TOKYO ELECTRONANNUALREPORT 2018
For the Year Ended March 31, 2018

PR56-107

TOKYO ELECTRON ANNUAL REPORT 2018

PAGE

1

CONTENTS

To Our Stakeholders

Business Overview
and Financial Highlights

Review of Operations
and Business Outlook

Interview with the CEO

Innovation Drives the Evolutionof Semiconductors

Corporate Governance

Financial Section
Investor Information

Contents
Guide to Buttons

Contents

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

2 To Our Stakeholders
3 Business Overview and Financial Highlights

The Corporate Philosophy defines the purpose of Tokyo 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, towhich everyone in the Group can aspire,indicating how we should conduct businessin order to fulfill the Corporate Philosophy.

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8 Review of Operations and Business Outlook

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11 Corporate Governance
Message from the Chairman of the Board

A truly global company generating highadded value and profits in the semiconductor and flat panel display industries
through innovative technologies andgroundbreaking proactive solutions
that integrate diverse technologies.

Move Forward to Next Page

4 Interview with the CEO

9 Innovation Drives the Evolution of Semiconductors

VisionMove Back to Previous Page

15 Directors, Audit & Supervisory Board Members andExecutive Officers
16 Financial Section
31 Consolidated Subsidiaries
31 Investor Information

Disclaimer
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 18.

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TOKYO ELECTRON ANNUAL REPORT 2018

PAGE

2

CONTENTS

To Our Stakeholders

Business Overview
and Financial Highlights

Interview with the CEO

Review of Operations
and Business Outlook

Innovation Drives the Evolutionof Semiconductors

Corporate Governance

Financial Section
Investor Information

To Our Stakeholders

To Our Stakeholders

Leading the Way Forward with Innovation
To begin, we would like to express our thanks for thecontinued support of our investors and all of Tokyo
Electron’s stakeholders.
In 2017, driven by rapidly growing demand for
hyperscale data centers, the wafer fab equipment
market grew almost 40% year on year, surpassing
US$50 billion for the first time. In this environment,
Tokyo Electron posted strong fiscal 2018 results. Net
sales and net income attributable to owners of theparent both reached record highs, marking steadyprogress toward the targets of the medium-term
management plan.
With the full-fledged arrival of the internet of things(IoT), the semiconductor and display markets are
growing at an unprecedented pace. In response toexpanding business opportunities, Tokyo Electron istaking an aggressive stance, targeting a world-class
ROE and operating margin of 30% or higher. To reachthis target, we believe that the most critical element
will remain the same. As expressed in our corporate
vision, we must consistently provide customers withsolutions that integrate new, innovative technologies
with our diverse existing process technologies. By
achieving the goals of the medium-term management
plan and continuing to work to sustainably improve
our corporate value, we will strive to live up to the
expectations of our stakeholders. We look forward to
your continued support.

Tetsuo Tsuneishi

Toshiki Kawai

Chairman of the Board

President & CEO

TOKYO ELECTRON ANNUAL REPORT 2018

PAGE

3

CONTENTS

Business Overview
and Financial Highlights

To Our Stakeholders

Review of Operations
and Business Outlook

Interview with the CEO

Innovation Drives the Evolutionof Semiconductors

Financial Section
Investor Information

Corporate GovernanceBusiness Overview and Financial Highlights

Business Overview and Financial Highlights

Semiconductor
Production
Equipment
4.6%
Europe 9.2%
9.9%

11.3%

Japan

13.8%

Taiwan16.0%

South Korea

35.2%

Coater/Developer
CLEAN TRACK ™
LITHIUS Pro™ Z

P Etch System

P Wafer Prober

ALD System
NT333™

Plasma Etch System
Tactras™

Net Sales
Net Sales
and Grossand Gross
ProfitProfit
MarginMargin(Billions of(Billionsyen) of yen)(Billionsyen) of yen)（%） （%） of(Billions

48

320
48

28

600

663.9 663.9
600 612.2
613.1 613.1
612.2

300

36
42.0 42.0
799.7 799.7

33.0 33.0

24

300

12

28
210

Overseas204.3 204.3
30

240

160
24

160

12
80

805.3

21
281.1 281.1
19.5 19.5
17.6 17.6

14.4 14.4

155.6 155.6

116.8 116.8
88.1 88.1
5.3

14

21
140

140

14
70

70

29.0 29.0
20
19.1 19.1
13.0 13.0
11.8 11.8
115.2 115.2

10

70

96.2%

30

0

(Billions of(Billionsyen) of yen)

(Yen)

(Yen)

(Yen)

160

1,400 1,400

800

800

600

600

400

400

160

139.7 139.7
20

120

120

10

80

80

0

118.0 118.0

40

40

0

14

0

1415

Net Sales
Net Sales

1516

1617

1718

Gross Profit
GrossMargin
Profit Margin

18

00

0
32.2
32.2

14

1415

0

1516

OperatingOperating
IncomeIncome

1617

1718

18

OperatingOperatingMarginMargin

0
-70

-10

-70

14

1415

1516

1617

1718

-10

18

Net Income(Loss) Attributableto Ownersof Parent
Net Income(Loss) Attributableto Ownersof Parent
ROE ROE

The amounts in this report in billions, millions and thousands of yen; thousands of U.S. dollars; and thousands of shares as of and for the years ended March 31, 2016 and prior are rounded to the nearest unit.
Such amounts as of and for the years ended March 31, 2017 and onward, including year-on-year differences, are truncated at the nearest unit. Accordingly, totals for the years ended March 31, 2017 and onward
do not necessarily agree with the sum of the corresponding individual amounts.

01,245.48
1,245.48
1,050 1,050
700

700

350

350

461.10461.10
401.08401.08

352 352
200

0

1415

1516

1617

1718

18

14

237 237200

143 1430-350 -350

Free Cash Flow = Cash flows from operating activities + Cash flows
from investing activities (excluding changes in short-term
investments with ­original maturities of less than one year)

624 624702.26702.26-108.31-108.31

0

14

(Yen)

0

33.4 33.4-3.3 -3.3
0

Inkjet Printing System for
Manufacturing OLED Panels
Elius™ 2500

CashCashDividends
Dividends
per Shareper Share

64.2 64.2
60.4 60.4

0
-19.4
-19.4

FPD Plasma Etch/Ash System
Betelex™

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

77.9 77.9
71.9 71.9
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 etch/ash systems for manufacturing FPDs alongwith solid technical support and service. We also offer an inkjet
printing system for manufacturing OLED panels using largesized substrates to take advantage of the expanding OLED display market.

3.8%

Free Cash
Free Cash
FlowFlow

24.9 24.9
240
36

P Inkjet Printing System for Manufacturing OLED Panels

FPD Coater/Developer
Exceliner™

（%） （%）

210

P FPD Etch/Ash System

Japan

Wafer Prober
Precio™ XL(Billionsyen) of yen)（%） （%） of(Billions

P FPD Coater/Developer

Sales by Region

Net Income
Net Income(Loss)(Loss)
Attributable
Attributableto Owners
to Ownersof Parentof Parent
and ROE
and ROE

320

1,130.71,130.7
40.2 40.2
40.3 40.3
39.6 39.6
900Single Wafer Cleaning System
CELLESTA™ -i

Single Wafer Deposition System
Triase +™

OperatingOperating
IncomeIncomeand andOperatingOperatingMarginMargin1,200 1,200

900

FPD
Production
Equipment

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 IoT, 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 suchsemiconductors along with superior technical support and service.
The main categories of our product lineup are coater/developers,
etch systems, deposition systems and cleaning systems used inwafer processing as well as wafer probers used in the wafer
testing process. In addition, we also offer such products as electrochemical deposition systems and wafer bonders/debonders
used in advanced packaging processes.

Southeast Asia

North America

P Cleaning System

P Deposition System

Sales by Region

China

P Coater/Developer

1415

1516

1617

1718

18

50

50

14

1415

0

1516

1617

1718

18

TOKYO ELECTRON ANNUAL REPORT 2018

PAGE

4

CONTENTS

To Our Stakeholders

Business Overview
and Financial Highlights

Interview with the CEO

Review of Operations
and Business Outlook

Innovation Drives the Evolutionof Semiconductors

Corporate GovernanceInterview with the CEO

Interview with the CEO

Setting Our Sights Even Higher
Working toward a World-Class ROE and Operating Margin

Question

01

Tokyo Electron achieved record-high profit fora second consecutive year. Could you tell us
more about your progress under the­medium-term management plan?

I am very pleased that we have reached record-on this policy, we have already built an unassailable

high profit for a second consecutive year. I believe

position in coater/developers. Furthermore, in 2015,

this is a result of the initiatives we’ve been advanc-we designated etch, deposition and cleaning as key

ing under the medium-term management plan.

fields. By stepping up product competitiveness,

Tokyo Electron aims to grow in fields where tech-

responsiveness to customers and operational effi-

nological innovation and market growth are expect-ciency, we have been striving to achieve a “Best in

ed, and where we can leverage our strengths. BasedClass” position in the industry.

Toshiki Kawai
President & CEO

Financial Section
Investor Information

TOKYO ELECTRON ANNUAL REPORT 2018

PAGE

5

CONTENTS

Business Overview
and Financial Highlights

To Our Stakeholders

Interview with the CEO

Review of Operations
and Business Outlook

Innovation Drives the Evolutionof Semiconductors

Financial Section
Investor Information

Corporate GovernanceInterview with the CEO

Interview with the CEO
Looking at the past three years, the wafer fab

a result of these efforts. Moreover, sales in the

26.5% even if the WFE market contracts to US$55

thereby accelerating the development of next-

equipment (WFE) market has seen unprecedent-

field solutions business (encompassing sales ofbillion due to shifts in the semiconductor supply

generation technologies. In the deposition equip-

ed growth, expanding from around US$30 billion

parts and used equipment, modifications andbalance or other temporary changes.

ment business, we are building new production

to more than US$50 billion. In this environment,

maintenance services) grew to 22% of total net

we have built a framework for nimble, efficientsales. This was bolstered by our number of units

medium-term management plan basic strategy

future demand growth. At the same time, we aredevelopment, reorganizing our development andinstalled—among the highest in the industry—of becoming “Best in Class” is unchanged. To con-working to effectively control fixed costs and the

production groups and business units, establish-

and outstanding support capabilities. Going for-nect expanding business opportunities to theratio of SG&A expenses to consolidated net sales.

ing the Process Integration Center, and integrat-

ward, backed by market expansion as well as ourgreatest possible growth, we have raised our tar-In these ways, we will achieve the targets of theing the strengths and best known method (BKM)

industry-leading technological prowess and high-gets for capital expenditure and R&D spending

new financial model as well as our medium- toof each product. In addition, by advancing joint

ly competitive products, we will achieve evenand are increasing our development and produc-long-term ROE and operating margin targets.

development with customers, we have worked togreater growth.

tion capacity. In the etch system business, we will1

provide high-value-added products more rapidly
than ever before.
Net sales, profit margins and market share in all
our key fields have increased significantly as

1 Wafer fab equipment (WFE): The semiconductor production process isdivided 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. WFE refers to the production equipmentused in front-end production and in wafer-level packaging production.

Although we revamped the financial model, thebuildings, increasing capacity to be ready for

introduce an automated warehousing system andan additional production line at our factory and

For details on the medium-term management plan,
please visit our website.
www.tel.com/ir/policy/mplan/

begin operations at a new development building,

New Financial Model (Fiscal 2021)

WFE
market size

US$

Net sales¥1,500 billion¥1,700 billion

26.5%

28%

Question

02

What factors went into the new financial
model you announced in May 2018?

Operating margin
With the arrival of the IoT and AI era, the semi-

55 billion

US$

The roadmap to these targets is the new finan-

conductor and flat panel display (FPD) industries

cial model for fiscal 2021. The new model raises

are entering a new period of growth; in a few

the assumed size of the WFE market to US$62

years, Tokyo Electron expects the WFE market tobillion and sets targets of ¥1,700 billion in net

surpass US$60 billion. We see this as an excellent

sales and a 28% operating margin. At the same

growth opportunity and are aiming for world-

time, we will build a management structure withclass ROE and an operating margin of 30% or

downward cost flexibility that can secure ¥1,500

higher in the medium to long term.

billion in net sales and an operating margin ofROE

30–35%

62 billion

TOKYO ELECTRON ANNUAL REPORT 2018

PAGE

6

CONTENTS

To Our Stakeholders

Business Overview
and Financial Highlights

Interview with the CEO

Review of Operations
and Business Outlook

Innovation Drives the Evolutionof Semiconductors

Corporate Governance

Financial Section
Investor Information

Interview with the CEO

Interview with the CEO

Question

03

Please elaborate on the new growth phase thesemiconductor and FPD industries are entering.

cloud computing. Technological innovation into the challenges posed by next-generation

semiconductors is an absolute necessity for the­technologies, but the next several generations,development of these services. In FPDs, in addi-

and work not just to enhance the performance oftion to TVs and mobile devices, new applicationsindividual machines, but provide solutions thatlike augmented reality (AR), virtual reality (VR)optimize entire production processes. Expectations

and flexible displays are emerging. Accordingly,

are now rising for production equipment manu-

improving display resolution and energy efficien-

facturers to innovate on all fronts—from short-

cy is of growing importance.

ening lead times between R&D and mass

As the technological requirements of semiconThe world is now at the start of a fourth industrial

The core of these new services will be data

revolution (Industry 4.0), centered on IoT and big

processing and analysis, namely, cloud computing

data. As systems for analyzing and utilizing theand AI. Furthermore, autonomous driving, smart

vast amounts of data generated by network-con-fabs and other services with low tolerance fornected “things” are created, numerous new ser-data transmission delay will require edge com-vices are expected to emerge that will change

puting, in which data is processed somewhereindustrial structures and society itself.

physically closer to the user than in conventional

ductors and FPDs grow more sophisticated andproduction to creating new services using AI and
big data.

their applications broaden, our customers’ needs
are taking on new dimensions. We must now

For details on the innovation driving the evolution of semiconductors,
please refer to pages 9 and 10.

advance product development looking not only

Question

1760s–First industrial revolution
Mechanization improves productivity
James Watt invents a new type of steam engine

100 years

1860s–

Second industrial revolution
Heavy industry and petrochemicalindustries develop, and major innovations occur in mass production
and transport

One of Tokyo Electron’s greatest strengths is that

Second, by reinforcing support at customer

it deals in not just hardware, software, process

factories and seamlessly linking them with ourtechnology or services, but all four. Leveraging

R&D divisions and business units, we will help our

this strength, we will help customers improvecustomers shorten lead times between semicon-

Third industrial revolution

their entire production processes and thereby

ductor device development and mass production.

The use of semiconductors spreads,
and computers enable automation

enhance their production line operations.

100 years

1970s–

Mass transport using steam
locomotives

Early automobiles

IBM 5160

50 years

2010s–

04

As customer needs change, how will Tokyo
Electron leverage its strengths?

Fourth industrial revolution
The arrival of the IoT and AI era, inwhich all kinds of things are connected via the internet
IoT

AI

Third, building on the insight and data gleaned

First, using our diverse product lineup and pro-from our installed base of 66,000 units—amongcess technologies, we will advance joint develop-

the largest in the industry—we will offer new

ment with customers from an early stage toservices that present high added value for cus-

quickly provide solutions that take the entire pro-tomers by, for example, increasing equipment

duction process into account. Last year, we

uptime and production yields.

established the new Process Integration Center as

As customers’ needs grow on multiple fronts,

part of these efforts, and its initiatives are alreadyvery few production equipment manufacturers

generating positive feedback.

worldwide can meet their growing expectations.

