##### Table of Contents



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, 2004 Commission file number 2-76735 TDK KABUSHIKI KAISHA  TDK CORPORATION   Japan
  13-1, Nihonbashi 1-chome, Chuo-ku, Tokyo 103-8272, Japan 
  Securities registered pursuant to Section 12(b) of the Act. Title of each class
    
    Name of each exchange on which registeredAmerican Depositary Shares
    
    New York Stock ExchangeCommon stock
    
    New York Stock Exchange
 Securities registered or to be registered pursuant to Section 12(g) of the Act. None   Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act. None   Indicate the number of outstanding shares of the issuers classes of
capital or common stock as of the close of the period covered by the annual
report. Common stock
     Outstanding as of March 31, 2004: 132,409,452 shares (excluding treasury stock) Indicate by a check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes   [X]     No   [   ]. Indicate by a check mark which financial statement item the registrant has
elected to follow. Item 17   [X]     Item 18   [   ].




---



TABLE OF CONTENTS PART 1Item 1. Identity of Directors, Senior Management and AdvisersItem 2. Offer Statistics and Expected TimetableItem 3. Key InformationItem 4. Information on the CompanyItem 5. Operating and Financial Review and ProspectsItem 6. Directors, Senior Management and EmployeesItem 7. Major Shareholders and Related Party TransactionItem 8. Financial InformationItem 9. The Offer and ListingItem 10. Additional InformationItem 11. Quantitative and Qualitative Disclosures about Market RiskItem 12. Description of Securities Other than Equity SecuritiesPART 2Item 13. Defaults, Dividend Arrearages and DelinquenciesItem 14. Material Modifications to the Rights of Security Holders and Use of ProceedsItem 15. Controls and ProceduresItem 16A. Audit Committee Financial ExpertItem 16B. Code of EthicsItem 16C. Principal Accountant Fees and ServicesItem 16D. Exemptions from Listing Standards for Audit CommitteesItem 16E. Purchases of Equity Securities by the Issuer and Affiliated PurchasersPART 3Item 17. Financial StatementsReport
of Independent Registered Public Accounting FirmConsolidated Financial StatementsNotes to Consolidated Financial StatementsSchedule II  Valuation and Qualifying AccountsItem 18. Financial StatementsItem 19. ExhibitsEX-1.1 Articles of IncorporationEX-1.2 Share Handling RegulationsEX-11.1 TDK Code of EthicsEX-12.1 Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002EX-12.2 Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002EX-13.1 Certification of CEO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002EX-13.2 Certification of CFO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002




---



##### Table of Contents



All information contained in this Report is as of March 31, 2004 unless
otherwise specified. Fiscal 2004, fiscal 2003, fiscal 2002 and fiscal 2001 of
this Report indicate TDK Corporations fiscal period of the fiscal years ended
March 31, 2004, 2003, 2002 and 2001, respectively. The figures in this Report are expressed in yen and, solely for the
convenience of the reader, are translated into United States dollars at the
rate of ¥106 = U.S.$1, the approximate exchange rate prevailing on the Tokyo
Foreign Exchange Market as of March 31, 2004. (See Note 2 of the Notes to
Consolidated Financial Statements.) On June 30, 2004 the noon buying rate for
yen cable transfers in New York City as reported by the Federal Reserve Bank of
New York was ¥109.43 = $1. This translation should not be construed as a
representation that the amounts shown could be converted into U.S. dollars at
such rate. Forward-Looking Statements This report contains forward-looking statements, including projections,
plans, policies, management strategies, targets, schedules, understandings and
evaluations, about TDK Corporation (TDK) and its group companies (TDK and its
group companies are referred to also as TDK where the context so requires)
that are not historical facts. These forward-looking statements are based on
current forecasts, estimates, assumptions, plans, beliefs and evaluations in
light of information available to management on the date of this report was
prepared. In preparing forecasts and estimates, TDK has used as their basis, certain
assumptions as necessary, in addition to confirmed historical facts. However,
due to their nature, there is no guarantee that these statements and
assumptions will prove to be accurate in the future. TDK therefore wishes to
caution readers that these statements, facts and certain assumptions contained
in this report are subject to a number of risks and uncertainties and may prove
to be inaccurate. The electronics markets in which TDK operates are highly susceptible to
rapid changes. Furthermore, TDK operates not only in Japan, but in many other
countries. As such, factors that can have significant effects on its results
include, but are not limited to, shifts in technology, demand, prices,
competition, economic environments and foreign exchange rates. 2




---



##### Table of Contents



PART 1 
 Item 1. Identity of Directors, Senior Management and Advisers Not applicable. 
 Item 2. Offer Statistics and Expected Timetable Not applicable. 
 Item 3. Key Information A. Selected financial data Thousands ofU.S. dollars,except perMillions of yen, except per share amounts
    
    share amounts (1)2004
    
    2003
    
    2002
    
    2001
    
    2000
    
    2004Net sales
    
    ¥
    658,862
    
    
    ¥
    608,880
    
    
    ¥
    570,511
    
    
    ¥
    679,086
    
    
    ¥
    664,713
    
    
    $
    6,215,679Cost of sales
    
    
    474,106
    
    
    
    459,616
    
    
    
    464,620
    
    
    
    496,083
    
    
    
    475,340
    
    
    
    4,472,698Gross profit
    
    
    184,756
    
    
    
    149,264
    
    
    
    105,891
    
    
    
    183,003
    
    
    
    189,373
    
    
    
    1,742,981Selling, general and
administrative expenses
    
    
    130,434
    
    
    
    121,839
    
    
    
    123,741
    
    
    
    131,074
    
    
    
    114,766
    
    
    
    1,230,509Restructuring cost
    
    
    
    
    
    
    5,345
    
    
    
    25,872
    
    
    
    
    
    
    
    
    
    
    
    Operating income (loss)
    
    
    54,322
    
    
    
    22,080
    
    
    
    (43,722
    )
    
    
    51,929
    
    
    
    74,607
    
    
    
    512,472Income (loss) before
income taxes
    
    
    55,603
    
    
    
    18,081
    
    
    
    (43,697
    )
    
    
    64,516
    
    
    
    73,414
    
    
    
    524,557Net income (loss)
    
    
    42,101
    
    
    
    12,019
    
    
    
    (25,771
    )
    
    
    43,983
    
    
    
    50,730
    
    
    
    397,179Per Common Share:Net income (loss) /Basic
    
    ¥
    317.80
    
    
    ¥
    90.56
    
    
    ¥
    (193.91
    )
    
    ¥
    330.54
    
    
    ¥
    380.89
    
    
    $
    3.00Net income (loss) /Diluted
    
    
    317.69
    
    
    
    90.56
    
    
    
    (193.91
    )
    
    
    330.54
    
    
    
    380.89
    
    
    
    3.00Cash dividends
    
    
    50.00
    
    
    
    45.00
    
    
    
    60.00
    
    
    
    60.00
    
    
    
    65.00U.S. Dollar equivalents (2)
    
    $
    0.47
    
    
    $
    0.38
    
    
    $
    0.45
    
    
    $
    0.55
    
    
    $
    0.58
 Thousands ofMillions of yen, except per share amounts and exchange rate for yen
    
    U.S. dollars (1)2004
    
    2003
    
    2002
    
    2001
    
    2000
    
    2004Net working capital (3)
    
    ¥
    360,555
    
    
    ¥
    315,948
    
    
    ¥
    288,865
    
    
    ¥
    306,771
    
    
    ¥
    310,842
    
    
    $
    3,401,463Total assets
    
    
    770,319
    
    
    
    747,337
    
    
    
    749,910
    
    
    
    820,177
    
    
    
    775,992
    
    
    
    7,267,160Short-term indebtedness
    
    
    416
    
    
    
    1,919
    
    
    
    2,312
    
    
    
    5,879
    
    
    
    1,933
    
    
    
    3,925Long-term indebtedness
    
    
    27
    
    
    
    94
    
    
    
    459
    
    
    
    1,004
    
    
    
    46
    
    
    
    255Retirement and severance benefits
    
    
    73,521
    
    
    
    84,971
    
    
    
    49,992
    
    
    
    31,755
    
    
    
    56,845
    
    
    
    693,594Stockholders Equity
    
    
    576,219
    
    
    
    553,885
    
    
    
    583,927
    
    
    
    637,749
    
    
    
    571,013
    
    
    
    5,436,028Number of shares outstanding (in
thousands)
    
    
    132,409
    
    
    
    132,625
    
    
    
    132,860
    
    
    
    133,019
    
    
    
    133,190
 3




---



##### Table of Contents



Yen exchange rates per U.S. dollar (4)
    
    Average
    
    Term end
    
    High
    
    LowYear ended March 31:2000
    
    
    110.02
    
    
    
    102.73
    
    
    
    124.45
    
    
    
    101.532001
    
    
    111.64
    
    
    
    125.54
    
    
    
    125.54
    
    
    
    104.192002
    
    
    125.64
    
    
    
    132.70
    
    
    
    134.77
    
    
    
    115.892003
    
    
    121.10
    
    
    
    118.07
    
    
    
    133.40
    
    
    
    115.712004
    
    
    112.75
    
    
    
    104.18
    
    
    
    120.55
    
    
    
    104.182005 (through June 30, 2004)
    
    
    109.99
    
    
    
    109.43
    
    
    
    114.30
    
    
    
    103.70January, 2004
    
    
    
    
    
    
    
    
    
    
    107.17
    
    
    
    105.52February, 2004
    
    
    
    
    
    
    
    
    
    
    109.59
    
    
    
    105.36March, 2004
    
    
    
    
    
    
    
    
    
    
    112.12
    
    
    
    104.18April, 2004
    
    
    
    
    
    
    
    
    
    
    110.37
    
    
    
    103.70May, 2004
    
    
    
    
    
    
    
    
    
    
    114.30
    
    
    
    108.50June, 2004
    
    
    
    
    
    
    
    
    
    
    111.27
    
    
    
    107.10
   Notes:  (1)
    
    Translated, except for cash dividend amounts, for convenience of the reader
into U.S. dollars at the rate of ¥106 = $1, the approximate rate on the
Tokyo Foreign Exchange Market on March 31, 2004.(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 indebtedness Not applicable. C. Reasons for the offer and use of proceeds Not applicable. D. Risk factors Fluctuation in Economic Conditions The Japanese economy is gradually showing signs of having moved into
recovery, following a prolonged recession due to the collapse of the financial
and real estate bubble of the 1990s, the bursting of the so-called IT
Bubble in the 2000s, and other factors. However, there is an undeniable sense
that the recovery of the Japanese economy is dependent on economic conditions
overseas, and internal demand is still insufficient to lead a recovery. The
U.S. and China, key drivers of the global economy, are still grappling with
political and economic stability, casting a pall over the outlook for the
global economy. TDK (meaning TDK on a consolidated basis; the same applicable hereinafter)
is highly dependent on the Japanese economy and global economic trends, and is
also a member of the electronics industry, where change occurs at a rapid pace.
TDK has actively invested in the PC and mobile phone fields, which have
supported the companys growth in the past. However, TDK has also experienced
the significant effects of a sudden drop-off in demand, inability to meet sales
targets and other factors. A significant shift in TDKs operating environment
could thus materially adversely affect TDKs business results and financial
condition. 4




---



##### Table of Contents



Currency Exchange Rate Fluctuations TDK imports and exports products between different regions of the world as
it conducts its business activities around the globe. TDKs sales,
expenditures, assets and other accounts in each region are converted into
Japanese yen for the purpose of preparing financial statements. Accordingly, TDKs consolidated financial statements are subject to the
effects of fluctuations in foreign currency exchange rates. These fluctuations
affect TDKs international business transactions and the costs and prices of
TDKs products and services in overseas countries in relation to the yen. They
also affect the yen value of TDKs investments in overseas assets and
liabilities. Although TDK is taking measures to reduce or hedge against
foreign currency exchange risks, sudden fluctuations in foreign exchange rates
could materially adversely affect TDKs business results and financial
condition. Risk Accompanying Overseas Development One of TDKs corporate strategies is to expand businesses in markets
outside Japan as it conducts business in countries around the world. However,
in many of these markets, TDK may be exposed to political risks, such as war,
terrorism and other events; economic risks, such as fluctuations in foreign
currency exchange rates and trade friction; and social risks, including labor
problems stemming from differences in cultures and customs, and disease. Such
risks may give rise to changes of a greater magnitude than TDK anticipates.
TDK may also face barriers in building relationships with trading partners due
to differences in commercial and business customs. Manifestation of these
risks could lead to lower productivity and cause TDK to incur unexpected
expenses, eroding the competitiveness of its products. This in turn could
materially adversely affect TDKs business results and financial condition. Risks of Business Development in China TDK has production bases for many of its mainstay products in China, a
country in the midst of strong economic growth. TDK is also expanding business
in China to establish networks for supplying both business partners that have
been setting up operations in that nation and local companies. However, in the event that various political factors (political
instability, a change of administration, or new laws, etc.), economic factors
(trade protectionism and problems with electric power supply and other
infrastructure, etc.) and social factors (the SARS problem and changes in the
employment environment, etc.) cause unexpected events in China, TDKs business
results and financial condition could be materially adversely affected. Risk of Price Competition TDK supplies products over a broad range of fields in an electronics
industry defined by intense competition. Price is the main competitive factor
in all fields. Furthermore, in addition to the leading Japanese companies, the
recent emergence of other Asian companies has fueled further intense
competition in this industry. TDK is continuing to add more value to its products through technological
innovation and improvements, so as not to become embroiled in competing on
price alone. However, pressure for discount has mounted in recent years from
markets and customers, forcing prices down, and product prices may fall at a
faster rate in the future. A protracted decline in prices could materially
adversely affect TDKs business results and financial condition. 5




---



##### Table of Contents



Technological Changes and Development of New Products TDK derives a substantial portion of its revenue from sales of innovative
new products, and expects this trend to continue. TDK believes that its
ability to increase sales by developing appealing and innovative products will
play an important role in TDKs continued existence and growth. This is
therefore a key theme in the context of TDKs management strategy. However, in a fiercely competitive electronics industry, future demand and
new technologies cannot be predicted with reasonable certainty. TDK may thus
fail to accurately predict industry and market trends, or to develop and supply
in a timely manner attractive, new products with innovative technologies. In
the event that TDK misreads the industry and market, or falls behind in
technological innovation, it may have trouble recouping its investments and
cease to be able to compete in a market, which would result in a material
adverse effect on its business results, financial condition and growth
prospects. Product Quality Risks TDK manufactures various products at its plants worldwide in accordance
with internationally accepted quality-control standards. TDK cannot be certain, however, that all of its products are defect-free
and will not be recalled at some later date. A large-scale product recall or a
successful product liability claim against TDK caused by product defects could
result in significant recall costs or damage claims, lower sales and a negative
impact on TDKs reputation and brand, endangering the companys continued
existence. A situation resulting from poor product quality due to a serious
defect could thus materially adversely affect TDKs business results and
financial condition. Intellectual Property TDKs growth depends to a great extent on its ability to obtain patents,
licenses and other intellectual property rights covering its products, product
designs and manufacturing processes. However, there are cases where TDKs intellectual property rights cannot
be fully protected in a particular region for reasons unique to that region.
Furthermore, TDK may suffer damages resulting from a third partys manufacture
of similar products using TDKs intellectual property without permission. On
the other hand, TDKs products may infringe on the intellectual property rights
of third parties. Assertions of the infringement of such intellectual property
rights could cause damage to TDK or result in TDK being sued for infringement.
Legal proceedings of this nature are likely long and expensive, and if TDKs
assertions are not accepted, it would have to pay damages and royalties and
result in a loss of market. The failure to protect intellectual property
rights or prevent infringement of the rights of others could thus materially
adversely affect TDKs business development, business results and financial
condition. Recruitment and Retention of Employees To prevail against fierce competition in the electronics industry, TDK
believes that it is necessary to recruit and retain highly skilled employees in
various fields, particularly personnel possessing advanced scientific and
technical skills. Regarding personnel with superior management ability, such
as with respect to the ability to formulate business strategy and
organizational management, TDK believes that it is necessary to upgrade skills
to an advanced level. However, competition to recruit such skilled employees is extremely
intense in the industry. In Japan, amid changes in the employment environment
that include a reassessment of the life-time employment system, TDK may no
longer be able to recruit and retain skilled employees. The inability to
recruit skilled employees and train personnel as planned could materially
adversely affect TDKs business development, business results and growth
prospects from a long-term perspective. 6




---



##### Table of Contents



Procurement of Raw Materials and Other Products TDKs manufacturing operations depend on deliveries of raw materials,
components, equipment and other supplies in adequate quality and quantity in a
timely manner from many external suppliers. Some raw materials are available
only from a limited number of suppliers. These suppliers may experience supply shortages due to interruption of the
supply of raw materials or other items for reasons such as an accident, quality
issues, or a sudden increase in demand for finished products that use those
materials and items. If a shortage becomes protracted, TDK may have difficulty
finding substitutes in a timely manner from other suppliers, which could have a
material adverse effect on TDKs production and prevent it from fulfilling its
responsibilities to supply products to its customers. Furthermore, if an
imbalance arises in the supply-demand equation, there could be a spike in the
price of raw materials. In the event of these or other similar occurrences,
TDKs business results and financial condition could be materially adversely
affected. Governmental Regulations TDK is subject to various governmental regulations in Japan and other
countries where it conducts business. These include approval for conducting
business and making investments, laws and regulations governing electric and
electronic product safety, national security-related laws and regulations, and
export/import laws and regulations, as well as commercial, antitrust, patent,
product liability, environmental, consumer and business taxation laws and
regulations. In the event that these laws and regulations become more stringent in the
future, TDK could find that its businesses activities are subject to
restrictions and that it incurs various additional operating costs.
Furthermore, in the event that TDK has difficulty complying with these laws and
regulations, it may lose business opportunities. Government laws and
regulations in their various forms may thus have a material adverse effect on
TDKs business results and financial condition. Interest Rate Fluctuations TDK believes that it is possible to avoid risks associated with
fluctuations in market interest rates by actively utilizing TDK Group internal
liquidity, thus avoiding, where possible, the procurement of funds from outside
the company. On the other hand, a protracted period of low interest rates
limits interest income on invested cash and may mean that TDK has to provide
additional contributions to make up a shortfall in pension benefit funds as a
result of returns being less than expected. Factors such as these could
materially adversely affect TDKs business results and financial condition. OEM Business TDK is developing on a global scale an OEM business, whereby it supplies
mainly electronic components to electronics manufacturers, personal computer
makers and other customers. However, sales to these customers are significantly affected by each
respective customers business results and other factors beyond TDKs control.
A drop-off in purchasing demand due to poor business results at major
customers, changes in customers purchasing plans and policies, the unexpected
termination of contracts and other such events could occur in the future. In
this event, TDKs profit margins may be reduced due to pricing pressure from
customers, and it may be left with large amounts of inventory. Furthermore, if
customers decide to lower their prices, the price of purchased goods would be
affected and this may have an adverse impact on TDKs profit margins.
Customers business results and other factors beyond TDKs control could thus
have a material adverse effect on TDKs business results and financial
condition. 7




---



##### Table of Contents



Force Majeure TDK has many production sites and R&D facilities in Japan and overseas.
These facilities and plants meet standards for earthquake resistance.
Nevertheless, there remains the possibility that they could suffer significant
damage due to a force majeure event such as a large-scale earthquake exceeding
earthquake resistance standards, a typhoon or a flood. TDKs business results
and financial condition could be materially adversely affected if it is unable
to supply its customers with products for a long period of time because of
interruption to production or problems transporting products. Environmental Regulations TDK is subject to various environmental laws and regulations with respect
to industrial waste and emissions into the air and water from its production
processes in Japan and overseas. Furthermore, TDK is required to lower the use
in its products of certain chemical substances which could harm humans and the
natural environment. It is expected that environmental regulations will become
increasingly stringent in the future. TDK is meeting internationally accepted environmental standards and
customer demands, and working on the reduction of environmental pollution from
the perspective of fulfilling its Corporate Social Responsibility (CSR), which
has attracted attention in recent years. However, expenses for complying with
these regulations are expected to increase. Moreover, if TDK is unable to
comply, it may be forced to withdraw from certain business activities and could
lose the publics trust. The direction of environmental regulations could thus
have a material adverse effect on TDKs business results and financial
condition. 
 Item 4. Information on the Company A. History and development of the Company History TDK Corporation is a corporation (kabushiki kaisha) formed under Japanese
law. Its principal place of business is at 13-1, Nihonbashi 1-chome, Chuo-ku,
Tokyo 103-8272, Japan and the telephone number is +81-3-5201-7102. TDK is the worlds leading manufacturer of recording media, ferrite
products and recording device products, and a major producer of inductor,
ceramic capacitor, magnet and other components. TDK is a Tokyo-based company
founded in 1935 to commercialize ferrite. Historically, TDKs growth has been centered on ferrite, a material
invented in 1933 by Doctor Yogoro Kato and Doctor Takeshi Takei. Ferrite is
indispensable as a magnetic substance in the manufacture of electronic
equipment. It is a magnetic material with a ceramic structure composed of iron
oxide and other metallic oxides. Its advantages over other magnetic materials
include higher resistivity and thus lower eddy current loss while maintaining
superior permeability and flux density. Based on its strong materials
knowledge and production technology, TDK expanded into ceramic capacitors and
magnetic recording tapes in the early 1950s, and ferrite magnets and coil
components in the early 1960s. In the early 1980s, TDK began production of a
magnetic head, continuing development to its modern day product the HDD head.
Since the 1990s, TDK has promoted the establishment of world-wide research and
development organizations and environmental management efforts. TDK has
continued to broaden its product development programs by building up expertise
in semiconductor technology and new recording-related products. 8




---



##### Table of Contents



B. Business overview Sales by product category TDKs sales are generated by two business segments: electronic materials
and components, and recording media and systems. The following is a breakdown
of consolidated net sales of TDK and its consolidated subsidiaries by business
segment for fiscal 2004, 2003, 2002 and 2001: 2004
    
    2003
    
    2002
    
    2001
    
    2004(millions of yen)
    
    (millions of(%)
    
    U.S. dollars)Electronic Materials and
Components:Electronic materials
    
    ¥
    166,818
    
    
    ¥
    168,949
    
    
    ¥
    161,846
    
    
    ¥
    212,133
    
    
    $
    1,573.8(25.3
    )
    
    
    (27.8
    )
    
    
    (28.4
    )
    
    
    (31.2
    )Electronic devices
    
    
    107,999
    
    
    
    112,729
    
    
    
    105,937
    
    
    
    145,216
    
    
    
    1,018.9(16.4
    )
    
    
    (18.5
    )
    
    
    (18.6
    )
    
    
    (21.4
    )Recording devices
    
    
    230,105
    
    
    
    175,986
    
    
    
    147,004
    
    
    
    169,140
    
    
    
    2,170.8(35.0
    )
    
    
    (28.9
    )
    
    
    (25.7
    )
    
    
    (24.9
    )Semiconductors and Others
    
    
    17,940
    
    
    
    14,865
    
    
    
    18,099
    
    
    
    25,583
    
    
    
    169.2(2.7
    )
    
    
    (2.4
    )
    
    
    (3.2
    )
    
    
    (3.8
    )Sub total
    
    
    522,862
    
    
    
    472,529
    
    
    
    432,886
    
    
    
    552,072
    
    
    
    4,932.7(79.4
    )
    
    
    (77.6
    )
    
    
    (75.9
    )
    
    
    (81.3
    )Recording Media and Systems
    
    
    136,000
    
    
    
    136,351
    
    
    
    137,625
    
    
    
    127,014
    
    
    
    1,283.0(20.6
    )
    
    
    (22.4
    )
    
    
    (24.1
    )
    
    
    (18.7
    )Total
    
    ¥
    658,862
    
    
    ¥
    608,880
    
    
    ¥
    570,511
    
    
    ¥
    679,086
    
    
    $
    6,215.7(100.0
    )
    
    
    (100.0
    )
    
    
    (100.0
    )
    
    
    (100.0
    )
    Note:
    
    The business segment information is required by the Japanese Securities Exchange Law. The segment information is unaudited. Electronic Materials and ComponentsTDKs electronic materials and components
are divided into four principal categories: (i) electronic materials; (ii)
electronic devices; (iii) recording devices; and (iv) semiconductors and
others. Overall business results of each category in fiscal 2004 compared to
fiscal 2003 are as follows. (i) Electronic materialsThe electronics materials sector is broadly divided
into two product sectors: capacitors, and ferrite cores and magnets. Sales of multilayer ceramic chip capacitors, the main product in the
capacitor sector, increased. Higher orders for capacitors, which reflected
growing demand for communications products, offset falling sales prices and the
negative effect of exchange rate movements. In ferrite cores and magnets, overall sales of ferrite cores decreased
year on year. Deflection yoke cores and flyback transformer cores saw sales
drop due to falling demand and sales prices. The drop in orders is a
reflection of a rapid shift in consumer demand from CRT TVs to LCD, plasma and
other flat-panel models. Higher sales of small coils and transformer cores, a
category where demand is increasing, failed to offset this decrease. Magnet
sales declined as the effect of falling sales prices outweighed higher sales
volumes. Overall, sales of ferrite cores and magnets were down year on year. 9




---



##### Table of Contents



(ii) Electronic devicesThe electronic devices sector is broken down into
three categories: inductive devices, high-frequency components, and other
products. Inductive devices, the largest product category in this sector, posted
higher sales as demand for communications products increased in line with
advances in the performance of mobile phones. However, sales growth was held
back by lower sales prices and foreign currency movements. Sales of high-frequency components decreased despite an upswing in
shipment volumes that resulted from strong demand for components used in mobile
phones (the main market for these components), and successful activities to win
new orders. The decrease reflects the continuing glut in the supply of
high-frequency components in the market as a whole, which prompted customers to
demand price reductions that were greater than in other electronic component
categories. Sales of other products decreased. Sensors and actuators recorded higher
sales due to growth in demand for communications products and PCs and
peripherals. However, sales of power systems declined due to lackluster demand
associated with the entertainment field, a sector where demand was strong in
the previous fiscal year. (iii) Recording devicesThe recording devices sector is divided into two
categories: heads for HDDs, the mainstay of the sector, and other types of
heads. Sales of HDD heads grew as steady expansion continued from the previous
fiscal year in the HDD market. Rising sales of HDDs reflects growth in existing demand for use as storage
devices in PCs, as well as increasing use in game consoles, portable audio
players, HDD recorders and other consumer electronics equipment. The
higher-than-expected demand for HDD heads reflected an end to the downward
trend in the number of heads used per HDD. Sales of other heads, which include magnetic heads used in FDDs, thermal
printer heads and optical pickups, also increased. Most noteworthy was the
growth in optical pickups as video recorders, PCs and other equipment
increasingly use optical disk drives. (iv) Semiconductors and othersIn the semiconductors and others sector, two
of the main products are semiconductors and anechoic chambers. Sales in the semiconductors and others sector climbed despite sluggish
sales of semiconductors for communications applications. Growth reflected
higher sales of anechoic chambers for noise control and equipment used in these
chambers. Recording Media and SystemsIn the recording media & systems segment, the main
products are audiotapes, videotapes, optical media and tape-based data storage
media for computers. While TDK continues to command a high share of the audiotape and videotape
markets, sales in these two categories decreased as demand continues to shrink
due to structural changes. Optical media products posted increased sales, with
higher sales volumes of CD-Rs and DVDs in an expanding market offsetting lower
sales prices. Sales of other products decreased. Higher sales of LTO* (Linear
Tape-Open) standard tape-based data storage media for computers failed to
offset lower sales of PC software, recording equipment and other products. *     Linear Tape-Open, LTO, LTO logo, Ultrium and Ultrium logo are trademarks of HP, IBM and Seagate RSS in the U.S., other countries or both. 10




---



##### Table of Contents



Marketing and Distribution in Japan Marketing channels TDK markets electronic materials and components in Japan through its sales
division, which had approximately 255 sales representatives at March 31, 2004. In Japan, TDK markets magnetic recording tapes and optical disks through 6
district sales offices with a staff of 107. Approximately 50 percent of
domestic sales of TDK brand products are made to approximately 132 distribution
agents. These agents in turn sell TDK brand products to over 45,000 retailers
in Japan. Remaining TDK brand products are sold directly to approximately
5,500 retail stores in Japan. OEM sales are made to certain manufacturers as
well. Operations outside Japan TDK has 52 direct and indirect foreign subsidiaries as follows: 25
manufacture various product lines and distribute their products in their
country of operation and other countries; 19 are sales subsidiaries which
exclusively handle products manufactured by TDK; 1 is a holding company for the
administration of TDKs U.S. operations; 1 is a holding company for the
administration of TDKs European operations; 1 is a company for research and
development in Ireland; 1 is a company for research and development in the
U.S.; 1 is a company for design and development for semiconductors in
the U.S.;
1 is a company for engineering service for magnetic heads in Singapore; 1 is a
local management company for the administration of TDKs Chinese
operations;
and 1 is a company for engineering service for magnetic heads in China.
Principal manufacturing or assembly operations are conducted by subsidiaries in
the following countries: China
    
    - GMR heads, inductors, ferrite cores, capacitors, transformer, power supplies and ferrite magnetsUnited States
    
    - GMR heads, capacitors, ICs and ferrite magnetsLuxembourg
    
    - Videotapes and CD-RsTaiwan
    
    - Capacitors, ferrite cores and power suppliesPhilippines
    
    - GMR headsThailand
    
    - Audiotapes and rare-earth metal magnetsMalaysia
    
    - Capacitors and high-frequency componentsKorea
    
    - Capacitors and inductorsHungary
    
    - Capacitors and ferrite coresHong Kong
    
    - Ferrite coresUnited Kingdom
    
    - Network adaptors
 In addition, TDK has sales subsidiaries in Germany, the United Kingdom,
the United States, Hong Kong, Singapore, Australia, Sweden, Italy, Brazil,
Poland, France and China. TDK is pursuing a policy of expanding overseas production, which enables
TDK to more easily adapt to fluctuating exchange rates and potential trade
barriers. Production outside Japan as a percentage of sales outside Japan was
79.2 percent in fiscal 2004, 76.9 percent in fiscal 2003 and 75.7 percent in
fiscal 2002. 11




---



##### Table of Contents



Consolidated net sales of TDK and consolidated subsidiaries by
geographical area for fiscal 2004, 2003, 2002 and 2001 were as follows: 2004
    
    2003
    
    2002
    
    2001
    
    2004(millions of yen) (%)
    
    (millions ofU.S. dollars)Japan
    
    ¥
    161,607
    
    
    
    (24.5
    )
    
    ¥
    172,818
    
    
    
    (28.4
    )
    
    ¥
    178,771
    
    
    
    (31.3
    )
    
    ¥
    239,336
    
    
    
    (35.2
    )
    
    $
    1,524.6North America
    
    
    74,294
    
    
    
    (11.3
    )
    
    
    82,792
    
    
    
    (13.6
    )
    
    
    86,471
    
    
    
    (15.2
    )
    
    
    120,130
    
    
    
    (17.7
    )
    
    
    700.9Europe
    
    
    80,233
    
    
    
    (12.2
    )
    
    
    77,191
    
    
    
    (12.7
    )
    
    
    76,604
    
    
    
    (13.4
    )
    
    
    93,632
    
    
    
    (13.8
    )
    
    
    756.9Other
    
    
    342,728
    
    
    
    (52.0
    )
    
    
    276,079
    
    
    
    (45.3
    )
    
    
    228,665
    
    
    
    (40.1
    )
    
    
    225,988
    
    
    
    (33.3
    )
    
    
    3,233.3Total
    
    ¥
    658,862
    
    
    
    (100.0
    )
    
    ¥
    608,880
    
    
    
    (100.0
    )
    
    ¥
    570,511
    
    
    
    (100.0
    )
    
    ¥
    679,086
    
    
    
    (100.0
    )
    
    $
    6,215.7
 Net sales in each geographic area are based on the location of TDK
entities where the external sales are generated. Competition In electronic materials and components, rapid technological innovation
makes technological improvement a particularly significant competitive factor
in the industry. Product performance characteristics, reliability, price, and
the diversity of product line-ups are also significant competitive factors. In
general, TDKs ferrite and other products compete with similar products made of
other materials. For many applications in which specific performance
characteristics are required, however, competition with other materials is not
significant. In Japan and elsewhere, the markets in which TDK sells its products are
highly competitive. TDK believes that the principal elements of competition in
recording media and systems are brand recognition, product quality, and
marketing strategy. While the Japanese, American and European optical disks
markets have grown in terms of volume, they have continued to be plagued by
severe price competition. However, TDK has consistently promoted
internationalization in manufacturing and marketing and has maintained
strategic sales in regions where high profitability is expected. Meanwhile,
TDK has implemented further cost-reduction programs and is increasing its
competitive strength in other ways, notably through the expansion of overseas
production. Raw Materials and Sources of Supply TDK purchases a wide variety of raw materials, machines, tools and parts
for use in the manufacture of its products. The principal raw materials
purchased include plastic resin, used to mould tape cassette shell and in
packaging, magnetic powder of iron oxide, base film for magnetic tape and
various electronic and mechanical parts. For manufacture in Japan, TDK
purchases such raw materials from approximately 2,000 different sources,
primarily in Japan. However, TDK purchases base tape from mainly three
suppliers in Japan, although alternative sources of supply exist. Recently TDK
increased its purchases from overseas and also increased local procurement of
raw materials. No single source accounted for more than 10 percent of total
purchases for fiscal 2004. 12




---



##### Table of Contents



Environmental Protection Activities The issue of how corporations harmonize with nature has become of great
concern. Environmental issues are not only increasingly acquiring importance
in management strategy, but also from the aspect of meeting corporate social
responsibility for future generations, TDK regards environmental issues as of
great importance. In order to keep in step with the resource recycling
society, TDK has promoted 3R (Reduce, Reuse, Recycle) by strict corporate
regulations to recycle resources 100 percent. As a result, TDK has achieved
zero emissions on all domestic sites and 4 overseas sites. TDK is also actively
promoting the development of environmentally conscious products to act in line
with green purchasing and the requirement of the worldwide environment
conservation movement required. TDK has formulated a fundamental environmental plan, TDK Environmental
Action 2010, which contains nine action points that were established based on
the nature of TDKs business activities, and sets medium- and long-term goals.
Furthermore, the plan clearly defines the roles and responsibilities of
regional groups, business groups and the head office. Overview of TDK Environmental Action 2010  1.
    
