(The following is an unofficial English translation of the Report for the 64th
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 64th Fiscal Year
--------------------------------
(April 1, 2005 through March 31, 2006)
--------------------------------------
Advantest Corporation
---------------------
1
Contents
Message to Shareholders 3
(Attachments to the Convocation Notice of the 64th 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 64th Fiscal Year (from
April 1, 2005 to March 31, 2006)."
Even though increasing oil price was a risk factor, the overall
economic environment in fiscal 2005 was favorable due to an increase in demand
stimulated by many years of deflation as well as increased capital expenditures
supported by the improved corporate revenues. In the semiconductor market,
market expansion for personal computers, mobile phones and flat-panel TVs, in
addition to the emergence of new markets related to portable music players and
automobiles led to an increase in demand for semiconductors.
In this environment, Advantest made efforts to enhance sales by
introducing new products that meet the market's needs in a timely fashion. We
also endeavored to improve productivity and profitability through cost reduction
and reorganization of our production system. These efforts were also aimed at
responding to downward price pressure on our end products arising from the
expansion of markets.
Furthermore, due to growing interests in corporate ethics and
increasing legislative activities with respect to corporate governance,
Advantest has revised its "The Advantest Code of Conduct" in fiscal 2005.
Advantest distributed this Code of Conduct to all employees and directors of
each Group company with a view to further enhancing their awareness for CSR
(corporate social responsibility) principles. Each employee is to fulfill his or
her social responsibilities on the basis of this code, while proactively
promoting sincere and ethical corporate activities.
As a result, net sales for fiscal 2005 increased by 6.0% to (Y)253.9
billion as compared with the previous fiscal year. Income before income taxes
increased by 9.1% to (Y)67.5 billion and net income increased 8.7% to (Y)41.4
billion as compared with the previous fiscal year. Overseas sales as a
percentage of total sales were 68.0% (as compared with 74.9% in the previous
fiscal year).
With respect to the dividend distribution to the shareholders,
Advantest paid out an interim dividend of 25 yen per share in fiscal 2005.
However, taking into account the successful business performance of Advantest
and its consolidated subsidiaries (the "Advantest Group"), Advantest is
currently planning to propose a resolution, at the 64th Ordinary General Meeting
of Shareholders, for shareholders' approval of an increase of the year-end
dividend to 45 yen per share (accordingly, the annual dividend will be 70 yen
per share; an increase of 20 yen as compared with the previous fiscal year's
annual dividend) in recognition of, Advantest wishes to respond to our
shareholders' continued support.
Advantest implemented "Activate 21" in October 2005. This company-wide
initiative has the objective to continue the reforms and improvements of
"Initiative 21", and with broad based employee support. Furthermore, based on
this initiative, the whole Advantest Group is planning to roll out various
additional reforms with a focus on global improvements with respect to cost and
efficiency, setting the target date for completion as in fiscal 2008.
We hope that we may rely on you for your continued support and guidance
in the future.
June, 2006
Toshio Maruyama
President and CEO
3
(Attachments to the Convocation Notice of the 64th Ordinary
General Meeting of Shareholders)
Business Report
---------------
(April 1, 2005 through March 31, 2006)
1. Overview of Business
(1) Operations and Results of Business
(i) Business Conditions
Overall
During the fiscal year, the Advantest Group's operating environment was
very favorable, as stimulated by increased demand for consumer digital products,
including portable music players, and flat-panel TVs and personal computers
(particularly notebooks), and due to an increase in capital expenditures by the
semiconductor industry that intended to increase the semiconductor production.
In addition, the trend towards a weaker yen was a positive factor.
Under such an environment, the Advantest Group made concentrated
efforts to increase orders received and expand sales with a focus on the
introduction of new products for next generation semiconductors that meet
customers' demands. Advantest continued to make efforts to implement a thorough
inventory control and lead time reduction based on the just-in-time production
system, to improve the quality of products and to reduce costs.
As a result of the above, as compared with the previous fiscal year,
orders received increased by 14.0% to (Y)259.4 billion, net sales increased by
6.0% to (Y)253.9 billion, net income before income taxes for the fiscal year
increased by 9.1% to (Y)67.5 billion, and net income for the fiscal year
increased by 8.7% to (Y)41.4 billion. Overseas sales as a percentage of total
sales were 68.0%, as compared with 74.9% in the previous fiscal year.
Business conditions by Business Segment
Semiconductor and Component Test System Segment
In this segment, as IT related industries rapidly completed their
adjustment of excess inventory, which had started in from the second half of the
previous fiscal year. Thereafter, due to increased demand for customer digital
products, demand for new test systems greatly increased in connection with the
increased production of semiconductors.
In the market of test system for memory semiconductors, due to a market
expansion of NAND type flash memory semiconductors used in products such as
portable music players, sales in test systems for flash memory semiconductors
remained strong domestically and overseas. With respect to test systems for DRAM
semiconductors, sales remained strong throughout the fiscal year in terms of
test systems for DRAM used in consumer digital products and personal computers.
In particular, demand for test systems for high-speed memory semiconductors
increased domestically and in Taiwan. Each semiconductor manufacturer
implemented, in the second half of the fiscal year, a full scale production of
DDR2 semiconductors for DRAM- the next generation DRAM- that is high-speed and
low power consumption.
In the market of test systems for non memory semiconductors, stimulated
by strong sales in personal computers, sales of the T2000, a test system
compatible with OPENSTAR(R)*(1), continued to remain strong from the previous
fiscal year. In addition, sales of test systems for SoC semiconductors for
devices used in consumer digital products and test systems for automotive analog
IC increased. Due to an increase in demand for personal
- ------------------------
(1) OPENSTAR (R): The name of an open architecture standard by the STC
(Semiconductor Test Consortium, Inc.) OPENSTAR (R) is a registered trademark
in the United States, Japan, and other countries.
