M a n a g e m e n t ’s D i s c u s s i o n a n d A n a l y s i s

Sales and Income
Sales
For the year ended March 31, 2001, consolidated netsales increased 64.2 percent from the prior fiscal year to arecord ¥723.9 billion (US$5,842 million), as semiconductor and LCD manufacturers invested to meet a sharp risein demand for IT-related products such as personal
computers, mobile phones, network-related products anddigital appliances. Geographically, domestic sales grew
62.7 percent to ¥299.3 billion and overseas sales gained
65.4 percent to ¥424.6 billion. Sales outside of Japan
have exceeded domestic sales for the past three fiscal
years. By division, Semiconductor Production Equipment(SPE) sales, which include sales of LCD production
equipment, increased 74.3 percent to ¥619.0 billion.
Computer Network (CN) sales rose 13.7 percent to ¥14.1
billion, and Electronic Components (EC) sales gained 23.8
percent to ¥89.2 billion.
Domestic and Overseas Sales(¥ Billions)

299.3

424.6

2001

723.9
184.0

256.7

2000

440.7
149.8

164.0

1999

313.8
230.6

225.01998

455.6256.8

1997

176.0
432.8

Japan

Overseas

Orders received for the SPE division increased 20.6
percent to ¥627.6 billion, with order growth particularly
strong during the first half of the fiscal year. Order backlog
for the SPE division rose 3.4 percent to ¥258.1 billion, but
weakening order flow in the second half of the fiscal year
indicates a worsening of the business environment during
the year ending March 2002.
Changes in exchange rates have no material effect onTokyo Electron’s results because exports from Japan are
generally denominated in yen. However, a weaker yen visa-vis the U.S. dollar typically lowers prices from thepurchaser’s perspective, which raises Tokyo Electron’scompetitiveness. While some settlements are denominated in dollars, exchange risk is hedged using forward
exchange contracts concluded individually at the time oforder. The ratio of U.S. dollar-denominated transactions
involving equipment imported to Japan is comparatively
low and did not have a material effect in the year ended
March 31, 2001.

Cost of Sales, SG&A Expenses and Operating Income
Cost of sales increased 51.0 percent to ¥458.9 billion, arate of increase well below the rate of sales growth.
Consequently, cost of sales as a percentage of net sales
improved to 63.4 percent from 68.9 percent for the priorfiscal year. Gross profit increased 93.6 percent to ¥265.0
billion and the gross margin rose 5.5 points to 36.6
percent, reflecting the rise in production volume and thefavorable effects of Tokyo Electron’s drive to improve
productivity and reduce costs.
Net Sales, Gross Profit & Operating Income
121.1

265.0

2001

723.9
35.8

136.9

2000

440.7
6.4

87.9

1999

313.8
63.8

150.860.4

135.2

1998

455.6

1997

Net sales

432.8

Gross profit

R&D Expenses(¥ Billions)

2001

52.9

2000

37.1

1999

26.8

1998
1997

2. The Computer Systems division was renamed the Computer Network division as of April 1, 2000.

TOKYO ELECTRON LIMITED

Operating income

Selling, general and administrative expenses increased
42.4 percent to ¥143.9 billion, also substantially below therate of sales growth due to Tokyo Electron’s concerted
efforts to control costs. Research and development
expenses, which are included in SG&A expenses,increased 42.5 percent to ¥52.9 billion. R&D was focusedon development of technologies for the 0.13-0.10µm
design rule generation, 300mm wafer equipment, andnew business areas. Consistent and substantial R&Dspending, even during market slowdowns, has been akey factor supporting Tokyo Electron’s ability to further
promote a competitive advantage in the products andservices it provides. The Company intends to maintainR&D spending despite projected market weakness during
the year ending March 2002 in order to benefit fully whenthe market recovers.
Operating income increased 238.1 percent to ¥121.1
billion as sales growth strongly outpaced expense
increases. The operating margin was 16.7 percent,compared to 8.1 percent for the prior fiscal year.

Notes: 1. Years in all graphs refer to fiscal years ended March 31.

