TOKYO ELECTRON ANNUAL REPORT 2014

PAGE

24

CONTENTSCONTENTS

Financial Highlights

Business Overview

Financial
Financial Review
Review

Top Message

Talking about
Tokyo Electron

Consolidated Eleven-Year
Eleven-Year Summary
Summary
Consolidated

Consolidated Statements of Changes in Net Assets

Review of Operations
and Business Outlook

Corporate GovernanceConsolidated
Consolidated Balance
Balance Sheets
SheetsConsolidated Statements of Cash Flows

Corporate Citizenship

Consolidated Statements
Statements ofof Operations
Operations
Consolidated

R&D / Intellectual Property

Financial Section

Consolidated
Consolidated Statements
Statements ofof Comprehensive
Comprehensive Income
IncomeNotes to Consolidated Financial Statements

Independent Auditor’s Report

Notes to Consolidated Financial Statements
Tokyo Electron Limited and Subsidiaries
Years ended March 31, 2014 and 2013

1. Basis of Presentation of Consolidated
Financial Statements
The accompanying consolidated financial statements of Tokyo
Electron Limited (hereinafter “the Company”) and its subsidiaries(hereinafter collectively referred to as “Tokyo Electron”) have been
prepared in accordance with the provisions set forth in the
Financial Instruments and Exchange 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 requirements ofInternational Financial Reporting Standards.
The Company uses financial statements prepared by foreignsubsidiaries in accordance with International Financial ReportingStandards or U.S. generally accepted accounting principles for the
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 included in the statutory Japanese language consolidated financial statements is not presented in theaccompanying consolidated financial statements.
U.S. dollar amounts included herein are solely for the convenience of readers and are presented at the rate of ¥102.92 to$1.00, the approximate rate as of March 31, 2014. The translation
should not be construed as a representation that the Japanese
yen amounts shown could be converted into U.S. dollars at that or
any other rate.

2. Summary of Significant Accounting Policies(a) Principles of consolidation
The consolidated financial statements include the accounts of
the Company and its 53 and 58 subsidiaries as of March 31, 2014
and 2013, respectively.
All significant inter-company accounts, transactions and unrealized profits or losses have been eliminated through consolidation
procedures.
The fiscal year-end of all entities is March 31, except for 8 consolidated foreign subsidiaries. Financial statements provisionally closed
for the period ending March 31 are used for these subsidiaries.
Previously, financial statements for the fiscal year ending
December 31 had been used for certain subsidiaries, with significant differences in inter-company transactions and accounts
adjusted through consolidation procedures. These subsidiaries
either changed their fiscal year-end to March 31, or provided financial statements provisionally closed as of March 31 for consolidation in the year ended March 31, 2014, to improve disclosure of
the consolidated financial information. Profit or loss of these subsidiaries for the 3 month period ending March 31, 2013 wasreflected directly to retained earnings. Change in cash and cash

equivalents for the 3 month period ending March 31, 2013 is presented separately in the Consolidated Statement of Cash Flows.
(b) Foreign currency translation
All assets and liabilities denominated in foreign currencies aretranslated 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 thatapproximate those prevailing at the time of the transactions.
The balance sheet accounts of foreign subsidiaries are translated into Japanese yen at the rates of exchange in effect at the balance sheet date, except for shareholders’ equity accounts, whichuseful lives of assets. Foreign subsidiaries mainly apply the straight-line

are translated at the historical rates. Revenue and expense
accounts of foreign subsidiaries are translated at average rates of
exchange in effect during the year. Resulting translation adjustments are presented in net assets as a component of accumulated
other comprehensive income in the consolidated balance sheets.
(c) Cash equivalents

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 recognized based on the amount by which the carrying value exceeds
its recoverable amount, being the higher of the net selling price or
the value in use of the assets. Net selling price is determined using
the fair value less disposal costs and value in use is based on the
total amount of discounted cash flows estimated to be generated

Tokyo Electron considers all highly-liquid instruments purchasedwith original maturities of three months or less to be cash­equivalents.
(d) Short-term investments
Short-term investments consist of short term deposits and lowrisk financial instruments with original maturities of more than
three months.
(e) Investment securities
Tokyo Electron examines the intent of holding each security andclassifies those securities as trading securities, held-to-maturity
debt securities or other securities. Tokyo Electron has no trading
securities. Held-to-maturity debt securities are stated mainly atamortized cost. Other securities with market prices are valued atfair market value prevailing at the balance sheet date. The differences between the book and market prices of other securities, netof applicable income taxes, are presented in net assets as a component of accumulated other comprehensive income. Other securities without market value are valued at cost using theweighted-average method.
The cost of sold securities is calculated using the weightedaverage method.
(f) Inventories
Inventories other than raw materials are stated at the lower ofcost, determined by the specific identification method, or net realizable value, which is defined as selling price less estimated additional manufacturing costs and estimated direct selling expenses.
Raw materials are stated at the lower of cost, determined principally by the moving-average method, or replacement cost.
(g) Property, plant and equipment
Property, plant and equipment are stated at cost. Depreciation ofbuildings, machinery and equipment of the Company and its domestic
subsidiaries is computed using the declining balance method, except
for buildings acquired subsequent to March 31, 1998 which are­depreciated using the straight-line method, based on the estimatedmethod over the estimated useful lives of assets.
Estimated useful lives of property, plant and equipment are
as follows:   Buildings
2 to 60 years   Machinery and equipment
2 to 17 years(h) Intangible assets
Intangible assets are amortized by the straight-line method overtheir estimated useful lives.
(i)Goodwill
Goodwill is evaluated on an individual basis and amortized by
the straight-line method over a period not exceeding 20 years.
(j) Impairment of fixed assets

from the continuing use of the individual assets or the asset groupand the disposal of the assets.
(k) Allowance for doubtful accounts
The allowance for doubtful accounts is provided at an amountdetermined based on the historical experience of bad debts withrespect to ordinary receivables, and an estimate of uncollectible
amounts determined by reference to specific doubtful receivablesfrom customers which are experiencing financial difficulties.
(l) Employee Benefits
The Company and its domestic subsidiaries provide defined
benefit plans for their employees. Expected benefits are attributed
to accounting periods by the straight-line basis. Prior service costs
are charged to earnings on a straight-line basis, beginning fromthe fiscal year in which they are incurred, over a fixed number ofyears (four years) within the average remaining years of service of
employees when the changes occur. Actuarial differences arecharged to earnings on a straight-line basis, beginning from thefollowing fiscal year after they are incurred, over a fixed number ofyears (four years) within the average remaining years of service of
employees when the differences occur.
The provision for accrued pension and severance costs for
directors and audit & supervisory board members of the Company
and its domestic subsidiaries is calculated in accordance withinternal regulations.
The Company and certain domestic subsidiaries decided to discontinue the payment of severance pay for directors and audit &supervisory board members after April 1, 2005, and at the generalshareholders’ meeting in June 2005, it was resolved that the severance pay for directors and audit & supervisory board members
until March 31, 2005 would be paid at the termination of their service and the decision regarding the payment amount for eachdirector and audit & supervisory board member was delegated tothe board of directors and audit & supervisory board members. As

