FY2004 Interim Consolidated Financial Results
(Prepared in accordance with U.S. GAAP)
(Six months ended September 30, 2004)
October 26, 2004
Company name : Advantest Corporation
(URL http://www.advantest.co.jp/investors/)
Stock exchanges on which shares are listed : Tokyo Stock Exchange
Stock code number : 6857
Location of head office : Tokyo Prefecture
Company representative : Toshio Maruyama, Representative Board Director,
President of Corporate Executive Officers and COO
Contact person : Hiroshi Nakamura, Manager, Accounting Department
(03) 3214-7500
Date of board meeting approving the interim
financial results : October 26, 2004
Adoption of U.S. GAAP : Yes
1. Consolidated Results of FY2004 Interim (April 1, 2004 through
September 30, 2004)
(1) Consolidated Financial Results
Net sales Operating income Income before income taxes
---------------------------- -------------------------- ----------------------------------
Million yen Increase(%) Million yen Million yen
FY2004 interim 146,589 135.3 45,420 10.2 times 46,844 12.6 times
FY2003 interim 62,286 51.5 4,439 - 3,721 -
FY2003 174,218 30,960 28,878
Net income Net income per share (basic) Net income per share (diluted)
------------------------------ ---------------------------- ------------------------------
Million yen yen yen
FY2004 interim 28,573 11.7 times 290.68 290.07
FY2003 interim 2,453 - 24.96 24.94
FY2003 17,329 176.37 176.02
Note 1: Equity in losses of affiliates was nil in FY2004 interim, (Y)117
million in FY2003 interim and (Y) 117 million in FY2003, respectively.
Note 2: Average number of shares outstanding on a consolidated basis was
98,295,932 shares during FY2004 interim, 98,245,709 shares during
FY2003 interim and 98,250,830 shares during FY2003, respectively.
Note 3: No change in accounting practices was adopted during these periods.
Note 4: The percentage shown for net sales is the increase rate from the
corresponding six month period of the previous fiscal year while the
multiples shown for operating income, income before income taxes and
net income are the changes in comparison to the corresponding six month
period of the previous fiscal year.
(2) Consolidated Financial Position
Total assets Stockholders' equity Equity-to-assets ratio Stockholders' equity
per share
Million yen Million yen % Yen
FY2004 interim 349,951 249,928 71.4 2,542.41
FY2003 interim 287,094 210,303 73.2 2,140.61
FY2003 330,808 221,768 67.0 2,256.59
Note: Outstanding number of shares on a consolidated basis at the end of each
period was 98,303,393 in FY2004 interim, 98,244,608 in FY2003 interim
and 98,275,640 shares in FY2003, respectively.
(3) Consolidated Cash Flows
Cash flows from Cash flows from Cash flows from Cash and cash
operating activities investing activities financing activities equivalents at end of
period
Million yen Million yen Million yen Million yen
FY2004 interim 44,545 (5,308) (2,255) 139,911
FY2003 interim 13,361 (2,263) (2,627) 94,606
FY2003 28,215 (5,070) (6,376) 101,146
-1-
(4) Scope of Consolidation and Equity Method
Number of consolidated
subsidiaries: 39 companies
Number of unconsolidated subsidiaries: none
Number of affiliates accounted for under the equity method: none
(5) Changes in Scope of Consolidation and Equity Method
Consolidated subsidiaries
(Newly included) 1 company
(Excluded) 2 company
Affiliates accounted for under the equity method
(Newly included) none
(Excluded) none
2. Projected Results for FY2004 (April 1, 2004 through March 31, 2005)
Net sales Income before Net income
income taxes
Million yen Million yen Million yen
FY2004 250,000 71,000 43,000
(Reference) Projected net income per share for the fiscal year: (Y)437.42
Figures presented in this Earning Digest have been rounded to the nearest
million yen. For a discussion of the assumptions and other factors upon which
these projections are based, please refer to "Prospects for the Fiscal Year"
appearing elsewhere in the document.
Cautionary Statement with Respect to Forward-Looking Statements
This document contains "forward-looking statements" that are based on
Advantest's current expectations, estimates and projections. These
forward-looking statements are subject to known and unknown risks, uncertainties
and other factors that may cause Advantest's actual results, levels of activity,
performance or achievements to be materially different from those expressed or
implied by such forward-looking statements. These factors include: (i) changes
in demand for the products and services produced and offered by Advantest's
customers, including semiconductors, communications services and electronic
goods; (ii) circumstances relating to Advantest's investment in technology,
including its ability to timely develop products that meet the changing needs of
semiconductor manufacturers and communications network equipment and components
makers and service providers; (iii) significant changes in the competitive
environment in the major markets where Advantest purchases materials, components
and supplies for the production of its products or where its products are
produced, distributed or sold; and (iv) changes in economic conditions, currency
exchange rates or political stability in the major markets where Advantest
procures materials, components and supplies for the production of its principal
products or where its products are produced, distributed or sold. A discussion
of these and other factors which may affect Advantest's actual results, levels
of activity, performance or achievements is contained in the "Operating and
Financial Review and Prospects", "Key Information - Risk Factors" and
"Information on the Company" sections and elsewhere in Advantest's annual report
on Form 20-F, which is on file with the United States Securities and Exchange
Commission.
-2-
Advantest Corporation - Consolidated (FY2004 Interim)
1. Management Policy
Advantest's Basic Management Policy
- -----------------------------------
Advantest believes that its mission is to support leading-edge
technology at its forefront. Its basic management policy consists of the
following elements: increasing corporate value, improving shareholder and
customer satisfaction and achieving excellence.
Business Strategy
- -----------------
Advantest is focused on improving operating results through
establishing an operating structure that responds timely to market changes,
promoting early development of key future technologies and providing timely
customer solutions under the concept of "GETsolution."(1) To achieve these
objectives, Advantest is driven to further strengthen its product development
operations and improve production efficiency by selectively focusing on certain
businesses, while strengthening its overseas operations in the U.S., Europe and
Asia.
