Annual Report 2008
For the Year Ended March 31, 2008

Tokyo Electron Limited  Annual Report 08

C0ntents

1
2
4

		
		

8
14
		

16
18
20
23

P r o f i l e / TEL V a l u e sConsolidated Financial Highlights
To Our Stakeholders
4	Tetsuro Higashi, Chairman & CEO
6	Kiyoshi Sato, President & COO

Management Interview
FeatureSemiconductor Manufacturing Technology: Bringing Together Science’s BestTokyo Electron at a GlanceR e s e a r ch a n d D e v e l o pm e n t
Corporate Governance

Board of Directors, Statutory Auditors and		E x e c u t i v e O f f i c e r s

24
26
27
54
55

E n v i r o n m e n t a l , H e a l t h a n d S a f e t y Ac t i v i t i e sIntellectual Property Report
Financial Section
G r o u p C o mp a n i e s
Investor Information

Disclaimer Regarding Forward-looking Statements
Matters discussed in this annual report, including forecasts of future business performance of Tokyo Electron, management
strategies, beliefs and other statements are based on 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 and FPD markets• Changes in the demand for products and services manufactured or offered by Tokyo Electron’s customers, such as semiconductor manufacturers, FPD manufacturers and 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 34.

Annual Report 08 Tokyo Electron Limited

P r o f i l e / T EL V a l u e sTokyo Electron Limited (TEL) is a world-leading supplier of semiconductor production equipment (SPE) and flat panel display (FPD) production equipment. We provide a broad lineup of products that offer superior process performance andhigh productivity and related services to semiconductor and LCD panel manufacturers around the world.
An unwavering commitment to customer satisfaction that dates back to our founding in 1963 has cemented our position as the market leader. Our competitive strength lies in our capability to proactively and precisely identify real customer
needs and respond to them with cutting-edge technology and products.
With a global network that spans Japan, the U.S., Europe and Asia, we are opening up new frontiers for digital networks by contributing to enhancing our customers’ production lines through untiring dedication to technology innovation.

T E L Va l u e s
We have defined and built TEL’s values
over the years, and we will continue torefine and build on them in the future.

Pride
We take pride in providing high-value
products and services.

Awareness
We must have awareness andaccept responsibility for our behavior
as respectful members of society.

Teamwork
We respect each other’s individuality
and we place a high priority on
teamwork.

Challenge
We accept the challenge of going
beyond what others are doing inpursuing our goal of becoming
number one globally.

Ownership
We will keep ownership in mind as
we think things through, and engage
in thorough implementation in orderto achieve our goals.

1Tokyo Electron Limited  Annual Report 08

C O N SOLI D A T E D FI N A N C IAL H I G H LI G H T S

Thousands of
U.S. dollars

Millions of yen

Years ended March 31

2004

2005

2006

2007

2008

2008

¥529,654¥635,710¥673,686¥851,975¥906,092$9,043,737

For the year: Net sales.................................
Operating income...................

22,28063,98375,703

143,979

168,498

1,681,785 Income before income taxes....

14,93655,77575,328144,414169,220

1,688,991 Net income.............................

8,297

61,601

48,006

91,263106,271

1,060,695

Depreciation and amortization.

24,963

21,463

19,17018,82021,413

213,724

Capital expenditures...............

11,007

9,876

13,33527,12922,703

226,599

R&D expenses........................

44,15043,88949,18256,962

66,073

659,477

Free cash flows.......................

(661)

106,900

68,31729,00486,753865,884

Operating margin....................

4.2%

10.1%

11.2%

16.9%

18.6%

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

3.1%

20.3%

13.5%

21.8%

21.4%
Thousands of
U.S. dollars

Millions of yen

At year-end:
Total assets.............................

¥561,632¥644,320¥663,243¥770,514¥792,818$7,913,145

Total net assets   (Total shareholders’ equity)....

275,800

332,165

376,900

469,811545,2455,442,110

Yen

U.S. dollars

Per share: Net income—Basic.................

¥   46.37¥ 343.63¥ 267.61¥ 511.27¥ 594.01$     5.93

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

10.00

45.00

55.00

103.00125.001.25

Notes: 1. U.S. dollar amounts are translated from yen, solely for convenience, at the prevailing exchange rate on March 31, 2008, of ¥100.19=U.S.$1.
2. Depreciation and amortization does not include amortization and loss on impairment of goodwill.
3. Effective from fiscal 2005, Tokyo Electron changed its method of revenue recognition upon receiving customer confirmation of product set-up and testing of products for
Semiconductor and FPD production equipment. The effect of this change decreased net sales, operating income and income before income taxes by ¥80,956 million,¥20,541 million and ¥20,563 million, respectively, for fiscal 2005, compared with the corresponding amounts which would have been recorded if the previous method had
been applied.
4. Effective from fiscal 2005, Tokyo Electron changed its method to account for after-sale repair expenses by recording accrued warranty expenses for Semiconductor and FPD
production equipment. The effect of this change decreased operating income and income before income taxes by ¥635 million and ¥13,106 million, respectively, for the year
ended March 31, 2005, compared with the corresponding amounts which would have been recorded if the previous method had been applied.

2

Annual Report 08 Tokyo Electron Limited

Record-high Sales and Earnings
Operating income(Millions of Yen)

(Millions of Yen)

1,000,000

200,000

(%)

20

15

05

06

07

4.2

Net income

0
04

08

05

06

07

08

Free cash flows(Millions of Yen)

68,317

0

15

–661

06

07

0
04

08

05

06

Net income per share

Cash dividends per share

(Yen)

(Yen)

600

21.8

21.4

07

08

13.5

5

–30,000
05

08

10
29,00448,006

61,601

30,000

8,297

04

07

20.3

20
86,753106,271

91,26390,00060,000006

25

60,00030,00005(%)

120,000

90,00004

ROE(Millions of Yen)

120,000

11.2

5

0
04

10.1

10

75,70322,280063,98350,000168,498

150,000

100,000

200,000

18.6
16.9

143,979

673,686

Operating margin

106,900

400,000

529,654600,000

635,710

851,975

800,000

906,092

Net sales

07

08

3.1

04

05

06

120

125.00450103.00511.27594.01

150

90

10.00

46.37

0

55.00

30

45.00

150

60

267.61

343.63

300

0
04

05

06

07

08

04

05

06

07

08

3

Tokyo Electron Limited  Annual Report 08

T O OUR St a k e H OL D ERS

In fiscal 2008, the year ended March 31, 2008, Tokyo Electron posted net sales of ¥906.1 billion, operating
income of ¥168.5 billion and net income of ¥106.3 billion. All of these figures represent new record highs for theCompany. With this performance, we believe that the Company’s overall growth framework for the future has
been demonstrably strengthened. We increased the dividend by ¥22 from last year to ¥125 per share, which is
the largest dividend in the Company’s history. We are deeply grateful to all of you for your continued support.
Turning attention to future market trends, the IT market, in which the Company operates, has entered anadjustment phase, and the environment remains harsh. However, forecasts are for the IT market to recoverand return to a growth track from 2009 onward.
Under these conditions, Tokyo Electron redoubled its efforts in R&D, the source of future growth, and took
steps to further enhance its financial structure. We also started considering new strategies for achieving
growth over the medium to long term. An overview of these measures is provided below. We remain committed to working in unison to build a company full of vision and energy under the key words ‘innovation,’‘growth’ and ‘environment.’

Overview of Tokyo Electron’s New Growth Strategies
The electronics industry, in which Tokyo Electron operates, and the information and telecommunications
technology field in particular, is becoming increasingly important globally. The reason is that it supplies
core technologies for various industries expected to demonstrate high growth in the future, including the
medical, educational, financial, automotive, aerospace, safety and environmental fields. As core technologies supporting these industries, Tokyo Electron’s products have contributed greatly to the development ofindustry along with its technological innovations. Looking ahead, the technological innovation of these4Annual Report 08 Tokyo Electron Limited

Aiming to further enhance Corporate Value
through ‘Innovation’ and ‘Growth’
Tetsuro Higashi, Chairman & CEO

fields themselves is expected to be accompanied by additional growth supported by new advances incorporating technologies in the adjacent fields of nanotechnology, biotechnology and MEMS technology.
Tokyo Electron reaffirms its commitment to continue its unremitting endeavors with regard to the existingproducts and technologies that are the cornerstone of its business, as well as new fields adjacent to them.
In this way, we will take the lead on a worldwide scale through ‘Innovation’ and ‘Growth.’
Furthermore, while technological development contributes to an improved quality of life for humans, it canalso have an adverse impact upon safety and the environment, and if not addressed, this situation could
speed up the depletion of global energy resources and the degradation of the global environment. Tokyo
Electron intends to contribute to the healthy development of humankind, and the Company acknowledges
that one of its most important missions is to contribute to reducing environmental impact, both as a global
phenomenon, and as an issue inherent within the technological fields in which it is active.
I would like to thank all of our stakeholders for their ongoing support, and their belief in Tokyo Electron’s
potential for further growth.

Tetsuro Higashi, Chairman & CEO

5

Tokyo Electron Limited  Annual Report 08

T O OUR St a k e H OL D ERS

Addressing environmental issues with advanced technologies
and supplying the world with High-value-added technologies
and services
Kiyoshi Sato, President & COO

Supported by brisk semiconductor capital expenditures over the past several years, Tokyo Electron posted
higher sales and earnings again in fiscal 2008, posting record high numbers for the second consecutive year. By
application, capital investment was concentrated on DRAM and NAND flash memory, and these categories werethe major sales drivers. By region, sales increased in Asia and Japan but contracted in Europe and the U.S.,
indicative of further progress in the shift of semiconductor manufacturing to Asia. In 2007, the s­ upply-demandbalance for memory chips destabilized, and semiconductor production equipment orders started to decelerate.
However, because of our ample order backlog, we were still able to clear our semiconductor production equipment sales target. Conversely, sales in the FPD production equipment division were weak. However, orders
rebounded in the second half of the fiscal year, and this should contribute to sales in fiscal 2009. As a result, weachieved our initial target for sales of ¥900 billion and surpassed our target for the operating income margin with
18.6%. We thank all of you for your support in achieving and surpassing our goals.
For the fiscal year ending March 31, 2009, given that we are starting with a low order backlog, we assume
that conditions will be challenging. Even so, because of the cyclical nature of the semiconductor and FPD
production equipment markets, we are taking additional steps to control expenses while moving aggressively
ahead with R&D aiming to generate substantial growth during the next upturn in the cycle.
Accomplishments outside of financial performance in the previous fiscal year include progress in plantreform. On the manufacturing side, we started operations at a new facility at Tokyo Electron Kyushu Limited,commencing high-efficiency production of key products. Moving forward with our objective of realizing plants
with even higher efficiency, we procured a site for a new facility in Miyagi Prefecture, with plans to complete
construction in 2010. On the development side, we established Tokyo Electron Technology Development
Institute, Inc., and worked to develop product groups centered on new plasma technologies. We expect6Annual Report 08 Tokyo Electron Limited

these products to become the nucleus for the creation of new businesses. We also made inroads into newfields by establishing a joint venture with Sharp Corporation for the development of photovoltaic cell production equipment. Having declared improvement of the global environment as one of its corporate missions,Tokyo Electron views equipment for manufacturing energy-saving devices and photovoltaic cells in particular
as fields in which it could apply its technologies. We intend to aggressively pursue these fields, as they havethe potential to address societal demands as well as expand into major businesses over the long term.
With these moves, we are laying various stepping stones for Tokyo Electron to grow over the medium to longterm. We ask for your continued support.

Kiyoshi Sato, President & COO

7

Tokyo Electron Limited  Annual Report 08

m a n a g e m e nt Int e r v i e w

Question &AnswerTetsuro Higashi
Chairman & CEO

In this section, Chairman
Higashi and President Sato
are asked about market
trends and Tokyo Electron’s
strategies and actions.

Kiyoshi Sato
President & COO

Q1: Tokyo Electron posted record earnings in the fiscal year to March 31,
2008. How would you sum up the year?
>> The various reforms we have been implementing produced
enormous benefits during the fiscal year.
Tokyo Electron achieved record earnings on all counts – sales of ¥906.1 billion, operating
income of ¥168.5 billion and net income of ¥106.3 billion. I think we can be very proud ofthese record profit and margin levels, which were achieved as a result of determined efforts
to enhance profitability during the three years or so covered by our first medium-termbusiness plans.
Broadly speaking, two areas of strategic focus led to this improvement in profitability.
First, the creation of new, high-value-added products. As semiconductor manufacturing

Net Sales, Operating Income andOperating Margin

processes have become more sophisticated and customer needs have diversified, we havedeveloped products with higher performance and higher productivity and delivered them to(Billions of yen)

1,200

18.6%

The second area of focus was the strengthening of our manufacturing capability. By overhauling all of our processes, including development, design, procurement and production
technology, we have improved efficiency in the manufacturing process while at the same timeshortening the manufacturing lead time and startup period after product delivery. We were also

635.7

529.6

673.7

600

11.2%

852.0

10.1%

906.1

900

300

able to realize both cost reduction and customer satisfaction, through quality-enhancing mea-

06

07

168.5

05

sures such that enable us to reduce the warranty expenses incurred at our customers’ site.
144.0

75.7

04

64.0

22.3

4.2%

0

08

Net sales
Operating income
Operating margin
Note: Effective from fiscal 2005, the Company made certain changes inaccounting polices as discussed in the notes to consolidated
financial highlights.
nn
nn

8

the market in a timely manner. As these products entered the volume production phase lastyear, significant improvement in sales and profitability was achieved.

16.9%

Thanks to reforms such as these, we achieved an operating margin of 18.6%, far
exceeding the 17.0% medium-term target we set three years ago. One of the important
issues we have been continuously tackling is to generate cash synchronized with sales.
Here too, there was a substantial increase in free cash flow to ¥86.8 billion, in spite ofgreater demand for working capital.

Annual Report 08 Tokyo Electron Limited

Q2: Tokyo Electron’s share of the global front-end semiconductor production equipment (SPE) market has grown even further. What are thereasons for this?

been widely adopted, especially in the rapidly growing markets inWorldwide Wafer FAB Equipment Market and TEL Market Share
(Billions of US$)60

the Asian region, enabling us to increase our share of the frontend SPE market.

12.9%

During the fiscal year, investment in cutting-edge facilities for the production of high-­

14.0%

13.4%
12.6%

40 11.6%

capacity DRAM and NAND flash memory increased in the Asia region, including in Japan.

20

Demand for our products from memory manufacturers who require both advanced process0

performance and higher productivity is rising. In particular, our sales in Taiwan, with its concentration of DRAM manufacturers, increased about 1.8-fold year on year.

32.5

16.7

this has driven our growth.

26.0

ers demanding high-performance equipment have welcomed our products. I believe that28.4

We provide extremely significant backup capabilities for our customers in Asia, and custom-

35.8>> New products tailored to our customers’ requirements have

(Calendar Year)

03

04

05

06

07

Source: Gartner, April 2008, GJ08326
nnWorldwide Wafer FAB Equipment Market
TEL market share

Q3: There has been a shift in the order volume
since around autumn 2007. What are
your views on future market trends?
>> There will be a dip in capital expenditure in the SPE market this year, but theflat panel display (FPD) production
equipment market is headed for substantial growth.
Aggressive capital expenditure in 2007 on high expectations of growth in demand for memory products disrupted the supply/demand balance inthe memory market, so 2008 is likely to be a difficult year in terms of capital investment.
However, as storage media for consumer devices, DRAM and NAND flash memory arelikely to propel the market going forward, which should lead to improvement in the supply/
demand situation followed by a recovery in customers’ capital expenditure in the not-toodistant future.
In the FPD production equipment market, meanwhile, liquid crystal panel makers are
ramping up capital investment to meet the expansion in demand for digital TVs, with a focus
on equipment primarily for the production of large substrates, so there will probably be ashift to significant growth from the latter half of 2008.

9

Tokyo Electron Limited  Annual Report 08

Q4: What initiatives are you implementing to achieve even greater growthwhen the next silicon cycle peaks?
>> We are aiming to further strengthen process development sothat we can surge ahead when the next growth period comes andbolster R&D in order to cultivate new fields. We are also looking toenhance our manufacturing technology so as to achieve maximum
manufacturing efficiency.
The first initiative is growth in existing fields. We will develop technologies that meet ourcustomers’ requirements, including further miniaturization and technologies for devices withlower power consumption, and roll them out in new products. Needless to say, technologicaldevelopment will be the source of growth. Particularly in semiconductor process development, it used to be that customers took the lead role in development, but now many customers are focusing on circuit design and software development, and equipment
manufacturers are expected to undertake part of theprocess development. Over the past few years, wehave refocused our attention on strengthening ourprocess development capabilities, with a certain levelof success. Still, I think there is room for us to do morein this area. From a medium-term perspective, I therefore think it will be important for us to strengthen collaboration with universities and R&D bodies, as well as
to reinforce our process development engineering.

Toward More Growth
Achieved record sales and profit
Achieved 18.6% operating margin
Restored operating margin to 10%

New growth strategy
Second medium-term management plan

First medium-term management plan

Structural reform period
s2EDUCED FIXED EXPENSES
s!DJUSTED INVENTORY

FY2002 – FY2004

10

s&URTHER IMPROVE OPERATING MARGIN

s%NHANCED NEW PRODUCT CREATION
s3TRENGTHENED MANUFACTURINGs)MPROVED BUSINESS EFFICIENCY

FY2005 – FY2008

FY2009 –s$EVELOP NEW BUSINESSES

Annual Report 08 Tokyo Electron Limited

The second initiative is the scale of expansion through new business development. In
addition to our mainstay semiconductor and FPD production equipment operations, in theenvironmental/clean energy field we will press ahead with the commercialization of CVD(chemical vapor deposition) systems for thin-film PV (photovoltaic) cells. For making SiC (Siliconcarbide) devices which contribute to energy saving, we will also develop SiC epitaxial equipment,
and help to realize the practical use of SiC devices at higher quality and lower cost. We are also
tackling environmental issues through technology, with a focus on designing equipment tomeet environmental standards.
The third initiative is manufacturing reform. In August 2007, our new No. 3 factory at the
Koshi Plant became operational, and subcontractors previously dispersed around the
Kyushu region were consolidated there. This move eliminated time needed for truck transportation, packing/unpacking and delivery inspections, and has contributed to shorter manufacturing lead time, lower distribution costs and enhanced quality. These positive results
are now benefiting other group plants.

Q5: Tokyo Electron is planning to construct a plant in Miyagi Prefecture tofunction as a new production base. Please tell us about your plans
for this plant.
>>The etch system market is expected to grow significantly in themedium to long term. By integrating our technology development
and production bases, which are currently separated, we are aiming
to further increase the scale of our revenues and raise profitability.
Going forward, we anticipate continued strong growth in the SPE market, with substantial
growth in the etch systems market in particular. Thus far, we have carried out the development and production of etch systems – one of Tokyo Electron’s mainstay businesses – atseveral different sites. However, due to increasing space constraints, we are constructing a
new base in Miyagi Prefecture where we will consolidate our etch system operations.

11

Tokyo Electron Limited  Annual Report 08

In the SPE sector, technological innovation is fast paced, and as our business relies on
the development of new technologies, it is vital for us to secure outstanding humanresources. We already have an operational base in Miyagi Prefecture, and we expect theregion to also provide us with strong backup resources, enabling us to develop cuttingedge technologies through the recruitment of talented personnel from the region’s manyeducational institutions, as well as through industrial-academic collaboration.
At the new plant, which is scheduled to commence operations in 2010, we intend toestablish a structure for manufacturing the highest-quality equipment in the world with evengreater efficiency. In constructing a base that integrates technology development, design andmass production, we aim to establish a competitive edge and enhance productivity. The
Kyushu Plant initiatives mentioned above will also be developed at the new plant, and we will
be looking to shorten manufacturing lead time and cut logistics costs by consolidating production within the plant with the participation of our suppliers. We plan not only to alleviate theenvironmental impact in terms of logistics, but also to tackle environmental issues proactively
in areas such as energy-saving design. We are very excited about the prospects for futurebusiness expansion that our new 21st century plant will bring.

