e20vf
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, 2008
Commission file number 025566
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: +1 480 383 4005
Facsimile: +1 480 383 3978
Email: craig.deyoung@asml.com
8555 South River Parkway,
Tempe, AZ 85284, 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:
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Title of each class
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Name of each exchange on which registered
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Ordinary Shares
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The NASDAQ Stock Market LLC
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(nominal value EUR 0.09 per share)
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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
issuers classes of
capital or common stock as of the close of the period covered by
the annual report.
432,073,534 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
(ü) 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
(ü)
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
(ü) 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
(ü) 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
(ü) 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
(ü)
Name and address of person authorized to receive notices and
communications from the Securities and Exchange Commission:
Richard A. Ely
Skadden, Arps, Slate, Meagher & Flom (UK) LLP
40 Bank Street, Canary Wharf
London E14 5DS England
ASML ANNUAL REPORT 2008
Contents
ASML ANNUAL REPORT 2008
Part I
Special Note
Regarding Forward-Looking Statements
In addition to historical information, this annual report on
Form 20-F
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.
Forward-looking statements do not guarantee future performance
and involve risks and uncertainties. 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 and those detailed from time to time in
our other filings with the United States Securities and Exchange
Commission (the Commission or the SEC).
These forward-looking statements are made only as of the date of
this annual report on
Form 20-F.
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.
ASML ANNUAL REPORT 2008
1
Five-Year
Financial Summary
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Year ended December 31
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20041,
2
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20051
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20063
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20073
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2008
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(in thousands, except per share data)
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EUR
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EUR
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EUR
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EUR
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EUR
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Consolidated statements of operations data
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Net sales
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2,465,377
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2,528,967
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3,581,776
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3,768,185
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2,953,678
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Cost of sales
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1,559,738
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1,554,772
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2,127,797
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2,218,526
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1,938,164
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Gross profit on sales
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905,639
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974,195
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1,453,979
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1,549,659
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1,015,514
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Research and development costs
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352,920
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347,901
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413,708
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510,503
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538,324
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Amortization of in-process research and development costs
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23,148
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Research and development credits
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(21,961
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)
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(24,027
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)
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(27,141
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)
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(24,362
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(22,196
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)
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Selling, general and administrative costs
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201,629
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201,204
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204,799
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225,668
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212,341
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Restructuring and merger and acquisition costs (credits)
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(5,862
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)
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Income from operations
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378,913
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449,117
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862,613
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814,702
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287,045
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Interest income (expense), net
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(16,073
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(14,094
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(854
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)
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33,451
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22,599
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Income from operations before income taxes
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362,840
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435,023
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861,759
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848,153
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309,644
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(Provision for) benefit from income taxes
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(127,380
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(123,559
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(243,211
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(177,152
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)4
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12,726
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Net income
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235,460
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311,464
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618,548
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671,001
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322,370
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Earnings per share data
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Basic net income from continuing operations per ordinary share
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0.49
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0.64
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1.30
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1.45
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0.75
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Basic and diluted net loss from operations per ordinary share
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Basic net income per ordinary share
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0.49
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0.64
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1.30
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1.45
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0.75
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Diluted net income per ordinary share
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0.49
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0.64
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1.26
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1.41
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0.74
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Number of ordinary shares used in
computing per share amounts (in thousands)
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Basic
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483,380
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484,103
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474,860
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462,406
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431,620
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Diluted
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484,661
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542,979
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503,983
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485,643
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434,205
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1
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The selected consolidated data for
2004 and 2005 reflect the effects of our decision in December
2002 to discontinue our Track business and divest our Thermal
business which we substantially divested in October 2003.
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2
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The calculation of the number of
ordinary shares used in computing diluted net income per
ordinary share in 2004 does not assume conversion of ASMLs
outstanding Convertible Subordinated Notes, as such conversions
would have an anti-dilutive effect.
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3
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As of January 1, 2008 ASML
accounts for award credits offered to its customers as part of a
volume purchase agreement using the deferred revenue model.
Until December 31, 2007 ASML accounted for award credits
using the cost accrual method. The comparative figures for the
years 2007 and 2006 have been adjusted to reflect this change in
accounting policy. The amounts for the years 2004 and 2005 have
not been adjusted since the impact is not material. See
note 1 to the consolidated financial statements.
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4
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In 2008, subsequent to the filing
of the 2007 annual report on
Form 20-F,
ASML detected and made a correction for a prior period error
with respect to a release of deferred tax liabilities of
EUR 8.7 million. This release was incorrectly
recognized in the 2007 consolidated statement of operations
under (provision for) benefit from income taxes instead of in
equity under other comprehensive income. The 2007 figures have
been adjusted to reflect this correction. See Note 1 to the
consolidated financial statements.
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ASML ANNUAL REPORT 2008
2
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As of December 31
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20041
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20051
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20063
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20073,
4
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2008
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(in thousands, unless otherwise indicated)
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EUR
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EUR
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EUR
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EUR
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EUR
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Consolidated balance sheets data
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Cash and cash equivalents
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1,228,130
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1,904,609
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1,655,857
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1,271,636
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1,109,184
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Working
capital5
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1,868,871
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1,785,836
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2,236,173
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1,997,988
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1,964,906
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Total assets
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3,243,766
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3,756,023
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3,953,888
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4,073,128
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3,939,394
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Long-term liabilities
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1,039,023
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624,203
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613,167
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855,367
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942,282
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Total shareholders equity
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1,391,602
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1,711,837
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2,148,003
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1,891,004
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1,988,769
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Capital stock
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9,675
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9,694
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10,051
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39,206
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38,887
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Consolidated statements of cash flows data
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Purchases of property, plant and equipment
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(74,979
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)
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(72,660
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)
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(70,619
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)
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(179,152
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)
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(259,770
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)
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Depreciation, amortization and impairment
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93,144
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98,881
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104,446
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135,366
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144,299
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Net cash provided by continuing operating activities
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257,147
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713,511
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492,280
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701,011
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280,746
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Net cash used in discontinued operating activities
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(5,880
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)
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(2,018
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)
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Net cash provided by total operating activities
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251,267
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711,493
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492,280
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701,011
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280,746
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Acquisition of subsidiary (net of cash acquired)
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(188,011
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)
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Net cash used in total investing activities
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(60,398
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)
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|
|
(60,803
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)
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|
(70,629
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)
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(362,152
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)
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|
(259,805
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)
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Net cash provided by (used in) total financing activities
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|
18,871
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2,879
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(657,624
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)6
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|
(715,363
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)6
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|
(184,238
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)
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Net increase (decrease) in cash and cash equivalents
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|
200,324
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676,479
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(248,752
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)
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(384,221
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)
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(162,452
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)
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Ratios and other data
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Increase (decrease) net sales (in percent)
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59.8
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2.6
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41.6
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|
5.2
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|
(21.6
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)
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Gross profit as a percentage of net sales
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|
36.7
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|
|
|
38.5
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|
|
|
40.6
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|
41.1
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|
|
|
34.4
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|
Income from operations as a percentage of net sales
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|
15.4
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|
|
|
17.8
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|
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|
24.1
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|
|
21.6
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|
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|
9.7
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Net income as a percentage of net sales
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|
9.6
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|
|
|
12.3
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|
17.3
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17.8
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|
10.9
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|
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|
Shareholders equity as a percentage of total assets
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|
42.9
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|
|
|
45.6
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|
|
|
54.3
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|
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|
46.4
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|
|
|
50.5
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Sales of systems (in units)
|
|
|
282
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|
|
|
196
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|
|
|
266
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|
|
|
260
|
|
|
|
151
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|
|
|
Average selling price system sales
|
|
|
7.7
|
|
|
|
11.4
|
|
|
|
12.1
|
|
|
|
12.9
|
|
|
|
16.7
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|
|
|
Backlog of systems (in units) at year end
|
|
|
131
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|
|
|
95
|
|
|
|
163
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|
|
|
89
|
|
|
|
41
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|
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|
Number of payroll employees in FTEs at year end from continuing
operations
|
|
|
5,071
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|
|
|
5,055
|
|
|
|
5,594
|
|
|
|
6,582
|
|
|
|
6,930
|
|
|
|
Number of ordinary shares outstanding (in thousands) at year end
|
|
|
483,676
|
|
|
|
484,670
|
|
|
|
477,099
|
|
|
|
435,626
|
7
|
|
|
432,074
|
|
|
|
Share price ASML at year
end8
|
|
|
11.81
|
|
|
|
16.90
|
|
|
|
18.84
|
|
|
|
21.66
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|
|
|
12.75
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|
Volatility % ASML shares
(260 days)9
|
|
|
37.4
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|
|
|
26.0
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|
|
|
28.08
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|
|
|
27.52
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|
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|
51.14
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|
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|
Dividend per ordinary share in Euro
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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0.25
|
|
|
|
0.20
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|
|
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5
|
Working capital is calculated as
the difference between total current assets, including cash and
cash equivalents, and total current liabilities.
|
6
|
Net cash used in financing
activities includes, in 2006, an amount of EUR 678 million
with respect to share buyback programs and, in 2007,
EUR 360 million, with respect to share buyback programs and
EUR 1,012 million with respect to the return of capital to
shareholders. In 2008 net cash used in financing activities
mainly includes a EUR 108 million dividend payment and an
amount of EUR 88 million for share buyback programs.
|
7
|
In 2007, as part of a capital
repayment program, EUR 1,012 million of share capital was
repaid to our shareholders and the number of outstanding
ordinary shares was reduced by 11 percent (pursuant to a
synthetic share buyback).
|
8
|
Closing price of ASMLs
ordinary shares listed on the Official Segment of the stock
market of Euronext Amsterdam (source: Bloomberg Finance LP).
|
9
|
Volatility represents the
variability in our share price on the Official Segment of the
stock market of Euronext Amsterdam as measured over the last 260
business days of each year presented (source: Bloomberg Finance
LP).
|
ASML ANNUAL REPORT 2008
3
Exchange Rate
Information
We publish our consolidated financial statements in euro. In
this Annual Report, references to ,
EUR or euro are to euro, and references
to $, dollars,
U.S. dollars, U.S. dollar,
USD or US$ are to United States dollars.
Solely for the convenience of the reader, certain
U.S. dollar amounts have been translated into euro amounts
using an exchange rate in effect on December 31, 2008 of
US$1.00 = EUR 0.70.
A portion of our net sales and expenses 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 5.A. Operating Results, Foreign Exchange
Management and Note 1 to our consolidated financial
statements.
The following are the Noon Buying Rates certified by the Federal
Reserve Bank of New York for customs purposes (the Noon
Buying Rate) expressed in U.S. dollars per euro.
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|
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|
|
|
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|
|
January 2009 (through
|
|
Calendar year
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
January 21, 2009)
|
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Period End
|
|
|
1.35
|
|
|
|
1.18
|
|
|
|
1.32
|
|
|
|
1.46
|
|
|
|
1.39
|
|
|
|
1.29
|
|
Average1
|
|
|
1.24
|
|
|
|
1.24
|
|
|
|
1.26
|
|
|
|
1.37
|
|
|
|
1.47
|
|
|
|
1.30
|
|
High
|
|
|
1.36
|
|
|
|
1.35
|
|
|
|
1.33
|
|
|
|
1.49
|
|
|
|
1.60
|
|
|
|
1.31
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|
Low
|
|
|
1.18
|
|
|
|
1.17
|
|
|
|
1.19
|
|
|
|
1.29
|
|
|
|
1.24
|
|
|
|
1.28
|
|
|
|
|
1
|
The average of the Noon Buying
Rates on the last business day of each month during the period
presented.
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|
|
July
|
|
|
August
|
|
|
September
|
|
|
October
|
|
|
November
|
|
|
December
|
|
|
January 2009 (through
|
|
Months of
|
|
2008
|
|
|
2008
|
|
|
2008
|
|
|
2008
|
|
|
2008
|
|
|
2008
|
|
|
January 21, 2009)
|
|
High
|
|
|
1.59
|
|
|
|
1.56
|
|
|
|
1.47
|
|
|
|
1.41
|
|
|
|
1.30
|
|
|
|
1.44
|
|
|
|
1.31
|
|
Low
|
|
|
1.56
|
|
|
|
1.47
|
|
|
|
1.39
|
|
|
|
1.24
|
|
|
|
1.25
|
|
|
|
1.26
|
|
|
|
1.28
|
|
|
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. Some of these risks
relate to our operational processes, while others relate to our
business environment. 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.
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 industrys business cycles, the timing,
duration and volatility of which are difficult to predict. The
semiconductor industry has historically been cyclical. Sales of
our photolithography systems 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;
|
|
general economic conditions; and
|
|
access to capital.
|
Future reductions or delays in capital equipment purchases by
our customers could have a material adverse effect on our
business, financial condition and results of operations.
In an industry downturn, including the downturn associated with
the current global financial market crisis, 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
ASML ANNUAL REPORT 2008
4
that we must reach in a year to achieve net income. If sales
levels decrease significantly as a result of an industry
downturn and we are unable to adjust our cost 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 demand, we also incur increased
costs related to inventory obsolescence in an industry downturn.
In addition, industry downturns generally result in
overcapacity, resulting in downward pressure on prices and
impairment of 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.
Moreover, the current financial crisis affecting the banking
system and global financial markets is in many respects
unprecedented in the history of our Company. There could be a
number of follow-on effects from the financial crisis on our
business, including declining business and consumer confidence
resulting in reduced, delayed or shorter-term capital
expenditures on our products; insolvency of key suppliers
resulting in product delays; the inability of customers to
obtain credit to finance purchases of our products, delayed
payments from our customers
and/or
customer insolvencies; and other adverse effects that neither
we, nor industry analysts generally, can currently anticipate.
If global economic and market conditions remain uncertain or
deteriorate further, we are likely to experience continuing
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 our products require significant lead time to
complete. 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 revenues
and damage to customer relationships.
Our Business
Will Suffer If We Do Not Respond Rapidly to Commercial and
Technological Changes in the
Semiconductor Industry
The semiconductor manufacturing industry is subject to:
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|
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rapid change towards more complex technologies;
|
|
frequent new product introductions and enhancements;
|
|
evolving industry standards;
|
|
changes in customer requirements; and
|
|
continued shortening of product life cycles.
|
Our products could become obsolete sooner than anticipated
because of a faster than anticipated change in one or more of
the technologies related to our products or in market demand for
products based on a particular technology. Our success in
developing new products and in enhancing our existing products
depends on a variety of factors, including the successful
management of our research and development programs and 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 fabrication facilities and upgrades of existing
facilities, which would have a material adverse effect on our
business, financial condition and results of operations.
In addition, we are investing considerable financial and other
resources to develop and introduce new products and product
enhancements, such as Extreme Ultraviolet lithography
(EUV), that our customers may not ultimately adopt.
If our customers do not adopt these new technologies, products
or product enhancements that we develop due to a preference for
more established or alternative new technologies and products or
for other reasons, we would not recoup any return on our
investments in these technologies or products, which may result
in charges to our consolidated statements of operations and have
a materially adverse effect on the future growth of the Company.
We Face
Intense Competition
The semiconductor equipment industry is highly competitive. The
principal elements of competition in our market segments are:
|
|
|
the technical performance characteristics of a photolithography
system;
|
|
the value of ownership of that system based on its purchase
price, maintenance costs, productivity and customer service and
support;
|
|
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 increasingly depends upon our ability to
develop new and enhanced semiconductor equipment that is
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 our consolidated financial
statements.
ASMLs primary competitors are Nikon Corporation
(Nikon) and Canon Kabushika Kaisha
(Canon). Nikon and Canon are important suppliers in
Japan, which accounts for a significant portion of worldwide
semiconductor production. This region historically has been
difficult for non-Japanese companies to penetrate.
ASML ANNUAL REPORT 2008
5
Both Nikon and Canon have 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, and may cause a decline
in our sales or loss of market acceptance for our
photolithography systems. In addition, adverse market
conditions, industry overcapacity or a further decrease in the
value of the Japanese yen in relation to the euro or the
U.S. 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 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 the components and subassemblies
used in our systems, 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 and the risk of untimely delivery of these components
and subassemblies.
The number of photolithography systems we are able to produce is
limited by the production capacity of Carl Zeiss SMT AG
(Zeiss). Zeiss is our single supplier of lenses and
other critical optical components. If Zeiss were unable to
maintain and increase production levels or if we are unable to
maintain our business relationship with Zeiss 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 Zeiss were to terminate its
relationship with us or if Zeiss were unable to maintain
production of lenses 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 Zeiss current position as our single
supplier of lenses, the excimer laser illumination systems that
provide the ultraviolet light source, referred to as deep
UV, used in our high resolution steppers and
Step & Scan systems are available from only a limited
number of suppliers. In particular, we rely both on Cymer, Inc.,
a United States based company, and Gigaphoton, Inc., a Japanese
based company, to provide excimer laser illumination systems.
Although the timeliness, yield and quality of deliveries to date
from our other subcontractors generally have been satisfactory,
manufacturing of certain of these components and subassemblies
that we use in our manufacturing processes is an extremely
complex process and delays caused by suppliers may occur in the
future. 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.
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. While the identity of
our largest customers may vary from year to year, we expect
sales to remain concentrated among relatively few customers in
any particular year. In 2008, sales to our largest customer
accounted for EUR 754 million, or 25.5 percent of
net sales, compared to EUR 818 million, or
21.7 percent of net sales, in 2007. 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 the limited number of our
customers, credit risk on our receivables is concentrated. Our
three largest customers accounted for 42.2 percent of
accounts receivable at December 31, 2008, compared to
40.1 percent at December 31, 2007. As a result,
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.
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 (151 units in
2008; 260 units in 2007), with an average selling price
(ASP) in 2008 of EUR 16.7 million (EUR
20.4 million for new systems and EUR 4.8 million
for used systems) and an ASP in 2007 of
EUR 12.9 million (EUR 13.8 million for new
systems and EUR 3.9 million for used systems). As a
result, the timing of recognition of revenue from a small number
of product sales may have a significant impact on our net sales
and operating results for a particular reporting period.
Specifically, the failure to receive anticipated orders, or
delays in shipments near the end of a particular reporting
period, due, for example, to:
|
|
|
a downturn in the highly cyclical semiconductor industry;
|
|
unanticipated shipment rescheduling;
|
|
cancellation or order push-back by customers;
|
|
unexpected manufacturing difficulties; and
|
|
delays in deliveries by suppliers,
|
ASML ANNUAL REPORT 2008
6
may cause net sales in a particular reporting period to fall
significantly below net sales in previous periods or our
expected net sales, and may have a material adverse effect on
our operating results for that period.
In particular our published quarterly earnings may vary
significantly from quarter to quarter and may vary in the future
for the reasons discussed above.
The Pace of
Introduction of Our New Products Is Accelerating 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. There is a risk
that we may not be able to introduce or bring to full-scale
production new products as quickly as we expected in our product
introduction plans, which could have a material adverse effect
on our business, financial condition and results of operations.
In order for the market to accept technology enhancements, our
customers, in many cases, must upgrade their existing technology
capabilities. Such upgrades from established technology may not
be available to our customers to enable volume production using
our new technology enhancements. This could result in our
customers not purchasing, or pushing back or cancelling orders
for our technology enhancements, which could negatively impact
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. 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 construed as we expect;
|
|
patents will expire which may result in key technology becoming
widely available which 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
similar competing technology.
|
In addition, litigation may be necessary to enforce our
intellectual property rights or to determine the validity and
scope of the proprietary rights of others. Any such litigation
may result in substantial costs and diversion of resources, and,
if decided unfavorably to us, could have a material adverse
effect on our business, financial condition and results of
operations.
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 manufacture of semiconductor products
and/or the
processes relating to the use of our products infringe one or
more patents issued to such 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 may also incur substantial licensing or settlement costs
where doing so would strengthen or expand our intellectual
property rights or limit our exposure to intellectual property
claims brought by others, which may have a material adverse
effect on our business, financial condition and results of
operations.
We Are Subject
to Risks in Our International Operations
The majority of our sales are made to customers outside Europe.
There are a number of risks inherent in doing business in some
of those regions, including the following:
|
|
|
potentially adverse tax consequences;
|
|
unfavorable political or economic environments;
|
|
unexpected legal or regulatory changes; and
|
|
an inability to effectively protect intellectual property.
|
ASML ANNUAL REPORT 2008
7
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.
In particular, approximately 12.2 percent of our 2008
revenues and approximately 21.1 percent of our 2007
revenues were derived from customers in Taiwan. Taiwan has a
unique international political status. The Peoples
Republic of China asserts sovereignty over Taiwan and does not
recognize the legitimacy of the Taiwan government. Changes in
relations between Taiwan and the Peoples Republic of
China, Taiwanese government policies and other factors affecting
Taiwans political, economic or social environment could
have a material adverse effect on our business, financial
condition and results of operations.
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 one clean room
facility located in Veldhoven, the Netherlands, and one clean
room facility in Wilton, Connecticut, the United States. These
facilities are 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 it were 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.
Because of
Labor Laws and Practices, Any Work force Reductions That We May
Wish 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 work force 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 certain formal procedures, which
can delay, or may result in the modification of our planned work
force reductions. For example, in the Netherlands, if our Works
Council renders adverse advice in connection with a proposed
work force 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. 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 U.S. dollar,
Japanese yen and the euro as we incur manufacturing costs and
price our systems predominantly in euro while a portion of our
net sales and cost of sales is denominated in U.S. dollars
and Japanese yen.
In addition, a substantial portion of our assets and liabilities
and operating results are denominated in U.S. dollars, and
a small portion of our assets, liabilities and operating results
are denominated in currencies other than the euro and the
U.S. dollar. Our consolidated financial statements are
expressed in euro. Accordingly, our results of operations and
assets and liabilities are exposed to fluctuations in various
exchange rates.
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.
Also see Item 5.A. Operating Results, Foreign
Exchange Management, Item 5.F. Tabular
Disclosure of Contractual Obligations, Item 11
Quantitative and Qualitative Disclosures About Market
Risk and Note 4 to our consolidated financial
statements.
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.
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 staff from monitoring and improving operations in 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.
ASML ANNUAL REPORT 2008
8
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,
which could adversely affect our business, financial condition
and results of operations.
In addition, the increasing complexity of our products results
in a longer learning curve for new and existing employees
leading to an inability to decrease cycle times and incurring
significant additional costs, which could adversely affect our
business, financial condition and results of operations.
Risks Related to
Our Ordinary Shares
The Price of
Our Ordinary Shares is Volatile
The current market price of our ordinary shares may not be
indicative of prices that will prevail in the future. In
particular, the market price of our ordinary shares has in the
past experienced significant fluctuation, including fluctuation
that is unrelated to our performance. This fluctuation may
continue in the future.
Restrictions
on Shareholder Rights May Dilute Voting Power
Our Articles of Association provide that we are subject to the
provisions of Netherlands 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 Supervisory Board. As a
result, holders of ordinary shares may have more difficulty in
protecting their interests in the face of actions by members of
our Supervisory Board 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 ASML has granted Stichting
Preferente Aandelen ASML, a Netherlands foundation, an
option to acquire, at their nominal value of EUR 0.02 per
share, such cumulative preference shares. Exercise of the
cumulative 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 further Item 6.C. Board Practices and
Item 10.B. Memorandum and Articles of
Association.
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, which include operating subsidiaries in
the Netherlands, the United States, Italy, France, Germany, the
United Kingdom, Ireland, Belgium, Korea, Taiwan, Singapore,
China (including Hong Kong), Japan, Malaysia and Israel. In
2001, we changed our name from ASM Lithography Holding N.V. to
ASML Holding N.V. Our registered office is located at De Run
6501, 5504 DR Veldhoven, the Netherlands, telephone +31 40 268
3000.
In May 2001, we merged with Silicon Valley group (SVG) (now part
of ASML US, Inc.), a company that was active in Lithography, as
well as in the Track and Thermal businesses, which we
subsequently divested or discontinued.
From time to time, ASML pursues acquisitions of smaller
businesses that it believes will complement or enhance
ASMLs core lithography business. Acquisitions have
included the acquisition of MaskTools in July 1999 and the
acquisition of Brion Technologies, Inc. (Brion) in
March 2007. See Item 4.B. Business Overview, Market
and Technology Overview.
Significant
Effects of the Current Global Financial Market Crisis and
Economic Downturn on ASML
As a result of the sharp decreases in demand in the fourth
quarter of 2008 and in anticipated demand in 2009 caused by the
current global financial market crisis and economic downturn,
ASML has recognized impairment charges of
EUR 20.8 million on property, plant and equipment and
inventory obsolescence charges of EUR 94.6 million.
In order to lower its cost and break-even level, ASML announced
in December 2008 a reduction in work force of approximately
1,000 employees or 12 percent of the total work force,
mainly contract employees. ASML also announced the shutdown of
its production facilities for two weeks in the fourth quarter of
2008 and four weeks in the first half of 2009. Furthermore, ASML
announced a restructuring that resulted in the discontinuation
of its training center in the United States, the downsizing of
its United States headquarters and the closure of several other
service locations, reflecting the continuing migration of
semiconductor
ASML ANNUAL REPORT 2008
9
manufacturing activities to Asia which has been accelerated by
the current global financial market crisis and economic
downturn. The restructuring resulted in the recognition of a
provision for employee contract termination benefits of
EUR 2.4 million, reflecting the elimination of
approximately 90 jobs in the United States and approximately 15
jobs at service locations in other parts of the world. As part
of this restructuring, ASML ceased the use of its training
facility in Tempe, United States, incurring lease contract
termination costs of EUR 20.0 million in 2008.
As a result of the actions taken to respond to the current
global financial market crisis and economic downturn the
following charges have been recognized in ASMLs
consolidated statements of operations in 2008:
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
(in thousands)
|
|
EUR
|
|
Restructuring costs
|
|
|
22,397
|
|
Inventory obsolescence
|
|
|
94,601
|
|
Impairments of property, plant and equipment
|
|
|
20,839
|
|
|
|
|
|
|
Total
|
|
|
137,837
|
|
|
These costs are recognized as follows in the consolidated
statements of operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment of
|
|
|
|
|
|
|
|
|
|
Inventory
|
|
|
property, plant
|
|
|
|
|
|
|
Restructuring costs
|
|
|
obsolescence
|
|
|
and equipment
|
|
|
Total
|
|
(in thousands)
|
|
EUR
|
|
|
EUR
|
|
|
EUR
|
|
|
EUR
|
|
Cost of sales
|
|
|
21,492
|
|
|
|
94,601
|
|
|
|
20,111
|
|
|
|
136,204
|
|
Research and development costs
|
|
|
|
|
|
|
|
|
|
|
728
|
|
|
|
728
|
|
Selling, general and administrative costs
|
|
|
905
|
|
|
|
|
|
|
|
|
|
|
|
905
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
22,397
|
|
|
|
94,601
|
|
|
|
20,839
|
|
|
|
137,837
|
|
|
Notwithstanding the restructuring, ASML intends to maintain its
key research and development programs for the development of
next generation lithography systems. Furthermore, ASML will
maintain a level of production capacity to be able to ramp up
production to meet customer requirements without lengthy lead
times as demand picks up in the future.
Capital
Expenditures and Divestitures
Our capital expenditures for 2008, 2007 and 2006 amounted to
EUR 322.0 million, EUR 232.2 million and
EUR 99.4 million, respectively. The related cash
outflows for 2008, 2007 and 2006 amounted to
EUR 259.8 million, EUR 179.2 million and
EUR 70.7 million, respectively. Our capital
expenditures in these years generally related to the
construction of new facilities in Veldhoven for our latest
technologies such as EUV and double patterning and in Taiwan for
our Asian Center of Excellence, purchases of machinery and
equipment mainly from our own product portfolio (e.g.
prototypes, demonstration and training systems), information
technology investments, and leasehold improvements to our
facilities. See Item 4.D. Property, Plant and
Equipment for capital expenditures currently in progress.
Divestitures within continued operations, principally comprising
machinery and equipment (more specifically prototypes,
demonstration and training systems), amounted to
EUR 32.0 million for 2008, EUR 20.4 million
for 2007 and EUR 5.6 million for 2006. See
Note 12 to our consolidated financial statements.
