TOKYO ELECTRONANNUALREPORT 2020
For the Year Ended March 31, 2020

PR58-126

TOKYO ELECTRON ANNUAL REPORT 2020

PAGE

1

CONTENTS

To Our Stakeholders

Business Overview
and Financial Highlights

Interview with the CEO

Review of Operations
Operations
Reviewand BusinessBusiness Outlook
andOutlook

Corporate Governance

Financial Section
Investor Information

Contents
Guide to Buttons

Contents

Corporate Philosophy
We strive to contribute to the development of a dream-inspiring society
through our leading-edge technologies
and reliable service and support.

2 To Our Stakeholders
3 Business Overview and Financial Highlights

A truly global company generatinghigh added value and profits
in the semiconductor andflat panel display industries throughinnovative technologies andgroundbreaking proactive solutions
that integrate diverse technologies.
The Corporate Philosophy defines the purpose of Tokyo Electron’s existence and its
mission in society. It represents Tokyo
Electron’s basic way of thinking and forms
the foundation for its corporate activities.
The Vision describes Tokyo Electron’s
medium- to long-term business aspirations
and the direction of Tokyo Electron’s near
future. Jointly with the Medium-termManagement Plan, the Vision defines Tokyo
Electron’s focus in the industry.

Move Forward to Next Page
Return to Last Page Opened
Go to Contents Page

4 Interview with the CEO

Search PDF Content

7 Review of Operations and Business Outlook

Print

8 Message from the Chairman of the Board

VisionMove Back to Previous Page

9 Corporate Governance
12 Directors, Audit & Supervisory Board Members andExecutive Officers
13 Financial Section
29 Consolidated Subsidiaries
29 Investor Information

Disclaimer
Matters discussed in this annual report, including forecasts of future business performance of Tokyo Electron, management
strategies, beliefs and other statements are based on Tokyo Electron’s assumptions in light of information that is currently
available. These forward-looking statements involve known or unknown risks, uncertainties and other factors that could
cause actual results to differ materially from those referred to in the forward-looking statements.
Factors that have a direct or indirect impact on Tokyo Electron’s future performance include, but are not limited to:• Economic circumstances in Japan and overseas, consumption trends, and large fluctuations in foreign exchange
rates• Changes in semiconductor/FPD markets• Changes in the demand for products and services manufactured or offered by Tokyo Electron’s customers, such as
semiconductor manufacturers, FPD manufacturers and electronics makers• Tokyo Electron’s capabilities to continue to develop and provide products and services that respond to rapid technology innovation and changing customer needs in a timely manner
For details, please refer to Business-Related and Other Risks on page 15.

Zoom

TOKYO ELECTRON ANNUAL REPORT 2020

PAGE

2

CONTENTS

To Our Stakeholders

Business Overview
and Financial Highlights

Review of Operations
and Business Outlook

Interview with the CEO

Corporate Governance

Financial Section
Investor Information

To Our Stakeholders

To Our Stakeholders

Unceasing Technological
Evolution Powers
Our Data-Driven Society

Tetsuo Tsuneishi

Toshiki Kawai

Corporate Director
Chairman of the Board

Representative Director
President & CEO

To begin, we would like to express our deepest gratitude forfoundries. The flat panel display (FPD) production equipment

The transition to a data-driven society is accelerating,

aim to increase Tokyo Electron’s corporate value while con-the ongoing support and confidence of our shareholders,market also contracted from 2018, but investment in thisreflecting the adoption of IoT, AI and 5G, as well as the growing

tributing to the development of a dream-inspiring society by

investors and all of Tokyo Electron’s stakeholders.

market began to recover in the second half of the year.

use of remote work arrangements, distance learning anddelivering the Best Products and Best Service through the

In 2019, the wafer fab equipment market declined year on

Despite these market conditions and the impact of COVID-19

remote medicine in response to COVID-19. The importance ofintegration of our innovative and diverse technologies.

year, as investment by memory chip manufacturers under-

near the end of the fiscal 2020, Tokyo Electron exceeded its

semiconductors and displays as the infrastructure underlying

went a period of adjustment, but still surpassed US$50 billion,

annual forecasts for net sales, operating income and net

this data-driven society is growing, and as such, the production

supported by investment by logic chip manufacturers andincome attributable to owners of the parent.

equipment markets are expected to continue to expand. We

We look forward to your continued confidence and support.

TOKYO ELECTRON ANNUAL REPORT 2020

PAGE

3

CONTENTS

Business Overview
and Financial Highlights

To Our Stakeholders

Review of Operations
and Business Outlook

Interview with the CEO

Financial Section
Investor Information

Corporate GovernanceBusiness Overview and Financial Highlights

Business Overview and Financial Highlights

Semiconductor Production Equipment
P Coater/Developer

P Cleaning System

P Etch System

P Wafer Prober

FPD Production Equipment
Sales by Region

Semiconductor devices are broadly used in mobile devices, such as smartphones
and tablets, as well as the data centers that are indispensable for the processingof big data. With the adoption of IoT, AI and 5G, as well as the growing use of
remote work arrangements, distance learning and remote medicine, the semiconductor market is expected to expand. Tokyo Electron provides a wide rangeof semiconductor production equipment used to manufacture such semiconductors along with reliable technical support and service. The main categories ofour product lineup are coater/developers, etch systems, deposition systems andcleaning systems used in wafer processing as well as wafer probers used in thewafer testing process. In addition, we also offer such products as wafer bonders/debonders used in advanced packaging processes.
Coater/Developer
CLEAN TRACK™
LITHIUS Pro™ Z

Plasma Etch System
Tactras™

Net Sales and Gross Profit Margin

1,600

40.2

40.3

42.0

41.2

1,130.7800(%)(Billions of yen)

44

320

40.1

1,278.2

1,200

ALD System
NT333™

Single Wafer
Deposition System
Triase +™

Operating Income andOperating Margin(Billions of yen)

1,127.2

24.9
33

17.6
22

799.7

240

160

663.9

19.5

310.5
24.3

(Billions of yen)

280

21

210

14

155.6

0

0

0

0

0

Net Sales

Gross Profit Margin

204.3

17

Operating Income

18

19

20

Operating Margin

248.2

19.4%

16

FPD Coater/Developer
Exceliner™

FPD Plasma Etch/Ash System
Betelex™

Free Cash Flow

17

(%)

(Billions of yen)

32

200

24

150

16

100

199.5

139.7

149.5

Cash Dividends per Share

(Yen)

(Yen)

1,600

800

1,513.58

19

China

84.1%

1,245.48

1,200

1,170.57

758
624

600

588

118.0
400

800

352

702.2618

15.9%

Inkjet Printing System for
Manufacturing OLED Display
Elius™

Net Income per Share

115.2

77.9

Others

24.2%

21.8
185.2

13.0
70

16

18.3%

30.1

140

7

20

China

Flat panel displays (FPDs) are an essential part of everyday life, employed in suchproducts as TVs, smartphones and tablets. Going forward, applications for FPDs
are expected to expand even further with the adoption of flexible displays andhigher resolution OLED displays. Tokyo Electron supplies coater/developers andetch/ash systems for manufacturing FPDs along with solid technical supportand service. We also offer inkjet printing systems for manufacturing OLED
­displays to take advantage of the expanding OLED display market.

Wafer Prober
Precio™ XL

19.1

237.2

80

19

15.0%

Taiwan

29.0
21.0

281.1

(%)

11

18

Japan

North
AmericaSingle Wafer
Cleaning System
CELLESTA™ -i

28

116.8

17

P Inkjet Printing System for Manufacturing OLED Display

Net Income Attributable to Ownersof Parent and ROE

400

16

P FPD Etch/Ash System

Europe3.3%
5.5%
South Korea 14.3%

P Deposition System

Sales by Region

P FPD Coater/Developer

Southeast Asia

8

50

0

0

20

Net Income Attributable to Owners of Parent
ROE

The amounts in this report in billions, millions and thousands of yen; thousands of U.S. dollars; and thousands of shares as of and for the years ended March 31, 2016 and prior are rounded to the nearest unit.
Such amounts as of and for the years ended March 31, 2017 and onward, including year-on-year differences, are truncated at the nearest unit. Accordingly, totals for the years ended March 31, 2017 and onward
do not necessarily agree with the sum of the corresponding individual amounts.

60.4

400 461.10

200

0

16

17

18

19

20

Free cash flow = Cash flows from operating activities + Cash flows
from investing activities (excluding changes in short-term investments)

237

0

16

17

18

19

20

16

17

18

19

20

TOKYO ELECTRON ANNUAL REPORT 2020

PAGE

4

CONTENTS

To Our Stakeholders

Business Overview
and Financial Highlights

Interview with the CEO

Review of Operations
and Business Outlook

Corporate Governance

Financial Section
Investor Information

Interview with the CEO

Interview with the CEO

Realizinga Strong,
Resilient Society
Our Mission and Responsibility asa Globally Excellent Company

Toshiki Kawai
Representative Director
President & CEO

Question01

In 2019, the wafer fab equipment (WFE)1 market,
which had been expanding for several years, underwent
a period of adjustment. Given this, how do you evaluateTokyo Electron’s performance for fiscal 2020?
In 2019, although investment by logic

restrictions. I believe Tokyo Electron

chip manufacturers and foundries grew,rose to the challenge.

driven by demand for data centers andWe announced a plan to invest

5G smartphones, investment by mem-

approximately ¥400 billion in researchory chip manufacturers underwent

and development over the three years

an adjustment following several years

beginning with fiscal 2020 to achieveof investing to increase production

the targets of the medium-term

capacity. As a result, the global WFE­management plan. In line with themarket edged down year on year. In

plan, in fiscal 2020, we invested ¥120.2

addition, there were concerns aboutbillion in research and development,

the impact of COVID-19 near the end

a record high.

of fiscal 2020. Nevertheless, we met

Amid this rapidly changing business

our financial estimates for all our key

environment, and while investing

indicators, namely net sales, operating

aggressively in growth, I think that our

income and operating margin. The

results for the year were satisfactory,

driving force behind Tokyo Electron isprecisely achieving our initial financial

its rich technological prowess built up

estimates for fiscal 2020s and achiev-

as an industry leader, customer trust

ing net sales of more than ¥1 trillion,

based on solid technical service, andan operating margin of over 20% andour employees, who are capable of

ROE over 20% for a third consecutive

flexibly and rapidly adapting to chang-

year. Going forward, all of Tokyo

es in the environment and always

Electron will continue to work as one

eager to take on new challenges. Fiscal

to achieve the upwardly revised tar-

2020 was truly a year in which thegets of the medium-term manage-strength of Tokyo Electron was put toment plan published in May 2019.

the test, whether it was maintaining

1 	Wafer fab equipment (WFE): The semiconductor production process is divided into front-end production, in
which circuits are formed on wafers and inspected, andback-end production, in which wafers are cut into chips,
assembled and inspected again. WFE refers to the production equipment used in front-end production and inwafer-level packaging production.

production amid the rising threat of
COVID-19 or providing remote customer support and the flexible response of
local employees overseas amid travel

TOKYO ELECTRON ANNUAL REPORT 2020

PAGE

5

CONTENTS

To Our Stakeholders

Business Overview
and Financial Highlights

Interview with the CEO

Review of Operations
and Business Outlook

Financial Section
Investor Information

Corporate GovernanceInterview with the CEO

Interview with the CEO

Question

03

Could you go over the medium-term management plan’sfinancial model and the measures Tokyo Electron is taking
to achieve them?

Question

02

Could you tell us your medium- to long-term outlook forthe business environment?

The medium-term management planand maintenance services), whichneeds like Tokyo Electron. Utilizing all

announced in May 2019 comprises

boasts wide profit margins, we willthese resources, we will contribute to­targets for fiscal 2024 under threeleverage our installed base of moresociety by creating high-value-added

scenarios. Given the business environ-than 72,000 units, the largest in thetechnologies never seen before.

ment, as we’ve been discussing, we

industry, to achieve steady growth.

expect the WFE market to grow to

Few companies in the world have

US$65–70 billion within four years andthe diverse management resources toare targeting net sales of ¥2 trillion, an

meet leading-edge technologicalFor details on the medium-term management plan,
please visit our website.
www.tel.com/ir/policy/mplan/

operating margin of over 30% and
ROE of over 30%. However, we havealso included two downside scenarios
Furthermore, alongside the evolu-

Financial Model (within 4 years)

In addition to IoT, which will connect all

Against this backdrop, the global

kinds of things to networks, the growing

semiconductor market, which reachedtion of semiconductors, displays,

ate profit and provide returns to

adoption of AI and 5G is bringing us into

US$412.3 billion3 in 2019, is forecast towhich translate data into visual form,

stakeholders if the WFE market does

the true big data era. As a result, goingexceed US$1 trillion4 in 2030. This is

are evolving too. New applications

not grow as anticipated due to the

Operatingmarginforward, global data traffic is forecast to

like saying that, on top of the existing

being created by high definition, higher

macro economy or changes in thegrow at a compound annual growth rate

market, which has developed over the

power efficiency, increased display size

semiconductor supply balance. As

ROEof 26%2. In addition, the spread of COVID-

approximately 70 years since theand designs leveraging flexible struc-such, the financial model is designed

19 is accelerating the use of remote work

invention of the transistor, another,tures are, in turn, driving technologicalto capture as much growth potential

arrangements, distance learning, remote

even larger market will be created ininnovation. As a result, display applica-

as possible while steadily reinforcing

medicine, and streaming video services,a single decade. We are now right ontions are expanding beyond the con-Tokyo Electron’s financial strength.

further increasing the importance ofthe verge of a massive growth oppor-

cept of the mere monitor. As long as

aggressively implementing information

tunity. As long as the semiconductor

efforts to make displays more beauti-

leverage our 100% market share inand communications technologies.

market continues to grow, the semi-

ful and easier to use continue, techno-

mass production EUV coater/develop-

The big data era will require large

conductor production equipment

logical innovation will continue. Likeers and reinforce product competitive-

quantities of diverse semiconductors

market that underlies it will steadily

semiconductors, the importance ofness in the key fields of etch, deposition

as well as even higher performance.

grow as well. As I mentioned, Tokyo

displays as a form of infrastructure inand cleaning, where we expect major

Technological innovation in semicon-

Electron recorded net sales of over ¥1society is increasing, and we expect

market growth going forward.

ductors to increase storage capacity,

trillion for a third consecutive year infurther growth going forward.

Furthermore, in the field solutions

processing speed, power efficiency andfiscal 2020, and we expect sales tobusiness (encompassing sales of parts

reliability will continue.

continue to grow going forward.

2 CAGR 26% is CISCO forecast for 2017-2022.
(Cisco Visual Networking Index, Updated: June 18, 2020)
3 WSTS
4 IBS, January 2020

to ensure that we can steadily gener-

To achieve the targets, we will fully

and used equipment, modifications

Net sales¥1,500 billion ¥1,700 billion ¥2,000 billion

26.5%

28%
>30%

>30%

TOKYO ELECTRON ANNUAL REPORT 2020

PAGE

6

CONTENTS

Business Overview
and Financial Highlights

To Our Stakeholders

Interview with the CEO

Review of Operations
and Business Outlook

Financial Section
Investor Information

Corporate GovernanceInterview with the CEO

Interview with the CEO

Management Policies
The Management Policies highlight the management values that Tokyo Electron regards as essential toachieving the objectives defined in its Corporate Philosophy. They express the logic that underscores oureight general rules of management.
Profit is EssentialGrowth Philosophy

The TEL Group aims to contribute to the developmentof society and industry and to the enhancement ofcorporate value while continually pursuing profit.


We will tirelessly take on the challenges of technological innovation to achieve continuous growth throughbusiness expansion and market creation.
Employees

The TEL Group’s employees both create and fulfill
company values, performing their work with creativity, a sense of responsibility, and a commitment
to teamwork.
Safety, Health, and the Environment

The TEL Group gives the highest consideration to
the safety and health of every person connectedwith our business activities as well as to the­global environment.

Question

Scope of Business

The TEL Group leads markets by providing highquality products in leading-edge technology fields
with a focus on electronics.

Quality and Service

The TEL Group strives to understand the true needs
to achieve customer satisfaction and secure customer trust while continuously improving quality
and service.


Organizations

The TEL Group builds optimal organizations thatmaximize corporate value in which all employees
can realize their full potential.
Social Responsibility

Feeling a strong sense of corporate social responsibility, we strive to gain the esteem of society andto be a company where our employees are proud
to work.

04

Please tell us about your management philosophy as CEO.
In terms of management philosophy,

happiness to all of our stakeholders

generation products. We will pursuethat recognize employee effort, com-

Tokyo Electron has the Corporate

through business activities.

Tokyo Electron’s core competence—

petitive compensation that is com-the world in many ways. Tokyo

providing added value to customers

mensurate with results, relationships

Electron’s social mission and responsi-

Philosophy, which defines its reason

In addition, those at the helm of

The spread of COVID-19 has affected

for existence and social mission, as

corporate management must be

through the Best Products and Bestof trust with management and super-

bility of helping to build a strong,well as the Management Policies, eightaware of their company’s core compe-

Service on the market to steadfastly

visors, and an open corporate culture.

­resilient society will only grow moregeneral rules of management fortence, take a medium- to long-term

put into action our Corporate

To that end, I strive to share my vision

important in the future. Providing

achieving the Corporate Philosophy. I

perspective, understand market envi-

Philosophy: “We strive to contribute tofor the Company and initiatives toleading-edge technology products

think that the judicious management

ronment trends and changes, andthe development of a dream-inspiring

achieve it with all our employees.

and the best technical services todecisions made by its leaders over the

respond appropriately.

society through our leading-edge tech-

Whenever possible, I also value thepursue continued profit, increase

decades based on these are a major

As I said, technological innovation in

nologies and reliable service and sup-opportunity to visit our factories andcorporate value and bring happinessreason that Tokyo Electron has grownsemiconductors and displays will con-port.” It will be our employees whoother sites around the world to hearto our shareholders, customers,

to where it is today. With this in mind,

tinue. As long as technological innova-

make this happen. Employees are thefrom employees about issues at ouremployees and their families, andI try to always approach managementtion continues, the markets will grow.

source of value creation, and increasing

front lines. Also, as profits increase,everyone else related to Tokyo

with due consideration for the happi-

Tokyo Electron thus stands at the edge

employee motivation is crucial.

employees are better able to follow

Electron—that is my management

ness of our shareholders, customers,of tremendous future growth potential

their dreams and take on challenges inphilosophy.

and employees and their families. Thatin these markets. To capture as much ofby many factors, including expecta-

pursuit of growth without fear ofis to say, I strive to generate world-

this potential as possible, we will throwtions and dreams for the Company’s­failure, creating a virtuous cycle thatclass profit, creating value, to bringour full weight into developing next

future, fair human resource systems

further increases motivation.

Employee motivation is determinedTOKYO ELECTRON ANNUAL REPORT 2020

PAGE

7

CONTENTS

Business Overview
and Financial Highlights

To Our Stakeholders

Interview with the CEO

Review of Operations
and Business Outlook

Corporate Governance

Financial Section
Investor Information

Review of Operations and Business Outlook

Review of Operations and Business Outlook
2019 Business Environment

Semiconductor
Production
Equipment(SPE)

Investment by logic chip manufacturers and foundries in expanding production capacity forleading-edge technologies was robust, reflecting growth in demand for high-performance processors used in data centers and 5G smartphones. In contrast, memory chip manufacturers’
investment underwent an adjustment following several years of investment to increase production capacity. As a result, the global market for wafer fab equipment (WFE),1 which had seen
uninterrupted growth since 2013, shrank 8% year on year to about US$55 billion.

Segment Net Sales
and Profit Margin(Billions of yen)

(%)

29.8

30

1,055.2
1,000

28.0

1,060.9
25

25.5
800

20

600

15

400

10

200

5

0

0

18

19

Capital investment in generation 10.5 panel for LCD TVs remained strong. However, investment
in OLED display softened, reflecting the end of a cycle of investment in the previous year.
Although investment in generation 6 panels for OLED display began to improve in the second
half of 2020, on a full-year basis, the equipment market for TFT array processes,1 in which Tokyo
Electron operates, shrank 25% year on year to about US$6.5 billion.
1 TFT (Thin-film transistor) array process: The process of manufacturing the substrates with the electric circuit functions that drive displays

Fiscal 2020 Business Overview

Fiscal 2020 Business Overview

S egment net sales came to ¥1,060.9 billion. While net sales and profit fell year on year due tothe contraction of the WFE market, both exceeded forecasts.
• By application, sales to memory chip manufacturers declined, but sales to logic chip­manufacturers and foundries grew.
• By product, the portion of net sales accounted for by coater/developers increased, reflecting
the growth in investment by logic chip manufacturers and foundries.
• Sales in the field solutions business (encompassing sales of parts and used equipment,­modifications and maintenance services) rose 5.7% year on year. Sales of parts and services
remained firm due to growth in the installed base and the high utilization rate of customers’ fabs.

