All information disclosed in this item is provided as a supplement to, and should be read in conjunction with, our Financial Statements and the accompanying Notes to the Consolidated Financial Statements included in Item 18 "Financial Statements". Executive Summary Business Strategy Our Vision and Mission Our vision is to enable affordable microelectronics that improve the quality of life. To achieve this, our mission is to invent, develop, manufacture and service advanced technology for high-tech lithography, metrology and software solutions for the semiconductor industry. ASML's guiding principle is continuing Moore's Law towards ever smaller, cheaper, more powerful and energy-efficient semiconductors. This results in increasingly powerful and capable electronics, with faster processing speeds, that enable the world to progress within a multitude of fields, including healthcare, technology, communications, energy, mobility, and entertainment. ASML creates economic value with strong financial results; social value by enhancing the welfare of our employees, suppliers and the communities we operate in; and environmental value by improving the energy efficiency of chips. Our Strategy We are a focused supplier of patterning products and services to IC manufacturers, providing high-performance hardware and software that allow our customers to increase the value and capability of their microchips, while reducing their cost. We work with a network of long-term partners to share the risk and reward of inventing, designing and manufacturing our high-end and market-leading technology. We set ourselves aggressive targets to get our innovations into the hands of our customers faster, while enhancing the value and reliability of our products with well-integrated software and services. ASML ANNUAL REPORT 2016 24 We have the following strategic objectives that we want to achieve for our stakeholders in the period from 2016 to 2021: • Employees: We want to secure long-term employability for our employees by offering them continuous professional and personal development. We need to equitably balance the company’s need for flexibility with our employees’ desire for long-term employment and security. • Suppliers: We need to create long-term relationships with our suppliers based on technological capability, reliability and transparency. We do this as we share with them both the risks and rewards of our business. • Customers: For our customers, we need to create customer value by enabling the continued shrinkage of integrated circuits. We need to deliver quality and help reduce total cost of ownership of both our systems and services. • Society: We aim to achieve our business objectives in a responsible manner, taking into account the economic, social and environmental impact of our activities. • Shareholders: For our investors, we need to improve our financial results and strive for profitability. We seek to meet targets for total net sales, gross margin, expenditure, cash conversion, and return on investment. These are translated into five corporate priorities and several, more detailed, business priorities that guide our entire company. • Corporate Priority 1 - "Make it work": Execute the product and installed base services roadmap in EUV, DUV and Holistic Lithography. • Corporate Priority 2 - "Make it well": Deliver quality products and services that consistently meet or exceed the expectations as agreed with customers, reinforced by an ASML quality culture. • Corporate Priority 3 - "Make it together": Drive the patterning ecosystem with customers, suppliers and peers in target market segments. • Corporate Priority 4 - "Make it worth it": Improve return on investments for ASML and its stakeholders with a focus on cost of ownership and cost awareness. • Corporate Priority 5 - "Make us grow": Develop our people and processes to support the growth of the organization towards a EUR 11 billion company. In addition to our corporate priorities, other strategic priorities are to proceed with the successful industrialization of EUV, secure DUV competitiveness, build a leadership position in patterning fidelity control and plan for the introduction of High-NA. For more information about our corporate priorities, see our 2016 Integrated Report as published on our Website. See item 4.B. "Business Overview - Our Markets and Products". Profitability Our long-term business and financial model targets an annual revenue opportunity (ASML and HMI combined) of around EUR 11 billion in 2020 and a target EPS of more than EUR 9, thereby creating significant value for all stakeholders. Our roadmap to an annual revenue opportunity of EUR 11 billion is primarily based on organic growth. ASML continuously reviews its product roadmap and has, from time to time, made focused acquisitions to enhance the industrial value of its product offering. Based on such reviews and the assessment of clear potential