(The following is an unofficial English translation of the Report for the 63rd
Fiscal Year of Advantest Corporation (the "Company"). The Company provides this
translation for your reference and convenience only and without any warranty as
to its accuracy or otherwise.)
Report for the 63rd Fiscal Year
-------------------------------
(April 1, 2004 through March 31, 2005)
--------------------------------------
Advantest Corporation
---------------------
1
Contents
--------
Message to Shareholders 3
(Attachments to the Convocation Notice of the 63rd Ordinary General Meeting of
Shareholders)
Business Report 4
Consolidated Balance Sheets 19
Consolidated Statements of Income 20
Balance Sheets 23
Statements of Income 24
Proposed Appropriation of Retained Earnings 27
Copy of Independent Auditor's Report (Consolidated) 28
Copy of Board of Corporate Auditors' Audit Report (Consolidated) 29
Copy of Independent Auditor's Report 30
Copy of Board of Corporate Auditors' Audit Report 31
(Reference) Memorandum to Shareholders 32
2
Message to Shareholders
-----------------------
To Our Shareholders
We are pleased to send you our "Report for the 63rd Fiscal Year (from
April 1, 2004 to March 31, 2005)."
In response to severe competition and the unfavorable business climate
triggered by the collapse of the IT bubble, in October 2001 Advantest launched a
company-wide initiative called "Initiative 21." The final year of the campaign
was set for fiscal 2004, which was also Advantest's 50th anniversary year.
The business environment in fiscal 2004 was favorable due to an
increased appetite for capital expenditures in the semiconductor industry,
supported by factors such as a recovery in the electronics market and strong
demand for personal computers. In this environment, the Advantest Group has
sought to expand sales by marketing new, high-value-added products that meet
market needs, while focusing on fundamental improvements to our manufacturing
system and implementing cost reductions to increase our revenues.
During this term Advantest also implemented the "Code of Ethics for
Officers" in order to achieve a higher level of ethical conscience, integrity
and social justice in our corporate activities. We have also made management
more transparent to our investors, shareholders, customers and other
stakeholders, and have sought to build a globally competitive management
operation. Furthermore, the "Internal Control Committee" was established to
achieve three goals: (1) Efficacy and efficiency of business management; (2)
reliability of financial reporting and (3) compliance with laws and regulations.
As a result of these efforts, net sales this fiscal year increased by
37.4% to JPY 239.4 billion from the previous fiscal year. Income before income
taxes increased by 114.0% to JPY 61.8 billion and net income increased 119.7% to
JPY 38.0 billion from the previous fiscal year.
Advantest believes that the maintenance and growth of corporate value
in the long term is fundamental to shareholder profit. Based on our basic profit
distribution policy of maintaining consistent dividend payouts, we intend to
propose at the 63rd Ordinary General Meeting of Shareholders, to be held on June
28, 2005, that the year-end dividend will be JPY 25 per share, which, combined
with the interim dividend of JPY 25 already paid, makes an annual dividend of
JPY 50 as compared to JPY 40 in fiscal 2003).
Encouraged by the results achieved through Initiative 21, we are going
to deploy a company-wide initiative based on the new medium-term business plan
that starts in fiscal 2005. While continuing to emphasize our core competency,
"measurement," we will seek to strengthen our management structure and financial
position to enable us to adapt to changes in the global market; we will develop
new products to stimulate next-generation market demand; and we will raise
Advantest to the next level of its evolution.
We hope that we may rely on you for your continued support and guidance
in the future.
June, 2005
Hiroshi Oura
Chairman of the Board and CEO
Toshio Maruyama
President and COO
3
(Attachments to the Convocation Notice of the 63rd Ordinary General Meeting of
Shareholders)
Business Report
---------------
(April 1, 2004 through March 31, 2005)
1. Overview of Business
(1) Operations and Results of Business
(i) Business Conditions
Overall
During the fiscal year, business conditions affecting the Advantest
Group in the first half of the fiscal year were favorable due to strong capital
expenditures of semiconductor manufacturing industry, as stimulated by the
strong demand for electronic products such as flat-screen televisions, DVD
devices and digital cameras and a steady demand for computers including personal
computers. However, in the second half of the fiscal year, capital expenditures
of the semiconductor manufacturing industry indicated a trend to expenditure
restrictions as a result of inventory control of consumer digital electronics
products and a decline in DRAM prices. Towards the end of the fiscal year there
were signs of recovery.
Under such an environment, Advantest made concentrated efforts to
increase incoming orders and expand sales through the timely introduction of new
products that meets customers' needs. Advantest and its group companies combined
forces in a drive towards improving profitability by after stock production
method and improving production efficiency, through a reorganization of its
manufacturing operations, as well as continuing its efforts to reduce costs.
As a result of above incoming orders increased by 8.9% to JPY 227.4
billion compared with the previous fiscal year and net sales increased by 37.4%
to JPY 239.4 billion. Net income before income taxes was JPY 61.8 billion, an
increase of 114.0%, and net income for the current period was JPY 38.0 billion,
up 119.7% from the previous fiscal year. Overseas sales as a percentage of total
sales was 74.9%, as compared to 66.7% in the previous fiscal year.
Business conditions by Business Segment
Advantest and its group companies reclassified and regrouped its two
reportable segments of "automated test equipment" and "measuring instruments"
into the following three new segments: "Semiconductor and Component Test
Systems," "Mechatronics Systems," and "Services, Support and Others" since the
beginning of this fiscal year. With respect to the amounts for the previous term
below, necessary adjustments and reclassification to the segment information for
the preceding consolidated fiscal year have been made to conform with the
presentation of the current period.
Semiconductor and Component Test System Segment
In the memory tester market, testers for DRAM performed well throughout
the year despite some adjustments made in the second half of the fiscal year,
due to strong performance of new products such as super-high-speed memory
testers and general purpose high-speed memory tester for the next-generation DDR
and general high-speed memory testers. On the other hand, sales of flash memory
testers were strong in the first half of the fiscal year in continuation from
the previous fiscal year, but orders and sales lagged in the second half of the
year due to reduced capital expenditures of semiconductor manufacturers
IT-related products. In the SoC (System-on-a-Chip) and AS (Application Specific)
tester market, sales of T2000, a new concept tester based on OPENSTAR(R)*,
performed strongly throughout the year. On the other hand, SoC testers for cell
phones and other digital consumer devices and testers for LCD driver ICs have
maintained large sales from the previous fiscal year, domestically and in
Taiwan. As with flash memory testers, however, orders and sales of SoC testers
and testers for LCD driver ICs lagged in the second half of the year.
4
As a result of the above, incoming orders in the semiconductor and
component test system business increased by 11.1% to JPY 171.0 billion and net
sales increased by 46.3% to JPY 180.6 billion and operating income increased by
76.5% to JPY 50.6 billion compared with the previous fiscal year.
Mechatronics System Segment
Impacted by the positive sales of memory testers, memory test handlers
with cooling featurer throughout the fiscal year, despite inventory adjustment
in the second half of the fiscal year. In addition, device interface products
maintained steady throughout the fiscal year, as a result of factors such as
diversification of devices.
As a result of the above, incoming orders in the segment increased by
11.1% to JPY 43.8 billion, net sales increased by 35.6% to JPY 46.3 billion, and
operating income increased by 21.6% to JPY 13.6 billion compared with the
previous fiscal year.
Services, Support and Others Segment
In this segment, incoming orders was JPY 19.1 billion (-5.1% in
comparison with previous year), net sales was JPY 19.6 billion (-3.8%) and
operating profit was JPY 3.4 billion.
(Note) OPENSTAR(R): The name of an open architecture standard published by the
STC (Semiconductor Test Consortium, Inc.). OPENSTAR(R) is a
registered trademark or trademark in the United States,
Japan, and other countries.
5
Sales Breakdown by Business Segment (consolidated)
-------------------- ----------------------------- ---------------------------- ------------------------------
Fiscal Year Change from the previous
FY2003 FY2004 period
Segment
(the 62nd) (the 63rd)
-------------------- ----------------------------- ---------------------------- ------------------------------
Amount Percentage Amount Percentage Amount Percentage
(in: million yen) (%) (in: million (%) (in: million yen) increase
yen) (decrease)
(%)
-------------------- ----------------- ----------- -------------- ------------- ----------------- ------------
Semiconductor and 123,489 70.9 180,685 75.5 57,196 46.3
Component Test
System
-------------------- ----------------- ----------- -------------- ------------- ----------------- ------------
Mechatronics 34,225 19.6 46,395 19.4 12,170 35.6
System
-------------------- ----------------- ----------- -------------- ------------- ----------------- ------------
Services, Support 20,465 11.8 19,680 8.2 (785) (3.8)
and Others
-------------------- ----------------- ----------- -------------- ------------- ----------------- ------------
Elimination and (3,961) (2.3) (7,321) (3.1) (3,360) -
Corporate
-------------------- ----------------- ----------- -------------- ------------- ----------------- ------------
Total 174,218 100.0 239,439 100.0 65,221 37.4
-------------------- ----------------- ----------- -------------- ------------- ----------------- ------------
Overseas 116,228 66.7 179,414 74.9 63,186 54.4
-------------------- ----------------- ----------- -------------- ------------- ----------------- ------------
(Note) Necessary adjustments and reclassification of the segment information for
the preceding consolidated fiscal year have been made to conform with the
presentation of the current consolidated period.
