Annual Report 2014
For the Year Ended March 31, 2014

TOKYO ELECTRON ANNUAL REPORT 2014

PAGE

1

CONTENTSCONTENTS

Financial Highlights

Business Overview

Top Message

Talking about
Tokyo Electron

Review of Operations
and Business Outlook

Corporate GovernanceCorporate Citizenship

R&D / Intellectual Property

Financial Section

Corporate Data

Contents

Tokyo Electron Limited (TEL™) is a world-leading supplier ofsemiconductor production equipment (SPE) and flat panel display (FPD) production equipment. We provide a broad lineup of
products that offer superior process performance and high 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 a market leader. Our competitive strength lies in our capability to proactively and precisely identify real customer needs andrespond to them with cutting-edge technology and products.
With a global network that spans Japan, the U.S., Europe andAsia, we are opening up new frontiers for digital networks bycontributing to enhancing our customers’ production lines
through untiring dedication to technology innovation.
ProfileTokyo 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 and high 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 a 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.

Contents

Financial Highlights
2

Consolidated Financial Highlights

Business Overview
3

Business Overview

Top Message
4
5

To Our Stakeholders

Interview with the CEO

Guide to Buttons
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Talking about Tokyo Electron
8

Talking about Tokyo Electron

Review of Operations and Business Outlook
9

Review of Operations and Business Outlook

Corporate Governance10

Corporate Governance12

Directors, Audit & Supervisory
Board Members and Executive Officers

Corporate Citizenship
13

Environmental, Safety and Health Activities

R&D / Intellectual Property
14
15

Research and Development
Intellectual Property

Financial Section

Disclaimer
Matters discussed in this annual report, including forecasts of future business performance of Tokyo Electron, management strategies, beliefs andother statements are based on Tokyo Electron’s assumptions in light of information that is currently available. These forward-looking statements
involve known or unknown risks, uncertainties and other factors that could cause actual results to differ materially from those referred to in the forward-looking statements.
Factors that have a direct or indirect impact on Tokyo Electron’s future performance include, but are not limited to:• Economic circumstances in Japan and overseas, consumption trends, and large fluctuations in foreign exchange rates• Changes in semiconductor/FPD/PV markets• Changes in the demand for products and services manufactured or offered by Tokyo Electron’s customers, such as semiconductor manufacturers, FPD manufacturers, photovoltaic panel 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 19.

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32

Financial Review

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

Corporate Data
33

Consolidated Subsidiaries / Investor Information

Zoom

TOKYO ELECTRON ANNUAL REPORT 2014

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2

CONTENTSCONTENTS

Financial Highlights

Business Overview

Top Message

Talking about
Tokyo Electron

Review of Operations
and Business Outlook

Corporate GovernanceCorporate Citizenship

R&D / Intellectual Property

Financial Section

Corporate Data

Consolidated Financial Highlights

Consolidated Financial Highlights

Net sales¥418,637¥668,722¥633,091¥497,300¥612,170$5,948,018

Operating income (loss)(2,181)

97,87060,443

12,54932,205

312,913

Income (loss) before income taxes
and minority interests(7,768)99,57960,602

17,767(11,756)(114,225)

Net income (loss)(9,033)71,92436,726

6,076(19,409)(188,583)

Depreciation and amortization

20,002

17,707

24,19826,631

24,888

241,819

Capital expenditures

14,91939,14039,541

21,774

12,799124,359

R&D expenses

54,07470,56881,50673,24978,664

764,322(Millions of yen)
750,000(Millions of yen)
100,000

(%)
16.0
14.6

600,000

450,000

300,000

75,00012.0
9.5

50,0008.0

25,0002.5

32,205For the year:

Net Sales

12,5492014

60,443

2014

97,8702013

612,1702012

497,300

2011

633,0912010

668,722

Years ended March 31

Operating Income (Loss)
and Operating Margin

418,637

Thousands of
U.S. dollars

Millions of yen

0

150,000

5.3
4.0

0

Operating marginROE(0.5)%(1.8)%

14.6%

9.5%

13.3%

2.5%

6.3%

1.0%

5.3%

0

-25,000

10(3.3)%

11

12

13

10

14

-4.0

11

12

13

14

Operating Income (Loss)
Operating Margin

Thousands of
U.S. dollars

Millions of yen-2,181-0.5

At year-end:
Total assets¥696,352¥809,205¥783,611¥775,528¥828,592$8,050,836

Total net assets(Total shareholders’ equity)523,370

584,802598,603605,127590,614

5,738,574

Net Income (Loss)
per Share

U.S. dollars(Yen)
600.00

Yen

ROE
(%)
16.0

Per share:
114.00

80.00

33.91

¥ (108.31)

51.00

50.00

Notes: 1. U.S. dollar amounts are translated from yen, solely for convenience, at the prevailing exchange rate on March 31, 2014 of ¥102.92=U.S.$1.
2. Depreciation and amortization does not include amortization and loss on impairment of goodwill.

$(1.05)

450.00

13.3

12.0

0.49
300.00

8.0
6.3

150.004.0-150.00

1.0

00-108.31

12.00

¥

33.91

¥ 205.04

205.04¥ 401.73

401.73

Cash dividends¥ (50.47)-50.47

Net income (loss)—Basic

10

-1.8
-3.3

-4.0

11

12

13

14

10

11

12

13

14

TOKYO ELECTRON ANNUAL REPORT 2014

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CONTENTSCONTENTS

Financial Highlights

Top Message

Business Overview

Talking about
Tokyo Electron

Review of Operations
and Business Outlook

Corporate GovernanceCorporate Citizenship

R&D / Intellectual Property

Financial Section

Corporate Data

Business Overview

Business Overview

SUMMARY OF BUSINESS

Semiconductor
Production
Equipment

MAIN PRODUCTS

Southeast
Asia

Semiconductor devices (IC chips) are used in mobile devices, such as» Coater/Developer

smartphones and tablets, and in electronics ranging from flat panel» Plasma Etch System

TVs and other digital home appliances to cutting-edge medical equip-» Thermal Processing Systemment. Tokyo Electron offers semiconductor production equipment for
manufacturing such devices, along with superior technical supportand service.
Our product lineup includes coater/developers, plasma etch sys-

SALES BY REGION

3.3 %10.2% 16.0 %China» Single Wafer Deposition System» Cleaning System

Japan» Wafer Probertems, thermal processing systems, single wafer deposition systems
and cleaning systems used in wafer processing as well as wafer probers used in the wafer testing process. Other products include electrochemical deposition systems and wafer bonders/debonders used inadvanced packaging processes.

FPD
Production
Equipment

Coater/Developer
CLEAN TRACK™
LITHIUS Pro™ Z

Plasma Etch System
Tactras™

Single Wafer Deposition System
Trias e +™

Single Wafer Cleaning System
CELLESTA™ -i

Flat panel displays (FPDs) are used in a wide variety of applications,» FPD Coater/Developersuch as flat panel TVs, mobile devices including smartphones and» FPD Etch/Ash System

tablets, and recently even digital signage for advertising. Tokyo
Electron supplies FPD coater/developers and plasma etch/ash sys-

Thermal Processing System
TELINDY PLUS™

North
America

Taiwan27.2%
21.8 %
15.3% 6.2%
South Korea

Wafer Prober
Precio™

Japan

21.6 %» Inkjet Printing System for Manufacturing OLED Panels

tems used to manufacture FPDs, along with solid technical supportand service.
Tokyo Electron has also added an inkjet printing system for manufacturing OLED panels using large-sized substrates to its lineup,seeking to take advantage of the expanding OLED display market.
FPD Coater/Developer
Exceliner™

EuropeFPD Etch/Ash System
Impressio™

Inkjet Printing System for
Manufacturing OLED Panels
EliusTM 2500

Overseas78.4 %

TOKYO ELECTRON ANNUAL REPORT 2014

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4

CONTENTSCONTENTS

Financial Highlights

Top Message

Talking about
Tokyo Electron

To Our Stakeholders

Interview with
with thethe CEO
CEOInterview

Business Overview

Review of Operations
and Business Outlook

Corporate GovernanceCorporate Citizenship

To Our Stakeholders

Tokyo Electron celebrated the 50th anniversary of its

lacks future potential, delay in establishing businesses

founding on November 11, 2013. I’d like to oncein the advanced packaging field, and the consolidation

again offer my heartfelt gratitude to everyone whoof development sites. We take full responsibility forhas done business with and supported us over thethese results. The entire management is committed toyears, and add a personal thanks to all the employ-doing our utmost going forward, and we kindly ask forees who have worked by our side as well as those

your understanding.

who led the way before.

In fiscal 2014, we also decided to reduce ourI regret to say that, in fiscal 2014, the year we

stake in Tokyo Electron Device, a subsidiary whichmarked this milestone, we posted a net loss of ¥19.4

operates the electronic components and computerbillion. In 2013, the business environment for semicon-

networks business, solidifying our strategy of con-ductor production equipment (SPE) and flat panel dis-

centrating management resources in the SPE andplay (FPD) production equipment picked up, leading to

FPD businesses. We are going back to the basics offiscal 2014 net sales of ¥612.2 billion, up 23% year on

management, working tirelessly toward the strong

year, and operating income of ¥32.2 billion, up 157%.

medium- and long-term growth of the Company. In

However, we also recorded ¥47.0 billion in loss onlight of Tokyo Electron’s stable financial base and the

impairment linked to our withdrawal from the photovol-

recent state of the world economy, we paid annual

taic panel production equipment business, which now

dividends of ¥50.

Transforming
for the Next Half Century
Last year, we made the momentous decision to

fundamental global industry. For people around theenter into a merger of equals with Applied Materials,

world to enjoy the benefits of these technologies,

Inc. of the United States to secure further growth, pros-

however, we must reduce costs and develop break-

perity and the continued development of the industry

through technologies. To do this, the assembly of aover the next 50 years. Aiming to become a global

broad range of technologies and a strong financial

innovator in the semiconductor and display production

base is more important than ever.

equipment industry, the top management of both com-

The industry now stands at its greatest inflec-

panies is steadily advancing preparations for the merg-tion point to date. To meet this challenge, Tokyoer, and we hope to launch the new, integrated

Electron, Japan’s leading production equipment

company in the second half of this year.

manufacturer, and the U.S. leader, Applied Materials,

We have now entered the true mobile network
era. In this era, enormous amounts of data travelceaselessly around the world, interwoven with soci-have each resolved to transform themselves andunite to create a new company.
Together, we will work toward an inspired, dynam-

ety and all manner of objects, as expressed in the

ic future. We are confident that the new company will

popular term “internet of things.” This network is

blaze the trail, contributing to society by creating greatused for much more than just communication

value and prosperity for shareholders, customers andbetween individuals. It enriches and supports their

the communities where we do business.

lives from the ground up, playing key roles in medicalcare, health, automobiles and transportation, energy

Thank you for your continued support andunderstanding.

and finance. Going forward, semiconductor and FPD
technology is expected to develop considerably as aJune 2014

Tetsuro Higashi
Chairman of the Board, President & CEO

R&D / Intellectual Property

Financial Section

Corporate DataTOKYO ELECTRON ANNUAL REPORT 2014

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CONTENTSCONTENTS

Financial Highlights

Business Overview

Top Message

Talking about
Tokyo Electron

To
Stakeholders
To OurOur Stakeholders

Interview with the CEO

Review of Operations
and Business Outlook

Corporate GovernanceCorporate Citizenship

R&D / Intellectual Property

Financial Section

Corporate Data

Interview with the CEO

Fueling growth
opportunities

Q&A

Technological innovation createsvalue for stakeholders

Question 1

What did fiscal 2014
mean in terms of Tokyo
Electron’s operating
strategy?
Tetsuro Higashi
Chairman of the Board,
President & CEO

Fiscal 2014, the year ended March 31,
2014, was the 50th year since Tokyo
Electron’s founding, a big milestone for
the Company. We recorded a net loss of¥19.4 billion for the year, for which I
offer my apologies to our shareholders.

Otherwise, from the perspective of
establishing an operating platform forthe future, including business reorganization and the decision to merge with
Applied Materials, it was a very meaningful year, characterized by taking ontransformation aimed at the next fifty
years.
Semiconductors have long played acentral role in industry, and their role
today continues to grow only more
important. As a leader in the markets for
production equipment of semiconductors and flat panel displays (FPDs), which

support the very foundation of modern
society, we further strengthened ouroperating base, with an eye toward
growth and sustainable development
going forward. In fiscal 2014, we withdrew from the photovoltaic panel production equipment business,reorganized R&D sites and reduced our
stake in Tokyo Electron Device, which
operates the electronic components
and computer networks business,changing it from consolidated subsidiaryto equity-method affiliate. We took thesesteps to concentrate management

resources in our core semiconductor
and FPD production equipment businesses and thus increase profitability
and strengthen our financial standing.
We also made the major decision toenter into a business combination with
Applied Materials, aiming to strengthen
our operating base for the next 50
years. We will use the strength of thisoperating base to realize further business growth and, through growth of theCompany as a whole, return profits toshareholders.

Question 2

half century. This merger is a major stepin determining the direction of theCompany over the next 50 years andbeyond. I am sure that the two companies will work together to set andachieve ambitious strategic and financial goals.
As advanced information and communications networks become moredeeply engrained in society, growth
opportunities in the semiconductor anddisplay industries will continue toincrease dramatically. As such, theimportance of such industries as the
backbone supporting the global spread

Please describe thereasons and objectives
behind the decision tomerge with Applied
Materials.
Last September, we announced ourdecision to merge with Applied
Materials, aiming to create a global
innovator in the semiconductor and FPD
production equipment industries andachieve continued growth over the next

Press conference announcing the merger
Tokyo Electron Chairman of the Board, President & CEO Tetsuro Higashi (left) andApplied Materials President and Chief Executive Officer Gary Dickerson (right)

TOKYO ELECTRON ANNUAL REPORT 2014

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CONTENTSCONTENTS

Financial Highlights

Business Overview

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Talking about
Tokyo Electron

To
Stakeholders
To OurOur Stakeholders

Interview with the CEO

Review of Operations
and Business Outlook

Corporate GovernanceCorporate Citizenship

R&D / Intellectual Property

Financial Section

Corporate Data

Interview with the CEO

and display industries, will use theircomplementary strengths in technologies and products to create breakthrough technological innovation. By
doing so, we will solve customers’ highvalue problems better, faster, and atlower cost, achieving further corporate
growth and contributing greatly to thedevelopment of industry.

Question 3

entering a new cycle of expansion inwhich the growing use of such products
and services increases the value of the
network as infrastructure, and thisincrease in value drives further growth inusage. The scale of this potential market
is immeasurable.
Semiconductors support the construction of networks that enable thetransmission of such vast amounts ofdata and the development of mobile
devices. As such, the continued evolution of semiconductors is indispensible.
This means that the role of manufacturers will be more important than ever. We
must not only improve device performance by increasing speed and capacity while reducing power consumption,
but also develop breakthrough technologies that reduce costs. I’m sure that bycreating innovative new technologies
that contribute to the development ofadvanced information and communications networks, the SPE market will continue to grow.

Please tell us yourthoughts on the future
growth of the semiconductor production equipment(SPE) market and what
you think the drivers ofthat growth will be.
Last year, Cisco Systems shook theindustry with its forecast that in 2017,
half the world’s population will be connected to the internet, and annual global
IP traffic will reach 1.4 zettabytes*,
exceeding the total 1.2 zettabytes oftraffic between the birth of the internet
in 1984 and 2012 in just one year. Our
digital network-based society is on theverge of a new period of expansion withthe arrival of the zettabyte era.
In recent years, the term “Internet ofthings” has been cropping up more andmore. As all kinds of “things” connect tothe internet, the expansion of new products and services that make sophisticated use of vast amounts of data is
expected in virtually all fields. We are* 1.4 zettabytes: An amount of data equivalent to thestorage capacity of 362 billion DVDs.

Question 4tion (Figure 1).
Tokyo Electron is building a solid
market position through product development targeting these new technologies. For finer patterning, the Company
is introducing coater/developers withnew defect-reducing features, ALD systems that achieve both nano-scale
deposition and high productivity, andsingle wafer cleaning systems with
reduced pattern damage to achieve differentiation and expand sales.
Furthermore, in the production of newstructure devices, such as FinFET and
3D NAND flash memory, Tokyo Electron
is receiving high marks for its etch systems featuring low damage and its dry
cleaning systems.
We regard these inflection points asopportunities for business expansion.
We will make timely product releases to
respond to these new technologies andaccelerate even further the technological innovation that customers seek togenerate further growth.

Tell us about Tokyo
Electron’s growthstrategies for theSPE business.
The semiconductor industry is facing
the greatest inflection point in its history.
Until now, semiconductors have developed according to Moore’s Law throughconstant miniaturization. However, as
we approach the physical limits of miniaturization, we are now encounteringvarious technological barriers that cannot be overcome merely by further
developing existing technologies. To
break through these barriers, besides
conventional miniaturization, various
innovative new technologies are emerging. These include 3D NAND flash,
STT-MRAM (a form of magnetic memory),
FinFET 3D transistors, advanced packaging, and multiple patterning that uses
existing lithography to form finer patterns by applying etching and deposi-

Advanced packaging

Figure 1:
Diverse technologicaldevelopment that supports
semiconductor device
innovation and leads
the SPE market

Silicon photonics

More than Mooreof these networks is growing. For thepeople of the world to enjoy the benefitsof these developments, however,advanced technological innovation andexhaustive cost reductions are of pressing importance. In that sense, the semiconductor industry stands at its greatest
inflection point ever.
By joining forces, the two companies,
both world leaders in the semiconductor

Emerging memory

450 mm

TSV/WLP

New material
New structure

ReRAM
Flip chip

STT-MRAM

3D NAND

Carbon material
Ge/III-V channel

Patterning
FinFET 3D transistor
DSA

EB direct writing

EUV
Multiple patterning

More Moore

TOKYO ELECTRON ANNUAL REPORT 2014

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7

CONTENTSCONTENTS

Financial Highlights

Business Overview

Top Message

Talking about
Tokyo Electron

To
Stakeholders
To OurOur Stakeholders

Interview with the CEO

Review of Operations
and Business Outlook

Corporate GovernanceCorporate Citizenship

R&D / Intellectual Property

Financial Section

Corporate Data

Interview with the CEO

Question 5

Please tell us about theoutlook for the FPD
production equipment
business.
The market for FPD production equipment is firm, reflecting active capital
investment in small- and medium-sizedpanels for smartphones, tablets andother mobile devices as well as accelerating investment for large-sized panels
in China. The display technology
required for smartphones, 4K TV andother cutting-edge devices is growing
more advanced, and the use of lowtemperature polysilicon (LTPS) and indium gallium zinc oxide (IGZO) isadvancing in thin-film transistors (TFT) toachieve higher functionality, including
higher definition, higher image quality
and lower power consumption. In
response to these technological chang-es, Tokyo Electron is introducing etchsystems that employ new plasma technology, building a competitive edge inthe production equipment market forlarge panels.
The use of OLED displays, heralded
as the next generation of display, is
expected to soon expand from present
applications in mobile devices to larger
panels, including large-sized TVs. In thefirst half of 2014, Tokyo Electron begansales of inkjet printing systems for manufacturing generation eight (Gen8) OLED
panels. This system achieves materials
usage efficiency that is far higher thanthat of the conventional evaporation
method, and is expected to contribute
greatly to the production of larger panels for TVs and the reduction of costs.
Going forward, I think we will see morediverse applications, including flexible
and wearable displays, and continued
technological innovation geared towardeven better image quality.

Question 6

After the merger,
how will you combine thedistinct corporate culturesof Tokyo Electron andApplied Materials?
To ensure the success of such a largescale, cross border merger, mutual
understanding will be extremely important. To achieve optimal corporate operations beginning as soon as the merger
takes effect, immediately after the merger was announced, we set up a team
together with Applied Materials to prepare. The various departments of thetwo companies are engaged in regulardialog to understand one another’s
ways of doing business. I’m sure that
this will enable us to realize optimal
operations. From a similar perspective, I
think that the presence in Japan of Gary

Question 7

What effect does the merger
with Applied Materials haveon your policy regarding
shareholder returns anddividends?
By merging the two companies, wewill be able to create more competitive
products and generate even greater

Dickerson, who will be the CEO of the
new company, will be of great benefit.
For the company to succeed, there is no
doubt that the CEO will need a thoroughunderstanding of Tokyo Electron’s operations and corporate culture.
We are also in the process of nailing
down the new company’s corporate
mission, vision and values. These form
the foundation of operations, and weare working to incorporate the best ofboth companies. I’m confident that bycommunicating the direction and idealsof new company to employees andsharing principles of action andcommon motivations, the employees
from both companies can progress
together toward the uniting goal of
becoming a global innovator. We hopeto put in place a corporate culture
framework that sets the world standard
and endeavor with all employees fromboth companies to make the merger a
success.

profits, so I expect shareholder returns
to increase significantly. We also plan
to carry out share repurchasesamounting to US$3 billion withintwelve months of the merger’s completion, which, together with new synergies, will be accretive to earnings
per share exiting the first year. Serving
the interests of shareholders will continue to be a top priority of the newcompany, and we will remain focusedon increasing shareholder value.

TOKYO ELECTRON ANNUAL REPORT 2014

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CONTENTSCONTENTS

Financial Highlights

Business Overview

Talking about
Tokyo Electron

Top Message

Review of Operations
and Business Outlook

Corporate GovernanceCorporate Citizenship

R&D / Intellectual Property

Financial Section

Corporate Data

Talking about Tokyo Electron

Talking about Tokyo Electron

Talking about Tokyo Electron
Corporate Culture:
Key to Tokyo Electron’s Growth

Tetsuo Tsuneishi
Vice Chairman of the Board,
Assistant to the CEO,Corporate Strategy, IR

Since its founding, Tokyo Electron
has held firmly to the management
philosophy of providing cutting-edge
products and excellent service. We’re
proud of the contributions Tokyo
Electron has made to the development of the electronics industry byoffering high added value.
So why has Tokyo Electron beenable to achieve such growth, andhow did we reach this current point,where the Company is now, once
again, able to aim for further growth
going forward? There are a few key
factors behind this trajectory.
One such factor is the desire
shared throughout the Company tobecome number one in the industry. Another is the corporate culture that we have nurtured since
our founding. Understanding thereasons the Company exists,
always putting customers first andsetting high performance targets—these are all of course important.
But what really powers Tokyo
Electron’s growth lies elsewhere:
we aim for a personnel system thatis fair, just and rigorous in evaluating the performance and true abilities of each employee, aworkplace atmosphere that is rooted in honesty and integrity while
frank and open, and a work environment that allows all employees
to challenge themselves andengage their work with vigor. I
believe that this corporate culture
is what has made the Company’s
growth possible.
Our strong corporate culture not
only enabled past management
and employees to expand into new
business areas, but also enabled
the adoption of progressive corporate governance. Tokyo Electronuses an audit & supervisory board
system and has furthermore established a Compensation Committee,
Nomination Committee and Ethics
Director within the Board of
Directors. The Company was oneof the first in Japan to disclose
individual remuneration of representative directors. In these ways,
we maintain highly independent,
transparent operations.
Today, with new opportunities
ahead, we will continue nurturing our
exemplary corporate culture andcorporate governance as we aim to
use the planned merger with Applied
Materials to increase corporate
value, recognizing the return of value
to all stakeholders as our mission.