discussed in note 11, the accruals for severance costs for directors and audit & supervisory board members are included in Net
liability for retirement benefits and Accrued pension and severance
costs in the consolidated balance sheets as of March 31, 2014
and 2013, respectively.
(m) Accrued warranty expenses
Tokyo Electron’s products are generally subject to warranty, andTokyo Electron accrues such estimated costs when product revenue is recognized. To prepare for future repairs during warranty
periods, estimated after-sale repair expenses over warranty periods are accrued based on the historical ratio of actual repair
expenses to corresponding sales.
(n) Derivatives and hedge accounting
The Company and certain subsidiaries make use of derivatives
in order to manage certain risks arising from adverse fluctuations inforeign currency exchange rates. The amount of derivatives is limited to the extent of foreign currency assets, liabilities and actual
orders, and Tokyo Electron does not trade in derivatives for speculative purposes.
Derivatives are carried at fair value in the consolidated balance
sheet with changes in unrealized gain or loss charged or credited
to earnings, except for those which meet the criteria for hedge
accounting. Unrealized gains or losses on hedging derivative
instruments, net of taxes, are reported in net assets as a component of accumulated other comprehensive income. Receivables
and payables hedged by qualified forward foreign exchange contracts are translated at the corresponding foreign exchange contract rates.
(o) Income taxes
Tokyo Electron records deferred tax assets and liabilities on temporary differences between the carrying amounts of assets and­liabilities for financial reporting purposes and the amounts used forincome 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.
(p) Revenue recognition
Revenue from Semiconductor and FPD (Flat Panel Display) production equipment is principally recognized at the time of the customer confirmation of set-up and testing of products. Revenue
from such equipment not requiring substantial installation is recognized at the time of shipment. Revenue from PV (Photovoltaic
panel) production equipment is mainly recognized based on thepercentage-of-completion method. Revenue from other products,
such as electronic components, is recognized at the time of shipment. Service revenue from maintenance is recognized ratably
over the term of the maintenance contract.
(q) Per share information
Net income per share and net assets per share are computed
based on the weighted-average number of shares of common
stock outstanding during each year.
Dividends per share has been presented on an accruals basis
and include, in each fiscal year ended March 31, dividends
approved or to be approved after March 31 but applicable to theyear then ended.

Corporate DataTOKYO ELECTRON ANNUAL REPORT 2014

PAGE

25

CONTENTSCONTENTS

Financial Highlights

Business Overview

Financial
Financial Review
Review

Talking about
Tokyo Electron

Top Message

Consolidated Eleven-Year
Eleven-Year Summary
Summary
Consolidated

Consolidated Statements of Changes in Net Assets

Review of Operations
and Business Outlook

Corporate GovernanceConsolidated
Consolidated Balance
Balance Sheets
SheetsCorporate Citizenship

R&D / Intellectual Property

Consolidated Statements
Statements ofof Operations
Operations
Consolidated

Consolidated Statements of Cash Flows

Corporate Data

Financial Section

Consolidated
Consolidated Statements
Statements ofof Comprehensive
Comprehensive Income
IncomeNotes to Consolidated Financial Statements

Independent Auditor’s Report

Notes to Consolidated Financial Statements(r) Research and development expenses
Research and development expenses are charged to earnings
as incurred and amounted to ¥78,664 million ($764,322 thousand)and ¥73,249 million for the years ended March 31, 2014 and2013, respectively.
(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, 2014.

3. Change in Accounting Policies and Adoptionof New Accounting Standards
Effective from the year ended March 31, 2014, the Company
and its consolidated domestic subsidiaries have applied“Accounting Standard for Retirement Benefits” (ASBJ Statement
No. 26, May 17, 2012 (hereinafter, “Statement No.26”)) and“Guidance on Accounting Standard for Retirement Benefits” (ASBJ
Guidance No. 25, May 17, 2012 (hereinafter, “Guidance No.25”))
except for article 35 of Statement No.26 and article 67 of
Guidance No.25 (see note 4). As a result, actuarial gains (losses)
and past service costs that are yet to be recognized have beenrecognized and the difference between retirement benefit obligations and plan assets for each individual benefit plan has been recognized as an asset or a liability for retirement benefits.
In accordance with article 37 of Statement No.26, the effect of
the change in accounting policies arising from this initial application
has been recognized within accumulated other comprehensive
income as accumulated adjustments for retirement benefits.
As a result of the application, an asset for retirement benefits inthe amount of ¥8,904 million ($86,514 thousand) and a liability for
retirement benefits in the amount of ¥53,449 million ($519,326
thousand)have been recognized, and accumulated other comprehensive income has increased by ¥6,982 million ($67,839 thousand), at the end of the current fiscal year.
The adoption of this change has increased net assets per shareof common stock by 38.96 yen (0.38 U.S. dollars).

s­ tandards are effective from the beginning of the year ending
March 31, 2015.
The Company does not expect the adoption of these amendments will have a significant impact on the consolidated financial
statements.

Thousands of U.S. dollars

2014:

Cost

Carrying value$ 95,560$177,293  Unlisted stock

5,052

6,296

  Other

10,99910,999$111,611$194,588

Noncurrent
Securities with market prices  Equity securities

Information of assets and liabilities of newly consolidated subsidiaries by acquisition of shares as of the beginning of consolidation,and the relationship between acquisition cost of shares and net
payment for the acquisitions for the year ended March 31, 2013 is
as follows:

Total

Held-to-maturity securities classified as current assets are¥211,801 million ($2,057,919 thousand) and ¥190,498 million asof March 31, 2014 and 2013, respectively.
Reconciliation of held-to-maturity securities as of March 31,
2014 and 2013 to the amounts of short-term investments in the
consolidated balance sheets are as follows:

Millions of yen
Millions of yen

2013

Current assets¥21,811

Noncurrent assets

31,585

Goodwill

35,110Current liabilities(16,860)

Noncurrent liabilities(30,544)

Acquisition cost of shares

41,102

Payment in prior year

(348)

Cash and cash equivalents ofacquired companies(9,552)Loans as of the date of business combination

23,877

Net payment for acquisition of investments
in newly consolidated subsidiaries¥55,079

6. Securities
Other securities as of March 31, 2014 and 2013 are as follows:

Held-to-maturity (current)
Deposits and low-risk financial instruments with original
maturities of three months
or less

Short-term investments

2014

2013

2014

¥190,498$2,057,919(48,500)(45,498)(471,240)

49

9,816

476

¥163,350¥154,816$1,587,155

Net loss on devaluation of investment securities was ¥308 million ($2,993 thousand) and ¥44 million for the years ended March
31, 2014 and 2013, respectively.
Net gain on sale of investment securities was ¥74 million ($719
thousand) and nil for the years ended March 31, 2014 and 2013,
respectively.

7. Inventories

Millions of yen

2014:

Cost

Carrying value

Inventories as of March 31, 2014 and 2013 are as follows:

Noncurrent  Equity securities

Millions of yen¥ 9,835¥18,247

520

648

1,132

1,132

¥11,487¥20,027

Securities without market prices  Unlisted stock“Accounting Standard for Retirement Benefits” (ASBJ Statement
No. 26, May 17, 2012)“Guidance on Accounting Standard for Retirement Benefits”(ASBJ Guidance No. 25, May 17, 2012)
These accounting standards have been revised to mainly
change the treatment of unrecognized actuarial differences andunrecognized prior service cost, to change the calculation formula
for retirement benefit obligations and current service cost, and toenhance disclosures.
As discussed in note 3, certain amendments arising from application of this standard were adopted for the year ended March 31,
2014, while the amendments relating to calculation of retirement
benefit obligations and service costs prescribed within theseThousands of
U.S. dollars¥211,801

Deposits with original maturities
of more than three months

Securities with market prices

4. Accounting Standards issued
but not yet adopted(1) Goodwill and Noncurrent assets of TEL Solar Holding AG

Securities without market prices

5. Supplemental Information on
the Consolidated Statements of Cash Flows  OtherTotal

Millions of yen

2013:

Cost

Carrying value

Noncurrent
Securities with market prices  Equity securities

¥10,218¥16,631

Securities without market prices  Unlisted stock  OtherTotal

793

897

1,141

1,141

¥12,152¥18,669

Finished products
Work in process, raw materials
and supplies
Total

i­ndependent cash flows. If restructuring of a location is determined, relevant assets are grouped accordingly.
For the year ended March 31, 2014, the following loss on
impairment has been recognized:

Thousands of
U.S. dollars

2014

2013

2014

¥114,289¥ 87,398$1,110,464

53,98848,300524,563¥168,277¥135,698$1,635,027

The amounts of change in inventory provision included in cost of
sales in the consolidated statements of operations for the years
ended March 31, 2014 and 2013 were an increase of ¥2,296 million ($22,309 thousand) and ¥1,162 million, respectively.

