As filed with the Securities and Exchange Commission on June 26, 2009

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 20-F
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
⌧ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 2009
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period fromto
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 1-15236

KABUSHIKI KAISHA ADVANTEST(Exact name of registrant as specified in its charter)

ADVANTEST CORPORATION(Translation of registrant’s name into English)
Japan(Jurisdiction of incorporation or organization)
Shin-Marunouchi Center Building
1-6-2, Marunouchi
Chiyoda-ku
Tokyo 100-0005
Japan(Address of principal executive offices)
Yuichi Kurita, (81-3) 3214-7500, (81-3) 3214-7711,
Shin-Marunouchi Center Building
1-6-2, Marunouchi
Chiyoda-ku
Tokyo 100-0005
Japan(Name, telephone, facsimile number and address of company contact person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of each class:Name of each exchange on which registered:***

American Depositary Shares*
The New York Stock Exchange
Common Stock**
American Depositary Receipts evidence American Depositary Shares, each American Depositary Share representing one share of the registrant’s Common Stock.
No par value. Not for trading, but only in connection with the registration of American Depositary Shares, pursuant to the requirements of the Securities and Exchange
Commission.
Securities registered or to be registered pursuant to Section 12(g) of the Act: None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report:
Title of class:
Outstanding as of March 31, 2009:

Common Stock
178,723,472
American Depositary Shareseach representing one share of Common Stock2,294,643
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ⌧ No
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934. Yes
No ⌧Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90
days: Yes ⌧ No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit
and post such files). Yes
No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large
accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ⌧Accelerated filer
Non-accelerated filer
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP ⌧International Financial Reporting Standards as issued
Other
By the International Accounting Standards Board
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected tofollow. Item 17
Item 18
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
No ⌧TABLE OF CONTENTS
PagePART IITEM 1.

IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS .................................................

1

ITEM 2.

OFFER STATISTICS AND EXPECTED TIMETABLE...................................................................................

1

ITEM 3.

KEY INFORMATION........................................................................................................................................

1

SELECTED FINANCIAL DATA ......................................................................................................................
CAPITALIZATION AND INDEBTEDNESS....................................................................................................
REASONS FOR THE OFFER AND USE OF PROCEEDS ..............................................................................
RISK FACTORS.................................................................................................................................................

1
4
4
4

INFORMATION ON THE COMPANY.............................................................................................................

12

4.A.
4.B.
4.C.
4.D.

HISTORY AND DEVELOPMENT OF THE COMPANY ................................................................................
BUSINESS OVERVIEW....................................................................................................................................
ORGANIZATIONAL STRUCTURE .................................................................................................................
PROPERTY, PLANTS AND EQUIPMENT......................................................................................................

12
13
31
31

ITEM 4A.

UNRESOLVED STAFF COMMENTS..............................................................................................................

33

ITEM 5.

OPERATING AND FINANCIAL REVIEW......................................................................................................

33

OPERATING RESULTS ....................................................................................................................................
LIQUIDITY AND CAPITAL RESOURCES .....................................................................................................
RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES ...............................................................
TREND INFORMATION...................................................................................................................................
OFF-BALANCE SHEET ARRANGEMENTS ..................................................................................................
TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS ................................................................
SAFE HARBOR .................................................................................................................................................

33
47
48
49
49
50
50

DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES.......................................................................

50

DIRECTORS AND SENIOR MANAGEMENT ................................................................................................
COMPENSATION..............................................................................................................................................
BOARD PRACTICES ........................................................................................................................................
EMPLOYEES .....................................................................................................................................................
SHARE OWNERSHIP .......................................................................................................................................

50
59
59
60
61

MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS .....................................................

63

MAJOR SHAREHOLDERS...............................................................................................................................
RELATED PARTY TRANSACTIONS .............................................................................................................
INTERESTS OF EXPERTS AND COUNSEL...................................................................................................

63
65
65

FINANCIAL INFORMATION ..........................................................................................................................

65

CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION ........................................
SIGNIFICANT CHANGES ................................................................................................................................

65
66

THE OFFER AND LISTING..............................................................................................................................

66

LISTING DETAILS............................................................................................................................................
PLAN OF DISTRIBUTION ...............................................................................................................................
MARKETS..........................................................................................................................................................
SELLING SHAREHOLDERS............................................................................................................................
DILUTION..........................................................................................................................................................
EXPENSES OF THE ISSUE ..............................................................................................................................

66
66
67
67
67
67

3.A.
3.B.
3.C.
3.D.
ITEM 4.

5.A.
5.B.
5.C.
5.D.
5.E.
5.F.
5.G.
ITEM 6.
6.A.
6.B.
6.C.
6.D.
6.E.
ITEM 7.
7.A.
7.B.
7.C.
ITEM 8.
8.A.
8.B.
ITEM 9.
9.A.
9.B.
9.C.
9.D.
9.E.
9.F.

i

Pag
e

ITEM 10.

ADDITIONAL INFORMATION .........................................................................................................................

67

SHARE CAPITAL................................................................................................................................................
MEMORANDUM AND ARTICLES OF ASSOCIATION..................................................................................
MATERIAL CONTRACTS..................................................................................................................................
EXCHANGE CONTROLS...................................................................................................................................
TAXATION ..........................................................................................................................................................
DIVIDENDS AND PAYING AGENTS...............................................................................................................
STATEMENT BY EXPERTS ..............................................................................................................................
DOCUMENTS ON DISPLAY .............................................................................................................................
SUBSIDIARY INFORMATION ..........................................................................................................................

67
67
75
75
76
82
82
82
82

ITEM 11.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK......................................

82

ITEM 12.

DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES......................................................

84

DEBT SECURITIES.............................................................................................................................................
WARRANTS AND RIGHTS ...............................................................................................................................
OTHER SECURITIES..........................................................................................................................................
AMERICAN DEPOSITARY SHARES................................................................................................................

84
84
84
84

10.A.
10.B.
10.C.
10.D.
10.E.
10.F.
10.G.
10.H.
10.I.

12.A.
12.B.
12.C.
12.D.

PART IIITEM 13.

DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES ...............................................................

85

ITEM 14.

MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
PROCEEDS......................................................................................................................................................

85

ITEM 15.

CONTROLS AND PROCEDURES .....................................................................................................................

85

ITEM 16.

[RESERVED] .......................................................................................................................................................

86

ITEM 16A.

AUDIT COMMITTEE FINANCIAL EXPERT ...................................................................................................

86

ITEM 16B.

CODE OF ETHICS...............................................................................................................................................

86

ITEM 16C.

PRINCIPAL ACCOUNTANT FEES AND SERVICES ......................................................................................

86

ITEM 16D.

EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES ......................................

87

ITEM 16E.

PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS ................

87

ITEM 16F.

CHANGE IN REGISTRAINT’S CERTIFYING ACCOUNTANT .....................................................................

88

ITEM 16G.

CORPORATE GOVERNANCE...........................................................................................................................

88

PART IIIITEM 17.

FINANCIAL STATEMENTS ..............................................................................................................................

91

ITEM 18.

FINANCIAL STATEMENTS ..............................................................................................................................

91

ITEM 19.

EXHIBITS.............................................................................................................................................................

92

As used in this annual report, the term “fiscal” preceding a year means the twelve-month period ended March 31 of the year
subsequent to the year referred to. For example, “fiscal 2008” refers to the twelve-month period ended March 31, 2009. All otherreferences to years refer to the applicable calendar year.
In parts of this annual report, amounts reported in Japanese yen have been translated into U.S. dollars for the convenience ofreaders. Unless otherwise noted, the rate used for this translation was $1.00 = ¥98.23. This was the approximate exchange rate inJapan on March 31, 2009.

ii

Unless otherwise noted, all references and discussions of the financial position of Advantest Corporation (the “Company”) andits consolidated subsidiaries (collectively, “Advantest”), results of operations and cash flow in this annual report are made withreference to Advantest’s consolidated financial statements prepared in accordance with accounting principles generally accepted in the
United States, or U.S. GAAP. The segment sales figures included in this annual report are presented before eliminating intercompany
transactions.
See “Information on the Company—Business Overview—Glossary” for a description of certain technical terms used in thisannual report.
Cautionary Statement with Respect to Forward-Looking Statements
This annual report contains “forward-looking statements” that are based on Advantest’s current expectations, estimates andprojections. These statements include, among other things, the discussion of Advantest’s business strategy, outlook and expectations
as to market and business developments, production and capacity plans. Generally, these forward-looking statements can be identified
by the use of forward-looking terminology such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “project,” “should” andsimilar expressions. Forward-looking statements are subject to known and unknown risks, uncertainties and other factors that may
cause Advantest’s actual results, levels of activity, performance or achievements to be materially different from those expressed or
implied by such forward-looking statements, including:•changes in demand for the products and services produced and offered by Advantest’s customers, including semiconductors,
communications services and electronic goods;•

circumstances relating to Advantest’s investment in technology, including its ability to timely develop products that meetthe changing needs of semiconductor manufacturers and communications network equipment and components makers andservice providers;•significant changes in the competitive environment in the major markets where Advantest purchases materials, components
and supplies for the production of its products or where its products are produced, distributed or sold; and•changes in economic conditions, currency exchange rates or political stability in the major markets where Advantest
procures materials, components and supplies for the production of its principal products or where its products are produced,
distributed or sold.

These risks, uncertainties and other factors also include those identified in “Operating and Financial Review and Prospects,”“Key Information—Risk Factors” and “Information on the Company” set forth elsewhere in this annual report.

iii

PART IITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not applicable.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable.
ITEM 3. KEY INFORMATION
3.A.

SELECTED FINANCIAL DATA

You should read the U.S. GAAP selected consolidated financial information presented below together with “Operating and
Financial Review and Prospects” and Advantest’s consolidated financial statements as of March 31, 2008 and 2009 and for each of theyears in the three year period ended March 31, 2009, together with the notes to such financial statements, included elsewhere in thisannual report.
U.S. GAAP Selected Consolidated Financial Data
The following selected financial data have been derived from Advantest’s audited consolidated financial statements. These
consolidated financial statements were prepared under U.S. GAAP. Advantest’s U.S. GAAP audited consolidated financial statements
for fiscal 2006, fiscal 2007 and fiscal 2008 were included in its Japanese Securities Reports filed with the Director General of the
Kanto Local Finance Bureau.
Year ended March 31,
2005

2006

2007

2008

2009

(in millions, except per share and share data)

Consolidated Statement of Income
Data:(4)Net sales Net sales Net sales ........... ¥ 239,439 ¥ 253,922 ¥ 235,012 ¥ 182,767 ¥
76,652
Operating income (loss) ..................
60,71964,45856,792
22,716(49,457)
Income before income taxes andequity in earnings (loss) of
61,80867,45461,09023,533(52,761)affiliated company ..........................
Net income (loss).................................
38,07841,37435,556
16,550(74,902)
Net income (loss) per share
Basic(1) .............................................
194.77223.17190.01
90.72(419.09)
Diluted(1) ..........................................
194.25221.98188.8590.57(419.09)
Basic weighted average shares
outstanding(1) ............................... 195,500,690 185,389,026 187,128,842 182,418,821 178,724,884
Diluted weighted average shares
outstanding(1) ............................... 196,021,478 186,383,080 188,270,688 182,723,982 178,724,884

12009(thousands, except
per share andshare data)$ 780,332(503,482)(537,117)(762,517)(4.27)(4.27)

As of March 31,
2005

2006

2007

2008

2009

2009

(in millions)

Consolidated Balance Sheet Data:
Total assets ..................................................
Current portion of long-term debt................
Long-term debt, less current portion............
Common stock .............................................
Stockholders’ equity ....................................

¥ 296,769
20,04340
32,363
206,749¥ 350,77630
1032,363257,927¥ 366,374
10—
32,363294,797

2005

2006

2007

(in thousands)¥ 298,684——
32,363
254,184¥ 202,059——
32,363
163,616$ 2,056,999——
329,461
1,665,642

As of March 31,
2008

2009

2009

(in millions, except per share data)

Other Data:
Capital expenditures ....................................
Research and development expenses ...........
Net cash provided by operating activities ....
Net cash used in investing activities ............
Net cash used in financing activities............
Operating margin(2) (4) ....................................
Net income margin(3) (4) .................................

¥ 9,348
26,28090,327(8,250)(63,036)
25.36%
15.90%¥ 8,323
26,92759,480(8,542)(18,336)
25.38%
16.29%¥ 8,336
29,50948,951(8,013)(3,662)24.17%
15.13%¥ 14,083
30,507
24,166(16,322)(46,770)
12.43%
9.06%(in thousands)¥ 4,608
23,713
2,357(32,507)(8,930)(64.52%)(97.72%)$46,910
241,403
23,995(330,927)(90,909)(1) On October 1, 2006, the Company conducted a two for one stock split of shares of its common stock. Net income per share andaverage number of shares outstanding for each period presented have been restated to reflect the effects of the stock split.
(2) Operating income as a percentage of net sales.
(3) Net income as a percentage of net sales.
(4) The Company and its domestic subsidiaries changed depreciation method effective April 1, 2007. See Item5.A.for further
discussion.
Dividends
Advantest normally pays cash dividends semi annually, at mid-year and at year-end. Pursuant to its articles of incorporation, theCompany can make dividend payments pursuant to a resolution of its Board of Directors, but the articles do not preclude the Company
from making dividend payments pursuant to a shareholders resolution. The year-end dividend is paid to shareholders of record as ofMarch 31 pursuant to the resolution of either the Board of Directors or the ordinary general shareholders’ meeting held usually in Juneevery year. The interim dividend is paid to shareholders of record as of September 30, pursuant to a resolution of the Board of
Directors, usually in December.
The following table sets forth the dividends paid by the Company for each of the periods shown, which are the six months ended
on that date. The U.S. dollar equivalent for the dividends shown are based on the exchange rate in Japan on each record date shown.
On October 1, 2006, the Company conducted a two for one stock split of shares of its common stock. Dividend per share information
has been restated to reflect the effects of the stock split.
Dividend per ShareSix months ended/Record date

Yen

Dollars

September 30, 2004 .........................................................................................................................................
March 31, 2005................................................................................................................................................
September 30, 2005 .........................................................................................................................................
March 31, 2006................................................................................................................................................
September 30, 2006 .........................................................................................................................................
March 31, 2007................................................................................................................................................
September 30, 2007 .........................................................................................................................................
March 31, 2008................................................................................................................................................
September 30, 2008 .........................................................................................................................................
March 31, 2009................................................................................................................................................

¥ 12.5
12.5
12.5
22.5
17.5
32.5
25.0
25.0
25.0
5.0

$ 0.12
0.12
0.12
0.22
0.17
0.32
0.25
0.25
0.24
0.05

The payment and the amount of any future dividends are subject to the level of Advantest’s future earnings, its financial
condition and other factors, including statutory restrictions on the payment of dividends.
2

Exchange Rates
In parts of this annual report, Japanese yen amounts have been translated into U.S. dollars for the convenience of investors.
Unless otherwise noted, the rate used for the translation was $1.00 = ¥98.23. This was the approximate exchange rate in Japan on
March 31, 2009.
The following table sets forth, for the periods and dates indicated, information concerning the noon buying rate for Japanese yenannounced by the Federal Reserve Bank of New York, expressed in Japanese yen per $1.00. The noon buying rate as of June 19, 2009
was $1.00 = 96.15. Advantest does not intend to imply that the Japanese yen or U.S. dollar amounts referred to in this annual report
could have been or could be converted into U.S. dollars or Japanese yen, as the case may be, at any particular rate, or at all.
At end ofperiodFiscal year ended/ending March 31,

Average(of month-end rates)

High

Low

114.30120.93121.81124.09110.48100.71102.26104.41110.07
96.88
87.80
94.45

High

Low

(¥ per $1.00)

2005 .............................................................................................................
2006 .............................................................................................................
2007 .............................................................................................................
2008 .............................................................................................................
2009 .............................................................................................................
2010 (through June 19, 2009) ......................................................................

¥ 107.22
117.48117.56
99.85
99.15
96.15

107.28113.67116.55113.61100.85
96.82

Month ended(¥ per $1.00)

December 31, 2008 ..................................................................................................................................................
January 31, 2009......................................................................................................................................................
February 28, 2009....................................................................................................................................................
March 31, 2009........................................................................................................................................................
April 30, 2009..........................................................................................................................................................
May 31, 2009 ...........................................................................................................................................................
3.B.

¥ 93.71
94.20
98.55
99.34
100.7199.24¥ 87.84
87.80
89.09
93.85
96.49
94.45

CAPITALIZATION AND INDEBTEDNESS
Not applicable.

3.C.

REASONS FOR THE OFFER AND USE OF PROCEEDS
Not applicable.

3.D.

RISK FACTORS
Risks Related to Advantest’s Business

Advantest’s business and results of operations are subject to significant demand volatility in the semiconductor industry
Advantest’s business depends largely upon the capital expenditures of semiconductor manufacturers, foundries and test houses.
These companies, in turn, determine their capital expenditure and investment levels largely based on current and anticipated market
demand for semiconductors and products incorporating semiconductors. Such demand is influenced significantly by the overall
condition of the global economy. Historically, the percentage reduction in capital expenditures by semiconductor manufacturers
during downturns in the semiconductor industry, including investment in semiconductor test systems, has typically been much greaterthan the percentage reduction in worldwide sales of semiconductors. The semiconductor industry has been highly cyclical withrecurring periods of excess inventory, which often have had a severe effect on the semiconductor industry’s demand forsemiconductor test systems, including those of Advantest. In particular, the market for memory semiconductors shows higher demand
volatility as compared to non memory semiconductors. In fiscal 2008, the economic downturn and the slowdown in the semiconductor
market both became more pronounced, and Advantest’s net sales of test systems for memory semiconductors decreased by¥75,252 million (81.0%) from fiscal 2007 to ¥17,644 million, while net sales of test systems for non memory semiconductors
decreased by ¥7,140 million (18.4%) from fiscal 2007 to ¥31,572 million. Advantest’s overall net sales in fiscal 2008 decreased by¥106,115 million (58.1%) from fiscal 2007 to ¥76,652 million, mainly due to the decline in net sales of test systems for memory
semiconductors, in fiscal 2008. Any downturn in the memory semiconductor market will therefore likely continue to adversely affect
Advantest’s business.

3

The worldwide semiconductor market grew by 28.0% in 2004 as compared to 2003. Thereafter, the semiconductor market grew
by 6.8%, 8.9% and 3.2% in 2005, 2006 and 2007, respectively. In 2008, the semiconductor market contracted by 2.8% compared tothe previous year, reflecting the global economic downturn that stemmed from the financial crisis. Worldwide sales of memory
semiconductors increased by 45.0%, 2.9% and 20.5% in 2004, 2005 and 2006, respectively, on a year-to-year basis, primarily due tothe increase in demand for flash memory semiconductors used in digital consumer products and for DRAM semiconductors used inpersonal computers. Worldwide sales of memory semiconductors, however, declined slightly by 1.1% in 2007, due to a substantial
reduction in capital expenditure by semiconductor manufacturers reflecting a substantial decline in the price of DRAM
semiconductors and NAND-type flash memory semiconductors. Moreover, worldwide sales of memory semiconductors in 2008
decreased by 19.9% compared to 2007, primarily due to the substantial decline in the price of memory semiconductors. Worldwide
sales of non memory semiconductors increased by 23.9% and 7.9% in 2004 and 2005 respectively. Furthermore, in 2006 and 2007,
demand in the consumer market and automobile market stabilized and the data processing market were strong. Accordingly,
worldwide sales of non memory semiconductors grew by 5.7% and 4.5% in 2006 and 2007, respectively. Worldwide sales of nonmemory semiconductors in 2008 increased by 2.3% from 2007, primarily due to steady demand for mobile PCs despite thedeterioration in the overall condition of the global economy.
The significant demand volatility of the market for semiconductors is affected by various factors such as:•

the overall state of the global economy;•

demand in personal computer and server industries;•

consumer demand for digital consumer products such as flat-panel TVs, DVD/Blu-ray disc recorders, portable audio
players and game machines;•

levels of investment in communications infrastructure and trends in the mobile telecommunications industry;•

demand in the automobile industry; and•trends in the semiconductor industry.

Advantest’s net sales for fiscal 2004 stood at ¥239,439 million, representing a 37.4% increase over fiscal 2003. In fiscal 2005,
the adjustment of excess inventory by semiconductor manufacturers ended, net sales increased by 6.0% as compared with the previous
fiscal year to ¥253,922 million, and net income achieved ¥41,374 million. However, net sales in fiscal 2006 declined mainly as aresult of a decrease in the price of semiconductors and, as a result, net sales for fiscal 2006 were ¥235,012 million, representing a
7.4% decrease compared to fiscal 2005, and net income decreased by 14.1% as compared to fiscal 2005 to ¥35,556 million. The
substantial decline in the price of semiconductors continued through fiscal 2007 and many semiconductor manufacturers froze or
postponed their capital expenditures. Primarily reflecting the foregoing, net sales in fiscal 2007 decreased by 22.2%, as compared tofiscal 2006, to ¥182,767 million, and net income decreased by 53.5%, as compared to fiscal 2006, to ¥16,550 million. Semiconductor
manufacturers continued to restrain their capital expenditures in fiscal 2008, influenced by excess inventory of semiconductors andweak prices. Furthermore, the global economic downturn that stemmed from the financial crisis led semiconductor manufacturers tomaintain their prudent position, with many implementing inventory adjustments and freezing or postponing their capital expenditures.
Primarily reflecting the foregoing, Advantest’s net sales decreased by 58.1% as compared with fiscal 2007 to ¥76,652 million, andAdvantest recorded a net loss of ¥74,902 million in fiscal 2008. Advantest believes that its results are significantly impacted by thesignificant demand volatility of the semiconductor industry. Significant downturns in the semiconductor industry are likely totherefore adversely affect Advantest’s financial condition and results of operations. Advantest is unable to predict trends in thesemiconductor industry going forward, and Advantest’s financial condition and results of operations may be affected adversely if thedemand for semiconductor test systems remains weak or further weakens beyond Advantest’s expectations as a result of a further
downturn in the semiconductor industry. The price of semiconductors, which have decreased significantly in recent years, may not
return to their original levels if, for example, the over-supply of semiconductors persists. Should semiconductor prices remain at low
levels, semiconductor manufacturers’ earnings could deteriorate, resulting in their further restraint towards capital expenditures, andAdvantest’s results of operations could be adversely affected.

4

If Advantest does not introduce new products meeting its customers’ technical requirements in a timely manner and at competitive
prices, its products may become obsolete and its financial condition and results of operations may suffer
Advantest sells its products to several industries that are characterized by rapid technological changes, the frequent introductionof new products and services, varying and unpredictable product lifecycles and evolving industry standards. Advantest anticipates that
future demand for its products will be driven, in large part, by technological innovation in semiconductor technology, which create
new testing requirements that are not adequately addressed by currently installed semiconductor test systems. Customer needs in
response to these technological innovations, and their need for greater cost-effectiveness and efficiency to respond to the market
environment, include:•

investment by memory semiconductor manufacturers in facilities that are used to produce memory semiconductors, such as
flash memory, DDR3-SDRAM and the next generation DDR4-SDRAM;•

the introduction of non memory semiconductors that incorporate more advanced memory semiconductors, logic and analog
circuits;•

investment by semiconductor manufacturers in mechatronics related products which transport devices faster, moreaccurately and more stably;•

the utilization of testing technologies that employ self-test circuit designs incorporated into semiconductor chips;•

introduction of mechatronics products that respond to reduced testing time resulting from advances in customers’ back-end
testing;•

prompt response and quick repair in the event of failure; and•total solutions that allow customers to reduce their testing costs.

Advantest also believes demand for its products, including semiconductor and component test systems, are affected by the levelof demand for personal computers, high-speed wireless and wireline data services and digital consumer products. It is likely that
advances in technologies used in those products and services will require new testing systems. Without the timely introduction ofsemiconductor test systems capable of effectively testing and measuring equipment that use new technologies, Advantest’s products
and services may become technologically obsolete over time.
A failure by Advantest to meet its customers’ technical requirements at competitive prices or to deliver conforming equipment
in a timely manner may result in its products being replaced by those of a competitor or an alternative technology solution.
Furthermore, Advantest’s inability to provide a product that meets requested performance criteria at an acceptable price when requiredby its customers would severely damage its reputation with those customers and may adversely affect future sales efforts with respect
to those customers.
Advantest’s dependence on certain subcontractors and its dependence on a sole source or a limited number of suppliers for its
components and parts may prevent it from delivering an acceptable product on a timely basis
Advantest relies on subcontractors to perform some of the assembly requirements for its products. In addition, many of thecomponents used in Advantest’s semiconductor and component test systems and mechatronics systems are produced by suppliers
based on Advantest’s specifications. Advantest’s reliance on these subcontractors and suppliers gives it less control over the
manufacturing process and exposes it to significant risks, especially inadequate manufacturing capacity, late delivery, substandard
quality, lack of labor availability and high costs. In addition, Advantest depends on a sole source or a limited number of suppliers for a
portion of its components and parts. Advantest does not maintain long-term supply agreements with most of its suppliers, and it
purchases most of its components and parts through individual purchase orders. If suppliers become unable to provide components orparts in the volumes needed and at acceptable prices, Advantest would have to identify and procure acceptable replacements.
Furthermore, the markets for semiconductors and other specialized components have, in the past, experienced periods of inadequate
supply to meet demand. The process of selecting subcontractors or suppliers and of identifying suitable replacement components andparts is lengthy and may result in Advantest being unable to deliver products meeting customer requirements in a timely manner.
Advantest has, in the past, been unable to deliver its products according to production schedules primarily due to the inability ofsuppliers to supply components and parts based on Advantest’s specifications and by other shortages in components and parts.
Moreover, a deterioration in the financial position of Advantest’s subcontractors or suppliers reflecting the decline in the economic
environment may result in certain subcontractors and suppliers being unable to meet Advantest’s requirements.

5Advantest faces substantial competition in its businesses and, if Advantest does not maintain or expand its market share, its
business may be harmed
Advantest faces substantial competition throughout the world Advantest’s primary competitors in the semiconductor andcomponent test system market include, among others, Teradyne, Inc., Verigy Ltd., LTX-Credence Corporation, Yokogawa Electronic
Corporation, FROM30 CO., LTD., EXICON Ltd. and UniTest Inc. In the mechatronics system related market, Advantest also
competes with Delta Design, Inc., Seiko Epson Corporation, Mirae Corporation and TechWing, Inc. in test handler devices, and with
TSE Co., Ltd. and Secron Co., Ltd. in device interfaces. Some of Advantest’s competitors have greater financial and other resources
than Advantest.
Advantest faces many challenges in its businesses, including increased pressure from customers to produce semiconductor andcomponent test systems and mechatronics systems that reduce testing costs. To compete effectively and maintain and expand its
market share, Advantest must continue to enhance its business processes to lower the cost of its products, as well as introduce
enhancements that lower overall testing costs. Advantest also expects its competitors to continue to introduce new products withimprovements in price and performance, as well as to increase their customer service and support offerings. Significant increases incompetition may erode Advantest’s profit margin and weaken its earnings.
Advantest’s product lines are facing significant price pressure
Price pressure in Advantest’s businesses is adversely affecting Advantest’s operating margins. Irrespective of the trend in the
demand for semiconductors, there is ongoing price pressure on semiconductors, which puts continuous pressure on the market pricefor products in the Semiconductor and Component Test System Segment and Mechatronics System Segment. Especially with theongoing slowdown in the semiconductor industry, price pressure is salient. During these periods, semiconductor manufacturers andtest houses, which are Advantest’s customers, seek to increase their production capacities while minimizing their capital expenditures.
In addition, increased competition in the market for digital consumer products and personal computers has driven down prices of thesegoods, subsequently creating significant price pressure on Advantest’s product lines. An increase in price pressure may adversely
affect Advantest’s future financial condition and results of operations.
Advantest may not recoup costs incurred in the development of new products
Enhancements to existing products and the development of new generations of products are, in most cases, costly processes.
Furthermore, because the decision to purchase semiconductor and component test systems products and mechatronics systems
generally involves a significant commitment of capital, the sale of this equipment typically involves a lengthy sales period andrequires Advantest to expend substantial funds and sales efforts to secure the sale. Advantest’s enhancements or new generations of
products may not generate net sales in excess of development and sales costs if, for example, these new enhancements or products arequickly rendered obsolete by changing customer preferences, the introduction by Advantest’s competitors of products embodying newtechnologies or features, the introduction by Advantest’s customers of new products that require different testing functions or the
failure of the market for Advantest’s customer’s products to grow at the rate, or to the levels, anticipated by Advantest. This risk isbelieved to be particularly acute with respect to test systems for non memory semiconductors because, in general, new non memory
semiconductor product lines are introduced to market more frequently than new memory semiconductor product lines. In some cases,
Advantest must anticipate industry trends and develop products in advance of the commercialization of its customers’ products. Thisrequires Advantest to make significant investments in product development well before it determines the commercial viability of these
innovations. If Advantest’s customers fail to introduce their devices in a timely manner or the market rejects their devices, Advantest
may not recover its investments in product development through sales in significant volume.
The market for Advantest’s major products is highly concentrated, and Advantest may not be able to increase sales of its products
because of limited opportunities
The market for test systems for memory semiconductors in the Semiconductor and Component Test System Segment is highly
concentrated, with a small number of large semiconductor manufacturers, foundries and test houses accounting for a large portion of
total sales in the semiconductor and component test system industry. Advantest believes that this market concentration could become
even more severe in the future as larger semiconductor device manufacturers, foundries and test houses acquire smaller semiconductor
market participants, and as corporate restructuring, such as elimination and consolidation of businesses, progresses. Advantest’s
ability to increase sales will depend in large part upon its ability to obtain or increase orders from large-volume customers.
Furthermore, in the event there is an over-supply of semiconductor and component test system products on the second-hand market
reflecting, among others, restructuring within the industry, Advantest faces an additional risk of losing its sales opportunities.

6Advantest’s largest customers currently account for a significant part of its net sales and, in addition to the risk of Advantest’sbusiness being harmed by the loss of one or more of these customers or changes in their capital expenditures, Advantest may not
be able to recover its accounts receivables if its largest customers experience a deterioration in their financial position
Advantest’s success depends on its continued ability to develop and manage relationships with its major customers, a small
number of which currently account for a significant portion of its net sales. Sales to Advantest’s largest customer as a percentage of its
total sales were approximately 11% in fiscal 2006, approximately 9% in fiscal 2007 and approximately 24% in fiscal 2008. Sales to
Advantest’s five largest customers accounted for approximately 35% of total net sales in fiscal 2006, approximately 32% in fiscal
2007 and approximately 51% in fiscal 2008. The loss of one or more of these major customers or changes in their capital expenditures
could materially harm Advantest’s business. Furthermore, if Advantest’s major customers experience a deterioration in their financial
position and are unable to fulfill their payment obligations to Advantest in accordance with the applicable terms, Advantest’s business,
results of operations and financial position may be adversely affected.
Fluctuations in exchange rates could reduce Advantest’s profitability
The majority of Advantest’s net sales derive from products sold to customers located outside of Japan. Approximately 68% ofAdvantest’s fiscal 2008 net sales were from products sold to overseas customers. Most of Advantest’s products are manufactured inJapan, but approximately 36% of Advantest’s net sales in fiscal 2008 were made in currencies other than the Japanese yen,predominantly the U.S. dollar. A strengthening in the Japanese yen relative to foreign currencies (mostly U.S. dollar and, to a muchlesser extent, other currencies) would increase the prices of Advantest products as stated in U.S. dollars and in those other currencies,
which could hurt sales in those countries. In addition, significant fluctuations in the exchange rate between the Japanese yen andforeign currencies, especially the U.S. dollar, could require Advantest to lower its prices with respect to foreign sales of its productsthat are priced in Japanese yen, and reduce the Japanese yen equivalent amounts of its foreign sales for products that are based in
U.S. dollars or other foreign currencies, and overall reducing its profitability. These fluctuations could also cause prospective
customers to push out or delay orders because of the increased relative cost of Advantest’s products. In the past, there have beensignificant fluctuations in the exchange rate between the Japanese yen and the foreign countries in which Advantest’s sales aredenominated.
The failure by Advantest to meet demand for its products upon a significant expansion in the semiconductor and component test
systems and mechatronics systems markets may adversely affect its future market share and financial results
If the market for semiconductor and component test systems and mechatronics systems were to suddenly expand, Advantest
would require a significant increase in production capabilities, including personnel and an increase in products from suppliers, in orderto fully capitalize on such expansion. The failure of Advantest to adjust to such unanticipated increases in demand for its products
during the period of recovery in demand could result in Advantest losing one or more of its existing large-volume customers or losing
the opportunity to establish a strong relationship with large-volume customers with which it currently does little or no business. Such
failure may adversely affect Advantest’s future market share and its financial results.
If Advantest’s main facilities for research and development, production or information technology systems for all of its businesses,or the facilities of its subcontractors and suppliers, were to experience catastrophic loss, its results of operations would be seriously
harmedAdvantest’s main facilities for research and development for its Semiconductor and Component Test Systems and Mechatronics
System Segments production, as well as many of Advantest’s service bases, are located in Japan and particularly concentrated in
Gunma Prefecture and Saitama Prefecture. In addition, the main system server and parts of the network hub are maintained in systemcenters approved by the Information System Management System, or ISMS, and local network servers are located in certain
operations offices in Japan. Japan suffers from relatively frequent earthquakes.
If Advantest’s facilities, particularly its semiconductor and component test system manufacturing factories, were to experience a
catastrophic loss, it would materially disrupt Advantest’s operations, delay production, shipments and revenue, and result in large
expenses to repair or replace the facilities. Advantest has insurance to cover most potential losses at its manufacturing facilities, otherthan those that result from earthquakes. However, this insurance may not be adequate to cover all possible losses. Similar disruptions
to Advantest’s business may occur if the facilities of Advantest’s subcontractors and suppliers or if the facilities of Advantest’s
information system network were to experience a catastrophic loss.
Advantest has prepared itself for crises such as large-scale natural disasters, and each department of Advantest has documented
its own disaster procedures and manuals. Furthermore, in order to prevent any disruption of its core businesses, or in case ofsuspension, to re-start the suspended businesses, including the recovery of important facilities, in the shortest possible time, Advantest
has formulated and is in the process of implementing a “Business Continuity Plan.” However, if Advantest cannot implement suchBusiness Continuity Plan, or if upon implementation such Business Continuity Plan is not effective, Advantest’s core businesses could
be disrupted at a time of crisis, such as large-scale natural disasters, and could take a substantial amount of time to recover.
7

Advantest’s business is subject to economic, political and other risks associated with international operations and sales
Advantest’s business is subject to risks associated with doing business internationally because it sells its products, and purchases
parts and components from, around the world. In fiscal 2008, 48.7% of Advantest’s total net sales came from Asia (excluding Japan),a majority of which consisted of sales in Taiwan, the People’s Republic of China and Korea, 15.3% from the Americas and 3.7% from
Europe. Advantest anticipates that net sales from international operations will continue to represent a substantial portion of its total net
sales. In addition, some of Advantest’s distribution and support subsidiaries are located in the Americas, Europe, and Asian countries
including Singapore, Taiwan, the People’s Republic of China and Korea and some of Advantest’s suppliers are also located overseas.
Accordingly, Advantest’s future results could be harmed by a variety of factors, including:•political and economic instability, natural calamities, epidemics or other risks related to countries where Advantest procures
its components and parts or sells its products;•

trade protection measures and import or export licensing requirements;•

potentially negative consequences from changes in tax laws;•

risks with respect to international taxation, including transfer pricing regulations;•difficulty in staffing and managing widespread operations;•differing protection of intellectual property;•

difficulties in collecting accounts receivable because of distance and different legal rules; and•risks with respect to social and political crises resulting from terrorism and war, among others.

Advantest’s financial condition and results of operations are subject to factors relating to its marketing and sales capabilities andits branding
Advantest’s financial condition and results of operations may be negatively affected by factors relating to its marketing andsales capabilities and its branding, including:•the long selling process involved in the sale of semiconductor and component test systems;•

the relatively small number of total units sold in the semiconductor and component test system market;•

order cancellations or delays by customers;•

delays in collection of, or increases in provisions for, accounts receivable reflecting the financial condition of customers;•

increases in required provisions for product warranty costs and write-downs of inventory; and•any real or perceived decrease in performance and reliability of Advantest products, which could lead to a decline in
Advantest’s reputation.

Chemicals used by Advantest may become subject to more stringent regulations, and Advantest may be required to incur
significant costs in adapting to new requirements
Advantest uses chemicals in the manufacturing of its products, the manufacture, processing and distribution of which are subject
to environmental related laws, regulations and rules of Japanese governmental agencies, as well as by various industry organizations
and other regulatory bodies in other countries. These regulatory bodies may strengthen existing regulations governing chemicals used
by Advantest and may also begin to regulate other chemicals used by Advantest. While Advantest is taking measures to eliminate
toxic substances included in parts used to manufacture its products, Advantest uses solder which contains lead for mounting electronicparts and components for its products in order to ensure the reliability of its products as a matter of priority. Further, as a method tocool some of its semiconductor and component test systems, Advantest uses a type of perfluorocarbon, or PFC, that is not currently
regulated by laws related to global warming. Advantest believes that it is in compliance with regulations with respect to the use ofchemicals by promoting environmental policies for its products with the focus on ensuring the safety and the reliability of its products;
however, Advantest must be prepared to adapt to regulatory requirements in all relevant countries as requirements change. Advantest
may be required to incur significant cost in adapting to new requirements. Any failure by Advantest to comply with applicablegovernment or industry regulations could result in restrictions on its ability to carry on or expand its operations, including being
unable to sell its products.

8

Advantest could suffer significant liabilities, litigation costs or licensing expenses or be prevented from selling its products if it isinfringing the intellectual property of third parties
Advantest may be unknowingly infringing the intellectual property rights of third parties and may be held responsible for that
infringement. To date, Advantest has not been the subject of a material intellectual property claim. However, any future litigation
regarding patents or other intellectual property infringement could be costly and time consuming and divert management and key
personnel from Advantest’s business operations. If Advantest loses a claim, it might be forced to pay significant damages, pay license
fees, modify its products or processes, stop making products or stop using processes. A license could be very expensive to obtain or
may not be available at all. Changing Advantest’s products or processes to avoid infringing the rights of third parties may be costly or
impractical.
Advantest may be unable to protect its proprietary rights due to the difficulty of Advantest gaining access to, and investigating, theproducts believed to infringe Advantest’s intellectual property rights
Advantest relies on patents, utility model rights, design rights, trademarks and copyrights obtained in various countries toactively protect its proprietary rights. For instance, with respect to the device interface market, Advantest has taken legal action basedon its patent and utility model rights against manufacturers that sell replicas of Advantest’s products and, in some instances, has
obtained injunctions against sales of such replicas. However, in general, it is difficult for Advantest to gain access to, and investigate,
the products believed to infringe its intellectual property rights. Therefore, Advantest cannot ensure that its intellectual property rights
will provide meaningful protection of its proprietary rights. Nevertheless, Advantest is focused on protecting its intellectual property
rights from third party infringement and will continue to monitor and enforce its rights.
The technology labor market is very competitive, and Advantest’s business may suffer if Advantest is unable to hire and retain
engineers and other key personnel
Advantest’s future success depends partly on its ability to attract and retain highly qualified engineers for its research anddevelopment and customer service and support divisions. If Advantest fails to hire and retain a sufficient number of these personnel, it
may not be able to maintain and expand its business. Advantest may need to revise its compensation and other personnel related
policies to retain its existing officers and employees and attract and retain the additional personnel that it expects to require.
Confidential information could be inadvertently disclosed through unauthorized access or use, which could lead to substantial
costs or harm Advantest’s reputation
Advantest uses both paper documents and electronic data in managing confidential information. Although Advantest hasestablished the Information Security Committee and Security Control Office and is taking measures to keep information confidential
through procedures designed to prevent accidental release of information through unauthorized access or use, such information may be
inadvertently disclosed without Advantest’s knowledge. If this occurs, Advantest’s reputation could be harmed and Advantest could
incur substantial costs to remedy the situation. Accordingly, inadvertent disclosure of confidential information could have a material
adverse effect upon Advantest’s business results and financial condition.
Product defects and any damages stemming from Advantest’s product liability could harm Advantest’s reputation among existingand potential customers and could have a material adverse effect upon Advantest’s business results and financial condition
Advantest manufactures its products in accordance with internationally accepted quality control standards such as ISO 9000.
However, Advantest cannot guarantee that there are no defects in its products. Advantest maintains product liability insurance, butcannot guarantee that such insurance will sufficiently cover the ultimate amount of damages with respect to Advantest’s liabilities.
Large scale accidents or any discovery of defects in its products could harm Advantest’s reputation for not adequately addressing
defects, could cause Advantest to incur higher costs and could have a material adverse effect upon Advantest’s business results andfinancial condition if Advantest is liable for claims for damages.
Risks Related to Ownership of ADSs or Common StockJapanese yen-dollar fluctuations could cause the market price of the ADSs to decline and reduce dividend amounts payable to
ADS holders as expressed in U.S. dollars
Fluctuations in the exchange rate between the Japanese yen and the U.S. dollar may affect the U.S. dollar equivalent of theJapanese yen price of the shares on the Tokyo Stock Exchange and, primarily reflecting the foregoing, are likely to affect the market
price of the ADSs. Advantest has historically paid dividends on its shares twice a year. If Advantest declares cash dividends,
dividends on the shares represented by the ADSs will be paid to the depositary in Japanese yen and then converted by the depositary
into U.S. dollars. Therefore, exchange rate fluctuations could also affect the dividend amounts payable to ADS holders following
conversion into U.S. dollars of dividends paid in Japanese yen on the shares represented by the ADSs.
9

As a holder of ADSs, you will have fewer rights than a shareholder has, and you must act through the depositary to exercise thoserights
The rights of shareholders under Japanese law to take actions, including voting their shares, receiving dividends anddistributions, bringing derivative actions, examining Advantest’s accounting books and records and exercising appraisal rights, areavailable only to holders of record on Advantest’s register of shareholders. Because the depositary, through its custodian agents, is theregistered holder of the shares underlying the ADSs, only the depositary can exercise those rights in connection with the deposited
shares. The depositary will make efforts to vote the shares underlying a holder’s ADSs as instructed by the holder and will pay to theholder the dividends and distributions collected from Advantest. However, in the holder’s capacity as an ADS holder, that holder will
not be able to bring a derivative action, examine Advantest’s accounting books and records or exercise appraisal rights through thedepositary.
There are restrictions on the withdrawal of shares from Advantest’s depositary receipt facility
Under Advantest’s ADS program, each ADS represents the right to receive one share. To withdraw any shares, a holder of
ADSs has to surrender for cancellation American Depositary Receipts, or ADRs, evidencing 100 ADSs or any integral multiple
thereof. Each ADR bears a legend to that effect. As a result, holders of ADSs are unable to withdraw fractions of shares or units orreceive any cash settlement from the depositary in lieu of withdrawal of fractions of shares or units. Holders of shares representing
less than one unit, or 100 shares, may require Advantest to repurchase those shares, whereas holders of ADSs representing less than
one unit of shares are unable to exercise this right because the holders of these ADSs are unable to withdraw the underlying shares.
Under Advantest’s ADS program, an ADS holder cannot cause the depositary to require Advantest to repurchase fractions of shares orunits on its behalf. For a further discussion of the ADSs and the ADS program, see “Description of American Depositary Receipts” set
forth in Advantest’s registration statement on Form F-1 filed with the Securities and Exchange Commission on July 22, 2002. For afurther discussion of the Japanese unit share system, see “Additional Information—Memorandum and Articles of Association—The
Unit Share System.”
Enforcement of Civil Liabilities
Advantest is a limited liability, joint-stock corporation incorporated under the laws of Japan. Almost all of Advantest’s directors,
executive officers and corporate auditors reside in Japan. Substantially all of Advantest’s assets and the assets of these persons arelocated in Japan. It may not be possible, therefore, for investors to effect service of process within the U.S. upon Advantest or these
persons or to enforce against Advantest or these persons judgments obtained in U.S. courts predicated upon the civil liability
provisions of the federal securities laws of the U.S. Advantest’s Japanese counsel, Nagashima Ohno & Tsunematsu, has advised
Advantest that there is doubt as to the enforceability in Japan, in original actions or in actions for enforcement of judgments of U.S.
courts, of liabilities predicated solely upon the federal securities laws of the U.S.
ITEM 4. INFORMATION ON THE COMPANY
4.A.

HISTORY AND DEVELOPMENT OF THE COMPANY

Advantest commenced operations in July 1954, and was incorporated in December 1954 under the name Takeda Riken Industry
Co., Ltd. as a limited liability, joint-stock company in Japan under the Commercial Code of Japan. At the time of incorporation,
Takeda Riken’s primary business was the design, manufacture and sale of measuring instruments for Japanese electronics
manufacturers. Takeda Riken started focusing on semiconductor test equipment for the semiconductor industry in 1968 and was thefirst to domestically produce semiconductor test equipment in 1972. In 1971, Takeda Riken entered into its first distribution agreementwith a foreign distributor and, in 1973, established its first representative office in the U.S. to gather information on technology anddistribution and to establish dealer relationships. These two milestones launched the company’s long-term goal of becoming a global
manufacturer of testing and measuring products. Takeda Riken has been listed on the Tokyo Stock Exchange since February 1983.
Takeda Riken changed its registered name to Kabushiki Kaisha Advantest in October 1985.
Advantest applies its capital expenditures chiefly to the streamlining of development, production of new products, energy saving
initiatives and the expansion of production capacity. Advantest’s capital expenditures were ¥8.3 billion, ¥14.1 billion and ¥4.6 billion
in fiscal 2006, 2007 and 2008, respectively. In fiscal 2007, Advantest’s capital expenditure included the construction of Sendai
Factory A, a factory with clean room facilities for production.
Advantest’s principal executive offices are located at Shin-Marunouchi Center Building, 1-6-2, Marunouchi, Chiyoda-ku,
Tokyo 100-0005 Japan. Advantest’s telephone number in Japan is (81-3) 3214-7500.

10

4.B.

BUSINESS OVERVIEW

Overview
As of June 26, 2009, the Advantest group is comprised of Advantest Corporation and its 31 consolidated subsidiaries and one
investee which is accounted for by the equity method. The Advantest group conducts its business in the following segments:•

Semiconductor and Component Test System Segment;•

Mechatronics System Segment, focusing on peripheral devices including test handlers and device interfaces; and•Services, Support and Others Segment.

Semiconductor and Component Test System Segment
The Semiconductor and Component Test System Segment provides customers with test system products for the semiconductor
industry and the electronic component industry. The products in this segment include test systems for memory semiconductors andtest systems for non memory semiconductors. The test systems for non memory semiconductors are divided into test systems for SoC
semiconductors, LCD driver ICs and semiconductors used in car electronics.
Mechatronics System Segment
The Mechatronics System Segment focuses on peripheral devices to the semiconductor and component test systems. Thisbusiness includes test handlers applying mechatronics technologies, which handle semiconductor devices and automate testing, device
interfaces with measured devices, and operations related to nano-technology.
Services, Support and Others Segment
The Services, Support and Others Segment consists of comprehensive customer solutions provided in connection with the
Semiconductor and Component Test System and Mechatronics System Segments, support services and an equipment lease business.
Sales by Segment
The following table illustrates net sales by each segment for the last three fiscal years.
Fiscal 2006
Segment

Sales(in millions)

Semiconductor and Component Test System
Segment ..................................................................
Mechatronics System Segment ....................................
Services, Support and Others Segment ........................
Intercompany transactions elimination ........................
Total Net Sales.............................................................