B. Business
Overview
We are one of the worlds leading providers of advanced
technology systems for the semiconductor industry. We offer an
integrated portfolio of lithography systems mainly for
manufacturing complex integrated circuits
(semiconductors, ICs or
chips). We supply lithography systems to IC
manufacturers throughout the United States, Asia and Europe and
also provide our customers with a full range of support services
from advanced process and product applications knowledge to
complete round-the-clock service support.
Our Business
Model
Our business model is derived from our Value of
Ownership concept which is based on the following
principles:
|
|
|
offering ongoing improvements in productivity, imaging and
overlay by introducing advanced technology based on modular
platforms resulting in lower costs per product for our customers;
|
ASML ANNUAL REPORT 2008
10
|
|
|
providing customer services that ensure rapid, efficient
installation and superior
on-site
support and training to optimize manufacturing processes of our
customers and improve productivity;
|
|
maintaining appropriate levels of research and development to
offer the most advanced technology suitable for high-throughput
and low-cost volume production at the earliest possible date;
|
|
enhancing the capabilities of the installed base of our
customers through ongoing field upgrades of key value drivers
(productivity, imaging and overlay) based on further technology
developments;
|
|
reducing the cycle time between a customers order of a
system and the use of that system in volume production
on-site;
|
|
expanding operational flexibility in research and manufacturing
by reinforcing strategic alliances with world-class partners,
including outsourcing companies;
|
|
improving the reliability and uptime of our installed system
base; and
|
|
providing re-furbishing services that effectively increase
residual value by extending the life of equipment.
|
Market and
Technology Overview
Chipmaking is all about shrink or reducing the size
of chips designs. The worldwide electronics and computer
industries have experienced significant growth since the
commercialization of ICs in the 1960s, largely due to the
continual reduction in the cost per function performed by ICs.
Improvement in the design and manufacture of ICs with higher
circuit or packing densities has resulted in smaller
and lower cost ICs capable of performing a greater number of
functions at faster speeds and with reduced power consumption.
Despite the current global financial market crisis and economic
downturn, we believe that these long-term trends will continue
for the foreseeable future and will be accompanied by a
continuing demand, subject to ongoing cyclical variation, for
production equipment that can accurately produce advanced ICs in
high volumes at the lowest possible cost. Photolithography is
used to print complex circuit patterns onto the wafers that are
the primary raw material for ICs and is one of the most critical
and expensive steps in their fabrication. It is therefore a
significant focus of the IC industrys demand for
cost-efficient enhancements to production technology.
We primarily design, manufacture, market and service
semiconductor processing equipment used in the fabrication of
ICs. Our photolithography equipment includes Step &
Scan systems, which combine stepper technology with a
photo-scanning method.
Our TWINSCAN product platform was introduced in July 2000 and
applies the production-proven elements of our PAS 5500 product
family to the industry shift toward larger (300 millimeter
(mm)) wafers. In 2003, the TWINSCAN platform became
the vehicle to introduce improved resolution products both for
300 mm and 200 mm wafer size factories. Our PAS 5500 product
family, which supports a maximum wafer size of 200 mm in
diameter, comprises advanced wafer steppers and Step &
Scan systems suitable for i-line and deep UV (including 248
nanometer (nm) and 193 nm wavelengths) processing of
wafers. In the fourth quarter of 2008, we shipped our
806th TWINSCAN system, demonstrating the acceptance of the
TWINSCAN platform as the semiconductor industrys standard
for 300 mm lithography. In the third quarter of 2008, we shipped
the first XT:1000, featuring a new 0.93 NA projection lens
capable of extending imaging at the wavelength of 248 nm down to
80 nm. Further we announced plans to start shipment in 2009 of
an enhanced ArF immersion system, XT:1950i, extending the
performance, imaging and overlay performance of the successful
XT:1900i system.
In 2005, we intensified our research and development in
immersion lithography as we believed this was the most probable
solution to reduce the manufacturing cost per wafer while
increasing resolution. In 2008 we shipped 56 immersion systems
compared to 38 in 2007 and 23 in 2006. In October 2008, we
announced an enhanced version of the TWINSCAN platform called
NXT which features new planar wafer stage technology and grid
plate position control systems to address market requirements
for increased productivity and tighter overlay control
especially for Double Patterning approaches. Initial shipments
of NXT are scheduled for 2009.
In 2006, we shipped the industrys first EUV Alpha Demo
Tools to two research institutions, which work closely with most
of the worlds major IC manufacturers in developing
manufacturing processes and materials. EUV combines a wavelength
of 13.5 nm and a lens system with a numerical aperture
(NA) of 0.25 to provide imaging at a resolution of
27 nm. EUV will provide a large process window compared to
current approaches and we expect it to be a multi-generation
lithography solution. Through the end of 2008, ASML has received
five orders for next generation EUV systems, the first of which
is scheduled for shipment in 2010. The EUV platform is targeted
for production of ICs down to 22 nm and beyond. In 2008, we
continued to increase resources significantly to support the
development of this product.
A mask is a flat, transparent quartz plate containing an opaque
microscopic pattern: an image of the electronic circuitry for
one layer of a chip. The mask is placed in a scanner where
intense light passing through it projects the pattern, via a
series of reducing lenses, onto part of the wafer. Before
exposure, the wafer is coated with photoresist and positioned
very accurately the projected pattern must align with
existing features on the chip/wafer. After exposure and
developing, the pattern left on the wafer surface is used to
selectively process and build up the next layer.
ASML ANNUAL REPORT 2008
11
The acquisition of Brion in 2007 enabled ASML to improve the
implementation of optical proximity correction (OPC)
technology and resolution enhancement techniques such as Double
Patterning and Source-Mask Optimization for masks used on ASML
systems and otherwise. These improvements in turn are expected
to extend the practical resolution limits of ASML ArF immersion
products. We also expect Brions computational lithography
capability will enable us to offer products that further improve
the set-up
and control of ASML lithography systems.
In 2008, we discontinued research into optical maskless
lithography due to the reduced market opportunity for this
technology. This discontinuation did not result in any
impairments during 2008. Research studies on alternative
technologies continue for both mask-based and maskless
lithography.
Products
We develop lithography systems and related products for the
semiconductor industry and related patterning applications. Our
product development strategy focuses on the development of
product families based on a modular, upgradeable design.
Our older PAS 2500 and PAS 5000 lithography systems, which we no
longer manufacture but refurbish, are used for g-line and i-line
processing of wafers up to 150 mm in diameter and are employed
in manufacturing environments and in special applications for
which design resolutions no more precise than 0.5 microns are
required.
Our PAS 5500 product family comprises advanced wafer steppers
and Step & Scan systems suitable for i-line and deep
Ultra Violet (UV) processing of wafers up to 200 mm
in diameter. In mid-1997, we introduced the PAS 5500
Step & Scan systems with improved resolution and
overlay. Since then, we have further developed and expanded this
Step & Scan product family. This modular upgradeable
design philosophy has been further refined and applied in the
design of our most advanced product family, the TWINSCAN
platform, which is the basis for our current and next generation
Step & Scan systems, producing wafers up to 300 mm in
diameter and capable of extending shrink technology down to 38
nm.
The PAS 5500 series is the most suitable product range for
processing of 200 mm wafers using
step-and-scan
technology. We offer PAS 5500 systems based on i-line (using
light with a 365 nm wavelength), KrF (using light with a 248 nm
wavelength) and ArF (using light with a 193 nm wavelength)
technology. For high end 200 mm applications we also offer
TWINSCAN ArF tools.
Management believes that the current global financial market
crisis and economic downturn will accelerate the process of the
PAS systems becoming technical obsolete. Reference is made to
Note 2, Note 8 and Note 12 to the consolidated
financial statements.
We are the leader in the innovation of immersion technologies
and we were the worlds first producer of dual-stage design
(TWINSCAN) systems. Wafer measurement, including focus and
alignment, is completed on the dry stage, while the imaging
process, using water applied between the wafer and the lens, is
completed on the wet stage. The dual-stage advantage of TWINSCAN
systems enables our customers to gain the process enhancements
of immersion and to continue with familiar and proven metrology
technology.
For processing of 300 mm wafers, we offer TWINSCAN systems based
on i-line, KrF and ArF technology. In 2003, we introduced the
second generation of TWINSCAN systems based on the XT body with
a reduced footprint and a 50 percent reduction in the main
production area occupied by our system. In 2004, we shipped our
first lithography systems based on immersion technology. These
shipments marked the delivery of the industrys first high
productivity immersion scanners for mainstream production.
In the second quarter of 2006, we started volume production of
the TWINSCAN XT:1700i, a 193 nm immersion scanner capable of
imaging at the 45 nm node in volume production environments.
This system featured an NA of 1.2, substantially higher than the
XT:1400s NA of 0.93, exceeding the non-immersion barrier
of 1.0, which is enabled by a new catadioptric lens design. The
XT:1700i has enabled chipmakers to improve resolution by
30 percent and has been employed in the development and
manufacturing of the latest advanced generation of ICs.
In the third quarter of 2007, ASML began volume shipment of the
XT:1900i, with a new industry benchmark of 1.35 NA, which is
close to the practical limit for water-based immersion
technology. This new optical lithography system is capable of
volume production of ICs down to 40 nm and below and is used for
high volume IC manufacturing at multiple customers world-wide.
In 2008 we shipped 53 XT:1900i systems. In July 2008, ASML
announced an enhanced version of the XT:1900i system, the
XT:1950i, with improved throughput of 148 wafers per hour,
resolution of 38 nm and overlay of 4 nm scheduled to start
shipment in 2009. In October 2008, we also announced an improved
version of the successful TWINSCAN platform called NXT featuring
new stage and position control technology to enable increased
productivity and overlay performance for immersion. Initial
shipments of NXT are targeted for 2009 with volume production
expected in 2010.
ASML ANNUAL REPORT 2008
12
In the third quarter of 2008, ASML commenced shipment of the
XT:1000, which uses the new catadioptric lens technology
developed for the XT:1700i and XT:1900i to extend the maximum NA
of the previous generation of 248 nm wavelength, KrF, systems to
0.93 NA from the previous maximum available of 0.80 NA. The
XT:1000s high NA of 0.93 can resolve 80 nm device
features, far smaller than the 100 nm of todays KrF
systems. The XT:1000 also improves value to customers, with an
increased throughput of
165 300 mm
wafers per hour under volume manufacturing conditions while
maintaining the same industry-leading 6 nm overlay as
leading-edge ArF systems.
We also continuously develop and sell a range of product options
and enhancements designed to increase productivity, imaging and
overlay to optimize value of ownership over the entire life of
our systems. The table below sets forth our current product
portfolio of Steppers and Scan & Step Systems by
resolution and wavelength.
Current ASML
lithography product portfolio of Steppers and Step &
Scan
Systems1
|
|
|
|
|
|
|
|
|
|
|
|
|
Resolution
|
|
Wavelength
|
|
Lightsource
|
|
Numerical aperture
|
PAS 5500 SYSTEMS
|
|
|
|
|
|
|
|
|
PAS 5500/4X0
|
|
280 nm
|
|
365 nm
|
|
i-line
|
|
0.48-0.65
|
PAS 5500/750
|
|
130 nm
|
|
248 nm
|
|
KrF
|
|
0.50-0.70
|
PAS 5500/850
|
|
110 nm
|
|
248 nm
|
|
KrF
|
|
0.55-0.80
|
PAS 5500/1150
|
|
90 nm
|
|
193 nm
|
|
ArF
|
|
0.50-0.75
|
|
|
|
|
|
|
|
|
|
TWINSCAN SYSTEMS
|
|
|
|
|
|
|
|
|
TWINSCAN XT:400
|
|
350 nm
|
|
365 nm
|
|
i-line
|
|
0.48-0.65
|
TWINSCAN XT:450
|
|
220 nm
|
|
365 nm
|
|
i-line
|
|
0.48-0.65
|
TWINSCAN XT:8X0
|
|
110 nm
|
|
248 nm
|
|
KrF
|
|
0.55-0.80
|
TWINSCAN XT:875
|
|
90 nm
|
|
248 nm
|
|
KrF
|
|
0.55-0.80
|
TWINSCAN XT:1000
|
|
80 nm
|
|
248 nm
|
|
KrF
|
|
0.50-0.93
|
TWINSCAN XT:1450
|
|
57 nm
|
|
193 nm
|
|
ArF
|
|
0.65-0.93
|
TWINSCAN XT:1700 immersion
|
|
45 nm
|
|
193 nm
|
|
ArF
|
|
0.75-1.20
|
TWINSCAN XT:1900 immersion
|
|
40 nm
|
|
193 nm
|
|
ArF
|
|
0.85-1.35
|
TWINSCAN XT:1950 immersion
|
|
38 nm
|
|
193 nm
|
|
ArF
|
|
0.85-1.35
|
TWINSCAN NXT:1950 immersion
|
|
38 nm
|
|
193 nm
|
|
ArF
|
|
0.85-1.35
|
|
|
|
1
|
This table does not include the
older (including pre-used) products sold on the PAS 2500, PAS
5000 and PAS 5500 platforms
|
|
|
XT is a TWINSCAN system for 200mm
and 300mm wafer sizes;
|
|
Wavelength refers to the speed of
light divided by 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;
|
|
1 nanometer is equal to one
billionth of a meter;
|
|
The X in the number represents
different models in the product portfolio within the same
resolution. For example XT:8X0 can either represent XT:800 or
XT:850;
|
|
NXT is an improved version of the
current TWINSCAN system, introducing new stages and stage
position control technology, which enable higher productivity
and improved overlay.
|
Sales and
Customer Support
We market and sell our products principally through our direct
sales staff.
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 and remanufactured tools, system upgrades
and enhancements, and technical training.
Our field engineers and applications, service and technical
support specialists are located throughout the United States,
Europe and Asia.
In 2006, ASML started an initiative to establish the ASML Center
of Excellence (ACE) in Asia. The primary goal of ACE
is to serve as a supplementary engine to propel ASMLs
long-term growth. ACE will feature customer support, training,
logistics, refurbishment, technology and application
development. ACE will also enable sourcing of selected equipment
modules, components and services in the region. Finally, ACE
will be used as a training center to develop worldwide talent
for ASMLs work force. In the fourth quarter of 2008, we
completed construction of the building and facility that will
house ACE near Taipei, Taiwan and the ACE organization moved
into the new building. See Item 4.D. Property, Plant
and Equipment.
Customers and
Geographic Regions
In 2008, sales to our largest customer accounted for
EUR 754 million, or 25.5 percent of net sales,
compared to EUR 818 million, or 21.7 percent of
net sales, in 2007. We expect that sales to relatively few
customers will continue to account for a high percentage of our
net sales in any particular period for the foreseeable future.
See Item 3.D. Risk Factors A High
Percentage
ASML ANNUAL REPORT 2008
13
of Net Sales Is Derived from a Few Customers and
Note 20 to our consolidated financial statements for a
breakdown of our sales by geographic location. In 2008 we
derived 68.8 percent of net sales from Asia,
21.7 percent from the United States and 9.5 percent
from Europe. In general, since ASMLs founding in 1984
sales derived from Asia have increased and sales derived from
United States and Europe have decreased. Management believes
that this trend will be accelerated by the current financial
market crisis and economic downturn. Reference is made to
Note 20 to the consolidated financial statements.
Manufacturing,
Logistics and Suppliers
Our business model is based on outsourcing production of a
significant part of the components and modules that comprise our
lithography systems, working in partnership with suppliers from
all over the world. Our manufacturing activities comprise the
assembly, fine tuning and testing of a finished system from
components and subassemblies that are manufactured to our
specifications by third parties and by us, and which we test
prior to assembly. All of our manufacturing activities
(subassembly, final assembly and system testing) are performed
in one clean room facility located in Veldhoven, the
Netherlands, and one clean room facility in Wilton, Connecticut,
United States. We procure stepper and scanner system components
and subassemblies from a single supplier or a limited group of
suppliers in order to ensure overall quality and timeliness of
delivery. We jointly operate a formal strategy with suppliers
known as value sourcing which is based on
competitive performance in quality, logistics, technology and
total cost. The essence of value sourcing is to maintain a
supply base that is world class, globally competitive and
globally present.
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, dual or multiple sourcing of products, where possible or
required.
|
Value sourcing is intended to align the performance of our
suppliers with our requirements on quality, logistics,
technology and total costs.
Zeiss is our sole external supplier of main optical systems and
one of the suppliers of other components. In 2008, approximately
32 percent of our aggregate cost of sales was purchased
from Zeiss.
Zeiss is highly dependent on its manufacturing and testing
facilities in Oberkochen and Wetzlar, Germany, and its
suppliers. Moreover, Zeiss has a finite production capacity for
production of lenses and optical components for our stepper and
scanner systems. The expansion of this production capacity may
require significant lead time. From time to time, the number of
systems we have been able to produce has been limited by the
capacity of Zeiss to provide us with lenses and optical
components. During 2008, our sales were not limited by the
deliveries from Zeiss.
If Zeiss is unable to maintain or increase production levels, we
might not be able to respond to customer demand. As a result,
our relationships with current and prospective customers could
be harmed, which would have a material adverse effect on our
business, financial condition and results of operations.
Our relationship with Zeiss is structured as a strategic
alliance pursuant to several agreements executed in 1997 and
later years. These agreements define a framework for cooperation
in all areas of our joint business. The partnership between ASML
and Zeiss is focused on continuous improvement of operational
excellence.
Pursuant to these agreements, ASML and Zeiss will continue their
strategic alliance until either party provides at least three
years notice of its intent to terminate. Although we
believe such an outcome is unlikely, if Zeiss were to terminate
its relationship with us, or if Zeiss were unable to produce
lenses and optical components over a prolonged period, we would
effectively cease to be able to conduct our business.
In addition to Zeiss, we also rely on other outside vendors for
the components and subassemblies used in our systems, 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 and the risk of untimely
delivery of these components and subassemblies.
See Item 3.D. Risk Factors, The Number of Systems We
Can Produce Is Limited by Our Dependence on a Limited Number of
Suppliers of Key Components.
Research and
Development
The semiconductor manufacturing industry is subject to rapid
technological changes and new product introductions and
enhancements. We believe that continued and timely development
and introduction of new and enhanced systems are essential
ASML ANNUAL REPORT 2008
14
for us to maintain our competitive position. As a result, we
have historically devoted a significant portion of our financial
resources to research and development programs and we expect to
continue to allocate significant resources to these efforts. In
addition, we have established and are currently establishing
sophisticated development centers in the Netherlands, the United
States and Taiwan. We also work jointly with independent
research centers in nanoelectronics and nanotechnology. Those
research centers focus on the next generations of chips and
systems.
We apply for subsidy payments in connection with specific
development projects under programs sponsored by the Netherlands
government, the European Union, the United States government and
the Taiwanese government. Amounts received under these programs
generally are not required to be repaid. See our discussions of
research and development in Item 5. Operating and
Financial Review and Prospects, and Note 1 to our
consolidated financial statements.
We invested EUR 538 million in research and
development in continuing operations in 2008, compared to
EUR 511 million in 2007 and EUR 414 million
in 2006. In addition, the research and development costs
invested in 2007 include a one-off charge related to the Brion
acquisition of EUR 23 million (amortization of
in-process research and development). We are also involved in
joint research and development 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.
In 2008, our research and development efforts drove further
development of the TWINSCAN platform along with several
leading-edge technologies, including 248 nm, 193 nm, immersion
and EUV. The continuous drive by our customers for cost
reductions has led us to increase significantly the commonality
of components of the different models of the TWINSCAN platform.
Our research and development activities in 2008 have also led to
productivity and performance enhancements for our other product
families. We continue to develop technology to support
applications of double patterning. Double patterning
is a resolution enhancement technique that involves splitting a
dense circuit pattern into multiple, less-dense patterns. These
simplified patterns are then printed sequentially on a target
wafer. Between exposures, the wafer is removed from the exposure
system for additional processing. Double patterning improves the
achievable resolution and enables the printing of smaller
features.
Next to the development of the TWINSCAN platform, we put more
and more resources to the development of EUV technology. This
technology promises a means for cost effective extendibility of
our customers roadmaps. An important milestone was that in
2008 both EUV Alpha Demo Tools (ADT) have passed site acceptance
testing. Our key customers now have direct access to EUV
technology, which we expect will result in the acceptance of
this technology as well as driving the development of EUV
infrastructure, including mask fabrication and processes.
Intellectual
Property
We rely on intellectual property rights such as patents,
copyrights and trade secrets to protect our proprietary
technology. We aim to obtain ownership rights on technology
developed by or for us or, alternatively, to have license rights
in place with respect to such technology. However, we face the
risk that such measures will be inadequate. Intellectual
property laws may not sufficiently support our proprietary
rights, our patent applications may not be granted and our
patents may not be construed as we expect. Furthermore,
competitors may be able to develop or protect similar technology
earlier and independently.
Litigation 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 litigation 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. We also may incur
substantial licensing or settlement costs where doing so would
strengthen or expand our intellectual property rights or limit
our exposure to intellectual property claims of third parties.
Patent
cross-license with Canon
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 integrated circuits. There was no transfer of
technology and no payment was made among the parties.
Patent litigation
with Nikon
From 2001 through late 2004, we were party to a series of civil
litigations and administrative proceedings in which Nikon
alleged ASMLs infringement of Nikon patents relating to
photolithography. ASML in turn filed claims against Nikon.
Pursuant to agreements executed on December 10, 2004, ASML,
Zeiss and Nikon agreed to settle all pending worldwide patent
litigation between the companies. The settlement included an
exchange of releases, a cross-license of patents related to
lithography equipment used to manufacture semiconductor devices
and payments to Nikon by ASML and Zeiss. In connection with the
settlement, ASML and Zeiss made settlement payments to Nikon
from 2004 to 2007. See Note 11 to our consolidated
financial statements for a description of the accounting
treatment.
ASML ANNUAL REPORT 2008
15
Arbitration with
Aviza Technology
On December 1, 2006, Aviza Technology (Aviza)
initiated arbitration proceedings against ASML Holding N.V.,
ASML U.S., Inc. and certain of ASML Holding N.V.s
affiliates (collectively, the ASML parties).
Avizas arbitration demand alleged that the ASML parties
engaged in fraud and made negligent misrepresentations or
omissions in connection with a 2002 License Agreement between
ASML and IPS, Ltd. That agreement was assigned to Aviza in
connection with the 2003 divestiture of ASMLs Thermal
Division.
On March 24, 2008, the arbitrator in the Aviza case ruled
in ASMLs favor holding that Aviza failed to establish a
cause of action against ASML. On June 19, 2008, the
arbitrator awarded ASML its legal fees and costs associated with
the case.
Dividend
withholding tax
In May and June 2006, ASML entered into forward purchase
agreements with a broker acting as principal to effect share
repurchases under its share buyback program. The aggregate
number of shares bought back under these agreements through
July 13, 2006 was 25,450,296.
The Netherlands tax authorities challenged ASMLs fiscal
interpretation of the forward purchase agreements and sought to
recast the repurchase as a dividend payment to unidentifiable
shareholders. Accordingly, the Netherlands tax authorities
assessed ASML for dividend withholding tax such that an
(additional) amount of approximately EUR 24 million
would be payable by ASML. In June 2008, as a result of
objections lodged by ASML, the matter was settled. ASML paid an
insignificant (additional) amount in connection with the
settlement.
Competition
The semiconductor equipment industry is highly competitive. The
principal elements of competition in our market segments are:
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the technical performance characteristics of a photolithography
system;
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the value of ownership of that system based on its purchase
price, maintenance costs, productivity and customer service and
support; and
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a strengthening of the euro particularly against the Japanese
yen which results in lower prices and margins.
|
In addition, we believe that an increasingly important factor
affecting our ability to compete is the strength and breadth of
our portfolio of patent and other intellectual property rights.
We believe that the market segment for photolithography systems
and the investments required to be a significant competitor in
this market segment have resulted in increased competition for
market share through the aggressive prosecution of patents. Our
competitiveness will increasingly depend 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. See
Item 3.D. Risk Factors, We Face Intense
Competition.
Government
Regulation
Our business is subject to direct and indirect regulation 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
technological 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. Moreover,
environmental and other regulations that adversely affect the
pricing of our products could adversely affect our results of
operation. The impact of these changes in regulation could
adversely affect our business 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
a wholly-owned subsidiary, are as follows:
See Exhibit 8.1 for a list of our material subsidiaries.
ASML ANNUAL REPORT 2008
16
D. Property,
Plant and Equipment
We principally obtain our facilities under operating leases.
However, we also own a limited number of buildings, mainly
consisting of the new facilities we are building in The
Netherlands and Taiwan. The book value of the buildings owned by
us amounted to EUR 302 million as of December 31,
2008 compared to EUR 136 million as of
December 31, 2007.
During 2008, some of our leased facilities were utilized below
normal capacity. As a result of its restructuring, announced in
December 2008, ASML has ceased using its training facility in
Tempe, United States, for which lease contract termination costs
of EUR 20.0 million were recognized in 2008. In
addition, the Company recognized impairment charges related to
machinery and equipment of EUR 22.3 million, mainly
due to a decrease in utilization of facilities as a result of
lower than expected demand and sales in 2009 and as a result of
the closure of several service locations, in each case due to
the current global financial market crisis and economic downturn.
Depending on market conditions, we expect that our capital
expenditures in 2009 will be approximately
EUR 200 million, a decrease of
EUR 122 million compared to 2008. We expect that a
significant part of the 2009 expenditures will be allocated to
construction and upgrades of production facilities in the
Netherlands as we will finalize the production facilities for
our latest technologies, such as EUV and double patterning. We
intend to fund the related capital expenditures primarily with
cash on hand
and/or cash
generated through operations.
See also Item 4.A. History and Development of the
Company, Capital Expenditures and Divestitures and
Item 5.B. Liquidity and Capital Resources and
Note 12 to our consolidated financial statements.
Facilities in
Europe
Our headquarters, applications laboratory and research and
development facilities are located at a single site in
Veldhoven, the Netherlands. This state-of-the-art facility
includes 65 thousand square meters of office space and 30
thousand square meters of buildings used for manufacturing and
research and development activities. We lease the majority of
these facilities through long-term operating leases that contain
purchase options. Some of our office facilities at our
headquarters in Veldhoven are financed through a special purpose
vehicle that is a variable interest entity. See Item 5.E.
Off-Balance Sheet Arrangements and Note 16 to
our consolidated financial statements. We also lease several
sales and service facilities at locations across Europe.
Facilities in the
United States
Our United States headquarters is located in a nine thousand
square meter office space building in Tempe, Arizona. As a
result of its restructuring announced in December 2008, ASML has
ceased using its training facility in Tempe, for which a
provision for lease contract termination costs was recognized in
2008. We maintain lithography research, development and
manufacturing operations in a 27 thousand square meter facility
in Wilton, Connecticut and a six thousand square meter facility
in Santa Clara, California. We also lease several sales and
service facilities at locations across the United States.
Facilities in
Asia
Our Asian headquarters is located in a 425 square meter
office space in Hong Kong. We also lease and own several sales
and service and training facilities at locations across Asia.
During the fourth quarter of 2008, we finalized the construction
of our new ACE facility located in Linkou, Taiwan, for which
construction commenced in 2007. This project comprises both
clean room (approximately two thousand square meters) and office
space (approximately six thousand square meters) in order to
support customers in the Asia-Pacific region by focusing on
technology and applications development, equipment support,
training, logistics and refurbishment. ACE will also enable
local sourcing of equipment models, components and services.
Item 4A
Unresolved Staff Comments
Not applicable.
Item 5 Operating
and Financial Review and Prospects
Executive
Summary
Introduction
ASML is the worlds leading provider of lithography
equipment that are critical to the production of ICs or chips.
This leading position is determined by a market share based on
revenue, which was approximately 65 percent in 2008 (2007:
65 percent). Headquartered in Veldhoven, the Netherlands,
ASML operates globally, with activities in Europe, the United
States and Asia.
ASML ANNUAL REPORT 2008
17
In 2008, we generated net sales of EUR 2,954 million
and income from operations of EUR 287 million or
9.7 percent of net sales. Net income in 2008 amounted to
EUR 322 million or 10.9 percent of net sales,
representing EUR 0.75 per share.
As of December 31, 2008 we employed approximately 6,900
payroll and approximately 1,300 temporary employees (measured in
full-time employees FTEs). ASML operated in 15
countries through over 60 sales and service locations.
In the executive summary below we provide an update of the
semiconductor equipment industry, followed by our business
strategy and a discussion of our key performance indicators.