Sales Breakdown by Business Segment (unconsolidated)
-------------------- ----------------------------- ---------------------------- ------------------------------
Fiscal Year Change from the previous
FY2003 FY2004 period
Segment
(the 62nd) (the 63rd)
-------------------- ----------------------------- ---------------------------- ------------------------------
Amount Percentage Amount Percentage Amount Percentage
(in: million yen) (%) (in: million yen) (%) (in: million yen) increase
(decrease)
(%)
-------------------- ----------------- ----------- -------------- ------------- ----------------- ------------
Semiconductor and 113,365 75.3 161,749 79.5 48,383 42.7
Component and Test
System
-------------------- ----------------- ----------- -------------- ------------- ----------------- ------------
Mechatronics System 28,777 19.1 36,536 18.0 7,758 27.0
-------------------- ----------------- ----------- -------------- ------------- ----------------- ------------
Services, Support 8,415 5.6 5,028 2.5 (3,386) (40.2)
and Others
-------------------- ----------------- ----------- -------------- ------------- ----------------- ------------
Total 150,558 100.0 203,315 100.0 52,756 35.0
-------------------- ----------------- ----------- -------------- ------------- ----------------- ------------
Export 97,744 64.9 148,018 72.8 50,273 51.4
-------------------- ----------------- ----------- -------------- ------------- ----------------- ------------
(Note) Necessary adjustments and reclassification of the segment information for
the preceding consolidated fiscal year have been made to conform with the
presentation of the current consolidated period.
6
(ii) Challenges Ahead
With respect to business conditions in the upcoming fiscal year,
Advantest expects to see a continuing increase in demand for digital consumer
devices in the medium term, as well as a solid increase in semiconductor demand
in light of the growth for the personal computer market and expansion of the
third-generation mobile phone market. In addition, Advantest expects an increase
in capital expenditures by semiconductor manufacturers resulting from
investments relating to 300mm wafers and the transition to a new generation of
memory devices. Notwithstanding, in the short term, there are some risks
associated with manufacturing and adjustment of products such as electronic
components and IT-related products that lead the digital economy, the raise of
material price, strength of yen and pressure caused by these factors that make
our products' price down.
In order to respond to these conditions, Advantest and its group
companies continue to strive to reduce costs, to shorten time-to-delivery
through improvements in manufacturing efficiency.
(iii) Capital Expenditures
Advantest and its group companies invested a total of JPY 9.3 billion
in capital expenditures in FY2004. Most of the investments were used to fund new
product development manufacturing streamlining, power saving, and to expand
manufacturing capacity.
(iv) Financing
No significant financing activities took place in FY2004.
(2) Historical Data on Business Results and Assets
(i) Historical Data on Business Results and Assets (consolidated)
---------------------------------- ---------------- ---------------- ---------------- ----------------
FY2001 FY2002 FY2003 FY2004
(the 60th) (the 61st) (the 62nd) (the 63rd)
---------------------------------- ---------------- ---------------- ---------------- ----------------
Net sales (in: million yen) 95,244 97,740 174,218 239,439
---------------------------------- ---------------- ---------------- ---------------- ----------------
Net income (in: million yen) (22,949) (12,994) 17,329 38,078
---------------------------------- ---------------- ---------------- ---------------- ----------------
Basic net income per share (in (230.76) (131.99) 176.37 389.54
yen)
---------------------------------- ---------------- ---------------- ---------------- ----------------
Net assets (in: million yen) 242,841 210,663 221,768 206,749
---------------------------------- ---------------- ---------------- ---------------- ----------------
Total assets (in: million yen) 305,075 281,224 330,808 296,769
---------------------------------- ---------------- ---------------- ---------------- ----------------
(Notes) 1: Beginning in FY2002, Advantest prepared its consolidated
financial statements in accordance with generally accepted
accounting principles (GAAP) in the United States.
2: The calculation of "Basic net income per share" was based on the
average number of issued shares the relevant fiscal year reduced
by the average number of treasury shares held during the fiscal
year.
[Charts illustrating the information presented in the above table.]
7
(ii) Historical Data on Business Results and Assets (unconsolidated)
---------------------------------- ---------------- ---------------- ---------------- ----------------
FY2001 FY2002 FY2003 FY2004
(the 60th) (the 61st) (the 62nd) (the 63rd)
---------------------------------- ---------------- ---------------- ---------------- ----------------
Net sales (in: million yen) 72,928 76,686 150,558 203,315
---------------------------------- ---------------- ---------------- ---------------- ----------------
Net income (in: million yen) (19,265) (11,467) 11,957 28,421
---------------------------------- ---------------- ---------------- ---------------- ----------------
Net income per share (in yen) (193.71) (116.49) 119.97 288.68
---------------------------------- ---------------- ---------------- ---------------- ----------------
Net assets (in: million yen) 204,058 178,253 188,891 159,074
---------------------------------- ---------------- ---------------- ---------------- ----------------
Total assets (in: million yen) 258,544 235,456 277,047 238,109
---------------------------------- ---------------- ---------------- ---------------- ----------------
(Notes) 1: The calculation of "Net income per share" was based on the
average number of issued shares the relevant fiscal year
reduced by the average number of treasury shares held
during the fiscal year. Beginning in FY2002, the Company
adopted the "Accounting Standards Regarding Calculations
of Earnings Per Share of current net earnings" (ASB
Statement No. 2) and "Guidelines for Accounting Standards
Regarding Calculations of Earnings Per Share of current
net earnings" (ASB Guidelines No. 4).
2: Beginning in FY2003, the Company has adopted the
"Accounting Standards for Impairment Accounting of Fixed
Assets" Business Accounting Council ("BADC") and
"Implementation Guidelines for Impairment Accounting of
Fixed Assets" (ASB Implementation Guidelines No. 6).
[Charts illustrating the information presented in the above table.]
8
2. Company Information (as of March 31, 2005)
(1) Primary Areas of Business
Advantest and its group companies manufacture and market semiconductor
and component test systems and products related to mechatronics systems
(test handlers, device interface, etc.). In addition to manufacturing,
Advantest and its group companies also carry out research and
development activities and provide maintenance services and related
services in the business category of "Services, Support and Others."
(2) Equity Stock
(i) Total number of authorized shares 220,000,000 shares
(ii) Total number of issued shares 99,783,385 shares
(iii) Number of shareholders 28,412
(iv) Major Shareholders (Top 10 shareholders)
------------------------------------------- -------------------------------- ---------------------------------
Name of Shareholder Status of Ownership Company's Interest in Shareholder
------------------------------------------- -------------------------------- ---------------------------------
Number of Shares Percentage of Number of Shares Percentage of
(in: thousand Voting Rights (in: thousand Ownership (%)
shares) (%) shares)
------------------------------------------- ---------------- --------------- ------------------ --------------
Mizuho Trust & Banking Co., Ltd. 10,071 10.91 - -
(retirement benefit trust (Fujitsu
account), re-trust trustees, Trust &
Custody Services Bank, Ltd.)
------------------------------------------- ---------------- --------------- ---------------- --------------
The Master Trust Bank of Japan, Ltd. 8,782 9.51 - -
(trust account)
------------------------------------------- ---------------- --------------- ---------------- --------------
Japan Trustee Services Bank, Ltd. (trust 7,068 7.66 - -
account)
------------------------------------------- ---------------- --------------- ---------------- --------------
BNP Paribas Securities (Japan) Limited 2,503 2.71 - -
------------------------------------------- ---------------- --------------- ---------------- --------------
CALYON DMA OTC 2,259 2.44 - -
------------------------------------------- ---------------- --------------- ---------------- --------------
Societe Generale Paris O.B.E. Dept 2,013 2.18 - -
------------------------------------------- ---------------- --------------- ---------------- --------------
The Dai-ichi Mutual Life Insurance Company 1,724 1.86 - -
------------------------------------------- ---------------- --------------- ---------------- --------------
Shinsei Bank, Limited 1,627 1.76 - -
------------------------------------------- ---------------- --------------- ---------------- --------------
Deutsche Bank AG, London 610 1,554 1.68 - -
------------------------------------------- ---------------- --------------- ---------------- --------------
Fukoku Mutual Life Insurance Company 1,546 1.67 - -
------------------------------------------- ---------------- --------------- ---------------- --------------
(Notes) 1. Treasury shares held by the Company in the number of 7,359
thousand shares have not been included in the table above.
2. Mizuho Trust & Banking Co., Ltd. (retirement benefit trust
(Fujitsu account), re-trust trustees, Trust & Custody
Services Bank, Ltd.) holds the 10,071 thousand shares of
common stock listed above as the trustee of a retirement
benefit plan of Fujitsu Limited, and exercises its voting
rights pursuant to instructions given by Fujitsu Limited.
