Form 10-K

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Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. x Yes ¨ No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ¨ Yes x No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes ¨ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨ Yes x No

The aggregate market value of the voting stock held by non-affiliates of the registrant, based upon the closing price of $58.95 for shares of the registrant’s common stock on June 30, 2012 as reported on the NASDAQ Global Select Market, was 1,478,406,166. The registrant has no non-voting common stock. In calculating such aggregate market value, shares of common stock owned of record or beneficially by officers or directors, and persons known to the registrant to own more than ten percent of the registrant’s voting securities were excluded because such persons may be deemed to be affiliates. The registrant disclaims the existence of control or any admission thereof for any other purpose. As of February 7, 2013, there were 31,437,880 shares of common stock outstanding.

The following document is incorporated by reference in Part II (Item 5) and Part III (Items 10, 11, 12, 13 and 14) of this Annual Report on Form 10-K: portions of registrant’s definitive proxy statement for its annual meeting of stockholders which will be filed with the Securities and Exchange Commission within 120 days of December 31, 2012.

Statements in this Annual Report on Form 10-K that are not strictly historical in nature are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements include, but are not limited to: references to the Merger (as defined below) between Cymer and ASML Holding N.V. (“ASML”); the outlook for the semiconductor industry and us; expected timelines for the adoption of new photolithography and extreme ultraviolet technologies by customers; expected domestic and international product sales and development; our research and development activities and expenditures; the development and intended commercialization of our extreme ultraviolet sources, expected charges in the first quarter of 2013 and potential refunds of customer deposits related to the discontinuance of new product development in our display products business; adequacy of our capital resources and investments; effects of business cycles in the semiconductor business; our competitive position; and our relationships with customers and third-party manufacturers of our products. These statements also may contain words such as “believes,” “anticipates,” “expects,” “plans,” “intends” and words of similar meaning. In addition, statements regarding backlog and book-to-bill ratios should not be read as predictions or projections of future performance. Forward-looking statements are predictions based on current information and our expectations, and involve a number of risks and uncertainties. The underlying information and our expectations are likely to change over time. Actual events or results may differ materially from those projected in the forward-looking statements due to various factors, including, but not limited to, the possibility that (1) Cymer and ASML may be unable to obtain the regulatory approvals required in connection with the Merger or may be required to accept conditions that could reduce the anticipated benefits of the Merger as a condition to obtaining regulatory approvals; (2) the length of time necessary to consummate the Merger may be longer than anticipated; (3) problems may arise in successfully integrating the businesses of Cymer and ASML; (4) the Merger may involve unexpected costs; (5) the businesses may suffer as a result of uncertainty surrounding the Merger; (6) the industry may be subject to future risks that are described in Securities and Exchange Commission (“SEC”) reports filed by Cymer and ASML; and (7) those contained under the caption “Risk Factors” and elsewhere in this Annual Report on Form 10-K. Forward-looking statements herein speak only as of the date of this Annual Report on Form 10-K. Unless required by law, we undertake no obligation to update or revise any forward-looking statements to reflect new information or future events or developments. Thus, you should not assume that our silence means that actual events are bearing out as expressed or implied in such forward-looking statements.

Cymer, XLR, XLA, XL, OnPulse, SmartPulse, and all other Cymer product or service names used herein, are either registered trademarks or trademarks of Cymer, Inc. Other marks mentioned herein, if any, are the property of their respective holders.

We are the world’s leading supplier of light sources used in the photolithography process for semiconductor, or chip manufacturing. We provide state-of-the-art light sources designed to help enable the performance of leading edge wafer steppers and wafer scanners built by lithography tool manufacturers. We currently supply deep ultraviolet (“DUV”) light sources to our lithography tool manufacturer customers, ASML, Canon, Inc. (“Canon”) and Nikon, Corp. (“Nikon”), who integrate our light source into their wafer steppers and scanners which they then provide to chipmakers. We provide installed base products in support of our chipmaker customers, who use our light sources in their advanced wafer patterning production processes. In addition, we provide comprehensive support products for our installed base of light sources to the lithography tool manufacturers as well as directly to chipmakers, which include all of the world’s largest semiconductor manufacturers. Our light sources constitute a substantial majority of all DUV light sources incorporated in

lithography stepper and scanner tools at chipmakers worldwide. As a result, the majority of consumer electronics devices manufactured in the last several years contain a semiconductor manufactured using our light sources. We are continuing to invest in the development of extreme ultraviolet sources (“EUV”) for chip manufacturing. Our EUV sources are still under development and not yet capable of supporting the commercial production of integrated circuits; however, we have received customer acceptance from ASML and recorded revenue for six of our EUV 3100 pilot sources to date. We have also received multiple orders from ASML for our next generation EUV 3300 sources and are working closely with ASML on the development of these sources.

Our display products operating segment developed, integrated, marketed and supported silicon crystallization tools used in the manufacture of different types of displays, including high-resolution low temperature poly-silicon liquid crystal displays (“LTPS – LCD”) and organic light emitting diode (“OLED”) displays. On January 28, 2013, we decided to discontinue new product development in our display products business. For further discussion, see Note 15 “Segment and Geographic Information” and Note 18 “Subsequent Events” to our Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K. Cymer, Inc. was incorporated in California in 1986 and reincorporated in Nevada on July 12, 1996. Our headquarters is in San Diego, California, where we design, develop and manufacture our light sources and the majority of our replacement parts. To provide better support to our customers located outside of the United States, we maintain a replacement parts refurbishment facility and field service office in South Korea, and field service and support offices in China, Japan, the Netherlands, Singapore and Taiwan. We also maintain a field service office in the United States to support our installed base of light sources located at our United States-based chipmaker customers.

On October 16, 2012, the Company entered into the Agreement and Plan of Merger (the “Merger Agreement”) by and among (i) ASML, (ii) solely for purposes of Article II, Article IV, Article VI and Article X, ASML US Inc., a Delaware corporation and an indirect wholly owned subsidiary of ASML (“Holdco”), and Kona Technologies, LLC, a Nevada limited liability company and a wholly owned subsidiary of Holdco (“Merger Sub 2”), (iii) Kona Acquisition Company, Inc., a Nevada corporation and a wholly owned subsidiary of Holdco (“Merger Sub”), and (iv) the Company. The Merger Agreement provides that, upon the terms and subject to the conditions set forth in the Merger Agreement, Merger Sub will be merged with and into the Company, and immediately thereafter, the Company will be merged with and into Merger Sub 2. References in this Annual Report on Form 10-K to the “Merger” should, unless the context otherwise requires, be read to mean the merger of Merger Sub into the Company and the merger of the Company into Merger Sub 2, as part of an integrated plan.

Subject to the terms and conditions of the Merger Agreement, upon consummation of the Merger, each outstanding share of the Company’s common stock will be converted into the right to receive (i) $20.00 in cash, without interest, and (ii) 1.1502 ordinary shares, nominal value EUR 0.09 per share, of ASML (“ASML ordinary shares”).

On February 5, 2013, a special meeting of our stockholders (the “Special Meeting”) was held. At the Special Meeting, our stockholders approved the proposal to approve the Merger Agreement.

Completion of the Merger is subject to the satisfaction or waiver of certain conditions, including, among others: (i) the expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”), (ii) receipt of certain consents and approvals from competition regulators in other jurisdictions, (iii) the absence of any governmental order, law, or legal restraint prohibiting the consummation of the Merger, and (iv) the listing of the ASML ordinary shares to be issued to the Company’s stockholders in the Merger on NASDAQ having been authorized. Additionally, ASML is not required to complete the Merger if there is any pending action or proceeding by any governmental entity of competent jurisdiction challenging or seeking to make illegal, to delay materially or otherwise directly or

indirectly to prohibit the consummation of the Merger. The obligation of each party to consummate the Merger is also conditioned upon the accuracy of the other party’s representations and warranties, the absence of a material adverse effect, and the other party having performed in all material respects its obligations under the Merger Agreement.

Financial information regarding our segments and the geographic areas where we operate is contained in Note 15 “Segment and Geographic Information” to our Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.

The highly cyclical nature of the semiconductor industry is driven by demand for consumer electronic devices that contain semiconductor chips. The complexity of these chips has increased dramatically due to the demand for more sophisticated electronic devices that can provide more functionality, such as smart phones with internet and video capability, tablets and notebook computers that can download and play movies, automotive products, and advanced game consoles that are capable of driving the rapid action and vivid graphics that characterize today’s increasingly realistic and interactive video games. Additionally, there is growing consumer demand for this increased functionality to be available virtually everywhere, through wireless connectivity. These advances have been achieved without the devices increasing in size, and generally without significant increase in price, because chipmakers have been able, over the years, to make each generation of chips with smaller features and finer circuitry than the previous generation. “Moore’s Law”, first observed by Intel Corporation co-founder and former chairman Gordon E. Moore is well-known and widely used in the semiconductor industry to describe the advancement in semiconductor device technology. The semiconductor industry operates to this model, which requires chip makers to pack transistors more tightly with every new generation of chips, shrinking the size of transistors. Smaller transistors mean that semiconductor lithography machines must be able to print finer features with every new generation of chips. Semiconductor equipment suppliers have partnered with their chipmaker customers to enable the features on the chip to continue to shrink. Photolithography is one of the key technologies that enables this process to continue.

The basic building block of semiconductor technology is a thin, flat, round disc of pure silicon called a wafer, which is polished to a mirror-like finish. After polishing, the wafer must go through a complex manufacturing process that involves several hundred steps—all of which must be executed with extreme precision at the level of a few nanometers (“nm”) (one nm is a billionth of a meter). Standard processes, such as photolithography, etch and deposition, are repeated many times on the wafer, resulting in a buildup of microscopic structures, consisting of more than a billion transistors. When the wafer processing is complete, a single wafer will contain hundreds of individual chips, which are then cut, tested, bonded onto lead-wire “legs,” and then packaged in a ceramic or epoxy container.

Photolithography is a process that uses light to print, or pattern, the complex circuit patterns onto the wafer. The ability to pattern smaller circuits depends, to a great degree, on the wavelength of the light used in the photolithography process. A shorter wavelength of light can pattern circuitry with smaller critical dimensions (“CD”), which in turn allows the transistors that serve as circuit switches to be smaller, which allows more devices to be put on a chip and thus enables higher levels of functionality. Our DUV light sources provide an extremely pure beam of ultraviolet light. The short wavelength of DUV light enables the required resolution, depth of focus and CD control required to pattern semiconductor circuits.

A lithography tool projects light from the light source through an image of the circuitry pattern on a photomask or reticle. A reticle is a glass plate with a layer of chrome on one side, on which the negative of the circuit pattern is etched. The image of the circuitry is transferred by the light being projected through a reduction lens onto a small portion of the surface of the silicon wafer.

To print the projected optical pattern, the wafer is coated with a thin film of light-sensitive material, called photoresist. The light exposes the photoresist, which is then developed (somewhat like photographic film) to create a stenciled image pattern. Next, through a process called “etch”, the unnecessary underlying material is selectively removed, creating an extremely fine circuit pattern. The wafer is inspected, particularly for pattern defects, any hardened residual photoresist is removed, and then the wafer is measured to make sure it meets predetermined specifications. Then the wafer surface is cleaned, generally by immersing it in acid, solvent, or deionized water. The process is repeated over multiple layers to build the electrical circuit structure. Depending on the type of chip being made, a total of 30 to 50 layers are patterned precisely over the first to complete the circuit fabrication, at which time the wafer is fully processed.

The light from these DUV sources is generated by mixing two gases—either krypton and fluorine (“KrF”), or argon and fluorine (“ArF”)—inside a discharge chamber within the light source system. When a short electrical charge is applied to the gases, the gas atoms combine briefly to form a molecule known as an excited dimer, or “excimer.” These gas molecules remain together for a few nano-seconds, and when they separate, produce an intense pulse of DUV light that is then purified and directed out one end of the light source to the lithography tool. Depending on the repetition rate of the laser, this procedure is repeated between 1,000 and 6,000 times per second (1,000 pulses per second equals one kilohertz (“kHz”)). EUV is an advanced form of lithography that uses extremely short wavelength (13.5 nm) light, mirrors and reflective photomasks to image circuit patterns onto the surface of semiconductor wafers. The chips produced with EUV light sources are expected to contain features 22 nm wide or smaller, and are projected to be as much as 100 times faster than, with 1,000 times the memory capacity of, today’s most powerful computer chips. EUV lithography is viewed as the front runner for next generation critical dimension imaging after existing ArF 193 nm immersion lithography for layer patterning features 22 nm wide or smaller. NAND flash memory devices and dynamic random access memory (“DRAM”) devices are expected to be early adopters of EUV technology.

Our products include DUV and EUV photolithography light sources, and installed base products designed to cost-effectively deliver high levels of performance, availability, and reliability to enable our customers to achieve their production goals.

Our DUV light sources include the most advanced ArF immersion light sources for use on the most critical process layers. Chipmakers also use our ArF and KrF light sources to fill out or balance their production lines or add capacity to their manufacturing facilities (also referred to as “fabs”) for less critical layers. The extremely short wavelengths and highly narrowed bandwidths of our light sources work in concert with our lithography customers’ steppers and scanners and their sophisticated lens systems to help enable the very fine feature resolution required for patterning today’s most advanced semiconductor circuitry. In addition, the pulse energy and repetition rate of our light sources enable our chipmaker customers to achieve high throughput in wafer processing. We have designed our light sources to be reliable, easy to install and compatible with existing semiconductor manufacturing processes. Additionally, we offer focus drilling technology for certain of our ArF immersion light sources. Focus drilling provides up to two times improvement in the depth of focus on the wafer, which can positively impact chipmakers’ yield.

Chipmaker demand for EUV light sources continues to be strong, as we believe EUV technology is the best path toward enabling Moore’s Law and scaling of semiconductors with features 22 nm wide or smaller. We have

accelerated our rate of EUV source development, and are continuing to increase our investment in development resources, manufacturing capacity, and field support to fulfill EUV source demand.

Our Laser-Produced Plasma (“LPP”) EUV light source is designed to provide scalable power that enables high volume manufacturing. Our LPP EUV source system consists of a high power, high repetition rate pulsed carbon dioxide laser, a beam delivery system, and a plasma vacuum vessel. The plasma vacuum vessel is complete with a droplet generator and collector, debris mitigation, and in-situ metrology to measure, monitor and control the system operation. The 13.5 nm wavelength is produced when a carbon dioxide laser pulse strikes small droplets of elemental tin in the plasma chamber. The laser heats the droplet of tin to the point of evaporation and super-heating to critical temperature, then the atoms shed their electrons and become highly ionized (i.e. a plasma). This causes the excited tin ions (the plasma) to emit light which is collected by a highly reflective mirror. The mirror reflects and directs the resulting 13.5 nm wavelength energy and focuses it through an aperture and into the lithography system. The plasma chamber of the EUV source is directly coupled to the scanner system’s vacuum chamber inside the scanner enclosure, requiring close coordination between the designs of our EUV source and the scanner produced by the lithography tool manufacturer. We are working closely with ASML, a lithography tool manufacturer and current customer for our EUV sources, and our key suppliers to drive execution to our power and performance roadmap. Our EUV sources are still under development and not yet capable of supporting the commercial production of integrated circuits; however, we have received customer acceptance from ASML and recorded revenue for six of our EUV 3100 pilot sources. We have also received multiple orders from ASML for our next generation EUV 3300 sources.

Revenues generated from sales of DUV light sources were approximately $137.2 million, $208.3 million and $191.6 million for 2012, 2011 and 2010, respectively. Revenues from sales of EUV sources were approximately $23.1 and $22.3 million for 2012 and 2011, respectively. No revenue was generated from sales of EUV sources in 2010.

Our current DUV light source product portfolio consists primarily of the following:

XLR Series—193 nm ArF Immersion Light Sources. As chipmakers continue to reduce the feature sizes and shrink CDs on the wafer, they need to install the advanced tools required to enable patterning of the most critical layers. NAND flash memory and DRAM semiconductor manufacturers have been the most aggressive chipmakers in shrinking CDs, and have been driving demand for our most advanced light sources for ArF immersion lithography applications. DRAM manufacturers are in production with CDs at 45 nm. Currently, some chipmakers are in development of chip production with CDs of less than 32 nm. Leading edge semiconductor manufacturers in the memory, logic and foundry sectors have been developing ArF immersion extension down to CDs of 22 nm and implementing double-patterning technique, which means the increased demand for ArF immersion light sources could last for several years. The XLR Series is based on our dual discharge chamber master oscillator power amplifier (“MOPA”) light source architecture, with a regenerative ring amplifier in place of the traditional power amplifier. Built on our XL universal platform, this product series offers a step function improvement in performance and cost of operation. Our XLR light sources are designed to enable our chipmaker customers to customize performance for specific applications through improved performance parameters and metrology options. Flexible power up to 90 watts (“W”), improved bandwidth stability and dose control enable higher CD control and yield, and this series offers longer pulse duration to extend the lifetime of the illuminator and lens, even at higher power levels. Cost of operation is reduced significantly through optical design and component robustness, leading to increased module lifetime. With active bandwidth stabilization and tuning

capability, the XLR light sources offer improved bandwidth management for improved mask optical proximity correction matching and tool-to-tool matching, so customers can use multiple node mask sets in the same tool or the same mask in different tools. We sell primarily the XLR 600ix model of this series.

XLA Series—193 nm ArF Dry Light Sources. Though no longer considered leading edge technology, dry ArF lithography is still used to pattern a significant number of less-critical layers on wafers. Additionally, as CDs continue to shrink and drive demand for even finer resolution on the most critical layers, non-critical layers may be patterned with ArF dry scanners, which drives continued demand for these tools. Our XLA Series of ArF light sources was the first product series to be based on our dual-discharge chamber MOPA architecture. MOPA represented a paradigm shift in excimer laser architecture when it was introduced in 2003. The master oscillator creates a narrow bandwidth beam of light at low power. The beam then is directed into the power amplifier, where the power is increased significantly while maintaining the narrow bandwidth. This combination of bandwidth and power enabled our chipmaker customers to continue reducing CDs and increasing processing speeds, capacity and functionality of chips, while giving them the performance and cost advantages they need. Each product in the XLA Series is based on the XL universal platform, and we continue to sell the XLA 105 model of this series.

ELS 7010—248 nm KrF Dry Light Sources. We have been providing KrF light sources for volume chip production since 1996, when chipmakers required the adoption of DUV light sources in their fabs. Over the years, we have developed and sold a variety of increasingly powerful and productive KrF light sources. The 7000 Series is the first series that was designed and built on a common platform, enabling chipmakers to easily utilize the 193 nm wavelength produced by ArF and the 248 nm wavelength produced by KrF within the manufacturing environment. This “ease of use” feature was very important at the time because chipmakers were introducing ArF production into their fabs and the common platform simplified the introduction of this new technology. With a 4 kHz repetition rate and high output power, the 7000 Series provides our chipmaker customers with high wafer throughput and lower cost of operation by reason of advanced design and materials, and delivers a high level of tool availability to enable manufacturing efficiency and flexibility. Our bestselling light source of the series, the ELS-7010, is still in demand as chipmakers continue to prefer the higher power and narrower bandwidth offered by this system. In 2010, we introduced the ELS-7010x which allows customers to easily adjust power from 30 watts to 50 watts based on the changing wafer design requirements and production needs.

Legacy Light Sources. In addition to our current DUV product portfolio of light sources, we have numerous models of ArF and KrF light sources that have been superseded and are no longer in active production. However, these systems are still widely used by our customers and make up a substantial portion of our installed base of light sources. We continue to provide installed base products and maintain parts inventory for these systems.

We derive a substantial portion of our revenue from the sale of installed base products, which include replacement parts, various service and support offerings and upgrades to lithography tool manufacturers as well as directly to chipmakers.

We provide ongoing support to our customers through contracts and service agreements. Under these agreements, we provide comprehensive support products to maintain the equipment within specifications. Certain contracts include the replacement of consumable and non-consumable parts.

Our OnPulse contracts offer a comprehensive approach to enhancing light source productivity, offering our customers predictable light source running costs that scale directly with pulse utilization. We provide our OnPulse contract customers on-site support from certified service engineers and continuous real-time light source monitoring. Replacement parts and support are covered under the OnPulse contract, which facilitates cost savings for our customers as well as simplified order and asset management. We believe that our OnPulse contracts offer our customers many compelling benefits, and this product has been well-received by our customers.

In 2011, we introduced light source data offerings, OnPulse Plus and SmartPulse, as an enhancement to our OnPulse contracts. These data offerings provide real time light source performance data in a new user interface, supporting chipmaker needs to improve process control and the quality of wafers. Additionally, for our OnPulse customers, we offer our third generation Gas Lifetime eXtension (iGLX) control system for ArF immersion light sources. The value-added feature of iGLX is an improvement over previous generations of gas management systems, and is designed to double gas lifetime and automate gas optimization.

Revenues generated from contracts and service agreements were approximately $325.0 million, $280.8 million and $225.1 million for 2012, 2011 and 2010, respectively.

Our light sources incorporate certain modules and subassemblies that require replacement or refurbishment following extended operation, including, but not limited to, discharge chambers and certain optical components. We provide these and all other spare and replacement parts for our light sources to our customers. Customers not participating in a contract or service agreement pay for the parts and labor as the parts are replaced.

We conduct parts refurbishment and materials reclamation activities for some of our core modules. These activities involve arrangements with our customers where we sell a new part to the customer at a reduced sales price if the customer returns the consumed core module being replaced. These returned modules contain a certain amount of material, primarily metal components, that may be reused by us in future core assemblies. A portion of the module’s sale price is related to the return of these consumed parts, and we record revenue based on the estimated fair value of the returned parts when we receive the returned modules from our customers. It has been our practice to continually improve the performance and extend the expected lifetimes of our replacement modules. The enhanced performance enables our customers to benefit from higher throughput and yield, while the extended lifetimes provide lower cost of operation. We continue to seek ways to add value for our customers and enable them to realize higher returns on their investment in light sources purchased from us.

Revenues generated from sales of replacement parts and refurbishment activities, including the receipt of reusable material contained within consumed assemblies returned from our customers, were approximately $46.6 million, $80.0 million and $113.5 million for 2012, 2011 and 2010, respectively.

We currently supply light sources to ASML, Nikon, and Canon, lithography tool manufacturers who in turn supply their wafer steppers and scanners to chipmakers. We strive to maintain and strengthen our relationship with these lithography tool manufacturer customers by developing and providing compelling light source solutions in advance of their needs. We work closely with them to ensure that our product road map aligns with theirs, and that we can support each of them in a timely manner with the products required by our mutual chipmaker customers. We believe these efforts enhance our relationship with our lithography tool manufacturer customers and support our leadership position in the photolithography light source market.

We sell to customers in China, Europe, Japan, South Korea, Taiwan, the United States and other Asian countries. Our chipmaker customers include the world’s leading semiconductor manufacturers.

Sales to ASML, Nikon, SK Hynix, Limited and Samsung Electronics, Co. accounted for 23%, 13%, 11% and 11%, respectively, of total revenue in 2012. We expect that sales of our light source and other related products to these four customers will continue to account for a substantial portion of our revenue in the foreseeable future. Additionally, all of our revenue and orders for EUV sources are from ASML. The loss of any significant business from or production problems for any one of these customers would harm our business and financial condition. We believe there is limited credit risk exposure for us with these companies as they continue to demonstrate sound credit worthiness. However, our ability to generate future revenue from them is dependent on their ongoing financial condition and liquidity.

We base our light source production schedule upon order backlog as well as informal customer forecasts. Our backlog includes only those orders for light sources and replacement parts for which we have accepted a purchase order from a customer, and that will be delivered to the customer within the following twelve months. Our backlog does not include installed base products, service or support which will be provided to our customers in the future or under contracts. Timing of delivery can be affected by many factors, including factors that cannot be easily predicted or controlled. Because it is the practice in our industry that customers may cancel or delay orders with little or no penalty, our backlog as of any particular date may not be a reliable indicator of actual sales for any succeeding period. At December 31, 2012, we had a DUV backlog, which includes light sources and replacement parts, of approximately $40.2 million compared with a DUV backlog of $48.2 million at December 31, 2011. We do not include the orders from ASML for EUV 3300 sources in our backlog.

Our manufacturing activities, which consist of material management, assembly, integration and testing, are performed at our San Diego, California facility. This facility includes approximately 43,181 square feet of Class 10,000 cleanroom manufacturing and test space. Our San Diego facility supports our EUV research, development and commercial production efforts. To better leverage our own resources, capitalize on the expertise of our key suppliers and respond more efficiently to our customers’ needs, we outsource the manufacture of many modules and subassemblies of our light sources. The modular design of our light source products enables this manufacturing outsourcing strategy with substantially all manufacturing of nonproprietary subassemblies currently contracted to third-party suppliers. As a result, we are increasingly dependent upon these contract suppliers to meet our manufacturing schedules. We believe the highly outsourced content and design of our products allows for reduced manufacturing cycle times and increased output per employee. To improve current production efficiencies, control costs, and manage overall manufacturing capacity, we intend to continue training manufacturing personnel, improving our assembly and test processes to further reduce cycle time, investing in additional manufacturing tooling and further developing our supplier management and engineering capabilities.

In addition to our manufacturing facility in San Diego, we have a facility in South Korea that refurbishes discharge chambers for light sources installed in South Korea and the Asia-Pacific region. This facility includes 3,229 square feet of Class 10,000 cleanroom manufacturing space.

We purchase a limited number of components and subassemblies included in our light sources and installed base products from a single supplier or a small group of suppliers. To reduce the risk associated with these suppliers, we have supply agreements in place and carry strategic inventories of these components. Strategic inventories are managed as a percentage of anticipated future demand. Whenever possible, we work with secondary suppliers to qualify additional sources of supply. In some cases, we procure components through distributors with access to multiple suppliers to minimize the risk of single-sourced components. In addition, we contract for the manufacture of various subassemblies of our products and depend on our contract manufacturers to deliver to our required specifications, schedule and quality standards. Some of our suppliers have specialized in supplying equipment or manufacturing services to semiconductor equipment manufacturers and, therefore, are susceptible to industry fluctuations and are subject to the same risks and uncertainties as we are regarding their ability to respond to changing market and global conditions. To date we have been able to obtain adequate components and subassemblies for our light sources and installed base products in a timely manner from existing suppliers.

We strive to best serve and understand our manufacturer and chipmaker customers’ performance and production needs. We work to ensure their understanding of the significant value-add our products offer. We have established product development and marketing and applications engineering teams who work closely with our customers to understand their needs. These teams support our direct sales and marketing efforts.

We warrant our products against defects in design, materials, and workmanship. After a customer takes delivery of one of our new light sources, we provide product warranty support for the duration of the warranty. We also include a parts warranty on all replacements parts sold to our customers. The warranty coverage period varies by the type of part, since some part types include time-based warranty periods and others include usage-based warranty periods. We may offer a comprehensive contract to continue providing replacement products and support. We believe our success depends on enabling our customers to realize the highest possible return on their investment in our light sources. We provide our customers with on-site support at their facilities. Prior to shipment, our support personnel typically assist with customer site preparation and inspection. We also provide our customers with comprehensive information regarding product operation, maintenance, service, diagnostics and safety.

Our field engineers and technical support specialists provide field maintenance and front-line technical support for our customers from our San Diego headquarters, from our field offices located throughout the United States, and from our field offices located in China, Japan, South Korea, the Netherlands, Singapore, and Taiwan. To ensure that our customers receive replacement parts quickly and maintain the optimal level of productivity in their fabs, we maintain spares inventory at each of our field depot facilities per our customer support program. As our installed base of light sources grows, we believe it is critical that replacement parts, as well as our own logistics support organization, are available for quick response to the demands of our customers.

In order to provide the highly responsive and high quality support that our customers need to maximize their production efficiency, and provide it in a cost-effective manner, we maintain a highly-trained, service support staff that can provide rapid global support solutions. We continuously develop and enhance our direct support infrastructure in both our international and domestic markets. To achieve this level of capability and strive for continuous improvement, we recruit highly qualified field service personnel and provide additional training and certification.

