INNOVATIONSAHEADA N N U A L

4 0 T HR E P O R T

2 0 0 3

A N N I V E R S A R Y

1963 – 2003

TOKYO ELECTRON

Established in 1963, Tokyo Electron (TEL) is a world-leading

Contents

supplier of semiconductor production equipment (SPE) and
Financial Highlights

1

Message from the Chairman

2

Message from the President

3

develops, manufactures and markets a broad lineup of products,

40 Years of Innovations

6

including oxidation/diffusion/LPCVD systems, single wafer CVD

Products Derived from Innovation

8

TEL People to Create Innovations

10

Health, Environment and Safety

16Intellectual Property Report17

related services for the semiconductor industry. The Company

and PVD systems, coater/developers, spin-on dielectric (SOD)
coaters, etch systems, cleaning systems, wafer probers, and others.

Board of Directors, Statutory Auditors andExecutive Officers

18

Tokyo Electron also uses its accumulated expertise in SPE todevelop, manufacture and market coater/developers andFinancial Section

etch/ash systems for the manufacture of Flat Panel Display (FPD).

Management’s Discussion and Analysis

20

Consolidated Six-Year Summary

27

Financial Statements

28

Independent Auditors' Report

37

Corporate Directory

38

Investor Information

39

Most of the Company’s semiconductor and FPD production
systems hold the leading share in their respective markets.

Tokyo Electron also maintains a strong presence as a distributor,
providing a wide array of semiconductor production systems,
storage area network and Internet related products for broadband
solutions, and electronic components in Japan from otherleading suppliers. With a network spanning 12 countries on threecontinents, Tokyo Electron provides superior products andservices to its customers, and superior returns to its shareholders.

Disclaimer regarding Forward-looking Statements
Matters discussed in this annual report, including forecasts of future business performance of Tokyo
Electron, management strategies, beliefs and other statements are based on the Company’s assumption in light of information that is currently available. These forward-looking statements involve known
or unknown risks, uncertainties and other factors that could cause actual results to differ materially fromthose referred to in the forward-looking statements.
Factors that have a direct or indirect impact on Tokyo Electron’s future performance include, but are
not limited to:• Economic circumstances in Japan and overseas, consumption trends, and large fluctuations in foreign exchange rates• Changes in semiconductor and FPD markets• Changes in the demand for products and services manufactured or offered by Tokyo Electron’s customers, such as semiconductor manufacturers, FPD manufacturers and electronic makers• Tokyo Electron’s capabilities to continue to develop and provide products and services that respondto rapid technology innovation and changing customer needs in a timely manner

Financial Highlights
Tokyo Electron Limited and its Subsidiaries
Years ended March 31, 2003, 2002 and 2001

Thousands of
U.S. dollars (Note 1)

Millions of yen (Note 1)

2003

2002

2001

2003

¥460,580¥417,825¥723,880$3,831,782

FOR THE YEAR
Net sales
Operating income (loss)

1,119(18,310)

121,086

9,308

Income (loss) before income taxes(23,010)(22,919)

99,132(191,435)

Net income (loss)(41,554)(19,938)

62,012(345,715)¥ (113.85)¥0353.76

Net income (loss) per share of common stock (Note 2):
Basic¥ (238.87)

Diluted (Note 3)$00(1.98)––344.75

–

8.00

8.00

38.00

0.07

Total assets¥524,901¥556,915¥729,511$4,366,899

Total shareholders’ equity

252,904

307,579

333,281

2,104,029

Cash dividends per share of common stock
AT YEAR-END

Notes: 1. U.S. dollar amounts are translated from yen, for convenience only, at the rate of ¥120.20=$1. Per share figures are stated in yen and dollars.
2. Net income per share is computed based on the weighted average number of shares of common stock outstanding during each fiscal year.
3. Dilution is not assumed for the years ended March 2003 and 2002.

417.8

460.6

1.9

19.8

62.0

–19.9

-41.6

10.70

113.53353.76-113.85-238.87(Basic) (¥)

723.9

Net Income per Share(¥ Billions)

440.7

Net Income(¥ Billions)
313.8

Net Sales

1999

2000

2001

2002

2003

1999

2000

2001

2002

2003

1999

2000

2001

2002

2003

Tokyo Electron 1

Message from the Chairman

Dedicated to Further Innovations

Tetsuro Higashi
Chairman of the Board

Thanks to the support of our stakeholders, we are preparing tocelebrate the 40th anniversary of Tokyo Electron (TEL)’s founding. Over the past 40 years, TEL has changed and grown alongwith the development of the electronics industry. Particularlyin the latter part of the 1990s, our business expanded rapidly
with globalization proceeding at a blazing pace driven by theso-called information technology (IT) revolution. By the time it
hit its peak in 2000, the electronics market had grown to a substantial size.

Based on this view, TEL has committed itself to the following
two actions and intends to push forward with them aggressively.

Amid the emergence of new business models such as thefoundry business and the massive globalization trend, TEL has
achieved an extremely high growth rate while also developing
an infrastructure of networks and human resources to support
its expansion drive in global markets. It is also fair to say that,were it not for this rapid development of globalization, we
would not have developed our current broad business scopeand high competitiveness.

• For real success, the new generation of TEL employees willbuild our future by carrying out the above actions by crystallizing and redirecting their energy, under new top managementwith the intention to create a new company. TEL has a tradition that all employees accept generation change and work
together to accomplish new goals. We will rely on this corporate culture to move us into the next phase of our business.

Structural Reforms for Further Innovation
Surging market growth as well as overestimated demand forecasts and expectations all led to the IT bubble burst and thecurrent period of adjustment. Even in light of this, there has
been no change in our conviction that the electronics industry
and its core component, the semiconductor industry, will continue to advance in the medium- to long-term and still has
high growth potential. However, looking at demand for digitalconsumer products, which are expected to replace personal
computers (PCs) as the drivers of growth in semiconductor
applications, it is difficult to see how they will be able to cover
the drop in demand caused by the slump in the PC and communications devices market in the short term. Consequently,
we view strategies premised on the continuation of the highgrowth rates of the past as being risky at this time.

2

Annual Report 2003 — Innovations Ahead• Discarding non-performing assets at the end of the fiscal
year ended March 31, 2003 and undertaking substantial
structural reform in this fiscal year, we are building quick andefficient but strong operations in all aspects of our business—research and development (R&D), manufacturing,sales, and service.

Following the general shareholders’ meeting in June, Mr.
Kiyoshi Sato assumes the position of President &CEO. He is an
excellent choice to be our new leader. He brings extensive
experience in Japan and overseas as well as energetic vigor tobear on our restructuring process and on our pursuit of maximum corporate value. As Chairman of the Board and representative director, I will be focusing my energies ondetermining basic business polices, the creation of mediumto long-term business strategies and supporting the new executive officers through activities of customer, industry andinvestor relations. Through these activities, I intend to press
forward with the further development of TEL and achieving
greater shareholder satisfaction. In this new role, I look forward to your continued support.
I will leave to Mr. Sato the reporting of TEL’s performance inthe past fiscal year, its perspectives for the current fiscal year,
and a summary of the reforms being undertaken.

Message from the President

Accelerating the Business Process

Kiyoshi Sato
President & CEO

In the fiscal year ended March 31, 2003, there were encouraging signs of a recovery in the semiconductor industry driven
primarily by digital consumer products, such as DVD players
and digital cameras. Nevertheless, there continued to be little
growth in the markets for personal computers (PCs) andmobile phones, which are major users of semiconductors. In
response, semiconductor manufacturers remained cautious,
continuing their adjustments in capital investments that they
began in 2001.
In dealing with these conditions, TEL strengthened its sales
and support activities in Asia, including Japan, and worked to
expand sales of new products. As a result of these efforts, consolidated net sales climbed 10.2%, to ¥460.6 billion. At thesame time, TEL continued its efforts to cut fixed costs, such as
personnel, outsourcing, and business activity expenses.
Moreover, working together, the entire organization strove toboost overall operational efficiency, including implementing
measures to relocate manufacturing and R&D bases.
Reflecting these efforts, operating income improved substantially from the ¥18.3 billion loss of the previous fiscal year, to a
positive ¥1.1 billion. Unfortunately, due to the booking ofexpenses for structural reforms, an explanation of which follows, and the reversal of deferred tax assets, TEL posted a lossof ¥41.6 billion for the fiscal year under review. Despite thisperformance, the Company has announced cash dividends of¥8.0 per share.

Pushing Through Structural Reforms
TEL views the next one or two years as a period of preparationfor our next major growth stage. Based on the following threepoints, we are pushing ahead with structural reforms.
• We will readjust our asset and cost bases to suit the current

business climate.
• Further growth of our business will require an expanded
product lineup, for which we will have to focus more clearlyon R&D activities, while also improving the efficiency of ourprograms.
• To reinforce our competitive advantage in the market, we
will build a structure that accelerates our business processes
by enabling quick responses to the increasingly rapidchanges in the business environment. We believe that speed
will be the most important success factor in our semiconductor production equipment business.

Asset and Cost Reductions
One of the starting points for structural reforms is the reduction of assets and costs. In our development of global operations, which preceded the worldwide structural changes in thesemiconductor industry, TEL successfully expanded its customer base while also increasing our share of individual customers’ business. This achievement was reflected in sales
growth. Examining these results, we can see that the contribution to semiconductor production equipment sales by ouroverseas segment, which was approximately 30% in the early
1990s, has risen to 70% today, reversing position with sales inJapan.
During the 1990s, capital investment in semiconductor production equipment grew at a high average rate of about 20%.
In 2000, the year-over-year base growth rate ballooned to 70%
more than the previous fiscal year under the influence of the IT
bubble market. To cope with this growth, we proceeded to
upgrade and expand our domestic manufacturing and overseas service bases. The following sharp 40% contraction in thatmarket has had a significant impact on our current businessTokyo Electron 3

structure. In the fiscal year ended March 2002, we cut fixed
costs, such as labor cost of contract workers and employees by
about ¥30.0 billion, followed by another about ¥10.0 billion in
the fiscal year under review. However, it has not been enoughto produce sufficient profit levels. Looking out into the future,
the markets for volume applications of semiconductors, suchas PCs and mobile phones, remained sluggish, and it will taketime for digital consumer products to reach the same level ofdemand for chips. Consequently, it is difficult to see how themarket could recover to an annual growth rate of around 20%
in the short term. There are also several factors that point tolower growth rates. The number of semiconductor manufacturers is declining because of the ongoing consolidations andbusiness alliances in the industry. In addition, with the introduction of 300mm wafer production lines and increased
throughput has meant that the same volume of semiconductor
manufacturing can be done with fewer machines.
In consideration of these conditions, we are pressing forwardwith reductions in personnel and inventories and the elimination of overlapping investment to convert to a more efficientbusiness structure. Our overall goal is to establish a structure
under which we can earn sufficient profits even given the current size of the market. At the end of the fiscal year underreview, we booked restructuring-related expenses of ¥20.6 billion. During the current fiscal year, we plan to reduce personnel by approximately one thousand people worldwide. In
addition, we will also reorganize our R&D functions and our
production and field service bases.
In addition to these measures, we will undertake a fundamental revision of our R&D, production, sales, and service operations, working to cut costs at all levels. For specific measures,
please see the reports by our Executive Officers (pages 10
to 15).

Targeting Optimum Global Operations
The previously mentioned asset and cost reductions do not
imply that we are going to downsize our business.
Furthermore, it does not mean that we are going to cease our
globalization efforts. We will continue to pursue further globalization to achieve the optimum allocation of resources. As one
example, we are reorganizing our overseas R&D bases, with
the Albany NanoTech Project as their core, to acquire leading-4

Annual Report 2003 — Innovations Ahead

edge technologies and strengthen our ability to bring products to market.
As part of our sales efforts, we established Tokyo Electron
Shanghai in the city of the same name to boost our businessdevelopment efforts in the People’s Republic of China.
Operations began in April 2002 with a staff of approximately
70 people. Due to rapid growth in its customer base, our support service structure expanded to approximately 150 people
during the fiscal year. In the short-term, there is concern aboutsome issues such as the influence of severe acute respiratory
syndrome (SARS); but in the medium- to long-term, we anticipate growth in capital investment for semiconductor production equipment in China. To keep pace with this growth, weplan to expand our facilities and workforce as required to supply our customers with parts for semiconductor and flat panel
display (FPD) production equipment, technical services, andtraining.

Expanding our Product Lineup
For further growth, we need to expand our product lineup, notonly for the transistor formation processing market that has
played such a prominent role in our history, but also in thewiring processing market. We see strong growth potential inthis market because the degree of multi-layered wiring isadvancing in conjunction with the increasingly high degree ofsophistication and integration in devices. Despite the steady
introduction of advanced new materials, such as low constantinterconnect dielectric film and copper wiring, 65-nanometer
design rules still pose a significant R&D challenge. In addressing this fundamental issue, we are examining the process integration possibilities, or determining how to combine different
process units to meet the required specifications. We consider
some of the essential factors in developing this market to betechnologies and infrastructure to test and verify this integration, the ability to form business alliances with companies producing equipment that we do not, and the support of thecustomers that are actually designing these devices.
In addition to our dielectric etch system and SOD coater, weare focusing our efforts on developing film formation equipment and supercritical cleaning equipment. Using our products and the advanced technology evaluation and researchfacilities of our new Process Technology Center in YamanashiPrefecture as the core, we plan to work with other equipment
and material manufacturers to develop an environment thatassists with our customers’ process integration requirements.