Q6: Please tell us about Tokyo Electron’senvironmental initiatives.
>> It is crucial for management totackle environmental issues, and there
are also significant business
opportunities.
Climate change and global warming are issues ofgreat concern, and there have been calls for concrete measures to be adopted to tackle global
warming in the industrial sector. A wide range of measures and regulations has beendrafted, but only technological innovation in terms of emissions reduction and energy
conservation can resolve these issues. Developing these technologies into a large-scalebusiness in response to global demands will make a significant contribution to society.
For Tokyo Electron, an important issue is how to develop products that have a low environmental impact, and particularly how to cut down on energy consumption. It is also importantto reduce the gasses, chemicals and water used in semiconductor manufacturing processes.
Moreover, we can have a much broader social impact by developing equipment and processes that help to reduce the amount of power consumption of semiconductor and display
products themselves. I also think we can do more in terms of product transportation, as there
are many other possible solutions to tackle global warming, such as switching from air to sea
transport and choosing plant locations that minimize the distance traveled by trucks.
12Annual Report 08 Tokyo Electron Limited

Another important initiative is helping to tackle global warming through the solar PV production equipment market. PV cells are attracting interest as clean energy devices, andefforts are being stepped up to apply this technology to large-scale power generation.
Given the ideal environmental performance of this technology, we anticipate strong growthin the PV market over the longer term, and hence also in the market for PV production
equipment. The goal is to achieve a power generation cost equivalent to thermal power by
2030. A wide range of technological innovations can be expected during this time, in turnproviding numerous opportunities to enhance production equipment technology.
We had already conducted extensive exploratory research into PV production equipment when we announced our entry into the PV production equipment market in February
2008. Together with Sharp Corporation, we have established a new joint venture company, specializing in development, to commercialize plasma CVD systems for use in thinfilm silicon PV cells. The thin-film silicon PV cell, a type of solar cell containing a thin layerof silicon deposited on a glass substrate, has attracted much interest in recent years.
These cells can be produced inexpensively and could become widespread in the future.
We plan to develop high-productivity plasma CVD systems for thin-film silicon PV, shipping the first products in 2009.

Addressing Environmental Issues With Technology
Our mission and responsibility—and a major business opportunity
Enhance the energy efficiency of Tokyo Electron products
Provide manufacturing equipment forenergy-saving devices
Provide manufacturing equipment for clean energy

13Tokyo Electron Limited  Annual Report 08

F e at u r e

Semiconductor Manufacturing Technology:

Bringing Together Science’s Best
Fabrication of LSI circuits requires precision equivalent to targeting a 5mm line-width
LSI circuits of approximately 1cm are formed from disc-shaped silicon
within a 30km-diameter circle
2

wafers 30cm in diameter. The most advanced manufacturing technolo-

30km diametergies enable fabrication of transistors in an LSI circuit on a scale as small
as less than 50 nanometers (nm),*1 allowing several hundred million transis-

Central Tokyo

tors to be incorporated into one LSI.
In terms of precision, 50nm LSI circuit fabrication on a silicon wafer
30cm in diameter is equivalent to 5mm fabrication on a circle 30km indiameter—an area that would hold the 23 wards of Central Tokyo.
*1 1 nanometer=1 billionth of a meter

The level of precision requiredin semiconductor fabrication× 100,000

is equivalent to targeting

30nm

a 5mm line-width within a
30km-diameter circle

Microfabrication

Silicon wafer

30cm diameterTokyo Electron develops and supplies semiconductor production
LSI fabrication involves the formation of transistors or interconnects on a

ing the pattern to light, and then developing the exposed pattern. A coater/

silicon wafer through repeated circuit pattern formation processes

developer is used in the lithography process to evenly apply the photoresist

including lithography, etching, cleaning, deposition, doping, planariza-

while spinning the wafer at a high speed and then to develop the pattern.

tion and other processes.

Following the lithography sequence, the wafer is etched to create

The lithography process involves a series of pattern transcription steps

circuit elements. Sections of the films not covered by the resist areincluding coating a photoresist (light-sensitive agent) onto a silicon wafer,removed using etching gas in a plasma state in the reaction chamber ofprojecting a mask pattern onto the wafer using a stepper/scanner, expos-

an etching system.

Semiconductor Manufacturing Process Flow
Oxide film formation, Nitride film formation

Patterning*
Photoresist coating

Exposure
Glass mask

SiN film
Oxide thin film

Development

Etching

In a developer module, thewafers are uniformly covered
with developing agent. With apositive photoresist, only the
portions exposed to UV lightdissolve in the developer
solution, forming a mask pattern.

A plasma dry etch system isused to strip the films in accordance with the mask pattern.
The portion protected by thephotoresist remains intact, thus
preserving the original pattern
structure under the resist.

UV light

Photoresist

Silicon wafer

Wafers are placed in a hightemperature furnace. O2 gas isstreamed over the wafers toform an SiO2 film on the surface.
Next, an SiN film is formed on
top by the CVD method using
SiH4 and NH3 gases.

The wafers are then uniformly
coated with photoresist via ahigh-speed spin in a coater.
The resist characteristics
change when the coating is
exposed to ultraviolet (UV) light.

Glass masks with IC patterns
are aligned over the wafers. UVlight is then applied using a
stepper to transfer the patterns
to the photoresist.

* Patterning: The process of forming circuit patterns by means of a photolithography method. Patterning takes place at a number of stages during front-end processing.

14

Annual Report 08 Tokyo Electron Limited

Semiconductors, LCD Panels and Photovoltaic Cells—
Different Products, Similar Fabrication Technologies
The front-end processing (wafer processing) that takes place in semi-

In semiconductors, technological themes are miniaturization, higher

conductor manufacturing is highly similar to that performed when manu-

speed, and lower energy consumption. Themes for LCD panels arefacturing LCD panels (TFT*1 array processing). Lithography, etching, andlarger sizes and higher resolution, while high conversion efficiency is thethin-film formation and other techniques used in semiconductor produc-

key objective with PV cells. Making these attributes possible in a highlytion are also used in the manufacturing of LCD panels.

reliable manner is the role of production equipment manufacturers, andThe difference is that while semiconductors are formed on a sub-these themes will also be the driving force for growth in each respective

strate consisting of a 300mm round silicon wafer, LCD panels areequipment market.

formed on quite large sheets of rectangular glass that can be up to two

Going forward, in addition to semiconductor and FPD production

meters on each side. Moreover, semiconductors, which require highequipment, Tokyo Electron will look to PV cell production equipment as

integration, are fabricated on an ultra-precise nanometer*2 scale, while

another new pillar for growth.

LCD panels are fabricated on a micrometer*3 level.

*1 TFT: Thin Film Transistor*2 1 nanometer=1 billionth of a meter*3 1 micrometer=1 millionth of a meter

The manufacturing method for these LCD panels is also similar to

Common production technologies

that for producing thin-film silicon photovoltaic (PV) cells, which are
drawing significant attention as a clean energy technology. Processing

Semiconductor
manufacturing technology

these PV cells does not require fine patterning, but it is based on a technique in which a thin film of silicon is formed on a glass substrate via aplasma CVD method, which uses almost the same materials.

Thin-film PV cellmanufacturing technology
LCD manufacturing
technology

equipment capable of nanoscale microfabrication
Oxidation/diffusion systems or LPCVD (low-pressure chemical vapor

tungsten (W), for example. CVD is a method of forming layers of thin

deposition) systems, thermal processing systems, are used to form

films on a wafer using heat or plasma energy to cause a chemical reac-oxide or nitride dielectric films on the wafer.

tion with the gas materials used.

A cleaning system is used to remove residual materials or particles
following the processes of photoresist strip, CVD and others.

Focusing on the wafer fabrication processes, Tokyo Electron supplies a wide range of products that play key roles in manufacturing

Single wafer CVD systems create metal films that form the contacts

advanced semiconductors.

between the transistors and interconnects using titanium (Ti or TiN) or

Gate formation, Source/Drain formation

Contact formation

Interconnect formation

Ashing / Cleaning

Wafer test
Probe testing

Gate

Contact plug

Impurities
Isolation
SourceAfter the etch process, thephotoresist is removed byplasma oxidation. The wafers
are then dipped in chemicalsolvents to remove particles
and impurities.

Drain

A gate dielectric is formed
through oxidation, followed byplasma nitridation. A gateelectrode is then deposited andpatterned to create source/
drain regions. The impurities
are implanted into theseregions, and then uniformly
diffused through annealment.

A pre-metal dielectric isdeposited by CVD and thenplanarized. Contact holes areformed using a patterning
process and filled with metal
film using CVD. Excess metal isremoved by polishing.

A low-dielectric-constant film isdeposited. Trenches are formedin the film through a patterning
process. The trenches are filledwith metal film, and the excess
metal is polished away. These
processes are repeated tocreate a multi-level interconnect.

Each fabricated wafer contains
several hundred identical LSI
chips. Prober pins makecontact with chips and transmit
an electrical signal to test theirelectrical characteristics.

15

Tokyo Electron Limited  Annual Report 08

T o k y o E l e ct r o n a t a G l a nc e

Semiconductor Production Equipment
Semiconductor devices (IC chips) are the key componentsof PCs, mobile phones and other digital products. Tokyo
Electron offers a wide range of equipment for producing
these devices, which it provides to semiconductor manufacturers around the world together with superior technicalsupport and service.
Tokyo Electron has a lineup of six product groups that
includes coater/developer, plasma etch system, thermal
processing system, single wafer deposition system andcleaning system used in wafer processes, as well as wafer
prober used in testing processes.

Main Products• Coater/Developer• Plasma Etch System
Dielectric Etch System, Silicon Etch System• Thermal Processing System• Single Wafer Deposition System
CVD System, Plasma Processing System• Cleaning System

Coater/Developer
CLEAN TRACK TM LITHIUS Pro™

Auto Wet Station, Single Wafer Cleaning System,
Pre-clean System, Scrubber System• Wafer Prober• Imported Product

Thermal Processing System
TELINDY PLUSTM

80.2%
FY2008

12.3%

Auto Wet Station
EXPEDIUS TM+

7.5%

Electronic Components and Computer Networks

FPD Production Equipment

Tokyo Electron has developed a new type of model for thisbusiness, consisting of a “trading business” for sales, inwhich it acts as a distributor of a wide array of sophisticatedelectronic components together with a “development business” that designs and develops products in response tocustomer needs, as well as our own in-house brand products. Business operations for this segment are handled by
Tokyo Electron Device Limited.

Tokyo Electron supplies LCD panel manufacturers with
flat-panel display (FPD) production equipment used to manufacture displays for PCs, LCD TVs and other electronic
devices, along with solid technical support and service.
The product lineup includes FPD coater/developer and
FPD plasma etch/ash system. The size of substrates handled by such equipment is increasing each year with thegrowing popularity of large-screen LCD TVs.

Main Products

Main Products• Semiconductor Products• Computer Networks• Software• Boards and General Electronic Components• FPD Coater/Developer• FPD Plasma Etch/Ash System

inrevium™
Developed by Tokyo Electron Device Limited

16

FPD Plasma Etch/Ash System
ImpressioTM

Annual Report 08 Tokyo Electron Limited

800

400

4%
4%

726.4

642.6

600

27%

FY2008

35%

15%

200

10% 5%
0
06

07

08

n Japann U.S.
n Europe
n South Korea
n Taiwann China
n Southeast Asia

Sales by Region

Net Sales(Billions of yen)

120

7%

90
60

100.8

Overview of FY2008• Business environment: Capital investment was sluggish due tothe deterioration in the supply/demand balance for LCD
panels, which has continued since the latter half of 2006.
• Sales: Down 32.5% year on year to ¥68.0 billion• Sales to Taiwan dropped 63.1% year on year
• Sales were concentrated in products for 7th- and 8th-generation
large substrates.
• Orders recovered in the second half as the supply/demandbalance for LCD panels improved, increasing full-year orders
by 94.2% to ¥129.9 billion.

(Billions of yen)

22%
FY200868.0

FPD Production Equipment

Sales by Region

Net Sales

486.9

Overview of FY2008• Business environment: The first half was robust due to active
capital investment, mainly for semiconductor memory products.
The second half saw deterioration of the supply/demand balance and scaling back of investment.
• Sales: Up 13.0% year on year to ¥726.4 billion• Sales to Taiwan rose the most at 79.8% year on year, followed
by a 9.2% rise in sales within Japan.
• Sales were up for all product lines, with the exception of wafer
probers.
• Orders entered an adjustment period from the first half of theperiod, and the value of orders for a full year declined 37.0%
year on year to ¥504.1 billion.

81.2

Semiconductor Production Equipment

30

45%

26%

0
06

07

08

n Japann South Korea
n Taiwann China/Southeast Asia

Electronic Components and Computer Networks
Sales by Region

Net Sales(Billions of yen)

111.2

90

107.5

120
104.4

Overview of FY2008• Business environment: Signs of weakening of the Japanese
economy during the second half of the period led to a slight
slowdown in the semiconductor market, but IT investment wasstrong as companies focused on information security and legal
compliance related to internal controls.
• Sales: Up 3.5% year on year to ¥111.2 billion• In semiconductor products, which account for more than 70% ofsales, we focused on sales of high-value-added devices, as wellas took steps to expand contract design of semiconductors, andstrengthen development of our inrevium™ brand products.

12%

60

FY2008

30

88%
0
06

07

08

n Domesticn Overseas

17Tokyo Electron Limited  Annual Report 08

R e s e a r ch a nd D e v e l o pm e nt

The objectives of Tokyo Electron’s group-wide R&D efforts are to

One example is the area of photovoltaic (PV) cells, which havefurther enhance the Company’s competitiveness in the core busi-

strong potential as a solution to environmental and energy-related

nesses of semiconductor and FPD production equipment, and toissues. After conducting extensive exploratory research on PV cell

develop the new products and businesses that will support the

production equipment, in February 2008, the Company establishedCompany’s further growth in years to come.

Tokyo Electron PV Limited to develop and commercialize plasma
CVD (Chemical Vapor Deposition) systems for the thin-film silicon

Broad Research Themes for Semiconductor
Production Equipment

PV market. Thin-film silicon PV cells, solar cells containing a thin

Semiconductor manufacturers, our customers, require productionnificant interest in recent years. Tokyo Electron will develop high-equipment that allows them to achieve finer geometries, higher

productivity CVD systems by utilizing vacuum plasma production

speed, lower power consumption and higher productivity. SPE

equipment technology developed from its semiconductor and FPD

manufacturers are playing an increasingly important role in support-

production equipment businesses.

layer of silicon deposited on a glass substrate, have attracted sig-

ing semiconductor manufacturers in this regard. We believe Tokyo
production equipment that can realize the process performance

Promoting More Efficient R&D Via Consortia andTies With Industry and Academia

customers require. Tokyo Electron therefore collaborates closely

The scope of research and development that Tokyo Electronwith customers in developing new production equipment.

needs to address is expanding. In order to improve the efficiency

Electron’s competitiveness is based on our capability to provideof research efforts, Tokyo Electron has been working in collabora-

Accelerating R&D Efforts to Develop New
Businesses That Can Support Future Growthtion with universities and making active efforts in industry consor-

In addition to efforts to enhance existing products, Tokyo Electron isacademic institutions.

tia as well as projects that involve both manufacturers andalso developing new products and business arenas that can contribute to growth 5 and even 10 years into the future.

Tokyo Electron’s R&D Framework(As of June 2008)

Product development in existing SPE and FPD business units
Tokyo Electron AT Limited

Etch system, CVD system, FPD Etch/ash system

Tokyo Electron Kyushu Limited

Coater/developer, Cleaning system, FPD Coater/developer

Tokyo Electron Tohoku Limited

Thermal processing system

Tokyo Electron TS Limited

Wafer proberTokyo Electron Software Technologies Limited

Software technology

Timbre Technologies, Inc.

Integrated metrology

R&D for new and advanced technologies
Tokyo Electron Technology Development Center

Research and development

Tokyo Electron Leading-edge Process Development Center

Process development

Tokyo Electron Technology Development Institute, Inc.

RLSA plasma technology

Tokyo Electron PV Limited

Thin-film silicon PV cell plasma CVD technology

TEL Technology Center, America, LLC

Process development

TEL Epion, Inc.

Gas cluster ion beam technology

Identification of promising technologies
TEL Venture Capital, Inc.

18

Annual Report 08 Tokyo Electron Limited

Accelerating R&D to Drive Growth

Leading-edge Process
Development CenterTokyo Electron PV Limited(Nirasaki City, Yamanashi)Kansai Technology Center(Amagasaki City, Hyogo)

Tokyo Electron Technology
Development Institute, Inc.
(Sendai City, Miyagi)

TEL Epion, Inc.
(Billerica, Massachusetts)

R&D Expenses(Billions of Yen)80

About IMECIMEC is a world-leading independent research center in nanoelectronics and nanotechnology. Its research focuses on the next generations of chips and systems, and on theenabling technologies for ambient intelligence.

04

05

57.0

49.2

43.9

40

44.2

60

66.1

IMEC (Belgium)
Collaboration R&D with IMEC on
immersion lithography and extreme
ultraviolet (EUV) lithography

TEL Technology Center,
America, LLC(Albany, New York)

20
0
06

07

08

project (Millennium Research for Advanced Information Technology).

Unearthing the World’s Most PromisingTechnologies

Overseas, Tokyo Electron is participating in the International SEMAT-Tokyo Electron’s growth strategy over the longer term calls for the

ECH project in the United States and the Albany NanoTech project

Company to pursue new innovations and create and develop newpromoted by the New York State Government, as well as collaborat-businesses. The Company is supplementing in-house researching with IMEC in Belgium. In February 2007, the Company became

activities with efforts to identify, evaluate and utilize promising tech-a new member of the Semiconductor Research Corporation (SRC),

nologies developed outside the Company. In July 2006, Tokyoa semiconductor research consortium that unites leading semicon-

Electron established TEL Venture Capital, Inc. to identify, evaluate

ductor-related manufacturers with world class universities.

and utilize promising new technologies on a global scale. TEL

In Japan, one example is the semiconductor industry’s MIRAI­Venture Capital is based in California’s Silicon Valley, home to many
start-ups and venture capital firms.

19Tokyo Electron Limited  Annual Report 08

C OR P ORA T E G O V ER N A N C E

Tokyo Electron maintains a management philosophy that puts
emphasis on maximizing corporate value and enhancing shareholder satisfaction. To this end, the Company is striving to enhance
corporate governance by building an optimal corporate governancestructure and managing it effectively. Efforts in this regard arefounded on three basic principles.
Tokyo Electron’s Basic Principles of Corporate Governance
1. Ensure the transparency and soundness of business operations
2. Facilitate quick decision-making and the efficient execution ofbusiness operations
3. Disclose information in a timely and suitable manner

The Corporate Governance Framework
Tokyo Electron uses the statutory auditor system, and has also
adopted the executive officer system to separate the businessexecution function from the board of directors.
The Board of Directors
The board of directors consists of 14 directors, three of whom areexternal directors. During fiscal 2008, the board of directors met on
12 occasions. In order to ensure that the Company can respondquickly to changing business conditions, and to more clearly define
management accountability, the term of office for directors is set at
one year.
The board of directors has two committees: the Compensation
Committee and the Nomination Committee, whose activities areintended to improve corporate governance. The Compensation
Committee proposes the remuneration to be paid to the Chairman& CEO and the President & COO at the board meeting for approval.
The Nomination Committee selects candidates for directorships for

submission at the annual shareholders’ meeting, as well as candidates for CEO, which it submits at the board meeting for approval.
Each of these committees is composed of members of the board of
directors, excluding the Chairman & CEO and the President & COO.
The Board of Statutory Auditors
The Company has four statutory auditors, two of whom are outside
auditors. The statutory auditors not only attend meetings of theboard of directors and other important business meetings, but also
they conduct operations audits, accounting audits and risk evaluation, in addition to auditing the performance of duties by directors.
During fiscal 2008, the board of statutory auditors met seven times.
The Executive Officer System
In order to further clarify the roles of the board of directors andexecutives in charge of business operations, Tokyo Electron
adopted the executive officer system in April 2003. This systempromotes fast decision-making and the quick establishment andexecution of business strategies.

Internal Control and Risk Management System
In order to enhance corporate value and ensure that all businessactivities are carried out responsibly, in the interests of all stakeholders, Tokyo Electron is taking steps to strengthen its internal control
systems, and make them more effective. The Company is implementing specific activities based on the basic policy for internal
control systems established in May 2006, which was partiallyrevised in April 2008. It is also making progress in developing asystem of internal control over financial reporting which is based on
the Financial Instruments and Exchange Law.

