Financial Section

Consolidated Balance Sheets
Tokyo Electron Limited and Subsidiaries As of March 31, 2021 and 2020

Thousands of
U.S. dollars

Millions of yen

ASSETS

2021

2020

2021

Current assets:

Thousands of
U.S. dollars

Millions of yen

LIABILITIES AND NET ASSETS

2021

2020

2021

¥ 90,606¥ 95,938$ 818,413

Current liabilities:¥ 265,993¥ 247,959$ 2,402,611

Short-term investments

45,55990,447

411,524

Income taxes payable

49,27252,654445,058

Trade notes and accounts receivable

191,700

150,134

1,731,556

Customer advances

81,722

135,326

738,169

(99)

(105)

(896)

Accrued employees’ bonuses

34,254

29,139309,410Inventories

415,344

392,064

3,751,640

Accrued warranty expenses

14,415

14,534130,209

Prepaid consumption tax

82,704

69,034747,033

Other current liabilities

57,38954,986518,372

Other current assets

14,493

12,949130,915

327,661

382,578

2,959,633

Total current assets

1,015,696

962,484

9,174,386

Net defined benefit liabilities

62,24860,745562,262

Other liabilities

10,891

5,478

98,382

73,14066,224

660,644

400,801

448,8023,620,278

Common stock
Authorized: 300,000,000 shares
Issued: 157,210,911 and 157,210,911 shares
as of March 31, 2021 and 2020, respectively

54,961

54,961

496,442

Capital surplus

78,01178,011

704,642

Retained earnings

835,240

702,9907,544,401

Treasury stock, at cost
1,659,611 and 1,685,556 shares
as of March 31, 2021 and 2020, respectively(30,744)(29,310)(277,701)

66,124

20,126597,281

(79)

(52)

(714)

10,441(4,111)

94,310(978)(3,313)(8,836)

11,585

10,391

104,648

1,024,562

829,692

9,254,475

Cash and cash equivalents

Allowance for doubtful accounts

Trade notes and accounts payable

Total current liabilities
Non-current liabilities:

Property, plant and equipment:Land

26,92926,298243,245

Buildings

208,475

179,379

1,883,073

Machinery and equipment

197,982

173,505

1,788,295

Construction in progress

22,391

29,413202,253

Other property, plant and equipment

6,002

4,139

54,218

Total property, plant and equipment

461,780

412,736

4,171,084

264,812

237,156

2,391,951

196,967

175,580

1,779,133

Less: Accumulated depreciation
Net property, plant and equipment

Investments and other assets:

Total non-current liabilities
Total liabilities

Net assets:
Shareholders’ equity

Investment securities

105,065

38,374

949,011

Deferred tax assets

53,12864,729479,892

Net unrealized gains on investment securities

Net defined benefit assets

12,021

5,837

108,581

Net deferred losses on hedging instruments

Intangible assets

17,163

10,921

155,033

Foreign currency translation adjustments

Other assets

26,72821,980241,431

Accumulated remeasurements of defined benefit plans

Allowance for doubtful accounts(1,407)(1,413)(12,716)

212,699

140,431

1,921,233¥1,425,364¥1,278,495$12,874,753

Total investments and other assets
Total assets
See accompanying Notes to Consolidated Financial Statements.

69 TOKYO ELECTRON Integrated Report 2021

Accumulated other comprehensive income

Share subscription rights
Total net assets
Total liabilities and net assets¥ 1,425,364¥ 1,278,495 $ 12,874,753

See accompanying Notes to Consolidated Financial Statements.
TOKYO ELECTRON Integrated Report 2021

70

Financial Section

Consolidated Statements of Income

Consolidated Statements of Comprehensive Income

Tokyo Electron Limited and Subsidiaries Years ended March 31, 2021 and 2020

Tokyo Electron Limited and Subsidiaries Years ended March 31, 2021 and 2020

Thousands of
U.S. dollars

Millions of yen

2021
Net sales
Cost of sales
Gross profit
Selling, general and administrative expenses
Operating income

2021

2020

¥ 1,399,102

2021¥ 1,127,286 $ 12,637,546

834,157

675,3447,534,615

564,945451,941

5,102,930

244,259

214,649

2,206,302

320,685

237,292

2,896,628

Other income (expenses):

Net income¥ 185,206 $ 2,194,393

7,099

415,345

Net deferred gains on hedging instruments

32

6

294

Foreign currency translation adjustments

14,536(8,461)

131,299

Remeasurements of defined benefit plans

2,266

3,278

20,474

41

(45)

375

62,8601,878

567,789

305,801

187,084

2,762,183

305,801

187,084

2,762,183

Share of other comprehensive income of associates accounted for using
the equity method

1,920

11,742

Share of profit of associates accounted for using the equity method

1,110

794

10,027

Revenue from grants

1,130

1,330

10,214Gain on sales of property, plant and equipment

24

34

221

Comprehensive income

Gain (loss) on change in equity

(7)

136

(63)

Total comprehensive income attributable to:(3,147)

2,539(28,428)

Commission for purchases of treasury stock

-

(174)

-

Additional payment of customs duty

-

(173)

-

Loss on sales and disposal of property, plant and equipment(1,354)(483)(12,234)

Provision for loss on liquidation of subsidiaries and associates(3,327)-(30,053)

622

1,408

5,624

317,038

244,626

2,863,679

Current

82,56865,177

745,806

Deferred(8,471)(5,757)(76,520)

Net income

242,941

185,206

2,194,393¥ 242,941¥ 185,206$ 2,194,393

Income before income taxes¥ 242,941

45,982Net unrealized gains on investment securities

1,300

Other, net

2021

2020

Other comprehensive income (loss):

Interest and dividend income

Foreign exchange gain (loss), net

Thousands of
U.S. dollars

Millions of yen

Total other comprehensive income (loss)

Owners of parent
See accompanying Notes to Consolidated Financial Statements.

Income taxes:

Net income attributable to owners of parent

Yen

U.S. dollars

Per share of common stock:
Net income — basic¥ 1,562.20¥ 1,170.57$ 14.11Net income — diluted

1,553.29

1,164.02

14.03

Net assets

6,512.18

5,267.96

58.82

781.00588.00

7.05

Cash dividends
See accompanying Notes to Consolidated Financial Statements.

71

TOKYO ELECTRON Integrated Report 2021

TOKYO ELECTRON Integrated Report 2021

72

Financial Section

Consolidated Statements of Changes in Net Assets

Consolidated Statements of Cash Flows

Tokyo Electron Limited and Subsidiaries Years ended March 31, 2021 and 2020

Tokyo Electron Limited and Subsidiaries Years ended March 31, 2021 and 2020

Millions of yen
Shareholders’ equity

Thousands of
U.S. dollars

Millions of yen

Accumulated other comprehensive income
Net unrealized Net deferredgains onlosses on
investment
hedgingsecurities
instruments

Foreign
AccumulatedSharecurrency
remeasurements
subscription
translationof definedrightsadjustments
benefit plans

2021

2020

2021

Income before income taxes¥ 317,038¥ 244,626$ 2,863,679

Depreciation and amortization

33,843

29,107

305,696

199

196

1,802

Increase (decrease) in accrued employees’ bonuses

4,612(3,802)

41,659Cash flows from operating activities:

Commonstock

CapitalsurplusRetainedearnings

Treasurystock

Balance as ofMarch 31, 2019

¥ 54,961¥ 78,011¥ 748,827¥( 11,821)¥ 13,024¥( 34)¥ 4,366¥( 6,585)¥ 7,368¥ 888,117

Cash dividends--(95,513)

-

-

-

-

-

-

(95,513)

Net income attributable toowners of parent--

185,206

-

-

-

-

-

-

185,206

Provision for loss on liquidation of subsidiaries and associates

3,327

-

30,053Purchase of treasury stock

-

-

-

(154,096)

-

-

-

-

-

(154,096)

Interest and dividend income(1,300)(1,920)(11,742)

Disposal of treasury stock--(1,616)

2,684

-

-

-

-

-

1,067

Increase in trade notes and accounts receivable(37,736)(5,370)(340,856)

Cancellation of treasury
stock

-

-

(133,922)

133,922

-

-

-

-

-

-

Increase in inventories(17,226)(44,065)(155,597)

Others

-

-

10

-

-

-

-

-

-

10

Increase (decrease) in trade notes and accounts payable(8,255)22,337(74,571)

Net changes except forshareholders’ equity

Increase in prepaid consumption tax(13,549)(19,508)(122,390)

-

-

-

-

7,102

(17)

(8,478)

3,271

3,022

4,900

Increase (decrease) in accrued consumption tax(5,699)6,140(51,484)¥ 54,961¥ 78,011¥ 702,990¥( 29,310)¥ 20,126¥( 52)¥( 4,111)¥( 3,313)¥ 10,391¥ 829,692

Increase (decrease) in customer advances(54,851)

58,630(495,455)

Cash dividends--(109,542)

-

-

-

-

-

-

(109,542)

Other, net

11,5906,308

104,688

Net income attributable toowners of parent--

242,941

-

-

-

-

-

-

242,941

Subtotal

231,990292,679

2,095,481

Purchase of treasury stock

-

-

-

(4,339)

-

-

-

-

-

(4,339)

1,669

2,326

15,083

Disposal of treasury stock--(1,149)

2,906

-

-

-

-

-

1,757

Income taxes paid

(87,772)(41,888)(792,814)

Net cash provided by operating activities

145,888

253,117

1,317,749

-

-

-

-

45,998(26)

14,553

2,335

1,194

64,054¥ 54,961¥ 78,011¥ 835,240¥( 30,744)¥ 66,124¥( 79)¥ 10,441¥( 978)¥ 11,585¥ 1,024,562

Payment for purchases of short-term investments(45,568)(100,449)(411,602)

Proceeds from maturities of short-term investments

90,506

170,000

817,507

Payment for purchases of property, plant and equipment(53,806)(49,369)(486,012)

Payment for acquisition of intangible assets(7,124)(3,383)(64,353)

Other, net(2,281)(845)(20,609)

Net cash provided by (used in) investing activities(18,274)

15,951(165,070)(4,339)(154,096)(39,201)(109,542)(95,513)(989,453)

(643)

(764)

(5,809)(114,525)(250,374)(1,034,464)

Balance as ofMarch 31, 2020

Net changes except forshareholders’ equity
Balance as ofMarch 31, 2021

Total
net assets

Thousands of U.S. dollars
Shareholders’ equity

Accumulated other comprehensive income
Net unrealized Net deferredgains onlosses on
investment
hedgingsecurities
instruments

