The annual remuneration for the members of the BoM and SB members during 2018 amounts to EUR 15.8 million (2017: EUR 14.5 million).
34. Research and development costs
R&D costs (net of credits and excluding contributions under the NRE Funding Agreements from Participating Customers in the CCIP) increased by EUR 448.1 million, or 49.8 percent, to EUR 1,347.0 million in 2018 from EUR 898.9 million in 2017. R&D costs for both 2018 and 2017 were primarily focused on programs supporting our Holistic Lithography solutions in EUV, DUV immersion, and Applications. In 2018, R&D activities mainly related to:
• EUV - Further improving availability and productivity focused on the final stages of industrialization related to our NXE:3400B system, as well as introduction of the NXE:3400C. In addition, we are extending our roadmap by including High NA to support our customers with 3 nm logic and beyond.
• DUV immersion - Mainly dedicated to the development of our next generation Immersion system NXT:2000i, of which we shipped our first systems in 2018. In addition we are completing industrialization of new modules and further improving our roadmaps on alignment/overlay and productivity
• Applications - HMI expansion, including multi-beam innovation, and further development of YieldStar and process window control solutions.
R&D costs (net of credits and excluding contributions under the NRE Funding Agreements from Participating Customers in the CCIP) increased by EUR 180.1 million, or 25.1 percent, to EUR 898.9 million in 2017 from EUR 718.8 million in 2016. R&D costs for both 2017 and 2016 were primarily focused on programs supporting our Holistic Lithography in EUV, DUV immersion, and
Applications. In 2017, R&D activities mainly related to:
• EUV - Further improving availability and productivity focused on the final stages of development related to our NXE:3400B system, of which we shipped our first systems in 2017. In addition, we are extending our roadmap by including High NA to support our customers with 3 nm logic.
• DUV immersion - Mainly dedicated to the development of our next generation immersion system NXT:2000i.
• Applications - HMI expansion and further development of YieldStar and process window control solutions.
ASML INTEGRATED REPORT 2018 169
35. Finance income and costs
Finance income of EUR 13.5 million (2017: EUR 7.2 million and 2016: EUR 71.7 million) relates to interest income on deposits, short-term investments, money market, other investment funds, bank accounts and on finance receivables. In addition, in 2018 we recognized EUR 55.2 million on foreign currency revaluations of transactions and balances relating to the HMI acquisition in finance income.
Finance costs of EUR 41.8 million (2017: EUR 53.2 million and 2016: EUR 25.0 million) mainly consist of net interest costs on our Eurobonds and related interest rate swaps, hedges, interest on finance lease obligations and amortized financing costs. This decrease is mainly due to lower hedging costs resulting from the change in functional currency of the US business.
36. Vulnerability due to certain concentrations
We rely on outside vendors for components and subassemblies used in our systems including the design thereof, each of which is obtained from a single supplier or a limited number of suppliers. Our reliance on a limited group of suppliers involves several risks, including a potential inability to obtain an adequate supply of required components, reduced control over pricing and the risk of untimely delivery of these components and subassemblies.
Carl Zeiss SMT GmbH, in which ASML owns an indirect interest of 24.9 percent, is our single supplier, and we are their single customer, of Optical Columns for lithography systems. Carl Zeiss SMT GmbH is capable of developing and producing these items only in limited numbers and only through the use of manufacturing and testing facilities in Oberkochen and Wetzlar, Germany.
In 2018, 28.3 percent of our aggregate cost of system sales was purchased from Carl Zeiss SMT GmbH (2017: 26.6 percent; 2016:
27.6 percent).
Our relationship with Carl Zeiss AG is structured as a strategic alliance pursuant to several agreements executed in 1997 and subsequent years. These agreements define a framework in all areas of our business relationship. The partnership between ASML and Carl Zeiss AG is run under the principle of ‘two companies, one business’ and is focused on continuous improvement of operational excellence. Pursuant to these agreements, ASML and Carl Zeiss AG have agreed to continue their strategic alliance until either party provides at least three years notice of its intent to terminate.