Segment net sales fell 40.6% year on year to ¥66.0 billion. This was mainly because the market
contracted 25% year on year and some sales were delayed due to the impact of COVID-19.
The segment profit margin decreased 5.8 percentage points from the previous fiscal year to
16.0%. While the profit margin fell with net sales, efforts to secure downward flexibility helped
maintain profitability.

Share of Net Sales

5.9%

The segment profit margin decreased from 28.0% in the previous fiscal year to 25.5%, as we
continued forward-looking aggressive investment aimed at medium- and long-term growth in
the midst of the adjustment in the WFE market.

94.1%

1,166.7

FPD Production
Equipment

1 Wafer fab equipment (WFE): The semiconductor production process is divided into front-end production, in which circuits are formedon wafers and inspected, and back-end production, in which wafers are cut into chips, assembled and inspected again. WFE refers to
the production equipment used in front-end production and in wafer-level packaging production.

Share of Net Sales

1,200

2019 Business Environment

20

Segment Net Sales
Segment Profit Margin
Segment profit corresponds to income before income
taxes on the consolidated statements of income.

Business Outlook

Business Outlook

The transition to a data-driven society is accelerating, reflecting the adoption of IoT, AI and 5G,
as well as the growing use of remote work arrangements, distance learning and remote medicine. Accordingly, demand for the semiconductors that enable such a society is expected to
expand over the medium to long term. Within the SPE market, Tokyo Electron particularly
expects ongoing innovation and market expansion in etch, deposition and cleaning systems, andhas designated these as its three key fields. By differentiating our technologies and services inthese fields, we aim to grow sales and profit.
As the scaling of DRAM and logic chips continues and the number of layers in 3D NAND
increases, the use of new materials and increasingly complex device structures are creating
greater technological challenges. To turn these business opportunities into growth, in the area of
etch, we will strengthen our competitive advantage based on process performance and productivity in HARC,2 interconnects and patterning processes. In deposition, we boast technologies forbatch, semi-batch and single wafer processes and will leverage this strength to offer optimal
deposition methods while advancing the development of technologies for new materials. In
cleaning, we will provide technologies to reduce fine pattern collapse and remove foreign particles and residue that degrade yields. In these ways, Tokyo Electron seeks to expand its SAM3
share in its three key fields.
In the markets for power devices and discrete semiconductors for IoT and automotive applications,which are expected to see continued growth, we will increase our market share by introducing reengineered equipment leveraging technological assets from products we previously manufactured.
Furthermore, the importance of co-optimizing multiple processes is growing, creating greater
needs for services that help increase uptime and yields. Tokyo Electron will leverage the insights
provided by its diverse product lineup to conduct joint development with customers from theearly stages of each new technology node. By doing so, we aim to be at the forefront in offering
integration technologies that realize co-optimization. In addition, by providing services withhigher added value, such as remote equipment maintenance and equipment diagnostics using
AI, we aim to achieve further business growth.

In the FPD market, efforts to enhance display resolution, functionality and design are expected
to drive continued technological innovation. In response to increasingly advanced technologicalrequirements, Tokyo Electron aims to achieve differentiation using its superior process technologies to expand its market share and raise the operating margin to 30%.
In small- and medium-sized panels for mobile devices, in addition to such technologies as
LTPS2 and IGZO3 that enable even greater resolution, self-lighting OLED display and foldable
devices made with flexible displays are expected to gain broader utilization going forward. Thesechanges will drive an increase in the number of masks and dry etch processes as well as a needfor more precise patterning. Tokyo Electron will further enhance the performance of its dry etchsystems and coater/developers to leverage these expanding business opportunities and achievebusiness growth.
Looking at large-sized display, a shift from LCD to OLED is expected across a wide range ofapplications, including TVs, high-end monitors, and displays installed in vehicles and public places. Tokyo Electron will maintain its competitive advantage in generation 10.5 panels while
expanding its PICP™4 etch systems, which provide superior processing uniformity, to generation
8.5 and 10.5 panels.
Tokyo Electron has released inkjet printing systems, previously marketed only for generation
8.5 and 4.5 panels, for generation 2 panel development lines in order to accelerate technologicaldevelopment aimed at adoption for mass production. Our customers have been evaluating the
inkjet printing system. In the medium to long term, we aim to further improve profitability
based on differentiation in dry etch systems and coater/developers as well as the contributionsof inkjet printing systems.

2 HARC (High aspect ratio contact) process: A process for forming deep holes or trenches that requires advanced processing technology
3 SAM: Served available market

Segment Net Sales
and Profit Margin(Billions of yen)

(%)

120

30

111.2
100

25

80

75.0
60

20

21.8
66.0

17.7

15

16.0
40

10

20

5

0

0

18

19

20

Segment Net Sales
Segment Profit Margin
Segment profit corresponds to income before income
taxes on the consolidated statements of income.

2 LTPS: Low temperature poly-silicon
3 IGZO: An oxide semiconductor containing indium, gallium and zinc
4 PICP™: A plasma module that produces extremely uniform high-density plasma on panel substrates

TOKYO ELECTRON ANNUAL REPORT 2020

PAGE

8

CONTENTS

To Our Stakeholders

Business Overview
and Financial Highlights

Interview with the CEO

Review of Operations
and Business Outlook

Message from the Chairman of the Board

Message from the Chairman of the Board

Board Effectiveness and Governance Quality Formthe Foundation of Shareholder Value Enhancement
Five years have passed since the introduction of Japan’s
Corporate Governance Code, and companies are now focusing
their governance on further enhancing board effectiveness inorder to increase shareholder value on an ongoing basis. Using
the Audit & Supervisory Board System, Tokyo Electron seeks toratio of outside directors on the Board. In fiscal 2021,
we continue to benefit from the advice of our incumbent
outside directors: Mr. Charles Ditmars Lake II, an American
national and executive at an American life insurance company; Mr. Michio Sasaki, who served for many years as pres-implement aggressive governance based on fast, bold decision
making in order to attain world-class profitability and capitalefficiency while also reinforcing careful, prudent governance toensure management transparency and fairness.
In fiscal 2020, we continued to create numerous opportunities for our corporate directors and Audit & Supervisory
Board members to discuss a wide range of important matters beyond the Board of Directors meeting agenda items.
Some discussions focused on initiatives going forward,
based on a shared awareness that, in addition to reinforcing corporate governance, we must build a world-class,integrated governance, risk management and compliance(GRC) system covering the entire Group, including overseas
sites. Considering the medium term, we shared information
about progress toward the targets of the financial model
under the medium-term management plan, as well as theremaining hurdles. From a long-term perspective, we deliberated business areas where we can leverage Tokyo
Electron’s strengths and the Company’s future direction.
We also actively discussed CSR initiatives related to ESG
issues and the Sustainable Development Goals, considering
the growing importance of non-financial value. Going­forward, we will continue discussions aimed at growth overthe medium to long term in order to enhance the effectiveness of the Board of Directors in its roles of establishingmanagement strategy and vision and making major operational decisions based on strategic direction.
To enhance management transparency and fairness, infiscal 2020 an outside director was appointed to chair theCompensation Committee, further enhancing the committee’s independence. Looking at the composition of theBoard of Directors, we made progress in terms of theBoard’s gender diversity and discussed the appropriate

ident of Keyence, a corporation well known for being highly
profitable; and Ms. Makiko Eda, Chief Representative Officer
at World Economic Forum Japan. We have also welcomed
two new outside Audit & Supervisory Board members,
Mr. Masataka Hama, who brings wide-ranging insight into
global capital markets, and Mr. Ryota Miura, who boasts
a wealth of experience as an attorney at law, primarily in thearea of corporate law. The addition of these two members
has further enhanced the Company’s audit functions. Our
sixteen corporate directors and Audit & Supervisory Board
members (including six outside members) engage in brisk,
open and constructive discussion based on their diverse
insights and experience with a strong awareness of Tokyo
Electron’s corporate culture, further enhancing the­effectiveness of the Board of Directors.
The importance of data and networks is growing, driven
by the adoption of IoT, AI and 5G, as well as the growing
use of remote work arrangements and teleconferencing asa result of the spread of COVID-19. These changes in­lifestyles and business rely on semiconductors and FPDs,
which are in turn taking on ever greater roles. Accordingly,
the production equipment market, in which Tokyo Electron
operates, is expected to continue expanding. As chairman,
I will continue doing my utmost to contribute to sustainable growth and the medium- to long-term enhancementof shareholder value in this growing market.

Tetsuo Tsuneishi
Corporate Director
Chairman of the Board

Corporate GovernanceCorporate Governance

Financial Section
Investor Information

Directors, Audit & Supervisory Board Members and Executive Officers

TOKYO ELECTRON ANNUAL REPORT 2020

PAGE

9

CONTENTS

To Our Stakeholders

Business Overview
and Financial Highlights

Interview with the CEO

Review of Operations
and Business Outlook

Message from the Chairman of the Board

Corporate GovernanceCorporate Governance

Financial Section
Investor Information

Directors, Audit & Supervisory Board Members and Executive Officers

Corporate Governance
The Board of Directors respects minority or opposing viewpoints, including opinions voiced by outside directors; revises theconditions for implementation or the content of proposals as necessary; and engages in extensive debate with the goal of reachingdecisions based on consensus. However, emphasis is placed on
making necessary decisions quickly to avoid missing opportunities.

 Basic StanceIn an environment where over 80% of our sales come from overseas, Tokyo Electron regards maintaining governance as essential to
becoming a truly global company that achieves sustainable growth.
To that end, Tokyo Electron strives to build frameworks to maximize the use of its worldwide resources. In addition to strengthening its management platform and technology base, the Company
maintains a governance structure that will enable it to attainworld-class profitability.
Tokyo Electron uses the Audit & Supervisory Board System,
which consists of a Board of Directors and an Audit & Supervisory
Board. Effective governance is achieved based on the supervisionof management by the Audit & Supervisory Board.

Board Size and Independent Outside Directors
Tokyo Electron considers it essential to maintain a Board of
Directors with the appropriate size to ensure high quality, active
debate; a robust balance of knowledge, experience and skills
among both executive directors and independent outside directors; and diversity, including gender and nationality. The current
Board of Directors consists of 11 corporate directors, including one
woman and one foreign national, and Tokyo Electron believes thisto be the appropriate size, at present, to achieve a good balance interms of knowledge, experience and skills.
The active expression of opinions, not only by independent outside
directors, but also by Audit & Supervisory Board members, is the cornerstone that supports the sound decision making of the Board of
Directors. Currently, six out of the 16 participants in the Board of
Directors meetings, including the Audit & Supervisory Board members,
are outside members, consisting of three independent outside directors and three outside Audit & Supervisory Board members. Board of
Directors meetings currently achieve an appropriate sense of productive tension and constructive debate essential for making operational
decisions due to the combined presence of executive directors,
who are highly knowledgeable about Tokyo Electron’s businesses,
and outside members, who provide objectivity.

 Board of Directors
Roles and Responsibilities of the Board of Directors
The Board of Directors works to achieve sustainable growth andincrease corporate value over the medium to long term based on its
fiduciary responsibility to shareholders. The roles and responsibilitiesof the Board of Directors are as follows:(1) Establishing management strategy and vision(2) Making major operational decisions based on strategic direction(3) Engaging in constructive, open-minded debate
The Board of Directors seeks the active participation of thosepresent in discussions in order to obtain a wide range of opinions,and supervises management and operational execution based on
active debate.

Does Tokyo Electron have these major components of corporate governance?

(As of July, 2020)

Nomination Committee

Yes

Four corporate directors, including one outside director andexcluding the CEO

Compensation Committee

Yes

Four corporate directors, including two outside directors andexcluding representative directors
Chaired by an outside director

Outside Directors

Yes

Three of the 11 corporate directors are outside directors

Outside Audit & Supervisory Board Members

Yes

Three of the five Audit & Supervisory Board members areoutside members

Executive officer system

Yes

Adopted in 2003

Disclosure of individual remuneration of representative directors

Yes

Disclosed since 1999

Annual performance-linked compensation system

Yes

Cash bonuses and stock options for internal directors

Medium-term performance-linked compensation system

Yes

Stock-based compensation system for internal directors

Non-performance-linked compensation system

Yes

Stock-based compensation system for outside directors

Stock options system

Yes

Applies only to internal directors
Adopted as an annual performance-linked compensation system

Retirement allowance system for executives

No

Discontinued after fiscal 2006

Anti-takeover measures

No

Nominations for Corporate Director and CEO
Tokyo Electron has established a Nomination Committee to ensure
fairness and efficacy in management. The Nomination Committee has
the authority to propose the appointment and removal of corporate directors or the CEO and proposes corporate director candidates to the Board of Directors prior to their election at theGeneral Meeting of Shareholders and also nominates CEO candidates for appointment by the Board of Directors. The Nomination
Committee is composed of four corporate directors, including one
outside director; the CEO is not a member of the committee.
In addition, to develop the next generation of management andexecutive human resources, the Nomination Committee carefully
surveys and analyzes the status of the successor pool, then reports
to the Board of Directors, which provides appropriate supervision
to ensure that adequate time and resources are being devoted to
implementing the successor development plan.
Corporate Director and CEO Compensation
Tokyo Electron’s compensation policy prioritizes the following
considerations.
(1) Globally competitive compensation levels and systems thatcan secure excellent management human resources(2) S trong correspondence with short-term performance andmedium- and long-term increases in corporate value aimed
at sustainable growth(3) Assuring transparency and fairness in the process of determining compensation as well as the appropriateness ofcompensation
In line with this policy, Tokyo Electron maintains a
Compensation Committee to ensure management transparency
and fairness as well as the appropriateness of compensation andhas adopted a director compensation system that is closely linked
to performance and shareholder value.
The Compensation Committee is composed of four corporate
directors, including two outside directors and excluding the representative directors. From fiscal 2020, the committee is chaired by anoutside director. The Compensation Committee utilizes advice fromexternal experts and conducts an analysis and comparison of compensation and related factors at companies in similar industries inand outside Japan. Based on this analysis, the committee proposes
to the Board of Directors a policy and system for the compensationof the corporate directors and executive officers that will be globallycompetitive and optimally suited to the Company as well as individual compensation amounts for the representative directors.
The compensation of corporate directors (excluding the outside
directors) comprises fixed basic compensation, annual performancelinked compensation and medium-term performance-linked­compensation.
In principle, annual performance-linked compensation consistsof cash bonuses and stock compensation-based stock options; theratio of these two components is roughly 1:1. Stock compensationbased stock options are awarded with the exercise price set at one
yen per share, and a three-year exercise restriction period fromthe date of allotment of rights before the options may be exercised.
In order to incentivize the improvement of corporate performance,
Tokyo Electron has designated net income attributable to owners of
the parent and return on equity (ROE) as the main benchmarks forcalculating annual performance-linked compensation.
The medium-term performance-linked compensation utilizes
performance shares (share-based compensation) with the aim ofusing shareholdings to align the perspectives of corporate directors with those of shareholders and incentivize corporate directors
to increase corporate value. The number of Tokyo Electron sharesissued to corporate directors varies according to the payout rate
based on the responsibilities and level of performance goal
achievement over the relevant three-year term. The operating
margin and ROE are used as indicators to assess the attainment of
performance targets and appropriately link compensation with themedium-term enhancement of corporate value.
The compensation of outside directors comprises fixed basic
compensation and non-performance-linked stock-based compensation. Non-performance-linked stock-based compensation was
adopted from fiscal 2020 to create a compensation system better
suited to the outside directors’ role of providing advice aimed atenhancing corporate value over the medium to long term in addition to management supervision. Under this system, stock is granted after the expiration of the applicable period of three fiscal years.
Evaluation of the Effectiveness of the Board of Directors
To evaluate the effectiveness of the Board of Directors, including
the Nomination Committee and Compensation Committee, Tokyo
Electron conducts a question-based survey of all corporate directors and Audit & Supervisory Board members as well as individualinterviews with some of them.
In fiscal 2020, Tokyo Electron again hired a third-party institution to provide advice on the selection of the items to be evaluated, hold the interviews, and compile and analyze the results. Using
the compiled data and analysis, the outside directors and outside
Audit & Supervisory Board members held discussions of the Boardof Director’s effectiveness. These findings were then shared withand discussed by the entire Board of Directors, which deliberated
and comprehensively evaluated its effectiveness and disclosed
a summary of the results.
At meetings of the Board of Directors, corporate directors andAudit & Supervisory Board members actively engage in discussion
based on their diverse viewpoints and experiences. Each matter isreviewed and deliberated in depth, leading to effective policy andconclusions from the perspective of sustainably increasing corporate value. The evaluation found that positive initiatives andimprovements were moving forward. For example, the diversity of

TOKYO ELECTRON ANNUAL REPORT 2020

PAGE

10

CONTENTS

Business Overview
and Financial Highlights

To Our Stakeholders

Interview with the CEO

Review of Operations
and Business Outlook

Message from the Chairman of the Board

Corporate GovernanceCorporate Governance

Financial Section
Investor Information

Directors, Audit & Supervisory Board Members and Executive Officers

Corporate Governancethe Board of Directors is advancing in terms of gender, the Boardof Directors discusses the appropriate ratio of outside directors,
and matters that are important in the medium and long term are
discussed at off-site meetings. These matters include management strategy, risk management, Group governance and corporatesocial responsibility (CSR).
Tokyo Electron thus concludes that in general its Board of
Directors is effectively ensuring that the key roles of the Board of
Directors are being fulfilled, namely (1) Establishing management
strategy and vision and (2) Making major operational decisions
based on strategic direction, as prescribed in the Tokyo Electron
Corporate Governance Guidelines. In addition, Tokyo Electron recognizes that the Board of Directors, including the Nomination
Committee and Compensation Committee, is functioning effectively.
Based on the results of this evaluation, the Board of Directors
will strive to secure ample opportunities and time for enhancing
discussion of medium- and long-term management strategy whileworking to further reinforce risk management and Group governance. In addition, the Board of Directors will review the composition of the Nomination Committee to enhance its objectivity andexamine how the committee relates to the board. It will also work
to reinforce dialog with stakeholders with greater awareness ofenvironment, social and governance (ESG) issues and the United
Nations’ Sustainable Development Goals (SDGs).

 Audit & Supervisory Board Risk Management

The Audit & Supervisory Board currently consists of five members
and includes three outside members. Two members are full-time.
The full-time Audit & Supervisory Board members collect information through onsite surveys, and the board maintains appropriate
coordination with the Internal Audit Department and the independent auditors as part of a structure that enables Audit &Supervisory Board members to obtain all information necessary
for audits.
Moreover, the composition of Audit & Supervisory Board members provides a good balance of knowledge required for operational audits and accounting audits, including financial andaccounting knowledge, legal knowledge, and audit experience atother companies. Tokyo Electron thus believes its Audit &Supervisory Board members are able to perform their auditing
functions effectively.
Tokyo Electron’s full-time Audit & Supervisory Board members
concurrently serve as Audit & Supervisory Board members of key
subsidiaries, enhancing audit effectiveness. In addition, all of Tokyo
Electron’s Audit & Supervisory Board members, the Audit &Supervisory Board members of its subsidiaries, the head of theInternal Audit Department, and the head of the Risk Management
Department hold Group Audit & Supervisory Board member
meetings to share information and exchange opinions. In theseways, Tokyo Electron maintains a Group-wide audit system.

Corporate Governance Framework, Internal Control System and Risk Management System(As of July, 2020)

Shareholders’ Meeting
Appointment or Dismissal of
Corporate Directors

Management &Supervision

Nomination Committee

ReportAudit

Corporate Senior Staff (CSS)

Audit & Supervisory Board

Cooperate

Appointment
or Dismissal

Independent Auditors

ReportProposal & Report

Business
Execution

Audit

Board of Directors
Compensation Committee

Appointment or Dismissal of
Audit & Supervisory Board members

Supervision/
Appointment or Dismissal

President & CEO (Representative Director)

Audit

Cooperate

Global Audit Center

Cooperate

Business Execution Meeting
Internal Control Executive Officer
Risk Management Executive Officer
Compliance Executive Officer
Ethics Committee

Approach to Risk Management
Reflecting changes in society and the business environment, therisks facing businesses are growing increasingly complex anddiverse. Tokyo Electron considers understanding and appropriately
addressing the risks that it may face in its businesses, as well as
their impacts, to be essential to its sustainable growth.
Risk Management System and Initiatives
In order to promote more effective risk management, Tokyo
Electron carries out enterprise risk management1 through a bodyestablished within the General Affairs Department at its headquarters. This body works with the respective departments responsible
for each operation to identify a wide range of risks arising in­corporate activities (such as compliance risk, human resource andlabor risk, and business continuity risk). It then classifies risks withhigh impact and probability as key risks within the Tokyo ElectronGroup. The body also formulates and executes measures to minimize these key risks, monitors the effect of said measures, works
to understand the status of risk control and implements the PDCA
cycle for risk management. In fiscal 2020, in addition to these
activities, the body conducted interviews with the responsible
departments at the corporate headquarters, and Japanese andoverseas subsidiaries to understand the status of risk management. From fiscal 2021 onward, it also plans to enhance the various functions and systems of risk management and internal audits
to further promote highly effective risk management activities.
The status of these activities is regularly reported to the Board of
Directors and the Audit & Supervisory Board.
1 Enterprise risk management: Group-wide systems and processes related to risk management activities

Auditing by the Internal Audit Department
The Global Audit Center serves as the internal audit department
for the entire Group and implements audits based on the audit
plan. Based on the results of these audits, it provides instructions
for making improvements as needed, confirms the progress ofthese improvements, and provides any necessary support. The
Group’s internal control over financial reporting in fiscal 2020 was
also evaluated as effective by the independent auditors.

