As filed with the Securities and Exchange Commission on June 28, 2007

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 1934OR⌧

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE ACT OF 1934
For the fiscal year ended March 31, 2007
OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE 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, Marunouichi
Chiyoda-ku
Tokyo 100-0005
Japan(81-3) 3214-7500(Address of principal executive offices)

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:Common Stock

The New York Stock Exchange

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 theclose of the period covered by the annual report: 187,650,285 Common Stock at March 31, 2007
Act.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
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 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 financial statement item the registrant has elected to follow: 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-2of 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
3
3
3

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
30
30

ITEM 4A.

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

31

ITEM 5.

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

31

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 ...........................................................................................................................

31
44
45
47
47
47
47

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

48

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

48
53
53
56
57

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

59

7.A MAJOR SHAREHOLDERS.........................................................................................................
7.B RELATED PARTY TRANSACTIONS .......................................................................................
7.C INTERESTS OF EXPERTS AND COUNSEL ............................................................................

59
61
61

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.

ITEM 8.

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

61

8.A CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION ..................
8.B SIGNIFICANT CHANGES..........................................................................................................

61
62

ITEM 9.

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

62

9.A
9.B
9.C
9.D
9.E
9.F

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

62
62
63
63
63
63

ITEM 10.

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

63

i

Page

10.A SHARE CAPITAL........................................................................................................................
10.B MEMORANDUM AND ARTICLES OF ASSOCIATION .........................................................
10.C MATERIAL CONTRACTS .........................................................................................................

63
63
71
Page

10.D EXCHANGE CONTROLS ...........................................................................................................
10.E TAXATION...................................................................................................................................
10.F DIVIDENDS AND PAYING AGENTS .......................................................................................
10.G STATEMENT BY EXPERTS.......................................................................................................
10.H DOCUMENTS ON DISPLAY......................................................................................................
10.I SUBSIDIARY INFORMATION ..................................................................................................

72
73
78
78
78
79

ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ..............

79

ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES ..............................

81

12.A DEBT SECURITIES .....................................................................................................................
12.B WARRANTS AND RIGHTS........................................................................................................
12.C OTHER SECURITIES ..................................................................................................................
12.D AMERICAN DEPOSITARY SHARES ........................................................................................

81
81
81
81

PART IIITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES........................................

82

ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
PROCEEDS ..............................................................................................................................

82

ITEM 15. CONTROLS AND PROCEDURES..............................................................................................

82

ITEM 16. [RESERVED]................................................................................................................................

83

ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT............................................................................

83

ITEM 16B. CODE OF ETHICS .......................................................................................................................

83

ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES...............................................................

83

ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES...............

84

ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS..................................................................................................................................................

85

PART IIIITEM 17. FINANCIAL STATEMENTS.......................................................................................................

86

ITEM 18. FINANCIAL STATEMENTS.......................................................................................................

86

ITEM 19. EXHIBITS .....................................................................................................................................

87

As used in this annual report, the term “fiscal” preceding a year means the twelve-month period ended March 31 of theyear subsequent to the year referred to. For example, “fiscal 2006” refers to the twelve-month period ended March 31, 2007.
All other references 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 theconvenience of readers. Unless otherwise noted, the rate used for this translation was $1.00 = ¥118.05. This was theapproximate exchange rate in Japan on March 30, 2007.
Unless otherwise noted, all references and discussions of the financial position of Advantest Corporation (the“Company”) and its consolidated subsidiaries (collectively, “Advantest”), results of operations and cash flow in this annual
report are made with reference to Advantest’s consolidated financial statements prepared in accordance with accountingii

principles generally accepted in the United States, or U.S. GAAP. The segment sales figures included in this annual reportare presented before eliminating intercompany transactions.
See “Information on the Company—Business Overview—Glossary” for a description of certain technical terms used inthis annual report.
Cautionary Statement with Respect to Forward-Looking Statements
This annual report contains “forward-looking statements” that are based on Advantest’s current expectations, estimatesand projections. These statements include, among other things, the discussion of Advantest’s business strategy, outlook andexpectations 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” and similar 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 productsthat meet the changing needs of semiconductor manufacturers and communications network equipment andcomponents makers and service 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 andProspects,” “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.
3.A

KEY INFORMATIONSELECTED 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, 2006 and 2007 andfor each of the years in the three year period ended March 31, 2007, together with the notes to such financial statements,
included elsewhere in this annual 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 accounting principles generally accepted in the United States, or
U.S. GAAP. Advantest’s U.S. GAAP audited consolidated financial statements for fiscal 2004, fiscal 2005 and fiscal 2006
were included in its Japanese Securities Reports filed with the Director General of the Kanto Local Finance Bureau.
Year ended March 31,
2003

2004

2005

2006

(in millions, except per share and share data)

2007

2007
(thousands, except
per share and share data)

Consolidated
Statement of
Income Data:
Net sales ................... ¥97,740 ¥ 174,218 ¥ 239,439 ¥ 253,922 ¥ 235,012 $Operating income(16,743)
30,96060,71964,45856,792(loss)....................
Income before income
taxes and equity inearnings (loss) of(18,688)
28,87861,80867,45461,090affiliated company ...
Net income (loss)..........
(12,994)
17,32938,07841,37435,556
Net income (loss) per
share:
Basic*.......................
(66.00)88.19
194.77223.17190.01
Diluted* ...................
(66.00)88.01
194.25221.98188.85
Basic weighted
average shares
outstanding* ........ 196,890,222 196,501,660 195,500,690 185,389,026 187,128,842
Diluted weighted
average shares
outstanding* ........ 196,890,222 196,892,272 196,021,478 186,383,080 188,270,688*

1,990,784
481,084

517,493
301,194

1.61
1.60

187,128,842

188,270,688

On October 1, 2006, the Company conducted a two for one stock split of shares of its common stock. Net income (loss)
per share and average number of shares outstanding for each period presented have been restated to reflect the effectsof the stock split.

1

As of March 31,
2003

2004

2005

2006

2007

2007

(in millions)

Consolidated Balance Sheet
Data:
Assets ................................ ¥ 281,224
Current installments of long2,243
term debt............................
Long-term debt, less current
24,626
installments .......................
Stockholders’ equity ..............
210,663(in thousands)¥ 330,808¥ 296,769¥ 350,776¥ 366,374$

3,103,549

4,543

20,04330

1085

20,083
221,76840
206,74910
257,927—
294,797—
2,497,221

2004

2005

Year ended March 31,
2003

2006

2007

2007

(in millions, except percentages)

Other Data:
Capital expenditures............... ¥Research and development
expenses ............................
Cash flows provided byoperating activities ............
Cash flows used in investing
activities ............................
Cash flows used in financing
activities ............................
Operating margin(1) .................
Net income margin(2) ..............
(1)
(2)

7,564

¥

5,621

¥

9,348

(in thousands)

¥

8,323

¥

8,336

$

70,614

23,615

21,63726,28026,92729,509249,970

4,967

28,21590,32759,48048,951

414,663(8,419)(5,070)(8,250)(8,542)(8,013)(67,878)(14,488)(17.13)%(13.29)%(6,376)17.77%
9.95%(63,036)
25.36%
15.90%(18,336)
25.38%
16.29%(3,662)24.17%
15.13%(31,021)

Operating income as a percentage of net sales.
Net income as a percentage of net sales.

Dividends
Advantest normally pays cash dividends twice per year, at interim and at year-end. Pursuant to its articles ofincorporation, the Company can make dividend payments pursuant to the 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 of March 31 pursuant to the resolution of either the Board of Directors or the ordinary
general shareholders’ meeting held usually in June every year. The interim dividend is paid to shareholders of record as of
September 30, pursuant to the 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. The periods shown
are the six months ended on that date. The U.S. dollar equivalents for the dividends shown are based on the exchange rate inJapan 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

September 30, 2002 ............................................................................................
March 31, 2003...................................................................................................
September 30, 2003 ............................................................................................
March 31, 2004...................................................................................................
September 30, 2004 ............................................................................................
March 31, 2005...................................................................................................
September 30, 2005 ............................................................................................
March 31, 2006...................................................................................................
September 30, 2006 ............................................................................................
March 31, 2007...................................................................................................

2¥

10.0 $
5.0
7.5
12.5
12.5
12.5
12.5
22.5
17.5
32.5

Dollars

0.08
0.04
0.07
0.12
0.12
0.12
0.11
0.19
0.15
0.28

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.
Exchange Rates
In parts of this annual report, 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 = ¥118.05. This was the approximate exchange rate inJapan on March 30, 2007.
The following table sets forth, for the periods and dates indicated, information concerning the noon buying rate forJapanese yen announced by the Federal Reserve Bank of New York, expressed in Japanese yen per $1.00. The noon buying
rate as of June 21, 2007 was $1.00 = 123.68. 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 endof period

Fiscal year ended/ending March 31,

Average(of month-end rates)

High

Low

(¥ per $1.00)

2003 .........................................................................................
2004 .........................................................................................
2005 .........................................................................................
2006 .........................................................................................
2007 .........................................................................................
2008 (through June 21, 2007) ..................................................

¥ 118.07 ¥104.18107.22117.48117.56
123.68Month endedHigh

121.10 ¥ 133.40 ¥ 115.71
112.75120.55104.18107.28114.30102.26113.67120.93104.41116.55121.81110.07121.63123.68117.69Low(¥ per $1.00)

December 31, 2006 ..................................................................
January 31, 2007......................................................................
February 28, 2007....................................................................
March 31, 2007........................................................................
April 30, 2007..........................................................................
May 31, 2007 ...........................................................................
3.B¥ 119.02 ¥121.81121.77118.15119.84121.79114.98118.49118.33116.01117.69119.77

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, test houses andfoundries. These companies, in turn, determine their capital expenditure and investment levels largely based on current andanticipated market demand for semiconductors and demand for products incorporating semiconductors. Historically, thepercentage reduction in capital expenditures by semiconductor manufacturers during downturns in the semiconductor
industry, including investment in test system, has typically been much greater than the percentage reduction in worldwide
sales of semiconductors. The semiconductor industry has been highly cyclical with recurring periods of excess inventory,
which often have had a severe effect on the semiconductor industry’s demand for 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 2006, 65.3% of Advantest’s net sales from semiconductor and component test systems was derived
from the sale of semiconductor test systems for memory semiconductors, a 12.9% increase from 52.4% in fiscal 2005.
Accordingly, it still remains over 50%. Any downturns in the memory semiconductor market will therefore be likely toadversely affect Advantest’s business more than that of its competitors which sell a lower proportion of memory
semiconductors.

3

The worldwide semiconductor market contracted significantly during 2001 and grew by only 1.3% in 2002 ascompared to 2001. The semiconductor market, however, grew substantially by 18.3% in 2003 and 28.0% in 2004. Thereafter,
the semiconductor market maintained growth of 6.8% in 2005, and exceeding this moderate growth in 2005, thesemiconductor market grew by 8.9% in 2006. Worldwide sales of memory semiconductors declined significantly in 2001 ascompared to 2000, increased by 8.7% in 2002 as compared to 2001 and further increased by 20.2%, 45.0%, 2.9% and 20.5%
in 2003, 2004, 2005 and 2006, respectively, on a year-to-year basis, primarily due to the increase in demand for flash
memory semiconductors used in digital consumer products and for DRAM semiconductors used in personal computers. Also,worldwide sales of non memory semiconductors declined by 26.5% in 2001 as compared to 2000 and by 0.4% in 2002 ascompared to 2001, but increased by 17.8% and 23.9% in 2003 and 2004, respectively, on a year-to-year basis, primarily due
to the increase in demand for digital consumer products. Net sales were sluggish after the summer of 2004 due to adjustmentsof excess inventory by semiconductor manufacturers. However, demand recovered as the adjustment of excess inventory
stabilized after the spring of 2005 and the market for personal computers (especially notebooks) and digital consumer devices(especially flat-panel TVs and portable music players) expanded. Accordingly, net sales of semiconductors increased by
7.9% in 2005, as compared with the previous year. Furthermore, in 2006, demand in the consumer market and automobile
market has stabilized while the data processing market has shown double digit growth. Accordingly, worldwide sales of nonmemory semiconductors grew by 5.7% in 2006, as compared with the previous year.
The significant demand volatility of the market for semiconductors is affected by various factors such as:•

the overall state of the global economy;•

the consumer demand for digital consumer products such as flat-panel TVs, DVD recorders and portable devices,
including portable audio players and game devices;•

the sales levels in the personal computer industry;•

the levels of investment in communications infrastructure and the effect on the mobile telecommunicationsindustry; and•currency exchange rate fluctuations.

After recording record sales and profits in fiscal 2000, Advantest experienced a 65.6% decrease in net sales in fiscal
2001. In fiscal 2003, due to the recovery of investments in semiconductors, Advantest recorded an increase of 78.2%
compared to fiscal 2002. Net sales for fiscal 2004 stood at ¥239,439 million, representing a 37.4% increase over fiscal 2003
and contributing to net income of ¥38,078 million. In fiscal 2005, the adjustment of excess inventory by semiconductor
manufacturers ended, and net sales resumed its increase. Throughout fiscal 2005, net sales increased by 6.0% as comparedwith the previous fiscal year to ¥253,922 million, and net income achieved ¥41,374 million in fiscal 2005. Net sales for the
first half of fiscal 2006 was ¥120,492 million, an increase of 12.5% as compared with the first half of fiscal 2005, due tocontinued strong sales from fiscal 2005 and net sales for the second half of fiscal 2006 was ¥114,520 million mainly due to adecrease in the price of semiconductors. Throughout fiscal 2006, net sales was ¥235,012 million, and net income achieved¥35,556 million in fiscal 2006.
Accordingly, Advantest believes that its results are significantly impacted by the significant demand volatility of thesemiconductor industry. Significant downturns in, among others, the semiconductor industry are likely to therefore adversely
affect Advantest’s financial condition and results of operations.
If Advantest does not introduce new products meeting its clients’ technical requirements in a timely manner and atcompetitive prices, its products will become obsolete and its financial condition and results of operations will suffer
Advantest sells its products to several industries that are characterized by rapid technological changes, the frequent
introduction of 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 advances in semiconductor
technology, which create new testing requirements that are not adequately addressed by currently installed semiconductor test
systems. These advances and customers’ needs include:•

the introduction of “system-on-a-chip,” or SoC, semiconductors that incorporate more advanced memory, logic
and analog circuits;•investment by memory semiconductor manufacturers in facilities that are used to produce memory semiconductors,
such as flash memory, DDR2-SDRAM and the next generation DDR3-SDRAM;

4•

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

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

introduction of mechatronics products that respond to reduced testing time resulting from advances in customers’
back-end testing; and•prompt response and quick repair in the event of failure.

Advantest also believes demand for its products, including semiconductor and component test systems, will continue tobe strongly affected by the level of demand for personal computers, high-speed wireless and wireline data services and digitalconsumer products. It is likely that advances in technologies used in those products and services require new testing systems.
Without the timely introduction of semiconductor test systems capable of effectively testing and measuring equipment thatuse new technologies, Advantest’s products and services will become technologically obsolete over time.
The failure of Advantest to meet its customers’ technical requirements at a competitive price or to deliver conforming
equipment in a timely manner can result in its products being replaced by equipment of a competitor or an alternativetechnology solution. Accordingly, Advantest’s inability to provide a product that meets requested performance criteria at an
acceptable cost when required by its customers would severely damage its reputation with that customer and could adversely
affect future sales efforts with respect to that customer.
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 andmechatronics systems generally involves a significant commitment of capital, the sale of this equipment typically involves alengthy sales period and requires Advantest to expend substantial funds and sales efforts to secure the sale. Advantest’senhancements or new generations of products may not generate net sales in excess of development and sales costs if, forexample, these new enhancements or products are quickly rendered obsolete by changing customer preferences, theintroduction by Advantest’s competitors of products embodying new technologies 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 is believed to be particularly
acute with respect to test systems for SoC semiconductors because, in general, new SoC semiconductors 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. This requires
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.
Advantest faces substantial competition in its businesses and, if Advantest does not compete effectively, its business may
be harmed
Advantest faces substantial competition throughout the world. Advantest’s primary competitors in the semiconductor
and component test system market include, among others, Teradyne, Inc., Verigy Pte. Ltd., Credence Systems Corporation,
Yokogawa Electronic Corporation, LTX Corporation, Eagle Test Systems, Inc. and Nextest Systems Corporation. In themechatronics system market, Advantest has also been competing with Delta Design, Inc., Seiko Epson Corporation, Mirae
Corporation and TechWing Inc. In addition, in the services, support and others segment, Advantest has been competing withcompetitors providing similar services. 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 and component test systems and mechatronics systems that reduce testing costs. To compete effectively,
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 productswith improvements in price and performance, as well as increase their customer service and support offerings. Significant
increases in competition may erode Advantest’s profit margin and weaken its earnings.

5Advantest’s product lines are facing significant price pressure
Price pressure in Advantest’s businesses is adversely affecting Advantest’s operating margins. Advantest believes thatprice pressure with respect to semiconductors continues to grow even during periods when demand, in terms of volume, forsemiconductors is increasing, resulting in continuous pressure on the market price for products in the Semiconductor andComponent Test System Segment and Mechatronics System Segment. During these periods, Advantest’s customers seek toincrease their production capacities while minimizing their capital expenditures. Advantest believes that, despite thecontinued recovery in the semiconductor market since fiscal 2003, price pressure continues to persist. In addition, increased
competition in the market for digital consumer products and personal computers drove down prices of these goods,
subsequently creating significant price pressure on Advantest’s product lines. A further increase in price pressure will
adversely affect Advantest’s future financial condition and results of operations.
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 ishighly concentrated, with a small number of large semiconductor manufacturers, test houses and foundries accounting for alarge portion of total sales in the semiconductor test system industry. Advantest believes that this market concentration will
become even more severe in the future as a move towards consolidation in the semiconductor industry has recently begun,
with larger semiconductor device manufacturers, foundries and test houses acquiring smaller, often financially-troubled,
semiconductor market participants. Advantest’s ability to increase sales will depend in large part upon its ability to obtain or
increase orders from large-volume customers.
Advantest’s largest customers currently account for a significant part of its net sales, and the loss of one or more of thesecustomers or changes in their capital expenditures could harm its business
Advantest’s success depends on its continued ability to develop and manage relationships with its major customers, asmall number of which currently accounts for a significant portion of its net sales. Sales to Advantest’s largest customer as apercentage of its total sales were approximately 15% in fiscal 2004, approximately 17% in fiscal 2005 and approximately
11% in fiscal 2006. Sales to Advantest’s five largest customers accounted for approximately 42% of total net sales in fiscal
2004, approximately 41% in fiscal 2005 and approximately 35% in fiscal 2006. The loss of one or more of these major
customers or changes in their capital expenditures could materially harm Advantest’s business.
The failure by Advantest to meet demand for its products upon a significant expansion in the semiconductor andcomponent test systems and mechatronics system markets would likely adversely affect its future market share andfinancial 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, in order to fully capitalize onsuch expansion. The failure of Advantest to adjust to such unanticipated increases in demand for its products during any sucha recovery could result in Advantest losing one or more of its existing large-volume customers or losing the opportunity toestablish a strong relationship with large-volume customers with which it currently does little or no business. Any such
failure would likely adversely affect Advantest’s future market share and its financial results.
Advantest may not recoup its investment in OPENSTAR®, as it may not be broadly accepted, or otherwise benefit from thesuccessful adoption of OPENSTAR®
Advantest is now striving to enhance the adoption of OPENSTAR®, an industry-wide, open architecture, because it
believes that OPENSTAR® will provide an opportunity for late entrants to the test systems for SoC semiconductors market,
such as Advantest, to increase their market share and thus improve their operation results.
However, even if OPENSTAR® is broadly accepted by the semiconductor industry, the consequences of the adoption of
OPENSTAR® on Advantest’s business are uncertain. OPENSTAR® is an open architecture that can be used by all
semiconductor industry participants. The adoption of the new standard could therefore result in an increase in the number ofmarket participants and in a loss of market share for Advantest. In addition, OPENSTAR® is a new standard that will require
all test system manufacturers, including Advantest, to re-design their products. There can be no assurance that Advantest will
be able to design and manufacture products based on this new standard that meet the cost and technical requirements of SoC
semiconductor manufacturers. These and other uncertainties that can result from the adoption of OPENSTAR® could
adversely affect Advantest’s test systems for SoC semiconductors business.

6Advantest’s dependence on subcontractors and on sole source or a limited number of suppliers for its components andparts may prevent it from delivering an acceptable product on a timely basis
Advantest relies on subcontractors to perform the low-end assembly requirements for its products. For example,
Advantest has been outsourcing the assembly of numerous circuit boards. In addition, many of the components 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 sole source or a limited
number of suppliers for a portion of its components and parts. Advantest does not maintain long-term supply agreements withmost of its suppliers, and it purchases most of its components and parts through individual purchase orders. If suppliers
become unable to provide components or parts in the volumes needed and at acceptable prices, Advantest would have to
identify and procure acceptable replacements. Furthermore, the markets for semiconductors and other specializedcomponents 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 and parts is a lengthy process and can resultin Advantest being unable to deliver products meeting customer requirements on a timely basis. Advantest has, in the past,
been unable to deliver its products according to production schedules due to the inability of suppliers to supply components
and parts based on Advantest’s specifications and due to other shortages in components and parts.
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 ofoperations would be seriously harmed
Advantest’s main facilities for research and development for its semiconductor and component test systems andmechatronics systems segments production, as well as many of Advantest’s services bases, are located in Japan andparticularly concentrated in Saitama Prefecture and Gunma Prefecture. In addition, the main system server and parts of the
network hub are maintained in system centers 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 earthquake activity.
If Advantest’s facilities, particularly its semiconductor and component test system manufacturing factories, were toexperience 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, other than 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 andsuppliers 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
drafted its own disaster procedures and manuals. Furthermore, in order to prevent any disruption of its core businesses, or incase of suspension, to re-start the suspended businesses, including the recovery of important facilities, in the shortest possible
time, Advantest is in the process of drafting its “Business Continuity Plan.” However, if Advantest cannot complete suchBusiness Continuity Plan, or if upon completion 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 torecover.
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, andpurchases parts and components from, around the world. In fiscal 2006, 59.9% 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, 4.3% fromthe Americas and 4.8% from Europe. Advantest anticipates that net sales from international operations will continue torepresent a substantial portion of its total net sales. In addition, some of Advantest’s distribution and support subsidiaries arelocated in the Americas, Europe, and Asian countries including Singapore, Taiwan, the People’s Republic of China andKorea 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 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;

7•

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.

Fluctuations in exchange rates could reduce Advantest’s profitability
Advantest derives a majority of its net sales from products sold to customers located outside of Japan. Approximately
69% of Advantest’s fiscal 2006 net sales were from products sold to overseas customers. Most of Advantest’s products are
manufactured in Japan, but approximately 18% of Advantest’s net sales in fiscal 2006 were made in currencies other than theyen, predominantly the U.S. dollar. A strengthening in the yen relative to the U.S. dollar and, to a much lesser extent,
currencies of those other countries where Advantest sells its products would increase the prices of Advantest products asstated in U.S. dollars and in those other currencies and could hurt sales in those countries. In addition, significant fluctuationsin the exchange rate between the yen and foreign currencies, especially the U.S. dollar, could require Advantest to lower its
prices with respect to foreign sales of its products that are priced in yen, and reduce the yen equivalent amounts of its foreign
sales for products that are based in U.S. dollars or other foreign currencies, and thus reduce its profitability. Thesefluctuations 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 been significant fluctuations in the exchange rate between the yen and thecurrencies of countries in which Advantest does business.
Advantest’s financial condition and results of operations are subject to factors relating to its marketing and sales
capabilities and its branding
Advantest’s financial condition and results of operations are 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 due to the financial condition ofcustomers;•

increases in required provisions for product warranty costs and write-downs of inventory;•

any real or perceived decrease in performance and reliability of Advantest products, which leads to a decline in
Advantest’s reputation; and•uncertain market acceptance of products developed by its customers.

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
lead solder for mounting electronic parts and components for its products in order to ensure the reliability of its products as amatter of priority. Further, as a method to cool some of its semiconductor and component test systems, Advantest uses a typeof perfluorocarbon, or PFC, that is not currently regulated by laws related to the ozone layer protection and global warming.
Advantest believes that it is in compliance with regulations with respect to the use of chemicals, 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 to8incur significant cost in adapting to new requirements. Any failure by Advantest to comply with applicable government or
industry regulations could result in the imposition of fines or restrictions on its ability to carry on or expand its operations.
Advantest could suffer significant liabilities, litigation costs or licensing expenses or be prevented from selling its products
if it is infringing 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, andinvestigating, the products believed to infringe Advantest’s intellectual property rights
Advantest relies on patents, utility models, 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 based on its patent and utility model rights against manufacturers that sell replicas of Advantest’s products and, insome 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 will suffer if Advantest is unable to hire andretain engineers and other key personnel
Advantest’s future success depends partly on its ability to attract and retain highly qualified engineers for its researchand development and customer service and support divisions. If Advantest fails to hire and retain a sufficient number of these
personnel, it will not be able to maintain and expand its business. Advantest may need to revise its compensation and otherpersonnel related policies to retain its existing officers and employees and attract and retain the additional personnel that it
expects to require.
Investor confidence and the value of Advantest’s ADRs and ordinary shares may be adversely impacted if Advantest’s
independent registered public accounting firm is unable to provide adequate attestation over the adequacy of the internal
control over Advantest’s financial reporting as required by Section 404 of the Sarbanes-Oxley Act of 2002
The Securities and Exchange Commission, as directed by Section 404 of the Sarbanes-Oxley Act of 2002, adopted
rules requiring public companies to include a report of management on the company’s internal control over financial
reporting in its Annual Report that contains an assessment by management of the effectiveness of the company’s internal
control over financial reporting. In addition, the company’s independent registered public accounting firm must attest to andreport on management’s assessment of the effectiveness of the company’s internal control over financial reporting. Although
Advantest intends to review its internal controls over financial reporting in accordance with Section 404 requirements, if
Advantest’s independent registered public accounting firm is not satisfied with Advantest’s internal control over its financial
reporting or the level at which its controls are documented, designed, operated or reviewed, then they may decline to attest to
management’s assessment. Any of these possible outcomes could result in an adverse reaction in the financial marketplace
due to a loss of investor confidence in the reliability of Advantest’s financial statements, which ultimately could negatively
impact the market price of Advantest’s ADRs and ordinary shares.
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
has established the Information Security Committee and is taking measures to keep information confidential throughprocedures 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 could harm its reputation and incur
substantial costs to remedy the situation. Accordingly, inadvertent disclosure of confidential information could have amaterial adverse effect upon Advantest’s business results and financial condition.

9

Product defects and any damages caused by Advantest in respect of product liability could harm Advantest’s reputation
among existing and potential customers and could have a material adverse effect upon Advantest’s business results andfinancial conditions
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, but cannot guarantee that such insurance will sufficiently cover the ultimate amount of damages with respect toAdvantest’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 and financial condition if Advantest is liable for claims for damages.
Risks Related to Ownership of ADSs or Common StockYen-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 will affect the U.S. dollar equivalent of
the Japanese yen price of the shares on the Tokyo Stock Exchange and, as a result, 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 will 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.
As a holder of ADSs, you will have fewer rights than a shareholder has, and you must act through the depositary to
exercise those rights
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, are available only to holders of record on Advantest’s register of shareholders or Advantest’s register of beneficial
shareholders. Because the depositary, through its custodian agents, is the registered 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 votethe shares underlying a holder’s ADSs as instructed by the holder and will pay to the holder 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 aderivative action, examine Advantest’s accounting books and records or exercise appraisal rights through the depositary.
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 (Advantest changed the ratio of
ADSs to underlying shares on October 1, 2006. The above ratio is the ratio after the change. Details are referred to in
Advantest’s press release dated July 26, 2006). 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 tothat effect. As a result, holders of ADSs are unable to withdraw fractions of shares or units or receive any cash settlementfrom 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 ofshares 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 ofshares or units 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 a further 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 ofthese persons are located 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 originalactions or in actions for enforcement of judgments of U.S. courts, of liabilities predicated solely upon the federal securities
laws of the U.S.

10

ITEM 4.
4.A

INFORMATION ON THE COMPANYHISTORY 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 ofincorporation, Takeda Riken’s primary business was the design, manufacture and sale of measuring instruments for Japaneseelectronics manufacturers. Takeda Riken started focusing on semiconductor test equipment for the semiconductor industry in1968 and was the first to domestically produce semiconductor test equipment in 1972. In 1971, Takeda Riken entered into its
first distribution agreement with a foreign distributor and, in 1973, established its first representative office in the U.S. togather information on technology and distribution and to establish dealer relationships. These two milestones launched thecompany’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 Advantest
Corporation in October 1985.
Laws within the Commercial Code relating to companies were replaced by the Company Law as of May 2006, and acompany that previously existed under the Commercial Code, such as Advantest, continues to exist under the Company Law.
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 ¥9.3 billion, ¥8.3
billion and ¥8.3 billion in fiscal 2004, 2005 and 2006, respectively. In fiscal 2007, Advantest plans to construct a newbuilding equipped with clean room facilities for production on the premises of Advantest Laboratories Ltd. in Miyagi, Japan.
Advantest’s principal executive offices are located at Shin-Marunouchi Center Building, 1-6-2, Marunouchi, Chiyodaku, Tokyo 100-0005 Japan. Advantest’s telephone number in Japan is (81-3) 3214-7500.
4.B

BUSINESS OVERVIEW

Overview
The Advantest group is comprised of Advantest Corporation and its 40 consolidated subsidiaries and one investee
which is accounted for by the equity method and 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.

Semiconductor and Component Test System Segment
The semiconductor and component test system segment provides customers with test system products for thesemiconductor industry and the electronic component industry. The products in this segment include test systems for memory
semiconductors and test systems for non memory semiconductors. The test systems for non memory semiconductors are
divided into test systems for SoC semiconductors and other test systems. This segment incorporates constituent technologies,
sophisticated engineering teams, and other resources developed from the measuring instrument business.
Mechatronics System Segment
The mechatronics system segment focuses on peripheral devices to the semiconductor and component test systems.
This business includes test handlers applying mechatronics technologies, which handle semiconductor devices and automate
the tests, 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 withthe semiconductor and component test system and mechatronics system segments, support services and an equipment leasebusiness.
Sales by Segment
The following table illustrates net sales by each segment for the last three fiscal years.

11

Fiscal 2004

Fiscal 2005

Sales
(in millions)

Segment

Sales(in millions)%Fiscal 2006
Sales
(in millions)%%

Semiconductor and Component Test System
Segment .................................................... ¥Mechatronics System Segment ......................
Services, Support and Others Segment ..........
Intercompany transactions elimination ..........

180,685
46,395
19,680(7,321)

75.5
19.4
8.2
(3.1)

¥

191,415
48,26019,062(4,815)

75.4
19.0
7.5
(1.9)

¥

167,815
52,025
18,312(3,140)

71.4
22.1
7.8
(1.3)

Total Net Sales............................................... ¥239,439100.0% ¥253,922100.0% ¥235,012100.0%

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, test houses and foundries. Advantest believes thatthe following factors will 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 recorders and portable music
players;•

the increasing market acceptance of new models of high-performance game machines;•

the increasing levels of wireless communications penetration worldwide due to the expansion of the mobile
telecommunications industry;•

the development of higher speed communications infrastructure;•

the use of fiber optic networks to provide high-speed voice, data and video services;•

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 totechnological advancement of automobiles.

Advantest believes that these factors will continue to provide it with long-term growth opportunities because theyshould 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 components technology; and•changes in semiconductor and electronic components 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 to control 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 thatcombine advanced logic circuits with analog and/or memory circuits on a single chip. SoC semiconductors are used in avariety of sophisticated products, including wireless communications, fiber optic equipments and digital consumer products.

