ASML Announces 2008 Second Quarter Results

-- Q2 2008 net sales of EUR 844 million versus Q1 2008 net sales of EUR 919 million (Q2 2007 net sales of EUR 930 million)

-- Q2 2008 net income of EUR 192 million or 22.7 percent of net sales - including a non-recurring tax benefit of approximately EUR 70 million -- versus Q1 2008 net income of EUR 145 million or 15.8 percent of net sales (Q2 2007 net income of EUR 160 million or 17.1 percent of net sales).

-- Q2 2008 net bookings valued at EUR 632 million with 33 systems including 29 new and 4 used systems, leading to an order backlog valued at EUR 1,106 million as of June 29, 2008.

"Sales in the second quarter were solid thanks to the strength of our immersion portfolio, as we shipped 16 immersion systems, representing more than 60 percent of our system revenues," said Eric Meurice, president and CEO of ASML. "Earlier this week we unveiled our new TWINSCAN(TM) XT:1950i immersion lithography system - the latest addition to our proven XT:1900i and XT:1700i systems which have taken immersion lithography into the mainstream. With the XT:1950i we are increasing the performance of our current world leading system by 25 percent, thereby making immersion lithography increasingly affordable for 55 nanometer (nm) and 45 nm processes. Beyond immersion, we achieved breakthroughs in our extreme ultraviolet (EUV) program as the productivity of our EUV Alpha Demo Tool is reaching target and light source suppliers are confirming roadmaps enabling system performance well beyond 100 wafers per hour," Meurice said.

Operations Update

In Q2 2008, ASML's net sales of EUR 844 million included 31 new and 8 used systems, totaling net system sales of EUR 726 million, and net service and field options sales of EUR 118 million. Net system sales for Q1 2008 included the shipment of 43 new and 7 used machines, totaling EUR 820 million, and net service and field options sales of EUR 99 million.

The Q2 2008 average selling price (ASP) for a new system increased to EUR 21.7 million, compared with the Q1 2008 ASP for a new system of EUR 18.7 million, reflecting a continuing rise in ASP as a result of a richer product mix. The Q2 2008 ASP for all ASML systems sold was EUR 18.6 million, compared with the Q1 2008 ASP of EUR 16.4 million.

The second quarter marked another record average selling price due to the success of ASML's immersion systems. By mid-2008, more than 100 ASML immersion systems are being used by 20 different customers. ASML immersion systems have imaged nearly 20 million wafers to date, resulting in hundreds of millions electronic devices powered by immersion-manufactured chips.

Q2 2008 net bookings totaled 33 systems valued at EUR 632 million, including a significant proportion of immersion systems in a total of 29 new systems with an average selling price for new systems of EUR 21.3 million.

ASML's order backlog as of June 29, 2008 decreased slightly to EUR 1,106 million, totaling 59 systems with an average selling price of EUR 18.8 million. For comparison, ASML's backlog as of March 30, 2008 was valued at EUR 1,167 million, totaling 65 systems with an average selling price of EUR 18.0 million.

In Q2 2008, ASML generated a net income of EUR 192 million or EUR 0.45 per ordinary share as compared with a net income of EUR 145 million in Q1 2008 or EUR 0.34 per ordinary share.

ASML posted non-recurring tax income of approximately EUR 70 million, leading to a net tax benefit of EUR 34.7 million in the second quarter. This partly reflects concluding discussions with Dutch tax authorities regarding treatment of taxable income related to ASML's patents. These concluded discussions will also result in a structurally lower effective corporate tax rate in coming years, decreasing to an estimated 20 percent on a normalized basis.

The company's Q2 2008 gross margin was 40.0 percent, compared with the Q1 2008 gross margin of 40.6 percent.

Q2 2008 research and development (R&D) costs were EUR 130 million net of credits, compared with Q1 2008 R&D costs of EUR 128 million net of credits.

Selling, general and administrative (SG&A) costs were EUR 56 million in Q2 2008, compared with SG&A costs of EUR 57 million in Q1 2008.

Net cash from operations was EUR 130 million in Q2 2008. ASML ended Q2 2008 with EUR 1,361 million in cash and cash equivalents. ASML reiterates that it is committed to continue returning cash in excess of our strategic target level of cash and cash equivalents of between EUR 1.0 billion and EUR 1.5 billion.