    Enhancement of Environmental Management Systems2.
    
    Elevating Environmental Awareness3.
    
    Observation of Laws4.
    
    Risk Management5.
    
    Global Warming Prevention6.
    
    Waste Material Management7.
    
    Chemical Emissions Controls8.
    
    Creation of Environmental Communities9.
    
    Promoting the Development of Environmentally Friendly Products Based on the understanding that implementation and experience are the most
important elements in environmental measures, TDK believes that the promotion
of its Environmental Action 2010 will enhance TDKs corporate value. C. Organizational structure The following table lists the significant subsidiaries owned by TDK. Name of company
    
    Head office location
    
    Percentage ownedSAE Magnetics (H.K.) Ltd.
    
    Hong Kong
    
    100.0%TDK Recording Media Europe S.A.
    
    Luxembourg
    
    100.0%TDK U.S.A. Corporation
    
    New York, U.S.A.
    
    100.0%
 13




---



##### Table of Contents



D. Property, plants and equipment TDKs manufacturing operations are conducted primarily at 35 plants in
Japan and 25 plants overseas. The following table sets forth information, as of March 31, 2004, with
respect to TDKs manufacturing facilities, approximately 85 percent [in terms
of floor space] of which are owned by TDK. Number of
    
    Floor spaceprincipal
    
    (thousands ofLocation
    
    factories
    
    square feet)
    
    Principal products manufacturedJapanAkita
    
    
    16
    
    
    
    2,182
    
    
    Capacitors, ferrite cores, inductors and high-frequency componentsNagano
    
    
    4
    
    
    
    1,146
    
    
    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
    
    
    3
    
    
    
    464
    
    
    Ferrite magnetsYamagata
    
    
    3
    
    
    
    311
    
    
    InductorsIwate
    
    
    1
    
    
    
    298
    
    
    CapacitorsIbaraki
    
    
    2
    
    
    
    112
    
    
    DisplayOverseasChina
    
    
    7
    
    
    
    2,498
    
    
    GMR heads, inductors, ferrite cores, capacitors, transformer, power supplies and ferrite magnetsUnited States of America
    
    
    6
    
    
    
    569
    
    
    GMR heads, capacitors, Ics and ferrite magnetsLuxembourg
    
    
    1
    
    
    
    362
    
    
    Videotapes and CD-RsTaiwan
    
    
    1
    
    
    
    345
    
    
    Capacitors, ferrite cores and power suppliesPhilippines
    
    
    1
    
    
    
    344
    
    
    GMR headsThailand
    
    
    1
    
    
    
    285
    
    
    Audiotapes and rare-earth metal magnetsMalaysia
    
    
    1
    
    
    
    211
    
    
    Capacitors and high-frequency componentsKorea
    
    
    1
    
    
    
    164
    
    
    Capacitors and inductorsHungary
    
    
    1
    
    
    
    160
    
    
    Capacitors and ferrite coresHong Kong
    
    
    2
    
    
    
    42
    
    
    Ferrite coresUnited Kingdom
    
    
    1
    
    
    
    2
    
    
    Network adaptorsTotal
    
    
    57
    
    
    
    11,232
 TDK considers all of its principal manufacturing facilities and other
significant properties to be in good condition and adequate to meet the needs
of its operations. TDK owns each of its significant properties. As of March 31, 2004, TDK excluded 1 plant in Japan, 1 plant in the
Americas and 1 plant in Asia from the above table because these plants have
ceased operating, in order to improve TDKs profitability. In addition, TDK utilizes additional floor space at the above plants and
elsewhere for laboratories, office buildings, and employee housing and welfare
facilities, with an aggregate floor space of 6,189 thousand square feet, of
which approximately 53 percent is owned by TDK and the balance is leased to
TDK. 14




---



##### Table of Contents



Item 5. Operating and Financial Review and Prospects A. Operating Results Results of Operations Years ended March 31,2004
    
    2003
    
    2002
    
    2004(millions of yen)
    
    (millions(%)
    
    of dollars)Net sales
    
    ¥
    658,862
    
    
    ¥
    608,880
    
    
    ¥
    570,511
    
    
    $
    6,215.7(100.0
    )
    
    
    (100.0
    )
    
    
    (100.0
    )Cost of sales
    
    
    474,106
    
    
    
    459,616
    
    
    
    464,620
    
    
    
    4,472.7(72.0
    )
    
    
    (75.5
    )
    
    
    (81.4
    )Gross profit
    
    
    184,756
    
    
    
    149,264
    
    
    
    105,891
    
    
    
    1,743.0(28.0
    )
    
    
    (24.5
    )
    
    
    (18.6
    )Selling, general and administrative expenses
    
    
    130,434
    
    
    
    121,839
    
    
    
    123,741
    
    
    
    1,230.5(19.8
    )
    
    
    (20.0
    )
    
    
    (21.7
    )Restructuring costs
    
    
    
    
    
    
    5,345
    
    
    
    25,872
    
    
    
    
    
    
    
    (0.9
    )
    
    
    (4.5
    )Operating income (loss)
    
    
    54,322
    
    
    
    22,080
    
    
    
    (43,722
    )
    
    
    512.5(8.2
    )
    
    
    (3.6
    )
    
    
    (-7.6
    )Other income (other deductions)
    
    
    1,281
    
    
    
    (3,999
    )
    
    
    25
    
    
    
    12.1(0.2
    )
    
    
    (-0.6
    )
    
    
    Income taxes and minority interests
    
    
    13,502
    
    
    
    6,062
    
    
    
    (17,926
    )
    
    
    127.4(2.0
    )
    
    
    (1.0
    )
    
    
    (-3.1
    )Net income (loss)
    
    ¥
    42,101
    
    
    ¥
    12,019
    
    
    ¥
    (25,771
    )
    
    $
    397.2(6.4
    )
    
    
    (2.0
    )
    
    
    (-4.5
    )
 Sales by Region Years ended March 31,2004
    
    2003
    
    2002
    
    2004(millions of yen)
    
    (millions(%)
    
    of dollars)Japan
    
    ¥
    168,656
    
    
    ¥
    165,503
    
    
    ¥
    164,804
    
    
    $
    1,591.1(25.6
    )
    
    
    (27.2
    )
    
    
    (28.9
    )Americas
    
    
    89,657
    
    
    
    106,060
    
    
    
    109,452
    
    
    
    845.8(13.6
    )
    
    
    (17.4
    )
    
    
    (19.2
    )Europe
    
    
    81,950
    
    
    
    78,740
    
    
    
    79,639
    
    
    
    773.1(12.4
    )
    
    
    (12.9
    )
    
    
    (13.9
    )Asia (excluding Japan) and Oceania
    
    
    315,691
    
    
    
    255,901
    
    
    
    214,377
    
    
    
    2,978.2(47.9
    )
    
    
    (42.0
    )
    
    
    (37.6
    )Middle East and Africa
    
    
    2,908
    
    
    
    2,676
    
    
    
    2,239
    
    
    
    27.5(0.5
    )
    
    
    (0.5
    )
    
    
    (0.4
    )Net sales
    
    ¥
    658,862
    
    
    ¥
    608,880
    
    
    ¥
    570,511
    
    
    $
    6,215.7(100.0
    )
    
    
    (100.0
    )
    
    
    (100.0
    )
 This summary of sales by region is based on the location of the customer. 15




---



##### Table of Contents



Fiscal 2004 Compared to Fiscal 2003 Sales Consolidated net sales increased 8.2 percent to ¥658.9 billion ($6,216
million) in fiscal 2004, the year ended March 31, 2004, from ¥608.9 billion in
fiscal 2003. The Japanese economy in fiscal 2004 tended toward recovery, led by
IT-related production and exports. However, with no upturn evident in
household incomes, consumer spending failed to rebound. Meanwhile, the U.S.
economy, the driving force for the world economy, expanded compared with the
previous year, with consumer spending, housing investment and capital
expenditures all rising, as the government eased fiscal and monetary policy. In the electronics industry, the year was characterized by the rising
popularity of LCD and plasma flat-screen TVs, digital cameras and DVD
recorders, as well as by the increasing sophistication of mobile phones,
replacement demand for PCs, and the growing use of electronics in automobiles.
However, deflationary trends in world markets affected these finished products,
placing unrelenting pricing pressure on electronic materials and components and
recording media and systems, TDKs main products. TDK saw orders drop in the first quarter (April-June 2003) of fiscal 2004
due to one-off factors such as the SARS outbreak and fallout from the Iraq war.
Nevertheless, TDK remained focused on implementing profit structure reforms,
carrying on initiatives from fiscal 2003 to improve asset productivity, and
concentrating resources on strategic businesses. In the electronic materials and components segment, net sales increased
10.7 percent from ¥472.5 billion in fiscal 2003 to ¥522.9 billion ($4,933
million) in fiscal 2004. Sales in the electronic materials sector decreased 1.3 percent from ¥168.9
billion to ¥166.8 billion ($1,574 million). Sales of multilayer chip
capacitors, a mainstay of capacitor products, increased. Higher orders for
capacitors, which reflected growing demand for communications products, offset
falling sales prices and the negative effect of exchange rate movements. In
ferrite cores, deflection yoke cores and flyback transformer cores saw sales
drop due to falling demand and sales prices. The drop in orders is a
reflection of a rapid shift in consumer demand from CRT TVs to LCD, plasma and
other flat-panel models. Higher sales of small coils and transformer cores, a
category where demand is increasing, failed to offset this decrease, resulting
in a decline in overall sales of ferrite cores. Magnet sales declined as the
effect of falling sales prices outweighed higher sales volumes. In the
electronic devices sector, sales decreased 4.2 percent from ¥112.7 billion to
¥108.0 billion ($1,019 million). Inductive devices, the largest product
category in this sector, posted higher sales as demand for communications
applications increased in line with advances in the performance of mobile
phones. However, sales growth was held back by lower sales prices and foreign
currency movements. Sales of high-frequency components decreased despite an
upswing in shipment volumes that resulted from strong demand for components
used in mobile phones, the main market for these components, and successful
activities to win new orders. The decrease reflects the continuing glut in the
supply of high-frequency components in the market as a whole, which prompted
customers to demand price reductions that were greater than in other electronic
component categories. Sensors and actuators recorded higher sales due to
growth in demand for communications applications and PCs and peripherals.
However, sales of power systems declined due to lackluster demand associated
with the amusement field, a sector where demand was strong in the previous
fiscal year. Recording devices sales climbed 30.8 percent from ¥176.0 billion
to ¥230.1 billion ($2,171 million). Sales of HDD heads, the main product in
this sector, were up sharply. This was primarily because of continuing
expansion in the HDD market and the resulting robust HDD sales by major TDK
customers. Sales of other heads also increased. Sales in the semiconductors
and others sector climbed 20.7 percent from ¥14.9 billion to ¥17.9 billion
($169 million), despite sluggish sales of semiconductors for communications
applications. Growth reflected higher sales of anechoic chambers for noise
control and equipment used for these chambers. 16




---



##### Table of Contents



In the recording media and systems segment, sales edged down 0.3 percent,
to ¥136.0 billion ($1,283 million) in fiscal 2004 from ¥136.4 billion in fiscal
2003. While TDK continues to command a high share of the audiotape and
videotape markets, sales in these two categories decreased as demand continues
to shrink due to structural changes. Optical media products posted increased
sales, with higher sales volumes of CD-Rs and DVDs in an expanding market
offsetting lower sales prices. Sales of other products decreased. Higher
sales of LTO-standard* (Linear Tape-Open) tape-based data storage media for
computers failed to offset lower sales of PC software, recording equipment and
other products. * Linear Tape-Open, LTO, LTO logo, Ultrium and Ultrium logo are trademarks
of HP, IBM and Certance LLC in the U.S., other countries or both. By region, sales in Japan increased 1.9 percent to ¥168.7 billion ($1,591
million) in fiscal 2004 from ¥165.5 billion in fiscal 2003. There was a 10.6
percent rise in overseas sales year on year to ¥490.2 billion ($4,625 million)
from ¥443.4 billion in fiscal 2003. Overseas sales accounted for 74.4 percent
of consolidated net sales. In Japan, sales edged up from the previous fiscal year as higher sales in
the recording devices sector offset sales decreases caused by lower orders for
DC-DC converters for the amusement field and falling demand for audiotapes. In Asia (excluding Japan) and Oceania, sales increased due to higher sales
of recording devices, as TDK regained market share, and strong sales of
electronic materials and electronic devices. In the Americas, when converting to yen sales decreased due to the effect
of the appreciation of the yen. Other factors were lower sales in the
recording media and systems segment despite higher sales of optical media
products, including DVDs, due to lower sales of other products; and lower sales
in the electronic materials and components segment. In Europe, sales increased. Sales were sluggish in the electronic
materials and components segment, but rose in the recording media and systems
segment as sharply higher sales of DVDs and other optical media products
countered falling demand for audiotapes. Effect of foreign exchange movements In fiscal 2004, overseas sales accounted for 74.4 percent of consolidated
net sales, up 1.6 percentage points. As a result, fluctuations in foreign
exchange rates have a significant effect on TDKs consolidated sales and
income. During fiscal 2004, the yen appreciated 7.2 percent in relation to the
U.S. dollar and depreciated 9.7 percent in relation to the Euro, based on TDKs
average internal exchange rates. Overall, TDK estimates that each ¥1 movement
in exchange rates during fiscal 2004 had the net effect of reducing net sales
by about ¥4.0 billion and operating income by about ¥1.5 billion, in relation
to the prior fiscal year. TDK conducts a large share of business activities
outside Japan as one way to offset the impact of exchange-rate fluctuations.
Such activities include manufacturing and sales, as well as research, design
and procurement. In-region production in fiscal 2004 represented 111.3 percent
of sales in Asia (excluding Japan) and Oceania, 26.1 percent in the Americas,
and 23.4 percent in Europe. Overseas production accounted for 58.9 percent of
total sales in fiscal 2004, compared with 56.0 percent one year earlier, and
for 79.1 percent of overseas sales, compared with 76.9 percent one year
earlier. The rise in the percentage of overseas production in fiscal 2004 is
mainly due to higher production in Asia in the electronic materials and
components segment primarily as a result of an increase in overseas production,
which rose in line with sales growth resulting from a recovery in market share
in recording devices. 17




---



##### Table of Contents



TDK and certain overseas subsidiaries hedge exposure to foreign exchange
movements by entering into forward foreign exchange contracts and swaps for
some foreign currency-denominated obligations. Foreign exchange risk arising
in operating activities is hedged by using forward foreign exchange contracts.
In principle, TDKs policy is to hedge up to 50 percent of expected foreign
currency-denominated accounts receivable for each month for the next six
months. Due to the global nature of operations, management realizes that
currency movements continue to have the potential to exert a material influence
on consolidated performance. Cost and expenses The cost of sales increased 3.2 percent from ¥459.6 billion in fiscal 2003
to ¥474.1 billion ($4,473 million) in fiscal 2004 due to higher sales. Cost of
sales decreased from 75.5 percent to 72.0 percent of net sales. This reflected
both an improvement in the capacity utilization rate accompanying higher sales,
and cutbacks in expenses and improvements in various cost categories resulting
from structural reforms. These benefits outweighed strong downward pressure on
prices and adverse effects of foreign exchange movements. As a result, gross
profit increased 23.8 percent. Selling, general and administrative expenses increased ¥8.6 billion from
¥121.8 billion in fiscal 2003 to ¥130.4 billion ($1,231 million) in fiscal
2004, and decreased from 20.0 percent to 19.8 percent of net sales,
respectively. Selling, general and administrative expenses rose in line with
the 8.2 percent rise in net sales as TDK prevented further growth in these
expenses by strictly managing fixed expenses. Research and development
expenses represented 5.2 percent of net sales, the same as in the previous
fiscal year. Other income and deductions Other income (deductions) improved ¥5.3 billion from the previous fiscal
year. While there was a ¥1.6 billion increase in foreign exchange losses,
there was a ¥2.2 billion decrease in loss on securities, net and increases of
¥1.9 billion in patent infringement settlement and ¥1.3 billion in equity in
earnings of affiliates. Income taxes and minority interests The ratio of income taxes to income before income taxes (the effective tax
rate) decreased from 29.3 percent in fiscal 2003 to 23.6 percent in fiscal
2004. The decrease reflects a decrease in additional valuation allowance
provided during the year and the higher amounts of income earned in China, etc.
during fiscal 2004, which were taxed at rates lower than TDKs effective rate
for all other jurisdictions in which it pays income taxes. Net income TDK posted a net income of ¥42.1 billion ($397 million), resulting in net
income per diluted share of ¥317.69 ($3.00), compared with ¥90.56 in the
previous fiscal year. The return on equity increased from 2.1 percent to 7.5
percent. Cash dividends paid during the fiscal year totaled ¥50 ($0.47). This
dividend is the sum of the June 2003 year-end dividend of ¥25 and the December
2003 interim dividend of ¥25. Shareholders of record on March 31, 2004
received a cash dividend of ¥30 per share at the end of June 2004. 18




---



##### Table of Contents



Fiscal 2003 Compared to Fiscal 2002 Sales Consolidated net sales increased 6.7 percent to ¥608.9 billion in fiscal
2003, the year ended March 31, 2003, from ¥570.5 billion in fiscal 2002, the
year ended March 31, 2002. TDKs operating environment in fiscal 2003 remained
as severe as it was in the previous fiscal year. The bellwether U.S. economy,
the driving force of the world economy, appeared to gradually move back onto a
recovery footing after taking a step backwards at the start of 2002. However,
in the closing months of 2002, consumer and corporate sentiment nosedived due
to stagnant demand and tumbling share prices. The Japanese and European
economies, which are highly reliant on external demand, felt the effects of the
U.S. slowdown. Asia, including China, fared relatively well, but this region
is not yet ready to become a leading force in the world economy. The increase in sales in this difficult operating environment reflected a
recovery in TDKs share of the HDD head market and rising demand for electronic
components, which was fueled by the digitalization of audio and visual
equipment, and the increasing use of electronics in automobiles. In the electronics materials and components segment, net sales rose 9.2
percent to ¥472.5 billion in fiscal 2003, from ¥432.9 billion in fiscal 2002.
In the electronic materials sector, sales rose 4.4 percent from ¥161.8 billion
in fiscal 2002 to ¥168.9 billion. Sales of multilayer chip capacitors, a
mainstay of capacitor products, increased on the strength of the digitalization
of audio and visual equipment and increasing use of electronics in automobiles.
Sales of ferrite cores and magnets edged down slightly year on year due to
reduced demand for ferrite cores used in IT-related information and
communications applications, despite increased magnet sales in the automobile
and parts fields. In the electronic devices sector, sales increased 6.4
percent from ¥105.9 billion to ¥112.7 billion. Inductive devices recorded
higher sales, reflecting the growing use of automotive electronics as well as
growth in demand for digital audio and visual products. However, sales of
high-frequency components, a large proportion of which are used in
communications applications, particularly mobile phones, declined due to severe
demands for price reductions from customers because of the continuing supply
glut. Recording devices sales climbed 19.7 percent from ¥147.0 billion in
fiscal 2002 to ¥176.0 billion due to a recovery in TDKs market share amid firm
overall demand in the HDD head market. TDKs 40 gigabyte/disk HDD heads were
instrumental in winning back customers. In the semiconductors and others
sector, sales dipped 17.9 percent, from ¥18.1 billion to ¥14.9 billion. Sales
of semiconductors for communications applications dropped sharply due to the
continuing low levels of investment in communication infrastructure equipment. In the recording media and systems segment, sales edged down slightly by
0.9 percent, to ¥136.4 billion in fiscal 2003 from ¥137.6 billion in fiscal
2002. There were several reasons. Audiotape sales continued to shrink from
the previous fiscal year as the long-term decline in demand continued due to
the market shift to optical media. While there is a similar long-term decline
in demand for videotapes due to the rising popularity of optical media and DVD
software, sales rose slightly during the year, boosted by demand stemming from
the 2002 FIFA World Cup. In optical media, demand for CD-Rs and DVDs was
buoyant, but this strength was negated by falling MD demand and lower sales
prices of CD-Rs, resulting in largely flat sales overall. Tape-based data
storage media for computers, which obtained new-standard LTO* (Linear
Tape-Open) verification in the previous fiscal year, and software also recorded
sales gains. * Linear Tape-Open, LTO, LTO logo, Ultrium and Ultrium logo are trademarks
of HP, IBM and Certance LLC in the U.S., other countries or both. 19




---



##### Table of Contents



In Japan, sales increased 0.4 percent to ¥165.5 billion in fiscal 2003
from ¥164.8 billion in fiscal 2002. There was a 9.3 percent increase in
overseas sales year on year to ¥443.4 billion in fiscal 2003 from ¥405.7
billion in fiscal 2002. Overseas sales accounted for 72.8 percent of
consolidated net sales. While robust demand was recorded for capacitors and DC-DC converters for
video game systems, sales in Japan were largely unchanged due to lower sales in
the recording media and systems segment as audiotape demand declined. In Asia (excluding Japan) and Oceania, sales increased due to higher sales
in recording devices, as TDK regained market share, and higher sales in
electronic materials and electronic devices. In the Americas, sales declined as lower sales in the electronic materials
and components segment outweighed higher sales in other areas, particularly for
tape-based data storage media for computers. In Europe, sales declined. Sales of automotive components in the
electronics materials and components segment were strong. However, total sales
in this region were brought down by waning demand for high-frequency components
for mobile phones, particularly GSM-format phones, and falling demand for
audiotapes and MDs in the recording media and systems segment. Effect of foreign exchange movements In fiscal 2003, overseas sales accounted for 72.8 percent of consolidated
net sales, up 1.7 percentage points. As a result, fluctuations in foreign
exchange rates have a significant effect on TDKs consolidated sales and
income. During fiscal 2003, the yen appreciated 2.4 percent in relation to the
U.S. dollar and depreciated 9.5 percent in relation to the euro, based on TDKs
average internal exchange rates. Overall, the Company estimates that exchange
rate movements during fiscal 2003 had the net effect of reducing net sales by
about ¥2.8 billion, in relation to the prior fiscal year. TDK conducts a large
share of business activities outside Japan as one way to offset the impact of
exchange-rate fluctuations. Such activities include manufacturing and sales,
as well as research, design and procurement. In-region production in fiscal
2003 represented 111.3 percent of sales in Asia (excluding Japan) and Oceania,
28.6 percent in the Americas, and 33.0 percent in Europe. Overseas production
accounted for 56.0 percent of total sales in fiscal 2003, compared with 53.8
percent one year earlier, and for 76.9 percent of overseas sales, compared with
75.7 percent one year earlier. The rise in the percentage of overseas
production in fiscal 2003 is mainly due to higher production in Asia in the
electronic materials and components segment as a result of an increase in the
capacity utilization rate, which increased in line with sales growth resulting
from a recovery in market share in recording devices. TDK and certain overseas subsidiaries hedge exposure to foreign currency
exchange movements by entering into forward foreign exchange contracts and
swaps for some foreign currency-denominated obligations. Foreign exchange risk
arising in operating activities is hedged by using forward foreign exchange
contracts. In principle, TDKs policy is to hedge up to 50 percent of expected
foreign currency-denominated accounts receivable for each month for the next
six months. Due to the global nature of operations, management realizes that
currency movements continue to have the potential to exert a material influence
on consolidated performance. 20




---



##### Table of Contents



Cost and expenses The cost of sales decreased 1.1 percent from ¥464.6 billion in fiscal 2002
to ¥459.6 billion in fiscal 2003 despite an increase in net sales, and fell
from 81.4 percent to 75.5 percent of net sales. This reflected both an
improvement in the capacity utilization rate accompanying higher sales, and
cutbacks in expenses and various cost improvements resulting from structural
reforms. These benefits outweighed strong downward pressure on prices and
adverse effects of foreign exchange movements. As a result, gross profit
increased 41.0 percent. Selling, general and administrative expenses decreased ¥1.9 billion from
¥123.7 billion in fiscal 2002 to ¥121.8 billion in fiscal 2003, and decreased
from 21.7 percent to 20.0 percent of net sales, respectively. This was because
TDK managed to hold expenses to an increase of only 1.5 percent, although sales
rose 6.7 percent, thanks to thoroughgoing expenditure reviews. Research and
development expenses represented 5.2 percent of net sales, compared with 6.8
percent in the previous fiscal year. In addition, TDK recognized restructuring
costs of ¥5.3 billion for structural reforms, but this was a sharp decrease
from the ¥25.9 billion recognized in the previous fiscal year. Other income and deductions Other income (deductions) decreased ¥4.0 billion from the previous fiscal
year, mainly on account of a ¥3.1 billion increase in loss on securities, net
and a ¥2.1 billion rise in foreign exchange losses, offset by a ¥1.3 billion
increase in equity in earnings of affiliates. Income taxes and minority interests The ratio of income taxes and income tax benefit to income (loss) before
income taxes (the effective tax rate) decreased from 38.9 percent in fiscal
2002 to 29.3 percent in fiscal 2003. The decrease reflects the higher amounts
of income earned in China during fiscal 2003, which were taxed at rates lower
than TDKs effective rate for all other jurisdictions in which it pays income
taxes. The difference between TDKs statutory tax rate of 41 percent and its
effective tax rate is principally due to differences in statutory rates of
foreign subsidiaries and the generation of net operating loss carryforwards
currently reserved. Net income (loss) TDK posted a net income of ¥12.0 billion, resulting in net income per
diluted share of ¥90.56 for fiscal 2003 as compared to minus ¥193.91 in fiscal
2002. The return on equity was 2.1 percent, compared to minus 4.2 percent in
fiscal 2002. Cash dividends paid during the fiscal year totaled ¥45. This
dividend is the sum of the June 2002 year-end dividend of ¥20 and the November
2002 interim dividend of ¥25. Shareholders of record on March 31, 2003
received a cash dividend of ¥25 per share at the end of June 2003. 21




---



##### Table of Contents



Segment Information The following industry and geographic segment information is required by
the Japanese Securities Exchange Law. The segment information is unaudited. Industry Segment Information Years ended March 312004
    
    2003
    
    2002
    
    2004(millions of yen)
    
