ASML Announces 2011 Second Quarter Results

On track for a record year 2011

VELDHOVEN, Netherlands--(BUSINESS WIRE)--ASML Holding NV (ASML) today announces 2011 second quarter results according to US GAAP as follows:

• Q2 2011 net sales of EUR 1,529 million versus Q1 2011 net sales of EUR 1,452 million (Q2 2010 net sales of EUR 1,069 million).
• Q2 2011 net income of EUR 432 million, or 28.3 percent of net sales, versus a Q1 2011 net income of EUR 395 million or 27.2 percent of net sales (Q2 2010 net income of EUR 239 million or 22.4 percent of net sales).
• Q2 2011 net bookings excluding EUV is valued at EUR 840 million with 34 systems (29 new and 5 used systems), leading to a systems backlog excluding EUV valued at EUR 2,756 million as of June 26, 2011.

“Our second quarter sales came in at record level, keeping us on track for another record year for ASML in 2011,” said Eric Meurice, President and Chief Executive Officer of ASML. “Sales were driven mainly by customer capacity build-ups for new technology nodes, with Logic Processors and Foundry representing 41% of systems sales, Flash memory 36% and DRAM memory 23%. We have now shipped more than 80 of our most advanced TWINSCAN NXT:1950i immersion systems. We are further extending the capability of this machine by introducing an improved imaging, overlay and productivity specification, so that customers will be able to expose up to 230 wafers per hour at the 22-nanometer (nm) node. By mid-July we will have also shipped a total of five NXE:3100 Extreme Ultraviolet (EUV) scanners with several customers having already exposed hundreds of wafers with resolutions as small as 18 nm on this lithography platform for the future,” Meurice added.

Operations Update

	Q2 2011	Q1 2011	Notes
Net sales	1,529	1,452
...of which service and field option sales	196	168
New systems sold (units)	58	56
Used systems sold (units)	5	7
ASP new systems sold	22.7	22.5
ASP all systems sold	21.2	20.4
Net bookings, excluding EUV	840	845
Net bookings, excluding EUV (units)	34	40
ASP of booked systems, excluding EUV	24.7	21.1
Systems backlog, excluding EUV	2,756	3,330
Systems backlog, excluding EUV (units)	105	134
Orders for NXE:3100 (EUV) (units)	6	6	(1)
Orders for NXE:3300 (EUV) (units)	10	9
Gross margin (percent)	45.1	44.7
R&D costs	145	145
SG&A costs	51	54	(2)
Net cash flow from operations	499	1,101
End-quarter cash and cash equivalents	2,742	2,699	(3)
Net income	432	395
EPS (in euro)	1.01	0.90
(Figures in millions of euros unless otherwise indicated)

Notes:

(1) The orders for NXE:3100 (EUV) with an average selling price of EUR 42 million include 4 systems that will be recognized in net system sales over coming quarters, 1 operating lease contract and 1 R&D system to be recognized in the R&D line in the coming quarters.

(2) In Q2 2011 SG&A costs include EUR 4 million of incidental favorable items (office transfer in South Korea and smaller items).

(3) During the second quarter, ASML spent a total of EUR 396 million cash on dividend and the currently running share buy back program. Total cash includes pre-payments from customers, mainly relating to EUV, which will be invested in coming quarters.

EUV Update

We highlight that our EUV technology has progressed to the point that we will recognize the first two NXE:3100 systems in third quarter sales, as the platform is being used by our customers to develop process recipes. The NXE:3100 is our second-generation EUV system; ASML plans to introduce its volume production system NXE:3300 by the summer of next year.

Outlook

“Q2 2011 orders came in a couple of systems lower than expected at EUR 840 million for standard systems excluding EUV,” Eric Meurice said. “Our customers are currently taking some time to assess the semiconductor end-demand trends for 2012 before determining their overall capacity plans levels and timings. We therefore anticipate third quarter orders likely not to exceed EUR 500 million. Our 2012 business will in any event be supported by the continuation of the ramp of 2x nm nodes in Logic, 2x nm nodes in NAND memory and 3x nm in DRAM memory, the aggressive and litho-intensive development efforts of sub-20 nm technologies, as well as the introduction of the first EUV volume production systems NXE:3300,” Meurice said.