Outlook

"As anticipated, our second quarter bookings increased to 33 systems, versus 26 in the first quarter, with a high average selling price of EUR 19.2 million. Although this level of orders is in line with our earlier expectation of a full year 2008 net sales decrease of about 10 percent versus 2007, the current macro-economic weakness may force our customers to focus only on technology transfers to immersion and delay capacity additions for non-leading edge processes. In that case, our 2008 net sales may potentially drop by as much as 20 percent versus 2007. Still, demand for our latest immersion technology remains robust, with 80 percent of third quarter system revenues expected to come from the XT:1900i. Following this trend, we expect immersion bookings in the third quarter to be similar to that of the second quarter, but cannot easily guide on the number of orders for non-leading edge systems.

"We expect the 2009 lithography business to be supported by several positive trends. The DRAM ramp-up of 55 nanometer, the healthy revenue growth at our foundry customers - in particular on leading edge processes - and the transition to double patterning lithography by flash memory leaders, will contribute to a positive development mid-term, although it is too early to forecast our 2009 business. Therefore, in order to adapt to the uncertain overall economy and to the strong euro impact, we have reduced SG&A costs versus Q1 2008 by around 10 percent and are controlling manufacturing costs by utilizing our system of flexible working hours. Furthermore, while maintaining our R&D investment level and our ability to meet short term demand pickup, we are executing a comprehensive efficiency program together with our supply base to provide the market with even more cost-effective solutions," Meurice said.

The company expects to ship 37 systems in Q3 2008 with an average selling price of EUR 22.7 million for new systems and an average selling price for all systems of EUR 15.6 million. The company expects a gross margin in Q3 2008 of approximately 38 percent, R&D expenditures to be at EUR 130 million net of credits and SG&A costs to decrease to EUR 52 million.

About ASML

ASML is the world's leading provider 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 6,800 employees, serving chip manufacturers in more than 60 locations in 16 countries. For more information, visit our website: www.asml.com

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 statements of operations, statements of cash flows and 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 stock option plans and the accounting of income taxes. Quarterly IFRS statements of operations, statements of cash flows, balance sheets 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 June 29, 2008, the related consolidated statements of operations and consolidated statements of cash flows for the quarter ended June 29, 2008 as presented in this press release are unaudited.

Investor and Media 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 20 531 5856 and the US +1 706 679 0473. To listen to the conference call, access is also available via www.asml.com

A presentation about 2008 second quarter results is available on www.asml.com

A video statement of CFO Peter Wennink is available on www.asml.com

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

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 backlog, IC unit demand, financial results, average sales price, gross margin and expenses. 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), competitive products and pricing, manufacturing efficiencies, new product development and customer acceptance of new products, ability to enforce patents and protect intellectual property rights, the outcome of intellectual property litigation, availability of raw materials and critical manufacturing equipment, trade environment, changes in exchange rates 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(1,4)

Three months ended, Six months ended,
(in thousands Jul 1, Jun 29, Jul 1, Jun 29,
EUR, except per 2007 2008 2007 2008
share data)

Net system sales 825,817 725,586 1,673,192 1,545,572
Net service and
field option
sales 104,405 118,571 205,700 217,793
----------------------------------------------------------------------
Total net sales 930,222 844,157 1,878,892 1,763,365
Cost of sales 546,956 506,689 1,103,808 1,052,271
----------------------------------------------------------------------
Gross profit on
sales 383,266 337,468 775,084 711,094

Research and
development
costs, net of
credits 120,310 130,241 236,752 258,500
Amortization of
in process R&D - - 23,148 -
Selling, general
and
administrative
costs 56,396 56,368 112,726 113,695
----------------------------------------------------------------------
Income from
operations 206,560 150,859 402,458 338,899

Interest income 8,170 6,372 18,430 10,573
----------------------------------------------------------------------
Income from
operations
before income
taxes 214,730 157,231 420,888 349,472

Benefit from
(provision for)
income taxes (55,225) 34,746 (108,708) (12,372)
----------------------------------------------------------------------
Net income 159,505 191,977 312,180 337,100

Basic net income
per ordinary
share 0.34 0.45 0.66 0.78
Diluted net
income per
ordinary share 0.33(2,3) 0.44(3) 0.64(2,3) 0.78(3)

Number of ordinary shares used in computing per share amounts (in
thousands):
Basic 470,395 431,221 471,984 431,412
Diluted 499,436(2,3) 434,585(3) 501,063(2,3) 434,819(3)
ASML - Ratios and Other Data(1,4)