8. Loss on Impairment of Property, Plant andEquipment, Goodwill and Other Assets
For assessing impairment of fixed assets, the Company generally groups fixed assets at the smallest unit which generates

Loss on impairment
Location

Trübbach,
St. Gallen,
Switzerland

Use

Type of Asset

Millions of yen

Thousands of
U.S. dollars

Plant

Goodwill,
machinery andequipment, andother assets¥32,789$318,587

Due to the significant deterioration of the business environment,
sales of TEL Solar Holding AG and its subsidiaries in the PVb­ usiness have been below the initial business plans. Under the current condition, Tokyo Electron performed an impairment test andrecognized the difference between the book value and recoverable
value of goodwill as loss on impairment. The recoverable value wasmeasured as value in use, but as Tokyo Electron has determinedthat the business is not expected to generate any future net cash
inflows, the recoverable amount was assessed at zero.
Further, a loss on impairment was recognized for machinery,equipment and other assets held by TEL Solar Holding AG and its
consolidated subsidiaries, measured as the difference between thebook value and the recoverable value. The recoverable value wasmeasured as the net selling price, but as reutilization or sale of theseassets would be difficult, the net selling price was assessed at zero.
(2) Goodwill of TEL NEXX, Inc.
Loss on impairment
Location

Use

Type of Asset

Billerica,
Massachusetts, Plant
U. S. A.

Goodwill, andother assets

Millions of yen

Thousands of
U.S. dollars¥5,009$48,669

Under the current condition that sales of TEL NEXX, Inc. in theSPE business have been below the initial business plans, Tokyo
Electron performed an impairment test and recognized the difference between the book value and recoverable value as loss on
impairment. The recoverable value was measured as value in use,
and was calculated by discounting future cash flows at a discountrate of 14.0%.
(3) Noncurrent assets of business locations to be restructured
Loss on impairment
Location

Use

Tsukuba, Ibaraki
R&D(Technology
centerCenter Tsukuba)
Sendai, Miyagi(Technology
Center Sendai)
OthersR&D
center—Type of Asset

Buildings andstructures,
machinery andequipment andother assets
Buildings andstructures, landand other assets
Buildings andstructures andother assets

Millions of yen

Thousands of
U.S. dollars¥4,649$45,171¥3,355$32,598¥  293$ 2,847

TOKYO ELECTRON ANNUAL REPORT 2014

PAGE

26

CONTENTSCONTENTS

Financial Highlights

Business Overview

Talking about
Tokyo Electron

Top Message

Financial
Financial Review
Review

Consolidated Eleven-Year
Eleven-Year Summary
Summary
Consolidated

Consolidated Statements of Changes in Net Assets

Review of Operations
and Business Outlook

Corporate GovernanceConsolidated
Consolidated Balance
Balance Sheets
SheetsCorporate Citizenship

Consolidated Statements
Statements ofof Operations
Operations
Consolidated

Consolidated Statements of Cash Flows

R&D / Intellectual Property

Corporate Data

Financial Section

Consolidated
Consolidated Statements
Statements ofof Comprehensive
Comprehensive Income
IncomeNotes to Consolidated Financial Statements

Independent Auditor’s Report

Notes to Consolidated Financial Statements

Tokyo Electron has determined to restructure several domestic
facilities, and as assets within the above asset groups are notexpected to be reutilized in the foreseeable future, Tokyo Electron
performed an impairment test and recognized the difference
between the book value and recoverable value as loss on impairment. The recoverable value for the above asset groups were
measured as the net selling price. For land, buildings and structures, the net selling price was calculated based on reasonableestimates such as real estate appraisals performed by third party
valuation experts, while for machinery, equipment and otherassets, the recoverable amount was assessed at zero, as reutilization or sale of these assets would be difficult.
(4) Others
Loss on impairment of ¥874 million ($ 8,492 thousand) was recognized for other asset groups of Tokyo Electron.
No significant loss on impairment was recognized for the year
ended March 31, 2013.

9. Pledged Assets
Tokyo Electron did not hold any assets pledged as collateral asof March 31, 2014 and 2013.

10. Short-term Borrowings(2) Movements of plan assets
Millions of yen

Thousands of
U.S. dollars

2014

2014

¥60,476$587,602

Expected return on plan assets

1,256

12,204

Actuarial gain (loss)

3,633

35,298Contributions paid by the employer

3,306

32,122

Benefits paid

(1,726)(16,770)

Foreign currency exchange rate changes

2,034

19,763

Balance at April 1, 2013

Other
Balance at March 31, 2014

Millions of yen

Thousands of
U.S. dollars

2014

2014

Funded retirement benefit obligations¥60,206$584,979

Plan assets(69,540)

Funded status
Unfunded retirement benefit obligations

Balance at April 1, 2013
Service cost
Interest cost
Actuarial loss (gain)
Benefits paid
Foreign currency exchange rate changes
Other
Balance at March 31, 2014

2014

2014

$1,120,249
66,78917,343(96,628)(31,238)
19,734
3,838$1,100,087

24%Life insurance company general account18%

Cash and cash equivalents

2%

Other

6%

Total

100%

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

Straight-line
methodDiscount rate

1.40%

Expected rate of return on plan assets

2.00%

Amortization period of actuarial gain or loss

4 years

Amortization period of prior service cost

4 years

12. Income Taxes
Significant components of the deferred tax assets and liabilitiesof Tokyo Electron as of March 31, 2014 and 2013 are as follows:(7) Actuarial assumptions
The principal actuarial assumptions at March 31, 2014 are as follows:

2014

2013

—

¥20,326

21,461—

208,521

15,864

168,898

Long-term expected rate of return2.00%

Accrued pension andseverance costs¥(9,334)(90,691)

Net liability for retirement benefits

53,015515,108

864

8,395

Net operating loss
carryforwards

17,383Net liability (asset) for retirement
benefits at March 31, 2014

¥44,545$432,812

Liability for retirement benefits (note 2)

53,449519,326

Millions of yen

Asset for retirement benefits(8,904)(86,514)2013¥44,545$432,812

Asset ceiling adjustments (note 1)

Year ended March 31, 2013
The funded status of the defined benefit plans, a substantial
portion of which consists of domestic benefit plans, as of March
31, 2013 is as follows:

Retirement Benefit obligation

Notes: 1. The asset ceiling adjustment represents plan assets exceeding the asset ceilingfor overseas subsidiaries that apply International Accounting Standard 19
Employee Benefits.
2. The provision for accrued pension and severance costs for directors and audit& supervisory board members of ¥582 million ($ 5,656 thousand) as of March
31, 2014 is not included.

Millions of yen

Thousands of
U.S. dollars

2014

2014

Service cost

¥6,874$66,789

Interest cost

1,785

17,343

Expected return on plan assets(1,256)(12,204)

Net actuarial loss (gain) amortization(339)(3,293)

Other

108

1,050

Plan assets
Funded status

¥(115,296)$69,685(5) Accumulated adjustments for retirement benefits
Millions of yen

Thousands of
U.S. dollars

2014

2014

Net actuarial gains that are
yet to be recognized (before tax)

¥11,309$109,881

Total balance at March 31, 2014

11,309109,881

2014

$

—

Elimination of unrealized profit
in inventories

9,489

2,967

92,198Devaluation of inventories

4,724

4,666

45,900Loss on impairment

3,486

758

33,871

Accrued warranty expenses

2,709

1,875

26,32160,476

Accrued employees’ bonuses

2,532

2,202

24,602(54,820)

Other

12,413

7,835

120,608

Total gross deferred tax assets

74,19756,493

720,919

Less valuation allowance(10,806)(6,541)(104,994)

Total deferred tax assets

63,391

49,952615,925

Undistributed earningsof subsidiaries(6,877)(4,789)(66,819)¥ (53,670)

Intangible assets identified
through business combination(6,686)(6,110)(64,963)

Notes: 1. The prepaid pension and severance costs as of March 31, 2013 is included inother assets in the consolidated balance sheet.
2. The provision for accrued pension and severance costs for directors and audit &supervisory board members (¥581 million as of March 31, 2013) is not included.