Diagram of the Corporate Governance Framework,
Internal Control System and Risk Management System
Annual Shareholders’ Meeting
Board ofDirectors

Nomination Committee
Compensation Committee
Chief Business Ethics Director
Chief Internal Control Director

Representative
Directors
Request for improvement

Statutory Auditors

Confirm the progress of improvements and give instructions

ReportExecutive Officers

Audit and improvement reports
Report

Audit

ReportReportRequest for
improvement

Request for
improvement

Risk Management
Function

20

Internal Audit Dept.
(Global Audit Center)

Audit
Request for
improvement

Monitoring
Monitoring
Check and balance
Administrative

Business Depts.

Independent Auditors

Depts.

Audit
Audit

Internal Control Director
Tokyo Electron considers the improvement of internal control systems and the management structure
to be of great importance. Starting in June 2008,
the Company will appoint an Internal Control Director who will work to strengthen internal control
based on the basic policy for internal control
decided by the Board of Directors.
Internal Audit Department(Global Audit Center)
The Global Audit Center oversees the internal
auditing activities of Tokyo ­Electron and its corporate group. The Center is responsible for auditing
the business activities of domestic and overseas
bases of the Group, as well as their complianceand systems, and evaluating the effectiveness ofinternal control systems. When necessary, theGlobal Audit Center also provides guidance tooperating divisions. The Center reports the resultsof its audits to Company management on a

Annual Report 08 Tokyo Electron Limited

regular basis, and organizes meetings to report its findings andexchange information with the statutory auditors.
Risk Management Function
The General Affairs Department is responsible for crisis management,
including measures involving business risk and operational risk, aswell as for establishing the necessary internal regulations for managing each risk category and activities for training and raising employees’ awareness of risk management. These internal regulations
include compliance standards, risk management regulations, crisis
management regulations, rules governing the handling of personal
information, standards for managing documents, rules to prevent
insider trading and guidelines for the timely disclosure of information.
Coordination Between Statutory Auditors andInternal Audit Department
The Global Audit Center, which is responsible for internal auditing activities, makes regular reports to Company managementon the results of its audits, and holds periodic meetings (34times a year) to report its findings and exchange information withthe statutory auditors.
Coordination Between Statutory Auditors andIndependent Auditors
Tokyo Electron has engaged KPMG AZSA & Co. as its independent
auditor. The Company provides the independent auditor with all
required information and data to ensure that it can conduct its
audits promptly and correctly.
The statutory auditors receive audit plans for the fiscal year fromKPMG AZSA & Co., as well as explanations regarding auditing
methods and particular areas of focus, among other matters. They
also receive opinions for the audits of the financial statements.

In June 2007, the Tokyo Electron Code of Ethics was rewritten to
make it easier to understand, and to reflect the changing ethicalnorms of the current era. To ensure full awareness of the Code, it
was compiled into a booklet, which the Company distributed to all
Group employees, including those overseas.
Compliance Regulations
Compliance regulations are intended to ensure that all individuals whotake part in business activities for the Group clearly understand thepertinent laws, regulations, international standards and internal company rules, and continuously apply these rules in all of their activities.
Compliance Education for Employees
Information on compliance issues is available to employees via the
Company intranet. The Company also conducts web-based training
programs for employees, and takes other steps to promote broad
awareness of compliance.
Internal Reporting System: Hotline
In the event that an employee becomes aware of any activity which
may violate laws, regulations or principles of business ethics, theCompany operates an internal reporting system (Hotline) that
employees may use to report their concerns. Strict confidentiality is
maintained to protect the whistleblower, and ensure that they are
not subject to any disadvantage or repercussions.
Protection of Personal Information
Following the full introduction of Japan’s personal information
protection law, the Company formulated a basic directive andregulations to protect personal information. The Company conducts training programs to educate employees on how to handle
such information, and to ensure that the rules and policies arewidely understood.

Compliance Framework
Trust is the cornerstone of Tokyo Electron’s business foundation. The
fundamental requirements for maintaining trust are rigorous conformity to ethical standards and compliance with the law, by individual
employees and by each of our organizations. The Group maintains
high standards of ethics and a clear awareness of compliance, placing the utmost priority on compliance with laws, regulations andinternational business standards in all of its corporate activities.
Ethical Standards, Ethics Committee and Chief Business
Ethics Director
Recognizing the need to establish uniform standards to govern allof its global business activities, in 1998, the Company formulated
the “Tokyo Electron Code of Ethics,” which concretely describes theCompany’s basic views on ethics. The same year, the Company
established the Ethics Committee, which is responsible for promoting business ethics awareness, and appointed a Chief Business
Ethics Director to supervise these efforts.

Remuneration for Directors, Executive Officers andStatutory Auditors
The Company and its subsidiaries (excluding listed companies)
have introduced incentive systems, such as business results-based
remuneration, and stock options linked to share prices. Effectivefrom fiscal 2006, the Company revised its executive remuneration
system to link remuneration more closely to financial performanceand shareholder value and also improve management transparency
and its competitive strength.
New Remuneration System for Executives
1. The remuneration for Company directors and executive officers is
composed of two elements: a fixed monthly salary, and anannual bonus which is linked to earnings performance.
2. The total amount of performance-linked remuneration (annual
bonuses) for directors and executive officers of the Group is set
at a maximum of 3% of consolidated net income. This remuneration is split between cash bonuses and stock-based21

Tokyo Electron Limited  Annual Report 08

remuneration (stock options), at a ratio of roughly two to one.
The stock-based remuneration takes the form of new stock
warrant contracts with an exercise price of one yen per share.
This is because current securities and exchange regulations
make it difficult to introduce and implement direct share issuance, or the sort of transfer-restricted shares that are used incountries such as the United States. The restricted period on
exercising stock options is set at three years.
3. The earnings-linked remuneration (annual bonuses) of external
directors does not include stock options.
4.	In order to ensure that statutory auditors maintain full independence from management pressures, the compensation of statutory auditors consists of a fixed monthly salary only.
5. Retirement allowances for directors, statutory auditors andexecutive officers were abolished at the end of fiscal 2005, aspart of the revisions to Tokyo Electron’s remuneration systemfor executives.
Remuneration linked to corporate performance comprises a
relatively large share of executives’ total remuneration. Tokyo­Electron thinks that this will give executives a strong incentive toimprove the Company’s earnings performance and elevate theshare price, since they share in both the benefits and the risks
experienced by shareholders.

Disclosure Practices
If it is subject to the rules on timely disclosure (material information),
Tokyo Electron will release the information simultaneously in a press
release, and via the Tokyo Stock Exchange’s “Timely Disclosure
Network” (TDnet), and will post the information on its website assoon as possible, following the official announcement.
Even when it does not fall into the category of “material information,” the Company will voluntarily disclose information which may beof interest to stakeholders, in a fair, accurate, and easy-to-understandmanner, either on its website or in printed form, through various
means of communication.
Tokyo Electron conducts meetings to discuss its financial resultswith securities analysts and investors; these meetings are also open
to members of the press. The company makes audio and video
recordings of its fiscal year-end and mid-term financial results meetings, and posts these recordings on the Company’s website. All of
the documents distributed at its quarterly financial results meetings
are also posted on the website.
To ensure that foreign investors have fair and equal access to theinformation, in principle, the Company strives to disclose all information simultaneously in Japanese and English. However, due tothe time required for translation, there may be cases where theposting of English information to the website is delayed slightly.

Disclosure of the Individual Compensation ofRepresentative Directors
In order to increase transparency and reflect shareholders’ interests,
Tokyo Electron discloses the remuneration paid to each representative director (Chairman & CEO and President & COO), as well as theaggregate remuneration paid to directors and statutory auditors, inits business report, which is sent to shareholders along with the
Notice of Annual General Meeting of Shareholders.

IR Spokespersons
To ensure that information is accurate and disclosure is fair, theCompany’s major investor relations activities will be undertaken by
official IR spokespersons—either the CEO, the COO, the IR director,
or representatives of the IR department. In principle, information on
the Company shall not be provided to the press, or to persons
connected with the securities market, by any executive or employee
of Tokyo Electron acting alone other than official IR spokespersons.
When necessary, IR spokespersons may formally appoint otherexecutives or employees to speak on their behalf.

Disclosure Policy
Tokyo Electron is committed to disclosing information about theCompany in a fair, prompt and accurate manner, to ensure that all
stakeholders, including shareholders and other investors, canobtain an accurate, in-depth understanding of the Company and its
activities, and evaluate the Company’s corporate value appropriately. The Company also solicits feedback from its stakeholders aspart of its information disclosure activities, and uses the feedback
as a point of reference to guide corporate management.
Information Disclosure Standards
Tokyo Electron complies fully with the Financial Instruments andExchange Law, and the rules on timely disclosure established by
the Tokyo Stock Exchange.
Furthermore, even when the information is not subject to regulations on timely disclosure, the Company discloses the information
proactively, in a fair, prompt and accurate manner if the information
is deemed useful in providing stakeholders with an accurate understanding of the Company.

22

Shareholder Measures
Tokyo Electron mails a Notice of Annual General Meeting of Shareholders to shareholders more than three weeks in advance of themeeting, as one of its measures to vitalize these meetings and topromote smooth and efficient voting. It also sets the date of theCompany’s meeting to avoid days on which many such meetings
are concentrated. In addition, shareholders are free to cast theirvotes via the Internet. Moreover, Tokyo Electron participates in the
web-based voting platform for institutional investors operated by
Investor Communications Japan Inc. (ICJ). To supplement theabove shareholder meeting-related initiatives, Tokyo Electron’s
website carries notices, resolutions and presentation materials ofshareholders’ meetings. An English version of the Notice of Annual
General Meeting of Shareholders is also provided.

Annual Report 08 Tokyo Electron Limited

B o a r d o f D i r e ct o r s, Stat u t o r y A u d i t o r s a nd E x e c u t i v e O f f i c e r s(As of June 20, 2008)

Board of Directors

Tetsuro Higashi

Tetsuo Tsuneishi 2

Kiyoshi Sato

Haruo Iwatsu 2Mamoru Hara 4

Masao Kubodera

Yuichi Honda 1, 3

Hirofumi Kitayama 2

Hiroshi Takenaka 1

Kenji Washino 2

Hikaru Ito 1

Hiroshi Inoue *Yasuhiro Tsunemi 1, *Masahiro Sakane *Chairman & CEO

Corporate Director

Vice Chairman of the Board

Corporate Director

President & COO

Corporate Director

Executive Vice President

Corporate Director

Corporate Director

Corporate Director/
President, Tokyo
Broadcasting System, Inc.

Corporate Director

Corporate Director

Corporate Director

Corporate Director/
Chairman of the Board,
Komatsu Ltd.

Statutory Auditors

Takeo Tanaka
Statutory Auditor

Mitsutaka Yoshida
Statutory Auditor

Togo Tajika *Statutory Auditor

Hiroshi Maeda *Statutory Auditor/
Nishimura & Asahi

Notes:
1. Member of Compensation Committee
2. Member of Nomination Committee
3. Chief Business Ethics Director
4. Internal Control Director* External Director, External Statutory Auditor

Executive Officers
Chairman & CEO

Tetsuro Higashi
Vice Chairman of the Board

Tetsuo Tsuneishi

IR, Legal, Intellectual Property,
Customer Relations

President & COO

Kiyoshi Sato
Executive Vice President

Haruo Iwatsu

General Manager, Development &Manufacturing

Senior Vice Presidents

Hirofumi Kitayama

General Manager, Development &Manufacturing(Quality, Miyagi New Factory Project)and General Manager, SPE-3 Division

Takashi Ito

Deputy General Manager, SPE-1 Division,and General Manager, Clean Track BU

Kenji Washino

Vice Presidents

Yoshiteru Harada

Jinzaburo Sakamoto

Yoshikazu Nunokawa

Kiyoshi Sunohara

Masaaki Hata

Yoshinori Inoue

General Manager, Administration
General Manager, HR/Finance
Deputy General Manager, SPE-1 Division,and General Manager, Surface Preparation
Systems BU

Deputy General Manager, SPE-2 Division,and General Manager, Single Wafer
Deposition BU

Shunro Nagasawa

Hikaru Ito

Hideyuki Tsutsumi

Deputy General Manager, SPE-2 Division,and General Manager, Etch Systems BU

Hiroshi Takenaka

Deputy General Manager, SPE-3 Division,and General Manager, Thermal Processing
Systems BU

Hiroki Takebuchi

Corporate Strategic Planning,
HR Development Center

Mitsuru Onozato

Deputy General Manager, SPE-4 Division,and General Manager, Test Systems BU

General Manager, Post Sales Division
General Manager, Marketing
General Manager, MEMS

Shigetoshi Hosaka

General Manager, Technology &Development Center, Leading-edge
Process Development Center,
Development Planning Department

General Manager, Sales & Services, Japan

Yasuyuki Kuriki

General Manager, Sales & Services, Korea

Chiaki Yamaguchi

General Manager, Sales & Services, Asia

Hirofumi Murakami

Deputy General Manager, Sales & Services
Division (Global Services)
BU: Business Unit

General Manager, FPD Division

Masami Akimoto

General Manager, Development23

Tokyo Electron Limited  Annual Report 08

E N V IRO N M E N TAL , H EALT H A N D SAFE T Y A C T I V I T IES

Tokyo Electron’s corporate missions include placing the highest
priority on people’s health and safety and taking the global environment into account when conducting business activities.

Fundamental Policy
Tokyo Electron positions environmental, health and safety activities
as one of its most important management issues to achieve sustained corporate growth and continued development of society.
With that in mind, Tokyo Electron is committed to reducing environmental loads across its activities, and to ensuring absolute safety in
the Company’s business premises and in those of its customers.
Tokyo Electron embodied these commitments in “TEL’s Credo andPrinciples on Environmental Preservation” and “TEL’s Safety and
Health Credo and Principles” formulated in 1998. The former statement was reviewed and revised in May 2006 in light of the direction
the business was taking and the Company’s evolving approach tothese issues. Also, recognizing the need to deal with current global
warming and climate change issues, in October 2007, Tokyo­Electron inaugurated an environmental steering committee in orderto accelerate environmental response activities. The committee, thehighest internal function on environmental activities, comprises theexecutive officer of development, as well as members from marketing, corporate strategic planning, and corporate communications.
Moreover, we are considering the establishment of medium-term
environmental objectives under the slogan “Technology for Eco
Life™.” Going forward, we will define standards and an achievement plan and promote activities for these objectives.

EHS Management
Since 1997, Tokyo Electron has developed and implemented environmental management systems based on ISO 14001 standards,
mainly for manufacturing operations, and obtained certification.

Adoption of Environmental Accounting
Tokyo Electron has introduced an environmental accounting systemthat quantifies the cost of its activities in respect of environmental
protection, and uses this as the basis for developing corporate
action policies. For more information on achievements in fiscal
2008, please see the “Environmental and Social Report 2008” to bereleased in September 2008.

Product-related Environmental Initiatives
Proactive Environmentally Conscious Product Design
As clearly set forth in our revised TEL’s Credo and Principles on
Environmental Preservation, Tokyo Electron believes that promotionof product designs sensitive to the environment is vital. Tokyo­Electron has positioned promotion of energy conservation in its
products and reduction and replacement of hazardous chemicals in
its products as priority issues.
1. Energy Conservation During Equipment Use
Since many of our products are manufactured and used in clean
rooms, we take an all-inclusive approach to energy conservation in
the entire system, including equipment and the clean room. The five
major targets in this respect are as follows:
1. Reduce energy consumption of equipment
2. Reduce energy consumption of peripheral devices
3. Use equipment in ways that conserve energy
4. Reduce energy consumption of the clean room
5. Overall clean room management (planned and appropriate
operation)
Tokyo Electron played a central role in developing the SEMI S23
Guide for Conservation of Energy, Utilities and Materials Used by
Semiconductor Manufacturing Equipment that was adopted as theglobal standard by the semiconductor industry. Tokyo Electron
assesses the energy consumption of its products in accordancewith these guidelines.
2. Hazardous Substances in Products
Growing out of the concern that hazardous substances in parts andmaterials could affect the environment and the ecological system,
regulations restricting the use of such substances in automotive andelectrical products are being tightened throughout the world. In July
2006, for example, the RoHS*1 directive came into force in Europe.
Having determined that its semiconductor production equipment
could be exempt from these directives as they fall within the definition of “large-scale stationary industrial tools,” Tokyo Electron has
prepared a written statement to that effect. Regarding the China
RoHS directive*2 issued in March 2007, Tokyo Electron has achieved
complete compliance. The Tokyo Electron Group is acting in
advance of regulatory requirements and has established the Chemical Substance Measures Team to share necessary information. The
team comprises representatives of manufacturing divisions. In addition, the Tokyo Electron Group is seeking active cooperation fromsuppliers in investigating materials that contain such substances andISO-14001-Certified Plants and Offices
Company/plantTokyo Electron AT Limited
Tokyo Electron PS Limited
Tokyo Electron Tohoku Limited
Tokyo Electron Kyushu Limited
Tokyo Electron AT Limited
Tokyo Electron Device Limited

24

Plant
Sagami Plant

Certification date
December 10, 1997

Certification number
1110-1997-AE-KOB-RvA

Tohoku Plant
Kumamoto/Koshi/Ozu/Saga plants
Yamanashi Plant (Fujii/Hosaka area)
Miyagi Plant
Yokohama OfficeFebruary 19, 1998
March 26, 1998
May 15, 1998
March 1, 2005
July 14, 2004

1118-1998-AE-KOB-RvA
1120-1998-AE-KOB-RvA
1124-1998-AE-KOB-RvA
01245-2005-AE-KOB-RvA
EC04J0144

Annual Report 08 Tokyo Electron Limited

finding and promoting substitutes. The Tokyo Electron Group will
begin shipping products that are free of the six substances specified
by the RoHS directive beginning in October 2008.
*1 Restriction of the use of certain Hazardous Substances in Electrical and Electronic Equipment*2 The official name of the Chinese version of RoHS is Measures to Control Pollution From
Electronic Information Products

Health and Safety Activities
Tokyo Electron promotes health and safety in all of its operations.
This includes giving top priority to the health and safety of ouremployees and customers and designing products with safety inmind. TEL’s Safety and Health Credo and Principles clearly statethat all employees are responsible for being constantly aware ofhealth and safety considerations in all their business activities.
Even with increasing sales and product shipments, in fiscal 2008,
the Tokyo Electron Group achieved a reduction of over 40% in thenumber of accidents resulting in injury (excluding those requiring
first-aid alone) or death. In particular, accidents occurring during
start-up and maintenance operations performed at customer locations declined significantly. This reduction resulted from the overseas implementation of a safety management system already in use
at customer sites in Japan, with emphasis on adoption during factory installations for new customers in Asia. The system includes
the assignment of a safety management supervisor, deployment ofsafety patrols, and holding risk assessment meetings prior to thestart of jobs. The decrease in accidents was also due in part to thedevelopment of proprietary safety tools, enhanced education, andprogress in reducing tasks involving heights or heavy objects. Tokyo
Electron’s policy moving forward will continue to promote activities
for further reducing accidents.

