TOKYO ELECTRON

Apr 26, 2016

Consolidated Financial Review
for the Year Ended March 31, 2016
Company name:
URL:
Telephone number:
Stock exchange listing:Tokyo Electron Limited
http://www.tel.com(03) 5561-7000
Tokyo Stock Exchange 1st Section (Code 8035)

Notes: 1. The accompanying financial statements have been prepared in accordance with accounting
principles and practices generally accepted in Japan.
2. Amounts are rounded down to the nearest million yen.

1.

Consolidated financial highlights for the year ended March 31, 2016

(1)

Operating results
Year ended
March 31, 2015

March 31, 2016

Net sales (Millions of yen)

613,124

663,948

Operating income (Millions of yen)

88,113

116,788

Ordinary income (Millions of yen)

92,949119,399

Net income attributable to owners of parent (Millions of yen)

71,88877,891

Net income per share (Yen)

401.08461.10Fully diluted net income per share (Yen)

400.15460.00Return on equity (%)

11.8

13.0

Ordinary income to total assets (%)

10.9

14.3

14.4

17.6

Operating income to net sales (%)
Comprehensive income:Year ended March 31, 2016:
Year ended March 31, 2015:
Profit/loss on equity method: Year ended March 31, 2016:
Year ended March 31, 2015:(2)

60,984 million yen
80,295 million yen
325 million yen
250 million yen

Financial position
As ofMarch 31, 2015

March 31, 2016

Total assets (Millions of yen)

876,153

793,367

Net assets (Millions of yen)

641,162564,239

73.0

70.9

3,567.23

3,428.37

Equity ratio (%)
Net assets per share (Yen)
Equity:(3)562,369 million yen (as of March 31, 2016)
639,483 million yen (as of March 31, 2015)

Cash flow(Millions of yen)
Year ended
March 31, 2015

March 31, 2016

Cash flow from operating activities

71,806

69,398Cash flow from investing activities

155,737(150,013)

Cash flow from financing activities(18,213)(138,600)

Cash and cash equivalents at end of period

317,632

95,6381

TOKYO ELECTRON
2.

Dividends
Year ended
March 31, 2015

March 31, 2016

1Q-end dividend per share (Yen)

10.00

-

2Q-end dividend per share (Yen)

30.00

125.003Q-end dividend per share (Yen)

35.00

-

Year-end dividend per share (Yen)

68.00

112.00

Annual dividend per share (Yen)

143.00237.00Total dividend (Millions of yen)

25,63339,194

Payout ratio (%)

35.7

51.4

Dividend on equity (%)

4.2

6.8

Note: Regarding the year-end dividend forecast for the fiscal year ended March 31, 2016, please refer to the press release“Announcement on Dividends Forecast Revision for the Fiscal Year Ended March 31, 2016” published today.
The dividend forecast for the fiscal year ending March 31, 2017, has yet to be determined as our financial forecast is currently
being assessed. We expect to announce the dividend forecast on May 12, 2016 along with the announcement of our financial
forecast.
3.

Financial forecasts for the fiscal year ending March 31, 2017

Until the impact of the Kumamoto earthquake on the Group’s consolidated results for the fiscal year ending March 31, 2017 can beevaluated, we will not be providing the consolidated financial forecasts at this time. We plan to make an announcement regarding
the matter on May 12, 2016.
4.

Others(1)

Important changes in subsidiaries (Changes on specific subsidiaries with changes in scope of consolidation): None

(2)

Changes in accounting principles, accounting estimation and restatement
1. Changes in accounting policies along with changes in accounting standards: Yes
2. Other changes of accounting policies besides number 1 above: None
3. Changes in accounting estimation: None
4. Restatement: None(3)

Number of shares issued and outstanding (common stock)
1. Number of shares issued and outstanding (including treasury stock)
As of March 31, 2016: 165,210,911 shares
As of March 31, 2015: 180,610,911 shares
2. Number of shares of treasury stock
As of March 31, 2016: 1,176,800 shares
As of March 31, 2015: 1,344,892 shares
3. Average number of shares outstanding
As of March 31, 2016: 168,924,437 shares
As of March 31, 2015: 179,238,551 shares

2

TOKYO ELECTRON(Reference) Non-consolidated finance review for the fiscal year ended March 31, 2016
(1)

Operating results

Note: Percentages indicate changes from the previous fiscal year.
Year ended
March 31, 2015

March 31, 2016%%

Net sales (Millions of yen)

555,092

20.1

582,623

5.0

Operating income (Millions of yen)

47,094190.2

42,092(10.6)

Ordinary income (Millions of yen)

86,502

210.7

74,861(13.5)Net income (Millions of yen)

63,267-63,5490.4

Net income per share (Yen)352.98-376.20-Fully diluted net income per share (Yen)352.16-375.30-(2)

Financial position
As ofMarch 31, 2015

March 31, 2016

Total assets (Millions of yen)

671,759

625,968

Net assets (Millions of yen)

405,468

329,351

60.1

52.4

2,253.90

1,997.82

Equity ratio (%)
Net assets per share (Yen)
Equity:327,709 million yen (as of March 31, 2016)
404,047 million yen (as of March 31, 2015)*Notes on the status of auditing procedure execution:
This Consolidated Financial Review meets the definition of unaudited as outlined in the Financial Instruments and Exchange Act as
the year-end audit is not complete at the time of issuance of this report.
*Explanation of the appropriate use of financial forecast:
The financial forecasts and estimates as provided in this Consolidated Financial Review are based on certain assumptions judged
to be reasonable at time of report issuance and in light of currently available information. Consequently, actual operating results
may differ substantially from the projections in this Consolidated Financial Review.
The company plans to hold a financial meeting for analysts and investors on April 26, 2016. Supplementary schedules and otherinformation deemed relevant to these financial reports that will be handed out at this meeting and will be posted simultaneously on
our company website.