A Trusted Brand Built evolving. To continue growing, wemust utilize teamwork. With teamon Quality Products work, we can move quickly andBy squarely facing the demands ofthe market and our customers,
Tokyo Electron has achieved leadership in the semiconductor production equipment industry.
Moreover, everyone in the
Company—from manufacturing tosales to service—trusts eachother, takes individual responsibility and works with conviction to
exceed customer expectations.
Nor can we forget the contributions of our partner companies todevelopment and manufacturing;working together, we have createdhigh quality products and inspired
one another to push our technologies and capabilities further.
These values have been Tokyo
Electron’s strength from the
beginning. They support ourbrand. They are why customers
trust Tokyo Electron to always
meet their expectations.
In terms of manufacturing, webegan implementing TPM* in theearly 2000s as part of efforts toachieve innovation in manufacturing. From the development anddesign stages, we build QCD** in.
We seek to leverage the advantagesof our existing integrated development and manufacturing whilesteadily improving production processes. The true value of such
efforts will be proven at the new
Miyagi plant, where we commenced
operations in 2011 with the aim ofmaking it the world’s top semiconductor production equipment plant.
The industries that Tokyo
Electron serves are constantly

maximize the impact of each individual’s creativity and ourstrengths in fundamental technologies. With teamwork, we can create and maximize the value we
provide our customers. In theupcoming merger with Applied
Materials, we will need to adapt tosucceed, even as we sustain
existing competitive strengths.
Both will be crucial. By learningfrom each other and working to
combine our strengths, I am surethat we can break new ground in
manufacturing.
*	TPM: Total productive management, an
approach that involves all personnel to reduce
waste and promote efficiency in manufacturing and production.
**	QCD: Quality, cost and delivery, three key priorities in production management.

Hirofumi Kitayama
Representative Director,
Senior Executive Vice President,
Business Ethics, CSR Promotion,
Production and Technology,
System Development Division, IT,
General Manager, Production
Division (Quality)

Blazing the Trail with
Our Customers
Tokyo Electron has grown andevolved focusing on the semiconductor production equipment business. Last year marked theCompany’s 50th anniversary.
I believe the source of our
growth lies in the principle of putting customers first, which hasenabled us to pursue added value
from a customer perspective, as
well as our corporate culture,
which has allowed Tokyo Electron
to consistently lead the way inadapting to evolving needs, fearlessly taking on new challenges.
In the Company’s earliest days,
we served as a distributor ofimported products with full rangeof technological support, a business area in which few other companies were involved at the time.
As the level of technological challenges rose, Tokyo Electron
evolved from trading company to
manufacturer, and has sinceearned the trust and satisfaction ofcustomers by making further
improvements in technology andquality. Today, our global operations span 16 countries. Tokyo
Electron deals in more than 20
product categories and holds the
top market share in many of these.
We have received numerous supplier awards and the highest praise
as a partner company from ourcustomers, who rely on close collaboration with Tokyo Electron for

Hikaru Ito
Corporate Director,
Executive Vice President, SPE,
Senior General Manager,
SPE Sales Division &General Manager, ESBU

future technological development.
Further growth is expected in
the semiconductor industry as it
expands from its roots in IT applications into automobiles, medicalcare and infrastructure. These
broadening applications provide
Tokyo Electron with abundant
opportunity. To meet evolving market demands and solve emerging
challenges, we will work closelywith customers from the development and design stage of theirproducts. I am confident that we
can achieve further growth andcontinue to contribute to thedevelopment of the industry.

TOKYO ELECTRON ANNUAL REPORT 2014

PAGE

9

CONTENTSCONTENTS

Financial Highlights

Business Overview

Talking about
Tokyo Electron

Top Message

Review of Operations
and Business Outlook

Corporate GovernanceCorporate Citizenship

R&D / Intellectual Property

Financial Section

Corporate Data

Review of Operations and Business Outlook

Review of Operations and Business Outlook
SALES BY SEGMENT

SHARE OF NET SALES

Semiconductor Production Equipment(Billions of yen)
0
150

10

300

450

600

262.4

11

Net Sales

511.3

12

¥ 478.8 billion

477.9

13

392.0

14

78.2%

478.8

FPD Production Equipment(Billions of yen)
0
20

40

60

10

80

4.6%

71.4

11

Net Sales

66.7

12

¥ 28.3 billion

69.9

13

20.1

14

Capital investment in semiconductor production
equipment saw remarkable recovery in the second half of 2013, reflecting the worldwide spreadof mobile devices as well as demand for servers
accompanying the growing use of cloud computing. In particular, investment to enhance manufacturing capability through miniaturization
resumed for mobile DRAMs, while investment forearly 3D-NAND volume production commenced.
Demand for logic semiconductors remained firm,
and investment in cutting-edge technologies byfoundries was brisk.

In flat panel displays (FPD), capital investment forsmall- and medium-sized high-definition panels
remained solid in 2013, reflecting the global
spread of mobile devices. Capital investment inproduction equipment for large-sized panels for
TVs also began to recover in the second half ofthe year, mainly in China. As a result, the overallbusiness environment improved.

BUSINESS OVERVIEW» Segment net sales were up 22.1% year on year to¥478.8 billion.
» Reflecting recovery in memory-related investment,
sales rose 145% in China, 90% in Japan and 28%
in South Korea.
» Sales in Taiwan rose 24% on the back of solid
logic-related investment.
» Sales of cleaning systems reached their highest
level ever.

» Segment net sales rose 41.0% to ¥28.3 billion.
» Sales in China accounted for approximately 60%of the total sales.
» Sales of new ICP etch systems, for higher definition
panels, were strong.
» Tokyo Electron began to receive orders for inkjet
printing systems for manufacturing OLED panels.

28.3

PV Production Equipment(Billions of yen)
0
2

4

6

8

0.6%

10
11

Net Sales

12¥ 3.8 billion

13

BUSINESS ENVIRONMENT

Aiming to break into the thin-film silicon photovoltaic panel market, Tokyo Electron became
the exclusive sales representative of Switzerland-based Oerlikon Solar in 2009 and begansales of end-to-end production lines for photovoltaic panels. In 2012, the Company
acquired Oerlikon Solar, with the aim of generating growth by merging its technologies withthe production equipment technologies of the Group. However, due to changes in the market environment, panel production equipment has since been in oversupply. While Tokyo
Electron boosted development efforts to increase conversion efficiency and took all available
measures to reduce costs, the business environment remained extremely harsh. Having
determined that it could not expect a reasonable return on investment going forward, Tokyo
Electron ended all research and development, manufacturing and sales operations in the PV
production equipment business at the end of March 31, 2014. Going forward, the Company
will continue only support operations for delivered units.

In 2013 the market for electronic components
reached a new high, driven by demand in the
United States and Asia. Domestic demand forindustrial electronics recovered, and demand for
devices used in smartphones and automobiles
grew in Asia. In the domestic information andcommunication equipment market, capital
investment related to data centers was firm,
reflecting the rapid growth of cloud computing.

» Segment net sales rose 19.0% year on year to¥100.7 billion.

This segment has been operated by Tokyo Electron Device Limited and its subsidiaries.
Considering the future development of the distinct businesses in which Tokyo Electron
and Tokyo Electron Device engage, the Company determined that the establishment ofgrowth strategies more uniquely attuned to each party would benefit the corporate valueof both companies. Accordingly, in April 2014, Tokyo Electron sold a portion of its sharesin Tokyo Electron Device. As a result, from fiscal 2015 onward, Tokyo Electron Device will
be classified as an equity method affiliate rather than a consolidated subsidiary, and Tokyo
Electron’s equity in income of Tokyo Electron Device will be included in investment profit orloss on equity method affiliates on the consolidated statements of income.

From FY2010 to FY2012, PV production equipment sales are included in
FPD production equipment sales.

(Billions of yen)
0
30

10
11

60

90

16.5%

84.5
90.2

12

84.9

13

84.7

14

120

Net Sales¥ 100.7 billion
100.7

The overall market for FPD production equipment is firm, reflecting capital investment insmall- and medium-sized panels for smartphones, tablets and other mobile devices andaccelerating investment for large-sized panels in China. In thin-film transistor (TFT) processes, the use of low-temperature polysilicon (LTPS) and indium gallium zinc oxide(IGZO) in place of conventional amorphous silicon is growing. Tokyo Electron is working toincrease sales by introducing new products to accommodate these new technologies.
The Company furthermore aims to expand the production equipment market for OLED
displays, which are hailed as the next generation of display technology, with the release of
inkjet printing equipment for use in the manufacture of large-sized OLED panels.

» Segment net sales came to ¥3.8 billion, up from theprevious fiscal year’s ¥83 million.

3.8

Electronic Components and Computer Networks

Demand for semiconductors and for increasingly advanced and diverse technologies is
expected to continue growing. This growth will be driven by the further adoption of smartphones and other mobile devices, the arrival of the “internet of things” and more sophisticated use of big data as well as the rapid development of the networks that support thesetechnologies.
Tokyo Electron regards these technological changes as opportunities for growth and isaggressively bringing to market new high performance, high productivity products. For
finer patterning, the Company is introducing coater/developers with new defect-reducing
features, ALD systems that achieve both nano-scale deposition and high productivity, andsingle wafer cleaning systems with reduced pattern damage to expand sales. Tokyo
Electron is also working to boost its position in markets for such new technologies as 3D
NAND flash memory and FinFET by introducing etch systems featuring low damage andhigh selectivity as well as dry cleaning systems.

Amid steadily growing worldwide demand forphotovoltaic panels, the number of panels
installed continued to grow in 2013. However,production equipment remained in oversupply
around the globe, and new investment did notrecover.

0.1

14

BUSINESS OUTLOOK» In the electronic components business, sales ofgeneral-purpose integrated circuits (IC) for use inautomobiles increased, buoyed by an expansion ofcommercial rights.
» In the computer networks business, sales ofequipment for data centers increased.
» Increasing sales abroad caused the segment’s
overseas sales ratio to rise from 19.3% in theprevious fiscal year to 22.0%.

TOKYO ELECTRON ANNUAL REPORT 2014

PAGE

10

CONTENTSCONTENTS

Financial Highlights

Business Overview

Talking about
Tokyo Electron

Top Message

Review of Operations
and Business Outlook

Corporate GovernanceCorporate GovernanceCorporate Citizenship

R&D / Intellectual Property

Financial Section

Corporate Data

Directors,
Directors, Audit
Audit && Supervisory
Supervisory Board
Board Members
Members andand Executive
Executive Officers
Officers

Corporate Governance
Against a backdrop of ongoing business globalization, Tokyo
Electron maintains a management philosophy that places emphasis	Outside Directors and Outside Audit & Supervisory Board
Members

Tokyo Electron is taking steps to strengthen its internal control systems
and make them more effective. The Company is implementing practical	Coordination Between Audit & Supervisory Board
Members and Independent Auditorson improving corporate value for its shareholders and all other stake-

From the viewpoint of objectively ensuring the effectiveness of the deci-

measures in line with the Fundamental Policies Concerning Internal

The audit & supervisory board members receive audit plans for the fiscal

holders. To this end, the Company considers it important to strength-sion-making of the Board of Directors, Tokyo Electron has appointed two

Controls within the Tokyo Electron Group decided by the Board ofyear from the independent auditors, as well as explanations regarding

en corporate governance. In line with the following three basic

outside directors to the Board: Mr. Hiroshi Inoue, who is Chairman of the

Directors. The Company is also implementing measures for the Internal

auditing methods and particular areas of focus, among other matters.

principles, the Company works to maintain a highly effective, opti-

Board at Tokyo Broadcasting System Holdings, Inc., and Mr. Masahiro

Controls Over Financial Reporting, based on the Financial Instruments

The independent auditors audit the year-end financial statements andmized corporate governance structure while upgrading and strength-

Sakane, who is Councilor at Komatsu Ltd. Additionally, to objectively

and Exchange Act.

review the quarterly financial statements, and report the results of theirening its internal control systems and risk management system.

ensure the reasonableness of the audits, Tokyo Electron has appointed
three outside audit & supervisory board members: Mr. Mikio Akaishi, Mr.

Tokyo Electron’s Basic Principles of Corporate Governanceaudits to the audit & supervisory board members.
The Company provides KPMG AZSA LLC, its independent auditors,

Internal Control Systems

Takatoshi Yamamoto and Mr. Ryuji Sakai, who is an attorney at law of

To more effectively strengthen the internal control and risk managementwith all necessary information and data to ensure that it can conduct its

1. Ensure the transparency and soundness of business operations

Nagashima Ohno & Tsunematsu. Mr. Mikio Akaishi conducts audits ofsystems of the entire Tokyo Electron Group, Tokyo Electron appointed a

audits during the fiscal year promptly and correctly.

2.	Facilitate quick decision-making and the efficient execution of busi-

the Tokyo Electron Group as a full-time audit & supervisory board mem-

Chief Internal Control Director and a Compliance & Internal Control

ber.

Executive Officer. Under them, the Company established a dedicatedness operations
3. Disclose information in a timely and suitable manner	Compensation for Corporate Directors and Audit &risk management and internal control function within the General Affairs

ComplianceDepartment, which evaluates and analyzes the risks which could affect

Stakeholder trust is the cornerstone of business activities. In order tothe Group, and works to reduce these risks by promoting the necessary

maintain trust, it is necessary to continuously act in rigorous conformity to

The Corporate Governance Framework

Tokyo Electron has adopted the following executive compensation pro-measures. Tokyo Electron has also established the Information Security

business ethics and compliance. In line with the Fundamental Policies

Tokyo Electron uses the audit & supervisory board system based on thegram with the intention of tying compensation more closely to financial

Committee and the Export Trade Control Committee to further strength-

Concerning Internal Controls within the Tokyo Electron Group, all Group

Companies Act, and furthermore has established its own Compensation

results and shareholder value, raising corporate competitiveness, anden the management of confidential information and the export compli-

executives and employees are required to maintain high standards of eth-

Committee* and Nomination Committee** to increase the transparency

enhancing management transparency.

ance system.

ics and to act with a clear awareness of compliance.

and objectivity of management. The members of these committees are

1.	The compensation for corporate directors consists of a monthly fixed

directors and audit & supervisory board members, excluding the repre-

Supervisory Board Members

remuneration and a performance-linked compensation.

	Code of Ethics, Chief Business Ethics Director and Ethics

Internal Audit Department (Global Audit Center)sentative directors. Also, to more clearly define the roles of the Board of

2.	The performance-linked compensation system for corporate directors

The Global Audit Center oversees the internal auditing activities of the

Directors and the executive body and to facilitate quick decision-mak-is designed to align compensation more clearly with financial results

entire Tokyo Electron Group. The Center is responsible for auditing the

In 1998, Tokyo Electron formulated the Code of Ethics of the Tokyo

ing, Tokyo Electron has adopted the executive officer system sinceand increases in shareholder value. It takes into account consolidated

business activities of the Group’s domestic and overseas bases as well

Electron Group to establish uniform standards to govern all of its global

2003. Moreover, Tokyo Electron has been disclosing the individual remu-

net income and consolidated return on equity (ROE), two perfor-

as their compliance and systems, and for evaluating the effectiveness ofbusiness activities. In the same year, the Company appointed a Chief

neration of representative directors since 1999 in recognition of themance indicators of consolidated business results. Necessary adjust-internal control systems. As necessary, the Global Audit Center also pro-Business Ethics Director and established the Ethics Committee, which isimportance of managerial transparency for shareholders.

ments are then made when there are special factors that should bevides guidance to operating divisions.

responsible for promoting business ethics awareness throughout the*	Compensation Committee: This committee makes recommendations to the Board of
Directors on the director remuneration system, as well as representative director remuneration itself.
**	Nomination Committee: This committee nominates director- and CEO-candidates, andsubmits them to the Board of Directors for approval.

taken into account, such as principal performance indicators for the

The Board of Directors
The Board of Directors consists of nine directors, two of whom areoutside directors. In principle, the Board of Directors meets once amonth. During fiscal 2014, the Board of Directors met on 13 occasions. In order to ensure that the Company can respond quickly tochanging business conditions, and to more clearly define management accountability, the term of office for directors is set at one year.
The Audit & Supervisory Board
The Company has four audit & supervisory board members, three ofwhom are outside audit & supervisory board members. The audit &supervisory board members not only attend meetings of the Board of
Directors, the Top Management Conference and other important business meetings, but also conduct operations audits and accounting
audits, evaluate risk management and audit the performance of duties
by directors. During fiscal 2014, the audit & supervisory board met
seven times.

term under review, including profits and losses, and so on. In principle, performance-linked compensation comprises cash bonuses andCommittee

Group. The Code and its Q&A section are published in Japanese,
English, Korean and Chinese editions, and the Company distributes it to	Coordination Between Audit & Supervisory Board

all Group executives and employees, including those overseas.

Members and Internal Audit Department

stock-based compensation. Performance-linked compensation is lim-

The audit & supervisory board members coordinate with the Global

Moreover, the Code is appropriately reviewed and revised in response to

ited to five times the fixed yearly remuneration. The ratio of cash

Audit Center, a department responsible for internal auditing activities,changes in the environment and societal demands.

bonuses to stock-based compensation has generally been one to

primarily by attending its report meetings.

one. Stock-based compensation consists of granting share subscription rights with a set strike price of one yen per share and a three-year

Diagram of the Corporate Governance Framework, Internal Control System and Risk Management System

vesting period before the granted stock options may be exercised.

Shareholders' Meeting

3.	The performance-linked compensation of outside directors does notinclude stock-based compensation.
4.	The compensation for audit & supervisory board members consists

Board of Directors

Chief Business Ethics Director

only of a monthly fixed remuneration, to maintain independence frommanagement.
5.	Retirement allowance systems for corporate directors and audit &supervisory board members have been abolished since the end of fiscal 2005, as part of the revisions to Tokyo Electron’s executive compensation program.

Request for improvement/Report

Representative Directors

Compliance & Internal Control Executive Officer
CSR Promotion Executive Officer

In order to enhance corporate value and ensure that all business activities are carried out responsibly and in the interests of all stakeholders,

Independent Auditors

Confirm the progress of improvements and give instructions
Audit and improvement reports

Request for improvement/Report

Internal Audit Dept.
(Global Audit Center)

Executive Officers

Committees Ethics Committee
Information Security Committee
Export Trade Control Committee
CSR Promotion Council

Internal Control and Risk Management System

Audit & Supervisory
Board

Compensation Committee
Chief Internal Control Director
Nomination Committee
Chief CSR Promotion Director

Request for improvement/Report

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

Monitoring

Administrative Depts.

Check and balance

Business Depts.

Audit

TOKYO ELECTRON ANNUAL REPORT 2014

PAGE

11

CONTENTSCONTENTS

Financial Highlights

Business Overview

Top Message

Talking about
Tokyo Electron

Review of Operations
and Business Outlook

Corporate GovernanceCorporate GovernanceCorporate Citizenship

R&D / Intellectual Property

Financial Section

Corporate Data

Directors,
Directors, Audit
Audit && Supervisory
Supervisory Board
Board Members
Members andand Executive
Executive Officers
Officers

Corporate GovernanceCompliance & Internal Control Executive Officer

cretely stating its corporate social responsibility and policies. By

Tokyo Electron has appointed a Compliance & Internal Control

understanding its duties as a good corporate citizen and earnestly

Executive Officer from among the executive officers to raise aware-

responding to the demands of society, the Tokyo Electron Groupness of compliance across the Group and further improve its imple-

seeks to contribute to society and create hope for the future.

mentation.

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

Yes

Composed of directors, excluding representative directors,
or audit & supervisory board members

Nomination Committee

Yes

Composed of directors, excluding representative directors,
or audit & supervisory board members

Outside directors

Yes

Two of the 9 directors are outside directors

Outside audit & supervisory board members

Yes

Three of the four audit & supervisory board members areoutside audit & supervisory board members

	CSR Promotion Council, Chief CSR Promotion Director,
Framework for Thorough Implementation of Compliance

CSR Promotion Executive Officer

Tokyo Electron has drawn up the Compliance Regulations setting out

In 2014, the Group established the CSR Promotion Council to for-basic compliance-related requirements in line with the Code. The

mulate and review CSR promotion plans and indicators, andCompliance Regulations are intended to ensure that all individuals

newly appointed a Chief CSR Promotion Director, to oversee the

Executive officer system

Yes

who take part in business activities for the Group clearly understandmeeting. Under the leadership of the CSR Promotion Executive

Disclosure of individual remunerations of representative directors

Yes

the pertinent laws, regulations, international standards and internal

Officer, the Group is working to further enhance CSR activities.

Performance-linked compensation system

Yes
Yes

employees, makes information on compliance issues available to

Shareholders’ Meeting

Stock options system

employees via the Company intranet, and takes other steps to pro-Tokyo Electron mails a Notice of Annual General Meeting ofRetirement allowance system for executives

No

mote broad awareness of compliance throughout the Company.

Shareholders to shareholders more than three weeks in advance ofAnti-takeover measures

No

company rules, and continuously apply them in all of their activities.
The Company also conducts web-based training programs forthe meeting, as one of its measures to vitalize these meetings and to
Internal Reporting Systempromote smooth and efficient voting. It also sets the date of the

In the event that an employee becomes aware of any activity which

Company’s meeting to avoid days on which many such meetings are

may violate laws, regulations or principles of business ethics, theconcentrated. In addition, shareholders are free to cast their votes viaGroup operates an internal reporting system that employees can use

the Internet. Moreover, Tokyo Electron participates in the web-based

to report their concerns. The entire Group has established an ethics

voting platform for institutional investors operated by ICJ, Inc.

hotline and a compliance hotline, and this reporting system is also in

To supplement the above shareholder meeting-related initiatives,

place at each overseas base. In all cases, this system ensures thatTokyo Electron’s website carries notices, resolutions, and voting

strict confidentiality is maintained to protect the whistleblower andresults of shareholders’ meetings.

ensure that they are not subject to any disadvantage or repercussions.

CSR (Corporate Social Responsibility)
The Tokyo Electron Group regards ensuring workplace safety, the safeuse of its products and the health of everyone associated with theGroup’s activities as fundamental to fulfilling its corporate social respon-Constituent of the
FTSE4Good Global Index

sibility (CSR). To further promote CSR initiatives, the Group has established a CSR Policy as well as dedicated CSR promotion structure.
CSR Policy
In 2013, Tokyo Electron adopted a CSR Policy based on the
Company’s Corporate Philosophy and Management Policies, codifying its basic stance and values with regard to CSR activities and con-Tokyo Electron has been a constituent of the FTSE4Good Global Index
since September 2003. The FTSE4Good Global Index is a social
responsibility investment (SRI) index provided by the FTSE Group,a world-leading index firm wholly owned by the London Stock Exchange.

