses we acquire
Our future success may depend in part on the acquisition of businesses or technologies intended to complement, enhance or
expand our current business or products or that might otherwise offer us growth opportunities. Our ability to complete such
transactions may be hindered by a number of factors, including potential difficulties in obtaining government approvals.
On November 22, 2016, we acquired all of the outstanding shares of HMI, a supplier of pattern verification systems used for
advanced semiconductor devices. We expect that the acquisition of HMI will enhance our holistic lithographic portfolio. However,
achieving the benefits of the acquisition will depend in part on the integration of our operations and employees with those of HMI in
a timely and efficient manner, and if we fail to do so, this may result in a delay in the benefits expected from the HMI acquisition.
There can be no assurance that HMI will successfully execute its product roadmaps, will be successfully integrated in our business
or that any of the anticipated benefits will be realized.
Any acquisition that we do make would pose risks related to the integration of the new business or technology with our business.
We cannot be certain that we will be able to achieve the benefits we expect from a particular acquisition or investment.
Acquisitions may also strain our managerial and operational resources, as the challenge of managing new operations may divert
our management from day-to-day operations of our existing business. Our business, financial condition and results of operations
may be materially and adversely affected if we fail to coordinate our resources effectively to manage both our existing operations
and any businesses we acquire.
In addition, in connection with acquisitions, anti-trust regulators may impose conditions on us, including requirements to divest
assets or other conditions that could make it difficult for us to integrate the businesses that we acquire. For example, in connection
with the Cymer acquisition we have agreed to maintain Cymer Light Sources as a stand-alone business. Furthermore, as the
industry is becoming more consolidated, anti-trust clearances may become harder to obtain, which could inhibit future desired
acquisitions.
We may also face challenges with integrating any business we acquire into our organization.
As a result of acquisitions, we have recorded, and may continue to record, a significant amount of goodwill and other intangible
assets. Under current accounting guidelines, we must assess, at least annually and potentially more frequently, whether the value
of goodwill and other intangible assets has been impaired. Any reduction or impairment of the value of goodwill or other intangible
assets will result in additional charges against earnings, which could materially reduce our reported results of operations in future
periods.
We have made a significant investment in Carl Zeiss SMT, but we will not control Carl Zeiss SMT and may not achieve
expected benefits of this transaction
In November 2016, we announced that we have agreed to acquire a 24.9% interest in Carl Zeiss SMT for EUR 1 billion. This
acquisition is expected to complete in the second quarter of 2017, but completion is subject to conditions, including regulatory
clearances, and there is no guarantee that we will receive such clearances.
We will have certain governance rights with respect to Carl Zeiss SMT, but Zeiss, with a 75.1% interest in Carl Zeiss SMT, will
continue to control most aspects of the operations of Carl Zeiss SMT. Therefore, we may not be able to influence the business of
Carl Zeiss SMT in a manner that is optimal for ASML. Disputes between ASML and Zeiss as to the governance of Carl Zeiss SMT
could result in a loss of the benefits of this transaction and could harm our relationship with Zeiss, a critical supplier.
In addition, we have agreed to invest EUR 760 million (over a period of 6 years) in Carl Zeiss SMT for R&D, capital expenditures and
other supply chain investments in respect of High NA for projects relating to EUV optics, to enable Carl Zeiss SMT to produce
optical components enabling High-NA. These R&D, capital expenditures and other supply chain investments may not produce the
desired results, and this may adversely affect the development of High-NA technology, an important extension of EUV, which may
have a material adverse effect on our business, financial condition and results of operations. In addition, as a result of this intended
acquisition, we will record our interest in Carl Zeiss SMT as an equity investment. Under current accounting guidelines, we must
assess each reporting period whether there is any indication that this equity investment has been impaired. Any reduction or
impairment of the value of this investment made will result in additional charges against earnings, which could materially reduce our
reported results of operations in future periods.
ASML ANNUAL REPORT 2016
14
Our business and future success depend on our ability to attract and retain a sufficient number of adequately educated
and skilled employees
Our business and future success significantly depends upon our employees, including a large number of highly qualified
professionals, as well as our ability to attract and retain employees. Competition for such personnel is intense, and we may not be
able to continue to attract and retain such personnel. Our R&D programs require a significant number of qualified employees. If we
are unable to attract sufficient numbers of qualified employees, this could affect our ability to conduct our research and
development programs on a timely basis, which could adversely affect our business, financial condition and results of operations.
In addition, if we lose key employees or officers to retirement, illness or otherwise, particularly a number of our highly qualified
professionals and/or senior management, we may not be able to timely find a suitable replacement. Moreover, as a result of the
uniqueness and complexity of our technology, qualified engineers capable of working on our systems are scarce and generally not
available (e.g. from other industries or companies). As a result, we must educate and train our employees to work on our systems.
Therefore, a loss of a number of key professionals and/or senior management can be disruptive, costly and time consuming. Our
R&D activities with respect to new technology systems such as EUV and our service activities have increased our need for qualified
personnel. Competition for qualified personnel is significant in the area surrounding our headquarters in Veldhoven, the Netherlands
and in the other regions where our facilities are located, where a number of high technology companies are located.
Furthermore, the increasing complexity of our products results in a longer learning-curve for new and existing employees and
suppliers leading to an inability to decrease cycle times and may result in the incurrence of significant additional costs.
Our suppliers face similar risks in attracting qualified employees, including attracting employees in connection with R&D programs
that will support our R&D programs and technology developments. To the extent that our suppliers are unable to attract qualified
employees, this could adversely affect our business, financial condition and results of operations.
Changes in taxation could affect our future profitability
We are subject to income taxes in the Netherlands and numerous other jurisdictions. Our effective tax rate has fluctuated in the
past and may fluctuate in the future.
Changes in tax legislation in the countries where we operate can affect our effective tax rate. For example, the OECD has recently
embarked on a project to propose measures against so called BEPS, which the OECD describes as tax planning strategies that
exploit gaps and mismatches in tax rules to reduce overall corporate tax. In October 2015, the OECD published 15 reports on
various BEPS topics. These reports introduced new tax concepts which has resulted, and is expected to result, in substantial
changes to tax legislation in the countries in which ASML operates.
In particular, one of the OECD BEPS reports introduces minimum requirements for Patent Box Regimes. In 2007, a Patent Box
Regime was introduced in The Netherlands, which provides that income generated from qualifying innovative activities is effectively
taxed at a beneficial tax rate of currently 5% rather than the Dutch statutory tax rate of 25%. The Patent Box Regime is called
Innovation Box in The Netherlands legislation. A portion of our earnings currently qualifies for beneficial tax treatment under the
Dutch Innovation Box. To align the Dutch Patent Box Regime with the OECD reports, on September 20, 2016, proposed laws were
published pertaining to Innovation Box. This proposal has not been adopted by either of the two chambers of the Dutch Parliament
and is therefore not final. Changes in Dutch tax laws to comply with the OECD BEPS report may reduce ASML’s current benefits
under the Dutch Innovation Box from January 1, 2017 onwards.
Changes to tax legislation of jurisdictions ASML operates in may adversely impact ASML’s tax position and consequently our net
income. In addition, jurisdictions levy corporate income tax at different rates. The distribution of our systems sales over the various
jurisdictions in which we operate may vary from year to year, resulting in a different mix of corporate income tax rates applicable to
our profits, which can affect the world wide effective tax rate for ASML.
Hazardous substances are used in the production and operation of our systems and failure to comply with applicable
regulations or failure to implement appropriate practices for customer and employee environment, health and safety
could subject us to significant liabilities
Hazardous substances are used in the production and operation of our lithography systems, which subjects us to a variety of
governmental regulations relating to environmental protection and employee and product health and safety, including the transport,
use, storage, discharge, handling, emission, generation, and disposal of toxic or other hazardous substances. In addition, operating
our machines (which use lasers and other potentially hazardous systems) is dangerous and can result in injury. The failure to
comply with current or future regulations could result in substantial fines being imposed on us or other adverse consequences.
Additionally, our products have become increasingly complex. The increasing complexity requires us to invest in continued risk
assessments and development of appropriate preventative and protective measures for health and safety for both our employees
(in connection with the production and installation of our systems) and our customers’ employees (in connection with the operation
of our systems). There can be no assurance that the health and safety practices we develop will be adequate to mitigate all health
and safety risks. Failing to comply with applicable regulations or the failure of our implemented practices for customer and
employee health and safety could subject us to significant liabilities, which could have a material adverse effect on our business,
financial condition and results of operations.
ASML ANNUAL REPORT 2016
15
Risks related to our ordinary shares
We may not declare cash dividends and conduct share buyback programs at all or in any particular amounts in any
given year
We aim to pay an annual dividend that will be stable or growing over time. Annually, the BoM will, upon prior approval from the SB,
submit a proposal to the AGM with respect to the amount of dividend to be declared with respect to the prior year. In addition, as
part of our plan to return excess cash to shareholders, we conduct share buyback programs from time to time. The dividend
proposal and amount of share buyback programs in any given year will be subject to the availability of distributable profits or
retained earnings and may be affected by, among other factors, the BoM’s views on our potential future liquidity requirements,
including for investments in production capacity, the funding of our R&D programs and for acquisition opportunities that may arise
from time to time; and by future changes in applicable income tax and corporate laws. Accordingly, the BoM may decide to
propose not to pay a dividend or pay a lower dividend and may adjust the amount of share buyback programs with respect to any
particular year in the future, which could have a negative effect on our share price.
Restrictions on shareholder rights may dilute voting power
Our Articles of Association provide that we are subject to the provisions of Dutch law applicable to large corporations, called
"structuurregime". These provisions have the effect of concentrating control over certain corporate decisions and transactions in
the hands of our SB. As a result, holders of ordinary shares may have more difficulty in protecting their interests in the face of
actions by members of our SB than if we were incorporated in the United States or another jurisdiction.
Our authorized share capital also includes a class of cumulative preference shares and we have granted Stichting Preferente
Aandelen ASML, a Dutch foundation, an option to acquire, at their nominal value of EUR 0.09 per share, such cumulative
preference shares. Exercise of the preference share option would effectively dilute the voting power of our outstanding ordinary
shares by one-half, which may discourage or significantly impede a third party from acquiring a majority of our voting shares.
See Item 6.C. "Board Practices", Item 10.B. "Memorandum and Articles of Association" and Note 25 to our Financial Statements.
Participating customers in our Customer Co-Investment Program together own a significant amount of our ordinary
shares and their interests may not coincide with the interests of our other shareholders
In the CCIP, the Participating Customers, being Intel, Samsung and TSMC, through certain wholly-owned subsidiaries, acquired in
aggregate 96,566,077 ASML shares, which represented 23% of our outstanding shares at that time. In the CCIP, all of the
Participating Customers agreed to a lock-up arrangement with us which expired in the first half of 2015. As the lock-up has now
expired, the Participating Customers are permitted to sell their shares. Based on publicly available information, all three of the
Participating Customers are believed to have sold all or a portion of their holdings, although (based on public information) Intel
remains a significant shareholder. The sale of a large number of shares by the Participating Customers, or the perception that such
sales may occur, could have an adverse effect on the trading price of our shares.
See Item 7.A. "Major Shareholders".
Additionally, the interests of the Participating Customers who continue to own ASML shares may not always coincide with the
interests of other holders of our shares. The shares acquired by the Participating Customers are held by Dutch foundations which
have issued depositary receipts in respect thereof and the Participating Customers may only vote those shares in General Meetings
in exceptional circumstances. When such exceptional circumstances occur, the Participating Customers who continue to own
ASML shares, and in particular Intel (due to the percentage of our shares that Intel owns), will be able to influence matters requiring
approval by the General Meeting and may vote their ordinary shares in a way with which other shareholders may not agree.
Item 4 Information on the Company
A. History and Development of the Company
We commenced business operations in 1984. ASM Lithography Holding N.V. was incorporated in the Netherlands on October 3,
1994 to serve as the holding company for our worldwide operations. In 2001, we changed our name to ASML Holding N.V. Our
registered office is located at De Run 6501, 5504 DR Veldhoven, the Netherlands, telephone number +31 40 268 3000. We have
operating subsidiaries in the Netherlands, the United States, Italy, France, Germany, the United Kingdom, Ireland, Belgium, Korea,
Taiwan, Singapore, China, Hong Kong, Japan, Malaysia and Israel.
From time to time, we pursue acquisitions of businesses that we believe will complement or enhance our core lithography business:
these have included the acquisitions of MaskTools (business unit of MicroUnity Systems Engineering Inc.) in 1999, Silicon Valley
Group Inc. in 2001, Brion Technologies Inc. in 2007, Wijdeven Motion Holding B.V. and Wijdeven Motion B.V. in 2012, Cymer Inc. in
2013, and HMI in 2016.
ASML ANNUAL REPORT 2016
16
On November 3, 2016 ASML and Zeiss announced that they agreed to strengthen their long-standing and successful partnership in
the semiconductor lithography business. The main objective of this partnership is to facilitate the development of the future
generation EUV lithography systems, including High-NA technology, due in the first few years of the next decade. We believe that
this technology will enable the semiconductor industry to produce much higher performance microchips at lower costs. ASML has
agreed with Zeiss to acquire a 24.9% minority stake in Carl Zeiss SMT, for EUR 1 billion in cash. The closing of this transaction is
expected in the second quarter of 2017 and is conditional on, among other things, customary merger control approvals. In addition,
ASML agreed to support Carl Zeiss SMT's R&D costs, capital expenditures and other supply chain investments, in respect of High-
NA, in an amount of EUR 760 million over 6 years.
On November 22, 2016, we acquired HMI. The acquisition is intended to make a strong product offering even stronger. We believe
our metrology technologies are complementary and, when combined, offer the chance to significantly improve process control, and
hence yields, for our customers. See Note 2 to our Financial Statements.
See Item 3.D. "Risk Factors - Risks related to ASML - We may be unable to make desirable acquisitions or to integrate successfully
any businesses we acquire".
Capital Expenditures and Divestitures
Our capital expenditures (purchases of property, plant and equipment, see the Consolidated Statements of Cash Flows as
recorded in the Financial Statements) for 2016, 2015 and 2014 amounted to EUR 316.3 million, EUR 371.8 million and EUR 358.3
million, respectively. The decreased capital expenditures in 2016 compared to 2015 and 2014 mainly reflect the construction of our
EUV production facilities in Veldhoven, the Netherlands in 2015 and 2014. Capital expenditures are primarily financed through cash
provided by operating activities. See item 4.D. "Property, Plant and Equipment" for our expected capital expenditures in 2017.
B. Business Overview
ASML is one of the world’s leading manufacturers of chip-making equipment. Our vision is to enable affordable microelectronics
that improve the quality of life. To achieve this, our mission is to invent, develop, manufacture and service advanced technology for
high-tech lithography, metrology and software solutions for the semiconductor industry. ASML's guiding principle is continuing
Moore's Law towards ever smaller, cheaper, more powerful and energy-efficient semiconductors. This results in increasingly
powerful and capable electronics that enable the world to progress within a multitude of fields, including healthcare, technology,
communications, energy, mobility, and entertainment. ASML is a multinational company with offices in 60 cities in 16 countries,
headquartered in Veldhoven, the Netherlands. As of December 31, 2016, we employed 13,991 payroll employees (2015: 12,168)
and 2,656 temporary employees (2015: 2,513), measured in FTEs. ASML is traded on Euronext Amsterdam and NASDAQ under the
symbol ASML.
Our Business Model
For our business strategy, see Item 5. "Operating and Financial Review and Prospects – Executive Summary – Business Strategy -
Business Strategy".
Our business model is derived from our "cost of ownership" concept which is based on the following principles:
•
Offering ongoing improvements of productivity, patterning, imaging, overlay and availability by introducing advanced
technology based modular platforms, advanced applications and Holistic Lithography solutions outside the traditional
lithography business, each resulting in lower costs or higher value per product for our customers;
Providing customer service that offers efficient installation and maintenance, superior support and training to optimize
manufacturing processes of our customers;
Enhancing the capabilities of the installed base of our customers through ongoing field upgrades of productivity, patterning,
imaging, overlay, availability and Holistic Lithography solutions, based on further technology developments;
Reducing the cycle time between a customer’s order of a system and the use of that system in volume production; and
Providing refurbishing services that effectively increase residual value by extending the life of equipment.
•
•
•
•
To be able to execute our business model we seek to:
• Maintain appropriate levels of R&D to offer the most advanced technology suitable for following Moore’s Law, as well as
•
•
achieving high-throughput and low-cost volume production at the earliest possible date;
Be able to attract, train, retain and motivate highly qualified, skilled and educated employees; and
Retain operational flexibility in R&D and manufacturing by reinforcing strategic alliances with world class partners, including
outsourcing companies.
Our Markets and Products
We have built a collaborative community of suppliers, customers, partners and research institutes that we work with to minimize the
cost of innovation and maximize the chance of success. A significant part of the components and modules used in our systems are
sourced from our supply chain and assembled in our factories to create the final products delivered to our customers.
Through 2016, all of the top 10 chipmakers worldwide, in terms of semiconductor capital expenditure, were our customers. We also
have a significant share of customers outside the top 10. We strive for continued business growth with all our customers.
ASML ANNUAL REPORT 2016
17
In 2016, our satisfaction ratings by customers surpassed every lithography competitor. According to VLSI Research, ASML ranks
third among the large semiconductor industry equipment suppliers and first among lithography competitors. Our performance has
consistently been strong: for more than thirteen years in a row we have both ranked among the top 5 semiconductor industry
suppliers and our ranking surpassed that of any of our lithography competitors.
Markets
Memory chips
Memory chips can store a large amount of data in a very small area in electronic products like personal computers, tablets or
smartphones. There are two main classes of Memory: DRAM and NAND. With NAND chips, information can be stored even when
the device is powered off. DRAM memory is used to enhance the performance of the electronic product. These DRAM and NAND
chips are made in dedicated Memory factories.
Logic chips
Logic chips process information in electronic devices. They are produced by two groups of manufacturers. The first group designs
and manufactures Logic chips and is referred to as IDMs. The second group are contract manufacturers known as Foundries.
Foundry manufacturers do not design chips, but produce chips for other companies.
Total net sales by end-use market for 2014 - 2016 for Memory, Foundry, IDM and net service and field option sales were divided as
follows:
Year ended December 31
(in millions)
Memory
Foundry
IDM
Net service and field option sales
Total net sales
2014
EUR
2,225.1
1,186.0
831.7
1,613.5
5,856.3
% 1
38.0%
20.3%
14.2%
27.5%
2015
EUR
2,115.0
1,608.1
514.1
2,050.2
6,287.4
% 1
33.6%
25.6%
8.2%
32.6%
2016
EUR
1,470.5
2,155.2
945.4
2,223.7
6,794.8
% 1
21.7%
31.7%
13.9%
32.7%
1.
As a percentage of total net sales.
Products
General
Our systems are essentially projection systems, comparable to a slide projector. Light is projected using a Reticle, which contains
the blueprint of the pattern that will be printed. A lens or mirror focuses the pattern onto the wafer -a thin, round slice of
semiconductor material- which is coated with a light-sensitive chemical. When the exposed parts are etched away, the pattern is
revealed. Because lithography patterns the structures on a chip, it is lithography that determines how small the features on the chip
can be, and how densely chip makers can pack transistors together. In other words, lithography is crucial to follow the path
described by Moore’s Law.
For a further discussion on Moore's law see Item 5 "Operating and Financial Review and Prospects - Executive Summary -
Business Strategy - Business Strategy".
Systems
In 2000 we introduced the TWINSCAN platform, which is the basis for our current and next-generation systems, which are
expected to be capable of extending shrink technology with MPT techniques. We offer TWINSCAN systems, equipped with i-line,
KrF and ArF light sources for 300 mm processing wafers for manufacturing environments for which imaging at a small resolution is
required. The modular upgradeable design philosophy of the older systems has been further refined and applied in the TWINSCAN
design.
Due to the increasing demand for 200 mm systems in the market place, i.e. driven by several applications like Internet of Things,
ASML has re-introduced TWINSCAN 200 mm systems equipped with i-line and KrF light sources, which are sold alongside the 300
mm version. These systems can be built new, unlike the PAS steppers and scanners, which can be only refurbished and are difficult
to source in large volumes.
TWINSCAN systems also include immersion lithography systems (TWINSCAN immersion systems). With a TWINSCAN immersion
system, wafer measurement, including focus and alignment, is completed in the dry stage, while the imaging process, using water,
is completed in the wet stage. This immersion technology places water between the wafer and a system’s projection lens to
enhance focus and enable circuit line width to shrink to smaller dimensions than what is possible with dry lithography systems. We
fostered this wet technology and has experienced strong demand for immersion-based systems; this technology has been adopted
by all of our leading customers. We are one of the world’s leaders (measured in revenues) in immersion technology and we were the
world’s first producer of dual-stage design lithography systems.
We have developed different immersion systems for different customer needs. The TWINSCAN NXT platform enables next
generations of semiconductors through the so-called MPT which requires two or more exposures per layer on a chip, enabling
precise imaging patterns and lines by using our TWINSCAN NXT planar wafer stage and breakthrough grid metrology.
ASML ANNUAL REPORT 2016
18
In 2016 we shipped 46 TWINSCAN NXT:1980 systems to support increasingly demanding multiple-patterning performance
requirements. Demonstrating 1.2 nanometer (nm) dedicated chuck overlay and better than 10 nm focus uniformity, the NXT:1980
features new grid calibrations and hardware that enables chipmakers to achieve tighter process windows for next-generation
process nodes. The NXT:1980Di improves throughput by 10% to 275 wafers per hour, compared to the NXT:1970Ci.
In 2010, we achieved a major milestone with EUV lithography when we shipped our first NXE:3100 system. NXE systems are
equipped with EUV light source technology, based upon a tin plasma, producing light at a wavelength of 13.5 nm. The NXE system
has an innovative optical technology, utilizing reflective mirrors rather than the traditional refractive optics, with a NA of 0.25. The
light in a NXE system operates in a vacuum environment, through the entire optical path, to the wafer level. With the combination of
these revolutionary technologies, EUV offers the potential to provide our customers a roadmap for future shrink, and we expect it to
become the predominant lithography technology for the coming years. NXE systems are targeted for production of ICs down to
minimum features of 13 nm with single patterning, addressing current Memory and Logic roadmaps and processes down to the 5
nm node. Extension beyond this 5 nm is possible, using High-NA.
The success of EUV is dependent on, and subject to, the successful implementation of, among other things, technology related to
the light source, throughput, system availability, patterning, imaging, overlay and other technologies specific to EUV, by us and our
suppliers. We acquired Cymer on May 30, 2013, with the goal of achieving our strategic objective of delivering an economically
viable EUV scanner to semiconductor manufacturers as soon as reasonably possible. Combining Cymer’s expertise in EUV light
sources with our expertise in lithography systems design and integration reduces the risks related to further development of EUV
technology.
In 2013, we shipped our first NXE:3300B systems. The NXE:3300B system is the successor of the NXE:3100 system and is our
third-generation EUV-system. A NXE:3300B system combines a wavelength of 13.5 nm and an optical system with a NA of 0.33 to
provide imaging at a resolution of 22 nm. Compared to the NXE:3100 system, the NXE:3300B system has among other things a
better NA as well as an improved light source.
In April 2015 we signed an agreement with one of our major US customers to deliver a minimum of 15 EUV lithography systems to
support increased development activity and pilot production of future-generation manufacturing processes. This customer has
indicated that it intends to use EUV lithography for multiple processing steps in future process technology nodes.
Our fourth-generation EUV-system, the NXE:3350B, achieves an overlay of 1.0 nm, a 50% improvement over the NXE:3300B, and
also features projection optics with a higher transmission, which means it generates higher throughput from a given EUV power
source. In addition, the availability of systems in the field improved during 2016, with systems achieving a four-week availability of
more than 80 percent regularly across the installed base; the best result was more than 90 percent over four weeks. Consistency of
availability between systems and across sites still needs to be improved. EUV lithography met our 2016 productivity and availability
targets. We achieved a productivity of more than 1,500 wafers per day, on a 3 day average in 2016 on an NXE:3350B system at a
customer site. We shipped five of our latest NXE:3350B systems and plan to ship our first next generation system, NXE:3400B, in
the first quarter of 2017. They will be used in our customers' factories for preparing the introduction of EUV into high volume
manufacturing.
ASML Lithography System Product Portfolio for new systems:
System1
Resolution
Wavelength
Light source
Numerical aperture
TWINSCAN DUV SYSTEMS 2
TWINSCAN XT:400
TWINSCAN XT:800
TWINSCAN XT:860
TWINSCAN XT:10X0
TWINSCAN XT:1460
TWINSCAN NXT:19XX immersion
TWINSCAN EUV SYSTEMS
NXE:3300
NXE:3350
NXE:3400
350 nm
120 nm
110 nm
80 nm
65 nm
38 nm
22 nm
16 nm
13 nm
365 nm
248 nm
248 nm
248 nm
193 nm
193 nm
13.5 nm
13.5 nm
13.5 nm
i-line
KrF
KrF
KrF
ArF
ArF
EUV
EUV
EUV
0.48-0.65
0.55-0.80
0.55-0.80
0.50-0.93
0.65-0.93
0.85-1.35
0.33
0.33
0.33
1.
2.
This table does not include used systems or system enhancements on steppers and scanners and products other than systems (e.g. YieldStar or computational
lithography products).
The X in the product number represents different models in the product portfolio within the same resolution. For example, XT:10X0 can either represent XT:1000 or
XT:1060.
ASML ANNUAL REPORT 2016
19
ASML’s MPS business refurbishes PAS 5500 and TWINSCAN lithography equipment and offers associated services. Our PAS 5500
product family, which we no longer manufacture but continue to refurbish, comprises advanced wafer steppers and Step & Scan
systems equipped with i-line, KrF and ArF light sources for processing wafers up to 200 mm in diameter, and are employed in
volume manufacturing to achieve design nodes requiring imaging at a resolution down to 90 nm.
Installed base products and services
We continuously develop and sell a range of product options and enhancements designed to increase throughput and improve
patterning and overlay to optimize cost of ownership over the entire life of our systems. This is complemented by full system
upgrade packages which enable our TWINSCAN NXT immersion scanners to be upgraded from one model to another. This enables
customers to migrate these systems in production from one process technology node to another, meeting tighter lithography
requirements for the more advanced process technology nodes.
Our customers optimize their scanner performance by taking into account the entire chip creation process, from design to volume
manufacturing, an approach we call Holistic Lithography. We complement our scanner products with a rapidly expanding Holistic
Lithography portfolio of software and metrology products to help our customers optimize semiconductor scanner performance,
provide a faster start to chip production and achieve better patterning at higher resolutions. Semiconductor manufacturers face
increasingly smaller margins of error as they shrink chip features. Holistic Lithography provides a way to shrink within these
margins, offering additional significant revenue-generating and cost-saving opportunities for our customers.
Our computational lithography products capture detailed knowledge of scanner design and real performance, which enables our
systems to accurately predict real-life manufacturing performance. These predictions are essential in addressing possible ramp-up
and yield problems in advance, potentially avoiding months of delay in time-to-market for our customers. The same prediction
capabilities allow our scanners to be optimally calibrated for improved performance in production, given specific chip designs or
masks, thereby achieving improved yield. Our current computational lithography portfolio comprises both traditional products, as
well as solutions that directly interface with the numerous calibration controls in our scanner to optimize performance.
To provide a total solution for scanner control we offer our own advanced wafer metrology system: YieldStar. This wafer metrology
system leverages the scanner controls to compensate for potential performance drifts in the scanner itself, as well as in other steps
of the device manufacturing process, such as mask deterioration, resist coating fingerprints, etching fingerprints, or chemical-
mechanical polishing fingerprints. YieldStar uses scatterometry technology for overlay and CD measurements. YieldStar
scatterometry provides high overlay and low cost wafer metrology data that can be used for further improving the performance of
our systems.
In 2012, ASML began shipment of the third generation YieldStar metrology system, the S200C, which featured higher throughput
and measurement overlay to support tighter on product wafer overlay and focus control performance of the NXT:19X0 systems. In
2014, we introduced the fourth generation YieldStar Metrology system, the 250D, available in both stand-alone and integrated
version. The YieldStar 250D contains a source with wavelengths up to 765nm and has sensor improvements whereas the YieldStar
200 series enables more precise overlay measurement of thicker stacks with increased sampling as well as in-line focus and CD. In
2015, we shipped the first YieldStar 1250D, a measurement tool, which helps identify any inaccuracies in chips during the
production cycle, enabling customers to make improvements and enhance the efficiency of their machines and therefore reduce
cost. In 2016, we released the next generation metrology system: the YieldStar 350E. Built for the more exacting demands of
today’s multiple patterning lithography, it generates 40% more metrology data than its predecessor — and that can even go up to
70% more data for the most advanced and complex 10 nm logic node.
On November 22, 2016, we acquired HMI. We believe the addition of HMI’s e-beam portfolio and technology to our existing Holistic
Lithography portfolio offers the opportunity for a new class of products to provide logic and memory customers with a
comprehensive control strategy, helping them achieve faster time to market and improved yield. We have also identified new
process control opportunities, built on the same unique and proven approach that will continue to provide additional value to our
customers. The largest new opportunity resides in the extension of overlay control to a comprehensive control of Pattern Fidelity.
For more information, see Item 4.A. "History and Development of the Company".
Our service business has been growing and is expected to grow the coming years and is critical to our overall success. We strive to
define a comprehensive and cohesive service product offering to keep our customers' installed base in continued competitive
operation. Our service business strategy puts customer value and satisfaction as first priority while seeking to optimize our net
sales and gross margins. In order to maximize our total value proposition to our customers, the service product portfolio is
structured in accordance with customers' technology node life cycle using a wide variety of service products. Furthermore, we offer
our customers OnPulse contracts on DUV sources, providing on-site support from certified service engineers and continuous real-
time light source monitoring. These contracts, used to enhance light source productivity, offer CLS customers predictable light
source running costs that scale directly with pulse utilization.
ASML ANNUAL REPORT 2016
20
Sales and Customer Service
Our top priority is to provide customers with the best possible products and services. We work closely with them to ensure we
understand their needs, priorities and challenges. Only by collaborating and aligning with our customers we can help them to
produce ever smaller and more energy efficient chips, thereby realizing Moore’s law and sustaining the growth of the industry as a
whole.
The cost of new semiconductor fabrication equipment continues to be a large incentive driving semiconductor manufacturing
productivity improvements. Industry leaders are realizing that on their own, they cannot afford to do the learning necessary to
maximize equipment investment. Hence, partnerships, collaboration, and the sharing of combined knowledge between ASML and
its customers is key in optimization of equipment productivity.
We strive to meet the needs of our customers by regularly reviewing and aligning, at all levels, with customer demands, product
roadmaps, support requirements and business terms.
We support our customers with a broad range of applications, services, and technical support products to maintain and maximize
the performance of our systems at customer sites. We also offer refurbished systems and system upgrades.
We market and sell our products through our direct sales force.
Our account managers, field and application engineers, service and technical support specialists are located throughout Asia, the
US and Europe. We have established an industrial site in Linkou and Tainan, Taiwan. The primary goal of this site is to serve as a
supplementary engine to propel ASML’s long-term growth, by means of:
•
Featuring customer support and training, logistics, refurbishment, technology and application development and also producing
all YieldStar systems;
Enabling sourcing of equipment modules, components and services in the region; and
Performing as a training center to develop worldwide talent for our workforce and customers.
•
•
Revenue per Geographic Market
In 2016, we derived 75.3 percent of net sales from Asia, 16.6 percent from the US and 8.1 percent from EMEA (2015: Asia: 77.3
percent; US: 19.3 percent and EMEA: 3.4 percent; 2014: Asia: 64.3 percent; US: 32.3 percent and EMEA: 3.4 percent).
Manufacturing, Logistics and Suppliers
The execution of our business model is supported by outsourcing production of a significant part of components and modules that
comprise our lithography systems, working in partnership with suppliers from all over the world. Our manufacturing activities
comprise subassembly and testing of certain modules and the final assembly and fine tuning/ testing of a complete system from
components and modules that are manufactured to our specifications by third parties and by us. All of our manufacturing activities
are performed in cleanroom facilities in Veldhoven, the Netherlands, in Wilton, Connecticut and in San Diego, California, both the
US, in Beijing, China, in Linkou and Tainan, Taiwan and in Pyeongtaek, South Korea. We procure system components and
subassemblies from single suppliers or a limited group of suppliers in order to ensure overall quality and on-time delivery. We jointly
operate a strategy with suppliers known as "value sourcing", which is based on competitive performance. The essence of value
sourcing is to maintain a supply base that is world class and globally competitive.
Value sourcing is intended to align the performance of our suppliers with our requirements on quality, logistics, technology, cost,
and sustainability management.
Our value sourcing strategy is based on the following strategic principles:
• Maintaining long-term relationships with our suppliers;
•
•
•
Sharing risks and rewards with our suppliers;
Dual sourcing of knowledge, globally, together with our suppliers; and
Single sourcing of products, where possible or required.
Carl Zeiss SMT is our single supplier, and we are their single customer, of optical components for lithography systems. Carl Zeiss
SMT is capable of developing and producing these items only in limited numbers and only through the use of manufacturing and
testing facilities in Oberkochen and Wetzlar, Germany. In 2016, 27.6 percent of our aggregate cost of system sales was purchased
from Carl Zeiss SMT (2015: 26.2 percent; 2014: 27.4 percent).
Our relationship with Zeiss is structured as a strategic alliance pursuant to several agreements executed in 1997 and subsequent
years. These agreements define a framework in all areas of our business relationship. The partnership between ASML and Zeiss is
focused on continuous improvement of operational excellence. Pursuant to these agreements, ASML and Zeiss have agreed to
continue their strategic alliance until either party provides at least three years notice of its intent to terminate.
On November 3, 2016 ASML and Zeiss announced that they agreed to strengthen their long-standing and successful partnership in
the semiconductor lithography business. For more information, see Item 4.A. "History and Development of the Company".
ASML ANNUAL REPORT 2016
21
In addition to Carl Zeiss SMT we also rely on other outside vendors for the components and subassemblies used in our systems
and sources, each of which is obtained from a limited number of suppliers many of whom have almost exclusive competences in
their respective industries.
We have a flexible labor model with a mix of fixed and flexible contracted labor throughout our departments and facilities in Veldhoven,
the Netherlands. This reinforces our ability to adapt to semiconductor market cycles, including support for potential 24/7 production
activities as needed.
Maximizing the flexibility of our technically-skilled workforce means we can shorten lead-times, adding value for customers. Flexibility
also reduces our working capital requirements.
Research and Development
The semiconductor manufacturing industry is subject to rapid technological changes driven by Moore’s Law. We believe that
continued and timely development and introduction of new and enhanced products are essential for us to maintain our competitive
position. As a result, we have historically devoted a significant portion of our financial resources to R&D programs, and we expect
to continue to allocate significant resources to these efforts. In addition, we have established sophisticated development centers in
Veldhoven, the Netherlands, in Wilton, Connecticut, San Diego and San Jose, California, all in the US, in Shenzhen and Beijing,
both in China and in Linkou and Tainan, both in Taiwan. We are also involved in joint R&D programs with both public and private
partnerships and consortiums, involving independent research centers, leading chip manufacturers and governmental programs.
We aim to own or license our jointly developed technology and designs of critical components.
On July 9, 2012, we announced our CCIP to accelerate our development of EUV technology and 450mm silicon wafer technology,
the latter was paused in 2013. For further information about CCIP, see Note 27 to our Financial Statements.
During 2013, together with imec (an independent research partner), we established an advanced patterning center located at the
imec campus in Leuven, Belgium. Together we plan to address upcoming scaling challenges due to the chips industry's move
towards single digit nanometer dimensions.
As of 2014, in order to conduct fundamental and applied research in areas that are key to unlocking innovation in the global
semiconductor industry, we established ARCNL in Amsterdam, the Netherlands, together with the Foundation for Fundamental
Research on Matter (part of the Netherlands Organization for Scientific Research) and the University of Amsterdam / Vrije
Universiteit Amsterdam.
During 2015, researchers from ASML, ARCNL, Tata Steel and Vrije Universiteit Amsterdam joined forces to develop new techniques
for imaging surfaces based on lensless microscopy.
On November 3, 2016 ASML and Zeiss announced that they agreed to strengthen their long-standing and successful partnership in
the semiconductor lithography business. For more information about this strengthening of this partnership, see Item 4.A. "History
and Development of the Company".
On November 22, 2016, we acquired HMI. For more information about this acquisition, see Item 4.A. "History and Development of
the Company".
See Item 4.B. "Business Overview – Our Markets and Products - Products" and Item 5.A. "Operating Results—Results of
Operations 2016 compared to 2015 – Research and Development Costs".
Intellectual Property
We rely on IPR such as patents, copyrights and trade secrets to protect our proprietary technology. We aim to obtain ownership
rights on technology developed by us or for us, alternatively, to have license rights in place with respect to such technology.
Our IPR management focuses on protecting ASML’s intellectual property and respecting the intellectual property of other parties.
Preservation of intellectual property and other assets is one of our business principles and part of our Code of Conduct.
From late 2001 through 2004, ASML was a party to a series of civil litigation and administrative proceedings in which Nikon alleged
ASML’s infringement of Nikon patents generally relating to lithography. ASML in turn filed claims against Nikon. Pursuant to
agreements executed on December 10, 2004, ASML and Nikon agreed to settle all pending worldwide patent litigation between the
companies. The settlement included an exchange of releases, a patent cross-license agreement related to lithography equipment
used to manufacture semiconductor devices, and payments to Nikon by ASML. Under the Nikon Cross-License Agreement, ASML
and Nikon granted to each other a non-exclusive license for use in the manufacture, sale, and use of lithography equipment, under
their respective patents. The license granted relating to many of the patents of each party was perpetual, but the license relating to
certain other of the patents expired at the end of 2009. Each party had the right to select a limited number of the other party's
patents where the license for such patents expired in 2009 to be subject to a permanent covenant not to sue in respect of patent
infringement claims. In October 2016, the Patent Selection was completed.
ASML ANNUAL REPORT 2016
22
In addition, the Nikon Cross-License Agreement provided that following the termination of some of the licenses granted in the
Nikon Cross-License Agreement on December 31, 2009, there would be a standstill period during which the parties agreed not to
bring patent infringement suits against each other. This standstill period ran from January 1, 2010 through December 31, 2014.
Damages resulting from claims for patent infringement occurring during the Cross-License Transition Period are limited to three
percent of the net sales price of applicable licensed products including optical components.
Accordingly, from January 1, 2015, both Nikon and we are no longer prohibited under the agreement from bringing claims against
each other on the basis of infringement of patents subject to the Nikon Cross-License Agreement, other than perpetually licensed
patents. In addition, as described above, the Patent Selection was completed in October 2016. Therefore, there is now a defined
group of patents owned by each party for which the license granted to the other party has expired.
If Nikon files suit against us alleging patent infringement, we may incur substantial legal fees and expenses, and we may not
prevail. Similarly, if we file suit against Nikon alleging patent infringement, we may incur substantial legal fees and expenses, and
we may not prevail. Patent litigation is complex and may extend for a protracted period of time, giving rise to the potential for both
substantial costs and diverting the attention of key management and technical personnel. Potential adverse outcomes from patent
litigation may include, without limitation, payment of significant monetary damages, injunctive relief prohibiting the sale of products,
and/or settlement involving significant costs to be paid by us, any of which may have a material adverse effect on our business,
financial condition and/or results of operations. We are unable to predict at this time whether any such patent suit will in fact
materialize, or, if so, what its outcome might be.
In connection with entering into the Nikon Cross-License Agreement, ASML entered into a sublicense agreement with Zeiss,
effective November 12, 2004, pursuant to which Zeiss granted ASML a non-exclusive license of certain of the rights it received
from Nikon under the Nikon-Zeiss Patent Cross-License Agreement between Nikon and Zeiss effective November 12, 2004.
In 2007, ASML and Zeiss signed an agreement with Canon for the global cross-license of patents in their respective fields of
semiconductor lithography and optical components, used to manufacture ICs. The Canon Cross-License Agreement expired on
December 31, 2016.
See Item 3.D. "Risk Factors – Risks related to ASML – Failure to adequately protect the intellectual property rights upon which we
depend could harm our business" and "Risk Factors – Risks related to ASML – Defending against intellectual property claims
brought by others could harm our business".
Competition
The semiconductor equipment industry is highly competitive. The principal elements of competition in our market are:
•
•
The technical performance characteristics of a lithography system;
The cost of ownership of lithography systems based on purchase price, maintenance costs, availability, productivity, and
customer service and support costs;
The exchange rate of the euro against the functional currency of our competitors and our customers, particularly against the
Japanese yen;
The strength and breadth of our portfolio of patents and other intellectual property rights; and
Our customers’ desire to obtain lithography equipment from more than one supplier.
•
•
•
We believe that the market for lithography systems and the investments required to be a significant competitor in this market
segment has resulted in increased competition for market share through aggressive prosecution of patents. Our competitiveness
depends upon our ability to protect and defend our patents, as well as our ability to develop new and enhanced semiconductor
equipment that is competitively priced and introduced on a timely basis.
Government Regulation
Our business is subject to direct and indirect regulations in each of the countries in which our customers or we do business. As a
result, changes in various types of regulations could affect our business adversely. The implementation of new safety,
environmental or legal requirements could impact our products, or our manufacturing or distribution processes, and could affect
the timing of product introductions, the cost of our production, and products as well as their commercial success. The impact of
these changes in regulation could adversely affect our business, financial condition and our results of operations even where the
specific regulations do not directly apply to us or to our products.
C. Organizational Structure
ASML Holding N.V. is a holding company that operates through its subsidiaries. Our major operating subsidiaries, each of which is
ultimately wholly-owned by ASML Holding N.V., are ASML Netherlands B.V., ASML Systems B.V., ASML Hong Kong Ltd. and
ASML US Inc.
See Exhibit 8.1 for a list of our main subsidiaries.
ASML ANNUAL REPORT 2016
23
D. Property, Plant and Equipment
We lease a number of our facilities under operating leases. We also own a number of buildings, mainly consisting of production
facilities in Veldhoven, the Netherlands, in Wilton, Connecticut, and San Diego, California, both in the US, in Linkou and Tainan,
both in Taiwan and in Pyeongtaek, South-Korea. The book value of land and buildings owned amounts to EUR 1,082.0 million as of
December 31, 2016 compared with EUR 1,067.7 million as of December 31, 2015. See Note 12 to our Financial Statements.