3

TOKYO ELECTRON

1.

Operating Results(1)

Analysis of Operating Results(i)Business Environment during the Fiscal Year Ended March 31, 2016

In the fiscal year under review, there was an increasing sense of uncertainty about the future due to the impact of the economic
slowdown in emerging countries in Asia including China, and low crude oil prices. While some areas of weakness are evident, theglobal economy is generally showing signs of a moderate recovery.
The electronics industry showed an increase in the number of chips per handset accompanying the enhancement of mobile handset
functions and an increase in demand for servers used for data centers. On the other hand, demand lacked robustness due tosluggish growth in sales of smartphones and PCs, and the electronic components market showed little growth. In the semiconductor
production equipment market, which the Tokyo Electron (TEL) Group is part of, forefront investment of semiconductor makers
showed signs of recovery in the second half of the fiscal year, and performance on the whole was solid.

(ii)

Overview of Profit and Losses during the Fiscal Year Ended March 31, 2016

In this environment, the consolidated business results for the fiscal year under review are as follows.
Net sales for the fiscal year increased 8.3% from the previous fiscal year to 663,948 million yen. Domestic net sales increased
28.2% from the previous year to 121,807 million yen, while overseas net sales increased 4.6% to 542,140 million yen to account for
81.7% of net sales. Orders received during the fiscal year increased 2.8% to 679,320 million yen, but the orders backlog grew 5.2%
to 311,143 million yen.
Cost of sales increased 7.1% to 396,738 million yen and gross profit increased 10.1% to 267,209 million yen. As a result, the grossprofit margin widened by 0.6 points to 40.2%.
Selling, general and administrative (SG&A) expenses decreased 2.7% to 150,420 million yen, and the ratio to consolidated net
sales decreased 2.6 points to 22.6%.
As a result of the foregoing, operating income increased 32.5% to 116,788 million yen and the operating margin increased 3.2 points
to 17.6%. After adjustment of non-operating income of 3,798 million yen and non-operating expenses of 1,187 million yen, ordinary
income increased 28.5% to 119,399 million yen.
Extraordinary losses totaled 12,932 million yen (compared to a loss of 6,121 million yen in the previous fiscal year), due mainly tothe reporting of impairment losses on fixed assets following a review of the TEL FSI, Inc. business plan.
Income before income taxes was 106,466 million yen (year-on-year growth of 22.6%) and net income attributable to owners ofparent was 77,891 million yen (year-on-year growth of 8.4%).
As a result of the foregoing, net income per share was 461.10 yen (compared to net income per share of 401.08 yen in the previous
fiscal year).

4

TOKYO ELECTRON(iii)

Overview of Operations by Business Segment during the Fiscal Year Ended March 31, 2016

The overview of each business segment is as described below.
As of the current fiscal year, the Photovoltaic Panel (PV) Production Equipment business, from which we announced our intention towithdraw, was no longer material as stipulated in the Accounting Standard for Disclosures about Segments of an Enterprise andRelated Information. Therefore, it has been removed from the reportable segments and included in “Others.” The year-on-yearcomparisons below are based on figures reclassified into segments after the amendment of year-on-year figures.

Semiconductor Production Equipment
Demand for DRAM and NAND flash memory drives remained strong due to the increasing number of chips used in handsets asmobile device functions become more advanced and the growing demand for servers for data centers accompanying the growing
use of big data. In this market environment, memory makers proceeded with investment to increase production. Capital investment
in advanced technology for logic chips also continued due to robust demand for servers. As a result, the segment’s net sales toexternal customers during the fiscal year under review were 613,032 million yen (up 6.4% compared to the previous fiscal year).

A number of new products were released in this segment during this fiscal year. These include the CLEAN TRACK™ LITHIUS Pro™
AP, high reliability and productivity coater developer for advanced packaging and other applications; the Stratus P300, ahigh-efficiency electrochemical deposition (ECD) tool designed for volume production advanced packaging; and the Triase+™
EX-II™ TiN Plus HT, high temperature process single-wafer metallization system for advancing semiconductor scaling.

FPD (Flat Panel Display) Production Equipment
The market for FPD production equipment remained firm. In addition to capital investment for large flat panels in China, demand forsmall to medium-sized flat panel displays for mobile devices also grew. In this environment, the segment’s net sales to externalcustomers during the fiscal year under review were 44,687 million yen (up 36.6% compared to the previous fiscal year).

The Impressio™ 1800 PICP™, the dry etch system for high resolution Flat Panel Displays was introduced to the market in thissegment during this fiscal year.

Others
The segment’s sales to external customers during the year under review totaled 6,228 million yen (up 49.3% from the previous fiscal
year).