Foreign
AccumulatedSharecurrency
remeasurements
subscription
translationof definedrightsadjustments
benefit plans

Amortization of goodwill

Receipts from interest and dividends

Cash flows from investing activities:

Commonstock

CapitalsurplusRetainedearnings

Treasurystock$ 496,442$ 704,642$ 6,349,840$( 264,753)$ 181,798$( 477)$( 37,141)$( 29,927)$ 93,860$ 7,494,285

Cash dividends--(989,453)

-

-

-

-

-

-

(989,453)

Net income attributable toowners of parent--

2,194,393

-

-

-

-

-

-

2,194,393

Purchase of treasury stock

-

-

-

(39,201)

-

-

-

-

-

(39,201)

Effect of exchange rate changes on cash and cash equivalents

4,946(3,369)44,679

Disposal of treasury stock--(10,379)

26,252

-

-

-

-

-

15,873

Net increase in cash and cash equivalents

18,033

15,324

162,893

Net changes except forshareholders’ equity

-

-

-

-

415,482(236)

131,452

21,091

10,787

578,577

Cash and cash equivalents at beginning of year

247,959

232,634

2,239,717¥ 265,993¥ 247,959$ 2,402,611$ 496,442$ 704,642$ 7,544,401$( 277,701)$ 597,281$( 714)$ 94,310$( 8,836)$ 104,648$ 9,254,475

Balance as ofMarch 31, 2020

Balance as ofMarch 31, 2021

Total
net assets

Cash flows from financing activities:
Payment for purchases of treasury stock
Dividends paid
Other, net
Net cash used in financing activities

Cash and cash equivalents at end of year
See accompanying Notes to Consolidated Financial Statements.

See accompanying Notes to Consolidated Financial Statements.

73 TOKYO ELECTRON Integrated Report 2021

TOKYO ELECTRON Integrated Report 2021

74

Financial Section

Notes to Consolidated Financial Statements
Tokyo Electron Limited and Subsidiaries
Years ended March 31, 2021 and 2020

1. Basis of Presentation of Consolidated Financial Statements
The accompanying consolidated financial statements ofTokyo Electron Limited (hereinafter “the Company”) and its
subsidiaries (hereinafter collectively referred to as “Tokyo
Electron”) have been prepared in accordance with theprovisions set forth in the Financial Instruments and Exchange
Act of Japan and its related accounting regulations, and in
conformity with accounting principles generally accepted inJapan, which are different in certain respects as to applicationand disclosure requirements of International Financial
Reporting Standards.
The Company uses financial statements prepared by foreignsubsidiaries in accordance with International Financial ReportingStandards or U.S. generally accepted accounting principles
for the preparation of the consolidated financial statements,
together with adjustment for certain items which are required tobe adjusted in the consolidation process.
The accompanying consolidated financial statements
have been restructured and translated into English from thestatutory Japanese language consolidated financial statements.
Some supplementary information included in the statutory
Japanese language consolidated financial statements is
not presented in the accompanying consolidated financial
statements.
The amounts in the consolidated financial statements andassociated notes shown in millions and thousands of yen;
thousands of U.S. dollars; and thousands of shares as of and forthe years ended March 31, 2021 and 2020 are truncated at thenearest unit. Accordingly, totals do not necessarily agree with thesum of the corresponding individual amounts.
U.S. dollar amounts included herein are solely for theconvenience of readers and are presented at the rate of¥110.71 to $1.00, the approximate rate as of March 31, 2021. The
translation should not be construed as a representation that
the Japanese yen amounts shown could be converted into U.S.
dollars at that or any other rate.
2. Summary of Significant Accounting Policies(a) Principles of consolidation
The consolidated financial statements include the accountsof the Company and its 27 and 29 subsidiaries as of March 31,
2021 and 2020, respectively. All significant inter-company
transactions and account balances have been eliminatedthrough consolidation procedures.
There are 9 affiliates accounted for using the equity method
as of March 31, 2021 and 2020.
The fiscal year-end of all entities is March 31, except for
3 consolidated foreign subsidiaries. Financial statements
provisionally closed for the period ending March 31 are used for
those subsidiaries.
(b) Foreign currency translation
All assets and liabilities denominated in foreign currencies
are translated into Japanese yen at the year-end rates, except
for those hedged by forward exchange contracts, which aretranslated at the contracted rates. Resulting exchange gains and
75 TOKYO ELECTRON Integrated Report 2021

losses are included in earnings for the year.
Revenue and expense items are translated at the rates thatapproximate those prevailing at the time of the transactions.
The balance sheet accounts of foreign subsidiaries aretranslated into Japanese yen at the rates of exchange in effect atthe balance sheet date, except for shareholders’ equity accounts,
which are translated at the historical rates. Revenue and expense
accounts of foreign subsidiaries are translated at average rates
of exchange in effect during the year. Resulting translation
adjustments are presented in net assets as a componentof accumulated other comprehensive income (loss) in the
consolidated balance sheets.

Estimated useful lives of property, plant and equipment are
as follows:
Buildings
2 to 60 years
Machinery and equipment
2 to 20 years(c) Cash and cash equivalents
Cash and cash equivalents consist of cash, short term
deposits and low-risk financial instruments with original
maturities of three months or less.

(j) Impairment of fixed assets
Tokyo Electron evaluates the carrying value of fixed assets
held for use in the business and idle assets.
If the carrying value of a fixed asset is impaired, a loss isrecognized based on the amount by which the carrying value
exceeds its recoverable amount, being the higher of the net
selling price or the value in use of the assets. Net selling priceis determined using the fair value less disposal costs and value
in use is based on the total amount of discounted cash flows
estimated to be generated from the continuing use of theindividual assets or the asset group and the disposal of theassets.

(d) Short-term investments
Short-term investments consist of short term deposits andlow-risk financial instruments with original maturities of morethan three months.
(e) Investment securities
Tokyo Electron examines the intent of holding each security
and classifies those securities as trading securities, held-to
maturity debt securities or other securities. Tokyo Electron has
no trading securities as of March 31, 2021 and 2020. Held-tomaturity debt securities are stated mainly at amortized cost.
Other securities with market prices are valued at fair value at thebalance sheet date. The differences between the book value andfair value of other securities, net of applicable income taxes, arepresented in net assets as a component of accumulated othercomprehensive income (loss) in the consolidated balance sheets.
Other securities without market prices are valued at cost using
the weighted-average method.
The cost of sold securities is calculated using the weighted
average method.
(f) Inventories
Inventories are stated at the lower of cost, determined byprincipally the specific identification method, or net selling
price, which is defined as selling price less estimated additional
manufacturing costs and estimated direct selling expenses.
(g) Property, plant and equipment
Property, plant and equipment are stated at cost.
Depreciation of buildings, machinery and equipment of theCompany and its domestic subsidiaries is computed using
the declining-balance method, except for buildings acquiredsince April 1, 1998 and facilities attached to buildings andstructures acquired since April 1, 2016 which are depreciatedusing the straight-line method, based on the estimateduseful lives of assets. Foreign subsidiaries mainly apply thestraight-line method over the estimated useful lives ofassets.

(h) Intangible assets (excluding goodwill)
Intangible assets are amortized by the straight-line method
over their estimated useful lives.
(i) Goodwill
Goodwill is evaluated on an individual basis and amortized by
the straight-line method over a period not exceeding 20 years.

(k) Allowance for doubtful accounts
The allowance for doubtful accounts is provided at an
amount determined based on the historical experience of bad
debts with respect to ordinary receivables, and an estimateof uncollectible amounts determined by reference to specificdoubtful receivables from customers which are experiencing
financial difficulties.
(l) Accrued employees’ bonuses
The provision for accrued employees’ bonuses is provided
based on the estimated payments to be made in respect of the
fiscal year.
(m) Employee benefits
The Company and its domestic subsidiaries provide defined
benefit plans for their employees. Expected benefits are
attributed to accounting periods by the benefit formula basis.
Prior service costs are charged to earnings on a straight-line
basis, beginning from the fiscal year in which they are incurred,over a fixed number of years (4 years) within the averageremaining years of service of employees when the changes
occur. Actuarial differences are charged to earnings on astraight-line basis, beginning from the following fiscal year after
they are incurred, over a fixed number of years (4 years) within
the average remaining years of service of employees when the
differences occur.
The provision for accrued pension and severance costs
for directors and audit & supervisory board members of
the Company and its domestic subsidiaries is calculated inaccordance with internal regulations.

The Company and certain domestic subsidiaries decided to
discontinue the payment of severance pay for directors andaudit & supervisory board members after April 1, 2005, and at thegeneral shareholders’ meeting in June 2005, it was resolved thatthe severance pay for directors and audit & supervisory board
members until March 31, 2005 would be paid at the terminationof their service and the decision regarding the payment amountfor each director and audit & supervisory board member was
delegated to the board of directors and audit & supervisoryboard members. The accruals for severance costs for directors
and audit & supervisory board members are included in Net
defined benefit liabilities in the consolidated balance sheets.
(n) Accrued warranty expenses
Tokyo Electron’s products are generally subject to warranty,
and Tokyo Electron accrues estimated warranty costs when
product revenue is recognized. Estimated after-sale repair
expenses over warranty periods are accrued based on thehistorical ratio of actual repair expenses to corresponding sales.
(o) Derivatives and hedge accounting
The Company and certain subsidiaries (hereinafter “theGroup”) make use of derivatives in order to manage certain risks
arising from adverse fluctuations in foreign currency exchange
rates. The amount of derivatives is limited to the extent offoreign currency assets, liabilities and actual orders or forecasted
transactions, and the Group does not trade in derivatives for
speculative purposes.
Derivatives are carried at fair value in the consolidatedbalance sheets with changes in unrealized gain or loss charged
or credited to earnings, except for those which meet the criteria
for hedge accounting. Unrealized gains or losses on hedging
instruments, net of taxes, are reported in net assets as acomponent of accumulated other comprehensive income (loss)
in the consolidated balance sheets. Receivables and payables
hedged by qualified forward foreign exchange contracts aretranslated at the corresponding foreign exchange contract rates.
(p) Income taxes
Tokyo Electron records deferred tax assets and liabilities
on temporary differences between the carrying amounts ofassets and liabilities for financial reporting purposes and theamounts used for income tax purposes and net operating loss
carryforwards. Deferred tax assets and liabilities are measured
using the enacted tax rates and laws which are expected to bein effect when net operating loss carryforwards and temporary
differences are expected to be realized.
(q) Revenue recognition
Revenue from Semiconductor and FPD (Flat Panel Display)production equipment is principally recognized at the time of
the customer confirmation of set-up and testing of products.
Revenue from equipment not requiring substantial installationis recognized at the time of shipment. Service revenue formaintenance is recognized ratably over the term of themaintenance contract.