Subject to market conditions, we expect that our capital expenditures (purchases of property, plant and equipment) in 2017 will be
approximately EUR 300 million. These expenditures will mainly consist of further expansion and upgrades of facilities. We expect to
finance these capital expenditures through cash generated by operations and existing cash and cash equivalents.
Facilities in Europe
Our headquarters, main manufacturing and R&D facilities are located at a single site in Veldhoven, the Netherlands. This state-of-
the-art facility includes 66 thousand square meters of office space and 50 thousand square meters of cleanroom used for
manufacturing and R&D activities and 24 thousand square meters of warehouses. Our facilities in Veldhoven, the Netherlands are
partly owned and partly leased. During 2015 we have exercised purchase options which are effectuated in 2016. Some of our
office facilities at our headquarters in Veldhoven, the Netherlands, are financed through a special purpose vehicle that is a VIE. We
also lease several sales and service facilities at locations across Europe.
Facilities in the United States
Our US head office is located in a 5 thousand square meter office building in Chandler, Arizona. We maintain R&D and
manufacturing operations in a 28 thousand square meter facility in Wilton, Connecticut, and a 9 thousand square meter facility in
San Jose, California. Furthermore, our facilities in San Diego include 25 thousand square meters of buildings used for
manufacturing and office space, 19 thousand square meters of buildings used for engineering and R&D activities and 7 thousand
square meters of buildings used for warehousing. As a result of the HMI acquisition, our facilities in San Jose, California expanded
by approximately 34 thousand square meters for R&D and local sales and service activities.
Facilities in Asia
Our Asian headquarters is located in Hong Kong, The People’s Republic of China. In addition, our facility in Linkou, Taiwan
comprises a cleanroom (approximately 3 thousand square meters) and office space (approximately 6 thousand square meters). Our
facility in Korea comprises of a cleanroom (approximately 700 square meters) and office space (approximately 6 thousand square
meters). We also lease and own several sales, service and training facilities at locations across Asia. As a result of the Cymer
acquisition, we acquired a manufacturing facility in Pyeongtaek, South Korea, mainly used for refurbishment activities of light
sources. As a result of the HMI acquisition, we acquired manufacturing facilities in Tainan, Taiwan (approximately 8 thousand
square meters) and Beijing, China (approximately 4 thousand square meters) and office space in Hsinchu, Taiwan (approximately 2
thousand square meters). Additionally, both Cymer and HMI lease various smaller locations across Asia which are mainly used for
local sales and service activities.
Item 4A Unresolved Staff Comments
Not applicable.
Item 5 Operating and Financial Review and Prospects
All information disclosed in this item is provided as a supplement to, and should be read in conjunction with, our Financial
Statements and the accompanying Notes to the Consolidated Financial Statements included in Item 18 "Financial Statements".
Executive Summary
Business Strategy
Our Vision and Mission
Our vision is to enable affordable microelectronics that improve the quality of life.
To achieve this, our mission is to invent, develop, manufacture and service advanced technology for high-tech lithography,
metrology and software solutions for the semiconductor industry. ASML's guiding principle is continuing Moore's Law towards ever
smaller, cheaper, more powerful and energy-efficient semiconductors. This results in increasingly powerful and capable electronics,
with faster processing speeds, that enable the world to progress within a multitude of fields, including healthcare, technology,
communications, energy, mobility, and entertainment. ASML creates economic value with strong financial results; social value by
enhancing the welfare of our employees, suppliers and the communities we operate in; and environmental value by improving the
energy efficiency of chips.
Our Strategy
We are a focused supplier of patterning products and services to IC manufacturers, providing high-performance hardware and
software that allow our customers to increase the value and capability of their microchips, while reducing their cost. We work with a
network of long-term partners to share the risk and reward of inventing, designing and manufacturing our high-end and market-
leading technology. We set ourselves aggressive targets to get our innovations into the hands of our customers faster, while
enhancing the value and reliability of our products with well-integrated software and services.
ASML ANNUAL REPORT 2016
24
We have the following strategic objectives that we want to achieve for our stakeholders in the period from 2016 to 2021:
•
Employees: We want to secure long-term employability for our employees by offering them continuous professional and
personal development. We need to equitably balance the company’s need for flexibility with our employees’ desire for long-
term employment and security.
Suppliers: We need to create long-term relationships with our suppliers based on technological capability, reliability and
transparency. We do this as we share with them both the risks and rewards of our business.
Customers: For our customers, we need to create customer value by enabling the continued shrinkage of integrated circuits.
We need to deliver quality and help reduce total cost of ownership of both our systems and services.
Society: We aim to achieve our business objectives in a responsible manner, taking into account the economic, social and
environmental impact of our activities.
Shareholders: For our investors, we need to improve our financial results and strive for profitability. We seek to meet targets for
total net sales, gross margin, expenditure, cash conversion, and return on investment.
•
•
•
•
These are translated into five corporate priorities and several, more detailed, business priorities that guide our entire company.
•
Corporate Priority 1 - "Make it work": Execute the product and installed base services roadmap in EUV, DUV and Holistic
Lithography.
Corporate Priority 2 - "Make it well": Deliver quality products and services that consistently meet or exceed the expectations
as agreed with customers, reinforced by an ASML quality culture.
Corporate Priority 3 - "Make it together": Drive the patterning ecosystem with customers, suppliers and peers in target market
segments.
Corporate Priority 4 - "Make it worth it": Improve return on investments for ASML and its stakeholders with a focus on cost of
ownership and cost awareness.
Corporate Priority 5 - "Make us grow": Develop our people and processes to support the growth of the organization towards a
EUR 11 billion company.
•
•
•
•
In addition to our corporate priorities, other strategic priorities are to proceed with the successful industrialization of EUV, secure
DUV competitiveness, build a leadership position in patterning fidelity control and plan for the introduction of High-NA.
For more information about our corporate priorities, see our 2016 Integrated Report as published on our Website.
See item 4.B. "Business Overview - Our Markets and Products".
Profitability
Our long-term business and financial model targets an annual revenue opportunity (ASML and HMI combined) of around EUR 11
billion in 2020 and a target EPS of more than EUR 9, thereby creating significant value for all stakeholders. Our roadmap to an
annual revenue opportunity of EUR 11 billion is primarily based on organic growth. ASML continuously reviews its product roadmap
and has, from time to time, made focused acquisitions to enhance the industrial value of its product offering. Based on such
reviews and the assessment of clear potential product and value synergies, ASML may also entertain focused merger and
acquisition activities in the future.
ASML ANNUAL REPORT 2016
25
ASML Operations Update on Key Performance Indicators
The following table presents the key performance indicators used by our BoM and senior management to regularly measure
performance.
Year ended December 31
(in millions, unless otherwise indicated)
2014
EUR
%1
2015
EUR
%1
2016
EUR
%1
Sales
Total net sales
Increase in total net sales (%)
Net system sales
Net service and field option sales
Sales of systems (in units)
ASP of total system sales
ASP of new system sales
ASP of used system sales
Value of systems backlog 2
Systems backlog (in units) 2
ASP of systems backlog 2
ASP of systems backlog (New) 2
ASP of systems backlog (Used) 2
Immersion systems recognized (in units) 3
EUV systems recognized (in units)
Profitability
Gross profit
Income from operations
Net income
Liquidity
Cash and cash equivalents
Short-term investments
Net cash provided by operating activities
Free cash flow 4
5,856.3
11.6
4,242.8
1,613.5
136
31.2
35.6
5.8
6,287.4
7.4
4,237.2
2,050.2
169
25.1
28.5
5.1
6,794.8
8.1
4,571.1
2,223.7
157
29.1
32.4
4.0
2,772.4
3,184.3
3,961.3
82
33.8
42.0
4.7
76
5
79
40.3
46.3
3.2
67
1
83
47.7
55.8
4.1
70
4
2,596.4
1,282.2
1,196.6
44.3
21.9
20.4
2,895.7
1,565.1
1,387.2
46.1
24.9
22.1
3,044.5
1,657.7
1,471.9
44.8
24.4
21.7
2,419.5
334.9
1,025.2
664.0
2,458.7
950.0
2,025.5
1,652.6
2,906.9
1,150.0
1,665.9
1,341.2
1.
2.
3.
4.
As a percentage of total net sales.
Our systems backlog and net bookings include all system sales orders for which written authorizations have been accepted (for EUV starting with the NXE:3350B).
Included in the total number of immersion systems recognized in 2016 are 46 units of our most advanced immersion technology NXT:1980 systems (2015: 7 and
2014: 0).
Free cash flow is defined as net cash provided by operating activities minus purchase of property, plant and equipment (2016: EUR 316.3 million; 2015: EUR 371.8
million and 2014: EUR 358.3 million) and purchase of intangible assets (2016: EUR 8.4 million; 2015: EUR 1.1 million and 2014: EUR 3.0 million). We believe that free
cash flow is an important liquidity metric, reflecting cash that is available for acquisitions, to repay debt and to return money to our shareholders by means of
dividends and share buybacks. Property, plant and equipment and purchase of intangible assets are deducted from net cash provided by operating activities
because these payments are necessary to support the maintenance and investments in our assets to maintain the current asset base. Free cash flow therefore
provides an alternative measure (in addition to net cash provided by operating activities) for investors to assess our ability to generate cash from our business. For
further details about purchase of property, plant and equipment and purchase of intangible assets see the Consolidated Statements of Cash Flows.
Backlog
We started 2016 with a systems backlog of 79 systems. In 2016, we booked orders for 160 systems, and recognized sales for 157
systems (including 1 NXE:3300B system, which was not included in backlog). This resulted in a systems backlog of 83 as of
December 31, 2016.
As of December 31, 2016, our systems backlog was valued at EUR 3,961.3 million and includes 83 systems with an ASP of EUR
47.7 million. As of December 31, 2015, the systems backlog was valued at EUR 3,184.3 million and included 79 systems with an
ASP of EUR 40.3 million. The ASP of our systems backlog increased as of December 31, 2016 compared to 2015 mainly as a result
of the inclusion of 13 additional EUV systems.
For discussion on the main key performance indicators indicated above, see Item 5.A. "Operating Results" and Item 5.B. "Liquidity
and Capital Resources".
ASML ANNUAL REPORT 2016
26
A. Operating Results
Critical Accounting Policies Using Significant Estimates
Our discussion and analysis of our financial condition and results of operations are based upon our Financial Statements, which
have been prepared in conformity with US GAAP. The preparation of our Financial Statements requires us to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities on the
balance sheet dates, and the reported amounts of net sales and costs during the reported periods. Actual results could differ from
those estimates. We evaluate our estimates continuously and we base our estimates on historical experience and on various other
assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates if the
assumptions prove incorrect. To the extent there are material differences between actual results and these estimates, our future
results could be materially and adversely affected.
See Note 1 to our Financial Statements for a summary of our significant accounting policies.
Results of Operations 2016 Compared to 2015
The following discussion and analysis of Results of Operations should be viewed in the context of the risks that may interfere with
our business objectives or otherwise affect our results of operations, described in Item 3.D. "Risk Factors".
Set out below are our Consolidated Statements of Operations data for the years ended December 31, 2015 and 2016:
Year ended December 31
(in millions)
Total net sales
Cost of sales
Gross profit
Other income
Research and development costs
Selling, general and administrative costs
Income from operations
Interest and other, net
Income before income taxes
Provision for income taxes
Net income
2015
EUR
6,287.4
(3,391.7)
2,895.7
83.2
(1,068.1)
(345.7)
1,565.1
(16.5)
1,548.6
(161.4)
1,387.2
2016
EUR
6,794.8
(3,750.3)
3,044.5
93.8
(1,105.8)
(374.8)
1,657.7
33.7
1,691.4
(219.5)
1,471.9
Set out below are our Consolidated Statements of Operations data for the years ended December 31, 2015 and 2016 expressed as
a percentage of our total net sales:
Year ended December 31
Total net sales
Cost of sales
Gross profit
Other income
Research and development costs
Selling, general and administrative costs
Income from operations
Interest and other, net
Income before income taxes
Provision for income taxes
Net income
2015
100.0
(53.9)
46.1
1.3
(17.0)
(5.5)
24.9
(0.3)
24.6
(2.6)
22.1
2016
100.0
(55.2)
44.8
1.4
(16.3)
(5.5)
24.4
0.5
24.9
(3.2)
21.7
ASML ANNUAL REPORT 2016
27
Total Net Sales and Gross Profit
The following table shows a summary of sales data, units sold, gross profit and ASP data for the years ended December 31, 2015
and 2016:
Year ended December 31
(in millions, unless otherwise indicated)
Total net sales
Net system sales
Net service and field option sales
Total sales of systems (in units)
Total sales of new systems (in units)
Total sales of used systems (in units)
Gross profit as a percentage of net sales
ASP of system sales
ASP of new system sales
ASP of used system sales
2015
EUR
6,287.4
4,237.2
2,050.2
169
144
25
46.1
25.1
28.5
5.1
2016
EUR
6,794.8
4,571.1
2,223.7
157
139
18
44.8
29.1
32.4
4.0
In 2016 we delivered record financial performance, with contributions from each of our wide range of product offerings, notably
DUV and Holistic Lithography. It was also the year when the industry turned the corner on the introduction of EUV. We laid the
foundation for further expansion of our pattern fidelity strategy with the acquisition of HMI. We strengthened our partnership with
Zeiss by agreeing to acquire a minority stake in Carl Zeiss SMT to secure the extension of EUV beyond the next decade.
We shipped 46 TWINSCAN NXT:1980 systems in 2016, supporting the ramp of the 10 nm node as well as process development for
the 7 nm foundry node. With the introduction of the NXT:1980, we have shortened the time to maturity, enabling a faster, more
cost-effective node ramp. More customers are now recognizing the value of upgrading their existing NXT systems to the latest
performance, which has supported our field upgrade sales. We also continue to support our XT and NXT systems with productivity
upgrades and as part of the transition from planar to NAND, we have supported a large additional number of system relocations,
helping customers to optimize their ramp plans.
Our fourth-generation EUV-system, the NXE:3350B, achieves an overlay of 1.0 nm, a 50% improvement over the NXE:3300B, and
also features projection optics with a higher transmission, which means it generates higher throughput from a given EUV power
source. In addition, the availability of systems in the field improved during 2016, with systems achieving a four-week availability of
more than 80 percent regularly across the installed base; the best result was more than 90 percent over four weeks. Consistency of
availability between systems and across sites still needs to be improved. EUV lithography met our 2016 productivity and availability
targets. We achieved a productivity of more than 1,500 wafers per day, on a 3 day average in 2016 on an NXE:3350B system at a
customer site.
Total net sales increased by 8.1 percent, driven by an increase in net system sales of 7.9 percent and an increase in net service and
field option sales of 8.5 percent in 2016 compared to 2015. The increase in net system sales is mainly due to an increase in the
number of EUV systems recognized in 2016 compared to 2015 (2016: 4 and 2015:1), which have a higher ASP than our DUV
systems. The increase in net service and field option sales is mainly driven by an increase in the sales of productivity and focus
upgrade packages.
The increase of the ASP of our new systems sold is due to a shift in the product mix of systems sold towards more high-end
systems (e.g. more EUV and ArFi systems, less KrF systems) in 2016 compared to 2015.
Gross profit increased by EUR 148.8 million mainly due to a shift in the product mix of systems sold towards more high-end
systems.
Gross profit as a percentage of total net sales decreased from 46.1 percent in 2015 to 44.8 percent in 2016 primarily driven by
higher EUV system sales (which currently have a gross margin below the average of our DUV systems), partly offset by a shift in
product mix of systems sold towards more high-end systems.
Other Income
Other income consists of contributions for R&D programs under the NRE funding arrangements from certain Participating
Customers in the CCIP and amounted to EUR 93.8 million for 2016 (2015: EUR 83.2 million).
ASML ANNUAL REPORT 2016
28
Research and Development Costs
R&D costs (net of credits and excluding contributions under the NRE Funding Agreements from Participating Customers in the
CCIP) were EUR 1,105.8 million in 2016 as compared to EUR 1,068.1 million in 2015. R&D costs for both 2016 and 2015 were
primarily focused on programs supporting EUV, DUV immersion, and Holistic Lithography. In 2016, R&D activities mainly related to:
EUV - Further improving productivity, and supporting the design and industrialization of our NXE:3400B system including
•
pellicle development.
DUV immersion - Focused on development of our next generation immersion platform, the NXT:2000i, as well as maturing the
product introduction in the field of our NXT:1980 system.
Holistic Lithography - Further development of YieldStar, process window control and enlargement solutions.
•
•
Selling, General and Administrative Costs
SG&A costs increased by 8.4 percent mainly driven by HMI acquisition related expenses, an increase in the number of employees,
and further impacted by exchange rate fluctuations, primarily related to our US operations.
Interest and Other, Net
Interest and other, net increased by EUR 50.2 million in 2016 compared to 2015. In addition, in 2016 we recognized EUR 55.2
million gain on foreign currency revaluations on transactions and balances relating to the HMI acquisition in Interest and other, net.
Income Taxes
The effective tax rate increased to 13.0 percent of income before income taxes in 2016 compared to 10.4 percent in 2015. This
increase is mainly due to a change in legislation. Prior to 2016, the RDA was a corporate income tax credit used for R&D activities.
As of 2016, the RDA is converted into a wage tax benefit reducing R&D costs.
Net Income
Net income in 2016 amounted to EUR 1,471.9 million, or 21.7 percent of total net sales, representing EUR 3.46 basic net income
per ordinary share, compared with net income in 2015 of EUR 1,387.2 million, or 22.1 percent of total net sales, representing EUR
3.22 basic net income per ordinary share.
Results of Operations 2015 Compared to 2014
Set out below our Consolidated Statements of Operations data for the years ended December 31, 2014 and 2015:
Year ended December 31
(in millions)
Total net sales
Cost of sales
Gross profit
Other income
Research and development costs
Selling, general and administrative costs
Income from operations
Interest and other, net
Income before income taxes
Provision for income taxes
Net income
2014
EUR
5,856.3
(3,259.9)
2,596.4
81.0
(1,074.1)
(321.1)
1,282.2
(8.6)
1,273.6
(77.0)
1,196.6
2015
EUR
6,287.4
(3,391.7)
2,895.7
83.2
(1,068.1)
(345.7)
1,565.1
(16.5)
1,548.6
(161.4)
1,387.2
ASML ANNUAL REPORT 2016
29
Set out below are our Consolidated Statements of Operations data for the years ended December 31, 2014 and 2015 expressed as
a percentage of our total net sales:
Year ended December 31
Total net sales
Cost of sales
Gross profit
Other income
Research and development costs
Selling, general and administrative costs
Income from operations
Interest and other, net
Income before income taxes
Provision for income taxes
Net income
2014
100.0
(55.7)
44.3
1.4
(18.3)
(5.5)
21.9
(0.1)
21.7
(1.3)
20.4
2015
100.0
(53.9)
46.1
1.3
(17.0)
(5.5)
24.9
(0.3)
24.6
(2.6)
22.1
Net Sales and Gross Profit
The following table shows a summary of net sales, units sold, gross profit and ASP data for the years ended December 31, 2014
and 2015:
Year ended December 31
(in millions EUR, unless otherwise indicated)
Net sales
Net system sales
Net service and field option sales
Total sales of systems (in units)
Total sales of new systems (in units)
Total sales of used systems (in units)
Gross profit as a percentage of net sales
ASP of system sales
ASP of new system sales
ASP of used system sales
2014
EUR
5,856.3
4,242.8
1,613.5
136
116
20
44.3
31.2
35.6
5.8
2015
EUR
6,287.4
4,237.2
2,050.2
169
144
25
46.1
25.1
28.5
5.1
Net sales increased by 7.4 percent, driven by the increase in net service and field option sales of 27.1 percent, with a similar level
of net system sales in 2015 compared to 2014. The increase in net service and field option sales was mainly driven by:
•
•
An increase in the sales of productivity and focus upgrade packages; and
Higher service sales mainly resulting from an increased installed base.
The decrease of the ASP of our new systems sold was due to a shift in the product mix of systems sold towards more lower-end
systems (more KrF systems and less EUV systems) in 2015 compared to 2014.
Gross profit increased by EUR 299.3 million mainly due to higher service and field option sales and lower EUV system sales (which
did not contribute to gross profit).
Gross profit as a percentage of net sales increased from 44.3 percent in 2014 to 46.1 percent in 2015 primarily driven by lower EUV
system sales (which did not contribute to gross profit).
Other Income
Other income consisted of contributions for R&D programs under the NRE funding arrangements from certain Participating
Customers in the CCIP and amounted to EUR 83.2 million for 2015 (2014: EUR 81.0 million).
Research and Development Costs
R&D costs (net of credits and excluding contributions under the NRE Funding Agreements from Participating Customers in the
CCIP) were EUR 1,068.1 million in 2015 as compared to EUR 1,074.1 million in 2014. R&D costs for both 2015 and 2014 were
primarily focused on programs supporting EUV, DUV immersion, and Holistic Lithography. In 2015, R&D activities mainly related to:
•
•
EUV - Further improving availability and productivity, and supporting the design of our NXE:3400B system;
DUV immersion - Focused on the final stages of development relating to our NXT:1980 systems, of which we shipped the first
systems in 2015, as well as development of future DUV platforms; and
Holistic Lithography - Further development of Yieldstar and process window control solutions.
•
ASML ANNUAL REPORT 2016
30
Selling, General and Administrative Costs
SG&A costs increased by 7.7 percent mainly driven by an increase in the number of employees, further impacted by exchange rate
fluctuations, primarily related to our US operations.
Income Taxes
The effective tax rate increased to 10.4 percent of income before income taxes in 2015 compared to 6.0 percent in 2014. In 2014
the tax rate was favorably impacted by settling agreements entered into by ASML Netherlands B.V. and Cymer LLC., prior to our
acquisition of Cymer in 2013, at different tax rates.
Net Income
Net income in 2015 amounted to EUR 1,387.2 million, or 22.1 percent of total net sales, representing EUR 3.22 basic net income
per ordinary share, compared with net income in 2014 of EUR 1,196.6 million, or 20.4 percent of total net sales, representing EUR
2.74 basic net income per ordinary share.
B. Liquidity and Capital Resources
Our cash and cash equivalents increased to EUR 2,906.9 million as of December 31, 2016 from EUR 2,458.7 million as of
December 31, 2015 and our short-term investments increased to EUR 1,150.0 million as of December 31, 2016 from EUR 950.0
million as of December 31, 2015.
Our principal sources of liquidity consist of cash flows from operations, cash and cash equivalents as of December 31, 2016 of
EUR 2,906.9 million, short-term investments as of December 31, 2016 of EUR 1,150.0 million and available credit facilities as of
December 31, 2016 of EUR 700.0 million. In addition, we may from time to time raise additional capital in debt and equity markets.
Our goal is to remain an investment grade rated company and maintain a capital structure that supports this.
We invest our cash and cash equivalents and short-term investments in short-term deposits with financial institutions that have
good credit ratings and in money market funds that invest in high-rated short-term debt securities of financial institutions and
governments. Our investments are denominated in euros and US dollar.
Our available credit facilities amount to EUR 700.0 million as of December 31, 2016 and as of December 31, 2015. No amounts
were outstanding under these credit facilities at the end of 2016 and 2015. The amounts available at December 31, 2016 and 2015
consisted of one EUR 700.0 million committed revolving credit facility with a group of banks. In 2015, the terms and conditions of
the facility were amended by, among other things, removing the financial covenant and by extending the maturity until 2020. In
2016, we exercised our extension option, extending the maturity date to 2021. Outstanding amounts under this credit facility will
bear interest at EURIBOR or LIBOR plus a margin that depends on our credit rating.
In July 2016, we completed an offering of our EUR 500 million 0.625 percent senior notes due 2022, with interest payable annually
on July 7. The notes are redeemable at the option of ASML, in whole or in part, at any time by paying a make whole premium, and
unless previously redeemed, will be redeemed at 100 percent of their principal amount on July 7, 2022.
Also in July 2016, we completed an offering of our EUR 1,000 million 1.375 percent senior notes due 2026, with interest payable
annually on July 7. The notes are redeemable at the option of ASML, in whole or in part, at any time by paying a make whole
premium, and unless previously redeemed, will be redeemed at 100 percent of their principal amount on July 7, 2026.
In November 2016, we completed an offering of our EUR 750 million 1.625 percent senior notes due 2027, with interest payable
annually on May 28. The notes are redeemable at the option of ASML, in whole or in part, at any time by paying a make whole
premium, and unless previously redeemed, will be redeemed at 100 percent of their principal amount on May 28, 2027.
We have the following repayment obligations relating to our Eurobonds:
•
•
•
•
•
EUR 238.2 million in 2017;
EUR 500.0 million in 2022;
EUR 750.0 million in 2023;
EUR 1,000.0 million in 2026; and
EUR 750.0 million in 2027.
ASML seeks to ensure that our principal sources of liquidity will be sufficient to satisfy its liquidity requirements throughout every
phase of the industry cycles.
Our liquidity needs are affected by many factors, some of which are based on the normal on-going operations of the business, and
others that relate to the uncertainties of the global economy and the semiconductor industry. Although our cash requirements
fluctuate based on the timing and extent of these factors, we believe that cash generated from operations, together with our other
sources of liquidity are sufficient to satisfy our current requirements, including our expected capital expenditures and repayment
obligations in 2017. We intend to return cash to our shareholders on a regular basis in the form of dividend payments and, subject
to our actual and anticipated liquidity requirements and other relevant factors, share buybacks or capital repayments.
See Consolidated Statements of Cash Flows and Notes 4, 5, 14, 15, 25 and 26 to our Financial Statements.
ASML ANNUAL REPORT 2016
31
C. Research and Development, Patents and Licenses, etc.
Research and Development
See Item 4.B. "Business Overview – Research and Development" and Item 5.A. "Operating Results – Results of Operations 2016
Compared to 2015".
Intellectual Property Matters
See Item 3.D. "Risk Factors – Risks related to ASML – Failure to adequately protect the intellectual property rights upon which we
depend could harm our business" and "Risk Factors – Risks related to ASML – Defending against intellectual property claims
brought by others could harm our business" and Item 4.B. "Business Overview – Intellectual Property".
D. Trend Information
We expect that Moore’s Law will continue in the coming decade including industry fundamentals of a decline in cost per transistor.
There is a strong demand for advanced ICs, supported by a value chain with means and incentive to support this. However, cost
and process complexity of shrinking with multiple patterning together with new device structures and materials reshapes customer
roadmaps, resulting in a continued need to improve DUV lithography performance while exploiting execution of agreed EUV targets
for the future and complementing it with a portfolio of product options, enhancements and upgrade packages that support product
stewardship and optimize the cost of ownership over the entire lifetime of our systems. It also results in zero tolerance for non-
performance, driving improvement of quality and cost efficiency of our products and services.
•
•
We expect the following in the first-quarter of 2017:
Total net sales of approximately EUR 1.8 billion;
•
Shipment of our first NXE:3400B EUV system, for which we expect to record revenue in the third quarter of 2017, as this
•
system will ship in a non-final configuration. Together with the five NXE:3350B systems already shipped before 2017, it will be
used in our customers' factories for preparing the introduction of EUV into high volume manufacturing;
Net service and field option sales will be driven by continued demand for Holistic Lithography options, high value upgrades
and our growing installed base;
Gross margin of around 47 percent including the effect from the purchase price allocation for the HMI acquisition. The
negative impact of the purchase price allocation adjustments is about one percentage point. The impact of the HMI acquisition
on gross profit for the full fiscal year is expected to be about EUR 90 million and is expected to decrease to about EUR 40
million per year from 2018 onwards;
R&D costs of about EUR 320 million. The increase in R&D costs is driven by the inclusion of HMI and accelerated investments
in Pattern Fidelity metrology, our contributions to Carl Zeiss SMT's High-NA developments, our own High-NA development
acceleration and the strong US Dollar;
Other income of about EUR 23 million, which consists of contributions from the participants of the CCIP;
SG&A costs of about EUR 95 million; and
An effective annualized tax rate of between 13 and 14 percent.
•
•
•
•
In Holistic Lithography, we successfully completed the acquisition of HMI in November 2016 and began the integration of HMI's e-
beam systems into our Holistic Lithography portfolio.
The following table sets forth our systems backlog1 as of December 31, 2015 and 2016.
Year ended December 31
2015
2016
(in millions EUR, unless otherwise indicated)
New systems backlog (in units)
Used systems backlog (in units)
Total systems backlog (in units)
Value of new systems backlog
Value of used systems backlog
Total value of systems backlog
ASP of new systems backlog
ASP of used systems backlog
ASP of total systems backlog
68
11
79
3,149.6
34.7
3,184.3
46.3
3.2
40.3
70
13
83
3,907.9
53.4
3,961.3
55.8
4.1
47.7
1.
Our systems backlog includes all system sales orders for which written authorizations have been accepted (for EUV starting with the NXE:3350B).
Historically, orders have been subject to cancellation or delay by the customer. Due to possible customer changes in delivery
schedules and to cancellation of orders, our systems backlog at any particular date is not necessarily indicative of actual sales for
any succeeding period.
ASML ANNUAL REPORT 2016
32
Logic chip manufacturers have built up capacity for the 10 nm node in 2016, and we also saw healthy demand from Memory
manufacturers both for DRAM and NAND production. Together with solid growth in net service and field option sales. These trends
are expected to continue into 2017.
Regarding EUV, we executed on the customer-aligned productivity and availability targets, which gave customers the confidence to
place 13 orders in 2016, bringing our EUV backlog to 18 systems worth EUR 2.0 billion, or about half of the total backlog at
December 31, 2016. These orders show that customers are committed to take EUV into production, and we expect that the first
customers will start volume manufacturing with EUV at the 7 nm logic node and the mid-10 nm DRAM node. We are now moving to
the next phase of EUV industrialization. We remain committed to deliver the performance requirements for customer volume
manufacturing, while continuing to build up our manufacturing, supply chain and service capabilities.
The trends discussed in this Item 5.D. "Trend information" are subject to risks and uncertainties. See "Part I – Special Note
Regarding Forward Looking Statements" and item 3.D. "Risk Factors".
E. Off-Balance Sheet Arrangements
None.
F. Tabular Disclosure of Contractual Obligations
Our contractual obligations as of December 31, 2016 can be summarized as follows:
Payments due by period
(in thousands)
Total
EUR
1 year
EUR
2 year
EUR
3 year
EUR
4 year
EUR
5 year
EUR
After
5 years
EUR
Long-Term Debt Obligations, including
interest expense 1
3,757,498
306,215
Operating Lease Obligations
103,568
35,486
Purchase Obligations
2,202,595
1,923,647
Zeiss High-NA Funding Commitment
748,000
129,000
Total Contractual Obligations 2
6,811,661
2,394,348
83,752
23,613
233,021
219,500
559,886
56,718
18,616
9,481
179,500
264,315
56,762
13,577
7,901
113,000
191,240
56,246
3,197,805
7,050
7,417
69,000
5,226
21,128
38,000
139,713
3,262,159
1.
2.
See Note 14 to our Financial Statements for the amounts excluding interest expense.
We have excluded unrecognized tax benefits for an amount of EUR 136.4 million as the amounts that will be settled in cash are not known and the timing of any
payments is uncertain.
Long-term debt obligations mainly relate to interest payments and principal amounts of our Eurobonds. See Note 14 to our
Financial Statements.
Operating lease obligations include leases of equipment and facilities. Lease payments recognized as an expense were EUR 45.2
million, EUR 45.1 million and EUR 43.9 million for the years ended December 31, 2016, 2015 and 2014, respectively.
Several operating leases for our buildings contain purchase options, exercisable at the end of the lease, and in some cases, during
the term of the lease. During 2015 we have exercised these options which are effectuated in 2016, therefore no purchase options
exist as per year end December 31, 2016.
Purchase obligations exist of purchase commitments towards suppliers in the ordinary course of business. ASML expects that it
will honor these purchase obligations to fulfill future sales, in line with the timing of those future sales. The general terms and
conditions of the agreements relating to the major part of our purchase commitments as of December 31, 2016 contain clauses
that enable us to delay or cancel delivery of ordered goods and services up to the dates specified in the corresponding purchase
contracts. These terms and conditions that we typically agree with our supply chain partners give us additional flexibility to adapt
our purchase obligations to our requirements in light of the cyclicality and technological developments inherent in the industry in
which we operate. We establish a provision for cancellation costs when the liability has been incurred and the amount of
cancellation fees is reasonably estimable.
On November 3, 2016 ASML and Zeiss announced that they agreed to strengthen their long-standing and successful partnership in
the semiconductor lithography business. ASML has agreed with Zeiss to support Carl Zeiss SMT's R&D costs, capital expenditures
and other supply chain investments, in respect of High NA, for an amount of EUR 760.0 million over 6 years. At the end of 2016 an
amount of EUR 12.0 million was paid, resulting in a remaining commitment as of December 31, 2016 of EUR 748.0 million.
G. Safe Harbor
See Part I "Special Note Regarding Forward-Looking Statements".
ASML ANNUAL REPORT 2016
33
Item 6 Directors, Senior Management and Employees
A. Directors and Senior Management
The members of our SB and our BoM are as follows:
Name
Title
Gerard J. Kleisterlee 2, 3
Chairman of the Supervisory Board
Douglas A. Grose 2,3
Vice Chairman and Member of the Supervisory Board
Pauline F.M. van der Meer Mohr 1,2
Member of the Supervisory Board
Wolfgang H. Ziebart 3,4
Member of the Supervisory Board
Clara (Carla) M.S. Smits-Nusteling 1 Member of the Supervisory Board
Johannes (Hans) M.C. Stork 3, 4
Member of the Supervisory Board
Antoinette (Annet) P. Aris 3,4
Member of the Supervisory Board
Rolf-Dieter Schwalb 1,4
Peter T.F.M. Wennink
Martin A. van den Brink
Frits J. van Hout
Frédéric J.M. Schneider-Maunoury
Wolfgang U. Nickl
Member of the Supervisory Board
President, Chief Executive Officer and Chairman of the Board of
Management
President, Chief Technology Officer and Vice Chairman of the
Board of Management
Executive Vice President, Chief Program Officer and member of
the Board of Management
Executive Vice President, Chief Operations Officer and Member
of the Board of Management
Executive Vice President, Chief Financial Officer and Member of
the Board of Management
Year of Birth
Term Expires
1946
1950
1960
1950
1966
1954
1958
1952
1957
1957
1960
1961
1969
2019
2017
2017
2017
2017
2018
2019
2019
2018
2018
2017
2018
2018
1.
2.
3.
4.
5.
Member of the AC.
Member of the Selection and Nomination Committee.
Member of the Technology and Strategy Committee.
Member of the RC.
Ms. Van der Meer Mohr and Messrs. Grose and Ziebart are to retire by rotation at the 2017 AGM.
Mr. Van der Poel retired from the SB per the 2016 AGM.
The Works Council has an enhanced right to make recommendations for nomination of one-third of the members of the SB, which
recommendations may be rejected by the SB in limited circumstances. See Item 6.C. "Board Practices — Supervisory Board". At
the AGM held in 2009, Ms. Van der Meer Mohr was appointed pursuant to this recommendation right, and at the 2013 AGM she
was reappointed in accordance with this recommendation right. At the 2014 AGM, Mr. Stork was appointed pursuant to this
recommendation right. At the 2015 AGM, Ms. Aris was appointed based on this enhanced recommendation right.
The SB spends considerable time discussing its future composition, in view of the rotation schedule and envisaged changes in the
coming years. For the fulfillment of vacancies several factors are taken into consideration. The SB profile includes the intention to
have at least 30 percent representation of each gender in ASML’s SB. This aspect will be taken into account in the nominations for
(re)appointment of SB members that will be submitted to the 2017 AGM.
There are no family relationships among the members of our SB and our BoM.
Director and Officer Biographies
Gerard J. Kleisterlee
Mr. Kleisterlee was appointed to our SB in April 2015 and was appointed Chairman in 2016. Mr. Kleisterlee joined Philips in 1974. In
2001 Mr. Kleisterlee became President and CEO of the Board of Management of Royal Philips N.V., a position he has held until
2011. Currently, Mr. Kleisterlee is the Chairman of the Board of Vodafone Group Plc. and Non-Executive Director of Royal Dutch
Shell Plc.
Douglas A. Grose
Mr. Grose was appointed to our SB in April 2013. Mr. Grose was CEO of GlobalFoundries. Mr. Grose also served as senior vice
president of technology development, manufacturing and supply chain for AMD. Prior to that, Mr. Grose spent 25 years at IBM as
General Manager of technology development and manufacturing for the systems and technology group. Currently, Mr. Grose is the
CTO of BessTech and a member of the Board of Directors of SBA Materials, Inc.
ASML ANNUAL REPORT 2016
34
Pauline F.M. van der Meer Mohr
Ms. Van der Meer Mohr was appointed to our SB in March 2009. Ms. Van der Meer Mohr was managing partner of the
Amstelbridge Group, Senior Executive Vice President at ABN AMRO Bank, Head of Group Human Resources at TNT N.V., and has
held several senior executive roles at the Royal/Dutch Shell group of companies in various areas. Ms. Van der Meer Mohr served as
President of the Executive Board of the Erasmus University Rotterdam, the Netherlands until December, 2015. Currently, Ms. Van
der Meer Mohr is the Chairperson of the supervisory board of EY Netherlands LLP, a member of the supervisory board of Royal
DSM N.V., Non-Executive Director of HSBC Holdings Plc, Chairperson of the supervisory board of Nederlands Danstheater and a
member of the Board Concertgebouw Fonds.
Wolfgang H. Ziebart
Mr. Ziebart was appointed to our SB in March 2009. Mr. Ziebart was President and CEO of Infineon Technologies A.G. Prior to that,
Mr. Ziebart was on the Boards of Management of car components manufacturer Continental A.G. and automobile producer BMW
A.G. Mr. Ziebart was the Group Engineering Director of Jaguar Land Rover Ltd. until April 2015. Currently, Mr. Ziebart is the
Chairman of the supervisory board of Nordex SE and a member of the Board of Autoliv, Inc.
Clara (Carla) M.S. Smits-Nusteling
Ms. Smits-Nusteling was appointed to our SB in April 2013. Ms. Smits-Nusteling was CFO and a member of the Board of
Management of Royal KPN N.V. Ms. Smits-Nusteling also held several finance and business related positions at Royal KPN N.V.
and PostNL. Currently, Ms. Smits-Nusteling is a Non-Executive Director of the Board of Tele2 AB, a member of the Management
Board of the Foundation Unilever N.V. Trust Office, Non-Executive Director of the Board of Directors of Nokia Corporation and lay
judge of the Enterprise Court of the Amsterdam Court of Appeal.
Johannes (Hans) M.C. Stork
Mr. Stork was appointed to our SB in April 2014. Mr. Stork held various management positions at IBM Corporation, Hewlett
Packard Company, Texas Instruments, Inc. and Applied Materials, Inc., including Senior Vice President and CTO of Texas
Instruments, Inc. and Group Vice President and CTO of Applied Materials, Inc. Further, Mr. Stork was a member of the Board of
Sematech. Currently, Mr. Stork serves as Senior Vice President and CTO of ON Semiconductor Corporation and is also a member
of the Scientific Advisory Board of imec.
Antoinette (Annet) P. Aris
Ms. Aris was appointed to our SB in April 2015. Ms. Aris is Adjunct Professor of Strategy at INSEAD, France, a position she has
held since 2003. From 1994 to 2003 Ms. Aris was a partner at McKinsey & Company in Germany. Ms. Aris was a member of the
Board of Directors of Sanoma Oyj until April, 2015 and a member of the supervisory board of Kabel Deutschland AG until July,
2015. Currently, Ms. Aris is a Non-Executive Director of Thomas Cook Plc. and a member of the supervisory boards of
ProSiebenSat.1 AG, Jungheinrich AG and ASR Nederland N.V.
Rolf-Dieter Schwalb
Mr. Schwalb was appointed to our SB in April 2015. Mr. Schwalb was CFO and member of the Board of Management of Royal
DSM N.V. from 2006 to 2014. Prior to his appointment at DSM, Mr. Schwalb was CFO and member of the Executive Board of
Beiersdorf AG. Before that, Mr. Schwalb held a variety of management positions in Finance, IT and Internal Audit at Beiersdorf AG
and Procter & Gamble Co.
Peter T.F.M. Wennink
Mr. Wennink joined ASML in January, 1999 and was appointed as Executive Vice President, CFO and member of our BoM in July,
1999. Mr. Wennink was appointed as President and CEO on July 1, 2013. Mr. Wennink has an extensive background in finance and
accounting. Prior to his employment with ASML, Mr. Wennink worked as a partner at Deloitte Accountants, specializing in the high
technology industry with an emphasis on the semiconductor equipment industry. Mr. Wennink was a member of the supervisory
board of Bank Insinger de Beaufort N.V. until December 31, 2016. Mr. Wennink is a member of the Dutch Institute of Registered
Accountants, a member of the supervisory board of the Eindhoven University of Technology, and a member of the Advisory Board
of the Investment Committee of Stichting Pensioenfonds ABP (Dutch pension fund for government employees). Mr. Wennink further
serves on the board of the FME-CWM (the employers’ organization for the technology industry in the Netherlands).
Martin A. van den Brink
Mr. Van den Brink joined ASML when the company was founded in 1984. Mr. Van den Brink held several positions in engineering
and from 1995 he served as Vice President Technology. Mr. Van den Brink was appointed as Executive Vice President Product &
Technology and member of the BoM in 1999. On July 1, 2013, Mr. Van den Brink was appointed as President and CTO. Mr. Van den
Brink earned a degree in Electrical Engineering from HTS Arnhem (HAN University), and a degree in Physics (1984) from the
University of Twente, the Netherlands. In 2012, he was awarded an honorary doctorate in physics by the UvA, the Netherlands.