Further, Advantest seeks to achieve better transparency and strengthen
its corporate branding by stressing the importance of corporate social
responsibilities, enhancing its disclosure process and compliance system, and
addressing environmental as well as human rights issues.
Since October 2001, Advantest has launched a company-wide initiative
called "Initiative 21." This initiative seeks to promote new ideas and
improvement strategies at all levels of the company, from divisions ranging from
sales, development and manufacturing to maintenance and administration, with an
aim toward strengthening the company's competitiveness. Advantest expects to
achieve further growth and fulfill its social mission by having each employee
take the initiative to tackle new issues. This initiative will continue
throughout FY2004, the year of Advantest's 50th anniversary.
*1 GETsolution (Globally Enabled Total solution) is Advantest's
service business designed to provide a set of comprehensive
solutions to deal with issues ranging from the design to the
delivery of semiconductors.
Target Financial Index
- ----------------------
In addition to such indicators of performance as profit margin, ROE and
cash flows, Advantest uses "AVA" (Advantest Value Added), a financial index
incorporating the concept of EVA(R)(2) (Economic Value Added), to measure its
business performance. Advantest will continue to set the minimum
return-on-investment ratio ("hurdle rate") for evaluating AVA at 8% and a
mid-term target at 12% with an aim to further increase corporate value and
shareholder value.
*2 EVA(R) is a registered trademark of Stern Steward & Co.
Basic Policy on Distribution of Profits
- ---------------------------------------
Advantest believes that shareholder value is premised on the
realization of long-term and continued growth in corporate value.
In this regard, retained profits are invested in new businesses,
research and development, streamlining efforts and overseas expansion to enable
the strengthening of Advantest's business position and creation of corporate
value.
With respect to the direct distribution of profits, Advantest has
adopted a policy of maintaining consistent dividend payouts subject to its
financial condition.
Advantest's Views and Policies on Lowering its Investment Unit
- --------------------------------------------------------------
As part of its capital policy, Advantest has long recognized the
importance of increasing the market liquidity of its shares, promoting long-term
and stable holding of its shares among investors
-3-
Advantest Corporation - Consolidated (FY2004 Interim)
and expanding its investor base. Back in August 1995, the company reduced the
minimum investment unit for its shares from 1000 to 100 shares.
As Advantest currently considers the liquidity level of its shares to
be sufficient and expects any further reduction of investment unit to require
significant costs, it is cautious about implementing any further reductions and
will do so only after careful consideration of prevailing market conditions,
business performance, share prices and other factors.
Advantest's Basic View on Corporate Governance; State of Implementation of
Corporate Governance
- --------------------
(Advantest's Basic View on Corporate Governance)
Advantest intends to strengthen its global competitiveness by enhancing
transparency of management to all stakeholders such as investors (shareholders)
and customers.
(State of Implementation of Corporate Governance)
(1) Description of Company Organization
In order to ensure timely response to rapid changes in the business
environment and to strengthen corporate governance, Advantest introduced the
Executive Officer system in June 2003, and bifurcated the decision-making
function and the operations execution function.
The Board of Directors is the ultimate decision-making organ in charge
of formulating business policies and strategies, as well as monitoring and
supervising the company's operations. The Executive Officers, on the other hand,
are delegated significant authority for executing operations speedily and
efficiently. In an effort to strengthen the company's management structure and
corporate governance, it was decided at the general shareholders' meeting held
in June 2004, that the number of directors on the Board of Directors be
increased from seven to eight.
Advantest adopts a Board of Corporate Auditors system and the Board of
Corporate Auditors consists of four auditors, two of whom are outside corporate
auditors. Each auditor audits the Board of Directors' performance by attending
important meetings including the Board of Directors meetings and reviewing the
company's operations and assets based on auditing policies and plans formulated
by the Board of Corporate Auditors.
(2) Internal Control System and Risk Management Structure
Advantest seeks to promote its corporate activities in accordance with
higher standards of ethics, good faith and social responsibility. Advantest's
"Code of Business Conduct" was established in order to fully delineate the
company philosophy. In June 2004, Advantest's "Code of Ethics for Directors and
Executive Officers" was effectuated to set forth the directors' and executive
officers' responsibility to act ethically and in good faith.
In addition, Advantest established the Corporate Social Responsibility
Committee ("CSR Committee") to comprehensively monitor and supervise the
company's activities from the view of corporate social responsibility. The CSR
Committee oversees the Disclosure Committee, the Internal Control Committee, the
Committee on Environmental Conservation, the Information Security Committee, the
Human Rights Protection Committee and the Personnel Mediation Committee. The
Internal Control Committee established in January 2004, in particular, is
working to establish a structure to assess and monitor internal controls in an
effort to achieve the three objectives for internal controls: "management
effectiveness and efficiency," "reliability of financial reporting," and "legal
and regulatory compliance." Auditing Group, an internal organ of the internal
auditing function, monitors internal controls and operations on a daily basis,
identifies issues and makes recommendations as part of the business audit. In
July 2004, Advantest set forth the "Third Advantest Group Environmental Action
Program" in accordance with its environmental vision of "balancing corporate
management and environmental preservation and fulfilling sustainable growth and
social responsibilities as a company" as a mid-term plan for fiscal years 2004
through 2006.
-4-
Advantest Corporation - Consolidated (FY2004 Interim)
2. Business Results and Financial Condition
(1) Business Results
Interim Fiscal Period Results
- -----------------------------
During this interim fiscal period, business conditions affecting the
company have generally continued to be strong due to a continuing appetite for
capital expenditure in the semiconductor manufacturing industry, as stimulated
by the strong performance of digital consumer products including flat-screen
televisions and DVD recorders, and continued demands for personal computers.
Under this environment, Advantest made concentrated efforts to increase
incoming orders and expand sales through the timely introduction of new products
that attempted to meet customer needs. In addition to its continued efforts to
reduce fixed costs, Advantest and its group companies combined forces in a drive
towards attaining profitability, including the shortening of time to market by
improving the manufacturing process, parts procurement and manufacturing
efficiencies.