TOKYO ELECTRON ANNUAL REPORT 2018

PAGE

7

CONTENTS

To Our Stakeholders

Business Overview
and Financial Highlights

Interview with the CEO

Review of Operations
and Business Outlook

Innovation Drives the Evolutionof Semiconductors

Corporate Governance

Financial Section
Investor Information

Interview with the CEO

Interview with the CEOTokyo Electron is one of the few that can. If wecapabilities, I am ­confident the opportunities forleverage our innovative technological and support

Tokyo Electron to grow and excel will only expand.

Question

05

Please tell us about Tokyo Electron’s sustainability initiatives.

Employees are the source of sustainable corpo-

In addition, as the social responsibilities incum-

rate value creation and growth. Since I was

bent on companies increase, we hope to draw

appointed CEO, I have sought to ensure thatinspiration from the United Nations’ Sustainable

Tokyo Electron enriches the lives of its employees

Development Goals (SDGs) and other standards

and their families. To ensure that every employee

to step up our ESG initiatives. Seeking to enhanceis highly motivated and to secure outstanding

governance efficacy, we have brought in a newpeople, we have introduced a new global humanoutside director and are discussing long-term

resources system and continue working to makestrategy from diverse viewpoints. Turning to thejob responsibilities clearer and evaluations fairer.

environment, in addition to reducing the environ-Furthermore, we have adopted an incentive planmental footprint of our own products, we arelinked to medium-term performance as part ofadvancing initiatives to help reduce the power

efforts to enable employees and management to

consumption of the semiconductor devices man-work as one toward increasing corporate value. I

ufactured using our products.

have also visited factories and overseas GroupThrough such measures, we aim to ensure thatcompanies to speak with our people there,

Tokyo Electron is highly sustainable and fulfills its

actively seeking to deepen engagement withcorporate social responsibilities.

front-line employees. I am confident that these
initiatives to bring out the very best performancein each employee will contribute to sustainablegrowth.

For details on Tokyo Electron’s ESG-related initiatives,
please refer to pages 11–14 and our Sustainability Report 2018.

Question

06

What is your approach to using cash on hand?

Our greatest priority for cash on hand is invest-

set a target dividend payout ratio of 50%. For fis-ment in growth aimed at the ongoing creation ofcal 2018, we paid an annual per-share dividend ofinnovative technologies. We will focus on areas¥624, marking a record high for a fourth consecu-

where we can effectively utilize Tokyo Electron’s

tive year. We will flexibly consider stock repur-

technologies and strengths and expect futurechases, taking a comprehensive view of suchmarket growth. Furthermore, we will put

factors as investment needed for growth, cash on

increased effort into R&D related to promisinghand and the macroeconomic environment.

core technologies to maximize their potential.

Going forward, we will continue to strive to sus-

Turning to shareholder returns, we have adopted a performance-linked dividend scheme andtainably increase corporate value and maximize
shareholder value through profit growth.

TOKYO ELECTRON ANNUAL REPORT 2018

PAGE

8

CONTENTS

Business Overview
and Financial Highlights

To Our Stakeholders

Interview with the CEO

Review of Operations
and Business Outlook

Innovation Drives the Evolutionof Semiconductors

Corporate Governance

Financial Section
Investor Information

Review of Operations and Business Outlook

Review of Operations and Business Outlook

Semiconductor Production Equipment (SPE)2017 Business Environment

M Share of Net SalesFPD Production Equipment
2017 Business Environment

M Share of Net Sales

Investment in data center servers was brisk, backed by growing transmission volumes due in part tothe spread of streaming video and other services. Supply of DRAM was especially tight, and in 3D
NAND,1 the use of SSD2 in servers also grew. These factors led to major increases in capital investment aimed at expanding production. As a result, 2017 global capital expenditure for wafer fab
equipment (WFE)3 grew 37% year on year to surpass US$50 billion for the first time.

Investment in small- and medium-sized OLED panels for smartphones and other mobile devices
was brisk. At the same time, investment in generation 10.5 large panels for TVs began. As a result,the equipment market for thin-film transistor (TFT) array processes,1 in which Tokyo Electron operates, grew about 30% from the previous year, reaching approximately US$10 billion.

6.7%

1 Thin-film transistor (TFT) array processes: The processes of manufacturing the substrates with the electric circuit functions that drive displays

1 3D NAND: A new type of non-volatile memory in which memory cells are stacked vertically
2 SSD (Solid state drive): A high-volume data storage device that uses non-volatile memory
3 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. WFE refers to the production equipment used in front-end production and in wafer-level packaging production.

93.3%

Fiscal 2018 Business Overview
	Segment net sales rose 52.0% year on year to ¥75.0 billion.
	The segment profit margin rose significantly, from 9.4% in the previous fiscal year to 17.7%.

Fiscal 2018 Business Overview• Customers continued to transition to highly profitable PICP™ 2 etch systems for small- andmedium-sized panels.

	Segment net sales grew 40.7% year on year to ¥1,055.2 billion.

MN et Sales andProfit Margin by Segment(Billions of yen)

(%)

29.8

1,200

24.4

1,000

800

1,055.2

20.1

30

25

20

749.8
600

613.0

15

400

10

200

5

0

0

16

17

18

Segment Net Sales
Segment Profit Margin
Segment profit corresponds to income before income
taxes on the consolidated statements of income.

• By application, sales of equipment for DRAM and non-volatile memory more than doubled year
on year.
• By product, investment in 3D NAND and multiple patterning, reflecting ongoing miniaturization,
increased. Tokyo Electron’s market share rose, leading to sales growth in the key fields of etch,deposition and cleaning. Sales of etch systems rose to 40% of the segment’s total new equipment sales.
• Sales in the field solutions business (encompassing sales of parts and used equipment,
modifications and maintenance services) rose 20.5% year on year to ¥251.0 billion due tosignificant growth in parts sales, mainly in South Korea, reflecting higher equipment utilization
rates at customer facilities.

M Net Sales andProfit Margin by Segment(Billions of yen)

(%)

80

20

75.0
17.7
60

	The segment profit margin improved significantly, from 24.4% in the previous fiscal year to 29.8%,
due in part to the increase in sales as well as a rise in the competitiveness of products in key fields.

Business Outlook
With the full-scale arrival of IoT, the use of data centers with high-speed processing and services
that leverage big data is rapidly expanding. This expansion relies on semiconductors and is driving aboom in semiconductor demand. Reflecting this demand, the WFE market is expected to grow toover US$60 billion in the near future. Tokyo Electron has positioned etch, deposition and cleaningsystems as key medium-term growth fields, which are expected to see especially strong market
expansion. By achieving technological differentiation in these fields, the Company aims to increase
its profitability and market share.
As the number of layers in 3D NAND increases and the miniaturization of DRAM and logic chips
continues, device structure is growing more complex and a wider range of materials is being used. To
fabricate such devices, deposition technologies that form uniform films from a broad range of materials and etch and cleaning technologies that selectively and precisely remove such films are becoming more important than ever. Tokyo Electron is working to expand its market share in its three key
fields by leveraging such strengths as its deep hole etch technologies for high aspect ratio features,
surface modification and drying technologies that prevent pattern collapse caused by cleaningchemicals, and ALD/quasi-ALE4 technologies that enable atomic level film formation and removal.
The advance of new technological generations will lead to even more formidable and complex
technological challenges going forward. Tokyo Electron will leverage its lineup of equipment for adiverse range of processes to quickly develop and offer integration technologies that optimize multiple processes to one another. By taking part in joint development with customers from an earlystage according to their respective technological roadmaps, the Company will advance businessgrowth from a long-term perspective.
4 ALD (atomic layer deposition)/quasi-ALE (atomic layer etch): Atomic level film deposition and etch techniques

15

49.3
44.7
40

10

10.6
9.4

20

5

0

0

16

17

18

Segment Net Sales
Segment Profit Margin
Segment profit corresponds to income before income
taxes on the consolidated statements of income.

• Tokyo Electron used its track record in generation 10 panels to secure a large share of the market for
generation 10.5 large-sized panel equipment.
2 PICP™: A plasma source that produces extremely uniform high-density plasma on panel substrates

Business Outlook
In the display market, technological innovation is expected in both products for mobile devices andfor TVs. Accordingly, the market for TFT array process equipment, in which Tokyo Electron operates,
is expected to remain firm through 2020. Within this overall market, Tokyo Electron aims to
improve profitability and market share by leveraging its technological superiority.
In small- and medium-size panels for mobile devices, increases in display size are expected todrive continued expansion in panel area-basis demand. Despite undergoing recent market adjustments, demand for OLED is forecast to grow over the medium term, as it offers excellent performance (e.g. high resolution and low power consumption) and enables flexible displays. OLED
production, however, requires more difficult etching and lengthier processes. In addition, new etch
processes are emerging for flexible display production. In addition to PICP™ etch systems, which
offer excellent processing uniformity, Tokyo Electron is working toward business growth by introducing Betelex™, a new platform with higher productivity, and equipment for new processes.
Looking at large-sized panels for TVs, investment in generation 10.5 panels for 65-inch TVs has
begun. Building on its track record of providing equipment for the mass production of generation 10
panels, Tokyo Electron is already securing business in this area and aims to flex its competitive
strengths to win other customers’ planned investment going forward. In addition, as Tokyo Electron’s
PICP™ etch systems currently boast overwhelming competitiveness for small- and medium-sizedpanels, we are beginning to roll out these systems for large-sized panels in preparation for investment
in high-resolution 4K and 8K displays.
Furthermore, Tokyo Electron is well positioned to take advantage of the coming widespread
adoption of OLED TVs. The Company’s inkjet printing system offers drastically improved material
efficiency compared with conventional evaporation systems. To build a robust position as the inkjet
equipment market takes shape, Tokyo Electron is readying its business framework in this area withthe delivery of systems to customers’ development lines.

TOKYO ELECTRON ANNUAL REPORT 2018

PAGE

9

CONTENTS

To Our Stakeholders

Business Overview
and Financial Highlights

Innovation Drives the Evolutionof Semiconductors

Review of Operations
and Business Outlook

Interview with the CEO

Corporate Governance

Financial Section
Investor Information

Innovation Drives the Evolution of Semiconductors

Innovation Drives the Evolution of Semiconductors

Semiconductor Production—A History of Innovation
In 1965, Dr. Gordon Moore, one of Intel’s founders, made aprescient observation that eventually became Moore’s Law.
Six years later, Intel released the world’s first commercial
microprocessor, the Intel 4004. Over the following half century, through repeated technological innovation, semiconductor performance has continued to improve, with steadily
higher circuit density realizing improved performance, suchas increased capacity, speed and power efficiency.
Figure 1 illustrates the evolution of logic devices since
2000. In early planar poly-gates, strained silicon technology
was introduced to improve channel mobility. Later, high-k1/
metal gate technologies were introduced to reduce current
leakage that arose due to miniaturization. To enhance patternfidelity, circuit design transitioned from 2D layouts to combinations of simpler 1D layouts (Figure 2). As miniaturization
continued beyond 45 nm, multiple patterning technologies
were developed to compensate for the limits of lithography
resolution, and FinFET structures were adopted to reduce
short-channel effects. Going forward, with the advent of
5-nm technology and beyond, logic devices are expected to
evolve into nanowire structures. In memory devices, the useof capacitors and transistors with 3D structures in DRAM
have driven continued miniaturization, and the switch fromplanar NAND flash memory to 3D NAND has sidestepped thelimits of miniaturization (Figure 3).
Through the combination of new designs and materials
and the creation of new production methods, semiconductors have continued to evolve. Today, production technology
is approaching the physical limits of miniaturization, at theatomic level. The world’s first commercial microprocessor,
manufactured with 10-micron technology, contained
approximately 2,300 transistors per chip. In contrast, thelatest mass-produced chips—products of 14-nm technology—boast well over a billion transistors per chip. The gate
length on these chips is approximately 20 nm, and thewidth of the fins (the channels) is just 8 nm. Going forward,
each successive technology node will entail miniaturization
by a few nanometers, or the size of ten or so atoms.
Manufacturing such devices will require atomic-level control.
1 High-k: High dielectric constant film

Technological Barriers to
Miniaturization
Miniaturization in semiconductor production is now facing
new hurdles. The first of these is photolithography resolution, a challenge that has emerged in recent years. Until now,
miniaturization has advanced by using shorter wavelength
light sources in exposure equipment to increase resolution.
Today, however, the shortest wavelength available for use
in mass production is 193 nm, more than 20 times the width

Figure 1. The Evolution of Logic Device Transistor Structures

Planar poly-gates
Structure diagrams

Planar metal gates(45 nm and beyond)

FinFET(22 nm and beyond)Nanowire (5 nm and beyond)

To solve these challenges, a number of breakthrough­production technologies are beginning to emerge.

A ­well-known example, which is already widely used in mass
production, is multiple patterning technology. This approach
uses process technologies—such as deposition, lithography,
etch and cleaning—to supplement the resolution of exposure equipment. Patterns with several times the density
achievable by the lithography resolution can now be formedby employing the litho-etch method, in which lithography
and etch processes are performed repeatedly, or selfaligned patterning, in which repeated deposition and etch
processes are performed after lithography. These technologies are expected to see continued application in coming
technology nodes. In addition, technology known as selfaligned block (SAB), which increases tolerance for placement variance in lithography, is currently being developed.
By taking advantage of differences in etch selectivity bymaterial, this technology is expected to enable the processing only of the desired materials without the need for
improved performance from exposure equipment.
To realize these patterning technologies, the further
refinement of production technologies for each unit process
is indispensable. These include atomic layer etch (ALE) andatomic layer deposition (ALD), which control etching anddeposition at the atomic level (Figure 4), as well as drying
technologies to prevent pattern collapse caused by cleaning chemicals. In addition, the unit processes that give thebest performance individually do not always achieve thehighest yields when combined. This means that integration
technology, aimed at optimizing unit processes to one

Figure 2. The Evolution of Logic Device Circuit Design

Figure 3. The Evolution of NAND Flash Memory

the aforementioned fins. The use of immersion lithography
technology, in which exposure is conducted in a liquid medium with a high refractive index, helps to improve resolution,but even this is insufficient to achieve the desired results.
On top of this, aligning photomasks and wafers during
patterning is also a challenge. In the latest logic and DRAM
devices, transistors and other logic circuit elements are not
only small, but arranged in complex configurations. If exposure alignment is off by a distance of just ten or so atoms,
the densely arranged circuit elements will be interconnectedinaccurately, leading to declines in processing precision.
Furthermore, at high-volume manufacturing sites, noisethat always has a certain probability of occurring is becoming
a more pronounced issue. The errors caused by such noise
might not be problematic when lithography and etch processes are conducted just once. However, when lithography andetch processes are conducted multiple times on the samelayer, these errors accumulate, leading to reduced yield. As
miniaturization advances, these three challenges are expected
to become even more serious. Solving them will be crucial toadvancing to the 5-nm technology node and beyond.

Breakthroughs in
Production Technology

2D layout
One unit cell
(SEM image)

1D layout
One unit cell
(SEM image)

Planar NAND flash(down to 15 nm)

Cross section(SEM image)3D NAND flash
T. Ghani, et al.,
IEDM 2003

K. Mistry, et al.,
IEDM 2007

C. Auth, et al.,VLSI tech. 2012

R. Coquand et al.,VLSI tech. 2013

Devices evolved through changes in transistor materials and structure.
Manufacturing requires atomic-level production technology.

One atomIllustrations of devices viewed from directly above
SEM image source: Kelin J. Kuhn, IEDM 2007

Miniaturization continued
by changing to simpler, 1D layouts.