Accumulated adjustments for
retirement benefits(4,035)—(39,205)

Net unrealized gains on
investment securities(3,096)(2,341)(30,082)—(1,051)—(1,620)—(15,740)

Unrecognized actuarial difference
Net amount recognized

1,150(53,670)

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

2,974 Accrued pension and severance costs (Note 2)

(56,644)

Net amount recognized

Retirement benefit costs of the plans is as follows:
Millions of yen

2013¥7,172Thousands of
U.S. dollars

Millions of yen(675,670)

Total retirement benefit costs forthe fiscal year ended March 31, 2014

¥115,296
6,874
1,785
(9,945)(3,215)2,031
395¥113,221

Equity securities

Allocation method of benefit obligation

Deferred tax assets(4) Retirement benefit costs

Thousands of
U.S. dollars

2013

50%

1.51%

11. Employee Benefits

Millions of yen

Bonds

Significant assumptions of domestic pension plans used todetermine the above amounts are as follows:

Discount rate

Net liability (asset) for retirement
benefits at March 31, 2014

Year ended March 31, 2014
Defined benefit plans(1) Movement of retirement benefit obligations

5,451$675,670(3) Reconciliation from retirement benefit obligations and plan
assets to liability (asset) for retirement benefits

Short-term borrowings classified as current liabilities are¥11,531 million ($112,038 thousand) and ¥3,756 million as ofMarch 31, 2014 and 2013, respectively. These borrowings arefrom banks and bore interest at an average annual rate of 0.39%
and 0.50% as of March 31, 2014 and 2013, respectively.
As of March 31, 2014, Tokyo Electron has unused lines of credit
amounting to ¥143,578 million ($1,395,045 thousand).

The Company and its domestic subsidiaries provide for theiremployees a cash balance plan and a noncontributory retirement
and severance benefit plan as defined benefit plans. Further, certain consolidated overseas subsidiaries provide defined benefit
plans for their employees.

561¥69,540(6) Plan assets
1. Plan assets comprise:

Prepaid pension andseverance costs
Net asset for retirement benefits

Service cost¥5,513

Other(1,958)(1,605)(19,024)

Interest cost

1,864

Total deferred tax liabilities(24,272)(15,896)(235,833)

Expected return on plan assets

(887)

Net deferred tax assets¥39,119¥34,056$380,092

Net actuarial loss (gain) amortization(501)

Net pension cost¥5,989

TOKYO ELECTRON ANNUAL REPORT 2014

PAGE

27

CONTENTSCONTENTS

Financial Highlights

Business Overview

Talking about
Tokyo Electron

Top Message

Financial
Financial Review
Review

Consolidated Eleven-Year
Eleven-Year Summary
Summary
Consolidated

Consolidated Statements of Changes in Net Assets

Review of Operations
and Business Outlook

Corporate GovernanceConsolidated
Consolidated Balance
Balance Sheets
SheetsConsolidated Statements of Cash Flows

Corporate Citizenship

Consolidated Statements
Statements ofof Operations
Operations
Consolidated

R&D / Intellectual Property

Corporate Data

Financial Section

Consolidated
Consolidated Statements
Statements ofof Comprehensive
Comprehensive Income
IncomeNotes to Consolidated Financial Statements

Independent Auditor’s Report

Notes to Consolidated Financial Statements

Net deferred tax assets are included in the consolidated balance
sheets as of March 31, 2014 and 2013 as follows:
Thousands of
U.S. dollars

Millions of yen

2014

2013

2014

Current assets

¥25,174¥15,669$244,598

Investments and other assets

23,22423,206225,651—(2)—(9,279)(4,817)(90,157)

Other current liabilities
Other liabilities

The ultimate realization of deferred tax assets is dependent
upon the generation of future taxable income during the period inwhich temporary differences become deductible. For assessmentof the realizability of deferred tax assets, management considers
the scheduled reversal of deferred tax liabilities, future estimatedtaxable income, tax planning strategies and level of net operating
loss carryforwards, if any, in accordance with accounting principles
generally accepted in Japan.
Based on the level of historical taxable income and future estimated taxable income over the periods which the temporary differences are deductible, management believes Tokyo Electron willrealize the benefits of these deferred tax assets, net of valuation
allowance, as of March 31, 2014 and 2013.
The Company and its wholly-owned domestic subsidiaries apply
a consolidated tax filing system for corporate tax purposes.
The Company is subject to corporate tax, inhabitants’ tax and adeductible enterprise tax, which in the aggregate resulted in astatutory income tax rate of approximately 38.01% for the years
ended March 31, 2014 and 2013. On March 31, 2014, amendments to the Japanese tax regulations were enacted into law. As
a result of these amendments, the statutory income tax rate for
the Company will be reduced from 38.01% to 35.64% for the year
ending March 31, 2015. Based on this amendment and previous
amendment enacted December 2, 2011, the statutory income tax
rate utilized for the measurement of deferred tax assets and liabilities expected to be settled or realized on or after April 1, 2014 is
35.64% as of March 31, 2014. Due to this change in statutory
income tax rates, net deferred tax assets decreased by ¥1,018
million ($9,891 thousand) as of March 31, 2014 and deferredincome tax expense recognized for the year ended March 31,
2014 increased by ¥1,021 million ($9,920 thousand).

Significant components of the difference between the statutory
and effective tax rates for the years ended March 31, 2014 and2013 are as follows:
2014

Statutory tax rate in Japan

38.01%

2013

38.01%

Adjustments:
Impairment and amortization of goodwill(130.97)

2.14

Tax credits

38.76(3.65)

Effect of elimination of unrealized profit
in inventories

23.46

16.70

Change in valuation allowance

17.93(2.44)

Difference in statutory tax rates
of subsidiaries(17.72)(7.12)

Change in deferred tax liabilities for undistributed earnings of subsidiaries(17.43)

5.63

Effect of enacted changes in Japanese
tax rates on net deferred tax assets(8.68)—

Expenses not deductible for tax purposes(2.40)

1.14

—

12.35

Others, net(4.39)

1.45

Effective tax rate

(63.43)%64.21%

Prior years income taxes fromtransfer pricing adjustment

The Company received a notice of correction pursuant to transfer pricing taxation from the Tokyo Regional Taxation Bureau on
July 4, 2012 based on the determination that income arising fromtransactions with the Company’s consolidated subsidiaries in the
United States of America and South Korea during the six years
beginning from the year ended March 31, 2006 to the year ended
March 31, 2011 was insufficiently allocated to the Company.
The Company filed its objections with the tax authorities, and toeliminate double taxation, filed a request for inter-governmental
consultations (Mutual Agreement Procedures) to be performed
pursuant to the tax treaties ratified by Japan, the United States ofAmerica and South Korea on March 29, 2013. The Company also
filed for Advance Pricing Agreement (APA) with the tax authorities
for future fiscal periods.
The Company believes that it will be able to eliminate the double
taxation by agreement achieved through consultations, andaccordingly, has reported the total tax expense of ¥2,195 million
for the fiscal year ended March 31, 2013, as the difference inamounts resulting from the different corporate tax rates between
Japan, the United States of America and South Korea and the additional amount in conjunction with the imposition of additional taxes.

13. Net Assets
Net assets comprises four subsections, which are shareholders’equity, accumulated other comprehensive income, share subscription rights and minority 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 not exceeding one half of the price of the newshares as additional paid-in capital which is included in capital surplus.