Semiconductor
equipment industry conditions
Chip making is all about shrink or reducing the size of the chip
designs.
Historically the semiconductor industry has experienced
significant growth largely due to the continual reduction of
cost per function performed by ICs. Improvement in the design
and manufacture of ICs with higher circuit densities resulted in
smaller and cheaper ICs capable of performing a larger number of
functions at higher speeds with lower power consumption. We
believe that these long-term trends will continue for the
foreseeable future and will be accompanied by a continuing
demand for production equipment that is capable of accurate
production of advanced ICs in high volumes at the lowest
possible cost.
Lithography equipment is used to print complex circuit patterns
onto silicon wafers, which are the primary raw materials for
ICs. The printing process is one of the most critical and
expensive steps in wafer fabrication. Lithography equipment is
therefore a significant focus of the IC industrys demand
for cost efficient enhancements to production technology.
The costs to develop new lithography equipment are high.
Accordingly, the lithography equipment industry is characterized
by the presence of only a few primary suppliers: ASML, Nikon and
Canon. ASML is one of the worlds leading providers of
lithography equipment with a market share based on revenue of
65 percent in 2007 and approximately 65 percent in
2008. This is according to the latest available data up to and
including November 2008 as reported by SEMI, an independent
semiconductor industry organization.
Nikon and Canon are important suppliers in Japan, which accounts
for a significant portion of worldwide semiconductor production.
This region historically has been difficult for non-Japanese
companies to penetrate. Since 2004, we have been increasing our
service, sales and marketing operations in Japan to serve our
growing customer base. In 2008, we further strengthened our
long-term market development strategy in Japan, and our net
system sales there increased to EUR 413 million from
EUR 269 million in 2007.
Total lithography equipment shipped by the industry as a whole
in the five years ended December 31, 2007 is set forth in
the following table:
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Year Ended December 31
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2003
|
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2004
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2005
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2006
|
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2007
|
Total units shipped
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456
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|
694
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|
536
|
|
633
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|
604
|
Total value (in millions USD)
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3,229
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|
5,268
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4,988
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6,386
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7,144
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(Source: Gartner Dataquest)
The year 2008 was characterized by significant overall economic
uncertainty fuelled by the worldwide financial turmoil. This has
led to lower than expected overall semiconductor end-demand.
Against this background, our customers started to re-assess
their strategic alliances and their investments to match
production capacity to end-demand, resulting in a delay of
non-leading-edge production capacity additions. While
lithography equipment buyers are reducing standard production
capacity, their willingness to invest in leading-edge immersion
technology, however has remained strong as this technology
enables lithography equipment buyers to reduce their costs
aggressively. For the year 2008, the latest indications of
independent market analysts show a drop in total lithography
equipment shipped to the market by the industry of
40 percent in unit volume and 22 percent in value.
Business
strategy
Our business strategy is based on achieving and further
developing a position as a technology leader in semiconductor
lithography, resulting in the delivery of superior value of
ownership for our customers, as well as maximizing our financial
performance. We implement this strategy through customer focus,
strategic investment in research and development, and
operational excellence.
ASML ANNUAL REPORT 2008
18
Customer
focus
We serve different types of chipmakers by ensuring that our
products provide premium value for customers in the various
semiconductor market segments, including memory makers,
integrated device manufacturers, and foundries or made-to-order
chip contractors.
Through 2008, 17 of the top 20 chipmakers worldwide, in terms of
semiconductor capital expenditure, were our customers. Our
leadership position in the semiconductor equipment market was
strengthened during 2008 by our continued growth in the Japanese
market. We also have a significant share of customers outside
the top 20 and we strive for continued business growth with all
customers.
In 2008, we achieved a top four position in customer
satisfaction rankings amongst large suppliers of semiconductor
equipment, according to VLSI Research, an independent industry
research firm that surveyed customers representing
95 percent of the worlds total semiconductor market.
Our satisfaction ratings by customers surpassed every
lithography competitor for the sixth year in a row.
In 2008, we made major inroads with new technologies focusing on
value. We announced a new ArF lithography system that
significantly reduces operating costs for our customers. The
ASML TWINSCAN XT:1950i scanner extends advanced ArF technology
to even smaller resolutions and boosts the overall performance
of high-end systems by 25 percent. In April 2008, ASML also
shipped its 1,000th KrF system. This technology is used for
30-40 percent
of the layers in high-end chips.
Strategic
investment in research and development
Supported by our strong financial performance in recent years,
we increased research and development expenses in 2008 by
5.4 percent compared with 2007, as we accelerated
development of immersion and EUV technologies. This operating
decision to continue to invest during the downturn and prepare
for the future was made possible by leveraging our outsourcing
strategy, which continues to enable us to rapidly and
efficiently adjust our cost structure throughout the cycle while
making use of leading-edge capabilities in our supply chain.
Since 2000, we have offered a dual-stage wafer imaging
platform the TWINSCAN system which
allows exposure of one wafer while simultaneously measuring the
wafer which will be exposed next. Our strong leadership in this
capability has allowed us to achieve the industrys highest
throughput, enabling reduced
cost-per-exposure
per wafer. ASML is the only lithography manufacturer that has
volume production based on dual stage systems.
Our innovative immersion lithography replaces air over the wafer
with fluid, enhancing focus and enabling circuit line-width to
shrink to even smaller dimensions. ASML has experienced strong
demand for immersion-based systems, driven initially by memory
chip makers that need more cost effective technology transitions
that are enabled by immersion systems. With 128 immersion
systems shipped to date, our immersion technology is now widely
accepted as the standard for critical layer high volume chip
manufacturing, solidifying our technology leadership position
worldwide and supporting our significant growth in Japan.
In July 2008, we introduced our new TWINSCAN XT:1950i system,
the only immersion lithography system in the world capable of
imaging chip features down to 38 nm with a single exposure.
Furthermore, in October 2008 we announced ASMLs new
TWINSCAN NXT immersion lithography platform. With new wafer
stage and positioning technology, the TWINSCAN NXT offers
significant improvements in overlay and productivity, enabling
the semiconductor industry to continue its shrink roadmap for
more advanced and affordable chips. The TWINSCAN NXT platform is
also suited for emerging double patterning techniques required
by manufacturers to shrink the smallest chip features by up to
42 percent over the current most advanced production
systems. The first product based on the new platform, the
NXT:1950i, was introduced in December 2008.
Also in 2008, we made significant progress in our EUV
lithography program, completing the design of our first NXE
production system. The NXE system, which will be built on an
evolved TWINSCAN platform will enable our customers to extend
their roadmap to chip features down to 22 nm and smaller. We
have two Alpha Demo Tools at CNSE in Albany, New York (United
States) and IMEC in Leuven (Belgium), both leading research and
development institutions, where potential customers can conduct
infrastructure development, and where the first functional
devices were made using EUV lithography on full-field chips in
February 2008. As a single-exposure, multi-node technology, EUV
offers the greatest extendibility at the lowest cost of
ownership for the future of lithography. ASML currently has
orders for five of these systems, the first of which is
scheduled for shipment in 2010.
From time to time, we seek to expand the scope of our business,
pursuing hardware technologies and new product opportunities in
fields adjacent or complementary to our core semiconductor
lithography competence. Our March 2007 acquisition of Brion was
an example of such an expansion. Through Brion, ASML has
developed a range of new resolution enhancement techniques which
our customers are implementing to reduce cost per chip, both
currently and as they transition to EUV lithography.
ASML ANNUAL REPORT 2008
19
In the fourth quarter of 2008, ASML introduced its
LithoTunertm
Pattern Matcher products which enable cost and yield
improvements ranging from 30 to 70 percent over current
scanner matching techniques. ASML is alone in offering this
capability. We refer to our efforts in this area as
holistic lithography, the improvement of the entire
chip-imaging process by optimizing wafer lithography,
computational lithography and layout, thereby providing our
customers with better performance and value of ownership.
Operational
excellence
We strive to sustain our business success based on our
technological leadership by continuing to execute our
fundamental operating strategy well, including reducing
lead-times while improving our cost competitiveness. Lead-time
is the time from a customers order to a tools
delivery.
Our business strategy includes outsourcing the majority of
components and subassemblies that make up our products. We work
in partnership with suppliers, collaborating on quality,
logistics, technology and total cost. By operating our strategy
of value sourcing, we strive to attain flexibility and cost
efficiencies from our suppliers through mutual commitment and
shared risk and reward. Value sourcing also allows the
flexibility to adapt to the cyclicality of the world market for
semiconductor lithography systems.
ASML has a flexible labor model with a mix of fixed and flexible
contracted labor in its manufacturing, and research and
development facilities located in Veldhoven. This reinforces our
ability to adapt more quickly to semiconductor market cycles,
including support for potential
24-hour,
seven
days-a-week
production activities. By maximizing the flexibility of our
high-tech work force, we can shorten lead time: a key driver of
added value for customers. Flexibility also reduces our working
capital requirements.
In view of the current global financial market crisis and
economic downturn, we continue to strive to improve efficiencies
in our operations: addressing our cost structure and
strengthening our capability to generate cash. We have used the
flexibility in our business model to quickly reduce costs in
response to the global economic downturn without impacting our
key technology development roadmap. Also, we are maintaining a
level of capacity at our factory to ramp up production to meet
customer needs without lengthy lead-times, since the lithography
market may pick up quickly once product end-demand recovers. We
have been successful at progressively enhancing the value of
ownership of our products while increasing margins and boosting
cash generation through gains in manufacturing productivity and
reductions in cycle time.
ASML operations
update on key performance indicators
The following table presents the key performance indicators used
by our Board of Management and senior management to measure
performance in our monthly operational review meetings.
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|
|
|
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Year ended December 31
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2006 3
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2007 3,4
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2008
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(in millions, except market share and systems)
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EUR
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EUR
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|
|
|
|
|
EUR
|
|
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|
Sales
|
|
|
|
|
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Market share (based on
revenue)1
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63%
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65%
|
|
|
|
|
|
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65%
|
|
|
|
|
|
Net sales
|
|
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3,582
|
|
|
|
|
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|
|
3,768
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|
|
|
|
|
|
|
2,954
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|
|
|
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|
Increase / (decrease) in net sales
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41.6%
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5.2%
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|
|
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(21.6
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)%
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Systems shipped (value)
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3,214
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|
3,351
|
|
|
|
|
|
|
|
2,517
|
|
|
|
|
|
Systems shipped (number)
|
|
|
266
|
|
|
|
|
|
|
|
260
|
|
|
|
|
|
|
|
151
|
|
|
|
|
|
Average selling price
|
|
|
12.1
|
|
|
|
|
|
|
|
12.9
|
|
|
|
|
|
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16.7
|
|
|
|
|
|
Systems backlog (value)
|
|
|
2,146
|
|
|
|
|
|
|
|
1,697
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|
|
|
|
|
|
|
755
|
|
|
|
|
|
Systems backlog (number)
|
|
|
163
|
|
|
|
|
|
|
|
89
|
|
|
|
|
|
|
|
41
|
|
|
|
|
|
Average selling price
|
|
|
13.2
|
|
|
|
|
|
|
|
19.1
|
|
|
|
|
|
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18.4
|
|
|
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|
Immersion systems shipped
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|
|
23
|
|
|
|
|
|
|
|
38
|
|
|
|
|
|
|
|
56
|
|
|
|
|
|
Profitability
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
1,454
|
|
|
|
40.6%
|
|
|
|
1,550
|
|
|
|
41.1%
|
|
|
|
1,016
|
|
|
|
34.4%
|
|
Income from operations
|
|
|
863
|
|
|
|
24.1%
|
|
|
|
815
|
2
|
|
|
21.6%
|
|
|
|
287
|
|
|
|
9.7%
|
|
Net income
|
|
|
619
|
|
|
|
17.3%
|
|
|
|
671
|
2
|
|
|
17.8%
|
|
|
|
322
|
|
|
|
10.9%
|
|
Liquidity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Cash and cash equivalents
|
|
|
1,656
|
|
|
|
|
|
|
|
1,272
|
|
|
|
|
|
|
|
1,109
|
|
|
|
|
|
Operating cash flow
|
|
|
492
|
|
|
|
|
|
|
|
701
|
|
|
|
|
|
|
|
281
|
|
|
|
|
|
|
|
|
1
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According to the latest available
data up to and including November 2008 as reported by SEMI, an
independent semiconductor industry organization.
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ASML ANNUAL REPORT 2008
20
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2
|
The 2007 figures for income from
operations and net income include a one-off charge of
EUR 23 million relating to the Brion acquisition for
amortization of in-process research and development.
|
3
|
As of January 1, 2008 ASML
accounts for award credits offered to its customers as part of a
volume purchase agreement using the deferred revenue model.
Until December 31, 2007 ASML accounted for award credits
using the cost accrual method. The comparative figures for the
years 2007 and 2006 have been adjusted to reflect this change in
accounting policy. See note 1 to the consolidated financial
statements.
|
4
|
In 2008, subsequent to the filing
of the 2007 annual report on
Form 20-F,
ASML detected and made a correction for a prior period error
with respect to a release of deferred tax liabilities of
EUR 8.7 million. This release was incorrectly
recognized in the 2007 consolidated statement of operations
under (provision for) benefit from income taxes instead of in
equity under other comprehensive income. The 2007 figures have
been adjusted to reflect this correction. See Note 1 to the
consolidated financial statements.
|
Sales
For the longer term, and based on industry analysts IC growth
forecasts, we expect our sales level to grow. Based on these
forecasts and our current market share, our general strategy is
to seek to grow net sales to a EUR 5 billion level.
The timing of such level depends on three growth drivers: market
growth, market share growth and a broadening of our product and
services scope. See also Item 4.A. History and
Development of the Company.
In 2008, net sales decreased by 21.6 percent to
EUR 2,954 million from EUR 3,768 million in
2007. The decrease in net sales mainly resulted from a lower
demand for lithography equipment partly offset by higher ASPs in
2008. The lower overall semiconductor end-demand was caused by a
significant economic uncertainty resulting from the current
global financial market crisis and economic downturn. Against
this background our customers started to re-assess their
strategic alliances and their investments to match the
industrys production capacity to end-demand. This
situation created a
wait-and-see
attitude resulting in delay of non leading-edge production
capacity additions. While customers reduced standard production
capacity, their willingness to invest in leading-edge immersion
technology, however, remained strong as this technology enables
lithography equipment buyers to reduce their costs.
ASML is one of the worlds leading providers of lithography
equipment with a market share based on revenue of
65 percent in 2007 and approximately 65 percent in
2008. This is according to the latest available data up to and
including November 2008 as reported by SEMI, an independent
semiconductor industry organization.
The ASP of our systems increased by 29.5 percent from
EUR 12.9 million in 2007 to EUR 16.7 million
in 2008. This increase was mainly driven by a change in the
product mix reflecting the continued shift in market demand to
our leading-edge technology systems with higher ASPs driven by
the shrink roadmaps of our customers. In 2008, this general
trend was accentuated by our customers delaying non-leading-edge
capacity additions in view of the rationalization of the
industrys production capacity to match end-demand.
As of December 31, 2008, our order backlog was valued at
EUR 755 million and included 41 systems with an ASP of
EUR 18.4 million. As of December 31, 2007, the
order backlog was valued at EUR 1,697 million and
included 89 systems with an ASP of EUR 19.1 million.
The continued high ASP reflected a high number of leading-edge
immersion systems in the backlog of 2007 and 2008 pursuant to
the continued
ramp-up of
volume manufacturing with our leading-edge immersion systems in
2008 and 2009. The decrease in the total value of the backlog
was primarily the result of increased uncertainty about future
global economic market conditions and the impact on the overall
semiconductor end-demand. As a result we currently see a trend
in customer order behavior toward ordering on a system by system
basis when needed rather than ordering systems on a
12-month
rolling capacity planning basis.
Profitability
Our general strategy is to seek to achieve average income from
operations to net sales of
10-15 percent
at the downturn point and
20-25 percent
at the upturn point over the industrys business cycle.
However in periods of serious recessionary pressure, as
evidenced by the current global financial market crisis and
economic downturn, we could see periods with income from
operations that are substantially below our minimum target level.
Operating income decreased from EUR 815 million or
21.6 percent of sales in 2007 to 287 million or
9.7 percent of sales in 2008. This
EUR 528 million decrease was substantially the result
of a decrease in gross profit of EUR 534 million or
34.5 percent which was partially offset by a decrease in
operating expenses of EUR 6 million or
0.9 percent.
Gross profit on sales decreased from EUR 1,550 million
or 41.1 percent of net sales in 2007 to 1,016 million
or 34.4 percent of net sales in 2008. The lower gross
profit was principally attributable to a decrease in net sales
(see above) and to an increase in the cost of sales as a
percentage of net sales. The increase in cost of sales as a
percentage of sales was principally attributable to lower
coverage of our fixed manufacturing costs consistent with the
lower production levels in 2008 compared with 2007. Furthermore,
we recorded restructuring and impairment charges of
EUR 138 million in the fourth quarter of 2008,
anticipating a sharp decrease in demand resulting from the
current global financial market crisis and economic downturn.
See Item 5. A. Operational Results, for the impact of the
current global financial market crisis and economic downturn.
ASML ANNUAL REPORT 2008
21
Net research and development costs in 2007 included a one-off
charge of EUR 23 million relating to amortization of
in-process research and development in connection with the Brion
acquisition. Excluding this one-off charge research and
development costs net of credits increased by
EUR 30 million or 6.2 percent mainly as a result
of the decision to continue strategic investments in technology
leadership. Although we strived to be as efficient as possible
in research and development spending we did not want to impact
any of the strategic programs, in particular immersion, double
patterning and EUV, in order to further develop our position as
a technology leader. For further details regarding research and
development see Item 4.B. Business Overview and
Item 5 Operating and Financial Review and Prospects,
Business Strategy.
Operating expenses were EUR 6 million lower in 2008
compared to 2007 due to a decrease of selling, general and
administrative costs by 13 million, or 5.9 percent
partially offset by an increase in net research and development
costs by EUR 7 million, or 1.3 percent. The
selling, general and administrative costs were reduced in
anticipation of the lower sales level.
ASML has a flexible labor model with a mix of payroll and
temporary employees, which enables the company to quickly adapt
its costs to the semiconductor market cycles.
Net income in 2008 amounted to EUR 322 million or
10.9 percent of sales, representing EUR 0.75 per share
compared with net income of EUR 671 million or
17.8 percent of sales, representing EUR 1.45 per share
in 2007.
Liquidity
Our general strategy is to seek to maintain our strategic target
level of cash and cash equivalents between
EUR 1.0 billion and EUR 1.5 billion. To the
extent that our cash and cash equivalents exceeds this target
and there are no investment opportunities that we wish to
pursue, we will consider returning excess cash to our
shareholders. As of December 31, 2008 our cash and cash
equivalents amounted to EUR 1.1 billion.
At December 31, 2008, the Company has an available credit
facility for a total of EUR 500 million, which will
expire in May 2012.
Our cash and cash equivalents decreased from
EUR 1,272 million as of December 31, 2007 to
EUR 1,109 million as of December 31, 2008. We
generated cash from operations of EUR 281 million in
2008, which was offset by a cash outflow of
EUR 184 million from financing activities, mainly as a
result of our 2008 dividend payment (EUR 108 million) and
share buyback programs (EUR 88 million), and
EUR 260 million cash used in investing activities
mainly related to the production facilities in Veldhoven and
Taipei and, to a lesser extent, equipment and information
technology.
ASML repurchased 5 million shares (EUR 88 million) in
February 2008. The cumulative amount returned to shareholders in
the form of share buybacks and capital repayment between May
2006 and February 2008 was EUR 2,137 million. In May
2008 the Company paid a dividend of EUR 0.25 per ordinary
share of EUR 0.09, or EUR 108 million in total. A
proposal will be submitted to the Annual General Meeting of
Shareholders on March 26, 2009 to declare a dividend for
2008 of EUR 0.20 per ordinary share of EUR 0.09.
A. Operating
Results
Significant
Effects of the Current Global Financial Market Crisis and
Economic Downturn on ASML
As a result of the sharp decreases in demand in the fourth
quarter of 2008 and in anticipated demand in 2009 caused by the
current global financial market crisis and economic downturn,
ASML has recognized impairment charges of
EUR 20.8 million on property, plant and equipment and
inventory obsolescence charges of EUR 94.6 million.
In order to lower its cost and break-even level, ASML announced
in December 2008 a reduction in work force of approximately
1,000 employees or 12 percent of the total work force,
mainly contract employees. ASML also announced the shutdown of
its production facilities for two weeks in the fourth quarter of
2008 and four weeks in the first half of 2009. Furthermore, ASML
announced a restructuring that resulted in the discontinuation
of its training center in the United States, the downsizing of
its United States headquarters and the closure of several other
service locations, reflecting the continuing migration of
semiconductor manufacturing activities to Asia which has been
accelerated by the current global financial market crisis and
economic downturn. The restructuring resulted in the recognition
of a provision for employee contract termination benefits of
EUR 2.4 million, reflecting the elimination of
approximately 90 jobs in the United States and approximately 15
jobs at service locations in other parts of the world. As part
of this restructuring, ASML ceased the use of its training
facility in Tempe, United States, incurring lease contract
termination costs of EUR 20.0 million in 2008.
ASML ANNUAL REPORT 2008
22
As a result of the actions taken to respond to the current
global financial market crisis and economic downturn the
following charges have been recognized in ASMLs
consolidated statements of operations in 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
(in
thousands)
|
|
|
|
|
EUR
|
|
|
Restructuring costs
|
|
|
|
|
|
|
|
22,397
|
|
|
Inventory obsolescence
|
|
|
|
|
|
|
|
94,601
|
|
|
Impairments of property, plant and equipment
|
|
|
|
|
|
|
|
20,839
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
137,837
|
|
|
These costs are recognized as follows in the consolidated
statements of operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment of
|
|
|
|
|
|
|
Restructuring
|
|
|
Inventory
|
|
|
property, plant
|
|
|
|
|
|
|
costs
|
|
|
obsolescence
|
|
|
and equipment
|
|
|
Total
|
|
(in thousands)
|
|
EUR
|
|
|
EUR
|
|
|
EUR
|
|
|
EUR
|
|
Cost of sales
|
|
|
21,492
|
|
|
|
94,601
|
|
|
|
20,111
|
|
|
|
136,204
|
|
Research and development costs
|
|
|
|
|
|
|
|
|
|
|
728
|
|
|
|
728
|
|
Selling, general and administrative costs
|
|
|
905
|
|
|
|
|
|
|
|
|
|
|
|
905
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
22,397
|
|
|
|
94,601
|
|
|
|
20,839
|
|
|
|
137,837
|
|
|
Notwithstanding the restructuring, ASML intends to maintain its
key research and development programs for the development of
next generation lithography systems. Furthermore, ASML will
maintain a level of production capacity to be able to ramp up
production to meet customer requirements without lengthy lead
times as demand picks up in the future.
Critical
accounting policies using significant estimates
Our discussion and analysis of our financial condition and
results of operations are based upon our consolidated financial
statements, which have been prepared in accordance with
U.S. GAAP. The preparation of our financial statements
requires us to make estimates and judgments that affect the
reported amounts of assets, liabilities, net sales and expenses,
and related disclosure of contingent assets and liabilities. On
an ongoing basis, we evaluate our estimates, including those
related to revenue recognition, warranty, business combinations,
long-lived assets, inventories, accounts receivable, provisions,
contingencies and litigation, share-based compensation expenses
and income tax. We base our estimates on historical experience
and on various other assumptions that we believe to be
reasonable under the circumstances. While we regularly evaluate
our estimates and assumptions, actual results may differ from
these estimates if these assumptions prove incorrect. To the
extent there are material differences between actual results and
these estimates, our future results of operations 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
consolidated financial statements.
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;
sellers 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. Each system undergoes, prior
to shipment, a Factory Acceptance Test in
ASMLs clean room facilities, effectively replicating the
operating conditions that will be present on the customers
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
specifications are met and customer sign-off is received or
waived. Although each systems performance is re-tested
upon installation at the customers site, ASML has never
failed to successfully complete installation of a system at a
customers premises.
We anticipate that, in connection with future introductions of
new technology, we will initially defer revenue recognition
until completion of installation and acceptance of the new
technology at customer premises. This deferral would continue
until we are able to conclude that installation of the
technology in question would occur consistently within a
predetermined time period and that the performance of the new
technology would not reasonably be different from that exhibited
in the pre-shipment Factory Acceptance Test. Any such deferral
of revenues, however, could have a material effect on
ASMLs results of operations for the
ASML ANNUAL REPORT 2008
23
fiscal period in which the deferral occurred and on the
succeeding fiscal period. At December 31, 2008 and 2007, we
had no deferred revenue from shipments of new technology. During
the three years ended December 31, 2008, no revenue from
new technology was recorded that had been previously deferred.
As our systems are based largely on two product platforms that
permit incremental, modular upgrades, the introduction of
genuinely new technology occurs infrequently, and
has occurred on only one occasion since 1999.
ASML has no significant repurchase commitments in its general
sales terms and conditions. From time to time the Company
repurchases systems that it has manufactured and sold and,
following refurbishment, resells those systems to other
customers. This repurchase decision is driven by market demand
expressed by other customers and not by explicit or implicit
contractual arrangements relating to the initial sale. The
Company considers reasonable offers from any vendor, including
customers, to repurchase used systems so that it can refurbish,
resell and install these systems as part of its 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, 2008 ASML has no repurchase commitments.
A portion of our revenue is derived from contractual
arrangements with our customers that have multiple deliverables,
such as installation and training services, prepaid service
contracts and prepaid extended optic warranty contracts. The
revenue relating to the undelivered elements of the arrangements
is deferred at fair value until delivery of these elements. The
fair value is determined by vendor specific objective evidence
(VSOE) except the fair value of the prepaid extended
optic warranty which is based on the list price. VSOE is
determined based upon the prices that we charge for installation
and comparable services (such as relocating a system to another
customer site) on a stand-alone basis, which are subject to
normal price negotiations. Revenue from installation and
training services is recognized when the services are completed.
Revenue from prepaid service contracts and prepaid extended
optic warranty contracts is recognized over the term of the
contract.
The deferred revenue balance from installation and training
services amounted to approximately EUR 3 million and
EUR 15 million, respectively, as of December 31,
2008.
The deferred revenue balance from prepaid service contracts and
prepaid extended optic warranty contracts amounted to
approximately EUR 118 million and
EUR 55 million, respectively, as of December 31,
2008.
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 volume discounts to a limited number of
customers. In some instances these volume discounts can be used
to purchase field options (system enhancements). The related
amount is recorded as a reduction in revenue at time of
shipment. From time to time, we offer free or discounted
products or services (award credits) to our customers as part of
a volume purchase agreement. The sales transaction that gives
rise to these award credits is accounted for as a multiple
element revenue transaction. 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. Generally,
there are no other credits or adjustments recognized at shipment.
Revenues are recognized excluding the taxes levied on revenues
(net basis).
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 and optic
parts 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 field expenses.
Based upon historical service records, we calculate the charge
of average service hours and parts per system to determine the
estimated warranty charge. We update these estimated charges
periodically. The actual product performance
and/or field
expense profiles may differ, and in those cases we adjust our
warranty reserves accordingly. Future warranty expenses may
exceed our estimates, which could lead to an increase in our
cost of sales.
Business
combinations
Acquisitions of subsidiaries are accounted for using the
purchase accounting method. The costs of an acquired
subsidiary are assigned to the assets and the liabilities
assumed on the basis of their fair values at the date of
acquisition. The determination of fair values of assets and
liabilities acquired requires us to make estimates and use
valuation techniques when market value is not readily available.
The excess of the costs of an acquired subsidiary over the net
of the amounts assigned to assets acquired and liabilities
assumed is capitalized as goodwill.
In 2008, we completed the purchase price allocation of Brion. No
adjustments were made to the initial allocation of the purchase
price.
ASML ANNUAL REPORT 2008
24
Evaluation of
long-lived assets for impairment and costs associated with exit
or disposal activities
Long-lived assets include goodwill, other intangible assets and
property, plant and equipment.
Goodwill is tested annually for impairment and whenever events
or changes in circumstances indicate that the carrying amount of
the goodwill may not be recoverable. Goodwill is tested for
impairment based on a two-step approach for each reporting unit.