12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, worldwide semiconductor sales fell by approximately $65.0 billion or 32.0% from approximately $204.0 billion in2000 to approximately $139.0 billion in 2001. While sales in 2002 increased only marginally compared to the previous year,
sales climbed sharply by approximately $25.0 billion or 18.0% compared to the previous year to approximately $166.0
billion in 2003. Sales in 2004 increased by approximately $47.0 billion or 28.0% to approximately $213.0 billion, and sales
in 2005 increased by approximately $14.5 billion or 6.8% to approximately $227.5 billion, compared to the previous year.
This upward trend had continued into 2006 and sales in 2006 increased by approximately $20.2 billion or 8.9% toapproximately $247.7 billion, due to a market expansion of digital consumer devices, among others, including flat-panel TVs
and portable audio players. The following table sets forth the size of the market for memory semiconductors, non memory
semiconductors (including SoC semiconductors) and all semiconductors between 2000 and 2006 and the projected market
size between 2007 and 2009 as compiled and estimated by World Semiconductor Trade Statistics as of May 2007.
Actual Year ended December 31,
2000
MemoryNonmemor
y.....

$

49,227

Total.....

$

204,394

2001$

24,875$

138,963

155,167

2002$

27,041$

140,713

114,0882003(in millions)$32,506113,672

166,4262005$

47,136$

213,027

133,920$

Projected Year ending December 31,

2004$

48,519$227,484

165,8912006$

58,473$

247,716

178,965

2007$

59,753$

253,506

189,2432008(in millions)$
64,068

193,753

2009$

66,863$

293,769

215,175$

279,243

226,906

The non memory semiconductor market is less volatile than the memory semiconductor market because these
semiconductors are used in a larger variety of consumer products and equipment. In periods of rapid decline in thesemiconductor market, the capital expenditures of semiconductor manufacturers, including their purchases of test systems,
generally decline at a faster pace than the decline in semiconductor sales. In addition, sales of test systems generally do notexperience significant increases following a downturn in the semiconductor market until semiconductor manufacturers
determine that the market for semiconductors is experiencing a real recovery.
The semiconductor market bottomed out in the second half of fiscal 2001 and then improved from fiscal 2002 to thefirst half of fiscal 2004. However, the market slowed down beginning in the second half of fiscal 2004 due to the adjustmentof excess inventories by semiconductor manufacturers. However, the market recovered sooner than expected, improving in
the first half of fiscal 2005 and expanding further in the second half of fiscal 2005. According to data published by World
Semiconductor Trade Statistics as of May 2007, the market for memory semiconductors will grow at a compound annual
growth rate of approximately 4.6% over the next three years to approximately $66.9 billion in 2009. Advantest believes thatdemand for memory semiconductors will be generated in the foreseeable future by the prevalence of DDR2-SDRAM, which
has a higher operating speed than DDR-SDRAM, the next generation DDR3-SDRAM, flash memory and other high-end
semiconductors. While World Semiconductor Trade Statistics estimates that the non memory semiconductor market willgrow at a compound annual growth rate of approximately 6.3% over the next three years to approximately $226.9 billion in2009 as expected. Advantest believes that the demand for non memory semiconductors will generally grow in the foreseeable
future, led by the further prevalence of digital consumer products, including flat-panel TVs, DVD recorders, and the newdevelopments in personal computers or high performance mobile phones.
Advancements in Semiconductor and Electronic Component Technology
Advantest believes that demand for semiconductor and component test systems and mechatronics systems is also
affected by the rate of change and development in semiconductor and electronic component technology. Current changes inthe semiconductor and electronic component industry relate to the innovation of digital consumer products andcommunications technologies. Demand for faster 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, consumer electronics products, such as flat-panel TVs,
DVD 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 wellas 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 accessdevices.

13

Demand for personal computers and servers with higher performance and capabilities is also driving changes in thememory 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 next
generation DDR3-SDRAM with higher speeds, and flash memory that feature large capacity and nonvolatility. Advantest
believes that this shift is creating demand for test systems for memory semiconductors capable of handling these new types ofmemory 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 test
systems, will be created and will grow in line with advances in semiconductor technologies.
The development of SoC semiconductors with lower cost, smaller size, higher performance and lower power
consumption has created demand 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 also believes that the integration of SoC semiconductors into a range of digital consumer products will drive
demand for low-cost test systems for SoC semiconductors. SoC semiconductors are often customized for applications in
specific products, which results in a large variety of SoC 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, technologicalinnovation in manufacturing processes and testing technology to improve productivity.
Production Outsourcing
In recent years, semiconductor manufacturing and testing processes have become more complex and capital intensive.
As a result, an increasing portion of the manufacturing and testing functions are being subcontracted out by companies thatdesign, but outsource the production of, semiconductors, namely fabless design companies, in order to reduce capital
expenditures. This trend has resulted in an increase in the number of test houses that accept test process outsourcing andfoundries that accept manufacturing process outsourcing. Foundries either perform testing in-house or outsource their testingneeds to test houses. This trend towards production outsourcing, particularly to test houses, has increased the number ofpotential customers for semiconductor and component test system manufacturers, although it has not significantly affected
total demand for Advantest’s products. In addition, Advantest believes that semiconductor and component test systems whichhave been used for the product lines of multiple semiconductor designers are deemed most appropriate by fabless design
companies, foundries and test houses. Advantest believes this compatibility requirement on the part of fabless design
companies and test houses or foundries gives semiconductor and component test system manufacturers with broader productlines and larger market shares an advantage over smaller competitors. Outsourcing has also been utilized for electronic
component manufacturing.
Technological Innovation in Manufacturing Processes
One of the recent innovations in semiconductor manufacturing processes is the production of semiconductors using 300
millimeter wafers. Wafers are circular flat pieces of silicon from which multiple semiconductor chips are constructed using
photo-etching and other manufacturing processes. The use of 300 millimeter wafers will allow manufacturers to increase
average semiconductor production per wafer by 125% when compared to production using conventional 200 millimeter
wafers. Many manufacturers announced delays in investment in 300 millimeter wafer factories beginning in the second halfof 2000 due to negative trends in the semiconductor market. However, investment in these factories by some manufacturers
resumed at the end of 2002, investment increased from 2003 to 2006, and is expected to continue to increase during 2007.
Investment in these facilities is expected to lead to demand for new semiconductor and component test systems and test
handlers with increased throughput capabilities for semiconductor manufacturers to capture fully the cost efficiencies
associated with the use of 300 millimeter wafers.
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 test systems that cansimultaneously test more semiconductors and accommodate a larger number of pins at higher speeds and with highthroughput capabilities. On the other hand, there is an increasing pressure on test systems to be energy efficient, smaller insize and less expensive. In order to respond to this demand, test system manufacturers are taking measures to reduce test

14

system costs by making the development and manufacturing process of test systems more efficient, strengthening peripheraldevices 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 or even soldwithout being tested, Advantest believes that it has become increasingly important for test systems to ensure the reliability ofsemiconductors 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 cause test costs to occupy a higher percentage of the total cost of
manufacturing and, therefore, increase price pressure on the test system industry. Advances in the semiconductor andelectronic component industry will also require 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 the delivery of new
products that are priced and designed to meet the specific needs of its customers.
Business Strategy
Advantest’s core business goals include:•

focusing on the development of test systems which can respond to changes in memory and SoC semiconductors;•

growing its market share for test systems for SoC semiconductors and maintaining high market share for test
systems for memory semiconductors;•

growing its market share for test handlers for SoC semiconductors and maintaining its high market share for test
handlers for memory semiconductors;•

developing, designing and supplying high quality device interfaces in a shorter period of time;•enhancing its operating efficiency to improve profitability, through promotion of production innovations; and•strengthening its ability to provide comprehensive solutions to satisfy client needs.

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 from their product design stage ofsemiconductor and component test systems to understand customer needs relating to emerging technologies and applications.
Based on this knowledge and its technological expertise, Advantest seeks to develop more advanced semiconductor andcomponent test systems, test handlers, device interfaces and comprehensive solutions ahead of its competitors. For example,
Advantest is pursuing the following strategies:•

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

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

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

offering semiconductor and component test systems 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 andtest handlers in responding to the semiconductors with higher speed and large pin counts.

Strengthen the test system business for SoC semiconductors
Advantest believes that the market for test systems for SoC semiconductors in 2005 was approximately twice the sizeof the market for test systems for memory semiconductors. Advantest has therefore devoted its resources to develop test
systems for SoC semiconductors to meet the demands of a large number of manufacturers for the testing of a wide variety of
SoC semiconductors.

15

Advantest continues to promote the adoption of OPENSTAR®, an industry-wide, open architecture for test systems for
SoC semiconductors. Advantest believes that the primary benefits of OPENSTAR® for users of semiconductor andcomponent test systems will be reduced testing costs and greater procurement options. In addition, Advantest hopes that the
reduction in testing costs, and thus the lowering of overall manufacturing costs of SoC semiconductors, will help foster
further demand for SoC semiconductors to be used in digital consumer products and other products. Finally, Advantest
believes that the adoption of a new open architecture will provide an opportunity for late entrants to the test systems for SoC
semiconductors market, such as Advantest, to increase their market share.
Focus sales and support efforts on key customer accounts
Advantest believes that a small number of large semiconductor manufacturers, test houses and foundries account for alarge portion of total sales in the semiconductor and component test system industry. Advantest sells semiconductor andcomponent 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. Over the past several years, Advantest has opened additional overseas sales and support offices,many of which are located near the corporate headquarters or main research and development and manufacturing facilities ofthese key customers. These offices are expected to facilitate Advantest’s efforts to continue conducting collaborative
development activities with leading semiconductor manufacturers.
Products
As of fiscal 2006, 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
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, formemory and non memory semiconductors for the periods presented.
Category

Fiscal 2004

Fiscal 2005

Fiscal 2006

(in millions)

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

¥

123,856 ¥
56,829100,311 ¥91,104

109,541
58,274

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

¥

180,685 ¥

191,415 ¥

167,815

Test Systems for Memory Semiconductors
Advantest’s test systems for memory semiconductors are test systems designed to test high-speed/high performance
memory semiconductors used in applications such as personal computers and servers, as well as memory semiconductors
used in digital consumer 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 attached to and detached from thedevice interface by a prober. Electric signals are transmitted between the die and the test systems for memory semiconductors
through probe pins located in the device interface. After front-end testing is completed, the wafer is diced into separate diesand properly functioning dies are packaged. During back-end testing, test handlers are used to load these devices onto the test
heads, and electric signals are transmitted between the semiconductor chips and the semiconductor test system via the device
interface. The results are stored in a database, and then analyzed by the test systems for memory semiconductors’ hardware
circuits and software programs. Each different semiconductor design requires a customized software program to analyze thetest data.

16

Characteristics of the performance and other characteristics of test systems for memory semiconductors that areimportant to customers 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 megahertz, or MHz.
Timing Accuracy. Timing accuracy is the test system for memory semiconductors’ accuracy of control over the timingof testing signals generated.
Maximum Pin Count. Maximum pin count is the number of channels for test signals (at the maximum) used by test
systems for memory semiconductors.
Size. Smaller machines reduce the amount of floor space occupied and electricity consumed by the test systems formemory 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 thetime required 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.
Advantest estimates that its market share in test systems for memory semiconductors was approximately 66% in 2006
as compared with approximately 69% in 2005. Advantest believes that it maintained its overall market share for test systems
for memory semiconductors primarily by increasing sales of its test systems for DRAM semiconductors and flash memory
semiconductors. Advantest has a substantially larger market share in back-end test systems for memory semiconductors thanin front-end test systems for memory semiconductors. Advantest is currently seeking to increase its market share in front-end
test systems for memory semiconductors.
Advantest’s main product lines of test systems for memory semiconductors are the T5500 series, the T5300 series andthe T5700 series.
T5500 Series. The T5593 is a test system targeted at the market for high speed memory semiconductors such as the
DDR2-SDRAM and SGRAM. SGRAM is a memory semiconductor for use in graphical processor units. The T5588,
introduced in fiscal 2005 as the successor to the T5585, makes possible simultaneous measurement of up to 512 DDR2SDRAM devices, twice that of the T5593, and is the latest test system for mass production. Advantest can also accommodate
a greater variety of memory semiconductors by using testing functions for flash memory—which are already long used inconnection with the T5370 series—and its newly developed throughputs enhancement functions. The top-of-the-line device
in the T5500 series is the T5501, a memory semiconductor test system most suitable for testing and production of ultra highspeed memory semiconductors such as the next generation SGRAM. This model allows twice as much spectrum band to becovered in terms of testing speed as the T5593 and thus enhances the measurement accuracy.
T5300 Series. The T5375 and T5377 are multi-functional test systems for memory semiconductors that reduce testing
costs for semiconductor manufacturers. The T5375 and T5377 are used for the front-end testing of DRAM semiconductors
and for back-end testing of flash memory semiconductors. By increasing the functions of the system, Advantest has
succeeded broadening its customer base. The T5375 and T5377 can test up to 256 devices at one time. The T5375 and T5377
are aimed at capturing an increased market share in front-end DRAM semiconductor testing and have twice the throughputs
capabilities of the T5371, the predecessor to the T5375, thereby lowering overall testing costs for Advantest’s customers. In
particular, the T5377 optimizes its memory repair analytical structure to a user’s memory repair algorithm and, due to its
higher throughput capabilities, is suited for the production of semiconductors in manufacturing facilities that use 300
millimeter wafers. Advantest introduced the T5377S in response to customers’ needs for a smaller sized model of the T5377.
Also in fiscal 2005, Advantest introduced the T5372 to meet demand for 200mm wafer production lines as a successor modelto the T5371, which contributed to a higher share of the front-end testing market. In fiscal 2006, Advantest introduced theT5383, which is capable of simultaneously testing up to 384 devices and has the same footprint as the T5377S with thecapacity to test up to 50% more devices at one time. The maximum testing rate for the T5383 is 286 MHz/572 Mbps, whichis twice the testing rate of Advantest’s previous model. This allows for DRAM wafer testing “at speed” testing, or testing for

17

KGD, and package testing for flash memory, at high-speed and with high-throughputs capabilities. In addition to theseproducts, 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. Flash memory semiconductors require more types of front-end testing than other types ofsemiconductors. However, with respect to NAND-type flash memories, the volume of production is rapidly growing but
prices have fallen substantially. There is therefore a demand for higher efficiency for test systems. In order to respond to thisdemand, Advantest has introduced the T5761/T5761ES. The T5761 covers the full range of testing, from NAND-type flash
memory testing to package testing. The T5761 is capable of simultaneous testing up to 512 devices, which is twice thecapability of Advantest’s previous model, and allows for lower testing costs through its improved ability to detect failures.
The T5761ES retains the same capabilities and functions as the T5761 with a substantially smaller size and at lower testing
costs. The T5761ES is capable of simultaneous testing up to 16 devices, evaluating devices in a simplified manner and easily
making testing programs available for mass-production. Through the use of the T5761/T5761ES, effective solutions can be
structured, from the design of NAND-type flash memory 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
and other test systems for non memory semiconductors.
Test Systems for SoC Semiconductors
Test systems for SoC semiconductors test semiconductors with specific functions, such as SoC semiconductors thatcombine analog and/or memory circuits on a single semiconductor chip and 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 SoC semiconductors. Advantest’s market share in test systems
for SoC semiconductors decreased from approximately 28% in 2005 to approximately 23% in 2006.
T2000. In 2004, Advantest brought to market a test system for SoC semiconductors that is based on component
modules compatible with OPENSTAR® open architecture. Advantest believes that the development of OPENSTAR®
compatible semiconductor test systems for SoC semiconductors will increase Advantest’s market share in test systems for
SoC semiconductors. Currently, Advantest’s OPENSTAR® compatible test systems for SoC semiconductors is the T2000.
Main compatible component modules for the T2000 are the 250 MHz Digital Module, the Low Current DPS, the High
Current DPS, 800 MHz Digital Module and 6.5Gbps Digital Module. The 6.5Gbps Digital Module primarily targets thetesting of data processing and high speed interface used for chips and operates at a maximum of 6.5Gbps.
T6500 Series. The T6577 test systems for SoC semiconductors in the T6500 series are primarily designed to test MCU
and SoC semiconductors that control digital consumer products at the production lines. The T6500 series are approximately
one-third in size, and uses approximately 50% less power, as compared to Advantest’s predecessor product line.
T6300 Series. The T6362 and T6372 are test systems for non memory semiconductors for semiconductors used withhigh-definition LCD displays. These systems can simultaneously test multiple semiconductors for LCD driver integrated
circuits (“ICs”) with a total of up to 1,536 pins.
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 results from the development ofAdvantest’s constituent technology that measures analog signals. The T7721 uses a direct current signal generator with arange of 150V to 64V and utilizes up to a maximum of 256 pins, and the T7721 has the capacity to simultaneously measure
multiple devices.
T8571. The T8571 is a test system for non memory semiconductors that is primarily used to evaluate and analyze
CCDs that 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
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

18

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. During fiscal 2006, a majority of test handlers, measured in units, were 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 handler for memory semiconductors handle up to 256
semiconductors per test head at a time. Non memory semiconductors, including SoC semiconductors, require relatively shorttest times and Advantest’s test handlers handle up to 16 semiconductors at a time.
Test Handlers for Memory Semiconductors. Advantest’s test handler for test systems for memory semiconductors is theM6300 that handles up to 256 semiconductors at a time. The M6300 achieves maximum throughput of up to 12,000
semiconductors per hour through the use of a new high-speed handling technology that shortens the time between tests toapproximately half of the time associated with Advantest’s ordinary model. Semiconductor manufacturers can decide to use
two M6300 test handlers per semiconductor and component test system to double the handling capacity per semiconductor
and component test system. The M6542AD is another test handler for memory semiconductors designed to be used during
back-end testing of DDR-SDRAM and other high-speed SDRAM that handles up to 128 semiconductors at a time. The
M6542AD is designed to prevent the generation of excessive heat during simultaneous measuring by employing a newly
developed temperature control technology. Advantest also has other test handler product line-up 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 test systems for non memory
semiconductors, including SoC semiconductors, are the M4741A and the M7521A, among others.
The M4741A is a back-end test handler for non memory semiconductors that utilizes vision alignment and can be used
for small, narrow pitch semiconductors. The M4741A achieves maximum throughput of up to 4,000 semiconductors per hour.
The M4741A can simultaneously handle up to four devices.
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 and superwide tapes.
Device Interfaces
A device interface is a mechanism through which test signals are transmitted between the device being tested and asemiconductor and component test system. Device interfaces that are compatible with various types of devices enhance theutility of a semiconductor and component test system by allowing it to test different semiconductor product lines andtherefore reduce the cost for semiconductor and component test system users.
Advantest manufactures device interfaces for semiconductor and component test systems and is continuously
developing and supplying new device interfaces, such as high performance connectors and socket boards, featuring increased
throughput, precision and ease of maintenance to meet the demands of next- generation semiconductors that are becoming
more high-speed. 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 main parts of device interfaces that arecompatible with such new semiconductor designs will increase accordingly.
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 next-generation semiconductors increases, Advantest will enjoy competitive advantages by applying its
technical knowledge, such as high speed signal transmission derived from designing and manufacturing semiconductor andcomponent test systems to device interfaces.
Customers
Advantest’s semiconductor and component test systems and mechatronics systems are shipped and delivered to manyof the world’s leading semiconductor manufacturers, as well as a number of foundries and test houses. Advantest’s largest
customer accounted for approximately 15% of net sales in fiscal 2004, approximately 17% in fiscal 2005 and approximately
11% in fiscal 2006. Advantest’s five largest customers, all of which are semiconductor and component test system customers,

19accounted for approximately 42% of net sales in fiscal 2004, approximately 41% in fiscal 2005 and approximately 35% in
fiscal 2006.
Geographic Sales
Approximately 69% of Advantest’s fiscal 2006 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 apercentage of total net sales, for Advantest’s last three fiscal years. Net sales are classified into geographic areas based on thelocation to which the products are shipped.
Fiscal 2004
MarketNet Sales(in millions)Fiscal 2005
Net Sales(in millions)%Fiscal 2006
Net Sales(in millions)%%Japan .................................... ¥Asia (excluding Japan).........
Americas ..............................
Europe..................................

60,025
144,120
23,024
12,270

25.1
60.2
9.6
5.1

¥

81,140132,708
25,516
14,558

32.0
52.3
10.0
5.7

¥

72,834
140,782
10,158
11,238

31.0
59.9
4.3
4.8

Total..................................... ¥239,439100.0% ¥253,922100.0% ¥235,012100.0%

Japan. Advantest enjoys a significant market position in Japanese markets for test systems for memory semiconductors,
with a market share of approximately 90% in 2006. In addition, Advantest had an approximately 53% market share in theJapanese test systems for SoC semiconductors market in 2006. Sales of test systems for SoC semiconductors used in DVD
recorders and flat-panel TVs and sales of test systems for SoC semiconductors for LCD driver ICs used to display images on
LCD panels comprised a substantial portion of total sales of test systems for non memory semiconductors in Japan in fiscal
2006. Advantest is working to maintain its market leadership in Japan by continuing to work closely with its major customers
to identify their needs during the early stages of their product development cycles.
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 ascritical to its semiconductor and component test system and mechatronics system business. Many Japanese, U.S. andEuropean semiconductor manufacturers have shifted 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, amajority of which are located in Taiwan, often consult with their customers before investing in semiconductor andcomponent 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 withsemiconductor 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 U.S., which accounted for approximately 4%of its total sales in fiscal 2006. Advantest’s market share of semiconductor and component test systems sold in the U.S. wasapproximately 24% in 2005 and decreased to approximately 16% in 2006 due to decreased sales to a major U.S.
semiconductor manufacturer. Semiconductor and component test systems are marketed and sold in the Americas throughAdvantest’s subsidiary, Advantest America Inc.
Europe. Sales in Europe constituted approximately 5% of Advantest’s sales in fiscal 2006. Advantest’s market share ofsemiconductor and component test systems sold in Europe decreased to approximately 18% in 2006 from approximately 29%
in 2005. 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 businessand technology needs. Currently, Advantest has sales offices in Japan, Taiwan, Singapore and other parts of Asia, theAmericas and Europe. Advantest maintains its sales and support centers in close physical proximity to key customer sites to
identify its customers’ needs in the early stage 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.

20

Advantest believes that the best marketing strategy is to demonstrate the ability to develop products that meet thecustomer’s specific needs, produce and deliver them in the required time and quantity, and support the customer and the
product with sufficient technical and maintenance support. Advantest holds exhibitions from time to time to demonstrate andmarket its products to target customers. Advantest also markets by participating in industry trade shows and advertising intrade 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:•

Semiconductor Design Phase Support. Advantest engineers work with semiconductor manufacturing companies
during the design phase of new semiconductor product lines and provide support to enable the use of
semiconductor and component test systems for large-scale production.

•

Application Software Support. Each different semiconductor design requires customized software programs foranalysis of test data. Advantest engineers assist customers in designing 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 combinationof 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 andmechactronics 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 typicallyrequires either the purchase of new semiconductor and component test systems and mechatronics systems or
warranty support for the customer’s existing system. Upon the sale of a new system, Advantest’s engineers
provide installation services and work with the customer to integrate the purchased system with the customer’s
existing manufacturing infrastructure.

•

Training Support. Advantest offers on-site training, as well as training at Advantest’s facilities, on the operationand maintenance of its semiconductor and component test systems and mechatronics systems.

•

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 databasewith possible solutions to semiconductor and component test system problems. Advantest customers canalso 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,and Advantest has established a system under which it endeavors to deliver requested parts to customers inJapan within 24 hours of request, and for customers in Asia (excluding Japan), the Americas and Europe
within 48 hours of request.

•

Remote Surveillance. Advantest can equip its semiconductor and component test systems with a remotesurveillance 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 parts of Asia, including Korea, China, Taiwan and Singapore, the Americas and Europe.

Manufacturing and Supplies
Advantest’s principal manufacturing factories for semiconductor and component test systems are its Kumagaya Factory
located in Saitama Prefecture, Japan and its Gunma Factory located in Gunma Prefecture, Japan. At the Kumagaya Factory,
printed circuit boards for use in test systems are manufactured, while the Gunma Factory produces test systems as final

21

products. The production base for mechatronics systems is the Otone R&D Center located in Saitama Prefecture, Japan. The
Gunma Factory is highly automated and testing and production systems within the factory are interconnected by asophisticated 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 an enterprise resource planning system that processes new information on a real time basis and uses
sophisticated data management software that converts sales orders 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 thejust-in-time production system and to improve upon the existing production system with a view to attaining a shorterproduction 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 thepurchase orders directly with its suppliers and the fact that the prices of the made-to-order components set forth in thepurchase 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 fluctuatesignificantly from year 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.
Competition
Advantest faces substantial competition throughout the world in all of its business segments. Advantest believes thatthe 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 proceed without frequent intervention and provides more cost-effective operation.

•

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

•Price. The need for more sophisticated products often translates into higher testing costs for semiconductor
manufacturers. In addition, as a result of increased efficiency of 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 beadapted to meet 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 engineeringresources needed to develop and operate test programs.

•

Customer Support. Customer specific applications programs, worldwide service and customer training contributeto the efficient 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.

22

According to a report issued by a research company, Advantest has maintained the highest share in the semiconductor
and component test system market in the previous four years. Other companies following Advantest include, among others,
Teradyne, Inc., Verigy Pte. Ltd., Credence Systems Corporation, Yokogawa Electronic Corporation, LTX Corporation, Eagle
Test Systems, Inc. and Nextest Systems Corporation. In addition, Advantest also competes in the mechatronics system
market with, among others, Delta Design, Inc., Seiko Epson Corporation, Mirae Corporation and TechWing Inc. Advantest
also has been suggested by its customers to 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 ofparticular strategic importance. While Advantest does not consider any one or group of licenses and intellectual property
rights to be so important that their expiration or termination would materially affect Advantest’s business, Advantest
considers all of its licenses and intellectual property rights to be important.
Legal Proceedings
Based on information currently available to Advantest, Advantest believes that its losses from any legal proceedings
would not have a material adverse effect on Advantest’s financial position, operating results or cash flows.
Environmental
Advantest has established an “Environmental Management Plan,” under which Advantest has committed to realizing abalance of corporate management and environmental protection activities. Advantest’s primary environmental activities
during fiscal 2006 are as follows:•

ISO 14001 Certification. Advantest has received ISO 14001 Uniform Certification for all eight of its domestic
manufacturing and research and development facilities. With respect to its overseas manufacturing and researchand development activities, a subsidiary in Taiwan has received ISO 14001 Uniform Certification.

•

Environmental Measures for Products. Advantest is actively involved in the development of environmentallyfriendly product lines. Advantest conducts environmental assessments of all its new products from theirdevelopment stages.

•

Reduce Waste. Advantest continues to retain less than 1% industrial output at all eight of its research anddevelopment and manufacturing facilities.

•

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. As aresult, Advantest has eliminated most regulated toxic substances from its product parts and components, except
lead solder, which is used for mounting parts and components for its products.

•

Prevention of Global Warming. Through usage 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 businessactivities decreased by approximately 10% per sales unit in fiscal 2006, as compared with fiscal 2000, and haveachieved a reduction effect of approximately 1,671 tons carbon dioxide emissions per year.

•

Environmental Activities. Since January 2005, Advantest has implemented the reforestation of seedlings to assist
in the rehabilitation of tropical forests in Southeast Asia, which have been severely impacted by commercial
deforestation. Advantest has completed the reforestation of 7,500 primeval diptercarp trees over a total of 30
hectares within three years.

Advantest spent approximately ¥873 million during fiscal 2006 to further implement its environmental protection
activities. Advantest expects to have similar levels of expenditures during fiscal 2007.
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 moreon the issue of CSR (Corporate Social Responsibility). Advantest has established a CSR Committee, under which it promotes
CSR initiatives through nine subcommittees (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).

23

24

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 ofvalues. Analog circuits process analog signals translated from real world
phenomena such as sound, light, heat and motion.

COF

Chip on Film. A technology that allows for integrated circuits to be imprinted
onto a tape film.

CMOS

Complementary Metal Oxide Semiconductor. A semiconductor that uses both
negative and positive circuits.

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.

DDR-SRAM

Double Data Rate Static Random Access Memory. Memory semiconductorthat can be read from, or written to, at double the rate of traditional SRAM
semiconductors.

DDR2-SDRAM

Advanced DDR-SDRAM semiconductors that can be read from, or written to,
at a significantly higher rate than DDR-SDRAM semiconductors.

DDR3-SDRAM

The next generation DDR-SDRAM semiconductors that be read from, or
written to, at a significantly higher rate than DDR2-SDRAM semiconductors.

Data processing

IC with the arithmetic capability that is the core computer technology.

Digital circuits

Circuits that perform binary arithmetic functions on data represented by aseries of on/off states.

DRAM

Dynamic Random Access Memory. Devices that store a large volume of dataand can read and write data freely. Because of their volatile characteristics,
periodic re-writing 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.

MPU

Micro Processing Unit. An integrated circuit that has data processing
capability and forms the central technology of computers.

MCU

Micro Controller Unit. An integrated circuit that contains all necessaryfunctions 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

25due to its speedy capability to read and write.
OPENSTAR®

OPENSTAR is the name of the open architecture standard made publicly
available by STC (Semiconductor Test Consortium, Inc.). It is a registeredtrade mark or brand name in the U.S., Japan, and other countries.

SGRAM

Synchronous Graphics Random Access Memory—SDRAM with added
graphics functions

SoC

System on a Chip. A chip that integrates functions, including logic, memoryand signaling, that are conventionally executed with multiple chips andrequires smaller space and significantly less electricity.

STN

Super Twisted Nematic liquid crystal display. A type of LCD that uses simple
matrix formation and has low manufacturing costs.

TAB

Tape-Automated Bonding. A technology that allows integrated circuit chips
to be thinly 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
semiconductor bare chips are in good quality.

TFT

Thin Film Transistor liquid crystal display. A type of LCD that forms amembrane transistor on glass and has better display quality than STN.

4.C

ORGANIZATIONAL STRUCTURE

As of June 1, 2007, Advantest had 24 Japanese subsidiaries, 17 overseas subsidiaries and one investee which isaccounted for by the equity method. The following table sets forth for each of Advantest’s principal subsidiaries, the countryof incorporation and the principal activities of the subsidiary.
Name of Subsidiary

Country ofIncorporation

Principal Activities

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

Japan

Research and development of measuring andtesting technologies

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

Japan

Maintenance service of Advantest’s products

Advanmechatec Co., Ltd. .......................................

Japan

Manufacture of Advantest’s products

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

Japan

Manufacture of Advantest’s products

Advantest DI Corporation.......................................

Japan

Manufacture of Advantest’s products

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

Japan

Development, manufacture and sales ofAdvantest’s products

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

Japan

Leasing of Advantest products

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

U.S.

Sales of Advantest’s products

Advantest (Europe) GmbH .....................................

Germany

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

Each of the subsidiaries listed above is a direct or indirect wholly-owned subsidiary of Advantest.
4.D

PROPERTY, PLANTS AND EQUIPMENT

26

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

Location

Approximate
Size (m2)Use

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

Gunma, Japan

250,887 Research and development ofsemiconductor and component test
systems and device interfaces

Otone R&D Center .................................

Saitama, Japan

85,817 Research and development for andmanufacturing of mechatronics systems

Advantest Laboratory .............................

Miyagi, Japan

66,904 Basic technology research

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

Gunma, Japan

88,512 Manufacture of semiconductors andcomponent test systems

Kumagaya Factory..................................

Saitama, Japan

63,788 Manufacture of interim phase products forsemiconductors and component test
systems

In addition to the above-mentioned manufacturing facilities, Advantest has manufacturing facilities in the U.S., Korea,
and Malaysia, sales offices and customer support centers throughout the world, and owned or leased research facilities inJapan, the U.S. and France. Advantest owns each of its significant properties.
Advantest considers all of its principal manufacturing facilities and other significant properties to be in good condition
and adequate 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 todetermine this information because Advantest alters the volume, quantity and nature of its manufactured products asnecessary in response to changes in demand and other market conditions, and revamps its manufacturing processes to takeadvantage of technological innovations. However, Advantest believes that its manufacturing facilities are currently operating
at utilization levels that are substantially in line with prevailing market demand for its products.
Advantest believes that there does not exist any material environmental issues that may affect utilization of its assets.
In fiscal 2007, Advantest plans to construct a new building equipped with clean room facilities for production on thepremises of the Advantest Laboratories Ltd. in Miyagi, Japan. This is in connection with Advantest’s plan to relocate
production facilities in Japan.
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 incase of suspension, to re-start the suspended businesses, including the recovery of important facilities, in the shortest possible
time, Advantest is in the process of drafting its “Business Continuity Plan.” However, if Advantest cannot complete suchBusiness Continuity Plan, or if upon completion, 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.
5.A

OPERATING AND FINANCIAL REVIEW AND PROSPECTSOPERATING RESULTS

You should read the following discussion and analysis of Advantest’s financial condition and results of operations with“Key Information—Selected Financial Data” and its audited consolidated financial statements at March 31, 2007 and foreach of the three years then ended and the notes to such consolidated financial statements appearing elsewhere in this annual
report. These consolidated financial statements have been prepared under accounting principles generally accepted in the U.S.