Three months ended, Six months ended,
Jul 1, 2007 Jun 29, 2008 Jul 1, 2007 Jun 29, 2008
----------------------------------------------------------------------

Gross profit as a
% of net sales 41.2 40 41.3 40.3
Income from
operations as a %
of net sales 22.2 17.9 21.4 19.2
Net income as a %
of net sales 17.1 22.7 16.6 19.1
Shareholders'
equity as a % of
total assets 47.3 49.7 47.3 49.7
Income taxes as a
% of income
before income
taxes 25.7 (22.1) 25.8 3.5
Sales of systems
total (in units) 69 39 146 89
ASP of systems
sales (EUR
million) 12 18.6 11.5 17.4
Value of backlog
systems total
(EUR million) 1,745 1,106 1,745 1,106
Backlog systems
total (in units) 109 59 109 59
ASP of backlog
systems (EUR
million) 16 18.8 16 18.8
Value of bookings
systems total
(EUR million) 399 632 1,310 944
Net bookings total
(in units) 30 33 92 59
ASP of bookings
systems (EUR
million) 13.3 19.2 14.2 16
Number of
employees 6,213 6,821 6,213 6,821
ASML - Summary U.S. GAAP Consolidated Balance Sheets(1,4)

Dec 31, 2007 Jun 29, 2008
(in thousands EUR)
----------------------------------------------------------------------
ASSETS
Cash and cash equivalents 1,271,636 1,360,898
Accounts receivable, net 637,975 516,886
Inventories, net 1,102,210 1,130,239
Deferred tax assets short-term 73,019 69,799
Other current assets 234,529 262,207
----------------------------------------------------------------------
Total current assets 3,319,369 3,340,029
Deferred tax assets long-term 141,032 157,647
Other assets 59,991 39,342
Goodwill 128,271 119,823
Other intangible assets, net 38,195 30,062
Property, plant and equipment, net 380,894 458,100
Total assets 4,067,752 4,145,003
----------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities 1,321,437 1,247,315
Deferred tax and other liabilities 245,415 227,005
Other deferred liabilities 7,936 18,529
Other long-term debt 602,016 591,579
----------------------------------------------------------------------
Total liabilities 2,176,804 2,084,428
Shareholders' equity 1,890,948 2,060,575
----------------------------------------------------------------------
Total liabilities and shareholders'
equity 4,067,752 4,145,003
ASML - Summary U.S. GAAP Consolidated Statements of Cash Flows(1,4)

Three months ended, Six months ended,
Jul 1, 2007 Jun 29, 2008 Jul 1, 2007 Jun 29, 2008
----------------------------------------------------------------------
(in thousands
EUR)
CASH FLOWS FROM
OPERATING
ACTIVITIES:
Net income 159,505 191,977 312,180 337,100

Depreciation and
amortization 24,157 26,545 77,519 57,121
Disposal of
property, plant
and equipment 9,923 1,311 10,874 2,414
Share-based
payments 4,362 3,109 6,667 6,675
Change in tax
assets and
liabilities 10,838 (114,110) 29,580 (92,313)
Change in assets
and liabilities 62,953 21,145 9,942 86,331
----------------------------------------------------------------------
Net cash provided
by operating
activities 271,738 129,977 446,762 397,328
CASH FLOWS FROM
INVESTING
ACTIVITIES:
Purchases of
property, plant
and equipment (39,723) (65,441) (75,512) (120,473)
Proceeds from
sale of
property, plant
and equipment - - 3,355 -
Acquisition of
subsidiary (net
of cash
acquired) - - (188,011) -
----------------------------------------------------------------------
Net cash used in
investing
activities (39,723) (65,441) (260,168) (120,473)
CASH FLOWS FROM
FINANCING
ACTIVITIES:
Purchase of shares in
conjunction with conversion
rights
of bond holders
and stock
options - - (156,253) (87,603)
Dividend paid - (107,447) - (107,447)
Net proceeds from
issuance of
shares and stock
options 10,546 552 21,041 3,528
Net proceeds from
issuance of
bonds 593,790 - 593,790 -
Excess tax
benefits from
stock options 194 5,969 836 5,971
Redemption and/or
repayment of
debt (111) - (345) -
----------------------------------------------------------------------
Net cash provided
by (used in)
financing
activities 604,419 (100,926) 459,069 (185,551)
----------------------------------------------------------------------
Net cash flows 836,434 (36,390) 645,663 91,304
Effect of changes
in exchange
rates on cash (387) 144 (2,261) (2,042)
----------------------------------------------------------------------
Net increase
(decrease) in
cash & cash
equivalents 836,047 (36,246) 643,402 89,262
ASML - Quarterly Summary U.S. GAAP Consolidated Statements of
Operations(1,4)
Three months ended,
Jul 1, Sep Dec Mar Jun,
30, 31, 30, 29
2007 2007 2007 2008 2008
(in millions EUR)
----------------------------------------------------------------------

