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.

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

es and growing demand for data center servers. Capital investment 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

Consolidated Statements
Statements ofof Operations
Operations
Consolidated

Consolidated Statements of Cash Flows

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

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 Statements
Statements ofof Operations
Operations
Consolidated

Consolidated Statements of Cash Flows

Corporate Data

Financial Section

Consolidated
Consolidated Statements
Statements ofof Comprehensive
Comprehensive Income
IncomeNotes 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.

Cash used in financing activities came to ¥0.2 billion, comparedwith ¥10.6 billion in fiscal 2013. Major inflows included a ¥7.6 billion increase in short-term borrowings and a ¥2.0 billion increase in

Depreciation and amortization decreased 6.5% to ¥24.9 billion.

Total liabilities (current liabilities and non-current liabilities), stood at

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