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 LY S I SSales and Income

cal year were ¥198.1 billion and order backlog was¥84.0 billion.

Sales

Because exports from Japan are generally denominated in yen, changes in exchange rates have no material

For the year ended March 31, 2000, consolidated

effect on Tokyo Electron’s results. However, a stronger

net sales increased 40.4 percent from the prior fiscal

yen vis-a-vis the U.S. dollar typically raises prices fromyear to ¥440.7 billion (US$4,152 million), as the semi-

the purchaser’s perspective. The ratio of U.S. dollar-

conductor industry rapidly recovered from the 1998

denominated transactions involving equipment imported

downturn and entered a period of capacity expansion

to Japan is comparatively low and did not have a material

and investment in advanced technology. Geographically,effect in the year ended March 31, 2000.

domestic sales grew 22.8 percent to ¥184.0 billion andoverseas sales jumped 56.6 percent to ¥256.7 billion.
Sales outside of Japan thus exceeded domestic sales for

Cost of Sales and SG&A Expenses

the second consecutive year.
Cost of sales increased 34.5 percent to ¥303.8 bilDomestic andOverseas Sales

455.6

440.7

432.8
401.8

growth. Consequently, cost of sales as a percentage of(¥ Billions)137.1

Net sales outside Japan grew a robust 56.6 percent in the year ended March 2000, surpassing domestic sales for the second
straight year.

lion, a rate of increase well below the rate of sales

176.0

225.0

313.8

256.7

net sales improved to 68.9 percent from 72.0 percent
for the prior fiscal year. Gross profit increased 55.8

164.0

264.7

256.8

rose 3.1 percentage points to 31.1 percent, reflecting

230.6
149.8

■ Overseas■ Japanpercent to ¥136.9 billion and the gross profit margin
184.0

1996 1997 1998 1999 2000

higher business volume and the favorable effects ofTokyo Electron’s drive to improve productivity andreduce costs.

By division, Semiconductor Production Equipment(SPE) sales, which include sales of LCD production equip-

Net Sales & Gross Profit

ment, increased 46.6 percent to ¥355.1 billion.

(¥ Billions)

Computer Systems (CS) sales were essentially unchanged

Higher business volume andTokyo Electron’s efforts to improve productivity contributed toa solid gain in gross profit.

at ¥12.4 billion, and Electronic Components (EC) salesrose 24.8 percent to ¥72.1 billion.
Tokyo Electron now reports orders received andorder backlog on a consolidated basis, beginning with

■ Net sales■ Gross profit

455.6

440.7

432.8
401.8

313.8

131.7

135.2

150.8

136.9
87.9

the year ended March 2000. Orders received for theSPE division increased to ¥520.5 billion as non-memo-1996 1997 1998 1999 2000

ry chipmakers and foundries ramped up capital invest-Selling, general and administrative expenses

ment to remain in step with increasing demand.

increased 24.1 percent to ¥101.1 billion, again substan-Consequently, order backlog for the SPE division rose

tially below the rate of sales growth due to Tokyoto ¥249.5 billion. Strong order flow in the fourthElectron’s successful cost-control measures. Research

quarter of the fiscal year indicates continuing sales

and development expenses, which are included in

growth during the year ending March 2001. For refer-SG&A expenses, increased 38.3 percent to ¥37.1 bil-ence, non-consolidated orders received in the prior fis-lion. R&D was focused primarily on development ofNote: Years in all graphs refer to fiscal years ended March 31.

TOKYO ELECTRON LIMITED

19equipment for 0.13µm and beyond, 300mm equip-

past fiscal years. Income before income taxes

ment and new business opportunities. Consistent andincreased nearly five times to ¥29.7 billion. Net

substantial R&D spending, even during market slow-

income totaled ¥19.8 billion, compared to ¥1.9 bil-downs, has been a key factor supporting Tokyolion for the prior fiscal year, and fully diluted net

Electron’s ability to maintain a competitive advantage

income per share increased from ¥10.70 to ¥110.64.

in the products and services it provides, and is allow-

Tokyo Electron increased cash dividends by ¥2.00

ing the Company to benefit fully from the current

per share to ¥14.00 per share; the payout ratio wasmarket recovery. Operating income increased more

12.7 percent, which is in line with the Company’s his-than five times to ¥35.8 billion as sales growth strong-

torical norm.

ly outpaced expense increases. The operating margin
was 8.1 percent, compared to 2.0 percent for the178.25

Net Income per Share

172.74168.43(¥)

prior fiscal year.
37.1

R&D Expenses

Fully diluted net income per sharerebounded nearly ¥100 to¥110.64.