Audit
Audit

Risk Management Initiatives
Each year, Tokyo Electron identifies key risks for the Group andsteadily works to reduce those risks. In fiscal 2020, we reinforced
measures in the following areas.

Risk Management Committee
Information Security Committee
Export Trade Control Committee

Business Execution Organization(All Divisions/All TEL Group Companies)

Research and Development
To maintain a competitive advantage and continue growing inmarkets where technological innovation is rapid, it is important forbusinesses to continuously create innovation and to provide highvalue-added products and services. While actively investing inresearch and development of leading-edge technologies toenhance its own research and development capabilities, Tokyo
Electron is also focusing on collaboration with Japanese and international consortiums. In addition, we are sharing technology roadmaps with our customers and collaborating with them in the earlystages of development to ensure our research and development
activities properly reflect future needs. Going forward, we will­continue to drive technological development for the next generation through a Group-wide development structure for collaboration between the Development & Production Divisions andBusiness Divisions.
Supply Chain Management
For manufacturers of semiconductor and flat panel display production equipment, implementation of sustainable supply chain
management is an essential part of such activities as development, production and providing services. To prepare for disruptions to the procurement of important parts or production due toearthquakes or other natural disasters, Tokyo Electron works, on
an ongoing basis, to establish alternative production structures
within its network and to develop a multisource system for important parts. In addition to formulating business continuity plans(BCPs) and holding regular drills, we are building seismically isolated production buildings, adopting appropriate inventory controls,
and taking other steps to establish stable product supply systems.
Information Security
With information security becoming increasingly important as
more and more of society is data-driven, it is equally importantthat companies work to improve their information literacy andbuild robust information infrastructure. Tokyo Electron is focusing
on information security risk from the two perspectives of cyber­security and confidential information management. To improvecybersecurity, we use a combination of industry-leading security
systems, provide security training for employees, and work to protect our information from the sabotage of our servers or computers as well as data theft, data manipulation and other forms ofcyberattack. The information security environment, including
cyberattack methods, is continually changing. Tokyo Electron isalways working to stay ahead of these changes and formulating
and implementing the necessary countermeasures on a global
basis. To improve confidential information management, our
Human Resources Department and Intellectual Property Department
work in close collaboration to strengthen measures to prevent leaks ofconfidential information, particularly targeting employees who retireor resign to ensure proper management of confidential information,
including the return and destruction of data.

TOKYO ELECTRON ANNUAL REPORT 2020

PAGE

11

CONTENTS

To Our Stakeholders

Business Overview
and Financial Highlights

Interview with the CEO

Review of Operations
and Business Outlook

Message from the Chairman of the Board

Financial Section
Investor Information

Corporate GovernanceCorporate GovernanceDirectors, Audit & Supervisory Board Members and Executive Officers

 Promoting Dialog with Investors

Shareholders’ Meeting
Tokyo Electron schedules its shareholders’ meeting to avoid dayson which many such meetings are concentrated as part of its
measures to vitalize these meetings and to promote smooth andefficient voting. The Company also mails a Notice of Annual
General Meeting of Shareholders to shareholders more than three
weeks in advance of the meeting and discloses notices on its
website before they are mailed, striving to provide shareholders
with information as early as possible. Shareholders are free to casttheir votes via the internet, and Tokyo Electron participates in the
web based voting platform for institutional investors operated by
ICJ, Inc.
To supplement the above shareholder meeting-related initiatives, Tokyo Electron’s website carries the resolutions, voting
results and presentation materials of shareholders’ meetings.

Corporate Governance ComplianceApproach to Compliance
Stakeholder trust is essential to business activities. In order tomaintain this trust, it is essential to continuously ensure complianceand enhance corporate ethics. The Code of Ethics of the Tokyo
Electron Group establishes the “appropriate actions to be taken” in
conducting business operations in an honest and fair manner inaccordance with the laws and regulations of the countries andregions in which the Tokyo Electron Group operates as well as withinternal regulations and rules, and stipulates that all executives andemployees must understand and apply the Code of Ethics.
Compliance System
In order to strengthen our compliance system and to ensure efficacy, people responsible for compliance (Regional ComplianceControllers) have been appointed at key overseas sites, creatinga system for direct reporting to the newly established Chief
Compliance Officer and Compliance Department. The primary roleof the Compliance Department is to formulate and review practical compliance programs for the Tokyo Electron Group, establish
and implement corporate ethics, plan and implement educationand training, and establish and operate internal reporting systems.
Compliance Initiatives
Corporate Ethics
In addition to establishing the Code of Ethics as common andminimum standards of conduct by which all executives andemployees should abide, we have also established a Business
Ethics Committee for the purpose of promoting and raising awareness of compliance and corporate ethics more effectively within
the Tokyo Electron Group. We have also set up the Disciplinary
Committee as a subordinate organization of the Business Ethics
Committee for the purpose of ensuring that reasonable andappropriate punishments are imposed and proper procedures­followed when taking disciplinary action.
To ensure awareness of the Code of Ethics, we arrange to translate it into five languages for local use, including Japanese, and distribute it in the form of a booklet to all executives and employees.
In fiscal 2021, the Code of Ethics will be revised. In addition toreflecting standards required as a global company, we will add anumber of new provisions on such important issues as personal
data protection, information security and money laundering. The
revisions, including changes to the booklet design and adoption ofa bullet point format, will be made in pursuit of clarity and usability.
We strive to further strengthen compliance and corporate ethics byannually obtaining confirmation from all executives and employeesthat they understand and comply with the Code of Ethics.
Global Policies on Anti-Bribery and Competition Laws
In fiscal 2021, we will establish common global policies on antibribery and competition laws. Under our anti-bribery policy, we

will review our standards concerning gifts, entertainment anddonations, and we will thoroughly enforce a process requiring preapproval if undertaking conduct outside these standards. As forour policy on competition laws, we will compile different types ofviolations in an easy-to-understand format, based on applicablelaws and regulations in the countries and regions in which we
operate.
Compliance Training
We conduct online and face-to-face training adapted to different
levels for all employees.1 In fiscal 2021, we will deploy a more comprehensive and systematic training program and advance multilingual support to reinforce efforts to foster compliance awarenessand behavior-oriented awareness-building activities in the Tokyo
Electron Group.
1 T raining and seminar topics include basics of corporate ethics and compliance, anticorruption,
export compliance, insider trading prevention, the Act for Subcontracting and the prevention ofharassment. Some training is limited to certain employees.

Internal Reporting System
As a means for employees to provide information and seek redress
outside the chain of command about behavior that is, or may be, inviolation of laws, regulations or corporate ethics, we have established internal reporting mechanisms that ensure confidentiality,
anonymity and the prohibition of retribution. Apart from an internal point of contact that can also be accessed by suppliers, ourreporting mechanisms include an external point of contact at alaw firm that can be contacted directly. In March 2020, we
enhanced the internal reporting system, and renamed Tokyo
Electron Group Ethics & Compliance Hotline—a global common
point of contact that uses a third-party system—thereby ensuring
a greater level of confidentiality and anonymity. This hotline canbe accessed via phone or a dedicated website 24 hours a day, 365
days a year, and accommodates all languages used by employees.
In the event of a report or request for advice, the Tokyo ElectronGroup undertakes an investigation in accordance with internal
regulations. If, as a result, a compliance violation is found, a disciplinary action is imposed in accordance with the Rules of
Employment.2 Preventive measures and corrective measures, suchas improvements to the workplace environment, are also implemented as necessary.
In fiscal 2020, a total of 64 cases were received via internalreporting mechanisms (excluding overseas subsidiaries), primarily
concerning harassment, attendance management and work environment. Among these, there were no reports or cases of noncompliance with laws, regulations, or the Code of Ethics that could
have had a material impact on the Tokyo Electron Group’s businessor local communities.
2 A leniency system has been introduced whereby any disciplinary action may be reduced or
exempted in the event the employee involved in a compliance violation has made a report orsought advice on his/her own volition.

Basic StanceTokyo Electron endeavors to provide opportunities for constructive dialog with as many investors around the world as possible tocontribute to the Company’s sustainable growth and increase corporate value over the medium and long term. Furthermore, to theextent that this is reasonable and possible, the Company placesemphasis on having the Chairman of the Board and CEO communicate with investors through direct dialog.
IR Activities
Striving to maintain dialog with investors, Tokyo Electron maintains a dedicated Investor Relations Department under the directcontrol of the CEO. The Chairman of the Board and CEO serve as
spokespersons for the Company at such events as earnings
release conferences for securities analysts and institutional investors, IR conferences in and outside Japan, and individual meetings.
The spokespersons for the IR Department hold individual meetings with investors and periodically relay the opinions of investors
at these events to the Chairman of the Board and CEO so that
feedback can be of use in management.

 For more details on our corporate governance, please refer to the Tokyo Electron
Corporate Governance Guidelines.
www.tel.com/about/cg/

Third-Party Recognition
Tokyo Electron has been selected for inclusion in world-leading environmental, social and governance (ESG) investment indices, including DJSI1 Asia Pacific 2019, FTSE4Good Index,2 FTSE Blossom Japan Index,3 MSCI World ESG Leaders
Indexes,4 MSCI Japan ESG Select Leaders Index,5 and MSCI Japan Empowering Women Index (WIN).6
Furthermore, for a second consecutive year, Tokyo Electron was recognized as a White 500 company under the2020 Certified Health & Productivity Management Outstanding Organization Recognition Program7 administeredjointly by the Ministry of Economy, Trade and Industry and the Nippon Kenko Kaigi. This year, the recognition was given
not only to Tokyo Electron, but shared with all its domestic Group companies.
8

1 DJSI (Dow Jones Sustainability Indices): ESG investment indices operated by U.S.-based S&P Dow Jones Indices LLC. The DSJI Asia Pacific covers companies in that region.
2 FTSE4Good Index: An index related to environmental performance and corporate social responsibility developed by the UK-based FTSE Russell
3 FTSE Blossom Japan Index: An index that reflects the performance of Japanese companies that have demonstrated strong ESG practices
4 	MSCI World ESG Leaders Indexes: Companies that have high ESG performance are selected from the MSCI Global Sustainability Index, an ESG investment index developed by Morgan Stanley CapitalInternational (MSCI)
5 	MSCI Japan ESG Select Leaders Index: An index featuring companies with high ESG performance selected from its parent index (MSCI Japan IMI Top 700 Index: Top 700 securities based on free
float-adjusted market capitalization). The index targets 50% of the free float-adjusted market capitalization within each GICS® sector of the parent index.
6 	MSCI Japan Empowering Women Index (WIN): An index developed by MSCI featuring companies with excellent gender diversity selected from its parent index (MSCI Japan IMI Top 700 Index).
7 	White 500: A system for recognizing companies implementing especially outstanding health and productivity management based on initiatives to address local health issues or the health promotion initiatives of Nippon Kenko Kaigi. Based on the results of the Survey on Health and Productivity Management, the top 500 companies in the large enterprise category are designated as theWhite 500.
8 	Please check the link for the logo’s disclaimer. www.tel.com/csr/review/

For details on Tokyo Electron’s ESG-related initiatives, please refer to our Sustainability Report 2020.

TOKYO ELECTRON ANNUAL REPORT 2020

PAGE

12

CONTENTS

Business Overview
and Financial Highlights

To Our Stakeholders

Interview with the CEO

Review of Operations
and Business Outlook

Message from the Chairman of the Board

Corporate GovernanceCorporate Governance

Financial Section
Investor Information

Directors, Audit & Supervisory Board Members and Executive Officers

Directors, Audit & Supervisory Board Members and Executive Officers (As of July 1, 2020)
Directors

Executive Officers
Toshiki Kawai

Kiyoshi Sunohara

Hideyuki Tsutsumi

Sadao Sasaki

Seisu Ikeda

Takeshi Okubo

Yoshinobu Mitano

Masaki Yoshizawa

Barry Mayer

Yutaka Nanasawa

President & CEO,GM, Corporate Innovation Division

Tetsuo Tsuneishi

Corporate Director
Chairman of the Board

Toshiki Kawai

Representative Director
President & CEO

Sadao Sasaki

Representative Director

Yoshikazu Nunokawa
Corporate Director

Tatsuya Nagakubo
Corporate Director

EVP & GM, Development & Production
1st Division, Development & Production
4th Division, EHS, Quality, Procurement,
Production Technology
President, Tokyo Electron Technology
Solutions Ltd.

Yoshikazu Nunokawa

EVP & GM, Global Business Platform Division(Finance, Export & Logistics Control, IT,
Information Security, Intellectual Property)
Finance Division, Internal Control

Tatsuya Nagakubo

Kiyoshi Sunohara
Corporate Director

Seisu Ikeda

Corporate Director

Yoshinobu Mitano
Corporate Director

Charles Ditmars Lake II*
Corporate Director
Chairman and Representative
Director, Aflac Life Insurance
Japan Ltd.
President, Aflac International
Incorporated
Outside Director,
Japan Post Holdings Co., Ltd.

Michio Sasaki*

Corporate Director
Outside Director,
ZUIKO CO., LTD.
Outside Director(Audit & Supervisory
Committee Member),
SHIFT, Inc.

Makiko Eda*

Corporate Director
Chief Representative Officer,
World Economic Forum Japan
Outside Director,
FUJIFILM Holdings Corporation* Outside Director

Audit & Supervisory Board Members

Yoshiteru Harada

Audit & Supervisory Board
MemberKazushi Tahara

Audit & Supervisory Board
MemberKyosuke Wagai*

Audit & Supervisory
Board Member
Certified Public Accountant,
Wagai CPA Office

Masataka Hama*
Audit & Supervisory
Board Member

Ryota Miura*

Audit & Supervisory
Board Member
Partner, Miura &Partners Legal
Profession Corporation* Outside Audit & Supervisory Board Member

SVP & GM, Deputy GM, Global Business
Platform Division (Human Resources,
General Affairs, CSR, Branding, Legal,
Compliance)
GM, Human Resources, General Affairs, CSR,
Branding Division, Legal, Compliance Division,
Chairman of Ethics Committee

SVP & GM, Field Solutions Business Division,
Business Innovation Project
SVP & GM, Account Sales Division
SVP & GM, SPE Business Division
SVP & GM, Global Strategy

David BroughSVP & GM, Global Strategy

SVP & GM, Vice Division GM,
Corporate Innovation Division
SVP & GM, Global Sales Division
VP & GM, Strategy

VP & GM, IT Division, Business Innovation
Project
President, TEL Solar Services AG

Tetsuro Hori

Keiichi Akiyama

Kenji Washino

Isamu Wakui

Tsuguhiko Matsuura

Hiroshi Ishida

SVP & GM, Business Innovation Project
SVP & GM, Backend Process Business Division
SVP & GM, FPD Business Division

VP & GM, CTSPS BU
VP & GM, ES BU

Toshihiko Nishigaki

VP & GM, Deputy GM,
Corporate Innovation Division(Digital Transformation)

Masayuki Kojima

VP & GM, Development & Production
2nd Division
President, Tokyo Electron Miyagi Ltd.

Shinichi Hayashi

VP & GM, Development & Production
3rd Division, Deputy GM, Corporate
Innovation Division
President, Tokyo Electron Kyushu Ltd.

Shingo Tada

VP & GM, Deputy GM, Account Sales Division

Masahiro Morita

VP & GM, Account Sales, Global Sales

VP & GM, TFF BU

EVP: Executive Vice President
SVP: Senior Vice President
VP: Vice President
GM: General Manager

TOKYO ELECTRON ANNUAL REPORT 2020

PAGE

13

CONTENTS

To Our Stakeholders

Business Overview
and Financial Highlights

Review of Operations
and Business Outlook

Interview with the CEO

Financial Section
Investor Information

Corporate GovernanceConsolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Comprehensive Income
Consolidated Eleven-Year Summary
Financial Review
Consolidated Statements of Changes in Net Assets
Consolidated Subsidiaries
Consolidated Statements of Cash Flows
Independent Auditor’s Report
Notes to Consolidated Financial Statements

Investor Information

Financial Review
with semiconductors, however, demand for displays began to

R&D Expenses

billion in fiscal 2020, down 25.4% from fiscal 2019. Net income

recover in the second half of the year. In 2020, the FPD pro-R&D expenses were up ¥6.2 billion year on year to ¥120.2 bil-

per share (basic) declined 22.7% year on year to ¥1,170.57.

Operating Environment

duction equipment market is expected to grow driven by thelion, a record high, due in large part to the continued rein-

The overall world economy in fiscal 2020 continued to grad-

demand for OLED displays for mobile.

forcement of R&D in the fields of etch, deposition andComprehensive Income

N Sales and Income

cleaning systems, in which the Company is working to

In fiscal 2020, Tokyo Electron recognized comprehensive

solid and the recovery continuing in Europe, despite slowing

Sales

expand its market share. The ratio of R&D expenses to net

income of ¥187.0 billion, compared with ¥242.6 billion in fis-growth due to such factors as Brexit-related concerns andNet sales in fiscal 2020 came to ¥1,127.2 billion, down 11.8%

sales rose 1.8 percentage points to 10.7%. The Corporatecal 2019. This was mainly due to the ¥185.2 billion in net

weakness in China and other parts of Asia.

year on year but surpassing the forecast despite concerns

Innovation Division also engaged in the development ofincome, ¥7.0 billion in unrealized gains on investment securi-

about the impact of COVID-19 in early 2020, reflecting recov-

equipment and processes in new fields in order to create

ties related to strategically held shares, ¥8.4 billion in loss on

behind slowing investment in semiconductor production

ery in capital investment for semiconductors and FPDs. By

markets. Furthermore, we are proactively developing new

foreign currency translation adjustments and ¥3.2 billion inequipment (SPE), gradually improved. Although investment

segment, net sales in the SPE segment fell 9.1% year on year

applications leveraging IoT and AI technologies to provide

remeasurements of defined benefit plans.

in memory chip underwent adjustment, as memory prices

to ¥1,060.9 billion. Net sales in the FPD production equip-

better customer service.

bottomed out, investment began to pick up near the end ofment segment decreased 40.6% year on year to ¥66.0 billion.

the fiscal year. In contrast, investment by logic chip manufac-

For details on performance by segment, please refer to

PICP™ plasma etch system, which offers superior processing

It is the policy of Tokyo Electron to pay dividends on theturers and foundries grew considerably, reflecting growth in

Review of Operations and Business Outlook on page 7.

uniformity, has progressed as planned, Tokyo Electron isbasis of business performance. The Company aims for a pay-demand for high-performance microprocessors for personal

Furthermore, net sales in the field solutions business (encom-

developing a new generation of the PICP™ in response toout ratio of 50% of net income attributable to owners of thecomputers and data centers as well as next generation appli-passing sales of parts and used equipment, modifications anddemand for higher resolution. In addition, the inkjet system isparent. Furthermore, with an eye to ensuring stable divi-

cation processors for 5G smartphones in conjunction withmaintenance services) rose 5.7% year on year to ¥304.8 bil-

being evaluated to manufacture OLED displays, not only fordends, a lower limit of ¥150 per share has been set on annual

efforts to realize a data-driven society, which are expected tolion, accounting for 27.0% of consolidated net sales.

large-size TVs, but also for high-resolution, rapid response

dividends.1 Accordingly, although the Company’s markets

gaming displays.

were undergoing adjustment, Tokyo Electron paid annualually expand, with the United States economy remaining

Demand for memory chips, which had been a major factor

ramp up from 2020. Furthermore, demand for power devic-

Dividend Policy and Dividends

In FPD production equipment, while promotion of thees, discreet devices and other semiconductors that utilize

Gross Profit and Operating Income

mature technologies increased. Accordingly, although invest-

Gross profit in fiscal 2020 was down 14.1% year on year to

Other Income (Expenses) and Net Income Attributable toof 50.2%), its third highest ever. Going forward, the Company

ment in memory chip was restrained, the wafer fab equip-¥451.9 billion, reflecting the decrease in net sales. The grossOwners of Parent

will seek to build world-class profitability and reciprocate thement market remained strong, at over US$50 billion for a

profit margin fell 1.1 percentage points to 40.1%, due to an

During fiscal 2020, net other expenses came to ¥0.3 billion,

support of shareholders by delivering profit growth.

