Create
New Value

Annual Report 2010

For the Year Ended March 31, 2010

PROFILE
Tokyo Electron Limited (TEL) is a world-leading supplier of semiconductor production equipment (SPE) and flat panel display (FPD)
production equipment. We provide a broad lineup of productsthat offer superior process performance and high productivity andrelated services to semiconductor and LCD panel manufacturers
around the world. Additionally, photovoltaic (PV) cell production
equipment has been in the product lineup since 2009.
An unwavering commitment to customer satisfaction that dates
back to our founding in 1963 has cemented our position as themarket leader. Our competitive strength lies in our capability toproactively and precisely identify real customer needs and respondto them with cutting-edge technology and products.
With a global network that spans Japan, the U.S., Europe andAsia, we are opening up new frontiers for digital networks bycontributing to enhancing our customers’ production lines
through untiring dedication to technology innovation.

Contents
1	Consolidated Financial Highlights
2	To Our Stakeholders
4	Interview with the CEO
10	Tokyo Electron At a Glance
12 Review of Operations
14 Research and Development/Intellectual Property
16	Environmental, Health and Safety Activities
18	Corporate Governance24	Board of Directors,
Statutory Auditors and Executive Officers

25 Financial Section
52	Group Companies
53 Investor Information

Disclaimer Regarding Forward-looking Statements
Matters discussed in this annual report, including forecasts of future business performance of Tokyo Electron, management strategies, beliefs and other statements are based on ­­Tokyo­Electron’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/PV markets• Changes in the demand for products and services manufactured or offered by Tokyo Electron’s customers, such as semiconductor manufacturers, FPD manufacturers, photovoltaic cell 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 32.

Tokyo Electron

Annual Report 2010

CONSOLIDATED FINANCIAL HIGHLIGHTS

Thousands of
U.S. dollars

Millions of yen

2006

2007

2008

2009

2010

2010

¥673,686¥851,975¥906,092¥508,082¥418,637$4,499,538

Years ended March 31

For the year:
Net sales.......................................
Operating income (loss)................

75,703

143,979

168,498

14,711(2,181)(23,442)

Income (loss) before income taxes...

75,328144,414169,220

9,637(7,768)(83,491)

Net income (loss)..........................
Depreciation and amortization......
Capital expenditures.....................
R&D expenses...............................
Free cash flows.............................

48,006
19,17013,33549,182
68,317

91,263
18,82027,12956,96229,004106,271
21,41322,70366,07386,753

7,543
23,068
18,10860,988(79,591)(9,033)20,002
14,91954,07457,898(97,087)
214,983
160,350
581,191622,291

Operating margin.........................
ROE..............................................

11.2%
13.5%

16.9%
21.8%

18.6%
21.4%

(0.5)%(1.8)%

2.9%
1.4%

Thousands of
U.S. dollars

Millions of yen

At year-end:
Total assets...................................
Total net assets(Total shareholders’ equity)..........

¥663,243¥770,514¥792,818¥668,998¥696,352$7,484,437

376,900

469,811545,245529,265

523,370

5,625,215

Yen

Per share:
Net income (loss)—Basic...............
Cash dividends.............................

¥ 267.61
55.00¥ 511.27
103.00U.S. dollars¥ 594.01
125.00¥   42.15
24.00¥ (50.47)
12.00

$

(0.54)
0.13

Notes: 1. U.S. dollar amounts are translated from yen, solely for convenience, at the prevailing exchange rate on March 31, 2010 of ¥93.04=U.S.$1.
2. Depreciation and amortization does not include amortization and loss on impairment of goodwill.

Net Sales

Operating Income (Loss) andOperating Margin

Net Income (Loss) per Share

ROE(Millions of Yen)

(Millions of Yen)

(Yen)

(%)

20

18.6

24

600

10

300

5

150

0

0

–5

–150

18

12 13.5

6

42.15

2.9

511.27450

21.8 21.4

267.61

168,498

143,979

15–2,1810

14,711200,000

50,00011.2
75,703508,082

100,000

418,637

400,000

150,000

673,686

600,000

851,975

800,000

906,09216.9

594.01200,000

1,000,000

1.4
0

0

–50,000

06 07 08 09 10

06 07 08 09 10–50.47–0.5

06 07 08 09 10

–1.8
–6

06 07 08 09 10

nn Operating Income (Loss)
Operating Margin

Annual Report 2010

Tokyo Electron

1

TO OUR StakeHOLDERS

Dynamic changes in the area ofglobal technology offer Tokyo Electron
opportunities for new growth.

Over the past two years, the world has experienced one of the

do its utmost to encourage all of these trends, and turn them into

most severe economic recessions in living memory. I would like toopportunities for new growth, maximizing earnings to the levels

sincerely thank all our stakeholders for continuing to support Tokyo

that our stakeholders expect.

Electron through these difficult times. Although global financial

In order to better address the global trends and challenges

uncertainty has not yet been fully dispelled, in the electronics

mentioned above, Tokyo Electron will need a new generation ofindustry in which Tokyo Electron serves, notably in information anddynamic leadership to guide it into the future. For that reason, as

communication technologies (ICT)-related fields, our customers

of April 1, I handed over the top management responsibilities tostarted to resume capital investment from spring 2009, and it has

our company president, Hiroshi Takenaka. As Chairman of thegained momentum since the beginning of 2010. Having com-

Board, I will lend my unwavering support to our new CEO, andpleted a long period of structural reform, and with the advent ofhelp him to steer the company towards its goals. I am sure that theinnovative technologies, I believe that the industry is now moving

management team will fully meet the expectations of sharehold-into a new phase of growth. Despite the fact that we were unable

ers, customers, and all of Tokyo Electron’s stakeholders, and I thankto achieve a net profit for the full fiscal year ended March 31,

everyone for your ongoing support.

2010, the Company moved into the black in the second half. Now
we are seeing orders picking up, reflecting strong demand from
customers for Tokyo Electron products.
The markets that we serve have been changing, with a shift to
new types of network infrastructure as typified by “cloud computing.” Accompanying this trend, new products have emerged, suchas tablets and smartphones, and these new applications havehelped to boost global semiconductor demand in emerging economies as well as established ones. At the same time, people arerecognizing that the issue of reducing our impact on the global
environment is one that must be addressed by all of mankind.
Semiconductor technology, and the applied technologies that havebeen accumulated through the manufacture of semiconductors,
will play a critical role in addressing this challenge. Semiconductor
technology forms the basis for a host of other “green” technologies, from “smart grids” (new types of energy infrastructure) tophotovoltaic cells, LEDs and OLEDs. The Tokyo Electron Group will

2

Tokyo Electron

Annual Report 2010

Tetsuro Higashi, Chairman of the BoardIn order to further enhance
our global leadership, Tokyo Electron ismoving ahead with a future-oriented
management stance.

In response to the global economic crisis, which occurred in the fallleveraging our production equipment technology that we haveof 2008, semiconductor manufacturers sharply reduced capitaldeveloped over the years in areas such as semiconductors and flat

investment, pushing Tokyo Electron’s operations into the red. In

panel displays, we have started to take on the challenges of innova-

fiscal 2010, the year ended March 31, 2010, Tokyo Electron posted

tive and cutting-edge technologies, such as photovoltaic cell pro-net sales of ¥418.6 billion, an operating loss of ¥2.2 billion and aduction equipment. For Tokyo Electron, with our superior

net loss of ¥9.0 billion. Although dividends are set at a payout ratio

technological and financial resources, it is not too much to say thatof 20% of consolidated net income in principle, despite thesean exciting era has arrived in which the Company will be able tocircumstances, the Company has set dividends for the period at ¥12

technologically differentiate itself even further.

per share (an interim dividend of ¥4 and a year-end dividend of ¥8

The industries in which Tokyo Electron participates make a pro-

per share). The Company would like to again express its thanks tofound contribution to the lifestyles of people everywhere. As theour shareholders and all other stakeholders for their continued

global economy begins to brighten, these industries have been

support in a severe operating environment.

enjoying a more rapid recovery than other industries. Even now,

Tokyo Electron offers a variety of production equipment thatmost of our manufacturing facilities are operating at close to fullcontributes to the manufacture of core components, such as

capacity. Although the economy may continue to fluctuate in thesemiconductors and LCD panels, which play a central role in the

short term, we must stay on course. We reaffirm our significant

current age of digital networks. Our products contribute to pro-

responsibility as the global leader in production equipment and are

viding more comfort in the lives of people. As the market increas-

committed to providing high value to our customers and society

ingly requires us to pursue the continuous innovation ofthrough our business activities, which we conduct with a sense oftechnology for production equipment, we see a great potential

mission and strong commitment. On behalf of all the management

for further growth in this market.

of Tokyo Electron, I would like to express our determination to

Although a severe business environment has persisted sincecontinue working to expand our businesses, to pursue new techno-

2008, Tokyo Electron has dealt with this challenge as the world’s

logical advances, to further enhance management efficiency, and to

top supplier of production equipment, based on our consistent

make Tokyo Electron into an attractive company truly valued by all

management stance. In the short term, we have implemented

stakeholders. Looking ahead, I would like to thank all our stakehold-company-wide measures to curb fixed-costs that are not critical for

ers for continuing to support these objectives.

our operations. At the same time, we have increased our emphasison the medium-term perspective, and prioritized initiatives thathave strong future potential. In line with this stance, we have continued to keep investments in technological development at a highHiroshi Takenaka, President & CEO

level, because these are essential to our future growth. Also, by

Annual Report 2010

Tokyo Electron

3Interview with THE CEO

Questions&

Answers

Hiroshi Takenaka,
President & CEO

4

Tokyo Electron

Annual Report 2010

Q

Fiscal 2010, the year ended March 31, 2010, marked your firstyear as President of Tokyo Electron. How would you summarize your achievements in the first year?

A

Looking back, when I took over as president, we started

into developing new technologies for a new generation of

off in a service business environment in which the future

products. As a result, there were two achievements ofoutlook was unclear. Nevertheless, we moved forward

note. First, we started the commercial introduction of asteadily believing in the importance of investing in people

new etch system that incorporates radial-line slot antenna

and product development for the future.

(RLSA) plasma technology, after around 8 years of con-

To put this in more concrete terms, my initiatives were

tinuous development. Second, the Company commenced

not to necessarily cut personnel, but rather, to invest in

shipping a plasma CVD system for thin-film silicon PV

their training, and use the downturn as an opportunity to

production. We have high expectations for these busi-

enhance their skills to an even higher level. Similarly, we

nesses in the future.

got employees to re-evaluate the operational efficiency ofOn the other hand, in the short term we also quickly

their work, which would have been hard to do during

adjusted the company’s size to match market conditions.

busier times, thereby preparing the Company for the next

Management and employees alike combined forces andphase of business growth. Needless to say, the key to

set about reducing costs in unnecessary or less criticalTokyo Electron’s success has always been rooted on its

areas of operations. These efforts allowed Tokyo Electron

ability to develop technologically superior products in ato surpass initial sales forecasts by ¥120.0 billion, whiletimely manner. So we have not only sought to further

curbing fixed costs.

improve existing products, but also fully channeled funds

Net Sales and R&D Expenses(Billions of Yen)
1,000

Consistently maintain adequate level of R&D expenses

800

600

120

400

80

200

40

Tactras™ RLSA™ Etch, a new etch system withrevolutionary plasma technology
In addition to a strong presence in BEOL etch processing,
the Tactras™ RLSA™ Etch enables Tokyo Electron to
focus on a wider range of solutions, targeting transistorrelated processes (FEOL).

0

0

01

02

03

04

05

06

07

08

09

10

n Net Sales (left scale)
R&D Expenses (right scale)

Annual Report 2010

Tokyo Electron

5

Q

It appears that as the macro-economy recovers, the equipment industry that are Tokyo Electron’s
main markets are also starting to recover. What is your view on industry growth and the outlook
for the business environment?

A

Product inquiries have been recovering since about August

stimulate investment for the time being, but at the same

2009, and manufacturing volume has now recovered totime reducing costs is becoming imperative for us. In

the point where we are even struggling to meet delivery

addition, we will accelerate the development of various

schedules. The products that Tokyo Electron makes haveanticipated technologies such as production equipment

deep connections with social infrastructure and people’sfor OLED, a new next generation display. The businesslives. Consequently, as the economy begins to rebound,climate in the photovoltaic (PV) cell production equipment

our business is showing signs of recovery sooner thanbusiness has changed dramatically over the past year.

most industries.

While new chemical compounds have been attracting

Under these circumstances, I expect continued techno-

attention, crystalline solar is maintaining a high market

logical advances to support renewed growth in the market

share due to lower silicon costs. Up to now, we havefor semiconductor production equipment (SPE). At thefocused most of our resources on thin-film technology,

same time, I also think that the competitive environment

and we expect thin-film to remain the best area for awill intensify and “the strongest survive” will become aproduction equipment supplier, like us, to leverage its exper-

watchword in the industry. That is the reason we aretise. Photovoltaic cells is a market that we expect to growprioritizing investment for technological differentiation. In

steadily over the next ten to twenty years. We will continue

the flat panel display (FPD) production equipment area,

watching the market, seeking whatever technology andChina’s efforts to promote TV market penetration willbusiness model is most appropriate to meet our goal.

V-shaped Recovery in Semiconductor Industry in Japan
Industrial Production Index

140

906,092

851,975

160

Semiconductors

120

Passenger Cars
Iron and Steel

673,686100

508,082

418,637

80

Cement Products
Textiles

60
40
20
0

CY06

CY07

CY08

CY09

Note: Mining production index = Index of production trend with 2005 average set as 100.
Source: Ministry of Economy, Trade and Industry

6

Tokyo Electron

Annual Report 2010

Q

The markets that Tokyo Electron serves are changing, with increasing customer consolidation anda shift of customers to Asia. How is Tokyo Electron responding to these changes?

A

The scale of capital investment by our customers has

Any of these recent changes in the business environ-

become massive, and disparities in technological prowess

ment are ones that I think will benefit Tokyo Electron. In

are steadily growing. As a result, only a limited number offiscal 2010, we introduced the following measures aimed

our customers will be able to continue making theseat responding to market change:

large-scale investments. The production equipment indus-• Decided to construct the Miyagi Plant to strengthen

try is experiencing the same changes, with market leaders

the growing etcher business, while closing the pro-

capturing a rising share of the overall market. Therefore it

duction/development site for cleaning systems at the
Saga plant and consolidating it into the Koshi Plant

is increasingly vital for equipment suppliers to maintainthe technological expertise and financial strength needed• Decided to close the Kansai Technology Center into continue introducing the most advanced equipment inAmagasaki and integrated RLSA development worka timely manner.

at our facility in Sendai, to strengthen our focus on
this area of technology

Another trend we are seeing is that of the growing
post-sales business. Customers are not only purchasing• Reorganized the sales and R&D structure with the

cutting-edge production equipment, but also wish to use

goal of developing closer cooperative ties to ourthe equipment they have already installed for longer peri-

customers

ods by improving and upgrading it. Tokyo Electron has• Strengthened TEL Technology Center, America, andshipped over 50,000 units of equipment which are cur-established a new technology center in Taiwan

rently in operation worldwide. This installed base offers• Established the “Field Solutions” business unit in

the Company excellent opportunities to develop neworder to enhance post-sales business operations

business in the future.

Global R&D and Manufacturing Bases

imec (Belgium)
Collaboration R&D with imec
on immersion lithography andextreme ultraviolet (EUV)
lithography

Tokyo Electron Korea Solution(Hwaseong, Gyeonggi-do)

TEL Technology Center, America(Albany, New York)TEL Venture Capital(Fremont, California)
Timbre Technologies(Fremont, California)

TEL Technology Center, Taiwan(Hsinchu, Taiwan)

About imec
imec is a world-leading independent research
center in nanoelectronics and nanotechnology. Its
research focuses on the next generations of chips
and systems, and on the enabling technologies forambient intelligence.

Tokyo Electron
Leading-edge Process
Development Center(Nirasaki, Yamanashi)

TEL Epion(Billerica, Massachusetts)

Tokyo Electron Technology
Development Institute(Sendai, Miyagi)
Manufacturing/development base in Japan:- Tokyo Electron AT (Nirasaki, Yamanashi)- Tokyo Electron Kyushu (Koshi, Kumamoto)- Tokyo Electron Tohoku (Oshu, Iwate)

Annual Report 2010

Tokyo Electron

7

Q

Please tell us more about Tokyo Electron’s efforts todevelop next-generation technology and new businesses.

A

In the semiconductor industry, design rules have been
improving from 30nm to 20nm, then to 10nm. As thisshows, we are increasingly required to develop ultimate
technologies and, as we did in the past, we continue toexplore and open up new frontiers. We are pursuing many
new ideas that employ immersion technology such as
double-patterning technology and 3DI, a chip stack tech-channeling more resources into the development of our

nology, and thus pushing the boundaries to get higher

own unique production equipment for photovoltaic cells.

density. With each passing day we are progressing closer

Tokyo ­Electron is making the utmost effort to realize these

towards our goal. In the flat-panel display industry, mean-

technological advances using an international R&D infra-

while, we are developing technology to support a larger

structure that includes not only consortia in Japan, but also

panel size, and also accelerating development of produc-

the Albany Nanotech project, in Albany, New York, andtion equipment for OLED displays. Finally, we are

imec in Belgium.

Meeting the Challenge of New Technologies

Water purification
Organic PV
MOCVD
OLED

MEMS
Bio-sensor

Electronic paperCore technologies

SiC Epitaxy

TSV

Advanced healthcare
equipment

Rechargeable battery
Applied technology field

New technology field

8

Tokyo Electron

Annual Report 2010

MOCVD: Metal Organic Chemical Vapor Deposition
MEMS: Micro Electro Mechanical Systems
SiC: Silicon Carbide
TSV: Through Silicon Via
OLED: Organic Light-Emitting DiodeQ

What do you view as currently the most important issue for Tokyo Electron management, andhow do you plan to address the issue?

A

The most important issue for the Company is how to• We intend to enhance our manufacturing skills, torealize sustainable growth over the long term. To do this,ensure that Tokyo Electron is hard-to-beat by new

we have to build a robust and flexible earnings base that

manufacturers particularly in Asia

can withstand market fluctuations. Tokyo Electron willsoon mark the 50th anniversary of its founding. As we are
fortunately doing business in the semiconductor industry,• In this way, we will continue to introduce productsthat enjoy high profitability and high market share• The new products in new business areas will be

an unusual industry in that persistent growth is possible asdeveloped centering on the use of our core technol-

long as technological innovation continues to take place,ogy—production equipment technology—that Tokyo

we continue to put semiconductor technology at theElectron has accumulated over many years

center of our business and pursue the following strategies:• We will respond flexibly to market changes• In existing product segments in which there is a large

By implementing these strategies, I believe thespace for growth, we will concentrate our efforts on­Company will rebuild its earnings capabilities and achievestrengthening our position of leadership

record levels of business performance in the near future.

• We will pursue technological innovations thatenhance value, investing resources to develop
differentiated products

Q
A

Finally, what is your long-term vision for Tokyo Electron?

We believe Tokyo Electron must conduct business as the

a company in which the employees are working with vigor

best production equipment supplier, one that helps toand enthusiasm attracts great interest from all the stake-establish a prosperous society through contributing to an

holders and also provides value. Standing firm with our

improved quality of life for people. As a trusted partner ofmanagement policy which places much importance on

our customers and as a company that contributes to soci-transparency and fairness, we will strive to raise corporate

ety, we will establish ourselves as a company that is full ofvalue by growing the Company, thereby meeting thevision and energy while at the same time fulfilling our

expectations of our stakeholders and earning their contin-

mission which is shared by all our employees. I believe thatued loyalty and support.

Annual Report 2010

Tokyo Electron

9TOKYO ELECTRON At a Glance

Summary of Business

Net Sales

Semiconductor Production Equipment(Millions of Yen)

Semiconductor devices (IC chips) are the key components of PCs, mobile

540,000

phones and other digital products. Tokyo Electron offers a wide range ofequipment for producing these devices, along with superior technical support

508,082

and service.
Tokyo Electron has a lineup of six product groups that includes coater/developer, plasma etch system, thermal processing system, single wafer depo-

480,000

sition system and cleaning system used in wafer processes, as well as wafer
prober used in testing processes. Many of these products have captured top
shares in their worldwide markets.

