NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 (hereinaftercollectively referred to as “Tokyo Electron”) have been prepared in accordance with the provisions set forth in the Financial Instruments andExchange Law of Japan 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 requirementsof International Financial Reporting Standards.
Prior to the year ended March 31, 2009, the accounts of foreign subsidiaries used in the preparation of the consolidated financial statements
were based on their accounting records maintained in conformity withgenerally accepted accounting principles prevailing in the respective countries of domicile.
As mentioned in note 3 (a), the Company adopted “Practical Solution
on Unification of Accounting Policies Applied to Foreign Subsidiaries for
Consolidated Financial Statements” (Practical Issues Task Force No. 18
issued by the Accounting Standards Board of Japan) effective from April 1,
2008. As a result of this adoption, the Company uses financial statements
prepared by foreign subsidiaries in accordance with International Financial
Reporting Standards or U.S. generally accepted accounting principles forthe preparation of the consolidated financial statements, together withadjustment for certain items which are required to be adjusted in the
consolidation process.
The accompanying consolidated financial statements have been restructured and translated into English from the statutory Japanese language
consolidated financial statements. Some supplementary information includedin the statutory 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 ofreaders and are presented at the rate of ¥93.04 to $1.00, the approximate
rate as of March 31, 2010. The translation should not be construed as arepresentation that the Japanese yen amounts shown could be converted
into U.S. dollars at that or any other rate.

2. Summary of Significant Accounting Policies(a) Principles of consolidation
The consolidated financial statements include the accounts of theCompany and its 30 and 32 subsidiaries for the years ended March 31,
2010 and 2009, respectively.
Investments in affiliates in which the Company’s ownership is 20% to
50% are accounted for by the equity method.
All significant inter-company accounts, transactions and unrealized
profits or losses have been eliminated in consolidation.
The fiscal year-end of all entities is March 31, except for two consolidated
foreign subsidiaries, which use a December 31 year-end, and adjustment ismade for any significant transactions between the different fiscal year-ends.

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 thehistorical rates. Revenue and expense accounts of foreign subsidiaries aretranslated at average rates of exchange in effect during the year. Resulting
translation adjustments are presented in net assets as a component ofvaluation and translation adjustments and minority interests in the
consolidated financial statements.
(c) Investment securities
Tokyo Electron examines the intent of holding each security and classifies
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 prevailing at the balance sheet date. The differences between thebook and market prices of 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
As mentioned in note 3 (b), effective from April 1, 2008, the Company andits domestic subsidiaries adopted “Accounting Standard for Measurementof Inventories” (Statement No. 9 issued by the Accounting Standards Boardsof Japan). Inventories other than raw materials are stated at the lower ofcost, determined by the specific identification method, or net realizablevalue, which is defined as selling price less estimated additional manufacturing costs and estimated direct selling expenses. Raw materials are statedat the lower of cost, determined principally by the moving-averagemethod, or net realizable value, which is defined as selling price less estimated additional manufacturing costs and estimated direct selling expenses.
(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 using the declining balance method, except for buildings
acquired subsequent to March 31, 1998 which are depreciated using thestraight-line method, based on the estimated useful lives of assets. Foreignsubsidiaries 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 forcomputer software and goodwill, are amortized by the straight-line
method over their estimated 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.

(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. Resulting
exchange gains and losses are included in earnings for the year.
Revenue and expense items are translated at the rates that approximate
those prevailing at the time of the transactions.

Annual Report 2010

Tokyo Electron

41

(g) Impairment of fixed assets
Tokyo Electron evaluates the carrying value of fixed assets held for use in
the business.
If the carrying value of a fixed asset is impaired, a loss is recognizedbased on the amount by which the carrying value exceeds its recoverable
amount, being the higher of the net selling price or the value in use of theassets. Net selling price is determined using the fair value less disposal costs
and value in use is based on the total amount of discounted cash flows
estimated to be generated from the continuing use of the individual assets
or the asset group and the disposal of the assets.
(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 byreference to specific doubtful receivables from customers which areexperiencing financial difficulties.
(i) Accrued pension and severance costs
The Company and its domestic subsidiaries provide an accrual for defined
benefit employees’ pension and severance costs based on the projected
benefit obligation and fair value of pension assets on the account settlement
date. Prior service costs are charged to earnings on a straight-line basis,beginning from the fiscal year in which they are incurred, over a fixed
number of years (four years) within the average remaining years of service of
employees when the changes occur. Actuarial differences are charged toearnings on a straight-line basis, beginning from the fiscal year after they arerecognized, over a fixed number of years (four years) within the averageremaining 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
in accordance with internal regulations.
The Company and certain domestic subsidiaries decided to discontinue
the payment of severance pay for directors and statutory auditors after
April 1, 2005, and at the general shareholders’ meeting in June 2005, it
was resolved that the severance pay for directors and statutory auditors
until March 31, 2005 would be paid at the termination of their service andthe decision regarding the payment amount for each director and statutory
auditor was delegated to the board of directors and statutory auditors. As
discussed in note 9, the accruals for severance costs for directors andstatutory auditors are included in accrued pension and severance costs inthe 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-salerepair expenses over warranty periods are accrued based on the historicalratio of actual repair expenses to corresponding sales.
(k) Leases
Until the year ended March 31, 2008, non-cancelable leases of theCompany and its domestic subsidiaries had been primarily accounted for as
operating leases (whether such leases were classified as operating or
finance leases), except for leases that transfer ownership to the lessee atthe end of the lease, which had been accounted for as finance leases.
As mentioned in note 3 (c), effective from the year ended March 31,
2009, the Company and its domestic subsidiaries adopted “AccountingStandard for Lease Transactions” (Statement No. 13 issued by the AccountingStandards Board of Japan) and “Guidance on Accounting Standard for

