ASML Announces 2011 Third Quarter Results

ASML Holding NV (ASML)  (NASDAQ:ASML) (Amsterdam:ASML) today announces 2011 third quarter results.

• Q3 bookings (excluding EUV) came in just above guidance at EUR 514 million
• On track for record 2011 net sales of about EUR 5.5 billion

		Q3 2011		Q2 2011		Notes
Net sales		1,459		1,529
...of which service and field option sales		185		196
New systems sold (units)		46		58
Used systems sold (units)		9		5
ASP new systems sold		27.1		22.7
ASP all systems sold		23.2		21.2
Net bookings, excluding EUV		514		840
Net bookings, excluding EUV (units)		23		34
ASP of booked systems, excluding EUV		22.4		24.7
Systems backlog, excluding EUV		1,994		2,756
Systems backlog, excluding EUV (units)		74		105
Orders remaining NXE:3100 (EUV) (units)		4		6		(1)
Orders remaining NXE:3300 (EUV) (units)		10		10
Gross margin excluding EUV		44.5%
Gross margin		42.1%		45.1%		(2)
R&D costs		150		145
SG&A costs		56		51
Net cash flow from operations		338		499
End-quarter cash and cash equivalents		2,838		2,742
Net income		355		432
EPS (in euro)		0.84		1.01
(Figures in millions of euros unless otherwise indicated)

Notes:

(1) The orders for NXE:3100 (EUV), with an average selling price of EUR 40 million per system, reflect 2 systems that were recognized in net system sales in the third quarter, 1 system to be recognized in Q4 and 1 system to be recognized in one of the upcoming quarters, 1 operating lease contract and 1 R&D system to be recognized in the R&D line in the coming quarters.

(2) As announced in Q2 2011, Q3 2011 sales included two second generation EUV systems which represent total sales of around EUR 80 million with zero profit margin; all other sales (excluding EUV) had a gross margin in Q3 2011 of about 44.5 percent.

Third Quarter Highlights

• More than 100 TWINSCAN NXT:1950i (our most advanced production system) have shipped to date; the total installed base of ASML immersion systems now exceeds 320.
• An average selling price (ASP) of EUR 27.1 million for new systems sold as a result of the recognition of a high number of TWINSCAN NXT:1950i systems and two second generation EUV systems.
• A TWINSCAN NXT:1950i has surpassed the productivity milestone of more than 4,000 wafers in a single day at a customer manufacturing site.
• First TWINSCAN NXT:1950i with throughput of 200 wafers per hour at 125 shots (230 wafers per hour at 96 shots) is being shipped.
• ASML Brion announced a new mask correction capability to enable larger process windows for advanced 2x nanometer chip designs.
• Of our new EUV lithography platform, we have delivered five NXE:3100 systems to customers and the sixth is being shipped.
• Imaging performance of the NXE:3100 has been demonstrated with enhancement technology down to 22 nanometer in a single exposure.
• During the quarter customers almost doubled the number of exposed wafers on NXE:3100 systems, to a total of more than 2,500 wafers, allowing them to develop next generation chip production processes.
• Assembly and integration has started of our first NXE:3300 systems, the volume production successor of the NXE:3100, for first delivery in the second half of 2012.

Outlook

• ASML expects full year 2011 sales to hit a record level of about EUR 5.5 billion.
• Q4 2011 bookings expected at a level above Q3.