product and value synergies, ASML may also entertain focused merger and acquisition activities in the future. ASML ANNUAL REPORT 2016 25 ASML Operations Update on Key Performance Indicators The following table presents the key performance indicators used by our BoM and senior management to regularly measure performance. Year ended December 31 2014 2015 2016 (in millions, unless otherwise indicated) EUR %1 EUR %1 EUR %1 Sales Total net sales 5,856.3 6,287.4 6,794.8 Increase in total net sales (%) 11.6 7.4 8.1 Net system sales 4,242.8 4,237.2 4,571.1 Net service and field option sales 1,613.5 2,050.2 2,223.7 Sales of systems (in units) 136 169 157 ASP of total system sales 31.2 25.1 29.1 ASP of new system sales 35.6 28.5 32.4 ASP of used system sales 5.8 5.1 4.0 Value of systems backlog 2 2,772.4 3,184.3 3,961.3 Systems backlog (in units) 2 82 79 83 ASP of systems backlog 2 33.8 40.3 47.7 ASP of systems backlog (New) 2 42.0 46.3 55.8 ASP of systems backlog (Used) 2 4.7 3.2 4.1 Immersion systems recognized (in units) 3 76 67 70 EUV systems recognized (in units) 5 1 4 Profitability Gross profit 2,596.4 44.3 2,895.7 46.1 3,044.5 44.8 Income from operations 1,282.2 21.9 1,565.1 24.9 1,657.7 24.4 Net income 1,196.6 20.4 1,387.2 22.1 1,471.9 21.7 Liquidity Cash and cash equivalents 2,419.5 2,458.7 2,906.9 Short-term investments 334.9 950.0 1,150.0 Net cash provided by operating activities 1,025.2 2,025.5 1,665.9 Free cash flow 4 664.0 1,652.6 1,341.2 1. As a percentage of total net sales. 2. Our systems backlog and net bookings include all system sales orders for which written authorizations have been accepted (for EUV starting with the NXE:3350B). 3. Included in the total number of immersion systems recognized in 2016 are 46 units of our most advanced immersion technology NXT:1980 systems (2015: 7 and 2014: 0). 4. Free cash flow is defined as net cash provided by operating activities minus purchase of property, plant and equipment (2016: EUR 316.3 million; 2015: EUR 371.8 million and 2014: EUR 358.3 million) and purchase of intangible assets (2016: EUR 8.4 million; 2015: EUR 1.1 million and 2014: EUR 3.0 million). We believe that free cash flow is an important liquidity metric, reflecting cash that is available for acquisitions, to repay debt and to return money to our shareholders by means of dividends and share buybacks. Property, plant and equipment and purchase of intangible assets are deducted from net cash provided by operating activities because these payments are necessary to support the maintenance and investments in our assets to maintain the current asset base. Free cash flow therefore provides an alternative measure (in addition to net cash provided by operating activities) for investors to assess our ability to generate cash from our business. For further details about purchase of property, plant and equipment and purchase of intangible assets see the Consolidated Statements of Cash Flows. Backlog We started 2016 with a systems backlog of 79 systems. In 2016, we booked orders for 160 systems, and recognized sales for 157 systems (including 1 NXE:3300B system, which was not included in backlog). This resulted in a systems backlog of 83 as of December 31, 2016. As of December 31, 2016, our systems backlog was valued at EUR 3,961.3 million and includes 83 systems with an ASP of EUR 47.7 million. As of December 31, 2015, the systems backlog was valued at EUR 3,184.3 million and included 79 systems with an ASP of EUR 40.3 million. The ASP of our systems backlog increased as of December 31, 2016 compared to 2015 mainly as a result of the inclusion of 13 additional EUV systems. For discussion on the main key performance indicators indicated above, see Item 5.A. "Operating Results" and Item 5.B. "Liquidity and Capital Resources". ASML ANNUAL REPORT 2016 26 A. Operating Results Critical Accounting Policies Using Significant Estimates Our discussion and analysis of our financial condition and results of operations are based upon our Financial Statements, which have been prepared in conformity with US GAAP. The preparation of our Financial Statements requires us 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 net sales and costs during the reported periods. Actual results could differ from those estimates. We evaluate our estimates continuously and we base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates if the assumptions prove incorrect. To the extent there are material differences between actual results and these estimates, our future results could be materially and adversely affected. See Note 1 to our Financial Statements for a summary of our significant accounting policies. Results of Operations 2016 Compared to 2015 The following discussion and analysis of Results of Operations should be viewed in the context of the risks that may interfere with our business objectives or otherwise affect our results of operations, described in Item 3.D. "Risk