As a result of the above, as compared to the corresponding interim
period for the previous fiscal year, incoming orders increased by 56.0% to
(Y)125.2 billion and net sales increased by 135.3% to (Y)146.5 billion. Net
income before income taxes increased by 12.6 times to (Y)46.8 billion and
interim net income increased by 11.7 times to (Y)28.5 billion. Overseas sales as
a percentage of total sales was 74.3%, as compared to 60.2% in the corresponding
interim period for the previous fiscal year.
Results by Business Segment
In conjunction with its business and organizational restructuring,
since this fiscal period, Advantest reclassified its two previous automated test
equipment and measuring instruments business segments into three business
segments: semi-conductor and component test system; mechatronics system; and
services, support and others. The comparison figures against the previous
interim period have been calculated by reclassifying the figures from the
previous interim period into the three new business segments.
(Semi-conductor and Component Test System Segment)
In the semi-conductor and component test system segment, flash memory
testers in the memory tester market continued to perform strongly both
domestically and overseas. In addition, DRAM testers experienced solid sales in
Japan and overseas, particularly with respect to new models such as the ultra
high-speed memory tester for next generation DDR memory and the general purpose
high-speed memory tester.
In the SoC (System-on-a-chip)/AS (Application Specific) tester market,
strong sales of the T2000 testers based on OPENSTAR(R) continued. In addition,
SoC testers for mobile phones and digital consumer devices and testers for LCD
driver ICs continued to perform strongly particularly in Japan and Taiwan. In
addition, new products aimed at the CCD market and on-board device markets
enjoyed strong sales.
As a result of the above, as compared to the corresponding interim
period for the previous fiscal year, incoming orders in the semi-conductor and
component test system segment increased by 70.7% to (Y)96.l billion, while net
sales of the segment increased by 176.3% to (Y)113.l billion. Operating income
in the semi-conductor and component test system segment increased by 10.5 times
to (Y)37.7 billion, as compared with the corresponding interim period for the
previous fiscal year.
(Mechatronics System Segment)
In the mechatronics system segment, test handlers with simultaneous
multiple handling capacity and cooling capabilities as well as device interface
products continued to perform well due to the positive growth in sales of memory
testers.
As a result of the above, incoming orders in the mechatronics system
segment, as compared with the corresponding period for the previous fiscal year,
increased by 51.8% to (Y)24.6 billion, while net sales of the segment increased
by 111.9% to (Y)28.l billion. Operating income in the mechatronics
-5-
Advantest Corporation - Consolidated (FY2004 Interim)
system segment increased by 211.6% to (Y)9.9 billion, as compared with the
corresponding period for the previous fiscal year.
(Services, Support and Others Segment)
Incoming orders in the services, support and others segment, as
compared with the corresponding period for the previous fiscal year, increased
by 3.6% to (Y)10.0 billion, while net sales of the segment increased by 9.3% to
(Y)10.8 billion. Operating income in the services, support and others segment
increased by 33.0% to (Y)0.7 billion, as compared with the corresponding period
for the previous fiscal year.
*3 OPENSTAR(R) - The name of an open architecture standard published
by the Semiconductor Test Consortium, Inc. OPENSTAR(R) is a
registered trademark or trademark of Semiconductor Test
Consortium, Inc. in the U.S., Japan and other countries.
Distribution of Profits
Advantest believes that it has achieved its goals for the current
interim period as presented above. Although business conditions remain
uncertain, based on the profit distribution policy described above, Advantest
expects to distribute an interim dividend of (Y)25 per share as originally
forecasted.
Prospects for the Fiscal Year
- -----------------------------
With respect to business conditions in the upcoming future,
semiconductor-related demands are expected to continue growth resulting from the
continued success of third generation mobile phones and continued demand for
personal computers and an expected increase in demand for digital consumer
devices in the medium term. In addition, capital investment among semiconductor
manufacturers are expected to increase as 300 mm wafer-related investments are
expected and the next generation of memory devices are rolled out.
Responding to the above situation, Advantest plans to focus on
improvement of profitability through revenue growth generated by timely
introduction of new products designed to meet customer satisfaction, continued
renovation of the manufacturing process for quick delivery and cost-cutting
efforts.
While factors such as the temporary production and inventory
adjustments of drivers of the digital sector such as semiconductors and
electronic components and the increase in crude oil prices may have dampening
effects on Advantest's performance in the short run, Advantest's current
estimates for the full year are as follows:
(Consolidated)
(million yen)
Net Sales Income before Net Income
income taxes
Previous forecast (A) 250,000 70,000 43,000
(as of July 28, 2004)
Revised forecast (B) 250,000 71,000 43,000
Increase / decrease (B-A) 0 1,000 0
Profit Distribution Forecast
Based on the business prospects and profit distribution policy
described above, Advantest expects to pay yearend dividends of (Y)25 per share
(or (Y)50 per share for the fiscal year including an interim dividend of (Y)25
per share) as originally forecasted.
-6-
Advantest Corporation - Consolidated (FY2004 Interim)
(2) Financial Condition
Cash and cash equivalents held at September 30, 2004 were (Y)139.9
billion, an increase of (Y)38.7 billion from March 31, 2004. Significant cash
flows during this interim fiscal period and their causes are described below.
Net cash provided by operating activities was an inflow of (Y)44.5
billion. This amount was primarily attributable to net income of (Y)28.5 billion
and a (Y)l7.1 billion decrease in inventories.
Net cash used in investment activities was an outflow of (Y)5.3
billion. This amount was primarily attributable to capital expenditures of
(Y)5.0 billion, including capital expenditures related to equipment for leasing.
Net cash used in financing activities was an outflow of (Y)2.2 billion.
This amount was primarily attributable to the payment of dividends ((Y)2.4
billion).
-7-
Advantest Corporation - Consolidated (FY2004 Interim)
Interim Consolidated Financial Statements, etc.