First, the recoverability is tested by comparing the carrying
amount of the reporting unit including goodwill with the fair
value of the reporting unit, being the sum of the discounted
future cash flows.
If the carrying amount of the reporting unit is higher than the
fair value of the reporting unit, the second step should be
performed. The 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 reporting unit in the same manner as goodwill is determined
in a business combination.
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. Other intangible assets and property,
plant and equipment are tested for impairment based on a
two-step approach. First the recoverability is tested by
comparing the carrying amount of the other intangible assets and
property, plant and equipment with the fair value being the sum
of the undiscounted future cash flows. If the carrying amount of
the other intangible assets and property, plant and equipment is
lower than the fair value the assets are considered to be
impaired. The impairment to be recognized is measured by the
amount by which the carrying amount of the assets exceeds the
fair value of the asset.
In determining the fair value of a reporting unit or an asset,
the Company makes estimates about future cash flows. These
estimates are based on the financial plan updated with the
latest available projection of the semiconductor market
conditions and our sales 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
Weighted Average Cost of Capital (WACC) and future inflation
rates. It is possible that the outcome of the plans, estimates
and assumptions used may differ from our estimates, which may
require impairment of certain long-lived assets. Future adverse
changes in market conditions may also require impairment of
certain long-lived assets.
During 2008, we recorded impairment charges of
EUR 24.6 million in property, plant and equipment and
EUR 0.6 million in other intangible assets of which we
recorded EUR 21.4 million in cost of sales,
EUR 2.2 million in research and development costs and
EUR 1.6 million in selling, general and administrative
costs. The impairment charges mainly relate to machinery and
equipment of EUR 22.3 million mainly relating to a
decrease in utilization as a result of lower expected demand and
sales in 2009 and as a result of the closure of several
locations due to the current global financial market crisis and
economic downturn. The impairment charges were determined based
on the difference between the assets estimated fair value
(being EUR 5.4 million) and their carrying amount. In
determining the fair value of an asset, the Company makes
estimates about future cash flows. These estimates are based on
the financial plan updated with the latest available projection
of the semiconductor market conditions and our sales and cost
expectations which are consistent with the plans and estimates
that we use to manage our business. See Notes 11 and 12 to
our consolidated financial statements.
Inventories
Inventories, including spare parts and lenses, are stated at the
lower of cost
(first-in,
first-out method) or market value. Costs include net prices paid
for materials purchased, charges for freight and customs duties,
production labor cost and factory overhead. Allowances are made
for slow moving, obsolete or unsaleable inventory and are
reviewed on a quarterly basis. Our methodology involves matching
our on-hand and on-order inventory with our manufacturing
forecast. In determining inventory allowances, we evaluate
inventory in excess of our forecasted needs on both
technological and economical criteria and make appropriate
provisions to reflect the risk of obsolescence. This methodology
is significantly affected by our forecasted needs for inventory.
If actual demand or usage were to be lower than estimated,
additional inventory allowances for excess or obsolete inventory
may be required, which could have a material adverse effect on
our business, financial condition and results of operations. See
Note 8 to our consolidated financial statements.
As of December 31, 2008, the allowance for inventory
obsolescence amounts to EUR 189.9 million (2007:
EUR 129.0 million). The increase in the allowance for
inventory obsolescence mainly reflects the higher obsolescence
due to lower expected demand and sales in 2009 as a result of
the current global financial market crisis and economic downturn.
Accounts
receivable
A majority of our accounts receivable are derived from sales to
a limited number of large multinational semiconductor
manufacturers throughout the world. In order to monitor
potential credit losses, we perform ongoing credit evaluations
of our customers financial condition. An allowance for
doubtful accounts is maintained for potential credit losses
based upon managements assessment of the expected
collectability of all accounts receivable. The allowance for
doubtful accounts is reviewed periodically to assess the
adequacy of the allowance. In making this assessment, we take
into consideration (i) any
ASML ANNUAL REPORT 2008
25
circumstances of which we are aware regarding a customers
inability to meet its financial obligations; and (ii) our
judgments as to potential prevailing economic conditions in the
industry and their potential impact on the Companys
customers. Where we deem it prudent to do so, we may require
some form of credit enhancement, such as letters of credit, down
payments and retention of ownership, before shipping systems to
certain customers. We have not incurred any material accounts
receivable credit losses during the past three years. Our three
largest customers accounted for 42.2 percent of accounts
receivable at December 31, 2008, compared to
40.1 percent at December 31, 2007. A business failure
of one of our main customers could result in a substantial
credit loss in respect to amounts owed to the Company by that
customer, which could adversely affect our results of operations
and financial condition.
On January 23, 2009, Qimonda AG and Qimonda Dresden OHG
(together Qimonda), a German memory chipmaker, filed
for insolvency. Qimonda has amounts outstanding to ASML of
approximately EUR 37 million in respect of two systems
delivered, of which EUR 21 million is reflected in accounts
receivable and EUR 16 million is reflected in finance
receivables. ASML believes that the outstanding amounts
receivable from Qimonda are collectible or the value of the
receivables can be realized through the retention of title of
the two systems. In case the trustee in bankruptcy will not
honour the contracts with ASML, we will execute our right to
retrieve these systems, in order to substantially cover the
financial risk for ASML. The timing of such potential retrieval
of the systems is uncertain.
Provisions
Employee contract termination benefits are payable when
employment is terminated before the normal retirement date, or
whenever an employee accepts voluntary redundancy in exchange
for these benefits. ASML recognizes employee contract
termination benefits when ASML is demonstrably committed to
either terminating the employment of current employees according
to a detailed formal plan where there is no possibility of
withdrawal, or when ASML provides termination benefits as a
result of an offer made to encourage voluntary redundancy. The
timing of recognition and measurement of the provision for
employee contract termination benefits depends on whether
employees are required to render service until they are
terminated in order to receive the termination benefits. If this
period of continued employment extends beyond the minimum
retention period, the provision shall be determined at the
communication date based on the fair value as of the termination
date and is recognized ratably over the future service period.
Provisions for lease contract termination costs are recognized
when costs will continue to be incurred under a contract for its
remaining term without economic benefit to the Company and the
Company ceases using the rights conveyed by the contract. The
provisions are measured at fair value which is determined based
on the remaining lease payments reduced by the estimated
sublease payment that could be reasonably obtained for the
building.
Provision for employee contract termination benefits relates
mainly to the restructuring that was initiated in 2008 to
achieve further reduction in costs. The provision for employee
contract termination benefits comprises only personnel costs.
Provision for lease contract termination costs relates to an
operating lease contract for a building for which no economic
benefits are expected.
Contingencies and
litigation
We are party to various legal proceedings generally incidental
to our business, as disclosed in Note 18 to the
consolidated financial statements. In connection with these
proceedings and claims, our management evaluated, based on the
relevant facts and legal principles, the likelihood of an
unfavorable outcome and whether the amount of the loss could be
reasonably estimated. In each case, management determined that
either a loss was not probable or was not reasonably estimable.
As a result, no estimated losses were recorded as a charge to
our consolidated statements of operations in 2006, 2007 and
2008. 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, even where we
believe that we would ultimately prevail, we may agree to settle
or to terminate a claim or proceeding where we believe that
doing so, when taken together with other relevant commercial
considerations, is more cost-effective than engaging in
expensive and protracted litigation, the outcome of which is
uncertain.
We accrue legal costs related to litigation in our consolidated
statements of operations at the time when the related legal
services are actually provided to us.
ASML ANNUAL REPORT 2008
26
Share-based
compensation expenses
The cost of employee services received (compensation expenses)
in exchange for awards of equity instruments are recognized
based upon the grant-date fair value of stock options and stock.
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 stock 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 a Euro government bond with a life equal to
the expected life of the equity-settled share-based payments.
The fair value of stock is determined based on the closing price
of the Companys ordinary shares on the Euronext Amsterdam
on the grant date.
The fair value determined at the grant date of the
equity-settled share-based payments is expensed on a
straight-line basis over the vesting period, based on the
Companys estimate of equity instruments that will
eventually vest. At each balance sheet date, the Company revises
its 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 equity.
We make quarterly assessments of the adequacy of the
(hypothetical) tax pool to determine whether there are tax
deficiencies that require recognition in the consolidated
statements of operations. We have selected the alternative
transition method (under FSP FAS 123(R)-3) in order to
calculate the tax pool.
Our current share-based payment plans do not provide for cash
settlement of options.
Income
tax
We operate in various tax jurisdictions in Europe, Asia and the
United States and must comply with the tax laws and regulations
of each of these jurisdictions.
We use the asset and liability method in accounting for income
taxes. Under this method, deferred tax assets and liabilities
are recognized for tax consequences attributable to differences
between the balance sheet carrying amounts of existing assets
and liabilities and their respective tax bases. Furthermore tax
assets are recognized for the tax effect of incurred net
operating losses. If it is more likely than not that the
carrying amounts of deferred tax assets will not be realized, a
valuation allowance is recorded to reduce the carrying amounts
of those assets.
We continuously assess our ability to realize our deferred tax
assets resulting from net operating loss carry-forwards. The
total amount of tax effect of the loss carry-forwards as of
December 31, 2008 was EUR 57.8 million, which resides
completely with ASML US, Inc. and US based subsidiaries of ASML
US Inc. We believe that all losses will be offset by future
taxable income before our ability to utilize those losses
expires. This analysis takes into account our projected future
taxable income from operations, possible tax planning
alternatives available to us, and a realignment of group assets
that we effectuated during the period 2001 through 2003 that
included the transfer of certain tangible and intangible assets
of ASML US, Inc. to ASML Netherlands B.V. The value of the
assets transferred has resulted and will result in income
recognized and to be recognized by ASML US, Inc., which we
believe, together with projected future taxable income from
operations will be sufficient to absorb the net operating losses
that ASML US, Inc. has incurred, prior to the expiry of those
losses. In order to determine with certainty the tax
consequences and value of the asset transfer and the
remuneration of ASML US, Inc. for intercompany services
rendered, in 2002 we requested a bilateral advance pricing
agreement (APA) from the United States and
Netherlands tax authorities which resulted in September 2007 in
two duly signed APAs between certain ASML subsidiaries and the
tax authorities of the United States and the Netherlands. The
APAs will be valid through 2009 with the possibility of
extension (see also Note 19 to our consolidated financial
statements).
On January 1, 2007, we adopted the provisions of
FIN 48 Accounting for Uncertainty in Income
Taxes. FIN 48 clarifies the accounting for income
taxes, by prescribing a minimum recognition threshold a tax
position is required to meet, before being recognized in the
financial statements. FIN 48 also provides guidance on
derecognition, measurement, classification, interest and
penalties, accounting in interim periods and disclosure
regarding income taxes.
Consistent with the provisions of FIN 48, as of
December 31, 2008 we classified the liability for
unrecognized tax benefits amounting to
EUR 124.2 million as non-current liabilities because
payment of cash was not anticipated within one year of the
balance sheet date, which compares to
EUR 110.3 million as at December 31, 2007. These
non-current income tax liabilities are recorded in deferred tax
and other tax liabilities in the consolidated balance sheets.
The total liability for unrecognized tax benefits, if
recognized, would have a favorable effect on the Companys
effective tax rate.
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
ASML ANNUAL REPORT 2008
27
consolidated balance sheets of December 31, 2007 amounted
to EUR 21.5 million and as of December 31, 2008
amounted to EUR 23.6 million; these amounts were also
classified as non-current liabilities consistent with the
provisions of FIN 48.
A reconciliation of the beginning and ending balance of the
liability for unrecognized tax benefits is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2008
|
|
(in millions)
|
|
EUR
|
|
|
EUR
|
|
Balance, January 1
|
|
|
138.3
|
|
|
|
110.3
|
|
Gross increases tax positions in prior period
|
|
|
17.7
|
|
|
|
13.0
|
|
Gross decreases tax positions in prior period
|
|
|
(30.3
|
)
|
|
|
(6.5
|
)
|
Gross increases tax positions in current period
|
|
|
26.6
|
|
|
|
15.2
|
|
Settlements
|
|
|
(35.5
|
)
|
|
|
(5.0
|
)
|
Lapse of statute of limitations
|
|
|
(6.5
|
)
|
|
|
(2.8
|
)
|
|
|
|
|
|
|
|
|
|
Balance, December 31
|
|
|
110.3
|
|
|
|
124.2
|
|
|
For the year ended December 31, 2008, there were no
material changes compared to 2007 related to the liability for
unrecognized tax benefits that impacted the Companys
effective tax rate.
The Company estimates that the total liability of unrecognized
tax benefits will change with EUR 5.2 million within
the next 12 months. The estimated changes to the liability
for unrecognized tax benefits within the next 12 months are
mainly due to expected settlements and expiration of statute of
limitations which are expected to have a favorable effect on the
Companys effective tax rate.
There were three main topics on which we reached agreement with
the fiscal authorities in 2008 that have affected our effective
tax rate. For these three main topics and their related tax
positions the more-likely-than-not recognition threshold of
FIN 48 was not met as of December 31, 2007.
In the course of 2008, we reached agreement with the Netherlands
tax authorities on determination of the tax benefits resulting
from application of the so-called Royalty Box, a
Netherlands tax measure intended to stimulate innovation. The
Royalty Box mechanism partly exempts income attributable to
research efforts and protected by patents from taxation,
resulting in taxation of so called patent income at an effective
corporate income tax rate of 10.0 percent instead of
25.5 percent. This agreement covered the Royalty Box for
the years 2007, 2008 and the years thereafter.
We also reached agreement with the Netherlands tax authorities
on the valuation of intellectual property rights acquired in the
United States against a fixed historical U.S. dollar
exchange rate.
Finally, we reached agreement with the Netherlands tax
authorities on the balance of the temporarily depreciated
investment in ASMLs United States subsidiary. This
depreciated amount has to be added back to taxable income in the
period
2006-2010 in
five equal installments.
The benefit of the Royalty Box for both 2007 and 2008, the
benefit of the recognized deferred tax asset for intellectual
property rights and the benefit of the temporarily depreciated
investment have all been recorded in the provision for income
taxes for 2008. As a result, ASML booked a tax income of
approximately EUR 70 million.
Results of
Operations
The following discussion and analysis of results of operations
should be viewed in the context of the risks affecting our
business strategy, described in Item 3.D. Risk
Factors.
ASML ANNUAL REPORT 2008
28
Set forth below our consolidated statements of operations data
for the three years ended December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31
|
|
20061
|
|
|
20071,2
|
|
|
2008
|
|
(in millions)
|
|
EUR
|
|
|
EUR
|
|
|
EUR
|
|
Total net sales
|
|
|
3,581.8
|
|
|
|
3,768.2
|
|
|
|
2,953.7
|
|
Cost of sales
|
|
|
2,127.8
|
|
|
|
2,218.5
|
|
|
|
1,938.2
|
|
Gross profit on sales
|
|
|
1,454.0
|
|
|
|
1,549.7
|
|
|
|
1,015.5
|
|
Research and development costs
|
|
|
413.7
|
|
|
|
510.5
|
|
|
|
538.3
|
|
Amortization of in-process research and development costs
|
|
|
|
|
|
|
23.2
|
|
|
|
|
|
Research and development credits
|
|
|
(27.1
|
)
|
|
|
(24.4
|
)
|
|
|
(22.2
|
)
|
Selling, general and administrative costs
|
|
|
204.8
|
|
|
|
225.7
|
|
|
|
212.3
|
|
Income from operations
|
|
|
862.6
|
|
|
|
814.7
|
|
|
|
287.1
|
|
Interest income (expense), net
|
|
|
(0.9
|
)
|
|
|
33.5
|
|
|
|
22.6
|
|
Income from operations before income taxes
|
|
|
861.7
|
|
|
|
848.2
|
|
|
|
309.7
|
|
(Provision for) benefit from income taxes
|
|
|
(243.2
|
)
|
|
|
(177.2
|
)
|
|
|
12.7
|
|
Net income
|
|
|
618.5
|
|
|
|
671.0
|
|
|
|
322.4
|
|
|
|
|
1
|
As of January 1, 2008 ASML
accounts for award credits offered to its customers as part of a
volume purchase agreement using the deferred revenue model.
Until December 31, 2007 ASML accounted for award credits
using the cost accrual method. The comparative figures for the
years 2007 and 2006 have been adjusted to reflect this change in
accounting policy. See note 1 to the consolidated financial
statements.
|
2
|
In 2008, subsequent to the filing
of the 2007 annual report on Form 20-F, ASML detected and made a
correction for a prior period error with respect to a release of
deferred tax liabilities of EUR 8.7 million. This release was
incorrectly recognized in the 2007 consolidated statement of
operations under (provision for) benefit from income taxes
instead of in equity under other comprehensive income. The 2007
figures have been adjusted to reflect this correction. See Note
1 to the consolidated financial statements.
|
Set forth below are our consolidated statements of operations
from operations data for the three years ended December 31,
2008, expressed as a percentage of our total net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31
|
|
20061
|
|
|
20071,2
|
|
|
2008
|
|
(as percentage of net sales)
|
|
|
|
|
|
|
|
|
|
Total net sales
|
|
|
100.0
|
|
|
|
100.0
|
|
|
|
100.0
|
|
Cost of sales
|
|
|
59.4
|
|
|
|
58.9
|
|
|
|
65.6
|
|
Gross profit on sales
|
|
|
40.6
|
|
|
|
41.1
|
|
|
|
34.4
|
|
Research and development costs
|
|
|
11.6
|
|
|
|
13.5
|
|
|
|
18.2
|
|
Amortization of in-process research and development costs
|
|
|
|
|
|
|
0.6
|
|
|
|
|
|
Research and development credits
|
|
|
(0.8
|
)
|
|
|
(0.6
|
)
|
|
|
(0.7
|
)
|
Selling, general and administrative costs
|
|
|
5.7
|
|
|
|
6.0
|
|
|
|
7.2
|
|
Income from operations
|
|
|
24.1
|
|
|
|
21.6
|
|
|
|
9.7
|
|
Interest income, net
|
|
|
|
|
|
|
0.9
|
|
|
|
0.8
|
|
Income from operations before income taxes
|
|
|
24.1
|
|
|
|
22.5
|
|
|
|
10.5
|
|
(Provision for) benefit from income taxes
|
|
|
(6.8
|
)
|
|
|
(4.7
|
)
|
|
|
0.4
|
|
Net income
|
|
|
17.3
|
|
|
|
17.8
|
|
|
|
10.9
|
|
|
|
|
1
|
As of January 1, 2008 ASML
accounts for award credits offered to its customers as part of a
volume purchase agreement using the deferred revenue model.
Until December 31, 2007 ASML accounted for award credits
using the cost accrual method. The comparative figures for the
years 2007 and 2006 have been adjusted to reflect this change in
accounting policy. See note 1 to the consolidated financial
statements.
|
2
|
In 2008, subsequent to the filing
of the 2007 annual report on Form 20-F, ASML detected and made a
correction for a prior period error with respect to a release of
deferred tax liabilities of EUR 8.7 million. This release was
incorrectly recognized in the 2007 consolidated statement of
operations under (provision for) benefit from income taxes
instead of in equity under other comprehensive income. The 2007
figures have been adjusted to reflect this correction. See Note
1 to the consolidated financial statements.
|
ASML ANNUAL REPORT 2008
29
Results of
operations 2008 compared with 2007
Consolidated
sales and gross profit
The following table shows a summary of sales (revenue and units
sold), gross profit on sales and ASP data on an annual and
semi-annual basis for the years ended December 31, 2007 and
2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20071
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
First
|
|
|
Second
|
|
|
Full
|
|
|
First
|
|
|
Second
|
|
|
Full
|
|
|
|
half year
|
|
|
half year
|
|
|
year
|
|
|
half year
|
|
|
half year
|
|
|
year
|
|
Net sales (EUR million)
|
|
|
1,879
|
|
|
|
1,889
|
|
|
|
3,768
|
|
|
|
1,763
|
|
|
|
1,191
|
|
|
|
2,954
|
|
Net system sales (EUR million)
|
|
|
1,673
|
|
|
|
1,678
|
|
|
|
3,351
|
|
|
|
1,546
|
|
|
|
971
|
|
|
|
2,517
|
|
Net service and field option sales (EUR million)
|
|
|
206
|
|
|
|
211
|
|
|
|
417
|
|
|
|
217
|
|
|
|
220
|
|
|
|
437
|
|
Total systems recognized
|
|
|
146
|
|
|
|
114
|
|
|
|
260
|
|
|
|
89
|
|
|
|
62
|
|
|
|
151
|
|
Total new systems recognized
|
|
|
131
|
|
|
|
104
|
|
|
|
235
|
|
|
|
74
|
|
|
|
41
|
|
|
|
115
|
|
Total used systems recognized
|
|
|
15
|
|
|
|
10
|
|
|
|
25
|
|
|
|
15
|
|
|
|
21
|
|
|
|
36
|
|
Gross profit on sales (% of sales)
|
|
|
41.3
|
|
|
|
41.0
|
|
|
|
41.1
|
|
|
|
40.3
|
|
|
|
25.6
|
|
|
|
34.4
|
|
ASP for systems (EUR million)
|
|
|
11.5
|
|
|
|
14.7
|
|
|
|
12.9
|
|
|
|
17.4
|
|
|
|
15.7
|
|
|
|
16.7
|
|
ASP for new systems (EUR million)
|
|
|
12.5
|
|
|
|
15.6
|
|
|
|
13.8
|
|
|
|
20.0
|
|
|
|
21.2
|
|
|
|
20.4
|
|
ASP for used systems (EUR million)
|
|
|
2.8
|
|
|
|
5.5
|
|
|
|
3.9
|
|
|
|
4.6
|
|
|
|
4.9
|
|
|
|
4.8
|
|
|
|
|
1
|
As of January 1, 2008 ASML
accounts for award credits offered to its customers as part of a
volume purchase agreement using the deferred revenue model.
Until December 31, 2007 ASML accounted for award credits
using the cost accrual method. The comparative figures for the
years 2007 and 2006 have been adjusted to reflect this change in
accounting policy. See note 1 to the consolidated financial
statements.
|
Net sales decreased by EUR 814 million or
21.6 percent from EUR 3,768 million in 2007 to
EUR 2,954 million in 2008. The decrease in net sales
mainly relates to a decrease in net system sales of
EUR 834 million, from EUR 3,351 million in
2007 to EUR 2,517 million in 2008 mainly attributable
to a lower number of systems shipped (-41.9 percent),
partly offset by an increased ASP (+29.5 percent). Net
service and field option sales increased from
EUR 417 million in 2007 to EUR 437 million
in 2008.
The number of systems shipped decreased by 41.9 percent
from 260 systems in 2007 to 151 systems in 2008. The year 2008
was characterized by significant overall economic uncertainty
fuelled by the current global financial market crisis and
economic downturn. This led to lower overall semiconductor
end-demand. Against this background our customers started to
re-assess their strategic alliances and their investments to
match production capacity to end-demand, resulting in a delay of
non leading-edge production capacity additions. While
lithography equipment buyers are reducing standard production
capacity, their willingness to invest in leading-edge immersion
technology, however, remained strong as this technology enables
lithography equipment buyers to reduce their cost aggressively.
The ASP of our systems increased by 29.5 percent from
EUR 12.9 million in 2007 to EUR 16.7 million
in 2008. This increase was mainly driven by a change in product
mix reflecting the continued shift in market demand to our
leading-edge technology systems (as customers continued their
ramp-up of
volume manufacturing with our leading-edge immersion systems for
45 nm Flash and 55 nm DRAM) with higher ASPs driven by the
shrink roadmaps of our customers.
From time to time, ASML repurchases systems that it has
manufactured and sold and, following factory-rebuild or
refurbishment, resells those systems to other customers. This
repurchase decision is mainly driven by market demand for
capacity expressed by other customers and not by explicit or
implicit contractual arrangements relating to the initial sale.
The number of used systems sold in 2008 increased to 36 from 25
in 2007, reflecting increased demand for older systems to
produce less complex ICs following the lower overall
semiconductor end-demand than anticipated. The ASP for used
systems increased from EUR 3.9 million in 2007 to
EUR 4.8 million in 2008, reflecting a further shift
from our older PAS 2500 towards our newer PAS 5500 family and
TWINSCAN family.
Through 2008, 17 of the top 20 chipmakers worldwide, in terms of
semiconductor capital expenditure, were our customers. In 2008,
sales to the largest customer accounted for
EUR 754 million, or 25.5 percent of our net
sales. In 2007, sales to the largest customer accounted for
EUR 818 million, or 21.7 percent of our net sales.
Gross profit decreased from EUR 1,550 million or
41.1 percent of net sales in 2007 to 1,016 million or
34.4 percent of net sales in 2008. Gross margin was
negatively impacted by restructuring and impairment charges
(-4.6 percent), by capacity losses consistent with lower
production levels (-4.3 percent) and by a changed product
mix (-0.8 percent) partly offset by increased ASPs
(1.7 percent) and decreased cost of goods
(1.9 percent) reflecting the results of our continuous cost
of goods reduction programs.
ASML ANNUAL REPORT 2008
30
We started 2008 with an order backlog of 89 systems. In 2008, we
booked orders for 115 systems, received order cancellations or
push-outs beyond 12 months of 12 systems and recognized
sales for 151 systems. This resulted in an order backlog of 41
systems as of December 31, 2008. The total value of our
backlog as of December 31, 2008 amounted to
EUR 755 million with an ASP of
EUR 18.4 million, compared with a backlog of
EUR 1,697 million with an ASP of
EUR 19.1 million as of December 31, 2007. See
also Item 5.D. Trend Information.
Research and
development
Research and development costs increased by
EUR 27 million or 5.4 percent from
EUR 511 million in 2007 to EUR 538 million
in 2008. This increase reflects continued investment in
technology in 2008 through investments in the development of
enhancements of the next generation TWINSCAN systems based on
immersion, double patterning and EUV.
Amortization of in-process research and development costs of
EUR 23 million in 2007 relates to a one-off charge
related to the Brion acquisition.
Research and development credits are EUR 22 million in
2008 compared to EUR 24 million in 2007.
Selling,
general and administrative costs
Selling, general and administrative costs decreased by
5.9 percent from EUR 226 million in 2007 to
EUR 212 million in 2008. In anticipation to the lower
sales level we reduced selling, general and administration costs
Net interest
income
Net interest income decreased from EUR 33 million in
2007 to EUR 23 million in 2008. Our interest income
relates to interest earned on our cash and cash equivalents. In
2008 interest income decreased mainly as a result of a lower
average cash balance and slightly lower interest rates. While
operating cash flows remained positive, the average cash balance
decreased mainly as a result of the share buyback programs
implemented in the fourth quarter of 2007 and in the first
quarter of 2008, the dividend paid in 2008 and cash used for
capital expenditures.
Income
taxes
Income taxes represented -4.1 percent of income before
taxes in 2008, compared to 20.9 percent in 2007. The
decrease in income taxes in 2008 is mainly related to three main
items on which we reached agreement with the Netherlands tax
authorities. These items are the treatment of taxable income
related to ASMLs patent portfolio, the valuation of
intellectual property rights acquired in the past against
historical exchange rates, and the treatment of taxable income
related to a temporarily depreciated investment in ASMLs
United States subsidiary, all of which had a favorable impact on
the Companys effective tax rate. As a result of these
three items, ASML recognized exceptional tax income of
approximately EUR 70 million in 2008.