Our product development strategy has been to develop in rapid succession technologically innovative new products that deliver superior performance with higher throughput and lower cost of operation to meet the continually evolving needs of our customers. We believe we must continue to anticipate our customers’ future needs, and develop and introduce new and enhanced light source products in order to support our customers, as well as to strengthen our leadership position in the industry. Execution of our strategy has enabled us to offer our customers increasingly higher value-added light sources in advance of their needs, while establishing our position as the technology and market leader in our field. We are also developing enhancements to our products that will improve tool productivity for high volume memory manufacturing and provide new optical capabilities for process improvement in the foundry and logic sectors. We intend to continue developing and enhancing our technology in order to provide our customers with innovative products to help ensure their success. Our EUV source efforts have been recognized as leading the industry in the development and commercialization of critical next generation light source technology.

We have historically devoted a significant portion of our financial resources to research and development, and intend to continue to maintain a strategic investment in our product research and development activities in connection with our development of new products. Research and development expenses for 2012, 2011 and 2010 were $187.7 million, $130.6 million and $89.2 million, respectively.

We seek to protect our intellectual property rights in a number of ways, one of which is to obtain patent protection for our technology. As of December 31, 2012, we own a number of United States and foreign patents

covering certain aspects of technology related to light sources, piezoelectric techniques and silicon crystallization tools. Patents related to our source technologies and piezoelectric techniques will expire at various times through 2031.

We also rely on trade secret protection, employee and third-party nondisclosure agreements and other intellectual property protection methods to protect our confidential information. These methods, however, may not be effective in protecting our confidential information, particularly our trade secrets, because third parties may independently develop substantially the same proprietary information and techniques, gain access to our trade secrets, or disclose our technology.

We have registered a number of trademarks in the United States and in some other countries. We are also trying to register additional trademarks in the United States and in other countries. We use these trademarks in our business and advertising materials, which are distributed throughout the world.

We currently have one DUV light source competitor, Gigaphoton. Gigaphoton is a wholly owned subsidiary of Komatsu and is headquartered in Japan. Our lithography tool manufacturer customers have purchased products from Gigaphoton and have qualified Gigaphoton’s DUV light sources for use with their products. Additionally, Gigaphoton’s DUV light sources have been qualified by a number of chipmakers in Europe, Japan, other regions in Asia and the United States, and Gigaphoton has an installed base of light sources at chipmakers in these regions. We also face competition from Gigaphoton and Ushio, also headquartered in Japan, in the development of EUV source technology.

The principal elements of competition in our markets are the technical performance characteristics of the light source products and the operating efficiency of the system, which is based on availability, reliability, performance efficiency, throughput, cost of ownership, and overall quality. We believe that we compete favorably with respect to these factors. Our management receives and evaluates internally-generated market research for the U.S. and foreign markets, as well as periodic public and customized market research data in order to gauge the effectiveness of our success rate in response to such factors.

As of December 31, 2012, we employed approximately 1,100 regular and 140 temporary persons worldwide. The substantial majority of our employees are not party to a collective bargaining agreement, although we have eleven employees in France, Italy and Belgium who are subject to a collective bargaining agreement. We have not experienced work stoppages and believe that our employee relations are good.

We are subject to federal, state and local regulations, such as regulations related to the environment, land use, public utility utilization and the fire code, in connection with the storage, handling, discharge and disposal of substances that we use in our manufacturing process and in our facilities. We believe that our activities comply with current government regulations that are applicable to our operations and current facilities.

Our filings with the SEC, including our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”) are available free of charge through the Investor Relations section of our company’s website at http://www.cymer.com and are accessible as soon as reasonably practicable after being electronically filed with or furnished to the SEC. Additionally, we regularly

post copies of our press releases as well as additional information about us on our website. Interested persons can subscribe to email alerts that are sent automatically when we issue press releases, file our reports with the SEC or post certain other information to our website. Information accessible through our website does not constitute a part of this report.

Copies of this report are also available free of charge from Cymer Corporate Investor Communications, 17075 Thornmint Court, San Diego, CA 92127. In addition, our Corporate Governance Guidelines, Code of Conduct and written charters of the committees of the Board of Directors are accessible through the Corporate Governance tab in the Investor Relations section of our website and are available in print to any shareholder who requests a copy. You may read and copy materials that we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington DC 20549. Information on the operation of the Public Reference Room is available by calling the SEC at 1-800-SEC-0330. The SEC maintains a website that contains reports, proxy statements and other information we file with the SEC. The address of the SEC’s website is http://www.sec.gov.

Set forth below is certain information regarding our executive officers and their ages as of February 8, 2013.

Robert P. Akins, co-founder, has served as our chairman and chief executive officer since our inception in 1986. He currently serves on the board of directors of KLA-Tencor Corporation and in an ex-officio role of Semiconductor Equipment and Materials International (SEMI). He is also a member of the council of advisors to the Irwin and Joan Jacobs School of Engineering at the University of California, San Diego (“UCSD”), and has served on the board of the UCSD Foundation. Mr. Akins received the SEMI North America Award for contributions to the field of DUV lithography, the outstanding alumnus award from UCSD, and the 2007 William W. Otterson Award, which is awarded to the San Diego company whose products have demonstrated the most significant positive impact on society. Mr. Akins received a bachelor’s degree in physics and literature, and a doctorate in applied physics from UCSD.

Edward J. Brown, Jr. has served as our president and chief operating officer since his appointment in September 2005. From 1984 to 2005, Mr. Brown was employed at Applied Materials, Inc. where he held numerous high-level management positions including group vice president and senior advisor to the president, vice president and general manager of the Intel business unit, as well as managing director heading up their largest product division, global operations. Mr. Brown received a master’s degree in business administration from National University and a bachelor’s degree in industrial studies from San Diego State University.

Paul B. Bowman has served as our senior vice president, chief financial officer and secretary since his appointment in October 2009. From December 2008 until his appointment as chief financial officer in October 2009, he served as our interim chief financial officer, treasurer and secretary. From May 2008 until December 2008, Mr. Bowman served as our vice president of investor relations. Prior to joining us, Mr. Bowman served as chief financial officer of American Mold Guard, Inc. from April 2006 to April 2008. From 1996 to April 2006, Mr. Bowman was employed at Applied Materials, Inc., holding positions as the managing director of investor relations, managing director of finance for worldwide manufacturing and controller of the worldwide service division. Mr. Bowman received a bachelor’s degree in finance from Shippensburg State University.

Karen K. McGinnis has served as vice president, corporate controller, and chief accounting officer since her appointment in November 2009. Prior to joining us, Ms. McGinnis was employed by Insight Enterprises, Inc., a Fortune 500 global provider of information technology hardware, software and services, as chief accounting officer from September 2006 until March 2009 and as senior vice president of finance from 2001 through September 2006. Ms. McGinnis is a certified public accountant and received her bachelor’s degree in accounting from the University of Oklahoma.

Thomas J. Bondur has served as our vice president, global sales and marketing since his appointment in March 2011. From 2001 to 2011, Mr. Bondur was employed at Lam Research Corporation where he held positions in business development, sales and marketing and Global Field Operations. He most recently managed the global business development organization and had direct operational responsibility for the North America and European regions. From 1995 to 2001, Mr. Bondur was employed at Applied Materials, Inc. where he held positions in the etch product group and managed sales to large global accounts. Mr. Bondur received a bachelor’s degree in business administration from the State University of New York at Oswego.

Executive officers serve at the discretion of the board of directors. There are no family relationships between any of the directors and our executive officers.

The risks described below may not be the only risks we face. Additional risks that we do not currently believe are material may also impair our business operations. If any of the events or circumstances described in the following risks occur, our business, financial condition, results of operations or cash flows could suffer, and the trading price of our common stock and our market capitalization could decline.

The market price of ASML ordinary shares may decline following the completion of the Merger or during the period of time between the date of this Annual Report on Form 10-K and the date on which our stockholders are entitled to receive ASML ordinary shares pursuant to the Merger Agreement.

At the effective time of the Merger, each issued and outstanding share of our common stock will be converted into the right to receive fixed consideration consisting of a fixed number of ASML ordinary shares and the cash consideration and, in lieu of fractional shares, an amount in cash equal to the product obtained by multiplying (i) the average of the last reported sales price of ASML ordinary shares, as reported on NASDAQ, on each of the last five trading days ending on the third trading day immediately preceding the closing date by (ii) the fraction of an ASML ordinary share to which such holder would otherwise be entitled.

The stock consideration to be delivered to our stockholders under the Merger Agreement is fixed at 1.1502 ASML ordinary shares for each share of our common stock and will not be adjusted at any time to reflect changes in the market value of ASML ordinary shares.

The market price of ASML ordinary shares may decline at any time following the completion of the Merger if, among other reasons:

In addition, the market price of the ASML ordinary shares may fluctuate or decline during the period of time between the date of this Annual Report on Form 10-K and the date on which our stockholders entitled to receive ASML ordinary shares pursuant to the Merger Agreement actually receive ASML ordinary shares. These fluctuations may be caused by changes in the businesses, operations, results and prospects of either the Company or ASML, market expectations of the likelihood that the Merger will be completed and the timing of the completion, general market and economic conditions or other factors. The actual market value of the ASML ordinary shares, when received by our stockholders, will depend on the market value of those ASML ordinary shares on that date. This market value may be less than the value of the ASML ordinary shares at the time the Merger Agreement was signed or on the date of the Special Meeting.

The Company and ASML may be unable to obtain the regulatory approvals required to complete the Merger.

Under the HSR Act, the Merger may not be completed until notification and report forms have been filed with the U.S. Federal Trade Commission (the “FTC”), and the Antitrust Division of the U.S. Department of Justice (the “Antitrust Division”), and the applicable waiting period has expired or been terminated. The Company and ASML filed our respective notification and report forms under the HSR Act with the FTC and the Antitrust Division on November 9, 2012. Each party subsequently received a second request from the Antitrust Division in connection with the Merger. ASML and the Company are continuing to work with the Antitrust Division and working to comply promptly with these second requests.

At any time before or after the completion of the Merger, the Antitrust Division, the FTC, or a state attorney general could take any action under U.S. federal or state antitrust laws as it deems necessary or desirable in the public interest, including seeking to enjoin the Merger in federal court or seeking the divestiture of substantial assets of ASML, the Company, or our respective subsidiaries and affiliates. State attorneys general and private parties may also bring legal actions under U.S. federal or state antitrust laws under certain circumstances. There can be no assurance that a challenge to the Merger on antitrust grounds will not be made or, if a challenge is made, of the result of the challenge.

Clearances and consents or the expiration or termination of applicable waiting periods under competition laws in Germany, Israel, Japan, South Korea, and Taiwan also are conditions to the Merger. On December 17, 2012, the required clearances were received under the competition laws in Germany. On February 13, 2013, the required clearances were received under the competition laws in Israel.

In addition, ASML and the Company have agreed that the Merger is also conditioned upon the favorable review of the Merger by the Committee on Foreign Investments in the United States (“CFIUS”). This condition was satisfied on January 3, 2013, when CFIUS notified the Company and ASML that there are no unresolved national security concerns with respect to the Merger, and that CFIUS review was therefore concluded.

The Merger is subject to a number of conditions beyond our control. Failure to complete the Merger within the expected time frame or at all could adversely affect our future business and financial results and our stock price.

Completion of the Merger is subject to certain conditions, including, among others: (i) the expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, (ii) receipt of certain consents and approvals from competition regulators in other jurisdictions, , (iii) the absence of any governmental order, law, or legal restraint prohibiting the consummation of the Merger, and (iv) the listing of the ASML ordinary shares to be issued to the Company’s stockholders in the Merger on NASDAQ having been authorized. Additionally, ASML is not required to complete the Merger if there is any pending action or proceeding by any governmental entity of competent jurisdiction challenging or seeking to make illegal, to delay materially or otherwise directly or indirectly to prohibit the consummation of the Merger. The obligation of each party to consummate the Merger is also conditioned upon the accuracy of the other party’s representations and warranties, the absence of a material adverse effect, and the other party having performed in all material respects its obligations under the Merger Agreement.

We cannot predict whether and when these conditions will be satisfied. If one or more of these conditions is not satisfied, and as a result, we do not complete the Merger, or in the event the Merger is delayed for any other reason, our business may be harmed because:

Our stock price may also fluctuate significantly based on announcements by ASML and other third-parties or us regarding the Merger, or based on market perceptions of the likelihood of us obtaining regulatory approval of the Merger. Such announcements may lead to perceptions in the market that the Merger may not be completed, which could cause our stock price to fluctuate or decline. In addition, if the Merger Agreement is terminated our stock price could decline significantly.

Any of these events could harm our results of operations and financial condition and could cause a decline in the price of our common stock, particularly if the Merger does not close.

Our executive officers and directors have interests in the Merger that may be different from, or in addition to, the interests of our stockholders generally.

Our executive officers and directors have interests in the Merger that may be different from, or in addition to, the interests of our stockholders generally. These interests include:

Our Board of Directors was aware of these interests at the time it approved the Merger and the transactions contemplated by the Merger Agreement. These interests may cause our directors and executive officers to view the Merger differently and more favorably than our shareholders may view it.

The Company and ASML will incur transaction and integration costs in connection with the Merger.

ASML and the Company have incurred, and expect to continue to incur, significant costs in connection with the Merger, including the fees of their respective professional advisors. ASML also will incur integration and restructuring costs following the completion of the Merger as our operations are integrated with ASML’s operations. The synergies anticipated to arise from the Merger may not be achieved in the near term or at all, and if achieved, may not be sufficient to offset the costs associated with the Merger. Unanticipated costs, or the failure to achieve expected synergies, may have an adverse impact on the results of operations of the combined company following the completion of the Merger.

Failure to timely complete the Merger could disrupt the Company’s and ASML’s business plans and operations.

Although we anticipate that the Merger will close in the first half of 2013, the transaction is subject to governmental regulatory approvals and other customary closing conditions. The Company’s and ASML’s inability to complete the Merger on the expected schedule likely would disrupt our respective operations and require us to revise our respective business plans, and otherwise could have a material adverse effect on each company’s business and on the trading price of ASML ordinary shares and our common stock. Moreover, if the Merger is not completed, we will be subject to several risks, including having to pay certain costs relating to the Merger and diverting the focus of our management team from pursuing other opportunities that could be beneficial to us, without realizing any of the benefits that might have resulted had the Merger been completed, which could have a material adverse effect on our business and on the trading price of our common stock.

ASML and the Company may not achieve the expected benefits of the transaction.

ASML and the Company entered into the Merger Agreement with the expectation that the transaction will result in various benefits, including with respect to the development of EUV technologies. Some of those benefits may not be achieved or, if achieved, may not be achieved in the time frame in which they are expected. Whether the combined company will actually realize these anticipated benefits depends on future events and circumstances, some of which are beyond the parties’ control. EUV sources are still under development, and it is not certain that the combined company will be able to introduce commercial EUV systems on time or at all. In addition, future growth in revenues, earnings and cash flow will be partly dependent on future economic conditions and conditions in the semiconductor industry. Also, the potential synergies that ASML and the Company anticipate, including the expectation that the Merger will make EUV development more efficient, may not be realized. In addition, other risk factors discussed below may prevent the achievement of the expected advantages of the Merger.

ASML’s inability to effectively integrate our business and operations with its own could disrupt its operations and force ASML to incur unanticipated costs.

ASML’s ability to integrate our operations with its own will be important to the future success of the combined company. Successful integration is subject to numerous factors beyond ASML’s control, including adverse general and regional economic conditions, general industry trends and competition. ASML’s future performance will depend, in part, on ASML’s ability to effectively integrate our operations with its own. The failure to do so could disrupt ASML’s ongoing business, force ASML to incur unanticipated costs and adversely affect the trading price of ASML ordinary shares. If ASML is unable to realize the anticipated benefits of the Merger due to its inability to address the challenges of integrating our business or for any other reason, it could have a material adverse effect on the combined company’s financial condition and results of operations and require significant additional time on the part of its senior management dedicated to attempting to resolve integration issues.

If ASML is unable to retain key Company and/or ASML personnel after the Merger is completed, ASML’s business may suffer.

The success of the Merger will depend in part on ASML’s ability to retain key personnel currently employed by ASML and the Company. There is no assurance that ASML will be able to retain key employees of either ASML or the Company after the Merger. Current and prospective employees of ASML and the Company may experience uncertainty about their future roles with their company until after the Merger is completed. This may adversely affect the ability of both companies to attract and retain key personnel. If key employees terminate their employment, or if insufficient numbers of employees are retained to maintain effective operations, management’s attention might be diverted from successfully integrating our operations to hiring suitable replacements, and ASML’s business might suffer. In addition, ASML might not be able to locate suitable replacements for any key employees that leave ASML or Cymer.

Our revenue and operating results from quarter to quarter and year to year have varied in the past and our future operating results may continue to fluctuate significantly.

Factors that contribute to fluctuations in our revenue and operating results include:

Revenue from installed base products has grown as a percentage of our total revenue. The revenue from the operation of our installed base of light source systems depend on the rate at which our customers use these light source systems, the rate of growth of our installed base, and the mix of pulses from our various light source models. Our operating results for a particular period may be adversely affected if our customers reduce usage rates, or change their buying patterns, or if we incur higher parts replacement or service costs. Because we sell a limited number of light source systems, the precise timing for recognizing revenue from an order may have a significant effect on our total revenue for a particular period. As is the practice in our industry, our customers may cancel or reschedule orders with little or no penalty. Orders expected in one quarter could shift to another period due to changes in the anticipated timing of our customers’ purchase decisions or rescheduled delivery dates requested by our customers. Our operating results for a particular quarter or year may be adversely affected if our customers cancel or reschedule orders, or if we cannot fill orders timely due to unexpected delays in manufacturing, testing, shipping, or product acceptance or due to an unexpected material surge in demand. Our light source systems used in a production environment generate installed base product revenue based on system usage, which may also vary period to period. Additionally, we may be required to defer revenue associated with contracts that contain multiple deliverables.

We manage our expense levels based, in large part, on expected future revenue. As a result, if our actual revenue decreases below the level we expect, or we are not successful in aligning our manufacturing cost structure with decreasing production levels, our operating results will be adversely affected. As a result of these or other factors, we could fail to achieve our expectations as to future revenue, gross profit and gross margin, operating income, net income, earnings per share, and cash flows. Our failure to meet the performance expectations set and published by external sources could result in a sudden and significant drop in the price of our stock, particularly on a short-term basis, and could negatively affect the value of any investment in our stock.

Our business depends on the semiconductor and the semiconductor capital equipment industries, which are volatile and unpredictable.

We derive the majority of our revenue from our lithography tool manufacturer customers who, as original equipment manufacturers (“OEMs”), incorporate our light source systems in photolithography tools that they sell to semiconductor manufacturers, or chipmakers, and from our chipmaker customers who purchase installed base products directly from us in support of their light source systems. Like us, our OEM customers depend on market demand for their products from the chipmakers. This market demand can be volatile and unpredictable and can affect our ability to accurately predict future revenue and, therefore, our ability to manage our future expense levels. When cyclical fluctuations result in lower than expected revenue levels, operating results may be adversely affected and cost reduction actions may be necessary in order for us to remain competitive and financially stable. During a down cycle or slowdown, we must adjust our cost and expense structure to prevailing market conditions while maintaining our longer term strategies and motivating and retaining our key employees. In contrast, during periods of rapid growth, we must quickly increase manufacturing capacity and personnel to meet our customers’ needs. We can provide no assurance that these objectives can be met in a timely manner in response to industry cycles. We are not able to predict with any certainty the duration of any industry cycle or the timing or order of magnitude of any recovery from a down cycle or slowdown.

Downturns in the semiconductor industry often result in decreases in demand for semiconductor manufacturing equipment, including the photolithography tools that our OEM customers produce. Downturns in the semiconductor industry have generally had severe effects on the demand for semiconductor manufacturing equipment and to a lesser extent, the associated installed base products. Fluctuating levels of investment by chipmakers and resulting pricing volatility will continue to materially affect our aggregate bookings, revenue and operating results. Even during periods of reduced revenue, we believe we must continue to invest in research and

development and maintain extensive ongoing worldwide customer support capabilities to meet our customers’ needs and to remain competitive. Continued spending to further these objectives may temporarily harm our financial results. Semiconductor industry downturns and slowdowns will likely continue to adversely affect our business, financial condition and operating results. While revenue from installed base products has grown as a percentage of our total revenue, we continue to derive a significant percentage of our revenue from the sales of light source systems. Market conditions in the semiconductor industry and our OEM customers’ production efficiency can cause them to expand or reduce their orders for new light source systems as they try to manage their inventories and production requirements. We continue to work closely with our OEM customers to better understand these issues. However, we cannot guarantee that we will be successful in understanding our OEM customers’ inventory management or production requirements or that our OEM customers will not build up an excess inventory of light source systems. If our OEM customers retain an excess inventory of light source systems, our revenue could be reduced in future periods as the excess inventory is utilized, which could adversely affect our operating results, financial condition and cash flows. If our OEM customers demand shorter product lead times to improve their inventory and cash positions, our inventory management and cash position may be negatively affected, which may adversely affect our operating results, financial condition and cash flows.

Our EUV sources are still under development and not yet capable of supporting the commercial production of integrated circuits; Our EUV sources could fail to meet customer specifications or not be delivered on time.

We are investing significant financial and other resources to develop EUV source technology for chip manufacturing. These expenditures are reflected in our research and development expenses in our consolidated statements of operations, as well as inventory and property, plant and equipment in our consolidated balance sheets.

As of December 31, 2012, we have shipped, received customer acceptance and recorded revenue for six EUV 3100 pilot sources. We also received orders for our next generation EUV 3300 sources. We currently record revenue associated with EUV sources when customer acceptance is received equal to amounts that are fixed and determinable at the date of acceptance.

Our EUV sources are still under development and not yet capable of supporting the commercial production of integrated circuits. The technology underlying EUV is extremely complex, and we have experienced some delays that have put us behind schedule in our EUV source development. We may not be able to introduce commercial EUV systems on time, or at all. If we are not able to meet customer specifications, or have reliability or performance problems, or if the pilot sources and eventually commercial systems do not meet customer specifications or are not introduced on time, or if our inventory balances exceed the net realizable value under the related contracts, or if a competitor’s source is selected over our source, we may experience any or all of the following: the need to record impairment charges to our inventory and/or property, plant and equipment, reduced orders, order cancellations, higher manufacturing costs, delays in acceptance of and payment for new products, product rejections, and additional service and warranty expenses. These risks could also damage our reputation among the initial adopters of EUV source technology and limit our ability to penetrate the market. For example, we have entered into a supply agreement for EUV sources with ASML, one of our significant customers for DUV light sources. Significant setbacks in our EUV program, or disagreement with ASML regarding its specifications for commercial systems, could impact the amount and timing of purchases of DUV light sources by ASML. Any of these risks could have a material adverse effect on our operating results, financial condition and cash flows.

A significant percentage of our revenue is derived from sales to a limited number of customers, and if we are not able to retain these customers, or they reschedule, reduce or cancel orders, or delay or default on payments, we may experience material adverse effects on our operating results, financial condition and cash flows.

ASML and Nikon, two large companies that dominate the photolithography tool business and Hynix and Samsung, two of our chipmaker customers that purchase our installed base products, accounted for the following percentages of our revenue during the periods indicated:

We expect that sales to these customers will continue to account for a substantial portion of our revenue in the foreseeable future. None of our customers are obligated to purchase a minimum number of our products in the aggregate or during any particular period. We can provide no assurance that any of our customers will continue to purchase our products at past or current levels. Sales to any of these customers may be affected by many factors, some of which are beyond our control. These factors include:

These companies accounted for the following percentages of our total accounts receivable at the dates indicated:

We believe there is limited credit risk exposure for us with these companies who continue to demonstrate sound creditworthiness. However, our ability to generate future revenue and collect accounts receivable from them is dependent on their ongoing financial condition and liquidity.

The loss of any significant business from, or production problems or disruption due to natural disasters for, any one of these customers may have a material adverse effect on our operating results, financial condition and cash flows.

The majority of our revenue is derived from selling our light source systems and supporting the installed base of light source systems being used in production.

We expect sales of our light source systems, including KrF and ArF systems, and the products in support of the installed base of light source systems to continue to account for a majority of our revenue in the near term. Continued market acceptance of our light source systems and installed base products is, therefore, critical to our future success. The rate at which chipmakers adopt light sources may vary, for reasons including:

We cannot guarantee that these factors can or will be overcome or that the demand for our light source systems and installed base products will not be materially reduced. The demand for our light source systems and installed base products, and therefore our operating results, financial condition and cash flows could be adversely affected by a number of factors, including:

We depend on a few key suppliers for purchasing components and subassemblies that are included in our products.

We purchase a limited number of components and subassemblies included in our light source systems and installed base products from a single supplier or a small group of suppliers. There may also be single source suppliers that we are not aware of for components of our purchased subassemblies. To reduce the risk associated with these suppliers, we have supply agreements in place and carry a strategic inventory of these components. Strategic inventories are managed as a percentage of future demand. In some cases, we procure components through distributors with access to multiple suppliers to minimize the risk of single-sourced components. In

addition, we contract for the manufacture of various subassemblies of our products and depend on our contract manufacturers to deliver to our required specifications, schedule, and quality standards. Further, some of our suppliers have specialized in supplying equipment or manufacturing services to semiconductor equipment manufacturers and, therefore, are susceptible to industry fluctuations and subject to the same risks and uncertainties as we are regarding the ability to respond to changing market and global economic conditions. Because many of these suppliers reduce their workforce in an industry downturn and rehire in an upturn, they may not be able to meet our requirements or respond quickly enough as an upturn begins and gains momentum. Due to the nature of our product development requirements, these key suppliers must rapidly advance their own technologies and production capabilities in order to support the introduction schedule of our new products. These suppliers may not be able to provide new modules and subassemblies when they are needed to satisfy our manufacturing and delivery schedules. These suppliers may also be adversely affected by economic conditions, which could result in a lack of available capital and limit their ability to access such capital, if needed, to fund their operations. In addition, if we cannot purchase enough of these materials, components or subassemblies, or if these items do not meet our quality standards, there could be delays or reductions in our product shipments, which may have a material adverse effect on our business, operating results, financial condition and cash flows.

We depend on the introduction of new products for our success, and we are subject to risks associated with rapid technological change.

The development, introduction and support of new products in a competitive business environment are complex processes and could be expensive. New or improved products may lead to higher costs and perhaps reduced profits. Rapid technological changes in semiconductor manufacturing processes subject us to increased pressure to develop technological advances which enable such processes. We believe that our future success depends in part upon our ability to develop, manufacture, and support new light source products with improved capabilities on a timely basis and to continue to enhance our existing product and process capabilities. Due to the risks inherent in transitioning to new products, we must forecast accurate demand for new products while managing the transition from established products. After our chipmaker customers have built their capacity to levels appropriate to meet existing demand, their demand for our light source products will depend, in part, on their sales forecasts, their estimates regarding the duration and magnitude of the current industry cycle and whether their projected manufacturing process yields will enable ongoing investments at a suitable level of capacity. To provide our customers with more productive and lower cost of operation systems, our existing light source systems and their process capabilities must be enhanced, and we must develop and manufacture new products, such as EUV sources, to continue to grow our business. We cannot guarantee that we will be able to grow our business. We may not be able to develop and introduce new sources, products or enhancements to our existing products and processes in a timely or cost effective manner that satisfies customer needs or achieves market acceptance. Development of new sources, products and enhancements to existing products represent significant investments of our resources, and there is no guarantee that we will realize a return on these investments. Further, we may not be able to effectively integrate new sources, products and applications into our current operations. Any of these risks could have a material adverse effect on our operating results, financial condition and cash flows.