418,637

420,000

360,000

325,383

FPD/PV Production Equipment
300,000

Tokyo Electron supplies flat-panel display (FPD) production equipment used to262,392

manufacture displays for PCs, LCD TVs and other electronic devices, alongwith solid technical support and service.
The product lineup includes FPD coater/developer and plasma etch/ash
system. The size of substrates handled by such equipment is increasing each

240,000

year with the growing popularity of large-screen LCD TVs.
Photovoltaic (PV) cells are in the spotlight these days as an environmentallyfriendly form of clean energy. In 2008, Tokyo Electron added PV cell production equipment as a new field of operations.

180,000

Electronic Components and Computer Networks*

88,107
120,000

71,361

Tokyo Electron has developed a new type of dual model for this business: thetrading business handles sales, in which it acts as a distributor of a wide arrayof sophisticated electronic components and computer network equipment,
while the development business designs and develops products in response tocustomer needs, as well as our own in-house brand products. Business opera-

60,00094,207

tions for this segment are handled by Tokyo Electron Device Limited.

84,473*Tokyo Electron Device Limited operates this business

0

10

385

411

2009

2010

Tokyo Electron

Annual Report 2010

Others
(0.1%)

Main Products

Share of Net Sales• Coater/Developer• Plasma Etch System
Dielectric Etch System, Silicon Etch System• Thermal Processing System• Single Wafer Deposition System

62.7%

CVD System, Plasma Processing System• Cleaning System
Auto Wet Station, Single Wafer Cleaning System,
Pre-clean System, Scrubber System• Wafer Prober

Coater/Developer
CLEAN TRACK™ LITHIUS Pro™ V-i

Etch System
Tactras™

Thermal Processing System
TELINDY PLUS™

• FPD Coater/Developer• FPD Plasma Etch/Ash System• Plasma CVD System for Thin-film Silicon PV Cells• End-to-end Thin-film Silicon PV Solutions (as Swisscompany Oerlikon Solar’s exclusive representative for
the Asia/Oceania region)

Single Wafer CVD System
Trias™ e+

Single Wafer Cleaning System
CELLESTA™+

Wafer Prober
Precio™

17.0%

FPD Plasma Etch/Ash System
Impressio™

• Semiconductor Products• Other Electronic Components• Computer Networks• Software

20.2%

Xilinx, Inc.
FPGAF5 Networks, Inc.
Load Balancer

Annual Report 2010

Tokyo Electron

11

Review of Operations

Semiconductor Production Equipment
Semiconductor Production
Equipment Sales(Billions of Yen)

200

262.4

325.4

486.9

400

642.6

600

726.4

800

0

06

07

08

09

10

Overview of FY2010
The global economic downturn, triggered by the economic crisis which began in the fall of 2008,
caused business conditions to deteriorate during the first half of fiscal 2010, to a level even belowthat which followed the collapse of the IT bubble in 2001. However, semiconductor demand recovered significantly from mid 2009, elevating capacity utilization levels at major semiconductor manufacturers’ production facilities. As a result, capital investment in semiconductor production
equipment in the second half of the year became brisk.
The Division’s sales dropped off sharply in the first half, but recovered steadily in the second half,
thanks to increased investment by foundries and memory manufacturers. Sales for the full fiscal
year were down 19% year on year, to ¥262.4 billion.
By region, sales in Taiwan rose 56% year on year, and sales in Korea were up 19%, due to thesurge in demand during the second half. However, in all other regions, sales for fiscal 2010
declined year on year.
By product, sales of etch systems maintained almost the same level as in the previous fiscal year
partly due to the adoption of chip scaling technology by memory manufacturers and in capacity investment by logic manufacturers. However, sales of the other products further decreased year on year.

FPD/PV Production Equipment
FPD/PV Production
Equipment Sales

Overview of FY2010(Billions of Yen)
120

71.4

88.1
68.0

81.2

60

100.8

90

30

0

06

07

08

09

10

The global economic downturn, which began in the latter half of 2008, created a situation ofoversupply in the market for LCD panels. LCD manufacturers held back on new investments
through the first half of 2009. However, the rising market penetration of LCD TVs, particularly in
China, has been steadily closing the supply-demand gap. This contributed to an upturn in orders
for FPD production equipment from mid 2009. Due to the economic downturn, government subsidies for photovoltaic power generation were reduced, and many customers postponed investments,
causing a sudden drop in demand for photovoltaic (PV) cell production equipment.
The Division’s sales declined 19% year on year in fiscal 2010, to ¥71.4 billion.
By region, sales in Japan rose 131% year on year, supported by shipments of production equipment for 10th-generation glass substrates. However, sales in Korea fell 77% year on year, and sales
in Taiwan dropped by 49%. A product breakdown highlights the rapid shift towards larger panel
sizes. FPD production equipment for glass substrates for the 8th generation or larger accounted for
67% of total FPD production equipment sales. From fiscal 2010, Tokyo Electron commenced shipments of PV cell production equipment.

Electronic Components and Computer Networks*
Electronic Components andComputer Networks Sales(Billions of Yen)

60

84.5

07

94.2

06

111.2

107.5

90

104.4

120

30

0

08

09

Overview of FY2010
Sales in Japan account for almost 90% of total sales in this business. Looking at the domestic
electronics market, the semiconductor market turned toward a recovery from mid 2009, with thecompletion of adjustments made in response to the economic slump that occurred in the fall of2008. Investment in IT and network infrastructure, however, has remained weak despite the signsof economic recovery.
The Division’s sales declined 10.3% year on year in fiscal 2010, to ¥84.5 billion. Sales of semiconductors used in consumer electronics products, such as flat-screen TVs and digital home electronics, remained firm from the start of the fiscal year, thanks in part to economic stimulus
measures. Sales of semiconductors used in industrial equipment and computers recovered in thelatter half of the fiscal year, but sales of storage and other IT infrastructure products remained
weak, as corporations held back on new IT investment.

10*Tokyo Electron Device Limited operates this business

12

Tokyo Electron

Annual Report 2010

Sales by Region

Business Outlook
Strong demand for new PCs and “smartphones,” coupled with expansions in network infrastructure are driving a strong recovery in the semiconductor market, and it is expected that investments
to increase capacity will become active in 2010.
Initially, the Company will work to rigorously solidify operations in existing product segments. In
addition to bolstering operations in segments where it is already strong, Tokyo Electron will further
expand its business by introducing strategic new products in areas where there is still strong potential to increase market share, such as etch systems and cleaning systems, and by enhancing collaborations with core customers to develop future technologies.
Meanwhile, new semiconductor-related technologies such as double patterning, chip scaling
technology using new materials, 3D memory cell stack and 3D chip stack technologies are advancing efforts to enhance chip density. These trends are supported by core Tokyo Electron technologies,
and should allow the Company to make strong inroads into new markets.
The Company expects markets for new, high-end products to expand. Meanwhile, as chipmakers seek to extend the operating life of their equipment through upgrades and refurbishing, themarket for post-sales business is likely to grow. For Tokyo Electron, which already has an installed
global base of over 50,000 units of semiconductor production equipment, efforts to provide valueadded solutions should help the company to attract business from existing customers andelevate earnings.

China &
Others

Japan

12%
29%

17%
Korea

4%
North
America
EuropeSales by Region
China &
Others

Japan

8%
20%

Taiwan

12%

60%

Korea

Sales by Region

Business Outlook
Demand for semiconductors in Japan is expected to continue improving, supported largely by
expanding demand from the Asian region. The Company also expects the current freeze in IT
investment to thaw slowly. As a semiconductor-related trading company, Tokyo Electron Device will
work to strengthen its sales structure and product support capabilities. The Company is also focusing efforts on the development of new in-house products such as the inreviumTM product line, andwill work to increase sales in Asia to support earnings growth.

21%

TaiwanBusiness Outlook
China’s policy of promoting the consumer electronics market with subsidies to rural residents has
contributed to strong demand for flat-screen TVs, and many manufacturers are expected to invest
in new LCD production lines in China to address the demand. In addition to the trend towards
larger screen size, technology advances will be needed to make displays more responsive andimprove picture definition to higher levels. We aim to introduce differentiated products and technology that customers require from us, while at the same time we will make efforts to reduce costs
as the competition is intensifying.
A new generation of display technology is also starting to emerge—Organic Light-Emitting
Diode (OLED) displays. Efforts to develop production equipment for manufacturing OLED displays
are accelerating, and these will probably reach the market in the near future.
In the market for PV cell production equipment, Tokyo Electron currently focuses on production
equipment for thin-film silicon PV cells. As efforts to address global warming intensify, demand forthese products is likely to enjoy strong growth over the medium-to-long term. Tokyo Electron currently
operates a joint development with Sharp, and serves as the Asian and Oceanian representative for
Oerlikon Solar, a Swiss equipment supplier. In addition, the Company is developing its own in-house
technology. The Company continues to seek the best business model for the growing PV cell production equipment market, and expects this business to expand into a third core source of income, alongside the semiconductor production equipment and FPD production equipment businesses.

17%

Japan

Overseas

11%

89%

Annual Report 2010

Tokyo Electron13Research and Development/Intellectual Propertyn Research and Development
Today, technology is not only increasingly advanced but alsochanging rapidly. Consequently, R&D operations have to be more
flexible to anticipate the market needs and more aggressive tomeet the challenge of new unknown technologies as well.
In order to enhance both early starts and the streamlining of
the R&D process, Tokyo Electron has introduced a new structure in
R&D operations, consisting of three stages: product development(D), research (R), and the feasibility study (FS). Executives of eachdivision can make a decision to implement FS projects speedily
and a committee consisting of technology executives discusses
whether each project can move on to the next stage as needed.
In the semiconductor production equipment sector, Tokyo
Electron is accelerating development not only of equipment but
also of processes by joining the Albany Nanotechnology Project,which is supported by the state government of New York. Moreover, the Company has formed collaborations with International
SEMATECH and imec of Belgium, focusing on identifying potential
demand at an early stage.
We are aiming to create new businesses through FS. The
research area is not limited to Si (Silicon) integrated circuits, but isexpanding to compound semiconductors such as SiC (Silicon
Carbide) and also organic semiconductors for display. The research
activity in this new area has already grown to be a major part ofthe corporate R&D division activities.
Nowadays, even cutting-edge technology easily diffuses acrossnational borders, thereby making the competition become more
intensive. Continuous R&D effort is of the essence to produce a“winning” product. Tokyo Electron is pursuing new technologicaladvances incessantly and eyeing “the world of nanometer”.

Pushing the Boundaries of SPE Technology
The limitation of scaling has been the hottest topic in the semiconductor industry for years. Although the semiconductor industry has
faced technological crises several times in its history, innovativetechnology has always overcome such difficulties. Tokyo Electron isleading the way with cutting-edge technology for the continuous
growth of the semiconductor and equipment industries.
In finer pattern delineation, Tokyo Electron has developed new
double patterning technology enabling half pitch 13nm line &space. This is the finest pattern which has been fabricated using acommercial exposure tool.

In addition to this double patterning process, Tokyo Electron is
also developing a novel clean track system for EUV lithography forthe coming 10 nm generation.
A critical issue with scaling is “fluctuation” of transistor performance such as the threshold voltage and drain current. Excessenergy in thermal and plasma processes can cause damage, leading to “transistor performance fluctuation”. To minimize theenergy applied to a wafer is essential to suppress the fluctuationin the manufacturing process. Based on this understanding, Tokyo
Electron has commercialized a novel dry etch system using RLSA
plasma which enables damage-free etching with low energy andhigh electron density.
In addition to finer pattern delineation, new functional materials are indispensable to increase packing density. Tokyo Electron
supplies High-k / metal gates for logic devices, novel dielectric filmand electrodes for DRAM capacitor. Furthermore, CVD of phasechange material and resistive material have also been developedby the R&D division for the emerging memory devices.
3D (three dimensional) is a novel approach to accomplish
higher packing density as well as a higher chip performance. Not
only 3D memory cell stack but also 3D chip stack technology has
been attracting much attention for many years. In the 3D memory
cell stack area, Tokyo Electron is preparing deep hole etching athigh rates together with its metal filling technology. In the 3D
chip stack area, the Company is also a top tool supplier, and hascommercialized high rate TSV (Through Silicon Via) etch systemand developing a low temperature insulator deposition system.

Working on Environment and Energy-related Issues
Tokyo Electron is also working on global environment and energy
related issues.
The first of the Company’s initiatives is concerned with the photovoltaic (PV) cell. For the Si thin film PV cell, which has a highgrowth potential, we are developing equipment with high productivity for Si thin film by leveraging semiconductor and FPD production equipment technology. Moreover, we are conducting researchand development activities on new PV cell equipment with highefficiency and low cost.
Our second contribution is energy saving through power electronics. The SiC device is expected to become a revolutionary
technology, a once-in-decades innovation. A key technology in theTechnology Innovation for Continuous Scaling
1960

Moore’s Law

Wafer Enlargement

1970
1980

Scaling / Wafer Enlargement
Technology

1990
2000
2010
3 Dimensional Integration
Technology

Stacked dies

14

Tokyo Electron

Annual Report 2010

FINFET

2020
2030
2040

SiC power device is epitaxial growth on SiC substrates. We havedeveloped an SiC epi tool that forms epitaxial layers with superior
quality as well as high productivity. This equipment will belaunched in 2010.

Exploring New Fields
Tokyo Electron is meeting the challenge of moving into new fields
by leveraging semiconductor and FPD manufacturing equipment
technology. The Company has formed collaborations with universities and venture companies that possess complementary technology

to enhance new technology development. These collaborations are
not limited to domestic universities but are spreading to universities
and research institutes in foreign countries.
Furthermore, Tokyo Electron takes part in research programs
organized by overseas consortia to identify new and promisingtechnology for the future of semiconductors.
In 2006, the Company established TEL Venture Capital, Inc.,
headquartered in Silicon Valley, for investigating new technology.
TEL Venture Capital has already made investments in several venture companies that possess promising technology.

n Intellectual Property
Tokyo Electron understands that it is vital to protect the intellectual property rights of independently developed proprietary
technologies and products to ensure the smooth growth ofbusinesses. The integration of our intellectual property strategy
with our technological and product strategies is thus importantto realizing the maximum benefits expected.
The needs of device manufacturers, our customers, have been
diversifying, and they are also increasingly emphasizing reliable
process performance and higher productivity from production
equipment. Consequently, the role of equipment manufacturers
such as Tokyo Electron in developing semiconductor/FPD/ photovoltaic cell manufacturing technology is increasing. Within thiscontext, Tokyo Electron strives to bolster the protection of its
intellectual property by actively filing patent applications forequipment recipes, software technologies, process management
technologies for various types of manufacturing equipment, andother technologies.

We are also optimizing our number of patent filings in stepwith market and competitor trends in our business fields. In
particular, our number of patent applications filed in Korea andChina continues to rise. These filings reflect Korea and China’s
growing importance in our recent business strategies, as well as
our patent strategies in response to the rapid increase in filings
from Korean semiconductor and FPD production equipment
manufacturers. Most notably in Korea, Tokyo Electron is ranked
4th among foreign companies in the number of patent applications filed (447 applications in the year 2009), according toresults announced by the Korean Intellectual Property Office.
As of March 31, 2010, Tokyo Electron held 3,396 patents inJapan and 8,298 patents overseas. As part of proper asset management, we periodically assess Tokyo Electron’s patent portfolio,
ensuring we have an optimum inventory in line with the statusof sales in each business and country, and with the filing trendsof competitors.

Contribution of License-related Activities
In building and implementing our intellectual property rights
strategy, we do not view intellectual property rights obtained forproprietary products and developed technologies as a source ofincome from licensing to other companies. Rather, we view thisas a method of differentiating our own products and bolstering
our competitive advantages.
Technologies in Tokyo Electron’s business fields are becoming
increasingly advanced and complicated. To effectively develop
new products incorporating leading-edge technologies, andbring them to market as quickly as possible, it is essential toutilize all available intellectual properties. From this viewpoint,
Tokyo Electron not only respects the intellectual property rights
of others, just as we do our own, but also makes effective use ofthem through obtaining licenses.

Number of Patent Applications(Applications)
1,000
800
600
400
200
0

06

07
Japan

08
U.S.

09

EuropeKorea

10TaiwanChina

Status of Intellectual Property Application
The graph in this section shows the number of patent applications
filed by Tokyo Electron as of March 31, 2010. In addition to filing
applications for core technologies vital to our strategies in eachbusiness division, we vigorously promote the development of apatent portfolio that encompasses the technologies that support
our core technologies. Tokyo Electron’s patent portfolio has beenhighly acclaimed, including as shown by being ranked No. 1 insemiconductor production equipment operations in the Patent
Power Scorecards published in IEEE Spectrum in January 2010.

Ranking of U.S. Patents in 2009
Semiconductor Production Equipment Manufacturing
Rank

Company, Country

Adjusted Pipeline Power

1Tokyo Electron Ltd., Japan

792

2

KLA-Tencor Corporation, U.S.

536

3

Disco Corporation, Japan

322

4

FormFactor Inc., U.S.

312

5

Applied Materials Inc., U.S.

266

Source: IEEE Spectrum/January, 2010

Annual Report 2010

Tokyo Electron

15

Environmental, Health and Safety Activities

Tokyo Electron’s corporate missions include placing the highest

1. Reducing Environmental Loads During Equipment Usagepriority on people’s health and safety and taking the global envi-

In fiscal 2010, we promoted our detailed roadmap for reducing

ronment into account when conducting business activities.

environmental loads in all business departments. This roadmap
designates reducing the energy requirements of our products,

Fundamental Policy

addressing chemical substance-related matters, reducing theTokyo Electron positions environmental, health and safety activities

number of parts and processes required, reducing the use of pro-as one of its most important management issues to achieve sus-

cessing gases and liquid chemicals, and improving the environmen-

tained corporate growth and continued development of society.

tal performance of existing equipment, as mandatory items. We

With that in mind, Tokyo Electron is committed to reducing environ-also set reductions in the processes required to start up equipment

mental loads across its activities, and to ensuring absolute safety in

as a voluntary category. In line with reducing both materials andthe Company’s business premises and in those of its customers.

processes, we are reviewing them as a part of our design and devel-

In order to accelerate our environmental response activities, inopment efforts, and implementing the relevant improvements.

May 2008 we codified Tokyo Electron’s environmental commitment, with “Technology for Eco Life” as the slogan guiding our

2. Hazardous Substances in Products

environmental activities. One of the stipulated goals of this com-

As an environmental measure, Tokyo Electron promotes efforts tomitment is to develop production equipment that will enablereduce hazardous chemical substances in its products. Chemicalcustomers to cut the total environmental load of their factories insubstances found in the units and parts used in products arehalf by 2015, and to cut the Company’s own environmental load

managed through a dedicated database. Tokyo Electron has posi-from business activities and logistics in half by the same date. In

tioned those products in which at least 98.5% of the constituent

fiscal 2010, we formulated the criteria and roadmaps needed toparts meet standards stipulated by the Europe RoHS directive* as

fulfill this commitment, and reduced the amounts of energy used“equipment with reduced chemical substances.” Shipment ofat our manufacturing plants as an environmental investment. In

these products has been ongoing since October 1, 2008.

fiscal 2011, we will formulate and implement detailed measures
to reach our goal. Moreover, to develop these environmental,
health and safety initiatives, we believe that it is vital to promote
communication with all stakeholders and to receive feedback. In
line with this philosophy, we also actively engage in activities tocontribute to society.

EHS Management
Since 1997, Tokyo Electron has developed and implemented environmental management systems based on ISO 14001 standards,
mainly for manufacturing operations, and obtained certification.
Also, Tokyo Electron has introduced an environmental accounting
system that quantifies the cost of its activities in respect of environmental protection, and uses this as the basis for developing
corporate action policies. For details of results for fiscal 2010,
please refer to the Tokyo Electron website.

