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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form 20-F
 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended March 31, 2006
 Commission file number 2-76735
 TDK KABUSHIKI KAISHA
  TDK CORPORATION
  Japan
  13-1,
Nihonbashi 1-chome, Chuo-ku, Tokyo 103-8272
Japan
   Title of each class
    
    Name of each exchange on which registeredAmerican Depositary Shares
    
    New York Stock ExchangeCommon stock
    
    New York Stock Exchange
  
   
   
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þ o
 þ o
 
 þ o o
 þ o
 o þ
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##### 



PART 1Item 1.
    
    Identity of Directors, Senior Management and Advisers

3Item 2.
    
    Offer Statistics and Expected Timetable

3Item 3.
    
    Key Information

4Item 4.
    
    Information on the Company

11Item 4A.
    
    Unresolved Staff Comments

18Item 5.
    
    Operating and Financial Review and Prospects

19Item 6.
    
    Directors, Senior Management and Employees

48Item 7.
    
    Major Shareholders and Related Party Transaction

67Item 8.
    
    Financial Information

68Item 9.
    
    The Offer and Listing

69Item 10.
    
    Additional Information

71Item 11.
    
    Quantitative and Qualitative Disclosures about Market Risk

81Item 12.
    
    Description of Securities Other than Equity Securities

82PART 2Item 13.
    
    Defaults, Dividend Arrearages and Delinquencies

83Item 14.
    
    Material Modifications to the Rights of Security Holders and Use of Proceeds

83Item 15.
    
    Controls and Procedures

83Item 16A.
    
    Audit Committee Financial Expert

83Item 16B.
    
    Code of Ethics

84Item 16C.
    
    Principal Accountant Fees and Services

84Item 16D.
    
    Exemptions from Listing Standards for Audit Committees

86Item 16E.
    
    Purchases of Equity Securities by the Issuer and Affiliated Purchasers

87PART 3Item 17.
    
    Financial Statements

88Independent Auditors Report

89Consolidated Financial Statements

90Notes to Consolidated Financial Statements

95Schedule II  Valuation and Qualifying Accounts

133Item 18.
    
    Financial Statements

134Item 19.
    
    Exhibits

1341.1 Articles of Incorporation (English translation)1.2 Regulations of the Board of Directors (English translation)2.1 Share Handling Regulations (English translation)8.1 List of Significant Subsidiaries11.1 TDK Code of Ethics (English translation)12.1 Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of CEO of the Company12.2 Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of CFO of the Company13.1 Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of CEO of the Company13.2 Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of CFO of the CompanyEX-1.1 ARTICLES OF INCORPORATION (ENGLISH TRANSLATION)EX-1.2 REGULATION OF THE BOARD OF DIRECTORS (ENGLISH TRANSLATION)EX-2.1 SHARE HANDLING REGULATIONS (ENGLISH TRANSLATION)EX-8.1 LIST OF SIGNIFICANT SUBSIDIARIESEX-11.1 TDK CODE OF ETHICS (ENGLISH TRANSLATION)EX-12.1 CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 OF CEO OF THE COMPANYEX-12.2 CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 OF CFO OF THE COMPANYEX-13.1 CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 OF CEO OF THE COMPANYEX-13.2 CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 OF CFO OF THE COMPANY




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PART 1
 
 Item 1 . Identity of Directors, Senior Management and Advisers
 A.
    
    Directors and senior managementNot applicable.B.
    
    AdvisersNot applicable.C.
    
    AuditorsNot applicable.
 
 Item 2 . Offer Statistics and Expected Timetable
 A.
    
    Offer statisticsNot applicable.B.
    
    Method and expected timetableNot applicable.
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Item 3 . Key Information
 A.
    
    Selected financial data
 Thousands ofU.S. dollars,except pershareMillions of yen, except per share amounts
    
    
    
    
    
    amounts (1)2006
    
    2005
    
    2004
    
    2003
    
    2002
    
    2006Net sales
    
    ¥
    795,180
    
    
    ¥
    657,853
    
    
    ¥
    655,792
    
    
    ¥
    604,865
    
    
    ¥
    564,286
    
    
    $
    6,796,410Cost of sales
    
    
    585,780
    
    
    
    484,323
    
    
    
    476,407
    
    
    
    459,552
    
    
    
    463,331
    
    
    
    5,006,666Gross profit
    
    
    209,400
    
    
    
    173,530
    
    
    
    179,385
    
    
    
    145,313
    
    
    
    100,955
    
    
    
    1,789,744Selling, general and
administrative expenses
    
    
    142,052
    
    
    
    119,886
    
    
    
    122,875
    
    
    
    115,569
    
    
    
    115,696
    
    
    
    1,214,120Transfer to the government
of the substitutional portion
of Employees Pension Fund:Subsidy from the government
    
    
    
    
    
    
    (33,533
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Loss on settlement
    
    
    
    
    
    
    27,347
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Restructuring cost
    
    
    6,825
    
    
    
    
    
    
    
    
    
    
    
    5,197
    
    
    
    25,489
    
    
    
    58,333Operating income (loss)
    
    
    60,523
    
    
    
    59,830
    
    
    
    56,510
    
    
    
    24,547
    
    
    
    (40,230
    )
    
    
    517,291Income (loss) from continuing operations before
income taxes
    
    
    66,103
    
    
    
    60,728
    
    
    
    55,847
    
    
    
    20,552
    
    
    
    (40,230
    )
    
    
    564,983Income (loss) from continuing
operations
    
    
    44,411
    
    
    
    36,965
    
    
    
    43,355
    
    
    
    13,593
    
    
    
    (23,619
    )
    
    
    379,581Loss from discontinued
operations
    
    
    310
    
    
    
    3,665
    
    
    
    1,254
    
    
    
    1,574
    
    
    
    2,152
    
    
    
    2,649Net income (loss)
    
    
    44,101
    
    
    
    33,300
    
    
    
    42,101
    
    
    
    12,019
    
    
    
    (25,771
    )
    
    
    376,932Per Common Share:Income (loss) from continuing
operations per share:Basic
    
    ¥
    335.84
    
    
    ¥
    279.41
    
    
    ¥
    327.27
    
    
    ¥
    102.42
    
    
    ¥
    (177.72
    )
    
    $
    2.87Diluted
    
    
    335.54
    
    
    
    279.25
    
    
    
    327.15
    
    
    
    102.42
    
    
    
    (177.72
    )
    
    
    2.87Loss from discontinued
operations per share:Basic
    
    ¥
    (2.34
    )
    
    ¥
    (27.70
    )
    
    ¥
    (9.47
    )
    
    ¥
    (11.86
    )
    
    ¥
    (16.19
    )
    
    $
    (0.02
    )Diluted
    
    
    (2.34
    )
    
    
    (27.69
    )
    
    
    (9.46
    )
    
    
    (11.86
    )
    
    
    (16.19
    )
    
    
    (0.02
    )Net income (loss) per share:Basic
    
    ¥
    333.50
    
    
    ¥
    251.71
    
    
    ¥
    317.80
    
    
    ¥
    90.56
    
    
    ¥
    (193.91
    )
    
    $
    2.85Diluted
    
    
    333.20
    
    
    
    251.56
    
    
    
    317.69
    
    
    
    90.56
    
    
    
    (193.91
    )
    
    
    2.85Cash dividends
    
    ¥
    80.00
    
    
    ¥
    60.00
    
    
    ¥
    50.00
    
    
    ¥
    45.00
    
    
    ¥
    60.00U.S. Dollar equivalents (2)
    
    $
    0.68
    
    
    $
    0.56
    
    
    $
    0.47
    
    
    $
    0.38
    
    
    $
    0.45
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Millions of yen, except per share amounts
    
    
    Thousands ofand exchange rate for yen
    
    

    U.S. dollars (1)2006
    
    2005
    
    2004
    
    2003
    
    2002
    
    2006Net working
capital (3)
    
    
    
    
    
    ¥
    397,131
    
    
    ¥
    379,746
    
    
    ¥
    360,555
    
    
    ¥
    315,948
    
    
    ¥
    288,865
    
    
    $
    3,394,282Total assets
    
    
    
    
    
    
    923,503
    
    
    
    808,001
    
    
    
    770,319
    
    
    
    747,337
    
    
    
    749,910
    
    
    
    7,893,188Short-term indebtedness
    
    
    
    
    6,427
    
    
    
    103
    
    
    
    416
    
    
    
    1,919
    
    
    
    2,312
    
    
    
    54,932Long-term indebtedness
    
    
    
    
    405
    
    
    
    81
    
    
    
    27
    
    
    
    94
    
    
    
    459
    
    
    
    3,462Retirement
and severance benefits
    
    
    
    
    
    
    26,790
    
    
    
    28,839
    
    
    
    73,521
    
    
    
    84,971
    
    
    
    49,992
    
    
    
    228,974Stockholders equity
    
    
    
    
    702,419
    
    
    
    639,067
    
    
    
    576,219
    
    
    
    553,885
    
    
    
    583,927
    
    
    
    6,003,581Number of
shares outstanding (in thousands)
    
    
    
    
    
    
    132,267
    
    
    
    132,245
    
    
    
    132,409
    
    
    
    132,625
    
    
    
    132,860
 Yen exchange rates per U.S. dollar (4)
    
    Average
    
    
    Term end
    
    
    High
    
    
    LowYear ended March 31:2002
    
    
    125.64
    
    
    
    132.70
    
    
    
    134.77
    
    
    
    115.892003
    
    
    121.10
    
    
    
    118.07
    
    
    
    133.40
    
    
    
    115.712004
    
    
    112.75
    
    
    
    104.18
    
    
    
    120.55
    
    
    
    104.182005
    
    
    107.28
    
    
    
    107.22
    
    
    
    114.30
    
    
    
    102.262006
    
    
    113.67
    
    
    
    117.48
    
    
    
    120.93
    
    
    
    104.642007 (through July 14, 2006)
    
    
    114.22
    
    
    
    116.33
    
    
    
    118.66
    
    
    
    110.07January, 2006
    
    
    
    
    
    
    
    
    
    
    117.55
    
    
    
    113.96February, 2006
    
    
    
    
    
    
    
    
    
    
    118.95
    
    
    
    115.82March, 2006
    
    
    
    
    
    
    
    
    
    
    119.07
    
    
    
    115.89April, 2006
    
    
    
    
    
    
    
    
    
    
    118.66
    
    
    
    113.79May, 2006
    
    
    
    
    
    
    
    
    
    
    113.46
    
    
    
    110.07June, 2006
    
    
    
    
    
    
    
    
    
    
    116.42
    
    
    
    111.66
  (1)
    
    Translated, except for cash dividend amounts, for convenience of the reader
into U.S. dollars at the rate of ¥117 = $1, the approximate rate on the
Tokyo Foreign Exchange Market on March 31, 2006.(2)
    
    Translated based on the rates specified in Note (4) below on the respective
dates of semi-annual payments for each year.(3)
    
    Net working capital is defined as current assets less current liabilities.(4)
    
    Based on the noon buying rate in New York City for cable transfers in
foreign currencies as certified for customs purposes by the Federal Reserve
Bank of New York. The average rates are computed based on the exchange
rates on the last day of each month during the year. B.
    
    Capitalization and indebtednessNot applicable.C.
    
    Reasons for the offer and use of proceedsNot applicable.
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D.
    
    Risk factors
 Our business is exposed to fluctuations in economic conditions that may adversely affect our
business results and financial condition.
  Fluctuations in currency exchange rates could adversely affect our business results and
financial condition.
   We are susceptible to risks involved with selling our products in markets outside of
Japan.
   A slow-down of the Chinese economy, adverse changes in political and economic policies
of the Chinese government, or other factors in China may reduce our growth and profitability.
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We may not be able to compete effectively with respect to prices, which would have a material
adverse effect on our profitability.
   Rapid changes in technology could adversely affect our business and hurt our competitive
position.
  Claims of product liability and other issues associated with the quality of our products
could adversely affect our business results and brand name.
   Our proprietary technology is difficult to protect and unauthorized use of our proprietary
technology by third parties may reduce the value of our products and brand and impair our ability
to compete effectively.
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Our business may suffer if we are sued for infringing upon the intellectual property rights
of third parties.
   Our success depends on attracting and retaining highly-skilled employees, and we would
suffer material adverse effects if we are unable to do so.
   We are dependent on certain raw materials and other products, and our business will
suffer if we are unable to procure such materials.
   Increased government regulation of our industry or changes in those regulations, whether in
Japan or overseas, may limit our ability to compete effectively.
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Fluctuations in interest rates may have an adverse effect on our profitability.
  We are developing a business strategy whereby we sell to a concentrated number of Original
Equipment Manufacturers (OEMs), and are thus susceptible to adverse changes with respect to the
business of such OEMs.
     Our operations depend on facilities throughout the world and are subject to forces of nature
that could disrupt our ability to serve our customers.
  If we are unable to comply with the various environmental laws and regulations to which we
are subject, we may have to withdraw from certain business activities, which would have an
adverse effect on our brand and business operations.
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Japans Unit Share System could affect access to Japanese markets by holders of American
Depositary Shares (ADSs), which could adversely affect the price of our shares.
  Holders of American Depositary Shares have limited rights, which could adversely affect the
price of our shares.
   Because
we have not yet completed the implementation of the SECs
requirements with respect to internal controls over financial
reporting, we might not be aware of weaknesses in our internal
controls over financial reporting that could adversely affect our
ability to report our financial results timely and
accurately.
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Item 4 . Information on the Company
  History
      - 11 -




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Sales by product category
   Years ended March 312006
    
    
    2005
    
    
    2004
    
    
    2006(millions of yen)
    
    
    
    
    
    
    (millions of U.S.(%)
    
    
    
    
    
    
    dollars)Electronic Materials and Components:Electronic materials
    
    ¥
    180,766
    
    
    
    ¥174,800
    
    
    ¥
    166,818
    
    
    
    $1,545.0(22.7
    )
    
    
    (26.6
    )
    
    
    (25.4
    )Electronic devices
    
    
    154,680
    
    
    
    116,387
    
    
    
    107,999
    
    
    
    1,322.1(19.5
    )
    
    
    (17.7
    )
    
    
    (16.5
    )Recording devices
    
    
    315,928
    
    
    
    234,578
    
    
    
    230,105
    
    
    
    2,700.2(39.7
    )
    
    
    (35.7
    )
    
    
    (35.1
    )Other
electronic components
    
    
    36,376
    
    
    
    19,449
    
    
    
    14,870
    
    
    
    310.9(4.6
    )
    
    
    (2.9
    )
    
    
    (2.3
    )Sub total
    
    
    687,750
    
    
    
    545,214
    
    
    
    519,792
    
    
    
    5,878.2(86.5
    )
    
    
    (82.9
    )
    
    
    (79.3
    )Recording Media
    
    
    107,430
    
    
    
    112,639
    
    
    
    136,000
    
    
    
    918.2(13.5
    )
    
    
    (17.1
    )
    
    
    (20.7
    )Total
    
    ¥
    795,180
    
    
    
    ¥657,853
    
    
    ¥
    655,792
    
    
    
    $6,796.4(100.0
    )
    
    
    (100.0
    )
    
    
    (100.0
    )
  The business segment information is required by the Japanese Securities
Exchange Law. Segment information is unaudited.
 Electronic Materials and Components
 (i) Electronic materials
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(ii) Electronic devices
     (iii) Recording devices
   (iv) Other electronic components
  Recording Media
    
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Marketing channels in Japan
   Operations outside Japan
  China
    
    -
    
    GMR heads, inductors, ferrite cores, capacitors, transformer, power supplies and ferrite magnetsUnited States
    
    -
    
    GMR heads, capacitors, ferrite magnets and power suppliesLuxembourg
    
    -
    
    Videotapes, CD-Rs and DVDsTaiwan
    
    -
    
    Capacitors, ferrite cores and power suppliesPhilippines
    
    -
    
    GMR headsThailand
    
    -
    
    Audiotapes, rare-earth metal magnets and power suppliesMalaysia
    
    -
    
    Capacitors and high-frequency componentsKorea
    
    -
    
    Capacitors and inductorsHungary
    
    -
    
    Capacitors and ferrite coresHong Kong
    
    -
    
    Ferrite cores
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Years ended March 312006
    
    
    2005
    
    
    2004
    
    
    2006(millions of yen)
    
    
    (%)
    
    
    
    
    
    
    
    
    
    
    (millions ofU.S. dollars)Japan
    
    ¥
    168,554
    
    
    
    (21.2
    )
    
    
    ¥159,487
    
    
    
    (24.2
    )
    
    ¥
    161,607
    
    
    
    (24.6
    )
    
    $
    1,440.6North America
    
    
    65,931
    
    
    
    (8.3
    )
    
    
    58,850
    
    
    
    (9.0
    )
    
    
    71,224
    
    
    
    (10.9
    )
    
    
    563.5Europe
    
    
    74,846
    
    
    
    (9.4
    )
    
    
    71,085
    
    
    
    (10.8
    )
    
    
    80,233
    
    
    
    (12.2
    )
    
    
    639.7Asia and others
    
    
    485,849
    
    
    
    (61.1
    )
    
    
    368,431
    
    
    
    (56.0
    )
    
    
    342,728
    
    
    
    (52.3
    )
    
    
    4,152.6Total
    
    ¥
    795,180
    
    
    
    (100.0
    )
    
    
    ¥657,853
    
    
    
    (100.0
    )
    
    ¥
    655,792
    
    
    
    (100.0
    )
    
    $
    6,796.4
  Net sales in each geographic area are based on the location of TDK entities
where the external sales are generated.
 Patents and Licenses
  Competition
   - 15 -




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Raw Materials and Sources of Supply
     - 16 -




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Number of
    
    Floor spaceprincipal
    
    (thousands ofLocation
    
    factories
    
    square feet)
    
    Principal products manufacturedJapanAkita
    
    
    16
    
    
    
    2,065
    
    
    Capacitors, ferrite cores,
inductors and high-frequency
componentsNagano
    
    
    4
    
    
    
    1,150
    
    
    GMR heads and optical disksChiba
    
    
    1
    
    
    
    663
    
    
    Rare-earth metal magnets,
ferrite cores and power
suppliesYamanashi
    
    
    3
    
    
    
    603
    
    
    GMR heads and data storage tapesOita
    
    
    1
    
    
    
    471
    
    
    VideotapesShizuoka
    
    
    2
    
    
    