    (thousandsof dollars)ELECTRONIC MATERIALS AND COMPONENTSNet salesUnaffiliated customers
    
    ¥
    522,862
    
    
    ¥
    472,529
    
    
    ¥
    432,886
    
    
    $
    4,932,660Intersegment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total revenue
    
    
    522,862
    
    
    
    472,529
    
    
    
    432,886
    
    
    
    4,932,660(100.0
    %)
    
    
    (100.0
    %)
    
    
    (100.0
    %)
    
    
    (100.0
    %)Operating expenses
    
    
    466,335
    
    
    
    451,993
    
    
    
    469,232
    
    
    
    4,399,387(89.2
    %)
    
    
    (95.7
    %)
    
    
    (108.4
    %)
    
    
    (89.2
    %)Operating income (loss)
    
    ¥
    56,527
    
    
    ¥
    20,536
    
    
    ¥
    (36,346
    )
    
    $
    533,273(10.8
    %)
    
    
    (4.3
    %)
    
    
    (-8.4
    %)
    
    
    (10.8
    %)Identifiable assets
    
    
    505,178
    
    
    
    495,144
    
    
    
    513,218
    
    
    
    4,765,830Depreciation and amortization
    
    
    46,800
    
    
    
    53,015
    
    
    
    56,031
    
    
    
    441,509Capital expenditures
    
    
    40,479
    
    
    
    38,882
    
    
    
    55,046
    
    
    
    381,877RECORDING MEDIA AND SYSTEMSNet salesUnaffiliated customers
    
    ¥
    136,000
    
    
    ¥
    136,351
    
    
    ¥
    137,625
    
    
    $
    1,283,019Intersegment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total revenue
    
    
    136,000
    
    
    
    136,351
    
    
    
    137,625
    
    
    
    1,283,019(100.0
    %)
    
    
    (100.0
    %)
    
    
    (100.0
    %)
    
    
    (100.0
    %)Operating expenses
    
    
    138,205
    
    
    
    134,807
    
    
    
    145,001
    
    
    
    1,303,820(101.6
    %)
    
    
    (98.9
    %)
    
    
    (105.4
    %)
    
    
    (101.6
    %)Operating income (loss)
    
    ¥
    (2,205
    )
    
    ¥
    1,544
    
    
    ¥
    (7,376
    )
    
    $
    (20,801
    )(-1.6
    %)
    
    
    (1.1
    %)
    
    
    (-5.4
    %)
    
    
    (-1.6
    %)Identifiable assets
    
    
    97,186
    
    
    
    96,761
    
    
    
    109,055
    
    
    
    916,849Depreciation and amortization
    
    
    4,433
    
    
    
    4,774
    
    
    
    5,889
    
    
    
    41,821Capital expenditures
    
    
    4,387
    
    
    
    2,569
    
    
    
    3,731
    
    
    
    41,387ELIMINATIONS AND CORPORATECorporate assets
    
    ¥
    167,955
    
    
    ¥
    155,432
    
    
    ¥
    127,637
    
    
    $
    1,584,481TOTALNet salesUnaffiliated customers
    
    ¥
    658,862
    
    
    ¥
    608,880
    
    
    ¥
    570,511
    
    
    $
    6,215,679Intersegment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total revenue
    
    
    658,862
    
    
    
    608,880
    
    
    
    570,511
    
    
    
    6,215,679(100.0
    %)
    
    
    (100.0
    %)
    
    
    (100.0
    %)
    
    
    (100.0
    %)Operating expenses
    
    
    604,540
    
    
    
    586,800
    
    
    
    614,233
    
    
    
    5,703,207(91.8
    %)
    
    
    (96.4
    %)
    
    
    (107.7
    %)
    
    
    (91.8
    %)Operating income (loss)
    
    ¥
    54,322
    
    
    ¥
    22,080
    
    
    ¥
    (43,722
    )
    
    $
    512,472(8.2
    %)
    
    
    (3.6
    %)
    
    
    (-7.7
    %)
    
    
    (8.2
    %)Identifiable and corporate assets
    
    
    770,319
    
    
    
    747,337
    
    
    
    749,910
    
    
    
    7,267,160Depreciation and amortization
    
    
    51,233
    
    
    
    57,789
    
    
    
    61,920
    
    
    
    483,330Capital expenditures
    
    
    44,866
    
    
    
    41,451
    
    
    
    58,777
    
    
    
    423,264
 22




---



##### Table of Contents



Geographic Segment Information Years ended March 312004
    
    2003
    
    2002
    
    2004(millions of yen)
    
    (thousandsof dollars)JAPANNet sales
    
    ¥
    329,782
    
    
    ¥
    334,882
    
    
    ¥
    328,214
    
    
    $
    3,111,151Operating income (loss)
    
    
    8,538
    
    
    
    5,193
    
    
    
    (33,252
    )
    
    
    80,547Identifiable assets
    
    
    316,695
    
    
    
    326,128
    
    
    
    341,815
    
    
    
    2,987,689AMERICASNet sales
    
    
    104,400
    
    
    
    101,784
    
    
    
    101,910
    
    
    
    984,906Operating income (loss)
    
    
    2,797
    
    
    
    (1,082
    )
    
    
    (12,712
    )
    
    
    26,387Identifiable assets
    
    
    65,584
    
    
    
    73,845
    
    
    
    84,403
    
    
    
    618,717EUROPENet sales
    
    
    80,641
    
    
    
    78,462
    
    
    
    78,941
    
    
    
    760,764Operating income (loss)
    
    
    (115
    )
    
    
    (3,547
    )
    
    
    (3,184
    )
    
    
    (1,085
    )Identifiable assets
    
    
    51,797
    
    
    
    48,108
    
    
    
    52,188
    
    
    
    488,651ASIA AND OTHERSNet sales
    
    
    380,781
    
    
    
    314,918
    
    
    
    268,364
    
    
    
    3,592,273Operating income
    
    
    42,912
    
    
    
    20,640
    
    
    
    1,700
    
    
    
    404,830Identifiable assets
    
    
    228,058
    
    
    
    193,637
    
    
    
    194,057
    
    
    
    2,151,490ELIMINATIONS AND CORPORATENet sales
    
    
    236,742
    
    
    
    221,166
    
    
    
    206,918
    
    
    
    2,233,415Operating income (loss)
    
    
    (190
    )
    
    
    (876
    )
    
    
    (3,726
    )
    
    
    (1,793
    )Identifiable assets
    
    
    108,185
    
    
    
    105,619
    
    
    
    77,447
    
    
    
    1,020,613TOTALNet sales
    
    ¥
    658,862
    
    
    ¥
    608,880
    
    
    ¥
    570,511
    
    
    $
    6,215,679Operating income (loss)
    
    
    54,322
    
    
    
    22,080
    
    
    
    (43,722
    )
    
    
    512,472Identifiable assets
    
    
    770,319
    
    
    
    747,337
    
    
    
    749,910
    
    
    
    7,267,160OVERSEAS SALESAmericas
    
    ¥
    89,657
    
    
    ¥
    106,060
    
    
    ¥
    109,452
    
    
    $
    845,821Europe
    
    
    81,950
    
    
    
    78,740
    
    
    
    79,639
    
    
    
    773,113Asia and others
    
    
    318,599
    
    
    
    258,577
    
    
    
    216,616
    
    
    
    3,005,651Overseas sales total
    
    ¥
    490,206
    
    
    ¥
    443,377
    
    
    ¥
    405,707
    
    
    $
    4,624,585Percentage of consolidated sales
    
    
    74.4
    %
    
    
    72.8
    %
    
    
    71.1
    %
    
    
    74.4
    %
     (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




---



##### Table of Contents



B. Liquidity and capital resources Operating capital requirements TDKs requirements for operating capital primarily are for the purchase of
raw materials and parts for use in the manufacture of its products. Also,
operating expenses, including manufacturing expenses and SGA expenses, require
a substantial amount of operating capital. Payroll and payroll-benefits, and
marketing expenses, such as those incurred for advertising and sales promotion,
account for a significant portion of operating expenses. TDKs expenditure for
R&D is recorded as part of various operating expenses, and payroll for
R&D-related personnel accounts for a material portion of R&D expenses. The
necessary funds for these expenses are provided internally from profits,
depreciation and amortization, the reduction of trade receivables and
inventories, and other sources. Capital Expenditures In fiscal 2004, capital expenditures on a cash basis were ¥44.9 billion
($423 million), compared with ¥41.5 billion in fiscal 2003. Amid lingering
doubts about the sustainability of the economic recovery, TDK emphasized cash
flows and concentrated capital expenditures on strategically important business
fields. Among major overseas projects were HDD head facility expansions and
upgrades and the expansion of production facilities for electronic materials
and components in China. In Japan, production and research facilities for
multiplayer chip capacitors and other electronic materials and components, and
production and research facilities for HDD heads were significant elements of
capital outlays. The funds for these capital expenditures are provided by
internal resources generated from depreciation and amortization and profits. In fiscal 2003, capital expenditures on a cash basis were ¥41.5 billion,
compared with ¥58.8 billion in fiscal 2002. With no signs of a broad-based
economic recovery and growing uncertainty about the future, TDK emphasized cash
flows and concentrated capital expenditures on strategically important business
fields. Among major overseas projects were HDD head facility expansions and
upgrades in China and the U.S., and the expansion of production facilities for
electronic materials and components in China. In Japan, multilayer chip
capacitors and other electronic materials and components production and
research facilities, and production and research facilities for HDD heads were
significant elements of capital outlays. In fiscal 2002, capital expenditures on a cash basis were ¥58.8 billion,
compared with ¥99.5 billion in fiscal 2001. Due to the significant uncertainty
about the future amid the prolonged worldwide recession, TDK emphasized cash
flows and concentrated capital expenditures in strategically important business
fields. Among major overseas projects were HDD head facility expansions and
upgrades in China and the U.S., and the expansion of production facilities for
electronic materials and components in China. In Japan, multilayer chip
capacitors and other electronic materials and components production and
research facilities, and production and research facilities for HDD heads were
significant elements of capital outlays. 24




---



##### Table of Contents



Financial Management Operating capital and capital expenditures are, in principle, funded by
cash generated through operating activities. To improve capital efficiency, to
the extent possible, TDK centralizes financial management in the Head Office,
having introduced a cash management system (CMS). Surplus funds are invested
with an emphasis on low risk. Funds from within the group are utilized, to the
extent possible, to extend financing to subsidiaries that cannot procure
operating capital or funds for capital expenditures themselves. Cash flows for fiscal 2004, 2003 and 2002 are summarized as follows: Years ended March 31,2004
    
    2003
    
    2002
    
    2004(millions of yen)
    
    (millionsof dollars)Net income (loss)
    
    ¥
    42,101
    
    
    ¥
    12,019
    
    
    ¥
    (25,771
    )
    
    $
    397.2Adjustments to reconcile net income
(loss) to net cash provided by operating
activities
    
    
    72,603
    
    
    
    92,339
    
    
    
    67,275
    
    
    
    684.9Net cash provided by operating activities
    
    
    114,704
    
    
    
    104,358
    
    
    
    41,504
    
    
    
    1,082.1Net cash used in investing activities
    
    
    (37,770
    )
    
    
    (46,645
    )
    
    
    (57,903
    )
    
    
    (356.3
    )Net cash used in financing activities
    
    
    (9,661
    )
    
    
    (7,925
    )
    
    
    (13,202
    )
    
    
    (91.1
    )Effect of exchange rate changes on cash
and cash equivalents
    
    
    (10,669
    )
    
    
    (4,998
    )
    
    
    4,445
    
    
    
    (100.7
    )Net change in cash and cash equivalents
    
    ¥
    56,604
    
    
    ¥
    44,790
    
    
    ¥
    (25,156
    )
    
    $
    534.0
 Fiscal 2004 cash and cash equivalents increased ¥56.6 billion to ¥227.2
billion ($2,143 million) from ¥170.6 billion in the previous fiscal year.
Operating activities provided net cash of ¥114.7 billion ($1,082 million), a
year-on-year increase of ¥10.3 billion. This reflected mainly a ¥30.1 billion
increase in net income to ¥42.1 billion ($397 million) and a ¥6.6 billion
decrease in depreciation and amortization to ¥51.2 billion ($483 million), as
well as increases in trade receivables and inventories of ¥7.6
billion ($72 million) and ¥7.8 billion ($74 million), respectively. Regarding the shortfall
in pension assets, TDK plans to take action in response to certain recent
reforms to the pension system, including transferring the substitutional
portion of Employees Pension Fund (EPF) liabilities. Investing activities used net cash of ¥37.8 billion ($356 million), a
decrease of ¥8.8 billion from ¥46.6 billion in the previous fiscal year. The
main factor was a ¥6.2 billion decrease in payment for purchase of other
investments to ¥0.4 billion ($4 million). Regarding research and development
expenses, TDKs policy is to focus investments in the strategic fields of IT
home electronic appliances, high-speed and large-capacity networks and car
electronics. Funds for research and development will be appropriated from
internal funds. Financing activities used net cash of ¥9.7 billion ($91 million), ¥1.8
billion more than the ¥7.9 billion in cash used in the previous fiscal year.
This mainly represented an increase of ¥0.8 billion in repayments of short-term
debt and a ¥0.7 billion increase in dividends paid. Regarding fund procurement costs, TDK has long-term corporate credit
ratings of AA and A1 from Standard & Poors and Moodys, respectively.
Furthermore, Standard & Poors gives TDK their highest short-term credit
rating, A-1+, and TDKs U.S. subsidiaries have been given the highest rating of
P-1 by Moodys. These ratings allow TDK to procure funds if needed at low
interest rates. TDKs basic policy is to pay a stable dividend over the long term. Funds
for paying dividends are allocated from internal funds. With unstable financial conditions expected to continue in Japan, TDKs
policy is to maintain a high level of liquidity. TDK thus has no immediate
plans to repurchase its stock. 25




---



##### Table of Contents



TDK estimates that operating cash flows and other internal resources will
provide adequate liquidity in fiscal 2005. Regarding cash flows for the fiscal
year ending March 31, 2005 and onward, TDK expects to provide the necessary
funds from operating cash flows by increasing profitability and improving the
return on assets. Fiscal 2003 cash and cash equivalents increased ¥44.8 billion to ¥170.6
billion, from ¥125.8 billion in the previous fiscal year. Operating activities
provided net cash of ¥104.4 billion, a year-on-year increase of ¥62.9 billion.
This reflected mainly a ¥37.8 billion increase in net income to ¥12.0 billion;
a decrease of ¥4.1 billion in depreciation and amortization to ¥57.8 billion; a
decrease in inventories of ¥14.3 billion; and an increase of ¥6.7 billion in
trade payables. Regarding the shortfall in pension assets, TDK is currently
considering reforms to the pension system, including transferring the
substitutional portion of employee pension fund liabilities. Investing
activities used net cash of ¥46.6 billion, a decrease of ¥11.3 billion, from
¥57.9 billion in the previous fiscal year. The main factor was a ¥17.3 billion
decrease in capital expenditures to ¥41.5 billion. Regarding research and
development expenses, TDKs policy is to focus investments in the strategic
fields of IT home electronic appliances, high-speed and large-capacity networks
and car electronics. Funds for research and development will be appropriated
from internal funds. Financing activities used net cash of ¥7.9 billion, ¥5.3
billion less than the ¥13.2 billion in cash used in the previous fiscal year.
This mainly represented a ¥3.3 billion decrease in repayments of short-term
debt and a ¥2.0 billion decrease in dividends paid. Fiscal 2002 cash and cash equivalents decreased ¥25.2 billion to ¥125.8
billion. Operating activities provided cash of ¥41.5 billion, ¥26.1 billion
less than a year earlier. The main reason for the decrease was the net loss of
¥25.8 billion, which partly resulted from the implementation of structural
reforms. Investing activities used net cash of ¥57.9 billion, a decrease of
¥34.6 billion year on year. The main factor was a decrease in capital
expenditures of ¥40.7 billion. Financing activities used net cash of ¥13.2
billion, ¥4.4 billion more than in the previous fiscal year. This mainly
represented the repayment of ¥4.3 billion in short- and long-term debt of
overseas subsidiaries. Cash dividends paid were ¥8.0 billion, the same level
as in the previous fiscal year. Capital resources at March 31, 2004, 2003 and 2002 are summarized as follows: Years ended March 31,2004
    
    2003
    
    2002
    
    2004(millions of yen)
    
    (millions(%)
    
    of dollars)Short-term debt
    
    ¥
    315
    
    
    ¥
    1,431
    
    
    ¥
    1,655
    
    
    $
    3.0(0.1
    )
    
    
    (0.3
    )
    
    
    (0.3
    )Current installments of long term debt
    
    
    101
    
    
    
    488
    
    
    
    657
    
    
    
    1.0(0.0
    )
    
    
    (0.1
    )
    
    
    (0.1
    )Long-term debt, excluding current installments
    
    
    27
    
    
    
    94
    
    
    
    459
    
    
    
    0.2(0.0
    )
    
    
    (0.0
    )
    
    
    (0.1
    )Stockholders equity
    
    
    576,219
    
    
    
    553,885
    
    
    
    583,927
    
    
    
    5,436.0(99.9
    )
    
    
    (99.6
    )
    
    
    (99.5
    )Total capital
    
    ¥
    576,662
    
    
    ¥
    555,898
    
    
    ¥
    586,698
    
    
    $
    5,440.2(100.0
    )
    
    
    (100.0
    )
    
    
    (100.0
    )
 TDK currently has no capital market debt outstanding. However, TDK
maintains long-term corporate credit ratings of AA and A1 from Standard &
Poors and Moodys, respectively. Furthermore, Standard & Poors gives TDK
their highest short-term credit rating, A-1+ and TDKs U.S. subsidiaries have
been given the highest rating of P-1 by Moodys. 26




---



##### Table of Contents



Total assets amounted to ¥770.3 billion ($7,267 million), up ¥23.0 billion
from ¥747.3 billion at the previous fiscal year-end. As of March 31, 2004,
cash and cash equivalents were ¥227.2 billion ($2,143 million), ¥56.6 billion
higher than ¥170.6 billion a year ago. However, property, plant and equipment
decreased ¥17.0 billion to ¥208.9 billion ($1,971 million) from ¥225.9 billion,
and noncurrent deferred income taxes decreased ¥9.8 billion to ¥34.1 billion
($322 million) from ¥43.9 billion. Total liabilities increased ¥0.7 billion, from ¥190.1 billion to ¥190.8
billion ($1,800 million). Trade payables increased ¥2.9 billion, from ¥57.0
billion to ¥59.9 billion ($565 million), accrued expenses increased ¥5.3
billion from ¥28.1 billion to ¥33.4 billion ($316 million), and income taxes
payables increased ¥3.6 billion, from ¥1.1 billion to ¥4.7 billion ($44
million). Retirement and severance benefits decreased ¥11.5 billion, from
¥85.0 billion to ¥73.5 billion ($694 million). Total stockholders equity increased ¥22.3 billion, from ¥553.9 billion to
¥576.2 billion ($5,436 million). Retained earnings rose ¥34.9 billion, from
¥525.9 billion to ¥560.8 billion ($5,290 million), while accumulated other
comprehensive loss rose ¥11.6 billion, from ¥78.8 billion to ¥90.4 billion
($853 million). Total assets amounted to ¥747.3 billion at March 31, 2003, down ¥2.6
billion from ¥749.9 billion at the previous fiscal year-end. Among current
assets, cash and cash equivalents increased ¥44.8 billion, from ¥125.8 billion
to ¥170.6 billion, while net trade receivables decreased ¥2.8 billion, from
¥142.8 billion to ¥140.0 billion, and inventories were down ¥17.2 billion, from
¥91.1 billion to ¥73.9 billion. And property, plant and equipment decreased
¥39.7 billion, from ¥265.6 billion to ¥225.9 billion, as TDK reviewed capital
expenditures. Total liabilities, meanwhile, increased ¥28.7 billion, from ¥161.4 billion
to ¥190.1 billion. Accrued expenses decreased ¥7.6 billion, from ¥35.7 billion
to ¥28.1 billion due to the payment during the year of retirement allowances to
employees who applied for a special voluntary retirement package offered as
part of structural reforms implemented in fiscal 2002. Trade payables
increased ¥4.4 billion, from ¥52.6 billion to ¥57.0 billion, and retirement and
severance benefits increased ¥35.0 billion, from ¥50.0 billion to ¥85.0
billion. Total stockholders equity declined by a total of ¥30.0 billion, from
¥583.9 billion to ¥553.9 billion. Accumulated other comprehensive loss rose
¥34.8 billion, from ¥44.0 billion to ¥78.8 billion, due to a ¥18.7 billion rise
in foreign currency translation adjustments and ¥15.8 billion increase in
minimum pension liability adjustments. Offsetting these increases to some
extent was a ¥5.8 billion rise in retained earnings, from ¥520.1 billion to
¥525.9 billion. Total assets amounted to ¥749.9 billion as of March 31, 2002, a decrease
of ¥70.3 billion from ¥820.2 billion at the previous fiscal year-end. Among
current assets, cash and cash equivalents declined ¥25.1 billion, from ¥150.9
billion to ¥125.8 billion. Net trade receivables decreased ¥13.8 billion, from
¥156.6 billion to ¥142.8 billion, and inventories were down ¥25.3 billion, from
¥116.4 billion to ¥91.1 billion. In addition, no prepaid pension cost was
recognized as of March 31, 2002, which amounted to ¥41.3 billion as of March
31, 2001, and there was a ¥34.3 billion increase in long-term deferred income
taxes, from ¥2.7 billion to ¥37.0 billion. Total liabilities decreased ¥17.6 billion, from ¥179.0 billion to ¥161.4
billion. An ¥18.2 billion increase in retirement and severance benefits, from
¥31.8 billion to ¥50.0 billion, was offset by a decrease of ¥12.1 billion in
trade payables, ¥64.7 billion to ¥52.6 billion, and ¥17.1 billion in income
taxes, from ¥19.6 billion to ¥2.5 billion. In addition, debt, accrued expenses
and other items decreased. Total stockholders equity declined by a total of
¥53.8 billion from ¥637.7 billion to ¥583.9 billion. This reflected a decrease
of ¥36.1 billion in retained earnings, from ¥556.2 billion to ¥520.1 billion,
mainly due to the net loss for fiscal 2002. Accumulated other comprehensive
loss increased ¥19.1 billion, from ¥24.9 billion to ¥44.0 billion, due to an
increase in minimum pension liability adjustments and a decrease in foreign
currency translation adjustments. 27




---



##### Table of Contents



During the year ended March 31, 2003, TDK recorded a restructuring charge
of ¥5.3 billion. As a result of the restructuring, a total of 1,302 regular
employees were terminated through March 31, 2003. TDK and domestic
subsidiaries released 237 employees in Japan and overseas subsidiaries released
1,065 employees mainly in the Americas and Europe. TDK recorded a workforce
reduction charge of approximately ¥2.3 billion relating primarily to
severances. TDK recorded a restructuring charge of ¥3.0 billion mainly
relating to losses on the disposal of property, plant and equipment in Japan,
in the Americas and in Europe. The downturn in the U.S. economy from the fourth quarter ended March 31,
2001 and the recent reduction in IT investment volume on a world-wide basis had
an adverse effect on TDK. Under the circumstances, TDK believes offering
competitive pricing is essential to maintaining its advantageous position in
the market of electronic components. Additionally, many of TDKs customers who
manufacture consumer products have transferred their manufacturing facilities
to Asian countries, in particular China. As a result, TDK, as a supplier of
electronic components to these customers, will be required to transfer certain
of its factories to these Asian countries in order to meet the customers
logistical needs. Given the global economic conditions, TDK decided to
restructure its organization to improve its competitive and financial position
on a world-wide basis. The structural reforms implemented over the past two
years, including manufacturing plant integration and closure, reduction of
headcount and other rationalization plans, were accomplished almost on schedule
through March 31, 2003. Through March 31, 2003, TDK had paid ¥5.1 billion of the ¥5.3 billion
restructuring charges. TDK paid all of the remaining restructuring costs will
be paid by the end of first quarter of fiscal 2004. For a discussion of financial instruments, see Note 14 Risk Management
Activities and Derivative Financial Instruments, Note 15 Fair Value of
Financial Instruments and Note 6 Short-Term and Long-Term Debt in Item 17
Financial Statements. C. Research and development, patents and licenses, etc. R&D expenditures amounted to ¥34.5 billion ($325 million), 5.2 percent of
net sales in fiscal 2004; ¥31.9 billion, 5.2 percent of net sales in fiscal
2003; and ¥38.6 billion, 6.8 percent of net sales in fiscal 2002. In its R&D activities, TDK continues to work on strengthening and
expanding development of new products that respond to diversification in the
electronics market. In particular, TDK is concentrating on next-generation
recording-related products, micro electronics modules for mobile
communications-related applications, and energy-efficient, environmentally
friendly devices based on materials and design technologies. Furthermore, TDK
is using its reservoir of technologies to conduct efficient R&D activities
concentrating on three strategic areas: IT home electronic appliances,
high-speed and large-capacity networks and car electronics. In the recording media and systems field, TDK is pushing ahead with
research on next-generation DVD-related products, including Blu-ray discs,
while in the electronic components field R&D themes include the development of
tunnel-junction MR heads, research into next-generation magnetic recording
technologies, improving high-frequency-related components for mobile
communications applications, and improving wireless LAN-related products. In
EMC-related areas, which draw on TDKs materials technologies, TDK is working
toward the commercialization of products designed for the increasingly higher
frequencies used in electronic devices. 28




---



##### Table of Contents



R&D at TDK is conducted by the Materials R&D Center, Advanced Process
Technology Center, Devices Development Center, HMS (Hybrid Material Solutions)
Research Center, Production Engineering Development Center, Material Analysis
Center, Application Center, Silicon System Development Dept., New Business
Development Dept. and the R&D functions of each operating group. Each facility
is developing new products and technologies in its area of responsibility. The
Application Center devises the necessary application technologies with the aim
of keeping TDK in step with market trends and customer needs. The Material R&D
Center is responsible for research in magnetic and dielectric materials that
use powder metallurgy. The Advanced Process Technology Center facilitates the
use of cutting-edge process technologies. The Devices Development Center
conducts research in next-generation recording and communications technologies
as well as new devices. The HMS Research Center conducts research in hybrid
multiplayer development technologies and related areas. In terms of overseas R&D activities, TDK is conducting R&D projects in
collaboration with leading universities in the U.S. and U.K., and overseas R&D
subsidiaries are making use of local technological resources. In China, where
TDK is aiming to establish and develop an operating base capable of supporting
growth, R&D activities are being carried out in the area of electronic
components and materials. In addition, consolidated subsidiaries are pushing
ahead with various R&D themes. TDK Semiconductor Corporation is developing
semiconductors for LAN/WAN applications, and Headway Technologies, Inc. is
developing next-generation HDD heads. Although TDK has a variety of patents in Japan and other countries, and
licenses from other companies, it believes that termination of any one of its
patents or licenses or related group of patents or licenses would not
materially adversely affect its business. Total income from patents and
licenses was ¥0.1 billion ($0.9 million) in fiscal 2004, ¥0.2 billion in fiscal
2003 and ¥0.3 billion in fiscal 2002. TDK paid ¥12.4 billion ($117 million) in
fiscal 2004, ¥10.2 billion in fiscal 2003 and ¥6.1 billion in fiscal 2002 for
patents and licenses, mainly royalties for the use of optical disk
technologies. TDK does not believe that acquisition of new proprietary patents
or other companies patents would have a material effect on operating results
in the future. D. Trend information Economic environment TDK followed up last years improved performance with stellar results in
fiscal 2004, which ended on March 31, 2004. Consolidated net sales rose 8.2
percent to ¥658,862 million on a strong showing from the electronic materials
and components segment. Growing demand for components, fueled by expansion in
the digital home appliances market and an uptick in PC and mobile phone demand,
supported sales of electronic materials and electronic devices. Meanwhile,
recording devices sales grew by more than 30 percent year on year, the result
mainly of growth in the hard disk drive (HDD) market and TDKs share of heads
for this market. Operating income rose 2.5 times to ¥54,322 million on
improved operating margins as rationalization initiatives yielded results. Net
income jumped 3.5 times to ¥42,101 million, the result of ongoing reforms to
the profit structure and other factors. TDK has achieved much over the past two years. The resolute execution of
structural reforms has brought about a renewed spirit and ability to take up
two challenges: generating profits under the presumption that our top line will
not grow, and raising sales without placing reliance on market growth. The
rebound in our results in fiscal 2004 is evidence of the success of our
reforms. A closer look at our fiscal 2004 results, however, reveals a number of key
issues. One is the degree to which we rely on HDD heads and capacitors for our
earnings. Another is slow progress with structural reforms in the magnetic
materials-related and recording media businesses, two of our stalwarts in the
past. TDK also has work to do improving the profit structure in high-frequency
components and semiconductors, businesses that will be crucial in the unfolding
broadband era. 29




---



##### Table of Contents



Looking forward Based on its founding spirit, Contribute to culture and industry through
creativity, TDK has grown by exercising creativity and responding in an
appropriate and speedy manner to various changes. The electronics industry, TDKs field of operations, is finding renewed
vigor and growth in the market for flat-panel TVs, DVD recorders and other
digital home appliances, as well as the greater use of electronics in motor
vehicles. There is a prevailing view that the popularity of digital home
appliances will accelerate, driven by the start of terrestrial digital
broadcasting in Japan and the Olympic Games in Athens, Greece, this summer.
But digitalization is also fueling stiffer competition. In respect of digital
home appliances, in particular, it would be fair to say that the electronics
industry has been thrust into an era of full-blown competition as rapid
advances are made in the standardization of key devices, while new products
that fail to clearly set themselves apart are quickly engulfed by price
competition and driven out of the market. Competing in this era increasingly
hinges on ones ability to be different and to differentiate ones products
from others. It is for this reason that TDK has designated the fiscal year ending March
31, 2005 as a period for focusing tightly on its core business. TDK will
strengthen its core technologies (materials, process and evaluation simulation
technologies) that will be key to future businesses, expanding sales of new
products, responding to customer needs, and differentiating itself in the
marketplace. In the electronics market, TDK is targeting three key fields,
which it believes harbor prospects for growth: IT home electronics; high-speed,
large-capacity networks; and car electronics. Developing new products that
squarely match customer demands and creating a system for supplying them on a
timely basis are important themes for TDK in these markets where rapid change
is an underlying premise. Furthermore, as a responsible corporate citizen, TDK believes that it is
important to incorporate public, ethical, environmental and other
considerations in its management processes and dealings with society. 30