4
computer monitors and flat-panel TVs, sales of non memory test systems for LCD
driver IC increased significantly domestically and in Taiwan.
As a result of the above, orders received was (Y)195.6 billion (14.3%
increase in comparison to the previous fiscal year), sales was (Y)191.4 billion
(5.9% increase) and operating income was (Y)57.5 billion (13.6% increase).
Mechatronics System Segment
Stimulated by the positive sales of T2000 and test systems for
digital consumer products, sales of test handlers for non memory semiconductors
remained steady. Sales of test handlers for memory semiconductors was weaker in
the first half of the fiscal year, especially due to a delay in the demand for
DDR2 to pick up. However, sales of test handlers for memory semiconductors grew
overall due to an increase in sales of DRAM test systems. Furthermore, sales of
the device interface products increased, due to an increase in demand for flash
memory semiconductors and semiconductors for SoC.
As a result of the above, orders received was (Y)49.5 billion (12.9%
increase in comparison with the previous fiscal year), sales was (Y)48.3 billion
(4.0% increase) and operating income was (Y)12.0 billion (12.4% decrease).
Services, Support and Others Segment
In this segment, orders received was (Y)19.3 billion (0.7% increase in
comparison with the previous fiscal year), sales was (Y)19.1 billion (3.1%
decrease) and operating income was (Y)3.9 billion (13.2% increase).
5
Sales Breakdown by Business Segment (consolidated)
-------------------- ------------------------------ ----------------------------- -------------------------------
Fiscal Year Change from the previous
FY2004 FY2005 period
Segment
(the 63rd) (the 64th)
-------------------- ------------------------------ ----------------------------- -------------------------------
Amount Percentage Amount Percentage Amount Percentage
(in: million (%) (in: million (%) (in: million increase
yen) yen) yen) (decrease)
(%)
-------------------- ----------------- ------------ -------------- -------------- --------------- ---------------
Semiconductor and 180,685 75.5 191,415 75.4 10,730 5.9
Component Test
System
-------------------- ----------------- ------------ -------------- -------------- --------------- ---------------
Mechatronics System 46,395 19.4 48,260 19.0 1,865 4.0
-------------------- ----------------- ------------ -------------- -------------- --------------- ---------------
Services, Support 19,680 8.2 19,062 7.5 (618) (3.1)
and Others
-------------------- ----------------- ------------ -------------- -------------- --------------- ---------------
Elimination and (7,321) (3.1) (4,815) (1.9) 2,506 -
Corporate
-------------------- ----------------- ------------ -------------- -------------- --------------- ---------------
Total 239,439 100.0 253,922 100.0 14,483 6.0
-------------------- ----------------- ------------ -------------- -------------- --------------- ---------------
Overseas 179,414 74.9 172,782 68.0 (6,632) (3.7)
-------------------- ----------------- ------------ -------------- -------------- --------------- ---------------
Sales Breakdown by Business Segment (unconsolidated)
-------------------- ------------------------------ ----------------------------- -------------------------------
Fiscal Year Change from the previous
FY2004 FY2005 period
Segment (the 63rd) (the 64th)
-------------------- ------------------------------ ----------------------------- -------------------------------
Amount Percentage Amount Percentage Amount Percentage
(in: million (%) (in: million (%) (in: million increase
yen) yen) yen) (decrease)
(%)
-------------------- ---------------- ------------- ---------------- ------------ ----------------- -------------
Semiconductor and 161,749 79.5 176,665 81.2 14,915 9.2
Component and Test
System
-------------------- ---------------- ------------- ---------------- ------------ ----------------- -------------
Mechatronics System 36,536 18.0 38,123 17.5 1,587 4.3
-------------------- ---------------- ------------- ---------------- ------------ ----------------- -------------
Services, Support 5,028 2.5 2,899 1.3 (2,129) (42.4)
and Others
-------------------- ---------------- ------------- ---------------- ------------ ----------------- -------------
Total 203,315 100.0 217,688 100.0 14,373 7.1
-------------------- ---------------- ------------- ---------------- ------------ ----------------- -------------
Export 148,018 72.8 144,159 66.2 (3,859) (2.6)
-------------------- ---------------- ------------- ---------------- ------------ ----------------- -------------
6
(ii) Challenges Ahead
With respect to its operating environment in the upcoming fiscal year,
Advantest expects to see a continuing increase in volume and application of
flash memory semiconductors used for digital consumer products, including mobile
phones, portable music players and flat-panel TVs, and a continuing increase in
demand for non memory semiconductors. With respect to DRAM semiconductors,
Advantest expects a rapid shift to DDR2 DRAM semiconductors. Advantest expects
an increase in demand for such DRAM semiconductors, anticipating that computers
with a new operation system requiring more memory and game devices will be
introduced in the second half of the upcoming fiscal year. Furthermore,
continued capital expenditures relating to 300 mm wafers by the semiconductor
manufacturers and foundries are expected.
On the other hand, Advantest is concerned with factors that may affect
its results, including potential restrained capital expenditures resulting from
an aggravated supply-demand balance (distinctive to the semiconductor market), a
price increase in raw materials such as oil, risks attributable to a strong yen
and continued downward pressure on the prices of Advantest's end products.
In order to respond to these conditions, the Advantest Group plans to
continue with its efforts to increase orders received and expand sales through
the timely introduction of new products that meets customers' needs by
reinforcing marketing and development capabilities. To further enhance its cost
competitiveness, the Advantest Group plans to make continued efforts to improve
profitability by reviewing its company wide operational processes and improving
manufacturing efficiency.