Current technologies that are still being developed and commercialized, such as EUV, and future technologies such as nano-imprint lithography and certain maskless lithography techniques may render our existing light source systems and products obsolete. We must manage product transitions, as the introduction of new products could have a negative adverse effect on our sales of existing products.

In the fourth quarter of 2012, in connection with the preparation of the year-end financial statements, we evaluated the demand for our display products. Based on this evaluation, we determined that the carrying value of assets in the display product business required adjustments consisting of a write-down to inventory of $48.2 million to properly reflect lower of cost or market and a $5.1 million impairment of equipment used in the manufacturing or research and development of display product tools. In addition, in the fourth quarter of 2012, we accrued expenses of $12.2 million relating to firm purchase commitments for inventory and research and

development costs that will no longer be utilized. For further discussion, see Note 15 “Segment and Geographic Information” and Note 18 “Subsequent Events” to our Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.

Global economic conditions could affect our revenue and operating results.

A general weakening of, or declining corporate or consumer confidence in, the global economy, or a reduction in corporate or consumer spending, could delay or significantly decrease purchases of our products by our customers, which are driven in part by indirect consumer demand for the electronic devices that contain semiconductor chips. It could also decrease revenue from our installed base products by causing our chipmaker customers to reduce their usage rates. Our revenue and operating results will be affected by uncertain or changing economic and market conditions including inflation, deflation, prolonged weak consumer demand or other changes which may affect the principal markets in which we conduct business. If economic or market conditions in the United States or other key global markets deteriorate, we may experience material adverse effects on our business, operating results, financial condition and cash flows.

Adverse economic and market conditions could also harm our business by negatively affecting the parties with whom we do business, including our business partners, our customers and our suppliers. These conditions could impair the ability of our customers to pay for products they have purchased from us. As a result, allowances for doubtful accounts and write-offs of accounts receivable from our customers may increase. In addition, our suppliers may experience financial difficulties that could negatively affect their operations and their ability to supply us with the parts we need to manufacture our products.

We face competition in the DUV and EUV lithography market and could face additional competition if other competitors enter the market.

Our future performance depends, in part, upon our ability to continue to compete successfully worldwide. The principal elements of competition in our markets are the technical performance characteristics of light source products and the operating efficiency of the system, which is based on availability, reliability, performance efficiency, cost of ownership, and overall quality.

We currently have one DUV light source competitor, Gigaphoton. Gigaphoton is a wholly owned subsidiary of Komatsu and is headquartered in Japan. Our customers have purchased products from Gigaphoton and have qualified Gigaphoton’s DUV light source systems for use with their products. Additionally, Gigaphoton’s DUV light sources have been qualified by a number of chipmakers in Europe, Japan, other regions in Asia and the United States, and Gigaphoton has an installed base of light source systems at chipmakers in these regions. We also face competition from Gigaphoton and Ushio, also headquartered in Japan, in the development of EUV source technology.

Future competitors may develop systems and products that are competitive to our products. This competition may affect our ability to sell our products. Larger companies with substantially greater resources, such as other manufacturers of industrial light sources for advanced lithography, may attempt to sell competitive products to our customers. Potential competitors may also be attracted to our growing installed base of DUV light sources which represents a significant revenue stream for us, and they may attempt to supply replacement parts to our customer base. If any existing or future competitors gain market acceptance, we could lose market share and our growth could slow or decline, which could have a material adverse effect on our business, operating results, financial condition and cash flows.

In order to respond to the business cycles of the semiconductor industry and overall economic conditions, we must constantly adjust our business plan and cost structure. As the semiconductor equipment industry cycle moves between contraction and growth and the condition of the global economy changes, we need to:

If we fail to effectively manage changes in our business, we may experience a material adverse effect on our operating results, financial condition and cash flows.

Any failure to manage our inventory levels and our inventory controls at our widely dispersed operations could adversely affect our business, operating results, financial condition and cash flows.

We need to continually evaluate and monitor the adequacy of our inventory levels. We also need to closely manage the levels of obsolete and excess parts. We have inventory located at warehouses at our corporate office in the United States and at bonded warehouses and customer locations throughout Asia, Europe and North America. The success of our business depends to a significant degree on our ability to maintain or increase the sales of our products in the markets in which we do business. If we overestimate demand for our products or the overall condition of the global economy, we could experience excess inventory levels and use unnecessary cash. As a result of such excess inventory, we may be required to significantly write down the value of our inventory, which would negatively affect our operating results and financial condition.

We could also sustain a loss in the event of a catastrophe in any of the locations where we maintain our inventory if our insurance is inadequate to cover such losses. We will be required to continually analyze the sufficiency of our inventory distribution systems in order to support our operations. We may not adequately anticipate all of the changing demands that will be imposed on these systems. An inability or failure to update our internal inventory distribution systems or procedures, as required, could have a material adverse effect on our business, operating results and financial condition.

International operations expose us to foreign currency exchange rate fluctuations for all foreign currencies in which we do business and we may be materially adversely affected by these fluctuations.

We have international subsidiaries that operate in foreign currencies. All of our international subsidiaries purchase inventory in U.S. Dollars from either our manufacturing facility in San Diego or from our South Korean subsidiary and, in many cases, resell these products to their customers in their local currency. In addition, we purchase certain inventory in Euros. We hedge the foreign currency risks associated with these intercompany transactions by entering into forward contracts. Although we enter into such forward contracts, they may not be

adequate to eliminate the risk of foreign currency exchange rate exposures. Specifically, there is concern regarding the overall stability of the Euro and the future of the Euro as a single currency given the diverse economic and political circumstances in individual Eurozone countries. Potential negative developments and market perceptions related to the Euro could adversely affect the value of our Euro-denominated assets, as well as those of customers and suppliers.

We have taken steps to mitigate our foreign currency exchange risks; however, these steps may fail to sufficiently hedge or otherwise manage our foreign currency risks properly and could have a material adverse effect on our operating results and financial condition.

International operations also expose us to currency fluctuations as we translate the financial statements of our international subsidiaries to U.S. Dollars, and a significant strengthening of the U.S. Dollar relative to international currencies would increase the effective prices our customers pay for our products, potentially reducing demand for them.

Failure to effectively maintain our direct service support operations could have a material adverse effect on our business.

We believe it is critical for us to provide direct, quick and responsive support to our chipmaker and direct customers who use our light source products in their photolithography systems. It is also essential to have well trained field service engineers to provide the high level of support that our customers have come to expect. Accordingly, we have an ongoing effort to develop our direct support system with service locations in China, Europe, Japan, Singapore, South Korea, Taiwan and the United States. This requires us to do the following:

We may not be able to attract and train qualified personnel to maintain our direct support operations successfully. Further, we may incur significant costs in providing this support. Failure to implement our direct support operation effectively could harm our operating results, financial condition and cash flows.

We are dependent on our suppliers and manufacturing facilities to assemble and test our products.

Operations at our primary manufacturing facility in San Diego and refurbishment facility in South Korea and operations at our suppliers are subject to disruption for a variety of reasons, including, but not limited to, work stoppages, terrorism, political turmoil, fire, natural disasters, or energy shortages. Such disruptions could cause delays in shipments of our products to our customers. Our San Diego facility, where we build our light source systems and replacement parts, poses the greatest risk. We provide no assurance that alternate production capacity would be available if a major disruption were to occur or that, if it were available, it could be obtained on favorable terms, or at all. Such disruption could result in cancellation of orders or loss of customers, which would have a material adverse effect on our operating results, financial condition and cash flows.

We depend on key personnel, particularly management and technical personnel, who may be difficult to attract and retain.

We are highly dependent on the services of many key employees in various areas, including:

In particular, there are a limited number of experts in DUV and EUV source technology, and we require highly skilled hardware and software engineers. Competition for qualified personnel is intense and we cannot guarantee that we will be able to continue to attract and retain qualified personnel. We believe our future growth and operating results will depend on the following:

We grant equity awards to key employees. Stock options, performance-based restricted stock unit awards and restricted stock unit awards may not be viewed by key employees as a sufficient financial incentive during periods when stock price volatility could cause our stock price to fall, reducing the effectiveness of such awards as a means to retain and incentivize these employees. If we are unable to hire, train and retain key personnel as required, our operating results, financial condition and cash flows could be adversely affected.

Economic, political, regulatory and other events in geographic areas where we have significant revenue or operations could interfere with our business.

We serve a global market and a large portion of our revenue is derived from customers outside of the United States. We expect our international sales to continue to account for the majority of our total revenue. In order to support our foreign customers, we maintain a refurbishment facility in South Korea as well as field support facilities in China, Japan, the Netherlands, Singapore and Taiwan.

Various factors may inhibit our ability to manage our operations to address and support our global customers effectively. Further, our investments in these types of activities may not be viably competitive in the global market, or we may not be able to meet the support or manufacturing levels required by our global customers. Additionally, we are subject to risks inherent in doing business globally, including but not limited to:

A significant portion of our customer base is located in Asia. Political turmoil, economic problems and currency fluctuations affecting Asia could increase our risk in that region. It has not been difficult for us to comply with United States export controls; however, changes to these controls in the future could make it more difficult or impossible for us to export our products to many countries. There are certain risks for which we purchase limited or no insurance, including earthquake risk. Any of these vulnerabilities could have a material adverse effect on our business, operating results, financial condition and cash flows.

Currently, eleven of our international employees are members of a labor union; however, none of our United States employees are members of a labor union. If a greater number of our employees decide to join a union, our cost of doing business could increase, and we could experience contract delays, difficulty in adapting to a changing regulatory and economic environment, cultural conflicts between unionized and non-unionized employees, strikes and work stoppages, any of which could have a material adverse effect on our business, financial condition and operating results.

Our ability to compete could be jeopardized if we are unable to protect our intellectual property rights. These types of claims could seriously harm our business or require us to incur significant costs.

We believe our success and ability to compete depend in part upon protecting our proprietary technology. We rely on a combination of patent, trade secret, copyright and trademark laws, nondisclosure and other contractual agreements and technical measures to protect our proprietary rights. We own and have numerous patents pending in the United States and various foreign countries covering certain aspects of technology related to our light source systems. Patents related to our source technologies and piezoelectric techniques will expire at various times through 2031.

Our pending patent applications and any future applications might not be approved. Our patents may not provide us with a competitive advantage and may be successfully challenged by third parties. In addition, third parties’ patents might have an adverse effect on our ability to do business. Due to cost constraints, we do not seek international patent protection for all inventions that are covered by United States patents and patent applications. As a result, we do not have foreign patent protection for some of our inventions. Additionally, laws of some foreign countries in which our products are or may be developed, manufactured or sold, including various countries in Asia, may not protect our products or intellectual property rights to the same extent as do the laws of the United States Therefore, the likelihood of piracy of our technology and products is greater in these countries. Further, third parties might independently develop similar products, duplicate our products, or design around patents that are granted to us.

Other companies or persons may file or have filed patent applications that are similar or identical to ours. As a result, we may have to participate in appropriate proceedings in the courts or the patent offices to determine the priority of inventions. These proceedings may determine that these third-party patent applications have priority over our patent applications. Loss of priority in these interference proceedings could result in substantial cost to us and loss of rights.

We also rely on the following to protect our confidential information and our other intellectual property:

However, we may not be successful in protecting our confidential information or intellectual property, particularly our trade secrets, because third parties may:

We may be subject to patent litigation to enforce patents issued to us or defend ourselves against claimed infringement by our competitor or any other third party.

Third parties have notified us in the past, and may notify us in the future, that we are infringing their intellectual property rights. Also, we have notified third parties in the past, and may notify them in the future, that they may be infringing our intellectual property rights. In the future, patent litigation may result due to a claim of infringement by our competitor or any other third party or may be necessary to enforce patents issued to us. Any such litigation could result in substantial cost to us and diversion from our primary business efforts, which would have an adverse effect on our business, financial condition and operating results. Furthermore, our customers and the end-users of our products might assert other claims for indemnification that arise from infringement claims against them. If these assertions are successful, it may have a material adverse effect on our business, operating results, financial condition and cash flows. Instead of litigation, or as a result thereof, we may seek a license from third parties to use their intellectual property. However, we may not be able to obtain a license. Alternatively, we may design around the third party’s intellectual property rights or we may challenge these claims in legal proceedings. Any adverse determination in a legal proceeding could result in one or more of the following:

Any of these actions could be costly and would divert the efforts and attention of our management and technical personnel, which could have a material adverse effect on our business, operating results, financial condition and cash flows.

If our goodwill, amortizable intangible assets or property, plant and equipment become impaired, we may be required to record a significant charge to earnings.

We review our amortizable intangible assets, which are primarily patents, and our property, plant and equipment, for impairment when events or changes in circumstances indicate that their carrying value may not be recoverable. Goodwill is also tested for impairment at least annually and more often if certain triggering events or circumstances occur. Factors that may be considered to be a change in circumstances that would indicate the carrying value of our goodwill, amortizable intangible assets or property, plant and equipment may not be recoverable include reduced future cash flow estimates for our company, a decline in our stock price and market capitalization, slower growth rates in our industry and adverse global economic conditions. If, as a result of our impairment test, it is determined that our goodwill, amortizable intangible assets or property plant and equipment is impaired, we may be required to record a significant write down in our financial statements during the period in which such impairment is determined, which may have a material adverse effect on our operating results. For example, in the fourth quarter of 2012, lack of demand for our display products triggered an asset impairment test

associated with our display products business. The impairment test resulted in a $5.1 million impairment of equipment used in the manufacturing or research and development of display product tools. For further discussion, see Note 15 “Segment and Geographic Information” and Note 18 “Subsequent Events” to our Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.

Our investments in marketable securities are subject to market, interest and credit risk that may reduce their value.

The value of our investments in marketable securities may be adversely affected by changes in interest rates, downgrades in the creditworthiness of bonds we hold, turmoil in the credit markets and financial services industry and by other factors which may result in other than temporary declines in the value of our investments. Each of these events may cause us to record charges to reduce the carrying value of our investment portfolio, which could have a material adverse effect on our operating results and financial position.

Changes in our effective tax rate may have a material adverse effect on our operating results, financial position and cash flows.

Our future effective tax rate may be adversely affected by a number of factors including:

An adverse change in our future effective tax rate could in turn, adversely affect our operating results, financial position and cash flows.

Our worldwide income tax provisions and other tax accruals may be insufficient if any taxing authorities assume taxing positions that are contrary to our positions and those contrary positions are sustained.

We are subject to taxation in the United States and in various states and foreign jurisdictions. Significant judgment is required in determining our worldwide provision for income taxes and for our accruals for state, federal and international income taxes together with transaction taxes such as sales tax, value added tax, and goods and services tax. In the ordinary course of a global business, there are many transactions for which the ultimate tax outcome is uncertain. Although we believe that our approach to determining our worldwide income tax provisions and other tax accruals is consistent with prevailing legislative interpretation, no assurance can be given that the final tax authority review of these matters will agree with our determinations. Such differences could have a material effect on our income tax provisions or benefits, or other tax accruals, in the period in which such determination is made, and consequently, on our results of operations for such period.

From time to time, we are audited by various state, federal and tax authorities of the countries in which we operate. Our tax years 2009 and forward are subject to examination by the IRS, our tax years 2000 and forward are subject to examination by material state jurisdictions, and our tax years 2004 and forward are subject to

examination by material foreign jurisdictions. Several of our subsidiaries are currently under audit or appeal. No outcome for a particular audit can be determined with certainty prior to the conclusion of the audit and any appeals process.

As each audit progresses and is ultimately concluded, adjustments, if any, will be recorded in our financial statements from time to time in light of prevailing facts based on our and the taxing authority’s respective positions on any disputed matters. We provide for potential tax exposures by accruing for uncertain tax positions based on judgment and estimates including historical audit results. If the reserves are insufficient or we are not able to establish a reserve under GAAP prior to completion or during the progression of any audits, there could be an adverse impact on our financial position and results of operations when an audit assessment is made.

It is reasonably possible that the examination phase of our current audits or appeals may conclude in the next 12 months, and that the related tax reserves or unrecognized tax benefits for uncertain tax positions may change, potentially having a material effect on our effective tax rate and our results of operations. In addition, our external costs of contesting and settling any dispute with the tax authorities could be substantial and adversely impact our financial position and results of operation.

We may not have sufficient cash to fund our current operations and future growth plans.

We believe that our cash resources remain sufficient for our planned operations; however, if global economic conditions deteriorate, our business conditions worsen, our plans change or other unanticipated events occur, we may need to raise additional cash through the establishment of financing facilities or the sale of equity or debt securities to fund our operations. Depending on market conditions, it could be difficult for us to raise the additional cash needed without incurring significant dilution of our existing stockholders or agreeing to significant restrictions on our ability to operate as currently planned. If we were unable to raise additional cash in such circumstances, we could be required to reduce costs through the delay, reduction or curtailment of our operating plan, including reductions in our global workforce or other cost reduction actions, any of which could have a material adverse effect on our operating results, financial condition or cash flows.

At December 31, 2012, we have $42.1 million of cash and cash equivalents in foreign subsidiaries. In the event these cash amounts are needed to fund operations in the U.S., we believe we would not be liable for U.S. taxes in connection with repatriating these funds given that these funds would be used to repay existing intercompany payables and/or loans due to the U.S. parent company.

The integration and operation of a business acquisition may disrupt our business and create additional expenses, and we may not achieve the anticipated benefits of the acquisition. We may also acquire other businesses or enter new markets that will involve numerous risks. We may not be able to address these risks successfully without substantial expense, delay or other operational and financial challenges.

The risks involved with acquisitions, mergers, and joint ventures or entering a new market include the following:

The success of an acquisition assumes certain synergies and other benefits. We cannot assure you that these risks or other unforeseen factors will not offset the intended benefits of the acquisition, in whole or in part. The magnitude, timing and nature of any future acquisitions or investments will depend on a number of factors, including the availability of suitable candidates, the negotiation of acceptable terms, our financial capabilities and general economic and business conditions. Financing for future transactions would result in the utilization of cash, incurrence of debt, issuance of stock or some combination of the three. Further, any business that we acquire, any joint venture that we form, or new market we may enter may not achieve anticipated revenue or operating results and the costs of such activity may have a material adverse effect on our operating results, financial condition or cash flows.

We may experience difficulties with our enterprise resource planning (“ERP”) system or other critical information systems that we use for the daily operations of our business. System failure, malfunction, security breaches due to cyber attacks by third parties or loss of data contained in these information systems may result in disruption of our operations and result in our inability to process transactions, and this could adversely affect our financial results.

System failure, malfunction, security breaches due to cyber attacks by third parties or loss of data housed in our critical information systems could disrupt our ability to timely and accurately process transactions and produce key financial reports, including information on our operating results, financial position and cash flows. Any disruptions or difficulties that may occur in connection with our ERP system or other critical systems could also adversely affect our ability to complete important business processes such as the evaluation of our internal controls and attestation activities pursuant to Section 404 of the Sarbanes-Oxley Act of 2002. We also regularly upgrade our information systems hardware and software to better meet the information requirements needed to effectively manage our business. If we encounter unforeseen problems with regard to our ERP system or other critical information systems, including those encountered during system upgrades, our business could be adversely affected.

Compliance with changing regulations and standards for accounting, corporate governance and public disclosure may result in additional expenses.

Changing regulatory requirements for corporate governance and public disclosure including SEC regulations, NASDAQ Stock Market rules, and the Financial Accounting Standards Board’s accounting standards requirements and the expected future requirement to transition to or converge with international financial reporting standards are creating uncertainty and additional complexities for publicly held companies such as ours. For example, in July 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act, or the Dodd-Frank Act, was enacted. There are significant corporate governance and executive compensation related provisions in the Dodd-Frank Act that require the SEC to adopt additional rules and regulations in these areas such as “say on pay” and proxy access. On August 22, 2012 the SEC adopted new requirements under the Dodd-Frank Act for companies that use certain minerals and metals known as conflict minerals in their products, whether or not these products are manufactured by third parties. These requirements will require companies to annually assess whether a conflict mineral is necessary to the functionality or production of any of their products. If so, companies must perform due diligence, disclose in SEC filings and prepare specific reports regarding whether or not such minerals originate from the Democratic Republic of Congo and adjoining countries. The implementation of these new requirements could adversely affect the sourcing, availability and pricing of minerals used in the manufacture of semiconductor devices, including our products. In addition, we will incur additional costs to comply with the disclosure requirements, including costs related to determining the source of

any of the relevant minerals and metals used in our products. Since our supply chain is complex, we may not be able to sufficiently verify the origins for these minerals and metals used in our products through the due diligence procedures that we implement, which may harm our reputation. In such event, we may also face difficulties in satisfying customers who require that all of the components of our products are certified as conflict mineral free.

Stockholder activism, the current political environment, financial reform legislation and the current high level of government intervention and regulatory reform may lead to substantial new regulations and disclosure obligations, which may lead to additional compliance costs and impact (in ways we cannot currently anticipate) the manner in which we operate our business. To maintain high standards of corporate governance and public disclosure, we intend to invest all reasonably necessary resources to comply with such compliance programs and rules and all other evolving standards. These investments may result in increased general and administrative costs and a diversion of our management’s time and attention from strategic revenue generating and cost management activities.

We are dependent on air transport to conduct our business and disruption of domestic and international air transport systems could adversely affect our business.

We depend on regular and reliable air transportation on a worldwide basis for many of our routine business functions. If civil aviation in the United States or abroad is disrupted by terrorist activities or security responses to the threat of terrorism, regulatory compliance issues, weather or atmospheric conditions or for any other reason, our business could be adversely affected in the following ways:

We are subject to many standards and regulations of foreign governments and, even though we intend to comply, we may not always be in compliance with these rules, or we may be unable to design or redesign our products to comply with these rules.

Many foreign government standards and regulations apply to our products and these standards and regulations are frequently being amended. Although we intend to meet all foreign standards and regulations, our products may not comply with all of them. Further, it might not be cost effective for us to redesign our products to comply with these foreign government standards and regulations. If we are unable to design products to fully comply with foreign standards, a failure to comply could have a material adverse effect on our business.

Our chipmaker customers’ prolonged use of our products in high volume production may not produce the results they desire and, as a result, our reputation and that of our customers who supply photolithography tools to the chipmakers could be damaged in the semiconductor industry.

Over time, our light source products may not meet our chipmaker customers’ production specifications or operating cost requirements after the light source has been used for a long period in high volume production. If any chipmaker cannot successfully achieve or sustain their volume production using our light sources, our reputation could be damaged with them and with lithography tool manufacturers. This would have a negative effect on our business.

Our operations are subject to environmental and other government regulations that may expose us to liabilities for noncompliance.

substances that we use in our manufacturing process and in our facilities. We believe that our activities comply with current government regulations that are applicable to our operations and current facilities. We may be required to purchase additional capital equipment or meet other requirements to comply with these government regulations in the future, if they change. Further, these government regulations may restrict us from expanding our operations. Adopting measures to comply with changes in the government regulations, our failure to comply with environmental and land use regulations, or restrictions on our ability to discharge hazardous substances, could subject us to future liability or cause our manufacturing operations to be reduced or stopped. This could have a material adverse effect on our business, operating results, financial condition and cash flows.

Our products are subject to potential product liability claims if personal injury or death results from their use.

We are exposed to significant risks for product liability claims if personal injury or death results from the use of our products. We may experience material product liability losses in the future. We maintain insurance against product liability claims; however, our insurance coverage may not continue to be available on terms that are acceptable to us. This insurance coverage also may not adequately cover liabilities that we incur. Further, if our products are defective, we may be required to recall or redesign these products. A successful claim against us that exceeds our insurance coverage level, or any claim or product recall that results in adverse publicity against us, could have a material adverse effect on our business, operating results, financial condition and cash flows.

Disputes may arise over the ownership of intellectual property resulting from our research and development activities that have been partially funded by other parties.

In the past, we have occasionally received funds through research and development arrangements with third parties to pay for a portion of our research and development costs associated with the design and development of specific products. Additionally, funds from lithography tool manufacturers and chipmaker customers have been used to fund a portion of our source systems research and development efforts. In connection with providing these research and development services, we try to make contractually clear who owns the intellectual property that results from such activities. Disputes over the ownership or rights to use or market the resulting intellectual property could arise between the funding organizations and us. Any dispute over ownership of the intellectual property we develop or have developed could restrict our ability to market our products and have a material adverse effect on our business.

Trademark infringement claims against our registered and unregistered trademarks would be expensive and we may have to stop using such trademarks and pay damages.

We have registered a number of trademarks including “CYMER” in the United States and in some other countries. We are also trying to register additional trademarks in the United States and in other countries. These registrations in other countries, or any new registrations we may undertake in the United States, could be unsuccessful.

We use these trademarks in the course of our business and in advertising materials, which are distributed throughout the world. While we take precautions against trademark infringement before using our trademarks in new markets, we may be subject to claims of trademark infringement. The process of negotiating a settlement or coexistence agreement to allow us to continue using our trademarks in a particular market could be expensive or distract us from our primary business efforts, potentially adversely affecting our financial condition or operations. Furthermore, if we must undertake negotiations, and the negotiations are ultimately unsuccessful, we would either need to discontinue using the trademarks in the new market, risk facing litigation or potentially pay damages. Even if we ultimately prevail, litigation could be expensive or distract us from our primary business efforts.

The price of our common stock has fluctuated and may continue to fluctuate widely.

The price of our common stock has historically been subject to fluctuations and could continue to fluctuate in response to a variety of factors, including the risk factors contained in this report.

Various factors may significantly affect the market price and volatility of our common stock, including:

Stock markets in the United States can experience extraordinary volatility. Severe price fluctuations in a company’s stock have frequently been followed by securities litigation. If such litigation were initiated against us, it may result in substantial costs and a diversion of management’s attention and resources and, therefore, could have a material adverse effect on our business, operating results, financial condition and cash flows.

Some anti-takeover provisions contained in our articles of incorporation and bylaws, as well as provisions of Nevada law and our executive employment contracts, could impair a takeover attempt.

Our articles of incorporation and bylaws contain provisions which could have the effect (separately, or in combination) of rendering more difficult or discouraging a merger, acquisition or other change of control deemed undesirable by our Board of Directors. These include provisions:

These provisions, alone or together, could deter or delay hostile takeovers, proxy contests and changes in control or management.

As a Nevada corporation, we are subject to Nevada law. Nevada law does not grant stockholders the authority to call a special meeting unless the corporation’s articles of incorporation or bylaws otherwise provide; neither our articles of incorporation nor our bylaws contain such a provision. Nevada law may also limit the ability of certain stockholders to engage in certain business combinations with us and may limit the voting rights of stockholders who acquire 20% or more of our outstanding shares. Either limitation could discourage or increase the difficulty of an attempted merger, acquisition or other change of control.

Additionally, we have employment agreements with certain officers under which severance payments would become payable in the event of specified terminations without cause or terminations under certain circumstances after a change in control. If such persons were terminated without cause or under certain circumstances after a change of control, and the severance payments under the current employment agreements were to become payable, the officers would receive certain payments and other benefits which depend on the individual officer’s employment agreement but generally include continued base salary and health insurance payments for a period of time, lump sum bonus payments and accelerated vesting of equity awards.

Any provision of our articles of incorporation, bylaws, employment agreements or Nevada law that has the effect of delaying or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our common stock in connection with such a transaction and also could affect the price that some investors are willing to pay for our common stock.

Sales of additional common stock and securities convertible into our common stock may dilute the voting power of current holders.

We may issue equity securities in the future the terms and rights of which are superior to those of our common stock. Our articles of incorporation authorize the issuance of up to 5,000,000 shares of preferred stock. These are “blank check” preferred shares, meaning that our Board of Directors is authorized, from time to time, to issue the shares and designate their voting, conversion and other rights, including rights superior, or preferential, to rights of already outstanding shares, all without stockholder consent. No preferred shares are outstanding, and we currently do not intend to issue any shares of preferred stock. Any shares of preferred stock that may be issued in the future could be given voting and conversion rights that could dilute the voting power and equity of existing holders of shares of common stock and have preferences over shares of common stock with respect to dividends and liquidation rights.