Disclosed since 1999

Does not apply to outside directors andaudit & supervisory board members

TOKYO ELECTRON ANNUAL REPORT 2014

PAGE

12

CONTENTSCONTENTS

Financial Highlights

Business Overview

Top Message

Talking about
Tokyo Electron

Review of Operations
and Business Outlook

Corporate GovernanceCorporate Governance
GovernanceCorporate

Corporate Citizenship

R&D / Intellectual Property

Financial Section

Directors, Audit & Supervisory Board Members and Executive Officers

Directors, Audit & Supervisory Board Members and Executive Officers (As of July 1, 2014)

Directors

Executive Officers
Tetsuro Higashi

Takeo Sasaki

Chairman of the Board, President & CEO

Vice President & General Manager, Legal

Tetsuo Tsuneishi

Keisuke Koizumi

Vice Chairman of the Board,
Assistant to the CEO,Corporate Strategy, IR

Vice President & General Manager, IT

Hirofumi Kitayama

Tetsuro Higashi

Tetsuo Tsuneishi

Hirofumi Kitayama

Representative Director
Chairman of the Board,
President & CEO

Vice Chairman of the Board

Representative Director
Senior Executive Vice President
Business Ethics, CSR Promotion

Senior Executive Vice President,
Production and Technology,
System Development Division, IT, General
Manager, Production Division (Quality)

Hikaru Ito
Executive Vice President, SPE, Senior
General Manager, SPE Sales Division &General Manager, ESBU

Gishi Chung

Hikaru Ito

Kenji Washino

Yoshiteru Harada

Corporate Director

Corporate Director

Corporate Director
Internal Control

Senior Vice President, General Manager,
SPE Marketing & Process Development
Division

Masahiro Sakane*

Corporate Director

Corporate Director/
Chairman & Representative
Director, Tokyo Broadcasting
System Holdings, Inc.

Corporate Director/
Councilor, Komatsu Ltd.

Audit & Supervisory Board Members

Shojiro Mori

Mikio Akaishi*

Takatoshi Yamamoto*Ryuji Sakai*

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

Vice President & General Manager, SPSBU

Yoshinobu Mitano
Vice President & Deputy General Manager,
ESBU

Shingo Tada
Vice President & General Manager, TPSBU

Takeshi Okubo
Vice President & General Manager, SDBU

Kiyoshi Sunohara

Senior Vice President, General Manager,
Corporate Development Division

Yoshiaki Horii

Yoshiteru Harada* Outside Director

Toshiki Kawai

Vice President & General Manager, FSBU

Vice President
Corporate Development Division,
ATS/FPD/PVE

Hiroshi Inoue*

Vice President & General Manager, CTBU

Shigetoshi Hosaka

Kenji Washino

Tetsuro Hori

Seisu Ikeda (Yoh)Vice President & General Manager,
SPE Sales Division, General Manager,
North America & Europe Sales

Yuichi Abe
Vice President & General Manager,
ATSBU

Vice President & General Manager,
Corporate Administration Division,
Compliance/Internal Control
HR/General Affairs/Accounting/Export
and Logistics Control

Tsuguhiko Matsuura

Tetsuro Hori

Vice President & General Manager, PVE

Vice President & Deputy General Manager,
Corporate Administration Division,
Corporate Strategic Planning/Finance/
Legal/Intellectual Property

Kazushi Tahara

Tatsuya Nagakubo

Satoru Kawakami

Vice President & General Manager,
HR/Human Resources Development Center/
Corporate Branding Promotion/CSR
Promotion

Vice President & General Manager,
FPDBU

Shinichi Sasahara

Vice President & General Manager,
System Development Division

Vice President & Deputy General Manager,
SPE Marketing & Process Development
Division, TEL Technology Center Sendai

Corporate DataTOKYO ELECTRON ANNUAL REPORT 2014

PAGE

13

CONTENTSCONTENTS

Financial Highlights

Business Overview

Talking about
Tokyo Electron

Top Message

Review of Operations
and Business Outlook

Corporate GovernanceCorporate Citizenship

R&D / Intellectual Property

Financial Section

Corporate Data

Environmental, Safety and Health Activities

Environmental, Safety and Health Activities
Tokyo Electron positions environmental, safety and health activi-

will continue to obtain ISO 14001 certification for the Group’s

ties as one of its most important management issues to achieve

plants, implement environmental education, and begin activities toboth sustained corporate growth and a sustainable society. The

protect biodiversity, among other environmental activities.

Example of efforts to reduce products’ environmental impact

more of waste. All overseas facilities that set targets achieved them.

Plasma Etch System

Group is committed to reducing the environmental impact of all its
activities, and to ensuring absolute safety in the Company’s facili-

Environmental Activities
Under the slogan “Technology for Eco Life,” the Tokyo ElectronGroup aims to use cutting-edge technologies and services toactivities in line with the green procurement guidelines, implemented online environmental education in overseas areas andconducted activities based on the guidelines concerning biodiversity adopted in fiscal 2013.

Plasma Etch System
Tactras™ Vigus™

solve environmental problems. In all its business activities, theIII. Other Activities
The Group surveyed business partners about their environmental

A 50% reduction in energy used
per wafer by Tactras™ Vigus™
was achieved by reducing theenergy consumed by the high frequency generator (plasma generation) and the chiller (temperature
control), which are major consumers of electricity in the system.

ties and in those of its customers.

	Domestic plants and offices achieved the goal of recycling 97% orTokyo Electron will continue to promote further activities andimprovements globally in fiscal 2015.

Group aims to reduce environmental impact and preserve theglobal environment, while also conducting activities aimed at conResults of the Fiscal 2014 Environmental Goals

serving biodiversity. In these ways, the Tokyo Electron Group is

Safety and Health Activities

Environmental goals and the corresponding results for fiscal 2014

Tokyo Electron gives top priority to the safety and health not only

are as follows.

of our employees but also of our customers and business part-I. Products

ners and conducts various safety activities. The Company pro-

Under the Environment Vision, in fiscal 2012 we set environmental• Reducing environmental impact

motes safety and health in all of its operations, including offering

goals in the four areas of products, procurement and logistics,

	The goal of reducing power consumption by 50% (from the fis-ongoing safety education to employees and partner companies,

plants and offices, and environmental management. In products,

cal 2008 levels) for the major models in each business unit was

designing products with an emphasis on safety and operating

our target has been to reduce the power consumption of majorachieved in fiscal 2014, a year ahead of schedule.

factories with consideration for the environment.

contributing to the creation of a sustainable world.
Goals Based on the Environment Visionmodels of each business unit by 50% and promote the environ-• Product environmental compliancemental compliance of products. In procurement and logistics, we	In addition to activities to reduce the use of hazardous sub-place accidents by 20% compared with the previous year.* Tokyo

are promoting green procurement and modal shifts. In plants andstances*, Tokyo Electron continued to assure compliance with

Electron also carried out activities in line with its important goal of

offices, we aim to reduce energy and water consumption andenvironmental regulations.

preventing accidents that lead to serious injuries or death. As apromote the recycling of waste. In environmental management, we
Goal

Environmental
management

Plants and offices

Procurement
and logistics

Products

Reduction of environmental impact

Status in fiscal 2014
Reduced power consumption of major models of each business unit by 50% from the fiscal 2008 levels
ahead of schedule in fiscal 2014.

Compatibility with Chinese RoHS

Began activities aimed at compatibility with Chinese RoHS at overseas production bases.

Voluntary compliance with the EU’s
RoHS

Continued to ensure that major models of each business unit contain 98.5% or more parts that meet the EU’s
Restriction of Hazardous Substances Directive (RoHS).

Compliance with environmental regulations of each country

Continued to ensure product compliance with the EU’s Registration, Evaluation, Authorization andRestriction of Chemicals (REACH) framework as well as with labeling requirements based on the Globally
Harmonized System of Classification and Labeling of Chemicals (GHS) and battery regulations of each country. Reinforced overseas compliance systems.

Promotion of Green Procurement

Surveyed approximately 300 major business partners to understand the status of their environmental initiatives.

Reduction of environmental impactof logistics

Promoted modal shifts, continued monitoring.

Reduction of energy consumption
by 1% year on year

Nine of 14 global locations that set targets achieved them.

Recycling of waste (maintain domestic
recycling ratio at 97% or higher)

Achieved domestic recycling ratio of 98%. Overseas locations that set targets achieved them.

Reduction of water consumption(maintain fiscal 2012 level)

Achieved 11 of 18 targets set at global facilities.

Environmental management system

Maintained ISO 14001 certification for the Group’s plants.

Environmental education

Conducted environmental education overseas. Including those in Japan, approximately 10,000 participants
have received environmental education since fiscal 2013.

Environmental communication

Continued to publish Environmental and Social Reports.

Conservation of biodiversity

Held multiple ecosystem observation events at all domestic locations based on our activity guidelines.

* In Japan, substances regulated in the Act on the Evaluation of Chemical Substances
and Regulation of Their Manufacture, etc., the Industrial Safety and Health Act, and
the Poisonous and Deleterious Substances Control Act.
Outside Japan, substances regulated by RoHS, REACH, etc.

In fiscal 2014, Tokyo Electron reduced the number of work-

result, the number of such accidents was also reduced by 40%
compared with fiscal 2013. The Company continued to implement accident prevention measures such as prior safety checksof installation areas, risk prediction activities at work sites, safety

II. Plants and Offices

patrols and other on-site activities, as well as case studies of• Reducing energy use

actual accidents. The Group is furthermore implementing various	Nine of 14 global locations achieved goals to reduce energy

ongoing activities to prevent the reoccurrence of accidents

consumption by 1% on a per-unit basis in each area. The

caused by human error, including analysis of accident causes andGroup’s fiscal 2014 CO2 emissions as defined by scope 1 andappropriate countermeasures.

scope 2 of the GHG Protocol were 157,360 tons.

Tokyo Electron has built its world class safety systems one• Reducing water use

piece at a time through tireless safety initiatives. The Group will	Under the overall goal of maintaining fiscal 2012 usage levels

continue to make every effort to maintain and strengthen this sys-

on a per-unit basis in each area, global facilities achieved 11 of
18 specific targets set.

tem going forward.
*	Like for like basis excludes accidents at the four subsidiaries acquired in fiscal 2013
and traffic accidents among the Group.

• Recycling of waste

For further details, see the “Tokyo Electron
Environmental and Social Report 2014”(to be published in July 2014).

Meeting on implementation of new
guidelines for the use of chemicals in
products

Ecosystem observation event

TOKYO ELECTRON ANNUAL REPORT 2014

PAGE

14

CONTENTSCONTENTS

Financial Highlights

Business Overview

Top Message

Talking about
Tokyo Electron

Review of Operations
and Business Outlook

Corporate GovernanceCorporate Citizenship

R&D / Intellectual Property

Financial Section

Research and Development

Corporate DataIntellectualIntellectual Property
Property

Research and Development

Continuous Technological Innovation is

Initiatives in Miniaturization, 3DI Packaging andRequired in the Semiconductor Industry

Larger Wafer Sizes

The advance of miniaturization and the use of larger wafers have

The evolution of semiconductors has long been synonymous withallowed the semiconductor industry to simultaneously achieve

progress in miniaturization. Tokyo Electron has greatly contributed

higher functionality (faster operation and lower power consump-

to device scaling by developing adjacent processes for the latesttion) and cost reduction, building the foundation for the broad
adoption of electronics around the world. In addition to demand

innovative technologies in its products and advance R&D aimed

Initiatives in New Areasat providing even greater value to customers.

Looking to realize sustained growth, Tokyo Electron is also

Going forward, Tokyo Electron will continue to rapidly reflect

focused on utilizing core technologies developed for semiconduc-

Initiatives in Reducing Semiconductor Powerlithography, which has been a driver of miniaturization. Now, theConsumption

business areas.

various technologies related to semiconductors stand at an inflec-

Device development going forward is aimed at rapidly processing

gy for OLED panels, which realize reduced power consumption.

for performance improvements, the arrival of smartphones hastion point. Tokyo Electron is developing innovative equipment tolarge-scale data and using less power. Technologies for higher-

The Company has released Elius™ 2500, an inkjet printing sys-

created new technical demand for application-oriented semicon-

meet the demands of new technologies.

speed processing include conventional miniaturization with silicon,

tem for manufacturing OLED panels. In place of the evaporation

In the area of Extreme Ultraviolet (EUV) lithography, hailed as the

new materials to overcome the limits of such miniaturization,technology currently used in mass production of OLED panels,

ductor device development, aimed at realizing the functions andtor and flat panel display production equipment to cultivate new
In displays, Tokyo Electron is developing production technolo-

next generation of lithography, Tokyo Electron is engaged in joint

notably indium gallium arsenide (InGaAs) and other III-V semicon-

this system uses inkjet printing to discharge only the necessary

In application-oriented device development, customers look notdevelopment with imec* and other consortia worldwide as well as

ductors, which have high carrier mobility*, as well as layeredamount of organic luminescent material onto large glass sub-only for differentiation in device design, but for diversity of materi-with ASML Holding, the world’s largest supplier of lithography

semiconductor technologies, such as the use of graphene. Tokyo

strates without need of a vacuum, greatly improving productivity

als and process technology as well. Semiconductor production

systems. In double and multiple patterning, which achieves minia-

Electron is actively incorporating the insights of research institu-

in film forming.

equipment manufacturers engage all technical possibilities; Tokyo

turization through the use of deposition and etching technologies,

tions around the world in its development of these next-genera-

Electron implements strategic, efficient technological development

Tokyo Electron is focused on process technologies with priority totion semiconductor technologies.

according to the level of necessity of each technology.

performance that more users want.

Furthermore, in terms of possible applications of printing technology to flat panel display production processes, Tokyo Electron

reducing patterning cost, aiming to bring 10nm nodes to practicalTokyo Electron is engaged in R&D aimed at developing carbon

is involved in JAPERA (Japan Advanced Printed Electronics

Tokyo Electron engages in development aimed at near-term

use. Directed self-assembly (DSA) uses the chemical properties ofmaterials for future practical use with the Low-power Electronics

Technology Research Association), assessing cutting-edge appli-

commercialization as well as medium-term development in closematerials to form circuit patterns, without relying on lithography.

Association & Project (LEAP). The Company is furthermore devel-

cation-oriented technologies. Going forward, Tokyo Electron will

collaboration with strategic customers when it is deemed neces-

To quickly establish technology to bring DSA into practical use,

oping technologies related to silicon photonics** for low-power

continue R&D aimed at further growth, exploring business oppor-

sary to incorporate core technologies to accelerate commercial-

Tokyo Electron collaborates with imec and participates in EIDEC’s

consumption telecommunications, seeking to realize equipment

tunities in semiconductor and flat panel display production andization. In medium- and long-term development, which will

DSA research program.

and processes that contribute to further power use reduction.

their peripheral areas as well as new business areas.

produce the Company’s mainstay technologies of the future,

At the same time, in the field of 3DI (three-dimensional integration),

As part of efforts to reduce power consumption with next

Tokyo Electron collaborates with universities and consortia towhich utilizes technology for creating high-performance semiconduc-generation devices that operate on new principles, Tokyo

facilitate wide-ranging data gathering and the acquisition of tech-tors through the three-dimensional stacking of chips, Tokyo Electron isElectron participates in a research program focused on STT-

nologies. These measures ensure that the Company is compre-

developing equipment and process technology through the process

MRAM (Spin Transfer Torque-Magnetoresistive Random Accesshensively prepared for future technologies. Cutting-edge

integration evaluation of imec, Sematech and other consortia. With

Memory) at Tohoku University’s Center for Innovated Integrated

technology changes rapidly. Tokyo Electron is boldly advancing

regard to making silicon wafers larger to improve productivity, Tokyo

Electronic Systems, Research and Development.

groundbreaking technological innovation in these areas, laying theElectron is steadily advancing efforts to meet customer demand forpath for future growth.

450mm wafers as a leader in the production equipment market.

facturing technologies for new materials and devices.

* imec: 	imec performs world-leading research in nanoelectronics. Imec leverages its
scientific knowledge with the innovative power of its global partnerships in ICT,
healthcare and energy.

* Carrier mobility: The ease with which electrons can move within a solid substance**	Silicon photonics: Technology for creating integrated circuits that use photons outof silicon

Going forward, Tokyo Electron aims to quickly establish manu-

Aiming for sales expansion
through product development inresponse to new technologies

ALD System
NT333™

Metallization System
Triase + ™ EX- ™ TiN

Inkjet Printing System for Manufacturing
OLED Panels EliusTM 2500

Semi-batch ALD system employing a
concept different from existing ALD
processes, realizing high-quality nano-scale
deposition while maintaining highproductivity.

The newest single-wafer metallization system,
for next-generation devices. Compatible with awide range of deposition materials, this system
features lower temperatures, excellent step coverage and film control.

The inkjet process can dispense to ink to just selected areasof substrate without a mask (direct patterning), realizing low
material consumption to greatly reduce production costs.
The inkjet process is excellent for use with large panels andcan be used without a vacuum.

Tohoku University Center for Innovative Integrated Electronic Systems
Tokyo Electron is taking part in the research and development program conducted by Tohoku
University Center for Innovative Integrated Electronic Systems, with the aim of quickly
establishing production equipment technology for STT-MRAM, which is attracting attention asa next-generation memory device.

TOKYO ELECTRON ANNUAL REPORT 2014

PAGE

15

CONTENTSCONTENTS

Financial Highlights

Business Overview

Talking about
Tokyo Electron

Top Message

Review of Operations
and Business Outlook

Corporate GovernanceCorporate Citizenship

R&D / Intellectual Property

Financial Section

ResearchResearch andand Development
Development

Corporate DataIntellectual Property

Intellectual Property
Policy for Intellectual Property Activities

corporate headquarters, where they are near the sales and market-

A fundamental tenet of the Tokyo Electron policy for intellectual prop-

ing divisions. In addition, we periodically convene IP committees forerty (IP) is to protect the Company’s intellectual assets and help

each business/R&D area in order to make informed decisions based

increase corporate revenue by supporting Tokyo Electron’s businessupon market and technological trends. These committees are com-

activities in both existing and new market sectors. To do this, our IP

prised of IP personnel, sales/marketing management, and R&D man-strategy must be closely integrated with our technological and prod-

agement who are tasked with assessing IP, discussing IP strategy,

uct strategies. Our IP strategy must also prioritize the differentiation ofand deciding upon cost-effective avenues to grow IP. Tokyo ElectronTokyo Electron’s products and bolster the Company’s competitive

acquired several companies in fiscal 2013. IP personnel have been

advantage with strong IP rights. In addition, the evolution of a strong,advancing the integration of these new members of the Tokyo

diverse IP portfolio generates income from licensing.

Electron community and establishing consistent policies/proce-

The advancing technological complexity of our business sectors
significantly increases the risk of becoming involved in IP disputes

dures for IP activities, including IP committees, in all of theacquired companies.

during the development of new products. Given the increasinglycompetitive environment, we strive to minimize the risk of potential

Status of Intellectual Property Rights

disputes by actively monitoring IP developments, fully respecting the

To establish an elevated entry barrier around our business, Tokyo

IP of other companies, and taking appropriate measures, such as

Electron vigorously constructs an IP portfolio encompassing our core

licensing, when necessary.

technologies, and protects our future technological growth. The
graphs below show the number of patent applications and patents

Operation of Intellectual Property Activitiesof Tokyo Electron in each region. During fiscal 2014, the patents weTokyo Electron continues aggressive R&D activities to satisfy andacquired through M&A in the previous fiscal year continued to

exceed the requests of our customers, and further enable newstrengthen our IP portfolio.

market opportunities. In order to maintain the competitiveness ofEffective prosecution process that Tokyo Electron has been

our R&D achievements, it is necessary to protect these by steadily

establishing makes our IP portfolio competitive. Tokyo Electron keeps

obtaining IP rights. To facilitate this process, we cooperate closely

high success rates, around 70%, before Patent Offices in main coun-with our R&D operations, and we locate IP personnel nearby andtries. The rates exceed average of our competitors. With optimal fil-often within our product development centers and manufacturing

ing routes/agencies, the high success rates have been reducing costfacilities. Furthermore, we have IP personnel based overseas in thefor constructing IP portfolio.

U.S. and other countries to address our increasing global R&D
activities.

The IP committees periodically revise policies for filing and holding
patents in light of evolving perspectives including technological

Flexibly responding to dramatically changing markets and techno-

trends, market conditions, competition and cost-effectiveness. We

logical trends is essential for effective IP activities. To ensure the rapid

have maintained a global application ratio of approximately 70%* inexchange of information on market and technological trends, our IP

recent years while strategically adjusting the regional distribution of

personnel in charge of monitoring and external affairs are assigned tothese.
* The percentage of our patents filed with the Japan Patent Office that were also filed
overseas. The average among Japanese companies is about 25%.

Number of Patent Applications

Number of Patents Held

1,000

6,000
5,000

800

4,000

600

3,000
400

2,000

200

1,000

0

0

10
Japan

U.S.

Europe121314South Korea

Taiwan

China

11

10

(Fiscal year)

Japan

U.S.

Europe111213South Korea

Taiwan14 (Fiscal year end)
China

TOKYO ELECTRON ANNUAL REPORT 2014

PAGE

16

CONTENTSCONTENTS

Financial Highlights

Business Overview

Financial Review

Talking about
Tokyo Electron

Top Message

Consolidated Eleven-Year
Eleven-Year Summary
Summary
Consolidated

Consolidated Statements of Changes in Net Assets

Review of Operations
and Business Outlook

Corporate GovernanceConsolidated
Consolidated Balance
Balance Sheets
SheetsCorporate Citizenship

R&D / Intellectual Property

Consolidated
Consolidated Statements
Statements ofof Comprehensive
Comprehensive Income
IncomeConsolidated Statements
Statements ofof Operations
Operations
Consolidated

Consolidated Statements of Cash Flows

Corporate Data

Financial Section

Notes to Consolidated Financial Statements

Independent Auditor’s Report

Financial Review
Sales and Income

As a result, gross profit was up 27.2% year on year to ¥201.9

Operating Environment

Other Income (Expenses) and Net Income (Loss)

Dividend Policy and Dividends

billion, with the gross profit margin rising to 33.0% from 31.9% in

During fiscal 2014, Tokyo Electron recognized interest and divi-

It is the policy of Tokyo Electron to pay dividends on the basis of

fiscal 2013.

dend income of ¥3.2 billion and revenue from grants of ¥1.2 billion

business performance and earnings results. The dividend payout

but also recognized a ¥47.0 billion loss on impairment, comprised

ratio has been set at approximately 35% of consolidated net

economic conditions in the United States picked up slightly andwas due to increased R&D expenses in fields related to the fourof a ¥32.8 billion loss attributable to the PV Production Equipment

income. While there has been no change to this policy, in light ofEurope showed signs of recovery, despite slowing growth in China

overseas subsidiaries acquired in fiscal 2013; the full inclusion ofsegment mainly on goodwill due to revisions of future cash flow

the Group’s financial standing and global financial and economic

and other emerging countries. The Japanese economy improved

costs, including amortization of goodwill, related to those compa-

estimates, a ¥5.0 billion loss attributable mainly to goodwill of TEL

trends, Tokyo Electron paid annual dividends of ¥50 per share,

as well, supported by governmental economic stimulus measuresnies in the fiscal 2014 results; and an increase in the yen conver-

NEXX, Inc. (acquired in May 2012) due to revisions in its businesscomprising a mid-term dividend of ¥25 per share and a year-end

and by the general upturn in the world economy.

sion of local currency expenses incurred by overseas subsidiaries

plan, and an ¥8.3 billion loss on fixed assets accompanying Tokyo

dividend of ¥25 per share, as a special measure to return profits todue to the depreciation of the yen. Nevertheless, sales growth out-

Electron’s decision to reorganize facilities. As a result, other income

shareholders.

demand for TVs and PCs remained sluggish, but shipments of

paced the increase in SG&A expenses. Accordingly, the ratio of(expenses) amounted to ¥44.0 billion of net expense, comparedmobile devices were firm, driven primarily by growth in demand for

SG&A expenses to consolidated net sales dropped from 29.4% inwith ¥5.2 billion of net income in fiscal 2013.

smartphones and tablets in emerging countries. Demand for semi-

the previous fiscal year to 27.7%.