In cases where dividend distribution of surplus is made, thelesser of an amount equal to 10% of the dividend or the excess, ifany, of 25% of common stock over the total of additional paid-in
capital and legal reserve must be set aside as additional paid-in
capital or legal reserve. Legal reserve is included in retained earnings in the accompanying consolidated balance sheets.
Both appropriations of legal reserve and additional paid-in capital used to eliminate or reduce a deficit generally require a resolution of the shareholders’ meeting.
Additional paid-in capital and legal reserve may not be distributed as dividends. All additional paid-in capital and legal reserve may
be transferred to other capital surplus and retained earnings,
respectively, which are potentially available for dividends.

The Company is subject to restriction of dividends by theJapanese Corporate Act, which restricts the amount of dividends
to retained earnings on a consolidated basis.
The Company’s articles allow for the distribution of earnings toshareholders on dates other than the mid-term and year-end, by
a resolution of the board of directors in accordance with Japaneselaws and regulations.
At the board of directors’ meeting held on May 15, 2014, thedistribution of cash dividends amounting to ¥4,480 million($43,529 thousand) was resolved. Such appropriations have notbeen accrued in the consolidated financial statements as of March
31, 2014 since they are recognized in the period in which they are
resolved at the board of directors’ meeting.

14. Other Comprehensive Income
Other comprehensive income for the years ended March 31, 2014 and 2013 is as follows:
Thousands of
U.S. dollars

Millions of yen

2014

2013

2014

¥2,199¥1,011$21,366

(78)

—

(758)

2,121

1,011

20,608Tax expense

(756)

(359)

(7,345)Sub-total, net of tax

1,365

652

13,263Net unrealized gains on investment securities Unrealized gains arising during the year
Reclassification adjustments
Sub-total, before taxNet deferred losses on hedging instruments Deferred losses arising during the year

(269)

(339)

(2,614)

Reclassification adjustments

412

431

4,003

Sub-total, before tax

143

92

1,389

Tax expense

(51)

(36)

(495)

Sub-total, net of tax

92

56

894

Adjustments during the year

6,867

8,760

66,721

Reclassification adjustments

—

—

—

6,867

8,760

66,721

Foreign currency translation adjustments

Sub-total, before taxTax expenseSub-total, net of taxTotal other comprehensive income

—

—

—

6,867

8,760

66,721¥8,324¥9,468$80,878

15. Share Subscription Rights
Stock option plan
The Company’s shareholders have approved annual stock
option plans for directors and selected employees since the year
ended March 31, 1999. The options under the plans vest immediately with restriction on exercise up to two or three years after thedate of grant, and have an exercise period of eight to twenty years
from the date of grant.

Options to purchase 130,700 shares of the Company wereauthorized and granted at an exercise price of ¥1 for the year
ended March 31, 2013. The options under the plans with restriction on exercise up to three years after the date of grant, and havean exercise period of twenty years from the date of grant.
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.

TOKYO ELECTRON ANNUAL REPORT 2014

PAGE

28

CONTENTSCONTENTS

Financial Highlights

Business Overview

Talking about
Tokyo Electron

Top Message

Financial
Financial Review
Review

Consolidated Eleven-Year
Eleven-Year Summary
Summary
Consolidated

Consolidated Statements of Changes in Net Assets

Review of Operations
and Business Outlook

Corporate GovernanceConsolidated
Consolidated Balance
Balance Sheets
SheetsCorporate Citizenship

R&D / Intellectual Property

Consolidated Statements
Statements ofof Operations
Operations
Consolidated

Consolidated Statements of Cash Flows

Corporate Data

Financial Section

Consolidated
Consolidated Statements
Statements ofof Comprehensive
Comprehensive Income
IncomeNotes to Consolidated Financial Statements

Independent Auditor’s Report

Notes to Consolidated Financial Statements

A summary of stock options outstanding and exercisable as of March 31, 2014 and 2013 is as follows:

Millions of yen

2013

2014

Tokyo Electron Limited

Weighted-average exercise price

Number ofsharesOutstanding at the beginning of year

Yen

U.S. dollars

Number ofshares

Weighted-average
exercise price¥  661$ 6.42

833,300¥3,139Granted———

130,700

1

Exercised

20,8001

0.01

25,800

1

Expired (forfeited)

56,800

6,468

62.84

381,300

5,894

Outstanding at the end of year

479,300

1

0.01

556,900

661

Exercisable at the end of year

114,400

1

0.01

192,000

1,914
2013

2014
Weighted-average exercise price

Number ofsharesOutstanding at the beginning of yearGranted
Exercised
Expired (forfeited)
Outstanding at the end of year
Exercisable at the end of yearYen

65,000———65,00065,00016. Leases
Future minimum lease payments on non-cancelable operatingleases are as follows:
Millions of yen

Thousands of
U.S. dollars

2014

2013

2014

Due within one year¥3,410¥1,628$33,132

Due over one year

5,922

2,834

57,540Total

¥9,332¥4,462$90,672

17. Fair Value of Financial Instruments
Policy for Financial Instruments
Tokyo Electron limits its fund management to short-term bankdeposits and low-risk financial instruments, and obtains funds byutilizing bank-loans or liquidating trade-receivables.
Trade receivables, which consist of notes and accounts receivable, are exposed to credit risk in the event of non-performance by
the counterparties. Execution and management of credit risk,
maturity and receivable balance are conducted pursuant to theinternal management rules for credit control. Credit risk of major
customers is assessed on a regular basis.
Short-term investments consist of time deposits and low risk
financial instruments and Tokyo Electron trade with highly-rated
financial institutions to mitigate credit risks.
Investment securities consist of mainly equity interests in listedcompanies exposed to equity market risks. Conditions, including¥3,087
—
—
—
3,087
3,087

U.S. dollars$29.99
—
—
—
29.99
29.99

Weighted-average
exercise price

Number ofsharesYen

65,000———65,00065,000¥3,087
—
—
—
3,087
3,087

market prices, for these investment securities are monitored on aregular basis.
Trade payables, which consist of notes and accounts payable,
mainly mature within one year. Trade payables are exposed toliquidity risks which are managed through activities such as implementing cash management plans.
See note 10 and 18 for detailed discussion on short-term borrowings and derivative financial instruments, respectively.
Fair Value of Financial Instruments
Carrying amount and estimated fair value of financial instruments
as of March 31, 2014 and 2013, are set out below. Fair value offinancial instruments which is practically difficult to estimate areexcluded (see note 6).
Millions of yen

2014:

AssetsCash and cash equivalents
Short-term investments Trade notes and accounts receivable, net of allowance for
doubtful accounts (¥1,503 million)
Investment securities
Liabilities
Trade notes and accounts payable
Short-term borrowings
Derivatives (see note 18)
Hedge accounting not applied
Hedge accounting applied

Carrying
amountEstimated
fair value1¥104,797
163,350¥104,797
163,081

127,529

127,529

18,247

18,24753,668
11,531
(164)
81

2013:

53,668
11,531(164)
81

Thousands of U.S. dollars

Estimated
fair value1

After 1 through5 years

2014:

Within 1 year

Cash and cash equivalents

$1,018,237$—¥ 85,314

Short-term investments

1,587,155—

154,816

154,811

Trade notes and accounts receivable

1,253,712—

99,321

99,321

16,631

16,631

Trade notes and accounts payable

36,261

36,261

Short-term borrowings

3,756

3,756

(3,325)(3,325)

(62)

(62)

AssetsCash and cash equivalents

Yen

556,900

Tokyo Electron Device Limited

Carrying
amountShort-term investments Trade notes and accounts receivable, net of allowance for
doubtful accounts (¥1,180 million)
Investment securities