42

Tokyo Electron

Annual Report 2010

Lease Transactions” (Guidance No. 16 issued by the Accounting Standards
Board of Japan). As a result, the Company and its domestic subsidiaries
capitalized leased assets under finance leases commencing after March 31,
2008, and such leased assets are depreciated using the straight-line
method over the period of the lease contract with zero residual value.
(l) Derivatives and hedge accounting
The Company and a domestic subsidiary make use of derivatives in orderto manage 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 thedomestic subsidiary do not trade in derivatives for speculative purposes.
Derivatives are carried at fair value in the consolidated balance sheetwith changes in unrealized gain or loss charged or credited to earnings,
except for those which meet the criteria for hedge accounting. Unrealized
gains or losses on hedging derivatives, net of taxes, are reported in net
assets as a component of valuation and translation adjustments. Receivables and payables hedged by qualified forward foreign exchange contracts are translated at the corresponding foreign exchange contract rates.
(m) Income taxes
Tokyo Electron records deferred tax assets and liabilities on temporary
differences between the carrying amounts of assets and liabilities forfinancial reporting purposes and the amounts used for income tax purposes,
which are measured using the enacted tax rates and laws which are
expected to be in effect when the differences are expected to reverse.
(n) Revenue recognition
Revenue from Semiconductor and FPD (Flat Panel Display)/PV(Photovoltaic cell) production equipment is principally recognized at thetime of the customer confirmation of set-up and testing of products.
Revenue from such equipment not requiring substantial installation isrecognized at the time of shipment. Revenue from other products, suchas electronic components, is recognized at the time of shipment. Service
revenue from maintenance is recognized ratably over the term of themaintenance contract.
(o) Per share information
Net income (loss) per share and net assets per share are computed basedon the weighted-average number of shares of common stock outstanding
during each year.
Dividends per share has been presented on an accruals basis andinclude, in each fiscal year ended March 31, dividends approved or to beapproved after March 31 but applicable to the year then ended.
(p) Research and development expenses
Research and development expenses are charged to earnings as incurredand amounted to ¥54,074 million ($581,191 thousand) and ¥60,988
million for the years ended March 31, 2010 and 2009, respectively.
(q) Cash equivalents
For purposes of the consolidated statements of cash flows, Tokyo
Electron considers all highly-liquid instruments purchased with original
maturities of three months or less to be cash equivalents.
(r) Short-term investments
Short-term investments consist of time deposits and certificates ofdeposit with original maturities of more than three months.
(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, 2010.

3. Changes in Accounting Policies(a) Accounting policies applied to foreign subsidiaries
Effective from April 1, 2008, the Company adopted “Practical Solution
on Unification of Accounting Policies Applied to Foreign Subsidiaries for
Consolidated Financial Statements” (Practical Issues Task Force No. 18
issued by the Accounting Standards Board of Japan). The change had no
significant impact on the consolidated financial statements.
(b) Accounting standard for measurement of inventories
Effective from April 1, 2008, the Company and its domestic subsidiaries
adopted “Accounting Standard for Measurement of Inventories” (Statement
No. 9 issued by the Accounting Standards Board of Japan). The change hadno significant impact on the consolidated financial statements.
(c) Accounting standard for lease transactions
Effective from the year ended March 31, 2009, the Company and its
domestic consolidated subsidiaries adopted “Accounting Standard forLease Transactions” (Statement No. 13 issued by the Accounting Standards
Board of Japan) and “Guidance on Accounting Standard for Lease
Transactions” (Guidance No. 16 issued by the Accounting Standards Boardof Japan). The change had no significant impact on the consolidated
financial statements.

4. Investment securities
Investment securities, which solely comprise of other securities, as ofMarch 31, 2010 and 2009 are as follows:
Millions of yen
2010:

Cost

Carrying value¥ 9,277¥ 13,615

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

194

194

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

912

912

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

¥ 10,383¥ 14,721

Securities with market prices
Equity securities����������������������������������������������
Securities without market prices

Millions of yen
2009:

Cost

Carrying value

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

¥ 8,790¥ 7,363

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

100

100

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

764

754

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

914

914

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

¥ 10,568¥ 9,131

Securities without market prices

Losses on devaluation of investment securities were ¥72 million ($774
thousand) and ¥2,432 million for the years ended March 31, 2010 and2009, respectively.
No gain on sale of investment securities was recognized for the years
ended March 31, 2010 and 2009.