5

TOKYO ELECTRON(For reference）
Consolidated（Millions of yen）
Year ended March 31, 2016

Year ended
March 31, 2015
Net Sales
Semiconductor Production Equipment
Japan
U.S.
EuropeKorea
TaiwanChina
S.E.Asia
FPD Production Equipment
OthersOperating Income
Ordinary Income
Net Income Attributable to Owners of Parent

1Q

2Q

First
Half

3Q

4Q

SecondHalf

Full Year613,124

155,762

185,189

340,951

158,771

164,225

322,997

663,948576,242
87,747
135,341
58,76897,364
139,423
39,713
17,88332,7094,172
88,113
92,94971,888140,365
25,011
30,776
17,05328,14023,13014,084
2,169
10,0705,326
30,27930,207
19,481

176,62237,80929,491
9,620
25,211
52,92817,041
4,520
8,205
361
30,97032,177
21,895

316,987
62,82060,267
26,67453,351
76,05831,125
6,689
18,275
5,687
61,25062,384
41,376

146,523
27,02823,42814,856
15,25743,354
17,2195,379
11,724522
25,51325,655
17,858

149,520
26,423
19,765
9,557
30,96542,517
15,2605,030
14,68618
30,02531,35918,656

296,044
53,451
43,193
24,414
46,22385,871
32,48010,41026,411541
55,53857,01436,514

613,032
116,272
103,460
51,08899,574
161,930
63,60517,09944,687
6,228
116,788
119,399
77,891

Note: Offset elimination has been carried out on the dealing between segments.

(iv)

Projected Operating Results for the Next Fiscal Year Ending March 31, 2017

Until the impact of the Kumamoto earthquake on the Group’s consolidated results for the fiscal year ending March 31, 2017 can beevaluated, we will not be providing the consolidated financial forecasts at this time. We plan to make an announcement regarding
the matter on May 12, 2016.

6

TOKYO ELECTRON(2)

Qualitative Information on Consolidated Financial Conditions(i)

Financial Conditions

Current assets at the end of the fiscal year totaled 617,416 million yen, a decrease of 53,466 million yen compared to the end of theprevious fiscal year. This is mainly attributable to decreases of 77,301 million yen in short-term investments included in securitiesand 3,707 million yen in cash and deposit, and increases of 19,491 million yen in inventories and 5,658 million yen in trade notes
and account receivable.
Tangible fixed assets decreased 10,579 million yen from the end of the previous fiscal year to 96,316 million yen.
Intangible fixed assets decreased 9,963 million yen from the end of the previous fiscal year to 17,603 million yen.
Investments and other assets decreased 8,775 million yen from the end of the previous fiscal year to 62,031 million yen.
As a result of the foregoing, total assets decreased 82,785 million yen from the end of the previous fiscal year to 793,367 million
yen.
Current liabilities at the end of the fiscal year totaled 166,060 million yen, a decrease of 6,751 million yen compared to the end of theprevious fiscal year. This was primarily due to decreases of 14,919 million yen in customer advances, 1,755 million yen in accrued
warranty expenses, and 1,428 million yen in trade notes and accounts payable, and an increase of 16,263 million yen in income
taxes payable.
Long-term liabilities increased 889 million yen from the end of the previous year to 63,067 million yen.
Net assets decreased 76,923 million yen from the end of the previous fiscal year to 564,239 million yen.

The main factors were an

increase due to recorded net income attributable to owners of parent of 77,891 million yen, a decrease of 105,809 million yen due tothe purchase of treasury stock and a decrease as a result of the payment of 33,013 million yen in year-end dividends for theprevious fiscal year and interim dividends for the current fiscal year. As a result of the foregoing, the equity ratio was 70.9%.

(ii) Cash Flow
Cash and cash equivalents at the end of the fiscal year under review were 95,638 million yen, a decrease of 221,993 million yen
from the end of the previous fiscal year. The combined balance including deposits and short-term investments with periods tomaturity or redemption of at least three months, which are not included within cash and cash equivalents, was 236,673 million yen, adecrease of 81,009 million yen from the end of the previous fiscal year. The various cash flows for the fiscal year under review aredescribed below.
Cash flow from operating activities was 69,398 million yen in the fiscal year under review, a decrease of 2,408 million yen from theend of the previous fiscal year. This is mainly attributable to inflows of 106,466 million yen in net income before income taxes
recorded for the fiscal year, 19,257 million yen in depreciation and amortization; and outflows of a 23,535 million yen increase ininventories, 15,356 million yen for payment of income taxes and a 15,003 million yen decrease in customer advances.
Cash flow from investing activities was negative 150,013 million yen in the fiscal year under review, compared to positive 155,737
million yen in the previous fiscal year. The main factors were outflows of 115,998 million yen associated with an increase in
short-term investments and 11,294 million yen associated with the acquisition of tangible fixed assets.
Cash flow from financing activities was negative 138,600 million yen, compared to negative 18,213 million yen in the previous fiscal
year. This was mainly the result of 105,532 million yen for the purchase of treasury stock and the payment of 33,013 million yen in
dividends.
7

TOKYO ELECTRON

Fiscal year ended
March 31, 2015

Fiscal year ended
March 31, 2016

73.0
171.5
-

70.9
151.7
-

Equity ratio (%)
Equity ratio at market value (%)
Interest-bearing debt to cash flow ratio (times)
Interest coverage ratio (times)

Equity ratio: (Equity / Total assets) x 100
Equity ratio at market value: (Market capitalization / Total assets) x 100
Interest-bearing debt to cash flow ratio: Interest-bearing debt / Cash flow from operating activities
Interest coverage ratio: Cash flow from operating activities / Interest expenses* All indicators are calculated using financial figures on a consolidated basis.
* Market capitalization is calculated based on the following formula: Closing stock price at fiscal year-end × Number of shares
outstanding at fiscal year-end after deduction of treasury stock.