Interim Consolidated Balance Sheets
FY2003 interim FY2004 interim Summarized balance sheet
of FY2003
(As of September 30, 2003) (As of September 30, 2004) (As of March 31, 2004)
Notes Amount Percentage Amount Percentage Amount Percentage
(in million (%) (in million (%) (in million (%)
yen) yen) yen)
(Assets)
Cash and cash equivalents 94,606 139,911 101,146
Trade accounts *1 44,089 86,222 76,133
receivable, less
allowance for
doubtful accounts
Inventories 34,346 32,687 49,423
Deferred tax assets 13,556 12,411 25,875
Other current assets 2,251 2,504 3,185
------- ------- -------
Total current assets 188,848 65.8 273,735 78.2 255,762 77.3
Investment Note 4 7,480 2.6 6,882 2.0 7,952 2.4
securities
Property, plant *2, *3 53,688 18.7 51,938 14.8 50,516 15.3
and equipment, net
Deferred tax assets 29,647 10.3 11,781 3.4 10,964 3.3
Intangible assets, at cost, 5,196 1.8 3,334 1.0 3,756 1.1
less accumulated amortization
Other assets 2,235 0.8 2,281 0.6 1,858 0.6
------- ----- ------- ----- ------- -----
Total assets 287,094 100.0 349,951 100.0 330,808 100.0
-8-
Advantest Corporation - Consolidated (FY2004 Interim)
FY2003 interim FY2004 interim Summarized balance sheet
of FY2003
(As of September 30, 2003) (As of September 30, 2004) (As of March 31, 2004)
Notes Amount Percentage Amount Percentage Amount Percentage
(in million (%) (in million (%) (in million (%)
yen) yen) yen)
(Liabilities)
Current installments *3 2,243 4,543 4,543
of long-term debt
Trade accounts payable 16,496 24,985 38,214
Income taxes payable 1,963 5,025 3,845
Accrued expenses 5,909 8,809 8,939
Accrued warranty expenses 2,367 4,746 3,121
Deferred revenue 1,740 4,252 4,543
Other current liabilities 2,415 5,109 3,406
------ ------ -------
Total current liabilities 33,133 11.6 57,469 16.4 66,611 20.1
Long-term debt, *3 24,604 8.6 20,062 5.7 20,083 6.1
excluding current installments
Accrued pension and 15,172 5.3 18,866 5.4 18,348 5.6
severance cost
Other liabilities 3,569 1.2 3,512 1.1 3,411 1.0
------ ------ -------
Total liabilities 76,478 26.7 99,909 28.6 108,453 32.8
(Minority interests)
Minority interests 313 0.1 114 0.0 587 0.2
(Stockholders'equity)
Common stock 32,363 11.3 32,363 9.3 32,363 9.8
Capital surplus 32,973 11.5 32,973 9.4 32,973 10.0
Retained earnings 164,017 57.1 203,420 58.1 177,404 53.5
Accumulated other *4 (5,873) (2.1) (6,157) (1.8) (8,061) (2.4)
comprehensive income
(loss)
Treasury stock (13,177) (4.6) (12,671) (3.6) (12,911) (3.9)
------- ------- -------
Total stockholders' equity 210,303 73.2 249,928 71.4 221,768 67.0
Total liabilities ------- ------- -------
and stockholders' equity 287,094 100.0 349,951 100.0 330,808 100.0
-9-
Advantest Corporation - Consolidated (FY2004 Interim)
(Notes)
FY2003 interim FY2004 interim FY2003
(As of September 30, 2003) (As of September 30, 2004) (As of March 31, 2004)
Amount Amount Amount
(in million yen) (in million yen) (in million yen)
*1. Allowance for doubtful accounts 2,214 2,472 2,464
*2. Accumulated depreciation on
property, plant and equipment 69,182 66,602 64,533
*3. Collateralized assets and
secured obligations
Property, plant and equipment 409 398 403
Obligations secured by the above 46 31 38
*4. Accumulated other comprehensive
income (loss)
Foreign currency translation (6,488) (5,720) (8,087)
adjustments
Net unrealized gains on 615 746 1,422
available-for-sale securities
Minimum pension liability -- (1,183) (1,396)
adjustment
5. Net assets per share (in yen) 2,140.61 2,542.41 2,256.59
-10-
Advantest Corporation - Consolidated (FY2004 Interim)
Interim Consolidated Statements of Income
Summarized statement of
FY2003 interim FY2004 interim income of FY2003
(April 1, 2003 through (April 1, 2004 through (April 1, 2003 through
September 30, 2003) September 30, 2004) March 31, 2004)
Notes Amount Percentage Amount Percentage Amount Percentage
(in million (%) (in million (%) (in million (%)
yen) yen) yen)
------------------------------ ----------------------------- -----------------------------
Net sales 62,286 100.0 146,589 100.0 174,218 100.0
Cost of sales 31,801 51.1 68,238 46.6 85,513 49.1
------ ------ ------
Gross profit 30,485 48.9 78,351 53.4 88,705 50.9
Research and 10,749 17.3 12,087 8.2 21,637 12.4
development expenses
Selling, general 15,297 24.5 20,844 14.2 36,108 20.7
and administrative ------ ------ ------
expenses
Operating income 4,439 7.1 45,420 31.0 30,960 17.8
Other income
(expense):
Interest and 163 212 339
dividends income
Interest expense (248) (225) (469)
Minority interests (5) (85) (214)
Equity in losses of (117) -- (117)
affiliates
Other (511) (718) (1.1) 1,522 1,424 1.0 (1,621) (2,082) (1.2)
----- ------ -------
Income before 3,721 6.0 46,844 32.0 28,878 16.6
income taxes
Income Taxes 1,268 2.1 18,271 12.5 11,549 6.6
----- ------ ------
Net income 2,453 3.9 28,573 19.5 17,329 10.0
FY2003 interim FY2004 interim FY2003
(April 1, 2003 through (April 1, 2004 through (April 1, 2003 through
September 30, 2003) September 30, 2004) March 31, 2004)
Notes Amount (in yen) Amount (in yen) Amount (in yen)
Net income per share
Basic 24.96 290.68 176.37
Diluted 24.94 290.07 176.02
-11-
Advantest Corporation - Consolidated (FY2004 Interim)
Interim Consolidated Statements of Stockholders' Equity
FY2003 interim FY2004 interim Statement of stockholders'
equity of FY2003
(April 1, 2003 through (April 1, 2004 through (April 1, 2003 through
September 30, 2003) September 30, 2004) March 31, 2004)
Notes Amount Amount Amount
(in million yen) (in million yen) (in million yen)
Common stock :
Balance at beginning of period 32,363 32,363 32,363
------ ------ ------
Balance at end of period 32,363 32,363 32,363