    465
    
    
    Ferrite magnetsYamagata
    
    
    3
    
    
    
    345
    
    
    InductorsIwate
    
    
    1
    
    
    
    298
    
    
    CapacitorsIbaraki
    
    
    3
    
    
    
    219
    
    
    Display and power suppliesNiigata
    
    
    1
    
    
    
    54
    
    
    Power suppliesOverseasChina
    
    
    9
    
    
    
    4,155
    
    
    GMR heads, inductors, ferrite
cores, capacitors,
transformer, power supplies
and ferrite magnetsUnited States of
America
    
    
    7
    
    
    
    746
    
    
    GMR heads, capacitors,
ferrite magnets and power
suppliesLuxembourg
    
    
    1
    
    
    
    494
    
    
    Videotapes, CD-Rs and DVDsPhilippines
    
    
    1
    
    
    
    441
    
    
    GMR headsThailand
    
    
    2
    
    
    
    435
    
    
    Audiotapes, rare-earth metal
magnets and power suppliesMalaysia
    
    
    2
    
    
    
    364
    
    
    Capacitors and high-frequency
componentsTaiwan
    
    
    1
    
    
    
    345
    
    
    Capacitors, ferrite cores and
power suppliesKorea
    
    
    1
    
    
    
    164
    
    
    Capacitors and inductorsHungary
    
    
    1
    
    
    
    160
    
    
    Capacitors and ferrite coresEngland
    
    
    1
    
    
    
    42
    
    
    Power suppliesHong Kong
    
    
    1
    
    
    
    42
    
    
    Ferrite coresIsrael
    
    
    1
    
    
    

28
    
    
    Power suppliesTotal
    
    
    63
    
    
    
    13,749
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Item 4A . Unresolved Staff Comments
  - 18 -




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Item 5 . Operating and Financial Review and Prospects
 Overview
         - 19 -




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Results of Operations
 Years ended March 312006
    
    
    2005
    
    
    2004
    
    
    2006(millions of yen)
    
    
    
    
    (thousands(%)
    
    
    
    
    
    
    of dollars)Net sales
    
    ¥
    795,180
    
    
    ¥
    657,853
    
    
    ¥
    655,792
    
    
    $
    6,796,410(100.0
    )
    
    
    (100.0
    )
    
    
    (100.0
    )Cost of sales
    
    
    585,780
    
    
    
    484,323
    
    
    
    476,407
    
    
    
    5,006,666(73.7
    )
    
    
    (73.6
    )
    
    
    (72.6
    )Gross profit
    
    
    209,400
    
    
    
    173,530
    
    
    
    179,385
    
    
    
    1,789,744(26.3
    )
    
    
    (26.4
    )
    
    
    (27.4
    )Selling,
general and administrative expenses
    
    
    142,052
    
    
    
    119,886
    
    
    
    122,875
    
    
    
    1,214,120(17.9
    )
    
    
    (18.2
    )
    
    
    (18.8
    )Transfer to the government of
the substitutional portion of
Employees Pension Fund:Subsidy from the government
    
    
    
    
    
    
    (33,533
    )
    
    
    
    
    
    
    
    
    
    
    (-5.1
    )
    
    
    Loss on settlement
    
    
    
    
    
    
    27,347
    
    
    
    
    
    
    
    
    
    
    
    (4.2
    )
    
    
    Restructuring cost
    
    
    6,825
    
    
    
    
    
    
    
    
    
    
    
    58,333(0.8
    )
    
    
    
    
    
    
    Operating income
    
    
    60,523
    
    
    
    59,830
    
    
    
    56,510
    
    
    
    517,291(7.6
    )
    
    
    (9.1
    )
    
    
    (8.6
    )Other income (other deductions)
    
    
    5,580
    
    
    
    898
    
    
    
    (663
    )
    
    
    47,692(0.7
    )
    
    
    (0.1
    )
    
    
    (-0.1
    )Income taxes
and minority interests, net of tax
    
    
    21,692
    
    
    
    23,763
    
    
    
    12,492
    
    
    
    185,402(2.7
    )
    
    
    (3.6
    )
    
    
    (1.9
    )Loss from discontinued operations
    
    
    310
    
    
    
    3,665
    
    
    
    1,254
    
    
    
    2,649(0.1
    )
    
    
    (0.5
    )
    
    
    (0.2
    )Net income
    
    ¥
    44,101
    
    
    ¥
    33,300
    
    
    ¥
    42,101
    
    
    $
    376,932(5.5
    )
    
    
    (5.1
    )
    
    
    (6.4
    )
 Sales by Region
 Years ended March 312006
    
    
    2005
    
    
    2004
    
    
    2006(millions of yen)
    
    
    
    
    (millions(%)
    
    
    
    
    
    
    of dollars)Japan
    
    ¥
    173,658
    
    
    ¥
    184,025
    
    
    ¥
    168,623
    
    
    $
    1,484,256(21.8
    )
    
    
    (28.0
    )
    
    
    (25.7
    )Americas
    
    
    90,192
    
    
    
    77,813
    
    
    
    88,734
    
    
    
    770,872(11.4
    )
    
    
    (11.8
    )
    
    
    (13.5
    )Europe
    
    
    75,895
    
    
    
    71,702
    
    
    
    80,710
    
    
    
    648,675(9.5
    )
    
    
    (10.9
    )
    
    
    (12.3
    )Asia (excluding Japan) and Oceania
    
    
    451,710
    
    
    
    321,612
    
    
    
    314,875
    
    
    
    3,860,769(56.8
    )
    
    
    (48.9
    )
    
    
    (48.0
    )Middle East and Africa
    
    
    3,725
    
    
    
    2,701
    
    
    
    2,850
    
    
    
    31,838(0.5
    )
    
    
    (0.4
    )
    
    
    (0.5
    )Net sales
    
    ¥
    795,180
    
    
    ¥
    657,853
    
    
    ¥
    655,792
    
    
    $
    6,796,410(100.0
    )
    
    
    (100.0
    )
    
    
    (100.0
    )
  - 21 -




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##### Table of Contents



Segment Information
   Years ended March 312006
    
    
    2005
    
    
    2004
    
    
    2006(millions of yen)
    
    
    
    
    (thousandsof dollars)ELECTRONIC MATERIALS AND COMPONENTSNet salesExternal sales
    
    ¥
    687,750
    
    
    ¥
    545,214
    
    
    ¥
    519,792
    
    
    $
    5,878,205Intersegment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total revenue
    
    
    687,750
    
    
    
    545,214
    
    
    
    519,792
    
    
    
    5,878,205(100.0
    %)
    
    
    (100.0
    %)
    
    
    (100.0
    %)
    
    
    (100.0
    %)Operating expenses
    
    
    613,417
    
    
    
    477,694
    
    
    
    461,077
    
    
    
    5,242,880(89.2
    %)
    
    
    (87.6
    %)
    
    
    (88.7
    %)
    
    
    (89.2
    %)Operating income
    
    ¥
    74,333
    
    
    ¥
    67,520
    
    
    ¥
    58,715
    
    
    $
    635,325(10.8
    %)
    
    
    (12.4
    %)
    
    
    (11.3
    %)
    
    
    (10.8
    %)Identifiable assets
    
    
    672,596
    
    
    
    537,593
    
    
    
    505,178
    
    
    
    5,748,684Depreciation and amortization
    
    
    53,599
    
    
    
    47,409
    
    
    
    46,293
    
    
    
    458,111Capital expenditures
    
    
    71,070
    
    
    
    57,192
    
    
    
    40,084
    
    
    
    607,436RECORDING MEDIANet salesExternal sales
    
    ¥
    107,430
    
    
    ¥
    112,639
    
    
    ¥
    136,000
    
    
    $
    918,205Intersegment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total revenue
    
    
    107,430
    
    
    
    112,639
    
    
    
    136,000
    
    
    
    918,205(100.0
    %)
    
    
    (100.0
    %)
    
    
    (100.0
    %)
    
    
    (100.0
    %)Operating expenses
    
    
    121,240
    
    
    
    120,329
    
    
    
    138,205
    
    
    
    1,036,239(112.9
    %)
    
    
    (106.8
    %)
    
    
    (101.6
    %)
    
    
    (112.9
    %)Operating income (loss)
    
    ¥
    (13,810
    )
    
    ¥
    (7,690
    )
    
    ¥
    (2,205
    )
    
    $
    (118,034
    )(-12.9
    %)
    
    
    (-6.8
    %)
    
    
    (-1.6
    %)
    
    
    (-12.9
    %)Identifiable assets
    
    
    79,109
    
    
    
    84,160
    
    
    
    97,186
    
    
    
    676,145Depreciation and amortization
    
    
    4,941
    
    
    
    5,397
    
    
    
    4,433
    
    
    
    42,231Capital expenditures
    
    
    2,841
    
    
    
    3,813
    
    
    
    4,387
    
    
    
    24,282ELIMINATIONS AND CORPORATECorporate assets
    
    ¥
    171,798
    
    
    ¥
    186,248
    
    
    ¥
    167,955
    
    
    $
    1,468,359TOTALNet salesExternal sales
    
    ¥
    795,180
    
    
    ¥
    657,853
    
    
    ¥
    655,792
    
    
    $
    6,796,410Intersegment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total revenue
    
    
    795,180
    
    
    
    657,853
    
    
    
    655,792
    
    
    
    6,796,410(100.0
    %)
    
    
    (100.0
    %)
    
    
    (100.0
    %)
    
    
    (100.0
    %)Operating expenses
    
    
    734,657
    
    
    
    598,023
    
    
    
    599,282
    
    
    
    6,279,119(92.4
    %)
    
    
    (90.9
    %)
    
    
    (91.4
    %)
    
    
    (92.4
    %)Operating income
    
    ¥
    60,523
    
    
    ¥
    59,830
    
    
    ¥
    56,510
    
    
    $
    517,291(7.6
    %)
    
    
    (9.1
    %)
    
    
    (8.6
    %)
    
    
    (7.6
    %)Identifiable and corporate assets
    
    
    923,503
    
    
    
    808,001
    
    
    
    770,319
    
    
    
    7,893,188Depreciation and amortization
    
    
    58,540
    
    
    
    52,806
    
    
    
    50,726
    
    
    
    500,342Capital expenditures
    
    
    73,911
    
    
    
    61,005
    
    
    
    44,471
    
    
    
    631,718
 - 22 -




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##### Table of Contents



Years ended March 312006
    
    
    2005
    
    
    2004
    
    
    2006(millions of yen)
    
    
    (thousandsof dollars)JAPANNet sales (1)
    
    ¥
    360,210
    
    
    ¥
    339,493
    
    
    ¥
    329,782
    
    
    $
    3,078,718Operating income
    
    
    49,437
    
    
    
    26,382
    
    
    
    8,538
    
    
    
    422,539Identifiable assets
    
    
    347,942
    
    
    
    305,717
    
    
    
    316,695
    
    
    
    2,973,863AMERICASNet sales (1)
    
    
    105,979
    
    
    
    87,594
    
    
    
    100,971
    
    
    
    905,803Operating income
    
    
    9,995
    
    
    
    5,496
    
    
    
    4,985
    
    
    
    85,427Identifiable assets
    
    
    100,611
    
    
    
    70,844
    
    
    
    65,584
    
    
    
    859,923EUROPENet sales (1)
    
    
    76,240
    
    
    
    71,682
    
    
    
    80,641
    
    
    
    651,624Operating income (loss)
    
    
    (9,996
    )
    
    
    (5,125
    )
    
    
    (115
    )
    
    
    (85,436
    )Identifiable assets
    
    
    45,729
    
    
    
    44,961
    
    
    
    51,797
    
    
    
    390,846ASIA AND OTHERSNet sales (1)
    
    
    531,824
    
    
    
    400,866
    
    
    
    380,781
    
    
    
    4,545,504Operating income
    
    
    12,607
    
    
    
    33,551
    
    
    
    42,912
    
    
    
    107,752Identifiable assets
    
    
    348,008
    
    
    
    263,621
    
    
    
    228,058
    
    
    
    2,974,428ELIMINATIONS AND CORPORATENet sales (1)
    
    
    279,073
    
    
    
    241,782
    
    
    
    236,383
    
    
    
    2,385,239Operating income (loss)
    
    
    1,520
    
    
    
    474
    
    
    
    (190
    )
    
    
    12,991Identifiable assets
    
    
    81,213
    
    
    
    122,858
    
    
    
    108,185
    
    
    
    694,128TOTALNet sales
    
    ¥
    795,180
    
    
    ¥
    657,853
    
    
    ¥
    655,792
    
    
    $
    6,796,410Operating income
    
    
    60,523
    
    
    
    59,830
    
    
    
    56,510
    
    
    
    517,291Identifiable and corporate assets
    
    
    923,503
    
    
    
    808,001
    
    
    
    770,319
    
    
    
    7,893,188OVERSEAS SALES (2)Americas
    
    ¥
    90,192
    
    
    ¥
    77,813
    
    
    ¥
    88,734
    
    
    $
    770,872Europe
    
    
    75,895
    
    
    
    71,702
    
    
    
    80,710
    
    
    
    648,675Asia and others
    
    
    455,435
    
    
    
    324,313
    
    
    
    317,725
    
    
    
    3,892,607Overseas sales total
    
    ¥
    621,522
    
    
    ¥
    473,828
    
    
    ¥
    487,169
    
    
    $
    5,312,154Percentage of consolidated sales
    
    
    78.2
    %
    
    
    72.0
    %
    
    
    74.3
    %
    
    
    78.2
    %
 Notes:(1)
    
    Net sales in each geographic area are based on the location of TDK
entities where the sales are generated.(2)
    
    Overseas sales are based on the location of the customers. - 23 -




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Sales
        - 24 -




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- 25 -




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Effect of foreign exchange movements
     - 26 -




---



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Cost and expenses
    Other income and deductions
  Income taxes and minority interests
  Net income
   - 27 -




---



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- 28 -




---



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Sales
        - 29 -




---



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- 30 -




---



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Effect of foreign exchange movements
     Cost and expenses
  - 31 -




---



##### Table of Contents



Other income and deductions
  Income taxes and minority interests
  Net income
  - 32 -




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- 33 -




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Discontinued Operations
  U.S. DollarsYen (Millions)
    
    (Thousands)2006
    
    2005
    
    2004
    
    2006Net sales
    
    ¥
    45
    
    
    
    2,242
    
    
    
    3,070
    
    
    $
    385Loss from operations before
income taxes (including loss on
disposal of ¥224 million in
2006)
    
    
    310
    
    
    
    3,509
    
    
    
    244
    
    
    
    2,650Income tax expense
    
    
    
    
    
    
    156
    
    
    
    1,010
    
    
    
    Loss from discontinued operations
    
    ¥
    310
    
    
    
    3,665
    
    
    
    1,254
    
    
    $
    2,650Loss from discontinued operations per share:Basic
    
    ¥
    (2.34
    )
    
    
    (27.70
    )
    
    
    (9.47
    )
    
    $
    (0.02
    )Diluted
    
    
    (2.34
    )
    
    
    (27.69
    )
    
    
    (9.46
    )
    
    
    (0.02
    )
  - 34 -




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##### Table of Contents



Operating capital requirements
  Capital Expenditures
           - 35 -




---



##### Table of Contents



Financial Management
   Years ended March 312006
    
    
    2005
    
    
    2004
    
    
    2006(millions of yen)
    
    
    (millionsof dollars)Income from continuing operations
    
    ¥
    44,411
    
    
    ¥
    36,965
    
    
    ¥
    43,355
    
    
    $
    379.6Adjustments to reconcile net income to
net cash provided by operating
activities
    
    
    44,707
    
    
    
    58,284
    
    
    
    70,664
    
    
    
    382.1Net cash provided by operating activities
    
    
    89,118
    
    
    
    95,249
    
    
    
    114,019
    
    
    
    761.7Net cash used in investing activities
    
    
    (104,782
    )
    
    
    (62,359
    )
    
    
    (37,647
    )
    
    
    (895.6
    )Net cash used in financing activities
    
    
    (7,125
    )
    
    
    (9,629
    )
    
    
    (9,860
    )
    
    
    (60.9
    )Net cash provided by (used in)
discontinued operations
    
    
    (414
    )
    
    
    (1,625
    )
    
    
    761
    
    
    
    (3.5
    )Effect of exchange rate changes on cash
and cash equivalents
    
    
    10,712
    
    
    
    2,717
    
    
    
    (10,669
    )
    
    
    91.5Net change in cash and cash equivalents
    
    ¥
    (12,491
    )
    
    ¥
    24,353
    
    
    ¥
    56,604
    
    
    $
    (106.8
    )
      - 36 -




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- 37 -




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##### Table of Contents



Years ended March 312006
    
    
    2005
    
    
    2004
    
    
    2006(millions of yen)
    
    
    (millions(%)
    
    
    of dollars)Short-term debt
    
    ¥
    4,469
    
    
    ¥
    
    
    
    ¥
    315
    
    
    $
    38.2(0.6
    )
    
    
    (
    )
    
    
    (0.1
    )Current installments of long term debt
    
    
    1,958
    
    
    
    103
    
    
    
    101
    
    
    
    16.7(0.3
    )
    
    
    (0.0
    )
    
    
    (0.0
    )Long-term debt,
    
    
    405
    
    
    
    81
    
    
    
    27
    
    
    
    3.5excluding current installments
    
    
    (0.1
    )
    
    
    (0.0
    )
    
    
    (0.0
    )Stockholders equity
    
    
    702,419
    
    
    
    639,067
    
    
    
    576,219
    
    
    
    6,003.6(99.0
    )
    
    
    (100.0
    )
    
    
    (99.9
    )Total capital
    
    ¥
    709,251
    
    
    ¥
    639,251
    
    
    ¥
    576,662
    
    
    $
    6,062.0(100.0
    )
    
    
    (100.0
    )
    
    
    (100.0
    )
       - 38 -




---



##### Table of Contents



Restructuring Costs
   - 39 -




---



##### Table of Contents



- 40 -




---



##### Table of Contents



Economic environment
         - 41 -




---



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Critical accounting policies
    Impairment of long-lived assets
   Valuation of inventories
   - 42 -




---



##### Table of Contents



Purchase Accounting
    Goodwill and other intangible assets
  Pension benefit costs
     - 43 -




