Advantest Corporation (Kabushiki Kaisha Advantest): Fy2013 Second Quarter Consolidated Financial Results

The following excerpt is from the company's SEC filing.

  Net sales Operating income (loss) Income (loss) before income taxes and equity in earnings (loss) of affiliated company Net income (loss)     Million yen % increase (decrease) Million yen % increase (decrease) Million yen % increase (decrease) Million yen % increase (decrease)   FY2013 Q2 59,638 (17.8) (7,994) - (7,387) - (9,339) -   FY2012 Q2 72,558 12.6 3,369 - 3,117 - 1,519 -

  Net sales Operating income Income before income taxes and equity in earnings of affiliated company Net income (loss) Net income (loss) per share   Million yen % Million yen % Million yen % Million yen %   Yen FY2013 143,000 7.6 0 - 500 - (2,500) - (14.36)  

This quarterly financial results report is not subject to quarterly review procedures by independent auditors under Japan’s Financial Instruments and Exchange Law. At the time of release of this report, such quarterly review procedures under the Financial Instruments and Exchange Law have not been completed.

This document contains “forward-looking statements” that are based on Advantest’s current expectations, estimates and projections.  These forward-looking statements are subject to known and unknown risks, uncertainties and other factors that may cause Advantest’s actual results, levels of activities, performance or achievements to be materially different from those expressed or implied by such forward-looking statements.  These factors include: (i) changes in demand for the products and services produced and offered by Advantest’s customers, including semiconductors, communications services and electronic goods; (ii) circumstances relating to Advantest’s investment in technology, including its ability to timely develop products that meet the changing needs of semiconductor manufacturers, communications network equipment and components makers and service providers; (iii) significant changes in the competitive environment in the major markets where Advantest purchases materials, components and supplies for the production of its products or where its products are produced, distributed or sold; and (iv) changes in economic conditions, currency exchange rates or political stability in the major markets where Advantest procures materials, components and supplies for the production of its principal products or where its products are produced, distributed or sold.  A discussion of these and other factors which may affect Advantest’s actual results, levels of activities, performance or achievements is contained in the “Operating and Financial Review and Prospects”, “Key Information - Risk Factors” and “Information on the Company” sections and elsewhere in Advantest’s annual report on Form 20-F, which is on file with the United States Securities and Exchange Commission.