Net system sales 825.8 843.2 834.8 820 725.6
Net service and field option sales 104.4 91.2 120.1 99.2 118.6
----------------------------------------------------------------------
Total net sales 930.2 934.4 954.9 919.2 844.2

Cost of sales 546.9 549.4 565.3 545.6 506.7
----------------------------------------------------------------------
Gross profit on sales 383.3 385 389.6 373.6 337.5
Research and development costs, net
of credits 120.3 120.1 129.3 128.3 130.2
Selling, general and administrative
costs 56.4 56 56.9 57.3 56.4
----------------------------------------------------------------------
Income from operations 206.6 208.9 203.4 188 150.9

Interest income 8.1 9.5 5.5 4.2 6.4
----------------------------------------------------------------------
Income from operations before
income taxes 214.7 218.4 208.9 192.2 157.3

Benefit from (provision for) income
taxes (55.2) (52.1) (8.1) (47.1) 34.7
----------------------------------------------------------------------
Net income 159.5 166.3 200.8 145.1 192
ASML - Quarterly Summary Ratios and other data(1,4)

Three months ended,
Jul Sep Dec Mar Jun
1, 30, 31, 30, 29,
2007 2007 2007 2008 2008

----------------------------------------------------------------------
Gross profit as a % of net sales 41.2 41.2 40.8 40.6 40
Income from operations as a % of net
sales 22.2 22.4 21.3 20.5 17.9
Net income as a % of net sales 17.1 17.8 21 15.8 22.7
Shareholders' equity as a % of total
assets 47.3 35.7 46.5 44.5 49.7
Income taxes as a % of income before
income taxes 25.7 23.9 3.9 24.5 -22.1
Sales of systems total (in units) 69 59 55 50 39
ASP of system sales (EUR million) 12 14.3 15.2 16.4 18.6
Value of backlog systems total (EUR
million) 1,745 1,769 1,697 1,167 1,106
Backlog systems total (in units) 109 90 89 65 59
ASP of backlog systems (EUR million) 16 19.7 19.1 18 18.8
Value of booking systems total (EUR
million) 399 857 803 312 632
Net bookings total (in units) 30 40 54 26 33
ASP of bookings systems (EUR million) 13.3 21.4 14.9 12 19.2
Number of employees 6,213 6,403 6,582 6,765 6,821
ASML - Summary U.S. GAAP Consolidated Balance Sheets(1,4)

Jul 1, Sep 30, Dec 31, Mar 30, Jun 29,
2007 2007 2007 2008 2008
(in millions EUR)
----------------------------------------------------------------------
ASSETS
Cash and cash
equivalents 2,299.2 2,445.2 1,271.6 1,397.1 1,360.9
Accounts receivable, net 567.8 611.7 638 741.5 516.9
Inventories, net 972.9 1,021.20 1,102.20 1,152.00 1,130.20
Deferred tax assets
short-term 131.8 131.3 73 71.1 69.8
Other current assets 183.7 214.2 234.6 267.6 262.2
----------------------------------------------------------------------
Total current assets 4,155.4 4,423.6 3,319.4 3,629.3 3,340.0
Deferred tax assets
long-term 203 143.5 141 135.8 157.7
Other assets 43 39.9 60 85.7 39.3
Goodwill 140.2 133.4 128.3 119.7 119.8
Other intangible assets,
net 49.7 44.2 38.2 32.5 30.1
Property, plant and
equipment, net 313.5 343.3 380.9 401.4 458.1
----------------------------------------------------------------------
Total assets 4,904.8 5,127.9 4,067.8 4,404.4 4,145.0
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities 1,331.2 2,391.5 1,321.4 1,562.3 1,247.3
Deferred tax and other
liabilities 273.6 248.3 245.4 261.5 227
Other deferred
liabilities 8.2 8.2 8 7.1 18.5
Convertible subordinated
debt 380 44.5 - - -
Other long-term debt 593.8 604 602 615.3 591.6
----------------------------------------------------------------------
Total liabilities 2,586.8 3,296.5 2,176.8 2,446.2 2,084.4
Shareholders' equity 2,318.0 1,831.4 1,891.0 1,958.2 2,060.6
----------------------------------------------------------------------
Total liabilities and
shareholders' equity 4,904.8 5,127.9 4,067.8 4,404.4 4,145.0