¥ 167,815
52,025
18,312(3,140)¥ 235,012

Fiscal 2007%

Sales
(in millions)

71.4
22.1
7.8
(1.3)
100.0%¥ 131,608
34,944
19,344(3,129)¥ 182,767

Fiscal 2008%

Sales
(in millions)

%

72.0
19.1
10.6
(1.7)
100.0%¥ 49,216
14,38815,815(2,767)¥ 76,652

64.2
18.8
20.6
(3.6)
100.0%

Industry Overview
Advantest offers products in semiconductor and component test systems, mechatronics systems, and services, support and others.
Advantest’s main customers are semiconductor manufacturers, foundries and test houses. Advantest believes that the following factors
promote growth of the business carried out by its main customers.
•

the move to lower-cost, smaller, faster and more powerful and energy efficient semiconductors and electronic components;•

the increase in demand for higher performance servers and personal computers;•

the increase in demand for digital consumer products such as flat-panel TVs, DVD/Blu-ray disc recorders, portable audio
players and new models of high-performance game machines;•

the increasing levels of wireless communications penetration worldwide reflecting the expansion of the mobile
telecommunications industry;11•the development of higher speed and high capacity communications infrastructure;•

the increasing demand for electronic devices that incorporate semiconductor and communications technologies; and•the increase in demand for electronic components including semiconductors and sensors, in response to technologicaladvancement of automobiles.

Advantest believes that these factors will continue to provide long-term growth opportunities for Advantest because they lead to
additional capital expenditures by its customers, resulting in an expansion of businesses for Advantest. However, the capital
expenditures of Advantest’s customers may be adversely affected by the following factors:•

the level of demand for semiconductors and electronic components;•

advancements in semiconductor and electronic component technology; and•changes in semiconductor and electronic component manufacturing processes.

Demand for Semiconductors and Electronic Components
Demand for semiconductor and component test systems and mechatronics systems is closely related to the volume ofsemiconductors and electronic components produced and the resulting capital expenditure of semiconductor manufacturers and others.
Semiconductors are generally classified as either memory semiconductors or non memory semiconductors. Memory
semiconductors are used in electronic systems to store data and programs. Non memory semiconductors include various
semiconductors that incorporate non memory circuits, which include logic and analog circuits. Logic circuits process digital data tocontrol the operations of electronic systems. Analog circuits process analog signals translated from real world phenomena such as
sound, light, heat and motion. SoC semiconductors are a subset of non memory semiconductors that combine digital circuits withanalog, memory and RF circuits, among others, on a single semiconductor chip. SoC semiconductors are used in a variety ofsophisticated products, including wireless communications, fiber optic equipments and digital consumer products.
Semiconductor sales have increased significantly over the long-term. However, semiconductors, particularly memory
semiconductors, have experienced significant cyclical variations in growth rates. According to World Semiconductor Trade Statistics(WSTS), worldwide semiconductor sales in 2002 were approximately $140.7 billion, and increased by $25.7 billion or 18.3% in 2003
to approximately $166.4 billion. Sales in 2004 increased by approximately $46.6 billion or 28.0% compared to the previous year to
approximately $213.0 billion, and sales in 2005 increased by approximately $14.5 billion or 6.8% compared to the previous year to
approximately $227.5 billion. Sales in 2006 increased by approximately $20.2 billion or 8.9% to approximately $247.7 billion, andsales in 2007 increased by approximately $7.9 billion or 3.2% to approximately $255.6 billion. However, sales in 2008 decreased byapproximately $7.0 billion or 2.8% compared to the previous year to approximately $248.6 billion, mainly due to the substantial
decline in the price of memory semiconductors. The following table sets forth the size of the market for memory semiconductors, nonmemory semiconductors and all semiconductors between 2002 and 2008 and the projected market size between 2009 and 2011 ascompiled and estimated by WSTS as of June 2009.
Actual Year ended December 31,
2002

2003

2005

$ 58,473
189,243$ 57,854
197,791$ 247,716$ 255,645

Memory ............
Non memory.....

$ 27,041
113,672$ 32,506
133,920$ 47,136
165,891(in millions)$ 48,519
178,965

Total .................

$ 140,713$ 166,426$ 213,027$ 227,484

2006

Projected Year ending December 31,

2004

2007

2008

2009

2010

2011

$ 46,348
202,255$ 36,926
157,871(in millions)$ 40,536
168,496$ 44,028
183,516$ 248,603$ 194,797$ 209,032$ 227,544

The non memory semiconductor market is not as volatile as the memory semiconductor market because non memory
semiconductors are used in a larger variety of consumer products and equipment. In periods of rapid decline in the semiconductor
market, the capital expenditures of semiconductor manufacturers, including their purchases of semiconductor test systems, generally
decline at a faster pace than the decline in semiconductor sales. In addition, following a downturn in the semiconductor market or adecline in the price of semiconductors, investment is generally restrained until semiconductor manufacturers determine that the market
for semiconductors is experiencing a real recovery and accordingly, sales of semiconductor test systems generally do not experiencesignificant increase. Advantest believes these trends will continue in the future.

12

The semiconductor market bottomed out in the second half of fiscal 2001 and then improved and grew significantly from fiscal
2002 to the first half of fiscal 2004. However, the market slowed down beginning in the second half of fiscal 2004 primarily due to theadjustment of excess inventories by semiconductor manufacturers. The market recovered sooner than expected, improving in the firsthalf of 2005, expanding further in the second half of 2005, and remaining steady in 2006 and 2007. According to data published by
WSTS as of June 2009, the market for memory semiconductors is expected to continue to decline by a further 20.3% in 2009 ascompared with 2008, after which it is expected to grow by approximately 10% in 2010 and by approximately 9% in 2011. WSTS
expects that the market for memory semiconductors will grow to approximately $44 billion in 2011. Advantest believes that demand
for memory semiconductors will be generated in the foreseeable future by the prevalence of DDR3-SDRAM, the next generation
DDR4-SDRAM, flash memory and other high-end semiconductors. WSTS estimates that the non memory semiconductor market will
decline by 21.9% in 2009 as compared with 2008 after which it will grow by approximately 7% in 2010 and by approximately 9% in
2011. WSTS expects that the market for non memory semiconductors will grow to approximately $183.5 billion in 2011. Advantest
believes that the demand for non memory semiconductors will generally grow in the foreseeable future, led by the further prevalenceof, and new developments in, digital consumer products and personal computers.
Advancements in Semiconductor and Electronic Component Technology
Advantest believes that demand for semiconductor and component test systems and mechatronics systems is also affected by therate of change and development in semiconductor and electronic component technology. Current changes in the semiconductor andelectronic component industry relate to the innovation of digital consumer products and communications technologies. Demand forfaster semiconductors and electronic components that are smaller in size, incorporate more functions and require less power to operate
is being driven by:•

growing demand for, and continuous improvements in, personal computers and digital consumer products, such as flatpanel TVs, DVD/Blu-ray disc recorders, digital cameras, television game consoles and mobile phone handsets; and•requirements of communications network equipment, such as network routers, switches and base stations, as well as
wireless handsets and other Internet access devices, to enable advances in Internet hardware and software applications,increases in infrastructure performance and simplification and miniaturization of Internet access devices.

Demand for personal computers and servers with higher performance and capabilities is also driving changes in the memory
semiconductor sector. This demand is causing manufacturers to shift from the production of memory semiconductors, including
memory semiconductors that allow high-speed data transfer such as DDR2-SDRAM to the DDR3-SDRAM with higher speeds, andflash memory that feature large capacity and nonvolatility. Advantest believes that this shift is creating demand for test systems formemory semiconductors capable of handling these new types of memory semiconductors, as well as contributing to a reduction in
testing costs. In addition, Advantest believes that additional demand for mechatronics systems, including test handlers and device
interfaces connecting semiconductor devices and semiconductor test systems, will be created and will grow in line with advances insemiconductor technologies.
The development of SoC semiconductors with smaller size, higher performance and lower power consumption has createddemand for sophisticated semiconductor and component test systems that can simultaneously test SoC semiconductors’ logic, analog
and memory circuits. Further innovations in non memory semiconductor technologies including SoC semiconductor technology are
expected, and Advantest believes these innovations will create demand for new, high-performance semiconductor and component test
systems optimized for use with these advanced semiconductors.
Advantest believes that the integration of non memory semiconductors into a range of digital consumer products will drive
demand for test systems for non memory semiconductors which contribute to the reduction of testing costs. Non memory
semiconductors are often customized for applications in specific products, which results in a large variety of non memory
semiconductors that are often produced in relatively smaller volumes.
Changes in Semiconductor and Electronic Component Manufacturing Technologies
Semiconductor and electronic component manufacturers are promoting production outsourcing, technological innovation in
manufacturing processes and testing technology to improve productivity.

13

Production Outsourcing
In recent years, semiconductor manufacturing and testing processes have become more complex and capital intensive. Primarilyreflecting the foregoing, an increasing portion of the manufacturing and testing functions are being subcontracted out, not only byfabless companies, but also by industrial, design and manufacturing companies which had previously designed and manufactured
semiconductors, in order to reduce capital expenditures. This trend has resulted in an increase in the number of test houses that accept
test process outsourcing and foundries that accept manufacturing process outsourcing. Foundries either perform testing in-house oroutsource their testing needs to test houses. This trend towards production outsourcing, particularly to test houses, has increased thenumber of potential customers for semiconductor test system manufacturers, although it has not significantly affected the total demandfor Advantest’s products. In addition, Advantest believes that it is most appropriate to use semiconductor and component test systems
which have been designed using open architecture, which enables the formation of semiconductor test systems that can meet themultiple needs of the customers of test houses and foundries. Outsourcing has also been utilized for electronic component
manufacturing.
Technological Innovation in Manufacturing Processes
One of the innovations in semiconductor manufacturing processes is the use of 300 millimeter wafers. Wafers are circular flatpieces of silicon from which multiple semiconductor chips are made using photo-etching and other manufacturing processes. The useof 300 millimeter wafers allows manufacturers to increase semiconductor production per wafer twofold or more when compared to
production using the conventional 200 millimeter wafers. Although many manufacturers announced delays in investment in 300
millimeter wafer factories beginning in the second half of 2000 reflecting negative trends in the semiconductor market, investment inthese factories by some manufacturers resumed at the end of 2002, and investment increased from 2003 to 2006. From 2007,
investment has remained at low levels mainly due to factors such as excess supply and increased price competition. While this trend
may continue throughout 2009, inventory adjustments by semiconductor manufacturers and appropriate pricing of semiconductors
may result in renewed capital expenditure, especially with respect to 300 millimeter wafers and increased demand for new
semiconductor and component test systems and test handlers.
New Testing Technologies
Semiconductor designers and manufacturers are striving to further reduce costs in connection with manufacturing
semiconductors, especially the cost of testing semiconductors. Thus, there is a stronger demand for semiconductor test systems thatcan simultaneously test more semiconductors and accommodate a larger number of pins at higher speeds and with high throughput
capabilities. On the other hand, there is an increasing pressure on semiconductor test systems to be energy efficient, smaller in size andless expensive. In order to respond to this demand, semiconductor test system manufacturers are taking measures to reduce
semiconductor test system costs by making the development and manufacturing process of semiconductor test systems more efficient,
strengthening peripheral devices such as test handlers and device interfaces and improving service and support systems. Furthermore,
although certain semiconductors are now tested in a simplified manner in which self-test technologies are designed into circuits oreven sold without being tested, Advantest believes that it has become increasingly important for semiconductor test systems to ensure
the reliability of semiconductors since semiconductors are expected to become more complex and advanced going forward.
Advantest believes that semiconductor and electronic component manufacturing processes will continue to evolve. The
introduction of new manufacturing processes will likely result in test costs constituting a higher percentage of the total cost of
manufacturing and, therefore, increase price pressure on the semiconductor test system industry. Furthermore, advances in thesemiconductor and electronic component industry will require semiconductor test systems with new and more sophisticated testing
functions. Advantest believes that these trends provide it with an opportunity to distinguish itself from its competitors through thedelivery of new products that are priced and designed to meet the specific needs of its customers.
Business Strategy
While Advantest is currently facing a challenging business environment primarily due to the recent downturn in the global
economy and weakened demand for semiconductors, Advantest has established the following core business goals to achieve mid- tolong-term growth:•

focusing on the development of semiconductor test systems which can respond to changes in capabilities of memory andnon memory semiconductors;•

increasing its market share for test systems for non memory semiconductors and maintaining its large market share for test
systems for memory semiconductors;•

increasing its market share for test handlers for memory and non memory semiconductors;•

developing, designing and supplying high quality device interfaces in a shorter period of time;14•

reducing product cost of goods to react to price pressures on products•

enhancing its operating efficiency to improve profitability, through promotion of production innovations;•strengthening its ability to provide comprehensive solutions to satisfy customer needs; and•promoting the development and establishment of new businesses in the measuring instruments field outside of its
semiconductor-related business.

To achieve these goals, Advantest plans to:Continue to address industry trends, identify customer needs and deliver new products ahead of its competitors
Advantest will continue to work closely with major semiconductor manufacturers beginning at the product design stage ofsemiconductor and component test systems to understand customer needs relating to emerging technologies and applications. Basedon this knowledge and its technological expertise, Advantest seeks to develop more advanced semiconductor and component test
systems, test handlers, device interfaces and comprehensive solutions ahead of its competitors. For example, Advantest is pursuing thefollowing strategies:•

developing semiconductor and component test systems with increased test speeds and throughput capabilities and test
handlers in line with the technological development of memory semiconductors and non memory semiconductors;•

proactively developing products to address the recent shift in emphasis in the semiconductor industry toward front-end
testing of dies;•

actively applying analog technology developed for measuring instruments for wireless communications market to test
systems for non memory semiconductors including test systems for SoC semiconductors;•

offering semiconductor and component test systems and device interfaces with high throughput in order to test recent
devices incorporating interfaces with data rates of several gigabits per second; and•developing device interfaces that can optimize the performance of semiconductor and component test systems and test
handlers in responding to the semiconductors with higher speed and large pin counts.

Strengthen the test system business for non memory semiconductors
Advantest believes that in 2008 the market for test systems for non memory semiconductors, was approximately three times thesize of the market for test systems for memory semiconductors. Advantest has therefore devoted its resources to develop test systems
and modules for non memory semiconductors to meet the demands of a large number of manufacturers for the testing of a wide
variety of non memory semiconductors.
Advantest believes that the primary benefits of OPENSTAR®, an industry-wide, open architecture for test systems for non
memory semiconductors, for users of semiconductor and component test systems will be reduced testing costs resulting from theadoption of newly developed modules. In addition, Advantest hopes that the reduction in testing costs, and thus the lowering of overall
manufacturing costs of non memory semiconductors, will help foster further demand for non memory semiconductors to be used indigital consumer products and other products.
Focus sales and support efforts on key customer accounts
Advantest believes that a small number of large semiconductor manufacturers, foundries and test houses account for a large
portion of total sales in the semiconductor and component test system industry. Advantest sells semiconductor and component test
systems and mechatronics systems to many of these customers and supports them on a regular basis. Advantest is seeking to expand
its business with these key customers and develop new relationships with the remaining potential major customers. Many ofAdvantest’s sales and support offices are located near the corporate headquarters or main research and development andmanufacturing facilities of these key customers. These offices facilitate Advantest’s efforts to continue conducting collaborative
development activities with leading semiconductor manufacturers.

15

Products
As of fiscal 2008, Advantest’s main products are products developed, manufactured and sold in the Semiconductor andComponent Test System Segment and Mechatronics System Segment. They are as follows:
Semiconductor and Component Test Systems Segment
Semiconductor and component test systems are used during the semiconductor and electronic component manufacturing process
to confirm that a semiconductor functions properly. Semiconductor and component test systems consist of test systems for memory
semiconductors and test systems for non memory semiconductors.
The following table sets forth the amount of net sales of Advantest’s semiconductor and component test systems, for memoryand non memory semiconductors for the periods presented.
Category

Fiscal 2006

Fiscal 2007

Fiscal 2008

(in millions)

Test systems for memory semiconductors .................................................................................
Test systems for non memory semiconductors ..........................................................................
Total...........................................................................................................................................

¥ 109,541
58,274¥ 167,815¥ 92,896
38,712¥ 131,608¥ 17,644
31,572¥ 49,216

Test Systems for Memory Semiconductors
Advantest’s test systems for memory semiconductors are test systems designed to test high-speed/high performance DRAM
semiconductors used in equipment such as personal computers and servers, as well as flash memory semiconductors used in digitalconsumer products.
Test systems for memory semiconductors consist of a mainframe and one or more test heads. During testing, a device interface
is attached to the test head. During the front-end testing process, wafers are loaded by a prober and are connected to the test system formemory semiconductors through the device interface. Electric signals between the die and the test systems for memory
semiconductors are transmitted through probe pins located in the device interface and tested. After front-end testing is completed, thewafer is diced into separate dies and properly functioning dies are packaged. During back-end testing, test handlers are used to loadthese packaged devices onto the test heads, and electric signals are transmitted between the devices and the test heads via the device
interface and tested. The test results are analyzed by the test systems for memory semiconductors’ hardware circuits and software
programs. Customized software programs for each semiconductor are required to analyze the semiconductor tests and test data.
Characteristics of the performance and other characteristics of test systems for memory semiconductors that are important tocustomers include:
Throughput. Throughput is measured by the number of semiconductors that can be tested by test systems for memory
semiconductors during a specified time.
Test Speed. Test speed is the speed at which the test systems for memory semiconductors test semiconductors during testing.
Test speed is measured in terms of hertz (Hz), or Bits Per Second (bps).
Timing Accuracy. Timing accuracy is the test system for memory semiconductors’ accuracy of control over the timing of testing
signals generated.
Maximum Pin Count. Maximum pin count is the number of channels for test signals (at the maximum) used by test systems formemory semiconductors.
Size. Smaller machines reduce the amount of floor space occupied and electricity consumed by the test systems for memory
semiconductors.
Temperature. Semiconductor manufacturers perform tests on semiconductors at varying temperatures to ensure proper operation
under extreme conditions.
Compatibility. Test systems for memory semiconductors that are compatible with predecessor systems cut down on the timerequired to develop new test programs and otherwise allow for effective utilization by customers of existing resources.
Quality. Quality is determined by the reliability of test results produced and whether the equipment can maintain stable
operation under different testing environments.

16

Advantest estimates that its market share in test systems for memory semiconductors was approximately 69% in fiscal 2007 ascompared with approximately 64% in fiscal 2006. Although Advantest’s market share decreased by approximately 18 points
compared to 2007 primarily as a result of restrained capital expenditure in test systems for DRAM semiconductors on the part ofAdvantest’s customers, Advantest maintained a market share of approximately 51% in 2008. Advantest has a substantially larger
market share in test systems for DRAM memory semiconductors than in test systems for flash memory semiconductors. Advantest is
currently seeking to increase its market share in test systems for flash memory semiconductors.
Advantest’s main product lines of test systems for memory semiconductors are the T5500 series, the T5300 series and theT5700 series.
T5500 Series. The T5593 is a test system targeted at the market for high speed memory semiconductors such as DDR2-SDRAM
and SGRAM. SGRAM is a memory semiconductor for use in graphical processor units. The T5588, makes possible simultaneous
measurement of up to 512 DDR2-SDRAM devices, twice that of the T5593, and is a test system for mass production. Advantest canalso accommodate a greater variety of memory semiconductors by using testing functions for flash memory—which are already long
used in connection with the T5370 series—and its newly developed throughput enhancement functions. The top-of-the-line device in
the T5500 series is the T5503, a memory semiconductor test system most suitable for testing and production of ultra high-speed
memory semiconductors such as DDR3-SDRAM. This model allows twice as much of the spectrum band to be covered in terms of
testing speed as the T5501 and thus enhances the measurement accuracy.
T5300 Series. The T5383 is a multi-functional test system for memory semiconductors that reduces testing costs forsemiconductor manufacturers. The T5383 is used for the front-end testing of DRAM semiconductors and for back-end testing of flash
memory semiconductors. The T5383, which is capable of simultaneously testing up to 384 devices is a test system with a maximum
testing rate is 286 MHz/572 Mbps, which is twice the testing rate of Advantest’s previous model. This allows for DRAM wafer testing“at speed” testing, or testing for KGD, and package testing for flash memory semiconductors, at high-speed and with high-throughputs
capabilities. The T5300 series is Advantest’s best selling test systems for memory semiconductors product line for front-end testing of
DRAM semiconductors and for back-end testing of flash memory semiconductors.
T5700 Series. Because variations in cell characteristics must be kept within a defined range, front-end testing for flash memory
semiconductors require more types of testing than is required in front-end testing for DRAM semiconductors. Accordingly, front-end
testing for flash memory semiconductors contributes to higher testing costs. Furthermore, although the volume of production withrespect to NAND-type flash memory semiconductors is rapidly growing, prices have fallen substantially and there is a demand forhigher efficiency for test systems. The T5761/T5761ES are test systems which have been designed to respond to this demand. The
T5761 covers the full range of testing, from NAND-type flash memory testing to package testing. The T5761 is capable ofsimultaneous testing up to 512 devices, which is twice the capacity of Advantest’s previous model, and allows for lower testing costs
through its improved ability to detect failures. The T5761ES is designed for use in engineering and retains the same basic capabilities
and functions as the T5761, with a substantially smaller size and at lower testing costs. Furthermore, Advantest introduced the T5781
memory test system, which is capable of testing Multiple Chip Package (MCP)-type memories which combine multiple memory types,
such as NAND-type flash memories, which are used in mobile phones, NOR-type flash memories and SDRAM, at speeds of up to 266
MHz, and the T5781ES, which is designed to develop programs for evaluation and mass production. Because the T5781 and T5781ES
have diverse memory semiconductor testing capabilities and can test single-handedly many different types of memory semiconductors
which are incorporated into MCPs testing efficiency can be improved. Through the T5700 series, effective solutions can be provided,from the design of flash memories and MCPs to mass production.
Test Systems for Non Memory Semiconductors
Advantest’s main line of test systems for non memory semiconductors relates to test systems for SoC semiconductors, test
systems for LCD driver ICs and test systems for semiconductors used in car electronics. Test systems for SoC semiconductors test
SoC semiconductors that combine circuits such as digital, analog, memory and RF circuits on a single semiconductor chip. Test
systems for LCD driver ICs test semiconductors with specific functions, such as LCD driver ICs that display images on LCD panels.
The factors that are important to customers in the performance and other characteristics of test systems for memory semiconductors
described above also apply to test systems for non memory semiconductors. Advantest’s market share in test systems for non memory
semiconductors remained at a similar level of approximately 17% in fiscal 2008, compared with approximately 16% in fiscal 2007.

17

T2000. In 2003, Advantest brought to market a test system for non memory semiconductors that is based on component modules
compatible with OPENSTAR® open architecture. Advantest believes that the development of OPENSTAR® compatible semiconductor
test systems for non memory semiconductors will increase Advantest’s market share in test systems for non memory semiconductors.
Currently, Advantest’s OPENSTAR® compatible test system for non memory semiconductors is the T2000. Main compatible
component modules for the T2000 include the 250 Mbps Digital Module A designed for digital testing, the 800 Mbps Digital Moduleand 6.5Gbps Digital Module, the Low Current DPS designed for power transmission, the High Current DPS, DPS 500mA Module,
Audio AWD/DGT Module designed for analog testing, the Base Band AWG/DGT Module and the 12GHz Wideband Signal
Generator/Analyzer designed for RF testing. Furthermore, mainframes for the T2000 may be chosen to meet customers’ needs.
T6500 Series. The T6577 test systems for SoC semiconductors in the T6500 series were primarily developed to test MCU and
SoC semiconductors that control digital consumer products at the production lines. The T6500 series is approximately one-third insize and uses approximately 50% less power than Advantest’s predecessor product line.
T6300 Series. The T6300 series are test systems for LCD driver ICs used with high-definition LCD displays. A maximum of
1,536 LCD testing pins may be used with the T6362 and T6372 systems and a maximum of 3,072 LCD testing pins may be used with
the T6373 system. Each of these systems can simultaneously test multiple LCD driver ICs.
T7720 Series. The T7721 and T7722 are test systems for non memory semiconductors for mixed signal integrated circuits. The
T7721 targets highly complex semiconductors used in car electronics and is the result of the development of Advantest’s constituent
technology that measures analog signals. The T7721 uses a direct current signal generator with a range of 150V to 64V and utilizes up
to a maximum of 256 pins, and the T7721 has the capacity to simultaneously measure multiple devices.
T8571A. The T8571A is a test system for non memory semiconductors that is primarily used to evaluate and analyze CCDs
which are image sensors. These semiconductors are used in digital consumer products, such as high-resolution digital cameras, mobile
phone handset cameras and digital video cameras.
Mechatronics System Segment
The Main products in the Mechatronics System Segment are test handlers which handle semiconductor devices and automate
the testing, and device interfaces which are the interfaces with devices being tested.
Test Handlers
Test handlers are used with semiconductor and component test systems to handle, thermally condition, contact and sort
semiconductors and other electronic components during the back-end testing of the semiconductor manufacturing process.
Advantest’s test handlers are sold primarily in conjunction with the sale of its semiconductor and component test systems. A
majority of Advantest’s test handlers, measured in units, are sold to customers of Advantest’s semiconductor and component test
systems. Advantest’s test handlers are compatible with the semiconductor and component test systems of its competitors.
Test handlers are designed with different characteristics for memory and non memory semiconductors. Memory semiconductors
require relatively long test times. Advantest’s test handlers for memory semiconductors handle up to 512 semiconductors per test headat a time. Non memory semiconductors, including SoC semiconductors, require relatively short test times and Advantest’s test
handlers handle up to 16 semiconductors at a time.
Test Handlers for Memory Semiconductors. The M6300 test handler for test systems for memory semiconductors can handle up
to 256 semiconductors at a time. The M6300’s maximum throughput is 12,000 semiconductors per hour through the use of a new
high-speed handling technology that shortens the time between tests to approximately half of the time associated with Advantest’s
ordinary model. The M6542AD can handle up to 128 semiconductors at a time and is designed to prevent the generation of excessive
heat during simultaneous measuring by employing a newly developed temperature control technology. The M6241 can handle up to
512 memory semiconductors simultaneously, including DDR2-SDRAM or DDR3-SDRAM memory semiconductors, and has
achieved a maximum throughput of 20,000 semiconductors per hour. Advantest also has other test handler product line for test
systems for memory semiconductors that meet varying cost and functional needs of its customers.
Test Handlers for Non Memory Semiconductors. Advantest’s test handlers for non memory semiconductors, including SoC
semiconductors, are the M4841 and the M7521A, among others. With a rate of 16 semiconductors at a time, the M4841 can handle
approximately twice as many semiconductors at a time as Advantest’s previous model. The M4841’s maximum throughput of up to
18,500 semiconductors per hour is triple the maximum throughput of the previous model. Furthermore, the M4841 is also capable oftesting in a wide range of temperatures, from as low as -40°C or as high as 125°C.
The M7521A is a test handler that can be used for chip on film, or COF, and tape automated bonding, or TAB, of integrated
circuit drivers used in flat panel displays. The M7521A can test devices used in 35 millimeter, 48 millimeter, 70 millimeter, wide andsuperwide tapes.
18

Device Interfaces
Device interfaces are components which transmit test signals between the device being tested and the semiconductor andcomponent test system. These components are divided into motherboards, socket boards, performance boards and sockets all of whichtransmit signals to compatible components of a device under test; components compatible with a test handler device; and device
interfaces and change kits with a device handling mechanisms and contact mechanisms.
Advantest develops and manufactures device interfaces for semiconductor and component test systems and supplies device
interfaces such as high performance and high density connectors, socket boards and sockets to meet the demands of next- generation
semiconductors that are becoming more high-speed and more diversified. Advantest believes that the rate at which new semiconductor
designs are introduced to market will continue to increase in the long term, and customers’ requests to accelerate development of mainparts of device interfaces that are compatible with such new semiconductor designs will increase accordingly.
Motherboards: For test systems for memory semiconductors, Advantest provides motherboards capable of handling a maximumof 512 semiconductors at a time. For test systems for non memory semiconductors, Advantest provides motherboards that arecompatible with a maximum of 3,072 signals. Advantest also provides motherboards designed for use in front-end testing.
Socket Boards and Performance Boards: Advantest provides custom manufacturing of socket boards and performance boards
for each device under test in accordance with customers’ specifications.
Sockets: Advantest provides sockets for test systems for memory semiconductors. Advantest provides low-inductance (0.4nH)
sockets and fine pitch (0.4mm) sockets for semiconductors that are becoming more high-speed and more compact in size.
Change Kits: Advantest provides carrying and contacting mechanism components compatible with each device under test fortest handlers for memory semiconductors and test handlers for non memory semiconductors.
Advantest competes with numerous small and independent electronics manufacturers in providing device interfaces for its
semiconductor and component test systems. However, Advantest believes that as the complexity of the testing requirements of nextgeneration semiconductors increases, Advantest will enjoy competitive advantages by applying its technical knowledge, such as highspeed signal transmission, derived from designing and manufacturing semiconductor and component test systems to device interfaces.
Customers
Advantest’s semiconductor and component test systems and mechatronics systems are shipped and delivered to world’s leading
semiconductor manufacturers, as well as some foundries and test houses. Sales to Hynix Semiconductor Inc. in fiscal 2006 and to
INTEL Corporation and Samsung Corporation in fiscal 2008 each accounted for greater than 10% of Advantest’s net sales in each of
those respective years. No customer accounted for greater than 10% of Advantest’s net sales in fiscal 2007. Advantest’s five largest
customers, all of which are semiconductor and component test system customers, accounted for approximately 35% of net sales infiscal 2006, approximately 32% in fiscal 2007 and approximately 51% in fiscal 2008.
Geographic Sales
Approximately 68% of Advantest’s fiscal 2008 net sales were derived from products sold to customers located outside Japan.
The following table sets forth Advantest’s net sales by geographic area, as well as net sales by geographic area as a percentage of total
net sales, for Advantest’s last three fiscal years. Net sales are classified into geographic areas based on the location to which the
products are shipped.
Fiscal 2006
MarketNet Sales(in millions)Japan .............................................................................
Asia (excluding Japan) .................................................
Americas.......................................................................
Europe...........................................................................
Total..............................................................................

¥ 72,834
140,782
10,158
11,238¥ 235,012

Fiscal 2007%

Net Sales(in millions)

31.0
59.9
4.3
4.8
100.0%¥ 56,032
108,260
9,616
8,859¥ 182,767

Fiscal 2008%

Net Sales(in millions)

%

30.7
59.2
5.3
4.8
100.0%¥ 24,734
37,315
11,7592,844¥ 76,652

32.3
48.7
15.3
3.7
100.0%

Japan. Advantest enjoys a significant market position in Japanese markets for test systems for memory semiconductors, with amarket share of approximately 70% in 2008. In addition, Advantest had a market share of approximately 37% in the Japanese test
systems for non memory semiconductors market in 2008. Sales of test systems for SoC semiconductors used in DVD /Blu-ray discrecorders and flat-panel TVs comprised a substantial portion of total sales of test systems for non memory semiconductors in Japan in
fiscal 2008. Advantest is working to maintain and expand its large market share in Japan by continuing to work closely with its major
customers to identify their needs during the early stages of their product development cycles.
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Asia (excluding Japan). Asia is the largest market for semiconductor and component test systems and mechatronics systems,with semiconductor manufacturers located in Taiwan, Korea, the People’s Republic of China, and Singapore accounting for a majority
of semiconductor production in Asia. Advantest views its relationships with these companies as critical to its semiconductor andcomponent test system and mechatronics system business. Many Japanese, U.S. and European semiconductor manufacturers haveshifted production to Asia, either to subsidiaries or foundries and test houses. Capital expenditure decisions for subsidiaries are usually
made at the Company’s headquarters. Foundries and test houses, a majority of which are located in Taiwan, often consult with theircustomers before investing in semiconductor and component test systems. Therefore, Advantest’s performance in Asia will also
depend on its ability to maintain strong relationships with customers in Japan, the U.S. and Europe. In addition, some of Advantest’s
customers have partnered with semiconductor manufacturers in Asia and outsourced manufacturing processes, thus shifting net sales
to the Asia geographic market.
Americas. Advantest’s marketing efforts in this region are centered in the United States, which accounted for approximately
15% of its total sales in fiscal 2008. Advantest’s market share of semiconductor and component test systems sold in the U.S. wasapproximately 6% in 2007 and increased to approximately 19% in 2008 primarily due to increased sales to a major U.S.
semiconductor manufacturer. Semiconductor and component test systems are marketed and sold in the Americas through Advantest’s
subsidiary, Advantest America, Inc.
Europe. Sales in Europe constituted approximately 4% of Advantest’s sales in fiscal 2008. Advantest’s market share ofsemiconductor and component test systems sold in Europe decreased to approximately 12% in 2008 from approximately 20% in 2007.
Advantest’s principal European markets are Germany, Italy and France.
Sales and Marketing
Advantest sells its semiconductor and component test systems and mechatronics systems globally through direct sales channels.
Advantest’s direct sales department includes engineers who have in-depth knowledge of the customer’s business and technology needs.
Currently, Advantest has sales offices in Japan, Taiwan, Singapore and other parts of Asia, the Americas and Europe. Advantest
maintains its sales and support centers in close physical proximity to key customer sites to identify its customers’ needs in the earlystage of product development and to provide required support in a timely fashion. Advantest is also strengthening its relationships
with test houses through limited minority investments as a part of its sales and marketing strategy. In addition, Advantest offers
operating lease contracts for semiconductor and component test systems through its subsidiary, Advantest Finance Inc.
Advantest believes that the best marketing strategy is to demonstrate the ability to develop products that meet the customer’s
specific needs, produce and deliver them in the required time and quantity, and support the customer and the product with sufficienttechnical and maintenance support. Advantest holds exhibitions from time to time to demonstrate and market its products to target
customers. Advantest also markets by participating in industry trade shows and advertising in trade magazines.
Support and Customer Service
Advantest’s support and customer service programs are designed to respond to all of the semiconductor testing-related needs of
its customers. Advantest provides its services through its worldwide network of sales and customer support offices. These services
consist of the following elements:•

Testing Technology Support. Advantest engineers work with customers from the design phase of new products to thedevelopment of testing methods and device interfaces. Advantest also support customers’ initiatives to reduce costs at thelarge-scale production phase by proposing procedures to improve production yield and throughput, and offering advice inconnection with the operation of semiconductors and component test systems and other test products.

•

Application Software Support. Each different semiconductor design requires customized software programs for analysis oftest data. As a part of its solution services, Advantest engineers assist customers in designing device interface, application
software and test programs that optimize production throughput, reliability and capacity.

•

Procurement Support. The procurement process for semiconductor and component test systems and mechatronics systems
is time consuming and complicated. Semiconductor and component test systems consist of a combination of multiple
components, including test handlers or probers, device interfaces and software. Advantest sales personnel and engineers
work with customers to identify the semiconductor and component test systems and mechactronics systems and related
optional functions that best address their needs.

•

Installation and Warranty Support. The introduction of a new line of semiconductors by a manufacturer typically requires
either the purchase of new semiconductor and component test systems and mechatronics systems or warranty support forthe customer’s existing system. Upon the sale of a new system, Advantest’s engineers provide installation services andwork with the customer to integrate the purchased system with the customer’s existing manufacturing infrastructure.

20

•Training Support. Advantest engineers prepare customer training materials related to the operation and maintenance ofAdvantest’s semiconductor and component test systems and mechatronics systems, and offer their customers suitabletraining on-site and at Advantest’s facilities in a timely manner.

•

Maintenance Support. Advantest’s maintenance support services consist of:•Call Center Support. Advantest currently offers call center support services for hardware and software in Japan. This
call center also offers support to the customer support centers that Advantest has overseas.

•Internet Support. The Advantest customer support website offers maintenance tips and access to a database withpossible solutions to semiconductor and component test system problems. Advantest customers can also make on-line
requests for maintenance work and check the status of equipment sent in for repair through Advantest’s web page.

•

Repairs and Parts. Requests for repairs or parts can be made through the Advantest website or by phone. Advantest hasestablished a system under which it endeavors to deliver requested parts to customers in Japan within 24 hours ofrequest, and for customers in Asia (excluding Japan), the Americas and Europe within 48 hours.

•

Remote Surveillance. Advantest can equip its semiconductor and component test systems with a remote surveillance
function. This function allows Advantest engineers to remotely monitor the performance of its customers’
semiconductor and component test systems for more timely and effective maintenance.

•

Worldwide Presence. Advantest provides maintenance support through customer support centers in Japan; other partsof Asia, including Korea, China, Taiwan and Singapore; the Americas and Europe.

Manufacturing and Supplies
Advantest’s principal factories at which semiconductors and component test systems and mechatronics systems are
manufactured are its Gunma Factory and Gunma Factory 2 located in Gunma Prefecture, Japan. Printed circuit boards, on whichelectronic parts and other components are mounted, for use in these products are manufactured at the Gunma Factory 2. The Gunma
Factory assembles the final products and conducts tests. The Gunma Factory is highly automated, and testing and production systems
within the factory are interconnected by a sophisticated local area network using advanced data management software. This network
allows Advantest factory managers to check on the status of systems under production at any given time.
Advantest uses a sophisticated enterprise resource planning (ERP) system that processes new information on a real time basis
and converts sales order information into production specifications and manufacturing plans. This system also interconnects
Advantest’s multiple production and warehousing facilities to its information network.
Advantest has integrated many production processes in an effort to introduce a new production system based on the just-in-time
production system and to improve upon the existing production system with a view to attaining a shorter production cycle, cost
reduction and reduction of inventories.
Advantest purchases substantially all of its components and parts from outside suppliers.
The average costs of components and parts used by Advantest during the last three fiscal years have remained relatively stable.
Advantest believes this relative price stability results from the fact that Advantest negotiates the terms of the purchase orders directlywith its suppliers and the fact that the prices of the made-to-order components set forth in the purchase orders are primarily influenced
by the technical specifications of the relevant components and parts.
Device interfaces, one of Advantest’s products in its Mechatronics System Segment, are manufactured in Japan as well as
overseas, including in Germany, Korea, Taiwan and Malaysia, in order to reduce lead time and reduce manufacturing costs.
Seasonality
As Advantest’s sales levels of semiconductor and component test systems and mechatronics systems are not dependent on any
particular season and are subject, in large part, to sales levels of the semiconductors in the market that can fluctuate significantly fromyear to year, Advantest does not traditionally experience seasonality in the sense of higher sales during any certain period of the year
as compared to other periods of the year.

21Competition
Advantest faces substantial competition throughout the world in all of its business segments. In particular, in light of the ongoing significant downturn in the semiconductor industry, competition in the semiconductor and component test system market isintensifying, which may lead to restructuring within the industry and certain companies may be eliminated or consolidated. Advantest
believes that the principal factors of competition are:•Performance. The performance of products is determined by its accuracy, test speed, throughput and ability to test
semiconductors with large pin counts. High performance products reduce the customer’s cost of testing.

•Reliability. Products that operate with minimal downtime allow semiconductor production and engineering work to proceedwithout frequent intervention and provides more cost-effective operation.

•

Delivery Time. Semiconductor manufacturers require timely delivery of products, especially in periods of high demand.

•

Price. The need for more sophisticated products often translates into higher testing costs for semiconductor manufacturers.
In addition, primarily as a result of increased efficiency in the fabrication process and lower market prices forsemiconductors, test costs have come to represent a higher proportion of the total cost of manufacturing. Advantest
currently faces significant price pressure in its Semiconductor and Component Test System Segment.

•

System Architecture. Product architecture that is modular expands the product life because the system can be adapted tomeet the customer’s new requirements, while largely retaining compatibility with existing test programs.

•

Software. Products that use software that is easier to use and more powerful reduce the amount of engineering resources
needed to develop and operate test programs.

•

Customer Support. Customer specific applications programs, worldwide service and customer training contribute to theefficient use of products and minimize the customer’s cost of testing.

•

Qualified Technical Personnel. Having in place a team of highly qualified engineers and other customer service and support
personnel is essential for securing sales and maintaining and developing strong relationships with key customers.

According to a report issued by a research company, Advantest maintained the highest share in the semiconductor test system
market for five consecutive years until 2007. However, in 2008, Teradyne, Inc. recorded the highest share, and Advantest was thesecond highest share. Other companies following Advantest include Verigy Ltd., LTX-Credence Corporation and Yokogawa
Electronic Corporation. Some of Advantest’s other competitors include FROM30 CO., LTD., EXICON Ltd., and UniTest Inc. In
addition, Advantest also competes in the mechatronics system market with, among others, Delta Design, Inc., Seiko Epson
Corporation, Mirae Corporation and TechWing Inc. for test handlers, and TSE Co., Ltd. and Secron Co., Ltd. for device interfaces. In
addition, in the Services, Support and Others Segment, Advantest has been competing with companies providing similar services. It
also has been suggested by customers that Advantest compete with start-up companies with newer technologies or products in themarket for both the test systems for memory semiconductors and test systems for non memory semiconductors.
Licenses and Intellectual Property Rights
Advantest has a policy of seeking licenses and intellectual property rights worldwide on technology considered of particular
strategic importance. While Advantest does not consider any one or group of licenses and intellectual property rights to be soimportant that their expiration or termination would materially affect Advantest’s business, Advantest considers all of its licenses andintellectual property rights to be important.
Legal Proceedings
Based on information currently available to Advantest, Advantest believes that its losses from any pending legal proceedings
would not have a material adverse effect on Advantest’s financial position, operating results or cash flows.

22

Environmental
In fiscal 2007, Advantest established and implemented its “Fourth Advantest Group Environmental Management Plan”. Under
this management plan, in addition to improving environmental management systems within the Advantest Group, Advantest is
supporting its customers’ environmental management by developing new products with lower power consumption and dealing with
top priority environmental issues, for example by taking measures to prevent global warming.
Advantest’s primary environmental activities during fiscal 2008 are as follows:•

ISO 14001 Certification. Advantest has received ISO 14001 Uniform Certification for all seven of its domestic
manufacturing and research and development facilities. With respect to its overseas manufacturing and research anddevelopment activities, seven principal facilities in Asia, Europe and North America regions have received ISO 14001
Uniform Certification.

•

Environmental Measures for Products. Advantest is actively involved in the development of environmentally friendly
product lines. Advantest conducts environmental assessments of all its new products from their development stages. In
fiscal 2008, five models complied with Advantest’s internal environment-oriented design standards, and have qualified asenvironmentally friendly “Green” products.

•

Reduce Waste. Advantest continues to retain less than 1% industrial output at all seven of its domestic research anddevelopment and manufacturing facilities. In January 2008, Advantest installed a liquid waste disposal facility at its Sendai
Factory. Through such initiatives, Advantest’s waste volume decreased in fiscal 2008 by 52% from that of the previous year
to a total of 532 tons.

•

Use of Safe Components. Advantest has established an internal procurement standard for parts and components and has
procured parts and components for its new products that do not contain specified toxic substances. Primarily reflecting theforegoing, Advantest has eliminated most regulated toxic substances from approximately 95% of the surface-mounted
components on its new products after 2007, except lead solder, which is used for mounting parts and components for its
products.

•

Prevention of Global Warming. Through the use of energy efficient equipment and the re-evaluation of manufacturing
processes, Advantest strives to reduce levels of carbon dioxide emissions resulting from energy consumption relating to its
business activities. Advantest’s carbon dioxide emissions resulting from its seven business facilities was reduced to 24,207CO2 tons in fiscal 2008, primarily as a result of energy saving effects and a decrease in production.

As one of its activities designed to contribute to society and to the environment, Advantest implements reforestation of seedlings,
both in Japan and overseas.
Advantest spent approximately ¥807 million during fiscal 2008 to further implement its environmental protection activities.
Advantest has been addressing issues of corporate management, social activities and environmental issues from a global
perspective. With increased attention in recent years on corporate ethics, Advantest believes that it should focus more on the issue ofCSR (Corporate Social Responsibility). Accordingly, Advantest has established a CSR & Environmental Affairs Promotion Officeand nine committees (Disclosure Committee, Personnel Mediation Committee, Human Rights Protection Committee, Information
Security Committee, Committee on Environmental Conservation, Internal Control Committee, Corporate Ethics Committee, Product
Liability Committee and Safety and Health Committee), and engages in corporate social responsibility efforts.

23

Glossary
Analog circuits ..................................................... Circuits on a semiconductor that monitor, condition, amplify or transform analog
signals, which are signals that vary continuously over a wide range of values.
Analog circuits process analog signals translated from real world phenomena suchas sound, light, heat and motion.
COF ...................................................................... Chip on Film. A technology that allows for integrated circuits to be imprinted onto
a tape film.
DDR-SDRAM ..................................................... Double Data Rate Synchronous Dynamic Random Access Memory. Memory
semiconductor that can be read from, or written to, at double the rate of traditional
SDRAM semiconductors.
DDR2-SDRAM ................................................... Advanced DDR-SDRAM semiconductors that can be read from, or written to, at asignificantly higher rate than DDR-SDRAM semiconductors.
DDR3-SDRAM ................................................... DDR-SDRAM semiconductors that be read from, or written to, at a significantly
higher rate than DDR2-SDRAM semiconductors.
DDR4-SDRAM ................................................... The next generation DDR-SDRAM semiconductors that can be read from, or
written to, at a significantly higher rate than DDR3-SDRAM semiconductors.
Digital circuits ...................................................... Circuits that perform binary arithmetic functions on data represented by a series of
on/off states.
DRAM ................................................................. Dynamic Random Access Memory. Devices that store a large volume of data andcan read and write data freely. Because of their volatile characteristics, periodic rewriting of data is required to maintain memory information.
Foundries ............................................................. Semiconductor manufacturing service providers that manufacture semiconductors
based on their customers’ semiconductor designs.
Fabless ................................................................. Manufacturers that outsource their entire production to external entities, instead of
having their own manufacturing facilities.
Flash memory ...................................................... Memory devices that electrically erase or write data freely. Devices with
nonvolatile memory which is maintained even when the power is turned off.
Integrated circuit .................................................. An electric part made of a combination of many transistors on a silicon wafer.
LCD driver integrated circuits ............................. Integrated circuits that operate LCD (Liquid Crystal Display).
Logic circuits ....................................................... Circuits that perform binary arithmetic functions.
Memory circuits ................................................... Circuits that store data and programs.

24

MCP ..................................................................... Multi Chip Package. A package which combines multiple chips with different
functions.
MCU .................................................................... Micro Controller Unit. An integrated circuit that contains all necessary functions
required for a small-scale computer system.
NAND .................................................................. A type of flash memory that is primarily used for data storage due to its large
storage capability.
NOR ..................................................................... A type of flash memory that is primarily used for memorization of programs due to
its random access capability.
OPENSTAR® ....................................................... The name of the open architecture standard made publicly available by Advantest.
SGRAM ............................................................... Synchronous Graphics Random Access Memory—SDRAM with added graphics
functions.
SoC ...................................................................... System on a Chip. A chip that integrates functions, including logic, memory andsignaling, that are conventionally executed with multiple chips and requires
smaller space and significantly less electricity.
TAB ..................................................................... Tape-Automated Bonding. A technology that allows integrated circuit chips to bethinly mounted using tape film.
Test houses ........................................................... Providers of semiconductor test services.
Testing for KGD .................................................. Known Good Die. Testing for KGD is conducted to guarantee that semiconductorbare chips are in good quality.