---



##### Table of Contents



Critical accounting policies Critical accounting policies are those that require application of
managements most difficult, subjective or complex judgments, often as a result
of the need to make estimates about the effect of matters that are inherently
uncertain and may change in subsequent periods. The following is not intended to be a comprehensive list of all of TDKs
accounting policies. TDKs significant accounting policies are more fully
described in Note 1 to the Consolidated Financial Statements. In many cases,
the accounting treatment of a particular transaction is specifically dictated
by accounting principles generally accepted in the United States of America,
with no need for managements judgment in their application. There are also
areas in which managements judgment in selecting an available alternative
would not produce a materially different result. TDK has identified the following as critical accounting policies:
impairment of long-lived assets, valuation of inventories, goodwill and other
intangible assets, pension benefit costs, and deferred tax assets. Impairment of long-lived assets TDKs long-lived assets and certain identifiable intangibles are reviewed
for impairment whether events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. This review is performed
using estimates of future cash flows on an undiscounted basis. If the carrying
amount of the asset is considered to be impaired, impairment charge is recorded
for the amount by which the carrying value of asset exceeds its fair value.
Management believes that the estimates of future cash flows and fair values are
reasonable, however, changes in estimates resulting in lower future cash flows
and fair value due to unforeseen changes in business assumptions could
negatively affect the valuation of those long-lived assets and significantly
affect TDKs financial position and results of operations. TDK makes
investments with due prudence, taking sufficiently into consideration the
future profitability of products and the recoverability of investments. Valuation of inventories Inventories are stated at the lower of cost or net realizable value. Net
realizable value is the estimated selling price less the estimated costs of
completion and the estimated cost necessary to make a sale. TDK routinely
reviews its inventories for their salability and for indications of
obsolescence to determine if inventories should be written-down to net
realizable value. In estimating the net realizable value of its inventories,
TDK considers the age of the inventory and likelihood of spoilage on changes in
market demand for its inventories. Management believes the judgments and
estimates are reasonable, however, changes in actual future demand or market
conditions could require additional inventory write-downs. TDKs policy is to
mitigate the risk of write-downs, to the extent possible, by reducing the level
of inventories through shorter production lead-times. Goodwill and other intangible assets Goodwill and other intangible assets that are determined to have an
indefinite life are not amortized and are tested for impairment on an annual
basis and between annual tests if an event occurs or circumstances change that
would more likely than not reduce the fair value of these assets below their
carrying amount. Fair value for these assets is determined using a discounted
cash flow analysis, which is based on an authorized business plan. Management
believes that the estimates of future cash flows and fair value are reasonable,
however, changes in estimates resulting in lower future cash flows and fair
value due to unforeseen changes in business assumption could negatively affect
the valuations. 31




---



##### Table of Contents



Pension benefit costs Employee pension benefit costs and obligations are dependent on
assumptions used by actuaries in calculating such amounts. These assumptions
include discount rates, retirement rates and mortality rates which are based
upon current statistical data, as well as salary growth, long-term return on
plan assets and other factors. Changes in assumptions will affect TDKs
financial position and results of operations. A decrease in the discount rate
leads to an increase in actuarial pension benefit obligations that could lead
to an increase in net periodic pension cost through amortization of
unrecognized actuarial gain or losses. An increase in the expected return on
plan assets may decrease net periodic pension cost in the current year.
However, the difference between the expected return and the actual return on
those assets, could negatively affect net income in future years. Deferred tax assets TDK has significant deferred tax assets, which are subject to
realizability assessment. In assessing the realizability of deferred tax
assets, management considers whether it is more likely than not that some
portion or all of the deferred tax assets will not be realized. The ultimate
realization of deferred tax assets is dependent upon the generation of future
taxable income during the periods in which those temporary differences become
deductible. Management considered the scheduled reversal of deferred tax
liabilities, projected future taxable income, and tax planning strategies in
making this assessment. Based upon the level of historical taxable income and
projections for future taxable income over the periods which the deferred tax
assets are deductible, management believes that it is more likely than not that
all of the deferred tax assets less valuation allowance will be realized.
However, in the event future projections for income are not realized or are
realized in lesser amounts or in cases where management changes the assessment
of realization of deferred tax assets based on other factors, deferred tax
assets may be determined not to be realizable which then would result in
additional income tax expense adversely affecting net income. New accounting pronouncements New Accounting Standard None. 32




---



##### Table of Contents



E. Off-Balance Sheet Arrangements As part of its ongoing business, TDK does not participate in transactions
with unconsolidated entities or financial partnerships, such as entities often
referred to as structured finance or special purpose entities, which have been
established for the purpose of facilitating off-balance sheet arrangements or
other limited purposes. TDKs basic policy is to pay a stable dividend over the long term
depending on operation results. Funds for paying dividends are allocated from
internal funds. TDK has various employee pension plans covering its employees. The
unfunded amount as of March 31, 2004 was ¥90.1 billion ($850 million). The
unfunded amount decreased by ¥14.0 billion as compared with last year due to
the appreciation of plan assets. However, out of this amount, ¥73.5 billion
($694 million) was accrued on the consolidated balance sheets as of March 31,
2004. TDK contributes to the Employees Pension Fund (EPF) in conformity
with governmental regulations which require an employer to contribute
systematically in accordance with cost allocation methods and to contribute to
special pension premiums in order to fund the unfunded portion over a maximum
of 20 years if such unfunded portion exceeds the specified level prescribed in
the regulations. Therefore, although there is no immediate substantial cash
funding requirement, TDKs cash funding requirement is affected by possible
changes in interest rates, return on assets, and governmental regulations on a
long-term basis. On September 25, 2003, TDK received governmental permission with regard to
its application to be exempted from the obligation to pay benefits for future
employee service related to the substitutional portion of an EPF plan. TDK
expects to complete the transfer of the minimum funding requirement to the
government in February 2005. While the transfer of this substitutional portion
is not expected to have a material adverse effect on TDKs consolidated
financial statements, however, the final amount of the impact could be
significantly different depending on any change in the amounts of pension
obligation or plan assets to be transferred. Regarding loans, in principle, TDKs policy is to use funds provided by
the parent company to meet the financing requirements of group companies.
However, certain of TDKs overseas subsidiaries have their own credit
facilities for borrowing funds. Regarding TDKs capital expenditure plans, TDKs policy is to rigorously
select investments in the strategic fields of IT home electronic appliances,
high-speed and large-capacity networks and car electronics. Capital
expenditures will be funded using internally generated funds. F. Tabular Disclosure of Contractual Obligations On March 31, 2004, commitments outstanding for the purchase of property,
plant and equipment approximated ¥8.8 billion ($83 million). TDK has entered
into several purchase agreements with certain suppliers whereby TDK has
committed to purchase a minimum amount of raw materials to be used in the
manufacture of its products. Future minimum purchases remaining under these
agreements approximate ¥1.4 billion ($13 million) as at March 31, 2004.
Contingent liabilities for guarantees of loans of TDKs employees and
affiliates amounted to approximately ¥6.6 billion ($62 million). TDK is
planning capital expenditures of ¥55.0 billion in fiscal 2005, primarily for
production facilities and rationalization measures. Actual capital
expenditures could differ from this forecast as a result of factors such as
shifts in technology, demand, prices, competition, economic environments and
foreign exchange rates. 33




---



##### Table of Contents



Contractual obligations on March 31, 2004 are summarized as follows: Payments Due by Period (Yen millions)Less thanTotal
    
    1 year
    
    1 to 5 years
    
    After 5 yearsContractual obligations:Long-term debt
    
    
    128
    
    
    
    101
    
    
    
    27
    
    
    
    Operating leases
    
    
    10,909
    
    
    
    3,347
    
    
    
    6,333
    
    
    
    1,229Purchase commitment of raw materials
    
    
    1,411
    
    
    
    536
    
    
    
    666
    
    
    
    209Purchase commitment of
property, plant and equipment
    
    
    8,846
    
    
    
    8,846
    
    
    
    
    
    
    
    Total
    
    
    21,294
    
    
    
    12,830
    
    
    
    7,026
    
    
    
    1,438
 G. Safe Harbor This report contains forward-looking statements, including projections,
plans, policies, management strategies, targets, schedules, understandings and
evaluations, about TDK and its group companies that are not historical facts.
These forward-looking statements are based on current forecasts, estimates,
assumptions, plans, beliefs and evaluations in light of information available
to management on the date of this report was prepared. In preparing forecasts and estimates, TDK has used as their basis, certain
assumptions as necessary, in addition to confirmed historical facts. However,
due to their nature, there is no guarantee that these statements and
assumptions will prove to be accurate in the future. TDK therefore wishes to
caution readers that these statements, facts and certain assumptions contained
in this report are subject to a number of risks and uncertainties and may prove
to be inaccurate. The electronics markets in which TDK operates are highly susceptible to
rapid changes. Furthermore, TDK operates not only in Japan, but in many other
countries. As such, factors that can have significant effects on its results
include, but are not limited to, shifts in technology, demand, prices,
competition, economic environments and foreign exchange rates. 34




---



##### Table of Contents



Item 6. Directors, Senior Management and Employees A. Directors and senior management Directors, Corporate Officers and Corporate Auditors of TDK as of June 29,
2004 and their respective business experience are listed below. Directors Name (Date of birth)
    
    Position, responsibility and brief personal recordHajime Sawabe
(Jan. 9, 1942)
    
    Representative Director, President and CEO  since June 1998
- 1996 Director of TDKJiro Iwasaki
(Dec. 6, 1945)
    
    Director, Senior Vice President  since June 2002
In charge of General Manager of Administration Group and Environment
- 1996 Director of TDKShinji Yoko
(Jan. 2, 1948)
    
    Director, Senior Vice President  since June 2002
In charge of General Manager of Electronic Components Sales and Marketing Group
- 1998 Director of TDKTakeshi Nomura
(Mar. 8, 1952)
    
    Director, Senior Vice President  since June 2002
In charge of General Manager of Technology Group, General Manager of Intellectual Properties Center
- 1998 Director of TDKMitsuaki Konno
(Dec. 28, 1944)
    
    Director  since June 2002
In charge of General Manager of Management Review and Support Department
- 2001 General Manager of Management Review and Support
DepartmentYasuhiro Hagihara
(Oct. 19, 1937)
    
    Director*  since June 2002
- 1971 Admitted to the bar in Washington D.C., U.S.A.
- 1979 Partner of Graham & James L.L.P.
- 2000 Partner of Squire, Sanders & Dempsey L.L.P.Takehiro Kamigama
(Jan. 12, 1958)
    
    Director, Executive Vice President  since June 2004
In charge of General Manager of Data Storage and Thin Film Technology Components Business Group
- 2002 Corporate Officer of TDK
- 2003 Corporate Officer, Senior Vice President of TDK
 35




---



##### Table of Contents



Corporate Officers Name (Date of birth)
    
    Position, responsibility and brief personal recordKiyoshi Ito
(May 28, 1944)
    
    Corporate Officer, Executive Vice President  since June 2004
In charge of General Manager of Circuit Devices Business Group
- 2000 Director of TDK
- 2002 Corporate Officer, Senior Vice President of TDKHirokazu Nakanishi
(Mar. 13, 1944)
    
    Corporate Officer, Senior Vice President  since June 2004
In charge of General Manager of China Operations Group
- 1996 Director of TDK
- 2002 Director, Senior Vice President of TDKKatsuhiro Fujino
(Sep. 27, 1944)
    
    Corporate Senior Officer  since June 2002
In charge of General Manager of Ferrite and Magnet Products Business Group
- 2000 Director of TDKTakeshi Ohwada
(Jul. 18, 1944)
    
    Corporate Senior Officer  since June 2002
In charge of General Manager of SCM Group
- 1998 Director of TDKKunihiro Fukushima
(Feb. 26, 1945)
    
    Corporate Officer  since June 2002
In charge of President of Osaka Regional Headquarters, Deputy General Manager of Electronic Components Sales and Marketing Group
- 2002 President of Osaka Regional Headquarters and General Manager of West Japan Sales DepartmentYukio Hirokawa
(Feb. 19, 1947)
    
    Corporate Officer  since June 2002
In charge of General Manager of Network Devices Business Group
- 2002 General Manager of Network Devices Business GroupMasatoshi Shikanai
(Oct. 3, 1949)
    
    Corporate Officer  since June 2002
In charge of General Manager of Recording Media and Solutions Business Group
- 2001 General Manager of Recording Media and Solutions Business GroupYukio Harada
(Oct. 1, 1945)
    
    Corporate Officer  since June 2002
In charge of General Manager of Power Systems Business Group
- 2001 General Manager of Power Systems Business GroupMichinori Katayama
(Dec. 9, 1946)
    
    Corporate Officer  since June 2002
In charge of General Manager of Corporate Communications Department
- 2001 General Manager of Corporate Communications Department
 36




---



##### Table of Contents



Name (Date of birth)
    
    Position, responsibility and brief personal recordKenryo Namba
(Jan. 6, 1947)
    
    Corporate Officer  since June 2002
In charge of Deputy General Manager of Technology Group,
General Manager of Devices Development Center, General
Manager of Material Analysis Center
- 2001 General Manager of Corporate Research and Development
CenterTakaya Ishigaki
(Apr. 10, 1953)
    
    Corporate Officer  since June 2003
In charge of Deputy General Manager of Circuit Devices
Business Group and General Manager of Capacitors Group
- 2001 Deputy General Manager of Circuit Devices Business
GroupMinoru Takahashi
(Feb. 12, 1948)
    
    Corporate Officer  since June 2003
In charge of General Manager of Sensors and Actuators
Business Group
- 2002 General Manager of Sensors and Actuators Business
DivisionSeiji Enami
(Sep. 14, 1947)
    
    Corporate Officer  since June 2004
In charge of General Manager of Finance and Accounting
Department and CFO
- 2001 General Manager of Finance and Accounting DepartmentRaymond Leung
(Apr. 18, 1956)
    
    Corporate Officer  since June 2004
In charge of Deputy General Manager of Data Storage and Thin
Film Technology Components Business Group
- 2000 President of SAE Magnetics (H.K.) Ltd.
 Corporate Auditors Name (Date of birth)
    
    Position, responsibility and brief personal recordMasaaki Miyoshi
(Sep. 3, 1947)
    
    Corporate Auditor  since June 2003
- 2000 President of Korea TDK Co., Ltd.Takuma Otsuka
(Feb. 23, 1944)
    
    Corporate Auditor  since June 2000
- 1998 Director of TDKKazutaka Kubota
(Oct. 11, 1942)
    
    Corporate Auditor*  since June 2003
- 2002 President of Asahigin Research Institute, Ltd.
- 2002 Corporate Auditor of Saitama Railway CorporationKaoru Matsumoto
(Dec. 8, 1947)
    
    Corporate Auditor*  since June 2003
- 1976 Registration as a Certified Public Accountant
- 1977 Establishment of Kaoru Matsumoto & Co.Ryoichi Ohno
(Nov. 3, 1958)
    
    Corporate Auditor*  since June 2004
- 1988 Registration as a U.S. Certified Public Accountant
- 2001 Senior Vice President and Chief Financial Officer of The Gibraltar Life Insurance Co., Ltd.
- 2001 Finance Vice President of Prudential Financial Inc.
 37




---



##### Table of Contents



All of TDKs Directors (except Yasuhiro Hagihara), Corporate Officers
and Corporate Auditors (except Kazutaka Kubota, Kaoru Matsumoto and
Ryoichi Ohno) have been engaged on a full-time basis. All Directors and Corporate Auditors are elected by the general meeting of
shareholders. The term of office of Directors is one year. The current term
of all Directors expires in June 2005. The term of office of Corporate
Auditors is four years. The current terms for Mr. Miyoshi, Mr. Otsuka, Mr.
Kubota and Mr. Matsumoto expire in June 2007, and current term for Mr. Ohno,
the successor of Mr. Nakamoto, also expires in June 2007. There are no family relationships between any Director or Corporate
Officer or Corporate Auditor and any other Director or Corporate Officer or
Corporate Auditor of TDK. B. Compensation  (1)
    
    The aggregate direct remuneration, including bonuses but excluding
retirement allowances, paid by TDK during the years ended March 31, 2004
and 2003 to all Directors and Corporate Auditors of TDK who served during
each of those years was approximately ¥326 million ($3.1 million) and ¥246
million, respectively. TDK does not disclose personal remuneration by
each Directors and Corporate Auditors because such disclosure is not
required by practice under the Japanese regulations.(2)
    
    In accordance with customary Japanese business practice, 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. After 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 2004 and fiscal 2003 for Directors and Corporate Auditors of TDK
totaled approximately ¥13 million ($123 thousand) and ¥43 million,
respectively. In addition, with introduction of a Corporate Officer
system (See Item 6.C. Board practices), the remuneration system at large
was looked over again and a lump sum retirement allowance for Directors
was abolished. As decided by the Directors in office at the meeting of
shareholders held on June 27, 2002, the conventional retirement reserve
fund will be frozen, and all payments from the fund will require the
consent of a general meeting of shareholders, which vote shall take place
at the time of the Directors retirement. TDK has a stock option plan for Directors and all other employees. See
Item 6.E. Share ownership. 38




---



##### Table of Contents



C. Board practices TDKs Articles of Incorporation provide for a Board of Directors of not
more than ten members. Directors are elected at the general meeting of
shareholders for a term of office of one year and may serve any number of
consecutive terms. The Board of Directors has the ultimate responsibility for
the administration of the affairs of TDK. The Board of Directors may appoint from among the Directors referred to
above one or more Representative Directors. Each of the Representative
Directors has the authority to represent TDK generally in the conduct of its
affairs. TDK introduced a Corporate Officer system in June 2002 to improve
management efficiency and expedite decision-making. Corporate Officers are
basically elected at the meeting of the Board of Directors held immediately
after the ordinary general meeting of shareholders, for a term of one year, but
may serve any number of terms upon appointment of the Board of Directors each
time following the expiration of the term. With respect to the expiration of
the term of office of the respective Corporate Officers, see Item 6.B.
Compensation. The Board of Directors may elect from among Corporate Officers
one or more Executive Vice Presidents, Senior Vice Presidents and Corporate
Senior Officers. Each of the Corporate Officers has the authority individually
to operate businesses of which he/she is in charge, under the control of the
Board of Directors. The Corporate Auditors of TDK, who are elected at the general meeting of
shareholders and whose number must not exceed five, are not required to be
certified public accountants. One or more Standing Corporate Auditors is
required to be elected from among the Corporate Auditors. Each Corporate
Auditor has the statutory duty to examine the financial statements and business
reports to be submitted by the Board of Directors to the general meeting of
shareholders and also to supervise the administration by the Directors but is
not entitled to vote. TDK established a Board of Corporate Auditors (at least
one of which must be from outside TDK) and the term of the Corporate Auditors
is four years. In addition to the Corporate Auditors, TDK is required to appoint
independent certified public accountants. The primary duty of certified public
accountants is to examine the financial statements proposed to be submitted by
the Board of Directors to the general meetings of shareholders, and to report
their opinion thereon to the Board of Corporate Auditors as well as to the
Board of Directors. All
Directors and Corporate Auditors are elected by the general meeting
of shareholders. The term of office of Directors is one year. The
current term of all Directors expires in June 2005. The term of
office of Corporate Auditors is four years. The current terms for
Mr. Miyoshi, Mr. Otsuka, Mr. Kubota and
Mr. Matsumoto expire in June 2007, and current term for
Mr. Ohno, the successor of Mr. Nakamoto, also expires in
June 2007. No
Directors have service contracts with TDK providing for benefits upon
termination of service as a Director. TDK
has neither audit committee nor remuneration committee. See
Significant differences in corporate governance practices
between TDK and U.S. listed companies on the New York Stock
Exchange, 5. Compensation Committee and
6. Audit Committee. The names of Directors and
Corporate Auditors are given under Item 6A. There are no family relationships between any Director or Corporate
Officer or Corporate Auditor and any other Director or Corporate Officer or
Corporate Auditor of TDK. 39




---



##### Table of Contents



Significant differences in corporate governance practices between TDK and
U.S. listed companies on the New York Stock Exchange 1. Directors Independence Under the Commercial Code of Japan (the Code), TDK is a Company with
Corporate Auditors, meaning a company which has corporate auditors
(kansayaku). The Law for Special Provisions for the Commercial Code Concerning
Audits, etc., of Kabushiki-Kaisha(stock corporation) (the Special Audit Law)
allows a Large Company (a company with stated capital of 500,000,000 yen or
more or with a total amount of 20,000,000,000 yen or more stated in the
liability section of its latest balance sheet) and a Deemed Large Company (a
company with stated capital exceeding 100,000,000 yen with provision in its
Article of Incorporation that it is subject to the special provisions provided
in Section 2 of the Special Audit Law) to choose to be a Company with
Committees, meaning a company which has a nominating committee, audit
committee, compensation committee and one or more executive officers, without
having corporate auditors. Although TDK is a Large Company, TDK has not chosen
to be a Company with Committees. While the Code requires companies to have a minimum of three directors,
the Code does not demand that companies have outside director(s) if a company
is a Company with Corporate Auditors within the meaning of the Code. The Code
defines outside director as a non-managing director who was not a director,
executive officer or any other employee who managed the corporate affairs of
the company or any of its subsidiaries at any time in the past and who is not
currently a director or executive officer who manages the corporate affairs of
any subsidiary, nor a manager or any other type of employee of the company or
any of its subsidiaries. The Special Audit Law requires Large Companies to have three or more
corporate auditors and provides that at least one (effective as of May 1, 2005,
at least half or more) of such corporate auditors must be outside corporate
auditors. The Special Audit Law defines outside corporate auditor as a
corporate auditor who has not been a director, executive officer, manager or
other employee of such Large Company or any of its subsidiaries for five years
preceding his/her assumption of office as corporate auditor (effective as of
May 1, 2005, a corporate auditor who has not been a director, executive
officer, manager or other employee of such Large Company or any of its
subsidiaries at any time before his/her assumption of office as corporate
auditor). TDK is fully in compliance with the Code and Special Audit Law. TDK has
seven directors and one of them is an outside director. TDK also has five
corporate auditors and three of them are outside corporate auditors. 2. Definition of Independent Director As mentioned above, TDK is not required to have outside directors by law,
however, TDK voluntarily elected one outside director. The meaning of outside director under the Code is not exactly the same
as the meaning of independent director provided in the New York Stock
Exchange Corporate Governance Rules (the Rules). The Code provides that an
outside director is a non-managing director who was not a director,
executive officer or any other employee who managed the corporate affairs of
the company or any of its subsidiaries at any time in the past and who is not
currently a director or executive officer who manages the corporate affairs of
any subsidiary, nor a manager or any other type of employee of the company or
any of its subsidiaries. Mr. Yasuhiro Hagihara is an outside director within
the meaning of the Code. TDK, a Large Company within the meaning of the Special Audit Law, is
required to have at least three corporate auditors and at least one (effective
as of May 1, 2005, at least a half or more) of such corporate auditors must be
outside auditors. The meaning of outside corporate auditors under the Special Audit Law is
not exactly the same as the meaning of independence provided in the Rules
with respect to directors. The Special Audit Law provides that an outside
corporate auditor is a corporate auditor who has not been a director,
executive officer, manager or other employee of such Large Company or any of
its subsidiaries for five years preceding his/her assumption of office as
corporate auditor (effective as of May 1, 2005, a corporate auditor who has
not 40




---



##### Table of Contents



been a director, executive officer, manager or other employee of such
Large Company or any of its subsidiaries at any time before their assumption of
office as corporate auditor). Of
the five TDK corporate auditors, three of them  Mr. Osamu
Nakamoto, Mr. Kazutaka Kubota and Mr. Kaoru Matsumoto
 are outside corporate auditors within
the meaning of the Special Audit Law. Mr. Nakamoto officially retired at the
regular shareholders meeting on June 29, 2004. Mr. Ryoichi Ohno has been
elected as successor of Mr. Nakamoto, and Mr. Ohno is also an outside corporate
auditor within the meaning of the Special Audit Law. 3. Regularly Scheduled Sessions without Management Japanese law does not require TDK to hold regular meetings without
management as mentioned in the Rules. As TDK is a Company with Corporate
Auditors, each of its corporate auditors and the board of directors monitor the
management, and such monitoring by the corporate auditors and the board of
directors functions as TDKs management-check system. 4. Nominating/Corporate Governance Committee Under Japanese law, TDK, as a Company with Corporate Auditors, is not
required to establish a nominating committee. Thus, TDK currently does not
have a nominating committee. The directors and corporate auditors of TDK must be appointed at a
shareholders meeting in accordance with the Code. The Special Audit Law
requires directors of a Large Company to obtain the consent of the board of
corporate auditors if the directors desire to submit to a shareholders meeting
a proposal concerning the appointment of a corporate auditor. Also, the board
of corporate auditors may, by resolution, demand that the directors include the
appointment of a corporate auditor in the agenda of a shareholders meeting or
that the directors submit a proposal concerning the appointment of a corporate
auditor who is recommended by the board of corporate auditors. 5. Compensation Committee Japanese law does not require TDK, a Company with Corporate Auditors, to
set up a compensation committee. TDK has, however, voluntarily established a
compensation advisory committee (the CAC). The CAC is responsible for (i) investigating compensation levels for directors and executive officers, (ii) reviewing compensation systems, performance evaluation standards and the method
of calculating compensation, and (iii) making proposals for compensation level
for certain individuals. The CAC is authorized to make and submit proposals to
the board of directors. The CAC has three members: one outside director, one non-outside director
and an outside expert on compensation. In the case of TDK, a Company with Corporate Auditors, the Code requires
the following matters with respect to the amount of compensation for the
directors to be determined by the resolution of a shareholders meeting unless
specifically provided in the Articles of Incorporation:  (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;(3)
    
    With respect to non-monetary items as compensation, the
specific contents thereof. 6. Audit Committee Japanese law does not require TDK, a Company with Corporate Auditors, to
set up an audit committee, and TDK therefore has not established an audit
committee. TDK, however, has the board of corporate auditors established
pursuant to the Code and Special Audit Law (consisting of five corporate
auditors including three outside corporate auditors), which exempts TDK from
Rule 10A-3 of the Exchange Act requiring companies to have an audit committee.
This exemption is specifically provided by Rule 10A-3(c)(3) of the Exchange Act
and this rule applies to TDK because TDK meets all the elements enumerated in
the Rule: 41




---



##### Table of Contents



(i)
    
    TDK has a board of corporate auditors (kansayaku-kai)
established and selected pursuant to the Code and the Special Audit
Law expressly permitting such a board;(ii)
    
    The Code prohibits a corporate auditor from concurrently
serving as a director of the company and thus the Code requires the
board of corporate auditors to be separate from the board of
directors;(iii)
    
    The corporate auditors are elected by the shareholders at a
shareholders meeting under the Code and not by the management of
TDK. The Code prohibits a corporate auditor from concurrently
serving as a manager or other employee of the company, and therefore
no executive officer of TDK is therefore a member of the board of
corporate auditors;(iv)
    
    The Code prohibits a corporate auditor from serving as a
director, manager or other employee of the company or any of its
subsidiaries, or as an executive officer of any subsidiary of the
company. The Special Audit Law prohibits a corporate auditor of a
Large Company from concurrently serving as a director, executive
officer, manager or other employee of any of its consolidated
subsidiaries. The Special Audit Law requires a Large Company to
have three or more corporate auditors, at least one (effective as of
May 1, 2005, at least half or more) of whom must be a person who has
not been a director, executive officer, manager or other employee of
such Large Company or any of its subsidiaries for five years
preceding his/her assumption of office as corporate auditor
(effective as of May 1, 2005, at any time before their assumption of
office as corporate auditor). As such, the Code and the Special
Audit Law provide for the standards for independence of the board of
corporate auditors from the management of TDK;(v)
    
    The Special Audit 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, by resolution, 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 certain accounting auditor who is
recommended by the board of corporate auditors. The Special Audit
Law provides that the board of corporate auditors may, by
resolution, dismiss an accounting auditor for causes enumerated in
the Special Audit Law such as breach of his or her duties. The
Special Audit Law also provides that in order to submit a proposal
concerning a dismissal 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, by
resolution, demand that the directors include the dismissal of a
certain accounting auditor in the agenda of a shareholders meeting.
The board of corporate auditors may audit in their own right if it
believes that the manner or result of an audit by the accounting
auditors is not reasonable. To this end, a corporate auditor may,
if necessary for the performance of his/her duties, request the
accounting auditors to provide a report on their duties. Further,
it is also provided that the accounting auditors must submit an
audit report directly to the board of corporate auditors and the
corporate auditors may demand the accounting auditors to provide an
explanation with respect to their audit report. As such, in
accordance with the Special Audit 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
states his/her opinion at a meeting of the board of directors if he
considers it necessary. Each corporate 42




---



##### Table of Contents



auditor of TDK has the authority to engage independent counsels and
other advisers if such engagement is necessary to carry out his/her
duties. Each corporate auditor may require TDK to pay any and all
expenses necessary for carrying out of his/her duties, including
compensation of any advisers employed by him/her and ordinary
administrative expenses. As discussed above, TDK has established a board of corporate auditors
pursuant to the Code and Special Audit Law (consisting of five corporate
auditors including three outside corporate auditors), and therefore does not
have an audit committee. 7. Corporate Governance Guidelines Japanese law does not require TDK to either adopt or disclose corporate
governance guidelines, and thus TDK has not established such guidelines. 8. Code of Business Conduct and Ethics Although Japanese law does not require TDK to adopt or disclose a code of
business conduct and ethics, TDK has voluntarily adopted and disclosed one. 9. Significant Differences in Corporate Governance Practices between TDK and U.S. Companies under NYSE Listing Standards This TDK corporate governance practice satisfies the disclosure
requirement. D. Employees The following table lists the number of TDK full-time employees as of
March 31, 2004, 2003 and 2002. As of March 31, 2004
    
    Japan
    
    Overseas
    
    TotalElectronic materials and components
    
    
    7,147
    
    
    
    25,204
    
    
    
    32,351Recording media and systems
    
    
    1,173
    
    
    