27

Overview
Advantest manufactures and sells semiconductor and component test systems and mechatronics-related products suchas 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 thesemiconductor industry and the electronic parts industry. Product lines in the semiconductor and component test systemsegment include test systems for memory semiconductors for memory semiconductor devices test systems and for SoC
semiconductors for non memory semiconductor devices. This reportable business segment is the most important segment,with sales accounting for 71.4% of Advantest’s net sales in fiscal 2006.
The mechatronics system segment provides product lines such as test handlers, mechatronic-applied products, forhandling semiconductor devices, device interfaces that serve as interfaces with the devices that are measured and operations
related to nano-technology products. This business segment accounted for 22.1% of Advantest’s net sales in fiscal 2006.
The services, support and others segment consists of comprehensive customer solutions provided in connection withthe semiconductor and component test systems and mechatronics system segments, support services, equipment leasebusiness and others. This segment accounted for 7.8% of Advantest’s net sales in fiscal 2006.
Semiconductor and Component Test System Segment
The market for semiconductor and component test systems is subject to high demand volatility and is competitive, anddepends 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.

During fiscal 2006, the operating environment surrounding Advantest’s semiconductor and component test systemsegment remained mostly steady, supported by an increase in demand in mobile phones, flat-panel TVs and game devices,even though a substantial decline in the price of flash memory semiconductors led some semiconductor manufacturers to
restrict their capital expenditures. For a detailed discussion of these factors, see “Information on the Company—Business
Overview—Industry Overview.”
In the semiconductor and component test system segment, in the memory test system market, the price of DRAM
semiconductors remained mostly stable throughout the fiscal year. Furthermore, investments in Korea and Taiwan related to
DDR2-SDRAM semiconductors used in personal computers with a new operating system have rapidly increased during thesecond half of the fiscal year. Consequently, sales of test systems for high speed memory semiconductors remained positive.
On the other hand, sales of test systems for flash memory semiconductors decreased during the second half of the fiscal year,
due to the decline in capital expenditures of semiconductor manufacturers resulting from the substantial decrease in the priceof flash memory semiconductors.
In the market for non memory semiconductor test system, sales of test systems for semiconductors for digital consumer
devices remained steady. However, sales of the T2000, a test system for micro processing units (MPU), which was positivein the previous fiscal year, decreased primarily due to a decrease in capital expenditures of Advantest’s major customers.
Similarly, sales of test systems for LCD driver ICs, which was positive in the previous fiscal year, started to decrease as aresult of the adjustment of liquid crystal display panel inventories.
As a result of the above, net sales of the semiconductor and component test system segment decreased by 12.3% to¥167,815 million in fiscal 2006, as compared to the previous fiscal year.
Advantest’s net sales, results of operations and financial condition in fiscal 2006 were affected by lower sales of test
systems for non memory semiconductors and price pressure as compared with fiscal 2005. Net sales of test systems formemory semiconductors in fiscal 2006 increased by 9.2% as compared to the previous fiscal year, while net sales for test
systems for non memory semiconductors decreased by 36.0% as compared to the previous fiscal year. Advantest’s best
selling test system for non memory semiconductor test systems in fiscal 2006 continued to be the T6500 series, Advantest’s
relatively lower cost test systems for SoC semiconductors. Demand for these semiconductor and component test systems was
driven by expanded production of digital consumer electronics that incorporate semiconductors, including mobile phones,
flat-panel TVs and game devices. These semiconductors typically are mass-produced and carry per unit market prices that are28

lower than high-end SoC semiconductors and high-bandwidth DRAM semiconductor and SRAM semiconductor products.
Therefore, Advantest’s customers that produce these semiconductors required less expensive semiconductor and component
test systems in order to reduce their overall manufacturing costs.
Advantest believes that demand for its newer products was driven by customers’ increased levels of capital
expenditures towards the improvement of their production capacities, such as through investments relating to 300 millimeter
wafers and to the next generation of memory semiconductor devices. In most cases, the sales prices of semiconductor andcomponent test systems gradually decreases as their commercial life becomes longer.
Advantest believes that price pressure with respect to semiconductor and component test systems tends to be strongest
during periods when demand, in terms of volume, for semiconductors is increasing, but there exists pressure on the market
price for semiconductors. Advantest faced significant price pressure from fiscal 2001 to 2003. In fiscal 2004 and fiscal 2005,
price pressure continued to exist. While the semiconductor industry experienced a recovery, increased competition in themarket for digital consumer products and personal computers drove down prices of these goods, subsequently creating
significant price pressure on its product lines. Advantest believes that despite this significant price pressure and new market
entrants of test system manufacturers, Advantest was able to increase its competitiveness by bringing to market new products.
Mechatronics System Segment
With respect to the test handler business of the Mechatronics System Segment, sales of the M6300, a test handler for
memory semiconductors that allows for the simultaneous measurement of 256 test systems, increased.
Although net sales of test handlers for SoC semiconductors also decreased with decreased sales of the TAB handler for
LCD driver ICs due to sluggish market conditions for LCD driver ICs, sales of the M4741A series of test handlers for SoC
semiconductors designed for fine pitch packages and with vision alignment functions was stable due to enhanced demandprimarily through the strong performance of digital consumer devices in the market.
Net sales of device interfaces rose as compared with fiscal 2005 in fiscal 2006. Net sales in Korea and Taiwan wereparticularly strong in fiscal 2006 compared to fiscal 2005. Advantest believes that improvement in technologies by
Advantest’s local subsidiaries enhanced its competitive advantage over competitors due to lower production costs and theintroduction of device interfaces with lower running costs for component replacement of measured devices resulted insignificant market acceptance in Korea and Taiwan.
As a result of the above, net sales of the mechatronics system segment increased by 7.8% compared to fiscal 2005 to¥52,025 million in fiscal 2006.
Services, Support and Others Segment
In the services, support and others segment, Advantest has focused on maintenance services such as installation andrepair of Advantest’s products and lease and rental services of its products as a part of Advantest’s effort to provide
customers with comprehensive solutions. Net sales of this segment decreased by 3.9% compared to fiscal 2005 to¥18,312 million in fiscal 2006.
Research and Development
Research and development expenses represent a significant portion of Advantest’s annual operating expenses.
Advantest’s research and development expenses were ¥26,280 million, ¥26,927 million and ¥29,509 million, or 11.0%,
10.6% and 12.6% of net sales, in fiscal 2004, 2005 and 2006, respectively.
Personnel
As of March 31, 2007, Advantest had a total of 3,637 full-time employees, an increase of 42 persons, or 1.2%, overMarch 31, 2006.
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 andmechatronics system segment to support the growth of Advantest’s businesses. Other new hires are expected to join
Advantest’s maintenance support division or administrative divisions. The addition of these new hires may increase
Advantest’s future selling, general and administrative expenses and its research and development expenses.

29Currency Fluctuations
Advantest is affected to some extent by fluctuations in foreign currency exchange rates. Advantest is principally
exposed to fluctuations in the value of the Japanese yen against the U.S. dollar and other currencies of countries where
Advantest does business. Advantest’s consolidated financial statements, which are presented in Japanese yen, are affected byforeign 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 particulardate 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 ofoperations. Advantest does not hedge against translation risk.
Transaction risk is the risk that the currency structure of Advantest’s costs and liabilities will deviate from the currency
structure of sales proceeds and assets. Advantest produces substantially all of its products, including all semiconductor andcomponent test systems, in Japan. A small portion of the components and parts used in Advantest’s semiconductor andcomponent test systems is purchased in currencies other than the yen, predominantly the U.S. dollar.
Advantest enters into foreign exchange forward contracts to reduce its transaction risk. This has reduced, but noteliminated, the effects of foreign currency exchange rate fluctuations against the Japanese yen, which in some years can besignificant.
Generally, a weakening of the Japanese yen against other currencies, particularly the U.S. dollar, has a positive effecton Advantest’s operating income and net income. A strengthening of the Japanese yen against other currencies, particularly
the U.S. dollar, has the opposite effect. The Japanese yen generally strengthened against the U.S. dollar in fiscal 2004, but
weakened from fiscal 2005 to fiscal 2006.
Advantest’s business is subject to risks associated with doing business internationally, and its business could be
impacted by certain governmental, economic, fiscal, monetary, taxation or political policies or factors, including tradeprotection measures and import or export licensing requirements, that may materially affect, directly or indirectly,
Advantest’s operations or its future results.
Critical Accounting Policies and Estimates
Advantest has made a number of estimates and assumptions relating to the reporting of assets and liabilities and thedisclosure of contingent assets and liabilities in preparing its consolidated financial statements in conformity with U.S.
GAAP. Critical accounting 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 ofAdvantest’s accounting policies. Advantest’s significant accounting policies are more fully described in note 1 to Advantest’s
consolidated financial statements included elsewhere in this annual report. In many cases, U.S. GAAP specifically dictates
the accounting treatment of a particular transaction, with no need for judgment in its application. There are also areas inwhich 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 businessand 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 theservices have been rendered, the sales price is fixed or determinable and collection of the related receivable is reasonably
assured in accordance with the 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 whenpersuasive 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”) Statementof 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 recognizedwhen the functionality of the undelivered element is not essential to the delivered element.

30

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 acceptanceis uncertain, revenue is deferred until customer acceptance has been received. When the final payment is subject to customer
acceptance, a portion of revenue for the final payment is deferred until an enforceable claim has become effective.
Sales of products and component which do not require installation service by Advantest is recognized upon shipment if
the terms of the sale are free on board (FOB) shipping point or upon delivery if the terms are FOB destination which coincidewith the passage 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) under SOP 97-2) offair value to allocate revenue to elements in multiple element arrangements and recognizes revenue when the criteria forrevenue 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 fairvalue 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.
Inventories
Advantest’s inventories consist of on-hand inventory, including inventory located at customer sites, and inventory thatis on-order and subject to a contract that is non-cancelable. Advantest states its inventories at the lower of cost or market.
Cost is determined using 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 theappropriate amount of any inventory write-downs periodically based on these reviews. Write-downs occur from thediscontinuation 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 increased by ¥2,065 million, or 6.9%, during fiscal 2006 to ¥31,976 million as of March 31,
2007. Advantest recorded inventory write-downs in the amount of ¥3,112 million in fiscal 2006 and ¥1,287 million in fiscal
2005. Advantest may be required to take additional charges for excess and obsolete inventory in fiscal 2007 or 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 based on its estimates and forecasts of demand for its products.
Trade Receivables
Advantest’s trade receivables, less allowance for doubtful accounts was ¥54,264 million as of March 31, 2007, ascompared with ¥69,567 million as of March 31, 2006. Advantest maintains allowances for doubtful accounts for estimatedlosses resulting from the inability of its customers to make required payments. Advantest provides an allowance for doubtful
accounts for all specific accounts receivable that it judges are probable of not being collected. Advantest has not recorded any
allowances for trade receivables for its major customers, a majority of which are large, well-capitalized semiconductor
manufacturers, test houses and foundries. Advantest receives deposits from most of its distributors for its other test systems.
Advantest believes that the amounts of these deposits are sufficient to offset the amounts of any possible defaults on accounts
receivable of these customers.
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

31

available and the customer’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 2006, Advantest decreased its allowance for doubtful accounts by ¥1,912 million from fiscal 2005
to ¥205 million, due to a write off of accounts receivable amounting to ¥1,722 million during the fiscal year. Increases inallowance 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 near-term.
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 for the accounting period during which such collection takes place.
Accrued Warranty Expenses
Advantest’s products are generally subject to a 12-month free repair warranty. In addition, under certain circumstances,
Advantest is responsible for the repair of defective components and parts. Advantest provides an allowance for estimatedproduct warranty expenses when product revenue is recognized as part of its selling, general and administrative expenses.
The allowance for estimated product warranty expenses represents management’s best estimate at the time of sale of the total
costs that Advantest will incur to repair or replace components or parts that fail while still under warranty. Advantest records
its allowance for estimated product warranty expenses based on the historical ratio of actual repair and support expenses tocorresponding sales. The foregoing evaluations are inherently uncertain as they require estimates as to maintenance costs andfailure rates related to different product lines. Consequently, actual warranty costs may differ from the estimated amounts andcould 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 ¥4,135 million in fiscal 2006, down from ¥4,776 million in fiscal 2005.
Stock-Based Compensation
During the year ended March 31, 2005, Advantest adopted the fair value recognition provision of SFAS No. 123(revised 2004) (SFAS 123R), “Share Based Payments”, using the modified retrospective method, effective April 1, 2004. The
fair values of the option are estimated using a Black Scholes option pricing model and amortized to expense over therequisite service period.
Expected dividend yield is determined by the Company’s dividend ratio of the past and other associated factors. Risk
free interest rate is determined by government debt 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 isdetermined by the Company’s option exercise history, post vesting employment termination behavior for similar grants, andother pertinent factors.
Accrued Pension and Severance Cost
The Company and certain of its subsidiaries have unfunded retirement and severance plans. On terminating
employment, substantially all employees of the Company and certain subsidiaries are entitled to lump-sum payments.
On March 31, 2007, Advantest adopted the recognition and disclosure provisions of SFAS 158. 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 the unrecognized 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 suchamounts. Further, actuarial gains and losses that arise in subsequent periods and are not recognized as net periodic benefit
cost in the same periods will be recognized as a component 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 inaccumulated other comprehensive income (loss) at adoption of SFAS 158.
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 scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning
strategies in making this assessment. At March 31, 2006, Advantest has recorded on its consolidated balance sheet, net

32

deferred tax assets of ¥19,774 million of which ¥330 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, 2005, 2006 and2007 were ¥31,132 million, ¥777 million and ¥486 million, respectively.
At March 31, 2007, Advantest has recorded on its consolidated balance sheet, net deferred tax assets of ¥11,569 million($98,001 thousand). 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 and other factors, management believes it is more likely than not that Advantest will realize thebenefits of these deductible differences, at March 31, 2007.
Results of Operations—Fiscal 2006 Compared with Fiscal 2005
Net Sales
Advantest’s net sales decreased by ¥18,910 million, or 7.4%, compared with fiscal 2005, to ¥235,012 million in fiscal
2006. This decrease was primarily due to weak sales of test systems for SoC semiconductors for data processing and of test
systems for non memory semiconductors used for LCD driver ICs within the semiconductor and component test systemsegment throughout fiscal 2006. The estimated effect of changes in exchange rates during fiscal 2006 was to increase
Advantest’s net sales by ¥1,145 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 2006, net sales of Advantest’s semiconductor and component test system segment accounted for 71.4% of
total net sales. Net sales of Advantest’s semiconductor and component test system segment decreased by ¥23,600 million, or
12.3%, compared with fiscal 2005, to ¥167,815 million in fiscal 2006. Advantest’s net sales in this segment in the second
half of fiscal 2006 were ¥81,841 million, resulting in a decrease by ¥4,133 million, or 4.8%, compared to the first half offiscal 2006. The estimated effect of changes in exchange rates during fiscal 2006 was to increase Advantest’s net sales fromits semiconductor and component test system segment by ¥419 million.
Net sales of test systems for memory semiconductors increased by ¥9,230 million, or 9.2%, compared with fiscal 2005
to ¥109,541 million in fiscal 2006. This increase was mainly due to strong demand for DRAM semiconductor test systems
for super high-speed memory devices targeting the next-generation DRAM semiconductors, resulting from full-scale launchof the production of DDR2-SDRAM by semiconductor manufacturers in the second half of fiscal 2006, despite lower than
expected demand in the first half of fiscal 2006 for Advantest’s DRAM semiconductor test systems for super high-speed
memory devices, the T5500 series test systems, targeting the next-generation DRAM semiconductors, mainly due to lower
capital expenditures by semiconductor manufacturers resulting from falling DRAM prices and delay in shift of theirproduction to DDR2-SDRAM, among other things. Test systems for flash memory semiconductors, however, suffered fromweak sales towards the second half of fiscal 2006, led by lower capital expenditures by semiconductor manufacturers
resulting from a substantial decline of DRAM prices.
Net sales of test systems for non memory semiconductors decreased by ¥32,830 million, or 36.0%, compared withfiscal 2005 to ¥58,274 million in fiscal 2006. This decrease was mainly due to a decrease in sales of T2000 series test
systems for SoC semiconductors, based on OPENSTAR®, primarily in the U.S. throughout fiscal 2006. This decrease wasalso due to weak sales, primarily in Japan, Korea and Taiwan, of the T6300 series test systems for non memory
semiconductors used for LCD driver ICs.
Mechatronics System Segment
Net sales of the mechatronics system segment such as test handlers and device interfaces increased by ¥3,765 million,
or 7.8%, compared to fiscal 2005 to ¥52,025 million in fiscal 2006, reflecting increased sales of test systems for memory
semiconductors that generated an increased need for test handlers and device interfaces.
The sales of test handlers for memory semiconductors were slow in the first half of the fiscal year primarily because thedemand for DDR2-SDRAM semiconductors picked up slowly, but sales recovered with the growth in sales of test systems
for DRAM semiconductors. Sales of test handlers for non memory semiconductors were steady in response to increased salesof test systems aimed at digital consumer devices in the first half of fiscal 2006. Also, sales of device interface products weresteady, reflecting strong demand for DDR2-SDRAM semiconductors.
Services, Support and Other Segment

33

Net sales of the services, support and other segment decreased by ¥750 million, or 3.9%, compared with fiscal 2005 to¥18,312 million in fiscal 2006. Main businesses in the services, support and others segment for fiscal 2006 include
maintenance services and leases and rentals, but sales were weak.
Geographic Markets
Advantest experienced a decrease of 7.4% in its net sales in fiscal 2006, with sales in the Americas experiencing themost substantial decrease.
Net sales in Japan decreased by ¥8,306 million, or 10.2%, compared with fiscal 2005 to ¥72,834 million in fiscal 2006.
This decrease was due to weak sales of test systems for non memory semiconductors used for LCD driver ICs, despite
increased sales of test systems for SoC semiconductors used for digital consumer devices.
Net sales in the Americas decreased by ¥15,358 million, or 60.2%, compared with fiscal 2005 to ¥10,158 million in
fiscal 2006. This decrease was due to lower sales of test systems for memory semiconductors and test systems for nonmemory semiconductors to major semiconductor manufactures throughout fiscal 2006. The estimated effect of changes inexchange rates during fiscal 2006 was to increase Advantest’s net sales from sales in the Americas by approximately ¥204
million.
Net sales in Europe decreased by ¥3,320 million, or 22.8%, compared to fiscal 2005 to ¥11,238 million in fiscal 2006.
The sales of test systems for DRAM semiconductors and test handlers for SoC semiconductors decreased in Europe. The
estimated effect of changes in exchange rates during fiscal 2006 was to increase Advantest’s net sales from sales in Europe
by approximately ¥88 million.
Net sales in Asia (excluding Japan) increased by ¥8,074 million, or 6.1%, compared with fiscal 2005 to ¥140,782
million. Net sales in Korea and Taiwan increased by ¥15,423 million, or 43.1%, by ¥8,707 million, or 16.0%, compared withfiscal 2005, respectively. This increase was primarily due to increased sales of test systems for DRAM semiconductors tomajor semiconductor manufacturers and test houses in Korea and Taiwan. Net sales in China and the rest of Asia (excluding
Japan, Taiwan and Korea) decreased by ¥16,056 million, or 37.7%, compared with fiscal 2005. This decrease is the result of
lower sales of test systems for SoC semiconductors to major semiconductor manufacturers in Singapore and Malaysia. The
estimated effect of changes in exchange rates during fiscal 2006 was to increase Advantest’s net sales from sales in Asia byapproximately ¥853 million.
Advantest’s overseas sales as a percentage of total sales became 69.0% for fiscal 2006, compared with 68.0% for fiscal
2005.
Operating Expenses
Advantest’s operating expenses decreased by ¥11,244 million, or 5.9%, compared with fiscal 2005 to ¥178,220 million
in fiscal 2006.
Cost of sales decreased by ¥12,711 million, or 10.5%, compared to fiscal 2005 to ¥108,718 million in fiscal 2006. Thisdecrease was attributed to the decrease of ¥18,910 million in net sales and the improvement in sales cost ratio attained by cost
reduction and improved product mix.
Research and development expenses increased by ¥2,582 million, or 9.6%, when compared to fiscal 2005, to¥29,509 million in fiscal 2006. This rise in research and development expenses reflects additional resources required for theincreased research and development themes for future products as well as increased expenses for research and development
subcontractors.
Selling, general and administrative expenses decreased by ¥1,115 million, or 2.7%, compared to fiscal 2005 to¥39,993 million in fiscal 2006. This decrease was due to a decrease of ¥1,219 million in accrued warranty expenses that
resulted from the decreased sales.
Operating Income
Operating income decreased by ¥7,666 million, compared to ¥64,458 million in fiscal 2005, to ¥56,792 million in fiscal
2006.

34

Other Income and Expenses
Interest and dividend income increased by ¥1,266 million, or 71.9%, compared with fiscal 2005 to ¥3,026 million in
fiscal 2006. This increase was primarily due to the increase in interest rates in the U.S. and the Euro area.
Interest expense decreased by ¥274 million, or 94.5%, compared with fiscal 2005 to ¥16 million in fiscal 2006. Thisdecrease was primarily due to the repayment of bonds in the amount of ¥20,000 million during fiscal 2005.
Other income decreased by ¥238 million, compared with fiscal 2005, to ¥1,288 million in fiscal 2006. This decrease in
non-operating income was due to the gain on sale of investment securities in fiscal 2005 in the amount of ¥1,040 million that
did not recur in fiscal 2006. This was partially offset by the weakening of the euro against the yen, which resulted in
improving foreign currency exchange gains by ¥566 million compared with fiscal 2005 to ¥1,323 million in fiscal 2006. This
represents the difference between the value of foreign currency-denominated sales translated at prevailing exchange rates andeither (i) the value of sales amounts settled during the year, including those settled using foreign exchange forward contracts,or (ii) the value of accounts receivable and payables outstanding remeasured at the exchange rate in effect at March 31, 2007.
Income Taxes
Advantest’s effective tax rate was 38.7% in fiscal 2005 and 41.8% in fiscal 2006. The statutory tax rate of theCompany and its domestic consolidated subsidiaries was 40.3% for fiscal 2006. The difference between the statutory tax rateof 40.3% in fiscal 2006 and the effective tax rate of 41.8% in fiscal 2006 was due to recognition of additional deferred tax
liabilities on undistributed earnings of its foreign subsidiaries as a result of a change in the dividend policies of the foreignsubsidiaries during fiscal 2006. This difference was partially offset by the availability of tax credits earned for research anddevelopment expenses. For a more detailed discussion of income taxes of Advantest in fiscal 2006 and fiscal 2005, see note
14 to Advantest’s consolidated financial statements.
Net Income
Advantest’s net income decreased by ¥5,818 million, or 14.1%, compared to fiscal 2005, to ¥35,556 million in fiscal
2006. The change in net income for fiscal 2006 compared to fiscal 2005 reflects the factors discussed above.
Other Comprehensive Income (Loss)
Advantest’s other comprehensive income (loss) decreased by ¥5,461 million, compared to fiscal 2005, to ¥761 million
in fiscal 2006. This decrease was mainly due to a ¥3,951 million decrease in foreign currency translation adjustment from an
income of ¥5,074 million in fiscal 2005 to an income of ¥1,123 million in fiscal 2006 as the yen did not weaken against the
U.S. dollar to the same extent as in fiscal 2005, as well as a ¥1,510 million decrease in net unrealized gain on marketablesecurities.
Results of Operations—Fiscal 2005 Compared with Fiscal 2004
Net Sales
Advantest’s net sales increased by ¥14,483 million, or 6.0%, compared with fiscal 2004, to ¥253,922 million in fiscal
2005. This increase was primarily due to strong sales throughout fiscal 2005, within the semiconductor and component test
system segment, of test systems for SoC semiconductors for MPUs, of test systems for non memory semiconductors used for
LCD driver ICs and of test systems for SoC semiconductors for consumer digital devices. Sales of test systems for memory
semiconductors, led by sales of test systems for flash memory semiconductors, were also strong. The estimated effect ofchanges in exchange rates during fiscal 2005 was to increase Advantest’s net sales by ¥2,978 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 2005, net sales of Advantest’s semiconductor and component test system segment accounted for 75.4% of
total net sales. Net sales of Advantest’s semiconductor and component test system segment increased by ¥10,730 million, or
5.9%, compared with fiscal 2004, to ¥191,415 million in fiscal 2005. Advantest’s net sales in this segment in the second halfof fiscal 2005 were ¥110,583 million, resulting in an increase by ¥29,751 million, or 36.8%, compared to the first half offiscal 2005. The estimated effect of changes in exchange rates during fiscal 2005 was to increase Advantest’s net sales fromits semiconductor and component test system segment by ¥2,067 million.

35

Net sales of test systems for memory semiconductors decreased by ¥23,546 million, or 19.0%, compared with fiscal
2004 to ¥100,311 million in fiscal 2005. This decrease was mainly due to lower than expected demand, particularly in thefirst half of fiscal 2005, for Advantest’s DRAM semiconductor test systems for super high-speed memory devices (such as
the T5500 series test systems) targeting the next-generation SDRAM semiconductors. Lower than expected demand was
attributable, in part, to lower capital expenditures by semiconductor manufacturers resulting from falling DRAM prices andthe shift of a higher than expected portion of their production to DDR2-SDRAM. Test systems for flash memory
semiconductors, however, enjoyed strong sales throughout fiscal 2005, led by test systems for NAND-type flash memory
semiconductors, such as the T5370 series multi-functional test systems for high-speed memory semiconductors. For a
discussion of sales mix and price pressure, see “—Overview—Semiconductor and Component Test System Segment.”
Net sales of test systems for non memory semiconductors increased by ¥34,276 million, or 60.3%, compared withfiscal 2004 to ¥91,104 million in fiscal 2005. This increase was mainly due to an increase in sales of T2000 series test
systems for SoC semiconductors, based on OPENSTAR®, led by a strong performance in the U.S. throughout fiscal 2005.
This increase was also due to strong sales, primarily in Japan, Korea and Taiwan, especially during the first half of fiscal
2005, of the T6300 series test systems for non memory semiconductors used for LCD driver ICs and the T6500 series test
systems for SoC semiconductors used in mobile phones and digital consumer products.
Mechatronics System Segment
Net sales of the mechatronics system segment such as test handlers and device interfaces increased by ¥1,865 million,
or 4.0%, compared to fiscal 2004 to ¥48,260 million in fiscal 2005, reflecting increased sales of semiconductor andcomponent test systems generating an increased need for test handlers and device interfaces.
The sales of test handlers for memory semiconductors were slow in the first half of the fiscal year primarily because thedemand for DDR2-SDRAM semiconductors picked up slowly, but sales recovered with the growth in sales of test systems
for DRAM semiconductors. Sales of test handlers for non memory semiconductors were steady in response to increased salesof the T2000 and test systems aimed at digital consumer devices. Also, sales of device interface products were steady,reflecting strong demand for flash memory semiconductors and SoC semiconductors.
Services, Support and Other Segment
Net sales of the services, support and other segment decreased by ¥618 million, or 3.1%, compared with fiscal 2004 to¥19,062 million in fiscal 2005. Main businesses in the services, support and others segment for fiscal 2005 focused on, andperformed well in, maintenance services and leases and rentals. However, because net sales of other products decreased
during fiscal 2005, total net sales in fiscal 2005 decreased as compared with fiscal 2004.
Geographic Markets
Advantest experienced an increase of 6.0% in its net sales in fiscal 2005, with sales in Japan experiencing the largest
increase.
Net sales in Japan increased by ¥21,115 million, or 35.2%, compared with fiscal 2004 to ¥81,140 million in fiscal 2005.
This increase was due to increased sales throughout fiscal 2005, of test systems for non memory semiconductors, particularly
the sales of test systems for non memory semiconductors used for LCD driver ICs, mobile phones and digital consumer
devices, and test systems for flash memory semiconductors.
Net sales in the Americas increased by ¥2,492 million, or 10.8%, compared with fiscal 2004 to ¥25,516 million.
Although the sales of test systems for memory semiconductors remained low, the sales of test systems for non-memory
semiconductors to major semiconductor manufactures significantly increased. Accordingly, the total sales increased. The
estimated effect of changes in exchange rates during fiscal 2005 was to increase Advantest’s net sales from sales in theAmericas by approximately ¥934 million.
Net sales in Europe increased by ¥2,288 million, or 18.6%, compared to fiscal 2004 to ¥14,558 million in fiscal 2005.
The sales of test systems for DRAM semiconductors and test handlers for SoC semiconductors contributed to the increased
sales in Europe. The estimated effect of changes in exchange rates during fiscal 2005 was to increase Advantest’s net sales
from sales in Europe by approximately ¥200 million.
Net sales in Asia (excluding Japan) decreased by ¥11,412 million, or 7.9%, compared with fiscal 2004 to ¥132,708
million. Net sales in Korea decreased by ¥4,013 million, or 10.1%, compared with fiscal 2004. This decrease was primarily
due to decreased sales of test systems for DRAM semiconductors to major semiconductor manufacturers in Korea. Net sales
in China and the rest of Asia (excluding Japan, Taiwan and Korea) decreased by ¥10,016 million, or 19.0%, compared with36

fiscal 2004. This decrease is primarily the result of lower sales of test systems for memory semiconductors to major
semiconductor manufacturers in Singapore and Malaysia. On the other hand, net sales in Taiwan increased by ¥2,617 million,
or 5.1%, compared with fiscal 2004. The estimated effect of changes in exchange rates during fiscal 2005 was to increase
Advantest’s net sales from sales in Asia by ¥1,823 million.
As a result of a significant increase of sales in Japan, Advantest’s overseas sales as a percentage of total sales became
68.0% for fiscal 2005, in comparison to 74.9% for fiscal 2004.
Operating Expenses
Advantest’s operating expenses increased by ¥10,744 million, or 6.0%, compared with fiscal 2004 to ¥189,464 million
in fiscal 2005.
Cost of sales increased by ¥5,435 million, or 4.7%, compared to fiscal 2004 to ¥121,429 million in fiscal 2005. While
this increase can be attributed to the increase of ¥14,483 million in net sales from fiscal 2004 to fiscal 2005, such increase
was partially offset by the improvement in sales cost ratio attained by cost reduction and improved product mix amidst an
ongoing price pressure.
Research and development expenses increased by ¥647 million, or 2.5%, when compared to fiscal 2004, to¥26,927 million in fiscal 2005. This rise in research and development expenses reflects additional resources required for theincreased research and development themes for future products as well as to increased expenses for research anddevelopment subcontractors.
Selling, general and administrative expenses increased by ¥4,662 million, or 12.8%, compared to fiscal 2004 to¥41,108 million in fiscal 2005. In fiscal 2004, Advantest accounted for ¥3,317 million as a deduction from its selling
expenses due to the transfer of the substitutional portion of its EPF plan to the Japanese government and the resulting
transition by Advantest to its defined benefit plans, but in fiscal 2005 there was no such deduction. This fact, along with theincrease of ¥1,556 million in accrued warranty expenses, accounts for the significant increase over the previous fiscal year.
Operating Income
Operating income increased by ¥3,739 million, compared to ¥60,719 million in fiscal 2004, to ¥64,458 million in fiscal
2005.
Other Income and Expenses
Interest and dividend income increased by ¥1,163 million, or 194.8%, compared with fiscal 2004 to ¥1,760 million in
fiscal 2005. This increase was primarily due to the increase in interest rates in the U.S. and Singapore.
Interest expense decreased by ¥151 million, or 34.2%, compared with fiscal 2004 to ¥290 million in fiscal 2005. Thisdecrease was primarily due to lower interest payments as a result of repayment of bonds in the amount of ¥20,000 million
during fiscal 2005.
Other income improved by ¥593 million, compared with fiscal 2004, to ¥1,526 million in fiscal 2005. Improvement in
the non-operating income was mainly due to the weakening of the dollar against the yen, which resulted in improving foreign
currency exchange gains and losses by ¥834 million over fiscal 2004 to ¥757 million in fiscal 2005. This represents thedifference between the value of foreign currency-denominated sales translated at prevailing exchange rates and either (i) thevalue of sales amounts settled during the year, including those settled using foreign exchange forward contracts, or (ii) thevalue of accounts receivable and payables outstanding remeasured at the exchange rate in effect at March 31, 2006.
Income Taxes
Advantest’s effective tax rate was 38.4% in fiscal 2004 and 38.7% in fiscal 2005. The statutory tax rate of theCompany and its domestic consolidated subsidiaries was 40.3% for fiscal 2005. The difference between the statutory tax rateof 40.3% in fiscal 2005 and the effective tax rate of 38.7% in fiscal 2005 was primarily due to the availability of a tax credits
for testing research fees. For a more detailed discussion of income taxes of Advantest in fiscal 2005 and fiscal 2004, seenote 14 to Advantest’s consolidated financial statements.
Net Income
Advantest’s net income increased by ¥3,296 million, or 8.7% compared to fiscal 2004, resulting in a net income of¥41,374 million in fiscal 2005. The change in net income for fiscal 2005 compared to fiscal 2004 reflect the factors discussed
above.