We conduct our operations in both owned and leased properties. Our corporate headquarters and primary manufacturing facilities, as well as a leased warehouse facility, are located in San Diego, California. We also own a manufacturing facility in South Korea, where we refurbish our discharge chamber assemblies for certain models of our DUV light sources. Additionally, we lease several domestic and international field service offices. We believe that our facilities are adequate to meet the needs of our current business operations. At December 31, 2012, our principal leased and owned properties were as follows:

On October 29, 2012, a putative shareholder class action complaint was filed against Cymer, the Cymer Board, ASML, Holdco, Merger Sub and Merger Sub 2 in the District Court of Clark County, Nevada, captioned Jerome v. Cymer, Inc. et al., Case No. A-12-671009-C (Eighth Judicial Dist. Clark County, Nevada), challenging the Merger and seeking, among other things, compensatory damages, attorneys’ and experts’ fees and injunctive relief concerning the alleged breaches of fiduciary duty and to prohibit the defendants from consummating the Merger. The plaintiff subsequently amended the complaint on November 28, 2012.

The lawsuit generally alleges, among other things, that the Merger Agreement was reached through an unfair process, that the merger consideration is inadequate, that the Merger Agreement unfairly caps the price of our common stock, that the Merger Agreement’s “no solicitation” provision and other deal protection devices have precluded other bidders from making successful competing offers for us, and that the preliminary proxy statement/prospectus filed in connection with the Merger contains material misstatements and/or omissions. The lawsuit alleges that ASML aided and abetted the alleged breaches of fiduciary duties.

additional disclosure requested by the plaintiff in the proxy statement/prospectus filed in connection with the Merger. The memorandum of understanding contemplates that the parties will enter into a stipulation of settlement. The stipulation of settlement will be subject to customary conditions, including certain confirmatory discovery and court approval following notice to our stockholders. If the settlement is finally approved by the court, it will resolve and release all claims in all actions that were or could have been brought challenging any aspect of the Merger, the Merger Agreement, and any disclosure made in connection therewith (other than claims to enforce the settlement). In addition, the memorandum of understanding contemplates that, if the Merger is consummated and if the settlement is approved, Cymer or its successor shall be responsible for any attorneys’ fees of the plaintiff that may be awarded by the District Court of Clark County, Nevada. There can be no assurance that the parties will ultimately enter into a stipulation of settlement or that the District Court of Clark County, Nevada will approve the settlement even if the parties were to enter into such stipulation. In such event, the proposed settlement as contemplated by the memorandum of understanding may be terminated.

We do not expect the outcome of this lawsuit to have a material effect on our operating results, financial condition and cash flow.

Market Information. Our common stock is publicly traded on the NASDAQ Global Select Market under the symbol “CYMI.” The following table sets forth, for the periods indicated, the high and low sale prices of our common stock as reported by the NASDAQ Global Select Market.

Registered Shareholders. On February 7, 2013, the closing sales price of our common stock on the NASDAQ Global Select Market was $103.04 and there were 147 registered holders of record as of that date.

Dividends. We have never declared or paid cash dividends on our common stock, and currently do not anticipate paying cash dividends in the future.

Securities Authorized for Issuance Under Equity Compensation Plans. The information required to be disclosed by Item 201(d) of Regulation S-K regarding our equity securities authorized for issuance under our equity incentive plans is incorporated herein by reference to our definitive Proxy Statement for our 2013 Annual Meeting of Stockholders.

Issuer Purchases of Equity Securities. On April 21, 2008, we announced that our board of directors authorized us to repurchase up to $100 million of our common stock. The purchases have been made from time to time in the open market. We did not repurchase any shares during the fourth quarter of 2012, and the approximate dollar value of remaining shares that we are authorized to purchase under the program was $57.8 million at December 31, 2012. The program does not have a fixed expiration date and may be discontinued

at any time. The Merger Agreement prohibits us from redeeming, purchasing, or otherwise acquiring our own stock. As a result, we will not repurchase additional shares of our common stock pursuant to our board-authorized repurchase program while the Merger remains pending.

The following performance graph shows the five-year cumulative total stockholder return on our common stock assuming a $100 investment of our common stock at the closing price of $38.93 on December 31, 2007. This is compared with the cumulative total return of our common stock, the securities comprising the Nasdaq Composite Index, and the securities comprising the Philadelphia Semiconductor Index (the “PHLX Semiconductor Index”).

Each of the indices assumes reinvestment of dividends, if any. No dividends have been declared nor paid on our common stock. The performance shown in the graph is required by the SEC and represents past performance and should not be considered an indication of future performance of our common stock.

The following selected consolidated financial data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 and our Consolidated Financial Statements in Part II, Item 8 of this report.

The following discussion of our financial condition and results of operations should be read in conjunction with our Consolidated Financial Statements and notes thereto included in Part II, Item 8 of this Annual Report on Form 10-K.

On October 16, 2012, the Company entered into the Merger Agreement by and among (i) ASML, (ii) solely for purposes of Article II, Article IV, Article VI and Article X, Holdco and Merger Sub 2, (iii) Merger Sub, and (iv) the Company.

At the Special Meeting held on February 5, 2013, our stockholders approved the proposal to approve the Merger Agreement.

Completion of the Merger is subject to the satisfaction or waiver of certain conditions, including, among others: (i) the expiration or termination of the applicable waiting period under the HSR Act, (ii) receipt of certain consents and approvals from competition regulators in other jurisdictions, (iii) the absence of any governmental order, law, or legal restraint prohibiting the consummation of the Merger, and (iv) the listing of the ASML ordinary shares to be issued to the Company’s stockholders in the Merger on NASDAQ having been authorized. Additionally, ASML is not required to complete the Merger if there is any pending action or proceeding by any governmental entity of competent jurisdiction challenging or seeking to make illegal, to delay materially or otherwise directly or indirectly to prohibit the consummation of the Merger. The obligation of each party to consummate the Merger is also conditioned upon the accuracy of the other party’s representations and warranties, the absence of a material adverse effect, and the other party having performed in all material respects its obligations under the Merger Agreement.

We are engaged in the development, manufacturing and marketing of light sources for sale to customers who manufacture photolithography tools in the semiconductor equipment industry. We sell replacement parts and support services directly to our chipmaker customer as well as to our lithography tool manufacturer customers. In January 2013, we decided to discontinue new product development in our display products reporting segment, which developed, integrated, marketed, and supported silicon crystallization tools used in the manufacture of displays.

Because we derive a substantial portion of our revenues from lithography tool manufacturers and chipmakers, we are subject to the volatile and unpredictable cyclical nature of the semiconductor equipment industry. During the downturn in the global economy and semiconductor industry in early 2009, we focused on cost structure improvements and operational efficiencies, while continuing to focus on providing comprehensive support products for the installed base and investments in the development and commercialization of our EUV source technology. As a result, we were well positioned for the upturn beginning in late 2009 that continued through the first half of 2011. DUV light source demand started softening in the second half of 2011 and continued throughout 2012, as chipmakers assess their capital investment needs.

The majority of our DUV light source shipments in 2012 continued to be ArF immersion sources in support of 45 nm and below chipmaking, although we continued to deliver several KrF sources. For the full year 2012,

we shipped 97 DUV light sources, of which 60 were ArF immersion, 35 were KrF, and 2 were ArF dry. Revenue generated by our installed based products remained strong, representing 69% of our 2012 revenue. Throughout 2012, we added over 260 light sources to OnPulse, which now provides coverage for over 77% of all active production light sources. In 2012, we recognized revenue on three 3100 EUV sources, and we delivered two EUV 3300 vessels to ASML. We also increased our EUV source development performance by demonstrating sustained 40 watts EUV exposure power with good dose stability, utilizing pre-pulse technology.

In the fourth quarter of 2012, in connection with the preparation of the year-end financial statements, we evaluated the demand for our display products. Based on this evaluation we recorded charges totaling $65.5 million related to impairment of inventory and equipment and accruals for firm purchase commitments for additional inventory and equipment that will no longer be utilized. In January 2013, we made the decision to discontinue new product development in this business. We will continue to support the display product tools that have been previously sold and have remaining warranty or service contracts associated with them. As a result, we expect charges in the first quarter 2013, primarily for severance and other costs to be approximately $1.0 million, and future annual savings in operating expenses, based on 2012 spending levels, to be approximately $20.0 million. For further discussion, see Note 15 “Segment and Geographic Information” and Note 18 “Subsequent Events” to our Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.

Gross margin was 41.3% in 2012, a decrease over gross margin of 51.4% in 2011. The decrease in gross margin over prior year was primarily due to the impairment of inventory and equipment and loss on purchase commitments discussed above as well as low margin on the sale of a display product tool. Partially offsetting these decreases was an increase in gross margin due to lower costs associated with our installed base products.

Operating expenses of $265.0 million in 2012 represent a $67.4 million, or 34%, increase over 2011. This increase was due primarily to an increase in research and development expenses of $57.1 million related to development and commercialization of our EUV source technology, $8.8 million of costs associated with the Merger, discussed above, and a $1.9 million impairment charge related to our display products business.

As a result of the above, we generated a net loss in 2012 of $36.4 million, compared to net income of $80.2 million in 2011.

In 2012, we generated cash flows from operations of $49.1 million, and our cash and investments balance was $305.7 million at December 31, 2012.

The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and use judgment that may impact the reported amounts of assets, liabilities, revenues, expenses, and related disclosure of contingent liabilities. As a part of our ongoing internal processes, we regularly evaluate our estimates and judgments associated with revenue recognition, inventory valuation, warranty obligations, stock- based compensation, income taxes, allowances for doubtful accounts, long-lived assets valuation, goodwill valuation, assets and liabilities valuation, and contingencies and litigation. We base these estimates and judgments upon historical information, projected information, and other facts and assumptions that we believe to

be valid and reasonable under the circumstances. These assumptions and facts form the basis for making judgments and estimates and for determining the carrying values of our assets and liabilities that are not apparent from other sources. Adverse global economic conditions, illiquid credit markets, volatile equity, foreign currency fluctuations and declines in consumer spending have increased the uncertainty inherent in such estimates and assumptions. As future events and their effects cannot be determined with precision, particularly those related to the condition of the economy, actual results could differ significantly from these estimates.

We believe that revenue recognition, inventory valuation, warranty obligations, stock-based compensation, allowance for doubtful accounts, long-lived assets valuation, and income taxes require more significant judgments and estimates in the preparation of our consolidated financial statements than do other of our accounting estimates and judgments.

Our revenues include light sources, silicon crystallization tools and installed base products, which consist of OnPulse contracts, service support and replacement parts, and to a lesser extent, service, upgrades, and refurbishments of our light sources.

We recognize revenue when title and risk of loss have passed, evidence of an arrangement has been obtained, pricing is fixed or determinable at the date of sale, and collectability is reasonably assured. Our sales arrangements do not include general rights of return or cancellation privileges.

We recognize revenue for light sources and silicon crystallization tools at one of the following three points, depending on the terms of our arrangement with our customer: 1) shipment of the system, 2) delivery of the system, or 3) receipt of an acceptance certificate from the customer. For the majority of our DUV light source sales, the shipping terms are F.O.B. shipping point, and revenue is recognized upon shipment. Our current sales arrangements for EUV sources and silicon crystallization tools contain acceptance criteria, and revenue is recognized upon system acceptance by the customer.

Certain of our revenue arrangements include additional elements, such as future product upgrades or services. In accordance with the authoritative guidance for revenue recognition arrangements with multiple deliverables, we allocate the total consideration in the arrangement to the multiple elements using the relative selling price of the delivered and undelivered items, based on vendor specific objective evidence or estimated selling price.

If vendor specific objective evidence is not available, as third party evidence is generally not available to us due to the proprietary nature of our products, the estimated selling price is determined considering market conditions and estimated gross margins, as well as factors that are specific to us.

Installed Base Products—OnPulse Contracts, Support Services, and Replacement Parts

Revenue associated with our OnPulse contracts, which include primarily replacement parts and to a much lesser extent services, is recognized monthly based on the number of pulses utilized by our customers on their light sources that are covered under their OnPulse arrangement. Revenue from services, including our data services, is recognized as the services are rendered. To date, the revenue associated with the service element of our OnPulse contracts combined with revenue from our support services has been less than 10% of our total revenue.

assembly to us as part of the sale of the new part. We reuse some of the material within these core assemblies, mainly metal components, for the future build of core assemblies. As a result, our revenue consists of both cash and the fair value of the reusable parts received from our customers as consideration for these replacement part sales. Revenue associated with our customers’ return of core assemblies is recognized upon receipt of the returned core assembly. The amount of the revenue is determined based upon the fair value of the reusable parts that we expect to yield from the returned core assembly based on historical experience. If the return of the core assembly is related to a part being replaced under our warranty provisions or under a service or support contract with our customer, we will recognize the estimated fair value of the reusable component as a reduction to cost of revenue.

On a limited basis, we sell upgrades for our light sources or refurbish light sources owned by our customers to their original or new condition. Revenue from upgrades is recognized when the upgrade has been successfully installed by us and accepted by the customer. Revenue from refurbished light sources is recognized when the refurbishment process has been completed and, depending upon the customer, the proper delivery or acceptance terms have been met.

We report revenue net of any sales-based taxes assessed by governmental authorities that are imposed on or concurrent with sales transactions.

Our inventories are recorded at the lower of cost, determined on a first-in, first-out basis, or estimated market value. Our inventories include raw materials, work-in-process, finished goods, and replacement and reusable parts, which we use in our contract arrangements, refurbishment activities and warranty obligations.

As part of our regular business activities, we conduct parts refurbishment and material reclamation activities related to some of our core assemblies, particularly our chamber assemblies. We receive consumed core assemblies back from our customers as partial consideration for the purchase of new parts or when core assemblies are replaced under OnPulse contracts or warranty claims. The fair value of the reusable parts contained within the consumed assembly is recorded in inventory based upon historical data on the value of the reusable parts that we typically yield from a consumed core assembly.

Obsolete inventory, or inventory for which we do not have expected usage based on our forecasted demand, is written down to its estimated market value, if less than its cost. The methodologies used to analyze excess and obsolete inventory and determine the value of our inventory are significantly affected by future demand and usage of our products. We also record a liability for firm purchase commitments for quantities in excess of future demand forecasts consistent with the valuation of excess and obsolete inventory. There are many factors that could potentially affect the future demand or usage of our products, including the following:

Additionally, service level requirements of our customers require us to keep certain levels of replacement parts at or near customer locations. Based upon our experience, we believe that the estimates we use to calculate the value of our inventories are reasonable and properly reflect the risk of excess and obsolete inventory. During changing or adverse economic conditions or when introducing new products and product lines, it is difficult to estimate the future demand for our products. As a result, the likelihood that the usage period for our inventory will substantially differ from our estimates is increased. If actual demand or the usage periods of our inventory are substantially different from our estimates, such differences may have a material adverse effect on our operating results and financial condition.

When we reduce our inventory to the lower of cost or market, we are required to consider the net realizable value of our inventory. Net realizable value represents the estimated selling price of the inventory reduced by the costs of completion and disposal. We include all direct costs in our estimated costs of completion, including estimated warranty and installation costs. If actual selling prices or costs of completion are substantially different from our estimates, such differences may have a material adverse effect on our operating results and financial condition.

Based on the evaluation of demand for our display products during the fourth quarter of 2012, we recorded a write-down to inventory of $48.2 million to properly reflect lower of cost or market and accrued $11.6 million for firm purchase commitments of inventory that will no longer be utilized. In January 2013, we decided to discontinue new product development in our display products business. For further discussion, see Note 15 “Segment and Geographic Information” and Note 18 “Subsequent Events” to our Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.

We maintain an accrual for the estimated cost of product warranties associated with sales of our products. Warranty costs include replacement parts and labor costs to repair our products during the warranty period. We record a provision for warranty, which is included in cost of revenues, at the time that the related revenue is recognized. The warranty period and terms for systems and replacement parts varies by system model. We review our warranty provision using a statistical financial model which calculates actual historical expenses, product failure rates, and potential risks associated with our different product models. We then use this financial model to calculate the future probable expenses related to warranties and the required level of the warranty provision. Throughout the year, we review the risk levels, historical cost information and failure rates used within this model and update them as information changes over the product’s life cycle. For new product offerings, such as EUV sources and silicon crystallization tools, for which we have limited or no historical failure rates, we estimate our future probable expenses related to the warranties based on an evaluation of parts covered under warranty and their expected failure rates determined through internal testing and analysis. If actual warranty expenditures differ substantially from our estimates, revisions to the warranty provision would be required. Actual warranty expenditures are recorded against the warranty provision as they are incurred. Consumed parts under warranty, when returned, are recorded as reductions to warranty expenditures during the return period at their estimated fair value. We do not include the return of consumed parts in our statistical financial model used to estimate our provision for warranty because the specific parts and their estimated future fair value when returned, if any, cannot be reasonably estimated at the time revenue is recorded.

We actively engage in product improvement programs and processes to limit our warranty costs; however, our warranty obligation is affected by the complexity of our product, product failure rates and costs incurred to

correct those product failures at customers’ sites. The industry in which we operate is subject to rapid technological change, and as a result, we periodically introduce newer, more complex products. Although we classify these newly released products as having a higher risk in our warranty model resulting in higher warranty provisions, we are more likely to have differences between the estimated and actual warranty costs for these new products. Warranty provisions for our older and more established products are more predictable as more historical data is available. If actual product failure rates or estimated costs to repair those product failures were to differ from our estimates, revisions to our estimated warranty provision would be required, which could have a material effect on our operating results and financial condition.

The fair value of stock-based compensation awards is measured on the grant date and is recognized as expense over the employee’s requisite service period. The fair value of the stock award is determined using the Black-Scholes option pricing model for stock options and the quoted price of our common stock on the grant date for restricted stock units. The Black-Scholes option pricing model requires the use of subjective assumptions including the expected term of the stock options and our expected stock price volatility over the expected term of the stock options. An estimated forfeiture rate is applied and included in the calculation of stock-based compensation expense at the time that the stock option or other stock awards, such as our restricted stock unit awards, are granted and revised if necessary in subsequent periods if actual forfeiture rates differ from those estimates. If we change any of the key assumptions that we use in the Black-Scholes option pricing model as described above, or if we decide to use a different valuation model in the future or change our forfeiture rate, the compensation expense that we record may differ significantly in the future from what we have recorded in prior periods and could materially affect our operating results. If an equity award is modified after the grant date, incremental compensation cost will be recognized in an amount equal to the excess of the fair value of the modified award over the fair value of the original award immediately before the modification.

We also grant performance restricted stock units (“PRSUs”) to our executive officers and certain key employees. PRSUs are a form of share-based award in which the number of shares ultimately received will be determined based on achievement against defined performance metrics. Grants of PRSUs during the past three years have contained at least one of the following performance metrics over a defined performance period: revenue and net income performance compared to our annual operating plan (“AOP”), revenue and net income relative performance compared to a specified group of peer companies, DUV and EUV install value market share and eligible individual’s management by objectives (“MBO”) achievement. We record compensation expense each period based on our estimate of the most probable number of PRSUs that will be issued. This estimate requires significant estimates and projections about our financial performance relative to our AOP or to the financial performance of the specified group of peer companies, our DUV and EUV install value market share and the performance of individuals against their specific MBOs. If our estimates change or actual results are different than the estimates used in prior periods, we would be required to increase or decrease compensation expense, which could materially affect our operating results.

The majority of our trade receivables are derived from sales to lithography tool manufacturers or semiconductor manufacturer customers located throughout the world. In order to monitor potential credit losses, we perform periodic credit evaluations of our customers’ financial condition. We maintain an allowance for doubtful accounts for probable credit losses based upon our assessment of the expected collectability of our accounts receivable. We take into consideration the following when making this assessment;

If circumstances change, and the financial conditions of our customers are adversely affected and they are unable to meet their financial obligations to us, or the judgments used by us to determine a customer’s allowance prove to be incorrect, we may need to record additional allowances. In addition, due to our concentrated customer base, the trade receivable balance owed by any one customer can be significant. As a result, if our assessment of the financial condition of our customers, even a single customer, proves to be incorrect, we would have to record additional and potentially significant allowances and bad debt expense, which would have a material adverse effect on our business, operating results, financial condition and cash flows.

Included in our long-lived assets are property, plant and equipment and definite-lived intangible assets. Long-lived assets are reviewed for impairment when events or circumstances indicate that the carrying amount of an asset may not be recoverable. Factors that would indicate potential impairment may include, but are not limited to, significant decreases in the market value of the long-lived asset, a significant change in the long-lived asset’s physical condition, and operating or cash flow losses associated with the use of the long-lived asset. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the assets to the future net cash flows, undiscounted and without interest, expected to be generated by the asset. An impairment loss would be recognized when the carrying amount of a long-lived asset or asset group is not recoverable and exceeds its fair value. The carrying amount of a long-lived asset or asset group is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset or asset group.

Significant judgments and estimates by management are required to project cash flows and, if required, estimate the fair value of the long-lived assets. The estimated future cash flows are based upon, among other things, our strategic plans with regard to our business and operations, assumptions about expected future operating performance, and the interpretation of current and future economic indicators. To the extent that the judgments used by us to calculate our future cash flows prove to be inaccurate or there are significant changes in market conditions, the overall condition of the global economy or our strategic plans change, it is possible that our conclusions regarding long-lived asset impairment could change. This could result in significant impairment charges, which would have a material adverse effect on our business, operating results and financial position.

In the fourth quarter of 2012, the lack of demand for our display products triggered an asset impairment test associated with our display products business. The impairment test resulted in a $5.1 million impairment of equipment used in the manufacturing or research and development of display product tools. For further discussion, see Note 15 “Segment and Geographic Information” and Note 18 “Subsequent Events” to our Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K. There were no indicators of impairment of our long-lived assets during 2011 and 2010.

We record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized. We consider past operating results, future market growth, forecasted earnings, historical and projected taxable income, the mix of earnings in the jurisdictions in which we operate, prudent and feasible tax planning strategies and statutory tax law changes in determining the need for a valuation allowance. If we were to determine that it is more likely than not that we would not be able to realize all or part of our net deferred tax assets in the future, an adjustment to the deferred tax assets would be charged to income tax expense in the

period such determination is made. Likewise, if we later determine that it is more likely than not that the net deferred tax assets would be realized, the previously provided valuation allowance would be reversed. These changes to the valuation allowance, and resulting increases or decreases in income tax expense, could have a material effect on our operating results.

Our income tax returns are based on calculations and assumptions that are subject to examination by the Internal Revenue Service and other tax authorities. In addition, the calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax regulations. We recognize liabilities for uncertain tax positions based on a two-step process. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon settlement. While we believe we have appropriate support for the positions taken on our tax returns, we regularly assess the potential outcomes of examinations by tax authorities in determining the adequacy of our provision for income taxes, and adjust the income tax provision, income taxes payable and deferred taxes in the period in which the facts that give rise to a revision become known.

The following table sets forth certain items in our consolidated statements of operations as a percentage of total revenues:

We develop, manufacture and market our products within two reportable operating segments: light source products and display products. Our light source products operating segment designs, manufactures and sells light sources and installed base products for use in photolithography systems used in the manufacture of semiconductors. Our display products reporting segment developed, integrated, marketed, and supported silicon crystallization tools used in the manufacture of displays. In January 2013, we made the decision to discontinue new product development in display products. The discussion which follows for revenues, cost of revenues and

operating expenses includes our consolidated results and identifies those amounts associated with the display products operating segment, which are included in the consolidated amounts, for the years ended December 31, 2012, 2011 and 2010. For further discussion, see Note 15 “Segment and Geographic Information” and Note 18 “Subsequent Events” to our Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.

Revenues. The following table summarizes the components of our revenue (in thousands, except units sold):

Total revenue, compared to the prior year, decreased primarily due to reduced demand for DUV light sources as chipmakers continue to assess their capital investment needs, offset partially by increased demand for our installed base products. The average selling price of our DUV light sources increased due to an increase in the percentage of light sources sold that were ArF, as ArF light source systems have a higher average selling price than KrF light source systems. Our installed base product revenue increased when compared to the prior year primarily due to our customers’ continued adoption of our OnPulse product, an increase in DUV pulses utilized on our light sources by chipmaker customers and a higher percentage of those pulses generated by ArF systems.

Our DUV backlog includes only those orders for light sources and replacement parts for which we have accepted a purchase order from a customer, and that will be delivered to the customer within the following 12 months. In addition, our DUV backlog does not include service or support which will be provided to our customers in the future or under service contracts. Timing of delivery can be affected by many factors, including factors that cannot be easily predicted or controlled. Because it is the practice in our industry that customers may

cancel or delay orders with little or no penalty, our backlog as of any particular date may not be a reliable indicator of actual sales for any succeeding period.

Our backlog for DUV light sources and replacement parts at December 31, 2012 was $40.2 million compared to $48.2 million at December 31, 2011. DUV bookings for 2012 declined to $499.3 million from $548.6 million for 2011. The DUV book-to-bill ratio, which includes light sources and replacement parts, for 2012 was 0.91 compared to 0.96 for 2011. The decrease in the backlog and book-to-bill ratio reflects decreased orders for DUV light sources as chipmakers assess their upcoming capital investment needs.

Sales to ASML, Nikon, SK Hynix and Samsung amounted to 23%, 13%, 11% and 11%, respectively, of total revenue for 2012, and 35%, 11%, 8% and 10%, respectively, of total revenue for 2011.

Our sales to external customers consist of sales generated from each of the following geographic locations in which we do business (in thousands):

Sales generated from the United States include sales of light sources to ASML, located in the Netherlands, as transfer of title occurs in the United States. We anticipate that international sales will continue to account for a significant portion of our revenue.

Cost of revenues. Cost of revenues includes direct material and labor, warranty expenses, license fees, manufacturing and service overhead. Cost of revenues also includes foreign exchange gains and losses on foreign currency forward exchange contracts (“forward contracts”) associated with purchases of our products for resale under firm third-party sales commitments. Costs incurred for shipping and handling are included in cost of revenues at the time the related revenue is recognized. Amounts billed to a customer, if any, for shipping and handling are reported as revenue.

The cost of revenues decreased 12.6% to $252.5 million for 2012 from $289.1 million for 2011. Included in cost of revenue were $9.9 million and $4.0 million for 2012 and 2011, respectively, for our display products segment.

Impairment of inventory and equipment and loss on purchase commitments. Based on the evaluation of demand for our display products business during the fourth quarter of 2012, we recorded, in cost of revenues, a write-down to inventory of $48.2 million to properly reflect lower of cost or market, a $3.8 million impairment of manufacturing equipment and accrued $11.6 million for firm purchase commitments for inventory that will no longer be utilized. In January 2013, we decided to discontinue new product development in our display products business. For further discussion, see Note 15 “Segment and Geographic Information” and Note 18 “Subsequent Events” to our Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.

Gross profit. Gross profit decreased to $222.4 million with a 41.3% gross margin for 2012 from $305.1 million with a 51.4% gross margin for 2011. The decrease in gross margin over prior year was primarily

due to the impairment of display product inventory and equipment and loss on purchase commitments as well as low margins on sales of display products. Partially offsetting these decreases was an increase in gross margin due to lower costs associated with our installed base products.

Research and development. Research and development expenses include costs of continuing product development projects, which consist primarily of employee and material costs, depreciation of equipment and other engineering related costs. Research and development expenses increased 43.7% to $187.7 million for 2012 from $130.6 million for 2011. This increase was primarily due to our increased investment in EUV source commercialization and development, including an increase in headcount related employee costs when compared to the prior year. In addition, research and development expenses included $15.0 million and $12.5 million for 2012 and 2011, respectively, for our display products segment. As a percentage of total revenues, research and development expenses increased to 34.9% for the year ended December 31, 2012 from 22.0% for 2011.