5. Inventories
Inventories as of March 31, 2010 and 2009 are as follows:
Thousands of
U.S. dollars

Millions of yen

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

2010

2009

2010

¥ 87,202¥ 88,417$ 937,253

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

51,24845,825550,817

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

¥138,450¥134,242$1,488,070

The amounts of change in inventory provision included in cost of sales in
consolidated statements of operations for the years ended March 31, 2010
and 2009 were a decrease of ¥3,581 million ($38,489 thousand) and anincrease of ¥6,398 million, respectively.

6. Impairment of Property, Plant and Equipment andIntangible Assets
For assessing fixed asset impairment, the Company generally groups fixed
assets used for normal operations at a business unit level for which profits
are reasonably controllable. Also, the Company assesses the recoverabilityof individual assets not used in normal operations or that are idle.
The Company and its domestic subsidiaries recognized loss on impairment of property, plant and equipment of ¥4,786 million ($51,440 thousand), which is included in the consolidated statement of operations for theyear ended March 31, 2010. The loss on impairment of property, plant andequipment was attributed to land, buildings and equipment in Japan
primarily of the Sagami Plant in Kanagawa, the Saga Plant in Saga and theKansai Technology Center in Hyogo, all of which are not expected to be
used after integration of domestic production and development centers.
These charges were presented in other income (expenses) in the consolidated statement of operations for the year ended March 31, 2010.
Since TEL Epion Inc. (“Epion”) determined to adversely change its
future business plan made upon acquisition of Epion due to change of theindustry business environment in the year ended March 31, 2010, Epion
recognized loss on impairment of intangible assets of ¥2,767 million($29,740 thousand).
No impairment of property, plant and equipment and intangible assets
was recognized for the year ended March 31, 2009.

Thousands of U.S. dollars
2010:

7. Pledged Assets

Cost

Carrying value$ 99,710$146,335

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

2,085

2,085

8. Short-term Borrowings

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

9,802

9,802

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

$111,597$158,222

Short-term borrowings represent 365-day notes issued by Tokyo Electron
to banks and bore interest at an average annual rate of 0.49% and 0.80%
as of March 31, 2010 and 2009, respectively.
As of March 31, 2010, Tokyo Electron has unused lines of credit
amounting to ¥133,445 million ($1,434,276 thousand).

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

Tokyo Electron did not hold any assets pledged as collateral as of March
31, 2010 and 2009.

Securities without market prices

Annual Report 2010

Tokyo Electron

43

9. Accrued Pension and Severance Costs
The Company and its domestic subsidiaries have defined benefit plans(cash balance 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 to employees who retire or terminate their employment forreasons other than dismissal for cause. Under the cash balance plan, eachparticipant has an account which is credited yearly based on the current
rate of pay and market-related interest rate. The noncontributory plansprovide for lump-sum payment benefits to employees who retire or terminate their employment for reasons other than 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 for reasons 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, 2010 and 2009is as follows:
Thousands of
U.S. dollars

Millions of yen

Benefit obligation��������������������������

Significant assumptions of domestic pension plans used to determine
the above amounts are as follows:2010 and 2009

Allocation method of benefit obligation��������������������

Straight-line method

Discount rate������������������������������������������������������������

2.00%

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

2.00%

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

4 years

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

4 years

10. Income Taxes
Significant components of the deferred tax assets and liabilities of Tokyo
Electron as of March 31, 2010 and 2009 are as follows:
Thousands of
U.S. dollars

Millions of yen
2010

2009

2010

Accrued pension andseverance costs����������������������������

¥20,099¥18,831$216,025

Net operating loss carryforwards����

14,717

14,515

158,179

Tax credit for research anddevelopment��������������������������������

5,499

6,619

59,104

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

4,282

5,707

46,0232,004

26,064

Deferred tax assets

2010

2009

2010

Accrued employees’ bonuses���������

2,425¥(84,097)¥(79,141)$(903,880)

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

38,732

33,791

416,294

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

(45,365)(45,350)(487,586)

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

2,114

–

22,721

Unrecognized actuarial difference���

(288)

3,027

(3,095)

Accrued warranty expenses������������

1,907

1,922

20,497

Unrecognized prior service cost������

125

226

1,343

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

(45,528)(42,097)(489,338)

Elimination of unrealized profit
in inventories�������������������������������

1,836

1,980

19,733

Allowance for doubtful accounts���

1,470

1,461

15,800

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

7,630

6,751

82,008

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

61,97959,790666,154

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

(10,458)(10,472)(112,403)

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

51,521

49,318553,751

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

(2,957)(2,624)(31,782)

Prepaid pension andseverance costs����������������������������

(1,773)(1,972)(19,056)

Net unrealized gain on
investment securities��������������������

(1,705)–(18,325)

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

(73)

(358)

(785)

Receivables for business taxes��������

–(2,025)–

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

(1,088)(1,161)(11,694)

Amounts recognized in
the consolidated balance sheets
consist of:Prepaid pension and   severance costs (Note 1)�����������

4,379

4,950

47,066

Accrued pension and   severance costs (Note 2)�����������

(49,907)(47,047)(536,404)

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

¥(45,528)¥(42,097)$(489,338)

Notes: 1.	The prepaid pension and severance costs as of March 31, 2010 and 2009 is included
in other assets in the consolidated balance sheets.
2.	The provision for accrued pension and severance costs for directors and statutory
auditors (¥621 million ($6,674 thousand) as of March 31, 2010 and ¥640 million asof March 31, 2009) is not included.