(3)

Basic Policy on Profit Allocation and Payment of Dividends for the Current and Next Fiscal Years

At the Board of Directors meeting held on July 10, 2015, the payout ratio based on consolidated net income attributable toowners of parent was raised from 35% to 50%, with an annual dividend per share of not less than 150 yen. TEL will review ourdividend policy if the company does not generate net income for two consecutive fiscal years.
TEL has effectively used internal capital reserves to raise corporate value through earning growth and provided returns direc tly
to shareholders by concentrating investment in high-growth areas and linking dividend payments to business performance.
TEL’s ongoing policy to actively invest in research and development, capacity, and human resources related to high value-added
business that serves as the basis for its future growth will remain unchanged, TEL has modified the basic policy as indicatedabove as a means to make returns to our shareholders more attractive.
With regard to the fiscal year ended March 31, 2016, we provided an interim dividend of 125 yen per share, and plan to apply theabove new policy to the consolidated earnings of the second half of the fiscal year. As a result, we plan to provide a year-end
dividend of 112 yen per share.
Therefore, the annual dividend for the year under review will be 237 yen per share, including the interim dividend.
The dividend forecast for the fiscal year ending March 31, 2017, has yet to be determined as our financial forecast is currently
being assessed. We expect to announce the dividend forecast on May 12, 2016 along with the announcement of our financial
forecast.

Current fiscal year
(ended March, 2016)

2Q-endDividend per share
Year-end

Total

125 yen112 yen

237 yen

8

TOKYO ELECTRON

2. Management Policy(1)

Basic Management Policy

The basic management policy of the TEL Group is to raise its corporate value through profit-oriented operations by placing thehighest priority on customers, enhancing product and technology development capabilities, and invigorating its workforce.
Under this fundamental policy, the TEL Group will engage in the development of vibrant and internationally competitive companies,
with high growth potential and profitability that are attractive to investors.

(2)

Management Tasks①

Long-term Business Policies

As a company that began as a trade company specializing in technology, TEL perceived at an early stage changes in theenvironment and made bold changes to adapt. This involved making the transition to becoming a manufacturer with development
production functions and building a global sales and support framework. In this way, TEL has provided high added value in world
markets. Moreover, TEL has maintained growth by taking the lead in original technology in semiconductor production equipment
and related areas, among others, where innovations in technology will generate new value, and high earnings can be expected.
The driving forces of our company are comprised of the believe that the customer comes first, which has been part of our corporate
culture since the founding of TEL, a high level of technical expertise capable of achieving technical innovation, and the challenging
spirit of our employees, who are capable of flexibly and rapidly adapting to changes in the environment.
With the aim of becoming a leading world corporation, TEL will continue our efforts in the future in business creation where TEL will
apply leading-edge technologies TEL has cultivated over the years in growth areas based on electronics technology including
existing business areas where value creation through technical innovation can be expected.

②

Medium-term Management PlanThrough contribution to both industry and society, we obtain profits and increase our corporate value. We believe that achieving thiswill enable us to provide returns to our shareholders who have trusted and invested in us and to enrich our employees and theirfamilies. On July 10, 2015, we announced our Medium-term Management Plan up until the fiscal year ending March 2020, whichsets out specific targets and outcomes for achieving this goal.

Medium-term Vision
A real global company generating high added-value and profits in Semiconductor and FPD industries through innovativetechnologies and groundbreaking solutions with integrated diverse technologies.

9

TOKYO ELECTRON
Financial Model
TEL established a new financial model premised on a US$37 billion market for Wafer Fab equipment, and TEL aims to achieve thisby the fiscal year ending March 2020.

Wafer Fab Equipment
Market size

$37B

Sales

¥900B

Operating margin

25%

ROE (Return on Equity)

20%

Bearing in mind the market characteristics inherent in the semiconductor industry where the fluctuations in business cycles are
significant, TEL intends to build a business structure capable of achieving net sales of 720 billion yen, operating margin of 20%, andROE of 15%, even on the basis of a market scale of US$30 billion.

Issues in Realizing the Medium-term Management Plan
As we usher in the age of the Internet of Things (IoT) in the near future, we can assume that there will be an even greater demand
for semiconductors. At the same time, miniaturization is placing these in an area of 10 nanometers or less, which is more minutethan the DNA that makes up our genes. In addition to the challenges of extreme microfabrication, widely diverse new technologies
will be adopted, further supporting the evolution of the semiconductors. For this reason, core discussions with customers are shiftingfrom the performance of conventional single equipment to the optimization of a device structure including methods of optimizing
manufacturing methods and processes. Therefore, it is no exaggeration to say that at this stage of the discussion the development
assessment plan of the customer is determined, thus firming future shares and profits. At TEL, we view this rise in customer
standards in technical requirements as an excellent opportunity for the TEL group, which has a diverse range of technologies, toexpand its business.
In this environment, New Tokyo Electron, focusing on the semiconductor and FPD production equipment businesses, is making
efforts at strengthening the following three areas.