1.  Business Results (1) Analysis of Business Results Consolidated Financial Results of FY2013 Q2 (April 1, 2013 through September 30, 2013)             (in billion yen)   Six months ended September 30, 2012 Six months ended September 30, 2013 As compared to the corresponding period of the previous fiscal year increase (decrease) Orders received 71.5   60.9   (14.8%)   Net sales 72.6   59.6   (17.8%)   Operating income (loss) 3.4    (8.0)   -     Income (loss) before income taxes and equity in earnings (loss) of affiliated company 3.1   (7.4)   -     Net income (loss) 1.5    (9.3)   -     In the first half of FY2013, Japan’s economic recovery continued, and the economy in the U.S. likewise continued to recover at a modest pace, supported by healthy consumer demand.  However, European economies continued to stagnate, and emerging economies including China—the engine of global growth in recent years—posted declining growth rates, contributing to the slowdown of the global economy. In the semiconductor industry, there has been a fading momentum in high-end smartphone sales, which have driven global semiconductor demand over the last several years. This, in conjunction with softer PC demand in late 2012 through the present, has weighed on the semiconductor industry’s outlook. The global semiconductor market is now expected to grow very little in 2013 compared to 2012. Chipmakers have responded to the risk of inventory overstock that accompanies slowing end-user demand by adopting a more cautious stance towards investments in new production capacity. Thus, capital expenditure failed to reach the levels predicted at the start of the period. In an environment where demand for the non-memory semiconductor test systems struggled as a result of the changes in the business environment, we made an effort to earn profit in the memory business where capital investment had begun to recover.  Such efforts, however, were not sufficient to compensate for the market downturn. As a result of the above, orders received were (Y) 60.9 billion (a 14.8% decrease in comparison to the corresponding period of the previous fiscal year) and net sales were (Y) 59.6 billion (a 17.8% decrease in comparison to the corresponding period of the previous fiscal year). Operating loss was (Y) 8.0 billion, net loss before income taxes and equity in earnings of affiliated company was (Y) 7.4 billion, and net loss was (Y) 9.3 billion. The percentage of net sales to overseas customers was 90.5% (91.1% in the corresponding period of the previous fiscal year). Conditions of business segments are described below.       4       Advantest Corporation (FY2013 Q2)                   (in billion yen)     Six months ended September 30, 2012     Six months ended September 30, 2013     As compared to the corresponding period of the previous fiscal year increase (decrease)   Orders received     55.7       39.3       (29.5 %)   Net sales     56.4       41.3       (26.8 %)   Operating income (loss)     9.0       (3.8 )   -       With DRAM-related capital investment shifting back into a growth phase, the Semiconductor and Component Test System Segment enjoyed an increase in demand for memory test systems. However, demand for non-memory test systems shrank significantly in the first half of FY2013 compared to the corresponding period of the previous year.  Such slowdown of demand was the result of the lack of forward visibility in the PC and smartphone markets which weakened the investment in cutting-edge semiconductors. As a result of the above, orders received were (Y) 39.3 billion, (a 29.5% decrease in comparison to the corresponding period of the previous fiscal year), net sales were (Y) 41.3 billion (a 26.8% decrease in comparison to the corresponding period of the previous fiscal year), and operating loss was (Y) 3.8 billion. < Mechatronics System segment>                 (in billion yen)     Six months ended September 30, 2012     Six months ended September 30, 2013     As compared to the corresponding period of the previous fiscal year increase (decrease)   Orders received     7.4       9.3       26.8 %   Net sales     8.2       6.8       (17.0 %)   Operating income (loss)     (2.0 )     (2.5 )   -       The lack of forward visibility in the PC and smartphone markets likewise negatively impacted demand for test handlers and device interfaces. As a result of the above, orders received were (Y) 9.3 billion, (a 26.8% increase in comparison to the corresponding period of the previous fiscal year), net sales were (Y) 6.8 billion (a 17.0% decrease in comparison to the corresponding period of the previous fiscal year), and  operating loss was (Y)  2.5 billion.                 (in billion yen)     Six months ended September 30, 2012     Six months ended September 30, 2013     As compared to the corresponding period of the previous fiscal year increase (decrease)   Orders received     9.3       12.4       33.9 %   Net sales     9.7       11.6       20.6 %   Operating income     0.3       1.2       360.9 %   Supported by the growth in the number of installed test systems over the past several years, our Services, Support and Others Segment again posted an increase in customer demand for service contracts. As a result of the above, orders received were (Y) 12.4 billion, (a 33.9% increase in comparison to the corresponding period of the previous fiscal year), net sales were (Y) 11.6 billion (a 20.6% increase in comparison to the corresponding period of the previous fiscal year), and operating income was (Y) 1.2 billion (a 360.9% increase in comparison to the corresponding period of the previous fiscal year).     5       Advantest Corporation (FY2013 Q2) (2) Analysis of Financial Condition Total assets at September 30, 2013 amounted to (Y) 222.0 billion, a decrease of (Y) 3.5 billion compared to March 31, 2013, primarily due to a decrease of (Y) 6.5 billion in trade accounts receivable, offset by an increase of (Y) 2.8 billion in goodwill. The amount of total liabilities was (Y) 85.1 billion, an increase of (Y) 0.8 billion compared to March 31, 2013, primarily due to an increase of (Y) 1.9 billion in trade accounts payable. Stockholders’ equity was (Y) 136.9 billion. Equity to assets ratio was 61.7 %, a decrease of 0.9 percentage points from March 31, 2013. (Cash Flow Condition) Cash and cash equivalents held at September 30, 2013 were (Y) 45.8 billion, an increase of (Y) 0.1 billion from March 31, 2013. Significant cash flows during the first half of this fiscal year and their causes are described below. Net cash provided by operating activities was (Y) 3.4 billion (net cash inflow (Y) 2.4 billion in the corresponding period of the previous fiscal year). This amount was primarily attributable to a decrease of (Y) 7.1 billion in trade accounts receivable and an increase of (Y) 1.5 billion in trade accounts payable, respectively, and adjustments of non cash items such as depreciation and amortization, despite the net loss being (Y) 9.3 billion. Net cash used in investing activities was (Y) 4.0 billion (net cash outflow (Y) 6.1 billion in the corresponding period of the previous fiscal year). This amount was primarily attributable to payments for acquisition of tangible fixed assets in the amount of (Y) 3.5 billion and acquisition of a subsidiary of (Y) 1.2 billion. Net cash used in financing activities was (Y) 1.2 billion (net cash outflow (Y) 1.5 billion in the corresponding period of the previous fiscal year). This amount was primarily attributable to dividends paid of (Y) 1.7 billion. (3) Prospects for the Current Fiscal Year Numerous factors support the case for a coming upturn in the business environment, including DRAM production capacity expansions, the adoption of low-end smartphones by consumers in emerging economies, the launch of new game consoles, and the expected recovery in high-end smartphone chip production following the conclusion of inventory adjustments. Based on these factors, we expect semiconductor test equipment demand to emerge from its slump, leading the trend towards a full-scale recovery in semiconductor production in 2014. In addition to the efforts to cut costs, Advantest expects that the measures to earn higher profits in the semiconductor test equipment peripherals market, which we have been actively implementing since FY2012, as well as the strategy to stabilize the financial results by developing new businesses outside the semiconductor test equipment sector, will gradually begin to contribute to revenues. The revised earnings forecast for the fiscal year ending March 31, 2014, announced in September 25, 2013, as net sales of (Y) 143 billion, operating income of (Y) 0, and net loss of (Y) 2.5 billion has not changed. This forecast is based on foreign exchange rates of 98 Yen to the US dollar and 129 Yen to the Euro.   2.  Others (1) Use of Simplified Accounting Method and Special Accounting Policy for Quarterly Consolidated Financial Statements Tax expense is measured using an estimated annual effective tax rate. Advantest makes, at the end of the first half, its best estimate of the annual effective tax rate for the full fiscal year and uses that rate to provide for income taxes on a current year-to-date basis. The estimated effective tax rate includes the deferred tax effects of expected year-end temporary differences and carryforwards, and the effects of valuation allowances for deferred tax assets.     6         Advantest Corporation (FY2013 Q2) (2) Accounting Changes   In July 2012, the FASB amended the accounting guidance to simplify how entities test indefinite-lived intangible assets for impairment which improve consistency in impairment testing requirements among long-lived asset categories.  The guidance permits an assessment of qualitative factors to determine whether it is more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying value.  For assets in which this assessment concludes it is more likely than not that the fair value is more than its carrying value, the guidance eliminates the requirement to perform quantitative impairment testing as outlined in the previously issued standards. The guidance was adopted by Advantest in the first quarter beginning April 1, 2013.  The adoption of the guidance did not have a significant impact on its consolidated results of operations and financial condition. In February 2013, the FASB finalized the accounting guidance for reporting of amounts reclassified out of accumulated other comprehensive income. This new guidance requires an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. The guidance was adopted by Advantest in the first quarter beginning April 1, 2013. The adoption of the guidance did not have a significant impact on its consolidated results of operations and financial condition.