For the third quarter 2011, ASML expects net sales of around EUR 1.4 billion, including two second generation EUV systems which represent total sales of around EUR 80 million with zero profit margin. All other sales (excluding EUV) are expected to have a gross margin in Q3 2011 of about 44 percent (about 42 percent for sales including EUV). R&D costs for Q3 are expected at EUR 150 million to support our strategic investments. SG&A costs are expected at EUR 56 million. We reiterate our sales expectation for all of 2011, to hit a record level clearly above EUR 5 billion, not including EUV.

Extension of CEO’s appointment

ASML’s Supervisory Board is pleased to announce that, subject to notification to the 2012 Annual General Meeting of Shareholders, it has decided to extend Eric Meurice’s appointment as President and Chief Executive Officer of the company for a mutually agreed period of two more consecutive years, until March 2014, with the option to further extend the appointment by another two years if both parties so wish.

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 13.2 million shares for a total consideration of EUR 374 million up to June 26, 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 close to 7,700 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 [phone] and the US [phone] (US participants will have to quote the following confirmation code when dialing into the conference: 4978007). 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

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

Today, July 13, 2011, ASML will also publish its Statutory Interim Report for the six months period ended June 26, 2011. This report is in accordance with the requirements of the EU Transparency Directive as implemented in the Netherlands, will include consolidated condensed interim financial statements prepared in accordance with IAS 34, "Interim Financial Reporting", an Interim Management Board Report and a Managing Directors' Statement and will be available on www.asml.com.