3 areas to strengthen
・ Strengthening product competitiveness・ Strengthening responses to customers
・ Strengthening profit structure

10

TOKYO ELECTRON
We believe that the creation of strong next-generation products is essential for us to respond to customer needs for cutting-edge
technology. The development task forces which formed the axis of the business units comprising each product have been
centralized and unified under the General Manager, Development and Production Division to amalgamate the individual products
and diverse technologies of each business unit and enhance capability in development and technological proposals. Further, by
allocating human resources in a concentrated way to areas that require accelerated development, we are able to optimize
development costs and resources. In this way, we are casting our sights not only on markets we have already entered, but on themarket as a whole, which we believe will offer increasing opportunities for our engineers to demonstrate their capabilities without
restraint and investigate the launch of new products. In this way, we will be able to achieve growth.
Moreover, as customer oligopolization progresses, we have established a general contact point respectively for sales andtechnology for each customer. By increasing the density of communication with customers, the speed and accuracy of our customer
response will also increase. Furthermore, enhanced communication increases understanding of changes in the market environmentand real customer needs, and by breaking these down into our development strategies, we can embrace customer needcreation-based technology marketing. In this way, we can work, in particular, for major growth and to increase our share in fields inwhich high growth is expected, such as etching, deposition and the cleaning business through added value in our products.

Further, as we enter the age of the Internet of Things (IoT), the use of semiconductors will greatly widen, and demand for commodity
devices will rapidly increase. In this environment, the world’s greatest delivery equipment track record that our group has will be thefoundation for the field solution businesses undertaken by our company such as remodeling, the parts business and qualified
second-hand equipment marketing, and major business growth is also expected in these fields.
In addition, to strengthen the profit structure of the group, we are promoting the strengthening and visibility of our IT systems,
one-stop management of people, objects and money resources, as well as business progress, removing all types of resource
duplication and waste. Further, by making the progress of our medium term business plan transparent, we can execute necessary
measures at appropriate times, and provide tight controls through investment, restraint and efficiency.
TEL Group aims to be a company that excites its employees into activity with dreams and vitality. By sharing the vision of growth forthe company and where the company wants to be with the employees, we can be a company that continues to challenge new waysof achieving growth and provides fair compensation when performance is favorable. We believe that this is the form of a company
that has both dreams and vitality. The foundations for achieving this are the realization of a fluid, borderless workforce and theframing of a new remuneration scheme based on roles and responsibilities.

③

Basic Strategy for Capital Policy

Based on the business strategy and business plans stated above, TEL’s objective in our capital policy is as follows.

View regarding Capital Efficiency
While securing resources necessary for growth investment, TEL will make positive efforts to provide returns to shareholders basedon appropriate balance sheet management. Furthermore, to achieve the financial model TEL has committed to under the
Medium-term Management Plan stated above,
TEL will endeavor to improve return on equity (ROE) by focusing mainly on operating income to sales and total asset turnover.

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TOKYO ELECTRON
Shareholder Return Policy•

Our dividend policy is to link dividend payments to business performance on an ongoing basis and a payout ratio isaround 50% based on consolidated net income attributable to owners of parent. But with an annual dividend per share of not lessthan 150 yen.
Note: TEL will review our dividend policy if TEL does not generate net income for two consecutive fiscal years.
•

TEL will flexibly consider share buybacks.

④

Approach to corporate social responsibility

TEL Group recognizes that it has a social responsibility to its stakeholders including shareholders, customers, trading partners, andregional companies to generate sustainable growth and medium- to long-term corporate value, and based on the CSR policy
introduced in 2013, our dedicated organizations identify materiality and monitor progress.
Furthermore, in June 2015, we joined the Electronic Industry Citizenship Coalition (EICC), a CSR alliance that establishes a code of
conduct for labor, safety, the environment and ethics in the electronic industry supply chain. By joining the EICC, we aim to renew
our efforts at actively promoting and spreading this code of conduct within the TEL Group, and jointly promoting CSR with ourpartners in the industry as a whole.
Additionally, to reduce the impact of our products on the environment when they are in use at customer plants, we are moving ahead
with efforts to make our products more energy efficient. In fiscal 2014, we set a goal to reduce the use of energy and pure water by
10% over the next five years and we are working toward this reduction.

TEL Group will continue its efforts to increase corporate value to become a truly global company that generates high added value
and profits in the semiconductor and FPD industries through original proposals that integrate innovative technical know-how anddiverse technologies under profit-oriented management.

3. Basic philosophy on the selection of accounting standards
The consolidated financial statements of TEL group have been prepared in conformity with accounting principles generally acceptedin Japan. In regard to the application of IFRS, we will pay close attention to domestic and international trends in its introduction andrespond accordingly.