(iii) Capital Expenditures
The Advantest Group invested a total of (Y)8.3 billion in capital
expenditures in fiscal 2005. 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 FY2005.
(2) Historical Data on Business Results and Assets
(i) Historical Data on Business Results and Assets (consolidated)
---------------------------------- ---------------- ---------------- ---------------- ----------------
FY2002 FY2003 FY2004 FY2005
(the 61st) (the 62nd) (the 63rd) (the 64th)
---------------------------------- ---------------- ---------------- ---------------- ----------------
Net sales (in: million yen) 97,740 174,218 239,439 253,922
---------------------------------- ---------------- ---------------- ---------------- ----------------
Net income (in: million yen) (12,994) 17,329 38,078 41,374
---------------------------------- ---------------- ---------------- ---------------- ----------------
Basic net income per share (in (131.99) 176.37 389.54 446.34
yen)
---------------------------------- ---------------- ---------------- ---------------- ----------------
Net assets (in: million yen) 210,663 221,768 206,749 257,927
---------------------------------- ---------------- ---------------- ---------------- ----------------
Total assets (in: million yen) 281,224 330,808 296,769 350,776
---------------------------------- ---------------- ---------------- ---------------- ----------------
(Notes) 1: 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)
---------------------------------- ---------------- ---------------- ---------------- ----------------
FY2002 FY2003 FY2004 FY2005
(the 61st) (the 62nd) (the 63rd) (the 64th)
---------------------------------- ---------------- ---------------- ---------------- ----------------
Net sales (in: million yen) 76,686 150,558 203,315 217,688
---------------------------------- ---------------- ---------------- ---------------- ----------------
Net income (in: million yen) (11,467) 11,957 28,421 35,273
---------------------------------- ---------------- ---------------- ---------------- ----------------
Net income per share (in yen) (116.49) 119.97 288.68 378.34
---------------------------------- ---------------- ---------------- ---------------- ----------------
Net assets (in: million yen) 178,253 188,891 159,074 197,226
---------------------------------- ---------------- ---------------- ---------------- ----------------
Total assets (in: million yen) 235,456 277,047 238,109 274,538
---------------------------------- ---------------- ---------------- ---------------- ----------------
(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.
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, 2006)
(1) Primary Areas of Business
The Advantest Group manufactures and markets semiconductor and
component test systems and products related to mechatronics systems
(test handlers, device interface, etc.). In addition to manufacturing,
the Advantest Group also carries out research and development
activities and provides 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 22,193
(iv) Major Shareholders (Top 10 shareholders)
------------------------------------------- -------------------------------- -------------------------------
Name of Shareholder Status of Ownership Company's Interest in
Shareholder
------------------------------------------- ---------------- --------------- ---------------- --------------
Number of Percentage of Number of Percentage of
Shares (in: Voting Rights Shares (in: Ownership (%)
thousand shares) (%) thousand shares)
------------------------------------------- ---------------- --------------- ---------------- --------------
Mizuho Trust & Banking Co., Ltd. 10,071 10.80 - -
(retirement benefit trust (Fujitsu
account), re-trust trustees, Trust &
Custody Services Bank, Ltd.)
------------------------------------------- ---------------- --------------- ---------------- --------------
The Master Trust Bank of Japan, Ltd. 8,870 9.51 - -
(trust account)
------------------------------------------- ---------------- --------------- ---------------- --------------
Japan Trustee Services Bank, Ltd. (trust 7,453 7.99 - -
account)
------------------------------------------- ---------------- --------------- ---------------- --------------
BNP Paribas Securities (Japan) Limited 2,175 2.33 - -
------------------------------------------- ---------------- --------------- ---------------- --------------
CALYON DMA OTC 2,028 2.17 - -
------------------------------------------- ---------------- --------------- ---------------- --------------
Japan Trustee Services Bank, Ltd. (trust 1,969 2.11 - -
account 4)
------------------------------------------- ---------------- --------------- ---------------- --------------
State Street Bank and Trust Company 505025 1,925 2.06 - -
------------------------------------------- ---------------- --------------- ---------------- --------------
The Dai-ichi Mutual Life Insurance Company 1,724 1.85 - -
------------------------------------------- ---------------- --------------- ---------------- --------------
Fukoku Mutual Life Insurance Company 1,546 1.65 - -
------------------------------------------- ---------------- --------------- ---------------- --------------
Trust & Custody Services Bank, Ltd. 1,437 1.54 - -
(investment trust account)
------------------------------------------- ---------------- --------------- ---------------- --------------
(Notes) 1. Treasury shares held by the Company in the number of
6,456 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 6,620
thousand shares of Advantest as of December 31, 2005
according to the substantial shareholding reports filed
on January 13, 2006 and Capital Guardian Trust Company
and its three affiliates jointly held 6,622 thousand
shares of Advantest as of September 30, 2005 according
to the substantial shareholding reports filed on October
13, 2005, However, the Company has not included the
number of shares held by an unverified number of
beneficial owners in the table above.