Communicating With Stakeholders
The Tokyo Electron Group actively promotes communication with all
stakeholders. To develop environmental, health and safety initiatives, we believe that it is vital to share information as much as
possible with all parties related to our business activities and toreceive feedback.
One example is efforts to give back to local communities. Our
philosophy states, “We place the highest priority on gaining the trust
and acceptance of customers, suppliers, investors, and communities around the world” and “We therefore strive to be a faithful andcooperative member of the communities and nations where we dobusiness.” In line with this philosophy, we engage in activities tocontribute to society and build relationships of trust with governments and local communities around our facilities. These activities
are conducted both in Japan and overseas.
For further details, see “Environmental and Social
Report 2008” (to be published in September 2008).
http://www.tel.com/eng/citizenship/ehsreport.htm

TOPICS
Modification of Existing Equipment to Reduce Energy
Consumption
Tokyo Electron Group considers the promotion of environmentally sound design extremely important. The Company prioritizes
efforts to develop energy-efficient equipment and reduce andreplace regulated chemical substances contained in equipment.
Although we now develop and manufacture new productswith more consideration given to conserving energy andresources, some of the products that we sold and delivered tocustomers in the past were not designed with the same consideration for the environment that is acceptable today.
To rectify this, the Tokyo Electron Group markets products
which can be used to make improvements to existing equipment. For example, we provide various products designed to
improve the environmental functions of the thermal processing
system ALPHA (a)-8SE. The following are two such products:
1. Improving the heat insulating properties of pipe heaters
It is necessary to keep the inside temperature of some pipes
used in the thermal processing system as high as 100 to 200
degrees centigrade to prevent substances from adhering to theinside surface. The electricity consumed by the pipe heaters
used to control the inside temperature can be reduced by 40%
to 50% by installing high-performance heat insulators aroundthe heaters.
2. Energy-saving pumps
Power consumption can be reduced by approximately 70% by
replacing conventional pumps with high-efficiency energy­saving pumps. Use of these products may result in an overall
reduction in energy use of around 70%.
Energy Conservation Effects
Energy-saving Pumps
Vacuum Pipe Heaters

Reduction of Energy
Use by about 70%
Before Replacement

After Replacement

ALPHA (a)-8SE

In addition, we provide products that help reduce theamount of heat discharged into the clean room by a watercooling mechanism, products that reduce the amount of nitrogen used, and products that improve the overall process quality and productivity.

25

Tokyo Electron Limited  Annual Report 08

Int e l l e ct u a l P r o p e r ty R e p o r t

Process and mechatronic technologies used in the manufacture ofsemiconductors and flat panel displays represent Tokyo Electron’score technologies. Tokyo Electron devotes considerable resources
to developing technologies that bolster the competitiveness of its
products. As part of its efforts to drive growth, Tokyo Electron is promoting three themes: (1) bolstering development of new technologies to create and expand sales of new products (2) enhancing costcompetitiveness through highly efficient manufacturing, and (3)expanding operational scale by entering new businesses domains.
In pursuing these strategies, it is vital to protect the intellectual
property rights of independently developed proprietary technologies
and products to ensure the smooth growth of businesses. The
integration of our intellectual property strategy with our technological and product strategies is thus important to realizing maximum
benefits from development efforts.
Recently, the needs of device manufacturers, our customers,
have been diversifying, and also they are emphasizing reliable process performance and higher productivity on products. Consequently, the role of equipment manufacturers such as Tokyo Electron
in developing semiconductor manufacturing technology is increasing.
Within this context, Tokyo Electron strives to bolster the protectionof its intellectual property by actively filing patent applications forequipment recipe, software technologies, process management
technologies for various types of manufacturing equipment, andother technologies.

Policies on Acquiring and Managing Intellectual
Property, Managing Trade Secrets and Preventing
Technology Leakage
Tokyo Electron has a set of internal rules that define the management of its intellectual property. Under these rules, Tokyo Electron
provides compensation for employees who have invented or created something new through their work within the Company. We
make lump-sum payments when applications are submitted forpatents, utility model rights, designs and other property rights.
Compensation is also given if such creations are implemented at
Tokyo Electron or licensed to third parties.
Management of trade secrets is rigorous, conducted according
to Tokyo Electron’s “Internal Rules on Managing Technology andMarketing Information” and “Manual for Managing Technology andMarketing Information.” The provisions of these measures areapproximately equivalent to those of the government’s “Policies
Regarding Managing Trade Secrets” and “Policies Regarding thePrevention of Technology Leakage” (both issued by the Ministry of
Economy, Trade and Industry). Furthermore, to raise the effectiveness of trade secret management, Tokyo Electron runs an in-housetraining program and monitors the subsequent status of trade
secret handling to ensure strict adherence to the rules.

Status of Intellectual Property Application
The graph in this section shows historical data on the number ofpatent applications filed worldwide by Tokyo Electron up to the endof March 2008. While Tokyo Electron is already striving to be more
selective overall in the patents it acquires, both in Japan and overseas, it is now reviewing its strategy regarding countries in which
the applications are filed, including Japan, considering the locationsof our operating divisions’ key manufacturing bases and markets.
26

Specifically, in addition to the recent emphasis on filing applicationsin the U.S., we are also filing more applications in China, South
Korea, Taiwan and other countries as a countermeasure against
emerging competitors, mainly in East Asia.

Contribution of License-related Activities
In building and implementing our intellectual property rights strategy,
we do not see intellectual property rights acquired by filing applications and securing rights for proprietary products and developed
technologies as a source of income from licensing to other companies. Rather, we view this as a method of differentiating our own
products and bolstering our competitive advantages. Semiconductor and FPD manufacturing technologies are becoming increasingly
advanced and sophisticated. To effectively develop new products
incorporating leading-edge technologies, and bring them to market
as quickly as possible, it is essential to utilize all available intellectual
properties. Tokyo Electron places high value on introducing cuttingedge technology and constantly enhancing the efficiency of
research and development, and on quickly launching new products.
We also respect the intellectual property rights of others, just as we
do our own, and effectively use them through licensing. Tokyo­Electron is also exploring the feasibility of licensing or selling its
proprietary technology to third parties in other business fields and tocooperating partners.

External Recognition
Tokyo Electron placed first in SBI Intechstra Co., Ltd.’s ranking ofbest performers in terms of technological competitiveness, determined using the company’s proprietary index, called PCI® (PatentCompetency Index). Tokyo Electron earned plaudits for investingheavily in research and development to produce high-quality results,
and achieving a competitive edge by producing outstanding technologies of interest to other companies.
On April 18, 2008 (Inventors’ Day in Japan), Tokyo Electron wasawarded the Japan Patent Office’s 2008 Minister of Economy, Tradeand Industry’s Award for Contribution to Intellectual Property. Tokyo
Electron was commended particularly for its high patent approvalrate and high proportion of global applications, as well as for its
efforts to pursue strategic intellectual property initiatives led by theVice Chairman of the Board, who is responsible for legal and intellectual property-related activities.

Number of Patent Applications(Applications)

1,000
800
600
400
200
0
04

05
U.S.

06
South Korea

07
Taiwan08
China

EuropeJapan

Annual Report 08 Tokyo Electron Limited

Financial Section

28
36
38
40
41
42
43
53

Financial Review
Consolidated Eleven-year Summary
Consolidated Balance Sheets
Consolidated Statements of Income
C o n s o l i d a t e d S t a t e m e n t s o f C h a n g e s i n N e t Ass e t s
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
I n d e p e n d e n t A u d i t o rs ’ R e p o r t

27Tokyo Electron Limited

Annual Report 08

F INANCIAL R EVIEW

Financial results in this section refer to the Company’s performance for fiscal 2008, the year ended March 31, 2008. Percentage comparisonsrefer to year-on-year changes from fiscal 2007.
The Company adopted the following revised accounting standards and business segment.
n	Effective from fiscal 2005, the policy for revenue recognition of semiconductor and FPD production equipment was changed from the time of
shipment of products to, in principle, the time of confirmation of set-up and testing of products. The effect of this change decreased net
sales, operating income and income before income taxes by ¥80,956 million, ¥20,541 million and ¥20,563 million, respectively, for fiscal
2005, compared with the corresponding amounts which would have been recorded if the previous method had been applied.
n	Effective from fiscal 2005, the accounting treatment of after-sale repair expenses incurred during the warranty period for semiconductor and
FPD production equipment was changed. In the past, the Company charged such expenses to income as incurred. Effective from the fiscal
year ended March 31, 2005, the Company provides accrued warranty expenses for estimated expenses, calculated on the basis of after-salerepair expenses incurred in the past. The effect of this change decreased operating income and income before income taxes by ¥635 millionand ¥13,106 million, respectively, for the year ended March 31, 2005, compared with the corresponding amounts which would have beenrecorded if the previous method had been applied.
n	On October 1, 2006, Tokyo Electron’s computer networks division was transferred to Tokyo Electron Device Limited. Accordingly, sales fromcomputer networks, which were formerly included in the industrial electronic equipment segment, are now included as part of the electronic
components and computer networks segment (formerly the electronic components segment), effective from fiscal 2007.

Sales and Income
Operating Environment
During the fiscal year ended March 31, 2008, the global economy turned in a steady performance in the first half of the fiscal year on the backof high growth in China and solid growth in Asian nations. From the mid-point of the fiscal year onward, the outlook for the global economy
became increasingly unclear, with the U.S. economy showing signs of slowing, and the global financial markets thrown into turmoil by the subprime mortgage issue. In Japan, in the first half of the fiscal year, moderate economic expansion was sustained by higher exports, better corporate profits and brisk capital expenditures. In the second half, however, the Japanese economy showed signs of deceleration due to sharp priceincreases in crude oil and raw materials, coupled with rapid appreciation of the yen to the U.S. dollar.
In the electronics industry, in which the Group operates, shipments of PCs, telecommunication devices including mobile phones and digital
home electronics continued to expand, due in part to the effects of growing demand among emerging economies, centered on the BRICs
nations. However, signs of slowing economic growth appeared in the second half of the fiscal year. Looking at the situation for capital expenditures, which have a direct impact on the Company’s earnings, investment in the semiconductor industry was robust in the first half of the year,
but slowed in the second half. Meanwhile, capital investment related to LCD panels was weak throughout the entire fiscal year.
(Millions of Yen)

2004

2005

2006

2007

2008

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

¥529,654¥635,710¥673,686¥851,975¥906,092

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

140,155

175,913

189,732

272,649

311,298

Gross profit margin..............................................................................

26.5%

27.7%

28.2%

32.0%

34.4%

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

117,875

111,930

114,029

128,670

142,800

Operating income................................................................................

22,28063,98375,703

143,979

168,498

Operating margin.................................................................................

4.2%

10.1%

11.2%

16.9%

18.6%

Income before income taxes................................................................

14,93655,77575,328144,414169,220

Net income..........................................................................................

8,297

61,601

48,006

91,263106,271

Effective from fiscal 2005, the Company made certain changes in accounting policies as discussed in this financial review.

28Annual Report 08 Tokyo Electron Limited

Sales
Consolidated net sales grew 6.4% year on year, to a second consecutive record high of ¥906.1 billion. Domestic sales increased 3.2% year on
year to ¥323.9 billion, while overseas sales rose 8.2% to ¥582.1 billion, with particular contributions from sales of semiconductor production
equipment in Taiwan. Overseas net sales increased as a share of consolidated net sales, to 64.2% compared with 63.2% in fiscal 2007.
Meanwhile, consolidated orders received fell by 23.8% year on year, to ¥744.8 billion, and the consolidated order backlog at the end of fiscal
2008 declined 33.2%, to ¥325.0 billion, reflecting lower sales in the fiscal year ending March 31, 2009.

Gross Profit, SG&A Expenses and Operating Income
The cost of sales increased by 2.7% year on year, to ¥594.8 billion, and gross profit rose 14.2%, to ¥311.3 billion. The gross profit margin
improved by 2.4 percentage points to 34.4%, mainly the result of the launch of new products in the semiconductor production equipment field,
which pushed up average unit prices, a decline in warranty expenses and after-warranty expenses, and improvements to production efficiency
that lowered the cost of sales.
Selling, general and administrative (SG&A) expenses increased by 11.0% year on year, to ¥142.8 billion, while the ratio of SG&A expenses to
net sales increased to 15.8%, compared with 15.1% in fiscal 2007. R&D expenses, which are included in general and administrative expenses,
rose by ¥9.1 billion and were the major reason for the increase in SG&A expenses.
As a result, operating income grew 17.0% year on year, to ¥168.5 billion. The operating margin improved by 1.7 percentage points, to18.6%. Both marked the second consecutive year of record highs for the Company.

Research and Development
R&D expenses, as noted earlier, rose by ¥9.1 billion, or 16.0% year on year, to ¥66.1 billion.
In semiconductor production equipment, R&D efforts focused on the development of new technologies and products responsive to risingmarket demands, not only for equipment that responds to finer design rules of semiconductor devices, but also for responses to new materials
for realizing higher speeds and lower power consumption. As a result of ongoing R&D efforts, the Company launched three new models during
fiscal 2008: the TELINDY PLUS™ thermal processing system, which boasts further reductions in overhead time and other enhancements inbasic performance; the Trias™ High-k CVD, a single-wafer CVD system for high-k metal film deposition; and the CELLESTA™+ wafer cleaningsystem, which offers industry leading wafer throughput. In FPD production equipment, the Company continued to focus on the development ofequipment to accommodate large substrates.
In addition to R&D spending to develop new technologies and products in existing areas of operation, the Company also invested in creating
new businesses, including the development of equipment that applies RLSA*1 plasma source, which has superior characteristics, OLED*2 production equipment, and MEMS*3-related products.
*1 RLSA: Radial Line Slot Antenna*2 OLED:	Organic Light-Emitting Diode*3 MEMS:	Micro Electro Mechanical System

30

120

168.5
144.0

■ Domestic (Previous policies)■ Overseas (Previous policies)■ Domestic (New policies)■ Overseas (New policies)

08

30

4.2

0

8.3

07

48.0

10

11.2

22.3

06

323.9

05

313.8

262.5

04

91.3

60
61.6

64.0

18.6
16.9

75.7

85.2

582.1

538.2
411.2

11.9

90
20

10.1
240.7
232.7

0

120

60

242.3

300

287.3

600

476.0
403.0

900

106.3

180
906.1

(Billions of Yen)

1,200
852.0

(%)

673.7

Net Income(Billions of Yen)
716.7
635.7

Operating Income and Operating Margin(Billions of Yen)
529.7

Domestic and Overseas Sales

04

0
05

06

07

08

0
04

05

06

07

08

■ Operating Income (Previous policies)
Operating Margin (Previous policies)■ Operating Income (New policies)
Operating Margin (New policies)

29Tokyo Electron Limited

Annual Report 08

Other Income (Expenses) and Net Income
In fiscal 2008, the Company recorded net non-operating income of ¥0.7 billion. On the non-operating expense side, the Company incurred ¥4.1
billion for loss on impairment of goodwill associated with the revaluation of Timbre Technologies, Inc., a wholly owned subsidiary acquired in
February 2001. In non-operating income items, the Company received ¥2.2 billion in revenue from development grants and booked ¥2.4 billion
on the gain on sale of property, plant and equipment. As a result, income before income taxes rose 17.2% year on year to ¥169.2 billion.
Net income grew 16.4% year on year, to ¥106.3 billion, a second consecutive record high for the Company. Net income per share increased
from ¥511.27 in the previous fiscal year to ¥594.01 in fiscal 2008.

Dividend Policy and Dividend
The fundamental policy regarding return of profit to shareholders is to pay dividends linked to business performance and backed by earnings.
The Company applies a dividend policy that aims at a payout ratio of 20% of consolidated net income. On this basis, the Company increased
the cash dividend per share by ¥22, to ¥125 per share, representing a dividend payout ratio of 21.0% on a consolidated basis.
Meanwhile, the company uses retained earnings for R&D and capital investment aimed at further growth.

Performance by Segment
Industrial Electronic Equipment Segment
Segment sales (including intersegment sales) rose 6.6% year on year in fiscal 2008, to ¥796.0 billion. Segment operating income grew 17.4%,
to ¥164.8 billion, and the operating margin improved by 1.9 percentage points, to 20.7%.
Semiconductor Production Equipment
Sales to external customers in fiscal 2008 increased 13.0% year on year, to ¥726.4 billion.
Higher global demand for mobile phones and PCs and increased market penetration for digital consumer electronics fueled strong demand for
NAND flash memory and DRAM used in these devices. In the first half of the fiscal year, expectations of further growth in demand resulted in brisk
capital investment. In the second half, however, falling DRAM prices associated with deterioration in the semiconductor supply-demand balance
led to a gradual slowdown in semiconductor capital spending, pushing the equipment market into an adjustment phase.
By region, sales of semiconductor production equipment jumped 79.8% in Taiwan and increased 9.2% in Japan. Sales increased 2.9% in the
U.S., fell 23.0% in Europe, dropped 31.0% in Korea, rose 0.7% in China, and decreased 13.7% in Southeast Asia.

103

100

49.2

40

43.9

57.0

66.1

60

125

150

44.2

50

50

55

100

142.8

80

128.7

(Yen)

150

114.0

Cash Dividends per Share

(Billions of Yen)

111.9

R&D Expenses(Billions of Yen)

117.9

Selling, General and Administrative Expenses

04

05

06

07

08

04

05

06

07

08

10

0

0

0

30

45

20

04

05

06

07

08

Annual Report 08 Tokyo Electron Limited

By product group, except for wafer probers, sales of all equipment types increased year on year, with the single-wafer CVD system demonstrating particularly sharp sales growth.
Reflecting steep declines in semiconductor memory prices and slowing demand from the first half of the fiscal year, division orders declined
37.0% year on year, to ¥504.1 billion, and the order backlog at the end of fiscal 2008 fell 54.6% compared with the end of the previous fiscal
year, to ¥184.6 billion.
FPD Production Equipment
Sales to external customers declined 32.5% year on year, to ¥68.0 billion.
Flat-panel TVs equipped with LCD panels are seeing rapid market penetration against the backdrop of falling unit prices and the shift to digital
broadcasting, pushing up demand for panels. Under these circumstances, LCD panel makers in China, Japan, South Korea and Taiwan
invested to increase production capacity in 2006. This expansion resulted in deterioration in the panel supply-demand balance in 2007 andcurtailed capital expenditures in fiscal 2008.
Amid this environment, the Company worked to expand sales, centered on equipment used for seventh-generation and eighth-generation
large glass substrates. Sales fell 17.1% year on year in Japan, declined 63.1% in Taiwan, increased 7.7% in South Korea, and dropped 29.4%
in other regions.
In the second half of the fiscal year, the LCD panel supply-demand balance improved and orders from panel makers resumed. Divisionorders received increased by 94.2% year on year, to ¥129.9 billion, and the order backlog rose 94.9%, to a record-high ¥127.1 billion at theend of fiscal 2008.
OthersOther sales consist primarily of in-house services, such as non-life insurance and travel services. Sales declined by 59.4% year on year, to¥0.5 billion.

FPD Production Equipment Sales(Billions of Yen)

(Billions of Yen)

800

120

200

0
04
■ Previous policies■ New policies

05

06

07

08

68.0

81.2

60

100.8

90

75.0

486.9

Notes: 1. Since fiscal 2005, sales of FPD
production equipment have beenshown separately from SPE Division
sales, in which they were previously
included. In the left graph, SPE sales
for fiscal 2004 exclude FPD production equipment sales on a nonconsolidated basis for the convenience ofreaders. (These figures are unaudited.)
2. Effective from fiscal 2005, the Company
made certain changes in accounting
polices as discussed on page 28.

64.8

361.0

400

457.2

642.6

600

726.4

Semiconductor Production Equipment Sales

30

0
04

05

06

07

Notes: 1. Since fiscal 2005, sales of FPD
production equipment have been shown
separately from SPE Division sales, inwhich they were previously included. In
the left graph, FPD production
equipment sales for fiscal 2004 are on anonconsolidated basis, while those fromfiscal 2005 are on a consolidated basis.
2. Effective from fiscal 2005, the Company
made certain changes in accounting
polices as discussed on page 28.

08■ Previous policies■ New policies

31

Tokyo Electron Limited

Annual Report 08

Electronic Components and Computer Networks (Tokyo Electron Device Limited)In fiscal 2008, net sales in this segment, including intersegment sales, increased by 3.1% year on year, to ¥112.1 billion. Operating income
declined by 7.8%, to ¥3.7 billion, and the operating margin declined 0.4 percentage points, to 3.3%. Net sales in this segment to outside customers rose by 3.5% to ¥111.2 billion.
Along with signs of deterioration in the Japanese economy from the second half of the fiscal year, the domestic semiconductor market slowed
somewhat. However, IT investment was brisk due to the strengthening of legislation related to corporate governance and information security.
The main strategic market for this segment is the industrial equipment industry, where sales focus on custom ICs, analog ICs and otherhigh-value-added devices. Tokyo Electron Device Limited also concentrates on increasing orders for contract semiconductor design services
and stepping-up efforts to develop its own products (under the brand name “InreviumTM”). In computer network equipment and IT-related
software, the company strives to strengthen its sales and maintenance service capabilities to provide solutions that are optimally configured
for the business strategies of customers.

Business Segment Information
Millions of yen
Industrial
electronicequipment

Electronic
components
and computer
networks¥794,911¥111,181

2008:

Total

Eliminations
andcorporate

Consolidated¥906,092¥     –

¥906,092

1. Net sales and operating income
Net sales(1) Sales to external customers................................................................
(2) Intersegment sales or transfers............................................................