Factors". Set out below are our Consolidated Statements of Operations data for the years ended December 31, 2015 and 2016: Year ended December 31 2015 2016 (in millions) EUR EUR Total net sales 6,287.4 6,794.8 Cost of sales (3,391.7 ) (3,750.3 ) Gross profit 2,895.7 3,044.5 Other income 83.2 93.8 Research and development costs (1,068.1 ) (1,105.8 ) Selling, general and administrative costs (345.7 ) (374.8 ) Income from operations 1,565.1 1,657.7 Interest and other, net (16.5 ) 33.7 Income before income taxes 1,548.6 1,691.4 Provision for income taxes (161.4 ) (219.5 ) Net income 1,387.2 1,471.9 Set out below are our Consolidated Statements of Operations data for the years ended December 31, 2015 and 2016 expressed as a percentage of our total net sales: Year ended December 31 2015 2016 Total net sales 100.0 100.0 Cost of sales (53.9 ) (55.2 ) Gross profit 46.1 44.8 Other income 1.3 1.4 Research and development costs (17.0 ) (16.3 ) Selling, general and administrative costs (5.5 ) (5.5 ) Income from operations 24.9 24.4 Interest and other, net (0.3 ) 0.5 Income before income taxes 24.6 24.9 Provision for income taxes (2.6 ) (3.2 ) Net income 22.1 21.7 ASML ANNUAL REPORT 2016 27 Total Net Sales and Gross Profit The following table shows a summary of sales data, units sold, gross profit and ASP data for the years ended December 31, 2015 and 2016: Year ended December 31 2015 2016 (in millions, unless otherwise indicated) EUR EUR Total net sales 6,287.4 6,794.8 Net system sales 4,237.2 4,571.1 Net service and field option sales 2,050.2 2,223.7 Total sales of systems (in units) 169 157 Total sales of new systems (in units) 144 139 Total sales of used systems (in units) 25 18 Gross profit as a percentage of net sales 46.1 44.8 ASP of system sales 25.1 29.1 ASP of new system sales 28.5 32.4 ASP of used system sales 5.1 4.0 In 2016 we delivered record financial performance, with contributions from each of our wide range of product offerings, notably DUV and Holistic Lithography. It was also the year when the industry turned the corner on the introduction of EUV. We laid the foundation for further expansion of our pattern fidelity strategy with the acquisition of HMI. We strengthened our partnership with Zeiss by agreeing to acquire a minority stake in Carl Zeiss SMT to secure the extension of EUV beyond the next decade. We shipped 46 TWINSCAN NXT:1980 systems in 2016, supporting the ramp of the 10 nm node as well as process development for the 7 nm foundry node. With the introduction of the NXT:1980, we have shortened the time to maturity, enabling a faster, more cost-effective node ramp. More customers are now recognizing the value of upgrading their existing NXT systems to the latest performance, which has supported our field upgrade sales. We also continue to support our XT and NXT systems with productivity upgrades and as part of the transition from planar to NAND, we have supported a large additional number of system relocations, helping customers to optimize their ramp plans. Our fourth-generation EUV-system, the NXE:3350B, achieves an overlay of 1.0 nm, a 50% improvement over the NXE:3300B, and also features projection optics with a higher transmission, which means it generates higher throughput from a given EUV power source. In addition, the availability of systems in the field improved during 2016, with systems achieving a four-week availability of more than 80 percent regularly across the installed base; the best result was more than 90 percent over four weeks. Consistency of availability between systems and across sites still needs to be improved. EUV lithography met our 2016 productivity and availability targets. We achieved a productivity of more than 1,500 wafers per day, on a 3 day average in 2016 on an NXE:3350B system at a customer site. Total net sales increased by 8.1 percent, driven by an increase in net system sales of 7.9 percent and an increase in net service and field option sales of 8.5 percent in 2016 compared to 2015. The increase in net system sales is mainly due to an increase in the number of EUV systems recognized in 2016 compared to 2015 (2016: 4 and 2015:1), which have a higher ASP than our DUV systems. The increase in net service and field option sales is mainly driven by an increase in the sales of productivity and focus upgrade packages. The increase of the ASP of our new systems sold is due to a shift in the product mix of systems sold towards more high-end systems (e.g. more EUV and ArFi systems, less KrF systems) in 2016 compared to 2015. Gross profit increased by EUR 148.8 million mainly due to a shift in the product mix of systems sold towards more high-end systems. Gross profit as a percentage of total net sales decreased from 46.1 percent in 2015 to 44.8 percent in 2016 primarily driven by higher EUV system sales (which currently have a gross margin below the average of our DUV systems), partly offset by a shift in product mix of systems