Further Innovations from Accelerating Business
Processes
Our highest priority is on accelerating business processes. We
are not seeking 20% or 30% improvements as in the past, weare looking to double and triple our pace.
Digital consumer products are the next drivers of growth in
the semiconductor application market, following in the stepsof PCs and mobile phones. However, because of the nature of
consumer products, the product life cycle is becoming shorter.
In response, semiconductor and semiconductor production
equipment manufacturers must speed up all of their businessprocesses. We expect that the turnover of digital consumer
products will be two to three times faster than that of computer products. Because our operations will have to match that
pace, we are considering a variety of measures to improve
operational speed in each of our functions.

tive office, and the overseas product sales division in Japan. I
have been the senior manager in charge of all products sold in
the U.S. market and a business unit manager for our own
products. My major short-term goal is to utilize my accumulated experience gained from working in and managing different
sections of the value chain to establish a high profit structure
through structural reforms and a quick response management
organization. After building the business foundation for our
next growth stage, I intend to turn my attention to promoting
TEL’s further development as a market leader based on new
product launches and new business model development.
Through these efforts, I will strive to expand shareholder value
and satisfy the expectations of all stakeholders.
The torch has been passed to a new generation at TEL. At thisjuncture, I would ask that our shareholders support us asstrongly as they have in the past.

June 2003

Effective April this year, we have replaced our former corporate senior staff (CSS) system with an executive officer system.
Through its introduction, we have separated the roles of theboard of directors and operating bodies more clearly than
before. In addition to strengthening corporate governance,
one of our goals in setting up this system is to speed up thedecision-making process to enable faster determination andimplementation of strategies. Executive officers are responsible for each of our business functions—R&D, manufacturing,sales, service, and administration—and have been assigned abroad scope of authority for daily business decisions. By delegating responsibility for daily operations to executive officers, I
will be focusing my energies on the administration and management of the overall TEL Group. I expect that accelerating
our business processes will generate new business innovations
for the Group.

The Next Growth Stage
During my more than twenty years career, I have served in avariety of divisions and positions. I have worked in administration, the support services section of an overseas representa-

Tokyo Electron 5

40

Net sales (¥ Billions)
800

Years of Innovations. . .

700

Phase Four:
Globalization

The history of Tokyo Electron has been the history of the development of the electronics industry.
But through all the variations in its business environment, TEL has always pursued a different path thanothers. Flexibly adapting its business concepts, the Company has led the way in the semiconductor
industry through technological innovation.

600
500

Phase Three:
Manufacturer of Original Products,
Strengthened R&D Capabilities

Phase Two:

400

Import Trading Company with
Manufacturing Capabilities

300

Phase One:
200

Foundation, Specialized Trading
Company with Technical Services

100
0
63

64

65

66

67

68

69

70

71

72

73

– 19

63 71
TEL was established during the dawn of
the semiconductor industry, which mainly
resided in the United States, the center ofsemiconductor technology at that time.
The Company started operations focusedon a new business concept of supplying
Japanese customers with after sales technology services for the electronics products it marketed. In the beginning, inaddition to the import of leading-edge
technology products, such as IC testers,
diffusion furnaces, and electronic components, TEL also exported domesticallymanufactured VCRs, automobile radios,
calculators, and other electronics products. Positioned as a specialty trading
company with technological capabilities,
the Company proceeded to build a business foundation based on achieving ahigh degree of customer satisfaction
through quick and thorough technological services.

Pictures: Founders: Mr. Kubo and Mr. Kodaka, IC tester, Electric Calculators

6

Annual Report 2003 — Innovations Ahead

75

76

77

78

79

80

81

External Environment:
Mainframe computers are the main
consumer for ICs, but consumer productapplications are expanding.

External Environment:
Initial development stage ofthe semiconductor and IC market

19

74

19

– 19

72 81
Although the main application for ICs was
mainframe computers, applications weresteadily expanding for such products ashome appliances, calculators, and officeequipment. In response to the diversification of specifications for semiconductor
production equipment, TEL successively
proceeded to develop and manufacture
equipment domestically. The Company’s
import business for electronic components, CAD/CAE systems, board test systems and other products were also
prospering. On the other hand, TEL exited from the calculator and automobile
radio markets, where excessive competition was driving down profitability. During
this period, the Company established aunique position for itself in the market as
an import trading company with manufacturing capabilities.

Pictures: High-pressure oxidation system: UHO-2506, Wafer proberproduction line, Computer peripheral

82

83

84

85

86

87

88

89

90

91

92

93

94

95

External Environment:
Applications expand to offices—PCs, workstations, and others.

19

– 19

81 91
During this phase, Japan’s semiconductor
manufacturers began to emerge as market leaders through their production of
DRAMs. Process technology of semiconductor production had become complicated. TEL expanded its product line upof semiconductor production equipment
by forming joint ventures with leading
overseas equipment manufacturers. As
the technological requirements of semiconductor manufacturers became increasingly sophisticated, the Company
established its own R&D facilities, beginning to collaborate with customers in
product development, pursuing higher
value-added content in its own products.
By further reinforcing its manufacturing
and support services functions, TEL set
the stage for the development of thesemiconductor production equipment
business that forms the core of its current
business portfolio.

Pictures: Central Research Laboratory, Coater/Developer: Clean Track Mark II,
Etching System: TE-480

96

97

98

99

00

01

02

External Environment:
Applications increase along withthe spread of the Internet.

19

– 20

92 02
The semiconductor industry entered arapid growth stage as IC applications
shifted to PCs, mobile phones, and otherproducts for the consumer market. Logic
chips instead of memory chips became
the main technological driver in theindustry. The foundry business in Taiwan
and semiconductor production in Korea
and the United States expanded sharply.
During this period, TEL made strategic
decision to establish bases around theworld to enable the Company sell directly
to local customers and provide support
services. In Japan, the Company built theadvanced Process Technology Center,seeking to strengthen its overall processdevelopment capabilities. At this point,
TEL had established a dominant positionin the global market as a leading manufacturer of semiconductor production
equipment.

Pictures: Tokyo Electron America (Austin Texas), Opening Ceremony forTokyo Electron America, Inc., New Process Technology CenterTokyo Electron 7

Products Derived from Innovation

Semiconductor Production Equipment
79.2%

Semiconductor &FPD Production Equipment

Tokyo Electron develops and manufactures a broad range of superior semiconductor production equipment,
and complements its original lineup by distributing high-value-added products from other suppliers.
•Original Products
Coater/Developer
Spin-on Dielectric Coater
Plasma Etch System
Thermal Processing System
Single Wafer Rapid Thermal Furnace
Single Wafer CVD System
Plasma Process System
PVD System
Cleaning System
Scrubber System
Fully Automatic Wafer Prober
Optical Digital Profilometry System

Coater/Developer
CLEAN TRACK ACT®12•Distributed Products
Cu ECMD System (NuTool Inc.)
Thermal Processing System
FIB System (FEI Company)
TELFORMULA™
Film Metrology Tool
(Rudolph Technologies, Inc.)
Yield Management Software(Yield Dynamics, Inc.)
X- ray Diffraction Measurement Equipment(Bede Scientific Instruments Ltd.)
Carrierless BEOL Cleaning System
PR300Z

Plasma Etch System
Telius™

Single Wafer CVD System
Trias™

Fully Automatic Wafer Prober
P-12XL

Flat Panel Display (FPD) Production Equipment*
Leveraging the technology and expertise accumulated from its semiconductor production equipment business, Tokyo Electron has created a strong lineup of leading-edge FPD production equipment.
•FPD Coater/Developer•FPD Plasma Etch/Ash System

FPD Coater/Developer
CL1200*Formerly called LCD Production Equipment

8

Annual Report 2003 — Innovations Ahead

FPD Plasma Etch/Ash System
SE1200Computer Network
3.7%

Computer Network

In order to fulfill its goal of providing solutions tailored to user needs, Tokyo Electron distributes storage area
network and Internet related products for broadband solutions to offer comprehensive system solutions.
•Internet solutions•Network security solutions•SAN solutions•Video Network solutions•Aerospace products

Brocade Communications
Systems, Inc.
Fibre Channel Integrated
Fabric Switch

Computer/Networks

Extreme Networks, Inc.
Gigabit Ethernet Switch

Aerospace Products•Advanced Digital Information Corporation•Brocade Communications Systems, Inc.
•Emulex Corporation•Extreme Networks, Inc.
•F5 Networks, Inc.
•Hewlett-Packard Japan, Ltd.
•Hitachi, Ltd.
•iReady Corporation•nCipher Corporation Ltd.

16.8%

Proket Networks, Inc.
Core Router•NeoScale Systems, Inc.
•NetScreen Technologies, Inc.
•Nishan Systems, Inc.
•Procket Networks, Inc.
•Silicon Graphics, Inc.
•Sony Corporation•TimesTen Performance Software, Inc.
•VERITAS Software Corporation•BAE SYSTEMS•Conax Florida Corp.
•Cycomm International Inc.
•Goodrich Corp.
•H. Koch & Sons Corp.
•Irvin Aerospace Inc.
•ITT Aerospace Controls Corp.
•Pacific Cast Technologies•Z Microsystems Inc.

Electronic Components
Tokyo Electron selects and offers the world’s best products from leading suppliers. With a full product lineup
and flexible technical support, the Company provides total solutions to meet diversified user needs.
Operations are handled by subsidiary Tokyo Electron Device Ltd.

Electronic Components•Semiconductor products•Board computer products•Software•Other electronic components

Fujitsu Ltd.

•Advanced Micro Devices, Inc•Agilent Technologies, Inc.
•Cavium Networks, Inc.
•Conexant Systems, Inc.
•Cosel Co., Ltd.
•Digital Electronics Corp.
•Emuzed, Inc.
•Fujifilm Microdevices Co., Ltd.
•Fujitsu Ltd.
•Fujitsu Display Technologies Corp.
•Fujitsu Media Devices Ltd.
•Fujitsu Quantum Devices Ltd.
•Integrated Device Technology, Inc.
•Intel Corp.
•Infineon Technologies AG•Intersil Corp.
•Intoto Inc.
•Kopin Corp.
•Legerity, Inc.
•Linear Technology Corp.
•Metrowerks, Inc.
•Microsoft Corp.
•3M•Motorola, Inc.
•ON Semiconductor•Phoenix Technologies Ltd.
•Pixelworks, Inc.
•Portwell, Inc.
•Ramtron International Corp.
•Safe Net, Inc.

In addition to the sales of our three divisions, others sales contributed 0.3 percent of net sales.
Product names and company names are trademarks or registered trademarks of their respective holders.

Xilinx, Inc.

Pixelworks, Inc.

•Shinko Electric Industries Co., Ltd.
•SiberCore Technologies Inc.
•Silicon Wave, Inc.
•Texas Instruments Inc.
•Tokyo Electron Device Ltd.
•Tundra Semiconductor Corp.
•Valence Semiconductor, Inc.
•VenturCom, Inc.
•WESTTEK, L. L. C.
•Winchester Electronics•Woodhead Industries, Inc.
•Xicor, Inc.
•Xilinx, Inc.
•Zarlink Semiconductor Inc.
•ZettaCom, Inc.

Tokyo Electron 9

TEL People to Create Innovations

Market-Driven Technology Development

Tokyo Electron Product
Strengths
The strength of our products andtechnologies lies in our commitment to our customers beginning with the productdevelopment stage.
Semiconductor manufacturers
aim to differentiate their products through differences indevice design and in semiconductor manufacturing processes.
To assist with this goal, we workwith customers to develop manRyuichi Komatsubara
ufacturing technologies, giving
Executive Officer
top priority to supplying our cusSenior Vice President,
tomers with equipment thatTechnology & Marketingclosely suits their needs. Our
customers have come to recognize the high performance, repeatability, and reliability of our equipment, and as a result, we hold the
top market share globally for almost every piece ofequipment we market.
Volume manufacturing using 90 nanometer design
rules has begun in 2003. These new specifications
require even greater control of heat and time in thelithography process than in the past. In response tothese needs, we have given the new coater/developer Lithius™ add functions to improve process stability, for which volume manufacturing and delivery
is scheduled for the start of 2004. We have embedded measurement devices and a variety of sensors
into the equipment to provide feedback and feedforward functions to control processes. In addition,
the high productivity for improved exposure equipment throughput is another important sales point.
We are confident of maintaining our strong positionin the coater/developer market for next-generation
devices.
In thin-film formation, TELFORMULA™, a new typeof thermal processing system that we began fullfledged sales of in the fiscal year ended March 2003,
also offers many strong advantages. Featuring a hotwall thermal furnace and a quick turnaround time
due to the ability to process 25-wafer batches, hasresulted in driving a new market for mini-batch fur-10

