NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Tokyo Electron Limited and Subsidiaries

1. Basis of Presentation of Consolidated Financial Statements
The accompanying consolidated financial statements of Tokyo Electron
Limited (hereinafter “the Company”) and its subsidiaries (hereinafter collectively referred to as “Tokyo Electron”) have been prepared in accordance withthe provisions set forth in the Financial Instruments and Exchange Law ofJapan 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 of International Financial Reporting Standards.
Prior to the year ended March 31, 2009, the accounts of foreign subsidiaries
were based on their accounting records maintained in conformity with generally
accepted accounting principles prevailing in the respective countries of domicile.
As mentioned in note 3 (a), the Company adopted “Practical Solution on
Unification of Accounting Policies Applied to Foreign Subsidiaries for Consolidated Financial Statements” (Practical Issues Task Force No. 18 issued by the
Accounting Standards Board of Japan) effective from April 1, 2008. As a resultof this adoption, the Company uses financial statements prepared by foreignsubsidiaries in accordance with International Financial Reporting Standards or
the U.S. generally accepted accounting principles for its consolidation process, except 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, which is
not required for fair presentation, is not presented in the accompanying consolidated financial statements.
U.S. dollar amounts included herein are solely for the convenience of readers and are presented at the rate of ¥98.23 to $1.00, the approximate rate asof March 31, 2009. 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 32 and 30 subsidiaries for the years ended March 31, 2009 and2008, respectively.
Investments in affiliates in which the Company’s ownership is 20% to 50%
are accounted for by the equity method.
All significant inter-company accounts, transactions and unrealized profits orlosses have been eliminated in consolidation.
The fiscal year-end of all entities is March 31, except for 2 consolidated
foreign subsidiaries, which use a December 31 year-end, and adjustment ismade for any significant transactions between the different fiscal year-ends.

(b) Foreign currency translation
All assets and liabilities denominated in foreign currencies are translated into
Japanese yen at the year-end rates, except for those hedged by forward
exchange contracts, which are translated at the contracted rates.
Revenue and expense items are translated at the rates that approximate thoseprevailing 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 forshareholders’ 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 arepresented in net assets as a component of valuation and translation adjustments
and minority interests in the consolidated financial statements.
(c) Investment securities
Tokyo Electron examines the intent of holding each security and classify thosesecurities as trading securities, held-to-maturity debt securities or other securities. Tokyo Electron has no trading or held-to-maturity debt securities. Other
securities with market prices are valued at fair market value prevailing at thebalance sheet date. The differences between the book and market prices of othersecurities, net of applicable income taxes, are presented in net assets as a component of valuation and translation adjustments. Other securities without market
value are valued at cost using the weighted-average method.
The cost of sold securities is calculated using the weighted-average method.
(d) Inventories
As mentioned in note 3 (b), effective from April 1, 2008, the Company andits domestic subsidiaries adopted “Accounting Standard for Measurement of
Inventories” (Statement No. 9 issued by the Accounting Standards Boards ofJapan). Inventories other than raw materials are stated at the lower of cost,
determined by the specific identification method, or net realizable value, which
is defined as selling price less estimated additional manufacturing costs andestimated direct selling expenses, at March 31, 2009. Raw materials arestated at the lower of cost, determined principally by the moving-averagemethod, or net realizable value, which is defined as selling price less estimated additional manufacturing costs and estimated direct selling expenses,
at March 31, 2009. For the year ended March 31, 2008, inventories otherthan raw materials are stated principally at cost, which is determined principally by the specific identification method, and raw materials are stated principally at cost, which is determined principally by the moving-average method.
(e) Property, plant and equipment
Property, plant and equipment are stated at cost. Depreciation of buildings,
machinery and equipment of the Company and its domestic subsidiaries is computed under the declining balance method, except for buildings acquired subsequent to March 31, 1998 which are depreciated under the straight-line method,
based on the estimated useful 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