The overall world economy in fiscal 2014 saw gradual recovery, as

In the electronics industry, in which Tokyo Electron operates,

SG&A expenses rose 16.1% year on year to ¥169.7 billion. This

Performance by Segment

This contributed to the ¥11.8 billion net loss before taxes andconductors also grew, reflecting the global spread of mobile devic-

Consequently, operating income increased 156.6% year on year

minority interests, compared with ¥17.8 billion in net income

M Semiconductor Production Equipment

es and increasing demand for data center servers accompanying

to ¥32.2 billion, and the operating margin rose from 2.5% to 5.3%.

before income taxes and minority interests in the previous year.

Since the second half of 2013, capital investment related to DRAM

Net loss totaled ¥19.4 billion, compared with net income of ¥6.1

and NAND flash memory for mobile applications has been brisk,

ment by semiconductor manufacturers, customers of Tokyo

Research and Development

billion in fiscal 2013. Net loss per share was ¥108.31, comparedreflecting steady demand for smartphones and other mobile devic-

Electron’s, also recovered.

R&D expenses were up 7.4% year on year to ¥78.7 billion. As

with net income per share of ¥33.91 in fiscal 2013.

es and growing demand for data center servers. Capital invest-

the growing use of cloud computing. As a result, capital invest-

ment by foundries in advanced technologies for logic chips has

Tokyo Electron views R&D as a source of growth, the Company

also remained strong.

Sales

invested not only in strengthening existing business areas, but also

Comprehensive Income (Loss)

Net sales in fiscal 2014 increased 23.1% year on year to ¥612.2

in new areas that are expected to support future growth. Due to

In fiscal 2014, Tokyo Electron recognized comprehensive loss ofSegment net sales to external customers increased 22.1% year

billion. This was due to substantial recovery in sales of mainstay

the significant increase in net sales, R&D expenses as a percent-¥10.9 billion, compared with income of ¥15.8 billion in fiscal 2013.

on year to ¥478.8 billion. Segment net sales including intersegment

semiconductor production equipment, reflecting the upturn in theage of net sales dropped from 14.7% to 12.9%.

This was due mainly to the aforementioned net loss of ¥19.4 billion

sales or transfers were up 22.1% to ¥478.9 billion. Segment profit

R&D investment in semiconductor production equipment was

and loss before minority interests of ¥19.2 billion recognized in therose 52.8% compared with fiscal 2013 to ¥74.3 billion, and theDomestic sales grew 36.4% year on year to ¥161.6 billion, while

focused on multiple patterning technology for further miniaturiza-

fiscal year, despite foreign currency translation adjustments of ¥6.9

segment profit margin rose from 12.4% in fiscal 2013 to 15.5%.

overseas sales grew 18.9% to ¥450.5 billion. Overseas sales as ation and key technologies such as deposition, etch and cleaning

billion, which reflect the depreciation of the yen and the ¥1.4 billion

share of total consolidated sales came to 73.6%, down 2.6 per-technologies for new 3D structure devices and new materials.

gain on changes in fair value of investment securities.

centage points from 76.2% in fiscal 2013.

Other areas of R&D investment included the development of pro-business environment.

Orders received in this segment increased 59.7% to ¥546.9 billion. The order backlog as of March 31, 2014 was up 48.2% year
on year to ¥209.9 billion.
For a business overview of this segment, please see page 9.

duction equipment for STT-MRAM*, a promising candidate for theOrders received during the fiscal year under review increased
54.5% compared to the previous year to ¥696.2 billion. The ordernext-generation of memory device, and the development ofbacklog at the end of March 2014 was ¥265.1 billion, up 46.6%

advanced packaging technology.
In FPD production equipment, R&D investment concentrated on

year on year.

developing inkjet printing systems for manufacturing OLED panels.

Domestic and Overseas Sales

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

800

100

110,497

136,888

151,002146,206

169,687

Operating income (loss)(2,181)

97,87060,443

12,54932,205

Selling, general and administrative expenses
Operating margin(0.5)%

14.6%

9.5%

2.5%

5.3%

Income (loss) before income taxes and minority interests(7,768)99,57960,602

17,767(11,756)

Net income (loss)(9,033)71,92436,726

6,076(19,409)

5.3

11

12

40

5

20

0

0

-5

-20

2.5

0

10

10

71.9

497.3

633.1

612.2

9.5

200

 Domestic
 Overseas

50

25

0

60

13

14

-25

10

-19.4

33.0%

15

6.1

201,892

31.9%

80

36.7

158,755

33.4%(Billions of yen)

13

14

-0.5

11

 Operating Income (Loss) Operating Margin

12

13

14

-9.0

211,445

35.1%

75

32.2

234,758

25.9%

450.5

108,316

400

161.6

Gross profit
Gross profit margin

(%)
20

378.8

¥612,170

118.5

2014

¥497,300

171.4

2013

¥633,091

182.2

2012

¥668,722

256.0

2011

¥418,637

162.6

2010

Net sales

Sales and Income

Net Income (Loss)

14.6

461.7

600

Millions of yen

486.6 668.7

418.6

percentage points to 67.0%.

12.5

year to ¥410.3 billion, while the cost of sales ratio dropped 1.1

60.4* STT-MRAM: Spin Transfer Torque-Magnetoresistive Random Access
Memory (an emerging memory promising for its low power consumption)

97.9

Cost of sales for the period under review increased 21.2% year on-2.2

Gross Profit, SG&A Expenses and Operating Income

10

11

12

TOKYO ELECTRON ANNUAL REPORT 2014

PAGE

17

CONTENTSCONTENTS

Financial Highlights

Business Overview

Talking about
Tokyo Electron

Top Message

Financial Review

Consolidated Eleven-Year
Eleven-Year Summary
Summary
Consolidated

Consolidated Statements of Changes in Net Assets

Review of Operations
and Business Outlook

Corporate GovernanceConsolidated
Consolidated Balance
Balance Sheets
SheetsCorporate Citizenship

Corporate Data

Financial Section

Consolidated
Consolidated Statements
Statements ofof Comprehensive
Comprehensive Income
IncomeConsolidated Statements
Statements ofof Operations
Operations
Consolidated

Consolidated Statements of Cash Flows

R&D / Intellectual Property

Notes to Consolidated Financial Statements

Independent Auditor’s Report

Financial Review
Financial Position and Cash FlowsM FPD (Flat Panel Display) Production Equipment

duction equipment at the end March 2014, and retain only support

the distinct businesses in which Tokyo Electron and Tokyo Electron

Capital investment in high-definition small- and medium-sized pan-operations for delivered units. As a result, Tokyo Electron recog-

Device engage, the Company determined that the establishment

els remained firm as strong demand persisted for smartphones

nized loss on impairment mainly of goodwill and fixed assets total-of growth strategies more uniquely attuned to each party would

Assets, Liabilities and Net Assets

and tablets. Investment for large-sized panels for TVs, which wasing ¥32.8 billion in the period under review.

benefit the corporate value of both companies. Accordingly, in

M Assets

Segment net sales to external customers increased from ¥83

April 2014, Tokyo Electron sold a portion of its shares in Tokyo

Current assets increased by ¥100.0 billion from the end of the pre-million in fiscal 2013 to ¥3.8 billion. Segment net sales includingElectron Device. As a result, from fiscal 2015 onward, Tokyo

vious fiscal year to ¥621.5 billion, reflecting increases of ¥32.6 bil-

Segment net sales to external customers increased 41.0% year

intersegment sales or transfers also increased from ¥83 million toElectron Device will be classified as an equity method affiliate rath-lion in inventories, ¥28.5 billion in trade notes and accounts

on year to ¥28.3 billion. Segment net sales including intersegment¥3.8 billion. Segment loss came to ¥46.4 billion, compared wither than a consolidated subsidiary, and Tokyo Electron’s equity inreceivable, and ¥28.0 billion in total liquidity on hand (cash, cash

sales or transfers also increased 41.0% to ¥28.3 billion. Segment

loss of ¥1.8 billion in fiscal 2013.

income of Tokyo Electron Device will be included in eliminations

equivalents and short-term investments). The turnover period forand corporate to segment income.

trade notes and accounts receivable worsened slightly from 74

sluggish in the previous fiscal year, began to show signs of recovery in the second half of 2013, primarily in China.

Orders in this segment increased from ¥83 million in fiscal 2013

loss totaled ¥37 million, narrowing from ¥4.5 billion in fiscal 2013.

to ¥4.3 billion. The order backlog as of March 31, 2014 was up

Orders in this segment increased 88.9% year on year to ¥41.3

For a business overview of this segment, please see page 9.

¥29.0 billion.
For a business overview of this segment, please see page 9.

M Electronic Components and Computer Networks
M PV (Photovoltaic Panel) Production Equipmentdays in fiscal 2013 to 77 days, and the inventory turnover period
M Other

6.8% to ¥9.0 billion.

billion. The order backlog as of March 31, 2014 was up 81.3% toremained unchanged year on year at 100 days.

Other sales mainly include group-wide logistics services, facility

Net property, plant and equipment decreased by ¥23.4 billion

maintenance and insurance. Net sales to external customers

year on year to ¥112.3 billion, due in part to ¥12.8 billion in fixedamounted to ¥0.5 billion, up 7.0% year on year.

asset acquisitions, ¥24.9 billion in depreciation and amortization,

Demand for electronic components for industrial use recovered in

In 2009, aiming to break into the thin-film silicon photovoltaic panel

fiscal 2013. Sales in the electronic components business, chiefly inmarket, Tokyo Electron became the exclusive sales representative

general-purpose IC, were firm, reflecting growing demand in Asia

of Switzerland-based Oerlikon Solar and began sales of end-to-for automobile use captured via the expansion of commercial rights.

end production lines for photovoltaic panels. In 2012, theIn the computer networks business, sales of equipment for data

Company acquired Oerlikon Solar, seeking to merge its technolo-

centers were firm, supported by the spread of cloud computing.
Segment net sales to external customers increased 19.0% year

gies with the production equipment technologies of the Group to

Millions of yen
Reportable Segment

Segment Information
2014:

generate growth in the PV business. However, due to changes inon year to ¥100.7 billion. Segment net sales including interseg-

the market environment, panel production equipment has sincement sales or transfers were up 19.1% to ¥101.8 billion. Segment

Sales to external customers

been in oversupply. While Tokyo Electron boosted development

profit fell 43.7% year on year to ¥0.7 billion, and the segment profit

Intersegment sales or transfers

efforts to increase conversion efficiency and took all available mea-

margin fell from 1.5% in fiscal 2013 to 0.7%.

Total

For a business overview of this segment, please see page 9.

sures to reduce costs, the business environment has remained
extremely harsh. Having determined that it could not expect a reasonable return on investment going forward, the Company

This segment has been operated by Tokyo Electron Device

announced its decision to withdraw from the research and

Limited and its subsidiaries. Considering the future development of­development, manufacturing and sales of photovoltaic panel pro-11

14

 Selling, General and Administrative Expenses
 Ratio to Net Sales

28,317

3,806

101,801

11

12

13

14

1,267

29,810(41,566)(11,756)

1,871

355,875

472,717

828,592

Depreciation and amortization

10,114

235

10

476

49

10,88414,00424,888

Amortization of goodwill

1,473

—

2,686

103

—

4,262

—

4,262

Loss on impairment

5,009

—

32,789——37,7989,171

46,969

Capital expenditures, including
intangible and other assets

8,109

103

857

825

41

9,935

5,109

15,044

13

14

414.8

3.6

100
0

10

11

12

13

14

10
 Working Capital Current Ratio

11

12

13

(Times)(Days)

6

150

5

125

4

100

14

121
92

109
3

451.0

200

0

12

4.9

476.2

300

3.8

482.3

400

4.9

Receivable Turnover andInventory Turnover

4.6
433.8

775.5

783.6

696.4

80

600

828.6

114

500

800

200

11

612,170

722

400

10

(12,869)

57,465

809.2
0

10

625,039

2,145

100

0

—

12,239(46,426)80

25¥612,170(12,869)

(37)

600

20

¥    —

12,86921,252(Billions of yen)

50

¥612,170

11,76074,2841,000

75¥   479

273,142(Billions of yen)51

13

478,876

Consolidated

Segment assets

50

151.0

12

1,075

125

20

0

10

¥100,726

—

(Yen)

40

0

¥ 3,806

—

100

60

10

¥28,317

34

Total

Segment profit (loss)

78.7

27.7

30

¥478,842(Billions of yen)

12

50

136.9

20.5
110.5

100

23.9

169.7

26.4

146.2

29.4

150

Other

Eliminations
andCorporate

Net sales

Working Capital andCurrent Ratio

73.2

40

Electronic
components &computer
networks

Total Assets

54.1

200

PV
production
equipment

Cash Dividends per Share

81.5

（%）

(Billions of yen)

FPD
production
equipment

R&D Expenses

70.6

Selling, General and Administrative
Expenses and Ratio to Net Sales

Semiconductor
production
equipment

75
50

1

25

0

0

100

74

77

13

14

86
74

2

100
87

10

11

 Receivable Turnover
 Inventory Turnover

12

TOKYO ELECTRON ANNUAL REPORT 2014

PAGE

18

CONTENTSCONTENTS

Financial Highlights

Business Overview

Talking about
Tokyo Electron

Top Message

Financial Review

Consolidated Eleven-Year
Eleven-Year Summary
Summary
Consolidated

Consolidated Statements of Changes in Net Assets

Review of Operations
and Business Outlook

Corporate GovernanceConsolidated
Consolidated Balance
Balance Sheets
SheetsCorporate Citizenship

R&D / Intellectual Property

Consolidated
Consolidated Statements
Statements ofof Comprehensive
Comprehensive Income
IncomeConsolidated Statements
Statements ofof Operations
Operations
Consolidated

Consolidated Statements of Cash Flows

Corporate Data

Financial Section

Notes to Consolidated Financial Statements

Independent Auditor’s Report

Financial Review
and ¥8.3 billion in impairment of fixed assets due to plans for

assets. Accordingly, at the end of the period under review, the­currency translation adjustments due to the depreciation of the yenloss on impairment, ¥24.9 billion in depreciation and amortization,

facility reorganization.

Company recognized ¥54.0 billion in net liability for retirement ben-and ¥7.0 billion in accumulated adjustments for retirement benefits.

a ¥19.1 billion increase in customer advances and a ¥15.6 billion

As a result, the equity ratio fell 6.7 percentage points from theincrease in notes and accounts payable. Major negative factors

Investments and other assets decreased ¥23.6 billion year on

efits for noncontributory retirement and severance benefit plans

year to ¥94.8 billion, mainly due to impairment accompanying revi-(compared with ¥57.2 billion in accrued pension and severance

end of March 2013 to 69.8% at the end of March 2014. ROE

included ¥11.8 billion in loss before income taxes and minority

sions to business plans for the PV Production Equipment segment

costs in fiscal 2013) and ¥8.9 billion in net asset for retirement

dropped from 1.0% to -3.3% in fiscal 2014.

interests, a ¥32.1 billion increase in inventories and a ¥25.4 billion

and TEL NEXX., Inc., which led to a ¥29.0 billion decrease in goodwill.

benefits for corporate pension plans (cash balance plan) (com-As a result, total assets as of March 31, 2014 stood at ¥828.6

pared with ¥3.0 billion in prepaid pension and severance costs in

Capital Expenditures* and Depreciation and Amortization**

fiscal 2013).

billion, up ¥53.1 billion year on year.

increase in trade notes and accounts receivable.
Net cash used in investing activities was ¥19.6 billion, compared

Capital expenditures were ¥12.8 billion in fiscal 2014, a 41.2%

with ¥141.8 billion in the previous fiscal year. This included ¥9.5

As of March 31, 2014, the balance of interest-bearing debt

year-on-year decrease. Primary factors included the acquisition ofbillion used in the payment for purchase of property, plant andM Liabilities and Net Assets(long- and short-term debt) was ¥13.5 billion, up from ¥3.8 billion

evaluation equipment for development, primarily for areas with highequipment and an ¥8.5 billion net increase in short-term invest-

Current liabilities increased ¥63.8 billion from the end of fiscal 2013at the end of the previous fiscal year, due to an increase in thegrowth potential in the SPE and FPD production equipment busi-

ments.

to ¥170.5 billion. This reflected increases of ¥20.9 billion in cus-

interest-bearing debt of Tokyo Electron Device. The debt/equity

nesses. Tokyo Electron also acquired equipment for use in R&D related

tomer advances, ¥17.4 billion in trade notes and accounts pay-

ratio rose to 2.3%, 1.7 percentage points higher than at the end of

to its R&D program at Tohoku University to develop STT-MRAM.

able, and ¥11.7 billion in income taxes payable.

fiscal 2013.

Non-current liabilities increased ¥3.7 billion year on year to

Cash used in financing activities came to ¥0.2 billion, comparedwith ¥10.6 billion in fiscal 2013. Major inflows included a ¥7.6 bil-

Depreciation and amortization decreased 6.5% to ¥24.9 billion.

lion increase in short-term borrowings and a ¥2.0 billion increase in

Total liabilities (current liabilities and non-current liabilities), stood at¥67.5 billion, due mainly to increases in deferred tax liabilities of¥238.0 billion, up ¥67.6 billion from the end of the previous fiscal year.

¥4.5 billion.

Net assets came to ¥590.6 billion, down ¥14.5 billion from the

Beginning fiscal 2014, the Group’s retirement benefit obligations

end of fiscal 2013. This was mainly due to decreases resulting fromare presented as net liability for retirement benefits, which are cal-the ¥19.4 billion net loss recognized for the period under review,

long-term borrowings, while major outflows included ¥9.1 billion in*	Capital expenditures represent only the gross increase in property, plantand equipment.
**	Depreciation and amortization does not include amortization of goodwill
or losses on impairment.

dividends paid.
The balance of cash and cash equivalents at the end of March2014 stood at ¥104.8 billion, an increase of ¥19.5 billion from theend of fiscal 2013. Total liquidity on hand, which consists of cash,

culated by deducting pension assets from retirement benefit obli-¥4.7 billion in year-end dividends paid for the previous fiscal year,

Cash Flows

gations and include previously unrecognized actuarial differences.

¥4.5 billion in mid-term dividends paid during the period, aOperating activities provided net cash of ¥44.4 billion, down ¥39.8

Should the value of pension assets exceed benefit obligations, thedecrease of ¥3.2 billion in retained earnings due to changes in fiscalbillion from fiscal 2013. Major contributors were ¥47.0 billion indifference is recognized as net asset for retirement benefits, underyear-ends of subsidiaries, an increase of ¥8.3 billion in foreign

cash equivalents and short-term investments, increased ¥28.0 billion year on year to ¥268.1 billion at the end of March 2014.