Sales and marketing. Sales and marketing expenses include sales, marketing, customer support staff and other marketing expenses. Sales and marketing expenses decreased 5.5% to $23.7 million for 2012 from $25.1 million for 2011. The decrease in sales and marketing expenses primarily reflects decreased employee related costs compared to the prior year. Included in sales and marketing expenses were $2.2 million and $2.0 million for 2012 and 2011, respectively, for our display products segment. As a percentage of total revenues, sales and marketing increased slightly at 4.4% when compared to 4.2% for 2011.

General and administrative. General and administrative expenses consist primarily of management and administrative personnel costs, professional services including external audit and consultant fees, and administrative operating costs. General and administrative expenses increased 23.7% to $51.7 million for 2012 from $41.8 million for 2011 primarily due to $8.8 million of investment banking and legal fees associated with the pending Merger with ASML and additional stock compensation expense of $1.9 million related to modifications to certain board of director awards. Included in general and administrative expenses were $849,000 and $1.0 million for 2012 and 2011, respectively, for our display products segment. As a percentage of total revenues, general and administrative expenses increased to 9.6% for 2012 compared to 7.1% for 2011.

Impairment of equipment and loss on purchase commitments. Based on the evaluation of demand for our display products during the fourth quarter of 2012, we recorded, in operating expenses, a $1.3 million impairment and accrued $600,000 for firm purchase commitments related to research and development equipment. In January 2013, we decided to discontinue new product development in our display products business. For further discussion, see Note 15 “Segment and Geographic Information” and Note 18 “Subsequent Events” to our Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.

Other income (expense). Other income (expense) consists primarily of interest income earned on our investment portfolio, foreign currency exchange gains or losses associated with fluctuations in the value of the functional currencies of our foreign subsidiaries against the U.S. Dollar and other items that may be specific to a reporting period. Other expense was $736,000 for 2012 compared to other income of $855,000 for 2011. The decrease in other income primarily reflects foreign currency exchange losses in 2012 compared to foreign currency exchange gains in 2011.

Income tax (benefit) expense. Income tax benefit of $6.9 million and income tax expense of $28.2 million reflect effective tax rates of 16.0% and 26.0% for 2012 and 2011, respectively. The change in the effective tax rate for 2012 was primarily due to a reduction in the benefits recognized for the U.S. research and development tax credit and U.S. manufacturing deductions, non-deductible expenses incurred in 2012 related to the Merger, and tax benefits related to write-offs of investments in a foreign subsidiary. Our effective tax rate for 2012 does not include any benefit for the U.S. research and development tax credit, as this credit expired on December 31, 2011. Additionally, during 2012, we recorded the following discrete items: an increase in income tax expense of $20.8 million due to changes in California’s income apportionment rules which increased our valuation allowance for California research and development tax credit carryforwards by $15.2 million and reduced the

balance in other U.S. deferred tax assets by $5.6 million; a decrease in income tax expense of $1.2 million for a reduction in our net unrecognized tax benefits due primarily to the settlement of a U.S. tax audit and expirations of statute of limitations; and a decrease in income tax expense of $1.5 million related to the true-up of certain tax credits and deductions after filing our 2011 U.S. tax return. This compares to the following discrete items recorded in 2011: a decrease in income tax expense of $4.8 million for a reduction in our net unrecognized tax benefits due primarily to the expirations of statute of limitations and an increase in income tax expense of $754,000 due to the change in certain foreign corporate tax rates, which reduced the balance of our deferred tax assets in those foreign subsidiaries.

The American Taxpayer Relief Act of 2012, which retroactively reinstated the U.S. federal research and development tax credit from January 1, 2012 through December 31, 2013, was enacted into law on January 2, 2013. Therefore, in the first quarter of 2013, we will recognize a benefit of approximately $5.5 million relating to U.S. research and development tax credits generated in 2012.

Our future effective tax rate could be unfavorably affected by various factors, such as tax legislation and credits and the geographic compositions of our pre-tax income. Additionally, several of our subsidiaries are under audit or appeal. It is reasonably possible that the examination phase of these audits or appeals may conclude in the next 12 months, and that the related tax reserves or unrecognized tax benefits for uncertain tax positions may change, potentially having a material effect on our effective tax rate and our results of operations. We do not expect the 2012 expiration of the tax holiday awarded by Korea’s Ministry of Finance and Economy to have a material effect on our future effective tax rate.

Revenues. The following table summarizes the components of our revenue (in thousands, except units sold):

Total revenue, compared to the prior year, increased primarily due to continued demand for DUV light sources and installed base products as well as the sale of three EUV 3100 pilot sources during 2011. During the first half of the year, customers increased their investment in existing and new fab expansions; however, this demand softened in the second half of the year as chipmakers assessed their upcoming capital investment needs. The increase in DUV light sources revenues was primarily due to continued investments in ArF immersion light sources in support of 45nm and below chipmaking and an increase in purchases of KrF light sources when compared to the prior year. The average selling price of our DUV light sources decreased due to an increase in the percentage of light sources sold that were KrF, as KrF light source systems have a lower average selling price than ArF light source systems. Our installed base product revenue increased when compared to the prior year primarily due to our customers’ continued adoption of our OnPulse product, an increase in DUV pulses utilized on our light sources by chipmaker customers and a higher percentage of those pulses generated by ArF systems. Additionally, we recorded display products segment revenue during 2011 and 2010 as a result of customer acceptance of our silicon crystallization tools.

Sales to ASML, Nikon and Samsung amounted to 35%, 11% and 10%, respectively, of total revenue for 2011, and 30%, 15% and 10%, respectively, of total revenue for 2010.

Our sales to external customers consist of sales generated from each of the following geographic locations in which we do business (in thousands):

Cost of revenues. The cost of revenues increased 10.6% to $289.1 million for 2011 from $261.4 million for 2010. Gross profit increased to $305.1 million with a 51.4% gross margin for 2011 from $272.8 million with a 51.1% gross margin for 2010. The increase in gross profit over prior year was primarily due to the higher level of sales of light sources and installed based products. The increase in gross margin over the prior year was driven primarily by a decrease in costs associated with our installed base products, our continued focus on operational execution and a decrease in inventory write-downs. These improvements in gross margin were partially offset by the sale of three EUV sources at a low gross margin and an increase in freight expenses. Included in cost of revenue were $4.0 million and $5.1 million for 2011 and 2010, respectively, for our display products segment.

Research and development. and development expenses increased 46.5% to $130.6 million for 2011 from $89.2 million for 2010. This increase was primarily due to our increased investment in EUV source commercialization and development, including an increase in headcount related employee costs when compared to the prior year. In addition, we continue to increase our investment in our development of silicon crystal tools, and research and development expenses included $12.5 million and $7.7 million for 2011 and 2010, respectively, for our display products segment. As a percentage of total revenues, research and development expenses increased to 22.0% for the year ended December 31, 2011 from 16.7% for 2010.

Sales and marketing. Sales and marketing expenses increased 10.9% to $25.1 million for 2011 from $22.7 million for 2010. The increase in sales and marketing expenses primarily reflects an increase in employee

related costs due to increased headcount and increased travel costs, which were partially offset by a decline in costs associated with our variable compensation programs when compared to the prior year. Included in sales and marketing expenses were $2.0 million and $2.2 million for 2011 and 2010, respectively, for our display products segment. As a percentage of total revenues, sales and marketing remained flat for 2011 at 4.2% when compared to 2010.

General and administrative. General and administrative expenses increased 5.0% to $41.8 million for 2011 from $39.8 million for 2010 primarily due to an increase in employee related costs due to increased headcount, increased outside service costs and lower bad debt recoveries in 2011 compared to 2010. These increases in expenses were partially offset by a decrease in costs associated with our variable compensation programs when compared to prior year. Included in general and administrative expenses were $1.0 million and $1.5 million for 2011 and 2010, respectively, for our display products segment. As a percentage of total revenues, general and administrative expenses decreased to 7.1% for the 2011 compared to 7.5% for 2010.

Other income (expense). Other income was $855,000 for 2011 compared to other expense of $32,000 for 2010. The increase in other income primarily reflects foreign currency exchange gains in 2011 compared to foreign currency exchange losses in 2010.

Income tax expense. Income tax expense of $28.2 million and $30.3 million reflect effective tax rates of 26.0% and 25.0% for 2011 and 2010, respectively. The slight increase in the effective tax rate for 2011 was primarily due to a decrease in federal research and development credits taken in 2011 compared to 2010. Additionally, during 2011 we recorded the following discrete items: a decrease in income tax expense of $4.8 million for a reduction in our net unrecognized tax benefits due primarily to the expirations of statute of limitations and an increase in income tax expense of $754,000 due to the change in certain foreign corporate tax rates, which reduced the balance of our deferred tax assets in those foreign subsidiaries. This compares to the following discrete items recorded during 2010: a net tax benefit of $324,000, which represents an estimate of our display products operating segment net operating loss carryforwards we expect to utilize in the future given the retroactive revocation of the tax holiday in Singapore, and a net tax benefit in the United States of $1.2 million based on our estimate of the outcome of a foreign tax audit. We are currently negotiating settlement of this audit with the foreign tax authority and the United States Treasury Department, and our estimated benefit could change as negotiations evolve. Final resolution of this audit may not be known for several years.

In recent years, we have funded our operations primarily from cash generated from operations and proceeds from employee stock option exercises. We have also from time to time utilized cash to repurchase shares of our common stock. In summary, our cash flows were as follows (in thousands):

Net cash provided by operating activities in 2012 primarily reflects the net loss for the year adjusted to exclude the effects of non-cash charges, primarily impairment of inventory and equipment and loss on purchase

commitments associated with our display products business, depreciation, amortization, stock-based compensation and provision for deferred income taxes. Additionally, cash flows were generated by an increase of $64.9 million in deferred revenue related primarily to advance payments received from ASML for purchase orders under a multi-year supply agreement for EUV 3300 sources, a $21.3 million increase in accounts payable due to timing of payments, and a $10.4 million decrease in accounts receivable due to a decrease in system sales. These increases in cash were offset partially by an increase in inventory of $88.2 million, related primarily to the build of our EUV 3300 sources in support of multi-year agreements with ASML.

Net cash provided by operating activities in 2011 primarily reflects net income for the year as adjusted to exclude the effects of non-cash charges, primarily depreciation, amortization, stock-based compensation and provision for deferred income taxes. Additionally, increases in deferred revenue of $28.8 million, related primarily to advance payments received from ASML for purchase orders under a multi-year supply agreement for EUV 3300 sources, and increases in other assets of $14.9 million, primarily related to income taxes receivable, contributed to positive operating cash flow. These increases in cash were offset partially by a $24.9 million decrease in other liabilities and a $14.7 million increase in inventories. The decrease in other liabilities primarily reflects the decrease in accrued payroll related to our variable cash compensation programs and a decrease in income taxes payable. The increase in inventories is primarily in support of EUV demand.

Net cash provided by operating activities in 2010 primarily reflects net income for the year as adjusted to exclude the effects of non-cash charges, primarily depreciation, amortization, stock-based compensation and provision for deferred income taxes. Additionally, increases in other liabilities of $21.4 million, primarily related to increases in accrued payroll related to variable cash compensation programs, and increases in deferred revenue of $8.7 million, related to advance payments received from ASML for purchase orders under a multi-year supply agreement for EUV 3100 pilot sources and advance payments for a silicon crystallization tool, contributed to positive operating cash flow. These increases in operating cash flow were offset partially by a $48.7 million increase in accounts receivable, a $30.7 million increase in inventory and a $27.9 million increase in other assets, primarily related to income taxes receivable. The increase in accounts receivable results primarily from the increase in revenue and, to a lesser extent, an increase in days sales outstanding to 79 days at December 31, 2010 from 75 days at December 31, 2009. The increase in inventory is due primarily to the production of EUV sources. The increase in income taxes receivable is due primarily to the reinstatement of the research and development credit at the end of 2010.

Net cash used in investing activities in 2012 of $47.7 million reflects proceeds from sales of investments, net of purchases of investments, of $23.7 million, and capital expenditures of $71.4 million related primarily to equipment and facility improvements to support our investment in EUV source development.

Net cash used in investing activities in 2011 of $166.2 million reflects purchases of investments, net of proceeds from sales of investments, of $137.2 million, capital expenditures of $25.3 million primarily related to our EUV research, development and commercial production efforts, and the acquisition of eDiag for $3.8 million, net of cash acquired, as noted below.

On April 1, 2011, we acquired all of the outstanding equity of eDiag for consideration totaling $15.0 million payable in cash, with $6.0 million paid on April 1, 2011 and $3.0 million payable on each of April 1, 2012, 2013 and 2014. We acquired $2.2 million in cash as part of the acquisition. There was no debt assumed with the acquisition. Additionally, we entered into a services agreement with the president and previous majority stockholder of eDiag that pays him $2.5 million on April 1, 2015 and $2.5 million on April 1, 2016, if he continues his employment with us through those dates.

Net cash used in investing activities in 2010 of $10.7 million was due primarily to the timing of short-term investments that matured and were reinvested during the period as well as capital expenditures primarily related to our EUV research, development and commercial production efforts.

The primary sources of cash provided by financing activities during 2012 are $11.2 million of proceeds from the exercise of employee stock options and $8.1 million of excess tax benefits related to the stock option exercises. The sources of cash were offset partially by $7.8 million from payments related to net share settlement of equity awards and $3.0 million of install payments related to our acquisition of eDiag in 2011.

The primary sources of cash provided by financing activities during 2011 are $16.3 million of proceeds from the exercise of employee stock options and $4.0 million of excess tax benefits related to the stock option exercises.

Net cash used in financing activities in 2010 primarily reflects the repurchase of $19.3 million of our common stock and $2.2 million for the purchase of a non-controlling interest. These uses of cash were partially offset by $9.4 million received from the exercise of employee stock options and purchases under the employee stock purchase plan and $2.1 million of excess tax benefits related to stock option exercises.

Most of our foreign subsidiaries operate in currencies other than the U.S. Dollar, and a substantial portion of their cash balances can be denominated in these foreign currencies. As a result, our cash and cash equivalent balances are subject to the effects of the fluctuations in these currencies against the U.S. Dollar at the end of each reporting period. Several of the foreign currencies in which our subsidiaries operate have experienced volatility over the past several years. The net effect of exchange rate changes on cash and cash equivalents, when expressed in U.S. Dollar terms, was an increase in cash of $150,000, $295,000 and $2.1 million for the years ended December 31, 2012, 2011, and 2010, respectively.

For the year ended December 31, 2012, cash and cash equivalents were positively affected by $548,000 and $122,000 due to the Korean Won and Taiwan Dollar, respectively strengthening against the U.S. Dollar and the effect it had on the cash balances held at those foreign subsidiaries. These increases were partially offset by $569,000 due to the weakening of the Japanese Yen against the U.S. Dollar.

For the year ended December 31, 2011, cash and cash equivalents were positively affected by $478,000 due to the Japanese Yen strengthening against the U.S. Dollar and the effect it had on the cash balances held at our Japanese subsidiary. This increase was partially offset by $91,000 due to the weakening of the Taiwan Dollar against the U.S. Dollar.

For the year ended December 31, 2010, cash and cash equivalents were positively affected by $1.8 million due to the Japanese Yen strengthening against the U.S. Dollar and the effect it had on the cash balances held at our Japanese subsidiary. In addition, volatility of the Korean Won against the U.S. Dollar throughout the year positively affected cash and cash equivalents by $479,000. These increases were offset by $341,000 due to the weakening of the Euro against the U.S. Dollar.

We require substantial resources to fund the operations of our business, particularly to fund our investment in new technologies, including inventory and capital in support of these technologies. We expect purchases of property, plant and equipment in 2013 to be approximately $80.0 million to $120.0 million, a significant portion of which will relate to purchases of equipment and facility improvements associated with development and manufacturing of our EUV sources. In addition, we require resources to fund our normal operations.

While we have agreed to merge with and into a wholly owned subsidiary of ASML, subject to regulatory approval and the satisfaction of other customary closing conditions, we believe that our operating cash flows,

together with our current cash, cash equivalents and marketable securities will be sufficient to cover our working capital needs for our normal operations, and our investments in our new technologies, particularly EUV, for at least the next 12 months. There can be no assurance that the pending Merger will be completed. It is possible that we may need to raise additional funds to finance our activities or to acquire assets, products or new technologies beyond the next 12 months. We may also decide that it is prudent in the current business and economic environment to secure commitments to access additional capital, including equity or debt securities, to protect our long term liquidity position. However, we cannot provide assurance that these funding sources will be available on favorable terms, if at all. As of December 31, 2012, we have approximately $42.1 million of cash and cash equivalents in foreign subsidiaries. In the event these cash amounts are needed to fund operations in the U.S., we believe we would not be liable for U.S. taxes in connection with repatriating these funds given that these funds would be used to repay existing intercompany payables and/or loans due to the U.S. parent company.

There are certain restrictive covenants in the Merger Agreement with ASML that may limit, among other things, the payment of dividends, the repurchase of stock, acquisitions, and capital expenditures. Accordingly, our cash will be primarily used as planned for investment in our research and development of EUV business during the period in which the Merger is pending.

In April 2008, our board of directors authorized us to repurchase up to $100.0 million of our common stock. During 2011, we had no purchases under this program. At December 31, 2012, $57.8 million remains available for share repurchases under this program. The Merger Agreement prohibits us from redeeming, purchasing, or otherwise acquiring our own stock. As a result, we will not repurchase additional shares of our common stock pursuant to our board-authorized repurchase program while the Merger remains pending.

Our future capital requirements may vary materially from those currently planned. We anticipate that the amount of capital we will need in the future will depend on many factors, including:

Under our audit committee charter, our audit committee is responsible for reviewing and approving all related party transactions on a quarterly basis. In addition, our board of directors determines annually whether any related party relationships exist among the directors which would interfere with the judgment of individual directors in carrying out his responsibilities as director. We did not have any related party transactions in 2012.

The following summarizes our contractual obligations as of December 31, 2012 (in thousands):

At December 31, 2012, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance, variable interest, or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. In addition, we did not engage in trading activities involving non-exchange traded contracts. As a result, we are not exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships. We do not have relationships with or enter into transactions with persons or entities that derive benefits from their non-independent relationship with us or our related parties except as disclosed herein. For further discussion, see Note 13 “Commitments and Contingencies” to our Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.

See Note 1 “Description of Business and Summary of Significant Accounting Polices” to our Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for a description of recent accounting standards, including our expected dates of adoption and the estimated effects on our results of operations and financial condition.

We conduct business in several international currencies through our global operations. Our foreign currency hedging program manages fluctuations in the value of the Euro, Japanese Yen, South Korean Won and the Taiwanese Dollar. Our foreign currency risk falls into two primary categories.

First, we are subject to uncertain gross profit margins when we forecast selling products in one currency and the product costs are denominated in a different currency, primarily for the purchases of our products for resale under firm third-party sales commitments. In this instance, we enter into derivative financial instruments; principally forward contracts, which we designate as cash flow hedges in order to mitigate fluctuations in the gross profit margins of these forecasted transactions. We also occasionally enter into derivative financial instruments, principally forward contracts, which we designate as cash flow hedges in order to mitigate fluctuations in depreciation expense when we anticipate purchases of capital assets in a currency other than the functional currency of the entity purchasing the asset.

Forward contracts on forecasted transactions that hedge uncertain gross profit margins generally qualify for cash flow hedge accounting treatment. The effective portion of the gain or loss on the cash flow hedge is reported as a component of accumulated other comprehensive income or loss and is reclassified into earnings when the hedged transaction affects earnings. Once the underlying hedged transaction is recorded, we de-designate the derivative, cease to apply hedge accounting treatment to the transaction and record any further gains or losses to other income (expense). We can also experience ineffectiveness if the expected date of a hedged transaction is delayed beyond the maturity date of the cash flow hedge. In such an instance, the asset or liability value of a cash flow hedge is larger than the liability or asset value of the hedged transaction on a net present value basis, rendering the surplus amount ineffective which we record to other income (expense). If all or a portion of the forecasted transaction were cancelled, this would render all or a portion of the cash flow hedge ineffective and we would reclassify the ineffective portion of the hedge into other income (expense). We generally do not experience ineffectiveness of our cash flow hedges as a result of cancelled transactions and the accompanying consolidated statements of operations contain immaterial gains and losses due to time value differences. The second category of foreign currency risk occurs when transactions are recorded to our consolidated financial statements in a currency other than the applicable entity’s functional currency and the cash settlement of the transaction occurs at some point in the future. When transactions in non-functional currency are recorded to our consolidated financial statements, any changes in the recorded amounts resulting from fluctuations in the value of that currency will be recorded to other income (expense). In order to mitigate these revaluation gains and losses, we enter into derivative financial instruments, principally forward contracts. The forward contracts that hedge transactions that have been recorded to our consolidated financial statements are not designated as hedges, and we record changes in their fair value to other income (expense) in order to attempt to offset gains and losses on the underlying transactions. We considered the historical trends in currency exchange rates and determined that it was reasonably possible that adverse changes in exchange rates of 20% for all currencies could be experienced in the near term. These changes would have resulted in an increase to income before income taxes of approximately $83,000 and $169,000 at December 31, 2012 and 2011, respectively. These amounts are after consideration of the offsetting effect of approximately $15.3 million and $12.4 million at December 31, 2012 and 2011, respectively, from forward exchange contracts in place at that time. These reasonably possible adverse changes in foreign currency exchange rates of 20% were applied to net assets and liabilities denominated in currencies other than the functional currencies at the balance sheet dates to compute the adverse effect these changes would have had on our income before income taxes in the near term.

At December 31, 2012, we had outstanding forward contracts to buy $47.0 million in exchange for South Korean Won, $21.0 million in exchange for Taiwanese Dollars, and to sell $5.5 million in exchange for Japanese Yen and $57.3 million in exchange for Euros. These contracts expire on various dates through February 2014. The fair value of all our forward contracts totaled a liability of $3.1 million at December 31, 2012.

We maintain an investment portfolio consisting primarily of government and corporate fixed income securities, commercial paper and money market funds. While it is our general intent to hold such securities until maturity, we will occasionally sell certain securities for cash flow purposes. Therefore, our investments are classified as available-for-sale and are carried on the balance sheet at fair value. If interest rates were to increase instantaneously and uniformly by 100 basis points, the fair market value of our investment portfolio as of December 31, 2012 and 2011 would decrease by approximately $878,000 and $1.4 million, respectively.

The information required by this Item is included in Part IV Items 15(a)(1) and (2) of this Annual Report on Form 10-K.

We assessed the effectiveness of our internal control over financial reporting as of December 31, 2012, using the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based upon this assessment, we have concluded that, as of December 31, 2012, our internal control over financial reporting was effective.

KPMG LLP, an independent registered public accounting firm, audited the effectiveness of our internal control over financial reporting as of December 31, 2012 and their report appears on page F-2 of this Annual Report on Form 10-K.

The information relating to our directors and corporate governance is incorporated herein by reference to our definitive Proxy Statement for our 2013 Annual Meeting of Stockholders.

The information required by Item 10 of Form 10-K regarding our executive officers is disclosed in Part I, Item I of this Annual Report under the section entitled “Executive Officers.”

We have adopted a code of ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or corporate controller, or persons performing similar functions. We have posted the code of ethics on our website which can be accessed at http://www.cymer.com under “Investors.” In addition, we will promptly disclose on our website (1) the nature of any amendment to the code of ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or corporate controller, or persons performing similar functions and (2) the nature of any waiver, including an implicit waiver, from a provision of the code of ethics that is granted to one of these specified officers, and the name of such person who is granted the waiver on our website in the future.

The information required by Item 11 of Form 10-K is incorporated herein by reference to our definitive Proxy Statement for our 2013 Annual Meeting of Stockholders.

The information required by Item 12 of Form 10-K is incorporated herein by reference to our definitive Proxy Statement for our 2013 Annual Meeting of Stockholders.

The information required by Item 13 of Form 10-K is incorporated herein by reference to our definitive Proxy Statement for our 2013 Annual Meeting of Stockholders.

The information required by Item 14 of Form 10-K is incorporated herein by reference to our definitive Proxy Statement for our 2013 Annual Meeting of Stockholders.

(a) The following documents are filed as part of, or incorporated by reference into, this Annual Report on Form 10-K:

(1)(2) Financial Statements and Financial Statement Schedule. The following Consolidated Financial Statements of Cymer, Inc., Financial Statement Schedule and Reports of Independent Registered Public Accounting Firm are included in a separate section of this Annual Report on Form 10-K beginning on page F-1:

All other financial statement schedules have been omitted because the required information is not applicable or not present in amounts sufficient to require submission of the schedule, or because the information required is included in our consolidated financial statements or the notes thereto.

(3) Exhibits. The exhibits listed under Item 15(b) hereof are filed with, or incorporated by reference into, this Annual Report on Form 10-K. Each management contract or compensatory plan or arrangement is identified separately in item 15(b) hereof.

The following exhibits are filed as part of, or incorporated by reference into, this Annual Report on Form 10-K:

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


CYMER, INC.

By:		/S/ ROBERT P. AKINS
		Robert P. Akins, *Chief Executive Officer* *and Chairman of the Board*

Dated: February 15, 2013

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Robert P. Akins, Paul B. Bowman and Karen K. McGinnis, and each of them, as his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him or her and in his or her name, place, and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming that all said attorneys-in-fact and agents, or any of them or their or his or her substitute or substituted, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.

We have audited the accompanying consolidated balance sheets of Cymer, Inc. and subsidiaries (the Company) as of December 31, 2012 and 2011, and the related consolidated statements of operations, comprehensive (loss) income, equity, and cash flows for each of the years in the three-year period ended December 31, 2012. In connection with our audits of the consolidated financial statements, we also have audited the consolidated financial statement schedule of valuation and qualifying accounts. These consolidated financial statements and consolidated financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and consolidated financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Cymer, Inc. and subsidiaries as of December 31, 2012 and 2011, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2012, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related consolidated financial statement schedule of valuation and qualifying accounts, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Cymer, Inc.’s internal control over financial reporting as of December 31, 2012, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 15, 2013 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

We have audited Cymer, Inc.’s (the Company) internal control over financial reporting as of December 31, 2012, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Cymer, Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting in Item 9A2. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Cymer, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2012, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Cymer, Inc. and subsidiaries as of December 31, 2012 and 2011, and the related consolidated statements of operations, comprehensive (loss) income, equity, and cash flows for each of the years in the three year period ended December 31, 2012, and the related consolidated financial statement schedule, and our report dated February 15, 2013 expressed an unqualified opinion on those consolidated financial statements and consolidated financial statement schedule.

Cymer, Inc., together with its wholly-owned subsidiaries, is engaged in the development, manufacturing and marketing of light sources for sale to customers who manufacture photolithography tools in the semiconductor equipment industry. We sell replacement parts and support services directly to our chipmaker customer as well as to our lithography tool manufacturer customers. Our display products business developed, integrated, marketed, and supported silicon crystallization tools used in the manufacture of displays. In January 2013, we made the decision to discontinue new product development in this business. For further discussion, see Note 15 “Segment and Geographic Information” and Note 18 “Subsequent Events”.

We manufacture our products primarily at our San Diego headquarters, and we also conduct refurbishment manufacturing activities for replacement parts at our subsidiary located in South Korea. We sell our products to customers primarily in Europe, South Korea, Japan, Taiwan, the United States and other Asian countries. We provide customer support from our San Diego headquarters, and from our field offices located throughout China, Japan, the Netherlands, Singapore, South Korea, Taiwan and the United States.

On October 16, 2012, the Company entered into the Agreement and Plan of Merger (the “Merger Agreement”) by and among (i) ASML Holdings N.V., (ii) solely for purposes of Article II, Article IV, Article VI and Article X, ASML US Inc., a Delaware corporation and an indirect wholly owned subsidiary of ASML (“Holdco”), and Kona Technologies, LLC, a Nevada limited liability company and a wholly owned subsidiary of Holdco (“Merger Sub 2”), (iii) Kona Acquisition Company, Inc., a Nevada corporation and a wholly owned subsidiary of Holdco (“Merger Sub”), and (iv) the Company. The Merger Agreement provides that, upon the terms and subject to the conditions set forth in the Merger Agreement, Merger Sub will be merged with and into the Company, and immediately thereafter, the Company will be merged with and into Merger Sub 2. References herein to the “Merger” should, unless the context otherwise requires, be read to mean the merger of Merger Sub into the Company and the merger of the Company into Merger Sub 2, as part of an integrated plan.