20(¥ Billions)

26.8
21.0

Other Income (Expenses) and Net Income
Net other expenses increased sharply to ¥22.0 billion,
primarily because a difference due to the application of
new accounting standards for retirement benefits resulted
in a charge of ¥16.0 billion at the beginning of the fiscalyear. While Tokyo Electron had planned on amortizing thisamount over a two-year period, the Company opted totake a one-time charge to earnings during the past fiscal
year. Income before income taxes increased 233.9
percent to ¥99.1 billion.
Net income increased 212.4 percent to ¥62.0 billion,
and fully diluted net income per share increased to¥344.75 from ¥110.64. Tokyo Electron increased cash
dividends by ¥24.00 per share to ¥38.00 per share; thepayout ratio was 10.74 percent, which is in line with theCompany’s historical norm.
Net Income per Share (Diluted)

(¥)

2001

344.752000
1999

110.6410.70

1998

168.43

1997

172.74

Financial Position and Cash Flows
Financial Position
Current assets at March 31, 2001 increased 46.1 percent
from a year earlier to ¥548.2 billion as both trade notes
and accounts receivable and inventories expanded inreflection of the increase in sales. Inventory turnover
improved to 5.27 times compared with 4.39 times in theprevious fiscal year. Trade notes and accounts receivable
turnover was 3.03 times, compared to 2.79 times for theprior fiscal year.
Current liabilities increased 62.8 percent to ¥238.4billion. Factors included increased short-term borrowings
outstanding at the balance sheet date, an increase intrade notes and accounts payable due to the ramp-up in
production to meet higher demand, and higher accrued
income taxes. Working capital increased to ¥309.8
billion, and while the current ratio decreased to 2.3 to 1
from 2.6 to 1 a year earlier, it continues to indicate ample
liquidity. The current ratio decreased in large part
because Tokyo Electron funded working capital requirements externally with short-term debt to promptly
respond to rapid increases in demand.
Debt-to-Equity Ratio

Cash Dividends per Share & Payout Ratio(Times)(¥ / %)
0.55

2001
10.74

2001

38.00

0.42

2000

12.35

2000

14.00

0.47

1999
112.14

1999

12.00

0.52

1998

17.34

1998

30.00

0.56

1997

14.01

1997

Cash dividends per share

28.00

Payout ratio

Note: Debt-to-equity ratio = (Average short-term debt + Average longterm debt)/Average shareholders’ equity

Working Capital & Current Ratio(¥ Billions / Times)

2.30

2001

309.8
2.56

2000

228.7
4.21

1999

221.7
2.58

1998

228.4
2.89

1997

Working capital

191.2

Current ratio

Property, plant and equipment increased 27.6 percent
to ¥124.7 billion over a year earlier. During the fiscal year,
Tokyo Electron invested ¥49.4 billion in property, plantand equipment, consisting primarily of production facilities for coater/developers at Tokyo Electron Kyushu,
expansion of production capacity for etchers at Tokyo
Electron Yamanashi, purchase of equipment for evaluation, capitalization of the Company’s own equipment,and investment in IT.
TOKYO ELECTRON LIMITED21

Capital Expenditures for Property,Plant and Equipment(¥ Billions)Shareholders’ Equity Ratio

(%)

45.7

2001
2001
2000
1999

2000
62.1

19.0

1999
52.9

16.9

1998

1998
1997

54.8

49.428.7

53.6

1997

21.0

Investments and other assets increased 121.6
percent to ¥56.5 billion. Factors included the acquisitionof Supercritical Systems, Inc. and Timbre Technologies,Inc., which generated consolidated goodwill of ¥19.0
billion that will be amortized within a reasonable periodof time not exceeding 20 years. Total assets increased
46.0 percent to ¥729.5 billion, primarily because of therise in current assets.
Tokyo Electron increased long-term debt 87.8 percent
from a year earlier to ¥126.3 billion, primarily through theissue of unsecured bonds totaling ¥50.0 billion.
Shareholders’ equity increased 21.8 percent to¥333.3 billion, due to an increase in retained earnings.
As a percentage of total assets, shareholders’ equity
was 45.7 percent, compared to 54.8 percent a year
earlier. Return on average total shareholders’ equity
improved to a record high of 20.4 percent from 7.5
percent a year earlier.

Shareholders’ Equity & ROE(¥ Billions / %)
20.4

2001

333.3
7.5

2000

273.6
0.7

1999

257.7
12.8

1998

261.0
15.4

1997

207.5

Shareholders’ equity

Return on equity

The balance of equity-linked bonds outstanding at
March 31, 2001 was ¥20.0 billion. The potential numberof shares if all convertible bonds and bonds with warrants
had been converted and executed at the balance sheet
date represented 3.0 percent of total common stock
issued and outstanding.