---



##### Table of Contents



Deferred tax assets
  - 44 -




---



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New accounting pronouncements
 New Accounting Standards
     - 45 -




---



##### Table of Contents



Payments Due by Period (Yen in millions)Less than
    
    1 to 3
    
    3 to 5
    
    After 5Total
    
    1 year
    
    years
    
    years
    
    yearsContractual obligations:Long-term debt
    
    ¥
    2,363
    
    
    
    1,958
    
    
    
    323
    
    
    
    67
    
    
    
    15Operating leases
    
    
    11,584
    
    
    
    2,499
    
    
    
    3,331
    
    
    
    1,881
    
    
    
    3,873Contributions to
defined benefit plans
    
    
    6,315
    
    
    
    6,315
    
    
    
    
    
    
    
    
    
    
    
    Purchase commitment
of raw materials
    
    
    4,539
    
    
    
    4,061
    
    
    
    231
    
    
    
    204
    
    
    
    43Purchase commitment
of property, plant and
equipment
    
    
    13,088
    
    
    
    13,088
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    37,889
    
    
    
    27,921
    
    
    
    3,885
    
    
    
    2,152
    
    
    
    3,931
 - 46 -




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- 47 -




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##### Table of Contents



Item 6 . Directors, Senior Management and Employees
   Directors
 Name (Date of birth)
    
    Position, responsibility and brief personal recordHajime Sawabe
    
    Representative Director, Chairman and CEO  since June 2006(Jan. 9, 1942)
    
    - Director of TDK since June 1996- Appointed Representative Director, President and CEO in June 1998Takehiro Kamigama
    
    Representative Director, President and COO  since June 2006(Jan. 12, 1958)
    
    - Appointed
General Manager of Data Storage Components Business Group in October 2001- Corporate Officer of TDK since June 2002- Appointed Senior Vice President of TDK in June 2003- Appointed General Manager of Data Storage and Thin Film Technology Components Business Group in June 2003- Appointed Director, Executive Vice President in June 2004Jiro Iwasaki
    
    Director, Executive Vice President  since June 2006(Dec. 6, 1945)
    
    In charge of General Manager of Administration Group and Environment- Director of TDK since June 1996- General Manager of Administration Group and Environment since June 2002- Appointed Senior Vice President in June 2002Shinji Yoko
    
    Director, Senior Vice President  since June 2002(Jan. 2, 1948)
    
    In charge of General Manager of Electronic Components Sales and Marketing Group- Director of TDK since June 1998- Appointed Deputy General Manager of Electronic Components Business Group, General Manager of High Frequency Devices Division in April 2000- General Manager of Electronic Components Sales and Marketing Group since June 2002
 - 48 -




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##### Table of Contents



Name (Date of birth)
    
    Position, responsibility and brief personal recordTakeshi Nomura
    
    Director, Senior Vice President  since June 2002(Mar. 8, 1952)
    
    In charge of General Manager of Ferrite and Magnet Products Business Group- Director of TDK since 1998- Appointed General Manager of Materials Research Center, General Manager of Intellectual Properties Center in July 2002- Appointed General Manager of Materials Research Center, General Manager of Intellectual Properties Center, General Manager of Information Technology Research Center and Technology in July 2003- Appointed General Manager of Technology Group, General Manager of Intellectual Properties Center and Technology in January 2004- Appointed General Manager of Technology Group, General Manager of Intellectual Properties Center, General Manager of Devices Development Center and Technology in July 2004- General
Manager of Ferrite and Magnet Products Business Group since April 2005Yasuhiro Hagihara
    
    Director*  since June 2002(Oct. 19, 1937)
    
    - Admitted to the bar in Washington D.C., U.S.A. in April 1971- Elected Partner of Graham & James L.L.P. in January 1979- Partner of Squire, Sanders & Dempsey L.L.P. since July 2000- Partner of Squire Sanders Gaikokuho Kyodo Jigyo Horitsu Jimusho since April 2005Seiji Enami
    
    Director and CFO since June 2005(Sep. 14, 1947)
    
    In charge of General Manager of Finance and Accounting Department- Appointed General Manager of Recording Media and Systems Business Group Industrial Sales Department in April 2000- General Manager of Finance and Accounting Department since April 2001- CFO of TDK since June 2004
 - 49 -




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##### Table of Contents



Corporate Officers
 Name (Date of birth)
    
    Position, responsibility and brief personal recordKiyoshi Ito
    
    Corporate Officer, Senior Executive Vice President  since June 2006(May 28, 1944)
    
    In charge of General Manager of SCM Group and Production- Appointed General Manager of Electronic Components Business Group Capacitors Division in March 1999- Appointed Director of TDK in June 2000- Appointed General Manager of Circuit Devices Business Group in October 2001- Appointed Corporate Officer, Senior Vice President of TDK in June 2002- Appointed General Manager of Circuit Devices Business Group, General Manager of Ceramic Material Products Division in June 2002- Appointed Executive Vice President in June 2004- General Manager of SCM Group and Production since April 2005Takaya Ishigaki
    
    Corporate Officer, Senior Vice President  since June 2005(Apr. 10, 1953)
    
    In charge of General Manager of Circuit Devices Business Group, Capacitor Group Senior Manager- Appointed Deputy General Manager of Circuit Devices Business Group, Capacitor Group Senior Manager, General Manager of Multilayer Ceramics Manufacturing Department in October 2001- Appointed Corporate Officer of TDK in June 2003- General Manager of Circuit Devices Business Group, Capacitor Group Senior Manager since April 2005Minoru Takahashi
    
    Corporate Officer, Senior Vice President  since June 2005(Feb. 12, 1948)
    
    In charge of General Manager of Technology Group, General Manager of Devices Development Center and Technology, Intellectual Properties- Appointed General Manager of Sensors and Actuators Business Division, General Manager of Business Promotions Department in April 2002- Appointed Corporate Officer of TDK in June 2003- Appointed General Manager of Sensors and Actuators Business Group in November 2004- General Manager of Technology Group, General Manager of Devices Development Center and Technology, Intellectual Properties since April 2005Michinori Katayama
    
    Corporate Officer, Senior Vice President  since June 2006(Dec. 9, 1946)
    
    In charge of General Manager of Corporate Communications Department- General Manager of Corporate Communications Department since January 1999- Appointed Corporate Officer in June 2002
 - 50 -




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Name (Date of birth)
    
    Position, responsibility and brief personal recordYukio Hirokawa
    
    Corporate Officer  since June 2002(Feb. 19, 1947)
    
    In charge of General Manager of Network Devices Business Group- Appointed Associate Director, Electronic Components Sales and Marketing Group East Japan Sales Department Senior Manager in June 2000- Appointed Associate Director, CRM Group Strategic Sales Department Senior Manager in April 2001- Appointed Associate Director, Deputy General Manager of Network Devices Business Group in October 2001- General Manager of Network Devices Business Group since January 2002Masatoshi Shikanai
    
    Corporate Officer  since June 2002(Oct. 3, 1949)
    
    In charge of General Manager of Recording Media and Solutions Business Group- Appointed General Manager of Recording Media and Systems Business Group Europe Division in April 2000- Appointed Deputy General Manager of Recording Media and Systems Business Group in February 2001- General Manager of Recording Media and Solutions Business Group since October 2001Kenryo Namba
    
    Corporate Officer  since June 2002(Jan. 6, 1947)
    
    In charge of Deputy General Manager of Technology Group, General Manager of Material Analysis Center and Organic Materials- Appointed General Manager of Corporate Research and Development Center in April 2001- Appointed Deputy General Manager of Technology Group, General Manager of Devices Development Center, General Manager of Material Analysis Center in January 2004- Deputy General Manager of Technology Group, General Manager of Material Analysis Center and Organic Materials since July 2004Raymond Leung
    
    Corporate Officer  since June 2004(Apr. 18, 1956)
    
    In charge of General Manager of China Operation Group, Vice Chairman of SAE Magnetics (H.K.) Ltd.- Appointed President of SAE Magnetics (H.K.) Ltd. in October 2000- Appointed Deputy General Manager of Data Storage and Thin Film Technology Components Business Group in June 2004- General Manager of China Operation Group, Vice Chairman of SAE Magnetics (H.K.) Ltd. since April 2005Shunji Itakura
    
    Corporate Officer  since June 2005(Nov. 15, 1947)
    
    In charge of General Manager of Display Business Department- Appointed President of TDK (Malaysia) Sdn. Bhd. in January 1999- General Manager of Display Business Department since April 2001
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Name (Date of birth)
    
    Position, responsibility and brief personal recordShiro Nomi
    
    Corporate Officer  since June 2005(May 8, 1949)
    
    In charge of General Manager of Corporate Strategy Corporate Planning Department- Appointed General Manager of Corporate Planning Department in October 2000- General Manager of Corporate Strategy Corporate Planning Department since October 2001- General Manager of Corporate Strategy Management Review & Support Department since April 2006Shinichi Araya
    
    Corporate Officer  since June 2005(Mar. 7, 1952)
    
    In charge of Deputy General Manager of Circuit Devices Business Group, Inductor Group Senior Manager- Appointed General Manager of Mechatronics Division in January 1999- Appointed General Manager of Mechatronics Division, General Manager of Production Engineering Development Department in April 2000- Appointed Deputy General Manager of Production Engineering Development Center in April 2001- Appointed General Manager of Production Engineering Development Department in October 2001- Deputy General Manager of Circuit Devices Business Group, Inductor Group Senior Manager since April 2002
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Corporate Auditors
 Name (Date of birth)
    
    Position, responsibility and brief personal recordMasaaki Miyoshi
    
    Corporate Auditor  since June 2003(Sep. 3, 1947)
    
    - Appointed President of Korea TDK Co., Ltd. in July 2000Takuma Otsuka
    
    Corporate Auditor  since June 2000(Feb. 23, 1944)
    
    - Appointed Director of TDK in June 1998Kazutaka Kubota
    
    Corporate Auditor*  since June 2003(Oct. 11, 1942)
    
    - Appointed Vice President of Asahi Bank, Ltd. in June 2000- Appointed President of Asahigin Research Institute, Ltd. and Corporate Auditor of Saitama Railway Corporation in June 2002Kaoru Matsumoto
    
    Corporate Auditor*  since June 2003(Dec. 8, 1947)
    
    - Registration as a Certified Public Accountant in March 1976- Establishment of Kaoru Matsumoto & Co. since November 1977Ryoichi Ohno
    
    Corporate Auditor*  since June 2004(Nov. 3, 1958)
    
    - Registration as a U.S. Certified Public Accountant in November 1988- Appointed Senior Vice President and Chief Financial Officer of The Gibraltar Life Insurance Co., Ltd. in September 2001- Finance Vice President of Prudential Financial Inc. since September 2001- Executive Vice President and Chief Financial Officer of The Gibraltar Life Insurance Co., Ltd. since July 2005
 Notes(*)
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(1)
    
    The aggregate direct remuneration, including bonuses but excluding retirement allowances,
paid by TDK during the years ended March 31, 2006 and 2005 to all Directors and Corporate
Auditors of TDK who served during each of those years was approximately 250 million ($2,137
thousand) and 254 million, respectively. During fiscal 2006, TDKs Directors and Corporate
Officers as of June 29, 2006 received 126 and 130 stock acquisition rights as stock options,
respectively. Each right represents an option to purchase 100 shares of common stock of TDK.
Further details regarding the grants are listed below. For a discussion of other material
terms of the issuance of these stock acquisitions rights, please see Item 6.E. Share
ownership. TDK does not disclose individual remuneration for each Director and Corporate
Auditor and aggregate direct remuneration for Corporate Officers except for compensation in
the form of stock acquisition rights, because such disclosure is not required under Japanese
regulations. Corporate Auditors do not receive stock acquisition rights.
 Number of stockacquisition rightsgranted individuallyName
    
    Position
    
    during fiscal 2006DirectorsHajime Sawabe
    
    Representative Director, Chairman  and CEO
    
    
    35Takehiro Kamigama
    
    Representative Director, President and COO
    
    
    26Jiro Iwasaki
    
    Director, Executive Vice President
    
    
    19Shinji Yoko
    
    Director, Senior Vice President
    
    
    17Takeshi Nomura
    
    Director, Senior Vice President
    
    
    17Yasuhiro Hagihara
    
    Director (outside)
    
    
    2Seiji Enami
    
    Director and CFO
    
    
    10126Corporate OfficersKiyoshi Ito
    
    Corporate Officer, Senior Executive Vice President
    
    
    24Takaya Ishigaki
    
    Corporate Officer, Senior Vice President
    
    
    16Minoru Takahashi
    
    Corporate Officer, Senior Vice President
    
    
    16Michinori Katayama
    
    Corporate Officer, Senior Vice  President
    
    
    10Yukio Hirokawa
    
    Corporate Officer
    
    
    9Masatoshi Shikanai
    
    Corporate Officer
    
    
    9Kenryo Namba
    
    Corporate Officer
    
    
    9Raymond Leung
    
    Corporate Officer
    
    
    10Shunji Itakura
    
    Corporate Officer
    
    
    9Shiro Nomi
    
    Corporate Officer
    
    
    9Shinichi Araya
    
    Corporate Officer
    
    
    9130
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(2)
    
    When a Director or Corporate Auditor retires, a proposal to pay a lump sum retirement allowance
is submitted to the general meeting of shareholders for approval. If shareholder approval is
obtained, the amount of the retirement allowance for a Director or Corporate Auditor is
determined in the case of the Director by the Board of Directors, and in the case of the
Corporate Auditor by the Corporate Auditors, and generally reflects his/her prior positions, the
length of his/her service as a Director or Corporate Auditor and his/her contribution to TDKs
performance. The aggregate amount set aside as lump sum retirement allowance by TDK during
fiscal 2006 and fiscal 2005 for Directors and Corporate Auditors of TDK totaled approximately 14
million ($120 thousand) and 14 million, respectively. In June 2002, TDK introduced a Corporate
Officer system to improve management efficiency and expedite decision-making. With the
introduction of a Corporate Officer system (See Item 6.C. Board practices), the remuneration
system at large was reviewed and a lump sum retirement allowance for Directors was abolished.On June 27, 2002 the Board of Directors resolved that the retirement bonus remuneration system
for Directors should be abolished from the date of the resolution and that the retirement bonus
reserves which had been made for, and had not been paid to, the Directors who are reappointed at
the general meeting of shareholders held on June 27, 2002,
should be frozen until their respective
retirements. The payment of any frozen retirement bonuses upon the retirement of a director
shall be subject to the consent of a general meeting of shareholders.
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Significant differences in corporate governance practices between TDK and U.S. listed
companies on the New York Stock Exchange
  kansayaku-kai
      
    
    The director is, or has been within the last three years, an employee of the listed
company, or an immediate family member is, or has been within the last three years, an
executive officer, of the listed company.
    
    The director has received, or has an immediate family member who has received, during
any twelve-month period within the last three years, more than $100,000 in direct
compensation from the listed company, other than director and committee fees and pension or
other forms of deferred compensation for prior service (provided such compensation is not
contingent in any way on continued service).
    
    The director or an immediate family member is a current partner of a firm that is the
companys internal or external auditor; the director is a current employee of such a firm;
the director has an immediate family member who is a current employee of such a firm and
who participates in the firms audit, assurance or tax compliance (but not tax planning)
practice; or the director or an immediate family member was within the last three years
(but is no longer) a partner or employee of such a firm and personally worked on the listed
companys audit within that time.
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
    
    The director or an immediate family member is, or has been within the last three years,
employed as an executive officer of another company where any of the listed companys
present executive officers at the same time serves or served on that companys compensation
committee.
    
    The director is a current employee, or an immediate family member is a current executive
officer, of a company that has made payments to, or received payments from, the listed
company for property or services in an amount which, in any of the last three fiscal years,
exceeds the greater of $1 million, or 2 percent of such other companys consolidated gross
revenues.
     kaikei sanyo
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(1)
    
    With respect to any item of compensation in a definitive amount, such amount;(2)
    
    With respect to any item of compensation not in a definitive amount, a concrete
method for the calculation thereof; and(3)
    
    With respect to non-monetary items as compensation, the specific contents
thereof.
   (i)
    
    TDK has a Board of Corporate Auditors (kansayaku-kai) established and selected
pursuant to the Company Law;
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(ii)
    
    The Company Law requires the board of corporate auditors to be separate from
the board of directors;(iii)
    
    Under the Company Law, the corporate auditors are not elected by management,
but by the shareholders at a shareholders meeting. In addition, no executive officer
of TDK is a member of the board of corporate auditors;(iv)
    
    The Company Law prohibits a corporate auditor from serving as a director,
manager or other employee of the company or any of its subsidiaries, or as an
accounting officer (kaikei sanyo) or executive officer of any subsidiary of the
company. The Company Law requires a Company with Board of Corporate Directors to have
at least half of the auditors thereof must be an outside auditor as such term is
defined in the Company Law. As such, the Company Law provide for the standards for
independence of the board of corporate auditors from the management of TDK;(v)
    
    The Company Law provides that an accounting auditor (kaikei kansanin) must be
appointed at a shareholders meeting. However, it also provides that in order to
submit a proposal concerning an appointment of an accounting auditor to a shareholders
meeting, the directors must obtain the consent of the Board of Corporate Auditors and
that the Board of Corporate Auditors may demand that the directors include the
appointment of an accounting auditor in the agenda of a shareholders meeting or demand
that the directors submit a proposal concerning the appointment of a certain accounting
auditor who is recommended by the Board of Corporate Auditors. In addition, the
Company Law provides that the Board of Corporate Auditors may dismiss an accounting
auditor for causes such as breach of his or her duties that are enumerated in the
Company Law. Further, pursuant to the Company Law and Company Accounting Regulations
thereunder, the board of corporate auditors audit the financial statements separately
from an audit by the accounting auditor, and if the board believes that the manner or
result of an audit by the accounting auditors is not reasonable, it must indicate its
objections and the reasons therefor in the audit report. To this end, a corporate
auditor may, if necessary for the performance of his/her duties, request the accounting
auditor to provide a report thereon. As such, in accordance with the Company Law, the
Board of Corporate Auditors of TDK is responsible, to the extent permitted by law, for
the appointment, retention and supervision of the work of a registered public
accounting firm engaged for the purpose of preparing or issuing an audit report or
performing other audit, review or attest services for TDK; and(vi)
    