third consecutive year.

increase in the production cost ratio as a result of thereflecting ¥0.5 billion in extraordinary loss due mainly to adecrease in net sales. The operating margin similarly declined

loss on sales and disposal of property, plant and equipment,

ation 10.5 panels for LCD TVs remained strong, a slowdown in

3.3 percentage points to 21.0%. This was mainly due to anoffsetting ¥0.1 billion in extraordinary income due in part toshipments of mobile devices led to adjustment in investment

increase in the R&D expense ratio as a result of continued

gain on change in equity. Income before income taxes camein small- and medium-sized panels for OLED display.

aggressive investment to maximize future growth opportunities

to ¥244.6 billion, down 23.9% year on year. As a result, net

Accordingly, the market for flat panel display (FPD) produc-even during this period of customer investment adjustment.

income attributable to owners of the parent totaled ¥185.2

In the display market, although investment in large gener-

dividends for fiscal 2020 of ¥588 per share (for a payout ratio

1 This lower limit may be revised in the event that the Company does not­generate net income for two consecutive fiscal years.

tion equipment shrank approximately 25% year on year. As

Millions of yen

Sales and Income
Net sales
Gross profit

2016

2017

2018

2019

2020

¥663,949¥799,719¥1,130,728¥1,278,240¥1,127,286

267,210322,291

475,032

526,183

451,941

40.2%

40.3%

42.0%

41.2%

40.1%

Selling, general and administrative expenses

150,421

166,594

193,860

215,612214,649

Operating income

116,789

155,697

281,172

310,571

237,292

17.6%

19.5%

24.9%

24.3%

21.0%

Income before income taxes

106,467

149,116

275,242

321,508

244,626

Net income attributable to owners of parent

77,892

115,208

204,371248,228

185,206

Gross profit margin

Operating margin

Net Sales and Gross Profit Margin

Operating Income andOperating Margin(Billions of yen)(%)(Billions of yen)

44

320

1,600

42.0 41.2
40.2 40.3
40.1
1,278.2

1,200

1,130.7

1,127.2

799.7

800

33

240

19.5

(%)

(Billions of yen)

28

280

(%)

29.0

24.9 24.3 237.2

160

21

19.1
14

155.6
116.8

0

17

18

19

20

80

0

0

16
 Operating Income Operating Margin

17

18

19

20

7

70

0

0

24
21.8
185.2

140
13.0

11

32

30.1

248.2
204.3

210

21.0

17.6
22

400

 Net Sales
 Gross Profit Margin

310.5
281.1

663.9

16

Net Income Attributableto Owners of Parent and ROE

16

115.2

77.9

8

0

16

17

18

19

20

 Net Income Attributable to Owners of Parent
 ROE
ROE = Net income attributable to owners of parent /Average total equity x 100

TOKYO ELECTRON ANNUAL REPORT 2020

PAGE

14

CONTENTS

Business Overview
and Financial Highlights

To Our Stakeholders

Review of Operations
and Business Outlook

Interview with the CEO

Financial Section
Investor Information

Corporate GovernanceConsolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Comprehensive Income
Consolidated Eleven-Year Summary
Financial Review
Consolidated Statements of Changes in Net Assets
Consolidated Subsidiaries
Consolidated Statements of Cash Flows
Independent Auditor’s Report
Notes to Consolidated Financial Statements

Investor Information

Financial Review­billion year on year to ¥10.9 billion, reflecting decreases due to

N Financial Position and Cash FlowsAs a result, the equity ratio fell 5.9 percentage points year

the end of fiscal 2019. The combined balance including ¥90.4

depreciation and amortization (including of goodwill), as wellon year to 64.1% at the end of March 2020. ROE remained

billion in deposits and short-term investments with original

Assets, Liabilities and Net Assets
Assetsan increase related to the core business systems to be intro-

high at 21.8%, despite the decrease in net income attributablematurities of more than three months that are not included

duced from fiscal 2022. As a result, total assets as of March 31,

to owners of the parent due to market adjustment.

in cash and cash equivalents decreased ¥54.2 billion year on

Current assets decreased ¥20.4 billion from the end of the2020 stood at ¥1,278.4 billion, up ¥20.8 billion year on year.

year to ¥338.4 billion at the end of March 2020. Cash flows
Capital Expenditures1 and Depreciation and Amortization2

previous fiscal year to ¥962.4 billion, reflecting a ¥27.7 billion

during the fiscal year under review were as follows.

decrease in cash and deposits, a ¥26.5 billion decrease in

Liabilities and Net Assets

Capital expenditures totaled ¥54.6 billion in fiscal 2020, a

short-term investments included in securities, and a ¥37.8

Current liabilities increased ¥77.6 billion from the end of fiscal

9.9% year on year increase. Major expenditures included thelion, up ¥63.5 billion from fiscal 2019. Major contributors werebillion increase in inventories. The turnover period for trade2019 to ¥382.5 billion at the end of fiscal 2020. This was main-

acquisition of equipment and measurement instruments for¥244.6 billion in income before income taxes, a ¥58.6 billion

notes and accounts receivable in fiscal 2020 was 49 days,

ly due to a ¥58.0 billion increase in customer advances andR&D in order to strengthen key areas in the SPE business as

increase in customer advances and ¥29.1 billion in depreciationcompared with 42 days in fiscal 2019, and the inventory turn-a ¥20.4 billion increase in trade notes and accounts payable.

well as the construction of new production buildings at theand amortization. Major outflows included a ¥44.0 billion

Tohoku and Yamanashi plants to meet rising demand forincrease in inventories and ¥41.8 billion in income taxes paid.

Non-current liabilities increased ¥1.5 billion year on year toover period in fiscal 2020 was 127 days, compared with 101¥66.2 billion.

days in fiscal 2019.

deposition equipment and the seismic reinforcement of

Net assets came to ¥829.6 billion at the end of fiscal 2020,

Net property, plant and equipment increased ¥25.5 billion

Net cash provided by operating activities came to ¥253.1 bil-year on year to ¥175.5 billion. This was largely due to an

down ¥58.4 billion from the end of fiscal 2019. This wasincrease in construction in progress reflecting the new pro-mainly due to ¥154.0 billion in repurchase of treasury stock

duction buildings being built at the Yamanashi and Tohoku

and ¥95.5 billion paid in cash dividends (the fiscal 2019 year-

plants, and the acquisition of new evaluation tools.

end dividend and fiscal 2020 interim dividend), despite theNet cash provided by investing activities was ¥15.9 billion,buildings at subsidiaries.

compared with ¥84.0 billion used in the previous fiscal year.

Depreciation and amortization increased 19.7% to ¥29.1 billion.

This was mainly due to an ¥80.0 billion inflow from thedecrease in short-term investments, despite outflows of ¥49.3

1 Capital expenditures represent only the gross increase in property, plantand equipment.
2 Depreciation and amortization does not include amortization of goodwill or
losses on impairment.

billion used as payment for purchases of property, plant andequipment, and ¥10.4 billion due to an increase in deposits.

recording of ¥185.2 billion in net income attributable to own-

Investments and other assets increased ¥13.9 billion year

ers of the parent.

on year to ¥129.5 billion. Intangible assets increased ¥1.8

Millions of yen

Financial Position

2016

2017

2018

2019

2020

Total current assets

Net cash used in financing activities came to ¥250.3 billion,
Cash Flows

compared with ¥129.7 billion in fiscal 2019. This was mainly

The balance of cash and cash equivalents at the end of March

attributable to ¥154.0 billion in payment for purchases of2020 stood at ¥247.9 billion, an increase of ¥15.3 billion fromtreasury stock and ¥95.5 billion in dividends paid.

¥617,416¥775,938¥ 946,597¥ 982,897¥ 962,484

Net property, plant and equipment

96,317

100,441

125,952

150,069

175,580

Cash Flows

Total investments and other assets

79,63581,067130,246

124,661

140,431

Total assets

793,368

957,447

1,202,796

1,257,627

Total current liabilities

166,061

247,770

368,452

Total liabilities

229,129

311,447

Total net assets

564,239645,999

Millions of yen

2016

2017

2018

2019

2020

Cash flows from operating activities¥ 69,398¥136,948¥186,582¥189,572¥253,117

1,278,495

Cash flows from investing activities(150,014)(28,893)(11,833)(84,033)

15,951

304,882

382,578

Cash flows from financing activities(138,601)(39,380)(82,549)(129,761)(250,374)

431,287

369,510448,802

Cash and cash equivalents at end of year

95,638164,366

257,877

232,634

247,959

771,509888,117829,692

Note: From fiscal 2019, the Company applied the Accounting Standards Board of Japan’s “Partial Amendments to Accounting Standard for Tax Effect Accounting”(ASBJ Statement No. 28, revised on February 16, 2018). Total current assets, total investments and other assets, total assets and total liabilities for fiscal 2018
have been restated in accordance with the revised accounting standard.

Selling, General and Administrative
Expenses and Ratio to Net Sales

R&D Expenses(Billions of yen)(%)(Billions of yen)

240

40

120

113.9

215.6 214.6
193.8
180
150.4
120

22.6

166.5

Capital Expenditures andDepreciation and Amortization

Cash on Hand

(Yen)

(Days)(Billions of yen)(Billions of yen)

160

60

800

758

90

83.8

127

624

600

400

588

120
107

108

111

50

49.7
45.6

10

0

0

18

19

20

 Selling, General and Administrative Expenses
 Ratio to Net Sales

200

30

0

30
64

237

40

0

16

338.4

315.3

300
236.7

80

400

60

19.1

60

392.6

40

101

29.1

352

20.8

373.8

54.6

76.3
20

17

Receivable Turnover andInventory Turnover

97.1
30

17.1 16.9

16

120.2

Cash Dividends per Share

17

18

19

20

61

20
52

42

49

19

20

17

18

19

20

24.3
100

0

0

16

10

20.6
19.320.6
17.8
13.3

16
 Receivable Turnover
 Inventory Turnover

17

18

200

0

16

17

18

 Capital Expenditures Depreciation and Amortization

19

20

16

17

18

19

20

Cash on hand = Cash and cash equivalents at the end of the year
+ short-term investments with original maturities of more than
three months that is not included in cash and cash equivalents

TOKYO ELECTRON ANNUAL REPORT 2020

PAGE

15

CONTENTS

To Our Stakeholders

Business Overview
and Financial Highlights

Interview with the CEO

Review of Operations
and Business Outlook

Corporate GovernanceConsolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Comprehensive Income
Consolidated Eleven-Year Summary
Financial Review
Consolidated Statements of Changes in Net Assets
Consolidated Subsidiaries
Consolidated Statements of Cash Flows
Independent Auditor’s Report
Notes to Consolidated Financial Statements

Financial Section
Investor Information

Investor Information

Financial Review
N Business-Related and Other Risks
The following risks may have a material impact on Tokyo
Electron’s business performance, financial ­position or stock price.
(1) Changes in the Semiconductor Market
The semiconductor market is influenced by a wide range offactors, including the global economy, demand for end­products, trade and tariff policies, and geopolitical factors.
As a result of such factors, supply and demand can become
unbalanced and undergo significant short-term fluctuations.
Unforeseen rapid contraction of the semiconductor market
could lead to order cancellations, production capacity excess,increases in dead inventory, or losses from bad debts resulting from the worsening of a customer’s financial position, orotherwise adversely affect Tokyo Electron’s business performance. In addition, a rapid increase in demand that exceeds
the Company’s assumptions could lead to an inability to­provide products to customers in a timely manner resulting
in lost sales opportunities or otherwise adversely affect
Tokyo Electron’s business performance.
The semiconductor market is expected to expand over the
medium and long terms, reflecting ongoing technologicalinnovation in step with the adoption of IoT, next-generation(5G) telecommunications standards, AI and other technologies. Nevertheless, in order to respond to potential shortterm market fluctuations, Tokyo Electron constantly works toappropriately adjust its capital investment, personnel, inventories and other aspects of its businesses based on the latest
market forecasts, taking such steps as periodically reviewing
market conditions and orders received at Board of Directors
and other important meetings. Furthermore, Tokyo Electron’sability to respond to market fluctuations is enhanced by its
wide-ranging lineup of semiconductor manufacturing­products, all of which have high market shares in theirrespective categories and are mutually reinforcing.
(2) C oncentration of Transactions on Particular Customers
A large portion of Tokyo Electron’s sales are to major, leadingedge semiconductor manufacturers. As such, Tokyo
Electron’s performance tends to be impacted by changes incapital investment by these major customers. Reductions intheir capital investment could lead to temporary decreases insales, while postponed payment due to the worsening of amajor customer’s financial position could delay the collectionof trade notes and accounts receivable, and these could
adversely affect Tokyo Electron’s business performance.
The semiconductor market is expected to expand over the
medium and long terms. Tokyo Electron has established an
Account Sales Division, which works in close coordination withmajor customers and quickly grasps trends in their capital investment outlook, as well as a Global Sales Division, which responds
to a wide range of customer needs and cultivates new customers emerging in step with growth in semiconductor demand.
Through such efforts, the Company strives to strengthen andexpand its sales framework and customer base.
(3) Research and Development
Through ongoing R&D investment in leading-edge technologies, Tokyo Electron quickly brings to market new products
incorporating such technologies, succeeding in capturinghigh market share in each product category and achieving
a high profit margin. However, delays in the launch of new
products that meet customers’ technological needs, the­mismatch of newly developed products with such needs, orthe launch of new technologies or products by competitors

before such launches by Tokyo Electron could negatively
affect the competitiveness of the Company’s products,
impede the recovery of R&D costs and the maintenance ofa high profit margin, or otherwise adversely affect Tokyo
Electron’s business performance.
Tokyo Electron has established a Corporate Innovation
Division, which develops innovative technology and makes
groundbreaking technology proposals that integrate theproducts and technologies of other development divisions, aspart of a Groupwide development framework. In addition, theCompany shares technology roadmaps spanning multiple
technology generations with leading-edge customers in order
to constantly provide highly competitive next-generation
products that meet future needs ahead of its competitors.
(4) Production and Supply
Tokyo Electron’s key production sites are located in Japan,
and it supplies products to customers in and outside Japan.
As such, earthquakes or other natural disasters, war, acts ofterrorism, infectious disease outbreaks or other unavoidable
events occurring in Japan could cause interruptions in production that, if not promptly resolvable, could delay the supply of
products to customers. Furthermore, the stable supply ofcomponents provided by suppliers is indispensable to smooth
production. As such, in addition to the risk of disasters, delays
in component procurement due to the worsening of a supplier’s management situation or similar factors could result indelays in the supply of products to customers and adversely
affect Tokyo Electron’s business performance.
Tokyo Electron formulates and periodically reviews business continuity plans (BCPs) and works to establish alternate
production structures, develop multiple sources of importantparts, seismically reinforce its plants, maintain backups ofinformation systems and implement appropriate inventory
control. Through these and other measures, the Company
strives to maintain stable product supply.
(5) Safety
Damages to customers or order cancellations due to safetyrelated issues or other problems related to Tokyo Electron’s
products could result in liability for damages, decrease sales,
diminish trust in the Company, or otherwise adversely affect
Tokyo Electron’s business performance.
Tokyo Electron’s “Safety First” approach entails the constant consideration of safety and health in the execution ofbusiness activities, including development, manufacturing,sales, services and management. In accordance with thisapproach, Tokyo Electron works actively and continuously to
improve the safety of its products and to eliminate any
harmful impact on health. Measures to this end include thoroughgoing safety design at the product development phase,safety training and maintaining an accident reporting system.
(6) Quality
Tokyo Electron’s products are based on the integration andoptimization of numerous leading-edge technologies. The
occurrence of unforeseen defects could lead to recalls or
responsibility for other damages based on product or quality
liability, necessitate additional costs related to implementing
defect countermeasures, decrease sales, diminish trust in the
Company, or otherwise adversely affect Tokyo Electron’sbusiness performance.
Based on a uniform Groupwide quality control policy,
Tokyo Electron provides quality training for its employees
and suppliers and strives to maintain a quality assurance system, including ISO 9001 certification, as well as a world-classservice system. The Company also seeks to solve customer
issues by working with customers from the early stages of
product development and design. When defects occur, theCompany investigates the root of the problem and takes
thoroughgoing measures to prevent recurrences and similar
issues. Moreover, in order to increase the quality of procured
components, the Company constantly monitors supplierquality, conducting audits and providing support for suppliersin accordance with its regulations.
(7) Laws and Regulations
Tokyo Electron operates globally and is therefore subject tothe various laws and regulations of the countries and regions
where it does business, including those regarding imports
and exports, the environment, competition, labor, the prevention of corruption and bribery, and transfer pricing­taxation. Tokyo Electron strives to ensure compliance withsuch laws and regulations. However, violations of such laws
or regulations could result in diminished public confidence in
the Company, fines, damages or restrictions on businessactivities, or otherwise adversely affect Tokyo Electron’s­business performance. Furthermore, unanticipated future
legal amendments or tightening of regulations could, if theCompany is unable to respond appropriately, result in liability
for costs related to such response or restrictions on businessactivities, or otherwise adversely affect Tokyo Electron’s­business performance.
Tokyo Electron has built a system for monitoring compliance activities at key sites in and outside Japan under the
direction of a Chief Compliance Officer. The Company­conducts compliance assessments, and the identified issues
are reported to the CEO, Board of Directors and Audit &Supervisory Board so that they can be dealt with quickly
and effectively.
(8) Intellectual Property Rights
Tokyo Electron’s products are based on the integration andoptimization of numerous leading-edge technologies.
Obtaining and legally protecting Tokyo Electron’s intellectual
property rights and preventing infringements of such rights
by third parties are crucial to differentiating and ­reinforcing
the competitiveness of its products. Furthermore, infringements by Tokyo Electron of the intellectual property rights ofthird parties could lead to restrictions on the ­production andsale of the Company’s products or liability for damages, orotherwise adversely affect Tokyo Electron’s ­business performance.
By advancing R&D strategy, business strategy and­intellectual property strategy in an integrated manner, Tokyo
Electron strives to build an appropriate intellectual property
portfolio and obtain exclusive rights to numerous proprietary
technologies to capture high market share and achieve highprofit margins in each of its product fields.
(9) Information Security
In the course of its business activities, Tokyo Electron obtains,holds and utilizes confidential information, customer information and personal information. The unintentional leak ofsuch information could result in diminished public confidence
in the Company, liability for damages or reduced productcompetitiveness, or otherwise adversely affect Tokyo
Electron’s business performance. In addition, Tokyo Electron’sbusinesses rely on information systems and networks.
Problems with these systems and networks due to cyberattacks, unauthorized access, natural disasters, power outages,
equipment malfunctions, human errors or other factors could
cause interruptions to operations or a loss of trust.

Tokyo Electron has established regulations and systems forappropriate information management. In addition, theCompany reinforces its information and network system bymonitoring the reliability of its security though such means
as security assessments.
(10) Securing Human Resources
Securing and developing human resources in and outside
Japan is crucial to the continued innovation and growth ofTokyo Electron’s global businesses. The inability to hire andmaintain the necessary human resources on an ongoing basisor the loss of important human resources could lead to staffing shortages, resulting in diminished product development
capability or customer support quality and adversely affecting
Tokyo Electron’s business performance.
Tokyo Electron believes that its employees are the sourceof ongoing value creation and that increasing employee
engagement is one of the most important factors in increasing
corporate value. The Company has introduced a globally unified human resources system and incentive plans linked tomedium-term business performance, and is advancing­ongoing measures to improve work environments as well as
health and productivity management, including steps to prevent excessively long work hours and workplace harassment.
(11) Environmental Issues
Requests from Tokyo Electron’s stakeholders related to reducing
environmental burden are growing. Given this, difficulties inadequately conforming to environmental laws and regulations,or meeting industry standards of conduct or customer needs,
could result in related costs, reduce product competitiveness,damage public confidence in the Company, or otherwise
adversely affect Tokyo Electron’s business performance.
Tokyo Electron strives to comply with environmental laws
and regulations and industry standards of conduct, sets its
own medium- to long-term environmental goals, and works
to reduce greenhouse gas emissions from the use of its­products as well as energy consumption at its facilities. In
addition, the Company works to protect the global environment through its business activities by such means as­providing technologies to reduce semiconductor power­consumption, promoting used equipment and parts businesses, reducing equipment size, and increasing productivity
by improving throughput.
(12) The Novel Coronavirus (COVID-19)
The spread of COVID-19 could affect Tokyo Electron’s business
continuity, including its manufacturing and sales activities. In
addition, restrictions on the worldwide movement of people
and things, the deterioration of global economic conditions,and other such impacts from the spread of COVID-19 could
adversely affect Tokyo Electron’s business performance.
Tokyo Electron has established an Emergency Task Forceheaded by the CEO and is implementing related countermeasures, including restricting travel to high infection-riskcountries and regions, steps to maintain supply chains, andthoroughgoing infection prevention measures at its facilities.
(13) Other Risks
Tokyo Electron’s businesses are influenced by many factors,
including economic conditions worldwide and in specificregions, financial and stock markets, product and real estatemarkets, foreign exchange rates, the success or failure of­corporate acquisitions, major lawsuits, and competition overstandardization. The Company expects that such factors will
sometimes adversely affect performance and takes appropriate
measures to counter such risks.

