TOKYO ELECTRONANNUALREPORT 2017
For the Year Ended March 31, 2017

TOKYO ELECTRON ANNUAL REPORT 2017

PAGE

1

CONTENTS

To OurOur Stakeholders
Stakeholders
To

Business Overview
Overview
Business
and Financial
Financial Highlights
Highlights
andInterview
Interview with
with thethe CEO
CEO
Message
Message fromfrom thethe CFO
CFO

Review
Review ofof Operations
Operations
andand BusinessBusiness Outlook
Outlook

Corporate
Corporate Governance
Governance
CSR-Oriented
CSR-Oriented Operations
Operations

Financial
Financial Section
SectionCorporate Data
Data
Corporate

Contents
Guide to Buttons

Corporate Philosophy

Contents

Move Back to Previous Page

2 To Our Stakeholders

Move Forward to Next Page

We strive to contribute to the development of a

3 Business Overview and Financial Highlights

Return to Last Page Opened

dream-inspiring society through our leading-edge

4 Interview with the CEOtechnologies and reliable service and support.

7 Message from the CFO
9 Review of Operations and Business Outlook
10 Corporate Governance
Message from the Chairman of the Board
Messages from the Outside Directors

VisionA truly global company generating high added
value and profits in the semiconductor and flat

 Messages from the Outside Audit &Supervisory Board Members
15 CSR-Oriented Operations

panel display industries through innovative

17 Directors, Audit & Supervisory Board Members andExecutive Officers

technologies and groundbreaking proactive

18 Financial Section

solutions that integrate diverse technologies.

33 Consolidated Subsidiaries
33 Investor Information

Disclaimer

The Corporate Philosophy defines the purpose ofTokyo Electron’s existence and its mission in society.
It represents Tokyo Electron’s basic way of thinking
and forms the foundation for its corporate activities.
The Vision was established as an ideal, to which
everyone in the Group can aspire, indicating how
we should conduct business in order to fulfill
the Corporate Philosophy.

Matters discussed in this annual report, including forecasts of future business performance of Tokyo Electron, management
strategies, beliefs and other statements are based on Tokyo Electron’s assumptions 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 from those 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/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 electronics makers• Tokyo Electron’s capabilities to continue to develop and provide products and services that respond to rapid technology innovation and changing customer needs in a timely manner
For details, please refer to Business-related and Other Risks on page 20.

Go to Contents Page
Search PDF Content
Print
Zoom

TOKYO ELECTRON ANNUAL REPORT 2017

PAGE

2

CONTENTS

Business Overview
and Financial Highlights

To Our Stakeholders

Interview with the CEO
Message from the CFO

Review of Operations
and Business Outlook

Corporate Governance
CSR-Oriented Operations

Financial Section

Corporate Data

To Our Stakeholders

To Our Stakeholders

Aiming Even
HigherMaximizing Corporate Valueat the Dawn of the IoT Era

To begin, we would like to express our thanks for the continued support of ourinvestors and all of Tokyo Electron’s stakeholders.
In 2016, semiconductor manufacturers made aggressive capital investment,
reflecting demand generated by the increasing use of semiconductor components in smartphones and the adoption of higher-speed servers. As a result, thewafer fab equipment market grew significantly.
In this environment, Tokyo Electron posted strong fiscal 2017 results. The grossprofit margin, operating margin, and net income all reached record highs. We also
paid a record high annual dividend of ¥352 per share. However, we regard these

Tetsuo Tsuneishi

Toshiki Kawai

Chairman of the Board

President & CEO

results as just another point marking Tokyo Electron’s continuing growth journey.
With the full-fledged arrival of the internet of things (IoT), the semiconductor
and display industries are beginning to shift to an accelerated growth trajectory.
After reexamining our outlook for the industry and Tokyo Electron’s business
opportunities, we revised the financial model used in the medium-term management plan for the period ending March 2020. Under the new model, we assume alarger market and are targeting sales of around ¥1 trillion as well as major
improvement in profitability.

We will continue to push boldly forward, aiming to reach the goals of the medium-term plan and achieve sustainable growth of corporate value. This will bebased on our vision of being a truly global company generating high added value
and profits in the semiconductor and flat panel display industries through innovative technologies and groundbreaking proactive solutions that integrate diverse
technologies. We look forward to your continued support as we move forward.

TOKYO ELECTRON ANNUAL REPORT 2017

PAGE

3

CONTENTSInterview with the CEO
Message from the CFO

Business Overview
and Financial Highlights

To Our Stakeholders

Review of Operations
and Business Outlook

Corporate Governance
CSR-Oriented Operations

Corporate Data

Financial Section

Business Overview and Financial Highlights

Business Overview and Financial Highlights

Semiconductor
Production
Equipment

Coater/Developers
Plasma Etch System
Thermal Processing System

Semiconductor devices are broadly used in mobile devices, suchas smartphones and tablets, as well as the data center serversthat are indispensable for the processing of big data. With thearrival of the internet of things, semiconductor applications will
expand in all fields, from consumer electronics and automobiles
to medicine and healthcare. Tokyo Electron provides a wide
range of semiconductor production equipment used to manufacture such semiconductors along with superior technical support and service. The six main categories of our product lineup
are coater/developers, plasma etch systems, thermal processing
systems, single wafer deposition systems and cleaning systems
used in wafer processing as well as wafer probers used in thewafer testing process. In addition, we also offer such products aselectrochemical deposition systems and wafer bonders/debonders used in advanced packaging processes.

Sales by Region

5.7%
Europe 8.0%

Southeast Asia

Coater/Developers
CLEAN TRACK ™
LITHIUS Pro™ Z

China

12.1%

Japan

12.2%

North America

13.5%

South Korea

18.4%

Taiwan30.1%

ALD System
NT333™

Plasma Etch System
Tactras™

Net Sales
Net Sales
and andGross
GrossProfitProfitMarginMargin(Billions (Billionsof yen) of yen)(%)(Billions(Billionsof yen) of yen)(%)

1,000 1,00050

50
200 200

800 800

40.2 40.2
40.3 40.3
39.6 39.6
40

33.0 33.0
31.9 31.9
799.7799.7
663.9663.9
613.1613.1
30
612.2612.2
497.3497.3

400 40020

200 200
0

Gross Gross
Profit Profit
MarginMargin

Single Wafer Cleaning System
CELLESTA™ -i

14.4 14.4

30

116.8116.8

100 100

88.1 88.1

20
50

0

0 0

50

155.6155.6
15(Billions(Billionsof yen) of yen)
(%)

1580

80

(%)

(%)

(Billions (Billionsof yen) of yen)30
115.2115.2

30

120 120

20

20

90

90

10

10

60

60

0

0

30

30

-10

-10

0

0

77.9 77.9
71.9 71.9

10

1040

40

5

5 0

0

0

0-40

-40

2.5 2.5
32.2 32.2
0
12.5
12.5

13 13 14 1415 1516 1617 17
OperatingOperatingMarginMargin

13.0 13.0
11.8 11.8

6.1 1.0
6.1 1.0-3.3 -3.3-19.4-19.4

Japan

19.3%

Overseas

80.7%

Flat panel displays (FPDs) are an essential part of everyday life,
employed in such products as TVs, smartphones and tablets.
Going forward, FPDs are expected to see new growth in demand
for such applications as virtual reality (VR) and augmented reality (AR) head-mounted displays. Tokyo Electron supplies coater/developers and plasma etch/ash systems for manufacturing
FPDs along with solid technical support and service. We alsooffer an inkjet printing system for manufacturing OLED panels
using large-sized substrates to take advantage of the expanding
OLED display market.

FPD Coater/Developers
Exceliner™

118.0118.0

13 13 14 1415 1516 1617 17
Net Income
Attributableto Ownersof Parent
Net Income(Loss)(Loss)
Attributableto Ownersof Parent
ROE ROE

The amounts in this report in hundred millions (0.1 billion unit) of yen, in millions of yen and in thousands of yen, U.S. dollars and shares, as of and for the years ended March 31, 2016 and prior periods arerounded. On the other hand, such amounts including the changes from the previous fiscal year are rounded down as of and for the year ended March 31, 2017, and therefore the totals do not necessarily agreewith the sum of the individual account balances for the corresponding period.

FPD Plasma Etch/Ash System
Impressio™

64.2 64.2
60.4 60.4
33.4 33.4

8.6 8.6

13 13 14 1415 1516 1617 17Free Cash Flow =  Cash flows from operating activities + Cashflows from investing activities (excluding changes in short-term
investments with ­original maturities of less than one year)

Inkjet Printing System for
Manufacturing OLED Panels
Elius™ 2500

Net Income
Net Income(Loss)(Loss)
per Shareper Share

CashCashDividends
Dividends
per Shareper Share

(Yen)

(Yen)

(Yen)

750 750(Yen)

400 400

702.26702.26500 500

19.1 19.1

5.3 5.3

Operating
IncomeOperating
IncomeWafer Prober
Precio™ XLFreeFree
CashCash
FlowFlow20
120 120FPD Coater/Developers
FPD Plasma Etch/Ash System
Inkjet Printing System for Manufacturing OLED Panels

Sales by Region

Net Income
Net Income(Loss)(Loss)
Attributable
Attributableto Owners
to Ownersof Parentof Parent
and and
ROEROE17.6 17.6

10

13 13 14 1415 1516 1617 17(%)

19.5 19.5
2040
150 150

100

Net Sales
Net Sales

Single Wafer Deposition System
Triase +™

OperatingOperating
IncomeIncomeand andOperatingOperatingMarginMargin600 600

FPD
Production
Equipment

Single Wafer Deposition System
Cleaning System
Wafer Prober461.10461.10401.08401.08

33.91
33.91
0

-250 -250

237 237
200 200

250 2500352 352
300 300-108.31-108.31

13 13 14 1415 1516 1617 17

143 143
100 100

51
0

51 50

50

0

13 13 14 1415 1516 1617 17

TOKYO ELECTRON ANNUAL REPORT 2017

PAGE

4

CONTENTS

To Our Stakeholders

Business Overview
and Financial Highlights

Interview with the CEO
Message from the CFO

Interview with the CEO

Review of Operations
and Business Outlook

Corporate Governance
CSR-Oriented Operations

Financial Section

Corporate Data

Message from the CFO

Interview with the CEO

A new growth phase in
the semiconductor anddisplay industries
Meeting customer needs with innovative technologies that
integrate our products’ strengths
Q ues t ion

01

Tokyo Electron achieved excellent results in fiscal 2017,
including record-high profit. Please tell us about theCompany’s achievements and initiatives during yourtime as CEO so far.

In Tokyo Electron’s key business fields, our products have been well received by customers and won
increased market share. We are steadily advancing such initiatives as making technological proposals using our robust product lineup as we pursue the goals of the medium-term management plan,
which ends in fiscal 2020.
Since establishing the medium-term manage-

As a result of our efforts so far, especially in thement plan in 2015, we have been working to

key fields of etch, deposition and cleaning sys-

achieve world-class profitability. To reach thistems, customers have praised our products for

Toshiki Kawai

goal, we have been focusing on reinforcing prod-

their performance and adopted them for use in

President & CEO

uct competitiveness, responsiveness to custom-

additional mass production processes.

ers and operational efficiency as we build strong

Consequently, our market share has increased inbusiness and technological platforms.

all our key fields, and I feel that our value to customers is also steadily rising.

TOKYO ELECTRON ANNUAL REPORT 2017

PAGE

5

CONTENTS

To Our Stakeholders

Business Overview
and Financial Highlights

Review of Operations
and Business Outlook

Interview with the CEO
Message from the CFO

Interview with the CEO

Corporate Governance
CSR-Oriented Operations

Financial Section

Corporate Data

Message from the CFO

Interview with the CEO
Looking at medium- and long-term growthof Tokyo Electron’s robust product lineup andefforts, we have deepened technological collabo-

thus improve our responsiveness to customers.

ration with our customers’ R&D divisions. By

As part of these efforts, we established a new

doing so, we have been able to more rapidly

process integration center, which has particularly

identify hurdles in the development of cutting-reinforced our development framework for next-edge devices and accelerate technological devel-

generation patterning technologies.

opment aimed at creating competitive

By both increasing our market share in our

next-generation products. Furthermore, we havecurrent key fields and advancing initiatives from aassigned marketing and R&D general managers

medium- and long-term perspective, we havefor each customer to facilitate the provision ofbeen making steady progress toward the goals oftechnological solutions that leverage the strength

the medium-term management plan.

Q u e st i o n02

Manufacturing

Medicine

What kind of growth do you expect in the semiconductor and display industries going forward?

The IoT is dramatically
expanding opportunities in
the SPE and FPD
manufacturing equipment
businesses

Transportation

SocialNetworking

Finance

With the dawn of the internet of things (IoT), the applications of semiconductors and displays are
expanding dramatically. Accordingly, the SPE* and FPD** production equipment markets are on thecusp of a new growth phase.
In the past, semiconductor demand, driven large-

As a result of this massive increase in data

ly by PCs alone, repeatedly rose and fell everytransmission volumes and diversification of semi-

three to four years, in what was known as the sili-

conductor applications, the SPE market is now on

con cycle. The arrival of the IoT, however, marks a

the verge of a new growth phase.

Q ues t ion

03

You mentioned that the market is headed for a new
growth phase. How will you turn market changes intobusiness expansion?

fundamental shift, as all kinds of devices and

The display industry is also changing, with theobjects connect to networks, rapidly expanding

creation of large-sized OLED TVs and the growing

applications for semiconductors.

range of display applications, such as display pan-

In light of the sophisticated technological hurdles our customers face, we will further hone our prod-

In the near future we will see the adoption ofels used in vehicles, head-mounted displays for

uct development capabilities and customer responsiveness in order to provide greater added value.

next-generation 5G telecommunications stan-augmented/virtual reality, and digital signage.

To meet demand for semiconductor devices that

because Tokyo Electron offers wide-ranging solu-

dards, which will serve as the infrastructure for

These changes are driving demand for technolog-

are more powerful and faster while consuming

tions to sophisticated technological challenges.

the full-scale IoT. With this, even greater volumes

ical innovation to realize displays that are, forless power, semiconductor production equipment

Leveraging the Company’s cutting-edge coreof data will be sent to the cloud for instant pro-example, flexible, higher resolution, larger sized or

manufacturers face growing expectations totechnologies and robust product lineup, we are

cessing at data centers. As such new technologies

less power consuming. As a result, the market isdeliver technological innovation in such areas asoffering optimal integrated process solutions. We

and services as artificial intelligence (AI), autono-

beginning to expand.

cutting-edge patterning, new device structures

will continue to use our excellent product devel-and new materials. Few companies can meet these

opment capabilities and customer responsivenessexpectations. For us, however, these expectations

to achieve business expansion.

mous vehicles, telemedicine and fintech mature,
the role of semiconductors as their underlying
foundation will only grow.

* SPE: Semiconductor production equipment** FPD: Flat panel display

represent tremendous business opportunities

TOKYO ELECTRON ANNUAL REPORT 2017

PAGE

6

CONTENTS

To Our Stakeholders

Business Overview
and Financial Highlights

Review of Operations
and Business Outlook

Interview with the CEO
Message from the CFO

Interview with the CEO

Corporate Governance
CSR-Oriented Operations

Financial Section

Corporate Data

Message from the CFO

Interview with the CEO
We have raised the targets of the medium-term management plan, and are taking bold action totarget sales and profit expansion that greatly outpaces market growth.
Reflecting ongoing market growth, when we pre-where we will develop high-value-added etchsented our progress under the medium-term

technologies.

management plan in May 2017, we also revised

Deposition systems also offer a large market,

the assumed size of the wafer fab equipment

and our business in this area has room to grow.

(WFE)*** market used in the plan’s financial model

Aiming to reinforce this business, we merged thefrom US$37 billion to US$45 billion, and signifi-

subsidiaries for the Yamanashi and Tohoku plants

cantly increased the plan’s corresponding net sales

to promote technological integration andtarget from ¥900 billion to ¥1,200 billion.

increase efficiency. We continue to strengthen

Etch systems are one of our key businesses,

process integration functions and are accelerating

and are expected to see particularly great market

the development of products for next-generation

expansion going forward. For this business, we

devices with increasingly complex structures.

are building a dedicated logistics facilities toGoing forward, we expect to see major value

improve productivity and production capacity. By

creation through technological innovation in the

doing so, we are laying the groundwork for sales

production equipment business. By further differ-

expansion that includes raising our market share.

entiating our products and services in this busi-

Furthermore, we are building new R&D facilities,ness, we aim to realize world-class profitability.

Market Assumptions and Financial Targets

WFE
market size
Net sales
Operating margin
ROE

US$

42 billion¥1,050 billion

US$

45 billion

Q ues t ion

04

Tokyo Electron has a strong balance sheet andtremendous capacity to generate cash. How are you
planning to use the Company’s cash on hand?

We will maintain a healthy balance of investment in growth and shareholder returns as we work toensure continued profit growth and maximize corporate value.
The pursuit of profit is indispensable to sustain-

we raised the target payout ratio to 50% and set¥1,200 billion

able corporate growth. Profit generated will firsta lower limit on the annual dividend per share of

be reinvested to create innovative technologies in¥150. In fiscal 2017, we paid our highest ever26%

order to power the Company’s continued growth.

annual dividend per share. We will continue to24%
20–25%*** Wafer fab equipment (WFE): The semiconductor production process is divided into front-end production, in which circuits are formed on wafers and inspected, and backend production, in which wafers are cut into chips, assembled and inspected again. Wafer fab equipment refers to the production equipment used in front-end production
and in wafer-level packaging production.

As the industries in which we operate enter aflexibly consider stock repurchases, taking a com-

new growth phase, the range of technologies inprehensive view of such factors as investment

which Tokyo Electron must advance R&D isneeded for growth, cash on hand and the macro-

growing wider than ever. The resources we caneconomic environment.

dedicate to R&D, however, are finite. We will

By achieving the goals of the medium-term

select projects to pursue based on careful exami-

management plan and further improving corpo-

nation of their potential return in order to con-rate value going forward, we will do our utmost

centrate our resources effectively.

to meet shareholder expectations.

As for shareholder returns, under the mediumterm management plan unveiled in fiscal 2016,

TOKYO ELECTRON ANNUAL REPORT 2017

PAGE

7

CONTENTS

To Our Stakeholders

Business Overview
and Financial Highlights

Interview with the CEO
Message from the CFO

Interview with the CEO

Review of Operations
and Business Outlook

Corporate Governance
CSR-Oriented Operations

Financial Section

Corporate Data

Message from the CFO

Message from the CFO

New Financial Model in Line with Equipment Market Expansion
Targeting World-Class Profitability and Capital Efficiency While Maintaining Downward Cost Flexibility

1. A New Phase of Growth in the
Semiconductor and Display Industries

data that must be gathered, processed and distributed
in real time. This requires real-time data transmission
systems all throughout society. A decade ago, people

Tokyo Electron finished fiscal 2017, the year ended

mainly thought about things like vehicles in terms ofMarch 31, 2017, with very strong results. The gross profit

personal ownership. In recent years, however, we havemargin, operating margin and net income all reachedbegun to see the emergence of the sharing economy

new highs. Net sales in the semiconductor production

and other new approaches. As networks increasingly

equipment (SPE) segment also set a new record high.

connect all aspects of society, forming one, enormous

Previously, the growth potential of the semiconduc-interconnected system, the uses of semiconductors are

tor market had been called into question, but today

expanding in every field. These changes have been pro-both the semiconductor and display industries are

pelling the semiconductor and display industries into

booming. Using the 2008 financial crisis as an approxi-

a new phase unlike anything we have yet seen.

mate milestone, we can perceive a clear change inworldwide trends and our very lifestyles. An example of

2. Medium-Term Management Plan Initiatives

this in everyday life is the increasing prevalence of

Tetsuro Hori
CFO, Executive Vice President

video content on social media. Enormous numbers of(1) Financial Goals

users take and simultaneously upload videos. All thatTokyo Electron announced its medium-term manage-

data is stored in the cloud; these users typically do notment plan in 2015. The plan’s targets for net sales,

keep it on their own PCs. A different example is Uber,

operating margin and ROE were based on two scenari-

Lyft and other ride sharing services, which have been

os regarding the future size of the wafer fab equipment

attracting a great deal of attention. These services use(WFE) market.

apps to display the current locations of their drivers,

TOKYO ELECTRON ANNUAL REPORT 2017

PAGE

8

CONTENTS

To Our Stakeholders

Business Overview
and Financial Highlights

Review of Operations
and Business Outlook

Interview with the CEO
Message from the CFO

Interview with the CEO

Corporate Governance
CSR-Oriented Operations

Financial Section

Corporate Data

Message from the CFO

Message from the CFO
In light of changes in the semiconductor industry, how-ering the Group to find the right people for the right job onsites are located, we are building a framework to both main-

flexibly considering share buybacks. In step with recent

ever, we have now increased the WFE market size assumed

a worldwide basis. In Silicon Valley, diverse human resourc-

tain the competitiveness of our products and ensure thatprofit growth, we have paid a record high annual dividendin the plan’s financial model and raised the plan’s targets.

es are constantly interacting and influencing one another,

our customers can use our products with confidence.

per share (DPS) for three consecutive years. At the end of

We now aim to grow the Company even more than we set

leading to the creation of new ideas. Similarly, by promot-

out to under the 2015 plan. From a financial standpoint,

ing global exchange within the Tokyo Electron Group, we

however, even as the Company expands, we intend toare working to foster cross-pollination of ideas and spark

restrain fixed costs. The SPE market has long been regarded

innovation.

as particularly volatile. We are therefore taking care to
maintain downward flexibility in order to remain profitableeven if economic conditions deteriorate.