3. The Company has acknowledged that the substantial
shareholding reports shall be filed pursuant to the
"Disclosure of Substantial Shareholding" prescribed in the
Securities and Exchange Law, and Goldman Sachs (Japan) Ltd.
and its two affiliates jointly held 6,272 thousand shares of
Advantest as of March 31, 2005 according to the substantial
shareholding reports filed on April 14, 2005, Nomura
securities Co., Ltd. and its five affiliates jointly held
6,476 thousand shares of Advantest as of February 28, 2005
according to the substantial shareholding reports filed on
March 15, 2005, Capital Guardian Trust Company and its three
affiliates jointly held 9,705 thousand shares of Advantest
as of January 31, 2005 according to the substantial
shareholding reports filed on February 15, 2005, and
Barclays Global Investors Japan Trust & Banking Co., Ltd.
and its eight affiliates jointly held 5,405 thousand shares
of Advantest as of March 31, 2004 according to the
substantial shareholding reports filed on April 13, 2004.
However, the Company has not included the number of shares
held by an unverified number of beneficial owners in the
table above.
Financial Institutions and Securities Company 155 holders, 44,535 thousand shares (44.6%)
Non-Japanese Holders 443 holders, 36,152 thousand shares (36.2%)
Other Entities 367 holders, 10,080 thousand shares (10.1%)
Individuals and Others 27,447 holders 9,015 thousand shares (9.1%)
9
(3) Acquisition, Disposition and Holding of Treasury Stock
(i) Acquisition
Common stock 6,004,290 shares
Aggregate cost of acquisition JPY 54,513,620 thousand
Among the above, treasury shares purchased by resolution of the
Board in accordance with the Articles of Incorporation after
the 62nd ordinary general meeting of shareholders:
Common stock 6,000,000 shares
Aggregate cost of acquisition JPY 54,480,000 thousand
Reasons for purchase: to implement a flexible capital policy
responsive to ever-changing environments surrounding management
(ii) Disposition
Common stock 152,265 shares
Aggregate proceeds from disposition JPY 1,304,313 thousand
(iii) Number of treasury stocks process for expiration
Common stock - share
(iv) Number of treasury stocks as of the end of the period
Common stock 7,359,770 shares
(4) Employees
(i) Employees of Advantest and its group companies
--------------------------- ------------------------------------------
Number of Employees Change from End of Previous Period
--------------------------- ------------------------------------------
3,565 21
--------------------------- ------------------------------------------
(Note) The numbers set forth above include employees seconded to
affiliates but exclude employees seconded to companies
other than affiliates.
(ii) Employees of Advantest
--------------- -------------------- ------------- ------------------
Number of Change from End of Average Age Average Years of
Employees Previous Period Service
--------------- -------------------- ------------- ------------------
1,433 (17) 37.6 12.8
--------------- -------------------- ------------- ------------------
(Note) The numbers set forth above refer to employees currently
working.
10
(5) Business Combinations
(i) Significant Subsidiaries
---------------------------------- ------------------ -------------- ----------------------------------
Name of Subsidiary Common Stock Percentage of Principal Activities
Voting Rights
---------------------------------- ------------------ -------------- ----------------------------------
Advantest Laboratories Ltd. JPY 50 million 100% Research and development of
measuring and testing technologies
---------------------------------- ------------------ -------------- ----------------------------------
Advantest Customer Support JPY 300 million 100% Maintenance service for the
Corporation Company's products
---------------------------------- ------------------ -------------- ----------------------------------
Advanmechatec Co., Ltd. JPY 300 million 100% Manufacturing of the Company's
products
---------------------------------- ------------------ -------------- ----------------------------------
Advantest Manufacturing, Inc. JPY 80 million 100% Manufacturing of the Company's
products
---------------------------------- ------------------ -------------- ----------------------------------
Advantest DI Corporation JPY 50 million 100% Manufacturing of the Company's
products
---------------------------------- ------------------ -------------- ----------------------------------
Japan Engineering Co., Ltd. JPY 305 million 100% Development, manufacturing and
sales of the Company's products
---------------------------------- ------------------ -------------- ----------------------------------
Advantest Finance Inc. JPY 1,000 million 100% Leasing of the Company's products
---------------------------------- ------------------ -------------- ----------------------------------
Advantest America, Inc. 42,000 thousand 100% Manufacturing and sales of the
USD Company's products
---------------------------------- ------------------ -------------- ----------------------------------
Advantest (Europe) GmbH 10,793 thousand 100% Sales of the Company's products
Euros
---------------------------------- ------------------ -------------- ----------------------------------
Advantest Taiwan Inc. 560,000 thousand 100% Sales of the Company's products
New Taiwan Dollars
---------------------------------- ------------------ -------------- ----------------------------------
Advantest (Singapore) Pte. Ltd. 15,300 thousand 100% Sales of the Company's products
Singapore Dollars
---------------------------------- ------------------ -------------- ----------------------------------
Advantest Korea Co., Ltd 5,484 million Won 100% Maintenance service and
manufacturing of the Company's
products
---------------------------------- ------------------ -------------- ----------------------------------
Advantest (Suzhou) Co., Ltd. 1,500 thousand USD 100% Sales, technical services, and
support of the Company's products
---------------------------------- ------------------ -------------- ----------------------------------
(Note) Percentage of voting rights includes indirectly held shares.
(ii) Business Combination Activities
(a) On April 1, 2004, Advanmicrotec Co., Ltd. was merged into Advantest
Manufacturing, Inc. with a view to integrating production systems.
(b) On December 31, Advantest RF Technology Corporation was merged into
the Company with a view to enhancing technological development
efficiency.
(c) On September 30, 2004, Advantest America Measuring Solutions, Inc.
was merged into Advantest America, Inc. with a view to enhancing
operational efficiency.
(d) On October 1, 2004, Advantest Green Corporation was established as a
special affiliate firm to promote the employment of the disabled.
(e) On October 1, 2004, Advantest Taiwan Engineering Inc. was merged
into Advantest Taiwan Inc. with a view to enhancing operational
efficiency.
(iii) Results of Business Combination Activities
The Company has 39 consolidated subsidiaries, including the 13
significant subsidiaries set forth above. The business results for
FY2004 are as set forth in "Historical Data on Business Results and
Assets (consolidated)" on page 7.
11
(6) Significant Sales Offices and Branch Offices
(i) Japan
-------------------- --------------------------------- -------------------------------------
Category Name of Office Location
-------------------- --------------------------------- -------------------------------------
Head Office, Sales Head Office Chiyoda-ku, Tokyo
Office and Service --------------------------------- -------------------------------------
Office Western Japan Office Suita-shi, Osaka
--------------------------------- -------------------------------------
Kawasaki Office Kawasaki-shi, Kanagawa
-------------------- --------------------------------- -------------------------------------
R&D Centers, Gunma R&D Center Meiwa-machi, Ora-gun, Gunma
Laboratories --------------------------------- -------------------------------------
Otone R&D Center Otone-machi, Kitasaitama-gun, Saitama
--------------------------------- -------------------------------------
Kitakyushu R&D Center Kitakyushu-shi, Fukuoka
--------------------------------- -------------------------------------
Advantest Laboratories Sendai-shi, Miyagi
-------------------- --------------------------------- -------------------------------------
Factories Gunma Factory Ora-machi, Ora-gun, Gunma
--------------------------------- -------------------------------------
Menuma Factory Menuma-machi, Osato-gun, Saitama
-------------------- --------------------------------- -------------------------------------
(ii) Overseas
-------------------- --------------------------------- -----------------------------------
Category Name of Office Location
-------------------- --------------------------------- -----------------------------------
Sales Office and Advantest America, Inc. U.S.A
Service Office --------------------------------- -----------------------------------
Advantest (Europe) GmbH Germany
--------------------------------- -----------------------------------
Advantest Taiwan Inc. Taiwan
--------------------------------- -----------------------------------
Advantest (Singapore) Pte. Ltd. Singapore
--------------------------------- -----------------------------------
Advantest Korea Co., Ltd. Korea
--------------------------------- -----------------------------------
Advantest (Suzhou) Co., Ltd. China
-------------------- --------------------------------- -----------------------------------
12
(7) Board of Directors and Corporate Auditors
--------------------------------- ------------------------ -----------------------------------------------------
Title Name Area of Responsibility
--------------------------------- ------------------------ -----------------------------------------------------
Chairman of the Board and CEO Hiroshi Oura
--------------------------------- ------------------------ -----------------------------------------------------
Vice Chairman of the Board Shimpei Takeshita
--------------------------------- ------------------------ -----------------------------------------------------
Representative Board Director Toshio Maruyama
--------------------------------- ------------------------ -----------------------------------------------------
Director Kiyoshi Miyasaka
--------------------------------- ------------------------ -----------------------------------------------------
Director Junji Nishiura
--------------------------------- ------------------------ -----------------------------------------------------
Director Hiroji Agata
--------------------------------- ------------------------ -----------------------------------------------------
Director Hitoshi Owada
--------------------------------- ------------------------ -----------------------------------------------------
Director Takashi Tokuno
--------------------------------- ------------------------ -----------------------------------------------------
Standing Corporate Auditor Noboru Yamaguchi
--------------------------------- ------------------------ -----------------------------------------------------
Standing Corporate Auditor Tadahiko Hirano
--------------------------------- ------------------------ -----------------------------------------------------
Corporate Auditor Takashi Takaya Standing Corporate Auditor of Fujitsu Limited
--------------------------------- ------------------------ -----------------------------------------------------
Corporate Auditor Kuniaki Suzuki Senior Managing Director, Senior Executive Officer
of Fujitsu Limited
--------------------------------- ------------------------ -----------------------------------------------------
(Notes) 1: Changes in the appointment of board directors and corporate
auditors during FY2004 are as follows:
Changes adopted by the 62nd General Meeting of Shareholders on
June 25, 2004
Retiring:
Corporate Auditor Keizo Fukagawa
Newly elected:
Director Takashi Tokuno
Corporate Auditor Kuniaki Suzuki
2: Of the corporate auditors set forth above, Takashi Takaya and
Kuniaki Suzuki are outside corporate auditors appointed
pursuant to Article 18, Section 1 of the "Law Concerning
Exceptions to the Commercial Code Relating to Audit, etc. of
Stock Corporations."