Completion of the Merger is subject to the satisfaction or waiver of certain conditions, including, among others: (i) the expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, (ii) receipt of certain consents and approvals from competition regulators in other jurisdictions, (iii) the absence of any governmental order, law, or legal restraint prohibiting the consummation of the Merger, and (iv) the listing of the ASML ordinary shares to be issued to the Company’s stockholders in the Merger on NASDAQ having been authorized. Additionally, ASML is not required to complete the Merger if there is any pending action or proceeding by any governmental entity of competent jurisdiction challenging or seeking to make illegal, to delay materially or otherwise directly or indirectly to prohibit the consummation of the Merger. The obligation of each party to consummate the Merger is also conditioned upon the accuracy of the other party’s representations and warranties, the absence of a material adverse effect, and the other party having performed in all material respects its obligations under the Merger Agreement.

The accompanying consolidated financial statements include the accounts of Cymer, Inc. and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in

consolidation. References to “Cymer”, “the Company,” “we,” “us,” “our” and other similar words refer to Cymer, Inc. and its consolidated subsidiaries, unless the context suggests otherwise.

All significant intercompany balances and transactions have been eliminated in consolidation. References to “Cymer”, “the Company,” “we,” “us,” “our” and other similar words refer to Cymer, Inc. and its consolidated subsidiaries, unless the context suggests otherwise.

The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America. Applying these principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results may differ from those estimates.

The fair value of our cash and cash equivalents, restricted cash, accounts receivable, accounts payable, and other current liabilities approximate their carrying amounts due to their short-term nature.

All highly liquid investments purchased with an original maturity of three months or less are considered to be cash equivalents.

At December 31, 2012, we have $6.4 million in restricted cash associated with a secured bond that we entered into as a result of a foreign tax audit. The secured bond expires in July 2013 and, therefore, the restricted cash is included in current assets.

We determine the appropriate classification of our investments at the time of acquisition and reevaluate such determination at each balance sheet date. Available-for-sale securities are carried at quoted fair value, with unrealized gains and losses reported in stockholders’ equity as a component of accumulated other comprehensive income (loss). Realized gains and losses are determined using the specific identification method and are included in interest income.

Inventories are recorded at the lower of cost, determined on a first-in, first-out basis, or estimated market value. Inventory costs include material, labor and manufacturing overhead costs. Our inventories include reusable parts that we receive from our customers as part of consumed assemblies. We refurbish these returned core assemblies, which consist primarily of metal components, and reuse them in future core assemblies. Refurbishment costs are capitalized as incurred. We review the components of our inventory on a quarterly basis for excess or obsolete inventory and make appropriate adjustments to the value of our inventory in the period that such excess or obsolete inventory is identified. We also record a liability for firm purchase commitments for quantities in excess of future demand forecasts consistent with the valuation of excess and obsolete inventory.

As part of our regular business activities, we conduct significant parts refurbishment and material reclaim activities related to some of our core assemblies, particularly our chamber assemblies. These activities involve

arrangements with our customers where we sell a new part to the customer at a reduced sales price if the customer returns the consumed core assembly that the new part replaces. These returned core assemblies contain a certain amount of material, primarily metal components, that may be reused by us in the manufacture of future core assemblies. Upon receipt of these consumed core assemblies from our customers, we record an entry to recognize the estimated fair value of the reusable components either 1) as revenue if the return of the core assembly relates to a spare part replacement sale or 2) as a reduction in cost of revenues if the return of the core assembly is related to a part being replaced under our warranty provisions or under a service and support contract. The fair value of the reusable parts contained within the consumed assembly is recorded in inventory based upon historical data on the value of the reusable parts that we typically yield from a consumed core assembly and evaluated for recoverability along with our other inventory.

Based on the evaluation of demand for our display products business during the fourth quarter of 2012, we recorded a write-down to inventory of $48.2 million to properly reflect lower of cost or market and accrued $11.6 million for firm purchase commitments of inventory that will no longer be utilized. In January 2013, we decided to discontinue new product development in our display products business. For further discussion, see Note 15 “Segment and Geographic Information” and Note 18 “Subsequent Events”.

Our property, plant and equipment are recorded at cost. Depreciation is computed using the straight-line method over 20 years for buildings; one to five years for equipment; and three to five years for light sources built for internal use. Amortization of leasehold improvements and leased equipment is calculated using the straight-line method over the lease term or the estimated useful life of the assets, whichever period is shorter. Additions and improvements are capitalized, while maintenance and repairs are expensed as incurred. When depreciable assets are retired, or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts and any related gains or losses are included within operating income in the consolidated statement of operations.

We review the carrying amount and remaining useful life of our long-lived assets, which includes property, plant and equipment and definite-lived intangible assets, for impairment when events or circumstances indicate that the carrying amount may not be recoverable. Other factors that would indicate potential impairment may include, but are not limited to, significant decreases in the market value of the long-lived asset, a significant change in the long-lived asset’s physical condition, and operating or cash flow losses associated with the use of the long-lived asset. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the asset to the future net cash flows, undiscounted and without interest, expected to be generated by the asset. An impairment loss would be recognized when the carrying amount of a long-lived asset or asset group is not recoverable and exceeds its fair value. The carrying amount of a long-lived asset or asset group is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset or asset group. In the fourth quarter of 2012, lack of demand for our display products triggered an asset impairment test associated with our display products business. The impairment test resulted in a $5.1 million impairment of equipment used in the manufacturing or research and development of display product tools. For further discussion, see Note 15 “Segment and Geographic Information” and Note 18 “Subsequent Events”. There were no indicators of impairment of our long-lived assets during 2011 and 2010.

Goodwill is not amortized but instead is tested annually for impairment at the reporting unit level, or more frequently when events or changes in circumstances indicate that fair value of the reporting unit has been reduced to less than its carrying value. We perform our impairment test annually during the fourth quarter. We first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than

its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in Accounting Standards Codification Topic 350. If, after assessing qualitative factors, we determine it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment test is unnecessary. If deemed necessary, a two-step test is used to identify the potential impairment and to measure the amount of goodwill impairment, if any. The first step is to compare the fair value of the reporting unit with its carrying amount, including goodwill. If the fair value of the reporting unit exceeds its carrying amount, goodwill is considered not impaired; otherwise, there is an indication that goodwill maybe impaired and the amount of the loss, if any, is measured by performing step two. Under step two, the impairment loss, if any, is measured by comparing the implied fair value of the reporting unit goodwill with the carrying amount of goodwill.

Intangible assets that are determined to have definite lives are amortized utilizing a straight-line basis over their estimated useful lives and are measured for impairment only when events or circumstances indicate the carrying value may be impaired. Our intangible assets consist of patents and developed technology, which are amortized using the straight-line basis over their expected useful lives.

The financial statements of our foreign subsidiaries where the functional currency is the local currency are translated into U.S. Dollars using current rates of exchange for assets and liabilities and rates of exchange that approximate the rates in effect at the transaction date for revenues, cost of revenues, expenses, gains and losses. Gains and losses resulting from foreign currency translation are accumulated as a separate component of our consolidated statement of equity in accumulated other comprehensive income (loss). Gains and losses resulting from foreign currency transactions are included in the consolidated statements of operations.

We conduct business in several international currencies through our global operations. We maintain a foreign exchange risk management policy with the goal of protecting product margins and minimizing the short term volatility of reported earnings due to foreign currency risk exposure. In accordance with our policy, we use financial instruments, principally forward contracts, to manage certain of our foreign currency risk exposures. Forward contracts acquired to protect the product margins of forecasted transactions, primarily the purchases of our products for resale under firm third-party sales commitments are accounted for in accordance with the provisions of the authoritative guidance for derivatives and hedging. We also enter into forward contracts to offset gains and losses on assets and liabilities held in non-functional currencies, primarily the intercompany U.S. Dollar denominated liabilities of our foreign subsidiaries and do not designate these forward contracts as hedges pursuant to the authoritative guidance for derivatives and hedging. We record all forward contracts at fair value based on the quoted exchange rates for such instruments. We do not enter into forward contracts for speculative purposes. For further discussion, see Note 7, “Derivative Instruments and Hedging Activities”.

In the ordinary course of business, we are not subject to potential obligations under guarantees that fall within the scope of the authoritative guidance for guarantees, with the exception of standard warranty provisions associated with product sales and indemnification provisions related to intellectual property that are contained within many of our lithography tool manufacturer agreements. See Note 13, “Commitments and Contingencies” for further information regarding our guarantees and warranties.

Our revenues include light sources, silicon crystallization tools, and installed base products, which consist of OnPulse contracts, service support and replacement parts, and to a lesser extent, service, upgrades, and refurbishments of our light sources.

We recognize revenue for light sources and silicon crystallization tools at one of following three points, depending on the terms of our arrangement with our customer: 1) shipment of the system, 2) delivery of the system, or 3) receipt of an acceptance certificate from the customer. For the majority of our DUV light source sales, the shipping terms are F.O.B. shipping point, and revenue is recognized upon shipment. Our current sales arrangements for EUV sources and silicon crystallization tools contain acceptance criteria, and revenue is recognized upon system acceptance by the customer.

Installed Base Products—OnPulse Contracts, Support Services, and Replacement Parts

Revenue associated with our OnPulse contracts, which include primarily replacement parts and to a much lesser extent services, is recognized monthly based on the number of pulses utilized by our customers on their light sources that are covered under their OnPulse arrangement. Revenue from support services, including our data services, is recognized as the services are rendered. To date, the revenue associated with the service element of our OnPulse contracts when combined with revenue generated from our support services has been less than 10% of our total revenue.

For our replacement part sales, the shipping terms are F.O.B. shipping point, and revenue is recognized upon shipment. For a significant portion of our replacement parts revenue, our customers return the consumed assembly to us as part of the sale of the new part. We reuse some of the material within these core assemblies, mainly metal components, for the future build of core assemblies. As a result, our revenue consists of both cash and the fair value of the reusable parts received from our customers as consideration for these replacement part sales. Revenue associated with our customers’ return of core assemblies is recognized upon receipt of the returned core assembly. The amount of the revenue is determined based upon the fair value of the reusable parts that we expect to yield from the returned core assembly based on historical experience. If the return of the core assembly is related to a part being replaced under our warranty provisions or under a service or support contract with our customer, we will recognize the estimated fair value of the reusable component as a reduction to cost of revenue.

We report revenue net of any sales-based taxes assessed by governmental authorities that are imposed on or concurrent with sales transactions.

Deferred revenue represents payments received from our customers in advance of the delivery of products and/or services or before the satisfaction of all revenue recognition requirements, as described above. Costs directly attributable to the deferred revenue are also deferred until the related revenue is recognized if the arrangement is profitable.

Costs incurred for shipping and handling are included in cost of revenues at the time the related revenue is recognized. Amounts billed to a customer, if any, for shipping and handling are reported as revenue.

Advertising costs are expensed as incurred. Advertising expenses amounted to approximately $612,000, $559,000 and $572,000, for 2012, 2011, and 2010, respectively.

We grant stock options and stock units from our 2011 Equity Incentive Plan, which provides for the issuance of incentive stock options, non-statutory stock options, stock appreciation rights, stock bonus awards, stock purchase awards, stock unit awards, performance-based stock unit awards, and other stock awards to our employees, non-employee directors and consultants.

Under the fair value recognition provisions of the authoritative guidance for stock-based compensation awards, we measure the fair value of stock-based awards at the grant date and the fair value is recognized as expense over the requisite service period. The fair value of stock options is determined by a Black-Scholes option pricing model. We value stock unit awards based on the fair value of our common stock on the date that the stock unit award is granted. Stock-based compensation expense related to stock options and stock unit awards with only service conditions is recognized straight line over the requisite service period for the entire award. Stock-based compensation expense related to stock unit awards with performance-based conditions is recognized on a straight-line basis over the service period for each separately vesting portion of the award as if the award was, in substance, multiple awards (i.e., a graded vesting basis). Additionally, we adjust the compensation expense over the service period based upon the expected achievement of the performance conditions. An estimated forfeiture rate is applied and included in the calculation of stock-based compensation expense at the time that the stock option or stock unit awards are granted and revised, if necessary, in subsequent periods, if actual forfeiture rates differ from those estimates. If an equity award is modified after the grant date, incremental compensation cost will be recognized in an amount equal to the excess of the fair value of the modified award over the fair value of the original award immediately before the modification.

We utilize the asset and liability method of accounting for income taxes. Deferred income taxes are recognized for the future tax consequences of temporary differences using enacted statutory tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Temporary differences include the difference between the financial statement carrying amounts and the tax bases of existing assets and liabilities and operating loss and tax credit carryforwards. The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date. We assess the likelihood that our deferred tax assets will be recovered from future taxable income. To the extent management

believes that recovery is more likely than not, we do not establish a valuation allowance. The calculation of our tax provision is dependent upon the geographic composition of our world-wide earnings, tax regulations governing each region and the availability of tax credits.

We are subject to taxation in many jurisdictions, and the calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations in various taxing jurisdictions. If we ultimately determine that the payment of these liabilities will be unnecessary, we reverse the liability and recognize a tax benefit during the period in which we determine the liability no longer applies. Conversely, we record additional tax charges in a period in which we determine that a recorded tax liability is less than we expect the ultimate assessment to be. The application of tax laws and regulations is subject to legal and factual interpretation, judgment and uncertainty. Tax laws and regulations themselves are subject to change as a result of changes in fiscal policy, changes in legislation, the evolution of regulations and court rulings. Therefore, the actual liability for U.S. or foreign taxes may be materially different from our estimates, which could result in the need to record additional tax liabilities or potentially reverse previously recorded tax liabilities. We recognize interest and penalties related to uncertain tax positions in our income tax expense.

We recognize excess tax benefits associated with the exercise of stock options directly to stockholders’ equity only when realized. An excess tax benefit occurs when the actual tax benefit realized by us upon an employee’s disposition of a share-based award exceeds the deferred tax asset, if any, originally recorded for such award. When assessing whether a tax benefit relating to share-based compensation has been realized, we follow the tax law ordering method, under which current year share-based compensation deductions are assumed to be utilized before net operating loss carryforwards and other tax attributes.

We use the “short-cut” method for calculating the tax effects of share-based compensation. The “short-cut” method includes simplified methods to establish the beginning balance of the additional paid-in capital pool (“APIC pool”) related to the tax effects of share-based compensation, and to determine the subsequent impact on the APIC pool.

In accordance with the authoritative guidance for stock compensation, we have presented excess tax benefits for the exercise of stock options as a financing activity in the consolidated statement of cash flows.

Basic (loss) earnings per share is calculated by dividing net (loss) income attributable to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted (loss) earnings per share is calculated on the basis of the weighted-average number of shares of common stock including the effect of the potential dilution that could occur if securities to issue common stock were exercised or converted into common stock. Potential dilutive securities include outstanding stock options, restricted stock units (“RSUs”), performance restricted stock units (“PRSUs”), and stock issued pursuant to our Employee Stock Purchase Plan (“ESPP”).

The following table sets forth the basic and diluted (loss) earnings per share for the years ended December 31, 2012, 2011 and 2010 (in thousands, except per share information):

Accumulated other comprehensive loss includes net (loss) income, foreign currency translation adjustments, net unrealized gains and losses on available-for-sale securities, net unrealized gains and losses on effective foreign currency forward exchange contracts, and net unrealized pension gains and losses. See the consolidated statements of comprehensive (loss) income for the effect of the components of comprehensive income (loss) to our net (loss) income.

The components of accumulated other comprehensive loss, net of tax, are as follows (in thousands):

Credit Risk. Financial instruments, which potentially subject us to concentrations of credit risk, consist principally of cash and cash equivalents, accounts receivable, investments, and foreign exchange contracts receivable.

Cash and cash equivalents. We invest our excess cash in an effort to preserve capital, provide liquidity, maintain diversification and generate returns relative to our corporate investment policy and prevailing market conditions. We have not experienced any material losses in our cash and cash equivalents. The cash balances in financial institutions and cash equivalent securities that we hold are in excess of federally insured limits. We perform periodic evaluations of the relative credit standing of the financial institutions and securities and limit the risk by selecting financial institutions and securities with a strong relative credit rating. Cash equivalents as of December 31, 2012 and 2011 were $50.1 million and $39.7 million, respectively. We have established investment credit policies that focus on the credit quality of obligors, limit credit concentrations, encourage diversification and require periodic creditworthiness reviews.

Accounts receivable. We maintain an allowance for doubtful accounts for estimated losses on accounts receivable based on evaluation of the aging of receivables, payment histories of our customers, financial condition of our customers, and the overall economic environment. We write off individual accounts against the allowance when we become aware of our customer’s inability to meet its financial obligation to us.

Our customer base is disbursed among many geographic regions and is comprised largely of multinational companies. For geographic customer concentrations, see Note 15 “Segment and Geographic Information”. In 2012, 2011 and 2010, revenue from four customers accounted for 58%, 64% and 63% of our total revenue, respectively. In 2012 and 2011, certain customers comprised 43% and 55% of total receivables at December 31, 2012 and 2011, respectively. We expect that sales to these customers will continue to account for a substantial portion of our revenue. None of our customers are obligated to purchase a minimum number of our products in the aggregate or during any particular period. We can provide no assurance that any of our customers will continue to purchase our products at past or current levels. The loss of business from any of these customers would have a material adverse effect on our operating results, financial condition, and cash flows.

Investments. Investment activity, including review of our investment policy and defining acceptable risk levels, is subject to periodic review and approval by senior management. We invest primarily in debt securities which are rated investment grade and have established exposure limits, diversification standards and review procedures for all credit risks including borrower, issuer and counterparty. Creditworthiness of specific obligors is determined by consideration of external determinants, typically ratings assigned by nationally recognized ratings agencies, and are supplemented by an internal credit evaluation. Obligor, asset sector and industry concentrations are subject to established limits and are monitored on a periodic basis.

Foreign exchange contracts receivable. We enter into foreign exchange forward contracts with major financial institutions in order to manage our risk of transacting business in several foreign currencies. Obligations under these forward contracts are unsecured, so we have established counterparty limits and we review the creditworthiness of these financial institutions on a periodic basis. In addition, we have entered into ISDA master agreements that contain netting provisions in the event that one party defaults on its obligations to the other.

Supplier Risk. We purchase a limited number of components and subassemblies included in our light sources, installed base products and silicon crystallization tools from a single supplier or a small group of suppliers. Whenever possible, we work with secondary suppliers to qualify additional sources of supply. To reduce the risk associated with limited-source suppliers, we have supply agreements in place and carry strategic inventory of these components. Strategic inventories are managed as a percentage of future demand. We also have vendor-managed inventory of critical components to further reduce the risk of a single supplier. In addition, we contract for the manufacture of various subassemblies of our products and depend on our contract manufacturers to deliver to our required specifications, schedule and quality standards. Further, some of our suppliers have specialized in supplying equipment or manufacturing services to semiconductor equipment manufacturers and, therefore, are susceptible to industry fluctuations and are subject to the same risks and uncertainties regarding their ability to respond to changing market and global conditions. To date we have been able to obtain adequate components and subassemblies for our light sources, installed base products and silicon crystallization tools in a timely manner from existing suppliers.

EUV Technology Development Risk. We are investing significant financial and other resources to develop EUV source technology for chip manufacturing. These expenditures are reflected in our research and development expenses in our consolidated statements of operations, as well as inventory and property, plant and equipment in our consolidated balance sheets. As of December 31, 2012, we have inventory of $93.3 million and property, plant and equipment of $71.5 million related to development of EUV source technology. Although we have customer orders for our EUV sources, if the EUV technology development is not successful, the value of our inventory and property, plant and equipment could be impaired.

In June 2011, the FASB issued amended standards to increase the prominence of items reported in other comprehensive income. These amendments eliminate the option to present components of other comprehensive income as part of the statement of changes in stockholders’ equity and require that all changes in stockholders’ equity—except investments by, and distributions to, owners—be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In addition, these amendments require that we present on the face of the financial statements reclassification adjustments for items that are reclassified from other comprehensive income to net income in the statement(s) where the components of net income and the components of other comprehensive income are presented. In December 2011, the FASB issued additional guidance that defers the effective date of the requirement to present separate line items on the income statement for reclassification adjustments of items out of accumulated other comprehensive income into net income. The deferral is temporary until the FASB reconsiders the operational concerns and needs of financial statement users. These new standards were effective for interim and annual periods beginning after December 15, 2011, and are to be applied retrospectively. These amended standards affected the presentation of other comprehensive income but did not affect our financial position or results of operations.

In December 2011, the FASB issued amended standards to increase the prominence of offsetting assets and liabilities reported in financial statements. These amendments require an entity to disclose information about offsetting and the related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. These amendments will enhance disclosures by requiring improved information about financial instruments and derivative instruments that are either offset or subject to an enforceable master netting arrangement or similar agreement. This information will enable users of an entity’s financial statements to evaluate the effect or potential effect of netting arrangements on an entity’s financial position, including the effect or potential effect of rights of setoff associated with certain financial instruments and derivative instruments. These revised standards are effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. An entity should provide the disclosures required by those amendments retrospectively for all comparative periods presented. These amended standards will require additional footnote disclosures for these enhancements but will not affect our financial position or results of operations.

We account for our financial assets and liabilities that are being measured and reported on at fair value on a recurring basis per the provisions of the authoritative guidance for fair value measurements. This includes certain items we report in cash equivalents and available-for-sale securities within our cash and cash equivalents, and short and long term investments on the accompanying consolidated balance sheets. In addition, our derivatives, which consist of foreign currency forward exchange contracts, are reported at fair value and are included in the scope of the authoritative guidance for fair value measurements and disclosures.

The authoritative guidance for fair value measurements stipulates that fair value is defined as the price at which an asset or liability could be exchanged in a current transaction between knowledgeable, willing parties.

Where available, fair value is based on observable market prices or parameters or derived from such prices or parameters. Where observable prices or inputs are not available, valuation models are applied. These valuation techniques include unobservable inputs and involve some level of estimation and judgment on the part of the reporting entity, the degree of which is dependent on the price transparency for the instruments or market and the instruments’ complexity.

Per the authoritative guidance for fair value instruments, assets and liabilities recorded at fair value in our consolidated balance sheets are categorized based upon the level of judgment associated with the inputs used to measure their fair value. The levels as defined by the fair value hierarchy in the authoritative guidance for fair value instruments are as follows:

Level 1— Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.

Level 2— Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly at the measurement date.

Level 3— Inputs are unobservable for the asset or liability and usually reflect the reporting entity’s best estimate of what market participants would use in pricing the asset or liability at the measurement date.

The majority of our available-for-sale securities and our foreign currency forward exchange contracts are priced via independent providers. In obtaining such valuation information from third parties, we have evaluated the valuation methodologies used to develop the fair values in order to determine whether such valuations are representative of an exit price in our principal markets.

The fair values of our available-for-sale securities are determined by a matrix pricing, which is a mathematical technique widely used to value securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark-quoted securities. Such assets are classified as Level 2 inputs in the fair value hierarchy and typically include commercial paper and government and corporate fixed income securities which are included in our investment portfolio.

Our foreign currency forward exchange contracts are valued using an income approach which includes observable Level 2 market inputs at the measurement date and uses a standard valuation technique to convert future foreign currency amounts to a single discounted present amount assuming participants are motivated, but not compelled, to transact. Level 2 inputs are limited to quoted prices for similar assets or liabilities in active markets and inputs other than quoted prices that are observable for the asset or liability. Key inputs in this discounted calculation include spot currency exchange rates at the measurement date, interest rates, and credit default swap rates at standard quoted intervals. Credit default swaps on us are not available, so we estimated our credit risk premium based on a financing arrangement that was offered to us during the three months ended December 31, 2012 by a third party. The principal market in which we execute our foreign currency forward exchange contracts is the retail market. Mid-market pricing is used as a practical expedient for fair value measurements. Since significant inputs in the valuation of our foreign currency forward exchange contracts are observable in the active market, they are classified as Level 2 in the fair value hierarchy. For further discussion,

see Note 7, “Derivative Instruments and Hedging Activities.” Financial assets and liabilities (excluding cash balances) measured at fair value on a recurring basis are summarized below (in thousands):

Non-Financial Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis

We apply fair value techniques on a non-recurring basis associated with: (1) valuing potential impairment losses related to goodwill, which are accounted for pursuant to the authoritative guidance for intangibles—goodwill and other; and (2) valuing potential impairment losses related to long-lived assets, which are accounted for pursuant to the authoritative guidance for property, plant and equipment.

We develop, manufacture and market our products within two reportable operating segments, light source products and display products. Our light source products operating segment designs, manufactures and sells light sources and installed base products for use in photolithography systems used in the manufacture of semiconductors. Our display products business, which was discontinued in January 2013, developed, integrated, marketed, and supported silicon crystallization tools used in the manufacture of displays. For further discussion, see Note 15 “Segment and Geographic Information” and Note 18 “Subsequent Events”.

We test for goodwill impairment at the reporting unit level, which are the same as our operating segments. All of our goodwill is associated with our light source products reporting unit, and we determine the fair value of this reporting unit, when required, based on a combination of inputs including our market capitalization, as well as Level 3 inputs such as discounted cash flows which are not observable from the market, directly or indirectly. We conduct our goodwill impairment analysis annually in the fourth quarter of each year, or upon the occurrence of certain triggering events. No such triggering events occurred during the year ended December 31, 2012. Historically, the fair value of our light source products reporting unit has significantly exceeded its carrying value.

We test for the impairment of our long-lived assets when triggering events occur and such impairment, if any, is measured at fair value. The inputs for fair value of our long-lived assets would be based on Level 3 inputs as data used for such fair value calculations would be based on discounted cash flows which are not observable from the market, directly or indirectly. In the fourth quarter of 2012, lack of demand for our display products triggered an asset impairment test associated with our display products business. The impairment test resulted in a $5.1 million impairment of equipment used in the manufacturing or research and development of display product tools. For further discussion, see Note 15 “Segment and Geographic Information” and Note 18 “Subsequent Events”. There were no indicators of impairment of our long-lived assets during 2011 and 2010.

Cash, cash equivalents and investments at December 31, 2012 consist of the following (in thousands):

Cash, cash equivalents and investments at December 31, 2011 consist of the following (in thousands):

The contractual maturities of our cash equivalents and investments at December 31, 2012 were as follows (in thousands):

We did not have any investments in individual securities that have been in a continuous unrealized loss position deemed to be temporary for more than 12 months at December 31, 2012.

Depreciation expense totaled $25.0 million, $17.6 million, and $18.1 million for the years ended December 31, 2012, 2011 and 2010, respectively.

We conduct business in several currencies through our global operations with certain transactions denominated in local currencies, such as the Euro, Japanese Yen, South Korean Won and Taiwanese Dollars. We use derivative financial instruments, such as forward exchange contracts, to hedge certain forecasted foreign denominated transactions expected to occur over the next twelve to twenty-four months. The purpose of our derivative financial instruments is to mitigate the effect of the exchange rate fluctuations on certain foreign currency denominated revenue, costs and cash flows. We do not enter into derivative instruments for speculative purposes.