ASML ANNUAL REPORT 2016
35
Frits J. van Hout
Mr. Van Hout joined ASML in 1984 and rejoined ASML in 2001, after an eight year absence. He was appointed as a member of our
BoM on March 26, 2009. Mr. Van Hout was appointed as Executive Vice President and CPO on July 1, 2013. Prior to that, Mr. Van
Hout served as Executive Vice President and CMO, Executive Vice President Integral Efficiency, Senior Vice President Customer
Support and held various other positions. From 1992 until 2001, Mr. Van Hout served as CEO of the Beyeler Group and held
various management positions at Datacolor International. Mr. van Hout earned a Master’s degree in Theoretical Physics (1981),
University of Oxford; and a Master’s degree in Applied Physics (1984), Eidgenössische Technische Hochschule, Zürich. Mr. Van
Hout is a member of the Board of the Stichting Brainport, the Eindhoven Region Economic Development Board.
Frédéric J.M. Schneider-Maunoury
Mr. Schneider-Maunoury joined ASML in December, 2009, as Executive Vice President and COO and was appointed to our BoM on
March 24, 2010. Prior to joining ASML, Mr. Schneider-Maunoury served as Vice President Thermal Products Manufacturing of the
power generation and rail transport equipment group ALSTOM. Previously, Mr. Schneider-Maunoury was general manager of the
worldwide Hydro Business of ALSTOM. Further, Mr. Schneider-Maunoury held various positions at the French Ministry of Trade and
Industry. Mr. Schneider-Maunoury is a graduate of Ecole Polytechnique (1985) and Ecole Nationale Supérieure des Mines (1988) in
Paris.
Wolfgang U. Nickl
Mr. Nickl joined ASML in December, 2013, as Executive Vice President and CFO and was appointed as a member of our BoM per
the 2014 AGM. Prior to joining ASML, Mr. Nickl served as Executive Vice President and CFO at Western Digital Corporation, a US-
headquartered, NASDAQ-listed developer and manufacturer of storage devices, where he held several financial and operational
leadership roles. Before Western Digital, Mr. Nickl gained experience in finance and IT consulting. He earned a BA in Business from
the University of Cooperative Education in Stuttgart, Germany, and an MBA from the University of Southern California’s Marshall
School of Business in Los Angeles, United States.
B. Compensation
The information required by Item 6.B. is incorporated by reference from our 2016 Statutory Annual Report (pages 6 through 11 and
106 through 109) which is included as exhibit 99.1 on Form 6-K furnished with the SEC on February 8, 2017.
C. Board Practices
General
We endorse the importance of good corporate governance, of which independent supervision, accountability and transparency are
the most significant elements. Within the framework of corporate governance, it is important that a relationship of trust exists
between the BoM, the SB, our employees and our shareholders.
We pursue a policy of active communication with our shareholders. In addition to the exchange of ideas at the General Meeting of
Shareholders, other important forms of communication are the publication of our annual and quarterly financial results as well as
press releases and publications posted on our Website.
Our corporate governance structure is intended to:
•
Provide shareholders with regular, reliable, relevant and transparent information regarding our activities, structure, financial
condition and results of operations, performance and other information, including information on our social, ethical and
environmental matters and policies;
Apply high-quality standards for disclosures, accounting and auditing; and
Apply stringent rules with regard to insider securities trading.
•
•
Two-Tier Board Structure
ASML is incorporated under Dutch law and has a two-tier board structure. Responsibility for the management of ASML lies with the
BoM. Independent, non-executive members serve on the SB, which supervises and advises the members of the BoM in performing
their management tasks. The BoM has the duty to keep the SB informed, consult with the SB on important matters and submit
certain important decisions to the SB for its approval. The SB is responsible for supervising, monitoring and advising the BoM on:
(i) the achievement of ASML's objectives, (ii) ASML's strategy and management of risks inherent to ASML's business activities,
(iii) the structure and operation of internal risk management and control systems, (iv) the financial reporting process and (v) the
compliance with applicable legislation and regulations.
SB members are prohibited from serving as officers or employees of ASML, and members of the BoM cannot serve on the SB.
Board of Management
The BoM consists of at least two members or such larger number of members as determined by the SB. Members of the BoM are
appointed by the SB. The SB must notify the General Meeting of Shareholders of the intended appointment of a member of the
BoM. In accordance with the Dutch Corporate Governance Code, members of the BoM shall be appointed for a maximum period
of four years, but may be re-appointed. Members of the BoM serve until the end of the term of their appointment, voluntary
retirement, or suspension or dismissal by the SB. In the case of dismissal, the SB must first inform the General Meeting of
Shareholders of the intended removal.
ASML ANNUAL REPORT 2016
36
The SB determines the remuneration of the individual members of the BoM, in line with the remuneration policy adopted by the
General Meeting of Shareholders, upon a proposal of the SB. ASML’s remuneration policy is included in the Supervisory Board
Report of the 2016 Statutory Annual Report.
For more details on the BoM, see Item 6.A. "Directors and Senior Management" and Item 6.B. "Compensation".
Supervisory Board
The SB consists of at least three members or such larger number as determined by the SB. The SB prepares a profile in relation to
its size and composition; ASML’s SB profile is posted on ASML’s Website.
Members of the SB are appointed by the General Meeting of Shareholders from nominations of the SB. Nominations must be
reasoned and must be made available to the General Meeting of Shareholders and the Works Council simultaneously. Before the
SB presents its nominations, both the General Meeting of Shareholders and the Works Council may make recommendations (which
the SB may reject). In addition, the Works Council has an enhanced right to make recommendations for nomination of one-third of
the members of the SB, which recommendation may only be rejected by the SB: (i) if the relevant person is unsuitable or (ii) if the
SB would not be duly composed if the recommended person were appointed as a SB member. If no agreement can be reached
between the SB and the Works Council on these recommendations, the SB may request the Enterprise Chamber of the Amsterdam
Court of Appeal to declare its objection legitimate. Any decision of the Enterprise Chamber on this matter is non-appealable.
Nominations of the SB may be rejected by the General Meeting of Shareholders by an absolute majority of the votes representing
one-third of the total outstanding capital. If the votes cast in favor of such resolution do not represent one-third of the total
outstanding capital, a new meeting can be convened at which the nomination can be rejected by an absolute majority. If a
nomination is rejected, the SB must make a new nomination. If a nomination is not rejected and the General Meeting of
Shareholders does not appoint the nominated person, the SB will appoint the nominated person.
Members of the SB serve for a maximum term of four years from the date of their appointment, or a shorter period as set out in the
rotation schedule as adopted by the SB. They may be re-appointed, provided that their entire term of office does not exceed twelve
years. The General Meeting of Shareholders may, with an absolute majority of the votes representing one-third of the total
outstanding capital, dismiss the SB in its entirety for lack of confidence. In such event, the Enterprise Chamber of the Amsterdam
Court of Appeal shall appoint new members of the SB at the request of the BoM.
Upon the proposal of the SB, the General Meeting of Shareholders determines the remuneration of the members of the SB. A
member of the SB may not be granted any shares or share options by way of remuneration.
For more details on the SB, see Item 6.A "Directors and Senior Management" and Item 6.B."Compensation".
Approval of Board of Management Decisions
The BoM requires prior approval of the General Meeting of Shareholders for resolutions concerning an important change in the
identity or character of ASML or its business, including:
•
•
•
A transfer of all or substantially all of the business of ASML to a third party;
Entering into or the termination of a long-term material joint venture between ASML and a third party; and
An acquisition or divestment by ASML of an interest in the capital of a company with a value of at least one-third of ASML’s
assets (determined by reference to ASML’s most recently adopted Statutory Annual Report).
Rules of Procedure
The BoM and the SB have adopted Rules of Procedure for each of the BoM, SB and the four Committees of the SB. These Rules of
Procedure are posted on our Website.
Directors and Officers Insurance and Indemnification
Members of the BoM and SB, as well as certain senior management members, are insured under ASML’s Directors and Officers
Insurance Policy. Although the insurance policy provides for broad coverage, our directors and officers may incur uninsured
liabilities. ASML has agreed to indemnify its members of the BoM and SB against any claims arising in connection with their
position within ASML, provided that such claim is not attributable to willful misconduct or intentional recklessness.
Corporate Governance Developments
ASML continuously monitors and assesses applicable corporate governance rules, including recommendations and initiatives
regarding principles of corporate governance. These include rules that have been promulgated in the United States both by
NASDAQ and by the SEC. See also Item 16.G. "Corporate Governance".
ASML ANNUAL REPORT 2016
37
The Code came into effect on January 1, 2004 and was amended as of January 1, 2009. Dutch listed companies are required to
either comply with the principles and the best practice provisions of the Code, or to explain on which points they deviate from
these best practice provisions and why. In February 2016 the Dutch Corporate Governance Code Monitoring Committee started a
consultation process that has led to a revision of the Code. The amended Code was published on December 8, 2016 and came
into effect on January 1, 2017. As part of the continued effort of our SB and BoM to ensure that our practices and procedures
comply with Dutch corporate governance requirements, we are currently assessing the implications of the amended Code for our
corporate governance structure.
ASML reports on its compliance with the Code in its 2016 Statutory Annual Report.
Committees of ASML’s Supervisory Board
While retaining overall responsibility, the SB assigns certain of its tasks to its four Committees: the AC, the RC, the Selection and
Nomination Committee and the Technology and Strategy Committee. Members of these Committees are appointed from among
the SB members.
The Chairman of each Committee reports to the SB the issues and items discussed in each meeting. In addition, the minutes of
each Committee are available to all members of the SB, enabling the SB to make the appropriate decisions.
Audit Committee
The current members of our AC are Ms. Smits-Nusteling (Chairperson), Ms. Van der Meer Mohr, and Mr. Schwalb, each of whom is
an independent, non-executive member of our SB in accordance with the NASDAQ Listing Rules and SEC regulations. The SB has
determined that each of Ms. Smits-Nusteling and Mr. Schwalb qualify as AC financial expert pursuant to Section 407 of the
Sarbanes-Oxley Act and the rules promulgated thereunder. Our external auditor, CEO, CFO, Corporate Controller, Corporate Chief
Accountant, Vice President Corporate Risk and Assurance, as well as other ASML employees invited by the Chairperson of the AC
may also attend the meetings of the AC. The Chairman of our SB, Mr. Kleisterlee, attends the AC meetings whenever possible.
The AC assists the SB in:
•
•
•
Overseeing the integrity of our Financial Statements and related financial and non-financial disclosures;
Overseeing the qualifications, independence and performance of the external auditor; and
Overseeing our disclosure controls and procedures (as defined in the Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)).
In 2016, the AC held nine scheduled meetings, either in person or via conference call.
Remuneration Committee
The current members of our RC are Mr. Schwalb (Chairman), Ms. Aris, Mr. Stork and Mr. Ziebart, each of whom is an independent,
non-executive member of our SB in accordance with the NASDAQ Listing Rules. In 2016, the RC held seven scheduled meetings,
either in person or via conference call.
For details on the RC,see Item 6.B. "Compensation".
Selection and Nomination Committee
The current members of our Selection and Nomination Committee are Mr. Kleisterlee (Chairman), Mr. Grose and Ms. Van der Meer
Mohr. Each of the members is an independent, non-executive member of our SB in accordance with the NASDAQ Listing Rules.
The Selection and Nomination Committee assists the SB in:
•
•
•
Preparing the selection criteria and appointment procedures for members of ASML’s SB and BoM;
Periodically evaluating the scope and composition of the BoM, the SB, and proposing the profile of the SB in relation thereto;
Periodically evaluating the functioning of the BoM and the SB and the individual members of those boards and reporting the
results thereof to the SB; and
Proposing (re-)appointments of members of the BoM and the SB, and supervising the policy of the BoM in relation to the
selection and appointment criteria for senior management.
•
The Selection and Nomination Committee furthermore discusses corporate governance developments that may affect ASML, for
example those based on legislative proposals, but also the outcome of the Report of the Monitoring Committee with respect to
compliance with the Code, as well as revisions to the Code.
In 2016, the Selection and Nomination Committee held three scheduled meetings, either in person or by conference call.
Technology and Strategy Committee
The current members of our Technology and Strategy Committee are Mr. Grose (Chairman), Ms. Aris, Mr. Kleisterlee, Mr. Stork, and
Mr. Ziebart. The Technology and Strategy Committee may appoint one or more advisors from within and/or from outside ASML.
The advisors to the Technology and Strategy Committee may be invited as guests to the meetings, or parts thereof, but are not
entitled to vote in the meetings.
ASML ANNUAL REPORT 2016
38
The Technology and Strategy Committee assists the SB in relation to the following responsibilities and may prepare resolutions for
the SB related thereto:
•
Familiarization with and risk assessment and study of potential strategies, required technical resources, technology roadmaps
and product roadmaps; and
Providing advice to the SB with respect to matters related thereto.
•
In 2016, the Technology and Strategy Committee held six scheduled meetings, either in person or via conference call.
Disclosure Committee
ASML has a DC to ensure compliance with applicable disclosure requirements arising under US and Dutch law and applicable
stock exchange rules, US GAAP, IFRS as adopted by the EU and the Sarbanes-Oxley Act. The DC is composed of various
members of senior management in the departments corporate risk & assurance, investor relations, communications, corporate
legal, treasury, finance & control and corporate strategy & marketing, and reports to the CEO and CFO. The DC informs the AC
about the outcome of the DC meetings.
The DC gathers all relevant financial and non-financial information and assesses materiality, timeliness and necessity for disclosure
of such information. In addition the DC advises the CEO and CFO on the effectiveness of the disclosure controls and procedures
and, of the internal control over financial reporting, each as contemplated by the Sarbanes-Oxley Act.
During 2016, the DC reviewed, among other things, the quarterly and annual financial results announcements, announcements of
strategic transactions, the Statutory Interim Report, the Annual Report on Form 20-F and the Statutory Annual Report. In addition,
the DC also advised the CEO and CFO on the effectiveness of the disclosure controls and procedures, and of the internal control
over financial reporting in accordance with disclosures and certifications required under the Sarbanes-Oxley Act.
D. Employees
The following table presents our total numbers of payroll employees and temporary employees as of December 31, 2016, 2015 and
2014 (in FTEs). These employees work primarily in manufacturing & logistics and in R&D:
As of December 31
Payroll Employees
Temporary Employees
Total in FTEs
2014
11,318
2,754
14,072
2015
12,168
2,513
14,681
2016
13,991
2,656
16,647
During 2016, the average number of payroll employees in FTEs was 12,852, and the average number of temporary employees in
FTEs employed was 2,565. The increases in payroll employees in FTEs in 2016 compared to 2015 and in 2015 compared to 2014
are in line with our net sales growth. Additionally the increase in payroll employees in FTEs in 2016 compared to 2015 includes an
addition of approximately 700 HMI FTEs.
For a more detailed description of our payroll employee information, see Notes 17 and 21 to our Financial Statements.
Our future success also depends on our ability to attract, train, retain and motivate highly qualified, skilled and educated
employees, who are in great demand. We are particularly reliant on the services of several key employees, including a number of
systems development specialists with advanced university qualifications in engineering, optics and computing. See Item 3.D. "Risk
Factors – Risks related to ASML – Our business and future success depend on our ability to attract and retain a sufficient number
of adequately educated and skilled employees."
ASML Netherlands B.V., our operating subsidiary in the Netherlands, has a Works Council, as required by Dutch law. A Works
Council is a representative body of the employees of a Dutch company elected by the employees. The BoM of any Dutch company
that runs an enterprise with a Works Council must seek the non-binding advice of the Works Council before taking certain
decisions with respect to ASML, such as those related to a major restructuring or a change of control. In case the Works Council
renders a contrary advice on a particular decision and the BoM nonetheless wishes to proceed, the BoM must temporarily suspend
any further action while the Works Council determines whether to appeal to the Enterprise Chamber of the Amsterdam Court of
Appeal. Other decisions directly involving employment matters that apply either to all employees, or certain groups of employees,
may only be taken with the Works Council’s approval. Failing approval of the Works Council, the respective decision can only be
taken with the approval of the Dutch District Court.
E. Share Ownership
For information with respect to the grant of shares and stock options to our employees see Note 17 to our Financial Statements,
Item 6.B. "Compensation" and Item 7.A. "Major Shareholders".
ASML ANNUAL REPORT 2016
39
Item 7 Major Shareholders and Related Party Transactions
A. Major Shareholders
The following table sets forth the total number of ordinary shares owned by each shareholder that reported to the AFM or SEC a
beneficial ownership of ordinary shares that is at least 3.0 percent (5.0 percent, in the case of the SEC) of our ordinary shares
issued and outstanding, as well as the ordinary shares (including shares underlying options) owned by our members of the BoM
(which includes those persons specified in Item 6.A. "Directors, Senior Management and Employees"), as a group, as of
December 31, 2016. The information set out below with respect to shareholders other than the BoM is solely based on public
filings with the SEC and AFM as of January 31, 2017.
Identity of Person or Group
Capital Group International, Inc 1
Stichting Administratiekantoor MAKTSJAB/Intel 2
BlackRock Inc. 3
Members of ASML’s Board of Management (5 persons) 4,5
Shares
Owned
67,265,695
62,977,877
28,406,210
210,291
Percent of
Class 6
15.65%
14.65%
6.61%
0.05%
1.
2.
3.
4.
5.
6.
As reported to the AFM on April 25, 2014, Capital Group International, Inc. and CRMC, which we believe to be an affiliate of Capital Group International, Inc.,
indirectly have 605,391,255 voting rights corresponding to 67,265,695 shares (based on nine votes per share) of our ordinary shares but do not have ownership rights
related to those shares. Capital World Investors reported on a Schedule 13-G/A filed with the SEC on February 12, 2016, that it is the beneficial owner of 47,701,246
shares of our ordinary shares as a result of its affiliation with CRMC. In addition, the Growth Fund of America reported to the AFM on May 15, 2014 that it owns
3.22% of our outstanding shares. We believe that some or all of these shares are included within the shares reported to be owned by Capital Group International,
Inc., as set forth above.
Stichting Administratiekantoor MAKTSJAB owns the stated percentage of our ordinary shares and has issued corresponding depository receipts to Intel. Intel has
reported that it has sold a portion of these shares that it initially acquired, but has not reported the number of shares sold.
Based solely on the Schedule 13-G/A filed by BlackRock Inc. with the SEC on January 19, 2017; BlackRock reports voting power with respect to 25,484,553 of these
shares. A public filing with the AFM on December 29, 2016 shows aggregate holdings of various BlackRock funds of 4.83 percent, based on total number of issued
shares at the time, and 5.94 percent in voting rights.
Does not include unvested shares granted to members of the BoM. Further information required by Item 7.A. is incorporated by reference from our SB report as
included in our 2016 Statutory Annual Report, see Item 6.B. "Compensation".
No shares are owned by members of the SB.
As a percentage of the total number of ordinary shares issued and outstanding (429,941,232) as of December 31, 2016, which excludes 9,258,282 ordinary shares
which have been issued but are held in treasury by ASML. Please note that share ownership percentages reported to the AFM are expressed as a percentage of the
total number of ordinary shares issued (including treasury stock) and that accordingly, percentages reflected in this table may differ from percentages reported to the
AFM.
The Intel Stichting acquired the shares indicated above as part of our CCIP in the second half of 2012 (as did the Stichtingen that
acquired shares for the other Participating Customers in the CCIP). The Intel Stichting does not vote on the ordinary shares held by
it, unless instructed to do so by Intel in accordance with its shareholder agreement with us. Intel is not entitled to vote on the ASML
shares held by the Intel Stichting, except in certain exceptional circumstances: i) the authorization of certain significant share
issuances and share repurchases, ii) any amendment to the Articles of Association that would materially affect the specific voting
rights of Intel, iii) any significant change in the identity or nature of ASML or its business, iv) the dissolution of ASML, v) any merger
or demerger which would result in a material change in the identity or nature of ASML or its business.
We do not issue share certificates. See Item 10.B. "Memorandum and Articles of Association".
As of December 31, 2016, 68,073,837 ordinary shares were held by 358 registered holders with a registered address in the United
States. Since certain of our ordinary shares were held by brokers and nominees, the number of record holders in the United States
may not be representative of the number of beneficial holders or of where the beneficial holders are resident.
Obligations of Shareholders to Disclose Holdings under Dutch Law
Holders of our shares may be subject to reporting obligations under the FMSA.
The disclosure obligations under the FMSA apply to any person or entity that acquires, holds or disposes of an interest in the voting
rights and/or the capital of a public limited company incorporated under the laws of the Netherlands whose shares are admitted to
trading on a regulated market within the EU, such as ASML. Disclosure is required when the percentage of voting rights or capital
interest of a person or an entity reaches, exceeds or falls below 3.0, 5.0, 10.0, 15.0, 20.0, 25.0, 30.0, 40.0, 50.0, 60.0, 75.0 or 95.0
percent (as a result of an acquisition or disposal by such person, or as a result of a change in our total number of voting rights or
capital issued). With respect to ASML, the FMSA requires any person or entity whose interest in the voting rights and/or capital of
ASML reached, exceeded or fell below those percentage interests to notify the AFM immediately.
ASML ANNUAL REPORT 2016
40
For the purpose of calculating the percentage of capital interest or voting rights, the following interests must, among other
arrangements, be taken into account: shares and votes (i) directly held by any person, (ii) held by such person’s subsidiaries,
(iii) held by a third party for such person’s account, (iv) held by a third party with whom such person has concluded an oral or
written voting agreement (including on the basis of an unrestricted power of attorney), (v) held by a third party with whom such
person has agreed to temporarily transfer voting rights against payment, (vi) financial instruments of which the increase in value is
wholly or partially dependent on an increase in value of our shares or distributions in respect thereof (including certain cash settled
financial instruments such as contracts for difference and total return swaps), (vii) put options pursuant to which a person can be
required to purchase our shares, and (viii) other contracts under which a person has a position economically comparable to having
our shares. Interests held jointly by multiple persons are attributed to those persons in accordance with their entitlement. A holder
of a pledge or right of usufruct in respect of shares can also be subject to these reporting obligations if such person has, or can
acquire, the right to vote on the shares or, in case of depositary receipts, the underlying shares. The managers of certain
investment funds are deemed to hold the capital interests and voting rights in the funds managed by them.
For the same purpose, the following instruments qualify as "shares": (i) shares, (ii) depositary receipts for shares (or negotiable
instruments similar to such receipts), (iii) negotiable instruments for acquiring the instruments under (i) or (ii) (such as convertible
bonds), and (iv) options for acquiring the instruments under (i) or (ii).
The AFM keeps a public registry of and publishes all notifications made pursuant to the FMSA.
We may request Euroclear Nederland and its admitted institutions as well as intermediaries, institutions and custodians of
investment funds (in the Netherlands and abroad) of which we reasonably expect that they hold our shares other than as beneficial
owner, to provide certain details on the identity and number of shares held, of their clients for whom they hold our shares. We must
keep the information received confidential. We may only make such requests during a period of 60 days prior to the day on which
our General Meeting of Shareholders will be held. No details are required to be given in respect of shareholders with an interest of
less than 0.5 percent of our issued share capital. A shareholder who, individually or together with other shareholders, holds an
interest of at least 10 percent of the issued share capital may request us to establish the identity of our shareholders in this manner
so that we can forward to them information provided by such shareholder in respect of an item on the agenda for the General
Meeting. This request may only be made during a period of 60 days until (and not including) the 42nd day before the day on which
the General Meeting of Shareholders will be held.
B. Related Party Transactions
Intel is the largest participant in the CCIP, with an aggregate funding commitment of EUR 829.0 million and having made an
investment in 15 percent of our ordinary shares (after giving effect to the synthetic share buyback in November 2012).
Please see Note 27 to our Financial Statements for more information about the CCIP. See Note 28 to our Financial Statements for
details on sales to Intel in 2016 and outstanding balances as of December 31, 2016.
There have been no other material transactions during our most recent fiscal year, and there are currently no transactions, between
ASML or any of its subsidiaries, and any significant shareholder and any director or officer or any relative or spouse thereof other
than ordinary course compensation arrangements. During our most recent fiscal year, there has been no, and at present there is no,
outstanding indebtedness to ASML owed or owing by any director or officer of ASML or any associate thereof, other than the
virtual financing arrangement with respect to shares and stock options described under Note 17 to our Financial Statements.
Furthermore, ASML has not granted any personal loans, guarantees, or the like to members of the BoM or SB.
C. Interests of Experts & Counsel
Not applicable.
Item 8 Financial Information
A. Consolidated Statements and Other Financial Information
Consolidated Financial Statements
See Item 18 "Financial Statements".
Export Sales
See Note 20 to our Financial Statements.
Legal Proceedings
See Item 4.B. "Business Overview – Intellectual Property" and Note 18 to our Financial Statements.
ASML ANNUAL REPORT 2016
41
Dividend Policy
As part of our financing policy, we aim to pay an annual dividend that will be stable or growing over time. Annually, the BoM will,
upon prior approval from the SB, submit a proposal to the AGM with respect to the amount of dividend to be declared with respect
to the prior year. The dividend proposal in any given year will be subject to the availability of distributable profits or retained
earnings and may be affected by, among other factors, the BoM’s views on our potential future liquidity requirements, including for
investments in production capacity, the funding of our R&D programs and for acquisition opportunities that may arise from time to
time; and by future changes in applicable income tax and corporate laws. Accordingly, it may be decided to propose not to pay a
dividend or to pay a lower dividend with respect to any particular year in the future.
For 2016, a proposal to declare a dividend of EUR 1.20 per ordinary share will be submitted to the 2017 AGM.
B. Significant Changes
No significant changes have occurred since the date of our Financial Statements. See Item 5.D. "Trend Information" and Note 29 to
the Financial Statements.
Item 9 The Offer and Listing
A. Offer and Listing Details
Our ordinary shares are listed for trading in the form of registered ASML NASDAQ shares and in the form of registered ASML
Euronext Amsterdam shares. The principal trading market of our ordinary shares is Euronext Amsterdam. Our ordinary shares also
trade on NASDAQ. For more information see Item 10.B. "Memorandum and Articles of Association".
Our shares listed on NASDAQ are registered with J.P. Morgan, our New York Transfer Agent, pursuant to the terms of the Transfer
Agent Agreement between ASML and J.P Morgan. Our shares listed on Euronext Amsterdam are held in dematerialized form
through the facilities of Euroclear Nederland, the Dutch centralized securities custody and administration system. The New York
Transfer Agent charges shareholders a fee of up to USD 5.00 per 100 shares for the exchange of our shares listed at NASDAQ for
our shares listed at Euronext Amsterdam and vice versa.
Dividends payable on our shares listed at NASDAQ are declared in euro and converted to US dollars at the rate of exchange at the
close of business on the date determined by the BoM. The resulting amounts are distributed through the New York Transfer Agent
and no charge is payable by holders of our shares listed at NASDAQ in connection with this conversion or distribution.
Pursuant to the terms of the Transfer Agent Agreement, we have agreed to reimburse the New York Transfer Agent for certain out of
pocket expenses, including in connection with any mailing of notices, reports or other communications made generally available by
ASML to holders of ordinary shares. The New York Transfer Agent has waived its fees associated with routine services to ASML
associated with our shares listed at NASDAQ. In addition, the New York Transfer Agent in consideration of its acting as Transfer
Agent has agreed to make a contribution towards covering certain expenses incurred by ASML in connection with the issuance and
transfer of our shares listed on NASDAQ. In the year ended December 31, 2016, the Transfer Agent contributed USD 0.6 million
towards coverage of expenses incurred by ASML (which mainly comprised of audit, advisory, legal and listing fees incurred due to
the existence of our share listing on NASDAQ).
ASML ANNUAL REPORT 2016
42
The following table sets forth, for the periods indicated, the high and low closing prices of our shares listed at NASDAQ and our
shares listed at Euronext Amsterdam.
ASML NASDAQ shares
USD
ASML Euronext
Amsterdam shares
EUR
High
Low
High
Low
112.20
113.80
109.64
100.96
64.68
112.20
110.83
101.39
99.90
96.33
106.68
113.80
110.75
122.97
112.20
105.32
108.96
109.86
110.83
76.51
83.08
79.90
63.08
40.91
99.20
94.61
91.30
76.51
85.97
83.08
94.50
98.65
109.92
99.78
99.20
100.39
101.71
105.45
107.00
103.80
89.88
74.30
49.36
107.00
99.35
89.78
88.18
88.96
98.26
103.80
101.85
115.00
107.00
99.50
97.93
97.69
99.35
70.86
73.64
57.57
47.20
31.81
90.64
84.66
79.91
70.86
74.47
73.64
88.22
84.67
105.15
93.79
91.19
90.64
90.17
93.13
Annual Information
2016
2015
2014
2013
2012
Quarterly Information
4th quarter 2016
3rd quarter 2016
2nd quarter 2016
1st quarter 2016
4th quarter 2015
3rd quarter 2015
2nd quarter 2015
1st quarter 2015
Monthly Information
January 2017
December 2016
November 2016
October 2016
September 2016
August 2016
B. Plan of Distribution
Not applicable.
C. Markets
See Item 9.A. "Offer and Listing Details".
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
Our Articles of Association included as Exhibit 99.1 to our form 6-K filed furnished with the SEC on February 8, 2013 (the "Articles
of Association").
Current Authorizations to Issue and Repurchase Ordinary Shares
Our BoM has the power to issue ordinary and preference shares if and insofar as the BoM has been authorized to do so by the
General Meeting of Shareholders. The BoM requires the approval of the SB for such an issue. An authorization of the BoM to issue
shares or preference shares may be effective for a specified period of up to five years and may be renewed. In the absence of such
authorization, the General Meeting of Shareholders has the power to authorize the issuance of ordinary or preference shares, upon
the proposal of the BoM, which proposal must be authorized by the SB.
ASML ANNUAL REPORT 2016
43
At our 2016 AGM, our shareholders authorized the BoM to issue ordinary shares and/or rights thereto through October 29, 2017, up
to an aggregate maximum of 5.0 percent of ASML’s issued share capital, at April 29, 2016, plus an additional 5.0 percent of
ASML's issued share capital at April 29, 2016 that may be issued in connection with mergers, acquisitions and/or (strategic)
alliances. At our 2017 AGM, our shareholders will be asked to extend this authority through October 26, 2018.
Holders of ASML’s ordinary shares have a preemptive right of subscription, in proportion to the aggregate nominal amount of the
ordinary shares held by them, to any issuance of ordinary shares for cash, which right may be restricted or excluded. Ordinary
shareholders have no pro rata preemptive right of subscription to any ordinary shares issued for consideration other than cash or
ordinary shares issued to employees. If authorized for this purpose by the General Meeting of Shareholders, the BoM has the
power subject to approval of the SB, to restrict or exclude the preemptive rights of holders of ordinary shares. At our 2016 AGM,
our shareholders authorized the BoM through October 29, 2017, subject to approval of the SB, to restrict or exclude preemptive
rights of holders of ordinary shares up to a maximum of 10 percent of our issued share capital at April 29, 2016. At our 2017 AGM,
our shareholders will be asked to extend this authority through October 26, 2018.
In addition, the articles of association provide for 9,000 ordinary shares B with a nominal value of EUR 0.01. Each ordinary share B
entitles the holder thereof to cast one vote at the General Meeting of Shareholders. Holders of fractional shares had the
opportunity, until July 31, 2013, to convert fractional shares into ordinary shares B to obtain voting rights with respect to those
fractional shares. No ordinary shares B have been issued.
We may repurchase our issued ordinary shares at any time, subject to compliance with the requirements of Dutch law and our
Articles of Association. Any such repurchases are subject to the approval of the SB and the authorization of shareholders at our
General Meeting of Shareholders, which authorization may not be for more than 18 months. The BoM is currently authorized,
subject to SB approval, to repurchase as of April 29, 2016 through October 29, 2017, up to a maximum of two times 10.0 percent
of ASML’s issued share capital as of April 29, 2016, at a price between the nominal value of the ordinary shares purchased and
110.0 percent of the market price of these securities on Euronext Amsterdam or NASDAQ. At our 2017 AGM, our shareholders will
be asked to extend this authorization through October 26, 2018.
C. Material Contracts
Acquisition of Hermes Microvision, Inc.
On June 16, 2016, ASML and HMI entered into a share swap agreement pursuant to which ASML acquired HMI for a consideration
of TWD 99.7 billion (EUR 2.9 billion). The acquisition was completed on November 22, 2016. See Note 2 to our Financial Statements.
Investment in Carl Zeiss SMT GmbH
On November 2, 2016, ASML, Zeiss, Carl Zeiss SMT Holding Management GmbH, Carl Zeiss SMT, and the Partnership entered into
the CZ SMT Investment Agreement.
Under the CZ SMT Investment Agreement, we agreed to acquire a 24.9% limited partnership interest in the Partnership, which will be
the sole owner of Carl Zeiss SMT, our sole supplier of critical optical components. The closing of the transaction is expected in the
second quarter of 2017 and the purchase price for the interest is EUR 1.0 billion.
The CZ SMT Investment Agreement includes customary representations with respect to the Partnership and Carl Zeiss SMT. Completion
of the acquisition of the limited partnership interest pursuant to the CZ SMT Investment Agreement is conditional on, among other
things, merger control approvals. The CZ SMT Investment Agreement may be terminated by either party if closing has not occurred
by October 31, 2017.
In accordance with the CZ SMT Investment Agreement, at closing, ASML, Zeiss, and Carl Zeiss SMT Holding Management GmbH
will enter into the CZ SMT Partnership Agreement, establishing the Partnership. Under the CZ SMT Partnership Agreement, we have
been granted minority protection and veto rights in the Partnership. The CZ SMT Partnership Agreement also includes transfer
restrictions, including rights of first refusal and drag-along rights.
D. Exchange Controls
There are currently no limitations, either under the laws of the Netherlands or in the Articles of Association of ASML, to the rights of
non-Dutch residents to hold or vote ordinary shares. Cash distributions, if any, payable in euros on our shares listed at Euronext
Amsterdam may be officially transferred by a bank from the Netherlands and converted into any other currency without being
subject to any Dutch legal restrictions. However, for statistical purposes, such payments and transactions must be reported by
ASML to the Dutch Central Bank. Furthermore, no payments, including dividend payments, may be made to jurisdictions subject to
certain sanctions, adopted by the government of the Netherlands, implementing resolutions of the Security Council of the United
Nations. Cash distributions, if any, on our shares listed at NASDAQ shall be declared in euros but paid in US dollars, converted at
the rate of exchange at the close of business on the date fixed for that purpose by the BoM in accordance with the Articles of
Association.
ASML ANNUAL REPORT 2016
44
E. Taxation
Dutch Taxation
The statements below represent a summary of current Dutch tax laws, regulations and judicial interpretations thereof. The
description is limited to the material tax implications for a holder of ordinary shares who is not, and/or is not deemed to be, a
resident of the Netherlands for Dutch tax purposes ("Non-Resident Holder"). This summary does not address special rules that may
apply to special classes of holders of ordinary shares and should not be read as extending by implication to matters not specifically
referred to herein. As to individual tax consequences, each investor in ordinary shares should consult his or her tax counsel.
General
The acquisition of ordinary shares by a non-resident of the Netherlands should not be treated as a taxable event for Dutch tax
purposes. The income consequences in connection with owning and disposing of our ordinary shares are discussed below.
Substantial Interest
A person that, (inter alia) directly or indirectly, and either independently or jointly with his partner (as defined in the Dutch Personal
Income Tax Act 2001), owns 5.0 percent or more of our share capital, owns profit participating rights that correspond to at least 5.0
percent of the annual profits of a Dutch company or to at least 5.0 percent of the liquidation proceeds of such company or holds
options to purchase 5.0 percent or more of our share capital, is deemed to have a substantial interest in our shares, or our options,
as applicable. Specific rules apply in case certain family members of the Non-Resident Holder hold a substantial interest. A
deemed substantial interest also exists if (part of) a substantial interest has been disposed of, or is deemed to be disposed of, in a
transaction where no taxable gain has been recognized. Special attribution rules exist in determining the presence of a substantial
interest.
Income Tax Consequences for Individual Non-Resident Holders on Owning and Disposing of the Ordinary Shares
An individual who is a Non-Resident Holder will not be subject to Dutch income tax on received income in respect of our ordinary
shares or capital gains derived from the sale, exchange or other disposition of our ordinary shares, provided that such holder:
•
Does not carry on and has not carried on a business in the Netherlands through a permanent establishment or a permanent
representative to which the ordinary shares are attributable;
Does not hold and has not held a (deemed) substantial interest in our share capital or, in the event the Non-Resident Holder
holds or has held a (deemed) substantial interest in our share capital, such interest is, or was, a business asset in the hands of
the holder;
Does not share and has not shared directly (through the beneficial ownership of ordinary shares or similar securities) in the
profits of an enterprise managed and controlled in the Netherlands which (is deemed to) own(s), or (is deemed to have) has
owned, our ordinary shares; and
Does not carry out and has not carried out any activities which generate taxable profit in the Netherlands or taxable income in
the Netherlands to which the holding of our ordinary shares was connected.
•
•
•
Corporate Income Tax Consequences for Corporate Non-Resident Holders
Income derived from ordinary shares or capital gains derived from the sale, exchange or disposition of ordinary shares by a
corporate Non-Resident Holder is taxable if:
•
The holder carries on a business in the Netherlands through a permanent establishment or a permanent representative in the
Netherlands (Dutch enterprise) and the ordinary shares are attributable to this permanent establishment or permanent
representative, unless the participation exemption (discussed below) applies; or
The holder is a resident of Aruba, Curacao or Saint Martin with a permanent establishment or permanent representative in
Bonaire, Eustatius or Saba to which our ordinary shares are attributable and certain conditions are met; or
The holder has a substantial interest in our share capital, which is held with the primary aim or one of the primary aims to
evade the levy of income tax or dividend withholding tax at the level of another person and which is not put into place with
valid commercial reasons that reflect economic reality; or
Certain assets of the holder are deemed to be treated as a Dutch enterprise under Dutch tax law and the ordinary shares are
attributable to this Dutch enterprise.
•
•
•
To qualify for the Dutch participation exemption, the holder must generally hold at least 5.0 percent of our nominal paid-in capital
and meet certain other requirements.
Dividend Withholding Tax
In general, a dividend distributed by us in respect of our ordinary shares will be subject to a withholding tax imposed by the
Netherlands at the statutory rate of 15.0 percent.
ASML ANNUAL REPORT 2016
45
•
•
•
•
Dividends include:
•
•
•
Dividends in cash and in kind;
Deemed and constructive dividends;
Consideration for the repurchase or redemption of ordinary shares (including a purchase by a direct or indirect ASML
subsidiary) in excess of qualifying average paid-in capital unless such repurchase is made for temporary investment purposes
or is exempt by law;
Stock dividends up to their nominal value (unless distributed out of qualifying paid-in capital);
Any (partial) repayment of paid-in capital not qualifying as capital for Dutch dividend withholding tax purposes; and
Liquidation proceeds in excess of qualifying average paid-in capital for Dutch dividend withholding tax purposes.
Under certain circumstances, a reduction of Dutch dividend withholding tax can be obtained:
An exemption at source is available if:
•
•
•
The participation exemption applies and the ordinary shares are attributable to a business carried out in the Netherlands;
An exemption at source is available for dividend distributions to certain qualifying EU/EEA resident corporate holders;
Certain tax exempt organizations (e.g. pension funds and excluding collective investment vehicles) resident in EU/EEA member
states or in qualifying non-EU/EEA states may be eligible for a refund of Dutch witholding tax upon their request. Based on a
proposed domestic law not yet entered into force, in those circumstances, an exemption at source may also become available
upon request;
Upon request and under certain conditions, certain qualifying Non-Resident Individual and Corporate Holders of ordinary
shares resident in EU/EEA member states or in a qualifying non-EU/EEA state may be eligible for a refund of Dutch dividend
withholding tax insofar the withholding tax levied is higher than the personal and corporate income tax which would have been
due if they were resident of the Netherlands.
Furthermore, a Non-Resident Holder of ordinary shares can be eligible for a partial or complete exemption or refund of all or a
portion of the above withholding tax under a tax treaty that is in effect between the Netherlands and the Non-Resident Holder’s
country of residence. The Netherlands has concluded such treaties with the US, Canada, Switzerland, Japan, most EU member
states, as well as many other countries. Under the treaty between the US and the Netherlands for the Avoidance of Double Taxation
and the Prevention of Fiscal Evasion with Respect to Taxes on Income (the "US Tax Treaty"), dividends paid by us to a Non-
Resident Holder that is a resident of the US as defined in the US Tax Treaty (other than an exempt organization or exempt pension
trust, as discussed below) are generally liable to 15.0 percent Dutch withholding tax or, in the case of certain US corporate
shareholders owning directly at least 10.0 percent of our voting power, a reduction to 5.0 percent, provided that the Holder is the
beneficial owner of the dividends received and 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 tax treaty also provides for a dividend withholding tax exemption on dividends, but only for a shareholder owning
directly at least 80.0 percent of our voting power and meeting all other requirements. The US Tax Treaty provides for a 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 tax rate (or exemption from withholding) can be applied at the
source upon payment of the dividends, provided that the proper forms have been filed in advance of the payment. Exempt
organizations, in principle, remain subject to the statutory withholding rate of 15.0 percent and are required to file for a refund of
such withholding, however such organizations may become eligible for the exemption at source when the proposed domestic law
as described above has entered into force.
A Non-Resident Holder may not claim the benefits of the US Tax Treaty unless (i) he/she is a resident of the United States of
America as defined therein, or (ii) he/she is deemed to be a resident on the basis of the provisions of article 24(4) of the US Tax
Treaty, and (iii) his or her entitlement to those benefits is not limited by the provisions of article 26 (limitation on benefits) of the US
Tax Treaty.
Dividend Stripping Rules
Under Dutch tax legislation regarding anti-dividend stripping, no exemption from, or refund of, Dutch dividend withholding tax is
granted if the recipient of dividends paid by us is not considered the beneficial owner of such dividends.
Gift or Inheritance Taxes
Dutch gift or inheritance taxes will not be levied on the transfer of ordinary shares by way of gift, or upon the death of a Non-
Resident Holder, unless the transfer is construed as an inheritance or as a gift made by or on behalf of a person who, at the time of
the gift or death, is deemed to be, resident of the Netherlands.