"Despite the current turbulent macro-economic environment, ASML’s strong business model and the industry need for the latest lithography technologies enable us to reiterate our expectation of 2011 revenues of about EUR 5.5 billion, including EUV, in line with initial guidance. It is too early to understand how overall demand for semiconductors will contribute to our business in 2012, but we believe that a sustained need for leading edge systems capable of new nodes will likely result in increased Q4 2011 bookings, compared with Q3,” Eric Meurice said. "This level of bookings will start to support the continued technology upgrades by our customers for sub 20-nanometer nodes development, while ramping production of advanced 2x nm nodes in Logic and in NAND Flash memory, and 3x nm in DRAM memory. We continue our dual product leadership strategy, consisting of strengthening our immersion offering, as measured by the new records achieved by the TWINSCAN NXT:1950i and the significant contributions made by our Holistic Lithography suite of products, while also investing significantly to introduce EUV. The EUV systems are making significant progress, as our NXE:3100s are processing wafers at customer manufacturing sites and as we have started assembly of the first of the new generation NXE:3300 systems. EUV source power has scaled slower than planned, however we confirm that two source suppliers have now demonstrated technologies for power levels that support a wafer per hour productivity increase from current single digit levels to mid-teens, which will be implemented starting from Q4 2011, putting us on a roadmap to commercially viable productivity levels in the summer of 2012. We are therefore proceeding with ramping our capacity to address a number of DRAM, NAND and Logic critical layers for customer wafer production in 2013 and 2014,” Meurice said.

For the fourth quarter 2011, ASML expects net sales of above EUR 1.1 billion, including one second generation EUV system representing around EUR 40 million of sales with zero profit margin. All other sales (excluding EUV) are expected to have a gross margin in Q4 2011 of about 42 percent (about 41 percent for sales including EUV). R&D costs for Q4 are expected at EUR 150 million to support our strategic investments. SG&A costs are expected at EUR 56 million.

Update on share buy back program

As part of ASML’s policy to return excess cash to shareholders through dividend and regularly timed share buy back programs, ASML in January 2011 announced its intention to purchase up to EUR 1 billion of its own shares within two years. As part of this program ASML has purchased 20.7 million shares for a total consideration of EUR 559 million up to September 25, 2011. ASML intends to cancel the repurchased shares. The share buy back program may be suspended, modified or discontinued at any time. All transactions under this program are published on ASML’s website (www.asml.com/investors) on a weekly basis.

About ASML

ASML is one of the world's leading providers of lithography systems for the semiconductor industry, manufacturing complex machines that are critical to the production of integrated circuits or chips. Headquartered in Veldhoven, the Netherlands, ASML is traded on Euronext Amsterdam and NASDAQ under the symbol ASML. ASML has more than 7,800 employees on payroll (expressed in full time equivalents), serving chip manufacturers in more than 55 locations in 16 countries. More information about our company, our products and technology, and career opportunities is available on our website: www.asml.com

Investor and Media Conference Call

A conference call for investors and media will be hosted by CEO Eric Meurice and CFO Peter Wennink at 15:00 PM Central European Time / 09:00 AM Eastern U.S. time. Dial-in numbers are: in the Netherlands +31 10 29 44 271 and the US +1 718 971 5738 (US participants will have to quote the following confirmation code when dialing into the conference: 1015439). To listen to the conference call, access is also available via www.asml.com

A replay of the Investor and Media Call will be available on www.asml.com

US GAAP and IFRS Financial Reporting

ASML's primary accounting standard for quarterly earnings releases and annual reports is US GAAP, the accounting standard generally accepted in the United States. Quarterly US GAAP consolidated statements of operations, consolidated statements of cash flows and consolidated balance sheets, and a reconciliation of net income and equity from US GAAP to IFRS are available on www.asml.com

In addition to reporting financial figures in accordance with US GAAP, ASML also reports financial figures in accordance with IFRS for statutory purposes. The most significant differences between US GAAP and IFRS that affect ASML concern the capitalization of certain product development costs, the accounting of share-based payment plans, the accounting of income taxes and the accounting of reversal of inventory write-downs. ASML’s quarterly IFRS consolidated income statement, consolidated statement of cash flows, consolidated statement of financial position and a reconciliation of net income and equity from US GAAP to IFRS are available on www.asml.com

The consolidated balance sheets of ASML Holding N.V. as of September 25, 2011, the related consolidated statements of operations and consolidated statements of cash flows for the quarter ended September 25, 2011 as presented in this press release are unaudited.

Regulated Information

This press release, the US GAAP consolidated financial statements, the IFRS consolidated financial statements and the Statutory Interim Report published on www.asml.com comprise regulated information within the meaning of the Dutch Financial Markets Supervision Act (Wet op het financieel toezicht).