TOKYO ELECTRON Integrated Report 2021

76

Financial Section(r) Research and development expenses
Research and development expenses are charged to earnings
as incurred and amounted to ¥136,648 million ($1,234,295
thousand) and ¥120,268 million for the years ended March 31,
2021 and 2020, respectively.
(s) Reclassifications
Certain reclassifications have been made to the prioryear’s consolidated financial statements to conform with thepresentation used for the year ended March 31, 2021.
Tokyo Electron adopted “Accounting Standard for Disclosureof Accounting Estimates” (ASBJ Statement No. 31, March 31,2020) for the consolidated financial statements for the fiscal
year ended March 31, 2021 and, therefore, Significant Accounting
Estimates is presented as note 3. below. The note does notinclude information for the prior consolidated fiscal year inaccordance with the transitional provision set out in paragraph 11of the Accounting Standard.
3. Significant Accounting Estimates
1. Valuation of inventories(1) Carrying amounts in the consolidated financial statements asof March 31, 2021
¥415,344 million ($3,751,640 thousand)(2) Information on the nature of significant accounting estimatesfor identified items
Inventories are principally stated at cost on the consolidatedbalance sheet. When the net selling price for inventory decreases
below its cost at the end of the fiscal year, the Company writes
down inventories in an amount equal to the difference between
the cost of the inventory and the net selling price.
Inventories aged over a certain holding period are classified
based on the use and salability and are then systematically
written down according to their classification.
The carrying amount of inventories to be disposed of iswritten down to the estimated disposal value.
The valuation of inventories is based on forecasts offuture demand and prospects of market environment. The
semiconductor industry, where Tokyo Electron operates, isinfluenced by the short-term unbalance between supply anddemand, and the market could undergo significant fluctuations.
Unforeseen rapid contraction of the semiconductor market
could lead to additional write downs of inventories in the
consolidated financial statements for the next fiscal year.
2. Accrued warranty expenses(1) Carrying amounts in the consolidated financial statements asof March 31, 2021
¥14,415 million ($130,209 thousand)(2) Information on the nature of significant accounting estimatesfor identified items
The Company accrues estimated warranty costs. Estimatedafter-sale repair expenses over warranty periods are accrued
based on the historical ratio of actual repair expenses to
77 TOKYO ELECTRON Integrated Report 2021

corresponding sales.
Tokyo Electron’s products are based on the integrationof numerous leading-edge technologies. The occurrence of
unforeseen defects could lead to additional after-sale repair
expenses in the consolidated financial statements for the next
fiscal year.
4. C hange in Accounting Policies and Adoption of New
Accounting Standards
Year ended March 31, 2020
Certain consolidated overseas subsidiaries adopted IFRS 16“Leases” from the beginning of the fiscal year ended March 31,
2020, and recognize all leases as a lessee in principle as assets
and liabilities on the balance sheets.
Tokyo Electron elected to use the transitional approach torecognize the cumulative effect of initially applying this standard
at the date of initial application. Right-of-use assets wererecognized at the same value as lease liabilities and, therefore,
there was no impact on retained earnings at the beginning of the
fiscal year ended March 31, 2020.
The effect of this change on the consolidated financial
statements is immaterial.
5. Additional Information
Transactions of Delivering the Company’s Own Stock to
Employees, etc. through Trusts
Tokyo Electron introduced stock delivering schemes(hereinafter “the Schemes”) from the fiscal year ended March
31, 2019 as a common global incentive plan. The purpose of the
Schemes is to encourage the directors of the Company and its
subsidiaries (excluding outside directors), executive officers
and senior and mid-level employees to contribute to improving
medium-term business performance, as well as to share ashareholder perspective by holding Company shares and raisingawareness towards enhancing corporate value.
For the Company’s outside directors, the Company has
introduced non-performance-linked stock-based compensationfrom the fiscal year ended March 31, 2021 as a system thatis more consistent with their expected role of advising
management from the perspective of increasing corporate value
over the medium- to long-term, in addition to management
supervision. In accordance with that objective, the Company
partially modified the Schemes and the Company’s outside
directors are now within the scope.
Tokyo Electron adopted the “Practical Solution on
Transactions of Delivering the Company’s Own Stock to
Employees, etc. through Trusts” (PITF No. 30, March 26, 2015) for
the accounting treatment of the Schemes.
1. E
 xecutive compensation BIP (Board Incentive Plan) Trust(1) Overview of the transactions
The Executive compensation BIP Trust which the Company
established acquires the Company’s shares, and delivers andprovides shares of the Company and monetary compensation
corresponding to the cash conversion value of the Company’s
shares to the directors of the Company and its subsidiaries inaccordance with the share delivery rules.
(2) The Company’s shares held by the trust
Tokyo Electron recorded the Company’s shares held by thetrust in “Treasury stock, at cost” under “Net assets” at the bookvalue in the trust (excluding ancillary expenses). The book value
and the number of such treasury shares were ¥1,744 million($15,757 thousand) and 80,538 shares, respectively, as of March
31, 2021, and were ¥1,154 million and 60,538 shares, respectively,
as of March 31, 2020.
2. Share-delivering ESOP (Employee Stock Ownership Plan) Trust(1) Overview of the transactions
The Share-delivering ESOP Trust which the Company
established acquires the Company’s shares, and delivers andprovides shares of the Company and monetary compensation
corresponding to the cash conversion value of the Company’s
shares to the general managers, senior employees and mid-classemployees of the Company and its subsidiaries based on theirposition and attainment of performance targets in accordancewith the share delivery rules.
(2) The Company’s shares held by the trust
Tokyo Electron recorded the Company’s shares held by thetrust in “Treasury stock, at cost” under “Net assets” at the bookvalue in the trust (excluding ancillary expenses). The book value
and the number of such treasury shares were ¥11,507 million($103,944 thousand) and 534,699 shares, respectively, as ofMarch 31, 2021, and were ¥7,840 million and 411,492 shares,
respectively, as of March 31, 2020.
6. Accounting Standards Issued but Not yet Adopted“Accounting Standard for Revenue Recognition” (ASBJ
Statement No. 29, March 31, 2020 (hereinafter, “Statement
No.29”))“Implementation Guidance on Accounting Standard for
Revenue Recognition” (ASBJ Guidance No. 30, March 26, 2021
(hereinafter, “Guidance No.30”))“Implementation Guidance on Disclosures about Fair Value of
Financial Instruments” (ASBJ Guidance No. 19, March 31, 2020)(1) Overview
The International Accounting Standards Board (IASB) and the
U.S. Financial Accounting Standards Board (FASB) collaborated
on a project to develop a single, comprehensive revenue
recognition model and jointly issued new revenue recognition
standards “Revenue from Contracts with Customers” (IFRS 15
published by IASB, ASC Topic 606 published by FASB) in May
2014. IFRS 15 is effective for annual reporting periods beginningon or after January 1, 2018 and Topic 606 is effective for annual
reporting periods beginning after December 15, 2017.
Considering the above circumstances, the AccountingStandard Board of Japan (ASBJ) also developed a new revenue
recognition standard and issued Statement No.29 together with
Guidance No.30.
ASBJ’s basic policy in developing the new revenue recognition

standards is to first incorporate the core principle of IFRS 15 in
the light of improving the international comparability of financial
statements and then add additional alternative treatments
to the extent that international comparability would not be
impaired where any business practices operated in Japan need tobe considered.
(2) Effective date
Effective from the beginning of the fiscal year ending March
31, 2022.
(3) Effects of the application of the standards
The Company and its consolidated domestic subsidiaries are
currently in the process of determining the effects of these newstandards on the consolidated financial statements.
“Accounting Standard for Fair Value Measurement” (ASBJ
Statement No. 30, July 4, 2019 (hereinafter, “Statement No.30”))“Accounting Standard for Measurement of Inventories” (ASBJ
Statement No. 9, July 4, 2019)“Accounting Standard for Financial Instruments” (ASBJ
Statement No. 10, July 4, 2019)“Implementation Guidance on Accounting Standard for Fair
Value Measurement” (ASBJ Guidance No. 31, July 4, 2019)“Implementation Guidance on Disclosures about Fair Value of
Financial Instruments” (ASBJ Guidance No. 19, March 31, 2020)(1) Overview
The International Accounting Standards Board (IASB) and the
U.S. Financial Accounting Standards Board (FASB) have provided
similar detailed guidance for fair value measurement (IFRS 13“Fair Value Measurement” published by IASB, ASC Topic 820 “Fair
Value Measurement” published by FASB).
Considering the above circumstances, the AccountingStandard Board of Japan (ASBJ) issued Statement No.30 andthe other standards above to enhance consistency between
Japanese accounting standards and international accounting
standards regarding guidance for fair value of financial
instruments and required disclosures.
ASBJ’s basic policy in developing the new fair value
measurement standards is to basically incorporate all principles
of IFRS 13 in light of improving the international comparability offinancial statements by using a unified measuring method, andthen provide other treatments for individual items to the extent
that international comparability would not be significantly
impaired where any business practices operated in Japan need tobe considered.
(2) Effective date
Effective from the beginning of the fiscal year ending March
31, 2022.
(3) Effects of the application of the standards
The Company and its consolidated domestic subsidiaries
have not determined the effects of these new standards on the
consolidated financial statements yet.