* Global application rate: The percentage of patent applications filed in Japan that are also filed inother countries

management plan, we raised the share purchasing subsidy
Taiwan15%offered through the employee shareholding association to

Success in the SPE business requires the consistent15%. This was intended to align the interests of employees

release of innovative products to accommodate the latest

with those of other shareholders. The number of employeenext-generation technologies. For an SPE company, gener-

shareholders has increased as a result, but participation inating profit while continually developing new equipment isthe employee shareholder association is still limited to

the key to sustainability. It is therefore essential to develop

employees in Japan. To address this, we are considering a

as we determine the specific uses for it. The equity ratio as

Europe 1%
China
10%

South
Korea
17%

Our first priority for this cash is investment in Tokyo Electron’s
future growth. We will keep an eye on the macro economy

Patent Holdings by Country/Region

In addition, when we launched the current medium-term

fiscal 2017, Tokyo Electron had cash on hand of ¥315.3 billion.

of March 31, 2017 was 67%, and the Company has no interest-bearing debt. Although we have not ruled out capital

Japan
31%

procurement from external sources if necessary, I believe wecan generally meet our own capital needs internally.

U.S. 26%

4. In Closing
Technological innovation moves extremely quickly in the

products and services that offer greater customer value andstock-based compensation system utilizing a trust thatc. IT Strategy

then make sure that customers fully appreciate that value.

would allow executive-level employees to receive capital

We are also focusing on reinforcing the Group IT system. By

motto of Intel’s Andrew Grove gets to the heart of what it

Our development divisions as well as sales and service divi-gains on Tokyo Electron shares even if they reside outside

doing so, we are working to enable the analysis of previ-means to operate in these industries: “Only the paranoidsions must all keep this in mind. Specific measures we are

Japan. These measures are aimed at securing talented

ously unavailable information and data in order to acceler-

survive.”human resources globally.

ate decision making. The Tokyo Electron Group is composed

taking are as follows.

semiconductor and display industries. I truly feel that the

For fiscal 2018, Tokyo Electron targets net sales of ¥980

Furthermore, the Company conducts training for currentof six companies in Japan and 28 companies overseas. By

billion, operating income of ¥216 billion (for an operating• Develop products and services with high profit margins

and future top-level managers, and has instituted a special

strengthening the Group’s IT systems, we aim to makemargin of 22.0%), net income attributable to owners of the• Avoid discounting to gain market shareselection and training program for future management

information from across the Group available and compre-

parent of ¥163 billion and net income per share of ¥993.44.*• Advance R&D and capital investment on scale with tar-candidates. This program includes training camps held sev-

hensible in a fast, unified way in order to more quickly iden-

The Company is growing, but we will stay vigilant and alert

geted future returns

eral times annually and lectures from outside instructors,

tify and address problems at each company.

to market changes as we work toward the goals of the• Optimize logistics and improve operational productivity

and ends with participants making proposals to current top• Make more efficient use of trade notes and accounts

management. The systematic development of successors is

receivable, inventories and other assets

essential to sustainable growth.

Through these initiatives, under the new financial model web. Intellectual Property Strategy

are targeting an operating margin of 26% (assuming a WFE

Since its establishment, Tokyo Electron has made securingmarket of US$45 billion) and ROE of 20–25%.

its intellectual property rights a priority. We file 600 to 800
patent applications in Japan each year. A major feature of(2) Non-Financial Goals

our intellectual property strategy is our relatively high globala. Human Resources Systemapplication rate.* The average global application rate among

In July 2017, Tokyo Electron launched a globally unified job

Japanese patent applicants is about 30%. In contrast, therank system based on job responsibilities. This system clari-Company’s rate is closer to 70%. By acquiring numerous pat-fies the position of every Group employee, better empow-

ents in the countries where our customers’ manufacturing

medium-term management plan.

3. Capital Policy and Shareholder Returns* Results forecasts announced April 28, 2017

Since fiscal 2016, the Company has maintained the shareholder return policy of targeting a payout ratio of 50% andPolicy for Shareholder Returns

Dividend payout ratio: 50%
Annual DPS of not less than ¥150
We will review our dividend policy if the company does not generate net
income for two consecutive fiscal years

We will flexibly consider share buybacks

TOKYO ELECTRON ANNUAL REPORT 2017

PAGE

9

CONTENTS

Business Overview
and Financial Highlights

To Our Stakeholders

Interview with the CEO
Message from the CFO

Corporate Governance
CSR-Oriented Operations

Review of Operations
and Business Outlook

Financial Section

Corporate Data

Review of Operations and Business Outlook

Review of Operations and Business Outlook

Semiconductor Production Equipment (SPE)Share of Net SalesFPD Production Equipment

2016 Business Environment

Share of Net Sales

Driven by the arrival of the internet of things (IoT), the growing sophistication of smartphones anddata center servers continued unabated, while demand ramped up for higher-capacity memory andfaster logic chips. Given this backdrop, investment growth in memory was particularly robust in thearea of 3D NAND. In logic chips, capital expenditure was implemented primarily by foundries, whichinvested aggressively in cutting-edge 10 nm generation products. As a result, 2016 global capital
expenditure for wafer fab equipment (WFE)* grew more than 10% year on year to approximately
US$37 billion.

2016 Business Environment
In small- and medium-sized panels for smartphones and other mobile devices, on top of investment in conventional LCDs, capital investment targeting new OLED displays began in earnest,
anticipating their widespread adoption. Driven mainly by this investment in small- and mediumsized panels, display panel capital investment in 2016 grew considerably year on year, surpassing
US$10 billion. Within this overall market, the equipment market for thin-film transistor (TFT) arrayprocesses,* in which Tokyo Electron operates, grew about 30% from the previous year.

6.2%* Thin-film transistor (TFT) array processes: The processes of manufacturing the substrates with the electric circuit functions that drive displays* Wafer fab equipment (WFE): The semiconductor production process is divided into front-end production, in which circuits are formed on
wafers and inspected, and back-end production, in which wafers are cut into chips, assembled and inspected again. Wafer fab equipment
refers to the production equipment used in front-end production and in wafer-level packaging production.

93.8%

Fiscal 2017 Business Overview
Segment net sales rose 10.5% to ¥49.3 billion.

Net Sales andProfit Margin by Segment(Billions of yen)

(%)

750

600

749.8

576.2

613.0

24.4

30

24

Fiscal 2017 Business Overview

Net Sales andProfit Margin by Segment

Segment net sales grew 22.3% year on year to ¥749.8 billion.
• By region, sales mainly grew in Taiwan, China and South Korea, reflecting booming investment in NAND flash memory and by foundries.
• By product, rising demand and market share increases drove sales growth in the key field of
etch systems. In deposition systems, sales of semi-batch ALD** systems for cutting-edge
miniaturization were double their fiscal 2016 level.
• Sales in the field solutions business (encompassing sales of parts and used equipment, modifications and maintenance services) rose 12% year on year to approximately ¥208.0 billion.

(Billions of yen)
50

49.3

20

40

** ALD (Atomic layer deposition): An atomic level film deposition technique** PICP: A plasma source that produces extremely uniform high-density plasma on panel substrates

10.6

30

9.4

10

Business Outlook
300

12

150

6

0

0

15

16

17

Segment net sales
Segment profit margin
Segment profit corresponds to income before income
taxes on the consolidated statements of income.

With the arrival of IoT, semiconductors are beginning to be used in all kind of everyday objects. At
the same time, research into autonomous driving and AI is advancing toward commercialization. As
a result, demand for cutting-edge semiconductors that can instantly process and analyze clouddata is growing rapidly. Backed by this expansion in demand, the WFE market is beginning to enteran accelerated growth trajectory toward the US$40 billion mark and beyond. Tokyo Electron has
positioned etch, deposition and cleaning systems, which are expected to see especially strong market growth, as key fields. By achieving technological differentiation in these fields, the Company
aims to increase its profitability and market share.
In particular, 3D NAND requires advanced deposition technologies to increase the number of vertically stacked layers as well as etch technologies that can simultaneously etch said layers with highprecision. Tokyo Electron will continue to hone its long-held strengths in deep hole etch technologies and expand its market share of etch systems used in the NAND field.
In logic chips, miniaturization using multiple patterning continues to advance. This multiple patterning uses etch and deposition technologies to realize microfabrication. Tokyo Electron aims toincrease revenue and profit by expanding sales of etch systems, for which it boasts a high market
share, as well as high-productivity semi-batch ALD systems and cleaning systems that reduce pattern collapse.
Furthermore, over the long term, the expected adoption of new materials and changes in transistor structure will lead to considerably more formidable and complex technological challenges. To
address these challenges, Tokyo Electron will leverage its robust product lineup to both improve theperformance of individual products and to support the rapid development and release of solutions
that optimize entire processes. By taking part in our customers’ technological plans for next-generation and future generation products from an early stage, the Company will accelerate its growthover the medium and long term.

 he segment profit margin decreased 1.2 percentage points to 9.4%, as growth in sales ofThighly profitable PICP etch systems was offset by aggressive investment in R&D related toequipment for generation 10.5 panels.

15

32.7
18

20.1

• Tokyo Electron introduced and recorded sales of new PICP etch systems for large-sized panels.

 okyo Electron captured business related to generation 10.5 panels through technologicalT
differentiation.

44.7

 he segment profit margin rose from 20.1% in the previous fiscal year to 24.4%, due in partTto the increase in net sales and a high rate of factory utilization.

23.6
450

(%)

• PICPTM** etch systems for small- and medium-sized panels, which are especially competitive for use with high-resolution displays, were adopted by multiple customers, causing
sales to expand substantially.

20

5

10

0

-4.0
0

-5

15

16

17

Segment net sales
Segment profit margin
Segment profit corresponds to income before income
taxes on the consolidated statements of income.

Business Outlook
In the display market, demand is expected to grow both for displays used in mobile devices andthose used in televisions. As the market begins to grow again, Tokyo Electron aims to increase both
its market share and profitability.
In small- and medium-size panels for mobile devices, displays continue to get larger amid growing demand for enhanced performance, including higher resolution and lower power consumption,
as well as for flexible displays. In the field of OLED displays, which can meet these demands, needs
are emerging for more advanced etching, and the manufacture of flexible displays is expected tolead to the development of new etch processes. Tokyo Electron’s PICP etch systems, which offer
excellent processing uniformity, are seeing firm sales growth. Going forward, the Company will
adopt new platforms and introduce systems for new processes to leverage these expanding business opportunities and steadily realize growth.
Looking at large-sized panels for televisions, panels larger than 65 inches are expected to become
popular going forward. Accordingly, multiple manufacturers, mainly in China, are planning to invest
in equipment for generation 10.5 and 11 panels. Tokyo Electron will leverage its track record of providing coater/developers and etch systems used for mass production of generation 10 panels tobuild on the business it secured in fiscal 2017 and capture a large share of manufacturers’ planned
investment. Furthermore, to meet demand created by investment in high-resolution panels, including 4K and 8K, the Company is beginning to expand its PICP etch systems from small- and medium-sized panels, for which it has built a solid track record, to large-sized panels.
With an eye toward the establishment of a market for OLED televisions, Tokyo Electron has
introduced an inkjet printing system for manufacturing large-sized OLED panels and delivered units
to customers’ development lines. Compared with existing evaporation systems, this system offers
drastically improved material efficiency. Leveraging this strength, Tokyo Electron aims to build astrong position in this market.

TOKYO ELECTRON ANNUAL REPORT 2017

PAGE

10

CONTENTS

To Our Stakeholders

Business Overview
and Financial Highlights

Interview with the CEO
Message from the CFO

Messages from the Outside Directors
Corporate Governance
Message from the Chairman of the Board
Directors, Audit & Supervisory Board Members and Executive Officers
CSR-Oriented Operations

Review of Operations
and Business Outlook

Messages from the Outside Audit & Supervisory Board Members

Message from the Chairman of the Board

Effective Governanceto Win Among
Global Competition
Creating and maintaining an appropriate system of governance is key to sustaining and maximizing the growth ofshareholder value over the short, medium and long term. I believe that optimal corporate governance entails thecreation of an environment in which all discussions and decision-making processes related to management policy
and business strategy are designed to contribute to shareholder value. Moreover, the implementation of such policy
and strategy should be monitored to provide feedback and feed-forward. Of course, it goes without saying thatgovernance systems must also ensure compliance with the laws of relevant countries as well as globally acceptable
standards of fairness and transparency.
In line with this basic approach, Tokyo Electron’s Board of Directors is composed of three types of directors,
namely outside directors, non-executive directors and executive directors. In addition, Tokyo Electron has an Audit& Supervisory Board, which audits the appropriateness and fairness of the executive directors’ decision-making­processes and business execution, as well as the auditing methods and results of the independent auditors. The
Audit & Supervisory Board currently has five members, three of whom are outside members. The composition of
the Board of Directors enables aggressive management—allowing appropriate risk taking in order to increase­corporate value—as well as effective defensive governance by monitoring the risks being taken.
Tokyo Electron has also voluntarily established a Nomination Committee and Compensation Committee within
the Board of Directors. The guidelines and policies that guide the activities of these committees are thoroughly­discussed by the Board of Directors. Furthermore, in fiscal 2017, we further enhanced our existing succession­program to groom candidates for the CEO and other top management positions.
Over the past few years, many Japanese companies have adopted measures to comply with the Corporate
Governance Code. This has propelled governance in the country as a whole to a new level of thoroughness. Globally,
however, we are seeing continued efforts to make governance even stronger, such as stepping up board diversity or
bolstering the number of outside directors and effective use of their perspectives. For Tokyo Electron to sustainably
grow in the semiconductor and electronics industries, it is extremely important to pursue diversity among bothinternal and external directors while also ensuring the selection of directors who are best equipped to contribute tocorporate growth and shareholder value. As chairman of the board, I will continue working to ensure that Tokyo
Electron’s governance system helps increase shareholder value and that the Board of Directors operates effectively.

Tetsuo Tsuneishi
Chairman of the Board

Corporate Governance
CSR-Oriented Operations

Financial Section

Corporate DataTOKYO ELECTRON ANNUAL REPORT 2017

PAGE

11

CONTENTS

To Our Stakeholders

Business Overview
and Financial Highlights

Interview with the CEO
Message from the CFO

Review of Operations
and Business Outlook

Message from the Chairman of the Board
Messages from the Outside Directors
Corporate GovernanceDirectors, Audit & Supervisory Board Members and Executive Officers
CSR-Oriented Operations

Corporate Governance
CSR-Oriented Operations

Financial Section

Corporate Data

Messages from the Outside Audit & Supervisory Board Members

Corporate Governance
Basic stanceIn an environment where over 80% of our sales come fromoverseas, Tokyo Electron regards maintaining governance as
essential to becoming a truly global company that achieves
sustainable growth.
To that end, Tokyo Electron strives to build frameworks
to maximize the use of its worldwide resources. In addition
to strengthening its management platform and technology
base, the Company maintains a governance structure thatwill enable it to attain world-class profitability.
Tokyo Electron uses the Audit & Supervisory Board
System, which consists of a Board of Directors and an Audit& Supervisory Board. Effective governance is achieved
based on the supervision of management by the Audit &Supervisory Board.

Board of Directors
1. Roles and responsibilities of the Board of Directors
The Board of Directors works to achieve sustainable growthand increase corporate value over the medium to long term
based on its fiduciary responsibility to shareholders. The roles
and responsibilities of the Board of Directors are as follows:(1) Establishing management strategy and vision(2) Making major operational decisions based on strategic direction(3) Engaging in constructive, open-minded debate

The Board of Directors seeks the active participation of
those present in discussions in order to obtain a wide range
of opinions, and supervises management and operational
execution based on active debate.
The Board of Directors respects minority or opposing
viewpoints, including opinions voiced by outside directors;
revises the conditions for implementation or the content ofproposals as necessary; and engages in extensive debatewith the goal of reaching decisions based on consensus.
However, emphasis is placed on making necessary decisions
quickly to avoid missing opportunities.
2. Board size and independent outside directors
Tokyo Electron considers it essential to maintain a Board of
Directors with the appropriate size to ensure high quality,
active debate and the diversity expected of both executive
directors and independent directors. The current Board of
Directors consists of 12 directors, and Tokyo Electron believes
this to be the appropriate size, at present, to achieve a goodbalance in terms of knowledge, experience and skills.
Tokyo Electron regards the active expression of opinions,
not only by independent directors, but also by Audit &Supervisory Board Members, as the cornerstone that supports the sound decision making of the Board of Directors.
Currently, five out of the 17 participants in the Board of
Directors meetings, including the Audit & Supervisory Board
Members, are outside members, consisting of two independent directors and three outside Audit & Supervisory Board

Does Tokyo Electron have these major components of corporate governance?
Compensation Committee

Yes

Composed of directors, including outside directors
and excluding representative directors, or
Audit & Supervisory Board Members

Nomination Committee

Yes

Composed of directors, excluding the CEO, or
Audit & Supervisory Board Members

Outside directors

Yes

Two of the 12 directors are outside directors

Outside Audit & Supervisory Board Members

Yes

Three of the five Audit & Supervisory Board Members
are outside Audit & Supervisory Board Members

Executive officer system

Yes

Disclosure of individual remuneration of representative directors

Yes

Performance-linked compensation system

Yes

Stock options system

Yes

Retirement allowance system for executives

NoAnti-takeover measures

No

Disclosed since 1999

Does not apply to outside directors andAudit & Supervisory Board Members

Members. Tokyo Electron believes that the current Board of
Directors meetings achieve an appropriate sense of productive
tension and constructive debate due to the combined presenceof executive directors, essential for making operational
decisions, and outside members, who provide objectivity.
3. Nominations for Director and CEO
Tokyo Electron has established a Nomination Committee toensure fairness and efficiency in management. The
Nomination Committee proposes director candidates to theBoard of Directors prior to their election at the General
Meeting of Shareholders and also nominates CEO candidates for appointment by the Board of Directors. The CEO is
not part of the Nomination Committee, and the authority
to propose the election or dismissal of the CEO or directors
is entrusted to the Nomination Committee.
4. Director and CEO compensation
Aiming to strengthen its global competitiveness andincrease management transparency, Tokyo Electron has
adopted a director and executive officer compensation system that is closely linked to performance and shareholder
value. The compensation of directors and executive officers
comprises a fixed monthly wage and an annual performance-linked bonus.
The Compensation Committee, which comprises three ormore directors and includes at least one outside director,
conducts an analysis of industry wage levels in and outside
Japan, accounting for both monetary and non-monetary
aspects of the total compensation package. Based on thiscomprehensive analysis, the committee proposes a policy
and system for the compensation of the Board of Directors
and executive officers as well as individual compensation
amounts, including bonuses, for the CEO and the representative directors.
In order to better link factors that increase corporate
value and shareholder value to compensation, Tokyo
Electron has designated the net income attributable toowners of the parent and return on equity (ROE) for thecurrent period as the main calculation benchmarks in theperformance-linked compensation system for the CEO andother directors. These are adjusted, as necessary, forextraordinary income/losses and other special factors.

In principle, performance-linked compensation consistsof monetary compensation and share-based compensation;
the ratio of these two components is roughly 1:1 for directors, and single year performance is appropriately reflectedin the performance-linked compensation of the CEO andother directors. Share-based compensation is awarded in
the form of stock options with the exercise price set at one
yen per share, and a three-year vesting period from thedate of allotment before the options may be exercised.
5. Evaluation of the effectiveness of the Board of Directors
Each year, based on an evaluation survey filled out by the
Board of Directors and Audit & Supervisory Board Members,
the Board of the Directors analyzes and evaluates its own
effectiveness through discussions, mainly involving the outside directors and outside Audit & Supervisory Board
Members, as well as separate discussions involving theentire Board of Directors. The board then discloses a summary of the results.
Tokyo Electron’s Board of Directors receives regular
reports from the CEO and other executive directors anddesignates issues for discussion at each board meeting. The
directors and Audit & Supervisory Board Members actively
discuss these reports and issues based on their diverse
viewpoints and experiences. Meeting participants exchange
opinions in an open, unrestrained manner and engage inreal debate. As a benefit of this thorough discussion, proposals made by executive members may subsequently beamended to reflect the opinions of outside directors andAudit & Supervisory Board Members prior to passage. Tokyo
Electron thus believes that its Board of Directors is able tocarry out its role appropriately and function effectively.
Based on the insights gleaned from the most recent evaluation, Tokyo Electron is working to make the Board of
Directors even more effective. Priorities include expandingtime allotted for the discussion of issues related to Group
policy and strategy, including major management issues
and medium- to long-term management and growth strategies, as well as enhancing opportunities for dialog with theoutside directors and outside Audit & Supervisory Board
Members. Furthermore, the Board of Directors will continue
to discuss and examine its own operation and composition,
including questions of diversity.