Capital surplus :
Balance at beginning of period 32,973 32,973 32,973
------ ------ ------
Balance at end of period 32,973 32,973 32,973
Retained earnings :
Balance at beginning of period 162,547 177,404 162,547
Net income 2,453 28,573 17,329
Cash dividends (983) (2,458) (2,456)
Loss on disposal of treasury stock -- (99) (16)
------- ------- -------
Balance at end of period 164,017 203,420 177,404
Accumulated other comprehensive income
(loss):
Balance at beginning of period (4,055) (8,061) (4,055)
Other comprehensive income (loss), net of tax (1,818) 1,904 (4,006)
------- ------- --------
Balance at end of period (5,873) (6,157) (8,061)
Treasury stock :
Balance at beginning of period (13,165) (12,911) (13,165)
Treasury stock purchased (12) (11) (32)
Exercise of stock options -- 249 180
Decrease in treasury stock upon Share exchange -- -- 105
Treasury stock sold -- 2 1
------- ------- --------
Balance at end of period (13,177) (12,671) (12,911)
------- ------- ---------
Total stockholders' equity 210,303 249,928 221,768
Disclosure of comprehensive income:
Net income 2,453 28,573 17,329
Other comprehensive income (loss), (1,818) 1,904 (4,006)
net of tax -------- -------- ---------
Total comprehensive income 635 30,477 13,323
-12-
Advantest Corporation - Consolidated (FY2004 Interim)
Interim Consolidated Statements of Cash Flows
FY2003 interim FY2004 interim Summarized statement of
cash flows of FY2003
(April 1, 2003 through (April 1, 2004 through (April 1, 2003 through
September 30, 2003) September 30, 2004) March 31, 2004)
Amount Amount Amount
(in million yen) (in million yen) (in million yen)
I Cash flows from operating activities:
Net income 2,453 28,573 17,329
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 4,857 4,035 9,328
Deferred income taxes (231) 13,081 6,703
Impairment loss on long-lived assets -- -- 3,030
Decrease (increase) in trade accounts receivable (1,535) (8,544) (35,285)
Decrease (increase) in inventories 1,028 17,171 (14,570)
Increase (decrease) in trade accounts payable 6,105 (14,455) 29,190
Increase (decrease) in income taxes payable 12 1,074 1,997
Increase (decrease) in accrued expenses (659) (196) 2,518
Increase (decrease) in accrued warranty expenses (45) 1,625 709
Increase (decrease) in deferred revenue 444 (514) 3,441
Increase (decrease) in accrued pension and 860 876 2,639
severance cost
Other 72 1,819 1,186
------ ------ ------
Net cash provided by operating activities 13,361 44,545 28,215
-13-
Advantest Corporation - Consolidated (FY2004 Interim)
FY2003 interim FY2004 interim Summarized statement of
cash flows of FY2003
(April 1, 2003 through (April 1, 2004 through (April 1, 2003 through
September 30, 2003) September 30, 2004) March 31, 2004)
Amount Amount Amount
(in million yen) (in million yen) (in million yen)
II Cash flows from investing activities:
Proceeds from sale of available-for-sale 236 634 323
marketable securities
Proceeds from sale of non-marketable securities 301 45 387
Purchases of non-marketable securities (1,000) -- (1,288)
Proceeds from sale of property, plant and 277 31 435
equipment
Purchases of intangible assets (135) (204) (358)
Purchases of property, plant and equipment (2,127) (4,818) (5,068)
Other 185 (996) 499
------- ------- --------
Net cash used in investing activities (2,263) (5,308) (5,070)
III Cash flows from financing activities:
Principal payments on long-term debt (1,590) (21) (3,811)
Payments to acquire treasury stock (12) (7) (31)
Dividends paid (981) (2,453) (2,462)
Other (44) 226 (72)
------- ------- --------
Net cash used in financing activities (2,627) (2,255) (6,376)
------- ------- --------
IV Net effect of exchange rate changes on cash (1,203) 1,783 (2,961)
and cash equivalents
V Net change in cash and cash equivalents 7,268 38,765 13,808
VI Cash and cash equivalents at beginning of period 87,338 101,146 87,338
------- ------- --------
VII Cash and cash equivalents at end of period 94,606 139,911 101,146
-14-
Advantest Corporation - Consolidated (FY2004 Interim)
Notes to the Interim Consolidated Financial Statements
(Note 1) Accounting Principles, Procedures and the Presentation of the Interim
Consolidated Financial Statements
(a) Terminology, Form and Method of Preparation of the Interim Consolidated
Financial Statements
Advantest prepares these interim consolidated financial statements in
accordance with the accounting principles, procedures, terminology, form and
mode of preparation required in the U.S. in connection with its issuance of
American Depository Shares as established under Accounting Research Bulletins
("ARB"), Accounting Principles Board ("APB") statements, Statements of Financial
Accounting Standards ("SFAS") and other relevant sources.
(b) The Preparation of Consolidated Financial Statements and Registration with
the U.S. Securities and Exchange Commission
Advantest Corporation began listing on the New York Stock Exchange on
September 17, 2001 (local time) by means of an issuance of American Depository
Shares, and is registered with the U.S. Securities and Exchange Commission on
Form 20-F (equivalent to the Annual Securities Report in Japan) since FY2001. In
connection with the registration on Form 20-F, Advantest prepares consolidated
financial statements in accordance with U.S. GAAP.
(c) Scope of Consolidation and Application of the Equity Method
Advantest's interim consolidated financial statements include financial
statements of Advantest Corporation and its majority-owned subsidiaries. All
significant transactions, credit and debt between consolidated companies have
been eliminated.