110.64(¥ Billions)R&D expenses rose significantly,
reflecting Tokyo Electron’s aggressive investment in developing nextgeneration technology.

26.8

26.8

21.0
10.70

17.3

1996 1997 1998 1999 2000

1996 1997 1998 1999 2000

30.00

Cash Dividends per Share& Payout Ratio
24.00(¥ / %)

Other Income (Expenses) and Net Income
Net other expenses increased sharply to ¥6.1 bil-Due to the solid recovery in net
income, Tokyo Electron revised its
original forecast for cash dividends
upward by ¥2 to ¥14 per share forthe full fiscal year.

14.00
12.00

lion, primarily because of non-recurring charges,
which consisted mainly of losses on the sale and dis-

11.60

■ Cash dividends

14.01
17.34

Payout ratio

posal of fixed assets and patent royalty payments for

1999

Net sales............................................ ¥440,729 (100.0)
Cost of sales......................................

20303,839 (68.9)

12.70

1996 1997 1998 1999 2000

Millions of yen(percentage of net sales)

2000

112.1428.00

Thousands ofU.S. dollars

2000

1998

¥313,820 (100.0)¥455,585 (100.0)$4,151,945

225,962(72.0)

304,825(66.9)

2,862,355

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

136,890 (31.1)

87,858(28.0)

150,760(33.1)

1,289,590

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

101,074 (22.9)

81,475(26.0)

87,464(19.2)

952,181

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

35,816

(8.1)

6,383

(2.0)

63,296(13.9)

337,409

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

(6,127)—(345)–(462)–(57,720)

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

29,689

(6.7)

6,038

(1.9)

62,834(13.8)

279,689

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

9,836

(2.2)

4,167

(1.3)

32,825(7.2)

92,661

Net income ....................................... ¥ 19,848(4.5)¥ 1,866(0.6)¥ 30,009(6.6)$ 186,981

TOKYO ELECTRON LIMITEDFinancial Position and Cash Flowscent from a year earlier to ¥67.3 billion as ¥30.0 billion in bonds were transferred to current liabilities.

Financial Position
Current assets at March 31, 2000 increased 29.0

228.4

Working Capital& Current Ratio

195.1(¥ Billions / Times)

221.7

228.7

4.21

191.2

percent from a year earlier to ¥375.2 billion as both
expanded in reflection of the gain in sales. However,Working capital increased; thecurrent ratio decreased, but continued to signify excellent liquidity.

inventory turnover improved to 4.39 times compared■ Working capitaltrade notes and accounts receivable and inventories

with 3.33 times in the previous fiscal year. Trade notes

2.89
2.58
2.58

2.56

Current ratio

and accounts receivable turnover was 2.79 times, com1996 1997 1998 1999 2000

pared to 1.89 times for the prior fiscal year. Current liabilities more than doubled to ¥146.5 billion, mainly

Shareholders’ equity increased 6.2 percent to ¥273.6

because of increased short-term borrowings outstand-billion, due mainly to an increase in retained earnings.

ing at the balance sheet date and an increase in trade

As a percentage of total assets, shareholders’ equity

notes and accounts payable due to the ramp-up in pro-

was 54.8 percent, compared to 62.1 percent a year

duction to meet higher demand. Working capitalearlier. Return on average total shareholders’ equity

increased to ¥228.7 billion, while the current ratio

improved to 7.5 percent.

decreased to 2.6 to 1 from 4.2 to 1 a year earlier. The
current ratio decreased primarily because of an(%)

53.6

increase in current liabilities, but still signifies excellent
liquidity. Total assets increased 20.4 percent to ¥499.5
billion, mainly because of the rise in current assets coupled with an increase in fixed assets as capital projects

62.1

Shareholders’ Equity Ratio

Despite higher shareholders’equity, the equity ratio declined
in reflection of the increase incurrent assets resulting fromhigher sales.