ASML - Summary U.S. GAAP Consolidated Statements of Cash Flows(1,4)

Three months ended,
Jul 1, Sep Dec 31, Mar Jun 29,
30, 30,
2007 2007 2007 2008 2008
(in millions EUR)
----------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income 159.5 166.3 200.8 145.1 192

Depreciation and amortization 24.1 28 29.8 30.6 26.5
Disposal of property, plant
and equipment 9.9 1.7 1.6 1.1 1.3
Share-based payments 4.4 3.7 6.2 3.5 3.1
Change in tax assets and
liabilities 10.8 (5.3) (0.6) 21.8 (114.1)
Change in assets and
liabilities 63 (20.1) (157.9) 65.2 21.2
---------------------------------------------------------------------
Net cash provided by operating
activities 271.7 174.3 79.9 267.3 130
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant
and equipment (39.7) (49.7) (54) (55) (65.5)
Proceeds from sale of
property, plant and
equipment- - 1.7 - -
Net cash used in investing
activities (39.7) (49.7) (52.3) (55) (65.5)
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital repayment - - (1,011.9) - -
----------------------------------------------------------------------
Purchase of shares in conjunction with conversion rights
of bond holders and stock
options - - (203.6) (87.6) -
Dividend paid - - - - (107.4)
Net proceeds from issuance of
shares and stock options 10.5 19.5 22.8 3 0.5
Net proceeds from issuance of
bonds 593.8 - - - -
Excess tax benefits from stock
options 0.2 6.2 1.9 - 6
Redemption and/or repayment of
debt (0.1) (1.5) (7.8) - -
----------------------------------------------------------------------
Net cash provided by (used in)
financing activities 604.4 24.2 (1,198.6) (84.6) (100.9)
----------------------------------------------------------------------
Net cash flows 836.4 148.8 (1,171.0) 127.7 (36.4)
Effect of changes in exchange
rates on cash (0.4) (2.8) (2.6) (2.2) 0.2
----------------------------------------------------------------------
Net increase (decrease) in
cash & cash equivalents 836 146 (1,173.6) 125.5 (36.2)

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 majority-owned subsidiaries. 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 expense during the reported periods. Actual results could differ from those estimates.

Recognition of revenues

ASML recognizes revenue when all four revenue recognition criteria are met: persuasive evidence of an arrangement exists; delivery has occurred or services have been rendered; seller's price to the buyer is fixed or determinable; and collectibility 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 ASML'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 recognized, only after all specifications are met and customer sign-off is received or waived. Although each system's performance is re-tested upon installation at the customer's site, ASML has never failed to successfully complete installation of a system at a customer's premises.

For arrangements containing multiple elements, the revenue relating to the undelivered elements is deferred at estimated fair value until delivery of these elements. Revenue from installation services and service contracts provided to our customers is initially deferred and is recognized when the installation is completed and, in case of service contracts, over the life of those contracts. Revenue from extended and enhanced warranties is recognized in income on a straight-line basis over the contract period. The costs of providing services under extended and enhanced warranties are recognized when they occur.

ASML - Reconciliation U.S. GAAP - IFRS(1,4)


Net income Three months ended, Six months ended,
Jul 1, Jun 29, Jul 1, Jun 29,
2007 2008 2007 2008
(in thousands
EUR)
----------------------------------------------------------------------
Net income
under U.S.
GAAP 159,505 191,977 312,180 337,100
Share-based
payments (see
Note 1) (108) 245 14 (518)
Capitalization
of
development
costs (see
Note 2) (2,701) 18,649 19,981 40,330
Convertible
subordinated
notes (see
Note 3) (2,220) - (4,396) -
Income taxes
(see Note 4) - (380) (7,648) 39
---------------------------------------------------------------------
Net income under
IFRS 154,476 210,491 320,131 376,951