TOKYO ELECTRON ANNUAL REPORT 2017

PAGE

12

CONTENTS

To Our Stakeholders

Business Overview
and Financial Highlights

Interview with the CEO
Message from the CFO

Review of Operations
and Business Outlook

Message from the Chairman of the Board
Corporate Governance
Messages from the Outside Directors
Directors, Audit & Supervisory Board Members and Executive Officers
CSR-Oriented Operations

Corporate Governance
CSR-Oriented Operations

Corporate Data

Financial Section

Messages from the Outside Audit & Supervisory Board Members

Messages from the Outside Directors

Outside Director

Outside Director

Hiroshi Inoue

Charles Ditmars Lake

Currently serving as honorary chairman andServing as chairman and representative in

director and previously as chairman of TokyoJapan of American Family Life Assurance

Broadcasting System Holdings, Inc., Mr. Inoue

Company of Columbus, and also as president

possesses a wealth of experience and insightof Aflac International, Incorporated, Mr. Lakein corporate management.

has a great deal of experience and knowledge in corporate management bridging
Japan and the United States.

Tokyo Electron should be very proud of its excellent

As the internet of things (IoT) expands, the semi-

Heightened economic uncertainty has led to an

I have been engaged in active and meaningfulconductor industry is undergoing major structural

increasingly challenging global business environ-­discussions with internal directors, Audit &change, making it very difficult to predict demand.

ment amid factors including geopolitical turmoil,

Supervisory Board Members, and outside directors

try is subject to major market ups and downs.

To continue to thrive in this market, I believe Tokyo

critical elections in Europe, and the anti-globalist

on important business matters related to medium-

I greatly admire the work of President Kawai, theElectron will have to achieve qualitative change inchallenge to the Bretton Woods system. Against

to long-term human capital development andrest of Company’s executives and its employees,

how it interacts with customers. The foundation

this backdrop, and as stakeholder expectations con-

exploring initiatives to take corporate governancewhich has successfully secured a solid foothold forunderpinning this, however, is still the ongoing rein-tinue to evolve, this is an era in which robust corpo-

systems to the next level. In order to fulfill myTokyo Electron in this volatile environment.

forcement of Tokyo Electron’s technological superi-

rate governance is more critical than ever for global

duties as an independent outside director, based onority and excellent reputation. I am confident that,businesses to continue to achieve sustainable growth.

Tokyo Electron’s basic policy, I will strive to proac-

Tokyo Electron was an early adopter of corporate

tively raise issues from an objective and profession-

performance in fiscal 2017.
The semiconductor production equipment indus-

These achievements are, I think, the fruit of theunited efforts of the entire Company since thethrough the steady application of such efforts,

merger with Applied Materials was called off two

Tokyo Electron will ultimately increase its corporate

governance systems consistent with global best

al standpoint. Looking back on the activities of theyears ago. At the same time, it is clear to me thatvalue and remain a leader in the semiconductor

practices. Indeed, as Japan moves toward a major

past year, I am convinced that Tokyo Electron’s cor-the foundation for these results is the outstanding

industry as the industry continues to expand.

turning point in its corporate governance environ-

porate governance system is substantially effective
in both form and function.

technological prowess and relationships of trust

I look forward to seeing where Tokyo Electron isment, Tokyo Electron has continued to set anwith customers that Tokyo Electron has built up

going next, and I will do my utmost to help it get there.

example, earning it a strong reputation among

since its founding.

market participants.

In fulfilling my duties as an independent outside
director, I will continue working to contribute to theLast year, I began my role as an independent out-development of an even stronger corporate gover-side director, wanting to play a part, however small,nance system, underpinning a new start for Tokyo

in further enhancing Tokyo Electron’s corporate

Electron to become a truly global company.

value. Since then, both in and out of Board meetings,

TOKYO ELECTRON ANNUAL REPORT 2017

PAGE

13

CONTENTS

Business Overview
and Financial Highlights

To Our Stakeholders

Interview with the CEO
Message from the CFO

Review of Operations
and Business Outlook

Message from the Chairman of the Board
Messages from the Outside Directors
Corporate GovernanceDirectors, Audit & Supervisory Board Members and Executive Officers
CSR-Oriented Operations

Corporate Governance
CSR-Oriented Operations

Financial Section

Corporate Data

Messages from the Outside Audit & Supervisory Board Members

Messages from the Outside Audit & Supervisory Board Members
Audit & Supervisory Board
The Audit & Supervisory Board currently consists of fivemembers and includes three outside Audit & Supervisory
Board Members. Two members are full-time. The full-time
Audit & Supervisory Board Members collect information
through onsite surveys, and the board maintains appropriate coordination with the Internal Audit Department andthe independent auditors as part of a structure that enables
Audit & Supervisory Board Members to obtain all information necessary for audits.
Moreover, the composition of Audit & Supervisory Board
Members provides a good balance of knowledge requiredfor operational audits and accounting audits, including
financial and accounting knowledge, legal knowledge, andaudit experience at other companies. Tokyo Electron thus
believes its Audit & Supervisory Board Members are able toperform their auditing functions effectively.

Internal Control System and Risk Management
Basic StanceIn order to enhance the Tokyo Electron Group’s corporate
value and remain accountable for our actions to our stakeholders, we are making efforts to strengthen effective internal control. This involves implementing practical measuresthat are in line with the Fundamental Policies concerning

Internal Controls within the Tokyo Electron Group, set out by
Tokyo Electron’s Board of Directors. We are also annually
evaluating our internal control over financial reporting basedon the Financial Instruments and Exchange Act of Japan.
Risk Management System
To more effectively strengthen the internal control and risk
management systems of the entire Group, Tokyo Electron
has established a dedicated risk management and internal
control function within the General Affairs Department of
the corporate headquarters. This function analyzes the risks
faced by the Group and identifies material risks. It thenmonitors the management of such risks while supportingand implementing risk management activities. The function
also regularly reports the status of risk management activities to the Audit & Supervisory Board Members and theBoard of Directors.
In fiscal 2017, the Group reassessed the material risks in
its operating environment. For each risk determined to bematerial, the status of risk management at the responsible
divisions was reconfirmed. Going forward, the Group willcontinue these initiatives to enhance the efficacy of its risk
management framework.
Auditing by the Internal Audit Department
The Global Audit Center of the corporate headquarters is
the Group’s internal audit department. This Center is

Corporate Governance Framework, Internal Control System and Risk Management System
Shareholders' Meeting
Compensation Committee

Board of Directors Nomination Committee

Request for improvement/Report

Chief Business Ethics Director
Chief Internal Control Director
Chief CSR Promotion Director

Confirm the progress ofimprovements and give instructions

CSS & Executive Officers

Internal Audit Dept.
(Global Audit Center)

Ethics Committee
Information Security Committee
Export Trade Control Committee
Request for improvement/Report

Audit

Risk Management & Internal Control Function(General Affairs Dept.)
Request for improvement/Report

Check and balance

Business Depts.

Business Continuity Plans (BCPs)
The Tokyo Electron Group began building business continuity plans in 2003. After the Great East Japan Earthquake, theGroup rebuilt these plans to be more effective and include
provisions for restoring operations after crises, focusing on
major business sites. As examples of specific initiatives, theGroup has put considerable effort into such preparations fordisasters as stockpiling emergency supplies (including foodand drinking water), reinforcing essential infrastructure,rebuilding the safety confirmation system, creating manuals, and implementing drills and employee training.

Message fromthe Outside Audit &Supervisory Board Member
Outside Audit & Supervisory Board Member

Takatoshi Yamamoto
Mr. Yamamoto has extensive experience as a securities analyst
covering the electronics industry as well as expert knowledge of global finance and accounting. He is concurrently
serving as an outside director at Hitachi, Ltd.

I have now served as an outside Audit & Supervisory Board

efficiency, the numerical targets of the medium-term manage-

Member for four years, beginning in 2013. The initial two year

ment plan, and new measures to return profits in order to raise

period was marked by work toward the planned merger withshareholder value. The board continues to strive to reflect these

Applied Materials. The next two years, after the merger was

discussions in business execution and ensure the effective

called off, have been focused on charting a new course foroversight and monitoring of the resulting developments.

Tokyo Electron. During these four years, the importance ofAs global business prospects expand, opportunities to growstrengthening corporate governance has been the subject ofTokyo Electron’s profitability and corporate value to world-classmuch discussion across Japan, including questions related tolevels through the effective combination of such aggressive

earnings power, the sustained improvement of corporate value

management and careful oversight are emerging. As an outsideand effective institutional design. These crucial issues have also

Audit & Supervisory Board Member, I will strive to remain high-received careful consideration at Tokyo Electron as thely alert, diligently analyzing risks in and outside the Group from

Company marked a new beginning, aiming to maintain aan objective standpoint. I will work to increase the overall

healthy sense of urgency while evolving into a truly global

effectiveness of audits through a three-pronged approach, incompany that boasts world-class profitability.

conjunction with the Internal Audit Department and account-

Tokyo Electron has been able to do this thanks to its highly

ing auditors, and provide oversight and monitoring to ensure

effective Board of Directors. The board has vigorously debatedproper corporate behavior. I believe that doing these things issubjects including lessons learned from the merger process,the key to meeting the expectations of shareholders andtechnological innovation in semiconductor production, theother stakeholders.

development of new technologies and products, operational

Monitoring

Administrative Depts.

Cooperate

Audit and
improvement reports

Request for improvement/Report

CSR Management Council
CSR Global Promotion Committee

Independent Auditors
Cooperate

Representative Directors

Compliance & Internal Control Executive Officer
CSR Promotion Executive Officer
Committees

Audit & Supervisory Board

responsible for auditing business activities, compliance andsystems at domestic and overseas Group companies andbusiness units (BUs) in accordance with each fiscal year’s
auditing plan. The Center also annually evaluates the effectiveness of the Group’s internal control over financial
reporting based on the Financial Instruments and Exchange
Act of Japan.
At operating divisions where issues have been identified
through audits and assessments, the Center monitors progress and provides necessary guidance for improvement.

TOKYO ELECTRON ANNUAL REPORT 2017

PAGE

14

CONTENTS

To Our Stakeholders

Business Overview
and Financial Highlights

Interview with the CEO
Message from the CFO

Review of Operations
and Business Outlook

Message from the Chairman of the Board
Messages from the Outside Directors
Corporate GovernanceDirectors, Audit & Supervisory Board Members and Executive Officers
CSR-Oriented Operations

Corporate Governance
CSR-Oriented Operations

Financial Section

Corporate Data

Messages from the Outside Audit & Supervisory Board Members

Messages from the Outside Audit & Supervisory Board Members
Furthermore, to meet its responsibilities as an equipment
manufacturer, the Group pursues ongoing efforts toimprove its BCPs, including taking steps to facilitate earlyrecovery and alternate production.
When the Kumamoto Earthquake struck in April 2016, theGroup was able to respond with speed and precision basedon the BCP it had prepared.
Information Security Management
To ensure the appropriate management of information
assets, the Group has an information management framework centered on its Information Security Committee,
which is composed of representatives from departments
across the Group.
The Information Security Committee acts as a decisionmaking body for the Group. Rules concerning the handlingand protection of such sensitive information as trade secrets
and personal information are formulated based on thecommittee’s policy and applied throughout the Group. An
e-learning system is used to educate and promote awareness of these rules among Group employees and executives.
Additionally, the Group has a reporting system for bothactual and potential cases (incidents) of information leakage. Reported incidents are quickly settled and then analyzed. Based on such analyses, recurrence prevention
measures are implemented throughout the Group.
In order to mitigate emerging cyber security threats, theGroup examines and undertakes rational countermeasures
as necessary. The Group also has in place systems to detecttargeted threats that utilize social engineering as well as asupervisory framework to prevent damage.

Business Ethics and Compliance
Basic Stance
Stakeholder trust is the cornerstone of business activities. In
order to maintain trust, it is necessary to continuously act inrigorous conformity to business ethics and compliance. Inline with the Fundamental Policies concerning Internal
Controls within the Tokyo Electron Group, all Group executives and employees are required to maintain high standardsof ethics and to act with a clear awareness of compliance.
Business Ethics
In 1998, Tokyo Electron formulated the Code of Ethics of theTokyo Electron Group as a set of uniform standards to govern

all of its global business activities. In the same year, theCompany appointed a Chief Business Ethics Director andestablished the Ethics Committee, which is responsible forpromoting business ethics awareness throughout the Tokyo
Electron Group. The Ethics Committee comprises the Chief
Business Ethics Director, the Ethics Committee Chairman,
and presidents of major Group companies in and outside
Japan. The members meet semiannually, report on ethicsrelated issues facing each company, and discuss measures
to further improve ethical behavior and compliance.
The Code of Ethics is reviewed in response to changes in the
expectations of society. In January 2015, an anti-corruption
statement was added to its introduction based on Principle
10 of the UN Global Compact, which concerns working
against corruption including extortion and bribery. In August
2016, the Group revised the Code of Ethics in light of theCode of Conduct of the EICC®* and broader social changes.
The Tokyo Electron Group’s Code of Ethics and its Q&A
section are published in Japanese, English, Korean andChinese and disclosed on the intranet to enable all Group
executives and employees, including those overseas, toview them at any time. The Code of Ethics is also publicly
accessible from the corporate website.
http://www.tel.com/ir/policy/compliance/ethical.htm* EICC is a registered trademark of Electronic Industry Citizenship Coalition Incorporated.

Compliance System
Tokyo Electron has appointed a Compliance & Internal
Control Executive Officer from among its executive officers
to raise awareness of compliance across the Group and further improve Group-wide compliance. Each Group company
has also drawn up its own compliance regulations, settingout basic compliance-related requirements in line with theCode of Ethics. The compliance regulations are intended toensure that all individuals who take part in the businessactivities of the Tokyo Electron Group clearly understandthe pertinent laws and regulations, international standards
and internal company rules, and consistently apply theserules in all of their activities.
Compliance Education
Through the Group’s e-learning system, we provide web-based
training programs covering the basics of compliance, exportrelated compliance, protection of personal information, the Act
for Subcontracting and other topics. All executives andemployees are required to complete these programs. In
addition, other web-based programs tailored to specific positions and job roles are also available, including those on insider trading and the Social Security and Tax Number System.
We also have a quiz-based business ethics and compliance education course, launched in fiscal 2014, for all Group
executives and employees. Updated yearly, the quiz is
intended to maintain compliance awareness throughout
the Group and disseminate the latest information.
In addition to these web-based courses, we organized inhouse seminars in fiscal 2017 for Corporate Directors andexecutive officers on the subjects of compliance and internal control.

Internal Reporting System
The Tokyo Electron Group has an internal reporting systemthat employees can use to report any activity suspected ofbeing in breach of laws, regulations or business ethics. An
ethics hotline and a compliance hotline have been established to receive reports from all Group companies, andeach overseas location also has its own reporting system. In
all instances, the system ensures that whistleblowers
remain anonymous and are protected from any disadvantage or repercussions.
There were no reports or cases of non-compliance withlaws, regulations, or principles of ethics in fiscal 2017 that
could have had a material impact on the Group’s businessor local communities.

Message fromthe Outside Audit &Supervisory Board Member
Outside Audit & Supervisory Board Member

Ryuji Sakai
Serving as a partner at Nagashima Ohno & Tsunematsu,
Mr. Sakai possesses abundant experience and expert
knowledge as an attorney at law specializing in the
Companies Act, M&A, and international transactions.

One of Tokyo Electron’s defining strengths is the way the

At the same time, management must be willing to take bold

Company brings together insights derived from front-line

risks when necessary. It is also extremely important to proac-

experience to drive business development, unleashing the max-

tively work to meet the expectations that exist for a global

imum benefits of long-standing Japanese manufacturing prac-company such as Tokyo Electron, including further enhancing

tices. Tokyo Electron is deeply committed to the semiconductor

compliance frameworks and employee diversity.

industry. With the arrival of the internet of things (IoT), thisFortunately, Tokyo Electron’s leadership is comprised ofindustry has been undergoing dramatic development. Going

ambitious, flexibly thinking individuals. The Board of Directors

forward, within this industry, the role that Tokyo Electron

freely engages in open and vigorous discussion, and theplays—as well as the business opportunities available to it—

Company is set up to facilitate the aggressive management

will only grow.

decision making necessary for growth. I will continue to carry

Given this environment, to meet shareholder expectations byout my duties as an Audit & Supervisory Board Member, partic-

continuously expanding corporate value, Tokyo Electron must

ularly in the area of defensive governance. By doing so, I hopemake full use of its strengths as a representative of Japanese

to contribute to Tokyo Electron’s ongoing growth.

manufacturing with an outstanding customer reputation.

TOKYO ELECTRON ANNUAL REPORT 2017

PAGE

15

CONTENTS

Business Overview
and Financial Highlights

To Our Stakeholders

Interview with the CEO
Message from the CFO

Review of Operations
and Business Outlook

Message from the Chairman of the Board
Messages from the Outside Directors
Corporate Governance
CSR-Oriented Operations
Directors, Audit & Supervisory Board Members and Executive Officers

Corporate Governance
CSR-Oriented Operations

Corporate Data

Financial Section

Messages from the Outside Audit & Supervisory Board Members

CSR-Oriented Operations
CSR Policy

Participation in International CSR Initiatives

Tokyo Electron considers CSR to be the embodiment of its
Corporate Philosophy, which has been firmly upheld since
the Company’s founding. Tokyo Electron pursues sustainable operations from the viewpoints of corporate governance, legal and regulatory compliance and business ethics
while creating new value through its products and services.

Based on these efforts, the Company implements CSR
activities to help address social issues. Tokyo Electron willcontinue to pursue CSR activities to build stakeholder trust,
improve corporate value and, by doing so, promote thegrowth of a sustainable and dream-inspiring society.

Tokyo Electron is a member of the UN Global Compact, a
global CSR initiative, and the EICC, an electronic industry
CSR alliance. The Company complies with these initiatives’
codes of conduct and principles in areas regarding such

issues as human rights, labor, environment, safety andhealth, ethics and corruption prevention. By doing so, Tokyo
Electron strives to maintain a sustainable management
platform.

The Ten Principles of the UN Global Compact

Corporate Philosophy
We strive to contribute to the development of a dream-inspiring society through our leading-edge technologies and reliable
service and support.

Human
RightsMaterial
issuesThrough business activities

Contribution to
the solution ofsocial problems

Creation of new value

Advancement ofdream-inspiring
society

Improvement ofcorporate value

Environment

Treat workers with
dignity and respect

Principle 5: the effective abolition of child labour; andPrinciple 8: undertake initiatives to promote greater environmental
responsibility; andPrinciple 9: encourage the development and diffusion of environmentally friendly technologies.

AntiCorruption

Environment
Environmental
conservation

Principle 4: the elimination of all forms of forced and compulsory labour;

Principle 7: Businesses should support a precautionary approach toenvironmental challenges;

Pay taxes

Distribution of profit

CSR-oriented operations

Labor

Management
SystemPrinciple 6: the elimination of discrimination in respect of employment
and occupation.

Reinvest

Distribute to shareholders
and employees

Principle 2: make sure that they are not complicit in human rights
abuses.
Principle 3: Businesses should uphold the freedom of association and theeffective recognition of the right to collective bargaining;

LabourSustainable operations

EICC Framework (Five Sections)

Principle 1: Businesses should support and respect the protection ofinternationally proclaimed human rights; andHealth &SafetyAssessmentand managementof risks

Ethics
Maintain
the highest ethicalstandards

Principle 10: Businesses should work against corruption in all its forms,
including extortion and bribery.

CSR Promotion Framework
Tokyo Electron implements CSR activities on a global basis,including domestic and overseas affiliates, from a mediumto long-term perspective. To back up these CSR activities,
the Company has established the following three bodies
composed of members from top management to department representatives. The CSR Management Council is convened twice annually and functions as the Group’s highest
decision-making body for CSR-related issues. The council

approves Group-wide policy and considers the most important CSR matters. Also assembling twice a year, the CSR
Global Promotion Committee sets CSR targets and implements of global projects. Furthermore, at the CSR Monthly
Meeting, representatives from each division share information related to CSR activities as part of a responsive framework for promoting CSR initiatives across divisions.

Body

Participants

FunctionsMeeting frequency

CSR Management Council• Chairman of the Board• President & CEO• Directors and general managers• Approve Group-wide CSR policy• Discuss important CSR matters

Twice annually

CSR Global Promotion Committee • Chief CSR Promotion Director• Set CSR targets• Heads of related departments• Implement global projects• CSR officers of affiliates and overseas companies

Twice annually

CSR Monthly Meeting

Monthly• Persons in charge of CSR at each division• Share information on CSR activities• Discuss cross-divisional CSR initiatives

Stakeholder Engagement

Identifying Material Issues

Building firm stakeholder trust is essential to raising corporate value. To help stakeholders more deeply understandthe progress of the Company’s business initiatives and thefuture direction of its business, Tokyo Electron discloses
highly transparent information in a fair and timely manner
through regular briefings and its corporate website. The
Company also works to accurately understand the opinions
and demands of stakeholders and to reflect these in its
business activities through dialog, surveys and designatedcontact points. We will continue to actively promote stakeholder engagement, using it to appropriately inform decision making in the course of everyday business activities,
and thus further raise corporate value.