TOKYO ELECTRON Integrated Report 2021

78

Financial Section

7. Securities
Other securities as of March 31, 2021 and 2020 are as follows:

8. Inventories
Inventories as of March 31, 2021 and 2020 are as follows:

Millions of yen

2021:

Cost

Non-current
Securities with carrying value exceedingacquisition cost
¥8,123Equity securities¥103,607

Securities with carrying value not exceedingacquisition cost
Equity securities

1,051

1,037

274

274

¥9,449¥104,920

Other
Total

Millions of yen

2020:

Cost

Carrying value

Non-current
Securities with carrying value exceedingacquisition cost
Equity securities¥7,991¥37,013

Securities with carrying value not exceedingacquisition cost
Equity securities

1,053

Other
Total

1,031

330

330

¥9,375¥38,374

Thousands of U.S. dollars

2021:

Cost

Carrying value

Non-current
Securities with carrying value exceedingacquisition cost
$73,372

Equity securities$935,845Securities with carrying value not exceedingacquisition cost
Equity securities

9,494

9,375

Other

2,483

2,483

$85,350$947,704

Total

Held-to-maturity securities classified as current assets are¥125,014 million ($1,129,207 thousand) and ¥188,500 million as ofMarch 31, 2021 and 2020, respectively.
Reconciliation of held-to-maturity securities as of March 31,
2021 and 2020 to the amounts of short-term investments in the
consolidated balance sheets are as follows:
Millions of yen

2021
Held-to-maturity (current)Deposits and low-risk financial
instruments with original
maturities of three months or lessDeposits with original maturities ofmore than three months
Short-term investments¥125,014(80,000)

2020

Thousands of
U.S. dollars

2021¥188,500 $1,129,207(108,500)(722,608)

545

10,447

4,925¥45,559¥90,447$411,524

For the years ended March 31, 2021 and 2020, there was no
Net loss on devaluation of investment securities.
For the year ended March 31, 2021 and 2020, the Company
sold available-for-sale securities and the amounts wereimmaterial.

79 TOKYO ELECTRON Integrated Report 2021

2021

2020

2021

(6) Accumulated remeasurements of defined benefit plans
Thousands of
U.S. dollars

Millions of yen

Thousands of
U.S. dollars

Millions of yen

Carrying value(2) Movement of plan assets
2021
Balance at April 1, 2020
and 2019

2020

2021

2021
Prior service cost that is yet to berecognized (before tax)

¥63,931¥60,925$577,467

Expected return on plan assets

1,335

1,266

12,0581,314,891

Actuarial gain (loss)

4,404(1,551)39,787Net actuarial loss that is yet to berecognized (before tax)

$3,751,640

Employer contributions

5,042

5,046

45,546

Total

Benefits paid

(1,434)(1,130)(12,957)Foreign currency exchange
rate changes

844

(608)

7,624

Other

(28)

(16)

(252)

¥74,095¥63,931$669,275

Finished products¥269,772¥267,625$2,436,749

Work in process, raw materials
and supplies

145,571

124,439

Total¥415,344¥392,064

The amounts of change in inventory provision included incost of sales in the consolidated statements of income for theyears ended March 31, 2021 and 2020 were an increase of ¥3,223
million ($29,112 thousand) and an increase of ¥2,290 million,
respectively.
9. Pledged Assets
Tokyo Electron did not hold any assets pledged as collateral
as of March 31, 2021 and 2020.
10. Short-term Borrowings
There are no short-term borrowings classified as current
liabilities as of March 31, 2021 and 2020.
As of March 31, 2021 and 2020, Tokyo Electron had unusedlines of credit amounting to ¥276,952 million ($2,501,604
thousand) and ¥126,929 million, respectively.
11. Employee Benefits
The Company and its domestic subsidiaries provide a cash
balance plan and a non-contributory retirement and severance
benefit plan as defined benefit plans, and provide a defined
contribution plan as defined contribution plans for theiremployees. Further, certain consolidated overseas subsidiaries
provide defined benefit plans and defined contribution plans fortheir employees.

Balance at March 31, 2021
and 2020(3) Reconciliation from defined benefit obligations and plan
assets to net defined benefit liabilities (assets)
Thousands of
U.S. dollars

Millions of yen

2021

2020

2021

Funded defined benefit
obligations¥63,053¥58,536$569,536

Plan assets(74,095)(63,931)(669,275)

Funded status(11,042)(5,395)(99,738)Unfunded defined benefit
obligations

61,15860,193

552,424Net defined benefit liabilities at
March 31, 2021 and 2020

¥50,116¥54,797$452,685

Net defined benefit liabilities

62,13760,635561,266

Net defined benefit assets(12,021)(5,837)(108,581)

Net defined benefit liabilities at
March 31, 2021 and 2020

¥50,116¥54,797$452,685

Note: The provision for accrued pension and severance costs for directors and audit &supervisory board members of ¥110 million ($995 thousand) and ¥110 million as ofMarch 31, 2021 and 2020 is not included.

Thousands of
U.S. dollars

Millions of yen¥(338)

2021

2020¥(677)$(3,058)(885)(3,882)(7,994)¥(1,223)¥(4,559)$(11,052)

2021

2020

(7) Plan assets
1. Plan assets comprise:
Bonds

30%

31%

Life insurance company general account29

29

Equity securities

14

12

Alternative investments (Note)

13

15

Cash and cash equivalents

1

1

Other

13

12

Total

100%

100%

Note: Alternative investments mainly consist of hedge funds, real estate, insurancelinked securities and infrastructure.

2. Long-term expected rate of return
Current and target asset allocations, and historical andexpected returns on the various categories of plan assets havebeen considered in determining the long-term expected rate of
return.
(8) Actuarial assumptions
The principal actuarial assumptions as of and for the years
ended March 31, 2021 and 2020 are as follows:
2021

2020

Discount rate

0.50%

0.55%

Long-term expected rate of return

2.00%

2.00%

(4) Defined benefit costs
Defined benefit plans(1) Movement of defined benefit obligations
Millions of yen

2021
Balance at April 1, 2020
and 2019

Thousands of
U.S. dollars

Millions of yen

2020

Thousands of
U.S. dollars

Service cost

2021

Interest cost

2021

2020

2021

¥6,179¥6,160$55,813

814

596

7,355

Expected return on plan assets(1,335)(1,266)(12,058)¥118,729¥118,461$1,072,434

Net actuarial gain amortization

676

3,104

6,106

Service cost

6,179

6,160

55,813

Prior service cost amortization

338

338

3,058

Interest cost

814

596

7,355

Other

522

410

4,721

Actuarial gain (loss)

1,834(2,528)

16,574

Benefits paidTotal defined benefit costs forthe years ended March 31, 2021
and 2020¥7,195¥9,344$64,995(4,498)(3,531)(40,632)Foreign currency exchange
rate changes

830

(618)

7,503

Other

322

189

2,911

¥124,212¥118,729$1,121,960

Balance at March 31, 2021
and 2020

The expected rates of salary increase for the years ended
March 31, 2021 and 2020 are also considered as one of theactuarial assumptions, and are set based on the salary increaseindex by age group as of January 1, 2019.
Defined contribution plans
The contributions of the Company and its subsidiaries to thedefined contribution plans are ¥2,873 million ($25,954 thousand)and ¥2,570 million for the years ended March 31, 2021 and 2020,
respectively.

(5) Remeasurements of defined benefit plans
Thousands of
U.S. dollars

Millions of yen

2021

2020

2021

Prior service cost

¥338

¥338

$3,058Actuarial gain

2,997

4,322

27,073Total¥3,335¥4,660$30,131

TOKYO ELECTRON Integrated Report 2021

80

Financial Section

12. Income Taxes
Significant components of the deferred tax assets andliabilities as of March 31, 2021 and 2020 are as follows:
Thousands of
U.S. dollars

Millions of yen

2021

2020

2021

Deferred tax assets
Elimination of unrealized profit ininventories¥32,723¥30,607$295,574

Net defined benefit liabilities

19,305

18,843

174,381

Devaluation of inventories

8,792

7,543

79,419Software

7,522

3,732

67,945

Accrued employees’ bonuses

7,480

6,616

67,566

Net operating loss carryforwards

5,260

9,168

47,513

Accrued warranty expenses

4,023

4,069

36,343Other

19,091

14,641

172,444

Total gross deferred tax assets

104,199

95,221

941,189

Less valuation allowance(4,762)(8,392)(43,017)

Total deferred tax assets

99,43686,828898,171

Deferred tax liabilities
Net unrealized gains on
investment securities(29,164)

Undistributed earnings ofsubsidiaries(10,570)(8,165)(95,483)

Other(6,590)(5,081)(59,527)(8,886)(263,433)

Total deferred tax liabilities(46,326)(22,134)(418,445)

Net deferred tax assets¥53,110¥64,694$479,726

The ultimate realization of deferred tax assets is dependent
upon the generation of future taxable income during theperiod in which temporary differences become deductible andnet operating loss carryforwards are available to be utilized.
For assessment of the realizability of deferred tax assets,management considers the scheduled reversal of deferred
tax liabilities, future estimated taxable income, tax planning
strategies and level of net operating loss carryforwards, if any,in accordance with accounting principles generally accepted inJapan.
Based on the level of historical taxable income and future
estimated taxable income over the periods which the temporary
differences are deductible and net operating loss carryforwards
are available to be utilized, management believes Tokyo Electron
will realize the benefits of deferred tax assets, net of valuation
allowance, as of March 31, 2021 and 2020.
The Company and its wholly-owned domestic subsidiaries
apply a consolidated tax filing system for corporate tax purposes.
The Company and its domestic subsidiaries calculated theamounts of deferred tax assets and deferred tax liabilities
based on the Income Tax Act prior to amendment regarding
the transition to group tax sharing system established in “Actfor Partial Amendment of the Income Tax Act, etc. ” (Act No.8
of 2020) and the items for which the single tax payment
system was amended in line with the transition to group tax
sharing system, in accordance with the treatment specified
by paragraph 3 of “Practical Solution on the Treatment of Tax
Effect Accounting for the Transition from the Consolidated
Taxation System to the Group Tax Sharing System” (PITF No.39,
81

TOKYO ELECTRON Integrated Report 2021

March 31, 2020) instead of the provision of paragraph 44 of”Implementation Guidance on Tax Effect Accounting” (ASBJ
Guidance No. 28, February 16, 2018).
Significant components of the difference between thestatutory and effective tax rates for the years ended March 31,
2021 and 2020 are as follows:

14. Other Comprehensive Income
Other comprehensive income for the years ended March 31, 2021 and 2020 is as follows:
Thousands of
U.S. dollars

Millions of yen

2021

2020

2021

¥66,262¥10,339$598,521

0

(102)

0

Net unrealized gains on investment securities
Net unrealized gains arising during the year

2021

2020

Reclassification adjustments

30.62%

30.62%

Sub-total, before tax

66,262

10,236

598,521Tax expense(20,279)(3,136)(183,176)

Tax credits(7.52)(5.96)

Sub-total, net of tax

45,982

7,099

415,345

Difference in statutory tax rates of subsidiaries(1.14)(1.52)

Undistributed earnings of subsidiaries

0.74

0.25

Others, net

0.67

0.90

Net deferred gains arising during the year

47

9

425

24.29%

Reclassification adjustments

—

—

—

Sub-total, before tax

47

9

425

Tax expense

(14)