    1,734
    
    
    
    2,907Corporate
    
    
    1,524
    
    
    
    22
    
    
    
    1,546Total
    
    
    9,844
    
    
    
    26,960
    
    
    
    36,804
 As of March 31, 2003
    
    Japan
    
    Overseas
    
    TotalElectronic materials and components
    
    
    7,341
    
    
    
    19,781
    
    
    
    27,122Recording media and systems
    
    
    1,212
    
    
    
    1,867
    
    
    
    3,079Corporate
    
    
    1,477
    
    
    
    27
    
    
    
    1,504Total
    
    
    10,030
    
    
    
    21,675
    
    
    
    31,705
 As of March 31, 2002
    
    Japan
    
    Overseas
    
    TotalElectronic materials and components
    
    
    8,298
    
    
    
    18,794
    
    
    
    27,092Recording media and systems
    
    
    1,362
    
    
    
    2,197
    
    
    
    3,559Corporate
    
    
    1,568
    
    
    
    30
    
    
    
    1,598Total
    
    
    11,228
    
    
    
    21,021
    
    
    
    32,249
 TDK considers its employee relations to be excellent; there have been no
significant strikes or labor disputes. All full-time employees in Japan, except management and certain other
personnel, must become union members. Approximately 81 percent of full-time
employees of TDK are members of the TDK Labor Union, which is affiliated with
ZENKIN RENGO. About 50 percent of the full-time employees of TDK and its
domestic subsidiaries are members of unions affiliated with ZENKIN RENGO. 43




---



##### Table of Contents



As is customary in Japan, TDK negotiates with the TDK Labor Union for
annual wage increases, and twice a year for bonuses. TDK also renews the terms
and conditions of labor contracts, other than those relating to wage and
bonuses, every year. E. Share ownership The following table lists the number of shares owned by the Directors,
Corporate Officers and Corporate Auditors of TDK as of June 29, 2004. The
total number is 25,500 as shown below, and this number constituted 0.02% of all
outstanding shares. Name
    
    Position
    
    Number of sharesHajime Sawabe
    
    Representative Director, President and CEO
    
    
    7,000Jiro Iwasaki
    
    Director, Senior Vice President
    
    
    2,000Shinji Yoko
    
    Director, Senior Vice President
    
    
    1,000Takeshi Nomura
    
    Director, Senior Vice President
    
    
    1,000Mitsuaki Konno
    
    Director, Corporate Officer
    
    
    2,000Yasuhiro Hagihara
    
    Director (outside)
    
    
    0Takehiro Kamigama
    
    Director, Executive Vice President
    
    
    0Kiyoshi Ito
    
    Corporate Officer, Executive Vice President
    
    
    1,000Hirokazu Nakanishi
    
    Corporate Officer, Senior Vice President
    
    
    1,000Katsuhiro Fujino
    
    Corporate Senior Officer
    
    
    1,100Takeshi Ohwada
    
    Corporate Senior Officer
    
    
    1,000Kunihiro Fukushima
    
    Corporate Officer
    
    
    1,100Yukio Hirokawa
    
    Corporate Officer
    
    
    1,300Masatoshi Shikanai
    
    Corporate Officer
    
    
    300Yukio Harada
    
    Corporate Officer
    
    
    500Michinori Katayama
    
    Corporate Officer
    
    
    500Kenryo Namba
    
    Corporate Officer
    
    
    2,000Takaya Ishigaki
    
    Corporate Officer
    
    
    500Minoru Takahashi
    
    Corporate Officer
    
    
    200Seiji Enami
    
    Corporate
Officer and CFO
    
    
    0Raymond Leung
    
    Corporate Officer
    
    
    0Masaaki Miyoshi
    
    Full-time Corporate Auditor
    
    
    1,000Takuma Otsuka
    
    Full-time Corporate Auditor
    
    
    1,000Kazutaka Kubota
    
    Corporate Auditor (outside)
    
    
    0Kaoru Matsumoto
    
    Corporate Auditor (outside)
    
    
    0Ryoichi Ohno
    
    Corporate Auditor (outside)
    
    
    0Total
    
    
    
    
    25,500
 44




---



##### Table of Contents



Stock option plans TDK obtained approval of the Ordinary General Meeting of Shareholders held
on June 29, 2004 regarding the issuance of stock acquisition rights as stock
options (the Stock Acquisition Rights) to Board members, Corporate Officers and
select senior executives, pursuant to Articles 280-20 and 280-21 of the
Japanese Commercial Code. Upon approval, the Board of Directors adopted
resolutions to issue at no charge an aggregate of 2,343 Stock Acquisition
Rights, each representing a stock option to purchase 100 shares of common stock
of TDK, to the 187 Directors, Corporate Officers and select senior executives
of TDK, and the Directors and select senior executives of affiliates. The
Stock Acquisition Rights are exercisable during the period from August 1, 2006
to July 31, 2010. The amount to be paid by qualified persons upon the exercise
of each Stock Acquisition Rights is set at ¥8,147 per share of common stock,
which was calculated by a formula approved by shareholders at the said annual
shareholders meeting and is subject to an adjustment in certain events,
including but not limited to a stock split, stock dividend and issue of new
shares at a price less than the current market price of the shares of TDK. The
exercise price of each Stock Acquisition Right was equal to or greater than the
fair market value of TDKs common stock on the date of grant. TDK obtained approval of the Ordinary General Meeting of Shareholders held
on June 27, 2003 regarding the issuance of the Stock Acquisition Rights to
Board members, Corporate Officers and select senior executives, pursuant to
Articles 280-20 and 280-21 of the Japanese Commercial Code. Upon approval, the
Board of Directors adopted resolutions to issue at no charge an aggregate of
2,547 Stock Acquisition Rights, each representing a stock option to purchase
100 shares of common stock of TDK, to the then 179 Directors, Corporate
Officers and select senior executives of TDK, and the Directors and select
senior executives of affiliates. The Stock Acquisition Rights issued on August
7, 2003 are exercisable during the period from August 1, 2005 to July 31, 2009.
The amount to be paid by qualified persons upon the exercise of each Stock
Acquisition Rights is set at ¥6,954 per share of common stock, which was
calculated by a formula approved by shareholders at the said annual
shareholders meeting and is subject to an adjustment in certain events,
including but not limited to a stock split, stock dividend and issue of new
shares at a price less than the current market price of the shares of TDK. The
exercise price of each Stock Acquisition Right was equal to or greater than the
fair market value of TDKs common stock on the date of grant. To cover these
options TDK purchased on the Tokyo Stock Exchange a total of 260,000 common
shares with an aggregate purchase price of ¥1,847 million from August 8, 2003
through August 18, 2003. TDK obtained approval of the Ordinary General Meeting of Shareholders held
on June 27, 2002 regarding the issuance of the Stock Acquisition Rights to
Board members, Corporate Officers and select senior executives, pursuant to
Articles 280-20 and 280-21 of the Japanese Commercial Code, as amended. Upon
approval, the Board of Directors adopted resolutions to issue at no charge an
aggregate of 2,236 Stock Acquisition Rights, each representing a stock option
to purchase 100 shares of common stock of TDK, to the then 197 Directors,
Corporate Officers and select senior executives of TDK, and the Directors and
select senior executives of affiliates. The Stock Acquisition Rights issued on
August 9, 2002 are exercisable during the period from August 1, 2004 to July
31, 2008. The amount to be paid by qualified persons upon the exercise of each
Stock Acquisition Rights is set at ¥5,909 per share of common stock, which was
calculated by a formula approved by shareholders at the said annual
shareholders meeting and is subject to an adjustment in certain events,
including but not limited to a stock split, stock dividend and issue of new
shares at a price less than the current market price of the shares of TDK. The
exercise price of each Stock Acquisition Right was equal to or greater than the
fair market value of TDKs common stock on the date of grant. To cover these
options TDK purchased on the Tokyo Stock Exchange a total of 223,600 common
shares with an aggregate purchase price of ¥1,209 million from August 12, 2002
through August 19, 2002. 45




---



##### Table of Contents



The Ordinary General Meeting of Shareholders held on June 28, 2001
approved to implement TDKs stock option plan for Directors and certain
employees of TDK, and to purchase TDKs own shares for transfer to them under
the plan, pursuant to Article 210-2 of the Japanese Commercial Code. Stock
options (rights to purchase common shares) were provided to the then 12
Directors on the Board and 184 associate directors and officials in amounts
ranging from 500 to 10,000 common shares each, exercisable from August 1, 2003
to April 30, 2007, at an exercise price of ¥6,114 per share, which was
calculated by a formula approved by shareholders at the said annual
shareholders meeting and is subject to an adjustment in certain events,
including but not limited to a stock split, stock dividend and issue of new
shares at price less than the current market price of the shares of TDK. The
exercise price of each Stock Acquisition Right was equal to or greater than the
fair market value of TDKs common stock on the date of grant. To cover these
options TDK purchased on the Tokyo Stock Exchange a total of 158,000 common
shares with an aggregate purchase price of ¥917 million from July 2, 2001
through July 23, 2001. The Ordinary General Meeting of Shareholders held on June 29, 2000
approved to implement of TDKs stock option plan for Directors and certain
employees of TDK, and the purchase of TDKs own shares for transfer to them
under the plan, pursuant to Article 210-2 of the Japanese Commercial Code.
Stock options (rights to purchase common shares) were provided to the then 13
Directors on the Board and 191 associate directors and officials in amounts
ranging from 500 to 10,000 common shares each, exercisable from August 1, 2002
to April 30, 2006, at an exercise price of ¥15,640 per share, which was
calculated by a formula approved by shareholders at the said annual
shareholders meeting and is subject to an adjustment in certain events,
including but not limited to a stock split, stock dividend and issue of new
shares at price less than the current market price of the shares of TDK. The
exercise price of each Stock Acquisition Right was equal to or greater than the
fair market value of TDKs common stock on the date of grant. To cover these
options TDK purchased on the Tokyo Stock Exchange a total of 170,400 common
shares with an aggregate purchase price of ¥2,665 million from July 3, 2000
through August 2, 2000. Employees Shareholding Association As of March 31, 2004, the number of members of the TDK Employees
Shareholding Association totaled 1,717. The Employees Shareholding Association
accepts new memberships in March and September of every year. Members are
entitled to purchase shares of TDK, the maximum amount being ¥50,000 a month.
In addition, members have received a monthly subsidy equivalent to 5% of the
purchase price of shares. The subsidy amounted to ¥20 million ($189 thousand)
for fiscal 2004. The total amount of TDK shares having voting rights owned by
the TDK Employees Shareholding Association was as follows: Title of class
    
    Identity of person or group
    
    Amount owned
    
    Percent of classCommon stock
    
    TDK Employees Shareholding Association
    
    495,772 shares
    
    
    0.37%
 46




---



##### Table of Contents



Item 7. Major Shareholders and Related Party Transaction A. Major shareholders The table below lists the number of TDK shares held by holders of 5% or
more of TDK shares and their percentage ownership as of March 31, 2004: Shares ownedName of major shareholder
    
    (in thousands)
    
    PercentageThe Master Trust Bank of Japan, Ltd. (Trust account)
    
    
    13,962
    
    
    
    10.55%Japan Trustee Services Bank, Ltd. (Trust account)
    
    
    13,147
    
    
    
    9.93%
 Major shareholders do not have voting rights different from other
shareholders, subject to the limitation on exercise as set forth in Item 10.
B. Memorandum and Articles of Association  Common Stock  Voting rights. At March 31, 2004, there were 4,814,085 registered ADRs outstanding and
343 registered holders, of which 4,813,585 ADRs were held by 196 registered
U.S. holders. The Depositary of ADRs of TDK is Citibank N.A. of New York. TDK is not, directly or indirectly, owned or controlled by another
corporation or by any foreign government. B. Related party transaction Since the beginning of TDKs last full fiscal year, TDK has not transacted
with, nor does TDK currently plan to transact with, a related party, except for
transactions among TDK group companies. C. Interests of experts and counsel None. 47




---



##### Table of Contents



Item 8. Financial Information A. Consolidated statements and other financial information Consolidated financial statements Refer to Consolidated Financial Statements and Notes to Consolidated
Financial Statements (See Item 17). Export sales Finished goods and materials sent out of Japan are mainly bound for
consolidated subsidiaries of TDK, and are not, therefore, recorded as exports
on a consolidated basis. For this reason, the proportion of exports to total
net sales is not significant. Legal proceedings There are no material pending legal proceedings, other than ordinary
routine litigations incidental to the business, to which TDK or any of its
subsidiaries is a party or of which any of their property is the subject. Dividend policy TDK considers the return of profits to shareholders one of the important
matters of management, and will distribute profits with comprehensive reference
to the level of return on equity (ROE), dividends on equity (DOE) and trends
hereafter in the business results. At the ordinary general meeting of
shareholders held on June 29, 2004, a year-end cash dividend per share was
approved at the rate of 30.0 yen. TDK had already paid an interim dividend of
25.0 yen per share to each shareholder; accordingly the annual cash dividend
per share was 55.0 yen. B. Significant changes No significant change has occurred since the date of the annual
consolidated financial statements. 48




---



##### Table of Contents



Item 9. The Offer and Listing A. Offer and listing details The primary market for TDKs shares of common stock (Common Stock) is the
Tokyo Stock Exchange (the TSE). The shares are traded on the First Section
of that exchange and are also listed on the Osaka Securities Exchange in Japan.
In addition, TDKs shares are listed on the New York Stock Exchange in the
form of American Depositary Receipts (ADRs), on the Euronext Brussels Stock
Exchanges in the form of Bearer Depositary Receipts, and on the London Stock
Exchange in the form of shares of TDK. The following table sets forth for the periods indicated the reported high
and low sales prices of TDKs shares of common stock on the TSE (both in yen
and translated into U.S. dollars per American Depositary Share) and the
reported high and low bid prices for American Depositary Shares of which each
represents one share of common stock, as reported by the New York Stock
Exchange. Translated intoU.S. dollars per
    
    U.S. marketYen per share of
    
    American
    
    price per AmericanCalendar year
    
    Common stock (1)
    
    Depositary Share (2)
    
    Depositary Share (3)High
    
    Low
    
    High
    
    Low
    
    High
    
    Low1999 Year
    
    
    15,010
    
    
    
    8,160
    
    
    
    145.16
    
    
    
    68.11
    
    
    
    143.00
    
    
    
    67.002000 Year
    
    
    17,200
    
    
    
    9,400
    
    
    
    159.63
    
    
    
    85.53
    
    
    
    157.50
    
    
    
    89.132001 Year
    
    
    11,510
    
    
    
    4,800
    
    
    
    98.12
    
    
    
    39.74
    
    
    
    103.00
    
    
    
    40.752002 1st Quarter
    
    
    7,810
    
    
    
    5,320
    
    
    
    60.68
    
    
    
    39.67
    
    
    
    59.00
    
    
    
    40.002nd Quarter
    
    
    7,380
    
    
    
    5,340
    
    
    
    56.23
    
    
    
    43.70
    
    
    
    57.00
    
    
    
    44.903rd Quarter
    
    
    5,970
    
    
    
    4,700
    
    
    
    49.56
    
    
    
    38.03
    
    
    
    49.65
    
    
    
    38.254th Quarter
    
    
    5,500
    
    
    
    4,060
    
    
    
    44.25
    
    
    
    32.66
    
    
    
    44.25
    
    
    
    32.952003 1st Quarter
    
    
    5,310
    
    
    
    4,300
    
    
    
    43.61
    
    
    
    35.92
    
    
    
    44.36
    
    
    
    37.702nd Quarter
    
    
    6,020
    
    
    
    3,810
    
    
    
    50.00
    
    
    
    31.46
    
    
    
    49.80
    
    
    
    32.403rd Quarter
    
    
    7,890
    
    
    
    5,860
    
    
    
    66.98
    
    
    
    48.63
    
    
    
    67.75
    
    
    
    51.294th Quarter
    
    
    7,800
    
    
    
    6,470
    
    
    
    70.14
    
    
    
    58.66
    
    
    
    72.20
    
    
    
    60.402004 1st Quarter
    
    
    8,350
    
    
    
    7,020
    
    
    
    77.07
    
    
    
    65.67
    
    
    
    77.86
    
    
    
    66.012nd Quarter
    
    
    8,630
    
    
    
    7,130
    
    
    
    77.58
    
    
    
    65.02
    
    
    
    80.10
    
    
    
    64.50Period2004 January
    
    
    8,350
    
    
    
    7,400
    
    
    
    77.07
    
    
    
    69.06
    
    
    
    77.86
    
    
    
    71.15February
    
    
    7,690
    
    
    
    7,020
    
    
    
    72.08
    
    
    
    65.67
    
    
    
    72.30
    
    
    
    66.01March
    
    
    8,230
    
    
    
    7,450
    
    
    
    72.76
    
    
    
    66.57
    
    
    
    76.70
    
    
    
    67.20April
    
    
    8,020
    
    
    
    7,130
    
    
    
    75.21
    
    
    
    65.02
    
    
    
    77.00
    
    
    
    65.30May
    
    
    8,070
    
    
    
    7,320
    
    
    
    72.57
    
    
    
    63.65
    
    
    
    73.00
    
    
    
    64.50June
    
    
    8,630
    
    
    
    7,630
    
    
    
    77.58
    
    
    
    68.77
    
    
    
    80.10
    
    
    
    69.80
     (1)
    
    As reported by the Tokyo Stock Exchange.(2)
    
    Translated at the spot selling rate for dollars prevailing in Tokyo on
the date when each such high or low price was reported.(3)
    
    As reported by the New York Stock Exchange. B. Plan of distribution Not applicable. C. Markets See Item 9.A. Offer and listing details. 49




---



##### Table of Contents



D. Selling shareholders Not applicable. E. Dilution Not applicable. F. Expenses of the issue Not applicable. 50




---



##### Table of Contents



Item 10. Additional Information A. Share capital Not applicable. B. Memorandum and articles of association Organization TDK is a joint stock corporation (kabushiki kaisha)incorporated in Japan
under the Commercial Code (shoho)of Japan. It is registered in the Commercial
Register (shogyo tokibo)maintained by the Tokyo Legal Affairs Bureau. Objects and purposes Article 2 of the Articles of Incorporation of TDK provides that its
purpose is to engage in the following lines of business:  
    
    Manufacture and sale of electric machinery and appliances;
    
    Manufacture and sale of magnetic materials such as ferrite and magnet;
    
    Manufacture and sale of electronic machinery and appliances such as
automatic inserting machine for electronic components, automatic mounter
for electronic components, and electronic measuring equipment and of
components thereof;
    
    Manufacture and sale of recording media such as magnetic tape, floppy
disk and optical disk and of data writing, reading and storage equipment
therefor;
    
    Manufacture and sale of ceramic materials such as electricity inductive
ceramics, piezoelectric ceramics, semiconductor ceramics and electricity
insulating ceramics;
    
    Manufacture and sale of circuit components such as coil and transformers;
    
    Manufacture and sale of semiconductor;
    
    Manufacture and sale of stabilizing power supplies (units to stabilize
electric current or voltage);
    
    Manufacture and sale of machinery and appliances for medical use and
medical instruments and of components thereof;
    
    Manufacture and sale of single crystal materials and each product
applying the same;
    
    Manufacture and sale of precious metals, precious stones, artificial
precious stones and each product applying or utilizing the same;
    
    Manufacture and sale of outer wall materials of buildings and structures;
    
    Designing and contracting of construction work;
    
    Development, production, sale and grant of license of software;
    
    Manufacture, sale and contracting of applied product, machinery and tools
and equipment of each of the foregoing; and
    
    Any and all businesses incidental or relating to each of the foregoing.  51




---



##### Table of Contents



Common Stock General Set forth below is information relating to TDKs Common Stock, including
brief summaries of the relevant provisions of TDKs Articles of Incorporation
and Share Handling Regulations, as currently in effect, and of the Commercial
Code of Japan and related legislation. The discussion of the Commercial Code
below reflects certain amendments to the Commercial Code, which became
effective on April 1, 2003. In order to assert shareholders rights against TDK, a shareholder must
have its name and address registered on TDKs register of shareholders, in
accordance with TDKs Share Handling Regulations. The registered beneficial
holder of deposited shares underlying the ADSs is the Depositary for the ADSs.
Accordingly, holders of ADSs will not be able directly to assert shareholders
rights to TDK. Authorized capital Article 5 of the Articles of Incorporation of TDK provides that the total
number of shares authorized to be issued by TDK is four hundred and eighty
million (480,000,000) shares. As of March 31, 2004, 133,189,659 shares of Common Stock without having
any par value were issued, including 780,207 shares of treasury stock. The concept of par value of shares of capital stock is eliminated under
the Commercial Code of Japan. Thus, all shares of capital stock of TDK have no
par value. Dividends The Articles of Incorporation of TDK provide that the accounts shall be
closed on March 31 of each year and that dividends, if any, shall be paid to
shareholders, beneficial shareholders and pledgees of record as of the end of
such day. After the close of the fiscal period, the Board of Directors
prepares, among other things, a proposed allocation of profits for dividends
and other purposes; this proposal is submitted to the Board of Corporate
Auditors of TDK and to independent certified public accountants and then
submitted for approval to the ordinary general meeting of shareholders, which
is normally held in June each year. In addition to provisions for dividends,
if any, and for the legal reserve and other reserves, the allocation of profits
customarily includes a bonus to Directors. In addition to year-end dividends,
the Board of Directors may by its resolution declare a cash distribution
pursuant to Article 293-5 of the Commercial Code (an interim dividend) to
shareholders, beneficial shareholders and pledgees of record as of the end of
each September 30, without shareholders approval, but subject to the
limitations described below. The Commercial Code provides that a company may not make any distribution
of profit by way of dividends or interim dividends for any fiscal period unless
it has set aside in its legal reserve an amount equal to at least one-tenth of
the amount paid by way of appropriation of retained earnings for such fiscal
period or of the amount of such interim dividends until the aggregate amount of
additional paid-in capital and legal reserve equals to one-quarter of its
stated capital. Under the Commercial Code, TDK is permitted to distribute
profits by way of year-end or interim dividends out of the excess of its net
assets over the aggregate of:  (i)
    
    its stated capital;(ii)
    
    its additional paid-in capital;(iii)
    
    its accumulated legal reserve; 52




---



##### Table of Contents



(iv)
    
    the legal reserve to be set aside in respect of the fiscal period concerned;(v)
    
    such other amounts as are set out in the ordinance of the Ministry of Justice. In the case of interim dividends, TDK may distribute the amount out of the
excess of its net assets as appearing on its non-consolidated balance sheet at
the last fiscal year end, over the aggregate of the amounts stated in (i) to
(iv) above and:  (a)
    
    any subsequent payment made by appropriation of retained
earnings and transfer to legal reserve following the
appropriation;(b)
    
    any subsequent transfer of retained earnings to stated capital;(c)
    
    if a resolution of the ordinary general shareholders meeting
for the last fiscal year authorized TDK to acquire its own share, the
total purchase price of those shares so authorized (see Acquisition
of TDKs Own Shares);(d)
    
    if TDKs Board of Directors resolved the acquisition of its own
 shares in accordance with its Articles of Incorporation, the total
amount of the purchase price resolved by such Board of Directors (see
Acquisition of TDKs Own Shares); and(e)
    
    such other amounts as are set out in the ordinance of the Ministry of Justice. Furthermore, if TDK reduces the amount of its stated capital, additional
paid-in capital or legal reserve after the end of the latest fiscal year, the
amount so reduced, less the amount paid to shareholders upon such reduction and
certain other amounts, as well as such other amounts as are set out in the
ordinance of the Ministry of Justice will be added to the distributable amount
as interim dividends as described above. TDK may not pay any interim dividends where there is a risk that the
amount of TDKs net assets appearing on the non-consolidated balance sheet at
the end of the current fiscal year does not exceed the aggregate of the amounts
referred to in (i) through (v) above. In Japan, the ex-dividend date and record date for dividends precede the
date of determination of the amount of the dividend. The price of shares
generally goes ex-dividend on the third business day prior to the record date. Stock splits Under the Commercial Code, the Board of Directors of TDK may at any time
make stock splits by its resolution. Generally, upon stock splits,
shareholders will not be required to exchange share certificates held by them
for new share certificated. In respect of deposited shares with JASDEC, new
shares resulting from the stock split will automatically be deposited with
JASDEC, and shareholders who directly possess share certificates will receive
additional certificates representing the additional share resulting from the
stock split. Before a stock split, TDK must give public notice of the stock
split, specifying the record date for the stock split, not less than two weeks
prior to the record date. In addition, promptly after the stock split takes
effete, TDK must send notice to each shareholder specifying the number of
entitled shares. Under the Commercial Code, the Board of Directors of TDK may increase the
authorized share capital up to the number reflecting the rate of stock splits
and amend the Articles of Incorporation of TDK without the approval of a
shareholders meeting. General meeting of shareholders The ordinary general meeting of shareholders of TDK for each fiscal year
is normally held in June in each year in Chuo-ku, Tokyo, Japan (address of
principal executive office) or any adjacent place thereto or in Ichikawa-shi,
Chiba, Japan. In addition, TDK may hold an 53




---



##### Table of Contents



extraordinary general meeting of shareholders whenever necessary by giving
notice of convocation thereof at least two weeks prior to the date set for the
meeting. Notice of convocation of a shareholders meeting setting forth the place,
time and purpose thereof, must be mailed to each shareholder having voting
rights (or, in the case of a non-resident shareholder, to his or her standing
proxy or mailing address in Japan) at least two weeks prior to the date set for
the meeting. Under the Commercial Code, such notice may be given to
shareholders by electronic means, subject to the consent by the relevant
shareholders. The record date for an ordinary general meeting of shareholders
is March 31 of each year. Any shareholder or group of shareholders holding at least 3 percent of the
total number of voting rights for a period of six months or more may require
the convocation of a general meeting of shareholders for a particular purpose.
Unless such shareholders meeting is convened promptly or a convocation notice
of a meeting which is to be held not later than eight weeks from the day of
such demand is dispatched, the requiring shareholder may, upon obtaining a
court approval, convene such shareholders meeting. Any shareholder or group of shareholders holding at least 300 voting
rights or 1 percent of the total number of voting rights for a period of six
months or more may propose a matter to be considered at a general meeting of
shareholders by submitting a written request to a Representative Director at
least eight weeks prior to the date set for such meeting. Voting rights So long as TDK maintains the unit share system (see New Unit share
system) a holder of shares constituting one or more whole units is entitled to
one voting right per unit of shares subject to the limitations on voting rights
set forth in the following paragraph. Except as otherwise provided by law or
by the Articles of Incorporation, a resolution can be adopted at a general
meeting of shareholders by a majority of the number of voting rights of all the
shareholders represented at the meeting. The Commercial Code and TDKs
Articles of Incorporation provide, however, that the quorum for the election of
Directors and Corporate Auditors shall not be less than one-third of the total
number of voting rights of all the shareholders. TDKs shareholders are not
entitled to cumulative voting in the election of Directors and Corporate
Auditors. A corporate shareholder who holds more than one-quarter of the total
voting rights that are directly or indirectly owned by TDK may not exercise its
voting rights with respect to shares of Common Stock of TDK that it owns.
Shareholders may exercise their voting rights through proxies, provided that
the proxies are also shareholders holding voting rights. TDKs shareholders
also may cast their votes in writing. Shareholders may also exercise their
voting rights by electronic means when the Board of Directors decides to permit
such method of exercising voting rights. The Commercial Code provides that in order to amend the Articles of
Incorporation and in certain other instances, including a reduction of stated
capital, the removal of a Director or Corporate Auditor, dissolution, merger or
consolidation with a certain exception under which shareholders resolution is
not required, the transfer of the whole or an important part of the business,
the taking over of the whole of the business of any other corporation with a
certain exception under which shareholders resolution is not required, share
exchange or share transfer for the purpose of establishing 100 %
parent-subsidiary relationships with a certain exception under which
shareholders resolution is not required, splitting of the corporation into two
or more corporations with a certain exception under which shareholders
resolution is not required, or any offering of new shares at a specially
favorable price (or any offering of stock acquisition rights to subscribe for
or acquire shares of capital stock (stock acquisition rights) or bonds with
stock acquisition rights at a specially favorable exercise conditions) to any
persons other than shareholders, the quorum shall be one-third of the total
voting rights of all the shareholders and the approval by at least two-thirds
of the voting rights of all the shareholders represented at the meeting is
required (the special shareholders resolutions). 54




---



##### Table of Contents



Issue of additional shares and pre-emptive rights Holders of TDKs shares of Common Stock have no pre-emptive rights under
its Articles of Incorporation. Authorized but unissued shares may be issued at
such times and upon such terms as the Board of Directors determines, subject to
the limitations as to the offering of new shares at a specially favorable
price mentioned under Voting rightsabove. The Board of Directors may,
however, determine that shareholders shall be given subscription rights
regarding a particular issue of new shares, in which case such rights must be
given on uniform terms to all shareholders as at a record date of which not
less than two weeks prior public notice must be given. Each of the
shareholders to whom such rights are given must also be given notice of the
expiry thereof at least two weeks prior to the date on which such rights
expire. Rights to subscribe for new shares may be made generally transferable by
the Board of Directors. Whether TDK will make subscription rights generally
transferable in future rights offerings will depend upon the circumstances at
the time of such offerings. If subscription rights are not made generally
transferable, transfers by a non-resident of Japan or a corporation organized
under the laws of a foreign country or whose principal office is located in a
foreign country will be enforceable against TDK and third parties only if TDKs
prior written consent to each such transfer is obtained. When such consent is
necessary in the future for the transfer of subscription rights, TDK intends to
consent, on request, to all such transfers by such a non-resident or foreign
corporation. Subject to certain requirements, TDK may issue stock acquisition rights by
a resolution of the Board of Directors. Holders of stock acquisition rights
may exercise their rights to acquire a certain number of shares within the
exercise period as prescribed in the terms of their stock acquisition rights.
Upon exercise of stock acquisition rights, TDK will be obliged to issue the
relevant number of new shares or alternatively to transfer the necessary number
of existing shares held by it (treasury stock). Liquidation rights In the event of a liquidation of TDK, the assets remaining after payment
of all debts and liquidation expenses and taxes will be distributed among
shareholders in proportion to the respective numbers of shares of common stock
held. Record date March 31 is the record date for TDKs year-end dividends. So long as TDK
maintains in its Articles of Incorporation a provision for the unit of shares,
the shareholders and beneficial shareholders who are registered as the holders
of one unit of shares or more in TDKs registers of shareholders and/or
beneficial shareholders at the end of each March 31 are also entitled to
exercise shareholders rights at the ordinary general meeting of shareholders
with respect to the fiscal year ending on such March 31. September 30 is the
record date for interim dividends. In addition, TDK may set a record date for
determining the shareholders and/or beneficial shareholders entitled to other
rights and for other purposes by giving at least two weeks prior public
notice. The price of shares generally goes ex-dividends or ex-rights on Japanese
stock exchanges on the third business day prior to a record date (or if the
record date is not a business day, the fourth business day prior thereto), for
the purpose of dividends or rights offerings. Acquisition of TDKs Own Shares TDK may acquire its own shares (i) by way of purchase on any Japanese
stock exchange on which its shares are listed or by way of tender offer
(pursuant to a resolution of the Board of Directors because the Articles of
Incorporation of TDK were amended so as to allow TDK to purchase its own shares
in accordance with the revised Commercial Code), (ii) from a specific
shareholder other than its subsidiary (pursuant to a special resolution of an 55