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TOKYO ELECTRON

Consolidated Balance Sheet(Millions of yen)
As of

As of

March 31, 2015

March 31, 2016

ASSETS
Current assets
Cash and deposit

79,38275,674

Trade notes and accounts receivable

110,845

116,503

Securities

238,532

160,999

Merchandise and finished goods

112,301

130,478Work in process

41,48341,556

Raw materials and supplies

21,80323,044

Deferred income taxes

27,671

31,203

Others39,241

38,003

(378)

(48)

670,882

617,416

152,979

147,653(97,910)(99,794)

Allowance for doubtful accounts
Total current assets
Long-term assets
Tangible fixed assets
Buildings and structures
Accumulated depreciation
Buildings and structures, net

55,06847,859102,295

99,976

Accumulated depreciation(82,420)(83,172)

Machinery and carriers, net

19,874

16,803Land

25,021

23,867

Others

32,53932,966(25,608)(25,180)

6,931

7,786

106,896

96,316

Others27,566

17,603

Total intangible fixed assets

27,566

17,603

Investment securities

23,934

19,914

Deferred income taxes

18,347

20,781

Machinery and carriers

Accumulated depreciation
Others, net
Total tangible fixed assets
Intangible fixed assets

Investments and other assets

Net defined benefit asset

8,817

1,623

Others

21,591

21,537

Allowance for doubtful accounts(1,884)(1,825)

Total investments and other assets

70,80762,031

Total long-term assets

205,271

175,951

876,153

793,367

Total assets

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TOKYO ELECTRON

Consolidated Balance Sheet(Millions of yen)
As of

As of

March 31, 2015

March 31, 2016

LIABILITIESCurrent liabilities
Trade notes and accounts payable

56,47855,050

Income taxes payable

6,196

22,460Accrued employees' bonuses

12,111

11,623

Accrued warranty expenses

10,441

8,686

Others

87,583

68,239Total current liabilities

172,812

166,060

Net defined benefit liability

51,10455,302Others

11,074

7,765

Long-term liabilities

Total long-term liabilities

62,17863,067

234,991

229,128

Common stock

54,961

54,961

Capital surplus

78,02378,023Retained earnings

488,816

427,618

Total liabilities

NET ASSETS
Shareholders' equity

Treasury stock(9,064)(8,050)Total shareholders' equity

612,736552,551

9,463

7,902

Accumulated other comprehensive income
Valuation difference on available-for-sale securities
Deferred gains or losses on hedges

122

50

12,481

6,742

Remeasurements of defined benefit plans

4,681(4,877)

Total accumulated other comprehensive income

26,747

9,817

1,420

1,641

257

228

Total net assets

641,162564,239

Total liabilities and net assets

876,153

793,367

Translation adjustments

Subscription rights to shares
Non-controlling interests

14

TOKYO ELECTRON

Consolidated Statement of Income(Millions of yen)
As of

As of

March 31, 2015

March 31, 2016

Net sales

613,124

663,948

Cost of sales

370,351

396,738

Gross profit

242,773

267,209

Selling, general & administrative expenses
C
Salaries and allowances

24,297

24,210Research and development expenses

71,34976,286

Others59,01349,923

Total selling, general & administrative expenses

154,660

150,420

88,113

116,788

Operating income
Non-operating income
Interest income
C

901

547

1,575

886

629

400

Others

1,880

1,964

Total non-operating income

4,985

3,798

Foreign currency translation income
Revenue from grants

Non-operating expenses
Expenses for purchase of treasury stock-

662

Maintenance and operation cost of closed business bases

47

147

Others102

378

Total non-operating expenses

149

1,187

92,949119,399

1,839

1,025

54

445

1,894

1,470

2,505

9,727

-

2,235

Loss on liquidation of subsidiaries and affiliates

1,069

-

Expenses for restructuring of business bases

1,046

-

Additional payment of custom tax

1,003

-

Others

2,390

2,441

Ordinary income
Unusual or infrequent profit
Gain on sale of fixed assets
Gain on sale of investment securities
Total unusual or infrequent profit
Unusual or infrequent loss
Loss on impairment
Loss from restructuring

8,015

14,403

Income before income taxes

Total unusual or infrequent loss

86,827

106,466

Provision for income taxes and enterprise taxes

14,72632,559172(4,029)Total income taxes

14,89828,530Net income

71,92877,93640

44

71,88877,891

Deferred income taxes

Net income attributable to non-controlling interests
Net income attributable to owners of parent

15

TOKYO ELECTRON

Consolidated Statement of Comprehensive Income(Millions of yen)

Net income

As of

As of

March 31, 2015

March 31, 2016

71,92877,936

3,868(1,555)

Other comprehensive income (loss)
Valuation difference on available-for-sale securities
Deferred gains or losses on hedges

69

(111)

Translation adjustments

6,642(5,705)Remeasurements of defined benefit plans(2,269)(9,233)

56

(345)

8,366

(16,951)

80,29560,98480,22460,96170

22

Share of other comprehensive income of associates
accounted for using equity method
Total other comprehensive income (loss)
Comprehensive income(Breakdown)Comprehensive income attributable to owners of parent
Comprehensive income attributable to non-controlling interests

16

TOKYO ELECTRON

Consolidated Statements of Changes in Net Assets
Year ended March 31, 2015

(Millions of yen)
Shareholders' equity
Commonstock

Balance at beginning of
periodRetainedearnings

Capital surplus

54,961

78,023Cumulative effect ofchanges in accounting
policies
Restated balance

Treasury stock

436,174(9,478)(1,102)54,961

78,023

Total
shareholders'equity559,679(1,102)435,072(9,478)558,577

Changes of items during
the period
Cash dividends
Net income attributable toowners of parent(17,923)(17,923)

71,88871,888

Repurchase of treasury
stock
Disposal of treasury
stock

(183)

(183)

(220)

598

377

Net change except
shareholders' equity
Total changes of items
during the period
Balance at end of period--

53,744414

54,15854,961

78,023

488,816(9,064)