Annual Report 2003 — Innovations Ahead

naces. The system can provide more precise boundary control because it can make sequential runs
incorporating different processing specifications.
Our customers have rated its capabilities very highly.
Another unique thin-film formation system TriasTM SPA
accomplishes high-quality nitridation and oxidation
processes. It was developed in cooperation with
Tohoku University with the support of the Ministry of
Economy, Trade and Industry (formerly MITI). For 90
nanometer or less processes, damage to the wafer
from plasma cannot be ignored. However, the highly
unique antenna system embedded in this equipment
enables the production of microwave plasma withextremely low electron energy of 3eV or less. Basedon the high-density radicals that can be created using
this microwave plasma, we plan to supply processsolutions not only for gate nitridation process but also
for oxide film formation, annealing, and a host ofother processes. We anticipate that TriasTM SPA will
become one of the core products of our thin-film formation business portfolio.
Requirements for Next-Generation Processes andFuture Challenges
With every new generation of IC, semiconductor
production equipment makers have boosted thevalue-added content of hardware, software, process
recipes, and process integration. Looking at theneeds of our customers over the past few years, thetwo main trends have been process development
based on actual device designs and intelligent
equipment with precision measurement devices
embedded in the equipment or in the manufacturing line. In the sense that these needs require us todeepen the comprehensive commitment to our customers, which we have pursued since we began in
the semiconductor production equipment business,
I see the former trend as further broadening thescope of our involvement. With the latter trend, we
have been developing these functions in our product lines for several years using business alliances,mergers and acquisitions, and other methods. As
with Lithius™, the products we will be launching in
future will have intelligent functions.
The surge in R&D costs of companies as chip shrinkage progresses is of some concern to all. BecauseAlbany NanoTech facility
including 300mm and 200mm
wafer R&D fabthey offer one method of alleviating these costs,
projects and consortiums featuring collaboration byindustry, government, and academia are growing inimportance. In Japan, we are actively participating in
the MIRAI and the HALCA projects, supplying
equipment and personnel. Outside Japan, we havevarious research activities linked with International
SEMATECH and IMEC. Recently, we decided to participate in the Albany NanoTech Project, an R&D
program that makes use of the facilities of the
University at Albany, State University of New York.
This project, which was supported by the government of Japan, was praised highly as an example ofhow basic technology developed at a university canbe combined with the application technologies ofthe private sector to yield excellent results. At theSecond Conference on Promoting IndustryAcademia-Government Collaboration, held on June
8, 2003 in Kyoto, Tokyo Electron received the Prime
Minister’s Award for its development of a practicalapplication of TriasTM SPA.
We participate in these consortium activities not
only to pursue innovative technologies that canachieve breakthroughs in next-generation processes, but also to achieve progress in efficiency andspeed of our R&D activities and in the use of integration infrastructures.

duction equipment, it has become a major industry
issue. From the point of view of promoting processdevelopment, the establishment of the previously
mentioned integration environment is vital in
addressing the problem of shorter life-cycles. On
the other hand, the development of the actual
equipment is obviously also an issue. As a result of
this dichotomy, we have been pursing the development of leading-edge technology that is not associated with development of business unit products
through an independent R&D unit called Corporate
Development. We are planning to relocate this R&D
unit closer to the site of the development of actual
products. In other words, we want the R&D unit to
be able to contribute to our manufacturing units
that are producing individual products. Moreover,
we are going to reorganize our R&D structure into ahorizontally linked organization built around suchcore technologies as thermal, plasma, vacuum,
atmospheric pressure system, and process application. This structure replaces the previous vertical
integration by technology system. Through thesesteps, we plan to achieve rapid sharing of a broad
range of technological information, further speeding
up our R&D process and improving its efficiency.
These, I believe, are our top priorities for the future.

Improving the R&D Process and Achieving
Greater Efficiency
Amid the growth in semiconductor applications for
consumer products in the form of system on chip(SOC) devices, the life-cycle of products is getting
extremely short. Because this situation also translates into a short development cycle for the device
itself, and in turn, the development cycle of the pro-Prime Minister’s Award for TriasTM SPA

Tokyo Electron 11

Accelerated Manufacturing for Speed Up and Cost Reduction

Tokyo Electron’s manufacturing
strength lies in its ability to adapt
our equipment flexibly to adiverse range of requirements ofcustomers. This capability keeps
customers satisfied, raises theirconfidence in TEL and is a significant driver of corporate growth.
Nevertheless, amid the current
trend in applications of semiconductors to consumer appliances,demand for cost reductions insemiconductor production
equipment from customers is
Hisashi Shirahada
increasing and the business cycle
Executive Officer,
is getting shorter. We believe
VP & General Manager,
Manufacturing
this trend will continue into the
future. Therefore, we are proceeding to strengthen our manufacturing division byincreasing speed and reducing costs.
Improving Operational Speed
To further improve our operations, we are aiming to
reduce lead times from order to delivery to twomonths for new products and three months for existing products. We are also working to trim the startup time from delivery to completion of installation
to two weeks. The steps being taken to achieve
those targets are improving the efficiency of capitaland human resources, reforming manufacturing
processes and standardizing equipment.
Specific measures to improve the efficiency of capital and human resources include speeding up processing and boosting efficiency by introducing ashift work system and operating our logistics system
around the clock. To reform our manufacturing
processes, we are targeting the shortening of the
manufacturing time by using information technology(IT) tools to reorganize processes to include additional parallel processing. In our standardization
efforts, we are working to avoid duplicating previous
design work and shorten the manufacturing time fordesign and custom-order components by creating
and making the best use of an open database con-12

Annual Report 2003 — Innovations Ahead

taining all our past design data. Furthermore, we aredesigning standardization into the tools from theproduct concept stage for our new thermal processing equipment, coater/developers and other equipment. We are confident that these actions willcontribute fundamental benefits to our operations.
Our cost reduction goals are a 30% cut in material
and fabrication costs over a three-year period.
Among the measures being taken to attain thoseresults are a review of our procurement and design
systems and reform of our logistics system. To
improve our procurement system, we are increasingpurchases of materials from China and Southeast
Asian countries and cooperating with suppliers in
examining methods to reduce costs of components
and parts. To upgrade the design system, we areapplying manufacturing management methods—
value analysis (VA) and value engineering (VE)—toachieve results. The VA system enables us to cut
costs by changing parts without affecting the performance of the product. And with new products inparticular, we are pursing cost reductions by applying VE methods that optimize the balance between
performance and cost beginning with the design
stage. To raise the efficiency of our logistics system,
we are actively developing a shared logistics system
to replace the individual systems of business units.
Strength as a Manufacturer
In tandem with these measures, we are implementing the IT tool-based Total Cost Down Project at
plants of Tokyo Electron AT and Tokyo Electron
Kyushu. This system was first introduced with great
success at Tokyo Electron Tohoku. In addition, toupgrade the design and manufacturing skills of individual engineers and the management capabilitiesof our project managers, we are reviewing our training and education system and our personnel performance evaluation system. Through these measures,
we are committed to further boosting our strength
as a manufacturer by ramping up the benefits of our
improved speed and cost reduction actions.

Marketing Expertise as a Reliable Partner

Founded as a trading company,
Tokyo Electron has developed its
business by supplying customers
in the electronics industry withrequired functions packaged
with engineering and support
services. In the semiconductor
production equipment business,
suppliers must instantly recognize the process needs of eachcustomer and incorporate theminto their products. We haveachieved our strong position in
the market based on a sales
Mitsuru Onozato
organization offering strong
Executive Officer,
technical knowledge of the prodSenior Vice President,
Sales
ucts and manufacturing processes. Our customer satisfaction
policy is reflected in our market share, which is oneof the largest worldwide, but it was also made evident during the fiscal year under review by theawards received from leading semiconductor manufacturers. To take one example, we have received
Intel’s Supplier Continuous Quality Improvement
Award for three years running—a most encouraging
award for the sales group manning the front lines ofour relationships with customers.
Reinforcement of Marketing PowerAs the costs of R&D and manufacturing steadily
increase in the semiconductor industry, the numberof business alliances among our customers is growing. As a result of these alliances, the loss of a business opportunity with one customer could possibly
lead to the loss of another customer’s business. To
avoid these situations, our first priority is to reinforce
the competitiveness of our products. To that end,
we believe that the Company must not only carryout joint product development with customers—thekey to business alliances—but also boost the marketing power of its sales force. For example, fromthe point of view of Tokyo Electron’s role as a multiproduct line vendor, individual salespeople must be
knowledgeable about more than just one product.
We believe that taking steps to instill in our sales-

people a high degree of knowledge of our equipment and their related manufacturing processes
contributes to a deepening of the relationship oftrust with our customers.
Cost Reduction Challenges
We also recognize that the Company cannot
achieve its overall goals for cost reduction,
improved speed and improved financial performance without the cooperation and assistance ofthe sales force. Therefore, we are exerting efforts to
reduce costs based on a small–but–efficient sales
force and shortened equipment installation time,and are proactively working with other divisions to
cut inventories.
China Market Promising in the Medium- to
Long-Term
Among regional issues, we are strengthening ouroperations in China, which is a new and steadily
expanding manufacturing base for semiconductor
devices. Currently, the market is not demonstrating
explosive growth due to regulations on advanced
technology and various other factors. However, inthe near future, we expect that it will expand substantially because of the low cost of infrastructure
and labor. During the current fiscal year, we are in
the process of constructing a new building in the
Shanghai region to be used for demonstrations andstocking parts. While avoiding the many risks in themarket, we plan to pursue sales activities as we do inother markets based on our customer first principle.

Tokyo Electron (Shanghai) Limited
New Headquarter Building

Tokyo Electron 13

Global Support of Process Application Engineering

In the semiconductor production
equipment business, customers
expect high-process performance equipment and highquality support services to be
packaged together. By establishing a network of more than 40
bases in 12 countries around theglobe to provide these highquality support services, Tokyo
Electron has built a strong relationship of trust with its customers through its pursuit ofcustomer satisfaction.
Jinzaburo Sakamoto
Executive Officer,
VP & General Manager,
Field Engineering

Improvement of Support
Services Capability

we have offered optional services for an additionalcharge to further enhance the level of customer satisfaction with our equipment under the name of TEL
Service Advantage (TSA). At a customer’s request,
we provide support services after business hours,
emergency on-site support and quick start-up services. In addition to being highly rated by our customers, TSA contributes to higher operating rates
and productivity. In the future, we will push forwardwith the establishment of a business model basedon the active discovery of and response to customer
support service needs that is positive for both TEL
and our customers. This model will create income
for Tokyo Electron by supplying value to customers
in the form of greater customer satisfaction andvalue-added content.
Contribution to Operational Improvement

In recent years, our customers at semiconductor
plants have raised the bar on their cost reduction,
efficiency, and uptime goals; and consequently, they
are demanding even higher levels of support fromequipment suppliers. In particular, to provide support services for equipment used to manufacture
ultra-miniaturized devices, it has become essential
to have the capability for and knowledge of processapplication, not just knowledge of the hardware. For
that reason, we are emphasizing process education
to upgrade the skills of our engineers. Moreover,through the Internet (e-Business) we are supplying
customers with real-time technical information
resources. Specifically, our e-Support services provide information on equipment problems and theirsolutions, as well as on improvements and modifications. To enable customers to immediately deal withproblems by themselves, we have added an eTroubleshooting function into our equipment, andplan to implement training of customers for thisfunction.
Service as a Profit CenterIn addition to earning a profit on our hardware andachieving cost reduction, we are also establishing a
new business model that converts our service
department into a profit center. For several years,

14

Annual Report 2003 — Innovations Ahead

From the standpoint of cost reduction, we will pursue multi-product support services where one person can serve as a field engineer for multiple typesof equipment. We will also seek cost reductions bystrengthening our business agreements with partner companies, working to achieve more effective
use of our engineers, and improving the efficiency of
our logistics systems. We are also taking steps toreduce and optimize our parts inventories on a global level introducing a stricter management structure
in coordination with our sales group and plants.

Global Support Network

Asset Management to Generate Extra Cash Flow

In the semiconductor production
equipment business, it takes several months to install and adjust
equipment after it is delivered tothe customer. Taking into
account the payment terms ofthe customer, recovery of
expenses can take some time.
This problem is compounded by
the fact that we pay suppliers onmuch shorter terms in consideration of the guarantee they provide on merchandise. As a result,
our working capital tends to be
Mamoru Hara
negative when business is in an
Executive Officer,
upturn and positive during periExecutive Vice President,
Administration
ods of adjustment. Indeed, for
the Company to continue tobuild corporate value, it is essential to improve cash
flow by creating profits and reducing working capital.

control inventories that were lent to customers forevaluation with target amounts in each business
unit.
Based on these measures, we expect to achieve an
improvement in cash flow of several tens of billionsof yen, as well as gaining benefits from reducing ourinterest-bearing debt and interest burden. In addition to improving our profit structure through the
reduction of fixed expenses, we intend to strengthen
our balance sheet and cash flow by ramping up
these efforts over the long term. The ultimate goal ofthese efforts is to continue to build corporate value.

Improving the Balance Sheet and Cash FlowTo reinforce our balance sheet and our cash flow,
we are aiming to shorten the collection period for
trade notes and accounts receivable and the inventory turnover ratio by 30% within two years. To
achieve these goals, the entire company is working
to shorten start-up times and reduce trade notes,
accounts receivable and inventory. As indicated by
the key word “speed up” used by Executive Officer,
Mr. Shirahada in his explanation, we are shortening
the installation time through integrated reform ofdesign, manufacturing, and service. To reduce tradenotes and accounts receivable, the sales and service
departments are partnering with the administration
department to decrease receivables for accounts
where customers have not yet completed theinspection and acceptance process. These efforts
are in addition to shortening start-up times. To
decrease our parts and components inventories, weplan to increase the efficiency of our global logistics
system. This is being accomplished through integration and other measures to enable us to decrease
the stock of parts kept at customers’ semiconductor
plants for support services. Moreover, we will strictly

Receivables & Inventory Turnover Period
Days
200

150

100

50

0
1998 1999 2000 2001 2002 2003
Receivables Turnover Period

2005

Inventory Turnover PeriodTokyo Electron 15

Health, Environment and Safety

Commitment and Priorities
We believe that, as a business enterprise, Tokyo Electron has an important mission to fully
consider environmental protection in its business activities, giving top priority to people’s
health and safety.

Activities to Reduce Environmental Impact
LCA Initiative
We use Life Cycle Assessment (LCA) to quantitative assess a product’s environmental impact during
the course of its life at each stage: from raw materials through manufacture, transport, use, and disposal. For equipment with particularly significant impact on the environment, we analyze energy
consumption into components, such as ultrapure water, electricity, and gas emissions. This analysis
is applied to improving equipment or developing new products.
Green Procurement
We source almost all our materials and parts for the manufacturing of semiconductor manufacturing
equipment from suppliers. To effectively use “Green procurement” to source materials in a mannerthat reduces environmental impact, therefore, it is essential to have the cooperation of suppliers. To
promote their cooperation, the TEL Group issues a Green Procurement Guideline, distributes it tosuppliers throughout Japan, and holds green-procurement seminars. We are actively working to
introduce trainer education programs to help educate suppliers about green procurement as well as
produce other educational systems.