The method of increasing density changed
from planar miniaturization to vertical stacking.

TOKYO ELECTRON ANNUAL REPORT 2018

PAGE

10

CONTENTS

Business Overview
and Financial Highlights

To Our Stakeholders

Review of Operations
and Business Outlook

Interview with the CEO

Innovation Drives the Evolutionof Semiconductors

Corporate Governance

Financial Section
Investor Information

Innovation Drives the Evolution of Semiconductors

Innovation Drives the Evolution of Semiconductors

another, will only grow more important. Tokyo Electron
provides equipment for a wide range of processes.
Leveraging this strength, we are beginning to aggressively
develop and offer integration technology solutions.

In addition to pattering technologies, EUV, a new type oflight source for lithographic exposure, is approaching commercialization. In particular, the use of EUV in litho-etch
processes (as explained above) is expected to reduce the

Figure 4: Atomic Layer Etch (ALE) and Atomic Layer Deposition (ALD)

ALE

ALD

A gas is adsorbed to the wafer surface, then the excess gas ispurged and the adsorbed gas is reacted with another substanceto etch the exposed atomic layer of the wafer. This process isrepeated as many times as necessary.

A gas is adsorbed to the wafer surface, then the excess gas ispurged and the adsorbed gas is reacted with another substanceto deposit an atomic layer on the wafer. This process is repeated as many times as necessary.

number of masks needed per layer, reducing placement
error and thereby increasing yields (Figure 5).
Tokyo Electron is working with exposure equipment­suppliers, consortia and other partners to develop coater/developers for EUV lithography. We report our progress
every year at SPIE Advanced Lithography, the world’s­largest lithography conference, as we strive toward theadoption of EUV in mass production in the semiconductor
industry. The combination of patterning technologies and
EUV is now pushing miniaturization toward the 5-nm
technology node and beyond.

Purge
Surfacemodification(a)
Next cycle

ALEt
2

(b)
Ligandexposure
Reaction

AI(CH3) 3 pulse

H2 O pulse

Thermal/Purge
Release(d)Beyond Miniaturization

Repeatcycle
N times2	TS Böscke, et al., “Ferroelectricity in hafnium oxide thin films,” Applied Physics Letters 99, 102903(2011)

Purge(c)Colin T. Carver, et al., ECS J. Solid State Sci. Technol.
2015 volume 4, issue 6, N5005-N5009; doi: 10.1149/2.0021506jss

excel in performing complex calculations on large volumesof information and are expected to be adopted in data
center servers and similar electronics.
These new devices can only be commercialized throughthe application of existing semiconductor production
technologies. Tokyo Electron is focusing not just on ways
to continue miniaturization, but also on the technologies
that will be required for continued evolution over the longterm. In addition to our independent R&D initiatives, weare beginning to build an ecosystem for collaboration withconsortia, academia and other equipment and material
suppliers around the world. By creating new production
technologies, Tokyo Electron will contribute to the continued evolution of semiconductors.

Säynätjoki 8 May 2012, SPIE Newsroom.
DOI: 10.1117/2.1201204.004218

Column 01
Types of Multiple Patterning Technology
Multiple patterning technologies are broadly divided into litho-etchcontacts to connect transistors and wiring, vias to bridge the spaces

methods, in which lithography and etch processes are performed

between wiring, cuts to break lines formed by self-aligned multiple

repeatedly on the same layer, and self-aligned patterning methods,

patterning, and blocks to fill spaces. Self-aligned multiple pattern-in which repeated deposition and etch processes are performed

ing, meanwhile, is useful for reducing the pitch of periodic line-

after lithography. Litho-etch methods enable patterning density

space patterns. These techniques achieve patterning equivalent toequivalent to that achievable based on the resolution of thetwice the lithography resolution when performed once, and four

lithography equipment multiplied by the number of litho-etchtimes the lithography resolution when performed twice, which isrepetitions. This approach is well suited for reducing the pitch (thewhy these approaches are referred to as double patterning (SADP)

distance between features) of masks, such as those for formingand quadruple patterning (SAQP), respectively.

Having reached the atomic level, semiconductor miniaturization is gradually approaching its physical limits.
Nevertheless, semiconductor performance will continue toimprove. Going forward, technological innovation will continue to advance in forms other than miniaturization.
In memory devices, ferroelectric memory (FeRAM) has
been seen as a promising new type of memory sinceresearch on scalable ferroelectric materials was publishedin 2011.2 In logic devices, research has begun into neuromorphic computers that employ new architectures known
as non-von Neumann as well as quantum computers,
which utilize quantum-mechanical phenomena.
Neuromorphic computers require less energy to send electric signals than conventional devices. Because of thisproperty, they are expected to reduce the power consumption of devices and be particularly suited to wearables
and small IoT-related electronics. Quantum computers

Figure 5. The Advantages of EUV Lithography in Litho-Etch
Multiple Patterning Processes
Conventional multiple exposure: (Litho + Etch) × n times
2

1

1

3

Each exposure
process creates
placement variance
Decreased yield

Ex: n=3 times

Single exposure using EUV: (Litho + Etch) × 1
1

1

1

1

Placement varianceeliminated
Increased yield

Column 02

Litho-etch multiple patterning: Limited use of etch and deposition

Neuromorphic Computers
Neuromorphic computers are made by building chips that contain circuits
Lithography 1

Contact hard mask etch 1

Lithography 2

Contact hard mask etch 2

Lithography 3

Contact hard mask etch 3

that mimic human brain cells—neurons. When trained, these artificial
Synapseneurons create synapses as they connect to one another, eventually

Self-aligned multiple patterning (SAMP): Performing etch/deposition numerous times
1p
p
2 SADP

1p
4

forming a neural network. Compared with conventional semiconductor
SAQP

devices, such chips are expected to be more energy efficient. Moreover,

Neuronif one neuron fails, its operation can instead be performed by another ofMandrel A etch

Sidewall deposition 1

Sidewall etch back 1

Hard mask etch

Mandrel B etch

Sidewall deposition 2

Sidewall etch back 2

the many neurons on the chip, making these chips highly reliable.

Conceptual illustration of a neural network

TOKYO ELECTRON ANNUAL REPORT 2018

PAGE

11

CONTENTS

To Our Stakeholders

Business Overview
and Financial Highlights

Interview with the CEO

Review of Operations
and Business Outlook

Message from the Chairman of the Board

Innovation Drives the Evolutionof Semiconductors

Corporate Governance

Message from the Chairman of the Board

Pursuing Effective Governance toIncrease Shareholder Value
Since the publication of Japan’s Corporate Governance Code and the Ito Review, interest has been steadily rising insuch topics as board composition and management effectiveness. Corporate governance is the foundation forrealizing Tokyo Electron’s goal of increasing corporate value over the short, medium and long terms. Since Tokyo
Electron’s initial listing on the Tokyo Stock Exchange in 1980, informed by Japanese and global standards, we haveconstantly pursued excellence in corporate governance.
Tokyo Electron uses the Audit & Supervisory Board System. This enables both quick decision making leveraging theinsight of our executive directors and effective oversight provided by our non-executive directors, outside directors
and the Audit & Supervisory Board. In this way, we achieve a healthy balance of aggressive management and careful
supervision in corporate governance.
New initiatives in fiscal 2018, the year ended March 31, 2018, included setting up a meeting to discuss Tokyo
Electron’s medium- to long-term growth strategies to complement the regular meetings of the Board of Directors.
At this meeting, internal and external directors and Audit & Supervisory Board members engaged in vigorous
discussion. Furthermore, we welcomed a new outside director in June 2018, bringing the total number of outside
directors and Audit & Supervisory Board members to six and further increasing the diversity of the Board of Directors.
The new outside director, Mr. Michio Sasaki, brings insight and management experience at Keyence, a corporation
well known for being highly profitable, and I am sure he will contribute greatly at Tokyo Electron. Through such efforts
to deepen and bring additional perspectives to the discussions held at Board of Directors meetings, we hope tocontinue to enhance the Board’s effectiveness. In addition, to solidify the Company’s foundation for growth, we havestrengthened our efforts to develop future leaders. Our Human Resource Department and the Nomination Committee
jointly formulate succession plans for the CEO and ranking executive officers, while the Board of Directors oversees theimplementation and examination of such plans.
To grow sustainably in the semiconductor and electronics industries, it is essential to rapidly develop innovativetechnologies and high-value-added products and to offer these to customers alongside high-quality service. The
production equipment market is approaching a new growth phase, reflecting the increased use of IoT technologies
and big data. As the chairman of the Board of Directors, I will continue working to build an effective corporate
governance system and ensure the Board operates effectively in order to further enhance shareholder value.

Tetsuo Tsuneishi
Chairman of the Board

Corporate Governance

Financial Section
Investor Information

Directors, Audit & Supervisory Board Members and Executive Officers

TOKYO ELECTRON ANNUAL REPORT 2018

PAGE

12

CONTENTS

To Our Stakeholders

Business Overview
and Financial Highlights

Review of Operations
and Business Outlook

Interview with the CEO

Innovation Drives the Evolutionof Semiconductors

Message from the Chairman of the Board

Corporate GovernanceCorporate Governance

Financial Section
Investor Information

Directors, Audit & Supervisory Board Members and Executive Officers

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
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.
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,
six out of the 17 participants in the Board of Directors meetings, including the Audit & Supervisory Board members, areoutside members, consisting of three independent directors
and three outside Audit & Supervisory Board members.

Does Tokyo Electron have these major components of corporate governance?

(As of July 1, 2018)

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

Three 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

Annual performance-linked compensation system

Yes

Medium-term performance-linked compensation scheme

Yes

Adopted in 2018

Stock options system

Yes

Does not apply to outside directors andAudit & Supervisory Board members

Retirement allowance system for executives

NoAnti-takeover measures

No

Disclosed since 1999

Tokyo Electron believes that the current Board of Directors
meetings achieve an appropriate sense of productive tension
and constructive debate due to the combined presence ofexecutive directors, essential for making operational decisions, and outside members, who provide objectivity.
Nominations for Director and CEO
Tokyo Electron has established a Nomination Committee toensure fairness and efficacy in management. The Nomination
Committee proposes director candidates to the Board of
Directors prior to their election at the General Meeting of
Shareholders and also nominates CEO candidates forappointment by the Board of Directors. The Nomination
Committee is composed of four directors and Audit &Supervisory Board members, including at least one outside
Audit & Supervisory Board member; the CEO is not a member of the committee. The authority to propose the election
or dismissal of the CEO or directors is entrusted to theNomination Committee.
Director and CEO Compensation
Tokyo Electron’s compensation policy prioritizes the following considerations.
(1) Globally competitive composition and levels ofcompensation(2) Correspondence with short-term performance, sustainable growth and medium- and long-term increases
in corporate value(3) Assuring management transparency and fairness aswell as the appropriateness of compensation
In line with this policy, Tokyo Electron has adopted a director and executive officer compensation system that is closely
linked to performance and shareholder value. The compensation of directors currently comprises a fixed basic wage
and an annual performance-linked bonus. However, to realize
further growth by better linking director compensation to
medium-term corporate performance, Tokyo Electron has
introduced a new, medium-term performance-linked compensation scheme from the year ending March 31, 2019.
To ensure management transparency and fairness as wellas the appropriateness of compensation, Tokyo Electron
maintains a Compensation Committee, which comprises
three or more directors and includes at least one outside
director. The Compensation Committee conducts an analysis
of industry compensation levels and systems in and outside

Japan. Based on this 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 for 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 theannual performance-linked compensation system for the
CEO and other directors. These are adjusted, as necessary,for extraordinary income/losses and other special factors.
In principle, annual performance-linked compensationconsists of monetary compensation and share-based compensation (stock options); the ratio of these two components is roughly 1:1 for directors, and single year performanceis appropriately reflected in the performance-linked compensation of the CEO and other directors. Share-based
compensation is awarded in the form of stock options withthe exercise price set at one yen per share, and a three-year
vesting period from the date of allotment before theoptions may be exercised.
The medium-term performance-linked compensation
comprises share-based compensation (performance shares)
and is aimed at using shareholdings to align the perspectivesof directors with those of shareholders and incentivize
directors to increase corporate value. Medium-term
performance-linked compensation is based on reference
amounts calculated based on each director’s position andduties. Compensation payouts vary from 0% to 150% of saidreference amounts according to the attainment level of
performance targets over the relevant three-year term. The
operating margin, ROE and other performance indicators
are used to appropriately link medium-term enhancementof corporate value with director compensation amounts.
Evaluation of the Effectiveness of the Board of Directors
Each year, based on a question-based 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 the entire
Board of Directors. The board then discloses a summary of
the results.

TOKYO ELECTRON ANNUAL REPORT 2018

PAGE

13

CONTENTS

Business Overview
and Financial Highlights

To Our Stakeholders

Review of Operations
and Business Outlook

Interview with the CEO

Innovation Drives the Evolutionof Semiconductors

Message from the Chairman of the Board

Corporate GovernanceCorporate Governance

Financial Section
Investor Information

Directors, Audit & Supervisory Board Members and Executive Officers

Corporate Governance
At meetings of the Board of Directors, directors and Audit& Supervisory Board members actively engage in discussion
based on their diverse viewpoints and experiences. Important
items are examined in terms of risk, openly debated andconsidered carefully. In fiscal 2018, to complement Board of
Directors meetings, Tokyo Electron held an off-site meeting
focused on operational strategy and vision. Turning to theBoard’s internal committees, the Nomination Committee
reported on initiatives based on succession plans, and theCompensation Committee made proposals to better linkcompensation with medium-term performance. Tokyo
Electron thus believes that its Board of Directors is appropriately carrying out its role as defined in the Corporate
Governance Guidelines, namely (1) Establishing management
strategy and vision and (2) Making major operational decisions based on strategic direction. Accordingly, Tokyo
Electron believes that the Board of Directors, including theNomination Committee and Compensation Committee, isfunctioning effectively.
Going forward, to deepen its discussions of Tokyo Electron’s
medium- and long-term vision and growth strategy, in
addition to items for resolution and reports, the Board of
Directors will continue working to enrich the items broughtup for discussion at its meetings. Furthermore, by providing
ample opportunities for discussion and debate in which
outside directors and outside Audit & Supervisory Board

members are the main participants, Tokyo Electron will
strive to ensure appropriate, meaningful decision making
based on highly diverse views. In addition, the Board of
Directors will continue to consider its composition, including
the ratio of outside members and diversity, such as that ofgender and nationality.

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.

Corporate Governance Framework, Internal Control System and Risk Management System(As of July 1, 2018)

Shareholders’ Meeting
Appointment or Dismissal

Appointment or Dismissal

Board of Directors
Nomination Committee
Compensation Committee

Chief Business Ethics Director
Chief Internal Control Director
Chief CSR Director

Business Execution

Audit

Audit & Supervisory Board
Audit

Cooperate

CSS & Executive Oﬃcers

Audit

Internal Audit Dept.
(Global Audit Center)• Ethics Committee• Information Security Committee• Export Trade Control Committee• CSR Management Council
Audit

Risk Management Function (General Affairs Dept.)
Compliance Function (Legal Dept.)
Monitoring

Business Execution Organization(All Division/All TEL Group Companies)

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 also annually
evaluate 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 unit within the
General Affairs Department of the corporate headquarters.
This unit analyzes the risks faced by the Group and identifies
material risks. It then monitors the management of suchrisks while supporting and implementing risk management
activities. The unit also regularly reports the status of risk
management activities to the Audit & Supervisory Board
members and the Board of Directors.
In fiscal 2018, 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.