1,117

948

2,065

(2,065)–

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

796,028

112,129

908,157(2,065)906,092

Operating expenses.................................................................................

631,220

108,470739,690(2,096)

737,594

Operating income....................................................................................

164,808

3,659

168,46731

168,498

Assets.....................................................................................................

¥744,280¥ 51,459¥795,739¥(2,921)¥792,818

2. Assets, depreciation and amortization expenses, impairment losses andcapital expenditures
Depreciation and amortization expenses..................................................

22,649365

23,014–23,014

Loss on impairment of goodwill................................................................

4,072

–

4,072

–

4,072

Loss on impairment of property, plant and equipment . ............................

808

–

808

–

808

Capital expenditures, including intangible and other assets.......................

26,924924

27,848–27,848Working Capital and Current Ratio

Interest-Bearing Debt, D/E Ratio

Equity and Equity Ratio(Billions of Yen)

(Times)(Billions of Yen)(%)

(Billions of Yen)

(%)

800

4.0

150

60

800

80

0
04

■ Working Capital
Current Ratio

05

06

07

08

36.1

40.2

200
8.7

0
04

05

■ Interest-Bearing Debt
D/E Ratio

06

07

60

40

460.2

20

6.7

0
08

376.9

20
17.3

67.5
59.7

51.6

332.2

99.5
29.9

50

56.8

400 49.1

1.0

0

32

2.0

40

65.1

441.4

2.7

384.5

2.6

315.9

200

261.5

2.4

288.6

2.8

400

600

46.1
127.0

100

275.8

3.0

535.0

3.2

600

0

0
04

■ Equity
Equity Ratio

05

06

07

08

Annual Report 08 Tokyo Electron Limited

Financial Position and Cash Flows
Assets, Liabilities and Net Assets
AssetsAt March 31, 2008, total assets stood at ¥792.8 billion, an increase of ¥22.3 billion from the end of March 2007.
Current assets increased by ¥29.9 billion, to ¥640.2 billion. Reflecting the collection of trade notes and accounts receivable, cash and deposits (which includes certificate of deposits) increased by ¥69.2 billion. Meanwhile, inventories declined by ¥33.7 billion due to reductions in workin process at plant and inventories of products shipped but yet-to-be installed toward the end of the fiscal year.
Net property, plant and equipment declined ¥0.8 billion year on year to ¥104.1 billion, mainly reflecting ¥22.7 billion in new acquisitions, lessan impairment loss of ¥0.8 billion associated with the closure of the Kumamoto Plant of Tokyo Electron Kyushu Limited and depreciation of¥21.4 billion.
Investments and other assets declined ¥6.7 billion, to ¥48.5 billion. A major factor was ¥4.1 billion in loss on impairment of goodwill due tothe business revaluation of Timbre Technologies, Inc., a wholly owned subsidiary acquired in February 2001.
Liabilities and Net Assets
Total liabilities fell by ¥53.1 billion, to ¥247.6 billion.
Current liabilities declined by ¥27.0 billion, to ¥198.8 billion. The main reasons for the decline were a ¥30.1 billion decrease in trade notes andaccounts payable and a ¥17.4 billion reduction in income taxes payable. The current portion of long-term debt increased ¥21.5 billion to ¥30.0
billion. There was a ¥5.5 billion redemption of the No. 5 issue of unsecured bonds with warrants and a ¥3.0 billion repayment of borrowings by
Tokyo Electron Device, but the due date for the No. 11 issue of unsecured bonds fell to less than one year, and ¥30.0 billion was transferred tocurrent liabilities as a result.
Total net assets increased ¥75.4 to ¥545.2 billion, bolstered mainly by an ¥82.8 billion year-on-year rise in retained earnings. As a result, theequity ratio rose 7.8 percentage points, to 67.5%, and return on equity (ROE) declined by 0.4 percentage points year on year, to 21.4%.
Total interest-bearing debt consisting of short-term and long-term debt combined was ¥36.1 billion at the end of the fiscal year. Long-term
debt was zero, reflecting the due date for the redemption of the No. 11 issue of unsecured bonds falling to less than one year; therefore, thisfigure comprises the total of short-term borrowings and the current portion of long-term debt. As a result, the debt-to-equity ratio (interestbearing debt/equity) fell to 6.7%, compared with 8.7% at the end of fiscal 2007.

Free Cash Flows(Billions of Yen)

(Billions of Yen)

30

120

04

05

86.8

0
–0.7

3.1

04

68.3

30

4.1

0

60

29.0

9.9

10

11.7

11.0

10.7

10

13.3

13.5

22.7
21.4

20

90

18.8

20.2 21.4

19.2

20

21.7

21.5

21.8

20.3

25.0

30

106.9

Capital Expenditures and Depreciation and Amortization

(%)

27.1

ROE and ROA

–30

0
05

06

07

08

Return on equity ratio (ROE)
Return on assets ratio (ROA)
ROA=(Operating income+Interest and dividend income)/Average
total assets x100

■ Capital Expenditures■ Depreciation and Amortization

06

07

08

04

05

06

07

08

Free Cash Flows=Cash Flows From Operating Activities+Cash Flows From
Investing Activities

33

Tokyo Electron Limited

Annual Report 08

Capital Expenditures*1 and Depreciation and Amortization*2
Capital expenditures decreased by 16.3% year on year to ¥22.7 billion. Major capital expenditure items included the purchase of evaluationequipment and measuring equipment for R&D on semiconductor and FDP production equipment and the acquisition of buildings. Depreciation
and amortization expenses increased 13.8%, to ¥21.4 billion.
*1 Capital expenditures only represent the gross increase in property, plant and equipment.
*2 Depreciation and amortization does not include amortization and loss on impairment of goodwill.

Cash Flows
Cash flow from operating activities in fiscal 2008 was ¥116.9 billion, ¥62.6 billion more than in fiscal 2007. The main sources of cash were¥169.2 billion from income before income taxes, depreciation and amortization of ¥21.4 billion and a ¥2.5 billion decrease in trade notes andaccounts receivable, and a ¥28.3 billion decrease in inventories. The main uses of cash, meanwhile, included a ¥27.4 billion decrease in tradenotes and accounts payable and ¥73.7 billion for the payment of income taxes.
Investing activities used net cash of ¥30.2 billion, ¥4.9 billion more than in fiscal 2007. The main use of cash was ¥19.3 billion for the purchase of property, plant and equipment, including evaluation equipment and measuring equipment for R&D intended to promote the Company’s
future growth, and ¥10.1 billion for deposits with a maturity of more than three months.
Financing activities used net cash of ¥27.0 billion, ¥7.7 billion less than the outflow in fiscal 2007. The Company used ¥5.5 billion in cash toredeem its No. 5 issue of unsecured bonds with warrants and ¥23.4 billion in cash to pay dividends.
As a result, the balance of cash and cash equivalents increased by ¥59.1 billion year on year, to ¥193.5 billion at the end of March 2008.

Business-related and Other Risks
The following are possible risks that may have an impact on Tokyo Electron’s business performance, stock price, or financial position.
(1) Impact of Fluctuating Foreign Exchange Rates
Success in the development of overseas operations has increased the share of sales generated overseas. As a rule, 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 othermeans. However, foreign exchange rate risks can arise from fluctuations in prices due to sudden foreign exchange movements, which could
have an indirect adverse effect on Tokyo Electron’s business performance.
(2) Impact From Research and Development
Through ongoing and proactive R&D investment and activities 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 sametime, by quickly bringing to market new products incorporating these technologies, Tokyo Electron has successfully captured a high market
share in each of the product fields it has entered and generated a high profit margin. However, delays in the launch of new products and otherfactors could adversely affect Tokyo Electron’s business performance.
(3) Impact From Changes in the Semiconductor Market
Tokyo Electron has achieved a high profit margin by concentrating resources in high-tech fields, including semiconductor production equipment,
where technological innovation is rapid but Tokyo Electron can effectively use its strengths. Although technological change is responsible for thesemiconductor 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 and demand. However, order cancellations, excess
capacity and personnel and increased inventories resulting from an unexpectedly large market contraction could adversely affect Tokyo­Electron’s business performance.

34

Annual Report 08 Tokyo Electron Limited(4) Impact From Concentration of Transactions on Particular Customers
Tokyo Electron has been successful at increasing transactions with the leading semiconductor manufacturers worldwide, including those inJapan, 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 may from 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’sbusiness performance.
(5) Safety-related Impacts
Tokyo Electron’s basic philosophy is to always bear in mind safety and health in the execution of business activities, 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 to eliminate any harmful impact on health. However, harm to customers, order cancellations or othercircumstances resulting from safety problems or other problems related to Tokyo Electron’s products could adversely affect Tokyo Electron’sbusiness performance.
(6) Impact From Quality Issues
Tokyo Electron actively develops outstanding, cutting-edge technologies for incorporation in new products that 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 toestablish a world-class service system. These actions have resulted in a large number of customers adopting Tokyo Electron’s products. However, because Tokyo Electron’s products are based on cutting-edge technologies, and due to other factors, many of the technologies developed
are in unfamiliar fields. The occurrence of unforeseen defects or other issues could adversely affect Tokyo Electron’s business performance.
(7) Impact of Intellectual Property Rights
In order to distinguish its products and make them more competitive, Tokyo Electron has promoted its R&D strategy for the early developmentof cutting-edge technologies together with its business and intellectual property strategies. This approach has enabled Tokyo Electron to obtainsole possession of many proprietary technologies that have been instrumental to the Company’s ability to capture a high market share andgenerate high profit margins in each of its product fields. However, Tokyo Electron’s products incorporate and optimize many of these proprietary cutting-edge technologies. There may be cases in which, by avoiding the use of third-party technologies and intellectual property rights,
Tokyo Electron’s business performance could be adversely affected.
(8) Other Risks
Tokyo Electron is actively engaged in reforming its corporate structure so that it can generate profits even when markets contract. These
reforms have entailed creating new high-growth and high-return businesses and pursuing higher earnings from existing businesses. At the sametime, Tokyo Electron has promoted activities to preserve the environment and worked to restructure its compliance and risk 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, unavoidable
occurrences (such as infectious diseases), financial or stock markets, government or other regulations, supply systems of suppliers, market
conditions for products and real estate, the ability to recruit personnel in Japan and overseas, competition over standardization, and loss of key
personnel. Any of these factors could adversely affect Tokyo Electron’s business performance.

35

Tokyo Electron Limited

Annual Report 08

CON S OLIDATED E l e v e n - YEA R S UMMA R YTokyo Electron Limited and Subsidiaries
Years ended March 31

Thousands of
U.S. dollars
2008

2008

2007

2006

Net sales1................................................................................
Semiconductor production equipment.................................
FPD production equipment..................................................
 Computer networks.............................................................
 Electronic components and computer networks .................
 Other...................................................................................
Operating income (loss)...........................................................
Income (loss) before income taxes...........................................
Net income (loss).....................................................................

$9,043,737
7,250,624
678,870–
1,109,702
4,541
1,681,785
1,688,991
1,060,695¥ 906,092
726,440
68,016–111,181455
168,498
169,220
106,271¥ 851,975
642,625
100,766
19,16988,294
1,121
143,979
144,414
91,263¥ 673,686
486,883
81,176
17,49786,881
1,249
75,70375,32848,006

Domestic sales........................................................................
Overseas sales........................................................................

3,233,317
5,810,420

323,946
582,146

313,816
538,159

262,532
411,154

Depreciation and amortization2................................................
Capital expenditures3...............................................................
R&D expenses.........................................................................

213,724
226,599
659,477

21,41322,70366,073

18,82027,12956,962

19,17013,33549,182

Total assets.............................................................................
Total net assets (Total shareholders’ equity).............................

7,913,145
5,442,110

792,818
545,245

770,514469,811663,243
376,900

10,429

9,528

8,901

¥   594.01
592.71
2,989.70
125.00180,611
43,324¥   511.27
509.84
2,573.72
103.00180,61141,289¥   267.61
267.32
2,112.30
55.00
180,611
46,272

21.4
18.6
67.5
1.16

21.8
16.9
59.7
1.19

13.5
11.2
56.8
1.03

¥   86,882¥   89,418¥   75,687

Number of employees.............................................................
U.S. dollars

Net income (loss) per share of common stock:4
Basic...................................................................................
 Diluted5................................................................................
Net assets per share of common stock...................................
Cash dividends per share of common stock............................
Number of shares outstanding (thousands)..............................
Number of shareholders..........................................................

$     5.93
5.92
29.84
1.25

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

Net sales per employee...........................................................

$   867,172

1 Until fiscal 2004, the FPD (Flat Panel Display) division was included in Semiconductor production equipment. From fiscal 2008, the Computer networks is included in the Electronic
components and computer networks.
2 Depreciation and amortization does not include amortization and loss on impairment of goodwill.
3 Capital expenditures before fiscal 1999 represent the gross increase in property, plant and equipment, intangible assets and other depreciable assets. Capital expenditures after fiscal
2000 only represent the gross increase in property, plant and equipment.
4 From fiscal 2003, the Company applied “Accounting Standards Regarding Net Income per Share (Business Accounting Standards No. 2)” and “Practical Guidelines for Applying Accounting Standards Regarding Net Income per Share (Practical Guidelines for Applying Accounting Standards No. 4)” released by the Accounting Standards Board of Japan (ASBJ).
5 Dilution is not assumed for the years ended March 2003, 2002 and 1999.
6 Effective from fiscal 2005, Tokyo Electron changed its method of revenue recognition upon receiving customer confirmation of product set-up and testing of products for Semiconductor
and FPD production equipment. The effect of this change decreased net sales, operating income and income before income taxes by ¥80,956 million, ¥20,541 million and ¥20,563
million, respectively, for the year ended March 31, 2005, compared with the corresponding amounts which would have been recorded if the previous method had been applied.
7 Effective from fiscal 2005, Tokyo Electron changed its method to account for after-sale repair expenses by recording accrued warranty expenses for Semiconductor and FPD production
equipment. The effect of this change decreased operating income and income before income taxes by ¥635 million and ¥13,106 million, respectively, for the year ended March 31, 2005,
compared with the corresponding amounts which would have been recorded if the previous method had been applied.

36

Annual Report 08 Tokyo Electron Limited

Millions of yen
2005

2004

2003

2002

2001

2000

1999

1998

¥ 635,710
457,191
75,03815,96686,2491,266
63,98355,77561,601¥ 529,654
425,747–
18,44884,2291,230
22,28014,9368,297¥ 460,580
364,689–
17,19377,3801,318
1,119(23,010)(41,554)¥ 417,825
325,715–
17,03173,658
1,421(18,310)(22,919)(19,938)¥ 723,880
619,001–
14,054
89,211
1,614
121,086
99,13262,012¥ 440,729
355,103–
12,35772,051
1,218
35,816
29,68919,848¥ 313,820
242,240–
12,87857,734
968
6,383
6,038
1,866

¥ 455,585
380,184–
15,26260,139–63,296
62,83430,009232,678
403,032

242,318
287,336

190,513
270,067

186,516
231,309299,272
424,608

183,987
256,742

149,838
163,982

230,550
225,035

21,4639,876
43,88924,963
11,00744,15027,374
12,35950,123

26,29430,94653,827

21,67949,403
52,911

19,44618,99937,135

17,921
23,47826,842

12,65233,302
26,813644,320
332,165

561,632
275,800

524,901
252,904

556,915
307,579

729,511333,281

499,499273,603

414,903257,716

493,600
261,009

8,864

8,870

10,053

10,171

10,236

8,946

7,835

7,287

¥ (238.57)–
1,456.23
8.00
175,698
49,259¥ (113.85)–
1,756.73
8.00
175,691
37,116¥   353.76
344.75
1,901.38
38.00
175,691
42,781¥   113.53
110.64
1,560.27
14.00
175,660
7,147¥    10.70–
1,477.93
12.00
174,6248,576¥   174.68
168.43
1,495.20
30.00
174,5699,562(14.8)
0.2
48.2
0.85

(6.2)
(4.4)
55.2
0.65

20.4
16.7
45.7
1.18

7.5
8.1
54.8
0.96

0.7
2.0
62.1
0.69

12.8
13.9
52.9
1.03

¥   45,815¥   41,080¥   70,719¥   49,265¥   40,054¥   62,520

Yen¥   343.63
343.54
1,863.28
45.00
180,61160,857¥    46.37
45.78
1,543.73
10.00
180,61160,873

20.3
10.1
51.6
1.05

3.1
4.2
49.1
0.97

Percent

Thousands of yen¥   71,718¥   59,713

37

Tokyo Electron Limited

Annual Report 08

CON S OLIDATED B ALANCE S HEET STokyo Electron Limited and Subsidiaries
March 31, 2008 and 2007ASSETS

Thousands of
U.S. dollars

Millions of yen

2008

2007

2008

Current assets: Cash and cash equivalents............................................................................
Short-term investments..................................................................................
 Trade notes and accounts receivable.............................................................
Allowance for doubtful accounts....................................................................
 Inventories.....................................................................................................
 Deferred income taxes...................................................................................
 Prepaid expenses and other current assets....................................................
  Total current assets....................................................................................

¥193,493
10,070224,171(63)
161,152
24,14027,271
640,234¥134,390–
228,688(127)
194,840
28,32624,246
610,363$1,931,261
100,5092,237,459(629)
1,608,464
240,942
272,192
6,390,198

Property, plant and equipment: Land..............................................................................................................
Buildings........................................................................................................
 Machinery and equipment..............................................................................
 Construction in progress................................................................................
  Total property, plant and equipment............................................................
 Less: Accumulated depreciation....................................................................
  Net property, plant and equipment.............................................................

20,729119,578
99,735
4,199
244,241
140,135
104,106

20,495
121,318
96,547
6,062
244,422
139,492
104,930

206,897
1,193,512
995,459
41,9102,437,778
1,398,692
1,039,086

Investments and other assets: Investment securities.....................................................................................
 Deferred income taxes...................................................................................
 Intangible assets............................................................................................
 Other assets..................................................................................................
  Total investments and other assets.............................................................
Total assets......................................................................................................

8,837
14,846
13,254
11,541
48,478¥792,818

14,643
13,691
19,4007,487
55,221¥770,514

88,202
148,178
132,290
115,191
483,861$7,913,145

See accompanying Notes to Consolidated Financial Statements.

38

Annual Report 08 Tokyo Electron Limited

LIABILITIES AND NET ASSETS

Thousands of
U.S. dollars

Millions of yen

2008

2007

2008

Current liabilities:
Short-term borrowings...................................................................................
 Current portion of long-term debt...................................................................
 Trade notes and accounts payable.................................................................
 Customer advances.......................................................................................
 Income taxes payable....................................................................................
Accrued employees’ bonuses........................................................................
Accrued warranty expenses...........................................................................
Accrued expenses and other current liabilities................................................
  Total current liabilities..................................................................................

¥   6,070
30,00066,79424,02928,23912,727
9,816
21,146
198,821¥   1,712
8,500
96,847
21,95745,657
14,131
14,11422,937
225,855$   60,585
299,431666,674
239,834
281,854
127,029
97,974211,059
1,984,440

Long-term debt, less current portion.............................................................
Accrued pension and severance costs..........................................................
Other liabilities.................................................................................................
  Total liabilities..............................................................................................

–
44,370
4,382
247,573

30,00040,686
4,162
300,703–442,858
43,7372,471,035

54,961

54,961

548,568

78,393410,867(11,370)

78,347
328,027(12,168)

782,443
4,100,878(113,484)

2,172
460
(530)
484
9,808
545,245¥792,818

5,853
(177)
5,333
584
9,051
469,811¥770,514

21,6794,591(5,290)4,831
97,894
5,442,110$7,913,145

Contingent liabilities
Net assets:
Shareholders’ equity  Common stock..........................................................................................
    Authorized: 300,000,000 shares   Issued: 180,610,911 shares as of March 31, 2008 and 2007  Capital surplus...........................................................................................
   Retained earnings......................................................................................
  Treasury stock, at cost...............................................................................
    1,678,927 and 1,812,976 shares as of   March 31, 2008 and 2007, respectively
Valuation and translation adjustments  Unrealized gains on investment securities...................................................
  Deferred gains or losses on hedges............................................................
   Foreign currency translation adjustments....................................................
Share subscription rights............................................................................
Minority interests.........................................................................................
  Total net assets..........................................................................................
Total liabilities and net assets.........................................................................