Chemical Substance Management
Semiconductor manufacturing processes utilize a variety of chemical substances that could cause
environmental pollution. To prevent any environmental pollution resulting from the use of thesechemical substances, the TEL Group manages them strictly, including introduction, application anddisposal, taking the environment and employee safety in account. Before any of our operations
introduce new chemicals, they do appropriate research, determine standards for proper handling,
and make efforts to substitute or reduce the use of harmful substances.
Environmental Accounting
Environmental accounting is a tool for ascertaining the cost and effect of a company’s environmental activities for use within the company’s routine operations. As a Group, we have been using environmental accounting since the fiscal year ended March 2001. The results for the fiscal year underreview will be available in the Environmental Report 2003, which will be published in fall 2003.

Safety Activities
We give top priority to the safety and health of our employees, customers, and everyone involved
with the TEL Group’s business. This commitment is evident in the TEL Group Credo and Principles on
Environment, Safety and Health, which were first set out in 1998. These guidelines clearly state that
employees are responsible for being constantly aware of safety and health considerations in each andevery business activity. To ensure thorough compliance with these guidelines, the TEL Group has
developed a safety training program. All employees—office and plant workers alike—including those
employees of supplier companies are required to take courses in basic safety measures. We require
employees with greater responsibility or more dangerous jobs to take higher level courses.

16

Annual Report 2003 — Innovations AheadIntellectual Property Report

Efficiently Developed to Promote Product CompetitivenessTokyo Electron puts a great deal of effort into developing technologies to bolster the competitiveness of its products. Without protection for its intellectual property rights, however,
the Company would not be able to lay claim to those independently developed technologies and products as proprietary assets. It is precisely the integration of our intellectual property strategy with our technology and product strategies that allows the Company to realize
maximum benefit from its development efforts. Accordingly, the Company has positioned
intellectual property strategy as one of its important strategies. To enable us to effectively
use superior technologies of other companies and bring our products to market quickly, weplace a high priority on license-in activities.
Efficient Acquisition of Intellectual Property Rights

Rankings of Tokyo
Electron’s Intellectual
Property
1. Elite patent ranking in
the United States:
1996-2000 Elite patent
ratio: 28.6%(No. 1 worldwide)
2. Patent approval rate inJapan: 73.9% (10th inJapan)
3. U.S. patents approved:
216 (28th among
Japanese companies)

In view of the need to legally protect our business on a global level, the Company isstrengthening its acquisition of intellectual property rights outside Japan. In addition to the
traditional method of applying directly through the Paris Convention route, we are also utilizing the Patent Cooperation Treaty (PCT) route, to apply for patents in various countries,
including the United States, Republic of Korea, and People’s Republic of China. Because the
PCT route is an effective method for assessing prime technologies and acquiring patents
efficiently and at reduced costs, we are increasing the number of patent applications madeutilizing this route.
The Company promotes efficient activities of its intellectual property. Looking at surveys by
the Japanese Patent Office of the registered rate for patent applications or the proportion ofholding elite patents that narrow the scope of other companies patent applications or invalidate such applications, the full extent of the effectiveness of our intellectual property management activities and the high quality of our intellectual property is evident. Using theserakings as one of the standards by which to judge our efforts, we will continue to fortify ourmanagement activities to protect our intellectual property, reinforce the competitiveness of
our products, and support business expansion.
Intellectual Property by Major Country (at March 31, 2003)
Japan

U.S.A.

Korea

TaiwanFranceOthers

Total

2234

1573

651

748

1

83

46

241

5577

Utility Model

14

0

2

38

0

0

0

0

54

Design

134

60

75

53

7

27

36

153

545

Trademark

192

18

26

40

12

13

11

185

497

Total

2574

1651

754

879

20

123

93

579

6673

PatentChina Germany

Changes of the Number of Patent Applications
Number of Applications(JP, US, KR, TW, EPC, CN)

1,000

1998

Number of Applications(PCT route)
1999

2000

2001

800

2002

200
150

600
100
400
50

200
0

0
JP

US

KR

TW

EPC

CN

PCT routeTokyo Electron 17

Board of Directors, Statutory Auditors and Executive Officers(As of June 20, 2003)

Board of Directors

Statutory Auditors

Tetsuro Higashi

Taketoshi Itoyama

Chairman of the Board

Tokyo Electron Limited

Takanori Suzuki
Tetsuo Tsuneishi 2

Tokyo Electron Limited

Vice Chairman of the Board

Fujio Kimura
Tokyo Electron Limited

Kiyoshi Sato

Hiroshi Maeda

President & CEO

Mitsui, Yasuda, Wani & Maeda

Mamoru Hara 1 2
Executive Vice President

Takeo Tanaka 1
ChairmanTokyo Electron Kyushu Limited

Hirosuke Ishibashi 2 3
Yukio Sunahara
ChairmanTokyo Broadcasting Systems, Inc.

Toshiyuki Kondo 1
President
SRL, Inc.

Kiyoshi Sato

Mamoru Hara

Tetsuro Higashi

Notes:
1 Member of Compensation Committee
2 Member of Nomination Committee
3 Chief Business Ethics Director

Executive Officers
Kiyoshi Sato

Noriyuki Kuga

Katsuyuki Amano

President & CEO

VP & General Manager, HR/Finance/Order
Process/Business Support Center and Director,
Order Process Dept. & Business Support Center

VP & General Manager, Computer Network BU and
Director, Computer Network Dept.

Yoshiteru Harada

VP & General Manager, Business Development &Account Management, Korea and President,
Tokyo Electron Korea Ltd.

Mamoru Hara
Executive Vice President, Administration

Mitsuru Onozato
Senior Vice President, Sales

Ryuichi Komatsubara
Senior Vice President, Technology & Marketing

Jinzaburo Sakamoto
VP & General Manager, Field Engineering
President, Tokyo Electron FE Ltd.

VP & General Manager,
General Affairs/Accounting/Administration,
FuchuTechnology Center & Osaka Branch Office andDirector, General Affairs Dept.

Takao Kodama
VP & General Manager, IT Center

Hikaru Ito

Hisashi Shirahada

VP & General Manager, Clean Track BU

VP & General Manager, Manufacturing

Takashi Ito

VP & General Manager, Business Development &Account Management, Asia

Takahiro Komatsu
VP & General Manager, Business Development &Account Management, Japan and Branch Manager,
Osaka Branch/Kyushu Branch

Kiyoshi Sunohara

Yasuyuki Kuriki

VP & General Manager, Business Development &Account Management, North America & Europe

VP & General Manager, Thermal Processing Systems BU
and President, Tokyo Electron Tohoku Ltd.

Yoichi Ishikawa

VP & General Manager, Cleaning Systems BU and
Director, Cleaning Systems Dept.

VP & General Manager, Marketing

Yoshifumi Tahara

Hiroshi Takenaka

VP & General Manager,
Technology & Development-Vacuum andSenior Vice President, Tokyo Electron AT Ltd.

VP & General Manager, Single Wafer Deposition BU
and Director, Single Wafer Deposition Dept.

Masami Akimoto

Yoshinori Inoue
VP & General Manager, Test Systems BU and
Executive Officer, Tokyo Electron AT Ltd.

Hiroshi Tomita
VP & General Manager, FPD Systems BU

Annual Report 2003 — Innovations Ahead

Chiaki Yamaguchi

VP & General Manager, Etch Systems BU

Kenji Washino18

Keiichi Furugaki

VP & General Manager,
Technology & Development-Atmospheric Pressure andExecutive Officer, Tokyo Electron Kyushu Ltd.

Financial Section

Tokyo Electron 19

Management’s Discussion and Analysis

Sales and Income

Sales
Amid this severe business climate, consolidated net sales forthe fiscal year ended March 31, 2003 increased 10.2 percent
from the prior fiscal year to ¥460.6 billion. Sales of theCompany’s core Semiconductor Production Equipment (SPE)division grew 12.0 percent, to ¥364.7 billion, supported byfavorable growth in sales of FPD manufacturing equipment
amid the slump in the semiconductor industry. The sales
growth of the Computer Network and Electronic Components
divisions also contributed to overall sales expansion.

Business Environment
In the fiscal year ended March 31, 2003, the global economy
showed signs of recovery at one point, but was derailed
again as accounting scandals at major U.S. firms, the downturn in stock markets worldwide, and the build up to the war
in Iraq spun the economies of the United States and Europe
sharply into decline. Conversely, in Asia, China’s economy
continued to expand strongly, and the economies of South
Korea and Taiwan also showed mild upturns. Meanwhile,
conditions in Japan’s economy took another turn for theworse under pressure from the unrelenting cooling off of private-sector capital investment and personal consumption.

Geographically, domestic sales rose 2.1 percent to ¥190.5
billion and overseas sales expanded 16.8 percent to ¥270.1
billion. As a result, the contribution of overseas sales to net
sales increased to 58.6 percent from 55.4 percent in the previous fiscal year.

In the electronics market, there was a recovery in demand forsome digital consumer products, such as DVD players anddigital cameras, but the mobile phone, PC, and communications devices markets remained at low ebb. Against this backdrop in semiconductor-related markets, postponements or
cutbacks in capital investment started to increase from lastsummer, resulting in a persistently difficult business environment. Moreover, the trend toward consolidation among semiconductor manufacturers has accelerated.

Consolidated orders received for the fiscal year under review
totaled ¥458.5 billion, jumping 55.3 percent from the previous fiscal year. The order backlogs at the fiscal year-end
edged down 1.3 percent to ¥150.7 billion.

Performance by Division•Semiconductor Production Equipment
Semiconductor manufacturers increased their desire for capital investment at the beginning of 2002 because the viewThousands of
U.S. dollars

Millions of yen (percentage of net sales)

2003

2002

2001

2003

Net sales¥460,580 (100.0)¥417,825 (100.0)¥723,880 (100.0)$3,831,782

Cost of sales

326,540

302,270

458,9022,716,637(70.9)(72.3)(63.4)

Gross profit

134,040(29.1)

115,555(27.7)

264,978(36.6)

1,115,145

SG&A expenses

132,921(28.9)

133,865(32.0)

143,892(19.9)

1,105,837

Operating income (loss)

1,119

(0.2)

(18,310)–

121,086(16.7)

9,308

Other income (expenses)(24,129)–(4,609)–(21,954)–(200,743)

Income (loss) before income taxes(23,010)–(22,919)–

99,132(13.7)(191,435)

Provision for income taxes

18,532(4.0)(2,990)–37,099(5.1)

154,180

Minority interest

12

(0.0)

8

(0.0)

21

(0.0)

100

Net income (loss)(41,554)–(19,938)–¥ 62,012(8.6)(345,715)

20Annual Report 2003 — Innovations Ahead

Consolidated orders of the SPE division for the fiscal year
ended March 31, 2003, amounted to ¥363.4 billion, recovering
75.4 percent from the previous fiscal year’s performance,
which was posted amid the worst conditions ever recorded in
the semiconductor industry. Consolidated sales climbed 12.0
percent to ¥364.7 billion. Contribution to consolidated sales
also rose slightly, increasing to 79.2 percent from 78.0 percent.
Sales of flat panel display (FPD) production equipment,
which are also included in this division, expanded significantly compared to last fiscal year. The supply and demand gap
for FPDs contracted during the fiscal year thanks to the progressive replacement of CRT monitors in PCs with LCD monitors and the growth of the new LCD television set market.
Encouraged by these trends, FPD manufacturers in South
Korea and in Taiwan increased their capital investments.
Performance by geographical region was mixed. Sales in
Korea, where capital investment in semiconductor memory

and FPD increased, rose 147.0 percent, to ¥57.3 billion. Sales
in the People’s Republic of China, where full-fledged capital
investment in semiconductor manufacture has gotten underway, surged 168.4 percent, to ¥20.1 billion. Sales in Taiwan
also rose, mainly due to increased purchases of FPD production equipment. On the other hand, sales in the U.S. market
fell 21.6 percent, to ¥74.3 billion under the impact of a reduction in capital investments, particularly for logic devices, bymajor customers.
Sales also varied considerably by product during the fiscal
year. Sales of thermal processing and thin-film formation systems increased thanks to the contributions of such new products as TELFORMULA™ and Trias™SPA. In addition, thedivision’s market share of oxidation etch systems and wafer
probers expanded as did sales. Sales of coaters/developers,
however, declined slightly because of the restraint in capital
investment in lithography equipment. In terms of wafer size,
capital investment in 300mm wafer manufacturing lines continued to rise among semiconductor manufacturers in the
United States and Korea as well as by the foundry manufacturers in Taiwan. In total, the sales portion of 300mm equipment is approaching 50 percent of our SPE sales.
Nevertheless, 200mm-manufacturing lines remain the mostappropriate for many ICs used in the small-lot-wide-variety
production of digital consumer products. Consequently, thedivision expects that demand for 200mm wafer manufacturing equipment will continue to underpin the market for thetime being.

242.2

355.1

619.0

325.7

364.7

96.7
97.4

94.7
74.3

28.3
28.0

23.2
57.3

60.5
67.0

7.5
20.1

460.6

1999

2000

2001

2002

2003

Japan

North Europe
America

Korea

TaiwanChina Southeast
Asia

Japan

270.1

231.3
2001

2002

2003

2002
2003

2000

190.5

1999

186.5

149.8

184.0

299.3

164.0

256.7

424.6

417.8

(¥ Billions)723.9

SPE division’s Sales by Geographic Region(¥ Billions)

440.7

SPE division’s Sales(¥ Billions)
313.8

Domestic and Overseas Sales

14.8
20.6

that inventories were low for some products was spreading
throughout the industry. However, semiconductor demand
did not continue to rise, resulting in excessive inventories
building up for many products, sidetracking a genuine recovery in the industry. During the second half, these conditions
produced a mixed response among semiconductor manufacturers, with some companies postponing capital investments
while others continued to invest.