25

4.C.

ORGANIZATIONAL STRUCTURE

As of June 1, 2009, Advantest had 14 Japanese subsidiaries, 17 overseas subsidiaries and one investee which is accounted for by
the equity method. The following table sets forth for each of Advantest’s principal subsidiaries, the country of incorporation and theprincipal activities of the subsidiary.
Name of Subsidiary

Country ofIncorporation

Advantest Laboratories Ltd. ..................................................

Japan

Research and development of measuring and testing
technologies

Advantest Customer Support Corporation.............................

Japan

Maintenance service of Advantest’s products

Advantest Manufacturing, Inc. ..............................................

Japan

Manufacture of Advantest’s products

Japan Engineering Co., Ltd....................................................

Japan

Development, manufacture and sales of Advantest’s
products

Advantest Finance Inc. ..........................................................

Japan

Leasing of Advantest’s products

Advantest America, Inc. ........................................................

U.S.

Sales of Advantest’s products

Advantest Europe GmbH.......................................................

Germany

Development and sales of Advantest’s products

Advantest Taiwan Inc. ...........................................................

TaiwanSales of Advantest’s products

Advantest (Singapore) Pte. Ltd..............................................

Singapore

Sales of Advantest’s products

Advantest Korea Co., Ltd. .....................................................

Korea

Sales support of Advantest’s products

Advantest (Suzhou) Co., Ltd. ................................................

China

Sales support of Advantest’s products

Principal Activities

Each of the subsidiaries listed above is a direct or indirect wholly-owned subsidiary of Advantest.
Advantest consolidated certain wholly owned subsidiaries on April 1, 2009.
Advantest’s production was previously conducted by four separate subsidiaries, responsible for manufacturing in each ofAdvantest’s business. The consolidation of these four subsidiaries on April 1, 2009 into Advantest Manufacturing, Inc., a whollyowned subsidiary of Advantest Corporation, is designed to further improve production efficiency in both the Semiconductor andComponent Test System Segment and the Mechatronics System Segment through unification of the manufacturing phase through theshipping phase into a single integrated process.
The development of application software was also previously conducted by four separate subsidiaries. These four subsidiaries
have been consolidated to improve customer satisfaction and operating efficiency, in addition to facilitating the sharing of diverse
resources.
4.D.

PROPERTY, PLANTS AND EQUIPMENT

Set forth below is a list of each of Advantest’s material properties, the use and location of the property and the approximate sizeof the property on which the facility is located.
Name

Gunma R&D Center ................................................

Location

Approximate
Size (m2)Gunma, Japan

250,887

26

Use

Research and development of semiconductor
and component test systems and mechatronics
systemsLocation

Approximate
Size (m2)Otone R&D Center ..................................................

Saitama, Japan

85,817

Research and development for andmanufacturing of mechatronics systems

Advantest Laboratory and Sendai Factory...............

Miyagi, Japan

66,904

Basic technology research, and research forand manufacturing of key devices installed insemiconductor and component test systems

Gunma Factory ........................................................

Gunma, Japan

88,512

Manufacture of semiconductors andcomponent test systems and test handlers

Gunma Factory 2 .....................................................

Gunma, Japan

93,112

Manufacture of semiconductor andcomponent test systems and device interfaces

Name

Use

With the consolidation of its manufacturing-related subsidiaries into Advantest Manufacturing, Inc. as described above,
Advantest completed reorganizing its manufacturing facilities in May 2009. Advantest’s semiconductor and component test systems
products had previously been manufactured at two locations in Saitama Prefecture (Kumagaya Factory) and Gunma Prefecture(Gunma Factory), Japan, while mechatronics products were manufactured at its Otone R&D Center in Saitama Prefecture and anotherfactory in Gunma (Gunma Factory 2). Subsequent to this reorganization, the Kumagaya factory has been closed and manufacturing forboth business segments are carried out principally at Gunma Factory and Gunma Factory 2. This reorganization aims to enhance
efficiency through a more effective use of Advantest’s process base and supply chain, while also reinforcing the just-in-time
production process that forms a valued aspect of the Company’s competitive edge.
In addition to the above-mentioned manufacturing facilities, Advantest has manufacturing facilities in Korea and Malaysia, sales
offices and customer support centers in various regions of the world, and owned or leased research facilities in Japan, the U.S. andGermany. Advantest owns each of its significant properties.
Advantest considers all of its principal manufacturing facilities and other significant properties to be in good condition andadequate to meet the needs of its operations. Advantest does not maintain internal records of the exact productive capacity and extent
of utilization of its manufacturing facilities. It would require unreasonable effort and expense to determine this information because
Advantest alters the volume, quantity and nature of its manufactured products as necessary in response to changes in demand andother market conditions, and revamps its manufacturing processes to take advantage of technological innovations. However,Advantest believes that its manufacturing facilities are currently operating at utilization levels that are substantially in line withprevailing market demand for its products.
Advantest believes that there are no material environmental issues that may affect utilization of its assets.
Advantest has prepared itself for crises such as large-scale natural disasters, and each department of Advantest has drafted its
own disaster procedures and manuals. Furthermore, in order to prevent any disruption of its core businesses, or in case of suspension,
to re-start the suspended businesses, including the recovery of important facilities, in the shortest possible time, Advantest hasdeveloped its “Business Continuity Plan” and is promoting its implementation. However, if Advantest is not successful in
implementing such Business Continuity Plan, or if upon implementation, such Business Continuity Plan is not effective, Advantest’s
core businesses could be disrupted at time of crisis, such as large-scale natural disasters, and could take a substantial amount of time torecover.
ITEM 4A.

UNRESOLVED STAFF COMMENTS

None.
ITEM 5. OPERATING AND FINANCIAL REVIEW
5.A.

OPERATING RESULTS

The following discussion and analysis of Advantest’s financial condition and results of operations should be read with “KeyInformation—Selected Financial Data” and its audited consolidated financial statements for fiscal 2006, fiscal 2007 and fiscal 2008,
as well as the notes to such consolidated financial statements appearing elsewhere in this annual report. These consolidated financial
statements have been prepared in accordance with U.S. GAAP.

27

Overview
Advantest manufactures and sells semiconductor and component test systems and mechatronics-related products such as test
handlers and device interfaces. Advantest also engages in research and development activities and provides maintenance and support
services associated with these products.
The Semiconductor and Component Test System Segment provides customers with test system products for the semiconductor
industry and the electronic parts industry. Product lines in the Semiconductor and Component Test System Segment include test
systems for memory semiconductors and non memory semiconductors. Test systems for non memory semiconductors include test
systems for SoC semiconductors, test systems for LCD driver ICs and test systems for semiconductors used in car electronics. Thisbusiness segment is the most important segment, as a whole accounting for 64.2% of Advantest’s net sales in fiscal 2008.
The Mechatronics System Segment provides product lines such as test handlers, mechatronic-applied products, for handlingsemiconductor devices, device interfaces that serve as interfaces with the devices that are measured and operations related to nanotechnology products. This business segment accounted for 18.8% of Advantest’s net sales in fiscal 2008.
The Services, Support and Others Segment consists of comprehensive customer solutions provided in connection with the
Semiconductor and Component Test Systems and Mechatronics System Segments, support services, equipment lease business andothers. This segment accounted for 20.6% of Advantest’s net sales in fiscal 2008.
Semiconductor and Component Test System Segment
The market for semiconductor and component test systems is subject to high demand volatility and is competitive, and depends
on the appetite for capital expenditures of customers. Their capital expenditures depend, to a large extent, on:•demand for semiconductors and electronic components;•

innovation in semiconductor and electronic component technology; and•changes in semiconductor and electronic component manufacturing processes.

The business environment of the Semiconductor and Component Test System Segment during fiscal 2008 was extremely
challenging. The over-supply and weak prices of semiconductors persisted from the previous fiscal year, causing semiconductor
manufacturers to freeze or postpone their capital expenditure spending. Furthermore, the economic downturn stemming from thefinancial crisis spread to Europe and emerging markets in Asia and other regions in the world which regions previously enjoyed strong
growth. The resulting decrease in individual consumption of end-user products that use semiconductors further encouraged
semiconductor manufacturers, from the second half of the fiscal year, to adjust their production and freeze or postpone their capital
expenditures. For a detailed discussion of these factors, see “Information on the Company—Business Overview—Industry Overview.”
During fiscal 2008 in the test systems for memory semiconductor market of this segment, the transition to DDR3-SDRAM
semiconductors for high-performance computers anticipated initially at the beginning of the fiscal year was delayed, while oversupply continued to hold down prices of DDR2-SDRAM and semiconductor manufacturers restrained investment in DRAM test
systems. Demand for flash memory semiconductors was also weak mainly due to over-supply and in addition, declining sales ofmobile phones placed pressure on prices, causing capital expenditures in flash memory test systems to remain weak.
During the first half of fiscal 2008, in the test systems for non memory semiconductor market, strong sales of notebooks andother mobile PCs were recorded and semiconductor manufacturers in related fields showed signs of renewing their capital
expenditures to increase production. The demand associated with the Beijing Olympics, however, fell short of expectations and arecovery in capital expenditures did not occur. Moreover, the worldwide decline in consumer consumption suppressed demand for
products using semiconductors, leading to a continued weak demand in test systems for consumer, automotive, and LCD driver ICs.
Primarily reflecting the above, net sales of the Semiconductor and Component Test System Segment decreased by 62.6% to¥49,216 million in fiscal 2008, as compared to the previous fiscal year.
Advantest’s net sales, results of operations and financial condition in fiscal 2008 decreased significantly compared with fiscal
2007. Net sales of test systems for memory semiconductors in fiscal 2008 decreased by 81.0% compared to the previous fiscal year
resulting from the decline in prices of DRAM semiconductors and flash semiconductors, while net sales for test systems for non
memory semiconductors decreased by 18.4% compared to the previous fiscal year. Capital expenditure was restricted in the market for
digital consumer electronics such as mobile phones and flat-panel TVs, and the market for personal computers reflected increased
price competition and the need to adjust inventories, which led to the decline in sales of test systems for memory semiconductors andtest systems for non memory semiconductors.

28

Advantest believes that price pressure with respect to semiconductor and component test systems tends to be the strongest
during periods when semiconductors are subject to price pressure despite an increase in demand for semiconductors. Advantest faced
significant price pressure from fiscal 2001 to 2003 and such price pressure has continued to exist thereafter. Even when thesemiconductor industry experienced a recovery, increased competition in the market for digital consumer products and personal
computers drove down prices of these goods, subsequently creating significant price pressure on its products and restriction on capital
expenditure.
Mechatronics System Segment
The weak results from test systems for memory and non memory semiconductors also weakened demand for test handlers anddevice interface products, which are used together with semiconductor test systems. In particular, the downturn in the DRAM market
produced a dramatic decline in demand for back-end test handlers.
Mainly as a result of the above, net sales of the Mechatronics System Segment totaled ¥14,388 million in fiscal 2008, a 58.8%
decrease compared to that of fiscal 2007.
Services, Support and Others Segment
In the Services, Support and Others Segment, Advantest has focused on maintenance services such as installation and repair ofAdvantest’s products and lease and rental services of its products as a part of Advantest’s effort to provide customers withcomprehensive solutions. Primarily owing to a decline in demand for maintenance services, and reflecting the weak performance ofthe semiconductor market, net sales of this segment decreased by 18.2% compared to fiscal 2007 to ¥15,815 million in fiscal 2008.
Non-recurring Charges Related to Cost Reduction Initiatives
In response to by concerns over the prolonged deterioration of its business environment in fiscal 2008, Advantest implemented
an organizational restructuring to strengthen its management structure. Advantest recognized non-recurring charges in connection withsuch restructuring, consisting of inventory write-down of ¥8,715 million incurred as a result of the rapid deterioration of the market,
additional voluntary retirement benefit costs amounting to ¥5,064 million resulting from the early retirement of certain employees,
impairment losses on long-lived assets and goodwill of ¥13,866 million.
Research and Development
Research and development expenses represent a significant portion of Advantest’s annual operating expenses. Advantest’s
research and development expenses were ¥29,509 million, ¥30,507 million and ¥23,713 million or 12.6%, 16.7% and 30.9% of net
sales, in fiscal 2006, 2007 and 2008, respectively.
Personnel
In fiscal 2008, Advantest accepted applications for early retirement in order to optimize the number of employees in the
Advantest group. As a result, as of March 31, 2009, Advantest had a total of 3,187 full-time employees, a decrease of 479 persons, or
13.1%, compared to that of March 31, 2008.
Advantest plans to continue its periodic recruitment of new graduates as part of its mid- to long-term growth strategy. Advantest
expects that a majority of these new hires will join the Semiconductor and Component Test System Segment and Mechatronics
System Segment to support the growth of Advantest’s businesses. Other new hires are expected to join Advantest’s maintenancesupport division or administrative divisions. The addition of these new hires may increase Advantest’s future selling, general andadministrative expenses and its research and development expenses.
Currency Fluctuations
Advantest is affected to some extent by fluctuations in foreign currency exchange rates. Advantest is principally exposed tofluctuations in the value of the Japanese yen against the U.S. dollar and currencies of other countries where Advantest does business.
Advantest’s consolidated financial statements, which are presented in Japanese yen, are affected by foreign currency exchange
fluctuations through both translation risk and transaction risk.
Translation risk is the risk that Advantest’s consolidated financial statements for a particular period or for a particular date will
be affected by changes in the prevailing exchange rates of the currencies in which subsidiaries of the Company prepare their financial
statements against the Japanese yen. Even though the fluctuations of currencies against the Japanese yen can be substantial and,
therefore, significantly impact comparisons with prior accounting periods and among various geographic markets, the translation
effect is a reporting consideration and does not reflect Advantest’s underlying results of operations.

29

Transaction risk is the risk that the currency structure of Advantest’s costs and liabilities will deviate from the currency structureof sales proceeds and assets. Advantest produces substantially all of its products, including all semiconductor and component test
systems, in Japan. A small portion of the components and parts used in Advantest’s semiconductor and component test systems ispurchased in currencies other than the Japanese yen, predominantly the U.S. dollar.
Advantest enters into foreign exchange forward contracts to reduce its transaction risk. This has reduced, but not eliminated, theeffects of foreign currency exchange rate fluctuations against the Japanese yen, which in some years can be significant.
Generally, the weakening of the Japanese yen against other foreign currencies, particularly the U.S. dollar, has a positive effecton Advantest’s operating income and net income. The strengthening of the Japanese yen against other foreign currencies, particularly
the U.S. dollar, has the opposite effect. From fiscal 2006 to fiscal 2007, as a whole, the Japanese yen strengthened significantly against
the U.S. dollar, with the exchange rate moving from the ¥120 mark to around ¥100. In the first half of fiscal 2008, the Japanese yen
weakened, moving from the ¥100 to the dollar mark to around ¥110 to the dollar. In the latter half of fiscal 2008, the Japanese yen
strengthened rapidly, with the U.S. dollar depreciating below ¥90 to the dollar at one point, but subsequently, the Japanese yen
depreciated to the range between ¥95 and ¥100 to the dollar toward the end of the fiscal year.
Advantest’s business is subject to risks associated with doing business internationally, and its business could be impacted bycertain governmental, economic, fiscal, monetary, taxation or political policies or factors, including trade protection measures andimport or export licensing requirements, that may materially affect, directly or indirectly, Advantest’s operations or its future results.
Measures to Improve Business Performance
To respond to further capital spending cuts by semiconductor manufacturers and the likelihood of Advantest’s operating
environment remaining weak for a prolonged period, Advantest has implemented initiatives for structural reform to reinforce
management structure while maintaining financial strength. Such measures include workforce optimization, the integration of four
manufacturing subsidiaries, the integration of four software development subsidiaries, ongoing review of underperforming businesssegments, exploration of and investment into new businesses, payroll cost reductions and the consolidation and closing of offices andother facilities.
Critical Accounting Policies and Estimates
Advantest has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosureof contingent assets and liabilities in preparing its consolidated financial statements in conformity with U.S. GAAP. Criticalaccounting policies are accounting policies that require the application of management’s most difficult, subjective or complex
judgments and often require management to make estimates about the effect of matters that are inherently uncertain and may change
in subsequent periods. The following is not intended to be a comprehensive list of all of Advantest’s accounting policies. Advantest’ssignificant accounting policies are more fully described in note 1 to Advantest’s consolidated financial statements included elsewherein this annual report. In many cases, U.S. GAAP specifically dictates the accounting treatment of a particular transaction, with no needfor judgment in its application. There are also areas in which management’s judgment in selecting an available alternative could
produce materially different results. Set forth below is a description of accounting policies under U.S. GAAP that Advantest has
identified as critical to understanding its business and the reported financial results and condition of the Company.
Revenue Recognition
Advantest recognizes revenue when there is persuasive evidence of an arrangement, delivery has occurred or the services havebeen rendered, the sales price is fixed or determinable and collection of the related receivable is reasonably assured in accordance withthe guidance provided by the Securities and Exchange Commission’s Staff Accounting Bulletin No.104, “Revenue Recognition”.
For equipment sales involving software that is more than incidental to the product, revenue is recognized when persuasive
evidence of an arrangement exists, delivery has occurred, the sales price is fixed or determinable, and collection of the related
receivable is probable in accordance with American Institute of Certified Public Accountant (“AICPA”) Statement of Position(“SOP”) No.97-2, “Software Revenue Recognition”, as amended by SOP No.98-9, “Modification of SOP 97-2, Software Revenue
Recognition, With Respect to Certain Transactions”. Revenue for the separate elements is only recognized when the functionality of
the undelivered element is not essential to the delivered element.
Sales of Products
Sales of products which require installation are recognized when the related installation is completed and other sales recognition
criteria are met since the installation is essential to the functionality of the equipment. When customer acceptance is uncertain,
revenue is deferred until customer acceptance has been received. When the final payment is subject to customer acceptance, a portionof revenue for the final payment is deferred until an enforceable claim has become effective.
30

Sales of products and component which do not require installation service by Advantest is recognized upon shipment if theterms of the sale are free on board (FOB) shipping point or upon delivery if the terms are FOB destination which coincide with thepassage of title and risk of loss.
Long-term Service contracts
Revenue from fixed-price, long-term service contracts is recognized on the straight-line basis over the contract term.
Leasing Income
Revenue from operating leases is primarily recognized on the straight-line basis over the lease term.
Multiple deliverablesMultiple Deliverables are accounted for under the Emerging Issues Task Force Issue No. 00-21 (“EITF 00-21”), “Revenue
Arrangements with Multiple Deliverables” or SOP 97-2, “Software Revenue Recognition”.
Advantest obtains and utilizes objective evidence (Vendor-Specific Objective Evidence (VSOE) when SOP 97-2 is applicable)of fair value to allocate revenue to elements in multiple element arrangements and recognizes revenue when the criteria for revenue
recognition have been met for each element. If the criteria are not met, then revenue is deferred until such criteria are met or until the
period(s) over which the last undelivered element is delivered. In the absence of objective evidence of fair value of a delivered
element, Advantest allocates revenue to the fair value of the undelivered constituent elements and the residual revenue to the delivered
elements. The price charged when an element is sold separately generally determines fair value.
Income Taxes
Advantest recognizes the financial statement effects of tax positions when they are more likely than not, based on technicalmerits, that the tax positions will be sustained upon examination by the tax authorities. Benefits from tax positions that meet the morelikely-than-not recognition threshold are measured at the largest amount of benefit that is greater than 50 percent likely of being
realized upon settlement. Advantest recognizes interest and penalty accruals related to unrecognized tax benefits in income taxes in
the consolidated statement of operations.
Inventories
Advantest’s inventories consist of on-hand inventory, including inventory located at customer sites, and inventory that is onorder and subject to a contract that is non-cancelable. Advantest states its inventories at the lower of cost or market. Cost is determinedusing the average cost method. Advantest determines the market for finished goods by determining net realizable value and for raw
materials by identifying replacement cost. Advantest reviews its inventories and determines the appropriate amount of any inventory
write-downs periodically based on these reviews. Write-downs occur from the discontinuation of product lines, inventory in excess of
estimated usage, the release of new products which renders inventory obsolete and declines in net realizable value of Advantest’s
inventory leased to customers. Advantest recognizes inventory write-downs in cost of sales.
Advantest’s inventories decreased by ¥17,086 million, or 63.7%, during fiscal 2008 to ¥9,737 million as of March 31, 2009.
This decrease is largely attributed to Advantest recording an increased inventory write-down of ¥8,715 million on excess and obsolete
inventory due to inventory reductions reflecting the decrease in net sales and the promotion of the just-in-time production system, andthe rapid market deterioration. Advantest may be required to take additional charges for excess and obsolete inventory in fiscal 2009or other future periods if future weakness in its businesses causes further reductions to Advantest’s inventory valuations. In addition,
unexpected changes in testing technology can render Advantest’s inventories obsolete. Advantest evaluates its inventory levels basedon its estimates and forecasts of demand for its products.
Property, Plant and Equipment
Property, plant and equipment is stated at cost.
Depreciation has been computed principally using the declining-balance method for the Company and its domestic subsidiaries.
The straight-line method over estimated useful lives of the assets is used for foreign subsidiaries.

31

On April 1, 2007, the Company and its domestic subsidiaries elected to change the declining-balance method of depreciatingmachinery and equipment as well as tools, furniture and fixtures from the fixed-percentage-on-declining base application to the 250%
declining balance application. Estimated salvage values have also been reduced in conjunction with this change. The Company and its
domestic subsidiaries believe that the 250% declining balance application is preferable because it provides a better matching of
allocation of cost of machinery and equipment as well as tools, furniture and fixtures with associated revenue in light of product life
cycles. In accordance with SFAS No. 154 “Accounting Changes and Error Corrections—a replacement of APB Opinion No. 20 and
SFAS No.3”, this change in depreciation method represents a change in accounting estimate effected by a change in accounting
principle. Accordingly, the effects of the change are accounted for prospectively beginning with the period of change and prior period
results have not been restated. The change in depreciation method caused decreases in income before income taxes and equity inearnings of affiliated company and net income by ¥861 million and ¥513 million, respectively, for the year ended March 31, 2008.
Basic net income per share and diluted net income per share decreased by ¥2.82 and ¥2.81, respectively, for the year ended March 31,
2008.
The depreciation period for significant assets ranges from 15 years to 50 years for buildings, 4 years to 10 years for machineryand equipment, and 2 years to 5 years for tools, furniture and fixtures.
Depreciation expense was ¥7,583 million, ¥8,216 million and ¥8,035 million for the years ended March 31, 2007, 2008 and2009, respectively.
Impairment of Long-Lived Assets
Advantest evaluates the impairment of long-lived assets in accordance with the provisions of SFAS No. 144 “Accounting for the
Impairment of Disposal of Long-Lived Assets”. SFAS No. 144 requires that long-lived assets and certain identifiable intangibles withdefinite useful lives be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of anasset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of anasset to future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, theimpairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets.
During the fourth quarter of the year ended March 31, 2009, Advantest made significant adverse changes to its business forecast
and cash flows to be generated by its test systems for non memory semiconductor business and mechatronics semiconductor businessin the future mainly reflecting the deteriorated semiconductor markets including bankruptcy of major semiconductor manufacturers aswell as in anticipation for a delayed recovery in the market. Accordingly, Advantest evaluated the ongoing value of the long-lived
assets, including buildings, machinery and equipment, related to its test systems for non memory semiconductor business andmechatronics business. Based on this evaluation, Advantest determined that long-lived assets were no longer recoverable and were infact impaired, and wrote them down to their estimated fair value. The amounts of the impairment losses for those long-lived assets
included in cost of sales and operating expenses in the accompanying consolidated statements of operations are ¥5,142 million and¥7,943 million, respectively. Fair value was measured mainly based on expected future cash flows to be generated by those asset
groups , discounted at the risk-free interest rate.
Trade Receivables
Advantest’s trade receivables, less allowance for doubtful accounts was ¥10,415 million as of March 31, 2009, as comparedwith ¥30,124 million as of March 31, 2008. Advantest maintains allowances for doubtful accounts for estimated losses resulting fromthe inability of its customers to make required payments. Advantest provides an allowance for doubtful accounts for all specificaccounts receivable that it judges are probable of not being collected.
Advantest periodically reviews its estimated allowances for doubtful accounts taking into account the customer’s payment
history, assessing the customer’s current financial position and considering other information that is publicly available and thecustomer’s credit worthiness. Additional reviews are undertaken upon significant changes in the financial condition of Advantest’s
customers and the semiconductor industry.
At the end of fiscal 2008, Advantest increased its allowance for doubtful accounts by ¥540 million from fiscal 2007 to¥585 million. Increases in allowance for doubtful accounts are charged to selling, general and administrative expenses. However,additional allowances may be necessary if conditions in the industries of some of Advantest’s customers do not improve in the nearterm. Conversely, a reversal of allowances made for accounts receivable that are later collected, depending upon the recovered
financial status of its customers and Advantest’s collection efforts, will decrease the selling, general and administrative expenses forthe accounting period during which such collection takes place.
Accrued Warranty Expenses
Advantest’s products are generally subject to a product warranty. In addition, under certain circumstances, Advantest is
responsible for the repair of defective components and parts. Advantest provides an allowance for estimated product warranty
32

expenses when product revenue is recognized as part of its selling, general and administrative expenses. The allowance for estimatedproduct warranty expenses represents management’s best estimate at the time of sale of the total costs that Advantest will incur torepair or replace components or parts that fail while still under warranty. Advantest records its allowance for estimated productwarranty expenses based on the historical ratio of actual repair expenses to corresponding sales, and any facts and circumstances that
occurred. The foregoing evaluations are inherently uncertain as they require estimates as to maintenance costs and failure rates related
to different product lines. Consequently, actual warranty costs may differ from the estimated amounts and could result in additional
product warranty expenses. If actual warranty costs significantly exceed the amount of Advantest’s allowance for product warranty
expenses, it would negatively affect the future results of operations of Advantest. Accrued warranty expenses were ¥2,811 million atMarch 31, 2009, a decrease of ¥332 million from ¥3,143 million at March 31, 2008.
Stock-Based Compensation
Advantest applies the fair value recognition provision of SFAS No. 123 (revised 2004) (SFAS 123R), “Share Based Payments”,
and recognizes stock based compensation expense in the consolidated statements of operations. The fair values of the option are
estimated using a Black Scholes option pricing model and amortized to expense over the requisite service period.
Expected dividend yield is determined by the Company’s dividend ratio of the past and other associated factors. Risk freeinterest rate is determined by Japanese government bond yield for the period corresponding to expected life. Expected volatility isdetermined by historical volatility and trend of the Company’s share prices, and other associated factors. Expected life is determinedby the Company’s option exercise history, post vesting employment termination behavior for similar grants, and other pertinent
factors.
Advantest has recorded ¥248 million as stock-based compensation expense in fiscal 2008.
Accrued Pension and Severance Cost
The Company and certain of its subsidiaries have unfunded retirement and severance plans (point-based benefits system). Undera point-based benefits system, the benefits are calculated based on accumulated points allocated to employees each year according totheir job classification and their performance.
The Company and its subsidiaries also have a defined benefit corporate pension plan covering substantially all employees.
Under the cash balance pension plan, the benefits are calculated based on accumulated points allocated to employees each year
according to their job classification and their performance with a certain interest rate calculated based on the upper and lower limit ofa market interest rate.
The retirement benefit costs are estimated from actuarial valuations. Inherent in these valuations are key assumptions inestimating pension costs including mortality, withdrawal, retirement, changes in compensation, discount rate and expected return onplan assets. Advantest is required to estimate the key assumptions by taking into account various factors including personnel
demographics, current market conditions and expected trends in interest rates. Advantest determines the discount rate by looking toavailable information about rates implicit in return on high-quality fixed-income governmental and corporate bonds. Accordingly, thediscount rate is likely to change from period to period based on these ratings. A decrease in the discount rate results in an increase inactuarial pension benefit obligations. Increases and decreases in the pension benefit obligation affect the amount of the actuarial gainor loss which is amortized into income over the service lives of employees. Changes in the key assumptions may have a material
effect on Advantest’s financial position and results of operations. Management believes that estimation of the key assumptions isreasonable under the various underlying factors.
Advantest has recorded ¥1,987 million as benefit cost in fiscal 2008.
During the fourth quarter of the year ended March 31, 2009, Advantest offered its employees an early retirement programand
employees who applied for the program terminated their employment prior to March 31, 2009. Advantest recorded a voluntarytermination benefit of ¥5,064 million in accordance with the provisions of SFAS No.88 “Employers’ Accounting for Settlements andCurtailments of Defined Benefit Pension Plans and for Termination Benefits”. The termination benefit is included in Restructuring
and impairment charges in the accompanying consolidated statements of operations.

33

Deferred Tax Assets
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or
all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of
future taxable income during the periods in which those temporary differences become deductible. Management considers the future
realization of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment.
Based upon projections for future taxable income over the periods in which the deferred tax assets are deductible including
management’s expectations of future semiconductor market and semiconductor and component test systems market prospects andother factors, management believes that Advantest would not likely realize the benefits of these deductible differences, net ofvaluation allowance in fiscal 2008. The net (decrease) increase in valuation allowance for the years ended March 31, 2007, 2008 and2009 were ¥(1,263) million, ¥0, and ¥ 48,015 million, respectively.
At March 31, 2008, Advantest has recorded on its consolidated balance sheet, deferred tax assets of ¥22,622 million of which¥137 million represents net operating losses, or NOL, carryforwards available to offset future taxable income. Net operating loss
carryforwards utilized during the years ended March 31, 2007 and 2008 were ¥486 million and ¥1,046 million, respectively. There
was no utilized amount during the year ended March 31, 2009.
At March 31, 2009, Advantest has recorded net deferred tax assets of ¥1,577 million on its consolidated balance sheet.
Management believes it is more likely than not that Advantest will realize the benefits of these deductible differences. The amount of
the deferred tax assets considered realizable, however, could be reduced in the near term if estimates of future taxable income are
reduced and the effect on its consolidated financial position and results of operations would be significant.
Results of Operations—Fiscal 2008 Compared with Fiscal 2007
Net Sales
Advantest’s net sales decreased by ¥106,115 million, or 58.1%, compared with fiscal 2007, to ¥76,652 million in fiscal 2008.
This decrease was primarily due to the restraint in capital expenditures within the Semiconductor and Component Test System
Segment resulting from the significant decline of prices of DRAM semiconductors and economic downturn of the global economy.
The estimated effect of changes in exchange rates during fiscal 2008 was to decrease Advantest’s net sales by ¥3,050 million.
The following is a discussion of net sales for Advantest’s Semiconductor and Component Test System, Mechatronics System
and Services, Support and Others Segments. Net sales amounts discussed include intercompany sales between segments.
Semiconductor and Component Test System Segment
In fiscal 2008, net sales of Advantest’s Semiconductor and Component Test System Segment accounted for 64.2% of total net
sales. Net sales of Advantest’s Semiconductor and Component Test System Segment decreased by ¥82,392 million, or 62.6%,
compared with fiscal 2007, to ¥49,216 million in fiscal 2008. The estimated effect of changes in exchange rates during fiscal 2008 was
to decrease Advantest’s net sales in its Semiconductor and Component Test System Segment by ¥1,944 million.
Net sales of test systems for memory semiconductors decreased by ¥75,252 million, or 81.0%, compared with fiscal 2007 to¥17,644 million in fiscal 2008. This decrease was mainly due to lower than expected demand for Advantest’s DRAM semiconductor
test systems for super high-speed memory devices, the T5500 series test systems and for the front-end testing systems, T5300 series
test systems, primarily due to lower capital expenditures by semiconductor manufacturers resulting from falling DRAM
semiconductors prices. Test systems for flash memory semiconductors also suffered from weak sales, led by lower capital
expenditures by semiconductor manufacturers resulting from a substantial decline of flash memory semiconductors prices.
Net sales of test systems for non memory semiconductors decreased by ¥7,140 million, or 18.4%, compared with fiscal 2007 to¥31,572 million in fiscal 2008. This decrease was reflecting weak sales, primarily in Japan, Korea and Taiwan, of T6500 series test
systems for SoC semiconductors and the T6300 series test systems for non memory semiconductors used for LCD driver ICs, affectedby price competition of digital consumer devices.
Mechatronics System Segment
Net sales of the Mechatronics System Segment including test handlers and device interfaces decreased by ¥20,556 million, or
58.8%, compared to fiscal 2007 to ¥14,388 million in fiscal 2008.
The weak results for test systems for memory and non memory semiconductors also weakened demand for test handlers anddevice interface products, which are used together with semiconductor and component test systems. In particular, the downturn in the
DRAM market led to a significant decline in demand for back-end test handlers.

34Services, Support and Other Segment
Net sales of the Services, Support and Other Segment decreased by ¥3,529 million, or 18.2%, compared with fiscal 2007 to¥15,815 million in fiscal 2008, due to a decline in demand for maintenance services reflecting the weak performance of thesemiconductor market. Main businesses in the Services, Support and Others Segment for fiscal 2008 include maintenance services andleases and rentals.
Geographic Markets
Advantest experienced a decrease of 58.1% in its net sales in fiscal 2008, which was greatly affected by decline in sales,
especially in Taiwan, Japan and Korea.
Net sales in Japan decreased by ¥31,298 million, or 55.9%, compared with fiscal 2007 to ¥24,734 million in fiscal 2008. Thisdecrease was primarily due to weak sales of test systems for non memory semiconductors used for digital consumer device ICs,
affected by the decrease in capital expenditure by semiconductor manufacturers in light of the increase in uncertainty pertaining to
demands for end products stemming from further slowdown of the economy.
Net sales in the Americas increased by ¥2,143 million, or 22.3%, compared with fiscal 2007 to ¥11,759 million in fiscal 2008.
This increase was primarily due to steady demand of major semiconductor manufacturers for T2000 modules. The estimated effect ofchanges in exchange rates during fiscal 2008 with the appreciation of the Japanese yen against the U.S. dollar was to decrease
Advantest’s net sales in the Americas by approximately ¥1,056 million.
Net sales in Europe decreased by ¥6,015 million, or 67.9%, compared to fiscal 2007 to ¥2,844 million in fiscal 2008 mainly due
to the decrease in the sales of test systems for memory semiconductors. The estimated effect of changes in exchange rates during fiscal
2008 was to decrease Advantest’s net sales in Europe by approximately ¥219 million.
Net sales in Asia (excluding Japan) decreased by ¥70,945 million, or 65.5%, compared with fiscal 2007 to ¥37,315 million in
fiscal 2008. Net sales in Korea and Taiwan decreased by ¥21,893 million, or 60.9% and, by ¥45,882 million, or 81.8%, compared withfiscal 2007, respectively. This decrease was primarily due to restraint in capital expenditures by semiconductor manufacturers
resulting from decline in prices of DRAM semiconductors. Net sales in China and the rest of Asia (excluding Japan, Taiwan and
Korea) decreased by ¥3,170 million, or 19.6%, compared with fiscal 2007. This decrease resulted from lower sales of test systems formemory semiconductors in China. The estimated effect of changes in exchange rates during fiscal 2008 was to decrease Advantest’s
net sales in Asia by approximately ¥1,723 million.
Advantest’s overseas sales as a percentage of total sales was 67.7% for fiscal 2008, compared with 69.3% for fiscal 2007.
Operating Expenses
In fiscal 2008, Advantest’s operating expenses decreased by ¥33,942 million, or 21.2%, compared with fiscal 2007 to¥126,109 million.
In fiscal 2008, cost of sales decreased by ¥32,000 million, or 36.0%, compared to fiscal 2007 to ¥56,837 million. This decrease
was attributed to the decrease of ¥106,115 million in net sales, however, this has been partially offset by inventory write-down and
one-time expenses relating to the structural reform, such as impairment loss on long-lived assets of ¥13,857 million as well as by thedeterioration of sales cost ratio primarily resulting from lowered capacity utilization reflecting drop in sales and changes in productmix.
In fiscal 2008, research and development expenses decreased by ¥6,794 million, or 22.3%, compared to fiscal 2007 to¥23,713 million. This decrease in research and development expenses reflects the narrowing down of research and development
projects as well as the decrease in personnel expenses achieved through non-renewal of contracts for temporary employees.
In fiscal 2008, selling, general and administrative expenses decreased by ¥8,936 million, or 22.0%, compared to fiscal 2007 to¥31,771 million. This decrease primarily reflects the effects of the decrease in personnel expenses achieved through non-renewal ofcontracts for temporary employees.
In fiscal 2008, Advantest recorded a one-time expense for restructuring and impairment loss in an amount of ¥13,788 million.
This amount is comprised of restructuring and impairment loss on long-lived assets of ¥8,724 million and costs related to the early
retirement program amounting to ¥5,064 million.
Operating Income
In fiscal 2008, operating income decreased by ¥72,173 million, compared to fiscal 2007, to a loss of ¥49,457 million.
35

Other Income and Expenses
In fiscal 2008, interest and dividend income decreased by ¥1,642 million, or 43.2%, compared with fiscal 2007 to¥2,157 million. This decrease was due to the decrease in interest income caused primarily by a decline in U.S. dollar interest rates.
In fiscal 2008, interest expenses decreased by ¥1 million, or 8.3% compared with fiscal 2007 to ¥11 million.
In fiscal 2008, impairment loss on investment securities increased by ¥2,179 million compared with fiscal 2007 to¥3,510 million reflecting the decline in stock prices stemming from the financial crisis.
In fiscal 2008, other, net decreased by ¥301 million, compared with fiscal 2007, to a loss of ¥1,940 million. This decrease in
non-operating income was primarily due to an increase in foreign currency exchange losses by ¥416 million compared with fiscal
2007 to ¥2,296 million in fiscal 2008, reflecting the sharp appreciation of the Japanese yen against the Euro. Currency exchange losses
represent the difference between the value of foreign currency-denominated sales, translated at prevailing exchange rates, and either(i) the value of sales amounts settled during the year, including those settled using foreign exchange forward contracts, or (ii) the valueof accounts receivable and payables outstanding remeasured at the exchange rate in effect at March 31, 2009.
Income Taxes
In fiscal 2008, Advantest’s effective tax rate was negative 41.7%, as the Company did not record tax benefits on pretax losses
while that tax rate for fiscal 2007 was 29.3%. The statutory tax rate of the Company and its domestic consolidated subsidiaries was
40.4% for fiscal 2008. The difference between the statutory tax rate of 40.4% in fiscal 2008 and the effective tax rate of negative
41.7% in fiscal 2008 was due to the difference of applicable amount of valuation allowance for deferred tax assets and the availabilityof tax credits for research and experimental expenses. For a more detailed discussion on income taxes of Advantest in fiscal 2008 andfiscal 2007, see note 12 to Advantest’s consolidated financial statements.
Net Income
In fiscal 2008, Advantest’s net income decreased by ¥91,452 million, compared to fiscal 2007, to a loss of ¥74,902 million.
Other Comprehensive Income (Loss)
In fiscal 2008, Advantest’s other comprehensive income (loss), net of tax increased by ¥4,295 million, compared to fiscal 2007,
to a loss of ¥6,972 million. This increase was primarily due to a ¥5,052 million increase in foreign currency translation adjustment
from a loss of ¥6,845 million in fiscal 2007 to a loss of ¥1,793 million in fiscal 2008, which was partially offset by a loss of¥4,935 million in pension liability adjustments. No tax benefit was recorded on the loss of pension liability adjustments.
Results of Operations—Fiscal 2007 Compared with Fiscal 2006
Net Sales
In fiscal 2007, Advantest’s net sales decreased by ¥52,245 million, or 22.2%, compared with fiscal 2006, to ¥182,767 million.
This decrease was primarily due to the restraint in capital expenditures within the Semiconductor and Component Test System
Segment resulting from the significant decline of prices of DRAM semiconductors reflecting weak sales of products such as personal
computers. The estimated effect of changes in exchange rates during fiscal 2007 was to decrease Advantest’s net sales by ¥427 million.
The following is a discussion of net sales for Advantest’s Semiconductor and Component Test System, Mechatronics System
and Services, Support and Others Segments. Net sales amounts discussed include intercompany sales between segments.
Semiconductor and Component Test System Segment
In fiscal 2007, net sales of Advantest’s Semiconductor and Component Test System Segment accounted for 72.0% of total net
sales. Net sales of Advantest’s Semiconductor and Component Test System Segment decreased by ¥36,207 million, or 21.6%,
compared with fiscal 2006, to ¥131,608 million in fiscal 2007. The estimated effect of changes in exchange rates during fiscal 2007
was to decrease Advantest’s net sales from its Semiconductor and Component Test System Segment by ¥277 million.
In fiscal 2007, Net sales of test systems for memory semiconductors decreased by ¥16,645 million, or 15.2%, compared withfiscal 2006 to ¥92,896 million. This decrease was mainly due to lower than expected demand for Advantest’s DRAM semiconductor
test systems for super high-speed memory devices, the T5500 series test systems, and the front-end testing systems comprised of
T5300 series test systems, mainly due to lower capital expenditures by semiconductor manufacturers resulting from falling DRAM
semiconductors prices. Test systems for flash memory semiconductors also suffered from weak sales, led by lower capital
expenditures by semiconductor manufacturers resulting from a substantial decline of flash memory semiconductors prices.
36

In fiscal 2007, net sales of test systems for non memory semiconductors decreased by ¥19,562 million, or 33.6%, compared withfiscal 2006 to ¥38,712 million. This decrease was mainly due to a decrease in sales of T2000 series test systems for non memory
semiconductors, based on OPENSTAR®, primarily in the U.S. throughout fiscal 2007. This decrease also reflected weak sales,
primarily in Japan, Korea and Taiwan, of T6500 series test systems for SoC semiconductors and the T6300 series test systems for non
memory semiconductors used for LCD driver ICs, affected by price competition of digital consumer devices.
Mechatronics System Segment
In fiscal 2007, net sales of the Mechatronics System Segment such as test handlers and device interfaces decreased by¥17,081 million, or 32.8%, compared to fiscal 2006 to ¥34,944 million.
The sales of test handlers for memory semiconductors were weak primarily due to lower market demand for DRAM
semiconductors and flash memory semiconductors. Sales of test handlers for non memory semiconductors were also weak mainly due
to the lower sales of semiconductor test systems aimed at digital consumer devices.
Services, Support and Other Segment
Net sales of the Services, Support and Other Segment increased by ¥1,032 million, or 5.6%, compared with fiscal 2006 to¥19,344 million in fiscal 2007. Main businesses in the Services, Support and Others Segment for fiscal 2007 include maintenanceservices and leases and rentals.
Geographic Markets
Advantest experienced a decrease of 22.2% in its net sales in fiscal 2007, which was greatly affected by decline in sales,
especially in Japan and Korea.
Net sales in Japan decreased by ¥16,802 million, or 23.1%, compared with fiscal 2006 to ¥56,032 million in fiscal 2007. Thisdecrease was primarily due to weak sales of T6500 series test systems for SoC semiconductors and test systems for non memory
semiconductors used for LCD driver ICs, affected by price competition of digital consumer devices.
Net sales in the Americas decreased by ¥542 million, or 5.3%, compared with fiscal 2006 to ¥9,616 million in fiscal 2007. Thisdecrease was mainly due to lower sales of test systems for memory semiconductors and test systems for non memory semiconductors
to major semiconductor manufactures throughout fiscal 2007, as well as the impact of a strong Japanese yen. The estimated effect ofchanges in exchange rates during fiscal 2007 was to decrease Advantest’s net sales from sales in the Americas by approximately ¥242
million.
Net sales in Europe decreased by ¥2,379 million, or 21.2%, compared to fiscal 2006 to ¥8,859 million in fiscal 2007. The salesof test systems for memory semiconductors and non memory semiconductors decreased in Europe. The estimated effect of changes inexchange rates during fiscal 2007 was to increase Advantest’s net sales from sales in Europe by approximately ¥25 million.
Net sales in Asia (excluding Japan) decreased by ¥32,522 million, or 23.1%, compared with fiscal 2006 to ¥108,260 million in
fiscal 2007. Net sales in Korea and Taiwan decreased by ¥15,210 million, or 29.7%, by ¥6,976 million, or 11.1%, compared withfiscal 2006, respectively. This decrease was primarily due to restraint in capital expenditures by semiconductor manufacturers
resulting from decline of prices of DRAM semiconductors. Net sales in China and the rest of Asia (excluding Japan, Taiwan and
Korea) decreased by ¥10,336 million, or 39.0%, compared with fiscal 2006. This decrease is the result of lower sales of test systems
for non memory semiconductors to major semiconductor manufacturers in Singapore and Malaysia. The estimated effect of changes inexchange rates during fiscal 2007 was to decrease Advantest’s net sales from sales in Asia by approximately ¥50 million.
Advantest’s overseas sales as a percentage of total sales became 69.3% for fiscal 2007, compared with 69.0% for fiscal 2006.
Operating Expenses
In fiscal 2007, Advantest’s operating expenses decreased by ¥18,169 million, or 10.2%, compared with fiscal 2006 to¥160,051 million.
In fiscal 2007, cost of sales decreased by ¥19,881 million, or 18.3%, compared to fiscal 2006 to ¥88,837 million. This decrease
was attributed to the decrease of ¥52,245 million in net sales which was partially offset because of decline of sales cost ratio resulting
from deterioration of capacity utilization reflecting product mix and drop in sales.
In fiscal 2007, research and development expenses increased by ¥998 million, or 3.4%, when compared to fiscal 2006, to¥30,507 million. This rise in research and development expenses reflects additional resources required for the increased research anddevelopment themes for future products as well as to increased expenses for research and development subcontractors.
37

In fiscal 2007, selling, general and administrative expenses increased by ¥714 million, or 1.8%, compared to fiscal 2006 to¥40,707 million. This increase was primarily due to an increase of expenses for maintenance and support.
Operating Income
In fiscal 2007, operating income decreased by ¥34,076 million, compared to fiscal 2006, to ¥22,716 million.
Other Income and Expenses
In fiscal 2007, interest and dividend income increased by ¥773 million, or 25.5%, compared with fiscal 2006 to ¥3,799 million.
This increase was primarily due to the increase in interest income reflecting an increase in interest rates in Japan.
In fiscal 2007, interest expenses decreased by ¥4 million, or 25.0%, compared with fiscal 2006 to ¥12 million primarily due topayoff of the debt.
In fiscal 2007, other, net decreased by ¥4,258 million, compared with fiscal 2006, to ¥2,970 million. This decrease in nonoperating income was primarily due to foreign currency exchange losses of ¥1,880 million in fiscal 2007, reflecting the sharp
appreciation of the Japanese yen against the U.S. dollar, instead of ¥1,323 million foreign currency exchange gains in fiscal 2006 to¥1,880 million in fiscal 2007, and an increase in impairment of investment securities by ¥1,061 million compared with fiscal 2006 to¥1,331 million in fiscal 2007. This represents the difference between the value of foreign currency-denominated sales translated at
prevailing exchange rates and either (i) the value of sales amounts settled during the year, including those settled using foreignexchange forward contracts, or (ii) the value of accounts receivable and payables outstanding remeasured at the exchange rate in effectat March 31, 2008.
Income Taxes
In fiscal 2007, Advantest’s effective tax rate was 41.8% in fiscal 2006 and 29.3%. The statutory tax rate of the Company and its
domestic consolidated subsidiaries was 40.4% for fiscal 2007. The difference between the statutory tax rate of 40.4% in fiscal 2007
and the effective tax rate of 29.3% in fiscal 2007 was mainly due to the difference of applicable tax rate for overseas subsidiaries andthe availability of tax credits for research and development expenses.
Net Income
In fiscal 2007, Advantest’s net income decreased by ¥19,006 million, or 53.5%, compared to fiscal 2006, to ¥16,550 million.
The change in net income for fiscal 2007 compared to fiscal 2006 reflects the factors discussed above.
Other Comprehensive Income (Loss)
In fiscal 2007, Advantest’s other comprehensive income (loss), net of tax decreased by ¥12,028 million, compared to fiscal 2006,
to a loss of ¥11,267 million. This decrease was mainly due to a ¥7,968 million decrease in foreign currency translation adjustment
from a gain of ¥1,123 million in fiscal 2006 to a loss of ¥6,845 million in fiscal 2007 as the Japanese yen strengthened against the U.S.
dollar, a loss of ¥2,362 million primarily due to pension liability adjustments, as well as a net unrealized loss on marketable securitiesof ¥2,058 million stemming from the credit crisis associated with sub-prime loans in the United States.
5.B.