¥ 85,314

Liabilities

Derivatives (see note 18)
Hedge accounting not applied
Hedge accounting applied

Thousands of U.S. dollars
Carrying
amountEstimated
fair value1

Cash and cash equivalents

$1,018,237$1,018,237

Short-term investments

1,587,155

1,584,541

1,239,108

1,239,108

177,293

177,293

Trade notes and accounts payable

521,455

521,455

Short-term borrowings

112,038

112,038

2014:

Assets Trade notes and accounts receivable, net of allowance for
doubtful accounts ($14,604
thousand)
Investment securities
Liabilities

18. Derivative Financial Instruments
Tokyo Electron is subject to risk from adverse fluctuations in foreign currency exchange rates in its operating and financing activities. The Company and certain subsidiaries enter into forward
foreign exchange contracts in order to hedge such risks, but do
not enter into such transactions for speculative purposes. The
Company and its domestic subsidiary implement a ratio analysis of
the total cumulative cash flow fluctuations to assess effectivenessof hedging for all derivative transactions, except for transactions
where the critical terms of the hedging instrument and hedged
item match and the Company could conclude that changes in fairvalue or cash flows are expected to completely offset. Execution
and management of all derivative transactions in charge of financedepartment are conducted pursuant to the internal management
rule.
The estimated fair values of the derivative financial instruments
as of March 31, 2014 and 2013 are as follows:
1. Derivative financial instruments not designated as hedging
instruments
Millions of yen

Derivatives (see note 18)
Hedge accounting not applied
Hedge accounting applied(1,593)(1,593)787

787

Receivables and payables derived from derivative transactions are stated on a net
basis. The figures in parentheses represent net payables.
Notes: 1. Fair value calculation of financial instruments
Cash and cash equivalents, short-term investments, trade notes and accounts
receivable, trade notes and accounts payable, and short-term borrowings 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 6 for further information by classification of investment securities.
Derivatives
See note 18 for detailed discussion on derivative financial instruments.

2014:

Contract
amountFair value

Unrealized gains(losses)

Sell U.S. dollars¥ 216¥55,346¥ 216

Sell EURO

3,725

(19)

(19)

Sell Korean won

1,068

(508)

(508)

Sell Chinese yuan

102

(7)

(7)

Sell Singapore dollars

57

(0)

(0)
42

Buy U.S. dollars

6,216

42

Buy Swiss francs

2,213

2

2

Buy Chinese yuan

922

60

60

Buy EURO

385

50

50

Total

¥70,034¥(164)¥(164)

2013:

Contract
amountFair value

Unrealized gains(losses)¥(3,021)

2. Maturities of financial assets and securities are as follows:

Millions of yen

Millions of yen
After 1 through5 years

Sell U.S. dollars

¥50,652¥(3,021)

Cash and cash equivalents

¥104,797¥—

Sell Swiss francs

25,787(50)(50)

Short-term investments

163,350—

Sell Korean won

1,068

(295)

(295)

Trade notes and accounts receivable

129,032—

2014:

Within 1 year

Millions of yen
2013:

Within 1 year

Sell Singapore dollars
Buy U.S. dollars

After 1 through5 years

Cash and cash equivalents

¥ 85,314¥—

Short-term investments

154,816—

Trade notes and accounts receivable

100,501—

Total

50

(3)

(3)

4,368

44

44

¥81,925¥(3,325)¥(3,325)

TOKYO ELECTRON ANNUAL REPORT 2014

PAGE

29

CONTENTSCONTENTS

Financial Highlights

Business Overview

Top Message

Financial
Financial Review
Review

Talking about
Tokyo Electron

Consolidated Eleven-Year
Eleven-Year Summary
Summary
Consolidated

Consolidated Statements of Changes in Net Assets

Review of Operations
and Business Outlook

Corporate GovernanceConsolidated
Consolidated Balance
Balance Sheets
SheetsCorporate Citizenship

Consolidated Statements
Statements ofof Operations
Operations
Consolidated

Consolidated Statements of Cash Flows

R&D / Intellectual Property

Corporate Data

Financial Section

Consolidated
Consolidated Statements
Statements ofof Comprehensive
Comprehensive Income
IncomeIndependent Auditor’s Report

Notes to Consolidated Financial Statements

Notes to Consolidated Financial Statements
19. Other Income (Expenses)

Thousands of U.S. dollars

2014:

Sell U.S. dollars

Contract
amountFair value

Unrealized gains(losses)$537,758$ 2,099$ 2,099

Sell EURO

36,193

(184)

(184)

Sell Korean won

10,377(4,936)(4,936)

Sell Chinese yuan

991

(68)

(68)

Sell Singapore dollars

554

(0)

(0)

Buy U.S. dollars

60,396408

408

Buy Swiss francs

21,502

19

19

Buy Chinese yuan

8,958

583

583

Buy EURO
Total

3,741

486

486

$680,470$(1,593)$(1,593)

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

2. Derivative financial instruments designated as hedging instruments
Millions of yen

Thousands of U.S. dollars

2014: Hedge accounting

Contract
amountFair value

Sell U.S. dollars¥ 9,365¥ (47)

Sell Korean won

115

(54)

1,117

(525)

Buy U.S. dollars

8,207

0

79,7410

Buy Swiss francs

2,382

145

23,144

1,409

488

37

4,742

360

Buy EURO
Buy GBP
Total

15

0

¥20,572¥ 81

Contract
amount146

0$199,883 $   787

Fair value

Sell U.S. dollars¥ 5,872¥(90)

Sell Chinese yuan

290

(3)

Sell Korean won

157

(42)

Sell Swiss francs

60

1Sell EURO

22

(2)

6,180

33

Buy U.S. dollars
Buy EURO
Total

769

41¥13,350¥(62)

21. Segment Information(A) TEL FSI, Inc.
For TEL FSI, Inc., (formerly FSI International, Inc. before theacquisition was completed), a consolidated subsidiary of theCompany, the allocation of acquisition costs was not complete asof the previous fiscal year-end. This allocation was completed
within this fiscal year as follows:

General information about reportable segments
A reportable segment is a component or an aggregated component of Tokyo Electron. For each of the components, discrete
financial information is available and the operating result is regularly
reviewed by management to make decisions about resources tobe allocated to the segment and assess its performance.
The operation of Tokyo Electron consists of segments by prod-(1) Adjustments to the allocation of acquisition costucts and services based on business units (BUs), and Tokyo
Electron identifies as a reportable segment, “Semiconductor
Production Equipment (SPE)”, “Flat Panel Display Production
Equipment (FPD)”, “Photovoltaic Panel Production Equipment(PV)” and “Electronic Components and Computer Networks”. As
TEL Solar Holding AG was acquired and became a consolidated
subsidiary of Tokyo Electron, the previous “Flat Panel Display

Millions of yen

Goodwill as of previous fiscal year-end¥3,855

Noncurrent assets(370)

Current liabilities

16

Noncurrent liabilities

2

Total adjustments(352)

Goodwill after adjustments¥3,503(2) Amount of goodwill recognized, basis for recognizing goodwill,amortization method and period(a) Amount of goodwill recognized		 ¥3,503 million(b) Basis for recognition of goodwill
		Goodwill was recognized based on future increase in profitability expected from the future business development.
(c) Amortization method and period
		 Straight-line method over 10 years

Millions of yen
Contract
amount20. Business Combinations

Fair value$ 90,993 $ (457)2013: Hedge accounting

See note 8 for further discussion regarding Loss on impairment
for property, plant and equipment, goodwill and other assets of¥46,969 million ($456,364 thousand) recognized for the year
ended March 31, 2014.