A constraint in the production could result in limited availability of Optical Columns. During 2018, our production was not limited by the deliveries from Carl Zeiss SMT GmbH.
For further information on the relationship between ASML and Carl Zeiss SMT GmbH reference is made to Note 13 Investments in associates and Note 39 Related party transactions.
37. Principal accountant fees and services
KPMG has served as our independent auditor for the years ending December 31, 2018 and 2017. The following table sets out the aggregate fees for professional audit services and other services rendered by KPMG and their member firms and / or affiliates in 2018 and 2017:
Audit fees 1,517 491 2,008 1,480 640 2,120
Audit-related fees 70 — 70 70 — 70
Tax fees — — — — — —
All other fees 48 — 48 24 — 24
Principal accountant fees 1,635 491 2,126 1,574 640 2,214
Audit fees and audit-related fees
Audit fees relate to the audit of the Financial Statements as set out in this Integrated Report, certain procedures on our quarterly results, procedures performed on a Form S-8 filing and services related to our statutory and regulatory filings of our subsidiaries.
Other audit-related fees are related to assurance services on non-financial information.
Other (non-audit) services relate to certain agreed-upon procedures on the targets achieved in order for the Remuneration Committee to assess compliance with the Remuneration Policy and agreed-upon procedures related to XBRL.
The Audit Committee pre-approved the external audit plan and audit fees for the years 2018 and 2017.
The Audit Committee monitors compliance with the Dutch, EU regulation and SEC rules on non-audit services provided by an independent auditor, which outlines strict separation of audit and advisory services for Dutch public interest entities.
38. Customer Co-Investment Program
On July 9, 2012, we announced our CCIP to accelerate our development of EUV technology beyond the current generation and our development of future 450mm silicon wafer technology. The Participating Customers collectively agreed to fund EUR 1.38 billion of our R&D projects from 2013 through 2017. This program created risk sharing with some of our largest customers while the results of our development programs will be available to every semiconductor manufacturer with no restrictions. The funding under this program is now complete, with the total amount funded by the end of 2017. In addition to the funding commitments, Participating Customers invested an aggregated EUR 3.85 billion for 96,566,077 of our ordinary shares, the proceeds of which were returned to our shareholders (other than Participating Customers).
39. Related party transactions
On June 29, 2017, we completed the acquisition of a 24.9 percent interest in Carl Zeiss SMT Holding GmbH & Co. KG, which owns 100 percent of the shares in Carl Zeiss SMT GmbH, to strengthen the long-standing and successful partnership and to facilitate the development of the future generation of EUV lithography systems. Based on the 24.9 percent investment and our relationship with Carl Zeiss SMT GmbH being our single supplier of optical columns essential to our chip-making systems, Carl Zeiss SMT Holding GmbH & Co. KG and its subsidiaries are considered related parties of ASML as of June 29, 2017.
On November 3, 2016 we agreed with Carl Zeiss SMT GmbH to support their R&D costs, capital expenditures and other supply chain investments, in respect of High NA, for an amount of EUR 760.0 million over 6 years, beginning in 2016. During 2018, we agreed to fund an additional EUR 144.9 million, which when combined with the agreed additional funding in 2017 of EUR 325.0 million, brings the current estimate to EUR 1,229.9 million. In 2018 we paid an amount of EUR 275.1 million, of which EUR 74.8 million related to R&D costs and EUR 8.5 million related to supply chain support costs (2017: EUR 147.5 million, of which EUR 55.8 million related to R&D costs and EUR 2.6 million related to supply chain support costs). As of December 31, 2018 our estimated remaining commitment to Carl Zeiss SMT GmbH amounts to EUR 795.3 million (2017: EUR 925.5 million).
From time to time, ASML makes non-interest bearing advance payments to Carl Zeiss SMT GmbH supporting their work-in-process, thereby securing lens and optical column deliveries to us. Amounts included in these advance payments are settled through future lens or optical column deliveries.