39

Tokyo Electron Limited

Annual Report 08

CON S OLIDATED S TATEMENT S O F INCOME
Tokyo Electron Limited and Subsidiaries
Years ended March 31, 2008 and 2007

Thousands of
U.S. dollars

Millions of yen

2008

2007

2008

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

¥ 906,092
594,794311,298
142,800
168,498¥ 851,975
579,326
272,649
128,670
143,979$9,043,737
5,936,660
3,107,077
1,425,292
1,681,785

Other income (expenses): Interest and dividend income.......................................................................
 Interest expenses.........................................................................................
Revenue from development grants...............................................................
Foreign exchange losses..............................................................................
Gain on sale of property, plant and equipment.............................................
Gain on sale of investment securities...........................................................
Gain on sale of shares of consolidated subsidiary........................................
Gain on reversal of forfeited warrants...........................................................
 Loss on disposal of property, plant and equipment......................................
 Loss on impairment of property, plant and equipment..................................
 Loss on impairment of goodwill....................................................................
 Equity in loss of affiliated company...............................................................
 Other, net.....................................................................................................
Income before income taxes........................................................................

1,491
(343)
2,170
(28)
2,365
135
–
467
(885)
(808)
(4,072)–
230
169,220

910
(421)
2,640
(3,373)
417
1,225
528
526
(834)
–
–
(1,442)
259
144,414

14,882(3,424)
21,659(279)
23,605
1,347
–
4,661
(8,833)(8,065)(40,643)–
2,296
1,688,991

Income taxes: Current........................................................................................................
 Deferred.......................................................................................................

56,5695,374

60,132(7,535)564,61753,638

Minority interests.............................................................................................
Net income.....................................................................................................

1,006¥ 106,271

554¥  91,263

10,041$1,060,695

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

40

Yen

¥  594.01
592.71
2,989.70
125.00U.S. dollars¥  511.27
509.84
2,573.72
103.00$      5.93
5.92
29.84
1.25

Annual Report 08 Tokyo Electron Limited

CON S OLIDATED S TATEMENT S O F CHANGE S IN NET A S S ET STokyo Electron Limited and Subsidiaries
Years ended March 31, 2008 and 2007

Millions of yen
Shareholders’ equity

Valuation and translation adjustments					Unrealized 	Deferred					gains ongains or	Common 	Capital
Retained 	Treasury
investment losses onstock
surplusearnings
stock
securities
hedgesBalance as of March 31, 2006�����������Cash dividends����������������������������������
Bonuses to directors�������������������������
Net income����������������������������������������
Repurchase of treasury stocks����������
Disposal of treasury stocks����������������
Sale of shares of consolidated
subsidiary and others�����������������������
Other, net������������������������������������������
Balance as of March 31, 2007�����������Cash dividends����������������������������������
Net income����������������������������������������
Repurchase of treasury stocks����������
Disposal of treasury stocks����������������
Other, net������������������������������������������
Balance as of March 31, 2008�����������

Foreigncurrency
Sharetranslation subscription 	Minority 	Total
adjustments
rightsinterests
net assets¥54,961–––––¥78,079
–
–
–
–
268

¥249,938(12,843)(331)
91,263––¥(15,117)
–
–
–
(64)
3,013

¥ 5,118–––––¥    ––––––¥ 3,921–––––¥1,014–––––¥4,722–––––¥382,636(12,843)(331)
91,263
(64)
3,281

–
–
¥54,961–––––¥54,961––¥78,347–––
46–¥78,393––¥328,027(23,431)106,271–––¥410,867––¥(12,168)
–
–
(40)
838
–
¥(11,370)–
735¥ 5,853––––(3,681)¥ 2,172–(177)¥(177)
–
–
–
–
637
¥ 460

–
1,412
¥ 5,333––––(5,863)¥   (530)–(430)¥  584
–
–
–
–
(100)
¥  484

4,329–¥9,051––––757¥9,8084,329
1,540¥469,811(23,431)106,271(40)
884(8,250)¥545,245

Thousands of U.S. dollars
Shareholders’ equity

Valuation and translation adjustments					Unrealized 	Deferred					gains ongains or	Common 	Capital
Retained 	Treasury
investment losses onstock
surplusearnings
stock
securities
hedgesBalance as of March 31, 2007����������� $548,568 $781,984
Cash dividends����������������������������������
––Net income����������������������������������������
––Repurchase of treasury stocks����������
––Disposal of treasury stocks����������������
–459
Other, net������������������������������������������
––Balance as of March 31, 2008����������� $548,568 $782,443$3,274,049 $(121,449) $ 58,419 $(1,767)(233,866)–––
1,060,695
–
–
–
–
(399)
–
–
–
8,364
–
–
–
– (36,740)
6,358$4,100,878 $(113,484) $ 21,679 $ 4,591

Foreigncurrencytranslation
adjustments$ 53,229––––(58,519)$ (5,290)

Share
subscription 	Minority 	Total
rightsinterests
net assets$5,829 $90,338
–
–
–
–
–
–
–
–
(998)
7,556
$4,831 $97,894$4,689,200(233,866)
1,060,695
(399)
8,823
(82,343)$5,442,110

See accompanying Notes to Consolidated Financial Statements.

41

Tokyo Electron Limited

Annual Report 08

CON S OLIDATED S TATEMENT S O F CA S H F LOW S
Tokyo Electron Limited and Subsidiaries
Years ended March 31, 2008 and 2007

Thousands of
U.S. dollars

Millions of yen

Cash flows from operating activities: Income before income taxes..............................................................................................
 Depreciation and amortization............................................................................................
Amortization of goodwill.....................................................................................................
 Loss on impairment of goodwill..........................................................................................
 Loss on impairment of property, plant and equipment .......................................................
 Increase in accrued pension and severance costs.............................................................
 Increase in prepaid pension expenses................................................................................
 Increase (decrease) in accrued employees’ bonuses..........................................................
 Increase (decrease) in accrued warranty expenses.............................................................
 Interest and dividend income.............................................................................................
 Interest expenses...............................................................................................................
 Loss on foreign currency translation...................................................................................
Gain on sale of property, plant and equipment...................................................................
Gain on sale of investment securities.................................................................................
Gain on sale of shares of consolidated subsidiary..............................................................
Gain on reversal of forfeited warrants.................................................................................
 Loss on disposal of property, plant and equipment............................................................
 Equity in loss of affiliated company.....................................................................................
(Increase) decrease in trade notes and accounts receivable...............................................
(Increase) decrease in inventories.......................................................................................
 Increase in prepaid consumption tax..................................................................................
 Increase (decrease) in trade notes and accounts payable...................................................
 Increase (decrease) in customer advances.........................................................................
 Other, net...........................................................................................................................
Subtotal............................................................................................................................
Receipts from interest and dividends..................................................................................
 Interest paid . ....................................................................................................................
 Income taxes paid ............................................................................................................
Net cash provided by operating activities......................................................................
Cash flows from investing activities: Purchases of short-term investments.................................................................................
 Proceeds from short-term investments..............................................................................
 Payment for purchase of property, plant and equipment....................................................
 Proceeds from sale of property, plant and equipment.........................................................
 Payment for acquisition of intangible assets.......................................................................
 Payment for acquisition of consolidated subsidiary, net of cash acquired...........................
 Proceeds from sale of shares in consolidated subsidiary....................................................
 Proceeds from sale of investment securities.......................................................................
 Other, net...........................................................................................................................
Net cash used in investing activities..............................................................................
Cash flows from financing activities: Increase (decrease) in short-term borrowings.....................................................................
Repayment of long-term debt............................................................................................
Redemption of unsecured bonds.......................................................................................
 Decrease in treasury stock, net..........................................................................................
 Dividends paid...................................................................................................................
 Other, net...........................................................................................................................
Net cash used in financing activities..............................................................................
Effect of exchange rate changes on cash and cash equivalents . ..........................................
Net increase (decrease) in cash and cash equivalents.....................................................
Cash and cash equivalents at beginning of year....................................................................
Cash and cash equivalents at end of year.........................................................................
See accompanying Notes to Consolidated Financial Statements.

42

2008

2007

2008

¥169,220
21,413
1,601
4,072
808
3,753
(4,036)(1,404)(4,323)(1,491)343
694(2,365)
(135)
–
(467)
885
–
2,473
28,343(1,446)(27,373)2,130(3,058)
189,6371,372(348)(73,722)
116,939¥144,414
18,820
1,974
–
–
1,926
(966)
3,900
1,614
(910)
421
520
(417)
(1,225)
(528)
(526)
834
1,442
(58,352)(31,585)(1,775)
17,236(12,459)
7,324
91,682853(453)(37,785)
54,297$1,688,991
213,724
15,97940,643
8,065
37,459(40,283)(14,013)(43,148)(14,882)
3,424
6,927
(23,605)(1,347)–(4,661)
8,833–
24,683282,893(14,433)(273,211)
21,260(30,524)
1,892,774
13,694(3,474)(735,822)
1,167,172(44,070)
34,000(19,338)
4,270(4,042)––151(1,157)(30,186)(30,000)
30,000(25,154)
1,069(2,462)(4,524)
4,169
2,460
(851)
(25,293)(439,864)
339,355(193,013)
42,619(40,343)––
1,507(11,549)(301,288)

4,352(3,000)(5,500)844(23,431)(298)(27,033)(617)
59,103
134,390¥193,493(404)–(24,500)
3,217(12,843)(189)(34,719)81(5,634)140,024¥134,390

43,437(29,943)(54,896)
8,424(233,866)(2,973)(269,817)(6,158)589,909
1,341,352$1,931,261

Annual Report 08 Tokyo Electron Limited

NOTE S TO CON S OLIDATED F INANCIAL S TATEMENT S
Tokyo Electron Limited and Subsidiaries

1. Basis of Presentation of Consolidated Financial Statements
The accompanying consolidated financial statements of Tokyo Electron
Limited (hereinafter “the Company”) and its subsidiaries (hereinafter collectively referred to as “Tokyo Electron”) have been prepared in accordance withthe provisions set forth in the Financial Instruments and Exchange Law ofJapan and its related accounting regulations, and in conformity with accounting principles generally accepted in Japan, which are different in certain
respects as to application and disclosure requirements of International Financial Reporting Standards.
The accounts of overseas subsidiaries are based on their accounting
records maintained in conformity with generally accepted accounting principles
prevailing in the respective countries of domicile.
The accompanying consolidated financial statements have been restructured and translated into English from the statutory Japanese language consolidated financial statements. Some supplementary information included in thestatutory Japanese language consolidated financial statements, which is not
required for fair presentation, is not presented in the accompanying consolidated financial statements.
U.S. dollar amounts included herein are solely for the convenience of readers
and are presented at the rate of ¥100.19 to $1.00, the approximate rate as ofMarch 31, 2008. The translation should not be construed as a representationthat the Japanese yen amounts shown could be converted into U.S. dollars atthat or any other rate.

2. Summary of Significant Accounting Policies(a) Principles of consolidation
The consolidated financial statements include the accounts of the Company
and its 30 subsidiaries for the year ended March 31, 2008 and 2007.
Investments in affiliates in which the Company’s ownership is 20% to 50%
are accounted for by the equity method.
All significant inter-company accounts, transactions and unrealized profits orlosses have been eliminated in consolidation.
The fiscal year-end of all entities is March 31, except for 2 consolidated
foreign subsidiaries, which use a December 31 year-end, and no significant
transactions were noted between the different fiscal year-ends.
(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 are translated at the contracted rates.
Revenue and expense items are translated at the rates that approximate
those prevailing at the time of the transactions.
The balance sheet accounts of foreign subsidiaries are translated 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 historicalrates. Revenue and expense accounts of foreign subsidiaries are translated ataverage rates of exchange in effect during the year. Resulting translation adjustments are presented in net assets as a component of valuation and translation
adjustments and minority interests in the consolidated financial statements.

(c) Investment securities
Tokyo Electron is required to examine the intent of holding each security andclassify those securities as trading securities, held-to-maturity debt securities orother securities. Tokyo Electron has no trading or held-to-maturity debt securities. Other securities with market prices are valued at fair market value prevailingat the balance sheet date. The differences between the book and market pricesof other securities, net of applicable income taxes, are presented in net assets
as a component of valuation and translation adjustments. Other securities
without market value are valued at cost using the weighted-average method.
The cost of sold securities is calculated using the weighted-average method.
(d) Inventories
Inventories other than raw materials are stated principally at cost, which isdetermined principally by the specific indentification method. Raw materials
are stated principally at cost, which is determined principally by the movingaverage method.
(e) Property, plant and equipment
Property, plant and equipment are stated at cost. Depreciation of buildings,
machinery and equipment of the Company and its domestic subsidiaries iscomputed under the declining balance method, except for buildings acquired
subsequent to March 31, 1998 which are depreciated under the straight-line
method, based on the estimated useful lives of assets. Foreign subsidiaries
mainly apply the straight-line method over the estimated useful lives of assets.
Estimated useful lives of property, plant and equipment are as follows:
Buildings
2 to 60 years
Machinery and equipment 2 to 17 years(f) Intangible assets
Intangible assets, which primarily comprise of capitalized costs for computer
software and goodwill, are amortized by the straight-line method over theirestimated useful lives. Capitalized costs for computer software for internal use
are amortized over a period of 2 to 5 years. Goodwill is evaluated on an individual basis and amortized over a period not exceeding 20 years.
(g) Impairment of property, plant and equipment
Tokyo Electron evaluates the carrying value of fixed assets to be held for use
in the business.
If the carrying value of a fixed asset is impaired, a loss is recognized basedon 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, which
are determined using the fair value less disposal costs and the total amount of
discounted cash flows generated from the continuing use of the individual
assets or the asset group and the disposal of the assets, respectively.
(h) Allowance for doubtful accounts
The allowance for doubtful accounts is provided at an amount determinedbased on the historical experience of bad debts with respect to ordinary
receivables, and an estimate of uncollectible amounts determined by reference to specific doubtful receivables from customers which are experiencing
financial difficulties.

43

Tokyo Electron Limited

Annual Report 08(i) Accrued pension and severance costs
The Company and its domestic subsidiaries provide an accrual for employees’ pension and severance costs based on the projected benefit obligationand pension assets on the account settlement date. Prior service costs arecharged to income on a straight-line basis, beginning from the fiscal year inwhich 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 to income on a straight-line basis, beginningfrom the fiscal year after they are recognized, over a fixed number of years (4years) within the average remaining years of service of employees when the
differences occur.
The provision for accrued pension and severance costs for directors andstatutory auditors of the Company and its domestic subsidiaries is calculated inaccordance with internal regulations.
The Company and certain domestic subsidiaries decided to discontinue thepayment of severance pay for directors and statutory auditors after April 1,
2005, and at the general shareholders’ meeting in June 2005, it was resolvedthat the severance pay for directors and statutory auditors until March 31,
2005 would be paid at the termination of their service and the decision
regarding the payment amount for each director and statutory auditor was
delegated to the board of directors and statutory auditors, respectively. As
discussed in note 10, the accruals for severance costs for directors andstatutory auditors are included in accrued pension and severance costs in the
consolidated balance sheets.
( j) Accrued warranty expenses
Tokyo Electron’s products are generally subject to warranty, and Tokyo
Electron accrues such estimated costs when product revenue is recognized.
To prepare for future repairs during warranty periods, estimated after-sale repair
expenses over warranty periods are accrued based on the historical ratio of
actual repair expenses to corresponding sales.
(k) Leases
Noncancelable leases are primarily accounted for as operating leases(whether such leases are classified as operating or finance leases), except forleases that transfer ownership to the lessee at the end of the lease, which areaccounted for as finance leases.
(l) Derivatives and hedge accounting
The Company and a domestic subsidiary make use of derivatives in order tomanage certain risks arising from adverse fluctuations in foreign currency
exchange rates. The amount of derivatives is limited to the extent of foreign
currency assets, liabilities and actual orders, and the Company and the domestic subsidiary do not trade in derivatives for speculative purposes.
Derivatives are carried at fair value with changes in unrealized gain or loss
charged or credited to income, except for those which meet the criteria forhedge accounting. Unrealized gains or losses on hedging derivatives, net oftaxes, are reported in net assets as a component of valuation and translation
adjustments. Receivables and payables hedged by qualified forward foreignexchange contracts are translated at the corresponding foreign exchange
contract rates.

44(m) Income taxes
Income taxes of the Company and its domestic subsidiaries consist of
corporate income taxes, local inhabitants’ taxes and enterprise tax. Tokyo
Electron records deferred tax assets and liabilities, which are measured using
the enacted tax rates and laws which will be in effect when the differences are
expected to reverse, on temporary differences between the carrying amountsof assets and liabilities for financial reporting purposes and the amounts used
for income tax purposes.
(n) Revenue recognition
Revenue from Semiconductor and FPD (Flat Panel Display) production
equipment is principally recognized at the time of the confirmation of set-up
and testing of products. Revenue from such equipment not requiring substantial installation is recognized at the time of shipment. Revenue from otherproducts, such as electronic components, is recognized at the time of shipment. Service revenue from maintenance is recognized ratably over the term of
the maintenance contract.
(o) Per share information
Net income per share and net assets per share are computed based on theweighted-average number of shares of common stock outstanding during
each year.
The Company applies “Accounting Standards Regarding Net Income per
Share (Business Accounting Standards No. 2)” and “Practical Guidelines for
Applying Accounting Standards Regarding Net Income per Share (Practical
Guidelines for Applying Accounting Standards No. 4)” released by the Accounting Standards Board of Japan.
Dividends per share have been presented on an accrual 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.
(p) Research and development expenses
Research and development expenses are charged to income as incurredand amounted to ¥66,073 million ($659,477 thousand) and ¥56,962 million forthe years ended March 31, 2008 and 2007, respectively.
(q) Accounting standard for statement of changes in net assets
Effective from the year ended March 31, 2007, the Company and its domestic subsidiaries adopted “Accounting Standard for Statement of Changes in
Net Assets” (Statement No. 6 issued by the Accounting Standards Board ofJapan on December 27, 2005), and the “Implementation guidance for theaccounting standard for statement of changes in net assets” (the Financial
Accounting Standard Implementation Guidance No. 9 issued by the Accounting Standards Board of Japan on December 27, 2005).
(r) Cash equivalents
For purposes of the consolidated statements of cash flows, Tokyo Electron
considers all highly-liquid instruments purchased with original maturities ofthree months or less to be cash equivalents.
(s) Reclassifications
Certain reclassifications have been made to the prior year’s consolidated
financial statements to conform with the presentation used for the year ended
March 31, 2008.

Annual Report 08 Tokyo Electron Limited

3. Changes in Accounting Policies(a) Accounting policy for depreciation method
Effective from the year ended March 31, 2008, the Company and its domestic consolidated subsidiaries changed their depreciation method for tangible
fixed assets acquired on or after April 1, 2007 in accordance with the revision ofJapanese Corporate Tax Law (Partial Revision of Income Tax Law, Law No. 6 ofMarch 30, 2007; Partial Revision of Income Tax Law Enforcement Ordinance,
Cabinet Order No. 83 of March 30, 2007). As a result of this change, operating
income and income before income taxes decreased by ¥1,429 million ($14,263
thousand), compared with the corresponding amounts that would have beenrecorded under the previous accounting method.
(b) Accounting standard for presentation of net assets in thebalance sheet
Effective from the year ended March 31, 2007, the Company and its domestic subsidiaries adopted “Accounting Standard for Presentation of Net Assets
in the Balance Sheet” (Statement No. 5 issued by the Accounting Standards
Board of Japan on December 9, 2005), and the “Implementation guidance forthe accounting standard for presentation of net assets in the balance sheet”(the Financial Accounting Standard Implementation Guidance No. 8 issued by
the Accounting Standards Board of Japan on December 9, 2005).
The adoption of the accounting standard and the implementation guidance
had no impact on the consolidated statement of income for the year ended
March 31, 2007.

(g) Change in business segment classification
As of October 1, 2006, the Company’s computer systems and networks
business was transferred to its subsidiary, Tokyo Electron Device Limited. The
computer systems and networks business, which was previously classified aspart of the “Industrial electronic equipment” segment, was reclassified to the“Electronic components” segment, which was renamed to the “Electronic
components and computer networks” segment, to more appropriately present
the business segments in line with similarities in types of products and operations.