13
(Reference) The current terms of Executive Officers are as follows:
---------------------------- -------------------- -----------------------------------------------------
Title Name Area of Responsibility
---------------------------- -------------------- -----------------------------------------------------
President and COO Toshio Maruyama*
---------------------------- -------------------- -----------------------------------------------------
Senior Executive Officer Kiyoshi Miyasaka* Corporate Planning and Strategy; Senior Vice
President, Strategic Business Initiatives
---------------------------- -------------------- -----------------------------------------------------
Senior Executive Officer Junji Nishiura* Technology and Production
---------------------------- -------------------- -----------------------------------------------------
Senior Executive Officer Hiroji Agata* Sales and Marketing
---------------------------- -------------------- -----------------------------------------------------
Managing Executive Officer Hitoshi Owada* Corporate Affairs
---------------------------- -------------------- -----------------------------------------------------
Managing Executive Officer Takashi Tokuno* Product Development; Senior Vice President, ATE
Business Group
---------------------------- -------------------- -----------------------------------------------------
Managing Executive Officer Kenichi Mitsuoka Senior Vice President, FA Business Group
---------------------------- -------------------- -----------------------------------------------------
Managing Executive Officer Norihito Kotani Senior Vice President, AS Business Group
---------------------------- -------------------- -----------------------------------------------------
Managing Executive Officer Yuri Morita Senior Vice President, Corporate Affairs Group
---------------------------- -------------------- -----------------------------------------------------
Managing Executive Officer Jiro Katoh Senior Vice President, Technology Development Group
---------------------------- -------------------- -----------------------------------------------------
Executive Officer Takao Tadokoro Senior Vice President, Sales and Marketing Group
---------------------------- -------------------- -----------------------------------------------------
Executive Officer Hiroyasu Sawai Vice President, SE, ATE Business Group
---------------------------- -------------------- -----------------------------------------------------
Executive Officer Hiroshi Tsukahara Senior Vice President, DI Business Group
---------------------------- -------------------- -----------------------------------------------------
Executive Officer Masao Shimizu Vice President, SoC Tester Products, ATE Business
Group
---------------------------- -------------------- -----------------------------------------------------
Executive Officer Masao Araki Director and President of Advantest (Suzhou) Co.,
Ltd.
---------------------------- -------------------- -----------------------------------------------------
Executive Officer Yoshiaki Furuse Vice President, AS, Sales and Marketing Group
---------------------------- -------------------- -----------------------------------------------------
Executive Officer Yuichi Kurita Vice President, Finance, Corporate Affairs Group
---------------------------- -------------------- -----------------------------------------------------
Executive Officer Yoshiro Yagi Vice President, ATE, Sales and Marketing Group
---------------------------- -------------------- -----------------------------------------------------
Executive Officer Hideaki Imada Vice President, OAI, Sales and Marketing Group
---------------------------- -------------------- -----------------------------------------------------
Executive Officer Shinichiro Umeda Vice President, Software, ATE Buisiness Group
---------------------------- -------------------- -----------------------------------------------------
(* Indicates an Executive Officer who also serves on the Board of Directors)
(Note) Changes in the responsibilities of the Executive Officers after the end
of the current term will be as follows:
Effective April 1, 2005
---------------------------- -------------------- -----------------------------------------------------
Title Name Area of Responsibility
---------------------------- -------------------- -----------------------------------------------------
Managing Executive Officer Takashi Tokuno Head of Test System Business
---------------------------- -------------------- -----------------------------------------------------
Managing Executive Officer Norihito Kotani Deputy Head of Test System Business
---------------------------- -------------------- -----------------------------------------------------
Executive Officer Hiroyasu Sawai Senior Vice President, SE Group
---------------------------- -------------------- -----------------------------------------------------
Executive Officer Masao Shimizu Senior Vice President, 1st Test System Business
Group
---------------------------- -------------------- -----------------------------------------------------
Executive Officer Yoshiaki Furuse Vice President, Sales and Marketing Group
---------------------------- -------------------- -----------------------------------------------------
Executive Officer Yoshiro Yagi Vice President, Sales and Marketing Group
---------------------------- -------------------- -----------------------------------------------------
Executive Officer Hideaki Imada Senior Vice President, 2nd Test System Business
Group
---------------------------- -------------------- -----------------------------------------------------
Executive Officer Shinichiro Umeda Senior Vice President, Software Development Group
---------------------------- -------------------- -----------------------------------------------------
14
(8) Compensations Paid to Board Directors and Corporate Auditors
--------------------- ---------------------------- ---------------------------- ----------------------------
Board directors Corporate auditors Total
---------------------------- ---------------------------- ----------------------------
Category Number of Amount Number of Amount Number Amount
directors paid auditors paid subject to paid
subject to subject to payment
payment (million) payment (million) (million)
--------------------- ------------- -------------- -------------- ------------- -------------- -------------
Compensation (April 2004 (April 2004 (April 2004
pursuant to the to June to June to June
Articles of 2004) 7 2004) 4 2004) 11
Incorporation or JPY 298 JPY 56 JPY 354
resolution of the (July 2004 (July 2004 (July 2004
general meeting of to March to March to March
shareholders 2005) 8 2005) 4 2005) 12
--------------------- ------------- -------------- -------------- ------------- -------------- -------------
Bonuses to
directors or
corporate auditors 7 JPY 150 4 JPY 20 11 JPY 170
in appropriation of
retained earnings
--------------------- ------------- -------------- -------------- ------------- -------------- -------------
Benefits to
retiring directors
or corporate
auditors based on a - - - - - -
resolution of the
general meeting of
shareholders
--------------------- ------------- -------------- -------------- ------------- -------------- -------------
Total JPY 448 JPY 76 JPY 524
--------------------- ------------- -------------- -------------- ------------- -------------- -------------
(Notes) 1. The maximum amount of compensation payable by resolution
of the general meeting of shareholders (compensation
prescribed in Article 269, Section 1, Paragraph 1 or
Article 279, Section 1 of the Commercial Code) shall be
within JPY 40,000,000 per month for directors and
JPY 6,000,000 per month for corporate auditors.
2. Eight board directors and four corporate auditors served as
of the end of the fiscal year. The discrepancy between the
number subject to payment and the total number subject to
payment for the period from April 2004 to June 2004
represents one newly elected board director, one newly
elected corporate auditor, and one retire corporate
auditor.
(9) Stock Acquisition Rights
(a) Stock acquisition rights currently outstanding
- ------------------------------- ----------------------------- ---------------------------- -----------------------------
Resolution passed at the Resolution passed at the Resolution passed at the
Ordinary General Meeting of Ordinary General Meeting Ordinary General Meeting of
Shareholders of June 27, of Shareholders of June Shareholders of June 25,
2002 27, 2003 2004
- ------------------------------- ----------------------------- ---------------------------- -----------------------------
Number of Stock Acquisition 6,770 6,220 7,690
Rights
- ------------------------------- ----------------------------- ---------------------------- -----------------------------
Class and aggregate number of 677,000 shares of common 622,000 shares of common 769,000 shares of common
shares to be issued or stock stock stock
delivered upon exercise
- ------------------------------- ----------------------------- ---------------------------- -----------------------------
Issuance Price JPY 0 JPY 0 JPY 0
- ------------------------------- ----------------------------- ---------------------------- -----------------------------
15
(b) Stock acquisition rights issued during FY2004 under especially
favorable terms to persons who are not shareholders
- -------------------------------------- ------------------------ ------------------------ ------------------------
The resolution at the The resolution at the The resolution at the
Board of Directors held Board of Directors held Board of Directors held
on June 25, 2004 on October 26, 2004 on March 30, 2005
- -------------------------------------- ------------------------ ------------------------ ------------------------
Date of issuance July 1, 2004 November 15, 2004 April 1, 2005
- -------------------------------------- ------------------------ ------------------------ ------------------------
Class and aggregate number of shares 761,000 shares of 4,000 shares of 4,000 shares of
to be issued or delivered upon common stock common stock common stock
exercise
- -------------------------------------- ------------------------ ------------------------ ------------------------
Number of stock acquisition rights 7,610 40 40
(each stock acquisition right is
exercisable for 100 shares)
- -------------------------------------- --------------------------------------------------------------------------
Issuance price JPY 0
- -------------------------------------- --------------------------------------------------------------------------
Exercise price to be paid upon JPY 7,464 per share
exercise
- -------------------------------------- --------------------------------------------------------------------------
Exercise period April 1, 2005 to March 31, 2009
- -------------------------------------- --------------------------------------------------------------------------
Terms of exercise (a) The rights holder may not exercise his rights if:
(i) the rights holder becomes a person who does not hold any
position as a director, corporate auditor, executive officer,
employee, advisor or non-regular employee of the Company or of
any of its domestic or overseas subsidiaries before the
expiration of the exercise period, unless the Company
otherwise deems it appropriate to allow him to exercise his
stock acquisition rights and notifies him to that effect;
(ii) the rights holder dies;
(iii) the rights holder notifies the Company of his/her intention to
waive the rights;
(b) The stock acquisition rights may not be inherited.