Overseas
Sales by third-party products imported into Japan are included in Japan Sales

Tokyo Electron 21

•Computer Network
Amid continued severe economic conditions in Japan, net
sales of the Computer Network (CN) division edged forward
0.9 percent, to ¥17.2 billion. The division’s business is principally based on providing customers with Internet and storage area network (SAN) solutions.
One of the products contributing most to sales during the
fiscal year was NetScreen Technologies’ Firewall/VPN. A coreproduct of the division, F5 Networks’ Internet traffic management system also posted favorable sales growth and gained
considerable attention in the market for its high networkavailability and stability. SAN-related products also performed well, with original equipment manufacturing (OEM)sales of Brocade Communications Systems’ Fibre Channel
Fabric Switches climbing 1.3 times year on year. Establishinga base for future growth, TimesTen Performance Software’s
in-memory database products began to be utilized as infrastructure for soft switches in the voice over IP (VoIP) field during the fiscal year.
Among new developments, we established Procket
Networks Japan, Inc., a joint venture that will act as a basefor entry into the Japanese market by Procket Networks, Inc.,a Silicon Valley based communications device venture. The
Japanese joint venture, formed in collaboration with NTTCP

22

Communications, Inc., and Net One Systems Co., Ltd., ismarketing Procket Networks’ advanced packet communications technology products, such as its representative ultrahigh-end routers.
With our own proprietary Ruff Systems, we concentrated
especially on development during the fiscal year to strengthen functions in line with such trends as the progressive shift
to broadband and the digitization of television broadcasting.
Utilizing our accumulated technologies in networks and SAN,
we plan to offer Ruff Systems network as video solutions thatencompass the entire process from content management to
distribution.

•Electronic Components
Net sales for the Electronic Components (EC) division rose 5.1
percent to ¥77.4 billion. Sales growth was supported by strong
efforts to sell high-value-added semiconductor devices tocope with the difficult conditions caused by the less-than-fullrecovery in the semiconductor market. The division’s productlineup includes semiconductor devices, board computer products, software, and other electronic components.
Semiconductor products accounted for 88 percent of divisional net sales. Major contributors to sales growth included
Xilinx’s programmable logic devices (PLDs), for which applications are expanding in the consumer electronics market; Pixel

14.1

17.0

17.2

57.7

72.1

89.2

73.7

77.4

(¥ Billions)12.4

EC division’s Sales(¥ Billions)
12.9

CN division’s Sales

1999

2000

2001

2002

2003

1999

2000

2001

2002

2003

Annual Report 2003 — Innovations Ahead

Works’ custom ICs, which boast the number one share of themarket for image enhancement ICs for liquid crystal display(LCD) projectors; and Linear Technology’s analog ICs for
power sources, which enjoyed robust demand for use inmobile devices. Because they require technical support, thesehigh-value-added products provide a particular strong boost
to sales.

In the future, the division will aggressively market high-valueadded products that require technical support. At the sametime, it will improve and expand its lineup of products for digital consumers. Furthermore, the division will work to establish
a strong foundation as a “technology trading company” by
selling high-value-added products that require technical support, utilizing the technical capabilities of its design development centers to design and develop semi-custom ICs, andstrengthening development of original products.

Sales of motherboards, VME boards, and other boards struggled during the fiscal year, resulting in an overall slight decline
in the category. On the other hand, sales of software edged
forward thanks to expanded sales of operating system software for embedded system devices. Sales of general electronic components also advanced slightly due to increased salesof panel programmable controllers and power switches for
consumer electronics devices.

On March 7, 2003, Tokyo Electron Device Ltd., a subsidiary
operating the Electronic Components Division, went public,
listing its shares on the Second Section of the Tokyo Stock
Exchange.

Cost of Sales, SG&A Expenses and Operating
IncomeUtilizing the abundant experience of its design & development centers, the division offers a design service for semi-custom ICs such as PLD and ASIC on a contract basis as well as
developing its own products. In May 2002, the division established a dedicated sales force for its design services, and successfully increased the volume of orders. In proprietaryproduct development, the division created a variety of largescale integrated circuits (LSIs) that achieve synergies with distributing products handled by the division. Examples included
peripheral LSIs for Xilinx’s PLDs and a multi input-output controller for LCD projectors under an alliance with Pixel Works.

Although cost of sales increased 8.0 percent to ¥326.5 billion,
cost of sales as a percentage of net sales declined to 70.9
percent from 72.3 percent for the prior fiscal year. Although
downward pressure on prices by customers negatively affected profitability, the decrease in cost of sales as a percentageof net sales can be primarily attributed to reductions in the
production fixed cost and the increase in plant utilization
rates due to sales growth. Consequently, gross profit amounted to ¥134.0 billion, up 16.0 percent and gross margin rose
1.4 points to 29.1 percent.

Operating Income

R&D Expenses(¥ Billions)(¥ Billions)

Cash Dividends per Share& Payout Ratio

26.8

37.1

52.9

53.8

50.1

12.00

2003

1999

2000

2001

2002

2003

1999

8.00

1.1

2002

8.00

-18.3

2001

38.00

121.1

2000

14.00

35.8

1999

2001

-3.34

10.74

2000

-7.02

12.35

112.14

6.4(¥ / %)

2002

2003

Cash Dividends per Share
Payout Ratio

Tokyo Electron 23

Selling, general and administrative expenses decreased 0.7
percent to ¥132.9 billion. Based on efforts to be selective andfocused in R&D projects that the Company undertakes, R&D
expenses, which are included in SG&A expenses, decreased
6.9 percent to ¥50.1 billion year on year. R&D expenses wereallocated principally to the development of 90 nanometerand-smaller design rule process technology and equipment
as well as new technology.
As a result of the increase in gross profit and the decline in
SG&A expenses, operating income improved ¥19.4 billion
from the ¥18.3 billion loss in the prior fiscal year, to ¥1.1 billion.

Impact of Fluctuation in Foreign Currency
Exchange Rates on Performance
Changes in exchange rates have no material effect on Tokyo
Electron’s results because exports from Japan are generally
denominated in yen. While some settlements are denominated in U.S. dollars, exchange risk is hedged by concluding forward exchange contracts individually at the time orders arereceived. Also, the contribution of foreign currency-denominated transactions involving foreign-made merchandise
imported to Japan is comparatively low and did not have amaterial effect in the year ended March 31, 2003.

Financial Position and Cash Flows
Other Income (Expenses) and Net Income
Financial Position
Net other expenses expanded by ¥19.5 billion to ¥24.1 billion.
The increase can be mainly attributed to an extraordinary lossof ¥20.6 billion related to restructuring expenses. Major
expenses included ¥10.0 billion in devaluation of inventories
that will be disposed and ¥7.8 billion for an expenses reserve
related to the planned reduction of employees in the fiscal
year ending March 2004. Income before income taxes
declined ¥100 million from the prior fiscal year to a loss of¥23.0 billion.
Based on a decision on the potential recovery of deferred tax
assets, a reversal from the deferred tax assets account resulted in provision income taxes of ¥18.5 billion in the fiscal year
under review. Consolidated net loss, therefore, expanded¥21.6 billion, to ¥41.6 billion. Consequently, net loss per sharefell from ¥113.85 to ¥238.57. Cash dividends were ¥8.00 per
share, the same as in the prior fiscal year.

24

Annual Report 2003 — Innovations Ahead

Current assets at March 31, 2003 expanded 0.9 percent year
on year to ¥356.4 billion. Among the main factors in thisincrease were a ¥14.2 billion rise in trade notes and accounts
receivable along with greater sales and a ¥4.6 billion increasein cash and cash equivalents. Inventory, however, declined¥15.5 billion by devaluation and so forth. Excluding accounts
receivable—others, trade notes and accounts receivable
turnover based at the end of fiscal year improved to 135
days, compared with 138 days for the prior fiscal year, andinventory turnover improved to 89 days, compared with 111
days in the previous fiscal year.
Property, plant and equipment declined 11.1 percent to¥119.6 billion year on year. The primary factors contributing
to the decline were the sale of land and buildings by Tokyo

Electron Oregon, LLC and an evaluation loss on buildings
owned by Tokyo Electron Texas, LLC. During the fiscal year,
Tokyo Electron invested ¥12.4 billion in property, plant andequipment, consisting primarily of the purchase of equipment for evaluation and IT-related purchases.

lion, primarily because of the drop in fixed assets.
Current liabilities expanded 46.8 percent to ¥160.7 billion.
There were two major factors behind this increase. There wasan increase in trade notes and accounts payable due togreater procurement necessary for the higher productionlevels. Also, a ¥5.2 billion decline in short-term borrowings
was offset by a ¥25.0 billion increase in commercial paper. In
addition, the outstanding balance of ¥15.5 billion for the
September 2003 scheduled redemption of the 2nd convertible bond was transferred from long-term to current liabilities. Furthermore, a ¥8.6 billion reserve was set up in
preparation for a series of business restructuring measures.

Investments and other assets dropped 29.2 percent to ¥48.9
billion. The main factors in the decrease in investments andother assets were the ¥13.2 billion fall in deferred tax assets
compared with the previous fiscal year and a ¥2.3 billion
decrease in investments in securities due to mark-to-market
adjustments. Total assets declined 5.7 percent to ¥524.9 bil-Thousands of
U.S. dollars

Millions of yen (percentage of total assets)

Total assets

2003

2002

2003

¥524,901 (100.0)¥556,915 (100.0)$4,366,899

Cash and cash equivalents

52,982(10.1)

48,409(8.7)

440,784

Trade notes and accounts receivable

182,218(34.7)

167,982(30.2)

1,515,953

Inventories

111,810(21.3)

127,352(22.9)

930,201

Investments and other assets

48,851(9.3)

68,981(12.4)

406,419

Property, plant and equipment

119,611(22.8)

134,511(24.2)

995,101

Total liabilities

268,402(51.1)

249,278(44.8)

2,232,958

Short-term borrowings

8,729

(1.7)

13,924(2.5)

72,623

Trade notes and accounts payable

48,279(9.2)

41,053(7.4)

401,656

Accrued income taxes

3,645

(0.7)

1,663

(0.3)

30,325Long-term debt, less current portion

70,230(13.4)

105,452(18.9)

584,271

Shareholders’ equity

252,904(48.2)¥307,579(55.2)

2,104,029

0.45

0.62

0.51

0.60

1999

0.39

2003

195.7

2002

(Times)
243.9

2001

309.8

221.7

2000

228.7

12.4

1999

Debt-to-Equity Ratio

1999

2000

2001

2002

2003

2000

2001

2.2

2.3

2.6

3.2

4.2

30.9

(¥ Billions / Times)
49.4(¥ Billions)
19.0

Working Capital &Current Ratio

16.9

Capital Expenditure for
Property, Plant and Equipment

2002

2003

Working Capital
Current Ratio

Tokyo Electron 25

Working capital contracted to ¥195.7 billion from ¥243.9 billion in the previous fiscal year, and the current ratio declined
to 2.2 to 1 from 3.2 to 1 a year earlier.

flow, defined as the sum of net income and depreciation andamortization, dropped from ¥6.4 billion to minus ¥14.2 billion. Growth in accounts receivables due to increased sales
contributed to the decline in net cash flow provided by operating activities.

Because of the transfer of the current portion of convertible
and straight bonds to current liabilities, Tokyo Electron’slong-term debt declined 23.0 percent year on year to ¥107.7
billion.

Net cash used in investing activities was ¥7.3 billion, downfrom ¥35.8 billion in the prior fiscal year. Investment in property, plant and equipment totaling ¥7.0 billion mainly comprised the purchase of equipment for R&D.

The balance of equity-linked bonds outstanding at March 31,
2003 was ¥25.5 billion.

Net cash used in financing activities amounted to ¥9.9 billion
compared with ¥57.2 billion a year earlier. Tokyo Electron
had significant outlays during the fiscal year related to theredemption of the 6th unsecured bond issue, the repaymentof short-term borrowings, the acquisition of treasury stock,and the payment of dividends. These outlays were offset,
however, by proceeds from the issue of commercial paperand from the initial public offering of Tokyo Electron Device.
Cash and cash equivalents at the end of the year totaled¥53.0 billion, up ¥4.6 billion from ¥48.4 billion at the end of
the prior fiscal year.

Shareholders’ equity decreased 17.8 percent to ¥252.9 billion, due to the contraction in retained earnings and theincrease of treasury stock. As a percentage of total assets,shareholders’ equity declined to 48.2 percent from 55.2 percent a year earlier. Return on average total shareholders’equity was minus 14.8 percent.

Cash FlowsNet cash provided by operating activities amounted to ¥21.4
billion, decreasing from ¥77.6 billion a year earlier. Net cash

19.8

39.3

83.7

6.4

-14.2

1999

252.9

2003

307.6

2002

333.3

2001

1999

2000

2001

2002

2003

2001

-14.8

2000

-6.2

0.7

20.4

257.7

2000

273.6

48.2

1999

7.5

55.2

(¥ Billions)

45.7

Net Cash Flow(¥ Billions / %)54.8

Shareholders’ Equity & ROE

(%)
62.1

Shareholders’ Equity Ratio

2002

2003

Shareholders’ Equity
Return on Equity
Net Cash Flow =Net income + Depreciation and Amortization

26

Annual Report 2003 — Innovations Aheadah4537_アニュアルレポート(ワード).doc 03/8/4 18 時 1 分

Consolidated Six-Year SummaryTokyo Electron Limited and its Subsidiaries
Years ended March 31, 2003, 2002, 2001, 2000, 1999 and 1998

Thousands of
U.S. dollars
2003
Net sales .................................................................... $ 3,831,782-

Millions of yen
2003

2002

2001

2000

1999

1998

¥460,580-¥417,825-¥723,880-¥440,729-¥313,820-¥455,585-

Semiconductor production equipment1 ..................