(3)

(130)

Sub-total, net of tax

32

6

294

Adjustments during the year

13,448(8,495)

121,473

Reclassification adjustments

69

33

623

13,517(8,461)122,097

Statutory tax rate in Japan
Adjustments:

Effective tax rate

23.37%

13. Net Assets
Net assets comprises four subsections, which areshareholders’ equity, accumulated other comprehensive income,share subscription rights and non-controlling interests.
Under Japanese laws and regulations, the entire amount
paid for new shares is required to be designated as common
stock. However, a company may, by a resolution of the board of
directors, designate an amount not exceeding one half of theprice of the new shares as additional paid-in capital which isincluded in capital surplus.
In cases where dividend distribution of surplus is made, thelesser of an amount equal to 10% of the dividend or the excess, ifany, of 25% of common stock over the total of additional paid-in
capital and legal reserve must be set aside as additional paidin capital or legal reserve. Legal reserve is included in retained
earnings in the accompanying consolidated balance sheets.
Both appropriations of legal reserve and additional paid-in
capital used to eliminate or reduce a deficit generally require aresolution of the shareholders’ meeting.
Additional paid-in capital and legal reserve may not be
distributed as dividends. All additional paid-in capital and legal
reserve may be transferred to other capital surplus and retained
earnings, respectively, which are potentially available fordividends.
The Company is subject to restriction of dividends basedon the Japanese Corporate Act, which restricts the amount ofdividends to retained earnings on a consolidated basis.
The Company’s articles allow for the distribution of earnings
to shareholders on dates other than the mid-term and yearend, by a resolution of the board of directors in accordance withJapanese laws and regulations.
At the board of directors’ meeting held on May 13, 2021, thedistribution of cash dividends amounting to ¥65,746 million($593,858 thousand) was resolved. Such appropriations havenot been accrued in the consolidated financial statements
as of March 31, 2021 since they are recognized in the period
in which they are resolved at the board of directors’ meeting.
The dividends of ¥65,746 million include ¥259 million ($2,339
thousand) related to treasury stock held by the BIP/ESOP Trusts.

Net deferred gains on hedging instruments

Foreign currency translation adjustments

Sub-total, before tax
Tax expense

1,018

—

9,202

Sub-total, net of tax

14,536(8,461)

131,299

20,967

Remeasurements of defined benefit plans
Adjustments during the year

2,321

1,217

Reclassification adjustments

1,014

3,443

9,164

Sub-total, before tax

3,335

4,660

30,131

Tax expense(1,069)(1,382)(9,657)

Sub-total, net of tax

2,266

3,278

20,474

Share of other comprehensive income of associates accounted for using the equity method
Adjustments during the year
Total other comprehensive income

15. Share Subscription Rights
Stock option plan
The Company’s shareholders have approved annual stock
option plans for directors and selected employees since theyear ended March 31, 1999. The options under the plans vest
immediately or over three-year period with restriction on
exercise up to three years after the date of grant, and have an
exercise period of seventeen years from the date on which the

41

(45)

375

¥62,860¥1,878$567,789

options become exercisable.
Options to purchase 130,800 shares and 360,400 shares of
the Company were authorized and granted at exercise prices of¥1 ($0.01) and ¥1 for the years ended March 31, 2021 and 2020,
respectively.
A summary of stock options outstanding and exercisable asof March 31, 2021 and 2020 is as follows:

2021
Number ofshares2020

Weightedaverage exercise priceYen

U.S. dollars

Number ofshares

Weightedaverage exercise price
Yen

Outstanding at the beginning of year

866,900¥1$0.01

688,700

Granted130,800

1

0.01

360,400

1

Exercised

169,600

1

0.01

182,200

1
—

¥1

—

—

—

—

Outstanding at the end of year

828,100

1

0.01

866,900

1

Exercisable at the end of year

117,000

1

0.01

141,900

1

Expired (forfeited)TOKYO ELECTRON Integrated Report 2021

82

Financial Section

Amounts expensed related to stock options
The amounts expensed related to stock options for the years
ended March 31, 2021 and 2020, are as follows:
Thousands of
U.S. dollars

Millions of yen

2021
Selling, general andadministrative expenses

2021

2020

¥2,884$26,056¥4,059Valuation method of fair value per unit of stock options
Fair value as of the grant date for stock options granted forthe year ended March 31, 2021 was ¥22,054 ($199.21) per unit,
which was evaluated as follows:(1) Valuation method used: Black-Scholes model(2) Major underlying assumptions and estimates:
16th Stock Acquisition Rights
Volatility (Note 1)

36.18%

Expected residual period (Note 2)

5.49 years

Expected dividends (Note 3)¥ 673 ($6.08) per share

Risk-free interest rate (Note 4)(0.12)%

Short-term investments consist of short term deposits andlow-risk financial instruments and Tokyo Electron trade withhighly-rated financial institutions to mitigate credit risks.
Investment securities consist of mainly equity interests inlisted companies exposed to equity market risks. Conditions,
including market prices, for these investment securities aremonitored on a regular basis.
Trade payables, which consist of notes and accounts payable,
mainly mature within one year. Trade payables are exposed toliquidity risks which are managed through activities such as
implementing cash management plans.
See note 18 for detailed discussion on derivative financial
instruments.
Fair value of financial instruments
Carrying amount and estimated fair value of financial
instruments as of March 31, 2021 and 2020 are set out below.
Fair value of financial instruments which is practically difficult toestimate are excluded.
Millions of yen

2021:

Notes: 1. Calculated based on the stock price performance for the period corresponding
to the expected residual period (from December 2014 to June 2020).
2. Calculated based on past actual results and forecast of the exercise of stock
options.
3. Based on the dividends paid for the years ended March 31, 2020
and 2019.
4. Based on Japanese government bond yield corresponding to the
expected residual period.

Carrying
amountEstimated
fair value1

AssetsCash and cash equivalents¥265,993¥265,993

Short-term investments

45,55945,562

Trade notes and accounts
receivable, net of allowance for doubtful
accounts (¥99 million)

191,601

191,601

Investment securities

103,781

103,781

Hedge accounting not applied

600

600

Hedge accounting applied——

Derivatives (see note 18)

2020:

Thousands of
U.S. dollars

2020

2021

Due within one year

¥4,601¥3,915$41,563

Due over one year

10,051

7,608

90,792

Total¥14,653¥11,523$132,356

Note: Certain consolidated overseas subsidiaries adopt IFRS 16 “Leases” . Accordingly,
leases as a lessee are not included in the amounts above, since they are now
recorded on the balance sheets in principle.

Carrying
amountEstimated
fair value1

17. F
 air Value of Financial Instruments
Policy for financial instruments
Tokyo Electron limits its fund management to short-termbank deposits and low-risk financial instruments.
Trade receivables, which consist of notes and accounts
receivable, are exposed to credit risk in the event of nonperformance by the counterparties. Execution and managementof credit risk, maturity and receivable balance are conductedpursuant to the internal management rules for credit control.
Credit risk of major customers is assessed on a regular basis.

Cash and cash equivalents¥247,959¥247,959

Short-term investments

90,447

90,162

Trade notes and accounts
receivable, net of allowance for doubtful
accounts (¥105 million)

150,029

150,029

Investment securities

37,03037,03095,93895,938

Liabilities
Trade notes and accounts payable

Estimated
fair value1

Cash and cash equivalents$2,402,611$2,402,611

Short-term investments

411,524

411,544

1,730,659

1,730,659

937,417

937,413

818,413

818,413

5,424

5,424

—

—

AssetsTrade notes and accounts
receivable, net of allowance for doubtful
accounts ($896 thousand)
Investment securities
Liabilities
Trade notes and accounts payable
Derivatives (see note 18)
Hedge accounting not applied
Hedge accounting applied

Notes: 1. Fair value calculation of financial instruments
Cash and cash equivalents, short-term investments, trade notes and accounts
receivable and trade notes and accounts payable.
The carrying amounts approximate fair value because of the short maturity ofthese instruments.
Investment securities
The fair values of marketable securities are based on quoted market prices.
See note 7 for further information by classification of investment securities.
Derivatives
See note 18 for detailed discussion on derivative financial instruments.
2. The following financial instruments are not included in the above as they do nothave quoted market prices and therefore it is considered extremely difficult tomeasure their fair value.

2021

Thousands of
U.S. dollars

2021

2020

forward foreign exchange contracts in order to hedge such risks,
but do not enter into such transactions for speculative purposes.
The Group implements a ratio analysis of the total cumulative
cash flow fluctuations to assess effectiveness of hedging for all
derivative transactions, except for transactions where the criticalterms of the hedging instrument and hedged item match andthe Group could conclude that changes in fair value or cash flows
are expected to completely offset. Execution and managementof all derivative transactions are conducted pursuant to theinternal management rule.
The estimated fair values of the derivative financial
instruments as of March 31, 2021 and 2020 are as follows:
1. D erivative financial instruments not designated as hedging
instruments
Millions of yen

2021:

Contract
amountFair value

Gains(losses)

Buy U.S. dollars¥12,449

¥551

¥551

Buy Chinese yuan

2,931

48

48

Buy Singapore dollars

328

0

0

Buy EURO

77

0

0

Total

¥15,786

¥600

¥600

2020:

Contract
amountFair value

Millions of yen

Gains(losses)

Sell U.S. dollars

¥668

¥(8)

¥(8)

¥1,008¥1,014$9,110

Sell EURO

525

(0)

(0)

Other

274

330

2,483

Sell Swiss francs

61

0

0

Total

¥1,283¥1,344$11,594

Buy U.S. dollars

21,973

162

162

Buy Chinese yuan

Reported amount in balance sheet

Unlisted stocks

3. Maturities of financial assets and securities are as follows:
Millions of yen

Within 1 year

After 1 through5 years¥265,993¥—

Short-term investments

45,559—Trade notes and accounts receivable

191,700

—

—

144

2021:

Assets2021

83 TOKYO ELECTRON Integrated Report 2021

90,606

Millions of yen

16. Leases
Future minimum lease payments on non-cancelable
operating leases are as follows:
Millions of yen

90,606

Trade notes and accounts payable

Carrying
amount2021:

Millions of yen

Liabilities(3) Method of estimating the number of vested stock options
It is not necessary to estimate the number of vested stock
options as the rights to exercise stock options are vested
immediately when granted.