Millions of yen

Total current assets

Millions of yen

2010

2011

2012

2013

2014

¥552,939¥644,231¥607,051¥521,501¥621,492

Financial Position

2010

2011

2012

2013

2014

Cash flows from operating activities¥ 48,285¥ 83,239¥ 29,712¥ 84,267¥ 44,449(19,599)

Cash Flows

92,128112,552

126,885

135,698

112,344

Cash flows from investing activities

9,613(35,882)(8,352)(141,769)

51,28552,422

49,675

118,329

94,756

Cash flows from financing activities(288)(5,237)(27,335)(10,625)(187)

Total assets

696,352

809,205

783,611775,528

828,592

Cash and cash equivalents at end of year

123,940

165,051

158,776

85,314

104,797

Total current liabilities

119,162

168,038

124,794

106,670

170,510

Total liabilities

172,982

224,403

185,008

170,401

237,978

Total net assets (Total shareholders' equity)523,370

584,802598,603605,127590,614

ROA

Capital Expenditures andDepreciation and Amortization

Total Liquidity on Hand

(Billions of yen)(Billions of yen)

40

300

15

0

10

11

 Interest-Bearing Debt
 Debt-to-Equity Ratio

12

13

200
20

7.7

6.3

5

5
4.4

200

25

1.0

0

0

0

10
 Equity Equity Ratio

11

12

13

14

11

-3.3

12

13

14

ROE = (Net income / Average total equity) × 100

-5

0

10

11

12

13

14

ROA = (Operating income + Interest and dividend income) /Average total assets x 100

12

13

150
100

-0.2

-5

10

10

1.8

0

-1.8

14

24.2

50

0.5
0

13.1
10

12.8

0.6

13.3
10

250

30

20.0

75

17.7

1.0

3.8

8.0

0.8
4.4

2

1.0

69.8

1.5

1.4

5.1

4

76.5

578.1

400
6

74.9

593.0

2.0

70.8

586.8

8

2.5

73.5

572.7

2.3

600

511.8

10

3.0

240.1

15

12

247.6

20

243.9

（%）

20

24.9

（%）

100

26.6

（%）

800

21.8

(Billions of yen)

3.5

39.1

（%）

14
13.5

(Billions of yen)

285.1

ROE

39.5

Equity and Equity Ratio

14.9

Interest-Bearing Debt, D/E Ratio

268.1

Net property, plant and equipment
Total investments and other assets

50
0

10

11

12

 Capital Expenditures Depreciation and Amortization

13

14

10

11

14

Total liquidity on hand = Cash and cash equivalents +Short-term investments

TOKYO ELECTRON ANNUAL REPORT 2014

PAGE

19

CONTENTSCONTENTS

Financial Highlights

Business Overview

Financial Review

Top Message

Talking about
Tokyo Electron

Consolidated Eleven-Year
Eleven-Year Summary
Summary
Consolidated

Consolidated Statements of Changes in Net Assets

Review of Operations
and Business Outlook

Corporate GovernanceConsolidated
Consolidated Balance
Balance Sheets
SheetsConsolidated Statements of Cash Flows

Corporate Citizenship

Consolidated Statements
Statements ofof Operations
Operations
Consolidated

R&D / Intellectual Property

Financial Section

Consolidated
Consolidated Statements
Statements ofof Comprehensive
Comprehensive Income
IncomeNotes to Consolidated Financial Statements

Independent Auditor’s Report

Financial Review
Business-related and Other Risks(3) Impact from Research and Development(6) Impact of Intellectual Property Rights(9) Impact of Business Combination

Through ongoing and proactive R&D investment and activities in

In order to distinguish its products and make them more competi-

On September 24, 2013, Tokyo Electron and Applied Materials,

The following risks may have a material impact on Tokyo Electron’s

cutting-edge technologies—miniaturization, vacuum, plasma, ther-tive, Tokyo Electron has promoted its R&D strategy for the earlyInc. agreed to enter a merger of equals and concluded a businessbusiness performance, stock price, or financial position.

mal processing, coating/developing, cleaning, wafer-transfer anddevelopment of cutting-edge technologies together with its busi-

combination agreement. Both companies are currently preparing

clean technologies—Tokyo Electron has created advanced tech-ness and intellectual property strategies. This approach has

for the merger. However, failure to obtain permission or approval(1) Impact from Changes in the Semiconductor Market

nologies. At the same time, by quickly bringing to market new

enabled Tokyo Electron to obtain sole possession of many proprie-necessary for the merger from the relevant authorities, delays or otherTokyo Electron has achieved a high profit margin by concentratingproducts incorporating these technologies, Tokyo Electron hastary technologies that have been instrumental to the Company’s

factors that could prevent the merger from proceeding as planned,

resources in high-tech fields, including semiconductor production

successfully captured a high market share in each of the productability to capture a high market share and generate high profit mar-changes to the content of the merger, or failure to realize the full syner-equipment, where technological innovation is rapid but Tokyo

fields it has entered and generated a high profit margin. However,gins in each of its product fields. Tokyo Electron’s products incor-

gistic effect expected after the merger is completed could adversely

Electron can effectively use its strengths. Although technologicaldelays in the launch of new products and other factors could

porate and optimize many of these proprietary cutting-edge

affect the new combined company’s business performance.

change is responsible for the semiconductor market’s rapid

adversely affect Tokyo Electron’s business performance.

technologies. There may be cases in which, by avoiding the use of

growth, Tokyo Electron has actively undertaken structural reforms

third-party technologies and intellectual property rights, Tokyo(10) Other Risks

Electron’s business performance could be adversely affected.

Tokyo Electron is actively engaged in reforming its corporate struc-to be able to generate profits under any circumstances, including(4) Safety-related Impact

when the market contracts temporarily due to imbalance of supply

Tokyo Electron’s basic philosophy is to always bear in mind safetyand demand. However, order cancellations, excess capacity andand health in the execution of business activities, including devel-(7) Impact of Fluctuating Foreign Exchange Rates

These reforms have entailed creating new high-growth and high-personnel and increased inventories resulting from an unexpected-

opment, manufacturing, sales, services and management. In

Success in the development of overseas operations has increased

return businesses and pursuing higher earnings from existing busi-

ly large market contraction, losses from bad debts resulting fromaccordance with this philosophy, Tokyo Electron works actively

the share of sales generated overseas. As a rule, Tokyo Electron

nesses. At the same time, Tokyo Electron has promoted activities

the worsening of a customer’s financial position, and supply short-and continuously to improve the safety of its products and to elimi-

conducts export transactions on a yen basis to avert exposure toto preserve the environment and worked to restructure its compli-

ages resulting from the worsening of a supplier’s management sit-nate any harmful impact on health. However, harm to customers,

foreign currency risks. However, some exports are denominated inance, risk management and information security management sys-

uation, could adversely affect Tokyo Electron’s businessorder cancellations or other circumstances resulting from safety or

foreign currencies. In these cases, Tokyo Electron hedges foreign

tems. However, as long as it conducts business activities, as withperformance considerably.

other problems related to Tokyo Electron’s products could

currency risk by using a forward foreign exchange contract whenpeer companies or companies in different industries, Tokyo Electron

adversely affect Tokyo Electron’s business performance.

an order is received or by other means. However, foreignis subject to the effect of many other factors. These include theexchange rate risks can arise from fluctuations in prices due toworld and regional economic environments, natural disasters, war,(5) Impact from Quality Issues

sudden foreign exchange movements, which could have an indi-

terrorism, infectious diseases and other unavoidable occurrences,

Tokyo Electron has been successful at increasing transactions with

Tokyo Electron actively develops outstanding, cutting-edge tech-rect adverse effect on Tokyo Electron’s business performance.

financial or stock markets, government or other regulations, supply

the leading semiconductor manufacturers worldwide, including

nologies for incorporation in new products that are brought quickly

those in Japan, through the provision of products featuring out-

to market. At the same time, Tokyo Electron works to establish(8) Influence of Corporate Acquisitions

to recruit personnel in Japan and overseas, competition over stan-

standing, cutting-edge technology and of services offering a higha quality assurance system, efforts that include obtaining ISO 9001

As part of its business strategy, Tokyo Electron conducts corpo-

dardization, and loss of key personnel. Any of these factors could

level of customer satisfaction. However, Tokyo Electron’s sales may

certification, as well as to establish a world-class service system.

rate acquisitions in order to expand into new business areas,

adversely affect Tokyo Electron’s business performance.

from time to time be temporarily concentrated on particular custom-

These actions have resulted in a large number of customers

secure new technologies and business platforms, and strengthen

ers due to the timing of large capital investments of major semicon-

adopting Tokyo Electron’s products. However, because Tokyo

the competitiveness of existing businesses. The Company con-ductor manufacturers. The resulting escalation in sales competition

Electron’s products are based on cutting-edge technologies, andducts due diligence and carefully deliberates each specific acquisi-

could adversely affect Tokyo Electron’s business performance.

due to other factors, many of the technologies developed are intion. However, in the event that the results following an acquisition

unfamiliar fields. The occurrence of unforeseen defects or other

do not meet expectations, Tokyo Electron’s business performanceissues could adversely affect Tokyo Electron’s business performance.

could be adversely affected.

(2) Impact from Concentration of Transactions on
Particular Customers

ture so that it can generate profits even when markets contract.

chains, market conditions for products and real estate, the ability

Corporate DataTOKYO ELECTRON ANNUAL REPORT 2014

PAGE

20

CONTENTSCONTENTS

Financial Highlights

Business Overview

Financial
Financial Review
Review

Top Message

Talking about
Tokyo Electron

Consolidated Eleven-Year Summary

Consolidated Statements of Changes in Net Assets

Review of Operations
and Business Outlook

Corporate GovernanceConsolidated
Consolidated Balance
Balance Sheets
SheetsCorporate Citizenship

Financial Section

Corporate Data

Consolidated
Consolidated Statements
Statements ofof Comprehensive
Comprehensive Income
IncomeConsolidated Statements
Statements ofof Operations
Operations
Consolidated

Consolidated Statements of Cash Flows

R&D / Intellectual Property

Notes to Consolidated Financial Statements

Independent Auditor’s Report

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

Millions of yen

2014

2014

2013

2012

2011

2010

2009

2008

2007

2006

2005

2004

Net sales 1
Semiconductor production equipment
FPD production equipment
PV production equipment
Computer networks
Electronic components and computer networks
Other
Operating income (loss)
Income (loss) before income taxes and minority interests
Net income (loss)
Comprehensive income (loss) 2$5,948,018
4,652,565
275,136
36,980—978,683
4,654
312,913(114,225)(188,583)(105,801)¥612,170
478,842
28,317
3,806—
100,726
479
32,205(11,756)(19,409)(10,889)¥ 497,300
392,027
20,077
83—
84,665448
12,54917,767
6,076
15,826¥ 633,091
477,873
69,889——84,868461
60,44360,602
36,72636,954¥ 668,722
511,332
66,721——
90,216453
97,87099,57971,92469,598¥ 418,637
262,392
71,361——
84,473411(2,181)(7,768)(9,033)(4,751)¥ 508,082
325,383
88,107——
94,207385
14,711
9,637
7,543
—

¥ 906,092
726,440
68,016——111,181455
168,498
169,220
106,271—¥ 851,975
642,625
100,766—
19,16988,294
1,121
143,979
144,414
91,263—¥ 673,686
486,883
81,176—
17,49786,881
1,249
75,70375,32848,006—¥ 635,710
457,191
75,038—15,96686,2491,266
63,98355,77561,601—¥ 529,654
425,747——
18,44884,2291,230
22,28014,936
8,297—

Domestic sales
Overseas sales

1,570,453
4,377,565

161,631450,539

118,504
378,796

171,364
461,727

182,165
486,557

162,609
256,028

208,871299,211

323,946
582,146

313,816
538,159

262,532
411,154

232,678
403,032

242,318
287,336

241,819
124,359764,322

24,888
12,79978,664

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

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

18,82027,12956,962

19,17013,33549,182

21,4639,876
43,88924,963
11,00744,1508,050,836
5,738,574

828,592
590,614775,528
605,127

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

792,818
545,245

770,514469,811663,243
376,900

644,320
332,165

561,632
275,800

12,304

12,201

10,684

10,343

10,068

10,391

10,429

9,528

8,901

8,864

8,870

¥   33.91
33.85
3,309.58
51.00
180,61141,287¥   205.04
204.723,275.14
80.00
180,61142,414¥   401.73
401.103,198.66
114.00180,61144,896¥  (50.47)—
2,859.37
12.00
180,61139,285¥   42.15
42.07
2,896.55
24.00
180,61142,509¥   594.01
592.71
2,989.70
125.00180,611
43,324¥   511.27
509.84
2,573.72
103.00180,61141,289¥   267.61
267.32
2,112.30
55.00
180,611
46,272¥   343.63
343.54
1,863.28
45.00
180,61160,857¥   46.37
45.78
1,543.73
10.00
180,61160,873

1.0
2.5
76.5
0.64

6.3
9.5
74.9
0.79

13.3
14.6
70.8
0.89

(1.8)
(0.5)
73.5
0.61

1.4
2.9
77.5
0.70

21.4
18.6
67.5
1.16

21.8
16.9
59.7
1.19

13.5
11.2
56.8
1.03

20.3
10.1
51.6
1.05

3.1
4.2
49.1
0.97

¥  40,759¥   59,256¥   64,655¥   41,581¥   48,896¥   86,882¥   89,418¥   75,687¥   71,718¥   59,713

Depreciation and amortization 3
Capital expenditures 4
R&D expenses
Total assets
Total net assets (Total shareholders’ equity) 5
Number of employees
Net income (loss) per share of common stock:
Basic
Diluted 6
Net assets per share of common stock
Cash dividends per share of common stock
Number of shares outstanding (thousands)
Number of shareholders

U.S. dollars

Yen$    (1.05)
—
31.34
0.49

¥ (108.31)—
3,225.92
50.00
180,61130,563%

ROE
Operating margin
Equity ratio
Asset turnover (times)
Net sales per employee

(3.3)
5.3
69.8
0.76
U.S. dollars

Thousands of yen$  483,424¥ 49,754

1 Until fiscal 2004, the FPD (Flat Panel Display) division was included in Semiconductor production equipment. From fiscal 2008, Computer networks is included inElectronic components and computer networks. Photovoltaic panel (PV) production equipment was included in the FPD production equipment until fiscal 2012.
2 From fiscal 2011, the Company applied “Accounting Standards for Presentation of Comprehensive Income”(Statement No. 25) released by the AccountingStandards Board of Japan (ASBJ). Accordingly, comprehensive income (loss) have been disclosed from fiscal 2010.
3 Depreciation and amortization does not include amortization and loss on impairment of goodwill.
4 Capital expenditures only represent the gross increase in property, plant and equipment.
5 From fiscal 2007, “Total net assets” has been disclosed in accordance with “Accounting Standard for Presentation of Net Assets in the Balance Sheet”(Statement No. 5) and “Guidance on Accounting Standard for Presentation of Net Assets in the Balance Sheet” (Guidance No. 8) released by the AccountingStandards Board of Japan (ASBJ). “Total net assets” through fiscal 2006 represents “Total shareholders’ equity” under the former accounting standards.

6 From fiscal 2011, the Company calculated net income per share of common stock (diluted) in accordance with “Accounting Standard for Earnings Per Share”(Statement No. 2 issued as of June 30, 2010) and “Guidance on Accounting Standard for Earnings Per Share” (Guidance No. 4 issued as of June 30, 2010)
released by the Accounting Standards Board of Japan (ASBJ). Dilution is not assumed for the years ended March 31, 2014 and 2010.
7 Effective from fiscal 2005, Tokyo Electron changed its method of revenue recognition to receipt of customer confirmation of product set-up and testing ofproducts 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.
8 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.

TOKYO ELECTRON ANNUAL REPORT 2014

PAGE

21

CONTENTSCONTENTS

Financial Highlights

Business Overview

Financial
Financial Review
Review

Talking about
Tokyo Electron

Top Message

Consolidated Eleven-Year
Eleven-Year Summary
Summary
Consolidated

Consolidated Statements of Changes in Net Assets

Review of Operations
and Business Outlook

Corporate GovernanceConsolidated Balance Sheets

Consolidated Statements of Cash Flows

Corporate Citizenship

Consolidated Statements
Statements ofof Operations
Operations
Consolidated

R&D / Intellectual Property

Financial Section

Corporate Data

Consolidated
Consolidated Statements
Statements ofof Comprehensive
Comprehensive Income
IncomeNotes to Consolidated Financial Statements

Independent Auditor’s Report

Consolidated Balance Sheets
Tokyo Electron Limited and Subsidiaries
As of March 31, 2014 and 2013
Thousands of
U.S. dollars

Millions of yen

ASSETS

2014

2013

2014

Current assets:

Thousands of
U.S. dollars

Millions of yen

LIABILITIES AND NET ASSETS

2014

2013

2014

¥ 53,668¥ 36,261$  521,455

Current liabilities:

Cash and cash equivalents

¥104,797¥ 85,314$1,018,237

Trade notes and accounts payable

Short-term investments

163,350

154,816

1,587,155

Short-term borrowings

11,531

3,756

112,038

Trade notes and accounts receivable

129,032

100,501

1,253,712

Income taxes payable

14,0152,286

136,174(1,503)(1,180)(14,604)

Accrued employees’ bonuses

8,584

6,829

83,405Inventories

168,277

135,698

1,635,027

Customer advances

39,901

18,985

387,689

Deferred income taxes

25,174

15,669244,598

Accrued warranty expenses

10,072

8,345

97,862

Prepaid expenses and other current assets

32,36530,683

314,468

Accrued expenses and other current liabilities

32,73930,208318,101

621,492

521,501

6,038,593   Total current liabilities

170,510

106,670

1,656,724

Deferred tax liabilities

9,279

4,817

90,157—57,225—Net liability for retirement benefits

54,031—

524,981

Other liabilities

4,158

1,689

40,400237,978

170,401

2,312,262  Common stock   Authorized: 300,000,000 shares
Issued:180,610,911 shares as of March 31, 2014 and 2013

54,961

54,961

534,017  Capital surplus

78,02378,023758,094  Retained earnings

436,174

467,921

4,237,991(9,479)(9,589)(92,101)

5,593

4,214

54,343

60

(15)

583

Allowance for doubtful accounts   Total current assets

Accrued pension and severance costs
Property, plant and equipment:Land25,11225,030243,995

Buildings

151,634

163,857

1,473,319

Machinery and equipment

128,422140,066

1,247,785

Construction in progress

3,623

6,076

35,202308,791

335,029

3,000,301

Less: Accumulated depreciation

196,447

199,331

1,908,735   Net property, plant and equipment

112,344

135,698

1,091,566   Total property, plant and equipment  Total liabilities

Net assets:
Shareholders’ equity   Treasury stock, at cost   1,408,950 and 1,424,203 shares
as of March 31, 2014 and 2013, respectively

Investments and other assets:
Investment securities

20,027

18,669194,588

Accumulated other comprehensive income

Deferred income taxes

23,22423,206225,651   Net unrealized gains on investment securities

Net asset for retirement benefits

8,904

—

86,514   Net deferred gain (losses) on hedging instruments

Goodwill

9,400

38,373

91,333   Foreign currency translation adjustments

5,777(2,484)56,131Intangible assets

20,156

21,545

195,842   Accumulated adjustments for retirement benefits

6,982

—

67,839Other assets

14,911

18,648144,880

Share subscription rights

1,644

1,375

15,974

Allowance for doubtful accounts

(1,866)(2,112)(18,131)

Minority interests

10,87910,721

105,703   Total investments and other assets

94,756

118,329920,677   Total net assets

590,614605,127

5,738,574¥828,592¥775,528$8,050,836

Total liabilities and net assets

¥828,592¥775,528$8,050,836

Total assets
See accompanying Notes to Consolidated Financial Statements.

TOKYO ELECTRON ANNUAL REPORT 2014

PAGE

22

CONTENTSCONTENTS

Financial Highlights

Business Overview

Financial
Financial Review
Review

Talking about
Tokyo Electron

Top Message

Consolidated Eleven-Year
Eleven-Year Summary
Summary
Consolidated

Consolidated Statements of Changes in Net Assets

Review of Operations
and Business Outlook

Corporate GovernanceConsolidated
Consolidated Balance
Balance Sheets
SheetsConsolidated Statements of Cash Flows

Corporate Citizenship

Consolidated Statements of Operations

R&D / Intellectual Property

Financial Section

Consolidated Statements of Comprehensive Income

Notes to Consolidated Financial Statements

Independent Auditor’s Report

Consolidated Statements of Operations

Consolidated Statements of Comprehensive Income

Tokyo Electron Limited and Subsidiaries
Years ended March 31, 2014 and 2013

Tokyo Electron Limited and Subsidiaries
Years ended March 31, 2014 and 2013
Thousands of
U.S. dollars

Millions of yen

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

2014

2013

2014

¥497,300$5,948,018

Income (loss) before minority interests

410,278

338,545

3,986,378

Other comprehensive income:

201,892

158,755

1,961,640

Changes in fair value of investment securities

169,687

146,206

1,648,727

Changes in deferred gains (losses) on hedging instruments

32,205

12,549312,913

Foreign currency translation adjustments
Total other comprehensive incomeComprehensive income (loss)

Interest and dividend income

3,162

1,659

30,723

Revenue from grants

1,154

2,672

11,213

Owners of the Company

Gain on sale of property, plant and equipment

433

943

4,207

Minority interests

Reversal of allowance for doubtful accounts

—

558

—

(1,229)(1,520)(11,941)(46,969)(7)(456,364)

Loss on sale and disposal of property, plant and equipment

(492)

(153)

(4,780)Loss on devaluation of investment securities, net

(308)

(44)

(2,993)Foreign exchange loss, net Loss on impairment of property, plant and equipment,
goodwill and other assets

Other, net

288

1,110

2,797

(11,756)

17,767(114,225)

Current

15,995

6,255

155,412

Prior years

—

2,195

—

Income (loss) before income taxes and minority interests
Income taxes:

Deferred
Income (loss) before minority interests
Minority interests
Net income (loss)

(8,538)

2,959(82,958)(19,213)6,358(186,679)

196

282

1,904

¥ (19,409)¥  6,076$ (188,583)

Yen

U.S. dollars

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

¥ (108.31)¥  33.91$    (1.05)

—

33.85

—

3,225.92

3,309.58

31.34

50.00

51.00

0.49

Thousands of
U.S. dollars

Millions of yen¥612,170

Other income (expenses):

Corporate Data

2014

2013

2014

¥(19,213)¥ 6,358$(186,679)

1,365

652

13,263

92

56

894

6,867

8,760

66,721

8,324

9,468

80,878(10,889)

15,826(105,801)(11,151)

15,426(108,346)

262

400

2,545

Total comprehensive income (loss) attributable to:

See accompanying Notes to Consolidated Financial Statements.

TOKYO ELECTRON ANNUAL REPORT 2014

PAGE

23

CONTENTSCONTENTS

Financial Highlights

Business Overview

Talking about
Tokyo Electron

Top Message

Financial
Financial Review
Review

Consolidated Eleven-Year
Eleven-Year Summary
Summary
Consolidated

Consolidated Statements of Changes in Net Assets

Review of Operations
and Business Outlook

Corporate GovernanceConsolidated
Consolidated Balance
Balance Sheets
SheetsConsolidated Statements of Cash Flows

Corporate Citizenship

Consolidated Statements
Statements ofof Operations
Operations
Consolidated

R&D / Intellectual Property

Financial Section

Consolidated
Consolidated Statements
Statements ofof Comprehensive
Comprehensive Income
IncomeNotes to Consolidated Financial Statements

Independent Auditor’s Report

Consolidated Statements of Changes in Net Assets

Consolidated Statements of Cash Flows

Tokyo Electron Limited and Subsidiaries
Years ended March 31, 2014 and 2013

Tokyo Electron Limited and Subsidiaries
Years ended March 31, 2014 and 2013
Thousands of
U.S. dollars

Millions of yen
Shareholders’ equity

Balance as of April 1, 2012

Millions of yen

Accumulated other comprehensive income

Commonstock

CapitalsurplusRetainedearnings

Treasurystock

Unrealized
gains oninvestment
securities¥54,961¥78,023¥471,186¥(9,748)¥3,576

Deferred
gains(losses) on
hedging
instruments¥(51)

Foreign
Accumulated
currency
adjustments
Sharetranslation for retirement subscription
adjustments
benefits
rightsMinority
interests

Total
net assets¥(11,158)¥10,657¥598,603¥—¥1,157

Cash dividends

——(9,317)

—

—

—

—

—

—

—

(9,317)

Net income

—

—

6,076

—

—

—

—

—

—

—

6,076

Repurchase of treasury stock

—

—

—

(15)

—

—

—

—

—

—

(15)

Disposal of treasury stock

—

—

(24)

174

—

—

—

—

—

—

150

Other, netBalance as of March 31, 2013

—

—

—

—

638

36

8,674

¥54,961¥78,023¥467,921¥(9,589)¥4,214¥(15)¥ (2,484)

¥

—

218

64

9,630

—

¥1,375¥10,721¥605,127

Adjustments due to the changes in fiscal year-end of
consolidated subsidiaries——(3,190)

—

—

—

—

—

—

—

(3,190)Cash dividends——(9,139)

—

—

—

—

—

—

—

(9,139)(19,409)

Net loss——(19,409)

—

—

—

—

—

—

—

Repurchase of treasury stock

—

—

—

(30)

—

—

—

—

—

—

(30)

Disposal of treasury stock

—

—

(9)

140

—

—

—

—

—

—

131

Other, netBalance as of March 31, 2014

—

—

—

—

1,379

75

8,261

6,982

269

158

17,124¥54,961¥78,023¥436,174¥(9,479)¥5,593¥ 60¥   5,777¥6,982¥1,644¥10,879¥590,614

Foreign
Accumulated
currency
adjustments
Sharetranslation for retirement subscription
adjustments
benefits
rightsMinority
interests

Total
net assets

Thousands of U.S. dollars
Shareholders’ equity

Accumulated other comprehensive income

Treasurystock

Unrealized
gains oninvestment
securities

Deferred
gains(losses) on
hedging
instruments

Balance as of March 31, 2013 $534,017 $758,094 $4,546,453 $(93,169)$40,944$(146)

Commonstock

CapitalsurplusRetainedearnings$(24,135) $—$13,360$104,168 $5,879,586

Adjustments due to the changes in fiscal year-end of
consolidated subsidiaries——(30,995)

—

—

—

—

—

—

—

(30,995)

Cash dividends

——(88,797)

—

—

—

—

—

—

—

(88,797)(188,583)

Net loss——(188,583)

—

—

—

—

—

—

—

Repurchase of treasury stock

—

—

—

(292)

—

—

—

—

—

—

(292)

Disposal of treasury stock

—

—

(87)

1,360

—

—

—

—

—

—

1,273

Other, net

—

—

—

—

13,399729

80,266

67,839

2,614

1,535

166,382

Balance as of March 31, 2014 $534,017 $758,094 $4,237,991 $(92,101)$54,343$ 583$ 56,131$67,839$15,974

See accompanying Notes to Consolidated Financial Statements.