37

Other Comprehensive Income (Loss)
Advantest’s other comprehensive income improved by ¥3,039 million, compared to fiscal 2004, to ¥6,222 million in
fiscal 2005. One of the reasons for this improvement was a ¥3,439 million increase in foreign currency translation adjustment
from an income of ¥1,635 million in fiscal 2004 to an income of ¥5,074 million in fiscal 2005 as the yen became weakeragainst the euro. Another reason for this improvement was a ¥996 million increase in unrealized holding gain on investment.
These gains were partially offset due to the elimination in fiscal 2004 of unfunded accumulated benefit obligations, which
resulted in ¥1,396 million in additional minimum pension liabilities being returned as profit in fiscal 2004. In fiscal 2005
there was no such return.
5.B

LIQUIDITY AND CAPITAL RESOURCES

Net cash provided by operating activities decreased by ¥10,529 million, compared to ¥59,480 million in fiscal 2005, to¥48,951 million in fiscal 2006. Net cash provided by operating activities in fiscal 2006 was primarily due to recording of¥35,556 million in net income, the decrease in trade account receivables by ¥15,563 million, and the increase in non-cash
expenses, including depreciation and amortization of ¥8,214 million, partially offset by the decrease in tax payable by¥10,586 million in fiscal 2006. Outstanding trade account receivables decreased, as compared with fiscal 2005, as net sales
decreased in fiscal 2006. The decrease in tax payable was mainly due to the decrease in net income before income taxes andequity in earnings of affiliated company and the increase in interim tax payment, compared to fiscal 2005, in fiscal 2006.
Net cash used in investing activities was ¥8,013 million in fiscal 2006, compared to ¥8,542 million in fiscal 2005. This
results from the decrease in purchases of securities from ¥4,156 in fiscal 2005 to ¥0 in fiscal 2006, partially offset by thedecrease in proceeds from the sales of available-for-sales securities from ¥2,977 million in fiscal 2005 to ¥0 in fiscal 2006.
Advantest’s main capital expenditures during fiscal 2006 consisted of its investment in equipment used in Advantest’s
test equipment leasing program, its investment in equipment used for research and development and its investment in
manufacturing and maintenance facilities.
Advantest has budgeted ¥18.0 billion for capital expenditures in fiscal 2007. Advantest’s expected capital expendituresin fiscal 2007 include:•¥6.0 billion allocated to building-related costs, including construction of new buildings and improvement, inconnection with Advantest’s plan to relocate production facilities in Japan;•¥4.0 billion allocated to equipment used in Advantest’s test equipment leasing program; and•¥8.0 billion on equipment for research and development, manufacturing and maintenance.

Advantest did not complete any large capital expenditures related to facilities and other infrastructure in fiscal 2006.
For additional information about Advantest’s capital expenditure projects, see “Information on the Company—History andDevelopment of the Company.” In fiscal 2007, Advantest plans to construct a new building equipped with clean room
facilities for production on the premises of Advantest Laboratories Ltd. in Miyagi, Japan. Advantest currently does not haveany plans for large capital expenditure projects in fiscal 2008.
Net cash used in financing activities was ¥3,662 million in fiscal 2006, compared to ¥18,336 million in fiscal 2005.
The significant decrease in net cash used in financing activities was primarily due to the decrease in repayment of unsecured
bonds to ¥0 in fiscal 2006, compared to repayment of principal of unsecured bonds in the amount of ¥20,000 million in fiscal
2005. The outstanding amount of Advantest’s total long-term debt (including current installments) decreased by ¥30 million,
compared to March 31, 2006, to ¥10 million as of March 31, 2007, all of which was current.
Advantest has various retirement and severance plans for employees, including contributory defined benefit retirement
and severance plans consisting primarily of the EPF plan. As mentioned in Note 17 to the consolidated financial statements,
in the balance sheet as of March 31, 2007, the amount of ¥8,267 million has been recognized as accrued severance andpension costs. Advantest has contributed 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 ¥2,075 million
in fiscal 2005 and ¥1,927 million in fiscal 2006. Advantest expects to contribute approximately ¥2,223 million to its domestic
defined benefit plans in fiscal 2007.

38

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 cashfrom operating activities and cash and cash equivalents on hand. Advantest expects to fund its capital expenditures in fiscal
2007 from cash and cash equivalents on hand. If conditions in the semiconductor industry, and thus the semiconductor andcomponent test system industry, experiences a downturn in the near to medium term, Advantest may need to fund future
capital expenditures and other working capital needs through the incurrence of additional debt or dilutive issuances of equity
securities.
Advantest’s cash and cash equivalents balance increased by ¥38,470 million in fiscal 2006 to ¥196,395 million as ofMarch 31, 2007. At March 31, 2007, 65.8% of Advantest’s cash and cash equivalents were held in Japanese yen.
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 todevelop products which play a central role in the area of measuring technologies to support electronics, information andcommunications, and semiconductor manufacturing. Advantest’s research and development focuses on the developments of
new products and the improvements of existing products. In particular, in the semiconductor and component test systemsegment, a large and ongoing investment in development is necessary in order to maintain market competitiveness and toprovide 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 ¥26.3 billion in fiscal 2004, ¥26.9
billion in fiscal 2005 and ¥29.5 billion in fiscal 2006. 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 used in 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 semiconductors devices, including less-distortion devices used for test systems forsemiconductors and components.

Semiconductor and Component Test System Segment•

development of semiconductor and component test systems that enable testing of super high speed memories 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 requires less floor space;•development of semiconductor and component test systems that have the capacity to simultaneously test multiple
complex SoC semiconductors with large pin counts and requires 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 thatcarry extremely 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 andsemiconductor and component test systems, as well as development of software to analyze defective
semiconductors.

Mechatronics Systems Segment

39•development of test handlers for memory semiconductors enabling measuring of multiple semiconductors for highthroughput testing; and•development of test handlers for SoC semiconductors that respond to diversified device types and packages.

Advantest has four research and development facilities in Japan, two in the U.S. and one in France.
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 inJapan 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 on semiconductors, as well as the research and development of electron-beam length measuringsystems used to measure the microscopic size of photomask. Due to their throughput limitations, e-beam lithography systems
are currently only used in the production of high value-added semiconductors with limited production volumes andsemiconductor prototypes. Advantest believes that further research and development will be necessary in order to attain highprecision technologies for the leading design rule, in addition to the development of technologies 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“Information on the Company—Business Overview,” “Operating and Financial Review and Prospects—Operating Results”
and “Operating and Financial Review and Prospects—Liquidity and Capital Resources.”
5.E

OFF-BALANCE SHEET ARRANGEMENTS

As of March 31, 2007, Advantest provided financial guarantees to third parties related to lease obligations by
Advantest’s customers of ¥108 million. Advantest would be required to satisfy the lease obligation of its customers in theevent of default. The guarantees are collateralized by the leased asset. The fair value of the obligation with respect to suchguarantees was insignificant.
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.
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 at March 31, 2007.
Payments due by Period
Contractual Cash Obligation

Total

Less than
1 year

1-3 years

3-5 years

More than
5 years(in millions)Long-Term Debt, including current installments.....................
Operating Leases .....................................................................
Contractual Obligations ...........................................................

¥

10 ¥
574
1,024

10 ¥
326
1,024

— ¥
226
—

— ¥
10
—

—
12
—

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

¥ 1,608 ¥1,360 ¥

226 ¥

10 ¥

12

5.G

SAFE HARBOR

All information that is not historical in nature disclosed under “Item 5. Operating and Financial Review andProspects—Off-Balance 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.”

40

ITEM 6.
6.A

DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEESDIRECTORS AND SENIOR MANAGEMENT

Board of Directors and Corporate Auditors
As of June 27, 2007, the current members of the Board of Directors and corporate auditors of The Company are as
follows:
Name

Age

Position

Shimpei Takeshita ........

66

Chairman of the Board

Toshio Maruyama .........

59

Representative Board Director, President and CEO

Naoyuki Akikusa ..........

68

Director

Yasushige Hagio...........

59

Director

Junji Nishiura................

61

Director and Senior Executive Officer

Hiroji Agata ..................

60

Director and Senior Executive Officer

Takashi Tokuno ............

58

Director and Senior Executive Officer

Hiroshi Tsukahara.........

56

Director and Managing Executive Officer

Yuichi Kurita ................

57

Director and Managing Executive Officer

Takashi Takaya.............

65

Corporate Standing Auditor

Hitoshi Owada ..............

61

Corporate Standing Auditor

Megumi Yamamuro......

59

Corporate Auditor

Jiro Haneda ...................

63

Corporate Auditor

The business address for each of the Company’s board members and corporate auditors is c/o Advantest Corporation,
Shin-Marunouchi Center Building, 1-6-2, Marunouchi, Chiyoda-ku, Tokyo 100-0005 Japan.
The term of each director listed above expires in June 2008. The term of each of Mr. Takaya as Corporate Standing
Auditor and Mr. Yamamuro as Corporate Auditor expires in June 2008. The term of each of Mr. Owada as Corporate
Standing Auditor and Mr. Haneda as Corporate Auditor expires in June 2011.
Shimpei Takeshita has served as the Chairman of the Board since 2005 and as a Director since 1985. Mr. Takeshita
served as the Vice Chairman from 2001 to 2005 and as the Representative Board Director and Vice President of theCompany from 1997 to 2001. Mr. Takeshita oversaw Advantest’s Business division, also served as the General Manager ofthe Electron-Beam Lithography Division from 1997 to 2001 and as the Senior Vice President of Business Promotion.
Mr. Takeshita has served as the Chairman of Japan Electric Measuring Instruments Manufacturers’ Association from 2005 to2007 and as its Vice Chairman from 2007. Since 2005, Mr. Takeshita has also served as a Director of the Japan Business
Federation and a Director of the Semiconductor Equipment Association of Japan. Mr. Takeshita joined Advantest in 1964.
Toshio Maruyama has served as CEO since 2005, as the Representative Board Director and President since 2001 andas a Director since 1989. Mr. Maruyama has also served as the Director of the Environmental Management Center since 2003.
Mr. Maruyama served as the Senior Vice President of ATE Sales and Marketing Group from 1999 to 2001. Mr. Maruyama
has also served as a Director of Japan Electronics and Information Technology Industries Association since 2005 and a
Director of the Association of Super-Advanced Electronics Technologies since 2006. Mr. Maruyama joined Advantest in
1973.
Naoyuki Akikusa has served as a Director of the Company since 2006. Mr. Akikusa served as a Corporate Auditor of
the Company from 2005 to 2006. Mr. Akikusa joined Fujitsu Limited in 1961 and has served as the Representative Board
Director and Chairman of the Board of Fujitsu Limited since 2003. Mr. Akikusa served as the Representative Board Director
and President of Fujitsu Limited from 1998 to 2003.

41

Yasushige Hagio has served as a Director of the Company since 2006. Mr. Hagio registered as an attorney-in-fact in2004 and joined Seiwa Patent & Law in 2004. Mr. Hagio served as a President of the Shizuoka District Court from 2003 to
2004.
Junji Nishiura has served as a Director of the Company since 1993. Mr. Nishiura was appointed as a Senior Executive
Officer in 2003 to oversee Advantest’s Technology and Production. Mr. Nishiura served as the General Manager of the ATE
Business Division of the ATE Business Group from 1997 to 2001, the Senior Vice President of the ATE Business Group
from 2000 to 2001 and oversaw Advantest’s products from 2001 to 2003. Mr. Nishiura joined Advantest in 1970.
Hiroji Agata has served as a Director of the Company since 1993. Mr. Agata was appointed as a Senior Executive
Officer in 2003 to oversee Advantest’s Sales and Marketing. Mr. Agata served as the Vice President of the ATE Sales Group
from 1999 to 2001 and the Senior Vice President of the ATE Sales Group from 2001 to 2003. Mr. Agata currently serves as
an outside corporate auditor of Tera Probe, Inc. since 2005. Mr. Agata joined Advantest in 1972.
Takashi Tokuno has served as a Director of the Company since 2004 and has overseen Advantest’s Product since2006. Mr. Tokuno was appointed as a Senior Executive Officer in 2006. Mr. Tokuno served as the General Manager of the
ATE Software Division of the ATE Business Group from 1992 to 2001, the Vice President of the ATE Business Group from2000 to 2001, Senior Vice President of the ATE Business Group from 2001 to 2005, and also oversaw Advantest’s ProductDevelopment from 2004 to 2005. Mr. Tokuno served as a Director of the Company from 1996 to 2003 and as a Managing
Executive Officer from 2003 to 2006, and also oversaw Advantest’s Test System Business from 2005 to 2006. Mr. Tokuno
joined Advantest in 1971.
Hiroshi Tsukahara was appointed as a Director of the Company in 2007 and has overseen Advantest’s Technology
and Development. Mr. Tsukahara has served as a Managing Executive Officer since 2005 and as the Senior Vice President of
the 1st Test System Business Group since 2006. Mr. Tsukahara served as the Senior Vice President of the DI (Device
Interface) Business Group and the General Manager of the DI Business Division from 2001 to 2006, and the Manager of the
DI Technology R&D Department from 2001 to 2003. Mr. Tsukahara also served as a Director of the Company from 2001 to
2003, and an Executive Officer from 2003 to 2005. Mr. Tsukahara served as an outside director of Fujitsu Interconnect
Technologies Limited from 2005 to 2007. Mr. Tsukahara joined Advantest in 1974.
Yuichi Kurita was appointed as a Director of the Company and as a Managing Executive Officer in 2007 to oversee
Advantest’s Corporate Affairs. Mr. Kurita has served as the Senior Vice President of the Corporate Planning Group since2005. He served as the Vice President of the Corporate Affairs Group (overseeing Finance since 2004) from 2003 to 2005,
the Senior Vice President of the Investor Relations Office from 2001 to 2005, the Senior Vice President of the Corporate
Relations Group from 2004 to 2005, and the Manager of the Finance Department from 2002 to 2004. Mr. Kurita also served
as an Executive Officer from 2003 to 2007. From 1973 to 2001, Mr. Kurita worked at Fujitsu Limited. Mr. Kurita has served
as a Director of e-Shuttle, Inc. since 2006. Mr. Kurita joined Advantest in 2001.
Takashi Takaya was appointed as a Corporate Standing Auditor of the Company in 2007. Mr. Takaya served as a
Corporate Auditor from 2003 to 2007. Mr. Takaya has worked at Fujitsu Limited since 1965 and served as its director from1995 to 2003. He served as the Vice President of Fujitsu Limited from 2001 to April 2003 and served as the Representative
Board Director of Fujitsu Limited from 2001 to June 2003. Mr. Takaya served as a corporate auditor of Fujitsu Limited from2003 to 2007.
Hitoshi Owada was appointed as a Corporate Standing Auditor of the Company in 2007. Mr. Owada served as theManager of Accounting and Finance Department from 1991 to 2002, and the Senior Vice President of the Corporate Affairs
Group and the Senior Vice President of the Auditing Group, both from 2001 to 2003. Mr. Owada also served as theManaging Executive Officer and oversaw Advantest’s Corporate Affairs, both from 2003 to 2007 and as a Director from1997 to 2007. Mr. Owada joined Advantest in 1970.
Megumi Yamamuro has served as a Corporate Auditor since 2006. Mr. Yamamuro registered as an attorney-in-fact in2004 and joined CAST Itoga Law P.C. in 2004. Mr. Yamamuro has served as a Professor at the Graduate Schools for Law
and Politics of the University of Tokyo since 2004. Mr. Yamamuro has also served as a Corporate Auditor of Fujitsu Limited
since 2004. Mr. Yamamuro served as a Judge of the Tokyo District Court and the Tokyo High Court from 1997 to 2004.
Jiro Haneda was appointed as a Corporate Auditor of the Company in 2007. Mr. Haneda served as a Representative
Director and Senior Managing Director of Kanematsu Corporation from 2003 to 2004. Mr. Haneda also served as a
Corporate Standing Auditor of Nippon Office Systems Ltd. from 2004 to 2007.

42

Corporate Executive Officers
The Company’s corporate executive officers as of June 27, 2007 are as follows:
Name

Toshio Maruyama .........
Junji Nishiura................
Hiroji Agata ..................
Takashi Tokuno ............
Hiroshi Tsukahara.........
Yuichi Kurita ................
Yuri Morita ...................
Jiro Katoh .....................
Takao Tadokoro............
Hiroyasu Sawai.............
Yoshiro Yagi.................
Masao Shimizu .............
Masao Araki .................
Hideaki Imada...............
Akira Hatakeyama ........
Yasuhiro Kawata ..........
Takashi Sugiura ............
Shinichiro Kuroe...........
Takashi Sekino..............
Hiroshi Nakamura.........
Yoshiaki Yoshida..........
Minoru Morishita..........

Age

59
61
60
58
56
57
59
60
58
57
55
54
60
52
56
53
50
48
50
49
49
58

Position

President and CEO
Senior Executive Officer
Senior Executive Officer
Senior Executive Officer
Managing Executive Officer
Managing Executive Officer
Managing Executive Officer
Managing Executive Officer
Managing Executive Officer
Managing Executive Officer
Managing Executive Officer
Executive Officer
Executive Officer
Executive Officer
Executive Officer
Executive Officer
Executive Officer
Executive Officer
Executive Officer
Executive Officer
Executive Officer
Executive Officer

Mr. Maruyama, Mr. Nishiura, Mr. Agata, Mr. Tokuno, Mr. Tsukahara and Mr. Kurita are also members of theCompany’s Board of Directors.
Yuri Morita was appointed as a Managing Executive Officer in 2003. He has served as the Manager of the Legal
Department since 1996, the Senior Vice President of the Corporate Affairs Group and the Assistant Director of theEnvironmental Management Center since 2003 and the Assistant Director (Administration) of the Environmental
Management Center since 2004, and has also overseen Corporate Ethic Office since 2005. Mr. Morita served as the SeniorVice President of the Export Control Division from 2000 to 2001 and the Vice President of the Corporate Affairs Group from2001 to 2003 and the Manager of the General Affairs Department from February 2003 to June 2003. From 1972 to 1993,
Mr. Morita worked at Fujitsu Limited and from 1994 to 1995 worked at Benesse Corporation. Mr. Morita served as a
Director of the Company from 2000 to 2003. Mr. Morita joined Advantest in 1995.
Jiro Katoh was appointed as a Managing Executive Officer in 2004 and as the Senior Vice President of the Production
Support Group in 2007. He has also served as an Assistant Director (Technology) of the Environmental Management Center
since 2004. Mr. Katoh also served as the General Manager of the SE (System Engineering) Division of the Instrument
Business Group from 2001 to 2002, the Vice President of the Instrument Business Group from 2000 to 2003, the General
Manager of the Engineering Division from 2002 to 2003, the Manager of the Algorithm R&D Department from 2003 to 2004
and the Senior Vice President of the Technology Development Group from 2003 to 2007. Mr. Katoh served as a Director of
the Company from 1997 to 2003 and as an Executive Officer from 2003 to 2004. Mr. Katoh joined Advantest in 1970.
Takao Tadokoro was appointed as a Managing Executive Officer in 2005 and has served as the Senior Vice Presidentof the Sales and Marketing Group since 2004. Mr. Tadokoro served as the General Manager of the ATE System Engineering
Division of the ATE Business Group from 1997 to 2003 and the Senior Vice President of the ATE Sales Group from 2003 to
2004. Mr. Tadokoro served as a Director of the Company from 1999 to 2003, and as an Executive Officer of the Company
from 2003 to 2005. Mr. Tadokoro joined Advantest in 1974.
Hiroyasu Sawai was appointed as a Managing Executive Officer in 2005 and has served as the Senior Vice Presidentof the SE Group. Mr. Sawai served as the Manager of the ATE International Account Sales Department (automated test
equipment sales in Taiwan and Korea) of the ATE Sales Group between 1997 and 2003, the General Manager of the ATE
International Account Sales Division between 2000 and 2003, the Manager of the ATE Fabless Outsourcing Solution

43

Business Department between 2002 and 2003, the Vice President of the ATE Sales Group from 2001 to 2003, the General
Manager of the ATE System Engineering Division in ATE Business Group from 2003 to 2005 and the Vice President of
ATE Business Group (overseeing SE) from 2004 to 2005. Mr. Sawai served as a Director of the Company from 1999 to 2003
and an Executive Officer from 2003 to 2005. Mr. Sawai joined Advantest in 1974.
Yoshiro Yagi was appointed as a Managing Executive Officer in 2007. Since 2004, he has served as the Vice Presidentof the Sales and Marketing Group (overseeing ATE from June 2004 to March 2005). He served as the General Manager of
the Sales Division 1 since April 2005. From 2001 to 2003, Mr. Yagi served as the Manager of the ATE Account Sales
Department 1 and from 2003 to 2004, Mr. Yagi served as the Vice President of the ATE Sales Group and the General
Manager of the ATE Domestic Sales Division and the Manager of the ATE Department 1. He served as the General Manager
of Domestic Sales Division 1 from April 2004 to March 2005. Mr. Yagi served as an Executive Officer from 2003 to 2007.
Mr. Yagi joined Advantest in 1970.
Masao Shimizu was appointed as an Executive Officer in 2003. He has served as the General Manager of the DI
Business Division and the Senior Vice President of the DI Business Group since 2006. Mr. Shimizu also served as theGeneral Manager of the SoC Tester Business Division of the ATE Business Group from 2000 to 2001, the General Managerof the 1st SoC Tester Business Division from 2002 to 2005, the Vice President of the ATE Business Group (overseeing SoC
Tester Product) from 2004 to 2005, and Senior Vice president of the 1st Test System Business Group from 2005 to 2006.
Mr. Shimizu served as a Director of the Company from 2001 to 2003. Mr. Shimizu was appointed as an outside Director of
Fujitsu Interconnect Technologies Limited in 2007 and has served as an outside Director since then. Mr. Shimizu joined
Advantest in 1973.
Masao Araki was appointed as an Executive Officer in 2003. He has served as the President and CEO of Advantest
Customer Support Corporation and the Director of Advantest (Suzhou) Co., Ltd. and Advantest Shanghai Ltd. since 2005.
Mr. Araki served as a Director of Advantest (Suzhou) Co., Ltd. and Advantest Shanghai Ltd. in 2004 and as their President
from 2004 to 2006 and their Chairman of the Board from 2005 to 2007. From 1997 to 2002, Mr. Araki served as the Vice
President of Advantest Taiwan Inc., from 2002 to 2003, served as the President of Advantest Taiwan Inc. and Advantest
Taiwan Engineering Inc. and from 2003 to 2004, served as the Vice President of the Corporate Affairs Group and theManager of the General Affairs Department. Mr. Araki joined Advantest in 1973.
Hideaki Imada was appointed as an Executive Officer in 2003. He has served as the Senior Vice President of the 2nd
Test System Business Group and the General Manager of Memory Tester Business Division since 2005. From 2002 to 2003,
Mr. Imada served as the General Manager of the 2nd SoC Tester Business Division and from 2003 to 2004, he served as theVice President of the ATE Sales Group. He served as the Leader of OAI Business Initiatives from 2003 to 2005, the Vice
President of the Sales and Marketing Group from 2004 to 2005 (overseeing OAI from June 2004) and the General Manager
of Product Design Initiatives 2 from 2005 to 2007. Mr. Imada joined Advantest in 1978.
Akira Hatakeyama was appointed as an Executive Officer in 2005. He has served as the President of Advantest
Manufacturing, Inc. since 2005. Mr. Hatakeyama served as the General Manager of ATE Engineering and Manufacturing
Department of the ATE Business Group from 1995 to 1997, the Manager of ATE Engineering and Manufacturing
Department of the Production Group from 1997 to 1999. Mr. Hatakeyama served as a Managing Director of Advanmicrotec
Co., Ltd. from 1999 to 2001 and the President of Japan Engineering Co, Ltd. from 2001 to 2005. Mr. Hatakeyama joined
Advantest in 1973.
Yasuhiro Kawata was appointed as an Executive Officer in 2005. He has served as the Senior Vice President of theCost Planning Group and the General Manager of the Cost Planning Division since 2007. Mr. Kawata served as the General
Manager of ATE Product Engineering Division of the ATE Business Group from 2001 to 2002, the Manager of the 2nd
Memory Tester Business Division in the ATE Business Group from 2002 to 2003, the Manager of the 2nd SoC Tester
Business Division in the ATE Business Group from 2003 to 2005, and the General Manager of the 2nd SoC Tester Business
Division in the 1st Test System Business Group from 2005 to 2007. Mr. Kawata joined Advantest in 1974.
Takashi Sugiura was appointed as an Executive Officer in 2005. He has served as the Senior Vice President of the FA
Business Group and the General Manager of the Handler Division since 2006. Mr. Sugiura served as the Manager of the ATE
Global Marketing Department in ATE Sales Group from 1998 to 2001, the Manager of ATE SoC Solution Business
Department in the ATE Sales Group form 2001 to 2003, and also served as the General Manager of Product Design
Initiatives from 2001 to 2002, the General Manager of the ATE Product Design Initiatives from 2002 to 2003, concurrently.
And Mr. Sugiura served as the General Manager of the
Product Design Initiatives from 2003 to 2005, and the GeneralstManager of the Product Design Initiatives 1 in the 1 Test System Business Group from 2005 to 2006. Mr. Sugiura joined
Advantest in 1979.

44

Shinichiro Kuroe was appointed as an Executive Officer in 2005. He has served as the Vice President of the Sales andMarketing Group and the General Manager of Solution Business Division since 2005, and the General Manager of the SoC
Strategic Sales Team since 2007. Mr. Kuroe served as the Manager of the 1st Product Development Department in the ATE
Business Group from 1998 to 2000, the Manager of the Memory Tester Development Department in the ATE BusinessGroup from 2000 to 2001 and the General Manager of the Memory Tester Business Division in the ATE Business Group
from 2001 to 2002. Mr. Kuroe oversaw the memory tester product in the ATE Business Group from 2002 to 2005, and served
as the General Manager of the 1st Memory Tester Business Division in the ATE Business Group from 2002 to 2003 and theGeneral Manager of the Memory Tester Division in the ATE Business Group from 2003 to 2005. Mr. Kuroe joined
Advantest in 1981.
Takashi Sekino was appointed as an Executive Officer in 2006. Mr. Sekino has also served as the Senior Vice
President of the Technology Development Group since 2007 and the General Manager of the 1st Technology Division in theTechnology Development Group since 2005. Mr. Sekino also served as the Manager of ATE Technology 1st Development
Department in the ATE Business Group from 1998, the Manager of ATE Technology 2nd Development Department in the
ATE Business Group from June 1998 to June 2001, the Manager of ATE Technology 3rd Development Department in the
ATE Business Group from June 2001, the General Manager of ATE Technology 1st Development Department in the ATE
Business Group from November 2001 to 2005, and the Vice President of the Technology Development Group from 2006 to
2007. Mr. Sekino joined Advantest in 1982.
Hiroshi Nakamura was appointed as an Executive Officer in 2006. Mr. Nakamura has also served as the Senior Vice
President of the Financial Group and Manager of the Accounting Department since 2007. Mr. Nakamura served as theManager of the Business Accounting Department in the Corporate Affairs Group from 1998 to 2002, Manager of Accounting
Department from 2002 to 2007 and Vice President of the Corporate Affairs Group from 2006 to 2007. Mr. Nakamura joined
Advantest in 1981.
Yoshiaki Yoshida was appointed as an Executive Officer in 2006. Mr. Yoshida has served as Vice President of the
Corporate Planning Group since 2007, and as Representative Director of Advantest Finance Inc. since 2000. Mr. Yoshida
served as a Director of Advantest Finance Inc. from 1999 to 2000. Mr. Yoshida joined Advantest in 1999.
Minoru Morishita was appointed as an Executive Officer in 2007. Mr. Morishita has served as the Manager of the
Nanotechnology 2nd Business Division since 2002. Mr. Morishita joined Advantest in 1973.
6.B

COMPENSATION

Executive Compensation
The Company paid an aggregate of approximately ¥618 million* in compensation during the year ended March 31,
2007 to all of its directors and corporate auditors as a group. Compensation for directors and corporate auditors must be
authorized by the resolutions of the general meetings of shareholders. For a description of the Company’s equity-based
compensation plans, see “—Share Ownership.”*1. The amount includes bonuses to executives pursuant to the resolution at the ordinary general meeting ofshareholders held on June 27, 2007.
2. Of the compensation set forth above, the aggregate amount of compensation paid to outside directors and outside
corporate auditors is ¥18 million.
3. Other than the above, an aggregate amount of ¥531 million, consisting of ¥496 million to directors and ¥35 million
to corporate auditors, was paid as the Company’s stock option-related compensation (of the ¥531 million above, an aggregate
amount of ¥47 million was paid to outside directors and outside corporate auditors).
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 ofshareholders, and the standard term of directors is one year. Directors may serve any number of consecutive terms. The
Board of Directors elects one or more representative directors from among its members, each of whom has the authority
individually to represent the Company. From among its members, the Board of Directors may elect the chairman and the vice45

chairman. None of the directors of the Company has a service contract with the Company that provides for benefits upon
termination of service.
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 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.
Corporate Auditors
The Company’s articles of incorporation provide for no more than five corporate auditors and the Company currently
has two Corporate Standing Auditors and three outside corporate auditors (of the three outside corporate auditors, one is a
Corporate Standing Auditor). Corporate auditors are elected at the general meeting of shareholders and the standard term ofoffice of corporate auditors is four years. Under the Company law, at least half of the corporate auditors are required to bepersons who have not been a director, accounting counselor (if an accounting counselor is a corporation, an employee of suchcorporation 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, andagain from two to three, at the general meetings of shareholders held in June 2003 and June 2007, respectively, in order tostrengthen the auditing function of the board of corporate auditors. Corporate auditors are under a statutory duty to oversee
the administration of the Company’s affairs by its directors, to audit its financial statements to be submitted by its Board of
Directors to the general meetings of the shareholders and to report their opinions thereon. They are also required to attend themeetings 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 and submit 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 mattersrelating to the execution of duties by corporate 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 the Company Law.
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
is permitted 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’s listing 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 audit committee satisfy the requirements of Rule 10A-3 under the U.S. Securities Exchange Act of 1934as amended, or the Exchange Act, (b) the Company must disclose significant differences in the corporate governancepractices followed by the Company as compared to those 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 thosefollowed 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 6.C, 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 atregularly scheduled executive sessions without management, the Company currently has no non-management director on its

46

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 and executive compensation as required by NYSE Corporate Governance, but it has adopted a system ofcorporate auditors based on the Company Law and integrated such system into the Company’s corporate governancestructure. In addition, in connection with such system of corporate auditors, the Company has elected to establish anomination 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 ofshareholders. 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 the general 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 among corporate 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 to certain 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 theminimum number of corporate 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 board of corporate auditors may determine audit policy, methods to investigate the state of business operations and assets
and other matters relating to the execution of duties by corporate auditors, prepare corporate auditors’ reports and giveconsent to proposals of the nomination of corporate auditors and accounting auditors.
The Company currently has three corporate auditors who satisfy the requirements of “outside corporate auditor” under
the Company Law. Unlike NYSE Corporate Governance, under the Company Law, at least one-half of the corporate auditorsof the Company must be “outside corporate auditors,” which is a person who was not a director, an accounting counselor (ifan 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 be directors, an accounting counselor (if an accounting counselor is a corporation, an employee whocarries out its duties), executive officer, general manager, or any other employee of the Company or any of its subsidiaries.
4. Corporate Governance Guidelines. The Company is required to adopt or disclose corporate governance guidelines
under Japanese laws and regulations, including the Company Law and the Securities and Exchange Law of Japan or stock
exchange rules. 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 applicablelaws and regulations 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 theconditions of its corporate governance in its business report, annual securities report and certain other disclosure documentsin accordance with the Company Law, the Securities and Exchange Law, and applicable Cabinet ordinances and stock
exchange rules in respect of timely disclosure.
5. Code of Business Conduct and Ethics. Unlike NYSE Corporate Governance, under Japanese law (including theCompany Law and the Securities and Exchange Law of Japan), and stock exchange rules, the Company is not required toadopt 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
their duties at meetings of the Board of Directors complies with applicable laws and regulations and the Company’s articles
of incorporation. Furthermore, the Company has established a code of ethics consistent with Section 406 of the SarbanesOxley 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 other47

than cash, such company is generally required to obtain shareholder approval by an “ordinary resolution.” In addition to theabove approval, when the Company previously desired to adopt an equity-compensation plan under which stock acquisitionrights are granted on favorable terms to the recipient under the plan (except where such rights are granted to all of its
shareholders on a pro-rata basis at the same time), then the Company has obtained shareholder approval by a “special
resolution” of a general meeting of shareholders, where the quorum is one-third of the total number of voting rights and theapproval of at least two-thirds of the voting rights represented at the meeting is required.
6.D

EMPLOYEES

Set forth below is a table listing the total number of full-time employees and a breakdown of persons employed bymain category of activity and by geographic location, as of March 31, 2005, March 31, 2006 and March 31, 2007.
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 ..................................................................................................