Gift tax and inheritance tax are levied on the beneficiary. For purposes of Dutch gift and inheritance tax, an individual of Dutch
nationality is deemed to be a resident of the Netherlands if he/she has been a resident thereof at any time during the ten years
preceding the time of the gift or death. For purposes of Dutch gift tax, a person not possessing Dutch nationality is deemed to be a
resident of the Netherlands if he/she has resided therein at any time in the twelve months preceding the gift.
Value Added Tax
No Dutch value added tax is imposed on dividends in respect of our ordinary shares or on the transfer of our shares.
ASML ANNUAL REPORT 2016
46
Residence
A Non-Resident Holder will not become resident, or be deemed to be resident, in the Netherlands solely as a result of holding our
ordinary shares or of the execution, performance, delivery and/or enforcement of rights in respect of our ordinary shares.
United States Taxation
The following is a discussion of the material US federal income tax consequences relating to the acquisition, ownership and
disposition of ordinary shares by a United States Holder (as defined below) acting in the capacity of a beneficial owner who is not a
tax resident of the Netherlands. This discussion deals only with ordinary shares held as capital assets and does not deal with the
tax consequences applicable to all categories of investors, some of which (such as tax-exempt entities, financial institutions,
regulated investment companies, dealers in securities/traders in securities that elect a mark-to-market method of accounting for
securities holdings, insurance companies, investors owning directly, indirectly or constructively 10.0 percent or more of our
outstanding voting shares, investors who hold ordinary shares as part of hedging or conversion transactions and investors whose
functional currency is not the US dollar) may be subject to special rules. In addition, the discussion does not address any
alternative minimum tax or any state, local, FIRPTA-related US federal income tax consequences, or non-US tax consequences.
This discussion is based on the US-Netherlands Income tax treaty, the Internal Revenue Code of 1986, as amended to the date
hereof, final, temporary and proposed Treasury Department regulations promulgated, 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 IRS 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 IRS or an opinion of counsel with respect
to the US federal income tax consequences of acquiring or holding shares. Prospective purchasers of ordinary shares are advised
to consult their tax advisers with respect to their particular circumstances and with respect to the effects of US federal, state, local
or non-US tax laws to which they may be subject.
As used herein, the term ‘United States Holder’ means a beneficial owner of ordinary shares for US federal income tax purposes
whose holding of such ordinary shares does not form part of the business property or assets of a permanent establishment or fixed
base in the Netherlands; who is fully entitled to the benefits of the treaty in respect of such ordinary shares; and is:
•
•
An individual citizen or tax resident of the US; or
A corporation or other entity treated as a corporation for US federal income tax purposes created or organized in or under the
laws of the US or of any political subdivision thereof; or
An estate of which the income is subject to US federal income taxation regardless of its source; or
A trust whose administration is subject to the primary supervision of a court within the US and which has one or more US
persons who have the authority to control all of its substantial decisions.
•
•
If an entity treated as a partnership for US federal income tax purposes owns ordinary shares, the US federal income tax treatment
of a partner in such partnership will generally depend upon the status and tax residency of the partner and the activities of the
partnership. A partnership that owns ordinary shares and the partners in such partnership should consult their tax advisors about
the US federal income tax consequences of holding and disposing of the ordinary shares.
Passive Foreign Investment Company Considerations
We believe we were not a PFIC for US federal income tax purposes in 2016 and that we will not be a PFIC in 2017. However, as
PFIC status is a factual matter that must be determined annually at the close of each taxable year, there can be no certainty as to
our actual PFIC status in any particular year until the close of the taxable year in question. We have not conducted a detailed study
at this time to confirm our non-PFIC status. If we were treated as a PFIC in any year during which a United States Holder owned
common shares, certain adverse tax consequences could apply. Investors should consult their tax advisors with respect to any
PFIC considerations.
Taxation of Dividends
United States Holders should generally include in gross income, as foreign-source dividend income the gross amount of any non-
liquidating distribution (before reduction for Dutch withholding taxes) we make out of our current or accumulated earnings and
profits (as determined for US federal income tax purposes) when the distribution is actually or constructively received by the United
States Holder. Distributions will not be eligible for the dividends-received deduction generally allowed to US corporations in respect
of dividends received from other US corporations. The amount of the dividend distribution includible in income of a United States
Holder should be the US dollar value of the foreign currency (e.g. euros) paid, determined by the spot rate of exchange on the date
of the distribution, regardless of whether the payment is in fact converted into US dollars. Distributions in excess of current and
accumulated earnings and profits, as determined for US federal income tax purposes, will be treated as a non-taxable return of
capital to the extent of the United States Holder’s US tax basis in the ordinary shares and thereafter as taxable capital gain. We
presently do not maintain calculations of our earnings and profits under US federal income tax principles. If we do not report to a
United States Holder the portion of a distribution that exceeds earnings and profits, the distribution will generally be taxable as a
dividend even if that distribution would otherwise be treated as a non-taxable return of capital or as capital gain under the rules
described above.
ASML ANNUAL REPORT 2016
47
Subject to limitations provided in the United States Internal Revenue Code, a United States Holder may generally deduct from its
US federal taxable income, or credit against its US federal income tax liability, the amount of qualified Dutch withholding taxes.
However, Dutch withholding tax may be credited only if the United States Holder does not claim a deduction for any Dutch or other
non-US taxes paid or accrued in that year. In addition, Dutch dividend withholding taxes will likely not be creditable against the
United States Holder’s US tax liability to the extent we are not required to pay over the amount withheld to the Dutch Tax
Administration. Currently, a Dutch corporation that receives dividends from qualifying non-Dutch subsidiaries may credit source
country tax withheld from those dividends against Dutch withholding tax imposed on a dividend paid by a Dutch corporation, up to
a maximum of 3.0 percent of the dividend paid by the Dutch corporation. The credit reduces the amount of dividend withholding
that we are required to pay to the Dutch Tax Administration but does not reduce the amount of tax we are required to withhold from
dividends.
For US foreign tax credit purposes, dividends paid by us generally will be treated as foreign-source income and as ‘passive
category income’ (or in the case of certain holders, as ‘general category income’). Gains or losses realized by a United States
Holder on the sale or exchange of ordinary shares generally will be treated as US-source gain or loss. The rules governing the
foreign tax credit are complex and we suggest that each United States Holder consult his or her own tax advisor to determine
whether, and to what extent, a foreign tax credit will be available.
Dividends received by a United States Holder will generally be taxed at ordinary income tax rates. However, the Jobs and Growth
Tax Relief Reconciliation Act of 2003, as amended by the Working Families Tax Relief Act of 2004, the American Jobs Creation Act
of 2004, and the American Taxpayer Relief Act of 2012, reduces to 20.0 percent the maximum tax rate for certain dividends
received by individuals, so long as certain exclusions do not apply and the stock has been held for at least 60 days during the 121-
day period beginning 60 days before the ex-dividend date. Dividends received from ‘qualified foreign corporations’ generally qualify
for the reduced rate. A non-US corporation (other than a PFIC) generally will be considered to be a qualified foreign corporation if:
(i) the shares of the non-US corporation are readily tradable on an established securities market in the US or (ii) the non-US
corporation is eligible for the benefits of a comprehensive income tax treaty with the US that has been identified as a qualifying
treaty and contains an exchange of information program. Individual United States Holders should consult their tax advisors
regarding the impact of this provision on their particular situations.
Dividends paid by us generally will constitute ‘portfolio income’ for purposes of the limitations on the use of passive activity losses
(and, therefore, generally may not be offset by passive activity losses) and as ‘investment income’ for purposes of the limitation on
the deduction of investment interest expense.
Taxation on Sale or Other Disposition of Ordinary Shares
Upon a sale or other disposition of ordinary shares, a United States Holder will generally recognize capital gain or loss for US
federal income tax purposes in an amount equal to the difference between the amount realized, if paid in US dollars, or the US
dollar value of the amount realized (determined at the spot rate on the settlement date of the sale) if proceeds are paid in currency
other than the US dollar, as the case may be, and the United States Holder’s US tax basis (determined in US dollars) in such
ordinary shares. Generally, the capital gain or loss will be long-term capital gain or loss if the holding period of the United States
Holder in the ordinary shares exceeds one year at the time of the sale or other disposition. The deductibility of capital losses is
subject to limitations for US federal income tax purposes. Gain or loss from the sale or other disposition of ordinary shares
generally will be treated as US source income or loss for US foreign tax credit purposes. Generally, any gain or loss resulting from
currency fluctuations during the period between the date of the sale of the ordinary shares and the date the sale proceeds are
converted into US dollars will be treated as ordinary income or loss from sources within the US. Each United States Holder should
consult his or her tax advisor with regard to the translation rules applicable when computing its adjusted US tax basis and the
amount realized upon a sale or other disposition of its ordinary shares if purchased in, or sold or disposed of for, a currency other
than US dollar.
Information Reporting and Backup Withholding
Information returns may be filed with the IRS in connection with payments on the ordinary shares or proceeds from a sale,
redemption or other disposition of the ordinary shares. A ‘backup withholding’ tax may be applied to, and withheld from, these
payments if the beneficial owner fails to provide a correct taxpayer identification number to the paying agent and to comply with
certain certification procedures or otherwise establish an exemption from backup withholding. Any amounts withheld under the
backup withholding rules might be refunded (or credited against the beneficial owner’s US federal income tax liability, if any)
depending on the facts and provided that the required information is furnished to the IRS.
The discussion set out 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 US federal and other tax laws.
F. Dividends and Paying Agents
Not applicable.
ASML ANNUAL REPORT 2016
48
G. Statement by Experts
Not applicable.
H. Documents on Display
We are subject to certain reporting requirements of the Exchange Act. As a "foreign private issuer", we are exempt from the rules
under the Exchange Act prescribing certain disclosure and procedural requirements for proxy solicitations, and our officers,
directors and principal shareholders are exempt from the reporting and "short-swing" profit recovery provisions contained in
Section 16 of the Exchange Act, with respect to their purchases and sales of shares. In addition, we are not required to file reports
and Financial Statements with the SEC as frequently or as promptly as companies that are not foreign private issuers whose
securities are registered under the Exchange Act. However, we are required to file with the SEC, within four months after the end of
each fiscal year, an Annual Report on Form 20-F containing Financial Statements audited by an independent accounting firm and
interactive data comprising Financial Statements in extensible business reporting language. We publish unaudited interim financial
information after the end of each quarter. We furnish this quarterly financial information to the SEC under cover of a Form 6-K.
Documents we file with the SEC are publicly available at its public reference room at 100 F Street, N.E., Washington, DC 20549,
United States. The SEC also maintains a website that contains reports and other information regarding registrants that are required
to file electronically with the SEC. The address of this website is http://www.sec.gov. Please call the SEC at 1-800-SEC-0330 for
further information on the operation of the public reference facilities.
I. Subsidiary Information
See Item 4.C. "Organizational Structure".
Item 11 Quantitative and Qualitative Disclosures About Market Risk
We are exposed to certain financial risks such as market risk (including foreign currency exchange risk and interest rate risk), credit
risk, liquidity risk and capital risk. Our overall risk management program focuses on the unpredictability of financial markets and
seeks to minimize potentially adverse effects on our financial condition and results from operations. We use derivative financial
instruments to hedge certain risk exposures. None of our transactions are entered into for trading or speculative purposes. We
believe that market information is the most reliable and transparent measure for our derivative financial instruments that are
measured at fair value. To mitigate the risk that any of our counterparties in hedging transactions is unable to meet its obligations,
we only enter into transactions with a limited number of major financial institutions that have good credit ratings. Also, we closely
monitor the creditworthiness of our counterparties. Concentration risk is mitigated by limiting the exposure to a single counterparty.
Our risk management program focuses appropriately on the current environment of uncertainty in the financial markets.
Foreign Currency Risk Management
Our sales are predominately denominated in euros. Exceptions may occur on a customer by customer basis. Our cost of sales and
other expenses are mainly denominated in euros, to a certain extent in US dollars, Taiwanese dollars and Japanese yen and to a limited
extent in other currencies. Therefore, we are exposed to foreign currency exchange risks.
Details of the forward foreign exchange contracts and hedging activities are included in Note 4 to our Financial Statements.
Interest Rate Risk Management
We have interest-bearing assets and liabilities that expose us to fluctuations in market interest rates. We use interest rate swaps to
align the interest-typical terms of interest-bearing liabilities with the interest-typical terms of interest-bearing assets. There may be
residual interest rate risk to the extent the asset and liability positions do not fully offset.
Details of the interest rate swaps and hedging activities are included in Note 4 to our Financial Statements.
Financial Instruments
We use foreign exchange contracts to manage our foreign currency risk and interest rate swaps to manage our interest rate risk.
The following table summarizes the notional amounts and estimated fair values of our derivative financial instruments:
As of December 31
2015
2016
(in thousands)
Notional amount
EUR
Fair Value
EUR
Notional amount
EUR
Fair Value
EUR
Forward foreign exchange contracts
Interest rate swaps
898,227
1,013,053
(2,675)
115,618
1,311,599
3,263,053
(63,517)
83,676
The valuation technique used to determine the fair value of forward foreign exchange contracts (used for hedging purposes)
approximates the NPV technique, which is the estimated amount that a bank would receive or pay to terminate the forward foreign
exchange contracts at the reporting date, taking into account current interest rates and current exchange rates.
ASML ANNUAL REPORT 2016
49
The valuation technique used to determine the fair value of interest rate swaps (used for hedging purposes) is the NPV technique,
which is the estimated amount that a bank would receive or pay to terminate the swap agreements at the reporting date, taking into
account current interest rates.
Sensitivity Analysis Financial Instruments
Foreign Currency Sensitivity
We are mainly exposed to fluctuations in exchange rates between the euro and the US dollar, the euro and Taiwanese dollar and
the euro and the Japanese yen. The following table details our sensitivity to a 10.0 percent strengthening of foreign currencies
against the euro. The sensitivity analysis includes foreign currency denominated monetary items outstanding and adjusts their
translation at the period end for a 10.0 percent strengthening in foreign currency rates. A positive amount indicates an increase in
net income or equity, as shown.
(in thousands)
US dollar
Japanese yen
Taiwanese dollar
Other currencies
Total
2015
2016
Impact on net
income EUR
Impact on equity
EUR
Impact on net
income EUR
Impact on equity
EUR
(4,778)
189
(3,690)
(2,473)
(10,752)
22,834
(7,495)
—
—
15,339
(15,779)
1,561
(6,959)
(1,887)
(23,064)
17,527
(399)
(23,385)
—
(6,257)
It is our policy to limit the effects of currency exchange rate fluctuations on our Consolidated Statements of Operations. The
increased effect on net income in 2016 compared with 2015 reflects our higher net exposure at year end 2016. The negative effect
on net income as presented in the table above for 2016 is mainly attributable to timing differences between the arising and hedging
of exposures.
The effects of the fair value movements of cash flow hedges, entered into for US dollar and Japanese yen transactions are
recognized in equity. The US dollar and Japanese yen effect on equity in 2016 compared with 2015 is the result of an decrease in
outstanding purchase hedges and increase in outstanding sales hedges.
The effects of the fair value movements of net investment hedges, entered into for Taiwanese dollar are recognized in equity. This
effect is offset by the translation adjustment on the net investment also recorded in equity. This offset is not included in the table
above.
For a 10.0 percent weakening of the foreign currencies against the euro, there would be approximately an equal but opposite effect
on net income and equity.
Interest Rate Sensitivity
The sensitivity analysis below has been determined based on the exposure to interest rates for both derivative financial and non-
derivative financial instruments at the balance sheet date with the stipulated change taking place at the beginning of the financial
year and held constant throughout the reporting period. The table below shows the effect of a 1.0 percentage point increase in
interest rates on our net income and equity. A positive amount indicates an increase in net income and equity.
(in thousands)
Impact on net
income EUR
Impact on equity
EUR
Impact on net
income EUR
Impact on equity
EUR
2015
2016
Effect of a 1.0 percent point increase in interest rates
24,486
622
7,524
295
The positive effect on net income mainly relates to our cash and cash equivalents and short-term investments. The positive effect
on equity, is mainly attributable to the fair value movements of the interest rate swaps designated as cash flow hedges.
For a 1.0 percentage point decrease in interest rates there would be approximately an equal but opposite effect on net income and
equity.
See Notes 4 and 5 to our Financial Statements for more information on our Financial Risk Management including Credit Risk
Management.
Item 12 Description of Securities Other Than Equity Securities
Not applicable.
ASML ANNUAL REPORT 2016
50
Part II
Item 13 Defaults, Dividend Arrearages and Delinquencies
None.
Item 14 Material Modifications to the Rights of Security Holders and Use of Proceeds
None.
Item 15 Controls and Procedures
Disclosure Controls and Procedures
As of December 31, 2016, ASML’s senior management conducted an evaluation, under the supervision and with the participation
of ASML’s CEO and CFO, of the effectiveness of the design and operation of ASML’s disclosure controls and procedures (as
defined in Rule 13a-15(e) under the Exchange Act). Based on such evaluation, ASML’s CEO and CFO have concluded that, as of
December 31, 2016, ASML’s disclosure controls and procedures are effective in recording, processing, summarizing and reporting,
on a timely basis, information required to be disclosed by ASML in the reports that it files or submits under the Exchange Act and
are effective in ensuring that information required to be disclosed by ASML is accumulated and communicated to ASML’s
management, including ASML’s CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.
Management’s Report on Internal Control over Financial Reporting
ASML’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in
Rule 13a-15(f) under the Exchange Act. Under the supervision and with the participation of ASML’s CEO and CFO, ASML’s
management conducted an evaluation of the effectiveness of ASML’s internal control over financial reporting as of December 31,
2016 based upon the framework in "Internal Control – Integrated Framework" (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on that evaluation, management has concluded that ASML’s internal control
over financial reporting was effective as of December 31, 2016 at providing reasonable assurance regarding the reliability of
financial reporting and the preparation of the Financial Statements for external purposes in conformity with US GAAP.
ASML management has excluded HMI and its subsidiaries from its assessment of internal control over financial reporting as of
December 31, 2016, as it was acquired on November 22, 2016. HMI and its subsidiaries are included in our consolidated financial
statements as from the date of acquisition, and constituted 2.6% of consolidated total assets (excluding any purchase price
allocation effect) and 0.4% of consolidated total net sales for the year ended December 31, 2016. Under guidelines established by
the SEC, companies are allowed to exclude acquired companies from their assessment of internal control over financial reporting
during the year such company was acquired.
KPMG Accountants N.V., an independent registered public accounting firm, has audited the Financial Statements included in Item
18 "Financial Statements" and, as part of the audit, has issued a report, included herein, on the effectiveness of ASML’s internal
control over financial reporting.
Changes in Internal Control over Financial Reporting
During the year ended December 31, 2016, there have been no changes in our internal control over financial reporting that have
materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations of Disclosure Controls and Procedures in Internal Control over Financial Reporting
It should be noted that any system of controls, however well-designed and operated, can provide only reasonable, and not
absolute, assurance that the objectives of the system will be met. In addition, the design of any control system is based in part
upon certain assumptions about the likelihood of future events.
Item 16
A. Audit Committee Financial Expert
Our SB has determined that effective April 22, 2015, Ms. Smits-Nusteling and Mr. Schwalb, both independent members of the SB,
qualify as an Audit Committee Financial Expert. See also Item 6.A. "Directors and Senior Management" and Item 6.C. "Board
Practices".
B. Code of Ethics
ASML fosters a culture of integrity where people comply with the law and with our Code of Conduct and Business Principles. We
promote an open and honest culture that encourages people to speak up about irregularities and where senior management set the
right example.
ASML ANNUAL REPORT 2016
51
Code of Conduct
Our Code of Conduct describes what ASML stands for and believes in:
• We respect people and planet;
• We operate with integrity;
• We preserve our assets;
• We manage professionally; and
• We encourage to Speak Up.
The Code of Conduct and Business Principles can be found on the Governance section of ASML's website. Information on our
Website is not incorporated into, and does not form a part of this Annual Report.
Business Principles
The Code of Conduct has been translated into a set of practical Business Principles for all employees which provide greater clarity
about the standards we expect our employees to follow and the behavior they must adopt. The Business Principles help to drive
ethical and balanced behavior, control our business exposures, and safeguard our reputation. Employees must consult the
business principles for their day-to-day guidance. The Business Principles focus on five core areas mentioned above.
Code of Conduct Complaints
We encourage our employees to speak up and feel free to raise ethical issues without the fear of retaliation. ASML has a Speak Up
policy in place for reporting issues relating to a (possible) breach of the Code of Conduct, including complaints of a financial nature
(whistleblower’s policy). For those employees who feel more comfortable speaking up anonymously, there is an external Speak Up
system available (phone and webmail). The Speak Up policy can be found on the Governance section of ASML’s website.
Information on our Website is not incorporated into, and does not form a part of this Annual Report.
For more information about this topic see our 2016 Integrated Report as published on our Website. Information on ASML's website
is not incorporated into, and does not form a part of, this Annual Report.
C. Principal Accountant Fees and Services
KPMG has served as our independent registered public accounting firm for the year ending December 31, 2016. The following
table sets out the aggregate fees for professional audit services and other services rendered by KPMG and their member firms and/
or affiliates in 2016:
2016
Year ended December 31
(in thousands)
KPMG
Accountants N.V.
EUR
KPMG Network
EUR
Audit fees
Audit-related fees
Tax fees
Other fees
Principal accountant fees
1,269
100
—
—
1,369
307
—
—
—
307
Total
EUR
1,576
100
—
—
1,676
Audit fees and audit-related fees
Audit fees primarily relate to the audit of the Financial Statements as set out in this Annual Report, our Statutory Annual
Report, limited procedures on our quarterly results, certain agreed-upon procedures on the targets achieved in order for the RC to
assess compliance with the Remuneration Policy and services related to our statutory and regulatory filings of our subsidiaries.
Audit-related fees relate to sustainability assurance services and other permissible non-audit services.
The AC has approved the external audit plan and audit fees for the year 2016.
Deloitte has served independent registered public accounting firm for the year ending December 31, 2015. The following table sets
out the aggregate fees for professional audit services and other services rendered by Deloitte and their member firms and/or
affiliates in 2015:
Year ended December 31
(in thousands)
Deloitte
Accountants B.V.
EUR
Audit fees in relation to annual reports
Other audit fees
Tax fees
Principal accountant fees
1,323
68
157
1,548
2015
Deloitte
Network
EUR
—
359
2
361
Total
EUR
1,323
427
159
1,909
ASML ANNUAL REPORT 2016
52
Audit fees in relation to annual reports and other audit fees
Audit fees primarily relate to the audit of the Financial Statements as set out in this Annual Report, our Statutory Annual Report,
limited procedures on our quarterly results, agreed upon procedures related to our Remuneration Report and services related to our
statutory and regulatory filings and our subsidiaries.
Tax fees
The tax fees include tax compliance services and tax advisory services.
The AC monitors compliance with the Dutch and US rules on non-audit services provided by an independent registered public
accounting firm, which outlines strict separation of audit and advisory services for Dutch public interest entities.
D. Exemptions from the Listing Standards for Audit Committees
Not applicable.
E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
In addition to dividend payments, we intend to return cash to our shareholders on a regular basis through share buybacks or capital
repayments, subject to our actual and anticipated level of liquidity requirements, our current share price, other market conditions
and other relevant factors.
On January 20, 2016 we announced our intention to repurchase approximately EUR 1.5 billion of our own shares within the
2016-2017 timeframe. This program includes an amount of approximately EUR 500.0 million remaining from the prior share
repurchase program, announced January 21, 2015. We intend to cancel the shares upon repurchase. During the period from
January 21, 2016 up to December 31, 2016, we purchased 4.8 million shares that will be canceled for a total consideration of EUR
400.0 million. In the light of the acquisition of HMI and the announced investment in Carl Zeiss SMT, we have paused the share
buyback program. As a result, the 2016–2017 program may not be completed for the full amount. Otherwise, the current program
will remain in place, yet it may be further suspended, modified or discontinued at any time. Furthermore, no shares were canceled
in 2016, and we intend to cancel 7.7 million shares in 2017.
The following tables provide a summary of shares repurchased by ASML in 2016 and a historic overview of previous share buyback
programs, respectively:
Period
January 21 - 31, 2016
February 1 - 29, 2016
March 1 - 31, 2016
April 1 - 30, 2016
May 1 - 31, 2016
June 1 - 30, 2016
July 1 - 31, 2016
August 1 - 31, 2016
September 1 - 30, 2016
October 1 - 31, 2016
November 1 - 30, 2016
December 1 - 31, 2016
Total
Total
number of
shares
purchased
Average
price paid
per Share
(EUR)
Total number
of shares
purchased as
part of publicly
announced plans
or programs
Maximum value
of shares
that may yet
be purchased
under the
program (EUR
thousands)
268,537
1,306,921
1,045,133
1,138,127
278,182
560,410
166,068
—
—
—
—
—
82.08
78.12
86.51
87.95
82.15
85.57
87.63
—
—
—
—
—
4,763,378
83.97
268,537
1,575,458
2,620,591
3,758,718
4,036,900
4,597,310
4,763,378
4,763,378
4,763,378
4,763,378
4,763,378
4,763,378
1,477,957
1,375,859
1,285,449
1,185,356
1,162,504
1,114,552
1,100,000
1,100,000
1,100,000
1,100,000
1,100,000
1,100,000
ASML ANNUAL REPORT 2016
53
Period
Share Buybacks
Synthetic Share Buyback
Share Buybacks
Share Buybacks
Share Buybacks
Synthetic Share Buyback
Share Buybacks
Share Buybacks
Share Buybacks
Share Buybacks
Share Buybacks
Total / Average 1
Year
2006
2007
2007
2008
2011
2012
2012
2013
2014
2015
2016
Total amount
paid (in EUR
millions)
Total Number
of Shares
Purchased
Average Price
Paid per Share
(EUR)
677.2
1,011.9
359.8
87.6
700.0
3,728.3
535.2
300.0
700.0
564.9
400.0
40,385,139
55,093,409
17,000,000
5,000,000
25,674,576
93,411,216
13,478,058
4,614,179
9,981,375
6,272,776
4,763,378
16.77
18.37
21.16
17.52
27.26
39.91
39.71
65.02
70.13
90.05
83.97
5,336.6
182,262,890
29.28
1.
Totals and average are excluding the synthetic share buyback executed in 2012 as part of our CCIP.
F. Change in Registrant’s Certifying Accountant
At the AGM held on April 22, 2015, KPMG Accountants N.V. was appointed as the new external audit firm for ASML for the 2016
reporting year. The appointment of KPMG Accountants N.V. was the result of a tender and selection process completed in June
2014 and the recommendation of KPMG Accountants N.V. by the AC.
The change in auditors was made to comply with the Dutch Audit Profession Act, which, as it was enforced in 2015, required the
replacement of any external audit firm that performed the statutory audits of ASML for a period of eight consecutive years (effective
as of January 1, 2016, this period was extended to ten consecutive years).
During the two years prior to December 31, 2015, (1) Deloitte Accountants B.V. had not issued any reports on the financial
statements of ASML or on the effectiveness of internal control over financial reporting that contained an adverse opinion or a
disclaimer of opinion, nor were the auditors’ reports of Deloitte Accountants B.V. qualified or modified as to uncertainty, audit
scope, or accounting principles, (2) there has not been any disagreement over any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedures, which disagreements if not resolved to Deloitte Accountants B.V.’s
satisfaction would have caused it to make reference to the subject matter of the disagreement in connection with its auditors’
reports, or any “reportable event” as described in Item 16F(a)(1)(v) of Form 20-F.
Furthermore, in the two years prior to December 31, 2015, we have not consulted with KPMG Accountants N.V. regarding either (i)
the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that
might be rendered with respect to the consolidated financial statements of ASML; or (ii) any matter that was the subject of a
disagreement as that term is used in Item 16F(a)(1)(iv) of Form 20-F or a “reportable event” as described in Item 16F(a)(1)(v) of Form
20-F.
ASML ANNUAL REPORT 2016
54
G. Corporate Governance
NASDAQ rules provide that foreign private issuers may follow home country practice in lieu of the NASDAQ corporate governance
standards subject to certain exceptions and except to the extent that such exemptions would be contrary to US federal securities
laws. The practices followed by ASML in lieu of NASDAQ rules are described below:
•
ASML does not follow NASDAQ’s quorum requirements applicable to meetings of ordinary shareholders. In accordance with
Dutch law and Dutch generally accepted business practice, ASML’s Articles of Association provide that there are no quorum
requirements generally applicable to General Meetings of Shareholders.
ASML is exempt from NASDAQ's requirements regarding the solicitation of proxies and the provision of proxy statements for
General Meetings of Shareholders. ASML does furnish proxy statements and solicit proxies for the General Meeting of
Shareholders. Dutch corporate law sets a mandatory (participation and voting) record date for Dutch listed companies at the
twenty-eighth day prior to the date of the General Meeting of Shareholders. Shareholders registered at such record date are
entitled to attend and exercise their rights as shareholders at the General Meeting of Shareholders, regardless of sale of shares
after the record date.
ASML does not follow NASDAQ’s requirement regarding distribution to shareholders of copies of an Annual Report containing
audited Financial Statements prior to our AGM. The distribution of our Annual Report to shareholders is not required under
Dutch corporate law or Dutch securities laws, or by Euronext Amsterdam. Furthermore, it is generally accepted business
practice for Dutch companies not to distribute Annual Reports. In part, this is because the Dutch system of bearer shares has
made it impractical to keep a current list of holders of the bearer shares in order to distribute the Annual Reports. Instead, we
make our Annual Reports available at our corporate head office in the Netherlands (and at the offices of our Dutch listing agent
as stated in the convening notice for the meeting) no later than 42 days prior to convocation of the AGM. In addition, we post
a copy of our Annual Reports on our Website prior to the AGM.
ASML does not follow NASDAQ’s requirement to obtain shareholder approval of stock option or purchase plans or other
equity compensation arrangements available to officers, directors or employees. It is not required under Dutch law or generally
accepted practice for Dutch companies to obtain shareholder approval of equity compensation arrangements available to
officers, directors or employees. The AGM adopts the remuneration policy for the BoM, approves equity compensation
arrangements for the BoM and approves the remuneration for the SB. The RC evaluates the achievements of individual
members of the BoM with respect to the short and long-term quantitative performance, the full SB evaluates the quantitative
performance criteria. Equity compensation arrangements for employees are adopted by the BoM within limits approved by the
AGM.
•
•
•
H. Mine Safety Disclosure
Not applicable.
ASML ANNUAL REPORT 2016
55
Part III
Item 17 Financial Statements
Not applicable.
Item 18 Financial Statements
In response to this item, we incorporate herein by reference our Financial Statements set out on pages F-2 through F-51 hereto.
Item 19 Exhibits
Exhibit No.
Description
1
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
4.10
4.11
4.12
4.13
4.14
4.15
8.1
12.1
13.1
15.1
15.2
15.3
Articles of Association of ASML Holding N.V. (English translation) (Incorporated by reference to Amendment No. 13 to
the Registrant’s Registration Statement on Form 8-A/A, filed with the SEC on February 8, 2013)
Agreement between ASM Lithography B.V. and Carl Zeiss, dated March 17, 2000 (Incorporated by reference to the
Registrant’s Annual Report on Form 20-F for the fiscal year ended December 31, 2000)1
Agreement between ASML Holding N.V. and Carl Zeiss, dated October 24, 2003 (Incorporated by reference to the
Registrant’s Annual Report on Form 20-F for the year ended December 31, 2003)1
Form of Indemnity Agreement between ASML Holding N.V. and members of its Board of Management (Incorporated
by reference to the Registrant’s Annual Report on Form 20-F for the year ended December 31, 2003)
Form of Indemnity Agreement between ASML Holding N.V. and members of its Supervisory Board (Incorporated by
reference to the Registrant’s Annual Report on Form 20-F for the year ended December 31, 2003)
Form of Employment Agreement for members of the Board of Management (Incorporated by reference to the
Registrant’s Annual Report on Form 20-F for the fiscal year ended December 31, 2003)
Nikon-ASML Patent Cross-License Agreement, dated December 10, 2004, between ASML Holding N.V. and Nikon
Corporation (Incorporated by reference to the Registrant's Annual Report on Form 20-F for the fiscal year ended
December 31, 2014)1
ASML/Zeiss Sublicense Agreement, 2004, dated December 10, 2004, between Carl Zeiss SMT AG and ASML Holding
N.V. (Incorporated by reference to the Registrant’s Annual Report on Form 20-F for the fiscal year ended December
31, 2004)1
ASML Performance Stock Plan for Members of the Board of Management (Version 1) (Incorporated by reference to the
Registrant's Registration Statement on Form S-8 filed with the SEC on July 5, 2007 (file No. 333-144356))
ASML Performance Stock Plan for Members of the Board of Management (Incorporated by reference to the
Registrant's Registration Statement on Form S-8 filed with the SEC on October 13, 2009 (file No. 333-162439))
ASML Board of Management Umbrella Share Plan (Incorporated by reference to the Registrant's Registration
Statement on Form S-8 filed with the SEC on April 14, 2015 (file No. 333-203390))
450mm NRE Funding Agreement between ASML Holding N.V. and Intel Corporation, dated July 9, 2012 (Incorporated
by reference to the Registrant’s Annual Report on Form 20-F for the year ended December 31, 2012) 1
EUV NRE Funding Agreement between ASML Holding N.V. and Intel Corporation, dated July 9, 2012 (Incorporated by
reference to the Registrant’s Annual Report on Form 20-F for the year ended December 31, 2012) 1
Shareholder Agreement between ASML Holding N.V., Intel Holdings B.V., Intel Corporation and Stichting
Administratiekantoor MAKTSJAB dated September 12, 2012 (Incorporated by reference to the Registrant’s Annual
Report on Form 20-F for the year ended December 31, 2012)
Share Swap Agreement between ASML Holding N.V. and Hermes Microvision, Inc., dated June 16, 20162
Investment Agreement among ASML Holding N.V., Zeiss, Carl Zeiss SMT, Carl Zeiss SMT Holding
GmbH & Co. KG and Carl Zeiss SMT Holding Management GmbH, dated November 2, 20162
List of Main Subsidiaries 2
Certification of CEO and CFO Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934 2
Certification of CEO and CFO Pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934 2
Consent of Independent Registered Public Accounting Firm2
Consent of Independent Registered Public Accounting Firm2
Letter dated February 7, 2017 from Deloitte Accountants B.V.2
101.INS
XBRL Instance Document 2
101.SCH
XBRL Taxonomy Extension Schema Document 2
101.CAL
101.DEF
101.LAB
101.PRE
XBRL Taxonomy Extension Calculation Linkbase Document 2
XBRL Taxonomy Extension Definition Linkbase Document 2
XBRL Taxonomy Extension Label Linkbase Document 2
XBRL Taxonomy Extension Presentation Linkbase Document 2
1.
2.
Certain information omitted pursuant to a request for confidential treatment filed separately with the SEC.
Filed at the SEC herewith.
ASML is party to five debt instruments under which the total amount of securities under each debt instrument does not exceed 10
percent of the total assets of ASML and its subsidiaries on a consolidated basis. Pursuant to paragraph 2(b) (i) of the instructions to
the exhibits to Form 20-F, ASML agrees to furnish a copy of such instruments to the SEC upon request.
ASML ANNUAL REPORT 2016
56
ASML Holding N.V. hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and
authorized the undersigned to sign this Annual Report on its behalf.
ASML Holding N.V. (Registrant)
/s/ Peter T.F.M. Wennink
Peter T.F.M. Wennink
President, CEO and member of the Board of Management
Dated: February 7, 2017
/s/ Wolfgang U. Nickl
Wolfgang U. Nickl
Executive Vice President, CFO and member of the Board of Management
Dated: February 7, 2017
ASML ANNUAL REPORT 2016
57
ASML ANNUAL REPORT 2016
58
Financial Statements
Index to Financial Statements
F-2
F-3
F-4
F-5
F-7
F-9
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Income
Consolidated Balance Sheets
Consolidated Statements of Shareholders’ Equity
Consolidated Statements of Cash Flows
Notes to the Consolidated Financial Statements
F-50
Report of Independent Registered Public Accounting Firm
ASML ANNUAL REPORT 2016
F-1
Consolidated Statements of Operations
Notes
(in thousands, except per share data)
Year ended December 31
2014
EUR
2015
EUR
2016
EUR
20
20
21
27
21, 22
21
23
19
1
1
1
1
1.
Net system sales
Net service and field option sales
4,242,790
1,613,487
4,237,183
2,050,192
4,571,118
2,223,634
Total net sales
5,856,277
6,287,375
6,794,752
Cost of system sales
(2,335,512)
(2,212,965)
(2,389,160)
Cost of service and field option sales
(924,391)
(1,178,666)
(1,361,112)
Total cost of sales
(3,259,903)
(3,391,631)
(3,750,272)
Gross profit
2,596,374
2,895,744
3,044,480
Other income
81,006
83,200
93,777
Research and development costs
(1,074,035)
(1,068,077)
(1,105,763)
Selling, general and administrative costs
(321,110)
(345,732)
(374,760)
Income from operations
1,282,235
1,565,135
1,657,734
Interest and other, net
(8,600)
(16,515)
33,644
Income before income taxes
1,273,635
1,548,620
1,691,378
Provision for income taxes
(76,995)
(161,446)
(219,484)
Net income
1,196,640
1,387,174
1,471,894
Basic net income per ordinary share
Diluted net income per ordinary share 1
2.74
2.72
3.22
3.21
3.46
3.44
Number of ordinary shares used in computing per share amounts
Basic
Diluted 1
437,142
439,693
430,639
432,644
425,598
427,684
The calculation of diluted net income per ordinary share assumes the exercise of options issued under our stock option plans and the issuance of shares under our
share plans for periods in which exercises or issuances would have a dilutive effect. The calculation of diluted net income per ordinary share does not assume
exercise of such options or issuance of shares when such exercises or issuance would be anti-dilutive.
ASML ANNUAL REPORT 2016
F-2
Consolidated Statements of Comprehensive Income
Notes
4
4
Year ended December 31
(in thousands)
2014
EUR
2015
EUR
2016
EUR
Net income
1,196,640
1,387,174
1,471,894
Other comprehensive income:
Foreign currency translation, net of taxes:
Gain (loss) on foreign currency translation and effective portion of hedges
on net investments
230,388
272,427
120,452
Financial instruments, net of taxes:
Gain (loss) on derivative financial instruments
Transfers to net income
Other comprehensive income, net of taxes
17,375
6,691
254,454
9,872
(21,995)
260,304
5,990
2,410
128,852
Total comprehensive income, net of taxes
Attributable to equity holders
1,451,094
1,451,094
1,647,478
1,647,478
1,600,746
1,600,746
ASML ANNUAL REPORT 2016
F-3
Consolidated Balance Sheets
Notes
(in thousands, except share and per share data)
As of December 31
2015
EUR
2016
EUR
5
5
6
7
19
8
19
9
7
19
9
10
11
12
13
19
14
19
14
19
13
Assets
Cash and cash equivalents
Short-term investments
Accounts receivable, net
Finance receivables, net
Current tax assets
Inventories, net
Deferred tax assets 1
Other assets
Total current assets
Finance receivables, net
Deferred tax assets 1
Other assets
Goodwill
Other intangible assets, net
Property, plant and equipment, net
Total non-current assets
2,458,717
950,000
803,696
280,523
19,080
2,573,730
133,131
488,824
7,707,701
124,036
29,012
450,882
2,624,552
738,170
1,620,678
5,587,330
2,906,868
1,150,000
700,206
447,384
11,622
2,780,878
—
560,471
8,557,429
117,232
34,940
612,305
4,873,894
1,322,924
1,687,237
8,648,532
Total assets
13,295,031
17,205,961
Liabilities and shareholders’ equity
Accounts payable
Accrued and other liabilities
Current tax liabilities
Current portion of long-term debt
Provisions
Deferred tax liabilities 1
Total current liabilities
Long-term debt
Deferred and other tax liabilities 1
Provisions
Accrued and other liabilities
Total non-current liabilities
527,894
2,566,593
3,654
4,211
2,441
2,379
3,107,172
1,125,474
256,740
2,445
414,369
1,799,028
593,197
2,236,012
201,930
247,672
1,785
—
3,280,596
3,071,793
396,837
20,524
615,730
4,104,884
Total liabilities
4,906,200
7,385,480
16, 18
Commitments and contingencies
Cumulative Preference Shares; EUR 0.09 nominal value;
700,000,000 shares authorized at December 31, 2016 and 2015;
none issued and outstanding per December 31, 2016 and 2015
Ordinary Shares B; EUR 0.01 nominal value;
9,000 shares authorized at December 31, 2016 and 2015
none issued and outstanding per December 31, 2016 and 2015
Ordinary shares; EUR 0.09 nominal value;
699,999,000 shares authorized at December 31, 2016;
429,941,232 issued and outstanding at December 31, 2016;
699,999,000 shares authorized at December 31, 2015;
427,986,682 issued and outstanding at December 31, 2015;
Issued and outstanding shares
Share premium
Treasury shares at cost
Retained earnings
Accumulated other comprehensive income
Total shareholders’ equity
25
—
—
—
—
—
—
38,786
3,070,332
(476,922)
5,284,315
472,320
8,388,831
39,391
3,693,587
(796,173)
6,282,504
601,172
9,820,481
1.
As of January 1, 2016, ASML early adopted the amendment to ASC 740 “Income taxes (Topic 740): Balance Sheet Classification of Deferred Taxes”, which requires
that deferred tax liabilities and assets are classified as non-current in the consolidated balance sheets. The comparative figures have not been adjusted to reflect this
change in accounting policy.