TOKYO ELECTRON ANNUAL REPORT 2020

PAGE

16

CONTENTS

To Our Stakeholders

Business Overview
and Financial Highlights

Review of Operations
and Business Outlook

Interview with the CEO

Financial Section
Investor Information

Corporate Governance

Financial Review
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Comprehensive Income
Consolidated Eleven-Year Summary
Consolidated Statements of Changes in Net Assets
Consolidated Subsidiaries
Consolidated Statements of Cash Flows
Independent Auditor’s Report
Notes to Consolidated Financial Statements

Investor Information

Consolidated Eleven-Year SummaryTokyo Electron Limited and Subsidiaries
As of and for the years ended March 31

Thousands of
U.S. dollars

Millions of yen

2020

2020

2019

2018

2017

2016

2015

2014

2013

2012

2011

2010

$10,358,232
9,749,122
607,299——
1,810
2,180,397
2,247,788
1,701,799
1,719,056¥1,127,286
1,060,997
66,092——
197
237,292
244,626
185,206
187,084¥1,278,240
1,166,781
111,261——197
310,571
321,508248,228
242,696¥1,130,728
1,055,234
75,068——425
281,172
275,242204,371
206,152¥799,719
749,893
49,387——438
155,697
149,116
115,208
119,998¥663,949
613,033
44,687——
6,229
116,789
106,467
77,89260,984¥613,125
576,242
32,7103,618—
555
88,11386,82871,88880,295¥612,170
478,842
28,317
3,806
100,726
479
32,205(11,756)(19,409)(10,889)¥ 497,300
392,027
20,077
83
84,665448
12,54917,767
6,076
15,826¥ 633,091
477,873
69,889—84,868461
60,44360,602
36,72636,954¥ 668,722
511,332
66,721—
90,216453
97,87099,57971,92469,598¥ 418,637
262,392
71,361—
84,473411(2,181)(7,768)(9,033)(4,751)

Domestic sales
Overseas sales

1,486,835
8,871,396

161,812965,474

208,796
1,069,443

148,760
981,967

101,122698,597

121,808
542,141

95,046
518,079

161,631450,539

118,504
378,796

171,364
461,727

182,165
486,557

162,609
256,028

Depreciation and amortization 2
Capital expenditures 3
R&D expenses

267,459
502,307
1,105,100

29,10754,666120,268

24,32349,754113,980

20,61945,603
97,103

17,872
20,69783,80019,257
13,341
76,287

20,87813,18471,35024,888
12,79978,664

26,631
21,77473,24924,19839,541
81,506

17,707
39,14070,56820,002
14,91954,074

Total assets 6
Total net assets

11,747,636
7,623,747

1,278,495
829,692

1,257,627
888,117

1,202,796
771,509957,447645,999

793,368
564,239

876,154641,163828,592
590,614775,528
605,127

783,611598,603809,205
584,802696,352
523,370

13,837

12,742

11,946

11,241

10,62910,844

12,304

12,201

10,684

10,343

10,06833.91
33.85
3,309.58
51.00
180,61141,287¥ 205.04
204.723,275.14
80.00
180,61142,414¥ 401.73
401.103,198.66
114.00180,61144,896

(3.3)
5.3
69.8
0.76

1.0
2.5
76.5
0.64

6.3
9.5
74.9
0.79

13.3
14.6
70.8
0.89

(1.8)
(0.5)
73.5
0.61

¥ 49,754¥ 40,759¥ 59,256¥ 64,655¥ 41,581

Net sales 1
Semiconductor production equipment
FPD production equipment
PV production equipment
Electronic components and computer networks
Other
Operating income (loss)
Income (loss) before income taxes
Net income (loss) attributable to owners of parent
Comprehensive income (loss)

Number of employees
U.S. dollars

Net income (loss) per share of common stock:
Basic
Diluted 4
Net assets per share of common stock
Cash dividends per share of common stock
Number of shares outstanding (thousands)
Number of shareholders

$

10.76
10.70
48.41
5.40

Yen

¥ 1,170.57
1,164.02
5,267.96
588.00157,21030,348¥ 1,513.58
1,507.22
5,371.78758.00165,21050,843¥ 1,245.48
1,241.22
4,674.49
624.00165,21035,186¥ 702.26
700.35
3,919.50
352.00165,210
21,937¥ 461.10
460.003,428.37
237.00165,211
24,664

21.8
21.0
64.1
0.89

30.1
24.3
70.0
1.04

29.0
24.9
63.8
1.05

19.1
19.5
67.2
0.91

13.0
17.6
70.9
0.80

¥ 401.08
400.153,567.23
143.00180,611
20,829¥ (108.31)—
3,225.92
50.00
180,61130,563¥¥(50.47)—2,859.37
12.00
180,61139,285%

ROE
Operating margin
Equity ratio 6
Total asset turnover (times) 6
U.S. dollars

Net sales per employee$

748,589

11.8
14.4
73.0
0.72
Thousands of yen¥

81,468¥ 100,317¥

94,653¥ 71,143¥ 62,466¥ 56,540

1	From fiscal 2015, Electronic components and computer networks was excluded because Tokyo Electron Device Limited, a former consolidated subsidiary, became an equity method affiliate. Photovoltaic panel (PV) production equipment was included in FPD production equipment until fiscal 2012 but from fiscal 2016, it has been included in Other.
2	Depreciation and amortization does not include amortization and loss on impairment of goodwill.
3	Capital expenditures only represent the gross increase in property, plant and equipment.
4	From fiscal 2011, the Company calculated net income per share of common stock (diluted) in accordance with “Accounting Standard for Earning Per Share” (Statement No. 2) and “Guidance on Accounting Standard for Earnings Per Share” (Guidance No. 4) released by the ASBJ. Dilution is not assumed for the years ended March 31, 2014 and 2010.
5	The amounts in this summary in millions and thousands of yen; thousands of U.S. dollars; and thousands of shares as of and for the years ended March 31, 2016 and prior are rounded to the nearest unit. Such amounts as of and for the years ended March 31, 2017 and onward are truncated at the nearest unit. Accordingly, totals for the years ended
March 31, 2017 and onward do not necessarily agree with the sum of the corresponding individual amounts.
6 	From fiscal 2019, the Company applied “Partial Amendments to Accounting Standard for Tax Effect Accounting” (Statement No. 28, revised on February 16, 2018) released by the ASBJ. Accordingly, total assets, equity ratio and total asset turnover for fiscal 2018 have been restated.

TOKYO ELECTRON ANNUAL REPORT 2020

PAGE

17

CONTENTS

To Our Stakeholders

Business Overview
and Financial Highlights

Review of Operations
and Business Outlook

Interview with the CEO

Financial Section
Investor Information

Corporate Governance

Financial Review
Consolidated Statements of Income
Consolidated Statements of Comprehensive Income
Consolidated Eleven-Year Summary
Consolidated Balance Sheets
Consolidated Statements of Changes in Net Assets
Consolidated Subsidiaries
Consolidated Statements of Cash Flows
Independent Auditor’s Report
Notes to Consolidated Financial Statements

Investor Information

Consolidated Balance Sheets
Tokyo Electron Limited and Subsidiaries
As of March 31, 2020 and 2019

Thousands of
U.S. dollars

Millions of yen

ASSETS

2020

2019

2020

Current assets:

Thousands of
U.S. dollars

Millions of yen

LIABILITIES AND NET ASSETS

2020

2020

2019

Current liabilities:¥ 247,959¥ 232,634$ 2,278,408

Short-term investments

90,447160,000

831,087

Income taxes payable

52,65457,671

483,826

Trade notes and accounts receivable

150,134

146,971

1,379,532

Customer advances

135,326

77,2471,243,462

(105)

(84)

(968)

Accrued employees’ bonuses

29,13933,139267,749

Inventories

392,064354,2193,602,544

Accrued warranty expenses

14,534

14,097

133,549

Prepaid consumption tax

69,034

49,617634,332

Other current liabilities

54,98647,277505,248

Other current assets

12,94939,538

118,986

382,578

304,882

3,515,380   Total current assets

962,484

982,897

8,843,923
Net defined benefit liabilities

60,74560,975558,168

Other liabilities

5,478

3,652

50,341   Total non-current liabilities

66,22464,628608,509  Total liabilities

448,802369,510

4,123,889  Common stock   Authorized: 300,000,000 shares
Issued: 157,210,911 and 165,210,911 shares
as of March 31, 2020 and 2019, respectively

54,961

54,961

505,018  Capital surplus

78,01178,011

716,815  Retained earnings

702,990

748,827

6,459,531   Treasury stock, at cost   1,685,556 and 1,252,517 shares
as of March 31, 2020 and 2019, respectively(29,310)(11,821)(269,326)

20,126

13,024

184,939

(52)

(34)

(485)

Cash and cash equivalents

Allowance for doubtful accounts

Trade notes and accounts payable   Total current liabilities

¥

95,938¥75,448$881,543

Non-current liabilities:

Property, plant and equipment:Land26,29826,849241,649

Buildings

179,379

169,682

1,648,251

Machinery and equipment

173,505

153,711

1,594,282

Construction in progress

29,413

19,643

270,273

Other property, plant and equipment

4,139

118

38,032412,736

370,005

3,792,489

Less: Accumulated depreciation

237,156

219,936

2,179,147   Net property, plant and equipment

175,580

150,069

1,613,342   Total property, plant and equipmentInvestments and other assets:

Net assets:
Shareholders’ equity

Investment securities

38,37427,853352,611

Accumulated other comprehensive income

Deferred tax assets

64,72963,925594,780   Net unrealized gains on investment securities

Net defined benefit assets

5,837

3,065

53,637   Net deferred losses on hedging instruments

Intangible assets

10,921

9,054

100,357   Foreign currency translation adjustments

(4,111)

4,366(37,783)

Other assets

21,98022,189201,971   Accumulated remeasurements of defined benefit plans(3,313)(6,585)(30,444)

Allowance for doubtful accounts

(1,413)(1,426)(12,986)

10,391

7,368

95,482   Total investments and other assets

140,431

124,661

1,290,371

829,692

888,117

7,623,747¥1,278,495¥1,257,627$11,747,636¥1,278,495¥1,257,627$11,747,636

Total assets
See accompanying Notes to Consolidated Financial Statements.

Share subscription rights
   Total net assets
Total liabilities and net assetsTOKYO ELECTRON ANNUAL REPORT 2020

PAGE

18

CONTENTS

To Our Stakeholders

Business Overview
and Financial Highlights

Interview with the CEO

Review of Operations
and Business Outlook

Financial Section
Investor Information

Corporate Governance

Financial Review
Consolidated Balance Sheets
Consolidated Eleven-Year Summary
Consolidated Statements of Income
Consolidated Statements of Comprehensive Income
Consolidated Statements of Changes in Net Assets
Consolidated Subsidiaries
Consolidated Statements of Cash Flows
Independent Auditor’s Report
Notes to Consolidated Financial Statements

Consolidated Statements of Income

Consolidated Statements of Comprehensive Income

Tokyo Electron Limited and Subsidiaries
Years ended March 31, 2020 and 2019

Tokyo Electron Limited and Subsidiaries
Years ended March 31, 2020 and 2019

Thousands of
U.S. dollars

Millions of yen

2020

2019

2020

¥1,127,286
675,344451,941
214,649
237,292¥1,278,240
752,057
526,183
215,612
310,571$10,358,232
6,205,500
4,152,732
1,972,334
2,180,397

Other income (expenses):
Interest and dividend income
Foreign exchange gain, net
Revenue from grants
Gain on sales of property, plant and equipment
Gain on change in equity
Gain on sales of investment securities
Commission for purchases of treasury stock
Additional payment of customs duty
Maintenance and operation costs of closed facilities
Loss on sales and disposal of property, plant and equipment
Other, net
Income before income taxes

1,920
2,539
1,330
34
136
—
(174)
(173)
—
(483)
2,203
244,626

2,573
3,623
833
101
—
768
—
—
(57)
(967)
4,060
321,508

17,64623,333
12,228317
1,257—(1,599)(1,594)—(4,442)
20,243
2,247,788

Income taxes:
Current
DeferredNet income

65,177(5,757)
185,206

72,478801
248,228

598,892(52,904)
1,701,799¥ 185,206¥ 248,228$ 1,701,799

Net sales
Cost of sales Gross profit
Selling, general and administrative expenses
Operating income

Net income attributable to owners of parent

Yen

Per share of common stock:
Net income — basic
Net income — diluted
Net assetsCash dividends
See accompanying Notes to Consolidated Financial Statements.

¥1,170.57
1,164.02
5,267.96
588.00Investor Information

U.S. dollars¥1,513.58
1,507.22
5,371.78758.00$10.76
10.70
48.41
5.40

Thousands of
U.S. dollars

Millions of yen

Net income
Other comprehensive income (loss):
Net unrealized gains (losses) on investment securities
Net deferred gains (losses) on hedging instruments
Foreign currency translation adjustments
Remeasurements of defined benefit plans Share of other comprehensive income of associates accounted
for using the equity method
Total other comprehensive income (loss)
Comprehensive income 
Total comprehensive income attributable to:
Owners of parent
See accompanying Notes to Consolidated Financial Statements.

2020

2019

2020

¥185,206¥248,228$1,701,799

7,099
6(8,461)
3,278(4,102)(272)(1,170)(106)

65,238
63(77,752)
30,127

(45)

119

(419)

1,878
187,084(5,531)
242,696

17,256
1,719,056

187,084

242,696

1,719,056

TOKYO ELECTRON ANNUAL REPORT 2020

PAGE

19

CONTENTS

Business Overview
and Financial Highlights

To Our Stakeholders

Review of Operations
and Business Outlook

Interview with the CEO

Financial Section
Investor Information

Corporate Governance

Financial Review
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Comprehensive Income
Consolidated Eleven-Year Summary
Consolidated Statements of Changes in Net Assets
Consolidated Statements of Cash Flows
Consolidated Subsidiaries
Independent Auditor’s Report
Notes to Consolidated Financial Statements

Consolidated Statements of Changes in Net Assets

Consolidated Statements of Cash Flows

Tokyo Electron Limited and Subsidiaries
Years ended March 31, 2020 and 2019

Tokyo Electron Limited and Subsidiaries
Years ended March 31, 2020 and 2019

Investor Information

Thousands of
U.S. dollars

Millions of yen
Shareholders’ equity

Balance as ofMarch 31, 2018

Millions of yen

Accumulated other comprehensive income

Commonstock

CapitalsurplusRetainedearnings

Treasurystock

Net unrealized
gains oninvestment
securities

Net deferred
gains(losses) on
hedging
instruments

Foreigncurrencytranslation
adjustments

Accumulated
remeasurements ofdefined benefit
plans

Share
subscription
rightsTotal
net assets¥54,961¥78,011¥625,390¥ (7,518)¥17,134¥278¥ 5,507¥(6,618)¥ 4,363¥771,509

Cash dividends——(124,754)

—

—

—

—

—

—

(124,754)

Net income attributable toowners of parent——

248,228

—

—

—

—

—

—

248,228

Repurchase of treasury
stock

—

—

—

(5,004)

—

—

—

—

—

(5,004)

Disposal of treasury stock

—

—

(36)

701

—

—

—

—

—

664

Net changes except forshareholders’ equity

—

—

—

—

(4,109)(313)(1,141)

33

3,005(2,526)

Balance as ofMarch 31, 2019¥54,961¥78,011¥748,827¥ (11,821)¥13,024¥ (34)¥4,366¥(6,585)¥ 7,368¥888,117

Cash dividends——(95,513)

—

—

—

—

—

—

(95,513)

Net income attributable toowners of parent——

185,206

—

—

—

—

—

—

185,206

Repurchase of treasury
stock

—

—

—

(154,096)

—

—

—

—

—

(154,096)

Disposal of treasury stock——(1,616)

2,684

—

—

—

—

—

1,067

Cancellation of treasury
stock

—

—

(133,922)

133,922

—

—

—

—

—

—

Others

—

—

10

—

—

—

—

—

—

10

Net changes except forshareholders’ equity

—

—

—

—

7,102

(17)

(8,478)

3,271

3,022

4,900

¥54,961¥78,011¥702,990¥ (29,310)¥20,126¥ (52)¥(4,111)¥(3,313)¥10,391¥829,692

Balance as ofMarch 31, 2020

Thousands of U.S. dollars
Shareholders’ equity

Commonstock

Balance as ofMarch 31, 2019

CapitalsurplusRetainedearnings$6,880,707

Net unrealized
gains oninvestment
securities

Net deferred
gains(losses) on
hedging
instruments

Foreigncurrencytranslation
adjustments

Accumulated
remeasurements ofdefined benefit
plans

Share
subscription
rightsTotal
net assets$ (108,627) $119,675

Treasury
stock$(320)$ 40,120$(60,507)$67,708$8,160,592

Cash dividends——(877,643)

—

—

—

—

—

—

(877,643)

Net income attributable toowners of parent——

1,701,799

—

—

—

—

—

—

1,701,799

Repurchase of treasury
stock

—

—

—

(1,415,935)

—

—

—

—

—

(1,415,935)

Disposal of treasury stock——(14,857)

24,666

—

—

—

—

—

9,809

Cancellation of treasury
stock

—

—

(1,230,569)

1,230,569

—

—

—

—

—

—

Others

—

—

94

—

—

—

—

—

—

94

Net changes except forshareholders’ equity

—

—

—

—

65,263(165)(77,903)

30,062

27,77345,030$505,018 $716,815$6,459,531$ (269,326) $184,939$(485)$(37,783)$(30,444)$95,482$7,623,747

Balance as ofMarch 31, 2020

$505,018 $716,815

Accumulated other comprehensive income

See accompanying Notes to Consolidated Financial Statements.

Cash flows from operating activities:
Income before income taxes
Depreciation and amortization
Amortization of goodwill
Decrease in accrued employees’ bonuses
Increase in accrued warranty expenses
Interest and dividend income
Decrease (increase) in trade notes and accounts receivable
Increase in inventories
Increase (decrease) in trade notes and accounts payable
Decrease (increase) in prepaid consumption tax
Increase (decrease) in accrued consumption tax
Increase (decrease) in customer advances
Other, net
Subtotal
Receipts from interest and dividends
Income taxes paidNet cash provided by operating activities
Cash flows from investing activities:
Payment for purchases of short-term investments
Proceeds from maturities of short-term investments
Payment for purchases of property, plant and equipment
Payment for acquisition of intangible assets Proceeds from sales of shares of subsidiaries resulting in change
in scope of consolidation
Other, netNet cash provided by (used in) investing activities
Cash flows from financing activities:
Payment for purchases of treasury stock
Dividends paid
Other, net
Net cash used in financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
See accompanying Notes to Consolidated Financial Statements.

2020

2019

2020

¥244,626
29,107196(3,802)480(1,920)(5,370)(44,065)
22,337(19,508)
6,140
58,6305,828
292,679
2,326(41,888)
253,117¥321,508
24,323354(1,165)
2,968(2,573)
10,541(14,765)(31,752)
6,818(2,845)(22,077)(1,569)289,766
2,738(102,932)
189,572$2,247,788
267,459
1,806(34,940)
4,411(17,646)(49,345)(404,903)
205,248(179,257)
56,426
538,73153,5532,689,331
21,378(384,901)
2,325,808(100,449)
170,000(49,369)(3,383)(209,500)
165,500(46,517)(1,563)(922,998)
1,562,069(453,637)(31,092)—(845)
15,951

10,754(2,707)(84,033)—(7,771)
146,568(154,096)(95,513)(764)(250,374)(3,369)15,324
232,634¥247,959(5,004)(124,754)(3)(129,761)(1,020)(25,243)
257,877¥232,634(1,415,935)(877,643)(7,023)(2,300,602)(30,964)
140,810
2,137,598$2,278,408

TOKYO ELECTRON ANNUAL REPORT 2020

PAGE

20

CONTENTS

To Our Stakeholders

Business Overview
and Financial Highlights

Interview with the CEO

Review of Operations
and Business Outlook

Corporate Governance

Financial Review
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Comprehensive Income
Consolidated Eleven-Year Summary
Notes to Consolidated Financial Statements
Consolidated Statements of Changes in Net Assets
Consolidated Subsidiaries
Consolidated Statements of Cash Flows
Independent Auditor’s Report

Financial Section
Investor Information

Investor Information

Notes to Consolidated Financial Statements
Tokyo Electron Limited and Subsidiaries
Years ended March 31, 2020 and 2019
1.Basis of Presentation of Consolidated Financial
Statements
The accompanying consolidated financial statements ofTokyo Electron Limited (hereinafter “the Company”) and its
subsidiaries (hereinafter collectively referred to as “Tokyo
Electron”) have been prepared in accordance with the provisions set forth in the Financial Instruments and Exchange Act
of Japan and its related accounting regulations, and in conformity with accounting principles generally accepted inJapan, which are different in certain respects as to applicationand disclosure requirements of International Financial
Reporting Standards.
The Company uses financial statements prepared by foreign subsidiaries in accordance with International Financial
Reporting Standards or U.S. generally accepted accounting
principles for the preparation of the consolidated financial
statements, together with adjustment 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 thestatutory Japanese language consolidated financial statements. Some supplementary information included in thestatutory Japanese language consolidated financial statements is not presented in the accompanying consolidated
financial statements.
The amounts in the consolidated financial statements andassociated notes shown in millions and thousands of yen;
thousands of U.S. dollars; and thousands of shares as of andfor the years ended March 31, 2020 and 2019 are truncated at
the nearest unit. Accordingly, totals do not necessarily agreewith the sum of the corresponding individual amounts.
U.S. dollar amounts included herein are solely for the convenience of readers and are presented at the rate of ¥108.83
to $1.00, the approximate rate as of March 31, 2020. 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 accountsof the Company and its 29 and 33 subsidiaries as of March 31,
2020 and 2019, respectively. All significant inter-company
accounts, transactions and unrealized profits or losses havebeen eliminated through consolidation procedures.
There are 9 affiliates accounted for using the equity method as of March 31, 2020 and 2019.