LIQUIDITY AND CAPITAL RESOURCES

Advantest’s cash and cash equivalents balance decreased by ¥41,893 million in fiscal 2008 to ¥105,455 million as of March 31,
2009. Of the foregoing decrease, ¥25,114 million was mainly due to a purchase short-term investments comprised of highly liquid
investments with a maturity greater than three months from the date of purchase. As of March 31, 2009, 77.8% of Advantest’s cash
and cash equivalents were held in Japanese yen.
Net cash provided by operating activities was ¥2,357 million in fiscal 2008. This amount was primarily attributable to adecrease of ¥19,323 million in trade receivables resulting from a decrease of sales, a decrease of ¥17,816 million in inventories and an
adjustment of non-cash items such as deferred income taxes, impairment charges and depreciation and amortization, despite the net
loss being ¥74,902 million. A primary factor for the decrease of ¥21,809 million from ¥24,166 million in fiscal 2007 was the decreasein net income by ¥91,452 million, resulting in a net loss of ¥74,902 million. The decrease, however, has been offset by the increase in
expenses for non-cash items such as deferred income taxes and impairment cost.

38

Net cash used in investing activities was ¥32,507 million in fiscal 2008 mainly attributable to a purchase in short-term
investments in the amount of ¥26,210 million and purchases of property, plant and equipment in the amount of ¥4,909 million. Net
cash used in investing activities in fiscal 2008 increased by ¥16,185 million from ¥16,322 million used in fiscal 2007. The increasereflects a purchase of short-term investments in fiscal 2008 amounting to ¥26,210 million. Purchases of property, plant and equipment
was ¥11,994 million in fiscal 2007 which included the construction of Sendai Factory A, however, purchases of property, plant andequipment decreased by ¥7,085 million to ¥4,909 million in fiscal 2008.
Net cash used in financing activities was ¥8,930 million in fiscal 2008, mainly attributable to dividends paid in the amount of¥8,924 million. Net cash used in financing activities in fiscal 2008 was a ¥37,840 million decrease compared to ¥46,770 million in
fiscal 2007. The main reason for the decrease in fiscal 2008 was the acquisition of treasury stock at a cost of ¥6 million in fiscal 2008
which was ¥36,564 million in fiscal 2007.
Net effect of exchange rate changes on cash and cash equivalents was unfavorable by ¥2,813 million in fiscal 2008, an
improvement of ¥7,308 million compared to fiscal 2007.
Advantest has various retirement and severance plans for employees, including non-contributory defined benefit retirement andseverance plans consisting primarily of the EPF plan. As mentioned in Note 15 to the consolidated financial statements, in the balance
sheet as of March 31, 2009, the amount of ¥13,996 million has been recognized as accrued severance and pension costs. Advantest hascontributed to the EPF plan in accordance with the funding requirements of applicable Japanese governmental regulations. Although
there is presently no immediate or significant near-term increase expected in cash funding requirements, Advantest’s cash funding
requirements would be affected by any changes in interest rates, rate of returns on plan assets and government regulations. The
contributions paid by Advantest under the EPF were ¥2,227 million in fiscal 2007 and ¥1,791 million in fiscal 2008.
Advantest’s funding and treasury policy (including funding for capital expenditures), which is overseen and controlled by its
Finance Department, has funded and is expected to continue to fund substantially all of its cash needs through cash from operating
activities and cash and cash equivalents on hand. If conditions in the semiconductor industry, and thus the semiconductor andcomponent test system industry, experience a downturn in the medium term, Advantest may need to fund future capital expendituresand other working capital needs through the incurrence of additional debt or dilutive issuances of equity securities.
5.C.

RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES

Research and Development and Product Enhancement
In order to support technology on the leading-edge, Advantest undertakes research and development initiatives to develop
products which play a central role in the area of measuring technologies to support electronics, information and communications, andsemiconductor manufacturing. Advantest’s research and development focuses on the development of new products and theimprovement of existing products. In particular, in the Semiconductor and Component Test System Segment, a large and ongoinginvestment in research and development is necessary in order to maintain market competitiveness and to provide many types of
products that meet the various needs of the customers. Advantest also conducts research of basic technologies. Advantest’s
expenditures for research and development were approximately ¥29.5 billion in fiscal 2006, ¥30.5 billion in fiscal 2007 and¥23.7 billion in fiscal 2008. Advantest employs over 1,000 engineers and other personnel in its research and development division.
The contents and achievements to date of Advantest’s current research and development activities include:
Basic Technology•

development of constituent technologies in the field of terahertz;•

development of constituent technologies, including high speed, energy-saving micro switches and high speed samplers usedin semiconductor and component test systems and millimeter wave measuring instruments;•

development of methods to detect timing jitters in high bit-rate signals; and•development of compound semiconductor devices, including less-distortion devices used for semiconductor and component
test systems.

Semiconductor and Component Test System Segment•

development of semiconductor and component test systems that enable testing of super high speed memory semiconductors
at actual motion speed;•

development of semiconductor and component test systems that enhance the functionality of testing of DRAM
semiconductors and flash memory semiconductors and require less floor space;39•development of semiconductor and component test systems that have the capacity to simultaneously test multiple complex
SoC semiconductors with large pin counts and require less floor space;•development of semiconductor and component test systems with specialized applications;•development of measurement modules for devices that operate at extremely high frequencies and for networks that carryextremely high density transmissions;•development of high speed transmission technologies for high speed large pin counts and high speed transmission signal
contact technologies; and•development of application software for interface between the semiconductor designing environment and semiconductor
and component test systems, as well as development of software to analyze defective semiconductors.

Mechatronics System Segment•

development of test handlers for memory semiconductors enabling measuring of multiple semiconductors for highthroughput testing;•development of test handlers for SoC semiconductors that respond to diversified device types and packages; and•development of real Active Thermal Control technology with high speed response for high power devices.

Advantest has four research and development facilities in Japan, two in the U.S. and two in the Europe.
Advantest promotes joint development efforts between its various research facilities to capitalize on the capabilities of its
researchers worldwide. Advantest’s research and development team for semiconductor and component test systems in Japan works
closely with Advantest engineers in Santa Clara, California in the development of open architecture platforms.
Advantest has been carrying out research and development activities for its burn-in system, concentrating its development
resources on Japan Engineering Co., Ltd, a subsidiary of Advantest.
Advantest is currently engaged in the research and development of electron-beam, or e-beam, lithography technology used to
draw circuit patterns directly on semiconductor wafers, as well as the research and development of electron-beam length measuringsystems used to measure the microscopic size of the circuit pattern of a photomask. Due to their throughput limitations, e-beamlithography systems are currently only used in the production of high value-added semiconductors with limited production volumes
and semiconductor prototypes. Advantest believes that further research and development will be necessary in order to attain highprecision technologies for the leading semiconductor design and manufacturing process, in addition to the development oftechnologies for throughput responding to the demand for next generation equipment.
For a description of Advantest’s patents, licenses and other intellectual property, see “Information on the Company—Business
Overview—Licenses and Intellectual Property Rights.”
5.D.

TREND INFORMATION

For a discussion of the trends that affect Advantest’s business and financial condition and results of operations, see “Informationon the Company—Business Overview,” “Operating and Financial Review—Operating Results” and “Operating and Financial Review
and—Liquidity and Capital Resources.”
5.E.

OFF-BALANCE SHEET ARRANGEMENTS
As of March 31, 2009, Advantest had no material off-balance sheet arrangements.

Advantest does not participate in transactions that derecognize assets or liabilities through unconsolidated entities, structured
finance or special purpose entities that were created for the purpose of facilitating off-balance sheet arrangements or other limited
purposes.

40

5.F.

TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS

The following table reflects Advantest’s current obligations and commitments to make future payments under contracts,
contractual obligations and commercial commitments as of March 31, 2009.
Payments due by Period
Total

Less than
1 yearLong-Term Debt, including current portion .....................................................
Operating Leases ..............................................................................................
Contractual Obligations ....................................................................................

¥ —
1,583
5

¥—
398
5

Total Contractual Cash Obligations..................................................................

¥ 1,588¥ 403

Contractual Cash Obligation

1-3
years

3-5
years

More than
5 years

¥—
499
—

¥—
133
—

¥—
553
—

¥ 499

¥ 133

¥ 553

(in millions)

5.G.

SAFE HARBOR

All information that is not historical in nature disclosed under “Item 5. Operating and Financial Review and Prospects—OffBalance Sheet Arrangements” and “—Tabular Disclosure of Contractual Obligations” is deemed to be a forward-looking statement.
See “Cautionary Statement with Respect to Forward-Looking Statements.”
ITEM 6.
6.A.

DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEESDIRECTORS AND SENIOR MANAGEMENT

Directors, Corporate Auditors and Executive Officers
Directors, corporate auditors and executive officers of the Company as of June 25, 2009 and their respective business experience
are listed below.
Name (Date of birth)

Toshio Maruyama(April 17, 1948)

Position(Group executive/function)

Chairman of the Board andRepresentative
Director

Date ofcommencement

4/1973
6/19896/1995
6/19996/20015/20036/20035/20056/20055/20067/20083/20094/20096/2009Haruo Matsuno(February 14, 1960)

Representative Director,
President and CEO

4/19846/20066/20071/20086/20086/200941

Business experience

Joined Advantest Corporation
Director
Managing Director
Senior Managing Director
Senior Vice President, ATE Sales Group
Representative Board Director and President
Director, Environmental Management Center
Representative Board Director, President and COO
Director of Japan Electronics and Information Technology
Industries Association (present position)
Representative Board Director, President and CEO
Director of the Association of Super-Advanced Electronics
Technologies (present position)
SEMI Director (present position)
Senior Vice President, New Concept Product Initiative
Director, CSR & Environmental Affairs Promotion Center
Chairman of the Board and Representative Director(present position)
Joined Advantest Corporation
Senior Vice President, Procurement Group
Senior Vice President, Procurement & Logistics Group
Senior Vice President, Production Group
Executive Officer
Representative Director, President and CEO (present
position)
Director, CSR & Environmental Affairs Promotion Center(present position)

Name (Date of birth)

Naoyuki Akikusa(December 12, 1938)

Position(Group executive/function)

Director

Date ofcommencement

4/1961
6/1988
6/1991
6/1992
6/19986/20036/20056/20066/2008

Yasushige Hagio(November 24, 1947)

Director

4/1972
4/1982
4/1998
12/20036/20046/2006

Takashi Tokuno(October 9, 1948)

Director, Senior
Executive Officer
Business Groups

4/1971
6/19966/20006/20016/20036/20044/20056/2006
10/20076/2009Hiroshi Tsukahara(August 26, 1950)

Director, Managing
Executive Officer
Technology Promotion

4/19746/2001
11/2001
6/20036/20056/20066/20076/20086/200942

Business experience

Joined Fuji Communication Apparatus Mfg. Co., Ltd.
(currently Fujitsu Limited)
Director, Fujitsu Limited
Managing Director of Fujitsu Limited
Senior Managing Director, Fujitsu Limited
Representative Board Director and President, Fujitsu
LimitedRepresentative Board Director and Chairman of the Board,
Fujitsu Limited
Corporate Auditor of Advantest Corporation
Director, Advantest Corporation (present position)
Senior Executive Advisor and Director of Fujitsu Limited(present position)
Assistant Judge, Tokyo District Court
Judge, Tokyo District Court
Instructor, Legal Training and Research InstituteChief of the Shizuoka District Court
Registered as an attorney-at-Law
Joined Seiwa Patent office & Law (present position)
Director, Advantest Corporation (present position)
Joined Advantest Corporation
Director
General Manager, ATE Software Division
Managing Director
Vice President, ATE Business Group
Senior Vice President, ATE Business GroupManaging Executive Officer
Director, Managing Executive Officer
Product Development
Head of Test System BusinessDirector, Senior Executive Officer (present position)
Products
Products and Production
Business Groups (present position)
Senior Vice President, New Concept Product Initiative(present position)
Joined Advantest Corporation
Director
Senior Vice President, DI Business Group
General Manager, DI Business Division
Executive Officer
Director, Fujitsu Interconnect Technologies Limited
Managing Executive Officer
Senior Vice President, 1st Test System Business Group
Director, Managing Executive Officer (present position)
Technology and Development
ATE Related Businesses
Technology Promotion (present position)

Name (Date of birth)

Yuichi Kurita(July 28, 1949)

Position(Group executive/function)

Director, Managing
Executive Officer
Corporate Planning and
Administration

Date ofcommencement

4/19733/2001
10/2001
4/20026/20036/20046/2005
11/2006
6/20076/20084/20096/2009Hiroyasu Sawai(May 23, 1950)

Director, Managing
Executive Officer
Sales and Marketing

4/1974
6/1997
6/199910/2000
6/20016/20026/20036/20044/20056/20056/20084/200943

Business experience

Joined Fujitsu Limited
Joined Advantest Corporation
General Manager, Investor Relations Office
Manager, Finance Department
Executive Officer
Vice President, Corporate Affairs Group
Vice President, Corporate Affairs Group (overseeing
Finance)
Senior Vice President, Corporate Relations Group
Senior Vice President, Corporate Planning Group
Director, e-Shuttle, Inc. (present position)
Director, Managing Executive Officer (present position)
Corporate Affairs
Corporate Administration (present position)
Senior Vice President, Corporate Administration Group(present position)
Assistant Director (Administration), Environmental
Management Center
In Charge of Corporate Ethics Office (present position)
Assistant Director (Administration), CSR & Environmental
Affairs Promotion Center (present position)
Corporate Planning and Administration (present position)
Joined Advantest Corporation
General Manager of International ATE Sales Department
Director
General Manager, ATE International Account Sales
Division
Vice President, ATE Sales GroupManager, ATE Fabless Outsourcing Solution Business
Department
Executive Officer
General Manager, ATE Systems Engineering Division
Vice President, ATE Business Group (overseeing SE)
Senior Vice President, SE GroupManaging Executive Officer
Director, Managing Executive Officer (present position)
Sales and Marketing (present position)
Senior Vice President, Sales and Marketing Group (present
position)
General Manager, Sales Division 2
Leader, Memory Account Sales Initiatives (present
position)
General Manager, Sales Division 3 (present position)

Name (Date of birth)

Shinichiro Kuroe(March 30, 1959)

Position(Group executive/function)

Date ofcommencement

Director, Managing
Executive Officer
Technology Development
Group and Test System
Business Group

4/1981
3/19986/20006/20014/20022/20036/20054/2007
12/20076/20084/20096/2009Hitoshi Owada(March 26, 1946)

Standing Corporate
Auditor

2/19706/1991
6/19976/20006/20016/20036/2007

Yuri Morita(July 15, 1947)

Standing Corporate
Auditor

4/1972
1/1994
9/1995
4/19966/20006/20012/20036/20033/20044/20056/2008Megumi Yamamuro(March 8, 1948)

Corporate Auditor

4/1974
4/1984
4/1988
4/19977/2004

10/2004
6/20056/200644

Business experience

Joined Advantest Corporation
Manager, 1st Product Development Department
Manager, Memory Tester Development Department
General Manager, Memory Tester Business Division
In Charge of Memory Tester Product, ATE BusinessGroup
General Manager, 1st Memory Tester Business Division
General Manager, Memory Tester Business Division
Executive Officer
Vice President, Sales and Marketing Group
General Manager, Solution Business Division
General Manager, Soc Strategic Sales Team
General Manager, 1st SoC Tester Business Division
Senior Vice President, SoC Tester Business Group
Senior Vice President, Test System Business Group(present position)
General Manager, Memory Tester Business Division
Director, Managing Executive Officer (present position)
Technology Development Group and Test System BusinessGroup (present position)
Joined Advantest Corporation
Manager of Accounting Department
Director
Managing Director
Senior Vice President, Corporate Affairs Group
Senior Vice President, Auditing Group
Director, Managing Executive Officer
Corporate Affairs
Standing Corporate Auditor (present position)
Joined Fujitsu Limited
Joined Benesse Corporation
Joined Advantest Corporation
Manager of Legal Department
Board Director
Senior Vice President, Export Control Division
Vice President, Corporate Affairs GroupManager, General Affairs Department
Managing Executive Officer
Assistant Director, Environmental Management Center
Senior Vice President, Corporate Affairs Group
Assistant Director (overseeing Administration),
Environmental Management Center
In Charge of Corporate Ethics OfficeStanding Corporate Auditor (present position)
Assistant Judge, Tokyo District Court
Judge, Tokyo District Court
Instructor, Legal Training and Research Institute
Judge, Tokyo High Court
Registered as an attorney-at-Law
Joined CAST Law P.C. (currently SOGA URYU &ITOGA) (present position)
Professor, The University of Tokyo Graduate School of
Law and Politics (present position)
Corporate Auditor, Fujitsu Limited (present position)
Corporate Auditor, Advantest Corporation (present
position)

Name (Date of birth)

Jiro Haneda(October 3, 1943)

Position(Group executive/function)

Corporate Auditor

Date ofcommencement

Business experience

6/2009Corporate Auditor, NIFTY Corporation (present position)

4/1966
6/1996
6/19986/20003/20026/2003Joined Nihon Kangyou Bank, Limited
Director, Kanematsu Corporation
Representative Board Director and Managing Director
Corporate Auditor, Kanematsu Electronics Ltd.
Corporate Auditor, Nippon Office Systems Ltd.
Representative Board Director and Senior Managing
Director, Kanematsu Corporation
Standing Corporate Auditor, Nippon Office Systems Ltd.
Corporate Auditor, Advantest Corporation (present
position)

3/20046/2007
Yoshiro Yagi
(July 26, 1951)

Managing Executive
Officer

4/19706/20012/20036/20034/20046/2004
10/2004
4/20056/20074/20086/20084/2009Hiroshi Nakamura(December 4, 1957)

Managing
Executive Officer

4/1981
6/19986/20026/20066/20076/20086/2009
Yoshiaki Yoshida(February 8, 1958)

Managing Executive Officer

4/19996/20006/20066/20076/20083/20096/200945

Joined Advantest Corporation
Manager, Account Sales Department 1
General Manager, ATE Domestic Sales Division
Executive Officer
Vice President, ATE Sales Group
General Manager, Domestic Sales Division 1
Vice President, Sales and Marketing Group (overseeing
ATE)
General Manager, Domestic Sales Division 1
General Manager, Sales Division 1 (present position)
Managing Executive Officer (present position)
Vice President, Sales and Marketing Group (overseeing
Sales)
Vice President, Sales and Marketing Group (present
position)
Leader, Domestic Account Sales Initiatives (present
position)
Joined Advantest Corporation
Manager, Business Accounting Department, Corporate
Affairs GroupManager, Accounting Department, Corporate Affairs
Group
Executive Officer
Vice President, Corporate Affairs Group
Senior Vice President, Financial Group Manager,
Accounting Department, (present position)
Vice President, Corporate Administration Group (present
position)
General Manager, Accounting and Finance Division(present position)
Managing Executive Officer (present position)
Joined Advantest Corporation
Director, Advantest Finance Inc.
Representative Board Director, Advantest Finance Inc.
Executive Officer (present position)
Vice President, Corporate Planning Group
Senior Vice President, Corporate Planning Group (present
position)
Vice President, New Concept Product Initiative (present
position)Managing Executive Officer (present position)

Name (Date of birth)

Masao Shimizu(February 24, 1953)

Position(Group executive/function)

Executive Officer

Date ofcommencement

4/19734/20006/20014/20026/20036/20044/20056/20066/20074/20096/2009Hideaki Imada(April 19, 1955)

Executive Officer

4/19784/20022/20036/20034/20046/20044/20056/20084/20096/2009Yasuhiro Kawata(October 5, 1953)

Executive Officer

4/19746/20014/20022/20036/20055/20076/20084/200946

Business experience

Joined Advantest Corporation
General Manager, SoC Tester Business Division
Director
General Manager, 1st SoC Tester Business Division
Executive Officer (present position)
Vice President, ATE Business Group (overseeing SoC
Tester product)
Senior Vice President, 1st Test System Business Group
Senior Vice President, DI Business Group
General Manager, DI Business Division
Director, Fujitsu Interconnect Technologies Limited(present position)
Vice President (DI), System Solution Business Group
General Manager, DI Business Division
General Manager, DI Solution Business Division
Senior Vice President, System Solution Business Group(present position)
General Manager, CE Support Division (present position)
Joined Advantest Corporation
General Manager, 2nd SoC Tester Business Division
Leader, OAI Business Initiatives
Executive Officer (present position)
Vice President, ATE Sales Group
Vice President, Sales and Marketing Group
Vice President, Sales and Marketing Group (overseeing
OAI)
Senior Vice President, 2nd Test System Business Group
General Manager, Product Design Initiatives 2
General Manager, Memory Tester Business Division
Senior Vice President, Memory Tester Business Group
Vice President (SE), System Solution Business Group
Senior Vice President, Production Group (present position)
Joined Advantest Corporation
General Manager, ATE Product Engineering Division
General Manager, 2nd Memory Tester Business Division
General Manager, 2nd SoC Tester Business Division, ATE
Business Group
Executive Officer (present position)
General Manager, 2nd SoC Tester Business Division, 1st
Test System Business Group
Senior Vice President, Cost Planning Group
General Manager, Cost Planning Division
Senior Vice President, Quality Assurance Group (present
position)
General Manager, Quality Assurance Division (present
position)
Assistant Director (Technology), Environmental
Management Center
Assistant Director (Technology), CSR & Environmental
Affairs Promotion Center (present position)

Name (Date of birth)

Takashi Sugiura(March 8, 1957)

Position(Group executive/function)

Executive Officer

Date ofcommencement

4/19799/19986/2001
10/2001
6/20022/20036/20056/20066/2009Takashi Sekino(May 30, 1957)

Executive Officer

4/1982
4/1998
6/19986/2001
11/2001
4/20056/20065/20076/2009Sae Bum Myung(September 16, 1954)

Executive Officer

4/19894/20046/20066/20084/2009Soichi Tsukakoshi(February 1, 1960)

Executive Officer

4/19834/20086/2008

Josef Schraetzenstaller(June 16, 1957)

Executive Officer

11/1996
10/1997
4/20006/20084/200947

Business experience

Joined Advantest Corporation
Manager, ATE Global Marketing Department
Manager, ATE SoC Solution Business Department
General Manager, Product Design Initiatives
General Manager, ATE Product Design Initiatives
General Manager, Product Design Initiatives
General Manager, Product Design Initiatives 1
Executive Officer (present position)
Senior Vice President, FA Business Group
General Manager, Handler Division
Vice President, Corporate Administration Group (present
position)
General Manager, Legal and Intellectual Property Division(present position)
Joined Advantest Corporation
Manager, 1st R&D Department, ATE Technology Division
Manager, 2nd R&D Department, ATE 1st Technology
DivisionManager, 3rd R&D Department, ATE 1st Technology
Division
General Manager, ATE 1st Technology Division
General Manager, 1st Technology Division
Executive Officer (present position)
Vice President, Technology Development Group
Senior Vice President, Technology Development Group(present position)
General Manager, 3rd Technology Division (present
position)
Joined Advantest Corporation
Manager, International Sales Department 3
Representative Director and President, Advantest Korea
Co., Ltd. (present position)
Executive Officer (present position)
Asia Sales, Sales and Marketing Group (present position)
Leader, Korea Account Sales Initiatives (present position)
Joined Advantest Corporation
General Manager, Strategic Sales Division (present
position)
Executive Officer (present position)
Vice President, Sales and Marketing Group (present
position)
Joined Advantest (Europe) GmbH (currently Advantest
Europe GmbH)
Prokurist, Advantest (Europe) GmbH (currently Advantest
Europe GmbH)Managing Director, Advantest (Europe) GmbH (currently
Advantest Europe GmbH) (present position)
Executive Officer, Advantest Corporation (present
position)
Europe Sales, Sales and Marketing Group (present
position)
Leader, EU Account Sales Initiatives (present position)

Position(Group executive/function)

Name (Date of birth)

R. Keith Lee(December 15, 1955)

Executive Officer

Date ofcommencement

8/1984
7/19961/20046/20084/2009
6.B.

Business experience

Joined Takeda Riken America, Inc. (currently Advantest
America, Inc.)
General Manager, Custom Design Engineering, Advantest
America, Inc.
Chairman of the Board, President and CEO, Advantest
America, Inc. (present position)
Director, President and CEO, Advantest America
Corporation (present position)
Executive Officer, Advantest Corporation (present
position)
America Sales, Sales and Marketing Group (present
position)
Leader, US Account Sales Initiatives (present position)

COMPENSATION

Executive Compensation
The compensation of all of Company’s directors and corporate auditors was an aggregate of approximately ¥487 million incompensation during fiscal 2008. Compensation for directors and corporate auditors must be authorized by resolutions of the general
meetings of shareholders. For a description of the Company’s equity-based compensation plans, see “—Share Ownership.”
The amounts of compensation set forth above include compensation paid in relation to stock options and fixed compensation
paid to two directors and one outside corporate auditor who retired from their respective positions as of the closing of the 66th
ordinary general meeting of shareholders, which was held on June 25, 2008. Of the amounts of compensation set forth above, theaggregate amount of compensation for Advantest’s two outside directors and its three outside corporate auditors is ¥42 million.
At the 64th ordinary general meeting of shareholders held on June 27, 2006, the Company resolved to pay cut-off payments inconnection with the abolition of the retirement benefits program for directors and corporate auditors. In addition to the amounts ofcompensation set forth above, the Company paid a total of ¥274 million in retirement benefits to two directors and one outside
corporate auditor who retired from their respective positions during this fiscal year. Such payments consisted of ¥273 million to thetwo directors and ¥1 million to one outside corporate auditor. The estimated amount of liability in respect of retirement benefits for
directors and corporate auditors as of the end of this fiscal year is ¥669 million to be paid to seven directors in the aggregate. Paymentof such benefits shall be made at the time that each such director or executive officer retires from his or her position.
6.C.

BOARD PRACTICES

Directors
The Board of Directors has the ultimate responsibility for the administration of the affairs of the Company. The Company’s
articles of incorporation limit the number of directors to ten. Directors are elected at a general meeting of shareholders, and thestandard term of directors is one year. Directors may serve any number of consecutive terms. The Board of Directors elects one ormore representative directors from among its members, each of whom has the authority individually to represent the Company. Fromamong its members, the Board of Directors may elect the chairman and the vice chairman. None of the directors of the Company has aservice contract with the Company that provides for benefits upon termination of service.
Pursuant to the Company Law of Japan (hereinafter in Item 6.C., “Company Law”) and the Company’s articles of incorporation,and to the extent permitted by the laws and regulations, the Company may, by resolution of the Board of Directors, exempt liabilities
of its directors (including persons who have previously served as the Company’s directors) for failing to perform their duties. The
Company may enter into contracts with outside directors to limit their liabilities for a failure to perform their duties, provided that the
maximum amount of liabilities under such contracts shall be the total of the amounts provided in each item of Article 425, Paragraph 1of the Company Law.

48

Corporate Auditors
The Company’s articles of incorporation provide for no more than five corporate auditors and the Company currently has twoStanding Corporate Auditors and two outside corporate auditors. Corporate auditors are elected at the general meeting of shareholders
and the standard term of office of corporate auditors is four years. Under the Company Law, at least half of the corporate auditors are
required to be persons who have not been a director, accounting counselor (if an accounting counselor is a corporation, an employee
of such corporation who executes its duties), executive officer, manager, or employee of the Company or any of its subsidiaries at any
time in the past. Corporate auditors may not at the same time be directors, accounting counselors (if an accounting counselor is a
corporation, an employee who executes its duties), executive officers, managers, or employees of the Company or any of its
subsidiaries. The Company increased the number of required outside corporate auditors from one to two at the general meetings ofshareholders held in June 2003 in order to strengthen the auditing function of the board of corporate auditors. Corporate auditors areunder a statutory duty to oversee the administration of the Company’s affairs by its directors, to audit its financial statements to besubmitted by its Board of Directors to the general meetings of the shareholders and to report their opinions thereon. They are also
required to attend the meetings of the Board of Directors and to express their opinions, but are not entitled to vote.
Corporate auditors constitute the board of corporate auditors. The board of corporate auditors has a statutory duty to prepare andsubmit an audit report to the directors each year. A corporate auditor may note his or her opinion in the audit report if his or her
opinion is different from the opinion expressed in the audit report. The board of corporate auditors is empowered to establish audit
policy, methods to investigate the state of business operations and assets and other matters relating to the execution of duties bycorporate auditors.
Pursuant to the Company Law and the Company’s articles of incorporation, and to the extent permitted by the laws andregulations, the Company may, by resolution of the Board of Directors, exempt liabilities of its corporate auditors (including persons
who have previously served as the Company’s corporate auditors) for failing to perform their duties. The Company may enter into
contracts with outside corporate auditors to limit their liabilities for a failure to perform their duties, provided that the maximum
amount of liabilities under such contracts shall be the total of the amounts provided in each item of Article 425, Paragraph 1 of theCompany Law.
6.D.

EMPLOYEES

Set forth below is a table listing the total number of full-time employees and a breakdown of persons employed by maincategory of activity and by geographic location, as of March 31, 2007, March 31, 2008 and March 31, 2009.
As of March 31,

Full-Time Employees ............................................................................................................................
By Category of Activity:
Administrative..............................................................................................................................
Sales .............................................................................................................................................
Customer Support.........................................................................................................................
Manufacturing ..............................................................................................................................
Research and Development ..........................................................................................................
Other.............................................................................................................................................
By Geographic Location:
Japan.............................................................................................................................................
Asia (excluding Japan) .................................................................................................................
Americas ......................................................................................................................................
Europe ..........................................................................................................................................

2007

2008

2009

3,637

3,666

3,187

385
334
869
836
1,128
85

394
285
885
832
1,144
126

343
249
786
578
1,120
111

2,832
454
234
117

2,898
463
205
100

2,413
410
179
185

Most regular employees of the Company and its subsidiaries in Japan are members of one of the seven labor unions. None ofAdvantest’s overseas employees is a member of a union. Advantest considers its labor relations with all of its workers to be good.
During the fiscal year ended March 31,2007, 2008 and 2009, Advantest had an annual average of 641, 909 and 565 temporary
employees, respectively.

49

6.E.

SHARE OWNERSHIPThe following table sets forth the beneficial ownership of shares of common stock of the Company as of March 31, 2009 ofeach of the Company’s directors, corporate auditors and executive officers as of March 31, 2009.
Name of Record/Beneficial Owner

Number of Shares

Shimpei Takeshita .......................................................................................................................................................
Toshio Maruyama........................................................................................................................................................
Naoyuki Akikusa .........................................................................................................................................................
Yasushige Hagio..........................................................................................................................................................
Takashi Tokuno ...........................................................................................................................................................
Hiroshi Tsukahara........................................................................................................................................................
Yuichi Kurita ...............................................................................................................................................................
Takao Tadokoro...........................................................................................................................................................
Hiroyasu Sawai............................................................................................................................................................
Hitoshi Owada .............................................................................................................................................................
Yuri Morita ..................................................................................................................................................................
Megumi Yamamuro.....................................................................................................................................................
Jiro Haneda ..................................................................................................................................................................
Yoshiro Yagi................................................................................................................................................................
Masao Shimizu ............................................................................................................................................................
Hideaki Imada..............................................................................................................................................................
Yasuhiro Kawata .........................................................................................................................................................
Takashi Sugiura ...........................................................................................................................................................
Shinichiro Kuroe..........................................................................................................................................................
Takashi Sekino.............................................................................................................................................................
Hiroshi Nakamura........................................................................................................................................................
Yoshiaki Yoshida.........................................................................................................................................................
Minoru Morishita.........................................................................................................................................................
Sae Bum Myung ..........................................................................................................................................................
Soichi Tsukakoshi........................................................................................................................................................
Haruo Matsuno ............................................................................................................................................................
Josef Schraetzenstaller.................................................................................................................................................
R. Keith Lee.................................................................................................................................................................

227,053
187,739
26,27920,588122,328
104,336
87,179102,227
104,884
88,12892,47916,2378,000
86,80272,00074,60672,22685,30772,71056,21857,86054,44036,49323,00021,29022,58262,00046,000Each of the persons listed above owns less than one percent of the issued and outstanding shares of common stock of theCompany.
The number of shares owned by the Company’s directors, corporate auditors and executive officers include options that are
currently exercisable for 1,901,000 shares of the Company’s common stock. For a description of these options, see “Stock Option
Plan” below. The number of shares of common stock owned by the Company’s directors, corporate auditors and executive officers
reflects the number of shares that are owned through the director and corporate auditor stock ownership association and allocated to anindividual director, corporate auditor or executive officer. For a description of this association, see “—Stock Ownership
Associations.” For a description of the unit share system, see “Additional Information—The Unit Share System.”50

Stock Option PlanAt the general ordinary meetings of shareholders or meeting of Board of Directors held in June 2005, June 2006, June 2007,
June 2008 and June 2009, the shareholders or the Board Directors of the Company approved stock option plans for selected directors,
corporate auditors, executive officers and employees of Advantest. The shareholders of the Company also approved the compensation
amount of stock acquisition rights to be granted as stock options to directors and corporate auditors of the Company. The following
table shows selected information related to these stock options. On October 1, 2006, the Company conducted a two for one stock splitof shares of its common stock. The numbers of shares and exercise price have been restated to reflect the effects of the stock split.
Tenth series

Date of grant ............................................................................................ July 4, 2005
Number of shares to be issued/ delivered ................................................ 1,518,000
Exercise price per share ........................................................................... ¥4,300
Beginning of exercise period ................................................................... April 1, 2006
End of exercise period ............................................................................. March 31, 2010
Number of directors, corporate auditors andexecutive officers of the Company ..................................................... 27
Number of other employees..................................................................... 181

Eleventh series

Twelfth series

December 1, 2005
16,000¥4,300April 1, 2006
March 31, 2010

February 28, 2006
3,980
¥6,702
April 1, 2006
March 31, 2010

0
6

0
1

Thirteenth series

Fourteenth series

Date of grant ............................................................................................ July 12, 2006
Number of shares to be issued/ delivered ................................................ 360,000
Exercise price per share ........................................................................... ¥5,880
Beginning of exercise period ................................................................... April 1, 2007
End of exercise period ............................................................................. March 31, 2011
Number of directors, corporate auditors andexecutive officers of the Company ..................................................... 13
Number of other employees..................................................................... 0

July 12, 2006
1,218,000¥5,880April 1, 2007
March 31, 2011

December 1, 2006
8,000
¥6,218
April 1, 2007
March 31, 2011

Fifteenth series

18
184

0
3

Sixteenth series

Seventeenth series

Date of grant ............................................................................................ July 12, 2007
Number of shares to be issued/ delivered ................................................ 184,000
Exercise price per share ........................................................................... ¥5,563
Beginning of exercise period ................................................................... April 1, 2008
End of exercise period ............................................................................. March 31, 2012
Number of directors, corporate auditors andexecutive officers of the Company ..................................................... 13
Number of other employees..................................................................... 0

July 12, 2007
593,000¥5,563
April 1, 2008
March 31, 2012

September, 26 2007
2,000
¥5,563
April 1, 2008
March 31, 2012

16
182

0
1

Nineteenth series

Twentieth series

Date of grant ............................................................................................ February 28, 2008
Number of shares to be issued/ delivered ................................................ 1,000
Exercise price per share ........................................................................... ¥5,563
Beginning of exercise period ................................................................... April 1, 2008
End of exercise period ............................................................................. March 31, 2012
Number of directors, corporate auditors andexecutive officers of the Company ..................................................... 0
Number of other employees..................................................................... 1
Twenty-second series

Date of grant ............................................................................................ April 1, 2009
Number of shares to be issued/ delivered ................................................ 12,000
Exercise price per share ........................................................................... ¥2,653
Beginning of exercise period ................................................................... May 1, 2009
End of exercise period ............................................................................. March 31, 2013
Number of directors, corporate auditors andexecutive officers of the Company ..................................................... 0
Number of other employees..................................................................... 851

Eighteenth series

Twenty-first series

July 10, 2008
182,000¥2,653
April 1, 2009
March 31, 2013

July 10, 2008
522,000¥2,653
April 1, 2009
March 31, 2013

13
0

15
174

Twenty-third series

July 10, 2009
338,000
To be determined
April 1, 2010
March 31, 201425
0

Employee Stock Purchase Program
Since August 1, 2002, eligible employees of Advantest America Corporation and its U.S. subsidiaries are able to participate inan employee stock purchase program. Under the program, each eligible employee may authorize payroll deductions of up to 15% of
their base salary toward the purchase of ADRs representing shares of common stock of the Company. In addition, the Company will
make an additional contribution equal to 15% of each eligible employee’s payroll deductions toward the purchase of the ADRs.
Stock Ownership Associations
The Company’s director and corporate auditor stock ownership association is a partnership formed by the current and former
directors, executive officers and corporate auditors of the Company for the purpose of acquiring the Company’s shares of common
stock. Only current directors, executive officers and corporate auditors and company advisors that formerly were directors or
corporate auditors of the Company may join the director and corporate auditor stock ownership association. The Company established
its director and corporate auditor stock ownership association in 1983. Any member of the association may request that record
ownership of the stock held by that member be transferred, in lots of a single unit, to that member. As of March 31, 2009, 32 current
and former directors, executive officers, corporate auditors and company advisors were members of the director, executive officer andcorporate auditor stock ownership association, and the association held 15,516 shares of the Company’s common stock. The Company
also has an employee stock ownership association for other employees in Japan. As of March 31, 2009, the association had 632
members and held 342,816 shares of the Company’s common stock.
ITEM 7.
7.A.

MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONSMAJOR SHAREHOLDERS

As of March 31, 2009, 178,723,472 shares of the Company’s common stock were outstanding. Beneficial ownership of theCompany’s common stock in the table below was prepared from publicly available records of the filings made by the Company’s
shareholders regarding their ownership of the Company’s common stock under the Financial Instruments and Exchange Law of Japan.
Under the Financial Instruments and Exchange Law of Japan, any person who becomes, beneficially and solely or jointly, aholder, including, but not limited to, a deemed holder who manages shares for another holder pursuant to a discretionary investment
agreement, of more than 5% of the shares with voting rights of a company listed on a Japanese stock exchange (including ADSs
representing such shares) must file a report concerning the shareholding with the Director of the relevant local finance bureau. A
similar report must be filed, with certain exceptions, if the percentage of shares held by a holder, solely or jointly, of more than 5% of
the total issued shares of a company increases or decreases by 1% or more, or if any change to a material matter set forth in any
previously filed reports occurs.
On October 1, 2006, the Company conducted a two for one stock split of shares of its common stock. The number of shares inthe table below has been restated to reflect the effects of the stock split.
Based on publicly available information, the following table sets forth the beneficial ownership of holders of more than 5% of
the Company’s common stock as of the dates indicated in the reports described below.
Name of Beneficial Owner

Fujitsu Limited.........................................................................................................................
The Bank of Tokyo-Mitsubishi UFJ, Ltd., and its related entities...........................................
Nomura Securities Co., Ltd. and its related entities.................................................................

Number of Shares

Percentage of
Outstanding Shares

20,142,792
10,622,541
10,171,766

10.09%
5.32%
5.10%

The number of shares owned by Fujitsu Limited is based on a report filed under the Securities and Exchange Law of Japanstating that Fujitsu held or was deemed to hold beneficially, as of February 23, 2005, 20,142,792 shares of the Company’s common
stock. This figure includes 20,142,600 shares of the Company’s common stock held by the trustee of a retirement benefit plan of
Fujitsu. Fujitsu retained beneficial ownership of these 20,142,600 shares of common stock.
The number of shares owned by Nomura Securities Co., Ltd. and its related entities is based on reports filed under the Financial
Instruments and Exchange Law of Japan stating that Nomura Securities Co., Ltd. and its related entities held or were deemed to holdbeneficially, as of April 15, 2008, 10,171,766 shares of the Company’s common stock.
The number of shares owned by The Bank of Tokyo-Mitsubishi UFJ, Ltd. and its related entities is based on reports filed under
the Financial Instruments and Exchange Law of Japan stating that The Bank of Tokyo-Mitsubishi UFJ, Ltd. and its related entities
held or were deemed to hold beneficially, as of May 11, 2009, 10,622,541 shares of the Company’s common stock.

52

Based on information made publicly available on or after April 1, 2006, the following table describes transactions resulting in a
1% or more change in the percentage ownership held by major beneficial owners of the Company’s common stock.

Name of Shareholder
Nomura Securities Co., Ltd. and its related
entities .......................................................
Nomura Securities Co., Ltd. and its related
entities .......................................................
Nomura Securities Co., Ltd. and its related
entities .......................................................
Nomura Securities Co., Ltd. and its related
entities .......................................................
Nomura Securities Co., Ltd. and its related
entities .......................................................
Nomura Securities Co., Ltd. and its related
entities .......................................................
Nomura Securities Co., Ltd. and its related
entities .......................................................
Walter Scott & Partners Limited......................
Nomura Securities Co., Ltd. and its related
entities .......................................................
Nomura Securities Co., Ltd. and its related
entities .......................................................
Nomura Securities Co., Ltd. and its related
entities .......................................................
Deutsche Bank London Office and its related
entities .......................................................
Nomura Securities Co., Ltd. and its related
entities .......................................................
Deutsche Bank London Office and its related
entities .......................................................
J.P.Morgan Whitefriars Inc. and its related
entities .......................................................
The Goldman Sachs Group, Inc. and its
related entities ...........................................
The Goldman Sachs Group, Inc. and its
related entities ...........................................
Walter Scott & Partners Limited......................
The Bank of Tokyo-Mitsubishi UFJ, Ltd. andits related entities.......................................
J.P.Morgan Whitefriars Inc. and its related
entities .......................................................

Date ofTransaction

Shares Owned
Prior toTransaction

Percentage—

Number of
SharesChangedShares Owned
After theTransaction

Percentage—

10,966,798

5.50%

May 31, 2006—

August 31, 2006

10,966,798

5.50%

4,412,596

15,379,394

7.71%

January 15, 2007

15,437,398

7.74%(2,225,300)

13,212,098

6.62%

March 30, 2007

13,212,098

6.62%(2,824,402)

10,387,696

5.21%

May 15, 2007

10,387,696

5.21%

2,105,426

12,493,122

6.26%

June 29, 2007

12,493,122

6.26%

2,055,956

14,549,078

7.29%

July 13, 2007
October 22, 2007

14,549,078
—

7.29%
—

(2,969,400 )—

11,579,678
10,008,360

5.80%
5.02%

November 15, 2007

11,579,678

5.80%(2,721,771 )

8,857,907

4.44%

November 30, 2007——

10,767,725

5.40%

March 31, 2008

10,767,725

3,661,941

14,429,666

7.23%

March 31, 2008——

10,975,630

5.50%

April 15, 2008

14,429,666

7.23%(4,257,900 )

10,171,766

5.10%

April 15, 2008

10,975,630

5.50%(2,455,703 )

8,519,927

4.27%

June 13, 2008

—

—

—

10,744,020

5.38%

July 31, 2008

—

—

—

10,449,931

5.23%

September 30, 2008
October 27, 2008

10,449,931
10,008,360

8,152,632
7,835,309

4.08%
3.93%

December 29, 2008—

10,034,102

5.03%

January 30, 2009

10,744,020

9,512,020

4.77%

—
5.40%
—

5.23%
5.02%
—
5.57%

(2,297,299 )(2,173,051 )—(1,232,000 )As of March 31, 2009, the Company had 178,723,472 outstanding shares of common stock. According to JPMorgan Chase
Bank, depositary for the Company’s ADSs, as of March 31, 2009, 2,294,643 shares of the Company common stock were held in theform of ADRs and there were two ADR holders of record in the U.S. According to the Company’s register of shareholders andregister of beneficial owners, as of March 31, 2009, there were 49,038 holders of common stock of record worldwide. As of March 31,
2009, there were 73 record holders of the Company’s common stock with addresses in the U.S., whose shareholdings represented
7.6% of the outstanding common stock on that date. Because some of these shares were held by brokers or other nominees, thenumber of record holders with addresses in the U.S. might not fully show the number of beneficial owners in the U.S.
None of the Company’s shares of common stock entitles the holder to any preferential voting rights.
Advantest knows of no arrangements the operation of which may at a later time result in a change of control.

53

7.B.

RELATED PARTY TRANSACTIONSBusiness Relationships
Advantest sells products to and purchases parts from Fujitsu Limited, which owns approximately 11% of the voting rights ofAdvantest, and its subsidiaries. Advantest sells products to Fujitsu and its subsidiaries in arm’s-length transactions. Advantest
purchases parts from Fujitsu and its subsidiaries after receiving competitive bids from several suppliers. Advantest derived net sales of¥1,659 million in fiscal 2008 from the sale of products to Fujitsu and its subsidiaries. Advantest purchased parts from Fujitsu and its
subsidiaries in the amount of ¥2,501 million in fiscal 2008. Advantest had receivables from Fujitsu and its subsidiaries in the amountof ¥418 million as of March 31, 2009. Advantest had payables to Fujitsu and its subsidiaries in the aggregate amount of¥1,021 million as of March 31, 2009. Advantest expects to continue to engage in arm’s-length transactions with Fujitsu and its
subsidiaries in the future.
Mr. Akikusa, a Director of the Company since 2006, currently serves as a Senior Executive Advisor and Director of Fujitsu
Limited. Mr. Yamamuro, a Corporate Auditor of the Company since 2006, currently serves as a corporate auditor of Fujitsu Limited.
Loans
As of March 31, 2009, the Company has no outstanding loans to its directors and executive officers.
7.C.

INTERESTS OF EXPERTS AND COUNSEL
Not applicable.

ITEM 8.
8.A.