Annual Report 09 Tokyo Electron Limited37

(f) Intangible assets
Intangible assets, which primarily comprise of capitalized costs for computer
software and goodwill, are amortized by the straight-line method over theirestimated useful lives. Capitalized costs for computer software for internal use
are amortized over a period of 2 to 5 years. Goodwill is evaluated on an individual basis and amortized over a period not exceeding 20 years.
(g) Impairment of fixed assets
Tokyo Electron evaluates the carrying value of fixed assets to be 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 isbased on the total amount of discounted cash flows estimated to be generated
from the continuing use of the individual assets or the asset group and thedisposal of the assets, respectively.
(h) Allowance for doubtful accounts
The allowance for doubtful accounts is provided at an amount determinedbased on the historical experience of bad debts with respect to ordinary
receivables, and an estimate of uncollectible amounts determined by reference to specific doubtful receivables from customers which are experiencing
financial difficulties.
(i) Accrued pension and severance costs
The Company and its domestic subsidiaries provide an accrual for defined
benefit employees’ pension and severance costs based on the projected benefit
obligation and fair value of pension assets on the account settlement date. Prior
service costs are charged to income on a straight-line basis, beginning from thefiscal year in which they are incurred, over a fixed number of years (4 years)
within the average remaining years of service of employees when the changes
occur. Actuarial differences are charged to income on a straight-line basis,beginning from the fiscal year after they are recognized, over a fixed number ofyears (4 years) within the average remaining years of service of employees
when the differences occur.
The provision for accrued pension and severance costs for directors andstatutory auditors of the Company and its domestic subsidiaries is calculated inaccordance with internal regulations.
The Company and certain domestic subsidiaries decided to discontinue thepayment of severance pay for directors and statutory auditors after April 1,
2005, and at the general shareholders’ meeting in June 2005, it was resolvedthat the severance pay for directors and statutory auditors until March 31,
2005 would be paid at the termination of their service and the decision regarding the payment amount for each director and statutory auditor was delegatedto the board of directors and statutory auditors. As discussed in note 9, theaccruals for severance costs for directors and statutory auditors are includedin accrued pension and severance costs in the consolidated balance sheets.
( j) Accrued warranty expenses
Tokyo Electron’s products are generally subject to warranty, and Tokyo Electron
accrues such estimated costs when product revenue is recognized. To prepare
for future repairs during warranty periods, estimated after-sale repair expenses
over warranty periods are accrued based on the historical ratio of actual repair
expenses to corresponding sales.

38

Tokyo Electron Limited

Annual Report 09(k) Leases
Until the year ended March 31, 2008, noncancelable leases of the Company
and its domestic subsidiaries had been primarily accounted for as operatingleases (whether such leases were classified as operating or finance leases),
except for leases that transfer ownership to the lessee at the end of the lease,which had been accounted for as finance leases.
As mentioned in note 3 (c), effective from the year ended March 31, 2009,
the Company and its domestic consolidated subsidiaries adopted “AccountingStandard for Lease Transactions” (Statement No. 13 issued by the AccountingStandards Board of Japan) and “Guidance on Accounting Standard for Lease
Transactions” (Guidance No. 16 issued by the Accounting Standards Board ofJapan). As a result, the Company and its domestic subsidiaries capitalized
leased assets under finance lease commenced after March 31, 2008, and suchlease assets are depreciated using the straight-line method over the period oflease contract with zero residual value.
(l) Derivatives and hedge accounting
The Company and a domestic subsidiary make use of derivatives in order tomanage certain risks arising from adverse fluctuations in foreign currency
exchange rates. The amount of derivatives is limited to the extent of foreign
currency assets, liabilities and actual orders, and the Company and the domestic
subsidiary do not trade in derivatives for speculative purposes.
Derivatives are carried at fair value with changes in unrealized gain or loss
charged or credited to income, except for those which meet the criteria forhedge accounting. Unrealized gains or losses on hedging derivatives, net oftaxes, are reported in net assets as a component of valuation and translation
adjustments. Receivables and payables hedged by qualified forward foreignexchange contracts are translated at the corresponding foreign exchange
contract rates.
(m) Income taxes
Tokyo Electron records deferred tax assets and liabilities on temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, which aremeasured using the enacted tax rates and laws which will be in effect when the
differences are expected to reverse.
(n) Revenue recognition
Revenue from Semiconductor and FPD (Flat Panel Display) / PV (Photovoltaiccell) 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 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.
(o) Per share information
Net income per share and net assets per share are computed based on theweighted-average number of shares of common stock outstanding during
each year.
Dividends per share has been presented on an accrual basis and include, ineach fiscal year ended March 31, dividends approved or to be approved after
March 31 but applicable to the year then ended.

(p) Research and development expenses
Research and development expenses are charged to income as incurred andamounted to ¥60,988 million ($620,869 thousand) and ¥66,073 million for theyears ended March 31, 2009 and 2008, respectively.
(q) Cash equivalents
For purposes of the consolidated statements of cash flows, Tokyo Electron
considers all highly-liquid instruments purchased with original maturities ofthree months or less to be cash equivalents.
(r) 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, 2009.