Results of
operations 2007 compared with 2006
Consolidated
sales and gross profit
The following table shows a summary of sales (revenue and units
sold), gross profit on sales and ASP data on an annual and
semi-annual basis for the years ended December 31, 2006 and
2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20061
|
|
|
|
|
|
|
|
|
20071
|
|
|
|
|
|
|
First
|
|
|
Second
|
|
|
Full
|
|
|
First
|
|
|
Second
|
|
|
Full
|
|
|
|
half year
|
|
|
half year
|
|
|
year
|
|
|
half year
|
|
|
half year
|
|
|
year
|
|
Net sales (EUR million)
|
|
|
1,565
|
|
|
|
2,017
|
|
|
|
3,582
|
|
|
|
1,879
|
|
|
|
1,889
|
|
|
|
3,768
|
|
Net system sales (EUR million)
|
|
|
1,388
|
|
|
|
1,826
|
|
|
|
3,214
|
|
|
|
1,673
|
|
|
|
1,678
|
|
|
|
3,351
|
|
Net service and field option sales (EUR million)
|
|
|
177
|
|
|
|
191
|
|
|
|
368
|
|
|
|
206
|
|
|
|
211
|
|
|
|
417
|
|
Total systems recognized
|
|
|
123
|
|
|
|
143
|
|
|
|
266
|
|
|
|
146
|
|
|
|
114
|
|
|
|
260
|
|
Total new systems recognized
|
|
|
97
|
|
|
|
123
|
|
|
|
220
|
|
|
|
131
|
|
|
|
104
|
|
|
|
235
|
|
Total used systems recognized
|
|
|
26
|
|
|
|
20
|
|
|
|
46
|
|
|
|
15
|
|
|
|
10
|
|
|
|
25
|
|
Gross profit on sales (% of sales)
|
|
|
40.3
|
|
|
|
40.8
|
|
|
|
40.6
|
|
|
|
41.3
|
|
|
|
41.0
|
|
|
|
41.1
|
|
ASP for systems (EUR million)
|
|
|
11.3
|
|
|
|
12.8
|
|
|
|
12.1
|
|
|
|
11.5
|
|
|
|
14.7
|
|
|
|
12.9
|
|
ASP for new systems (EUR million)
|
|
|
13.6
|
|
|
|
14.2
|
|
|
|
13.9
|
|
|
|
12.5
|
|
|
|
15.6
|
|
|
|
13.8
|
|
ASP for used systems (EUR million)
|
|
|
2.8
|
|
|
|
3.7
|
|
|
|
3.2
|
|
|
|
2.8
|
|
|
|
5.5
|
|
|
|
3.9
|
|
|
|
|
1
|
As of January 1, 2008 ASML
accounts for award credits offered to its customers as part of a
volume purchase agreement using the deferred revenue model.
Until December 31, 2007 ASML accounted for award credits
using the cost accrual method. The comparative figures for the
years 2007 and 2006 have been adjusted to reflect this change in
accounting policy. See note 1 to the consolidated financial
statements.
|
ASML ANNUAL REPORT 2008
31
We achieved growth in net sales of EUR 186 million or
5.2 percent from EUR 3,582 million in 2006 to
EUR 3,768 million in 2007. The increase in net sales
mainly relates to an increase in net system sales of
EUR 137 million or 4.3 percent, from
EUR 3,214 million in 2006 to
EUR 3,351 million in 2007 mainly attributable to
increased ASPs partly offset by a lower number of systems
shipped and to an increase in net service and field option sales
of EUR 49 million or 13.3 percent from
EUR 368 million in 2006 to EUR 417 million
in 2007. The increase in service sales was mainly driven by the
growth of our installed system base at customers. The growth of
field option sales is positively impacted by the customer demand
for system upgrade packages that further enhance system
performance.
The number of systems shipped decreased by 2.3 percent from
266 systems in 2006 to 260 systems in 2007, following a year of
significant growth of systems shipped (35.7 percent) in
2006. The continued high market demand for lithography equipment
was driven by a continuing increased market demand for
semiconductor revenue by 11 percent in 2007 following two
years of semiconductor unit growth by 9 percent in 2005 and
2006. Furthermore the 2007 strong market demand was related to
the continued drive from our customers to follow or accelerate
their technology shrink roadmaps.
The ASP of our systems increased by 6.6 percent from
EUR 12.1 million in 2006 to EUR 12.9 million
in 2007. This increase was mainly driven by a change in product
mix reflecting the continued shift in market demand to our
leading-edge technology systems (as customers commenced their
ramp-up of
volume manufacturing with our leading-edge immersion systems for
45 nm Flash and 55 nm DRAM) with higher ASPs driven by the
shrink roadmaps of our customers. This increase was partly
offset by a growing number of i-line systems sold, with
relatively low ASPs, in 2007 reflecting our market share gains
in this segment of the market.
From time to time, ASML repurchases systems that it has
manufactured and sold and, following factory-rebuild or
refurbishment, resells those systems to other customers. This
repurchase decision is mainly driven by market demand for
capacity expressed by other customers and not by explicit or
implicit contractual arrangements relating to the initial sale.
The number of used systems sold in 2007 decreased to 25 from 46
in 2006, reflecting decreased demand for older systems to
produce less complex ICs following two years of significant
capacity growth. The ASP for used systems increased from
EUR 3.2 million in 2006 to EUR 3.9 million
in 2007, reflecting a further shift from our older PAS 2500
towards our newer PAS 5500 family and TWINSCAN family.
Of the top 20 chipmakers worldwide, in terms of semiconductor
capital expenditures, 18 were customers of ASML in 2007. In
2007, sales to the largest customer accounted for
EUR 818 million, or 21.7 percent of our net
sales. In 2006, sales to the largest customer accounted for
EUR 722 million, or 20.1 percent of our net sales.
Gross profit increased 6.6 percent from
EUR 1,454 million or 40.6 percent of net sales in
2006 to 1,550 million or 41.1 percent of net sales in
2007. The gross margin was positively impacted by a changed
product mix (0.2 percent) and, more important, by decreased
cost of sales (2.4 percent) reflecting the results of our
continuous cost of goods reduction programs. Gross margin was
negatively impacted by decreased ASPs of mature technology
(-2.4 percent). In addition gross margin was positively
impacted by currency effects (0.4 percent) partly offset by
various other items including lower service gross margin as a
result of investments in spare parts related to the introduction
of immersion systems for volume manufacturing as well as
investments in our ASML Center of Excellence (ACE) in Asia.
We started 2007 with an order backlog of 163 systems. In 2007,
we booked orders for 203 systems, received order cancellations
or push-outs beyond 12 months of 17 systems and recognized
sales for 260 systems. This resulted in an order backlog of 89
systems as of December 31, 2007. The total value of our
backlog as of December 31, 2007 amounted to
EUR 1,697 million with an ASP of
EUR 19.1 million, compared with a backlog of
EUR 2,146 million with an ASP of
EUR 13.2 million as of December 31, 2006. See
also Item 5.D. Trend Information.
Research and
development
Research and development costs increased by
EUR 97 million or 23.4 percent from
EUR 414 million in 2006 to EUR 511 million
in 2007. The increase reflected further investment in technology
in 2007 through investments in the development of the newest
versions of our high resolution TWINSCAN systems and
enhancements of the next generation TWINSCAN systems based on
immersion, double patterning and EUV. In the third quarter of
2007 we shipped the first XT:1900i, capable of imaging features
down to 40 nm.
Amortization of in-process research and development costs of
EUR 23 million in 2007 relates to a one-off charge
related to the Brion acquisition.
Research and development credits are EUR 24 million in
2007 compared to EUR 27 million in 2006.
ASML ANNUAL REPORT 2008
32
Selling,
general and administrative costs
Selling, general and administrative costs increased by
10.2 percent from EUR 205 million in 2006 to
EUR 226 million in 2007 reflecting the increased
activity level to support sales growth. Over the past two years
selling, general and administrative costs increased by
12.2 percent, while net sales grew by 49.0 percent.
Continuing cost reduction and efficiency programs contributed to
maintaining a relatively low increase in the level of selling,
general and administrative costs compared to the increase in net
sales and related activity over the two year period ended
December 31, 2007.
Net interest
expense
Net interest changed from EUR 1 million net interest
expense in 2006 to EUR 33 million net interest income
in 2007. Our interest income relates to interest earned on our
cash and cash equivalents. In 2007 interest income increased
mainly as a result of higher short-term interest rates and a
higher average cash balance. The average cash balance was higher
as a result of the cash provided by operating activities and the
issuance of a EUR 600 million Eurobond. Interest
expense in 2007 was lower due to the conversion of substantially
all the U.S. dollar 575 million
5.75 percent Convertible Subordinated Notes in October
2006 (with the unconverted notes redeemed) and the conversion of
substantially all the EUR 380 million
5.50 percent Convertible Subordinated Notes, in
October 2007 (with the unconverted notes redeemed). This was
partly offset by the issuance of a EUR 600 million
Eurobond in June 2007.
Income
taxes
Income taxes represented 20.9 percent of income before
taxes in 2007, compared to 28.2 percent in 2006. The
decrease in income taxes in 2007 is mainly related to a
favorable settlement of unrecognized tax benefits. In addition a
corporate tax rate reduction in the Netherlands also contributed
to a decrease in income taxes. As of January 1, 2007, we
implemented FIN 48 Accounting for uncertainty in
income taxes. The cumulative effect of implementing
FIN 48 was an increase in the tax liability for uncertain
tax positions against retained earnings of
EUR 7.6 million at January 1, 2007.
Foreign Exchange
Management
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 and Note 4 to our consolidated
financial statements.
New U.S.
GAAP Accounting Pronouncements
In December 2007, the FASB issued SFAS No. 141(R),
Business Combinations. This statement replaces FASB
Statement No. 141 Business Combinations.
SFAS 141(R) improves the relevance, representational
faithfulness and comparability of the information that a
reporting entity provides in its financial reports about a
business combination and its effects. This FASB statement
applies prospectively to business combinations for which the
acquisition date is on or after the beginning of the first
annual reporting period beginning on or after December 15,
2008. We are currently assessing the impact that
SFAS 141(R) may have on our consolidated financial
statements.
In April 2008, the FASB issued FASB Staff Position
No. FAS 142-3,
Determination of the Useful Life of Intangible
Assets (FSP
FAS 142-3).
This FASB Staff Position (FSP) amends the factors that should be
considered in developing renewal or extension assumptions used
to determine the useful life of a recognized intangible asset
under FASB Statement No. 142, Goodwill and Other
Intangible Assets. FSP
FAS 142-3
is effective for financial statements issued for fiscal years
beginning after December 15, 2008, and interim periods
within those fiscal years. We are currently assessing the impact
that FSP
SFAS 142-3
may have on our consolidated financial statements.
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements (SFAS 157).
The Statement defines fair value, provides guidance on how to
measure assets and liabilities using fair value and expands
disclosures about fair value measurements. The Statement is
effective for financial statements issued for fiscal years
beginning after November 15, 2007 and should be applied
prospectively (with a limited form of retrospective application)
as of the beginning of the fiscal year in which this Statement
is initially applied.
In February 2008, the FASB issued FASB Staff Position
No. 157-2,
Effective date of FASB Statement No. 157
(FSP
FAS 157-2),
which delays the effective date of SFAS 157 for certain
non-recurring fair value measurements of non-financial assets
and liabilities until fiscal years beginning after
November 15, 2008. We are currently assessing the impact
that the adoption of SFAS No. 157 as delayed by FSP
FAS 157-2
may have on our consolidated financial statements. ASML has only
partially adopted SFAS 157. We have not applied
SFAS 157 for impairment assessments of non-financial
long-lived assets and goodwill.
In October 2008, the FASB issued FASB Staff Position
No. FAS 157-3,
Determining the Fair value of a Financial Asset in a
Market That Is Not Active (FSP
FAS 157-3),
which clarifies the application of SFAS 157 when the market
for a financial asset is inactive. Specifically, FSP
FAS 157-3
clarifies how (1) managements internal assumptions
should be considered in measuring fair value when observable
data are not present, (2) observable market information
from an inactive market should be taken into account, and
(3) the use of broker quotes or pricing services should be
considered in assessing the relevance of observable and
ASML ANNUAL REPORT 2008
33
unobservable data to measure fair value. The guidance in FSP
FAS 157-3
is effective immediately and will apply to ASML upon adoption of
SFAS 157. We believe that the adoption of FSP
FAS 157-3
for the items currently deferred by FSP FAS 157-2 will not
have a material impact on our consolidated financial statements.
In March 2008, the FASB issued SFAS No. 161,
Disclosures about Derivative Instruments and Hedging
Activities (SFAS 161). This statement is
intended to enhance required disclosures regarding derivatives
and hedging activities, including enhanced disclosures regarding
how: (a) an entity uses derivative instruments;
(b) derivative instruments and related hedged items are
accounted for under FASB No. 133, Accounting for Derivative
Instruments and Hedging Activities; and (c) derivative
instruments and related hedged items affect an entitys
financial position, financial performance, and cash-flows.
SFAS 161 is effective for fiscal years and interim periods
beginning after November 15, 2008. We are currently
assessing the impact that SFAS 161 may have on our
consolidated financial statements.
B. Liquidity and
Capital Resources
We generated cash from operating activities of
EUR 701 million and EUR 281 million in 2007
and 2008, respectively. The primary components of cash provided
by operating activities in 2008 were net income (EUR
322 million), depreciation (EUR 118 million) and
inventory obsolescence (EUR 140 million) partially offset
by a cash outflow of EUR 309 million due to changes to
assets and liabilities. The changes in assets and liabilities
mainly relate to lower income taxes payable of
EUR 158 million, lower accounts payable of
EUR 94 million, higher other receivables of
EUR 76 million, higher inventories of
EUR 88 million, partly offset by lower accounts
receivable of EUR 132 million.
We used EUR 362 million for investing activities in
2007 and EUR 260 million in 2008. The 2007
expenditures included EUR 188 million for the Brion
acquisition. The majority of the 2008 expenditures was spent on
the finalization of the construction of production facilities in
Veldhoven and Taiwan and, to a lesser extent, machinery and
equipment and information technology investments.
Net cash used in financing activities was
EUR 715 million in 2007 compared to
EUR 184 million in 2008. Net cash used in financing
activities mainly included EUR 108 million as a result
of our 2008 dividend payment, 88 million for share buyback
programs and 11 million cash inflow from the issuance of
shares in connection with the exercise and purchase of employee
stock options. In 2007, cash provided by financing activities
mainly included EUR 594 million net proceeds from the
issuance in June 2007 of a Eurobond, EUR 80 million
from the issuance of shares in connection with the exercises of
employee stock options. In 2007, cash used by financing
activities mainly included EUR 1,372 million for share
buyback programs (including the synthetic share buyback) and
EUR 10 million for the redemption of debt. See also
Item 16.E. Purchases of Equity Securities by the
Issuer and Affiliated Purchasers.
Our principal sources of liquidity consist of
EUR 1,109 million of cash and cash equivalents as of
December 31, 2008, EUR 500 million of available
credit facilities as of December 31, 2008 and cash-flows
from operations. The credit facility contains a restrictive
covenant that the Company maintains a minimum financial
condition ratio, calculated with a contractually agreed formula.
ASML was in compliance with this covenant as of
December 31, 2008 and 2007. ASML does not currently
anticipate any difficulty in continuing to meet this covenant
requirement. For further details of our credit facilities, see
Note 15 to our consolidated financial statements. In
addition to cash and available credit facilities, from time to
time we may raise additional capital in debt and equity markets.
Our liquidity needs are affected by many factors, some of which
are based on the normal ongoing 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 the
liquidity provided by existing cash balances, are sufficient to
satisfy our requirements in the foreseeable future.
We expect a reduction of cash outflow from investing activities
in 2009 as we will finalize the production facilities (for our
latest technologies such as EUV and double patterning). We
expect that our capital expenditures in 2009 could be
approximately EUR 200 million, a decrease of
EUR 122 million compared to 2008. We expect that a
significant part of the 2009 expenditures will be allocated to
the finalization of the construction and upgrades of production
facilities in the Netherlands. See also Item 4.D.
Property, Plant and Equipment. We expect to finance
2009 capital expenditures out of our cash flow from operations
and available cash and cash equivalents.
As general strategy we seek to maintain our strategic target
level of cash and cash equivalents between EUR 1.0 and
1.5 billion. To the extent that our cash and cash
equivalents exceed this target and there are no investment
opportunities that we wish to pursue, we will consider returning
excess cash to our shareholders, including through share
buybacks, dividends and capital repayment. Implementation of
additional share buy back programs will depend on the recovery
of the industry and economy.
We have repayment obligations in 2017, amounting to
EUR 600 million, on our 5.75 percent senior notes
due 2017. We currently intend to fund any future repayment
obligations primarily with cash on hand and cash generated
through operations. A description of our senior bond and lines
of credit is provided in Note 15 to our consolidated
financial statements.
ASML ANNUAL REPORT 2008
34
Our contractual obligations and commercial commitments are
disclosed in further detail in Item 5.F. Tabular
Disclosure of Contractual Obligations and Note 16 to
our consolidated financial statements.
See Notes 5 and 15 to our consolidated financial statements
for discussion of our funding, treasury policies and our
long-term debt.
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.
Intellectual
Property Matters
See Item 3.D. Risk Factors, Defending Against
Intellectual Property Claims by Others Could Harm Our
Business and Item 4.B. Business Overview,
Intellectual Property.
D. Trend
Information
The severity of the global economic downturn has caused
semiconductor manufacturers to delay their investment plans.
Independent market researchers are lowering their estimates for
the 2008 and 2009 integrated circuit unit forecasts as a result
of the weakening economy. The uncertainty as to the timing of a
semiconductor product end-demand pick up and the time needed to
complete the current consolidation and restructuring activities
in the memory sector, makes a recovery prediction impossible. We
have therefore taken decisive actions to adjust its cost
structure to cope with these exceptional economic circumstances
so we can generate cash at a low level of sales, without
impacting our current key technology development roadmap. In
addition, ASML plans to maintain a level of manufacturing
capacity to be able to ramp up production to meet customer needs
without lengthy lead times, as the lithography market may pick
up quickly once product end-demand recovers.
In December 2008, ASML received approval to participate in the
Labor Time Reduction Program, a Netherlands government program
that helps companies to reduce working hours for employees
without impacting their salaries. Employees receive part of
their wages and salaries from the national unemployment fund on
the condition they will spend non-working hours on training and
education. The plan is designed to protect employment in viable
industries during an exceptionally severe downturn such as the
current one. It is a temporary measure consisting of an initial
period of six weeks that can be renewed up to three times,
pending government approval for each period. Extension for a
further six weeks will be requested early 2009. The effect of
this measure is that the labor time of 1,100 of our payroll
employees in the Netherlands will be reduced by 50 percent
for six weeks as of January 5, 2009. This measure will
decrease our salary expenses by 35 percent for this group
of employees in the applicable period, amounting to
EUR 1.5 million per applicable period in 2009.
ASML has reduced costs through a comprehensive company-wide
efficiency program, without impacting key research and
development projects. The Company has been able to react quickly
by using the flexibility of our business model, including
significant use of flexible contract labor. ASML still has an
extensive pool of flexible contract labor and the Company
intends to avoid forced redundancies. By the first quarter of
2009 we expect to have cut our operational expenses by
EUR 50 million per quarter. We expect that these
savings, in combination with reduced components purchasing and
the assembly of components already in inventory, will help us
generate positive operating cash flow during the first quarter
of 2009. Also, about half of our quarterly cost savings will be
sustainable when the economy recovers, making ASML a more
profitable company.
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.
The following table sets forth our backlog of systems as of
December 31, 2007 and 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
2007
|
|
|
2008
|
|
Backlog sales of new systems (number)
|
|
|
79
|
|
|
|
33
|
|
Backlog sales of used systems (number)
|
|
|
10
|
|
|
|
8
|
|
Backlog sales of total systems (number)
|
|
|
89
|
|
|
|
41
|
|
Value of backlog new systems (EUR million)
|
|
|
1,650
|
|
|
|
719
|
|
Value of backlog used systems (EUR million)
|
|
|
47
|
|
|
|
36
|
|
Value of backlog of total systems (EUR million)
|
|
|
1,697
|
|
|
|
755
|
|
ASP for new systems (EUR million)
|
|
|
20.9
|
|
|
|
21.8
|
|
ASP for used systems (EUR million)
|
|
|
4.7
|
|
|
|
4.5
|
|
ASP for total systems (EUR million)
|
|
|
19.1
|
|
|
|
18.4
|
|
|
ASML ANNUAL REPORT 2008
35
Our backlog includes only system orders for which written
authorizations have been accepted and shipment dates within
12 months have been assigned. 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 backlog at any particular date is
not necessarily indicative of actual sales for any succeeding
period.
The decrease in the total value of the backlog was primarily the
result of increased uncertainty about future global economic
market conditions and the impact on the overall semiconductor
end-demand. As a result, we currently see a trend in customer
order behavior toward ordering on a system by system basis when
needed rather than ordering systems on a
12-month
rolling capacity planning basis.
ASML expects first quarter 2009 net sales between
EUR 180 million to EUR 200 million, and
gross margin in the first quarter of 2009 about 8 percent.
Research and development expenditures are expected to be at
EUR 117 million net of credits and selling, general
and administrative costs are expected at
EUR 44 million.
E. Off-Balance
Sheet Arrangements
We have various contractual obligations, some of which are
required to be recorded as liabilities in our consolidated
financial statements, including long- and short-term debt. Other
contractual arrangements, namely operating lease commitments and
purchase obligations, are not generally required to be
recognized as liabilities on our consolidated balance sheets but
are required to be disclosed.
Variable Interest
Entities
In December 2003, the FASB issued FIN 46(R)
Consolidation of Variable Interest Entities. Under
FIN 46(R), an enterprise must consolidate a variable
interest entity if that enterprise has a variable interest (or
combination of variable interests) that will either absorb a
majority of the entitys expected losses if they occur, or
receive a majority of the entitys expected residual
returns if they occur.
In 2003, ASML moved to its current Veldhoven headquarters. We
lease these headquarters for a period of 15 years from an
entity (the lessor) that was incorporated by a
syndicate of three banks (shareholders) solely for
the purpose of leasing this building. The lessors
shareholders equity amounts to EUR 1.9 million. The
shareholders each granted a loan of EUR 11.6 million
and a fourth bank granted a loan of EUR 12.3 million
to the lessor. ASML provided 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
pre-determined price of EUR 24.5 million, or during
the lease at the book value of the assets. The total assets of
the lessor entity amounted to approximately
EUR 54 million at inception of the lease.
ASML believes that it holds a variable interest in this entity
and that the entity is a variable interest entity
(VIE) because it is subject to consolidation in
accordance with the provisions of paragraph 5 of
FIN 46(R). The total equity investment at risk is
approximately 3.6 percent of the lessors total assets
and is not considered and cannot be demonstrated, qualitatively
or quantitatively, to be sufficient to permit the lessor to
finance its activities without additional subordinated financial
support provided by any parties, including the shareholders.
ASML has determined that it is not appropriate to consolidate
the VIE as it is not the primary beneficiary. To make this
determination, the expected losses and expected residual returns
of the lessor were allocated to each variable interest holder
based on their contractual right to absorb expected losses and
residual returns. The analysis of expected losses and expected
residual returns involved determining the expected negative and
positive variability in the fair value of the lessors net
assets exclusive of variable interests through various cash-flow
scenarios based upon the expected market value of the
lessors net assets. Based on this analysis, ASML
determined that other variable interest holders will absorb the
majority of the lessors expected losses, and as a result,
ASML is not the primary beneficiary.
ASMLs maximum exposure to the lessors expected
losses is estimated to be approximately
EUR 5.4 million.
Purchase
Obligations
We enter into purchase commitments with vendors in the ordinary
course of business to ensure a smooth and continuous supply
chain for key components. Purchase obligations include medium to
long-term purchase agreements mainly regarding goods. These
contracts differ and may include certain restrictive clauses.
Any identified losses that result from purchase commitments that
are forfeited are provided for in our financial statements. As
of December 31, 2008, we had purchase commitments for a
total amount of approximately EUR 978 million,
compared to EUR 1,405 million as of December 31,
2007. The current commitment level has decreased compared to
2007, which is mainly due to lower market demand. In our
negotiations with suppliers we continuously seek to align our
purchase commitments with our business objectives. We are able
to delay the main part of our purchase commitments with one or
two years. See also Item 5.F. Tabular Disclosure of
Contractual Obligations.
ASML ANNUAL REPORT 2008
36
Other Off-Balance
Sheet Arrangements
We have certain additional commitments and contingencies that
are not recorded on our balance sheet but may result in future
cash requirements.
We provide guarantees to third parties in connection with
transactions entered into in the ordinary course of business
from time to time.
F. Tabular
Disclosure of Contractual Obligations
Our contractual obligations as of December 31, 2008 can be
summarized as follows:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than
|
|
|
|
|
|
|
|
|
After
|
|
Payments due by period
|
|
Total
|
|
|
1 year
|
|
|
1-3 years
|
|
|
3-5 years
|
|
|
5 years
|
|
(In thousands)
|
|
EUR
|
|
|
EUR
|
|
|
EUR
|
|
|
EUR
|
|
|
EUR
|
|
Long Term Debt Obligations, including interest
expenses1
|
|
|
957,550
|
|
|
|
34,500
|
|
|
|
69,000
|
|
|
|
69,000
|
|
|
|
785,050
|
|
Operating Lease Obligations
|
|
|
152,454
|
|
|
|
36,865
|
|
|
|
50,982
|
|
|
|
31,553
|
|
|
|
33,054
|
|
Purchase Obligations
|
|
|
978,250
|
|
|
|
919,586
|
|
|
|
34,532
|
|
|
|
7,341
|
|
|
|
16,791
|
|
Unrecognized tax benefits
|
|
|
124,202
|
|
|
|
5,247
|
|
|
|
34,900
|
|
|
|
14,324
|
|
|
|
69,731
|
|
Other
Liabilities2
|
|
|
1,131
|
|
|
|
1,131
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Contractual Obligations
|
|
|
2,213,587
|
|
|
|
997,329
|
|
|
|
189,414
|
|
|
|
122,218
|
|
|
|
904,626
|
|
|
|
|
1
|
We refer to Note 15 to the
consolidated financial statements for the amounts excluding
interest expenses.
|
2
|
Other liabilities relate to a
finance lease agreement regarding software.
|
ASML ANNUAL REPORT 2008
37
Long term debt obligations relate to interest payments and the
redemption of the principal amount of the Eurobond. Reference is
made to note 15 to the consolidated financial statements.
Operating lease obligations include leases of equipment and
facilities. Lease payments recognized as an expense were
EUR 42 million, EUR 46 million and
EUR 43 million for the years ended December 31,
2006, 2007 and 2008 respectively.
Several operating leases for our buildings contain purchase
options, exercisable at the option of the Company at the end of
the lease, and in some cases, during the term of the lease. The
amounts to be paid if ASML should exercise these purchase
options at the end of the lease can be summarized as of
December 31, 2008 as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase options
|
|
|
|
|
Less than
|
|
|
|
|
|
|
|
|
After
|
|
due by period
|
|
Total
|
|
|
1 year
|
|
|
1-3 years
|
|
|
3-5 years
|
|
|
5 years
|
|
(in thousands)
|
|
EUR
|
|
|
EUR
|
|
|
EUR
|
|
|
EUR
|
|
|
EUR
|
|
Purchase options
|
|
|
58,004
|
|
|
|
2,269
|
|
|
|
|
|
|
|
8,250
|
|
|
|
47,485
|
|
|
Purchase obligations include purchase commitments with vendors
in the ordinary course of business. We are able to delay the
main part of our purchase commitments for one or two years.
Unrecognized tax benefits relate to a liability for uncertain
tax positions. Reference is made to Note 19 to the
consolidated financial statements.
G. Safe
Harbor
See Part I Special Note Regarding Forward Looking
Statements.
Item 6 Directors,
Senior Management and Employees
A. Directors and
Senior Management
The members of our Supervisory Board and our Board of Management
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Title
|
|
Year of Birth
|
|
|
Term Expires
|
|
Arthur P.M. van der
Poel1, 3,
4
|
|
Chairman of the Supervisory Board
|
|
|
1948
|
|
|
|
2012
|
|
Jan A. Dekker1,
4
|
|
Member of the Supervisory Board
|
|
|
1939
|
|
|
|
2009
|
|
Jos W.B.
Westerburgen2,
3
|
|
Member of the Supervisory Board
|
|
|
1942
|
|
|
|
2009
|
|
Fritz W.
Fröhlich1
|
|
Member of the Supervisory Board
|
|
|
1942
|
|
|
|
2012
|
|
Ieke C.J. van den
Burg2
|
|
Member of the Supervisory Board
|
|
|
1952
|
|
|
|
2009
|
|
OB Bilous3,
4
|
|
Member of the Supervisory Board
|
|
|
1938
|
|
|
|
2009
|
|
William T.