Forward Looking Statements

"Safe Harbor" Statement under the US Private Securities Litigation Reform Act of 1995: the matters discussed in this document may include forward-looking statements, including statements made about our outlook, realization of systems backlog, IC unit demand, financial results, average selling price, gross margin and expenses, dividend policy and intention to repurchase shares. These forward looking statements are subject to risks and uncertainties including, but not limited to: economic conditions, product demand and semiconductor equipment industry capacity, worldwide demand and manufacturing capacity utilization for semiconductors (the principal product of our customer base), including the impact of general economic conditions on consumer confidence and demand for our customers’ products, competitive products and pricing, the impact of manufacturing efficiencies and capacity constraints, the pace of new product development and customer acceptance of new products, our ability to enforce patents and protect intellectual property rights, the risk of intellectual property litigation, availability of raw materials and critical manufacturing equipment, trade environment, changes in exchange rates, available cash, distributable reserves for dividend payments and share repurchases, and other risks indicated in the risk factors included in ASML’s Annual Report on Form 20-F and other filings with the US Securities and Exchange Commission.

ASML - Summary U.S. GAAP Consolidated Statements of Operations 1,2
		Three months ended,						Nine months ended,
		Sep 25, 2011			Sep 26, 2010			Sep 25, 2011			Sep 26, 2010
(in millions EUR, except per share data)
Net system sales		1,273.2			1,027.0			3,891.2			2,581.6
Net service and field option sales		185.3			149.0			548.9			404.9
Total net sales		1,458.5			1,176.0			4,440.1			2,986.5
Total cost of sales		845.1			663.5			2,487.1			1,716.0
Gross profit on sales		613.4			512.5			1,953.0			1,270.5
Research and development costs		149.8			136.8			439.9			382.4
Selling, general and administrative costs		56.3			47.9			161.6			131.0
Income from operations		407.3			327.8			1,351.5			757.1
Interest income (expense), net		2.2			(1.6	)		5.9			(7.1	)
Income from operations before income taxes		409.5			326.2			1,357.4			750.0
Provision for income taxes		(54.3	)		(57.7	)		(175.1	)		(135.0	)
Net income		355.2			268.5			1,182.3			615.0
Basic net income per ordinary share		0.84			0.61			2.75			1.41
Diluted net income per ordinary share	3	0.84			0.61			2.73			1.40
Number of ordinary shares used in computing per share amounts (in millions):
Basic		421.9			435.5			429.2			434.9
Diluted	3	425.3			439.3			432.8			438.9
ASML - Ratios and Other Data 1,2
		Three months ended,						Nine months ended,
		Sep 25, 2011			Sep 26, 2010			Sep 25, 2011			Sep 26, 2010
Gross profit on sales as a percentage of net sales		42.1			43.6			44.0			42.5
Income from operations as a percentage of net sales		27.9			27.9			30.4			25.4
Net income as a percentage of net sales		24.4			22.8			26.6			20.6
Income taxes as a percentage of income from operations before income taxes		13.2			17.7			12.9			18.0
Shareholders’ equity as a percentage of total assets		46.2			42.5			46.2			42.5
Sales of systems (in units)		55			51			181			128
Average selling price of systems sales (EUR millions)		23.2			20.1			21.5			20.2
Value of systems backlog excluding EUV (EUR millions)		1,994			2,983			1,994			2,983
Systems backlog excluding EUV (in units)		74			109			74			109
Average selling price of systems backlog excluding EUV (EUR millions)		26.9			27.4			26.9			27.4
Value of booked systems excluding EUV (EUR millions)		514			1,391			2,199			3,898
Net bookings excluding EUV (in units)		23			60			97			168
Average selling price of booked systems excluding EUV (EUR millions)		22.4			23.2			22.7			23.2
Number of payroll employees in FTEs		7,848			6,919			7,848			6,919
Number of temporary employees in FTEs		2,050			1,803			2,050			1,803
ASML - Summary U.S. GAAP Consolidated Balance Sheets 1,2
		Sep 25, 2011			Dec 31, 2010
(in millions EUR)
ASSETS
Cash and cash equivalents		2,838.1			1,949.8
Accounts receivable, net		811.8			1,123.5
Finance receivables, net		116.2			12.6
Current tax assets		1.0			12.7
Inventories, net		1,455.8			1,497.2
Deferred tax assets		129.9			134.5
Other assets		248.8			214.2
Total current assets		5,601.6			4,944.5
Finance receivables, net		-			28.9
Deferred tax assets		48.4			71.0
Other assets		248.4			235.7
Goodwill		139.2			141.3
Other intangible assets, net		9.7			13.7
Property, plant and equipment, net		1,060.3			745.3
Total non-current assets		1,506.0			1,235.9
Total assets		7,107.6			6,180.4
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities		2,030.9			2,157.2
Long-term debt		733.1			708.7
Deferred and other tax liabilities		184.6			155.7
Provisions		10.1			11.8
Accrued and other liabilities		864.7			373.1
Total non-current liabilities		1,792.5			1,249.3
Total liabilities		3,823.4			3,406.5
Shareholders’ equity		3,284.2			2,773.9
Total liabilities and shareholders’ equity		7,107.6			6,180.4
ASML - Summary U.S. GAAP Consolidated Statements of Cash Flows 1,2
		Three months ended,						Nine months ended,
		Sep 25, 2011			Sep 26, 2010			Sep 25, 2011			Sep 26, 2010
(in millions EUR)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income		355.2			268.5			1,182.3			615.0
Depreciation and amortization		43.0			41.0			125.1			111.9
Impairment		9.2			0.1			9.8			1.6
Loss on disposals of property, plant and equipment		0.3			0.4			2.2			2.0
Share-based payments		4.0			4.6			8.8			9.8
Allowance for doubtful debts		(0.9	)		0.6			0.3			0.8
Allowance for obsolete inventory		14.3			15.5			37.2			50.5
Deferred income taxes		(3.9	)		41.4			35.6			71.2
Changes in assets and liabilities		(83.0	)		31.4			536.8			(225.2	)
Net cash provided by operating activities		338.2			403.5			1,938.1			637.6
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant and equipment		(79.8	)		(34.6	)		(207.2	)		(59.8	)
Proceeds from sale of property, plant and equipment		-			-			-			-
Net cash used in investing activities		(79.8	)		(34.6	)		(207.2	)		(59.8	)
CASH FLOWS FROM FINANCING ACTIVITIES
Dividend paid		-			-			(172.6	)		(87.0	)
Purchase of shares		(173.7	)	4	-			(539.4	)	4	-
Net proceeds from issuance of shares and stock options		2.5			2.3			26.1			20.5
Deposits from customers		-			-			(150.0	)		-
Repayment of debt		(0.6	)		(0.4	)		(1.9	)		(1.1	)
Tax benefits from stock options		-			0.4			-			0.4
Net cash provided by (used in) financing activities		(171.8	)		2.3			(837.8	)		(67.2	)
Net cash flows		86.6			371.2			893.1			510.6
Effect of changes in exchange rates on cash		9.4			(11.8	)		(4.8	)		0.3
Net increase in cash and cash equivalents		96.0			359.4			888.3			510.9