612,736

Accumulated other comprehensive income

Balance at beginning of
periodValuationdifference on
available-forsale securities

Deferred gains
or losses onhedges5,592

60

Translation
adjustment

Remeasurementsof defined benefit
plans

Total accumulated
othercomprehensive
income

6,981

18,411

5,777

Subscription
rights toshares

Noncontrollinginterests

1,643

10,878590,613(210)(1,312)

10,668589,301

Cumulative effect ofchanges in accounting
policies
Restated balance

5,592

60

5,777

6,981

18,411

1,643

Total net
assetsChanges of items during
the period(17,923)

Cash dividends
Net income attributableto owners of parent

71,888

Repurchase of treasury
stock

(183)

Disposal of treasury
stock

377

Net change except
shareholders' equity

3,870

62

6,703

(2,300)

8,336

(223)

(10,410)(2,297)

Total changes of items
during the period

3,870

62

6,703

(2,300)

8,336

(223)

(10,410)51,861

Balance at end of period

9,463

122

12,481

4,681

26,7471,420

257

641,162

17

TOKYO ELECTRON

Consolidated Statements of Changes in Net Assets
Year ended March 31, 2016

(Millions of yen)
Shareholders' equity
Commonstock

Balance at beginning of
periodCapitalsurplus54,961Retainedearnings

78,023

488,816

Treasury stock

Total shareholders'equity(9,064)

612,736

Changes of items during
the period
Cash dividends
Net income attributableto owners of parent(33,013)(33,013)77,891

77,891

Repurchase of treasury
stock
Disposal of treasury
stock
Cancellation of treasury
stock(105,809)(105,809)

(725)

1,472

746

(105,351)

105,351-

Net change except
shareholders' equity
Total changes of items
during the period
Balance at end of period--(61,198)

1,013(60,184)

54,961

78,023427,618(8,050)552,551

Accumulated other comprehensive income

Balance at beginning of
periodValuationdifference on
available-forsale securities

Deferred gains
or losses onhedgesTranslation
adjustment

Remeasurementsof defined benefit
plans

Total accumulated
othercomprehensive
income9,463

122

12,481

4,681

26,747

Subscription
rights toshares

Noncontrollinginterests

1,420

257

Total net
assets641,162

Changes of items during
the period(33,013)

Cash dividends
Net income attributableto owners of parent

77,891

Repurchase of treasury
stock(105,809)

Disposal of treasury
stock

746

Cancellation of treasury
stock

-

Net change except
shareholders' equity(1,560)(71)(5,738)(9,559)(16,929)

220

(29)

(16,738)

Total changes of items
during the period(1,560)(71)(5,738)(9,559)(16,929)

220

(29)

(76,923)

Balance at end of period

7,902

50

6,742

(4,877)

9,817

1,641

228

564,239

18

TOKYO ELECTRON

Consolidated Cash Flow
(Millions of yen)
Year ended

Year ended

March 31, 2015

March 31, 2016

Cash flow from operating activities
Income before income taxes

86,827

106,466

Depreciation and amortization

20,87819,257

Loss on impairment

2,505

9,727

Amortization of goodwill

1,150

970

Increase (decrease) in accrued warranty expenses

259(1,685)Interest and dividend revenue(1,280)(855)

Loss (gain) on sales of property, plant and equipment(1,820)(899)

Loss (gain) on sales of shares of subsidiaries and affiliates

1,609

1,110

Decrease (increase) in trade notes and accounts receivable(1,318)(8,649)Decrease (increase) in inventories(26,849)(23,535)

9,432

31

Decrease (increase) in prepaid consumption tax(11,383)(1,910)

Increase (decrease) in accrued consumption tax

2,706(1,022)

Increase (decrease) in customer advances

12,911(15,003)

Others(1,203)(202)

Subtotal

94,424

83,797

Increase (decrease) in accounts payable

Receipts from interest and dividends

1,621

956

Income taxes paid or refund (paid)(24,239)(15,356)

Net cash generated by operating activities

71,806

69,398-(25,000)

Cash flow from investing activities
Payment into time deposits
Proceeds from time deposits
Payment for purchase of short-term investments

5

12(24,996)(184,490)

Proceeds from redemption of short-term investments

188,296

68,492

Payment for purchase of tangible fixed assets(11,898)(11,294)

Proceeds from sales of tangible fixed assets

2,548

2,150

Payment for purchase of intangible fixed assets

(422)

(707)

Proceeds from sales of investment securities
Proceeds from sales of shares of subsidiaries resulting in change inscope of consolidation

1,093

1,330

1,726

-

Others

(615)

(506)

155,737(150,013)(183)(105,532)(17,923)(33,013)

(106)

(55)

(18,213)(138,600)

3,505(2,776)

Net increase (decrease) in cash and cash equivalents

212,835(221,993)

Cash and cash equivalents at beginning of period

104,797

317,632

Cash and cash equivalents at end of period

317,632

95,638Net cash used in investing activities
Cash flow from financing activities
Payment for purchase of treasury stock
Dividends paid
OthersNet cash generated by financing activities
Effect of exchange rate changes on cash and cash equivalents

19

TOKYO ELECTRON

Loss on impairment
The Tokyo Electron Group aggregates its similar business assets into units that generate independent cash flow. During the fiscal
year ended March 31, 2016, we posted a loss on impairment of the following asset groups.

Location

Chaska, Minnesota,
U. S. A.