---



##### Table of Contents



ordinary general meeting of shareholders), or (iii) from its subsidiary
(pursuant to resolution of the Board of Directors). In the case of (ii) above,
any other shareholder may make a request directly to a representative director
in writing, five days prior to the relevant shareholders meeting, to include
such other shareholder as the seller of shares in the proposed purchase. Any such acquisition of TDKs shares must satisfy certain requirements,
including that the total amount of the purchase price may not exceed the amount
of the retained earnings available for annual dividend payments after taking
into account any reduction of the stated capital, additional paid-in capital or
legal reserve (if such reduction is authorized by a resolution of the relevant
general meeting of shareholders) less the sum of the amount to be paid by way
of appropriation of retained earnings and the amount of retained earnings to be
transferred to the stated capital in respect of the relevant fiscal year
pursuant to a resolution of such general meeting of shareholders. In the case
of purchase of TDKs own shares by it pursuant to resolution of the Board of
Directors mentioned in (i) or (iii) above, however, the total amount of the
purchase price of such shares may not exceed the amount distributable as
interim dividends, as described in Dividends above, less the amount of the
interim dividends actually paid. However, if it is anticipated that the net
assets, as stated on its non-consolidated balance sheet at the end of the
fiscal year, will be less than the aggregate amount of items described in (i)
through (v) in Dividends above, TDK may not purchase such shares. TDK may hold the shares so acquired in compliance with the provisions of
the Commercial Code of Japan, and may generally dispose of or cancel such
shares by a resolution of the Board of Directors, subject to the limitation as
to the offering of treasury shares at a specially favorable price mentioned
in Voting Rights above. New Unit share system A new unit share system called tangen-kabushiki has been introduced. Pursuant to the Articles of Incorporation of TDK, 100 shares of TDK
constitute one unit. Although the number of shares constituting a new unit is
included in the Articles of Incorporation, any amendment to the Articles of
Incorporation reducing (but not increasing) the number of shares constituting a
unit or eliminating the provisions for the unit of shares may be made by the
resolution of the Board of Directors rather than by the special shareholders
resolution, which is otherwise required for amending the Articles of
Incorporation. The number of shares constituting one new unit, however, cannot
exceed 1,000 or one two-hundredth (1/200) of all issued shares.  Voting rights under the new unit share system Under the new unit share system, shareholders shall have one voting right
for each unit of shares that they hold. Any number of shares less than a full
unit will carry no voting rights.  Share certificates for less than a unit Unless TDKs Board of Directors adopts a resolution to eliminate the
provision for the unit shares from the Articles of Incorporation or the
shareholders amend the Articles of Incorporation by a special shareholders
resolution to eliminate the provision not to issue share certificates for less
than a unit of shares, a share certificate for any number of shares less than a
unit will in general not be issued. As the transfer of shares normally
requires the delivery of the share certificates therefor, any fraction of a
unit for which no share certificates are issued is not transferable. 56




---



##### Table of Contents



 Repurchase by TDK of shares constituting less than a unit A holder of shares constituting less than one unit may require TDK to
purchase such shares at their market value in accordance with the provisions of
the Share Handling Regulations of TDK.  Effect of the unit share system on holders of ADRs A holder who owns ADRs evidencing less than 100 ADSs will indirectly own
less than a whole unit of shares of Common Stock. Although, as discussed
above, under the unit share system holders of less than a unit have the right
to require TDK to purchase their shares, holders of ADRs evidencing ADSs that
represent other than integral multiples of whole units are unable to withdraw
the underlying shares of Common Stock representing less than a unit and,
therefore, are unable, as a practical matter, to exercise the rights to require
TDK to purchase such underlying shares unless TDKs Articles of Incorporation
are amended to eliminate the provision not to issue share certificates for the
numbers of shares less than a unit. As a result, access to the Japanese
markets by holders of ADRs through the withdrawal mechanism will not be
available for dispositions of shares of Common Stock in lots less than a unit.
The unit share system does not affect the transferability of ADSs, which may be
transferred in lots of any size. Reporting of substantial shareholdings The Securities and Exchange Law of Japan and regulations thereunder
require any person who has become, beneficially and solely or jointly, a holder
of more than 5 percent of the total issued shares of capital stock of a company
listed on any Japanese stock exchange or whose shares are traded on the
over-the-counter market in Japan to file with the Director-General of a
competent Local Finance Bureau of the Ministry of Finance within five business
days a report concerning such shareholdings. A similar report must also be filed in respect of any subsequent change of
1 percent or more in any such holding or any change in material matters set out
in reports previously filed, with certain exceptions. For this purpose, shares
issuable to such person upon conversion of convertible securities or exercise
of share subscription warrants or stock acquisition rights are taken into
account in determining both the number of shares held by such holder and the
issuers total issued share capital. Copies of such report must also be
furnished to the issuer of such shares and all Japanese stock exchanges on
which the shares are listed or (in the case of shares traded over-the-counter)
the Japan Securities Dealers Association. Except for the general limitation under Japanese anti-trust and
anti-monopoly regulations against holding of shares of capital stock of a
Japanese corporation which leads or may lead to a restraint of trade or
monopoly, and except for general limitations under the Commercial Code or TDKs
Articles of Incorporation on the rights of shareholders applicable regardless
of residence or nationality, there is no limitation under Japanese laws and
regulations applicable to TDK or under its Articles of Incorporation on the
rights of non-resident or foreign shareholders to hold the shares of Common
Stock of TDK or exercise voting rights thereon. There is no provision in TDKs Articles of Incorporation that would have
an effect of delaying, deferring or preventing a change in control of TDK and
that would operate only with respect to merger, consolidation, acquisition or
corporate restructuring involving TDK. C. Material contracts All contracts entered into by TDK during the two years prior to the date
of this annual report were entered into in the ordinary course of business. 57




---



##### Table of Contents



D. Exchange controls Japanese Foreign Exchange
Regulations The Foreign Exchange and Foreign Trade Law of Japan, frequently referred
to as the Foreign Exchange Law, and the cabinet orders and ministerial
ordinances thereunder govern the issuance of shares by companies and the
acquisition and holding of shares by exchange non-residents and foreign
investors under the Foreign Exchange Law. Exchange non-residents are:  
    
    individuals who do not reside in Japan; and
    
    corporations whose principal offices are not located in Japan. Generally, branches and other offices located within Japan of non-resident
corporations are regarded as exchange residents of Japan and branches and other
offices of Japanese corporations located outside Japan are regarded as exchange
non-residents of Japan. Foreign investors are:  
    
    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% 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. Due to the amendments to the Foreign Exchange Law effective on April 1,
1998, all aspects of foreign exchange and foreign trade transactions that were
previously subject to licensing or other prior notifications or approvals, with
minor exceptions, were changed to require only post-transaction reporting.
However, the Minister of Finance of Japan will have the power to impose
licensing requirements for transactions in limited circumstances. Potential Consequences Resulting from an Acquisition of Listed Shares In the event that a foreign investor acquires shares of a Japanese company
listed on a Japanese stock exchange or traded on an over-the-counter market in
Japan (listed shares) and if the foreign investors direct and indirect total
holdings are 10% or more of the issued shares of the company after the
acquisition, the foreign investor must file a report of the acquisition with
the Minister of Finance and any other competent Minister within 15 days from
and including the date of such acquisition. However, in certain limited
circumstances (including the case where the acquisition of the shares reaches
10%), a prior notification of such an acquisition must be filed with the
Minister of Finance and any other competent Minister, who may then modify or
prohibit the proposed acquisition. The acquisition of shares by exchange
non-residents as a result of stock splits is not subject to any of the
foregoing requirements. Potential Consequences Resulting from Dividends and Proceeds of Sales Under the current Foreign Exchange Law, dividends paid on, and the
proceeds of sales in Japan of, shares held by exchange non-residents may, in
general, be converted into foreign currency and repatriated abroad. Potential Consequences Resulting from the Sale of Securities to Exchange Non-Resident A Japanese resident is required to file a report with the Minister of
Finance concerning the transfer of securities for value exceeding ¥100 million
to an exchange non-resident within 58




---



##### Table of Contents



20 days of the date of the transfer. If an exchange resident issues or
offers its securities for value of ¥1 billion or more outside Japan, the
exchange resident must file a report of the issuance or offering of securities
with the Minister of Finance within 20 days of the date of the closing. American Depositary Shares The deposit of shares of Common Stock by a non-resident of Japan, the
issuance of ADRs in exchange therefor and the withdrawal of the underlying
shares of Common Stock upon surrender of ADRs are not subject to any
formalities or restrictions referred to under Potential Consequences Resulting
from an Acquisition of Listed Shares above, except where, as a result of such
deposit or withdrawal, the aggregate number of shares held by the depositary
(or its nominee) or the holder surrendering ADRs, as the case may be, would be
10% or more of the total outstanding shares of Common Stock, in which event the
reporting to the Minister of Finance of Japan may be required as outlined in
the second sentence under the same heading. Reporting of Substantial Shareholdings The Securities and Exchange Law of Japan, as amended, requires any person
who has become a beneficial holder (including certain sole or joint holders) of
more than five percent of the total outstanding voting shares of a company
listed on any Japanese stock exchange or traded on the over-the-counter markets
in Japan, to file with the Minister of Finance of Japan, within five business
days, a report concerning such share holdings, with certain exceptions in case
the issuer thereof is a foreign company. A similar report must also be made
(with certain exceptions) if the ratio of such holding subsequently changes by
one percent or more. Copies of any such report must also be furnished to the
issuer of such shares and to all Japanese stock exchanges on which the shares
are listed or the Japan Securities Dealers Association in the case of
over-the-counter shares. For this purpose, shares issuable upon conversion of
convertible securities or exercise of stock acquisition rights are taken into
account in determining both the number of shares held by such holder and the
issuers total number of outstanding shares. E. Taxation Dividends, Stock Splits and Repurchase Generally, a non-resident of Japan or a non-Japanese corporation is
subject to Japanese withholding tax on dividends paid by Japanese corporations.
Stock splits are not subject to Japanese income tax. However, a transfer of
retained earnings or legal reserve (but, in general, not additional paid-in
capital) to stated capital (whether made in connection with a stock split or
otherwise) is treated as a dividend payment to shareholders for Japanese tax
purposes and is, in general, subject to Japanese income tax. The rate of Japanese withholding tax applicable to dividends on TDKs
shares paid by TDK to non-resident shareholders is 7 percent for dividends paid
on or before March 31, 2008 and 15 percent thereafter, except for any
individual shareholder who holds 5 percent or more of the issued shares, for
whom the applicable rate is 20 percent. Japan has income tax treaties, conventions or agreements which generally
provide that the withholding tax rate may not exceed 15 percent for portfolio
investors with, among others, Australia, Belgium, Canada, Denmark, Finland,
France, Germany, Ireland, Italy, Luxembourg, The Netherlands, New Zealand,
Norway, Singapore, Spain, Sweden, Switzerland, the United Kingdom and the
United States. In case of the Japan-U.S. tax treaty, however, as a result of a
recent amendment, the maximum withholding tax rate has been reduced, generally
to 10 percent for portfolio investors effective from July 1, 2004. Under
Japanese tax law, the maximum rate applicable under the tax treaties,
conventions or 59




---



##### Table of Contents



agreements shall be applicable except when such maximum rate is more than
the Japanese statutory rate. Acquisition or Disposal of Shares or ADRs Gains derived by a non-resident of Japan or a non-Japanese corporation
from the sale outside Japan of Shares or ADRs, or from the sale of Shares or
ADRs within Japan by a non-resident of Japan or a non-Japanese corporation not
having a permanent establishment in Japan are in general not subject to
Japanese income tax. Japanese inheritance and gift taxes at progressive rates may be payable by
an individual who has acquired Shares or ADRs as a legatee, heir or donee. F. Dividends and paying agents Not applicable. G. Statements by experts Not applicable. H. Documents on display According to the Securities Exchange Act of 1934, as amended, TDK is
subject to the requirements of informational disclosure. TDK files various
reports and other information, including Form 20-F and Annual Reports, with the
Securities Exchange Commission and the New York Stock Exchange. These reports
may be inspected at the following sites.  Securities Exchange Commission:
450 Fifth Street, N.W., Washington D.C. 20549New York Stock Exchange:
20 Broad Street, New York, New York 10005 Form 20-F is also available at the Electronic Data Gathering, Analysis,
Retrieval system (EDGAR) website maintained by the Securities Exchange
Commission.  Securities Exchange Commission Home Page:
http://www.sec.gov I. Subsidiary information Not applicable. 60




---



##### Table of Contents



Item 11. Quantitative and Qualitative Disclosures about Market Risk Market risk exposure TDK is subject to market risk associated with changes in stock prices,
interest rates and foreign currency exchange rates. Foreign exchange risk is
considered as the primary market risk exposure. TDK has a policy for the
procedures and controls to manage market risk sensitive instruments. In order
to hedge interest rate risk and foreign currency exchange rate risk, TDK uses
derivative financial instruments. TDK does not hold or issue derivative
financial instruments for trading purposes. Foreign exchange and
interest rate risk Forward exchange contracts and currency swap contracts have been entered
into to hedge adverse effects of foreign currency exchange rate fluctuations
mainly on foreign-currency-denominated trade receivables and
foreign-currency-denominated forecasted transactions. At March 31, 2004 and 2003, TDK and certain of its subsidiaries had
forward exchange contracts to sell and buy foreign currencies (principally U.S.
dollars and Japanese Yen) and currency option contracts for a contract amount
of ¥34,978 million ($329,981 thousand) and ¥19,016 million, respectively. TDK and one of its subsidiaries have currency swaps and interest rate and
currency swaps with certain financial institutions to limit their exposure to
fluctuations in foreign exchange rates and interest rates involved mainly in
loans made by TDK to its subsidiaries in a total amount of ¥12,605 million
($118,915 thousand) and ¥13,794 million at March 31, 2004 and 2003,
respectively. These swaps require TDK and the subsidiary to pay principally
euros and U.S. dollars and to receive Japanese yen at a specified rate on
specific dates. The remaining terms of these swaps range from one month to six
months as of March 31, 2004. The following table provides information about
TDKs derivative instruments related to foreign exchange risk as of March 31,
2004 and 2003. 2004
    
    2003Forward exchange contracts
    
    (millions of yen)
    
    
    
    
    
    (millions of yen)Contract
amounts
    
    Fair
value
    
    Average
contractual
rate
    
    Contract
amounts
    
    Fair
value
    
    Average
contractual
rateTo sell Malaysian Ringgit/receive USD
    
    ¥
    859
    
    
    ¥
    (7
    )
    
    
    3.86
    
    
    ¥
    3,574
    
    
    ¥
    (23
    )
    
    
    3.85To sell USD/receive Yen
    
    
    17,779
    
    
    
    403
    
    
    
    107.75
    
    
    
    14,441
    
    
    
    42
    
    
    
    120.34To buy Euro/sell Yen
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,001
    
    
    
    20
    
    
    
    126.20Total
    
    ¥
    18,638
    
    
    ¥
    396
    
    
    
    
    
    
    ¥
    19,016
    
    
    ¥
    39
 2004
    
    2003Currency option contracts
    
    (millions of yen)
    
    
    
    
    
    (millions of yen)Contract
amounts
    
    Fair
value
    
    Average
contractual
rate
    
    Contract
amounts
    
    Fair
value
    
    Average
contractual
rateTo sell USD/receive Yen
    
    ¥
    16,340
    
    
    ¥
    91
    
    
    
    108.00
    
    
    ¥
    
    
    
    ¥
    
    
    
    
    Total
    
    ¥
    16,340
    
    
    ¥
    91
    
    
    
    
    
    
    ¥
    
    
    
    ¥
    
 2004
    
    2003Currency swap contracts
    
    (millions of yen)
    
    
    
    
    
    (millions of yen)Contract
amounts
    
    Fair
value
    
    Average
contractual
rate
    
    Contract
amounts
    
    Fair
value
    
    Average
contractual
rateTo receive Euro/pay GBP
    
    ¥
    3,910
    
    
    ¥
    (35
    )
    
    
    0.68
    
    
    ¥
    758
    
    
    ¥
    6
    
    
    
    0.68To receive USD/pay Yen
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,234
    
    
    
    (57
    )
    
    
    117.60To receive Yen/pay Euro
    
    
    8,695
    
    
    
    287
    
    
    
    133.77
    
    
    
    10,802
    
    
    
    (236
    )
    
    
    127.08Total
    
    ¥
    12,605
    
    
    ¥
    252
    
    
    
    
    
    
    ¥
    13,794
    
    
    ¥
    (287
    )
 61




---



##### Table of Contents



TDKs exposure to market risk for changes in interest rates relates
primarily to its debt securities. TDK has debt securities with fixed rates.
TDK, to the extent possible, plans to limit debt securities to short-term debt
securities. TDK believes that the fair values of interest rate sensitive
instruments as of March 31, 2004 and 2003, and potential, near-term losses
affecting future earnings, fair values, and/or cash flows from reasonable
near-term changes in interest rates are immaterial. Stock price risk TDKs exposure to market risk involving changes in stock prices relates to
its equity securities categorized as available-for-sale securities. TDK holds
these securities in order to maintain business relationships with investee
companies for TDKs activities and has a policy and control procedures for
these stock holdings. The aggregate cost and fair value of these equity
securities were ¥2,782 million ($26,246 thousand) and ¥3,836 million ($36,189
thousand) as of March 31, 2004, and ¥1,500 million and ¥1,682 million as of
March 31, 2003, respectively. As of March 31, 2004, the industries in which
the issuers operate were mainly communications and electronic equipment
industries, and the cost and fair value of the equity securities were ¥2,425
million ($22,877 thousand) and ¥3,307 million ($31,198 thousand). And as of
March 31, 2003, the industry in which the issuers operate was mainly
communications and electronic equipment industries, and both the cost and fair
value of the equity securities were ¥1,300 million. 
 Item 12. Description of Securities Other than Equity Securities Not applicable. 62




---



##### Table of Contents



PART 2 
 Item 13. Defaults, Dividend Arrearages and Delinquencies None. 
 Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds None. 
 Item 15. Controls and Procedures (a) Evaluations of disclosure controls and procedures TDKs Chief Executive Officer and Chief Financial Officer, after
evaluating the effectiveness of its disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of March 31, 2004
(the Evaluation Date), the end of the period covered by this Annual Report,
have concluded that, as of the Evaluation Date, TDKs disclosure controls and
procedures were adequate and effective and designed to ensure that material
information relating to TDK and its consolidated subsidiaries is made known to
the Chief Executive Officer and the Chief Financial Officer by others within
TDK and its consolidated subsidiaries. (b) Changes in internal controls There were no significant changes in TDKs internal control over financial
reporting that occurred during the period covered by this Annual Report that
has materially affected, or is reasonably likely to materially affect, the
issuers internal control over financial reporting. 
 Item 16A. Audit Committee Financial Expert The registrant, a foreign private issuer, has at least one audit
committee financial expert serving on its board of auditors. TDKs board of
auditors has determined that Mr. Ryoichi Ohno qualifies as an audit committee
financial experts as defined by the rules of SEC and is
independent as such term is defined under the NYSE
Listing Standards. Mr. Ohno was registered as
a U.S. Certified Public Accountant in 1988 and elected as one of TDKs
corporate auditors at an Ordinary General Meeting of Shareholders held in June
2004. See Item 6.A. for additional information regarding Mr. Ohno. 
 Item 16B. Code of Ethics TDK has established a code of business ethics (TDK Code of Ethics) and
is actively pursuing to promote ethical business practices on a worldwide
basis. The TDK Business Ethics Committee has been charged with the oversight of
the ethics program at TDK. It has built a global ethics framework which
encompasses domestic and overseas consolidated subsidiaries. Built into the
framework is a direct communication means called the helpline for employees
to report matters relating to business ethics issues and offer suggestions.
The TDK Code of Ethics is attached as exhibit to this annual report. 63




---



##### Table of Contents



Item 16C. Principal Accountant Fees and Services The following table discloses the aggregate fees accrued or paid to KPMG
AZSA & Co. and KPMG International member firms for each of the last two fiscal
years and briefly describes the services performed: (Yen in millions)Year ended March 31,2003
    
    2004Audit fees
    
    
    280
    
    
    
    265Audit-related fees
    
    
    5
    
    
    
    8Tax fees
    
    
    102
    
    
    
    169All other fees
    
    
    1
    
    
    
    5Total
    
    
    388
    
    
    
    447
 Audit fees consist of fees for Audit Services. Audit Services are
professional services rendered by the Principal Auditor for the audit of TDKs
annual financial statements and services that are normally provided by the
Principal Auditor in connection with statutory and regulatory filings or
engagements: (i) Services associated with statutory audits; and (ii) Services
associated with U.S. SEC registration statements. Audit-related fees consist of fees for Audit-Related Services.
Audit-Related Services are professional services relating to the Audit
Services: (i) Audits of employee benefit plans; and (ii) Sarbanes-Oxley Act
related assistance service. Tax fees consist of fees for Tax Services: (i) Federal and local tax
compliance; (ii) Review of federal, local and international income, franchise,
and other tax returns; (iii) Transfer pricing documentation; and (iv) Domestic
and foreign indirect taxes. Audit and Non-Audit Services Pre-Approval Policy Subject to the confirmation as stipulated below, no pre-approval of the
Board of Directors, in the context of the United States Sarbanes-Oxley Act of
2002 (Sarbox Act) or the U.S. SEC rules, is required for any non-audit
services rendered by any Non-Outside Auditor. Any contracts involving such
services shall be processed in the usual manner in accordance with the
applicable laws, in-house rules or any other regulations. Any person who wishes to retain a Non-Outside Auditor for non-audit
services (Retainer) is not allowed to do so unless both of the following
conditions are met:  (i)
    
    The Retainer has received a letter of confirmation from such a
public accounting firm that the public accounting firm is neither an
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. The foregoing letter of confirmation shall be regularly renewed at least
once every 12 months and the manager of the Pre-Approval Database described in
that Database shall update the list of associated persons to reflect changes or
modifications as reported by the Outside Auditor. The types of services generally described in above explanation for audit
fees, audit-related fees and tax fees shall be pre-approved by the Board of
Directors. Those services described are provided for the sake of establishing
general criteria as to the types of 64




---



##### Table of Contents



services requiring pre-approval. The Board of Directors shall evaluate
and determine whether or not to pre-approve each application for such services. TDK is prohibited from causing the Outside Auditor to provide, and the
Outside Auditor is prohibited from rendering such services generally described
followings: (i) Bookkeeping or other services related to the accounting records
or financial statements of the audit client; (ii) Financial information systems
design and implementation; (iii) Appraisal or valuation services, fairness
opinions or contribution-in-kind reports; (iv) Actuarial services; (v) Internal
audit outsourcing services; (vi) Management functions or human resources; (vii)
Broker or dealer, investment adviser or investment banking services; (viii)
Legal services and expert services unrelated to the audit; and (ix) Any other
service that the Board of Directors determines, by regulation, is
impermissible. When such an application is received, the Board of Directors
must not pre-approve the application. In accordance with the Sarbox Act and related SEC Rules, audit or
non-audit services which do not fit in with any of the types generally
described in above explanation for audit fees, audit-related fees and tax fees
may have to be pre-approved by the Board of Directors. The Board of Directors
shall evaluate and determine whether or not to pre-approve each application for
such services. TDK may engage the Outside Auditor to render an audit or non-audit service
pursuant to this policy without obtaining individual pre-approval by the
Board of Directors, provided that all of the following conditions are met:  (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). The Appointed Director must confirm whether an audit or non-audit service
to be rendered by the Outside Auditor meet the foregoing conditions. The
Appointed Director also shall report to the Board of Directors all audit and
non-audit services in which the Outside Auditor is engaged in accordance with
this Section. The Board of Directors must appoint a director as the Appointed
Director and after the appointment the Appointed Director must be listed in the
Pre-Approval Database. Any divisions or departments of TDK, which contemplate or attempt to
receive audit or non-audit services from Outside Auditor or Non-Outside
Auditor, shall report its intention and submit designated information, using
the Pre-Approval Database. The Appointed Director must evaluate such audit or non-audit services to
be rendered either by the Outside Auditor or Non-Outside Auditor reported
electronically through the Pre-Approval Database and must confirm whether any
given reported services requires pre-approval by the Board of Directors. The
Appointed Director shall request pre-approval to the Board of Directors if
pre-approval by the Board of Directors is required. In making determination, the Board of Directors is required to consider
the following:  (i)
    
    Whether the Outside Auditor cannot
function in the role of management;(ii)
    
    Whether the Outside Auditor cannot
audit its own work; and 65




---



##### Table of Contents



(iii)
    
    Whether the Outside Auditor cannot
serve in an advocacy role for its client. The Board of Directors must not pre-approve, in the absence of strong
countervailing considerations, non-audit services proposed to be performed by
the Outside Auditor if the total amount of fees payable to the Outside Auditor
by TDK on account of non-audit services with respect to any fiscal year exceeds
the total amount of audit fees payable to the Outside Auditor by TDK with
respect to such year. 
 Item 16D. Exemptions from Listing Standards for Audit Committees Not applicable. 
 Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers Not applicable. 66




---



##### Table of Contents



PART 3 
 Item 17. Financial Statements Index of Consolidated Financial Statements of TDK Corporation and subsidiaries: PageReport of Independent Registered Public Accounting Firm
    
    
    68Consolidated Balance Sheets as of March 31, 2004 and 2003
    
    
    69Consolidated Statements of Operations
for the years ended March 31, 2004, 2003 and 2002
    
    
    71Consolidated Statements of Stockholders Equity
for the years ended March 31, 2004, 2003 and 2002
    
    
    72Consolidated Statements of Cash Flows
for the years ended March 31, 2004, 2003 and 2002
    
    
    73Notes to Consolidated Financial Statements
    
    
    74Schedule for the years ended March 31, 2004, 2003 and 2002:Schedule II  Valuation and Qualifying Accounts
    
    
    102
 Schedules other than those listed above have been omitted as they are not
applicable or the information is presented in the consolidated financial
statements and related notes. Financial statements of 50 percent or less owned persons accounted for by
the equity method have been omitted as, in the aggregate, they do not meet the
tests of a significant subsidiary at a 20 percent level as of or for the years
ended March 31, 2004, 2003 and 2002. 67




---



##### Table of Contents



Report of Independent Registered Public Accounting Firm The Board of Directors and Stockholders
TDK Corporation: We have audited the consolidated financial statements of TDK Corporation
and subsidiaries as listed in the accompanying index, all expressed in yen. In
connection with our audits of the consolidated financial statements, we also
have audited the financial statement schedule as listed in the accompanying
index. These consolidated financial statements and financial statement
schedule are the responsibility of the Companys management. Our
responsibility is to express an opinion on these consolidated financial
statements and financial statement schedule based on our audits. We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion. The Companys consolidated financial statements do not disclose certain
information required by Statement of Financial Accounting Standards No. 131,
Disclosures about Segments of an Enterprise and Related Information. In our
opinion, disclosure of this information is required by accounting principles
generally accepted in the United States of America. In our opinion, except for the omission of the segment information as
discussed in the preceding paragraph, the consolidated financial statements
referred to above present fairly, in all material respects, the financial
position of TDK Corporation and subsidiaries as of March 31, 2004 and 2003, and
the results of their operations and their cash flows for each of the years in
the three-year period ended March 31, 2004, in conformity with accounting
principles generally accepted in the United States of America. Also in our
opinion, the related financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein. The accompanying consolidated financial statements as of and for the year
ended March 31, 2004, have been translated into United States dollars solely
for the convenience of the reader. We have recomputed the translation and, in
our opinion, the consolidated financial statements expressed in yen have been
translated into United States dollars on the basis set forth in note 2 to the
consolidated financial statements. /s/ KPMG AZSA & Co. Tokyo, Japan
April 28, 2004 68




---



##### Table of Contents



Consolidated balance sheets
As of March 31, 2004 and 2003 U.S. Dollars(Thousands)Yen (Millions)
    
    (Note 2)2004
    
    2003
    
    2004ASSETSCurrent assets:Cash and cash equivalents
    
    ¥
    227,155
    
    
    
    170,551
    
    
    $
    2,142,972Marketable securities (Note 4)
    
    
    402
    
    
    
    
    
    
    
    3,792Trade receivables (Note 19):Notes
    
    
    6,431
    
    
    
    7,750
    
    
    
    60,670Accounts
    
    
    133,900
    
    
    
    135,123
    
    
    
    1,263,208Allowance for doubtful receivables
    
    
    (2,000
    )
    
    
    (2,850
    )
    
    
    (18,868
    )Net trade receivables
    
    
    138,331
    
    
    
    140,023
    
    
    
    1,305,010Inventories (Note 5)
    
    
    77,301
    
    
    
    73,917
    
    
    
    729,255Income tax receivables (Note 7)
    
    
    763
    
    
    
    2,765
    
    
    
    7,198Prepaid expenses and other current assets (Note 7)
    
    
    31,821
    
    
    
    33,706
    
    
    
    300,198Total current assets
    
    
    475,773
    
    
    
    420,962
    
    
    