3,034,022-

364,689-

325,715-

619,001-

355,103-242,240-

380,184-

Computer network1................................................

143,035-

17,193-

17,031-

14,054-

12,357-

12,878-15,262-

Electronic components ..........................................

643,762-

77,380-73,658-89,211-

72,051-

57,734-60,139-Other.....................................................................

10,963-

1,318-

1,421-

1,614-

1,218-

968---

Operating income (loss)..............................................

9,308-

1,119-(18,310)

121,086-

35,816-

6,383-

63,296-

Income (loss) before income taxes .............................

(191,435)(23,010)(22,919)

99,132-

29,689-6,038-

62,834-

Net income (loss) .......................................................

(345,715)(41,554)(19,938)

62,012-

19,848-1,866-

30,009-Domestic sales ...........................................................

1,584,968-

190,513-

186,516-

299,272-

183,987-

149,838-

230,550-

Overseas sales........................................................... 2,246,814-

270,067-

231,309-424,608-

256,742-

163,982-

225,035-

Depreciation and amortization ....................................

227,736-

27,374-

26,294-

21,679-19,446-

17,921-

12,652-

Capital expenditures2..................................................

102,824-

12,359-30,946-49,403-18,999-23,478-33,302-R&D expenses ...........................................................

416,993-

50,123-53,827-52,911-37,135-

26,842-

26,813-

Total assets................................................................ 4,366,899-

524,901-

556,915-

729,511-499,499-

414,903-493,600-

Total shareholders’ equity...........................................

252,904-

307,579-

333,281-273,603-257,716-

261,009-

10,053-

10,171-

10,236-

8,946-

7,835-

7,287-

10.70-¥ 174.68---

168.43-

2,104,029-

Number of employees ................................................
U.S. dollars
Net income (loss) per share of common stock:Yen

3

Basic ..................................................................... $ -------(1.98)-

Diluted4 .................................................................

--¥ (238.57)¥ (113.85)¥ 353.76-¥ 113.53-----

344.75-110.64-¥

Cash dividends per share of common stock:
Actual....................................................................

0.07-

8.00-

8.00-

38.00-

14.00-

12.00-

30.00-

Adjusted3...............................................................

0.07-

8.00-

8.00-

38.00-

14.00-

12.00-

30.00-

Number of shares outstanding (thousands) ................

175,698-

175,691-

175,691-

175,660-

174,624-

174,569-

Number of shareholders .............................................

49,259-37,116-42,781-

7,147-

8,576-

9,562-

ROE .........................................................................

(14.8)

(6.2)

20.4-

7.5-

0.7-

12.8-

Percent
Operating income margin ...........................................

0.2-

(4.4)

16.7-

8.1-

2.0-

13.9-

Shareholders’ equity ratio ...........................................

48.2-

55.2-

45.7-

54.8-

62.1-

52.9-

Asset turnover (times) ................................................

0.85-

0.65-

1.18-

0.96-

0.69-

1.03-

¥ 45,815-¥ 41,080-¥ 70,719-¥ 40,054-¥ 62,520-

U.S. dollars
Net sales per employee ............................................ $381,158-

Thousands of yen¥ 49,265-

1 The FPD, Flat Panel Display, Department has been included in Semiconductor Production Equipment. The Computer Systems division was renamed the Computer Network division as ofApril 1, 2000.
2 Capital expenditures before 1999 represent the gross increase in property, plant and equipment, intangible assets and other depreciable assets. Capital expenditures from 2000 only represent
the gross increase in property, plant and equipment.
3 From 2003, the Company began applying "Accounting Standards regarding Net Income per Share (Business Accounting Standards No.2)" and "Practical Guidelines for Applying AccountingStandards regarding Net Income per Share (Practical Guidelines for Applying Accounting Standards No.4)" released by the Accounting Standards Board of Japan (ASBJ).
4 Dilution is not assumed for the years ended March 2003, 2002 and 1999.

27

ah4537_アニュアルレポート(ワード).doc 03/8/4 18 時 1 分

Consolidated Balance Sheets
Tokyo Electron Limited and its Subsidiaries
March 31, 2003 and 2002ASSETS

Thousands of
U.S. dollars

Millions of yen

2003

2002

2003

Cash and cash equivalents (Note 3) .....................................................

¥ 52,982-¥ 48,409-$ 440,784-

Marketable securities (Note 4) ..............................................................

--

10-

--

Trade notes and accounts receivable ...................................................

182,218-

167,982-

1,515,953-

Allowance for doubtful accounts ...........................................................

(342)

(620)

(2,844)Inventories (Note 5)...............................................................................

111,810-

127,352-

930,201-

Deferred tax assets (Note 9) .................................................................

4,152-

3,402-

34,539-Prepaid expenses and other current assets .........................................

5,619-

6,888-

46,746-

Total current assets .........................................................................

356,439-

353,423-

2,965,379-

Investments in securities (Note 4).........................................................

7,216-

9,535-

60,036-

Deferred tax assets (Note 9) .................................................................

9,362-

22,591-

77,890-Intangible and other assets .................................................................

32,273-36,855-

268,493-

Total investments and other assets .................................................

48,851-

68,981-

406,419-

Land ......................................................................................................

19,718-19,908-164,047-

Buildings................................................................................................

110,950-

114,586-

923,046-

Machinery and equipment.....................................................................

97,937-

95,615-

814,781-Construction in progress .......................................................................

2,480-

5,139-

20,632-

Total property, plant and equipment................................................

231,085-

235,248-

1,922,506-

Less: Accumulated depreciation ...........................................................

111,474-

100,737-

927,405-

Net property, plant and equipment ..................................................

119,611-

134,511-995,101-

Total assets ...............................................................................................

¥524,901-¥556,915-$4,366,899-

Current assets:

Investments and other assets:

Property, plant and equipment:

See accompanying Notes to Consolidated Financial Statements.
28

ah4537_アニュアルレポート(ワード).doc 03/8/4 18 時 1 分

LIABILITIES AND SHAREHOLDERS' EQUITY

Thousands of
U.S. dollars

Millions of yen

2003

2002

2003

Current liabilities:
8,729-¥ 13,924-

Current portion of long-term debt (Note 7) ............................................

37,404-

26,387-311,177-

Commercial paper .................................................................................

35,000-10,000-291,181-

Trade notes and accounts payable .......................................................

48,279-41,053-

401,656-

Accrued income taxes...........................................................................

3,645-

1,663-

30,325-

Allowance for employees’ bonuses .....................................................

3,629-

2,463-

30,193-

Provision for loss on restructuring.........................................................

8,577---

71,358-

Accrued expenses and other current liabilities .....................................

15,443-14,012-

128,475-

Total current liabilities ......................................................................

160,706-

109,502-

1,336,988-

Long-term debt, less current portion (Note 7).......................................

70,230-105,452-

584,271-

Allowance for retirement and severance benefits (Note 8)..................

36,392-

32,984-

302,762-

Other non-current liabilities ...................................................................

1,074-

1,340-

8,937-

Total liabilities ..................................................................................

268,402-249,278-

2,232,958-

Minority interest........................................................................................

3,595-

58-

29,912-47,223-47,214-

392,872-

Additional paid-in capital (Note 10) .......................................................

70,285-70,276-584,736-

Retained earnings .................................................................................

147,465-

190,195-

1,226,828-

Unrealized gains on securities ..............................................................

(59)

1,171-(490)

Foreign currency translation adjustments .............................................

1,229-

3,738-

10,220-Treasury stock at cost (Note 11) ...........................................................

(13,239)(5,015)(110,137)

Total shareholders’ equity................................................................

252,904-

307,579-

2,104,029-

Total liabilities and shareholders’ equity...............................................

¥524,901-¥556,915-$4,366,899-

Short-term borrowings (Note 7).............................................................

¥$

72,623-

Shareholders’ equity:
Common stock (Note 10) ......................................................................
Authorized: 300,000,000 shares
Issued: 175,697,930 at March 31, 2003
175,691,903 at March 31, 2002

2,034,755 at March 31, 2003
605,867 at March 31, 200229

ah4537_アニュアルレポート(ワード).doc 03/8/4 18 時 1 分

Consolidated Statements of Operation
Tokyo Electron Limited and its Subsidiaries
Years ended March 31, 2003, 2002 and 2001

Thousands of
U.S. dollars

Millions of yen

2003

2002

2001

2003

Net sales ...............................................................................

¥460,580-¥417,825-¥723,880- $3,831,782-

Cost of sales.....................................................................

326,540-

302,270-

458,902-2,716,637-

Gross profit.....................................................................

134,040-

115,555-

264,978-

1,115,145-

Selling, general and administrative expenses..................

132,921-

133,865-

143,892-

1,105,837-

Operating income (loss) .....................................................

1,119-(18,310)

121,086-

9,308-

Interest and dividend income ...........................................

191-

351-

669-

1,591-

Interest expenses .............................................................

(1,601)(1,960)(2,378)(13,321)

Restructuring costs (Note 12) ..........................................

(12,055)----(100,295)(Note 13) ...................................................................

(8,577)----(71,358)

Devaluation of investments in securities ..........................

(739)(1,236)(1,552)(6,147)

retirement benefit accounting standards (Note 8) ......

----(15,975)--

Other, net .........................................................................

(1,348)(1,764)(2,718)(11,213)

Income (loss) before income taxes ...................................

(23,010)(22,919)

99,132-(191,435)

Current .............................................................................

4,806-

2,612-

50,589-39,982-

Deferred ...........................................................................

13,726-(5,602)(13,490)

114,198-

Minority interest .....................................................................

12-

8-

21-

100-

Net income (loss).................................................................

¥ (41,554)¥ (19,938)

Other income (expenses):

Amount transferred to provision for loss on restructuring

Amortization of discrepancy arising from adoption ofProvision for income taxes (Note 9):

Per share of common stock:

Yen

U.S. dollars

Net income (loss) — basic ...............................................

¥ (238.57)¥ (113.85)

Net income — diluted.......................................................

----

344.75---

Cash dividends.................................................................

8.00-

8.00-

38.00-

0.07-

See accompanying Notes to Consolidated Financial Statements.

30¥ 62,012- $ (345,715)¥ 353.76- $(1.98)

ah4537_アニュアルレポート(ワード).doc 03/8/4 18 時 1 分

Consolidated Statements of Shareholders' Equity
Tokyo Electron Limited and its Subsidiaries
Years ended March 31, 2003, 2002 and 2001

Thousands of
U.S. dollars

Millions of yen

2003

2002

2001

2003

Balance at beginning of year............................................

¥ 47,214-¥ 47,213-

Conversion of convertible bonds (Note 10)......................

9-

1-

50-

79-

Balance at end of year .....................................................

47,223-47,214-47,213-392,872-

Balance at beginning of year............................................

70,276-70,275-70,225-

584,657-

Conversion of convertible bonds (Note 10)......................

9-

1-

50-

79-

Balance at end of year .....................................................

70,285-70,276-70,275-584,736-

190,195-

214,920-

157,876-

1,582,323-

result of a public offering by a consolidated subsidiary.......

219-

--

--

1,826-Net income (loss) for year ................................................

(41,554)(19,938)

62,012-(345,715)

Cash dividends.................................................................

(1,395)(4,031)(4,734)(11,606)

Bonuses to directors ........................................................

--

(756)

(234)

--

Balance at end of year .....................................................

147,465-

190,195-

214,920-

1,226,828-

Unrealized holding gains arising during the period ..........

(59)

1,171-

1,658-(490)

Foreign currency translation adjustments .......................

1,229-

3,738-

2,734-

10,220-Treasury stock, at cost (Note 11) .......................................

(13,239)(5,015)(3,519)(110,137)¥252,904-¥307,579-

Common stock¥ 47,163- $ 392,793-

Additional paid-in capital

Retained earnings
Balance at beginning of year............................................
Increase due to the change in the equity holding as a

Unrealized gains on securities(2001: 407,556 shares; 2002: 605,867 shares
2003: 2,034,755 shares)
Total shareholders' equity ..................................................

¥333,281- $2,104,029-

See accompanying Notes to Consolidated Financial Statements.

31

ah4537_アニュアルレポート(ワード).doc 03/8/4 18 時 1 分

Consolidated Statements of Cash Flows
Tokyo Electron Limited and its Subsidiaries
Years ended March 31, 2003 and 2002

Millions of yen

Cash flow from operating activities:(Loss) before income taxes.........................................................................
Depreciation and amortization ....................................................................
Increase in allowance for retirement and severance benefits.....................
Increase (decrease) in allowance for employees’ bonuses ........................
Interest expenses ........................................................................................
Loss on disposal of fixed assets .................................................................
Devaluation of investments in securities .....................................................
Restructuring costs (Note 12) .....................................................................
Amount transferred to provision for loss on restructuring (Note 13) ...........
(Increase) decrease in trade notes and accounts receivable .....................
(Increase) decrease in inventories ..............................................................
Increase (decrease) in accounts payable ...................................................
(Increase) decrease in prepaid consumption tax ........................................
Others..........................................................................................................
Subtotal ......................................................................................................
Receipts from interest and dividends ..........................................................
Interest paid.................................................................................................
Income taxes paid .......................................................................................
Net cash provided by operating activities..............................................
Cash flow from investing activities:
Payment for purchase of property, plant and equipment............................
Payment for acquisition of intangible assets...............................................
Others..........................................................................................................
Net cash (used in) investing activities....................................................
Cash flow from financing activities:(Decrease) in short-term borrowings ..........................................................
Increase (decrease) in commercial paper...................................................
Proceeds from long-term debt.....................................................................
Repayment of long-term debt......................................................................
Proceeds from issuance of bonds...............................................................
Redemption of unsecured bonds ................................................................
Purchase of treasury stock..........................................................................
Dividends paid.............................................................................................
Proceeds from a public offering of a subsidiary ..........................................
Others..........................................................................................................
Net cash (used in) financing activities....................................................
Effect of exchange rate changes on cash and cash equivalents .....................
Net increase (decrease) in cash and cash equivalents ..............................
Cash and cash equivalents at beginning of year..............................................
Cash and cash equivalents at end of year (Note 3) ....................................
See accompanying Notes to Consolidated Financial Statements.