(c) Other matters are prescribed in the 'Grant Agreement of Stock
Acquisition Rights'.
- -------------------------------------- --------------------------------------------------------------------------
Cancellation of stock acquisition (a) The Company may cancel, for no consideration, any stock acquisition
rights right in the event that the general meeting of the shareholders
resolves to approve (i) any merger agreement pursuant to which the
Company shall cease to exist, or (ii) any share exchange agreement
or share transfer pursuant to which the Company shall become a
wholly owned subsidiary of another company.
(b) The Company may cancel, for no consideration, all or part of the
stock acquisition rights owned by a rights holder to the extent that
such stock acquisition rights are not exercisable due to the rights
holder's failure to satisfy any of the conditions to exercise stock
acquisition rights.
Favorable terms related to The stock acquisition rights were issued for no consideration to
the stock acquisition rights directors, corporate auditors, and employees of the Company and its
domestic and overseas subsidiaries.
- -------------------------------------- --------------------------------------------------------------------------
16
(Names of the persons to which stock acquisition rights were
granted and the numbers granted)
Directors of the Company
------------------------------------------- -------------------
Name Number of stock
acquisition rights
------------------------------------------- -------------------
Hiroshi Oura, Shimpei Takeshita, Toshio 300 each
Maruyama
------------------------------------------- -------------------
Kiyoshi Miyasaka, Junji Nishiura, Hiroji 200 each
Agata
------------------------------------------- -------------------
Hitoshi Owada, Takashi Tokuno 180 each
------------------------------------------- -------------------
Corporate Auditors of the Company
------------------------------------------- -------------------
Name Number of stock
acquisition rights
------------------------------------------- -------------------
Noboru Yamaguchi, Tadahiko Hirano, 30 each
Takashi Takaya, Kuniaki Suzuki
------------------------------------------- -------------------
Executive Officers of the Company
------------------------------------------- -------------------
Name Number of stock
acquisition rights
------------------------------------------- -------------------
Kenichi Mitsuoka, Norihito Kotani, Yuri 160 each
Morita, Jiro Katoh
------------------------------------------- -------------------
Takao Tadokoro, Hiroyasu Sawai, Hiroshi 120 each
Tsukahara, Masao Shimizu, Masao Araki,
Yoshiaki Furuse, Yuichi Kurita, Yoshiro
Yagi, Hideaki Imada, Shinichiro Umeda
------------------------------------------- -------------------
Employees of the Company; Directors and employees of the Company's
subsidiaries (top 10 persons only)
------------------------------------------- -------------------
Name Number of stock
acquisition rights
------------------------------------------- -------------------
Keith Lee, Josef Schraetzenstaller, Cheng 100 each
Sui Yoong, Kim Young Hwan
------------------------------------------- -------------------
Robert Sauer 80
------------------------------------------- -------------------
Tetsuo Aoki, Tomio Aso, Masakazu Ando, 30 each
Tomomichi Uemura, Yoshio Endo
------------------------------------------- -------------------
(Note) As several of the persons listed share the same rank,
the names are presented in alphabetical order.
(v) Breakdown of stock acquisition rights granted to employees of
the Company and directors and employees of the Company's
subsidiaries
------------------------- ------------------ --------------------------- ---------------------
Total number of
Category Number of stock Class and total number of persons granted
acquisition rights shares to be issued or stock acquisition
delivered upon exercise rights
------------------------- ------------------ --------------------------- ---------------------
Employees of the Company 1,880 188,000 shares of common 78
stock
------------------------- ------------------ --------------------------- ---------------------
Directors of the 710 71,000 shares of common 19
Company's subsidiaries stock
------------------------- ------------------ --------------------------- ---------------------
Employees of the 1,280 128,000 shares of common 86
Company's subsidiaries stock
------------------------- ------------------ --------------------------- ---------------------
17
(10) Amount of Compensation for the Accounting Auditor of the Company
(i) Total amount of compensation paid to accounting auditors by the
Company and its subsidiaries: JPY 45 million
(ii) Out of the amount in (i) above, the total of the amounts of
compensation paid by the Company and its subsidiaries as consideration
for services prescribed in Article 2, Section 1 of the Certified
Public Accountant Law: JPY 45 million
(iii) Out of the amount in (ii) above, the total of the amounts of
compensation paid by the Company as consideration for services
prescribed in Article 2, Section 1 of the Certified Public Accountant
Law: JPY 44 million
(Note) As the Company has not drawn any distinction between the
compensation for the audit services pursuant to the Law
Concerning Exceptions to the Commercial Code Relating to Audit,
etc. of Stock Corporations and the compensation for the audit
services pursuant to the Securities and Exchange Law, the
amount in (iii) above represents the total amount.
18
Consolidated Balance Sheets
---------------------------
(As of March 31, 2005)
(unit: million yen)
- ------------------------------- ----------- ------------- -------------------------------- ---------- ------------
FY2004 FY2003 FY2004 FY2003
(reference) (reference)
- --------------------------------------------------------- --------------------------------------------------------
Assets Liabilities
- --------------------------------------------------------- --------------------------------------------------------
Current assets 223,931 255,762 Current liabilities 73,994 66,611
Cash and cash equivalents 120,986 101,146 Current installments of 20,043 4,543
Trade accounts 56,702 76,133 long-term debt
receivable, less allowance Trade accounts payable 23,196 38,214
for doubtful accounts Income taxes payable 7,278 3,845
Inventories 29,585 49,423 Accrued expenses 13,865 9,368
Deferred tax assets 13,673 25,875 Accrued warranty expenses 4,090 3,121
Other current assets 2,985 3,185 Deferred revenue 2,220 4,543
Investment securities 7,772 7,952 Other current liabilities 3,302 2,977
Property, plant and 51,364 50,516 Long-term debt, excluding 40 20,083
equipment, net current installments
Deferred tax assets 8,438 10,964 Accrued pension and severance 12,605 18,348
Intangible assets, at cost, 3,090 3,756 cost
less accumulated Other long-term liabilities 3,381 3,411
amortization -------------------------------- ---------- ------------
Total Liabilities 90,020 108,453
Other assets 2,174 1,858 -------------------------------- ---------- ------------
Minority interests -- 587
--------------------------------------------------------
Stockholders' equity
-------------------------------- ---------- ------------
Common stock 32,363 32,363
Capital surplus 35,263 32,973
Retained earnings 210,121 177,404
Accumulated other (4,878) (8,061)
comprehensive income (loss)
Treasury stock (66,120) (12,911)
-------------------------------- ---------- ------------
Total stockholders' equity 206,749 221,768
- ------------------------------- ----------- ------------- -------------------------------- ---------- ------------
Total Assets 296,769 330,808 Total liabilities and 296,769 330,808
stockholders' equity
- ------------------------------- ----------- ------------- -------------------------------- ---------- ------------
<FN>
(Note) Amounts of less than one million above are rounded. 5. Accumulated other comprehensive income (loss)
1. Allowance for doubtful accounts: JPY 2,174 million Foreign exchange translation adjustments:
2. Accumulated depreciation on property, plant, and (JPY 6,452 million)
equipment JPY 67,933 million Net unrealized gains on revaluation of securities:
3. Outstanding loan guarantees JPY 387 million JPY 1,574 million
4. Assets pledged as collateral
Property, plant, and equipment JPY 393 million
</FN>
19
Consolidated Statements of Income
---------------------------------
(From April 1, 2004 to March, 2005)
(unit: million yen)
-------------------------------------------------------------------------
FY2004 FY2003
(reference)
-------------------------------------------------------------------------
Amount Amount
-------------------------------------------------------------------------
Net sales 239,439 174,218
Cost of sales 115,994 85,513
Gross profit 123,445 88,705
Research and development expenses 26,280 21,637
Selling, general, and administrative 36,446 36,108
expenses
Operating income (loss) 60,719 30,960
Other income (expense):
Interest and dividend income 597 339
Interest expense (441) (469)
Minority interests (losses) (84) (214)
Equity in earnings (losses) of - (117)
affiliates
Other 1,017 (1,621)
---------------------------------
Income (loss) before income taxes 61,808 28,878
Income taxes 23,730 11,549
Net income (loss) 38,078 17,329
-------------------------------------------------------------------------
(Note) Amounts of less than one million above are rounded.