FINANCIAL INFORMATIONCONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION

1-4. Consolidated Financial Statements. Advantest’s audited consolidated financial statements are included under “Item 18—
Financial Statements.” Except for Advantest’s consolidated financial statements included under Item 18, no other information in thisannual report has been audited by Advantest’s independent registered public accounting firm.
5. Not applicable.
6. Export Sales. See “Information on the Company—Business Overview—Geographic Sales.”7. Legal and Arbitration Proceedings. See “Information on the Company—Business Overview—Legal Proceedings.”
8. Dividend Policy. See “Key Information—Selected Financial Data—Dividends.”
8.B.

SIGNIFICANT CHANGES

See “Operating and Financial Review and Prospects,” “Key Information—Risk Factors” and “Information on the Company—
Business Overview—Industry Overview” for a discussion of significant adverse changes since the date of Advantest’s latest annual
financial statements.

54

ITEM 9. THE OFFER AND LISTING
9.A.

LISTING DETAILSThe following table sets forth for the periods shown the reported high and low sales prices of the Company’s common stock on
the Tokyo Stock Exchange and the ADSs on the New York Stock Exchange. The Company changed the ratio of ADSs to underlying
shares on October 1, 2006. The prices below reflect the change in ratio. Details are included in the Company’s press release dated
July 26, 2006.
Tokyo Stock Exchange
Price Per Share

New York Stock Exchange
Price Per ADS

High

Low

High

Low

¥ 4,665
7,715
7,605
5,750
3,030

¥ 3,090
3,700
5,100
2,100
1,040

$44.32
64.54
63.72
48.47
29.71

$ 28.36
34.72
44.70
19.45
10.82

5,750
5,450
3,850
2,975
3,030
2,600
2,165
1,635
1,897

5,120
3,410
2,855
2,100
2,235
2,105
1,040
1,126
1,474

48.47
45.27
32.45
28.26
29.71
24.73
20.55
17.09
19.28

41.76
29.63
25.92
19.45
21.06
19.22
10.82
11.90
15.14

1,438
1,635
1,426
1,592
1,639
1,721

1,090
1,126
1,201
1,200
1,474
1,565

16.33
17.09
15.60
16.41
16.70
17.85

11.80
12.87
11.90
11.90
15.14
16.22

Fiscal year ended March 31,

2005 .....................................................................................................................
2006 .....................................................................................................................
2007 .....................................................................................................................
2008 .....................................................................................................................
2009 .....................................................................................................................
Financial quarter ended/ending

June 30, 2007 .......................................................................................................
September 30, 2007 .............................................................................................
December 31, 2007 ..............................................................................................
March 31, 2008....................................................................................................
June 30, 2008 .......................................................................................................
September 30, 2008 .............................................................................................
December 31, 2008 ..............................................................................................
March 31, 2009....................................................................................................
June 30, 2009 (through June 19, 2009)................................................................
Month ended

December 31, 2008 ..............................................................................................
January 31, 2009..................................................................................................
February 28, 2009................................................................................................
March 31, 2009....................................................................................................
April 30, 2009......................................................................................................
May 31, 2009 .......................................................................................................
9.B.

PLAN OF DISTRIBUTION
Not applicable.

9.C.

MARKETSThe Company’s common stock is traded on the First Section of the Tokyo Stock Exchange. In April 2000, the Company’scommon stock was added to the Nikkei Stock Average, which is an index of 225 selected stocks from the First Section of the Tokyo
Stock Exchange.
Since September 17, 2001, American Depositary Shares evidenced by American Depositary Receipts have been traded andlisted on the New York Stock Exchange through a sponsored ADR facility operated by JPMorgan Chase Bank, as depositary. Each
American Depository Share represents one share of the Company’s common stock.
9.D.

SELLING SHAREHOLDERS
Not applicable.

9.E.

DILUTION
Not applicable.

55

9.F.

EXPENSES OF THE ISSUE
Not applicable.

ITEM 10. ADDITIONAL INFORMATION
10.A. SHARE CAPITAL
Not applicable.
10.B. MEMORANDUM AND ARTICLES OF ASSOCIATION
Set forth below is information relating to the Company’s common stock, including brief summaries of the relevant provisions of
the Company’s articles of incorporation and share handling regulations and of the Company Law of Japan (the “Company Law,”
hereinafter in Item 10.B. the same) and related legislation, all as currently in effect.
GeneralThe Company’s authorized number of shares to be issued is 440,000,000 shares. The number of the Company’s issued sharecapital as of March 31, 2009, including treasury shares, was 199,566,770. All of the issued shares are fully paid and non-assessable.
The Company’s share registration agent is Tokyo Securities Transfer Agent Co., Ltd., located at 6-2, Otemachi 2-chome,
Chiyoda-ku, Tokyo 100-0004, Japan. The shares have no par value.
The registered holder of deposited shares underlying the ADSs is the depositary for the ADSs. Accordingly, holders of ADSs
will not be able to directly assert their shareholders’ rights against the Company.
In January 2009, the share certificates of all Japanese companies listed on stock exchanges in Japan, including the common
stock of the Company, were delisted and become subject to a new book-entry transfer system. Under the new system, the Company’s
shares are administered by being recorded in a shareholder’s transfer account book at the Japan Securities Depositary Center, Inc.
(“JASDEC”), which is a book-entry transfer institution, or at securities firms, banks and other account management institutions.
JASDEC will provide the Company with information pertaining to the Company’s shareholders that it has collated from each of therelevant account management institutions as of March 31 and September 30, or at such time as the Company makes a request for
information pertaining to its shareholders based on justifiable grounds. the Company will record or register such information received
from JASDEC on its register of shareholders.
Shareholders wishing to assert the minority rights and other rights set forth in Article 147, Paragraph 4 of the Law on BookEntry Transfer of Corporate Bonds, Stock and Other Securities must submit an individual shareholder notice to the accountmanagement institution at which such shareholder has opened a transfer account. The account management institution will promptly
inform JASDEC of such individual shareholder notice and JASDEC will, in turn, provide information pertaining to the shareholder(the individual shareholder notice) to Advantest through its share registration agent.
In order for a transfer of shares to become effective, the amount of shares transferred must be recorded on the transfer accountbooks. Moreover, the Company requires that a transfer of shares must be recorded in its shareholders’ register in order for suchtransfer to be perfected.
Objects and Purposes
Article 2 of the Company’s articles of incorporation states that its objective is to engage in the following business activities:•

the manufacture and sale of electric, electronic and physicochemical appliances and their applied equipment;•

the manufacture and sale of appliances, equipment and software related to any of the foregoing items;•

the lease and rental of equipment, appliances and other products incidental to each of the foregoing items;•

the temporary personnel service business; and•any and all businesses incidental to any of the foregoing items.

56

Dividends
Dividends—General
Under its articles of incorporation, the Company’s fiscal year closes on March 31 of each year, and year-end dividends, if any,are paid to shareholders and beneficial owners (or registered pledgees thereof) of record at that date.
Under the Company Law, subject to certain limitation on the distributable surplus, dividends, if any, may be paid toshareholders and pledgees of shares of record as of a record date as set forth by the Company’s articles of incorporation or as
determined by the Board of Directors from time to time. Dividends shall be paid by way of distribution of surplus. Dividends may be
distributed in cash, or in kind subject to certain conditions being met. The Company may make distribution of dividends by aresolution of a general meeting of shareholders or by a resolution of the Board of Directors.
Dividends—Interim cash dividends
In addition to year-end cash dividends, pursuant to Article 459, Paragraph 1, Item 4 of the Company Law, the Board of
Directors may by resolution declare, an interim cash surplus dividend to shareholders, and pledges of record at September 30 of eachyear.
Dividends—Legal reserve
When a stock company like the Company makes distribution of surplus, it shall set aside in its legal reserve or additional paid-in
capital an amount equal to 10 percent of the amount of the surplus to be decreased as a result of such distribution of surplus inaccordance with the provisions set forth in an ordinance of the Ministry of Justice.
Dividends—Distributable amountUnder the Company Law, the Company is permitted to make distribution of surplus to the extent that the aggregate book valueof the assets to be distributed to shareholders does not exceed the Distributable Amount (as defined below) as at the effective date ofsuch distribution of surplus.
The amount of surplus at any given time shall be the amount of the Company’s assets and the book value of the Company’streasury stock after subtracting the amounts of the following items (1) through (4) as they appear on the Company’s non-consolidatedbalance sheet as at the end of the Company’s last fiscal year, and after reflecting the changes in the Company’s surplus after the end of
the Company’s last fiscal year, by adding the amounts of the following items (5), (6) and (7) and/or subtracting the amounts of thefollowing items (8), (9) and (10):(1)

its liabilities;(2)

its stated capital;(3)

its additional paid-in capital and legal reserve;(4)other amounts as provided for by an ordinance of the Ministry of Justice;(5)(if the Company transferred its treasury stock after the end of the last fiscal year) the amount of the transfer price of its
treasury stock after subtracting the book value thereof;(6)(if the Company decreased its stated capital after the end of the last fiscal year) the amount of decrease in its stated capital(excluding the amount transferred to the additional paid-in capital or legal reserve);(7)(if the Company decreased its additional paid-in capital or legal reserve after the end of the last fiscal year) the amount ofdecrease in its additional paid-in capital or legal reserve (excluding the amount transferred to the stated capital);(8)(if the Company cancelled its treasury stock after the end of the last fiscal year) the book value of its treasury stock socancelled;

57

(9)

(if the Company distributed surplus to shareholders after the end of the last fiscal year) the amount of the assets distributed
to shareholders by way of such distribution of surplus; and(10) other amounts as provided for by an ordinance of the Ministry of Justice including (if the Company reduced the surplus
and increased its stated capital, additional paid-in capital or legal reserve after the end of the last business year) theamount of such reduction and (if the Company has distributed the surplus to the shareholders after the end of the last fiscal
year) the amount set aside in additional paid-in capital or legal reserve (if any) as required by the ordinances of the
Ministry of Justice.
The Distributable Amount of the Company at any given time shall be the aggregate amount of (a) the surplus and (b) the amountof the transfer price of its treasury stock in the same period, after subtracting the amounts of the following items:(1)

the book value of its treasury stock;(2)(if the Company transferred its treasury stock after the end of the last fiscal year) the amount of the transfer price of its
treasury stock; and(3)other amounts as provided for by an ordinance of the Ministry of Justice including (if the sum of one-half of goodwill andthe deferred assets exceeds the total of stated capital, additional paid-in capital and legal reserve, each such amount beingthat appearing on the non-consolidated balance sheet as of the end of the last fiscal year) all or certain part of suchexceeding amount as calculated in accordance with the ordinances of the Ministry of Justice.

In addition, if the Company elects to become a company that uses its consolidated balance sheet for calculating distributabledividends (thus, becomes “a company subject to regulations in respect of dividends determined based on consolidated accounts”), theCompany would be required to deduct the excess amount calculated in the following manner from the distributable amount of surplus.
Such excess amount is determined as (x) the total amount of the amount of shareholders’ equity on unconsolidated balance sheet at theend of the last fiscal year and other amounts as provided for by an ordinance of the Ministry of Justice exceeds (y) the total amount of
the amount of shareholders’ equity on its consolidated balance sheet at the end of its last fiscal year and other amounts as provided forby an ordinance of the Ministry of Justice.
If the Company prepares extraordinary financial statements (as described below) and such extraordinary financial statements areapproved at a meeting of the Board of Directors or the shareholders (if the Company Law so requires), the Company would be
required to adjust the distributable amount for surplus by considering the profits and losses and the amount in respect of issuance oftreasury stock during the period covered in such extraordinary financial statements.
The Company may prepare extraordinary unconsolidated financial statements that consist of a balance sheet as of a date within
the fiscal year immediately following the last fiscal year (an extraordinary settlement date) and profit and loss covering a period of thefirst day of the current fiscal year up to such extraordinary settlement date. Such extraordinary financial statements prepared in theforegoing manner must be audited by corporate auditors and accounting auditors.
Dividends—Ex-dividend date and prescription
In Japan, the ex-dividend date and the record date for dividends precede the date of determination of the amount of the dividend
to be paid. The market price of shares generally becomes ex-dividend on the third business day before the record date.
Under the articles of incorporation, the Company is not required to pay any cash dividends unclaimed for a period of three years
after the date on which the dividends first become payable.
For information as to Japanese taxes on dividends, see “—Taxation—Japanese Taxation.”
Capital Accounts
The amount of the issue price of new shares (with certain exceptions) is required to be accounted for as stated capital, although
the Company may account for an amount not exceeding one-half of the issue price as additional paid-in capital.
Under the Company Law, a resolution of general meetings of shareholders is generally required for such transfer of theadditional paid-in capital and legal reserve to the stated capital.
The Company may also reduce the sum of its legal reserve and additional paid-in capital by resolution of a general meeting ofshareholders. Under the Company Law, the Company may reduce the sum of its legal reserve and additional paid-in capital without
the limitation of the amount to be reduced as mentioned above.
All or any part of the surplus which may be distributed as dividends may also be transferred to stated capital by resolution of ageneral meeting of shareholders.
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Stock Split
The Company may at any time split the outstanding shares into a greater number of shares by resolution of the Board of
Directors. The Company must give public notice of the stock split, specifying a record date for the stock split, not less than two weeks
prior to the record date.
Consolidation of Shares
The Company may at any time consolidate shares in issue into a smaller number of shares by a special shareholders resolution(See “Voting Rights”). When a consolidation of shares is to be made, the Company must give public notice or notice to eachshareholder within two weeks from the date of entry into force. The Company must disclose the reason for the consolidation of sharesat the general meeting of shareholders.
The Unit Share System
GeneralConsistent with the requirements of the Company Law, the Company’s articles of incorporation provide that 100 sharesconstitute one “unit.” Although the number of shares constituting a unit is included in the articles of incorporation, any amendment tothe articles of incorporation reducing (but not increasing) the number of shares constituting a unit or eliminating the provisions for theunit of shares may be made by a resolution of the Board of Directors rather than by a special shareholders resolution, which isotherwise required for amending the articles of incorporation. The number of shares constituting one unit, however, cannot exceed
1,000 shares or one-200th of the number of the Company’s issued share capital (including treasury stock).
Voting Rights under the Unit Share System
Under the unit share system, shareholders shall have one voting right for each unit of shares that they hold. Any number ofshares less than a full unit will carry no voting rights.
Repurchase by the Company of Shares Constituting Less Than a Full Unit
A holder of shares constituting less than a full unit may require the Company to purchase those shares at their market value inaccordance with the provisions of the Company’s share handling regulations.
Request by a Holder of Shares of Sales by the Company of Shares to Constitute a Full Unit
The Company’s articles of incorporation provide that a holder of shares constituting less than a full unit may request theCompany to sell to such holder such amount of shares which will, when added together with the shares constituting less than a fullunit, constitute a full unit of shares in accordance with the provisions of the Company’s share handling regulations.
Effect of the Unit Share System on Holders of ADRs
A holder who owns ADRs evidencing less than 100 ADSs will indirectly own less than a whole unit of shares of common stock.
Although, as discussed above, under the unit share system holders of less than a unit have the right to require the Company topurchase their shares, holders of ADRs evidencing ADSs that represent other than integral multiples of whole units are unable towithdraw the underlying shares of common stock representing less than a unit and, therefore, are unable, as a practical matter, toexercise the rights to require the Company to purchase such underlying shares. As a result, access to the Japanese markets by holders
of ADRs through the withdrawal mechanism will not be available for dispositions of shares of common stock in lots less than a unit.
The unit share system does not affect the transferability of ADSs, which may be transferred in lots of any size.
General Meeting of Shareholders
The Company holds its ordinary general meeting of shareholders within three months after the end of a fiscal year and normallyin June of each year in Tokyo, Japan. In addition, the Company may hold an extraordinary general meeting of shareholders whenevernecessary by giving at least two weeks’ advance notice. Under the Company Law, notice of any shareholders’ meeting must be given
to each shareholder having voting rights or, in the case of a non-resident shareholder, to his resident proxy or mailing address in Japanin accordance with the Company’s share handling regulations, at least two weeks before the date of the meeting. The record date foran ordinary general meeting of shareholders is March 31 each year.
Any shareholder holding at least 300 voting rights or 1% of the total number of voting rights for a period of six months or longer
may propose a matter to be considered at a general meeting of shareholders by submitting a request to a representative director of theCompany at least eight weeks before the date of such meeting.
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Voting Rights
A holder of shares constituting one or more whole units is entitled to one voting right per unit of shares subject to the limitations
on voting rights set forth in the following paragraph. In general, under the Company Law, a resolution can be adopted at a general
meeting of shareholders by a majority of voting rights represented at the meeting. The Company Law and the Company’s articles ofincorporation require a quorum for the election of directors and corporate auditors of not less than one-third of the voting rights of allshareholders. The Company’s shareholders are not entitled to cumulative voting in the election of directors. A corporate shareholder
whose outstanding shares are directly or indirectly owned by the Company or, due to other causes, whose management is being
controlled in substance by the Company as provided for by an ordinance of the Ministry of Justice, does not have voting rights.
Shareholders may exercise their voting rights through proxies if those proxies are also shareholders who have voting rights.
The Company Law provides that a quorum of at least one-third of voting rights of shareholders that are eligible to vote must bepresent at a shareholders’ meeting to approve any material corporate actions, such as:(1)amendment of the articles of incorporation (except in cases in which a shareholders’ resolution is not required);(2)

acquisition of its own shares from a specific party;(3)

consolidation of shares;(4)

any issue or transfer of new or treasury shares at a “specially favorable” price (or any issue of stock acquisition rights, orbonds with stock acquisition rights at “specially favorable” conditions) to any persons other than shareholders;(5)

the removal of a corporate auditor;(6)

the exemption of liability of a director or corporate auditor with certain exceptions;(7)

a reduction of stated capital meeting certain conditions;(8)

a distribution of in-kind dividends which meets certain requirements;(9)

dissolution, merger, or consolidation with certain exceptions in which a shareholders’ resolution is not required;(10) the transfer of the whole or a material part of the business;(11) the taking over of the whole of the business of any other corporation with certain exceptions in which a shareholders’
resolution is not required;(12) share exchange or share transfer for the purpose of establishing 100% parent-subsidiary relationships with certain
exceptions in which a shareholders’ resolution is not required; or(13) separating of the corporation with certain exceptions in which a shareholders’ resolution is not required,
At least two-thirds of voting rights eligible to vote that are represented at the meeting must approve these actions.
The voting rights of holders of ADSs are exercised by the depositary based on instructions from those holders. With respect tovoting by holders of ADRs, see “Description of American Depositary Receipts” set forth in the Company’s registration statement on
Form F-1 filed with the Securities and Exchange Commission on July 22, 2002.
Rights to be Allotted Shares
Holders of shares have no preemptive rights under the Company’s articles of incorporation. Under the Company Law, the Boardof Directors may, however, determine that shareholders shall be given rights to be allotted shares in connection with a particular issue
or transfer of new or treasury shares, or stock acquisition rights. In this case, the rights must be given on uniform terms to allshareholders as of a specified record date by at least two weeks’ prior public notice to shareholders of the record date.
Rights to be allotted new or treasury shares are non-transferable. A shareholder, however, may be allocated stock acquisitionrights for free, in which case such stock acquisition rights may be transferred to a third party.

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Stock Acquisition Rights
Subject to certain requirements, the Company may issue stock acquisition rights by resolution of the Board of Directors. Except
where the issue would be on “especially favorable” terms, the issue of stock acquisition rights may be authorized by a resolution of theBoard of Directors. Holders of stock acquisition rights may exercise their rights to acquire a certain number of shares within theexercise period as prescribed in the terms of their stock acquisition rights. Upon exercise of stock acquisition rights, the Company will
be obliged to issue the relevant number of new shares or alternatively to transfer the necessary number of existing shares held by it.
Liquidation Rights
In the event of a liquidation of the Company, the assets remaining after payment of all debts, liquidation expenses and taxes will
be distributed among the shareholders in proportion to the respective numbers of shares they own.
Liability to Further Calls or Assessments
All of the Company’s currently outstanding shares, including shares represented by the ADSs, are fully paid and non-assessable.
Record Date
March 31 of each year is the record date for the Company’s year-end dividends, if declared. A holder of shares constituting one
or more whole units who is registered as a holder on the Company’s register of shareholders or register of beneficial owners at theclose of business as of March 31 is entitled to exercise shareholders’ voting rights at the ordinary general meeting of shareholders withrespect to the fiscal year ending on that March 31. September 30 of each year is the record date for interim dividends, if declared. In
addition, the Company may set a record date for determining the shareholders entitled to other rights and for other purposes by giving
at least two weeks’ public notice.
The shares generally trade ex-dividend or ex-rights in the Japanese stock exchanges on the third business day before a record
date (or if the record date is not a business day, the fourth business day prior thereto), for the purpose of dividends or rights offerings.
Repurchase by the Company of Shares
The Company may acquire its own shares (i) through a stock exchange on which such shares are listed or by way of tender offer(pursuant to an ordinary resolution of a general meeting of shareholders or a resolution of the Board of Directors), (ii) by purchasefrom a specific party (pursuant to a special resolution of a general meeting of shareholders), or (iii) from a subsidiary of the Company(pursuant to a resolution of the Board of Directors). When such acquisition is made by the Company from a specific party other than asubsidiary of the Company, any other shareholder may make a demand to a representative director, more than five calendar days prior
to the relevant shareholders’ meeting, that the Company also purchase the shares held by such shareholder. However, under theCompany Law, the acquisition of its own shares at a price not exceeding the then market price to be provided under an ordinance ofthe Ministry of Justice will not trigger the right of any shareholder to include him/her as the seller of his/her shares in such proposed
purchase. Any such acquisition of shares must satisfy certain requirements and shall be integrated into regulations governing financial
resources relating to the distribution of distributable surplus to shareholders. See “Additional Information—Memorandum and Articles
of Association—Dividends—Distributable amount.”
Shares acquired by the Company may be held by it for any period or may be cancelled by resolution of the Board of Directors.
The Company may also transfer to any person the shares held by it, subject to a resolution of the Board of Directors, and subject also
to other requirements similar to those applicable to the issuance of new shares. The Company may also utilize its treasury stock for the
purpose of transfer to any person upon exercise of stock acquisition rights or for the purpose of acquiring another company by way ofmerger, share exchange or corporate split through exchange of treasury stock for shares or assets of the acquired company.
The Company Law generally prohibits any subsidiary of the Company from acquiring shares of the Company.
Disposal of the Shares by the Company
The Company is not required to send notices to a shareholder if notices to such shareholder fail to arrive continuously for five
years or more at the registered address of the shareholder in the Company’s register of shareholders or at the address otherwise
notified to the Company.
In addition, the Company may dispose of the Shares at the then market price of the Shares by a resolution of the Board of
Directors and after giving at least three months’ prior public notice as well as individual notice to the shareholder at the registeredaddress of the shareholder in the Company’s register of shareholders or to the address otherwise notified to the Company, and hold or
deposit the proceeds for the shareholder, the location of which is unknown, if (i) notices to the shareholder fail to arrive continuously
for five years or more at the registered address of the shareholder in the Company’s register of shareholders or at the address otherwise
notified to the Company, and (ii) the shareholder fails to receive surplus dividends on the Shares continuously for five years or more at
the address registered in the Company’s register of shareholders or at the address otherwise notified to the Company.

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Acquisition or Disposition of Shares
Under the Foreign Exchange and Foreign Trade Law and the cabinet orders and ministerial ordinances thereunder (collectively,
the “Foreign Exchange Regulations”), all aspects of regulations on foreign exchange and trade transactions are, with minor exceptions
relating to inward direct investments (which are not generally applicable to the Company’s shares), only subject to post transaction
reporting requirements. Acquisitions and dispositions of shares of common stock or ADSs by non-residents of Japan (including
foreign corporation not resident in Japan) are generally not subject to this reporting requirement. However, the Minister of Finance has
the power to impose a licensing requirement for transactions in limited circumstances.
Dividends and Proceeds of Sales
Under the Foreign Exchange Regulations as currently in effect, dividends paid on, and the proceeds of sales in Japan of, shares
held by non-residents of Japan may in general be converted into any foreign currency and repatriated abroad. The acquisition of sharesby non-residents of Japan by way of stock splits is not subject to any of the foregoing notification or reporting requirements.
Reporting of Substantial Shareholdings
Pursuant to the Financial Instruments and Exchange Law of Japan and regulations thereunder, a person or group of persons
beneficially holding more than 5% of the total shares with voting rights (for this purpose shares issuable upon exercise of stockacquisition rights held by the person or persons are counted in the calculation of the holding and the total shares in issue) of acompany listed on any Japanese stock exchange is required to file with the director of a competent local finance bureau, within fivebusiness days a report containing the identity of such person or persons, the purpose of such holding and certain other informationprescribed by regulations. A similar report must also be made (with certain exceptions) if the percentage of such holding subsequently
increases or decreases by 1% or more or if any change occurs in material matters set out in reports previously filed.
10.C. MATERIAL CONTRACTS
All contracts concluded by the Company during the two years preceding this filing were entered into in the ordinary course ofbusiness.
10.D. EXCHANGE CONTROLSThe Foreign Exchange and Foreign Trade Law of Japan and its related cabinet orders and ministerial ordinances (the “Foreign
Exchange Regulations”) govern the acquisition and holding of shares of capital stock of the Company by “exchange non-residents”
and by “foreign investors.” The Foreign Exchange Regulations currently in effect do not, however, affect transactions between
exchange non-residents to purchase or sell shares outside Japan using currencies other than Japanese yen.
Exchange non-residents are:•individuals who do not reside in Japan; and•corporations whose principal offices are located outside Japan.

Generally, branches and other offices of non-resident corporations that are located within Japan are regarded as residents ofJapan. Conversely, branches and other offices of Japanese corporations located outside Japan are regarded as exchange non-residents.
Foreign investors are:•individuals who are exchange non-residents;•

corporations that are organized under the laws of foreign countries or whose principal offices are located outside of Japan;
and•corporations (1) of which 50% or more of the total voting rights of their shares are held by individuals who are exchange
non-residents or corporations (a) that are organized under the laws of foreign countries or (b) whose principal offices arelocated outside of Japan or (2) a majority of whose officers, or officers having the power of representation, are individuals
who are exchange non-residents.

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In general, the acquisition of shares of a Japanese company (such as the shares of capital stock of the Company) by an exchange
non-resident from a resident of Japan is not subject to any prior filing requirements. In certain limited circumstances, however, theMinister of Finance may require prior approval of an acquisition of this type. While prior approval, as described above, is not required,in the case where a resident of Japan transfers shares of a Japanese company (such as the shares of capital stock of the Company) for
consideration exceeding ¥100 million to an exchange non-resident, the resident of Japan who transfers the shares is required to report
the transfer to the Minister of Finance within 20 days from the date of the transfer, unless the transfer was made through a bank,securities company or financial futures trader licensed under Japanese law.
If a foreign investor acquires shares of a Japanese company that is listed on a Japanese stock exchange (such as the shares ofcapital stock of the Company) and, as a result of the acquisition, the foreign investor, in combination with any existing holdings,
directly or indirectly holds 10% or more of the issued shares of the relevant company, the foreign investor must file a report of theacquisition with the Minister of Finance and any other competent Ministers having jurisdiction over that Japanese company within 15
days from and including the date of the acquisition, except where the offering of the company’s shares was made overseas. In limited
circumstances, such as where the foreign investor is in a country that is not listed on an exemption schedule in the Foreign Exchange
Regulations, a prior notification of the acquisition must be filed with the Minister of Finance and any other competent Ministers, who
may then modify or prohibit the proposed acquisition.
Under the Foreign Exchange Regulations dividends paid on, and the proceeds of sales in Japan of, shares held by non-residents
of Japan may in general be converted into any foreign currency and repatriated abroad. Under the terms of the deposit agreement
pursuant to which the Company’s ADSs are issued, the Depositary is required, to the extent that in its judgment it can convert
Japanese yen on a reasonable basis into dollars and transfer the resulting dollars to the U.S., to convert all cash dividends that it
receives in respect of deposited shares into dollars and to distribute the amount received (after deduction of applicable withholding
taxes) to the holder of ADSs.
10.E. TAXATION
The following discussion is a general summary of the principal U.S. federal income and Japanese national tax consequences of
the acquisition, ownership and disposition of the shares of common stock of the Company (the “Shares”) or ADSs. This summary
does not purport to address all the material tax consequences that may be relevant to the holders of the Shares or ADSs, and does nottake into account the specific circumstances of any particular investors, some of which (such as tax-exempt entities, banks, insurancecompanies, broker-dealers, traders in securities that elect to use a mark-to-market method of accounting for their securities holdings,
regulated investment companies, real estate investment trusts, investors liable for alternative minimum tax, partnerships and otherpass-through entities, investors that own or are treated as owning 10% or more of the Company’s voting stock, investors that hold theShares or ADSs as part of an arbitrage, options trading, hedge, conversion or constructive sale transaction or other integrated
transaction and U.S. Holders (as defined below) whose functional currency is not the U.S. dollar) may be subject to special tax rules.
This summary is based on the federal income tax laws and regulations of the United States and the national tax laws of Japan, judicial
decisions and published rulings and administrative pronouncements as in effect on the date hereof, as well as on the current income
tax convention between the United States and Japan (the “Treaty”), as described below, all of which are subject to change (possiblywith retroactive effect), and/or to differing interpretations.
For purposes of this discussion, a “U.S. Holder” is any beneficial owner of the Shares or ADSs that, for U.S. federal income tax
purposes, is:(1)

an individual who is a citizen or resident of the United States,(2)

a corporation or other entity organized in or under the laws of the United States or any State thereof or the District ofColumbia,(3)

an estate the income of which is subject to U.S. federal income tax without regard to its source, or(4)

a trust that is subject to the primary supervision of a U.S. court and the control of one or more U.S. persons, or that has avalid election in effect under applicable Treasury regulations to be treated as a U.S. person.

An “Eligible U.S. Holder” is a U.S. Holder that:(1)

is a resident of the United States for purposes of the Treaty,(2)

does not maintain a permanent establishment in Japan (a) with which the Shares or ADSs are effectively connected andthrough which the U.S. holder carries on or has carried on a business or (b) of which the Shares or ADSs form part of thebusiness property, and(3)

is eligible for benefits under the Treaty, with respect to income and gain derived in connection with the Shares or ADSs.
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If a partnership holds the Shares or ADSs, the tax treatment of a partner generally will depend upon the status of the partner andthe activities of the partnership. A partner of a partnership holding the Shares or ADSs is urged to consult its tax advisor.
This summary does not address any aspects of U.S. federal tax law other than income taxation and does not discuss any aspectsof Japanese tax law other than income taxation as limited to national taxes, inheritance and gift taxation and securities transfer taxation.
This summary also does not cover any state or local, or non-U.S., non-Japanese tax considerations. Investors are urged to consult theirtax advisors regarding the U.S. federal, state, local and Japanese and other tax consequences of acquiring, owning and disposing of
Shares or ADSs. In particular, where relevant, investors are urged to confirm their status as Eligible U.S. Holders with their tax
advisors and to discuss with their tax advisors any possible consequences of their failure to qualify as Eligible U.S. Holders.
This summary is also based in part upon the representations of the depositary and the assumption that each obligation in thedeposit agreement referred to in “Description of American Depositary Receipts” set forth in the Company’s registration statement on
Form F-1 filed with the Securities and Exchange Commission on July 22, 2002, and in any related agreement, will be performed under
its terms.
In general, for purposes of the Treaty, and for U.S. federal and Japanese national income tax purposes, owners of ADRs
evidencing ADSs will be treated as the owners of the Shares represented by those ADSs, and exchanges of the Shares for ADSs, andexchanges of ADSs for the Shares, will not be subject to U.S. federal or Japanese income tax.
This discussion below is intended for general information only and does not constitute a complete analysis of all tax
consequences relating to ownership of Shares or ADSs. Investors in Shares or ADSs should consult their own tax advisors concerning
the tax consequences of their particular situations.
Japanese Taxation
The following is a summary of the principal Japanese tax consequences (limited to national taxes) to holders of the Shares andof ADRs evidencing ADSs representing the Shares who are either individuals who are not residents of Japan or non-Japanese
corporations, without a permanent establishment in Japan (“non-resident Holders”).
Generally, a non-resident of Japan or a non-Japanese corporation is subject to Japanese withholding tax on dividends paid byJapanese corporations. Stock splits in themselves are, in general not a taxable event.
In the absence of an applicable tax treaty, convention or agreement reducing the maximum rate of Japanese withholding tax orallowing exemption from Japanese withholding tax, the rate of Japanese withholding tax applicable to dividends paid by Japanese
corporations to non-residents of Japan or non-Japanese corporations is generally 20%. With respect to dividends paid on listed sharesissued by a Japanese corporation (such as the Shares) to any corporate or individual shareholders (including those shareholders who
are non-Japanese corporations or non-residents of Japan, such as non-resident Holders), other than any individual shareholder who
holds 5% or more of the total issued shares of the relevant Japanese corporation, the aforementioned 20% withholding tax rate is
reduced to (i) 7% for dividends due and payable on or before December 31, 2011, and (ii) as a general rule, 15% for dividends due andpayable on or after January 1, 2012. At the date of this annual report, Japan has income tax treaties, conventions or agreements
whereby the above-mentioned withholding tax rate is reduced, in most cases to 15% for portfolio investors with, among othercountries, Australia, Belgium, Canada, Denmark, Finland, Germany, Ireland, Italy, Luxembourg, the Netherlands, New Zealand,
Norway, Singapore, Spain, Sweden, Switzerland and Russia, and 10% for portfolio investors under the income tax treaty with, among
others, France, the U.K., India, Australia, China, Pakistan, Vietnam, Poland, Romania and the United States.
Under the Treaty, the maximum rate of Japanese withholding tax which may be imposed on dividends paid by a Japanese
corporation to an Eligible U.S. Holder that is a portfolio investor is generally reduced to 10% of the gross amount actually distributed
and Japanese withholding tax with respect to dividends paid by a Japanese corporation to an Eligible U.S. Holder that is a pension
fund is exempt from Japanese taxation by way of withholding or otherwise, unless such dividends are derived from the carrying on ofa business, directly or indirectly, by such pension fund.

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If the maximum tax rate provided for in the income tax treaty applicable to dividends paid by the Company to any particular
non-resident Holder is lower than the withholding tax rate otherwise applicable under Japanese tax law or any particular non-resident
Holder is entitled to reduced rate or exemption from Japanese income tax with respect to such dividends under the income tax treaty
applicable to such particular non-resident Holder, such non-resident Holder who is entitled to a reduced rate of, or exemption from,Japanese withholding tax on payment of dividends on the Shares by the Company is required to submit an Application Form for
Income Tax Convention Regarding Relief from Japanese Income Tax on Dividends (together with any other required forms anddocuments) in advance through the Company to the relevant tax authority before the payment of dividends. A standing proxy for nonresident Holders of a Japanese corporation may provide this application service. With respect to ADSs, this reduced rate or exemption
is applicable if the Depositary or its agent submits two Application Forms (one before payment of dividends, the other within eightmonths after the Company’s fiscal year-end or semi-fiscal year-end). To claim this reduced rate or exemption, any relevant nonresident Holder of ADSs will be required to file a proof of taxpayer status, residence and beneficial ownership (as applicable) and toprovide other information or documents as may be required by the Depositary. A non-resident Holder who is entitled, under anapplicable income tax treaty, to a reduced treaty rate lower than the withholding tax rate otherwise applicable under Japanese tax law
or an exemption from the withholding tax, but failed to submit the required application in advance will be entitled to claim the refundof withholding taxes withheld in excess of the rate under an applicable tax treaty (if such non-resident Holder is entitled to a reduced
treaty rate under the applicable income tax treaty) or the whole of the withholding tax withheld (if such non-resident Holder is entitled
to exemption under the applicable income tax treaty) from the relevant Japanese tax authority.
Gains derived from the sale of the Shares or ADSs outside Japan by a non-resident Holder holding such Shares or ADSs as
portfolio investors are, in general, not subject to Japanese income tax or corporation tax. Eligible U.S. Holders are not subject toJapanese income or corporation tax with respect to such gains under the Treaty.
Japanese inheritance and gift taxes at progressive rates may be payable by an individual who has acquired the Shares or ADSs
as a legatee, heir or donee even though neither the individual nor the deceased nor donor is a Japanese resident.
Holders of the Shares or ADSs should consult their tax advisors regarding the effect of these taxes and, in the case of U.S.
Holders, the possible application of the Estate and Gift Tax Treaty between the U.S. and Japan.
U.S. Federal Income Taxation
U.S. Holders
The following discussion is a summary of the principal U.S. federal income tax consequences to U.S. Holders that hold those Sharesor ADSs as capital assets (generally, for investment purposes).
Taxation of Dividends
Subject to the passive foreign investment company rules discussed below, the gross amount of any distribution made by theCompany in respect of Shares or ADSs (without reduction for Japanese withholding taxes) will constitute a taxable dividend to theextent paid out of current or accumulated earnings and profits of the Company, as determined under U.S. federal income tax principles.
The U.S. dollar amount of such a dividend generally will be included in the gross income of a U.S. Holder, as ordinary income, when
the dividend is actually or constructively received by the U.S. Holder, in the case of Shares, or by the depositary, in the case of ADSs.
Dividends paid by us will not be eligible for the dividends-received deduction generally allowed to U.S. corporations in respect ofdividends received from other U.S. corporations.
Under current law, dividends received on shares or ADSs of certain foreign corporations in taxable years beginning before
January 1, 2011 by non-corporate U.S. investors may be subject to U.S. federal income tax at lower rates than other types of ordinary
income if certain conditions are met. Dividends received by non-corporate U.S. Holders with respect to Shares or ADSs are expected
to be eligible for these reduced rates of tax. U.S. Holders should consult their own tax advisors regarding the eligibility of such
dividends for a reduced rate of tax.
The U.S. dollar amount of a dividend paid in Japanese yen will be determined based on the Japanese yen/U.S. dollar exchange
rate in effect on the date that dividend is included in the gross income of the U.S. Holder, regardless of whether the payment isconverted into U.S. dollars on such date. If the Japanese yen received as a dividend is not converted into U.S. dollars on the date ofreceipt, a U.S. Holder will have a tax basis in such Japanese yen equal to its U.S. dollar value on the date of receipt. Generally, any
gain or loss resulting from currency exchange fluctuations during the period from the date the dividend payment is included in the
gross income of a U.S. Holder through the date that payment is converted into U.S. dollars (or the U.S. Holder otherwise disposes of
the Japanese yen) will be treated as U.S. source ordinary income or loss. U.S. Holders should consult their own tax advisors regarding
the calculation and U.S. federal income tax treatment of foreign currency gain or loss.

65

To the extent, if any, that the amount of any distribution received by a U.S. Holder in respect of Shares or ADSs exceeds theCompany’s current and accumulated earnings and profits, as determined under U.S. federal income tax principles, the distribution firstwill be treated as a tax-free return of capital to the extent of the U.S. Holder’s adjusted tax basis in those Shares or ADSs, andthereafter will be treated as U.S. source capital gain.
Distributions of additional Shares that are made to U.S. Holders with respect to their Shares or ADSs and that are part of a pro
rata distribution to all of the Company’s shareholders generally will not be subject to U.S. federal income tax.
For U.S. foreign tax credit purposes, dividends included in gross income by a U.S. Holder in respect of Shares or ADSs will
constitute income from sources outside the United States, and will generally be “passive category income” or “general category
income”. Subject to generally applicable limitations under U.S. federal income tax law and the Treaty, any Japanese withholding tax
imposed in respect of the Company dividend may be claimed as a credit against the U.S. federal income tax liability of a U.S. Holder,or if the U.S. Holder does not elect to claim a foreign tax credit for any foreign taxes paid during the taxable year as a deduction fromsuch U.S. Holder’s taxable income. Special rules generally will apply to the calculation of foreign tax credits in respect of dividend
income that qualifies for preferential tax rates of U.S. federal income tax. Additionally, special rules may apply to individuals whose
foreign source income during the taxable year consists entirely of “qualified passive income” and whose creditable foreign taxes paidor accrued during the taxable year do not exceed $300 ($600 in the case of a joint return). Further, under some circumstances, a U.S.
Holder that:(i)has held Shares or ADSs for less than a specified minimum period, or(ii)

is obligated to make payments related to the Company dividends,

will not be allowed a foreign tax credit for Japanese taxes imposed on the Company dividends.
Investors are urged to consult their tax advisors regarding the availability of the foreign tax credit under their particular
circumstances. The U.S. Internal Revenue Service (the “IRS”) has expressed concern that parties to whom ADSs are released may betaking actions that are inconsistent with the claiming of foreign tax credits by U.S. Holders of ADSs. Accordingly, investors should beaware that the discussion above regarding the creditability of Japanese withholding tax on dividends could be affected by future
actions that may be taken by the IRS.
Taxation of Capital Gains
In general, upon a sale or other taxable disposition of Shares or ADSs, a U.S. Holder will recognize gain or loss for U.S. federal
income tax purposes in an amount equal to the difference between the amount realized on the sale or other taxable disposition and the
U.S. Holder’s adjusted tax basis in those Shares or ADSs. A U.S. Holder generally will have an adjusted tax basis in the Shares or
ADSs equal to their U.S. dollar cost. Subject to the passive foreign investment company rules discussed below, gain or loss recognizedon the sale or other taxable disposition generally will be capital gain or loss and, if the U.S. Holder’s holding period for those Sharesor ADSs exceeds one year, will be long-term capital gain or loss. Non-corporate U.S. Holders, including individuals, are eligible forpreferential rates of U.S. federal income tax in respect of long-term capital gain. Under U.S. federal tax law, the deduction of capital
losses is subject to limitations. Any gain or loss recognized by a U.S. Holder in respect of the sale or other disposition of Shares or
ADSs generally will be treated as derived from U.S. sources for foreign tax credit purposes.
Deposits and withdrawals of Shares in exchange for ADSs will not result in the realization of gain or loss for U.S. federal
income tax purposes.
Passive Foreign Investment Companies
A non-U.S. corporation generally will be classified as a passive foreign investment company (a “PFIC”) for U.S. federal income
tax purposes in any taxable year in which, after applying look-through rules, either (1) at least 75% of its gross income is passive
income, or (2) on average at least 50% of the gross value of its assets is attributable to assets that produce passive income or are held
for the production of passive income. Passive income for this purpose generally includes dividends, interest, royalties, rents and gains
from commodities and securities transactions. The PFIC determination is made annually and generally is based on the value of a nonU.S. corporation’s assets (including goodwill) and the composition of its income for the relevant tax year.

66Based on current estimates of its income and assets, the Company does not believe that it will be a PFIC for its current taxable
year, and intends to continue its operations in such a manner that it will not become a PFIC in the future. However, because the PFIC
determination is made annually at the close of the taxable year, the Company can provide no assurance that it will not become a PFICin the current or any future taxable year due to changes in its asset or income composition, a decrease in the price of its Shares (which
is used as a measure of goodwill as an active asset) or for other reasons. If the Company becomes a PFIC, U.S. Holders could be
subject to additional U.S. federal income taxes on gain recognized with respect to the Shares or ADSs and on certain “excess”
distributions (generally distributions in excess of 125% of the average distribution over a three-year period, or, if shorter, the holding
period for the Shares or ADSs). In addition, an interest charge may apply to the portion of the U.S. federal income tax liability on suchgains or distributions treated under the PFIC rules as having been deferred by the U.S. Holder. Moreover, dividends that a noncorporate U.S. Holder receives from us will not be eligible for the reduced U.S. federal income tax rates applicable to dividends
described above if we are a PFIC either in the taxable year of the distribution or the preceding taxable year. The Company will inform
U.S. Holders if it believes that it will be classified as a PFIC in any taxable year. If a U.S. Holder holds Shares or ADSs in any taxable
year in which the Company is a PFIC, such U.S. Holder will be required to file an information statement with the IRS.
U.S. Holders are urged to consult their tax advisors concerning the U.S federal income tax consequences of holding Shares or
ADSs if the Company were considered a PFIC in any year.
Non-U.S. Holders
The following discussion is a summary of the principal U.S. federal income tax consequences to beneficial holders of Shares or
ADSs that are neither U.S. Holders nor partnerships, nor entities taxable as partnerships for, U.S. federal income tax purposes (“NonU.S. Holders”).
A Non-U.S. Holder generally will not be subject to U.S. federal income or withholding tax in respect of distributions in respectof the Shares or ADSs unless the distributions are effectively connected with the conduct by the Non-U.S. Holder of a trade orbusiness within the United States (and, if an applicable tax treaty requires, are attributable to a U.S. permanent establishment or fixedbase of such Non-U.S. Holder).
A Non-U.S. Holder generally will not be subject to U.S. federal income tax in respect of gain recognized on a sale or othertaxable disposition of Shares, unless (i) the gain is effectively connected with a trade or business conducted by the Non-U.S. Holder
within the United States (and, if an applicable tax treaty requires, is attributable to a U.S. permanent establishment or fixed base ofsuch Non-U.S. Holder), or (ii) the Non-U.S. Holder is an individual who was present in the United States for 183 or more days in the
taxable year of the disposition and other conditions are met.
Income that is effectively connected with a U.S. trade or business of a Non-U.S. Holder (and, if an applicable income tax treaty
applies, is attributable to a U.S. permanent establishment or a fixed base of such Non-U.S. Holder) generally will be taxed in the samemanner as the income of a U.S. Holder. In addition, under certain circumstances, any effectively connected earnings and profits
realized by a corporate Non-U.S. Holder may be subject to additional “branch profits tax” at the rate of 30% or at a lower rate that
may be prescribed by an applicable income tax treaty.
Backup Withholding and Information Reporting
In general, except in the case of certain exempt recipients (such as corporations), information reporting requirements will apply
to dividends paid to a U.S. Holder in respect of Shares or ADSs, and to the proceeds received by a U.S. Holder upon the sale,exchange or redemption of Shares or ADSs within the United States or through certain U.S.-related financial intermediaries.
Furthermore, a backup withholding tax (currently at a rate of 28%) may apply to such payments or proceeds if a U.S. Holder fails toprovide an accurate tax identification number and make appropriate certifications in the required manner.
Dividends paid to a Non-U.S. Holder in respect of Shares or ADSs, and proceeds received upon the sale, exchange orredemption of Shares or ADSs by a Non-U.S. Holder, generally are exempt from information reporting and backup withholding undercurrent U.S. federal income tax law. However, a Non-U.S. Holder may be required to provide certification under penalty of perjury toensure that exemption. Persons required to establish their exempt status generally must provide such certification on IRS Form W-9,
entitled Request for Taxpayer Identification Number and Certification, in the case of U.S. Holders, and on IRS Form W-8BEN,
entitled Certificate of Foreign Status (or other appropriate IRS Form W-8), in the case of Non-U.S. Holders.
Backup withholding is not an additional tax. The amount of backup withholding imposed on a payment may generally be
refunded or allowed as a credit against the holder’s U.S. federal income tax liability provided that the required information is properly
furnished to the IRS.