Product-related Environmental Initiatives
Proactive Environmentally Conscious Product Design
Tokyo Electron believes that promotion of product designs sensitive to the environment is vital. Tokyo Electron has positioned
promotion of energy conservation in its products, as well as reduction and replacement of hazardous chemicals, as priority issues.

16

Tokyo Electron

Annual Report 2010

* Refers to the “Restriction of the use of certain Hazardous Substances in Electrical andElectronic Equipment” directive in Europe (2002/95/EC) and its amended version. With the
exception of certain applications excluded from its scope, this directive prohibits theinclusion of lead, mercury, cadmium, hexavalent chromium, PBB, and PBDE over a maximum
prescribed amount in products. (European Directive 2002/95/EC on the restriction of the useof certain hazardous substances in electrical and electronic equipment)

Health and Safety Activities
Tokyo Electron promotes health and safety in all of its operations.
This includes giving top priority to the health and safety of ouremployees and customers and designing products with safety inmind. In fiscal 2010, we reduced the number of injuries excluding
those requiring first-aid alone across the Tokyo Electron Group by
over 15% year on year, and injuries requiring first-aid by morethan 30%. Promoting activities aimed at curbing the number ofaccidents further will remain our policy going forward.
For further details, see “Environmental andSocial Report 2010” (to be published in­October 2010).
http://www.tel.com/eng/citizenship/ehsreport.htm

Tokyo Electron’s Commitment■ We aim to develop equipment that enables a 50% reduction—

The Tokyo Electron Group has assessed the impact of its products

compared to the 2007 levels—of the total environmental impact ofon the environment throughout their entire lifecycle—from procure-

new customer factories scheduled for completion in 2015 or later.

ment of major components, manufacturing and logistics to productuse. Based on this assessment, we established a goal for the year

■ We aim to reduce the impact of our business and transportation activities on the environment by 50%, by 2015, compared2015 and are promoting measures to reduce environmental impact.

to the 2007 levels.
■ We will strive to achieve these commitments in partnership with
our stakeholders.

Material Procurement

Plants and Offices

Logistics

Product Usen Environmental impact in each product lifecycle phase in FY2008
CO2

Share of CO2 emissions in each lifecycle phase (%)

Approx. two million tonsof CO281%

CO2 emissions estimated by TEL

Approx. 200,000 tons of CO2
115,000 tons of CO2
5%145,000 tons of CO2
6%

Energy use in plants and offices

Logistics operationsin Japan and overseas

8%
Environmental impact
during material manufacturing

Environmental impact from oneyear use of the Group’s products(calculations assume the use of
300mm systems)

Improvements in Cleaning Systems
With regard to cleaning systems, TEL is implementing measures to reduce
VOC* emissions, which are considered one of the most important issues inthe semiconductor industry and are tightly regulated under Japan’s Air
Pollution Control Law. IPA (isopropyl alcohol), which is used in cleaningsystems, is a volatile organic solvent. A large volume of IPA is used, andbecause of its high volatility, its concentration level in the exhaust discharged tends to be high. In order to deal with this issue, TEL installed an
IPA scrubber that sprays pure water, refrigerated cooling water, or towercooled cooling water, thereby reducing the IPA concentration in the exhaust.

n Reduction in IPA concentration in exhaust
100%
81.6% reduction

18.4%
Before improvement

After improvement* VOC (Volatile Organic Compounds): A major cause of photochemical oxidants and suspended
particulate matter, thought to cause pollution and damage health.

Status of Tokyo Electron Group’s Environmental Initiatives
Organization dedicated to the environment

Environment, Health & Safety Center

Highest responsibility for the environment

Board of Directors and Board of Executive Officers

Environmental audits

Internal and external audits each conducted yearly; other irregular inter-Group audits

Introduction of environmental management systems

Acquired ISO 14001 at 8 plants and offices

Zero emissions of waste

Achieved at all domestic manufacturing bases; recycled products used in-house

Setting of energy conservation targets

Implementing energy-saving products and energy-saving targets at plants and offices

Environmental training for employees

Conducted for all employees

Punished for violating environmental regulations?

Tokyo Electron has never been punished for thisAnnual Report 2010

Tokyo Electron

17

CORPORATE GOVERNANCE

n Interview With the Chairman

Tetsuro Higashi, Chairman of the Board

Question: Tokyo Electron was one of the first companies in Japan to introduce stronger systems ofcorporate governance. Can you describe the background to these measures?

Question: What did you place importance on
when you introduced corporate governance atTokyo Electron?
Answer: One of the key issues was how to deal with the realities

Answer: Since Tokyo Electron was established, the company hasof Japanese corporate culture and the management environment,

eagerly tried to learn the corporate cultures of Europe and theand ensure that management is emphasizing shareholder value. I

U.S., and has adopted their positive features in its management.

talked with a top executive in a U.S. corporation, whom I knew

When I took over as president, in 1996, the hubristic period ofwell, about this issue. He explained that one factor that helps toJapan’s boom years, in the late 1980s, had passed and the weak-ensure that shareholder value is emphasized is the fact that, in U.S.

nesses of Japanese corporations were being exposed, while U.S.

corporations, most members of the Board of Directors are outside

corporations were again reviving, demonstrating their global

directors. The “inside” directors are usually limited to just one orleadership. I was extremely interested in determining what madetwo individuals who have made their way through the ranks to

American corporations strong. In particular, I realized that the use

become CEO or CFO. Then, on the Board, they have various com-of ROE and ROA as key management benchmarks, and emphasis

mittees—the Nomination Committee, the Compensation Commit-

on free cash flow were central elements in maximizing corporate

tee, the Auditing Committee and so on. When I asked this U.S.

value among U.S. corporations. And I was also aware that they

executive whether he thought it would be possible to implement

fundamentally had a philosophy of “emphasizing shareholder

this sort of corporate governance structure in a Japanese company,

value,” and in order to fulfill this philosophy they made efforts to

he replied “Whether directors are taken from the company orstrengthen corporate governance. I decided that the management

brought in from outside is not an essential issue. The question is,of Tokyo Electron should try to capture this essential characteristic

either you want to make the Board’s operations easier for you, orand use it to establish a globally admired company.

you want to place greater importance on the transparency of theBoard’s operations in order to introduce differing opinions, eventhough you might face difficulties dealing with them. Which course
do you think will contribute to maximizing shareholder value? Thisis the point at which you should decide your course.” This then was
the answer I got from him. I concluded that there was no reason toblindly imitate the structure of a Western company. Rather, we
needed to adopt a system that is truly practical.

18

Tokyo Electron

Annual Report 2010

Question: What are the distinguishing features ofTokyo Electron’s system of corporate governance?

shareholders. Therefore, it is the shareholders who should evaluate top executives’ performance from the standpoint of how wellthey can increase corporate value. As the direct representative ofAnswer: There are a number of features that stand out. First,

shareholders, the Compensation Committee takes on this duty,

we use a statutory auditor system; however, the Nomination

and based on the proposals of the Compensation Committee, theCommittee and Compensation Committee are incorporated into

Board of Directors finally decides the representatives’ compensa-

the Board of Directors. These committees make proposals to thetion. By disclosing these compensation amounts in a clear manner,

full Board, which considers them and makes a final decision. The

I think that the Compensation Committee and the Board of Direc-

representative directors (the chairman and the President & CEO)tors merely fulfill their representative roles to shareholders. Somedo not take part in either of these committees, since there is a risk

people think that it is sufficient to simply disclose the total amountthat their participation might result in an unbalanced power struc-paid to the directors, but since the top executives are the ones

ture in the committee and detract from fair decision-making pro-

who have the ultimate authority and responsibility, we believe thatcesses. We have also based the benchmarks for both shareholder

it is best to provide an individual breakdown of each one’s remu-dividends and management bonuses on net income for theneration. One of the most important issues in maintaining effec-

period, and have linked employee bonuses to operating income.

tive corporate governance, in my view, is to maintain a certain

In this way, we help to ensure that the goals of management andtension between those being evaluated and those making thethe employees are closely aligned to the interests of shareholders.

evaluation.

Thus, all three groups benefit to a similar degree from any
increase in corporate value. These incentives also ensure thatcountries and the society in which we operate benefit from Tokyo
Electron’s success, via increased tax revenues.

Question: What sort of management style do you
think Tokyo Electron should cultivate?
Answer: As the company man-Question: Since 1999, Tokyo Electron has been disclosing the individual compensation of representative directors. What was the basis for this move?

agement is entrusted to us by theshareholders, it is extremely important for us to strive to maximize
corporate value. But, I also haveAnswer: Corporate value is based on the value accumulated byanother point of view. I believe a

the company over a period of many years, as well as the com-

corporation is an organic living

pany’s potential to create additional value in the medium and long

structure which is formed by the company’s employees, and where

term. Ultimately, the corporate value is evaluated and expressed aseach member should be motivated and energetic in their work. If

an appropriate share price in the stock market. In the short term

the company fails to be an aggregation of employees who are full

there are a number of problems which interfere with share valua-of aspirations and vitality, then over the medium and long term ittions, but I believe that in the long term, and on the whole, sharewill never be able to maximize its corporate value. It might sound a

prices provide an accurate indication of corporate value. The

bit too idealistic, but I want employees and shareholders to sharequestion is, how does one go about evaluating the performancethe same dream, and management should always endeavor toof corporate top management, and who should be responsible forhelp everyone realize this. From this point of view, I will move backmaking this evaluation. Employees are evaluated by their immedi-

and forth between the employee’s focused standpoint and share-

ate superiors, but in the case of top management, it is the share-

holder’s broader standpoint. In this manner, I will do my best to

holders who are directly responsible. The company operations aresupport the new management team by providing appropriate

decided by top management, who are entrusted with this task byadvice in a timely manner.

Annual Report 2010

Tokyo Electron

19n Corporate Governance
Against a backdrop of ongoing business globalization, Tokyo
Electron maintains a management philosophy that puts emphasison maximizing corporate value and enhancing shareholder satisfaction. To this end, the Company is striving to strengthen corporate governance through a variety of measures. The Company isbuilding a highly effective corporate governance structure, andupgrading and strengthening its internal control systems and risk
management system. Efforts in this regard are founded on thefollowing three basic principles.
Tokyo Electron’s Basic Principles of Corporate Governance
1. Ensure the transparency and soundness of business operations
2. Facilitate quick decision-making and the efficient execution ofbusiness operations
3. Disclose information in a timely and suitable manner

The Corporate Governance Framework
Tokyo Electron uses the statutory auditor system based on the
Company Law, and furthermore has established its own Nomination Committee and Compensation Committee inside theBoard of Directors to increase the transparency and objectivityof management.
Also, Tokyo Electron has adopted the executive officer system toseparate the business execution function from the Board of Directors. Moreover, Tokyo Electron has been disclosing the individual
remunerations of representative directors since 1999 in recognitionof the importance of managerial transparency for shareholders.

The Board of Directors
The Board of Directors consists of 12 directors, two of whom areexternal directors.
In principle, the Board of Directors meets once a month, withadditional meetings if necessary. (During fiscal 2010, the Board of
Directors met on 12 occasions.) In order to ensure that the Company can respond quickly to changing business conditions, and to
more clearly define management accountability, the term of officefor directors is set at one year.
The Board of Directors has two committees: the Compensation
Committee and the Nomination Committee, whose activities areintended to improve corporate governance. The Compensation
Committee proposes the remuneration to be paid to representative directors at the Board meeting for approval. The Nomination
Committee nominates candidates for directors to be selected at
the annual shareholders’ meeting, and nominates a candidate for
CEO to be selected by the Board, which it submits at the Board
meeting for approval. Each of these committees is composed ofmembers of the Board of Directors, excluding the representative
directors (the Chairman and the President & CEO).
The Board of Statutory Auditors
The Company has four statutory auditors, two of whom are outside auditors. The statutory auditors not only attend meetings ofthe Board of Directors, the Management Meeting and otherimportant business meetings, but also conduct operations audits
and accounting audits, and evaluate risk management, in addition
to auditing the performance of duties by directors. During fiscal
2010, the board of statutory auditors met seven times.

Diagram of the Corporate Governance Framework, Internal Control System and Risk Management System
Annual Shareholders’ Meeting
Board ofDirectors

Statutory Auditors

Compensation Committee
Nomination Committee
Chief Business Ethics Director
Chief Internal Control Director

Independent Auditors

Confirm the progress of improvements and give instructions
Request for improvement/Report

Representative Directors
Audit and improvement reports

Request for improvement/ReportCompliance & Internal Control Executive Officer

Executive Officers

Internal Audit Dept.
(Global Audit Center)

Committees Ethics Committee
Information Security Committee
Export Trade Control Committee
Request for improvement/Report

Audit

Risk Management & Internal Control Dept.
Request for improvement/
ReportMonitoring

Business Depts.

20

Tokyo Electron

Annual Report 2010

Check and balance

Administrative Depts.

The Executive Officer System
In order to further clarify the roles of the Board of Directors andexecutives in charge of business operations, Tokyo Electron has
adopted the executive officer system. This system promotes fast
decision-making and the quick establishment and execution ofbusiness strategies.
Remuneration for Directors, Executive Officers andStatutory Auditors
The Company and the Tokyo Electron Group (excluding listedcompanies) have introduced incentive systems, such as businessresults-based remuneration, and stock options linked to shareprices. Effective from fiscal 2006, the Company revised its executive remuneration system to link remuneration more closely tofinancial performance and shareholder value and also improve
management transparency and its competitive strength.
1. The remuneration for Company directors and executive officers
is composed of two elements: a fixed monthly salary, and anannual bonus which is linked to earnings performance.
2. The total amount of performance-linked remuneration (annual
bonuses) for directors and executive officers of the Group is set
at a maximum of 3% of consolidated net income. This remuneration is split between cash bonuses and stock-based remuneration (stock options), at a ratio of roughly two to one. The
stock-based remuneration takes the form of new stock warrant
contracts with an exercise price of one yen per share. This isbecause current securities and exchange regulations in Japan
make it difficult to introduce and implement direct share issuance, or the sort of transfer of restricted shares that are used incountries such as the United States. The restricted period on
exercising stock options is set at three years.
3. The earnings-linked remuneration (annual bonuses) of external
directors does not include stock options.
4. In order to ensure that statutory auditors maintain full independence from management pressures, the compensation of statutory auditors consists of a fixed monthly salary only.
5. Retirement allowances for directors, statutory auditors andexecutive officers were abolished at the end of fiscal 2005, aspart of the revisions to Tokyo Electron’s remuneration systemfor executives.
Remuneration linked to corporate performance comprises a relatively large share of executives’ total remuneration. The remuneration
system gives executives a strong incentive to improve the Company’s
earnings performance and elevate the share price, since they share inboth the benefits and the risks experienced by shareholders.

The Company is implementing practical measures in line withthe basic policy for internal control systems in the Tokyo ElectronGroup decided by the Board of Directors.
The Company is also implementing internal controls over financial
reporting based on the Financial Instruments and Exchange Law.
Internal Control Systems
To strengthen the internal control and risk management systemsof the entire Tokyo Electron Group more effectively, Tokyo Electron
appointed a Chief Internal Control Director and a Compliance &Internal Control Executive Officer. Under them, the Company
established the Risk Management & Internal Control Department,
which evaluates and analyzes the risks which could affect theGroup, and works to reduce risks by promoting the necessary
measures. Tokyo Electron has also established the Information
Security Committee and the Export Trade Control Committee tofurther strengthen the management of confidential informationand the export compliance system.
Internal Audit Department (Global Audit Center)
The Global Audit Center oversees the internal auditing activities ofthe entire Tokyo Electron Group. The Center is responsible for
auditing the business activities of the Group’s domestic and overseas bases, as well as their compliance and systems, and evaluating
the effectiveness of internal control systems. When necessary, theGlobal Audit Center also provides guidance to operating divisions.
Coordination Between Statutory Auditors and Internal
Audit Department
The statutory auditors coordinate with the department responsiblefor internal auditing activities primarily by attending the Global
Audit Center’s report meetings, which were held 13 times during
fiscal 2010.
Coordination Between Statutory Auditors and Independent
Auditors
The statutory auditors receive audit plans for the fiscal year fromthe independent auditors, as well as explanations regarding auditing methods and particular areas of focus, among other matters.
The independent auditors audit the year-end financial statements
and review the quarterly financial statements, and report theresults of their audits to the statutory auditors.
The Company provides KPMG AZSA & Co., its independent
auditor, with all necessary information and data to ensure that it
can conduct its audits during the fiscal year promptly and correctly.

Internal Control and Risk Management System

Compliance

In order to enhance corporate value and ensure that all businessactivities are carried out responsibly and in the interests of all
stakeholders, Tokyo Electron is taking steps to strengthen its internal control systems and make them more effective.

Trust is the cornerstone of Tokyo Electron’s business foundation.
The fundamental requirements for maintaining trust are rigorous
conformity to ethical standards and compliance with the law, by
individual employees and by each of our organizations. In line with

Annual Report 2010

Tokyo Electron

21

the basic policy for internal control systems in the Tokyo ElectronGroup, all Group employees are required to maintain high standards of ethics and to act with a clear awareness of compliance.
Ethical Standards, Chief Business Ethics Director and Ethics
Committee
In 1998, the Company formulated the“Tokyo Electron Code of Ethics” (revised inJune 2007) to establish uniform standards togovern all of its global business activities. In
the same year, the Company appointed a
Chief Business Ethics Director and established the Ethics Committee, which is
responsible for promoting business ethics
Tokyo Electron Codeawareness throughout the Company. Theof Ethics
Tokyo Electron Code of Ethics prescribes acommon code of behavior for all employeesof Tokyo Electron and the Group, and the Company distributes it
to all Group employees, including those overseas.
Compliance/Internal Control Executive Officer
Since April 2009, Tokyo Electron has appointed a Compliance/
Internal Control Executive Officer from among the executive officers to raise awareness of compliance across the Group, andfurther improve its implementation.
Framework for Thorough Implementation of ComplianceTokyo Electron has drawn up compliance regulations setting out
basic compliance-related requirements in line with its code of
ethics. The compliance regulations are intended to ensure that allindividuals who take part in business activities for the Group
clearly understand the pertinent laws, regulations, international
standards and internal company rules, and continuously apply
these rules in all of their activities. The Company also conducts
web-based training programs for employees, makes informationon compliance issues available to employees via the Company
intranet, and takes other steps to promote broad awareness ofcompliance throughout the Company.
Internal Reporting System: Hotline
In the event that an employee becomes aware of any activity
which may violate laws, regulations or principles of businessethics, the Company operates an internal reporting system(Hotline) that employees may use to report their concerns.
Strict confidentiality is maintained to protect the whistleblower, and ensure that they are not subject to any disadvantage or repercussions.

22

Tokyo Electron

Annual Report 2010

Disclosure Policy
Tokyo Electron is committed to disclosing information about theCompany in a fair, prompt and accurate manner, to ensure that all
stakeholders, including shareholders and other investors, canobtain an accurate, in-depth understanding of the Company andits activities, and evaluate the Company’s corporate value appropriately. The Company also solicits feedback from its stakeholders
as part of its information disclosure activities, and uses the feedback as a point of reference to guide corporate management.
Information Disclosure Standards
Tokyo Electron complies fully with the Financial Instruments andExchange Law, and the Tokyo Stock Exchange’s listing regulations
pertaining to marketable securities.
Furthermore, even when the information is not subject to thelisting regulations pertaining to marketable securities, the Company discloses the information proactively, in a fair, prompt andaccurate manner if the information is deemed useful in providing
stakeholders with an accurate understanding of the Company.
Disclosure Practices
If it is subject to the marketable securities listing regulations(material information), Tokyo Electron will release information
simultaneously in a press release and via the Tokyo Stock
Exchange’s “Timely Disclosure Network” (TDnet), and will post the
information on its website as soon as possible, following theofficial announcement. Even when it does not fall into the category of “material information,” the Company will voluntarily
disclose information which may be of interest to stakeholders, in afair, accurate, and easy-to-understand manner, either on its website or in printed form, through various means of communication.
Tokyo Electron conducts meetings to discuss its financial resultswith securities analysts and investors; these meetings are also
open to members of the press. The Company makes audio recordings of its fiscal year-end and mid-term financial results meetings,
and posts these recordings on the Company’s website. All of the
documents distributed at its quarterly financial results meetings
are also posted on the website.
To ensure that foreign investors have fair and equal access tothe information, the Company strives to disclose all information
simultaneously in Japanese and English. However, due to the timerequired for translation, there may be cases where the posting ofEnglish information to the website is delayed slightly.