  Advantest Corporation (FY2013 Q2)   3. Consolidated Financial Statements and Other Information   (1) Consolidated Balance Sheets (Unaudited)     Yen (Millions)   Assets   March 31, 2013     September 30, 2013                               Current assets:             Cash and cash equivalents   ¥ 45,668       45,772   Trade receivables, net     26,953       20,409   Inventories     31,849       33,082   Other current assets     8,319       7,811                     Total current assets     112,789       107,074                                       Investment securities     5,923       5,282   Property, plant and equipment, net     41,368       41,673   Intangible assets, net     15,833       15,563   Goodwill     41,670       44,519   Other assets     7,932       7,855                     Total assets   ¥ 225,515       221,966             8       Advantest Corporation (FY2013 Q2)       Yen (Millions)   Liabilities and Stockholders’ Equity   March 31, 2013     September 30, 2013                               Current liabilities:             Trade accounts payable   ¥ 10,380       12,306   Accrued expenses     7,910       8,001   Income taxes payable     1,436       1,221   Accrued warranty expenses     1,889       1,892   Customer prepayments     3,198       3,032   Other current liabilities     3,087       2,471                     Total current liabilities     27,900       28,923                     Corporate bonds     25,000       25,000   Accrued pension and severance costs     26,785       27,437   Other liabilities     4,589       3,721                     Total liabilities     84,274       85,081                     Commitments and contingent liabilities                                   Stockholders’ equity:                 Common stock     32,363       32,363   Capital surplus     42,801       43,062   Retained earnings     170,626       158,693   Accumulated other comprehensive income (loss)     (6,929 )     (1,135 ) Treasury stock     (97,620 )     (96,098 )                   Total stockholders’ equity     141,241       136,885                     Total liabilities and stockholders’ equity   ¥ 225,515       221,966           9     Advantest Corporation (FY2013 Q2)   (2) Consolidated Statements of Operations (Unaudited)       Yen (Millions)       Six months ended September 30, 2012     Six months ended September 30, 2013   Net sales   ¥ 72,558       59,638   Cost of sales     34,498       30,793                     Gross profit     38,060       28,845                     Research and development expenses     16,674       17,408   Selling, general and administrative expenses     18,017       19,431                     Operating income (loss)     3,369       (7,994 )                   Other income (expense):                 Interest and dividend income     91       100   Interest expense     (60 )     (70 ) Gain on sale of investment securities     —       576   Other, net     (283 )     1                     Total other income (expense)     (252 )     607                     Income (loss) before income taxes and equity in earnings (loss) of affiliated company     3,117       (7,387 )                   Income taxes (benefit)     1,628       1,954                     Equity in earnings (loss) of affiliated company     30       2                     Net income (loss)   ¥ 1,519       (9,339 )       Yen       Six months ended September 30, 2012     Six months ended September 30, 2013   Net income (loss) per share:                 Basic    ¥ 8.76       (53.65 )  Diluted     8.75       (53.65 )