Total liabilities and shareholders’ equity
13,295,031
17,205,961
ASML ANNUAL REPORT 2016
F-4
Consolidated Statements of Shareholders’ Equity
Issued and
Outstanding Shares
Number 1
Amount
Share
Premium
Treasury
Shares at
Cost
Retained
Earnings
Accumulated
OCI 2
Notes
(in thousands)
EUR
EUR
EUR
EUR
EUR
Total
EUR
Balance at January 1, 2014
440,852
40,092
2,912,862
(364,702)
4,376,613
(42,438)
6,922,427
Components of comprehensive income:
Net income
Foreign currency translation and
effective portion of hedges on net
investments
Gain on financial instruments, net
of taxes
Total comprehensive income
CCIP:
Fair value differences 3
—
—
—
—
—
Purchase of treasury shares
(9,981)
Cancellation of treasury shares
Share-based payments
—
—
Issuance of shares
2,064
Dividend paid
Tax benefit from share-based
payments
—
—
4
27
26
26
17, 21
17
25
17, 19
—
—
—
—
—
—
(852)
—
186
—
—
—
—
—
—
— 1,196,640
— 1,196,640
—
—
—
—
230,388
230,388
24,066
24,066
— 1,196,640
254,454
1,451,094
28,086
—
— (700,000)
—
—
—
610,698
(609,846)
63,380
(6,250)
—
3,972
—
64,561
—
—
—
(46,904)
(267,962)
—
—
—
—
—
—
—
—
28,086
(700,000)
—
63,380
11,593
(267,962)
3,972
Balance at December 31, 2014
432,935
39,426
3,002,050
(389,443)
4,648,541
212,016
7,512,590
Components of comprehensive income:
Net income
Foreign currency translation and
effective portion of hedges on net
investments
Loss on financial instruments, net
of taxes
Total comprehensive income
CCIP:
Fair value differences 3
—
—
—
—
—
Purchase of treasury shares
(6,273)
Cancellation of treasury shares
Share-based payments
—
—
Issuance of shares
1,325
Dividend paid
Tax benefit from share-based
payments
—
—
4
27
26
26
17, 21
17
25
17, 19
—
—
—
—
—
(297)
(462)
—
119
—
—
—
—
—
—
— 1,387,174
— 1,387,174
—
—
—
—
272,427
272,427
(12,123)
(12,123)
— 1,387,174
260,304
1,647,478
17,888
—
— (564,590)
—
—
—
389,302
(388,840)
59,070
(12,336)
—
3,660
—
87,809
—
—
—
(60,250)
(302,310)
—
—
—
—
—
—
—
—
17,888
(564,887)
—
59,070
15,342
(302,310)
3,660
Balance at December 31, 2015
427,987
38,786
3,070,332
(476,922)
5,284,315
472,320
8,388,831
Components of comprehensive income:
Net income
Foreign currency translation and
effective portion of hedges on net
investments
Gain on financial instruments, net
of taxes
Total comprehensive income
CCIP:
Fair value differences 3
—
—
—
—
—
Purchase of treasury shares
(4,763)
Cancellation of treasury shares
Share-based payments4
Issuance of shares5
Dividend paid
Tax benefit from share-based
payments
—
—
4
27
26
26
17, 21
17
25
17, 19
—
—
—
—
—
—
—
—
—
—
—
—
— 1,471,894
— 1,471,894
—
—
—
—
120,452
120,452
8,400
8,400
— 1,471,894
128,852
1,600,746
27,927
—
— (400,000)
—
49,162
—
—
—
—
—
—
6,717
605
545,284
80,749
—
—
—
—
—
882
—
—
(27,840)
(445,865)
—
—
—
—
—
—
—
—
27,927
(400,000)
—
49,162
598,798
(445,865)
882
Balance at December 31, 2016
429,941
39,391
3,693,587
(796,173)
6,282,504
601,172
9,820,481
ASML ANNUAL REPORT 2016
F-5
1.
2.
3.
4.
5.
As of December 31, 2016, the number of issued shares was 439,199,514. This includes the number of issued and outstanding shares of 429,941,232 and the number
of treasury shares of 9,258,282. As of December 31, 2015, the number of issued shares was 433,332,573. This includes the number of issued and outstanding shares
of 427,986,682 and the number of treasury shares of 5,345,891. As of December 31, 2014, the number of issued shares was 438,073,643. This includes the number
of issued and outstanding shares of 432,935,288 and the number of treasury shares of 5,138,355.
As of December 31, 2016, accumulated OCI, net of taxes, consists of EUR 593.1 million relating to foreign currency translation gain (2015: EUR 472.6 million gain;
2014: EUR 200.1 million gain) and EUR 8.1 million relating to unrealized gains on financial instruments (2015: EUR 0.3 million losses; 2014: EUR 11.9 million gains).
In 2016, EUR 27.9 million (2015: EUR 17.9 million; 2014: EUR 28.1 million) is recognized to increase equity to the fair value of the shares issued to the Participating
Customers in the CCIP. The portion of the NRE funding allocable to the shares is recognized over the NRE Funding Agreements period (2013-2017).
Share-based payments include an amount of EUR 1.5 million in relation to the fair value compensation of unvested equity awards exchanged as part of the
acquisition of HMI.
Issuance of shares includes 5,866,001 ordinary shares issued in relation to the acquisition of HMI for a total fair value of EUR 580.6 million.
ASML ANNUAL REPORT 2016
F-6
Consolidated Statements of Cash Flows
Notes
Year ended December 31
(in thousands)
2014
EUR
2015
EUR
2016
EUR
Adjustments to reconcile net income to net cash flows from operating activities:
Cash Flows from Operating Activities
Net income
1,196,640
1,387,174
1,471,894
9, 11, 12, 14
10, 11, 12
12
17, 21
6
8
19
6
7
8
9
13
19
12
11
5
5
2
25
25, 26
2
14
14
17, 19
5
5
Depreciation and amortization 1
254,644
296,884
356,928
Loss on disposal of property, plant and equipment 2
Impairment
Share-based payments
Allowance for doubtful receivables
Allowance for obsolete inventory
Deferred income taxes
Changes in assets and liabilities:
Accounts receivable
Finance receivables
Inventories 2,3
Other assets
Accrued and other liabilities
Accounts payable
Current income taxes
10,528
3,502
63,380
133
162,821
(59,050)
(164,850)
51,132
(293,404)
(112,424)
36,524
(136,192)
11,822
2,287
1,630
59,070
3,870
211,801
45,349
243,097
(145,278)
(87,777)
(146,272)
235,446
(77,090)
(4,611)
3,466
5,233
47,701
3,161
73,035
(580)
187,427
(156,140)
(43,662)
(152,905)
(273,930)
50,917
93,361
Net cash provided by operating activities
1,025,206
2,025,580
1,665,906
Cash Flows from Investing Activities
Purchase of property, plant and equipment 3
Purchase of intangible assets
Purchase of short-term investments
Maturity of short-term investments
Cash from (used for) derivative financial instruments
Loans issued and other investments
Acquisition of subsidiaries (net of cash acquired)
(358,280)
(2,952)
(504,756)
849,776
—
—
—
(371,770)
(1,108)
(950,000)
334,864
(171,899)
—
—
Net cash used in investing activities
(16,212)
(1,159,913)
Cash Flows from Financing Activities
Dividend paid
Purchase of treasury shares
Net proceeds from issuance of shares
Net proceeds from issuance of notes
Repayment of debt
Tax benefit (deficit) from share-based payments
(267,962)
(700,000)
39,679
—
(4,128)
3,972
(302,310)
(564,887)
33,230
—
(3,639)
3,660
(316,338)
(8,384)
(2,520,000)
2,320,000
(15,034)
(7,427)
(2,641,295)
(3,188,478)
(445,865)
(400,000)
582,742 4
2,230,619 5
(4,739)
882
Net cash from (used in) financing activities
(928,439)
(833,946)
1,963,639
Net cash flows
Effect of changes in exchange rates on cash
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of the year
Cash and cash equivalents at end of the year
Supplemental Disclosures of Cash Flow Information:
80,555
8,238
88,793
2,330,694
2,419,487
31,721
7,509
39,230
2,419,487
2,458,717
441,067
7,084
448,151
2,458,717
2,906,868
Interest and other paid
Income taxes paid
(42,439)
(124,325)
(43,710)
(126,908)
(55,688)
(115,856)
ASML ANNUAL REPORT 2016
F-7
1.
2.
3.
4.
5.
In 2016, depreciation and amortization includes EUR 290.8 million of depreciation of property, plant and equipment (2015: EUR 243.0 million, 2014: EUR 209.5
million), EUR 63.5 million of amortization of intangible assets (2015: EUR 51.2 million, 2014: EUR 43.9 million) and EUR 2.6 million of amortization of underwriting
commissions and discount related to the bonds and credit facility (2015: EUR 2.7 million, 2014: EUR 1.2 million).
In 2016, an amount of EUR 22.8 million (2015: EUR 72.7 million, 2014: EUR 30.7 million) of the disposal of property, plant and equipment relates to non-cash
transfers to inventory. Since the transfers between inventory and property, plant and equipment are non-cash events, these are not reflected in these Consolidated
Statements of Cash Flows. For further details see Note 12.
In 2016, an amount of EUR 21.6 million (2015: EUR 91.0 million, 2014: EUR 95.5 million) of the additions in property, plant and equipment relates to non-cash
transfers from inventory. Since the transfers between inventory and property, plant and equipment are non-cash events, these are not reflected in these Consolidated
Statements of Cash Flows. For further details see Note 12.
Net proceeds from issuance of shares includes an amount of EUR 536.6 million which is included in the consideration transfered for the acquisition of HMI. For
further details see Note 2.
Net proceeds from issuance of notes relate to the total cash proceeds of EUR 2,230.6 million (net of incurred transaction costs) from the issuance of our EUR 500
million 0.625 percent senior notes due 2022, our EUR 1,000 million 1.375 percent senior notes due 2026 and our EUR 750 million 1.625 percent senior notes due
2027.
ASML ANNUAL REPORT 2016
F-8
Notes to the Consolidated Financial Statements
1. General Information / Summary of Significant Accounting Policies
ASML, with its corporate headquarters in Veldhoven, the Netherlands, is engaged in the development, production, marketing,
selling and servicing of advanced semiconductor equipment systems, exclusively consisting of lithography systems. ASML’s
principal operations are in the Netherlands, the US and Asia.
Our shares are listed for trading in the form of registered shares on NASDAQ and on Euronext Amsterdam. The principal trading
market of our ordinary shares is Euronext Amsterdam.
Basis of Preparation
The accompanying Consolidated Financial Statements are stated in thousands of EUR unless indicated otherwise.
The accompanying Consolidated Financial Statements have been prepared in conformity with US GAAP. We have reclassified
certain prior period amounts to conform to current period presentation.
Use of Estimates
The preparation of our Consolidated Financial Statements in conformity with US GAAP requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities on
the balance sheet dates, and the reported amounts of net sales and costs during the reported periods. Actual results could differ
from those estimates. We evaluate our estimates continuously and we base our estimates on historical experience and on various
other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates if the
assumptions prove incorrect. To the extent there are material differences between actual results and these estimates, our future
results could be materially and adversely affected. We believe that the accounting policies described below require us to make
significant judgments and estimates in the preparation of our Financial Statements. Our most critical accounting estimates include:
•
•
•
•
•
•
Revenue Recognition;
Business Combinations;
Inventories;
Income Taxes;
Contingencies and Litigation; and
Evaluation of Long-lived Assets for Impairment.
Principles of Consolidation
The Consolidated Financial Statements include the Financial Statements of ASML Holding N.V. and all of its subsidiaries and the
VIE of which ASML is the primary beneficiary. All intercompany profits, balances and transactions have been eliminated in the
consolidation.
Subsidiaries
Subsidiaries are all entities over which ASML has the control to govern financial and operating policies generally accompanying a
shareholding of more than 50 percent of the outstanding voting rights. As from the date that these criteria are met, the financial
data of the relevant subsidiaries are included in the consolidation.
Business Combinations
Acquisitions of subsidiaries are included on the basis of the acquisition method. The cost of acquisition is measured based on the
consideration transferred at fair value, the fair value of identifiable assets distributed and the fair value of liabilities incurred or
assumed at the acquisition date (i.e., the date which we obtain control). The excess of the costs of an acquired subsidiary over the
net of the amounts assigned to identifiable assets acquired and liabilities incurred or assumed, is capitalized as goodwill.
Acquisition-related costs are expensed when incurred in the period they arise or the service is received.
Variable Interest Entities
We assess whether we have a controlling financial interest in any VIE and, thus whether we are the VIE’s primary beneficiary. We
consolidate a VIE when we have a variable interest that provides us with a controlling financial interest. We are deemed to have a
controlling financial interest in a VIE if both of the following characteristics are met: a) the power to direct the activities of a VIE that
most significantly impact the VIE‘s economic performance and b) the obligation to absorb losses of the VIE that could potentially
be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE.
Foreign Currency Translation
The financial information for subsidiaries outside the euro-zone is generally measured using local currencies as the functional
currency. The Financial Statements of those foreign subsidiaries are translated into euros in the preparation of ASML’s
Consolidated Financial Statements. Assets and liabilities are translated into euros at the exchange rate on the respective balance
sheet dates. Income and costs are translated into euros based on the average exchange rate for the corresponding period. The
resulting translation adjustments are recorded directly in shareholders’ equity.
ASML ANNUAL REPORT 2016
F-9
Derivative Financial Instruments
We use derivative financial instruments for the management of foreign currency risks and interest rate risks. We measure all
derivative financial instruments based on fair values derived from market prices of the instruments. We adopt hedge accounting for
hedges that are highly effective in offsetting the identified hedged risks taking into account required effectiveness criteria.
Derivatives are initially recognized at fair value on the date a derivative contract is entered into and are subsequently remeasured.
The method of recognizing the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and
if so, the nature of the item being hedged. We designate certain derivatives as either:
•
A hedge of the exposure to changes in the fair value of a recognized asset or liability, that is attributable to a particular risk (fair
value hedge);
A hedge of the exposure to variability in the cash flows of a recognized asset or liability, or of a forecasted transaction, that is
attributable to a particular risk (cash flow hedge); or
A hedge of the foreign currency exposure of a net investment in a foreign operation (net investment hedge).
•
•
We document at the inception of the transaction the relationship between hedging instruments and hedged items, as well as our
risk management objectives and strategy for undertaking various hedging transactions. We also document our assessment, both at
hedge inception and on an ongoing basis, of whether derivatives that are used in hedging transactions are highly effective in
offsetting changes in fair values or cash flows of hedged items.
Fair Value Hedge
Changes in the fair value of a derivative financial instrument, that is designated and qualified as a fair value hedge, along with the
gain or loss on the hedged asset or liability that is attributable to the hedged risk, are recorded in the Consolidated Statements of
Operations.
Hedge accounting is discontinued when we revoke the hedging relationship, the hedging instrument expires or is sold, terminated
or exercised, or no longer qualifies for hedge accounting. The adjustment to the carrying amount of the hedged item arising from
the hedged risk is amortized to the Consolidated Statements of Operations from that date.
Interest rate swaps that are being used to hedge the fair value of fixed loan coupons payable are designated as fair value hedges.
The change in fair value is intended to offset the change in the fair value of the underlying fixed loan coupons, which is recorded
accordingly. The gain or loss relating to the ineffective portion of interest rate swaps hedging fixed loan coupons payable is
recognized in the Consolidated Statements of Operations as interest and other, net.
Cash Flow Hedge
Changes in the fair value of a derivative that is designated and qualified as a cash flow hedge are recorded in OCI, net of taxes,
until the underlying hedged transaction is recognized in the Consolidated Statements of Operations. In the event that the underlying
hedge transaction will not occur within the specified time period, the gain or loss on the related cash flow hedge is released from
OCI and included in the Consolidated Statements of Operations, unless extenuating circumstances exist that are related to the
nature of the forecasted transaction and are outside our control or influence and which cause the forecasted transaction to be
probable of occurring on a date that is beyond the specified time period.
Foreign currency hedging instruments that are being used to hedge cash flows related to forecasted sales or purchase transactions
in non-functional currencies are designated as cash flow hedges. The gain or loss relating to the ineffective portion of the foreign
currency hedging instruments is recognized in the Consolidated Statements of Operations in net sales or cost of sales.
Interest rate swaps that are being used to hedge changes in the variability of future interest cash flows to certain of our operating
lease obligations are designated as cash flow hedges. The changes in fair value of the derivatives are intended to offset changes in
future interest cash flows of such operating lease obligations. The gain or loss relating to the ineffective portion of interest rate
swaps hedging the variability of future interest cash flows is recognized in the Consolidated Statements of Operations as interest
and other, net.
Net Investment Hedge
Foreign currency hedging instruments that are being used to hedge changes in the value of a net investment are designated as net
investment hedges. Changes in the fair value of a derivative that is designated and qualifies as a net investment hedge are
recorded in other comprehensive income. The gain or loss relating to the ineffective portion is recognized in the Consolidated
Statements of Operations as interest and other, net. Gains and losses accumulated in other comprehensive income are recognized
in the Consolidated Statements of Operations when the foreign operation is (partially) disposed or sold.
Cash and Cash Equivalents
Cash and cash equivalents consist primarily of highly liquid investments, such as bank deposits, money market funds and interest-
bearing bank accounts with insignificant interest rate risk and remaining maturities of 3 months or less at the date of acquisition.
ASML ANNUAL REPORT 2016
F-10
Short-term Investments
Investments with remaining maturities longer than 3 months and less than 1 year at the date of acquisition are presented as short-
term investments. Gains and losses other than impairments, interest income and foreign exchange results, are recognized in OCI
until the short-term investments are derecognized. Upon derecognition, the cumulative gain or loss recognized in OCI, is
recognized in the Consolidated Statements of Operations.
Accounts Receivable
Accounts receivable are measured at fair value and are subsequently measured at amortized cost using the effective interest rate
method, less allowance for doubtful debts.
Inventories
Inventories are stated at the lower of cost (applying the first-in, first-out method) or market value. Cost includes net prices paid for
materials purchased, charges for freight and customs duties, production labor cost and factory overhead. Allowances are made for
slow-moving, obsolete or unsellable inventory.
Allowances for inventory are determined based on the expected demand which is derived from sales forecasts, technical
obsolescence as well as the expected market value of the inventory.
Intangible Assets
Goodwill
Goodwill represents the excess of the costs of an acquisition over the fair value of the amounts assigned to assets acquired and
liabilities incurred or assumed of the acquired subsidiary at the date of acquisition. Goodwill on acquisition of subsidiaries is
allocated to RUs for the purpose of impairment testing. The allocation is made to those RUs that are expected to benefit from the
business combination in which the goodwill arose. Goodwill is tested for impairment annually at the start of the fourth quarter and
whenever events or changes in circumstances indicate that the carrying amount of the goodwill may not be recoverable. Goodwill
is stated at cost less accumulated impairment losses.
Other Intangible Assets
Other intangible assets include brands, intellectual property, developed technology, customer relationships, and other intangible
assets. Other intangible assets are stated at cost, less accumulated amortization and accumulated impairment losses (for the
amount exceeding goodwill). Amortization is calculated using the straight-line method based on the estimated useful lives of the
assets. The following table presents the estimated useful lives of our finite-lived other intangible assets:
Category
Brands
Intellectual property
Developed technology
Customer relationships
Other
Estimated useful life
20 years
3 - 10 years
6 - 15 years
8 - 18 years
2 - 6 years
Property, Plant and Equipment
Property, plant and equipment are stated at cost, less accumulated depreciation and accumulated impairment losses. Costs of
assets manufactured by ASML include direct manufacturing costs, production overhead and interest costs incurred for qualifying
assets during the construction period. Depreciation is calculated using the straight-line method based on the estimated useful lives
of the related assets. In the case of leasehold improvements, the estimated useful lives of the related assets do not exceed the
remaining term of the corresponding lease.
The following table presents the estimated useful lives of our property, plant and equipment:
Category
Estimated useful life
Buildings and constructions
Machinery and equipment
Leasehold improvements
Furniture, fixtures and other equipment
5 - 45 years
2 - 5 years
5 - 10 years
3 - 5 years
Land is not depreciated.
ASML ANNUAL REPORT 2016
F-11
Evaluation of Long-lived Assets for Impairment
Long-lived assets include goodwill, other intangible assets and property, plant and equipment.
Goodwill is tested for impairment annually at the start of the fourth quarter and whenever events or changes in circumstances
indicate that the carrying amount of the goodwill may not be recoverable. These events or circumstances could include a
significant change in the business climate, legal factors, operating performance indicators, competition, or sale or disposition of a
significant portion of a RU. This test is based on a two-step approach for each RU (being an operating segment or one level below
an operating segment) in which goodwill has been recorded. To determine whether it is necessary to perform this two-step
approach we may first assess qualitative factors. If we determine that it is more likely than not (a likelihood of more than 50 percent)
that the fair value of a RU is less than its carrying amount (including goodwill), the two-step impairment test is performed. In the
first step, the recoverability of goodwill is tested by comparing the carrying amount of the RU including goodwill with the fair value
of the RU. If the carrying amount of the RU is higher than the fair value of the RU, the second step should be performed. Goodwill
impairment is measured as the excess of the carrying amount of the goodwill over its implied fair value. The implied fair value of
goodwill is determined by calculating the fair value of the various assets and liabilities included in the RU in the same manner as
goodwill is determined in a business combination. Any excess of the carrying amount over the implied fair value is recognized as an
impairment loss.
Indefinite-lived other intangible assets are tested for impairment annually at the start of the fourth quarter and whenever events or
changes in circumstances indicate that the carrying amount of the indefinite-lived other intangible assets may not be recoverable.
To determine whether it is necessary to perform a quantitative test, we may first assess qualitative factors. If we determine that it is
more likely than not (a likelihood of more than 50 percent) that the fair value of the asset is less than its carrying amount, the
quantitative test is performed. We have an unconditional option to bypass the qualitative assessment for any indefinite-lived
intangible asset in any period and proceed directly to performing the quantitative impairment test. The quantitative impairment test
for indefinite-lived other intangible assets consists of a comparison of the fair value of these assets with their carrying amounts.
Any excess of the carrying amount over the fair value is recognized as an impairment loss.
Finite-lived other intangible assets and property, plant and equipment are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of those assets may not be recoverable. An impairment loss is recognized only if
the carrying amount of finite-lived other intangible assets and property, plant and equipment is not recoverable and exceeds its fair
value. The carrying amount is not recoverable if it exceeds the sum of the (un)discounted forecasted cash flows to result from the
use and eventual disposition of such asset. An impairment loss is measured as the amount by which the carrying amount exceeds
its fair value.
In determining the fair value of long-lived assets, we make estimates about future cash flows. These estimates are based on our
strategic plan updated with the latest available projections of the semiconductor industry and our income and cost expectations,
which are consistent with the plans and estimates that we use to manage our business. We also make estimates and assumptions
concerning our WACC. It is possible that actual results may differ from our plans, estimates and assumptions. Future adverse
changes in market conditions may also require impairment of certain long-lived assets, which could have a material adverse effect
on our financial condition and results of operations.
Revenue Recognition
ASML recognizes revenue when all four revenue recognition criteria are met: persuasive evidence of an arrangement exists; delivery
has occurred or services have been rendered; seller‘s price to buyer is fixed or determinable; and collectability is reasonably
assured. At ASML this policy generally results in revenue recognition from the sale of a system upon shipment. The revenue from
the installation of a system is generally recognized upon completion of that installation at the customer site. Prior to shipment,
systems undergo a FAT in our cleanroom facilities, effectively replicating the operating conditions that will be present on the
customer’s site, in order to verify whether the system will meet its standard specifications and any additional technical and
performance criteria agreed with the customer. A system is shipped, and revenue is recognized, only after all contractual
specifications are met or discrepancies from agreed-upon specifications are waived and customer sign-off is received for
acceptance. In case not all specifications are met and the remaining performance obligation is not essential to the functionality of
the system but is substantive rather than inconsequential or perfunctory, a portion of the sales price is deferred. When the
remaining obligation is essential to the functionality of the delivered system, all revenue is deferred. Although each system’s
performance is re-tested upon installation at the customer’s site, we have never failed to successfully complete installation of a
system at a customer’s premises.
In connection with the introduction of new technology, we initially defer revenue recognition until acceptance of the new technology
based system or field option and completion of installation at the customer’s premises. As our systems are based largely on two
product platforms that permit incremental, modular upgrades, the introduction of genuinely "new" technology occurs infrequently,
and in the past 16 years, has occurred on only two occasions: 2000 (TWINSCAN) and 2010 (EUV).
ASML ANNUAL REPORT 2016
F-12
We have no significant repurchase commitments in our general sales terms and conditions. From time to time we repurchase
systems that we have manufactured and sold and, following refurbishment, we resell those systems to other customers. This
repurchase decision is mainly driven by market demand expressed by other customers and less frequently by explicit or implicit
contractual arrangements relating to the initial sale. We consider reasonable offers from any vendor, including customers, to
repurchase used systems so that we can refurbish, resell, and install these systems as part of our normal business operations.
Once repurchased, the repurchase price of the used system is recorded in work-in-process inventory during the period it is being
refurbished, following which the refurbished system is reflected in finished products inventory until it is sold to the customer. As of
December 31, 2016 and 2015, ASML had no repurchase commitments.
We offer customers discounts in the normal course of sales negotiations. These discounts are directly deducted from the gross
sales price at the moment of revenue recognition. From time to time, we offer free or discounted products or services (award
credits) to our customers as part of a volume purchase agreement. In some instances these volume discounts can be used to
purchase field options (system enhancements) and services. The related amount is recorded as a reduction in net sales at time of
system shipment. The sales transaction that gives rise to these award credits is accounted for as a multiple element sales
transaction as the agreements involve the delivery of multiple products. The consideration received from the sales transaction is
allocated between the award credits and the other elements of the sales transaction. The consideration allocated to the award
credits is recognized as deferred revenue until award credits are delivered to the customer and earned. The amount allocable to a
delivered item is limited to the amount that is not contingent upon the delivery of additional items or meeting other specified
performance conditions (the non-contingent amount).
Net sales are recognized excluding the taxes levied on sales (net basis).
For certain contracts and constructive obligations on which a loss is evident, we recognize the anticipated loss to the extent the
costs of completing these contracts and constructive obligations exceed the amount of the contract price. When we satisfy these
obligations, we utilize the related liability.
Multiple-Element Arrangements
The main portion of our net sales is derived from contractual arrangements with our customers that have multiple deliverables
(elements), which mainly include the sale of our systems, installation and training services and extended and enhanced (optic)
warranty contracts. The requirements for establishing separate units of accounting in a multiple element arrangement require that
the allocation of arrangement consideration to each deliverable is based on the relative selling price of the deliverable.
Each element in the arrangement is accounted for as a separate unit of accounting provided the following criteria are met: i) the
delivered products or services have value to the customer on a standalone basis; and ii) for an arrangement that includes a general
right of return relative to the delivered products or services, delivery or performance of the undelivered product or service is
considered probable and is substantially controlled by us. We consider a deliverable to have stand-alone value if the product or
service is sold separately by us or another vendor or could be resold by the customer. Further, our sales arrangements do not
include a general right of return relative to the delivered products. Where the aforementioned criteria for a separate unit of
accounting are not met, the deliverable is combined with the undelivered element(s) and treated as a single unit of accounting for
the purposes of allocation of the arrangement consideration and revenue recognition.
The hierarchy of evidence to determine a selling price in ASC 605-25 is as follows:
•
•
•
VSOE – The price at which we sell the element in a separate stand-alone transaction;
TPE – Evidence from us or other companies of the value of a largely interchangeable element in a transaction;
BESP – Our best estimate of the selling price of an element in the transaction.
To determine the selling price in multiple element arrangements, we establish VSOE of the selling price for installation, training
services and extended and enhanced (optic) warranty contracts. VSOE for installation is determined based on the costs we have to
incur for the installation increased by the average margin that we realize on billable labor and materials consumed in comparable
services (such as relocating a system to another customer site). VSOE for extended and enhanced (optic) warranty contracts is
determined on the basis of equivalent products we sell on a standalone basis, such as full service contracts and billable lens
swaps, and which are subject to normal price negotiations. Revenue from installation and training services is recognized when the
services are completed. Revenue from extended and enhanced (optic) warranty contracts is recognized over the term of the
contract. When we are unable to establish the selling price using VSOE or TPE, we use BESP. The objective of using best
estimated selling price-based methodology is to determine the price at which we would transact a sale if the product or service
were sold on a stand-alone basis. Accordingly, we determine BESP considering several internal and external factors including, but
not limited to, pricing practices, gross margin objectives, market conditions, competitive environment, internal costs and
geographies.
For our NXE:3300B and NXE:3350B systems, we are unable to determine VSOE for installation, extended and enhanced (optic)
warranty contracts. We determined for NXE:3300B and NXE:3350B systems that BESP is the appropriate reference in the fair value
hierarchy for installation, extended and enhanced (optic) warranty contracts. We review selling prices periodically and maintain
internal controls over the establishment and updates of these elements.
ASML ANNUAL REPORT 2016
F-13
Lease Arrangements
A lease is classified as a sales-type lease if any of the following lease classification criteria is met at its inception:
1.
2.
3.
4.
The lease transfers ownership of the property to the lessee by the end of the lease term;
The lease contains a bargain purchase option;
The lease term is equal to 75 percent or more of the estimated economic life of the leased property; or
The present value at the beginning of the lease term of the minimum lease payments, excluding that portion of the
payments representing executory costs such as insurance, maintenance, and taxes to be paid by the lessor, including any
profit thereon, equals or exceeds 90 percent of the excess of the fair value of the leased property to the lessee at lease
inception over any related investment tax credit retained by the lessor and expected to be realized by the lessor.
Revenue is recognized at commencement of the lease term of a sales-type lease if the collectability of the minimum lease
payments is reasonably predictable an there are no uncertainties surrounding unreimbursable costs. The present value of the lease
payments is recognized as a finance receivable. The difference between the gross receivable and the present value of the
receivable is recognized as unearned interest in the Consolidated Statements of Operations.
A lease is classified as an operating lease if the lease classification criteria (as described above) are not met. If ASML has offered its
customers an operating lease arrangement, the contract consideration is recognized in the Consolidated Statements of Operations
on a straight-line basis over the period of the lease.
Warranty
We provide standard warranty coverage on our systems for 12 months and on certain optic parts for 60 months, providing labor
and parts necessary to repair systems during the warranty period. The estimated warranty costs are accounted for by accruing
these costs for each system upon recognition of the system sale. The estimated warranty costs are based on historical product
performance and service records. We calculate the charge of average service hours and parts per system to determine the
estimated warranty costs. On a semi-annual basis, we assess, and update if necessary, our accounting estimates used to calculate
the standard warranty.
The extended and enhanced (optic) warranty on our systems is accounted for as a separate element of multiple element revenue
recognition transactions.
Customer Co-Investment Program
In connection with the CCIP, we entered into investment agreements, shareholders agreements, NRE Funding Agreements and a
commercial agreement with Participating Customers.
The investment agreements, shareholder agreements, NRE Funding Agreements and commercial agreement are accounted for as a
multiple-element arrangement with each of the Participating Customers. Based upon ASC 605-25 Multiple-Element Arrangements
guidance, the following two separate elements are identified: (1) the share issuance (governed by the investment agreements and
the shareholder agreements) and (2) the NRE funding and commercial discounts and credits (governed by the NRE Funding
Agreements and the commercial agreement with Intel).
The shares issued to the Participating Customers are recorded at fair value based on quoted share prices (EUR 3,977.4 million) with
the remaining aggregate arrangement consideration allocated to the NRE funding and commercial discounts and credits. The
difference between the fair value of the shares and the subscription price of the shares (EUR 39.91) was recorded as a deduction
from shareholders’ equity upon issuance of the shares (EUR 123.4 million). Shareholders’ equity is increased to the fair value of the
shares as the portion of the NRE funding allocable to the shares is received over the NRE funding period (2013-2017). The amounts
are deemed receivables from the Participating Customers in their capacity as shareholders of ASML.
A significant related party relationship exists between ASML and Intel as a result of the equity investment made by Intel as part of
the CCIP. Based on the commercial discounts and credits (governed by the commercial agreement with Intel) and the significant
related party relationship, all NRE funding from Intel will be deferred and recognized in the Consolidated Statement of Operations
only when the commercial discounts and credits are earned.
In addition, see Other Income for further explanation on the accounting policies with respect to CCIP.
Accounting for Shipping and Handling Fees and Costs
ASML bills the customer for, and recognizes as net sales, any charges for shipping and handling costs. The related costs are
recognized as cost of sales.
Cost of Sales
Cost of system sales and field option sales comprise direct product costs such as materials, labor, cost of warranty, depreciation,
amortization, shipping and handling costs and related overhead costs.
Costs of service sales comprise direct service costs such as materials, labor, depreciation and overhead costs.
ASML ANNUAL REPORT 2016
F-14
Other Income
The portion of the NRE funding from TSMC and Samsung not allocable to the shares issued to those Participating Customers
under the CCIP is recognized in other income when the R&D costs relating to lithography projects are recognized over the NRE
funding period (2013-2017).
R&D Costs and Credits
Costs relating to R&D are charged to operating expenses as incurred. ASML receives subsidies and other grants from several
Dutch and international (inter-)governmental institutes (‘government grants’). These government grants that cover R&D costs
relating to approved projects are recorded as R&D credits in the R&D costs in the Consolidated Statements of Operations.
Government grants are not recognized until there is reasonable assurance that ASML will comply with the conditions and that the
grants will be received.
Government grants that are received as compensation for expenses or losses already incurred, or for the purpose of giving
immediate financial support to ASML with no future related costs are recognized in the Consolidated Statements of Operations in
the period in which they become receivable.
Borrowing Costs
Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that
necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until
such time that the assets are substantially ready for their intended use or sale.
Share-based Payments
Compensation expenses in relation to share-based payments are recognized based upon the grant-date fair value of stock options
and shares. The grant-date fair value of stock options is estimated using a Black-Scholes option valuation model. This Black-
Scholes model requires the use of assumptions, including expected share price volatility, the estimated life of each award and the
estimated dividend yield. The risk-free interest rate used in the model is determined, based on an index populated with euro-
denominated European government agency bond with high credit ratings and with a life equal to the expected life of the equity-
settled share-based payments. The grant-date fair value of shares is determined based on the closing price of our shares listed at
Euronext Amsterdam on the grant-date.
The grant-date fair value of the equity-settled share-based payments is, based on the terms and conditions, expensed over the
vesting period, based on our estimate of equity instruments that will eventually vest. At each balance sheet date, we revise our
estimate of the number of equity instruments expected to vest. The impact of the revision of the original estimates, if any, is
recognized in the Consolidated Statements of Operations in the period in which the revision is determined, with a corresponding
adjustment to shareholders’ equity.
Income Taxes
The asset and liability method is used in accounting for income taxes. Under this method, deferred tax assets and liabilities are
recognized for the tax effect of incurred net operating losses and for tax consequences attributable to differences between the
balance sheet carrying amounts of existing assets and liabilities and their respective tax bases. If it is more likely than not that the
carrying amounts of deferred tax assets will not be realized, a valuation allowance is recorded for the differences. Tax expense
includes current taxes on profit as well as actual or potential withholding taxes on current and expected income from group
companies.
Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which
temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in the Consolidated Statements of Operations in the period that includes the enactment date.
We recognize liabilities for uncertain tax positions based on a two-step process. The first step is to evaluate the tax position for
recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be
sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax
benefit as the largest amount that is more than 50 percent likely of being realized upon settlement. While we believe we have
appropriate support for the positions taken on our tax returns, we regularly assess the potential outcomes of examinations by tax
authorities in determining the adequacy of our provision for income taxes, and adjust the income tax provision, income taxes
payable and deferred taxes in the period in which the facts that give rise to a revision become known.
ASML ANNUAL REPORT 2016
F-15
Contingencies and Litigation
In connection with proceedings and claims, our management evaluates, based on the relevant facts and legal principles, the
likelihood of an unfavorable outcome and whether the amount of the loss can be reasonably estimated. In most cases,
management determined that either a loss was not probable or was not reasonably estimable. Significant subjective judgments
were required in these evaluations, including judgments regarding the validity of asserted claims and the likely outcome of legal and
administrative proceedings. The outcome of these proceedings, however, is subject to a number of factors beyond our control,
most notably the uncertainty associated with predicting decisions by courts and administrative agencies. In addition, estimates of
the potential costs associated with legal and administrative proceedings frequently cannot be subjected to any sensitivity analysis,
as damage estimates or settlement offers by claimants may bear little or no relation to the eventual outcome. Finally, in any
particular proceeding, we may agree to settle or to terminate a claim or proceeding in which we believe that it would ultimately
prevail where we believe that doing so, when taken together with other relevant commercial considerations, is more cost-effective
than engaging in an expensive and protracted litigation, the outcome of which is uncertain.
We accrue for legal costs related to litigation in our Consolidated Statements of Operations at the time when the related legal
services are actually provided.
Net Income per Ordinary Share
Basic net income per ordinary share is calculated by dividing net income by the weighted average number of ordinary shares
outstanding for that period. The dilutive effect is calculated using the treasury stock method. Excluded from the diluted weighted
average number of shares outstanding calculation are cumulative preference shares contingently issuable to the preference share
foundation, since they represent a different class of stock than the ordinary shares.
The basic and diluted net income per ordinary share has been calculated as follows:
Year ended December 31
(in thousands, except per share data)
2014
EUR
2015
EUR
2016
EUR
Net income
1,196,640
1,387,174
1,471,894
Weighted average number of shares outstanding
Basic net income per ordinary share
437,142
2.74
430,639
3.22
425,598
3.46
Weighted average number of shares outstanding
437,142
430,639
425,598
Plus shares applicable to
Options and conditional shares
2,551
2,005
2,086
Dilutive potential ordinary shares
2,551
2,005
2,086
Diluted weighted average number of shares
Diluted net income per ordinary share1
439,693
2.72
432,644
3.21
427,684
3.44
1.
The calculation of diluted net income per ordinary share assumes the exercise of options issued under our stock option plans and the issuance of shares under our
share plans for periods in which exercises or issuances would have a dilutive effect. The calculation of diluted net income per ordinary share does not assume
exercise of such options or issuance of shares when such exercises or issuance would be anti-dilutive.
Comprehensive Income
Comprehensive income consists of net income and OCI.
OCI refers to gains and losses that are not included in net income (loss), but recorded directly in shareholders’ equity. For the years
ended December 31, 2016, 2015 and 2014 comprehensive income consists of net income, unrealized gains and losses on financial
instruments, being derivative financial instruments designated for cash flow hedge accounting, net of taxes, and unrealized gains
and losses on foreign currency translation and effective portion of hedges on net investments, net of taxes.
New US GAAP Accounting Pronouncements
For the below mentioned ASUs, issued in 2016 and up to the date of this report, the impact on our Financial Statements needs to
be assessed:
In March 2014, FASB issued ASU No. 2014-9 "Revenue From Contracts With Customers". In August 2015, the FASB amended
ASU No. 2014-9 to defer the effective date by one year to annual reporting periods beginning after December 15, 2017 (ASU
2015-14 "Revenue From Contracts With Customers (Topic 606): Deferral of the Effective Date" ). In March 2016, the FASB
released ASU No. 2016-08 "Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting
Revenue Gross versus Net)" which clarifies the implementation guidance on principal versus agent considerations. In April 2016,
the FASB issued ASU No. 2016-10 "Revenue from Contracts with Customers (Topic 606)" which clarifies guidance related to
identifying performance obligations and licensing implementation guidance contained in the new revenue recognition standard. In
ASML ANNUAL REPORT 2016
F-16
May 2016 ASU No. 2016-12 "Revenue from Contracts with Customers (Topic 606) - Narrow-Scope Improvements and Practical
Expedients" was issued by the FASB which affects entities with transactions included within the scope of Topic 606. The scope of
that Topic includes entities that enter into contracts with customers to transfer goods or services (that are an output of the entity’s
ordinary activities) in exchange for consideration.
The standard is a joint project of the FASB and the IASB, to clarify the principles for recognizing revenue and to develop a common
revenue standard for US GAAP and IFRS that would:
•
•
•
•
•
Remove inconsistencies and weaknesses in previous revenue requirements;
Provide a more robust framework for addressing revenue issues;
Improve comparability of revenue recognition practices across entities, industries, jurisdictions and capital markets;
Provide more useful information to users of financial statements through improved disclosure requirements; and
Simplify the preparation of financial statements by reducing the number of requirements to which an entity must refer.
The new standard is effective for interim and annual periods beginning after December 15, 2017 and allows for either full
retrospective adoption or modified retrospective adoption. We have selected full retrospective adoption and will therefore restate all
years presented in our Consolidated Financial Statements upon adoption.
We are currently assessing the impact of adopting ASC 606 on our Consolidated Financial Statements, by assessing all contracts
that have an impact on net system sales and net service and field option sales over 2016. As our assessment of all contracts is not
yet finalized we cannot quantify or identify all:
•
•
•
The impact on our net system sales and net service and field option sales over 2016;
Deviations from our current revenue recognition accounting policies; and
The potential impact of other significant matters.
In February 2016, FASB issued ASU No. 2016-2 " Leases (Topic 842)". The objective of this topic is to increase transparency and
comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key
information about leasing arrangements by lessees. The new Standard is effective for fiscal years beginning after December 15,
2018, including interim periods within those fiscal years and supersede the leases requirements in Topic 840, Leases. Early
application is permitted for all entities as of the beginning of an interim or annual reporting period. We are currently in the process
of determining the impact of implementing this Standard on our Consolidated Financial Statements.
ASU No. 2016-13 "Financial Instruments - Credit Losses (Topic 326)" was issued by the FASB in June 2016 and will provide
financial statement users with more decision-useful information about the expected credit losses on financial instruments and other
commitments to extend credit held by a reporting entity at each reporting date. The Update is effective for fiscal years beginning
after December 15, 2020, including interim periods within those fiscal years. We are currently in the process of determining the
impact of implementing this Standard on our Consolidated Financial Statements.
In October 2016, ASU No. 2016-16 "Income Taxes (Topic 740) Intra-Entity Transfers of Assets Other Than Inventory" was issued by
the FASB. The purpose of this Update is to improve the accounting for the income tax consequences of intra-entity transfers of
assets other than inventory. The Update is effective for fiscal years beginning after December 15, 2017, including interim periods
within those fiscal years. This change in accounting will be adjusted based on a modified retrospective basis with a cumulative
effect adjustment to retained earnings as of the beginning of the period of adoption. The material impact of implementing this
standard on our Consolidated Financial Statements mainly relates to a so-called bi-lateral advanced pricing agreement between the
US and Dutch tax authorities on a inter group transfer of intellectual property rights.