The fiscal year-end of all entities is March 31, except for 3
consolidated foreign subsidiaries. Financial statements provisionally closed for the period ending March 31 are used for
those subsidiaries.
(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 aretranslated at the contracted rates. Resulting exchange gains
and losses are included in earnings for the year.
Revenue and expense items are translated at the rates thatapproximate those prevailing at the time of the transactions.
The balance sheet accounts of foreign subsidiaries aretranslated into Japanese yen at the rates of exchange in
effect at the balance sheet date, except for shareholders’equity accounts, which are translated at the historical rates.
Revenue and expense accounts of foreign subsidiaries aretranslated at average rates of exchange in effect during theyear. Resulting translation adjustments are presented in net
assets as a component of accumulated other comprehensive
income in the consolidated balance sheets.
(c) Cash and cash equivalents
Cash and cash equivalents consist of cash, short term
deposits and low-risk financial instruments with original
maturities of three months or less.
(d) Short-term investments
Short-term investments consist of short term deposits
and low-risk financial instruments with original maturities ofmore than three months.
(e) Investment securities
Tokyo Electron examines the intent of holding each security and classifies those securities as trading securities, held-to
maturity debt securities or other securities. Tokyo Electron
has no trading securities as of March 31, 2020 and 2019.
Held-to-maturity debt securities are stated mainly at amortized cost. Other securities with market prices are valued atfair value at the balance sheet date. The differences between
the book value and fair value of other securities, net of applicable income taxes, are presented in net assets as a component of accumulated other comprehensive income. Other
securities without market prices are valued at cost using theweighted-average method.
The cost of sold securities is calculated using the weighted
average method.

(f) Inventories
Inventories are stated at the lower of cost, determined byprincipally the specific identification method, or net realizablevalue, which is defined as selling price less estimated additional manufacturing costs and estimated direct selling expenses.
(g) Property, plant and equipment
Property, plant and equipment are stated at cost.
Depreciation of buildings, machinery and equipment of theCompany and its domestic subsidiaries is computed using
the declining-balance method, except for buildings acquiredsince April 1, 1998 and facilities attached to buildings andstructures acquired since April 1, 2016 which are depreciatedusing the straight-line method, based on the estimated­useful lives of assets. Foreign subsidiaries mainly apply thestraight-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(h) Intangible assets (excluding goodwill)
Intangible assets are amortized by the straight-line method over their estimated useful lives.
(i) Goodwill
Goodwill is evaluated on an individual basis and amortizedby the straight-line method over a period not exceeding
20 years.
(j) Impairment of fixed assets
Tokyo Electron evaluates the carrying value of fixed assets
held for use in the business and idle assets.
If the carrying value of a fixed asset is impaired, a loss isrecognized 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 priceis determined using the fair value less disposal costs andvalue in use is based 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 the disposal of
the assets.
(k) Allowance for doubtful accounts
The allowance for doubtful accounts is provided at an
amount determined based on the historical experience ofbad debts with respect to ordinary receivables, and an estimate of uncollectible amounts determined by reference tospecific doubtful receivables from customers which are experiencing financial difficulties.

(l) Employee benefits
The Company and its domestic subsidiaries provide
defined benefit plans for their employees. Expected benefits
are attributed to accounting periods by the benefit formulabasis. Prior service costs are charged to earnings on astraight-line basis, beginning from the fiscal 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 toearnings on a straight-line basis, beginning from the following fiscal year after they are incurred, over a fixed number ofyears (4 years) within the average remaining years of serviceof employees when the differences occur.
The provision for accrued pension and severance costs for
directors and audit & supervisory board members of theCompany and its domestic subsidiaries is calculated in accordance with internal regulations.
The Company and certain domestic subsidiaries decided to
discontinue the payment of severance pay for directors andaudit & supervisory board members after April 1, 2005, and at
the general shareholders’ meeting in June 2005, it was
resolved that the severance pay for directors and audit &supervisory board members until March 31, 2005 would be
paid at the termination of their service and the decision
regarding the payment amount for each director and audit &supervisory board member was delegated to the board of
directors and audit & supervisory board members. The accruals for severance costs for directors and audit & supervisoryboard members are included in Net defined benefit liabilities
in the consolidated balance sheets.
(m) Accrued warranty expenses
Tokyo Electron’s products are generally subject to warranty,
and Tokyo Electron accrues estimated warranty costs when
product revenue is recognized. Estimated after-sale repair
expenses over warranty periods are accrued based on the historical ratio of actual repair expenses to corresponding sales.
(n) Derivatives and hedge accounting
The Company and certain subsidiaries make use of derivatives in order to manage certain risks arising from adverse
fluctuations in foreign currency exchange rates. The amountof derivatives is limited to the extent of foreign currency
assets, liabilities and actual orders, and Tokyo Electron does
not trade in derivatives for speculative purposes.
Derivatives are carried at fair value in the consolidated balance sheet with changes in unrealized gain or loss charged or
credited to earnings, except for those which meet the criteria
for hedge accounting. Unrealized gains or losses on hedging
instruments, net of taxes, are reported in net assets as

TOKYO ELECTRON ANNUAL REPORT 2020

PAGE

21

CONTENTS

To Our Stakeholders

Business Overview
and Financial Highlights

Interview with the CEO

Review of Operations
and Business Outlook

Corporate Governance

Financial Review
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Comprehensive Income
Consolidated Eleven-Year Summary
Notes to Consolidated Financial Statements
Consolidated Statements of Changes in Net Assets
Consolidated Subsidiaries
Consolidated Statements of Cash Flows
Independent Auditor’s Report

Financial Section
Investor Information

Investor Information

Notes to Consolidated Financial Statements
a component of accumulated other comprehensive income(loss). Receivables and payables hedged by qualified forward
foreign exchange contracts are translated at the corresponding foreign exchange contract rates.

The effect of this change on the consolidated financial
statements is immaterial.

(o) Income taxes
Tokyo Electron records deferred tax assets and liabilities on
temporary differences between the carrying amounts ofassets and liabilities for financial reporting purposes and theamounts used for income tax purposes and net operating
loss carryforwards. Deferred tax assets and liabilities aremeasured using the enacted tax rates and laws which are
expected to be in effect when net operating loss carryforwards and temporary differences are expected to be realized.

Stock delivering schemes linked to medium-term
performance
Tokyo Electron introduced stock delivering schemes (hereinafter “the Schemes”) as a common global incentive plan linked tomedium-term performance. The purpose of the Schemes is toencourage directors and employees to contribute to the Group’s
medium-term performance and enterprise value.
Tokyo Electron adopted the “Practical Solution on
Transactions of Delivering the Company’s Own Stock to
Employees, etc. through Trusts” (PITF No. 30, March 26, 2015)
for the accounting treatment of the Schemes.

(p) Revenue recognition
Revenue from Semiconductor and FPD (Flat Panel Display)production equipment is principally recognized at the time of
the customer confirmation of set-up and testing of products.
Revenue from equipment not requiring substantial installation is recognized at the time of shipment. Service revenue
for maintenance is recognized ratably over the term of themaintenance contract.
(q) Research and development expenses
Research and development expenses are charged to earnings as incurred and amounted to ¥120,268 million($1,105,100 thousand) and ¥113,980 million for the years
ended March 31, 2020 and 2019, respectively.
(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, 2020.
3. Change in Accounting Policies and Adoption of New
Accounting Standards
Year ended March 31, 2020
Certain consolidated overseas subsidiaries adopted IFRS 16“Leases” from the beginning of the fiscal year ended March 31,
2020, and recognize all leases as a lessee in principle asassets and liabilities on the balance sheets.
Tokyo Electron elected to use the transitional approach torecognize the cumulative effect of initially applying this standard at the date of initial application. Right-of-use assets
were recognized at the same value as lease liabilities and,
therefore, there was no impact on retained earnings at the
beginning of the fiscal year ended March 31, 2020.

4. Additional Information

1. Executive compensation BIP (Board Incentive Plan) Trust(1) Overview of the transactions
The Executive compensation BIP Trust which the Company
established acquires the Company’s shares, and delivers andprovides shares of the Company and monetary compensation corresponding to the cash conversion value of theCompany’s shares to the directors of the Company and its
subsidiaries (excluding outside directors) based on their position and attainment of performance targets in accordancewith the share delivery rules.
(2) The Company’s shares held by the trust
Tokyo Electron recorded the Company’s shares held by thetrust in “Treasury stock, at cost” under “Net assets” at thebook value in the trust (excluding ancillary expenses). The
book value and the number of such treasury shares were
¥1,154 million ($10,604 thousand) and 60,538 shares as ofMarch 31, 2020, respectively, and were ¥674 million and
34,038 shares as of March 31, 2019, respectively.
2. Share-delivering ESOP (Employee Stock Ownership Plan) Trust(1) Overview of the transactions
The Share-delivering ESOP Trust which the Company
established acquires the Company’s shares, and delivers andprovides shares of the Company and monetary compensation corresponding to the cash conversion value of theCompany’s shares to the general managers, senior employees
and mid-class employees of the Company and its subsidiaries
based on their position and attainment of performance targets in accordance with the share delivery rules.

(2) The Company’s shares held by the trust
Tokyo Electron recorded the Company’s shares held by thetrust in “Treasury stock, at cost” under “Net assets” at thebook value in the trust (excluding ancillary expenses). The
book value and the number of such treasury shares were
¥7,840 million ($72,045 thousand) and 411,492 shares as ofMarch 31, 2020, respectively, and were ¥4,274 million and
215,663 shares as of March 31, 2019, respectively.
5. Accounting Standards Issued but Not yet Adopted“Accounting Standard for Revenue Recognition” (ASBJ
Statement No. 29, March 31, 2020 (hereinafter, “Statement
No.29”))“Implementation Guidance on Accounting Standard for
Revenue Recognition” (ASBJ Guidance No. 30, March 31, 2020
(hereinafter, “Guidance No.30”))“Implementation Guidance on Disclosures about Fair Valueof Financial Instruments” (ASBJ Guidance No. 19, March 31, 2020)(1) Overview
The International Accounting Standards Board (IASB) andthe U.S. Financial Accounting Standards Board (FASB) collaborated on a project to develop a single, comprehensive revenue recognition model and jointly issued new revenue
recognition standards “Revenue from Contracts with
Customers” (IFRS 15 published by IASB, ASC Topic 606 published by FASB) in May 2014. IFRS 15 is effective for annual
reporting periods beginning on or after 1 January 2018 andTopic 606 is effective for annual reporting periods beginning
after December 15, 2017.
Considering the above circumstances, the AccountingStandard Board of Japan (ASBJ) also developed a new revenue recognition standard and issued Statement No.29
together with Guidance No.30.
ASBJ’s basic policy in developing the new revenue recognition standards is to first incorporate the core principle of IFRS
15 in the light of improving the international comparability offinancial statements and then add additional alternative
treatments to the extent that international comparability
would not be impaired where any business practices operated in Japan need to be considered.
(2) Effective date
Effective from the beginning of the fiscal year ending
March 31, 2022.

(3) Effects of the application of the standards
The Company and its consolidated domestic subsidiaries are
currently in the process of determining the effects of these
new standards on the consolidated financial statements.
“Accounting Standard for Fair Value Measurement” (ASBJ
Statement No. 30, July 4, 2019 (hereinafter, “Statement No.30”))“Accounting Standard for Measurement of Inventories” (ASBJ
Statement No. 9, July 4, 2019)“Accounting Standard for Financial Instruments” (ASBJ
Statement No. 10, July 4, 2019)“Implementation Guidance on Accounting Standard for Fair
Value Measurement” (ASBJ Guidance No. 31, July 4, 2019)“Implementation Guidance on Disclosures about Fair Valueof Financial Instruments” (ASBJ Guidance No. 19, March 31, 2020)(1) Overview
The International Accounting Standards Board (IASB) andthe U.S. Financial Accounting Standards Board (FASB) haveprovided similar detailed guidance for fair value measurement (IFRS 13 “Fair Value Measurement” published by IASB,ASC Topic 820 “Fair Value Measurement” published by FASB).
Considering the above circumstances, the AccountingStandard Board of Japan (ASBJ) issued Statement No.30 andthe other standards above to enhance consistency between
Japanese accounting standards and international accounting
standards regarding guidance for fair value of financial
instruments and required disclosures.
ASBJ’s basic policy in developing the new fair value measurement standards is to basically incorporate all principles of
IFRS 13 in light of improving the international comparabilityof financial statements by using a unified measuring method,
and then provide other treatments for individual items to theextent that international comparability would not be significantly impaired where any business practices operated inJapan need to be considered.
(2) Effective date
Effective from the beginning of the fiscal year ending
March 31, 2022.
(3) Effects of the application of the standards
The Company and its consolidated domestic subsidiaries
have not determined the effects of these new standards onthe consolidated financial statements yet.

TOKYO ELECTRON ANNUAL REPORT 2020

PAGE

22

CONTENTS

To Our Stakeholders

Business Overview
and Financial Highlights

Review of Operations
and Business Outlook

Interview with the CEO

Financial Section
Investor Information

Corporate Governance

Financial Review
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Comprehensive Income
Consolidated Eleven-Year Summary
Notes to Consolidated Financial Statements
Consolidated Statements of Changes in Net Assets
Consolidated Subsidiaries
Consolidated Statements of Cash Flows
Independent Auditor’s Report

Investor Information

Notes to Consolidated Financial Statements“Accounting Standard for Disclosure of Accounting
Estimates” (ASBJ Statement No. 31, March 31, 2020 (hereinafter, “Statement No.31”))

6. Securities
Other securities as of March 31, 2020 and 2019 are as follows:
Millions of yen(1) Overview
Regarding “key sources of estimation uncertainty” which is
required to be disclosed based on paragraph 125 of IAS 1“Presentation of Financial Statements” published by theInternational Accounting Standards Board (IASB), there has
been a public opinion that the same information should be
disclosed as notes in financial statements prepared based onJapanese generally accepted accounting principles.
Considering the above circumstances, the AccountingStandard Board of Japan (ASBJ) developed and issued
Statement No.31.
ASBJ’s basic policy in developing this standard is to provide
principles (disclosure purposes) and companies should determine specific contents of disclosure in light of disclosure purposes rather than expanding individual notes. ASBJ referred
to paragraph 125 of IAS 1 in the development of this standard.

2020:

Cost

Non-current Securities with carrying value
exceeding acquisition cost
¥7,991  Equity securities

“Accounting Standard for Accounting Policy Disclosures,
Accounting Changes and Error Corrections” (ASBJ Statement
No. 24, March 31, 2020 (hereinafter, “Statement No.24”))(1) Overview
The Accounting Standard Board of Japan (ASBJ) made revisions and issued Statement No.24 based on the recommendation to expand notes regarding “accounting principles andprocedures when related accounting standards are not clear”.
Regarding the expansion of notes regarding “accounting
principles and procedures when related accounting standards
are not clear”, it is required to follow Notes on Corporate
Accounting Principles (Note 1-2) in order not to affect conventional business practices when related accounting standards
are clear.

¥37,013Millions of yen Securities with carrying value
not exceeding acquisition cost  Equity securities
  OtherTotal

1,053

1,031

330

330

¥9,375¥38,374

2019:

Cost

  Equity securities

¥8,063  OtherTotal

1,011

1,002

15

15

¥9,090¥27,853

Thousands of U.S. dollars

2020:

Cost

Carrying value

Non-current Securities with carrying value
exceeding acquisition cost
$73,434  Equity securities

$340,101 Securities with carrying value
not exceeding acquisition cost
9,679

9,475

  Other

3,034

3,034

$86,148$352,611

Total

Held-to-maturity securities classified as current assets are¥188,500 million ($1,732,059 thousand) and ¥215,000 million
as of March 31, 2020 and 2019, respectively.
Reconciliation of held-to-maturity securities as of March
31, 2020 and 2019 to the amounts of short-term investmentsin the consolidated balance sheets are as follows:
Thousands of
U.S. dollars

Millions of yen

2020

Short-term investments

¥—

Total

¥1,087¥768¥—

Thousands of
U.S. dollars

Millions of yen

2020

Balance at April 1, 2019and 2018

2020

2019

¥118,461 ¥112,992$1,088,499

Service cost

6,160

5,853

Interest cost

596

701

5,485

Actuarial gain (loss)(2,528)2,986(23,234)

56,604

Benefits paid

(3,531)(3,936)(32,448)

Foreign currency exchange
rate changes

(618)

(135)

(5,683)

Other

189

—

1,739

¥118,729 ¥118,461$1,090,960

Balance at March 31, 2020
and 2019

Millions of yen

2020

2019

2020

¥267,625 ¥234,102$2,459,118

Work in process, raw materials
and supplies

Balance at April 1, 2019and 2018

124,439

120,117

1,143,426

Expected return on plan assets

Total

¥392,064 ¥354,219$3,602,544

Actuarial loss

The amounts of change in inventory provision included incost of sales in the consolidated statements of income forthe years ended March 31, 2020 and 2019 were an increase of¥2,290 million ($21,045 thousand) and an increase of ¥4,031
million, respectively.

Tokyo Electron did not hold any assets pledged as collateral as of March 31, 2020 and 2019.
9. Short-term Borrowings
There are no short-term borrowings classified as current
liabilities as of March 31, 2020 and 2019.
As of March 31, 2020 and 2019, Tokyo Electron had unusedlines of credit amounting to ¥126,929 million ($1,166,311 thousand) and ¥126,947 million, respectively.

¥188,500 ¥215,000$1,732,059(108,500)(55,000)(996,967)

10,447—

95,996¥ 90,447 ¥160,000$ 831,087

10. Employee Benefits
The Company and its domestic subsidiaries provide a cash
balance plan and a non-contributory retirement and severance benefit plan as defined benefit plans, and provide adefined contribution plan as defined contribution plans fortheir employees. Further, certain consolidated overseas subsidiaries provide defined benefit plans and defined contribution plans for their employees.

Thousands of
U.S. dollars

Millions of yen

Finished products

2020

2019

(2) Movement of plan assets

Thousands of
U.S. dollars

8. Pledged Assets  Equity securities

Deposits with original maturities
of more than three months¥768¥26,834 Securities with carrying value
not exceeding acquisition cost

Deposits and low-risk financial instruments with original
maturities of three months
or less

Loss on sale

¥1,087

Inventories as of March 31, 2020 and 2019 are as follows: Securities with carrying value
exceeding acquisition cost

Held-to-maturity (current)

Gain on sale

Equity securities

Defined benefit plans(1) Movement of defined benefit obligations

Carrying value

Non-current(2) Effective date
Effective from the end of the fiscal year ending March 31, 2021.

Amount of sale

7. Inventories

Millions of yen  Equity securities

(2) Effective date
Effective from the end of the fiscal year ending March 31, 2021.