Independent Auditors

Cooperate

Representative Directors

Internal Control & Compliance Executive Oﬃcer

Appointment
or Dismissal

Internal Control System and Risk Management

Auditing by the Internal Audit Department
The Global Audit Center of the corporate headquarters is
the Group’s internal audit department. This Center is
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. In addition, the Group’s internal control overfinancial reporting based on the Financial Instruments andExchange Act of Japan was evaluated as effective by the
independent auditors in fiscal 2018.
At operating divisions where issues have been identified
through audits and assessments, the Global Audit Center
monitors progress and provides necessary guidance for
improvement.

Business Continuity Plans (BCPs)
The Tokyo Electron Group began building business continuity
plans in 2003. After the Great East Japan Earthquake, theGroup completely reworked these plans to be more effective
and include provisions for restoring operations after crises,
focusing on major business sites. As examples of specificinitiatives, the Group has put considerable effort into suchpreparations for disasters as stockpiling emergency supplies(including food and drinking water), reinforcing essential
infrastructure, rebuilding the safety confirmation system,
creating manuals, and implementing drills and employee
training. Furthermore, to meet its responsibilities as an
equipment manufacturer, the Group pursues ongoing
efforts to improve its BCPs, including taking steps to facilitate
early recovery 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. In addition, since fiscal 2018, theGroup has been advancing seismic reinforcement construction at its major business sites.
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.
Rules concerning the handling and protection of suchsensitive information as trade secrets and personal information are formulated based on the Information Security
Committee’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 (jointly referred to as “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.

TOKYO ELECTRON ANNUAL REPORT 2018

PAGE

14

CONTENTS

To Our Stakeholders

Business Overview
and Financial Highlights

Interview with the CEO

Review of Operations
and Business Outlook

Innovation Drives the Evolutionof Semiconductors

Message from the Chairman of the Board

Corporate GovernanceCorporate Governance

Financial Section
Investor Information

Directors, Audit & Supervisory Board Members and Executive Officers

Corporate GovernanceBusiness 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 United Nations Global Compact, which concerns
working against corruption including extortion and bribery.
In August 2016, the Group revised the Code of Ethics in lightof social changes and the Code of Conduct of the RBA®1.
The Tokyo Electron Group’s Code of Ethics and related
explanations and Q&A sections are published in Japanese,
English, Korean and Chinese and disclosed on the intranet
to enable all Group executives and employees, including
those overseas, to view them at any time. The Code of
Ethics is also publicly accessible from the corporate website.
1 RBA is a registered trademark of the Responsible Business Alliance.

 The Code of Ethics of the Tokyo Electron Group
www.tel.com/about/compliance

Compliance System
Tokyo Electron has appointed an Internal Control &Compliance Executive Officer from among its executive
officers to raise awareness of compliance across the Groupand further improve Group-wide compliance. Each Group
company has also drawn up its own compliance regulations,setting out basic compliance-related requirements in linewith the Code of Ethics. The compliance regulations areintended to ensure that all individuals who take part in thebusiness activities of the Tokyo Electron Group clearly
understand the pertinent laws and regulations, international
standards and internal company rules, and consistently
apply these rules in all of their activities.

from business partners. In all instances, the system ensuresthat whistleblowers remain anonymous and are protectedfrom any disadvantage or repercussions.
There were no reports or cases of non-compliance withlaws, regulations, or principles of ethics in fiscal 2018 that
could have had a material impact on the Group’s businessor local communities.

Compliance Education
Through the Group’s e-learning system, we provide webbased training programs covering the basics of compliance,
export-related compliance, protection of personal information, the Act for Subcontracting and other topics. All executives and employees are required to complete these
programs. In addition, other web-based programs tailoredto specific positions and job roles are also available, including
those on insider trading and the Social Security and Tax
Number System.

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
Chairman of the Board and CEO communicate with investors through direct dialog.

We also have an online quiz-based business ethics andcompliance education course, launched in fiscal 2014, for all
Group executives and employees. Updated yearly, the quiz is
intended to maintain compliance awareness throughout theGroup and disseminate the latest information.
Furthermore, in fiscal 2018, we implemented a test to
check employee understanding of compliance, including
anti-corruption and anti-bribery issues, in response toincreased enforcement of anti-corruption law around theworld. To deepen understanding of these topics, we held inperson training for department vice presidents and similarlevel managers that focused on preventing corruption andbribes to foreign government officials as well as in-person
training for Corporate Directors and executive officers that
focused on the management of overseas subsidiaries.

IR Activities
Striving to maintain dialog with investors, Tokyo Electron
maintains a dedicated Investor Relations Department under
the direct control of the CEO. The Chairman of the Board
and CEO serve as spokespersons for the Company at such
events as earnings release conferences and medium-term
management plan briefings for securities analysts and institutional investors, IR conferences in and outside Japan, andindividual meetings.

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
fiscal 2018, to further facilitate reporting, the Group set up an
external reporting hotline as well as hotlines for reporting

Promoting Dialog with Investors

The spokespersons for the IR Department hold individual
meetings with investors and periodically relay the opinions
of investors at these events to the Chairman of the Board
and CEO so that feedback can be of use in management.
Shareholders’ Meeting
Tokyo Electron schedules its shareholders’ meeting to avoid
days on which many such meetings are concentrated aspart of its measures to vitalize these meetings and to promote smooth and efficient voting. The Company also mailsa Notice of Annual General Meeting of Shareholders toshareholders more than three weeks in advance of themeeting and discloses notices on its website before they
are mailed, striving to provide shareholders with information as early as possible. Shareholders are free to cast theirvotes via the internet, and Tokyo Electron 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 resolutions,voting results and presentation materials of shareholders’meetings.
 For more details on our corporate governance, please refer to the Tokyo Electron
Corporate Governance Guidelines.
www.tel.com/about/cg

Third-Party Recognition
Tokyo Electron has been selected for inclusion in world-leading environmental, social and governance (ESG) investment indices.
In fiscal 2018, Tokyo Electron was once again selected for inclusion in the DJSI1 Asia Pacific 2017, the FTSE4Good2 Global
Index and MSCI World ESG Leaders Index. The Company was also selected for the FTSE Blossom Japan Index and MSCIJapan ESG Select Leaders Index, two ESG indices selected by Japan’s Government Pension Investment Fund (GPIF).
1 DJSI (Dow Jones Sustainability Indices): 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.
2 FTSE4Good: An index related to environmental performance and corporate social responsibility developed by the U.K.-based FTSE GroupFor details on Tokyo Electron’s ESG-related initiatives, please refer to our Sustainability Report 2018.

TOKYO ELECTRON ANNUAL REPORT 2018

PAGE

15

CONTENTS

Business Overview
and Financial Highlights

To Our Stakeholders

Review of Operations
and Business Outlook

Interview with the CEO

Innovation Drives the Evolutionof Semiconductors

Message from the Chairman of the Board

Corporate GovernanceCorporate Governance

Financial Section
Investor Information

Directors, Audit & Supervisory Board Members and Executive Officers

Directors, Audit & Supervisory Board Members and Executive Officers (As of July 1, 2018)
Directors

Executive Officers
Tetsuo Tsuneishi

Chairman of the Board

Toshiki Kawai

President & CEO, GM,
Corporate Innovation Division

Tetsuo Tsuneishi

Representative Director
Chairman of the Board

Toshiki Kawai

Representative Director
President & CEO

Hirofumi Kitayama
Corporate Director

Masami Akimoto

Tetsuro Hori

Corporate Director

Corporate Director

Hirofumi Kitayama

EVP & GM, EHS, Quality, Procurement,
Production Technology, Leader,Business Innovation Project

Masami Akimoto
EVP & GM

Tetsuro Hori

EVP & GM, Special Mission, Subleader,Business Innovation Project

Sadao Sasaki

Corporate Director

Tatsuya Nagakubo

Corporate Director
Internal Control,
Business Ethics, CSR

Kiyoshi Sunohara
Corporate Director

Tetsuro Higashi

Hiroshi Inoue*

Corporate Director
Corporate Advisor

Corporate Director
Executive Advisor,
Tokyo Broadcasting System
Television, Inc.

Sadao Sasaki

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

Tatsuya Nagakubo

SVP & GM, Human Resources,
General Affairs, CSR Division, Legal,
Compliance Division, Internal Control,
Chairman of Ethics Committee

Charles Ditmars Lake II*

Corporate Director
Chairman and Representative
Director, Aflac Life Insurance
Japan Ltd.
President, Aflac International
Incorporated

Audit & Supervisory Board
MemberMichio Sasaki*

Corporate Director
Director, iROHA Co., Ltd.

* Outside Director

Yoshikazu Nunokawa

Audit & Supervisory Board
MemberSVP & GM, Field Solutions Business Division,
Subleader, Business Innovation Project

Hideyuki Tsutsumi

SVP & GM, Corporate Innovation Division,
Corporate Marketing

Takeshi Okubo

Takatoshi Yamamoto*

Audit & Supervisory Board
MemberRyuji Sakai*

Audit & Supervisory Board
MemberAttorney at law, Nagashima
Ohno & Tsunematsu

Kyosuke Wagai*

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

Masaki Yoshizawa
VP & GM, Strategy

Hiroshi Kawamoto

VP & GM, Finance Division

Takeo Sasaki

VP & GM, Export &Logistics Control Division

Shinichi Hayashi

VP & GM, Development &Production 3rd Division,
Deputy GM, Corporate
Innovation Division
President, Tokyo Electron
Kyushu Ltd.

Toshihiko Nishigaki

Barry Mayer

Yutaka Nanasawa

SVP & GM, Global Strategy

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

VP & GM, Deputy GM,
Corporate Innovation Division,
Corporate Marketing,Information Technology
President, TEL FSI, Inc.

David BroughKeiichi Akiyama

Shingo Tada

SVP & GM, Global Sales Division

SVP & GM, Global Strategy
President, Tokyo Electron Europe Ltd.

Seisu Ikeda

SVP & GM, Account Sales Division

Kenji Washino

SVP & GM, Backend Process
Business Division

Yoshinobu Mitano

SVP & GM, SPE Business Division

Yoshifumi Tahara

SVP & GM, Development &Production 4th Division

Audit & Supervisory Board Members

Yoshiteru Harada

Kiyoshi Sunohara

VP & GM, CTSPS BU

Isamu Wakui

VP & GM, ES BU

Hiroshi Ishida

VP & GM, Deputy GM,
Account Sales Division

Masahiro Morita

VP & GM, Account Sales,
Global Sales

VP & GM, TFF BU

Tsuguhiko Matsuura

VP & GM, FPD Business Division

Masayuki Kojima

VP & GM, Development &Production 2nd Division
President, Tokyo Electron Miyagi Ltd.

EVP: Executive Vice President
SVP: Senior Vice President
VP: Vice President
GM: General Manager

TOKYO ELECTRON ANNUAL REPORT 2018

PAGE

16

CONTENTS

To Our Stakeholders

Business Overview
and Financial Highlights

Review of Operations
and Business Outlook

Interview with the CEO

Innovation Drives the Evolutionof Semiconductors

Financial Section
Investor Information

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

Investor Information

Financial Review
Sales and Income
Operating Environment
The overall world economy in fiscal 2018 held firm, with
the United States and Europe seeing ongoing steadyeconomic recovery, while the economies of China andAsia were solid.
In the electronics industry, investment in data center
servers was brisk, reflecting growth in high-volume datatransmission driven by streaming video and other cloudbased services. Demand for semiconductors, especiallymemory, increased substantially. As a result, the wafer
fab equipment market, in which Tokyo Electron operates,grew 37% year on year, surpassing US$50 billion for the
first time ever. At the same time, the display industry
saw capital investment aimed at OLED panels for mobile
devices and the start of capital investment in large
generation 10.5 panels. Accordingly, the market for flat
panel display (FPD) production equipment was brisk,
growing 40% year on year to approach US$20 billion.
Sales
Net sales in fiscal 2018 rose 41.4% year on year to¥1,130.7 billion. This reflected the favorable market
environment, expanding demand for cutting-edge
semiconductor production equipment (SPE) andincreased demand for parts and used equipment sales,
modifications and maintenance services. By segment,
net sales in the SPE segment grew 40.7% year on yearto ¥1,055.2 billion. Net sales in the FPD production
equipment segment grew 52.0% year on year to ¥75.0
billion. For details on performance by segment, pleaserefer to Review of Operations and Business Outlook on
page 8. Furthermore, net sales in the field solutions

business (encompassing sales of parts and used equipment, modifications and maintenance services) rose
20.5% year on year to ¥251.0 billion, accounting for22.2% of consolidated net sales.
Gross Profit, SG&A Expenses and Operating Income
Gross profit in fiscal 2018 was up 47.4% year on year to¥475.0 billion, reflecting the growth in net sales. The
gross profit margin rose 1.7 percentage points to 42.0%,
mainly due to increased sales of high-value-added
products.
SG&A expenses rose 16.4% year on year to ¥193.8 billion, but the ratio of SG&A expenses to consolidated
net sales dropped 3.7 percentage points from the previous fiscal year to 17.1% in the fiscal year under review.
The Group also steadily advanced cost control measures, as targeted under the medium-term management plan. Consequently, operating income increased
80.6% year on year to ¥281.1 billion, and the operating
margin rose 5.4 percentage points to 24.9%, greatly
exceeding the previous record high.
R&D Expenses
R&D expenses were up 15.9% year on year to ¥97.1 billion.
The main cause of this rise was the reinforcement of R&D
in the fields of etch, deposition and cleaning systems, inwhich 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 included developing
innovative technologies to not only enhance the performance of individual products, but optimize entire processes, as well as making products more intelligent.

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 increased its market share in
key fields related to DRAM and 3D NAND flash memory
manufactured using cutting-edge technology, making
progress toward the goals of the medium-term management plan.
In FPD production equipment, Tokyo Electron
released new products for generation 10.5 panels, which
are expected to see rapid market growth going forward.

Financial Position and Cash Flows
Assets, Liabilities and Net Assets
M Assets
Current assets increased ¥221.1 billion from the end of
the previous fiscal year to ¥997.1 billion, reflectinga ¥58.5 billion increase in cash on hand1 due to thegeneration of ¥139.7 billion in free cash flow,2 a ¥107.8
billion increase in inventories due to increased production to meet robust demand from semiconductor and

Net Sales and Gross Profit Margin

Operating Income andOperating Margin

Millions of yen

2015

2016

2017

2018

(%)

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

320

28

210

Net sales¥612,170¥613,125¥663,949¥799,719¥1,130,728

Gross profit

201,892

242,774

267,210322,291

475,032

33.0%

39.6%

40.2%

40.3%

42.0%

Selling, general and administrative expenses

169,687

154,661

150,421

166,594

193,860

Operating income

32,205

88,113

116,789

155,697

281,172

5.3%

14.4%

17.6%

19.5%

24.9%

Income (loss) before income taxes(11,756)

86,828106,467

149,116

275,242

Net income (loss) attributable to owners of parent(19,409)71,88877,892

115,208

204,371

900

33.0

21

140

14

70

7

0

36

240

19.5 281.1

799.7
600

612.2 613.1

(%)

29.0

19.1

17.6

663.9

24

11.8

14.4

160

12

5.3
0

0

14
 Net Sales
 Gross Profit Margin

15

16

17

18

0

88.1

 Operating Income Operating Margin0

15

13.0 115.2
10

0
-3.3
-19.4

32.2

14

20

71.9

116.8

80

204.3

77.9

155.6
300

30

24.9

39.6 40.2 40.3
42.0

Net Income (Loss) Attributableto Owners of Parent and ROE

48
1,130.7

2014

Operating margin1	This lower limit may be revised in the event that the Company does not generate net income for two consecutive fiscal years.