2005

2006

2007

3,565

3,595

3,637

395
292
927
790
1,071
90

403
299
884
798
1,120
91

385
334
869
836
1,128
85

2,783
418
240
124

2,800
441
235
119

2,832
454
234
117

Most regular employees of the Company and its subsidiaries in Japan are members of one of the seven labor unions.
None of Advantest’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, Advantest averaged approximately 641 temporary employees at any one
time.
6.E

SHARE OWNERSHIPThe following table sets forth the beneficial ownership of shares of common stock of the Company as of March 31,
2007 of each of the Company’s directors, corporate auditors and executive officers as of March 31, 2007. Also included isshare ownership information with respect to Mr. Jiro Haneda, the Company’s newly elected corporate auditor as of June 2007,
and corporate executive officers newly appointed as of June 2007.
Name of Record/Beneficial Owner

Number of Shares

Shimpei Takeshita .......................................
Toshio Maruyama .......................................
Hiroshi Oura................................................
Naoyuki Akikusa.........................................
Yasushige Hagio .........................................
Junji Nishiura ..............................................
Hiroji Agata.................................................
Takashi Tokuno...........................................
Hitoshi Owada.............................................
Noboru Yamaguchi .....................................
Tadahiko Hirano..........................................
Takashi Takaya ...........................................
Megumi Yamamuro ....................................
Yuri Morita .................................................
Jiro Katoh ....................................................
Takao Tadokoro ..........................................

48

266,530
186,694
156,172
16,06910,066
148,927
145,518
81,804111,217
25,402
16,972
18,136
6,026
69,391
131,357
116,017Name of Record/Beneficial Owner

Number of Shares

Hiroyasu Sawai ...........................................
Hiroshi Tsukahara .......................................
Masao Shimizu............................................
Masao Araki ................................................
Yuichi Kurita...............................................
Yoshiro Yagi ...............................................
Hideaki Imada .............................................
Shinichiro Umeda........................................
Akira Hatakeyama.......................................
Yasuhiro Kawata .........................................
Takashi Sugiura...........................................
Shinichiro Kuroe .........................................
Takashi Sekino ............................................
Hiroshi Nakamura .......................................
Yoshiaki Yoshida ........................................
Jiro Haneda .................................................
Minoru Morishita ........................................

70,152
115,290
96,00062,79380,482
100,682
85,04164,65066,652
54,112
66,26260,187
37,69537,337
34,2300
16,000Each of the persons listed above owns less than one percent of the issued and outstanding shares of common stock of
the Company.
The numbers of shares owned by the Company’s directors, corporate auditors and officers include options that are
currently exercisable for 2,372,000 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 andofficers reflects the number of shares representing less than one unit (100 shares) that are owned through the director andcorporate auditor stock ownership association and allocated to an individual director, corporate auditor or 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.”
Stock Option PlanAt the general ordinary meetings of shareholders held in June 2003, June 2004, June 2005, June 2006 and June 2007,
the shareholders of the Company approved stock option plans for selected directors, officers, corporate auditors andemployees of Advantest. The shareholders of the Company also approved the compensation amount of stock acquisitionrights to be granted as stock options to directors and corporate auditors. The following table shows selected information
related to these stock options. On October 1, 2006, the Company conducted a two for one stock split of shares of its common
stock. The number of shares and exercise price have been restated to reflect the effects of the stock split.
Date of grant ..........................................
Number of shares to be issued/ delivered
Exercise price per share .........................
Beginning of exercise period .................
End of exercise period ...........................
Number of directors, officers and corporate auditorsof the Company.................................
Number of other employees...................

Date of grant ..........................................
Number of shares to be issued/ delivered
Exercise price per share .........................
Beginning of exercise period .................
End of exercise period ...........................
Number of directors, officers and corporate auditorsof the Company.................................
Number of other employees...................

Third series

Fourth series

Fifth series

June 27, 2003
1,468,000¥2,580April 1, 2004
March 31, 2008

August 29, 2003
12,000¥4,045
April 1, 2004
March 31, 2008

January 27, 2004
14,000¥4,610April 1, 2004
March 31, 2008

25
159

0
3

0
1

Sixth series

Seventh series

Eighth series

March 31, 2004
6,000
¥4,275
April 1, 2004
March 31, 2008

July 1, 2004
1,522,000¥3,732
April 1, 2005
March 31, 2009

November 15, 2004
8,000
¥3,732
April 1, 2005
March 31, 2009

0
1

26
179

0
2

49

Third series

Date of grant ..........................................
Number of shares to be issued/ delivered
Exercise price per share .........................
Beginning of exercise period .................
End of exercise period ...........................
Number of directors, officers and corporate auditorsof the Company.................................
Number of other employees...................
Date of grant .............................................
Number of shares to be issued/ delivered .
Exercise price per share ............................
Beginning of exercise period ....................
End of exercise period ..............................
Number of directors, officers and corporate auditorsof the Company....................................
Number of other employees......................

Fourth series

Fifth series

Ninth series

Tenth series

Eleventh series

April 1, 2005
8,000
¥3,732
April 1, 2005
March 31, 2009

July 4, 2005
1,518,000¥4,300April 1, 2006
March 31, 2010

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

0
2

27
181

0
6

Twelfth series

Thirteenth series

Fourteenth series

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

July 12, 2006
360,000¥5,880April 1, 2007
March 31, 2011

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

0
1

13
0

18
184

Fifteenth series

Sixteenth series

Seventeenth series

Date of grant .............................................
Number of shares to be issued/ delivered .
Exercise price per share ............................

December 1, 2006
8,000
¥6,218

Beginning of exercise period ....................
End of exercise period ..............................
Number of directors, officers and corporate auditorsof the Company....................................
Number of other employees......................

April 1, 2007
March 31, 2011

July 12, 2007
184,000
To bedetermined
April 1, 2008
March 31, 2012

July 12, 2007
594,000
To bedetermined
April 1, 2008
March 31, 2012

0
3

13
0

16
183

Employee Stock Purchase Program
Since August 1, 2002, eligible employees of Advantest America Corporation and its U.S. subsidiaries are able toparticipate in an 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 theCompany. 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 andformer 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 thatformerly were directors or corporate auditors of the Company may join the director and corporate auditor stock ownershipassociation. 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, tothat member. As of March 31, 2007, 37 current and former directors, executive officers, corporate auditors and company
advisors were members of the director, executive officer and corporate auditor stock ownership association, and theassociation held 7,416 shares of the Company’s common stock. The Company also has an employee stock ownershipassociation for other employees in Japan. As of March 31, 2007, the association had 553 members and held 298,116 shares of
the Company’s common stock.
ITEM 7.
7.A

MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONSMAJOR SHAREHOLDERS50

As of March 31, 2007, 187,650,285 shares of the Company’s common stock were outstanding. Beneficial ownership of
the Company’s common stock in the table below was prepared from publicly available records of the filings made by theCompany’s shareholders regarding their ownership of the Company’s common stock under the Securities and Exchange Law
of Japan.
Under the Securities and Exchange Law of Japan, any person who becomes, beneficially and solely or jointly, a holder,
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 financebureau. 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 ofshares in the 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

Number of Shares

Fujitsu Limited................................................................................................
Nomura Securities Co., Ltd. and its related entities........................................

Percentage of
Outstanding Shares

20,142,792
12,493,122

10.09%
6.26%

The number of shares owned by Fujitsu Limited is based on a report filed under the Securities and Exchange Law ofJapan stating that Fujitsu held or was deemed to hold beneficially, as of February 23, 2005, 20,142,792 shares of theCompany’s common stock. This figure includes 20,142,600 shares of the Company’s common stock held by the trustee of aretirement 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
Securities and Exchange Law of Japan stating that Nomura Securities Co., Ltd. and its related entities held or were deemed tohold beneficially, as of May 15, 2007, 12,493,122 shares of Advantest’s common stock.
Based on information made publicly available on or after April 1, 2004, the following table describes transactions
resulting in a 1% or more change in the percentage ownership held by major beneficial owners of Advantest’s common stock.

Name of Shareholder
Fujitsu Limited and its related
entities.........................................
Fujitsu Limited 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 .............................

Date ofTransaction

Shares Owned
Prior toTransaction

Percentage

Numberof Shares
ChangedShares Owned
After theTransaction

Percentage

February 22, 2005

41,452,792

20.83%(13,310,000)

28,142,792

14.10%

February 23, 2005

28,142,792

14.10%(8,000,000)

20,142,792

10.09%

February 28, 2005—

12,953,598

6.49%

February 28, 2006

12,953,598

6.49%(3,103,886)

9,849,712

4.94%

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%

—

—

As of March 31, 2007, the Company had 187,650,285 outstanding shares of common stock. According to JPMorgan
Chase Bank, depositary for the Company’s ADSs, as of March 31, 2007, 1,039,470 shares of the Company common stock
were held in the form of ADRs and there were two ADR holders of record in the U.S. According to the Company’s registerof shareholders and register of beneficial owners, as of March 31, 2007, there were 38,374 holders of common stock ofrecord worldwide. As of March 31, 2007, there were 88 record holders of the Company’s common stock with addresses in
the U.S., whose shareholdings represented 9.3% of the outstanding common stock on that date. Because some of these shareswere held by brokers or other nominees, the number of record holders with addresses in the U.S. might not fully show thenumber of beneficial owners in the U.S.

51

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.
7.B

RELATED PARTY TRANSACTIONSBusiness Relationships
Advantest sells products to and purchases parts from Fujitsu Limited, which owns approximately 11% of the voting
rights of Advantest, 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 ¥4,104 million in fiscal 2006 from the sale of products to Fujitsu and its subsidiaries. Advantest
purchased parts from Fujitsu and its subsidiaries in the amount of ¥8,929 million in fiscal 2006. Advantest had receivablesfrom Fujitsu and its subsidiaries in the amount of ¥1,161 million as of March 31, 2007. Advantest had payables to Fujitsu andits subsidiaries in the aggregate amount of ¥4,519 million as of March 31, 2007. Advantest expects to continue to engage inarm’s-length transactions with Fujitsu and its subsidiaries in the future.
Mr. Takaya, a Corporate Auditor of the Company since 2003, currently serves as an advisor of Fujitsu Limited.
Mr. Akikusa, a Corporate Auditor of the Company since 2005, currently serves as the chairman of the Board of Directors 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, 2007, 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 otherinformation in this annual 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 ofAdvantest’s latest annual financial statements.
ITEM 9.
9.A

THE OFFER AND LISTING

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 (from September 17, 2001).

52

Tokyo Stock Exchange
Price Per Share
High

Low

New York Stock Exchange
Price Per ADS
High

Low

Fiscal year ended March 31,

2003 ................................................................................................
2004 ................................................................................................
2005 ................................................................................................
2006 ................................................................................................
2007 ................................................................................................

¥

5,050 ¥
4,720
4,665
7,715
7,605

1,910 $
1,875
3,090
3,700
5,100

38.60 $
44.22
44.32
64.54
63.72

15.22
15.98
28.36
34.72
44.70

4,235
4,580
5,945
7,715
7,605
6,065
6,820
6,720
5,750

3,700
3,955
4,140
5,965
5,160
5,185
5,640
5,100
5,120

38.82
42.00
50.76
64.54
63.72
52.78
57.40
57.31
48.47

34.72
35.46
36.18
51.80
44.70
45.30
48.09
43.93
41.76

6,820
6,720
5,870
5,560
5,750
5,400

6,030
5,990
5,450
5,100
5,140
5,170

57.40
57.31
48.99
47.60
48.47
42.97

52.35
49.45
45.55
43.93
44.25
44.72

Financial quarter ended/ending

June 30, 2005 ..................................................................................
September 30, 2005 ........................................................................
December 31, 2005 .........................................................................
March 31, 2006...............................................................................
June 30, 2006 ..................................................................................
September 30, 2006 ........................................................................
December 31, 2006 .........................................................................
March 31, 2007...............................................................................
June 30, 2007 (through June 21).....................................................
Month ended

December 31, 2006 .........................................................................
January 31, 2007.............................................................................
February 28, 2007...........................................................................
March 31, 2007...............................................................................
April 30, 2007.................................................................................
May 31, 2007 ..................................................................................
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, theCompany’s common 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
and listed on the New York Stock Exchange through a sponsored ADR facility operated by JPMorgan Chase Bank, asdepositary. Each American Depository Share represents one share of the Company’s common stock.
9.D

SELLING SHAREHOLDERS
Not applicable.

9.E

DILUTION
Not applicable.

9.F

EXPENSES OF THE ISSUE
Not applicable.

ITEM 10.
10.A

ADDITIONAL INFORMATIONSHARE CAPITAL
Not applicable.

53

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
share capital as of March 31, 2007, including treasury shares, was 199,566,770. All of the issued shares are fully paid andnon-assessable.
Under the Company Law, the transfer of shares is principally affected by delivery of share certificates. However, inorder to assert shareholders’ rights against the Company, a shareholder must have its name and address registered on the
Company’s register of shareholders. For this purpose, shareholders are required to file their names, addresses and seals withthe share registration agent. The Company’s share registration agent is Tokyo Securities Transfer Agent Co., Ltd., located at
4-2, Marunouchi 1-chome, Chiyoda-ku, Tokyo 100-0005, 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.
A holder of shares may choose, at its discretion, to participate in the central clearing system for share certificates under
the Law Concerning Central Clearing of Share Certificates and Other Securities of Japan. Participating shareholders must
deposit certificates representing the shares to be included in this clearing system with Japan Securities Depository Center, Inc.
(“JASDEC”). If a holder is not a participating institution in JASDEC, it must participate through a participating institution,such as a securities company or bank having a clearing account with JASDEC. All shares deposited with JASDEC will be
registered in the name of JASDEC on the Company’s register of shareholders. Each participating shareholder will, in turn, be
recorded in the register of beneficial owners prepared by the Company based on information furnished to the shareregistration agent of the Company by the participating institutions and JASDEC. These participating shareholders will betreated in the same way as shareholders registered on the Company’s register of shareholders. The register of beneficial
owners is updated as of the record date on which shareholders entitled to rights pertaining to the shares are determined. The
record date is usually March 31 and September 30 of each year. To transfer deposited shares, delivery of share certificates is
not required. Entry of the share transfer in the book maintained by JASDEC for participating institutions, or in the bookmaintained by a participating institution for its customers, has the same effect as the delivery of share certificates. The
registered beneficial owners may exercise the rights attached to the shares, such as voting rights, and will receive dividends(if any) and will receive notices to shareholders directly from the Company. The shares held by a person as a registeredshareholder and those held by the same person as a registered beneficial owner are aggregated for these purposes. Beneficial
owners may at any time withdraw their shares from deposit and receive share certificates.
A new law to establish a new central clearing system for shares of listed companies and to eliminate the issuance anduse of certificates for such shares was promulgated in June 2004 and the relevant part of the law will come into effect within
five years of the date of the promulgation. On the effective date, a new central clearing system will be established and theshares of all Japanese companies listed on any Japanese stock exchange, including the shares of common stock of theCompany, will be subject to the new central clearing system. On the same day, all existing share certificates will become nulland void and the companies are not required to withdraw those share certificates from shareholders. The transfer of suchshares will be affected through entry in the books maintained under the new central clearing system.
Objects and Purposes
Article 2 of the Company’s articles of incorporation states that its objective is to engage in the following businessactivities:•

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.

54

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, beneficial shareholders, 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 a resolution of a general meeting of shareholders or by a resolution of theBoard 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, beneficial shareholders, and pledges ofrecord at September 30 of each year.
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 in accordance 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 value of the assets to be distributed to shareholders does not exceed the Distributable Amount (as defined below) as at
the effective date of such 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 theCompany’s treasury stock after subtracting the amounts of the following items (1) through (4) as they appear on the
Company’s non-consolidated balance 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 the following 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 priceof 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) theamount of decrease in its additional paid-in capital or legal reserve (excluding the amount transferred to thestated capital);(8)(if the Company cancelled its treasury stock after the end of the last fiscal year) the book value of its treasury
stock so cancelled;(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; and55

(10) other amounts as provided for by an ordinance of the Ministry of Justice including (if the Company reduced thesurplus and increased its stated capital, additional paid-in capital or legal reserve after the end of the last businessyear) the amount of such reduction and (if the Company has distributed the surplus to the shareholders after theend of the last fiscal year) the amount set aside in additional paid-in capital or legal reserve (if any) as requiredby 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 amount of 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 priceof 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 and the deferred assets exceeds the total of stated capital, additional paid-in capital and legal reserve,
each such amount being that appearing on the non-consolidated balance sheet as of the end of the last fiscal year)
all or certain part of such exceeding amount as calculated in accordance with the ordinances of the Ministry ofJustice.

In addition, if the Company elects to become a company that uses its consolidated balance sheet for calculating
distributable dividends (thus, becomes “a company subject to regulations in respect of dividends determined based on
consolidated accounts”), the Company would be required to deduct the excess amount calculated in the following mannerfrom the distributable amount of surplus. Such excess amount is determined as (x) the total amount of the amount ofshareholders’ equity on unconsolidated balance sheet at the end 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 consolidatedbalance sheet at the end of its last fiscal year and other amounts as provided for by an ordinance of the Ministry of Justice.
If the Company prepares extraordinary financial statements (as described below) and such extraordinary financial
statements are approved at a meeting of the Board of Directors or the shareholders (if the Company Law so requires), theCompany would be required to adjust the distributable amount for surplus by considering the profits and losses and theamount in respect of issuance of treasury 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 adate within the fiscal year immediately following the last fiscal year (an extraordinary settlement date) and profit and loss
covering a period of the first day of the current fiscal year up to such extraordinary settlement date. Such extraordinary
financial statements prepared in the foregoing 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 thedividend 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 to one-quarter or more of its
stated capital by resolution of a general meeting of shareholders. Under the Company Law, the Company may reduce the sumof its legal reserve and additional paid-in capital without the limitation of the amount to be reduced as mentioned above.

56

All or any part of the surplus which may be distributed as dividends may also be transferred to stated capital byresolution of a general meeting of shareholders.
Stock Split
The Company may at any time split the outstanding shares into a greater number of shares by resolution of the Boardof 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 andnotice to each shareholder that, within a period of not less than one month specified in the notice, share certificates must be
submitted to the Company for exchange. The Company must disclose the reason for the consolidation of shares at 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 to the articles of incorporation reducing (but not increasing) the number of shares constituting a unit oreliminating the provisions for the unit of shares may be made by a resolution of the Board of Directors rather than by aspecial shareholders resolution, which is otherwise required for amending the articles of incorporation. The number of sharesconstituting one unit, however, cannot exceed 1,000 shares.
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 of shares less than a full unit will carry no voting rights.
Share Certificate for Less Than a Full Unit of Shares
The Company’s articles of incorporation provide that the Company chooses not to issue share certificate for any
number of shares less than a unit will be issued. As the transfer of shares normally requires delivery of share certificates, any
fraction of a unit for which share certificates are not issued will not be transferable.
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 in accordance 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
the Company to sell to such holder such amount of shares which will, when added together with the shares constituting lessthan a full unit, 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 ofcommon stock. Although, as discussed above, under the unit share system holders of less than a unit have the right to require
the Company to purchase their shares, holders of ADRs evidencing ADSs that represent other than integral multiples ofwhole units are unable to withdraw the underlying shares of common stock representing less than a unit and, therefore, areunable, as a practical matter, to exercise the rights to require the Company to purchase such underlying shares unless theCompany’s articles of incorporation are amended to eliminate the provision not to issue share certificates for the numbers ofshares less than a unit. 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 affectthe transferability of ADSs, which may be transferred in lots of any size.

57

General Meeting of Shareholders
The Company holds its ordinary general meeting of shareholders within three months after the end of a fiscal year andnormally in June of each year in Tokyo, Japan. In addition, the Company may hold an extraordinary general meeting ofshareholders whenever necessary 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, tohis resident proxy or mailing address in Japan in accordance with the Company’s share handling regulations, at least two
weeks before the date of the meeting. The record date for an 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 arepresentative director of the Company at least eight weeks before the date of such meeting.
Voting Rights
A holder of shares constituting one or more whole units is entitled to one voting right per unit of shares subject to thelimitations 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 of incorporation require a quorum for the election of directors and corporate auditors of not lessthan one-third of the voting rights of all shareholders. 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 ordinanceof 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 votemust be present 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 acquisitionrights, or bonds with stock acquisition rights at “specially favorable” conditions) to any persons other thanshareholders;(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 ashareholders’ 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.

58

The voting rights of holders of ADSs are exercised by the depositary based on instructions from those holders. With
respect to voting 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 Board of 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 all shareholders 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 stockacquisition rights for free, in which case such stock acquisition rights may be transferred to a third party.
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 aresolution of the Board of Directors. Holders of stock acquisition rights may exercise their rights to acquire a certain numberof shares within the exercise period as prescribed in the terms of their stock acquisition rights. Upon exercise of stockacquisition rights, the Company will be obliged to issue the relevant number of new shares or alternatively to transfer thenecessary 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 andtaxes 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 nonassessable.
Record Date
March 31 of each year is the record date for the Company’s year-end dividends, if declared. A holder of sharesconstituting one or more whole units who is registered as a holder on the Company’s register of shareholders or register ofbeneficial owners at the close of business as of March 31 is entitled to exercise shareholders’ voting rights at the ordinary
general meeting of shareholders with respect to the fiscal year ending on that March 31. September 30 of each year is therecord date for interim dividends, if declared. In addition, the Company may set a record date for determining theshareholders 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 arecord date (or if the record date is not a business day, the fourth business day prior thereto), for the purpose of dividends orrights 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 oftender offer (pursuant to an ordinary resolution of a general meeting of shareholders or a resolution of the Board of Directors),(ii) by purchase from 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 theCompany from a specific party other than a subsidiary of the Company, any other shareholder may make a demand to arepresentative director, more than five calendar days prior to the relevant shareholders’ meeting, that the Company alsopurchase the shares held by such shareholder. However, under the Company Law, the acquisition of its own shares at a pricenot exceeding the then market price to be provided under an ordinance of the Ministry of Justice will not trigger the right ofany shareholder to include him/her as the seller of his/her shares in such proposed purchase. Any such acquisition of sharesmust 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.”59

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 of merger, 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 Boardof Directors and after giving at least three months’ prior public notice as well as individual notice to the shareholder at theregistered address of the shareholder in the Company’s register of shareholders or to the address otherwise notified to theCompany, and hold or deposit the proceeds for the shareholder, the location of which is unknown, if (i) notices to theshareholder 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 ofshareholders or at the address otherwise notified to the Company.
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 shares by non-residents of Japan by way of stock splits is not subject to any of the foregoing notification orreporting requirements.
Reporting of Substantial Shareholdings
Pursuant to the Securities 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 ofstock acquisition rights held by the person or persons are counted in the calculation of the holding and the total shares inissue) of a company listed on any Japanese stock exchange is required to file with the director of a competent local financebureau, within five business days a report containing the identity of such person or persons, the purpose of such holding andcertain other information prescribed by regulations. A similar report must also be made (with certain exceptions) if thepercentage 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 of business.
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, affect60

transactions between exchange non-residents to purchase or sell shares outside Japan using currencies other than Japaneseyen.
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 of Japan. 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 outsideof Japan; and•corporations (1) of which 50% or more of the total voting rights of their shares are held by individuals who areexchange non-residents or corporations (a) that are organized under the laws of foreign countries or (b) whose
principal offices are located outside of Japan or (2) a majority of whose officers, or officers having the power ofrepresentation, are individuals who are exchange non-residents.

In general, the acquisition of shares of a Japanese company (such as the shares of capital stock of the Company) by anexchange non-resident from a resident of Japan is not subject to any prior filing requirements. In certain limited
circumstances, however, the Minister of Finance may require prior approval of an acquisition of this type. While priorapproval, 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 fromthe 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 theshares of capital 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 the acquisition with the Minister of Finance and any other competent Ministers having jurisdiction overthat Japanese company within 15 days from and including the date of the acquisition, except where the offering of thecompany’s shares was made overseas. In limited circumstances, such as where the foreign investor is in a country that is notlisted on an exemption schedule in the Foreign Exchange Regulations, a prior notification of the acquisition must be filedwith 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 nonresidents of Japan may in general be converted into any foreign currency and repatriated abroad. Under the terms of thedeposit agreement pursuant to which the Company’s ADSs are issued, the Depositary is required, to the extent that in its
judgment it can convert 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 not take into account the specific circumstances of any particular investors, some of which (such as
tax-exempt entities, banks, insurance companies, 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 other pass-through entities, investors that own or are treated as owning
10% or more of the Company’s voting stock, investors that hold the Shares or ADSs as part of a straddle, 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 and61regulations of the United States and the national tax laws of Japan, judicial decisions and published rulings andadministrative 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 (possibly with 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 theDistrict of Columbia,(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, orthat has a valid 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 and through which the U.S. holder carries on or has carried on a business or (b) of which the Shares or
ADSs form part of the business property, and(3)

is eligible for benefits under the Treaty, with respect to income and gain derived in connection with the Shares or
ADSs.

If a partnership holds the Shares or ADSs, the tax treatment of a partner generally will depend upon the status of thepartner and the 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
aspects of 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 their tax 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 toconfirm 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 obligationin the deposit 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 relatedagreement, 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 Sharesfor ADSs, and exchanges 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 advisorsconcerning 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 and of 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 by Japanese corporations. Stock splits in themselves are, in general not a taxable event.

62

In the absence of an applicable tax treaty, convention or agreement reducing the maximum rate of Japanese
withholding tax or allowing exemption from Japanese withholding tax, the rate of Japanese withholding tax applicable todividends paid by Japanese corporations to non-residents of Japan or non-Japanese corporations is generally 20%. With
respect to dividends paid on listed shares issued 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 nonresident Holders), other than any individual shareholder who holds 5% or more of the total issued shares of the relevantJapanese corporation, the aforementioned 20% withholding tax rate is reduced to (i) 7% for dividends due and payable on or
before March 31, 2008, and (ii) 15% for dividends due and payable on or after April 1, 2008. At the date of this annual report,
Japan has income tax treaties, conventions or agreements whereby the above-mentioned withholding tax rate is reduced, inmost cases to 15% for portfolio investors with, among other countries, Australia, Belgium, Canada, Denmark, Finland,
France, Germany, Ireland, Italy, Luxembourg, the Netherlands, New Zealand, Norway, Singapore, Spain, Sweden,
Switzerland and the U.K.
Under the Treaty, the maximum rate of Japanese withholding tax which may be imposed on dividends paid by aJapanese corporation to an Eligible U.S. Holder that is a portfolio investor is generally reduced to 10% of the gross amountactually 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 of a business, directly or indirectly, by such pension fund.
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 exempt 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 anyother required forms and documents) in advance through the Company to the relevant tax authority before the payment ofdividends. A standing proxy for non-resident 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 eight months after the Company’s fiscal year-end or semi-fiscal year-end).
To claim this reduced rate or exemption, any relevant non-resident Holder of ADSs will be required to file a proof of
taxpayer status, residence and beneficial ownership (as applicable) and to provide other information or documents as may berequired by the Depositary. A non-resident Holder who is entitled, under an applicable 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 refund of 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 theapplicable income tax treaty) or the whole of the withholding tax withheld (if such non-resident Holder is entitled toexemption 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 to Japanese 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 holders of Shares and of
ADSs that are U.S. Holders and that hold those Shares or 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 madeby the Company in respect of Shares or ADSs (without reduction for Japanese withholding taxes) will constitute a taxable
dividend to the extent 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 a63

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 of dividends received from other U.S. corporations.
Subject to certain exceptions for short-term and hedged positions, and provided that we are not a passive foreign
investment company (as discussed below), dividends received by certain U.S. Holders (including individuals) with respect to
the Shares or ADSs will currently be subject to U.S. federal income taxation at a maximum rate of 15%. Investors should beaware that the U.S. Treasury Department has announced its intention to promulgate rules pursuant to which shareholders (andintermediaries) will be permitted to rely on certifications from issuers to establish that dividends qualify for the reduced rateof U.S. federal income taxation. Because such procedures have not yet been issued, we are not certain that we will be able tocomply with them. U.S. Holders of ADSs or Shares should consult their own tax advisors regarding the availability of the
reduced rate in the light of their own particular circumstances.
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 thepayment is converted 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 of receipt, a U.S. Holder will have a tax basis in such Japanese yen equal to its U.S. dollar value on thedate of receipt. Generally, any gain or loss resulting from currency exchange fluctuations during the period from the date thedividend 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.
To the extent, if any, that the amount of any distribution received by a U.S. Holder in respect of Shares or ADSs
exceeds the Company’s current and accumulated earnings and profits, as determined under U.S. federal income tax principles,the distribution first will be treated as a tax-free return of capital to the extent of the U.S. Holder’s adjusted tax basis in thoseShares or ADSs, and thereafter will be treated as U.S. source capital gain.
Distributions of additional Shares of common stock 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 be subject to various classifications and otherlimitations. 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 from such U.S. Holder’s taxable income. Special rules generally will apply to the calculationof 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 paid or 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 be taking actions that are inconsistent with the claiming of foreign tax credits by U.S. Holders of ADSs. Accordingly,
investors should be aware 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 investment company rules discussed
below, gain or loss recognized on the sale or other taxable disposition generally will be capital gain or loss and, if the U.S.