Shareholder Measures
Tokyo Electron mails a Notice of Annual General Meeting of
Shareholders to shareholders more than three weeks inadvance of the meeting, as one of its measures to vitalize thesemeetings and to promote smooth and efficient voting. It also
sets the date of the Company’s meeting to avoid days on which
many such meetings are concentrated. In addition, shareholders

are free to cast their votes via the Internet. Moreover, Tokyo
Electron participates in the web-based voting platform for
institutional investors operated by Investor Communications
Japan Inc. (ICJ). To supplement the above shareholder meetingrelated initiatives, Tokyo Electron’s website carries notices,
resolutions and presentation materials of shareholders’ meetings.
An English version of the Notice of Annual General Meeting of
Shareholders is also provided.

Tokyo Electron is a constituentof the FTSE4Good Global Index.

Since September 2003, Tokyo Electron has been chosen for the FTSE4Good Global
Index, which is a CSR index provided by the FTSE Group. The FTSE Group is a world
leading index firm, a joint venture between the Financial Times newspaper and theLondon Stock Exchange.

Does Tokyo Electron have these major components of corporate governance?
Nomination Committee
Compensation Committee
External directors
Outside auditors
Executive officer system
Disclosure of individual remunerations of representative directors
Performance-linked compensation system
Stock options system
Directors’ retirement benefits system
Anti-takeover measures

Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
No
No

Composed of directors excluding representative directors (Chairman/CEO)
Composed of directors excluding representative directors (Chairman/CEO)Two of the directors are external directors
Two of the statutory auditors are outside auditors
Disclosed since 1999
Does not apply to external directors and auditors

n Message From External Directors
External Director

External Director

Hiroshi Inoue

Masahiro Sakane

Chairman of the Board,
Tokyo Broadcasting System Holdings, Inc.

Chairman of the Board, Komatsu Ltd.

External Director since 2006

External Director since 2008

I was appointed as an external director of Tokyo Electron in 2006.
Since my background is in broadcasting, the culture of Tokyo Electron
is completely new for me. I have developed a very strong respect forthe management style of Tokyo Electron, its strong corporate governance and its dedication to constantly enhancing the value provided
to all of its stakeholders. One of the things that I find most attractive
about Tokyo Electron’s corporate culture is its dynamism. Though thecompany is almost 50 years old, it retains a youthfulness and openness that I really admire. The intense and wide-ranging deliberations
that take place at Board of Directors meetings are a far cry from therestrained and opaque style that is sometimes found in other companies. So long as it maintains this character, I believe that management decisions will continue to lead the company to a brighter
future. I believe that I can also contribute to further enhancing thecorporate value of Tokyo Electron.

I have always believed that the objective of corporate governanceshould be “to constantly seek ways to perpetuate growth in corporate value.” I think that “corporate value” can be defined as thesum of all the trust earned from stakeholders and from society, andthe trust is earned not only by a company fulfilling its promises, butalso by it providing full disclosure of information. And I also thinkthat the source of corporate value is derived from customers. I havebeen an external director of Tokyo Electron for two years now, andthe impression I receive from the Board meetings I attend suggeststhat at Tokyo Electron fair and transparent management, whichshould be the basis for “earning trust”, has been fully established.
Indeed, I have learned a lot from the example set by Tokyo Electron,
but I also think that I can contribute to the company in many
respects. I take pride in the measures that have been taken to promote good corporate governance at Komatsu. While Tokyo Electron
has given me opportunities to expand my horizons, I believe that I
have experiences that can be instructive to the company, particularly
in terms of overseeing a global corporate operation and “creating
value through global competitiveness.”

Annual Report 2010

Tokyo Electron

23

Board of Directors, Statutory Auditors and Executive Officers(As of July 1, 2010)

Board of Directors

Tetsuro Higashi

Tetsuo Tsuneishi 1

Kiyoshi Sato 1

Hiroshi Takenaka

Vice Chairman of the Board

President & CEO

Hirofumi Kitayama 2

Kenji Washino 2

Hikaru Ito 1

Takashi Nakamura 2, 3, 4

Chairman of the Board

Vice Chairman of the Board

Corporate Director

Corporate Director

Corporate Director

Corporate Director

Statutory Auditors

Mamoru Hara

Mitsutaka Yoshida

Togo Tajika *Statutory Auditor

Statutory Auditor

Statutory Auditor

Masao Kubodera

Haruo Iwatsu

Corporate Director

Corporate Director

Hiroshi Inoue *Masahiro Sakane 1 *Corporate Director/
Chairman of the Board,
Tokyo Broadcasting System
Holdings, Inc.

Hiroshi Maeda *Statutory Auditor/
Attorney-at-Law,
Nishimura & Asahi

Corporate Director/
Chairman of the Board,
Komatsu Ltd.

Notes:
1. Member of Compensation Committee
2. Member of Nomination Committee
3. Chief Business Ethics Director
4. Chief Internal Control Director* External Director, External Statutory Auditor

Executive Officers
Chairman of the Board

Senior Vice Presidents

Tetsuro Higashi

Takashi Nakamura

President & CEO

Hiroshi Takenaka
Executive Vice Presidents

Hirofumi Kitayama

General Manager,
Manufacturing Division (Quality)

Kenji Washino

General Manager,
Corporate Business Strategy

General Manager,
Corporate Administration Division,
Compliance/Internal Control

Masami Akimoto

General Manager,
System Development Division

Takashi Ito

General Manager, PVE

Chiaki Yamaguchi
General Manager,
SPE Sales Division

Hikaru Ito

General Manager, SPE

Mitsuru Onozato
General Manager,
FPD Division

Vice Presidents

Yutaka Nanasawa

General Manager,
HR/Human Resources Development
Center/Finance/Export andLogistics Control

Yoshiteru Harada

General Manager,
General Affairs/Accounting

Tetsuro Hori

General Manager,
Legal/Intellectual Property

Toshihiko Nishigaki

General Manager, Clean Track BU

Seisu Ikeda (Yoh)Kiyoshi Sunohara

General Manager, Field Solutions BU

Masaaki Hata

General Manager,
Taiwan Sales, SPE Sales Division

Tsuguhiko Matsuura
General Manager,
FPD BU, FPD Division

Gishi Chung

General Manager,
SPE Process Development Division

Shigetoshi Hosaka

General Manager,
Corporate Development Division

General Manager,
Surface Preparation Systems BU

Hideyuki Tsutsumi

General Manager, Etch Systems BU

Takeshi Okubo

General Manager,
Thermal Processing Systems BU,
Single Wafer Deposition BU*BU stands for “business unit”

24

Tokyo Electron

Annual Report 2010

Financial Section

26 Financial Review
34	Consolidated Eleven-year Summary
36	Consolidated Balance Sheets
38	Consolidated Statements of Operations
39	Consolidated Statements of Changes in Net Assets
40	Consolidated Statements of Cash Flows
41	Notes to Consolidated Financial Statements
51	Independent Auditors’ Report

Annual Report 2010

Tokyo Electron

25

FINANCIAL REVIEWThe Company has adopted the following revised business segments since fiscal 2006:
n On October 1, 2006, Tokyo Electron’s computer networks division was transferred to Tokyo Electron Device Limited. Accordingly, sales
from computer networks, which were formerly included in the industrial electronic equipment segment, have been included as part ofthe electronic components and computer networks segment since fiscal 2007.
n Effective from fiscal 2009, the name of the former FPD production equipment division was changed to the FPD/PV production equipment
division. In addition to production equipment for flat-panel displays, this division includes production equipment for photovoltaic cells, amarket Tokyo Electron entered in 2008.

Sales and Income
Operating environment
During fiscal 2010, the global economy headed toward a gentle recovery, despite the continued negative impact of the financial crisis
that occurred in the fall of 2008, as various nations managed to overcome the worst of the downturn by the middle of the year througheconomic stimulus packages and other measures.
Although economic growth in Europe, the U.S., Japan and many other industrialized countries was lower than pre-crisis levels, theeconomies of China and other emerging nations grew strongly, driving the global economy to a better-than-expected recovery.
In the first half of fiscal 2010, the electronics industry, in which Tokyo Electron participates, saw cutbacks in the production of semiconductor products as demand for PCs, mobile phones and other electronic equipment stagnated. Semiconductor manufacturers, who
are Tokyo Electron’s customers, significantly reduced their capital investment as a result. From the second half, however, demand forfinished products began to recover and, in tandem, our customers resumed their capital investment.
These business conditions severely affected Tokyo Electron’s performance. Sales in the Company’s mainstay semiconductor production
equipment division were particularly affected, and the Company’s performance was even worse than fiscal 2009 when results were
initially affected by the financial crisis. However, the Company responded to changes in the business environment, successfully implementing urgent steps to cut fixed costs and other measures to stabilize earnings. As a result, the Company was able to minimize theextent of the operating loss for the full fiscal year.
Millions of Yen

26

2006

2007

2008

2009

2010

Net sales��������������������������������������������������������������������������������������

¥673,686¥851,975¥906,092¥508,082¥418,637

Gross profit����������������������������������������������������������������������������������

189,732

272,649

311,298

137,408

108,316Gross profit margin����������������������������������������������������������������������

28.2%

32.0%

34.4%

27.0%

25.9%

Selling, general and administrative expenses���������������������������������

114,029

128,670

142,800

122,697

110,497

Operating income (loss) ���������������������������������������������������������������

75,703

143,979

168,498

14,711(2,181)

Operating margin�������������������������������������������������������������������������

11.2%

16.9%

18.6%

2.9%

(0.5)%

Income (loss) before income taxes and minority interests���������������

75,328144,414169,220

9,637(7,768)Net income (loss) �������������������������������������������������������������������������

48,006

91,263106,271

7,543(9,033)

Tokyo Electron

Annual Report 2010

Sales
Net sales declined 17.6% year on year in fiscal 2010, to ¥418.6 billion. This represented almost the same level of sales as the Company
posted in fiscal 2002 (¥417.8 billion) when the collapse of the IT bubble negatively impacted results. Sales in Japan were down 22.1%
year on year, to ¥162.6 billion, and overseas sales dropped 14.4%, to ¥256.0 billion. Overseas sales as a share of total consolidated sales
increased from 58.9% in fiscal 2009 to 61.2% in fiscal 2010.
Orders received during the fiscal year rose by 30.7%, to ¥478.4 billion, and the order backlog at the end of March 2010 increased
32.7% year on year, to ¥242.6 billion, on the back of a recovery due to the resumption of capital investment by customers from thesecond half of fiscal 2010.

Gross Profit, SG&A Expenses and Operating Income
Cost of sales for the period was down 16.3% year on year, to ¥310.3 billion, and the cost of sales ratio was 74.1%, 1.1 percentage
points worse than in fiscal 2009. Since the previous fiscal year, Tokyo Electron has been cutting manufacturing fixed costs, including
outsourcing costs, but the ratio of manufacturing fixed costs to sales increased over the full year, reflecting a significant drop in plant
capacity utilization in the first half of fiscal 2010. As a result, gross profit decreased by 21.2% year on year, to ¥108.3 billion, and thegross profit margin dropped to 25.9%, from 27.0% in fiscal 2009.
Efforts to reduce SG&A expenses allowed Tokyo Electron to decrease this total cost by 9.9% year on year, to ¥110.5 billion. As a percentage of consolidated net sales, however, the SG&A ratio rose to 26.4%, from 24.1% in the previous year. Consequently, an operating
loss of ¥2.2 billion was incurred, compared with the operating income of ¥14.7 billion in fiscal 2009.

Research & Development
R&D expenses are included in SG&A expenses. Despite the severe economic climate during fiscal 2010, the Company views these
expenses as the source of future growth and incurred ¥54.1 billion in R&D expenses in fiscal 2010, down 11.3% year on year.
Breaking down these costs by division, R&D investment in the semiconductor production equipment business focused on the development of next-generation models in various equipment fields, and on the development of original double-patterning technology, whichhelps to promote finer pattern delineation, of film deposition technologies for new materials, of technology for extreme ultraviolet (EUV)
lithography, which is a promising next-generation lithography, and of 3D memory cell stack technology and 3D chip stack technology.
Tokyo Electron’s R&D investments focused not only on existing business segments, but also on the development of production equipment for OLED*, photovoltaic cells and other new product segments.
*OLED: Organic Light-Emitting Diode

Domestic and Overseas Sales

Operating Income (Loss) andOperating Margin(Billions of Yen)

(Billions of Yen)
200

418.6

■ Domestic■ Overseas

09

90

10

60

5

30

0

0

–5

–30

91.3

7.5

–2.2

0

–9.0

48.0

75.7

2.9

14.7

256.0

15

–0.5

162.6

299.2
323.9

08

208.9

313.8

06

144.0

582.1

538.2
411.2
262.5

07

0

11.2

100

50

300

120

106.3

16.9

150
900

600

(Billions of Yen)

20
18.6

168.5

508.1

906.1

852.0

673.7

1,200

Net Income (Loss)
(%)

10

–50

06

07

08

09

10

06

07

08

09

10

■ Operating Income (Loss)
Operating Margin

Annual Report 2010

Tokyo Electron

27

Other Income (Expenses) and Net Income (Loss)
During fiscal 2010, Tokyo Electron posted ¥7.6 billion in impairment losses comprising ¥4.8 billion associated with streamlining basesand ¥2.8 billion associated with intangible assets of TEL Epion Inc. The Company also posted ¥1.9 billion as the expenses for facilty
integration. As a result, other income (expenses) amounted to a net expense of ¥5.6 billion. This contributed to a ¥7.8 billion loss before
income taxes and minority interests, compared with income before income taxes and minority interests of ¥9.6 billion in fiscal 2009.
A net loss for fiscal 2010 of ¥9.0 billion was recorded, compared to net income for fiscal 2009 of ¥7.5 billion. The net loss per sharewas ¥50.47 in fiscal 2010, compared with net income per share of ¥42.15 in fiscal 2009.

Dividend Policy and Dividends
It is the policy of Tokyo Electron to pay dividends on the basis of business performance and earnings results. In principle, the dividend
payout ratio is set at 20% of consolidated net income.
In fiscal 2010, although the Company posted a net loss for the first half of the fiscal year, it paid an interim dividend of ¥4 per share in
the interest of meeting the expectations of shareholders by ensuring stability and continuity in shareholder returns. The year-end dividend was set at ¥8 per share, reflecting the Company’s consolidated results in the second half of the fiscal year and previously mentioned dividend policy. Thus, the total dividend applicable to fiscal 2010 was ¥12 per share.
Meanwhile, the Company uses retained earnings to fund research and development, capital investment, overseas business expansion,
M&As and other activities aimed at stimulating future earnings growth.

Performance by Segment
Industrial Electronic Equipment Segment
Sales in the industrial electronic equipment segment (including inter-segment sales) were down 19.3% year on year in fiscal 2010, to¥334.9 billion. On the earnings front, an operating loss of ¥4.3 billion was incurred, compared with operating income of ¥12.8 billion in
fiscal 2009, reflecting the decreased sales. Sales to outside customers (excluding inter-segment sales) were down by 19.3% year on year,to ¥334.2 billion.

■ Semiconductor Production Equipment
Tokyo Electron’s sales to outside customers fell 19.4% year on year, to ¥262.4 billion, because of the impact of curbs by semiconductor
manufacturers on capital investment in response to depressed global demand for semiconductor devices since two years ago.
However, semiconductor manufacturers have been increasing capital investment since the second half of fiscal 2010. Consequently,
orders in this division increased 68.2%, to ¥360.9 billion. The order backlog rose 133.5%, to ¥172.3 billion.
For a business overview of this division, please see pages 12 and 13.

Selling, General and
Administrative Expenses andRatio to Net Sales(Billions of Yen)

(%)

150

40

50

125
103

100

10

50

55

15.8

57.0

20

61.0

60

110.5

122.7

66.1

26.4
24.1

15.1

(Yen)

80

54.1

16.9

Cash Dividends per Share

(Billions of Yen)

49.2

128.7

114.0

100

30

142.8

150

R&D Expenses

0

0

06

07

08

09

10

■ Selling, General and Administrative Expenses
Ratio to Net Sales

28

Tokyo Electron

Annual Report 2010

0

12

24

20

0

06

07

08

09

10

06

07

08

09

10

■ FPD/PV (Flat-Panel Display and Photovoltaic Cell) Production Equipment
Tokyo Electron’s sales to outside customers declined 19.0% year on year, to ¥71.4 billion due to curbs by panel manufacturers on capital
investment. Orders in this division decreased 52.8%, to ¥28.6 billion. The order backlog fell 43.0%, to ¥56.8 billion.
For a business overview of this division, please see pages 12 and 13.

■ Others
Sales in the “Others” segment mainly include non-life insurance operations, travel services and other in-house services. Net sales tooutside customers in the segment amounted to ¥411 million, almost the same level as in fiscal 2009.

Electronic Components and Computer Networks (Tokyo Electron Device Limited.*)Net sales in this segment (including inter-segment sales) declined 10.1% year on year in fiscal 2010, to ¥85.1 billion.
As a result of the improved gross profit margin due to the product mix, together with reduced SG&A expenses, operating income rose
13.0%, to ¥2.1 billion, and the operating margin improved to 2.4%, compared with 1.9% in fiscal 2009. Sales to outside customers
were down 10.3% year on year, to ¥84.5 billion.
For a business overview of this segment, please see pages 12 and 13.
*Tokyo Electron Device Limited is listed on the Second Section of the Tokyo Stock Exchange.

Segment Information
Millions of yen
Electronic
components
and computer
networks

Industrial
electronicequipment

Total¥334,164785
334,949
339,218¥ (4,269)¥84,473673
85,146
83,066¥ 2,080¥418,637
1,458
420,095
422,284¥ (2,189)¥
–(1,458)(1,458)(1,466)¥
8¥418,637–
418,637
420,818¥ (2,181)¥654,026
19,792
7,553¥45,649
485–¥699,675
20,277
7,553¥(3,323)––¥696,352
20,277
7,553

16,070122

16,192–

16,192

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

Industrial Electronic Equipment Segment
Net Sales, Operating Income (Loss) andOperating Margin

Electronic Components and Computer Networks
Segment Net Sales, Operating Income andOperating Margin

Total Assets(Billions of Yen)

(Billions of Yen)

(Billions of Yen)

16

■ Net Sales■ Operating Income (Loss)
Operating Margin

10

770.5

669.0

88.3

200

4

1

0
–4

0

2.1

09

1.9

1.8

08

2

3.7

07

400
2.4

30

–1.3

06

3

4.0

0
–100

600

60

8

–4.3

3.1

3.3

12

334.9

414.8
140.4

72.6

100

12.3

164.8

300
200

20

20.7
18.8

400

4

3.7

3.5

800

663.2

90

12.8

500

28
24

587.8

600

3.1

746.9

700

85.1

32

5

94.7

800

120

112.1

36

796.0

900

(%)

108.7

(%)

Consolidated

696.4

1. Net sales and operating income (loss)
Net sales(1) Sales to external customers������������������������������������������������������������������������������
(2) Intersegment sales or transfers�������������������������������������������������������������������������
Total���������������������������������������������������������������������������������������������������������������������
Operating expenses����������������������������������������������������������������������������������������������
Operating income (loss)����������������������������������������������������������������������������������������
2. Assets, depreciation and amortization expenses, impairment losses andcapital expenditures
Assets�������������������������������������������������������������������������������������������������������������������
Depreciation and amortization expenses���������������������������������������������������������������
Loss on impairment of property, plant and equipment and intangible assets����������

792.8

2010:

Eliminations
andcorporate

06

07

08

09

10

0

0

06

07

08

09

10

■ Net Sales■ Operating Income
Operating Margin

Annual Report 2010

Tokyo Electron

29

Financial Position and Cash Flows
Assets, Liabilities and Net Assets■ Assets
Current assets increased by ¥47.3 billion from the end of the previous fiscal year, to ¥552.9 billion, reflecting increases of ¥33.8 billion inliquidity on hand (cash and cash equivalents + short-term investments) and ¥15.1 billion in deferred tax assets. The turnover period for
trade notes and accounts receivable increased from 86 days in fiscal 2009 to 109 days in fiscal 2010, and the inventory turnover period
increased to 121 days, from 96 days in fiscal 2009.
Net property, plant and equipment declined by ¥7.8 billion year on year, to ¥92.1 billion, as ¥14.9 billion in fixed asset acquisitions
were outweighed by ¥20.0 billion in depreciation.
Investments and other assets decreased by ¥12.1 billion year on year, to ¥51.3 billion, which mainly reflected an ¥11.4 billion decreasein deferred tax assets.
As a result, as of March 31, 2010, total assets stood at ¥696.4 billion, an increase of ¥27.4 billion year on year.