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

Millions of yen

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

Deferred tax liabilities

2010

2009

2010

¥5,358¥5,217$57,588

Total gross deferred tax liabilities����

(7,596)(8,140)(81,642)¥43,925¥41,178$472,109Interest cost�����������������������������������

1,572

1,483

16,896

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

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

(676)

(686)

(7,266)

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

697

(628)

7,491

Net deferred tax assets included in the consolidated balance sheets as ofMarch 31, 2010 and 2009 are as follows:

Amortization of prior service cost���

101

888

1,086

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

¥7,052¥6,274$75,795

Thousands of
U.S. dollars

Millions of yen
2010

2009

2010

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

¥26,625¥11,481$286,167

Investments and other assets���������

20,506

31,940220,400

Other current liabilities�������������������

(1,062)(605)(11,414)

Other liabilities�������������������������������

(2,144)(1,638)(23,044)

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

44

Tokyo Electron

Annual Report 2010

The ultimate realization of deferred tax assets is dependent upon thegeneration of future taxable income during the period in which those
temporary differences become deductible. For assessment of the realizabilityof deferred tax assets, management considers the scheduled reversal ofdeferred tax liabilities, future estimated taxable income, tax planning
strategies and level of net operating loss carryforwards, if any, in accordancewith accounting principles generally accepted in Japan.
Based on the level of historical taxable income and future estimatedtaxable income over the periods which the deferred tax assets are deductible, management believes Tokyo Electron will realize the benefits of thesedeferred tax assets, net of valuation allowance, as of March 31, 2010
and 2009.
The Company is subject to corporate tax, inhabitants’ tax and a deductible enterprise tax, which in the aggregate resulted in a statutory income
tax rate of approximately 40.69% for the years ended March 31, 2010 and2009.
Significant components of the difference between the statutory andeffective tax rates for the years ended March 31, 2010 and 2009 are
as follows:
Statutory tax rate in Japan����������������������������������������

2010

2009

40.69 %

40.69 %

Adjustments:
Effect of elimination of unrealized profit
in inventories����������������������������������������������������������

(27.86)

34.77

Change in valuation allowance���������������������������������

(18.14)24.07

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

6.54(10.04)

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

(5.28)

4.30

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

(4.28)(14.54)

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

(1.27)

1.02

Loss on investment in a subsidiary deductible
for tax purposes������������������������������������������������������

–(67.56)

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

–

6.56

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

0.25(0.69)

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

(9.35)%

18.58 %

11. Net Assets
Net assets comprises four subsections, which are shareholders’ equity,
valuation and translation adjustments, share subscription rights andminority interests.
Under Japanese laws and regulations, the entire amount paid for new
shares is required to be designated as common stock. However, a company
may, by a resolution of the board of directors, designate an amount notexceeding one-half of the price of the new shares as additional paid-in
capital which is included in capital surplus.
In cases where dividend distribution of surplus is made, the lesser of anamount equal to 10% of the dividend or the excess, if any, of 25% ofcommon 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 consolidatedbalance sheets.
Both appropriations of legal reserve and additional paid-in capital used
to eliminate or reduce a deficit generally require a resolution of theshareholders’ meeting.
Additional paid-in capital and legal reserve may not be distributed as
dividends. All additional paid-in capital and legal reserve may be transferred
to other capital surplus and retained earnings, respectively, which arepotentially 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 accordancewith Japanese laws and regulations, the Company altered its articles toallow for the distribution of earnings to shareholders on dates, other thanthe mid-term and year-end, by a resolution of the board of directors.
At the board of directors’ meeting held on May 12, 2010, the distributionof cash dividends amounting to ¥1,431 million ($15,380 thousand) was
resolved. Such appropriations have not been accrued in the consolidated
financial statements as of March 31, 2010 since they are recognized in the
period in which they are resolved at the board of directors’ meeting.

12. Share Subscription Rights
Stock option plan
The Company’s shareholders have approved annual stock option plansfor directors and selected employees since the year ended March 31, 1999.
Options to purchase 177,900 shares of the Company were authorized
and granted at an exercise price of ¥1 for the year ended March 31, 2009.
The options under the plans vest immediately with restriction on exercise
up to 3 years after the date of grant, and have an exercise period of 20

years from the date of grant. No options to purchase shares of the Company were authorized and granted for the year ended March 31, 2010.
Shareholders of Tokyo Electron Device Limited, a domestic listed subsidiary, have approved annual stock option plans for directors and selected
employees since the year ended March 31, 2005.