Comprehensive Income
In fiscal 2018, Tokyo Electron recognized comprehensive income of ¥206.1 billion, up from ¥119.9 billion in
fiscal 2017. This was mainly due to the ¥204.3 billion
in net income, ¥6.3 billion in unrealized gains on

1,200

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 attributable toowners of the parent. Furthermore, with an eye toensuring stable dividends, a lower limit of ¥150 per
share has been set on annual dividends.1 Reflecting theCompany’s strong sales and profit growth, Tokyo
Electron paid annual dividends for fiscal 2018 of ¥624
per share (for a payout ratio of 50.1%), its highest ever.
Going forward, the Company will seek to build worldclass profitability and reciprocate the support of shareholders by delivering profit growth.

Other Income (Expenses) and Net Income
Attributable to Owners of Parent
During fiscal 2018, net other expenses came to ¥5.9 billion, reflecting ¥3.1 billion in extraordinary loss due tothe transition to a defined contribution pension planand ¥0.9 billion in loss on impairment of goodwill. As aresult, income before income taxes came to ¥275.2 billion, up 84.6% year on year. Net income attributable toowners of the parent totaled ¥204.3 billion in fiscal
2018, up 77.4% from fiscal 2017. Net income per sharerose 77.4% year on year to ¥1,245.48.

(Billions of yen)

Sales and Incomei­nvestment securities related to strategically held
shares, and ¥4.4 billion in loss on remeasurements ofdefined benefit plans due to a decrease in the discountrate used to calculate retirement benefits as a result of
falling interest rates.

16

17

18

-10

-70

14

15

16

17

18

 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 2018

PAGE

17

CONTENTS

Business Overview
and Financial Highlights

To Our Stakeholders

Review of Operations
and Business Outlook

Interview with the CEO

Innovation Drives the Evolutionof Semiconductors

Financial Section
Investor Information

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

Investor Information

Financial Review
M Liabilities and Net Assets
Current liabilities increased ¥120.6 billion from the endof fiscal 2017 to ¥368.4 billion at the end of fiscal 2018.
This was mainly due to a ¥32.2 billion increase in customer advances, a ¥29.3 billion increase in trade notes
and accounts payable, a ¥12.6 billion increase inaccrued employees’ bonuses and a ¥34.9 billion
increase in income taxes payable.
Non-current liabilities increased ¥5.0 billion year on
year to ¥68.7 billion.
Net assets came to ¥771.5 billion at the end of fiscal
2018, up ¥125.5 billion from the end of fiscal 2017. Thiswas mainly due to a ¥122.0 billion increase in retained
earnings, reflecting the recording of ¥204.3 billion in
net income attributable to owners of the parent and¥82.2 billion paid in cash dividends (¥36.7 billion for the
fiscal 2017 year-end dividend and ¥45.4 billion for the
fiscal 2018 interim dividend).
As a result, the equity ratio fell 3.7 percentage points
year on year to 63.5% at the end of March 2018. ROE
climbed to 29.0% from 19.1% in fiscal 2017.

FPD manufacturers, and a ¥25.7 billion increase in tradenotes and accounts receivable. The turnover period for
trade notes and accounts receivable in fiscal 2018 was
52 days, compared with 61 days in fiscal 2017, and theinventory turnover period in fiscal 2018 was 111 days,
compared with 108 days in fiscal 2017.
Net property, plant and equipment increased ¥25.5
billion year on year to ¥125.9 billion. This was largely
due to ¥45.6 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 next-generation technologies.
Investments and other assets increased ¥4.5 billion
year on year to ¥85.6 billion.
As a result, total assets as of March 31, 2018 stood at¥1,208.7 billion, up ¥251.2 billion year on year.
1	Cash on hand: Cash and cash equivalents + Short-term investments withoriginal maturities of less than one year
2 Free cash flow: Cash flows from operating activities + Cash flows frominvesting activities (excluding changes in short-term investments with original maturities of less than one year)

Capital Expenditures1 and Depreciation andAmortization2
Capital expenditures totaled ¥45.6 billion in fiscal 2018,a 120.3% 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 increased 15.4% to¥20.6 billion.

Net cash provided by operating activities came to¥186.5 billion, up ¥49.6 billion from fiscal 2017. Major
contributors were ¥275.2 billion in income before
income taxes, a ¥31.6 billion increase in customer
advances, a ¥28.5 billion increase in trade notes andaccounts payable, and ¥20.6 billion in depreciation andamortization. Major outflows included a ¥109.8 billion
increase in inventories, ¥49.7 billion in income taxes
paid, and a ¥25.9 billion increase in trade notes andaccounts receivable.
Net cash used in investing activities was ¥11.8 billion,
compared with ¥28.8 billion used in the previous fiscal
year. This was mainly due to ¥41.7 billion used as payment for purchases of property, plant and equipment
and an inflow of ¥35.0 billion due to a net decrease in
short-term investments.
Net cash used in financing activities came to ¥82.5
billion, compared with ¥39.3 billion in fiscal 2017. Thiswas mainly attributable to ¥82.2 billion in dividends paid.

1 	Capital expenditures represent only the gross increase in property, plant andequipment.
2 Depreciation and amortization does not include amortization of goodwill or
losses on impairment.

Cash FlowsThe balance of cash and cash equivalents at the end of
March 2018 stood at ¥257.8 billion, an increase of ¥93.5
billion from the end of fiscal 2017. Cash on hand, which
consists of cash and cash equivalents as well as shortterm investments with original maturities of less than
one year not included in cash and cash equivalents,
increased ¥58.5 billion year on year to ¥373.8 billion at
the end of March 2018. Cash flows during the fiscal
year under review were as follows.

Millions of yen

Financial Position

2014

2015

2016

2017

2018

Total current assets¥621,492¥670,883¥617,416¥775,938¥ 997,102

Net property, plant and equipment

112,344

106,896

96,317

100,441

125,952

Millions of yen

Cash Flows

2014

2015

2016

2017

2018

¥ 69,398¥136,948¥186,582

Total investments and other assets

94,756

98,375

79,63581,06785,650Cash flows from operating activities¥ 44,449¥ 71,806

Total assets

828,592

876,154793,368

957,447

1,208,705

Cash flows from investing activities(19,599)

155,738(150,014)(28,893)(11,833)

Total current liabilities

170,510

172,812

166,061

247,770

368,452

Cash flows from financing activities(187)(18,214)(138,601)(39,380)(82,549)

Total liabilities

237,978

234,991

229,129

311,447

437,195

Cash and cash equivalents at end of year

104,797

317,632

95,638164,366

257,877

Total net assets (Total shareholders' equity)

590,614641,163564,239645,999

771,509

Selling, General and Administrative
Expenses and Ratio to Net Sales(Billions of yen)

200

193.8

(%)

(Billions of yen)

40

100

Cash Dividends per Share

97.1

Receivable Turnover andInventory Turnover

154.7 150.4(Yen)(Days)(Billions of yen)

800

160

50

166.5
30

75

83.8

78.7
71.3

76.3

624

600

400
373.8

100

105 107

108

317.7

300

111

22.6

20

50

80

400

50

10

25

237

200

66

40

64

61

52

143
0

0

15

16

17

18

 Selling, General and Administrative Expenses
 Ratio to Net Sales

0

0

14

15

16

17

18

50

15

16

17

18

20.6
19.320.6
17.8

12.8 13.2 13.3

100

0

0

14

10

200
20.9

20

77

17.1

236.7
24.9

352

20.8

14
 Receivable Turnover
 Inventory Turnover

15

16

17

18

315.3

268.1
30

25.2

14

Cash on Hand
(Billions of yen)

40

120

27.7
100

Capital Expenditures andDepreciation and Amortization

45.6

169.7
150

R&D Expenses

0

14

15

16

 Capital Expenditures Depreciation and Amortization

17

18

14

15

16

17

18

Cash on Hand = Cash and cash equivalents +Short-term investments with original maturities of less than
one yearTOKYO ELECTRON ANNUAL REPORT 2018

PAGE

18

CONTENTS

To Our Stakeholders

Business Overview
and Financial Highlights

Interview with the CEO

Review of Operations
and Business Outlook

Innovation Drives the Evolutionof Semiconductors

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

Financial Section
Investor Information

Investor Information

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) Impact 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’sbusiness 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) Impact of Laws and Regulations
Tokyo Electron operates globally and is therefore subject to and strives to ensure compliance with the laws
and regulations of the countries and regions where it
does business, including import and export regulations,environmental regulations and transfer pricing rules.
However, should the Company be unable to respondadequately to unforeseen tightening or other changes
to such laws or regulations, such changes could
adversely affect Tokyo Electron’s business performance.
(11) 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 2018

PAGE

19

CONTENTS

To Our Stakeholders

Business Overview
and Financial Highlights

Review of Operations
and Business Outlook

Interview with the CEO

Innovation Drives the Evolutionof Semiconductors

Financial Section
Investor Information

Corporate Governance

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

Investor Information

Consolidated Eleven-Year SummaryTokyo Electron Limited and Subsidiaries
As of and for the years ended March 31

Thousands of
U.S. dollars

Net sales 1
Semiconductor production equipment
FPD production equipment
PV production equipment
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

Millions of yen

2018

2018

2017

2016

2015

2014

2013

2012

2011

2010

2009

2008

$10,643,151
9,932,551
706,597——
4,001
2,646,577
2,590,762
1,923,674
1,940,439¥1,130,728
1,055,234
75,068——425
281,172
275,242204,371
206,152¥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
32,7103,618—
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—

1,400,233
9,242,917

148,760
981,967

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

194,088429,251
914,000

20,61945,603
97,103

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

11,377,121
7,261,950

1,208,705
771,509957,447645,999

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

11,946

11,241

10,62910,844

12,304

12,201

10,684

10,343

10,068

10,391

10,429¥ 205.04
204.723,275.14
80.00
180,61142,414¥ 401.73
401.103,198.66
114.00180,61144,89642.15
42.07
2,896.55
24.00
180,61142,509¥ 594.01
592.71
2,989.70
125.00180,611
43,324

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

¥ 59,256¥ 64,655¥ 41,581¥ 48,896¥ 86,882

Domestic sales
Overseas sales
Depreciation and amortization 3
Capital expenditures 4
R&D expenses
Total assets
Total net assets
Number of employees

U.S. dollars

Net income (loss) per share of common stock:
Basic
Diluted 5
Net assets per share of common stock
Cash dividends per share of common stock
Number of shares outstanding (thousands)
Number of shareholders

$

11.72
11.68
44.00
5.87

Yen

¥ 1,245.48
1,241.22
4,674.49
624.00165,21035,186¥ 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

29.0
24.9
63.5
1.04

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

¥

33.91
33.85
3,309.58
51.00
180,61141,287¥(50.47)—2,859.37
12.00
180,61139,285¥%

ROE
Operating margin
Equity ratio
Total asset turnover (times)
U.S. dollars

Net sales per employee$

890,938

1.0
2.5
76.5
0.64
Thousands of yen¥

94,653¥ 71,143¥ 62,466¥ 56,540¥ 49,754¥ 40,759

1 From fiscal 2015, Electronic components and computer networks were excluded 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 but from fiscal 2016, it has been 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 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.
6	The amounts in this summary in millions and thousands of yen; thousands of U.S. dollars; and thousands of shares as of and for the years ended March 31, 2016 and prior are rounded to the nearest unit. Such amounts as of and for the years ended March 31, 2017 and onward are truncated at the nearest unit. Accordingly, totals for the years ended
March 31, 2017 and onward do not necessarily agree with the sum of the corresponding individual amounts.

TOKYO ELECTRON ANNUAL REPORT 2018

PAGE

20

CONTENTS

To Our Stakeholders

Business Overview
and Financial Highlights

Review of Operations
and Business Outlook

Interview with the CEO

Innovation Drives the Evolutionof Semiconductors

Financial Section
Investor Information

Corporate Governance

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

Investor Information

Consolidated Balance Sheets
Tokyo Electron Limited and Subsidiaries
As of March 31, 2018 and 2017

Thousands of
U.S. dollars

Millions of yen

ASSETS

2018

2017

LIABILITIES AND NET ASSETS

2018

Current assets:

Thousands of
U.S. dollars

Millions of yen

2018

2017

2018

¥ 108,607¥ 79,217$ 1,022,284

Current liabilities:

Cash and cash equivalents

¥ 257,877¥164,366$ 2,427,314

Short-term investments

116,000

151,000

1,091,867

Income taxes payable

66,046

31,069621,671

Trade notes and accounts receivable

159,570

133,858

1,501,982

Accrued employees’ bonuses

34,467

21,853

324,429

(59)

(63)

(563)

Customer advances

100,208

67,976943,231

Inventories

344,071

236,256

3,238,620

Other current liabilities

59,12247,653556,501

Deferred income taxes

50,50536,892475,385

368,452

247,7703,468,118

Other current assets

69,13753,628650,768   Total current assets

997,102775,938

9,385,375

Net liability for defined benefits

59,68456,200561,784

Other liabilities

9,058

7,476

85,267   Total non-current liabilities

68,742

63,677647,052  Total liabilities

437,195

311,447

4,115,171

54,961

54,961

517,330

Allowance for doubtful accounts

Property, plant and equipment:

Trade notes and accounts payable   Total current liabilities
Non-current liabilities:

Land

28,03024,855

263,843

Buildings

159,474

145,901

1,501,081

Machinery and equipment

138,932

132,043

1,307,725

Construction in progress

11,0606,026

104,108

337,498

308,826

3,176,759

Less: Accumulated depreciation

211,546

208,385

1,991,209  Common stock   Authorized: 300,000,000 shares
Issued: 165,210,911 and 165,210,911 shares
as of March 31, 2018 and 2017, respectively   Net property, plant and equipment

125,952

100,441

1,185,550  Capital surplus

78,011

78,023734,290  Retained earnings

625,390

503,325

5,886,581(7,518)(7,766)(70,771)

17,134

10,788161,278   Total property, plant and equipment

Net assets:
Shareholders’ equity   Treasury stock, at cost   1,097,342 and 1,135,104 shares
as of March 31, 2018 and 2017, respectively
Accumulated other comprehensive income

Investments and other assets:
Investment securities

33,12824,119311,827   Net unrealized gains on investment securities

Deferred income taxes

17,846

19,128167,979   Net deferred gains on hedging instruments

278

59

2,623

—

4,818

—

   Foreign currency translation adjustments

5,507

5,789

51,843

Intangible assets

15,882

15,401

149,492   Accumulated remeasurements of defined benefit plans(6,618)(2,086)(62,293)

Other assets

20,215

19,416190,282

Share subscription rights

4,363

2,620

41,068

Allowance for doubtful accounts

(1,422)(1,816)(13,386)

Non-controlling interests

—

284

—

   Total investments and other assets

85,65081,067806,196

771,509645,999

7,261,950¥1,208,705¥957,447$11,377,121¥1,208,705¥957,447$11,377,121

Net asset for defined benefits

Total assets
See accompanying Notes to Consolidated Financial Statements.