Carrying value

Net loss on devaluation of investment securities was none
and immaterial for the years ended March 31, 2020 and 2019,respectively.
For the year ended March 31, 2020, the Company soldavailable-for-sale securities and the amounts wereimmaterial.
For the year ended March 31, 2019, the Company recognized the following gain and loss on sale:

2020

2019

2020

¥60,925¥53,683$559,825

1,266

1,152

11,636(1,551)(6)(14,252)

Employer contributions

5,046

7,403

46,366

Benefits paid

(1,130)(1,164)(10,384)

Foreign currency exchange
rate changes

(608)

(124)

(5,592)

Other

(16)

(16)

(155)

¥63,931¥60,925$587,442

Balance at March 31, 2020
and 2019(3) Reconciliation from defined benefit obligations and plan
assets to net defined benefit liabilities (assets)
Millions of yen

Thousands of
U.S. dollars

2020

2019

2020

Funded defined benefit
obligations¥58,536¥58,453$537,867

Plan assets(63,931)(60,925)(587,442)

Funded status(5,395)(2,472)(49,575)

Unfunded defined benefit
obligations

60,19360,008553,093

Net defined benefit liabilities
at March 31, 2020 and 2019¥54,797¥57,535$503,518

Net defined benefit liabilities

60,63560,600557,156

Net defined benefit assets(5,837)(3,065)(53,637)

Net defined benefit liabilities
at March 31, 2020 and 2019¥54,797¥57,535$503,518

Note: The provision for accrued pension and severance costs for directors andaudit & supervisory board members of ¥110 million ($1,012 thousand)and ¥374 million as of March 31, 2020 and 2019 is not included.

TOKYO ELECTRON ANNUAL REPORT 2020

PAGE

23

CONTENTS

Business Overview
and Financial Highlights

To Our Stakeholders

Review of Operations
and Business Outlook

Interview with the CEO

Corporate Governance

Financial Review
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Comprehensive Income
Consolidated Eleven-Year Summary
Notes to Consolidated Financial Statements
Consolidated Statements of Changes in Net Assets
Consolidated Subsidiaries
Consolidated Statements of Cash Flows
Independent Auditor’s Report

Financial Section
Investor Information

Investor Information

Notes to Consolidated Financial Statements(4) Defined benefit costs
Thousands of
U.S. dollars

Millions of yen

2020

2019

2020

Service cost

¥6,160¥5,853$56,604

Interest cost

596

701

5,485

Expected return on plan assets(1,266)(1,152)

Net actuarial gain amortization

3,104

2,537

Prior service cost amortization

338

338

3,111

Other

410

287

3,768

¥9,344¥8,566$85,858

Total defined benefit costs for the years ended
March 31, 2020 and 2019

2020

2019

Discount rate

0.55%

0.36%

(11,636)

Long-term expected rate of return

2.00%

2.00%

28,526The expected rates of salary increase for the years ended
March 31, 2020 and 2019 are also considered as one of theactuarial assumptions, and are set based on the salary
increase index by age group as of January 1, 2019.

(5) Remeasurements of defined benefit plans
Thousands of
U.S. dollars

Millions of yen

Prior service cost

2020

2019

2020

¥ 338

¥338

$ 3,111

Actuarial gain (loss)

4,322

(396)

39,715

Total¥4,660¥ (58)$42,826(6) Accumulated remeasurements of defined benefit plans

Defined contribution plans
The contributions of the Company and its subsidiaries tothe defined contribution plans are ¥2,570 million ($23,620
thousand) and ¥2,498 million for the years ended March 31,
2020 and 2019, respectively.
11. Income Taxes
Significant components of the deferred tax assets and liabilities as of March 31, 2020 and 2019 are as follows:

Thousands of
U.S. dollars

Millions of yen

2020(8) Actuarial assumptions
The principal actuarial assumptions as of and for the years
ended March 31, 2020 and 2019 are as follows:

2019

Millions of yen

2020

Prior service cost that is yet tobe recognized (before tax)

¥ (677)¥(1,015)$ (6,222)

Net actuarial loss that is yet tobe recognized (before tax)

(3,882)(8,204)(35,673)

Total¥(4,559)¥(9,220)$(41,895)(7) Plan assets
1. Plan assets comprise:

Thousands of
U.S. dollars

2020

2019

2020

Elimination of unrealized profit
in inventories¥30,607¥25,145$281,245

Net defined benefit liabilities

18,84318,751

173,145

Net operating loss carryforwards

9,168

11,132

84,242

Devaluation of inventories

7,543

7,038

69,313

Accrued employees’ bonuses

6,616

7,766

60,792

Accrued warranty expenses

4,069

3,846

37,389Software

3,732

1,421

34,293

Deferred tax assets

deductible and net operating loss carryforwards are available
to be utilized. For assessment of the realizability of deferred
tax assets, management considers the scheduled reversal ofdeferred 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 temporary differences are deductible and net operating loss carryforwards are available to be utilized, management believes
Tokyo Electron will realize the benefits of deferred tax assets,
net of valuation allowance, as of March 31, 2020 and 2019.
The Company and its wholly-owned domestic subsidiaries
apply a consolidated tax filing system for corporate tax purposes.
The Company and its domestic subsidiaries calculated theamounts of deferred tax assets and deferred tax liabilities
based on the Income Tax Act prior to amendment regarding
the transition to group tax sharing system established in “Actfor Partial Amendment of the Income Tax Act, etc. ” (Act No.8
of 2020) and the items for which the single tax payment system was amended in line with the transition to group tax
sharing system, in accordance with the treatment specified
by paragraph 3 of “Practical Solution on the Treatment of Tax
Effect Accounting for the Transition from the Consolidated
Taxation System to the Group Tax Sharing System” (PITF
No.39, March 31, 2020) instead of the provision of paragraph
44 of “Implementation Guidance on Tax Effect Accounting”(ASBJ Guidance No. 28, February 16, 2018).
Significant components of the difference between thestatutory and effective tax rates for the years ended March
31, 2020 and 2019 are as follows:

2020

2019

Other

14,641

13,952

134,535

Bonds

31%

31%

Total gross deferred tax assets

95,22189,054874,959

Life insurance company general account29

30

Statutory tax rate in Japan

Less valuation allowance(8,392)(8,535)(77,119)

Alternative investments (Note)

15

13

Adjustments:

Total deferred tax assets

86,82880,519797,840

Equity securities

12

14

Cash and cash equivalents

1

1

Deferred tax liabilities

Other

12

11

Total

100%

100%

Net unrealized gains on
investment securities(8,886)(5,747)(81,659)

Undistributed earnings ofsubsidiaries(8,165)(7,559)(75,031)

Note: A lternative investments mainly consist of hedge funds, real estate,
insurance-linked securities and infrastructure.

2. Long-term expected rate of return
Current and target asset allocations, and historical andexpected returns on the various categories of plan assets
have been considered in determining the long-term
expected rate of return.

Other(5,081)(3,474)(46,695)

Total deferred tax liabilities(22,134)(16,781)(203,386)

Net deferred tax assets¥64,694¥63,737$594,453

The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during
the period in which temporary differences become

2020

2019

30.62%

30.62%Tax credits(5.96)(6.52)

Difference in statutory tax rates
of subsidiaries(1.52)(1.11)

Expenses not deductible for tax purposes

0.27

0.46

Others, net

0.88(0.66)

Effective tax rate

24.29%

22.79%

Year ended March 31, 2019
The Company received notification from the National Tax
Agency, Japan (NTA) dated January 24, 2019, that agreement
had been reached through the Mutual Agreement Procedure(MAP) between the NTA and Korean income tax authorities
concerning the transfer pricing adjustments assessed during

prior historical periods relating to the transactions between
the Company and its Korean subsidiary. As a result, ¥862 million of tax benefit is included in current income tax expense
as the difference between the actual tax refunds and theestimated amount recorded in prior fiscal year.
12. Net Assets
Net assets comprises four subsections, which are shareholders’ equity, accumulated other comprehensive income,share subscription rights and non-controlling interests.
Under Japanese laws and regulations, the entire amount
paid for new shares is required to be designated as common
stock. However, a company may, by a resolution of the boardof directors, designate an amount not exceeding one half ofthe price of the new shares as additional paid-in capitalwhich is included in capital surplus.
In cases where dividend distribution of surplus is made, thelesser of an amount equal to 10% of the dividend or theexcess, 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 to eliminate or reduce a deficit generally requirea 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 other capital surplus andretained earnings, respectively, which are potentially available
for dividends.
The Company is subject to restriction of dividends basedon the Japanese Corporate Act, which restricts the amount ofdividends to retained earnings on a consolidated basis.
The Company’s articles 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 in accordance with Japanese laws and regulations.
At the board of directors’ meeting held on May 14, 2020,
the distribution of cash dividends amounting to ¥53,351 million ($490,224 thousand) was resolved. Such appropriations
have not been accrued in the consolidated financial statements as of March 31, 2020 since they are recognized in the
period in which they are resolved at the board of directors’
meeting. The dividends of ¥53,351 million include ¥161 million($1,483 thousand) related to treasury stock held by the BIP/
ESOP Trusts.

TOKYO ELECTRON ANNUAL REPORT 2020

PAGE

24

CONTENTS

To Our Stakeholders

Business Overview
and Financial Highlights

Review of Operations
and Business Outlook

Interview with the CEO

Financial Section
Investor Information

Corporate Governance

Financial Review
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Comprehensive Income
Consolidated Eleven-Year Summary
Notes to Consolidated Financial Statements
Consolidated Statements of Changes in Net Assets
Consolidated Subsidiaries
Consolidated Statements of Cash Flows
Independent Auditor’s Report

Investor Information

Notes to Consolidated Financial Statements
13. Other Comprehensive Income

A summary of stock options outstanding and exercisable as of March 31, 2020 and 2019 is as follows:
2020

Other comprehensive income for the years ended March 31, 2020 and 2019 is as follows:
Thousands of
U.S. dollars

Millions of yen

2020

2019

2020

Net unrealized gains (losses) on investment securities¥10,339

Net unrealized gains (losses) arising during the year¥(5,910)$95,008

(102)

—

(946)

Sub-total, before tax

10,236(5,910)94,061

Tax expense(3,136)

1,808(28,823)

Sub-total, net of tax

7,099(4,102)

65,238

Reclassification adjustments

Net deferred gains (losses) on hedging instruments
Net deferred gains (losses) arising during the year

9

(392)

90

Reclassification adjustments

—

—

—

Sub-total, before tax

9

(392)

90

Tax expense

(3)

120

(27)

Sub-total, net of tax

6

(272)

63

Foreign currency translation adjustments(8,495)Adjustments during the year

(1,170)Yen

U.S. dollars

Outstanding at the beginning of year

688,700¥1$0.01

563,600¥1

Granted360,400

1

0.01

219,900

1

Exercised

182,200

1

0.01

94,800

1

—

—

—

—

—

Outstanding at the end of year

866,900

1

0.01

688,700

1

Exercisable at the end of year

141,900

1

0.01

129,700

1

Expired (forfeited)

Amounts expensed related to stock options
The amounts expensed related to stock options for theyears ended March 31, 2020 and 2019, are as follows:
Millions of yen

Selling, general andadministrative expenses

Thousands of
U.S. dollars

2020

2019

2020

¥4,059¥3,618$37,301

Valuation method of fair value per unit of stock options
Fair value as of the grant date for stock options granted forthe year ended March 31, 2020 was ¥11,264 ($103.50) per
unit, which was evaluated as follows:—

310(77,752)———(8,461)(1,170)(77,752)

Adjustments during the year

1,217

(2,933)

11,189Reclassification adjustments

3,443

2,875

31,637

Sub-total, before tax

4,660

(58)

42,826

Tax expense(1,382)(48)(12,699)

Volatility (Note 1)

34.04%

Sub-total, net of tax

3,278

(106)

30,127

Expected residual period (Note 2)

5.68 years

Expected dividends (Note 3)¥691 ($6.35) per share

Risk-free interest rate (Note 4)(0.24)%

Sub-total, net of tax
Remeasurements of defined benefit plans

Share of other comprehensive income of associates accounted for using the equity method
Adjustments during the year
Total other comprehensive income

(45)

119

(419)

¥ 1,878¥(5,531)$17,256

14. Share Subscription Rights
Stock option plan
The Company’s shareholders have approved annual stock
option plans for directors and selected employees since theyear ended March 31, 1999. The options under the plans vest
immediately or over three-year period with restriction on
exercise up to three years after the date of grant, and havean exercise period of seventeen years from the date on
which the options become exercisable.
Options to purchase 360,400 shares of the Company wereauthorized and granted at an exercise price of ¥1 ($0.01) for
the year ended March 31, 2020.

(1) Valuation method used: Black-Scholes model(2) Major underlying assumptions and estimates:

Yen

15. Leases
Future minimum lease payments on non-cancelable operating leases are as follows:
Millions of yen

Due within one year
Due over one year

(78,062)(1,170)Tax expense

Weighted-average
exercise price

Number ofshares33

Sub-total, before tax

Weighted-average exercise price

Number ofshares(8,461)

Reclassification adjustments

2019

Total

Thousands of
U.S. dollars

2020

2019

2020

¥ 3,915¥ 3,694$ 35,979

7,608

8,577

69,909¥11,523¥12,272$105,888

Note: Certain consolidated overseas subsidiaries adopted IFRS 16 “Leases” fromthe beginning of the fiscal year ended March 31, 2020. Accordingly, leases as a lessee which had been classified as operating leases under theprevious accounting standard are not included in the amounts above asof March 31, 2020, since they are now recorded on the balance sheets
in principle.

16. Fair Value of Financial Instruments

15th Stock Acquisition Rights

Notes: 1. Calculated based on the stock price performance for the period­corresponding to the expected residual period (from October 2013
to June 2019).
2. Calculated based on past actual results and forecast of the exerciseof stock options.
3. Based on the dividends paid for the years ended March 31, 2019and 2018.
4. Based on Japanese government bond yield corresponding to the
expected residual period.

(3) Method of estimating the number of vested stock options
It is not necessary to estimate the number of vested stock
options as the rights to exercise stock options are vested
immediately when granted.

Policy for financial instruments
Tokyo Electron limits its fund management to short-termbank deposits and low-risk financial instruments.
Trade receivables, which consist of notes and accounts
receivable, are exposed to credit risk in the event of non-­performance by the counterparties. Execution and management of credit risk, maturity and receivable balance areconducted pursuant to the internal management rules for
credit control. Credit risk of major customers is assessed ona regular basis.
Short-term investments consist of short term deposits
and low-risk financial instruments and Tokyo Electron tradewith highly-rated financial institutions to mitigate credit risks.
Investment securities consist of mainly equity interests inlisted companies exposed to equity market risks. Conditions,
including market prices, for these investment securities aremonitored on a regular basis.
Trade payables, which consist of notes and accounts payable, mainly mature within one year. Trade payables are
exposed to liquidity risks which are managed through activities such as implementing cash management plans.
See note 17 for detailed discussion on derivative financial
instruments.

TOKYO ELECTRON ANNUAL REPORT 2020

PAGE

25

CONTENTS

To Our Stakeholders

Business Overview
and Financial Highlights

Review of Operations
and Business Outlook

Interview with the CEO

Financial Section
Investor Information

Corporate Governance

Financial Review
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Comprehensive Income
Consolidated Eleven-Year Summary
Notes to Consolidated Financial Statements
Consolidated Statements of Changes in Net Assets
Consolidated Subsidiaries
Consolidated Statements of Cash Flows
Independent Auditor’s Report

Investor Information

Notes to Consolidated Financial Statements
Fair value of financial instruments
Carrying amount and estimated fair value of financial
instruments as of March 31, 2020 and 2019 are set out below.
Fair value of financial instruments which is practically difficult
to estimate are excluded.
Millions of yen

2020:

Carrying
amountEstimated
fair value1

AssetsCash and cash equivalents¥247,959¥247,959

Short-term investments

90,447

90,162 Trade notes and accounts receivable, net of allowance for
doubtful accounts (¥105 million)
Investment securities

150,029

150,02937,03037,03095,93895,938Hedge accounting not applied

125

125

Hedge accounting applied

(47)

(47)

Millions of yen

Unlisted stocks

Carrying
amountEstimated
fair value1

Cash and cash equivalents¥232,634¥232,634

Short-term investments

160,000

159,921¥971

146,886

146,886

26,866

26,86675,44875,448

Liabilities
Trade notes and accounts payable
Derivatives (see note 17)
Hedge accounting not applied

74

74

Hedge accounting applied

(56)

(56)

Thousands of U.S. dollars
Carrying
amountEstimated
fair value1

Cash and cash equivalents$2,278,408$2,278,408

Short-term investments

831,087

828,473

2020:

Assets Trade notes and accounts receivable, net of allowance for
doubtful accounts ($968 thousand)
Investment securities

1,378,564

1,378,564

340,256

340,256

Liabilities
881,543881,543

Hedge accounting not applied

1,151

1,151

Hedge accounting applied

(432)

(432)

Trade notes and accounts payable
Derivatives (see note 17)

Notes: 1. 	Fair value calculation of financial instruments		Cash and cash equivalents, short-term investments, trade notes andaccounts receivable and trade notes and accounts payable.

$ 9,319

Other

330

15

3,034

Total

¥1,344¥986$12,354

3. Maturities of financial assets and securities are as follows:
Millions of yen
2020:

Within 1 year

After 1 through5 years¥247,959

1. Derivative financial instruments not designated as hedging
instruments¥—

Millions of yen

2019:

Contract
amountFair value

Gains(losses)

Sell U.S. dollars¥ 1,201¥14¥14

Buy U.S. dollars

11,967

53

53

Buy Chinese yuan

2,720

9

9

Buy Taiwan dollars

1,213

(3)

(3)

Buy GBP593

00

Buy EURO

360

0

0

Buy Singapore dollars

326

(0)

(0)

Total

¥18,383

¥74

¥74

2020:

Contract
amountSell U.S. dollars

Thousands of U.S. dollars

Millions of yen

2020:

Contract
amountFair value

Gains(losses)

Sell U.S. dollars

¥

668

¥ (8)

¥ (8)

Sell EURO

525

(0)

(0)

Sell EURO

Sell Swiss francs

61

0

0

Buy U.S. dollars

21,973

162

Buy Chinese yuan

2,105
334

Buy GBPBuy Singapore dollars

Short-term investments

90,447—

Buy Taiwan dollars

Trade notes and accounts receivable

150,134—

Total

AssetsInvestment securities

2020

2019

¥1,014

Cash and cash equivalents

Millions of yen Trade notes and accounts receivable, net of allowance for
doubtful accounts (¥84 million)

Thousands of
U.S. dollars

except for transactions where the critical terms of the hedging instrument and hedged item match and the Company
could conclude that changes in fair value or cash flows are
expected to completely offset. Execution and managementof all derivative transactions are conducted pursuant to theinternal management rule.
The estimated fair values of the derivative financial instruments as of March 31, 2020 and 2019 are as follows:

Reported amount in balance sheet

Derivatives (see note 17)2019:

2. The following financial instruments are not included in the above as
they do not have quoted market prices and therefore it is consideredextremely difficult to measure their fair value.

2020

Liabilities
Trade notes and accounts payable	  The carrying amounts approximate fair value because of the shortmaturity of these instruments.
		 Investment securities
	  The fair values of marketable securities are based on quoted­market prices.
	  See note 6 for further information by classification of investment
securities.
		Derivatives
	  See note 17 for detailed discussion on derivative financial i­nstruments.

303

6,146

Gains
(losses)

$

$

(78)

(78)

4,826

(7)

Sell Swiss francs

561

0

0

162

Buy U.S. dollars

201,902

1,497

1,497

(28)

(28)

Buy Chinese yuan

19,349

(265)

(265)

(1)

(1)

Buy GBP

3,076

(9)

(9)

0

Buy Singapore dollars

2,791

0

0

Buy Taiwan dollars

419

13

13

$239,074$1,151$1,151

0

45

1

1

¥26,018

¥125

¥125

Total

(7)

Note: The fair values are based on the quoted forward foreign exchange rates.

Millions of yen
2019:Within 1 year

After 1 through5 years

Cash and cash equivalents¥232,634¥—

Short-term investments

160,000—

Trade notes and accounts receivable

146,971—

Thousands of U.S. dollars

2. Derivative financial instruments designated as hedging instruments
The contract amounts of forward foreign exchange contracts, entered into to hedge future transactions and receivables andpayables denominated in foreign currencies that have been translated by the corresponding contracted rates, are as follows:

2020:

Within 1 year

After 1 through5 years

Cash and cash equivalents$2,278,408$—

Millions of yen

Short-term investments

831,087—

1,379,532—

Contract amountContract amount due after 1 year

Trade notes and accounts receivable$

Fair value

2020:

Tokyo Electron is subject to risk from adverse fluctuations
in foreign currency exchange rates in its operating andfinancing activities. The Company and certain subsidiaries
enter into forward foreign exchange contracts in order tohedge such risks, but do not enter into such transactions for
speculative purposes. The Company implements a ratio analysis of the total cumulative cash flow fluctuations to assess
effectiveness of hedging for all derivative transactions,

Fair value

Contract amountContract amountdue after 1 year

Fair value¥(47)$39,338$—$(432)

Future transactions denominated in a foreign currency
Sell U.S. dollars

17. Derivative Financial Instruments

Thousands of U.S. dollars¥4,281¥—

Monetary assets and liabilities in foreign currency (Note)
Sell U.S. dollars

1,818

—

—

16,712

—

—

Total

¥6,100¥—¥(47)$56,050$—$(432)

Millions of yen

2019:

Contract amountContract amount due after 1 year

Fair value

Future transactions denominated in a foreign currency
Sell U.S. dollars¥5,951¥—¥(56)

Sell U.S. dollars

898

—

—

Buy U.S. dollars

61

—

—

¥6,911¥—¥(56)

Monetary assets and liabilities in foreign currency (Note)

Total

Note: The fair value of these derivative financial instruments, which is based on the quoted foreign exchange rates, is included in the carrying value of hedged assets
and liabilities.