(Reference) [INSERT PIE CHART HERE]
Financial Institutions and Securities Company 166 holders, 45,467 thousand shares (45.6%)
Non-Japanese Holders 484 holders, 38,295 thousand shares (38.4%)
Other Entities 319 holders, 9,018 thousand shares (9.0%)
Individuals and Others 21,224 holders, 7,002 thousand shares (7.0%)
9
(3) Acquisition, Disposition and Holding of Treasury Stock
(i) Acquisition
Common stock 5,098 shares
Aggregate cost of acquisition (Y)55,794 thousand
(ii) Disposition
Common stock 908,132 shares
Aggregate proceeds from disposition (Y)8,158,343 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 6,456,736 shares
(4) Employees
(i) Employees of the Advantest Group
-------------------------------------------- ----------------------------------------------------
Number of Employees Change from End of Previous Period
-------------------------------------------- ----------------------------------------------------
3,595 30
-------------------------------------------- ----------------------------------------------------
(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 Employees Change from End of Average Years of
Previous Period Average Age Service
------------------------- ------------------------ ----------------------- -----------------------
1,445 12 38.3 13.2
------------------------- ------------------------ ----------------------- -----------------------
(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. (Y)50 million 100% Research and development of
measuring and testing technologies
---------------------------------------- --------------------- --------------- ------------------------------------
Advantest Customer Support Corporation (Y)300 million 100% Maintenance service for the
Company's products
---------------------------------------- --------------------- --------------- ------------------------------------
Advanmechatec Co., Ltd. (Y)300 million 100% Manufacturing of the Company's
products
---------------------------------------- --------------------- --------------- ------------------------------------
Advantest Manufacturing, Inc. (Y)80 million 100% Manufacturing of the Company's
products
---------------------------------------- --------------------- --------------- ------------------------------------
Advantest DI Corporation (Y)50 million 100% Manufacturing of the Company's
products
---------------------------------------- --------------------- --------------- ------------------------------------
Japan Engineering Co., Ltd. (Y)305 million 100% Development, manufacturing and
sales of the Company's products
---------------------------------------- --------------------- --------------- ------------------------------------
Advantest Finance Inc. (Y)1,000 million 100% Leasing of the Company's products
---------------------------------------- --------------------- --------------- ------------------------------------
Advantest America, Inc. 42,000 thousand USD 100% Sales of the 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. 2,700 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
Advantest Technology Solutions Corporation was established on July 1,
2005 as a subsidiary to conduct semiconductor design validation system
business.
(iii) Results of Business Combination Activities
The Company has 40 consolidated subsidiaries, including the 13
significant subsidiaries set forth above. The business results for FY2005
are as set forth in "Historical Data on Business Results and Assets
(consolidated)" on page 7.
(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 Western Japan Office Suita-shi, Osaka
--------------------------------------- -------------------------------------------------
Office 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
-------------------- --------------------------------------- -------------------------------------------------
11
Kitakyushu R&D Center Kitakyushu-shi, Fukuoka
--------------------------------------- -------------------------------------------------
Advantest Laboratories Sendai-shi, Miyagi
-------------------- --------------------------------------- -------------------------------------------------
Factories Gunma Factory Ora-machi, Ora-gun, Gunma
--------------------------------------- -------------------------------------------------
Kumagaya Factory Kumagaya-shi, 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 or Position
--------------------------------- ------------------------ -----------------------------------------------------
Chairman of the Board Shimpei Takeshita
--------------------------------- ------------------------ -----------------------------------------------------
Representative Board Director Toshio Maruyama
--------------------------------- ------------------------ -----------------------------------------------------
Director and Senior Executive Hiroshi Oura
Advisor
--------------------------------- ------------------------ -----------------------------------------------------
Director Junji Nishiura
--------------------------------- ------------------------ -----------------------------------------------------
Director Hiroji Agata
--------------------------------- ------------------------ -----------------------------------------------------
Director Hitoshi Owada
--------------------------------- ------------------------ -----------------------------------------------------
Director Takashi Tokuno
--------------------------------- ------------------------ -----------------------------------------------------
Standing Corporate Auditor Noboru Yamaguchi
--------------------------------- ------------------------ -----------------------------------------------------
Standing Corporate Auditor Tadahiko Hirano
--------------------------------- ------------------------ -----------------------------------------------------
Corporate Auditor Naoyuki Akikusa Representative Board Director and Chairman of
Fujitsu Limited
--------------------------------- ------------------------ -----------------------------------------------------
Corporate Auditor Takashi Takaya Standing Corporate Auditor of Fujitsu Limited
--------------------------------- ------------------------ -----------------------------------------------------
(Notes) 1: Changes in the appointment of board directors and corporate
auditors during FY2005 are as follows:
(i)Changes adopted by the 63rd Ordinary General Meeting
of Shareholders on June 28, 2005
Retiring:
Director Kiyoshi Miyasaka
Corporate Auditor Kuniaki Suzuki
Newly elected:
Corporate Auditor Naoyuki Akikusa
(ii)Changes adopted by the meeting of the Board of
Directors on June 28, 2005
Chairman of the Board Shimpei Takeshita (Previous Position: Vice
Chairman of the Board)
Director and Senior Executive Hiroshi Oura (Previous Position:
Advisor Representative Board Director
and Chairman of the Board)
2: There was no significant change in the area of
responsibility or position of directors and corporate
auditors after March 31, 2006.
3: Of the corporate auditors set forth above, Naoyuki
Akikusa and Takashi Takaya 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 or Position
--------------------------------- ------------------------ -----------------------------------------------------
President and CEO Toshio Maruyama*
--------------------------------- ------------------------ -----------------------------------------------------
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* Test System Business
--------------------------------- ------------------------ -----------------------------------------------------
Managing Executive Officer Kenichi Mitsuoka Senior Vice President, FA Business Group
--------------------------------- ------------------------ -----------------------------------------------------
Managing Executive Officer Yuri Morita Senior Vice President, Corporate Affairs Group
--------------------------------- ------------------------ -----------------------------------------------------
Managing Executive Officer Jiro Katoh Senior Vice President, Technology Development Group
--------------------------------- ------------------------ -----------------------------------------------------
Managing Executive Officer Takao Tadokoro Senior Vice President, Sales and Marketing Group
--------------------------------- ------------------------ -----------------------------------------------------
Managing Executive Officer Hiroyasu Sawai Senior Vice President, SE Group
--------------------------------- ------------------------ -----------------------------------------------------
Managing Executive Officer Hiroshi Tsukahara Senior Vice President, DI Business Group
--------------------------------- ------------------------ -----------------------------------------------------
Executive Officer Masao Shimizu Senior Vice President, the 1st Test System
Business Group
--------------------------------- ------------------------ -----------------------------------------------------
Executive Officer Masao Araki Chairman of the Board, Advantest (Suzhou) Co., Ltd.