The following table sets forth the number of consolidated subsidiaries
and equity method affiliates of Advantest:
FY2004 interim FY2003 Increase
(As of September (As of March 31, (decrease)
30,2004) 2004)
Domestic 22 23 (1)
Overseas 17 17 0
--- --- ---
Consolidated subsidiaries 39 40 (1)
Equity method affiliates 0 0 0
--- --- ---
Total 39 40 (1)
Changes in the scope of consolidation:
Newly included (1): Advantest Costa Rica, Sociedad Anonima *1
Excluded (2): Advanmicrotec Co., Ltd. *2
Advantest America Measuring Solutions, Inc. *3
*1 Advantest Costa Rica, Sociedad Anonima was established on September 30,
2004 as an engineering service company of Advantest's products.
*2 Advanmicrotec Co., Ltd. was merged into Advantest Manufacturing, Inc. on
April 1, 2004 to consolidate Advantest's manufacturing operations.
*3 Advantest America Measuring Solutions, Inc. was merged into Advantest
America, Inc. on September 30, 2004 with a view to streamline management.
-15-
Advantest Corporation - Consolidated (FY2004 Interim)
(Note 2) Summary of Significant Accounting Policies and Practices
There was no change in accounting practices.
Advantest and certain of its consolidated domestic subsidiaries
received approval from the Minister of Health and Labor to be exempted from
obligation for benefits related to future employee service on August 1, 2003 and
received approval to be exempted from obligation for benefits related to prior
employee service on October 1, 2004 under the substitutional portion of its
Employees' Pension Fund plans as part of the transfer of its Employees' Pension
Fund plans to the Japanese government pursuant to the Defined Benefit Corporate
Pension Law. Advantest and certain of its consolidated domestic subsidiaries
expect to recognize, upon completion of the transfer to the government of the
substitutional portion, any loss or gains resulting therefrom in accordance with
EITF Issue No. 03-2, "Accounting for the Transfer to the Japanese Government of
the Substitutional Portion of Employee Pension Fund Liabilities." Accordingly,
there has been no effect on Advantest's interim consolidated financial
statements for the 6 month period ended September 30, 2004.
(Note 3) Reclassifications
Certain reclassifications have been made to the consolidated financial
statements for FY2003 interim and FY2003 to conform to presentation used for
FY2004 interim.
(Note 4) Investment Securities
Marketable securities consist of equity securities. The aggregate fair
value of available-for-sale marketable equity securities were (Y)2,938 million,
(Y)4,287 million and (Y)4,311 million, gross unrealized holding gains were
(Y)1,099 million, (Y)1,440 million and (Y)2,093 million, gross unrealized
holding losses were (Y)7 million, (Y)319 million and (Y)1 million, and the
aggregate cost were (Y)1,846 million, (Y)3,177 million and (Y)2,238 million each
as of September 30, 2003 and September 30, 2004 and March 31, 2004,
respectively.
Gross realized gains on available-for-sale marketable equity securities
were (Y)174 million, (Y)629 million and (Y)178 million in FY2003 interim, FY2004
interim and FY2003, respectively. Gross realized loss was (Y)2 million in
FY2003. Gross realized gains and losses are included in "other income
(expense)" in the interim consolidated statement of income and the consolidated
statement of income, and "other" in net cash provided by operating activities in
the interim consolidated statements of cash flows and the consolidated
statements of cash flows.
Advantest holds other long-term investment securities in nonpublic
companies, which are stated at cost and included in "investment securities", and
are reviewed periodically for impairment.
-16-
Advantest Corporation - Consolidated (FY2004 Interim)
(Note 5) Basic and diluted net income per share
Basic and diluted net income per share was computed as follows:
FY2003 interim
--------------
Numerator:
Net income 2,453 million
----------
Denominator:
Basic weighted average shares 98,245,709 shares
Dilutive effect of exercise of stock option and warrants 101,630 shares
----------
Diluted weighted average shares 98,347,339 shares
----------
FY2004 interim
--------------
Numerator:
Net income 28,573 million
----------
Denominator:
Basic weighted average shares 98,295,932 shares
Dilutive effect of exercise of stock option and
warrants 206,598 shares
----------
Diluted weighted average shares 98,502,530 shares
----------
FY2003
------
Numerator:
Net income 17,329 million
----------
Denominator:
Basic weighted average shares 98,250,830 shares
Dilutive effect of exercise of stock option and warrants 195,306 shares
----------
Diluted weighted average shares 98,446,136 shares
----------
At September 30, 2003, September 30, 2004 and March 31, 2004, Advantest
had outstanding stock options and warrants exercisable into 1,133,800 shares,
1,799,500 shares and 329,500 shares of common stock, respectively, which could
potentially dilute net income per share in future periods.