4. Investment Securities
Investment securities, which solely comprise of other securities, as of March
31, 2009 and 2008 are as follows:
Millions of yen
2009:

Cost

Carrying value

Securities with market prices Equity securities �������������������������������������������������� ¥   8,790¥ 7,363

100

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

764

754

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

914

914

Total������������������������������������������������������������������������ ¥ 10,568¥ 9,131 Other��������������������������������������������������������������������
Securities without market prices

Millions of yen

3. Changes in Accounting Policies(a) Accounting policies applied to foreign subsidiaries
Effective from April 1, 2008, the Company adopted “Practical Solution on
Unification of Accounting Policies Applied to Foreign Subsidiaries for Consolidated Financial Statements” (Practical Issues Task Force No. 18 issued by the
Accounting Standards Board of Japan). The change had no significant impact on
the consolidated financial statements.
(b) Accounting standard for measurement of inventories
Effective from April 1, 2008, the Company and its domestic subsidiaries
adopted “Accounting Standard for Measurement of Inventories” (Statement No.
9 issued by the Accounting Standards Board of Japan). The change had no
significant impact on the consolidated financial statements.
(c) Accounting standard for lease
Effective from the year ended March 31, 2009, the Company and its domestic consolidated subsidiaries adopted “Accounting Standard for Lease Transactions” (Statement No. 13 issued by the Accounting Standards Board of Japan)and “Guidance on Accounting Standard for Lease Transactions” (Guidance No.
16 issued by the Accounting Standards Board of Japan). The change had no
significant impact on the consolidated financial statements.
(d) Accounting policy for depreciation method
Effective from the year ended March 31, 2008, the Company and its domestic
subsidiaries changed their depreciation method for tangible fixed assets acquiredon or after April 1, 2007 in accordance with the revision of Japanese Corporate
Tax Law (Partial Revision of Income Tax Law, Law No. 6 of March 30, 2007;
Partial Revision of Income Tax Law Enforcement Ordinance, Cabinet Order No.
83 of March 30, 2007). As a result of this change, operating income andincome before income taxes and minority interests for the year ended March 31,
2008 decreased by ¥1,429 million, compared with the corresponding amounts
that would have been recorded under the previous accounting method.

2008:

Cost

Carrying value

Securities with market prices Equity securities �������������������������������������������������� ¥    4,504 Other ������������������������������������������������������������������

¥   8,139

100

101

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

579

579

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

18

18

Total�������������������������������������������������������������������������� ¥    5,201¥   8,837

Securities without market prices

Thousands of U.S. dollars
2009:

Cost

Carrying value

Securities with market prices Equity securities �������������������������������������������������� $ 89,484$74,957

1,018

1,018

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

7,777

7,676

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

9,305

9,305

Total������������������������������������������������������������������������ $107,584$92,956 Other��������������������������������������������������������������������
Securities without market prices

Loss on devaluation of investment securities with market prices for the year
ended March 31, 2009 was ¥2,013 million ($20,493 thousand). No loss ondevaluation of investment securities with market prices was recognized for theyear ended March 31, 2008.
No gain on sale of investment securities was recognized for the year ended
March 31, 2009. Gross realized gains on sale of investment securities were ¥135
million for the year ended March 31, 2008.

Annual Report 09 Tokyo Electron Limited39

5. Inventories

9. Accrued Pension and Severance Costs

Inventories as of March 31, 2009 and 2008 are as follows:
Thousands of
U.S. dollars

Millions of yen
2009

Finished products���������������������������� ¥ 88,417
Work in process, raw materials
and supplies����������������������������������

2008

2009

¥ 97,722$  900,102

45,82563,430466,507

Total������������������������������������������������ ¥134,242¥161,152$1,366,609

The amount of change in inventory provision included in cost of sales in
consolidated statement of income for the year ended March 31, 2009 was¥6,398 million ($65,133 thousand). No significant amount of change in inventory provision was recognized for the year ended March 31, 2008.

6. Impairment of Property, Plant and Equipment
For assessing fixed asset impairment, the Company generally groups fixed
assets used for normal operations at a business unit level for which profits arereasonably controllable. Also, the Company assesses the recoverability of individual assets not used in normal operations or that are idle.
During the year ended March 31, 2008, the Company determined to close
certain domestic manufacturing facilities and impairment losses were recognized mainly for buildings of ¥808 million. These charges were presented inother income (expenses) in the consolidated statement of income for the year
ended March 31, 2008.
No impairment of property, plant and equipment was recognized for the year
ended March 31, 2009.

2009

Benefit obligation �������������������������������������� ¥(79,141)
Fair value of plan assets ����������������������������

Thousands of
U.S. dollars

34,298343,999(40,435)(461,671)
30,815

Unrecognized actuarial difference��������������

3,027

618

Unrecognized prior service cost������������������

226

1,114

2,301

Net amount recognized������������������������������ (42,097)(38,703)(428,555)

5,001

50,392

4,950

Accrued pension and   severance costs (Note 2)���������������������� (47,047)(43,704)(478,947)

Net amount recognized������������������������������ ¥(42,097)¥(38,703)$(428,555)

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

Millions of yen

0.72% unsecured bonds due 2008 . . 