--------------------------------- ------------------------ -----------------------------------------------------
Executive Officer Yuichi Kurita Senior Vice President, Corporate Planning Group
--------------------------------- ------------------------ -----------------------------------------------------
Executive Officer Yoshiro Yagi Vice President, Sales and Marketing Group
--------------------------------- ------------------------ -----------------------------------------------------
Executive Officer Hideaki Imada Senior Vice President, the 2nd Test System
Business Group
--------------------------------- ------------------------ -----------------------------------------------------
Executive Officer Shinichiro Umeda Senior Vice President, Software Development Group
--------------------------------- ------------------------ -----------------------------------------------------
Executive Officer Akira Hatakeyama President and Representative Board Director of
Advantest Manufacturing, Inc.
--------------------------------- ------------------------ -----------------------------------------------------
Executive Officer Yasuhiro Kawata General Manager, 2nd SoC Tester Business Division
--------------------------------- ------------------------ -----------------------------------------------------
Executive Officer Takashi Sugiura General Manager, Product Design Initiatives 1
--------------------------------- ------------------------ -----------------------------------------------------
Executive Officer Shinichiro Kuroe Vice President, Sales and Marketing Group
--------------------------------- ------------------------ -----------------------------------------------------
(* Indicates an Executive Officer who also serves on the Board of Directors)
(Note) Changes in the responsibilities or positions of the Executive
Officers after March 31, 2006 are as follows:
Effective June 1, 2006
--------------------------------- ------------------------ -----------------------------------------------------
Title Name Area of Responsibility or Position
--------------------------------- ------------------------ -----------------------------------------------------
Managing Executive Officer Kenichi Mitsuoka President and Representative Board Director of
Advantest DI Corporation
--------------------------------- ------------------------ -----------------------------------------------------
Managing Executive Officer Hiroshi Tsukahara Senior Vice President, the 1st Test System
Business Group
--------------------------------- ------------------------ -----------------------------------------------------
Executive Officer Masao Shimizu Senior Vice President, DI Business Group
--------------------------------- ------------------------ -----------------------------------------------------
Executive Officer Takashi Sugiura Senior Vice President, FA Business Group
--------------------------------- ------------------------ -----------------------------------------------------
14
(8) Compensations Paid to Board Directors and Corporate Auditors
--------------------- ---------------------------- ---------------------------- ----------------------------
Category Board directors Corporate auditors Total
--------------------- ------------- -------------- -------------- ------------- -------------- -------------
Number of Amount paid Number of Amount paid Number Amount paid
directors auditors
subject to subject to subject to
payment (million) payment (million) payment (million)
--------------------- ------------- -------------- -------------- ------------- -------------- -------------
Compensation (April 2005 (Y)280 (April 2005 (Y)58 (April 2005 (Y)339
pursuant to the to June to June to June
Articles of 2005) 8 2005) 4 2005) 12
Incorporation or
resolution of the (July 2005 (July 2005 (July 2005
general meeting of to March to March to March
shareholders 2006) 7 2006) 4 2006) 11
--------------------- ------------- -------------- -------------- ------------- -------------- -------------
Bonuses to
directors or
corporate auditors 8 (Y)180 4 (Y)23 12 (Y)203
in appropriation of
retained earnings
--------------------- ------------- -------------- -------------- ------------- -------------- -------------
Benefits to
retiring directors
or corporate
auditors based on a 1 (Y)81 - - 1 (Y)81
resolution of the
general meeting of
shareholders
--------------------- ------------- -------------- -------------- ------------- -------------- -------------
Total (Y)541 (Y)81 (Y)623
--------------------- ------------- -------------- -------------- ------------- -------------- -------------
(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 (Y)40,000,000 per month for
directors and (Y)6,000,000 per month for corporate
auditors.
2. Seven 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 2005
to June 2005 represents one retired board director, one
newly elected corporate auditor, and one retired
corporate auditor.