    Under Japanese law, the establishment of the procedures for the receipt,
retention, and treatment of complaints and the confidential, anonymous submission by
employees is a responsibility of the board of directors, not the corporate auditors or
the board of corporate auditors, and thus, the Board of Directors of TDK has
established such procedures. Each Corporate Auditor of TDK may, however, investigate
the status of such procedures at any time and state his/her opinion at a meeting of the
Board of Directors if he/she considers it necessary. In addition, each Corporate
Auditor of TDK has the authority to engage independent counsel and other advisers if
such engagement is necessary to carry out his/her duties. Furthermore, each Corporate
Auditor may require TDK to pay any and all expenses necessary for carrying out his/her
duties, including compensation of any advisers employed by him/her and ordinary
administrative expenses.
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As of March 31, 2006
    
    Japan
    
    Overseas
    
    TotalElectronic materials and components
    
    
    7,697
    
    
    
    42,419
    
    
    
    50,116Recording media
    
    
    993
    
    
    
    1,258
    
    
    
    2,251Corporate
    
    
    1,516
    
    
    
    40
    
    
    
    1,556Total
    
    
    10,206
    
    
    
    43,717
    
    
    
    53,923
 As of March 31, 2005
    
    Japan
    
    Overseas
    
    TotalElectronic materials and components
    
    
    6,938
    
    
    
    26,112
    
    
    
    33,050Recording media
    
    
    1,128
    
    
    
    1,465
    
    
    
    2,593Corporate
    
    
    1,436
    
    
    
    36
    
    
    
    1,472Total
    
    
    9,502
    
    
    
    27,613
    
    
    
    37,115
 As of March 31, 2004
    
    Japan
    
    Overseas
    
    TotalElectronic materials and components
    
    
    7,147
    
    
    
    25,204
    
    
    
    32,351Recording media
    
    
    1,173
    
    
    
    1,734
    
    
    
    2,907Corporate
    
    
    1,524
    
    
    
    22
    
    
    
    1,546Total
    
    
    9,844
    
    
    
    26,960
    
    
    
    36,804
   ZENKIN RENGO ZENKIN RENGO
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Number ofsharesunderlyingNumber of
    
    stock acquisi-Name
    
    Position
    
    shares
    
    tion rightsHajime Sawabe
    
    Representative Director, Chairman and CEO
    
    
    9,000
    
    
    
    51,300Takehiro Kamigama
    
    Representative Director, President and COO
    
    
    3,300
    
    
    
    27,000Jiro Iwasaki
    
    Director, Executive Vice President
    
    
    2,000
    
    
    
    17,000Shinji Yoko
    
    Director, Senior Vice President
    
    
    1,000
    
    
    
    30,800Takeshi Nomura
    
    Director, Senior Vice President
    
    
    1,000
    
    
    
    31,000Yasuhiro Hagihara
    
    Director (outside)
    
    
    1,000
    
    
    
    2,500Seiji Enami
    
    Director and CFO
    
    
    1,100
    
    
    
    5,500Kiyoshi Ito
    
    Corporate Officer, Senior Executive Vice President
    
    
    1,000
    
    
    
    29,600Takaya Ishigaki
    
    Corporate Officer, Senior Vice President
    
    
    800
    
    
    
    9,900Minoru Takahashi
    
    Corporate Officer, Senior Vice President
    
    
    200
    
    
    
    9,900Michinori Katayama
    
    Corporate Officer, Senior Vice President
    
    
    500
    
    
    
    12,500Yukio Hirokawa
    
    Corporate Officer
    
    
    1,400
    
    
    
    16,700Masatoshi Shikanai
    
    Corporate Officer
    
    
    300
    
    
    
    12,500Kenryo Namba
    
    Corporate Officer
    
    
    2,000
    
    
    
    16,500Raymond Leung
    
    Corporate Officer
    
    
    0
    
    
    
    2,000Shunji Itakura
    
    Corporate Officer
    
    
    600
    
    
    
    3,300Shiro Nomi
    
    Corporate Officer
    
    
    300
    
    
    
    2,400Shinichi Araya
    
    Corporate Officer
    
    
    0
    
    
    
    1,700Masaaki Miyoshi
    
    Full-time Corporate Auditor
    
    
    1,000
    
    
    
    Takuma Otsuka
    
    Full-time Corporate Auditor
    
    
    1,000
    
    
    
    Kazutaka Kubota
    
    Corporate Auditor (outside)
    
    
    0
    
    
    
    Kaoru Matsumoto
    
    Corporate Auditor (outside)
    
    
    0
    
    
    
    Ryoichi Ohno
    
    Corporate Auditor (outside)
    
    
    0
    
    
    
    Total
    
    
    
    
    27,500
    
    
    
    282,100
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Stock option plans
  Kaisha-ho
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Title of class
    
    Identity of person or group
    
    Amount owned
    
    Percent of classCommon stock
    
    TDK Employees Shareholding Association
    
    486,210 shares
    
    
    0.37
    %
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Item 7 . Major Shareholders and Related Party Transaction
   Shares ownedName of major shareholder
    
    (in thousands)
    
    PercentageThe Master Trust Bank of Japan, Ltd. (Trust
account)
    
    
    14,660
    
    
    
    11.00
    %Japan Trustee Services Bank, Ltd. (Trust account)
    
    
    11,176
    
    
    
    8.39
    %
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Item 8 . Financial Information
  Consolidated financial statements
   Export sales
  Legal proceedings
  Dividend policy
    - 68 -




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Item 9 . The Offer and Listing
    U.S. marketYen per share of
    
    price per AmericanCommon stock (1)
    
    Depositary Share (2)High
    
    Low
    
    High
    
    LowAnnual highs and lowsYear ended March 31, 2002
    
    
    8,670
    
    
    
    4,800
    
    
    
    69.00
    
    
    
    40.00Year ended March 31, 2003
    
    
    7,380
    
    
    
    4,060
    
    
    
    57.00
    
    
    
    32.95Year ended March 31, 2004
    
    
    8,350
    
    
    
    3,810
    
    
    
    77.86
    
    
    
    32.40Year ended March 31, 2005
    
    
    8,630
    
    
    
    6,790
    
    
    
    80.10
    
    
    
    61.40Year ended March 31, 2006
    
    
    10,230
    
    
    
    7,250
    
    
    
    85.40
    
    
    
    62.50Quarterly highs and lowsYear ended March 31, 20051st quarter
    
    
    8,630
    
    
    
    7,130
    
    
    
    80.10
    
    
    
    64.502nd quarter
    
    
    8,390
    
    
    
    6,790
    
    
    
    77.05
    
    
    
    61.403rd quarter
    
    
    7,910
    
    
    
    7,160
    
    
    
    74.85
    
    
    
    67.804th quarter
    
    
    7,880
    
    
    
    7,050
    
    
    
    75.93
    
    
    
    68.40Year ended March 31, 20061st quarter
    
    
    8,020
    
    
    
    7,250
    
    
    
    74.35
    
    
    
    68.022nd quarter
    
    
    8,740
    
    
    
    7,480
    
    
    
    79.25
    
    
    
    67.053rd quarter
    
    
    10,230
    
    
    
    7,530
    
    
    
    85.40
    
    
    
    62.504th quarter
    
    
    9,070
    
    
    
    7,730
    
    
    
    76.29
    
    
    
    66.50Year ending March 31, 20071st quarter
    
    
    10,000
    
    
    
    7,990
    
    
    
    89.00
    
    
    
    69.89Monthly highs and lowsJanuary 2006
    
    
    8,760
    
    
    
    7,730
    
    
    
    73.79
    
    
    
    68.00February 2006
    
    
    8,600
    
    
    
    7,750
    
    
    
    72.81
    
    
    
    66.50March 2006
    
    
    9,070
    
    
    
    8,030
    
    
    
    76.29
    
    
    
    69.43April 2006
    
    
    9,760
    
    
    
    8,960
    
    
    
    84.13
    
    
    
    76.22May 2006
    
    
    10,000
    
    
    
    9,010
    
    
    
    89.00
    
    
    
    81.10June 2006
    
    
    9,400
    
    
    
    7,990
    
    
    
    84.16
    
    
    
    69.89
 Notes:(1)
    
    As reported by the Tokyo Stock Exchange.(2)
    
    As reported by the New York Stock Exchange.
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Item 10 . Additional Information
    yugen kaisha kabushiki kaisha
 Organization
 (kabushiki kaisha) (shoho) (shogyo tokibo)
 Objects and purposes
  
 
 
 
 
 
 
 
 
 
 
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
 
 
 
 
 With respect to directors, TDKs Articles of Incorporation, bylaws and associated internal
rules issued pursuant to the Articles provide in summary as follows:
 (a)
    
    a director is not entitled to vote on a proposal or arrangement or contract in
which the director is materially interested;(b)
    
    the remuneration and retirement allowances for directors are determined at a
general meeting of shareholders;(c)
    
    the Board of Directors have authority to approve long-term borrowing of ¥10
billion or more by resolution passed at a duly convened meeting of the Board of
Directors. The Representative Director is authorized by the Board of Directors to make
final decisions with respect to long-term borrowings in an amount less than ¥10 billion
and short-term borrowings (including issuance of commercial paper);(d)
    
    there are no provisions requiring the mandatory retirement of directors at a
specified age; and(e)
    
    share ownership is not required in order to be eligible to serve as a director.
 Common Stock
 General
   Authorized capital
    - 72 -




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Dividends
     Stock splits
   Consolidation of shares
  - 73 -




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General meeting of shareholders
     Voting rights
 Unit share system, below
 - 74 -




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Issue of additional shares and pre-emptive rights
 Voting rights
  Liquidation rights
  Record date
   - 75 -




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Acquisition of TDKs own shares
  Dividend
 Voting Rights
  Unit share system
  Voting rights under the unit share system
  Share certificates for less than a unit
  - 76 -




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Repurchase or sale by TDK of shares constituting less than a unit
  Effect of the unit share system on holders of ADRs
  Reporting of substantial shareholdings
       - 77 -




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
    
    individuals who do not reside in Japan; and
    
    corporations whose principal offices are not located in Japan.
   
    
    individuals who do not reside in Japan;
    
    corporations which are organized under the laws of foreign
countries or whose principal offices are located outside
Japan; and
    
    corporations in which more than 50 percent of the shares are
held by individuals who do not reside in Japan and/or
corporations which are organized under the laws of foreign
countries or whose principal offices are located outside Japan
or a majority of the officers (or officers having the power of
representation) are persons who do not reside in Japan.
       - 78 -




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Item 11 . Quantitative and Qualitative Disclosures about Market Risk
 Market risk exposure
  Foreign exchange and interest rate risk
     2006
    
    
    2005(millions of yen)
    
    
    Average
    
    
    (millions of yen)
    
    
    AverageContract
    
    
    Fair
    
    
    contractual
    
    
    Contract
    
    
    Fair
    
    
    contractualamounts
    
    
    value
    
    
    rate
    
    
    amounts
    
    
    value
    
    
    rateForward exchange contractsTo sell Euro / receive Yen
    
    ¥
    5,669
    
    
    ¥
    (4
    )
    
    
    141.73
    
    
    ¥
    
    
    
    ¥
    
    
    
    
    To sell USD / receive Yen
    
    
    1,183
    
    
    
    12
    
    
    
    118.30
    
    
    
    4,295
    
    
    
    (88
    )
    
    
    105.00To sell CHF / receive Euro
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    54
    
    
    
    
    
    
    
    1.54Total
    
    ¥
    6,852
    
    
    ¥
    8
    
    
    
    
    
    
    ¥
    4,349
    
    
    ¥
    (88
    )
 (millions of yen)
    
    
    Average
    
    
    (millions of yen)
    
    
    AverageContract
    
    
    Fair
    
    
    contractual
    
    
    Contract
    
    
    Fair
    
    
    contractualamounts
    
    
    value
    
    
    rate
    
    
    amounts
    
    
    value
    
    
    rateCurrency option contractsTo sell USD / receive USD
    
    ¥
    4,675
    
    
    ¥
    (27
    )
    
    
    116.88
    
    
    ¥
    23,803
    
    
    ¥
    (354
    )
    
    
    105.10To sell USD / receive Yen
    
    
    5,359
    
    
    
    23
    
    
    
    118.00
    
    
    
    
    
    
    
    
    
    
    
    To sell Euro / receive Euro
    
    
    840
    
    
    
    (4
    )
    
    
    141.30
    
    
    
    838
    
    
    
    (12
    )
    
    
    39.07Total
    
    ¥
    10,874
    
    
    ¥
    (8
    )
    
    
    
    
    
    ¥
    24,641
    
    
    ¥
    (366
    )
 (millions of yen)
    
    
    Average
    
    
    (millions of yen)
    
    
    AverageContract
    
    
    Fair
    
    
    contractual
    
    
    Contract
    
    
    Fair
    
    
    contractualamounts
    
    
    value
    
    
    rate
    
    
    amounts
    
    
    value
    
    
    rateCurrency and interest rate swaps
contractsTo receive Euro / pay GBP
    
    ¥
    
    
    
    ¥
    
    
    
    
    
    
    
    ¥
    2,041
    
    
    ¥
    (10
    )
    
    
    0.69To receive Yen / pay Euro
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,026
    
    
    
    (302
    )
    
    
    134.75Total
    
    ¥
    
    
    
    ¥
    
    
    
    
    
    
    
    ¥
    11,067
    
    
    ¥
    (312
    )
 - 81 -




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##### Table of Contents



Stock price risk
   2006
    
    
    2005Yen (Millions)
    
    
    Yen (Millions)Gross
    
    
    Gross
    
    
    
    
    
    
    
    
    
    
    Gross
    
    
    Grossunrealized
    
    
    unrealized
    
    
    
    
    
    
    
    
    
    
    unrealized
    
    
    unrealizedholding
    
    
    holding
    
    
    
    
    
    
    
    
    
    
    holding
    
    
    holdingCost
    
    gains
    
    
    losses
    
    
    Fair value
    
    
    Cost
    
    
    gains
    
    
    losses
    
    
    Fair value¥     9,246
    
    
    2,859
    
    
    
    2
    
    
    
    12,103
    
    
    
    5,951
    
    
    
    1,054
    
    
    
    
    
    
    
    7,005
 
 Item 12 . Description of Securities Other than Equity Securities
         - 82 -




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##### Table of Contents



PART 2
 
 Item 13 . Defaults, Dividend Arrearages and Delinquencies
  
 Item 14 . Material Modifications to the Rights of Security Holders and Use of Proceeds
  
 Item 15 . Controls and Procedures
         
 Item 16A . Audit Committee Financial Expert
 Significant differences in
corporate governance practices between TDK and U.S. listed companies on the New York Stock Exchange
 - 83 -




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##### Table of Contents



Item 16B. Code of Ethics
  
 Item 16C. Principal Accountant Fees and Services
  (Yen in millions)Years ended March 312006
    
    2005Audit fees
    
    
    609
    
    
    
    323Audit-related fees
    
    
    131
    
    
    
    36Tax fees
    
    
    279
    
    
    
    211All other fees
    
    
    0
    
    
    
    5Total
    
    
    1,019
    
    
    
    575
    Audit and Non-Audit Services Pre-Approval Policy
  - 84 -




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##### Table of Contents



(i)
    
    The Retainer has received a letter of confirmation from such public accounting
firm that the public accounting firm is neither the Outside Auditor nor a person
associated with the Outside Auditor; and(ii)
    
    The Retainer has confirmed that such public accounting firm does not appear on
the list of persons associated with the Outside Auditor, which is contained in the
database system (Pre-Approval Database) within the TDK intranet system.
      (i)
    
    the service to be rendered shall fall under any of the types listed in above
explanation for audit fees, audit-related fees and tax fees;(ii)
    
    the engagement to render the service shall commence within one year from the time
when the Board of Directors adopts this Policy;(iii)
    
    the fee for the service to be rendered shall be less than 20,000,000 yen
(Individual Fee Limit); and(iv)
    
    the total amount of fees payable to the Outside Auditor by TDK on account of
non-audit services with respect to any fiscal year shall not exceed the total amount of
audit fees payable to the Outside Auditor by TDK with respect to such year (Overall Fee
Limit).
 - 85 -




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##### Table of Contents



(i)
    
    Whether the Outside Auditor cannot function in the role of management;(ii)
    
    Whether the Outside Auditor cannot audit its own work; and(iii)
    
    Whether the Outside Auditor cannot serve in an advocacy role for its client.
  
 Item 16D. Exemptions from Listing Standards for Audit Committees
   
    
    the Board of Corporate Auditors is established pursuant to the Company Law;
    
    as required by the Company Law, the Board of Corporate Auditors is separate from the
Board of Directors;
    
    the Board of Corporate Auditors is not elected by the management of TDK and no executive
officer of TDK is a member of the Board of Corporate Auditors;
    
    the Company Law provides for the standards for independence of the Board of Corporate
Auditors from the management of TDK;
    
    in accordance with the Company Law, the Board of Corporate Auditors of TDK is
responsible, to the extent permitted by law, for the appointment, retention and supervision
of the work of a registered public accounting firm engaged for the purpose of preparing or
issuing an audit report or performing other audit, review or attest services for TDK; and
 - 86 -




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##### Table of Contents




    
    Under the Company Law, the establishment of the procedures for the receipt, retention, and
treatment of complaints and the confidential, anonymous submission by employees is a
responsibility of the board of directors, not the corporate auditors or the board of
corporate auditors, and thus, the Board of Directors of TDK has established such procedures.
In addition, each Corporate Auditor of TDK has the authority to engage independent counsel
and other advisers if such engagement is necessary to carry out his/her duties.
Furthermore, each Corporate Auditor may require TDK to pay any and all expenses necessary
for carrying out his/her duties, including compensation of any advisers employed by him/her
and ordinary administrative expenses.
  
 Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
  (c) TotalNumber of
    
    
    (d) MaximumShares
    
    
    Number ofPurchased as
    
    
    Shares that May(a) Total
    
    
    (b) Average
    
    
    Part of Publicly
    
    
    Yet BeNumber
    
    
    Price Paid
    
    
    Announced
    
    
    Purchased Underof Shares
    
    
    per Share
    
    
    Plans or
    
    
    the Plans orPeriod
    
    Purchased
    
    
    (Yen)
    
    
    Programs
    
    
    ProgramsApril 1 to April 30, 2005
    
    
    194
    
    
    
    7,497.89
    
    
    
    
    
    
    
    May 1 to May 31, 2005
    
    
    146
    
    
    
    7,551.51
    
    
    
    
    
    
    
    June 1 to June 30, 2005
    
    
    216
    
    
    
    7,824.31
    
    
    
    
    
    
    
    July 1 to July 31, 2005
    
    
    242
    
    
    
    7,727.31
    
    
    
    
    
    
    
    August 1 to August 31, 2005
    
    
    555
    
    
    
    8,049.78
    
    
    
    115,200
    
    
    
    September 1 to September 30, 2005
    
    
    296
    
    
    
    8,382.84
    
    
    
    
    
    
    
    October 1 to October 31, 2005
    
    
    273
    
    
    
    8,055.71
    
    
    
    
    
    
    
    November 1 to November 30, 2005
    
    
    165
    
    
    
    8,401.52
    
    
    
    
    
    
    
    December 1 to December 31, 2005
    
    
    625
    
    
    
    9,542.42
    
    
    
    
    
    
    
    January 1 to January 31, 2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    February 1 to February 28, 2006
    
    
    246
    
    
    
    8,234.43
    
    
    
    
    
    
    
    March 1 to March 31, 2006
    
    
    108
    
    
    
    8,711.30
    
    
    
    
    
    
    
    Total
    
    
    3,066
    
    
    
    8,343.80
    
    
    
    
    
    
    
    
 Note:
    
    Under the Company Law, a holder of shares constituting less than one full unit may
request TDK to purchase such shares at their market value (See Item 10. Additional Information
Common Stock Unit share system). All purchases described in the above table were made
pursuant to such requests by shareholders excluding the reserve for stock option plans of the
amount of 115,200 shares in August 2005.
 - 87 -




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##### Table of Contents



PART 3
 
 Item 17. Financial Statements
  PageReport of Independent Registered Public Accounting Firm
    
    
    89Consolidated Statements of Income
for the years ended March 31, 2006, 2005 and 2004
    
    
    90Consolidated Balance Sheets as of March 31, 2006 and 2005
    
    
    91Consolidated Statements of Stockholders Equity
for the years ended March 31, 2006, 2005 and 2004
    
    
    93Consolidated Statements of Cash Flows
for the years ended March 31, 2006, 2005 and 2004
    
    
    94Notes to Consolidated Financial Statements
    
    
    95Schedule for the years ended March 31, 2006, 2005 and 2004:Schedule II  Valuation and Qualifying Accounts
    
    
    133
   - 88 -




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Report of Independent Registered Public Accounting Firm
 
       
 - 89 -




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##### Table of Contents



Consolidated statements of income
 U.S. DollarsYen
    
    
    
    
    
    (Thousands)(Millions)
    
    
    
    
    
    (Note 2)2006
    
    2005
    
    2004
    
    2006Net sales (Notes 20 and 24)
    
    ¥
    795,180
    
    
    
    657,853
    
    
    
    655,792
    
    
    $
    6,796,410Cost of sales (Note 24)
    
    
    585,780
    
    
    
    484,323
    
    
    
    476,407
    
    
    
    5,006,666Gross profit
    
    
    209,400
    
    
    
    173,530
    
    
    
    179,385
    
    
    
    1,789,744Selling, general and administrative expenses (Note 24)
    
    
    142,052
    
    
    
    119,886
    
    
    
    122,875
    
    
    
    1,214,120Transfer to the government of the substitutional
portion of Employees Pension Fund (Note 8):Subsidy from the government
    
    
    
    
    
    
    (33,533
    )
    
    
    
    
    
    
    Loss on settlement
    
    
    
    
    
    
    27,347
    
    
    
    
    
    
    
    Restructuring cost (Note 16)
    
    
    6,825
    
    
    
    
    
    
    
    
    
    
    
    58,333Operating income
    
    
    60,523
    
    
    
    59,830
    
    
    
    56,510
    
    
    
    517,291Other income (deductions):Interest and dividend income
    
    
    3,605
    
    
    
    1,692
    
    
    
    1,189
    
    
    
    30,812Interest expense
    
    
    (149
    )
    
    
    (967
    )
    
    
    (323
    )
    
    
    (1,274
    )Equity in earnings of affiliates
    
    
    1,368
    
    
    
    1,765
    
    
    
    1,639
    
    
    
    11,692Gain (loss) on securities, net (Note 4)
    
    
    (286
    )
    
    
    (142
    )
    
    
    (1,093
    )
    
    
    (2,444
    )Foreign exchange gain (loss)
    
    
    948
    
    
    
    (856
    )
    
    
    (3,064
    )
    
    
    8,103Other  net
    
    
    94
    
    
    
    (594
    )
    
    
    989
    
    
    
    8035,580
    
    
    
    898
    
    
    
    (663
    )
    
    
    47,692Income from continuing operations
before income taxes
    
    
    66,103
    
    
    
    60,728
    
    
    
    55,847
    
    
    
    564,983Income taxes (Note 7)
    
    
    21,057
    
    
    
    23,284
    
    
    
    12,133
    
    
    
    179,974Income from continuing operations
before minority interests
    
    
    45,046
    
    
    
    37,444
    
    
    
    43,714
    
    
    
    385,009Minority interests, net of tax
    
    
    635
    
    
    
    479
    
    
    
    359
    
    
    
    5,428Income from continuing operations
    
    
    44,411
    
    
    
    36,965
    
    
    
    43,355
    
    
    
    379,581Discontinued operations (Note 21):Loss from operations of discontinued business
(including loss on disposal of ¥224 million in 2006)
    
    
    310
    
    
    
    3,509
    
    
    
    244
    
    
    
    2,649Income tax expense
    
    
    
    
    
    
    156
    
    
    
    1,010
    
    
    
    Loss from discontinued operations
    
    
    310
    
    
    
    3,665
    
    
    
    1,254
    
    
    
    2,649Net income
    
    ¥
    44,101
    
    
    
    33,300
    
    
    
    42,101
    
    
    $
    376,932
 Yen (except number of
    
    U.S. Dollarscommon shares outstanding)
    
    (Note 2)Amounts per share:Income from continuing operations per share (Note 19):Basic
    
    ¥
    335.84
    
    
    
    279.41
    
    
    
    327.27
    
    
    $
    2.87Diluted
    
    
    335.54
    
    
    
    279.25
    
    
    
    327.15
    
    
    
    2.87Loss from discontinued operations per share (Note 19):Basic
    
    ¥
    (2.34
    )
    
    
    (27.70
    )
    
    
    (9.47
    )
    
    $
    (0.02
    )Diluted
    
    
    (2.34
    )
    
    
    (27.69
    )
    
    
    (9.46
    )
    
    
    (0.02
    )Net income per share (Note 19):Basic
    
    ¥
    333.50
    
    
    
    251.71
    
    
    
    317.80
    
    
    $
    2.85Diluted
    
    
    333.20
    
    
    
    251.56
    
    
    
    317.69
    
    
    
    2.85Weighted average basic common shares
outstanding (in thousands) (Note 19)
    
    
    132,239
    
    
    
    132,293
    
    
    
    132,475Weighted
average diluted common shares outstanding (in thousands) (Note 19)
    
    
    132,355
    
    
    
    132,376
    
    
    
    132,523Cash dividends paid during the year (Note 9)
    
    ¥
    80.00
    
    
    
    60.00
    
    
    
    50.00
    
    
    $
    0.68
 See accompanying notes to consolidated financial statements.
 - 90 -




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##### Table of Contents



Consolidated balance sheets
 U.S. DollarsYen
    
    
    
    (Thousands)(Millions)
    
    
    
    (Note 2)2006
    
    2005
    
    2006ASSETSCurrent assets:Cash and cash equivalents
    
    ¥
    239,017
    
    
    
    251,508
    
    
    $
    2,042,880Marketable securities (Note 4)
    
    
    56
    
    
    
    1,609
    
    
    
    479Trade receivables (Note 20):Notes
    
    
    7,899
    
    
    
    6,133
    
    
    
    67,513Accounts (Note 24)
    
    
    185,224
    
    
    
    144,426
    
    
    
    1,583,111Allowance for doubtful receivables
    
    
    (4,064
    )
    
    
    (2,560
    )
    
    
    (34,735
    )Net trade receivables
    
    
    189,059
    
    
    
    147,999
    
    
    
    1,615,889Inventories (Note 5)
    
    
    88,968
    
    
    
    74,924
    
    
    
    760,410Income tax receivables (Note 7)
    
    
    265
    
    
    
    204
    
    
    
    2,265Assets held for sale (Note 17)
    
    
    4,110
    
    
    
    993
    
    
    
    35,128Prepaid expenses
and other current assets (Notes 7 and 24)
    
    
    45,278
    
    
    
    33,366
    
    
    
    386,992Total current assets
    
    
    566,753
    
    
    
    510,603
    
    
    
    4,844,043Investments in securities(Note 4)
    
    
    28,757
    
    
    
    22,698
    
    
    
    245,786Property, plant and equipment, at cost:Land
    
    
    21,790
    
    
    
    20,097
    
    
    
    186,239Buildings
    
    
    187,810
    
    
    
    181,581
    
    
    
    1,605,214Machinery and equipment
    
    
    482,398
    
    
    
    445,636
    
    
    
    4,123,060Construction in progress
    
    
    12,687
    
    
    
    15,206
    
    
    
    108,436704,685
    
    
    
    662,520
    
    
    
    6,022,949Less accumulated depreciation
    
    
    (461,020
    )
    
    
    (445,551
    )
    
    
    (3,940,342
    )Net property, plant and equipment
    
    
    243,665
    
    
    
    216,969
    
    
    
    2,082,607Goodwill(Note 18)
    
    
    19,453
    
    
    
    9,210
    
    
    
    166,265Intangible assets(Note 18)
    
    
    29,478
    
    
    
    13,247
    
    
    
    251,949Deferred income taxes(Note 7)
    
    
    7,287
    
    
    
    8,633
    
    
    
    62,282Other assets(Notes 8 and 12)
    
    
    28,110
    
    
    
    26,641
    
    
    
    240,256¥
    923,503
    
    
    
    808,001
    
    
    $
    7,893,188
 See accompanying notes to consolidated financial statements.
 - 91 -




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##### Table of Contents



U.S. DollarsYen
    
    
    
    (Thousands)(Millions)

    
    
    
    (Note 2)2006
    
    2005
    
    2006LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Short-term debt (Note 6)
    
    ¥
    4,469
    
    
    
    
    
    
    $
    38,197Current installments of long-term debt (Note 6)
    
    
    1,958
    
    
    
    103
    
    
    
    16,735Trade payables:Notes
    
    
    4,353
    
    
    
    638
    
    
    
    37,205Accounts (Note 24)
    
    
    80,336
    
    
    
    61,454
    
    
    
    686,632Accrued salaries and wages
    
    
    19,010
    
    
    
    12,915
    
    
    
    162,479Accrued expenses (Notes 16 and 24)
    
    
    43,524
    
    
    
    31,065
    
    
    
    372,000Income taxes payables (Note 7)
    
    
    9,155
    
    
    
    19,283
    
    
    
    78,248Liabilities held for sale (Note 17)
    
    
    
    
    
    
    92
    
    
    
    Other current liabilities (Note 7)
    
    
    6,817
    
    
    
    5,307
    
    
    
    58,265Total current liabilities
    
    
    169,622
    
    
    
    130,857
    
    
    
    1,449,761Long-term debt, excluding current installments(Note 6)
    
    
    405
    
    
    
    81
    
    
    
    3,462Retirement and severance benefits(Note 8)
    
    
    26,790
    
    
    
    28,839
    
    
    
    228,974Deferred income taxes(Note 7)
    
    
    5,314
    
    
    
    751
    
    
    
    45,419Other noncurrent liabilities
    
    
    4,979
    
    
    
    3,244
    
    
    
    42,555Total liabilities
    
    
    207,110
    
    
    
    163,772
    
    
    
    1,770,171Minority interests
    
    
    13,974
    
    
    
    5,162
    
    
    
    119,436Commitments and contingent liabilities(Notes 12 and 13)Stockholders equity:Common stockAuthorized 480,000,000 shares;
issued 133,189,659 shares in 2006 and 2005;
outstanding 132,266,828 shares in 2006
and 132,244,587 shares in 2005
    
    
    32,641
    
    
    
    32,641
    
    
    
    278,983Additional paid-in capital
    
    
    63,237
    
    
    
    63,051
    
    
    
    540,487Legal reserve (Note 9)
    
    
    17,517
    
    
    
    16,918
    
    
    
    149,718Retained earnings (Note 9)
    
    
    618,259
    
    
    
    585,557
    
    
    
    5,284,265Accumulated other comprehensive income (loss)
(Notes 7, 8 and 11)
    
    
    (21,946
    )
    
    
    (51,657
    )
    
    
    (187,573
    )Treasury stock at cost; 922,831 shares in 2006
and 945,072 shares in 2005 (Note 10)
    
    
    (7,289
    )
    
    
    (7,443
    )
    
    
    (62,299
    )Total stockholders equity
    
    
    702,419
    
    
    
    639,067
    
    
    
    6,003,581¥
    923,503
    
    
    
    808,001
    
    
    $
    7,893,188
 - 92 -




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##### Table of Contents



Consolidated statements of stockholders equity
 U.S. DollarsYen
    
    
    
    
    
    (Thousands)(Millions)
    
    
    
    
    
    (Note 2)2006
    
    2005
    
    2004
    
    2006Common stock:Balance at beginning of period
    
    ¥
    32,641
    
    
    
    32,641
    
    
    
    32,641
    
    
    $
    278,983Balance at end of period
    
    
    32,641
    
    
    
    32,641
    
    
    
    32,641
    
    
    
    278,983Additional paid-in capital:Balance at beginning of period
    
    
    63,051
    
    
    
    63,051
    
    
    
    63,051
    
    
    
    538,897Non-cash compensation charges under a stock option plan
    
    
    186
    
    
    
    
    
    
    
    
    
    
    
    1,590Balance at end of period
    
    
    63,237
    
    
    
    63,051
    
    
    
    63,051
    
    
    
    540,487Legal reserve(Note 9):Balance at beginning of period
    
    
    16,918
    
    
    
    16,497
    
    
    
    15,953
    
    
    
    144,598Transferred from retained earnings
    
    
    599
    
    
    
    421
    
    
    
    544
    
    
    
    5,120Balance at end of period
    
    
    17,517
    
    
    
    16,918
    
    
    
    16,497
    
    
    
    149,718Retained earnings(Note 9):Balance at beginning of period
    
    
    585,557
    
    
    
    560,756
    
    
    
    525,919
    
    
    
    5,004,761Net income
    
    
    44,101
    
    
    
    33,300
    
    
    
    42,101
    
    
    
    376,932Cash dividends
    
    
    (10,578
    )
    
    
    (7,938
    )
    
    
    (6,625
    )
    
    
    (90,410
    )Losses on sales of treasury stock
    
    
    (222
    )
    
    
    (140
    )
    
    
    (95
    )
    
    
    (1,898
    )Transferred to legal reserve
    
    
    (599
    )
    
    
    (421
    )
    
    
    (544
    )
    
    
    (5,120
    )Balance at end of period
    
    
    618,259
    
    
    
    585,557
    
    
    
    560,756
    
    
    
    5,284,265Accumulated other comprehensive income (loss)
(Notes 7, 8 and 11):Balance at beginning of period
    
    
    (51,657
    )
    
    
    (90,387
    )
    
    
    (78,824
    )
    
    
    (441,513
    )Other comprehensive income (loss) for the period, net of tax
    
    
    29,711
    
    
    
    38,730
    
    
    
    (11,563
    )
    
    
    253,940Balance at end of period
    
    
    (21,946
    )
    
    
    (51,657
    )
    
    
    (90,387
    )
    
    
    (187,573
    )Treasury stock(Note 10):Balance at beginning of period
    
    
    (7,443
    )
    
    
    (6,339
    )
    
    
    (4,855
    )
    
    
    (63,615
    )Acquisition of treasury stock
    
    
    (955
    )
    
    
    (1,672
    )
    
    
    (1,865
    )
    
    
    (8,162
    )Exercise of stock options
    
    
    1,109
    
    
    
    568
    
    
    
    381
    
    
    
    9,478Balance at end of period
    
    
    (7,289
    )
    
    
    (7,443
    )
    
    
    (6,339
    )
    
    
    (62,299
    )Total stockholders equity
    
    ¥
    702,419
    
    
    
    639,067
    
    
    
    576,219
    
    
    $
    6,003,581Disclosure of comprehensive income:Net income for the period
    
    ¥
    44,101
    
    
    
    33,300
    
    
    
    42,101
    
    
    $
    376,932Other comprehensive income (loss) for the period,
net of tax (Note 11)
    
    
    29,711
    
    
    
    38,730
    
    
    
    (11,563
    )
    
    
    253,940Total comprehensive income for the period
    
    ¥
    73,812
    
    
    
    72,030
    
    
    
    30,538
    
    
    $
    630,872
 See accompanying notes to consolidated financial statements.
 - 93 -




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Consolidated statements of cash flows
 U.S. DollarsYen
    
    
    
    
    
    (Thousands)(Millions)
    
    
    
    
    
    (Note 2)2006
    
    2005
    
    2004
    
    2006Cash flows from operating activities:Net income
    
    ¥
    44,101
    
    
    
    33,300
    
    
    
    42,101
    
    
    $
    376,932Loss from discontinued operations, net of tax
    
    
    310
    
    
    
    3,665
    
    
    
    1,254
    
    
    
    2,649Income from continuing operations
    
    
    44,411
    
    
    
    36,965
    
    
    
    43,355
    
    
    
    379,581Adjustments to reconcile net income to net cash provided
by operating activities:Depreciation and amortization
    
    
    58,540
    
    
    
    52,806
    
    
    
    50,726
    
    
    
    500,342Loss on disposal of property and equipment
    
    
    3,220
    
    
    
    1,190
    
    
    
    1,363
    
    
    
    27,521Deferred income taxes
    
    
    (696
    )
    
    
    (5,532
    )
    
    
    1,858
    
    
    
    (5,949
    )Loss (gain) on securities, net
    
    
    286
    
    
    
    142
    
    
    
    1,093
    
    
    
    2,445Gain on sale of a subsidiary
    
    
    
    
    
    
    (1,799
    )
    
    
    (567
    )
    