   Total net assets
Total liabilities and net assetsTOKYO ELECTRON ANNUAL REPORT 2018

PAGE

21

CONTENTS

To Our Stakeholders

Business Overview
and Financial Highlights

Review of Operations
and Business Outlook

Interview with the CEO

Innovation Drives the Evolutionof Semiconductors

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

Consolidated Statements of Income

Consolidated Statements of Comprehensive Income

Tokyo Electron Limited and Subsidiaries
Years ended March 31, 2018 and 2017

Tokyo Electron Limited and Subsidiaries
Years ended March 31, 2018 and 2017

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

2018

2017

2018

¥1,130,728
655,695
475,032
193,860
281,172¥ 799,719
477,427
322,291
166,594
155,697$10,643,151
6,171,832
4,471,318
1,824,741
2,646,577

859

1,032

8,088

571
334
(2,897)
77
—

342
300
(791)
55
6

5,382
3,150
(27,274)
731—

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

(925)

(362)

(8,714)—(3,154)(795)
275,242(7,521)—
357
149,116—(29,690)(7,487)2,590,762

Income taxes:
Current
DeferredNet income

83,434(12,591)
204,399

40,633(6,765)
115,248785,340(118,522)
1,923,944

28¥ 204,371

39¥ 115,208

269$ 1,923,674

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

Yen

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

¥ 1,245.48
1,241.22
4,674.49
624.00¥Investor Information

Thousands of
U.S. dollars

Millions of yen

U.S. dollars

702.26700.35
3,919.50
352.00

$

11.72
11.68
44.00
5.87

Financial Section
Investor Information

Corporate GovernanceThousands of
U.S. dollars

Millions of yen

Net income
Other comprehensive income (loss):
Net unrealized gains on investment securities
Net deferred gains 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.

2018

2017

2018

¥204,399¥115,248$1,923,944

6,337
198
(242)
(4,494)

2,875
10
(933)
2,682

59,6571,869(2,286)(42,308)

(46)
1,752
206,152

114
4,750
119,998(436)
16,494
1,940,439

206,122
29

119,94256

1,940,162
276

TOKYO ELECTRON ANNUAL REPORT 2018

PAGE

22

CONTENTS

Business Overview
and Financial Highlights

To Our Stakeholders
ステークホルダーの皆さまへ

Review of Operations
and Business Outlook

Interview with the CEO

Innovation Drives the Evolutionof Semiconductors

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

Consolidated Statements of Changes in Net Assets

Consolidated Statements of Cash Flows

Tokyo Electron Limited and Subsidiaries
Years ended March 31, 2018 and 2017

Tokyo Electron Limited and Subsidiaries
Years ended March 31, 2018 and 2017

Financial Section
Investor Information

Corporate Governance

Investor Information

Thousands of
U.S. dollars

Millions of yen
Shareholders’ equity

Millions of yen

Accumulated other comprehensive income
Noncontrollinginterests

CapitalsurplusRetainedearnings¥54,961¥78,023¥427,618

Cash dividends——(39,371)—

Net income attributable toowners of parent——

115,208—

Repurchase of treasury
stocks

—

—

—

(6)

—

—

—

—

—

—

(6)

Disposal of treasury stocks

—

—

(130)

290

—

—

—

—

—

—

159

—

2,886

9

(953)

2,791

979

56

5,769

¥(7,766) ¥10,788¥ 59¥5,789¥(2,086)¥2,620¥284¥645,999

Balance as of March 31, 2016

Other, net

Treasurystock

Net unrealized Net deferred
Foreign
Accumulated
gains ongains oncurrency
remeasurements
Shareinvestment
hedgingtranslation of defined benefit subscription
securities
instruments adjustments
plansrightsCommonstock¥(8,051) ¥ 7,903

Total
net assets¥ 50¥6,743¥(4,878)¥1,641¥229¥564,239

—

—

—

—

—

—

(39,371)

—

—

—

—

—

—

115,208———¥54,961¥78,023¥503,325

Cash dividends——(82,203)

—

—

—

—

—

—

—

(82,203)

Net income attributable toowners of parent——

204,371

—

—

—

—

—

—

—

204,371

Repurchase of treasury
stocks

—

—

—

(16)

—

—

—

—

—

—

(16)

Disposal of treasury stocks

—

—

(102)

264

—

—

—

—

—

—

161

Change in equity of parent arising from transactions
with non-controllingshareholders

—

(12)

—

—

—

—

—

—

—

—

(12)

Other, net

—

—

—

—

6,345

219

(281)

(4,531)

1,742

(284)

3,209

¥54,961¥78,011¥625,390¥(7,518) ¥17,134¥278¥5,507¥(6,618)¥4,363¥ —¥771,509

Balance as of March 31, 2017

Balance as of March 31, 2018

Thousands of U.S. dollars
Shareholders’ equity

Commonstock

Balance as of March 31, 2017

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$ 557$54,493$(19,639)$24,664$2,682$6,080,571

Cash dividends——(773,754)

—

—

—

—

—

—

—

(773,754)

Net income attributable toowners of parent—— 1,923,674

—

—

—

—

—

—

—

1,923,674

Repurchase of treasury
stocks

—

—

—

(154)

—

—

—

—

—

—

(154)

Disposal of treasury stocks

—

—

(969)

2,486

—

—

—

—

—

—

1,517

Change in equity of parent arising from transactions
with non-controllingshareholders

—

(114)

—

—

—

—

—

—

—

—

(114)

Other, net

—

—

—

—

59,725

2,065(2,649)(42,654)

16,403(2,682)30,209$517,330 $734,290 $5,886,581 $(70,771) $161,278$2,623$51,843$(62,293)$41,068$

Balance as of March 31, 2018

$517,330 $734,404 $4,737,629 $(73,104) $101,552

Noncontrollinginterests

See accompanying Notes to Consolidated Financial Statements.

—$7,261,950

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 in accrued employees’ bonuses
Increase in accrued directors' bonuses
Increase (decrease) in accrued warranty expenses
Interest and dividend income
Increase in trade notes and accounts receivable
Increase in inventories
Increase in trade notes and accounts payable
Increase in prepaid consumption tax
Increase in accrued consumption tax
Increase 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 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.

2018

2017

2018

¥275,242
20,619¥149,116
17,872$2,590,762
194,088925
600
12,710
2,573
2,769
(859)
(25,971)(109,846)
28,535(13,896)
1,297
31,684
8,851
235,238
1,115(49,771)
186,582362
631
10,112623(220)(1,032)(17,411)(44,102)
24,053(12,350)359
34,444
5,843
168,304
1,266(32,622)
136,948

8,714
5,652
119,642
24,227
26,069(8,088)(244,458)(1,033,948)
268,594(130,807)
12,208298,239
83,3182,214,216
10,495(468,480)
1,756,231(131,000)
166,000(41,750)(4,431)(651)(11,833)(202,200)
192,232(17,557)(1,116)(252)(28,893)(1,233,057)
1,562,500(392,982)(41,715)(6,128)(111,383)(16)(82,203)(329)(82,549)
1,312
93,511
164,366¥257,877(6)(39,371)(2)(39,380)53
68,72895,638¥164,366(154)(773,754)(3,103)(777,012)
12,350880,187
1,547,127$2,427,314

TOKYO ELECTRON ANNUAL REPORT 2018

PAGE

23

CONTENTS

To Our Stakeholders

Business Overview
and Financial Highlights

Interview with the CEO

Review of Operations
and Business Outlook

Innovation Drives the Evolutionof Semiconductors

Corporate Governance

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

Financial Section
Investor Information

Investor Information

Notes to Consolidated Financial Statements
Tokyo Electron Limited and Subsidiaries
Years ended March 31, 2018 and 2017

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 theaccompanying consolidated financial statements.
The amounts in the consolidated financial statements andassociated notes shown in millions and thousands of yen;
thousands of U.S. dollars; and thousands of shares as of andfor the years ended March 31, 2018 and 2017 are truncated at
the nearest unit. Accordingly, totals do not necessarily agreewith the sum of the corresponding individual amounts.
U.S. dollar amounts included herein are solely for the convenience of readers and are presented at the rate of ¥106.24
to $1.00, the approximate rate as of March 31, 2018. 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 33 and 35 subsidiaries as of March 31,2018 and 2017, respectively. All significant inter-company
accounts, transactions and unrealized profits or losses havebeen eliminated through consolidation procedures.
There are 9 and 8 affiliates accounted for using the equity
method as of March 31, 2018 and 2017, respectively.

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 and cash equivalents
Cash and cash equivalents consist of cash, short term
deposits and low-risk financial instruments with original
maturities of three months or less.
(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, 2018 and 2017. Heldto-maturity debt securities are stated mainly at amortizedcost. Other securities with market prices are valued at fairvalue at the balance sheet date. The differences between thebook value 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 are stated at the lower of cost, determined byprincipally the specific identification method, or net realizablevalue, which is defined as selling price less estimated additional manufacturing costs and estimated direct selling expenses.
(g) Property, plant and equipment
Property, plant and equipment are stated at cost.
Depreciation of buildings, machinery and equipment of theCompany and its domestic subsidiaries is computed using
the declining-balance method, except for buildings acquiredsince April 1, 1998 and facilities attached to buildings andstructures acquired since April 1, 2016 which are depreciatedusing the straight-line method, based on the estimated useful lives of assets. Foreign subsidiaries mainly apply thestraight-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 ona straight-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-sale repair
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.

TOKYO ELECTRON ANNUAL REPORT 2018

PAGE

24

CONTENTS

To Our Stakeholders

Business Overview
and Financial Highlights

Interview with the CEO

Review of Operations
and Business Outlook

Innovation Drives the Evolutionof Semiconductors

Financial Section
Investor Information

Corporate Governance

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

Investor Information

Notes to Consolidated Financial Statements
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
a component of accumulated other comprehensive income(loss). Receivables and payables hedged by qualified forward
foreign exchange contracts are translated at the corresponding foreign exchange contract rates.
(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.

acquired since April 1, 2016 from the declining-balance method to the straight-line method, starting from the fiscal year
ended March 31, 2017.
The effect of this change on the consolidated financial
statements is immaterial.

4. Additional Information
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.

5. Accounting Standards Issued but Not yet Adopted“Implementation Guidance on Tax Effect Accounting” (ASBJ
Guidance No. 28, February 16, 2018)“Implementation Guidance on Recoverability of Deferred
Tax Assets” (ASBJ Guidance No. 26 (revised 2018), February
16, 2018)(1) Overview
The above guidance was revised with regard to the treatment of taxable temporary differences for investments in
subsidiaries within the context of non-consolidated financial
statements, and to clarify the approach to determining
recoverability of deferred tax assets in a company which iscategorized as ‘Type 1’ according to the guidance.

Customers” (IFRS 15 published by IASB, Topic 606 publishedby FASB) in May 2014. IFRS 15 is effective for annual reporting
periods beginning on or after 1 January 2018 and Topic 606 is
effective for annual reporting periods beginning after
December 15, 2017.
Considering the above circumstances, the AccountingStandard Board of Japan (ASBJ) also developed a new revenue recognition and issued Statement No.29 together with
Guidance No.30.
ASBJ’s basic policy in developing the new revenue recognition standards is to first incorporate the core principle of IFRS
15 in the light of improving the international comparability offinancial statements and then add additional alternative
treatments to the extent that international comparability
would not be significantly impaired where any business practices operated in Japan need to be considered.
(2) Effective date
Effective from the beginning of the fiscal year ending
March 31, 2022.

(r) 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, 2018.

3. Change in Accounting Policies and Adoption of
New Accounting Standards
Year ended March 31, 2017
In accordance with the revision to the JapaneseCorporation 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(2) Effective date
Effective from the beginning of the fiscal year ending
March 31, 2019.
(3) Effects of the application of the guidance
The Company and its consolidated domestic subsidiaries
are currently in the process of determining the effects of thisnew guidance on the consolidated financial statements.

6. Securities“Accounting Standard for Revenue Recognition” (ASBJ Statement
No. 29, March 30, 2018 (hereinafter, “Statement No.29”))“Implementation Guidance on Accounting Standard for
Revenue Recognition” (ASBJ Guidance No. 30, March 30, 2018
(hereinafter, “Guidance No.30”))(1) Overview
The International Accounting Standards Board (IASB) andthe U.S. Financial Accounting Standards Board (FASB) collaborated on a project to develop a single, comprehensive revenue recognition model and jointly issued new revenue
recognition standards “Revenue from Contracts with

Millions of yen
Cost

Carrying value¥7,620¥32,293

Non-current Securities with carrying value
exceeding acquisition cost  Equity securities

Carrying value$71,730$303,971

7,714

7,714

Non-current Securities with carrying value
exceeding acquisition cost  Equity securities Securities with carrying value
not exceeding acquisition cost  Equity securities

141

141

$79,587$311,827  OtherTotal

Held-to-maturity securities classified as current assets are¥286,500 million ($2,696,724 thousand) and ¥244,500 million as of March 31, 2018 and 2017, respectively.
Reconciliation of held-to-maturity securities as of March
31, 2018 and 2017 to the amounts of short-term investmentsin the consolidated balance sheets are as follows:

2018(3) Effects of the application of the standards
The Company and its consolidated subsidiaries are currently in the process of determining the effects of these newstandards on the consolidated financial statements.

2018:

Cost

Thousands of
U.S. dollars

Millions of yen

Other securities as of March 31, 2018 and 2017 are as follows:(q) Research and development expenses
Research and development expenses are charged to earnings as incurred and amounted to ¥97,103 million ($914,000
thousand) and ¥83,800 million for the years ended March 31,2018 and 2017, respectively.

Thousands of U.S. dollars

2018:

2018

2017

Held-to-maturity (current)

¥286,500 ¥244,500

Deposits and low-risk financial instruments with original
maturities of three months
or less(170,500)

Deposits with original maturities
of more than three months
Short-term investments$2,696,724(93,500) (1,604,856)——¥116,000 ¥151,000—$1,091,867

Net loss on devaluation of investment securities was ¥536
million ($5,049 thousand) and ¥105 million for the years
ended March 31, 2018 and 2017, respectively.
For the years ended March 31, 2018 and 2017, the amountsof gain and loss on sale of available-for-sale securities wereimmaterial.

7. Inventories Securities with carrying value
not exceeding acquisition cost

Inventories as of March 31, 2018 and 2017 are as follows:  Equity securities

819

819

  Other

15

15

Total

¥8,455¥33,128

2017:

Cost

Millions of yen

2018

Finished products

2017¥220,497 ¥152,629

Thousands of
U.S. dollars

2018$2,075,465

Work in process, raw materials
and supplies

123,573

83,626

1,163,154

Non-current

Total

¥344,071 ¥236,256$3,238,620 Securities with carrying value
exceeding acquisition cost

The amounts of change in inventory provision included incost of sales in the consolidated statements of income forthe years ended March 31, 2018 and 2017 were an increase of¥173 million ($1,635 thousand) and a decrease of ¥3,060 million, respectively.

Millions of yen  Equity securities

¥7,183Carrying value¥22,704 Securities with carrying value
not exceeding acquisition cost  Equity securities
Total

——¥7,183¥22,704

TOKYO ELECTRON ANNUAL REPORT 2018

PAGE

25

CONTENTS

To Our Stakeholders

Business Overview
and Financial Highlights

Review of Operations
and Business Outlook

Interview with the CEO

Innovation Drives the Evolutionof Semiconductors

Financial Section
Investor Information

Corporate Governance

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

Investor Information

Notes to Consolidated Financial Statements
8. Pledged Assets(2) Movement of plan assets

Tokyo Electron did not hold any assets pledged as collateral as of March 31, 2018 and 2017.