64

Holder’s holding period for those Shares or ADSs exceeds one year, will be long-term capital gain or loss. Certain U.S.
Holders, including individuals, are eligible for preferential 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 madeannually and generally is based on the value of a non-U.S. corporation’s assets (including goodwill) and the composition of
its income for the relevant tax year.
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,
the Company can provide no assurance that it will not become a PFIC in 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 inexcess of 125% of the average distribution over a three-year period, or shorter 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 such gains or distributions
treated under the PFIC rules as having been deferred by the U.S. Holder. Moreover, dividends that a 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 (and instead will be taxable at rates applicableto ordinary income). 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 for U.S. federal income tax purposes (“Non-U.S. Holders”).
Subject to the discussion below under “Backup Withholding and Information Reporting,” a Non-U.S. Holder generally
will not be subject to U.S. federal income or withholding tax in respect of distributions in respect of the Shares or ADSs
unless the distributions are effectively connected with the conduct by the Non-U.S. Holder of a trade or business within the
United States (and, if an applicable tax treaty requires, are attributable to a U.S. permanent establishment or fixed base ofsuch Non-U.S. Holder).
Subject to the discussion below under “Backup Withholding and Information Reporting,” 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 other taxable disposition of Shares,
unless (i) the gain is effectively connected with a trade or business conducted by the Non-U.S. Holder within the UnitedStates (and, if an applicable tax treaty requires, is attributable to a U.S. permanent establishment or fixed base of such NonU.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.
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

65

a U.S. Holder fails to provide an accurate tax identification number and make appropriate certifications in the requiredmanner.
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 under current U.S. federal income tax law. However, a Non-U.S. Holder may be required to provide certification
under penalty of perjury to ensure 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 thecase of Non-U.S. Holders.
Backup withholding is not an additional tax. The amount of backup withholding imposed on a payment to a U.S.
Holder will generally be refunded or allowed as a credit against the holder’s U.S. federal income tax liability provided thatthe required information is properly furnished to the IRS.
THE SUMMARY OF U.S. FEDERAL INCOME AND JAPANESE NATIONAL TAX CONSEQUENCES SET OUTABOVE IS 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 TAXCONSEQUENCES TO THEM OF OWNING OR DISPOSING OF SHARES OR ADSs BASED ON THEIRPARTICULAR 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 semi-annual and other periodic reports on Form 6-K
with the Commission. You may read and copy any reports, statements or other information on file at the public reference
facilities maintained by the Commission at 100F Street, N.E., Room 1580, Washington, D.C. 20549 or by accessing theCommission’s home page (http://www.sec.gov). Copies of the Company’s annual reports on Form 20-F, semi-annual andother 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 otherinformation 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 be inspected at the principal executive offices of theCompany, 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 summarizes information as of March 31, 2007 and March 31, 2006 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 the Company’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 the Japanese yen are presented by denominated currency. All of these assets and liabilities are stated at fair value.

66

As of March 31, 2007
Assets and Liabilities Denominated in
In Yen Functional Currency

U.S.$

Euro

NT$

KRW

(in millions)

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

49,284 ¥
1,882
(756)

688 ¥
658
(82)

—
¥
—
(— )

2,295
1,376
(531)

As of March 31, 2006
Assets and Liabilities Denominated in
In Yen Functional Currency

U.S.$

Euro

NT$

KRW

(in millions)

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

41,891 ¥
5,625(1,013)

8,242 ¥
209
(386)

582 ¥
1,360
(685)

840
1,404
(306)

Other foreign currency denominated assets and liabilities that are sensitive to exchange rates between such foreign
currency and a 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, 2007
Yen Value of Cross Currency Assets and Liabilities(in millions)

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

¥

13,253
3,402(1,231)
As of March 31, 2006
Yen Value of Cross Currency Assets and Liabilities(in millions)

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

¥

1,472
237
(10)

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 exchanges rates. All of the foreignexchange forward contracts outstanding as of March 31, 2007 and March 31, 2006 are listed below.
As of March 31, 2007

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 ...............................................

¥

—
1,450
3,905

¥

—
¥
(12)
63

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

¥

5,355

¥

51

—
155.55154.38

As of March 31, 2006

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 ...............................................

¥

4,669
1,800
4,460

¥

(15) ¥(35)
92

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

¥

10,929¥4267116.72139.45139.22

As of March 31, 2007

Contract Amounts

Average
Contractual
Exchange Rate

Fair Value(in millions)Interest Rate Risk
The table below presents the principal cash flows and related weighted average interest rates by year of maturity for
Advantest’s long-term debt obligations by expected maturity dates as of March 31, 2007.
Type of Debt andAverage Interest Rate

Expected Maturity Date
2008

2009

2010

2011

2012

Thereafter

Total

Fair Value(in millions)

Unsecured borrowings (1.72%)................ ¥10 ¥ —

¥ —

¥ —

—

—

¥

10 ¥

10

Total ......................................................... ¥10 ¥ —

¥ —

¥ —

—

—

¥

10 ¥

10

The table below presents the principal cash flows and related weighted average interest rates by year of maturity for
Advantest’s long-term debt obligations by expected maturity dates as of March 31, 2006.
Type of Debt andAverage Interest Rate

Expected Maturity Date
2007

2008

2009

2010

2011

Thereafter

Total

Fair Value(in millions)

Unsecured borrowings (2.59%)................ ¥30 ¥10 ¥ —

¥ —

—

—

¥

40 ¥

43

Total ......................................................... ¥30 ¥10 ¥ —

¥ —

—

—

¥

40 ¥

43

Securities Value Risk
The table below shows the acquisition price and fair value of securities that Advantest holds as of March 31, 2006 andMarch 31, 2007. Advantest does not hold or issue financial commodity with the purpose to trade.
As of March 31, 2006
Acquisition Price

As of March 31, 2007

Fair Value

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

4,424 ¥

DEBT SECURITIESWARRANTS AND RIGHTS
Not applicable.

12.C

OTHER SECURITIES
Not applicable.

12.D

4,224 ¥DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

Not applicable.
12.B

8,975 ¥AMERICAN DEPOSITARY SHARES
Not applicable.

68

8,170

PART IIITEM 13.

DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIESNone.
ITEM 14.

MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
PROCEEDSNone.
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 andprocedures as of the end of fiscal 2006. 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 and communicated to its management including the chief executive officer and principal accounting andfinancial officer to allow timely decisions regarding required disclosure. The disclosure controls and procedures also ensurethat the reports that it files or submits under the Exchange Act are recorded, processed, summarized and reported within thetime periods specified in the Commission’s rules and forms. The evaluation was performed under the supervision of Toshio
Maruyama, Advantest’s Representative Board Director, President and CEO and Yuichi Kurita, Advantest’s Director andManaging Executive Officer. Advantest’s disclosure and controls and procedures are designed to provide reasonableassurance of achieving its objectives. Managerial judgment was necessary to evaluate the cost-benefit relationship of possible
controls and procedures. Mr. Maruyama and Mr. Kurita 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 preparationof 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 incircumstances may lead the controls in place to be inadequate or that the extent to which policies or procedures are compliedwith may lower.
Advantest’s management assessed the effectiveness of the company’s internal control over financial reporting as ofMarch 31, 2007. In making this assessment, it used the criteria set forth in Internal Control—Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, management
has concluded that, as of March 31, 2007, Advantest’s internal control over financial reporting was effective based on thosecriteria.
Ernst & Young ShinNihon, Advantest’s independent registered public accounting firm, has issued an audit report on
our management’s assessment of our internal control over financial reporting as of March 31, 2007. 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

In fiscal 2005 Annual Report on Form 20-F, Advantest reported material weaknesses in certain policies and procedures
related to U.S. GAAP and financial reporting. Accordingly, during fiscal 2006 implementation of the requirements ofSection 404 of the Sarbanes Oxley Act, Advantest undertook and completed significant steps to strengthen our internal
controls over financial reporting. While all internal control systems, no matter how well designed, have inherent limitations
and can provide only reasonable assurance with respect to financial statement preparation and presentation, Advantest
believes the changes in internal controls completed during the year ended March 31, 2007 have remediated those identified
material weaknesses in fiscal 2005. Such actions included, among others:

69•

increased the number of personnel and acquired expertise to enhance our training and education in respect offinancial reporting under U.S. GAAP;•

established a process to review significant transactions so that they can be appropriately reported under U.S.
GAAP by centralizing review and approval processes;•

continued to enhance documentation, communication and periodic review of our accounting policies andprocedures to evaluate proper conformity with U.S. GAAP financial reporting requirements;•

improved financial reporting analysis in the areas of revenue recognition, fair value assessment and revenue
allocation of multiple elements transactions, and functional currencies of significant foreign subsidiaries;•

increased the level of management review and approval of our financial statement closing process.

Other Changes in Internal Control Over Financial Reporting
Except for the improvements described above, there have been no changes in our internal control over financial
reporting that occurred during the year ended March 31, 2007 that have materially affected, or are reasonably likely tomaterially affect, our internal control over financial reporting.
ITEM 16.

[RESERVED]ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERTAdvantest’s Board of Corporate Auditors has determined that Takashi Takaya and Hitoshi Owada are “audit committee
financial expert” as such term is defined by Item 16A of Form 20-F.
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 similarfunctions. A copy of the Company’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 20-F for reference.
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Ernst & Young ShinNihon served as our independent registered public accounting firm for fiscal 2006, 2005 and 2004.
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 and its member firms in fiscal 2005 and 2006.
Fiscal 2005

Fiscal 2006

(in millions)

(1)

(2)

(3)

(4)

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

¥

105
2
20
1

¥

320
3
33
2

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

¥

128

¥

358

Audit Fees consist of fees billed for the annual audit services engagement and other audit services, which are thoseservices that only the external auditor reasonably can provide, and include the group audit; statutory audits; theissuance of consents; and assistance 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 theperformance of the audit 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 andoperational effectiveness of systems.
Tax Fees include fees billed for tax compliance services, including the preparation of original and amended tax returns
and claims for refund; tax consultations, such as assistance in connection with tax audits and advice related to transfer
pricing, and requests 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.

70

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 and permissible 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 for the following fiscal year. Upon the general pre-approval of the board of corporate auditors, no specific preapproval for audit and permissible non-audit services is required so long as those services fall within the scope of the generalpre-approval provided.
Applications to provide services that require specific pre-approval by the board of corporate auditors will be submitted
to the board of corporate auditors.
The board of corporate auditors makes further determination of whether or not to revise the general pre-approval forthe applicable fiscal year. Such request may include adding or subtracting to any audit or permissible non-audit services
listed in the general 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
10A-3(c)(3) under the Exchange Act, which provides an exemption from the NYSE’s listing standards relating to audit
committees for foreign 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 other requirements of Rule 10A-3.
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 2006:

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

2006
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........................

706 ¥
412
24
520
788
496
355
3,154
2,734

7,189
6,412
5,705
5,826
5,407
5,869
5,962
5,966
6,290

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

2007
January 1 – January 31................................
February 1 – February 28............................
March 1 – March 31 ...................................

1,080
654
212

6,431
5,703
5,357

N/A
N/A
N/A

N/A
N/A
N/A

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

11,135 ¥

6,107

N/A

N/A

1
2

On October 1, 2006, the Company conducted a two for one stock split of shares of its common stock. All numbers havebeen restated to reflect the effects of the stock split.
All purchases, as described below, were made as a result of holders of shares constituting less than one unit, which is
100 shares of common stock, requesting the Company to purchase shares that are a fraction of a unit, in accordancewith the provisions of the Company’s share handling regulations. The Company is required to comply with such
requests pursuant to the Company Law. See “Additional Information—Memorandum and Articles of Association—
The Unit Share System.”

71

3

4

The Company did not have a publicly announced repurchase program in place during fiscal 2006. However, theCompany may repurchase its own shares through a stock exchange on which such shares are listed or by way of tender
offer pursuant to a resolution of the Board of Directors under Article 42 of the Company’s articles of incorporation.
At the meeting of its Board of Directors held on April 25, 2007, the Company resolved to repurchase up to 3.6 million
shares at an aggregate price not exceeding ¥20 billion. Pursuant to the resolution, the Company repurchased 3.6 million
shares at an aggregate purchase price of ¥19,111 million between May 7, 2007 and May 17, 2007.

72

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.

73

ADVANTEST CORPORATION
AND SUBSIDIARIESINDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Reports of Independent Registered Public Accounting Firm............................................................................

F-2

Consolidated Balance Sheets as of March 31, 2006 and 2007..........................................................................

F-4

Consolidated Statements of Income
for the years ended March 31, 2005, 2006 and 2007 ...................................................................................

F-6

Consolidated Statements of Stockholders’ Equity
for the years ended March 31, 2005, 2006 and 2007 ...................................................................................

F-7

Consolidated Statements of Cash Flowsfor the years ended March 31, 2005, 2006 and 2007 ...................................................................................

F-8

Notes to Consolidated Financial Statements.....................................................................................................

F-9

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 (the“Company”) as of March 31, 2007 and 2006, and the related consolidated statements of income, stockholders’ equity, andcash flows for each of the three years in the period ended March 31, 2007. 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 (UnitedStates). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial 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, 2007 and 2006, and the consolidated results of theiroperations and their cash flows for each of the three years in the period ended March 31, 2007, in conformity with U.S.
generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, in 2005 the Company changed its method of
accounting for stock-based compensation.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (UnitedStates), the effectiveness of Advantest Corporation and subsidiaries’ internal control over financial reporting as of March 31,
2007, 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, 2007 expressed an unqualified opinion thereon.
We also have recomputed the translation of the consolidated financial statements as of and for the year ended March 31,
2007 into United States dollars. In our opinion, the consolidated financial statements expressed in Japanese yen have beentranslated into United States dollars on the basis described in Note 2.
/s/Ernst & Young ShinNihon

Tokyo, Japan
June 15, 2007

F-2

Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of
Advantest Corporation
We have audited management’s assessment, included in the accompanying Management’s Report on Internal Control
over Financial Reporting, that Advantest Corporation and subsidiaries (the “Company”) maintained effective internal control
over financial reporting as of March 31, 2007, based on criteria established in Internal Control--Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). The Company’s
management is responsible for maintaining effective internal control over financial reporting and for its assessment of theeffectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s
assessment and an opinion on the effectiveness of the Company’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 (UnitedStates). 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 over financial reporting, evaluating management’s assessment, testing and evaluating thedesign and operating effectiveness of internal control, and performing such other procedures as we considered necessary inthe 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
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance withgenerally accepted accounting principles. A company’s internal control over financial reporting includes those policies andprocedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect thetransactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded asnecessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and thatreceipts and expenditures of the company are being made only in accordance with authorizations of management anddirectors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorizedacquisition, use, or disposition of the company’s assets that could have a material 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 of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, management’s assessment that Advantest Corporation and subsidiaries maintained effective internal
control over financial reporting as of March 31, 2007, is fairly stated, in all material respects, based on the COSO criteria.
Also, in our opinion, Advantest Corporation and subsidiaries maintained, in all material respects, effective internal control
over financial reporting as of March 31, 2007, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (UnitedStates), the consolidated balance sheets of Advantest Corporation and subsidiaries as of March 31, 2007 and 2006, and therelated consolidated statements of income, stockholders’ equity, and cash flows for each of the three years in the period
ended March 31, 2007, and our report dated June 15, 2007 expressed an unqualified opinion thereon.
/s/Ernst & Young ShinNihon

Tokyo, Japan
June 15, 2007

F-3

ADVANTEST CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheets
March 31, 2006 and 2007
2006

2007
Yen
(Millions)

2007
U.S. Dollars(Thousands)

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

¥ 157,925
69,567
29,911
13,7084,522

196,395
54,264
31,976
9,215
2,958$ 1,663,659
459,670
270,868
78,06025,058

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

275,633

294,808

2,497,315

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

12,27350,793
7,378
2,858
1,841

11,37049,650
2,690
3,101
4,755

96,315420,584
22,78726,26940,279Total assets ....................................................................................

¥ 350,776

366,374$ 3,103,549

See accompanying notes to consolidated financial statements.

F-4

ADVANTEST CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheets
March 31, 2006 and 2007
2006

2007

2007

Yen
(Millions)

Liabilities and Stockholders’ Equity
Current liabilities:
Current portion of long-term debt ...........................................................
Trade accounts payable ...........................................................................
Income taxes payable ..............................................................................
Accrued expenses....................................................................................
Accrued warranty expenses.....................................................................
Other current liabilities............................................................................

30
32,584
19,97012,781
4,776
6,604

10
29,095
9,370
13,6374,135
4,405

Total current liabilities .........................................................

76,74560,652513,782Long-term debt, excluding current portion .......................................................
Accrued pension and severance cost.................................................................
Other liabilities .................................................................................................

10
12,292
3,802

—
8,267
2,658

—
70,03022,516

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

92,84971,577606,328

32,36337,147
245,090
1,344

32,36339,256
273,082
3,652

274,147
332,537
2,313,274
30,936(58,017)(53,556)(453,673)

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

257,927

294,797

2,497,221

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

¥ 350,776

366,374$ 3,103,549

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, 12,913,472 shares in 2006 and 11,916,485 shares in 2007,at cost..................................................................................................

¥

U.S. Dollars(Thousands)

See accompanying notes to consolidated financial statements.

F-5

$

85
246,463
79,373
115,51935,02837,314

ADVANTEST CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Income
Years ended March 31, 2005, 2006 and 2007
2005

2006

2007

2007

Yen
(Millions)

U.S. Dollars(Thousands)

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

¥ 239,439
115,994

253,922
121,429

235,012
108,718$ 1,990,784
920,949

Gross profit ...................................................................

123,445

132,493

126,294

1,069,835

Research and development expenses ...............................................
Selling, general and administrative expenses ..................................

26,28036,44626,927
41,10829,50939,993249,970
338,781

Operating income..........................................................

60,71964,45856,792

481,084

Other income (expense):
Interest and dividends income................................................
Interest expense......................................................................
Minority interests ...................................................................
Other.......................................................................................

597
(441)
(84)
1,017

1,760
(290)
—
1,526

3,026
(16)
—
1,288

25,633(136)—
10,912

1,089

2,996

4,298

36,409

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

61,80867,45461,090517,493

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

23,730—26,080—25,520(14)

216,180(119)

38,07841,37435,556

2006

2007

Net income....................................................................

¥

2005

$

2007

Yen

Net income per share:
Basic.......................................................................................
Diluted....................................................................................

¥

194.77194.25223.17221.98See accompanying notes to consolidated financial statements.

F-6

301,194

U.S. Dollars

190.01
188.85

$

1.61
1.60

ADVANTEST CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Stockholders’ Equity
Years ended March 31, 2005, 2006 and 2007

Commonstock
Balance at April 1,2004 ............................................................................ ¥Comprehensive income:Net income.....................................................................................
Other comprehensive income (loss), net of tax
Foreign currency translation adjustments...........................
Net unrealized gains (losses) on securities.........................
Minimum pension liability adjustments.............................

32,363

Total
stockholders’equityYen (Millions)
177,404(8,061)(12,911)

221,768
38,078

1,635
152
1,396

1,635
152
1,396

1,302
(54,513)2

41,261(4,915)2,290
1,302(54,513)(444)(66,120)

206,749(4,915)
2,290

(446)
¥

32,36335,263

210,121(4,878)41,374

41,374
5,074
1,148

Total comprehensive income ......................................................................
Cash dividends ...........................................................................................
Stock option compensation expense ...........................................................
Exercise of stock option..............................................................................
Treasury stock purchased ...........................................................................
Treasury stock sold.....................................................................................

5,074
1,148

8,157
(55)
1

47,596(4,625)
1,884
8,157
(55)
(1,779)(58,017)257,927(4,625)1,884(1,780)

Balance at March 31,2006 ........................................................................ ¥Comprehensive income:Net income.....................................................................................
Other comprehensive income (loss), net of tax
Foreign currency translation adjustments...........................
Net unrealized gains (losses) on securities.........................

32,36337,147

245,090

1,344

35,55635,556
1,123(362)

Total comprehensive income ......................................................................
Adjustment to initially apply SFAS 158, net of tax.....................................
Cash dividends ...........................................................................................
Stock option compensation expense ...........................................................
Exercise of stock option..............................................................................
Treasury stock purchased ...........................................................................
Treasury stock sold.....................................................................................
Balance at March 31,2007 ........................................................................

32,973

Treasurystock

Retainedearnings

38,078

Total comprehensive income ......................................................................
Cash dividends ...........................................................................................
Stock option compensation expense ...........................................................
Exercise of stock option..............................................................................
Treasury stock purchased ...........................................................................
Treasury stock sold.....................................................................................
Balance at March 31,2005 ........................................................................
Comprehensive income:Net income.....................................................................................
Other comprehensive income (loss), net of tax
Foreign currency translation adjustments...........................
Net unrealized gains (losses) on securities.........................

Capitalsurplus

Accumulated
othercomprehensive
income (loss)

1,123
(362)

4,520
(68)
9

36,3171,547(7,474)
2,566
4,063
(68)
(81)

1,547
(7,474)
2,566
(457)
(90)
¥

32,36339,256

273,082

3,652(53,556)

294,797

Accumulated
othercomprehensive
income (loss)

Treasury
stock

Total
stockholders’equity(491,462)

2,184,896

Commonstock

CapitalsurplusRetainedearnings

Balance at March 31,2006 ........................................................................ $ 274,147
Comprehensive income:Net income.....................................................................................
Other comprehensive income (loss), net of tax
Foreign currency translation adjustments...........................
Net unrealized gains (losses) on securities.........................

314,672

U.S. Dollars (Thousands)
2,076,154
11,385

Total comprehensive income ......................................................................
Adjustment to initially apply SFAS 158, net of tax.....................................
Cash dividends ...........................................................................................
Stock option compensation expense ...........................................................
Exercise of stock option..............................................................................
Treasury stock purchased ...........................................................................
Treasury stock sold.....................................................................................

301,194

301,194
9,513(3,066)

9,513(3,066)

13,104(63,312)
21,737(3,872)(762)

F-7

38,289(576)
76

307,641
13,104(63,312)
21,73734,417(576)(686)

Commonstock

CapitalsurplusRetainedearnings$ 274,147

332,537

2,313,274

Accumulated
othercomprehensive
income (loss)

Treasury
stock

Total
stockholders’equity(453,673)

2,497,221

Yen (Millions)
Balance at March 31,2007 ........................................................................

See accompanying notes to consolidated financial statements.

F-8

30,936ADVANTEST CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended March 31, 2005, 2006 and 2007
2005

2006

2007

2007

Yen
(Millions)

Cash flows from operating activities:
Net income .....................................................................................
Adjustments to reconcile net income to net cash provided byoperating activities:
Depreciation and amortization..............................................
Deferred income taxes ..........................................................
Stock option compensation expense.....................................
Changes in assets and liabilities: ..........................................
Trade receivables .............................................................
Inventories .......................................................................
Trade accounts payable....................................................
Income taxes payable.......................................................
Accrued expenses ............................................................
Accrued warranty expenses .............................................
Accrued pension and severance cost................................
Other.....................................................................................

38,07841,37435,556

8,285
13,540
2,290

8,275
1,005
1,884

8,214
7,381
2,566

69,581
62,524
21,737

20,953
20,218(16,375)
3,311
4,445
969
(3,409)(1,978)(11,072)
108
7,627
12,506(1,261)610(329)(1,247)

15,563(2,054)(3,318)(10,586)815(641)(1,437)(3,108)131,834(17,399)(28,107)(89,674)
6,904(5,430)(12,173)(26,328)

Net cash provided by operating activities ..............
Cash flows from investing activities:
Proceeds from sale of available-for-sale marketable securities .....
Proceeds from sale of non-marketable securities ...........................
Purchases of marketable securities.................................................
Purchases of non-marketable securities .........................................
Proceeds from sale of property, plant and equipment ....................
Purchases of intangible assets ........................................................
Purchases of property, plant and equipment ..................................
Other ..............................................................................................

90,32759,48048,951

414,663

1,428
50
—
—
132
(470)
(8,738)
(652)

2,977
—
(2,256)(1,900)258(523)(7,071)
(27)

0
20
—
—
541
(897)
(7,511)
(166)

0
169
—
—
4,583
(7,598)(63,626)(1,406)

Net cash used in investing activities.......................
Cash flows from financing activities:
Principal payments on long-term debt ...........................................
Proceeds from sale of treasury stock..............................................
Payments to acquire treasury stock ................................................
Dividends paid ...............................................................................
Other ..............................................................................................

(8,250)(8,542)(8,013)(67,878)(4,543)939(54,511)(4,907)(14)(20,043)
6,378(57)(4,622)
8

(30)
3,913
(68)
(7,468)(9)(254)
33,147(576)(63,261)(77)

Net cash used in financing activities ......................
Net effect of exchange rate changes on cash and cash equivalents.....

(63,036)799(18,336)
4,337(3,662)
1,194(31,021)
10,114

Net change in cash and cash equivalents ............................................
Cash and cash equivalents at beginning of year..................................

19,840101,146

36,939120,986

38,470157,925

325,878
1,337,781

Cash and cash equivalents at end of year............................................

¥ 120,986

157,925

196,395$ 1,663,659¥

12,096401

29,28416$

Supplemental data:
Cash paid during the year for:
Income taxes..............................................................................
Interest.......................................................................................

¥

U.S. Dollars(Thousands)

6,740
447

See accompanying notes to consolidated financial statements.

F-9$

301,194

248,064136

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 andcomponent 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 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 thesemiconductor 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 forhandling semiconductor devices, device interfaces that serve as interfaces with the devices that are measured and operations
related to nano-technology products.
The services, support and others segment consists of comprehensive customer solutions provided in connection withthe above segments, support services, equipment lease business and others.
(b) Principles of Consolidation
The consolidated financial statements include the accounts 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 initial maturity of three months or lessfrom the date of purchase. Advantest considers all highly liquid debt instruments with original maturities of three months orless to be cash equivalents.
(d) 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
trade receivables. An allowance for doubtful accounts is provided at an amount calculated based on historical write off
experience, while a specific allowance for doubtful accounts is provided for the estimated amounts considered to beuncollectable after reviewing individual factors such as the customer’s current financial position, significant changes in thesemiconductor industry, other information that is publicly available and the customer’s credit worthiness.
(e) Inventories
Inventories are stated at the lower of cost or market. Cost is determined using the average cost method.
(f) Investment Securities
Investment securities at March 31, 2006 and 2007 consist of marketable and non-marketable equity securities, andinvestment in an affiliated company. Fair value is determined based on quoted market prices, projected discounted cash flowor other valuation techniques as appropriate.
Marketable Equity Securities
Advantest classifies its marketable equity securities as available-for-sale.

F-10

Available-for-sale securities are recorded at fair value. Unrealized gains and losses, net of the related tax effect, onavailable-for-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 otherthan temporary results in an impairment loss. The impairment is charged to earnings and a new cost basis for the security isestablished. Dividend income is recognized 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 ofchange 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 and prospects of each investee company, industry conditions in which the investee company operates,
the period of time the fair value of an available-for-sale security has been below the cost basis of the investment and otherrelevant factors. The impairment to be recognized is measured based on the amount by which the carrying amount of theinvestment 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 is determined by the average cost method.
Non-marketable Equity Securities
Non-marketable investment securities are carried at cost. On a periodic basis, Advantest evaluates the investments forpossible impairment. If the fair value of the investment securities is estimated to have declined and such decline is judged tobe other than temporary, Advantest recognizes an impairment of the investment and the carrying value is reduced to its fairvalue. The impairment is charged to earnings and a 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 a significant influence, but does nothold a controlling financial interest, is accounted for by the equity method. All significant intercompany profits fromaffiliates have been eliminated. e-Shuttle, Inc. is an investee which is accounted for by the equity method.
(g) Derivative Financial Instruments
All derivative instruments in the consolidated balance sheets are stated at fair value. The accounting for changes in thefair value (that is, gains or losses) of a derivative instrument depends on whether it has been designated and qualifies as partof a hedging relationship and, if so, the reason for holding the instrument. If certain conditions are met, entities may elect todesignate 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 thehedged exposure is a cash flow exposure, the effective portion of the gain or loss on the derivative instrument is reported
initially as a component of other comprehensive income (loss) and subsequently reclassified into earnings when theforecasted transaction affects earnings. Any amounts excluded from the assessment of hedge effectiveness as well as theineffective portion of the gain or loss are reported in earnings immediately. If the derivative instrument is not designated as ahedge, the gain or loss is recognized in earnings in the period of change.
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 notmeet the hedging criteria specified by Statement of Financial Accounting Standards (“SFAS”) No. 133, “Accounting for
Derivative Instruments and Hedging Activities”, as amended.
Foreign exchange forward contracts generally have maturities of several months. These contracts are used to reduce
Advantest’s risk 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 arerecognized in earnings under the caption of other income (expense).
Advantest does not, as a matter of policy, enter into derivative transactions for the purpose of speculation.
(h) Property, Plant and Equipment
Property, plant and equipment is stated at cost.

F-11

Depreciation is 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. 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 furniture and fixtures.
Depreciation expense was ¥7,231 million, ¥7,517 million and ¥7,583 million ($64,235 thousand) for the years ended
March 31, 2005, 2006 and 2007, respectively.
(i) Intangible Assets and Other Assets
Intangible assets principally consist of goodwill and computer software for internal-use. Other assets consist ofinvestments (other than investment securities), security deposits and prepaid expenses, of which no one individual item wasmaterial to the consolidated financial statements of Advantest.
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 the preliminary 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
are capitalized subsequent to the attainment of technological feasibility until the product becomes available for generalrelease to customers in accordance with the provisions of SFAS No. 86, “Accounting for the Costs of Computer Software to
Be Sold, Leased, or Otherwise 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 is no longer amortized, but instead is tested for
impairment at least annually. Intangible assets with definite useful lives are amortized over their respective estimated useful
lives and reviewed for impairment in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of LongLived Assets”. Any recognized intangible assets determined to have an indefinite useful life are not amortized, but instead aretested for impairment until its life is determined to be no longer indefinite.
Advantest performs its annual impairment test at the end of each year. Advantest completed its annual impairment test
at March 31, 2006 and 2007 and identified no indication of impairment.
(j) 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 berecoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset tofuture 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 ofthe assets.
(k) 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 and support during warranty periods, estimated repair andsupport expenses over the warranty period are accrued based on the historical ratio of actual repair and support expenses tocorresponding sales.
(l) Accrued Pension and Severance Cost
The Company and certain of its subsidiaries have retirement and severance defined benefit plans covering substantiallyall of their employees. Prior service benefit and cost, and actuarial gain and loss recognized in accumulated othercomprehensive income (loss) are amortized using the straight-line method over the average remaining service period of
active employees. See Note (17) to the consolidated financial statements for further discussion.

F-12

(m) Revenue Recognition
GeneralAdvantest recognizes revenue when there is persuasive evidence of an arrangement, delivery has occurred or theservices have been rendered, the sales price is fixed or determinable and collection of the related receivable is reasonably
assured in accordance with the 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 whenpersuasive 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”) Statementof 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 recognizedwhen 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 acceptanceis uncertain, revenue is deferred until customer acceptance has been received. When the final payment is subject to customer
acceptance, a portion of revenue for the final payment is deferred until an enforceable claim has become effective.
Sales of products and component which do not require installation service by Advantest is recognized upon shipment if
the terms of the sale are free on board (FOB) shipping point or upon delivery if the terms are FOB destination which coincidewith the passage 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) under SOP 97-2) offair value to allocate revenue to elements in multiple element arrangements and recognizes revenue when the criteria forrevenue 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 fairvalue 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.
(n) Shipping and Handling Costs
Shipping and handling costs totaled ¥1,329 million, ¥1,451 million and ¥1,541 million ($13,054 thousand) for the years
ended March 31, 2005, 2006 and 2007, respectively, and are included in selling, general and administrative expenses in the
consolidated statements of income.
(o) Research and Development
Research and development costs totaled ¥26,280 million, ¥26,927 million and ¥29,509 million ($249,970 thousand) for
the years ended March 31, 2005, 2006 and 2007, respectively, and are expensed as incurred.
(p) Advertising Costs
Advertising costs totaled ¥798 million, ¥469 million and ¥374 million ($3,168 thousand) for the years ended March 31,
2005, 2006 and 2007, respectively, and are expensed as incurred.