    
    Changes in assets and liabilities, net of effects of acquisition of businesses:Increase in trade receivables
    
    
    (16,886
    )
    
    
    (7,343
    )
    
    
    (7,680
    )
    
    
    (144,325
    )Decrease (increase) in inventories
    
    
    (287
    )
    
    
    3,461
    
    
    
    (7,868
    )
    
    
    (2,453
    )Decrease (increase) in other current assets
    
    
    (8,748
    )
    
    
    1,149
    
    
    
    (4,387
    )
    
    
    (74,769
    )Increase in trade payables
    
    
    7,101
    
    
    
    245
    
    
    
    8,200
    
    
    
    60,692Increase (decrease) in accrued expenses
    
    
    12,347
    
    
    
    (2,496
    )
    
    
    8,878
    
    
    
    105,530Increase (decrease) in income taxes payables, net
    
    
    (10,689
    )
    
    
    14,464
    
    
    
    5,704
    
    
    
    (91,359
    )Increase (decrease) in retirement and severance benefits, net
    
    
    981
    
    
    
    2,519
    
    
    
    9,285
    
    
    
    8,385Other  net
    
    
    (462
    )
    
    
    (522
    )
    
    
    4,059
    
    
    
    (3,949
    )Net cash provided by operating activities
    
    
    89,118
    
    
    
    95,249
    
    
    
    114,019
    
    
    
    761,692Cash flows from investing activities:Capital expenditures
    
    
    (73,911
    )
    
    
    (61,005
    )
    
    
    (44,471
    )
    
    
    (631,718
    )Proceeds from sale and maturity of investments in securities
    
    
    4,263
    
    
    
    1,788
    
    
    
    1,814
    
    
    
    36,436Payment for purchase of investments in securities
    
    
    (4,227
    )
    
    
    (2,424
    )
    
    
    (1
    )
    
    
    (36,128
    )Acquisition of businesses, net of cash acquired
    
    
    (32,868
    )
    
    
    (1,496
    )
    
    
    
    
    
    
    (280,923
    )Proceeds from sale of property, plant and equipment
    
    
    3,373
    
    
    
    999
    
    
    
    4,299
    
    
    
    28,829Acquisition of minority interests
    
    
    (2,587
    )
    
    
    
    
    
    
    (366
    )
    
    
    (22,111
    )Proceeds from sale of a subsidiary
    
    
    
    
    
    
    
    
    
    
    1,523
    
    
    
    Proceeds from sale of discontinued operations
    
    
    1,538
    
    
    
    
    
    
    
    
    
    
    
    13,145Other  net
    
    
    (363
    )
    
    
    (221
    )
    
    
    (445
    )
    
    
    (3,103
    )Net cash used in investing activities
    
    
    (104,782
    )
    
    
    (62,359
    )
    
    
    (37,647
    )
    
    
    (895,573
    )Cash flows from financing activities:Proceeds from long-term debt
    
    
    269
    
    
    
    218
    
    
    
    69
    
    
    
    2,299Repayment of long-term debt
    
    
    (218
    )
    
    
    (164
    )
    
    
    (479
    )
    
    
    (1,863
    )Increase (decrease) in short-term debt, net
    
    
    3,688
    
    
    
    (330
    )
    
    
    (1,047
    )
    
    
    31,521Proceeds from exercise of stock options
    
    
    887
    
    
    
    428
    
    
    
    286
    
    
    
    7,581Cash paid to acquire treasury stock
    
    
    (955
    )
    
    
    (1,672
    )
    
    
    (1,865
    )
    
    
    (8,162
    )Dividends paid
    
    
    (10,578
    )
    
    
    (7,938
    )
    
    
    (6,625
    )
    
    
    (90,410
    )Other  net
    
    
    (218
    )
    
    
    (171
    )
    
    
    (199
    )
    
    
    (1,863
    )Net cash used in financing activities
    
    
    (7,125
    )
    
    
    (9,629
    )
    
    
    (9,860
    )
    
    
    (60,897
    )Cash flows of discontinued operations (Revised  Note 1(v))Opearting cash flows:
    
    
    (407
    )
    
    
    (1,458
    )
    
    
    885
    
    
    
    (3,478
    )Investing cash flows:
    
    
    (4
    )
    
    
    (166
    )
    
    
    (123
    )
    
    
    (34
    )Financing cash flows:
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Effect of exchange rate changes on
cash and cash equivalents from discontinued operations
    
    
    (3
    )
    
    
    (1
    )
    
    
    (1
    )
    
    
    (26
    )Net cash provided by (used in) discontinued operations
    
    
    (414
    )
    
    
    (1,625
    )
    
    
    761
    
    
    
    (3,538
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    10,712
    
    
    
    2,717
    
    
    
    (10,669
    )
    
    
    91,555Net increse (decrease) in cash and cash equivalents
    
    
    (12,491
    )
    
    
    24,353
    
    
    
    56,604
    
    
    
    (106,761
    )Cash and cash equivalents at beginning of period
    
    
    251,508
    
    
    
    227,155
    
    
    
    170,551
    
    
    
    2,149,641Cash and cash equivalents at end of period
    
    ¥
    239,017
    
    
    
    251,508
    
    
    
    227,155
    
    
    $
    2,042,880
 See accompanying notes to consolidated financial statements.
 - 94 -




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##### Table of Contents



1. Nature of Operations and Summary of Significant Accounting Policies
 (a) Nature of Operations
  (i) Electronic materials and components products:
  (ii) Recording media products:
   (b) Basis of Presentation
   (c) Consolidation Policy
   (d) Cash Equivalents
  (e) Allowance for Doubtful Receivables
  - 95 -




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(f) Investments in Securities
     (g) Inventories
  (h) Property, Plant and Equipment
  Buildings
    
    3 to 60 yearsMachinery and equipment
    
    2 to 22 years
 (i) Income Taxes
   - 96 -




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##### Table of Contents



(j) Stock Option Plan
   Yen
    
    U.S. Dollars(Millions)
    
    (Thousands)2006
    
    2005
    
    2004
    
    2006Income from continuing
operations, as reported
    
    ¥
    44,411
    
    
    
    36,965
    
    
    
    43,355
    
    
    $
    379,581Add compensation expense
recognized under intrinsic
value method
    
    
    186
    
    
    
    
    
    
    
    
    
    
    
    1,590Deduct total stock-based
employee compensation
expense determined under
fair-value-based method for
all awards
    
    
    (607
    )
    
    
    (438
    )
    
    
    (330
    )
    
    
    (5,188
    )Pro forma income from
continuing operations
    
    ¥
    43,990
    
    
    
    36,527
    
    
    
    43,025
    
    
    $
    375,983
 Yen
    
    
    
    
    
    U.S. DollarsBasic income from continuing
operations per share:As reported
    
    ¥
    335.84
    
    
    
    279.41
    
    
    
    327.27
    
    
    $
    2.87Pro forma
    
    
    332.66
    
    
    
    276.11
    
    
    
    324.78
    
    
    
    2.84Diluted income from
continuing operations per
share:As reported
    
    ¥
    335.54
    
    
    
    279.25
    
    
    
    327.15
    
    
    $
    2.87Pro forma
    
    
    332.39
    
    
    
    275.98
    
    
    
    324.74
    
    
    
    2.84
 - 97 -




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##### Table of Contents



Yen
    
    U.S. Dollars(Millions)
    
    (Thousands)2006
    
    2005
    
    2004
    
    2006Net income, as reported
    
    ¥
    44,101
    
    
    
    33,300
    
    
    
    42,101
    
    
    $
    376,932Add compensation expense
recognized under intrinsic
value method
    
    
    186
    
    
    
    
    
    
    
    
    
    
    
    1,590Deduct total stock-based
employee compensation
expense determined under
fair-value-based method for
all awards
    
    
    (607
    )
    
    
    (438
    )
    
    
    (330
    )
    
    
    (5,188
    )Pro forma net income
    
    ¥
    43,680
    
    
    
    32,862
    
    
    
    41,771
    
    
    $
    373,334
 Yen
    
    
    
    U.S. DollarsBasic net income per share:As reported
    
    ¥
    333.50
    
    
    
    251.71
    
    
    
    317.80
    
    
    $
    2.85Pro forma
    
    
    330.32
    
    
    
    248.40
    
    
    
    315.31
    
    
    
    2.82Diluted net income per share:As reported
    
    ¥
    333.20
    
    
    
    251.56
    
    
    
    317.69
    
    
    $
    2.85Pro forma
    
    
    330.05
    
    
    
    248.29
    
    
    
    315.27
    
    
    
    2.82
 (k) Research and Development Expenses
  (l) Advertising Costs
  (m) Shipping and Handling Fees and Costs
  (n) Foreign Currency Translation
  (o) Use of Estimates
  - 98 -




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##### Table of Contents



(p) Accounting for the Impairment or Disposal of Long-Lived Assets
  (q) Goodwill and Other Intangible Assets
   (r) Derivative Financial Instruments
  (s) Net Income per Share
  (t) Revenue Recognition
    - 99 -




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- 100 -




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##### Table of Contents



(u) New Accounting Standards Not Yet Adopted
    (v) Reclassifications
   - 101 -




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##### Table of Contents



2. Financial Statement Translation
  3. Foreign Operations
  U.S. DollarsYen (Millions)
    
    (Thousands)2006
    
    2005
    
    2004
    
    2006Net assets
    
    ¥
    435,381
    
    
    
    360,925
    
    
    
    318,915
    
    
    $
    3,721,205Net sales
    
    
    626,626
    
    
    
    498,366
    
    
    
    494,184
    
    
    
    5,355,778Net income
    
    
    28,582
    
    
    
    17,362
    
    
    
    38,731
    
    
    
    244,291
 4. Marketable Securities and Investments in Securities
  U.S. DollarsYen (Millions)
    
    (Thousands)2006
    
    2005
    
    2006Short-term marketable securities
    
    ¥
    56
    
    
    
    1,609
    
    
    $
    479Long-term marketable securities
    
    
    13,042
    
    
    
    7,094
    
    
    
    111,470Nonmarketable securities
    
    
    596
    
    
    
    1,555
    
    
    
    5,094Investments in affiliates
    
    
    15,119
    
    
    
    14,049
    
    
    
    129,222¥
    28,813
    
    
    
    24,307
    
    
    $
    246,265
 - 102 -




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##### Table of Contents



As of March 31, 2006
 Gross
    
    GrossUnrealized
    
    UnrealizedHolding
    
    HoldingCost
    
    Gains
    
    Losses
    
    Fair ValueYen (Millions):Equity securities
    
    ¥
    9,246
    
    
    
    2,859
    
    
    
    2
    
    
    
    12,103Debt securities
    
    
    1,002
    
    
    
    
    
    
    
    7
    
    
    
    995¥
    10,248
    
    
    
    2,859
    
    
    
    9
    
    
    
    13,098
 As of March 31, 2005
 Gross
    
    GrossUnrealized
    
    UnrealizedHolding
    
    HoldingCost
    
    Gains
    
    Losses
    
    Fair ValueYen (Millions):Equity securities
    
    ¥
    5,951
    
    
    
    1,054
    
    
    
    
    
    
    
    7,005Debt securities
    
    
    1,698
    
    
    
    
    
    
    
    
    
    
    
    1,698¥
    7,649
    
    
    
    1,054
    
    
    
    
    
    
    
    8,703
 As of March 31, 2006
 Gross
    
    GrossUnrealized
    
    UnrealizedHolding
    
    HoldingCost
    
    Gains
    
    Losses
    
    Fair ValueU.S. Dollars (Thousands):Equity securities
    
    $
    79,026
    
    
    
    24,436
    
    
    
    17
    
    
    
    103,445Debt securities
    
    
    8,564
    
    
    
    
    
    
    
    60
    
    
    
    8,504$
    87,590
    
    
    
    24,436
    
    
    
    77
    
    
    
    111,949
      - 103 -




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##### Table of Contents



5. Inventories
  Yen
    
    U.S. Dollars(Millions)
    
    (Thousands)2006
    
    2005
    
    2006Finished goods
    
    ¥
    36,826
    
    
    
    30,819
    
    
    $
    314,752Work in process
    
    
    23,490
    
    
    
    21,633
    
    
    
    200,769Raw materials
    
    
    28,652
    
    
    
    22,472
    
    
    
    244,889¥
    88,968
    
    
    
    74,924
    
    
    $
    760,410
  6. Short-Term and Long-Term Debt
  Yen
    
    U.S. Dollars
    
    Weighted average(Millions)
    
    (Thousands)
    
    interest rate2006
    
    2005
    
    2006
    
    2006
    
    2005Short-term bank
loans  unsecured
    
    ¥
    4,469
    
    
    
    
    
    
    $
    38,197
    
    
    
    1.63
    %
    
    
    
  Yen
    
    U.S. Dollars(Millions)
    
    (Thousands)2006
    
    2005
    
    2006Loans from banks, unsecured, due fiscal 2007
(weighted average: 2006-0.96%)
    
    ¥
    1,700
    
    
    
    
    
    
    $
    14,530Loans from banks, secured, due fiscal 2009-2012
(weighted average: 2006-0.95%)
    
    
    345
    
    
    
    
    
    
    
    2,949Lease obligation (weighted average: 2006-5.78%,
2005-4.05%)
    
    
    318
    
    
    
    184
    
    
    
    2,7182,363
    
    
    
    184
    
    
    
    20,197Less current installments
    
    
    1,958
    
    
    
    103
    
    
    
    16,735¥
    405
    
    
    
    81
    
    
    $
    3,462
 - 104 -




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##### Table of Contents



U.S. DollarsYen (Millions)
    
    (Thousands)Year ending March 31,2007
    
    ¥
    1,958
    
    
    $
    16,7352008
    
    
    196
    
    
    
    1,6752009
    
    
    127
    
    
    
    1,0862010
    
    
    36
    
    
    
    3082011
    
    
    31
    
    
    
    265Later years
    
    
    15
    
    
    
    128¥
    2,363
    
    
    $
    20,197
    7. Income Taxes
    - 105 -




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##### Table of Contents



2006
    
    2005
    
    2004Japanese statutory tax rate
    
    
    40.4
    %
    
    
    40.4
    %
    
    
    41.0
    %Expenses not deductible for tax purposes
    
    
    1.6
    
    
    
    1.1
    
    
    
    1.2Non taxable income
    
    
    (0.1
    )
    
    
    (0.2
    )
    
    
    0.0Difference in statutory tax rates of foreign
subsidiaries
    
    
    (13.9
    )
    
    
    (10.5
    )
    
    
    (23.0
    )Change in the valuation allowance
    
    
    4.7
    
    
    
    3.8
    
    
    
    4.5Investment tax credit
    
    
    (0.1
    )
    
    
    (1.2
    )
    
    
    (1.6
    )Research and development tax credit
    
    
    (1.4
    )
    
    
    (3.6
    )
    
    
    (1.3
    )Residual tax effect in minimum pension liability
adjustments
    
    
    
    
    
    
    (7.5
    )
    
    
    Additional tax related to prior years income
    
    
    1.7
    
    
    
    17.0
    
    
    
    Other
    
    
    (1.0
    )
    
    
    (1.0
    )
    
    
    0.9Effective tax rate
    
    
    31.9
    %
    
    
    38.3
    %
    
    
    21.7
    %
   Yen
    
    U.S.Dollars(Millions)
    
    (Thousands)2006
    
    2005
    
    2004
    
    2006Income from continuing operations
    
    ¥
    21,057
    
    
    
    23,284
    
    
    
    12,133
    
    
    $
    179,974Loss from discontinued operations
    
    
    
    
    
    
    156
    
    
    
    1,010
    
    
    
    Stockholders equity, accumulated other
comprehensive income (loss):Foreign currency translation adjustments
    
    
    8
    
    
    
    8
    
    
    
    245
    
    
    
    68Net unrealized gains (losses) on
securities
    
    
    849
    
    
    
    (148
    )
    
    
    348
    
    
    
    7,256Minimum pension liability adjustments
    
    
    2,074
    
    
    
    29,538
    
    
    
    9,422
    
    
    
    17,727Total income taxes
    
    ¥
    23,988
    
    
    
    52,838
    
    
    
    23,158
    
    
    $
    205,025
 - 106 -




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##### Table of Contents



Income FromContinuingOperationsBefore Income
    
    Income TaxesTaxes
    
    Current
    
    Deferred
    
    TotalYen (Millions):2006Japanese
    
    ¥
    28,004
    
    
    
    11,160
    
    
    
    657
    
    
    
    11,817Foreign
    
    
    38,099
    
    
    
    10,593
    
    
    
    (1,353
    )
    
    
    9,240¥
    66,103
    
    
    
    21,753
    
    
    
    (696
    )
    
    
    21,0572005Japanese
    
    
    36,836
    
    
    
    22,261
    
    
    
    (5,026
    )
    
    
    17,235Foreign
    
    
    23,892
    
    
    
    6,555
    
    
    
    (506
    )
    
    
    6,04960,728
    
    
    
    28,816
    
    
    
    (5,532
    )
    
    
    23,2842004Japanese
    
    
    8,611
    
    
    
    4,411
    
    
    
    (7
    )
    
    
    4,404Foreign
    
    
    47,236
    
    
    
    5,864
    
    
    
    1,865
    
    
    
    7,72955,847
    
    
    
    10,275
    
    
    
    1,858
    
    
    
    12,133U.S. Dollars (Thousands):2006Japanese
    
    $
    239,350
    
    
    
    95,385
    
    
    
    5,615
    
    
    
    101,000Foreign
    
    
    325,633
    
    
    
    90,538
    
    
    
    (11,564
    )
    
    
    78,974$
    564,983
    
    
    
    185,923
    
    
    
    (5,949
    )
    
    
    179,974
 - 107 -




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Yen
    
    U.S. Dollars(Millions)
    
    (Thousands)2006
    
    2005
    
    2006Deferred tax assets:Trade accounts receivable, principally due to
allowance for doubtful receivables
    
    ¥
    433
    
    
    
    332
    
    
    $
    3,701Inventories
    
    
    1,005
    
    
    
    894
    
    
    
    8,590Accrued business tax
    
    
    370
    
    
    
    1,330
    
    
    
    3,162Accrued expenses
    
    
    5,145
    
    
    
    3,863
    
    
    
    43,974Retirement and severance benefits
    
    
    11,884
    
    
    
    10,648
    
    
    