(9) Stock Acquisition Rights
(a) Stock acquisition rights currently outstanding
- ---------------------------- ---------------------- --------------------- ---------------------- ---------------------
Resolution passed at Resolution passed at Resolution passed at Resolution passed at
the Ordinary General the Ordinary General the Ordinary General the Ordinary General
Meeting of Meeting of Meeting of Meeting of
Shareholders of Shareholders of Shareholders of Shareholders of
June 27, 2002 June 27, 2003 June 25, 2004 June 28, 2005
- ---------------------------- ---------------------- --------------------- ---------------------- ---------------------
Number of Stock 2,870 3,150 5,580 7,690
Acquisition Rights
- ---------------------------- ---------------------- --------------------- ---------------------- ---------------------
Class and aggregate number 287,000 shares of 315,000 shares of 558,000 shares of 769,000 shares of
of shares to be issued or common stock common stock common stock common stock
delivered upon exercise
- ---------------------------- ---------------------- --------------------- ---------------------- ---------------------
Issuance Price (Y) 0 (Y) 0 (Y) 0 (Y) 0
- ---------------------------- ---------------------- --------------------- ---------------------- ---------------------
15
(b) Stock acquisition rights issued during FY2005 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 28, 2005 on November 30, 2005 on February 28, 2006
- -------------------------------------- ------------------------ ------------------------ ------------------------
Date of issuance July 4, 2005 December 1, 2005 February 28, 2006
- -------------------------------------- ------------------------ ------------------------ ------------------------
Class and aggregate number of shares 759,000 shares of 8,000 shares of common 2,000 shares of common
to be issued or delivered upon common stock stock stock
exercise
- -------------------------------------- ------------------------ ------------------------ ------------------------
Number of stock acquisition rights 7,590 80 20
(each stock acquisition right is
exercisable for 100 shares)
- -------------------------------------- ------------------------ ------------------------ ------------------------
--------------------------------------------------------------------------
Issuance price (Y)0
- -------------------------------------- ------------------------------------------------- ------------------------
Exercise price to be paid upon (Y)8,600 per share (Y)13,403 per share
exercise
- -------------------------------------- --------------------------------------------------------------------------
Exercise period April 1, 2006 to March 31, 2010
- -------------------------------------- --------------------------------------------------------------------------
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 The stock acquisition rights were issued for no consideration to
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
------------------------------------------- -------------------
Shimpei Takeshita, Toshio Maruyama 300 each
------------------------------------------- -------------------
Hiroshi Oura, Junji Nishiura, Hiroji Agata 200 each
------------------------------------------- -------------------
Hitoshi Owada, Takashi Tokuno 180 each
------------------------------------------- -------------------
Corporate Auditors of the Company
------------------------------------------- -------------------
Name Number of stock
acquisition rights
------------------------------------------- -------------------
Noboru Yamaguchi, Tadahiko Hirano, 30 each
Naoyuki Akikusa, Takashi Takaya
------------------------------------------- -------------------
Executive Officers of the Company
------------------------------------------- -------------------
Name Number of stock
acquisition rights
------------------------------------------- -------------------
Kenichi Mitsuoka, Yuri Morita, Jiro 160 each
Katoh, Takao Tadokoro, Hiroyasu Sawai,
Hiroshi Tsukahara
------------------------------------------- -------------------
Masao Shimizu, Masao Araki, Yuichi 120 each
Kurita, Yoshiro Yagi, Hideaki Imada,
Shinichiro Umeda, Akira Hatakeyama,
Yasuhiro Kawata, Takashi Sugiura,
Shinichiro Kuroe
------------------------------------------- -------------------
Employees of the Company; Directors and employees of the Company's
subsidiaries (top 10 persons only)
------------------------------------------- -------------------
Name Number of stock
acquisition rights
------------------------------------------- -------------------
Cheng Sui Yoong, Josef Schraetzenstaller, 100 each
Keith Lee, Kim Young Hwan
------------------------------------------- -------------------
Robert Sauer 80
------------------------------------------- -------------------
Gregory Self 50
------------------------------------------- -------------------
Tetsuo Aoki, Tomio Aso, Masakazu Ando, 30 each
Mitsunori Iwadate
------------------------------------------- -------------------
(Note) As several of the persons listed share the same
rank, the names are presented in alphabetical
order.
Breakdown of stock acquisition rights granted to employees of the
Company and directors and employees of the Company's subsidiaries
------------------------- ----------------- --------------------------- ---------------------
Total number of
Number of stock Class and total number of persons granted
Category acquisition shares to be issued or stock acquisition
rights delivered upon exercise rights
------------------------- ----------------- --------------------------- ---------------------
Employees of the Company 1,870 187,000 shares of common 77
stock
------------------------- ----------------- --------------------------- ---------------------
Directors of the 700 70,000 shares of common 21
Company's subsidiaries stock
------------------------- ----------------- --------------------------- ---------------------
Employees of the 1,280 128,000 shares of common 89
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: (Y)58 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: (Y)58 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: (Y)57 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, 2006)
(unit: million yen)
- ------------------------------- ----------- ------------- -------------------------------- ---------- ------------
FY2005 FY2004 FY2005 FY2004
(reference) (reference)
- ------------------------------- ----------- ------------- -------------------------------- ---------- ------------
- --------------------------------------------------------- --------------------------------------------------------
Assets Liabilities
- --------------------------------------------------------- --------------------------------------------------------
Current assets 275,633 223,931 Current liabilities 76,745 73,994
Cash and cash equivalents 157,925 120,986 Current installments of 30 20,043
Trade accounts 69,567 56,702 long-term debt
receivable, less allowance Trade accounts payable 32,584 23,196
for doubtful accounts Income taxes payable 19,970 7,278
Inventories 29,911 29,585 Accrued expenses 12,781 13,865
Deferred tax assets 13,708 13,673 Accrued warranty expenses 4,776 4,090
Other current assets 4,522 2,985 Deferred revenue 2,979 2,220
Investment securities 12,273 7,772 Other current liabilities 3,625 3,302
Property, plant and 50,793 51,364 Long-term debt, excluding 10 40
equipment, net current installments
Deferred tax assets 7,378 8,438 Accrued pension and severance 12,292 12,605
Intangible assets, at cost, 2,858 3,090 cost
less accumulated Other long-term liabilities 3,802 3,381
-------------------------------- ---------- ------------
amortization Total Liabilities 92,849 90,020
-------------------------------- ---------- ------------
--------------------------------------------------------
Other assets 1,841 2,174 Stockholders' equity
-------------------------------- ---------- ------------
Common stock 32,363 32,363
Capital surplus 37,147 35,263
Retained earnings 245,090 210,121
Accumulated other 1,344 (4,878)
comprehensive income (loss)
Treasury stock (58,017) (66,120)
-------------------------------- ---------- ------------
Total stockholders' equity 257,927 206,749
- ------------------------------- ----------- ------------- -------------------------------- ---------- ------------
Total Assets 350,776 296,769 Total liabilities and 350,776 296,769
stockholders' equity
- ------------------------------- ----------- ------------- -------------------------------- ---------- ------------
(Note) Amounts of less than one million above are 4. Accumulated other comprehensive income rounded. (loss)
1. Allowance for doubtful accounts: Foreign exchange translation adjustments:
(Y)2,117 million ((Y)1,378 million)
2. Accumulated depreciation on property, plant, Net unrealized gains on revaluation of securities:
and equipment (Y)72,131 million (Y)2,722 million
3. Outstanding loan guarantees (Y)232 million
19
Consolidated Statements of Income
---------------------------------
(From April 1, 2005 to March 31, 2006)
(unit: million yen)
---------------------------------------------------------------------------------
FY2005 FY2004
(reference)
---------------------------------------------------------------------------------
Amount Amount
---------------------------------------------------------------------------------
Net sales 253,922 239,439
Cost of sales 121,429 115,994
Gross profit 132,493 123,445
Research and development 26,927 26,280
expenses
Selling, general, and 41,108 36,446
administrative expenses
Operating income (loss) 64,458 60,719
Other income (expense):
Interest and dividend income 1,760 597
Interest expense (290) (441)
Minority interests (losses) - (84)
Other 1,526 1,017
--------------------------------------------
Income (loss) before income taxes 67,454 61,808
Income taxes 26,080 23,730
Net income (loss) 41,374 38,078
---------------------------------------------------------------------------------
(Note) Amounts of less than one million above are rounded.