Our foreign currency risk falls into two primary categories. First, our gross profit margins are subject to change when we sell our products in one currency and the product costs are denominated in a different currency. To mitigate this risk, we enter into derivative financial instruments, principally forward contracts, which we designate as cash flow hedges to mitigate fluctuations in the gross profit margins of these forecasted transactions. We also occasionally enter into derivative financial instruments, principally forward contracts, which we designate as cash flow hedges when we anticipate purchasing a capital asset in a currency other than the functional currency of the entity purchasing the asset. Designated hedging instruments qualify for cash flow hedge accounting treatment if certain criteria are met. For example, at the inception of the hedge, we must have formal documentation of the hedging relationship and our management objective and strategy for undertaking the hedge, including identification of the hedging instrument, the hedged transaction, the nature of the risk being hedged, and how the hedging instrument’s effectiveness will be assessed. The hedging relationship must be

highly effective in achieving offsetting cash flows attributable to the hedged risk during the term of the hedge. Interest charges or “forward points” on our forward contracts are excluded from the assessment of hedge effectiveness and are recorded in the consolidated statements of operations.

The effective portion of the gain or loss on the cash flow hedge is reported as a component of accumulated other income or loss and is reclassified into earnings when the hedged transaction affects earnings. Once the underlying hedged transaction is recorded, we de-designate the derivative, cease to apply hedge accounting treatment to the transaction and record any further gains or losses to other income (expense). The cash flows resulting from forward exchange contracts are classified in the consolidated statements of cash flows as part of cash flows from operating activities. If all or a portion of the forecasted transaction were cancelled, this would render all or a portion of the cash flow hedge ineffective, and we would reclassify the ineffective portion of the hedge into other income (expense). We can also experience ineffectiveness if the expected date of a hedged transaction is delayed beyond the maturity date of the cash flow hedge. In such an instance, the asset or liability value of a cash flow hedge is larger than the liability or asset value of the hedged transaction on a net present value basis, rendering the surplus amount ineffective which we record to other income (expense). We generally do not experience ineffectiveness of our cash flow hedges as a result of cancelled transactions and the accompanying consolidated statements of operations contain immaterial gains and losses due to time value differences. We adjust the level and use of derivatives as soon as practicable after learning that an exposure has changed. We review all exposures on derivative positions on a regular basis.

The second category of foreign currency risk occurs when transactions are recorded in our consolidated financial statements in a currency other than the applicable subsidiary’s functional currency and the cash settlement of the transaction occurs at some point in the future. When transactions in non-functional currencies are recorded in our consolidated financial statements, changes in the recorded amounts resulting from fluctuations in the value of that currency are recorded to other income (expense). In order to mitigate these remeasurement gains and losses, we enter into derivative financial instruments, principally forward contracts. The forward contracts that hedge these transactions that have been recorded to our consolidated financial statements are not designated as hedges and, therefore, we record changes in their fair value to other income (expense). The U.S. dollar equivalent of all outstanding notional amounts of forward contracts was as follows (in thousands):

The fair value of all of our forward contracts totaled to a liability of $3.1 million and $1.5 million at December 31, 2012 and 2011, respectively. As of December 31, 2012, the deferred loss, net of tax, for those that qualified for hedge accounting treatment was $412,000, of which $323,000 will be reclassified from accumulated other comprehensive loss into earnings at the then- current values over the next twelve months as the underlying hedged transactions occur.

The derivative instruments that we enter into are subject to master netting arrangements and qualify for net presentation on the balance sheet. The gross fair value of derivative instruments in our consolidated balance sheets was as follows (in thousands):

The effect of derivative instruments on our consolidated statements of operations and other comprehensive (loss) income (“OCI”) was as follows (in thousands):

We are exposed to credit losses in the event of nonperformance by the banks with which we transact foreign currency hedges. We manage this credit risk by transacting foreign currency hedging with more than one institution, only executing hedges with counterparties that meet our minimum requirements, monitoring the credit ratings of our counterparties on a periodic basis and negotiating contractual master netting provisions that allow us to record and offset liabilities to a counterparty against amounts due from that counterparty in an event of default. We do not receive collateral from our hedging counterparties. As of December 31, 2012, we did not have any credit exposure from nonperformance of foreign exchange hedging counterparties.

The following table provides the changes in the carrying amount of goodwill for our light source products segment during the year ended December 31, 2012 (in thousands):

Intangible assets that are determined to have definite lives are amortized on a straight-line basis over their estimated useful lives, and are measured for impairment only when events or circumstances indicate the carrying value may be impaired. The expected useful life of our patents can vary depending on the nature of the technology and their remaining useful life. Amortization expense associated with our intangible assets was $1.4 million, $1.3 million and $682,000 for the years ended December 31, 2012, 2011, and 2010, respectively.

Amortization expense related to intangible assets at December 31, 2012 for the next five years and thereafter is expected to be as follows (in thousands):

Details of other assets and liabilities consist of the following (in thousands):

We have the following equity incentive plans or incentive programs that include equity based awards:

In May 2011, at our annual meeting of stockholders, our stockholders approved the Incentive Plan, which replaced our 2005 Equity Incentive Plan (the “2005 Plan”). The Incentive Plan provides for the issuance of incentive stock options, non-statutory stock options, stock purchase awards, stock bonus awards, stock appreciation rights, stock unit awards, performance stock awards, performance cash awards and other stock awards to our employees, non-employee directors and consultants. Stock options granted under the Incentive Plan have an exercise price at least equal to the fair market value of our common stock on the dates of grant, expire no more than ten years from the date of grant, and generally vest ratably over a four-year period following the date of grant. Restricted stock unit awards granted generally vest one to three years from the date of grant. We also grant performance-based restricted stock unit awards to our executive officers and certain key management. The number of shares granted is subject to increase or decrease based on actual performance against performance measures approved by the Compensation Committee of our Board of Directors. Following the date approved by our stockholders, any shares available for issuance under our 2005 Plan became available for issuance under the Incentive Plan, and any outstanding stock awards that terminate or expire under the 2005 Plan that would have reverted to the share reserve of the 2005 Plan will become available for issuance under the Incentive Plan. The number of shares available for grant under the Incentive Plan was 1,524,337 at

December 31, 2012. Awards and options to purchase 857,933 shares were outstanding under this plan as of December 31, 2012.

The 2005 Plan provided for the grant of incentive stock options, non-statutory stock options, stock appreciation rights, stock bonus awards, stock purchase awards, stock unit awards, performance-based stock unit awards, and other stock awards to our employees, non-employee directors and consultants. Stock options granted under the 2005 Plan had an exercise price at least equal to the fair market value of our common stock on the dates of grant, expire no more than ten years from the date of grant, and generally vest ratably over a four-year period following the date of grant. Restricted stock unit awards granted generally vest one to three years from the date of grant. We also granted performance-based restricted stock unit awards to our executive officers and certain key management. The 2005 Plan was terminated in May 2011 with the stockholders’ approval of the Incentive Plan. Awards and options to purchase 1,061,460 shares were outstanding under this plan as of December 31, 2012.

The 2000 Plan provided for the grant of options to our employees or consultants who were neither directors nor officers. The exercise prices of the options granted under the 2000 Plan were equal to the fair market value of our common stock on the dates of grant. Options issued under the 2000 Plan expire ten years after the options were granted and generally vest ratably over a four-year period following the date of grant. The 2000 Plan was terminated in May 2005 with the stockholders’ approval of the 2005 Plan. Options to purchase 57,045 shares were outstanding under this plan as of December 31, 2012.

The 1996 Plan provided for the grant of incentive stock options to our employees and nonqualified stock options to our employees, directors and consultants. The exercise prices of options granted under the 1996 Plan were at least equal to the fair market value of our common stock on the dates of grant. Options issued under the 1996 Plan expire five to ten years after the options were granted and generally vest ratably over a four-year period following the date of grant. The 1996 Plan was terminated in May 2005 with the stockholders’ approval of the 2005 Plan. Options to purchase 103,730 shares were outstanding under this plan as of December 31, 2012.

Stock Options, Restricted Stock Unit Awards and Performance-Based Restricted Stock Unit Awards

A summary of the stock award activity under our equity incentive plans is as follows:

The weighted-average grant-date fair value of options granted during the years ended December 31, 2012, 2011, and 2010 was $13.82, $14.84, and $9.84 per share, respectively. The weighted-average grant-date fair value of RSUs granted during the years ended December 31, 2012, 2011 and 2010 was $49.91, $49.53, and $31.82 per share, respectively. The weighted-average grant-date fair value of PRSUs granted during the years ended December 31, 2012, 2011 and 2010 was $51.07, $50.63, and $31.66 per share, respectively.

The total intrinsic value of options exercised during the years ended December 31, 2012, 2011, and 2010 was $9.6 million, $7.5 million, and $3.1 million, respectively. The total fair value of RSUs vested during the years ended December 31, 2012, 2011 and 2010 was $21.2 million, $8.3 million, and $3.9 million, respectively. The total fair value of PRSUs vested during the years ended December 31, 2012 and 2011 was $13.4 million, and $6.7 million, respectively. No PRSUs vested in 2010.

The total cash received from employees as a result of employee stock option exercises for the years ended December 31, 2012, 2011, and 2010 was $10.3 million, $15.5 million, and $8.8 million, respectively. In connection with these exercises, the excess tax benefit recognized by us for the years ended December 31, 2012, 2011, and 2010 was $8.1 million, $4.0 million, and $2.1 million, respectively. Payments related to the net share settlement of equity awards for the year ended December 31, 2012 was $7.8 million, which is reflected as a financing activity within the consolidated statements of cash flows. We settle employee stock option exercises and RSU and PRSU releases with newly issued shares of our common stock.

As of December 31, 2012, the unamortized compensation expense related to outstanding unvested options, RSUs and PRSUs was $704,000, $26.5 million, and $6.8 million, respectively, and is expected to be recognized over a weighted-average period of 2.22, 1.86, and 1.12 years, respectively.

We measure the fair value of stock options on the date of grant, as determined by the Black-Scholes option pricing model. We utilize a blended volatility, a combination of historical and implied volatility, in this valuation model. Historical volatility is based on a period commensurate with the expected term of the options. Implied volatility is derived based on a six-month period of traded options of our common stock. The expected term of our stock options represents the period of time options are expected to be outstanding and is based on observed historical exercise patterns for us, which we believe are indicative of future exercise behavior. For the risk free interest rate, we use the then currently available rate on zero coupon U.S. government issues with a remaining period commensurate with the expected term for valuing options. We have never declared or paid cash dividends on our common stock, and currently do not anticipate paying cash dividends in the future.

The following weighted average assumptions were used for valuing our stock options granted:

We value stock unit awards based on the fair value of our common stock on the date that the stock unit award is granted. Stock-based compensation expense related to stock options and stock unit awards with only

service conditions is recognized straight line over the requisite service period for the entire award. Stock-based compensation expense related to stock unit awards with performance-based conditions is recognized on a straight-line basis over the service period for each separately vesting portion of the award as if the award was, in substance, multiple awards (i.e., a graded vesting basis). Additionally, we adjust the compensation expense over the service period based upon the expected achievement of the performance conditions. An estimated forfeiture rate is applied and included in the calculation of stock-based compensation expense at the time that the stock option or stock unit awards are granted and revised if necessary in subsequent periods, if actual forfeiture rates differ from those estimates.

In November 2012, the board of directors approved modifications for certain of the board of directors’ RSUs and certain board of director stock options. The modification for the RSUs provided at the election of the director to sell to the company a whole number of shares of common stock equal to approximately 40% of the shares covered by the RSU. The modification to the stock options provided at the election of director to exercise the option pursuant to a net exercise arrangement and/or sell to the company a whole number of shares of common stock to approximately 40% of the difference between the exercise price and the fair market value on the date of exercise. On December 13, 2012, certain directors elected for the release of their RSUs and the exercise of stock options according to these modifications. As a result of these modifications, the RSU and stock option awards classifications were changed from equity awards to liability awards and resulted in incremental compensation expense equal to the increase in the fair value of the award on the settlement date over the fair value of the award on the grant date. The incremental stock compensation expense for the RSUs and stock options was $677,000 and $1.2 million, respectively.

Under the ESPP, eligible employees may purchase shares of our common stock through payroll deductions of up to 15% of his or her compensation, at a price per share equal to 95% of the fair market value of our common stock at the end of the purchase period.

The number of shares issuable under the ESPP as of December 31, 2012 was 226,668. Because our ESPP is a non-compensatory plan as defined by the authoritative guidance for stock compensation, no stock-based compensation expense is recorded for our ESPP. The total cash received from employees as a result of ESPP shares issued during the year ended December 31, 2012, 2011, and 2010 was $976,000, $792,000, and $632,000, respectively.

In April 2008, our board authorized us to repurchase up to $100 million of our common stock. The program does not have a fixed expiration date and may be discontinued at any time. During the years ended December 31, 2012 and 2011, no shares were repurchased and during the year ended December 31, 2010, we repurchased 560,000 shares for $19.3 million under this program. As of December 31, 2012, $57.8 million remain available under this program for repurchases. The Merger Agreement prohibits us from redeeming, purchasing, or otherwise acquiring our own stock. As a result, we will not repurchase additional shares of our common stock pursuant to our board-authorized repurchase program while the Merger remains pending.

The components of (loss) income before income taxes and income tax (benefit) expense are summarized as follows (in thousands):

The following schedule reconciles the difference between the U.S. federal income tax (benefit) expense at the statutory rate (35%) to our income tax (benefit) expense (dollars in thousands):

The American Taxpayer Relief Act of 2012, which retroactively reinstated the U.S. federal research and development tax credit from January 1, 2012 through December 31, 2013, was enacted into law on January 2, 2013. Therefore, in the first quarter of the 2013, we will recognize a benefit of approximately $5.5 million relating to U.S. research and development tax credits generated in the 2012.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of our net deferred tax assets and liabilities are as follows (in thousands):

The valuation allowance is based on our assessment that it is more likely than not that certain deferred tax assets will not be realized in the foreseeable future. The valuation allowance as of December 31, 2012 includes allowances of $15.2 million against our deferred tax asset for California research and development tax credit carryforwards. Due to changes in California’s income apportionment rules, which were enacted in the fourth quarter of 2012 and will become effective January 1, 2013, we believe that it is more likely than not that the results of future operations will not generate sufficient taxable income in California to realize these benefits; therefore, a valuation allowance was provided for these assets.

We also have a deferred tax asset of $1.7 million related to foreign net operating loss carryforwards in our display products business and a deferred tax asset of $1.9 million related to capital loss carryforwards. We have full valuation allowances against these deferred tax assets as we believe it is more likely than not that we will not generate sufficient taxable income to utilize the foreign net operating loss carryforwards or sufficient capital gains to utilize the capital loss carryforwards after consideration of our tax planning strategies.

The following is a reconciliation of the amount of gross unrecognized tax benefits (in thousands):

Included in the balance of unrecognized tax benefits at December 31, 2012 is $8.4 million of net tax benefits that, if recognized, would affect our effective tax rate. We recognize interest and penalties related to uncertain tax positions in our income tax expense. As of December 31, 2012 and 2011, respectively, we had approximately $1.5 million and $2.2 million of accrued interest and penalties related to uncertain tax positions. During the years ended December 31, 2012, 2011, and 2010, we recorded interest and penalties, of $232,000, $231,000 and $250,000, respectively. In the first quarter of 2013, we expect to reduce the balance of unrecognized tax benefits by $4.6 million due to the expiration of a statute of limitations.

We are subject to taxation in the United States and in various states and foreign jurisdictions. Our tax years 2008 and forward are subject to examination by the IRS, our tax years 2000 and forward are subject to examination by material state jurisdictions, and our tax years 2004 and forward are subject to examination by material foreign jurisdictions.

We have benefited from a tax holiday in Korea where we manufacture certain of our replacement parts. The tax holiday, which expired at the end of 2012, was awarded by Korea’s Ministry of Finance and Economy to promote capital investment in certain qualified high-technology businesses. The holiday provided exemption from corporate income tax of 100% of eligible income from 2003 through 2009 and of 50% of eligible income from 2010 through 2012. Since inception, the tax holiday has provided tax benefits to us totaling $5.1 million. Tax benefits provided by the tax holiday totaled $366,000 and $51,000 for the years ended December 31, 2012 and 2011, respectively. There was no tax benefit provided by the tax holiday in 2010.

It is our intention to reinvest undistributed earnings of our foreign subsidiaries and thereby indefinitely postpone their remittance. Accordingly, we have not provided U.S. federal income and foreign withholding taxes on $84.0 million of undistributed earnings from non-U.S. operations as of December 31, 2012. It is not practicable to estimate the amount of the deferred tax liability on such unremitted earnings.

We provide a defined benefit pension plan for a substantial portion of our employees at our Japan subsidiary. Benefits under the plan are based upon years of service and compensation levels. The plan is an unfunded plan and includes no plan assets. We accrue for the unfunded portion of the benefit obligation. The assumptions used in calculating the obligation for this plan depend on the local economic environment.

Our Korean subsidiary terminated their pension plan in July 2011. Plan assets were distributed to participants on or before August 30, 2011. Prior to its termination, our Korean subsidiary maintained a trust fund with a life insurance company, which is a guaranteed investment product and heavily regulated by the Korean government. All of the pension plan assets were held in a Variable Rate Guaranteed Investment Fund. These

pension plan assets were recorded based on the total amount contributed plus any compounded and accrued interest. There were no other categories of pension plan assets. The vast majority of pension plan assets, as well as a minimum rate of return, were guaranteed by the Korean government. In connection with the termination of our Korean subsidiary pension plan during the year ended December 31, 2011, we recognized a curtailment loss of $222,000 related to the settlement of projected benefit obligations.

At December 31, 2012 and 2011, the liability recognized related to the projected benefit obligation was $3.1 million and $2.9 million, respectively. Net period costs were $364,000, $883,000 and $622,000 for the years ended December 31, 2012, 2011 and 2010, respectively. The weighted-average discount rate used to estimate the projected benefit obligation as of December 31, 2012 and 2011 was 1.00% and 1.25%, respectively, and the weighted-average compensation increase was 2.5% and 5.0%, respectively. Our estimated benefit payments for each of the next ten years will be $210,000, $219,000, $231,000, $239,000 and $249,000, respectively in 2013 through 2017, and an aggregate of $1.5 million for years 2018 through 2022.

The recognition of the unfunded status on the balance sheet requires employers to recognize actuarial gains and losses as a component of other comprehensive income (loss). We recorded the unrecognized actuarial gains and losses included in our pension plans in other comprehensive income (loss). The total amount recorded in accumulated other comprehensive income (loss) after taxes was an unrecognized actuarial loss of $44,000 for the year ended December 31, 2012, an unrecognized actuarial gain of $54,000 for the year ended December 31, 2011, and an unrecognized actuarial loss of $279,000 for the year ended December 31, 2010.

We have a defined contribution plan in the United States that qualifies under Section 401(k) of the Internal Revenue Code, and we offer defined contribution plans at certain of our international subsidiaries. Participating United States employees contribute a percentage of their eligible compensation, subject to certain annual IRS limits. The plan is available to all eligible United States employees who meet the service requirement. In accordance with the provisions of the terms of the plan, we may make discretionary matching contributions of up to 4% of each participating employee’s eligible compensation, not to exceed $5,000 per participant in the plan year.

We matched defined contribution participant amounts of $2.9 million, $2.5 million, and $2.9 million for the years ended December 31, 2012, 2011 and 2010, respectively.

We have an executive deferred compensation plan for key management level employees in which the employee may elect to defer receipt of current compensation from us in order to provide retirement and other benefits on behalf of such employee backed by company owned life insurance policies. This plan is intended to be an unfunded, nonqualified deferred compensation plan that complies with the provisions of Section 409A of the Internal Revenue Code. The cash surrender value of the company owned life insurance policies totaled $6.0 million and $4.9 million as of December 31, 2012 and 2011, respectively, and is included in other assets in the consolidated balance sheets. Our liability for the deferred compensation plan totaled $6.3 million and $5.2 million as of December 31, 2012 and 2011, respectively, and is included in other liabilities in the consolidated balance sheets. Compensation expense under the plan totaled $430,000, $576,000 and $123,000, for the years ended December 31, 2012, 2011 and 2010, respectively.

We lease certain facilities under non-cancelable operating leases. The lease terms on these facilities are through December 2017 and provide for certain rent abatements and minimum annual increases and options to

extend the terms. In addition, we have a land lease in Korea with a lease term that expires in December 2020. This land lease is exempt from lease payments because the building meets certain investment and operational criteria of the Korean government.

Building rent expense under operating leases is recognized on a straight-line basis over the life of the related lease. Rent expense includes payments for building rent, utilities and services. For the years ended December 31, 2012, 2011, and 2010, rent expense totaled approximately $2.5 million, $2.4 million and $2.3 million, respectively.

Total future minimum lease commitments under operating leases are as follows (in thousands):

We had capital lease obligations of $654,000 as of December 31, 2012. Capital lease obligations expire at various dates, with the latest maturity in 2015. The current portion of the total obligation of $354,000 is included in other current liabilities and the remaining long-term portion of $300,000 is included in other long-term liabilities on the consolidated balance sheets. Assets held under capital leases are included in net property, plant and equipment on the consolidated balance sheets.

Total future minimum lease commitments under capital leases are as follows (in thousands):

We record a provision for warranty, which is included in cost of revenues and is recorded at the time that the related revenue is recognized. The warranty period and terms for light sources and replacement parts varies by light source system model. We review our warranty provision using a statistical financial model which calculates actual historical expenses, product failure rates, and potential risks associated with our different product models. We then use this financial model to calculate the future probable expenses related to warranty and the required level of the warranty provision. Throughout the year, we review the risk levels, historical cost information and failure rates used within this model and update them as information changes over the product’s life cycle. For new product offerings, such as EUV sources and silicon crystallization tools, for which we have limited or no historical failure rates, we estimate our future probable expenses related to the warranties based on an evaluation of parts covered under warranty and their expected failure rates determined through internal testing and analysis. If actual warranty expenditures differ substantially from our estimates, revisions to the warranty provision would be required. Actual warranty expenditures are recorded against the warranty provision as they are incurred. Consumed parts under warranty, when returned, are recorded as reductions to warranty expenditures during the period at their estimated fair value. We do not include the return of consumed parts in our statistical financial model used to estimate our provision for warranty because the specific parts and their estimated future fair value when returned, if any, cannot be reasonably estimated at the time revenue is recorded.

The following table provides the changes in the product warranty accrual (in thousands):

We agree to indemnify certain of our customers in the general purchase agreements with our three lithography tool manufacturer customers, ASML, Canon and Nikon, and under certain of our development and supply agreements. These indemnifications generally include both general and intellectual property indemnification provisions that provide we defend these parties against certain infringement claims directed against our products. Under the indemnification provisions, we would pay costs and damages attributable to the infringement claims, including attorneys’ fees associated with settlements or defenses in respect of such claims, provided that certain conditions are satisfied. As of December 31, 2012, we were not subject to any pending general or intellectual property-related litigation or claims. We have not received any requests for nor have we been required to make any payments under these indemnification provisions.

We have employment contracts with five officers and key management under which severance payments would become payable after a change in control in the event of specified terminations without cause or terminations under certain circumstances. In addition, vesting of stock-based compensation would accelerate upon the occurrence of the requisite triggers. If severance payments under the current employment agreements were to become payable, the individual severance payments, as of December 31, 2012, would range from $429,000 to $2.9 million, and total severance payments for all five individuals would be $7.3 million.

We have entered into separate indemnification agreements with our executive officers, certain key employees and with each of our directors. These agreements require us, among other requirements, to indemnify such officers and directors against expenses (including attorneys’ fees), judgments and settlements paid by such individuals in connection with any action arising out of such individuals’ status or service as our executive officers or directors (subject to exceptions such as where the individuals failed to act in good faith or in a manner the individuals reasonably believed to be in or not opposed to the best interests of Cymer) and to advance expenses when such individuals may be entitled to indemnification by us. Other than the pending purported class action litigation discussed under “Litigation” below, there are no pending legal proceedings that involve the indemnification of any of our directors or officers.

From time to time, we are subject to potential claims and assessments from third parties. We are also subject to various governmental audits and reviews. We continually assess whether or not such claims have merit and

warrant accrual. Where appropriate, we accrue estimates of anticipated liabilities in the consolidated financial statements. Such estimates are subject to change and may affect our operating results, financial condition and cash flows.

We are from time to time party to legal actions in the normal course of business. Management does not expect the outcome of current legal action in the normal course of business to have a material effect on our operating results, financial condition and cash flows.

Pursuant to an engagement letter between us and Goldman Sachs & Co., we have agreed to pay Goldman Sachs & Co. a transaction fee based on a percentage of the aggregate consideration to be paid pursuant to the Merger Agreement. As of January 2, 2013, such fee is estimated to be approximately $34.5 million, based on the closing price of ASML ordinary shares for the five trading days ending January 2, 2013, $6.0 million of which was paid upon execution of the Merger Agreement and the remainder of which is payable immediately prior to closing of the Merger. Through December 31, 2012, we have recorded an additional $2.8 million in fees to other service providers relating to the Merger, and will owe an additional $1.6 million for this time period contingent upon closing of the Merger. During the year ended December 31, 2012, we recorded total expenses related to the Merger of $8.8 million.

During 2012, we did not meet our performance targets under our bonus and profit sharing plan and, therefore, did not have any amounts accrued at December 31, 2012. Pursuant to the Merger Agreement, we will pay 2012 annual bonuses and profit sharing on the closing date of the Merger. Each employee in good standing as of the closing date will be entitled to receive 50% of their 2012 target short term incentive plan bonus award or 50% of their target profit sharing award. The estimated total amount of such bonuses and profit sharing is approximately $12.0 million, and will be paid only if the Merger is completed.

If the Merger Agreement is terminated, depending upon the reason for terminating the Merger Agreement, we may be required to pay ASML a termination fee of $75.0 million.

Pursuant to the Merger Agreement, unvested options and RSUs held by our outside directors will be cashed-out at closing of the Merger. This will accelerate the vesting of these options and RSUs and result in additional stock-based compensation expense of up to $772,000, depending on the closing date of the Merger.

The lawsuit generally alleges, among other things, that the Merger Agreement was reached through an unfair process, that the Merger consideration is inadequate, that the Merger Agreement unfairly caps the price of Cymer common stock, that the Merger Agreement’s “no solicitation” provision and other deal protection devices have precluded other bidders from making successful competing offers for Cymer, and that the preliminary proxy statement/prospectus filed in connection with the Merger contains material misstatements and/or omissions. The lawsuit alleges that ASML aided and abetted the alleged breaches of fiduciary duties.

On December 31, 2012, the parties entered into a memorandum of understanding to settle the lawsuit. While the defendants believe that the lawsuit is without merit, in order to eliminate the burden, expense and uncertainties inherent in further litigation, the defendants have agreed, as part of the memorandum of understanding and without admitting to the validity of any allegations made in the lawsuit, to make certain additional disclosure requested by the plaintiff in the proxy statement/prospectus filed in connection with the Merger. The memorandum of understanding contemplates that the parties will enter into a stipulation of settlement. The stipulation of settlement will be subject to customary conditions, including certain confirmatory discovery and court approval following notice to our stockholders. If the settlement is finally approved by the court, it will resolve and release all claims in all actions that were or could have been brought challenging any aspect of the Merger, the Merger Agreement, and any disclosure made in connection therewith (other than claims to enforce the settlement). In addition, the memorandum of understanding contemplates that, if the Merger is consummated and if the settlement is approved, Cymer or its successor shall be responsible for any attorneys’ fees of the plaintiff that may be awarded by the District Court of Clark County, Nevada. There can be no assurance that the parties will ultimately enter into a stipulation of settlement or that the District Court of Clark County, Nevada will approve the settlement even if the parties were to enter into such stipulation. In such event, the proposed settlement as contemplated by the memorandum of understanding may be terminated.

We do not expect the outcome of this lawsuit to have a material effect on our operating results, financial condition and cash flow.

We did not have any related party transactions in 2012 or 2011. During 2010, we engaged Exponent, Inc., to perform a one-time component reliability analysis for a fee of $164,000. A member of our board of directors and member of Exponent’s board of directors, served as an executive officer of Exponent until he retired from his executive chairman role at Exponent on June 3, 2010.