Thousands of U.S. dollars

Cash and cash equivalents

Investment securities

Millions of yen

2,105

(28)

(28)

Buy GBP

334

(1)

(1)

Buy Singapore dollars

303

0

0

Buy Taiwan dollars

45

1

1

Total

¥26,018

¥125

¥125

2021:

Contract
amountFair value

Gains(losses)

Buy U.S. dollars$112,449$4,978$4,978

Buy Chinese yuan

26,478438

438

Buy Singapore dollars

2,966

5

5

702

0

0

$142,596$5,424$5,424

Thousands of U.S. dollars

Within 1 year

After 1 through5 years

Cash and cash equivalents¥247,959¥—

Buy EURO

Short-term investments

90,447—

Total

Trade notes and accounts receivable

150,134—2020:

Derivatives (see note 18)

Note: The fair values are based on the quoted forward foreign exchange rates.

Thousands of U.S. dollars

Hedge accounting not applied

125

125

Hedge accounting applied

(47)

(47)

2021:

Within 1 year

After 1 through5 years

Cash and cash equivalents$2,402,611$—

Short-term investments

411,524—

Trade notes and accounts receivable
Investment securities

1,731,556

—

—

1,307

18. Derivative Financial Instruments
Tokyo Electron and certain subsidiaries are subject to risk
from adverse fluctuations in foreign currency exchange rates
in its operating and financing activities. The Group enters into

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Financial Section

Information about reportable segment net sales, segment profit (loss), segment assets and other items
Reportable segment information as of and for the years ended March 31, 2021 and 2020 is as follows:

2. Derivative financial instruments designated as hedging instruments
The contract amounts of forward foreign exchange contracts, entered into to hedge future transactions and receivables andpayables denominated in foreign currencies that have been translated by the corresponding contracted rates, are as follows:

Millions of yen

Reportable Segment

2021:

Contract
amountMillions of yen

Thousands of U.S. dollars

Contract
amount due
after 1 year

Contract
amount due
after 1 year

Fair value

Contract
amount2021:
Fair value

Monetary assets and liabilities in foreign currency (Note)

Sales to external customers
1,804

—

—

16,299——Intersegment sales or transfers

Total¥1,804¥—¥—$16,299

$—

$—

Total

2020:

Contract
amountContract
amount due
after 1 year

Fair value

Future transactions denominated in a foreign currency¥4,281¥—¥(47)

Sell U.S. dollars

1,818

—

—

Total

¥6,100¥—¥(47)

Sell U.S. dollars

Total

Adjustments

Consolidated¥1,399,102¥1,315,200¥83,772¥129¥1,399,102

¥—

—

—

21,952

21,952(21,952)—

1,315,200

83,77222,082

1,421,055(21,952)

1,399,102

Segment profit

362,526

8,823

534

371,884(54,846)

317,038

Segment assets

626,957

29,405

3,276

659,638

765,725

1,425,364

Depreciation and amortization

17,9191,492

199

19,611

14,231

33,843

199

—

—

199

—

199

23,485

1,256

107

24,84939,91364,762Adjustments

Consolidated¥1,127,286

Amortization of goodwill
Capital expenditures, including intangible assets

Monetary assets and liabilities in foreign currency (Note)

Note: The fair value of these derivative financial instruments, which is based on the quoted foreign exchange rates, is included in the carrying value of hedged assets and liabilities.

Other

Net sales

Sell U.S. dollars

Millions of yen

Semiconductor
FPD
production
production
equipment
equipment

Millions of yen

Reportable Segment

2020:

Semiconductor
FPD
production
production
equipment
equipment

Other

Total

Net sales

19. Segment Information
General information about reportable segments
A reportable segment is a component or an aggregated component of Tokyo Electron. For each of the components, discrete
financial information is available and the operating result is regularly reviewed by management to make decisions about resources to beallocated to the segment and assess its performance.
The operation of Tokyo Electron consists of segments by products and services based on business units (BUs), and Tokyo Electron
identifies as a reportable segment, “semiconductor production equipment (SPE)” and “flat panel display (FPD) production equipment”.
Products of the SPE segment consist of coater/developers, etch systems, deposition systems, cleaning systems used in wafer
processing, wafer probers used in the wafer testing process and other semiconductor production equipment, such as wafer bonders/debonders. The SPE segment principally develops, manufactures, and sells such products, and provides services on them.
Products of the FPD production equipment segment consist of coater/developers, etch/ash systems used in the manufacture offlat panel displays and inkjet printing systems used in the manufacture of OLED displays. The FPD production equipment segmentprincipally develops, manufactures, and sells such products, and provides services on them.
Basis of measurement of reportable segment net sales, segment profit (loss), segment assets and other items
The accounting policies applied in each reportable segment are generally consistent with those applied for the preparation of theconsolidated financial statements. Intersegment sales or transfers are determined by negotiation between the Tokyo Electron groupcompanies considering current market prices. Assets in common use have not been allocated to each reportable segment, while costs
associated with those assets have been allocated to reportable segments on a systematic basis.

Sales to external customers¥1,060,997¥66,092¥197¥1,127,286

¥—

—

—

19,292

19,292(19,292)—

1,060,997

66,092

19,4891,146,578(19,292)

1,127,286

Segment profit

270,496

10,589852

281,937(37,310)244,626

Segment assets

538,532

42,215

2,864

583,612694,882

1,278,495

Depreciation and amortization

16,072

1,242

194

17,50911,598

29,107

196

—

—

196

—

196

21,082

4,035

284

25,40333,31258,715Adjustments

Consolidated

Intersegment sales or transfers
Total

Amortization of goodwill
Capital expenditures, including intangible assets

Thousands of U.S. dollars

Reportable Segment

2021:

Semiconductor
FPD
production
production
equipment
equipment

Other

Total

Net sales
Sales to external customers
Intersegment sales or transfers
Total$11,879,691$756,682——

198,292$1,172 $12,637,546
198,292

11,879,691

756,682

199,464

12,835,838$ — $12,637,546(198,292)—(198,292) 12,637,546

Segment profit

3,274,560

79,696

4,831

3,359,088(495,408)

2,863,679

Segment assets

5,663,057

265,604

29,594

5,958,256

6,916,497

12,874,753

161,864

13,481

1,800

177,145

128,550

305,696

1,802

—

—

1,802

—

1,802

212,132

11,351

971

224,455

360,521584,977

Depreciation and amortization
Amortization of goodwill
Capital expenditures, including intangible assets

Notes: 1. “Other” includes all other operating segments which are not included in the reportable segments, including group-wide logistic services, facility maintenance and insurance.
2. (1) “Adjustments“ for segment profit totaling ¥(54,846) million ($(495,408) thousand) and ¥(37,310) million for the years ended March 31, 2021 and 2020, respectively, mainly
consists of research and development costs of ¥(21,669) million ($(195,732) thousand) and ¥(19,796) million for the years ended March 31, 2021 and 2020, respectively,
pertaining to the Company’s fundamental research and element research, provision for loss on liquidation of subsidiaries and associates of ¥(3,327) million ($(30,053)
thousand) for the year ended March 31, 2021 and other general and administrative costs that do not belong to the reportable segments.
(2) “Adjustments” for segment assets totaling ¥ 765,725 million ($ 6,916,497 thousand) and ¥694,882 million as of March 31, 2021 and 2020, respectively, mainly consist of cash
and cash equivalents, short-term investments and buildings not allocated to any of the reportable segments.
(3) “Adjustments” for capital expenditures totaling ¥ 39,913 million ($ 360,521 thousand) and ¥33,312 million for the years ended March 31, 2021 and 2020, respectively, mainly
consist of capital expenditures for buildings not allocated to any of the reportable segments.

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Financial Section

Other information(1) Domestic and overseas net sales by destination for the years ended March 31, 2021 and 2020 are as follows:

Information about reportable segment goodwill
Reportable segment information about amortization of goodwill for the years ended March 31, 2021 and 2020, and unamortizedbalances as of March 31, 2021 and 2020 are as follows:

Millions of yen

2021:

Japan

North America

Net sales¥197,566¥152,073

Europe¥63,502

Millions of yen

South Korea

Taiwan

China

Other

¥285,261¥249,766¥398,491¥52,439

Total¥1,399,102

Notes: 1. Sales are classified in countries or regions based on location of customers.
2. Net sales of North America include sales in the U.S.A. of ¥151,659 million.

2021:

Semiconductor
production
equipment

FPD
production
equipment

Total

Amortization of goodwill

¥199

¥—

¥199

Goodwill

733

—

733

Millions of yen

2020:

Japan

North America

Net sales¥161,812¥205,804

Europe¥58,899

South Korea

Taiwan

China

Other

¥154,801¥261,116¥249,234¥35,6172020:

Notes: 1. Sales are classified in countries or regions based on location of customers.
2. Net sales of North America include sales in the U.S.A. of ¥205,783 million.
Thousands of U.S. dollars

2021:
Net sales

Japan

North America$1,784,543$1,373,624

EuropeSouth Korea

TaiwanChina$573,593$2,576,656$2,256,042$3,599,415

Other

Japan

Other

Total

¥155,637¥41,330¥196,967

Property, plant and equipment

Japan

Other

Total

¥139,098¥36,481¥175,580

Thousands of U.S. dollars

2021:
Property, plant and equipment

Japan

Other

Total

$1,405,813$373,319$1,779,133¥196

Goodwill

910

—

910

Thousands of U.S. dollars

Related reportable segment

Samsung Electronics Co., Ltd.

Semiconductor production equipment and FPD production equipment

FPD
production
equipment

Total

Amortization of goodwill$1,802$—$1,802

Goodwill

6,621

—

6,621

The basis for the calculation of net income per share for the fiscal years ended March 31, 2021 and 2020 is as follows:(3) Major customer information
Net sales to external customers that represent 10 percent or more of net sales are as follows:
Name of customer

Semiconductor
production
equipment

20. Per-Share Information
Net income per share and net assets per share are computed based on the weighted-average number of shares of common stock
outstanding during each year. Net income-diluted per share is computed based on the weighted-average number of shares of common
stock outstanding during each year after incorporating the dilutive potential effect of shares of common stock to be issued upon theexercise of stock options.
Dividends per share has been presented on an accruals basis and include, in each fiscal year ended March 31, dividends approved or
to be approved after March 31 but applicable to the year then ended.

Millions of yen

2020:

Total

¥—

2021:

Millions of yen

FPDproduction
equipment

¥196

Total

(2) Net property, plant and equipment by location as of March 31, 2021 and 2020 are as follows:

Property, plant and equipment

Semiconductor
production
equipment

Amortization of goodwill$473,669 $12,637,546

Note: Net sales of North America include sales in the U.S.A. of $1,369,877 thousand.