ASML - Quarterly Summary U.S. GAAP Consolidated Statements of Operations 1,2
		Three months ended,
		Sep 25,		Jun 26,		Mar 27,		Dec 31,		Sep 26,
		2011		2011		2011		2010		2010
(in millions EUR, except per share data)
Net system sales		1,273.2		1,333.6		1,284.4		1,313.1		1,027.0
Net service and field option sales		185.3		195.8		167.8		208.3		149.0
Total net sales		1,458.5		1,529.4		1,452.2		1,521.4		1,176.0
Total cost of sales		845.1		839.4		802.6		836.7		663.5
Gross profit on sales		613.4		690.0		649.6		684.7		512.5
Research and development costs		149.8		144.7		145.4		141.0		136.8
Selling, general and administrative costs		56.3		50.9		54.4		50.1		47.9
Income from operations		407.3		494.4		449.8		493.6		327.8
Interest income (expense), net		2.2		1.8		1.9		(1.1)		(1.6)
Income from operations before income taxes		409.5		496.2		451.7		492.5		326.2
Provision for income taxes		(54.3)		(64.1)		(56.7)		(85.7)		(57.7)
Net income		355.2		432.1		395.0		406.8		268.5
Basic net income per ordinary share		0.84		1.01		0.90		0.94		0.61
Diluted net income per ordinary share	3	0.84		1.00		0.90		0.93		0.61
Number of ordinary shares used in computing per share amounts (in millions):
Basic		421.9		429.5		436.6		435.9		435.5
Diluted	3	425.3		432.9		440.6		439.9		439.3
ASML - Quarterly Summary Ratios and other data 1,2
		Three months ended,
		Sep 25,		Jun 26,		Mar 27,		Dec 31,		Sep 26,
		2011		2011		2011		2010		2010
Gross profit on sales as a percentage of net sales		42.1		45.1		44.7		45.0		43.6
Income from operations as a percentage of net sales		27.9		32.3		31.0		32.4		27.9
Net income as a percentage of net sales		24.4		28.3		27.2		26.7		22.8
Income taxes as a percentage of income from operations before income taxes		13.2		12.9		12.6		17.4		17.7
Shareholders’ equity as a percentage of total assets		46.2		43.9		43.9		44.9		42.5
Sales of systems (in units)		55		63		63		69		51
Average selling price of systems sales (EUR millions)		23.2		21.2		20.4		19.0		20.1
Value of systems backlog excluding EUV (EUR millions)		1,994		2,756		3,330		3,856		2,983
Systems backlog excluding EUV (in units)		74		105		134		157		109
Average selling price of systems backlog excluding EUV (EUR millions)		26.9		26.2		24.9		24.6		27.4
Value of booked systems excluding EUV (EUR millions)		514		840		845		2,315		1,391
Net bookings excluding EUV (in units)		23		34		40		117		60
Average selling price of booked systems excluding EUV (EUR millions)		22.4		24.7		21.1		19.8		23.2
Number of payroll employees in FTEs		7,848		7,697		7,402		7,184		6,919
Number of temporary employees in FTEs		2,050		2,159		2,122		2,061		1,803
ASML - Quarterly Summary U.S. GAAP Consolidated Balance Sheets 1,2
		Sep 25,		Jun 26,		Mar 27,		Dec 31,		Sep 26,
		2011		2011		2011		2010		2010
(in millions EUR)
ASSETS
Cash and cash equivalents		2,838.1		2,742.1		2,699.5		1,949.8		1,548.0
Accounts receivable, net		811.8		895.1		1,018.8		1,123.5		915.0
Finance receivables, net		116.2		61.9		-		12.6		12.3
Current tax assets		1.0		1.0		1.0		12.7		82.4