    101,573Net operating loss carryforwards
    
    
    20,116
    
    
    
    14,631
    
    
    
    171,932Tax credit carryforwards
    
    
    684
    
    
    
    208
    
    
    
    5,846Minimum pension liability adjustments
    
    
    2,269
    
    
    
    4,174
    
    
    
    19,393Property, plant and equipment, principally due
to differences in depreciation
    
    
    3,153
    
    
    
    2,523
    
    
    
    26,949Other
    
    
    1,835
    
    
    
    1,867
    
    
    
    15,684Total gross deferred tax assets
    
    
    46,894
    
    
    
    40,470
    
    
    
    400,804Less valuation allowance
    
    
    (20,298
    )
    
    
    (15,409
    )
    
    
    (173,487
    )Net deferred tax assets
    
    ¥
    26,596
    
    
    
    25,061
    
    
    $
    227,317Deferred tax liabilities:Investments, principally due to differences
in valuation
    
    
    (6,030
    )
    
    
    (6,034
    )
    
    
    (51,538
    )Undistributed earnings of foreign subsidiaries
    
    
    (3,948
    )
    
    
    (2,656
    )
    
    
    (33,744
    )Net unrealized gains on securities
    
    
    (1,223
    )
    
    
    (272
    )
    
    
    (10,453
    )Acquired intangible assets
    
    
    (4,990
    )
    
    
    (374
    )
    
    
    (42,650
    )Other
    
    
    (1,086
    )
    
    
    (1,220
    )
    
    
    (9,282
    )Total gross deferred tax liabilities
    
    
    (17,277
    )
    
    
    (10,556
    )
    
    
    (147,667
    )Net deferred tax assets
    
    ¥
    9,319
    
    
    
    14,505
    
    
    $
    79,650
   - 108 -




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##### Table of Contents



U.S. DollarsYen (Millions)
    
    (Thousands)Within 1 year
    
    ¥
    845
    
    
    $
    7,2221 to 5 years
    
    
    4,676
    
    
    
    39,9665 to 20 years
    
    
    18,626
    
    
    
    159,196Indefinite periods
    
    
    41,251
    
    
    
    352,573¥
    65,398
    
    
    $
    558,957
   Yen
    
    U.S. Dollars(Millions)
    
    (Thousands)2006
    
    2005
    
    2006Prepaid expenses and other current assets
    
    ¥
    7,401
    
    
    
    6,654
    
    
    $
    63,257Deferred income taxes (noncurrent assets)
    
    
    7,287
    
    
    
    8,633
    
    
    
    62,282Other current liabilities
    
    
    (55
    )
    
    
    (31
    )
    
    
    (470
    )Deferred income taxes (noncurrent
liabilities)
    
    
    (5,314
    )
    
    
    (751
    )
    
    
    (45,419
    )¥
    9,319
    
    
    
    14,505
    
    
    $
    (79,650
    )
  8. Retirement and Severance Benefits
    - 109 -




---



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- 110 -




---



##### Table of Contents



Yen
    
    U.S. Dollars(Millions)
    
    (Thousands)2006
    
    2005
    
    2004
    
    2006Service cost-benefits earned during the year
    
    ¥
    6,587
    
    
    
    6,806
    
    
    
    10,341
    
    
    $
    56,299Interest cost on projected benefit obligation
    
    
    4,050
    
    
    
    5,359
    
    
    
    6,271
    
    
    
    34,615Expected return on plan assets
    
    
    (3,386
    )
    
    
    (3,180
    )
    
    
    (2,640
    )
    
    
    (28,940
    )Amortization of transition assets
    
    
    (1,331
    )
    
    
    (1,331
    )
    
    
    (1,331
    )
    
    
    (11,376
    )Recognized actuarial loss
    
    
    3,445
    
    
    
    5,696
    
    
    
    7,480
    
    
    
    29,444Amortization of unrecognized prior service
benefit
    
    
    (2,041
    )
    
    
    (1,522
    )
    
    
    (1,353
    )
    
    
    (17,444
    )Settlement gain, net
    
    
    
    
    
    
    (6,186
    )
    
    
    
    
    
    
    ¥
    7,324
    
    
    
    5,642
    
    
    
    18,768
    
    
    $
    62,598
 - 111 -




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##### Table of Contents



Yen
    
    
    U.S. Dollars(Millions)
    
    
    (Thousands)2006
    
    2005
    
    2006Change in benefit obligations:Benefit obligations at beginning of period
    
    ¥
    184,997
    
    
    
    258,991
    
    
    $
    1,581,171Service cost
    
    
    6,587
    
    
    
    6,806
    
    
    
    56,299Interest cost
    
    
    4,050
    
    
    
    5,359
    
    
    
    34,615Plan amendments
    
    
    
    
    
    
    (10,925
    )
    
    
    Actuarial loss (gain)
    
    
    (336
    )
    
    
    (727
    )
    
    
    (2,872
    )Benefits paid
    
    
    (6,447
    )
    
    
    (6,646
    )
    
    
    (55,102
    )Transfer of substitutional portion
    
    
    
    
    
    
    (67,862
    )
    
    
    Acquisition
    
    
    3,600
    
    
    
    
    
    
    
    30,769Others
    
    
    (63
    )
    
    
    (437
    )
    
    
    (538
    )Translation adjustment
    
    
    904
    
    
    
    438
    
    
    
    7,726Benefit obligations at end of period
    
    
    193,292
    
    
    
    184,997
    
    
    
    1,652,068Change in plan assets:Fair value of plan assets at beginning of period
    
    
    142,648
    
    
    
    168,913
    
    
    
    1,219,214Actual return on plan assets
    
    
    28,124
    
    
    
    8,053
    
    
    
    240,376Employer contributions
    
    
    6,050
    
    
    
    3,596
    
    
    
    51,710Benefits paid
    
    
    (5,815
    )
    
    
    (6,046
    )
    
    
    (49,701
    )Transfer of substitutional portion
    
    
    
    
    
    
    (31,985
    )
    
    
    Acquisition
    
    
    1,467
    
    
    
    
    
    
    
    12,538Translation adjustment
    
    
    386
    
    
    
    117
    
    
    
    3,299Fair value of plan assets at end of period
    
    
    172,860
    
    
    
    142,648
    
    
    
    1,477,436Funded status
    
    
    (20,432
    )
    
    
    (42,349
    )
    
    
    (174,632
    )Unrecognized net transition obligation being
recognized over 18 years
    
    
    (1,276
    )
    
    
    (2,607
    )
    
    
    (10,906
    )Unrecognized net actuarial loss
    
    
    45,280
    
    
    
    72,650
    
    
    
    387,008Unrecognized prior service benefit
    
    
    (26,254
    )
    
    
    (28,295
    )
    
    
    (224,393
    )Net amount recognized
    
    
    (2,682
    )
    
    
    (601
    )
    
    
    (22,923
    )Amounts recognized in consolidated balance sheets
consist of:Prepaid pension cost
    
    
    18,289
    
    
    
    17,669
    
    
    
    156,316Retirement and severance benefits
    
    
    (26,790
    )
    
    
    (28,839
    )
    
    
    (228,974
    )Intangible assets
    
    
    99
    
    
    
    56
    
    
    
    846Accumulated other comprehensive loss
    
    
    5,720
    
    
    
    10,513
    
    
    
    48,889Net amount recognized
    
    
    (2,682
    )
    
    
    (601
    )
    
    
    (22,923
    )Actuarial present value of accumulated benefit
obligations at end of period
    
    ¥
    175,073
    
    
    
    167,834
    
    
    $
    1,496,350
  Yen
    
    U.S. Dollars(Millions)
    
    (Thousands)2006
    
    2005
    
    2006Plans with projected benefit
obligations in excess of plan assets:Projected benefit obligations
    
    ¥
    66,613
    
    
    
    184,997
    
    
    $
    569,342Fair value of plan assets
    
    
    37,405
    
    
    
    142,648
    
    
    
    319,701Plans with accumulated benefit
obligations in excess of plan assets:Accumulated benefit obligations
    
    
    60,200
    
    
    
    54,504
    
    
    
    514,530Fair value of plan assets
    
    
    36,584
    
    
    
    28,531
    
    
    
    312,684
 - 112 -




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##### Table of Contents



Assumptions
  2006
    
    2005Discount rate
    
    
    2.2
    %
    
    
    2.2
    %Assumed rate of increase in future compensation levels
    
    
    3.0
    %
    
    
    3.0
    %
  2006
    
    2005
    
    2004Discount rate
    
    
    2.2
    %
    
    
    2.1
    %
    
    
    2.1
    %Assumed rate of increase in future compensation levels
    
    
    3.0
    %
    
    
    3.0
    %
    
    
    3.0
    %Expected long-term rate of return on plan assets
    
    
    2.7
    %
    
    
    2.2
    %
    
    
    2.2
    %
  Plan assets
  2006
    
    2005Equity securities
    
    
    65.4
    %
    
    
    26.2
    %Debt securities
    
    
    26.1
    %
    
    
    6.9
    %Cash
    
    
    2.2
    %
    
    
    62.5
    %Other
    
    
    6.3
    %
    
    
    4.4
    %100.0
    %
    
    
    100.0
    %
   Contributions
  - 113 -




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##### Table of Contents



Estimated future benefit payments
  Yen
    
    U.S. Dollars(Millions)
    
    (Thousands)Year ending March 31,2007
    
    ¥
    5,981
    
    
    $
    51,1202008
    
    
    6,887
    
    
    
    58,8632009
    
    
    7,457
    
    
    
    63,7352010
    
    
    8,002
    
    
    
    68,3932011
    
    
    8,049
    
    
    
    68,7952012 - 2016
    
    ¥
    41,320
    
    
    $
    353,162
 9. Legal Reserve and Dividends
   10. Stock Option Plan
 (a) TDK
  - 114 -




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- 115 -




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##### Table of Contents



2006
    
    2005
    
    2004
    
    2006Weighted
    
    
    
    
    
    Weighted
    
    
    
    
    
    Weighted
    
    WeightedNumber
    
    average
    
    Number
    
    average
    
    Number
    
    average
    
    averageof
    
    exercise
    
    of
    
    exercise
    
    of
    
    exercise
    
    exerciseshares
    
    price
    
    shares
    
    price
    
    shares
    
    price
    
    priceYen
    
    
    
    
    
    Yen
    
    
    
    
    
    Yen
    
    U.S. DollarsOutstanding at
beginning of year
    
    
    868,600
    
    
    ¥
    8,293
    
    
    
    739,300
    
    
    ¥
    8,358
    
    
    
    548,000
    
    
    ¥
    8,967
    
    
    $
    70.88Granted
    
    
    115,200
    
    
    
    6,397
    
    
    
    234,300
    
    
    
    8,147
    
    
    
    254,700
    
    
    
    6,954
    
    
    
    54.68Exercised
    
    
    139,700
    
    
    
    6,308
    
    
    
    71,700
    
    
    
    5,979
    
    
    
    46,900
    
    
    
    6,114
    
    
    
    53.90Forfeited or
Expired
    
    
    15,900
    
    
    
    14,563
    
    
    
    33,300
    
    
    
    13,695
    
    
    
    16,500
    
    
    
    13,276
    
    
    
    124.47Outstanding at
end of year
    
    
    828,200
    
    
    
    8,244
    
    
    
    868,600
    
    
    
    8,293
    
    
    
    739,300
    
    
    
    8,358
    
    
    
    70.46Exercisable at
end of year
    
    
    504,300
    
    
    
    8,308
    
    
    
    380,600
    
    
    
    9,275
    
    
    
    264,300
    
    
    
    11,755
    
    
    
    71.01
  Options OutstandingWeightedNumber
    
    averageoutstanding at
    
    remaining
    
    Weighted averageRange of exercise prices
    
    March 31, 2006
    
    contractual life
    
    exercise priceYen
    
    
    
    
    
    (years)
    
    Yen
    
    U.S. Dollars1
    
    
    24,600
    
    
    
    19.3
    
    
    
    1
    
    
    
    0.015,909
    
    
    105,700
    
    
    
    2.3
    
    
    
    5,909
    
    
    
    50.506,114
    
    
    52,400
    
    
    
    1.1
    
    
    
    6,114
    
    
    
    52.266,954
    
    
    205,500
    
    
    
    3.3
    
    
    
    6,954
    
    
    
    59.448,134
    
    
    90,600
    
    
    
    5.3
    
    
    
    8,134
    
    
    
    69.528,147
    
    
    233,300
    
    
    
    4.3
    
    
    
    8,147
    
    
    
    69.6315,640
    
    
    116,100
    
    
    
    0.1
    
    
    
    15,640
    
    
    
    133.681 to 15,640
    
    
    828,200
    
    
    
    3.6
    
    
    
    8,244
    
    
    
    70.46
  The Stock Acquisition Rights  the exercise price is equal to or greater than the market price of
the stock on the grant date
 2006
    
    2005
    
    2004Grant-date fair value
    
    ¥
    2,325
    
    
    ¥
    2,223
    
    
    ¥
    2,290($
    19.87
    )Expected life
    
    4.0 years
    
    4.0 years
    
    4.0 yearsRisk-free interest rate
    
    
    0.54
    %
    
    
    0.59
    %
    
    
    0.26
    %Expected volatility
    
    
    38.93
    %
    
    
    46.30
    %
    
    
    51.36
    %Expected dividend yield
    
    
    0.96
    %
    
    
    0.85
    %
    
    
    0.71
    %
 - 116 -




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##### Table of Contents



The Stock Acquisition Rights  the exercise price is less than the market price of the stock on the
grant date
 2006Grant-date fair value
    
    ¥
    7,235($
    61.84
    )Expected life
    
    5.5 yearsRisk-free interest rate
    
    
    0.47
    %Expected volatility
    
    
    44.46
    %Expected dividend yield
    
    
    0.80
    %
 (b) Densei-Lambda
    - 117 -




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##### Table of Contents



11. Other Comprehensive Income (Loss)
  Yen
    
    
    
    
    
    U.S. Dollars(Millions)
    
    

    (Thousands)2006
    
    2005
    
    2004
    
    2006Foreign currency translation adjustments:Balance at beginning of period
    
    ¥
    (47,171
    )
    
    
    (52,807
    )
    
    
    (26,520
    )
    
    $
    (403,171
    )Adjustments for period
    
    
    26,100
    
    
    
    5,636
    
    
    
    (26,287
    )
    
    
    223,077Balance at end of period
    
    
    (21,071
    )
    
    
    (47,171
    )
    
    
    (52,807
    )
    
    
    (180,094
    )Net unrealized gains (losses) on
securities:Balance at beginning of period
    
    
    801
    
    
    
    648
    
    
    
    110
    
    
    
    6,846Adjustments for period
    
    
    892
    
    
    
    153
    
    
    
    538
    
    
    
    7,624Balance at end of period
    
    
    1,693
    
    
    
    801
    
    
    
    648
    
    
    
    14,470Minimum pension liability adjustments:Balance at beginning of period
    
    
    (5,287
    )
    
    
    (38,228
    )
    
    
    (52,414
    )
    
    
    (45,188
    )Adjustments for period
    
    
    2,719
    
    
    
    32,941
    
    
    
    14,186
    
    
    
    23,239Balance at end of period
    
    
    (2,568
    )
    
    
    (5,287
    )
    
    
    (38,228
    )
    
    
    (21,949
    )Total accumulated other comprehensive
income (loss):Balance at beginning of period
    
    
    (51,657
    )
    
    
    (90,387
    )
    
    
    (78,824
    )
    
    
    (441,513
    )Adjustments for period
    
    
    29,711
    
    
    
    38,730
    
    
    
    (11,563
    )
    
    
    253,940Balance at end of period
    
    ¥
    (21,946
    )
    
    
    (51,657
    )
    
    
    (90,387
    )
    
    $
    (187,573
    )
 - 118 -




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##### Table of Contents



Yen(Millions)TaxBefore tax
    
    (expense)
    
    Net-of-taxamount
    
    or benefit
    
    amount2006Foreign currency translation adjustments
    
    ¥
    26,108
    
    
    
    (8
    )
    
    
    26,100Unrealized gains (losses) on securities:Unrealized holding gains arising for period
    
    
    2,128
    
    
    
    (856
    )
    
    
    1,272Reclassification adjustments for (gains)
losses realized in net income
    
    
    (387
    )
    
    
    7
    
    
    
    (380
    )Net unrealized gains (losses)
    
    
    1,741
    
    
    
    (849
    )
    
    
    892Minimum pension liability adjustments
    
    
    4,793
    
    
    
    (2,074
    )
    
    
    2,719Other comprehensive income (loss)
    
    ¥
    32,642
    
    
    
    (2,931
    )
    
    
    29,7112005Foreign currency translation adjustments:Amount arising during the year on
investments in foreign entities held at
end of period
    
    ¥
    5,870
    
    
    
    (8
    )
    
    
    5,862Reclassification adjustments for the
portion of gains and losses realized upon
liquidation and sale of investments in
foreign entities
    
    
    (226
    )
    
    
    
    
    
    
    (226
    )Net foreign currency translation
adjustments
    
    
    5,644
    
    
    
    (8
    )
    
    
    5,636Unrealized gains (losses) on securities:Unrealized holding gains arising for period
    
    
    676
    
    
    
    (119
    )
    
    
    557Reclassification adjustments for (gains)
losses realized in net income
    
    
    (671
    )
    
    
    267
    
    
    
    (404
    )Net unrealized gains (losses)
    
    
    5
    
    
    
    148
    
    
    
    153Minimum pension liability adjustments
    
    
    62,479
    
    
    
    (29,538
    )
    
    
    32,941Other comprehensive income (loss)
    
    ¥
    68,128
    
    
    
    (29,398
    )
    
    
    38,7302004Foreign currency translation adjustments:Amount arising during the year on
investments in foreign entities held at
end of period
    
    ¥
    (26,464
    )
    
    
    (245
    )
    
    
    (26,709
    )Reclassification adjustments for the
portion of gains and losses realized upon
liquidation of investments in foreign
entities
    
    
    422
    
    
    
    
    
    
    
    422Net foreign currency translation
adjustments
    
    
    (26,042
    )
    
    
    (245
    )
    
    
    (26,287
    )Unrealized gains (losses) on securities:Unrealized holding gains arising for period
    
    
    886
    
    
    
    (348
    )
    
    
    538Minimum pension liability adjustments
    
    
    23,608
    
    
    