2021:

Millions of yen

Total¥1,127,286

Thousands of U.S.
dollars

Millions of yen

2021
Millions ofyen

Thousands of
U.S. dollars

2021

2021

¥256,656$2,318,276

Intel Corporation

Semiconductor production equipment

193,706

1,749,671

Taiwan Semiconductor Manufacturing Company Ltd.

Semiconductor production equipment

164,340

1,484,426

Note: The amounts include sales to the customer and its subsidiaries.
Millions ofyen

Name of customer

Related reportable segment

2020

Intel Corporation

Semiconductor production equipment¥230,340

Taiwan Semiconductor Manufacturing Company Ltd.

Semiconductor production equipment

187,890

Samsung Electronics Co., Ltd.

Semiconductor production equipment and FPD production equipment

120,127

2021

2020

Net income per share of common stock - Basic¥242,941¥185,206———

Net income pertaining to holders of common stock¥242,941¥185,206$2,194,393

Weighted-average number of shares of common stock outstanding (thousands)

155,511

158,219

Net income attributable to owners of parent
Less components not pertaining to holders of common stock$2,194,393

Net income per share of common stock - Diluted
Adjustment of net income attributable to owners of parent——

Increase in number of common stock (Thousands of share)

892

889

892

889

Increase in number of share subscription rights (Thousands of share)—

Note: The shares of the Company held by "Executive compensation BIP Trust" and "Share-delivering ESOP Trust", which are recorded in “Treasury stock, at cost” under shareholders’equity, are included in the treasury stock which is deducted in calculating the per-share information.
The number of treasury shares deducted in the calculation of net assets per share was 615 thousand shares and 472 thousand shares as of March 31, 2021 and 2020, respectively,
and the average number of treasury shares deducted in the calculation of net income per share and fully diluted net income per share was 568 thousand shares and 398 thousand
shares for the fiscal years ended March 31, 2021 and 2020, respectively.

Note: The amounts include sales to the customer and its subsidiaries.

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Financial Section

Business-Related and Other Risks
The following are recognized as the main risks that may have a
critical impact on Tokyo Electron’s financial condition, operating
results or cash flow. This is not a comprehensive list of all risks
pertaining to us and there are also risks which are not listed.
(1) Market changes
The semiconductor market is expected to further grow inthe medium to long term due to continuing technologicalinnovation amid an accelerating transition to a data-driven
society backed by the spread of information and communication
technology applications such as IoT, AI and 5G; progress indigital transformation (DX); and response to sustainability
transformation (SX). However, a wide range of factors—
including the global economy, demand for end products, trade
and tariff policies, and geopolitical factors—can cause shortterm supply and demand to become unbalanced and generatesignificant fluctuations in market size. Rapid contractionof the semiconductor market could lead to results such as
overproduction, increases in dead inventory or losses from bad
debts resulting from the worsening of a customer’s financial
position. On the other hand, a rapid increase in demand that wecannot respond to could lead to situations such as an inability
to provide products to customers in a timely manner resulting
in lost opportunities. Both of these circumstances can adversely
affect our business performance.
To respond to such market fluctuations, we constantly
work to appropriately adjust our capital investment, personnel,
inventory plans and other aspects of our businesses basedon understanding of the latest market conditions throughperiodically reviewing the market environment and orders
received at Board of Directors and other important meetings.
In addition, a large portion of our sales are to major, leadingedge semiconductor manufacturers. As such, our performancetends to be impacted by changes in capital investment by thesemajor customers.
We have established an Account Sales Division, which works
in close coordination with major customers and quickly grasps
trends in their capital investment outlook, as well as a Global
Sales Division, which responds to a wide range of customer
needs from around the world and cultivates new customers
emerging in step with growth in semiconductor demand.
Through such efforts, we strive to strengthen and expand oursales framework and customer base.)(2) Geopolitics
We undertake businesses in various countries and regions, anda high proportion of sales comes from overseas. Amid growinginternational attention on semiconductors, countries andregions are seen to be embarking on measures—including
the domestication of semiconductor-related businesses,
prioritization of domestically manufactured products,
tightening of export controls and strengthened environmental
regulations—from perspectives such as industrial policy,
national security and environmental policy. Our businessperformance may therefore be affected if our business activities
are restricted as a result of those measures.
89 TOKYO ELECTRON Integrated Report 2021

We grasp the implementation moves of regulations regarding
import and export of products and technological development
by carefully watching policy and diplomatic trends of countries,
anticipating the impacts when policies and regulations are
introduced and considering countermeasures. At the same time,in addition to the early identification of risks, we also strive totake fast and appropriate response when risks occur, including
communicating our opinions to the policy-making authorities
through means such as public comments for the healthy
development of the semiconductor industry.
(3) Research and Development
Through ongoing R&D investment in leading-edge technologies,
we quickly bring to market new products incorporating suchtechnologies, succeeding in capturing high market share in eachproduct category and achieving a high profit margin. However,delays in the launch of new products that meet customers’
technological needs, the mismatch of newly developed productswith such needs, or the launch of new technologies or products
by competitors before our launches could negatively affect thecompetitiveness of our products, impede the recovery of R&D
costs or otherwise affect our business performance.
We have established a Corporate Innovation Division, whichdevelops innovative technology and makes groundbreaking
technology proposals that integrate the products andtechnologies of each development division as part of a Groupwide development framework. In addition, we have in placea system that constantly provides highly competitive Nextgeneration products that meet future needs ahead of ourcompetitors through initiatives such as conducting joint researchwith global research institutions and sharing technology
roadmaps spanning multiple technology generations withleading-edge customers.
(4) Procurement, Production and Supply
Our key production sites are located in Japan, and we
supply products to customers in and outside Japan. As such,
earthquakes, floods or other natural disasters, acts of terrorism,
unavoidable events like infectious disease outbreaks or othersuch accidents occurring in Japan could cause interruptions in
production that, if not promptly resolved, could delay the supplyof products to customers. Furthermore, the stable supply ofcomponents and such provided by suppliers is indispensable
to stable production. Therefore, in addition to the risk ofdisasters, accidents or other similar events, delays in component
procurement due to the worsening of a supplier’s businessconditions, demand that exceeds supply capabilities arising fromthe expansion of the semiconductor market or similar factors
could result in delays in the supply of products to customers andaffect our business performance.
We formulate and periodically review business continuity
plans (BCPs) and undertakes measures such as establishingalternate production capabilities, developing multiple sourcesof important parts, seismically reinforcing its plants, andmaintaining backups of information systems. In addition, we
also seek to procure components early and level production

by sharing forecasts with suppliers that consider ourcustomers’ investment plans as well as semiconductor demand
projections. Through these and other measures, we strive tomaintain stable product supply.
(5) Safety
Our business performance may be affected if problems related
to the safety of our products occur, including damage tocustomers, order cancellations, liability for damages or decline in
our credibility.
Our “Safety First” approach entails the constant considerationof safety and health in the execution of business activities,
including development, manufacturing, sales, services andmanagement. In accordance with this approach, we work
continuously to improve the safety of our products. Measures
to this end include thoroughgoing safety design at the
product development phase, promotion of safety training andmaintaining an accident reporting system.
(6) Quality
Our products are based on the integration of numerous
leading-edge technologies. The occurrence of defects
could lead to recalls, liability for damages based on quality
responsibility, additional costs related to implementing defectcountermeasures, decline in our credibility, or otherwise affectour business performance.
Based on a uniform Group-wide quality control policy,
we provide quality training for our employees and suppliers
and strive to constantly maintain a quality assurance system,
including ISO 9001 certification, as well as a world-classservice system. In development, we introduce collaboration
with sales and service departments from the initial stagesof product development and design to solve technologicalissues. Furthermore, we mitigate and address risks such as byusing simulation technology for thorough validation. Whendefects occur, we investigate the root of the problem andtake thoroughgoing measures to prevent recurrences andthe occurrence of similar defects. Similarly, in managing thequality of procured components, we constantly monitor thestate of supplier quality and conduct audits, improvement
support and other measures.
(7) Laws and Regulations
We operate globally and are therefore subject to the various
laws and regulations of the countries and regions where we dobusiness, including those regarding imports and exports, theenvironment, competition, labor, corruption, bribery and transfer
pricing taxation. We strive to ensure compliance with such laws
and regulations. However, violations of such laws or regulations
could result in consequences such as diminished public confidence
in us, fines, liability for damages or restrictions on businessactivities. Furthermore, national security policies of countries
and unanticipated future legal amendments or tightening of
regulations could, if not appropriately responded to, result in
liability for costs related to such response or restrictions on
business activities, or otherwise affect our business performance.

We have built a system for monitoring compliance activities
at each of the key sites in and outside Japan under the directionof a Chief Compliance Officer. We conduct complianceassessments by external experts, report the identified issues
to the CEO, Board of Directors and Audit & Supervisory Board,and carry out swift and effective measures as well as further
enhancement of systems.
(8) Intellectual Property Rights
Our products are based on the integration of numerous
leading-edge technologies. Obtaining and legally protecting ourintellectual property rights and preventing infringements of suchrights by third parties are crucial to differentiating and reinforcing
the competitiveness of our products. Infringements by us of
the intellectual property rights of third parties could lead torestrictions on the production and sale of our products or liability
for damages, or otherwise affect our business performance.
By advancing R&D strategy, business strategy and intellectual
property strategy in an integrated manner, we strive to build an
appropriate intellectual property portfolio and obtain exclusive
rights to numerous proprietary technologies to capture high market
share and achieve high profit margins in each of our product fields.
(9) Information Security
In the course of its business activities, we may obtain, hold andutilize confidential information, customer information and personal
information. Incidents—such as the breach of information andservice disruption—caused by unauthorized access or operation
due to cyberattacks and other causes, human errors, natural
disasters or other reasons could result in diminished publicconfidence in us, liability for damages or other consequences which
may otherwise affect our business performance.
Together with seeking organizational reinforcement
such as by creating a dedicated department centered on the
Information Security Committee, we are building an information
security system based on global standards, by conducting
security assessments by external experts. In addition, besidetechnological aspects such as the introduction of an anomaly
detection system in preparation for the occurrence of incidents,
we are also taking measures from operational aspects, suchas establishing globally standardized rules and regulations for
information management and guidelines for response during theoccurrence of incidents.
(10) Human Resources
Securing and developing diverse human resources in andoutside Japan and the practice of diversity and inclusion are
crucial to the continued innovation and growth of our global
businesses. The inability to recruit and retain the necessary
human resources on an ongoing basis or the inability to create
an environment where human resources with diverse values andexpertise can apply their individualities can lead to diminishedproduct development capability or customer support quality.
This may result in not being able to realize an organization withcompetitive advantage or other such consequences that may
affect our business performance.