Inventories, net		1,455.8		1,610.4		1,565.6		1,497.2		1,449.8
Deferred tax assets		129.9		126.4		125.3		134.5		71.2
Other assets		248.8		253.5		257.5		214.2		269.4
Total current assets		5,601.6		5,690.4		5,667.7		4,944.5		4,348.1
Finance receivables, net		-		-		-		28.9		32.2
Deferred tax assets		48.4		67.5		67.5		71.0		93.7
Other assets		248.4		214.6		227.2		235.7		110.6
Goodwill		139.2		132.4		133.3		141.3		140.9
Other intangible assets, net		9.7		11.0		12.3		13.7		15.0
Property, plant and equipment, net		1,060.3		960.2		848.7		745.3		720.6
Total non-current assets		1,506.0		1,385.7		1,289.0		1,235.9		1,113.0
Total assets		7,107.6		7,076.1		6,956.7		6,180.4		5,461.1
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities		2,030.9		2,229.6		2,441.7		2,157.2		2,164.6
Long-term debt		733.1		705.7		695.6		708.7		734.0
Deferred and other tax liabilities		184.6		187.5		177.3		155.7		172.7
Provisions		10.1		10.1		10.6		11.8		12.1
Accrued and other liabilities		864.7		833.8		579.6		373.1		58.4
Total non-current liabilities		1,792.5		1,737.1		1,463.1		1,249.3		977.2
Total liabilities		3,823.4		3,966.7		3,904.8		3,406.5		3,141.8
Shareholders’ equity		3,284.2		3,109.4		3,051.9		2,773.9		2,319.3
Total liabilities and shareholders’ equity		7,107.6		7,076.1		6,956.7		6,180.4		5,461.1
ASML - Quarterly Summary U.S. GAAP Consolidated Statements of Cash Flows 1,2
		Three months ended,
		Sep 25,		Jun 26,		Mar 27,		Dec 31,		Sep 26,
		2011		2011		2011		2010		2010
(in millions EUR)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income		355.2		432.1		395.0		406.8		268.5
Depreciation and amortization		43.0		42.9		39.2		39.5		41.0
Impairment		9.2		0.3		0.3		7.0		0.1
Loss on disposals of property, plant and equipment		0.3		1.5		0.4		0.9		0.4
Share-based payments		4.0		1.8		3.0		2.3		4.6
Allowance for doubtful debts		(0.9)		-		1.2		(2.1)		0.6
Allowance for obsolete inventory		14.3		13.6		9.3		5.2		15.5
Deferred income taxes		(3.9)		(7.5)		47.0		(43.1)		41.4
Changes in assets and liabilities		(83.0)		14.6		605.2		(114.1)		31.4
Net cash provided by operating activities		338.2		499.3		1,100.6		302.4		403.5
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant and equipment		(79.8)		(60.7)		(66.7)		(68.9)		(34.6)
Proceeds from sale of property, plant and equipment		-		-		-		3.8		-
Net cash used in investing activities		(79.8)		(60.7)		(66.7)		(65.1)		(34.6)
CASH FLOWS FROM FINANCING ACTIVITIES
Dividend paid		-		(172.6)		-		-		-
Purchase of shares		(173.7)	4	(223.2)		(142.5)		-		-
Net proceeds from issuance of shares and stock options		2.5		2.5		21.1		10.5		2.3
Deposits from customers		-		-		(150.0)		150.0		-
Repayment of debt		(0.6)		(0.7)		(0.6)		(0.3)		(0.4)
Tax benefits from stock options		-		-		-		(0.3)		0.4
Net cash provided by (used in) financing activities		(171.8)		(394.0)		(272.0)		159.9		2.3
Net cash flows		86.6		44.6		761.9		397.2		371.2
Effect of changes in exchange rates on cash		9.4		(2.0)		(12.2)		4.6		(11.8)
Net increase in cash and cash equivalents		96.0		42.6		749.7		401.8		359.4