Basic net income per share (Y)446.34
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 for the Company and its domestic subsidiaries and the
straight-line method for foreign subsidiaries. Buildings are
principally depreciated 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
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.
21
(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).
22
Balance Sheets (Unconsolidated)
-------------------------------
(As of March 31, 2006)
(Unit: million yen)
- --------------------------------------------------------- ----------------------------------------------------------
FY2005 FY2004 FY2005 FY2004
(reference) (reference)
- --------------------------------------------------------- ----------------------------------------------------------
Assets Liabilities
- --------------------------------------------------------- ----------------------------------------------------------
Current assets 199,872 166,050 Current liabilities 68,120 69,495
Cash and deposits 86,669 68,676 Trade accounts payable 30,476 22,642
Trade notes receivable 1,001 12,418 Current installments of bonds - 20,000
Accounts receivable 71,892 43,564 Other accounts payable 2,419 2,037
Finished goods 3,571 4,371 Accrued expenses 9,054 10,230
Raw materials 4,774 3,627 Income tax payable 16,315 4,116
Work in progress 13,085 14,520 Allowance for product warranty 4,877 4,345
Supplies 177 67 Other current liabilities 4,977 6,123
Deferred tax assets 9,514 10,032
Other current assets 9,187 8,771 Non-current liabilities 9,191 9,539
Allowance for doubtful accounts - (0) Long-term borrowings 10 40
Allowance for retirement 6,970 7,100
benefits
Non-current assets 74,665 72,058 Allowance for officers' 1,681 1,509
retirement
Property, plant and equipment 38,781 39,778 benefits
Buildings and improvements 14,163 15,372 Other non-current liabilities 529 888
--------------------------------- ----------- ------------
Structures 831 945 Total liabilities 77,311 79,034
----------------------------------------------------------
Machinery and equipment 3,640 3,301 Stockholders' equity
----------------------------------------------------------
Vehicles and delivery 24 22 Common stock 32,362 32,362
equipment Capital surplus 32,973 32,973
Tools and furniture 2,171 1,920 Additional paid-in capital 32,973 32,973
Land 17,915 18,141 Retained earnings 187,229 158,563
Construction in progress 33 74 Legal reserve 3,083 3,083
Intangible fixed assets 1,233 1,437 Voluntary reserve 148,942 126,942
Software and others 1,233 1,437 [Reserve for losses in [27,062] [27,062]
foreign
Investments and other assets 34,650 30,842 investments]
Investment securities 12,228 7,430 [General reserve] [121,880] [99,880]
Investments in affiliated 16,470 16,390 Unappropriated earnings at 35,204 28,538
companies the end of the year
Long-term loans receivable 1,078 1,072 Net unrealized holding gains on 2,677 1,294
Deferred tax assets 3,482 4,137 available-for-sale securities
Other non-current assets 1,391 1,811 Treasury stock (58,017) (66,119)
--------------------------------- ----------- ------------
Total stockholders' equity 197,226 159,074
- --------------------------------- --------- ------------- --------------------------------- ----------- ------------
Total assets 274,538 238,109 Total liabilities and 274,538 238,109
stockholder's equity
- --------------------------------- --------- ------------- --------------------------------- ----------- ------------
(Notes) Amounts of less than one million are truncated.
1. Short-term receivables from affiliates: (Y)35,428 4. In addition to property, plant and equipment
million Long-term receivables from affiliates: recognized in the balance sheet, the Company uses
(Y)1,050 million some computer equipment under lease agreement.