Siegle4
|
|
Member of the Supervisory Board
|
|
|
1939
|
|
|
|
2011
|
|
Eric Meurice
|
|
President, Chief Executive Officer and Chairman of the Board of
Management
|
|
|
1956
|
|
|
|
2012
|
|
Peter T.F.M. Wennink
|
|
Executive Vice President, Chief Financial Officer and Member of
the Board of Management
|
|
|
1957
|
|
|
|
N/A5
|
|
Martin A. van den Brink
|
|
Executive Vice President Marketing & Technology and Member
of the Board of Management
|
|
|
1957
|
|
|
|
N/A5
|
|
Klaus P.
Fuchs6
|
|
Executive Vice President Operations and Member of the Board of
Management
|
|
|
1958
|
|
|
|
2010
|
|
Frits J. van
Hout7
|
|
Executive Vice President and Member of the Board of Management
|
|
|
1960
|
|
|
|
2013
|
|
|
|
|
1
|
Member of the Audit Committee.
|
2
|
Member of the Remuneration
Committee.
|
3
|
Member of the Selection and
Nomination Committee.
|
4
|
Member of the Technology and
Strategy Committee.
|
5
|
There are no specified terms for
members of the Board of Management appointed prior to March 2004.
|
6
|
Mr. Fuchs resigned from his
position on the Board of Management, effective January 1,
2009.
|
7
|
Mr. Van Houts
appointment to ASMLs Board of Management is subject to
notification of the General Meeting of Shareholders, scheduled
on March 26, 2009.
|
8
|
ASMLs Supervisory Board will
nominate two new members for appointment of the Supervisory
Board: Mrs. Pauline F.M. van der Meer Mohr and
Mr. Wolfgang Ziebart. These appointments will be on the
agenda for the Annual General Meeting of Shareholders to be held
on March 26, 2009.
|
Effective April 3, 2008, Mr. Van der Poel and
Mr. Fröhlich retired by rotation from the Supervisory
Board and were both reappointed as members of the Supervisory
Board. Effective June 4, 2008, Mr. Deusinger resigned
from his position in the Supervisory Board. Ms. Van den
Burg, Mr. Bilous, Mr. Dekker and Mr. Westerburgen
will retire by rotation from the Supervisory
ASML ANNUAL REPORT 2008
38
Board on March 26, 2009. As Mr. Dekker will have been
a member of the Supervisory Board for a period of twelve years
in 2009, he is not eligible for reappointment. The other members
of the Supervisory Board are eligible for reappointment.
There are no family relationships among the members of our
Supervisory Board and Board of Management.
Since 2005, the Works Council of ASML Netherlands B.V. has an
enhanced right to make recommendations (which recommendation may
be rejected by the Supervisory Board in limited circumstances)
for nomination of at least one-third of the members of the
Supervisory Board. See Item 6.C. Board Practices,
Supervisory Board. At the 2005 General Meeting of
Shareholders, Ms. Van den Burg was appointed pursuant to
this recommendation right. At the General Meeting of
Shareholders to be held on March 26, 2009,
Mrs. Pauline F.M. van der Meer Mohr will be due for
appointment pursuant to this enhanced right of recommendation.
In accordance with our Articles of Association, the Works
Council will have an enhanced recommendation right at the 2009
General Meeting of Shareholders with respect to the
re-appointment of Ms. Van den Burg and the appointment of
Mrs. Van der Meer Mohr as an additional Supervisory Board
member.
Director and
Officer Biographies
Arthur P.M.
van der Poel
Mr. Van der Poel was appointed to our Supervisory Board in
March 2004 and was appointed as Chairman in 2007. Until 2001 he
was the Chief Executive Officer of Philips Semiconductors.
Mr. Van der Poel is a former member of the Board of
Management (until April 2003) and a former member of the
Group Management Committee of Royal Philips Electronics.
Mr. Van der Poel is a member of the Board of Directors of
Gemalto Holding N.V. and serves as a member of the Supervisory
Boards of PSV N.V. and DHV Holding B.V.
Jan A.
Dekker
Mr. Dekker has served on our Supervisory Board since 1997.
Mr. Dekker is the former Chief Executive Officer of TNO
from which he retired in November 2003. He currently serves on
the Supervisory Boards of Koninklijke BAM Group N.V. and Syntens
and he is also President of the Royal Institute of Engineers
(KIVI NIRIA).
Jos W.B.
Westerburgen
Mr. Westerburgen was appointed to our Supervisory Board in
March 2002. Mr. Westerburgen has extensive experience in
the field of corporate law and tax. Mr. Westerburgen is
former Company Secretary and Head of Tax of Unilever N.V. and
Plc. Mr. Westerburgen currently serves as a member of the
Supervisory Board of Unibail-Rodamco S.A. and is also
Vice-Chairman of the Board of the Association Aegon.
Fritz W.
Fröhlich
Mr. Fröhlich was appointed to our Supervisory Board in
March 2004. He is the former Deputy Chairman and Chief Financial
Officer of Akzo Nobel N.V. Mr. Fröhlich is the
Chairman of the Supervisory Boards of Randstad Holding N.V.,
Draka Holding N.V. and Altana A.G. and serves as a member of the
Supervisory Boards of Allianz Nederland N.V. and Rexel S.A.
Ieke C.J. van
den Burg
Ms. Van den Burg was appointed to our Supervisory Board in
March 2005. She is a former member of the Dutch Social and
Economic Council and of the EU Economic and Social Committee.
Ms. Van den Burg also held various positions in Dutch and
international trade union and labor organizations. Ms. Van
den Burg is a member of the European Parliament (EP)
and serves on the EPs Committee on Economic and Monetary
Affairs and on the Committee on Budget Control. Ms. Van den
Burg is a member of the Supervisory Board of APG Group N.V.
OB
Bilous
Mr. Bilous was appointed to our Supervisory Board in March
2005. From 1960 until 2000 Mr. Bilous held various
management positions at IBM, including General Manager and VP
Worldwide Manufacturing of IBMs Microelectronics Division.
He also served on the Boards of SMST, ALTIS Semiconductor and
Dominion Semiconductor. Mr. Bilous currently serves as
Chairman of the Board of Directors of Sematech and as Board
member of Nantero, Inc.
William T.
Siegle
Mr. Siegle was appointed to our Supervisory Board in March
2007. From 1964 until 1990 Mr. Siegle held various
technical, management and executive positions at IBM, including
Director of the Advanced Technology Center. From 1990 until 2005
Mr. Siegle served as SVP and Chief Scientist at AMD,
responsible for the development of technology platforms and
manufacturing operations worldwide. He was also chairman of the
Board of Directors of SRC, member of the Board of Directors of
Sematech and Director of Etec, Inc. and DuPont Photomask, Inc.
Currently, Mr. Siegle is a member of the Advisory Board of
Acorn Technologies, Inc.
ASML ANNUAL REPORT 2008
39
Eric
Meurice
Mr. Meurice joined ASML on October 1, 2004 as
President, Chief Executive Officer and Chairman of the Board of
Management. Prior to joining ASML, and since March 2001, he was
Executive Vice President Thomson Television
Worldwide. Between 1995 and 2001, Mr. Meurice served as
Vice President for Dell Computer, where he ran the Western,
Eastern Europe and Dells Emerging Markets business within
EMEA. Before 1995, he gained extensive technology experience in
the semiconductor industry at ITT Semiconductors Group and Intel
Corporation, in the micro-controller group. Mr. Meurice is
currently a member of the Board of Directors of Verigy Inc.
Peter T.F.M.
Wennink
Mr. Wennink joined ASML on January 1, 1999 and was
appointed as Executive Vice President, Chief Financial Officer
of ASML and member of our Board of Management on July 1,
1999. 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 is a
member of the Netherlands Institute of Registered Accountants.
Mr. Wennink is currently a member of the Supervisory Board
of Bank Insinger de Beaufort N.V.
Martin A. van
den Brink
Mr. Van den Brink was appointed as Executive Vice President
Marketing & Technology in 1999. Before that, he served
as Vice President Technology since 1995. Mr. Van den Brink
was appointed as a member of our Board of Management in 1999.
Klaus P.
Fuchs
Mr. Fuchs was appointed as Executive Vice President
Operations and member of the Board of Management in 2006 and
resigned effective January 1, 2009. Between 2003 and 2005,
Mr. Fuchs served as Vice President of Linde AG in
Wiesbaden, Germany where he was responsible for strategic
direction and operations of its industrial sector. Before that
he was technical director and member of the executive board at
TRW Aerospace and he also gained experience at Daimler Benz
Aerospace as Vice President of electronic systems.
Frits J. van
Hout
Mr. Van Houts appointment to our Board of Management will
be effective as per the notification of the General Meeting of
Shareholders, scheduled on March 26, 2009. In 2008, Mr. Van
Hout was appointed Executive Vice President Integral Efficiency.
After rejoining ASML in 2001, he served as Senior Vice President
Customer Support and two Business Units. Mr. Van Hout was
previously an ASML employee from its founding in 1984 to 1992,
in various roles in engineering and sales. From 1998 to 2001,
Mr. Van Hout served as Chief Executive Officer of the Beyeler
Group, based in the Netherlands and Germany.
B.
Compensation
For details on Board of Management and Supervisory Board
remuneration as well as benefits upon termination, see
Note 21 to our consolidated financial statements.
ASML has not established in the past and does not intend to
establish in the future any stock option or purchase plans or
other equity compensation arrangements for members of our
Supervisory Board.
Bonus and
Profit-sharing plans
For details of employee bonus and profit sharing plans, see
Note 17 to our consolidated financial statements.
Pension
plans
For details of our pension plans for our employees, see
Note 17 to our consolidated financial statements.
C. Board
Practices
Board
Practices
General
We endorse the importance of good corporate governance, in which
independent oversight, 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 Board of Management, the Supervisory Board, our
employees and our shareholders.
ASML ANNUAL REPORT 2008
40
In addition to the exchange of ideas at the General Meeting of
Shareholders, other important forms of communication include the
publication of our annual and quarterly financial results as
well as press releases and publications posted on our website.
In addition, we pursue a policy of active communication with our
shareholders. Our corporate governance structure is intended to:
|
|
|
provide shareholders with regular, reliable and relevant
transparent information regarding our activities, structure,
financial condition, performance and other information,
including information on our social, ethical and environmental
records and policies;
|
|
apply high quality standards for disclosure, accounting and
auditing; and
|
|
apply stringent rules with regard to insider securities trading.
|
Two-tier
structure
ASML is incorporated under Netherlands law and has a two-tier
board structure. Responsibility for the management of ASML lies
with the Board of Management. Independent, non-executive members
serve on the Supervisory Board, which supervises and advises the
members of the Board of Management in performing their
management tasks. The Board of Management has the duty to keep
the Supervisory Board informed, consult with the Supervisory
Board on important matters and submit certain important
decisions to the Supervisory Board for its approval. The
supervision of the Board of Management by the Supervisory Board
includes (i) achievement of ASMLs objectives,
(ii) corporate strategy and management of risks inherent to
ASMLs business activities, (iii) the structure and
operation of internal risk management and control systems,
(iv) the financial reporting process and
(v) compliance with applicable legislation and regulations.
Supervisory Board members are prohibited from serving as
officers or employees of ASML, and members of the Board of
Management cannot serve on the Supervisory Board.
Board of
Management
The Board of Management consists of at least two members or such
larger number of members as determined by the Supervisory Board.
Members of the Board of Management are appointed by the
Supervisory Board. The Supervisory Board must notify the General
Meeting of Shareholders of the intended appointment of a member
of the Board of Management. As a result of our compliance with
the Netherlands Corporate Governance Code, members of the Board
of Management that are appointed in 2004 or later shall be
appointed for a maximum period of four years, but may be
re-appointed. Members of the Board of Management serve until the
end of the term of their appointment, voluntary retirement, or
suspension or dismissal by the Supervisory Board. In the case of
dismissal, the Supervisory Board must first inform the General
Meeting of Shareholders of the intended removal.
The Supervisory Board determines the remuneration of the
individual members of the Board of Management, in line with the
remuneration policy adopted by the General Meeting of
Shareholders, upon a proposal of the Supervisory Board.
ASMLs remuneration policy is posted on its website.
Supervisory
Board
The Supervisory Board consists of at least three members or such
larger number as determined by the Supervisory Board. The
Supervisory Board prepares a profile in relation to its size and
composition; ASMLs Supervisory Board profile is posted on
ASMLs website.
Members of the Supervisory Board are appointed by the General
Meeting of Shareholders from nominations of the Supervisory
Board. Nominations must be reasoned and must be made available
to the General Meeting of Shareholders and the Works Council
simultaneously. Before the Supervisory Board presents its
nominations, both the General Meeting of Shareholders and the
Works Council may make recommendations (which the Supervisory
Board may reject). In addition, the Works Council has an
enhanced right to make recommendations for nomination of at
least one-third of the members of the Supervisory Board, which
recommendation may only be rejected by the Supervisory Board:
(i) if the relevant person is unsuitable or (ii) if
the Supervisory Board would not be duly composed if the
recommended person were appointed as a Supervisory Board member.
If no agreement can be reached between the Supervisory Board and
the Works Council on these recommendations, the Supervisory
Board may request the Enterprise Chamber of the Amsterdam Court
to declare its objection legitimate. Any decision of the
Enterprise Chamber on this matter is non-appealable.
Nominations of the Supervisory Board may be overruled by the
General Meeting of Shareholders by an absolute majority of the
votes representing at least one third of the total outstanding
capital. If the votes cast in favor of such resolution do not
represent at least one third of the total outstanding capital, a
new meeting can be convened at which the nomination can be
overruled by an absolute majority. If a nomination is overruled,
the Supervisory Board must make a new nomination. If a
nomination is not overruled and the General Meeting of
Shareholders does not appoint the nominated person, the
Supervisory Board will appoint the nominated person.
ASML ANNUAL REPORT 2008
41
Members of the Supervisory Board serve for a maximum term of
four years from the date of their appointment, or a shorter
period as set forth in the rotation schedule as adopted by the
Supervisory Board, and may be re-appointed, provided that their
entire term of office does not exceed twelve years. The General
Meeting of Shareholders may, by an absolute majority of the
votes representing at least one-third of the total outstanding
capital, dismiss the Supervisory Board in its entirety for lack
of confidence. In such event, the Enterprise Chamber of the
Amsterdam Court shall appoint one or more members of the
Supervisory Board at the request of the Board of Management.
Upon the proposal of the Supervisory Board, the General Meeting
of Shareholders determines the remuneration of the members of
the Supervisory Board. A member of the Supervisory Board shall
not be granted any shares or option rights by way of
remuneration.
Approval of
Board of Management Decisions
The Board of Management 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 in any case:
|
|
|
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 joint venture
between ASML and a third party, if this joint venture is
material to ASML; 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
ASMLs assets (determined by reference to ASMLs most
recently adopted annual accounts).
|
Rules of
Procedure
The Board of Management and the Supervisory Board have adopted
Rules of Procedure for each of the Board of Management,
Supervisory Board and the four Committees of the Supervisory
Board. These Rules of Procedure are posted on ASMLs
website.
Directors and
Officers Insurance and Indemnification
Members of the Board of Management and Supervisory Board, as
well as certain senior management members, are insured under the
ASMLs Directors and Officers Insurance Policy. Although
the insurance policy provides for a wide coverage, our directors
and officers may incur uninsured liabilities. ASML has agreed to
indemnify its Board of Management and Supervisory Board against
any claims arising in connection with their position as director
and officer of the Company, provided that such claim is not
attributable to willful misconduct or intentional recklessness
of such officer or director.
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
the NASDAQ Stock Market LLC (NASDAQ) and by the SEC
pursuant to the Sarbanes-Oxley Act of 2002.
The Netherlands Corporate Governance Code (the Code)
came into effect on January 1, 2004. A full report on
ASMLs compliance with the Code is required to be included
in the Companys statutory annual report. Netherlands
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. On December 10, 2008 the Dutch
Corporate Governance Code Monitoring Committee presented an
amended Code to the groups that have requested the changes and
to the Ministers of Finance, Justice and Economic Affairs. The
amended Code will be effective from the financial year starting
on January 1, 2009 and ASML will report on its compliance
with the amended Code in its statutory annual report for the
year ended December 31, 2009.
Pursuant to the Codes recommendations, ASML has included a
separate chapter on corporate governance in its statutory annual
report.
Committees of
ASMLs Supervisory Board
While retaining overall responsibility, the Supervisory Board
assigns certain of its tasks to its four committees: the Audit
Committee, the Remuneration Committee, the Selection and
Nomination Committee and the Technology and Strategy Committee.
Members of these committees are appointed from among the
Supervisory Board members.
The chairman of each committee reports to the Supervisory Board
verbally and when deemed necessary in writing, the issues and
items discussed in each meeting. In addition, the minutes of
each committee are distributed to all members of the Supervisory
Board.
Audit
Committee
ASMLs Audit Committee is composed of three members of the
Supervisory Board. The current members of our Audit Committee
are Fritz Fröhlich (chairman), Arthur van der Poel and Jan
Dekker, each of whom is an independent, non-executive member of
the Supervisory Board. The Supervisory Board has determined that
Fritz Fröhlich qualifies as the Audit Committee financial
ASML ANNUAL REPORT 2008
42
expert pursuant to Section 407 of the Sarbanes-Oxley Act of
2002 and the rules promulgated thereunder. Our external auditor,
our Chief Executive Officer, our Chief Financial Officer, our
Corporate Controller, our Director Internal Audit, as well as
other ASML employees invited by the chairman of the Audit
Committee may also attend the meetings of the Audit Committee.
The Audit Committee assists the Supervisory Board in:
|
|
|
overseeing the integrity of our financial statements and related
non-financial disclosure;
|
|
overseeing the qualifications, independence and performance of
the external auditor; and
|
|
overseeing the integrity of our systems of disclosure controls
and procedures and the system of internal controls over
financial reporting.
|
In 2008, the Audit Committee met four times and held five
conference calls. At these meetings the Audit Committee reviewed
our quarterly earnings announcements and our audited annual
consolidated financial statements, discussed the financing
policy as well as the system of internal controls over financial
reporting and related audit findings, approved the internal and
external audit plan and related audit fees and pre-approved any
audit and non-audit services to be rendered by our external
auditor.
Remuneration
Committee
ASMLs Remuneration Committee is currently composed of two
members of the Supervisory Board (one vacancy). The current
members of our Remuneration Committee are Jos Westerburgen
(chairman) and Ieke van den Burg. The Remuneration Committee is
responsible for the preparation of the remuneration policy for
the Board of Management.
The Remuneration Committee prepares and the Supervisory Board
establishes ASMLs general compensation philosophy for
members of the Board of Management, and oversees the development
and implementation of compensation programs for members of the
Board of Management. The Remuneration Committee reviews and
proposes to the Supervisory Board corporate goals and objectives
relevant to the compensation of members of the Board of
Management. The Committee further evaluates the performance of
members of the Board of Management in view of those goals and
objectives, and makes recommendations to the Supervisory Board
on the compensation levels of the members of the Board of
Management based on this evaluation.
In proposing to the Supervisory Board the actual remuneration
elements and levels applicable to the members of the Board of
Management, the Remuneration Committee considers, among other
factors, the remuneration policy, the desired levels of and
emphasis on particular aspects of ASMLs short and
long-term performance, as well as current compensation and
benefits structures and levels benchmarked against relevant
peers. External compensation survey data and, where necessary,
external consultants are used to benchmark ASMLs
remuneration levels and structures.
In 2008, the Remuneration Committee held four meetings and its
members also discussed certain topics by conference calls
various times. During 2008, the main subjects of the meetings of
the Remuneration Committee were the revised 2008 remuneration
policy for the Board of Management, the remuneration of the
members of ASMLs Board of Management, including the
benchmarking of ASMLs peer group to determine the 2008
remuneration of the individual members of the Board of
Management, and discussions on ASMLs stock-based Equity
Plans for 2008.
Selection and
Nomination Committee
ASMLs Selection and Nomination Committee is composed of
three members of the Supervisory Board. The current members of
our Selection and Nomination Committee are Jos Westerburgen
(chairman), Arthur van der Poel and OB Bilous.
The Selection and Nomination Committee assists the Supervisory
Board in:
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preparing the selection criteria and appointment procedures for
members of the Companys Supervisory Board and Board of
Management;
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periodically evaluating the scope and composition of the Board
of Management and the Supervisory Board, and proposing the
profile of the Supervisory Board in relation thereto;
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periodically evaluating the functioning of the Board of
Management and the Supervisory Board and the individual members
of those boards and reporting the results thereof to the
Supervisory Board; and
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proposing (re-)appointments of members of the Board of
Management and the Supervisory Board, and supervising the policy
of the Board of Management in relation to the selection and
appointment criteria for senior management.
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The Selection and Nomination Committee held three scheduled
meetings and several ad hoc meetings in 2008.
Technology and
Strategy Committee
ASMLs Technology and Strategy Committee is composed of
four members of the Supervisory Board. The current members of
our Technology and Strategy Committee are Jan Dekker (chairman),
Arthur van der Poel, OB Bilous and William Siegle. In addition,
the Technology and Strategy Committee may appoint one or more
advisors from within the Company
and/or from
ASML ANNUAL REPORT 2008
43
outside the Company. The advisors to the Technology and Strategy
Committee may be invited as guests to (parts of) the meetings of
the Committee, but are not entitled to vote in the meetings.
The Technology and Strategy Committee advises the Supervisory
Board in relation to the following responsibilities and may
prepare resolutions of the Supervisory Board related thereto:
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familiarization with and risk assessment and study of potential
strategies, required technical resources, technology roadmaps
and product roadmaps; and
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providing advice to the Supervisory Board with respect to
matters related thereto.
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The Technology and Strategy Committee held three meetings in
2008. The main subjects of the meetings of the Technology and
Strategy Committee in 2008 were the Companys technology
roadmap, including EUV lithography, immersion technology, double
patterning, and holistic lithography. The Committee also
reviewed the proposed Technology Leadership Index, being one of
the targets for the Board of Management, and provided the
Remuneration Committee with its advice on this topic.
Disclosure
Committee
ASML has a Disclosure Committee to ensure compliance with
applicable disclosure requirements arising under US and
Netherlands law and applicable stock exchange rules. The
Disclosure Committee comprises various members of senior
management, and reports to the Chief Executive Officer and Chief
Financial Officer. The Disclosure Committee informs the Audit
Committee about the outcome of the Disclosure Committee
meetings. Furthermore, members of the Disclosure Committee are
in close contact with our external legal counsel and our
external auditor.
The Disclosure Committee gathers all relevant financial and
non-financial information and assesses materiality, timeliness
and necessity for disclosure of such information. In addition
the Disclosure Committee assists the Chief Executive Officer and
Chief Financial Officer in the maintenance and evaluation of
disclosure controls and procedures as well as internal control
over financial reporting.
During 2008, the Disclosure Committee reviewed the quarterly
earnings announcements and our audited annual consolidated
financial statements and other public announcements containing
financial information. The Internal Control Committee,
comprising three members of the Disclosure Committee, assists
the Disclosure Committee in preparing its advice to the Chief
Executive Officer and Chief Financial Officer on the assessment
of ASMLs disclosure controls and procedures and internal
control over financial reporting.
Variations from
Certain NASDAQ Corporate Governance Rules
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:
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ASML does not follow NASDAQs quorum requirements
applicable to meetings of ordinary shareholders. In accordance
with Netherlands law and Netherlands generally accepted business
practice, ASMLs Articles of Association provide that there
are no quorum requirements generally applicable to General
Meetings of Shareholders.
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ASML does not follow NASDAQs requirements regarding the
provision of proxy statements for General Meetings of
Shareholders. Netherlands law does not have a regulatory regime
for the solicitation of proxies: the solicitation of proxies is
not a generally accepted business practice in the Netherlands.
ASML does provide shareholders with an agenda and other relevant
documents for the General Meeting of Shareholders.
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ASML does not follow NASDAQs requirement regarding
distribution to shareholders of copies of an annual report
containing audited financial statements prior to the
Companys Annual General Meeting of Shareholders. The
distribution of annual reports to shareholders is not required
under Netherlands corporate law or Netherlands securities laws,
or by Euronext Amsterdam. Furthermore, it is generally accepted
business practice for Netherlands companies not to distribute
annual reports. In part, this is because the Netherlands 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 report available at
our corporate head office in the Netherlands (and at the offices
of our Netherlands listing agent as stated in the convening
notice for the meeting) as from the day of convocation of the
Annual General Meeting of Shareholders. In addition, we post a
copy of our annual report on our website prior to the Annual
General Meeting of Shareholders.
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NASDAQ rules require shareholder approval of stock option plans
available to officers, directors or employees. However, NASDAQ
has granted ASML an exemption from this requirement (foreign
private issuers are no longer required to obtain an exemption,
but may follow home country practice in lieu of NASDAQ corporate
governance rules, subject to exceptions).
D.
Employees
As of December 31, 2008, we employed 6,930 payroll
employees in FTEs primarily in manufacturing, product
development and customer support activities. As of
December 31, 2006 and 2007, the total number of payroll
employees in FTEs was 5,594 and
ASML ANNUAL REPORT 2008
44
6,582 respectively. In addition, as of December 31, 2008,
the total number of temporary employees in FTEs was 1,329. As of
December 31, 2006 and 2007, the total number of temporary
employees in FTEs was 1,725 and 1,486 respectively. For a more
detailed description of payroll employee information, including
a breakdown of our employees in FTEs by sector, see
Notes 17 and 22 to our consolidated financial statements,
which are incorporated herein by reference. We rely on our
ability to vary the number of temporary employees to respond to
fluctuating market demand for our products.
Our future success will depend on our ability to attract, train,
retain and motivate highly qualified, skilled and educated
employees, who are in great demand. We are particularly reliant
for our continued success on the services of several key
employees, including a number of systems development specialists
with advanced university qualifications in engineering, optics
and computing.
ASML Netherlands B.V., our operating subsidiary in the
Netherlands, has a Works Council, as required by Netherlands
law. A Works Council is a representative body of the employees
of a Netherlands company elected by the employees. The Board of
Management of any Netherlands 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
the company, such as those related to a major restructuring, a
change of control, or the appointment or dismissal of a member
of the Board of Management. Other decisions directly involving
employment matters that apply either to all employees, or
certain groups of employees, may only be taken with the Works
Councils approval. Such a decision may be taken without
the prior approval of the Works Council only with the approval
of the District Court.
E. Share
Ownership
Information with respect to share ownership of members of our
Supervisory Board and Board of Management is included in
Item 7 Major Shareholders and Related Party
Transactions and Note 21 to our consolidated
financial statements, which are incorporated herein by
reference. Information with respect to the grant of shares and
stock options to employees is included in Note 17 to our
consolidated financial statements which are incorporated herein
by reference.
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 whose beneficial ownership of
ordinary shares exceeds 5 percent of the ordinary shares
issued and outstanding, as well as the ordinary shares
(including options) owned by the members of the Supervisory
Board and members of the Board of Management (which includes
those persons specified in Item 6 Directors, Senior
Management and Employees), as a group, as of
December 31, 2008. The information set forth below is
solely based on public filings with the SEC and AFM (Autoriteit
Financiële Markten) on December 31, 2008.
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Shares
|
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Percent of
|
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Identity of Person or Group
|
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Owned
|
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Class
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FMR LLC1
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56,750,236
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13.1%
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Capital World
Investors2
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25,882,170
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5.9%
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PRIMECAP Management
Company3
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23,383,824
|
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5.4%
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Artisan Investment
Corporation4
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0
|
4
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5.1%
|
4
|
Members of ASMLs Supervisory Board and Board of
Management, as a group
(4 persons)5
|
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1,561,328
|
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|
*
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1
|
Based solely on the Schedule 13-G
filed by FMR LLC with the Commission on November 10, 2008.
|
2
|
Based solely on the Schedule
13-G/A filed
by Capital World Investors with the Commission on
February 11, 2008. Capital Research and Management Company
filed a notification with the AFM on December 5, 2007 disclosing
a holding of 205,964,487 votes (representing 5.19% of the
voting rights in ASML). On February 13, 2008, Capital
Research and Management Company filed a Schedule 13G/A with
the Commission stating that it did not beneficially own any ASML
shares and that its investment divisions, including Capital
World Investors would file separate ownership reports reflecting
their December 31, 2007 holdings.
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3
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Based solely on the
Schedule 13-G/A filed by PRIMECAP Management Company with
the Commission on February 14, 2008.