ASML - Notes to the Summary U.S. GAAP Consolidated Financial Statements

Basis of Presentation

ASML follows accounting principles generally accepted in the United States of America ("U.S. GAAP”). Further disclosures, as required under U.S. GAAP in annual reports, are not included in the summary consolidated financial statements. Unless stated otherwise, the accompanying consolidated financial statements are stated in thousands of euros (‘EUR’).

Principles of consolidation

The consolidated financial statements include the accounts of ASML Holding N.V. and all of its subsidiaries and the variable interest entities in which the Company is the primary beneficiary (together referred to as "ASML” or the "Company”). Subsidiaries are all entities over which ASML has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. All intercompany profits, balances and transactions have been eliminated in the consolidation.

Use of estimates

The preparation of ASML’s consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities on the balance sheet dates, and the reported amounts of revenue and expenses during the reported periods. Actual results could differ from those estimates.

Recognition of revenues

The Company recognizes revenue when all four revenue recognition criteria are met: persuasive evidence of an arrangement exists; delivery has occurred or services have been rendered; seller’s price to buyer is fixed or determinable; and collectability is reasonably assured. At ASML, this policy generally results in revenue recognition from the sale of a system upon shipment. The revenue from the installation of a system is generally recognized upon completion of that installation at the customer site. Each system undergoes, prior to shipment, a "Factory Acceptance Test" in the Company’s clean room facilities, effectively replicating the operating conditions that will be present on the customer's site, in order to verify whether the system will meet its standard specifications and any additional technical and performance criteria agreed with the customer. A system is shipped, and revenue is recognized, only after all specifications are met and customer sign-off is received or waived. In case not all specifications are met and the remaining performance obligation is not essential to the functionality of the system but is substantive rather than inconsequential or perfunctory, a portion of the sales price is deferred. Each system's performance is re-tested upon installation at the customer's site, the Company has never failed to successfully complete installation of a system at a customer’s premises.