-17-
Advantest Corporation - Consolidated (FY2004 Interim)
(Segment Information)
1. Business Segment Information
FY2003 interim FY2004 interim FY2003
(April 1, 2003 through (April 1, 2004 through (April 1, 2003 through
September 30, 2003) September 30, 2004) March 31, 2004)
--------------------------- --------------------------- --------------------------
Amount (in Percentage Amount (in Percentage Amount (in Percentage
million yen) (%) million yen) (%) million yen) (%)
Semiconductor and component test system
Sales to unaffiliated customers 39,272 95.9 107,920 95.4 119,765 97.0
Intersegment sales 1,689 4.1 5,252 4.6 3,724 3.0
------ ----- ------- ----- ------- -----
Net sales 40,961 100.0 113,172 100.0 123,489 100.0
Operating expenses 37,360 91.2 75,382 66.6 94,799 76.8
------ ----- ------- ----- ------- -----
Operating income (loss) 3,601 8.8 37,790 33.4 28,690 23.2
Mechatronics system
Sales to unaffiliated customers 13,065 98.5 27,794 98.9 33,988 99.3
Intersegment sales 196 1.5 306 1.1 237 0.7
------ ----- ------- ----- ------- -----
Net sales 13,261 100.0 28,100 100.0 34,225 100.0
Operating expenses 10,067 75.9 18,150 64.6 22,992 67.2
------ ----- ------- ----- ------- -----
Operating income (loss) 3,194 24.1 9,950 35.4 11,233 32.8
Services, support and others
Sales to unaffiliated customers 9,949 100.0 10,875 100.0 20,465 100.0
Intersegment sales - - - - - -
------ ----- ------- ----- ------- -----
Net sales 9,949 100.0 10,875 100.0 20,465 100.0
Operating expenses 9,374 94.2 10,110 93.0 23,052 112.6
------ ----- ------- ----- ------- -----
Operating income (loss) 575 5.8 765 7.0 (2,587) (12.6)
Elimination and corporate
Sales to unaffiliated customers - - - - - -
Intersegment sales (1,885) 100.0 (5,558) 100.0 (3,961) 100.0
------ ----- ------- ----- ------- -----
Net sales (1,885) 100.0 (5,558) 100.0 (3,961) 100.0
Operating expenses 1,046 - (2,473) - 2,415 -
------ ----- ------- ----- ------- -----
Operating income (loss) (2,931) - (3,085) - (6,376) -
Consolidated
Sales to unaffiliated customers 62,286 100.0 146,589 100.0 174,218 100.0
Intersegment sales - - - - - -
------ ----- ------- ----- ------- -----
Net Sales 62,286 100.0 146,589 100.0 174,218 100.0
Operating expenses 57,847 92.9 101,169 69.0 143,258 82.2
------ ----- ------- ----- ------- -----
Operating income (loss) 4,439 7.1 45,420 31.0 30,960 17.8
(Notes) 1. Advantest regrouped its two business segments - "Automated Test
Equipment" and "Measuring Instruments"- into three business
segments- "Semiconductor and Component Test System", "Mechatronics
System" and "Services, Support and Others". Certain reclassifications
have been made to the business segment information for FY2003 interim
and FY2003 to conform presentation used for FY2004 interim.
2. Adjustments to operating income (loss) in Corporate principally
represent corporate general and administrative expenses and research
and development expenses related to fundamental research activities
that are not allocated to operating segments.
2. Geographic Segment Information (Based on Location of Customers)
FY2003 interim FY2004 interim FY2003
(April 1, 2003 through (April 1, 2004 through (April 1, 2003 through
September 30, 2003) September 30, 2004) March 31, 2004)
--------------------------- ------------------------ --------------------------
Amount (in Percentage Amount (in Percentage Amount (in Percentage
million yen) (%) million yen) (%) million yen) (%)
Americas 3,879 6.2 13,494 9.2 16,264 9.3
Europe 4,514 7.2 7,557 5.2 10,401 6.0
Asia 29,074 46.8 87,869 59.9 89,563 51.4
------ ---- ------- ----- ------- -----
Overseas total 37,467 60.2 108,920 74.3 116,228 66.7
Japan 24,819 39.8 37,669 25.7 57,990 33.3
------ ----- ------- ----- ------- -----
Consolidated 62,286 100.0 146,589 100.0 174,218 100.0
-18-
Advantest Corporation - Supplemental Information (FY2004 Interim)
Supplemental Information to the FY2004 Interim Earnings Digest
*All consolidated figures were prepared in accordance with U.S. GAAP.
1. Summary of FY2004 Interim Results (April 1, 2004 through September 30, 2004)
(Consolidated) (In billion yen; truncated after the hundred million)
FY2003 interim FY2004 interim Percentage change (%) FY2003
Net sales 62.2 146.5 135.3 174.2
Operating income 4.4 45.4 923.2 30.9
Income before income taxes 3.7 46.8 - 28.8
Net income 2.4 28.5 - 17.3
Total assets 287.0 349.9 21.9 330.8
Stockholders' equity 210.3 249.9 18.8 221.7
Net income per share (basic) (in yen) 24.96 290.68 - 176.37
Net income per share (diluted) (in yen) 24.94 290.07 - 176.02
Stockholders' equity per share (in yen) 2,140.61 2,542.41 18.8 2,256.59
Net interest payment (0.0) (0.0) - (0.1)
ROE(%) - - - 8.0
(Unconsolidated) (Japanese GAAP) (In billion yen; truncated after the hundred million)
FY2003 interim FY2004 interim Percentage change (%) FY2003
Net sales 50.8 121.0 138.1 150.5
Operating income 1.5 28.3 - 23.7
Ordinary income 2.4 30.1 - 24.0
Net income 1.8 18.6 926.7 11.9
Total assets 241.1 286.7 18.9 277.0
Stockholders' equity 179.5 204.7 14.0 188.8
Net income per share (in yen) 18.52 190.09 926.4 119.97
Stockholders' equity per share (in yen) 1,827.98 2,082.83 13.9 1,920.33
Dividends per share (in yen) 15.00 25.00 66.7 40.00
2. Consolidated Net Sales by Business and Geographic Segment (In billion yen; truncated after the hundred million)
By Business Segment FY2003 interim FY2004 interim Percentage change (%) FY2003
Semiconductor and component test system 40.9 113.1 176.3 123.4
Mechatronics system 13.2 28.1 111.9 34.2
Services, support and others 9.9 10.8 9.3 20.4
Elimination of intersegment sales (1.8) (5.5) - (3.9)
------ ------- ------ -------
Total net sales 62.2 146.5 135.3 174.2
By Geographic Segment FY2003 interim FY2004 interim Percentage change (%) FY2003
Japan 24.8 37.6 51.8 57.9
------ ------- ------ -------
Americas 3.8 13.4 247.9 16.2
Europe 4.5 7.5 67.4 10.4
Asia 29.0 87.8 202.2 89.5
------ ------- ------ -------
Total overseas 37.4 108.9 190.7 116.2
-19-
Advantest Corporation - Supplemental Information (FY2004 Interim)
3. Consolidated Volume of Order and Orders backlog by Business Segment (In billion yen; truncated after the hundred million)
Volume of order FY2003 interim FY2004 interim Percentage change (%) FY2003
Semiconductor and component test system 56.3 96.1 70.7 154.0
Mechatronics system 16.2 24.6 51.8 39.4
Services, support and others 9.6 10.0 3.6 20.1
Elimination of intersegment sales (1.9) (5.5) - (4.6)
------ ------- ------ -------
Total volume of orders 80.2 125.2 56.0 208.9
Orders backlog FY2003 interim FY2004 interim Percentage change (%) FY2003
Semiconductor and component test system 26.4 24.6 (6.9) 41.6
Mechatronics system 6.9 5.7 (17.2) 9.2
Services, support and others 1.4 0.5 (61.4) 1.4
Elimination of intersegment sales (0.1) (0.8) - (0.7)
------ ------- ------ -------
Total orders backlog 34.7 30.1 (13.2) 51.4
(Note) The amount of incoming orders for any given period consists of the sum
of the revenues for such period and the amount of backlog at the end of
such period less the backlog at the end of the previous fiscal year.