67

THE SUMMARY OF U.S. FEDERAL INCOME AND JAPANESE NATIONAL TAX CONSEQUENCES SET OUT ABOVEIS INTENDED FOR GENERAL INFORMATION PURPOSES ONLY. INVESTORS IN THE SHARES OR ADSs ARE URGED
TO CONSULT WITH THEIR OWN TAX ADVISORS WITH RESPECT TO THE PARTICULAR TAX CONSEQUENCES TO
THEM OF OWNING OR DISPOSING OF SHARES OR ADSs BASED ON THEIR PARTICULAR CIRCUMSTANCES.
10.F. DIVIDENDS AND PAYING AGENTS
Not applicable.
10.G. STATEMENT BY EXPERTS
Not applicable.
10.H. DOCUMENTS ON DISPLAY
The Company files annual reports on Form 20-F and furnishes quarterly and other periodic reports on Form 6-K with theCommission. You may read and copy any reports, statements or other information on file at the public reference facilities maintainedby the Commission at 100F Street, N.E., Room 1580, Washington, D.C. 20549 or by accessing the Commission’s home page(http://www.sec.gov). Copies of the Company’s annual reports on Form 20-F, semi-annual and other periodic reports on Form 6-K are
also available on its website at http://www.advantest.co.jp/investors/en-index.shtml. The ADSs are listed on the New York Stock
Exchange under the symbol “ATE,” and the Company’s reports and other information may also be inspected at the New York Stock
Exchange, 20 Broad Street, New York, New York 10005. In addition, copies of contracts referred to in this annual report may beinspected at the principal executive offices of the Company, located at Shin Marunouchi Center Building, 1-6-2, Marunouchi,
Chiyoda-ku, Tokyo 100-0005, Japan.
10.I.

SUBSIDIARY INFORMATION
Not applicable.

ITEM 11.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKAdvantest is exposed to market risk from changes in foreign currency exchange rates, interest rates and equity security prices
and credit.
Foreign Currency Exchange Rate Risk
The tables below summarize information as of March 31, 2009 and March 31, 2008 on instruments and transactions that are
sensitive to foreign currency exchange rates, including assets and liabilities denominated in U.S. dollars, Euros, New Taiwan dollars
and Korean won, and forward contracts. The information in each table is presented in Japanese yen equivalents, which is theCompany’s reporting currency.
Foreign Currency Denominated Assets and Liabilities
Foreign currency denominated assets and liabilities that are sensitive to exchange rates between such foreign currency and theJapanese yen are presented by denominated currency. All of these assets and liabilities are stated at fair value.
As of March 31, 2009
Assets and Liabilities Denominated in
U.S.$

Euro

NT$

KRW

¥ 1,178
273
(205)

¥ 664
143
(98)

(in millions)Cash, cash equivalents and short-term investments....................................................
Accounts receivable....................................................................................................
Accounts payables and accruals..................................................................................

¥ 24,584
6,020(1,601)¥ 5,840
421(862)

As of March 31, 2008
Assets and Liabilities Denominated in
U.S.$

Euro

NT$

KRW

¥ 383
627
(489)

¥ 1,361518(243)(in millions)

Cash and cash equivalents .......................................................................................
Accounts receivable.................................................................................................
Accounts payables and accruals...............................................................................

68¥ 40,533
5,410(1,507)¥ 10,369
403(389)

Other foreign currency denominated assets and liabilities that are sensitive to exchange rates between such foreign currency anda currency other than the Japanese yen are presented on a combined basis below. All of the assets and liabilities are stated at fair value.
As of March 31, 2009
Yen Value of Cross Currency Assets and Liabilities(in millions)

Cash and cash equivalents ..................................................................................
Accounts receivable............................................................................................
Accounts payables and accruals..........................................................................

¥ 2,787
39(0)
As of March 31, 2008
Yen Value of Cross Currency Assets and Liabilities(in millions)

Cash and cash equivalents ..................................................................................
Accounts receivable............................................................................................
Accounts payables and accruals..........................................................................

¥530
54
(9)

Foreign Exchange Forward Contracts
Foreign exchange forward contracts used by Advantest are primarily to reduce foreign currency exchange risk. Foreignexchange forward contracts are presented by the notional balances with weighted average exchange rates. The contract terms of all
foreign exchange forward contracts are short-term which will mature within one year. All of the foreign exchange forward contracts
outstanding as of March 31, 2009 and March 31, 2008 are listed below.
As of March 31, 2009
Contract
Amounts

Fair Value

Average
Contractual
Exchange Rate(in millions)

To sell U.S. dollars/receive yen ....................................................................................
To sell Euro/receive yen ...............................................................................................
To sell yen/receive Euro ...............................................................................................
To sell U.S. dollars /receive Euro .................................................................................
To sell Euro /receive U.S. dollars .................................................................................

¥ 493
40
56
161
11

¥4
(5)
1
4
0

Total..............................................................................................................................

¥ 761

¥4

¥ 98.67
115.90128.63
1.2972
1.3335

As of March 31, 2008
Contract
Amounts

Fair Value

Average
Contractual
Exchange Rate(in millions)

To sell U.S. dollars/receive yen ..............................................................................
To sell Euro/receive yen .........................................................................................
To sell yen/receive Euro .........................................................................................

¥ —
532
2,398

¥—
(10)
(4)

Total........................................................................................................................

¥ 2,930¥ (14)

Interest Rate Risk
Advantest has no long-term debt obligations as of March 31, 2008 and 2009.

69

¥

—
153.87157.23

Securities Value Risk
The table below shows the acquisition price and fair value of securities that Advantest holds as of March 31, 2009 and March 31,
2008. Advantest does not hold or issue financial commodities with the purpose to trade. The only available-for-sale securities
Advantest holds are equity securities.
As of March 31, 2008
Acquisition Price

As of March 31, 2009

Fair Value

Acquisition PriceFair Value(in millions)Tradable Securities ..........................................................
ITEM 12.

¥ 5,942¥ 6,493

DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

12.A. DEBT SECURITIES
Not applicable.
12.B. WARRANTS AND RIGHTS
Not applicable.
12.C. OTHER SECURITIES
Not applicable.
12.D. AMERICAN DEPOSITARY SHARES
Not applicable.

70¥2,890¥3,015

PART IIITEM 13.

DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIESNone.
ITEM 14.

MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

None.
ITEM 15.
(a)

CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Advantest performed an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures asof the end of fiscal 2008. Disclosure controls and procedures are designed to ensure that the material financial and non-financial
information required to be disclosed in the reports that Advantest files, or submits, under the Exchange Act is accumulated andcommunicated to its management including the chief executive officer and principal accounting and financial officer to allow timely
decisions regarding required disclosure. The disclosure controls and procedures also ensure that the reports that it files or submits
under the Exchange Act are recorded, processed, summarized and reported within the time periods specified in the Commission’s
rules and forms. The evaluation was performed under the supervision of Advantest’s Representative Director, President and CEO and
Director and Managing Executive Officer. Advantest’s disclosure and controls and procedures provide reasonable assurance that its
objectives will be met. Managerial judgment was necessary to evaluate the cost-benefit relationship of possible controls andprocedures. Advantest’s Representative Director, President and CEO and Director and Managing Executive Officer have concluded
that Advantest’s disclosure controls and procedures are effective at the reasonable assurance level.
(b)Management’s Annual Report on Internal Control Over Financial Reporting

The management of Advantest is responsible for establishing and maintaining adequate internal control over financial reporting.
Advantest’s internal control system was designed to provide reasonable assurance with respect to the preparation of financial
statements in accordance with U.S. GAAP and the reliability of such financial statements.
Internal control over financial reporting has inherent limitations underlying internal control systems and misstatements may not
be prevented or detected. Furthermore, if the evaluation results regarding the effectiveness of internal control are expected to remain
the same going forward, it is important to recognize that there are risks, under which changes in circumstances may lead the controls
in place to be inadequate or that the extent to which policies or procedures are complied with may lower.
Advantest’s management assessed the effectiveness of the company’s internal control over financial reporting as of March 31,
2009. In making this assessment, it used the criteria set forth in Internal Control—Integrated Framework issued by the Committee ofSponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, management has concluded that, as ofMarch 31, 2009, Advantest’s internal control over financial reporting was effective based on those criteria.
Ernst & Young ShinNihon LLC, Advantest’s independent registered public accounting firm, has issued an attestation report on
the effectiveness of our internal control over financial reporting as of March 31, 2009. This report appears in Item 18.
(c)

Attestation Report of the Independent Registered Public Accounting Firm
This report appears in Item 18.

(d)Changes in Internal Control Over Financial Reporting

There has been no change in our internal control over financial reporting that occurred during the year ended March 31, 2009that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
ITEM 16.
ITEM 16A.

[RESERVED]
AUDIT COMMITTEE FINANCIAL EXPERTAdvantest’s Board of Corporate Auditors has determined that Hitoshi Owada is an “audit committee financial expert” as definedby Item 16.A. of Form 20-F. For details regarding Mr. Owada’s business experiences, see “6.A. DIRECTORS AND SENIORMANAGEMENT.”

71

ITEM 16B.

CODE OF ETHICS

The Company has adopted a code of ethics that applies to its directors and executive officers, including its principal executive
officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. A copy of theCompany’s code of ethics was attached to the annual report on Form 20-F for fiscal 2003 and is attached as an exhibit to this Form 20F for reference.
ITEM 16C.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

Ernst & Young ShinNihon LLC served as our independent registered public accounting firm for fiscal 2008, 2007 and 2006.
The audited financial statements for these fiscal years are included in the respective year’s annual report filed on Form 20-F.
The chart below sets forth the aggregate fees for professional services and other services rendered to Advantest by Ernst &Young ShinNihon LLC and its member firms in fiscal 2007 and 2008.
Fiscal 2007

Fiscal 2008

(in millions)Audit Fees(1) ..........................................................................................................................................
Audit-Related Fees(2) .............................................................................................................................
Tax Fees(3) .............................................................................................................................................
All Other Fees(4) ....................................................................................................................................

¥ 332
2
24
7

¥ 335
—
39
—

Total......................................................................................................................................................

¥ 366

¥ 374

(1)

(2)

(3)

(4)

Audit Fees consist of fees billed for the annual audit services engagement and other audit services, which are those services that
only the external auditor reasonably can provide, and include the group audit; statutory audits; the issuance of consents; andassistance with and review of documents filed with the SEC.
Audit-Related Fees consist of fees billed for assurance and related services that are reasonably related to the performance of theaudit or review of our financial statements or that are traditionally performed by the external auditor, and include consultations
concerning financial accounting and reporting standards; and review of security controls and operational effectiveness of
systems.
Tax Fees include fees billed for tax compliance services, including the preparation of original and amended tax returns andclaims for refund; tax consultations, such as assistance in connection with tax audits and advice related to transfer pricing, andrequests for rulings or technical advice from taxing authorities; and expatriate tax services.
All Other Fees include fees billed for training; and process improvement and advice.

Policies and Procedures of the Board of Corporate Auditors
Below is a summary of the current policies and procedures of the board of corporate auditors for the pre-approval of audit andpermissible non-audit services performed by Advantest’s independent public accountants.
Under the policy, the board of corporate auditors authorizes general pre-approval of audit and permissible non-audit services forthe following fiscal year. Upon the general pre-approval of the board of corporate auditors, no specific pre-approval for audit andpermissible non-audit services is required so long as those services fall within the scope of the general pre-approval provided.
Applications to provide services that require specific pre-approval by the board of corporate auditors will be submitted to theboard of corporate auditors.
The board of corporate auditors makes further determination as to whether or not to revise the general pre-approval for theapplicable fiscal year. Such request may include adding to or subtracting from any audit or permissible non-audit services listed in thegeneral pre-approval. The performance of audit and permissible non-audit services and the payment of fees are subject to the review
by the board of corporate auditors once every fiscal year.
ITEM 16D.

EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEESThe Company does not have an audit committee. The Company is relying on the general exemption contained in Rule 10A3(c)(3) under the Exchange Act, which provides an exemption from the NYSE’s listing standards relating to audit committees forforeign companies like the Company that have a board of corporate auditors. The Company’s reliance on Rule 10A-3(c)(3) does not,in its opinion, materially adversely affect the ability of its board of corporate auditors to act independently and to satisfy the otherrequirements of Rule 10A-3.

72

ITEM 16E.

PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

The following table sets forth Advantest’s purchases of its common stock during fiscal 2008:

Period(a) Total Number of
Shares Purchased1(b) Average Price
Paid per Share(Yen)(c) Total Number of
Shares Purchased as
Part of Publicly
Announced Plans
or Programs3

2008
April 1 – April 30 ........................................................
May 1 – May 31...........................................................
June 1 – June 30...........................................................
July 1 – July 31 ............................................................
August 1 – August 31 ..................................................
September 1 – September 30 .......................................
October 1 – October 31................................................
November 1 – November 30........................................
December 1 – December 31.........................................

72
116
298
586
515
325
199
148
428

¥ 2,985
2,720
2,637
2,249
2,378
2,388
1,305
1,212
1,249

N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A

N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A

2009
January 1 – January 31 ................................................
February 1 – February 28.............................................
March 1 – March 31 ....................................................

144
110
556

1,436
1,321
1,346

N/A
N/A
N/A

N/A
N/A
N/A

Total.............................................................................

3,497¥ 1,919

N/A

N/A

1

2

(d) Maximum Number of
Shares thatMay Yet Be Purchased
Under the Plans
or Programs

All purchases are made through repurchase of shares constituting less than one unit, which is 100 shares of common stock, or
through repurchase of shares pursuant to a resolution of Board of Directors (Note 2). The purchase of shares that are a fractionof a unit are made in accordance with the provisions of the Company’s share handling regulations. The Company is required tocomply with such requests pursuant to the Company Law. See “Additional Information—Memorandum and Articles of
Association—The Unit Share System.”
The Company can repurchase its shares through stock exchanges where the Company’s shares are listed or pursuant to a
takeover bid when there is a resolution of Board of Directors in accordance to Article 41 of the Articles of Incorporation.

ITEM 16F. CHANGE IN REGISTRAINT’S CERTIFYING ACCOUNTANT
Not applicable.

73

ITEM 16G. CORPORATE GOVERNANCE
Significant Differences in Corporate Governance Practices between the Company and U.S. Companies Listed on the New
York Stock Exchange
Pursuant to home country practices exemptions granted by the New York Stock Exchange, or the NYSE, the Company ispermitted to follow certain corporate governance practices complying with Japanese laws, regulations and stock exchange rules in lieu
of NYSE’s listing standards. The United States Securities and Exchange Commission, or the SEC, approved changes to the NYSE’slisting standards related to corporate governance practices of listed companies in November 2003, as further amended in November
2004. The Company is exempted from the approved changes, except for requirements that (a) the Company’s board of corporate
auditors satisfy the requirements of Rule 10A-3 under the U.S. Securities Exchange Act of 1934 as amended, or the Exchange Act,(b) the Company must disclose significant differences in the corporate governance practices followed by the Company as compared tothose followed by domestic companies under the NYSE listing standards, (c) the Company’s CEO must notify the NYSE of material
non-compliance with (a) and (b), and (d) the Company must submit annual and interim written affirmations to the NYSE. The
Company’s corporate governance practices and those followed by domestic companies under the NYSE listing standards, or NYSE
Corporate Governance, have the following significant differences:
1. Directors. The Company currently has two outside directors on its Board of Directors. Unlike NYSE Corporate Governance,
the Company Law of Japan and related legislation (hereinafter in Item 16G., the “Company Law”), do not require Japanese companies
with boards of corporate auditors such as the Company to have any outside directors on its Board of Directors. While NYSE
Corporate Governance requires that the non-management directors of each listed company meet at regularly scheduled executive
sessions without management, the Company currently has no non-management director on its Board of Directors. Unlike NYSE
Corporate Governance, the Company Law does not require, and accordingly the Company does not have, an internal corporate organ
or committee comprised of only outside directors.
2. Committees. The Company has not established committees responsible for director nomination, corporate governance andexecutive compensation as required by NYSE Corporate Governance, but it has adopted a system of corporate auditors based on the
Company Law and integrated such system into the Company’s corporate governance structure. In addition, in connection with such
system of corporate auditors, the Company has elected to establish a nomination and compensation committee, which is an optional
committee under the Company Law.
Pursuant to the Company Law, the Company’s Board of Directors nominates and submits a proposal for appointment of
directors for shareholder approval. The shareholders vote on such nomination at the Company’s general meeting of shareholders. The
Company Law requires that the respective total amount of remuneration, among others, (remuneration, bonus, and other consideration
for services related to employment) to be paid to all directors and all corporate auditors must be determined by a resolution of thegeneral meeting of shareholders, unless their remuneration is provided for in the articles of incorporation. The distribution of
remuneration among directors is broadly delegated to the Company’s Board of Directors and the distribution of remuneration amongcorporate auditors is determined by the board of corporate auditors.
3. Audit Committee. The Company avails itself of paragraph (c)(3) of Rule 10A-3 of the Exchange Act, which provides a
general exemption from the audit committee requirements to a foreign private issuer with a board of corporate auditors, subject tocertain requirements which continue to be applicable under Rule 10A-3.
Consistent with the requirements of the Company Law, the Company elects its corporate auditors through a resolution adopted
at a general meeting of shareholders. The Company currently has four corporate auditors, which exceeds the minimum number ofcorporate auditors required pursuant to the Company Law.
Unlike NYSE Corporate Governance, the Company Law, among others, does not require corporate auditors to establish an
expertise in accounting nor are they required to present other special knowledge and experience. Under the Company Law, the boardof corporate auditors may determine audit policy, methods to investigate the state of business operations and assets and other mattersrelating to the execution of duties by corporate auditors, prepare corporate auditors’ reports and give consent to proposals of thenomination of corporate auditors and accounting auditors.
The Company currently has two corporate auditors who satisfy the requirements of “outside corporate auditor” under theCompany Law. Unlike NYSE Corporate Governance, under the Company Law, at least one-half of the corporate auditors of theCompany must be “outside corporate auditors,” which is a person who was not a director, an accounting counselor (if an accounting
counselor is a corporation, an employee of such corporation who carries out its duties), executive officer, general manager, or any
other employee of the Company or any of its subsidiaries at any time in the past. Corporate auditors may not at the same time bedirectors, an accounting counselor (if an accounting counselor is a corporation, an employee who carries out its duties), executive
officer, general manager, or any other employee of the Company or any of its subsidiaries.

74

4. Corporate Governance Guidelines. The Company is required to adopt or disclose corporate governance guidelines underJapanese laws and regulations, including the Company Law and the Financial Instruments and Exchange Law of Japan or rules ofTokyo stock exchange. Pursuant to the Company Law, the Company is required to decide to implement a structure as required by an
ordinance of the Ministry of Justice (the “Internal Control System”) in order to ensure directors’ compliance with applicable laws andregulations and the Company’s articles of incorporation while executing their duties and joint stock companies’ proper business
operation, and is required to disclose the decision to implement the Internal Control System, policies and the conditions of its
corporate governance in its business report, annual securities report and certain other disclosure documents in accordance with theCompany Law, the Financial Instruments and Exchange Law, and applicable Cabinet ordinances and rules of Tokyo stock exchange inrespect of timely disclosure.
5. Code of Business Conduct and Ethics. Unlike NYSE Corporate Governance, under Japanese law (including the Company
Law and the Financial Instruments and Exchange Law of Japan), and the rules of the Tokyo stock exchange, the Company is not
required to adopt a code of business conduct and ethics for directors, officers and employees. Accordingly, the Company is not
required to adopt and disclose a code of business conduct and ethics for these individuals. However, in accordance with the Company
Law, the Company has decided to implement the Internal Control System as a structure to ensure that director’s execution of theirduties at meetings of the Board of Directors complies with applicable laws and regulations and the Company’s articles ofincorporation. Furthermore, the Company has established a code of ethics consistent with Section 406 of the Sarbanes-Oxley Act.
6. Shareholder Approval of Equity Compensation Plans. Unlike NYSE Corporate Governance, in which material revisions
to equity-compensation plans of the listed companies are subject to shareholder approval, pursuant to the Company Law, if a joint
stock company desires to adopt an equity-compensation plan for directors as compensation to directors other than cash, such company
is generally required to obtain shareholder approval by an “ordinary resolution.” In addition to the above approval, when the Company
previously desired to adopt an equity-compensation plan under which stock acquisition rights are granted on favorable terms to therecipient under the plan (except where such rights are granted to all of its shareholders on a pro-rata basis at the same time), theCompany has obtained shareholder approval by a “special resolution” of a general meeting of shareholders, where the quorum is onethird of the total number of voting rights and the approval of at least two-thirds of the voting rights represented at the meeting isrequired.

75

PART IIIITEM 17.

FINANCIAL STATEMENTS

Not applicable.
ITEM 18.

FINANCIAL STATEMENTS

The following financial statements are filed as part of this annual report on Form 20-F.

76

ADVANTEST CORPORATION
AND SUBSIDIARIESINDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Reports of Independent Registered Public Accounting Firm............................................................................................................. F-2
Consolidated Balance Sheets as of March 31, 2008 and 2009........................................................................................................... F-4
Consolidated Statements of Operations
for the years ended March 31, 2007, 2008 and 2009 .................................................................................................................... F-6
Consolidated Statements of Stockholders’ Equity
for the years ended March 31, 2007, 2008 and 2009 .................................................................................................................... F-7
Consolidated Statements of Cash Flowsfor the years ended March 31, 2007, 2008 and 2009 .................................................................................................................... F-8
Notes to Consolidated Financial Statements...................................................................................................................................... F-9
All schedules are omitted as permitted by the rules and regulations of the Securities and Exchange Commission, as the required
information is presented in the notes to consolidated financial statements, or the schedules are not applicable.

F-1

Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of
Advantest Corporation
We have audited the accompanying consolidated balance sheets of Advantest Corporation and subsidiaries as of March 31, 2009
and 2008, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the
period ended March 31, 2009. These financial statements are the responsibility of the Company’s management. Our responsibility is
to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements arefree of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in thefinancial statements. An audit also includes assessing the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial
position of Advantest Corporation and subsidiaries at March 31, 2009 and 2008, and the consolidated results of their operations andtheir cash flows for each of the three years in the period ended March 31, 2009, in conformity with U.S. generally accepted accounting
principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States),
Advantest Corporation’s internal control over financial reporting as of March 31, 2009, based on criteria established in Internal
Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report
dated June 15, 2009 expressed an unqualified opinion thereon.
/s/Ernst & Young ShinNihon LLC

Tokyo, Japan
June 15, 2009

F-2

Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of
Advantest Corporation
We have audited Advantest Corporation’s internal control over financial reporting as of March 31, 2009, based on criteria
established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (the COSO criteria). Advantest Corporation’s management is responsible for maintaining effective internal control overfinancial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in theaccompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on thecompany’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control
over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control overfinancial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness ofinternal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances.
We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding thereliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of theassets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being
made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have amaterial effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because ofchanges in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Advantest Corporation maintained, in all material respects, effective internal control over financial reporting asof March 31, 2009, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), theaccompanying consolidated balance sheets of Advantest Corporation and subsidiaries as of March 31, 2009 and 2008, and the related
consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended March 31,
2009 and our report dated June 15, 2009 expressed an unqualified opinion thereon.
/s/Ernst & Young ShinNihon LLC

Tokyo, Japan
June 15, 2009

F-3

ADVANTEST CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheets
March 31, 2008 and 2009
Yen (Millions)
2008

2009

AssetsCurrent assets:
Cash and cash equivalents.................................................................................................................
Short-term investments .....................................................................................................................
Trade receivables, net........................................................................................................................
Inventories.........................................................................................................................................
Deferred tax assets ............................................................................................................................
Other current assets ...........................................................................................................................

¥ 147,348—
30,124
26,823
12,678
6,474

105,455
25,114
10,415
9,737
653
5,933

Total current assets ..................................................................................................................

223,447

157,307

Investment securities ..................................................................................................................................
Property, plant and equipment, net .............................................................................................................
Deferred tax assets......................................................................................................................................
Intangible assets, net ...................................................................................................................................
Other assets.................................................................................................................................................

9,754
50,765
6,488
3,476
4,754

6,679
33,974
30
1,470
2,599

Total assets ..............................................................................................................................

¥ 298,684

202,059

See accompanying notes to consolidated financial statements.

F-4

ADVANTEST CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheets
March 31, 2008 and 2009
Yen (Millions)
2008

2009

Liabilities and Stockholders’ Equity
Current liabilities:
Trade accounts payable .....................................................................................................................
Other accounts payable .....................................................................................................................
Accrued expenses..............................................................................................................................
Accrued warranty expenses...............................................................................................................
Other current liabilities......................................................................................................................

¥ 11,765
2,458
10,940
3,143
3,389

4,767
6,409
6,043
2,811
1,507

Total current liabilities ...................................................................................................
Accrued pension and severance cost...........................................................................................................
Other liabilities ...........................................................................................................................................

31,695
10,711
2,094

21,537
13,996
2,910

Total liabilities ...............................................................................................................
Commitments and contingent liabilities

44,50038,443

Stockholders’ equity:
Common stock,
Authorized 440,000,000 shares; issued 199,566,770 shares....................................................
Capital surplus...................................................................................................................................
Retained earnings ..............................................................................................................................
Accumulated other comprehensive income (loss).............................................................................
Treasury stock, 20,840,721 shares in 2008 and 20,843,298 shares in 2009, at cost..........................

32,36340,072
278,689(7,615)(89,325)

32,36340,320
194,848(14,587)(89,328)

Total stockholders’ equity..............................................................................................

254,184

163,616

Total liabilities and stockholders’ equity .......................................................................

¥ 298,684

202,059

See accompanying notes to consolidated financial statements.

F-5

ADVANTEST CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended March 31, 2007, 2008 and 2009
Yen (Millions)
2007

2008

2009

Net sales.......................................................................................................................................
Cost of sales.................................................................................................................................

¥ 235,012
108,718

182,767
88,83776,652
56,837Gross profit ...............................................................................................................

126,294

93,93019,815

Research and development expenses ...........................................................................................
Selling, general and administrative expenses ..............................................................................
Restructuring and impairment charges ........................................................................................

29,50939,993—30,50740,707—23,71331,771
13,788Operating income (loss)............................................................................................

56,792

22,716(49,457)

Other income (expense):
Interest and dividends income............................................................................................
Interest expense..................................................................................................................
Impairment losses on investment securities .......................................................................
Other, net............................................................................................................................

3,026
(16)
(270)
1,558

3,799
(12)
(1,331)(1,639)2,157(11)(3,510)(1,940)Total other income (expense) ...................................................................................

4,298

817

(3,304)

Income (loss) before income taxes and equity in earnings (loss) of affiliatedcompany...............................................................................................................

61,09023,533(52,761)

Income taxes ................................................................................................................................
Equity in earnings (loss) of affiliated company ...........................................................................

25,520
(14)

6,889
(94)

21,994(147)

Net income (loss)......................................................................................................

¥ 35,556

16,550(74,902)

Yen
2007

Net income (loss) per share:
Basic...................................................................................................................................
Diluted................................................................................................................................

¥ 190.01
188.85

See accompanying notes to consolidated financial statements.

F-6

2008

90.72
90.57

2009

(419.09)(419.09)ADVANTEST CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Stockholders’ Equity
Years ended March 31, 2007, 2008 and 2009
Yen (Millions)
Common stock
Balance at beginning of year .............................................................................................................................................
Changes in the year
Total changes in the year ......................................................................................................................................
Balance at end of year .......................................................................................................................................................
Capital surplus
Balance at beginning of year .............................................................................................................................................
Changes in the year
Stock option compensation expense .....................................................................................................................
Exercise of stock option........................................................................................................................................

2007

2008

2009

¥ 32,363

32,36332,363———32,36332,36332,36337,14739,25640,072

2,566
(457)

858
(42)

248
—

Total changes in the year ......................................................................................................................................

2,109

816

248

Balance at end of year .......................................................................................................................................................

39,25640,07240,320245,090273,082

278,689

35,556(7,474)(90)

16,550(10,702)(241)(74,902)(8,936)(3)

Retained earnings
Balance at beginning of year .............................................................................................................................................
Changes in the year
Net income(loss)...................................................................................................................................................
Cash dividends......................................................................................................................................................
Sale of treasury stock............................................................................................................................................
Total changes in the year ......................................................................................................................................

27,992

5,607(83,841)

Balance at end of year .......................................................................................................................................................

273,082

278,689

194,848

Accumulated other comprehensive income (loss)
Balance at beginning of year .............................................................................................................................................
Changes in the year
Other comprehensive income (loss), net of tax .....................................................................................................

1,344

3,652

(7,615)2,308(11,267)(6,972)

Total changes in the year ......................................................................................................................................

2,308(11,267)(6,972)

Balance at end of year .......................................................................................................................................................

3,652(7,615)(14,587)(58,017)(53,556)(89,325)

4,520
(68)
9

793
(36,564)
2

—
(7)
4

Total changes in the year ......................................................................................................................................

4,461(35,769)(3)

Balance at end of year .......................................................................................................................................................

(53,556)(89,325)(89,328)

257,927

294,797

254,184

35,556
2,308(7,474)
2,566
4,063
(68)
(81)

16,550(11,267)(10,702)858
751(36,564)(239)(74,902)(6,972)(8,936)
248
—
(7)
1

Treasury stock
Balance at beginning of year .............................................................................................................................................
Changes in the year
Exercise of stock option........................................................................................................................................
Repurchase of treasury stock ................................................................................................................................
Sale of treasury stock............................................................................................................................................

Total stockholders’ equity
Balance at beginning of year .............................................................................................................................................
Changes in the year
Net income (loss)..................................................................................................................................................
Other comprehensive income (loss), net of tax .....................................................................................................
Cash dividends......................................................................................................................................................
Stock option compensation expense .....................................................................................................................
Exercise of stock option........................................................................................................................................
Repurchase of treasury stock ................................................................................................................................
Sale of treasury stock............................................................................................................................................
Total changes in the year ......................................................................................................................................

36,870(40,613)(90,568)

Balance at end of year .......................................................................................................................................................

294,797

254,184

163,616

35,556

16,550(74,902)

1,123
(362)
—

(6,845)(2,060)(2,362)(1,793)(244)(4,935)

Total other comprehensive income (loss) ..........................................................................................................................

761(11,267)(6,972)Comprehensive income (loss) in the year ..........................................................................................................................

36,317

5,283(81,874)

Comprehensive income (loss)
Net income (loss) ..............................................................................................................................................................
Other comprehensive income (loss), net of tax
Foreign currency translation adjustments..............................................................................................................
Net unrealized gains (losses) on investment securities..........................................................................................
Pension related adjustments ..................................................................................................................................

See accompanying notes to consolidated financial statements.

F-7

ADVANTEST CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended March 31, 2007, 2008 and 2009
Yen (Millions)
2007

2008

2009

16,550(74,902)8,836(4,449)
858
—
1,331

8,719
20,205248
18,9303,510

22,666
4,877(16,239)(8,657)(2,527)(986)(1,480)3,386
24,166

19,323
17,816(6,879)(371)(4,893)(617)(1,605)
2,873
2,357

—
20
—
—
(90)
541
(897)
(7,511)(76)(8,013)—56(3,002)(233)(1,035)
1,015(1,017)(11,994)(112)(16,322)(26,210)
36
—
(911)
—
390
(645)
(4,909)(258)(32,507)

Cash flows from financing activities:
Principal payments on long-term debt .....................................................................................
(30)
Proceeds from sale of treasury stock........................................................................................
3,913
Payments to acquire treasury stock ..........................................................................................
(68)
Dividends paid .........................................................................................................................
(7,468)Other ........................................................................................................................................
(9)
Net cash used in financing activities ................................................................
(3,662)Net effect of exchange rate changes on cash and cash equivalents...............................................
1,194
Net change in cash and cash equivalents ......................................................................................
38,470Cash and cash equivalents at beginning of year ...........................................................................
157,925
Cash and cash equivalents at end of year...................................................................................... ¥ 196,395

(10)
508
(36,564)(10,695)(9)(46,770)(10,121)(49,047)
196,395
147,348—2(6)(8,924)(2)(8,930)(2,813)(41,893)
147,348
105,455

Supplemental data:
Cash paid during the year for:
Income taxes........................................................................................................................ ¥ 29,284
Interest.................................................................................................................................
16

23,288
13

5,414
12

Cash flows from operating activities:
Net income (loss) ..................................................................................................................... ¥ 35,556
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization........................................................................................
8,214
Deferred income taxes....................................................................................................
7,381
Stock option compensation expense...............................................................................
2,566
Restructuring and impairment charges ...........................................................................
—
Impairment losses on investment securities ...................................................................
270
Changes in assets and liabilities:
Trade receivables .......................................................................................................
15,563Inventories .................................................................................................................
(2,054)
Trade accounts payable..............................................................................................
(3,318)
Income taxes payable.................................................................................................
(10,586)
Accrued expenses ......................................................................................................
815
Accrued warranty expenses .......................................................................................
(641)
Accrued pension and severance cost..........................................................................
(1,437)
Other...............................................................................................................................
(3,378)Net cash provided by operating activities ........................................................
48,951
Cash flows from investing activities:(Increase) decrease in short-term investments .........................................................................
Proceeds from sale of non-marketable investment securities...................................................
Purchases of available-for-sales securities...............................................................................
Purchases of non-marketable investment securities.................................................................
Investment in equity method investee......................................................................................
Proceeds from sale of property, plant and equipment ..............................................................
Purchases of intangible assets ..................................................................................................
Purchases of property, plant and equipment ............................................................................
Other ........................................................................................................................................
Net cash used in investing activities.................................................................

See accompanying notes to consolidated financial statements.

F-8

ADVANTEST CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements(1) Description of Business and Summary of Significant Accounting Policies and Practices(a) Description of Business
The Company and its consolidated subsidiaries (collectively “Advantest”) manufacture and sell semiconductor and component
test system products and mechatronics-related products such as test handlers and device interfaces. Advantest also engages in researchand development activities and provides maintenance and support services associated with these products.
Description of the business by segment is as follows:
The semiconductor and component test system segment provides customers with test system products for the semiconductor
industry and the electronic parts industry. Product lines provided in the semiconductor and component test system segment include
test systems for memory semiconductors for memory semiconductor devices and test systems for SoC (“System-on-a-Chip”)
semiconductors for non memory semiconductor devices.
The mechatronics system segment provides product lines such as test handlers, mechatronic-applied products for handlingsemiconductor devices, device interfaces that serve as interfaces with the devices that are measured and operations related to nanotechnology products.
The services, support and others segment consists of comprehensive customer solutions provided in connection with the above
segments, support services, equipment lease business and others.
(b) Principles of Consolidation
Advantest’s consolidated financial statements include financial statements of the Company and its majority-owned subsidiaries.
Advantest is not involved with any significant variable interest entities which should be consolidated as defined by Financial
Accounting Standards Board (“FASB”) Interpretation No. 46 (revised December 2003) “Consolidation of Variable Interest Entities”.
All significant intercompany balances and transactions have been eliminated in consolidation.
(c) Cash Equivalents
Cash equivalents primarily consist of deposits and certificates of deposit with an original maturity of three months or less fromthe date of purchase. Advantest considers all highly liquid debt instruments with original maturities of three months or less to be cash
equivalents.
(d) Short-term investments
All highly liquid investments with maturities greater than three months at the date of purchase are classified as short-term
investments.
(e) Allowance for Doubtful Accounts
Advantest recognizes an allowance for doubtful accounts to ensure that trade receivables are not overstated due touncollectability, which represents Advantest’s best estimate of the amount of probable credit losses in Advantest’s existing tradereceivables. An allowance for doubtful accounts is provided at an amount calculated based on historical write off experience and a
specific allowance for estimated amounts considered to be uncollectable after reviewing individual factors such as the customer’scurrent financial position, significant changes in the semiconductor industry, other information that is publicly available and thecustomer’s credit worthiness.
(f) Inventories
Inventories are stated at the lower of cost or market. Cost is determined using the average cost method.

F-9

ADVANTEST CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)(g) Investment Securities
Investment securities at March 31, 2008 and 2009 consist of marketable and non-marketable equity securities, and investment in
an affiliated company. Fair value is determined based on quoted market prices, projected discounted cash flow or other valuation
techniques as appropriate.
Marketable Equity Securities
Advantest classifies its marketable equity securities as available-for-sale.
Available-for-sale securities are recorded at fair value. Unrealized gains and losses, net of the related tax effect, on availablefor-sale securities are excluded from earnings and are reported as a component of accumulated other comprehensive income (loss)
until realized. A decline in the fair value of any available-for-sale security below cost that is deemed to be other than temporary results
in an impairment loss. The impairment is charged to earnings and a new cost basis for the security is established. Dividend income isrecognized when earned.
On a periodic basis, Advantest evaluates the cost basis of an available-for-sale security for possible impairment. Factors
considered in assessing whether an indication of other than temporary impairment exists include: the degree of change in ratio of
market prices per share to book value per share at the date of evaluation compared to the acquisition date, the financial condition andprospects of each investee company, industry conditions in which the investee company operates, the period of time the fair value ofan available-for-sale security has been below the cost basis of the investment and other relevant factors. Advantest has an intention
and ability to retain available-for-sale security which it determines that their impairment is not other than temporary for a period oftime sufficient to allow for any anticipated recovery in market value. The impairment to be recognized is measured based on theamount by which the carrying amount of the investment exceeds the fair value of the investment.
The cost of a security sold or the amount reclassified out of accumulated other comprehensive income (loss) into earnings isdetermined by the average cost method.
Non-marketable Equity Securities
Non-marketable equity securities are carried at cost. On a periodic basis, Advantest evaluates these investments for possible
impairment. Non-marketable equity securities that have impairment indicators were evaluated to determine whether the investments
were impaired and the impairment, if any, is other than temporary. If the impairment is other than temporary, Advantest recognizes an
impairment loss to reduce the carrying amount to the fair value under new cost basis for the security is established.
Investment in an Affiliated Company
Investment in affiliated company over which Advantest has the ability to exercise significant influence, but does not hold acontrolling financial interest, is accounted for by the equity method. All significant intercompany profits have been eliminated.
(h) Derivative Financial Instruments
All derivative instruments in the consolidated balance sheets are stated at fair value. The accounting for changes in the fair value(that are, gains or losses) of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging
relationship and, if so, the purpose for holding the instrument. If certain conditions are met, entities may elect to designate a derivative
instrument as a hedge of exposures to changes in fair values, cash flows, or foreign currencies.
If the hedged exposure is a fair value exposure, the gain or loss on the derivative instrument is recognized in earnings in the
period of change together with the offsetting loss or gain on the hedged item attributable to the risk being hedged. If the hedged
exposure is a cash flow exposure, the effective portion of the gain or loss on the derivative instrument is reported initially as acomponent of other comprehensive income (loss) and subsequently reclassified into earnings when the forecasted transaction affects
earnings. Any amounts excluded from the assessment of hedge effectiveness as well as the ineffective portion of the gain or loss arereported in earnings immediately. If the derivative instrument is not designated as a hedge, the gain or loss is recognized in earnings in
the period of change.

F-10

ADVANTEST CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)(i) Property, Plant and Equipment
Property, plant and equipment is stated at cost.
Depreciation has been computed principally using the declining-balance method for the Company and its domestic subsidiaries.
The straight-line method over estimated useful lives of the assets is used for foreign subsidiaries.
On April 1, 2007, the Company and its domestic subsidiaries elected to change the declining-balance method of depreciatingmachinery and equipment as well as tools, furniture and fixtures from the fixed-percentage-on-declining base application to the 250%
declining balance application. Estimated salvage values have also been reduced in conjunction with this change. The Company and its
domestic subsidiaries believe that the 250% declining balance application is preferable because it provides a better matching of
allocation of cost of machinery and equipment as well as tools, furniture and fixtures with associated revenue in light of product life
cycles. In accordance with SFAS No. 154 “Accounting Changes and Error Corrections—a replacement of APB Opinion No. 20 and
SFAS No.3”, this change in depreciation method represents a change in accounting estimate effected by a change in accounting
principle. Accordingly, the effects of the change are accounted for prospectively beginning with the period of change and prior period
results have not been restated. The change in depreciation method caused decreases in income before income taxes and equity inearnings of affiliated company and net income by ¥861 million and ¥513 million, respectively, for the year ended March 31, 2008.
Basic net income per share and diluted net income per share decreased by ¥2.82 and ¥2.81, respectively, for the year ended March 31,
2008.
The depreciation period for significant assets ranges from 15 years to 50 years for buildings, 4 years to 10 years for machineryand equipment, and 2 years to 5 years for tools, furniture and fixtures.
Depreciation expense was ¥7,583 million, ¥8,216 million and ¥8,035 million for the years ended March 31, 2007, 2008 and2009, respectively.
(j) Intangible Assets and Other Assets
Intangible assets principally consist of goodwill and computer software for internal-use. Other assets primary consist of security
deposits, prepaid expenses and others.
Advantest capitalizes certain costs incurred to purchase or develop software for internal-use. Costs incurred to develop software
for internal-use are expensed as incurred during the preliminary project stage, which includes costs for making strategic decisions
about the project, determining performance and system requirements and vendor demonstration cost. Costs incurred subsequent to thepreliminary project stage through implementation are capitalized. Advantest also expenses costs incurred for internal-use software
projects in the post implementation stage such as costs for training and maintenance.
Costs incurred to develop software to be included with and sold as part of the Company’s Semiconductor Test Systems arecapitalized subsequent to the attainment of technological feasibility until the product becomes available for general release tocustomers in accordance with the provisions of SFAS No. 86, “Accounting for the Costs of Computer Software to Be Sold, Leased, orOtherwise Marketed”. Other costs are expensed as incurred.
The cost of software is amortized on a straight-line basis over the estimated useful life, which is generally from 3 years to 5
years.
Business combinations are accounted for using the purchase method in accordance with SFAS No. 141, “Business
Combinations”. SFAS No. 141 establishes certain criteria for the recognition of intangible assets separately from goodwill. Under
SFAS No. 142, “Goodwill and Other Intangible Assets”, goodwill and other intangible assets with indefinite useful lives are no longer
amortized, but instead are tested for impairment at least annually. Intangible assets with definite useful lives are amortized over theirrespective estimated useful lives and reviewed for impairment in accordance with SFAS No. 144, “Accounting for the Impairment or
Disposal of Long-Lived Assets”.

F-11

ADVANTEST CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)(k) Impairment of Long-Lived Assets
Advantest evaluates the impairment of long-lived assets in accordance with the provisions of SFAS No. 144. SFAS No. 144
requires that long-lived assets and certain identifiable intangibles with definite useful lives be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to beheld and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to begenerated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount bywhich the carrying amount of the assets exceeds the fair value of the assets.
During the fourth quarter of the year ended March 31, 2009, Advantest made significant adverse changes to its business forecast
and cash flows to be generated by its non-memory semiconductors test system business and mechatronics system business in the
future mainly reflecting the deteriorated semiconductor markets including bankruptcy of major semiconductor manufacturers as wellas in anticipation for a delayed recovery in the market. Accordingly, Advantest evaluated the ongoing value of the long-lived assets,
including buildings, machinery and equipment, related to its non-memory test system business and mechatronics business. Based on
this evaluation, Advantest determined that long-lived assets were no longer recoverable and were in fact impaired, and wrote themdown to their estimated fair value. The amounts of the impairment losses for those long-lived assets included in cost of sales andoperating expenses in the accompanying consolidated statements of operations are ¥5,142 million and ¥7,943 million, respectively.
Fair value was measured mainly based on expected future cash flows to be generated by those reporting units, discounted at the riskfree interest rate.
(l) Accrued Warranty Expenses
Advantest’s products are generally subject to warranty, and Advantest provides an allowance for such estimated costs when
product revenue is recognized. 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, and any facts and circumstances that
occurred.
(m) Accrued Pension and Severance Cost
The Company and certain of its subsidiaries have retirement and severance defined benefit plans covering substantially all of
their employees. Prior service benefit and cost, and actuarial gain and loss recognized in accumulated other comprehensive income(loss) are amortized using the straight-line method over the average remaining service period of active employees. See Note (15) tothe consolidated financial statements for further discussion.
(n) Revenue Recognition
GeneralAdvantest recognizes revenue when there is persuasive evidence of an arrangement, delivery has occurred or the services havebeen rendered, the sales price is fixed or determinable and collection of the related receivable is reasonably assured in accordance withthe guidance provided by the Securities and Exchange Commission’s Staff Accounting Bulletin No.104, “Revenue Recognition”.
For equipment sales involving software that is more than incidental to the product, revenue is recognized when persuasive
evidence of an arrangement exists, delivery has occurred, the sales price is fixed or determinable, and collection of the related
receivable is probable in accordance with American Institute of Certified Public Accountant (“AICPA”) Statement of Position(“SOP”) No.97-2, “Software Revenue Recognition”, as amended by SOP No.98-9, “Modification of SOP 97-2, Software Revenue
Recognition, With Respect to Certain Transactions”. Revenue for the separate elements is only recognized when the functionality of
the undelivered element is not essential to the delivered element.
Sales of Products
Sales of products which require installation are recognized when the related installation is completed and other sales recognition
criteria are met since the installation is essential to the functionality of the equipment. When customer acceptance is uncertain,
revenue is deferred until customer acceptance has been received. When the final payment is subject to customer acceptance, a portionof revenue for the final payment is deferred until an enforceable claim has become effective.