A summary of stock options outstanding and exercisable as of March 31, 2010 and 2009 is as follows:
Tokyo Electron Limited

2010

Number ofsharesOutstanding at the beginning of year���������������������������������������������������������������������

2,052,300

2009

Weighted-average exercise
price
Yen

¥5,927

U.S. dollars

Number ofshares$63.702,056,500

Weightedaverage
exercise priceYen¥ 6,889

Granted�����������������������������������������������������������������������������������������������������������������

–

–

–

177,900

1

Exercised����������������������������������������������������������������������������������������������������������������

40,0001

0.01

44,500398

Expired (forfeited)��������������������������������������������������������������������������������������������������

233,200

8,520

91.57

137,600

14,414

Outstanding at the end of year������������������������������������������������������������������������������

1,779,100

5,720

61.48

2,052,300

5,927

Exercisable at the end of year���������������������������������������������������������������������������������

1,504,200

6,765

72.71

1,710,700

7,110Annual Report 2010

Tokyo Electron

45

Tokyo Electron Device Limited

2010

Number ofshares650

Outstanding at the beginning of year���������������������������������������������������������������������

Weighted-average exercise
price

Weightedaverage
exercise priceYen

U.S. dollars

Number ofshares¥308,698$3,317.91

650¥308,698

Yen

Granted�����������������������������������������������������������������������������������������������������������������

–

–

–

–

–

Exercised����������������������������������������������������������������������������������������������������������������

–

–

–

–

–

Expired (forfeited)��������������������������������������������������������������������������������������������������

–

–

–

–

–

Outstanding at the end of year������������������������������������������������������������������������������

650

308,698

3,317.91

650

308,698

Exercisable at the end of year���������������������������������������������������������������������������������

650

308,698

3,317.91

650

308,698

13. Leases
As mentioned in note 2 (k), effective from the year ended March 31,
2009, the Company and its domestic subsidiaries adopted “AccountingStandard for Lease Transactions” and “Guidance on Accounting Standard
for Lease Transactions”. As permitted under the new standards, financeleases which commenced on or before March 31, 2008 continue to beaccounted for as operating leases. Pro forma information of leased property
acquired on or before March 31, 2008 including acquisition cost, accumulated depreciation, obligation under finance leases, and depreciation
expense of finance leases that do not transfer ownership of leased property
to the lessee on an “as if capitalized” basis for the years ended March 31,
2010 and 2009, are as follows:
Leased assets not recorded in the consolidated balance sheets:
Thousands of
U.S. dollars

Millions of yen
2010

¥955

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

2009

2010

¥1,040$10,264

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

540

457

5,804

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

¥415¥  583$ 4,460balance are conducted pursuant to the internal management rules for
credit control. Credit risk of major customers is assessed on a regular basis.
Short-term investments consist of time deposits and certificates ofdeposit and the Company and its listed subsidiary trade with highly-rated
financial institutions to mitigate credit risks.
Investment securities consist of mainly equity interests in listed companies exposed to equity market risks. Conditions, including market prices,
for these investment securities are monitored on a regular basis.
Trade payables, which consist of notes and accounts payable, mainly mature
within one year. Trade payables are exposed to liquidity risks which are managed through activities such as implementing cash management plans.
See note 15 for detailed discussion on derivative financial instruments.
Fair Value of Financial Instruments
Carrying amount and estimated fair value of financial instruments as ofMarch 31, 2010 are set out below. Fair value of financial instruments
which is practically difficult to estimate are excluded (see note 4).
Millions of yen
Carrying
amountEstimated
fair value 1

Cash and cash equivalents�������������������������������

¥123,940¥123,940

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

Millions of yen

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

¥159

¥168

$1,708Trade notes and accounts receivable, net of   allowance for doubtful accounts   (¥176 million)������������������������������������������������

124,286

124,286

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

256

415

2,752

Short-term investments�����������������������������������

120,000

120,000

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

¥415

¥583

$4,460Investment securities���������������������������������������

13,615

13,61552,35952,359

2010

2009

2010

Lease payments relating to finance leases accounted for as operatingleases amounted to ¥167 million ($1,795 thousand) and ¥175 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, 2010 and 2009, respectively.
Future minimum lease payments on non-cancelable operating leases:

2010

2009

2010

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

¥1,744¥1,673$18,745

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

1,052

841

11,307

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

¥2,796¥2,514$30,052

14. Fair Value of Financial Instruments
Policy for Financial Instruments
The Company limits its fund management to short-term bank deposits
and certificates of deposit, and obtains funds by utilizing bank-loans or
liquidating trade-receivables.
Trade receivables, which consist of notes and accounts receivable, areexposed to credit risk in the event of non-performance by the counterparties. Execution and management of credit risk, maturity and receivable