¥       –

¥ 30,000$        –

2009

2008

2009

Current portion������������������������������������

–(30,000)–

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

¥5,217¥5,198$53,110

Total���������������������������������������������������� ¥       –¥      –

$        –Interest cost ��������������������������������������������

1,483

1,375

15,097

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

(686)

(616)

(6,984)

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

(628)

(629)

(6,392)

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

888

950

9,040

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

¥6,274¥6,278$63,871

As of March 31, 2009, Tokyo Electron has unused lines of credit amounting
to ¥135,329 million ($1,377,675 thousand).

40

33,791

Notes: 1.The prepaid pension and severance costs as of March 31, 2009 and 2008 is included inother assets in the consolidated balance sheets.
2.The provision for accrued pension and severance costs for directors and statutory auditors(¥640 million ($6,515 thousand) as of March 31, 2009 and ¥666 million as of March 31,2008) is not included.

Short-term borrowings represent 365-day notes issued by Tokyo Electron tobanks and bore interest at an average annual rate of 0.80% and 1.26% as ofMarch 31, 2009 and 2008, respectively.
Long-term debt as of March 31, 2009 and 2008 is as follows:

2009

2009

$(805,670)

Funded status ������������������������������������������ (45,350) Prepaid pension and   severance costs (Note 1)����������������������

8. Short-term Borrowings and Long-term Debt

2008

2008

¥(74,733)

Amounts recognized in the consolidatedbalance sheets consist of:Tokyo Electron did not hold any assets pledged as collateral as of March 31,
2009 and 2008.

2009

Thousands of
U.S. dollars

Millions of yen

7. Pledged Assets

Millions of yen

The Company and its domestic subsidiaries have defined benefit plans (cashbalance plan and noncontributory retirement and severance benefit plans) covering substantially all their employees who meet eligibility requirements. The benefits
under the plans are based on length of service and certain other factors.
The cash balance plan provides for pension or lump-sum payment benefits toemployees who retire or terminate their employment for reasons other than dismissal for cause. Under the cash balance plan, each participant has an accountwhich is credited yearly based on the current rate of pay and market-related
interest rate. The noncontributory plans provide for lump-sum payment benefits toemployees who retire or terminate their employment for reasons other than dismissal for cause. Certain foreign subsidiaries have noncontributory retirement andseverance benefit plans that provide for pension or lump-sum payment benefits toemployees who retire or terminate their employment for reasons other than dismissal for cause.
The funded status of the defined benefit plans, a substantial portion of which
consists of domestic benefit plans, as of March 31, 2009 and 2008 is as follows:

Tokyo Electron Limited

Annual Report 09

Significant assumptions of domestic pension plans used to determine theabove amounts are as follows:

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

2009 and 2008

Allocation method of benefit obligation ���������������������������������� Straight-line method
2.00%

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

2.00%

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

4 years

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

4 years

10. Income Taxes
Significant components of the deferred tax assets and liabilities of Tokyo
Electron as of March 31, 2009 and 2008 are as follows:
Thousands of
U.S. dollars

Millions of yen
2009

2008

2009

¥17,529$ 191,703

Deferred tax assets
Accrued pension and severance costs . . . . . .  ¥ 18,831
Net operating loss carryforwards . . . . . . . . 

14,515

1,564

147,765

Tax credit for research and development . . 

6,619

–

67,384

Devaluation of inventories . . . . . . . . . . . . . . 

5,707

3,158

58,098The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the period in which those temporary differences become deductible. For assessment of the realizability of deferred tax
assets, management considers the scheduled reversal of deferred tax liabilities,
future estimated taxable 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 deferred tax assets are deductible, management believes Tokyo Electron will realize the benefits of these deferred tax
assets, net of valuation allowance, as of March 31, 2009 and 2008.
The Company is subject to a corporate tax, an inhabitants’ tax and a deductible enterprise tax, which in the aggregate resulted in a statutory income tax rateof approximately 40.69% for the years ended March 31, 2009 and 2008.
Significant components of the difference between the statutory and effective
tax rates for the years ended March 31, 2009 and 2008 are as follows:

Accrued employees’ bonuses . . . . . . . . . . . 

2,004

5,116

20,401Elimination of unrealized profit
in inventories . . . . . . . . . . . . . . . . . . . . . . . . 

1,980

9,018

20,158

Statutory tax rate in Japan  . . . . . . . . . . . . . . . . . . . . . .

Accrued warranty expenses . . . . . . . . . . . . .