F-13

(q) Stock-Based Compensation
During the year ended March 31, 2005, Advantest adopted the fair value recognition provision of SFAS No. 123(revised 2004) (SFAS 123R), “Share Based Payments”, using the modified retrospective method, effective April 1, 2004. The
fair values of the option are estimated using a Black Scholes option pricing model and amortized to expense over therequisite service period.
Expected dividend yield is determined by the Company’s dividend ratio of the past and other associated factors. Risk
free interest rate is determined by government debt 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 isdetermined by the Company’s option exercise history, post vesting employment termination behavior for similar grants, andother pertinent factors.
(r) 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 and tax credit carryforwards. Deferred tax assets andliabilities are measured 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 isrecognized in income in the period that includes the enactment date. Advantest records a valuation allowance to reduce thedeferred tax assets to the amount that is more likely than not realizable.
(s) Net Income per Share
Basic net income per share is calculated by dividing net income 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.
(t) 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 the Japanese Yen. Assets and liabilities are translated at the periodend 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.
The financial statements of foreign operations whose functional currency is the Japanese Yen are remeasured into theJapanese Yen. All exchange gains and losses from remeasurement of monetary assets and liabilities denominated in the local
currency are included in other income (expense) for the period in which the remeasurement is made.
(u) Foreign Currency Transactions
Assets and liabilities denominated in foreign currencies at the balance sheet date are remeasured at the applicablecurrent rate prevailing at that date. All revenue and expenses associated with foreign currencies are remeasured at the rate ofexchange prevailing when such transactions occur.
Foreign exchange gains (losses) were (¥77) million, ¥757 million and ¥1,323 million ($11,207 thousand) for the years
ended March 31, 2005, 2006 and 2007, respectively. Those gains (losses) are included in other income (expense) in theaccompanying consolidated statements of income.
(v) Use of Estimates
Management of Advantest has made a number of estimates and assumptions relating to the reporting of assets andliabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and thereported amounts of revenues 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 andassumptions include valuation allowances for trade receivables, inventories and deferred tax assets, various accruals such asaccrued warranty expenses, and assets and obligations related to employees retirement and severance plans. Actual results
could differ from those estimates.

F-14

(w) New Accounting Standards
In June 2006, the FASB issued FASB Interpretation No.48, “Accounting for Uncertainty in Income Taxes, aninterpretation of FASB Statement No.109 (“FIN 48”). FIN 48 clarifies the accounting for uncertainty in income taxes byprescribing the recognition threshold a tax position is required to meet before being recognized in the financial statements. It
also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, andtransition. FIN48 is effective for fiscal years beginning after December 15, 2006 and is required to be adopted by Advantest
in the first quarter beginning April 1, 2007. Advantest is currently evaluating the effect that the adoption of FIN 48 will haveon its consolidated results of operations and financial condition but does not expect FIN 48 to have a material impact.
In September 2006, the FASB issued SFAS 157, “Fair Value Measurements”. SFAS 157 defines fair value, establishes
a framework for measuring fair value, and expands disclosures about fair value measurements. SFAS 157 is effective forfiscal years beginning after November 15, 2007 and is required to be adopted by Advantest in the first quarter beginning
April 1, 2008. Advantest is currently evaluating the effect that the adoption of SFAS 157 will have on its consolidated resultsof operations and financial condition.
In September 2006, the FASB issued 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 plan sponsors ofdefined benefit pension and other postretirement benefit plans (collectively, “postretirement benefit plans”) to recognize thefunded status of their postretirement benefit plans in the consolidated balance sheet, measure the fair value of plan assets andbenefit obligations as the date of the fiscal year-end consolidated balance sheets, and provide additional disclosures.
On March 31, 2007, Advantest adopted the recognition and disclosure provisions of SFAS 158. The effect of adopting
SFAS 158 on Advantest’s financial condition at March 31, 2007 has been included in the accompanying consolidated
financial statements. SFAS 158 did not have an effect on Advantest’s consolidated financial condition at March 31, 2006.
SFAS 158’s provisions regarding the change in the measurement date of postretirement benefit plans is effective for fiscal
years ending after December 15, 2008. Advantest does not expect the change in the measurement date of postretirement
benefit plans to have a material impact as Advantest already uses a measurement date of March 31 for its plans. See Note 17
for further discussion of the effect of adopting the recognition provision of SFAS 158 on Advantest’s consolidated financial
statements.
In September 2006, the Securities and Exchange Commission (“SEC”) staff published Staff Accounting Bulletin
No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial
Statements” (“SAB 108”). SAB 108 provides guidance on the consideration of the effects of prior year misstatements inquantifying current year misstatements for the purpose of a materiality assessment. SAB 108 requires quantification of theeffects of financial statement errors on each of the balance sheets and statements of income and the related financial
statement disclosures. SAB 108 was adopted by Advantest in the year ended March 31, 2007. The adoption of SAB 108 did
not have a material impact on Advantest’s consolidated results of operations and financial condition.
In February 2007, the FASB issued SFAS No.159, “The Fair Value Option for Financial Assets and Financial
Liabilities-Including an amendment of FASB Statement No.115” (“SFAS 159”). SFAS 159 provides companies with an
option to measure selected financial assets and liabilities at fair value. Unrealized gains and losses on items for which the fairvalue option has been elected will be recognized in earnings. SFAS 159 is effective for fiscal years beginning afterNovember 15, 2007 and is required to be adopted by Advantest in the first quarter beginning April 1, 2008. Advantest is
currently evaluating the effect that the adoption of SFAS 159 will have on its consolidated results of operations and financial
condition.
(x) Reclassifications
Certain reclassifications have been made to the prior years’ consolidated financial statements to conform with thepresentation used for the year ended March 31, 2007.
(2) U.S. Dollar Amounts
U.S. dollar amounts presented in the consolidated financial statements and related notes are included solely for theconvenience of the reader. These translations should not be construed as representations as to what the yen amounts actually
represent, or have been or could be converted into, U.S. dollars. For this purpose, a rate of ¥118.05 per U.S.$1, theapproximate current exchange rate at March 30, 2007, was used for the convenience translation of the accompanying
financial results of Advantest as of and for the year ended March 31, 2007.

F-15

(3) Trade Receivables
Trade receivables at March 31, 2006 and 2007 are as follows:
2006

2007

2007

Yen
(Millions)

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

¥

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

U.S. Dollars(Thousands)

4,905
66,77910,01644,453

71,6842,117

54,469205

69,56754,264$

84,846
376,561
461,407
1,737$

459,670(4) Allowance for Doubtful Accounts
Changes in the allowance for doubtful accounts for the years ended March 31, 2005, 2006 and 2007 were as follows:
2005

2006

2007

2007

Yen
(Millions)

U.S. Dollars(Thousands)

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

2,464
(239)
(51)

2,174
(45)
(12)

2,117 $
(190)
(1,722)

17,933(1,609)(14,587)

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

2,174

2,117

205

1,737

$

(5) Inventories
Inventories at March 31, 2006 and 2007 are composed of the following:
2006

2007

2007

Yen
(Millions)Finished goods .................................................................................
Work in process ...............................................................................
Raw materials and supplies..............................................................

U.S. Dollars(Thousands)

¥

6,974
15,944
6,993

7,616
18,977
5,383$

64,515
160,754
45,599¥29,911

31,976$

270,868(6) Property, Plant and Equipment
Property, plant and equipment at March 31, 2006 and 2007 is composed of the following:
2006

2007

2007

Yen
(Millions)Land .............................................................................................
Buildings......................................................................................
Machinery and equipment ...........................................................
Furniture and fixtures ..................................................................
Construction in progress ..............................................................

¥

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

U.S. Dollars(Thousands)

18,99549,17530,35024,33569

18,60649,266
31,161
26,101354

122,924
72,131

125,488
75,83850,79349,650$157,611417,332
263,964
221,101
2,999
1,063,007
642,423$

420,584(7) Intangible Assets and Other Assets
The components of acquired intangible assets excluding goodwill at March 31, 2006 and 2007 were as follows:

F-16

2006

2007

Gross carrying
amountAccumulated
amortization

Gross carrying
amountAccumulated
amortization

Yen(Millions)Intangible assets subject to amortization:
Software ....................................... ¥Other.............................................

5,551
422

4,425 ¥
342

4,963
297

3,583
226

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

5,973

4,767 ¥

5,260

3,809

¥

2007
Gross carrying
amountAccumulated
amortization

U.S. dollars(Thousands)

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

$

42,042
2,515

30,352
1,914

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

$

44,55732,266

Intangible assets not subject to amortization at March 31, 2006 and 2007 were insignificant.
Aggregate amortization expense for the years ended March 31, 2005, 2006 and 2007 were ¥1,054 million, ¥758 millionand ¥632 million ($5,354 thousand), respectively. Estimated amortization expense for the next five years ending March 31
are: ¥499 million ($4,227 thousand) in 2008, ¥353 million ($2,990 thousand) in 2009, ¥231 million ($1,957 thousand) in
2010, ¥108 million ($915 thousand) in 2011, and ¥44 million ($373 thousand) in 2012, respectively.
Changes in the carrying amount of goodwill for the years ended March 31, 2005, 2006 and 2007 were as follows:
2005

2006

2007

2007

Yen
(Millions)

U.S. Dollars(Thousands)

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

¥

1,426
—

1,426
—

1,426 $—

12,080—

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

¥

1,426

1,426

1,426 $

12,080Goodwill relates to the semiconductor and component test system segment.
(8) Investment Securities
Marketable securities consist of equity securities. The acquisition cost, gross unrealized gains, gross unrealized losses
and fair value at March 31, 2006 and 2007 were as follows:
March 31,2006

March 31,2007

March 31,
2007

Yen
(Millions)

U.S. Dollars(Thousands)

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

¥

4,424
4,559
8

4,224
3,956
10

$

35,781
33,51285

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

¥

8,975

8,170

$

69,208Gross realized gains and losses on available-for-sales equity securities for the years ended March 31, 2005, 2006 and2007 were as follows:

F-17

2005
Gross
realized
gains

Gross
realized
losses2006
Net
realized
gains(losses)Grossrealized
gains

Yen(Millions)Noncurrent:
Available-for-sale:
Equity securities ............................................ ¥

934

—

Gross
realized
losses934 ¥ 1,040

0

—

1,040

2007
Net
realized
gains(losses)Grossrealized
gains

Yen(Millions)Noncurrent:
Available-for-sale:
Equity securities ............................................ ¥Net
realized
gains(losses)

Yen(Millions)

2007
Gross
realized
gains

Gross
realized
lossesGrossrealized
lossesNet
realized
gains(losses)

U.S. dollars(Thousands)

—

0 $

0

—

0

Net realized gains and losses based on the averaged cost method for the years ended March 31, 2005, 2006 and 2007
were ¥934 million, ¥1,040 million and ¥0 million ($0 thousand), respectively, and they are included in “other income(expense)” in the consolidated statements of income, 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, 2005, 2006 and 2007 were¥1,428 million, ¥2,977 million and ¥0 million ($0 thousand), respectively. For the year ended March 31, 2007, Advantest
recognized impairment losses of ¥200 million ($1,694 thousand) on available-for-sale equity securities, which wereconsidered 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 bylength of time that individual securities have been in a continuous unrealized loss position, at March 31, 2007, were as
follows:
Less than 12 months
Fair
value

12 months or longer

Gross
unrealized
losses

Fair
value

Gross
unrealized
lossesYen (Millions)Noncurrent:
Available-for-sale:
Equity securities .......................................................................

43

10

Less than 12 months
Fair
value

—

—

12 months or longer

Gross
unrealized
losses

Fair
value

Gross
unrealized
lossesU.S. dollars (Thousands)

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

364

85

—

—

Advantest maintains non-marketable investment securities, which are recorded at cost. The carrying amounts of nonmarketable investment securities were ¥3,298 million and ¥3,200 million ($27,107 thousand) at March 31, 2006 and 2007,
respectively. Advantest has not estimated the fair value of non-marketable equity securities in the amount of ¥3,298 millionand ¥3,100 million ($26,260 thousand) at March 31, 2006 and 2007, respectively, since it is not practicable to estimate thefair value of the investments and Advantest did not identify any events or changes in circumstances that might have hadsignificant adverse effect on the fair value of the investments. It is not practicable to estimate the fair value of the investments
in non-marketable investment securities 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 evaluatedF-18

to determine whether the investments were impaired and the impairment, if any, is other than temporary. If the impairment isother than temporary, Advantest recognizes an impairment loss.
(9) Derivative Financial Instruments
Derivative financial instruments are utilized by Advantest primarily to reduce foreign currency exchange risk.
Advantest does not hold or issue derivative financial instruments for trading purposes. Advantest generally does not requireor place collateral for these derivative financial instruments.
Derivative financial instruments contain an element of risk in the event the counterparties are unable to meet the termsof the agreements. 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 had foreign exchange forward contracts to exchange currencies among Japanese yen, U.S. dollars and Euroat March 31, 2006 and 2007. The notional amounts of these contracts were ¥10,929 million at March 31, 2006 and¥5,355 million ($45,362 thousand) at March 31, 2007. The fair values of these contracts at March 31, 2006 and 2007 areshown in Note (10) to the consolidated financial statements. These contracts do not qualify for hedge accounting since they
do not meet the hedging criteria specified by SFAS No. 133. Changes in the fair value are recognized in earnings under thecaption of “other income (expense)”.
(10) Fair Value of Financial Instruments
The following table presents the carrying amounts and estimated fair values of Advantest’s financial instruments at
March 31, 2006 and 2007, except for cash and cash equivalents, 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
specific point in time based on relevant market information and information about the financial instrument. These estimates
are subjective in nature and involve uncertainties and matters of significant judgement and, therefore, cannot be determinedwith precision. Changes in assumptions could significantly affect the estimates.
2006
Carrying
amount

2007
Fair
value

Carrying
amountFair
value

Yen (Millions)

Financial assets:
Investment securities for which it is:Practicable to estimate fair value ..........................................................
Not practicable to estimate fair value ...................................................
Foreign exchange forward contracts ..............................................................
Financial liabilities:
Foreign exchange forward contracts ..............................................................
Long-term debt including current portion ......................................................

¥ 8,975
3,298
57

8,975
—
57

¥ 8,270
3,100
51

8,270
—
51

15
40

15
43

—
10

—
10

2007
Carrying
amountFair
value

U.S. Dollars(Thousands)

Financial assets:
Investment securities for which it is:Practicable to estimate fair value .................................................................
Not practicable to estimate fair value ..........................................................
Foreign exchange forward contracts .....................................................................
Financial liabilities:
Foreign exchange forward contracts .....................................................................
Long-term debt including current portion .............................................................

$ 70,055
26,260432

70,055
—
432

—
85

—
85

The carrying amounts shown in the table are included in the consolidated balance sheets under the indicated captions.
And the carrying amounts of foreign exchange forward contracts are included in other current assets and other current
liabilities.

F-19

The following methods and assumptions were used to estimate the fair value of each class of financial instruments:
Cash and cash equivalents, 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.
Investment securities: The fair values of equity investments are based on quoted market prices at the reporting date forthose investments. It was not practicable to estimate the fair value of nonpublic companies; those investments are carried atcost.
Long-term debt: The fair value of long-term debt is estimated by discounting future cash flows of each instrument at
rates currently offered to Advantest for similar debt instruments of comparable maturities by financial institutions.
Foreign exchange forward contracts: The fair value of foreign exchange forward contracts are estimated by obtaining
quotes from financial institutions.
(11) Leases—Lessor
Advantest provides leases that enable its customers to use semiconductor test systems. All leases are classified as
operating leases. Lease terms range from 1 year to 5 years, and certain of the lease agreements are cancelable. The grossamount of machinery and equipment and the related accumulated depreciation under operating leases as of March 31, 2006
and 2007 were as follows:
2006

2007

2007

Yen
(Millions)

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

U.S. Dollars(Thousands)

¥

9,687
4,890

11,3306,162$

95,97652,198

¥

4,797

5,168

$

43,778Depreciation of machinery and equipment held under operating leases are included with depreciation expense. Theseassets are included in property, plant and equipment.
Future minimum lease income under noncancelable operating leases as of March 31, 2007 is as follows:
Yen(Millions)Year ending March 31

U.S. Dollars(Thousands)

2008 ..................................................................................................
2009 ..................................................................................................
2010 ..................................................................................................
2011 ..................................................................................................
2012 ..................................................................................................

¥

1,757 $
276
58
17
1

14,884
2,338
491
144
8

Total minimum lease income ..................................................

¥

2,109 $

17,865(12) Leases—Lessee
Tangible and intangible assets under capital leases at March 31, 2006 and 2007 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, 2005, 2006 and 2007 was¥1,423 million, ¥1,408 million and ¥1,494 million ($12,656 thousand), respectively.
Future minimum lease payments under noncancelable operating leases (with initial or remaining lease terms in excess
of one year) as of March 31, 2007 are as follows:
Yen(Millions)Year ending March 31

2008 ..................................................................................................................
2009 ..................................................................................................................
2010 ..................................................................................................................
2011 ..................................................................................................................

F-20

¥

326 $
153
73
5

U.S. Dollars(Thousands)

2,762
1,296
618
42

Yen
(Millions)Year ending March 31

2012 ..................................................................................................................
Thereafter..........................................................................................................
Total minimum lease payments...............................................................

¥

U.S. Dollars(Thousands)

5
12

42
102

574 $

4,862

(13) Short-Term and Long-Term Debt
Long-term debt at March 31, 2006 and 2007 consists of the following:
2006

2007

2007
U.S. Dollars(Thousands)

Yen(Millions)

Unsecured borrowings, due 2006 to 2008 with annual interest rates ranging from 1.05% to4.125% .........................................................................................................................
Total long-term debt................................................................................................
Less current portion ..........................................................................................................
Long-term debt, excluding current portion .............................................................

¥

40
40
30

10 $
10
10

85
85
85

¥

10

—

—

$

The aggregate maturities of long-term debt for each of the five years subsequent to March 31, 2007 are as follows:
Yen(Millions)Year ending March 31

U.S. Dollars(Thousands)

2008 ..................................................................................................................

¥

10 $

85

Total long-term debt................................................................................

¥

10 $

85

(14) 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 income are as follows:
2005

2006

2007

2007

Yen
(Millions)

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

U.S. Dollars(Thousands)¥ 47,020
14,78854,877
12,57745,229 $15,861

383,135
134,358¥ 61,808

67,45461,090 $517,493

2006

2007

2005

2007

Yen
(Millions)

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

¥

U.S. Dollars(Thousands)

5,719
4,471

19,831
5,244

14,227
3,911

13,424
116

747
258

8,665
(1,283)¥ 23,730

26,08025,520$120,517
33,13073,401(10,868)$

216,180

The Company and its domestic subsidiaries are subject to a corporate tax of 30%, an inhabitant’s tax of between 18.1%
and 20.7% and a deductible business tax of between 7.2% and 10.1%, which in the aggregate resulted in a statutory income
tax rate of 40.3% for the years ended March 31, 2005, 2006 and 2007.

F-21

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 earned ............................................................................................................
Expenses not deductible for tax purposes ........................................................................
Undistributed earnings of foreign subsidiaries.................................................................
Change in valuation allowance.........................................................................................
Other, net..........................................................................................................................

2005

2006

2007

40.3%

40.3%

40.3%

(2.3)
(1.4)
1.7
—
(0.3)
0.4

(1.8)
(3.8)
1.3
2.2
(0.0)
0.5

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

38.4%

38.7%

41.8%

In 2007, Advantest has recognized additional deferred tax liabilities on undistributed earnings of certain foreignsubsidiaries since it changed the dividend policy to have earnings from those subsidiaries remitted in the form of dividends inthe future periods.
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax
liabilities at March 31, 2006 and 2007 are presented below.
2006

2007

2007

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.............................................................................................................

¥

U.S. Dollars(Thousands)

4,379
1,696
4,970
4,891
1,361
330
1,528
18
5,184

3,343
1,532
3,303
4,502
1,701
421
2,506
330
3,690

$

Total gross deferred tax assets ............................................................
Less valuation allowance ....................................................................

24,357
1,263

21,328—

180,669—

Net deferred tax assets ........................................................................

23,094

21,328

180,669

Deferred tax liabilities:
Net unrealized gains on marketable securities .............................................
Undistributed earnings of foreign subsidiaries.............................................
Other.............................................................................................................

1,807
1,467
46

1,563
8,160
36

13,24069,123305

Total gross deferred tax liabilities.......................................................

3,320

9,759

82,668Net deferred tax assets ........................................................................

¥ 19,774

11,569$28,31912,97827,98038,136
14,4093,566
21,2282,795
31,25898,001

Included in other current liabilities and other liabilities are deferred tax liabilities of ¥1,312 million, ¥336 million($2,846 thousand) at March 31, 2006 and 2007, respectively.
The net changes in the valuation allowance for the years ended March 31, 2005, 2006 and 2007 were an increase of¥876 million and decreases of ¥1,762 million, and ¥1,263 million ($10,699 thousand), respectively.
Net operating loss carryforwards utilized during the years ended March 31, 2005, 2006 and 2007 were ¥31,132 million,¥777 million and ¥486 million ($4,117 thousand), respectively.
At March 31, 2007, Advantest had net operating loss carried forwards for income tax purposes of ¥1,046 million($8,861 thousand) which are available to reduce future income taxes, if any. These operating losses will expire starting fromthe year ending March 31, 2013 through the year ending March 31, 2014.

F-22

Management intends to reinvest certain undistributed earnings of its foreign subsidiaries for an indefinite period of time.
As a result, no deferred tax liability has been recognized on undistributed earnings of these subsidiaries not expected to beremitted in the foreseeable future, aggregating ¥25,639 million ($217,188 thousand) at March 31, 2007. The related deferred
tax liability would have been ¥1,111 million ($9,411 thousand) at March 31, 2007.
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 scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning
strategies in making this assessment.
At March 31, 2007, Advantest has recorded on its consolidated balance sheet, net deferred tax assets of ¥11,569 million($98,001 thousand). 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 and other factors, management believes it is more likely than not that Advantest will realize thebenefits of these deductible differences at March 31, 2007. 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 could be significant.
(15) Other Comprehensive Income (Loss)
The accumulated balances for each classification of other comprehensive income (loss), net of tax, for the years ended
March 31, 2005, 2006 and 2007 are as follows:
Foreigncurrencytranslation
adjustments

Net unrealized
gains (losses) on
securities,
net of tax

Minimum
pensionliability
adjustments,
net of tax

Pensionrelatedadjustment,
net of tax

Accumulated
othercomprehensive
income (loss)

Yen (Millions)

Balance at April 1, 2004 ............................. ¥Change during the year ...............................
Reclassification adjustments for realized
portion....................................................
Balance at March 31, 2005 ......................... ¥Change during the year ...............................
Reclassification adjustments for realized
portion....................................................
Balance at March 31, 2006 ......................... ¥Change during the year ...............................
Reclassification adjustments for realized
portion....................................................
Adjustment to initially apply SFAS 158 .....
Balance at March 31, 2007 ......................... ¥(8,087)
1,635

1,422
1,086

(1,396)
1,396——(8,061)
4,117

—

(934)

—

—

(934)

1,635

152

1,396

—

3,183

(6,452)
5,074

1,574
1,862

—
—

—
—

(4,878)
6,936

—

(714)

—

—

(714)

5,074

1,148

—

—

6,222

(1,378)
1,123

2,722
(362)

—
—

—
—

1,344
761

—
—

(0)
—

—
—

—
1,547

(0)
1,547

1,123

(362)

—

1,547

2,308

(255)

2,360

—

1,547

3,652

Net
unrealized
gains(losses) on
securities,
net of tax

Minimum
pensionliability
adjustments,
net of tax

PensionrelatedAdjustment,
net of tax

Accumulated
othercomprehensive
income (loss)

Foreigncurrencytranslation
adjustments

U.S. Dollars (Thousands)

Balance at March 31, 2006 ................................ $Change during the year ......................................
Reclassification adjustments for realized
portion...........................................................

(11,673)
9,513
—

F-23

23,058(3,066)————

11,385
6,447

(0)

—

—

(0)

Foreign
currencytranslation
adjustments

Net
unrealized
gains(losses) on
securities,
net of tax——

Minimum
pensionliability
adjustments,
net of tax

PensionrelatedAdjustment,
net of tax

Accumulated
othercomprehensive
income (loss)

U.S. Dollars (Thousands)

Adjustment to initially apply SFAS 158 ............
Balance at March 31, 2007 ................................ $—13,104

13,1049,513(3,066)—

13,104

19,551(2,160)19,992—

13,10430,936

The related tax effects allocated to each component of other comprehensive income (loss) for the years ended March 31,
2005, 2006 and 2007 are as follows:
Before-tax
amountTax(expense)or benefit

Net-of-tax
amountYen (Millions)Year ended March 31, 2005:
Foreign currency translation adjustments ..............................................................
Net unrealized gains on securities:
Net unrealized gains arising during the year ................................................
Less reclassification adjustments for net gains realized in earnings ............

¥

1,635

—

1,635

1,360
(934)

(274)
—

1,086
(934)

426
2,339

(274)
(943)

152
1,396

¥

4,400

(1,217)

3,183

¥

5,074

—

5,074

3,119
(1,076)(1,257)
362

1,862
(714)

¥

2,043
7,117

(895)
(895)

1,148
6,222

¥

1,123

—

1,123

(607)

245

(362)

516

245

761

Before-tax
amountTax(expense)or benefit

Net-of-tax
amountNet unrealized gains .....................................................................................
Minimum pension liability adjustments.................................................................
Other comprehensive income (loss).......................................................................
Year ended March 31, 2006:
Foreign currency translation adjustments ..............................................................
Net unrealized gains on securities:
Net unrealized gains arising during the year ................................................
Less reclassification adjustments for net gains realized in earnings ............
Net unrealized gains .....................................................................................
Other comprehensive income (loss).......................................................................
Year ended March 31, 2007:
Foreign currency translation adjustments ..............................................................
Net unrealized gains on securities:
Net unrealized gains arising during the year ................................................
Other comprehensive income (loss).......................................................................

¥

U.S. Dollars (Thousands)

Year ended March 31, 2007:
Foreign currency translation adjustments ..............................................................
Net unrealized gains on securities:
Net unrealized gains arising during the year ................................................
Other comprehensive income (loss).......................................................................

$

$

9,513

—

9,513

(5,142)

2,076(3,066)

4,371

2,076

6,447

(16) Stock-Based Compensation
Advantest has stock-based compensation plans using stock options or detachable warrants as incentive plans for
directors and selected employees.
On October 1, 2006, a two for one stock split was made to shares of the common stock. The number of shares andexercise prices are disclosed based on the number and price after such stock split.

F-24

In February 2001, the Company issued unsecured bonds with detachable warrants. Simultaneously with the issuance of
the unsecured bonds, the Company purchased all of the detachable warrants from the underwriter and distributed suchwarrants to directors and selected employees of the Company and its subsidiaries. By exercising a warrant, directors andselected employees could purchase the shares of the Company, the number of which was 639,000 shares at the exercise priceof ¥7,009 for the warrant issued in February 2001. The warrants were granted with an exercise price equal to 1.05 times theclosing price of the Company’s shares traded on the Tokyo Stock Exchange on the date of the grant. Under the plan, 3,195
warrants in February 2001 was issued. The warrants vested fully immediately, and were exercisable up to 4 years from thedate of grant. For financial reporting purposes, this transaction was accounted for as the issuance of debt to third parties andseparately as the issuance of the warrant to directors and employees. All unexercised warrants issued expired in accordancewith their original terms during the year ended March 31, 2005.
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 priceof 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 andare 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 commonshares of the preceding month on the date of grant, (2) the closing price of the Company’s common shares traded on theTokyo 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 than March 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’s common 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 offoreign subsidiaries 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 to the higher of (1) 1.05 times the average price of the Company’s common shares of thepreceding 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 June 2003 options were granted. All of the options havean 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’s common 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
approved by the Board of Directors. The number of granted shares totaled 8,000. Options were granted with an exercise priceof ¥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 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

F-25

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’s common 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 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 priceof ¥6,702 per share that is equal to the higher of (1) 1.05 times the average price of the Company’s common shares of thepreceding 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’s common 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 priceof ¥6,218 per share that is equal to the higher of (1) 1.05 times the average price of the Company’s common shares of thepreceding 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 2005 options. The
options have an exercise period of 4 years and are exercisable from April 1, 2007.
The exercise price of the stock options is subject to adjustment, if there is a stock split or consolidation of shares, or if
new shares 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, 2005, 2006 and 2007 are as follows:
2005

2006
Weighted
average
exercise
price

Number ofshares2007
Weighted
average
exercise
price

Number ofshares

Weighted
average
exercise
price

Number ofsharesOutstanding at beginning of year............
Granted ...................................................
Exercised ................................................
Expired....................................................
Forfeited..................................................

3,545,000 ¥
1,530,000(304,000)(643,000)
—

3,987
3,732
2,816
6,991
—

4,128,000 ¥
1,545,980(1,816,000)
—
—

3,511
4,304
3,512
—
—

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

3,828
5,882
3,877
—
3,582

Outstanding at end of year ......................

4,128,000

3,511

3,857,980

3,828

4,297,980

4,582

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

2,598,000

3,380

2,320,000

3,511

2,713,980

¥

¥

¥

3,824

Stock based compensation expense recognized were ¥2,290 million, ¥1,884 million and ¥2,566 million ($21,737
thousand) were included in selling, general and administrative expenses for the years ended March 31, 2005, 2006 and 2007,
respectively. The recognized tax benefit related was ¥697 million ($5,904 thousand) for the year ended March 31, 2007 due
to a change in the Japanese tax law effective April 1, 2006.
The weighted average fair value per share for stock options that were granted during the years ended March 31, 2005,
2006 and 2007 were ¥1,497, ¥1,219 and ¥1,476 ($13), respectively. These figures were calculated based on the Black
Scholes option pricing model by using the following weighted average estimates:

F-26

2005

Expected dividend yield..................................................................
Risk free interest rate ......................................................................
Volatility .........................................................................................
Expected life ...................................................................................

0.5%
0.6%
56.6%
4 years

2006

0.5%
0.4%
51.0%
2.4 years

2007

0.5%
1.1%
35.7%
3.1 years

Cash proceeds from option exercises under the Company’s stock option plans for the years ended March 31, 2005,
2006 and 2007 was ¥ 937 million, ¥ 6,377 million and ¥3,906 million ($33,088 thousand), respectively. The total fair valueof shares vested during the years ended March 31, 2005, 2006 and 2007 was ¥ 1,946 million, ¥ 2,300 million and¥2,102 million ($17,806 thousand), respectively. The total intrinsic values of options exercised for the years ended March 31,
2005, 2006 and 2007 was ¥ 385 million, ¥ 4,893 million and ¥1,967 million ($16,662 thousand), respectively.
At March 31, 2007, all of the outstanding stock options were as follows:
Outstanding

Exercise price

¥

2,580
3,732 4,610
5,8806,702

Number ofoptions

446,000 ¥Weighted
average
exercise
price

Exercisable
Weighted
averageremaining
contractual
life

2,580

1.0 years

2,264,000

4,064

2.6 years

1,587,980

5,884

4,297,980

4,582

Number ofoptions

446,000 ¥Weighted
average
exercise
price

Weighted
averageremaining
contractual
life

2,580

1.0 years

2,264,000

4,064

2.6 years

4.0 years

3,980

6,702

3.0 years

2.9 years

2,713,980

3,824

2.3 years

The aggregate intrinsic values of stock options outstanding and exercisable at March 31, 2007 were ¥3,822 million($32,376 thousand) and ¥3,822 million ($32,376 thousand), respectively.
(17) Accrued Pension and Severance Cost
The Company and certain of its subsidiaries have unfunded retirement and severance plans. On terminating
employment, substantially all employees of the Company and certain subsidiaries are entitled to lump-sum payments.
The Company and its subsidiaries also had a contributory defined benefit retirement and severance plan covering
substantially all employees. The contributory plan mainly represents the Employees’ Pension Fund (“EPF”) plan, composedof the substitutional portions based on the pay-related part of the old age pension benefits prescribed by the Welfare Pension
Insurance Law in Japan and the corporate portions based on contributory defined benefit pension arrangements established at
the discretion of the Company and its subsidiaries.
In January 2003, the Emerging Issues Task Force reached a final consensus on Issue No. 03-2 (“EITF 03-2”),“Accounting for the Transfer to the Japanese Government of the Substitutional Portion of Employee Pension Fund
Liabilities,” which addresses accounting for a transfer to the Japanese government of a substitutional portion of an EPF.
On October 1, 2004, the Company and certain of its consolidated domestic subsidiaries received approval from the
Minister of Health and Labor to return the substitutional portion of its EPF for the prior employees’ services under thetransfer of its EPF to the defined benefit corporate pension plan, and made the payment of the amount pertinent to the return(minimum liability reserve) to the national treasury on February 24, 2005. Advantest accounted for the elimination of future
benefits and relief of past obligations with the transfer of assets as the culmination of a series of steps in a single settlementtransaction and recognized a net gain of ¥3,317 million through these transactions for the year ended March 31, 2005, whichis included in selling, general and administrative expenses and consists of ¥6,116 million of a subsidy from the government,
calculated as the difference between the obligation settled and the plan assets transferred to the government, and¥2,799 million of a settlement loss on recognition of related unrecognized actuarial loss.
Effective April 1, 2005, the Company and its domestic subsidiaries amended their severance indemnity plan byintroducing a “point-based benefits system,” under which benefits are calculated based on accumulated points allocated to
employees each year according to their job classification and their performance.
Effective April 1, 2005, the Company and its domestic subsidiaries amended their defined benefit pension plans, and acash balance pension plan was established. Under a cash balance pension plan, the benefits are calculated based on

F-27

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 of a market interest rate. These amendments resulted in a decreasein the Company’s projected benefit obligation.
On March 31, 2007, Advantest adopted the recognition and disclosure provisions of SFAS 158. 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 the unrecognized 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 suchamounts. Further, actuarial gains and losses that arise in subsequent periods and are not recognized as net periodic benefit
cost in the same periods will be recognized as a component 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 inaccumulated other comprehensive income (loss) at adoption of SFAS 158.
The incremental effects of adopting the provisions of SFAS 158 on the accompanying consolidated balance sheet atMarch 31, 2007 are presented in the following table.
Beforeapplication of
SFAS 158

After
application of
SFAS 158

Adjustments
Yen (Millions)Deferred tax assets.............................................................
Accrued pension and severance cost..................................
Accumulated other comprehensive income .......................