2. Business Combinations
On November 22, 2016, we concluded the acquisition of HMI and obtained control through acquiring 100 percent of the issued
share capital of HMI, for a total consideration of EUR 3.0 billion. There were no contingent consideration arrangements. The total
consideration was allocated to other intangible assets of EUR 606.6 million, other net assets of EUR 259.2 million and goodwill of
EUR 2,115.1 million.
Prior to the acquisition, HMI was the world’s leading provider of e-beam inspection tools and solutions for defect control and yield
management in the advanced semiconductor manufacturing process for R&D and high volume production. HMI is headquartered in
Hsinchu, Taiwan, where the business operations are primarily carried out, next to R&D and technical support. Other sites where
HMI is located are in Tainan, Taiwan (R&D and manufacturing), Beijing, China (R&D and manufacturing), San Jose, US (R&D and
technical support), Kyungki-do, South-Korea (sales and technical support) and Tokyo, Japan (sales and technical support).
With the acquisition of HMI, we will enter into two new markets, being wafer inspection as well as mask inspection for EUV
lithography. In addition, we will expand our efforts in the process control market. The combination of ASML and HMI will allow us to
further enhance our product offering at an accelerated pace. The metrology technologies are complementary (in short, HMI
provides hardware and ASML’s computational lithography division ASML Brion provides software) and when combined, they will
offer the chance to significantly improve process control, and hence yields, for customers. As such, the acquisition further enables
us to provide Holistic Lithography and process control.
ASML ANNUAL REPORT 2016
F-17
The following table summarizes the major classes of consideration transferred, and the recognized amounts of the fair value of the
identifiable assets distributed and the fair value of the liabilities incurred or assumed at the acquisition date. The amounts recorded
for the acquisition as disclosed below are provisional. The measurement period remains open as we may further revise our
preliminary purchase price allocation during the remainder of the measurement period when we obtain additional information,
which might impact the fair value of assets and liabilities. Under ASC 805, adjustments to provisional fair values and goodwill may
be made in the period subsequent to the business combination. The period during which such an adjustment is permitted is limited
to 12 months from the date of acquisition.
(in thousands)
Cash and cash equivalents
Accounts receivable, net
Current tax assets
Inventories, net
Deferred tax assets
Other assets, current and non-current
Other intangible assets, net
Property, plant and equipment, net
November 22, 2016
EUR1
294,216
57,899
146
111,650
2,000
3,209
606,635
52,068
Assets acquired
1,127,823
Accounts payable
Current tax liabilities
Accrued and other liabilities, current and non-current
Deferred and other tax liabilities
Liabilities assumed
Total net identifiable assets
3,741
1,713
54,154
202,390
261,998
865,825
Consideration for the transaction on November 22, 20162
2,935,511
Fair value of unvested equity awards to be exchanged
Fair value of shares3
Total consideration transferred
Goodwill on acquisition
43,983
1,461
2,980,955
2,115,130
1.
2.
3.
Amounts were converted into euro at the rate of TWD/EUR 33.965.
The consideration for the transaction includes an amount of EUR 536.6 million which has been reinvested in ASML through ASML ordinary shares bought by HEC
and certain HMI officers (certain HMI shareholders) leaving a net consideration paid in cash of EUR 2,398.9 million.
As part of the consideration transferred, certain HMI shareholders agreed to purchase 5,866,001 ASML ordinary shares for a price of TWD 3,106 (EUR 91.48) per
share. These shares were valued at EUR 98.98 being the opening price on Euronext at November 22, 2016. The difference (EUR 44.0 million) between EUR 536.6
million and the fair value of the shares (EUR 580.6 million) at November 22, 2016 is included as purchase consideration.
The majority of the goodwill arising on the acquisition of HMI is attributable to buyer specific synergies, net sales and profits
assigned to future multi-beam technology, net sales and profits assigned to next generation single-beam technology and HMI
workforce. Synergies relate to the unique combination of HMI's inspection tools and our defect prediction/PFC software.
All goodwill has been allocated to the RU ASML. None of the goodwill recognized is expected to be deductible for income tax
purposes.
In the period between the date of acquisition and December 31, 2016 HMI contributed EUR 25.7 million to net sales and a loss of
EUR 5.4 million to net income (including a charge of EUR 13.7 million related to the purchase price allocation adjustments).
In 2016, we incurred EUR 18.7 million transaction costs relating to the acquisition of HMI. These costs are included in SG&A.
The following unaudited pro forma summary presents estimated consolidated information of ASML as if the HMI acquisition has
occurred on January 1, 2015. These amounts have been calculated after applying our accounting policies and adjusting the results
of HMI to reflect the charges and benefits assuming the fair value adjustments had been applied from January 1, 2015 with the
consequential tax effects.
ASML ANNUAL REPORT 2016
F-18
Pro Forma Year ended December 31
(in millions)
Total net sales
Net income
Unaudited
Unaudited
2015
EUR
6,478
1,351 1
2016
EUR
6,919
1,504 2
1.
2.
Pro forma net income was adjusted to include EUR 47 million of non-recurring costs related to the fair value adjustments to acquisition date inventory and includes
EUR 29 million of acquisition related costs incurred in 2016.
Pro forma net income was adjusted to exclude EUR 9 million of non-recurring costs related to the fair value adjustments to acquisition date inventory and excludes
EUR 29 million of acquisition related costs incurred in 2016.
3. Fair Value Measurements
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. The fair value measurement hierarchy prioritizes the inputs to valuation techniques used to
measure fair value as follows:
•
•
•
Level 1: Valuations based on inputs such as quoted prices for identical assets or liabilities in active markets that the entity has
the ability to access.
Level 2: Valuations based on inputs other than level 1 inputs such as quoted prices for similar assets or liabilities, quoted
prices in markets that are not active, or other inputs that are observable or can be corroborated by observable data for
substantially the full term of the assets or liabilities.
Level 3: Valuations based on inputs that are supported by little or no market activity and that are significant to the fair value of
the assets or liabilities.
The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities
(Level 1) and the lowest priority to unobservable inputs (Level 3). A financial instrument‘s fair value classification is based on the
lowest level of any input that is significant in the fair value measurement hierarchy.
Financial Assets and Financial Liabilities Measured at Fair Value on a Recurring Basis
Investments in money market funds (as part of our cash and cash equivalents) have fair value measurements which are all based
on quoted prices for identical assets or liabilities.
Our short-term investments consist of deposits with an original maturity beyond three months with financial institutions that have
good credit ratings. The fair value of the deposits is determined with reference to quoted market prices in an active market for
similar assets or discounted cash flow analysis.
The principal market in which we execute our derivative contracts is the institutional market in an over-the-counter environment
with a high level of price transparency. The market participants usually are large commercial banks. The valuation inputs for our
derivative contracts are based on quoted prices and quoting pricing intervals from public data sources; they do not involve
management judgment.
The valuation technique used to determine the fair value of forward foreign exchange contracts (used for hedging purposes)
approximates the NPV technique which is the estimated amount that a bank would receive or pay to terminate the forward foreign
exchange contracts at the reporting date, taking into account current interest rates and current exchange rates.
The valuation technique used to determine the fair value of interest rate swaps (used for hedging purposes) is the NPV technique,
which is the estimated amount that a bank would receive or pay to terminate the swap agreements at the reporting date, taking into
account current interest rates.
Our Eurobonds serve as hedged items in fair value hedge relationships in which we hedge the variability of changes in the fair value
of our Eurobonds due to changes in market interest rates with interest rate swaps. The fair value changes of these interest rate
swaps are recorded on the Consolidated Balance Sheets under derivative financial instruments (within other current assets and
other non-current assets) and the carrying amounts of the Eurobonds are adjusted for the effective portion of these fair value
changes only. For the actual aggregate carrying amount and the fair value of our Eurobonds, see Note 14.
ASML ANNUAL REPORT 2016
F-19
The following table presents our financial assets and financial liabilities that are measured at fair value on a recurring basis:
As of December 31, 2016
(in thousands)
Level 1
EUR
Level 2
EUR
Level 3
EUR
Total
EUR
Assets measured at fair value
Derivative financial instruments 1
—
134,059
Money market funds 2
2,151,969
Short-term investments 3
—
Total
2,151,969
—
1,150,000
1,284,059
Liabilities measured at fair value
Derivative financial instruments 1
—
113,900
Assets and Liabilities for which fair values are disclosed
Long-term debt 4
3,386,213
—
1.
2.
3.
4.
Derivative financial instruments consist of forward foreign exchange contracts and interest rate swaps. See Note 4.
Money market funds are part of our cash and cash equivalents. See Note 5.
Short-term investments consist of deposits with an original maturity longer than three months. See note 5.
Long-term debt relates to Eurobonds. See Note 14.
—
—
—
—
—
—
134,059
2,151,969
1,150,000
3,436,028
113,900
3,386,213
As of December 31, 2015
(in thousands)
Level 1
EUR
Level 2
EUR
Level 3
EUR
Total
EUR
Assets measured at fair value
Derivative financial instruments 1
—
133,803
Money market funds 2
659,295
Short-term investments 3
—
Total
659,295
—
950,000
1,083,803
Liabilities measured at fair value
Derivative financial instruments 1
—
20,860
Assets and Liabilities for which fair values are disclosed
Long-term debt 4
1,100,849
—
1.
2.
3.
4.
Derivative financial instruments consist of forward foreign exchange contracts and interest rate swaps. See Note 4.
Money market funds are part of our cash and cash equivalents. See Note 5.
Short-term investments consist of deposits with an original maturity longer than three months. See note 5.
Long-term debt relates to Eurobonds. See Note 14.
—
—
—
—
—
—
133,803
659,295
950,000
1,743,098
20,860
1,100,849
There were no transfers between levels during the years ended December 31, 2016 and December 31, 2015.
Assets and Liabilities Measured at Fair Value on a Non-recurring Basis
In 2016, we had no significant fair value measurements on a non-recurring basis. We did not recognize any impairment charges for
goodwill and other intangible assets during 2016. See Notes 10 and 11 for more information. For fair value measurements in
relation to the acquisition of HMI, we refer to Note 2.
4. Financial Risk Management
We are exposed to certain financial risks such as market risk (including foreign currency risk and interest rate risk), credit risk,
liquidity risk and capital risk. Our overall risk management program focuses on the unpredictability of financial markets and seeks
to minimize potentially adverse effects on our financial performance. We use derivative financial instruments to hedge certain risk
exposures. None of our transactions are entered into for trading or speculative purposes. We believe that market information is the
most reliable and transparent measure for our derivative financial instruments that are measured at fair value.
Foreign Currency Risk Management
Our sales are predominately denominated in euros. Exceptions may occur on a customer by customer basis. Our cost of sales and
other costs are mainly denominated in euros, to a certain extent in US dollars, Taiwanese dollars and Japanese yen and to a limited
extent in other currencies. Therefore, we are exposed to foreign currency exchange risk.
It is our policy to hedge material transaction exposures, such as forecasted sales and purchase transactions, and material net
remeasurement exposures, such as accounts receivable and payable. We hedge these exposures through the use of foreign
exchange contracts.
ASML ANNUAL REPORT 2016
F-20
As of December 31, 2016, accumulated OCI includes EUR 10.4 million (2015: gain EUR 2.0 million and 2014: gain EUR 16.3 million)
(net of taxes: 2016: EUR 9.3 million; 2015: EUR 1.8 million; 2014: EUR 14.5 million) representing the total anticipated gain to be
released to cost of sales, which will offset the EUR equivalent of foreign currency denominated forecasted purchase transactions.
All amounts are expected to be released over the next 12 months. As of December 31, 2016, accumulated OCI includes EUR 0.2
million (2015 and 2014: no amount), representing the total anticipated gain to be released to sales. The effectiveness of all
contracts for which we apply hedge accounting is monitored on a quarterly basis throughout the life of the hedges. During 2014,
2015 and 2016, no ineffective hedge relationships were recognized.
As of December 31, 2016 an amount of EUR 2.8 million gain (2015: EUR 0.7 million loss) was recognized in accumulated OCI
representing the effective portion of hedges on net investments.
Interest Rate Risk Management
We have interest-bearing assets and liabilities that expose us to fluctuations in market interest rates. We use interest rate swaps to
align the interest-typical terms of interest-bearing liabilities with the interest-typical terms of interest-bearing assets. There may be
residual interest rate risk to the extent the asset and liability positions do not fully offset.
As part of our hedging policy, we use interest rate swaps to hedge changes in fair value of our Eurobonds due to changes in market
interest rates, thereby offsetting the variability of future interest receipts on part of our cash and cash equivalents. During 2016,
these hedges were highly effective in hedging the fair value exposure to interest rate movements. The changes in fair value of the
Eurobonds were included in the Consolidated Statements of Operations in the same period as the changes in the fair value of the
interest rate swaps.
Furthermore, as part of our hedging policy, we use interest rate swaps to hedge the variability of future interest cash flows relating
to certain of our operating lease obligations. During 2016, these hedges were highly effective in hedging the cash flow exposure to
interest rate movements.
Financial Instruments
We use foreign exchange contracts to manage our foreign currency risk and interest rate swaps to manage our interest rate risk.
The following table summarizes the notional amounts and estimated fair values of our derivative financial instruments:
As of December 31
2015
2016
(in thousands)
Forward foreign exchange contracts
Interest rate swaps
Notional
amount
EUR
898,227
1,013,053
Fair Value
EUR
(2,675)
115,618
Notional
amount
EUR
1,311,599
3,263,053
Fair Value
EUR
(63,517)
83,676
The following table summarizes our derivative financial instruments per category:
As of December 31
2015
2016
(in thousands)
Interest rate swaps — cash flow hedges
Assets
EUR
—
Interest rate swaps — fair value hedges
118,334
Forward foreign exchange contracts — cash flow hedges
Forward foreign exchange contracts — net investment hedge
Forward foreign exchange contracts — no hedge accounting
Total
Less non-current portion:
Interest rate swaps — cash flow hedges
Interest rate swaps — fair value hedges
Total non-current portion
Total current portion
2,932
—
12,537
133,803
—
81,777
81,777
52,026
Liabilities
EUR
2,716
—
1,288
738
16,118
20,860
1,878
—
1,878
18,982
Assets
EUR
—
120,025
10,746
2,831
457
134,059
—
89,516
89,516
44,543
Liabilities
EUR
1,703
34,646
359
—
77,192
113,900
567
37,496
38,063
75,837
ASML ANNUAL REPORT 2016
F-21
The fair value part of a hedging derivative financial instrument that has a remaining term of 12 months or less after balance sheet
date is classified as current asset or liability. When the fair value part of a hedging derivative has a term of more than 12 months
after balance sheet date, it is classified as non-current asset or liability. The current portion of derivative financial instruments is
included in other current assets and current accrued and other liabilities in the Consolidated Balance Sheets. The non-current
portion of derivative financial instruments is included in other non-current assets and non-current accrued and other liabilities in the
Consolidated Balance Sheets.
For further information regarding our derivative financial instruments, see Note 3.
Foreign Exchange Contracts
The notional principal amounts of the outstanding forward foreign exchange contracts in the main currencies US dollar, Japanese
yen and Taiwanese dollar at December 31, 2016 are USD 965.0 million, JPY 1.5 billion and TWD 14.6 billion (2015: USD 517.5
million, JPY 34.7 billion and TWD 4.3 billion).
The hedged highly probable forecasted transactions denominated in foreign currency are expected to occur at various dates during
the coming 12 months. Gains and losses recognized in OCI on forward foreign exchange contracts as of December 31, 2016 will be
recognized in the Consolidated Statements of Operations in the period during which the hedged forecasted transactions affect the
Consolidated Statements of Operations.
In 2016, we recognized a net amount of EUR 2.4 million loss (2015: EUR 22.0 million gain; 2014: EUR 6.7 million loss) in the
Consolidated Statements of Operations resulting from effective cash flow hedges for forecasted sales and purchase transactions
that occurred in the year. Furthermore, we recognized a net amount of EUR 81.2 million loss in the Consolidated Statements of
Operations resulting from derivative financial instruments measured at fair value through profit or loss (2015: EUR 129.9 million
loss; 2014: EUR 119.3 million loss), which is almost fully offset by the revaluation of the hedged monetary items.
Interest Rate Swaps
The notional principal amount of the outstanding interest rate swap contracts as of December 31, 2016 was EUR 3,263.1 million
(2015: EUR 1,013.1 million).
Credit Risk Management
Financial instruments that potentially subject us to significant concentration of credit risk consist principally of cash and cash
equivalents, short-term investments, derivative financial instruments used for hedging activities, accounts receivable and finance
receivables.
Cash and cash equivalents, short-term investments and derivative financial instruments contain an element of risk of the
counterparties being unable to meet their obligations. Our risk management program focuses appropriately on the current
environment of uncertainty in the financial markets. We invest our cash and cash equivalents and short-term investments in short-
term deposits with financial institutions that have good credit ratings and in money market funds that invest in highly-rated short-
term debt securities of financial institutions and governments. To mitigate the risk that our counterparties in hedging transactions
are unable to meet their obligations, we enter into transactions with a limited number of major financial institutions that have good
credit ratings and closely monitor their creditworthiness. Concentration risk is mitigated by limiting the exposure to each of the
individual counterparties.
Our customers consist of IC manufacturers located throughout the world. We perform ongoing credit evaluations of our customers’
financial condition. We mitigate credit risk through additional measures, including the use of down payments, letters of credit, and
contractual ownership retention provisions. Retention of ownership enables us to recover the systems in the event a customer
defaults on payment.
Capital Risk Management
We manage our capital availability risk by maintaining a conservative financial policy that focuses on liquidity and financial stability
throughout industry cycles. This is pursued by maintaining a capital structure that supports a solid investment grade credit rating.
5. Cash and Cash Equivalents and Short-term Investments
Cash and cash equivalents at December 31, 2016 include deposits with financial institutions that have good credit ratings of EUR
100.0 million (2015: EUR 1,423.0 million), investments in money market funds that invest in debt securities of financial institutions
that have good credit ratings and governments of EUR 2,152.0 million (2015: EUR 659.3 million) and interest-bearing bank
accounts of EUR 654.9 million (2015: EUR 376.4 million). Our cash and cash equivalents are predominantly denominated in euros
and partly in US dollars and Taiwanese dollars.
Cash and cash equivalents have insignificant interest rate risk and remaining maturities of three months or less at the date of
acquisition. Except for an amount of EUR 5.4 million (2015: EUR 5.3 million), no restrictions on usage of cash and cash equivalents
exist. The carrying amount of these assets approximates their fair value.
Short-term investments have insignificant interest rate risk and remaining maturities longer than three months but less than one
year at the date of acquisition.
ASML ANNUAL REPORT 2016
F-22
Short-term investments consist of the following:
As of December 31, 2016
(in thousands)
Cost basis
Unrealized
Gains
Unrealized
Losses
Deposits
Total
1,150,000
1,150,000
—
—
—
—
Recorded
Basis
1,150,000
1,150,000
As of December 31, 2015
(in thousands)
Cost basis
Unrealized
Gains
Unrealized
Losses
Recorded
Basis
Deposits
Total
950,000
950,000
—
—
—
—
950,000
950,000
6. Accounts Receivable
Accounts receivable consist of the following:
As of December 31
(in thousands)
Accounts receivable, gross
Allowance for doubtful receivables
Accounts receivable, net
2015
EUR
809,299
(5,603)
803,696
2016
EUR
702,368
(2,162)
700,206
The decrease in accounts receivable as of December 31, 2016 compared to December 31, 2015 was mainly caused by relatively
high payments received from customers prior to year-end 2016.
The carrying amount of the accounts receivable approximates the fair value. We perform ongoing credit evaluations on our
customers’ financial condition. We periodically review whether an allowance for credit losses is needed by considering factors such
as historical payment experience, credit quality, aging of the accounts receivable balances, and current economic conditions that
may affect a customer’s ability to pay.
Movements of the allowance for doubtful receivables are as follows:
Year ended December 31
(in thousands)
Balance at beginning of year
Addition for the year 1
Effect of changes in exchange rates
Utilization of the provision
Balance at end of year
2015
EUR
(2,070)
(3,870)
(131)
468
(5,603)
2016
EUR
(5,603)
(3,161)
(3)
6,605
(2,162)
1.
The addition for the year is recorded in cost of sales.
7. Finance Receivables
Finance receivables consist of receivables in relation to sales-type leases and non-current accounts receivable. The following table
lists the components of the finance receivables as of December 31, 2016 and 2015:
As of December 31
(in thousands)
Finance receivables, gross
Unearned interest
Finance receivables, net
Current portion of finance receivables, gross
Current portion of unearned interest
Non-current portion of finance receivables, net
2015
EUR
411,654
(7,095)
404,559
285,966
(5,443)
124,036
2016
EUR
569,723
(5,107)
564,616
450,688
(3,304)
117,232
ASML ANNUAL REPORT 2016
F-23
The increase in finance receivables as of December 31, 2016 compared to December 31, 2015 was caused by an increased
number and more high-end sales-type leases compared to prior year and an increase in non-current accounts receivable. At
December 31, 2016, finance receivables due for payment in each of the next 5 years and thereafter are as follows:
(in thousands)
EUR
2017
2018
2019
2020
2021
Thereafter
450,688
111,582
—
7,453
—
—
Finance receivables, gross
569,723
We perform ongoing credit evaluations on our customers’ financial condition. We periodically review whether an allowance for
credit losses is needed by considering factors such as historical payment experience, credit quality, the aging of the finance
receivables balances, and current economic conditions that may affect a customer’s ability to pay. In 2016, 2015 and 2014 we did
not record any expected credit losses from finance receivables. As of December 31, 2016, the finance receivables were neither past
due nor impaired.
8. Inventories
Inventories consist of the following:
As of December 31
(in thousands)
Raw materials
Work-in-process
Finished products
2015
EUR
588,277
1,370,934
1,029,535
2016
EUR
674,733
1,415,452
1,073,404
Inventories, gross
2,988,746
3,163,589
Allowance for obsolescence and/or lower market value
(415,016)
(382,711)
Inventories, net
2,573,730
2,780,878
The increase in inventory in 2016 compared to 2015 is mainly caused by the acquisition of HMI.
A summary of activity in the allowance for obsolescence and/or lower market value is as follows:
Year ended December 31
(in thousands)
Balance at beginning of year
Addition for the year
Effect of changes in exchange rates
Utilization of the provision
Balance at end of year
2015
EUR
(311,382)
(211,801)
(10,451)
118,618
(415,016)
2016
EUR
(415,016)
(73,035)
(5,300)
110,640
(382,711)
In 2016, the addition for the year is recorded in cost of sales EUR 69.2 million and in R&D costs EUR 3.8 million (2015: cost of sales
EUR 206.7 million and R&D costs EUR 5.1 million, 2014: cost of sales EUR 146.3 million and R&D costs EUR 16.5 million). The
2016 addition for the year mainly relates to inventory items which became obsolete due to technological developments and design
changes.
Utilization of the provision mainly relates to the scrapping of obsolete inventories.
ASML ANNUAL REPORT 2016
F-24
9. Other Assets
Other current assets consist of the following:
As of December 31
(in thousands)
Advance payments to Carl Zeiss SMT
Prepaid expenses
Operations to be invoiced
Derivative financial instruments
VAT
Other assets
Other current assets
2015
EUR
75,059
186,709
79,803
52,026
61,332
33,895
488,824
2016
EUR
71,908
192,024
101,292
44,543
61,565
89,139
560,471
Carl Zeiss SMT is our single supplier of main optical systems (lenses, mirrors, illuminators, collectors and other critical optical
components) and, from time to time, receives non-interest bearing advance payments from us that support Carl Zeiss SMT's work-
in-process, thereby securing lens and optical module deliveries to us. Amounts owed under these advance payments are settled
through future lens or EUV optical component deliveries.
Prepaid expenses mainly include prepaid income taxes on intercompany profit not realized by the ASML group of EUR 74.3 million
as of December 31, 2016 (2015: EUR 61.3 million).
Derivative financial instruments consist of forward foreign exchange contracts and the current part of the aggregate fair value of
interest rate swaps, which decreased in value as a result of reduced time-to-maturity, see Note 4.
Other assets mainly increased as a result of an increase in the subsidies receivable from EUR 7.3 million as of December 31, 2015
to EUR 34.4 million as of December 31, 2016.
Other non-current assets consist of the following:
As of December 31
(in thousands)
2015
EUR
Advance payments to Carl Zeiss SMT
305,642
Derivative financial instruments
Compensation plan assets 1
Prepaid expenses
Subordinated loan granted to lessor in respect of Veldhoven headquarters 2
Other assets
Other non-current assets
81,777
31,393
6,876
5,445
19,749
450,882
2016
EUR
305,714
89,516
38,031
151,397
5,445
22,202
612,305
1.
2.
For further details on compensation plan assets see Note 17.
For further details on the loan granted to lessor in respect of Veldhoven headquarters see Note 12.
Derivative financial instruments consist of the non-current part of the fair value of interest rate swaps, which increased in value as a
result of a decrease in market interest rates, see Note 4.
Prepaid expenses mainly include prepaid income taxes on intercompany profit not realized by the ASML group of EUR 144.1 million
as of December 31, 2016 (2015: EUR 0.0 million). The increase in prepaid income taxes in 2016 is mainly explained by a so-called
bi-lateral advance pricing agreement between the US and Dutch tax authorities on an inter group transfer of intellectual property
rights.
10. Goodwill
Changes in goodwill are summarized as follows:
Year ended December 31
(in thousands)
Cost
2015
EUR
2016
EUR
Balance at beginning of year
2,357,536
Acquisition through business combinations
Effect of changes in exchange rates
Balance at end of year
—
267,016
2,624,552
2,624,552
2,115,130
134,212
4,873,894
ASML ANNUAL REPORT 2016
F-25
For more information with respect to business combinations, see Note 2.
Goodwill is tested for impairment annually at the start of the fourth quarter and whenever events or changes in circumstances
indicate that the carrying amount of the goodwill may not be recoverable.
Goodwill mainly results from the acquisitions of Cymer and HMI. Within ASML we have identified two RUs, which are RU ASML
and RU CLS.
As of December 31, 2016 the goodwill allocated to RU ASML amounts to EUR 4,348.0 million (2015: EUR 2,124.4 million) and for
RU CLS this amounts to EUR 525.9 million (2015: EUR 500.2 million).
For 2016 and 2015, the fair value calculations of the RUs were performed by discounting the future cash flows generated from the
continuing use of the RUs. Cash flows beyond the forecasted period of five years have been extrapolated using a 0 percent growth
rate.
The pre-tax WACC used to determine the expected discounted future cash flows is 10.2 percent for RU ASML and 12.4 percent for
RU CLS.
Based on the recoverability testing during the annual goodwill impairment test, we believe that the fair values of the RUs
significantly exceed their carrying amounts, and therefore goodwill was not impaired as of December 31, 2016.
11. Other Intangible Assets
As of December 31, 2016 other intangible assets consist of finite-lived other intangible assets. Brands, developed technology,
customer relationships and other were mainly obtained from the acquisitions of HMI (2016), Cymer (2013) and Brion (2007).
Finite-lived other intangible assets consist of the following:
(in thousands)
Cost
Brands
EUR
Intellectual
property
EUR
Developed
technology
EUR
Customer
relationships
EUR
Other
EUR
Total
EUR
505,676
182,703
2,231
766,645
Balance at January 1, 2015
14,175
Additions
Effect of changes in exchange rates
Balance at December 31, 2015
Acquisitions through business combinations
Additions
Transfer from indefinite-lived other intangible
assets
Disposals
—
1,610
15,785
23,601
—
—
—
Effect of changes in exchange rates
Balance at December 31, 2016
809
40,195
Accumulated amortization
Balance at January 1, 2015
Amortization
Effect of changes in exchange rates
Balance at December 31, 2015
Amortization
Disposals
Effect of changes in exchange rates
1,125
774
143
2,042
978
—
153
61,860
1,108
—
62,968
—
250
—
51,853
557,529
541,663
—
—
139,426
(1,866)
—
—
26,063
61,352
1,264,681
52,812
3,145
—
55,957
3,124
(1,226)
—
102,081
36,465
6,723
145,269
46,709
—
7,184
Balance at December 31, 2016
3,173
57,855
199,162
—
19,755
202,458
40,798
—
—
—
9,929
253,185
23,983
10,790
1,955
36,728
11,164
—
2,090
49,982
—
—
2,231
573
14,646
—
—
4
1,108
73,218
840,971
606,635
14,896
139,426
(1,866)
36,805
17,454
1,636,867
2,231
182,232
—
—
2,231
1,539
—
1
51,174
8,821
242,227
63,514
(1,226)
9,428
3,771
313,943
Carrying amount
December 31, 2015
December 31, 2016
13,743
37,022
7,011
3,497
412,260
1,065,519
165,730
203,203
—
598,744
13,683
1,322,924
The weighted-average amortization period for the total finite-lived other intangible assets acquired, as a result of the acquisition of
HMI, is 15.1 years.
ASML ANNUAL REPORT 2016
F-26
The weighted-average amortization period for the finite lived other intangible assets acquired, as a result of the acquisition of HMI,
by major intangible asset class is as follows:
Weighted-average amortization period
20.0
15.0
15.0
(in years)
Brands Developed technology Customer relationships
Acquired finite-lived other intangible assets are amortized on a straight-line basis not taking into account any residual value.
For more information with respect to business combinations, see Note 2.
As of September 1, 2016, we commenced amortization of our in-process R&D relating to the Cymer acquisition in 2013 and
transferred the full amount to developed technology. We determined the amortization period to be 12 years.
During 2016, we recorded amortization charges of EUR 63.5 million (2015: EUR 51.2 million; 2014: EUR 43.9 million) which were
recorded in cost of sales for EUR 59.5 million (2015: EUR 49.1 million; 2014: EUR 41.9 million), in R&D costs for EUR 2.5 million
(2015: EUR 2.1 million and 2014: EUR 2.0 million) and in SG&A costs for EUR 1.5 million (2015: EUR 0.0 million and 2014: EUR 0.0
million).
Indefinite-lived other intangible assets consist of the following:
(in thousands)
Carrying amount as of January 1, 2015
Additions
Carrying amount as of December 31, 2015
Additions
In-process
R&D
EUR
139,426
—
139,426
—
Transfer to finite-lived other intangible assets
(139,426)
Carrying amount as of December 31, 2016
—
As of December 31, 2016, there are no indefinite-lived other intangible assets (2015: EUR 139.4 million, which were allocated to RU
ASML).
During 2016, 2015 and 2014, we did not record any impairment charges for other intangible assets.
As of December 31, 2016, the estimated amortization expenses for other intangible assets, for the next five years and thereafter,
are as follows:
(in thousands)
2017
2018
2019
2020
2021
Thereafter
EUR
108,015
106,827
106,343
105,706
104,752
791,281
Amortization expenses
1,322,924
ASML ANNUAL REPORT 2016
F-27
12. Property, Plant and Equipment
Property, plant and equipment consist of the following:
(in thousands)
Cost
Balance at January 1, 2015
Additions
Disposals
Effect of changes in exchange rates
Land and
buildings
EUR
1,269,488
154,505
(1,346)
27,438
Balance at December 31, 2015
1,450,085
Acquisitions through business combinations
Additions
Disposals
Effect of changes in exchange rates
23,851
75,283
(3,226)
10,537
Machinery
and
equipment
EUR
Leasehold
improvements
EUR
Furniture,
fixtures and
other
equipment
EUR
Total
EUR
2,604,097
459,627
(122,967)
67,301
231,810
12,438
(451)
1,748
303,090
46,352
(3,920)
2,962
245,545
348,484
3,008,058
799,709
246,332
(117,250)
35,153
963,944
26,041
203,801
(82,268)
21,617
1,263
6,745
(906)
1,556
192,243
16,078
—
(439)
605
208,487
15,685
169
(307)
738
913
30,356
(26,551)
5,808
359,010
241,400
27,784
—
(3,902)
1,849
267,131
31,041
930
(26,492)
825
52,068
316,185
(112,951)
39,518
3,302,878
1,156,574
243,049
2,287
(48,645)
34,115
1,387,380
290,813
3,466
(84,911)
18,893
224,772
273,435
1,615,641
Balance at December 31, 2016
1,556,530
1,133,135
254,203
Accumulated depreciation and impairment
Balance at January 1, 2015
Depreciation
Impairment charges
Disposals
Effect of changes in exchange rates
Balance at December 31, 2015
Depreciation
Impairment charges
Disposals
Effect of changes in exchange rates
296,099
75,918
—
(115)
10,459
382,361
88,427
1,712
(2,482)
4,547
Balance at December 31, 2016
474,565
426,832
123,269
2,287
(44,189)
21,202
529,401
155,660
655
(55,630)
12,783
642,869
Carrying amount
December 31, 2015
December 31, 2016
1,067,724
1,081,965
434,543
490,266
37,058
29,431
81,353
85,575
1,620,678
1,687,237
Property, plant and equipment include amounts recorded as a result of the acquisition of HMI. For more information with respect to
business combinations, see Note 2.
As of December 31, 2016, the carrying amount includes assets under construction for land and buildings of EUR 32.7 million (2015:
EUR 64.7 million), machinery and equipment of EUR 30.0 million (2015: EUR 47.3 million), leasehold improvements of EUR 1.7
million (2015: EUR 7.8 million) and furniture, fixtures and other equipment of EUR 6.2 million (2015: EUR 14.9 million).
As of December 31, 2016, the carrying amount of land amounts to EUR 96.3 million (2015: EUR 88.0 million).
As of December 31, 2016, the carrying amount of machinery and equipment includes an amount of EUR 17.0 million with respect
to evaluation and operating lease systems (2015: EUR 23.5 million).
The majority of the additions in 2016 in property, plant and equipment relates to operating leases to customers, prototypes,
evaluation and training systems and the expansion and upgrades of facilities.
The majority of additions in 2016 in machinery and equipment relates to operating leases to customers, prototypes, evaluation and
training systems which are similar to those that ASML sells in its ordinary course of business. These systems are capitalized under
property, plant and equipment because these are held for own use, for operating lease and for evaluation purposes. These are
recorded at cost and depreciated over their expected useful life taking into consideration their residual value. From the time that
these assets are no longer held for own use but intended for sale in the ordinary course of business, they are reclassified from
property, plant and equipment to inventory at their carrying value.
An amount of EUR 21.6 million (2015: EUR 91.0 million) of the additions in property, plant and equipment relates to non-cash
transfers from inventory. Since the transfers between inventory and property, plant and equipment are non-cash events, these are
not reflected in the Consolidated Statements of Cash Flows.
ASML ANNUAL REPORT 2016
F-28
An amount of EUR 22.8 million (2015: EUR 72.7 million) of the disposal of property, plant and equipment relates to non-cash
transfers to inventory. When sold, the proceeds and cost of these systems are recorded as net sales and cost of sales, respectively,
identical to the treatment of other sales transactions. The cost of sales for these systems includes the inventory value and the
additional costs of refurbishing (materials and labor). Since the transfers between inventory and property, plant and equipment are
non-cash events, these are not reflected in the Consolidated Statements of Cash Flows.
During 2016, we recorded depreciation charges of EUR 290.8 million (2015: EUR 243.0 million; 2014: EUR 209.5 million) of which
we recorded EUR 187.9 million (2015: EUR 191.7 million; 2014: EUR 153.9 million) in cost of sales, EUR 76.8 million (2015: EUR
19.7 million; 2014: EUR 36.3 million) in R&D costs and EUR 26.1 million (2015: EUR 31.6 million; 2014: EUR 19.3 million) in SG&A
costs.
Variable Interest Entity
The carrying amount of land and buildings includes an amount of EUR 26.6 million (2015: EUR 28.1 million) relating to our
headquarters in Veldhoven, the Netherlands, which is ultimately owned by Koppelenweg I B.V., a "VIE".
As of 2003, we are leasing the Veldhoven headquarters for a period of 15 years from an entity ("lessor") that was incorporated by
the VIE Shareholders. The lessor’s shareholders’ equity amounts to EUR 1.9 million and has not changed since 2003.
The VIE Shareholders each granted a loan of EUR 11.6 million and a fourth bank granted a loan of EUR 12.3 million (EUR 47.1
million in total) to the parent of the lessor. ASML provided the parent of the lessor with a subordinated loan of EUR 5.4 million and
has a purchase option that is exercisable either at the end of the lease in 2018, at a price of EUR 24.5 million, or during the lease at
a price equal to the book value of the assets. The total assets of the lessor entity amounted to EUR 54.5 million at inception of the
lease. The entity is determined to be a VIE because the equity investors do not have sufficient equity at risk for the legal entity to
finance its activities without sufficient additional subordinated support.
The primary purpose for which the VIE was created was to provide ASML with use of the building for 15 years, where ASML does
not retain substantially all the risks and rewards from changes in value of the building. The main activities of the entity are to rent,
re-market and ultimately sell the building that is owned by the VIE. The economic performance of the VIE is most significantly
impacted by the ability of the lessee (ASML) to exercise the purchase option at any time during the lease term, and thus we could
potentially benefit from increases in the fair value of the building.
While the debt holders have an interest, and may absorb losses, and the equity holders have an interest and may receive benefits,
they do not have the power to direct activities that most significantly impact the entity’s economic performance and therefore,
cannot be the primary beneficiary. Through the pre-determined price of the call option ASML has the power over the VIE, therefore
only ASML meets both the power and losses/benefit criterion and consolidates the VIE.
13. Accrued and Other Liabilities
Accrued and other liabilities consist of the following:
As of December 31
(in thousands)
2015
EUR
2016
EUR
Deferred revenue
1,737,391
1,703,049
Costs to be paid
Down payments from customers
Personnel related items
Derivative financial instruments
Standard warranty reserve
Accrued and other liabilities
Other
Less: non-current portion of accrued and other liabilities 1,2
224,597
606,804
341,554
20,860
18,803
30,953
2,980,962
414,369
Current portion of accrued and other liabilities
2,566,593
197,549
363,237
401,790
113,900
36,463
35,754
2,851,742
615,730
2,236,012
1.
2.
As of December 31, 2015 the main part of the non-current portion of accrued and other liabilities relates to down payments received from customers regarding future
shipments of EUV systems and deferred revenue with respect to services.
As of December 31, 2016 the main part of the non-current portion of accrued and other liabilities relates to down payments received from customers regarding future
shipments of EUV systems and deferred revenue for pending services and EUV systems and upgrades.
The decrease in accrued and other liabilities mainly relates to a decrease in down payments from customers which is partly offset
by an increase in derivative financial instruments.
ASML ANNUAL REPORT 2016
F-29
Deferred revenue as of December 31, 2016 mainly consists of deferred revenue for system shipments and credits regarding free or
discounted products or services as part of volume purchase agreements amounting to EUR 1,349.8 million (2015: EUR 1,402.6
million) and extended and enhanced (optic) warranty contracts amounting to EUR 312.1 million (2015: EUR 303.3 million). Both
include deferred revenue with respect to our EUV systems, NXE:3300B and NXE:3350B.
Costs to be paid as of December 31, 2016 include anticipated losses on constructive obligations to upgrade EUV sources in the
field of EUR 88.8 million (2015: EUR 92.7 million). In addition, costs to be paid include accrued costs for unbilled services provided
by suppliers including contracted labor, outsourced services and consultancy.
Down payments from customers relate to amounts received from customers for systems that will be shipped in future periods. The
decrease compared to 2015 is mainly due to EUV-related down payments which were recognized in net system sales in 2016.
Personnel related items mainly consist of accrued profit sharing, accrued management bonuses, accrued vacation days, accrued
pension premiums, accrued wage tax and accrued vacation allowance. The increase in accrued personnel related items as of
December 31, 2016 compared to December 31, 2015 is mainly the result of the increase in our number of FTEs.
Derivative financial instruments consist of the fair value of foreign currency contracts and the aggregate fair value of interest rate
swaps which includes accrued interest that increased in value as a result of newly entered hedges for the eurobonds issued July
2016 and November 2016 and the strengthening of the US dollar, see Note 4.
Changes in standard warranty reserve for the years 2016 and 2015 are as follows:
Year ended December 31
(in thousands)
Balance at beginning of year
Acquisitions through business combinations
Additions for the year
Utilization of the reserve
Release of the reserve
Effect of exchange rates
Balance at end of year
2015
EUR
41,508
—
23,067
(37,006)
(11,837)
3,071
18,803
2016
EUR
18,803
1,717
51,148
(32,539)
(4,218)
1,552
36,463
The increase in the standard warranty reserve is mainly explained by more high-end technology systems (including 4 EUV systems
as of December 31, 2016, where there was 1 EUV system included as of December 31, 2015) in their standard warranty period. For
more information with respect to business combinations, see Note 2.
14. Long-term Debt
Long-term debt consists of the following:
As of December 31
(in thousands)
2015
EUR
EUR 600 million 5.75 percent senior notes due 2017, carrying amount
254,339
EUR 500 million 0.625 percent senior notes due 2022, carrying amount
—
EUR 750 million 3.375 percent senior notes due 2023, carrying amount
828,876
EUR 1,000 million 1.375 percent senior notes due 2026, carrying amount
EUR 750 million 1.625 percent senior notes due 2027, carrying amount
Loan headquarter building1
Other
—
—
28,078
18,392
2016
EUR
243,292
489,497
842,284
956,326
746,239
26,648
15,179
Less: current portion of long-term debt
4,211
247,672
Long-term debt
1,129,685
3,319,465
Non-current portion of long-term debt
1,125,474
3,071,793
1.
This loan relates to our VIE, see Note 12.
ASML ANNUAL REPORT 2016
F-30
Our obligations to make principal repayments under our Eurobonds and other borrowing arrangements excluding interest expense
as of December 31, 2016, for the next five years and thereafter, are as follows:
(in thousands)
2017
2018
2019
2020
2021
Thereafter
Long-term debt
Less: current portion of long-term debt
Non-current portion of long-term debt
EUR
242,360
27,997
1,762
1,762
1,762
3,002,180
3,277,823
242,360
3,035,463
Eurobonds
The following table summarizes the carrying amount of our outstanding Eurobonds, including the fair value of interest rate swaps
used to hedge the change in the fair value of the Eurobonds:
As of December 31
(in thousands)
Amortized cost amount
Fair value interest rate swaps 1
2015
EUR
979,620
103,595
2016
EUR
3,212,524
65,114
Carrying amount
1,083,215
3,277,638
1.
The fair value of the interest rate swaps excludes accrued interest.