The main portion of ASML’s revenue is derived from contractual arrangements with the Company’s customers that have multiple deliverables, such as installation and training services and prepaid extended and enhanced (optic) warranty contracts. For each of the specified deliverables ASML determines the selling price by using either vendor specific objective evidence (‘VSOE’), third party evidence (‘TPE’) or by best estimate of the selling price (‘BESP’). For transactions entered into, or materially modified, as of January 1, 2011, when the Company is unable to establish relative selling price using VSOE or TPE, the Company uses BESP in its allocation of arrangement consideration. The total arrangement consideration is allocated at inception of the arrangement to all deliverables on the basis of their relative selling price. The revenue relating to the undelivered elements of the arrangements is deferred at their relative selling prices until delivery of these elements. Revenue from installation and training services is recognized when the services are completed. Revenue from prepaid extended and enhanced (optic) warranty contracts is recognized over the term of the contract.

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 Company’s policy to hedge material transaction exposures, such as forecasted sales and purchase transactions and accounts receivable and payable. The Company hedges these exposures through the use of currency contracts (foreign exchange options and forward contracts).

As of September 25, 2011, equity includes EUR 11.6 million loss (net of taxes: EUR 10.3 million loss; December 31, 2010: EUR 35.9 million loss) representing the total anticipated loss to be charged to sales, and EUR 7.1 million gain (net of taxes: EUR 6.3 million gain; December 31, 2010: EUR 6.1 million loss) to be released to cost of sales, which will offset the EUR equivalent of foreign currency denominated forecasted sales and purchase transactions.

ASML – Reconciliation U.S. GAAP – IFRS ^1,2

Net income		Three months ended,						Nine months ended,
		Sep 25, 2011			Sep 26, 2010			Sep 25, 2011			Sep 26, 2010
(in millions EUR)
Net income under U.S. GAAP		355.2			268.5			1,182.3			615.0
Development costs (see Note 1)		(8.6	)		1.6			(28.0	)		13.7
Share-based payments (see Note 2)		(0.4	)		(0.4	)		(0.6	)		(0.2	)
Reversal of write-downs (see Note 3)		(1.8	)		(9.7	)		1.2			(9.5	)
Income taxes (see Note 4)		5.7			9.4			22.1			4.3
Net income under IFRS		350.1			269.4			1,177.0			623.3
Shareholders’ equity		Sep 25,			Jun 26,			Mar 27,			Dec 31,			Sep 26,
		2011			2011			2011			2010			2010
(in millions EUR)
Shareholders’ equity under U.S. GAAP		3,284.2			3,109.4			3,051.9			2,773.9			2,319.3
Development costs (see Note 1)		205.8			213.5			226.1			234.3			268.0
Share-based payments (see Note 2)		1.1			4.2			9.8			6.6			(0.2	)
Reversal of write-downs (see Note 3)		3.8			5.6			5.8			2.6			7.6
Income taxes (see Note 4)		28.5			20.6			18.4			5.1			11.5
Shareholders’ equity under IFRS		3,523.4			3,353.3			3,312.0			3,022.5			2,606.2

Notes to the reconciliation from U.S. GAAP to IFRS

Note 1 Development costs

Under IFRS, ASML applies IAS 38, "Intangible Assets”. In accordance with IAS 38, ASML capitalizes certain development expenditures that are amortized over the expected useful life of the related product generally ranging between one and three years. Amortization starts when the developed product is ready for volume production.

Under U.S. GAAP, ASML applies ASC 730, "Research and Development”. In accordance with ASC 730, ASML charges costs relating to research and development to operating expense as incurred.