Basic net income per share JPY 389.54
20
Basis of Presentation of the consolidated financial statements
(Significant accounting policies)
1. Basis of Presentation
The consolidated statutory report including consolidated balance
sheets and consolidated statements of income has been prepared on the
basis of accounting principles generally accepted in the United States
of America ("U.S. GAAP"), pursuant to the provisions of paragraph 1 of
Article 179 of the Commercial Code Enforcement Regulations of Japan.
Pursuant to the provisions of the article, however, certain disclosures
required on the basis of U.S. GAAP is omitted.
2. Cash equivalents
Cash equivalents consist of deposits and negotiable certificates
of deposit due to mature within 3 months.
3. Inventories
Inventories are stated at the lower of cost or market. Cost is
determined using the average cost method.
4. Securities
The Company applies Statement of Financial Accounting Standards
(SFAS) No. 115 Accounting for Certain Investment in Debt and Equity
Securities.
Available-for-sale securities are recorded at fair value.
Unrealized gains and losses on trading securities are included in
earnings. Unrealized gains and losses, net of the related tax effect,
on available-for-sale securities are excluded from earnings and are
reported in accumulated other comprehensive income (loss) until
realized. Realized gain and losses are determined on the average cost
method.
Other securities are accounted for using the acquisition cost method.
5. Depreciation of property, plant, and equipment
Depreciation is computed principally using the declining-balance
method except for buildings and machinery and equipment under capital
leases for the Company and its domestic subsidiaries and the
straight-line method for foreign subsidiaries. Buildings are
principally depreciated using the straight-line method. Depreciation
for machinery and equipment under capital leases is computed using the
straight-line method.
6. Goodwill and other intangible assets
Under SFAS No. 142, "Goodwill and Other Intangible Assets",
goodwill and intangible assets with an indefinite useful life are not
amortized, but instead is tested for impairment at least annually.
Intangible assets with definite useful lives are amortized over their
respective estimated useful lives.
7. Impairment of long-lived assets
The Company applies SFAS No. 144 Accounting for the Impairment or
Disposal of Long-Lived Assets, the impairment of long-lived fixed
assets or intangible assets to be subject to depreciation and
amortization when events or changes in their conditions result in
non-recovery of their carrying amounts. When the carrying amount
exceeds the future recoverable amount, the Company recognizes the
difference between the fair value and the carrying amount as an
impairment loss.
8. Allowances
(1) Allowances for doubtful accounts
Advantest recognizes allowance for doubtful accounts to ensure
that trade accounts receivable are not overstated due to
uncollectibility, which represents Advantest's best estimate of
the amount of probable credits losses in Advantest's existing
trade accounts receivable
(2) Accrued warranty expenses
21
To provide for future repairs during warranty periods,
estimated repair expenses over the warranty period are accrued
based on the historical ratio of actual repair expenses to
corresponding sales.
(3) Accrued pension and severance cost
In accordance with SFAS No. 87, "Employers' Accounting for
Pensions", pension and severance cost are accrued based on the
projected benefit obligations and the fair value of plan assets at
the balance sheet date. If the accumulated benefit obligation
(i.e., obligations deducting an effect of future compensation
levels from projected benefit obligations) exceeds the fair value
of plan assets, a minimum pension liability equal to this
difference is reflected in the consolidated balance sheets by
recognizing an additional minimum pension liability. Unrecognized
prior service cost and unrecognized actuarial loss are amortized
by the straight-line method over the average remaining service
periods of employees.
9. Translation of foreign financial statements
Foreign currency financial statements have been translated in
accordance with SFAS No. 52, "Foreign Currency Translation". Under SFAS
No. 52, the balance sheet accounts of non-Japanese subsidiaries, which
are denominated in currencies other than the Japanese yen, are
translated at rates of exchange prevailing at the end of the year.
Revenue and expense accounts are translated at average rates of
exchange in effect during the year. Resulting translation adjustments
are included as a separate component of other comprehensive income
(loss.)
Additional Information
1. On October 1, 2004, Advantest and a certain of its consolidated
domestic subsidiaries received approval from the Minister of
Health and Labour to return the substitutional portion of its
Advantest's Employees' Pension Fund plans for the prior
employees' services under the transfer of its Employees' Pension
Fund plans to the defined benefit corporate pension plan. On
February 24, 2005, Advantest and the said consolidated domestic
subsidiaries then paid the amount pertinent to the return
(minimum liability reserve) to the national treasury. Temporary
profit arising from the return of the substitutional portion is
included in "selling, general, and administrative expenses," and
the effect of such return on operating income and net income for
the current consolidated fiscal year is JPY 3,317 million and
JPY 1,981 million respectively.
2. On December 16, 2004, the Financial Accounting Standards Board
(FASB) issued the FASB Statement No. 123 (revised 2004),
"Share-based Payment", which is a revision of the Statement of the
FASB Statement No. 123 Accounting for Stock-based Compensation.
SFAS No. 123R requires employee stock options and rights to
purchase shares under stock option plans to be accounted for
under the fair value method and eliminates the ability to account
for these instruments under the intrinsic value method prescribed
by APB Statement No. 25 (Accounting Principle Boards Statement
No. 25 Accounting for Shares Issued to Employees) and allowed
under the original provisions of statement No. 123. SFAS No. 123R
shall apply to the fiscal periods for publicly traded companies
beginning after June 15, 2005. However, Advantest has decided to
implement the early application of SFAS No. 123 revised to the
current term in accordance with the Modified Retrospective
Method. As a result, the reported operating income and net income
have been reduced by JPY 2,290 million.
22
Balance Sheets (Unconsolidated)
-------------------------------
(As of March 31, 2005)
(Unit: million yen)
- --------------------------------- ---------- ------------ --------------------------------- ---------- ------------
FY2004 FY2003 FY2004 FY2003
(reference) (reference)
- --------------------------------------------------------- ---------------------------------------------------------
Assets Liabilities
- --------------------------------------------------------- --------------------------------------------------------
Current assets 166,050 203,388 Current liabilities 69,495 56,504
Cash and deposits 68,676 64,469 Trade accounts payable 22,642 38,444
Trade notes receivable 12,418 4,978 Current installments of bonds 20,000 4,500
Accounts receivable 43,564 67,042 Other accounts payable 2,037 1,173
Finished goods 4,371 8,154 Accrued expenses 10,230 6,647
Raw materials 3,627 6,134 Income tax payable 4,116 32
Work in progress 14,520 21,258 Allowance for product warranty 4,345 1,771
Supplies 67 42 Other current liabilities 6,123 3,935
Deferred tax assets 10,032 21,776
Other current assets 8,771 9,541 Noncurrent liabilities 9,539 31,651
Allowance for doubtful accounts (0) (10) Bonds - 20,000
Long-term borrowings 40 82
Noncurrent assets 72,058 73,658 Allowance for retirement benefits 7,100 9,386
Property, plant and equipment 39,778 40,054 Allowance for officers' retirement 1,509 1,261
Buildings and improvements 15,372 16,183 benefits
Structures 945 1,043 Other current liabilities 888 920
Machinery and equipment 3,301 3,252 -------------------------------- ---------- ------------
Vehicles and delivery 22 0 Total liabilities 79,034 88,155
equipment --------------------------------------------------------
Stockholders' equity
Tools and furniture 1,920 1,338 --------------------------------------------------------
Land 18,141 18,141 Common stock 32,362 32,362
Construction in progress 74 94 Capital surplus 32,973 32,973
Intangible fixed assets 1,437 1,884 Additional paid-in capital 32,973 32,973
Software and others 1,437 1,884 Retained earnings 158,563 135,672
Investments and other assets 30,842 31,718 Legal reserve 3,083 3,083
Investment securities 7,430 6,713 Voluntary reserve 126,942 119,942
Investments in affiliated 16,390 16,347 [Reserve for losses in [27,062] [27,062]
companies foreign investments]
Long-term loans receivable 1,072 1,408 [General reserve] [99,880] [92,880]
Deferred tax assets 4,137 5,707 Unappropriated earnings at 28,538 12,647
Other non-current assets 1,811 1,542 the end of the year
Net unrealized holding gains on 1,294 793
available-for-sale securities
Treasury stock (66,119) (12,910)
--------------------------------- --------- ------------
Total stockholders' equity 159,074 188,891
- --------------------------------- --------- ------------- --------------------------------- --------- ------------
Total assets 238,109 277,047 Total liabilities and 238,109 277,047
stockholder's equity
- --------------------------------- --------- ------------- --------------------------------- --------- ------------
<FN>
(Notes) Amounts of less than one million are truncated.