45.2

52.9

54.8

came onstream.
Tokyo Electron reduced long-term debt 13.4 per1996 1997 1998 1999 2000

Millions of yen(percentage of total assets)

2000
Total assets ................................................................................. ¥499,499 (100.0)

Thousands of
U.S. dollars

1999

2000

¥414,903 (100.0)$4,705,596

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

175,153(35.0)

140,746(33.9)

1,650,052

Cash and time deposits..............................................................

79,519(15.9)

46,910(11.3)

749,119

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

112,481(22.5)

88,085(21.2)

1,059,642

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

25,522(5.1)

32,063(7.7)

240,433

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

97,726(19.6)

92,092(22.2)

920,641

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

225,862(45.2)

156,885(37.8)

2,127,763

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

62,574(12.5)

35,019(8.4)

589,487

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

23,998(4.8)

21,657(5.2)

226,076

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

11,843

(2.4)

1,488

(0.4)

111,569

Long-term debt ..........................................................................

67,278(13.5)

77,709(18.7)

633,801

Shareholders’ equity................................................................... ¥273,603(54.8)¥257,716(62.1)$2,577,513

TOKYO ELECTRON LIMITED21

The balance of convertible bonds outstanding at

Investing activities used net cash of ¥16.2 billion,

March 31, 2000 was ¥15.6 billion. The potential

down 33.5 percent from ¥24.3 billion in the prior fis-number of shares if all convertible bonds had been

cal year. Payment for purchase of property, plant andconverted at the balance sheet date represented

equipment amounted to ¥14.6 billion. Beginning in the2.8 percent of total common stock issued and out-year ended March 31, 2000, this item excludes theamount of Tokyo Electron’s own equipment capital-standing.

ized as fixed assets. Including this amount, capital
Shareholders’ Equity& ROE

261.0(¥ Billions / %)Return on equity improved to 7.5
percent due to increased earnings,
while shareholders’ equity increased 6.2 percent.

273.6
257.7

would have totaled ¥19.0 billion. Capital investments

207.5

were mainly directed toward equipment for evalua-

180.8

18.5

expenditures for property, plant and equipmenttion; Tokyo Electron made no major investments in
15.4

buildings or land during the past fiscal year. Tokyo

12.8
7.5

■ Shareholders’ equity

Electron reduced capital investment in response tothe downturn in the semiconductor industry during

Return on equity
0.7

1996 1997 1998 1999 2000

1998 and early 1999, but anticipates additional investment to expand capacity and ensure the continued
availability of innovative technology during the fiscal

Cash Flows

year ending March 2001.

Operating activities generated net cash of ¥25.1 billion, 49.6 percent below the ¥49.8 billion in net cash

Net Cash Flow
& Capital Expendituresgenerated in the prior fiscal year. Net cash flow,(¥ Billions)defined as the sum of net income and depreciation,

Net cash flow consistently outpaces capital expenditures, reflecting Tokyo Electron’s disciplined
approach to financial management.

increased 2 times to ¥39.3 billion, due to the increasein net income. Net changes in assets and liabilities,
however, tend to represent a use of cash during periods of revenue growth because Tokyo Electron gen-

42.7
38.7

40.1

39.3
33.3

25.6

23.5
18.5

19.8
14.6

■ Net cash flow
■ Capital expenditureserally incurs costs and expends cash in advance of1996 1997 1998 1999 2000

receiving cash from its customers. In the past fiscalyear, increases in trade notes and accounts receivableand in inventories were the primary factors reducing

Net cash generated by financing activities totaled¥23.6 billion; in the prior fiscal year, financing activities
used net cash of ¥48.2 billion. Tokyo Electron

net cash generated by operating activities.

increased short-term borrowings by ¥13.0 billion, andissued unsecured bonds of ¥20.0 billion.

Debt-to-Equity Ratio

Cash and cash equivalents at the end of the year(Times)

were ¥79.5 billion, a significant increase from ¥47.7

Strong cash flow allowed Tokyo
Electron to rely less on externalfunding for operations; consequently, the debt-to-equity ratio
improved to 0.42 times.

0.65

billion at the end of the prior fiscal year. Management
0.56

0.52
0.47

0.42

believes that Tokyo Electron’s positive cash flow,
manageable debt and strong working capital give theCompany the liquidity and financial base necessary tocontinue expanding internationally while meeting cus-

1996 1997 1998 1999 2000

tomer demand during the upward cycle of the semiconductor industry.

22TOKYO ELECTRON LIMITED