Based on the expectations and requests communicated bystakeholders and on the social and environmental challenges
surrounding the sustainability of its businesses, Tokyo
Electron has identified issues that are material to the medium- and long-term improvement of its corporate value.
Accordingly, CSR goals have been set to address these issues.

Material Issues
Enhancing product competitivenessIn the industries in which Tokyo Electron operates, technological innovation advances very quickly. The Company
must keep pace with this innovation while continuously
offering high-value-added products that accommodate
next-generation technologies. By globally engaging in cutting-edge technological development, the Company releases competitive products in a timely manner.

TOKYO ELECTRON ANNUAL REPORT 2017

PAGE

16

CONTENTS

To Our Stakeholders

Business Overview
and Financial Highlights

Interview with the CEO
Message from the CFO

Review of Operations
and Business Outlook

Message from the Chairman of the Board
Messages from the Outside Directors
Corporate Governance
CSR-Oriented Operations
Directors, Audit & Supervisory Board Members and Executive Officers

Corporate Governance
CSR-Oriented Operations

Financial Section

Corporate Data

Messages from the Outside Audit & Supervisory Board Members

CSR-Oriented Operations
Reinforcing responsiveness to customers
As new markets emerge—most notably those created by
the internet of things (IoT)—customer demands are­diversifying, and expectations for equipment performanceare rising. Accurately understanding customer needs anddelivering solutions that meet these needs is crucial. We
strive to reinforce our responsiveness to customers so thatthey will see us as an irreplaceable strategic partner.
Strengthening earnings power
Profit is the engine that advances business activities. The
Company works to continuously generate profit by providing high-value-added products and services, and improving
business processes. The ongoing generation of profit drives

virtuous cycles, including reinvestment in business and thereturn of value to shareholders, employees and society atlarge, helping to make both the Company and society moresustainable.
Invigorating people and workplaces
People are an especially important management resource.
Employees who feel purpose in their work and take pride in
their company help to increase productivity and power corporate development. By promoting diverse work styles and helping employees build their careers, we are increasing employee
engagement and invigorating our people and workplaces.

Fiscal 2018 CSR Goals
For the fiscal year ending March 2018, Tokyo Electron has set 17 goals related to 5 material issues and is working to achieve them.
Material issues

ThemesMain fiscal 2018 goals

Medium-term
goals

Enhancing productcompetitivenessTechnological innovation aimed
at creating value• Ensure that 5% or more (three-year moving average) of all
equipment models are new products for next-generation
technologies.
• Maintain the previous year’s global patent application rate.

Create highly
competitive
next-generation
products

Environmental contribution of
products

Reduce per-wafer consumption of energy and pure water by 10%
by fiscal 2019 (as compared with fiscal 2014).

Reinforcing
responsiveness tocustomers

Strengthening
earnings power

Accurate grasp of customer needs Get 3 points (“Satisfied”) or more on 100% of customer
satisfaction survey items.
Solutions that create value forcustomers• Increase Tokyo Electron’s value to customers.
• Increase field solutions business sales from the fiscal 2017 level.

High quality products• Reduce quality improvement costs from the fiscal 2017 level.

Increase added value of processes • Revise business processes to reduce man-hours used for sales
operations from the fiscal 2017 level.

Invigorating people Human rights and diversity
and workplaces
Work-life balance

Becomean irreplaceable
strategic
partner

Improve
operational
efficiency• Retain 100% of new employees for at least three years.
• Reach 70% paid vacation usage.
• Increase the use of the Group’s “Pep Up” healthcare platform  
from the fiscal 2017 level.

Maximizedreams anddrive

Corporate governance• Improve on issues identified in evaluations of the effectivenessof the Board of Directors.
• Revise the internal reporting system (set up new external
hotlines, revise range of persons covered, etc.).

Build amanagementfoundation forincreasing value

Safety management

Ensure that the number of workplace injuries per 200,000 work
hours (the total case incident rate) is less than 0.5.

Environmental management• Reduce energy consumption by 1% on a per-unit basis* from thefiscal 2017 level.
• Maintain water consumption at the fiscal 2012 level (on aper-unit basis*).

Human resource development
HealthEstablishinga sustainable
managementfoundation* Per-unit basis: Energy consumption (environmental burden) divided by values closely
associated with energy consumption, such as production volume, number of employees or total floor area

Supply chain management

Implement supply chain CSR assessments for 80% or more of
suppliers (procurement volume basis).

Relevant
SDGs

Establishing a sustainable management foundation
The establishment of a solid management foundation that
underpins corporate activities is key to sustainable growth.
To create new value through our business and help addresssocial issues, we steadily operate a highly effective governance structure. By doing so, the Company implementssound, highly transparent management.

analysts and institutional investors, IR conferences in andoutside Japan, and individual meetings.
The spokespersons for the IR Department hold individual
meetings with investors and periodically relay the opinions
of investors at these events to the CEO and CFO so that
feedback can be of use in management.

Shareholders’ Meeting
Promoting Dialog with Investors
Basic StanceTokyo Electron endeavors to provide opportunities for constructive dialog with growing numbers of investors aroundthe world to contribute to the Company’s sustainablegrowth and increase corporate value over the medium andlong term. Furthermore, to the extent that this is reasonable and possible, the Company places emphasis on having
the CEO and CFO communicate with investors throughdirect dialog.

IR Activities
Striving to maintain dialog with investors, Tokyo Electron
maintains a dedicated Investor Relations Department under
the direct control of the CEO.
The CEO and CFO serve as spokespersons for theCompany at such events as earnings release conferences
and medium-term management plan briefings for securities

Tokyo Electron schedules its shareholders’ meeting to avoid
days on which many such meetings are concentrated andmails a Notice of Annual General Meeting of Shareholders
to shareholders more than three weeks in advance of themeeting as part of its measures to vitalize these meetings
and to promote smooth and efficient voting. In addition,
shareholders are free to cast their votes via the internet,
and the Company participates in the web based voting
platform for institutional investors operated by ICJ, Inc.
To supplement the above shareholder meeting-related
initiatives, Tokyo Electron’s website carries the notices, resolutions, voting results and presentation materials of shareholders’ meetings.
For more details, please refer to the Tokyo Electron
Corporate Governance Guidelines.
http://www.tel.com/ir/policy/cg/document/index_02.pdf

Third-Party Recognition
Tokyo Electron’s medium- and long-term initiatives to increase its corporate value have been recognized by worldleading socially responsible investment (SRI) institutions.
In fiscal 2017, Tokyo Electron was selected for inclusion in the DJSI* Asia Pacific 2016. The Company also received theBronze Class distinction in the RobecoSAM Sustainability Award 2017. Furthermore, the Company was once again
selected as a constituent of the U.K.-based FTSE Group’s FTSE4Good** Global Index.
* DJSI (Dow Jones Sustainability Indices): Environmental, social and governance (ESG) investment indices developed by U.S.-based S&P Dow Jones Indices LLC and Switzerland-based RobecoSAM AG.
The Asia Pacific index covers companies in that region.
** FTSE4Good: An index related to environmental performance and corporate social responsibility developed by the U.K.-based FTSE GroupTOKYO ELECTRON ANNUAL REPORT 2017

PAGE

17

CONTENTS

Business Overview
and Financial Highlights

To Our Stakeholders

Interview with the CEO
Message from the CFO

Review of Operations
and Business Outlook

Message from the Chairman of the Board
Messages from the Outside Directors
Corporate GovernanceDirectors, Audit & Supervisory Board Members and Executive Officers
CSR-Oriented Operations

Corporate Governance
CSR-Oriented Operations

Corporate Data

Financial Section

Messages from the Outside Audit & Supervisory Board Members

Directors, Audit & Supervisory Board Members and Executive Officers (As of July 1, 2017)
Directors

Executive Officers
Tetsuo Tsuneishi

Kiyoshi Sunohara

Masahiko Hamajima

Toshiki Kawai

Hideyuki Tsutsumi

Takeo Sasaki

Chairman of the Board
President & CEO, GM, Business Division

Tetsuro Hori

Tetsuo Tsuneishi

Representative Director
Chairman of the Board

Toshiki Kawai

Representative Director
President & CEO

Tetsuro Hori

Representative Director
CFO
Internal Control

Sadao Sasaki

Corporate Director

Hirofumi Kitayama
Corporate Director

Tatsuya Nagakubo

Corporate Director
Business Ethics, CSR Promotion

SVP & GM, Global Strategy

VP & Deputy GM,
Development & Production 2nd Division

David BroughAkihisa Sekiguchi

EVP & GM, Development & Production 1st Division
President, Tokyo Electron Technology Solutions Ltd.

Kiyoshi Sunohara
Corporate Director

Tetsuro Higashi

Corporate Director
Corporate Advisor

Gishi Chung

SVP & GM, Technology Strategy Division

Tatsuya Nagakubo

SVP & GM, Human Resources & General Affairs Division,
Human Resources, General Affairs, CSR Promotion

Hiroshi Inoue*

Corporate Director
Honorary Chairman, Tokyo
Broadcasting System Holdings, Inc.

Audit & Supervisory Board
MemberCorporate Director
Chairman and Representative in Japan, American Family Life Assurance Company of Columbus
President, Aflac International, Incorporated

Yoshikazu Nunokawa

Audit & Supervisory Board
MemberSVP & GM, Global Strategy, Europe Region
President, Tokyo Electron Europe Ltd.

Seisu (Yoh) Ikeda

SVP & Deputy GM, Business Division
GM, CTSPS BU

Masayuki Kojima

VP & GM, Advanced Semiconductor Technology Division

Kazushi Tahara

VP & GM, System Development

Toshihiko Nishigaki

Kenji Washino

SVP & GM, ATS BU

VP & GM, Advanced Semiconductor Technology
Division, Business Innovation
President, TEL FSI, Inc.

Yoshinobu Mitano

Shingo Tada

SVP & GM, ES BU

VP &GM, TFF BU

Yoshifumi Tahara

Tsuguhiko Matsuura

SVP & GM, Development & Production 4th Division

VP & GM, FPD BU

EVP : Executive Vice President
SVP : Senior Vice President

Charles Ditmars Lake II** Outside Director

Audit & Supervisory Board Members

Yoshiteru Harada

VP & GM, IT Division
President, TEL Solar Services AG

Barry Mayer

EVP & GM, Development & Production 3rd Division
President, Tokyo Electron Kyushu Ltd.
Corporate Director

Yutaka Nanasawa

Sadao Sasaki

Masami Akimoto

Gishi Chung

Takeshi Okubo

VP & GM, Legal, Export & Logistics Control

SVP & Deputy GM, Global Field Division,
VP, Planning of Region Strategy Division

EVP & GM, Development & Production 2nd Division,
EHS, Quality, Procurement Division
President, Tokyo Electron Miyagi Ltd.

Corporate Director

SVP & GM, Global Field Division
President, Tokyo Electron FE Ltd.

VP & GM, Corporate Strategy

CFO, EVP & GM,  Finance, Legal & IT Division,
Accounting, Finance, Intellectual Property,
Compliance & Internal Control

Hirofumi Kitayama

Masami Akimoto

SVP & GM, FS BU

Takatoshi Yamamoto*

Audit & Supervisory Board
MemberRyuji Sakai*

Audit & Supervisory Board
Member / Attorney at law,
Nagashima Ohno & Tsunematsu

Kyosuke Wagai*

Audit & Supervisory
Board Member / Certified
Public Accountant,
Wagai CPA Office* Outside Audit & Supervisory Board Member

VP : Vice President
GM : General Manager

TOKYO ELECTRON ANNUAL REPORT 2017

18

PAGE

CONTENTS

To Our Stakeholders

Business Overview
and Financial Highlights

Interview with the CEO
Message from the CFO

Review of Operations
and Business Outlook

Corporate Governance
CSR-Oriented Operations

Corporate Data

Financial Section

Consolidated Eleven-Year Summary
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Comprehensive Income
Financial Review
Consolidated Statements of Changes in Net Asset
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Independent Auditor’s Report

Financial Review
Sales and Income
Operating Environment
The overall world economy in fiscal 2017 saw gradual
recovery, with ongoing gentle expansion in the U.S.
economy and signs of recovery in China. In the electronics industry, capital investment by semiconductor
manufacturers was strong. This was due to growth indemand for data center servers, reflecting increases indata transmission volumes driven by the arrival of theinternet of things (IoT), as well as the growing sophistication of smartphones. As a result, the wafer fab
equipment market, in which Tokyo Electron operates,grew more than 10% year on year to US$37 billion. At
the same time, the display industry also saw active
capital investment aimed mainly at manufacturing
higher resolution panels for mobile devices. Accordingly,
the market for flat panel display (FPD) production
equipment was brisk, surpassing US$10 billion for the
first time since 2011.
Sales
Net sales in fiscal 2017 rose 20.4% year on year to ¥799.7
billion. This reflected the favorable market environment,
expanding demand for cutting-edge semiconductor
production equipment (SPE) and increased demand forparts and used equipment sales, modifications andmaintenance services. By segment, net sales in the SPE
segment grew 22.3% year on year to ¥749.8 billion. Net
sales in the FPD production equipment segment grew
10.5% year on year to ¥49.3 billion. For details on­performance by segment, please refer to Review ofOperations and Business Outlook on page 9.
Furthermore, net sales in the field solutions business(encompassing sales of parts and used equipment,
modifications and maintenance services) rose 12% year
on year to approximately ¥208.0 billion, accounting for
26% of overall net sales.
Gross Profit, SG&A Expenses and Operating Income
Gross profit in fiscal 2017 was up 20.6% year on year to¥322.2 billion, reflecting the growth in net sales.
However, the gross profit margin rose only 0.1 of a percentage point to 40.3%, as profitability gains fromincreased factory utilization were partially offset byinvestment in growth aimed at reinforcing productcompetitiveness.
SG&A expenses rose 10.8% year on year to ¥166.5
billion, but the ratio of SG&A expenses to consolidated
net sales dropped 1.8 percentage points from the previous fiscal year to 20.8% in the fiscal year underreview. Consequently, operating income increased
33.3% year on year to ¥155.6 billion, and the operating
margin rose 1.9 percentage points to a record high of
19.5%. As this shows, the Group made progress toward
its medium-term management plan target of an operating margin of 24–26%, including reducing the ratio of
SG&A expenses to consolidated net sales.
R&D Expenses
R&D expenses were up 9.8% year on year to ¥83.8 billion. The main cause of this rise was the reinforcementof R&D in the fields of etch, deposition and cleaningsystems, in which the Company is working to expand
its market share under the medium-term management
plan. Tokyo Electron focused on R&D aimed at enhancing the competitiveness of future products. This

2013

2014

2015

Net Sales and Gross Profit Margin

2016

2017

¥497,300¥612,170¥613,125¥663,949¥799,719

Gross profit

158,755

201,892

242,774

267,210322,291

31.9%

33.0%

39.6%

40.2%

40.3%

146,206

169,687

154,661

150,421

166,594

Selling, general and administrative expenses* This lower limit may be revised in the event that the Company does not­generate net income for two consecutive fiscal years.

Financial Position and Cash Flows
Assets, Liabilities and Net Assets
M Assets
Current assets increased ¥158.5 billion from the end of
the previous fiscal year to ¥775.9 billion, reflecting

Operating Income andOperating Margin(Billions of yen)(%)(Billions of yen)

1,000

50

200

Net Income (Loss) Attributableto Owners of Parent and ROE(%)(Billions of yen)

19.5

20

120

155.6

15

80

10

40

5

0

(%)

Operating income

12,54932,205

88,113

116,789

155,697

Operating margin

2.5%

5.3%

14.4%

17.6%

19.5%

Income (loss) before income taxes

17,767(11,756)

86,828106,467

149,116

Net income (loss) attributable to owners of parent

6,076(19,409)71,88877,892

115,208

40.3
39.6 40.2

800
31.9 33.0

613.1

600
497.3

663.9

40

799.7
30

612.2

20

200

10

0

0

 Net Sales
 Gross Profit Margin

14

15

16

17

71.9

116.8
100

400

13

14.4

150

5.3

50
2.5
0

11.8

88.1

12.5

13
 Operating Income Operating Margin

0

14

15

16

17

20

77.9 19.1
13.0

10

6.1

0

1.0

32.2

30

115.2

17.6

Net sales

Gross profit margin

Dividend Policy and Dividends
It is the policy of Tokyo Electron to pay dividends on
the basis of business performance. The Company aims
for a payout ratio of 50% of net income. Furthermore,with an eye to ensuring stable dividends, a lower limitof ¥150 per share has been set on annual dividends.*
Reflecting the Company’s strong sales and profit
growth, Tokyo Electron paid annual dividends for fiscal
2017 of ¥352 per share (for a payout ratio of 50.1%), its
highest ever. Going forward, the Company will seek tobuild world-class profitability and reciprocate the­support of shareholders by delivering profit growth.

Other Income (Expenses) and Net Income
Attributable to Owners of Parent
During fiscal 2017, net other expenses came to ¥6.5 billion, reflecting ¥7.5 billion in loss on disaster related to
the Kumamoto Earthquake and ¥1.0 billion in interestand dividend income. As a result, income before
income taxes came to ¥149.1 billion, up 40.1% year on
year. Net income attributable to owners of the parent
totaled ¥115.2 billion in fiscal 2017, up 47.9% from fiscal
2016. Net income per share rose 52.3% year on yearto ¥702.26.

Millions of yen

Sales and Income

Comprehensive income
In fiscal 2017, Tokyo Electron recognized comprehensive income of ¥119.9 billion, up from ¥61.0 billion in­fiscal 2016. This was mainly due to the ¥115.2 billion in
net income, ¥2.8 billion in unrealized gains on investment securities related to strategically held shares, and¥2.6 billion in gain on remeasurements of defined benefit plans due to an increase in the discount rate used
to calculate retirement benefits as a result of risinginterest rates.

included developing innovative technologies to not
only enhance the performance of individual products,
but optimize entire processes, as well as making products more intelligent, all of which are especially important in terms of differentiating the Company’s products
going forward.
Tokyo Electron regards advanced technologicalprowess as the source of its growth. Accordingly, theCompany actively invests in growth to produce nextgeneration products, mainly focusing on fields in whichmarket growth is forecast. In the fiscal year underreview, Tokyo Electron released a new single wafer
deposition system and increased its market share in allof its key product areas, making tangible progress toward
the goals of the medium-term management plan.
In FPD production equipment, Tokyo Electron primarily advanced development of products for new
generation 10.5/11 panels, which are expected to see
rapid market growth going forward.

-3.3
-19.4

-40

13

14

-10

15

16

17

 Net Income (Loss) Attributable to Owners of Parent
 ROE
ROE = Net income (loss) attributable to owners of parent /Average total equity x 100

TOKYO ELECTRON ANNUAL REPORT 2017

PAGE

19

CONTENTS

Business Overview
and Financial Highlights

To Our Stakeholders

Interview with the CEO
Message from the CFO

Review of Operations
and Business Outlook

Corporate Governance
CSR-Oriented Operations

Corporate Data

Financial Section

Consolidated Eleven-Year Summary
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Comprehensive Income
Financial Review
Consolidated Statements of Changes in Net Asset
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Independent Auditor’s Report

Financial Review
a ¥78.6 billion increase in cash on hand* due to thegeneration of ¥118.0 billion in free cash flow,** a ¥41.1
billion increase in inventories due to increased production to meet robust demand from semiconductor anddisplay manufacturers, and a ¥17.3 billion increase intrade notes and accounts receivable. The turnover
period for trade notes and accounts receivable in fiscal
2017 was 61 days, compared with 64 days in fiscal 2016,
and the inventory turnover period in fiscal 2017 was
108 days, compared with 107 days in fiscal 2016.
Net property, plant and equipment increased ¥4.1
billion year on year to ¥100.4 billion. This was largely
due to ¥20.6 billion in new fixed asset acquisitions,
including part of the construction costs for a newlogistics building being constructed at the Miyagi
Plant to increase productivity as well as R&D equipment acquired to bolster the development of nextgeneration technologies. These and other positive
factors more than offset ¥17.8 billion in depreciation
and amortization.
Investments and other assets increased ¥1.4 billion
year on year to ¥81.0 billion.