1. Short-term receivables from affiliates: JPY 28,406 million
Long-term receivables from affiliates: JPY 1,050 million 6. In addition to property, plant and equipment recognized in the
2. Short-term payables to affiliates: JPY 12,422 million balance sheet, the Company uses some computer equipment under
3. Outstanding loan guarantees: JPY 5 million lease agreement.
4. Accumulated depreciation on property, plant and equipment
(including accumulated impairment losses) JPY 57,468 million 7. Increased net assets amount prescribed in Article 124, Item 3
5. Assets pledged as collateral of the Enforcement Regulations of the Commercial Code:
Property, plant, and equipment JPY 392 million JPY 1,294 million
</FN>
23
Statements of Income (unconsolidated)
-------------------------------------
(April 1, 2004 through
March 31, 2005)
(unit: million yen)
- ------------------ ---------------- --------------------------------------- ------------- ---------------
FY2004 FY2003
(reference)
--------------------------------------- ------------- ---------------
Operating income
Operating Net sales 203,315 150,558
profit and loss Operating expenses
Cost of sales 107,067 86,008
Selling, general, and 54,337 40,772
administrative expenses
Ordinary profit --------------------------------------- ------------- ---------------
and loss Operating income 41,910 23,776
---------------- --------------------------------------- ------------- ---------------
Non-operating income
Interest and dividend income 1,940 1,614
Non-operating Other 2,681 2,452
profit and loss Non-operating expenses
Interest expenses 439 466
Other 2,728 3,344
-------------------------------------------------------- ------------- ---------------
Ordinary income 43,365 24,033
- ------------------ -------------------------------------------------------- ------------- ---------------
Extraordinary Extraordinary gain
profit and loss Return of substitutional portion of Employees 2,503 -
Pension Fund
- ------------------ -------------------------------------------------------- ------------- ---------------
Extraordinary loss - 2,996
Impairment loss
- --------------------------------------------------------------------------- ------------- ---------------
Net income before income taxes 45,868 21,036
- --------------------------------------------------------------------------- ------------- ---------------
Income taxes - current 4,141 86
- --------------------------------------------------------------------------- ------------- ---------------
Income taxes - deferred 13,305 8,993
- --------------------------------------------------------------------------- ------------- ---------------
Net income 28,421 11,957
- --------------------------------------------------------------------------- ------------- ---------------
Retained earnings brought forward 3,020 2,180
- --------------------------------------------------------------------------- ------------- ---------------
Interim dividends 2,457 1,473
- --------------------------------------------------------------------------- ------------- ---------------
Loss from disposition of treasury stock 446 16
- --------------------------------------------------------------------------- ------------- ---------------
Unappropriated earnings at the end of the year 28,538 12,647
- --------------------------------------------------------------------------- ------------- ---------------
<FN>
(Notes) Amounts of less than one million are truncated.
1. Transactions with affiliated companies
Sales JPY 105,138 million
Purchases JPY 49,202 million
Non-operating transactions JPY 4,413 million
2. Net income per share JPY 288.68
Net income as reported on statement of income JPY 28,421 million
Net income allocated to common stock JPY 28,218 million
Amount not allocated to common stock
Bonuses to officers by appropriation of earnings JPY 203 million
Average number of common shares outstanding during the fiscal year
97,750,345 shares
</FN>
24
Significant Accounting Policies
-------------------------------
1. Valuation of securities
(1) Investments in subsidiaries
Stated at cost using the moving average method
(2) Other securities
(a) Securities with fair value
Stated at fair value based on market prices at the end of the relevant
period (unrealized holding gains and losses are accounted for as a
component of stockholders' equity; cost of other securities sold is
determined using the moving average method).
(b) Securities not practicable to estimate fair value
Stated at cost using the moving average method
2. Valuation of inventories
(1) Finished goods
Stated at cost using the periodic average method
(2) Raw materials
Stated at lower of cost or market using the periodic average method
(3) Work in progress
Stated at cost using the periodic average method
(4) Supplies
Stated at cost using the specific identification method
3. Depreciation and amortization of non-current assets
(1) Depreciation of plant and equipment
Based on the declining balance method
However, buildings (except attached improvements) acquired on or after
April 1, 1998 are depreciated using the straight-line method.
(2) Amortization of intangible fixed assets
Based on the straight-line method
However, software for internal use is amortized using the straight-line
method over its estimated useful life of 5 years.
4. Allowances
(1) Allowance for doubtful accounts
To prepare for credit losses on accounts receivable and loans, etc., an
allowance equal to the estimated amount of uncollectible receivables is
provided for general receivables based on a historical write-off ratio and
for bad receivables based on a case-by-case determination of
collectibility.
(2) Allowance for product warranty
To reasonably account for repair costs covered under product warranty in
the respective periods in which they arise, the allowance for a given year
is provided in an amount determined based on the ratio of repair costs in
that year to net sales in the preceding year.
(3) Allowance for retirement benefits
To provide for employee retirement benefits, an allowance is provided in
an amount determined based on the estimated retirement benefit obligations
and pension assets at the end of the fiscal year.
Past service liabilities are amortized on a straight-line basis over a
fixed number of years (17 years) during the average remaining years of
service of employees.
Any actuarial gains and losses are amortized on a straight-line basis over
a fixed number of years (17 years) during the average remaining years of
service of employees, and the amount is recorded in the fiscal year
subsequent to its occurrence.
(4) Allowance for officers' retirement benefits
25
To provide for officers' retirement benefits, an allowance is provided for
the aggregate amount payable at the end of the period pursuant to the
Company's rules on officers' retirement benefits. This allowance is
stipulated under Article 43 of the Commercial Code Regulations.
5. Accounting for lease transactions
Finance lease transactions not involving a transfer of title to the lessee
are accounted for in the same way as usual operating lease transactions.
6. Accounting for consumption taxes
Consumption taxes are accounted using the net-of-tax method.
Additional Information
On October 1, 2004, Advantest received approval from the Minister of Health
and Labor to return the substitutional portion of its Advantest's Employees'
Pension Fund plans for the prior employees' services under the transfer of its
Employees' Pension Fund plans to the defined benefit corporate pension plan. On
February 24, 2005, Advantest paid the amount pertinent to the return (minimum
liability reserve) to the national treasury. Temporary profit arising from the
return of the substitutional portion is included in "extraordinary gain" and the
effect of such return on income before income taxes and net income for the
current consolidated fiscal year is JPY 2,503 million and JPY 1,494 million
respectively.
26
Proposed Appropriation of Retained Earnings
-------------------------------------------
(unit: yen)
------------------------------------------------- -------------------------
Item Amount
------------------------------------------------- -------------------------
Unappropriated earnings at the end of the year 28,538,243,896
Earnings will be appropriated as follows:
Dividends 2,310,590,375
JPY 25 per share
Directors' bonus 180,000,000
Corporate Auditors' bonus 23,000,000
General reserve 22,000,000,000
Earnings to be carried forward 4,024,653,521
------------------------------------------------- -------------------------
(Note) On December 1, 2004, the Company paid interim dividends of
JPY 25 per share (or JPY 2,457,584,825 in total) to its
shareholders of record as of September 30, 2004.
27
Copy of Independent Auditor's Report (Consolidated)
---------------------------------------------------
- --------------------------------------------------------------------------------
Independent Auditor's Report
----------------------------
May 17, 2005
To the Board of Directors of Advantest Corporation:
Shin Nihon & Co.
Shigenori Hanada
----------------
Engagement Partner
Certified Public Account
Hiromichi Saito
---------------
Engagement Partner
Certified Public Account
Kiyotada Osada
--------------
Engagement Partner
Certified Public Account
We have audited the consolidated financial statements of Advantest Corporation
for its 63rd fiscal year (April 1, 2004 through March 31, 2005), including the
consolidated balance sheets and consolidated statements of income, for the
purpose of reporting under the provisions of Article 19-2, Paragraph 3 of the
"Law Concerning Exceptions to the Commercial Code Relating to Audit, etc. of
Stock Corporations." The management of the Company was responsible for the
preparation of these consolidated financial statements, and our responsibility
shall be limited to the expression of an independent opinion regarding the
consolidated financial statements.
We conducted our audit in accordance with auditing standards generally accepted
in Japan. These auditing standards require reasonable assurance that the
consolidated financial statements do not contain any untrue representations of
material fact. The audit was conducted based on an audit by testing. In addition
to a review of the consolidated financial statements as a whole, the audit
included an evaluation of the accounting policies adopted by the management, the
application thereof, and the estimates prepared by the management. We believe
that we have obtained a reasonable basis to form our opinion as a result of the
audit. The auditing procedures also include procedures considered necessary for
the subsidiaries and consolidated subsidiaries of Advantest Corporation.
In our opinion, the consolidated financial statements properly present the
financial position and the results of operations of the company group consisting
of Advantest Corporation and its consolidated subsidiaries in conformity with
applicable laws and regulations and the Articles of Incorporation of Advantest
Corporation.
We have no specific interest in the Company required to be stated by the
provisions of the Certified Public Accountant Law.