sold towards more high-end systems. Other Income Other income consists of contributions for R&D programs under the NRE funding arrangements from certain Participating Customers in the CCIP and amounted to EUR 93.8 million for 2016 (2015: EUR 83.2 million). ASML ANNUAL REPORT 2016 28 Research and Development Costs R&D costs (net of credits and excluding contributions under the NRE Funding Agreements from Participating Customers in the CCIP) were EUR 1,105.8 million in 2016 as compared to EUR 1,068.1 million in 2015. R&D costs for both 2016 and 2015 were primarily focused on programs supporting EUV, DUV immersion, and Holistic Lithography. In 2016, R&D activities mainly related to: • EUV - Further improving productivity, and supporting the design and industrialization of our NXE:3400B system including pellicle development. • DUV immersion - Focused on development of our next generation immersion platform, the NXT:2000i, as well as maturing the product introduction in the field of our NXT:1980 system. • Holistic Lithography - Further development of YieldStar, process window control and enlargement solutions. Selling, General and Administrative Costs SG&A costs increased by 8.4 percent mainly driven by HMI acquisition related expenses, an increase in the number of employees, and further impacted by exchange rate fluctuations, primarily related to our US operations. Interest and Other, Net Interest and other, net increased by EUR 50.2 million in 2016 compared to 2015. In addition, in 2016 we recognized EUR 55.2 million gain on foreign currency revaluations on transactions and balances relating to the HMI acquisition in Interest and other, net. Income Taxes The effective tax rate increased to 13.0 percent of income before income taxes in 2016 compared to 10.4 percent in 2015. This increase is mainly due to a change in legislation. Prior to 2016, the RDA was a corporate income tax credit used for R&D activities. As of 2016, the RDA is converted into a wage tax benefit reducing R&D costs. Net Income Net income in 2016 amounted to EUR 1,471.9 million, or 21.7 percent of total net sales, representing EUR 3.46 basic net income per ordinary share, compared with net income in 2015 of EUR 1,387.2 million, or 22.1 percent of total net sales, representing EUR 3.22 basic net income per ordinary share. Results of Operations 2015 Compared to 2014 Set out below our Consolidated Statements of Operations data for the years ended December 31, 2014 and 2015: Year ended December 31 2014 2015 (in millions) EUR EUR Total net sales 5,856.3 6,287.4 Cost of sales (3,259.9 ) (3,391.7 ) Gross profit 2,596.4 2,895.7 Other income 81.0 83.2 Research and development costs (1,074.1 ) (1,068.1 ) Selling, general and administrative costs (321.1 ) (345.7 ) Income from operations 1,282.2 1,565.1 Interest and other, net (8.6 ) (16.5 ) Income before income taxes 1,273.6 1,548.6 Provision for income taxes (77.0 ) (161.4 ) Net income 1,196.6 1,387.2 ASML ANNUAL REPORT 2016 29 Set out below are our Consolidated Statements of Operations data for the years ended December 31, 2014 and 2015 expressed as a percentage of our total net sales: Year ended December 31 2014 2015 Total net sales 100.0 100.0 Cost of sales (55.7 ) (53.9 ) Gross profit 44.3 46.1 Other income 1.4 1.3 Research and development costs (18.3 ) (17.0 ) Selling, general and administrative costs (5.5 ) (5.5 ) Income from operations 21.9 24.9 Interest and other, net (0.1 ) (0.3 ) Income before income taxes 21.7 24.6 Provision for income taxes (1.3 ) (2.6 ) Net income 20.4 22.1 Net Sales and Gross Profit The following table shows a summary of net sales, units sold, gross profit and ASP data for the years ended December 31, 2014 and 2015: Year ended December 31 2014 2015 (in millions EUR, unless otherwise indicated) EUR EUR Net sales 5,856.3 6,287.4 Net system sales 4,242.8 4,237.2 Net service and field option sales 1,613.5 2,050.2 Total sales of systems (in units) 136 169 Total sales of new systems (in units) 116 144 Total sales of used systems (in units) 20 25 Gross profit as a percentage of net sales 44.3 46.1 ASP of system sales 31.2 25.1 ASP of new system sales 35.6 28.5 ASP of used system sales 5.8 5.1 Net sales increased by 7.4 percent, driven by the increase in net service and field option sales of 27.1 percent, with a similar level of net system sales in 2015 compared to 2014. The increase in net service and field option sales was mainly driven by: • An increase in the sales of productivity and focus upgrade packages; and • Higher service sales mainly resulting from an increased installed base. The decrease of the ASP of our new systems sold was due to a shift in the product mix of systems sold towards more lower-end systems (more KrF systems and less EUV systems) in 2015 compared to 2014. Gross profit increased by EUR 299.3 million mainly due to higher service and field option sales and lower EUV system sales (which did not contribute to