As a result, total assets as of March 31, 2017 stood at¥957.4 billion, up ¥164.0 billion year on year.
* Cash on hand: Cash and cash equivalents + Short-term investments withoriginal maturities of less than one year** Free cash flow: Cash flows from operating activities + Cash flows frominvesting activities (excluding changes in short-term investments with­original maturities of less than one year)

M Liabilities and Net Assets
Current liabilities increased ¥81.7 billion from the end of
fiscal 2016 to ¥247.7 billion at the end of fiscal 2017.
This was mainly due to a ¥34.4 billion increase in customer advances, a ¥24.1 billion increase in trade notes
and accounts payable, a ¥10.2 billion increase inaccrued employees’ bonuses and an ¥8.6 billion
increase in income taxes payable.
Non-current liabilities increased ¥0.6 billion year on
year to ¥63.6 billion.
Net assets came to ¥645.9 billion at the end of fiscal
2017, up ¥81.7 billion from the end of fiscal 2016. Thiswas mainly due to a ¥75.7 billion increase in retained
earnings, reflecting the recording of ¥115.2 billion in net
income attributable to owners of the parent and ¥39.3
Millions of yen

Financial Position

2013

2014

2015

2016

2017

Total current assets¥521,501¥621,492¥670,883¥617,416¥775,938

Net property, plant and equipment

135,698

112,344

106,896

96,317

100,441billion paid in cash dividends (¥18.3 billion for the fiscal
2016 year-end dividend and ¥20.9 billion for the fiscal
2017 interim dividend).
As a result, the equity ratio fell 3.7 percentage points
year on year to 67.2% at the end of March 2017. ROE
climbed to 19.1% from 13.0% in fiscal 2016.

short-term investments with original maturities of lessthan one year not included in cash and cash equivalents, increased ¥78.6 billion year on year to ¥315.3 billion at the end of March 2017. Cash flows during the
fiscal year under review were as follows.
Net cash provided by operating activities came to¥136.9 billion, up ¥67.5 billion from fiscal 2016. Major
contributors were ¥149.1 billion in income before
income taxes, a ¥34.4 billion increase in customer
advances, a ¥24.0 billion increase in trade notes andaccounts payable, and ¥17.8 billion in depreciation andamortization. Major negative factors included a ¥44.1
billion increase in inventories, ¥32.6 billion in income
taxes paid, and a ¥17.4 billion increase in trade notes
and accounts receivable.
Net cash used in investing activities was ¥28.8 billion, compared with ¥150.0 billion used in the previous
fiscal year. Major outflows included ¥17.5 billion used as
payment for purchases of property, plant and equipment and a ¥9.9 billion net increase in short-term
investments.
Net cash used in financing activities came to ¥39.3
billion, compared with ¥138.6 billion in fiscal 2016. Thiswas mainly attributable to ¥39.3 billion in dividends paid.

Capital Expenditures* and Depreciation andAmortization**
Capital expenditures totaled ¥20.6 billion in fiscal 2017,a 55.1% year-on-year increase. Major expenditures
included the acquisition of R&D machinery and equipment in order to strengthen key areas in the SPE business.
Depreciation and amortization decreased 7.2% to¥17.8 billion.
* C apital expenditures represent only the gross increase in property, plant andequipment.
** Depreciation and amortization does not include amortization of goodwill or
losses on impairment.

Cash FlowsThe balance of cash and cash equivalents at the endof March 2017 stood at ¥164.3 billion, an increase of¥68.7 billion from the end of fiscal 2016. Cash on hand,which consists of cash and cash equivalents as well as

Millions of yen

Cash Flows

2013

2014

2015

2016

2017

¥ 69,398¥136,948

Total investments and other assets

118,329

94,756

98,375

79,63581,067

Cash flows from operating activities¥ 84,267¥ 44,449¥ 71,806

Total assets

775,528

828,592

876,154793,368

957,447

Cash flows from investing activities(141,769)(19,599)

155,738(150,014)(28,893)

Total current liabilities

106,670

170,510

172,812

166,061

247,770

Cash flows from financing activities(10,625)(187)(18,214)(138,601)(39,380)

Total liabilities

170,401

237,978

234,991

229,129

311,447

Cash and cash equivalents at end of year

85,314

104,797

317,632

95,638164,366

Total net assets (Total shareholders' equity)605,127590,614641,163564,239645,999

Selling, General and Administrative
Expenses and Ratio to Net Sales

R&D Expenses

Cash Dividends per Share

Receivable Turnover andInventory Turnover

Capital Expenditures andDepreciation and Amortization

Cash on Hand

(Billions of yen)(%)(Billions of yen)

(Yen)

(Days)(Billions of yen)(Billions of yen)

200

40

100

400

160

32

360

30

75

120

24

169.7
150

146.2
29.4

154.7 150.4

166.5
73.2

352

83.8

78.7
71.3

76.3

300

100

27.7
22.6

20

50

143
10

25

100

0

0

0

0

14

105 107

108

15

16

80

200

20.8

50

13

100

317.7
24.9

21.8

17

 Selling, General and Administrative Expenses
 Ratio to Net Sales

13

14

15

16

17

16
74

51

50

13

14

66

64

61

15

16

17

16

17

The fiscal 2013 annual dividend of ¥51 includes
a commemorative 50 year anniversary dividend of ¥20.

8

13
 Receivable Turnover
 Inventory Turnover

14

236.7

180

90

0

0

15

240.1

12.8 13.2 13.3

77

40

20.6
19.3
17.8

315.3

268.1

270
20.9

237
25.2

100

26.6

0

13

14

15

 Capital Expenditures Depreciation and Amortization

16

17

13

14

15

16

17

Cash on Hand = Cash and cash equivalents +Short-term investments with original maturities of less than
one yearTOKYO ELECTRON ANNUAL REPORT 2017

PAGE

20

CONTENTS

To Our Stakeholders

Business Overview
and Financial Highlights

Interview with the CEO
Message from the CFO

Review of Operations
and Business Outlook

Corporate Governance
CSR-Oriented Operations

Financial Section

Corporate Data

Consolidated Eleven-Year Summary
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Comprehensive Income
Financial Review
Consolidated Statements of Changes in Net Asset
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Independent Auditor’s Report

Financial Review
Business-related and Other Risks
The following risks may have a material impact onTokyo Electron’s business performance, stock price, or
financial position.
(1) Impact from Changes in the Semiconductor
MarketTokyo Electron has achieved a high profit margin byconcentrating resources in high-tech fields, including
semiconductor production equipment, where technological innovation is rapid but Tokyo Electron caneffectively use its strengths. Although technologicalchange is responsible for the semiconductor market’s
rapid growth, Tokyo Electron has actively undertaken
structural reforms to be able to generate profits under
any circumstances, including when the market contracts temporarily due to imbalance of supply anddemand. However, order cancellations, excess capacityand personnel and increased inventories resulting froman unexpectedly large market contraction, losses frombad debts resulting from the worsening of a customer’s financial position, and supply shortages resulting
from the worsening of a supplier’s management situation, could adversely affect Tokyo Electron’s businessperformance considerably.
(2) Impact from Concentration of Transactions on
Particular Customers
Tokyo Electron has been successful at increasing transactions with the leading semiconductor manufacturers
worldwide, including those in Japan, through the provision of products featuring outstanding, cutting-edge
technology and of services offering a high level of customer satisfaction. However, Tokyo Electron’s sales mayfrom time to time be temporarily concentrated on particular customers due to the timing of large capital
investments of major semiconductor manufacturers.
The resulting escalation in sales competition could
adversely affect Tokyo Electron’s business performance.

(3) Impact from Research and Development
Through ongoing and proactive R&D investment andactivities in cutting-edge technologies—miniaturization, vacuum, plasma, thermal processing, coating/developing, cleaning, wafer-transfer and clean technologies—Tokyo Electron has created advanced technologies. At the same time, by quickly bringing to market
new products incorporating these technologies, Tokyo
Electron has successfully captured a high market sharein each of the product fields it has entered and generated a high profit margin. However, delays in the
launch of new products and other factors could
adversely affect Tokyo Electron’s business performance.
(4) Safety-related Impact
Tokyo Electron’s basic philosophy is to always bear inmind safety and health in the execution of businessactivities, including development, manufacturing, sales,
services and management. In accordance with this philosophy, Tokyo Electron works actively and continuously to improve the safety of its products and toeliminate any harmful impact on health. However,harm to customers, order cancellations or other circumstances resulting from safety or other problems
related to Tokyo Electron’s products could adversely
affect Tokyo Electron’s business performance.
(5) Impact from Quality Issues
Tokyo Electron actively develops outstanding, cuttingedge technologies for incorporation in new productsthat are brought quickly to market. At the same time,
Tokyo Electron works to establish a quality assurance
system, efforts that include obtaining ISO 9001 certification, as well as to establish a world-class service system. These actions have resulted in a large number ofcustomers adopting Tokyo Electron’s products.
However, because Tokyo Electron’s products are basedon cutting-edge technologies, and due to other factors,
many of the technologies developed are in unfamiliar
fields. The occurrence of unforeseen defects or otherissues could adversely affect Tokyo Electron’s businessperformance.

(6) Impact of Intellectual Property Rights
In order to distinguish its products and make themmore competitive, Tokyo Electron has promoted its
R&D strategy for the early development of cuttingedge technologies together with its business and intellectual property strategies. This approach has enabledTokyo Electron to obtain sole possession of many proprietary technologies that have been instrumental to
the Company’s ability to capture a high market shareand generate high profit margins in each of its productfields. Tokyo Electron’s products incorporate and optimize many of these proprietary cutting-edge technologies. There may be cases in which, by avoiding the useof third-party technologies and intellectual property
rights, Tokyo Electron’s business performance could be
adversely affected.
(7) Impact of Fluctuating Foreign Exchange Rates
Success in the development of overseas operations has
increased the share of sales generated overseas. As arule, Tokyo Electron conducts export transactions on a
yen basis to avert exposure to foreign currency risks.
However, some exports are denominated in foreign
currencies. In these cases, Tokyo Electron hedges foreign currency risk by using a forward foreign exchange
contract when an order is received or by other means.
However, foreign exchange rate risks can arise fromfluctuations in prices due to sudden foreign exchange
movements, which could have an indirect adverse
effect on Tokyo Electron’s business performance.
(8) Influence of Corporate Acquisitions
As part of its business strategy, Tokyo Electron conducts corporate acquisitions in order to expand into
new business areas, secure new technologies and business platforms, and strengthen the competitiveness ofexisting businesses. The Company conducts due diligence and carefully deliberates each specific acquisition. However, in the event that the results following
an acquisition do not meet expectations, Tokyo
Electron’s business performance could be adversely
affected.

(9) Impact from Major Lawsuits or Legal Actions
Tokyo Electron is not currently involved in any lawsuits
or other legal actions that are likely to significantly
influence its business results. However, in the eventthat the Company’s business or other activities
become the subject of a major lawsuit or other legal
action, depending on the outcome of such action,
Tokyo Electron’s business results could be adversely
affected.
(10) Other Risks
Tokyo Electron is actively engaged in reforming its corporate structure so that it can generate profits evenwhen markets contract. These reforms have entailed
creating new high-growth and high-return businesses
and pursuing higher earnings from existing businesses.
At the same time, Tokyo Electron has promoted activities to preserve the environment and worked torestructure its compliance, risk management and information security management systems. However, as
long as it conducts business activities, as with peer
companies or companies in different industries, Tokyo
Electron is subject to the effect of many other factors.
These include the world and regional economic environments, natural disasters, war, terrorism, infectious
diseases and other unavoidable occurrences, financial
or stock markets, government or other regulations,
supply chains, market conditions for products and realestate, the ability to recruit personnel in Japan andoverseas, competition over standardization, and loss of
key personnel. Any of these factors could adversely
affect Tokyo Electron’s business performance.

TOKYO ELECTRON ANNUAL REPORT 2017

PAGE

21

CONTENTS

Business Overview
and Financial Highlights

To Our Stakeholders

Interview with the CEO
Message from the CFO

Review of Operations
and Business Outlook

Corporate Governance
CSR-Oriented Operations

Corporate Data

Financial Section

Financial Review
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Comprehensive Income
Consolidated Eleven-Year Summary
Consolidated Statements of Changes in Net Asset
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Independent Auditor’s Report

Consolidated Eleven-Year SummaryTokyo Electron Limited and Subsidiaries
As of and for the years ended March 31
Thousands of
U.S. dollars

Millions of yen

2017

2017

2016

2015

2014

2013

2012

2011

2010

2009

2008

2007

Net sales 1
Semiconductor production equipment
FPD production equipment
PV production equipment
Computer networks
Electronic components and computer networks
Other
Operating income (loss)
Income (loss) before income taxes
Net income (loss) attributable to owners of parent
Comprehensive income (loss) 2$7,128,260
6,684,140
440,210———
3,910
1,387,798
1,329,138
1,026,908
1,069,603¥799,719
749,893
49,387———438
155,697
149,116
115,208
119,998¥663,949
613,033
44,687———
6,229
116,789
106,467
77,89260,984¥613,125
576,242
32,710
3,618
—
—
555
88,11386,82871,88880,295¥612,170
478,842
28,317
3,806—
100,726
479
32,205(11,756)(19,409)(10,889)¥ 497,300
392,027
20,077
83—
84,665448
12,54917,767
6,076
15,826¥ 633,091
477,873
69,889——84,868461
60,44360,602
36,72636,954¥ 668,722
511,332
66,721——
90,216453
97,87099,57971,92469,598¥ 418,637
262,392
71,361——
84,473411(2,181)(7,768)(9,033)(4,751)¥ 508,082
325,383
88,107——
94,207385
14,711
9,637
7,543
—

¥ 906,092
726,440
68,016——111,181455
168,498
169,220
106,271—¥ 851,975
642,625
100,766—
19,16988,294
1,121
143,979
144,414
91,263—

Domestic sales
Overseas sales

901,3486,226,911

101,122698,597

121,808
542,141

95,046
518,079

161,631450,539

118,504
378,796

171,364
461,727

182,165
486,557

162,609
256,028

208,871299,211

323,946
582,146

313,816
538,159

159,310
184,482
746,950

17,872
20,69783,80019,257
13,341
76,287

20,87813,18471,35024,888
12,79978,664

26,631
21,77473,24924,19839,541
81,506

17,707
39,14070,56820,002
14,91954,07423,068
18,10860,98821,41322,70366,073

18,82027,12956,9628,534,157
5,758,088

957,447645,999

793,368
564,239

876,154641,163828,592
590,614775,528
605,127

783,611598,603809,205
584,802696,352
523,370668,998529,265

792,818
545,245

770,514469,811

11,241

10,62910,844

12,304

12,201

10,684

10,343

10,068

10,391

10,429

9,528

42.15
42.07
2,896.55
24.00
180,61142,509¥ 594.01
592.71
2,989.70
125.00180,611
43,324¥ 511.27
509.84
2,573.72
103.00180,61141,289Depreciation and amortization 3
Capital expenditures 4
R&D expenses
Total assets
Total net assets 5
Number of employees

U.S. dollars

Net income (loss) per share of common stock:
Basic
Diluted 6
Net assets per share of common stock
Cash dividends per share of common stock
Number of shares outstanding (thousands)
Number of shareholders

$

6.26
6.24
34.94
3.14

Yen

¥ 702.26
700.35
3,919.50
352.00165,210
21,937¥ 461.10
460.003,428.37
237.00165,211
24,664¥ 401.08
400.153,567.23
143.00180,611
20,829¥ (108.31)—
3,225.92
50.00
180,61130,563

19.1
19.5
67.2
0.91

13.0
17.6
70.9
0.80

11.8
14.4
73.0
0.72

(3.3)
5.3
69.8
0.76

1.0
2.5
76.5
0.64

¥ 71,143¥ 62,466¥ 56,540¥ 49,754¥ 40,759

¥

33.91
33.85
3,309.58
51.00
180,61141,287¥ 205.04
204.723,275.14
80.00
180,61142,414¥ 401.73
401.103,198.66
114.00180,61144,896¥(50.47)—2,859.37
12.00
180,61139,285¥%

ROE
Operating margin
Equity ratio
Asset turnover (times)

6.3
9.5
74.9
0.79

13.3
14.6
70.8
0.89

(1.8)
(0.5)
73.5
0.61

1.4
2.9
77.5
0.70

21.4
18.6
67.5
1.16

21.8
16.9
59.7
1.19

¥ 64,655¥ 41,581¥ 48,896¥ 86,882¥ 89,418

Thousands of yen

Net sales per employee$ 634,130¥ 59,256

1 From fiscal 2008 to 2014, Computer networks was included in Electronic components and computer networks. Electronic components and computer networks were excluded from fiscal 2015 because Tokyo Electron Device Limited, a former consolidated subsidiary, became an equity method affiliate. Photovoltaic panel (PV) production equipment
was included in FPD production equipment until fiscal 2012. From fiscal 2016, PV production equipment is included in Other.
2 From fiscal 2011, the Company applied “Accounting Standards for Presentation of Comprehensive Income” (Statement No. 25) released by the Accounting Standards Board of Japan (ASBJ). Accordingly, comprehensive income (loss) has been disclosed from fiscal 2010.
3 Depreciation and amortization does not include amortization and loss on impairment of goodwill.
4	Capital expenditures only represent the gross increase in property, plant and equipment.
5 From fiscal 2007, “Total net assets” has been disclosed in accordance with “Accounting Standard for Presentation of Net Assets in the Balance Sheet” (Statement No. 5) and “Guidance on Accounting Standard for Presentation of Net Assets in the Balance Sheet” (Guidance No. 8) released by the ASBJ. “Total net assets” through fiscal 2006 represents“Total shareholders’ equity” under the former accounting standards.
6 From fiscal 2011, the Company calculated net income per share of common stock (diluted) in accordance with “Accounting Standard for Earning Per Share” (Statement No. 2) and “Guidance on Accounting Standard for Earnings Per Share” (Guidance No. 4) released by the ASBJ. Dilution is not assumed for the years ended March 31, 2014 and 2010.
7	The amounts in this summary in millions of yen and in thousands of yen, U.S. dollars and shares, as of and for the year ended March 31, 2016 and prior periods are rounded. On the other hand, such amounts as of and for the year ended March 31, 2017 are rounded down and therefore the totals do not necessarily agree with the sum of the individual account balances for the corresponding period.

TOKYO ELECTRON ANNUAL REPORT 2017

PAGE

22

CONTENTS

Business Overview
and Financial Highlights

To Our Stakeholders

Interview with the CEO
Message from the CFO

Review of Operations
and Business Outlook

Corporate Governance
CSR-Oriented Operations

Corporate Data

Financial Section

Financial Review
Consolidated Eleven-Year Summary
Consolidated Statements of Income
Consolidated Statements of Comprehensive Income
Consolidated Balance Sheets
Consolidated Statements of Changes in Net Asset
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Independent Auditor’s Report

Consolidated Balance Sheets
Tokyo Electron Limited and Subsidiaries
As of March 31, 2017 and 2016
Thousands of
U.S. dollars

Millions of yen

ASSETS

2017

2016

2017

Current assets:

Thousands of
U.S. dollars

Millions of yen

LIABILITIES AND NET ASSETS

2017

2016

2017

¥ 79,217¥ 55,050$ 706,100

Current liabilities:

Cash and cash equivalents

¥164,366¥ 95,638$1,465,075

Trade notes and accounts payable

Short-term investments

151,000

141,035

1,345,931

Income taxes payable

31,06922,461

276,935

Trade notes and accounts receivable

133,858

116,503

1,193,138

Accrued employees’ bonuses

21,853

11,624

194,793

(63)

(48)

(569)

Customer advances

67,97633,523605,900

Inventories

236,256

195,080

2,105,861

Other accrued expenses and other current liabilities

47,65343,403424,756

Deferred income taxes

36,892

31,204

328,837

247,770

166,061

2,208,486

Prepaid expenses and other current assets

53,62838,004

478,012775,938

617,416

6,916,286

Net liablitiy for defined benefits

56,20055,677500,942

Other liabilities

7,476

7,391

66,640   Total non-current liabilities

63,67763,068567,583  Total liabilities

311,447

229,129

2,776,069  Common stock   Authorized: 300,000,000 shares
Issued: 165,210,911 and 165,210,911 shares
as of March 31, 2017 and 2016, respectively

54,961

54,961

489,893  Capital surplus

78,02378,023

695,455  Retained earnings

503,325

427,618

4,486,369(7,766)(8,051)(69,227)

10,788

7,903

96,166

59

50

527

Allowance for doubtful accounts   Total current assets

Property, plant and equipment:Land

24,85523,868

221,545

Buildings

145,901

147,653

1,300,489

Machinery and equipment

132,043

129,169

1,176,965

Construction in progress

6,026

3,774

53,713308,826

304,464

2,752,713

Less: Accumulated depreciation

208,385

208,147

1,857,436   Net property, plant and equipment

100,441

96,317895,277   Total property, plant and equipment   Total current liabilities
Non-current liablities:

Net assets:
Shareholders’ equity   Treasury stock, at cost   1,135,104 and 1,176,800 shares
as of March 31, 2017 and 2016, respectively
Accumulated other comprehensive income

Investments and other assets:
Investment securities

24,11919,914

214,983   Net unrealized gains on investment securities

Deferred income taxes

19,12820,782

170,505   Net deferred gains on hedging instruments

Net asset for defined benefits

4,818

1,623

42,949   Foreign currency translation adjustments

5,789

6,743

51,603

Intangible assets

15,401

17,603

137,280   Accumulated remeasurements of defined benefit plans

(2,086)(4,878)(18,597)

Other assets

19,416

21,538173,067

Share subscription rights

2,620

1,641

23,356

Allowance for doubtful accounts

(1,816)(1,825)(16,192)

Non-controlling interests

284

229

2,540

   Total investments and other assets

81,067

79,635722,593   Total net assets

645,999564,239

5,758,088¥957,447¥793,368$8,534,157

Total liabilities and net assets

¥957,447¥793,368$8,534,157

Total assets
See accompanying Notes to Consolidated Financial Statements.