F-12

ADVANTEST CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
Sales of products and component which do not require installation service by Advantest is recognized upon shipment if theterms of the sale are free on board (FOB) shipping point or upon delivery if the terms are FOB destination which coincide with thepassage of title and risk of loss.
Long-term Service Contracts
Revenue from fixed-price, long-term service contracts is recognized on the straight-line basis over the contract term.
Leasing Income
Revenue from operating leases is primarily recognized on the straight-line basis over the lease term.
Multiple DeliverablesMultiple Deliverables are accounted for under the Emerging Issues Task Force Issue No. 00-21 (“EITF 00-21”), “Revenue
Arrangements with Multiple Deliverables” or SOP 97-2, “Software Revenue Recognition”.
Advantest obtains and utilizes objective evidence (Vendor-Specific Objective Evidence (VSOE) when SOP 97-2 is applicable)of fair value to allocate revenue to elements in multiple element arrangements and recognizes revenue when the criteria for revenue
recognition have been met for each element. If the criteria are not met, then revenue is deferred until such criteria are met or until the
period(s) over which the last undelivered element is delivered. In the absence of objective evidence of fair value of a delivered
element, Advantest allocates revenue to the fair value of the undelivered elements and the residual revenue to the delivered elements.
The price charged when an element is sold separately generally determines fair value.
(o) Shipping and Handling Costs
Shipping and handling costs totaled ¥1,541 million, ¥1,361 million and ¥819 million for the years ended March 31, 2007, 2008
and 2009, respectively, and are included in selling, general and administrative expenses in the consolidated statements of operations.
(p) Research and Development
Research and development costs totaled ¥29,509 million, ¥30,507 million and ¥23,713 million for the years ended March 31,
2007, 2008 and 2009, respectively, and are expensed as incurred.
(q) Advertising Costs
Advertising costs totaled ¥374 million, ¥332 million and ¥410 million for the years ended March 31, 2007, 2008 and 2009,
respectively, and are expensed as incurred.
(r) Stock-Based Compensation
Advantest applies the fair value recognition provision of SFAS No. 123 (revised 2004) (SFAS 123R), “Share Based Payments”,
and recognizes stock based compensation expense in the consolidated statements of operations. The fair values of the option are
estimated using a Black Scholes option pricing model and amortized to expense over the requisite service period.
Expected dividend yield is determined by the Company’s dividend ratio of the past and other associated factors. Risk freeinterest rate is determined by Japanese government bond yield for the period corresponding to expected life. Expected volatility isdetermined by historical volatility and trend of the Company’s share prices, and other associated factors. Expected life is determinedby the Company’s option exercise history, post vesting employment termination behavior for similar grants, and other pertinent
factors.
(s) Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities
and their respective tax bases, and operating loss carryforwards and tax credit carryforwards. Deferred tax assets and liabilities aremeasured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected
to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the periodthat includes the enactment date. Advantest records a valuation allowance to reduce the deferred tax assets to the amount that is more
likely than not realizable.
F-13

ADVANTEST CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
Advantest recognizes the financial statement effects of tax positions when they are more likely than not, based on technicalmerits, that the tax positions will be sustained upon examination by the tax authorities. Benefits from tax positions that meet the morelikely-than-not recognition threshold are measured at the largest amount of benefit that is greater than 50 percent likely of being
realized upon settlement. Advantest recognizes interest and penalty accruals related to unrecognized tax benefits in income taxes in
the consolidated statements of operations.
(t) Net Income (Loss) per Share
Basic net income (loss) per share is calculated by dividing net income (loss) by the weighted average number of shares
outstanding during the year. Diluted net income per share is calculated by dividing net income by the sum of the weighted average
number of shares plus additional shares that would have been outstanding if potential dilutive shares had been issued for granted stock
options.
(u) Foreign Financial Statements
In accordance with SFAS No. 52 “Foreign Currency Translation”, the financial statements of foreign operations whosefunctional currency is a local currency are translated into Japanese Yen. Assets and liabilities are translated at the period-end exchange
rates and revenues and expenses are translated at the average exchange rate for the period. Resulting translation adjustments are shown
as a component of other comprehensive income (loss).
The financial statements of foreign operations whose functional currency is Japanese Yen are remeasured into Japanese Yen. All
exchange gains and losses from remeasurement of monetary assets and liabilities denominated in the local currency are included inother income (expense) for the period in which the remeasurement is made.
(v) Foreign Currency Transactions
Assets and liabilities denominated in foreign currencies at the balance sheet date are translated by using the applicable current
rate prevailing at that date. All revenue and expenses associated with foreign currencies are translated by using the rate of exchange
prevailing when such transactions occur. Those gains (losses) are included in other income (expense) in the accompanying
consolidated statements of operations.
Foreign exchange gains (losses) were ¥1,323 million, (¥1,880) million and (¥2,296) million for the years ended March 31, 2007,2008 and 2009, respectively.
(w) Use of Estimates
Management of Advantest has made a number of estimates and assumptions relating to the reporting of assets and liabilities andthe disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts ofrevenues and expenses during the period to prepare these consolidated financial statements in conformity with accounting principles
generally accepted in the United States of America. Significant items subject to such estimates and assumptions include valuation for
trade receivables, inventories, long-lived assets and deferred tax assets, various accruals such as accrued warranty expenses, and assets
and obligations related to employees retirement and severance plans. Actual results could differ from those estimates.
(x) New Accounting Standards
In September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 157, “Fair Value Measurements”(“SFAS 157”) which defines fair value, establishes a framework for measuring fair value, and enhances fair value measurement
disclosure. SFAS 157 does not expand the use of fair value to any new circumstances, but does require additional disclosure in bothannual and quarterly reports. Advantest adopted SFAS 157 and its related amendments for financial assets and liabilities on April 1,
2008. The adoption of SFAS 157 did not have a significant impact on Advantest’s consolidated results of operations and financial
condition. In February 2008, the FASB issued Staff Position No. 157-2, “Effective Date of FASB Statement No.157” (“FSP 157-2”)
which defers the effective date of SFAS 157 for nonfinancial assets and nonfinancial liabilities, except for items that are recognized ordisclosed at fair value in the financial statements on a recurring basis (at least annually), until fiscal years beginning afterNovember 15, 2008. Advantest is required to adopt FSP 157-2 in the first quarter beginning April 1, 2009, and is currently evaluating
the effect that the adoption of FSP 157-2 will have on its consolidated results of operations and financial condition.

F-14

ADVANTEST CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
In February 2007, the FASB issued SFAS No.159, “The Fair Value Option for Financial Assets and Financial LiabilitiesIncluding an amendment of FASB Statement No.115” (“SFAS 159”). SFAS 159 provides companies with an option to measureselected financial assets and liabilities at fair value. Unrealized gains and losses on items for which the fair value option has been
elected will be recognized in earnings. Advantest adopted SFAS 159 on April 1, 2008 and did not elect the fair value option for any
financial instruments.
In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations” (“SFAS 141R”). SFAS 141R
establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets
acquired, the liabilities assumed, any noncontrolling interest in the acquiree and the goodwill acquired. SFAS 141R also establishes
disclosure requirements to enable the evaluation of the nature and financial effects of the business combination. SFAS 141R iseffective for fiscal years beginning on or after December 15, 2008 and is required to be adopted by Advantest in the first quarter
beginning April 1, 2009. Advantest is currently evaluating the effect that the adoption of SFAS 141R will have on its consolidated
results of operations and financial condition.
In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statement, anamendment of ARB No. 51” (“SFAS 160”). SFAS 160 establishes accounting and reporting standards for ownership interests in
subsidiaries held by parties other than the parent, the amount of consolidated net income attributable to the parent and to thenoncontrolling interest, changes in a parent’s ownership interest, and the valuation of retained noncontrolling equity investments whena subsidiary is deconsolidated. SFAS 160 also establishes disclosure requirements that clearly identify and distinguish between theinterests of the parent and the interests of the noncontrolling owners. SFAS 160 is effective for fiscal years beginning on or after
December 15, 2008 and is required to be adopted by Advantest in the first quarter beginning April 1, 2009. Advantest is currently
evaluating the effect that the adoption of SFAS 160 will have on its consolidated results of operations and financial condition.
In March 2008, the FASB issued SFAS No.161, “Disclosures about Derivative Instruments and Hedging Activities anamendment of FASB Statement No.133” (“SFAS 161”). SFAS 161 requires enhanced disclosures about how and why an entity uses
derivative instruments, about how derivative instruments and related hedged items affect an entity’s financial position, financial
performance and cash flows, and about credit-risk-related contingent features in derivative agreements. SFAS 161 does not change
accounting procedures for derivative instruments. SFAS 161 is effective for fiscal years and interim periods beginning afterNovember 15, 2008, and Advantest adopted SFAS 161 in the fourth quarter beginning January 1, 2009. See Note (8) for disclosure of
SFAS 161 on Advantest’s consolidated financial statements.
(y) Reclassifications
Certain reclassifications have been made to the prior years’ consolidated financial statements to conform with the presentation
used for the year ended March 31, 2009.
(2) Trade Receivables
Trade receivables at March 31, 2008 and 2009 are as follows:
Yen (Millions)
2008

2009

Notes............................................................................................................................................................
Accounts ......................................................................................................................................................

¥ 3,915
26,254106
10,894

Less allowance for doubtful accounts..........................................................................................................

30,16945

11,000585¥ 30,124

10,415

F-15

ADVANTEST CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)(3) Allowance for Doubtful Accounts
Changes in the allowance for doubtful accounts for the years ended March 31, 2007, 2008 and 2009 were as follows:
Yen (Millions)
2007

2008

2009

Balance at beginning of year ..................................................................................................
Provision for (reversal of) allowance......................................................................................
Amount written off .................................................................................................................

¥ 2,117(190)(1,722)

205
(160)
—

45
558
(18)

Balance at end of year.............................................................................................................

¥

45

585

205

(4) Inventories
Inventories at March 31, 2008 and 2009 are composed of the following:
Yen (Millions)Finished goods ..............................................................................................................................................
Work in process ............................................................................................................................................
Raw materials and supplies...........................................................................................................................

2008

2009

¥ 8,258
13,998
4,567

4,305
3,988
1,444

¥ 26,823

9,737

The amount of inventory write-down included in cost of sales in the accompanying consolidated statements of operations for theyear ended March 31, 2009 was ¥8,715 million.
(5) Property, Plant and Equipment
Property, plant and equipment at March 31, 2008 and 2009 is composed of the following:
Yen (Millions)
2008

2009

Land ...............................................................................................................................................................
Buildings........................................................................................................................................................
Machinery and equipment .............................................................................................................................
Tools, furniture and fixtures ..........................................................................................................................
Construction in progress ................................................................................................................................

¥ 18,081
47,80029,521
24,112
1,569

16,177
23,66813,456
15,042
3

Less accumulated depreciation ......................................................................................................................

121,083
70,31868,34634,372¥ 50,765

33,974(6) Intangible Assets
The components of acquired intangible assets excluding goodwill at March 31, 2008 and 2009 were as follows:
Yen (Millions)2008

Intangible assets subject to amortization:
Software ........................................................................
Other..............................................................................
Total........................................................................................

2009

Gross carrying
amountAccumulated
amortization

Gross carrying
amountAccumulated
amortization¥ 4,907122¥ 5,029

3,150
53
3,203

¥ 2,949
49¥ 2,998

2,358
39
2,397

F-16

ADVANTEST CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
Intangible assets not subject to amortization at March 31, 2008 and 2009 were insignificant.
Aggregate amortization expense for the years ended March 31, 2007, 2008 and 2009 were ¥632 million, ¥620 million and¥684 million, respectively. Estimated amortization expense for the next five years ending March 31 are: ¥186 million in 2010,¥148 million in 2011, ¥125 million in 2012, ¥87 million in 2013, and ¥28 million in 2014, respectively.
Changes in the carrying amount of goodwill for the years ended March 31, 2007, 2008 and 2009 were as follows:
Yen (Millions)
2007

2008

2009

Balance at beginning of year ..............................................................................................................
Acquisition during the year.................................................................................................................
Impairment loss ..................................................................................................................................

¥ 1,426
—
—

1,426
—
—

1,426
—
(781)

Balance at end of year.........................................................................................................................

¥ 1,426

1,426

645

Advantest experienced a significant decline in purchase orders of testers due to further deterioration of the semiconductor
market during the fourth quarter of the year ended March 31, 2009. This sharp decline is not expected to recover in the near term.
Consequently, this has led to an impairment of our goodwill, and we wrote it down to its estimated fair value. Fair value is measured
primarily utilizing discounted cash flow valuation techniques. The amount of the impairment loss is ¥781 million, which is recorded
as operating expense at March 31, 2009. Advantest performed its annual impairment test for goodwill at the reporting unit level andidentified no indication of impairment at March 31, 2008.
Goodwill relates to the semiconductor and component test system segment.
(7) Investment Securities
Marketable securities consist of equity securities. The acquisition cost, gross unrealized gains, gross unrealized losses and fairvalue at March 31, 2008 and 2009 were as follows:
Yen (Millions)
2008

2009

Noncurrent:
Available-for-sale:
Equity securities
Acquisition cost .................................................................................................................................
Gross unrealized gains .......................................................................................................................
Gross unrealized losses......................................................................................................................

¥ 5,942
901
350

2,890
277
152

Fair value ...........................................................................................................................................

¥ 6,493

3,015

F-17

ADVANTEST CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
Gross realized gains and losses on available-for-sales equity securities for the years ended March 31, 2007, 2008 and 2009 wereas follows:
Yen (Millions)

Yen (Millions)

2007

2008

*

Noncurrent:
Available-for-sale:
Equity securities....................................................

Gross
realized
gains

Gross
realized
losses¥ 0—Netrealized
gains(losses)Grossrealized
gains

Gross
realized
lossesNet
realized
gains(losses)

¥ 8

—

8

0

Yen (Millions)2009

Noncurrent:
Available-for-sale:
Equity securities....................................................

Gross
realized
gains

Gross
realized
lossesNet
realized
gains(losses)

¥—

28

(28)

Net realized gains and losses based on the averaged cost method are included in “other income (expense)” in the consolidated
statements of operations, and “other” in net cash provided by operating activities in the consolidated statements of cash flows.
Proceeds from the sale of available-for-sale equity securities for the years ended March 31, 2007, 2008 and 2009 were ¥0
million, ¥10 million and ¥30 million, respectively. For the year ended March 31, 2009, Advantest recognized impairment losses of¥3,022 million on available-for-sale equity securities, which were considered other-than-temporarily impaired and wrote them down
to the fair value.
Gross unrealized losses on available-for-sale equity securities and the fair value of the related securities, aggregated by length oftime that individual securities have been in a continuous unrealized loss position, at March 31, 2008 and 2009, were as follows:
Yen (Millions)
2008
Less than 12 months

Noncurrent:
Available-for-sale:
Equity securities ................................................................................

12 months or longer

Fair
value

Gross
unrealized
losses

Fair
value

Gross
unrealized
losses¥ 2,741350——

Yen (Millions)2009Less than 12 months

Noncurrent:
Available-for-sale:
Equity securities ................................................................................

F-18

12 months or longer

Fair
value

Gross
unrealized
losses

Fair
value

Gross
unrealized
losses¥ 1,313

140

49

12

ADVANTEST CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
Advantest maintains non-marketable investment securities, which are recorded at cost. The carrying amounts of non-marketable
investment securities were ¥3,261 million and ¥3,664 million at March 31, 2008 and 2009, respectively. For non-marketable equity
securities which Advantest identified events or changes in circumstances that might have had significant adverse effect on the fairvalue of the investments, the fair value approximate the carrying value. Advantest has not estimated the fair value of other nonmarketable equity securities of ¥3,261 million and ¥1,150 million at March 31, 2008 and 2009, respectively, since it is not practicableto estimate the fair value of the investments. It is because of the lack of readily determinable fair values and difficulty in estimating
fair value without incurring excessive cost. Non-marketable equity securities that have impairment indicators were evaluated todetermine whether the investments were impaired and the impairment, if any, is other than temporary. Non-marketable equity
securities with a purchase cost of ¥1,104 million were written down to their fair value of ¥616 million, resulting in an other-thantemporary impairment charge of ¥488 million, which was included in impairment losses on investment securities in the accompanying
consolidated statements of operations for year ended March 31, 2009.
(8) Derivative Financial Instruments
Derivative
Advantest uses foreign exchange forward contracts to manage currency exposure, resulting from changes in foreign currency
exchange rates, on trade receivables. However, these contracts do not qualify for hedge accounting since they do not meet the hedging
criteria specified by Statement of Financial Accounting Standards (“SFAS”) No. 133, “Accounting for Derivative Instruments andHedging Activities”, as amended.
Foreign exchange forward contracts generally have maturities of several months. These contracts are used to reduce Advantest’srisk associated with exchange rate movements, as gains and losses on these contracts are intended to offset exchange losses and gains
on underlying exposures. Changes in fair value of foreign exchange forward contracts are recognized in earnings under the caption ofother income (expense).
Advantest does not, as a matter of policy, enter into derivative transactions for the purpose of speculation.
Advantest had foreign exchange forward contracts to exchange currencies among Japanese yen, US dollar and Euro at March 31,
2008 and 2009. The notional amounts of these contracts at March 31, 2008 and 2009 were as follows:
Yen (Millions)

Foreign exchange forward contract ...............................................................................................................

2008

2009

2,930

763

The fair value of derivative instruments not designated as hedging instruments under SFAS 133 at March 31, 2009 was asfollows:
Yen (Millions)
Balance Sheet Location

Fair Value

AssetsForeign exchange forward contract ...........................................................................

Other current assets

4

Liabilities
Foreign exchange forward contract ...........................................................................

Other current liabilities

0

The effects of derivative instruments not designated as hedging instruments under SFAS 133 on consolidated statements ofoperations for the three months ended March 31, 2009 was as follows:
Yen (Millions)

Foreign exchange forward contract .....................................................................

F-19

Location of Gain
(Loss) Recognized inincome on Derivative

Amount of Gain
(Loss) Recognized in
Income on Derivative

Other income (expense)(278)

ADVANTEST CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
Concentration of credit risk
Derivative financial instruments contain an element of risk in the event the counterparties are unable to meet the terms of theagreements. However, Advantest minimizes risk exposure by limiting the counterparties to major international banks and financial
institutions meeting established credit guidelines. Management of Advantest does not expect any counterparty to default on its
obligations and, therefore, does not expect to incur any losses due to counterparty default on its obligations.
Advantest generally does not require or place collateral for these derivative financial instruments.
(9) Fair Value Measurement
Disclosure about the fair value of Financial Instruments
The following table presents the carrying amounts and estimated fair values of Advantest’s financial instruments at March 31,
2008 and 2009, except for cash and cash equivalents, short-term investments, trade receivables, other current assets, trade accounts
payable and accrued expenses for which fair value approximate their carrying amounts. Fair value estimates are made at a specificpoint in time based on relevant market information and information about the financial instrument. These estimates are subjective innature and involve uncertainties and matters of significant judgement and, therefore, cannot be determined with precision. Changes inassumptions could significantly affect the estimates.
Yen (Millions)2008

Financial assets:
Investment securities for which it is practicable to estimate fair value ...............
Foreign exchange forward contracts....................................................................
Financial liabilities:
Foreign exchange forward contracts....................................................................

2009

Carrying
amount

Fair
value

Carrying
amountFair
value¥ 6,529—

6,529—¥ 3,015
4

3,015
4

14

14

0

0

The carrying amounts shown in the table are included in the consolidated balance sheets under the indicated captions. And thecarrying amounts of foreign exchange forward contracts are included in other current assets and other current liabilities.
The following methods and assumptions were used to estimate the fair value of each class of financial instruments:
Cash and cash equivalents, short-term investments, trade receivables, other current assets, trade accounts payable, and accrued
expenses (nonderivatives): The carrying amounts approximate fair value because of the short maturity of these instruments.
Available-for-sale equity securities: The fair values of available-for-sale equity securities are based on quoted market prices at
the reporting date for those investments.
Foreign exchange forward contracts: The fair value of foreign exchange forward contracts are estimated by obtaining quotes
from financial institutions.
Fair Value Hierarchy
SFAS 157 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into thefollowing three levels:
Level 1—Quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability toaccess at the measurement date.
Level 2—Observable inputs other than quoted prices included within Level 1 for the asset or liability, either directly or
indirectly.
Level 3—Unobservable inputs for the asset or liability.

F-20

ADVANTEST CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
Assets/Liabilities Measured at Fair Value on a Recurring Basis
As of March 31, 2009, carrying amount of financial assets and liabilities that were measured at fair value on a recurring basis bylevel is as follows:
Yen (Millions)
Fair Value Measurements
at March 31, 2009
Significant
Other
Observable
Inputs(Level 2)

Significant
Unobservable
Inputs(Level 3)

Total

Quoted Prices in
Active Markets(Level 1)

Financial Assets
Available-for-sale equity securities...........................................
Foreign exchange forward contract ...........................................
Total assets measured at fair value............................................

3,015
4
3,019

3,015
—
3,015

—
4
4

—
—
—

Financial Liabilities
Foreign exchange forward contract ...........................................
Total liabilities measured at fair value ......................................

0
0

—
—

0
0

—
—

The table does not include assets and liabilities which are measured at historical cost or any basis other than fair value.
Advantest’s financial assets and liabilities measured at fair value consist of available-for-sale equity securities and foreign exchange
forward contracts. Adjustments to fair value of available-for-sale equity securities are recorded as an increase or decrease, net of tax,
in accumulated other comprehensive income except where losses are considered to be other than temporary, in which case the losses
are recorded in impairment losses on investment securities. Changes in fair value of foreign exchange forward contracts arerecognized in earnings under the caption of other income (expense).
Assets/Liabilities Measured at Fair Value on a Nonrecurring Basis
As of March 31, 2009, carrying amount of financial assets and liabilities, which were measured at fair value on a nonrecurring
basis by level during the years ended March 31, 2009, is as follows:
Yen (Millions)
Fair Value Measurements
at March 31, 2009

Financial Assets
Non-marketable equity securities ....................................
Total gains (losses) for assets held as ofMarch 31, 2009...........................................................

Total

QuotedPrices in
ActiveMarkets(Level 1)

Significant
Other
Observable
Inputs(Level 2)

Significant
Unobservable
Inputs(Level 3)

616

—

616

—

Total gains(losses) for
the year
ended
March 31,
2009

(488)
(488)

Non-marketable equity securities with a purchase cost of ¥1,104 million were written down to their fair value of ¥616 million,
resulting in an other-than-temporary impairment charge of ¥488 million, which was included in impairment losses on investment
securities in the accompanying consolidated statements of operations for the year ended March 31, 2009. The fair value of nonmarketable equity securities are based on quoted prices in markets that are not active at the reporting date, or present value of expected
future cash flows for those investments.
(10) Leases—Lessor
Advantest provides leases that enable its customers to use semiconductor test systems. All leases are classified as operatingleases. Lease terms range from 1 year to 5 years, and certain of the lease agreements are cancelable. The gross amount of machineryand equipment and the related accumulated depreciation under operating leases as of March 31, 2008 and 2009 were as follows:
F-21

ADVANTEST CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
Yen (Millions)

Machinery and equipment ..................................................................................................................................
Less accumulated depreciation ...........................................................................................................................

2008

2009

¥ 11,375
7,003¥ 4,372

5,311
3,845
1,466

Depreciation of machinery and equipment held under operating leases are included with depreciation expense. These assets areincluded in property, plant and equipment.
Future minimum lease income under noncancelable operating leases as of March 31, 2009 is as follows:Year ending March 31

Yen (Millions)2010 ..................................................................................................................................................................................
2011 ..................................................................................................................................................................................
2012 ..................................................................................................................................................................................
Total minimum lease income ..................................................................................................................................

¥ 1,291627
130¥ 2,048(11) Leases—Lessee
Assets under capital leases at March 31, 2008 and 2009 were insignificant.
Advantest also has several noncancelable operating leases, primarily for office space and office equipment. Rent expense,
including rental payments for cancelable leases, for the years ended March 31, 2007, 2008 and 2009 was ¥1,494 million,¥1,524 million and ¥1,618 million, respectively.
Future minimum lease payments under noncancelable operating leases (with initial or remaining lease terms in excess of oneyear) as of March 31, 2009 are as follows:Year ending March 31

Yen (Millions)2010 ..................................................................................................................................................................................
2011 ..................................................................................................................................................................................
2012 ..................................................................................................................................................................................
2013 ..................................................................................................................................................................................
2014 ..................................................................................................................................................................................
Thereafter..........................................................................................................................................................................
Total minimum lease payments...............................................................................................................................

¥ 398
308
191
133
132
421
¥1,583(12) Income Taxes
The components of income before income taxes and equity in earnings (loss) of affiliated company and provision (benefit) for
income taxes as shown in the consolidated statements of operations are as follows:
Yen (Millions)

Income before income taxes and equity in earnings (loss) of affiliated company:
The Company and domestic subsidiaries ..........................................................................
Foreign subsidiaries ..........................................................................................................

F-22

2007

2008

2009

¥ 45,229
15,861

9,272
14,261(55,246)
2,485¥ 61,090

23,533(52,761)ADVANTEST CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
Yen (Millions)

Provision (benefit) for income taxes:
Current:
The Company and domestic subsidiaries ........................................................................
Foreign subsidiaries ........................................................................................................
Deferred:
The Company and domestic subsidiaries ........................................................................
Foreign subsidiaries ........................................................................................................

2007

2008

2009

¥ 14,227
3,911

7,725
3,613

(281)
2,369

8,665
(1,283)¥ 25,520(5,415)966
6,889

19,509397
21,994The Company and its domestic subsidiaries are subject to a number of income taxes, which in the aggregate resulted in statutory
income tax rate of 40.3%, 40.4% and 40.4% for the years ended March 31, 2007, 2008 and 2009, respectively.
A reconciliation of the Japanese statutory income tax rate and the effective income tax rate as a percentage of income before
income taxes is as follows:
Statutory tax rate..........................................................................................................................
Increase (decrease) in income taxes resulting from:
Earnings of foreign subsidiaries taxed at different rate from the statutory rate in Japan ...
Tax credits..........................................................................................................................
Expenses not deductible for tax purposes ..........................................................................
Undistributed earnings of foreign subsidiaries...................................................................
Change in valuation allowance...........................................................................................
Other, net............................................................................................................................

2007

2008

2009

40.3%

40.4%

40.4%

(2.8)
(5.0)
0.7
11.0
(2.1)
(0.3)
41.8%

(8.1)
(7.4)
0.6
4.7
—
(0.9)
29.3%

(0.7)
4.2
(0.3)
2.2
(85.5)(2.0)(41.7)%The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities
at March 31, 2008 and 2009 are presented below.
Yen (Millions)Deferred tax assets:
Inventories............................................................................................................................................
Accrued warranty expenses..................................................................................................................
Accrued pension and severance cost ....................................................................................................
Accrued expenses.................................................................................................................................
Research and development expenses capitalized for tax purposes.......................................................
Operating loss carryforwards ...............................................................................................................
Property, plant and equipment and intangible assets............................................................................
Tax credits............................................................................................................................................
Other.....................................................................................................................................................
Total gross deferred tax assets ....................................................................................................
Less valuation allowance ............................................................................................................
Net deferred tax assets ................................................................................................................
Deferred tax liabilities:
Net unrealized gains on marketable securities .....................................................................................
Undistributed earnings of foreign subsidiaries.....................................................................................
Other.....................................................................................................................................................
Total gross deferred tax liabilities ..............................................................................................
Net deferred tax assets (liabilities)..............................................................................................

F-23

2008

2009

¥ 4,373
1,218
4,382
3,398
2,425
137
3,223
289
3,177
22,622—
22,622

7,510
1,197
5,829
527
3,742
18,169
6,579
3,579
2,460
49,592(48,015)
1,577

(209)
(3,427)(76)(3,712)¥18,910(44)(2,459)(2)(2,505)(928)

ADVANTEST CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
At March 31, 2008 and 2009, deferred tax liabilities were provided for at all foreign subsidiaries with undistributed earnings.
Included in other current liabilities and other liabilities are deferred tax liabilities of ¥256 million and ¥1,611 million atMarch 31, 2008 and 2009, respectively.
At March 31, 2009, Advantest had total net operating loss carry forwards for income tax purposes of ¥45,387 million which areavailable to reduce future income taxes, if any. Operating losses ¥43,930 million attributable to the Company and domestic
subsidiaries in Japan will expire during the years ending March 31, 2015 and 2016. Other net operating losses of ¥1,457 million haveno expiration dates.
Net operating loss carryforwards utilized during the years ended March 31, 2007 and 2008 were ¥486 million and¥1,046 million, respectively. There was no utilized amount during the year ended March 31, 2009.
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or
all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of
future taxable income during the periods in which those temporary differences become deductible. Management considers thescheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment.
Based upon projections for future taxable income over the periods in which the deferred tax assets are deductible including
management’s expectations of future semiconductor market and semiconductor and component test systems market prospects andother factors, management believes it is more likely than not that Advantest will realize the benefits of these deductible differences,
net of valuation allowance. The net (decrease) increase in valuation allowance for the years ended March 31, 2007, 2008 and 2009were ¥(1,263) million, ¥0, and ¥ 48,015 million, respectively. The amount of the deferred tax assets considered realizable, however,
could be reduced in the near term if estimates of future taxable income are reduced and the effect on its consolidated financial position
and results of operations would be significant.
Advantest adopted FIN 48 effective April 1, 2007. As a result of implementation of FIN 48, Advantest identified unrecognizedtax benefits of ¥238 million as of April 1, 2007, which were recorded at March 31, 2007, and did not require a cumulative-effectadjustment to retained earnings.
A reconciliation of the beginning and ending amount of unrecognized tax benefits for the years ended March 31, 2008, 2009 are
as follows:
Yen (Millions)

Balance at April 1, 2007 and 2008..............................................................................................................................
Additions for tax positions of prior years ...................................................................................................................
Reductions for tax positions of prior years .................................................................................................................
Additions for tax positions of the current year ...........................................................................................................
Reductions for tax positions of the current year .........................................................................................................
Reductions by settlements ..........................................................................................................................................
Lapse of the applicable statute of limitations..............................................................................................................
Balance at March 31, 2008 and 2009..........................................................................................................................

2008

2009

¥ 238
—
—
—
—
(238)
—
—

—
—
—
—
—
—
—
—

Although Advantest believes its estimates and assumptions of unrecognized tax benefits are reasonable, uncertainty regarding
the final determination of tax audit settlements and any related litigation could affect the effective tax rate in the future periods.
Advantest does not have any unrecognized tax benefits that would affect the effective tax rate. As of March 31, 2009, Advantest does
not expect changes in its tax positions that would significantly increase or decrease unrecognized tax benefits within next 12 months.
Advantest files income tax returns in Japan and various foreign tax jurisdictions. As of March 31, 2009, Advantest has open tax
years beginning April 1, 2007 for Japan, 2008 for Taiwan, and 2005 for the United States.

F-24

ADVANTEST CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)(13) Other Comprehensive Income (Loss)
The accumulated balances for each classification of other comprehensive income (loss), net of tax, for the years ended March 31,
2007, 2008 and 2009 are as follows:
Yen (Millions)
Foreigncurrencytranslation
adjustments

Net unrealized
gains (losses)
on securities

Pensionrelatedadjustment

Accumulated
othercomprehensive
income (loss)

Balance at March 31, 2006 ..........................................................

¥(1,378)

2,722

—

1,344

Change during the year ................................................................
Reclassification adjustments for realized portion ........................
Adjustment to initially apply SFAS 158......................................

1,123
—
—
1,123
¥ (255)

(362)
(0)
—
(362)
2,360

—
—
1,547
1,547
1,547

761
(0)
1,547
2,308
3,652

(6,845)—(6,845)¥(7,100)(2,058)(2)(2,060)300(2,269)(93)(2,362)(815)(11,172)(95)(11,267)(7,615)(1,793)—(1,793)¥(8,893)(2,062)
1,818
(244)
56

(4,701)(234)(4,935)(5,750)(8,556)
1,584(6,972)(14,587)

Balance at March 31, 2007 ..........................................................
Change during the year ................................................................
Reclassification adjustments for realized portion ........................
Balance at March 31, 2008 ..........................................................
Change during the year ................................................................
Reclassification adjustments for realized portion ........................
Balance at March 31, 2009 ..........................................................

The related tax effects allocated to each component of other comprehensive income (loss) for the years ended March 31, 2007,2008 and 2009 are as follows:
Yen (Millions)Year ended March 31, 2007:
Foreign currency translation adjustments ............................................................................
Net unrealized gains (losses) on securities:
Net unrealized gains (losses) arising during the year .................................................
Less reclassification adjustments for net gains (losses) realized in earnings .............
Net unrealized gains (losses)......................................................................................
Other comprehensive income (loss).....................................................................................
Year ended March 31, 2008:
Foreign currency translation adjustments ............................................................................
Net unrealized gains (losses) on securities:
Net unrealized gains (losses) arising during the year .................................................
Less reclassification adjustments for net gains (losses) realized in earnings .............
Net unrealized gains (losses)......................................................................................
Pension related adjustment ..................................................................................................
Other comprehensive income (loss).....................................................................................
Year ended March 31, 2009:
Foreign currency translation adjustments ............................................................................
Net unrealized gains (losses) on securities:
Net unrealized gains (losses) arising during the year .................................................
Less reclassification adjustments for net gains (losses) realized in earnings .............
Net unrealized gains (losses)......................................................................................
Pension related adjustment ..................................................................................................
Other comprehensive income (loss).....................................................................................
F-25

Before-tax
amountTax(expense)or benefit

Net-of-tax
amount¥ 1,123

—

1,123

(607)
(0)
(607)
516

245
0
245
245

(362)
(0)
(362)
761

¥ (6,845)—(6,845)(3,447)(3)(3,450)(3,957)¥ (14,252)

1,389
1
1,390
1,595
2,985

(2,058)(2)(2,060)(2,362)(11,267)¥ (1,793)—(1,793)(3,459)3,050(409)(4,935)¥ (7,137)

1,397(1,232)165—
165(2,062)
1,818(244)(4,935)(6,972)¥ADVANTEST CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)(14) Stock-Based Compensation
Advantest has stock-based compensation plans using stock options as incentive plans for directors, corporate auditors andselected employees.
In July 2002, stock options were issued to directors, corporate auditors and certain employees of the Company and its
subsidiaries under a stock option plan approved by the Board of Directors. The number of granted shares totaled 1,470,000. Options
were granted with an exercise price of ¥4,074 per share that is equal to the higher of (1) 1.05 times the average price of the Company’scommon shares of the preceding month on the date of grant and (2) the closing price of the Company’s common shares traded on theTokyo Stock Exchange on the date of grant. The options have an exercise period of 4 years and are exercisable from April 1, 2003.
In April 2003, stock options were issued to a director and certain employees of foreign subsidiaries under a stock option plan
approved by the Board of Directors. The number of granted shares totaled 28,000. Options were granted with an exercise price of¥4,074 per share that is equal to the higher of (1) 1.05 times the average price of the Company’s common shares of the preceding
month on the date of grant, (2) the closing price of the Company’s common shares traded on the Tokyo Stock Exchange on the date of
grant, and (3) the exercise price at which the July 2002 options were granted. The options have an exercise period of no later thanMarch 31, 2007 and are exercisable from May 1, 2003.
In June 2003, stock options were issued to directors, executive officers, corporate auditors and certain employees of theCompany and its subsidiaries under a stock option plan approved by the Board of Directors. The number of granted shares totaled
1,468,000. Options were granted with an exercise price of ¥2,580 per share that is equal to the higher of (1) 1.05 times the average
price of the Company’s common shares of the preceding month on the date of grant and (2) the closing price of the Company’scommon shares traded on the Tokyo Stock Exchange on the date of grant. The options have an exercise period of 4 years and are
exercisable from April 1, 2004.
In August 2003, January 2004 and March 2004, stock options were issued to a director and certain employees of foreignsubsidiaries under a stock option plan approved by the Board of Directors. The number of granted shares totaled 12,000, 14,000 and
6,000, respectively. Options were granted with exercise prices of ¥4,045, ¥4,610 and ¥4,275 per share, respectively, those are equal tothe higher of (1) 1.05 times the average price of the Company’s common shares of the preceding month on the date of grant, (2) the
closing price of the Company’s common shares traded on the Tokyo Stock Exchange on the date of grant, and (3) the exercise price atwhich the June 2003 options were granted. All of the options have an exercise period of 4 years and are exercisable from April 1, 2004.
In July 2004, stock options were issued to directors, executive officers, corporate auditors and certain employees of theCompany and its subsidiaries under a stock option plan approved by the Board of Directors. The number of granted shares totaled
1,522,000. Options were granted with an exercise price of ¥3,732 per share that is equal to the higher of (1) 1.05 times the average
price of the Company’s common shares of the preceding month on the date of grant and (2) the closing price of the Company’scommon shares traded on the Tokyo Stock Exchange on the date of grant. The options have an exercise period of 4 years and are
exercisable from April 1, 2005.
In November 2004, stock options were issued to certain employees of foreign subsidiaries under a stock option plan approvedby the Board of Directors. The number of granted shares totaled 8,000. Options were granted with an exercise price of ¥3,732 pershare that is equal to the exercise price of the July 2004 options. The options have an exercise period of 4 years and are exercisablefrom April 1, 2005.
In April 2005, stock options were issued to certain employees of the Company and its foreign subsidiary under a stock option
plan approved by the Board of Directors. The number of granted shares totaled 8,000. Options were granted with an exercise price of¥3,732 per share that is equal to the exercise price of the July 2004 options. The options have an exercise period of 4 years and are
exercisable from April 1, 2005.
In July 2005, stock options were issued to directors, executive officers, corporate auditors and certain employees of theCompany and its subsidiaries under a stock option plan approved by the Board of Directors. The number of granted shares totaled
1,518,000. Options were granted with an exercise price of ¥4,300 per share that is equal to the higher of (1) 1.05 times the average
price of the Company’s common shares of the preceding month on the date of grant and (2) the closing price of the Company’scommon shares traded on the Tokyo Stock Exchange on the date of grant. The options have an exercise period of 4 years and are
exercisable from April 1, 2006.
In December 2005, stock options were issued to certain employees of foreign subsidiaries under a stock option plan approved by
the Board of Directors. The number of granted shares totaled 16,000. Options were granted with an exercise price of ¥4,300 per share
F-26

ADVANTEST CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)that is equal to the exercise price of the July 2005 options. The options have an exercise period of 4 years and are exercisable from
April 1, 2006.
In February 2006, stock options were issued to certain employees of foreign subsidiaries under a stock option plan approved by
the Board of Directors. The number of granted shares totaled 3,980. Options were granted with an exercise price of ¥6,702 per sharethat is equal to the higher of (1) 1.05 times the average price of the Company’s common shares of the preceding month on the date of
grant, (2) the closing price of the Company’s common shares traded on the Tokyo Stock Exchange on the date of grant and(3) ¥4,300 per share that is equal to the exercise price of the July 2005 options. The options have an exercise period of 4 years and are
exercisable from April 1, 2006.
In July 2006, stock options were issued to directors, executive officers, corporate auditors and certain employees of theCompany and its subsidiaries under a stock option plan approved by the Board of Directors. The number of granted shares totaled
1,578,000. Options were granted with an exercise price of ¥5,880 per share that is equal to the higher of (1) 1.05 times the average
price of the Company’s common shares of the preceding month on the date of grant and (2) the closing price of the Company’scommon shares traded on the Tokyo Stock Exchange on the date of grant. The options have an exercise period of 4 years and are
exercisable from April 1, 2007.
In December 2006, stock options were issued to certain employees of foreign subsidiaries under a stock option plan approved by
the Board of Directors. The number of granted shares totaled 8,000. Options were granted with an exercise price of ¥6,218 per sharethat is equal to the higher of (1) 1.05 times the average price of the Company’s common shares of the preceding month on the date of
grant, (2) the closing price of the Company’s common shares traded on the Tokyo Stock Exchange on the date of grant and(3) ¥5,880 per share that is equal to the exercise price of the July 2006 options. The options have an exercise period of 4 years and are
exercisable from April 1, 2007.
In July 2007, stock options were issued to directors, executive officers, corporate auditors and certain employees of theCompany and its subsidiaries under a stock option plan approved by the Board of Directors. The number of granted shares totaled
777,000. Options were granted with an exercise price of ¥5,563 per share that is equal to the higher of (1) 1.05 times the average priceof the Company’s common shares of the preceding month on the date of grant and (2) the closing price of the Company’s commonshares traded on the Tokyo Stock Exchange on the date of grant. The options have an exercise period of 4 years and are exercisablefrom April 1, 2008.
In September 2007, stock options were issued to certain employees of foreign subsidiaries under a stock option plan approvedby the Board of Directors. The number of granted shares totaled 2,000. Options were granted with an exercise price of ¥5,563 pershare that is equal to the higher of (1) 1.05 times the average price of the Company’s common shares of the preceding month on thedate of grant, (2) the closing price of the Company’s common shares traded on the Tokyo Stock Exchange on the date of grant and(3) ¥5,563 per share that is equal to the exercise price of the July 2007 options. The options have an exercise period of 4 years and are
exercisable from April 1, 2008.
In February 2008, stock options were issued to certain employees of foreign subsidiaries under a stock option plan approved by
the Board of Directors. The number of granted shares totaled 1,000. Options were granted with an exercise price of ¥5,563 per sharethat is equal to the higher of (1) 1.05 times the average price of the Company’s common shares of the preceding month on the date of
grant, (2) the closing price of the Company’s common shares traded on the Tokyo Stock Exchange on the date of grant and(3) ¥5,563 per share that is equal to the exercise price of the July 2007 options. The options have an exercise period of 4 years and are
exercisable from April 1, 2008.
In July 2008, stock options were issued to directors, executive officers, corporate auditors and certain employees of theCompany and its subsidiaries under a stock option plan approved by the Board of Directors. The number of granted shares totaled
704,000. Options were granted with an exercise price of ¥2,653 per share that is equal to the higher of (1) 1.05 times the average priceof the Company’s common shares of the preceding month on the date of grant and (2) the closing price of the Company’s commonshares traded on the Tokyo Stock Exchange on the date of grant. The options have an exercise period of 4 years and are exercisablefrom April 1, 2009.
The exercise price of the stock options is subject to adjustment, if there is a stock split or consolidation of shares, or if newshares are issued or treasury stocks are sold at a price that is less than the market price.
Stock option activity during the years ended March 31, 2007, 2008 and 2009 are as follows:

F-27

ADVANTEST CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
2007

2008

Number ofshares

Weighted
average
exercise
price

Outstanding at beginning of year....................
Granted ...........................................................
Exercised ........................................................
Expired............................................................
Forfeited..........................................................
Outstanding at end of year ..............................

3,857,980
1,586,000(1,006,000)—(140,000)
4,297,980

Exercisable at end of year...............................

2,713,980

2009

Number ofshares

Weighted
average
exercise
price

Number ofshares

Weighted
average
exercise
price¥3,828
5,882
3,877
—
3,582
4,582

4,297,980
780,000(178,000)(298,000)(86,000)
4,515,980¥ 4,582
5,563
2,845
2,600
5,163
4,940

4,515,980
704,000—(836,000)(445,000)
3,938,980¥ 4,940
2,653
—
3,732
4,798
4,804

¥3,824

3,743,980¥ 4,8113,265,980¥ 5,247

Stock based compensation expense recognized were ¥2,566 million, ¥858 million and ¥248 million, which were included inselling, general and administrative expenses for the years ended March 31, 2007, 2008 and 2009, respectively. The recognized tax
benefits were ¥697 million, ¥252 million and ¥76 million for the year ended March 31, 2007, 2008 and 2009, respectively.
The weighted average fair value per share for stock options that were granted during the years ended March 31, 2007, 2008 and2009 were ¥1,476, ¥1,112 and ¥369, respectively. These figures were calculated based on the Black Scholes option pricing model byusing the following weighted average estimates:
Expected dividend yield......................................................................................................
Risk free interest rate ..........................................................................................................
Volatility.............................................................................................................................
Expected life .......................................................................................................................

2007

2008

2009

0.5%
1.1%
35.7%
3.1 years

0.7%
1.3%
31.0%
3.4 years

2.1%
0.9%
37.4%
3.7 years

Cash proceeds from option exercises under the Company’s stock option plans for the years ended March 31, 2007 and 2008 was¥ 3,906 million and ¥ 506 million, respectively. No cash proceeds from option exercises was recognized for the year ended March 31,
2009. The total fair value of shares vested during the years ended March 31, 2007, 2008 and 2009 was ¥ 2,102 million, ¥ 2,338 millionand ¥ 858 million, respectively. The total intrinsic values of options exercised for the years ended March 31, 2007 and 2008 was¥ 1,967 million and ¥ 158 million, respectively. No intrinsic value of options exercised was recognized for the year ended March 31,
2009.
At March 31, 2009, all of the outstanding stock options were as follows:
Outstanding

Exercise price

2,653
3,732 - 4,300
5,563 - 6,702

Exercisable

Number ofoptions

Weighted
average
exercise
price

Weighted
averageremaining
contractual
life

673,000
1,170,000
2,095,980
3,938,980

2,653
4,300
5,775
4,804

4.0 years
1.0 years
2.3 years
2.2 years

Number ofoptions

Weighted
average
exercise
price

Weighted
averageremaining
contractuallife—
1,170,000
2,095,980
3,265,980

—
4,300
5,775
5,247

—
1.0 years
2.3 years
1.9 years

There was no aggregate intrinsic value for the options outstanding and exercisable at March 31, 2009.

F-28

ADVANTEST CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)(15) Accrued Pension and Severance Cost
The Company and certain of its subsidiaries have unfunded retirement and severance plans (point-based benefits system). Undera point-based benefits system, the benefits are calculated based on accumulated points allocated to employees each year according totheir job classification and their performance.
The Company and its subsidiaries also have a defined benefit corporate pension plan covering substantially all employees.
Under the cash balance pension plan, the benefits are calculated based on accumulated points allocated to employees each year
according to their job classification and their performance with a certain interest rate calculated based on the upper and lower limit ofa market interest rate.
On March 31, 2007, Advantest adopted the recognition and disclosure provisions of SFAS 158, “Employers’ Accounting for
Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statement No. 87, 88, 106, and 132(R)”. SFAS 158
requires Advantest to recognize the funded status (i.e., the difference between the fair value of plan assets and the projected benefit
obligations) of its pension plans in the consolidated balance sheet, with a corresponding adjustment to accumulated othercomprehensive income (loss), net of tax. The adjustment to accumulated other comprehensive income (loss) at adoption represents theunrecognized actuarial loss, and unrecognized prior service cost, all of which were previously netted against the plans’ funded status
in the consolidated balance sheet pursuant to the provisions of SFAS 87. These amounts will be subsequently recognized as net
periodic benefit cost pursuant to Advantest’s historical accounting policy for amortizing such amounts. Further, actuarial gains andlosses that arise in subsequent periods and are not recognized as net periodic benefit cost in the same periods will be recognized as acomponent of other comprehensive income (loss). Those amounts will be subsequently recognized as a component of net periodic
benefit cost on the same basis as the amounts recognized in accumulated other comprehensive income (loss) at adoption of SFAS 158.
Information about the retirement and severance plans of Advantest for the years ended March 31 are as follows:
Yen (Millions)Components of net periodic benefit cost:Service cost ..............................................................................................................................
Interest cost ..............................................................................................................................
Expected return on plan assets .................................................................................................
Amortization of unrecognized:
Net actuarial (gain) or loss..............................................................................................
Prior service (benefit) cost..............................................................................................
Other.........................................................................................................................................
Net periodic benefit cost .......................................................................................

2007

2008

2009

¥ 1,401
601
(645)

1,543
672
(850)

1,419
700
(343)

74
(224)
—
¥ 1,207

61
(210)
—
1,216

284
(210)
137
1,987

The following table sets forth the plans’ benefit obligation, fair value of plan assets, funded status at March 31, 2008 and 2009.
Yen (Millions)
2008

2009

Change in benefit obligation:
Balance at beginning of year ...............................................................................................................
Service cost .........................................................................................................................................
Interest cost .........................................................................................................................................
Actuarial (gain) or loss........................................................................................................................
Benefits paid........................................................................................................................................
Other....................................................................................................................................................
Balance at end of year .........................................................................................................................

¥ 32,545
1,543
672
(375)
(571)
—
33,81433,8141,419
700(1,274)(2,301)447
32,805

Change in plan assets:
Balance at beginning of year ...............................................................................................................
Employer contributions .......................................................................................................................
Actual return on plan assets ................................................................................................................
Benefits paid........................................................................................................................................
Balance at end of year .........................................................................................................................
Funded status ................................................................................................................................................

24,2782,227(3,332)(286)
22,887¥ (10,927)

22,887
1,791(5,631)(356)
18,691(14,114)

F-29

ADVANTEST CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
Amounts recognized in the consolidated balance sheets at March 31, 2008 and 2009 are as follows:
Yen (Millions)2008

Accrued expenses ........................................................................................................................................
Accrued pension and severance cost............................................................................................................

¥

2009

(216)
(10,711)(10,927)(118)(13,996)(14,114)Pension related adjustments (net of tax) recognized in accumulated other comprehensive income (loss) at March 31, 2008 and2009 are as follows:
Yen (Millions)

Actuarial loss ..................................................................................................................................................
Prior service benefit ........................................................................................................................................

2008

2009

¥ (2,312)
1,497
(815)

¥ (6,727)
977(5,750)Changes in pension related adjustments (net of tax) recognized in other comprehensive income (loss) for the year ended
March 31,2008 and March 31,2009 are summarized as follows:
Yen (Millions)

Current year actuarial loss ..............................................................................................................................
Amortization of actuarial loss.........................................................................................................................
Amortization of prior service benefit and other..............................................................................................