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Financial Section

Business-Related and Other Risks
We believe that our employees are the source of ongoingvalue creation and that increasing employee engagement is
one of the most important factors in increasing corporate
value. Specifically, we undertake measures such as the sharingof direction by top management through regular employee
meetings, the building of plans to continuously develop nextgeneration human resources, the visualization of employee
career paths, and the provision of attractive remuneration
and benefits. We are also advancing ongoing measures toimprove work environments as well as health and productivity
management, including steps to prevent excessively long work
hours and workplace harassment.

(13) Other Risks
Our businesses are influenced by many factors, including the
global and regional political conditions, economic conditions,financial and stock markets, commodity and real estatemarkets, foreign exchange rates, the success or failure ofcorporate acquisitions, major lawsuits, and competition overstandardization. We expect that such factors will sometimes
affect our business performance and take the necessary
measures to counter such risks.

(11) Environmental Issues
Globally, there are growing requests from society, including
our stakeholders, related to sustainability. Given this,difficulties in adequately responding to requirements
accompanying the transition to a carbon-free society—including the climate change policies and environmental laws
and regulations of countries, industry standards of conduct,
technological innovation and customer needs—could
result in costs for additional responses such as new productdevelopment, specification change and modifications,
reduced product competitiveness, diminished publicconfidence in us or other consequences that may otherwise
affect our business performance.
Together with striving to comply with environmental laws
and regulations and industry standards of conduct, we set ourown industry-leading medium- to long-term environmental
goals and work to reduce greenhouse gas emissions fromthe use of our products. We also seek to increase the ratio ofrenewable energy usage and reduce energy consumption at ourplants and offices. In addition, we work to protect the global
environment through our business activities by such means
as providing technologies to reduce semiconductor power
consumption, promoting used equipment and parts businesses,
reducing equipment size, increasing productivity by improving
throughput, reviewing packaging and promoting modal shifts.
(12) The Novel Coronavirus (COVID-19)
The spread of COVID-19 could affect our business continuity,
including our manufacturing and sales activities. In addition,
restrictions on the worldwide movement of people and things,
the deterioration of global economic conditions, and othersuch impacts from the spread of COVID-19 could affect ourbusiness performance.
Centered on the Emergency Task Force headed by the CEO,
we are implementing related countermeasures, including
restricting travel to high infection-risk countries and regions,taking steps to maintain supply chains, and thorough infection
prevention measures at our plants and offices.

91

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Financial Section

Independent Auditor’s Report
Reasonableness of the valuation of inventories in the semiconductor production equipment business
The key audit matter

How the matter was addressed in our audit

To the Board of Directors of Tokyo Electron Limited:

OpinionWe have audited the accompanying consolidated financial statements of Tokyo Electron Limited (“the Company”) and its
consolidated subsidiaries (collectively referred to as “the Group”), which comprise the consolidated balance sheets as at March
31, 2021 and 2020, the consolidated statements of income, comprehensive income, changes in net assets and cash flows for theyears then ended, and the related notes to the consolidated financial statements.
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated
financial position of the Group as at March 31, 2021 and 2020, and its consolidated financial performance and its consolidated
cash flows for the years then ended in accordance with accounting principles generally accepted in Japan.

Basis for Opinion
We conducted our audit in accordance with auditing standards generally accepted in Japan. Our responsibilities under thosestandards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements
section of our report. We are independent of the Group in accordance with the ethical requirements that are relevant to our
audit of the consolidated financial statements in Japan, and we have fulfilled our other ethical responsibilities in accordancewith these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis
for our opinion.

Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of theconsolidated financial statements of the current period. These matters were addressed in the context of our audit of theconsolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion
on these matters.

In the consolidated balance sheet for the current fiscal year,
the Company recognized Inventories of ¥415,344 million, which
represented approximately 29% of total assets in the consolidated
financial statements. Most of the inventories belonged to thesemiconductor production equipment business.
As described in Note 3 “Significant Accounting Estimates, 1.
Valuation of inventories” to the consolidated financial statements,
inventories are measured in principle at the lower of either theacquisition cost or the net selling price at the end of the fiscal
year. However, inventories aged over a certain holding period
are classified based on the use and salability and are thensystematically written down according to their classification. In
addition, the carrying amount of inventories to be disposed of iswritten down to the estimated disposal value.
The valuation of inventories aged over a certain holding period
and the identification of finished goods and work in process
inventories to be disposed of are based on management’s
forecasts of future demand and prospects of market environment.
Among the markets in which the Group participate, thesemiconductor market is susceptible to significant fluctuations
due to a short-term imbalance between supply and demand,
which could result in an unforeseen rapid market contraction.
Therefore, the forecasts of future demand and prospects ofmarket environment involve uncertainty and management’s
judgment thereon may have a significant effect on thevaluation of inventories.
We, therefore, determined that our assessment of thereasonableness of the Company’s valuation of inventories inthe semiconductor production equipment business was one of
the most significant in our audit of the consolidated financial
statements for the current fiscal year, and accordingly,
a key audit matter.

The primary procedures we performed to assess whether
the Company’s valuation of inventories in the semiconductor
production equipment business was reasonable included
the following:(1) Internal control testing
We tested the design and operating effectiveness of certainof the Company’s internal controls relevant to the valuationof inventories.
In this assessment, we focused our testing on controls designed todetermine the rates of write-down for each holding period on the
carrying amount of inventories aged over a certain holding period
and to identify finished goods and work in process inventories tobe disposed of in a comprehensive manner.
(2) Assessment of whether the valuation of inventories aged
over a certain holding period was reasonable
The rates of write-down by holding period adopted bymanagement in applying the method that writes down the
carrying amount of inventories on a systematic basis according totheir holding periods were determined based on management’s
forecasts of future demand and prospects of market environment.
In order to assess the reasonableness of assumptions underlying
the rates of write-down determined by management, we:• evaluated the rates of write-down by holding period determinedby management by referencing published demand forecasts forsemiconductor production equipment and the customers’ capital
investment plans; and• compared the amount of the write-down of inventories aged
over a certain holding period, calculated using the rates of writedown by holding period determined by management, with ourown estimate of the write-down of those inventories.
(3) A ssessment of whether finished goods and work inprocess inventories to be disposed of were identified in acomprehensive mannerAmong finished goods and work in process inventories aged over acertain holding period, we assessed the accuracy of management’s
sales forecasts by comparing the past forecast for a selection offinished goods and work in process inventories held for a long
period with actual sales results and examining the causes ofvariances between the two. In order to assess the reasonablenessof assumptions related to sales forecasts adopted by management
in identifying finished goods and work in process inventories to bedisposed of, we primarily:• evaluated the basis for management judgment on its sales
forecasts for finished goods and work in process inventories held
for a long period by inquiring of management and inspecting
relevant documents.

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Financial Section

Responsibilities of Management and Corporate Auditors and the Board of Corporate Auditors for theConsolidated Financial Statements
Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance withaccounting principles generally accepted in Japan, and for such internal control as management determines is necessary to enable
the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, management is responsible for assessing the Group’s ability to continue asa going concern, disclosing, as applicable, matters related to going concern in accordance with accounting principles generally
accepted in Japan.

We communicate with corporate auditors and the board of corporate auditors regarding, among other matters, the planned
scope and timing of the audit, significant audit findings, including any significant deficiencies in internal control that we identify
during our audit.
We also provide corporate auditors and the board of corporate auditors with a statement that we have complied with relevant
ethical requirements regarding independence, and communicate with them all relationships and other matters that may
reasonably be thought to bear on our independence, and where applicable, related safeguards.

Corporate auditors and the board of corporate auditors are responsible for overseeing the directors’ performance of their duties
with regard to the design, implementation and maintenance of the Group’s financial reporting process.

From the matters communicated with corporate auditors and the board of corporate auditors, we determine those matters thatwere of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit
matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matteror when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because theadverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements

Convenience Translation

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free frommaterial misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonableassurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with auditing standards
generally accepted in Japan will always detect a material misstatement when it exists. Misstatements can arise from fraud
or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence theeconomic decisions of users taken on the basis of these consolidated financial statements.

The U.S. dollar amounts in the accompanying consolidated financial statements with respect to the year ended March 31, 2021
are presented solely for convenience. Our audit also included the translation of yen amounts into U.S. dollar amounts and, in our
opinion, such translation has been made on the basis described in Note 1 to the consolidated financial statements.

As part of our audit in accordance with auditing standards generally accepted in Japan, we exercise professional judgment andmaintain professional skepticism throughout the audit. We also:

We do not have any interest in the Group which is required to be disclosed pursuant to the provisions of the Certified Public
Accountants Act of Japan.

• I dentify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design
and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis
for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as
fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in thecircumstances, while the objective of the audit is not to express an opinion on the effectiveness of the Group’s internal control.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related
disclosures made by management.
• Conclude on the appropriateness of management’s use of the going concern basis of accounting and based on the audit
evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on
the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw
attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are
inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’sreport. However, future events or conditions may cause the Group to cease to continue as a going concern.
• Evaluate whether the presentation and disclosures in the consolidated financial statements are in accordance with accounting
standards generally accepted in Japan, the overall presentation, structure and content of the consolidated financial statements,
including the disclosures, and whether the consolidated financial statements represent the underlying transactions and eventsin a manner that achieves fair presentation.
• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within theGroup to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision andperformance of the group audit. We remain solely responsible for our audit opinion.

/S/ 宍戸 通孝 (SEAL)
Michitaka Shishido
Designated Engagement Partner
Certified Public Accountant

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Interest required to be disclosed by the Certified Public Accountants Act of Japan/S/ 西野 聡人 (SEAL)
Akira Nishino
Designated Engagement Partner
Certified Public Accountant/S/ 鈴木 紳 (SEAL)
Shin Suzuki
Designated Engagement Partner
Certified Public Accountant
KPMG AZSA LLC
Tokyo Office, Japan
June 17, 2021

Notes to the Reader of Independent Auditor’s Report:
This is a copy of the Independent Auditor’s Report and the original copies are kept separately by the Company and KPMG AZSA LLC.

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