$105,703 $5,738,574

Corporate Data

Cash flows from operating activities:
Income (loss) before income taxes and minority interests
Depreciation and amortization
 Loss on impairment of property, plant and equipment,
goodwill and other assets
Amortization of goodwill
Increase in accrued pension and severance costs
Increase in net liability for retirement benefits
Increase (decrease) in accrued employees’ bonuses
Increase (decrease) in accrued warranty expenses
Interest and dividend income(Increase) decrease in trade notes and accounts receivable(Increase) decrease in inventories
Increase (decrease) in trade notes and accounts payable(Increase) decrease in prepaid consumption tax
Increase in accrued consumption tax
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:
Payment for purchases of short-term investments
Proceeds from maturities of 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 investments in newly consolidated
subsidiaries
Payments for transfer of business
Other, netNet cash used in investing activities
Cash flows from financing activities:
Increase (decrease) in short-term borrowings, net
Proceeds from long-term borrowings
Increase 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
Decrease in cash and cash equivalents due to the changes infiscal year-end of consolidated subsidiaries			Cash and cash equivalents at end of year
See accompanying Notes to Consolidated Financial Statements.

2014

2013

2014

¥ (11,756)
24,888¥ 17,767
26,631$ (114,225)
241,819

46,9697456,364

4,262
—
2,887
1,396
1,256
(3,162)(25,358)(32,088)
15,606(2,913)
1,123
19,083859
43,052
3,223(84)(1,742)44,449

1,141
1,825
—
(2,750)(2,918)(1,659)57,54920,279(15,482)2,862
596(12,456)(2,972)90,4201,587(68)(7,672)
84,26741,411—
28,051
13,564
12,204(30,723)(246,386)(311,776)
151,632(28,304)
10,911
185,416
8,347
418,305
31,316(816)(16,926)
431,879(192,614)
184,071(9,451)897(1,640)(192,057)
126,000(19,012)
3,630(1,234)(1,871,492)
1,788,486(91,829)8,716(15,935)——(862)(19,599)(55,079)(1,097)(2,920)(141,769)——(8,375)(190,429)

7,551
2,000
(30)
(9,139)(569)(187)(3,973)
20,69085,314

(646)
—
(15)
(9,317)(647)(10,625)(5,335)(73,462)
158,776

73,36819,433(292)(88,797)(5,529)(1,817)(38,603)
201,030
828,935(1,207)¥104,797—¥ 85,314(11,728)$1,018,237

TOKYO ELECTRON ANNUAL REPORT 2014

PAGE

24

CONTENTSCONTENTS

Financial Highlights

Business Overview

Financial
Financial Review
Review

Top Message

Talking about
Tokyo Electron

Consolidated Eleven-Year
Eleven-Year Summary
Summary
Consolidated

Consolidated Statements of Changes in Net Assets

Review of Operations
and Business Outlook

Corporate GovernanceConsolidated
Consolidated Balance
Balance Sheets
SheetsConsolidated Statements of Cash Flows

Corporate Citizenship

Consolidated Statements
Statements ofof Operations
Operations
Consolidated

R&D / Intellectual Property

Financial Section

Consolidated
Consolidated Statements
Statements ofof Comprehensive
Comprehensive Income
IncomeNotes to Consolidated Financial Statements

Independent Auditor’s Report

Notes to Consolidated Financial Statements
Tokyo Electron Limited and Subsidiaries
Years ended March 31, 2014 and 2013

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 with the provisions set forth in the
Financial Instruments and Exchange 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 requirements ofInternational Financial Reporting Standards.
The Company uses financial statements prepared by foreignsubsidiaries in accordance with International Financial ReportingStandards or U.S. generally accepted accounting principles for the
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 included in the statutory Japanese language consolidated financial statements is not presented in theaccompanying consolidated financial statements.
U.S. dollar amounts included herein are solely for the convenience of readers and are presented at the rate of ¥102.92 to$1.00, the approximate rate as of March 31, 2014. The translation
should not be construed as a representation that the Japanese
yen amounts shown could be converted into U.S. dollars at that or
any other rate.

2. Summary of Significant Accounting Policies(a) Principles of consolidation
The consolidated financial statements include the accounts of
the Company and its 53 and 58 subsidiaries as of March 31, 2014
and 2013, respectively.
All significant inter-company accounts, transactions and unrealized profits or losses have been eliminated through consolidation
procedures.
The fiscal year-end of all entities is March 31, except for 8 consolidated foreign subsidiaries. Financial statements provisionally closed
for the period ending March 31 are used for these subsidiaries.
Previously, financial statements for the fiscal year ending
December 31 had been used for certain subsidiaries, with significant differences in inter-company transactions and accounts
adjusted through consolidation procedures. These subsidiaries
either changed their fiscal year-end to March 31, or provided financial statements provisionally closed as of March 31 for consolidation in the year ended March 31, 2014, to improve disclosure of
the consolidated financial information. Profit or loss of these subsidiaries for the 3 month period ending March 31, 2013 wasreflected directly to retained earnings. Change in cash and cash

equivalents for the 3 month period ending March 31, 2013 is presented separately in the Consolidated Statement of Cash Flows.
(b) Foreign currency translation
All assets and liabilities denominated in foreign currencies aretranslated 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 thatapproximate 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 historical rates. Revenue and expense
accounts of foreign subsidiaries are translated at average rates of
exchange in effect during the year. Resulting translation adjustments are presented in net assets as a component of accumulated
other comprehensive income in the consolidated balance sheets.
(c) Cash equivalents
Tokyo Electron considers all highly-liquid instruments purchasedwith original maturities of three months or less to be cash­equivalents.
(d) Short-term investments
Short-term investments consist of short term deposits and lowrisk financial instruments with original maturities of more than
three months.
(e) Investment securities
Tokyo Electron examines the intent of holding each security andclassifies those securities as trading securities, held-to-maturity
debt securities or other securities. Tokyo Electron has no trading
securities. Held-to-maturity debt securities are stated mainly atamortized cost. Other securities with market prices are valued atfair market value prevailing at the balance sheet date. The differences between the book and market prices of other securities, netof applicable income taxes, are presented in net assets as a component of accumulated other comprehensive income. Other securities without market value are valued at cost using theweighted-average method.
The cost of sold securities is calculated using the weightedaverage method.
(f) Inventories
Inventories other than raw materials are stated at the lower ofcost, determined by the specific identification method, or net realizable value, which is defined as selling price less estimated additional manufacturing costs and estimated direct selling expenses.
Raw materials are stated at the lower of cost, determined principally by the moving-average method, or replacement cost.
(g) Property, plant and equipment
Property, plant and equipment are stated at cost. Depreciation ofbuildings, machinery and equipment of the Company and its domestic
subsidiaries is computed using the declining balance method, except
for buildings acquired subsequent to March 31, 1998 which are­depreciated using the straight-line method, based on the estimateduseful lives of assets. Foreign subsidiaries mainly apply the straight-line
method over the estimated useful lives of assets.
Estimated useful lives of property, plant and equipment are
as follows:   Buildings
2 to 60 years   Machinery and equipment
2 to 17 years(h) Intangible assets
Intangible assets are amortized by the straight-line method overtheir estimated useful lives.
(i)Goodwill
Goodwill is evaluated on an individual basis and amortized by
the straight-line method over a period not exceeding 20 years.
(j) Impairment of fixed assets
Tokyo Electron evaluates the carrying value of fixed assets held
for use in the business.
If the carrying value of a fixed asset is impaired, a loss is recognized based on the amount by which the carrying value exceeds
its recoverable amount, being the higher of the net selling price or
the value in use of the assets. Net selling 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 groupand the disposal of the assets.
(k) Allowance for doubtful accounts
The allowance for doubtful accounts is provided at an amountdetermined based on the historical experience of bad debts withrespect to ordinary receivables, and an estimate of uncollectible
amounts determined by reference to specific doubtful receivablesfrom customers which are experiencing financial difficulties.
(l) Employee Benefits
The Company and its domestic subsidiaries provide defined
benefit plans for their employees. Expected benefits are attributed
to accounting periods by the straight-line basis. Prior service costs
are charged to earnings on a straight-line basis, beginning fromthe fiscal year in which they are incurred, over a fixed number ofyears (four years) within the average remaining years of service of
employees when the changes occur. Actuarial differences arecharged to earnings on a straight-line basis, beginning from thefollowing fiscal year after they are incurred, over a fixed number ofyears (four years) within the average remaining years of service of
employees when the differences occur.
The provision for accrued pension and severance costs for
directors and audit & supervisory board members of the Company
and its domestic subsidiaries is calculated in accordance withinternal regulations.
The Company and certain domestic subsidiaries decided to discontinue the payment of severance pay for directors and audit &supervisory board members after April 1, 2005, and at the generalshareholders’ meeting in June 2005, it was resolved that the severance pay for directors and audit & supervisory board members
until March 31, 2005 would be paid at the termination of their service and the decision regarding the payment amount for eachdirector and audit & supervisory board member was delegated tothe board of directors and audit & supervisory board members. As

discussed in note 11, the accruals for severance costs for directors and audit & supervisory board members are included in Net
liability for retirement benefits and Accrued pension and severance
costs in the consolidated balance sheets as of March 31, 2014
and 2013, respectively.
(m) Accrued warranty expenses
Tokyo Electron’s products are generally subject to warranty, andTokyo 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.
(n) Derivatives and hedge accounting
The Company and certain subsidiaries make use of derivatives
in order to manage certain risks arising from adverse fluctuations inforeign currency exchange rates. The amount of derivatives is limited to the extent of foreign currency assets, liabilities and actual
orders, and Tokyo Electron does not trade in derivatives for speculative purposes.
Derivatives are carried at fair value in the consolidated balance
sheet with changes in unrealized gain or loss charged or credited
to earnings, except for those which meet the criteria for hedge
accounting. Unrealized gains or losses on hedging derivative
instruments, net of taxes, are reported in net assets as a component of accumulated other comprehensive income. Receivables
and payables hedged by qualified forward foreign exchange contracts are translated at the corresponding foreign exchange contract rates.
(o) Income taxes
Tokyo Electron records deferred tax assets and liabilities on temporary differences between the carrying amounts of assets and­liabilities for financial reporting purposes and the amounts used forincome 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.
(p) Revenue recognition
Revenue from Semiconductor and FPD (Flat Panel Display) production equipment is principally recognized at the time of the customer confirmation of set-up and testing of products. Revenue
from such equipment not requiring substantial installation is recognized at the time of shipment. Revenue from PV (Photovoltaic
panel) production equipment is mainly recognized based on thepercentage-of-completion method. Revenue from other products,
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.
(q) Per share information
Net income per share and net assets per share are computed
based on the weighted-average number of shares of common
stock outstanding during each year.
Dividends per share has been presented on an accruals basis
and include, in each fiscal year ended March 31, dividends
approved or to be approved after March 31 but applicable to theyear then ended.

Corporate DataTOKYO ELECTRON ANNUAL REPORT 2014

PAGE

25

CONTENTSCONTENTS

Financial Highlights

Business Overview

Financial
Financial Review
Review

Talking about
Tokyo Electron

Top Message

Consolidated Eleven-Year
Eleven-Year Summary
Summary
Consolidated

Consolidated Statements of Changes in Net Assets

Review of Operations
and Business Outlook

Corporate GovernanceConsolidated
Consolidated Balance
Balance Sheets
SheetsCorporate Citizenship

R&D / Intellectual Property

Consolidated
Consolidated Statements
Statements ofof Comprehensive
Comprehensive Income
IncomeConsolidated Statements
Statements ofof Operations
Operations
Consolidated

Consolidated Statements of Cash Flows

Corporate Data

Financial Section

Notes to Consolidated Financial Statements

Independent Auditor’s Report

Notes to Consolidated Financial Statements(r) Research and development expenses
Research and development expenses are charged to earnings
as incurred and amounted to ¥78,664 million ($764,322 thousand)and ¥73,249 million for the years ended March 31, 2014 and2013, respectively.
(s) Reclassifications
Certain reclassifications have been made to the prior year’s consolidated financial statements to conform with the presentation
used for the year ended March 31, 2014.

3. Change in Accounting Policies and Adoptionof New Accounting Standards
Effective from the year ended March 31, 2014, the Company
and its consolidated domestic subsidiaries have applied“Accounting Standard for Retirement Benefits” (ASBJ Statement
No. 26, May 17, 2012 (hereinafter, “Statement No.26”)) and“Guidance on Accounting Standard for Retirement Benefits” (ASBJ
Guidance No. 25, May 17, 2012 (hereinafter, “Guidance No.25”))
except for article 35 of Statement No.26 and article 67 of
Guidance No.25 (see note 4). As a result, actuarial gains (losses)
and past service costs that are yet to be recognized have beenrecognized and the difference between retirement benefit obligations and plan assets for each individual benefit plan has been recognized as an asset or a liability for retirement benefits.
In accordance with article 37 of Statement No.26, the effect of
the change in accounting policies arising from this initial application
has been recognized within accumulated other comprehensive
income as accumulated adjustments for retirement benefits.
As a result of the application, an asset for retirement benefits inthe amount of ¥8,904 million ($86,514 thousand) and a liability for
retirement benefits in the amount of ¥53,449 million ($519,326
thousand)have been recognized, and accumulated other comprehensive income has increased by ¥6,982 million ($67,839 thousand), at the end of the current fiscal year.
The adoption of this change has increased net assets per shareof common stock by 38.96 yen (0.38 U.S. dollars).

s­ tandards are effective from the beginning of the year ending
March 31, 2015.
The Company does not expect the adoption of these amendments will have a significant impact on the consolidated financial
statements.

Thousands of U.S. dollars

2014:

Cost

Carrying value$ 95,560$177,293  Unlisted stock

5,052

6,296

  Other

10,99910,999$111,611$194,588

Noncurrent
Securities with market prices  Equity securities

Information of assets and liabilities of newly consolidated subsidiaries by acquisition of shares as of the beginning of consolidation,and the relationship between acquisition cost of shares and net
payment for the acquisitions for the year ended March 31, 2013 is
as follows:

Total

Held-to-maturity securities classified as current assets are¥211,801 million ($2,057,919 thousand) and ¥190,498 million asof March 31, 2014 and 2013, respectively.
Reconciliation of held-to-maturity securities as of March 31,
2014 and 2013 to the amounts of short-term investments in the
consolidated balance sheets are as follows:

Millions of yen
Millions of yen

2013

Current assets¥21,811

Noncurrent assets

31,585

Goodwill

35,110Current liabilities(16,860)

Noncurrent liabilities(30,544)

Acquisition cost of shares

41,102

Payment in prior year

(348)

Cash and cash equivalents ofacquired companies(9,552)Loans as of the date of business combination

23,877

Net payment for acquisition of investments
in newly consolidated subsidiaries¥55,079

6. Securities
Other securities as of March 31, 2014 and 2013 are as follows:

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

Short-term investments

2014

2013

2014

¥190,498$2,057,919(48,500)(45,498)(471,240)

49

9,816

476

¥163,350¥154,816$1,587,155

Net loss on devaluation of investment securities was ¥308 million ($2,993 thousand) and ¥44 million for the years ended March
31, 2014 and 2013, respectively.
Net gain on sale of investment securities was ¥74 million ($719
thousand) and nil for the years ended March 31, 2014 and 2013,
respectively.

7. Inventories

Millions of yen

2014:

Cost

Carrying value

Inventories as of March 31, 2014 and 2013 are as follows:

Noncurrent  Equity securities

Millions of yen¥ 9,835¥18,247

520

648

1,132

1,132

¥11,487¥20,027

Securities without market prices  Unlisted stock“Accounting Standard for Retirement Benefits” (ASBJ Statement
No. 26, May 17, 2012)“Guidance on Accounting Standard for Retirement Benefits”(ASBJ Guidance No. 25, May 17, 2012)
These accounting standards have been revised to mainly
change the treatment of unrecognized actuarial differences andunrecognized prior service cost, to change the calculation formula
for retirement benefit obligations and current service cost, and toenhance disclosures.
As discussed in note 3, certain amendments arising from application of this standard were adopted for the year ended March 31,
2014, while the amendments relating to calculation of retirement
benefit obligations and service costs prescribed within theseThousands of
U.S. dollars¥211,801

Deposits with original maturities
of more than three months

Securities with market prices

4. Accounting Standards issued
but not yet adopted(1) Goodwill and Noncurrent assets of TEL Solar Holding AG

Securities without market prices

5. Supplemental Information on
the Consolidated Statements of Cash Flows  OtherTotal

Millions of yen

2013:

Cost

Carrying value

Noncurrent
Securities with market prices  Equity securities

¥10,218¥16,631

Securities without market prices  Unlisted stock  OtherTotal

793

897

1,141

1,141

¥12,152¥18,669

Finished products
Work in process, raw materials
and supplies
Total

i­ndependent cash flows. If restructuring of a location is determined, relevant assets are grouped accordingly.
For the year ended March 31, 2014, the following loss on
impairment has been recognized:

Thousands of
U.S. dollars

2014

2013

2014

¥114,289¥ 87,398$1,110,464

53,98848,300524,563¥168,277¥135,698$1,635,027

The amounts of change in inventory provision included in cost of
sales in the consolidated statements of operations for the years
ended March 31, 2014 and 2013 were an increase of ¥2,296 million ($22,309 thousand) and ¥1,162 million, respectively.

8. Loss on Impairment of Property, Plant andEquipment, Goodwill and Other Assets
For assessing impairment of fixed assets, the Company generally groups fixed assets at the smallest unit which generates

Loss on impairment
Location

Trübbach,
St. Gallen,
Switzerland

Use

Type of Asset

Millions of yen

Thousands of
U.S. dollars

Plant

Goodwill,
machinery andequipment, andother assets¥32,789$318,587

Due to the significant deterioration of the business environment,
sales of TEL Solar Holding AG and its subsidiaries in the PVb­ usiness have been below the initial business plans. Under the current condition, Tokyo Electron performed an impairment test andrecognized the difference between the book value and recoverable
value of goodwill as loss on impairment. The recoverable value wasmeasured as value in use, but as Tokyo Electron has determinedthat the business is not expected to generate any future net cash
inflows, the recoverable amount was assessed at zero.
Further, a loss on impairment was recognized for machinery,equipment and other assets held by TEL Solar Holding AG and its
consolidated subsidiaries, measured as the difference between thebook value and the recoverable value. The recoverable value wasmeasured as the net selling price, but as reutilization or sale of theseassets would be difficult, the net selling price was assessed at zero.
(2) Goodwill of TEL NEXX, Inc.
Loss on impairment
Location

Use

Type of Asset

Billerica,
Massachusetts, Plant
U. S. A.

Goodwill, andother assets

Millions of yen

Thousands of
U.S. dollars¥5,009$48,669

Under the current condition that sales of TEL NEXX, Inc. in theSPE business have been below the initial business plans, Tokyo
Electron performed an impairment test and recognized the difference between the book value and recoverable value as loss on
impairment. The recoverable value was measured as value in use,
and was calculated by discounting future cash flows at a discountrate of 14.0%.
(3) Noncurrent assets of business locations to be restructured
Loss on impairment
Location

Use

Tsukuba, Ibaraki
R&D(Technology
centerCenter Tsukuba)
Sendai, Miyagi(Technology
Center Sendai)
OthersR&D
center—Type of Asset

Buildings andstructures,
machinery andequipment andother assets
Buildings andstructures, landand other assets
Buildings andstructures andother assets

Millions of yen

Thousands of
U.S. dollars¥4,649$45,171¥3,355$32,598¥  293$ 2,847

TOKYO ELECTRON ANNUAL REPORT 2014

PAGE

26

CONTENTSCONTENTS

Financial Highlights

Business Overview

Talking about
Tokyo Electron

Top Message

Financial
Financial Review
Review

Consolidated Eleven-Year
Eleven-Year Summary
Summary
Consolidated

Consolidated Statements of Changes in Net Assets

Review of Operations
and Business Outlook

Corporate GovernanceConsolidated
Consolidated Balance
Balance Sheets
SheetsCorporate Citizenship

Corporate Data

Financial Section

Consolidated
Consolidated Statements
Statements ofof Comprehensive
Comprehensive Income
IncomeConsolidated Statements
Statements ofof Operations
Operations
Consolidated

Consolidated Statements of Cash Flows

R&D / Intellectual Property

Notes to Consolidated Financial Statements

Independent Auditor’s Report

Notes to Consolidated Financial Statements

Tokyo Electron has determined to restructure several domestic
facilities, and as assets within the above asset groups are notexpected to be reutilized in the foreseeable future, Tokyo Electron
performed an impairment test and recognized the difference
between the book value and recoverable value as loss on impairment. The recoverable value for the above asset groups were
measured as the net selling price. For land, buildings and structures, the net selling price was calculated based on reasonableestimates such as real estate appraisals performed by third party
valuation experts, while for machinery, equipment and otherassets, the recoverable amount was assessed at zero, as reutilization or sale of these assets would be difficult.
(4) Others
Loss on impairment of ¥874 million ($ 8,492 thousand) was recognized for other asset groups of Tokyo Electron.
No significant loss on impairment was recognized for the year
ended March 31, 2013.