gross profit). Gross profit as a percentage of net sales increased from 44.3 percent in 2014 to 46.1 percent in 2015 primarily driven by lower EUV system sales (which did not contribute to gross profit). Other Income Other income consisted of contributions for R&D programs under the NRE funding arrangements from certain Participating Customers in the CCIP and amounted to EUR 83.2 million for 2015 (2014: EUR 81.0 million). Research and Development Costs R&D costs (net of credits and excluding contributions under the NRE Funding Agreements from Participating Customers in the CCIP) were EUR 1,068.1 million in 2015 as compared to EUR 1,074.1 million in 2014. R&D costs for both 2015 and 2014 were primarily focused on programs supporting EUV, DUV immersion, and Holistic Lithography. In 2015, R&D activities mainly related to: • EUV - Further improving availability and productivity, and supporting the design of our NXE:3400B system; • DUV immersion - Focused on the final stages of development relating to our NXT:1980 systems, of which we shipped the first systems in 2015, as well as development of future DUV platforms; and • Holistic Lithography - Further development of Yieldstar and process window control solutions. ASML ANNUAL REPORT 2016 30 Selling, General and Administrative Costs SG&A costs increased by 7.7 percent mainly driven by an increase in the number of employees, further impacted by exchange rate fluctuations, primarily related to our US operations. Income Taxes The effective tax rate increased to 10.4 percent of income before income taxes in 2015 compared to 6.0 percent in 2014. In 2014 the tax rate was favorably impacted by settling agreements entered into by ASML Netherlands B.V. and Cymer LLC., prior to our acquisition of Cymer in 2013, at different tax rates. Net Income Net income in 2015 amounted to EUR 1,387.2 million, or 22.1 percent of total net sales, representing EUR 3.22 basic net income per ordinary share, compared with net income in 2014 of EUR 1,196.6 million, or 20.4 percent of total net sales, representing EUR 2.74 basic net income per ordinary share. B. Liquidity and Capital Resources Our cash and cash equivalents increased to EUR 2,906.9 million as of December 31, 2016 from EUR 2,458.7 million as of December 31, 2015 and our short-term investments increased to EUR 1,150.0 million as of December 31, 2016 from EUR 950.0 million as of December 31, 2015. Our principal sources of liquidity consist of cash flows from operations, cash and cash equivalents as of December 31, 2016 of EUR 2,906.9 million, short-term investments as of December 31, 2016 of EUR 1,150.0 million and available credit facilities as of December 31, 2016 of EUR 700.0 million. In addition, we may from time to time raise additional capital in debt and equity markets. Our goal is to remain an investment grade rated company and maintain a capital structure that supports this. We invest our cash and cash equivalents and short-term investments in short-term deposits with financial institutions that have good credit ratings and in money market funds that invest in high-rated short-term debt securities of financial institutions and governments. Our investments are denominated in euros and US dollar. Our available credit facilities amount to EUR 700.0 million as of December 31, 2016 and as of December 31, 2015. No amounts were outstanding under these credit facilities at the end of 2016 and 2015. The amounts available at December 31, 2016 and 2015 consisted of one EUR 700.0 million committed revolving credit facility with a group of banks. In 2015, the terms and conditions of the facility were amended by, among other things, removing the financial covenant and by extending the maturity until 2020. In 2016, we exercised our extension option, extending the maturity date to 2021. Outstanding amounts under this credit facility will bear interest at EURIBOR or LIBOR plus a margin that depends on our credit rating. In July 2016, we completed an offering of our EUR 500 million 0.625 percent senior notes due 2022, with interest payable annually on July 7. The notes are redeemable at the option of ASML, in whole or in part, at any time by paying a make whole premium, and unless previously redeemed, will be redeemed at 100 percent of their principal amount on July 7, 2022. Also in July 2016, we completed an offering of our EUR 1,000 million 1.375 percent senior notes due 2026, with interest payable annually on July 7. The notes are redeemable at the option of ASML, in whole or in part, at any time by paying a make whole premium, and unless previously redeemed, will be redeemed at 100 percent of their principal amount on July 7, 2026. In November 2016, we completed an offering of our EUR 750 million 1.625 percent senior notes due 2027, with interest payable annually on May 28. The notes are redeemable at the option of ASML, in whole or in part, at any time by paying a make whole premium, and unless