1,922

3,146

19,566

Adjustments:

Allowance for doubtful accounts . . . . . . . . . 

1,461

–

14,873

Accrued business taxes . . . . . . . . . . . . . . . . 

–

2,418

–

0ther . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

6,751

5,995

68,726

Total gross deferred tax assets . . . . . . . . . . 

59,79047,944

608,674

Less valuation allowance . . . . . . . . . . . . . . . 

(10,472)(2,116)(106,607)

Total deferred tax assets . . . . . . . . . . . . . . . 

49,31845,828502,067

Deferred tax liabilities
Undistributed earnings offoreign subsidiaries . . . . . . . . . . . . . . . . . . . . 

(2,624)(4,026)(26,713)

Receivables for business taxes . . . . . . . . . . 

(2,025)–(20,615)

Prepaid pension and severance costs . . . . 

(1,972)(2,005)(20,075)

Reserves under Special Taxation(358)(1,003)Net unrealized gain on
investment securities . . . . . . . . . . . . . . . . . . 

Measures Law . . . . . . . . . . . . . . . . . . . . . . . 

–(1,470)–

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

(1,162)(1,475)(11,829)

Total gross deferred tax liabilities . . . . . . . . 

(8,141)(9,979)(82,877)

Net deferred tax assets . . . . . . . . . . . . . . . .  ¥ 41,177¥35,849$ 419,190(3,645)

2009

2008

40.69%

40.69%

Loss on investment in a subsidiary deductible fortax purposes  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(67.56)–

Effect for elimination of unrealized profit in inventories  .

34.77

–

Change in valuation allowance  . . . . . . . . . . . . . . . . . . .

24.07

0.17

Increase (decrease) in deferred tax liabilities on
undistributed earnings of foreign subsidiaries  . . . . . . .

(14.54)0.30

Difference in statutory tax rates ofsubsidiaries  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(10.04)(1.06)

Dividends from foreign subsidiaries  . . . . . . . . . . . . . . .

6.56

0.76

Expenses not deductible for tax purposes  . . . . . . . . . . .

4.30

0.54

Amortization of goodwill  . . . . . . . . . . . . . . . . . . . . . . . .

1.02

0.38

Tax credits for research and development costs, etc.  . .

–(5.33)

Loss on impairment of goodwill  . . . . . . . . . . . . . . . . . . .

–

0.98

Others, net  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(0.69)(0.82)

Effective tax rate  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

18.58%

36.61%

Annual Report 09 Tokyo Electron Limited

41

11. Net Assets
Net assets comprises four subsections, which are shareholders’ equity, valuation and translation adjustments, share subscription rights and minority interests.
Under Japanese laws and regulations, the entire amount paid for new shares isrequired to be designated as common stock. However, a company may, by aresolution of the board of directors, designate an amount not exceeding one-halfof the price of the new shares as additional paid-in capital which is included incapital surplus.
In cases where dividend distribution of surplus is made, the lesser of anamount equal to 10% of the dividend or the excess, if any, of 25% 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 toeliminate 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 othercapital surplus and retained earnings, respectively, which are potentially available
for dividends.
The maximum amount that the Company can distribute as dividends is calculated based on the non-consolidated financial statements of the Company inaccordance with Japanese laws and regulations.
At the general shareholders’ meeting on June 23, 2006, in accordance with theJapanese laws and regulations, the Company altered its articles to allow for the
distribution of earnings to shareholders on dates, other than the mid-term andyear-end by a resolution of the board of directors.
At the board of directors’ meeting held on May 14, 2009, the distribution of
cash dividends amounting to ¥715 million ($7,279 thousand) was resolved. Suchappropriations have not been accrued in the consolidated financial statements asof March 31, 2009 since they are recognized in the period in which they are
resolved at the board of directors’ meeting.

12. Share Subscription Rights
Tokyo Electron has two types of stock-based compensation plans as incentive
plans for directors and selected employees. The stock-based compensationplans include stock options (“Stock option plan”) and bonds with detachable
warrants (“Warrant plan”).