TOKYO ELECTRON ANNUAL REPORT 2017

PAGE

23

CONTENTS

To Our Stakeholders

Business Overview
and Financial Highlights

Interview with the CEO
Message from the CFO

Review of Operations
and Business Outlook

Corporate Governance
CSR-Oriented Operations

Corporate Data

Financial Section

Financial Review
Consolidated Eleven-Year Summary
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Comprehensive Income
Consolidated Statements of Changes in Net Asset
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Independent Auditor’s Report

Consolidated Statements of Income

Consolidated Statements of Comprehensive Income

Tokyo Electron Limited and Subsidiaries
Years ended March 31, 2017 and 2016

Tokyo Electron Limited and Subsidiaries
Years ended March 31, 2017 and 2016
Thousands of
U.S. dollars

Millions of yen

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

2017

2016

2017

¥799,719
477,427
322,291
166,594
155,697¥663,949
396,739
267,210
150,421116,789$7,128,260
4,255,528
2,872,732
1,484,933
1,387,798

1,032

856

9,204

342
300
(791)
55
6
—
(7,521)

326
297
886
1,025
446
(662)
—

3,056
2,677
(7,055)491
56—(67,039)

Other income (expenses):
Interest and dividend income Share of profit of associates accounted for using
the equity method
Insurance dividend income
Foreign exchange gain (loss), net
Gain on sales of property, plant and equipment
Gain on sales of investment securities
Commission for purchases of treasury stocks
Loss on disaster Loss on impairment of property, plant and equipment, goodwill
and other assets
Loss on business restructuring
Other, net
Income before income taxes

(362)(9,727)(3,235)—357
149,116(2,235)(1,534)
106,467—
3,183
1,329,138

Income taxes:
Current
DeferredNet income

40,633(6,765)
115,248

32,560(4,029)77,936362,182(60,304)
1,027,260

Net income attributable to non-controlling interests
Net income attributable to owners of parent

39¥115,208

44¥ 77,892

352$1,026,908

Yen

Per share of common stock:
Net income — basic
Net income — diluted
Net assetsCash dividends
See accompanying Notes to Consolidated Financial Statements.

¥ 702.26
700.35
3,919.50
352.00U.S. dollars¥ 461.10
460.003,428.37
237.00$ 6.26
6.24
34.94
3.14

Thousands of
U.S. dollars

Millions of yen

Net income
Other comprehensive income (loss):
Net unrealized gains (losses) on investment securities
Net deferred gains (losses) on hedging instruments
Foreign currency translation adjustments
Remeasurements of defined benefit plans Share of other comprehensive income of associates accounted
for using the equity method
Total other comprehensive income (loss)
Comprehensive income 
Total comprehensive income attributable to:
Owners of parent
Non-controlling interests
See accompanying Notes to Consolidated Financial Statements.

2017

2016

2017

¥115,248¥77,936$1,027,260

2,875
10
(933)
2,682

(1,556)(112)(5,706)(9,233)25,62997(8,317)
23,911

114
4,750
119,998(345)(16,952)
60,984

1,021
42,342
1,069,603

119,94256

60,96222

1,069,098
505

TOKYO ELECTRON ANNUAL REPORT 2017

PAGE

24

CONTENTS

Business Overview
and Financial Highlights

To Our Stakeholders

Interview with the CEO
Message from the CFO

Review of Operations
and Business Outlook

Corporate Governance
CSR-Oriented Operations

Corporate Data

Financial Section

Financial Review
Consolidated Eleven-Year Summary
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Comprehensive Income
Consolidated Statements of Changes in Net Asset
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Independent Auditor’s Report

Consolidated Statements of Changes in Net Assets

Consolidated Statements of Cash Flow

Tokyo Electron Limited and Subsidiaries
Years ended March 31, 2017 and 2016

Tokyo Electron Limited and Subsidiaries
Years ended March 31, 2017 and 2016
Thousands of
U.S. dollars

Millions of yen
Shareholders’ equity

Commonstock

CapitalsurplusRetainedearnings¥54,961¥78,023¥488,816

Cash dividends——(33,013)—

Net income attributable toowners of parent——

77,892

Repurchase of treasury
stocks——

Disposal of treasury stocks——

Cancellation of treasury
stocks——Other, net——

Balance as of March 31, 2015

Balance as of March 31, 2016

Millions of yen

Accumulated other comprehensive income

Treasurystock

Net unrealized Net deferred
Foreign
Accumulated
gains ongains oncurrency
remeasurements
Shareinvestment
hedgingtranslation of defined benefit subscription
securities
instruments adjustments
plansrightsTotal
net assets¥

258¥641,163¥122¥12,481¥ 4,682¥1,421

—

—

—

—

—

—

(33,013)

—

—

—

—

—

—

—

77,892— (105,810)

—

—

—

—

—

—

(105,810)

—

—

—

—

—

—

746

(726)

¥(9,064) ¥ 9,463

Noncontrollinginterests

1,472(105,351) 105,351

—

—

—

—

—

—

—

(1,560)(72)(5,738)(9,560)220(29)(16,739)¥427,618 ¥ (8,051) ¥ 7,903——¥54,961¥78,023¥ 50¥ 6,743¥(4,878)¥1,641229¥564,239

Cash dividends——(39,371)

—

—

—

—

—

—

—

(39,371)

Net income attributable toowners of parent——

115,208

—

—

—

—

—

—

—

115,208

Repurchase of treasury
stocks

—

—

—

(6)

—

—

—

—

—

—

(6)

Disposal of treasury stocks

—

—

(130)

290

—

—

—

—

—

—

159

—

—

2,886

9

(953)

2,791

979

¥503,325 ¥ (7,766) ¥10,788¥ 59¥ 5,789¥(2,086)¥2,620

Other, net
Balance as of March 31, 2017——

¥54,961¥78,023

¥

¥

56

5,769

284

¥645,999

Thousands of U.S. dollars
Shareholders’ equity

Commonstock

Balance as of March 31, 2016

Capitalsurplus

Accumulated other comprehensive income

Retainedearnings

Treasurystock

Net unrealized Net deferred
Foreign
Accumulated
gains ongains oncurrency
remeasurements
Shareinvestment
hedgingtranslation of defined benefit subscription
securities
instruments adjustments
plansrightsTotal
net assets$446$60,101$(43,477)$14,628$2,034$5,029,317

Cash dividends——(350,931)

—

—

—

—

—

—

—

(350,931)

Net income attributable toowners of parent—— 1,026,908

—

—

—

—

—

—

—

1,026,908

Repurchase of treasury
stocks

—

—

—

(54)

—

—

—

—

—

—

(54)

Disposal of treasury stocks——(1,159)

2,585

—

—

—

—

—

—

1,425

—

—

—

—

25,72681(8,498)24,8808,727

505

51,422$489,893 $695,455 $4,486,369 $(69,227) $96,166$527$51,603$(18,597)$23,356$2,540$5,758,088

Other, net
Balance as of March 31, 2017

$489,893 $695,455 $3,811,552 $(71,758) $70,440

Noncontrollinginterests

See accompanying Notes to Consolidated Financial Statements.

Cash flows from operating activities:
Income before income taxes 
Depreciation and amortization
 Loss on impairment of property, plant and equipment,
goodwill and other assets
Amortization of goodwill
Increase (decrease) in accrued employees’ bonuses
Interest and dividend income
Loss on sales of affiliates’ shares
Increase in trade notes and accounts receivable
Increase in inventories
Increase in trade notes and accounts payable
Increase in prepaid consumption tax
Increase (decrease) in customer advances
Other, net
Subtotal
Receipts from interest and dividends
Income taxes paidNet cash provided by operating activities
Cash flows from investing activities:
Payment for purchases of short-term investments
Proceeds from maturities of short-term investments
Payment for purchases of property, plant and equipment
Payment for acquisition of intangible assets
Other, netNet cash used in investing activities
Cash flows from financing activities:
Payment for purchases of treasury stock
Dividends paid
Other, net
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
See accompanying Notes to Consolidated Financial Statements.

2017

2016

2017

¥149,116
17,872¥106,467
19,257$1,329,138
159,310362
631
10,112(1,032)—(17,411)(44,102)
24,053(12,350)
34,444
6,607
168,304
1,266(32,622)
136,948

9,727
970
(283)
(856)
1,111
(8,650)(23,535)
31(1,910)(15,004)(3,527)
83,798957(15,357)
69,3983,235
5,625
90,140(9,204)—(155,200)(393,102)
214,401(110,084)
307,023
58,8931,500,176
11,291(290,779)
1,220,687(202,200)
192,232(17,557)(1,116)(252)(28,893)(209,491)
68,505(11,294)
(708)
2,974
(150,014)(1,802,299)
1,713,456(156,498)(9,952)(2,248)(257,543)(6)(39,371)(2)(39,380)53
68,72895,638¥164,366(105,532)(33,013)(56)(138,601)(2,777)(221,994)
317,632¥ 95,638(54)(350,931)(26)(351,012)
473
612,605
852,469$1,465,075

TOKYO ELECTRON ANNUAL REPORT 2017

PAGE

25

CONTENTS

To Our Stakeholders

Business Overview
and Financial Highlights

Interview with the CEO
Message from the CFO

Review of Operations
and Business Outlook

Corporate Governance
CSR-Oriented Operations

Financial Section

Corporate Data

Financial Review
Consolidated Eleven-Year Summary
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Comprehensive Income
Notes to Consolidated Financial Statements
Consolidated Statements of Changes in Net Asset
Consolidated Statements of Cash Flows
Independent Auditor’s Report

Notes to Consolidated Financial Statements
Tokyo Electron Limited and Subsidiaries
Years ended March 31, 2017 and 2016

1. Basis of Presentation of Consolidated Financial
Statements
The accompanying consolidated financial statements ofTokyo Electron Limited (hereinafter “the Company”) and its
subsidiaries (hereinafter collectively referred to as “Tokyo
Electron”) have been prepared in accordance with the provisions set forth in the Financial Instruments and Exchange Act
of Japan and its related accounting regulations, and in conformity with accounting principles generally accepted inJapan, which are different in certain respects as to applicationand disclosure requirements of International Financial
Reporting Standards.
The Company uses financial statements prepared by foreign subsidiaries in accordance with International Financial
Reporting Standards or U.S. generally accepted accounting
principles for the preparation of the consolidated financial
statements, together with adjustment for certain items which
are required to be adjusted in the consolidation process.
The accompanying consolidated financial statements havebeen restructured and translated into English from the statutory Japanese language consolidated financial statements. Some
supplementary information included in the statutory Japanese
language consolidated financial statements is not presented in
the accompanying consolidated financial statements.
The amounts in the consolidated financial statements andassociated notes shown in millions of yen and in thousandsof yen, U.S. dollars and shares, as of and for the year ended
March 31, 2016 and prior periods are rounded. On the other
hand, such amounts as of and for the year ended March 31,2017 are rounded down and therefore the totals do not­necessarily agree with the sum of the individual account­balances for the corresponding period.
U.S. dollar amounts included herein are solely for the convenience of readers and are presented at the rate of ¥112.19
to $1.00, the approximate rate as of March 31, 2017. The
translation should not be construed as a representation that
the Japanese yen amounts shown could be converted into
U.S. dollars at that or any other rate.

2. Summary of Significant Accounting Policies(a) Principles of consolidation
The consolidated financial statements include the accountsof the Company and its 35 and 37 subsidiaries as of March 31,2017 and 2016, respectively. All significant inter-company
accounts, transactions and unrealized profits or losses havebeen eliminated through consolidation procedures.

There are 8 affiliates accounted for using the equity method as of March 31, 2017.
The fiscal year-end of all entities is March 31, except for 3
consolidated foreign subsidiaries. Financial statements provisionally closed for the period ending March 31 are used for
those subsidiaries.
(b) Foreign currency translation
All assets and liabilities denominated in foreign currencies
are translated into Japanese yen at the year-end rates, except
for those hedged by forward exchange contracts, which aretranslated at the contracted rates. Resulting exchange gains
and losses are included in earnings for the year.
Revenue and expense items are translated at the rates thatapproximate those prevailing at the time of the transactions.
The balance sheet accounts of foreign subsidiaries aretranslated into Japanese yen at the rates of exchange in
effect at the balance sheet date, except for shareholders’equity accounts, which are translated at the historical rates.
Revenue and expense accounts of foreign subsidiaries aretranslated at average rates of exchange in effect during theyear. Resulting translation adjustments are presented in net
assets as a component of accumulated other comprehensive
income in the consolidated balance sheets.
(c) Cash equivalents
Tokyo Electron considers all highly-liquid instruments purchased with original maturities of three months or less to be
cash equivalents.
(d) Short-term investments
Short-term investments consist of short term deposits
and low-risk financial instruments with original maturities ofmore than three months.
(e) Investment securities
Tokyo Electron examines the intent of holding each security
and classifies those securities as trading securities, held-to
maturity debt securities or other securities. Tokyo Electron has
no trading securities as of March 31, 2017 and 2016. Held-tomaturity debt securities are stated mainly at amortized cost.
Other securities with market prices are valued at fair value atthe balance sheet date. The differences between the bookvalue and fair value of other securities, net of applicable
income taxes, are presented in net assets as a component ofaccumulated other comprehensive income. Other securities
without market prices are valued at cost using the weightedaverage method.
The cost of sold securities is calculated using the weighted
average method.
(f) Inventories
Inventories other than raw materials are stated at the lowerof cost, determined by principally the specific identification

method, or net realizable value, which is defined as selling
price less estimated additional manufacturing costs and­estimated direct selling expenses. Raw materials are statedat the lower of cost, determined principally by the movingaverage method, or replacement cost.
(g) Property, plant and equipment
Property, plant and equipment are stated at cost.
Depreciation of buildings, machinery and equipment of theCompany and its domestic subsidiaries is computed using
the declining-balance method, except for buildings acquiredsince April 1, 1998 and facilities attached to buildings andstructures acquired since April 1, 2016 which are depreciatedusing the straight-line method, based on the estimated useful
lives of assets. Foreign subsidiaries mainly apply the straight-line
method over the estimated useful lives of assets.
Estimated useful lives of property, plant and equipment
are as follows:   Buildings
2 to 60 years   Machinery and equipment
2 to 17 years(h) Intangible assets (excluding goodwill)
Intangible assets are amortized by the straight-line method over their estimated useful lives.
(i) Goodwill
Goodwill is evaluated on an individual basis and amortizedby the straight-line method over a period not exceeding
20 years.
(j) Impairment of fixed assets
Tokyo Electron evaluates the carrying value of fixed assets
held for use in the business and idle assets.
If the carrying value of a fixed asset is impaired, a loss isrecognized based on the amount by which the carrying value
exceeds its recoverable amount, being the higher of the net
selling price or the value in use of the assets. Net selling priceis determined using the fair value less disposal costs andvalue in use is based on the total amount of discounted cash
flows estimated to be generated from the continuing use of
the individual assets or the asset group and the disposal of
the assets.
(k) Allowance for doubtful accounts
The allowance for doubtful accounts is provided at an
amount determined based on the historical experience ofbad debts with respect to ordinary receivables, and an estimate of uncollectible amounts determined by reference tospecific doubtful receivables from customers which are experiencing financial difficulties.
(l) Employee benefits
The Company and its domestic subsidiaries provide
defined benefit plans for their employees. Expected benefits
are attributed to accounting periods by the benefit formulabasis. Prior service costs are charged to earnings on astraight-line basis, beginning from the fiscal year in which
they are incurred, over a fixed number of years (4 years)
within the average remaining years of service of employees
when the changes occur. Actuarial differences are charged toearnings on a straight-line basis, beginning from the following fiscal year after they are incurred, over a fixed number ofyears (4 years) within the average remaining years of serviceof employees when the differences occur.
The provision for accrued pension and severance costs for
directors and audit & supervisory board members of theCompany and its domestic subsidiaries is calculated in accordance with internal regulations.
The Company and certain domestic subsidiaries decided to
discontinue the payment of severance pay for directors andaudit & supervisory board members after April 1, 2005, and at
the general shareholders’ meeting in June 2005, it was
resolved that the severance pay for directors and audit &supervisory board members until March 31, 2005 would be
paid at the termination of their service and the decision
regarding the payment amount for each director and audit &supervisory board member was delegated to the board of
directors and audit & supervisory board members. The accruals for severance costs for directors and audit & supervisoryboard members are included in Net liability for defined benefits in the consolidated balance sheets.
(m) Accrued warranty expenses
Tokyo Electron’s products are generally subject to warranty, and Tokyo Electron accrues estimated warranty costs
when product revenue is recognized. Estimated after-salerepair expenses over warranty periods are accrued based on
the historical ratio of actual repair expenses to corresponding
sales.
(n) Derivatives and hedge accounting
The Company and certain subsidiaries make use of derivatives in order to manage certain risks arising from adverse
fluctuations in foreign currency exchange rates. The amountof derivatives is limited to the extent of foreign currency
assets, liabilities and actual orders, and Tokyo Electron does
not trade in derivatives for speculative purposes.
Derivatives are carried at fair value in the consolidated balance sheet with changes in unrealized gain or loss charged or
credited to earnings, except for those which meet the criteria
for hedge accounting. Unrealized gains or losses on hedging
instruments, net of taxes, are reported in net assets as acomponent of accumulated other comprehensive income.
Receivables and payables hedged by qualified forward foreign exchange contracts are translated at the corresponding
foreign exchange contract rates.

TOKYO ELECTRON ANNUAL REPORT 2017

PAGE

26

CONTENTS

Business Overview
and Financial Highlights

To Our Stakeholders

Interview with the CEO
Message from the CFO

Review of Operations
and Business Outlook

Corporate Governance
CSR-Oriented Operations

Corporate Data

Financial Section

Financial Review
Consolidated Eleven-Year Summary
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Comprehensive Income
Notes to Consolidated Financial Statements
Consolidated Statements of Changes in Net Asset
Consolidated Statements of Cash Flows
Independent Auditor’s Report

Notes to Consolidated Financial Statements(o) Income taxes
Tokyo Electron records deferred tax assets and liabilities on
temporary differences between the carrying amounts ofassets and liabilities for financial reporting purposes and theamounts used for income tax purposes and net operating
loss carryforwards. Deferred tax assets and liabilities aremeasured using the enacted tax rates and laws which are
expected to be in effect when net operating loss carryforwards and temporary differences are expected to be realized.
(p) Revenue recognition
Revenue from Semiconductor and FPD (Flat Panel Display)production equipment is principally recognized at the time of
the customer confirmation of set-up and testing of products.
Revenue from equipment not requiring substantial installation is recognized at the time of shipment. Service revenue
maintenance is recognized ratably over the term of themaintenance contract.
(q) Per share information
Net income per share and net assets per share are computed based on the weighted-average number of shares ofcommon stock outstanding during each year. Net income diluted per share is computed based on the weighted-average
number of shares of common stock outstanding during eachyear after incorporating the dilutive potential effect of sharesof common stock to be issued upon the exercise ofstock options.
Dividends per share has been presented on an accruals
basis and include, in each fiscal year ended March 31, dividends
approved or to be approved after March 31 but applicable tothe year then ended.
The basis for the calculation of net income per share forthe fiscal years ended March 31, 2017 and 2016 is as follows:
Thousands of
U.S. dollars

Millions of yen

Net income attributable toowners of parent
Less components not pertaining
to holders of common stock
Net income pertaining toholders of common stock
Weighted-average number of shares of common stock
outstanding (thousands)

2017

2016

2017

¥115,208¥77,892$1,026,908—¥115,208

164,054—¥77,892—$1,026,908

168,924(r) Research and development expenses
Research and development expenses are charged to earnings as incurred and amounted to ¥83,800 million ($746,950
thousand) and ¥76,287 million for the years ended March 31,2017 and 2016, respectively.

(s) Reclassifications
Certain reclassifications have been made to the prior year’s
consolidated financial statements to conform with the presentation used for the year ended March 31, 2017.