■ Liabilities and Net Assets
Current liabilities increased by ¥29.9 billion, from the end of fiscal 2009, to ¥119.2 billion. This reflected a ¥30.4 billion rise in tradenotes and accounts payable because of an increase in purchases for production due to the recovery in orders from the second half of the
fiscal year. The balance of interest-bearing debt, which consists only of short-term borrowings, stood at ¥5.1 billion as of March 31,
2010. The D/E ratio rose to 1.0%, 0.3 points higher than the end of March 2009.
Non-current liabilities increased by ¥3.4 billion, to ¥53.8 billion.
Net assets declined by ¥5.9 billion year on year, to ¥523.4 billion. This reflected a decrease in retained earnings of ¥10.5 billion resulting from the net loss of ¥9.0 billion and the payment of ¥1.4 billion in dividends, and also an increase in unrealized gains on investment
securities of ¥3.3 billion.
As a result, the equity ratio fell from 77.5% at the end of March 2009 to 73.5% as of March 31, 2010, and ROE declined to -1.8%,
from 1.4% in fiscal 2009.
Millions of Yen

Total current assets�����������������������������������������������������������������������
Net property, plant and equipment�����������������������������������������������
Total investments and other assets������������������������������������������������
Total assets����������������������������������������������������������������������������������
Total current liabilities�������������������������������������������������������������������
Total liabilities������������������������������������������������������������������������������
Total net assets (Total shareholders’ equity)�����������������������������������

2006

2007

2008

2009

2010

¥517,488
94,73851,017663,243
201,627
281,621376,900¥610,363
104,930
55,221
770,514
225,855
300,703469,811¥640,234
104,106
48,478792,818
198,821247,573545,245¥505,687
99,906
63,405668,998
89,272
139,733
529,265¥552,939
92,12851,285696,352
119,162
172,982
523,370

Working Capital and Current Ratio

Interest-Bearing Debt, D/E Ratio

Equity and Equity Ratio(Billions of Yen)

(Billions of Yen)

(Billions of Yen)

(Times)

600

6.0

(%)
20

80

(%)

800

80

77.5

5.7

73.5

17.3

40.2

2.0

06

07

08

09

10

30

Tokyo Electron

07■ Interest-Bearing Debt
D/E Ratio■ Working Capital
Current Ratio

Annual Report 2010

0.7

1.0

0

06

08

09

0

0

511.8

200

518.4

5

40

20

5.1

3.8
0

400

6.7

20

0

10

376.9

8.7

36.1

40

60

59.7

56.8

2.7

2.6

600

535.0

3.2

15

460.2

433.8

416.4

441.4

384.5
315.9

200

4.0

65.1

60

4.6
400

67.5

10

0

06
■ Equity
Equity Ratio

07

08

09

10

Capital Expenditures*1 and Depreciation and Amortization*2
Total capital expenditures declined by 17.6% year on year in fiscal 2010, to ¥14.9 billion. Spending focused on the acquisition of land
for a plant scheduled to be constructed in a suburb of Sendai City in Miyagi Prefecture, and on evaluation and measuring equipmentused for product development. Depreciation fell by 13.3% year on year, to ¥20.0 billion.
*1 Capital expenditures represent only the gross increase in property, plant and equipment.
*2 Depreciation does not include amortization and losses on impairment of goodwill.

Cash Flows
Cash flows from operating activities showed a net inflow of ¥48.3 billion, ¥32.7 billion less than in fiscal 2009. The main contributors
were ¥20.0 billion in depreciation and amortization, ¥7.6 billion in impairment losses, and a ¥28.0 billion increase in trade notes andaccounts payable. Major negative factors included a ¥7.8 billion net loss before income taxes and minority interests, a ¥6.4 billion
decrease in customer advances, a ¥4.9 billion increase in trade notes and accounts receivable, and a ¥4.9 billion increase in inventories.
Investing activities provided net cash of ¥9.6 billion, compared to net cash used of ¥160.6 billion in fiscal 2009. This reflected a ¥24.3
billion inflow from a net decrease in short-term investments, and a ¥14.2 billion outflow to purchase property, plant and equipment.
Financing activities used net cash of ¥288 million, compared with ¥46.0 billion in fiscal 2009. The main outflow was a ¥1.4 billion
dividend paid.
As a result, the balance of cash and cash equivalents at the end of March 2010 stood at ¥123.9 billion, an increase of ¥58.1 billion
from the ¥65.9 billion balance at the end of fiscal 2009.
Total liquidity on hand, which includes short-term investments as well as cash and cash equivalents, increased by ¥33.8 billion year on
year, from ¥210.2 billion at the end of March 2009 to ¥243.9 billion at the end of March 2010.
Millions of Yen

2006

2007

2008

2009

2010

Cash flows from operating activities���������������������������������������������

¥ 78,854¥ 54,297¥116,939¥ 81,030¥ 48,285

Cash flows from investing activities����������������������������������������������

(10,537)(25,293)(30,186)(160,622)

9,613

Cash flows from financing activities����������������������������������������������

(43,420)(34,719)(27,033)(46,016)(288)

Cash and cash equivalents at end of year��������������������������������������

140,024

134,390

193,493

65,883

123,940

ROE and ROA

Capital Expenditures andDepreciation and Amortization

Total Liquidity on Hand(%)

(Billions of Yen)

(Billions of Yen)

243.9
150

100

134.4

13.3

14.9

11.7
10

20.0

19.2

18.8

20

2.3

23.1

22.7
21.4

20.2
13.5

203.6

200

21.4

18.1

21.7

210.2

27.1

21.8
20

10

250

30

140.0

30

–0.2

0

50

1.4
–1.8

0

0

–10

06

07

08

09

10

Return on Equity Ratio (ROE)
Return on Assets Ratio (ROA)
ROA=(Operating income+Interest and dividend
income)/Average total assets x100

06

07

08

09

■ Capital Expenditures■ Depreciation and Amortization

10

06

07

08

09

10

Total liquidity on hand
=Cash and cash equivalents+Short-term investments

Annual Report 2010

Tokyo Electron

31

Business-related and Other Risks
The following are possible risks that may have an impact on Tokyo Electron’s business performance, stock price, or financial position.

(1) Impact From Changes in the Semiconductor Market
Tokyo Electron has achieved a high profit margin by concentrating resources in high-tech fields, including semiconductor production
equipment, where technological innovation is rapid but Tokyo Electron can effectively use its strengths. Although technological change is
responsible for the semiconductor market’s rapid growth, Tokyo Electron has actively undertaken structural reforms to be able to generate profits under any circumstances, including when the market contracts temporarily due to imbalance of supply and demand. However, order cancellations, excess capacity and personnel and increased inventories resulting from an unexpectedly large market
contraction, losses from bad debts resulting from the worsening of a customer’s financial position, and supply shortages resulting fromthe worsening of a supplier’s management situation, could adversely affect Tokyo Electron’s business performance.

(2) Impact From Concentration of Transactions on Particular Customers
Tokyo Electron has been successful at increasing transactions with the leading semiconductor manufacturers worldwide, including thosein Japan, through the provision of products featuring outstanding, cutting-edge technology and of services offering a high level of customer satisfaction. However, Tokyo Electron’s sales may from time to time be temporarily concentrated on particular customers due tothe timing of large capital investments of major semiconductor manufacturers. The resulting escalation in sales competition could
adversely affect Tokyo Electron’s business performance.

(3) Impact From Research and Development
Through ongoing and proactive R&D investment and activities in cutting-edge technologies—miniaturization, vacuum, plasma, thermal
processing, coating/developing, cleaning, wafer-transfer and clean technologies—Tokyo Electron has created advanced technologies. At
the same time, by quickly bringing to market new products incorporating these technologies, Tokyo Electron has successfully captured ahigh market share in each of the product fields it has entered and generated a high profit margin. However, delays in the launch of new
products and other factors could adversely affect Tokyo Electron’s business performance.

(4) Safety-related Impacts
Tokyo Electron’s basic philosophy is to always bear in mind safety and health in the execution of business activities, including development, manufacturing, sales, services and management. In accordance with this philosophy, Tokyo Electron works actively and continuously to improve the safety of its products and to eliminate any harmful impact on health. However, harm to customers, ordercancellations or other circumstances resulting from safety or other problems related to Tokyo Electron’s products could adversely affect
Tokyo Electron’s business performance.

32

Tokyo Electron

Annual Report 2010

(5) Impact From Quality Issues
Tokyo Electron actively develops outstanding, cutting-edge technologies for incorporation in new products that are brought quickly tomarket. At the same time, Tokyo Electron works to establish a quality assurance system, efforts that include obtaining ISO 9001 certification, as well as to establish a world-class service system. These actions have resulted in a large number of customers adopting Tokyo
Electron’s products. However, because Tokyo Electron’s products are based on cutting-edge technologies, and due to other factors, manyof the technologies developed are in unfamiliar fields. The occurrence of unforeseen defects or other issues could adversely affect Tokyo
Electron’s business performance.

(6) Impact of Intellectual Property Rights
In order to distinguish its products and make them more competitive, Tokyo Electron has promoted its R&D strategy for the early development of cutting-edge technologies together with its business and intellectual property strategies. This approach has enabled Tokyo
Electron to obtain sole possession of many proprietary technologies that have been instrumental to the Company’s ability to capture ahigh market share and generate high profit margins in each of its product fields. Tokyo Electron’s products incorporate and optimize
many of these proprietary cutting-edge technologies. There may be cases in which, by avoiding the use of third-party technologies andintellectual property rights, Tokyo Electron’s business performance could be adversely affected.

(7) Impact of Fluctuating Foreign Exchange Rates
Success in the development of overseas operations has increased the share of sales generated overseas. As a rule, Tokyo Electron conducts export transactions on a yen basis to avert exposure to foreign currency risks. However, some exports are denominated in foreign
currencies. In these cases, Tokyo Electron hedges foreign currency risk by using a forward foreign exchange contract when an order isreceived or by other means. However, foreign exchange rate risks can arise from fluctuations in prices due to sudden foreign exchange
movements, which could have an indirect adverse effect on Tokyo Electron’s business performance.

(8) Other Risks
Tokyo Electron is actively engaged in reforming its corporate structure so that it can generate profits even when markets contract. These
reforms have entailed creating new high-growth and high-return businesses and pursuing higher earnings from existing businesses. At
the same time, Tokyo Electron has promoted activities to preserve the environment and worked to restructure its compliance and risk
management systems. However, as long as it conducts business activities, as with peer companies or companies in different industries,
Tokyo Electron is subject to the effect of many other factors. These include the world and regional economic environments, natural disasters, war, terrorism, unavoidable occurrences (such as infectious diseases), financial or stock markets, government or other regulations,
supply systems of suppliers, market conditions for products and real estate, the ability to recruit personnel in Japan and overseas, competition over standardization, and loss of key personnel. Any of these factors could adversely affect Tokyo Electron’s business performance.

Annual Report 2010

Tokyo Electron

33

CONSOLIDATED Eleven-YEAR SUMMARYTokyo Electron Limited and Subsidiaries
As of and for the years ended March 31

Thousands of
U.S. dollars
2010

2010

2009

2008

Net sales1 ����������������������������������������������������������������������������������
Semiconductor production equipment �����������������������������������
FPD/PV production equipment2 ����������������������������������������������
Computer networks ��������������������������������������������������������������
Electronic components and computer networks ��������������������
Other ������������������������������������������������������������������������������������
Operating income (loss) ������������������������������������������������������������
Income (loss) before income taxes ���������������������������������������������
Net income (loss) ����������������������������������������������������������������������

$4,499,538
2,820,206
766,993–
907,921
4,418(23,442)(83,491)(97,087)¥  418,637
262,392
71,361–
84,473411(2,181)(7,768)(9,033)¥508,082
325,383
88,107–
94,207385
14,711
9,637
7,543¥906,092
726,440
68,016–111,181455
168,498
169,220
106,271

Domestic sales ��������������������������������������������������������������������������
Overseas sales ���������������������������������������������������������������������������

1,747,732
2,751,806

162,609
256,028

208,871299,211

323,946
582,146

Depreciation and amortization3 �������������������������������������������������
Capital expenditures4 ����������������������������������������������������������������
R&D expenses ���������������������������������������������������������������������������

214,983
160,350
581,191

20,002
14,91954,07423,068
18,10860,98821,41322,70366,073

Total assets �������������������������������������������������������������������������������
Total net assets (Total shareholders’ equity) �������������������������������

7,484,437
5,625,215

696,352
523,370668,998529,265

792,818
545,245

10,068

10,391

10,42942.15
42.07
2,896.55
24.00
180,61142,509¥ 594.01
592.71
2,989.70
125.00180,611
43,324

(1.8)
(0.5)
73.5
0.61

1.4
2.9
77.5
0.70

21.4
18.6
67.5
1.16

41,581¥ 48,896¥ 86,882

Number of employees ���������������������������������������������������������������
U.S. dollars

Net income (loss) per share of common stock:5
Basic �������������������������������������������������������������������������������������
Diluted6 ��������������������������������������������������������������������������������
Net assets per share of common stock ��������������������������������������Cash dividends per share of common stock �������������������������������
Number of shares outstanding (thousands) �������������������������������
Number of shareholders ������������������������������������������������������������

$

(0.54)
–
30.73
0.13

¥

ROE ������������������������������������������������������������������������������������������
Operating margin ���������������������������������������������������������������������
Equity ratio �������������������������������������������������������������������������������
Asset turnover (times) ���������������������������������������������������������������

(50.47)–2,859.37
12.00
180,61139,285¥

U.S. dollars

Net sales per employee �������������������������������������������������������������

$ 446,915¥

1 Until fiscal 2004, the FPD (Flat Panel Display) division was included in Semiconductor production equipment. From fiscal 2008, Computer networks is included in Electronic
components and computer networks.
2 From fiscal 2009, the FPD division was changed to the FPD/PV production equipment division. The Photovoltaic Cell (PV) production equipment is included in FPD/PV
production equipment.
3 Depreciation and amortization does not include amortization and loss on impairment of goodwill.
4 Capital expenditures after fiscal 2000 only represent the gross increase in property, plant and equipment.
5 From fiscal 2003, the Company applied “Accounting Standards Regarding Net Income per Share (Business Accounting Standards No. 2)” and “Practical Guidelines for Applying
Accounting Standards Regarding Net Income per Share (Practical Guidelines for Applying Accounting Standards No. 4)” released by the Accounting Standards Board of Japan (ASBJ).
6 Dilution is not assumed for the years ended March 31, 2010, 2003 and 2002.
7 Effective from fiscal 2005, Tokyo Electron changed its method of revenue recognition upon receiving customer confirmation of product set-up and testing of products for
Semiconductor and FPD production equipment. The effect of this change decreased net sales, operating income and income before income taxes by ¥80,956 million, ¥20,541
million and ¥20,563 million, respectively, for the year ended March 31, 2005, compared with the corresponding amounts which would have been recorded if the previous
method had been applied.
8 Effective from fiscal 2005, Tokyo Electron changed its method to account for after-sale repair expenses by recording accrued warranty expenses for Semiconductor and FPD
production equipment. The effect of this change decreased operating income and income before income taxes by ¥635 million and ¥13,106 million, respectively, for the year
ended March 31, 2005, compared with the corresponding amounts which would have been recorded if the previous method had been applied.

34

Tokyo Electron

Annual Report 2010

Millions of yen
2007

2006

2005

2004

2003

2002

2001

2000

¥851,975
642,625
100,766
19,16988,294
1,121
143,979
144,414
91,263¥673,686
486,883
81,176
17,49786,881
1,249
75,70375,32848,006¥635,710
457,191
75,03815,96686,2491,266
63,98355,77561,601¥529,654
425,747–
18,44884,2291,230
22,28014,9368,297¥460,580
364,689–
17,19377,3801,318
1,119(23,010)(41,554)¥417,825
325,715–
17,03173,658
1,421(18,310)(22,919)(19,938)¥723,880
619,001–
14,054
89,211
1,614
121,086
99,13262,012¥440,729
355,103–
12,35772,051
1,218
35,816
29,68919,848313,816
538,159

262,532
411,154

232,678
403,032

242,318
287,336

190,513
270,067

186,516
231,309299,272
424,608

183,987
256,742

18,82027,12956,962

19,17013,33549,182

21,4639,876
43,88924,963
11,00744,15027,374
12,35950,123

26,29430,94653,827

21,67949,403
52,911

19,44618,99937,135

770,514469,811663,243
376,900

644,320
332,165

561,632
275,800

524,901
252,904

556,915
307,579

729,511333,281

499,499273,603

9,528

8,901

8,864

8,870

10,053

10,171

10,236

8,946

46.37
45.78
1,543.73
10.00
180,61160,873¥ (238.57)–
1,456.23
8.00
175,698
49,259¥ (113.85)–
1,756.73
8.00
175,691
37,116¥ 353.76
344.75
1,901.38
38.00
175,691
42,781¥ 113.53
110.64
1,560.27
14.00
175,660
7,147

20.3
10.1
51.6
1.05

3.1
4.2
49.1
0.97

(14.8)
0.2
48.2
0.85

(6.2)
(4.4)
55.2
0.65

20.4
16.7
45.7
1.18

7.5
8.1
54.8
0.96

¥ 71,718¥ 59,713¥ 45,815¥ 41,080¥ 70,719¥ 49,265

Annual Report 2010

Tokyo ElectronYen¥ 511.27
509.84
2,573.72
103.00180,61141,289¥ 267.61
267.32
2,112.30
55.00
180,611
46,272¥ 343.63
343.54
1,863.28
45.00
180,61160,857¥Percent

21.8
16.9
59.7
1.19

13.5
11.2
56.8
1.03

¥ 89,418¥ 75,687

Thousands of yen

35

CONSOLIDATED BALANCE SHEETSTokyo Electron Limited and Subsidiaries
As of March 31, 2010 and 2009ASSETS
2010

2009

2010

Current assets:
Cash and cash equivalents������������������������������������������������������������������������
Short-term investments����������������������������������������������������������������������������
Trade notes and accounts receivable���������������������������������������������������������
Allowance for doubtful accounts��������������������������������������������������������������
Inventories�����������������������������������������������������������������������������������������������
Deferred income taxes������������������������������������������������������������������������������
Prepaid expenses and other current assets������������������������������������������������
   Total current assets�������������������������������������������������������������������������������

¥123,940
120,000
124,462(176)
138,450
26,625
19,638552,939¥ 65,883
144,275
119,687(21)
134,242
11,48130,140505,687$1,332,115
1,289,768
1,337,726(1,892)
1,488,070
286,167
211,071
5,943,025

Property, plant and equipment:Land���������������������������������������������������������������������������������������������������������
Buildings��������������������������������������������������������������������������������������������������
Machinery and equipment������������������������������������������������������������������������
Construction in progress��������������������������������������������������������������������������
   Total property, plant and equipment�����������������������������������������������������
Less: Accumulated depreciation����������������������������������������������������������������
   Net property, plant and equipment�������������������������������������������������������

26,356
120,430
98,943
3,739
249,468
157,340
92,12820,678
121,569
104,4734,708
251,428
151,522
99,906283,276
1,294,390
1,063,446
40,1872,681,299
1,691,101
990,198

Investments and other assets:
Investment securities��������������������������������������������������������������������������������
Deferred income taxes������������������������������������������������������������������������������
Intangible assets���������������������������������������������������������������������������������������
Other assets���������������������������������������������������������������������������������������������
Allowance for doubtful accounts��������������������������������������������������������������
   Total investments and other assets��������������������������������������������������������
Total assets������������������������������������������������������������������������������������������������

14,721
20,506
5,586
17,925(7,453)51,285¥696,352

9,131
31,94010,761
19,119(7,546)
63,405¥668,998

158,222
220,400
60,039
192,658(80,105)551,214$7,484,437

See accompanying Notes to Consolidated Financial Statements.