2008

2009

¥ (2,269)35(128)(2,362)¥ (4,701)
285(519)(4,935)The estimated prior service cost and actuarial loss for the defined benefit pension plans that will be amortized from accumulated
other comprehensive income (loss) into net periodic benefit cost over the next year are summarized as follow:
Yen (Millions)

Actuarial loss ................................................................................................................................................................
Prior service benefit ......................................................................................................................................................

¥ 560
(176)
384

Pension plans with accumulated benefit obligations in excess of plan assets at March 31, 2008 and 2009 are summarized asfollows:
Yen (Millions)

Projected benefit obligation ..............................................................................................................................
Accumulated benefit obligation........................................................................................................................
Fair value of plan assets....................................................................................................................................

F-30

2008

2009

¥ 33,814
32,74422,88732,80531,941
18,691ADVANTEST CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
Other information about the retirement and severance plans of Advantest is as follows:
Measurement date:
The measurement date for the pension plans is March 31.
Assumptions:
Weighted-average assumptions used to determine benefit obligations as of March 31:
2008

2009

2.1%
3.0%

2.3%
3.0%

2007

2008

2009

2.0%
3.0%
3.1%

2.1%
3.5%
3.0%

2.1%
1.5%
3.0%

Discount rate..........................................................................................................................................................
Rate of compensation increase ..............................................................................................................................
Weighted-average assumptions used to determine net periodic benefit cost for the years ended March 31:
Discount rate.......................................................................................................................................
Expected return on plan assets............................................................................................................
Rate of compensation increase ...........................................................................................................

Advantest determines the expected return based on the asset portfolio, historical returns and estimated future returns.
Plan assets:
Advantest’s domestic benefit plans’ weighted-average asset allocation at March 31, 2008 and 2009 by asset category are as
follows:
Equity securities................................................................................................................................................
Debt securities ..................................................................................................................................................
Cash ..................................................................................................................................................................
Life insurance company general accounts ........................................................................................................
Other .................................................................................................................................................................

2008

2009

60.8%
26.1
2.7
10.4
—
100.0%

30.1%
30.9
7.9
13.8
17.3
100.0%

Advantest’s investment policies are designed to ensure adequate plan assets are available to provide future payments of pension
benefits to eligible participants by attaining necessary long-term total returns on plan assets. Taking into consideration the expected
returns, associated risks and correlations of returns between asset categories in plan assets, Advantest determines an optimal
combination of equity and debt securities as Policy Asset Allocation (“PAA”). Plan assets are invested in individual equity and debt
securities according to PAA with mid-term to long-term viewpoint, which is revised periodically to the extent considered necessary toachieve the expected long-term rate of return on plan assets.
Cash flows:
Advantest expects to contribute ¥700 million to its domestic defined benefit plans during the year ending March 31, 2010.
Estimated future benefit payments:
The following benefit payments, which reflect expected future service, as appropriate, are expected:
Year ending March 31

Yen (Millions)2010 ...................................................................................................................................................................................
2011 ...................................................................................................................................................................................
2012 ...................................................................................................................................................................................
2013 ...................................................................................................................................................................................
2014 ...................................................................................................................................................................................
2015 through 2019.............................................................................................................................................................

F-31

¥ 535
637
739
877
926
5,741

ADVANTEST CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
During the fourth quarter of the year ended March 31, 2009, Advantest offered its employees an early retirement program andemployees who applied the program terminated their services prior to March 31, 2009. Advantest recorded a voluntary termination
benefit of ¥5,064 million in accordance with the provisions of SFAS No.88 “Employers’ Accounting for Settlements and Curtailmentsof Defined Benefit Pension Plans and for Termination Benefits”. The termination benefit is included in Restructuring and impairment
charges in the accompanying consolidated statements of operations.
(16) Stockholders’ Equity
Changes in the number of shares issued and treasury stock during the years ended March 31, 2007, 2008 and 2009 are as
follows:
Total shares ofcommon stock

Shares oftreasury stock

Number of shares as of April 1, 2006 ............................................................................................

199,566,770

12,913,472

Purchase of shares..........................................................................................................................
Exercise of stock options ...............................................................................................................
Sale of shares .................................................................................................................................
Number of shares as of March 31, 2007 ........................................................................................

———
199,566,770

11,135(1,006,000)(2,122)
11,916,485

Purchase of shares..........................................................................................................................
Exercise of stock options ...............................................................................................................
Sale of shares .................................................................................................................................
Number of shares as of March 31, 2008 ........................................................................................

———
199,566,770

9,102,570(178,000)(334)
20,840,721

Purchase of shares..........................................................................................................................
Exercise of stock options ...............................................................................................................
Sale of shares .................................................................................................................................
Number of shares as of March 31, 2009 ........................................................................................

———
199,566,770

3,497
—
(920)
20,843,298

The Corporation Law of Japan provides that an amount equal to 10% of distributions paid by the Company shall be appropriatedas additional paid-in capital or a legal reserve until the total amount of the additional paid-in capital and the legal reserve equals to
25% of common stock. Certain foreign subsidiaries are also required to appropriate their earnings to legal reserves under the laws of
the respective countries.
Cash dividends for the years ended March 31, 2007, 2008 and 2009 represent dividends paid out during those years. The
accompanying consolidated financial statements do not include any provision for a dividend of ¥5 per share, aggregating ¥894 million
for the second-half of the year ended March 31, 2009, subsequently proposed by the Board of Directors.
The amount available for future payment of dividends is determined under the Corporation Law of Japan and amounted to¥60,406 million at March 31, 2009.
(17) Accrued Warranty Expenses
Advantest issues contractual product warranties under which it generally guarantees the performance of products delivered andservices rendered for a certain period. Changes in accrued warranty expenses for the years ended March 31, 2007, 2008 and 2009 weresummarized as follows:
Yen (Millions)

Balance at beginning of year ..................................................................................................
Addition ..................................................................................................................................
Utilization ...............................................................................................................................
Translation adjustments ..........................................................................................................
Balance at end of year.............................................................................................................

F-32

2007

2008

2009

¥ 4,776
7,307(7,949)1¥ 4,135

4,135
6,401
(7,387)
(6)
3,143

3,143
5,260
(5,564)(28)
2,811

ADVANTEST CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)(18) Operating Segment and Geographic Information
Advantest manufactures and sells semiconductor and component test system products and mechatronics-related products such as
test handlers and device interfaces. Advantest also engages in research and development activities and provides maintenance andsupport services associated with these products. In accordance with SFAS No. 131, “Disclosure about Segments of an Enterprise andRelated Information”, Advantest has three operating and reportable segments, which are the design, manufacturing, and sale ofsemiconductor and component test systems, mechatronics systems and services, support and others. These operating segments are
determined based on the nature of the products and the markets.
The semiconductor and component test system segment provides customers with test system products for the semiconductor
industry and the electronic parts industry. Product lines provided in the semiconductor and component test system segment include
test systems for memory semiconductors for memory semiconductor devices and test systems for SoC semiconductors for non
memory semiconductor devices. The mechatronics system segment provides product lines such as test handlers, mechatronic-applied
products, for handling semiconductor devices, device interfaces that serve as interfaces with the devices that are measured andoperations related to nano-technology products. The services, support and others segment consists of comprehensive customer
solutions provided in connection with the above segments, support services, equipment lease business and others. Fundamental
research and development activities and headquarters functions are represented by Corporate.

F-33

ADVANTEST CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
Operating segment information during the years ended March 31, 2007, 2008 and 2009 are as follows:
Yen (Millions)

As of and for the year ended March 31, 2007:
Net sales to unaffiliated customers..................................
Inter-segment sales..........................................................
Sales..........................................................................................
Depreciation and amortization..................................................
Operating income (loss) before stock option compensation
expenses ...............................................................................
Adjustments:
Stock based compensation expense.................................
Operating income (loss)............................................................
Expenditures for additions to long- lived assets .......................
Total assets ...............................................................................
As of and for the year ended March 31, 2008:
Net sales to unaffiliated customers..................................
Inter-segment sales..........................................................
Sales..........................................................................................
Depreciation and amortization..................................................
Operating income (loss) before stock option compensation
expenses ...............................................................................
Adjustment:
Stock based compensation expense.................................
Operating income (loss)............................................................
Expenditures for additions to long- lived assets .......................
Total assets ...............................................................................
As of and for the year ended March 31, 2009:
Net sales to unaffiliated customers..................................
Inter-segment sales..........................................................
Sales..........................................................................................
Depreciation and amortization..................................................
Impairment charges to long-lived assets and goodwill .............
Operating income (loss) before stock option compensation
expenses ...............................................................................
Adjustment:
Stock based compensation expense.................................
Operating income (loss)............................................................
Expenditures for additions to long- lived assets .......................
Total assets ...............................................................................

Semiconductor
andComponent
Test System
Business

Mechatronics
SystemBusiness

Services,
SupportandOthersElimination
andCorporate

Total¥164,899
2,916
167,8152,812

51,801
224
52,025
1,241

18,312—
18,312
3,710—(3,140)(3,140)451

235,012—
235,0128,214

48,60813,6472,870(5,767)59,3583,173
84,962

1,145
24,256

3,533
15,163485
241,993

2,566
56,792
8,336
366,374¥128,779
2,829
131,608
3,561

34,644300
34,944
1,261

19,344—
19,344
3,324—(3,129)(3,129)690

182,767—
182,767
8,836

23,263

3,266

3,177

(6,132)

23,574

7,814
63,5702,260
18,511

2,749
14,493

1,260
202,110858
22,716
14,083
298,684¥ 48,629
587
49,216
3,893
8,491

12,2082,180
14,3881,813
4,507

15,815—
15,8152,668
606—(2,767)(2,767)345
262

76,652—76,652
8,719
13,866(28,914)(11,865)(1,099)(7,331)(49,209)96
150,820248(49,457)
4,608
202,059

1,657
29,4491,249
11,017

1,606
10,773Adjustments to operating income (loss) in Corporate principally represent corporate general and administrative expenses andresearch and development expenses related to fundamental research activities that are not allocated to operating segments.
Advantest uses the operating income (loss) before stock option compensation expenses for management’s analysis of businesssegment results.
Additions to long-lived assets included in Corporate consist of purchases of software and fixed assets for general corporate use.

F-34

ADVANTEST CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
Total assets included in Corporate consist of cash and cash equivalents, assets for general corporate use and assets used for
fundamental research activities, which are not allocated to reportable segments.
One customer and its related entities mainly in the semiconductor and component test system segment and the mechatronics
system segment accounted for approximately 4%, 4% and 24% of total consolidated net sales for the years ended March 31, 2007,2008 and 2009, respectively. Other customer accounted for approximately 9%, 9% and 14% for the years ended March 31, 2007, 2008
and 2009, respectively. Another customer accounted for approximately 11%, 5% and 1% for the years ended March 31, 2007, 2008
and 2009, respectively.
Information as to Advantest’s net sales and long-lived assets in various geographical areas is as follows:
Net sales to unaffiliated customers for the years ended March 31, 2007, 2008 and 2009 are as follows:
Yen (Millions)Japan ........................................................................................................................................
Americas..................................................................................................................................
Europe......................................................................................................................................
Asia..........................................................................................................................................
Total ...............................................................................................................................

2007

2008

2009

¥ 72,834
10,158
11,238140,782¥ 235,012

56,032
9,616
8,859
108,260
182,767

24,734
11,7592,844
37,31576,652

Net sales to unaffiliated customers are based on the customer’s location. Net sales indicated as Asia are generated in Taiwan,
Korea and China and others in the amount of ¥63,098 million, ¥51,177 million and ¥26,507 million for the year ended March 31, 2007,¥56,122 million, ¥35,967 million and ¥16,171 million for the year ended March 31, 2008, and ¥10,240 million, ¥14,074 million and¥13,001 million for the year ended March 31, 2009, respectively. Substantially all net sales indicated as Americas are generated in the
United States of America.
Long-lived assets as of March 31, 2007, 2008 and 2009 are as follows:
Yen (Millions)Japan .............................................................................................................................................
Americas.......................................................................................................................................
Europe...........................................................................................................................................
Asia...............................................................................................................................................
Total ....................................................................................................................................

2007

2008

2009

¥ 45,940
1,093
620
5,098
¥ 52,751

49,006
161
592
4,483
54,242

31,723
108
634
2,979
35,444Long-lived assets are those assets located in each geographic area.
There is no individually material country with respect to long-lived assets outside Japan. Substantially all long-lived assets
indicated as Americas are located in the United States of America. Significant portion of long-lived assets in Asia are located in
Singapore.

F-35

ADVANTEST CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)(19) Related Party Transactions
Advantest sells products to and purchases raw materials from Fujitsu Limited, its 11.3% stockholder as of March 31, 2009 andits group companies (collectively “Fujitsu”). The terms of sales are the same as those with third parties. Advantest purchases raw
materials after receiving competitive bids from several suppliers. Advantest also purchases various software products for internal use,
information system related services, research and development materials and services from Fujitsu. Advantest had the following
transactions with Fujitsu as of and for the years ended March 31:
Yen (Millions)

Sales of products.................................................................................................................................
Purchases of raw materials .................................................................................................................
Receivables .........................................................................................................................................
Payables ..............................................................................................................................................
Purchases of software, hardware and others .......................................................................................
Research and development expenses, computer rentals, maintenance and other expenses ................
Investment ..........................................................................................................................................

2007

2008

2009

¥ 4,104
8,929
1,161
4,519
227
2,382
90

5,395
6,153
1,515
1,964
230
3,083
1,035

1,659
2,501
418
1,021
60
1,839
—

Advantest invested ¥90 million and ¥1,035 million for the years ended March 31, 2007 and 2008, respectively, in common stockand class stock of e-Shuttle, Inc., a subsidiary of Fujitsu. Advantest holds approximately 35% of common stock of e-Shuttle, Inc.
which is accounted for by equity method of accounting.
(20) Per Share Data
The following table sets forth the computation of basic and diluted net income (loss) per share as of March 31:
Yen (Millions) except per share data
2007

2008

2009

Numerator:
Net income (loss) ....................................................................................

¥

35,556

16,550(74,902)

Denominator:
Basic weighted average shares of common stock outstanding................
Dilutive effect of exercise of stock options .............................................
Diluted weighted average shares of common stock outstanding.............

187,128,842
1,141,846
188,270,688

182,418,821
305,161
182,723,982

178,724,884—
178,724,884

90.72
90.57

(419.09)(419.09)

Basic net income (loss) per share......................................................................
Diluted net income (loss) per share ..................................................................

¥

190.01
188.85At March 31, 2007, 2008 and 2009, Advantest had outstanding stock options into 11,980, 2,309,980 and 3,938,980 shares ofcommon stock, respectively, which were anti-dilutive and excluded from the calculation of diluted net income per share but could
potentially dilute net income per share in future periods.
(21) Concentrations of credit risk
Advantest is exposed to credit risk in the event of default by financial institutions to cash and cash equivalents, but such risk is
considered mitigated by the high credit rating of the financial institutions.
At March 31, 2008, Advantest has no single customer accounts for more than 10% of consolidated trade receivables. At
March 31, 2009, Advantest has a customer with significant receivables. Receivables from the customer accounted for 30% ofconsolidated trade receivables at March 31, 2009. Although Advantest does not expect that the customer will fail to meet its
obligations, Advantest is potentially exposed to concentrations of credit risk if the customer failed to perform according to the terms ofthe contracts.
(22) Commitments and Contingent Liabilities
Advantest is involved in various claims and legal actions arising in the ordinary course of business. In the opinion ofmanagement, the ultimate disposition of these matters will not have a material adverse effect on Advantest’s consolidated financial
position, results of operations, or cash flows.
Commitments outstanding for the purchase of property, plant and equipment and other assets totaled ¥5 million atMarch 31, 2009.
F-36

ITEM 19.

EXHIBITS
Index to Exhibits

1.1

Amended and Restated Articles of Incorporation of the Registrant (English translation)

1.2

Regulations of the Board of Directors of the Registrant (English translation)*

1.3

Regulations of the Board of Corporate Auditors of the Registrant (English translation)*

2.1

Share Handling Regulations of the Registrant (English translation)

2.2

Form of Deposit Agreement among the Registrant, JPMorgan Chase Bank (as successor to Morgan Guaranty Trust
Company of New York), as depositary, and the owners and beneficial owners from time to time of American Depositary
Receipts**

2.3

Form of Amendment No. 1 to Deposit Agreement among the Registrant, JPMorgan Chase Bank, N.A. as depositary, andall holders from time to time of American Depositary Receipts, including the form of American Depositary Receipt***

2.4

Form of ADR (included in Exhibit 2.3)

8.1

List of Principal Subsidiaries (See “Organizational Structure” in “Information on the Company”)

11.1

Code of Ethics of the Registrant applicable to its directors and executive officers, including its principal executive officer,
principal financial officer, principal accounting officer or controller, or persons performing similar functions****12.1

Certifications of the Registrant’s Representative Director, President and Chief Executive Officer and Director andManaging Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act

13.1

Certifications of the Registrant’s Representative Director, President and Chief Executive Officer and Director andManaging Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act

15.1

Consents of Independent Registered Public Accounting Firm

*
**
***
****

Incorporated by reference to the Company’s report on Form 20-F filed with the SEC on June 26, 2008 (file no. 1-15236).
Incorporated by reference to the Company’s registration statement on Form 20-F filed with the SEC on September 4, 2001
(file no. 1-15236).
Incorporated by reference to the Post Effective Amendment to the Company’s registration statement on Form F-6 Filed with
the SEC on September 12, 2006 (file no. 333-13886).
Incorporated by reference to the Company’s annual report on Form 20-F filed with the SEC on June 29, 2004
(file no. 1-15236).

SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused andauthorized the undersigned to sign this annual report on its behalf.
Date: June 26, 2009
ADVANTEST CORPORATION
By:
Name:
Title:/S/

YUICHI KURITA

Yuichi Kurita
Director and Managing Executive Officer

Exhibit 1.1(Translation)

ARTICLES OF INCORPORATIONADVANTEST CORPORATIONARTICLES OF INCORPORATIONCHAPTER I. GENERAL PROVISIONS
Article 1. (Corporate Name)
The Company shall be called “Kabushiki Kaisha Advantest” in Japanese and shall be expressed in English as “ADVANTEST
CORPORATION”.
Article 2. (Objective)
The objective of the Company shall be to engage in the following business activities:
1.
2.
3.
4.
5.

Manufacture and sale of electric, electronic and physicochemical appliances and their applied equipment;
Manufacture and sale of appliances, equipment and software related to any of the foregoing items;
Lease and rental of equipment and appliances, etc., incidental to each of the foregoing items;
Workers dispatching business; andAny and all business incidental to any of the foregoing items.

Article 3. (Location of Head Office)
The Company shall have its head office in Nerima-ku, Tokyo.
Article 4. (Method of Public Notice)
The method of the Company’s public notice shall be electronic method; provided that it may do so in the Nikkei, in the eventthat the Company is unable to use electronic method due to accident or other unavoidable reasons.
CHAPTER II.

SHARES

Article 5. (Total Number of Issuable Shares)
The total number of the Company’s issuable shares shall be four hundred and forty million (440,000,000) shares.
Article 6. (Number of Shares Constituting One Unit of Shares)
The number of shares of the Company constituting one unit of shares shall be one hundred (100) shares.
Article 7. (Rights Concerning Shares Constituting Less Than One Unit of Shares)
Shareholders of the Company may not exercise his/her rights relating to the shares constituting less than one unit of shares thatsuch shareholder holds other than those rights listed below or specified in these Articles of Incorporation:
(1)
(2)
(3)

Each of the rights provided in Article 189, Paragraph 2 of the Company Law;
The right to make a request pursuant to the provisions of Article 166, Paragraph 1 of the Company Law; andThe right to receive an allocation of offered shares and offered stock acquisition rights pursuant to the number ofshares held by the shareholder.

Article 8. (Additional Purchases of Shares Constituting Less Than One Unit of Shares)
A shareholder of the Company may, pursuant to the provisions of the Share Handling Regulations, request that the Company
sell to such shareholder the number of shares that will constitute one unit of shares when added to the number of sharesconstituting less than one unit of shares held by him/her.
Article 9. (Share Handling Regulations)
Matters related to the handling of shares of the Company and fees therefor, other than those provided for in laws and regulations
or in these Articles of Incorporation, shall be governed by the Share Handling Regulations to be prescribed by the Board of
Directors.

2Article 10. (Share Registration Agent)
1.
2.
3.

The Company shall have a share registration agent.
Share registration agent and the location of its handling office shall be determined by resolution of the Board of Directors
and the public notice thereof shall be given.
Preparation of, and maintenance and other business concerning, the shareholders’ register and the register for stockacquisition rights shall be commissioned to the share registration agent and shall not be handled by the Company.

Article 11. (Record Date)
1.
2.

The record date for the voting rights at the ordinary general meeting of shareholders of the Company shall be March 31 ofeach year.
In addition to the case provided for in the preceding paragraph, whenever necessary, in accordance with a resolution of theBoard of Directors and upon giving prior public notice, the Company may set a record date as necessary.
CHAPTER III.

GENERAL MEETING OF SHAREHOLDERS

Article 12. (Convocation of General Meeting of Shareholders)
The Ordinary General Meeting of Shareholders shall be convened within three (3) months after April 1 each year and theExtraordinary General Meeting of Shareholders shall be convened at any time whenever necessary.
Article 13. (Internet Disclosure and Deemed Provision of Reference Documents for General Meeting of Shareholders, etc.)
The Company may, in connection with the convocation of a general meeting of shareholders, deem the information concerning
matters to be stated or indicated on the reference documents for a general meeting of shareholders, business report, statement ofaccounts and consolidated statement of account to have been provided to the shareholders by disclosing such information
through the Internet pursuant to the applicable rules and the Ministerial Ordinance of the Ministry of Justice.
Article 14. (Convener and Chairman of General Meeting of Shareholders)
1.

2.

The General Meeting of Shareholders shall be convened by a Representative Director previously determined by the Boardof Directors in accordance with the resolution of the Board of Directors. In case that such Representative Director isunable to act, one of other Directors shall take his/her place in the order predetermined by the Board of Directors.
A Representative Director previously determined by the Board of Directors shall act as the chairman of the General
Meeting of Shareholders, and should such Representative Director be unable to act, one of other Directors shall takehis/her place in the order predetermined by the Board of Directors.

Article 15. (Method of Resolution)
1.

2.

Unless otherwise provided for by laws and regulations or by the Articles of Incorporation, resolutions of general meetingsof shareholders shall be adopted by a majority vote of the total voting rights of the shareholders present at the meeting
who are entitled to exercise their voting rights.
Special resolutions of general meetings of shareholders set forth in Article 309, Paragraph 2 of the Company Law shall be
adopted by the affirmative vote of two-thirds of the total voting rights of shareholders who are entitled to exercise theirvoting rights, and a quorum for the meeting shall require the presence of shareholders holding at least one-third of thetotal voting rights.

Article 16. (Restriction on Voting by Proxy)1.
2.

A shareholder may exercise his/her voting right by entrusting one proxy, who shall be another shareholder, to exercise
his/her voting rights.
The Shareholder or proxy shall submit to the Company a document evidencing the authority of such proxy for each
General Meeting of Shareholders.

Article 17. (Minutes of General Meeting of Shareholders)A summary of proceedings, results and other matters required by applicable laws and regulations regarding a general meeting ofshareholders shall be recorded in the minutes in writing or digitally.

3

CHAPTER IV.

DIRECTORS AND THE BOARD OF DIRECTORS

Article 18. (Establishment of the Board of Directors)
The Company shall establish the Board of Directors.
Article 19. (Number of Directors)
The number of directors of the Company shall be no more than ten (10).
Article 20. (Election of Directors)
1.
2.

3.

Directors shall be elected at the General Meeting of Shareholders.
A resolution to elect a director shall be made at a meeting at which the shareholders holding one-third (1/3) or more of thevoting rights of all shareholders who are entitled to exercise their voting rights, and shall be adopted by a majority of votes
thereof.
Cumulative voting shall not be used for election of Directors.

Article 21. (Term of Office of Directors)
The term of office of a director shall expire at the close of the ordinary general meeting of shareholders pertaining to the last
fiscal year ending within one (1) year after appointment.
Article 22. (Representative Directors and Directors with Titles)
1.
2.

The Board of Directors shall by its resolution elect one or more representative directors.
The Board of Directors may by its resolution elect a Chairman of the Board and a Vice Chairmen of the Board.

Article 23. (Convocation Notice and Resolutions of the Board of Directors)
1.
2.
3.
4.

The convocation notice of the Board of Directors shall be dispatched to each Director and Corporate Auditor at least three(3) days prior to the date set for the meeting; provided, however, that such period may be shortened in the case of urgency.
The convocation notice as provided for in the preceding paragraph may be omitted when the unanimous consent of all the
Directors and the Corporate Auditors is obtained.
The resolution of the Board of Directors shall be adopted by a majority vote of the Directors present at the meeting at
which a majority of Directors are present.
If a director submits a proposal to resolve a matter that is subject to resolution by the Board of Directors and if all the
directors (limited to those directors who are entitled to participate in the resolution of such matter) consent to suchproposal in writing or digitally (except when any corporate auditor objects such proposal), the Company shall deem that
there was a resolution by the Board of Directors adopting such proposal.

Article 24. (Regulations of the Board of Directors)
Any matters concerning the Board of Directors shall be governed by the Regulations of the Board of Directors to be prescribedby the Board of Directors, in addition to the laws and ordinances or these Articles of Incorporation.
Article 25. (Minutes of Meeting of the Board of Directors)
A summary of proceedings, results and other matters required by laws and regulations regarding a meeting of the Board of
Directors shall be recorded in the minutes in writing or digitally, and the directors and corporate auditors present at the meetingshall affix their names and seals thereto or put their electronic signatures thereon.
Article 26. (Remuneration, etc. of Directors)
Remuneration, bonuses and other financial interests received by directors from the Company as compensation for undertaking
their functions (“Remuneration, etc.”) shall be determined at a general meeting of shareholders.

4Article 27. (Exemption of Directors’ Liabilities)
1.

2.

Pursuant to the provisions of Article 426, Paragraph 1 of the Company Law and to the extent permitted by laws andregulations, the Company may, by resolution of the Board of Directors, exempt liabilities of its directors (including
persons who have previously served as the Company’s directors) for failing to perform their duties.
Pursuant to the provisions of Article 427, Paragraph 1 of the Company Law, the Company may enter into contracts with
its outside directors to limit their liabilities for a failure to perform their duties, provided that the maximum amount ofliabilities under such contracts shall be the total of the amounts provided in each item of Article 425, Paragraph 1 of theCompany Law.

Article 28. (Counselors and Advisors)
The Board of Directors may by its resolution appoint one or more Counselors and Advisors, respectively.
CHAPTER V.

CORPORATE AUDITOR

Article 29. (Corporate Auditors and the Board of Corporate Auditors)
The Company shall have corporate auditors and the Board of Corporate Auditors.
Article 30. (Number of Corporate Auditors)
The number of corporate auditors of the Company shall be no more than five (5).
Article 31. (Election of Corporate Auditors)
1.
2.

Corporate Auditors shall be elected at the General Meeting of Shareholders.
A resolution to elect a corporate auditor shall be made at a meeting at which the shareholders holding one-third (1/3) ormore of the voting rights of the total shareholders who are entitled to exercise their voting rights, and shall be adopted bya majority of votes thereof.

Article 32. (Term of Office of Corporate Auditors)
1.
2.

The term of office of a corporate auditor shall expire at the close of the ordinary general meeting of shareholders
pertaining to the last fiscal year ending within four (4) years after his/her appointment.
The term of office of a corporate auditor elected to fill a vacancy of another corporate auditor, who has retired before suchanother corporate auditor term of office expires, shall be until the term of office of such predecessor would expire.

Article 33. (Standing Corporate Auditor(s))
The Board of Corporate Auditors shall by its resolution elect standing corporate auditor(s).
Article 34. (Convocation Notice of the Board of Corporate Auditors and Resolution Thereof)
1.
2.
3.

The convocation notice of the Board of Corporate Auditors shall be dispatched to each Corporate Auditor at least three(3) days prior to the date set for the meeting; provided, however, that such period may be shortened in the case of urgency.
The convocation notice as provided for in the preceding paragraph may be omitted when the unanimous consent of all the
Corporate Auditors is obtained.
The resolution of the Board of Corporate Auditors shall be adopted by a majority of Corporate Auditors, unless otherwise
provided for by laws and ordinances.

Article 35. (Regulations of the Board of Corporate Auditors)
Any matters concerning the Board of Corporate Auditors shall be governed by the Regulations of the Board of Corporate
Auditors to be prescribed by the Board of Corporate Auditors in addition to the laws and ordinances or these Articles ofIncorporation.
Article 36. (Minutes of Meeting of the Board of Corporate Auditors)
A summary of proceedings, results and other matters required by applicable laws and regulations regarding a meeting of theBoard of Corporate Auditors shall be recorded in the minutes in writing or digitally, and the corporate auditors present at themeeting shall affix their names and seals thereto or put their electronic signatures thereon.

5Article 37. (Remuneration, etc. of Corporate Auditors)
Remuneration, etc. of corporate auditors shall be determined at a general meeting of shareholders.
Article 38. (Exemption of Corporate Auditors’ Liabilities)
1.

2.

Pursuant to the provisions of Article 426, Paragraph 1 of the Company Law and to the extent permitted by laws andregulations, the Company may, by resolution of the Board of Directors, exempt the liabilities of its corporate auditors(including persons who have previously served as the Company’s corporate auditors) for failing to perform their duties.
Pursuant to the provisions of Article 427, Paragraph 1 of the Company Law, the Company may enter into contracts with
its outside corporate auditors to limit their liabilities for a failure to perform their duties, provided that the maximum
amount of liabilities under such contracts shall be the total of the amounts provided in each item of Article 425, Paragraph
1 of the Company law.
CHAPTER VI.

ACCOUNTING AUDITOR(S)

Article 39. (Accounting Auditor(s))
The Company shall have accounting auditor(s).
CHAPTER VII. ACCOUNTING
Article 40. (Fiscal Year)The fiscal year of the Company shall be one (1) year starting from April 1 of each year and ending on March 31 of the following
year.
Article 41. (Organ to Decide Distribution of Retained Earnings, etc.)
Unless otherwise provided for in laws and regulations, the Board of Directors may, by its resolution, decide the matters, such as
distribution of retained earnings, that are provided in each item of Article 459, Paragraph 1 of the Company Law.
Article 42. (Record Date for Distribution of Surplus)
1.
2.
3.

The record date for the distribution of fiscal-year-end dividends of the Company shall be March 31 of each year.
The record date for the distribution of an interim dividend of the Company shall be September 30 of each year.
In addition to the record dates set forth in the preceding two paragraphs, the Company may distribute retained earnings by
setting a record date.

Article 43. (Expiration for Dividend Payment)
If the asset to be distributed as dividends is cash and if such cash is not received within three (3) years after the date on which
the Company commenced payment thereof, the Company shall be released from the obligation to make such payment.
(Supplementary Provisions)1.
2.

Preparation of, and maintenance and other business concerning, the register for lost share certificates shall becommissioned to the share registration agent and shall not be handled by the Company.
The preceding article and this article will continue to be in effect until and including January 5, 2010 and will be deleted
on January 6, 2010.

6

1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
26.
27.
28.

EnactedAmendedAmendedAmendedAmendedAmendedAmendedAmendedAmendedAmendedAmendedAmendedAmendedAmendedAmendedAmendedAmendedAmendedAmendedAmendedAmendedAmendedAmendedAmendedAmendedAmendedAmendedAmendedJune 6, 1954;
May 20, 1964;
May 20, 1965;
May 30, 1969;
February 19, 1974;
April 9, 1974;
May 21, 1974;
August 15, 1974;
October 22, 1974;
December 25, 1974;
February 16, 1976;
June 28, 1982;
June 29, 1983;
June 28, 1985;
June 29, 1989;
June 27, 1991;
June 29, 1994;
June 29, 1995;
June 26, 1998;
June 29, 1999;
June 28, 2001;
June 27, 2002;
June 27, 2003;
June 25, 2004;
June 28, 2005;
June 27, 2006;
October 1, 2006;
June 25, 20097

Exhibit 2.1(Translation)

SHARE HANDLING REGULATIONSADVANTEST CORPORATIONSHARE HANDLING REGULATIONSCHAPTER I.

GENERAL PROVISIONS

Article 1 (Purpose)
Matters related to the procedures of execution of shareholders’ rights, and the handling and fees of shares of Advantest Corporation(the “Company”) shall be governed by these Share Handling Regulations pursuant to the provisions of the Articles of Incorporation of
the Company, in addition to the provisions set forth by Japan Securities Depository Center, Inc. (“JASDEC”) and the securities
companies or other account management institutions at which the Company’s shareholders hold their respective transfer accounts(each a “Securities Company”).
Article 2 (Share Registration Agent)
The share registration agent (the “Share Registration Agent”) of the Company and the handling office thereof (the “Handling Office”)
shall be as follows:
Share Registration Agent:Tokyo Securities Transfer Agent Co., Ltd.
6-2, Otemachi 2-chome, Chiyoda-ku, Tokyo
Handling Office:The head office of Tokyo Securities Transfer Agent Co., Ltd.
6-2, Otemachi 2-chome, Chiyoda-ku, Tokyo
CHAPTER II. RECORDING IN THE SHAREHOLDERS’ REGISTER
Article 3 (Recording in the Shareholders’ Register)
1.

2.
3.

Changes to the items registered in the shareholders’ register (the “Shareholders’ Register”) shall be made by a notice fromJASDEC such as the general shareholders notification (excluding the notices set forth in Article 154, Paragraph 3 of the Act on
Transfer of Bonds, Shares, etc., the “Individual Shareholder Notification”).
In addition to the preceding paragraph, changes to the items registered in the Shareholders’ Register shall be made without
notice from JASDEC in the event of issuance of new shares, or as otherwise provided by laws and regulations.
Entries in the Shareholders’ Register shall be recorded using the letters and symbols specified by JASDEC.

Article 4 (Notification Concerning Recorded Items in Shareholders’ Register)
Each shareholder shall submit a notification of his/her name or corporate name and address through their Securities Company and
JASDEC in accordance with the provisions set forth by JASDEC. The same shall apply in the case of any change thereto.
Article 5 (Representative of Corporation)
Any shareholder that is a corporation shall designate one (1) representative and submit a notification of such representative’s namethrough their Securities Company and JASDEC in accordance with the provisions set forth by JASDEC. The same shall apply in thecase of any change to such representative.
Article 6 (Representative for Joint Shareholder)
Any shareholder who jointly own shares shall designate one (1) representative and submit a notification of such representative’s nameor corporate name and address through their Securities Company and JASDEC in accordance with the provisions set forth by
JASDEC. The same shall apply in the case of any change to such representative.
Article 7 (Statutory Agent)
Any parental authority, guardian or other statutory agent of shareholders shall submit a notification of his/her name or corporate nameand addresses through their Securities Company and JASDEC in accordance with the provisions set forth by JASDEC. The same shallapply in the case of any change thereto.

2

Article 8 (Notification of Address at which the Non-Resident Shareholder will Receive Notice)
Any non-resident shareholder and registered pledgee of shares residing abroad or their statutory agent shall appoint a standing proxyin Japan, or designate an address in Japan at which they will receive notices, and submit a notification of the name or corporate nameand address of their standing proxy or the place at which notices are to be received through their Securities Company and JASDEC in
accordance with the provisions set forth by JASDEC. The same shall apply in the case of any change in such matters.
Article 9 (Method of Verification of Notifications Made through JASDEC)
Notifications submitted to the Company by a shareholder through their Securities Company and JASDEC shall be deemed to havebeen made by such shareholder.
CHAPTER III. CONFIRMATION OF SHAREHOLDERS
Article 10 (Confirmation of Shareholders)
1.

2.
3.

4.

When a shareholder (including a shareholder who has made an Individual Shareholder Notification) makes a request or exercise
the rights as a shareholder (a “Request”), the shareholder shall attach or submit documentation evidencing that such Request is
being made in accordance with such shareholder’s intent (the “Documentary Evidence”). Notwithstanding, if the Company isable to confirm that a Request is being made directly by the shareholder, the Documentary Evidence will not be necessary.
If a shareholder makes a Request against the Company through their Securities Company and JASDEC, such Request will beconsidered to have been made directly by the shareholder, and the Documentary Evidence shall not be required.
If a shareholder makes a Request through an agent, such agent shall attach a power of attorney either signed by the shareholder
or with his or her name and seal affixed, in addition to the procedures set forth in Paragraphs 1 and 2 above. The power ofattorney shall state the name or corporate name and address of the person to whom authority has been granted.
The provisions of Paragraphs 1 and 2 above shall also apply mutatis mutandis to the agent.
CHAPTER IV. PROCEDURES FOR EXERCISING SHAREHOLDERS’ RIGHTS

Article 11 (Minority Shareholders’ Rights)
In the event that a minority shareholder exercises those rights which are set forth in Article 147, Paragraph 4 of the Act on Transfer ofBonds, Shares, etc., directly against the Company, such shareholder shall exercise his or her rights by attaching written documentation
bearing the signature or the name and seal of the shareholder, together with a receipt for an Individual Shareholder Notification.
CHAPTER V.

PURCHASE OF SHARES CONSTITUTING LESS THAN ONE UNIT

Article 12 (Request for Purchase of Shares Constituting Less Than One Unit)
If any shareholder requests the Company to purchase those shares constituting less than one unit that he or she holds, such shareholder
shall submit the request through their Securities Company and JASDEC in accordance with the provisions set forth by JASDEC.
Article 13 (Effective Date of Request for Purchase of Shares Constituting Less Than One Unit)
The request for purchase of shares constituting less than one unit shall be effective on the day when the documentation pertaining to
the request for purchase is received at the Handling Office of the Share Registration Agent.
Article 14 (Purchase Price of Shares Constituting Less Than One Unit)
1.

2.

The purchase price of shares constituting less than one unit, the purchase of which has been requested in accordance with theprovisions of the preceding articles, shall be equal to the amount to be obtained by multiplying the purchase price per share asprovided for under Paragraph 2 below by the number of shares constituting less than one unit the purchase of which has beenrequested.
The purchase price per share of shares constituting less than one unit, the purchase of which has been requested, shall be equal
to the closing price per share at which the shares of the Company are sold on the Tokyo Stock Exchange on the day when therequest for the purchase as provided for in the preceding article is received at the Handling Office of the Share Registration
Agent as set forth in Article 2 above, and should no sales transaction be performed on the shares of the Company on the said daythen the price per share at which the shares of the Company are first sold at the said stock Exchange thereafter.

3

Article 15 (Payment of Purchase Price of Shares Constituting Less Than One Unit)
1.

2.

Unless otherwise separately provided for by the Company, the amount of the money payable for the shares constituting less than
one unit, the purchase of which has been requested, shall be paid by depositing money into a bank savings account which isdesignated by the person who requested the purchase of shares or by cash payment at Japan Post Bank Co., Ltd. on the fourthbusiness day from the day when the purchase price per share is fixed as provided for under Paragraph 2 of the preceding article;
provided, that should the purchase price per share be a price which reflects the right to receive dividends from surplus or
distribution of new shares by stock split, the payment shall be made on or before the record date thereof.
On paying the purchase price of shares constituting less than one unit under the preceding paragraph, the fee as set forth in
Article 24 below shall be deducted.

Article 16 (Transfer of Purchased Shares Constituting Less Than One Unit)
The shares purchased in accordance with the provisions for the purchase of shares constituting less than one unit shall transfer to theaccount of the Company in accordance with the preceding article on the day on which the payment of the purchase price is made or
the payment procedures has been completed.
CHAPTER VI. SALE OF SHARES CONSTITUTING LESS THAN ONE UNIT
Article 17 (Method of Request for Sale)
If any shareholder holding shares constituting less than one unit requests the Company to sell such shareholder the number of shares
needed to make one unit when added with the less than one unit already held by such shareholder (a “Request for Sale”), suchshareholder shall submit the request through their Securities Company and JASDEC in accordance with the provisions set forth by
JASDEC.
Article 18 (Request for Sale of Shares Exceeding the Number of Treasury Stock)
If the aggregate number of shares the sale of which has been requested on any one day exceeds the number of treasury stock reservedby the Company for the Request for Sale, no such Request for Sale made on that day shall become effective.
Article 19 (Effective Date of Request for Sale)
The Request for Sale of shares constituting less than one unit shall become effective on the day on which such request is received by
the Handling Office of the Share Registration Agent.
Article 20 (Suspension Period of Request for Sale)
1.

2.

The Company shall suspend acceptance of the Request for Sale every year during (i) the period commencing the tenth business
day prior to March 31 and ending on March 31, (ii) the period commencing the tenth business day prior to September 30 andending on September 30, and (iii) the period commencing the tenth business day prior to the shareholder record date and ending
on such shareholder record date that are provided by JASDEC.
Notwithstanding the immediately preceding paragraph, the Company may establish any other period to suspend acceptance of
the Request for Sale whenever the Company deems it necessary.

Article 21 (Determination of Sale Price)1.

2.

The sale price per share shall be the last selling price per share of the Company on the Tokyo Stock Exchange on the effective
date of the Request for Sale; provided, that if no share of the Company was traded on the Tokyo Stock Exchange on such date orsuch date was not a business day of the Tokyo Stock Exchange, the sale price shall be the price at which the shares of theCompany are first traded subsequent thereto.
The sale price shall be calculated by multiplying the sale price per share stipulated in the immediately preceding paragraph by
the number of shares for which the Request for Sale has been made.

Article 22 (Transfer of Shares Sold)
The Company shall submit an application to transfer those treasury stock sold by the Company pursuant to a Request for Sale to thetransfer account of the shareholder making the Request for Sale on the day on which the Company confirms that such shareholder has
deposited, through their Securities Company and in accordance with the provisions set forth by JASDEC, into the bank accountdesignated by the Company, the sale price for the relevant shares and the accompanying fees as prescribed in Article 24.

4CHAPTER VII.

SPECIAL CASE FOR SPECIAL ACCOUNTS

Article 23 (Special Case for Special Accounts)
Matters relating to special accounts, including the verification of the identity of any shareholder who has opened a special account,shall be administered in accordance with the provisions set forth by JASDEC and the provisions set forth by the institution managing
such special account.
CHAPTER VIII.

FEES

Article 24 (Fees)
The fee for the purchase or sale of shares constituting less than one unit shall be equal to the amount obtained by proportionallydividing the brokerage fee for purchase or sale of one unit of shares of the Company at the purchase price per share determined inaccordance with Article 14, Paragraph 2 or the sale price per share determined in accordance with Article 21, Paragraph 1, which fee
shall be separately decided by the Company, by the number of shares constituting less than one unit relating to the request forpurchase or sale.
SUPPLEMENTARY PROVISIONS
Article 1 (Application for Removal by Shareholders who Registered Lost Share Certificates)
Shareholders who registered their lost share certificates shall submit an application form to apply for removal of such registration (the“Application Form”).
Article 2 (Application for Removal by Shareholders who Hold Lost Share Certificates)
Shareholders who hold lost share certificates shall submit such share certificates and an identification document of the applicant
together with the Application Form.
Article 3 (Application of Provisions Concerning Reports)
Shareholders who registered their lost share certificates shall submit an application to the Handling Office of the Shareholder Register
Administrator to change the description or record on the register of the lost share certificates, by applying mutatis mutandis theprovisions in Articles 4 through 8.
Article 4 (Transitional Measure)
Articles 1 through 4 of these Supplementary Provisions shall be deleted on January 5, 2010.
Article 5
These Share Handling Regulations shall be established or amended upon the proposal of the Manager of General Affairs Department
and by resolution of the meeting of the Board of Directors.
Article 6
These Share Handling Regulations have been amended on January 5, 2009.
(End of Document)

5

Exhibit 12.1
CERTIFICATION
I, Haruo Matsuno, certify that:1.

I have reviewed this annual report on Form 20-F of Advantest Corporation (the “registrant”);

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material factnecessary to make the statements made, in light of the circumstances under which such statements were made, not misleadingwith respect to the period covered by this report;

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in allmaterial respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;

4.

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in
Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

5.

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, ismade known to us by others within those entities, particularly during the period in which this report is being prepared;(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;(c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report ourconclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by thisreport based on such evaluation; and(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during theperiod covered by the annual report that has materially affected, or is reasonably likely to materially affect, the registrant’sinternal control over financial reporting; andThe registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control overfinancial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors (and persons
performing the equivalent function):(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reportingwhich are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in theregistrant’s internal control over financial reporting.

Date: June 26, 2009
ADVANTEST CORPORATIONBy:/s/ HARUO MATSUNO
Name: Haruo Matsuno
Title: Representative Director, President and CEO

CERTIFICATIONI, Yuichi Kurita, certify that:1.

I have reviewed this annual report on Form 20-F of Advantest Corporation (the “registrant”);

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material factnecessary to make the statements made, in light of the circumstances under which such statements were made, not misleadingwith respect to the period covered by this report;

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in allmaterial respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;

4.

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in
Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

5.

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, ismade known to us by others within those entities, particularly during the period in which this report is being prepared;(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;(c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report ourconclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by thisreport based on such evaluation; and(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during theperiod covered by the annual report that has materially affected, or is reasonably likely to materially affect, the registrant’sinternal control over financial reporting; andThe registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control overfinancial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors (and persons
performing the equivalent function):(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reportingwhich are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in theregistrant’s internal control over financial reporting.

Date: June 26, 2009
ADVANTEST CORPORATIONBy:/s/ YUICHI KURITA
Name: Yuichi Kurita
Title: Director and Managing Executive Officer

Exhibit 13.1
CERTIFICATION
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, each of theundersigned officers of Advantest Corporation, a Japanese corporation (the “Company”), does hereby certify that, to such officer’s
knowledge:
1.

The accompanying Annual Report of the Company on Form 20-F for the period ended March 31, 2009 (the “Report”) fullycomplies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and2.

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operationsof the Company.

Date: June 26, 2009
By:/s/ HARUO MATSUNO
Name: Haruo Matsuno
Title: Representative Director, President and CEO
Date: June 26, 2009
By:/s/ YUICHI KURITA
Name: Yuichi Kurita
Title: Director and Managing Executive Officer

Exhibit 15.1
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the following Registration Statements:(1)

Registration Statement (Form S-8 No. 333-153610) of Advantest Corporation,(2)

Registration Statement (Form S-8 No. 333-146218) of Advantest Corporation,(3)

Registration Statement (Form S-8 No. 333-141394) of Advantest Corporation,(4)

Registration Statement (Form S-8 No. 333-132374) of Advantest Corporation, and(5)

Registration Statement (Form S-8 No. 333-97107) of Advantest Corporation;of our report dated June 15, 2009, with respect to the consolidated financial statements of Advantest Corporation, and our report dated
June 15, 2009, with respect to the effectiveness of internal control over financial reporting of Advantest Corporation, included in the
Annual Report (Form 20-F) of Advantest Corporation for the year ended March 31, 2009.
/s/ Ernst & Young ShinNihon LLC
Tokyo, Japan
June 22, 2009