previously redeemed, will be redeemed at 100 percent of their principal amount on May 28, 2027. We have the following repayment obligations relating to our Eurobonds: • EUR 238.2 million in 2017; • EUR 500.0 million in 2022; • EUR 750.0 million in 2023; • EUR 1,000.0 million in 2026; and • EUR 750.0 million in 2027. ASML seeks to ensure that our principal sources of liquidity will be sufficient to satisfy its liquidity requirements throughout every phase of the industry cycles. Our liquidity needs are affected by many factors, some of which are based on the normal on-going operations of the business, and others that relate to the uncertainties of the global economy and the semiconductor industry. Although our cash requirements fluctuate based on the timing and extent of these factors, we believe that cash generated from operations, together with our other sources of liquidity are sufficient to satisfy our current requirements, including our expected capital expenditures and repayment obligations in 2017. We intend to return cash to our shareholders on a regular basis in the form of dividend payments and, subject to our actual and anticipated liquidity requirements and other relevant factors, share buybacks or capital repayments. See Consolidated Statements of Cash Flows and Notes 4, 5, 14, 15, 25 and 26 to our Financial Statements. ASML ANNUAL REPORT 2016 31 C. Research and Development, Patents and Licenses, etc. Research and Development See Item 4.B. "Business Overview – Research and Development" and Item 5.A. "Operating Results – Results of Operations 2016 Compared to 2015". Intellectual Property Matters See Item 3.D. "Risk Factors – Risks related to ASML – Failure to adequately protect the intellectual property rights upon which we depend could harm our business" and "Risk Factors – Risks related to ASML – Defending against intellectual property claims brought by others could harm our business" and Item 4.B. "Business Overview – Intellectual Property". D. Trend Information We expect that Moore’s Law will continue in the coming decade including industry fundamentals of a decline in cost per transistor. There is a strong demand for advanced ICs, supported by a value chain with means and incentive to support this. However, cost and process complexity of shrinking with multiple patterning together with new device structures and materials reshapes customer roadmaps, resulting in a continued need to improve DUV lithography performance while exploiting execution of agreed EUV targets for the future and complementing it with a portfolio of product options, enhancements and upgrade packages that support product stewardship and optimize the cost of ownership over the entire lifetime of our systems. It also results in zero tolerance for non-performance, driving improvement of quality and cost efficiency of our products and services. We expect the following in the first-quarter of 2017: • Total net sales of approximately EUR 1.8 billion; • Shipment of our first NXE:3400B EUV system, for which we expect to record revenue in the third quarter of 2017, as this system will ship in a non-final configuration. Together with the five NXE:3350B systems already shipped before 2017, it will be used in our customers' factories for preparing the introduction of EUV into high volume manufacturing; • Net service and field option sales will be driven by continued demand for Holistic Lithography options, high value upgrades and our growing installed base; • Gross margin of around 47 percent including the effect from the purchase price allocation for the HMI acquisition. The negative impact of the purchase price allocation adjustments is about one percentage point. The impact of the HMI acquisition on gross profit for the full fiscal year is expected to be about EUR 90 million and is expected to decrease to about EUR 40 million per year from 2018 onwards; • R&D costs of about EUR 320 million. The increase in R&D costs is driven by the inclusion of HMI and accelerated investments in Pattern Fidelity metrology, our contributions to Carl Zeiss SMT's High-NA developments, our own High-NA development acceleration and the strong US Dollar; • Other income of about EUR 23 million, which consists of contributions from the participants of the CCIP; • SG&A costs of about EUR 95 million; and • An effective annualized tax rate of between 13 and 14 percent. In Holistic Lithography, we successfully completed the acquisition of HMI in November 2016 and began the integration of HMI's e-beam systems into our Holistic Lithography portfolio. The following table sets forth our systems backlog1 as of December 31, 2015 and 2016. Year ended December 31 2015 2016 (in millions EUR, unless otherwise indicated) New systems backlog (in units) 68 70 Used systems backlog (in units) 11 13 Total systems backlog (in units) 79 83 Value of new systems backlog 3,149.6 3,907.9 Value of used systems backlog 34.7 53.4 Total