36

Thousands of
U.S. dollars

Millions of yen

Tokyo Electron

Annual Report 2010

LIABILITIES AND NET ASSETS

Thousands of
U.S. dollars

Millions of yen

2010

2009

2010

Current liabilities:
Short-term borrowings�����������������������������������������������������������������������������
Trade notes and accounts payable������������������������������������������������������������
Customer advances����������������������������������������������������������������������������������
Income taxes payable�������������������������������������������������������������������������������
Accrued employees’ bonuses��������������������������������������������������������������������
Accrued warranty expenses����������������������������������������������������������������������
Accrued expenses and other current liabilities�������������������������������������������
   Total current liabilities���������������������������������������������������������������������������

¥   5,106
61,58522,077
4,356
6,044
5,268
14,726
119,162¥   3,807
31,22728,562
1,751
4,965
6,116
12,84489,272$    54,880
661,920
237,285
46,81864,961
56,621
158,276
1,280,761

Accrued pension and severance costs�����������������������������������������������������
Other liabilities������������������������������������������������������������������������������������������
   Total liabilities���������������������������������������������������������������������������������������

50,528
3,292
172,982

47,687
2,774
139,733

543,078
35,383
1,859,222

54,961

54,961

590,724

78,034393,970(10,900)

78,114404,435(11,112)

838,715
4,234,415(117,153)

2,504
(68)
(6,683)
1,578
9,974
523,370¥696,352(842)
67(7,236)
1,149
9,729
529,265¥668,998

26,913(731)(71,829)
16,960107,201
5,625,215$7,484,437

Contingent liabilities
Net assets:
Shareholders’ equity�����������������������������������������������������������������������������
   Common stock    Authorized: 300,000,000 shares    Issued: 180,610,911 shares as of March 31, 2010 and 2009   Capital surplus��������������������������������������������������������������������������������������
   Retained earnings���������������������������������������������������������������������������������
   Treasury stock, at cost���������������������������������������������������������������������������
    1,614,225 and 1,643,398 shares    as of March 31, 2010 and 2009, respectively Valuation and translation adjustments   Unrealized gains (losses) on investment securities����������������������������������
   Deferred gains (losses) on hedges���������������������������������������������������������
   Foreign currency translation adjustments����������������������������������������������
Share subscription rights����������������������������������������������������������������������
 Minority interests����������������������������������������������������������������������������������
   Total net assets�������������������������������������������������������������������������������������
Total liabilities and net assets������������������������������������������������������������������

Annual Report 2010

Tokyo Electron

37

CONSOLIDATED STATEMENTS OF OPERATIONSTokyo Electron Limited and Subsidiaries
Years ended March 31, 2010 and 2009

Thousands of
U.S. dollars

Millions of yen

2010

2009

2010

Net sales ���������������������������������������������������������������������������������������������������
Cost of sales ��������������������������������������������������������������������������������������������
Gross profit �����������������������������������������������������������������������������������������������
Selling, general and administrative expenses ��������������������������������������������
Operating income (loss)���������������������������������������������������������������������������

¥418,637
310,321
108,316
110,497(2,181)¥508,082
370,674
137,408
122,697
14,711$4,499,538
3,335,351
1,164,187
1,187,629(23,442)

Other income (expenses):
Interest and dividend income �������������������������������������������������������������������
Interest expenses �������������������������������������������������������������������������������������
Revenue from development grants ����������������������������������������������������������
Gain on sale of property, plant and equipment ����������������������������������������
Provision of allowance for doubtful accounts �������������������������������������������
Loss on devaluation of investment securities ��������������������������������������������
Loss on disposal of property, plant and equipment ����������������������������������
Loss on impairment of property, plant and equipment and intangible assets ���Expenses for integration of domestic facilities�������������������������������������������
Other, net �����������������������������������������������������������������������������������������������
Income (loss) before income taxes and minority interests �������������������

1,055
(47)
1,842
283
(100)
(72)
(978)
(7,553)(1,909)1,892(7,768)

1,806
(175)
2,701
67
(7,361)(2,432)
(352)
–
–
672
9,637

11,339(505)
19,7983,042(1,075)(774)(10,511)(81,180)(20,518)
20,335(83,491)

Income taxes:
Current ���������������������������������������������������������������������������������������������������
Deferred ��������������������������������������������������������������������������������������������������

5,747(5,021)

4,553(2,762)

61,769(53,966)

Minority interests ����������������������������������������������������������������������������������������
Net income (loss)���������������������������������������������������������������������������������������

539¥ (9,033)

303¥ 7,543

5,793$ (97,087)

Per share of common stock:
Net income (loss) — basic ������������������������������������������������������������������������
Net income — diluted �����������������������������������������������������������������������������
Net assets ������������������������������������������������������������������������������������������������Cash dividends ����������������������������������������������������������������������������������������

¥ (50.47)–
2,859.37
12.00¥ 42.15
42.07
2,896.55
24.00$

See accompanying Notes to Consolidated Financial Statements.

38

Tokyo Electron

Annual Report 2010

Yen

U.S. dollars(0.54)
–
30.73
0.13

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETSTokyo Electron Limited and Subsidiaries
Years ended March 31, 2010 and 2009

Millions of yen
Shareholders’ equity

Balance as of March 31, 2008��

Valuation and translation adjustments

Commonstock

CapitalsurplusRetainedearnings

Treasurystock

Unrealized
gains(losses) on
investment
securities¥54,961¥78,393¥410,867¥(11,370)¥2,172

Deferred
gains(losses) onhedgesForeigncurrencytranslation
adjustments

Sharesubscription
rightsMinority
interests

Total
net assets¥460¥ (530)¥ 484¥9,808¥545,245

Effect of change in accounting
policies for foreign subsidiaries��

–

–

(552)

–

–

–

–

–

–

(552)

Cash dividends�������������������������

––(13,420)

–

–

–

–

–

–

(13,420)

Net income������������������������������

–

–

7,543

–

–

–

–

–

–

7,543

Repurchase of treasury stocks���

–

–

–

(38)

–

–

–

–

–

(38)

Disposal of treasury stocks�������

–

(279)

–

296

–

–

–

–

–

17

Effect of newly consolidated
subsidiaries����������������������������

–

–

(3)

–

–

–

–

–

–

(3)

Other, net��������������������������������

–

–

–

–

(3,014)(393)(6,706)665(79)(9,527)¥529,265

Balance as of March 31, 2009��¥54,961¥78,114¥404,435¥(11,112)¥ (842)¥ 67¥(7,236)¥1,149¥9,729

Cash dividends�������������������������

––(1,432)

–

–

–

–

–

–

(1,432)Net loss������������������������������������

––(9,033)

–

–

–

–

–

–

(9,033)

Repurchase of treasury stocks��

–

–

–

(58)

–

–

–

–

–

(58)

Disposal of treasury stocks�������

–

(80)

–

270

–

–

–

–

–

190

Other, net��������������������������������

–

–

–

–

3,346

(135)

553

429

245

4,438

Balance as of March 31, 2010��

¥54,961¥78,034¥393,970¥(10,900)¥2,504¥ (68)¥(6,683)¥1,578¥9,974¥523,370

Share
subscription
rightsMinority
interests

Total
net assets

Thousands of U.S. dollars
Shareholders’ equity

Commonstock

Capitalsurplus

Valuation and translation adjustments

Retainedearnings

Treasurystock

Balance as of March 31, 2009�� $590,724 $839,575 $4,346,894 $(119,433)

Unrealized
gains(losses) on
investment
securities

Deferred
gains(losses) onhedgesForeigncurrencytranslation
adjustments$(77,773) $12,350 $104,568 $5,688,575$(9,050)$ 720Cash dividends�������������������������

––(15,392)

–

–

–

–

–

–

(15,392)

Net loss������������������������������������

––(97,087)

–

–

–

–

–

–

(97,087)

Repurchase of treasury stocks���

–

–

–

(622)

–

–

–

–

–

(622)

Disposal of treasury stocks�������

–

(860)

–

2,902

–

–

–

–

–

2,042

Other, net��������������������������������

–

–

–

–

35,963(1,451)

5,944

4,610

2,633

47,699Balance as of March 31, 2010�� $590,724 $838,715 $4,234,415 $(117,153)$26,913$ (731)$(71,829) $16,960 $107,201 $5,625,215

See accompanying Notes to Consolidated Financial Statements.

Annual Report 2010

Tokyo Electron

39

CONSOLIDATED STATEMENTS OF CASH FLOWSTokyo Electron Limited and Subsidiaries
Years ended March 31, 2010 and 2009

Thousands of
U.S. dollars

Millions of yen

2010

Cash flows from operating activities:
Income (loss) before income taxes and minority interests��������������������������
Depreciation and amortization�����������������������������������������������������������������
Amortization of goodwill��������������������������������������������������������������������������
Loss on impairment of property, plant and equipment and intangible assets��
Increase in accrued pension and severance costs��������������������������������������
Decrease in prepaid pension expenses������������������������������������������������������
Increase in allowance for doubtful accounts���������������������������������������������
Increase (decrease) in accrued employees' bonuses�����������������������������������
Decrease in accrued warranty expenses����������������������������������������������������
Interest and dividend income��������������������������������������������������������������������
Interest expenses��������������������������������������������������������������������������������������
Gain on sale of property, plant and equipment�����������������������������������������
Loss on disposal of property, plant and equipment�����������������������������������
Loss on devaluation of investment securities���������������������������������������������
(Increase) decrease in trade notes and accounts receivable������������������������
(Increase) decrease in inventories��������������������������������������������������������������
Decrease in prepaid consumption tax�������������������������������������������������������
Increase (decrease) in trade notes and accounts payable���������������������������
Increase (decrease) in customer advances�������������������������������������������������
Increase in specific doubtful receivables����������������������������������������������������
Other, net������������������������������������������������������������������������������������������������
Subtotal��������������������������������������������������������������������������������������������������
Receipts from interest and dividends��������������������������������������������������������
Interest paid���������������������������������������������������������������������������������������������
Income taxes (paid) refunded�������������������������������������������������������������������
 Net cash provided by operating activities�������������������������������������������Cash flows from investing activities:
Purchases of short-term investments��������������������������������������������������������
Proceeds from short-term investments������������������������������������������������������
Payment for purchase of property, plant and equipment���������������������������
Proceeds from sale of property, plant and equipment�������������������������������
Payment for acquisition of intangible assets����������������������������������������������
Payment for purchase of investment securities������������������������������������������
Other, net������������������������������������������������������������������������������������������������
 Net cash provided by (used in) investing activities����������������������������Cash flows from financing activities:
Increase (decrease) in short-term borrowings��������������������������������������������
Redemption of unsecured bonds��������������������������������������������������������������
(Increase) decrease in treasury stock, net��������������������������������������������������
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�������������������������������������������
Effect of newly consolidated subsidiaries������������������������������������������������������Cash and cash equivalents at end of year����������������������������������������������
See accompanying Notes to Consolidated Financial Statements.

40

Tokyo Electron

Annual Report 2010

2010

2009

¥   (7,768)
20,002
242
7,553
2,810
570
121
1,079
(837)
(1,055)
47
(283)
978
72
(4,890)(4,869)568
27,975(6,380)(140)
5,686
41,481
1,171
(46)
5,679
48,285¥

9,637
23,068
242
–
3,401
52
7,333
(7,762)(3,346)(1,806)
175
(67)
352
2,432
102,413
21,282
4,509(29,942)
5,322(7,355)(9,620)120,320
1,749(202)(40,837)
81,030$

(83,491)
214,983
2,601
81,18030,202
6,126
1,301
11,597(8,996)(11,339)505(3,042)
10,511
774(52,558)(52,332)
6,105
300,677(68,573)(1,505)
61,114445,840
12,586(494)
61,038518,970(449,000)
473,347(14,195)
488
(786)
(18)
(223)
9,613

(353,804)
219,429(17,228)656(1,182)(7,815)(678)(160,622)(4,825,881)
5,087,564(152,569)
5,245(8,448)(193)(2,397)103,321

1,299
–
132
(1,432)
(286)
(287)
446
58,05765,883–¥123,940(2,263)(30,000)(21)(13,420)(312)(46,016)(2,069)(127,677)
193,49367¥ 65,883

13,962–
1,419(15,392)(3,074)(3,085)
4,794
624,000
708,115–$1,332,115

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Tokyo Electron Limited and Subsidiaries

1. Basis of Presentation of Consolidated Financial
Statements
The accompanying consolidated financial statements of Tokyo Electron
Limited (hereinafter “the Company”) and its subsidiaries (hereinaftercollectively referred to as “Tokyo Electron”) have been prepared in accordance with the provisions set forth in the Financial Instruments andExchange Law of Japan and its related accounting regulations, and in
conformity with accounting principles generally accepted in Japan, which
are different in certain respects as to application and disclosure requirementsof International Financial Reporting Standards.
Prior to the year ended March 31, 2009, the accounts of foreign subsidiaries used in the preparation of the consolidated financial statements
were based on their accounting records maintained in conformity withgenerally accepted accounting principles prevailing in the respective countries of domicile.
As mentioned in note 3 (a), the Company adopted “Practical Solution
on Unification of Accounting Policies Applied to Foreign Subsidiaries for
Consolidated Financial Statements” (Practical Issues Task Force No. 18
issued by the Accounting Standards Board of Japan) effective from April 1,
2008. As a result of this adoption, the Company uses financial statements
prepared by foreign subsidiaries in accordance with International Financial
Reporting Standards or U.S. generally accepted accounting principles forthe preparation of the consolidated financial statements, together withadjustment for certain items which are required to be adjusted in the
consolidation process.
The accompanying consolidated financial statements have been restructured and translated into English from the statutory Japanese language
consolidated financial statements. Some supplementary information includedin the statutory Japanese language consolidated financial statements, which
is not required for fair presentation, is not presented in the accompanying
consolidated financial statements.
U.S. dollar amounts included herein are solely for the convenience ofreaders and are presented at the rate of ¥93.04 to $1.00, the approximate
rate as of March 31, 2010. The translation should not be construed as arepresentation that the Japanese yen amounts shown could be converted
into U.S. dollars at that or any other rate.

2. Summary of Significant Accounting Policies(a) Principles of consolidation
The consolidated financial statements include the accounts of theCompany and its 30 and 32 subsidiaries for the years ended March 31,
2010 and 2009, respectively.
Investments in affiliates in which the Company’s ownership is 20% to
50% are accounted for by the equity method.
All significant inter-company accounts, transactions and unrealized
profits or losses have been eliminated in consolidation.
The fiscal year-end of all entities is March 31, except for two consolidated
foreign subsidiaries, which use a December 31 year-end, and adjustment ismade for any significant transactions between the different fiscal year-ends.

The balance sheet accounts of foreign subsidiaries are translated into
Japanese yen at the rates of exchange in effect at the balance sheet date,
except for shareholders’ equity accounts, which are translated at thehistorical rates. Revenue and expense accounts of foreign subsidiaries aretranslated at average rates of exchange in effect during the year. Resulting
translation adjustments are presented in net assets as a component ofvaluation and translation adjustments and minority interests in the
consolidated financial statements.
(c) Investment securities
Tokyo Electron examines the intent of holding each security and classifies
those securities as trading securities, held-to-maturity debt securities orother securities. Tokyo Electron has no trading or held-to-maturity debt
securities. Other securities with market prices are valued at fair market
value prevailing at the balance sheet date. The differences between thebook and market prices of other securities, net of applicable income taxes,
are presented in net assets as a component of valuation and translation
adjustments. Other securities without market value are valued at cost using
the weighted-average method.
The cost of sold securities is calculated using the weighted-average method.
(d) Inventories
As mentioned in note 3 (b), effective from April 1, 2008, the Company andits domestic subsidiaries adopted “Accounting Standard for Measurementof Inventories” (Statement No. 9 issued by the Accounting Standards Boardsof Japan). Inventories other than raw materials are stated at the lower ofcost, determined by the specific identification method, or net realizablevalue, which is defined as selling price less estimated additional manufacturing costs and estimated direct selling expenses. Raw materials are statedat the lower of cost, determined principally by the moving-averagemethod, or net realizable value, which is defined as selling price less estimated additional manufacturing costs and estimated direct selling expenses.
(e) Property, plant and equipment
Property, plant and equipment are stated at cost. Depreciation of buildings,
machinery and equipment of the Company and its domestic subsidiaries iscomputed using the declining balance method, except for buildings
acquired subsequent to March 31, 1998 which are depreciated using thestraight-line method, based on the estimated useful lives of assets. Foreignsubsidiaries mainly apply the straight-line method over the estimated useful
lives of assets.
Estimated useful lives of property, plant and equipment are as follows:		 Buildings
2 to 60 years
		 Machinery and equipment
2 to 17 years(f) Intangible assets
Intangible assets, which primarily comprise of capitalized costs forcomputer software and goodwill, are amortized by the straight-line
method over their estimated useful lives. Capitalized costs for computer
software for internal use are amortized over a period of 2 to 5 years.
Goodwill is evaluated on an individual basis and amortized over a period
not exceeding 20 years.

(b) Foreign currency translation
All assets and liabilities denominated in foreign currencies are translated
into Japanese yen at the year-end rates, except for those hedged by forward
exchange contracts, which are translated at the contracted rates. Resulting
exchange gains and losses are included in earnings for the year.
Revenue and expense items are translated at the rates that approximate
those prevailing at the time of the transactions.