9. Pledged Assets
Tokyo Electron did not hold any assets pledged as collateral asof March 31, 2014 and 2013.

10. Short-term Borrowings(2) Movements of plan assets
Millions of yen

Thousands of
U.S. dollars

2014

2014

¥60,476$587,602

Expected return on plan assets

1,256

12,204

Actuarial gain (loss)

3,633

35,298Contributions paid by the employer

3,306

32,122

Benefits paid

(1,726)(16,770)

Foreign currency exchange rate changes

2,034

19,763

Balance at April 1, 2013

Other
Balance at March 31, 2014

Millions of yen

Thousands of
U.S. dollars

2014

2014

Funded retirement benefit obligations¥60,206$584,979

Plan assets(69,540)

Funded status
Unfunded retirement benefit obligations

Balance at April 1, 2013
Service cost
Interest cost
Actuarial loss (gain)
Benefits paid
Foreign currency exchange rate changes
Other
Balance at March 31, 2014

2014

2014

$1,120,249
66,78917,343(96,628)(31,238)
19,734
3,838$1,100,087

24%Life insurance company general account18%

Cash and cash equivalents

2%

Other

6%

Total

100%

2. Long-term expected rate of return  Current and target asset allocations, and historical andexpected returns on various categories of plan assets havebeen considered in determining the long-term expected rateof return.

Straight-line
methodDiscount rate

1.40%

Expected rate of return on plan assets

2.00%

Amortization period of actuarial gain or loss

4 years

Amortization period of prior service cost

4 years

12. Income Taxes
Significant components of the deferred tax assets and liabilitiesof Tokyo Electron as of March 31, 2014 and 2013 are as follows:(7) Actuarial assumptions
The principal actuarial assumptions at March 31, 2014 are as follows:

2014

2013

—

¥20,326

21,461—

208,521

15,864

168,898

Long-term expected rate of return2.00%

Accrued pension andseverance costs¥(9,334)(90,691)

Net liability for retirement benefits

53,015515,108

864

8,395

Net operating loss
carryforwards

17,383Net liability (asset) for retirement
benefits at March 31, 2014

¥44,545$432,812

Liability for retirement benefits (note 2)

53,449519,326

Millions of yen

Asset for retirement benefits(8,904)(86,514)2013¥44,545$432,812

Asset ceiling adjustments (note 1)

Year ended March 31, 2013
The funded status of the defined benefit plans, a substantial
portion of which consists of domestic benefit plans, as of March
31, 2013 is as follows:

Retirement Benefit obligation

Notes: 1. The asset ceiling adjustment represents plan assets exceeding the asset ceilingfor overseas subsidiaries that apply International Accounting Standard 19
Employee Benefits.
2. The provision for accrued pension and severance costs for directors and audit& supervisory board members of ¥582 million ($ 5,656 thousand) as of March
31, 2014 is not included.

Millions of yen

Thousands of
U.S. dollars

2014

2014

Service cost

¥6,874$66,789

Interest cost

1,785

17,343

Expected return on plan assets(1,256)(12,204)

Net actuarial loss (gain) amortization(339)(3,293)

Other

108

1,050

Plan assets
Funded status

¥(115,296)$69,685(5) Accumulated adjustments for retirement benefits
Millions of yen

Thousands of
U.S. dollars

2014

2014

Net actuarial gains that are
yet to be recognized (before tax)

¥11,309$109,881

Total balance at March 31, 2014

11,309109,881

2014

$

—

Elimination of unrealized profit
in inventories

9,489

2,967

92,198Devaluation of inventories

4,724

4,666

45,900Loss on impairment

3,486

758

33,871

Accrued warranty expenses

2,709

1,875

26,32160,476

Accrued employees’ bonuses

2,532

2,202

24,602(54,820)

Other

12,413

7,835

120,608

Total gross deferred tax assets

74,19756,493

720,919

Less valuation allowance(10,806)(6,541)(104,994)

Total deferred tax assets

63,391

49,952615,925

Undistributed earningsof subsidiaries(6,877)(4,789)(66,819)¥ (53,670)

Intangible assets identified
through business combination(6,686)(6,110)(64,963)

Notes: 1. The prepaid pension and severance costs as of March 31, 2013 is included inother assets in the consolidated balance sheet.
2. The provision for accrued pension and severance costs for directors and audit &supervisory board members (¥581 million as of March 31, 2013) is not included.

Accumulated adjustments for
retirement benefits(4,035)—(39,205)

Net unrealized gains on
investment securities(3,096)(2,341)(30,082)—(1,051)—(1,620)—(15,740)

Unrecognized actuarial difference
Net amount recognized

1,150(53,670)

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

2,974 Accrued pension and severance costs (Note 2)

(56,644)

Net amount recognized

Retirement benefit costs of the plans is as follows:
Millions of yen

2013¥7,172Thousands of
U.S. dollars

Millions of yen(675,670)

Total retirement benefit costs forthe fiscal year ended March 31, 2014

¥115,296
6,874
1,785
(9,945)(3,215)2,031
395¥113,221

Equity securities

Allocation method of benefit obligation

Deferred tax assets(4) Retirement benefit costs

Thousands of
U.S. dollars

2013

50%

1.51%

11. Employee Benefits

Millions of yen

Bonds

Significant assumptions of domestic pension plans used todetermine the above amounts are as follows:

Discount rate

Net liability (asset) for retirement
benefits at March 31, 2014

Year ended March 31, 2014
Defined benefit plans(1) Movement of retirement benefit obligations

5,451$675,670(3) Reconciliation from retirement benefit obligations and plan
assets to liability (asset) for retirement benefits

Short-term borrowings classified as current liabilities are¥11,531 million ($112,038 thousand) and ¥3,756 million as ofMarch 31, 2014 and 2013, respectively. These borrowings arefrom banks and bore interest at an average annual rate of 0.39%
and 0.50% as of March 31, 2014 and 2013, respectively.
As of March 31, 2014, Tokyo Electron has unused lines of credit
amounting to ¥143,578 million ($1,395,045 thousand).

The Company and its domestic subsidiaries provide for theiremployees a cash balance plan and a noncontributory retirement
and severance benefit plan as defined benefit plans. Further, certain consolidated overseas subsidiaries provide defined benefit
plans for their employees.

561¥69,540(6) Plan assets
1. Plan assets comprise:

Prepaid pension andseverance costs
Net asset for retirement benefits

Service cost¥5,513

Other(1,958)(1,605)(19,024)

Interest cost

1,864

Total deferred tax liabilities(24,272)(15,896)(235,833)

Expected return on plan assets

(887)

Net deferred tax assets¥39,119¥34,056$380,092

Net actuarial loss (gain) amortization(501)

Net pension cost¥5,989

TOKYO ELECTRON ANNUAL REPORT 2014

PAGE

27

CONTENTSCONTENTS

Financial Highlights

Business Overview

Talking about
Tokyo Electron

Top Message

Financial
Financial Review
Review

Consolidated Eleven-Year
Eleven-Year Summary
Summary
Consolidated

Consolidated Statements of Changes in Net Assets

Review of Operations
and Business Outlook

Corporate GovernanceConsolidated
Consolidated Balance
Balance Sheets
SheetsConsolidated Statements of Cash Flows

Corporate Citizenship

Consolidated Statements
Statements ofof Operations
Operations
Consolidated

R&D / Intellectual Property

Corporate Data

Financial Section

Consolidated
Consolidated Statements
Statements ofof Comprehensive
Comprehensive Income
IncomeNotes to Consolidated Financial Statements

Independent Auditor’s Report

Notes to Consolidated Financial Statements

Net deferred tax assets are included in the consolidated balance
sheets as of March 31, 2014 and 2013 as follows:
Thousands of
U.S. dollars

Millions of yen

2014

2013

2014

Current assets

¥25,174¥15,669$244,598

Investments and other assets

23,22423,206225,651—(2)—(9,279)(4,817)(90,157)

Other current liabilities
Other liabilities

The ultimate realization of deferred tax assets is dependent
upon the generation of future taxable income during the period inwhich temporary differences become deductible. For assessmentof the realizability of deferred tax assets, management considers
the scheduled reversal of deferred tax liabilities, future estimatedtaxable income, tax planning strategies and level of net operating
loss carryforwards, if any, in accordance with accounting principles
generally accepted in Japan.
Based on the level of historical taxable income and future estimated taxable income over the periods which the temporary differences are deductible, management believes Tokyo Electron willrealize the benefits of these deferred tax assets, net of valuation
allowance, as of March 31, 2014 and 2013.
The Company and its wholly-owned domestic subsidiaries apply
a consolidated tax filing system for corporate tax purposes.
The Company is subject to corporate tax, inhabitants’ tax and adeductible enterprise tax, which in the aggregate resulted in astatutory income tax rate of approximately 38.01% for the years
ended March 31, 2014 and 2013. On March 31, 2014, amendments to the Japanese tax regulations were enacted into law. As
a result of these amendments, the statutory income tax rate for
the Company will be reduced from 38.01% to 35.64% for the year
ending March 31, 2015. Based on this amendment and previous
amendment enacted December 2, 2011, the statutory income tax
rate utilized for the measurement of deferred tax assets and liabilities expected to be settled or realized on or after April 1, 2014 is
35.64% as of March 31, 2014. Due to this change in statutory
income tax rates, net deferred tax assets decreased by ¥1,018
million ($9,891 thousand) as of March 31, 2014 and deferredincome tax expense recognized for the year ended March 31,
2014 increased by ¥1,021 million ($9,920 thousand).

Significant components of the difference between the statutory
and effective tax rates for the years ended March 31, 2014 and2013 are as follows:
2014

Statutory tax rate in Japan

38.01%

2013

38.01%

Adjustments:
Impairment and amortization of goodwill(130.97)

2.14

Tax credits

38.76(3.65)

Effect of elimination of unrealized profit
in inventories

23.46

16.70

Change in valuation allowance

17.93(2.44)

Difference in statutory tax rates
of subsidiaries(17.72)(7.12)

Change in deferred tax liabilities for undistributed earnings of subsidiaries(17.43)

5.63

Effect of enacted changes in Japanese
tax rates on net deferred tax assets(8.68)—

Expenses not deductible for tax purposes(2.40)

1.14

—

12.35

Others, net(4.39)

1.45

Effective tax rate

(63.43)%64.21%

Prior years income taxes fromtransfer pricing adjustment

The Company received a notice of correction pursuant to transfer pricing taxation from the Tokyo Regional Taxation Bureau on
July 4, 2012 based on the determination that income arising fromtransactions with the Company’s consolidated subsidiaries in the
United States of America and South Korea during the six years
beginning from the year ended March 31, 2006 to the year ended
March 31, 2011 was insufficiently allocated to the Company.
The Company filed its objections with the tax authorities, and toeliminate double taxation, filed a request for inter-governmental
consultations (Mutual Agreement Procedures) to be performed
pursuant to the tax treaties ratified by Japan, the United States ofAmerica and South Korea on March 29, 2013. The Company also
filed for Advance Pricing Agreement (APA) with the tax authorities
for future fiscal periods.
The Company believes that it will be able to eliminate the double
taxation by agreement achieved through consultations, andaccordingly, has reported the total tax expense of ¥2,195 million
for the fiscal year ended March 31, 2013, as the difference inamounts resulting from the different corporate tax rates between
Japan, the United States of America and South Korea and the additional amount in conjunction with the imposition of additional taxes.

13. Net Assets
Net assets comprises four subsections, which are shareholders’equity, accumulated other comprehensive income, share subscription rights and minority 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 not exceeding one half of the price of the newshares as additional paid-in capital which is included in capital surplus.

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

The Company is subject to restriction of dividends by theJapanese Corporate Act, which restricts the amount of dividends
to retained earnings on a consolidated basis.
The Company’s articles allow for the distribution of earnings toshareholders on dates other than the mid-term and year-end, by
a resolution of the board of directors in accordance with Japaneselaws and regulations.
At the board of directors’ meeting held on May 15, 2014, thedistribution of cash dividends amounting to ¥4,480 million($43,529 thousand) was resolved. Such appropriations have notbeen accrued in the consolidated financial statements as of March
31, 2014 since they are recognized in the period in which they are
resolved at the board of directors’ meeting.

14. Other Comprehensive Income
Other comprehensive income for the years ended March 31, 2014 and 2013 is as follows:
Thousands of
U.S. dollars

Millions of yen

2014

2013

2014

¥2,199¥1,011$21,366

(78)

—

(758)

2,121

1,011

20,608Tax expense

(756)

(359)

(7,345)Sub-total, net of tax

1,365

652

13,263Net unrealized gains on investment securities Unrealized gains arising during the year
Reclassification adjustments
Sub-total, before taxNet deferred losses on hedging instruments Deferred losses arising during the year

(269)

(339)

(2,614)

Reclassification adjustments

412

431

4,003

Sub-total, before tax

143

92

1,389

Tax expense

(51)

(36)

(495)

Sub-total, net of tax

92

56

894

Adjustments during the year

6,867

8,760

66,721

Reclassification adjustments

—

—

—

6,867

8,760

66,721

Foreign currency translation adjustments

Sub-total, before taxTax expenseSub-total, net of taxTotal other comprehensive income

—

—

—

6,867

8,760

66,721¥8,324¥9,468$80,878

15. Share Subscription Rights
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 options under the plans vest immediately with restriction on exercise up to two or three years after thedate of grant, and have an exercise period of eight to twenty years
from the date of grant.

Options to purchase 130,700 shares of the Company wereauthorized and granted at an exercise price of ¥1 for the year
ended March 31, 2013. The options under the plans with restriction on exercise up to three years after the date of grant, and havean exercise period of twenty years from the date of grant.
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.

TOKYO ELECTRON ANNUAL REPORT 2014

PAGE

28

CONTENTSCONTENTS

Financial Highlights

Business Overview

Talking about
Tokyo Electron

Top Message

Financial
Financial Review
Review

Consolidated Eleven-Year
Eleven-Year Summary
Summary
Consolidated

Consolidated Statements of Changes in Net Assets

Review of Operations
and Business Outlook

Corporate GovernanceConsolidated
Consolidated Balance
Balance Sheets
SheetsCorporate Citizenship

R&D / Intellectual Property

Consolidated
Consolidated Statements
Statements ofof Comprehensive
Comprehensive Income
IncomeConsolidated Statements
Statements ofof Operations
Operations
Consolidated

Consolidated Statements of Cash Flows

Corporate Data

Financial Section

Notes to Consolidated Financial Statements

Independent Auditor’s Report

Notes to Consolidated Financial Statements

A summary of stock options outstanding and exercisable as of March 31, 2014 and 2013 is as follows:

Millions of yen

2013

2014

Tokyo Electron Limited

Weighted-average exercise price

Number ofsharesOutstanding at the beginning of year

Yen

U.S. dollars

Number ofshares

Weighted-average
exercise price¥  661$ 6.42

833,300¥3,139Granted———

130,700

1

Exercised

20,8001

0.01

25,800

1

Expired (forfeited)

56,800

6,468

62.84

381,300

5,894

Outstanding at the end of year

479,300

1

0.01

556,900

661

Exercisable at the end of year

114,400

1

0.01

192,000

1,914
2013

2014
Weighted-average exercise price

Number ofsharesOutstanding at the beginning of yearGranted
Exercised
Expired (forfeited)
Outstanding at the end of year
Exercisable at the end of yearYen

65,000———65,00065,00016. Leases
Future minimum lease payments on non-cancelable operatingleases are as follows:
Millions of yen

Thousands of
U.S. dollars

2014

2013

2014

Due within one year¥3,410¥1,628$33,132

Due over one year

5,922

2,834

57,540Total

¥9,332¥4,462$90,672

17. Fair Value of Financial Instruments
Policy for Financial Instruments
Tokyo Electron limits its fund management to short-term bankdeposits and low-risk financial instruments, and obtains funds byutilizing bank-loans or liquidating trade-receivables.
Trade receivables, which consist of notes and accounts receivable, are exposed to credit risk in the event of non-performance by
the counterparties. Execution and management of credit risk,
maturity and receivable balance are conducted pursuant to theinternal management rules for credit control. Credit risk of major
customers is assessed on a regular basis.
Short-term investments consist of time deposits and low risk
financial instruments and Tokyo Electron trade with highly-rated
financial institutions to mitigate credit risks.
Investment securities consist of mainly equity interests in listedcompanies exposed to equity market risks. Conditions, including¥3,087
—
—
—
3,087
3,087

U.S. dollars$29.99
—
—
—
29.99
29.99

Weighted-average
exercise price

Number ofsharesYen

65,000———65,00065,000¥3,087
—
—
—
3,087
3,087

market prices, for these investment securities are monitored on aregular basis.
Trade payables, which consist of notes and accounts payable,
mainly mature within one year. Trade payables are exposed toliquidity risks which are managed through activities such as implementing cash management plans.
See note 10 and 18 for detailed discussion on short-term borrowings and derivative financial instruments, respectively.
Fair Value of Financial Instruments
Carrying amount and estimated fair value of financial instruments
as of March 31, 2014 and 2013, are set out below. Fair value offinancial instruments which is practically difficult to estimate areexcluded (see note 6).
Millions of yen

2014:

AssetsCash and cash equivalents
Short-term investments Trade notes and accounts receivable, net of allowance for
doubtful accounts (¥1,503 million)
Investment securities
Liabilities
Trade notes and accounts payable
Short-term borrowings
Derivatives (see note 18)
Hedge accounting not applied
Hedge accounting applied

Carrying
amountEstimated
fair value1¥104,797
163,350¥104,797
163,081

127,529

127,529

18,247

18,24753,668
11,531
(164)
81

2013:

53,668
11,531(164)
81

Thousands of U.S. dollars

Estimated
fair value1

After 1 through5 years

2014:

Within 1 year

Cash and cash equivalents

$1,018,237$—¥ 85,314

Short-term investments

1,587,155—

154,816

154,811

Trade notes and accounts receivable

1,253,712—

99,321

99,321

16,631

16,631

Trade notes and accounts payable

36,261

36,261

Short-term borrowings

3,756

3,756

(3,325)(3,325)

(62)

(62)

AssetsCash and cash equivalents

Yen

556,900

Tokyo Electron Device Limited

Carrying
amountShort-term investments Trade notes and accounts receivable, net of allowance for
doubtful accounts (¥1,180 million)
Investment securities

¥ 85,314

Liabilities

Derivatives (see note 18)
Hedge accounting not applied
Hedge accounting applied

Thousands of U.S. dollars
Carrying
amountEstimated
fair value1

Cash and cash equivalents

$1,018,237$1,018,237

Short-term investments

1,587,155

1,584,541

1,239,108

1,239,108

177,293

177,293

Trade notes and accounts payable

521,455

521,455

Short-term borrowings

112,038

112,038

2014:

Assets Trade notes and accounts receivable, net of allowance for
doubtful accounts ($14,604
thousand)
Investment securities
Liabilities

18. Derivative Financial Instruments
Tokyo Electron is subject to risk from adverse fluctuations in foreign currency exchange rates in its operating and financing activities. The Company and certain subsidiaries enter into forward
foreign exchange contracts in order to hedge such risks, but do
not enter into such transactions for speculative purposes. The
Company and its domestic subsidiary implement a ratio analysis of
the total cumulative cash flow fluctuations to assess effectivenessof hedging for all derivative transactions, except for transactions
where the critical terms of the hedging instrument and hedged
item match and the Company could conclude that changes in fairvalue or cash flows are expected to completely offset. Execution
and management of all derivative transactions in charge of financedepartment are conducted pursuant to the internal management
rule.
The estimated fair values of the derivative financial instruments
as of March 31, 2014 and 2013 are as follows:
1. Derivative financial instruments not designated as hedging
instruments
Millions of yen

Derivatives (see note 18)
Hedge accounting not applied
Hedge accounting applied(1,593)(1,593)787

787

Receivables and payables derived from derivative transactions are stated on a net
basis. The figures in parentheses represent net payables.
Notes: 1. Fair value calculation of financial instruments
Cash and cash equivalents, short-term investments, trade notes and accounts
receivable, trade notes and accounts payable, and short-term borrowings 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 6 for further information by classification of investment securities.
Derivatives
See note 18 for detailed discussion on derivative financial instruments.

2014:

Contract
amountFair value

Unrealized gains(losses)

Sell U.S. dollars¥ 216¥55,346¥ 216

Sell EURO

3,725

(19)

(19)

Sell Korean won

1,068

(508)

(508)

Sell Chinese yuan

102

(7)

(7)

Sell Singapore dollars

57

(0)

(0)
42

Buy U.S. dollars

6,216

42

Buy Swiss francs

2,213

2

2

Buy Chinese yuan

922

60

60

Buy EURO

385

50

50

Total

¥70,034¥(164)¥(164)

2013:

Contract
amountFair value

Unrealized gains(losses)¥(3,021)

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

Millions of yen

Millions of yen
After 1 through5 years

Sell U.S. dollars

¥50,652¥(3,021)

Cash and cash equivalents

¥104,797¥—

Sell Swiss francs

25,787(50)(50)

Short-term investments

163,350—

Sell Korean won

1,068

(295)

(295)

Trade notes and accounts receivable

129,032—

2014:

Within 1 year

Millions of yen
2013:

Within 1 year

Sell Singapore dollars
Buy U.S. dollars

After 1 through5 years

Cash and cash equivalents

¥ 85,314¥—

Short-term investments

154,816—

Trade notes and accounts receivable

100,501—

Total

50

(3)

(3)

4,368

44

44

¥81,925¥(3,325)¥(3,325)

TOKYO ELECTRON ANNUAL REPORT 2014

PAGE

29

CONTENTSCONTENTS

Financial Highlights

Business Overview

Top Message

Financial
Financial Review
Review

Talking about
Tokyo Electron

Consolidated Eleven-Year
Eleven-Year Summary
Summary
Consolidated

Consolidated Statements of Changes in Net Assets

Review of Operations
and Business Outlook

Corporate GovernanceConsolidated
Consolidated Balance
Balance Sheets
SheetsCorporate Citizenship

Corporate Data

Financial Section

Consolidated
Consolidated Statements
Statements ofof Comprehensive
Comprehensive Income
IncomeConsolidated Statements
Statements ofof Operations
Operations
Consolidated

Consolidated Statements of Cash Flows

R&D / Intellectual Property

Independent Auditor’s Report

Notes to Consolidated Financial Statements

Notes to Consolidated Financial Statements
19. Other Income (Expenses)

Thousands of U.S. dollars

2014:

Sell U.S. dollars

Contract
amountFair value

Unrealized gains(losses)$537,758$ 2,099$ 2,099

Sell EURO

36,193

(184)

(184)

Sell Korean won

10,377(4,936)(4,936)

Sell Chinese yuan

991

(68)

(68)

Sell Singapore dollars

554

(0)

(0)

Buy U.S. dollars

60,396408

408

Buy Swiss francs

21,502

19

19

Buy Chinese yuan

8,958

583

583

Buy EURO
Total

3,741

486

486

$680,470$(1,593)$(1,593)

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

2. Derivative financial instruments designated as hedging instruments
Millions of yen

Thousands of U.S. dollars

2014: Hedge accounting

Contract
amountFair value

Sell U.S. dollars¥ 9,365¥ (47)

Sell Korean won

115

(54)

1,117

(525)

Buy U.S. dollars

8,207

0

79,7410

Buy Swiss francs

2,382

145

23,144

1,409

488

37

4,742

360

Buy EURO
Buy GBP
Total

15

0

¥20,572¥ 81

Contract
amount146

0$199,883 $   787

Fair value

Sell U.S. dollars¥ 5,872¥(90)

Sell Chinese yuan

290

(3)

Sell Korean won

157

(42)

Sell Swiss francs

60

1Sell EURO

22

(2)

6,180

33

Buy U.S. dollars
Buy EURO
Total

769

41¥13,350¥(62)

21. Segment Information(A) TEL FSI, Inc.
For TEL FSI, Inc., (formerly FSI International, Inc. before theacquisition was completed), a consolidated subsidiary of theCompany, the allocation of acquisition costs was not complete asof the previous fiscal year-end. This allocation was completed
within this fiscal year as follows:

General information about reportable segments
A reportable segment is a component or an aggregated component of Tokyo Electron. For each of the components, discrete
financial information is available and the operating result is regularly
reviewed by management to make decisions about resources tobe allocated to the segment and assess its performance.
The operation of Tokyo Electron consists of segments by products and services based on business units (BUs), and Tokyo
Electron identifies as a reportable segment, “Semiconductor
Production Equipment (SPE)”, “Flat Panel Display Production
Equipment (FPD)”, “Photovoltaic Panel Production Equipment(PV)” and “Electronic Components and Computer Networks”. As
TEL Solar Holding AG was acquired and became a consolidated
subsidiary of Tokyo Electron, the previous “Flat Panel Display(1) Adjustments to the allocation of acquisition cost
Millions of yen

Goodwill as of previous fiscal year-end¥3,855

Noncurrent assets(370)

Current liabilities

16

Noncurrent liabilities

2

Total adjustments(352)

Goodwill after adjustments¥3,503(2) Amount of goodwill recognized, basis for recognizing goodwill,amortization method and period(a) Amount of goodwill recognized		 ¥3,503 million(b) Basis for recognition of goodwill
		Goodwill was recognized based on future increase in profitability expected from the future business development.
(c) Amortization method and period
		 Straight-line method over 10 years

Millions of yen
Contract
amount20. Business Combinations

Fair value$ 90,993 $ (457)2013: Hedge accounting

See note 8 for further discussion regarding Loss on impairment
for property, plant and equipment, goodwill and other assets of¥46,969 million ($456,364 thousand) recognized for the year
ended March 31, 2014.