32

Thousands of
U.S. dollars

2003

2002

2003

¥(23,010)
27,3743,4161,1661,6051,70773912,0558,577(13,662)(3,890)10,352(926)(2,103)
23,400191(1,670)(527)
21,394-¥(22,919)
26,2943,164(8,501)
1,9808511,236--131,25128,359(34,166)
3,901(8,425)
123,025351(1,970)(43,848)
77,558-$(191,435)
227,73628,4229,70013,35414,1976,147100,29571,358(113,658)(32,363)
86,122(7,705)(17,490)
194,6801,586(13,893)(4,386)
177,987-(7,028)(2,780)2,538(7,270)(31,006)(5,390)607(35,789)(58,472)(23,125)
21,115(60,482)(4,829)25,0003,000(7,183)-(20,000)(8,224)(1,395)3,751(4)(9,884)3334,57348,409¥ 52,982-(34,796)(40,172)(20,000)
207,9873724,958(3,018)(59,762)
6,095--(166,389)(1,496)(68,416)(4,030)(11,606)-31,203(6)(32)(57,214)(82,229)(1,437)2,769(16,882)
38,04565,291402,739¥ 48,409- $ 440,784-

ah4537_アニュアルレポート(ワード).doc 03/8/4 18 時 1 分

Notes to Consolidated Financial Statements
Tokyo Electron Limited and its Subsidiaries

1. Basis of Presentation of Consolidated Financial
Statements
The accompanying consolidated financial statements of Tokyo
Electron Limited (hereinafter “the Company”) and its subsidiaries
have been prepared from those that have been filed with the Ministryof Finance of Japan as required by the Securities and Exchange Law
and that conform with accounting principles generally accepted inJapan.
Foreign subsidiaries maintain their books in conformity withfinancial standards of the countries of their domicile.
For the convenience of readers outside Japan, the presentation of
the consolidated financial statements and the information contained
therein have been modified in some respects.

2. Summary of Significant Accounting Policies(a) Principles of consolidation
The consolidated financial statements include the accounts of theCompany and all of its 28 subsidiaries.
The investments in affiliates in which the Company's ownership is
20% to 50% are accounted for by the equity method.
All significant inter-company accounts, transactions and unrealized
profits or losses have been eliminated in consolidation.
The fiscal year of all entities ends on March 31, except for one
foreign subsidiary, which uses December 31 year end, and no
significant transactions were noted between the different fiscal year
ends.
U.S. dollar amounts included herein are solely for the convenienceof readers and are presented at the rate of ¥120.20 to $1.00, theapproximate rate at March 31, 2003. 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.

(e) Property, plant and equipment
Property, plant and equipment are stated at cost. Depreciation ofbuildings, machinery and equipment is computed on the decliningbalance method for the Company and its consolidated domestic
subsidiaries at rates based on the estimated useful lives of assets,
while the straight-line method is mainly applied for its consolidated
foreign subsidiaries over the estimated useful lives of their assets.

(f) Retirement and severance benefits
The Company and its consolidated domestic subsidiaries provide areserve for employees' retirement benefits based on the projected
benefit obligation and pension assets on the consolidated accountsettlement date. Prior year employment benefit obligations arecharged to income on a straight-line basis, beginning from theconsolidated fiscal year in which they are incurred, over a fixed
number of years (four years) within the average remaining years ofservice of employees when the differences occur. Actuarial
differences are charged to income on a straight-line basis, beginningfrom the year after they are recognized, over a fixed number of years(four years) within the average remaining years of service of
employees when the differences occur.
The annual provision for accrued retirement benefits for directors
and corporate auditors of the Company and its consolidated domestic
subsidiaries is also calculated to state the liability at the amount thatwould be required if all directors and corporate auditors retired at theend of the consolidated fiscal year according to internal regulation.

(g) Provision for loss on restructuring
The Company and its consolidated domestic subsidiaries havebooked provision for loss on restructuring in the year ended March 31,
2003 in preparation for losses that the companies expect to incur infuture due to the implementation of their business restructuring plan.

(b) Foreign currency translation
All assets and liabilities denominated in foreign currencies aretranslated into Japanese yen at the rate prevailing at the balance
sheet date, except for those hedged by forward exchange contracts,
which are translated at the contracted rates.
Income and expense items are translated at the rates thatapproximate those rates prevailing at the time of the transactions.
The financial statements of foreign subsidiaries have beentranslated in accordance with the accounting standards in Japan.

(c) Marketable securities and investments in securities
Securities with market prices are valued at market based onmarket prices on the fiscal year-end. Other securities are valued atcost using the weighted average method.
The differences between the book and market prices of marketablesecurities are charged to shareholders’ equity. The cost of soldsecurities is calculated using the weighted average method.

(d) Inventories
Inventories other than raw materials are stated principally at cost,
cost being determined principally by the individual method. Raw
materials are stated principally at cost, cost being determinedprincipally by the moving-average method.

(h) Leases
Finance lease transactions, unless the lessee practically acquires
legal title to the leased asset, are treated as operating leasetransactions.

(i) Income taxes
The Company and its consolidated subsidiaries record deferred tax
assets and liabilities on temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes andthe amounts used for income tax purposes.

(j) Derivatives
The Company makes use of derivatives only to reduce exchange
risk of foreign currencies. The amount of derivatives is limited to theextent of foreign currency assets, debt and actual orders, and theCompany does not trade in derivatives for speculative purposes.
Derivatives are valued at market based on market prices on thefiscal year-end.

(k) Valuation of assets and liabilities of consolidated
subsidiaries
Assets and liabilities of consolidated subsidiaries are valued using
the full mark-to-market method.

33

ah4537_アニュアルレポート(ワード).doc 03/8/4 18 時 1 分(l) Amortization of consolidated goodwill

6. Pledged Assets

Consolidated goodwill is evaluated on an individual basis andamortized not exceeding 20 years, and the balance is included in the
Intangible and other assets.

The Company and its consolidated subsidiaries did not hold any
assets pledged as collateral at March 31, 2003 and 2002.

7. Short-Term Borrowings and Long-Term Debt(m) Per share information
Net income per share is computed based on the weighted average
number of shares of common stock outstanding during each year.
From 2003, the Company began applying "Accounting Standards
regarding Net Income per Share (Business Accounting Standards
No.2)" and "Practical Guidelines for Applying Accounting Standards
regarding Net Income per Share (Practical Guidelines for Applying
Accounting Standards No.4)" released by the Accounting Standards
Board of Japan (ASBJ)
Dividends per share have been presented on an accrual basis andinclude, in each fiscal year ended March 31, dividends approved or to
be approved after such March 31 but applicable to the year thenended.

3. Cash and cash equivalents

2003

2003

Thousands of
U.S. dollars

2002

2003
$128,794-

0.90% unsecured convertible
bonds due 2003 ...............................

¥15,481-¥ 15,500-

2.00% unsecured bonds due 2002......

--

20,000---1.39% unsecured bonds due 2004......

20,000-20,000-166,389-

0.85% unsecured bonds due 2003......

20,000-20,000-166,389-

1.30% unsecured bonds due 2005......

30,000-30,000-249,584-

4,500-

4,500-

37,438-warrants due 2006 ...........................

Thousands of
U.S. dollars

2002

Millions of yen

1.59% unsecured bonds with

Cash and cash equivalents at March 31, 2003 and 2002 are as
follows:
Millions of yen

Short-term borrowings are represented by 365-day notes issued by
the Company and its consolidated subsidiaries to banks and boreinterest at the average annual rate of 1.15% at March 31, 2003 and1.12% 2002, Long-term debt at March 31, 2003 and 2002 is asfollows:

2003

0.86% unsecured bonds withwarrants due 2007 ...........................

5,500-

5,500-

45,757-

Other loans from banks .......................

12,153-

16,339-101,097-

Cash and deposits ...............................

¥52,982¥48,409-$440,784 -Current portion.....................................

(37,404)(26,387)(311,177)

Time deposits due over 3 month .........

-

--

-

Total .....................................................

¥70,230-¥105,452-$584,271-

Total .....................................................

¥52,982¥48,409-$440,784 -4. Marketable Securities and Investments in Securities
Marketable securities at March 31, 2003 and 2002 are as follows:
Thousands of
U.S. dollars

Millions of yen
Mutual funds ........................................

A summary of terms and conditions of the unsecured convertible
bonds at March 31, 2003 is as follows:
0.90% unsecured convertible bonds due 2003
Bond amount ............................................................. ¥15,481 million
Interest rate................................................................ 0.90%

2003

2002

2003

Issued stocks ............................................................. Common stock¥ - ----¥10----$ - - ---

Conversion price........................................................ ¥3,150 per sharesubject to adjustment

Investments in securities at March 31, 2003 and 2002 are as
follows:

in certain events.
Convertible period...................................................... June 1, 1994-September

Thousands of
U.S. dollars

Millions of yen

29, 2003

A summary of terms and conditions of the bonds with warrants at
March 31, 2003 is as follows:
1.59% unsecured bonds with warrants due 2006

2003

2002

2003

¥5,710 -¥8,545-$47,502-

Mutual funds ........................................

117-

115-

975-

Other ....................................................

1,389-

875-

11,559-Bond amount ............................................................. ¥4,500 million

Total .....................................................

¥7,216 -¥9,535-$60,036-

Interest rate................................................................ 1.59%

Listed stock..........................................

Issued stocks ............................................................. Common stock

5. Inventories

Exercise price ............................................................ ¥14,070

Inventories at March 31, 2003 and 2002 are as follows:
Millions of yen

Exercise period .......................................................... July 1, 2002-June 8, 2006
Thousands of
U.S. dollars

0.86% unsecured bonds with warrants due 2007

2003

2002

2003

¥63,206-¥ 63,730-$525,844 -Bond amount .............................................................. ¥5,500 million
Interest rate................................................................. 0.86%

raw materials and supplies ..............

48,604-

63,622-404,357-

Issued stocks .............................................................. Common stock
Exercise price ............................................................. ¥9,608

Total ............................................

¥111,810 -¥127,352-$930,201 -Exercise period ........................................................... July 1, 2003-June 7, 2007

Finished products ................................
Work in process,34

ah4537_アニュアルレポート(ワード).doc 03/8/4 18 時 1 分

8. Retirement and Severance Benefits

9. Income Taxes

The Company and its consolidated domestic subsidiaries havenoncontributory retirement and severance benefit plans that provide
for pension or lump-sum payment benefits to employees who retire or
terminate their employment for reasons other than dismissal forcause. In addition, the majority of the employees of the Company andits consolidated domestic subsidiaries are covered by a contributory
pension plan, whose benefits are based on length of service andcertain other factors and include a portion representing thegovernment social security welfare pension.
Certain consolidated foreign subsidiaries have a noncontributory
retirement and severance benefit plan that provides for pension or
lump-sum payment benefits to employees who retire or terminate
their employment for reasons other than dismissal for cause.
The funded status of the defined benefit plans, a substantial
portion of which consists of domestic benefit plans, as of March 31,
2003 and 2002 is as follows:Significant components of the deferred tax assets and liabilities of
the Company and its consolidated subsidiaries as of March 31, 2003
and 2002 are as follows:

Thousands of
U.S. dollars

2003

2002

2003

Tax loss carryforwards ........................

¥13,394-¥17,100-$111,432-

Allowance for retirement benefits ......

11,417-

9,252-

94,982-

Devaluation of inventories ...................

6,993-

944-

58,176-

Provision for loss on restructuring .......

3,549---

29,525-2,451---

20,394-

1,273-

1,931-

10,58910,572-

Deferred tax assets

Excess of depreciation
and amortization ..............................
Elimination of unrealized
gain on inventories ...........................
Elimination of unrealized gain
on fixed assets .................................

1,271-

738-

2003

2002

2003

Allowance for bonuses ........................

1,165---

9,689-¥(67,714)¥(59,125)$(563,344)

Other ....................................................

3,014-

5,034-

25,079-Millions of yen
Benefit obligation ..................................

Thousands of
U.S. dollars

Millions of yen

Fair value of plan assets.......................

20,631-

18,021-

171,639-

Subtotal of deferred tax assets............

44,527-34,999-370,438-

Unrecognized benefit obligation ...........

(47,083)(41,104)(391,705)

Valuation allowance.............................

(30,724)(3,979)(255,605)

Unrecognized actuarial difference ........

13,622-9,390-

113,330-

Total deferred tax assets ..................

13,803-31,020-114,833-

Unrecognized decrease of benefit........

(1,857)--(15,449)

Deferred tax liabilities¥(35,318)¥(31,714)$(293,824)

Amount recognized in the
consolidated balance sheets (note) ..

Allowance for extraordinary

Note: The annual provision for accrued retirement benefits for directors and corporate auditors(¥1,074 million in 2003, and ¥1,270 million in 2002) is not included.

Net pension cost of the plans is as follows:
Millions of yen

Thousands of
U.S. dollars

2003

2002

2003

Service cost ..........................................
Interest cost ..........................................