- --------------------------------------------------------------------------------
28
Copy of Board of Corporate Auditors' Audit Report (Consolidated)
----------------------------------------------------------------
- --------------------------------------------------------------------------------
Audit Report Concerning Consolidated Financial Statements
This Audit Report was prepared by the Board of Corporate Auditors based on
reports from each Corporate Auditor with respect to the methods and results of
audit concerning the performance by each Board Director of his respective duty
during the 63rd fiscal year (April 1, 2004 through March 31, 2005) of Advantest
Corporation. We hereby report as follows.
1. Methods of Audit
Pursuant to the audit policies and plans established by the Board of
Corporate Auditors, each Corporate Auditor has sought the reports and
explanations on the consolidated financial statements, as well as reports
on the accounting of the subsidiaries of the Company from directors and the
like and the independent auditor, and inspected the state of business and
assets of the Company.
2. Results of Audit
(1) The methods and results of audit performed by Shin Nihon & Co., the
independent auditor of the Company, are appropriate.
(2) As a result of the audit, no issues with respect to the consolidated
financial statements have been deemed to require special mention or
disclosure.
May 20, 2005
Board of Corporate Auditors of Advantest Corporation
Noboru Yamaguchi
-----------------------------
Standing Corporate Auditor
Tadahiko Hirano
-----------------------------
Standing Corporate Auditor
Takashi Takaya
-----------------------------
Corporate Auditor
Kuniaki Suzuki
-----------------------------
Corporate Auditor
(Note) Takashi Takaya and Kuniaki Suzuki are outside corporate auditors
appointed pursuant to Article 18, Paragraph 1 of the "Law Concerning
Exceptions to the Commercial Code Relating to Audit, etc. of Stock
Corporations" .
- --------------------------------------------------------------------------------
29
Copy of Independent Auditor's Report
------------------------------------
- --------------------------------------------------------------------------------
Independent Auditor's Report
----------------------------
May 17, 2005
To the Board of Directors of Advantest Corporation:
Shin Nihon & Co.
Shigenori Hanada
----------------
Engagement Partner
Certified Public Account
Kiyotada Osada
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Engagement Partner
Certified Public Account
We have audited the financial statements, which included the balance sheets,
statements of income, the business report (limited to accounting matters), the
proposed appropriation of retained earnings and the supporting schedules
(limited to accounting matters), of Advantest Corporation for its 63rd fiscal
year (April 1, 2004 through March 31, 2005) for the purpose of reporting under
the provisions of Article 2, Paragraph 1 of the "Law Concerning Exceptions to
the Commercial Code Relating to Audit, etc. of Stock Corporations." With respect
to the aforementioned business report and the supporting schedules, our audit
was limited to those matters based on the accounting records of the Company. The
management of the Company was responsible for the preparation of these financial
statements and the supporting schedules, and our responsibility shall be limited
to the expression of an independent opinion regarding the financial statements
and the supporting schedules.
We conducted our audit in accordance with auditing standards generally accepted
in Japan. The auditing standards require reasonable assurance that the financial
statements and the supporting schedules do not contain any untrue
representations of material fact. The audit was conducted based on an audit by
testing, and included a review of the financial statements and the supporting
schedules as a whole and an evaluation of the accounting policies adopted by the
management, the application thereof, and the estimates prepared by the
management. We believe that we have obtained a reasonable basis to form our
opinion as a result of the audit. The auditing procedures also include those
considered necessary for its subsidiaries.
As results of audit, our opinion is as follows;
(1) the balance sheets and statements of income present properly the
financial position and the results of operations of the Company in
conformity with applicable laws and regulations and the Articles of
Incorporation of the Company.
(2) the business report, as far as the accounting sections are concerned,
presents properly the current status of the Company in conformity with
applicable laws and regulations and the Articles of Incorporation of the
Company.
(3) the proposed appropriation of retained earnings has been prepared in
conformity with applicable laws and regulations and the Articles of
Incorporation of the Company.
(4) the supporting schedules, as far as the accounting sections are
concerned, have been prepared in conformity with the provisions of the
Commercial Code.
We have no specific interest in the Company required to be stated by the
provisions of the Certified Public Accountant Law.
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Copy of Board of Corporate Auditors' Audit Report
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Audit Report
This Audit Report was prepared by the Board of Corporate Auditors based on
reports from each Corporate Auditor with respect to the methods and results of
audit concerning the performance by each Director of his respective duty during
the 63rd fiscal year (April 1, 2004 through March 31, 2005) of Advantest
Corporation. We hereby report as follows.
1. Methods of Audit
Pursuant to the audit policies established by the Board of Corporate
Auditors, each Corporate Auditor has attended meetings of the Board of
Directors and other important meetings, posed questions to Directors or
Auditing group, etc., on the state of business, reviewed important
approval-granting documents, inspected the state of business and assets at
the Head Office and other important branch offices, and reviewed the
financial statements and the supporting schedules upon report from
independent auditors. The Corporate Auditors have also sought reports from
subsidiaries of the Company on their state of business, and performed
on-site inspection of the state of business and assets of important
subsidiaries whenever necessary.
In the case of any engagements in competing transactions by a Director,
transactions involving any conflicts of interests between the Company and a
Director, offering of advantage by the Company for no consideration,
transactions at unusual terms with a subsidiary or shareholder, or the
acquisition or disposition of treasury stock, the Corporate Auditors have,
in addition to the method of audit described above, requested reports from
the Directors and inspected such transactions in detail if necessary.
2. Results of Audit
(1) The methods and results of audit performed by Shin Nihon & Co., the
independent auditor of the Company, are appropriate.
(2) The business report of the Company accurately presents the financial
conditions of the Company in conformity with applicable laws and
regulations and the Articles of Incorporation of the Company.
(3) In consideration of the financial position of the Company and other
matters, the proposed appropriation of retained earnings plan presents
fairly all matters required to be presented, and no irregularity was
found that need to be pointed out.
(4) The supporting schedules present fairly all matters required to be
presented, and no material irregularity requiring disclosure was found.
(5) No irregularity or violation of applicable laws or regulations or the
Articles of Incorporation of the Company was found with respect to the
activities of the Directors, including activities related to
subsidiaries of the Company.
In addition, no breach of fiduciary duty by Directors was found with
respect to engagements in competing transactions by a Director,
transactions involving any conflict of interest between the Company and
a Director, offering of advantage by the Company for no consideration,
transactions at unusual terms with subsidiaries or shareholders, or the
acquisition or disposition of treasury stock.
May 20, 2005
Board of Corporate Auditors of Advantest Corporation
Noboru Yamaguchi
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Standing Corporate Auditor
Tadahiko Hirano
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Standing Corporate Auditor
Takashi Takaya
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Corporate Auditor
Kuniaki Suzuki
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Corporate Auditor
(Note) Takashi Takaya and Kuniaki Suzuki are outside corporate auditors
appointed pursuant to Article 18, Paragraph 1 of the "Law Concerning
Exceptions to the Commercial Code Relating to Audit, etc. of Stock
Corporations."
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Memorandum to Shareholders
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Balance sheet date: March 31 of each year
Ordinary general meeting of shareholders: June of each year
Decision on shareholders of record qualified to receive dividends: March 31 of
each year and September 30 when interim dividends are paid.
Newspaper for public notice:
The Nihon Keizai Shimbun
Public notice for business results are posted on the Advantest website.
(http://www.advantest.co.jp/investors/)
Transfer agent: Main Office, Tokyo Securities Transfer Agent Co., Ltd.
Place for share transfer business:
Togin Bld. 3F, 4-2 Marunouchi 1-chome, Chiyoda-ku, Tokyo 100-0005
Toll free number: (0120)49-7009
Telephone: (03)3212-4611
Share transfer agent:
Tokyo Securities Transfer Agent Co., Ltd. and its sales offices and other share
transfer agents
*Notice on each share transfer agent
Tokyo Securities Transfer Agent Co., Ltd. would like to announce that, effective
as of May 23, 2005, the main office of Chuo Mitsui Trust and Banking Company and
its branches nationwide were designated as agents for the share transfer
business. Accordingly, they are now implementing share transfer businesses. Also
please note that the agent businesses at the main office of Mizuho Investors
Securities and its branches nationwide will be completed on November 30, 2005.
Number of shares comprising one unit: 100 shares
Notice: Demand for sales of fractional shares and demand for purchase of
fractional sales
The share transfer agents mentioned above accept demands for sales and purchases
of fractional shares. The handling of any demand for a purchase of fractional
shares will be suspended for the 12 business days prior to March 31 and the 12
business days prior to September 30, up to March 31 and September 30,
respectively. In addition, Tokyo Securities Transfer Agent Co., Ltd. may suspend
the handling of demands for the purchase of fractional shares for a certain
period designated by the company.
Registration of lost share certificates:
Those who have lost share certificates may fulfill the procedures concerning the
lost share certificates at the share transfer agents mentioned above. When such
procedures are complete, the symbol and number of lost share certificates are
registered on the lost share certificate registration book, which will in turn
be available for public inspection. Should there be no objection to such
registration or obliteration of registered lost share certificates for a period
of one year, those who have lost share certificates may receive the delivery of
new share certificates. The fees charged for the registration will be a basic
fee of JPY 10,000 and an additional fee of JPY 500 per lost certificate.
*For inquiries on details, please contact the above share transfer agents.
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