Use

Type of asset

Business assets

Loss on impairment(Millions of yen)

Goodwill

3,825

Buildings

2,755

Other intangible fixed assets, etc.
Total

2,879
9,460

The business plan of TEL FSI, Inc., which is one of the divisions of the semiconductor production equipment segment, has changed
significantly since we acquired them. During the fiscal year, we completed our impairment testing and accordingly recorded write
downs of goodwill, buildings, other intangibles and fixed assets, which are reflected at unusual or infrequent loss on theConsolidated Statement of Income. These write downs were based upon the continued use of these assets and various financial
models including future discounted cash flows utilizing discount rates of 14 to 14.5%.
.

In the others grouping, we posted a 266 million yen to unusual or infrequent loss as a loss on impairment.

20

TOKYO ELECTRON

Segment Information(i)

Overview of reportable segments

The reportable segments by the company provide separate financial information pertaining to the various segments of the company,
which is reviewed periodically by the management to evaluate corporate performance as well as make decisions about theallocation of management resources.

The corporate structure consists of product and service segments based on business units (BUs), and the reportable segments are
as follows: Semiconductor Production Equipment and Flat Panel Display (FPD) Production Equipment.

The Semiconductor Production Equipment segment consists of coater/developers, plasma etch systems, thermal
processing systems, single wafer deposition systems, surface preparation systems used in wafer processing, wafer probers used in
the wafer testing process and other semiconductor production equipment, and we are engaged in the development, manufacturing,sales and provision of maintenance services, etc. for such products.

The FPD Production Equipment segment consists of coater/developers, plasma etch/ash systems used in the manufacturing of flat
panel displays, and we are engaged in the development, manufacturing, sales and provision of maintenance services, etc. for suchproducts.

(ii)

Changes in reportable segment

From the first quarter of the fiscal year ended March 31, 2016, the Photovoltaic Panel (PV) Production Equipment business was nolonger material as stipulated in the Accounting Standard for Disclosures about Segments of an Enterprise and Related Information.
Therefore, it has been removed from the reportable segments and included in “Others.”(iii)

Means of estimating net sales, profits or losses, assets, and other amounts in reportable segment

The methods used to account for each reportable segment is similar to the methods used to prepare consolidated financial
statements. Inter-segment revenues or transfers are based on prevailing market prices.
Moreover, shared assets have not been allotted to each reportable segment, but associated costs have been distributed among
them according to equitable and reasonable standards.

21

TOKYO ELECTRON(iv)

Net sales, profits or losses, assets, and other items in reportable segment

Year ended March 31, 2016

(Millions of yen)
Reportable Segments
Semiconductor

Total

Equipment

Equipment
Sales to external customers

Others*1

FPD Production

Production

613,032

44,687

6,228

663,948--

11,591

11,591

Net sales

613,032

44,687

17,820675,540

Segment income

123,162

4,747

2,035

129,945

Segment assets

321,099

25,186

2,133

348,419

Depreciation and amortization

8,792

423

45

9,261

Amortization of goodwill

970

-

-

970

Loss on impairment

9,710

-

-

9,710

Increase in the amount of tangible fixed
assets and intangible fixed assets

8,499

284

13

8,797

Inter-segment sales or transfers

Consolidated Total
Eliminations *2*3
Sales to external customers-

663,948

Inter-segment sales or transfers(11,591)-

Net sales(11,591)

663,948

Segment income(23,479)

106,466

Segment assets

444,948

793,367

Depreciation and amortization

9,995

19,257

Amortization of goodwill-

970

Loss on impairment

16

9,727

Increase in the amount of tangible fixed
assets and intangible fixed assets

5,952

14,750Notes:*1. The "Others" segment is all other businesses which are not included in the reportable segments, such as the PV Production
Equipment business, the transportation of products of the Tokyo Electron Group companies, and facilities management andinsurance, etc.

*2. a) The elimination of segment income amounting to 23,479 million yen includes corporate expenses pertaining to the corporate
account which are not allocated to any specific reportable segments. The corporate account expenses are mainly R&D
expenses of 13,582 million yen, pertaining to fundamental research and element research conducted by the company not
related to any of the reportable segments.

22

TOKYO ELECTRONb) The main constituents of the eliminations of segment assets worth 444,948 million yen are cash, savings, securities,buildings and structures, etc. unallocated to each reportable segment.

c) The main constituent of the eliminations of tangible fixed assets and intangible fixed assets worth 5,952 million yen is capital
investments in buildings, structures, machinery and carriers unallocated to each reportable segment.

*3. Segment income is adjusted against net income before taxes in Consolidated Statement of Income.

(v)

Impairment loss on fixed assets in reportable segments
Refer to (iv) Net sales, profits or losses, assets, and other amounts in reportable segment.

(vi)

Amortization and balance of goodwill in reportable segments

Year ended March 31, 2016

(Millions of yen)
Semiconductor

FPD Production

Production

Total Segment

Equipment

Equipment
Amortization of goodwill

970

-

970

Balance at end of period

4,095

-

4,095

(vii)

Income related to negative goodwill in reportable segments
None

Significant subsequent events
Regarding the ongoing Kumamoto earthquake occurring since April 14, 2016, Tokyo Electron Kyushu Limited, which is one of ourmain plants, suffered minor damage to the buildings and production facilities. We are taking the necessary steps to return plant
operations, including supply chain, to normal.

23