Note 2 Share-based Payments

Under IFRS, ASML applies IFRS 2, "Share-based Payments” beginning from January 1, 2004. In accordance with IFRS 2, ASML records as an expense the fair value of its share-based payments with respect to stock options and stock granted to its employees after November 7, 2002. Under IFRS, at period end a deferred tax asset is computed on the basis of the tax deduction for the share-based payments under the applicable tax law and is recognized to the extent it is probable that future taxable profit will be available against which these deductible temporary differences will be utilized. Therefore, changes in the Company’s share price do affect the deferred tax asset at period-end and result in adjustments to the deferred tax asset.

As of January 1, 2006, ASML applies ASC 718 "Compensation- Stock Compensation” which requires companies to recognize the cost of employee services received in exchange for awards of equity instruments based upon the grant-date fair value of those instruments. ASC 718’s general principle is that a deferred tax asset is established as the Company recognizes compensation costs for commercial purposes for awards that are expected to result in a tax deduction under existing tax law. Under U.S. GAAP, the deferred tax recorded on share-based compensation is computed on the basis of the expense recognized in the financial statements. Therefore, changes in the Company’s share price do not affect the deferred tax asset recorded in the Company’s financial statements.

Note 3 Reversal of write-downs

Under IFRS, ASML applies IAS 2 (revised), "Inventories”. In accordance with IAS 2, reversal of a prior period write-down as a result of a subsequent increase in value of inventory should be recognized in the period in which the value increase occurs.

Under U.S. GAAP, ASML applies ASC 330 "Inventory”. In accordance with ASC 330 reversal of a write-down is prohibited as a write-down creates a new cost basis.

Note 4 Income taxes

Under IFRS, ASML applies IAS 12, "Income Taxes” beginning from January 1, 2005. In accordance with IAS 12 unrealized net income resulting from intercompany transactions that are eliminated from the carrying amount of assets in consolidation give rise to a temporary difference for which deferred taxes must be recognized in consolidation. The deferred taxes are calculated based on the tax rate applicable in the purchaser’s tax jurisdiction.

Under U.S. GAAP, the elimination of unrealized net income from intercompany transactions that are eliminated from the carrying amount of assets in consolidation give rise to a temporary difference for which prepaid taxes must be recognized in consolidation. Contrary to IFRS, the prepaid taxes under U.S. GAAP are calculated based on the tax rate applicable in the seller’s rather than the purchaser’s tax jurisdiction.

"Safe Harbor" Statement under the US Private Securities Litigation Reform Act of 1995: the matters discussed in this document may include forward-looking statements, including statements made about our outlook, realization of systems backlog, IC unit demand, financial results, average selling price, gross margin and expenses, dividend policy and intention to repurchase shares. These forward looking statements are subject to risks and uncertainties including, but not limited to: economic conditions, product demand and semiconductor equipment industry capacity, worldwide demand and manufacturing capacity utilization for semiconductors (the principal product of our customer base), including the impact of general economic conditions on consumer confidence and demand for our customers’ products, competitive products and pricing, the impact of manufacturing efficiencies and capacity constraints, the pace of new product development and customer acceptance of new products, our ability to enforce patents and protect intellectual property rights, the risk of intellectual property litigation, availability of raw materials and critical manufacturing equipment, trade environment, changes in exchange rates, available cash, distributable reserves for dividend payments and share repurchases, and other risks indicated in the risk factors included in ASML’s Annual Report on Form 20-F and other filings with the US Securities and Exchange Commission.

¹ These financial statements are unaudited.

² Numbers have been rounded.

³ The calculation of diluted net income (loss) per ordinary share assumes the exercise of options issued under ASML stock option plans and the issue of shares under ASML share plans for periods in which exercises or issues would have a dilutive effect. The calculation of diluted net income (loss) per ordinary share does not assume exercise of such options or issue of shares when such exercises or issue would be anti-dilutive.

⁴ During the third quarter of 2011, ASML repurchased shares for an amount of EUR 185.3 million. As of September 25, 2011, EUR 19.7 million of the total cost of repurchased shares remained unpaid and is recorded in current liabilities. This is offset by a payment of EUR 8.1 million, which was the unpaid balance in the second quarter of 2011.