    Yen (Millions)       Three months ended September 30, 2012     Three months ended September 30, 2013                     Net sales   ¥ 39,203       29,548   Cost of sales     18,701       15,995                     Gross profit     20,502       13,553                     Research and development expenses     8,620       8,688   Selling, general and administrative expenses     9,269       9,543                     Operating income (loss)     2,613       (4,678 )                   Other income (expense):                 Interest and dividend income     23       24   Interest expense     (30 )     (36 ) Gain on sale of investment securities     —       84   Other, net     (744 )     64                     Total other income (expense)     (751 )     136                     Income (loss) before income taxes and equity in earnings (loss) of affiliated company     1,862       (4,542 )                   Income taxes (benefit)     775       1,156   Equity in earnings (loss) of affiliated company     9       —                     Net income (loss)   ¥ 1,096       (5,698 )

(3) Consolidated Statements of Comprehensive Income (Loss) (Unaudited)       Yen (Millions)       Six months ended     Six months ended       September 30, 2012     September 30, 2013   Comprehensive income (loss)             Net income (loss)   ¥ 1,519       (9,339 ) Other comprehensive income (loss), net of tax                 Foreign currency translation adjustments     (5,856 )     5,719   Net unrealized gains (losses) on investment securities:                 Net unrealized gains (losses) arising during the period     (813 )     76   Less reclassification adjustments for net gains (losses) realized in earnings     251       (372 ) Net unrealized gains (losses)     (562 )     (296 )                   Pension related adjustments     407       371                     Total other comprehensive income (loss)     (6,011 )     5,794                     Total comprehensive income (loss)   ¥ (4,492 )     (3,545 )           Yen (Millions)       Three months ended     Three months ended       September 30, 2012     September 30, 2013                 Comprehensive income (loss)             Net income (loss)   ¥ 1,096       (5,698 ) Other comprehensive income (loss), net of tax                 Foreign currency translation adjustments     (1,620 )     (247 ) Net unrealized gains (losses) on investment securities:                 Net unrealized gains (losses) arising during the period     (222 )     (426 ) Less reclassification adjustments for net gains (losses) realized in earnings     251       (54 ) Net unrealized gains (losses)     29       (480 )                   Pension related adjustments     123       252                     Total other comprehensive income (loss)     (1,468 )     (475 )                   Total comprehensive income (loss)   ¥ (372 )     (6,173 )                            