9. Short-Term Borrowings

Thousands of
U.S. dollars

Millions of yen

Balance at April 1, 2017and 2016
Expected return on plan assets
Actuarial gain

2017

2018

¥67,653¥62,549$636,798

1,400

1,266

13,186

526

540

4,960

Increase by transfer

10. Employee Benefits

Foreign currency exchange
rate changes

(24)

84

(227)

Other

(12)

(6)

(119)

¥53,683¥67,653$505,301

Employer contributions

3,577

2,940

33,678Benefits paid

(915)

(1,011)(8,616)(18,523)—(174,359)

—

1,289

—

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 subsidiaries
provide defined benefit plans for their employees.
Effective April 1, 2018, Tokyo Electron and its domestic subsidiaries converted a part of their defined benefit plans toa defined contribution plan. The loss on revision of retirement
benefit plan of ¥3,154 million ($29,690 thousand) resulting
from this change was recognized and presented in otherincome (expenses) for the year ended March 31, 2018 inaccordance with the “Accounting Procedures for Conversion
between Different Retirement Benefit Schemes” (Corporate
Accounting Standards Implementation Guidelines No. 1) andthe “Practical Treatment of Accounting Procedures forConversion between Different Retirement Benefit Schemes”(Practical Issues Task Force No. 2).

Balance at March 31, 2018and 2017

Defined benefit plans(1) Movement of defined benefit obligations

Note: The provision for accrued pension and severance costs for directors andaudit & supervisory board members of ¥374 million ($3,529 thousand)and ¥374 million as of March 31, 2018 and 2017 is not included.
Thousands of
U.S. dollars

Millions of yen

2018

Balance at April 1, 2017and 2016
Service cost(3) Reconciliation from defined benefit obligations and plan
assets to liability (asset) for defined benefits
Thousands of
U.S. dollars

Millions of yen

2018

2017

6,052

6,080

56,967

2,675

2,168

25,186

2,186

1,515

20,583

Other

14,535

12,600136,815

Total gross deferred tax assets

88,55078,038

833,490

Net actuarial loss that is yet tobe recognized (before tax)

(7,806)(2,712)(73,482)

Less valuation allowance(8,043)(9,808)(75,711)

Total¥(9,161)¥(2,712)$(86,229)

Total deferred tax assets

80,506

68,229757,778(7,554)(4,757)(71,105)

Deferred tax liabilities(7) Plan assets
1. Plan assets comprise:

Net unrealized gains on
investment securities¥51,007$558,255

Other

7

3

55,825558,255

Total

100%

100%

—

(4,818)—¥59,309¥51,007$558,255

Thousands of
U.S. dollars

2018

2017

2018

¥6,052¥6,080$56,967

963

772

9,066

(1,400)(1,266)(13,186)

Benefits paid

(3,029)(2,708)(28,517)

Prior service cost

1,690

—

15,915

Net actuarial gain (loss)
amortization(1,237)291(11,649)$1,063,557

Accrued warranty expenses
Accrued enterprise taxes

3

Interest cost

¥112,992 ¥118,660

77,051
39,0499

Expected return on plan assets

Balance at March 31, 2018and 2017

4,977
3,995

1

9,066

—

8,185
4,148

9

43,601(65)

Accrued employees’ bonuses
Devaluation of inventories

Cash and cash equivalents

772—

103,254

Alternative investments (Note)(3,075)Other

15,402548,899

963

Loss on transfer to defined contribution plan (Note)

10,969(170,201)(4) Defined benefit costs(288)$(12,747)

170,648

Net operating loss carryforwards$587,577

59,309101—$260,900

18,102(17,282)¥59,309(30)¥¥19,276

18,129¥50,947

Net liability for defined benefits

Foreign currency exchange
rate changes¥(1,354)2018¥27,718

Net liability for defined benefits(18,082)

Net liability for defined benefits
at March 31, 2018 and 2017—

Prior service cost that is yet tobe recognized (before tax)

2017

Elimination of unrealized profit
in inventories¥62,424

54,899(150,100)Millions of yen

2018

2018

Total deferred tax liabilities

58,315—

Thousands of
U.S. dollars

2017

Net deferred tax assets

Unfunded defined benefit
obligations

1,327(6) Accumulated remeasurements of defined benefit plans

2018

Deferred tax assets

20

9,355

—

Note: Prior service cost and actuarial loss for the year ended March 31, 2018
include the reclassification adjustments of ¥336 million ($3,167 thousand)and ¥240 million ($2,263 thousand), respectively associated with the conversion of a part of defined benefit plans to a defined contribution plan.

Thousands of
U.S. dollars

Millions of yen

26(3,892)(15,946)$(60,695)

20

993

Increase by transfer¥3,86925

Funded status

Other¥(6,448)

Equity securities(505,301)

Total defined benefit costs for the years ended
March 31, 2018 and 2017$(12,747)

Life insurance company general account(67,653)

4,632

Decrease by conversion of a part of defined benefit plans
to a defined contribution plan

(47,947)

Total

—

Other

(53,683)

Actuarial gain (loss)

Interest cost

3,869

39%

Plan assets

Service cost¥

(5,093)

2017$514,657$1,116,912¥(1,354)38%¥63,761

Millions of yen¥118,660 ¥116,228

Prior service cost
Actuarial gain (loss)

Significant components of the deferred tax assets and­liabilities as of March 31, 2018 and 2017 are as follows:

2018¥54,677

Net liability for defined benefits
at March 31, 2018 and 2017

2018

Bonds

Funded defined benefit
obligations

Net asset for defined benefits

2017

Undistributed earningsof subsidiaries

2018

2017

2018

Thousands of
U.S. dollars

Millions of yen

2018

2018

There are no short-term borrowings classified as current
liabilities as of March 31, 2018 and 2017.
As of March 31, 2018 and 2017, Tokyo Electron had unusedlines of credit amounting to ¥126,953 million ($1,194,971 thousand) and ¥126,944 million, respectively.

Decrease by conversion of a part of defined benefit plans
to a defined contribution plan

11. Income Taxes(5) Remeasurements of defined benefit plans

388

290

3,654

¥4,765¥6,168$44,852

3,154—

29,690Note: Loss on revision of retirement benefit plan was recognized in otherincome (expenses) for the year ended March 31, 2018.

(8) Actuarial assumptions
The principal actuarial assumptions as of and for the years
ended March 31, 2018 and 2017 are as follows:
2018

2017

Discount rate

0.46%

0.71%

Long-term expected rate of return

2.00%

2.00%

The expected rates of salary increase for the years ended
March 31, 2018 and 2017 are also considered as one of theactuarial assumptions, and are set based on the salary
increase index by age group as of January 1, 2018 and January
1, 2014, respectively.

(5,197)(57,828)(7,327)(41,267)

Net deferred tax assets are included in the consolidatedbalance sheets as of March 31, 2018 and 2017 as follows:
Thousands of
U.S. dollars

Millions of yen

Note: Alternative investments consist of hedge funds and insurance-linked
securities

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.

(6,143)(4,384)

2018

2017

2018

Current assets¥50,505¥36,892$475,385

Investments and other assets

17,846

19,128167,979———(5,926)(5,073)(55,788)

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 differences are deductible and net operating loss carryforwards are available to be utilized, management believes

TOKYO ELECTRON ANNUAL REPORT 2018

PAGE

26

CONTENTS

To Our Stakeholders

Business Overview
and Financial Highlights

Review of Operations
and Business Outlook

Interview with the CEO

Innovation Drives the Evolutionof Semiconductors

Financial Section
Investor Information

Corporate Governance

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

Investor Information

Notes to Consolidated Financial Statements
Tokyo Electron will realize the benefits of deferred tax assets,
net of valuation allowance, as of March 31, 2018 and 2017.
The Company and its wholly-owned domestic subsidiaries
apply a consolidated tax filing system for corporate tax purposes.
Significant components of the difference between thestatutory and effective tax rates for the years ended March
31, 2018 and 2017 are as follows:
2018

2017

30.86%

30.86%Tax credits(6.23)(8.41)

Effect of enacted changes in tax rates
on net deferred tax assets

1.55

—

Difference in statutory tax rates
of subsidiaries(1.33)(0.11)

Others, net

0.89

0.37

Effective tax rate

25.74%

22.71%

Statutory tax rate in Japan
Adjustments:

Year ended March 31, 2018
The U.S. federal income tax rate applied to the consolidated
subsidiaries in the U.S. is reduced from 35% to 21% associatedwith the U.S. tax reform legislation signed into law on December
22, 2017.
Net deferred tax assets were reduced by ¥3,029 million($28,519 thousand) and income taxes were increased by ¥3,211
million ($30,233 thousand) as of and for the year ended March
31, 2018 resulting from this tax rate reduction.
Year ended March 31, 2017
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 priorhistorical periods relating to the transactions between the
Company and its U.S. subsidiary. As a result, ¥405 million of tax
benefit is included in current income tax expense as the difference between the current tax refunds and the estimatedamount recorded in the prior year.

12. Other Income (Expenses)
Loss on impairment of property, plant and equipment,
goodwill and other assets
For the year ended March 31, 2018, the following loss on
impairment was recognized:

Goodwill of TEL NEXX, Inc.
Loss on impairment
Location

Purposeof useAsset
Type

Billerica,
Massachusetts, U.S.A.

Business
assetsGoodwill

Millions of yen

Thousands of
U.S. dollars¥925$8,714

Tokyo Electron performed an impairment test and recognized loss on impairment of goodwill of TEL NEXX, Inc.,a subsidiary manufacturing semiconductor production equipment, due to TEL NEXX, Inc.’s reconsideration of its businessplan. Tokyo Electron recognized the difference between thebook value and the recoverable amount of goodwill as loss
on impairment. The recoverable amount was measured asvalue in use, and was calculated by discounting future cash
flows at a discount rate of 14.0%.
Loss on disaster
Loss on disaster of ¥7,521 million for the year ended March
31, 2017 represents the actual and estimated expenses relating to the recovery of buildings, production and development
facilities as well as the disposal of inventories caused by the
impact of the Kumamoto earthquake in 2016.
Loss on revision of retirement benefit plan
Effective April 1, 2018, Tokyo Electron and its domestic subsidiaries converted a part of their defined benefit plans toa defined contribution plan. The loss on revision of retirement
benefit plan of ¥3,154 million ($29,690 thousand) resulting
from this change was recognized and presented in otherincome (expenses) for the year ended March 31, 2018 inaccordance with the “Accounting Procedures for Conversion
between Different Retirement Benefit Schemes” (Corporate
Accounting Standards Implementation Guidelines No. 1) andthe “Practical Treatment of Accounting Procedures forConversion between Different Retirement Benefit Schemes”(Practical Issues Task Force No. 2).

In cases where dividend distribution of surplus is made, thelesser 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 be distributed as dividends. All additional paid-in capital and legal reserve
may be transferred to other capital surplus and retained earnings,
respectively, which are potentially available 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 11, 2018, thedistribution of cash dividends amounting to ¥56,947 million($536,026 thousand) was resolved. Such appropriations havenot been accrued in the consolidated financial statements asof March 31, 2018 since they are recognized in the period inwhich they are resolved at the board of directors’ meeting.

14. Other Comprehensive Income
Other comprehensive income for the years ended March 31, 2018 and 2017 is as follows:

2018

2017

2018

¥9,134¥4,152$85,979—(6)—

Sub-total, before tax

9,134

4,146

85,979Tax expense(2,796)(1,271)(26,322)

Sub-total, net of tax

6,337

2,875

59,6572,692

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

Net deferred gains (losses) on hedging instruments
Net deferred gains arising during the year

286

15

Reclassification adjustments

—

—

—

Sub-total, before tax

286

15

2,692

Tax expense

(87)

(4)

(823)

Sub-total, net of tax

198

10

1,869

Adjustments during the year

(297)

(933)

(2,803)

Reclassification adjustments

54

—

516

(242)

(933)

(2,286)

Foreign currency translation adjustments

Sub-total, before tax

—

—

—

(242)

(933)

(2,286)

Adjustments during the year

(5,787)

3,578(54,478)

Reclassification adjustments

(660)

291

(6,217)(6,448)

3,869(60,695)

Tax expense

1,953(1,187)

18,386Sub-total, net of tax(4,494)

2,682(42,308)

Tax expense

13. 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.

Thousands of
U.S. dollars

Millions of yen

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

Sub-total, before tax

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

(46)

114

(436)

¥1,752¥4,750$16,494

TOKYO ELECTRON ANNUAL REPORT 2018

PAGE

27

CONTENTS

To Our Stakeholders

Business Overview
and Financial Highlights

Review of Operations
and Business Outlook

Interview with the CEO

Innovation Drives the Evolutionof Semiconductors

Financial Section
Investor Information

Corporate Governance

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

Investor Information

Notes to Consolidated Financial Statements
15. Share Subscription Rights
Stock option plan
The Company’s shareholders have approved annual stock
option plans for directors and selected employees since theyear ended March 31, 1999. The options under the plans vest
immediately or over three-year period with restriction on
exercise up to three years after the date of grant, and havean exercise period of seventeen years from the date on
which the options become exercisable.
Options to purchase 144,700 shares of the Company wereauthorized and granted at an exercise price of ¥1 ($0.01) for
the year ended March 31, 2018.

A summary of stock options outstanding and exercisable as of March 31, 2018 and 2017 is as follows:
2018

2017

Weighted-average exercise price

Number ofsharesYen

U.S. dollars

Number ofshares

Weighted-average
exercise price
Yen

Outstanding at the beginning of year

457,500¥1$0.01

305,500¥1

Granted144,700

1

0.01

194,400

1

Exercised

38,6001

0.01

42,400

1

—

—

—

—

—

Expired (forfeited)
Outstanding at the end of year

563,600

1

0.01

457,500

1

Exercisable at the end of year

88,8001

0.01

127,400

1

Short-term investments consist of short term deposits
and low-risk financial instruments and Tokyo Electron tradewith highly-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 18 for detailed discussion on derivative financial
instruments.

Millions of yen

Selling, general andadministrative expenses

Thousands of
U.S. dollars

2018

2017

2018

¥1,903¥1,141$17,921

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, 2018 was ¥13,158 ($123.85) per unit,
which was evaluated as follows:(1) Valuation method used : Black-Scholes model(2) Major underlying assumptions and estimates:
13th Stock Acquisition Rights

Volatility (Note 1)

39.97%

Expected residual period (Note 2)

11.5 years

Expected dividends (Note 3)¥294.5 ($2.77) per share

Risk-free interest rate (Note 4)

0.12%

Notes: 1. Calculated based on the stock price performance for 11.5 years(from December 2005 to June 2017).
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, 2017and 2016.
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, 2018 and 2017 are set out below.
Fair value of financial instruments which is practically difficult
to estimate are excluded.

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

Thousands of
U.S. dollars

2018

2017

2018

Due within one year

¥ 3,772¥3,554$ 35,505

Due over one year

7,039

6,272

66,255¥10,811¥9,827$101,761

Total

Carrying
amountEstimated
fair value1

Cash and cash equivalents¥257,877¥257,877

Short-term investments

116,000

115,966

159,510

159,510

32,23032,2302018:

Assets Trade notes and accounts receivable, net of allowance for
doubtful accounts (¥59 million)

16. Leases

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 management of credit risk, maturity and receivable balance areconducted pursuant to the internal management rules for
credit control. Credit risk of major customers is assessed ona regular basis.

Cash and cash equivalents$2,427,314$2,427,314

Short-term investments

1,091,867

1,091,549

1,501,419

1,501,419

303,375

303,375

1,022,284

1,022,284

Assets Trade notes and accounts receivable, net of allowance for
doubtful accounts ($563 thousand)
Investment securities
Liabilities
Trade notes and accounts payable
Derivatives (see note 18)

Investment securities
Trade notes and accounts payable

108,607108,607

(7)

(7)

335

335

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 6 for further information by classification of investment
securities.
Derivatives		  See note 18 for detailed discussion on derivative financial­instruments.
2. The following financial instruments are not included in the above as
they do not have quoted market prices and therefore it is consideredextremely difficult to measure their fair value.