The consolidated balance sheets of ASML Holding N.V. as of June 26, 2011, the related consolidated statements of operations and consolidated statements of cash flows for the quarter ended June 26, 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, uncertainty surrounding the impact of the earthquake and tsunami in Japan and its potential effect on our customers and suppliers 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,					Six months ended,
		Jun 26, 2011			Jun 27, 2010		Jun 26, 2011			Jun 27, 2010
(in millions EUR, except per share data)
Net system sales		1,333.6			923.0		2,618.0			1,554.6
Net service and field option sales		195.8			145.7		363.6			255.9
Total net sales		1,529.4			1,068.7		2,981.6			1,810.5
Total cost of sales		839.4			609.3		1,642.0			1,052.5
Gross profit on sales		690.0			459.4		1,339.6			758.0
Research and development costs		144.7			125.3		290.1			245.6
Selling, general and administrative costs		50.9			41.7		105.3			83.1
Income from operations		494.4			292.4		944.2			429.3
Interest income (expense), net		1.8			(2.7	)	3.7			(5.5	)
Income from operations before income taxes		496.2			289.7		947.9			423.8
Provision for income taxes		(64.1	)		(50.5	)	(120.8	)		(77.3	)
Net income		432.1			239.2		827.1			346.5
Basic net income per ordinary share		1.01			0.55		1.91			0.80
Diluted net income per ordinary share	^3	1.00			0.54		1.89			0.79
Number of ordinary shares used in computing per share amounts (in millions):
Basic		429.5			435.1		432.9			434.6
Diluted	^3	432.9			438.9		436.5			438.3
ASML - Ratios and Other Data ^1,2
		Three months ended,					Six months ended,
		Jun 26, 2011			Jun 27, 2010		Jun 26, 2011			Jun 27, 2010
Gross profit on sales as a percentage of net sales		45.1			43.0		44.9			41.9
Income from operations as a percentage of net sales		32.3			27.4		31.7			23.7
Net income as a percentage of net sales		28.3			22.4		27.7			19.1
Income taxes as a percentage of income from operations before income taxes		12.9			17.4		12.8			18.3
Shareholders’ equity as a percentage of total assets		43.9			42.7		43.9			42.7
Sales of systems (in units)		63			43		126			77
Average selling price of systems sales (EUR millions)		21.2			21.5		20.8			20.2
Value of systems backlog excluding EUV (EUR millions)		2,756			2,803		2,756			2,803
Systems backlog excluding EUV (in units)		105			100		105			100
Average selling price of systems backlog excluding EUV (EUR millions)		26.2			28.0		26.2			28.0
Value of booked systems excluding EUV (EUR millions)		840			1,342		1,685			2,507
Net bookings excluding EUV (in units)		34			58		74			108
Average selling price of booked systems excluding EUV (EUR millions)		24.7			23.1		22.8			23.2
Number of payroll employees in FTEs		7,697			6,691		7,697			6,691
Number of temporary employees in FTEs		2,159			1,500		2,159			1,500
ASML - Summary U.S. GAAP Consolidated Balance Sheets ^1,2
		Jun 26, 2011			Dec 31, 2010
(in millions EUR)
ASSETS
Cash and cash equivalents		2,742.1			1,949.8
Accounts receivable, net		895.1			1,123.5
Finance receivables, net		61.9			12.6
Current tax assets		1.0			12.7
Inventories, net		1,610.4			1,497.2
Deferred tax assets		126.4			134.5
Other assets		253.5			214.2
Total current assets		5,690.4			4,944.5
Finance receivables, net		-			28.9
Deferred tax assets		67.5			71.0
Other assets		214.6			235.7
Goodwill		132.4			141.3
Other intangible assets, net		11.0			13.7
Property, plant and equipment, net		960.2			745.3
Total non-current assets		1,385.7			1,235.9
Total assets		7,076.1			6,180.4
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities		2,229.6			2,157.2
Long-term debt		705.7			708.7
Deferred and other tax liabilities		187.5			155.7
Provisions		10.1			11.8
Accrued and other liabilities		833.8			373.1
Total non-current liabilities		1,737.1			1,249.3
Total liabilities		3,966.7			3,406.5
Shareholders’ equity		3,109.4			2,773.9
Total liabilities and shareholders’ equity		7,076.1			6,180.4
ASML - Summary U.S. GAAP Consolidated Statements of Cash Flows ^1,2
		Three months ended,					Six months ended,
		Jun 26, 2011			Jun 27, 2010		Jun 26, 2011			Jun 27, 2010
(in millions EUR)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income		432.1			239.2		827.1			346.5
Depreciation and amortization		42.9			36.2		82.1			70.9
Impairment		0.3			0.7		0.6			1.5
Loss on disposals of property, plant and equipment		1.5			1.0		1.9			1.6
Share-based payments		1.8			2.4		4.8			5.2
Allowance for doubtful debts		-			-		1.2			0.2
Allowance for obsolete inventory		13.6			21.2		22.9			35.0
Deferred income taxes		(7.5	)		6.1		39.5			29.8
Changes in assets and liabilities		14.6			(113.8	)	619.8			(256.6	)
Net cash provided by operating activities		499.3			193.0		1,599.9			234.1
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant and equipment		(60.7	)		(18.0	)	(127.4	)		(25.2	)
Proceeds from sale of property, plant and equipment		-			-		-			-
Net cash used in investing activities		(60.7	)		(18.0	)	(127.4	)		(25.2	)
CASH FLOWS FROM FINANCING ACTIVITIES
Dividend paid		(172.6	)		(87.0	)	(172.6	)		(87.0	)
Purchase of shares		(223.2	)	^4	-		(365.7	)	^4	-
Net proceeds from issuance of shares and stock options		2.5			7.8		23.6			18.2
Deposits from customers		-			-		(150.0	)		-
Repayment of debt		(0.7	)		(0.3	)	(1.3	)		(0.7	)
Tax benefits from stock options		-			-		-			-
Net cash used in financing activities		(394.0	)		(79.5	)	(666.0	)		(69.5	)
Net cash flows		44.6			95.5		806.5			139.4
Effect of changes in exchange rates on cash		(2.0	)		5.8		(14.2	)		12.1
Net increase in cash and cash equivalents		42.6			101.3		792.3			151.5