Operating segments are defined as components of a public entity which engage in business activity which may earn revenues and incur expenses and its operating results are reviewed regularly by the chief operating decision maker (“CODM”), or decision making group, in deciding how to allocate resources and in assessing performance. We develop, manufacture and market our products within two reportable operating segments: light source products and display products. Our light source products operating segment primarily designs, manufactures and sells light sources and installed base products for use in photolithography systems used in the manufacture of semiconductors. Our display products operating segment developed, integrated, marketed and supported silicon crystallization tools used in the manufacture of high-resolution LTPS – LCD and OLED displays. Our CODM is our chief operating officer who reviews the operations and full financial statements of our light source products and display products operating segments on a quarterly basis. Our CODM uses this information in order to make decisions on resources needed for our light sources and display products businesses and to assess the overall performance of these businesses. The accounting policies to derive our consolidated financial results are the same as those used for our segment reporting.

In the fourth quarter of 2012, we evaluated the demand for our display products business. Based on this evaluation, we determined that the carrying value of the assets in the display products business required

adjustments, as discussed below. In January 2013, we decided to discontinue new product development in the display products business. For further discussion, see Note 18 “Subsequent Events”.

Revenue by product in each of our operating segments is as follows (in thousands):

Sales to external customers and long-lived assets, classified by geographic location, are as follows (in thousands):

We expect that sales in these geographic areas will continue to account for a substantial portion of our revenue. The loss of business from any of these regions would have a material adverse effect on our operating results, financial condition, and cash flows.

Customers’ concentrations with revenues attributable to our light source products operating segments are as follows:

On April 1, 2011, we acquired all of the outstanding equity of eDiag, a privately held company based in Seoul, Korea. We acquired eDiag for consideration totaling $15.0 million payable in cash, with $6.0 million paid on April 1, 2011, $3.0 million paid on April 1, 2012 and $3.0 million payable on each of April 1,2013 and 2014. Additionally, we entered into a services agreement with the president and previous majority stockholder of eDiag that pays him $2.5 million on April 1, 2015 and $2.5 million on April 1, 2016, if he continues his employment with us through those dates. The payments under the services agreement are being recorded as bonus expense over the respective service periods.

The excess purchase price over fair value of net assets acquired was recorded as goodwill and identifiable assets consisting of developed technology were recorded at fair value. For further discussion, see Note 8, “Goodwill and Intangible Assets”.

On January 28, 2013, we decided to discontinue new product development in our display products business, as authorized by our board of directors. This decision was made in light of our plan to focus on our core light source business, the losses the display products business has generated since its inception, and the continued material investment in research and development that we believe would be necessary to increase our competitive position in the market. We will continue to support the display product tools that have been previously sold and have remaining warranty or service contracts associated with them.

In the fourth quarter of 2012, in connection with the preparation of the year-end financial statements, we evaluated the demand for our display products. Based on this evaluation, we determined that the carrying value of the assets in the display products business required adjustments consisting of a write-down to inventory of $48.2 million to properly reflect lower of cost or market and a $5.1 million impairment of equipment used in the manufacturing or research and development of display product tools. In addition, in the fourth quarter of 2012, we accrued expenses of $12.2 million relating to firm purchase commitments for inventory and research and development costs that will no longer be utilized. As a result of the above, we recorded pre-tax charges in the fourth quarter of 2012 of $65.5 million, of which $63.6 million is included in cost of revenues and $1.9 million is included in operating expenses.

The steps needed to complete the discontinuance of new product development in the display products business are expected to be completed by the end of the first quarter of 2013. We expect additional charges in the first quarter of 2013, primarily for employee-related and other costs, to be approximately $1.0 million. These $1.0 million charges are expected to be the only cash expenditures associated with discontinuing the display products business, except potential refunds of up to $13.2 million in customer deposits on tools that have been delivered but not yet accepted by the customer. These customer deposits are included in deferred revenue in the current liabilities section of the consolidated balance sheet at December 31, 2012.


Title of Each Class		Name of each exchange on which registered
Common stock, $0.001 par value		The NASDAQ Stock Market LLC


		Page
PART I
Item 1.	Business		1
Item 1A.	Risk Factors		12
Item 1B.	Unresolved Staff Comments		34
Item 2.	Properties		35
Item 3.	Legal Proceedings		35
Item 4.	Mine Safety Disclosures		36

PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		36
Item 6.	Selected Financial Data		38
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		39
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk		57
Item 8.	Financial Statements and Supplementary Data		58
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		58
Item 9A.	Controls and Procedures		58
Item 9B.	Other Information		59

PART III
Item 10.	Directors, Executive Officers and Corporate Governance		59
Item 11.	Executive Compensation		59
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		59
Item 13.	Certain Relationships and Related Transactions, and Director Independence		59
Item 14.	Principal Accounting Fees and Services		59

PART IV
Item 15.	Exhibits, Financial Statement Schedules		60
Signatures			65


Location	Ownership		Square footage		Primary Usage/Status
San Diego, California (1)		Owned		265,000	Manufacturing and administrative offices
San Diego, California (1)		Owned		135,000	Corporate headquarters, engineering, research facilities
San Diego, California (2)		Leased		78,744	Warehouse facility
Pyongtaek-city, Kyonggi, Korea (3)		Owned		26,000	Manufacturing, sales and administrative
Santa Clara, California (2)		Leased		9,389	Field service and sales office
Hsin-Chu, Taiwan (2)		Leased		7,963	Field service and sales office
Kyunggi-do, Korea (1)		Owned		6,153	Data products engineering office
Gate City, Japan (2)		Leased		6,091	Field service and sales office
Pudong, Shanghai, China (2)		Leased		4,746	Field service and sales office
Singapore, Singapore (2)		Leased		3,315	Field service and sales office
Veldhoven, the Netherlands (2)		Leased		2,605	Field service and sales office


	2012				2011
	High		Low		High		Low
First quarter	$	53.00	$	45.05	$	57.60	$	41.43
Second quarter	$	58.95	$	45.55	$	58.19	$	44.78
Third quarter	$	62.40	$	49.83	$	51.66	$	34.57
Fourth quarter	$	90.43	$	46.18	$	51.13	$	35.80


Name	Age		Position
Robert P. Akins		61	Chairman of the Board and Chief Executive Officer
Edward J. Brown		55	President and Chief Operating Officer
Paul B. Bowman		56	Senior Vice President, Chief Financial Officer and Secretary
Karen K. McGinnis		46	Vice President, Corporate Controller and Chief Accounting Officer
Thomas J. Bondur		45	Vice President, Global Sales and Marketing


	Years Ended December 31,
	2012			2011			2010
ASML		23	%		35	%		30	%
Nikon		13	%		11	%		15	%
Hynix		11	%		8	%		8	%
Samsung		11	%		10	%		10	%

Total		58	%		64	%		63	%


	December 31,
	2012			2011
ASML		4	%		22	%
Nikon		15	%		15	%
Hynix		18	%		13	%
Samsung		6	%		5	%

Total		43	%		55	%


	12/31/2007		12/31/2008		12/31/2009		12/31/2010		12/31/2011		12/31/2012
Cymer, Inc.	$	100.00	$	56.28	$	98.59	$	115.77	$	127.82	$	232.29
NASDAQ Composite	$	100.00	$	60.02	$	87.24	$	103.08	$	102.26	$	120.41
PHLX Semiconductor Index	$	100.00	$	52.80	$	91.08	$	105.58	$	94.65	$	101.44


	Years Ended December 31,				Growth/Decline
	2012		2011		Dollars			Percent
DUV:
Light sources revenue	$	137,185	$	208,333	$	(71,148	)		(34	%)

Light source units sold		97		154		(57	)		(37	%)

Light sources average selling price (1)	$	1,450	$	1,398	$	52			4	%

EUV:
Light sources revenue	$	23,125	$	22,250	$	875			4	%

Light source units sold		3		3		—

Light sources average selling price (1)	$	7,708	$	7,417	$	291			4	%

Display Products:
Silicon crystallization tools revenue	$	6,658	$	2,775	$	3,883			140	%

Silicon crystallization tool units sold		1		1		—

Silicon crystallization tools average selling price (1)	$	6,746	$	3,700	$	3,046			82	%

Installed base product revenue (2)	$	371,657	$	360,854	$	10,803			3	%

Total revenue	$	538,625	$	594,212	$	(55,587	)		(9	%)


	Years Ended December 31,				Growth/Decline
	2011		2010		Dollars			Percent
DUV:
Light sources revenue	$	208,333	$	191,625	$	16,708			9	%

Light source units sold		154		124		30

Light sources average selling price (1)	$	1,398	$	1,565	$	(167	)		(11	%)

EUV:
Light sources revenue	$	22,250	$	—	$	22,250

Light source units sold		3		—		3

Light sources average selling price (1)	$	7,417	$	—	$	7,417

Display Products:
Silicon crystallization tools revenue	$	2,775	$	3,999	$	(1,224	)		(31	%)

Silicon crystallization tool units sold		1		1		—

Silicon crystallization tools average selling price (1)	$	3,700	$	3,999	$	(299	)		(7	%)

Installed base product revenue (2)	$	360,854	$	338,585	$	22,269			7	%

Total revenue	$	594,212	$	534,209	$	60,003			11	%


	Payments Due By Period
Contractual obligations	Total		Less than 1 year		1 -3 years		3 - 5 years		More than 5 years		Other
Purchase obligations (1)	$	254,703	$	250,667	$	4,036	$	—	$	—	$	—
Operating leases		6,276		2,049		2,880		1,347		—		—
Capital leases		654		354		300		—		—		—
Other long-term liabilities (2)		26,347		3,210		5,076		1,955		7,662		8,444

	$	287,980	$	256,280	$	12,292	$	3,302	$	7,662	$	8,444


Description	Page Number
Report of Independent Registered Public Accounting Firm		F-1
Report of Independent Registered Public Accounting Firm		F-2
Consolidated Balance Sheets as of December 31, 2012 and 2011		F-3
Consolidated Statements of Operations for the Years Ended December 31, 2012, 2011 and 2010		F-4
Consolidated Statements of Comprehensive (Loss) Income For the Years Ended December 31, 2012, 2011 and 2010		F-5
Consolidated Statements of Equity for the Years Ended December 31, 2012, 2011 and 2010		F-6
Consolidated Statements of Cash Flows for the Years Ended December 31, 2012, 2011 and 2010		F-7
Notes to Consolidated Financial Statements		F-8
Financial Statement Schedule:
Schedule II—Valuation and Qualifying Accounts		S-1


		Incorporated by Reference
Exhibit Number	Exhibit Description	Form	File No.	Exhibit Number	Filing Date
2.1	Agreement and Plan of Merger	8-K	000-21321	2.1	October 17, 2012

3.1	Second Amended and Restated Articles of Incorporation of Cymer, Inc.	S-1	333-08383	3.2	August 23, 1996

3.2	Amendment of Articles of Incorporation of Cymer, Inc.	10-Q	000-21321	3.1	August 12, 2002

3.3	Bylaws of Cymer, as amended and restated	10-Q	000-21321	3.1	October 26, 2012

10.1	Form of Indemnification Agreement with Directors and Officers #	8-K	000-21321	99.1	November 23, 2010

10.2	1996 Stock Option Plan, as amended #	S-8	333-69736	99.1	September 20, 2001

10.3	Form of Stock Option Agreement used in connection with the 1996 Stock Option Plan, as amended #	S-8	333-48242	4.1	October 19, 2000

10.4	1996 Employee Stock Purchase Plan, as amended #	8-K	000-21321	99.1	May 19, 2006

10.5	2000 Equity Incentive Plan (formerly known as the 2000 Nonstatutory Stock Option Plan) #	S-8	333-69736	99.4	September 20, 2001

10.6	Form of Stock Option Agreement used in connection with the 2000 Equity Incentive Plan #	S-8	333-69736	99.5	September 20, 2001

10.7	Amended and Restated 2005 Equity Incentive Plan #	8-K	000-21321	99.1	May 27, 2009

10.8	Form of Stock Option Grant Notice and form of Stock Option Agreement used in connection with the Amended and Restated 2005 Equity Incentive Plan #	8-K	333-39101	99.2	May 20, 2005

10.9	Form of Stock Unit Grant Notice and Form of Stock Unit Agreement used in connection with the Amended and Restated 2005 Equity Incentive Plan #	10-K	000-21321	10.11	February 27, 2008

10.10	Form of Stock Unit Grant Notice and Form of Stock Unit Agreement for use with the Long-Term Bonus Program under the 2005 Amended and Restated Equity Incentive Plan #	8-K	000-21321	99.1	December 21, 2007

10.11	Form of Performance Restricted Stock Unit Notice and Form of Performance Restricted Stock Unit Agreement for use with the Long-Term Incentive Program under the 2005 Amended and Restated Equity Incentive Plan #	10-K	000-21321	10.3	February 27, 2009



/S/ ROBERT P. AKINS Robert P. Akins	Chief Executive Officer and Chairman of the Board (Principal Executive Officer)	February 15, 2013

/S/ PAUL B. BOWMAN Paul B. Bowman	Senior Vice President and Chief Financial Officer (Principal Financial Officer)	February 15, 2013

/S/ KAREN K. MCGINNIS Karen K. McGinnis	Vice President, Corporate Controller and Chief Accounting Officer (Principal Accounting Officer)	February 15, 2013

/S/ CHARLES J. ABBE Charles J. Abbe	Director	February 15, 2013

/S/ EDWARD H. BRAUN Edward H. Braun	Director	February 15, 2013

/S/ MICHAEL R. GAULKE Michael R. Gaulke	Director	February 15, 2013

/S/ WILLIAM G. OLDHAM William G. Oldham	Director	February 15, 2013



/S/ ERIC M. RUTTENBERG Eric M. Ruttenberg	Director	February 15, 2013

/S/ PETER J. SIMONE Peter J. Simone	Director	February 15, 2013

/S/ YOUNG K. SOHN Young K. Sohn	Director	February 15, 2013

/S/ JON D. TOMPKINS Jon D. Tompkins	Director	February 15, 2013


	Common Stock					Additional Paid-in Capital			Treasury Stock						Accumulated Other Comprehensive Loss			Retained Earnings						Noncontrolling Interest
	Shares			Amount		Additional Paid-in Capital			Shares			Amount			Accumulated Other Comprehensive Loss			Retained Earnings			Total			Noncontrolling Interest			Total
BALANCE, DECEMBER 31, 2009		42,751		$	43	$	598,314			(12,852	)	($	473,580	)	($	8,280	)	$	422,750		$	539,247		$	2,391		$	541,638
Exercise of common stock options		349			0		8,803			0			0			0			0			8,803			0			8,803
Issuance of shares upon vesting of restricted stock unit awards		113			0		0			0			0			0			0			0			0			0
Issuance of employee stock purchase plan shares		19			0		632			0			0			0			0			632			0			632
Employee stock-based compensation		0			0		10,603			0			0			0			0			10,603			0			10,603
Income tax benefit from stock option exercises		0			0		1,863			0			0			0			0			1,863			0			1,863
Repurchases of common stock into treasury		0			0		0			(560	)		(19,310	)		0			0			(19,310	)		0			(19,310	)
Acquisition of noncontrolling interest in subsidiary		0			0		57			0			0			0			0			57			(2,243	)		(2,186	)
Net income		0			0		0			0			0			0			90,961			90,961			(148	)		90,813
Other comprehensive income:		0			0		0			0			0			5,399			0			5,399			0			5,399

BALANCE, DECEMBER 31, 2010		43,232		$	43	$	620,272			(13,412	)	($	492,890	)	($	2,881	)	$	513,711		$	638,255		$	0		$	638,255
Exercise of common stock options		459			1		15,486			0			0			0			0			15,487			0			15,487
Issuance of shares upon vesting of restricted stock unit awards		313			0		0			0			0			0			0			0			0			0
Issuance of employee stock purchase plan shares		18			0		792			0			0			0			0			792			0			792
Employee stock-based compensation		0			0		18,118			0			0			0			0			18,118			0			18,118
Income tax benefit from stock option exercises		0			0		4,087			0			0			0			0			4,087			0			4,087
Net income		0			0		0			0			0			0			80,241			80,241			0			80,241
Other comprehensive loss		0			0		0			0			0			(9,037	)		0			(9,037	)		0			(9,037	)

BALANCE, DECEMBER 31, 2011		44,022		$	44	$	658,755			(13,412	)	($	492,890	)	($	11,918	)	$	593,952		$	747,943		$	0		$	747,943
Exercise of common stock options		325			1		10,257			0			0			0			0			10,258			0			10,258
Issuance of shares upon vesting of restricted stock unit awards		518			0		0			0			0			0			0			0			0			0
Issuance of employee stock purchase plan shares		16			0		976			0			0			0			0			976			0			976
Shares withheld related to net share settlement of equity awards		(99	)		0		(7,790	)		0			0			0			0			(7,790	)		0			(7,790	)
Employee stock-based compensation		0			0		26,745			0			0			0			0			26,745			0			26,745
Income tax benefit from stock option exercises		0			0		7,875			0			0			0			0			7,875			0			7,875
Net loss		0			0		0			0			0			0			(36,365	)		(36,365	)		0			(36,365	)
Other comprehensive income		0			0		0			0			0			138			0			138			0			138

BALANCE, DECEMBER 31, 2012		44,782		$	45	$	696,818			(13,412	)	($	492,890	)	($	11,780	)	$	557,587		$	749,780		$	0		$	749,780


	Years Ended December 31,
	2012 (1)			2011		2010
Numerator:
Net (loss) income	$	(36,365	)	$	80,241	$	90,961
Denominator:
Weighted average common shares		31,121			30,469		29,777
Effect of dilutive securities		0			632		347

Denominator for diluted (loss) earnings per share		31,121			31,101		30,124

(Loss) earnings per share:
Basic	$	(1.17	)	$	2.63	$	3.05

Diluted	$	(1.17	)	$	2.58	$	3.02

Anti-dilutive securities excluded from the computation of diluted earnings per share		797			163		934


	Foreign currency translation adjustments			Net unrealized gains (losses) on available- for-sale investments			Net unrealized gains (losses) on foreign currency forward exchange contracts			Unrealized pension gains (losses)			Accumulated other comprehensive loss
Balance, December 31, 2009	$	(8,182	)	$	2		$	62		$	(162	)	$	(8,280	)
Current period other comprehensive income		5,588			(10	)		(62	)		(117	)		5,399

Balance, December 31, 2010		(2,594	)		(8	)		0			(279	)		(2,881	)
Current period other comprehensive loss		(8,400	)		1			(971	)		333			(9,037	)

Balance, December 31, 2011		(10,994	)		(7	)		(971	)		54			(11,918	)
Current period other comprehensive income		(406	)		83			559			(98	)		138

Balance, December 31, 2012	$	(11,400	)	$	76		$	(412	)	$	(44	)	$	(11,780	)


	December 31, 2012		Fair Value Measurements at Reporting Date Using:
Assets:			Quoted Prices in Active Markets for Identical Assets (Level 1) (1)		Significant Other Observable Inputs (Level 2) (1)		Significant Unobservable Inputs (Level 3)
Cash equivalents	$	50,144	$	29,678	$	20,466	$	0
Short-term investments:
Corporate debt securities		80,464		0		80,464		0
U.S. government securities		35,159		0		35,159		0
Commercial paper		32,385		0		32,385		0
Certificates of deposit		1,303		0		1,303		0
Long-term investments:
Corporate debt securities		8,038		0		8,038		0
U.S. government securities		13,729		0		13,729		0

	$	221,222	$	29,678	$	191,544	$	0

Liabilities:
Foreign currency forward exchange contracts (2)	$	3,123	$	0	$	3,123	$	0

	$	3,123	$	0	$	3,123	$	0


	December 31, 2011		Fair Value Measurements at Reporting Date Using:
Assets:			Quoted Prices in Active Markets for Identical Assets (Level 1) (1)		Significant Other Observable Inputs (Level 2) (1)		Significant Unobservable Inputs (Level 3)
Cash equivalents		39,710		26,190		13,520		0
Short-term investments:
Corporate debt securities		74,170		0		74,170		0
U.S. government securities		27,226		0		27,226		0
Commercial paper		10,070		0		10,070		0
Municipal bonds		7,246		0		7,246		0
Certificates of deposit		6,000		0		6,000		0
Long-term investments:
Corporate debt securities		51,060		0		51,060		0
U.S. government securities		22,751		0		22,751		0
Foreign currency forward exchange contracts (3)		371		0		371		0

		238,604		26,190		212,414		0

Liabilities:
Foreign currency forward exchange contracts (4)		1,902		0		1,902		0

		1,902		0		1,902		0


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Cash	$	84,516	$	0	$	0		$	84,516
Cash equivalents:
Money market funds		19,678		0		0			19,678
Certificate of deposits		10,000		0		0			10,000
Commercial paper		17,462		0		0			17,462
Corporate debt securities		3,004		0		0			3,004

Total cash and cash equivalents	$	134,660	$	0	$	0		$	134,660

Short-term investments:
Corporate debt securities		80,394		72		(2	)		80,464
U.S. government securities		35,138		21		0			35,159
Commercial paper		32,384		1		0			32,385
Certificates of deposit		1,303		0		0			1,303

Total short-term investments	$	149,219	$	94	$	(2	)	$	149,311

Long-term investments:
Corporate debt securities		8,017		21		0			8,038
U.S. government securities		13,718		25		(14	)		13,729

Total long-term investments	$	21,735	$	46	$	(14	)	$	21,767

Total cash, cash equivalents and investments	$	305,614	$	140	$	(16	)	$	305,738


	Cost		Fair Value
Due in one year or less	$	199,363	$	199,455
Due after one year to two years		21,735		21,767

	$	221,098	$	221,222


Buy/Sell:	December 31, 2012
Japanese Yen/U.S. Dollar	$	5,500
U.S. Dollar/South Korean Won	$	47,000
U.S. Dollar/Taiwanese Dollars	$	21,000
Euros/U.S. Dollar	$	57,271


	Asset Derivatives					Liability Derivatives
		December 31,					December 31,
	Balance Sheet Location	2012		2011		Balance Sheet Location	2012		2011
		Fair Value					Fair Value
Derivatives designated as hedging instruments:
Foreign exchange contracts	Other current assets	$	807	$	3	Other current liabilities	$	25	$	1,446

Derivatives not designated as hedging instruments:
Foreign exchange contracts	Other current assets		256		686	Other current liabilities		3,675		774

		$	1,063	$	689	Other liabilities		486		0

							$	4,186	$	2,220


		Years Ended December 31,
Derivatives designated as hedging instruments:	Location in financial statements	2012			2011			2010
Gain (loss) recognized in OCI on derivative (effective portion)	OCI	$	901		$	(1,566	)	$	(104	)
Gain (loss) reclassified from accumulated OCI into income (effective portion)	Cost of revenue	$	69		$	(54	)	$	(967	)
(Loss) gain recognized in income on derivatives
(ineffective portions and amount excluded from effectiveness testing) (1)	Cost of revenue	$	(261	)	$	(125	)	$	25
(Loss) gain recognized in income on derivatives
(ineffective portions from hedging relationship) (2)	Foreign currency exchange (loss) gain	$	(2	)	$	0		$	0
Derivatives not designated as hedging instruments:
(Loss) gain recognized in income on derivatives	Foreign currency exchange (loss) gain	$	(2,447	)	$	2,384		$	(4,965	)


			December 31, 2012									December 31, 2011
	Useful life (years)		Gross		Accumulated Amortization			Foreign Currency Impact		Net Book Value		Gross		Accumulated Amortization			Foreign Currency Impact		Net Book Value
Patents		5-16	$	10,866	$	(4,602	)	$	0	$	6,264	$	10,866	$	(3,882	)	$	0	$	6,984
Developed Technology (1)		5		3,464		(1,232	)		221		2,453		3,464		(546	)		26		2,944

			$	14,330	$	(5,834	)	$	221	$	8,717	$	14,330	$	(4,428	)	$	26	$	9,928


2013	$	1,474
2014		1,470
2015		1,470
2016		904
2017		710
Thereafter		2,689

Total	$	8,717


Stock options	Number of Shares (in thousands)			Weighted Average Exercise Price Per Share		Weighted Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value (in millions)
Balance at January 1, 2012		1,177		$	36.15
Granted		5			59.82
Exercised (1)		(325	)		34.61
Forfeited		(19	)		49.63
Expired		(43	)		47.50

Balance at December 31, 2012		795		$	36.01		3.85	$	42.3

Exercisable at December 31, 2012		787		$	35.94		3.80	$	42.9

Vested and expected to vest at December 31, 2012		735		$	35.52		3.48	$	40.4


RSUs	Number of Shares (in thousands)			Weighted Average Grant-Date Fair Value per Share		Weighted Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value (in millions)
Nonvested at January 1, 2012		754		$	44.35
Granted		515			49.91
Vested (1)		(327	)		40.84
Forfeited		(59	)		44.82

Nonvested at December 31, 2012		883		$	46.62		1.00	$	79.8

Expected to vest at December 31, 2012		816		$	46.62		0.98	$	73.8


PRSUs	Number of Shares (in thousands)			Weighted Average Grant-Date Fair Value per Share		Weighted Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value (in millions)
Nonvested at January 1, 2012 (2)		469		$	36.15
Granted (2)		222			51.07
Vested (1)		(191	)		36.15
Forfeited/Cancelled		(98	)		37.89

Nonvested at December 31, 2012 (2)		402		$	40.34		1.12	$	36.3

Expected to vest at December 31, 2012 (2)		376		$	40.34		0.82	$	34.0


	Sales to External Customers (1)		Long-lived Assets (2)
2012
U.S (3)	$	180,117	$	161,927
Japan		107,815		934
Korea		103,942		4,314
Taiwan		63,229		834
Other Asia (China and Singapore)		55,543		498
Europe		27,979		545

	$	538,625	$	169,052

2011
U.S (3)	$	264,881	$	113,768
Japan		100,931		931
Korea		97,105		3,573
Taiwan		59,498		282
Other Asia (China and Singapore)		38,966		238
Europe		32,831		223

	$	594,212	$	119,015

2010
U.S (3)	$	210,837	$	97,531
Japan		107,006		311
Korea		86,944		2,383
Taiwan		57,627		150
Other Asia (China and Singapore)		37,729		4,109
Europe		34,066		221

	$	534,209	$	104,705


	Year Ended December 31, 2012
	1st		2nd		3rd		4th			Total
Revenues	$	150,498	$	149,312	$	131,478	$	107,337		$	538,625
Gross profit	$	75,501	$	78,793	$	71,788	$	(3,653	)	$	222,429
Operating (loss) income	$	16,674	$	11,220	$	9,046	$	(79,495	)	$	(42,555	)
Net (loss) income	$	21,531	$	9,603	$	9,826	$	(77,325	)	$	(36,365	)
Basic (loss) earnings per share (1)	$	0.70	$	0.31	$	0.31	$	(2.47	)	$	(1.17	)
Diluted (loss) earnings per share (1)	$	0.68	$	0.30	$	0.31	$	(2.47	)	$	(1.17	)


	Year Ended December 31, 2011
	1st		2nd		3rd		4th		Total
Revenues	$	154,399	$	158,235	$	128,698	$	152,880	$	594,212
Gross profit	$	79,513	$	84,184	$	65,063	$	76,376	$	305,136
Operating income	$	35,657	$	36,912	$	13,406	$	21,604	$	107,579
Net income	$	28,799	$	27,721	$	11,250	$	12,471	$	80,241
Basic earnings per share (1)	$	0.95	$	0.91	$	0.37	$	0.41	$	2.63
Diluted earnings per share (1)	$	0.94	$	0.89	$	0.36	$	0.40	$	2.58


Allowance for Doubtful Accounts	Balance at Beginning of Year		Additions		Deductions			Balance at End of Year
Year Ended December 31, 2012	$	202	$	490	$	(191	)	$	501
Year Ended December 31, 2011	$	606	$	0	$	(404	)	$	202
Year Ended December 31, 2010	$	2,297	$	0	$	(1,691	)	$	606