Tokyo Electron

Annual Report 2010

Liabilities
Trade notes and accounts payable�������������������
Derivatives (see note 15)
Hedge accounts not applied����������������������������

124

124

Hedge accounts applied����������������������������������

(165)

(165)

Thousands of U.S. dollars

Thousands of
U.S. dollars

Millions of yen

46

2009

Carrying
amountEstimated
fair value 1

Cash and cash equivalents�������������������������������

$1,332,115$1,332,115

Trade notes and account receivable, net of   allowance for doubtful accounts   ($1,892 thousand)�����������������������������������������

1,335,834

1,335,834

Short-term investments�����������������������������������

1,289,768

1,289,768

Investment securities���������������������������������������

146,335

146,335

562,758

562,758

AssetsLiabilities
Trade notes and accounts payable�������������������
Derivatives (see note 15)
Hedge accounts not applied����������������������������

1,333

1,333

Hedge accounts applied����������������������������������

(1,773)(1,773)

The estimated fair values of the derivative financial instruments as ofMarch 31, 2010 are as follows:

Note: 1. Fair value calculation of financial instruments		Cash and cash equivalents, trade notes and accounts receivable, short-term
investments and trade notes and accounts payable		 The carrying amounts approximate fair value because of the short maturity ofthese instruments.
		 Investment securities
		  The fair values of marketable securities are based on quoted market prices.
		  See note 4 for further information by classification of investment securities.
		 Derivatives
		  See note 15 for detailed discussion on derivative financial instruments.

1. Derivative financial instruments not designated as hedging instruments
Millions of yen

2. Maturities of financial assets and securities are as follows:
Millions of yen
After 1 throughWithin 1 year
5 years

Cash and cash equivalents��������������������������������������
Trade notes and accounts receivable�����������������������
Short-term investments�������������������������������������������

¥123,940
124,462
120,000¥–––

Thousands of U.S. dollars
After 1 throughWithin 1 year
5 years

Cash and cash equivalents��������������������������������������
Trade notes and accounts receivable�����������������������
Short-term investments�������������������������������������������

$1,332,115
1,337,726
1,289,768$–––

3. Repayment schedule of short-term borrowings and capital lease obligations is as follows:

Short-term borrowings�������������������
Capital lease obligations�����������������

Within 1 year

Millions of yen
After 1 through2 years

After 2 through5 years¥5,105
26

¥ –
24

¥–
1

Thousands of U.S. dollars
After 1 throughAfter 2 throughWithin 1 year
2 years
5 years

Short-term borrowings�������������������
Capital lease obligations�����������������

$54,869
279

$ –
257

$ –
11

(Supplementary information)
Effective from the year ended March 31, 2010, the Company and its
domestic subsidiaries adopted “Accounting Standard for Financial Instruments” (Statement No.10 (revised 2008) issued by the Accounting Standards Board of Japan) and “Guidance on Disclosures about Fair Value of
Financial Instruments” (Guidance No.19 issued by the Accounting Standards Board of Japan).

2010:

Contract
amountUnrealized
gains (losses)

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

¥ 7,268¥(240)¥(240)

Sell Korean won��������������������������

1,235

290

290

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

5,211

74

74

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

¥13,714¥  124¥  1242010:

Contract
amountSell U.S. dollars���������������������������

$ 78,117$(2,579)$(2,579)

Sell Korean won��������������������������

13,274

3,117

3,117

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

56,008795

795

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

$147,399$  1,333$  1,333

Fair value

Thousands of U.S. dollars
Unrealized
gains (losses)

Fair value

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

2. Designated derivative financial instruments
Millions of yen

Thousands of U.S. dollars

2010: Hedge accounting

Contract
amountFair value

Contract
amountFair value

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

¥ 9,003¥(193)$ 96,765$(2,074)

Sell Korean won����������������������

96

23

1,032

247

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

3,859

5

41,477

54

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

¥12,958¥(165)$139,274$(1,773)

The contract amounts and fair values of forward foreign exchange
contracts, entered into to hedge receivables and payables denominated inforeign currencies that have been translated by the corresponding contracted rates, are as follows.

2010:

Millions ofyen

Thousands of
U.S. dollars

Contract
amountContract
amount$6,599Sell U.S. dollars��������������������������������������������������������

¥614

15. Derivative Financial Instruments

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

206

2,214

Tokyo Electron is subject to risk from adverse fluctuations in foreign
currency exchange rates in its operating and financing activities. The
Company and its listed domestic subsidiary enter into forward foreignexchange contracts in order to hedge such risks, but do not enter intosuch transactions for speculative purposes. The Company and its domestic
subsidiary implement a ratio analysis of the total cumulative cash flow
fluctuations to assess effectiveness of hedging. Execution and management of all derivative transactions are conducted pursuant to the internalmanagement rule for derivatives and the assessment of effectiveness ofhedging activities is reported on a semiannual basis to the Corporate
Director in charge of Finance.