Incoming orders are recorded as such once a written customer order is
received.
4. Consolidated Cash Flows (In billion yen; truncated after the hundred million)
FY2003 interim FY2004 interim Percentage change (%) FY2003
Operating activities 13.3 44.5 233.4 28.2
Investing activities (2.2) (5.3) - (5.0)
(Free cash flows) 11.0 39.2 253.6 23.1
Financing activities (2.6) (2.2) - (6.3)
Total cash flows 8.4 36.9 336.6 16.7
------ ------- ------ -------
Cash and cash equivalents at end of period 94.6 139.9 47.9 101.1
5. Consolidated Outstanding Interest-bearing liabilities (In billion yen; truncated after the hundred million)
FY2003 interim FY2004 interim Percentage change (%) FY2003
Bonds and warrant bonds 26.7 24.5 (8.2) 24.5
Loans and lease obligations 0.2 0.1 (38.3) 0.1
------ ------- ------ -------
Total interest-bearing liabilities 26.9 24.6 (8.5) 24.6
6. Consolidated Capital Expenditure, Depreciation and Amortization and Research and Development Expenses
(In billion yen; truncated after the hundred million)
FY2003 interim FY2004 interim Percentage change (%) FY2003
Capital expenditures 2.1 5.1 138.0 5.6
Depreciation and amortization 4.8 4.0 (16.9) 9.3
Research and development expenses 10.7 12.0 12.5 21.6
7. Number of Employees (Advantest Corporation and Consolidated Subsidiaries) (Persons)
FY2003 interim FY2004 interim Percentage change (%) FY2003
Unconsolidated 1,446 1,450 0.3 1,450
------ ------- ------ -------
Domestic affiliates 1,401 1,355 (3.3) 1,370
Overseas affiliates 732 770 5.2 724
------ ------- ------ -------
Affiliates total 2,133 2,125 (0.4) 2,094
------ ------- ------ -------
Consolidated full-time employee total 3,579 3,575 (0.1) 3,544
-20-
Advantest Corporation - Supplemental Information (FY2004 Interim)
8. Supplemental Segment Information
Geographic Segment Information (Based on Location of Advantest and its Affiliates)
(Rounded to the nearest million yen)
FY2003 interim FY2004 interim FY2003
----------------------------------- ----------------------------------- ------------------------------------
(April 1, 2003 through Percentage (April 1, 2004 through Percentage (April 1, 2003 through Percentage
September 30, 2003) (%) September 30, 2004) (%) March 31, 2004) (%)
Japan
Sales to unaffiliated 36,269 - 60,205 - 91,860 -
customers
Intersegment sales 18,682 - 64,367 - 68,143 -
-------- ------ -------- ----- -------- -----
Net sales 54,951 100.0 124,572 100.0 160,003 100.0
Operating expenses 50,005 91.0 89,910 72.2 128,421 80.3
-------- ------ -------- ----- -------- -----
Operating income 4,946 9.0 34,662 27.8 31,582 19.7
Americas
Sales to unaffiliated 10,140 - 38,685 - 29,641 -
customers
Intersegment sales 1,120 - 1,224 - 2,134 -
-------- ------ -------- ----- -------- -----
Net sales 11,260 100.0 39,909 100.0 31,775 100.0
Operating expenses 10,988 97.6 34,380 86.1 29,593 93.1
-------- ------ --------- ----- -------- -----
Operating income 272 2.4 5,529 13.9 2,182 6.9
Europe
Sales to unaffiliated 5,855 - 8,754 - 15,322 -
customers
Intersegment sales 301 - 449 - 728 -
-------- ------ -------- ----- -------- -----
Net sales 6,156 100.0 9,203 100.0 16,050 100.0
Operating expenses 5,259 85.4 7,634 83.0 13,945 86.9
-------- ------ -------- ----- -------- -----
Operating income 897 14.6 1,569 17.0 2,105 13.1
Asia
Sales to unaffiliated 10,022 - 38,945 - 37,395 -
customers
Intersegment sales 1,808 - 3,843 - 4,051 -
-------- ------ -------- ----- -------- -----
Net sales 11,830 100.0 42,788 100.0 41,446 100.0
Operating expenses 10,960 92.6 36,934 86.3 36,443 87.9
-------- ------ -------- ----- -------- -----
Operating income 870 7.4 5,854 13.7 5,003 12.1
Elimination and corporate
Sales to unaffiliated - - - - - -
customers
Intersegment sales (21,911) - (69,883) - (75,056) -
-------- ------ -------- ----- -------- -----
Net sales (21,911) - (69,883) - (75,056) -
Operating expenses (19,365) - (67,689) - (65,144) -
-------- ------ -------- ----- -------- -----
Operating income (loss) (2,546) - (2,194) - (9,912) -
Consolidated
Sales to unaffiliated 62,286 - 146,589 - 174,218 -
customers
Intersegment sales - - - - - -
-------- ------ -------- ----- -------- -----
Net sales 62,286 100.0 146,589 100.0 174,218 100.0
Operating expenses 57,847 92.9 101,169 69.0 143,258 82.2
-------- ------ -------- ----- -------- -----
Operating income 4,439 7.1 45,420 31.0 30,960 17.8
(Note) Adjustments to operating income (loss) in Corporate principally
represent corporate general and administrative expenses and research
and development expenses related to fundamental research activities
that are not allocated to operating segments.
-21-