    4,488,425Investments in securities(Note 4)
    
    
    18,381
    
    
    
    18,722
    
    
    
    173,406Property, plant and equipment, at cost:Land
    
    
    20,464
    
    
    
    21,284
    
    
    
    193,057Buildings
    
    
    176,256
    
    
    
    178,959
    
    
    
    1,662,792Machinery and equipment
    
    
    471,247
    
    
    
    489,131
    
    
    
    4,445,726Construction in progress
    
    
    10,312
    
    
    
    9,362
    
    
    
    97,283678,279
    
    
    
    698,736
    
    
    
    6,398,858Less accumulated depreciation
    
    
    469,334
    
    
    
    472,829
    
    
    
    4,427,679Net property, plant and equipment
    
    
    208,945
    
    
    
    225,907
    
    
    
    1,971,179Goodwill(Note 17)
    
    
    10,029
    
    
    
    14,131
    
    
    
    94,613Intangible assets(Note 17)
    
    
    15,027
    
    
    
    16,418
    
    
    
    141,764Deferred income taxes(Note 7)
    
    
    34,140
    
    
    
    43,948
    
    
    
    322,075Other assets(Note 12)
    
    
    8,024
    
    
    
    7,249
    
    
    
    75,698¥
    770,319
    
    
    
    747,337
    
    
    $
    7,267,160
 See accompanying notes to consolidated financial statements. 69




---



##### Table of Contents



U.S. Dollars(Thousands)Yen (Millions)
    
    (Note 2)2004
    
    2003
    
    2004LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Short-term debt (Note 6)
    
    ¥
    315
    
    
    
    1,431
    
    
    $
    2,972Current installments of long-term debt (Note 6)
    
    
    101
    
    
    
    488
    
    
    
    953Trade payables:Notes
    
    
    635
    
    
    
    824
    
    
    
    5,990Accounts
    
    
    59,282
    
    
    
    56,136
    
    
    
    559,264Accrued salaries and wages
    
    
    12,085
    
    
    
    11,483
    
    
    
    114,009Accrued expenses (Note 16)
    
    
    33,449
    
    
    
    28,088
    
    
    
    315,557Income taxes payables (Note 7)
    
    
    4,689
    
    
    
    1,057
    
    
    
    44,236Other current liabilities (Note 7)
    
    
    4,662
    
    
    
    5,507
    
    
    
    43,981Total current liabilities
    
    
    115,218
    
    
    
    105,014
    
    
    
    1,086,962Long-term debt, excluding current installments(Note 6)
    
    
    27
    
    
    
    94
    
    
    
    255Retirement and severance benefits(Note 8)
    
    
    73,521
    
    
    
    84,971
    
    
    
    693,594Deferred income taxes(Note 7)
    
    
    215
    
    
    
    13
    
    
    
    2,028Other noncurrent liabilities
    
    
    1,843
    
    
    
    
    
    
    
    17,387Commitments and contingent liabilities(Notes 12 and 13)
    
    
    
    
    
    
    
    
    
    
    Total liabilities
    
    
    190,824
    
    
    
    190,092
    
    
    
    1,800,226Minority interests
    
    
    3,276
    
    
    
    3,360
    
    
    
    30,906Stockholders equity:Common stock:Authorized 480,000,000 shares;
Issued 133,189,659 shares in 2004 and 2003;

Outstanding 132,409,452 shares in 2004
and 132,625,184 shares in 2003
    
    
    32,641
    
    
    
    32,641
    
    
    
    307,934Additional paid-in capital
    
    
    63,051
    
    
    
    63,051
    
    
    
    594,821Legal reserve (Note 9)
    
    
    16,497
    
    
    
    15,953
    
    
    
    155,632Retained earnings (Note 9)
    
    
    560,756
    
    
    
    525,919
    
    
    
    5,290,151Accumulated other comprehensive income (loss) (Notes 7, 8 and 11)
    
    
    (90,387
    )
    
    
    (78,824
    )
    
    
    (852,708
    )Treasury stock at cost; 780,207 shares in 2004
and 564,475 shares in 2003 (Note 10)
    
    
    (6,339
    )
    
    
    (4,855
    )
    
    
    (59,802
    )Total stockholders equity
    
    
    576,219
    
    
    
    553,885
    
    
    
    5,436,028¥
    770,319
    
    
    
    747,337
    
    
    $
    7,267,160
 70




---



##### Table of Contents



Consolidated statements of operations
For the years ended March 31, 2004, 2003 and 2002 U.S. Dollars(Thousands)Yen (Millions)
    
    (Note 2)2004
    
    2003
    
    2002
    
    2004Net sales (Note 19)
    
    ¥
    658,862
    
    
    
    608,880
    
    
    
    570,511
    
    
    $
    6,215,679Cost of sales
    
    
    474,106
    
    
    
    459,616
    
    
    
    464,620
    
    
    
    4,472,698Gross profit
    
    
    184,756
    
    
    
    149,264
    
    
    
    105,891
    
    
    
    1,742,981Selling, general and administrative expenses
    
    
    130,434
    
    
    
    121,839
    
    
    
    123,741
    
    
    
    1,230,509Restructuring cost (Note 16)
    
    
    
    
    
    
    5,345
    
    
    
    25,872
    
    
    
    Operating income (loss)
    
    
    54,322
    
    
    
    22,080
    
    
    
    (43,722
    )
    
    
    512,472Other income (deductions):Interest and dividend income
    
    
    1,189
    
    
    
    1,379
    
    
    
    2,033
    
    
    
    11,217Interest expense
    
    
    (323
    )
    
    
    (577
    )
    
    
    (1,264
    )
    
    
    (3,047
    )Patent infringement settlement
    
    
    1,933
    
    
    
    
    
    
    
    
    
    
    
    18,236Equity in earnings (loss) of affiliates
    
    
    1,639
    
    
    
    361
    
    
    
    (957
    )
    
    
    15,462Loss on securities, net (Note 4)
    
    
    (1,093
    )
    
    
    (3,298
    )
    
    
    (207
    )
    
    
    (10,311
    )Foreign exchange gain (loss)
    
    
    (3,065
    )
    
    
    (1,482
    )
    
    
    618
    
    
    
    (28,915
    )Other, net
    
    
    1,001
    
    
    
    (382
    )
    
    
    (198
    )
    
    
    9,4431,281
    
    
    
    (3,999
    )
    
    
    25
    
    
    
    12,085Income (loss) before income taxes
    
    
    55,603
    
    
    
    18,081
    
    
    
    (43,697
    )
    
    
    524,557Income taxes(Note 7)
    
    
    13,143
    
    
    
    5,296
    
    
    
    (16,994
    )
    
    
    123,991Income (loss) before minority interests
    
    
    42,460
    
    
    
    12,785
    
    
    
    (26,703
    )
    
    
    400,566Minority interests
    
    
    359
    
    
    
    766
    
    
    
    (932
    )
    
    
    3,387Net income (loss)
    
    ¥
    42,101
    
    
    
    12,019
    
    
    
    (25,771
    )
    
    $
    397,179Amounts per share:
    
    Yen (except number ofcommon shares outstanding)
    
    
    U.S. Dollars(Note 2)Basic net income (loss) per share (Note 18)
    
    ¥
    317.80
    
    
    
    90.56
    
    
    
    (193.91
    )
    
    $
    3.00Diluted net income (loss) per share (Note 18)
    
    
    317.69
    
    
    
    90.56
    
    
    
    (193.91
    )
    
    
    3.00Weighted average basic common shares
outstanding (in thousands) (Note 18)
    
    
    132,475
    
    
    
    132,716
    
    
    
    132,900Weighted average diluted common shares
outstanding (in thousands) (Note 18)
    
    
    132,523
    
    
    
    132,716
    
    
    
    132,900Cash dividends paid during the year (Note 9)
    
    ¥
    50.00
    
    
    
    45.00
    
    
    
    60.00
    
    
    $
    0.47
 See accompanying notes to consolidated financial statements. 71




---



##### Table of Contents



Consolidated statements of stockholders equity
For the years ended March 31, 2004, 2003 and 2002 U.S. Dollars(Thousands)Yen (Millions)
    
    (Note 2)2004
    
    2003
    
    2002
    
    2004Common stock:Balance at beginning of period
    
    ¥
    32,641
    
    
    
    32,641
    
    
    
    32,641
    
    
    $
    307,934Balance at end of period
    
    
    32,641
    
    
    
    32,641
    
    
    
    32,641
    
    
    
    307,934Additional paid-in capital:Balance at beginning of period
    
    
    63,051
    
    
    
    63,051
    
    
    
    63,051
    
    
    
    594,821Balance at end of period
    
    
    63,051
    
    
    
    63,051
    
    
    
    63,051
    
    
    
    594,821Legal reserve(Note 9):Balance at beginning of period
    
    
    15,953
    
    
    
    15,683
    
    
    
    13,409
    
    
    
    150,500Transferred from retained earnings
    
    
    544
    
    
    
    270
    
    
    
    2,274
    
    
    
    5,132Balance at end of period
    
    
    16,497
    
    
    
    15,953
    
    
    
    15,683
    
    
    
    155,632Retained earnings(Note 9):Balance at beginning of period
    
    
    525,919
    
    
    
    520,143
    
    
    
    556,165
    
    
    
    4,961,500Net income (loss)
    
    
    42,101
    
    
    
    12,019
    
    
    
    (25,771
    )
    
    
    397,179Cash dividends
    
    
    (6,625
    )
    
    
    (5,973
    )
    
    
    (7,977
    )
    
    
    (62,500
    )Losses on sales of treasury stock
    
    
    (95
    )
    
    
    
    
    
    
    
    
    
    
    (896
    )Transferred to legal reserve
    
    
    (544
    )
    
    
    (270
    )
    
    
    (2,274
    )
    
    
    (5,132
    )Balance at end of period
    
    
    560,756
    
    
    
    525,919
    
    
    
    520,143
    
    
    
    5,290,151Accumulated other comprehensive income (loss)(Notes 7, 8 and 11):Balance at beginning of period
    
    
    (78,824
    )
    
    
    (43,999
    )
    
    
    (24,851
    )
    
    
    (743,623
    )Other comprehensive income (loss) for the period, net of tax
    
    
    (11,563
    )
    
    
    (34,825
    )
    
    
    (19,148
    )
    
    
    (109,085
    )Balance at end of period
    
    
    (90,387
    )
    
    
    (78,824
    )
    
    
    (43,999
    )
    
    
    (852,708
    )Treasury stock(Note 10):Balance at beginning of period
    
    
    (4,855
    )
    
    
    (3,592
    )
    
    
    (2,666
    )
    
    
    (45,802
    )Acquisition of treasury stock
    
    
    (1,865
    )
    
    
    (1,263
    )
    
    
    (926
    )
    
    
    (17,594
    )Exercise of stock option
    
    
    381
    
    
    
    
    
    
    
    
    
    
    
    3,594Balance at end of period
    
    
    (6,339
    )
    
    
    (4,855
    )
    
    
    (3,592
    )
    
    
    (59,802
    )Total stockholders equity
    
    ¥
    576,219
    
    
    
    553,885
    
    
    
    583,927
    
    
    $
    5,436,028Disclosure of comprehensive income (loss):Net income (loss) for the period
    
    ¥
    42,101
    
    
    
    12,019
    
    
    
    (25,771
    )
    
    $
    397,179Other comprehensive income (loss) for the period, net of tax (Note 11)
    
    
    (11,563
    )
    
    
    (34,825
    )
    
    
    (19,148
    )
    
    
    (109,085
    )Total comprehensive income (loss) for the period
    
    ¥
    30,538
    
    
    
    (22,806
    )
    
    
    (44,919
    )
    
    $
    288,094
 See accompanying notes to consolidated financial statements. 72




---



##### Table of Contents



Consolidated statements of cash flows
For the years ended March 31, 2004, 2003 and 2002 U.S. Dollars(Thousands)Yen (Millions)
    
    (Note 2)2004
    
    2003
    
    2002
    
    2004Cash flows from operating activities:Net income (loss)
    
    ¥
    42,101
    
    
    
    12,019
    
    
    
    (25,771
    )
    
    $
    397,179Adjustments to reconcile net income (loss) to net cash
provided by operating activities:Depreciation and amortization
    
    
    51,233
    
    
    
    57,789
    
    
    
    61,920
    
    
    
    483,330Loss on disposal of property and equipment
    
    
    1,789
    
    
    
    4,845
    
    
    
    6,436
    
    
    
    16,877Deferred income taxes
    
    
    2,868
    
    
    
    4,301
    
    
    
    (13,797
    )
    
    
    27,057Loss on securities, net
    
    
    1,093
    
    
    
    3,298
    
    
    
    207
    
    
    
    10,311Changes in assets and liabilities:Decrease (increase) in trade receivables
    
    
    (7,582
    )
    
    
    (2,256
    )
    
    
    18,517
    
    
    
    (71,528
    )Decrease (increase) in inventories
    
    
    (7,824
    )
    
    
    14,277
    
    
    
    28,776
    
    
    
    (73,811
    )Increase (decrease) in trade payables
    
    
    8,171
    
    
    
    6,691
    
    
    
    (14,806
    )
    
    
    77,085Increase (decrease) in accrued expenses
    
    
    8,660
    
    
    
    (5,971
    )
    
    
    (11,906
    )
    
    
    81,698Increase (decrease) in income taxes payables, net
    
    
    5,877
    
    
    
    2,265
    
    
    
    (25,223
    )
    
    
    55,443Increase (decrease) in retirement and severance benefits
    
    
    9,285
    
    
    
    7,639
    
    
    
    (2,218
    )
    
    
    87,594Other  net
    
    
    (967
    )
    
    
    (539
    )
    
    
    19,369
    
    
    
    (9,122
    )Net cash provided by operating activities
    
    
    114,704
    
    
    
    104,358
    
    
    
    41,504
    
    
    
    1,082,113Cash flows from investing activities:Capital expenditures
    
    
    (44,866
    )
    
    
    (41,451
    )
    
    
    (58,777
    )
    
    
    (423,264
    )Proceeds from sales and maturities of available-for-sale securities
    
    
    1,814
    
    
    
    1,511
    
    
    
    323
    
    
    
    17,113Payment for purchase of available-for-sale securities
    
    
    (1
    )
    
    
    (700
    )
    
    
    (399
    )
    
    
    (9
    )Payment for purchase of other investments
    
    
    (442
    )
    
    
    (6,606
    )
    
    
    (2,717
    )
    
    
    (4,170
    )Proceeds from sales of property, plant and equipment
    
    
    4,571
    
    
    
    4,590
    
    
    
    3,967
    
    
    
    43,123Acquisition of minority interests
    
    
    (366
    )
    
    
    (3,967
    )
    
    
    (276
    )
    
    
    (3,453
    )Proceeds from sale of a subsidiary
    
    
    1,523
    
    
    
    
    
    
    
    
    
    
    
    14,368Other  net
    
    
    (3
    )
    
    
    (22
    )
    
    
    (24
    )
    
    
    (29
    )Net cash used in investing activities
    
    
    (37,770
    )
    
    
    (46,645
    )
    
    
    (57,903
    )
    
    
    (356,321
    )Cash flows from financing activities:Proceeds from long-term debt
    
    
    69
    
    
    
    211
    
    
    
    46
    
    
    
    651Repayment of long-term debt
    
    
    (479
    )
    
    
    (646
    )
    
    
    (777
    )
    
    
    (4,519
    )Increase (decrease) in short-term debt, net
    
    
    (1,047
    )
    
    
    (254
    )
    
    
    (3,568
    )
    
    
    (9,877
    )Sale (purchase) of treasury stock, net
    
    
    (1,579
    )
    
    
    (1,263
    )
    
    
    (926
    )
    
    
    (14,896
    )Dividends paid
    
    
    (6,625
    )
    
    
    (5,973
    )
    
    
    (7,977
    )
    
    
    (62,500
    )Net cash used in financing activities
    
    
    (9,661
    )
    
    
    (7,925
    )
    
    
    (13,202
    )
    
    
    (91,141
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    (10,669
    )
    
    
    (4,998
    )
    
    
    4,445
    
    
    
    (100,651
    )Net increase (decrease) in cash and cash equivalents
    
    
    56,604
    
    
    
    44,790
    
    
    
    (25,156
    )
    
    
    534,000Cash and cash equivalents at beginning of period
    
    
    170,551
    
    
    
    125,761
    
    
    
    150,917
    
    
    
    1,608,972Cash and cash equivalents at end of period
    
    ¥
    227,155
    
    
    
    170,551
    
    
    
    125,761
    
    
    $
    2,142,972
 See accompanying notes to consolidated financial statements. 73




---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Nature of Operations and Summary of Significant Accounting Policies (a) Nature of Operations TDK is a multinational manufacturer of ferrite products and a producer of
inductor, ceramic, magnetic head and other components and recording media and
systems. TDK, a Tokyo-based company founded in 1935 to commercialize ferrite,
now manufactures and sells a broad range of products. TDKs two business
segments are electronic materials and components, and recording media and
systems, which accounted for 79% and 21% of net sales, respectively, for the
year ended March 31, 2004. The main products which are manufactured and sold
by the two business segments are as follows: a) Electronic materials and components products:  Ferrite cores, Ceramic capacitors, High-frequency components, Inductors,
GMR heads, and Semiconductors b) Recording media and systems products:  Audio tapes, Video tapes, CD-Rs, MDs, and DVDs TDK sells electronic materials and components products to electric and
communication equipment manufacturers and audio equipment manufacturers, mainly
in Asia and Japan, and recording media and systems products to distribution
agents and audio equipment manufacturers, mainly in Japan, Europe, and North
America. (b) Basis of Presentation TDK and its domestic subsidiaries maintain their books of account in
conformity with financial accounting standards of Japan, and its foreign
subsidiaries in conformity with those of the countries of their domicile. The consolidated financial statements presented herein reflect certain
adjustments, not recorded on the primary books of TDK and subsidiaries, to
present the financial position, results of operations, and cash flows in
conformity with accounting principles generally accepted in the United States
of America (U.S. GAAP). Such adjustments relate principally to accounting
for issue costs of debt with stock purchase warrants, retirement and severance
benefits and impairment of long-lived assets such as goodwill. (c) Consolidation Policy The consolidated financial statements include the accounts of TDK and its
subsidiaries. All significant intercompany accounts and transactions have been
eliminated in consolidation. In December 2003, the Financial Accounting Standards Board (FASB) issued
FASB Interpretation No. 46 (revised December 2003) (FIN 46R), Consolidation
of Variable Interest Entities, which addresses the consolidation by primary
beneficiary of variable interest entities (VIEs) as defined in the
Interpretation. FIN 46R replaces FASB Interpretation No. 46, Consolidation of
Variable Interest Entities, which was issued in January 2003. FIN 46R is
effective immediately for all VIEs created or acquired after January 31, 2003
and effective for other VIEs as of March 31, 2004. For VIEs created or
acquired before February 1, 2003, the adoption of FIN 46R did not have a
material effect on TDKs consolidated financial statements. The investments in affiliates in which TDKs ownership is 20% to 50% and
TDK exercises significant influence over their operating and financial policies
are accounted for by the equity method. All significant intercompany profits
from these affiliates have been eliminated. (d) Cash Equivalents Cash equivalents include all highly liquid debt instruments purchased with
an original maturity of three months or less. 74




---



##### Table of Contents



(e) Allowance for Doubtful Receivables The allowance for doubtful receivables is TDKs best estimate of the
amount of probable credit losses in TDKs existing trade receivables. An
additional reserve for individual receivables is recorded when TDK becomes
aware of a customers inability to meet its financial obligations, such as in
the case of bankruptcy filings or deterioration in a customers operating
results or financial position. If circumstances related to a change in
customers, estimates of the recoverability of receivables would be further
adjusted. (f) Investments in Securities TDK classifies its debt and equity securities into one of three
categories: trading, available-for-sale, or held-to-maturity. Trading
securities are bought and held principally for the purpose of selling them in
the near term. Held-to-maturity securities are those securities in which TDK
has the ability and intent to hold the security until maturity. All securities
not included in trading or held-to-maturity are classified as
available-for-sale. Trading and available-for-sale securities are recorded at fair value.
Held-to-maturity securities are recorded at amortized cost, adjusted for the
amortization or accretion of premiums or discounts. Unrealized holding gains
and losses on trading securities are included in earnings. Unrealized holding
gains and losses, net of the related tax effect, on available-for-sale
securities are excluded from earnings and are reported as a separate component
of accumulated other comprehensive income (loss) until realized. As of March
31, 2004 and 2003, TDK did not hold any trading or held-to-maturity securities.
Available-for sale securities, which mature or are expected to be sold in less
than one year, are classified as current assets. A decline in the fair value of any available-for-sale security below cost
that is deemed to be other-than-temporary results in a reduction in carrying
amount to fair value. The impairment is charged to earnings and a new cost
basis for the security is established. To determine whether an impairment is
other-than-temporary, TDK periodically reviews fair value of available-for-sale
security for possible impairment by taking into consideration of the financial
and operating conditions of the issuer, the general market conditions in the
issuers industry, degree and period of the decline in fair value and other
relevant factors. Nonmarketable securities are recorded at cost, as fair value is not
readily determinable. TDK periodically evaluates the values of nonmarketable
securities for possible impairment by taking into consideration of the
financial and operating conditions of the issuer, the general market conditions
in the issuers industry and period of the decline in the estimated fair value
and other relevant factors. If the impairment is determined to be
other-than-temporary, nonmarketable securities is written down to its impaired
value through a charge to earnings. (g) Inventories Inventories are stated at the lower of cost or market. Cost is determined
principally by the average method. 75




---



##### Table of Contents



(h) Property, Plant and Equipment Depreciation of property, plant and equipment is principally computed by
the declining-balance method for assets located in Japan and of certain foreign
subsidiaries and by the straight-line method for assets of other foreign
subsidiaries based on the following estimated useful lives: Buildings
    
    3 to 60 yearsMachinery and equipment
    
    2 to 22 years
 In June 2001, the FASB issued Statement of Financial Accounting Standards
No.143 (SFAS 143), Accounting for Asset Retirement Obligations, which
addresses financial accounting and reporting for obligations associated with
the retirement of tangible long-lived assets and associated asset retirement
costs. SFAS 143 applies to legal obligations associated with the retirement of
long-lived assets that result from the acquisition, construction, development
and (or) the normal operation of a long-lived asset, except for certain
obligations of lessees. SFAS 143 requires that the fair value of a liability
for an asset retirement obligation be recognized in the period in which it is
incurred if a reasonable estimate of fair value can be made. The associated
asset retirement costs are capitalized as part of the carrying amount of the
long-lived asset and subsequently allocated to expense over the assets useful
life. TDK adopted SFAS 143 on April 1, 2003. The adoption of SFAS 143 did not
have a material effect on TDKs consolidated financial statements. (i) Income Taxes Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the estimated future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred
tax assets and liabilities of a change in tax rates is recognized in income in
the period that includes the enactment date. (j) Stock Option Plan In December 2002, the FASB issued Statement of Financial Accounting
Standards No. 148 (SFAS 148), Accounting for
Stock-Based Compensation 
Transition and Disclosure, which amends FASB Statement No. 123 (SFAS 123),
Accounting for Stock-Based Compensation. SFAS 148 provides alternative
methods of transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. In addition, SAFS 148 amends
the disclosure requirements of SFAS 123 to require more prominent and more
frequent disclosures in financial statements about the effects of stock-based
compensation. However, it gives an entity a choice of recognizing related
compensation expense by adopting the fair value method or to continue to
measure compensation using the intrinsic value-based method prescribed under
Accounting Principles Board Opinion No. 25 (APB 25), Accounting for Stock
Issued to Employees, the former standard. TDK has chosen to use the
measurement principle prescribed by APB 25. As such, stock-based compensation
cost is recognized by TDK only if the market price of the underlying common
stock exceeds the exercise price on the date of grant. Accordingly, no stock
option related compensation cost has been recognized in fiscal 2004, fiscal
2003 and fiscal 2002 for TDKs stock based compensation plan. TDK was required
to adopt SFAS 148 for the year ended March 31, 2003. The adoption of SFAS 148
did not have an impact on the
consolidated results of operations or financial position of TDK for fiscal
2004 and 2003. 76




---



##### Table of Contents



The following table illustrates the effect on net income (loss) and net
income (loss) per share if the fair-value-based method had been applied to all
outstanding and unvested stock based awards with such costs recognized ratably
over the vesting period of the underlying instruments. U.S. DollarsYen (Millions)
    
    (Thousands)2004
    
    2003
    
    2002
    
    2004Net income (loss), as reported
    
    ¥
    42,101
    
    
    
    12,019
    
    
    
    (25,771
    )
    
    $
    397,179Deduct total stock-based
employee compensation expense
determined under
fair-value-based method for
all awards, net of tax
    
    
    (330
    )
    
    
    (241
    )
    
    
    (280
    )
    
    
    (3,113
    )Pro forma net income (loss)
    
    
    41,771
    
    
    
    11,778
    
    
    
    (26,051
    )
    
    
    394,066Yen
    
    U.S. DollarsBasic net income (loss) per share:As reported
    
    ¥
    317.80
    
    
    
    90.56
    
    
    
    (193.91
    )
    
    $
    3.00Pro forma
    
    
    315.31
    
    
    
    88.74
    
    
    
    (196.02
    )
    
    
    2.97Diluted net income (loss) per share:As reported
    
    ¥
    317.69
    
    
    
    90.56
    
    
    
    (193.91
    )
    
    $
    3.00Pro forma
    
    
    315.20
    
    
    
    88.74
    
    
    
    (196.02
    )
    
    
    2.97
 (k) Advertising Costs Advertising costs are expensed as incurred. (l) Foreign Currency Translation Foreign currency financial statements have been translated in accordance
with Statement of Financial Accounting Standards No. 52 (SFAS 52), Foreign
Currency Translation. Under SFAS 52, the assets and liabilities of TDKs
subsidiaries located outside Japan are translated into Japanese yen at the
rates of exchange in effect at the balance sheet date. Revenue and expense
items are translated at the average exchange rates prevailing during the year.
Gains and losses resulting from foreign currency transactions are included in
other income (deductions), and those resulting from translation of financial
statements are excluded from the statements of operations and are accumulated
in stockholders equity as a component of accumulated other comprehensive
income (loss). (m) Use of Estimates Management of TDK has made a number of estimates and assumptions relating
to the reporting of assets, liabilities, revenues and expenses and the
disclosure of contingent assets and liabilities to prepare these consolidated
financial statements in conformity with U.S. GAAP. Significant items subject
to such estimates and assumptions include the valuation of intangible assets,
property, plant and equipment, trade receivables, inventories, and deferred
income tax assets, and assumptions related to the estimation of actuarial
determined
employee benefit obligations. Actual results could differ from those
estimates. 77




---



##### Table of Contents



(n) Accounting for the Impairment or Disposal of Long-Lived Assets In August 2001, the FASB issued Statement of Financial Accounting
Standards No. 144 (SFAS 144), Accounting for the Impairment or Disposal of
Long-Lived Assets which supersedes both Statement of Financial Accounting
Standards No.121 (SFAS 121), Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of and the accounting and
reporting provisions of APB Opinion No.30 (Opinion 30), Reporting the
Results of Operations  Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions, for the disposal of a segment of a business (as previously
defined in that Opinion). SFAS 144 retains the fundamental provisions in SFAS
121 for recognizing and measuring impairment losses on long-lived assets held
for use and long-lived assets to be disposed of by sale, while also resolving
significant implementation issues associated with SFAS 121. TDK adopted the
provision of SFAS 144 on April 1, 2002. TDKs long-lived assets and certain identifiable intangibles with finite
useful lives are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows
(undiscounted and without interest charges) expected to be generated by the
asset. If such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount of the assets
exceed the fair value of the assets. Assets to be disposed of are reported at
the lower of the carrying amount or fair value less costs to sell. (o) Goodwill and Other Intangible Assets In June 2001, the FASB issued Statement of Financial Accounting Standards
No.141 (SFAS 141), Business Combinations, and Statement of Financial
Accounting Standards No. 142 (SFAS 142), Goodwill and Other Intangible
Assets. SFAS 141 requires the use of the purchase method of accounting for
business combinations. SFAS 141 also specifies the types of acquired
intangible assets that are required to be recognized and reported separately
from goodwill and those acquired intangible assets that are required to be
included in goodwill. Under SFAS 142 goodwill is no longer amortized, but
instead is tested for impairment at least annually. Intangible assets are
amortized over their respective estimated useful lives and reviewed for
impairment in accordance with Statement of Financial Accounting Standards
No.144, Accounting for the Impairment or Disposal of Long-Lived Assets. Any
recognized intangible asset determined to have an indefinite useful life will
not be amortized, but instead is tested for impairment until its life is
determined to no longer be indefinite. TDK conducts its annual impairment test at the end of each fiscal year. (p) Derivative Financial Instruments In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133 (SFAS 133), Accounting for Derivative Instruments and Hedging
Activities. In June 2000, the FASB also issued Statement of Financial
Accounting Standards No. 138 (SFAS 138), Accounting for Certain Derivative
Instruments and Certain Hedging Activities, an amendment of the FASB Statement
No. 133. Both standards establish accounting and reporting standards for
derivative instruments and for hedging activities, and require that an entity
recognize all derivatives as either assets or liabilities in the balance sheets
and measure those instruments at fair value. SFAS 133, as amended, and 138 are
effective for fiscal years beginning after June 15, 2000. TDK adopted SFAS 133
and 138 as of April 1, 2001. TDK has not elected to apply hedge accounting.
Accordingly, changes in the fair value of
derivatives are recognized in earnings in the period of the changes. 78