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

¥820$8,813

Note:	The fair value of these derivative financial instruments, which is based on the quoted
foreign exchange rates, is included in the carrying value of hedged assets (Trade notes
and accounts receivable) and liabilities (Trade notes and accounts payable).

The disclosure of the fair value of derivatives, which were accounted foras hedges, as of March 31, 2009 is omitted in accordance with the previous “Accounting Standard for Financial Instruments” (Statement No. 10(revised 2007) issued by the Accounting Standards Board of Japan). In
addition, the disclosure of the fair value of derivatives, which did not meetthe criteria for hedge accounting and were required to be disclosed under
the above accounting standard, as of March 31, 2009 is omitted since theestimated fair value is not significant.

Annual Report 2010

Tokyo Electron47

16. Other Income (Expenses)
As discussed in note 6, losses on impairment of property, plant andequipment and intangible assets for the year ended March 31, 2010 consists of impairment of mainly buildings due to integration and closure ofdomestic facilities of ¥4,786 million ($51,440 thousand) and intangible
assets of Epion of ¥2,767 million ($29,740 thousand).
Expenses for integration of domestic facilities of ¥1,909 million ($20,518
thousand), including expenses for transportation of machineries is recog-

nized for the year ended March 31, 2010.
Provision of allowance for doubtful accounts of ¥7,361 million for theyear ended March 31, 2009 consists of estimated uncollectible amounts
for specific doubtful receivables.
Loss on devaluation of investment securities of ¥2,432 million for theyear ended March 31, 2009 mainly consists of devaluation of securities oflisted companies due to decline of the stock market price.

17. Segment Information
Business segment information as of and for the years ended March 31, 2010 and 2009 is as follows:
Millions of yen
Industrial
electronicequipment

Electronic
components
and computer
networks(1) Sales to external customers������������������������������������������������������������������������������

¥334,164(2) Intersegment sales or transfers�������������������������������������������������������������������������

785

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

334,949

2010:

Total

Eliminations
andcorporate

Consolidated¥84,473¥418,637¥¥418,637

673

1,458

(1,458)–85,146420,095(1,458)418,637

1. Net sales and operating income (loss)
Net sales–

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

339,218

83,066422,284(1,466)

420,818

Operating income (loss)����������������������������������������������������������������������������������������

¥ (4,269)¥ 2,080¥ (2,189)¥

8¥ (2,181)

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

¥654,026¥45,649¥699,675¥(3,323)¥696,352

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

19,792

485

20,277–

20,277

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

7,553

–

7,553

–

7,553

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

16,070122

16,192–

16,192

Industrial
electronicequipment

Electronic
components
and computer
networks

Total

Eliminations
andcorporate

Consolidated(1) Sales to external customers������������������������������������������������������������������������������

¥413,875¥94,207¥508,082¥

¥508,082(2) Intersegment sales or transfers�������������������������������������������������������������������������

942

495

1,437

(1,437)–

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

414,817

94,702509,519(1,437)508,082

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

Millions of yen

2009:

1. Net sales and operating income
Net sales–

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

401,974

92,861

494,835(1,464)493,371

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

¥ 12,843¥ 1,841¥ 14,684¥

27¥ 14,711

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

¥631,062¥40,680¥671,742¥(2,744)¥668,998

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

22,860473

23,333–23,333

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

19,468698

20,166–

20,166

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

48

Tokyo Electron

Annual Report 2010

Thousands of U.S. dollars
Industrial
electronicequipment

Electronic
components
and computer
networks

Total(1) Sales to external customers������������������������������������������������������������������������������

$3,591,617$907,921$4,499,538(2) Intersegment sales or transfers�������������������������������������������������������������������������

8,437

7,234

15,671(15,671)–

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

3,600,054

915,155

4,515,209(15,671)4,499,538

2010:

Eliminations
andcorporate

Consolidated

1. Net sales and operating income (loss)
Net sales$

–$4,499,538

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

3,645,937

892,799

4,538,736(15,756)

4,522,980

Operating income (loss)����������������������������������������������������������������������������������������

$ (45,883)$ 22,356$ (23,527)$

85$ (23,442)

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

$7,029,514$490,638$7,520,152$(35,715)$7,484,437

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

212,726

5,213

217,939–

217,939

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

81,180–81,180–81,180Capital expenditures, including intangible and other assets�����������������������������������

172,7211,311

174,032–

174,032

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 service, as well as sales methods.
2. Major products in each business segment:		 Business segment
Major products
		 Industrial electronic equipment
Semiconductor production equipment, FPD production equipment, PV production equipment and others
		 Electronic components and computer networks
Semiconductor products, boards, electronic components, computer networks and software
3. Depreciation expenses and capital expenditures include those for long-term prepaid expenses.
4. Changes in accounting policies
		 (1) Accounting policies applied to foreign subsidiaries
			Effective from April 1, 2008, the Company adopted “Practical Solution on Unification of Accounting Policies Applied to Foreign Subsidiaries for Consolidated Financial Statements”(Practical Issues Task Force No. 18 issued by the Accounting Standards Board of Japan). The change had no significant impact on the consolidated financial statements andsegment information.
		 (2)	Accounting standard for measurement of inventories
			 Effective from April 1, 2008, the Company and its domestic subsidiaries adopted “Accounting Standard for Measurement of Inventories” (Statement No. 9 issued by the Accounting
			 Standards Board of Japan). The change had no significant impact on the consolidated financial statements and segment information.
		 (3) Accounting standard for lease transactions
			 Effective from the year ended March 31, 2009, the Company and its domestic subsidiaries adopted “Accounting Standard for Lease Transactions” (Statement No. 13 issued by the			Accounting Standards Board of Japan) and “Guidance on Accounting Standard for Lease Transactions” (Guidance No. 16 issued by the Accounting Standards Board of Japan). Thechange had no significant impact on the consolidated financial statements and segment information.

Geographical segment information as of and for the years ended March 31, 2010 and 2009 are as follows:
Millions of yen

2010:

Japan

Other regions

Total

Eliminations
andcorporate

Consolidated

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

¥369,382¥49,255¥418,637(2) Intersegment sales or transfers�������������������������������������������������������������������������

31,85626,08957,945¥(57,945)–¥418,637–

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

401,238

75,344

476,582(57,945)418,637

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

402,436

74,027476,463(55,645)

420,818

Operating income (loss)����������������������������������������������������������������������������������������

¥ (1,198)¥ 1,317¥

119¥ (2,300)¥ (2,181)

2. Total assets�������������������������������������������������������������������������������������������������������

¥665,518¥67,453¥732,971¥(36,619)¥696,352

Millions of yen

2009:

Japan

Other regions

Total

Eliminations
andcorporate

Consolidated

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

¥435,434¥72,648¥508,082(2) Intersegment sales or transfers�������������������������������������������������������������������������

47,183

41,40388,586¥(88,586)–

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

482,617

114,051596,668(88,586)

508,082

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

475,295

108,975

584,270(90,899)493,371

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

¥ 7,322¥ 5,076¥ 12,398¥ 2,313¥ 14,711

2. Total assets�������������������������������������������������������������������������������������������������������

¥638,047¥67,154¥705,201¥(36,203)¥668,998

Annual Report 2010–

¥508,082

Tokyo Electron49Thousands of U.S. dollars

2010:

Eliminations
andcorporate

Consolidated$$4,499,538

Japan

Other regions

Total(1) Sales to external customers������������������������������������������������������������������������������

$3,970,142$529,396$4,499,538(2) Intersegment sales or transfers�������������������������������������������������������������������������

342,390

280,406

622,796(622,796)–

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

4,312,532

809,802

5,122,334(622,796)

4,499,538

1. Net sales and operating income (loss)
Net sales–

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

4,325,408

795,647

5,121,055(598,075)

4,522,980

Operating income (loss)����������������������������������������������������������������������������������������

$ (12,876)$ 14,155

$

1,279

$ (24,721)$ (23,442)

2. Total assets�������������������������������������������������������������������������������������������������������

$7,153,031$724,989$7,878,020$(393,583)$7,484,437

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 Taiwan, the United States of America and Korea.
3. Changes in accounting policies
		 (1) Accounting policies applied to foreign subsidiaries
			Effective from April 1, 2008, the Company adopted “Practical Solution on Unification of Accounting Policies Applied to Foreign Subsidiaries for Consolidated Financial
Statements” (Practical Issues Task Force No. 18 issued by the Accounting Standards Board of Japan). The change had no significant impact on the consolidated financial
statements and segment information.
		 (2) Accounting standard for measurement of inventories
			Effective from April 1, 2008, the Company and its domestic subsidiaries adopted “Accounting Standard for Measurement of Inventories” (Statement No. 9 issued by the
Accounting Standards Board of Japan). The change had no significant impact on the consolidated financial statements and segment information.
		 (3) Accounting standard for lease transactions
			Effective from the year ended March 31, 2009, the Company and its domestic subsidiaries adopted “Accounting Standard for Lease Transactions” (Statement No. 13 issued by
the Accounting Standards Board of Japan) and “Guidance on Accounting Standard for Lease Transactions” (Guidance No. 16 issued by the Accounting Standards Board ofJapan). The change had no significant impact on the consolidated financial statements and segment information.

Domestic and overseas net sales by destination for the years ended
March 31, 2010 and 2009 are as follows:
Millions of yen

Thousands of
U.S. dollars

2010

2009

2010

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

¥162,609¥208,871$1,747,732

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

91,47480,327983,169

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

55,641

65,537598,033

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

52,94872,507569,089

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

55,96580,840601,515

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

¥418,637¥508,082$4,499,538

Net sales

Notes: 1.	For the reporting of domestic and overseas net sales, overseas net sales (other thanJapan) include export sales of the Company and its domestic subsidiaries and salesof foreign subsidiaries, except for export sales to Japan.
2. Other comprises primarily Singapore, China and Israel.

50

Tokyo Electron

Annual Report 2010