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4
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Based solely on the notification
filed by Artisan Investment Corporation with the AFM on March
14, 2008. According to the notification, Artisan Investment
Corporation holds 205,792,353 votes which in turn represent
5.14 percent of the voting rights in ASML. Artisan
Investment Corporations notification did not disclose the
number of ordinary shares it held or the percent of the class
that number represents.
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5
|
Four members of our Board of
Management own a total of 885,856 unconditional options to
purchase ASML shares. These members of our Board of Management
together are also entitled to 119,720 conditional performance
stock options and 210,001, 187,803 and 157,948 conditional
performance stock, for 2006, 2007 and 2008 respectively. The
number of performance stock that are ultimately awarded will be
determined in the financial year 2009, 2010 and 2011
respectively, and is conditional upon the achievement of
performance targets. See Note 21 to our consolidated
financial statements for information on options held by and
conditional performance stock conditionally awarded to members
of our Board of Management on an individual basis. None of the
members of the Supervisory Board holds any of our outstanding
shares or options on shares.
|
According to SEC filings, (i) FMR LLC decreased its shareholding
from 70,721,194 shares as of February 2006 to 57,681,794 as
of February 2007 to 28,506,903 as of October 2007 and
to 6,429,585 as of February 2008 and increased its shareholding
to 56,750,236 as of November 2008, (ii) Capital World
Investors acquired a shareholding of 25,882,170 as of
December 2008 and (iii) PRIMECAP Management Company
decreased its shareholding from 24,218,000 shares as of
September 2006 to 23,825,400
ASML ANNUAL REPORT 2008
45
as of October 2006, increased its shareholding to 26,144,100 as
of March 2007 and decreased its shareholding to 23,383,824
as of December 2008.
Our major shareholders do not have voting rights different from
other shareholders. We do not issue share certificates, except
for registered New York Shares. For more information see Item
10.B. Memorandum and Articles of Association.
As of December 31, 2008, 136.8 million ordinary shares were
held by 364 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 Netherlands
Law
Holders of our shares may be subject to reporting obligations
under the Act on the supervision of financial markets (Wet op
het financieel toezicht, the Act).
The disclosure obligations under the Act apply to any person or
entity that acquires 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 European
Union. Disclosure is required when, as a result of an
acquisition or disposal, the percentage of voting rights or
capital interest acquired or disposed of by a person or an
entity reaches, exceeds or falls below 5, 10, 15, 20, 25, 30,
40, 50, 60, 75 or 95 percent. With respect to ASML, the Act
would require 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 Netherlands Authority
for the Financial Markets (AFM) immediately.
ASML is required to notify the AFM immediately if the
Companys voting rights and/or capital have changed by one
percent or more since its previous notification on outstanding
voting rights and capital. In addition, ASML must notify the AFM
of changes of less than one percent in ASMLs outstanding
voting rights and capital at least once per calendar quarter,
within eight days after the end of the quarter. Any person whose
direct or indirect voting rights and/or capital interest meets
or passes the thresholds referred to in the previous paragraph
as a result of a change in the outstanding voting rights or
capital must notify the AFM no later than the fourth trading day
after the AFM has published such a change.
Once every calendar year, within four weeks after the end of the
calendar year, holders of an interest of five percent or more in
ASMLs voting rights or capital must notify the AFM of a
change in the composition of their interest resulting from
certain acts (including, but not limited to, the exchange of
shares for depositary receipts and vice versa, and the exercise
of rights to acquire shares).
Subsidiaries, as defined in the Act, do not have independent
reporting obligations under the Act, as interests held by them
are attributed to their (ultimate) parents. Any person may
qualify as a parent for purposes of the Act, including an
individual. A person who disposes of an interest of five percent
or more in ASMLs voting rights or capital and who ceases
to be a subsidiary must immediately notify the AFM. As of that
moment, all notification obligations under the Act will become
applicable to the former subsidiary.
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
persons subsidiaries, (iii) held by a third party for
such persons 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)
and (v) held by a third party with whom such person has agreed
to temporarily transfer voting rights against payment. 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 Act.
Non-compliance with the reporting obligations under the Act
could lead to criminal fines, administrative fines, imprisonment
or other sanctions. In addition, non-compliance with the
reporting obligations under the Act may lead to civil sanctions,
including (i) suspension of the voting rights relating to
the shares held by the offender, for a period of not more than
three years, (ii) nullification of any resolution of the
General Meeting of Shareholders of the Company to the extent
that such resolution would
ASML ANNUAL REPORT 2008
46
not have been approved if the votes at the disposal of the
person or entity in violation of a duty under the Act had not
been exercised and (iii) a prohibition on the acquisition by the
offender of our shares or the voting on our ordinary shares for
a period of not more than five years.
B. Related
Party Transactions
There have been no transactions during our most recent fiscal
year, nor are there presently any proposed transactions, which
are material to ASML or any transactions that are unusual in
their nature or conditions, involving goods, services, or
tangible or intangible assets between ASML or any of its
subsidiaries and any significant shareholder and any director or
officer or any relative or spouse thereof. 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 stock options
described under Note 17 to our consolidated financial
statements.
C. Interests
of Experts & Counsel
Not applicable.
Item 8 Financial
Information
A. Consolidated
Statements and Other Financial Information
Consolidated
Statements
See Item 18 Financial Statements.
Export
Sales
See Note 20 to our consolidated financial statements
included in Item 18 Financial Statements, which
is incorporated herein by reference.
Legal
Proceedings
See Item 4.B. Business Overview, Intellectual
Property and Note 18 to our consolidated financial
statements, which are incorporated herein by reference.
Dividend
Policy
In 2008, the Company revised its reserves and dividend policy,
resulting in dividend payments for 2007, starting with a pay out
of EUR 0.25 per ordinary share of EUR 0.09. A proposal
will be submitted to the Annual General Meeting of Shareholders
on March 26, 2009 to declare a dividend for 2008 of
EUR 0.20 per ordinary share of EUR 0.09. Annually, the
Board of Management will assess the amount of dividend that will
be proposed to the Annual General Meeting of Shareholders.
For more information see Item 10.B. Memorandum and
Articles of Association and Item 10.D. Exchange
Controls and note 24 to our consolidated financial
statements.
B. Significant
Changes
No significant changes have occurred since the date of our
consolidated financial statements. See Item 5.D.
Trend Information.
Item 9 The
Offer and Listing
A. Offer and
Listing Details
Our ordinary shares are listed for trading in the form of
registered shares on NASDAQ (New York shares) and in
the form of registered shares on Euronext Amsterdam
(Amsterdam Shares). The principal trading market of
our ordinary shares is Euronext Amsterdam. For more information
see Item 10.B. Memorandum and Articles of
Association.
ASML ANNUAL REPORT 2008
47
The following table sets forth, for the periods indicated, the
high and low closing prices of our ordinary shares on NASDAQ, as
well as on Euronext Amsterdam.
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NASDAQ
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|
Euronext Amsterdam
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|
USD
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EUR
|
|
|
|
High
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Low
|
|
|
High
|
|
|
Low
|
|
|
|
|
|
|
|
|
|
|
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|
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Annual Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004
|
|
|
22.32
|
|
|
|
12.41
|
|
|
|
17.50
|
|
|
|
10.26
|
|
2005
|
|
|
20.13
|
|
|
|
14.44
|
|
|
|
17.12
|
|
|
|
11.11
|
|
2006
|
|
|
25.83
|
|
|
|
18.46
|
|
|
|
19.90
|
|
|
|
14.49
|
|
2007
|
|
|
35.79
|
|
|
|
22.89
|
|
|
|
24.99
|
|
|
|
17.15
|
|
2008
|
|
|
30.47
|
|
|
|
12.66
|
|
|
|
20.97
|
|
|
|
10.68
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
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|
Quarterly Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1st quarter 2007
|
|
|
26.29
|
|
|
|
22.89
|
|
|
|
20.39
|
|
|
|
17.15
|
|
2nd quarter 2007
|
|
|
27.91
|
|
|
|
24.69
|
|
|
|
20.83
|
|
|
|
18.34
|
|
3rd quarter 2007
|
|
|
33.03
|
|
|
|
26.64
|
|
|
|
23.40
|
|
|
|
19.73
|
|
4th quarter 2007
|
|
|
35.79
|
|
|
|
30.70
|
|
|
|
24.99
|
|
|
|
21.62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1st quarter 2008
|
|
|
30.47
|
|
|
|
22.23
|
|
|
|
20.97
|
|
|
|
13.92
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|
2nd quarter 2008
|
|
|
30.30
|
|
|
|
23.98
|
|
|
|
19.59
|
|
|
|
15.19
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|
3rd quarter 2008
|
|
|
25.20
|
|
|
|
16.29
|
|
|
|
16.81
|
|
|
|
11.72
|
|
4th quarter 2008
|
|
|
18.84
|
|
|
|
12.66
|
|
|
|
14.60
|
|
|
|
10.68
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|
|
|
|
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|
|
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|
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|
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|
|
|
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|
|
|
|
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|
Monthly Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 2008
|
|
|
24.46
|
|
|
|
22.32
|
|
|
|
15.37
|
|
|
|
14.20
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|
August 2008
|
|
|
25.20
|
|
|
|
22.45
|
|
|
|
16.81
|
|
|
|
14.42
|
|
September 2008
|
|
|
23.99
|
|
|
|
16.29
|
|
|
|
16.80
|
|
|
|
11.72
|
|
October 2008
|
|
|
17.85
|
|
|
|
14.58
|
|
|
|
13.60
|
|
|
|
10.88
|
|
November 2008
|
|
|
18.84
|
|
|
|
12.66
|
|
|
|
14.60
|
|
|
|
10.68
|
|
December 2008
|
|
|
18.07
|
|
|
|
13.75
|
|
|
|
12.75
|
|
|
|
10.80
|
|
January (through Jan. 21) 2009
|
|
|
16.63
|
|
|
|
15.92
|
|
|
|
13.05
|
|
|
|
12.34
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|
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(Source: Bloomberg Finance LP)
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
The information required by Item 10.B. is incorporated by
reference to ASMLs Report on
Form 6-K,
filed with the Commission on November 2, 2007.
Current
Authorizations to Issue and Repurchase Ordinary Shares
Our Board of Management has the power to issue ordinary shares
and cumulative preference shares insofar as the Board of
Management has been authorized to do so by the General Meeting
of Shareholders (either by means of a resolution or by an
ASML ANNUAL REPORT 2008
48
amendment to our Articles of Association). The Board of
Management requires approval of the Supervisory Board for such
an issue.
At our annual General Meeting of Shareholders, held on
April 3, 2008, the Board of Management was authorized for a
period of 18 months, to issue shares
and/or
rights thereto representing up to a maximum of 5 percent of
our issued share capital as of the date of authorization, plus
an additional 5 percent of our issued share capital as of
the date of authorization that may be issued in connection with
mergers and acquisitions. At our annual General Meeting of
Shareholders to be held on March 26, 2009, our shareholders
will be asked to authorize the Board of Management (subject to
the approval of the Supervisory Board) to issue shares
and/or
rights thereto through September 26, 2010.
Holders of our 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 (either by means of a resolution or by an amendment
to our Articles of Association), the Board of Management has the
power, with the approval of the Supervisory Board, to restrict
or exclude the preemptive rights of holders of ordinary shares.
A designation may be renewed. At our annual General Meeting of
Shareholders held on April 3, 2008, the Board of Management
was authorized, subject to the aforementioned approval, to
restrict or exclude preemptive rights of holders of ordinary
shares. At our annual General Meeting of Shareholders to be held
on March 26, 2009, our shareholders will be asked to grant
this authority through September 26, 2010. At this annual
General Meeting of Shareholders, the shareholders will be asked
to grant authority to the Board of Management to issue shares or
options separately. These authorizations will each be requested
to be granted for a period of 18 months.
We may repurchase our issued ordinary shares at any time,
subject to compliance with the requirements of Netherlands law
and our Articles of Association. Although Netherlands law
provides since June 11, 2008 that after such repurchases
the aggregate nominal value of the ordinary shares held by ASML
or a subsidiary must not be more than 50 percent of the
issued share capital, our current Articles of Association
provide that after such repurchases the aggregate nominal value
of the ordinary shares held by ASML or a subsidiary must not be
more than 10 percent of the issued share capital. Any such
purchases are subject to the approval of the Supervisory Board
and the authorization (whether by means of a resolution or by an
amendment to our Articles of Association) of shareholders at our
General Meeting of Shareholders, which authorization may not be
for more than 18 months. The Board of Management is
currently authorized, subject to Supervisory Board approval, to
repurchase through October 3, 2009 up to a maximum of
approximately 27 percent of our issued share capital as of
the date of authorization (April 3, 2008) at a price
between the nominal value of the ordinary shares purchased and
110 percent of the market price of these securities on
Euronext Amsterdam or NASDAQ. At our annual General Meeting of
Shareholders to be held on March 26, 2009, our shareholders
will be asked to extend this authority through
September 26, 2010.
C. Material
Contracts
Not applicable.
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-residents to hold or vote ordinary shares. Cash
distributions, if any, payable in euro on Amsterdam Shares may
be officially transferred from the Netherlands and converted
into any other currency without being subject to any Netherlands
legal restrictions. However, for statistical purposes, such
payments and transactions must be reported by ASML to the
Netherlands 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 New York Shares shall be
paid in U.S. dollars, converted at the rate of exchange on
Euronext Amsterdam at the close of business on the date fixed
for that purpose by the Board of Management in accordance with
the Articles of Association. See also Item 8.A.
Consolidated Statements and Other Financial Information,
Dividend Policy.
E. Taxation
Netherlands
Taxation
The statements below represent a summary of current Netherlands
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, or is not deemed to be, a
resident of the Netherlands for Netherlands tax purposes (a
Non-resident Holder). This description 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.
ASML ANNUAL REPORT 2008
49
General
The acquisition of ordinary shares by a non-resident of the
Netherlands should not be treated as a taxable event for
Netherlands tax purposes. The income consequences in connection
with owning and disposing of our ordinary shares are discussed
below.
Substantial
Interest
A person that, directly or indirectly, owns five percent or more
of our share capital, or who is entitled to five percent of the
voting power in the shareholders meeting, or holds options to
purchase five percent or more of our share capital, is deemed to
have a substantial interest in our shares, respectively, our
options, as applicable. 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 Netherlands 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:
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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;
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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, respectively was, a business asset in
the hands of the holder;
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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), respectively (is deemed
to have) has owned, our ordinary shares;
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does not carry out and has not carried out any activities which
generate taxable profit or taxable wages to which the holding of
our ordinary shares was connected;
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does not carry out and has not carried out employment activities
in the Netherlands, does not serve and has not served as a
director or board member of any entity resident in the
Netherlands, and does not serve and has not served as a civil
servant of a Netherlands public entity with which the holding of
our ordinary shares is or was connected; and
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is not an individual that has elected to be taxed as a resident
of the Netherlands.
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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:
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the holder carries on a business in the Netherlands through a
permanent establishment or a permanent agent in the Netherlands
(Netherlands enterprise) and the ordinary shares are
attributable to this permanent establishment or permanent agent,
unless the participation exemption (discussed below) applies; or
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the holder has a substantial interest in our share capital,
which is not attributable to his enterprise; or
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certain assets of the holder are deemed to be treated as a
Netherlands enterprise under Netherlands tax law and the
ordinary shares are attributable to this Netherlands enterprise.
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To qualify for the Netherlands participation exemption, the
holder must generally hold at least five 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 percent.
Dividends include:
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dividends in cash and in kind;
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deemed and constructive dividends;
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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;
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stock dividends up to their nominal value (unless distributed
out of qualifying paid-in capital);
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any (partial) repayment of paid-in capital not qualifying as
capital for Netherlands dividend withholding tax purposes; and
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liquidation proceeds in excess of qualifying average paid-in
capital for Netherlands dividend withholding tax purposes.
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A reduction of Netherlands dividend withholding tax can be
obtained if:
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the participation exemption applies and the ordinary shares are
attributable to a business carried out in the Netherlands;
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ASML ANNUAL REPORT 2008
50
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the dividends are distributed to a qualifying EU corporate
holder satisfying the conditions of the EU Parent-Subsidiary
Directive; or
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the rate is reduced by a Tax Treaty.
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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 Holders
country of residence. The Netherlands has concluded such
treaties with the United States, Canada, Switzerland, Japan,
most European Union member states, as well as many other
countries. Under the Treaty between the United States and the
Netherlands for the Avoidance of Double Taxation and the
Prevention of Fiscal Evasion with Respect to Taxes on Income
(the Tax Treaty), dividends paid by us to a
Non-resident Holder that is a resident of the United States as
defined in the Tax Treaty (other than an exempt organization or
exempt pension trust, as discussed below) are generally liable
to 15 percent Netherlands withholding tax or, in the
case of certain United States corporate shareholders owning at
least 10 percent of our voting power, a reduction to five
percent, provided that it 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 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
remain subject to the statutory withholding rate of
15 percent and are required to file for a refund of such
withholding.
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 Holders
country of residence. The Netherlands has concluded such
treaties with the United States, Canada, Switzerland, Japan,
most European Union member states, as well as many other
countries. Under the Treaty between the United States and the
Netherlands for the Avoidance of Double Taxation and the
Prevention of Fiscal Evasion with Respect to Taxes on Income
(the Tax Treaty), dividends paid by us to a
Non-resident Holder that is a resident of the United States as
defined in the Tax Treaty (other than an exempt organization or
exempt pension trust, as discussed below) are generally liable
to 15 percent Netherlands withholding tax or, in the
case of certain United States corporate shareholders owning at
least ten percent of our voting power, a reduction to five
percent, provided that it 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 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
remain subject to the statutory withholding rate of
15 percent and are required to file for a refund of such
withholding.
A Non-resident Holder may not claim the benefits of the Tax
Treaty unless (i) it is a resident of the United States as
defined therein, or (ii) it is deemed to be a resident on
the basis of the provisions of article 24(4) of the Tax
Treaty, and (iii) its entitlement to those benefits is not
limited by the provisions of article 26 (limitation on
benefits) of the Tax Treaty.
In this respect it is noted that the United States and the
Netherlands have agreed on a protocol to the Tax Treaty. It
provides for (among others) a 0 percent dividend
withholding tax rate on dividends, provided certain requirements
are met. One of these requirements is that the shareholder is a
company which owns directly shares representing 80 percent
of the voting power in our company. In addition, abovementioned
article 26 (limitation on benefits) has been adjusted. Some
requirements to the various tests mentioned in article 26
will become more severe and others will be moderated.
Dividend
Stripping Rules
Under Netherlands tax legislation regarding anti-dividend
stripping, no exemption from, or refund of, Netherlands 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
Netherlands 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:
(1) 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; or
(2) the ordinary shares are attributable to an enterprise
or part thereof that is carried on through a permanent
establishment or a permanent representative in the Netherlands.
ASML ANNUAL REPORT 2008
51
For purposes of Netherlands gift and inheritance tax, an
individual of Netherlands nationality is deemed to be a resident
of the Netherlands if he has been a resident thereof at any time
during the ten years preceding the time of the gift or death.
For purposes of Netherlands gift tax, a person not possessing
Netherlands nationality is deemed to be a resident of the
Netherlands if he has resided therein at any time in the twelve
months preceding the gift.
Value Added
Tax
No Netherlands value added tax is imposed on dividends in
respect of our ordinary shares or on the transfer of our shares.
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 United States
federal income tax consequences relating to the acquisition,
ownership and disposition of ordinary shares by a United States
Holder acting in the capacity of a beneficial owner (as defined
below). 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, 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 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 U.S. dollar) may be subject to special rules. In
addition, the discussion does not address any alternative
minimum tax or any state, local, FIRPTA related United States
federal income tax consequences, or
non-United
States tax consequences.
This discussion is based on the
U.S.-Netherlands
Income Tax Treaty (Treaty) and 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 Internal
Revenue Service (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 Internal
Revenue Service or an opinion of counsel with respect to the
United States 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
United States federal, state, local or
non-United
States tax laws to which they may be subject.
As used herein, the term United States Holder means
a beneficial owner of ordinary shares that for United States
federal income tax purposes whose holding of 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:
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an individual citizen or resident of the United States;
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a corporation or other entity treated as a corporation for
United States federal income tax purposes created or organized
in or under the laws of the United States or of any political
subdivision thereof;
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an estate of which the income is subject to United States
federal income taxation regardless of its source; or
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a trust whose administration is subject to the primary
supervision of a court within the United States and which has
one or more United States persons who have the authority to
control all of its substantial decisions.
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If an entity treated as a partnership for United States federal
income tax purposes owns ordinary shares, the United States
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 United States
federal income tax consequences of holding and disposing of the
ordinary shares.
Taxation of
Dividends
United States Holders will include in gross income as
foreign-source dividend income the gross amount of any
distribution (before reduction for Netherlands withholding
taxes) ASML makes out of its current or accumulated earnings and
profits (as determined for United States 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 United States corporations in respect of dividends received
from other United States corporations. The amount of the
dividend distribution includible in income of a United States
Holder should be the U.S. dollar value of the foreign
currency (e.g. euro) paid, determined by the spot rate of
exchange on the date of the distribution, regardless of whether
the payment is in fact converted into U.S. dollars.
Distributions in excess of current and accumulated earnings and
profits, as determined for United States federal income tax
purposes, will be treated as a non-taxable return of capital to
the extent of the United States Holders basis in the
ordinary shares and thereafter as
ASML ANNUAL REPORT 2008
52
taxable capital gain. ASML does not maintain calculations of its
earnings and profits under United States federal income tax
principles.
Subject to limitations provided in the United States Internal
Revenue Code, a United States Holder may generally deduct from
its United States federal taxable income, or credit against its
United States federal income tax liability, the amount of
qualified Netherlands withholding taxes. However, Netherlands
withholding tax may be credited only if the United States Holder
does not claim a deduction for any Netherlands or other
non-United
States taxes paid or accrued in that year. In addition,
Netherlands dividend withholding taxes will likely not be
creditable against the United States Holders United States
tax liability to the extent ASML is not required to pay over the
amount withheld to the Netherlands Tax Administration.
Currently, a Netherlands corporation that receives dividends
from qualifying
non-Netherlands
subsidiaries may credit source country tax withheld from those
dividends against Netherlands withholding tax imposed on a
dividend paid by a Netherlands corporation, up to a maximum of
three percent of the dividend paid by the Netherlands
corporation. The credit reduces the amount of dividend
withholding that ASML is required to pay to the Netherlands Tax
Administration but does not reduce the amount of tax ASML is
required to withhold from dividends.
Dividends received by a United States Holder will generally be
taxed at ordinary income tax rates. However, the Jobs and Growth
Tax Reconciliation Act of 2003,(the 2003 Tax Act)
and subsequently the Tax Increase and Prevention Act of 2006
reduces to 15 percent the maximum tax rate for certain
dividends received by individuals through taxable years
beginning on or before December 31, 2010, so long as the
stock has been held for more than 60 days during the
120 day period beginning 60 days before the
ex-dividend date. The rules governing foreign tax credit are
complex and we suggest each United States Holder to consult its
own tax advisor to determine whether, and to what extent, a
foreign tax credit will be available. Dividends received from
qualified foreign corporations generally qualify for
the reduced rate. A
non-United
States corporation (other than a foreign personal holding
company, foreign investment company, or passive foreign
investment company) generally will be considered to be a
qualified foreign corporation if (i) the shares of the
non-United
States corporation are readily tradable on an established
securities market in the United States or (ii) the
non-United
States corporation is eligible with respect to substantially all
of its income for the benefits of a comprehensive income tax
treaty with the United States which contains an exchange of
information program and the Tax Treaty has been identified as a
qualifying treaty. Individual United States Holders should
consult their tax advisors regarding the impact of the
provisions of the 2003 Tax Act on their particular situations.
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
United States federal income tax purposes in an amount equal to
the difference between the amount realized, if paid in
U.S. dollars, or the U.S. 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
U.S. dollar, as the case may be, and the United States
Holders tax basis (determined in U.S. 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 United States
federal income tax purposes. Gain or loss from the sale or other
disposition of ordinary shares generally will be treated as
United States source income or loss for United States 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 U.S. dollars will be treated as ordinary
income or loss from sources within the United States. Each
United States Holder should consult its tax advisor with regard
to the translation rules of its adjusted 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 U.S. 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 apply to 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 owners United States federal income
tax liability, if any) depending on the facts and provided that
the required information is furnished to the IRS.
The discussion set forth above is included for general
information only and may not be applicable depending upon a
holders 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 United States federal and other
tax laws.
F. Dividends and
Paying Agents
Not applicable.
ASML ANNUAL REPORT 2008
53
G. Statement by
Experts
Not applicable.
H. Documents on
Display
We are subject to certain of the reporting requirements of the
US Securities Exchange Act of 1934 (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 Commission 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 Commission, within six months after the end of
each fiscal year, an annual report on
Form 20-F
containing financial statements audited by an independent
accounting firm. We publish unaudited interim financial
information after the end of each quarter. We furnish this
quarterly financial information to the Commission under cover of
a
Form 6-K.
Documents we file with the Commission are publicly available at
its public reference facilities at 450 Fifth Street, N.W.,
Washington, DC 20549, Woolworth Building, 233 Broadway, New
York, New York 10048 and Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois
60661-2511.
Copies of the documents are available at prescribed rates by
writing to the Public Reference Section of the Commission at
450 Fifth Street, N.W., Washington DC 20549. The Commission
also maintains a website that contains reports and other
information regarding registrants that are required to file
electronically with the Commission. The address of this website
is
http://www.sec.gov.
Please call the Commission 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
The Company is exposed to a variety of financial risks: market
risks (including foreign currency exchange risk and interest
rate risk), credit risk and liquidity risk. The overall risk
management program focuses on the unpredictability of financial
markets and seeks to minimize potentially adverse effects on the
Companys financial performance. The Company uses
derivative instruments to hedge certain risk exposures. None of
the transactions are entered into for trading or speculative
purposes.
While the financial markets have shown an increased volatility,
we continue to believe that market information is the most
reliable and transparent means of measurement for our derivative
instruments that are measured at fair value.
Foreign currency
risk management
The Company uses the euro as its invoicing currency in order to
limit the exposure to foreign currency movements. Exceptions may
occur on a customer by customer basis. To the extent that
invoicing is done in a currency other than the euro, the Company
is exposed to foreign currency risk.
It is the Companys policy to hedge material transaction
exposures, such as sales transactions, forecasted purchase
transactions and accounts receivable/accounts payable. The
Company hedges these exposures through the use of foreign
exchange options and forward contracts. The use of a mix of
foreign exchange options and forward contracts is aimed at
reflecting the likelihood of the transactions occurring. In
2008, we identified four ineffective cash-flow hedges related to
forecasted sales transactions. During the 12 months ended
December 31, 2008, EUR 18.0 million loss was
recognized in sales relating to ineffective hedges (2007:
EUR 0.2 million gain was recognized in cost of sales
relating to ineffective hedges). The effectiveness of all
outstanding hedge contracts is monitored closely throughout the
life of the hedges.
As of December 31, 2008 other comprehensive income, net of
taxes, includes EUR 43.6 million loss (2007:
EUR 3.7 million loss) representing the total
anticipated loss to be released to sales, and
EUR 1.9 million gain (2007: EUR 3.1 million
loss) representing the total anticipated gain to be charged to
cost of sales over the next twelve months as the forecasted
revenue and purchase transactions occur.
It is the Companys policy to hedge material remeasurement
exposures. These net exposures from certain monetary assets and
liabilities in non-functional currencies are hedged with forward
contracts.
It is the Companys policy to manage material currency
translation exposures resulting predominantly from ASMLs
U.S. dollar net investments by hedging these partly with
forward contracts. The related foreign currency translation
amounts (gross of taxes)
ASML ANNUAL REPORT 2008
54
included in cumulative translation adjustment for the years
ended December 31, 2007 and 2008 were
EUR 23.3 million gain and EUR 12.7 million
gain, respectively.
Interest rate
risk management
The Company has both assets and liabilities that bear interest,
which expose the Company to fluctuations in the prevailing
market rate of interest. The Company uses interest rate swaps to
align the interest typical terms of interest bearing assets with
the interest typical terms of interest bearing liabilities. The
Company still retains residual financial statements exposure
risk to the extent that the asset and liability positions do not
fully offset.