ASML - Quarterly Summary U.S. GAAP Consolidated Statements of Operations ^1,2
		Three months ended,
		Jun 26,			Mar 27,		Dec 31,		Sep 26,		Jun 27,
		2011			2011		2010		2010		2010
(in millions EUR, except per share data)
Net system sales		1,333.6			1,284.4		1,313.1		1,027.0		923.0
Net service and field option sales		195.8			167.8		208.3		149.0		145.7
Total net sales		1,529.4			1,452.2		1,521.4		1,176.0		1,068.7
Total cost of sales		839.4			802.6		836.7		663.5		609.3
Gross profit on sales		690.0			649.6		684.7		512.5		459.4
Research and development costs		144.7			145.4		141.0		136.8		125.3
Selling, general and administrative costs		50.9			54.4		50.1		47.9		41.7
Income from operations		494.4			449.8		493.6		327.8		292.4
Interest income (expense), net		1.8			1.9		(1.1	)	(1.6	)	(2.7	)
Income from operations before income taxes		496.2			451.7		492.5		326.2		289.7
Provision for income taxes		(64.1	)		(56.7	)	(85.7	)	(57.7	)	(50.5	)
Net income		432.1			395.0		406.8		268.5		239.2
Basic net income per ordinary share		1.01			0.90		0.94		0.61		0.55
Diluted net income per ordinary share	^3	1.00			0.90		0.93		0.61		0.54
Number of ordinary shares used in computing per share amounts (in millions):
Basic		429.5			436.6		435.9		435.5		435.1
Diluted	^3	432.9			440.6		439.9		439.3		438.9
ASML - Quarterly Summary Ratios and other data ^1,2
		Three months ended,
		Jun 26,			Mar 27,		Dec 31,		Sep 26,		Jun 27,
		2011			2011		2010		2010		2010
Gross profit on sales as a percentage of net sales		45.1			44.7		45.0		43.6		43.0
Income from operations as a percentage of net sales		32.3			31.0		32.4		27.9		27.4
Net income as a percentage of net sales		28.3			27.2		26.7		22.8		22.4
Income taxes as a percentage of income from operations before income taxes		12.9			12.6		17.4		17.7		17.4
Shareholders’ equity as a percentage of total assets		43.9			43.9		44.9		42.5		42.7
Sales of systems (in units)		63			63		69		51		43
Average selling price of systems sales (EUR millions)		21.2			20.4		19.0		20.1		21.5
Value of systems backlog excluding EUV (EUR millions)		2,756			3,330		3,856		2,983		2,803
Systems backlog excluding EUV (in units)		105			134		157		109		100
Average selling price of systems backlog excluding EUV (EUR millions)		26.2			24.9		24.6		27.4		28.0
Value of booked systems excluding EUV (EUR millions)		840			845		2,315		1,391		1,342
Net bookings excluding EUV (in units)		34			40		117		60		58
Average selling price of booked systems excluding EUV (EUR millions)		24.7			21.1		19.8		23.2		23.1
Number of payroll employees in FTEs		7,697			7,402		7,184		6,919		6,691
Number of temporary employees in FTEs		2,159			2,122		2,061		1,803		1,500
ASML - Quarterly Summary U.S. GAAP Consolidated Balance Sheets ^1,2
		Jun 26,			Mar 27,		Dec 31,		Sep 26,		Jun 27,
		2011			2011		2010		2010		2010
(in millions EUR)
ASSETS
Cash and cash equivalents		2,742.1			2,699.5		1,949.8		1,548.0		1,188.6
Accounts receivable, net		895.1			1,018.8		1,123.5		915.0		811.5
Finance receivables, net		61.9			-		12.6		12.3		-
Current tax assets		1.0			1.0		12.7		82.4		74.7
Inventories, net		1,610.4			1,565.6		1,497.2		1,449.8		1,309.3
Deferred tax assets		126.4			125.3		134.5		71.2		100.7
Other assets		253.5			257.5		214.2		269.4		248.7
Total current assets		5,690.4			5,667.7		4,944.5		4,348.1		3,733.5
Finance receivables, net		-			-		28.9		32.2		-
Deferred tax assets		67.5			67.5		71.0		93.7		126.4
Other assets		214.6			227.2		235.7		110.6		94.4
Goodwill		132.4			133.3		141.3		140.9		153.2
Other intangible assets, net		11.0			12.3		13.7		15.0		16.4
Property, plant and equipment, net		960.2			848.7		745.3		720.6		742.8
Total non-current assets		1,385.7			1,289.0		1,235.9		1,113.0		1,133.2
Total assets		7,076.1			6,956.7		6,180.4		5,461.1		4,866.7
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities		2,229.6			2,441.7		2,157.2		2,164.6		1,784.1
Long-term debt		705.7			695.6		708.7		734.0		727.2
Deferred and other tax liabilities		187.5			177.3		155.7		172.7		205.0
Provisions		10.1			10.6		11.8		12.1		13.8
Accrued and other liabilities		833.8			579.6		373.1		58.4		57.3
Total non-current liabilities		1,737.1			1,463.1		1,249.3		977.2		1,003.3
Total liabilities		3,966.7			3,904.8		3,406.5		3,141.8		2,787.4
Shareholders’ equity		3,109.4			3,051.9		2,773.9		2,319.3		2,079.3
Total liabilities and shareholders’ equity		7,076.1			6,956.7		6,180.4		5,461.1		4,866.7
ASML - Quarterly Summary U.S. GAAP Consolidated Statements of Cash Flows ^1,2
		Three months ended,
		Jun 26,			Mar 27,		Dec 31,		Sep 26,		Jun 27,
		2011			2011		2010		2010		2010
(in millions EUR)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income		432.1			395.0		406.8		268.5		239.2
Depreciation and amortization		42.9			39.2		39.5		41.0		36.2
Impairment		0.3			0.3		7.0		0.1		0.7
Loss on disposals of property, plant and equipment		1.5			0.4		0.9		0.4		1.0
Share-based payments		1.8			3.0		2.3		4.6		2.4
Allowance for doubtful debts		-			1.2		(2.1	)	0.6		-
Allowance for obsolete inventory		13.6			9.3		5.2		15.5		21.2
Deferred income taxes		(7.5	)		47.0		(43.1	)	41.4		6.1
Changes in assets and liabilities		14.6			605.2		(114.1	)	31.4		(113.8	)
Net cash provided by operating activities		499.3			1,100.6		302.4		403.5		193.0
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant and equipment		(60.7	)		(66.7	)	(68.9	)	(34.6	)	(18.0	)
Proceeds from sale of property, plant and equipment		-			-		3.8		-		-
Net cash used in investing activities		(60.7	)		(66.7	)	(65.1	)	(34.6	)	(18.0	)
CASH FLOWS FROM FINANCING ACTIVITIES
Dividend paid		(172.6	)		-		-		-		(87.0	)
Purchase of shares		(223.2	)	^4	(142.5	)	-		-		-
Net proceeds from issuance of shares and stock options		2.5			21.1		10.5		2.3		7.8
Deposits from customers		-			(150.0	)	150.0		-		-
Repayment of debt		(0.7	)		(0.6	)	(0.3	)	(0.4	)	(0.3	)
Tax benefits from stock options		-			-		(0.3	)	0.4		-
Net cash provided by (used in) financing activities		(394.0	)		(272.0	)	159.9		2.3		(79.5	)
Net cash flows		44.6			761.9		397.2		371.2		95.5
Effect of changes in exchange rates on cash		(2.0	)		(12.2	)	4.6		(11.8	)	5.8
Net increase in cash and cash equivalents		42.6			749.7		401.8		359.4		101.3