(2)	Amount of goodwill recognized, basis for recognizing goodwill,amortization method and period(a) Amount of goodwill recognized		 ¥28,986 million(b) Basis for recognition of goodwill
		Goodwill was recognized for the difference between the

The contract amounts 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:
Contract amountThousands of U.S.
dollars

Millions of yen(B) TEL Solar Holding AG
For TEL Solar Holding AG (formerly Oerlikon Solar Holding AG
before the acquisition was completed), a consolidated subsidiaryof the Company, the allocation of acquisition costs was not complete as of the previous fiscal year-end. This allocation was completed within this fiscal year as follows:

2013

2014

¥283

¥   404$2,749Sell Chinese yuan

—

9,760

—

Buy U.S. Dollars

162

74

1,574

Noncurrent assets

7,369

1

—

10

Noncurrent liabilities

(169)

¥446

¥10,238$4,333

Buy EURO
Total

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

Millions of yen

Goodwill as of previous fiscal year-end

Total adjustments
Goodwill after adjustments

duction equipment used in the manufacture of thin film silicon photovoltaic panels. The segment had principally developed,
manufactured, sold and distributed such products, but as ofMarch 2014, Tokyo electron has halted development, production
and sales activities for new equipment and limited its operations toprovide support for equipment previously delivered.
The Electronic Components and Computer Networks segmentprincipally designs, develops, procures, and distributes semiconductor products centering on integrated circuits (IC), other electronic components, computer networks and software.
Basis of measurement of reportable segment net sales, segment profit (loss), segment assets and other items
The accounting policies applied in each reportable segment are
generally consistent with those applied for the preparation of theconsolidated financial statements. Intersegment sales or transfers
are determined based on current market prices. Assets in common use have not been allocated to each reportable segment,
while costs associated with those assets have been allocated toreportable segments on a systematic basis.

wafer probers used in the wafer testing process and other semiconductor production equipment. The SPE segment principallydevelops, manufactures, sells and distributes such products.

Information about reportable segment net sales, segment profit (loss), segment assets and other items
Reportable segment information as of and for the years ended March 31, 2014 and 2013 are as follows:
Millions of yen
Reportable Segment
Semiconductor
production
equipment

FPD
production
equipmentPVproduction
equipment

Electronic
components &computer
networks

Other¥478,842¥28,317¥ 3,806¥100,726

34

—

—

1,075

478,876

28,317

3,806

101,801

Total

Eliminations
andCorporate

Consolidated¥   479¥612,170¥    —¥612,170

11,76012,869(12,869)—

12,239625,039(12,869)

612,170

Net sales

Sell U.S. dollars

2014

Products of the FPD segment consist of coater/developers andplasma etch/ash system used in the manufacture of flat panel displays. The FPD segment principally develops, manufactures, sells
and distributes such products.
Products of the PV segment consist of photovoltaic panel pro-

Production Equipment (FPD) and Photovoltaic Panel Production
Equipment (PV)” segment was separated to the “Flat Panel Display
Production Equipment (FPD)” segment and the “Photovoltaic
Panel Production Equipment (PV)” segment from this fiscal year.
Reportable segment information for the previous year hereinafter
has been restated accordingly.
Products of the SPE segment consist of coater/developers,
plasma etch systems, thermal processing systems, single wafer
deposition systems, cleaning systems used in wafer processing,

2014:(1) Adjustments to the allocation of acquisition costacquisition cost and the fair value of the net assets acquired
as of the acquisition date.
(c) Amortization method and period
		 Straight-line method over 10 years
		 See note 8 for discussion on impairment of this goodwill.

¥21,786

7,200¥28,986

Sales to external customers
Intersegment sales or transfers
Total
Segment profit (loss)

74,284(37)(46,426)

722

1,267

29,810(41,566)(11,756)

Segment assets

273,142

21,252

2,145

57,465

1,871

355,875

472,717

828,592

Depreciation and amortization

10,114

235

10

476

49

10,88414,00424,888

Amortization of goodwill

1,473

—

2,686

103

—

4,262

—

4,262

Loss on impairment

5,009

—

32,789——37,7989,171

46,969

Capital expenditures, including
intangible and other assets

8,109

103

857

825

41

9,935

5,109

15,044

TOKYO ELECTRON ANNUAL REPORT 2014

PAGE

30

CONTENTSCONTENTS

Financial Highlights

Business Overview

Talking about
Tokyo Electron

Top Message

Financial
Financial Review
Review

Consolidated Eleven-Year
Eleven-Year Summary
Summary
Consolidated

Consolidated Statements of Changes in Net Assets

Review of Operations
and Business Outlook

Corporate GovernanceConsolidated
Consolidated Balance
Balance Sheets
SheetsCorporate Citizenship

Consolidated Statements
Statements ofof Operations
Operations
Consolidated

Consolidated Statements of Cash Flows

R&D / Intellectual Property

Corporate Data

Financial Section

Consolidated
Consolidated Statements
Statements ofof Comprehensive
Comprehensive Income
IncomeNotes to Consolidated Financial Statements

Independent Auditor’s Report

Notes to Consolidated Financial Statements

Other Information(1) Domestic and overseas net sales by destination for the years ended March 31, 2014 and 2013 are as follows:

Millions of yen
Reportable Segment

2013:

Semiconductor
production
equipment

FPD
production
equipmentPVproduction
equipment

Electronic
components &computer
networks

Other

Total

Eliminations
andCorporate

Consolidated

Net sales
Sales to external customers

Thousands of
U.S. dollars

Millions of yen
Net sales

2014

2013

2014

Japan

¥161,631¥118,504$1,570,453

Taiwan133,736

107,734

1,299,417

United States of America

104,617

117,194

1,016,489¥392,027¥20,077¥    83¥84,665¥   448¥497,300¥    —¥497,300

43

—

—

813

10,613

11,469(11,469)—

Total

392,070

20,077

83

85,478

11,061

508,769(11,469)

497,300

China

81,92938,356

796,045

Segment profit (loss)

48,600(4,534)(1,821)

1,283

1,321

44,849(27,082)

17,767

Korea

76,401

59,376742,334

Segment assets

223,956

18,07931,41047,5571,550

322,552

452,976775,528

Other

53,85656,136523,280

Total¥612,170¥497,300$5,948,018

Millions of yen

Thousands of
U.S. dollars

2014

2014

Intersegment sales or transfers

Depreciation and amortization

12,330

404

58

448

78

13,31813,313

26,631

Amortization of goodwill

1,038

—

—

103

—

1,141

—

1,141

Capital expenditures, including
intangible and other assets

13,464

1,658

3

482

54

15,661

9,834

25,495

Note: Sales are classified in countries or regions based on location of customers.

(2) Net property, plant and equipment by location as of March 31, 2014 and 2013 are as follows:
Millions of yen

Thousands of U.S. dollars

2014:

Reportable Segment

2014:

Semiconductor
production
equipment

FPD
production
equipmentPVproduction
equipment

Electronic
components &computer
networks

Property, plant and equipment

Other

Total

Eliminations
andCorporate

Sales to external customers
Total
Segment profit (loss)

$4,652,565$275,136$ 36,980$978,683$  4,654

330

—

—

10,445

114,264

125,039(125,039)—

4,652,895

275,136

36,980989,128

118,918

6,073,057(125,039)

5,948,018(360)(451,088)

7,015

12,311

289,642(403,867)(114,225)

206,491

20,842

558,346

18,1793,457,783

4,593,053

8,050,836

Depreciation and amortization

98,271

2,283

97

4,625

476

105,752

136,067

241,819

Amortization of goodwill

14,312—

26,0981,001—

41,411—41,411

Loss on impairment

48,669—318,587——

367,256

89,108456,364

78,789

1,001

8,327

8,016

398

Other

Total

¥82,364¥15,119¥14,861¥112,344

Japan

U.S.A.

Other

Total

¥99,888¥14,549¥21,261¥135,698$5,948,018 $       — $5,948,018

721,764

Capital expenditures, including
intangible and other assets

2013:

Property, plant and equipment

2,653,925

Segment assets

U.S.A.