¥5,1641,688-¥4,3691,621-$42,96314,040-

Expected return on plan assets............
Amortization of unrecognized actuarial

(541)

(467)

(4,498)difference ..........................................
Amortization of decrease of benefit

2,456(619)544--

20,435(5,149)

Net pension cost ...................................

¥8,148-¥6,067-$67,791-

Significant assumptions of domestic pension plans used todetermine these amounts are as follows:
2003
Allocation method of benefit obligation ......................

2002

Straight-line method

Discount rate...............................................................

2.50%

3.00%

Expected rate of return on plan assets ......................

3.00%

3.00%

Amortization life of prior service cost .........................

4 years-

4 years

4 years

depreciation......................................

(523)

(754)

(4,349)Other ....................................................

(407)(4,315)(3,386)

Total deferred tax liabilities ..............

(930)(5,069)(7,735)Net deferred tax assets .....................

¥12,873-¥25,951-$107,098-

Along with the promulgation on March 31, 2003 of the Law toPartially Revise the Regional Tax Law, etc. (Law No. 9, 2003), thelegal effective tax rate used in the calculation of all deferred tax
assets and liabilities (limited to those deferred taxes that will be
realized on April 1, 2004 or later) was changed to 40.69% from42.05%. As a result, deferred tax assets (after deducting deferred tax
liabilities) at the end of the current fiscal year decreased by ¥118
million, deferred provision for income taxes increased by ¥116 million,
and the net unrealized gain (loss) on securities declined by ¥2 million.

10. Shareholders’ Equity
The Company issued 6,027 shares and 634 shares of common
stock in 2003 and 2002, respectively, in connection with conversion of
convertible bonds.
Conversion of convertible bonds into common stock has beenaccounted for in accordance with the provisions of the JapaneseCommercial Code by crediting one-half of the conversion price to thecommon stock account and the additional paid-in capital accountrespectively.

Amortization life of unrecognizedactuarial difference..................................................
Amortization life of unrecognizedtransition obligation ................................................. Fully recognized in the fiscal
year ended March 31, 200135

ah4537_アニュアルレポート(ワード).doc 03/8/4 18 時 1 分

11. Share Repurchase Under Stock Option Program
The Company and its consolidated subsidiaries have a stock
option plan to further increase directors’ and employees' incentive
and motivation to raise corporate performance with the aim of
maximizing corporate value. A summary of share repurchases under
the stock option plan during the year ended March 31, 2003 is asfollows:
Number ofsharesMillions ofyen

Thousands of
U.S. dollars

Outstanding at
beginning of the year ........................

603,000----¥4,991----$41,526--

Purchased.............................................

- ----- ----- --Exercised ..............................................

- ----- ----- --Outstanding at end of the year .............

603,000----¥4,991----$41,526--

Note: The Company has 1,431,755 shares (¥8,248 million) of treasury stock other than the above.

Lease payments and depreciation computed by the straight-line
method over the lease terms with no residual value and imputed
interest expense were ¥171 million in the year ended March 31, 2003and ¥69 million in the year ended March 31, 2002.
Future minimum operating lease payments:
Millions of yen
Due within one year..............................

Thousands of
U.S. dollars

2003

2002

2003

¥1,434---¥ 868---$11,927-

Due over one year ................................

1,582---

1,976---

13,162-

Total ......................................................

¥3,016---¥2,844---$25,089-

15. Segment Information
The Company and its consolidated subsidiaries operate in a single
segment.

16. Contingent Liabilities
12. Restructuring costs
These costs are for the devaluation and disposal, etc. of assets
due to the consolidation or the closure of operating bases inaccordance with the implementation of the business restructuring
plan.

13. Amount transferred to provision for loss on
restructuring
This amount was transferred to provision for loss on restructuring
in preparation for losses expected to be incurred in future due to theimplementation of the business restructuring plan.

14. Leases
Pro-forma information of leased property such as acquisition cost,
accumulated depreciation, obligation under finance lease, anddepreciation expense of finance leases that do not transfer ownershipof leased property to the lessee on an "as if capitalized" basis for theyears ended March 31, 2003 and 2002 is as follows:
Leased assets not recorded in the consolidated balance sheets:
Millions of yen
Acquisition cost.....................................

Thousands of
U.S. dollars

2003

2002

2003

¥999---¥876---$8,309-

Accumulated depreciation ....................

255---

69---

2,117-Net leased property ..............................

¥744---¥807---$6,192-Future minimum lease payments:
Millions of yen
Due within one year..............................

Thousands of
U.S. dollars

2003

2002

2003

¥171---¥171---$1,424-Due over one year ................................

573---

636---

4,768-

Total ......................................................

¥744---¥807---$6,192-36

The Company and its consolidated subsidiaries did not hold any
contingent liabilities at March 31, 2003.

Independent Auditors’ Report

To the Board of Directors, Tokyo Electron Limited
We have examined the consolidated balance sheets of Tokyo Electron Limited and its consolidated subsidiaries as of March 31, 2003 and 2002, the related statements of income and shareholders’ equity foreach of the three years in the period ended March 31, 2003, and the statements of cash flows for theyears ended March 31, 2003 and 2002, all expressed in yen. Our examinations were made in accordancewith auditing standards generally accepted in Japan and, accordingly, included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances.
In our opinion, the consolidated statements present fairly the financial position of Tokyo Electron Limited
and its consolidated subsidiaries at March 31, 2003 and 2002, the results of their operations for each of
the three years in the period ended March 31, 2003, and their cash flows for the years ended March 31,
2003 and 2002, in conformity with accounting principles generally accepted in Japan applied on a consistent basis.
The amounts expressed in U.S. dollars have been translated on the basis described in Note 2-a.

Tokyo, Japan
June 20, 2003

Masatoshi Yoshino

Eiji Miyashita

Fumihiko Sugiura

Certified Public Accountant

Certified Public Accountant

Certified Public Accountant

Tokyo Electron 37

Corporate Directory(As of June 20, 2003)

JAPANTOKYO ELECTRON LIMITEDWorld Headquarters
TBS Broadcast Center
3-6 Akasaka 5-chome, Minato-ku,
Tokyo 107-8481
Tel: 03-5561-7000
Fax: 03-5561-7400
URL: http://www.tel.co.jp/
Regional Offices
Fuchu Technology Center, Osaka Branch Office,
Kyushu Branch Office, Yamanashi Regional
Office (Fujii/Hosaka), Nagoya Sales OfficeTOKYO ELECTRON TOHOKU LIMITED
Headqurters • Tohoku Plant
52 Matsunagane, Iwayado
Esashi City, Iwate 023-1101

TOKYO ELECTRON AT LIMITED
Headqurters • Miyagi Plant
1-1 Nekohazama, Nemawari, Matsushima-machi
Miyagi-gun, Miyagi 981-0203
Fujii Plant
2381-1 Kitagejo, Fujii-cho, Nirasaki City
Yamanashi 407-8511
Hosaka Plant
650 Mitsuzawa, Hosaka-cho
Nirasaki City, Yamanashi 407-0192
Kansai Technology Center
1-8 Fuso-cho, Amagasaki City
Hyogo 660-0891

TOKYO ELECTRON KYUSHU LIMITED
Headqurters • Saga Plant
1375-41 Nishi-Shinmachi
Tosu City, Saga 841-0074
Kumamoto Plant
2655 Tsukure, Kikuyo-machi
Kikuchi-gun, Kumamoto 869-1197
Ozu Plant
272-4 Takaono, Ozu-machi
Kikuchi-gun, Kumamoto 869-1232
Koshi Plant
1-1 Fukuhara, Koshi-machi
Kikuchi-gun, Kumamoto 861-1116

TOKYO ELECTRON EE LIMITED
2-41 Machiya 1-chome, Shiroyama-machi
Tsukui-gun, Kanagawa 220-0101
Fujii Plant
Hosaka Plant
Kumamoto District OfficeTOKYO ELECTRON SOFTWARETECHNOLOGIES LIMITED30-7 Sumiyoshi-cho 2-chome
Fuchu City, Tokyo 183-8705
Sapporo Technology Center
Marumasu Building No. 18, Nishi 1-chome
Kita 7-jo, Kita-ku, Sapporo City,
Hokkaido 060-0807
Tohoku Station
Yamanashi Station
Kyushu Station

38

Annual Report 2003 — Innovations Ahead

TOKYO ELECTRON FE LIMITEDTOKYO ELECTRON ITALIA S.p.A.

30-7 Sumiyoshi-cho 2-chome
Fuchu City, Tokyo 183-8705
District Offices
Iwate, Tsuruoka, Miyagi, Aizuwakamatsu, Mito,
Nirasaki, Toyama, Kuwana, Tsu, Osaka, HigashiHiroshima, Fukuyama, Saijo, Nagasaki, Kikuyo,
Ozu, Koshi, Oita, Saga

Centro Direzionale Colleoni, Palazzo Astrolabio
Via Cardano 2
20041 Agrate Brianza, Milan, Italy
Branch Offices
Avezzano, Catania

TOKYO ELECTRON DEVICE LIMITED
1 Higashikata-cho, Tsuzuki-ku
Yokohama City, Kanagawa 224-0045
Sales Offices
Sendai, Mito, Kita-Kanto, Tachikawa, Yokohama,Matsumoto, Nagoya, Osaka, Fukuoka, Tokyo
Office (Kanda)

TOKYO ELECTRON LEASING CO., LTD.
30-7 Sumiyoshi-cho 2-chome,
Fuchu City, Tokyo 183-8705

TOKYO ELECTRON LOGISTICS LIMITED30-7 Sumiyoshi-cho 2-chome
Fuchu City, Tokyo 183-8705

TOKYO ELECTRON AGENCY LIMITED30-7 Sumiyoshi-cho 2-chome
Fuchu City, Tokyo 183-8705

AMERICATOKYO ELECTRON DEUTSCHLAND GmbH
Carl-Zeiss-Ring 5, 85737, Ismaning, Germany
Branch Offices
Alsdorf, DresdenTOKYO ELECTRON NEDERLAND B.V.
Kerkenbos 10 15, Unit C
6546 BB Nijmegen, The Netherlands

TOKYO ELECTRON IRELAND LIMITED
Collinstown Industrial Park, Leixlip, Co.
Kildare, Ireland

TOKYO ELECTRON ISRAEL LIMITED
5 Habarzel St., Gat 2000 Industrial Zone
Kiryat Gat, Israel
Branch OfficeMigdal HaEmek

TOKYO ELECTRON FRANCE S.A.R.L.
Batiment Alicante 1, Chemin de la Dhuy
38240 Meylan, France
Branch Offices
Paris, Rousset

TOKYO ELECTRON AMERICA, INC.
2400 Grove Boulevard, Austin,
Texas 78741
Branch Offices
Albuquerque, Boise, Burlington, Colorado
Springs, Dallas, Fishkill, Los Angeles, Manassas,
Marlborough, Phoenix, Portland(Oregon),
Richmond, Santa ClaraTOKYO ELECTRON MASSACHUSETTS, LLC
123 Brimbal Avenue, Beverly
Massachusetts 01915

TOKYO ELECTRON ARIZONA, LLC
2120 West Guadalupe Road, Gilbert
Arizona 85233

SUPERCRITICAL SYSTEMS, INC.
2120 West Guadalupe Road, Gilbert,
Arizona 85233

TIMBRE TECHNOLOGIES, INC.
2953 Bunker Hill Lane, Suite 301
Santa Clara, CA 95054

EUROPETOKYO ELECTRON EUROPE LIMITED
Premiere House, Betts Way, London Road
Crawley, West Sussex, RH10 9GB, England U.K.
Branch Offices
European Distribution Centre, Livingston

ASIATOKYO ELECTRON KOREA LIMITED
325-230 Dongchun-ri, Suji-up, Yongin-city
Kyonggi-do, 449-120 Korea
Branch Offices
Cheongju, Gumi, Icheon, Kiheung, Pucheon

TOKYO ELECTRON TAIWAN LIMITED
7FI, No.18, Pu-ding Road
Hsin-chu City, Taiwan 300, R.O.C.

TOKYO ELECTRON (SHANGHAI)
LOGISTIC CENTER LIMITED
30FI, No. 28, Suzhou Xin Jin Qiao Road,
Suite 3001, Pudong Shanghai, 201206, China
Branch Office
TianJinInvestor Information(As of March 31, 2003)

Corporate Name:Tokyo Electron Limited

Common Stock Listed on:
The Tokyo Stock Exchange 1st Section (#8035)

Established:
November 11, 1963

Transfer Agent for Common Stock:
Chuo Mitsui Trust and Banking Co., Ltd.
33-1 Shiba 3-chome, Minato-ku, Tokyo 105-8574, Japan

Annual General Meeting of Shareholders:June

Common Stock:
Stock trading unit
Authorized
Issued and outstanding
Number of shareholders

For further information, contact:
Investor Relations Group
Corporate Communications Department
Tokyo Electron Limited
3-6 Akasaka 5-chome, Minato-ku
Tokyo 107-8481
Tel:+81-3-5561-7003
Fax:+81-3-5561-7394
E-mail: ir@corp.tel.co.jp
http://www.tel.com

100 shares
300,000,000 shares
175,697,930 shares
49,259Distribution of ownership among shareholders
Japanesefinancial institutions
85,623,905 shares(48.73%)

Other Japanese
corporations
15,489,867 shares(8.82%)
Individuals andothers
20,897,117 shares(11.89%)Foreign institutions
and others
53,687,041 shares(30.56%)

Quarterly Stock Price Range(¥)
25,000(Calender Years)

20,00015,00010,000

5,000

0
1Q

2Q

3Q

2000

4Q

1Q

2Q

3Q

2001

4Q

1Q

2Q

3Q

2002

4Q

1Q
2003

Tokyo Electron 39

TOKYO ELECTRON LIMITED

Annual Report 2003

Printed in Japan on recycled paper
41AG-028