It is the Companys policy to enter into interest rate
swaps to hedge this residual exposure. For this purpose the
Company uses interest rate swaps to hedge changes in market
value of fixed loan coupons payable on our Eurobond due to
changes in market interest rates and to hedge the variability of
future interest receipts as a result of changes in market
interest rates on part of our cash and cash equivalents.
Financial
instruments
The Company uses foreign exchange derivatives to manage its
currency risk and interest rate swaps to manage its interest
rate risk. Most derivatives will mature in one year or less
after the balance sheet date. The following table summarizes the
notional amounts and estimated fair values of the Companys
financial instruments:
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2007
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2008
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Notional
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Notional
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As of December 31
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Amount
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Fair Value
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Amount
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Fair Value
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(in thousands)
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EUR
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EUR
|
|
|
EUR
|
|
|
EUR
|
|
Currency forward
contracts1,2
|
|
|
283,881
|
|
|
|
528
|
|
|
|
896,642
|
|
|
|
(38,521
|
)
|
Currency
options2
|
|
|
90,000
|
|
|
|
4,887
|
|
|
|
|
|
|
|
|
|
Interest rate
swaps3
|
|
|
1,029,900
|
|
|
|
16,553
|
|
|
|
641,500
|
|
|
|
63,172
|
|
|
(Source: Bloomberg Finance LP)
|
|
1
|
Mainly includes forward contracts
on U.S. dollar and Japanese yen.
|
2
|
Net amount of forward and option
contracts assigned as a hedge to sales and purchase
transactions, to monetary assets and liabilities and to net
investments in foreign operations.
|
3
|
The 2007 notional amount of the
interest rate swaps mainly consists of EUR 600 million
relating to a Eurobond and of EUR 380 million relating
to cash and cash equivalents. The 2008 notional amount of the
interest rate swaps mainly consists of EUR 600 million
relating to a Eurobond. The fair value of interest rate swaps
includes accrued interest and mainly consists of the fair value
of interest rate swaps relating to a EUR 600 million
Eurobond.
|
The fair value of forward contracts (used for hedging purposes)
is the estimated amount that a bank would receive or pay to
terminate the forward contracts at the reporting date, taking
into account current interest rates and current exchange rates.
The fair value of currency options (used for hedging purposes)
is the estimated amount that a bank would receive or pay to
terminate the option agreements at the reporting date, taking
into account current interest rates, current exchange rates and
volatility.
The fair value of interest rate swaps (used for hedging
purposes) 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.
Credit risk
management
Financial instruments that potentially subject ASML to
significant concentrations of credit risk consist principally of
cash and cash equivalents, accounts receivable and derivative
financial instruments used in hedging activities.
Cash and cash equivalents and derivative instruments contain an
element of risk of the counterparties being unable to meet their
obligations. This financial credit risk is monitored and
minimized per type of financial instrument by limiting
ASMLs counterparties to a sufficient number of major
financial institutions. Also, in response to the increased
volatility of the financial markets, a material part of the cash
and cash equivalents has been invested in government related
securities. ASML does not expect the counterparties to default
given their high credit quality.
ASMLs customers consist of IC manufacturers located
throughout the world. ASML performs ongoing credit evaluations
of its customers financial condition. ASML regularly
reviews if an allowance for doubtful debts is needed by
considering factors such as historical payment experience,
credit quality, age of the accounts receivable balances, and
current economic conditions that may affect a customers
ability to pay. In response to the increased volatility of the
financial markets, ASML has taken additional
ASML ANNUAL REPORT 2008
55
measures to mitigate credit risk when considered appropriate by
means of e.g. letters of credit, down payments and retention of
ownership. Retention of ownership enables ASML to recover the
systems in the event a customer defaults on payment.
Capital risk
management
Our general strategy is to seek to maintain our strategic target
level of cash and cash equivalents between EUR 1.0 and
1.5 billion. The Company regularly reviews the efficiency
of its capital structure. To the extent that our cash and cash
equivalents exceeds this target and there are no investment
opportunities that we wish to pursue, we will consider to return
excess cash to our shareholders, including through share
buybacks, dividends and capital repayment.
Sensitivity
analysis financial instruments
Foreign
currency sensitivity
ASML is mainly exposed to the U.S. dollar and Japanese yen.
The following table details the Companys sensitivity to a
10 percent strengthening of foreign currencies against the
euro. The sensitivity analysis includes outstanding foreign
currency denominated monetary items and adjusts their
translation at the period end for a 10 percent
strengthening in foreign currency rates. A positive amount
indicates an increase in income from operations before income
taxes and equity.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
Impact on
|
|
|
|
|
|
|
Impact on
|
|
|
|
|
|
income from
|
|
|
|
|
|
|
income from operations
|
|
|
Impact on
|
|
|
operations
|
|
|
Impact on
|
|
|
|
before income taxes
|
|
|
equity
|
|
|
before income taxes
|
|
|
equity
|
|
(in thousands)
|
|
EUR
|
|
|
EUR
|
|
|
EUR
|
|
|
EUR
|
|
U.S. dollar
|
|
|
(709
|
)
|
|
|
18,523
|
|
|
|
(2,915
|
)
|
|
|
14,118
|
|
Japanese yen
|
|
|
(502
|
)
|
|
|
(3,977
|
)
|
|
|
(14,501
|
)
|
|
|
(38,886
|
)
|
Other currencies
|
|
|
(1,296
|
)
|
|
|
11,236
|
|
|
|
(1,285
|
)
|
|
|
8,482
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
(2,507
|
)
|
|
|
25,782
|
|
|
|
(18,701
|
)
|
|
|
(16,286
|
)
|
|
The revaluation effects of investments in foreign entities,
which are partly hedged, are recognized in other comprehensive
income, within equity. The movements of currency rates therefore
show a relatively large effect on other comprehensive income.
The effect on other comprehensive income for other currencies
mainly relates to investments in foreign entities in Singapore
dollar and Taiwan dollar.
Fair value movements of cash-flow hedges are recognized in other
comprehensive income. The main reason for the decreased effect
in other comprehensive income in 2008 compared to 2007 is a high
volume of cash-flow hedges (EUR 341 million), mainly sales
hedges (2007: mainly purchase hedges).
It is the Companys policy to limit the currency effects
through the consolidated statements of operations. The effect on
income from operations before income taxes as presented in 2008
and 2007 is mainly attributable to unavoidable timing
differences between the arising of exposures and the hedging
thereof. Furthermore, in the fourth quarter of 2008, we
identified four system sales hedges that became ineffective.
During the 12 months ended December 31, 2008,
EUR 18.0 million loss was recognized in sales relating
to ineffective hedges (2007: EUR 0.2 million gain was
recognized in cost of sales relating to ineffective hedges).
For a 10 percent weakening of the foreign currencies
against the euro, there would be approximately an equal and
opposite effect on the income from operations before income
taxes and other comprehensive income. Only for the sensitivity
for a 10 percent weakening of the Japanese yen against the
euro, there would be a lower opposite effect than presented in
the table shown above of EUR 10 million (2007:
EUR 2.9 million higher) on other comprehensive income.
ASML ANNUAL REPORT 2008
56
Interest rate
sensitivity
The sensitivity analysis below has been determined based on the
exposure to interest rates for both derivatives and
non-derivative instruments at the balance sheet date and 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 one percent increase in
interest rates on the Companys income from operations
before income taxes and other comprehensive income. For a one
percent decrease in interest rates there would approximately be
an equal and opposite effect on the income from operations
before income taxes and other comprehensive income. A positive
amount indicates an increase in income from operations before
income taxes and other comprehensive income.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
Impact on
|
|
|
|
|
|
Impact on
|
|
|
|
|
|
|
income before
|
|
|
Impact on
|
|
|
income before
|
|
|
Impact on
|
|
|
|
income taxes
|
|
|
equity
|
|
|
income taxes
|
|
|
equity
|
|
(in thousands)
|
|
EUR
|
|
|
EUR
|
|
|
EUR
|
|
|
EUR
|
|
|
|
|
2,602
|
|
|
|
(7,578
|
)
|
|
|
6,018
|
|
|
|
2,465
|
|
|
The positive effect on other comprehensive income, within
equity, is mainly attributable to the fair value movements of
the interest rate swaps (EUR 41.5 million) designated as
cash-flow hedges. The effect on the other comprehensive income
and income from operations before income taxes has increased,
due to the lower notional amounts in the outstanding interest
rate swaps in 2008.
Item 12
Description of Securities Other Than Equity Securities
Not applicable.
ASML ANNUAL REPORT 2008
57
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 the end of the period covered by this report, the
management of ASML conducted an evaluation, under the
supervision and with the participation of ASMLs Chief
Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of ASMLs
disclosure controls and procedures (as defined in
Rule 13a-15(e)
under the Exchange Act). Based on such evaluation, ASMLs
Chief Executive Officer and Chief Financial Officer have
concluded that, as of December 31, 2008, ASMLs
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 in
the reports that it files or submits under the Exchange Act is
accumulated and communicated to ASMLs management,
including ASMLs Chief Executive Officer and Chief
Financial Officer, as appropriate to allow timely decisions
regarding required disclosure.
Managements
Report on Internal Control over Financial Reporting
ASMLs management is responsible for establishing and
maintaining adequate internal control over financial reporting,
as such term is defined in
Rule 13a-15(f)
under the Exchange Act, for ASML. Under the supervision and with
the participation of ASMLs Chief Executive Officer and
Chief Financial Officer, ASMLs management conducted an
evaluation of the effectiveness of ASMLs internal control
over financial reporting based upon the framework in
Internal Control Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission as of the end of the period covered by this
report. Based on that evaluation, management has concluded that
ASMLs internal control over financial reporting was
effective as of December 31, 2008 at providing reasonable
assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in
accordance with accounting principles generally accepted in the
United States of America.
Deloitte Accountants B.V., an independent registered public
accounting firm, has audited the consolidated financial
statements included in this annual report on
Form 20-F
and, as part of the audit, has issued a report, included herein,
on the effectiveness of ASMLs internal control over
financial reporting.
Changes in
Internal Control over Financial Reporting
During the year ended December 31, 2008 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 Supervisory Board has determined that effective
March 18, 2004, Mr. Fritz Fröhlich, an
independent member of the Supervisory Board, qualifies as the
Audit Committee Financial Expert.
ASML ANNUAL REPORT 2008
58
B. Code of
Ethics
ASML has adopted its Principles of Ethical Business
Conduct, which contain ASMLs ethical principles in
relation to various subjects. These Principles have been
developed into day-to-day guidelines (the Internal
Guidelines on Ethical Business Conduct). The Internal
Guidelines on Ethical Business Conduct apply to ASML employees
worldwide, including ASMLs Supervisory Board and Board of
Management. Our Principles of Ethical Business Conduct and
Internal Guidelines on Ethical Business Conduct are posted on
our website (www.asml.com).
The Internal Guidelines on Ethical Business Conduct contain,
among others, written standards that are reasonably designed to
deter wrongdoing and to promote:
|
|
|
honest and ethical conduct, including the ethical handling of
actual or apparent conflicts of interest between personal and
professional relationships;
|
|
full, fair, accurate, timely, and understandable disclosure in
reports and documents that ASML files with, or submits to, the
SEC and in other public communications made by ASML;
|
|
compliance with applicable governmental laws, rules and
regulations;
|
|
prompt internal reporting of violations of the Internal
Guidelines on Ethical Business Conduct to an appropriate person
or persons identified in these guidelines; and
|
|
accountability for adherence to the guidelines.
|
In 2008, ASML introduced mandatory Code of Conduct training for
all its employees.
C. Principal
Accountant Fees and Services
Deloitte Accountants B.V. has served as our independent
registered public accounting firm for each of the three years in
the period ended December 31, 2008. The following table
sets forth the aggregate fees for professional audit services
and other services rendered by Deloitte Accountants B.V. in 2007
and 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31
|
|
2007
|
|
|
2008
|
|
(in thousands)
|
|
EUR
|
|
|
EUR
|
|
Audit fees
|
|
|
1,297
|
|
|
|
1,377
|
|
Audit-related fees
|
|
|
188
|
|
|
|
52
|
|
Tax fees
|
|
|
237
|
|
|
|
536
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,722
|
|
|
|
1,965
|
|
|
Audit
fees
Audit fees primarily relate to the audit of our annual
consolidated financial statements set forth in our Annual Report
on
Form 20-F,
agreed upon procedures work on our quarterly financial results,
services related to statutory and regulatory filings of ASML
Holding N.V. and its subsidiaries and services in connection
with accounting consultations on U.S. GAAP.
Audit-related
fees
Audit-related fees mainly related to various audit services not
related to the Companys consolidated financial statements.
Tax
fees
Tax fees can be detailed as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31
|
|
2007
|
|
|
2008
|
|
(in thousands)
|
|
EUR
|
|
|
EUR
|
|
Corporate Income Tax compliance services
|
|
|
146
|
|
|
|
160
|
|
Tax assistance for expatriate employees
|
|
|
62
|
|
|
|
152
|
|
Other tax advisory and compliance
|
|
|
29
|
|
|
|
224
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
237
|
|
|
|
536
|
|
|
The Audit Committee has approved the external audit plan and
related audit fees for the year 2008. The Audit Committee has
adopted a policy regarding audit and non-audit services, in
consultation with Deloitte Accountants B.V. This policy ensures
the independence of our auditors by expressly setting forth all
services that the auditors may not perform and reinforcing the
principle of independence regardless of the type of work
performed. Certain non-audit services, such as certain
tax-related services and acquisition advisory services, are
permitted. The Audit Committee pre-approves all audit and
non-audit services not specifically prohibited under this policy
and reviews the annual external audit plan and any subsequent
engagements.
ASML ANNUAL REPORT 2008
59
D. Exemptions
from the Listing Standards for Audit Committees
Not applicable.
E. Purchases of
Equity Securities by the Issuer and Affiliated
Purchasers
The following table provides a summary of shares repurchased by
the Company between 2006 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total value of
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of
|
|
|
|
|
|
Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Maximum
|
|
|
Purchased as
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased as
|
|
|
Number of
|
|
|
Part of Publicly
|
|
|
|
|
|
|
|
|
|
|
|
|
Part of Publicly
|
|
|
Shares That May
|
|
|
Announced
|
|
|
|
|
|
|
Total Number of
|
|
|
Average Price
|
|
|
Announced
|
|
|
Yet be Purchased
|
|
|
Plans or
|
|
|
|
|
|
|
Shares
|
|
|
Paid per Share
|
|
|
Plans or
|
|
|
Under the
|
|
|
Programs (in
|
|
Program
|
|
Period
|
|
|
purchased
|
|
|
(EUR)
|
|
|
Programs
|
|
|
Programs
|
|
|
EUR million)
|
|
2006-2007 Share
program
|
|
|
May 17-26, 2006
|
|
|
|
6,412,920
|
|
|
|
15.59
|
|
|
|
6,412,920
|
|
|
|
19,037,376
|
|
|
|
100
|
|
2006-2007 Share
program
|
|
|
June 7-30, 2006
|
|
|
|
13,517,078
|
|
|
|
15.81
|
|
|
|
19,929,998
|
|
|
|
5,520,298
|
|
|
|
314
|
|
2006-2007 Share
program
|
|
|
July 3-13, 2006
|
|
|
|
5,520,298
|
|
|
|
15.62
|
|
|
|
25,450,296
|
|
|
|
|
|
|
|
400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006-2007 Share
program
|
|
|
October 12, 2006
|
|
|
|
14,934,843
|
|
|
|
18.55
|
|
|
|
14,934,843
|
|
|
|
|
|
|
|
277
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006-2007 Share
program
|
|
|
February 14-23, 2007
|
|
|
|
8,000,000
|
|
|
|
19.53
|
|
|
|
8,000,000
|
|
|
|
|
|
|
|
156
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital repayment program 2007
|
|
|
September - October 2007
|
|
|
|
55,093,409
|
|
|
|
18.36
|
|
|
|
55,093,409
|
|
|
|
|
|
|
|
1,012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007-2008 Share
program
|
|
|
November 14-26, 2007
|
|
|
|
9,000,000
|
|
|
|
22.62
|
|
|
|
9,000,000
|
|
|
|
5,000,000
|
|
|
|
204
|
|
2007-2008 Share
program
|
|
|
January 17-22, 2008
|
|
|
|
5,000,000
|
|
|
|
17.52
|
|
|
|
14,000,000
|
|
|
|
|
|
|
|
292
|
|
|
2006-2007 Share
program
On March 23, 2006, the General Meeting of Shareholders
authorized the repurchase of up to a maximum of 10 percent of
our issued shares through September 23, 2007. The number of
shares bought back in the initial phase of this Repurchase
Program was 25,450,296 shares, representing 100 percent of the
announced objective for the initial phase of the Repurchase
Program of maximum EUR 400 million and 5.25 percent of
outstanding shares. This 2006 Repurchase Program was completed
in the third quarter of 2006. Shares repurchased were recorded
at cost and classified within shareholders equity. ASML
cancelled these repurchased shares in 2007.
In the second phase of the Repurchase Program, ASML repurchased
14,934,843 additional shares pursuant to a call option
transaction announced on October 9, 2006. These repurchased
shares represented 100% of the announced objective of the second
phase of the Repurchase Program. In order to mitigate the
dilution due to the issuance of shares upon conversion of its
convertible bond due October 2006, these shares were
subsequently used to satisfy the conversion rights of holders of
ASMLs 5.75 percent Convertible Subordinated Notes. The
Company paid an aggregate of EUR 277 million in cash for these
shares. This repurchase program was completed in the fourth
quarter of 2006. These shares were purchased from a third party
who issued the call option.
In February 2007, ASML repurchased the final phase of
shares under the Repurchase Program of the remaining 1.7 percent
of outstanding share. , being 8,000,000 shares. The share
program was announced on February 14, 2007 and was
completed in the first quarter of 2007. Shares repurchased have
been used to cover outstanding stock options and to satisfy
partly the conversion rights of holders of ASMLs 5.50
percent Convertible Subordinated Notes.
Capital repayment
program 2007
On July 17, 2007 the Extraordinary General Meeting of
Shareholders approved three proposals to amend the
Companys Articles of Association. The first amendment
involved an increase of share capital by an increase in the
nominal value per ordinary share from EUR 0.02 to
EUR 2.12 and a corresponding reduction in share premium.
The second amendment was a reduction of the nominal value per
ordinary share from EUR 2.12 to EUR 0.08 resulting in
the payment to shareholders of EUR 2.04 per ordinary share.
The third amendment involved a reduction in stock, whereby 9
ordinary shares with a nominal value of EUR 0.08 each were
consolidated into 8 ordinary shares with a nominal value of
EUR 0.09 each. As a result of these amendments, which in
substance constitute a synthetic share buyback,
EUR 1,012 million has been repaid to our shareholders
and the outstanding number of ordinary shares was reduced by
55,093,409 shares or 11 percent. The capital repayment
program was completed in October 2007.
2007-2008 Share
program
On March 28, 2007, the General Meeting of Shareholders
authorized the repurchase of up to a maximum of three times
10 percent of our issued shares through September 28,
2008.
ASML ANNUAL REPORT 2008
60
In 2007, the aggregate number of shares bought back under the
2007-2008 share
program was 9,000,000, representing 64.3 percent of the
announced objective of 14,000,000 shares to be repurchased
during a period ending on September 28, 2008. The share
program was announced on October 17, 2007. Shares
repurchased will be used to cover outstanding stock options.
In January 2008, ASML bought back 5,000,000 shares. The
aggregate number of shares bought back up to and including
January 2008, represents 100 percent of the announced
objective of 14,000,000 shares.
Authorization of
share repurchases
On April 3, 2008, the General Meeting of Shareholders
authorized the repurchase of up to a maximum of approximately
27 percent of our issued share capital as of the date of
authorization (April 3, 2008) through October 3,
2009. However, implementation of additional share buy back
programs will depend on the recovery of the industry and economy.
G. Corporate
governance
See Item 6.B. Variations from Certain NASDAQ
Corporate Governance Rules.
ASML ANNUAL REPORT 2008
61
Part III
Item 17
Financial Statements
Not applicable.
Item 18
Financial Statements
In response to this item, the Company incorporates herein by
reference the consolidated financial statements of the Company
set forth on pages F-2 through F-48 hereto.
Item 19
Exhibits
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Exhibit No.
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Description
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1
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Articles of Association of ASML Holding N.V. (English
translation) (Incorporated by reference to Amendment No. 11
to the Registrants Registration Statement on
Form 8-A/A,
filed with the Commission on November 2, 2007)
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2.1
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Fiscal Agency Agreement between ASML Holding N.V., Deutsche Bank
AG, London Branch and Deutsche Bank Luxembourg S.A. relating to
the Registrants 5.75 percent Notes due 2017
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4.1
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Agreement between ASML Lithography B.V. and Carl Zeiss, dated
March 17, 2000 (Incorporated by reference to the
Registrants Annual Report on
Form 20-F
for the fiscal year ended December 31, 2000) #
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4.2
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Agreement between ASML Holding N.V. and Carl Zeiss, dated
October 24, 2003 (Incorporated by reference to the
Registrants Annual Report on
Form 20-F
for the year ended December 31, 2003) #
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4.3
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Form of Indemnity Agreement between ASML Holding N.V. and
members of its Board of Management (Incorporated by reference to
the Registrants Annual Report on
Form 20-F
for the year ended December 31, 2003)
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4.4
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Form of Indemnity Agreement between ASML Holding N.V. and
members of its Supervisory Board (Incorporated by reference to
the Registrants Annual Report on
Form 20-F
for the year ended December 31, 2003)
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4.5
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Form of Employment Agreement for members of the Board of
Management (Incorporated by reference to the Registrants
Annual Report on
Form 20-F
for the fiscal year ended December 31, 2003)
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4.6
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Nikon-ASML Patent Cross License Agreement, dated
December 10, 2004, between ASML Holding N.V. and Nikon
Corporation (Incorporated by reference to the Registrants
Annual Report on
Form 20-F
for the fiscal year ended December 31, 2004) #
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4.7
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ASML/Zeiss Sublicense Agreement, 2004, dated December 10,
2004, between Carl Zeiss SMT AG and ASML Holding N.V.
(Incorporated by reference to the Registrants Annual
Report on
Form 20-F
for the fiscal year ended December 31, 2004) #
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4.8
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ASML New Hires and Incentive Stock Option Plan For Management
(Version 2003) (Incorporated by reference to the
Registrants Statement on
Form S-8,
filed with the Commission on September 2, 2003 (File
No. 333-109154))
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4.9
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ASML Incentive and New Hire Option Plan for Board of Management
(Incorporated by reference to the Registrants Registration
Statement on
Form S-8,
filed with the Commission on June 9, 2004 (File
No. 333-116337))
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4.10
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ASML Option Plan for Management of ASML Holding Group Companies
(Incorporated by reference to the Registrants Registration
Statement on
Form S-8
filed with the Commission on June 30, 2005 (file
No. 333-126340))
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4.11
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ASML Stock Option Plan for New Hire Options granted to Members
of the Board of Management (Version April 2006) (Incorporated by
reference to the Registrants Registration Statement on
Form S-8
filed with the Commission on August 7, 2006 (file
No. 333-136362))
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4.12
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ASML Stock Option Plan for Incentive or New Hire Options granted
to Senior and Executive Management (Version April 2006)
(Incorporated by reference to the Registrants Registration
Statement on
Form S-8
filed with the Commission on August 7, 2006 (file
No. 333-136362))
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4.13
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ASML Stock Option Plan for Incentive or New Hire Options granted
to Senior and Executive Management (Version July 2006)
(Incorporated by reference to the Registrants Registration
Statement on
Form S-8
filed with the Commission on August 7, 2006 (file
No. 333-136362))
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4.14
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ASML Stock Option Plan for Incentive or New Hire Options granted
to Senior and Executive Management (Version October 2006)
(Incorporated by reference to the Registrants Registration
Statement on
Form S-8
filed with the Commission on August 7, 2006 (file
No. 333-136362))
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4.15
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ASML Restricted Stock Plan (Incorporated by reference to the
Registrants Registration Statement on
Form S-8
filed with the Commission on March 7, 2007 (file
No. 333-141125))
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4.16
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Brion Technologies, Inc., 2002 Stock Option Plan (as amended on
March 25, 2005; March 24, 2006; and November 17,
2006) (Incorporated by reference to the Registrants
Registration Statement on
Form S-8
filed with the Commission on April 20, 2007 (file
No. 333-142254))
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4.17
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ASML Stock Option Plan for Incentive or New Hire Options granted
to Senior and Executive Management (Version January 2007)
(Incorporated by reference to the Registrants Registration
Statement on
Form S-8
filed with the Commission on July 5, 2007 (file
No. 333-144356))
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4.18
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ASML Stock Option Plan for Incentive or New Hire Options granted
to Senior and Executive Management (Version April 2007)
(Incorporated by reference to the Registrants Registration
Statement on
Form S-8
filed with the Commission on July 5, 2007 (file
No. 333-144356))
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ASML ANNUAL REPORT 2008
62
|
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Exhibit No.
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Description
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4.19
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ASML Stock Option Plan for Incentive or New Hire Options granted
to Senior and Executive Management (Version July 2007)
(Incorporated by reference to the Registrants Registration
Statement on
Form S-8
filed with the Commission on July 5, 2007 (file
No. 333-144356))
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4.20
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ASML Stock Option Plan for Incentive or New Hire Options granted
to Senior and Executive Management (Version October 2007)
(Incorporated by reference to the Registrants Registration
Statement on
Form S-8
filed with the Commission on July 5, 2007 (file
No. 333-144356))
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4.21
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ASML Performance Stock Plan for Members of the Board of
Management (Version 1) (Incorporated by reference to the
Registrants Registration Statement on
Form S-8
filed with the Commission on July 5, 2007 (file
No. 333-144356))
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4.22
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ASML Performance Stock Option Plan for Members of the Board of
Management (Version 2) (Incorporated by reference to the
Registrants Registration Statement on
Form S-8
filed with the Commission on July 5, 2007 (file
No. 333-144356))
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4.23
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ASML Stock Option Plan from Base Salary for Senior &
Executive Management (Version October 2007) (Incorporated by
reference to the Registrants Registration Statement on
Form S-8
filed with the Commission on November 2, 2007 (file
No. 333-147128))
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4.24
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ASML Performance Stock Option Plan for Senior and Executive
Management (version 1) (Incorporated by reference to the
Registrants Registration Statement on
Form S-8
filed with the Commission on August 29, 2008 (file
No. 333-153277))
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4.25
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ASML Performance Share Plan for Senior and Executive Management
(version 1) (Incorporated by reference to the Registrants
Registration Statement on
Form S-8
filed with the Commission on August 29, 2008 (file
No. 333-153277))
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4.26
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ASML Restricted Stock Plan (version 2) (Incorporated by
reference to the Registrants Registration Statement on
Form S-8
filed with the Commission on August 29, 2008 (file
No. 333-153277))
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8.1
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List of Material Subsidiaries*
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12.1
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Certification of CEO and CFO Pursuant to
Rule 13a-14(a)
of the Securities Exchange Act of 1934*
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13.1
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Certification of CEO and CFO Pursuant to
Rule 13a-14(b)
of the Securities Exchange Act of 1934 and 18 U.S.C.
Section 1350 as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002*
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15.1
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Consent of Deloitte Accountants B.V.*
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*
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Filed at the Commission herewith
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#
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Certain information omitted
pursuant to a request for confidential treatment filed
separately with the Securities and Exchange Commission
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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.
(Registrant)
Eric Meurice
President, Chief Executive Officer and Chairman of the Board of
Management
Dated: January 23, 2009
Peter T.F.M. Wennink
Executive Vice President, Chief Financial Officer and Member of
the Board of Management
Dated: January 23, 2009
ASML ANNUAL REPORT 2008
63
Index to Financial
Statements
ASML ANNUAL REPORT 2008
F-1
Consolidated
Statements of Operations
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Year ended December 31
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20061
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20071,2
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2008
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Notes
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(in thousands, except per share data)
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EUR
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EUR
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EUR
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20
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Net system sales
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3,213,736
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3,351,281
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2,516,762
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Net service and field option sales
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368,040
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416,904
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436,916
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20
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Total net sales
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3,581,776
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3,768,185
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2,953,678
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Cost of system sales
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1,904,073
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1,943,779
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1,631,069
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Cost of service and field option sales
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