3. Change in Accounting Policies and Adoption of
New Accounting Standards
Year ended March 31, 2017
In accordance with the revision to the Japanese Corporation
Tax Act, the Company and its domestic subsidiaries adopted
the “Practical Solution on a change in depreciation method
due to Tax Reform 2016” (ASBJ Practical Issues Task Force
No. 32, June 17, 2016) and changed the depreciation method
for facilities attached to buildings and structures acquiredsince April 1, 2016 from the declining-balance method to thestraight-line method, starting from the fiscal year ended
March 31, 2017.
The effect of this change on the consolidated financial
statements is immaterial.
Year ended March 31, 2016
The Company and its domestic subsidiaries adopted“Revised Accounting Standard for Business Combinations”(ASBJ Statement No.21, September 13, 2013 (hereinafter,“Statement No.21”)), “Revised Accounting Standard forConsolidated Financial Statements” (ASBJ Statement No.22,
September 13, 2013 (hereinafter, “Statement No.22”)) and“Revised Accounting Standard for Business Divestitures”(ASBJ Statement No.7, September 13, 2013 (hereinafter,“Statement No.7”)) (together, the “Business Combination
Accounting Standards”), from the year ended March 31, 2016.
As a result, the Company changed its accounting policies torecognize in capital surplus the differences arising from thechanges in the Company’s ownership interest of subsidiaries
over which the Company continues to maintain control andto record acquisition related costs as expenses in the fiscal
year in which the costs are incurred. In addition, theCompany changed its accounting policy for the reallocationof acquisition costs due to the completion following provisional accounting to reflect such reallocation in the consolidated financial statements for the fiscal year in which thebusiness combination took place. The Company also changed
the presentation of net income and the term “non-controlling interests” is used instead of “minority interests”. In the
consolidated statement of cash flows, cash flows from acquisition or disposal of shares of subsidiaries with no changes inthe scope of consolidation are included in “Cash flows fromfinancing activities” and cash flows from acquisition related

costs for shares of subsidiaries with changes in the scope of
consolidation or costs related to acquisition or disposal ofshares of subsidiaries with no changes in the scope of consolidation are included in “Cash flows from operating activities”.
With regard to the application of the Business
Combination Accounting Standards, the Company followed
the provisional treatments in article 58-2 (4) of Statement
No.21, article 44-5 (4) of Statement No.22 and article 57-4 (4)of Statement No.7 with application from the beginning of
the year ended March 31, 2016 prospectively.
As a result of adoption of these standards, there is noeffect on the consolidated financial statements for the year
ended March 31, 2016.

Held-to-maturity securities classified as current assets are¥244,500 million ($2,179,338 thousand) and ¥160,999 million
as of March 31, 2017 and 2016, respectively.
Reconciliation of held-to-maturity securities as of March
31, 2017 and 2016 to the amounts of short-term investmentsin the consolidated balance sheets are as follows:
Millions of yen

2017

Held-to-maturity (current)
Deposits and low-risk financial instruments with original
maturities of three months
or less

2016¥244,500 ¥160,999

Thousands of
U.S. dollars

2017$2,179,338(93,500)(45,000)—

25,036—¥151,000 ¥141,035$1,345,931

Deposits with original maturities
of more than three months(833,407)

4. Additional Information

Short-term investments

The Company and its domestic subsidiaries adopted“Revised Implementation Guidance on Recoverability ofDeferred Tax Assets” (ASBJ Guidance No. 26, March 28, 2016)
from the year ended March 31, 2017.

Net loss on devaluation of investment securities was ¥105
million ($939 thousand) and ¥331 million for the years ended
March 31, 2017 and 2016, respectively.
For the year ended March 31, 2017, the amount of gain andloss on sale of available-for-sale securities was immaterial.

5. Securities
Other securities as of March 31, 2017 and 2016 are as follows:

For the year ended March 31, 2016, the Company soldavailable-for-sale securities and recognized the following
gain and loss on sale:

Millions of yen

2017:

Cost

Non-current
Securities with market prices¥7,183¥22,704

1,381

1,399

14

14

Total

¥8,580¥24,119

2016:

Cost

  Equity securities

Millions of yen

Carrying value

Amount of sale

Gain on sale

Equity securities¥1,275¥446

Loss on sale

¥247

Total

¥1,275¥446¥247

Securities without market prices  Unlisted stock  Other6. Inventories
Inventories as of March 31, 2017 and 2016 are as follows:

Millions of yen

Non-current¥7,204¥18,580

Securities without market prices  Unlisted stock

1,318

1,334

Total

¥8,522¥19,914

2017:

Cost

Carrying value$64,032$202,378

12,314

12,472Thousands of U.S. dollars

Non-current
Securities with market prices  Equity securities
Securities without market prices  Unlisted stock  OtherTotal

2017

Finished products

Securities with market prices  Equity securities

Millions of yen

Carrying value

133

133

$76,480$214,983

Work in process, raw materials
and supplies
Total

2016¥152,629 ¥130,479
83,626

Thousands of
U.S. dollars

2017$1,360,456

64,601

745,405¥236,256 ¥195,080$2,105,861

The amounts of change in inventory provision included incost of sales in the consolidated statements of income forthe years ended March 31, 2017 and 2016 were a decrease of¥3,060 million ($27,283 thousand) and an increase of ¥758
million, respectively.

TOKYO ELECTRON ANNUAL REPORT 2017

PAGE

27

CONTENTS

Business Overview
and Financial Highlights

To Our Stakeholders

Interview with the CEO
Message from the CFO

Review of Operations
and Business Outlook

Corporate Governance
CSR-Oriented Operations

Corporate Data

Financial Section

Financial Review
Consolidated Eleven-Year Summary
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Comprehensive Income
Notes to Consolidated Financial Statements
Consolidated Statements of Changes in Net Asset
Consolidated Statements of Cash Flows
Independent Auditor’s Report

Notes to Consolidated Financial Statements
7. Other Income (Expenses)

9. Short-term Borrowings

Loss on disaster
Loss on disaster of ¥7,521 million ($67,039 thousand) for
the year ended March 31, 2017 represents the actual and current estimated expenses relating to the recovery of buildings,
production and development facilities as well as the disposalof inventories caused by the impact of the Kumamoto earthquake in 2016.
Loss on impairment of property, plant and equipment,
goodwill and other assets
For the year ended March 31, 2016, the following loss on
impairment was recognized:(2) Movement of plan assets

There are no short-term borrowings classified as current
liabilities as of March 31, 2017 and 2016.
As of March 31, 2017 and 2016, Tokyo Electron had unusedlines of credit amounting to ¥126,944 million ($1,131,512 thousand) and ¥114,960 million, respectively.

10. Employee Benefits
The Company and its domestic subsidiaries provide a cash
balance plan and a non-contributory retirement and severance benefit plan as defined benefit plans for their employees. Further, certain consolidated overseas subsidiaries­provide defined benefit plans for their employees.

(1) Goodwill and non-current assets of TEL FSI, Inc.
Loss on impairment
Location

Chaska,Minnesota,
U.S.A.

Use

Business assets

Type of Asset

Goodwill
Buildings
Other intangible
assets
Total

Millions of yen¥3,8252,756
2,880¥9,461

Tokyo Electron performed an impairment test and recognized loss on impairment of assets of TEL FSI, Inc., a subsidiary
manufacturing semiconductor production equipment, due to
TEL FSI, Inc.’s reconsideration of its business plan. Tokyo
Electron recognized the difference between the book value
and the recoverable amount of goodwill, buildings, and otherintangible assets as loss on impairment. The recoverable
amount was measured as value in use, and was calculated bydiscounting future cash flows at a discount rate of 14.0-14.5%.
(2) Others
Loss on impairment of ¥266 million was recognized forother asset groups of Tokyo Electron.

Defined benefit plans(1) Movement of defined benefit obligations
Thousands of
U.S. dollars

Millions of yen

2017

Balance at April 1, 2016
and 2015

Millions of yen

2017

Balance at April 1, 2016
and 2015¥116,228 ¥112,272

2016

Actuarial gain (loss)¥70,905$557,534

1,266

1,271

11,286540(2,304)

4,818

Employer contributions

2,940

2,997

26,206

Benefits paid

(1,011)(5,506)(9,014)

Increase by transfer

1,289

—

11,495

Effect of change in scope of
consolidation—(4,461)—

Foreign currency exchange
rate changes

84

(380)

754

Other

(6)

27

(56)

¥67,653¥62,549$603,026

Actuarial gain (loss)

Balance at March 31, 2017and 2016(3) Reconciliation from defined benefit obligations and plan
assets to liability (asset) for defined benefits
Millions of yen$1,035,998

Thousands of
U.S. dollars

2017

2016

2017

Service cost

6,080

5,677

54,198Funded defined benefit
obligations¥63,761¥62,003$568,333

Interest cost

772

1,273

6,882

Plan assets(67,653)(62,549)(603,026)

Actuarial loss

(3,075)

9,690(27,412)Funded status(3,892)(546)(34,692)

Benefits paid

(2,708)(7,748)(24,141)

Increase by transfer

1,327

—

11,828

Unfunded defined benefit
obligations

54,89954,225489,343—(4,548)—Net liability for defined benefits
at March 31, 2017 and 2016

¥51,007¥53,679$454,651

Net liability for defined benefits

55,82555,302497,600(4,818)(1,623)(42,949)¥51,007¥53,679$454,651

Effect of change in scope of
consolidation
Foreign currency exchange
rate changes

101

(475)

906

Net asset for defined benefits

Other

(65)

87

(583)

Net liability for defined benefits
at March 31, 2017 and 2016

¥118,660 ¥116,228$1,057,677

Balance at March 31, 2017and 2016

Note: The provision for accrued pension and severance costs for directors andaudit & supervisory board members of ¥374 million ($3,342 thousand)as of March 31, 2017 and 2016 is not included.

(4) Defined benefit costs
Loss on business restructuring
Loss on business restructuring of ¥2,235 million for theyear ended March 31, 2016 represents losses relating to thebusiness restructuring in U.S. subsidiaries, which mainly consists of inventory disposal costs.

Expected return on plan assets

8. Pledged Assets
Tokyo Electron did not hold any assets pledged as collateral as of March 31, 2017 and 2016.

Millions of yen

Service costThousands of
U.S. dollars

2017

2016

2017

¥6,080¥5,677$54,198

772

1,273

6,882

(1,266)(1,271)(11,286)

Net actuarial gain amortization

291(2,268)

2,600

Other

290

243

2,590

¥6,168¥3,654$54,985

Interest cost

Total defined benefit costs for the years ended
March 31, 2017 and 2016

Millions of yen

2017¥62,549

Expected return on plan assets

2017

2016

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

Thousands of
U.S. dollars

2017

2016

2017

¥3,869¥(13,594)$34,494(6) Accumulated remeasurements of defined benefit plants
Millions of yen

2017

Net actuarial loss that is
yet to be recognized (before tax) ¥(2,712)

Thousands of
U.S. dollars

2016

2017

¥(6,582)$(24,180)(7) Plan assets
1. Plan assets comprise:
2017

2016

Bonds

39%

46%

Life insurance company generalaccount

26

26

Equity securities

20

17

Cash and cash equivalents

3

2

Other

12

9

Total

100%

100%

2. Long-term expected rate of return   Current and target asset allocations, and historical andexpected returns on the various categories of plan assets
have been considered in determining the long-term
expected rate of return.
(8) Actuarial assumptions   The principal actuarial assumptions at and for the years
ended March 31, 2017 and 2016 are as follows:
2017

2016

Discount rate

0.71%

0.59%

Long-term expected rate of return

2.00%

2.00%

The expected rates of salary increase for the years ended
March 31, 2017 and 2016 are also considered as one of theactuarial assumptions, which are set based on the salary
increase index by age group as of January 1, 2014.

TOKYO ELECTRON ANNUAL REPORT 2017

PAGE

28

CONTENTS

Business Overview
and Financial Highlights

To Our Stakeholders

Interview with the CEO
Message from the CFO

Review of Operations
and Business Outlook

Corporate Governance
CSR-Oriented Operations

Corporate Data

Financial Section

Financial Review
Consolidated Eleven-Year Summary
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Comprehensive Income
Notes to Consolidated Financial Statements
Consolidated Statements of Changes in Net Asset
Consolidated Statements of Cash Flows
Independent Auditor’s Report

Notes to Consolidated Financial Statements
11. Income Taxes
Significant components of the deferred tax assets and liabilities
as of March 31, 2017 and 2016 are as follows:
Thousands of
U.S. dollars

Millions of yen

2017

2016

2017

Elimination of unrealized profit ininventories¥19,276¥14,100$171,817

Net liability for defined benefits

18,102

17,717

161,352

Net operating loss carryforwards

15,402

17,061

137,292

Deferred tax assets

Accrued employees’ bonuses

4,977

2,831

44,365

Devaluation of inventories

3,995

4,913

35,610Loss on impairment of property, plant and equipment and otherassets

2,765

3,037

24,652

Accrued warranty expenses

2,168

2,395

19,330Other

11,35012,366

101,169

Total gross deferred tax assets

78,03874,420695,591

Less valuation allowance(9,808)(11,995)(87,429)

Total deferred tax assets

68,22962,425608,162

Deferred tax liabilities
Undistributed earningsof subsidiaries(5,197)(5,383)(46,323)

Net unrealized gains on
investment securities(4,757)(3,487)(42,408)

Intangible assets identified
through business combination(3,016)(3,741)(26,889)

Other(4,310)(3,146)(38,420)

Total deferred tax liabilities(17,282)(15,757)(154,042)

Net deferred tax assets¥50,947¥46,668$454,119Net deferred tax assets are included in the consolidatedbalance sheets as of March 31, 2017 and 2016 as follows:
Thousands of
U.S. dollars

Millions of yen

2017

2016

2017

Current assets¥36,892¥31,204$328,837

Investments and other assets

19,12820,782

170,505———(5,073)(5,318)(45,222)

Other current liabilities
Other non-current liabilities

The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during
the period in which temporary differences become deductible and net operating loss carry forwards are available to be
utilized. For assessment of the realizability of deferred tax
assets, management considers the scheduled reversal ofdeferred tax liabilities, future estimated taxable income, tax
planning strategies and level of net operating loss carryforwards, if any, in accordance with accounting principles generally accepted in Japan.
Based on the level of historical taxable income and future estimated taxable income over the periods which the temporary­ ifferences are deductible and net operating loss carry ford
wards are available to be utilized, management believes Tokyo
Electron will realize the benefits of deferred tax assets, net of­valuation allowance, as of March 31, 2017 and 2016.
The Company and its wholly-owned domestic subsidiaries
apply a consolidated tax filing system for corporate tax ­purposes.
On March 31, 2016, amendments to the Japanese tax regulations were enacted into law. Based on the amendments,
the statutory income tax rates utilized for the measurementof deferred tax assets and liabilities expected to be settled orrealized from April 1, 2016 to March 31, 2018 and on or after
April 1, 2018 were changed from 32.34% to 30.86% and30.62%, respectively, as of March 31, 2016.
Due to these changes in statutory income tax rates, netdeferred tax assets (after deducting the deferred tax liabilities) decreased by ¥1,781 million, and deferred income tax
expense increased by ¥1,893 million for the fiscal year ended
March 31, 2016.
Significant components of the difference between thestatutory and effective tax rates for the years ended March
31, 2017 and 2016 are as follows:
Statutory tax rate in Japan

2017

2016

30.86%

33.06%

Adjustments:

In cases where dividend distribution of surplus is made,the lesser of an amount equal to 10% of the dividend or theexcess, if any, of 25% of common stock over the total of
additional paid-in capital and legal reserve must be set aside
as additional paid-in capital or legal reserve. Legal reserve is
included in retained earnings in the accompanying consolidated balance sheets.
Both appropriations of legal reserve and additional paid-in
capital used to eliminate or reduce a deficit generally requirea resolution of the shareholders’ meeting.
Additional paid-in capital and legal reserve may not be­distributed as dividends. All additional paid-in capital and legal
reserve may be transferred to other capital surplus and retained
earnings, respectively, which are potentially available for dividends.

The Company is subject to restriction of dividends basedon the Japanese Corporate Act, which restricts the amount ofdividends to retained earnings on a consolidated basis.
The Company’s articles allow for the distribution of earnings to shareholders on dates other than the mid-term andyear-end, by a resolution of the board of directors in accordance with Japanese laws and regulations.
At the board of directors’ meeting held on May 12, 2017, thedistribution of cash dividends amounting to ¥36,752 million($327,595 thousand) was resolved. Such appropriations havenot been accrued in the consolidated financial statements asof March 31, 2017 since they are recognized in the period inwhich they are resolved at the board of directors’ meeting.

13. Other Comprehensive Income
Other comprehensive income for the years ended March 31, 2017 and 2016 is as follows:
Thousands of
U.S. dollars

Millions of yen

2017

2016

2017

¥4,152¥ (2,379)$37,016

(6)

(201)

(56)

Sub-total, before tax

4,146(2,580)36,960Net unrealized gains on investment securities
Net unrealized gains (losses) arising during the year
Reclassification adjustments

Tax credits(8.41)(7.49)Tax expense(1,271)

1,024(11,331)

Others, net

0.26

1.23

Sub-total, net of tax

2,875(1,556)25,629Effective tax rate

22.71%

26.80%Net deferred gains (losses) arising during the year

15

(168)

141

Reclassification adjustments

—

—

—

Sub-total, before tax

15

(168)

141

The Company received notification from the National Tax
Agency, Japan (NTA) dated February 14, 2017, that agreement had
been reached through the Mutual Agreement Procedure (MAP)
between the NTA and U.S. income tax authorities concerning
the transfer pricing adjustments assessed during prior historicalperiods relating to the transactions between the Company andits U.S. subsidiary. As a result, ¥405 million ($3,616 thousand)of tax benefit is included in current income tax expense as thedifference between the current tax refunds and the estimatedamount recorded in the prior year.

12. Net Assets
Net assets comprises four subsections, which are shareholders’ equity, accumulated other comprehensive income,share subscription rights and non-controlling interests.
Under Japanese laws and regulations, the entire amount
paid for new shares is required to be designated as common
stock. However, a company may, by a resolution of the boardof directors, designate an amount not exceeding one half ofthe price of the new shares as additional paid-in capitalwhich is included in capital surplus.

Net deferred gains (losses) on hedging instruments

Tax expense

(4)

56

(43)

Sub-total, net of tax

10

(112)

97

Adjustments during the year(933)

(5,705)(8,317)

Reclassification adjustments

—

(1)

—

(933)

(5,706)(8,317)

Foreign currency translation adjustments

Sub-total, before tax

—

—

—

(933)

(5,706)(8,317)

Adjustments during the year

3,578

(11,326)

31,893

Reclassification adjustments

291(2,268)2,600

Sub-total, before tax

3,869(13,594)

34,494

Tax expense(1,187)

4,361(10,582)

Sub-total, net of tax

2,682(9,233)23,911

Tax expense
Sub-total, net of tax
Remeasurements of defined benefit plans

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

114

(345)

1,021

Total other comprehensive income¥4,750¥(16,952)$42,342TOKYO ELECTRON ANNUAL REPORT 2017

PAGE

29

CONTENTS

Business Overview
and Financial Highlights

To Our Stakeholders

Interview with the CEO
Message from the CFO

Review of Operations
and Business Outlook

Corporate Governance
CSR-Oriented Operations

Corporate Data

Financial Section

Financial Review
Consolidated Eleven-Year Summary
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Comprehensive Income
Notes to Consolidated Financial Statements
Consolidated Statements of Changes in Net Asset
Consolidated Statements of Cash Flows
Independent Auditor’s Report

Notes to Consolidated Financial Statements
14. Share Subscription Rights
Stock option plan
The Company’s shareholders have approved annual stock
option plans for directors and selected employees since theyear ended March 31, 1999. The options under the plans vest
immediately or over three-year period with restriction on
exercise up to three years after the date of grant, and havean exercise period of seventeen years from the date on
which the options become exercisable.
Options to purchase 194,400 shares of the Company wereauthorized and granted at an exercise price of ¥1 ($0.01) for
the year ended March 31, 2017.

A summary of stock options outstanding and exercisable as of March 31, 2017 and 2016 is as follows:
2017
Weighted-average exercise price

Number ofshares

305,500

Outstanding at the beginning of year

2016

Yen

U.S. dollars

Number ofshares¥1$0.01

378,200

Weighted-average
exercise priceYen¥1

Granted

194,400

1

0.01

135,700

1

Exercised

42,4001

0.01

207,400

1

—

—

—

1,000

1

Outstanding at the end of year

457,500

1

0.01

305,500

1

Exercisable at the end of year

127,400

1

0.01

169,800

1

Expired (forfeited)

Short-term investments consist of time deposits and low
risk financial instruments and Tokyo Electron trade withhighly-rated financial institutions to mitigate credit risks.
Investment securities consist of mainly equity interests inlisted companies exposed to equity market risks. Conditions,
including market prices, for these investment securities aremonitored on a regular basis.
Trade payables, which consist of notes and accounts payable, mainly mature within one year. Trade payables are
exposed to liquidity risks which are managed through activities such as implementing cash management plans.
See note 17 for detailed discussion on derivative financial
instruments.

Millions of yen

Selling, general andadministrative expenses

Thousands of
U.S. dollars

2017

2016

2017

¥1,141¥967$10,178

Valuation method of fair value per unit of stock options
Fair value as of the grant date for stock options granted forthe year ended March 31, 2017 was ¥5,874 ($52.36) per unit,
which was evaluated as follows:(1) Valuation method used : Black-Scholes model(2) Major underlying assumptions and estimates:
12th Stock Acquisition Rights

Volatility (Note 1)

39.58%

Expected residual period (Note 2)

11.5 years

Expected dividends (Note 3)

190.0 ($1.69) per share

Risk-free interest rate (Note 4)(0.1%)

Notes: 1. Calculated based on the stock price performance for 11.5 years (fromDecember 2004 to June 2016).
2. Calculated on the assumption that the share subscription rights
would be exercised at the mid-point of the exercise period.
3. Based on the dividends paid for the years ended March 31, 2016
and 2015.
4. Based on Japanese government bond yield corresponding to the
expected residual period.