4. Acquisition
Tokyo Electron U.S. Holdings, Inc., a wholly-owned subsidiary of the Company, acquired all the shares of Epion Corporation (renamed TEL Epion, Inc.) in
the amount of ¥4,526 million on December 19, 2006 (see note 17). The acquisition was accounted for using the purchase method in accordance with U.S.
generally accepted accounting standards. Negative goodwill generated fromthe acquisition was deducted from the intangible assets related to the acquired
developed technology. The intangible assets, with a net amount of ¥4,985
million, are being amortized over 10 years.

5. Investment Securities
Investment securities, which solely comprise of other securities, as of March
31, 2008 and 2007 are as follows:
Millions of yen

2008:(c) Accounting standard for business combination
Effective from the year ended March 31, 2007, “Accounting Standard forBusiness Combination” issued by the Business Accounting Standards Board ofJapan was adopted. The change had no significant impact on the consolidated
financial statements.

Securities with market prices(d) Accounting standard for decrease of treasury stock and legal reserve
Effective from the year ended March 31, 2007, “Accounting Standard for
Decrease of Treasury Stock and Legal Reserve” issued by the AccountingStandards Board of Japan was adopted. The change had no impact on the
consolidated financial statements.
(e) Accounting standard for stock option
Effective from the year ended March 31, 2007, “Accounting Standard for
Stock Option” issued by the Accounting Standards Board of Japan was
adopted. Upon adoption, operating income and income before income taxes
decreased by ¥118 million compared to the amounts that would have beenrecorded under the previous accounting standards.
(f) Accounting standard for director’s bonus
Effective from the year ended March 31, 2007, “Accounting Standard for
Director’s Bonus” issued by the Accounting Standards Board of Japan was
adopted. Upon adoption, operating income and income before income taxes
decreased by ¥652 million compared to the amounts that would have beenrecorded under the previous accounting standards.

Cost

Carrying value Equity securities����������������������������������������������������

¥4,504¥8,139 Other ��������������������������������������������������������������������

100

101

 Unlisted stock��������������������������������������������������������

579

579

 Other ��������������������������������������������������������������������

18

18

Total��������������������������������������������������������������������������

¥5,201¥8,837

2007:

Cost

Securities without market prices

Millions of yen

Carrying value

Securities with market prices Equity securities����������������������������������������������������

¥4,517¥14,338 Other (Note) ����������������������������������������������������������

114

120

 Unlisted stock��������������������������������������������������������

2,015

183

 Other ��������������������������������������������������������������������

21

21

Total��������������������������������������������������������������������������

¥6,667¥14,662

Securities without market prices

Note: Bond investment trust of ¥19 million classified in prepaid expenses and other current assets
as of March 31, 2007 is included.
Thousands of U.S. dollars

2008:

Cost

Carrying value

Securities with market prices Equity securities����������������������������������������������������

$44,954$81,235 Other ��������������������������������������������������������������������

998

1,008
5,779

Securities without market prices Unlisted stock��������������������������������������������������������

5,779 Other ��������������������������������������������������������������������

180

180

Total��������������������������������������������������������������������������

$51,911$88,20245

Tokyo Electron Limited

Annual Report 08

Gross realized gains on sales of other securities are ¥135 million ($1,347
thousand) for the year ended March 31, 2008. Gross realized gains and losses
on sales of other securities are ¥1,244 million and ¥19 million, respectively, forthe year ended March 31, 2007.

6. Inventories
Inventories as of March 31, 2008 and 2007 are as follows:
Thousands of
U.S. dollars

Millions of yen

Finished products��������������������������������

As of March 31, 2008, Tokyo Electron has unused lines of credit amounting
to ¥129,736 million ($1,294,900 thousand).
The maturities of long-term debt are summarized as follows:
Millions ofyenYear ending March 31

2008

2008

2009�������������������������������������������������������������������������

¥30,000$299,431

2010�������������������������������������������������������������������������

––2011�������������������������������������������������������������������������

–

–
–

2008

2007

2008

2012�������������������������������������������������������������������������

–¥ 97,722¥102,515$  975,367

2013 and thereafter ��������������������������������������������������

––Total��������������������������������������������������������������������������

¥30,000$299,431

Work in process, raw materials
and supplies��������������������������������������

63,43092,325633,097

Total����������������������������������������������������

¥161,152¥194,840$1,608,464

7. Impairment of Property, Plant and Equipment
For assessing fixed asset impairment, the Company generally groups fixed
assets used for normal operations at a business unit level of which profits arereasonably controllable. Also, the Company assesses the recoverability of
individual assets not used in normal operations or that are idle.
During the year ended March 31, 2008, the Company determined to closethe domestic manufacturing facilities and impairment losses were recognized
mainly for buildings of ¥808 million ($8,065 thousand). These charges were
presented in other income (expenses) in the consolidated statement of income
for the year ended March 31, 2008.
No impairment loss of property, plant and equipment was recognized in 2007.

8. Pledged Assets
Tokyo Electron did not hold any assets pledged as collateral as of March 31,
2008 and 2007.

10. Accrued Pension and Severance Costs
The Company and its domestic subsidiaries have defined benefit plans (cashbalance plan and noncontributory retirement and severance benefit plans) covering substantially all their employees who meet eligibility requirements. The benefits under the plans are based on length of service and certain other factors.
The cash balance plan provides for pension or lump-sum payment benefits toemployees who retire or terminate their employment for reasons other thandismissal for cause. Under the cash balance plan, each participant has anaccount which is credited yearly based on the current rate of pay and marketrelated interest rate. The noncontributory plans provide for lump-sum payment
benefits to employees who retire or terminate their employment for reasons otherthan dismissal for cause. Certain foreign subsidiaries have noncontributory
retirement and severance benefit plans that provide for pension or lump-sum
payment benefits to employees who retire or terminate their employment forreasons other than dismissal for cause.
The funded status of the defined benefit plans, a substantial portion ofwhich consists of domestic benefit plans, as of March 31, 2008 and 2007 is
as follows:

9. Short-term Borrowings and Long-term Debt
Benefit obligation��������������������������������

Thousands of
U.S. dollars

Millions of yen

2008

2007

2008

¥ 30,000¥30,000$ 299,431

0.86% unsecured bonds withwarrants due 2007����������������������������

–

5,500

–

Other loans from banks ����������������������

–

3,000

–

Current portion������������������������������������

(30,000)(8,500)(299,431)

Total����������������������������������������������������

¥      –

¥30,000$       –Thousands of
U.S. dollars

Millions of yen

Short-term borrowings represent by 365-day notes issued by Tokyo Electron
to banks and bore interest at an average annual rate of 1.26% and 2.61% asof March 31, 2008 and 2007, respectively.
Long-term debt as of March 31, 2008 and 2007 is as follows:

0.72% unsecured bonds due 2008

Thousands of
U.S. dollars

2008

2007

2008

¥(74,733)¥(69,414)$(745,913)

Fair value of plan assets����������������������

34,29830,812

342,330

Funded status ������������������������������������

(40,435)(38,602)(403,583)

Unrecognized actuarial difference��������

618(2,113)

6,168

Unrecognized prior service cost����������

1,114

1,662

11,119Net amount recognized ����������������������

(38,703)(39,053)(386,296)

5,001

966

49,915

Amounts recognized in the consolidatedbalance sheets consist of: Prepaid pension and   severance costs (Note 1)����������������
Accrued pension and   severance costs (Note 2)����������������

(43,704)(40,019)(436,211)

Net amount recognized ����������������������

¥(38,703)¥(39,053)$(386,296)

Notes: 1 The prepaid pension and severance costs in 2008 and 2007 is included in other assets inthe consolidated balance sheets.
2 The provision for accrued pension and severance costs for directors and statutory
auditors (¥666 million ($6,647 thousand) in 2008 and ¥667 million in 2007) is not included.

46

Annual Report 08 Tokyo Electron Limited

Net pension cost of the plans is as follows:
Thousands of
U.S. dollars

Millions of yen

2008

2007

2008

Service cost����������������������������������������

¥5,198¥4,912$51,881Interest cost����������������������������������������

1,375

1,281

13,724

Expected return on plan assets ����������

(616)

(499)

(6,148)

Amortization of actuarial difference������

(629)

391

(6,278)

Amortization of prior service cost��������

950

1,526

9,482

Net pension cost ��������������������������������

¥6,278¥7,611$62,661Significant assumptions of domestic pension plans used to determine theabove amounts are as follows:2008 and 2007

The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the period in which those temporary
differences become deductible. For assessment of the realizability of deferred
tax assets, management considers the scheduled reversal of deferred tax
liabilities, future estimated taxable income, tax planning strategies and level of
net operating loss carryforwards, if any, in accordance with accounting principles generally accepted in Japan.
Based on the level of historical taxable income and future estimated taxable
income over the periods which the deferred tax assets are deductible, management believes Tokyo Electron will realize the benefits of these deferred tax
assets, net of valuation allowance, as of March 31, 2008 and 2007.
The Company is subject to a corporate tax, an inhabitants’ tax and a deductible enterprise tax, which in the aggregate resulted in a statutory income tax rateof approximately 40.69% for the years ended March 31, 2008 and 2007.

Allocation method of benefit obligation������������������������������� Straight-line method
Discount rate ���������������������������������������������������������������������

2.00%

Expected rate of return on plan assets�������������������������������

2.00%

Amortization period of prior service cost�����������������������������

4 years

Amortization period of actuarial difference���������������������������

4 years

Significant components of the difference between the statutory and effective
tax rates for the years ended March 31, 2008 and 2007 are as follows:

Statutory tax rate in Japan�������������������������������������������

2008

2007

40.69%

40.69%

Adjustments:

11. Income Taxes
Significant components of the deferred tax assets and liabilities of Tokyo
Electron as of March 31, 2008 and 2007 are as follows:
Thousands of
U.S. dollars

Millions of yen

2008

2007

2008

Accrued pension and severance costs����

¥17,529¥16,032$174,958

Elimination of unrealized profit
on inventories������������������������������������

9,018

10,46390,009Accrued employees’ bonuses��������������

5,116

5,736

51,063

Devaluation of inventories��������������������

3,158

2,713

31,520Accrued warranty expenses����������������

3,146

4,737

31,400Accrued enterprise taxes ��������������������

2,418

3,890

24,134

Net operating loss carryforwards ��������

1,564

1,966

15,610

Other��������������������������������������������������

5,995

7,579

59,837

Total gross deferred tax assets������������

47,944

53,116

478,531

Less valuation allowance ��������������������

(2,116)(1,952)(21,120)

Total deferred tax assets����������������������

45,82851,164457,411

Undistributed earnings offoreign subsidiaries����������������������������

(4,026)(3,517)(40,183)

Prepaid pension and severance costs����

(2,005)(368)(20,012)

Net unrealized gains on
investment securities ������������������������

(1,470)(3,975)(14,672)

Deferred tax assets

Deferred tax liabilities

Reserves under Special Taxation Measures Law ����������������������������������

(1,003)(1,932)(10,011)

Other��������������������������������������������������

(1,475)(1,917)(14,722)

Total gross deferred tax liabilities����������

(9,979)(11,709)(99,600)

Net deferred tax assets������������������������

¥35,849¥ 39,455$357,811

The Company and its wholly-owned domestic subsidiaries have adopted aconsolidated tax filing system for corporate tax purposes.

Tax credits for research and development costs, etc�������

(5.33)(5.21)

Difference in statutory tax rates of
consolidated subsidiaries�������������������������������������������

(1.06)(1.06)

Loss on impairment of goodwill �����������������������������������

0.98

–

Prior year’s corporate tax ���������������������������������������������

(0.95)(0.12)

Dividends from foreign subsidiaries �����������������������������

0.76

0.57

Expenses not deductible for tax purposes �������������������

0.54

0.56

Amortization of goodwill�����������������������������������������������

0.38

0.54

Increase in deferred tax liabilities on
undistributed earnings of foreign subsidiaries�������������

0.30

0.52

Gain on sale of shares of consolidated subsidiary���������

–

0.73

Others, net�������������������������������������������������������������������

0.30(0.80)

Effective tax rate�����������������������������������������������������������

36.61%

36.42%

12. Net Assets
Net assets comprises four subsections, which are shareholders’ equity, valuation and translation adjustments, share subscription rights and minority interests.
The Japanese Corporate Law (“the Law”) became effective on May 1, 2006,
replacing the Japanese Commercial Code (“the Code”). The Law is generally
applicable to events and transactions occurring after April 30, 2006 and forfiscal years ending after that date.
Under Japanese laws and regulations, the entire amount paid for new
shares is required to be designated as common stock. However, a company
may, by a resolution of the board of directors, designate an amount notexceeding one-half of the price of the new shares as additional paid-in capitalwhich is included in capital surplus.
Under the Law, in cases where dividend distribution of surplus is made, thelesser of an amount equal to 10% of the dividend or the excess, 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.

47

Tokyo Electron Limited

Annual Report 08

Under the Code, companies were required to set aside an amount equal toat least 10% of the aggregate amount of cash dividends and other cash appropriations as legal reserve until the total of legal reserve and additional paid-in
capital equaled 25% of common stock.
Under the Code, legal reserve and additional paid-in capital could be
used to eliminate or reduce a deficit by a resolution of the shareholders’meeting or could be capitalized by a resolution of the board of directors.
Under the Law, both of these appropriations generally require a resolution of
the shareholders’ meeting.
Additional paid-in capital and legal reserve may not be distributed as dividends. Under the Code, however, on condition that the total amount of legal
reserve and additional paid-in capital remained equal to or exceeded 25% ofcommon stock, they were available for distribution by resolution of the shareholders’ meeting. Under the Law, 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 maximum amount that the Company can distribute as dividends is
calculated based on the non-consolidated financial statements of the­Company in accordance with Japanese laws and regulations.
At the general shareholders’ meeting on June 23, 2006, in accordance with
the Law, the Company altered its articles to allow for the distribution of earnings to shareholders on dates, other than the mid-term and year-end by aresolution of the board of directors.
At the board of directors’ meeting held on May 13, 2008, the distribution of
cash dividends amounting to ¥9,841 million ($98,223 thousand) was resolved.
Such appropriations have not been accrued in the consolidated financial statements as of March 31, 2008 since they are recognized in the period in which
they are resolved at the board of directors’ meeting.

13. Share Subscription Rights
Tokyo Electron has two types of stock-based compensation plans as incentive plans for directors and selected employees. The stock-based compensation plans include stock options (“Stock option plan”) and bonds withdetachable warrants (“Warrant plan”).
Stock option plan
The Company’s shareholders have approved annual stock option plans for
directors and selected employees since the year ended March 31, 1999. The
cumulative number of outstanding shares authorized up to the year ended
March 31, 2006 totaled 2,691,200, with the weighted-average exercise price of¥7,225. Options to purchase 66,900 shares of the Company were authorized
and granted at an exercise price of ¥1 for the year ended March 31, 2007.
Options to purchase 100,400 shares of the Company were authorized andgranted at an exercise price of ¥1 for the year ended March 31, 2008. The
options under the plans vest immediately with restriction on exercise up to 2 or
3 years after the date of grant, and have an exercise period of 8 to 20 years
from the date of grant.
Shareholders of Tokyo Electron Device Limited (“TED”), a domestic listed
subsidiary, have approved annual stock option plans for directors andselected employees since the year ended March 31, 2005. As of April 1, 2006
and March 31, 2008, there were outstanding granted stock options for 650
shares with a weighted-average exercise price of ¥308,698 ($3,081.13).

48

Warrant plan
In June 2000 and 2001, the Company issued unsecured bonds withdetachable warrants. Upon issuance of the unsecured bonds with detachable
warrants, the Company purchased all of the detachable warrants and distributed them to directors and selected employees. As noted above, the stock
option plan granted stock options at an exercise price of ¥1 and to be inaccordance with the Warrant plan, the exercise prices of warrants issued in2001 were adjusted to ¥9,601 in 2007. The number of outstanding granted
options increased by 139 shares in 2007, as a result of this adjustment to theexercise price of the warrant.
The warrants vest immediately with restriction on exercise up to 2 years after
the date of grant, and have an exercise period of 6 years from the date of
grant. For financial reporting purposes, these transactions were accounted foras an issuance of debt to third parties and separately as the issuance of warrants to directors and selected employees.
By exercising the warrant, directors and selected employees can purchase thecommon stock of the Company, the numbers of which were 319,829 shares and572,439 shares at an exercise price of ¥14,070 and ¥9,608 for warrants issued inJune 2000 and 2001, which were forfeited and recognized a gain of ¥526 million in2007 and ¥467 million ($4,661 thousand) in 2008, respectively.
As of April 1, 2006, there were outstanding granted stock options, including
warrants, to purchase 3,367,898 shares of the Company, with a weightedaverage exercise price of ¥8,015. For the year ended March 31, 2007, options
to purchase 322,560 shares were forfeited and options to purchase 530,900
shares were exercised. For the year ended March 31, 2008, options to purchase 486,277 shares were forfeited and options to purchase 139,100 shareswere exercised. As of March 31, 2008, there were outstanding granted stock
options to purchase 2,056,500 shares with a weighted-average exercise priceof ¥6,889 ($68.76).

14. Leases
Pro forma information of leased property including acquisition cost, accumulated depreciation, obligation under finance leases, and depreciation expenseof finance leases that do not transfer ownership of leased property to thelessee on an “as if capitalized” basis for the years ended March 31, 2008 and2007 are as follows:
Leased assets not recorded in the consolidated balance sheets:
Thousands of
U.S. dollars

Millions of yen

Acquisition cost ����������������������������������

2008

2007

2008

¥1,089¥1,538$10,869

Accumulated depreciation ������������������

303

1,104

3,024

Net leased property ����������������������������

¥  786¥  434$ 7,845

Future minimum lease payments:
Thousands of
U.S. dollars

Millions of yen

2008

2007

2008

Due within one year ����������������������������

¥189

¥121

Due over one year ������������������������������

597

313

$1,886
5,959

Total����������������������������������������������������

¥786

¥434

$7,845

Annual Report 08 Tokyo Electron Limited

Lease payments relating to finance leases accounted for as operating leases
amounted to ¥156 million ($1,557 thousand) and ¥274 million, which approximated the corresponding depreciation on the respective leased property
computed by the straight-line method over the lease terms for the years ended
March 31, 2008 and 2007, respectively.
Future minimum lease payments on non-cancelable operating leases:
Thousands of
U.S. dollars

Millions of yen

Due within one year ����������������������������

2008

2007

2008

¥  661¥  733$ 6,597

Due over one year ������������������������������

628

920

6,268

Total����������������������������������������������������

¥1,289¥1,653$12,865

15. Derivative Financial Instruments
The Company and a domestic subsidiary enter into forward foreignexchange contracts in order to hedge risks of adverse fluctuations in foreign
currency exchange rates associated with export-import transactions, but do
not enter into such transactions for speculative purposes. The Company andthe domestic subsidiary are exposed to credit risk in the event of nonperformance by the counterparties to the derivative transactions, but any such risk is
considered to be immaterial because the Company and the domestic subsidiary only enter into transactions with financial institutions with high credit ratings. Execution and management of all derivative transactions are conductedpursuant to the internal management rule for derivatives by the finance divisionand the effectiveness of derivative transactions is reported on a semiannual
basis to the board of directors.
The estimated fair values of the derivative financial instruments as of March
31, 2008 and 2007 are as follows:
Millions of yen

Contract
amountFair value

Unrealized
gains (losses)

Sell U.S. dollars ����������������������������������

¥7,239¥6,847¥392

Buy U.S. dollars����������������������������������

409

386

(23)

2008:

Millions of yen

2007:

Contract
amountFair value

Unrealized
gains (losses)

Sell U.S. dollars ����������������������������������

¥41,648¥44,142¥(2,494)

Buy U.S. dollars����������������������������������

1,770

1,870

100

Thousands of U.S. dollars

2008:

Contract
amountFair value

Unrealized
gains (losses)

Sell U.S. dollars ����������������������������������

$72,253$68,340$3,913

Buy U.S. dollars����������������������������������

4,083

3,853

(230)

The contract amounts of the forward foreign exchange contracts presented
above exclude those entered into to hedge receivables and payables denominated in foreign currencies which have been translated and are reflected attheir corresponding contracted rates in the accompanying consolidated balance sheets. In addition, the disclosure of the fair value for derivatives, which
are accounted for as hedges is omitted.