In June 2007, we completed an offering of our EUR 600 million 5.75 percent senior notes due 2017, with interest payable annually
on June 13. The notes are redeemable at the option of ASML, in whole or in part, at any time by paying a make whole premium,
and unless previously redeemed, will be redeemed at 100 percent of their principal amount on June 13, 2017. In September 2013,
we repurchased a nominal amount of EUR 361.8 million of these notes in a tender offer for a cash amount of EUR 423.0 million
including accrued interest.
In September 2013, we completed an offering of our EUR 750 million 3.375 percent senior notes due 2023, with interest payable
annually on September 19. The notes are redeemable at the option of ASML, in whole or in part, at any time by paying a make
whole premium, and unless previously redeemed, will be redeemed at 100 percent of their principal amount on September 19,
2023.
In July 2016, we completed an offering of our EUR 500 million 0.625 percent senior notes due 2022, with interest payable annually
on July 7. The notes are redeemable at the option of ASML, in whole or in part, at any time by paying a make whole premium, and
unless previously redeemed, will be redeemed at 100 percent of their principal amount on July 7, 2022.
In July 2016, we completed an offering of our EUR 1,000 million 1.375 percent senior notes due 2026, with interest payable
annually on July 7. The notes are redeemable at the option of ASML, in whole or in part, at any time by paying a make whole
premium, and unless previously redeemed, will be redeemed at 100 percent of their principal amount on July 7, 2026.
In November 2016, we completed an offering of our EUR 750 million 1.625 percent senior notes due 2027, with interest payable
annually on May 28. The notes are redeemable at the option of ASML, in whole or in part, at any time by paying a make whole
premium, and unless previously redeemed, will be redeemed at 100 percent of their principal amount on May 28, 2027.
The Eurobonds serve as hedged items in fair value hedge relationships in which we hedge the variability of changes in the fair value
of our Eurobonds due to changes in market interest rates with interest rate swaps. The fair value changes of these interest rate
swaps are recorded on the Consolidated Balance Sheets under derivative financial instruments (within other current assets, other
non-current assets, current accrued and other liabilities and non-current accrued and or liabilities) and the carrying amount of the
Eurobonds is adjusted for these fair value changes only. Following the repurchase of part of our EUR 600 million 5.75 percent
senior notes due 2017, the corresponding part of the interest rate swaps was simultaneously terminated in 2013.
ASML ANNUAL REPORT 2016
F-31
The following table summarizes the estimated fair value of our Eurobonds:
As of December 31
(in thousands)
Principal amount
Carrying amount
Fair value 1
2015
EUR
988,153
1,083,215
1,100,849
2016
EUR
3,238,153
3,277,638
3,386,213
1.
Source: Bloomberg Finance LP.
The fair value of our Eurobonds is estimated based on quoted market prices as of December 31, 2016. Due to changes in market
interest rates and credit spreads since the issue of our Eurobonds which carry a fixed coupon interest rate, the fair value deviates
from the principal amount.
15. Lines of Credit
Our available credit facilities amount to EUR 700.0 million as of December 31, 2016 and as of December 31, 2015. No amounts
were outstanding under these credit facilities at the end of 2016 and 2015. The amounts available at December 31, 2016 and 2015
consisted of one EUR 700.0 million committed revolving credit facility with a group of banks. In 2015, the terms and conditions of
the facility were amended by, among other things, removing the financial covenant and by extending the maturity until 2020. In
2016, we exercised our extension option, extending the maturity date to 2021. Outstanding amounts under this credit facility will
bear interest at EURIBOR or LIBOR plus a margin that depends on our credit rating.
16. Commitments, Contingencies and Guarantees
We have various contractual obligations, some of which are required to be recorded as liabilities in our Financial Statements,
including long- and short-term debt. Other contractual obligations, namely operating lease commitments, purchase obligations and
guarantees, are generally not required to be recognized as liabilities on our Consolidated Balance Sheets but are required to be
disclosed.
Our contractual obligations as of December 31, 2016 can be summarized as follows:
Payments due by period
(in thousands)
Total
EUR
1 year
EUR
2 year
EUR
3 year
EUR
4 year
EUR
5 year
EUR
After
5 years
EUR
Long-Term Debt Obligations, including interest
expense 1
3,757,498
306,215
83,752
56,718
56,762
56,246
3,197,805
Operating Lease Obligations
103,568
35,486
23,613
Purchase Obligations
2,202,595
1,923,647
233,021
18,616
9,481
13,577
7,901
7,050
7,417
Zeiss High-NA Funding Commitment
748,000
129,000
219,500
179,500
113,000
69,000
5,226
21,128
38,000
Total Contractual Obligations 2
6,811,661
2,394,348
559,886
264,315
191,240
139,713
3,262,159
1.
2.
See Note 14 to our Financial Statements for the amounts excluding interest expense.
We have excluded unrecognized tax benefits for an amount of EUR 136.4 million as the amounts that will be settled in cash are not known and the timing of any
payments is uncertain.
Long-term debt obligations mainly relate to interest payments and principal amounts of our Eurobonds. See Note 14.
Operating lease obligations include leases of equipment and facilities. Lease payments recognized as an expense were EUR 45.2
million, EUR 45.1 million and EUR 43.9 million for the years ended December 31, 2016, 2015 and 2014, respectively.
Several operating leases for our buildings contain purchase options, exercisable at the end of the lease, and in some cases, during
the term of the lease. During 2015 we have exercised these options which are effectuated in 2016, therefore no purchase options
exist as per year end December 31, 2016.
Purchase obligations exist of purchase commitments towards suppliers in the ordinary course of business. ASML expects that it
will honor these purchase obligations to fulfill future sales, in line with the timing of those future sales. The general terms and
conditions of the agreements relating to the major part of our purchase commitments as of December 31, 2016 contain clauses
that enable us to delay or cancel delivery of ordered goods and services up to the dates specified in the corresponding purchase
contracts. These terms and conditions that we typically agree with our supply chain partners give us additional flexibility to adapt
our purchase obligations to our requirements in light of the cyclicality and technological developments inherent in the industry in
which we operate. We establish a provision for cancellation costs when the liability has been incurred and the amount of
cancellation fees is reasonably estimable.
ASML ANNUAL REPORT 2016
F-32
On November 3, 2016 ASML and Zeiss announced that they agreed to strengthen their long-standing and successful partnership in
the semiconductor lithography business. ASML has agreed with Zeiss to support Carl Zeiss SMT's R&D costs, capital expenditures
and other supply chain investments, in respect of High NA, for an amount of EUR 760.0 million over 6 years. At the end of 2016 an
amount of EUR 12.0 million was paid, resulting in a remaining commitment as of December 31, 2016 of EUR 748.0 million.
We have a non-committed guarantee facility of EUR 15.0 million under which guarantees in the ordinary course of business can be
provided to third parties.
17. Employee Benefits
We have a performance related bonus plan for our senior management. Under this plan, the bonus amounts depend on actual
performance against corporate and personal targets. Within ASML (excluding Cymer), the bonus for members of senior
management can range between 0.0 percent and 75.0 percent of their annual salaries. Within Cymer, bonuses can range between
0.0 percent and 150.0 percent of their annual salary. The performance targets are set for a whole year. The bonuses over 2016 are
accrued for in the Consolidated Balance Sheets as of December 31, 2016 and are expected to be paid in the first quarter of 2017.
Our bonus expenses for the BoM, former BoM and senior management were as follows:
Year ended December 31
(in thousands)
Board of Management 1
Other senior management
Bonus expenses
2014
EUR
3,495
45,462
48,957
2015
EUR
3,405
44,562
47,967
2016
EUR
3,545
48,473
52,018
1.
Bonus expenses in relation to the STI cash bonus for our BoM and former BoM. Former BoM is only applicable in 2014.
Profit-sharing Plan
We have a profit-sharing plan covering all European and US non-sales employees who are not members of the BoM or senior
management. Under the plan, eligible employees receive an annual profit-sharing, based on a percentage of net income relative to
total net sales ranging from 0.0 to 20.0 percent of their annual salary. The profit sharing for the years 2016, 2015 and 2014 was 16.0
percent or EUR 93.3 million, 18.0 percent or EUR 95.1 million and 16.0 percent or EUR 71.3 million, respectively. Our profit is also
one of the criteria for the variable pay programs for employees in Asia. Expenses in relation to these plans amount to EUR 33.8
million for 2016, EUR 32.0 million for 2015 and EUR 25.9 million for 2014.
Share-based Compensation
In the past we have adopted various share and option plans for our employees. Starting January 1, 2014 the Employee Umbrella
Share Plan has become effective, covering all grants made as of that date for our employees. The AGM approves each year the
maximum number of shares that can be used by ASML to execute share-based incentives. Within this limit, the SB determines the
maximum number of shares that is granted to the BoM in line with the Remuneration Policy and the BoM determines the total
maximum of shares that can be granted in that year for eligible employees in line with existing policies. Our current share-based
compensation plans do not provide for cash settlement of options and shares.
The total gross amount of recognized compensation expenses associated with share-based payments (including share-based
payments to the BoM) was EUR 47.7 million in 2016, EUR 59.1 million in 2015 and EUR 63.4 million in 2014. The tax benefit
recognized related to the recognized share-based compensation costs amounted to EUR 10.0 million in 2016, EUR 13.8 million in
2015 and EUR 14.9 million in 2014.
Total compensation costs to be recognized in future periods amount to EUR 83.2 million as of December 31, 2016 (2015: EUR 65.4
million; 2014: EUR 69.8 million). The weighted average period over which these costs are expected to be recognized is calculated
at 1.9 years (2015: 1.7 years; 2014: 1.6 years).
Employee Umbrella Share Plan
The Employee Umbrella Share Plan, effective as of January 1, 2014 covers all employees. Within this plan, we distinguish between
performance and incentive shares. Within the incentive category, prior to October 3, 2016 employees could choose, at inception, to
convert the shares into options. As of October 3, 2016 this option no longer exists. All grants under the Employee Umbrella Share
Plan typically have a three-year vesting period.
Share Plans
Our current share plans typically include a three-year service period and some plans have vesting conditions which are based on
performance. The fair value of shares is determined on the closing trading price of our shares listed at Euronext Amsterdam on the
grant date.
ASML ANNUAL REPORT 2016
F-33
Details with respect to shares granted and vested during the year are set out in the following table:
Year ended December 31
2014
2015
2016
2014
2015
2016
EUR-denominated
USD-denominated
Total fair value at vesting date of shares vested during the year (in thousands)
56,214
52,002
25,517
76,605
47,722
31,317
Weighted average fair value of shares granted
65.71
88.83
87.21
84.62
102.42
96.00
A summary of the status of conditionally outstanding shares as of December 31, 2016, and changes during the year ended
December 31, 2016, is presented below:
Conditional shares outstanding at January 1, 2016
Granted
Vested
Forfeited
Conditional shares outstanding at December 31, 2016
EUR-denominated
USD-denominated
Weighted
average
fair value at
grant date
(EUR)
71.05
87.21
68.09
69.21
79.33
Number
of shares
804,508
396,237
(294,110)
(22,431)
884,204
Weighted
average
fair value at
grant date
(USD)
92.46
96.00
88.72
92.74
95.81
Number
of shares
803,046
563,806
(329,345)
(82,899)
954,608
Option Plans
Our current option plans typically vest over a three year service period with any unexercised stock options expiring ten years after
the grant date. Options granted have fixed exercise prices equal to the closing price of our shares listed at Euronext Amsterdam on
grant date. The fair value of stock options is determined using a Black-Scholes option valuation model.
The Black-Scholes option valuation of our stock options granted during the year is based on the following assumptions:
Year ended December 31
Weighted average share price (in EUR)
Volatility (in percentage)
Expected life (in years)
Risk free interest rate
Expected dividend yield (in EUR)
Forfeiture rate 1
2014
65.0
23.5
5.6
0.5
2.25
—
2015
88.1
28.7
5.6
—
2.52
—
2016
88.3
27.2
5.7
—
2.94
—
1.
For the years ending December 31, 2016, 2015 and 2014, forfeitures are estimated to be nil.
When establishing the expected life assumption we annually take into account the contractual terms of the stock options as well as
historical employee exercise behavior.
Details with respect to stock options are set out in the following table:
Year ended December 31
2014
2015
2016
2014
2015
2016
EUR-denominated
USD-denominated
Weighted average fair value of stock options granted
Weighted average share price at the exercise date of stock options
13.94
71.69
21.69
91.30
20.34
98.08
18.57
23.56
22.69
93.19
103.88
100.68
Aggregate intrinsic value of stock options exercised (in thousands)
12,098
12,880
11,540
9,497
6,202
4,134
Weighted average remaining contractual term of currently exercisable options
2.94
3.24
3.69
3.79
Aggregate intrinsic value of exercisable stock options (in thousands)
39,020
24,336
22,340
17,942
Aggregate intrinsic value of outstanding stock options (in thousands)
40,428
24,611
22,680
19,171
4.74
8,518
8,709
4.71
8,879
8,945
ASML ANNUAL REPORT 2016
F-34
The number and weighted average exercise prices of stock options as of December 31, 2016, and changes during the year then
ended are presented below:
Outstanding, January 1, 2016
Granted
Exercised
Forfeited
Expired
Outstanding, December 31, 2016
Exercisable, December 31, 2016
EUR-denominated
USD-denominated
Weighted average
exercise price
per ordinary
share (EUR)
Number
of options
Weighted average
exercise price
per ordinary
share (USD)
Number
of options
455,680
20,561
(149,801)
(2,639)
—
323,801
313,226
28.97
92.13
21.04
33.21
—
36.61
35.33
237,005
14,859
(79,767)
(6,500)
—
165,597
162,417
53.21
93.80
48.85
72.76
—
58.18
57.53
Details with respect to the stock options outstanding are set out in the following table:
EUR-denominated
USD-denominated
Range of
exercise
prices (EUR)
Number of
outstanding options
at December 31,
2016
Weighted
average
remaining
contractual life of
outstanding
options (years)
Range of
exercise
prices (USD)
Number of
outstanding options
at December 31,
2016
Weighted
average
remaining
contractual life
of outstanding
options (years)
0 - 10
10 - 15
15 - 20
20 - 25
25 - 40
40 - 50
50 - 60
60 - 70
70 - 80
80 - 90
90 - 100
100 - 110
Total
—
105,826
44,040
50,093
11,543
16,250
10,670
23,545
20,579
20,765
13,109
7,381
323,801
—
1.69
1.30
1.70
4.76
5.80
6.92
6.92
8.33
8.86
8.27
9.56
3.84
0 - 10
10 - 15
15 - 20
20 - 25
25 - 40
40 - 50
50 - 60
60 - 70
70 - 80
80 - 90
90 - 100
100 - 110
Total
—
—
3,911
39,685
40,461
959
5,173
801
1,787
20,229
41,955
10,636
165,597
—
—
1.80
1.75
2.04
4.62
5.69
6.06
6.30
7.75
8.02
8.32
4.77
Employee Purchase Plan
Every quarter, we offer our worldwide payroll employees the opportunity to buy our shares or our stock options (up to and including
October 2, 2016; thereafter employees can only purchase shares) against fair value using their net salary. The BoM is excluded
from participation in this plan. The fair value for shares is based on the closing price of our shares listed at Euronext Amsterdam on
grant date. The fair value of the stock options is determined using a Black-Scholes option valuation model. For the assumptions on
which the Black-Scholes option valuation model is used, see the disclosure above under the caption "Option Plans". The maximum
net amount for which employees can participate in the plan amounts to 10.0 percent of their annual gross base salary. When
employees retain the shares and/or stock options for a minimum of 12 months, we will pay out a 20.0 percent cash bonus on the
initial participation amount.
Deferred Compensation Plans
In July 2002, we adopted a non-qualified deferred compensation plan for our US employees that allows a select group of
management or highly compensated employees to defer a portion of their salary, bonus, and commissions. The plan allows us to
credit additional amounts to the participants’ account balances. The participants divide their funds among the investments
available in the plan. Participants elect to receive their funds in future periods after the earlier of their employment termination or
their withdrawal election, at least three years after deferral. There were minor expenses relating to this plan in 2016, 2015 and 2014.
Cymer has a similar non-qualified deferred compensation plan for a selected group of management level employees in the US in
which the employee may elect to defer receipt of current compensation in order to provide retirement and other benefits on behalf
of such employee backed by Cymer owned life insurance policies.
As of December 31, 2016, our liability under deferred compensation plans was EUR 40.6 million (2015: EUR 33.1 million).
ASML ANNUAL REPORT 2016
F-35
Pension Plans
We maintain various pension plans covering substantially all of our employees. There are 7,033 eligible employees in the
Netherlands. These employees participate in a multi-employer union plan (PME) determined in accordance with the collective
bargaining agreements effective for the industry in which we operate. This collective bargaining agreement has no expiration date.
This multi-employer union plan, accounted for as a defined-contribution plan, covers approximately 1,300 companies and
approximately 148,000 contributing members. Our contribution to the multi-employer union plan was 7.6 percent of the total
contribution to the plan as per the Annual Report for the year ended December 31, 2015. The plan monitors its risks on a global
basis, not by participating company or employee, and is subject to regulation by Dutch governmental authorities. By law (the Dutch
Pension Act), a multi-employer union plan must be monitored against specific criteria, including the coverage ratio of the plan’s
assets to its obligations. As of January 1, 2015 new pension legislation has been enacted. This legislation results in among others,
an increase of legally required coverage levels. The coverage percentage is calculated by dividing the funds capital by the total sum
of pension liabilities and is based on actual market interest rates. The coverage ratio as per December 31, 2016 of 91.8 percent
(December 31, 2015: 97.7 percent) is calculated giving consideration to the new pension legislation and is below the legally
required level. We have however no obligation whatsoever to pay off any deficits the pension fund may incur, nor have we any
claim to any potential surpluses.
Every company participating in the PME contributes a premium calculated as a percentage of its total pensionable salaries, with
each company subject to the same contribution rate. Although the premium can fluctuate yearly based on the coverage ratio of the
multi-employer union plan, for the 5-year period 2015-2019 the contribution percentage has been fixed at 23.6 percent (2014: 24.1
percent). The pension rights of each employee are based upon the employee’s average salary during employment.
Our net periodic pension cost for this multi-employer union plan for any period is the amount of the required employer contribution
for that period.
We also participate in several other defined contribution pension plans (outside the Netherlands), with our expenses for these plans
equaling the employer contributions made in the relevant period.
Our pension and retirement expenses for all employees for the years ended December 31, 2016, 2015 and 2014 were:
Year ended December 31
(in thousands)
Pension plan based on multi-employer union plan
Pension plans based on defined contribution
Pension and retirement expenses
2014
EUR
46,542
24,774
71,316
2015
EUR
50,808
28,909
79,717
2016
EUR
54,915
30,762
85,677
18. Legal Contingencies
ASML is party to various legal proceedings generally incidental to our business. ASML also faces exposures from other actual or
potential claims and legal proceedings. In addition, ASML’s customers may be subject to claims of infringement from third parties
alleging that the ASML equipment used by those customers in the manufacture of semiconductor products, and/or the methods
relating to use of the ASML equipment, infringes one or more patents issued to those third parties. If these claims were successful,
ASML could be required to indemnify such customers for some or all of the losses incurred or damages assessed against them as
a result of that infringement.
We accrue for legal costs related to litigation and legal proceedings in our Consolidated Statements of Operations at the time when
the related legal services are actually provided to ASML.
In 2016, EUR 8.4 million estimated losses were recorded as a charge to our Consolidated Statements of Operations (2015: EUR 0.1
million and 2014: EUR 12.9 million).
From late 2001 through 2004, ASML was a party to a series of civil litigation and administrative proceedings in which Nikon alleged
ASML’s infringement of Nikon patents generally relating to lithography. ASML in turn filed claims against Nikon. Pursuant to
agreements executed on December 10, 2004, ASML and Nikon agreed to settle all pending worldwide patent litigation between the
companies. The settlement included an exchange of releases, a patent cross-license agreement related to lithography equipment
used to manufacture semiconductor devices, and payments to Nikon by ASML. Under the Nikon Cross-License Agreement, ASML
and Nikon granted to each other a non-exclusive license for use in the manufacture, sale, and use of lithography equipment, under
their respective patents. The license granted relating to many of the patents of each party was perpetual, but the license relating to
certain other of the patents expired at the end of 2009. Each party had the right to select a limited number of the other party's
patents where the license for such patents expired in 2009 to be subject to a permanent covenant not to sue in respect of patent
infringement claims. In October 2016, the Patent Selection was completed.
ASML ANNUAL REPORT 2016
F-36
In addition, the Nikon Cross-License Agreement provided that following the termination of some of the licenses granted in the
Nikon Cross-License Agreement on December 31, 2009, there would be a standstill period during which the parties agreed not to
bring patent infringement suits against each other. This standstill period ran from January 1, 2010 through December 31, 2014.
Damages resulting from claims for patent infringement occurring during the Cross-License Transition Period are limited to three
percent of the net sales price of applicable licensed products including optical components.
Accordingly, from January 1, 2015, both Nikon and we are no longer prohibited under the agreement from bringing claims against
each other on the basis of infringement of patents subject to the Nikon Cross-License Agreement, other than perpetually licensed
patents. In addition, as described above, the Patent Selection was completed in October 2016. Therefore, there is now a defined
group of patents owned by each party for which the license granted to the other party has expired.
If Nikon files suit against us alleging patent infringement, we may incur substantial legal fees and expenses, and we may not
prevail. Similarly, if we file suit against Nikon alleging patent infringement, we may incur substantial legal fees and expenses, and
we may not prevail. Patent litigation is complex and may extend for a protracted period of time, giving rise to the potential for both
substantial costs and diverting the attention of key management and technical personnel. Potential adverse outcomes from patent
litigation may include, without limitation, payment of significant monetary damages, injunctive relief prohibiting the sale of products,
and/or settlement involving significant costs to be paid by us, any of which may have a material adverse effect on our business,
financial condition and/or results of operations. We are unable to predict at this time whether any such patent suit will in fact
materialize, or, if so, what its outcome might be.
19. Income Taxes
The components of the provision for income taxes are as follows:
Year ended December 31
(in thousands)
Current tax
Deferred tax
Provision for income taxes
2014
EUR
(130,425)
53,430
(76,995)
2015
EUR
(116,094)
(45,352)
(161,446)
2016
EUR
(157,834)
(61,650)
(219,484)
The Dutch statutory tax rate was 25.0 percent in 2016, 2015 and 2014. Tax amounts in other jurisdictions are calculated at the rates
prevailing in the relevant jurisdictions.
The reconciliation of the provision for income taxes is as follows:
Year ended December 31
(in thousands)
2014
EUR
% 1
2015
EUR
% 1
2016
EUR
% 1
Income tax provision based on ASML’s domestic rate
(318,409)
25.0 % (387,155)
25.0 % (422,845)
25.0 %
Income before income taxes
1,273,635
100.0 % 1,548,620
100.0 % 1,691,378
100.0 %
Effects of tax rates in foreign jurisdictions
Adjustments in respect of tax exempt income
(1,580)
23,899
0.1 %
5,370
(1.9)%
31,276
(0.3)%
(2.0)%
(2,665)
31,307
0.2 %
(1.9)%
Adjustments in respect of tax incentives
159,728
(12.5)% 205,555
(13.3)% 178,294
(10.5)%
Adjustments in respect of prior years’ current taxes
Adjustments in respect of prior years’ deferred taxes
Movements in the liability for unrecognized tax benefits
Tax effects in respect of acquisition related items
Other credits and non tax deductible items
(6,474)
1,325
(9,669)
77,909
(3,724)
0.5 %
(13,559)
(0.1)%
6,001
0.8 %
(10,600)
(6.1)%
0.3 %
—
0.9 %
(0.4)%
0.7 %
— %
(4,719)
(6,604)
3,995
8,792
0.3 %
0.4 %
(0.2)%
(0.5)%
0.3 %
1,666
(0.1)%
(5,039)
Provision for income taxes
(76,995)
6.0 % (161,446)
10.4 % (219,484)
13.0 %
1.
As a percentage of income before income taxes.
Income tax provision based on ASML’s domestic rate
The provision for income taxes based on ASML’s domestic rate is based on the Dutch statutory income tax rate. It reflects the
provision for income taxes that would have been applicable assuming that all of our income is taxable against the Dutch statutory
tax rate and there were no permanent differences between taxable base and financial results and no Dutch tax incentives were
applied.
Effects of tax rates in foreign jurisdictions
A portion of our results is realized in countries other than the Netherlands where different tax rates are applicable.
ASML ANNUAL REPORT 2016
F-37
Adjustments in respect of tax exempt income
In certain jurisdictions part of the income generated is tax exempted.
Adjustments in respect of tax incentives
Adjustments in respect of tax incentives relate to reduced tax rates in several jurisdictions, mainly consisting of the Dutch
Innovation Box and the Dutch research and development deduction or RDA. The Innovation box is a facility under Dutch corporate
tax law pursuant to which qualified income associated with R&D is subject to an effective tax rate of 5%. The RDA is a tax incentive
providing for an additional tax deduction for qualified (non-labor) cost incurred for R&D activities performed in the Netherlands. As
of 2016, the RDA is converted from a corporate income tax credit into a wage tax credit reducing R&D costs. See Note 22.
Adjustments in respect of prior years’ current taxes
The movements in the adjustments in respect of prior years' current taxes for the years 2014, 2015 and 2016 are considered to be
limited.
Adjustments in respect of prior years’ deferred taxes
The movements in the adjustments in respect of prior years' deferred taxes for the years 2014, 2015 and 2016 are considered to be
limited.
Movements in the liability for unrecognized tax benefits
In 2016, similar to prior years 2015 and 2014, the effective tax rate was impacted by limited movements in the liability for
unrecognized tax benefits, including effects due to foreign exchange rate differences.
Tax effects in respect of acquisition related items
In 2014 the tax rate was favorably impacted by settling agreements entered into by ASML Netherlands B.V. and Cymer LLC. The
agreements settled in 2014, were originally entered into by ASML Netherlands B.V. and Cymer LLC prior to our acquisition of
Cymer in May 2013. The settlement amount was taxed at different tax rates. In 2016, the tax effects mainly relate to the acquisition
of HMI.
Other credits and non tax deductible items
Other credits and non tax deductible items reflect the impact on statutory rates of permanent non tax deductible items such as
non-deductible interest expense, and non-deductible meals and entertainment expenses, as well as the impact of (the reversal of)
various tax credits on our provision for income taxes.
Income taxes recognized directly in shareholders’ equity
Income taxes recognized directly in shareholders’ equity (including OCI) are as follows:
Income tax recognized in shareholders’ equity
(in thousands)
Current tax
OCI (financial instruments)
Tax benefit from share-based payments
Total income tax recognized in shareholders’ equity
2014
EUR
2,977
(3,972)
(995)
2015
EUR
(1,363)
(3,660)
(5,023)
2016
EUR
1,201
(882)
319
Liability for unrecognized tax benefits and deferred taxes
The liability for unrecognized tax benefits and total deferred tax position recorded on the Consolidated Balance Sheets are as
follows:
As of December 31
(in thousands)
Liability for unrecognized tax benefits
Deferred tax position
Deferred and other tax assets (liabilities)
2015
EUR
(96,458)
(518)
(96,976)
2016
EUR
(136,434)
(225,463)
(361,897)
Liability for unrecognized tax benefits
We have operations in multiple jurisdictions, where we are subject to the application of complex tax laws. Application of these
complex tax laws may lead to uncertainties on tax positions. We aim to resolve these uncertainties in discussions with the tax
authorities. We reserve for uncertain tax positions, which are unsolved, as liability for unrecognized tax benefits in line with the
requirements of ASC 740, which requires us to estimate the potential outcome of any uncertain tax position when disputed by the
tax authorities. Our estimate for the potential outcome of any uncertain tax position is highly judgmental. We conclude that we have
adequately provided for uncertain tax positions. However, settlement of these uncertain tax positions in a manner inconsistent with
our expectations could have a material impact on our Financial Statements.
ASML ANNUAL REPORT 2016
F-38
Consistent with the requirements of ASC 740, as of December 31, 2016, the liability for unrecognized tax benefits amounts to EUR
136.4 million (2015: EUR 96.5 million) which is classified as non-current deferred and other tax liabilities. If recognized, these tax
benefits would affect our effective tax rate for approximately the equal amounts.
Expected interest and penalties related to income tax liabilities have been accrued for and are included in the liability for
unrecognized tax benefits and in the provision for income taxes. The balance of accrued interest and penalties recorded in the
Consolidated Balance Sheets as of December 31, 2016 amounted to EUR 30.9 million (2015: EUR 25.0 million). Accrued interest
and penalties recorded in the Consolidated Statement of Operations of 2016 amounted to a tax charge of EUR 5.8 million (2015:
EUR 0.2 million; 2014: EUR 1.7 million).
A reconciliation of the beginning and ending balance of the liability for unrecognized tax benefits is as follows:
As of December 31
(in thousands)
Balance, January 1
Gross increases – tax positions in prior period
Gross decreases – tax positions in prior period
Gross increases – tax positions in current period
Acquisitions through business combinations
Lapse of statute of limitations
Effect of changes in exchange rates
Total liability for unrecognized tax benefits
2015
EUR
(83,738)
(8,145)
1,987
(10,690)
—
6,248
(2,120)
(96,458)
2016
EUR
(96,458)
(3,415)
1,943
(10,614)
(42,398)
16,081
(1,573)
(136,434)
We conclude our allowances for tax contingencies to be appropriate. Based on the information currently available, we estimate that
the liability for unrecognized tax benefits will decrease by EUR 12.4 million within the next 12 months, mainly as a result of
expiration of statute of limitations.
We are subject to tax audits in certain of our major tax jurisdictions, for example for years from and including 2009 onwards in
Korea. In the course of such audits, local tax authorities may challenge the positions taken by us.
ASML ANNUAL REPORT 2016
F-39
Deferred taxes
The composition of total deferred tax assets and liabilities reconciled to the classification in the Consolidated Balance Sheets is as
follows:
Deferred taxes
(in thousands)
Deferred tax assets:
Capitalized R&D expenditures
R&D credits
Inventories
Deferred revenue
Accrued and other liabilities
Installation and warranty reserve
Tax effect carry-forward losses
Property, plant and equipment
Restructuring and impairment
Alternative minimum tax credits 1
Share-based payments
Other temporary differences
Total deferred tax assets 2
Deferred tax liabilities:
Intangible fixed assets
Property, plant and equipment
Borrowing costs
Other temporary differences
January 1,
2016
Acquisitions
through
business
combinations
Consolidated
Statements of
Operations
Effect of
changes
in exchange
rates
December 31,
2016
EUR
EUR
EUR
EUR
EUR
12,625
16,406
75,527
35,420
47,226
11,042
20,893
7,171
1,861
6,130
12,514
24,460
271,275
(225,450)
(40,286)
(1,913)
(4,144)
—
—
—
—
—
—
—
—
—
—
—
2,000
2,000
(144,541)
—
—
(15,451)
(159,992)
(3,524)
(15,819)
1,395
10,623
9,424
3,914
(19,461)
3,424
(1,166)
(1,276)
842
(1,419)
(13,043)
(52,370)
(2,160)
151
1,777
361
(454)
3,708
1,385
2,603
785
1,261
388
(16)
288
636
(50)
9,462
133
80,630
47,428
59,253
15,741
2,693
10,983
679
5,142
13,992
24,991
10,895
271,127
(10,082)
(2,232)
—
111
(432,443)
(44,678)
(1,762)
(17,707)
(52,602)
(12,203)
(496,590)
Total deferred tax liabilities
(271,793)
Net deferred tax assets (liabilities)
(518)
(157,992)
(65,645)
(1,308)
(225,463)
Classified as:
Deferred tax assets – current 3
Deferred tax assets – non-current 3
Deferred tax liabilities – current 3
Deferred tax liabilities – non-current 3
Net deferred tax assets (liabilities)
133,131
29,012
(2,379)
(160,282)
(518)
—
34,940
—
(260,403)
(225,463)
1.
2.
3.
Alternative minimum tax credits relate to prepaid US taxes which are credited against future taxable profits after the carry-forward losses and other available tax
attributes are used. These alternative minimum tax credits never expire.
Valuation allowances recognized in relation to deferred tax assets as of December 31, 2016 amounted to EUR 42.4 million (2015: EUR 29.9 million).
As of January 1, 2016, ASML early adopted the amendment to ASC 740 “Income taxes (Topic 740): Balance Sheet Classification of Deferred Taxes”, which requires
that deferred tax liabilities and assets are classified as non-current in the consolidated balance sheets. The comparative figures have not been adjusted to reflect this
change in accounting policy.
ASML ANNUAL REPORT 2016
F-40
Deferred taxes
January 1,
2015
Consolidated
Statements of
Operations
Effect of
changes
in exchange
rates
December 31,
2015
(in thousands)
EUR
EUR
Deferred tax assets:
Capitalized R&D expenditures
R&D credits
Inventories
Deferred revenue
Accrued and other liabilities
Installation and warranty reserve
Tax effect carry-forward losses
Property, plant and equipment
Restructuring and impairment
Alternative minimum tax credits 1
Share-based payments
Other temporary differences
Total deferred tax assets 2
Deferred tax liabilities:
Intangible fixed assets
Property, plant and equipment
Borrowing costs
Other temporary differences
14,593
43,361
63,012
21,249
47,350
13,670
39,106
6,295
2,283
5,505
9,365
26,398
292,187
(219,141)
(29,435)
(1,887)
(9,009)
Total deferred tax liabilities
(259,472)
(3,626)
(31,589)
8,160
12,115
(5,391)
(4,319)
(20,215)
360
(680)
—
2,129
(7,511)
(50,567)
18,586
(8,273)
(26)
5,528
15,815
EUR
1,658
4,634
4,355
2,056
5,267
1,691
2,002
516
258
625
1,020
5,573
29,655
EUR
12,625
16,406
75,527
35,420
47,226
11,042
20,893
7,171
1,861
6,130
12,514
24,460
271,275
(24,895)
(2,578)
—
(663)
(225,450)
(40,286)
(1,913)
(4,144)
(28,136)
(271,793)
Net deferred tax assets (liabilities)
32,715
(34,752)
1,519
(518)
Classified as:
Deferred tax assets – current
Deferred tax assets – non-current
Deferred tax liabilities – current
Deferred tax liabilities – non-current
Net deferred tax assets (liabilities)
159,460
28,760
(1,928)
(153,577)
32,715
133,131
29,012
(2,379)
(160,282)
(518)
1.
2.
Alternative minimum tax credits relate to prepaid US taxes which are credited against future taxable profits after the carry-forward losses are used.
Valuation allowances recognized in relation to deferred tax assets as of December 31, 2015 amounted to EUR 29.9 million (2014: EUR 25.4 million)
Tax effect carry-forward losses
Deferred tax assets from carry-forward losses recognized as per December 31, 2016 result predominantly from net operating loss
carry-forwards incurred relating to NID stock in Belgium.
NID stock in Belgium can generally be offset against future profits realized in the 7 years following the year in which the NID stock
occurs. The total amount of NID stock is EUR 6.5 million (2015: EUR 32.0 million) taxable base and EUR 2.2 million (2015: EUR
10.9 million) tax effect.
Qualifying net operating losses, under US federal tax laws incurred by US group companies can in general be offset against future
profits realized in 20 years following the year in which the losses are incurred. As of December 31, 2015 we fully utilized the amount
of losses carried forward under US federal tax laws. The total amount of losses carried forward under US state tax laws as of
December 31, 2016, is EUR 0.0 million (2015: EUR 90.4 million) tax basis or EUR 0.0 million (2015: EUR 4.3 million) tax effect.
20. Segment Disclosure
ASML has one reportable segment, for the development, production, marketing, sale and servicing of advanced semiconductor
equipment systems exclusively consisting of lithography related systems. Its operating results are regularly reviewed by the CODM
in order to make decisions about resource allocation and assess performance.
Management reporting includes net system sales figures of new and used systems and includes sales by technology.
ASML ANNUAL REPORT 2016
F-41
Net system sales for new and used systems were as follows:
Year ended December 31
(in thousands)
New systems
Used systems
Net system sales
2014
EUR
4,127,433
115,357
4,242,790
2015
EUR
4,109,439
127,744
4,237,183
2016
EUR
4,499,315
71,803
4,571,118
Net system sales per technology were as follows:
Year ended December 31
Net system sales
in units
Net system sales
in EUR thousands
2016
EUV
ArFi
ArF
KrF
i-line
Total
2015
EUV
ArFi
ArF
KrF
i-line
Total
2014
EUV
ArFi
ArF
KrF
i-line
Total
4
70
6
57
20
157
1
67
9
74
18
169
5
76
3
38
14
136
324,854
3,518,718
116,876
532,661
78,009
4,571,118
70,473
3,238,452
107,522
747,740
72,996
4,237,183
299,845
3,477,718
32,611
381,436
51,180
4,242,790
The increase in net system sales of EUR 333.9 million, or 7.9 percent, to EUR 4,571.1 million in 2016 from EUR 4,237.2 million in
2015 (2014: EUR 4,242.8 million) is mainly due to an increase in the number of EUV and ArFi systems sold.
For geographical reporting, total net sales are attributed to the geographic location in which the customers’ facilities are located.
Long-lived assets are attributed to the geographic location in which these assets are located.
ASML ANNUAL REPORT 2016
F-42
Total net sales and long-lived assets (consisting of property, plant and equipment) by geographic region were as follows:
Year ended December 31
Total net sales
Long-lived
assets
(in thousands)
EUR
EUR
2016
Japan
Korea
Singapore
Taiwan
China
Rest of Asia
Netherlands
EMEA
United States
Total
2015
Japan
Korea
Singapore
Taiwan
China
Rest of Asia
Netherlands
EMEA
United States
Total
2014
Japan
Korea
Singapore
Taiwan
China
Rest of Asia
Netherlands
EMEA
United States
Total
404,259
1,579,907
245,785
2,084,702
779,547
19,758
1,512
551,330
1,127,952
6,794,752
668,381
1,971,650
121,390
1,551,512
541,899
2,077
3,521
211,038
1,215,907
6,287,375
477,110
1,624,059
132,593
1,124,883
403,371
2,205
1,334
196,332
1,894,390
5,856,277
4,277
17,354
844
125,456
3,156
2,757
1,201,437
4,093
327,863
1,687,237
3,209
11,626
422
60,029
1,390
2,095
1,229,800
1,313
310,794
1,620,678
3,695
16,684
879
60,241
1,766
2,041
1,124,632
1,322
236,263
1,447,523
In 2016, net sales to the largest customer accounted for EUR 1,646.2 million, or 24.2 percent, of total net sales (2015: EUR 1,633.6
million, or 26.0 percent, of total net sales; 2014: EUR 1,532.1 million, or 26.2 percent, of total net sales). Our three largest
customers (based on total net sales) accounted for EUR 655.3 million, or 51.8 percent, of accounts receivable and finance
receivables at December 31, 2016, compared with EUR 704.1 million, or 58.3 percent, at December 31, 2015.
Substantially all of our sales were export sales in 2016, 2015 and 2014.
21. Selected Operating Expenses and Additional Information
Personnel expenses for all payroll employees were:
Year ended December 31
(in thousands)
Wages and salaries
Social security expenses
Pension and retirement expenses
Share-based payments
2014
EUR
985,883
81,721
71,316
63,380
2015
EUR
1,165,433
92,910
79,717
59,070
2016
EUR
1,279,550
103,847
85,677
47,701
Personnel expenses
1,202,300
1,397,130
1,516,775
The average number of payroll employees in FTEs during 2016, 2015 and 2014 was 12,852, 11,824 and 10,942, respectively.
ASML ANNUAL REPORT 2016
F-43
The average number of payroll employees in FTEs in our operations in the Netherlands during 2016, 2015 and 2014 was 6,567,
6,113 and 5,589, respectively. Both increases in 2016 compared to 2015 and in 2015 compared to 2014 in payroll employees (in
FTEs) were in line with our net sales growth.
The total number of payroll and temporary employees in FTEs per sector was:
As of December 31
Customer Support
SG&A
Manufacturing & Logistics
R&D
Total FTEs
Less: Temporary employees (in FTEs)
Payroll employees (in FTEs)
2014
3,289
1,240
3,846
5,697
14,072
2,754
11,318
2015
3,607
1,380
3,833
5,861
14,681
2,513
12,168
2016
4,210
1,561
4,443
6,433
16,647
2,656
13,991
22. Research and Development Costs
R&D costs (net of credits and excluding contributions under the NRE Funding Agreements from Participating Customers in the
CCIP) increased by EUR 37.7 million, or 3.5 percent, to EUR 1,105.8 million in 2016 from EUR 1,068.1 million in 2015. R&D costs
for both 2016 and 2015 were primarily focused on programs supporting EUV, DUV immersion, and Holistic Lithography. In 2016,
R&D activities mainly related to:
•
•
•
EUV - Further improving productivity, and supporting the design and industrialization of our NXE:3400B system including
pellicle development.
DUV immersion - Focused on development of our next generation immersion platform, the NXT:2000i, as well as maturing the
product introduction in the field of our NXT:1980 system.
Holistic Lithography - Further development of YieldStar, process window control and enlargement solutions.
R&D costs (net of credits and excluding contributions under the NRE Funding Agreements from Participating Customers in the
CCIP) decreased by EUR 6.0 million, or 0.6 percent, to EUR 1,068.1 million in 2015, from EUR 1,074.1 million in 2014. R&D costs
for both 2015 and 2014 were primarily focused on programs supporting EUV, DUV immersion, and Holistic Lithography. In 2015,
R&D activities mainly related to:
•
•
•
EUV - Further improving availability and productivity, and supporting the design of our NXE:3400B system;
DUV immersion - Focused on the final stages of development relating to our NXT:1980 systems, of which we shipped the first
systems in 2015, as well as development of future DUV platforms; and
Holistic Lithography - Further development of Yieldstar and process window control solutions.
Due to changes in tax regulations in the Netherlands effectuated in 2016, the R&D programs formerly defined as corporate income
tax benefits (RDA), are now defined as wage tax benefits and therefore included as a credit in the R&D costs.