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

Fair value of financial instruments
Carrying amount and estimated fair value of financial
instruments as of March 31, 2017 and 2016 are set out below.
Fair value of financial instruments which is practically difficult
to estimate are excluded (see note 5).
Carrying
amountEstimated
fair value1

Cash and cash equivalents¥164,366¥164,366

Short-term investments

151,000

151,060

133,794

133,794

22,70422,7042017:

Assets Trade notes and accounts receivable, net of allowance for
doubtful accounts (¥63 million)

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

Thousands of
U.S. dollars

2017

2016

2017

Due within one year

¥3,554¥2,397$31,685

Due over one year

6,272

4,756

55,908

Total¥9,827¥7,153$87,593

Investment securities

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

Cash and cash equivalents$1,465,075$1,465,075

Short-term investments

1,345,931

1,346,470

1,192,569

1,192,569

202,378

202,378

706,100

706,100(2,729)(2,729)437

437

Assets Trade notes and accounts receivable, net of allowance for
doubtful accounts ($569 thousand))Investment securities
Liabilities
Trade notes and accounts payable
Derivatives (see note 17)
Hedge accounting not applied

Notes: 1.	Fair value calculation of financial instruments
Cash and cash equivalents, short-term investments, trade notes andaccounts receivable and trade notes and accounts payable.
 The carrying amounts approximate fair value because of the shortmaturity of these instruments.
		 Investment securities
	  The fair values of marketable securities are based on quoted market prices.
	  See note 5 for further information by classification of investment
securities.
Derivatives
	  See note 17 for detailed discussion on derivative financial­instruments.
2.	The following unlisted equity securities are not included in the above
as they do not have quoted market prices and therefore it is considered extremely difficult to measure their fair value.

Trade notes and accounts payable

2017

Hedge accounting applied

79,217

79,217

(306)

(306)

49

49

Carrying
amountCash and cash equivalents¥ 95,638¥ 95,638

Short-term investments

141,035

140,785

—

133

Total

¥1,414¥1,334$12,605

Millions of yen
2017:

Within 1 year

After 1 through5 years

Cash and cash equivalents¥164,366¥—

Short-term investments

151,000—

Trade notes and accounts receivable

133,858—

116,455

116,455

18,58018,58055,05055,050

1,182

1,182

33

33

2016:

Within 1 year

After 1 through5 years

Cash and cash equivalents¥ 95,638¥—

Short-term investments

141,035—

Trade notes and accounts receivable

116,503—

Derivatives (see note 17)
Hedge accounting not applied
Hedge accounting applied$12,472

Millions of yen

Liabilities
Trade notes and accounts payable¥1,334

14

Estimated
fair value1

AssetsInvestment securities¥1,399

Other

Unlisted stocks

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

Millions of yen Trade notes and accounts receivable, net of allowance for
doubtful accounts (¥48 million)

2017

2016

Reported amount In balance sheet

Derivatives (see note 17)
Hedge accounting not appliedThousands of
U.S. dollars

Millions of yen

Liabilities

2016:

16. Fair Value of Financial Instruments

Estimated
fair value1

2017:

Hedge accounting applied

Millions of yen

Amounts expensed related to stock options
The amounts expensed related to stock options for theyears ended March 31, 2017 and 2016, are as follows:

Thousands of U.S. dollars
Carrying
amountThousands of U.S. dollars
2017:

Within 1 year

After 1 through5 years

Cash and cash equivalents$1,465,075$—

Short-term investments

1,345,931—

Trade notes and accounts receivable

1,193,138—

TOKYO ELECTRON ANNUAL REPORT 2017

PAGE

30

CONTENTS

To Our Stakeholders

Business Overview
and Financial Highlights

Interview with the CEO
Message from the CFO

Review of Operations
and Business Outlook

Corporate Governance
CSR-Oriented Operations

Corporate Data

Financial Section

Financial Review
Consolidated Eleven-Year Summary
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Comprehensive Income
Notes to Consolidated Financial Statements
Consolidated Statements of Changes in Net Asset
Consolidated Statements of Cash Flows
Independent Auditor’s Report

Notes to Consolidated Financial Statements
17. Derivative Financial Instruments

18. Segment Information

Thousands of U.S. dollars

Tokyo Electron is subject to risk from adverse fluctuations
in foreign currency exchange rates in its operating andfinancing activities. The Company and certain subsidiaries
enter into forward foreign exchange contracts in order tohedge such risks, but do not enter into such transactions for
speculative purposes. The Company implements a ratio analysis of the total cumulative cash flow fluctuations to assess
effectiveness of hedging for all derivative transactions,
except for transactions where the critical terms of the hedging instrument and hedged item match and the Company
could conclude that changes in fair value or cash flows are
expected to completely offset. Execution and managementof all derivative transactions are conducted pursuant to theinternal management rule.
The estimated fair values of the derivative financial instruments as of March 31, 2017 and 2016 are as follows:
1. Derivative financial instruments not designated as hedging
instruments

2017:

Contract
amountFair value

Sell U.S. dollars$58,225$ 388$

Sell Korean won

5,258(3,151)(3,151)

496

(2)

(2)

36

36

Buy Taiwan dollars

5,961

2

2

Buy Chinese yuan

3,605

(3)

(3)

Buy EURO

640

(0)

(0)

Buy Singapore dollars

379

(0)

(0)

$92,517$(2,729)$(2,729)

Total

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

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

2017:

Millions of yen

388

17,950

Sell Singapore dollars
Buy U.S. dollars

Gains(losses)

Contract
amountThousands of U.S. dollars

Fair value

Contract
amount2017:

Fair value

Gains(losses)

Sell U.S. dollars¥ 6,532¥   43¥   43Future transactions denominated ina foreign currency

Sell Korean won

589

(353)

(353)

Sell U.S. dollars¥4,117¥50$36,700

$452

1

(0)

13

(7)

340

(0)

3,034

(6)

Sell Singapore dollars
Buy U.S. dollars

55

(0)

(0)

2,013

4

4

Buy U.S. dollars

0Information about reportable segment net sales, segment profit (loss), segment assets and other items
Reportable segment information as of and for the years ended March 31, 2017 and 2016 is as follows:

Buy Chinese yuan

404

(0)

(0)

Monetary assets and liabilities in foreign
currency (Note)

Buy EURO

71

(0)

(0)

Sell U.S. dollars

130

—

1,163

—

Buy U.S. dollars

127

—

1,137

—

¥4,717¥49$42,048$437

Buy Taiwan dollars

Buy Singapore dollars
Total

668

42
¥10,3790(0)¥(306)(0)¥(306)

Total

Millions of yen

Contract
amountFair value

Gains(losses)

Sell U.S. dollars¥51,173¥1,773¥1,773

Sell Korean won

1,068

(612)

(612)

Sell Singapore dollars

58

(0)

(0)

Sell U.S. dollars¥1,371

Buy Korean won

879

2

2

Sell Korean won

2016:

Contract
amountFair value(14,372)—

Total

749,893

49,387

14,810814,091(14,372)

799,719

Segment profit

182,709

4,618

82

187,410(38,294)

149,116

Segment assets

374,51327,494

2,646

404,654552,792

957,447

Intersegment sales or transfers¥¥¥799,719

—

9,202

8,670

17,872

—

631

—

631

¥63

Loss on impairment

362

—

—

362

—

362

33

(19)

Capital expenditures, including intangible assets

10,881

562

472

11,917

10,34722,264(1)

Buy EURO

361

(8)

10

Buy GBP19(3)

Buy EURO

359

9

9

Buy U.S. dollars

13

(0)

Buy Swiss francs

95

1

1

Monetary assets and liabilities inforeign currency (Note)
Sell U.S. dollars

162—

Buy U.S. dollars

200—

Buy Singapore dollars

21—

Buy EURO

12—¥2,192¥33

Total

14,372

Sales to external customers

89

(1)

(0)

¥799,719

14,372

Consolidated—

10¥1,182438—

Eliminations
andCorporate

418

834

(0)

¥49,387

—

Total

631

431

¥1,182¥749,893

Other

8,694

Buy U.S. dollars

33

FPD
production
equipment

Amortization of goodwill

Future transactions denominated in a foreign currency

Buy Taiwan dollars¥54,930

Semiconductor
production
equipment

Net sales

2016:

Buy Singapore dollars

Millions of yen
Reportable Segment

2017:

Millions of yen

Total

Basis of measurement of reportable segment net sales, segment profit (loss), segment assets and other items
The accounting policies applied in each reportable segment are generally consistent with those applied for the preparation of
the consolidated financial statements. Intersegment sales or transfers are determined based on current market prices. Assets incommon use have not been allocated to each reportable segment, while costs associated with those assets have been allocatedto reportable segments on a systematic basis.

Fair value

Contract
amountSell Korean won

General information about reportable segments
A reportable segment is a component or an aggregated component of Tokyo Electron. For each of the components, discrete
financial information is available and the operating result is regularly reviewed by management to make decisions about resources to be allocated to the segment and assess its performance.
The operation of Tokyo Electron consists of segments by products and services based on business units (BUs), and Tokyo
Electron identifies as a reportable segment, “semiconductor production equipment (SPE)” and “flat panel display (FPD) production equipment”.
Products of the SPE segment consist of coater/developers, plasma etch systems, thermal processing systems, single wafer
deposition systems, cleaning systems used in wafer processing, wafer probers used in the wafer testing process and other semiconductor production equipment. The SPE segment principally develops, manufactures, sells and distributes such products.
Products of the FPD production equipment segment consist of coater/developers and etch/ash systems used in the manufacture of flat panel displays. The FPD production equipment segment principally develops, manufactures, sells and distributes suchproducts.

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

Depreciation and amortization

TOKYO ELECTRON ANNUAL REPORT 2017

PAGE

31

CONTENTS

Business Overview
and Financial Highlights

To Our Stakeholders

Interview with the CEO
Message from the CFO

Review of Operations
and Business Outlook

Corporate Governance
CSR-Oriented Operations

Corporate Data

Financial Section

Financial Review
Consolidated Eleven-Year Summary
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Comprehensive Income
Notes to Consolidated Financial Statements
Consolidated Statements of Changes in Net Asset
Consolidated Statements of Cash Flows
Independent Auditor’s Report

Notes to Consolidated Financial Statements
Other information(1) Domestic and overseas net sales by destination for the years ended March 31, 2017 and 2016 are as follows:

Millions of yen
Reportable Segment

2016:

Semiconductor
production
equipment

FPD
production
equipment

Other

Eliminations
andCorporate

Total

Consolidated

Net sales
Sales to external customers
Intersegment sales or transfers

Millions of yen

2017:¥613,033¥44,687¥ 6,229¥663,949¥—¥663,949

Net sales——

11,592

11,592(11,592)—

Total

613,033

44,687

17,821

675,541(11,592)

663,949

Segment profit

123,163

4,747

2,036

129,946(23,479)

106,467

Segment assets

321,100

25,1862,134

348,420444,948

793,368

8,792

424

45

9,261

9,996

19,257

970

—

—

970

—

970

Loss on impairment

9,711

—

—

9,711

16

9,727

2017:

Capital expenditures, including intangible assets

8,500

285

13

8,798

5,952

14,750Net sales

Depreciation and amortization
Amortization of goodwill

Japan

U.S.A.

EuropeSouth Korea

Taiwan

China

Other

Total

¥101,122¥101,566¥59,998¥145,216¥233,754¥115,126¥42,935¥799,719

Note: Sales are classified in countries or regions based on location of customers.
Millions of yen

2016:

Net salesJapan

U.S.A.

EuropeSouth Korea

Taiwan

China

Other

Total

¥121,808¥103,574¥56,659¥107,273¥170,095¥87,325¥17,215¥663,949

Note: Sales are classified in countries or regions based on location of customers.
Thousands of U.S. dollars
Japan

U.S.A.

Europe$901,348$905,310$534,791

South Korea

TaiwanChina$1,294,379 $2,083,557 $1,026,173

Other

Total

$382,699$7,128,260

Thousands of U.S. dollars
Reportable Segment

2017:

Semiconductor
production
equipment

FPD
production
equipment

Other

Eliminations
andCorporate

Total(2) Net property, plant and equipment by location as of March 31, 2017 and 2016 are as follows:
Consolidated

Net sales
Sales to external customers
Intersegment sales or transfers$6,684,140$440,210$

3,910 $7,128,260 $— $7,128,260—

Property, plant and equipment——

128,105

128,105

Total

6,684,140

440,210132,015

7,256,366(128,105) 7,128,260

Segment profit

1,628,573

41,171730

1,670,475(341,336) 1,329,138

2016:

Property, plant and equipment

Segment assets(128,105)Millions of yen

2017:

3,338,207

245,073

23,591

3,606,871

4,927,286

8,534,157

Depreciation and amortization

77,4993,727

801

82,02877,281

159,310

Amortization of goodwill

5,625

—

—

5,625

—

5,625

Japan

U.S.A.

Other

Total

¥77,407¥11,228¥11,805¥100,441

Japan

U.S.A.

Other

Total

¥75,580¥9,724¥11,013¥96,317

Millions of yen

Thousands of U.S. dollars

Loss on impairment

3,235

—

—

3,235

—

3,235

Capital expenditures, including intangible assets

96,995

5,015

4,212

106,222

92,232

198,455

Notes: 1.	“Other” includes all other operating segments which are not included in the reportable segments, including Photovoltaic panel Production Equipment
business, group-wide logistic services, facility maintenance and insurance.
2. (1) “ Eliminations and Corporate” segment loss totaling ¥38,294 million ($341,336 thousand) and ¥23,479 million for the years ended March
31, 2017 and 2016, respectively, includes corporate expenses not allocated to any reportable segments. The corporate expenses consistof research and development costs of ¥17,830 million ($158,935 thousand) and ¥13,583 for the years ended March 31, 2017 and 2016,
respectively, pertaining to fundamental research and element research, not allocated to any of the reportable segments, and the loss on
disaster of ¥7,521 million ($67,039 thousand) for the year ended March 31, 2017.
(2)  “Eliminations and Corporate” segment assets totaling ¥552,792 million ($4,927,286 thousand) and ¥444,948 million as of March 31, 2017 and 2016,
respectively, consist mainly of cash and cash equivalents, short-term investments and buildings not allocated to any of the reportable segments.
(3) “Eliminations and Corporate” capital expenditures totaling ¥10,347 ($92,232 thousand) and ¥5,952 million for the years ended March 31, 2017 and 2016,
respectively, consist mainly of capital expenditures for buildings, machinery and equipment not allocated to any of the reportable segments.

2017:

Property, plant and equipment

Japan

U.S.A.

Other

Total

$689,964$100,088$105,223$895,277(3) Major customer information
Net sales to external customers that represent 10 percent or more of net sales are as follows:

Millions of yen

Thousands of
U.S. dollars

2017

2017

Semiconductor production equipment¥143,488$1,278,974

Taiwan Semiconductor
Manufacturing Company Ltd.

Semiconductor production equipment

127,621

1,137,549

Samsung Electronics Co., Ltd.

Semiconductor production equipment and FPD production equipment

112,151

999,657

Micron Technology, Inc.

Semiconductor production equipment

84,111

749,722

Name of customer

Intel Corporation

Related reportable segment			

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

Related reportable segment

Name of customer

Samsung Electronics Co., Ltd.

Semiconductor production equipment and FPD production equipment

Intel Corporation

Semiconductor production equipment

Taiwan Semiconductor
Manufacturing Company Ltd.

Semiconductor production equipment

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

2016¥100,672
83,79571,938

TOKYO ELECTRON ANNUAL REPORT 2017

PAGE

32

CONTENTS

To Our Stakeholders

Business Overview
and Financial Highlights

Interview with the CEO
Message from the CFO

Review of Operations
and Business Outlook

Corporate Governance
CSR-Oriented Operations

Financial Section

Financial Review
Consolidated Eleven-Year Summary
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Comprehensive Income
Notes to Consolidated Financial Statements
Independent Auditor’s Report
Consolidated Statements of Changes in Net Asset
Consolidated Statements of Cash Flows

Notes to Consolidated Financial Statements

Independent Auditor’s Report

Information about reportable segment goodwill
Reportable segment information about amortization of goodwill for the years ended March 31, 2017 and 2016, and unamortized balances as of March 31, 2017 and 2016 are as follows:
Millions of yen
Semiconductor
production
equipment

FPD
production
equipment

Total

Amortization of goodwill

¥ 631

¥—

¥ 631

Goodwill

3,376

—

3,376

2017:

Millions of yen
Semiconductor
production
equipment

FPD
production
equipment

Total

Amortization of goodwill

¥ 970

¥—

¥ 970

Goodwill

4,095

—

4,095

2016:

Thousands of U.S. dollars
Semiconductor
production
equipment

FPD
production
equipment

Total

Amortization of goodwill$ 5,625$—$ 5,625

Goodwill

30,100—30,1002017:

Corporate DataTOKYO ELECTRON ANNUAL REPORT 2017

PAGE

33

CONTENTS

To Our Stakeholders

Business Overview
and Financial Highlights

Interview with the CEO
Message from the CFO

Review of Operations
and Business Outlook

Corporate Governance
CSR-Oriented Operations

Financial Section

Corporate Data

Consolidated Subsidiaries / Investor Information

Consolidated Subsidiaries (As of March 31, 2017)
JAPANInvestor Information (As of March 31, 2017)
Corporate Name and Head Office:• Tokyo Electron Tohoku Limited

Tokyo Electron Limited
Akasaka Biz Tower
3-1 Akasaka 5-chome, Minato-ku,
Tokyo 107-6325, Japan• Tokyo Electron Miyagi Limited

Established:• Tokyo Electron Yamanashi Limited• Tokyo Electron Kyushu Limited• Tokyo Electron FE Limited

November 11, 1963

• Tokyo Electron BP Limited

Annual General Meeting of
Shareholders:• Tokyo Electron Agency Limited

U.S.
• Tokyo Electron U.S. Holdings, Inc.
• Tokyo Electron America, Inc.
• TEL Technology Center, America, LLC

Common Stock Listed on:

Stock trading unit
Authorized
IssuedNumber of shareholders

Investor Relations
Tokyo Electron Limited
Akasaka Biz Tower
3-1 Akasaka 5-chome, Minato-ku,
Tokyo 107-6325, Japan
Tel: +81-3-5561-7000

Independent Auditor:
KPMG AZSA LLC

Administrator of Shareholders’Register:June

Common Stock:

For Further Information, Contact:

Tokyo Stock Exchange 1st Section(Stock code: 8035)

100 shares
300,000,000 shares
165,210,911 shares
21,937

URL:

Sumitomo Mitsui Trust Bank, Limited
4-1 Marunouchi 1-chome, Chiyoda-ku,
Tokyo Japan
Direct mail and inquiries to:
Sumitomo Mitsui Trust Bank, Limited
8-4 Izumi 2-chome, Suginami-ku,
Tokyo 168-0063, Japan
Tel (toll free): 0120-782-031 (available
only in Japan)

http://www.tel.com/• TEL Venture Capital, Inc.
• TEL Epion Inc.
• TEL NEXX, Inc.
• TEL FSI, Inc.

EUROPE• Tokyo Electron Europe Limited• Tokyo Electron Israel Limited• TEL Magnetic Solutions Limited

ASIA• Tokyo Electron Korea Limited• Tokyo Electron Taiwan Limited• Tokyo Electron (Shanghai) Limited• Tokyo Electron (Kunshan) Limited

Principal Shareholders:
The Master Trust Bank of Japan Limited (trust account)
Japan Trustee Services Bank Limited (trust account)
Tokyo Broadcasting System Holdings, Inc.
Trust & Custody Services Bank, Limited(securities investment trust account)
Japan Trustee Services Bank Limited (trust account 4)
State Street Bank and Trust Company
State Street Bank West Client Treaty 505234
Japan Trustee Services Bank Limited (trust account 5)
BNP Paribas Securities (Japan) Limited
Japan Trustee Services Bank Limited (trust account 7)

Number ofshares held
(thousands)

Votingshare ratio(%)

26,72018,508
7,727

16.28
11.28
4.70

3,808

2.32

3,667
3,243
2,533
2,450
2,314
2,083

2.23
1.97
1.54
1.49
1.41
1.27

Notes: 1. Shares of less than one thousand have been rounded down in the “Number of shares held.”
2. Voting share ratio is calculated excluding treasury stock (1,135,104 shares). Figures are truncated   after the second decimal place.

• Tokyo Electron Singapore Pte. Limited

Distribution of Ownership among
Shareholders:
Treasury stock
0.69%

Japanese financial institutions
and securities companies
49.61%

Japanese individuals
and others
5.19%

Other Japanese
corporations
5.41%

Foreign institutions
and others
39.10%

Stock Price and Trading Volume
35 consolidated subsidiaries in total, including the above 22 companies(Thousands of shares)(Yen)
12,50010,000

7,500

5,000

Stock price

2,500

0

100,000

Trading volume

50,0000

CY2012

CY2013

CY2014

CY2015

CY2016

CY2017