(2)	Amount of goodwill recognized, basis for recognizing goodwill,amortization method and period(a) Amount of goodwill recognized		 ¥28,986 million(b) Basis for recognition of goodwill
		Goodwill was recognized for the difference between the

The contract amounts 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:
Contract amountThousands of U.S.
dollars

Millions of yen(B) TEL Solar Holding AG
For TEL Solar Holding AG (formerly Oerlikon Solar Holding AG
before the acquisition was completed), a consolidated subsidiaryof the Company, the allocation of acquisition costs was not complete as of the previous fiscal year-end. This allocation was completed within this fiscal year as follows:

2013

2014

¥283

¥   404$2,749Sell Chinese yuan

—

9,760

—

Buy U.S. Dollars

162

74

1,574

Noncurrent assets

7,369

1

—

10

Noncurrent liabilities

(169)

¥446

¥10,238$4,333

Buy EURO
Total

Note: T he 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 and liabilities.

Millions of yen

Goodwill as of previous fiscal year-end

Total adjustments
Goodwill after adjustments

duction equipment used in the manufacture of thin film silicon photovoltaic panels. The segment had principally developed,
manufactured, sold and distributed such products, but as ofMarch 2014, Tokyo electron has halted development, production
and sales activities for new equipment and limited its operations toprovide support for equipment previously delivered.
The Electronic Components and Computer Networks segmentprincipally designs, develops, procures, and distributes semiconductor products centering on integrated circuits (IC), other electronic components, computer networks and software.
Basis of measurement of reportable segment net sales, segment profit (loss), segment assets and other items
The accounting policies applied in each reportable segment arehas been restated accordingly.
Products of the SPE segment consist of coater/developers,
plasma etch systems, thermal processing systems, single wafer

generally consistent with those applied for the preparation of theconsolidated financial statements. Intersegment sales or transfers
are determined based on current market prices. Assets in common use have not been allocated to each reportable segment,
while costs associated with those assets have been allocated toreportable segments on a systematic basis.

deposition systems, cleaning systems used in wafer processing,wafer probers used in the wafer testing process and other semiconductor production equipment. The SPE segment principallydevelops, manufactures, sells and distributes such products.

Information about reportable segment net sales, segment profit (loss), segment assets and other items
Reportable segment information as of and for the years ended March 31, 2014 and 2013 are as follows:
Millions of yen
Reportable Segment
Semiconductor
production
equipment

FPD
production
equipmentPVproduction
equipment

Electronic
components &computer
networks

Other¥478,842¥28,317¥ 3,806¥100,726

34

—

—

1,075

478,876

28,317

3,806

101,801

Total

Eliminations
andCorporate

Consolidated¥   479¥612,170¥    —¥612,170

11,76012,869(12,869)—

12,239625,039(12,869)

612,170

Net sales

Sell U.S. dollars

2014

Products of the FPD segment consist of coater/developers andplasma etch/ash system used in the manufacture of flat panel displays. The FPD segment principally develops, manufactures, sells
and distributes such products.
Products of the PV segment consist of photovoltaic panel pro-

Production Equipment (FPD) and Photovoltaic Panel Production
Equipment (PV)” segment was separated to the “Flat Panel Display
Production Equipment (FPD)” segment and the “Photovoltaic
Panel Production Equipment (PV)” segment from this fiscal year.
Reportable segment information for the previous year hereinafter

2014:(1) Adjustments to the allocation of acquisition costacquisition cost and the fair value of the net assets acquired
as of the acquisition date.
(c) Amortization method and period
		 Straight-line method over 10 years
		 See note 8 for discussion on impairment of this goodwill.

¥21,786

7,200¥28,986

Sales to external customers
Intersegment sales or transfers
Total
Segment profit (loss)

74,284(37)(46,426)

722

1,267

29,810(41,566)(11,756)

Segment assets

273,142

21,252

2,145

57,465

1,871

355,875

472,717

828,592

Depreciation and amortization

10,114

235

10

476

49

10,88414,00424,888

Amortization of goodwill

1,473

—

2,686

103

—

4,262

—

4,262

Loss on impairment

5,009

—

32,789——37,7989,171

46,969

Capital expenditures, including
intangible and other assets

8,109

103

857

825

41

9,935

5,109

15,044

TOKYO ELECTRON ANNUAL REPORT 2014

PAGE

30

CONTENTSCONTENTS

Financial Highlights

Business Overview

Talking about
Tokyo Electron

Top Message

Financial
Financial Review
Review

Consolidated Eleven-Year
Eleven-Year Summary
Summary
Consolidated

Consolidated Statements of Changes in Net Assets

Review of Operations
and Business Outlook

Corporate GovernanceConsolidated
Consolidated Balance
Balance Sheets
SheetsCorporate Citizenship

Corporate Data

Financial Section

Consolidated
Consolidated Statements
Statements ofof Comprehensive
Comprehensive Income
IncomeConsolidated Statements
Statements ofof Operations
Operations
Consolidated

Consolidated Statements of Cash Flows

R&D / Intellectual Property

Notes to Consolidated Financial Statements

Independent Auditor’s Report

Notes to Consolidated Financial Statements

Other Information(1) Domestic and overseas net sales by destination for the years ended March 31, 2014 and 2013 are as follows:

Millions of yen
Reportable Segment

2013:

Semiconductor
production
equipment

FPD
production
equipmentPVproduction
equipment

Electronic
components &computer
networks

Other

Total

Eliminations
andCorporate

Consolidated

Net sales
Sales to external customers

Thousands of
U.S. dollars

Millions of yen
Net sales

2014

2013

2014

Japan

¥161,631¥118,504$1,570,453

Taiwan133,736

107,734

1,299,417

United States of America

104,617

117,194

1,016,489¥392,027¥20,077¥    83¥84,665¥   448¥497,300¥    —¥497,300

43

—

—

813

10,613

11,469(11,469)—

Total

392,070

20,077

83

85,478

11,061

508,769(11,469)

497,300

China

81,92938,356

796,045

Segment profit (loss)

48,600(4,534)(1,821)

1,283

1,321

44,849(27,082)

17,767

Korea

76,401

59,376742,334

Segment assets

223,956

18,07931,41047,5571,550

322,552

452,976775,528

Other

53,85656,136523,280

Total¥612,170¥497,300$5,948,018

Millions of yen

Thousands of
U.S. dollars

2014

2014

Intersegment sales or transfers

Depreciation and amortization

12,330

404

58

448

78

13,31813,313

26,631

Amortization of goodwill

1,038

—

—

103

—

1,141

—

1,141

Capital expenditures, including
intangible and other assets

13,464

1,658

3

482

54

15,661

9,834

25,495

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

(2) Net property, plant and equipment by location as of March 31, 2014 and 2013 are as follows:
Millions of yen

Thousands of U.S. dollars

2014:

Reportable Segment

2014:

Semiconductor
production
equipment

FPD
production
equipmentPVproduction
equipment

Electronic
components &computer
networks

Property, plant and equipment

Other

Total

Eliminations
andCorporate

Sales to external customers
Total
Segment profit (loss)

$4,652,565$275,136$ 36,980$978,683$  4,654

330

—

—

10,445

114,264

125,039(125,039)—

4,652,895

275,136

36,980989,128

118,918

6,073,057(125,039)

5,948,018(360)(451,088)

7,015

12,311

289,642(403,867)(114,225)

206,491

20,842

558,346

18,1793,457,783

4,593,053

8,050,836

Depreciation and amortization

98,271

2,283

97

4,625

476

105,752

136,067

241,819

Amortization of goodwill

14,312—

26,0981,001—

41,411—41,411

Loss on impairment

48,669—318,587——

367,256

89,108456,364

78,789

1,001

8,327

8,016

398

Other

Total

¥82,364¥15,119¥14,861¥112,344

Japan

U.S.A.

Other

Total

¥99,888¥14,549¥21,261¥135,698$5,948,018 $       — $5,948,018

721,764

Capital expenditures, including
intangible and other assets

2013:

Property, plant and equipment

2,653,925

Segment assets

U.S.A.

Millions of yen
Consolidated

Net salesIntersegment sales or transfers

Japan

96,53149,640146,171

Notes: 1.	“Other” includes all other operating segments which are not included in the reportable segments, including group-wide logistic services, facility maintenance and insurance.
2. (1) “Eliminations and Corporate” segment profit (loss) totaling ¥41,566 million ($403,867 thousand) and ¥27,082 million for the years ended March 31, 2014 and 2013, respectively, includes corporate expenses not allocated to any reportable segments. The corporate expenses mainly consist of research and development costs of ¥19,735 million($191,751 thousand) and ¥20,359 million for the years ended March 31, 2014 and 2013, respectively, pertaining to fundamental research and element research, not allocatedto any of the reportable segments. For the year ended March 31, 2014, loss on impairment of ¥9,171 million ($89,108 thousand) attributable to corporate buildings andstructures that became idle as a result of facility restructuring is included.
		 (2) “Eliminations and Corporate” segment assets totaling ¥472,717 million ($4,593,053 thousand) and ¥452,976 million as of March 31, 2014 and 2013, respectively, consist
mainly of cash and cash equivalents, short-term investments and buildings not allocated to any of the reportable segments.
		 (3) “Eliminations and Corporate” loss on impairment of ¥9,171 million ($89,108 thousand) is attributable to corporate buildings and structures and other assets that became idle
as a result of facility restructuring. See note 8 for further discussion.
3.	“Eliminations and Corporate” capital expenditures totaling ¥5,109 million ($49,640 thousand) and ¥9,834 million for the years ended March 31, 2014 and 2013, respectively,­consist mainly of capital expenditures for buildings, machinery and equipment not allocated to any of the reportable segments.
4.	Reported segment profit (loss) is reconciled to Income before income taxes and minority interests in the consolidated statements of operations.

Thousands of U.S. dollars

2014:

Property, plant and equipment

Japan

U.S.A.

Other

Total

$800,272$146,900$144,394$1,091,566(3) Major customer information
Net sales to external customers that represent 10 percent or more of net sales are as follows:

Related reportable segment

Name of customer

Taiwan Semiconductor
Manufacturing Company Ltd.

Semiconductor production equipment¥91,243$886,543

Intel Corporation

Semiconductor production equipment

84,272818,811

Samsung Electronics Co., Ltd.

Semiconductor production equipment and FPD production equipment

80,476

781,928

Millions of yen

Related reportable segment

Name of customer

2013

Intel Corporation

Semiconductor production equipment¥73,955

Taiwan Semiconductor
Manufacturing Company Ltd.

Semiconductor production equipment

68,769Samsung Electronics Co., Ltd.

Semiconductor production equipment and FPD production equipment

60,374

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

Information about reportable segment goodwill
Reportable segment information about amortization of goodwill for the year ended March 31, 2014 and unamortized balances as of March
31, 2014 is as follows:
Millions of yen

2014:

Semiconductor
production
equipment

FPD
production
equipmentPVproduction
equipment

Electronic
components &computer networks

Total

Amortization of goodwill¥1,473¥—¥2,686¥103¥4,262

Goodwill

9,092

—

—

308

9,400

TOKYO ELECTRON ANNUAL REPORT 2014

PAGE

31

CONTENTSCONTENTS

Financial Highlights

Business Overview

Financial
Financial Review
Review

Top Message

Talking about
Tokyo Electron

Consolidated Eleven-Year
Eleven-Year Summary
Summary
Consolidated

Consolidated Statements of Changes in Net Assets

Review of Operations
and Business Outlook

Corporate GovernanceConsolidated
Consolidated Balance
Balance Sheets
SheetsConsolidated Statements of Cash Flows

Corporate Citizenship

R&D / Intellectual Property

Financial Section

Consolidated
Consolidated Statements
Statements ofof Comprehensive
Comprehensive Income
IncomeConsolidated Statements
Statements ofof Operations
Operations
Consolidated

Notes to Consolidated Financial Statements

Independent Auditor’s Report

Notes to Consolidated Financial Statements(4) Overview of TED

Millions of yen

2013:

Semiconductor
production
equipment

FPD
production
equipmentPVproduction
equipment

Electronic
components &computer networks

Total

Amortization of goodwill¥ 1,038

¥—

¥

—

¥103

¥ 1,141

Goodwill

14,565—23,397411

38,373Thousands of U.S. dollars
Semiconductor
production
equipment

FPD
production
equipmentPVproduction
equipment

Electronic
components &computer networks

Total

Amortization of goodwill$14,312$—$26,098$1,001$41,411

Goodwill

88,340

—

—

2,993

91,333

2014:(1) Reason for change
In the midst of a rapidly changing business landscape for Tokyo
Electron, the group has spent considerable effort investigating
future growth strategies for both Tokyo Electron and TED, looking
to develop the businesses going forward. As a result, theCompany has sold a portion of its shares in TED in order toimprove the enterprises value of both companies. This enables theTokyo Electron Device Limited

Address

1-4, Kinko-cho, Kanagawa-ku,
Yokohama City, Kanagawa, Japan

Representative Director

Yasuyuki Kuriki, President,
Representative Director

Business Operation

Electronic Components,
Computer Network

Common Stock¥2,495,750 thousand ($24,249 thousand)as of March 31, 2014

EstablishedMarch 3, 1986

(5) Number of shares sold and sale price

22. Subsequent event
Reduction of shareholding in Tokyo Electron Device Limited
The Board of Directors of the Company adopted a resolution on
March 26, 2014 to sell a portion of shares of Tokyo Electron
Device Limited (hereinafter “TED”), a consolidated subsidiary listed
in the first section of the Tokyo Stock Exchange, held by theCompany. As a result, effective April 15, 2014, the classification of
TED changed from a consolidated subsidiary to an equity method
affiliate. In accordance with this change, TED’s financial results will
be reflected in Tokyo Electron’s consolidated statement of income
as equity in income of equity method investees beginning from thefiscal year ending March 31, 2015.

Company Name

Company to plan for a greater concentration of management
resources in the core equipment business, and for TED to actively
drive its development business and overseas expansion in addition
to existing sales of electronic components and computer network
related products while becoming even more independent andbuilding its growth strategies for the future.
(2) Method of change
Of the 5,875,300 ordinary shares of TED that the Company held
as of March 31, 2014, TED repurchased 636,000 shares.
1,484,000 shares were sold by the Company through an underwritten offering (Daiwa Securities Co. Ltd. and Nomura Securities
Co., Ltd.). Additionally, in relation to an additional offering (OverAllotment), 222,600 shares were sold to the underwriter upon
exercise of a green shoe option.
(3) Date of change
April 15, 2014 (the date of transfer of the TED shares soldthrough an underwritten offering)Number of shares sold2,342,600 shares

Sale price¥3,011 million ($29,256 thousand)Profit (loss) from sale

Loss of ¥1,850 million ($17,975 thousand)is expected to be recognized for the year
ending March 31, 2015(6) Change in voting rights (number of shares held) and proportionof voting rights

Number of voting rights(number of shares held)

Proportionof votingrights held
by TEL

Before change
Consolidated
58,753(as of March 31, 2014) subsidiary (5,875,300 shares)

55.43%Classification

After change

Equity method
35,327
affiliate(3,532,700 shares)

35.45%

1. The proportion of voting rights before the change was calculated on the basis of
105,985 voting rights for all shareholders as of March 31, 2014.
2. The proportion of total voting rights after the change was calculated on the basis of
99,625 voting rights, which is 105,985 voting rights for all shareholders as of March
31, 2014 less 6,360 voting rights for the 636,000 shares repurchased by TED.

Change in reportable segments
The “Electronic Components and Computer Networks” segment
as disclosed in Note 21 had historically represented TED. As TED
will change from a consolidated subsidiary to an equity method
affiliate, this segment will not be reported from the year ending
March 31, 2015, while net profit of TED attributable to Tokyo
Electron will be included in “Elimination and Corporate”.

Corporate DataTOKYO ELECTRON ANNUAL REPORT 2014

PAGE

32

CONTENTSCONTENTS

Financial Highlights

Business Overview

Financial
Financial Review
Review

Top Message

Talking about
Tokyo Electron

Consolidated Eleven-Year
Eleven-Year Summary
Summary
Consolidated

Consolidated Statements of Changes in Net Assets

Independent Auditor’s Report

Review of Operations
and Business Outlook

Corporate GovernanceConsolidated
Consolidated Balance
Balance Sheets
SheetsConsolidated Statements of Cash Flows

Corporate Citizenship

Consolidated Statements
Statements ofof Operations
Operations
Consolidated

R&D / Intellectual Property

Financial Section

Consolidated
Consolidated Statements
Statements ofof Comprehensive
Comprehensive Income
IncomeNotes to Consolidated Financial Statements

Independent Auditor’s Report

Corporate DataTOKYO ELECTRON ANNUAL REPORT 2014

PAGE

33

CONTENTSCONTENTS

Financial Highlights

Business Overview

Top Message

Talking about
Tokyo Electron

Review of Operations
and Business Outlook

Corporate GovernanceCorporate Citizenship

R&D / Intellectual Property

Financial Section

Corporate Data

Consolidated Subsidiaries / Investor Information

Consolidated Subsidiaries (As of March 31, 2014)

Investor Information (As of March 31, 2014)

JAPAN

Corporate Name and Head Office:Common Stock Listed on:

For Further Information, Contact:• Tokyo Electron Yamanashi Limited

Tokyo Electron Limited
Akasaka Biz Tower
3-1 Akasaka 5-chome, Minato-ku,
Tokyo 107-6325, JapanThe Tokyo Stock Exchange 1st Section(Stock code: 8035)

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

Independent Auditors:
KPMG AZSA LLC

Established:

Administrator of Shareholders’Register:November 11, 1963

• Tokyo Electron Device Limited*

Annual General Meeting of
Shareholders:• Tokyo Electron BP Limited

June• Tokyo Electron Agency Limited

Common Stock:

U.S.A.

Stock trading unit
100 shares
Authorized
300,000,000 shares
Issued and outstanding 180,610,911 shares
Number of shareholders 30,563• Tokyo Electron U.S. Holdings, Inc.

Sumitomo Mitsui Trust Bank, Limited
4-1 Marunouchi 1-chome, Chiyoda-ku,
Tokyo Japan• Tokyo Electron America, Inc.

URL:
http://www.tel.com/

Direct mail and inquiries to:
Sumitomo Mitsui Trust Bank, Limited
8-4 Izumi 2-chome, Suginami-ku,
Tokyo 168-0063, Japan
Tel (toll free): 0120-782-031 (available
only in Japan)• TEL Technology Center, America, LLC• TEL Venture Capital, Inc.
• TEL Epion Inc.

Principal Shareholders:Number ofshares held
(thousands)

Votingshare ratio(%)

The Master Trust Bank of Japan, Ltd. (trust account)

19,144

10.68• TEL NEXX, Inc.
• TEL FSI, Inc.

Japan Trustee Services Bank, Ltd. (trust account)

11,669

6.51

EUROPETokyo Broadcasting System Holdings, Inc.

7,727

4.31

• Tokyo Electron Europe Limited

The Bank of New York Mellon as Depositary Bank for DR Holders

6,711

3.74

Deutsche Bank Trust Company Americas

5,283

2.94

BNP Paribas Securities

3,506

1.95

Mitsubishi UFJ Morgan Stanley Securities

3,270

1.82

State Street Bank and Trust Company 505225

2,969

1.65

• Tokyo Electron Israel Limited• TEL Magnetic Solutions Limited• TEL Solar AG

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

The Bank of New York Mellon SA/NV 10

2,940

1.64

Trust & Custody Services Bank, Ltd. (securities investment trust account)

2,386

1.33

Notes: 1. Shares of less than one thousand have been rounded down in the “Number of shares held.”
2. Voting share ratio is calculated excluding treasury stock (1,408,950 shares).

• Tokyo Electron (Kunshan) Limited

Distribution of Ownership Among
Shareholders:
Treasury stock
0.78%
Other Japanese
corporations
5.18%

Japanese individuals andothers7.03%

Foreign institutions
and others
48.73%

Japanese financial institutions
and securities companies
38.28%• Tokyo Electron Singapore Pte. Limited

Stock Price and Trading Volume(Yen)

53 consolidated subsidiaries in total, including the above 25 companies(Thousands of shares)

8,000

6,000

*	‌Tokyo Electron Device Limited, which operates the Electronic
Components and Computer Networks business, changed fromconsolidated subsidiary to equity method affiliate as of April 2014.

Stock price
4,000

2,000

0

100,000

Trading volume

50,0000FY2010FY2011FY2012FY2013

FY2014

March 312014