23. Interest and Other, Net
Interest and other income of EUR 71.7 million (2015: EUR 10.9 million and 2014: EUR 14.5 million) relates to interest income on
deposits, short-term investments, money market funds, bank accounts and on finance receivables. In addition, in 2016 we
recognized EUR 55.2 million on foreign currency revaluations on transactions and balances relating to the HMI acquisition in
Interest and other, net.
Interest and other costs of EUR 38.0 million (2015: EUR 27.4 million and 2014: EUR 23.1 million) mainly consist of net interest
expense on our Eurobonds and related interest rate swaps, hedges, interest on lease obligations and amortized financing costs.
Interest on cash pools is reported on a gross basis in both interest income and interest expense. From an economic and legal
perspective, the interest on cash pools of EUR 0.9 million (2015: EUR 1.5 million and 2014: EUR 3.2 million) recorded in interest
income nets off against the same amount recorded in interest expense.
ASML ANNUAL REPORT 2016
F-44
24. Vulnerability Due to Certain Concentrations
We rely on outside vendors for components and subassemblies used in our systems including the design thereof, each of which is
obtained from a single supplier or a limited number of suppliers. Our reliance on a limited group of suppliers involves several risks,
including a potential inability to obtain an adequate supply of required components, reduced control over pricing and the risk of
untimely delivery of these components and subassemblies.
Carl Zeiss SMT is our single supplier, and we are their single customer, of optical components for lithography systems. Carl Zeiss
SMT is capable of developing and producing these items only in limited numbers and only through the use of manufacturing and
testing facilities in Oberkochen and Wetzlar, Germany. ASML has agreed with Zeiss to acquire a 24.9% minority stake in Carl Zeiss
SMT, for EUR 1 billion in cash. The closing of this transaction is expected in the second quarter of 2017 and is conditional on,
among other things, customary merger control approvals. In addition, ASML agreed to support Carl Zeiss SMT's R&D costs, capital
expenditures and other supply chain investments, in respect of High-NA, in an amount of EUR 760 million over 6 years. At the end
of 2016 an amount of EUR 12.0 million was paid, resulting in a remaining commitment as of December 31, 2016 of EUR 748.0
million.
25. Shareholders’ Equity
Share Capital
ASML’s authorized share capital amounts to EUR 126.0 million and is divided into:
•
•
•
700,000,000 Cumulative Preference Shares with a nominal value of EUR 0.09 each;
699,999,000 Ordinary Shares with a nominal value of EUR 0.09 each; and
9,000 Ordinary Shares B with a nominal value of EUR 0.01 each.
As of December 31, 2016, 439,199,514 ordinary shares with a nominal value of EUR 0.09 each were issued and fully paid up; this
includes 9,258,282 treasury shares. No ordinary shares B and no cumulative preference shares have been issued.
Shares Issued as a Result of the Acquisition of HMI
ASML and HMI completed the merger pursuant to which ASML acquired HMI on November 22, 2016. As part of the transaction,
HEC and certain HMI officers have also agreed to (re)invest in ASML part of the proceeds to be received by them from selling their
HMI shares in the transaction, underscoring their belief in the strategic rationale for the transaction and their commitment to the
combined businesses going forward. Accordingly, ASML has issued a total number of 5,866,001 ordinary shares for an aggregate
amount of EUR 580.6 million.
Our BoM has the power to issue ordinary shares and cumulative preference shares insofar as the BoM has been authorized to do
so by the General Meeting of Shareholders. The BoM requires approval of the SB for such an issue. The authorization by the
General Meeting of Shareholders can only be granted for a certain period not exceeding five years and may be extended for no
longer than five years on each occasion. In case the General Meeting of Shareholders has not authorized the BoM to issue shares,
the General Meeting of Shareholders shall have the power to issue shares upon the proposal of the BoM, provided that the SB has
approved such proposal.
Shares Issued as a Result of the Acquisition of Cymer
ASML and Cymer completed the merger pursuant to which ASML acquired Cymer on May 30, 2013. As a result of the merger,
each share of Cymer common stock outstanding immediately prior to the completion of the merger was converted into the right to
receive USD 20.00 in cash plus 1.1502 ASML ordinary shares. As of December 31, 2016, we have issued 36,474,035 ordinary
shares for an aggregate amount of EUR 2,347.3 million in relation to the acquisition of Cymer.
Shares Issued in Relation to Share-based Compensation
We have adopted various share and option plans for our employees. Whenever ordinary shares have to be delivered pursuant to
these plans, we typically deliver treasury shares that we purchase in share buy-back programs for this purpose. Because these
treasury shares were no longer available in the course of 2014, we issued new ordinary shares from time to time to meet our
delivery obligations under the plans. In 2016, we issued no new ordinary shares in relation to our ESOPs. The aggregate fair value
of the new ordinary shares issued is EUR 0.0 million in 2016 (2015: EUR 36.9 million; 2014: EUR 51.3 million). Fair value is
determined on the closing price of our ordinary shares at Amsterdam Euronext at the date of respective issuance.
ASML ANNUAL REPORT 2016
F-45
Ordinary Shares
An ordinary share entitles the holder thereof to cast nine votes in the General Meeting of Shareholders. Each ordinary share
consists of 900 fractional shares. Fractional shares entitle the holder thereof to a fractional dividend but do not entitle the holder
thereof to voting rights. Only those persons who hold shares directly in the share register in the Netherlands, held by us at our
address at 5504 DR Veldhoven, de Run 6501, the Netherlands, or in the New York share register, held by JP Morgan Chase Bank,
N.A., P.O. Box 64506, St. Paul, MN 55164-0506, United States, can hold fractional shares. Persons who hold ordinary shares
through the deposit system under the Dutch Securities Bank Giro Transactions Act (Wet giraal effectenverkeer; the Giro Act)
maintained by the Dutch central securities depository Euroclear Nederland or through the DTC cannot hold fractional shares. At our
2016 AGM, the BoM was authorized from April 29, 2016 through October 29, 2017, subject to the approval of the SB, to issue
shares and/or rights thereto representing up to a maximum of 5.0 percent of our issued share capital at April 29, 2016, plus an
additional 5.0 percent of our issued share capital at April 29, 2016 that may be issued in connection with mergers, acquisitions and/
or (strategic) alliances. At our 2017 AGM, our shareholders will be asked to extend this authority through October 26, 2018.
Holders of ASML’s ordinary shares have a preemptive right, in proportion to the aggregate nominal amount of the ordinary shares
held by them. This preemptive right may be restricted or excluded. Holders of ordinary shares do not have preemptive right with
respect to any ordinary shares issued for consideration other than cash or ordinary shares issued to employees. If authorized for
this purpose by the General Meeting of Shareholders, the BoM has the power subject to approval of the SB, to restrict or exclude
the preemptive rights of holders of ordinary shares. At our 2016 AGM, our shareholders authorized the BoM through October 29,
2017, subject to approval of the SB, to restrict or exclude preemptive rights of holders of ordinary shares up to a maximum of 10
percent of our issued share capital. At our 2017 AGM, our shareholders will be asked to extend this authority through October 26,
2018.
Ordinary Shares B
The articles of association provide for 9,000 ordinary shares B with a nominal value of EUR 0.01. Each ordinary share B entitles the
holder thereof to cast one vote at the General Meeting of Shareholders. Holders of fractional shares had the opportunity, until July
31, 2013, to convert fractional shares into ordinary shares B to obtain voting rights with respect to those fractional shares. No
ordinary shares B have been issued.
Cumulative Preference Shares
In 1998, we granted the Preference Share Option to the Foundation. This option was amended and extended in 2003 and 2007. A
third amendment to the option agreement between the Foundation and ASML became effective on January 1, 2009, to clarify the
procedure for the repurchase and cancellation of the preference shares when issued.
The nominal value of the cumulative preference shares amounts to EUR 0.09 and the number of cumulative preference shares
included in the authorized share capital is 700,000,000. A cumulative preference share entitles the holder thereof to cast nine votes
in the General Meeting of Shareholders.
The Foundation may exercise the Preference Share Option in situations where, in the opinion of the Board of Directors of the
Foundation, ASML’s interests, ASML’s business or the interests of ASML’s stakeholders are at stake. This may be the case if a
public bid for ASML’s shares has been announced or has been made, or the justified expectation exists that such a bid will be
made without any agreement having been reached in relation to such a bid with ASML. The same may apply if one shareholder, or
more shareholders acting in concert, hold a substantial percentage of ASML’s issued ordinary shares without making an offer or if,
in the opinion of the Board of Directors of the Foundation, the (attempted) exercise of the voting rights by one shareholder or more
shareholders, acting in concert, is materially in conflict with ASML’s interests, ASML’s business or ASML’s stakeholders.
The objectives of the Foundation are to look after the interests of ASML and of the enterprises maintained by ASML and of the
companies which are affiliated in a group with ASML, in such a way that the interests of ASML, of those enterprises and of all
parties concerned are safeguarded in the best possible way, and influences in conflict with these interests which might affect the
independence or the identity of ASML and those companies are deterred to the best of the Foundation’s ability, and everything
related to the above or possibly conducive thereto. The Foundation seeks to realize its objects by the acquiring and holding of
cumulative preference shares in the capital of ASML and by exercising the rights attached to these shares, particularly the voting
rights attached to these shares.
The Preference Share Option gives the Foundation the right to acquire a number of cumulative preference shares as the Foundation
will require, provided that the aggregate nominal value of such number of cumulative preference shares shall not exceed the
aggregate nominal value of the ordinary shares that have been issued at the time of exercise of the Preference Share Option for a
subscription price equal to their nominal value. Only one-fourth of the subscription price would be payable at the time of initial
issuance of the cumulative preference shares, with the other three-fourths of the nominal value only being payable when we call up
this amount. Exercise of the preference share option could effectively dilute the voting power of the outstanding ordinary shares by
one-half.
ASML ANNUAL REPORT 2016
F-46
Cancellation and repayment of the issued cumulative preference shares by ASML requires the authorization by the General Meeting
of Shareholders of a proposal to do so by the BoM approved by the SB. If the Preference Share Option is exercised and as a result
cumulative preference shares are issued, ASML, at the request of the Foundation, will initiate the repurchase or cancellation of all
cumulative preference shares held by the Foundation. In that case ASML is obliged to effect the repurchase and cancellation
respectively as soon as possible. A cancellation will have as a result a repayment of the amount paid and exemption from the
obligation to pay up on the cumulative preference shares. A repurchase of the cumulative preference shares can only take place
when such shares are fully paid up.
If the Foundation does not request ASML to repurchase or cancel all cumulative preference shares held by the Foundation within 20
months after issuance of these shares, we will be obliged to convene a General Meeting of Shareholders in order to decide on a
repurchase or cancellation of these shares.
The Foundation is independent of ASML. The Board of Directors of the Foundation comprises four independent members from the
Dutch business and academic communities. The members of the Board of Directors of the Foundation are: Mr. H. Bodt, Mr. M.W.
den Boogert, Mr. J.M. de Jong and Mr. A.H. Lundqvist.
Dividend Policy
As part of our financing policy, we aim to pay an annual dividend that will be stable or growing over time. Annually, the BoM will,
upon prior approval from the SB, submit a proposal to the AGM with respect to the amount of dividend to be declared with respect
to the prior year. The dividend proposal in any given year will be subject to the availability of distributable profits or retained
earnings and may be affected by, among other factors, the BoM’s views on our potential future liquidity requirements, including for
investments in production capacity, the funding of our R&D programs and for acquisition opportunities that may arise from time to
time; and by future changes in applicable income tax and corporate laws. Accordingly, it may be decided to propose not to pay a
dividend or to pay a lower dividend with respect to any particular year in the future.
For 2016, a proposal to declare a dividend of EUR 1.20 per ordinary share of EUR 0.09 nominal value will be submitted to the 2017
AGM.
26. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
In addition to dividend payments, we intend to return cash to our shareholders on a regular basis through share buybacks or capital
repayment, subject to our actual and anticipated level of liquidity requirements and other relevant factors.
On January 20, 2016 we announced our intention to repurchase approximately EUR 1.5 billion of our own shares within the
2016-2017 timeframe. This program includes an amount of approximately EUR 500.0 million remaining from the prior share
repurchase program, announced January 21, 2015. We intend to cancel the shares upon repurchase. During the period from
January 21, 2016 up to December 31, 2016, we purchased 4.8 million shares that will be canceled for a total consideration of EUR
400.0 million. In the light of the acquisition of HMI and the announced investment in Carl Zeiss SMT, we have paused the share
buyback program. As a result, the 2016–2017 program may not be completed for the full amount. Otherwise, the current program
will remain in place, yet it may be further suspended, modified or discontinued at any time. Furthermore, no shares were canceled
in 2016, and we intend to cancel 7.7 million shares in 2017.
The following table provides a summary of shares repurchased by ASML in 2016:
Period
January 21 - 31, 2016
February 1 - 29, 2016
March 1 - 31, 2016
April 1 - 30, 2016
May 1 - 31, 2016
June 1 - 30, 2016
July 1 - 31, 2016
August 1 - 31, 2016
September 1 - 30, 2016
October 1 - 31, 2016
November 1 - 30, 2016
December 1 - 31, 2016
Total
Total
number
of shares
purchased
Average
price paid
per Share
(EUR)
Total number
of shares
purchased as
part of
publicly
announced plans
or programs
Maximum value
of shares
that may yet
be purchased
under the
program (EUR
thousands)
268,537
1,306,921
1,045,133
1,138,127
278,182
560,410
166,068
—
—
—
—
—
82.08
78.12
86.51
87.95
82.15
85.57
87.63
—
—
—
—
—
268,537
1,575,458
2,620,591
3,758,718
4,036,900
4,597,310
4,763,378
4,763,378
4,763,378
4,763,378
4,763,378
4,763,378
1,477,957
1,375,859
1,285,449
1,185,356
1,162,504
1,114,552
1,100,000
1,100,000
1,100,000
1,100,000
1,100,000
1,100,000
4,763,378
83.97
ASML ANNUAL REPORT 2016
F-47
27. Customer Co-Investment Program
On July 9, 2012, we announced our CCIP to accelerate our development of EUV technology beyond the current generation and our
development of future 450mm silicon wafer technology. The Participating Customers collectively agreed to fund EUR 1.38 billion of
our R&D projects from 2013 through 2017. This program created risk sharing with some of our largest customers while the results
of our development programs will be available to every semiconductor manufacturer with no restrictions.
Development 450mm silicon wafer technology
As previously disclosed, in November 2013, ASML decided to pause the development of 450mm lithography systems until
customer demand and the timing related to such demand is clear. We have agreed with Intel that the 450mm NRE funding will be
applied to other lithography projects, including generic developments applicable to both 300mm and 450mm. We believe that our
450mm development activities can be restarted if and when the industry demands the introduction of 450mm.
In addition to the EUV and 450mm funding commitments, the Participating Customers have invested in 96,566,077 of our ordinary
shares, the proceeds of which, totaling EUR 3.85 billion, were returned to the holders of ordinary shares (excluding the Participating
Customers) through a synthetic share buyback executed in November 2012.
Description of the program
Intel is the largest participant in the program, with an aggregate funding commitment of EUR 829 million - an aggregate amount of
EUR 553 million for the development of 450mm lithography technology (which, as a result of the pause of that program, has been
applied to EUV technology development) and an aggregate amount of EUR 276 million for the development of EUV technology -
and an investment in 62,977,877 of our ordinary shares for an aggregate subscription price of EUR 2,513 million.
In addition to Intel, TSMC acquired 20,992,625 of our ordinary shares for an aggregate subscription price of EUR 838 million and
made a EUR 276 million funding commitment relating to the development of 450mm lithography equipment and EUV technology,
and Samsung acquired 12,595,575 of our ordinary shares for an aggregate subscription price of EUR 503 million and made a EUR
276 million funding commitment relating to the development of EUV technology. Shares were acquired by Dutch foundations
(Stichtingen) established for each participant. On June 12, 2015, TSMC reported to the AFM that its interest in ASML had
decreased below the three percent notification threshold. In its 2015 annual report, TSMC announced that it had sold its entire
stake. Additionally, in its Q3 2016 report, Samsung announced that it had sold one-half of its holdings.
In connection with the investment by the Participating Customers in ASML, each of the Participating Customers, and the respective
Stichtingen, entered into a shareholder’s agreement with ASML. The shareholder’s agreements contain provisions restricting the
voting rights of the Participating Customers, such that the Participating Customers are not generally permitted to vote their shares
except in certain extraordinary circumstances, a standstill arrangement and restrictions on the sale of shares in order to preserve an
orderly sell down of Participating Customer’s shares.
28. Related Party Transactions
On July 9, 2012, we announced our CCIP to accelerate our development of EUV technology beyond the current generation and our
development of future 450mm silicon wafer technology. One of the Participating Customers, Intel, agreed to fund EUR 829.0 million
for our R&D projects. In addition Intel also agreed to invest in ordinary shares equal to 15 percent of our issued share capital
(calculated giving effect to our synthetic share buyback in November 2012). Due to the equity investment, Intel is considered a
related party of ASML as of July 9, 2012.
The total net sales and the net outstanding liability to Intel (and its affiliates) were as follows:
Year ended December 31
(in thousands)
2014
EUR
2015
EUR
2016
EUR
Total net sales to Intel
1,007,603
618,069
1,401,983
Net outstanding liability to Intel
386,824
700,156
379,774
There have been no transactions during our most recent fiscal year, and there are currently no transactions, between ASML or any
of its subsidiaries, and any other significant shareholder, and any director or officer or any relative or spouse thereof other than
ordinary course (compensation) arrangements. During our most recent fiscal year, there has been no, and at present there is no,
outstanding indebtedness to ASML owed by or owing to any director or officer of ASML or any associate thereof.
29. Subsequent Events
Subsequent events were evaluated up to February 7, 2017, which is the date the Financial Statements included in this Annual
Report were approved. There are no events to report.
ASML ANNUAL REPORT 2016
F-48
Veldhoven, the Netherlands
February 7, 2017
/s/ Peter T.F.M. Wennink
Peter T.F.M. Wennink
President, CEO and member of the Board of Management
/s/ Wolfgang U. Nickl
Wolfgang U. Nickl
Executive Vice President, CFO and member of the Board of Management
ASML ANNUAL REPORT 2016
F-49
Report of Independent Registered Public Accounting Firm
To: The Supervisory Board and Shareholders of ASML Holding N.V.
We have audited the accompanying consolidated balance sheet of ASML Holding N.V. and subsidiaries as of December 31, 2016,
and the related consolidated statements of operations, comprehensive income, shareholders’ equity, and cash flows for the year
ended December 31, 2016. We also have audited ASML Holding N.V.’s internal control over financial reporting as of December 31,
2016, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO)”. ASML Holding N.V.’s management is responsible for these consolidated financial
statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal
control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our
responsibility is to express an opinion on these consolidated financial statements and an opinion on the Company’s internal control
over financial reporting based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free
of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our
audits of the consolidated financial statements included examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating
the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding
of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design
and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures
as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements
in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only
in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material
effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes
in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of
ASML Holding N.V. and subsidiaries as of December 31, 2016, and the results of its operations and its cash flows for the year ended
December 31, 2016, in conformity with U.S. generally accepted accounting principles. Also in our opinion, ASML Holding N.V.
maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016, based on criteria
established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO)”.
ASML Holding N.V. acquired Hermes Microvision, Inc. including subsidiaries (“HMI”) in November 2016, and management excluded
from its assessment of the effectiveness of ASML Holding N.V.’s internal control over financial reporting as of December 31, 2016,
HMI’s internal control over financial reporting associated with 2.6% of consolidated total assets (excluding any purchase price
accounting effect) and 0.4% of consolidated revenues included in the consolidated financial statements of ASML Holding N.V. and
subsidiaries as of and for the year ended December 31, 2016. Our audit of internal control over financial reporting of ASML Holding
N.V. also excluded an evaluation of the internal control over financial reporting of HMI.
/s/ KPMG Accountants N.V.
Rotterdam, the Netherlands
February 7, 2017
ASML ANNUAL REPORT 2016
F-50
Report of independent registered public accounting firm
To: the Supervisory Board and Shareholders of ASML Holding N.V.
We have audited the accompanying consolidated balance sheet of ASML Holding N.V. and subsidiaries (collectively, the
“Company”) as of December 31, 2015, and the related consolidated statements of operations, statements of shareholders’ equity
and statements of comprehensive income, and statements of cash flows for each of the years in the two-year period ended
December 31, 2015. The Company’s management is responsible for these financial statements. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatements. Our audit of the financial statements included examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made
by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position
of ASML Holding N.V. and its subsidiaries as of December 31, 2015, and the results of their operations and their cash flows for
each of the two years in the period ended December 31, 2015, in conformity with accounting principles generally accepted in the
United States of America.
/s/ Deloitte Accountants B.V.
Eindhoven, The Netherlands
February 4, 2016
ASML ANNUAL REPORT 2016
F-51
Definitions
ASML ANNUAL REPORT 2016
D-1
Name
AC
AFM
AGM
AMD
Description
Audit Committee of ASML
Autoriteit Financiële Markten; Authority for the Financial Markets of the Netherlands
Annual General Meeting of Shareholders
Advanced Micro Devices, Inc.
Annual Report
Annual Report on Form 20-F
ARCNL
Advanced Research Center for Nanolithography
ArF
ArFi
ASC
ASML
ASP
ASU
BA
BEPS
BESP
BoM
Brion
Argon Fluoride
Argon Fluoride Immersion
Accounting Standards Codification
ASML Holding N.V. and its subsidiaries
Average Selling Price
Accounting Standards Update
Bachelor of Arts
Base Erosion and Profit Shifting
Best Estimate of Selling Price
Board of Management
Brion Technologies, Inc.
Business Principles
Business principles of ASML
Canon
Canon Kabushiki Kaisha
Canon Cross-
License Agreement
ASML and Canon signed a global patent cross-license agreement related to the field of semiconductor lithography
Carl Zeiss SMT
Carl Zeiss SMT GmbH
CCIP
CD
CEO
CFO
CLS
CMO
Code
Customer Co-Investment Program
Critical Dimension
Chief Executive Officer
Chief Financial Officer
Cymer Light Sources
Chief Marketing Officer
Dutch Corporate Governance Code
Code of Conduct
Code of ethics and conduct
Company
ASML Holding N.V.
CO2
CODM
COO
CPO
CRMC
Cross-License
Transition Period
CTO
Cymer
Carbon Dioxide
Chief Operating Decision Maker
Chief Operations Officer
Chief Program Officer
Capital Research & Management Company
The period between January 1, 2010 and December 31, 2014
Chief Technology Officer
Cymer Inc., Cymer LLC and its subsidiaries
CZ SMT Investment
Agreement
Carl Zeiss SMT Investment Agreement
CZ SMT
Partnership
Agreement
Carl Zeiss SMT Partnership and Joint Venture Agreement
ASML ANNUAL REPORT 2016
D-2
Name
DC
Deloitte
DRAM
DTC
Description
Disclosure Committee
Deloitte Accountants B.V.
Dynamic Random Access Memory (often called performance memory)
Depository Trust Company
Dutch Central Bank
The Dutch Central Bank (De Nederlandsche Bank), which is the supervisor of all pension companies in the
Netherlands
DUV
EEA
EMEA
EPS
ESOP
Deep Ultra Violet
European Economic Area
Europe, the Middle East and Africa
Earnings per share
Employee Stock and Stock Option Plans
EURIBOR
Euro Interbank Offered Rate
Eurobonds
Euroclear
Nederland
Euronext
Amsterdam
EU
EUV
Our EUR 600 million 5.75 percent senior notes due 2017 (issued 2007), our EUR 750 million 3.375 percent senior
notes due 2023 (issued 2013), our EUR 500 million 0.625 percent senior notes due 2022 (issued 2016), EUR 1,000
million 1.375 percent senior notes due 2026 (issued 2016) and our EUR 750 million 1.625 percent senior notes due
2027 (issued 2016)
Nederlands Centraal Instituut voor Giraal Effectenverkeer B.V.
Euronext Amsterdam N.V.
European Union
Extreme Ultraviolet
Exchange Act
US Securities Exchange Act of 1934
FASB
FAT
FIRPTA
FMSA
Financial Accounting Standards Board
Factory Acceptance Test
Foreign Investment in Real Property Tax Act
Financial Markets Supervision Act (Wet op het financieel toezicht (Wft))
Foundation
Stichting Preferente Aandelen ASML
Foundry
Contract Manufacturers of Logic Chips
FTEs
HEC
High-NA
HMI
Full-time equivalents
Hermes-Epitek Corporation
High Numerical Aperture
Hermes Microvision, Inc.
Holistic Lithography
Adjusting the patterning process steps as a whole, in order to support optimization of the entire chip making
process
IASB
IC
i-line
IDM
IFRS
imec
Intel
International Accounting Standards Board
Integrated Circuit
Lithography system with a mercury lamp as light source
Integrated Device Manufacturer
International Financial Reporting Standards
Interuniversitair Micro-Elektronica Centrum
Intel Corporation
Intel NRE Funding
Agreements
The Intel Funding Agreements related to the development of 450mm and EUV lithography equipment
Intel Stichting
Stichting Administratiekantoor MAKTSJAB
Internet of Things
The internetworking of physical devices, vehicles, buildings and other items—embedded with electronics,
software, sensors, actuators, and network connectivity that enable these objects to collect and exchange data
ASML ANNUAL REPORT 2016
D-3
Name
IPR
IRS
KPMG
KrF
LIBOR
Logic
MBA
Description
Intellectual Property Rights
Internal Revenue Service
KPMG Accountants N.V.
Krypton Fluoride
London Interbank Offered Rate
Integrated Device Manufacturers and Foundries
Master of Business Administration
Memory
NAND-Flash Memory and DRAM Memory chip makers
mm
MPS
MPT
NA
NAND
NASDAQ
New York Transfer
Agent
Millimeter (one thousandth of a meter)
Mature Products and Services
Multiple Patterning Technology
Numerical Aperture
A binary operator composite of 'NOT AND' (often called storage memory)
NASDAQ Stock Market LLC
J.P. Morgan Chase Bank, N.A.
NID
Nikon
Notional Interest Deduction
Nikon Corporation
Nikon Cross-
License Agreement
The patent Cross-License agreement between Nikon and ASML related to lithography equipment used to
manufacture semiconductor devices
nm
Nanometer (one billionth of a meter)
Non-Resident
Holder
A holder of ordinary shares who is not, or is not deemed to be, a resident of the Netherlands for Dutch tax
purposes
NPV
NRE
Net Present Value
Non Recurring Engineering
NRE Funding
Agreements
The Intel NRE Funding Agreements, the Samsung NRE Funding Agreement and the TSMC NRE Funding
Agreements
NXE
NXT
OCI
OECD
NXE platform; a new platform utilizing the concepts of the TWINSCAN platform with complete new technologies in
three areas: light source, lens system, and vacuum body
TWINSCAN NXT systems; an improved version of the TWINSCAN systems, introducing new stages and stage
position control technology, which enables improved imaging and overlay
Other Comprehensive Income
Organization for Economic Co-operation and Development
Pattern Fidelity
Measuring how good a structure is printed and etched compared to the structure on the reticle
Participating
Customers
The participants in the Customer Co-Investment Program: Intel, TSMC, and Samsung
Partnership
Carl Zeiss SMT Holding GmbH & Co. KG
Patent Selection
As included in the Nikon Cross-License Agreement, a selection of a limited number of the other party's patents,
where the license for such patents expired in 2009, which is subject to a permanent covenant not to sue in respect
of patent infringement claims
PFC
PFIC
PME
Pattern Fidelity control
Passive Foreign Investment Company
Bedrijfstakpensioenfonds Metalektro
Preference Share
Option
An option to acquire cumulative preference shares in our capital
R&D
RC
RDA
Research and Development
Remuneration Committee of ASML
Research and Development Deduction ("Research and Development Aftrek")
ASML ANNUAL REPORT 2016
D-4
Name
Description
Remuneration
Policy
Reticle
RU
RU ASML
RU CLS
Samsung
Samsung NRE
Funding Agreement
Remuneration Policy applicable to the Board of Management of ASML Holding N.V.
Mask
Reporting Unit
Reporting Unit ASML (which is ASML excluding RU CLS)
Reporting Unit Cymer Light Sources
Samsung Electronics Corporation
The Samsung Funding Agreement related to the development of 300mm/450mm and EUV lithography equipment
Samsung Stichting
Stichting Administratiekantoor Samsung
Sarbanes-Oxley Act
The Sarbanes-Oxley Act of 2002
SB
SEC
SG&A
STI
TPE
Supervisory Board of ASML
The United States Securities and Exchange Commission
Selling, General and Administrative
Short-Term Incentive
Third-Party Evidence
Transfer Agent
Agreement
Agreement about transfer, registrar and dividend disbursement
TSMC
Taiwan Semiconductor Manufacturing Company Ltd.
TSMC NRE Funding
Agreements
The TSMC Funding Agreements related to the development of 450mm and EUV lithography equipment
TSMC Stichting
Stichting Administratiekantoor TSMC
US
United States
US GAAP
Generally Accepted Accounting Principles in the United States of America
UvA
VAT
VIE
University of Amsterdam
Value-added tax
Variable interest entity
VIE Shareholders
Syndicate of three banks formed solely for the purpose of leasing the headquarter in Veldhoven
VLSI Research
An independent industry research firm that surveyed customers representing 95.0 percent of the world’s total
semiconductor market
VSOE
WACC
Wavelength
Vendor-Specific Objective Evidence
Weighted Average Cost of Capital
The frequency of light going through projection lenses; the shorter the wavelength, the smaller the line-width and
the finer the pattern on the IC
Website
www.asml.com
Works Council
Works Council of ASML Netherlands B.V.
YieldStar
Advanced wafer metrology system
Zeiss
Carl Zeiss AG
ASML ANNUAL REPORT 2016
D-5
ASML ANNUAL REPORT 2016
Exhibit Index
ASML ANNUAL REPORT 2016
E-1
Exhibit Index
Exhibit No
.
Description
1 Articles of Association of ASML Holding N.V. (English translation) (Incorporated by reference to Amendment No. 13 to
the Registrant’s Registration Statement on Form 8-A/A, filed with the SEC on February 8, 2013)
4.1 Agreement between ASM Lithography B.V. and Carl Zeiss, dated March 17, 2000 (Incorporated by reference to the
Registrant’s Annual Report on Form 20-F for the fiscal year ended December 31, 2000)1
4.2 Agreement between ASML Holding N.V. and Carl Zeiss, dated October 24, 2003 (Incorporated by reference to the
Registrant’s Annual Report on Form 20-F for the year ended December 31, 2003)1
4.3
4.4
4.5
Form of Indemnity Agreement between ASML Holding N.V. and members of its Board of Management (Incorporated by
reference to the Registrant’s Annual Report on Form 20-F for the year ended December 31, 2003)
Form of Indemnity Agreement between ASML Holding N.V. and members of its Supervisory Board (Incorporated by
reference to the Registrant’s Annual Report on Form 20-F for the year ended December 31, 2003)
Form of Employment Agreement for members of the Board of Management (Incorporated by reference to the
Registrant’s Annual Report on Form 20-F for the fiscal year ended December 31, 2003)
4.6 Nikon-ASML Patent Cross-License Agreement, dated December 10, 2004, between ASML Holding N.V. and Nikon
Corporation (Incorporated by reference to the Registrant's Annual Report on Form 20-F for the fiscal year ended
December 31, 2014)1
4.7 ASML/Zeiss Sublicense Agreement, 2004, dated December 10, 2004, between Carl Zeiss SMT AG and ASML Holding
N.V. (Incorporated by reference to the Registrant’s Annual Report on Form 20-F for the fiscal year ended December 31,
2004)1
4.8 ASML Performance Stock Plan for Members of the Board of Management (Version 1) (Incorporated by reference to the
Registrant's Registration Statement on Form S-8 filed with the SEC on July 5, 2007 (file No. 333-144356))
4.9 ASML Performance Stock Plan for Members of the Board of Management (Incorporated by reference to the Registrant's
Registration Statement on Form S-8 filed with the SEC on October 13, 2009 (file No. 333-162439))
4.10 ASML Board of Management Umbrella Share Plan (Incorporated by reference to the Registrant's Registration Statement
4.11
on Form S-8 filed with the SEC on April 14, 2015 (file No. 333-203390))
450mm NRE Funding Agreement between ASML Holding N.V. and Intel Corporation, dated July 9, 2012 (Incorporated
by reference to the Registrant’s Annual Report on Form 20-F for the year ended December 31, 2012) 1
EUV NRE Funding Agreement between ASML Holding N.V. and Intel Corporation, dated July 9, 2012 (Incorporated by
reference to the Registrant’s Annual Report on Form 20-F for the year ended December 31, 2012) 1
4.13 Shareholder Agreement between ASML Holding N.V., Intel Holdings B.V., Intel Corporation and Stichting
4.12
Administratiekantoor MAKTSJAB dated September 12, 2012 (Incorporated by reference to the Registrant’s Annual
Report on Form 20-F for the year ended December 31, 2012)
4.14 Share Swap Agreement between ASML Holding N.V. and Hermes Microvision, Inc., dated June 16, 20162
Investment Agreement among ASML Holding N.V., Zeiss, Carl Zeiss SMT, Carl Zeiss SMT Holding
4.15
GmbH & Co. KG and Carl Zeiss SMT Holding Management GmbH, dated November 2, 20162
List of Main Subsidiaries 2
8.1
12.1 Certification of CEO and CFO Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934 2
13.1 Certification of CEO and CFO Pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934 2
15.1 Consent of Independent Registered Public Accounting Firm2
15.2 Consent of Independent Registered Public Accounting Firm2
15.3
Letter dated February 7, 2017 from Deloitte Accountants B.V.2
101.INS XBRL Instance Document 2
101.SCH XBRL Taxonomy Extension Schema Document 2
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document 2
XBRL Taxonomy Extension Definition Linkbase Document 2
101.DEF
101.LAB XBRL Taxonomy Extension Label Linkbase Document 2
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document 2
1.
2.
Certain information omitted pursuant to a request for confidential treatment filed separately with the SEC.
Filed at the SEC herewith.
ASML ANNUAL REPORT 2016
E-2
Exhibit 8.1
List of main subsidiaries
Legal Entity
Main subsidiaries of ASML Holding N.V.1:
ASML Netherlands B.V.
ASML Systems B.V.
ASML Germany GmbH
ASML France S.a.r.l.
ASML (UK) Ltd.
ASML Israel (2001) Ltd.
ASML Ireland Ltd.
ASML Italy S.r.l.
ASML Hong Kong Ltd.
ASML Singapore Pte. Ltd.
ASML Korea Co. Ltd.
ASML Japan Co. Ltd.
ASML (Shanghai) Lithography Facilities Science and Technology Co. Ltd.
ASML Taiwan Ltd.
ASML Equipment Malaysia Sdn. Bhd.
ASML Belgium BVBA
ASML Belgium Finance GCV
Brion Technologies (Shenzhen) Co. Ltd.
Brion Technologies, Inc.
ASML US, Inc.
ASML MaskTools, Inc.
ASML Participations US Inc.
Lehrer Pearson, Inc.
Cymer, LLC.
eLith LLC.
ASML Hong Kong Logistic Services Ltd.
ASML Global, Inc
Cymer B.V.
Cymer Japan, Inc.
Cymer Korea, Inc.
Cymer Singapore Pte Ltd.
Cymer Southeast Asia Ltd.
Cymer Semiconductor Equipment (Shanghai) Co. Ltd.
TCZ, LLC.
TCZ Pte Ltd. 2
TCZ GmbH 2
Epsilon Co.
Hermes Microvision, Inc.
HMI Holdings Inc.
Hermes Microvision Korea Inc.
Hermes Microvision Japan Inc.
Hermes Microvision Co., Ltd.
HMI Investment Corp.
Hermes Microvision, Inc
HMI North America Inc.
Hermes Microvision (Shanghai) Co., Ltd
Country of Incorporation
Netherlands (Veldhoven)
Netherlands (Veldhoven)
Germany (Dresden)
France (Bernin)
UK (Edinburgh (Scotland))
Israel (Ramat-Gan)
Ireland (Dublin)
Italy (Avezzano)
Hong Kong SAR
Singapore
Korea (Kyunggi-Do)
Japan (Tokyo)
China (Shanghai)
Taiwan (Hsinchu)
Malaysia (Penang)
Belgium (Turnhout)
Belgium (Turnhout)
China (Shenzhen)
US (Wilmington, Delaware)
US (Wilmington, Delaware)
US (Dover, Delaware)
US (Wilmington, Delaware)
US (Wilmington, Delaware)
US (Reno, Nevada)
US (Wilmington, Delaware)
Hong Kong SAR
US (Wilmington, Delaware)
Netherlands (Amsterdam)
Japan (Tokyo)
Korea (Kyunggi-Do)
Singapore
Taiwan (Hsinchu)
China (Shanghai)
US (Reno, Nevada)
Singapore
Germany (Oberkochen)
Taiwan (Taipei)
Taiwan (Hsinchu)
Samoa (Apia)
Korea (Kyungki-do)
Japan (Tokyo)
China (Beijing)
Samoa (Apia)
US (San Jose, California)
US (Las Vegas, Nevada)
China (Shanghai)
1.
2.
All of our subsidiaries are (directly or indirectly) wholly-owned, with exception of eLith LLC, in which we hold an interest of 50 percent.
In liquidation.
ASML ANNUAL REPORT 2016
E-3
Exhibit 12.1
Certification of the Chief Executive Officer
I, Peter T.F.M. Wennink, certify that:
1. I have reviewed this Annual Report on Form 20-F of ASML Holding 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)) and internal control over financial reporting (as defined in
Exchange Act Rules 13a-15(f) and 15d-15(f))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) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
Financial Statements for external purposes in accordance with generally accepted accounting principles;
c) 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
d) 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: February 7, 2017
/s/ Peter T.F.M. Wennink Peter T.F.M. Wennink
President, CEO and member of the Board of Management
ASML ANNUAL REPORT 2016
E-4
Certification of the Chief Financial Officer
I, Wolfgang U. Nickl, certify that:
1. I have reviewed this Annual Report on Form 20-F of ASML Holding 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)) and internal control over financial reporting (as defined in
Exchange Act Rules 13a-15(f) and 15d-15(f))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) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
Financial Statements for external purposes in accordance with generally accepted accounting principles;
c) 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
d) 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: February 7, 2017
/s/ Wolfgang U. Nickl Wolfgang U. Nickl
Executive Vice President, CFO and member of the Board of Management
ASML ANNUAL REPORT 2016
E-5
Exhibit 13.1
Certification of CEO and CFO 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 ASML Holding N.V. for the fiscal year ended December 31, 2016 as filed with
the SEC on the date hereof, Peter T.F.M. Wennink, as CEO of the Company, and Wolfgang U. Nickl, as CFO of the Company, each
hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that,
to the best of his knowledge:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Exchange Act; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations
of the issuer.
/s/ Peter T.F.M. Wennink Name: Peter T.F.M. Wennink
Title: President, CEO and member of the Board of Management
Date: February 7, 2017
/s/ Wolfgang U. Nickl Name: Wolfgang U. Nickl
Title: Executive Vice President, CFO and member of the Board of Management
Date: February 7, 2017
A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to the
Company and will be retained by the Company and furnished to the SEC or its staff upon request.
This certification accompanies the Report pursuant to section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the
extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of section 18 of the Securities
Exchange Act of 1934.
ASML ANNUAL REPORT 2016
E-6
Exhibit 15.1
Consent of Independent Registered Public Accounting Firm
To the Supervisory Board and Shareholders of ASML Holding N.V.
We consent to the incorporation by reference in the following Registration Statements on Form S-8 Nos. 333-116337, 333-126340,
333-136362. 333-141125,333-142254,333-144356, 333-147128, 333-153277, 333-162439, 333-170034, 333-188938, 333-190023,
333-192951, and 333-203390 of our report dated February 4, 2016, relating to the financial statements of ASML Holding N.V. and
subsidiaries for the year ended December 31, 2015, appearing in the Annual Report on Form 20-F of ASML Holding N.V. for the
year ended December 31, 2016.
/s/ Deloitte Accountants B.V.
Deloitte Accountants B.V.
Eindhoven, The Netherlands
February 7, 2017
ASML ANNUAL REPORT 2016
E-7
Exhibit 15.2
Consent of Independent Registered Public Accounting Firm
To the Supervisory Board of ASML Holding N.V.
We consent to the incorporation by reference in the registration statements on Form S-8 (Nos. 333-116337, 333-126340, 333-136362,
333-141125, 333-142254, 333-144356, 333-147128, 333-153277, 333-162439, 333-170034, 333-188938, 333-190023, 333-192951,
and 333-203390) of ASML Holding N.V. of our report dated February 7, 2017 with respect to the consolidated balance sheet of ASML
Holding N.V. and subsidiaries as of December 31, 2016 and the related consolidated statements of operations, comprehensive income
shareholders’ equity, and cash flows for the year ended December 31, 2016 and the effectiveness of internal control over financial
reporting as of December 31, 2016, which report appears in the December 31, 2016 Annual Report on Form 20-F of ASML Holding
N.V.
Our report dated February 7, 2017 contains an explanatory paragraph that states that our audit of internal control over financial reporting
of ASML Holding N.V. excluded an evaluation of the internal control over financial reporting of Hermes Microvision Inc., including
subsidiaries, which was acquired in November 2016.
/s/ KPMG Accountants N.V.
KPMG Accountants N.V.
Rotterdam, the Netherlands
February 7, 2017
ASML ANNUAL REPORT 2016
E-8
Exhibit 15.3
Letter dated February 7, 2017 from Deloitte Accountants B.V.
To Securities and Exchange Commission
We have read the statements made by ASML Holding N.V. (copy attached) included in Item 16F of Form 20-F dated February 7,
2017 of ASML Holding N.V., and are in agreement with the statements contained in the paragraphs 1, 2 and 3 on page 54 therein.
We have no basis to agree or disagree with other statements of the registrant contained therein.
Yours sincerely,
/s/ Deloitte Accountants B.V.
Deloitte Accountants B.V.
Eindhoven, The Netherlands
February 7, 2017
ASML ANNUAL REPORT 2016
E-9
ASML ANNUAL REPORT 2016
E-10
ASML ANNUAL REPORT 2016
E-11
ASML ANNUAL REPORT 2016
E-12