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 June 26, 2011, equity includes EUR 17.8 million loss (net of taxes: EUR 15.9 million loss; December 31, 2010: EUR 35.9 million loss) representing the total anticipated loss to be charged to sales, and EUR 4.7 million loss (net of taxes: EUR 4.2 million loss; December 31, 2010: EUR 6.1 million loss) to be charged to cost of sales, which will offset the higher EUR equivalent of foreign currency denominated forecasted sales and purchase transactions.

ASML – Reconciliation U.S. GAAP – IFRS ^1,2
Net income	Three months ended,				Six months ended,
	Jun 26, 2011		Jun 27, 2010		Jun 26, 2011		Jun 27, 2010
(in millions EUR)
Net income under U.S. GAAP	432.1		239.2		827.1		346.5
Development costs (see Note 1)	(12.2	)	10.1		(19.4	)	12.1
Share-based payments (see Note 2)	0.1		0.1		(0.2	)	0.2
Reversal of write-downs (see Note 3)	(0.2	)	3.5		3.0		0.2
Income taxes (see Note 4)	2.0		(0.3	)	16.4		(5.1	)
Net income under IFRS	421.8		252.6		826.9		353.9
Shareholders’ equity	Jun 26,		Mar 27,		Dec 31,		Sep 26,		Jun 27,
	2011		2011		2010		2010		2010
(in millions EUR)
Shareholders’ equity under U.S. GAAP	3,109.4		3,051.9		2,773.9		2,319.3		2,079.3
Development costs (see Note 1)	213.5		226.1		234.3		268.0		269.1
Share-based payments (see Note 2)	4.2		9.8		6.6		(0.2	)	0.5
Reversal of write-downs (see Note 3)	5.6		5.8		2.6		7.6		17.3
Income taxes (see Note 4)	20.6		18.4		5.1		11.5		1.2
Shareholders’ equity under IFRS	3,353.3		3,312.0		3,022.5		2,606.2		2,367.4

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, uncertainty surrounding the impact of the earthquake and tsunami in Japan and its potential effect on our customers and suppliers 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 This press release is 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 second quarter of 2011, ASML repurchased shares for an amount of EUR 231.3 million. As of 26 June 2011, EUR 8.1 million of the total cost of repurchase amount remained unpaid and is recorded in current liabilities.