Millions of yen(percentage of net sales)

2001

22

Thousands ofU.S. dollars

2000

1999

2001

Net sales ........................................... ¥723,880 (100.0)¥440,729 (100.0)¥313,820 (100.0)$5,842,455

Cost of sales .....................................

458,902(63.4)

303,839(68.9)

225,962(72.0)

3,703,810

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

264,978(36.6)

136,890(31.1)

87,858(28.0)

2,138,645

SG&A expenses ................................

143,892(19.9)

101,074(23.0)

81,475(26.0)

1,161,353

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

121,086(16.7)

35,816

(8.1)

6,383

(2.0)

977,292

Other income (expenses)...................

(21,954)—(6,127)–(345)–(177,198)

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

99,132(13.7)

29,689

(6.7)

6,038

(1.9)

800,094

Provision for income taxes.................

37,099

(5.1)

9,836

(2.2)

4,167

(1.3)

299,428

Minority interest .................................

21(0.0)5(0.0)

5(0.0)

167

Net income........................................ ¥ 62,012(8.6)¥ 19,848

(4.5)

1,866

(0.6)

$ 500,499

TOKYO ELECTRON LIMITED¥Cash Flows
Operating activities used net cash of ¥29.4 billion; in theprior fiscal year, operating activities generated net cash of¥25.1 billion. Net cash flow, defined as the sum of net
income and depreciation and amortization, increased 2.1times to ¥83.7 billion due to the increase in net income.
Net changes in assets and liabilities, however, tend torepresent a use of cash during periods of revenue growth
because Tokyo Electron generally incurs costs andexpends cash in advance of receiving cash from its
customers. In the past fiscal year, increases in trade notes
and accounts receivable and in inventories were theprimary factors reducing net cash generated by operating
activities. Income taxes paid also increased significantly.
Investing activities used net cash of ¥62.4 billion, up
3.9 times from ¥16.2 billion in the prior fiscal year.
Payment for purchase of property, plant and equipment
increased 2.7 times to ¥39.2 billion. Capital investments
were directed mainly toward capacity expansion and theacquisition of equipment for evaluation. In addition, theCompany deployed ¥18.9 billion during the fiscal year toacquire two companies in the United States, asdiscussed earlier.

Net Cash Flow(¥ Billions)

2001

83.7

2000

39.3

1999

19.8

1998

42.7

1997

40.1

Net cash generated by financing activities more thantripled to ¥77.2 billion. Tokyo Electron increased shortterm borrowings by ¥23.9 billion and issued unsecured
bonds totaling ¥50.0 billion. Redemption of unsecured
bonds totaling ¥30.0 billion was offset by an equivalent
net increase in commercial paper.
Cash and cash equivalents at the end of the year
totaled ¥65.3 billion, down 17.9 percent from ¥79.5 billion
at the end of the prior fiscal year as Tokyo Electron
supplemented external funding with internal capital
resources.

Millions of yen(percentage of total assets)

2001
Total assets .............................................................................. ¥729,511 (100.0)

Thousands ofU.S. dollars2000

2001¥499,499 (100.0)$5,887,903

Cash and cash equivalents.......................................................

65,320(9.0)

79,519(15.9)

527,205

Trade notes and accounts receivable.......................................

302,953(41.5)

175,153(35.0)

2,445,143

Inventories ................................................................................

161,981(22.2)

112,481(22.5)

1,307,351

Investments and other assets...................................................

56,549(7.8)

25,522(5.1)

456,412

Property, plant and equipment .................................................

124,721(17.1)

97,726(19.6)

1,006,623

Total liabilities............................................................................

396,172(54.3)

225,862(45.2)

3,197,512

Short-term borrowings .............................................................

48,462(6.6)

23,998(4.8)

391,139

Trade notes and accounts payable ..........................................

87,350(12.0)

62,574(12.5)

705,007

Accrued income taxes..............................................................

41,440(5.7)

11,843(2.4)

334,464

Long-term debt, less current portion ........................................

126,348(17.3)

67,278(13.5)

1,019,757

Shareholders’ equity................................................................. ¥333,281(45.7)¥273,603(54.8)$2,689,923

TOKYO ELECTRON LIMITED23