In 2018, ASML and Carl Zeiss SMT GmbH entered into an agreement for ASML to support the development and integration of certain tooling to be used in future production of High-NA optical columns, for which Carl Zeiss SMT GmbH will reimburse all costs to ASML. Receivable amounts from Carl Zeiss SMT GmbH are presented within Other Assets.
The total purchases and outstanding balances to and from Carl Zeiss SMT Holding GmbH & Co. KG and its subsidiaries were as follows:
Year ended December 31 2016 2017 2018
(in millions) EUR EUR EUR
Total purchases from Carl Zeiss SMT Holding GmbH & Co. KG 967.7 1,141.6 1,401.0
As of December 31 2017 2018
(in millions) EUR EUR
Advance payments and CAPEX funding to Carl Zeiss SMT Holding
GmbH & Co. KG 497.5 768.1
Net trade payables to Carl Zeiss SMT Holding GmbH & Co. KG 143.2 58.1
For more details in relation to our 24.9 percent interest in Carl Zeiss SMT Holding GmbH & Co. KG see Note 13 Investments in associates.
On January 23, 2019, ASML entered into a binding MOU with Nikon and Carl Zeiss SMT relating to a comprehensive settlement of all pending disputes between Nikon, ASML and Zeiss. See Note 27 Legal contingencies.
There have been no transactions during our most recent fiscal year, and there are currently no transactions, between ASML or any of its subsidiaries, and any other significant shareholder, and any director or officer or any relative or spouse thereof other than ordinary course (compensation) arrangements. During our most recent fiscal year, there has been no, and at present there is no, outstanding indebtedness to ASML owed by or owing to any director or officer of ASML or any associate thereof, other than the virtual financing arrangement with respect to shares described under Note 25 Employee benefits. Furthermore, ASML has not granted any personal loans, guarantees, or the like to members of the BoM or SB.
For further information in relation to key management personnel, comprising of our BoM members, see Note 33 Board of Management and Supervisory Board Remuneration.
ASML INTEGRATED REPORT 2018 171
40. Appropriation and determination of net income
Dividends may be payable out of net income or retained earnings shown in the Company Financial Statements as adopted by our General Meeting of Shareholders, after payment first of (accumulated) dividends on any outstanding cumulative preference shares.
At its discretion, however, subject to statutory provisions, the BoM may, with the prior approval of the SB, distribute one or more interim dividends on the ordinary shares before the Financial Statements for any financial year have been adopted by the General Meeting of Shareholders. The BoM, with the approval of the SB, may decide that all or part of our net income should be retained and not be made available for distribution to shareholders, except for dividends on the cumulative preference shares. Those net incomes that are not retained may be distributed to shareholders pursuant to a shareholders’ resolution, provided that the distribution does not reduce equity below the amount of reserves required by Dutch law. Existing reserves that are distributable in accordance with Dutch law may be made available to the General Meeting of Shareholders for distribution upon a proposal by the BoM, subject to prior approval of the SB. As regards cash payments, the rights to dividends and distributions shall lapse if such dividends or distributions are not claimed within five years following the day after the date on which they were made available.
Annually, the BoM will assess the amount of dividend that will be proposed to the AGM. For 2017, a dividend was declared of EUR 1.40 per ordinary share of EUR 0.09 nominal value which was paid in 2018.
A proposal will be submitted to the AGM on April 24, 2019 to declare a dividend for 2018 of EUR 2.10 per ordinary share of EUR 0.09 nominal value.
The amount of net income that is not distributed as dividend will be appropriated to our retained earnings.
41. Subsequent events
Subsequent events were evaluated up to February 5, 2019, which is the date the Financial Statements included in this Integrated Report were approved. On January 23, 2019 we signed a Memorandum of Understanding with Nikon to settle our legal dispute over alleged patent infringements that were initiated by Nikon, see Note 27 Legal contingencies. There are no other events to report.
Veldhoven, the Netherlands February 5, 2019
Prepared by
The Board of Management:
Peter T.F.M. Wennink Martin A. van den Brink Roger J.M. Dassen Frits J. van Hout
Frédéric J.M. Schneider-Maunoury Christophe Fouquet