¥

3,733
(10,857)(2,105)(1,043)2,590(1,547)2,690(8,267)(3,652)

Information about the retirement and severance plans of Advantest for the years ended March 31 are as follows:
2005

2006

2007

2007

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.................................................................
Settlement loss ...................................................................................
Net periodic benefit cost ..........................................................

U.S. Dollars(Thousands)¥ 1,710
853
(583)

1,843
565
(478)

1,401 $
601
(645)

11,8685,091(5,464)

547
(144)
2,799

249
(229)
—

74
(224)
—

627
(1,898)—¥ 5,182

1,950

1,207

$

10,224

The following table sets forth the plans’ benefit obligation, fair value of plan assets, funded status at March 31, 2006
and 2007.
2006

2007

Yen
(Millions)

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

¥ 28,687
1,843
565
289
(413)
—

Balance at end of year ........................................................................................
Change in plan assets:
Balance at beginning of year ..............................................................................
Employer contributions ......................................................................................

F-28

2007
U.S. Dollars(Thousands)

30,971 $
1,401
601
241
(329)
(340)

262,355
11,868
5,091
2,041(2,787)(2,880)30,97132,545

275,688

15,922
2,075

21,5071,927

182,185
16,324

2006

2007

2007

Yen
(Millions)

U.S. Dollars(Thousands)

Actual return on plan assets................................................................................
Benefits paid.......................................................................................................

3,736
(226)

1,055
(211)

8,937
(1,787)

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

21,507

24,278205,659

Funded status ...............................................................................................................
Unrecognized prior service cost (benefit) ....................................................................
Unrecognized net actuarial loss ...................................................................................

(9,464)(3,253)425(8,267)——(70,030)——

Amount recognized......................................................................................................

¥ (12,292)(8,267) $(70,030)

Pension related adjustments (net of tax) recognized in accumulated other comprehensive income (loss) at March 31,
2007 consist of:
Yen(Millions)

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

¥

U.S. Dollars(Thousands)(78) $
1,625(661)
13,765

1,547

13,104The estimated prior service cost and actuarial loss for the defined benefit pension plans that will be amortized fromaccumulated other comprehensive income (loss) into net periodic benefit cost over the next year are summarized as follow:
Yen(Millions)

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

¥

U.S. Dollars(Thousands)

60 $
(211)

508
(1,787)(151)(1,279)Pension plans with accumulated benefit obligations in excess of plan assets at March 31, 2006 and 2007 aresummarized as follows:
2006

2007

2007

Yen
(Millions)

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

¥

30,971
28,96521,507

U.S. Dollars(Thousands)

32,54531,43324,278$275,688266,269
205,659

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:2006

Weighted-average assumptions used to determine benefit obligations as of March 31:
Discount rate ............................................................................................................
Rate of compensation increase .................................................................................
2005

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 ..................................................................

F-29

2.0%
3.0%
3.3%

2.0%
3.1%
2006

2.0%
3.0%
3.1%

2007

2.1%
3.0%
2007

2.0%
3.0%
3.1%

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, 2006 and 2007 by asset category
are as follows:
Equity securities............................................................................................
Debt securities ..............................................................................................
Cash ..............................................................................................................
Life insurance company general accounts ....................................................

2006

2007

67.7%
22.1
2.5
7.7

66.2%
23.1
2.3
8.4

100.0%

100.0%

Advantest’s investment policies are designed to ensure adequate plan assets are available to provide future payments ofpension 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 isrevised periodically to the extent considered necessary to achieve the expected long-term rate of return on plan assets.
Cash flows:
Advantest expects to contribute ¥2,223 million ($18,831 thousand) to its domestic defined benefit plans during the year
ending March 31, 2008.
Estimated future benefit payments:
The following benefit payments, which reflect expected future service, as appropriate, are expected:
Yen(Millions)Year ending March 31

2008 ..................................................................................................
2009 ..................................................................................................
2010 ..................................................................................................
2011 ..................................................................................................
2012 ..................................................................................................
2013 through 2017............................................................................

¥

U.S. Dollars(Thousands)

572 $
616
695
755
904
4,912

4,845
5,218
5,887
6,396
7,658
41,610(18) Stockholders’ Equity
Changes in the number of shares issued and treasury stock during the years ended March 31, 2005, 2006 and 2007 are
as follows:
Total shares ofcommon stock

Shares oftreasury stock

Number of shares as of April 1, 2004 .....................................................

199,566,770

3,015,490

Purchase of shares...................................................................................
Exercise of stock options ........................................................................
Sale of shares ..........................................................................................

———

12,008,580(304,000)(530)

Number of shares as of March 31, 2005 .................................................

199,566,770

14,719,540

Purchase of shares...................................................................................
Exercise of stock options ........................................................................
Sale of shares ..........................................................................................

———

10,196(1,816,000)(264)

Number of shares as of March 31, 2006 .................................................

199,566,770

12,913,472

Purchase of shares...................................................................................
Exercise of stock options ........................................................................

——

11,135(1,006,000)

F-30

Total shares ofcommon stock

Shares oftreasury stock

Sale of shares ..........................................................................................

—(2,122)

Number of shares as of March 31, 2007 .................................................

199,566,770

11,916,485

Based on the resolution of Board of Directors on July 26, 2006, the Company made a two-for-one stock split on
October 1, 2006, for stockholders of record as of September 30, 2006. All share and per share information has been adjusted
to reflect the stock split.
The Corporation Law of Japan provides that an amount equal to 10% of distributions paid by the Company shall beappropriated as additional paid-in capital or a legal reserve until the total amount of the additional paid-in capital and thelegal reserve equals to 25% of common stock. Certain foreign subsidiaries are also required to appropriate their earnings tolegal reserves under the laws of the respective countries.
Cash dividends for the years ended March 31, 2005, 2006 and 2007 represent dividends paid out during those years.
The accompanying consolidated financial statements do not include any provision for a dividend of ¥32.5 ($0.28) per share,
aggregating ¥6,099 million ($51,665 thousand) for the second-half of the year ended March 31, 2007, subsequently proposedby the Board of Directors.
The amount available for dividends is determined under the Corporation Law of Japan and amounted to¥151,734 million ($1,285,337 thousand) at March 31, 2007.
(19) Accrued Warranty Expenses
Advantest issues contractual product warranties under which it generally guarantees the performance of products
delivered and services rendered for a certain period. Changes in accrued warranty expenses for the years ended March 31,
2005, 2006 and 2007 were summarized as follows:
2005

2006

2007

2007

Yen
(Millions)

U.S. Dollars(Thousands)

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

3,121
6,087
(5,174)
56

4,090
7,645
(7,035)76

4,776 $
7,307
(7,949)1

40,457
61,899(67,336)
8

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

4,090

4,776

4,135

35,028$(20) 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 andprovides maintenance and support services associated with these products. In accordance with SFAS No. 131, “Disclosure
about Segments of an Enterprise and Related Information”, Advantest has three operating and reportable segments, which are
the design, manufacturing, and sale of semiconductor 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 thesemiconductor 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 suchas test handlers, mechatronic-applied products, for handling semiconductor devices, device interfaces that serve as interfaces
with the devices that are measured and operations 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.
Operating segment information during the years ended March 31, 2005, 2006 and 2007 are as follows:

F-31

Semiconductor
and Component
Test System
Business

Mechatronics
SystemBusiness

Services,
Supportand Others

Elimination
andCorporate

Total

Yen (Millions)

As of and for the year ended March 31, 2005:
Net sales to unaffiliated customers.......................
Inter-segment sales...............................................

¥

Sales...............................................................................
Depreciation and amortization.......................................
Operating income (loss) before stock optioncompensation expenses and net gain on settlement of
substitutional portions of EPF...................................
Adjustments:
Net gain on settlement of substitutional portionsof EPF..............................................................
Stock based compensation expense......................
Operating income...........................................................
Expenditures for additions to long- lived assets ............
Total assets ....................................................................
As of and for the year ended March 31, 2006:
Net sales to unaffiliated customers.......................
Inter-segment sales...............................................
Sales...............................................................................
Depreciation and amortization.......................................
Operating income (loss) before stock optioncompensation expenses .............................................
Adjustment:
Stock based compensation expense......................

173,938
6,747

45,821574

19,680——(7,321)

239,439—

180,685
3,225

46,395
1,220

19,6803,361(7,321)
479

239,439
8,285

50,624

13,662

3,402(7,996)

59,692

3,317
2,290
2,431
86,104654
22,587

5,709
16,197554
171,881

60,7199,348
296,769

187,136
4,279

47,724536

19,062——(4,815)

253,922—

191,415
2,993

48,2601,058

19,062
3,680(4,815)544

253,922
8,275

57,517

11,9663,853(6,994)

66,342¥¥

1,884

Operating income...........................................................
Expenditures for additions to long- lived assets ............
Total assets ....................................................................

2,649
94,745

Semiconductor
and Component
Test System
Business

1,177
27,444

Mechatronics
SystemBusiness

4,203
16,722Services,
Supportand Others

294
211,865

Elimination
and Corporate

64,4588,323
350,776

Total

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 optioncompensation expenses .....................................
Adjustment:
Stock based compensation expense..............
Operating income...................................................
Expenditures for additions to long- lived assets ....
Total assets ............................................................

¥

164,899
2,916

51,801
224

18,312——(3,140)235,012—167,815
2,812

52,025
1,241

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

235,0128,214

48,60813,6472,870(5,767)59,3582,566

3,173
84,962F-32

1,145
24,256

3,533
15,163485
241,993

56,792
8,336
366,374

Semiconductor
and Component
Test System
Business

Mechatronics
SystemBusiness

Services,
Supportand Others

Elimination
andCorporate

Total

U.S. Dollars (Thousands)

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 optioncompensation expenses ......................................
Adjustment:
Stock based compensation expense...............
Operating income....................................................
Expenditures for additions to long- lived assets .....
Total assets .............................................................

1,396,858
24,701

438,805
1,898

155,121——(26,599)1,990,784—

1,421,559
23,820440,703
10,512

155,121
31,428(26,599)3,821

1,990,784
69,581

411,757

115,604

24,312(48,852)

502,821
21,737

26,878719,712

9,699
205,472

29,929128,4464,108
2,049,919

481,084
70,614
3,103,549

Adjustments to operating income (loss) in Corporate principally represent corporate general and administrative
expenses and research and development expenses related to fundamental research activities that are not allocated to operating
segments.
Advantest uses the operating income (loss) before stock option compensation expenses and net gain on settlement of
substitutional portions of EPF for management’s analysis of business segment results.
Additions to long-lived assets included in Corporate consist of purchases of software and fixed assets for general
corporate use.
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 themechatronics system segment accounted for approximately 6%, 7% and 11% of total consolidated net sales for the years
ended March 31, 2005, 2006 and 2007, respectively. Another customer accounted for approximately 15%, 17% and 4% for
the years ended March 31, 2005, 2006 and 2007, 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, 2005, 2006 and 2007 are as follows:
2005

2006

2007

Yen
(Millions)

2007
U.S. Dollars(Thousands)

Japan ........................................................................
Americas..................................................................
Europe......................................................................
Asia..........................................................................

¥

60,02523,024
12,270144,120

81,14025,516
14,558132,708

72,834 $10,158
11,238140,782

616,976
86,04895,197
1,192,563

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

¥

239,439

253,922235,012 $1,990,784

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 ¥51,774 million, ¥39,767 million and ¥52,579 million for the year
ended March 31, 2005, ¥54,391 million, ¥35,754 million and ¥42,563 million for the year ended March 31, 2006, and¥63,098 million ($534,502 thousand), ¥51,177 million ($433,520 thousand) and ¥26,507 million ($224,541 thousand) for theyear ended March 31, 2007, respectively. Substantially all net sales indicated as Americas are generated in the United Statesof America.
Long-lived assets as of March 31, 2005, 2006 and 2007 are as follows:

F-33

2005

2006

2007

2007

Yen
(Millions)

U.S. Dollars(Thousands)

Japan ...............................................................................
Americas.........................................................................
Europe.............................................................................
Asia.................................................................................

¥

50,096
1,153
427
2,778

47,661
1,222
667
4,101

45,940 $
1,093
620
5,098

389,157
9,259
5,252
43,185

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

¥

54,45453,65152,751 $446,853

Long-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 arelocated in Singapore.
(21) Related Party Transactions
Advantest sells products to and purchases raw materials from Fujitsu Limited, its 10.7% stockholder as of March 31,
2007 and its 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:
2005

2006

2007

2007

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 ..........................................................................

¥

U.S. Dollars(Thousands)

2,933
9,500
1,552
4,648
235

3,618
10,378
3,100
4,392
201

4,104 $
8,929
1,161
4,519
227

34,76575,637
9,835
38,280
1,923

1,786
—

1,569
—

2,382
90

20,178762

Advantest invested ¥90 million in common stock and class stock of e-Shuttle, Inc, one of Fujitsu’s newly created groupcompanies during the year ended March 31, 2007. Advantest holds approximately 35% of common stock of e-Shuttle, Inc.
(22) Per Share Data
On October 1, 2006, a two for one stock split was made to shares of the common stock. Basic and diluted net income
per share has been calculated based on the number of issued and outstanding shares after such stock split for all fiscal periods
presented.
The following table sets forth the computation of basic and diluted net income per share as of March 31:
2005

2006

2007

Yen (Millions) except
for per share data

Numerator:
Net income .......................................................

¥

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

38,07841,374

195,500,690
520,788

185,389,026
994,054

187,128,842
1,141,846

196,021,478

186,383,080

188,270,688

194.77223.17

¥

F-34

2007
U.S. Dollars(Thousands)
except for per
share data

35,556 $190.01 $

301,194

1.61

2005

2006

2007

Yen (Millions) except
for per share data

Diluted net income per share .....................................

194.25221.982007
U.S. Dollars(Thousands)
except for per
share data

188.851.60

At March 31, 2005, 2006 and 2007, Advantest had outstanding stock options exercisable into 14,000, 3,980 and 11,980
shares of common stock, respectively, which were anti-dilutive and excluded from the calculation of diluted net income pershare but could potentially dilute net income per share in future periods.
(23) Concentrations of credit risk
Advantest is exposed to credit risk in the event of default by financial institutions to cash and cash equivalents, butsuch risk is considered mitigated by the high credit rating of the financial institutions.
At March 31, 2006 and 2007, Advantest has one customer and two customers with significant receivables, respectively.
Receivables from these customers accounted for 11% and 26% of consolidated trade receivables at March 31, 2006 and 2007,
respectively. 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 of the contracts.
(24) Commitments and Contingent Liabilities
Advantest provides guarantees to third parties mainly for customers lease obligations. Advantest would be required tosatisfy customers lease obligations in the event of default. The maximum amount of undiscounted payments is ¥108 million($915 thousand) at March 31, 2007. The guarantees are collateralized by the leased equipment. At March 31, 2007,
Advantest has not accrued any obligation with respect to such guarantees as it estimates the fair value of its obligations to be
insignificant.
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 ¥1,024 million($8,674 thousand) at March 31, 2007.
(25) Subsequent EventOn April 25, 2007, the Board of Directors of the Company approved a plan to repurchase up to 3.6 million shares of
the Company’s common stock at a cost up to ¥20,000 million ($169,420 thousand) for the period from April 26, 2007 toJune 20, 2007.
Such repurchases are intended to ensure flexible capital strategy responding to changes of business environment.
Common stock repurchased in the Tokyo Stock Exchange between May 7, 2007 and May 17, 2007 under the aforementioned
plan was 3.6 million shares at a cost of ¥19,111 million ($161,889 thousand).

F-35

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,
and all 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 similarfunctions*****
12.1 Certifications of the Registrant’s Chairman of the Board and Chief Executive Officer and Director and Managing
Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act
13.1 Certifications of the Registrant’s Chairman of the Board and Chief Executive Officer and Director and Managing
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 6-K filed with the SEC on October 27, 2006 (file no. 115236).
**
Incorporated by reference to the Company’s annual report on Form 20-F filed with the SEC on June 28, 2006 (fileno. 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 (fileno. 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
and authorized the undersigned to sign this annual report on its behalf.
ADVANTEST CORPORATION
By:
Name:
Title:

Date: June 28, 2007

/S/

YUICHI KURITA

Yuichi Kurita
Director and Managing Executive Officer

Exhibit 1.3(Translation)
REGULATIONS OF
THE BOARD OF CORPORATE AUDITORSADVANTEST CORPORATION

1(Translation)
REGULATIONS OF
THE BOARD OF CORPORATE AUDITORSOFADVANTEST CORPORATION(Kabushiki Kaisha Advantest)
Article 1. (General Rule)
Unless otherwise provided by laws, regulations or the Articles of Incorporation of Advantest Corporation (the“Company”), matters concerning the Board of Corporate Auditors of the Company shall be governed by theseRegulations.
Article 2. (Organization)
The Board of Corporate Auditors shall consist of all corporate auditors.
Article 3. (Purpose)
The Board of Corporate Auditors shall receive reports, deliberate or make resolutions on important matters concerning
audits; provided, however, that it shall not interfere with the execution of powers of each corporate auditor.
Article 4. (Duties of the Board of Corporate Auditors)
The Board of Corporate Auditors shall perform the following duties; provided, however, that decisions made pursuant
to Paragraph 3 below shall not interfere with the execution of powers of each corporate auditor:
preparing audit reports;
nominating and dismissing corporate standing auditor(s); anddetermining audit policy, methods to investigate the state of business operations and assets and othermatters relating to the execution of duties by corporate auditors.
Article 5. (Nomination and Dismissal of Corporate Standing Auditor(s))
The Board of Corporate Auditors may, by resolution, nominate or dismiss corporate standing auditor(s).
Article 6. (Chairperson)
1.

The Board of Corporate Auditors shall, by resolution, appoint a chairperson of the Board of Corporate Auditorsfrom among themselves.

2.

The chairperson of the Board of Corporate Auditors shall perform the duties set forth in Article 8, Paragraph 1
below and the duties commissioned by the Board of Corporate Auditors; provided, however, that the forgoingshall not interfere with the execution of powers of each corporate auditor.

Article 7. (Meetings to be Held)
The meeting of the Board of Corporate Auditors shall be held at least once every three (3) months; provided, however,that a meeting may be held from time to time as necessary.
Article 8. (Person Entitled to Convene Meetings)
1.

The chairperson of the Board of Corporate Auditors shall convene and preside over the meetings of the Board of
Corporate Auditors.

2.

Each corporate auditor may request the chairperson of the Board of Corporate Auditors to convene a meeting of
the Board of Corporate Auditors.

3.

Despite such request, if the chairperson does not convene a meeting of the Board of Corporate Auditors, thecorporate auditor who made the request may convene and preside over the meeting.

Article 9. (Convocation Notice)2

1.

Convocation notice of a meeting of the Board of Corporate Auditors shall be sent to each corporate auditor inwriting at least three (3) days prior to the date of the meeting; provided, however, that, in urgent cases, such
period may be shortened and a meeting may be convened orally.

2.

With the consent of all corporate auditors, a meeting of the Board of Corporate Auditors may be held without
following the convocation procedures.

Article 10. (Method of Adopting Resolution)
1.

Resolutions of a meeting of the Board of Corporate Auditors shall be adopted by a majority vote of corporate
auditors.

2.

In adopting resolutions, the Board of Corporate Auditors shall deliberate based on adequate materials.

Article 11. (Resolution of Audit Policy and Others)
1.

Audit policy, audit plans, audit procedures, assignment of audit work and budgeting of audit expenses, among
others, shall be determined by resolution of the Board of Corporate Auditors.

2.

In addition to the matters set out in the preceding paragraph, the Board of Corporate Auditors shall resolve anyother matters deemed necessary to perform the duties of the corporate auditors, including any further
improvement to be made to the audit system of the Company, and propose such matters to the directors.

Article 12. (Explanation to the Representative Director and the Board of Directors)
1.

The Board of Corporate Auditors shall present explanations to the Representative Director and the Board of
Directors with respect to audit policy, audit plans and the state of audit enforcement and results from time to time.

2.

In addition to matters required by law, the Board of Corporate Auditors shall set matters that the directors shouldreport to the Board of Corporate Auditors by discussing these matters with Directors, and the Board of Corporate
Auditors shall receive the reports.

Article 13. (Reports to the Board of Corporate Auditors by Corporate Auditor)
1.

Each corporate auditor shall report the state of his execution of duties to the Board of Corporate Auditors fromtime to time, and at any time upon request by the Board of Corporate Auditors.

2.

Any corporate auditor who has received a report from the accounting auditor, director or any other person shallreport the same to the Board of Corporate Auditors.

3.

The Board of Corporate Auditors may request reports from the accounting auditor, directors, employees, such as
those of the internal audit department, and other persons, when necessary.

4.

With respect to Paragraph 3 above, if any of the corporate auditors, the accounting auditor, directors, employeesof the internal audit department or other persons set matters that such persons should report to the Board of
Corporate Auditors and notify all of the corporate auditors with respect to such matters, such matters shall not be
required to be reported to the Board of Corporate Auditors.

Article 14.

(Measures to be taken for Specific Reports)

1.

If the Board of Corporate Auditors receives a report from any of the directors to the effect that material damage
to the Company was found, the Board of Corporate Auditors shall conduct necessary investigations and takeappropriate measures according to the situation.

2.

If the Board of Corporate Auditors receives a report from the accounting auditor to the effect that any misconduct
by a director with respect to the execution of his duties or any other material facts which contravene theprovisions of laws, regulations or the Articles of Incorporation of the Company were found, the Board of
Corporate Auditors shall conduct necessary investigations and take appropriate measures according to thesituation.

Article 15.

(Preparation of Audit Report)

3

1.

The Board of Corporate Auditors shall receive financial statements (such as the balance sheets, statements ofincome and business reports) from the directors and the audit report from the accounting auditor. The corporate
auditors who shall receive these documents must be corporate standing auditors.

2.

The Board of Corporate Auditors shall prepare the audit report of the corporate auditors based on reports
received from each corporate auditor and after deliberation thereof.

3.

If any corporate auditor expresses a different opinion, such opinion shall be indicated in the audit report of thecorporate auditors.

4.

Each corporate auditor shall sign and seal or affix an electronic signature to the audit report of the corporate
auditor. Any corporate standing auditor shall indicate his such title thereon.

Article 16.

(Consent concerning Appointment of Corporate Auditors)

The following matters relating to appointment of the corporate auditors shall be determined by resolution of the Boardof Corporate Auditors:
consenting to the matters for resolution to be submitted to a general meeting of shareholders concerning
appointment of corporate auditor(s);requesting that matters concerning appointment of corporate auditors be matters for resolution to besubmitted to a general meeting of shareholders; andrequesting matters to be submitted for resolution to a general meeting concerning appointment ofcorporate
auditor(s).
Article 17. (Consent concerning Appointment of the Accounting Auditor)
1.

The following matters relating to appointment, removal or non-reappointment of the accounting auditor shall be
determined by resolution of the Board of Corporate Auditors:
consenting to the matters for resolution to be submitted to a general meeting of shareholders concerning
appointment of the accounting auditor;
consenting to that matters concerning appointment or non-reappointment of the accounting auditors bematters for resolution to be submitted to a general meeting of shareholders;requesting matters to be submitted for resolution to a general meeting of shareholders concerning
appointment of the accounting auditor;
requesting that matters concerning appointment, removal or non-reappointment of the auditing auditors
be matters for resolution to be submitted to a general meeting of shareholders; andappointing those who shall temporarily assume the duty of the accounting auditor in case of a vacancy ofthe position of accounting auditor.

2.

If the Board of Corporate Auditors determines to remove the accounting auditor for a cause pursuant to any
provisions of laws and regulations, a unanimous resolution of the Board of Corporate Auditors for such removal
shall be required and may be adopted after deliberation of the Board of Corporate Auditors. In such case, a
corporate auditor appointed by the Board of Corporate Auditors shall report on and explain such removal of theaccounting auditor and the reason therefor at the first general meeting of shareholders convened after the removal.

Article 18. (Consent with respect to Remuneration for the Accounting Auditor)
The Board of Corporate Auditors shall, by resolution, consent to the remuneration for the accounting auditor or those
who temporarily assume the duty of the accounting auditor.
Article 19. (Consent of the Corporate Auditors concerning exculpation of Directors)
Consent to the following matters shall require a unanimous resolution of the Board of Corporate Auditors and may be
adopted after deliberation of the corporate auditors:

4submission of matters concerning exculpation of any directors for resolution to a general meeting ofshareholders;
amendments to the Articles of Incorporation to allow exculpation of any directors by resolution of theBoard of Directors;
submission of matters concerning exculpation of any directors for resolution to a meeting of the Board of
Directors pursuant to the provisions of the Articles of Incorporation;
amendments to the Articles of Incorporation to allow outside directors to enter into an exculpationagreement with the Company; andauxiliary intervention by the Company in litigations to assist any directors.
Article 20. (Deliberation pertaining to the Execution of Powers by Corporate Auditors)
In case the corporate auditors shall execute their powers or perform their duties with respect to the following matters,
the corporate auditors may deliberate such matters at a meeting of the Board of Corporate Auditors in advance:
any explanation in response to questions made to the corporate auditors in writing by any shareholder
prior to a general meeting of shareholders;
any report to the Board of Directors and requests of convocation of a meeting of the Board of Directors
and other matters related thereto;
any report of their opinions concerning matters for resolution or other documents to be submitted to a
general meeting of shareholders;
any claim filed to seek injunction against illegal acts by any directors;
any statement at a general meeting of shareholders concerning appointment, removal, resignation andremuneration of the corporate auditors;
any matter concerning lawsuits between the Company and a director; andany other matters including filing of lawsuits.
Article 21. (Deliberation with respect to Remuneration of Corporate Auditors)
The Board of Corporate Auditors may deliberate with respect to remuneration and other matters of the corporate
auditors when all of the corporate auditors agree to hold such deliberation.
Article 22. (Minutes)
1.

The Board of Corporate Auditors shall prepare minutes of a meeting of the Board of Corporate Auditors. Such
minutes shall include the following matters and shall be signed or sealed (including electronic signatures) by the
corporate auditors present at the meeting:Date and place of the meeting of the Board of Corporate Auditors (including methods of participation bycorporate auditors, directors or the accounting auditor, who were not present at the place of the meeting);
A summary of the proceedings of the meeting and the results thereof;
In case any opinions or comments were made at a meeting of the Board of Corporate Auditors withrespect to the following matters, an outline of such opinions or comments:(i)report from a director to the effect that material damage to the Company was found; and(ii)

report from the accounting auditor to the effect that any misconduct by a director with respect tothe execution of his duties or any other material facts which contravene the provisions of laws,
regulations or the Articles of Incorporation of the Company were found.

Names of directors or the accounting auditor who were present at the meeting of the Board of Corporate
Auditors; and5

Name of the chairperson of the Board of Corporate Auditors;
2.

If it is deemed unnecessary to report certain matters to the Board of Corporate Auditors pursuant to Article 13,
Paragraph 4, minutes containing each of the followings shall be prepared:
nature of the matters that were deemed unnecessary to be reported to the Board of Corporate Auditors;
date on which it was deemed unnecessary for the matters to be reported to the Board of Corporate
Auditors; andnames of corporate auditors who prepared the minutes.

3.

The minutes referred to in Paragraph 2 above shall be kept at the head office of the Company for ten (10) years.

Article 23. (Secretariat of the Board of Corporate Auditors)
The administration of the Board of Corporate Auditors including convocation, preparation of the minutes of a meetingof the Board of Corporate Auditors and other operational matters of the Board of Corporate Auditors shall be handled
by the corporate auditors’ staff.
Article 24. (Regulations for the Audit of Corporate Auditors)
Matters regarding audits by the Board of Corporate Auditors and the corporate auditors shall be governed by theRegulations for the Audit of Corporate Auditors (Kansayaku Kansa Kijyun) of the Japan Corporate Auditors
Association, in addition to the matters provided by laws, regulations, the Articles of Incorporation of the Company andthese Regulations of the Board of Corporate Auditors.
Article 25. (Amendment and Abolition of these Regulations)
Any amendment to, and abolition of, these Regulations shall be made by resolution of the Board of Corporate Auditors.
SUPPLEMENTARY PROVISION
These Regulations shall come into force on September 27, 2006.
1. Enacted
2. Amended
3. Amended
4. Amended

June 30, 1994;
August 30, 2002;
June 27, 2006;
September 27, 2006

6

Exhibit 12.1
CERTIFICATION
I, Toshio Maruyama, 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
fact necessary to make the statements made, in light of the circumstances under which such statements were made, notmisleading with 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 all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, theperiods presented in this report;

4.

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls andprocedures (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, is made known to us by others within those entities, particularly during the period inwhich 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 coveredby this report based on such evaluation; and(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the period covered by the annual report that has materially affected, or is reasonably likely to materiallyaffect, the registrant’s internal control over financial reporting; andThe registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors (andpersons performing the equivalent function):(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which 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
the registrant’s internal control over financial reporting.

Date: June 28, 2007
ADVANTEST CORPORATION
By: /s/ TOSHIO MARUYAMA
Name:Toshio Maruyama
Title: Representative Board 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
fact necessary to make the statements made, in light of the circumstances under which such statements were made, notmisleading with 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 all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, theperiods presented in this report;

4.

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls andprocedures (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, is made known to us by others within those entities, particularly during the period inwhich 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 coveredby this report based on such evaluation; and(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the period covered by the annual report that has materially affected, or is reasonably likely to materiallyaffect, the registrant’s internal control over financial reporting; andThe registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors (andpersons performing the equivalent function):(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which 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
the registrant’s internal control over financial reporting.

Date: June 28, 2007
ADVANTEST CORPORATION
By: /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 suchofficer’s knowledge:
1.

The accompanying Annual Report of the Company on Form 20-F for the period ended March 31, 2007 (the “Report”)
fully complies 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 ofoperations of the Company.
By: /s/ TOSHIO MARUYAMA
Name:Toshio Maruyama
Title: Representative Board Director, President
and CEO

Date: June 28, 2007
By: /s/ YUICHI KURITA
Name:Yuichi Kurita
Title: Director and Managing Executive Officer
Date: June 28, 2007

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. 333-141394) of Advantest Corporation,(2)

Registration Statement (Form S-8 No. 333-132374) of Advantest Corporation,(3)

Registration Statement (Form S-8 No. 333-123671) of Advantest Corporation,(4)

Registration Statement (Form S-8 No. 333-108385) of Advantest Corporation,(5)

Registration Statement (Form S-8 No. 333-97107) of Advantest Corporation, and(6)

Registration Statement (Form S-8 No. 333-97103) of Advantest Corporation;of our reports dated June 15, 2007, with respect to the consolidated financial statements of Advantest Corporation, Advantest
Corporation management’s assessment of the effectiveness of internal control over financial reporting, and the effectivenessof internal control over financial reporting of Advantest Corporation, included in the Annual Report (Form 20-F) for the year
ended March 31, 2007.
/s/ Ernst & Young ShinNihon
Tokyo, Japan
June 25, 2007