Shareholders'
equity
Jul 1, Sep 30, Dec 31, Mar 30, Jun 29,
2007 2007 2007 2008 2008
(in thousands
EUR)
----------------------------------------------------------------------
Shareholders'
equity under
U.S. GAAP 2,318,002 1,831,438 1,890,948 1,958,159 2,060,575
Share-based
payments (see
Note 1) 3,924 7,126 787 -3,420 -3,266
Capitalization
of development
costs (see Note
2) 110,749 120,344 138,424 157,900 176,818
Convertible
subordinated
notes (see
Note 3) 27,019 2,894 - - -
Income taxes
(see Note 4) - - 8,852 9,186 8,478
----------------------------------------------------------------------
Shareholders'
equity under
IFRS 2,459,694 1,961,802 2,039,011 2,121,825 2,242,605

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

Note 1 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 granted to its employees after November 7, 2002.

Under U.S. GAAP, until December 31, 2005, ASML accounted for stock option plans using the intrinsic value method in accordance with APB 25 "Accounting for stock issued to employees" and provided pro forma disclosure of the impact of the fair value method on net income and earnings per share in accordance with SFAS No. 123 "Accounting for Stock Based Compensation". As of January 1, 2006, ASML applies SFAS No. 123(R) "Share-Based Payment" which is a revision of SFAS No.123. SFAS 123(R) 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.

Note 2 Capitalization of development costs

Under IFRS, ASML applies IAS 38, "Intangible Assets". During the second half of 2004, ASML made changes to its administrative systems in order to provide sufficient information to comply with IFRS beginning from January 1, 2005. Sufficient reliable information to account for capitalization of development expenditures under IFRS before January 1, 2005 is not available. Under IAS 38, capitalized development expenditures are amortized over the expected useful life of the related product generally ranging between 2 and 3 years. Amortization starts when the developed product is ready for volume production.

Under U.S. GAAP, ASML applies SFAS No. 2, "Accounting for Research and Development Costs". In accordance with SFAS No. 2, ASML charges costs relating to research and development to operating expense as incurred.

Note 3 Convertible Subordinated Notes

Under IFRS, ASML applies IAS 32 "Financial instruments: Disclosure and presentation" and IAS 39 "Financial instruments: Recognition and measurement" beginning from January 1, 2005. In accordance with IAS 32 and IAS 39, ASML accounts separately for the equity and liability component of its convertible notes ("Split accounting"). The equity component relates to the grant of a conversion option to shares to the holder of the bond. Split accounting results in additional interest charges.

Under U.S. GAAP, ASML accounts for its convertible bonds as a liability at the principal amount outstanding. As of December 31, 2007 ASML has no Convertible Subordinated Notes outstanding.

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 is eliminated from the carrying amount of assets on consolidation gives rise to a temporary difference for which deferred taxes must be recognized on 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 on consolidation, give rise to a temporary difference for which prepaid taxes must be recognized on consolidation. Contrary to IFRS, the prepaid taxes under U.S. GAAP are calculated based on the tax rate applicable in the seller'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 backlog, IC unit demand, financial results, average sales price, gross margin and expenses. 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), competitive products and pricing, manufacturing efficiencies, new product development and customer acceptance of new products, ability to enforce patents and protect intellectual property rights, the outcome of intellectual property litigation, availability of raw materials and critical manufacturing equipment, trade environment, changes in exchange rates 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) All quarterly information in this press release is unaudited.

(2) The calculation of diluted net income per ordinary share assumes conversion of our Subordinated Notes as such conversions would have a dilutive effect.

(3) The calculation of diluted net income per ordinary share assumes the exercise of options issued under ASML stock option plans as such exercises would have a dilutive effect.

(4) 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 the cost accrual method was used. This change in accounting policy was made because the deferred revenue model better reflects the business rationale. In addition the International Financial Reporting Interpretation Committee concludes in interpretation 13 (IFRIC 13 "Customer Loyalty Programmes") that the deferred revenue model is the appropriate accounting treatment. Comparative figures for 2007 were adjusted to reflect this change in accounting policy. The impact of this change on equity as per January 1, 2007 amounted to EUR 8.1 million (decrease) and on net income for the year 2007 and the first quarter of 2008 amounted to EUR 8.6 million (decrease) and EUR 0.1 million (increase) respectively.