Millions of yen
Consolidated

Net salesIntersegment sales or transfers

Japan

96,53149,640146,171

Notes: 1.	“Other” includes all other operating segments which are not included in the reportable segments, including group-wide logistic services, facility maintenance and insurance.
2. (1) “Eliminations and Corporate” segment profit (loss) totaling ¥41,566 million ($403,867 thousand) and ¥27,082 million for the years ended March 31, 2014 and 2013, respectively, includes corporate expenses not allocated to any reportable segments. The corporate expenses mainly consist of research and development costs of ¥19,735 million($191,751 thousand) and ¥20,359 million for the years ended March 31, 2014 and 2013, respectively, pertaining to fundamental research and element research, not allocatedto any of the reportable segments. For the year ended March 31, 2014, loss on impairment of ¥9,171 million ($89,108 thousand) attributable to corporate buildings andstructures that became idle as a result of facility restructuring is included.
		 (2) “Eliminations and Corporate” segment assets totaling ¥472,717 million ($4,593,053 thousand) and ¥452,976 million as of March 31, 2014 and 2013, respectively, consist
mainly of cash and cash equivalents, short-term investments and buildings not allocated to any of the reportable segments.
		 (3) “Eliminations and Corporate” loss on impairment of ¥9,171 million ($89,108 thousand) is attributable to corporate buildings and structures and other assets that became idle
as a result of facility restructuring. See note 8 for further discussion.
3.	“Eliminations and Corporate” capital expenditures totaling ¥5,109 million ($49,640 thousand) and ¥9,834 million for the years ended March 31, 2014 and 2013, respectively,­consist mainly of capital expenditures for buildings, machinery and equipment not allocated to any of the reportable segments.
4.	Reported segment profit (loss) is reconciled to Income before income taxes and minority interests in the consolidated statements of operations.

Thousands of U.S. dollars

2014:

Property, plant and equipment

Japan

U.S.A.

Other

Total

$800,272$146,900$144,394$1,091,566(3) Major customer information
Net sales to external customers that represent 10 percent or more of net sales are as follows:

Related reportable segment

Name of customer

Taiwan Semiconductor
Manufacturing Company Ltd.

Semiconductor production equipment¥91,243$886,543

Intel Corporation

Semiconductor production equipment

84,272818,811

Samsung Electronics Co., Ltd.

Semiconductor production equipment and FPD production equipment

80,476

781,928

Millions of yen

Related reportable segment

Name of customer

Intel Corporation2013

Semiconductor production equipment¥73,955

Taiwan Semiconductor
Manufacturing Company Ltd.

Semiconductor production equipment

68,769Samsung Electronics Co., Ltd.

Semiconductor production equipment and FPD production equipment

60,374

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

Information about reportable segment goodwill
Reportable segment information about amortization of goodwill for the year ended March 31, 2014 and unamortized balances as of March
31, 2014 is as follows:
Millions of yen

2014:

Semiconductor
production
equipment

FPD
production
equipmentPVproduction
equipment

Electronic
components &computer networks

Total

Amortization of goodwill¥1,473¥—¥2,686¥103¥4,262

Goodwill

9,092

—

—

308

9,400

TOKYO ELECTRON ANNUAL REPORT 2014

PAGE

31

CONTENTSCONTENTS

Financial Highlights

Business Overview

Financial
Financial Review
Review

Top Message

Talking about
Tokyo Electron

Consolidated Eleven-Year
Eleven-Year Summary
Summary
Consolidated

Consolidated Statements of Changes in Net Assets

Review of Operations
and Business Outlook

Corporate GovernanceConsolidated
Consolidated Balance
Balance Sheets
SheetsConsolidated Statements of Cash Flows

Corporate Citizenship

Consolidated Statements
Statements ofof Operations
Operations
Consolidated

R&D / Intellectual Property

Financial Section

Consolidated
Consolidated Statements
Statements ofof Comprehensive
Comprehensive Income
IncomeNotes to Consolidated Financial Statements

Independent Auditor’s Report

Notes to Consolidated Financial Statements(4) Overview of TED

Millions of yen

2013:

Semiconductor
production
equipment

FPD
production
equipmentPVproduction
equipment

Electronic
components &computer networks

Total

Amortization of goodwill¥ 1,038

¥—

¥

—

¥103

¥ 1,141

Goodwill

14,565—23,397411

38,373Thousands of U.S. dollars
Semiconductor
production
equipment

FPD
production
equipmentPVproduction
equipment

Electronic
components &computer networks

Total

Amortization of goodwill$14,312$—$26,098$1,001$41,411

Goodwill

88,340

—

—

2,993

91,333

2014:(1) Reason for change
In the midst of a rapidly changing business landscape for Tokyo
Electron, the group has spent considerable effort investigating
future growth strategies for both Tokyo Electron and TED, looking
to develop the businesses going forward. As a result, theCompany has sold a portion of its shares in TED in order toimprove the enterprises value of both companies. This enables theTokyo Electron Device Limited

Address

1-4, Kinko-cho, Kanagawa-ku,
Yokohama City, Kanagawa, Japan

Representative Director

Yasuyuki Kuriki, President,
Representative Director

Business Operation

Electronic Components,
Computer Network

Common Stock¥2,495,750 thousand ($24,249 thousand)as of March 31, 2014

EstablishedMarch 3, 1986

(5) Number of shares sold and sale price

22. Subsequent event
Reduction of shareholding in Tokyo Electron Device Limited
The Board of Directors of the Company adopted a resolution on
March 26, 2014 to sell a portion of shares of Tokyo Electron
Device Limited (hereinafter “TED”), a consolidated subsidiary listed
in the first section of the Tokyo Stock Exchange, held by theCompany. As a result, effective April 15, 2014, the classification of
TED changed from a consolidated subsidiary to an equity method
affiliate. In accordance with this change, TED’s financial results will
be reflected in Tokyo Electron’s consolidated statement of income
as equity in income of equity method investees beginning from thefiscal year ending March 31, 2015.

Company Name

Company to plan for a greater concentration of management
resources in the core equipment business, and for TED to actively
drive its development business and overseas expansion in addition
to existing sales of electronic components and computer network
related products while becoming even more independent andbuilding its growth strategies for the future.
(2) Method of change
Of the 5,875,300 ordinary shares of TED that the Company held
as of March 31, 2014, TED repurchased 636,000 shares.
1,484,000 shares were sold by the Company through an underwritten offering (Daiwa Securities Co. Ltd. and Nomura Securities
Co., Ltd.). Additionally, in relation to an additional offering (OverAllotment), 222,600 shares were sold to the underwriter upon
exercise of a green shoe option.
(3) Date of change
April 15, 2014 (the date of transfer of the TED shares soldthrough an underwritten offering)Number of shares sold2,342,600 shares

Sale price¥3,011 million ($29,256 thousand)Profit (loss) from sale

Loss of ¥1,850 million ($17,975 thousand)is expected to be recognized for the year
ending March 31, 2015(6) Change in voting rights (number of shares held) and proportionof voting rights

Number of voting rights(number of shares held)

Proportionof votingrights held
by TEL

Before change
Consolidated
58,753(as of March 31, 2014) subsidiary (5,875,300 shares)

55.43%Classification

After change

Equity method
35,327
affiliate(3,532,700 shares)

35.45%

1. The proportion of voting rights before the change was calculated on the basis of
105,985 voting rights for all shareholders as of March 31, 2014.
2. The proportion of total voting rights after the change was calculated on the basis of
99,625 voting rights, which is 105,985 voting rights for all shareholders as of March
31, 2014 less 6,360 voting rights for the 636,000 shares repurchased by TED.

Change in reportable segments
The “Electronic Components and Computer Networks” segment
as disclosed in Note 21 had historically represented TED. As TED
will change from a consolidated subsidiary to an equity method
affiliate, this segment will not be reported from the year ending
March 31, 2015, while net profit of TED attributable to Tokyo
Electron will be included in “Elimination and Corporate”.

Corporate Data