TOKYO ELECTRON ANNUAL REPORT 2020

PAGE

26

CONTENTS

To Our Stakeholders

Business Overview
and Financial Highlights

Review of Operations
and Business Outlook

Interview with the CEO

Financial Section
Investor Information

Corporate Governance

Financial Review
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Comprehensive Income
Consolidated Eleven-Year Summary
Notes to Consolidated Financial Statements
Consolidated Statements of Changes in Net Assets
Consolidated Subsidiaries
Consolidated Statements of Cash Flows
Independent Auditor’s Report

Investor Information

Notes to Consolidated Financial Statements
18. Segment Information

Millions of yen
Reportable Segment

General information about reportable segments
A reportable segment is a component or an aggregated component of Tokyo Electron. For each of the components, discrete
financial information is available and the operating result is regularly reviewed by management to make decisions about resources to be allocated to the segment and assess its performance.
The operation of Tokyo Electron consists of segments by products and services based on business units (BUs), and Tokyo
Electron identifies as a reportable segment, “semiconductor production equipment (SPE)” and “flat panel display (FPD) production equipment”.
Products of the SPE segment consist of coater/developers, etch systems, deposition systems, cleaning systems used in wafer
processing, wafer probers used in the wafer testing process and other semiconductor production equipment. The SPE segmentprincipally develops, manufactures, sells such products and provide services on them.
Products of the FPD production equipment segment consist of coater/developers and etch/ash systems used in the manufacture of flat panel displays. The FPD production equipment segment principally develops, manufactures, sells such products andprovide services on them.
Basis of measurement of reportable segment net sales, segment profit (loss), segment assets and other items
The accounting policies applied in each reportable segment are generally consistent with those applied for the preparation of
the consolidated financial statements. Intersegment sales or transfers are determined by negotiation between the Tokyo
Electron group companies considering current market prices. Assets in common use have not been allocated to each reportablesegment, while costs associated with those assets have been allocated to reportable segments on a systematic basis.
Information about reportable segment net sales, segment profit (loss), segment assets and other items
Reportable segment information as of and for the years ended March 31, 2020 and 2019 is as follows:

FPD
production
equipment¥1,060,997¥66,092

197¥1,127,286——

19,292

19,292(19,292)—

1,060,997

66,092

19,4891,146,578(19,292)

1,127,286

Segment profit

270,496

10,589852

281,937(37,310)244,626

Segment assets

538,532

42,215

2,864

583,612694,882

1,278,495

Depreciation and amortization

16,072

1,242

194

17,50911,598

29,107

Other

Total

Adjustments

Consolidated¥¥1,127,286

Net sales

Total

Amortization of goodwill
Capital expenditures, including intangible assets¥111,261

197¥1,278,240——

18,914

18,914(18,914)—

1,166,781

111,261

19,112

1,297,155(18,914)

1,278,240

Segment profit

326,716

24,241

1,035

351,993(30,484)

321,508

Segment assets

506,92935,722

2,474

545,126

712,501

1,257,627

Depreciation and amortization

14,003873

126

15,002

9,321

24,323

354

—

—

354

—

354

22,633

1,507

198

24,34029,08253,422Adjustments

Consolidated—$10,358,232

¥

—

196

—

—

196

—

196

21,082

4,035

284

25,40333,31258,715

Other

Total

Adjustments

Consolidated¥¥1,278,240

Net sales
Sales to external customers
Intersegment sales or transfers
Total

Amortization of goodwill
Capital expenditures, including intangible assets¥—

Thousands of U.S. dollars
Reportable Segment
Semiconductor
production
equipment

FPD
production
equipment$9,749,122$607,299

1,810$10,358,232 $——

177,268

177,268(177,268)

—

Total

9,749,122

607,299

179,079

10,535,501(177,268)

10,358,232

Segment profit

2,485,491

97,3017,829

2,590,622(342,834)

2,247,788

Segment assets

4,948,386

387,898

26,3205,362,605

6,385,031

11,747,636

147,682

11,419

1,786

160,888

106,571

267,459

1,806

—

—

1,806

—

1,806

193,723

37,082

2,618

233,424

306,092

539,517

2020:

Other

Total

Net sales
Sales to external customers
Intersegment sales or transfers

Capital expenditures, including intangible assets

Semiconductor
production
equipmentIntersegment sales or transfers¥1,166,781

2019:

Amortization of goodwill

Millions of yen

Sales to external customers

FPD
production
equipment

Depreciation and amortization

Reportable Segment

2020:

Semiconductor
production
equipment$

Notes: 1.	“Other” includes all other operating segments which are not included in the reportable segments, including group-wide logistic services, facility maintenanceand insurance.
2. (1) 	”Adjustments” for segment profit (loss) totaling ¥(37,310) million ($(342,834) thousand) and ¥(30,484) million for the years ended March 31, 2020 and
2019, respectively, mainly consists of research and development costs of ¥(19,796) million ($(181,902) thousand) and ¥(15,999) million for the years
ended March 31, 2020 and 2019, respectively, pertaining to the Company’s fundamental research and element research and other general and administrative costs that do not belong to the reportable segments.
		 (2) 	“Adjustments” for segment assets totaling ¥694,882 million ($6,385,031 thousand) and ¥712,501 million as of March 31, 2020 and 2019, respectively,
mainly consist of cash and cash equivalents, short-term investments and buildings not allocated to any of the reportable segments.
		 (3) 	“Adjustments” for capital expenditures totaling ¥33,312 million ($306,092 thousand) and ¥29,082 million for the years ended March 31, 2020 and 2019,respectively, mainly consist of capital expenditures for buildings not allocated to any of the reportable segments.

Other information(1) Domestic and overseas net sales by destination for the years ended March 31, 2020 and 2019 are as follows:
Millions of yen

2020:

Net sales

Japan

North America

EuropeSouth Korea

Taiwan

China

Other

Total

¥161,812¥205,804¥58,899¥154,801¥261,116¥249,234¥35,617¥1,127,286

Notes: 1. Sales are classified in countries or regions based on location of customers.
2. Net sales of North America include sales in the U.S.A. of ¥205,783 million.
Millions of yen

2019:

Net sales

Japan

North America

EuropeSouth Korea

Taiwan

China

Other

Total

¥208,796¥131,954¥93,113¥311,081¥164,912¥307,879¥60,502¥1,278,240

Notes: 1. Sales are classified in countries or regions based on location of customers.
2. Net sales of North America include sales in the U.S.A. of ¥131,914 million.
Thousands of U.S. dollars

2020:

Net sales

Japan

North America$1,486,835 $1,891,067

Europe$541,207

Note: Net sales of North America include sales in the U.S.A. of $1,890,873 thousand.

South Korea

TaiwanChina$1,422,414 $2,399,304 $2,290,125

Other

Total

$327,278$10,358,232

TOKYO ELECTRON ANNUAL REPORT 2020

PAGE

27

CONTENTS

Business Overview
and Financial Highlights

To Our Stakeholders

Review of Operations
and Business Outlook

Interview with the CEO

Financial Section
Investor Information

Corporate Governance

Financial Review
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Comprehensive Income
Consolidated Eleven-Year Summary
Notes to Consolidated Financial Statements
Consolidated Statements of Changes in Net Assets
Consolidated Subsidiaries
Consolidated Statements of Cash Flows
Independent Auditor’s Report

Investor Information

Notes to Consolidated Financial Statements
19. Per-Share Information(2) Net property, plant and equipment by location as of March 31, 2020 and 2019 are as follows:
Millions of yen

2020:

Property, plant and equipment

Japan

Other

Total

¥139,098¥36,481¥175,580

Net income per share and net assets per share are computed based on the weighted-average number of shares of common
stock outstanding during each year. Net income-diluted per share is computed based on the weighted-average number ofshares of common stock outstanding during each year after incorporating the dilutive potential effect of shares of common
stock to be issued upon the exercise of stock options.
Dividends per share has been presented on an accruals basis and include, in each fiscal year ended March 31, dividends
approved or to be approved after March 31 but applicable to the year then ended.

Millions of yen

2019:

Property, plant and equipment

Japan

Other

Total

¥120,177¥29,891¥150,069

Thousands of U.S. dollars

2020:

Property, plant and equipment

Japan

Other

Total

$1,278,127$335,214$1,613,342

The basis for the calculation of net income per share for the fiscal years ended March 31, 2020 and 2019 is as follows:
Thousands of
U.S. dollars

Millions of yen(3) Major customer information
Net sales to external customers that represent 10 percent or more of net sales are as follows:

Name of customer

2020

2020

2019

Net income per share of common stock — Basic

Related reportable segment

Millions of yen

Thousands of
U.S. dollars

2020

2020

¥185,206¥248,228———

Net income pertaining to holders of common stock¥185,206¥248,228$1,701,799

158,219

164,000

Net income attributable to owners of parent
Less components not pertaining to holders of common stockIntel Corporation

Semiconductor production equipment¥230,340$2,116,517

Weighted-average number of shares of common stock outstanding (thousands)

Taiwan Semiconductor Manufacturing Company Ltd.

Semiconductor production equipment

187,890

1,726,462

Net income per share of common stock — Diluted

Samsung Electronics Co., Ltd.

Semiconductor production equipment and FPD production equipment

120,127

1,103,810

Adjustment of net income attributable to owners of parent——

Increase in number of common stock (Thousands of share)

889

692

889

692

Note: The amounts include sales to the customer and its subsidiaries.

Increase in number of share subscription rights (Thousands of share)
Millions of yen
Name of customer

Related reportable segment

Semiconductor production equipment¥199,594

Samsung Electronics Co., Ltd.

Semiconductor production equipment and FPD production equipment

175,315

SK hynix Inc.

Semiconductor production equipment

174,468

Micron Technology, Inc.

Semiconductor production equipment

131,821

Note: The amounts include sales to the customer and its subsidiaries.

Information about reportable segment goodwill
Reportable segment information about amortization of goodwill for the years ended March 31, 2020 and 2019, and unamortized balances as of March 31, 2020 and 2019 are as follows:
Millions of yen
Semiconductor
production
equipment

FPD
production
equipment

Total

Amortization of goodwill

¥196

¥—

¥196

Goodwill

910

—

910

2020:

Millions of yen
Semiconductor
production
equipment

FPD
production
equipment

Total

Amortization of goodwill

¥ 354

¥—

¥ 354

Goodwill

1,124

—

1,124

2019:

Thousands of U.S. dollars
Semiconductor
production
equipment

FPD
production
equipment

Total

Amortization of goodwill$1,806$—$1,806

Goodwill

8,369

—

8,369

2020:

—

Note: The shares of the Company held by “Executive compensation BIP Trust” and “Share-delivering ESOP Trust”, which are recorded in “Treasury stock, at cost” undershareholders’ equity, are included in the treasury stock which is deducted in calculating the per-share information .
The number of treasury shares deducted in the calculation of net assets per share was 472 thousand shares and 249 thousand shares as of March 31, 2020
and 2019, respectively, and the average number of treasury shares deducted in the calculation of net income per share and fully diluted net income per share
was 398 thousand shares and 167 thousand shares for the fiscal years ended March 31, 2020 and 2019, respectively.

2019Intel Corporation$1,701,799

TOKYO ELECTRON ANNUAL REPORT 2020

PAGE

28

CONTENTS

To Our Stakeholders

Business Overview
and Financial Highlights

Interview with the CEO

Review of Operations
and Business Outlook

Financial Section
Investor Information

Corporate Governance

Financial Review
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Comprehensive Income
Consolidated Eleven-Year Summary
Independent Auditor’s Report
Consolidated Statements of Changes in Net Assets
Consolidated Subsidiaries
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements

Investor Information

Independent Auditor’s Report

To the Board of Directors of Tokyo Electron Limited:
OpinionWe have audited the accompanying consolidated financial statements of Tokyo Electron Limited (“the Company”) and its consolidated subsidiaries (collectively referred to as “the Group”), which comprise the consolidated balance sheets as at March 31, 2020
and 2019, and the consolidated statements of income, comprehensive income, changes in net assets and cash flows for the years
then ended, and the related notes to the consolidated financial statements.
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as at March 31, 2020 and 2019, and its consolidated financial performance and cash flows for the years
then ended in accordance with accounting principles generally accepted in Japan.
Basis for Opinion
We conducted our audit in accordance with auditing standards generally accepted in Japan. Our responsibilities under thosestandards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of
our report. We are independent of the Group in accordance with the ethical requirements that are relevant to our audit of theconsolidated financial statements in Japan, and we have fulfilled our other ethical responsibilities in accordance with theserequirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Responsibilities of Management and Corporate auditors and the board of corporate auditors for
the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance withaccounting principles generally accepted in Japan, and for such internal control as management determines is necessary to enable
the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, management is responsible for assessing the Group’s ability to continue asa going concern, disclosing, as applicable, matters related to going concern in accordance with accounting principles generally
accepted in Japan.
Corporate auditors and the board of corporate auditors are responsible for overseeing the directors’ performance of their duties
including the design, implementation and maintenance of the Group’s financial reporting process.
Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free frommaterial misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonableassurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with auditing standards generally accepted in Japan will always detect a material misstatement when it exists. Misstatements can arise from fraud or error
and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic
decisions of users taken on the basis of these consolidated financial statements.
As part of our audit in accordance with auditing standards generally accepted in Japan, we exercise professional judgment andmaintain professional skepticism throughout the audit. We also:• Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error,
design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate toprovide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one
resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of­internal control.

• Conclude on the appropriateness of management’s use of the going concern basis of accounting and based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on theGroup’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report.
However, future events or conditions may cause the Group to cease to continue as a going concern.
• Evaluate whether the presentation and disclosures in the consolidated financial statements are in accordance with accounting
standards generally accepted in Japan, the overall presentation, structure and content of the consolidated financial statements,
including the disclosures, and whether the consolidated financial statements represent the underlying transactions and eventsin a manner that achieves fair presentation.
• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within theGroup to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and­performance of the group audit. We remain solely responsible for our audit opinion.
We communicate with corporate auditors and the board of corporate auditors regarding, among other matters, the planned
scope and timing of the audit, significant audit findings, including any significant deficiencies in internal control that we identify
during our audit.
We also provide corporate auditors and the board of corporate auditors with a statement that we have complied with relevant
ethical requirements regarding independence, and communicate with them all relationships and other matters that may reasonably
be thought to bear on our independence, and where applicable, related safeguards.
Convenience Translation
The U.S. dollar amounts in the accompanying consolidated financial statements with respect to the year ended March 31, 2020are presented solely for convenience. Our audit also included the translation of yen amounts into U.S. dollar amounts and, in our
opinion, such translation has been made on the basis described in Note 1 to the consolidated financial statements.
Interest required to be disclosed by the Certified Public Accountants Act of Japan
We do not have any interest in the Group which is required to be disclosed pursuant to the provisions of the Certified Public
Accountants Act of Japan.

/S/ 宍戸 通孝 (SEAL)/S/ 西野 聡人 (SEAL)/S/ 鈴木 紳 (SEAL)

Michitaka Shishido

Akira Nishino
Designated Engagement Partner
Certified Public Accountant

Shin Suzuki

Designated Engagement Partner
Certified Public Accountant

Designated Engagement Partner
Certified Public Accountant

KPMG AZSA LLC
Tokyo Office, Japan
June 23, 2020

• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in thecircumstances, while the objective of the audit is not to express an opinion on the effectiveness of the Group’s internal control.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related­disclosures made by management.

Notes to the Reader of Independent Auditor’s Report:
This is a copy of the Independent Auditor’s Report and the original copies are kept separately by the Company and KPMG AZSA LLC.

TOKYO ELECTRON ANNUAL REPORT 2020

PAGE

29

CONTENTS

To Our Stakeholders

Business Overview
and Financial Highlights

Interview with the CEO

Review of Operations
and Business Outlook

Financial Section
Investor Information

Corporate Governance

Financial Review
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Comprehensive Income
Consolidated Eleven-Year Summary
Consolidated Subsidiaries
Consolidated Statements of Changes in Net Assets
Consolidated Statements of Cash Flows
Independent Auditor’s Report
Notes to Consolidated Financial Statements

Consolidated Subsidiaries (As of March 31, 2020)
JAPANInvestor Information (As of March 31, 2020)
Corporate Name and Head Office:		 • Tokyo Electron Miyagi Limited

Tokyo Electron Limited
Akasaka Biz Tower
3-1 Akasaka 5-chome, Minato-ku,
Tokyo 107-6325, Japan		 • Tokyo Electron FE Limited

Established:		 • Tokyo Electron Technology Solutions Limited		 • Tokyo Electron Kyushu Limited		 • Tokyo Electron BP Limited

November 11, 1963		 • Tokyo Electron Agency Limited

Annual General Meeting of
Shareholders:U.S.
		 • Tokyo Electron U.S. Holdings, Inc.
		 • Tokyo Electron America, Inc.
		 • TEL Technology Center, America, LLC		 • TEL Venture Capital, Inc.
		 • TEL Manufacturing and Engineering of America, Inc.

EUROPE		 • Tokyo Electron Europe Limited		 • Tokyo Electron Israel Limited		 • TEL Magnetic Solutions Limited

ASIA		 • Tokyo Electron Korea Limited		 • Tokyo Electron Taiwan Limited		 • Tokyo Electron (Shanghai) Limited		 • Tokyo Electron (Kunshan) Limited		 • Tokyo Electron Singapore Pte. Limited

Investor Information

Common Stock Listed on:

Stock trading unit
Authorized
IssuedNumber of shareholders

Investor Relations
Tokyo Electron Limited
Akasaka Biz Tower
3-1 Akasaka 5-chome, Minato-ku,
Tokyo 107-6325, Japan
Tel: +81-3-5561-7000

Independent Auditor:
KPMG AZSA LLC

Administrator of Shareholders’Register:June

Common Stock:

For Further Information, Contact:

Tokyo Stock Exchange 1st Section(Stock code: 8035)

100 shares
300,000,000 shares
157,210,911 shares
30,348Website:Sumitomo Mitsui Trust Bank, Limited
4-1 Marunouchi 1-chome, Chiyoda-ku,
Tokyo, Japan
Direct mail and inquiries to:
Sumitomo Mitsui Trust Bank, Limited
8-4 Izumi 2-chome, Suginami-ku,
Tokyo, 168-0063, Japan
Tel (toll free): 0120-782-031 (available
only in Japan)

Major Shareholders:
The Master Trust Bank of Japan Limited (trust account)
Japan Trustee Services Bank Limited (trust account)
JP Morgan Chase Bank 385632
Tokyo Broadcasting System Holdings, Inc.
Japan Trustee Services Bank Limited (trust account 7)
Trust & Custody Services Bank, Limited(securities investment trust account)
Japan Trustee Services Bank Limited (trust account 4)
SSBTC CLIENT OMNIBUS ACCOUNT
JP Morgan Chase Bank 385151
Japan Trustee Services Bank Limited (trust account 5)

Number ofshares held
(thousands)

Votingshare ratio(%)

31,397
14,888
8,712
5,991
4,145
3,049

20.12
9.54
5.58
3.84
2.65
1.95

2,902
2,628
2,599
2,584

1.86
1.68
1.66
1.65

Notes: 1. Shares of less than one thousand have been rounded down in the “Number of shares held.”
2. V oting share ratios are calculated excluding treasury stock (1,213,526 shares). Figures are truncated after
the second decimal place. Treasury stock excludes the 472,030 Company shares owned by the executive compensation Board Incentive Plan (BIP) trust account and the share-delivering Employee Stock
Ownership Plan (ESOP).

www.tel.com

Distribution of Ownership among
Shareholders:
Treasury stock
0.77%

Japanese financial institutions
and securities companies
49.21%

Other Japanese
corporations
4.73%

Japanese individuals
and others
6.06%

Foreign institutions
and others
39.23%

Stock Price and Trading Volume
29 consolidated subsidiaries in total, including the above 19 companies(Thousands of shares)(Yen)
30,00025,00020,00015,00010,000 Stock price
5,000

100,000

Trading volume0

50,0000

CY2015

CY2016

CY2017

CY2018CY2019CY2020Years ended March 31

2016

2017

2018

2019

2020

High (yen)8,450

12,28523,87521,93525,875Low (yen)

5,519

6,603

11,455

11,595

13,760Total shareholder
return (%)

90.3

152.0

253.3

214.4

273.4

(TOPIX, dividends
reinvested)(89.2)(102.3)(118.5)(112.5)(101.8)