value of systems backlog 3,184.3 3,961.3 ASP of new systems backlog 46.3 55.8 ASP of used systems backlog 3.2 4.1 ASP of total systems backlog 40.3 47.7 1. Our systems backlog includes all system sales orders for which written authorizations have been accepted (for EUV starting with the NXE:3350B). Historically, orders have been subject to cancellation or delay by the customer. Due to possible customer changes in delivery schedules and to cancellation of orders, our systems backlog at any particular date is not necessarily indicative of actual sales for any succeeding period. ASML ANNUAL REPORT 2016 32 Logic chip manufacturers have built up capacity for the 10 nm node in 2016, and we also saw healthy demand from Memory manufacturers both for DRAM and NAND production. Together with solid growth in net service and field option sales. These trends are expected to continue into 2017. Regarding EUV, we executed on the customer-aligned productivity and availability targets, which gave customers the confidence to place 13 orders in 2016, bringing our EUV backlog to 18 systems worth EUR 2.0 billion, or about half of the total backlog at December 31, 2016. These orders show that customers are committed to take EUV into production, and we expect that the first customers will start volume manufacturing with EUV at the 7 nm logic node and the mid-10 nm DRAM node. We are now moving to the next phase of EUV industrialization. We remain committed to deliver the performance requirements for customer volume manufacturing, while continuing to build up our manufacturing, supply chain and service capabilities. The trends discussed in this Item 5.D. "Trend information" are subject to risks and uncertainties. See "Part I – Special Note Regarding Forward Looking Statements" and item 3.D. "Risk Factors". E. Off-Balance Sheet Arrangements None. F. Tabular Disclosure of Contractual Obligations Our contractual obligations as of December 31, 2016 can be summarized as follows: Payments due by period(in thousands) TotalEUR 1 yearEUR 2 yearEUR 3 yearEUR 4 yearEUR 5 yearEUR After5 yearsEUR Long-Term Debt Obligations, including interest expense 1 3,757,498 306,215 83,752 56,718 56,762 56,246 3,197,805 Operating Lease Obligations 103,568 35,486 23,613 18,616 13,577 7,050 5,226 Purchase Obligations 2,202,595 1,923,647 233,021 9,481 7,901 7,417 21,128 Zeiss High-NA Funding Commitment 748,000 129,000 219,500 179,500 113,000 69,000 38,000 Total Contractual Obligations 2 6,811,661 2,394,348 559,886 264,315 191,240 139,713 3,262,159 1. See Note 14 to our Financial Statements for the amounts excluding interest expense. 2. We have excluded unrecognized tax benefits for an amount of EUR 136.4 million as the amounts that will be settled in cash are not known and the timing of any payments is uncertain. Long-term debt obligations mainly relate to interest payments and principal amounts of our Eurobonds. See Note 14 to our Financial Statements. Operating lease obligations include leases of equipment and facilities. Lease payments recognized as an expense were EUR 45.2 million, EUR 45.1 million and EUR 43.9 million for the years ended December 31, 2016, 2015 and 2014, respectively. Several operating leases for our buildings contain purchase options, exercisable at the end of the lease, and in some cases, during the term of the lease. During 2015 we have exercised these options which are effectuated in 2016, therefore no purchase options exist as per year end December 31, 2016. Purchase obligations exist of purchase commitments towards suppliers in the ordinary course of business. ASML expects that it will honor these purchase obligations to fulfill future sales, in line with the timing of those future sales. The general terms and conditions of the agreements relating to the major part of our purchase commitments as of December 31, 2016 contain clauses that enable us to delay or cancel delivery of ordered goods and services up to the dates specified in the corresponding purchase contracts. These terms and conditions that we typically agree with our supply chain partners give us additional flexibility to adapt our purchase obligations to our requirements in light of the cyclicality and technological developments inherent in the industry in which we operate. We establish a provision for cancellation costs when the liability has been incurred and the amount of cancellation fees is reasonably estimable. On November 3, 2016 ASML and Zeiss announced that they agreed to strengthen their long-standing and successful partnership in the semiconductor lithography business. ASML has agreed with Zeiss to support Carl Zeiss SMT's 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. At the end of 2016 an amount of EUR 12.0 million was paid, resulting in a remaining commitment as of December 31, 2016 of EUR 748.0 million. G. Safe Harbor See Part I "Special Note Regarding Forward-Looking Statements". ASML ANNUAL REPORT 2016 33