2. Short-term payables to affiliates: (Y)11,022 million 5. Increased net assets amount prescribed in Article
3. Accumulated depreciation on property, plant and 124, Item 3 of the Enforcement Regulations of the
equipment (including accumulated impairment losses) Commercial Code: (Y)2,677 million
(Y)57,375 million
23
Statements of Income (unconsolidated)
-------------------------------------
(April 1, 2005 through
March 31, 2006)
(unit: million yen)
------------------ ---------------- --------------------------------------- ------------- ---------------
Ordinary profit FY2005 FY2004
and loss (reference)
--------------------------------------- ------------- ---------------
Operating income
Net sales 217,688 203,315
Operating Operating expenses
profit and loss Cost of sales 113,606 107,067
Selling, general, and 54,335 54,337
administrative expenses
--------------------------------------- ------------- ---------------
Operating income 49,746 41,910
---------------- --------------------------------------- ------------- ---------------
Non-operating income
Interest and dividend income 2,604 1,940
Non-operating Other 3,828 2,681
profit and loss Non-operating expenses
Interest expenses 288 439
Other 2,013 2,728
-------------------------------------------------------- ------------- ---------------
Ordinary income 53,878 43,365
------------------ -------------------------------------------------------- ------------- ---------------
Extraordinary Extraordinary gain
profit and loss Return of substitutional portion of Employees - 2,503
Pension Fund
------------------ -------------------------------------------------------- ------------- ---------------
Net income before income taxes 53,878 45,868
--------------------------------------------------------------------------- ------------- ---------------
Income taxes - current 18,364 4,141
--------------------------------------------------------------------------- ------------- ---------------
Income taxes - deferred 239 13,305
--------------------------------------------------------------------------- ------------- ---------------
Net income 35,273 28,421
--------------------------------------------------------------------------- ------------- ---------------
Retained earnings brought forward 4,024 3,020
--------------------------------------------------------------------------- ------------- ---------------
Interim dividends 2,313 2,457
--------------------------------------------------------------------------- ------------- ---------------
Loss from disposition of treasury stock 1,780 446
--------------------------------------------------------------------------- ------------- ---------------
Unappropriated earnings at the end of the year 35,204 28,538
--------------------------------------------------------------------------- ------------- ---------------
(Notes) Amounts of less than one million are truncated.
1. Transactions with affiliated companies
Sales (Y)112,844 million
Purchases (Y)53,264 million
Non-operating transactions (Y)5,085 million
2. Net income per share (Y)378.34
Net income as reported on statement of income (Y)35,273 million
Net income allocated to common stock (Y)35,070 million
Amount not allocated to common stock
Bonuses to officers by appropriation of earnings (Y)203 million
Average number of common shares outstanding
during the fiscal year
92,694,513 shares
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 quoted 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.
26
Proposed Appropriation of Retained Earnings
-------------------------------------------
(unit: yen)
---------------------------------------------------------------------------
Item Amount
---------------------------------------------------------------------------
Unappropriated earnings at the end of the year 35,204,462,434
Earnings will be appropriated as follows:
Dividends 4,199,699,205
(Y)45 per share
Directors' bonus 180,000,000
Corporate Auditors' bonus 23,000,000
Voluntary Reserve
General reserve 25,000,000,000
Earnings to be carried forward 5,801,763,229
---------------------------------------------------------------------------
(Note) On December 1, 2005, the Company paid interim dividends of
(Y)25 per share (or (Y)2,313,352,050 in total) to its
shareholders of record as of September 30, 2005.
27
Copy of Independent Auditor's Report (Consolidated)
---------------------------------------------------
Report of Independent Auditors Report
-------------------------------------
May 16, 2006
To the Board of Directors of Advantest Corporation:
Ernst & Young ShinNihon
Kiyotada Osada O
--------------
Engagement Partner
Certified Public Account
Tetsuya Naito O
-------------
Engagement Partner
Certified Public Account
We have audited the consolidated financial statements of Advantest Corporation
for its 64th fiscal year (April 1, 2005 through March 31, 2006), 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 64th fiscal year (April 1, 2005 through March 31, 2006) 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 from directors and
the like and the independent auditor.
2. Results of Audit
The methods and results of audit performed by Ernst & Young ShinNihon, the
independent auditor of the Company, are appropriate.
May 19, 2006
Board of Corporate Auditors of Advantest Corporation
Noboru Yamaguchi
----------------------------------O
Standing Corporate Auditor
Tadahiko Hirano
----------------------------------O
Standing Corporate Auditor
Naoyuki Akikusa
----------------------------------O
Corporate Auditor
Takashi Takaya
----------------------------------O
Corporate Auditor
(Note) Naoyuki Akikusa and Takashi Takaya are outside corporate auditors
appointed pursuant to Article 18, Paragraph 1 of the old "Law Concerning
Exceptions to the Commercial Code Relating to Audit, etc. of Stock
Corporations".
29
Copy of Independent Auditor's Report
------------------------------------
Report of Independent Auditors Report
-------------------------------------
May 16, 2006
To the Board of Directors of Advantest Corporation:
Ernst & Young ShinNihon
Kiyotada Osada O
--------------
Engagement Partner
Certified Public Account
Tetsuya Naito O
-------------
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 64th fiscal
year (April 1, 2005 through March 31, 2006) 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.
30
Copy of Board of Corporate Auditors' Audit Report
-------------------------------------------------
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 64th fiscal year (April 1, 2005 through March 31, 2006) 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 Ernst & Young ShinNihon,
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 19, 2006
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
Naoyuki Akikusa
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Corporate Auditor
Takashi Takaya
----------------------------------O
Corporate Auditor
(Note) Naoyuki Akikusa and Takashi Takaya are outside corporate auditors
appointed pursuant to Article 18, Paragraph 1 of the old "Law Concerning
Exceptions to the Commercial Code Relating to Audit, etc. of Stock
Corporations."
31
Memorandum to Shareholders
--------------------------
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.
Method for public notice:
Public notice will be posted on the Advantest website
(http://www.advantest.co.jp/investors/). However, in the case of accidents or
other inevitable circumstances that prevent the Company from posting public
notices on such Company's website, public notices are carried in the Nihon
Keizai Shimbun.
Share registration agent: Main Office, Tokyo Securities Transfer Agent Co., Ltd.
Place for share transfer/registration business:
Togin Bld. 3F, 4-2 Marunouchi 1-chome, Chiyoda-ku, Tokyo 100-0005
Toll free number: (0120)49-7009
Telephone: (03)3212-4611
Agent for share transfer/registration business:
Main Office and Branch Offices in Japan, The Chuo Mitsui Trust and Banking
Company, Limited
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 (Y)10,000 and an additional fee of (Y)500 per lost certificate.
*For inquiries on details, please contact the above share registration agent.