16. Other Income (Expenses)
The Company recognized goodwill generated from the acquisition of Timbre
Technologies, Inc. (“TTI”) during the year ended March 31, 2001 and thisgoodwill was being amortized over 10 years. During the year ended March
31, 2008, the Company recognized loss on impairment of goodwill in theamount of ¥4,072 million ($40,643 thousand) based on the revision to the
future plan for TTI’s business.
Gain on sale of property, plant and equipment of ¥2,365 million($23,605 thousand) for the year ended March 31, 2008 mainly consists ofgains on sale of land and buildings of overseas subsidiaries.
Equity in loss of affiliated company of ¥1,442 million, which is included inother income (expenses) for the year ended March 31, 2007, mainly consists of
the liquidation of a 42.9% owned affiliated company (e-BEAM Corporation).
19,247 shares of Tokyo Electron Device Limited, a domestic listed subsidiary, were sold for ¥4,169 million in March 2007, and a gain of ¥528 million wasrecognized for the year ended March 31, 2007. As a result, the Company’sownership interest in Tokyo Electron Device Limited decreased to 55.4%.

17. Cash Flows Information
As discussed in note 4, Tokyo Electron U.S. Holdings, Inc., acquired all theshares of Epion Corporation (renamed TEL Epion, Inc.) in December 2006. The
summary of the assets and liabilities of TEL Epion, Inc. on the date of acquisition was as follows:
Millions of
yen

2007

Current assets ���������������������������������������������������������������������������������������

¥   548

Intangible and other non-current assets�������������������������������������������������

6,159

Current liabilities�������������������������������������������������������������������������������������

(168)

Non-current liabilities �����������������������������������������������������������������������������

(2,013)Acquisition cost �������������������������������������������������������������������������������������

4,526

Cash and cash equivalents of TEL Epion, Inc. ���������������������������������������

(2)

Net payment for acquisition �������������������������������������������������������������������

¥4,52449

Tokyo Electron Limited

Annual Report 08

18. Segment Information
Business segment information as of and for the years ended March 31, 2008 and 2007 is as follows:
Millions of yen
Industrial
electronicequipment

Electronic
components
and computer
networks

Eliminations
andcorporate

Total

Consolidated

2008:

1. Net sales and operating income
Net sales(1) Sales to external customers�������������������������������������������������������������������������������������

¥794,911¥111,181¥906,092¥     –

(2) Intersegment sales or transfers �������������������������������������������������������������������������������

1,117

948

2,065

(2,065)¥906,092–

Total�����������������������������������������������������������������������������������������������������������������������������

796,028

112,129

908,157(2,065)906,092

Operating expenses�����������������������������������������������������������������������������������������������������

631,220

108,470739,690(2,096)

737,594

Operating income���������������������������������������������������������������������������������������������������������

¥164,808¥   3,659¥168,467¥    31¥168,498

Assets �������������������������������������������������������������������������������������������������������������������������

¥744,280¥ 51,459¥795,739¥(2,921)¥792,818

Depreciation and amortization expenses�����������������������������������������������������������������������

22,649365

23,014–23,014

Loss on impairment of goodwill �����������������������������������������������������������������������������������

4,072

–

4,072

–

4,072

Loss on impairment of property, plant and equipment �������������������������������������������������

808

–

808

–

808

Capital expenditures, including intangible and other assets�������������������������������������������

26,924924

27,848–27,848

2. Assets, depreciation and amortization expenses, impairment losses andcapital expenditures

Millions of yen

2007:

Industrial
electronicequipment

Electronic
components
and computer
networks

Total

Eliminations
andcorporate

Consolidated

1. Net sales and operating income
Net sales(1) Sales to external customers�������������������������������������������������������������������������������������

¥744,512¥107,463¥851,975¥     –

(2) Intersegment sales or transfers �������������������������������������������������������������������������������

2,382

1,247

3,629

(3,629)¥851,975–

Total�����������������������������������������������������������������������������������������������������������������������������

746,894

108,710855,604(3,629)851,975

Operating expenses�����������������������������������������������������������������������������������������������������

606,540

104,740

711,280(3,284)

707,996

Operating income���������������������������������������������������������������������������������������������������������

¥140,354¥   3,970¥144,324¥  (345)¥143,979

Assets �������������������������������������������������������������������������������������������������������������������������

¥728,236¥ 46,730¥774,966¥(4,452)¥770,514

Depreciation and amortization expenses�����������������������������������������������������������������������

20,061360

20,421–

20,421

Capital expenditures, including intangible and other assets�������������������������������������������

34,795274

35,069–35,069

2. Assets, depreciation and amortization expenses and capital expenditures

50

Annual Report 08 Tokyo Electron Limited

Thousands of U.S. dollars

2008:

Industrial
electronicequipment

Electronic
components
and computer
networks

Total

Eliminations
andcorporate

Consolidated

1. Net sales and operating income
Net sales(1) Sales to external customers�������������������������������������������������������������������������������������

$7,934,035$1,109,702$9,043,737$      –

(2) Intersegment sales or transfers �������������������������������������������������������������������������������

11,1499,462

20,611(20,611)$9,043,737–

Total�����������������������������������������������������������������������������������������������������������������������������

7,945,184

1,119,164

9,064,348(20,611)

9,043,737

Operating expenses�����������������������������������������������������������������������������������������������������

6,300,230

1,082,643

7,382,873(20,921)

7,361,952

Operating income���������������������������������������������������������������������������������������������������������

$1,644,954$   36,521$1,681,475$    310$1,681,785

Assets �������������������������������������������������������������������������������������������������������������������������

$7,428,686$513,614$7,942,300$(29,155)$7,913,145

Depreciation and amortization expenses�����������������������������������������������������������������������

226,060

3,643

229,703–229,703

Loss on impairment of goodwill �����������������������������������������������������������������������������������

40,643–40,643–40,643

Loss on impairment of property, plant and equipment �������������������������������������������������

8,065

–

8,065

–

8,065

Capital expenditures, including intangible and other assets�������������������������������������������

268,7289,222

277,950–

277,950

2. Assets, depreciation and amortization expenses, impairment losses andcapital expenditures

Notes:1. Method of classifying business segments: Business segments are classified after considering similarities in types of products and services, as well as sales methods.
2. Major products in each business segment:
Business segment
Industrial electronic equipment
Electronic components and computer networks

Major products
Semiconductor production equipment, FPD production equipment and others
Semiconductor products, computer networks, middleware/software, and other electronic components

3. Depreciation expenses and capital expenditures include those for long-term prepaid expenses.
4. Changes in accounting policies(1) Accounting policy for depreciation method
Effective from the year ended March 31, 2008, the Company and its domestic consolidated subsidiaries changed their depreciation method for tangible fixed assets acquired on or after
April 1, 2007 in accordance with the revision of Japanese Corporate Tax Law (Partial Revision of Income Tax Law, Law No. 6 of March 30, 2007; Partial Revision of Income Tax Law Enforcement
Ordinance, Cabinet Order No. 83 of March 30, 2007). The effect of change increased operating expenses and decreased operating income for the industrial electronic equipment segment andthe electronic components and computer networks segment by ¥1,412 million ($14,093 thousand) and ¥17 million ($170 thousand), respectively, for the year ended March 31, 2008, compared
wth the corresponding amounts that would have been recorded under the previous accounting method.
(2) Accounting standard for stock options
Effective from the year ended March 31, 2007, “Accounting Standard for Stock Option” issued by the Accounting Standards Board of Japan was adopted. The adoption of the new standards
increased operating expenses and decreased operating income for the industrial electronic equipment by ¥118 million for the year ended March 31, 2007, compared with the corresponding
amounts that would have been recorded if the previous method had been applied. The change did not affect the figures of the electronic components and computer networks segment.
(3) Accounting standard for director’s bonus
Effective from the year ended March 31, 2007, “Accounting Standard for director’s bonus” issued by the Accounting Standards Board of Japan was adopted. The effect of change increased
operating expenses and decreased operating income for the industrial electronic equipment segment and the electronic components and computer networks segment by ¥626 million and ¥26
million, respectively, for the year ended March 31, 2007, compared with the corresponding amounts that would have been recorded if the previous method had been applied.

Geographical segment information as of and for the years ended March 31, 2008 and 2007 are as follows:
Millions of yen
2008:

Japan

Other regions

Total

Eliminations
andcorporate

Consolidated

1. Net sales and operating income
Net sales(1) Sales to external customers�������������������������������������������������������������������������������������

¥806,193¥ 99,899¥  906,092¥       –

(2) Intersegment sales or transfers �������������������������������������������������������������������������������

71,96054,186

126,146(126,146)¥906,092–

Total�����������������������������������������������������������������������������������������������������������������������������

878,153

154,085

1,032,238(126,146)

906,092

Operating expenses�����������������������������������������������������������������������������������������������������

718,193

142,760

860,953(123,359)

737,594

Operating income���������������������������������������������������������������������������������������������������������

¥159,960¥ 11,325¥  171,285¥   (2,787)¥168,498

2. Assets ���������������������������������������������������������������������������������������������������������������������

¥752,739¥ 80,363¥  833,102¥ (40,284)¥792,818

Millions of yen
2007:

Japan

Other regions

Total

Eliminations
andcorporate

Consolidated

1. Net sales and operating income
Net sales(1) Sales to external customers�������������������������������������������������������������������������������������

¥749,282¥102,693¥851,975¥       –

(2) Intersegment sales or transfers �������������������������������������������������������������������������������

69,93648,526

118,462(118,462)¥851,975–

Total�����������������������������������������������������������������������������������������������������������������������������

819,218

151,219

970,437(118,462)

851,975

Operating expenses�����������������������������������������������������������������������������������������������������

683,389

140,782

824,171(116,175)

707,996

Operating income���������������������������������������������������������������������������������������������������������

¥135,829¥ 10,437¥146,266¥   (2,287)¥143,979

2. Assets ���������������������������������������������������������������������������������������������������������������������

¥740,970¥ 95,183¥836,153¥ (65,639)¥770,514

51

Tokyo Electron Limited

Annual Report 08

Thousands of U.S. dollars
2008:

Japan

Other regions

Total

Eliminations
andcorporate

Consolidated$9,043,737

1. Net sales and operating income
Net sales(1) Sales to external customers�������������������������������������������������������������������������������������

$8,046,641$  997,096$ 9,043,737$         –(2) Intersegment sales or transfers �������������������������������������������������������������������������������

718,236

540,832

1,259,068(1,259,068)–

Total�����������������������������������������������������������������������������������������������������������������������������

8,764,877

1,537,928

10,302,805(1,259,068)

9,043,737

Operating expenses�����������������������������������������������������������������������������������������������������

7,168,310

1,424,893

8,593,203(1,231,251)

7,361,952

Operating income���������������������������������������������������������������������������������������������������������

$1,596,567$  113,035$ 1,709,602$   (27,817)$1,681,785

2. Assets ���������������������������������������������������������������������������������������������������������������������

$7,513,115$  802,106$ 8,315,221$  (402,076)$7,913,145

Notes: 1. For the reporting of geographical segment information, net sales and operating income are separated based on the location of the Company and its subsidiaries. Assets are separated by geographic location.
2. Other regions comprises primarily the United States of America, Europe and Korea.
3. Changes in accounting policies(1) Accounting policy for depreciation method
Effective from the year ended March 31, 2008, the Company and its domestic consolidated subsidiaries changed their depreciation method for tangible fixed assets acquired on or after April
1, 2007 in accordance with the revision of Japanese Corporate Tax Law (Partial Revision of Income Tax Law, Law No. 6 of March 30, 2007; Partial Revision of Income Tax Law Enforcement
Ordinance, Cabinet Order No. 83 of March 30, 2007). The effect of change increased operating expenses and decreased operating income for the Japan segment by ¥1,429 million ($14,263
thousand), for the year ended March 31, 2008, compared with the corresponding amounts that would have been recorded under the previous accounting method.
(2) Accounting standard for stock options
Effective from the year ended March 31, 2007, “Accounting Standard for Stock Option” issued by the Accounting Standards Board of Japan was adopted. The adoption of the new standards
increased operating expenses and decreased operating income for the Japan segment by ¥118 million for the year ended March 31, 2007, compared with the corresponding amounts that would
have been recorded if the previous method had been applied.
(3) Accounting standard for director’s bonus
Effective from the year ended March 31, 2007, “Accounting Standard for director’s bonus” issued by the Accounting Standards Board of Japan was adopted. The effect of change increased
operating expenses and decreased operating income for the Japan segment by ¥652 million for the year ended March 31, 2007, compared with the corresponding amounts that would havebeen recorded if the previous method had been applied.

Domestic and overseas net sales by destination for the years ended March
31, 2008 and 2007 are as follows:
Millions of yen

Thousands of
U.S. dollars

2008

2007

2008

Japan��������������������������������������������������

¥323,946¥313,816$3,233,317

Taiwan ������������������������������������������������

272,221

182,918

2,717,048

United States of America ��������������������

108,760

105,717

1,085,537

Korea��������������������������������������������������

90,940122,628

907,675

Others ������������������������������������������������

110,225

126,896

1,100,160

Total����������������������������������������������������

¥906,092¥851,975$9,043,737

Net sales

Notes: 1. For the reporting of domestic and overseas sales, overseas sales (other than Japan)
include export sales of the Company and its domestic subsidiaries and sales of foreignsubsidiaries, except for export sales to Japan.
2. Others comprises primarily China, Singapore and Germany.

52

19. Subsequent Event
Grant of stock options under the stock option plans
On May 13, 2008, the Company’s board of directors decided to submit a
resolution to the general shareholders’ meeting for approval of the issuance ofstock subscription rights to directors and selected employees of Tokyo­Electron. The issuance of stock subscription rights is intended to enable thegrant of stock options. Under this stock option plan, options to purchase theshares of the Company at an exercise price of ¥1 ($0.01), up to 67,000 shares
will be granted to directors of the Company (excluding outside directors) andoptions to purchase the shares of the Company at an exercise price of ¥1($0.01), up to 150,000 shares will be granted to executive officers of the­Company, directors and executive officers of domestic subsidiaries, the chairman, presidents, vice presidents, executives (including corporate officers) andsenior executives of its overseas subsidiaries as of March 31, 2008. This grantof stock options was approved at the general meeting of the shareholders of
the Company on June 20, 2008.

Annual Report 08 Tokyo Electron Limited

I n d e p e n d e n t A u d i t o rs ’ R e p o r t

To the Board of Directors ofTokyo Electron Limited:

We have audited the accompanying consolidated balance sheets of Tokyo Electron Limited and subsidiaries as ofMarch 31, 2008 and 2007, and the related consolidated statements of income, changes in net assets and cash flows
for the years then ended, expressed in Japanese yen. These consolidated financial statements are the responsibility of
the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements
based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in Japan. Those standards requirethat we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free ofmaterial misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosuresin the financial statements. An audit also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Tokyo Electron Limited and subsidiaries as of March 31, 2008 and 2007, and the consolidated
results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in Japan.
The U.S. dollar amounts in the accompanying consolidated financial statements with respect to the year ended March
31, 2008 are presented solely for convenience. Our audit also included the translation of yen amounts into U.S. dollar
amounts and, in our opinion, such translation has been made on the basis described in note 1 to the consolidated
financial statements.

Tokyo, Japan
June 20, 200853

Tokyo Electron Limited

Annual Report 08

G R OUP COMPANIE S
As of March 31, 2008, the Tokyo Electron Group was made up of the parent company and 30 subsidiaries.

Company

Main business

JAPAN
Consolidated subsidiaries
Tokyo Electron AT Limited

Manufacture and development

Tokyo Electron Kyushu Limited

Manufacture and development

Tokyo Electron Tohoku Limited

Manufacture and development

Tokyo Electron TS Limited

Manufacture and development

Tokyo Electron Technology Development Institute, Inc.

Manufacture and development

Tokyo Electron Software Technologies Limited

Development

Tokyo Electron PV Limited

Development

Tokyo Electron FE Limited

Field engineering

Tokyo Electron PS Limited

Refurbishment, modification and relocation

Tokyo Electron Device Limited

Sales

Tokyo Electron BP Limited

Logistics, leasing, facility management, etc.

Tokyo Electron Agency Limited

Nonlife insurance

AMERICA
Consolidated subsidiaries
Tokyo Electron U.S. Holdings, Inc.

Holding company

Tokyo Electron America, Inc.

Sales and field engineering

Tokyo Electron Massachusetts, LLC

Manufacture and development

Tokyo Electron Arizona, LLC

Manufacture and development

Timbre Technologies, Inc.

Manufacture and development

TEL Technology Center, America, LLC

Development

TEL Epion, Inc.

Development

TEL Venture Capital, Inc.

Identification and evaluation of new technologies

EUROPE
Consolidated subsidiaries
Tokyo Electron Europe Limited

Sales and field engineering

Tokyo Electron Deutschland GmbH

Field engineering

Tokyo Electron Ireland Limited

Field engineering

Tokyo Electron Israel Limited

Field engineering

ASIA
Consolidated subsidiaries

54

Tokyo Electron Korea Limited

Sales and field engineering

Tokyo Electron Korea Solution Limited

Refurbishment, modification and relocation

Tokyo Electron Taiwan Limited

Sales and field engineering

Tokyo Electron (Shanghai) Limited

Sales and field engineering

Tokyo Electron (Shanghai) Logistic Center Limited

Logistics

Tokyo Electron Device Hong Kong Limited

Sales

Annual Report 08 Tokyo Electron Limited

IN V ESTOR INFOR M ATION(As of March 31, 2008)

Corporate Name and Head Office:

URL:

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

http://www.tel.com

Principal Shareholders:Established:	November 11, 1963

Annual General Meeting of Shareholders:June

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

100 shares
300,000,000 shares
180,610,911 shares
43,324

Common Stock Listed on:

Number ofshares held
(thousands)

Votingshare
ratio (%)

19,052
14,423
8,727
4,800
4,347
4,183
3,488
3,021
3,000
2,790

10.54
7.98
4.83
2.65
2.40
2.31
1.93
1.67
1.66
1.54

The Master Trust Bank of Japan, Ltd. (Trust Account)
Japan Trustee Services Bank, Ltd. (Trust Account)
Tokyo Broadcasting System, Inc.
The Dai-ichi Mutual Life Insurance Co.
Deutsche Securities Inc.
Nomura Securities Co., Ltd.
Trust & Custody Services Bank, Ltd. (Investment Trust Account)
Japan Trustee Services Bank, Ltd. (Trust Account No. 4)
The Bank of Tokyo-Mitsubishi UFJ, Ltd.
BNP Paribas Securities (Japan) Ltd.

Shares of less than one thousand have been rounded down in the “Number of shares held”

The Tokyo Stock Exchange 1st Section (#8035)

Distribution of Ownership Among Shareholders:

Independent Auditors:
	KPMG AZSA & Co.

Administrator of Shareholders’ Register:
The Chuo Mitsui Trust and Banking Co., Ltd.
33-1 Shiba 3-chome, Minato-ku, Tokyo 105-8574, JapanFor Further Information, Contact:
	Investor Relations
Corporate Communications Department
Tokyo Electron Limited
Akasaka Biz Tower
3-1 Akasaka 5-chome, Minato-ku,
Tokyo 107-6325, Japan
Tel: +81-3-5561-7003
Fax: +81-3-5561-7400

n Japanese financial institutions
and securities companies
79,240,142 shares 43.87%
n Foreign institutions and others
72,364,988 shares 40.07%
n	Individuals and others
16,739,249 shares 9.27%
n Other Japanese corporations
10,587,605 shares 5.86%
n Treasury stock
1,678,927 shares
0.93%

Stock Price and Trading Volume(Yen)(Thousands of shares)

12,00010,000Stock price
8,000

6,000

4,000

60,000
Trading volume

2,000

30,00000FY2004

FY2005

FY2006

FY2007

FY200855

Tokyo Electron Limited    Annual Report 2008

World Headquarters
Akasaka Biz Tower, 3-1 Akasaka 5-chome,
Minato-ku, Tokyo 107-6325, Japan
Tel. +81-3-5561-7000 http://www.tel.com

Printed in Japan on recycled paper
PR46–151