42

Tokyo Electron Limited

Annual Report 09

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
cumulative number of outstanding shares authorized up to the year ended
March 31, 2007 totaled 2,158,500, with a weighted-average exercise price of¥7,218. Options to purchase 100,400 shares of the Company were authorized
and granted at an exercise price of ¥1 for the year ended March 31, 2008.
Options to purchase 177,900 shares of the Company were authorized andgranted at an exercise price of ¥1 for the year ended March 31, 2009. The
options under the plans vest immediately with restriction on exercise up to 2 or
3 years after the date of grant, and have an exercise period of 8 to 20 years
from the date of grant.
Shareholders of Tokyo Electron Device Limited (“TED”), a domestic listed
subsidiary, have approved annual stock option plans for directors and selected
employees since the year ended March 31, 2005. As of April 1, 2007 andMarch 31, 2009, there were outstanding granted stock options for 650 shareswith a weighted-average exercise price of ¥308,698 ($3,142.60).
Warrant plan
In June 2001, the Company issued unsecured bond with detachable
warrants. Upon issuance of the unsecured bond with detachable warrants,
the Company purchased all of the detachable warrants and distributed themto directors and selected employees.
The warrants vested immediately with restriction on exercise up to 2 years
after the date of grant, and had an exercise period of 6 years from the date of
grant. For financial reporting purposes, these transactions were accounted foras an issuance of debt to third parties and separately as the issuance of
warrants to directors and selected employees.
By exercising the warrants, directors and selected employees could purchase the common stock of the Company, which amounted to 572,439
shares at an exercise price of ¥9,608 for warrants issued in June 2001, whichwere forfeited and a gain of ¥467 million recognized for the year ended
March 31, 2008.
As of April 1, 2007, there were outstanding granted stock options, including warrants, to purchase 2,581,477 shares of the Company, with a weightedaverage exercise price of ¥7,609. For the year ended March 31, 2008,
options to purchase 486,277 shares were forfeited and options to purchase139,100 shares were exercised. For the year ended March 31, 2009, options
to purchase 137,600 shares were forfeited and options to purchase 44,500
shares were exercised. As of March 31, 2009, there were outstanding granted
stock options to purchase 2,052,300 shares with a weighted-average exercise
price of ¥5,927 ($60.34).

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

Millions of yen

subsidiary are exposed to credit risk in the event of nonperformance by thecounterparties to the derivative transactions, but any such risk is considered to
be immaterial because the Company and the domestic subsidiary only enter intotransactions with financial institutions with high credit ratings. Execution andmanagement of all derivative transactions are conducted pursuant to the internalmanagement rule for derivatives by the finance division and the effectiveness ofderivative transactions is reported on a semiannual basis to the board of directors.
Since the estimated fair value of the derivative financial instruments as ofMarch 31, 2009 is not significant, the disclosure of the fair value of derivatives
not classified as hedges is omitted without hedges. The estimated fair value ofthe derivative financial instruments as of March 31, 2008 was as follows:
Millions of yen
2008:

Contract
amountFair value

Unrealized
gains (losses)

2009

2008

2009

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

¥7,239¥6,847¥392

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

¥1,040¥1,089$10,587

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

409

386

(23)

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

457

303

4,652

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

¥  583¥  786$ 5,935

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

Millions of yen

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

2009

2008

2009

¥  168¥  189$ 1,710Due over one year��������������������������������

415

597

4,225

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

¥  583¥  786$ 5,935

Lease payments relating to finance leases accounted for as operating leases
amounted to ¥175 million ($1,782 thousand) and ¥156 million, which approximated the corresponding depreciation on the respective leased property computed by the straight-line method over the lease terms for the years ended
March 31, 2009 and 2008, respectively.
Future minimum lease payments on non-cancelable operating leases:
Thousands of
U.S. dollars

Millions of yen

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

2009

2008

2009

¥1,673¥  661$17,031

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

841

628

8,562

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

¥2,514¥1,289$25,593

The contract amounts of the forward foreign exchange contracts presented
above exclude those entered into to hedge receivables and payables denominated in foreign currencies which have been translated and are reflected at theircorresponding contracted rates in the accompanying consolidated balance
sheets. In addition, the disclosure of the fair value of derivatives, which areaccounted for as hedges is omitted as of March 31, 2009 and 2008.

15. Other Income (Expenses)
Provision of allowance for doubtful accounts of ¥7,361 million ($74,936
thousand) for the year ended March 31, 2009 consists of estimated uncollectible amounts for specific doubtful receivables.
Loss on devaluation of investment securities of ¥2,432 million ($24,758
thousand) for the year ended March 31, 2009 mainly consists of devaluation of
securities of listed companies due to decline of the stock market price.
The Company recognized goodwill generated from the acquisition of Timbre
Technologies, Inc. (“TTI”) during the year ended March 31, 2001 and thisgoodwill was being amortized over 10 years. During the year ended March 31,
2008, the Company recognized loss on impairment of goodwill in the amount of¥4,072 million based on the revision to the future plan for TTI’s business.
Gain on sale of property, plant and equipment of ¥2,365 million for the year
ended March 31, 2008 mainly consists of gains on sale of land and buildings offoreign subsidiaries.