    (9,422
    )
    
    
    14,186Other comprehensive income (loss)
    
    ¥
    (1,548
    )
    
    
    (10,015
    )
    
    
    (11,563
    )
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U.S. Dollars(Thousands)TaxBefore tax
    
    (expense)
    
    Net-of-taxamount
    
    or benefit
    
    amount2006Foreign currency translation adjustments
    
    $
    223,145
    
    
    
    (68
    )
    
    
    223,077Unrealized gains (losses) on securities:Unrealized holding gains arising for period
    
    
    18,188
    
    
    
    (7,316
    )
    
    
    10,872Reclassification adjustments for (gains)
losses realized in net income
    
    
    (3,308
    )
    
    
    60
    
    
    
    (3,248
    )Net unrealized gains (losses)
    
    
    14,880
    
    
    
    (7,256
    )
    
    
    7,624Minimum pension liability adjustments
    
    
    40,966
    
    
    
    (17,727
    )
    
    
    23,239Other comprehensive income (loss)
    
    $
    278,991
    
    
    
    (25,051
    )
    
    
    253,940
 12. Leases
   Yen
    
    U.S. Dollars(Millions)
    
    (Thousands)Year ending March 31,2007
    
    ¥
    2,499
    
    
    $
    21,3592008
    
    
    1,894
    
    
    
    16,1882009
    
    
    1,437
    
    
    
    12,2822010
    
    
    1,090
    
    
    
    9,3162011
    
    
    791
    
    
    
    6,761Later years
    
    
    3,873
    
    
    
    33,103¥
    11,584
    
    
    $
    99,009
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13. Commitments and Contingent Liabilities
    14. Risk Management Activities and Derivative Financial Instruments
     - 121 -




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15. Fair Value of Financial Instruments
  (a)
    
    Cash and cash equivalents, Trade receivables, Other current assets, Short-term debt, Trade
payables, Accrued salaries and wages, Accrued expenses, Income taxes payables and Other
current liabilities.
  (b)
    
    Marketable securities and Investments in securities
  (c)
    
    Long-term debt
  (d)
    
    Currency Swaps, Currency and Interest Rate Swaps, Forward Foreign Exchange Contracts and
Foreign Currency Option Contracts
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##### Table of Contents



Yen (Millions)As of March 31, 2006
    
    Carrying amount
    
    Estimated fair valueNonderivatives:Assets:Investments in
securities and
other assets
for which it
is:Practicable to estimate fair value
    
    ¥
    20,497
    
    
    
    20,497Not practicable to estimate fair value
    
    
    801
    
    
    
    Liability:Long-term debt, including current portion
    
    
    (2,363
    )
    
    
    (2,363
    )Derivatives:Forward foreign exchange contracts in a:Gain position
    
    
    8
    
    
    
    8Loss position
    
    
    
    
    
    
    Currency option contracts in a:Gain position
    
    
    
    
    
    
    Loss position
    
    
    (8
    )
    
    
    (8
    )
 Yen (Millions)As of March 31, 2005
    
    Carrying amount
    
    Estimated fair valueNonderivatives:Assets:Investments in securities and other assets
for which it is:Practicable to estimate fair value
    
    ¥
    12,684
    
    
    
    12,684Not practicable to estimate fair value
    
    
    1,741
    
    
    
    Liability:Long-term debt, including current portion
    
    
    (184
    )
    
    
    (184
    )Derivatives:Currency and interest rate swaps in a:Gain position
    
    
    
    
    
    
    Loss position
    
    
    (312
    )
    
    
    (312
    )Forward foreign exchange contracts in a:Gain position
    
    
    
    
    
    
    Loss position
    
    
    (88
    )
    
    
    (88
    )Currency option contracts in a:Gain position
    
    
    
    
    
    
    Loss position
    
    
    (366
    )
    
    
    (366
    )
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U.S. Dollars (Thousands)As of March 31, 2006
    
    Carrying amount
    
    Estimated fair valueNonderivatives:Assets:Investments in securities and other assets
for which it is:Practicable to estimate fair value
    
    $
    175,188
    
    
    
    175,188Not practicable to estimate fair value
    
    
    6,846
    
    
    
    Liability:Long-term debt, including current
portion
    
    
    (20,197
    )
    
    
    (20,197
    )Derivatives:Forward foreign exchange contracts in a:Gain position
    
    
    68
    
    
    
    68Loss position
    
    
    
    
    
    
    Currency option contracts in a:Gain position
    
    
    
    
    
    
    Loss position
    
    
    (68
    )
    
    
    (68
    )
   Limitations
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16. Restructuring Cost
    Yen (Millions)2006Impairment onWorkforce
    
    property, plantreduction
    
    and equipment
    
    Other
    
    TotalBeginning balance
    
    ¥
    
    
    
    
    
    
    
    
    
    
    
    
    Costs and expenses
    
    
    3,309
    
    
    
    2,594
    
    
    
    922
    
    
    
    6,825Payments
    
    
    286
    
    
    
    
    
    
    
    242
    
    
    
    528Non-cash adjustments
    
    
    
    
    
    
    2,594
    
    
    
    
    
    
    
    2,594Ending balance
    
    ¥
    3,023
    
    
    
    
    
    
    
    680
    
    
    
    3,703U.S. Dollars (Thousands)Beginning balance
    
    $
    
    
    
    
    
    
    
    
    
    
    
    
    Costs and expenses
    
    
    28,282
    
    
    
    22,171
    
    
    
    7,880
    
    
    
    58,333Payments
    
    
    2,444
    
    
    
    
    
    
    
    2,068
    
    
    
    4,512Non-cash adjustments
    
    
    
    
    
    
    22,171
    
    
    
    
    
    
    
    22,171Ending balance
    
    $
    25,838
    
    
    
    
    
    
    
    5,812
    
    
    
    31,650
   17. Assets Held for Sale
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Yen
    
    U.S. Dollars(Millions)
    
    (Thousands)2006
    
    2005
    
    2006Assets held for saleCurrent assets
    
    ¥
    
    
    
    
    548
    
    
    $
    Net property, plant and equipment
    
    
    4,110
    
    
    
    430
    
    
    
    35,128Other assets
    
    
    
    
    
    
    15
    
    
    
    4,110
    
    
    
    993
    
    
    
    35,128Liabilities held for saleCurrent liabilities
    
    ¥
    
    
    
    
    92
    
    
    $
    
 18. Goodwill and Other Intangible Assets
  Yen (Millions)2006Gross Carrying
    
    AccumulatedAmount
    
    Amortization
    
    Net AmountAmortized intangible assets:Patent
    
    ¥
    10,350
    
    
    
    3,226
    
    
    
    7,124Customer relationships
    
    
    10,673
    
    
    
    441
    
    
    
    10,232Software
    
    
    9,268
    
    
    
    5,389
    
    
    
    3,879Other
    
    
    7,024
    
    
    
    1,658
    
    
    
    5,366Total
    
    
    37,315
    
    
    
    10,714
    
    
    
    26,601Unamortized intangible assets
    
    ¥
    2,877
    
    
    
    
    
    
    
    2,877
 Yen (Millions)2005Gross Carrying
    
    AccumulatedAmount
    
    Amortization
    
    Net AmountAmortized intangible assets:Patent
    
    ¥
    10,347
    
    
    
    2,242
    
    
    
    8,105Software
    
    
    7,271
    
    
    
    4,399
    
    
    
    2,872Other
    
    
    2,346
    
    
    
    715
    
    
    
    1,631Total
    
    
    19,964
    
    
    
    7,356
    
    
    
    12,608Unamortized intangible assets
    
    ¥
    639
    
    
    
    
    
    
    
    639
 U.S. Dollars (Thousands)2006Gross Carrying
    
    AccumulatedAmount
    
    Amortization
    
    Net AmountAmortized intangible assets:Patent
    
    $
    88,462
    
    
    
    27,573
    
    
    
    60,889Customer relationships
    
    
    91,222
    
    
    
    3,769
    
    
    
    87,453Software
    
    
    79,214
    
    
    
    46,060
    
    
    
    33,154Other
    
    
    60,034
    
    
    
    14,171
    
    
    
    45,863Total
    
    
    318,932
    
    
    
    91,573
    
    
    
    227,359Unamortized intangible assets
    
    $
    24,590
    
    
    
    
    
    
    
    24,590
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##### Table of Contents



Yen (Millions)Electronicmaterials and
    
    Recordingcomponents
    
    media
    
    TotalMarch 31, 2004
    
    ¥
    10,029
    
    
    
    
    
    
    
    10,029Additions
    
    
    991
    
    
    
    
    
    
    
    991Deductions
    
    
    (1,975
    )
    
    
    
    
    
    
    (1,975
    )Translation adjustment
    
    
    165
    
    
    
    
    
    
    
    165March 31, 2005
    
    
    9,210
    
    
    
    
    
    
    
    9,210Additions
    
    
    9,782
    
    
    
    
    
    
    
    9,782Deductions
    
    
    (401
    )
    
    
    
    
    
    
    (401
    )Translation adjustment
    
    
    862
    
    
    
    
    
    
    
    862March 31, 2006
    
    ¥
    19,453
    
    
    
    
    
    
    
    19,453
 U.S. Dollars (Thousands)Electronicmaterials and
    
    Recordingcomponents
    
    media
    
    TotalMarch 31, 2005
    
    $
    78,718
    
    
    
    
    
    
    
    78,718Additions
    
    
    83,607
    
    
    
    
    
    
    
    83,607Deductions
    
    
    (3,427
    )
    
    
    
    
    
    
    (3,427
    )Translation adjustment
    
    
    7,367
    
    
    
    
    
    
    
    7,367March 31, 2006
    
    $
    166,265
    
    
    
    
    
    
    
    166,265
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##### Table of Contents



19. Net Income per Share
  Yen
    
    U.S. Dollars(Millions)
    
    (Thousands)2006
    
    2005
    
    2004
    
    2006Income from continuing
operations available to common
stockholders
    
    ¥
    44,411
    
    
    
    36,965
    
    
    
    43,355
    
    
    $
    379,581Loss from discontinued
operations available to common
stockholders
    
    
    310
    
    
    
    3,665
    
    
    
    1,254
    
    
    
    2,649Net income available to common
stockholders
    
    ¥
    44,101
    
    
    
    33,300
    
    
    
    42,101
    
    
    $
    376,932
 Number of shares (Thousands)2006
    
    2005
    
    2004Weighted average common shares
outstanding  Basic
    
    
    132,239
    
    
    
    132,293
    
    
    
    132,475Effect of dilutive stock options
    
    
    116
    
    
    
    83
    
    
    
    48Weighted average common shares
outstanding  Diluted
    
    
    132,355
    
    
    
    132,376
    
    
    
    132,523
 Yen
    
    U.S. Dollars2006
    
    2005
    
    2004
    
    2006Income from
continuing
operations per
share:Basic
    
    ¥
    335.84
    
    
    
    279.41
    
    
    
    327.27
    
    
    $
    2.87Diluted
    
    
    335.54
    
    
    
    279.25
    
    
    
    327.15
    
    
    
    2.87Loss from
discontinued
operations per
share:Basic
    
    ¥
    (2.34
    )
    
    
    (27.70
    )
    
    
    (9.47
    )
    
    $
    (0.02
    )Diluted
    
    
    (2.34
    )
    
    
    (27.69
    )
    
    
    (9.46
    )
    
    
    (0.02
    )Net income per share:Basic
    
    ¥
    333.50
    
    
    
    251.71
    
    
    
    317.80
    
    
    $
    2.85Diluted
    
    
    333.20
    
    
    
    251.56
    
    
    
    317.69
    
    
    
    2.85
 20. Business and Credit Concentrations
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21. Discontinued Operations
   U.S. DollarsYen (Millions)
    
    (Thousands)2006
    
    2005
    
    2004
    
    2006Net sales
    
    ¥
    45
    
    
    
    2,242
    
    
    
    3,070
    
    
    $
    385Loss from operations before
income taxes (including loss on
disposal of ¥224 million in
2006)
    
    
    310
    
    
    
    3,509
    
    
    
    244
    
    
    
    2,649Income tax expense
    
    
    
    
    
    
    156
    
    
    
    1,010
    
    
    
    Loss from discontinued operations
    
    ¥
    310
    
    
    
    3,665
    
    
    
    1,254
    
    
    $
    2,649
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22. Sale of a Subsidiary
  23. Acquisition
   Yen
    
    U.S. Dollars(Millions)
    
    (Thousands)Current assets
    
    ¥
    23,176
    
    
    $
    198,086Property, plant and equipment
    
    
    9,673
    
    
    
    82,675Intangible assets
    
    
    13,686
    
    
    
    116,974Goodwill
    
    
    4,854
    
    
    
    41,487Other assets
    
    
    5,090
    
    
    
    43,504Total assets acquired
    
    
    56,479
    
    
    
    482,726Current liabilities
    
    
    (13,429
    )
    
    
    (114,777
    )Noncurrent liabilities
    
    
    (9,583
    )
    
    
    (81,906
    )Minority interests
    
    
    (9,265
    )
    
    
    (79,188
    )Total liabilities assumed
    
    
    (32,277
    )
    
    
    (275,871
    )Net assets acquired
    
    ¥
    24,202
    
    
    $
    206,855
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Yen
    
    U.S. Dollars(Millions)
    
    (Thousands)2006
    
    2005
    
    2006Net sales
    
    ¥
    816,431
    
    
    ¥
    702,566
    
    
    $
    6,978,043Income from continuing operations
    
    
    44,188
    
    
    
    35,354
    
    
    
    377,675Loss from discontinued operations
    
    
    310
    
    
    
    3,665
    
    
    
    2,650Net income
    
    
    43,878
    
    
    
    31,689
    
    
    
    375,026
 Yen
    
    U.S. Dollars2006
    
    2005
    
    2006Income from continuing operations
per share:Basic
    
    ¥
    334.15
    
    
    
    267.24
    
    
    $
    2.86Diluted
    
    
    333.86
    
    
    
    267.07
    
    
    
    2.85Loss from discontinued operations
per share:Basic
    
    ¥
    (2.34
    )
    
    
    (27.70
    )
    
    $
    (0.02
    )Diluted
    
    
    (2.34
    )
    
    
    (27.69
    )
    
    
    (0.02
    )Net income per share:Basic
    
    ¥
    331.81
    
    
    
    239.54
    
    
    $
    2.84Diluted
    
    
    331.52
    
    
    
    239.38
    
    
    
    2.83
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24. Related party transaction
  Yen
    
    U.S. Dollars(Millions)
    
    (Thousands)2006
    
    2005
    
    2006Due from
    
    ¥
    5,515
    
    
    
    4,680
    
    
    $
    47,137Due to
    
    
    5,169
    
    
    
    5,068
    
    
    
    44,179
  Yen
    
    U.S. Dollars(Millions)
    
    (Thousands)2006
    
    2005
    
    2004
    
    2006Gross purchase
    
    ¥
    55,963
    
    
    
    52,351
    
    
    
    46,608
    
    
    $
    478,316Less raw materials
sold with no
mark-up
    
    
    (46,580
    )
    
    
    (43,786
    )
    
    
    (38,133
    )
    
    
    398,120Net purchases
    
    
    9,383
    
    
    
    8,565
    
    
    
    8,475
    
    
    
    80,196Research and
development
expenses
    
    
    2,141
    
    
    
    2,089
    
    
    
    1,130
    
    
    
    18,299Sales
    
    
    249
    
    
    
    198
    
    
    
    161
    
    
    
    2,128
 25. Supplementary Information
 Yen
    
    U.S. Dollars(Millions)
    
    (Thousands)2006
    
    2005
    
    2004
    
    2006(a) Statement of IncomeResearch and development
    
    ¥
    45,528
    
    
    
    36,348
    
    
    
    32,948
    
    
    $
    389,128Rent
    
    
    7,739
    
    
    
    7,349
    
    
    
    8,037
    
    
    
    66,145Maintenance and repairs
    
    
    13,732
    
    
    
    11,090
    
    
    
    11,875
    
    
    
    117,368Advertising costs
    
    
    4,828
    
    
    
    4,926
    
    
    
    6,261
    
    
    
    41,265(b) Statement of Cash FlowsCash paid during year for:Interest
    
    ¥
    749
    
    
    
    331
    
    
    
    350
    
    
    $
    6,402Income taxes
    
    ¥
    32,789
    
    
    
    13,740
    
    
    
    4,299
    
    
    $
    280,248
 Noncash activities
  Yen
    
    U.S. Dollars(Millions)
    
    (Thousands)Short-term debt assumed in connection with
business acquisition
    
    ¥
    781
    
    
    $
    6,675Long-term debt assumed in connection with
business acquisition
    
    
    2,107
    
    
    
    18,009
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Schedule II
 
 Balance atbeginning of
    
    
    Charged to
    
    
    Bad debts
    
    
    Translation
    
    
    Balance atperiod
    
    
    earnings
    
    
    written off
    
    
    adjustment
    
    
    end of periodYear ended
March 31, 2006:Allowance for
doubtful receivables
    
    ¥
    2,560
    
    
    
    1,355
    
    
    
    71
    
    
    
    220
    
    
    
    4,064Year ended
March 31, 2005:Allowance for
doubtful receivables
    
    ¥
    2,000
    
    
    
    598
    
    
    
    106
    
    
    
    68
    
    
    
    2,560Year ended
March 31, 2004:Allowance for
doubtful receivables
    
    ¥
    2,850
    
    
    
    (227
    )
    
    
    373
    
    
    
    (250
    )
    
    
    2,000
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##### Table of Contents



Item 18. Financial Statements
  
 Item 19. Exhibits
  1.1
    
    ARTICLES OF INCORPORATION (English translation)1.2
    
    REGULATIONS OF THE BOARD OF DIRECTORS (English translation)2.1
    
    SHARE HANDLING REGULATIONS (English translation)8.1
    
    List of Significant Subsidiaries11.1
    
    TDK CODE OF ETHICS (English translation)12.1
    
    Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of CEO of the
Company12.2
    
    Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of CFO of the
Company13.1
    
    Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of CEO of the
Company13.2
    
    Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of CFO of the
Company
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##### Table of Contents



SIGNATURES
  TDK Corporation(Registrant)Date: July 27, 2006
    
    By:
    
    /s/Hajime SawabeHajime SawabeRepresentative Director,Chairman and CEO
 - 135 -