Annual Report 2010

Tokyo Electron

41

(g) Impairment of fixed assets
Tokyo Electron evaluates the carrying value of fixed assets held for use in
the business.
If the carrying value of a fixed asset is impaired, a loss is recognizedbased 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 theassets. Net selling price is determined using the fair value less disposal costs
and value 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.
(h) Allowance for doubtful accounts
The allowance for doubtful accounts is provided at an amount determinedbased on the historical experience of bad debts with respect to ordinary
receivables, and an estimate of uncollectible amounts determined byreference to specific doubtful receivables from customers which areexperiencing financial difficulties.
(i) Accrued pension and severance costs
The Company and its domestic subsidiaries provide an accrual for defined
benefit employees’ pension and severance costs based on the projected
benefit obligation and fair value of pension assets on the account settlement
date. Prior service costs are charged to earnings on a straight-line basis,beginning from the fiscal year in which they are incurred, over a fixed
number of years (four 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 fiscal year after they arerecognized, over a fixed number of years (four years) within the averageremaining years of service of employees when the differences occur.
The provision for accrued pension and severance costs for directors andstatutory auditors of the Company and its domestic subsidiaries is calculated
in accordance with internal regulations.
The Company and certain domestic subsidiaries decided to discontinue
the payment of severance pay for directors and statutory auditors after
April 1, 2005, and at the general shareholders’ meeting in June 2005, it
was resolved that the severance pay for directors and statutory auditors
until March 31, 2005 would be paid at the termination of their service andthe decision regarding the payment amount for each director and statutory
auditor was delegated to the board of directors and statutory auditors. As
discussed in note 9, the accruals for severance costs for directors andstatutory auditors are included in accrued pension and severance costs inthe consolidated balance sheets.
(j) Accrued warranty expenses
Tokyo Electron’s products are generally subject to warranty, and Tokyo
Electron accrues such estimated costs when product revenue is recognized.
To prepare for future repairs during warranty periods, estimated after-salerepair expenses over warranty periods are accrued based on the historicalratio of actual repair expenses to corresponding sales.
(k) Leases
Until the year ended March 31, 2008, non-cancelable leases of theCompany and its domestic subsidiaries had been primarily accounted for as
operating leases (whether such leases were classified as operating or
finance leases), except for leases that transfer ownership to the lessee atthe end of the lease, which had been accounted for as finance leases.
As mentioned in note 3 (c), effective from the year ended March 31,
2009, the Company and its domestic subsidiaries adopted “AccountingStandard for Lease Transactions” (Statement No. 13 issued by the AccountingStandards Board of Japan) and “Guidance on Accounting Standard for

42

Tokyo Electron

Annual Report 2010

Lease Transactions” (Guidance No. 16 issued by the Accounting Standards
Board of Japan). As a result, the Company and its domestic subsidiaries
capitalized leased assets under finance leases commencing after March 31,
2008, and such leased assets are depreciated using the straight-line
method over the period of the lease contract with zero residual value.
(l) Derivatives and hedge accounting
The Company and a domestic subsidiary make use of derivatives in orderto manage certain risks arising from adverse fluctuations in foreign currency
exchange rates. The amount of derivatives is limited to the extent of foreign
currency assets, liabilities and actual orders, and the Company and thedomestic subsidiary do not trade in derivatives for speculative purposes.
Derivatives are carried at fair value in the consolidated balance sheetwith 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 derivatives, net of taxes, are reported in net
assets as a component of valuation and translation adjustments. Receivables and payables hedged by qualified forward foreign exchange contracts are translated at the corresponding foreign exchange contract rates.
(m) Income taxes
Tokyo Electron records deferred tax assets and liabilities on temporary
differences between the carrying amounts of assets and liabilities forfinancial reporting purposes and the amounts used for income tax purposes,
which are measured using the enacted tax rates and laws which are
expected to be in effect when the differences are expected to reverse.
(n) Revenue recognition
Revenue from Semiconductor and FPD (Flat Panel Display)/PV(Photovoltaic cell) production equipment is principally recognized at thetime of the customer confirmation of set-up and testing of products.
Revenue from such equipment not requiring substantial installation isrecognized at the time of shipment. Revenue from other products, suchas electronic components, is recognized at the time of shipment. Service
revenue from maintenance is recognized ratably over the term of themaintenance contract.
(o) Per share information
Net income (loss) per share and net assets per share are computed basedon the weighted-average number of shares of common stock outstanding
during each year.
Dividends per share has been presented on an accruals basis andinclude, in each fiscal year ended March 31, dividends approved or to beapproved after March 31 but applicable to the year then ended.
(p) Research and development expenses
Research and development expenses are charged to earnings as incurredand amounted to ¥54,074 million ($581,191 thousand) and ¥60,988
million for the years ended March 31, 2010 and 2009, respectively.
(q) Cash equivalents
For purposes of the consolidated statements of cash flows, Tokyo
Electron considers all highly-liquid instruments purchased with original
maturities of three months or less to be cash equivalents.
(r) Short-term investments
Short-term investments consist of time deposits and certificates ofdeposit with original maturities of more than three months.
(s) 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, 2010.

3. Changes in Accounting Policies(a) Accounting policies applied to foreign subsidiaries
Effective from April 1, 2008, the Company adopted “Practical Solution
on Unification of Accounting Policies Applied to Foreign Subsidiaries for
Consolidated Financial Statements” (Practical Issues Task Force No. 18
issued by the Accounting Standards Board of Japan). The change had no
significant impact on the consolidated financial statements.
(b) Accounting standard for measurement of inventories
Effective from April 1, 2008, the Company and its domestic subsidiaries
adopted “Accounting Standard for Measurement of Inventories” (Statement
No. 9 issued by the Accounting Standards Board of Japan). The change hadno significant impact on the consolidated financial statements.
(c) Accounting standard for lease transactions
Effective from the year ended March 31, 2009, the Company and its
domestic consolidated subsidiaries adopted “Accounting Standard forLease Transactions” (Statement No. 13 issued by the Accounting Standards
Board of Japan) and “Guidance on Accounting Standard for Lease
Transactions” (Guidance No. 16 issued by the Accounting Standards Boardof Japan). The change had no significant impact on the consolidated
financial statements.

4. Investment securities
Investment securities, which solely comprise of other securities, as ofMarch 31, 2010 and 2009 are as follows:
Millions of yen
2010:

Cost

Carrying value¥ 9,277¥ 13,615

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

194

194

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

912

912

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

¥ 10,383¥ 14,721

Securities with market prices
Equity securities����������������������������������������������
Securities without market prices

Millions of yen
2009:

Cost

Carrying value

Securities with market prices
Equity securities����������������������������������������������

¥ 8,790¥ 7,363

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

100

100

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

764

754

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

914

914

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

¥ 10,568¥ 9,131

Securities without market prices

Losses on devaluation of investment securities were ¥72 million ($774
thousand) and ¥2,432 million for the years ended March 31, 2010 and2009, respectively.
No gain on sale of investment securities was recognized for the years
ended March 31, 2010 and 2009.

5. Inventories
Inventories as of March 31, 2010 and 2009 are as follows:
Thousands of
U.S. dollars

Millions of yen

Finished products���������������������������

2010

2009

2010

¥ 87,202¥ 88,417$ 937,253

Work in process, raw materials
and supplies���������������������������������

51,24845,825550,817

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

¥138,450¥134,242$1,488,070

The amounts of change in inventory provision included in cost of sales in
consolidated statements of operations for the years ended March 31, 2010
and 2009 were a decrease of ¥3,581 million ($38,489 thousand) and anincrease of ¥6,398 million, respectively.

6. Impairment of Property, Plant and Equipment andIntangible Assets
For assessing fixed asset impairment, the Company generally groups fixed
assets used for normal operations at a business unit level for which profits
are reasonably controllable. Also, the Company assesses the recoverabilityof individual assets not used in normal operations or that are idle.
The Company and its domestic subsidiaries recognized loss on impairment of property, plant and equipment of ¥4,786 million ($51,440 thousand), which is included in the consolidated statement of operations for theyear ended March 31, 2010. The loss on impairment of property, plant andequipment was attributed to land, buildings and equipment in Japan
primarily of the Sagami Plant in Kanagawa, the Saga Plant in Saga and theKansai Technology Center in Hyogo, all of which are not expected to be
used after integration of domestic production and development centers.
These charges were presented in other income (expenses) in the consolidated statement of operations for the year ended March 31, 2010.
Since TEL Epion Inc. (“Epion”) determined to adversely change its
future business plan made upon acquisition of Epion due to change of theindustry business environment in the year ended March 31, 2010, Epion
recognized loss on impairment of intangible assets of ¥2,767 million($29,740 thousand).
No impairment of property, plant and equipment and intangible assets
was recognized for the year ended March 31, 2009.

Thousands of U.S. dollars
2010:

7. Pledged Assets

Cost

Carrying value$ 99,710$146,335

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

2,085

2,085

8. Short-term Borrowings

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

9,802

9,802

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

$111,597$158,222

Short-term borrowings represent 365-day notes issued by Tokyo Electron
to banks and bore interest at an average annual rate of 0.49% and 0.80%
as of March 31, 2010 and 2009, respectively.
As of March 31, 2010, Tokyo Electron has unused lines of credit
amounting to ¥133,445 million ($1,434,276 thousand).

Securities with market prices
Equity securities����������������������������������������������

Tokyo Electron did not hold any assets pledged as collateral as of March
31, 2010 and 2009.

Securities without market prices

Annual Report 2010

Tokyo Electron

43

9. Accrued Pension and Severance Costs
The Company and its domestic subsidiaries have defined benefit plans(cash balance plan and noncontributory retirement and severance benefit
plans) covering substantially all their employees who meet eligibility
requirements. The benefits under the plans are based on length of service
and certain other factors.
The cash balance plan provides for pension or lump-sum payment
benefits to employees who retire or terminate their employment forreasons other than dismissal for cause. Under the cash balance plan, eachparticipant has an account which is credited yearly based on the current
rate of pay and market-related interest rate. The noncontributory plansprovide for lump-sum payment benefits to employees who retire or terminate their employment for reasons other than dismissal for cause. Certain
foreign subsidiaries have noncontributory retirement and severance benefit
plans that provide for pension or lump-sum payment benefits to employees
who retire or terminate their employment for reasons other than dismissal
for cause.
The funded status of the defined benefit plans, a substantial portion ofwhich consists of domestic benefit plans, as of March 31, 2010 and 2009is as follows:
Thousands of
U.S. dollars

Millions of yen

Benefit obligation��������������������������

Significant assumptions of domestic pension plans used to determine
the above amounts are as follows:2010 and 2009

Allocation method of benefit obligation��������������������

Straight-line method

Discount rate������������������������������������������������������������

2.00%

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

2.00%

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

4 years

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

4 years

10. Income Taxes
Significant components of the deferred tax assets and liabilities of Tokyo
Electron as of March 31, 2010 and 2009 are as follows:
Thousands of
U.S. dollars

Millions of yen
2010

2009

2010

Accrued pension andseverance costs����������������������������

¥20,099¥18,831$216,025

Net operating loss carryforwards����

14,717

14,515

158,179

Tax credit for research anddevelopment��������������������������������

5,499

6,619

59,104

Devaluation of inventories��������������

4,282

5,707

46,0232,004

26,064

Deferred tax assets

2010

2009

2010

Accrued employees’ bonuses���������

2,425¥(84,097)¥(79,141)$(903,880)

Fair value of plan assets�����������������

38,732

33,791

416,294

Funded status��������������������������������

(45,365)(45,350)(487,586)

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

2,114

–

22,721

Unrecognized actuarial difference���

(288)

3,027

(3,095)

Accrued warranty expenses������������

1,907

1,922

20,497

Unrecognized prior service cost������

125

226

1,343

Net amount recognized�����������������

(45,528)(42,097)(489,338)

Elimination of unrealized profit
in inventories�������������������������������

1,836

1,980

19,733

Allowance for doubtful accounts���

1,470

1,461

15,800

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

7,630

6,751

82,008

Total gross deferred tax assets��������

61,97959,790666,154

Less valuation allowance����������������

(10,458)(10,472)(112,403)

Total deferred tax assets������������������

51,521

49,318553,751

Undistributed earnings offoreign subsidiaries����������������������

(2,957)(2,624)(31,782)

Prepaid pension andseverance costs����������������������������

(1,773)(1,972)(19,056)

Net unrealized gain on
investment securities��������������������

(1,705)–(18,325)

Reserves under Special Taxation
Measures Law������������������������������

(73)

(358)

(785)

Receivables for business taxes��������

–(2,025)–

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

(1,088)(1,161)(11,694)

Amounts recognized in
the consolidated balance sheets
consist of:Prepaid pension and   severance costs (Note 1)�����������

4,379

4,950

47,066

Accrued pension and   severance costs (Note 2)�����������

(49,907)(47,047)(536,404)

Net amount recognized�����������������

¥(45,528)¥(42,097)$(489,338)

Notes: 1.	The prepaid pension and severance costs as of March 31, 2010 and 2009 is included
in other assets in the consolidated balance sheets.
2.	The provision for accrued pension and severance costs for directors and statutory
auditors (¥621 million ($6,674 thousand) as of March 31, 2010 and ¥640 million asof March 31, 2009) is not included.

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

Millions of yen

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

Deferred tax liabilities

2010

2009

2010

¥5,358¥5,217$57,588

Total gross deferred tax liabilities����

(7,596)(8,140)(81,642)¥43,925¥41,178$472,109Interest cost�����������������������������������

1,572

1,483

16,896

Net deferred tax assets�������������������

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

(676)

(686)

(7,266)

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

697

(628)

7,491

Net deferred tax assets included in the consolidated balance sheets as ofMarch 31, 2010 and 2009 are as follows:

Amortization of prior service cost���

101

888

1,086

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

¥7,052¥6,274$75,795

Thousands of
U.S. dollars

Millions of yen
2010

2009

2010

Current assets��������������������������������

¥26,625¥11,481$286,167

Investments and other assets���������

20,506

31,940220,400

Other current liabilities�������������������

(1,062)(605)(11,414)

Other liabilities�������������������������������

(2,144)(1,638)(23,044)

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

44

Tokyo Electron

Annual Report 2010

The ultimate realization of deferred tax assets is dependent upon thegeneration of future taxable income during the period in which those
temporary differences become deductible. For assessment of the realizabilityof 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 accordancewith accounting principles generally accepted in Japan.
Based on the level of historical taxable income and future estimatedtaxable income over the periods which the deferred tax assets are deductible, management believes Tokyo Electron will realize the benefits of thesedeferred tax assets, net of valuation allowance, as of March 31, 2010
and 2009.
The Company is subject to corporate tax, inhabitants’ tax and a deductible enterprise tax, which in the aggregate resulted in a statutory income
tax rate of approximately 40.69% for the years ended March 31, 2010 and2009.
Significant components of the difference between the statutory andeffective tax rates for the years ended March 31, 2010 and 2009 are
as follows:
Statutory tax rate in Japan����������������������������������������

2010

2009

40.69 %

40.69 %

Adjustments:
Effect of elimination of unrealized profit
in inventories����������������������������������������������������������

(27.86)

34.77

Change in valuation allowance���������������������������������

(18.14)24.07

Difference in statutory tax rates of subsidiaries����������

6.54(10.04)

Expenses not deductible for tax purposes������������������

(5.28)

4.30

Change in deferred tax liabilities on
undistributed earnings of foreign subsidiaries����������

(4.28)(14.54)

Amortization of goodwill������������������������������������������

(1.27)

1.02

Loss on investment in a subsidiary deductible
for tax purposes������������������������������������������������������

–(67.56)

Dividends from foreign subsidiaries���������������������������

–

6.56

Others, net���������������������������������������������������������������

0.25(0.69)

Effective tax rate�������������������������������������������������������

(9.35)%

18.58 %

11. Net Assets
Net assets comprises four subsections, which are shareholders’ equity,
valuation and translation adjustments, share subscription rights andminority 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 board of directors, designate an amount notexceeding one-half of the price of the new shares as additional paid-in
capital which is included in capital surplus.
In cases where dividend distribution of surplus is made, the lesser of anamount equal to 10% of the dividend or the excess, if any, of 25% ofcommon 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 consolidatedbalance sheets.
Both appropriations of legal reserve and additional paid-in capital used
to eliminate or reduce a deficit generally require a resolution of theshareholders’ 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 and retained earnings, respectively, which arepotentially available for dividends.
The maximum amount that the Company can distribute as dividends is
calculated based on the non-consolidated financial statements of theCompany in accordance with Japanese laws and regulations.
At the general shareholders’ meeting on June 23, 2006, in accordancewith Japanese laws and regulations, the Company altered its articles toallow for the distribution of earnings to shareholders on dates, other thanthe mid-term and year-end, by a resolution of the board of directors.
At the board of directors’ meeting held on May 12, 2010, the distributionof cash dividends amounting to ¥1,431 million ($15,380 thousand) was
resolved. Such appropriations have not been accrued in the consolidated
financial statements as of March 31, 2010 since they are recognized in the
period in which they are resolved at the board of directors’ meeting.

12. Share Subscription Rights
Stock option plan
The Company’s shareholders have approved annual stock option plansfor directors and selected employees since the year ended March 31, 1999.
Options to purchase 177,900 shares of the Company were authorized
and granted at an exercise price of ¥1 for the year ended March 31, 2009.
The options under the plans vest immediately with restriction on exercise
up to 3 years after the date of grant, and have an exercise period of 20

years from the date of grant. No options to purchase shares of the Company were authorized and granted for the year ended March 31, 2010.
Shareholders of Tokyo Electron Device Limited, a domestic listed subsidiary, have approved annual stock option plans for directors and selected
employees since the year ended March 31, 2005.

A summary of stock options outstanding and exercisable as of March 31, 2010 and 2009 is as follows:
Tokyo Electron Limited

2010

Number ofsharesOutstanding at the beginning of year���������������������������������������������������������������������

2,052,300

2009

Weighted-average exercise
price
Yen

¥5,927

U.S. dollars

Number ofshares$63.702,056,500

Weightedaverage
exercise priceYen¥ 6,889

Granted�����������������������������������������������������������������������������������������������������������������

–

–

–

177,900

1

Exercised����������������������������������������������������������������������������������������������������������������

40,0001

0.01

44,500398

Expired (forfeited)��������������������������������������������������������������������������������������������������

233,200

8,520

91.57

137,600

14,414

Outstanding at the end of year������������������������������������������������������������������������������

1,779,100

5,720

61.48

2,052,300

5,927

Exercisable at the end of year���������������������������������������������������������������������������������

1,504,200

6,765

72.71

1,710,700

7,110Annual Report 2010

Tokyo Electron

45

Tokyo Electron Device Limited

2010

Number ofshares650

Outstanding at the beginning of year���������������������������������������������������������������������

Weighted-average exercise
price

Weightedaverage
exercise priceYen

U.S. dollars

Number ofshares¥308,698$3,317.91

650¥308,698

Yen

Granted�����������������������������������������������������������������������������������������������������������������

–

–

–

–

–

Exercised����������������������������������������������������������������������������������������������������������������

–

–

–

–

–

Expired (forfeited)��������������������������������������������������������������������������������������������������

–

–

–

–

–

Outstanding at the end of year������������������������������������������������������������������������������

650

308,698

3,317.91

650

308,698

Exercisable at the end of year���������������������������������������������������������������������������������

650

308,698

3,317.91

650

308,698

13. Leases
As mentioned in note 2 (k), effective from the year ended March 31,
2009, the Company and its domestic subsidiaries adopted “AccountingStandard for Lease Transactions” and “Guidance on Accounting Standard
for Lease Transactions”. As permitted under the new standards, financeleases which commenced on or before March 31, 2008 continue to beaccounted for as operating leases. Pro forma information of leased property
acquired on or before March 31, 2008 including acquisition cost, accumulated depreciation, obligation under finance leases, and depreciation
expense of finance leases that do not transfer ownership of leased property
to the lessee on an “as if capitalized” basis for the years ended March 31,
2010 and 2009, are as follows:
Leased assets not recorded in the consolidated balance sheets:
Thousands of
U.S. dollars

Millions of yen
2010

¥955

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

2009

2010

¥1,040$10,264

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

540

457

5,804

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

¥415¥  583$ 4,460balance are conducted pursuant to the internal management rules for
credit control. Credit risk of major customers is assessed on a regular basis.
Short-term investments consist of time deposits and certificates ofdeposit and the Company and its listed subsidiary trade with highly-rated
financial institutions to mitigate credit risks.
Investment securities consist of mainly equity interests in listed companies exposed to equity market risks. Conditions, including market prices,
for these investment securities are monitored 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 15 for detailed discussion on derivative financial instruments.
Fair Value of Financial Instruments
Carrying amount and estimated fair value of financial instruments as ofMarch 31, 2010 are set out below. Fair value of financial instruments
which is practically difficult to estimate are excluded (see note 4).
Millions of yen
Carrying
amountEstimated
fair value 1

Cash and cash equivalents�������������������������������

¥123,940¥123,940

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

Millions of yen

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

¥159

¥168

$1,708Trade notes and accounts receivable, net of   allowance for doubtful accounts   (¥176 million)������������������������������������������������

124,286

124,286

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

256

415

2,752

Short-term investments�����������������������������������

120,000

120,000

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

¥415

¥583

$4,460Investment securities���������������������������������������

13,615

13,61552,35952,359

2010

2009

2010

Lease payments relating to finance leases accounted for as operatingleases amounted to ¥167 million ($1,795 thousand) and ¥175 million,
which approximated the corresponding depreciation on the respective
leased property computed by the straight-line method over the lease terms,
for the years ended March 31, 2010 and 2009, respectively.
Future minimum lease payments on non-cancelable operating leases:

2010

2009

2010

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

¥1,744¥1,673$18,745

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

1,052

841

11,307

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

¥2,796¥2,514$30,052

14. Fair Value of Financial Instruments
Policy for Financial Instruments
The Company limits its fund management to short-term bank deposits
and certificates of deposit, and obtains funds by utilizing bank-loans or
liquidating trade-receivables.
Trade receivables, which consist of notes and accounts receivable, areexposed to credit risk in the event of non-performance by the counterparties. Execution and management of credit risk, maturity and receivable

Tokyo Electron

Annual Report 2010

Liabilities
Trade notes and accounts payable�������������������
Derivatives (see note 15)
Hedge accounts not applied����������������������������

124

124

Hedge accounts applied����������������������������������

(165)

(165)

Thousands of U.S. dollars

Thousands of
U.S. dollars

Millions of yen

46

2009

Carrying
amountEstimated
fair value 1

Cash and cash equivalents�������������������������������

$1,332,115$1,332,115

Trade notes and account receivable, net of   allowance for doubtful accounts   ($1,892 thousand)�����������������������������������������

1,335,834

1,335,834

Short-term investments�����������������������������������

1,289,768

1,289,768

Investment securities���������������������������������������

146,335

146,335

562,758

562,758

AssetsLiabilities
Trade notes and accounts payable�������������������
Derivatives (see note 15)
Hedge accounts not applied����������������������������

1,333

1,333

Hedge accounts applied����������������������������������

(1,773)(1,773)

The estimated fair values of the derivative financial instruments as ofMarch 31, 2010 are as follows:

Note: 1. Fair value calculation of financial instruments		Cash and cash equivalents, trade notes and accounts receivable, short-term
investments and trade notes and accounts payable		 The carrying amounts approximate fair value because of the short maturity ofthese instruments.
		 Investment securities
		  The fair values of marketable securities are based on quoted market prices.
		  See note 4 for further information by classification of investment securities.
		 Derivatives
		  See note 15 for detailed discussion on derivative financial instruments.