14. Derivative Financial Instruments
The Company and a domestic subsidiary enter into forward foreign exchange
contracts in order to hedge risks of adverse fluctuations in foreign currency
exchange rates associated with export-import transactions, but do not enter intosuch transactions for speculative purposes. The Company and the domestic

Annual Report 09 Tokyo Electron Limited

43

16. Segment Information
Business segment information as of and for the years ended March 31, 2009 and 2008 is as follows:
Millions of yen
Industrial
electronicequipment

2009:Electronic
components
and computer
networks

Eliminations
andcorporate

Total

Consolidated

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

¥413,875¥94,207¥508,082¥     –

(2) Intersegment sales or transfers �������������������������������������������������������������������������������

942

495

1,437

(1,437)–

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

414,817
401,974

94,702
92,861

509,519494,835(1,437)(1,464)

508,082
493,371

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

¥ 12,843¥ 1,841¥ 14,684¥    27¥ 14,711

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

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

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

22,860473

23,333–23,333

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

19,468698

20,166–

20,166¥508,082

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

Millions of yen
Industrial
electronicequipment

2008:

Electronic
components
and computer
networks

Eliminations
andcorporate

Total

Consolidated

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

¥794,911¥111,181¥906,092¥     –

(2) Intersegment sales or transfers �������������������������������������������������������������������������������

1,117

948

2,065

(2,065)–

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

796,028
631,220

112,129
108,470908,157
739,690(2,065)(2,096)

906,092
737,594

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

¥164,808¥   3,659¥168,467¥    31¥168,498

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

¥744,280¥ 51,459¥795,739¥(2,921)¥792,818

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

22,649365

23,014–23,014

Loss on impairment of goodwill�������������������������������������������������������������������������������������

4,072

–

4,072

–

4,072

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

808

–

808

–

808

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

26,924924

27,848–27,848¥906,092

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

44

Tokyo Electron Limited

Annual Report 09

Thousands of U.S. dollars
Industrial
electronicequipment

2009:Electronic
components
and computer
networks

Total

Eliminations
andcorporate

Consolidated

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

$4,213,326$959,045$5,172,371$       –

(2) Intersegment sales or transfers �������������������������������������������������������������������������������

9,590

5,039

14,629(14,629)–

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

4,222,916
4,092,171964,084
945,343

5,187,000
5,037,514(14,629)(14,904)

5,172,371
5,022,610

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

$  130,745$ 18,741$  149,486$    275$  149,761

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

$6,424,331$414,130$6,838,461$(27,935)$6,810,526

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

232,719

4,815

237,534–

237,534

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

198,1887,106

205,294–

205,294$5,172,371

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

Notes:1. Method of classifying business segments: Business segments are classified after considering similarities in types of products and service, as well as sales methods.
2. Major products in each business segment:
Business segment
Industrial electronic equipment
Electronic components and computer networks

Major products
Semiconductor production equipment, FPD production equipment, PV production equipment and others
Semiconductor products, boards, electronic components, computer networks and software

3. Depreciation expenses and capital expenditures include those for long-term prepaid expenses.
4. Changes in accounting policies(1)Accounting standard for measurement of inventories
Effective from April 1, 2008, the Company and its domestic subsidiaries adopted “Accounting Standard for Measurement of Inventories” (Statement No. 9 issued by the Accounting Standards
Board of Japan). The change had no significant impact on the consolidated financial statements and segment information.
(2)Accounting standard for lease transaction
Effective from the year ended March 31, 2009, the Company and its domestic subsidiaries adopted “Accounting Standard for Lease Transactions” (Statement No. 13 issued by the AccountingStandards Board of Japan) and “Guidance on Accounting Standard for Lease Transactions” (Guidance No. 16 issued by the Accounting Standards Board of Japan). The change had no significant
impact on the consolidated financial statements and segment information.
(3)Accounting policies applied to foreign subsidiaries
Effective from April 1, 2008, the Company adopted “Practical Solution on Unification of Accounting Policies Applied to Foreign Subsidiaries for Consolidated Financial Statements” (Practical
Issues Task Force No. 18 issued by the Accounting Standards Board of Japan). The change had no significant impact on the consolidated financial statements and segment information.
(4)Accounting policy for depreciation method
Effective from the year ended March 31, 2008, the Company and its domestic subsidiaries changed their depreciation method for tangible fixed assets acquired on or after April 1, 2007 inaccordance with the revision of Japanese Corporate Tax Law (Partial Revision of Income Tax Law, Law No. 6 of March 30, 2007; Partial Revision of Income Tax Law Enforcement Ordinance,
Cabinet Order No. 83 of March 30, 2007). The effect of change increased operating expenses and decreased operating income for the industrial electronic equipment segment and the electronic
components and computer networks segment by ¥1,412 million and ¥17 million, respectively, for the year ended March 31, 2008, compared with the corresponding amounts that would havebeen recorded under the previous accounting method.