(4) Consolidated Statements of Cash Flows (Unaudited)           Yen (Millions)       Six months ended     Six months ended       September 30, 2012     September 30, 2013                 Cash flows from operating activities:              Net income (loss)   ¥ 1,519       (9,339 ) Adjustments to reconcile net income to net cash                 provided by (used in) operating activities:                 Depreciation and amortization     3,838       4,573   Deferred income taxes     (322 )     203   Stock option compensation expense     291       438   Changes in assets and liabilities:                 Trade receivables     (1,965 )     7,129   Inventories     (1,784 )     (697 ) Trade accounts payable     250       1,542   Accrued expenses     (1,875 )     (23 ) Income taxes payable     1,166       (265 ) Accrued warranty expenses     (17 )     (18 ) Customer prepayments     422       (285 ) Accrued pension and severance costs     578       839   Other     295       (717 )                   Net cash provided by (used in) operating activities     2,396       3,380                     Cash flows from investing activities:                 Proceeds from sale of available-for-sale securities     -       943   Acquisition of subsidiary, net of cash acquired     -       (1,168 ) Proceeds from sale of property, plant and equipment     23       248   Purchases of property, plant and equipment     (5,878 )     (3,521 ) Purchases of intangible assets     (244 )     (465 ) Other     22       7                     Net cash provided by (used in) investing activities      (6,077 )     (3,956 )                   Cash flows from financing activities:                  Increase (decrease) in short term debt     (25,000 )     -   Proceeds from issuance of corporate bonds     25,000       -   Dividends paid     (1,728 )     (1,734 ) Other     208       503                     Net cash provided by (used in) financing activities     (1,520 )     (1,231 )                   Net effect of exchange rate changes on cash and cash equivalents     (2,017 )     1,911                     Net change in cash and cash equivalents     (7,218 )     104                     Cash and cash equivalents at beginning of period     58,218       45,668                     Cash and cash equivalents at end of period   ¥ 51,000       45,772  

(5)Notes to Consolidated Financial Statements (Notes on Going Concern): None (Notes on Significant Changes to Stockholders’ Equity): None (Segment Information)     Yen (Millions)       Six months ended September 30, 2012       Semiconductor and Component Test System Business     Mechatronics System Business     Services, Support and Others     Elimination and Corporate     Total    Net sales to unaffiliated customers   ¥ 55,276       7,631       9,651     -       72,558    Inter-segment sales     1,162       543     -       (1,705 )   -   Net sales     56,438       8,174       9,651       (1,705 )     72,558   Operating income (loss) before stock option compensation expense     9,010       (1,956 )     254       (3,648 )     3,660   Adjustment:                                         Stock option compensation expense                                     291   Operating income (loss)                                   ¥ 3,369       Yen (Millions)       Six months ended September 30, 2013       Semiconductor and Component Test System Business     Mechatronics System Business     Services, Support and Others     Elimination and Corporate     Total    Net sales to unaffiliated customers   ¥ 41,213       6,787       11,638     -       59,638    Inter-segment sales     91     -     -       (91 )   -   Net sales     41,304       6,787       11,638       (91 )     59,638   Operating income (loss) before stock option compensation expense     (3,785 )     (2,488 )     1,172       (2,455 )     (7,556 ) Adjustment:                                         Stock option compensation expense                                     438   Operating income (loss)                                   ¥ (7,994 )   14              Advantest Corporation (FY2013 Q2)                           Yen (Millions)       Three months ended September 30, 2012       Semiconductor and Component Test System Business     Mechatronics System Business     Services, Support and Others     Elimination and Corporate     Total    Net sales to unaffiliated customers   ¥ 29,755       4,392       5,056     -       39,203    Inter-segment sales     801       437     -       (1,238 )   -   Net sales     30,556       4,829       5,056       (1,238 )     39,203   Operating income (loss) before stock option compensation expense     5,665       (809 )     228       (2,180 )     2,904   Adjustment:                                         Stock option compensation expense                                     291   Operating income (loss)                                   ¥ 2,613       Yen (Millions)       Three months ended September 30, 2013       Semiconductor and Component Test System Business     Mechatronics System Business     Services, Support and Others     Elimination and Corporate     Total    Net sales to unaffiliated customers   ¥ 20,274       3,265       6,009     -       29,548    Inter-segment sales     16     -     -       (16 )   -   Net sales     20,290       3,265       6,009       (16 )     29,548   Operating income (loss) before stock option compensation expense     (2,525 )     (1,123 )     791       (1,383 )     (4,240 ) Adjustment:                                         Stock option compensation expense                                     438   Operating income (loss)                                   ¥ (4,678 )   (Notes)   1.  Adjustments to operating income (loss) in Corporate principally represent corporate general and administrative expenses and research and development expenses related to fundamental research activities that are not allocated to operating segments.   2.  Advantest uses the operating income (loss) before stock option compensation expense for management’s analysis of business segment results.

The above information was disclosed in a filing to the SEC. To see this filing in its entirety, click here.

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