2018

¥882

¥1,399

15

14

141

Total

¥897

¥1,414$8,451Millions of yen

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

Short-term investments

151,000

151,060

Trade notes and accounts receivable

Assets2018:

Within 1 year

After 1 through5 years

Cash and cash equivalents¥257,877¥—

Short-term investments

116,000—

159,570—

Millions of yen

133,794

133,794

22,70422,704

Liabilities
79,217

79,2172017:

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—

Thousands of U.S. dollars

Derivatives (see note 18)
Hedge accounting not applied
Hedge accounting applied$8,3093. Maturities of financial assets and securities are as follows:

Estimated
fair value1

Trade notes and accounts payable

2018

2017

Other

Unlisted stocks

Carrying
amountInvestment securities

Thousands of
U.S. dollars

Millions of yen

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

(70)
3,154

Reported amount In balance sheet

Derivatives (see note 18)
Hedge accounting applied

(70)
3,154

Hedge accounting not applied

Liabilities

2017:

17. Fair Value of Financial Instruments

Estimated
fair value1

2018:

Hedge accounting applied

Millions of yen

Amounts expensed related to stock options
The amounts expensed related to stock options for theyears ended March 31, 2018 and 2017, are as follows:

Thousands of U.S. dollars
Carrying
amount

(306)

(306)

49

49

2018:

Within 1 year

After 1 through5 years

Cash and cash equivalents$2,427,314$—

Short-term investments

1,091,867—

Trade notes and accounts receivable

1,501,982—

TOKYO ELECTRON ANNUAL REPORT 2018

PAGE

28

CONTENTS

To Our Stakeholders

Business Overview
and Financial Highlights

Review of Operations
and Business Outlook

Interview with the CEO

Innovation Drives the Evolutionof Semiconductors

Financial Section
Investor Information

Corporate Governance

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

Investor Information

Notes to Consolidated Financial Statements
18. Derivative Financial Instruments

19. 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, 2018 and 2017 are as follows:
1. Derivative financial instruments not designated as hedging
instruments
Millions of yen

2018:

Contract
amountFair value

Gains(losses)

Sell U.S. dollars$ 6,622

$172

$172

Buy U.S. dollars

34,257

(184)

(184)
(4)

Buy Chinese yuan

14,265(4)

Buy Taiwan dollars

8,591

8

8

Buy GBP

7,727

(20)

(20)

Buy EURO

7,396

(18)

(18)

Buy Singapore dollars

6,646

(24)

(24)

$85,506$ (70)$ (70)

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

2018:

Contract
amountThousands of U.S. dollars

Fair value

Contract
amountFair value

Future transactions denominated ina foreign currency

2018:

Contract
amountFair value

Gains(losses)

Sell U.S. dollars

¥ 703

¥18

¥18

Sell U.S. dollars¥11,853¥335$111,575$3,156

156

(0)

1,474

(2)

Buy U.S. dollars

3,639

(19)

(19)

Buy U.S. dollars

Buy Chinese yuan

1,515

(0)

(0)

Buy Taiwan dollars

912

0

0

Monetary assets and liabilities in foreign
currency (Note)
Sell U.S. dollars

Buy GBP

820

(2)

(2)

Buy EURO

785

(1)

(1)

Buy Singapore dollars

706

(2)

(2)

¥9,084

¥ (7)

¥ (7)

Total

Total

555

—

5,230

—

¥12,566¥335$118,280$3,154Contract
amountFair value

Buy Chinese yuan

404

(0)

(0)

Buy EURO

71

(0)

(0)

Buy U.S. dollars
Total

Buy Singapore dollars
Total

42

(0)

(0)

¥10,379¥(306)¥(306)(19,469)

1,130,728

Depreciation and amortization

11,402701

81

12,1858,434

20,619(0)

Amortization of goodwill

600

—

—

600

—

600

Loss on impairment

925

—

—

925

—

925

16,392935

247

17,57533,722

51,297

Capital expenditures, including intangible assets
130

1,150,197

(0)

¥50

1

Sell U.S. dollars

19,894275,242¥4,117

Monetary assets and liabilities in foreign
currency (Note)

75,0681,208,705

Sell U.S. dollars

4

Total

(52,601)

Sell Korean won

0—

1,055,234¥1,130,728—

666,762(353)

4(19,469)¥

327,844¥   430

19,469541,943

(353)

668

¥1,130,728

19,469¥(57)¥   43

2,013

Sales to external customers

3,014

589

Buy U.S. dollars

425—

Consolidated

13,299¥ 6,532

Buy Taiwan dollars¥75,068—

Total

Net sales

43,963

Sell U.S. dollars

340¥1,055,234

Other

Eliminations
andCorporate

314,602

Sell Korean won

Buy U.S. dollars

FPD
production
equipment

494,964

Fair value

(0)

2018:

Semiconductor
production
equipment

Segment profit (loss)

2017:

(0)

Millions of yen

Segment assets

Future transactions denominated ina foreign currency

Gains(losses)

55

Information about reportable segment net sales, segment profit (loss), segment assets and other items
Reportable segment information as of and for the years ended March 31, 2018 and 2017 is as follows:

Intersegment sales or transfers

Millions of yen

Contract
amountSell Singapore dollars

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 by negotiation between the Tokyo
Electron group companies considering current market prices. Assets in common use have not been allocated to each reportablesegment, while costs associated with those assets have been allocated to reportable segments on a systematic basis.

Reportable Segment

2017:

Millions of yen

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 about­resources 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, etch systems, deposition systems, cleaning systems used in wafer
processing, wafer probers used in the wafer testing process and other semiconductor production equipment. The SPE segmentprincipally develops, manufactures, sells such products and provide services on them.
Products of the FPD production equipment segment consist of coater/developers and etch/ash systems used in the­manufacture of flat panel displays. The FPD production equipment segment principally develops, manufactures, sells such­products and provide services on them.

—

127

—

¥4,717¥49

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.

TOKYO ELECTRON ANNUAL REPORT 2018

PAGE

29

CONTENTS

To Our Stakeholders

Business Overview
and Financial Highlights

Review of Operations
and Business Outlook

Interview with the CEO

Innovation Drives the Evolutionof Semiconductors

Financial Section
Investor Information

Corporate Governance

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

Investor Information

Notes to Consolidated Financial Statements
Other information(1) Domestic and overseas net sales by destination for the years ended March 31, 2018 and 2017 are as follows:

Millions of yen
Reportable Segment

2017:

Semiconductor
production
equipment

FPD
production
equipment

Other

Eliminations
andCorporate

Total

Consolidated

Net sales
Sales to external customers
Intersegment sales or transfers¥749,893¥49,387438¥799,719——¥

14,372

14,372¥—¥799,719(14,372)—

Millions of yen

2018:

Net sales

Japan

North America

EuropeSouth Korea

Taiwan

China

Other

Total

¥148,760¥119,257¥96,948¥378,496¥174,636¥164,344¥48,283¥1,130,728

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

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

2017:

Segment assets

374,51327,494

2,646

404,654552,792

957,447

Net sales

8,694

418

89

9,202

8,670

17,872

Amortization of goodwill

631

—

—

631

—

631

Loss on impairment

362

—

—

362

—

362

10,881

562

472

11,917

10,34722,264

Millions of yen
Japan

North America

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.

Depreciation and amortization

Capital expenditures, including intangible assets

Thousands of U.S. dollars

2018:

Japan

Net sales

North America$1,400,233 $1,122,532

Europe$912,543

South Korea

TaiwanChina$3,562,658 $1,643,794 $1,546,914

Other

Total

$454,473$10,643,151

Thousands of U.S. dollars(2) Net property, plant and equipment by location as of March 31, 2018 and 2017 are as follows:

Reportable Segment

2018:

Semiconductor
production
equipment

FPD
production
equipment

Other

Eliminations
andCorporate

Total

Millions of yen
Consolidated

Net sales

Property, plant and equipment$9,932,551$706,597

4,001$10,643,151   —$10,643,151——

183,255

183,255(183,255)

—

Total

9,932,551

706,597

187,256

10,826,406(183,255)

10,643,151

Segment profit (loss)

2,961,247

125,179(542)

3,085,884(495,121)

2,590,762

Segment assets

4,658,932

413,81428,376

5,101,123

6,275,998

11,377,121

Sales to external customers
Intersegment sales or transfers

2018:

$

$

107,331

6,603

764

114,699

79,389194,088

Amortization of goodwill

5,652

—

—

5,652

—

5,652

Loss on impairment

8,714

—

—

8,714

—

8,714

154,292

8,804

2,332

165,429

317,414482,844

Capital expenditures, including intangible assets

Notes: 1.	“Other” includes all other operating segments which are not included in the reportable segments, including group-wide logistic services,
facility maintenance and insurance.
2. (1) “ Eliminations and Corporate” segment loss totaling ¥52,601 million ($495,121 thousand) and ¥38,294 million for the years ended March
31, 2018 and 2017, respectively, includes corporate expenses not allocated to any reportable segments. The corporate expenses consistof the Company’s research and development costs of ¥22,263 million ($209,561 thousand) and ¥17,830 for the years ended March 31,2018 and 2017, respectively, pertaining to fundamental research and element research, not allocated to any of the reportable segments,
the loss on revision of retirement benefit plan of ¥3,154 million ($29,690 thousand) for the year ended March 31, 2018 and the loss on
disaster of ¥7,521 million for the year ended March 31, 2017.
(2) “ Eliminations and Corporate” segment assets totaling ¥666,762 million ($6,275,998 thousand) and ¥552,792 million as of March 31, 2018and 2017, respectively, consist mainly of cash and cash equivalents, short-term investments and buildings not allocated to any of thereportable segments.
(3) “ Eliminations and Corporate” capital expenditures totaling ¥33,722 ($317,414 thousand) and ¥10,347 million for the years ended March 31,2018 and 2017, respectively, consist mainly of capital expenditures for buildings, machinery and equipment not allocated to any of thereportable segments.

Other

Total

¥97,610¥28,342¥125,952

Japan

U.S.A.

Other

Total

¥77,407¥11,228¥11,805¥100,441

Millions of yen

2017:

Property, plant and equipment

Thousands of U.S. dollars

2018:

Depreciation and amortization

Japan

Property, plant and equipment

Japan

Other

Total

$918,772$266,777$1,185,550(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

2018

2018

Samsung Electronics Co., Ltd.

Semiconductor production equipment and FPD production equipment¥261,544$2,461,829

Intel Corporation

Semiconductor production equipment

181,053

1,704,197

SK hynix Inc.

Semiconductor production equipment

132,146

1,243,846

Name of customer

Related reportable segment

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

Related reportable segment

2017

Intel Corporation

Semiconductor production equipment

Taiwan Semiconductor
Manufacturing Company Ltd.

Semiconductor production equipment

127,621

Samsung Electronics Co., Ltd.

Semiconductor production equipment and FPD production equipment

112,151

Micron Technology, Inc.

Semiconductor production equipment

84,111

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

¥143,488

TOKYO ELECTRON ANNUAL REPORT 2018

PAGE

30

CONTENTS

To Our Stakeholders

Business Overview
and Financial Highlights

Review of Operations
and Business Outlook

Interview with the CEO

Innovation Drives the Evolutionof Semiconductors

Corporate Governance

Financial Review
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Comprehensive Income
Consolidated Eleven-Year Summary
Notes to Consolidated Financial Statements
Independent Auditor’s Report
Consolidated Statements of Changes in Net Assets
Consolidated Subsidiaries
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, 2018 and 2017, and­unamortized balances as of March 31, 2018 and 2017 are as follows:
Millions of yen
Semiconductor
production
equipment

FPD
production
equipment

Total

Amortization of goodwill

¥ 600

¥—

¥ 600

Goodwill

1,699

—

1,699

2018:

Millions of yen
Semiconductor
production
equipment

FPD
production
equipment

Total

Amortization of goodwill

¥ 631

¥—

¥ 631

Goodwill

3,376

—

3,376

2017:

Thousands of U.S. dollars
Semiconductor
production
equipment

FPD
production
equipment

Total

Amortization of goodwill$ 5,652$—$ 5,652

Goodwill

15,998—15,9982018:

20. Per-Share Information
Net income per share and net assets per share are computed based on the weighted-average number of shares of common
stock outstanding during each year. Net income-diluted per share is computed based on the weighted-average number ofshares of common stock outstanding during each year after incorporating the dilutive potential effect of shares of common
stock to be issued upon the exercise of stock options.
Dividends per share has been presented on an accruals basis and include, in each fiscal year ended March 31, dividends
approved or to be approved after March 31 but applicable to the year then ended.
The basis for the calculation of net income per share for the fiscal years ended March 31, 2018 and 2017 is as follows:
Thousands of
U.S. dollars

Millions of yen

2018

2018

2017

Net income (loss) per share of common stock - Basic¥204,371¥115,208———

Net income pertaining to holders of common stock¥204,371¥115,208$1,923,674

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

164,090

164,054

Net income attributable to owners of parent
Less components not pertaining to holders of common stock$1,923,674

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

Increase in number of common stock (Thousands of share)

562

446

562

446

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

Financial Section
Investor Information

Investor Information

TOKYO ELECTRON ANNUAL REPORT 2018

PAGE

31

CONTENTS

To Our Stakeholders

Business Overview
and Financial Highlights

Interview with the CEO

Review of Operations
and Business Outlook

Innovation Drives the Evolutionof Semiconductors

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

Consolidated Subsidiaries  (As of March 31, 2018)
JAPAN

Corporate Name and Head Office:• Tokyo Electron Miyagi Limited• Tokyo Electron FE Limited

Established:• Tokyo Electron Kyushu Limited• Tokyo Electron BP Limited

November 11, 1963

• Tokyo Electron Agency Limited

Annual General Meeting of
Shareholders:U.S.
• Tokyo Electron U.S. Holdings, Inc.
• Tokyo Electron America, Inc.
• TEL Technology Center, America, LLC• TEL Venture Capital, Inc.

Investor Information

Investor Information (As of March 31, 2018)
Tokyo Electron Limited
Akasaka Biz Tower
3-1 Akasaka 5-chome, Minato-ku,
Tokyo 107-6325, Japan• Tokyo Electron Technology Solutions Limited

Financial Section
Investor Information

Corporate GovernanceCommon 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
35,186

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)

www.tel.com• TEL Epion 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• Tokyo Electron Singapore Pte. Limited

33 consolidated subsidiaries in total, including the above 20 companies

Principal Shareholders:
The Master Trust Bank of Japan Limited (trust account)
Japan Trustee Services Bank Limited (trust account)
Tokyo Broadcasting System Holdings, Inc.
JP Morgan Chase Bank 380055
Trust & Custody Services Bank, Limited(securities investment trust account)
State Street Bank West Client Treaty 505234
Japan Trustee Services Bank Limited (trust account 5)
Japan Trustee Services Bank Limited (trust account 4)
Japan Trustee Services Bank Limited (trust account 7)
JP Morgan Chase Bank 385151

Number ofshares held
(thousands)

Votingshare ratio(%)

28,747
18,432
7,727
4,536

17.51
11.23
4.70
2.76

3,220

1.96

2,932
2,548
2,446
2,206
2,099

1.78
1.55
1.49
1.34
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 (1,097,342 shares). Figures are truncatedafter the second decimal place.

Distribution of Ownership among
Shareholders:
Treasury stock
0.66%

Japanese financial institutions
and securities companies
48.42%

Other Japanese
corporations
5.62%

Japanese individuals
and others
6.68%

Foreign institutions
and others
38.62%

Stock Price and Trading Volume(Thousands of shares)(Yen)
25,00020,00015,00010,0005,000 Stock price

100,000

0 Trading volume

50,0000

CY2013

CY2014

CY2015

CY2016

CY2017

CY2018