Geographical segment information as of and for the years ended March 31, 2009 and 2008 are as follows:
Millions of yen

2009:

Japan

Other regions

Total

Eliminations
andcorporate

Consolidated

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

¥435,434¥ 72,648¥  508,082¥       –

(2) Intersegment sales or transfers ������������������������������������������������������������������������������

47,183

41,40388,586(88,586)–

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

482,617475,295

114,051
108,975

596,668
584,270(88,586)(90,899)

508,082
493,371

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

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

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

¥638,047¥ 67,154¥  705,201¥ (36,203)¥668,998¥508,082

Millions of yen

2008:

Japan

Other regions

Total

Eliminations
andcorporate

Consolidated

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

¥ 806,193¥ 99,899¥ 906,092¥       –

(2) Intersegment sales or transfers ������������������������������������������������������������������������������

71,96054,186

126,146(126,146)–

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

878,153
718,193

154,085
142,760

1,032,238
860,953(126,146)(123,359)

906,092
737,594

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

¥ 159,960¥ 11,325¥ 171,285¥   (2,787)¥ 168,498

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

¥ 752,739¥ 80,363¥ 833,102¥ (40,284)¥ 792,818¥ 906,092

Annual Report 09 Tokyo Electron Limited

45

Thousands of U.S. dollars

Japan

Other regions

Total

Eliminations
andcorporate(1) Sales to external customers������������������������������������������������������������������������������������

$4,432,801$  739,570$5,172,371$        –(2) Intersegment sales or transfers ������������������������������������������������������������������������������

480,332

421,490901,822(901,822)–

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

4,913,133
4,838,593

1,161,060
1,109,386

6,074,193
5,947,979(901,822)(925,369)

5,172,371
5,022,610

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

$   74,540$     51,674$   126,214$    23,547$   149,761

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

$6,495,439$  683,640$7,179,079$(368,553)$6,810,526

2009:

Consolidated$5,172,371

1. Net sales and operating income
Net sales

Notes: 1. For the reporting of geographical segment information, net sales and operating income are separated based on the location of the Company and its subsidiaries. Assets are separated by geographic location.
2. Other regions comprises primarily the United States of America, Europe and Taiwan.
3. Changes in accounting policies(1)Accounting standard for measurement of inventories
Effective from April 1, 2008, the Company and its domestic subsidiaries adopted “Accounting Standard for Measurement of Inventories” (Statement No. 9 issued by the Accounting Standards
Board of Japan). The change had no significant impact on the consolidated financial statements and segment information.
(2)Accounting standard for lease transaction
Effective from the year ended March 31, 2009, the Company and its domestic subsidiaries adopted “Accounting Standard for Lease Transactions” (Statement No. 13 issued by the AccountingStandards Board of Japan) and “Guidance on Accounting Standard for Lease Transactions” (Guidance No. 16 issued by the Accounting Standards Board of Japan). The change had no significant
impact on the consolidated financial statements and segment information.
(3)Accounting policies applied to foreign subsidiaries
Effective from April 1, 2008, the Company adopted “Practical Solution on Unification of Accounting Policies Applied to Foreign Subsidiaries for Consolidated Financial Statements” (Practical
Issues Task Force No. 18 issued by the Accounting Standards Board of Japan). The change had no significant impact on the consolidated financial statements and segment information.
(4)Accounting policy for depreciation method
Effective from the year ended March 31, 2008, the Company and its domestic subsidiaries changed their depreciation method for tangible fixed assets acquired on or after April 1, 2007 inaccordance with the revision of Japanese Corporate Tax Law (Partial Revision of Income Tax Law, Law No. 6 of March 30, 2007; Partial Revision of Income Tax Law Enforcement Ordinance,
Cabinet Order No. 83 of March 30, 2007). The effect of change increased operating expenses and decreased operating income for the Japan segment by ¥1,429 million, for the year ended
March 31, 2008, compared with the corresponding amounts that would have been recorded under the previous accounting method.

Domestic and overseas net sales by destination for the years ended March
31, 2009 and 2008 are as follows:
Millions of yen

Net sales

2009

Japan������������������������������������������������� ¥208,871
Taiwan �����������������������������������������������
80,327

Thousands of
U.S. dollars

2008

2009

¥323,946$2,126,346

272,221817,744

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

72,507

90,940738,135

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

65,537

108,760

667,179

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

80,840110,225

822,967

Total����������������������������������������������������� ¥508,082¥906,092$5,172,371

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

46

Tokyo Electron Limited

Annual Report 09