1. Derivative financial instruments not designated as hedging instruments
Millions of yen

2. Maturities of financial assets and securities are as follows:
Millions of yen
After 1 throughWithin 1 year
5 years

Cash and cash equivalents��������������������������������������
Trade notes and accounts receivable�����������������������
Short-term investments�������������������������������������������

¥123,940
124,462
120,000¥–––

Thousands of U.S. dollars
After 1 throughWithin 1 year
5 years

Cash and cash equivalents��������������������������������������
Trade notes and accounts receivable�����������������������
Short-term investments�������������������������������������������

$1,332,115
1,337,726
1,289,768$–––

3. Repayment schedule of short-term borrowings and capital lease obligations is as follows:

Short-term borrowings�������������������
Capital lease obligations�����������������

Within 1 year

Millions of yen
After 1 through2 years

After 2 through5 years¥5,105
26

¥ –
24

¥–
1

Thousands of U.S. dollars
After 1 throughAfter 2 throughWithin 1 year
2 years
5 years

Short-term borrowings�������������������
Capital lease obligations�����������������

$54,869
279

$ –
257

$ –
11

(Supplementary information)
Effective from the year ended March 31, 2010, the Company and its
domestic subsidiaries adopted “Accounting Standard for Financial Instruments” (Statement No.10 (revised 2008) issued by the Accounting Standards Board of Japan) and “Guidance on Disclosures about Fair Value of
Financial Instruments” (Guidance No.19 issued by the Accounting Standards Board of Japan).

2010:

Contract
amountUnrealized
gains (losses)

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

¥ 7,268¥(240)¥(240)

Sell Korean won��������������������������

1,235

290

290

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

5,211

74

74

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

¥13,714¥  124¥  1242010:

Contract
amountSell U.S. dollars���������������������������

$ 78,117$(2,579)$(2,579)

Sell Korean won��������������������������

13,274

3,117

3,117

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

56,008795

795

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

$147,399$  1,333$  1,333

Fair value

Thousands of U.S. dollars
Unrealized
gains (losses)

Fair value

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

2. Designated derivative financial instruments
Millions of yen

Thousands of U.S. dollars

2010: Hedge accounting

Contract
amountFair value

Contract
amountFair value

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

¥ 9,003¥(193)$ 96,765$(2,074)

Sell Korean won����������������������

96

23

1,032

247

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

3,859

5

41,477

54

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

¥12,958¥(165)$139,274$(1,773)

The contract amounts and fair values of forward foreign exchange
contracts, entered into to hedge receivables and payables denominated inforeign currencies that have been translated by the corresponding contracted rates, are as follows.

2010:

Millions ofyen

Thousands of
U.S. dollars

Contract
amountContract
amount$6,599Sell U.S. dollars��������������������������������������������������������

¥614

15. Derivative Financial Instruments

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

206

2,214

Tokyo Electron is subject to risk from adverse fluctuations in foreign
currency exchange rates in its operating and financing activities. The
Company and its listed domestic subsidiary enter into forward foreignexchange contracts in order to hedge such risks, but do not enter intosuch transactions for speculative purposes. The Company and its domestic
subsidiary implement a ratio analysis of the total cumulative cash flow
fluctuations to assess effectiveness of hedging. Execution and management of all derivative transactions are conducted pursuant to the internalmanagement rule for derivatives and the assessment of effectiveness ofhedging activities is reported on a semiannual basis to the Corporate
Director in charge of Finance.

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

¥820$8,813

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 (Trade notes
and accounts receivable) and liabilities (Trade notes and accounts payable).

The disclosure of the fair value of derivatives, which were accounted foras hedges, as of March 31, 2009 is omitted in accordance with the previous “Accounting Standard for Financial Instruments” (Statement No. 10(revised 2007) issued by the Accounting Standards Board of Japan). In
addition, the disclosure of the fair value of derivatives, which did not meetthe criteria for hedge accounting and were required to be disclosed under
the above accounting standard, as of March 31, 2009 is omitted since theestimated fair value is not significant.

Annual Report 2010

Tokyo Electron47

16. Other Income (Expenses)
As discussed in note 6, losses on impairment of property, plant andequipment and intangible assets for the year ended March 31, 2010 consists of impairment of mainly buildings due to integration and closure ofdomestic facilities of ¥4,786 million ($51,440 thousand) and intangible
assets of Epion of ¥2,767 million ($29,740 thousand).
Expenses for integration of domestic facilities of ¥1,909 million ($20,518
thousand), including expenses for transportation of machineries is recog-

nized for the year ended March 31, 2010.
Provision of allowance for doubtful accounts of ¥7,361 million for theyear ended March 31, 2009 consists of estimated uncollectible amounts
for specific doubtful receivables.
Loss on devaluation of investment securities of ¥2,432 million for theyear ended March 31, 2009 mainly consists of devaluation of securities oflisted companies due to decline of the stock market price.

17. Segment Information
Business segment information as of and for the years ended March 31, 2010 and 2009 is as follows:
Millions of yen
Industrial
electronicequipment

Electronic
components
and computer
networks(1) Sales to external customers������������������������������������������������������������������������������

¥334,164(2) Intersegment sales or transfers�������������������������������������������������������������������������

785

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

334,949

2010:

Total

Eliminations
andcorporate

Consolidated¥84,473¥418,637¥¥418,637

673

1,458

(1,458)–85,146420,095(1,458)418,637

1. Net sales and operating income (loss)
Net sales–

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

339,218

83,066422,284(1,466)

420,818

Operating income (loss)����������������������������������������������������������������������������������������

¥ (4,269)¥ 2,080¥ (2,189)¥

8¥ (2,181)

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

¥654,026¥45,649¥699,675¥(3,323)¥696,352

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

19,792

485

20,277–

20,277

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

7,553

–

7,553

–

7,553

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

16,070122

16,192–

16,192

Industrial
electronicequipment

Electronic
components
and computer
networks

Total

Eliminations
andcorporate

Consolidated(1) Sales to external customers������������������������������������������������������������������������������

¥413,875¥94,207¥508,082¥

¥508,082(2) Intersegment sales or transfers�������������������������������������������������������������������������

942

495

1,437

(1,437)–

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

414,817

94,702509,519(1,437)508,082

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

Millions of yen

2009:

1. Net sales and operating income
Net sales–

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

401,974

92,861

494,835(1,464)493,371

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

¥ 12,843¥ 1,841¥ 14,684¥

27¥ 14,711

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

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

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

22,860473

23,333–23,333

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

19,468698

20,166–

20,166

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

48

Tokyo Electron

Annual Report 2010

Thousands of U.S. dollars
Industrial
electronicequipment

Electronic
components
and computer
networks

Total(1) Sales to external customers������������������������������������������������������������������������������

$3,591,617$907,921$4,499,538(2) Intersegment sales or transfers�������������������������������������������������������������������������

8,437

7,234

15,671(15,671)–

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

3,600,054

915,155

4,515,209(15,671)4,499,538

2010:

Eliminations
andcorporate

Consolidated

1. Net sales and operating income (loss)
Net sales$

–$4,499,538

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

3,645,937

892,799

4,538,736(15,756)

4,522,980

Operating income (loss)����������������������������������������������������������������������������������������

$ (45,883)$ 22,356$ (23,527)$

85$ (23,442)

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

$7,029,514$490,638$7,520,152$(35,715)$7,484,437

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

212,726

5,213

217,939–

217,939

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

81,180–81,180–81,180Capital expenditures, including intangible and other assets�����������������������������������

172,7211,311

174,032–

174,032

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

Notes: 1. Method of classifying business segments: Business segments are classified after considering similarities in types of products and service, as well as sales methods.
2. Major products in each business segment:		 Business segment
Major products
		 Industrial electronic equipment
Semiconductor production equipment, FPD production equipment, PV production equipment and others
		 Electronic components and computer networks
Semiconductor products, boards, electronic components, computer networks and software
3. Depreciation expenses and capital expenditures include those for long-term prepaid expenses.
4. Changes in accounting policies
		 (1) Accounting policies applied to foreign subsidiaries
			Effective from April 1, 2008, the Company adopted “Practical Solution on Unification of Accounting Policies Applied to Foreign Subsidiaries for Consolidated Financial Statements”(Practical Issues Task Force No. 18 issued by the Accounting Standards Board of Japan). The change had no significant impact on the consolidated financial statements andsegment information.
		 (2)	Accounting standard for measurement of inventories
			 Effective from April 1, 2008, the Company and its domestic subsidiaries adopted “Accounting Standard for Measurement of Inventories” (Statement No. 9 issued by the Accounting
			 Standards Board of Japan). The change had no significant impact on the consolidated financial statements and segment information.
		 (3) Accounting standard for lease transactions
			 Effective from the year ended March 31, 2009, the Company and its domestic subsidiaries adopted “Accounting Standard for Lease Transactions” (Statement No. 13 issued by the			Accounting Standards Board of Japan) and “Guidance on Accounting Standard for Lease Transactions” (Guidance No. 16 issued by the Accounting Standards Board of Japan). Thechange had no significant impact on the consolidated financial statements and segment information.

Geographical segment information as of and for the years ended March 31, 2010 and 2009 are as follows:
Millions of yen

2010:

Japan

Other regions

Total

Eliminations
andcorporate

Consolidated

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

¥369,382¥49,255¥418,637(2) Intersegment sales or transfers�������������������������������������������������������������������������

31,85626,08957,945¥(57,945)–¥418,637–

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

401,238

75,344

476,582(57,945)418,637

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

402,436

74,027476,463(55,645)

420,818

Operating income (loss)����������������������������������������������������������������������������������������

¥ (1,198)¥ 1,317¥

119¥ (2,300)¥ (2,181)

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

¥665,518¥67,453¥732,971¥(36,619)¥696,352

Millions of yen

2009:

Japan

Other regions

Total

Eliminations
andcorporate

Consolidated

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

¥435,434¥72,648¥508,082(2) Intersegment sales or transfers�������������������������������������������������������������������������

47,183

41,40388,586¥(88,586)–

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

482,617

114,051596,668(88,586)

508,082

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

475,295

108,975

584,270(90,899)493,371

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

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

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

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

Annual Report 2010–

¥508,082

Tokyo Electron49Thousands of U.S. dollars

2010:

Eliminations
andcorporate

Consolidated$$4,499,538

Japan

Other regions

Total(1) Sales to external customers������������������������������������������������������������������������������

$3,970,142$529,396$4,499,538(2) Intersegment sales or transfers�������������������������������������������������������������������������

342,390

280,406

622,796(622,796)–

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

4,312,532

809,802

5,122,334(622,796)

4,499,538

1. Net sales and operating income (loss)
Net sales–

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

4,325,408

795,647

5,121,055(598,075)

4,522,980

Operating income (loss)����������������������������������������������������������������������������������������

$ (12,876)$ 14,155

$

1,279

$ (24,721)$ (23,442)

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

$7,153,031$724,989$7,878,020$(393,583)$7,484,437

Notes: 1.	For the reporting of geographical segment information, net sales and operating income are separated based on the location of the Company and its subsidiaries. Assets are
separated by geographic location.
2. Other regions comprises primarily Taiwan, the United States of America and Korea.
3. Changes in accounting policies
		 (1) Accounting policies applied to foreign subsidiaries
			Effective from April 1, 2008, the Company adopted “Practical Solution on Unification of Accounting Policies Applied to Foreign Subsidiaries for Consolidated Financial
Statements” (Practical Issues Task Force No. 18 issued by the Accounting Standards Board of Japan). The change had no significant impact on the consolidated financial
statements and segment information.
		 (2) Accounting standard for measurement of inventories
			Effective from April 1, 2008, the Company and its domestic subsidiaries adopted “Accounting Standard for Measurement of Inventories” (Statement No. 9 issued by the
Accounting Standards Board of Japan). The change had no significant impact on the consolidated financial statements and segment information.
		 (3) Accounting standard for lease transactions
			Effective from the year ended March 31, 2009, the Company and its domestic subsidiaries adopted “Accounting Standard for Lease Transactions” (Statement No. 13 issued by
the Accounting Standards Board of Japan) and “Guidance on Accounting Standard for Lease Transactions” (Guidance No. 16 issued by the Accounting Standards Board ofJapan). The change had no significant impact on the consolidated financial statements and segment information.

Domestic and overseas net sales by destination for the years ended
March 31, 2010 and 2009 are as follows:
Millions of yen

Thousands of
U.S. dollars

2010

2009

2010

Japan���������������������������������������������

¥162,609¥208,871$1,747,732

Taiwan�������������������������������������������

91,47480,327983,169

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

55,641

65,537598,033

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

52,94872,507569,089

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

55,96580,840601,515

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

¥418,637¥508,082$4,499,538

Net sales

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

50

Tokyo Electron

Annual Report 2010

Independent Auditors’ Report

To the Board of Directors ofTokyo Electron Limited:

We have audited the accompanying consolidated balance sheets of Tokyo Electron Limited and subsidiaries as of March 31,
2010 and 2009, and the related consolidated statements of operations, changes in net assets and cash flows for the years
then ended, expressed in Japanese yen. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in Japan. Those standards require that weplan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial
position of Tokyo Electron Limited and subsidiaries as of March 31, 2010 and 2009, and the results of their operations andtheir cash flows for the years then ended, in conformity with accounting principles generally accepted in Japan.
The U.S. dollar amounts in the accompanying consolidated financial statements with respect to the year ended March 31,
2010 are 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.

Tokyo, Japan
June 18, 2010

Annual Report 2010

Tokyo Electron

51

GROUP COMPANIESAs of March 31, 2010, the Tokyo Electron Group was made up of the parent company and its 30 consolidated subsidiaries.

Company

Main business

JAPAN
Consolidated subsidiaries
Tokyo Electron AT Limited

Manufacture and development

Tokyo Electron Kyushu Limited

Manufacture and development

Tokyo Electron Tohoku Limited

Manufacture and development

Tokyo Electron TS Limited

Manufacture and development

Tokyo Electron Technology Development Institute, Inc.

Manufacture and development

Tokyo Electron Software Technologies Limited

Development

Tokyo Electron PV Limited

Development

Tokyo Electron FE Limited

Field support

Tokyo Electron PS Limited

Field solutions

Tokyo Electron Device Limited

Sales

Tokyo Electron BP Limited

Logistics, leasing, facility management, etc.

Tokyo Electron Agency Limited

Nonlife insurance

Pan Electron Limited

Sales

AMERICA
Consolidated subsidiaries
Tokyo Electron U.S. Holdings, Inc.

Holding company

Tokyo Electron America, Inc.

Sales and field support

Tokyo Electron Massachusetts, LLC

Manufacture and development

Timbre Technologies, Inc.

Development

TEL Technology Center, America, LLC

Development

TEL Epion Inc.

Development

TEL Venture Capital, Inc.

Identification and evaluation of new technologies

EUROPE
Consolidated subsidiaries
Tokyo Electron Europe Limited

Sales and field support

Tokyo Electron Israel Limited

Field support

ASIA
Consolidated subsidiaries

52

Tokyo Electron Korea Limited

Sales and field support

Tokyo Electron Korea Solution Limited

Field solutions

Tokyo Electron Taiwan Limited

Sales and field support

Tokyo Electron (Shanghai) Limited

Sales and field support

Tokyo Electron (Shanghai) Logistic Center Limited

Logistics

Tokyo Electron Device Hong Kong Limited

Sales

Tokyo Electron Device Singapore Pte. Ltd.

Sales

Tokyo Electron India Private Limited

Sales and field support

Tokyo Electron

Annual Report 2010

Investor Information(As of March 31, 2010)

Corporate Name and Head Office:

URL:

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

http://www.tel.com

Principal Shareholders:Established:
November 11, 1963

Annual General Meeting of Shareholders:June

Common Stock:
Stock trading unit
Authorized
Issued and outstanding
Number of shareholders

100 shares
300,000,000 shares
180,610,911 shares
39,285The Master Trust Bank of Japan, Ltd. (trust account)
Japan Trustee Services Bank, Ltd. (trust account)
Tokyo Broadcasting System Holdings, Inc.
The Chase Manhattan Bank 385036
JPMorgan Securities Japan Co., Ltd.
Trust & Custody Services Bank, Ltd. (Investment trust account)
The Bank of Tokyo-Mitsubishi UFJ, Ltd.
Japan Trustee Services Bank, Ltd. (trust account 9)
JPMorgan Chase Bank 380055
State Street Bank and Trust Company

Number ofshares held
(thousands)

Votingshare
ratio (%)

20,93814,132
8,727
4,994
3,287
3,003
3,000
2,973
2,515
2,371

11.59
7.82
4.83
2.76
1.82
1.66
1.66
1.64
1.39
1.31

Shares of less than one thousand have been rounded down in the “Number of shares held”

Common Stock Listed on:
The Tokyo Stock Exchange 1st Section (#8035)

Distribution of Ownership Among Shareholders:

Independent Auditors:
KPMG AZSA & Co.

Administrator of Shareholders’ Register:

Other Japanese corporations
5.86%

Treasury stock
0.89%

The Chuo Mitsui Trust and Banking Co., Ltd.
33-1 Shiba 3-chome, Minato-ku, Tokyo 105-8574, Japan

Japanese financial institutions
and securities companies
41.65%For Further Information, Contact:
Investor Relations
Corporate Communications Department
Tokyo Electron Limited
Akasaka Biz Tower
3-1 Akasaka 5-chome, Minato-ku,
Tokyo 107-6325, Japan
Tel: +81-3-5561-7003
Fax: +81-3-5561-7400

Individuals and others
8.67%

Foreign institutions and others
42.93%

Stock Price and Trading Volume(Yen)(Thousands of shares)

10,0008,000

Stock price

6,000

4,000

2,000

120,000

Trading volume

60,00000FY2006

FY2007

FY2008FY2009FY2010

Annual Report 2010

Tokyo Electron

53

Tokyo Electron Limited    Annual Report 2010

World Headquarters
Akasaka Biz Tower, 3-1 Akasaka 5-chome,
Minato-ku, Tokyo 107-6325, Japan
Tel. +81-3-5561-7000 http://www.tel.com

Printed in Japan on recycled paper
PR48–107