---



##### Table of Contents



(q) Net Income per Share Basic net income per share has been computed by dividing net income
available to common stockholders by the weighted-average number of common
shares outstanding during each year. Diluted net income per share reflects the
potential dilution that could occur if securities or other contracts to issue
common stock were exercised or converted into common stock or resulted in the
issuance of common stock of TDK. Stock options were not included in the
calculation of diluted earnings per share for the years ended March 31, 2003
and 2002 as their effect would be antidilutive. For the year ended March 31,
2004, stock options to purchase 170,400 shares were excluded from the
calculation of diluted earnings per share as the effect would have been
antidilutive. (r) Revenue Recognition TDK generates revenue principally through the sale of electronic materials
& components and recording media & systems under separate contractual
arrangements for each. TDK recognizes revenue when persuasive evidence of an
arrangement exists, delivery has occurred and title and risk of loss have been
transferred to the customer, the sales price is fixed or determinable, and
collectibility is probable. Revenue from sales of electronic materials & components including
electronic materials, electronic devices and recording devices is recognized
when the products are received by customers based on the free-on board
destination sales term. With regards to sales of electronic materials &
components, TDKs policy is not to accept product returns unless the products
are defective. The conditions of acceptance are governed by the terms of the
contract or customer arrangement and those not meeting the predetermined
specification are not recorded as revenue. Revenue from sales of recording media & systems products such as
videotapes and DVDs sold is also recognized when the products are received by
customers based on the free-on board destination sales term. With regards to
sales of recording media & systems products, TDK provides sales incentive
programs to resellers and retailers. The sales incentive programs include
product discount, volume-based rebates and consumer promotion to support
retailers advertisement expenses. TDK records estimated reductions in sales
at the time of sales for sales incentive program. Estimated reduction in sales
are based upon historical trends and other known factors at the time of sales.
TDK allows limited right of returns in certain cases and reduces revenue for
estimated future returns based upon historical experience at the time the
related revenue is recorded. No product warranties are offered on TDKs products. In November 2002, the Emerging Issues Task Force reached a consensus on
Issue 00-21 (EITF 00-21), Accounting for Revenue Arrangements with Multiple
Deliverables. EITF 00-21 provides guidance on when and how to account for
arrangements that involve the delivery or performance of multiple products,
services and/or rights to use assets. TDK adopted EITF 00-21 on July 1, 2003.
The adoption of EITF 00-21 did not have a material effect on TDKs consolidated
financial position or results of operations. (s) Reclassifications Certain reclassifications have been made to the prior years consolidated
financial statements to conform to the presentation used for the year ended
March 31, 2004. 2. Financial Statement Translation The consolidated financial statements are expressed in Japanese yen, the
functional currency of TDK. Supplementally, the Japanese yen amounts as of and
for the year ended March 31, 2004, have also been translated into U.S. dollar
amounts, solely for the convenience of the reader, at the rate of ¥106=U.S.$1,
the approximate exchange rate on the Tokyo Foreign Exchange Market on March 31,
2004. This translation should not be construed as a representation that the
amounts shown could be converted into U.S. dollars at such rate. 79




---



##### Table of Contents



3. Foreign Operations Amounts included in the consolidated financial statements relating to
subsidiaries operating in foreign countries are summarized as follows: U.S. DollarsYen (Millions)
    
    (Thousands)2004
    
    2003
    
    2002
    
    2004Net assets
    
    ¥
    318,915
    
    
    ¥
    304,645
    
    
    
    312,539
    
    
    $
    3,008,632Net sales
    
    
    497,255
    
    
    
    436,062
    
    
    
    391,740
    
    
    
    4,691,085Net income (loss)
    
    
    37,477
    
    
    
    9,101
    
    
    
    (20,519
    )
    
    
    353,557
 4. Marketable Securities and Investments in Securities Marketable securities and investments in securities at March 31, 2004 and
2003, are as follows: U.S. DollarsYen (Millions)
    
    (Thousands)2004
    
    2003
    
    2004Short-term marketable securities
    
    ¥
    402
    
    
    
    
    
    
    $
    3,792Long-term marketable securities
    
    
    4,535
    
    
    
    4,180
    
    
    
    42,783Nonmarketable securities
    
    
    419
    
    
    
    2,681
    
    
    
    3,953Investments in affiliates
    
    
    13,427
    
    
    
    11,861
    
    
    
    126,670¥
    18,783
    
    
    
    18,722
    
    
    $
    177,198
 Marketable securities and investments in securities include
available-for-sale securities. Information with respect to such securities at
March 31, 2004 and 2003, is as follows: As of March 31, 2004 Gross
    
    GrossUnrealized
    
    UnrealizedHolding
    
    HoldingYen (Millions):
    
    Cost
    
    Gains
    
    Losses
    
    Fair ValueEquity securities
    
    ¥
    2,782
    
    
    
    1,054
    
    
    
    
    
    
    
    3,836Debt securities
    
    
    1,101
    
    
    
    
    
    
    
    
    
    
    
    1,101¥
    3,883
    
    
    
    1,054
    
    
    
    
    
    
    
    4,937
 As of March 31, 2003 Gross
    
    GrossUnrealized
    
    UnrealizedHolding
    
    HoldingYen (Millions):
    
    Cost
    
    Gains
    
    Losses
    
    Fair ValueEquity securities
    
    ¥
    1,500
    
    
    
    193
    
    
    
    11
    
    
    
    1,682Debt securities
    
    
    2,495
    
    
    
    3
    
    
    
    
    
    
    
    2,498¥
    3,995
    
    
    
    196
    
    
    
    
    
    
    
    4,180
 As of March 31, 2004 Gross
    
    GrossUnrealized
    
    UnrealizedHolding
    
    HoldingU.S. Dollars (Thousands):
    
    Cost
    
    Gains
    
    Losses
    
    Fair ValueEquity securities
    
    $
    26,246
    
    
    
    9,943
    
    
    
    
    
    
    
    36,189Debt securities
    
    
    10,386
    
    
    
    
    
    
    
    
    
    
    
    10,386$
    36,632
    
    
    
    9,943
    
    
    
    
    
    
    
    46,575
 Debt securities classified as available-for-sale at March 31, 2004 mature
in fiscal 2005 through 2006 (weighted average remaining term of 1.3 years). 80




---



##### Table of Contents



The proceeds from sale and settlement of available-for-sale securities are
¥1,814 million ($17,113 thousand), ¥1,511 million and ¥323 million for the
years ended March 31, 2004, 2003 and 2002, respectively. The gross realized
gains on the sale and settlement of available-for-sale securities are ¥135
million ($1,274 thousand), ¥4 million and ¥120 million for the years ended
March 31, 2004, 2003 and 2002, respectively. TDK recorded a write-down of
¥1,228 million ($11,585 thousand), ¥3,302 million and ¥327 million on certain
available-for-sale securities and nonmarketable securities representing
other-than-temporary declines in the fair value of the available-for-sale
securities for the years ended March 31, 2004, 2003 and 2002, respectively. Investments in affiliates accounted for by the equity method consist of
26.1% of the common stock of Semiconductor Energy Laboratory Co., Ltd., a
research and development company, 50.0% of the common stock of Tokyo Magnetic
Printing Co., Ltd., a magnetic products manufacturing company, and six other
affiliated companies, collectively, which are not significant. The unamortized
amounts of goodwill related to affiliated companies were ¥1,231 million
($11,613 thousands) at March 31, 2004. In accordance with SFAS 142, this
equity-method goodwill is no longer amortized, but is being analyzed for
impairment. 5. Inventories Inventories at March 31, 2004 and 2003, are summarized as follows: U.S. DollarsYen (Millions)
    
    (Thousands)2004
    
    2003
    
    2004Finished goods
    
    ¥
    34,104
    
    
    
    33,151
    
    
    $
    321,736Work in process
    
    
    21,351
    
    
    
    21,681
    
    
    
    201,425Raw materials
    
    
    21,846
    
    
    
    19,085
    
    
    
    206,094¥
    77,301
    
    
    
    73,917
    
    
    $
    729,255
 6. Short-Term and Long-Term Debt Short-term debt and weighted average interest rates at March 31, 2004 and
2003, are as follows: U.S. Dollars
    
    Weighted averageYen (Millions)
    
    (Thousands)
    
    interest rate2004
    
    2003
    
    2004
    
    2004
    
    2003Short-term bank loans
    
    ¥
    315
    
    
    
    1,431
    
    
    $
    2,972
    
    
    
    1.36
    %
    
    
    2.54
    %
 At March 31, 2004, unused short-term credit facilities for issuance of
commercial paper amounted to ¥31,971 million ($301,613 thousand). Long-term debt at March 31, 2004 and 2003, is set forth below: U.S. DollarsYen (Millions)
    
    (Thousands)2004
    
    2003
    
    2004Lease obligation (weighted average:20044.25%, 20039.98%)
    
    ¥
    128
    
    
    
    582
    
    
    $
    1,208128
    
    
    
    582
    
    
    
    1,208Less current installments
    
    
    101
    
    
    
    488
    
    
    
    953¥
    27
    
    
    
    94
    
    
    $
    255
 81




---



##### Table of Contents



The aggregate annual maturities of long-term debt outstanding at March 31,
2004, are as follows: Yen
    
    U.S. Dollars(Millions)
    
    (Thousands)Year ending March 31,2005
    
    ¥
    101
    
    
    $
    9532006
    
    
    24
    
    
    
    2272007
    
    
    3
    
    
    
    28¥
    128
    
    
    $
    1,208
 Short-term and long-term bank loans are made under general agreements that
provide that under certain circumstances security and guarantees for present
and future indebtedness will be given upon request of the bank, and that the
bank shall have the right, as the obligations become due, or in the event of
their default, to offset cash deposits against such obligations due the bank. 7. Income Taxes TDK and its domestic subsidiaries are subject to a national corporation
tax of 30%, an inhabitants tax of between 5.2% and 6.2% and a deductible
enterprise tax of between 9.6% and 10.1%, which in the aggregate resulted in a
statutory rate of approximately 41% in the years ended March 31,2004, 2003 and
2002. Amendments to Japanese tax regulations were enacted into law on March 24,
2003. As a result of this amendment, the statutory income tax rate was reduced
from approximately 41% to 40% effective from April 1, 2004. Current income
taxes were calculated at the rate of 41%, in effect for the years ended March
31, 2004, 2003 and 2002, respectively. Deferred tax assets and liabilities
expected to be realized or settled on or after April 1, 2004 have been
calculated at the rate of 40%. The effects of the income tax rate reduction on deferred income tax
balances as of March 31, 2003 reduced the net deferred tax asset by
approximately ¥1,044 million. The effective tax rate of TDK for the years ended March 31, 2004, 2003 and
2002, are reconciled with the Japanese statutory tax rate in the following
table: 2004
    
    2003
    
    2002Japanese statutory tax rate
    
    
    41.0
    %
    
    
    41.0
    %
    
    
    (41.0
    )%Expenses not deductible for tax purposes
    
    
    1.2
    
    
    
    0.5
    
    
    
    0.2Non taxable income
    
    
    (0.0
    )
    
    
    (2.4
    )
    
    
    (1.0
    )Difference in statutory tax rates of
foreign subsidiaries
    
    
    (23.1
    )
    
    
    (22.6
    )
    
    
    (3.0
    )Change in the valuation allowance
    
    
    6.4
    
    
    
    14.8
    
    
    
    4.8Change in enacted tax laws and rates
    
    
    0.3
    
    
    
    5.8
    
    
    
    Currency translation adjustment
    
    
    (0.0
    )
    
    
    (3.3
    )
    
    
    Investment tax credit
    
    
    (1.6
    )
    
    
    (4.5
    )
    
    
    (1.0
    )Other
    
    
    (0.6
    )
    
    
    0.0
    
    
    
    2.1Effective tax rate
    
    
    23.6
    %
    
    
    29.3
    %
    
    
    (38.9
    )%
 82




---



##### Table of Contents



Total income taxes for the years ended March 31, 2004, 2003 and 2002 are
allocated as follows: U.S. DollarsYen (Million)
    
    (Thousands)2004
    
    2003
    
    2002
    
    2004Income (loss) before income taxes
    
    ¥
    13,143
    
    
    
    5,296
    
    
    
    (16,994
    )
    
    $
    123,991Stockholders equity, accumulated
other comprehensive income (loss):Foreign currency translation
adjustments
    
    
    245
    
    
    
    (242
    )
    
    
    642
    
    
    
    2,311Net unrealized gains (losses) on
securities
    
    
    348
    
    
    
    (166
    )
    
    
    436
    
    
    
    3,283Minimum pension liability adjustmentsTotal income taxes
    
    
    9,422
    
    
    
    (10,950
    )
    
    
    (24,901
    )
    
    
    88,887¥
    23,158
    
    
    
    (6,062
    )
    
    
    (40,817
    )
    
    $
    218,472
 Income (loss) before income taxes and income taxes for the years ended
March 31, 2004, 2003 and 2002, are summarized as follows: Income (loss)Before Income
    
    Income TaxesTaxes
    
    Current
    
    Deferred
    
    TotalYen (Millions):2004Japanese
    
    ¥
    8,611
    
    
    
    4,411
    
    
    
    (7
    )
    
    
    4,404Foreign
    
    
    46,992
    
    
    
    5,864
    
    
    
    2,875
    
    
    
    8,739¥
    55,603
    
    
    
    10,275
    
    
    
    2,868
    
    
    
    13,1432003Japanese
    
    
    6,932
    
    
    
    (1,929
    )
    
    
    5,977
    
    
    
    4,048Foreign
    
    
    11,149
    
    
    
    2,924
    
    
    
    (1,676
    )
    
    
    1,24818,081
    
    
    
    995
    
    
    
    4,301
    
    
    
    5,2962002Japanese
    
    
    (20,395
    )
    
    
    (660
    )
    
    
    (14,483
    )
    
    
    (15,143
    )Foreign
    
    
    (23,302
    )
    
    
    (2,537
    )
    
    
    686
    
    
    
    (1,851
    )(43,697
    )
    
    
    (3,197
    )
    
    
    (13,797
    )
    
    
    (16,994
    )U.S. Dollars (Thousands):2004Japanese
    
    $
    81,236
    
    
    
    41,613
    
    
    
    (66
    )
    
    
    41,547Foreign
    
    
    443,321
    
    
    
    55,321
    
    
    
    27,123
    
    
    
    82,444$
    524,557
    
    
    
    96,934
    
    
    
    27,057
    
    
    
    123,991
 83




---



##### Table of Contents



The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at March 31,
2004 and 2003, are as follows: U.S. DollarsYen (Millions)
    
    (Thousands)2004
    
    2003
    
    2004Deferred tax assets:Trade accounts receivable, principally due to
allowance for doubtful receivables
    
    ¥
    217
    
    
    
    486
    
    
    $
    2,047Inventories
    
    
    251
    
    
    
    625
    
    
    
    2,368Accrued business tax
    
    
    344
    
    
    
    31
    
    
    
    3,245Accrued expenses
    
    
    3,605
    
    
    
    3,215
    
    
    
    34,009Retirement and severance benefits
    
    
    12,334
    
    
    
    9,465
    
    
    
    116,358Net operating loss carryforwards
    
    
    12,427
    
    
    
    13,215
    
    
    
    117,236Tax credit carryforwards
    
    
    559
    
    
    
    1,429
    
    
    
    5,273Minimum pension liability adjustments
    
    
    29,133
    
    
    
    38,613
    
    
    
    274,840Property, plant and equipment, principally due
to differences in depreciation
    
    
    1,219
    
    
    
    
    
    
    
    11,500Other
    
    
    1,276
    
    
    
    2,218
    
    
    
    12,037Total gross deferred tax assets
    
    
    61,365
    
    
    
    69,297
    
    
    
    578,913Less valuation allowance
    
    
    (11,028
    )
    
    
    (9,690
    )
    
    
    (104,037
    )Net deferred tax assets
    
    ¥
    50,337
    
    
    
    59,607
    
    
    $
    474,876Deferred tax liabilities:Investments, principally due to differences
in valuation
    
    
    (7,329
    )
    
    
    (6,420
    )
    
    
    (69,142
    )Undistributed earnings of foreign subsidiaries
    
    
    (2,773
    )
    
    
    (738
    )
    
    
    (26,160
    )Property, plant and equipment, principally
due to differences in depreciation
    
    
    
    
    
    
    (515
    )
    
    
    Net unrealized gains on securities
    
    
    (420
    )
    
    
    (77
    )
    
    
    (3,962
    )Other
    
    
    (1,068
    )
    
    
    (514
    )
    
    
    (10,075
    )Total gross deferred tax liabilities
    
    
    (11,590
    )
    
    
    (8,264
    )
    
    
    (109,339
    )Net deferred tax assets
    
    ¥
    38,747
    
    
    
    51,343
    
    
    $
    365,537
 The net changes in the total valuation allowance for the years ended March
31, 2004, 2003 and 2002, are an increase of ¥1,338 million ($12,623 thousand),
¥2,246 million and ¥1,798 million, respectively. The valuation allowance
primarily relates to valuation allowance for deferred tax assets associated
with net operating loss carryforwards incurred by certain foreign subsidiaries.
Decrease in the valuation allowance attributable to preacquisition tax
benefits recognized during the year ended March 31, 2004 amounted to ¥1,122
million. The reversal of the valuation allowance upon realization of tax
benefits resulted in the reduction of goodwill. In assessing the realizability
of deferred tax assets, management considers whether it is more likely than not
that some portion or all of the deferred tax assets will not be realized. The
ultimate realization of deferred tax assets is dependent upon the generation of
future taxable income during the periods in which those temporary differences
become deductible. Management considered the scheduled reversal of
deferred tax liabilities, projected future taxable income, and tax
planning strategies in making this assessment. Based upon the level of
historical taxable income and projections for future taxable income over the
periods which the deferred tax assets are deductible, management believes it is
more likely than not TDK will realize the benefits of these deductible
differences, net of the existing valuation allowance at March 31, 2004. At March 31, 2004, TDK and certain subsidiaries have net operating loss
carryforwards for income tax purposes of ¥39,573 million ($373,330 thousand)
which are available to offset future taxable income, if any. 84




---



##### Table of Contents



Periods available to offset future taxable income vary in each tax
jurisdiction and range from one year to an indefinite period as follows: Yen
    
    U.S. Dollars(Millions)
    
    (Thousands)Within 1 year
    
    ¥
    11
    
    
    $
    1041 to 5 years
    
    
    7,848
    
    
    
    74,0385 to 20 years
    
    
    14,043
    
    
    
    132,481Indefinite periods
    
    
    17,671
    
    
    
    166,707¥
    39,573
    
    
    $
    373,330
 Certain subsidiaries have tax credit carryforwards for income tax purposes
of ¥559 million ($5,273 thousand) which are available to reduce future income
taxes, if any. Approximately ¥151 million ($1,425 thousand) and $269 million
($2,538 thousand) of the tax credit carryforwards expire in fiscal 2005 and
through 2018, respectively, while the remainder have an indefinite carryforward
period. Net deferred income tax assets and liabilities at March 31, 2004 and 2003,
are reflected in the accompanying consolidated balance sheets under the
following captions: U.S. DollarsYen (Millions)
    
    (Thousands)2004
    
    2003
    
    2004Prepaid expenses and other current assets
    
    ¥
    5,105
    
    
    
    7,555
    
    
    $
    48,160Deferred income taxes (noncurrent assets)
    
    
    34,140
    
    
    
    43,948
    
    
    
    322,075Other current liabilities
    
    
    (283
    )
    
    
    (147
    )
    
    
    (2,670
    )Deferred income taxes (noncurrent liabilities)
    
    
    (215
    )
    
    
    (13
    )
    
    
    (2,028
    )¥
    38,747
    
    
    
    51,343
    
    
    $
    365,537
 As of March 31, 2004 and 2003, TDK did not recognize deferred tax
liabilities of approximately ¥50,714 million ($478,434 thousand) and ¥43,083
million, respectively, for certain portions of undistributed earnings of
foreign subsidiaries because TDK currently does not expect those unremitted
earnings to reverse and become taxable to TDK in the foreseeable future. A
deferred tax liability will be recognized when TDK expects that it will recover
those undistributed earnings in a taxable manner, such as through receipt of
dividends or sale of the investments. As of March 31, 2004 and 2003, the
undistributed earnings of these subsidiaries are approximately ¥208,991 million
($1,971,613 thousand) and ¥178,373 million, respectively. 8. Retirement and Severance Benefits TDK and certain subsidiaries have noncontributory retirement and severance
plans that provide for pension or lump-sum payment benefits, based on length of
service and certain other factors, to employees who retire or terminate their
employment for reasons other than dismissal for cause. In addition, the
majority of the employees of TDK are covered by a contributory pension plan,
whose benefits are based on length of service and certain other factors and
include a portion representing the government social security welfare pension.
TDKs funding consists of the Employees Pension Fund (EPF) in accordance
with welfare pension regulations, the fund in accordance with income tax
regulations and the voluntary pension fund. TDK also has an unfunded
retirement plan for Corporate Auditors. 85




---



##### Table of Contents



Net periodic benefit cost included in cost of sales and selling, general
and administrative expenses for TDKs employee retirement and severance defined
benefit plans for the years ended March 31, 2004, 2003 and 2002 consisted of
the following components: U.S. DollarsYen (Millions)
    
    (Thousands)2004
    
    2003
    
    2002
    
    2004Service cost-benefits earned
during the year
    
    ¥
    10,341
    
    
    
    9,383
    
    
    
    8,924
    
    
    $
    97,557Interest cost on projected
benefit obligation
    
    
    6,271
    
    
    
    5,985
    
    
    
    6,359
    
    
    
    59,160Expected return on plan assets
    
    
    (2,640
    )
    
    
    (3,678
    )
    
    
    (4,321
    )
    
    
    (24,906
    )Amortization
    
    
    (1,331
    )
    
    
    (1,331
    )
    
    
    (1,331
    )
    
    
    (12,556
    )Recognized actuarial loss
    
    
    7,480
    
    
    
    5,963
    
    
    
    3,461
    
    
    
    70,566Amortization of unrecognized
prior service benefit
    
    
    (1,353
    )
    
    
    (1,342
    )
    
    
    
    
    
    
    (12,764
    )¥
    18,768
    
    
    
    14,980
    
    
    
    13,092
    
    
    $
    177,057Weighted-average assumptions:Discount rate
    
    
    2.1
    %
    
    
    2.6
    %
    
    
    3.0
    %Assumed rate of increase
in future compensation
levels
    
    
    3.0
    %
    
    
    3.0
    %
    
    
    3.0
    %Expected long-term rate
of return on plan assets
    
    
    2.2
    %
    
    
    2.6
    %
    
    
    3.0
    %
 86




---



##### Table of Contents



Reconciliations of beginning and ending balances of the benefit
obligations and the fair value of the plan assets are as follows: U.S. DollarsYen (Millions)
    
    (Thousands)2004
    
    2003
    
    2004Change in benefit obligations:Benefit obligations at beginning of period
    
    ¥
    250,625
    
    
    
    238,838
    
    
    $
    2,364,386Service cost
    
    
    10,341
    
    
    
    9,383
    
    
    
    97,557Interest cost
    
    
    6,271
    
    
    
    5,985
    
    
    
    59,160Plan participants contributions
    
    
    405
    
    
    
    621
    
    
    
    3,821Plan amendments
    
    
    68
    
    
    
    (4,838
    )
    
    
    642Actuarial loss (gain)
    
    
    (1,223
    )
    
    
    11,594
    
    
    
    (11,538
    )Benefits paid
    
    
    (6,692
    )
    
    
    (10,346
    )
    
    
    (63,132
    )Translation adjustment
    
    
    (804
    )
    
    
    (612
    )
    
    
    (7,585
    )Benefit obligations at end of period
    
    
    258,991
    
    
    
    250,625
    
    
    
    2,443,311Change in plan assets:Fair value of plan assets at beginning of period
    
    
    146,573
    
    
    
    166,253
    
    
    
    1,382,764Actual return on plan assets
    
    
    21,458
    
    
    
    (17,914
    )
    
    
    202,434Employer contributions
    
    
    6,434
    
    
    
    7,293
    
    
    
    60,698Plan participants contributions
    
    
    405
    
    
    
    621
    
    
    
    3,821Benefits paid
    
    
    (5,588
    )
    
    
    (9,400
    )
    
    
    (52,717
    )Translation adjustment
    
    
    (369
    )
    
    
    (280
    )
    
    
    (3,481
    )Fair value of plan assets at end of period
    
    
    168,913
    
    
    
    146,573
    
    
    
    1,593,519Funded status
    
    
    (90,078
    )
    
    
    (104,052
    )
    
    
    (849,792
    )Unrecognized net transition obligation
being recognized over 18 years
    
    
    (5,046
    )
    
    
    (6,377
    )
    
    
    (47,604
    )Unrecognized net actuarial loss
    
    
    113,550
    
    
    
    142,621
    
    
    
    1,071,226Unrecognized prior service benefit
    
    
    (18,891
    )
    
    
    (20,312
    )
    
    
    (178,217
    )Net amount recognized
    
    ¥
    (465
    )
    
    
    11,880
    
    
    $
    (4,387
    )Amounts recognized in consolidated balance
sheets consist of:Retirement and severance benefits
    
    
    (73,521
    )
    
    
    (84,971
    )
    
    
    (693,594
    )Intangible assets
    
    
    64
    
    
    
    251
    
    
    
    603Accumulated other comprehensive income
    
    
    72,992
    
    
    
    96,600
    
    
    
    688,604Net amount recognized
    
    ¥
    (465
    )
    
    
    11,880
    
    
    $
    (4,387
    )Actuarial present value of accumulated benefit
obligations at end of period
    
    ¥
    237,868
    
    
    
    229,466
    
    
    $
    2,244,038Weighted-average assumptions:Discount rate
    
    
    2.1
    %
    
    
    2.1
    %Assumed rate of increase in future compensation
levels
    
    
    3.0
    %
    
    
    3.0
    %Expected long-term rate of return on plan assets
    
    
    2.2
    %
    
    
    2.2
    %
 In December 2003, the FASB issued Statement of Financial Accounting
Standards No. 132 (revised 2003) (SFAS 132R), Employers Disclosures about
Pensions and Other Postretirement Benefits. SFAS 132R revises and prescribes
employers disclosures about pension plans and other postretirement benefits
plans; it does not change the measurement or recognition of those plans. SFAS
132R retains the disclosure requirements contained in the original SFAS 132.
It also requires additional disclosures about the assets, obligations, cash
flows, and net periodic benefit cost of defined benefit pension plans and
other postretirement benefit plans. SFAS 132R is generally effective for
fiscal years ending after December 15, 2003. The adoption of SFAS 132R did not
have a material impact on TDKs consolidated financial statements. 87




---



##### Table of Contents



Information with respect to domestic plans is as follows: Measurement date TDK and its domestic subsidiaries use a January 1 measurement date for
their plans: Assumptions Weighted-average assumptions
used to determine benefit obligations at March 31: 2004
    
    2003Discount rate
    
    
    2.0
    %
    
    
    2.0
    %Assumed rate of increase in future compensation levels
    
    
    3.0
    %
    
    
    3.0
    %
 Weighted-average assumptions
used to determine net periodic benefit cost for the years ended March 31: 2004
    
    2003
    
    2002Discount rate
    
    
    2.0
    %
    
    
    2.5
    %
    
    
    3.0
    %Assumed rate of increase in future compensation
levels
    
    
    3.0
    %
    
    
    3.0
    %
    
    
    3.0
    %Expected long-term rate of return on plan assets
    
    
    2.0
    %
    
    
    2.5
    %
    
    
    3.0
    %
 TDK determines the expected long-term rate of return based on the expected
long-term return of the various asset categories in which it invests. TDK
considers the current expectations for future returns and the actual historical
returns of each plan asset category. Obligations The accumulated benefit obligation for all domestic defined benefit plans
was ¥229,566 million ($2,165,717 thousand) and ¥222,679 million at March 31,
2004 and 2003, respectively. Plan assets TDKs domestic benefit plan weighted-average asset allocations at March
31, 2004 and 2003 by asset category are as follows: Asset Category 2004
    
    2003Equity securities
    
    
    54.5
    %
    
    
    50.8
    %Debt securities
    
    
    19.8
    %
    
    
    40.7
    %Cash
    
    
    20.3
    %
    
    
    3.4
    %Other
    
    
    5.4
    %
    
    
    5.1
    %100.0
    %
    
    
    100.0
    %
 TDKs investment policies are designed to ensure adequate plan assets are
available to provide future payments of pension benefits to eligible
participants. Taking into account the expected long-term rate of return on
plan assets, TDK formulates a model portfolio comprised of the optimal
combination of equity securities and debt securities. Plan assets are invested
in individual equity and debt securities using the guidelines of the model
portfolio in order to produce a total return that will match the expected
return on a mid-term to long-term basis. TDK evaluates the gap between
expected return and actual return of invested plan assets on an actual basis to
determine if such differences necessitate a revision in the formulation of the
model portfolio. TDK revises the model portfolio when and to the extent
considered necessary to achieve the expected long-term rate of return on plan
assets. Cash flows TDK expects to contribute ¥3,386 million ($31,943 thousand) to its
domestic defined plan in the year ending March 31, 2005. 88




---



##### Table of Contents



The domestic EPF plan is composed of (1) a corporate defined benefit
portion established by TDK and (2) a substitutional portion based on benefits
prescribed by the government (similar to social security benefits in the United
States). TDK has been exempted from contributing to the Japanese Pension
Insurance (JPI) program that would otherwise have been required if it had not
elected to fund the government substitutional portion of the benefit through an
EPF arrangement. The plan assets of the EPF are invested and managed as a
single portfolio for the entire EPF and are not separately attributed to the
substitutional and corporate portions. In June 2001, the Japanese pension law
was amended to permit an employer to elect to transfer the entire
substitutional portion benefit obligation from the EPF to the government
together with a specified amount of plan assets pursuant to a government
formula. After such transfer, the employer would be required to make periodic
contributions to JPI, and the Japanese government would be responsible for all
benefit payments. The corporate portion of the EPF would continue to exist
exclusively as a corporate defined benefit pension plan. In this regard, TDK has elected to transfer the substitutional portion of
its EPF to the government. TDK will account for the transfer in accordance
with the Emerging Issues Task Force issue 03-2 (EITF 03-2), Accounting for
the Transfer to the Japanese Government of the Substitutional Portion of
Employee Pension Fund Liabilities. EITF 03-2 addresses accounting for a transfer to the Japanese government
of a substitutional portion of an EPF plan, which is a defined benefit pension
plan established under the Welfare Pension Insurance Law. EITF 03-2 requires
employers to account for the separation process of the substitutional portion
from the entire EPF plan (which includes a corporation portion) upon completion
of the transfer to the government of the substitutional portion of the benefit
obligation and related plan assets. The separation process is considered
the culmination of a series of steps in a single settlement transaction.
Under this approach, the difference between the fair value of the obligation
and the assets required to be transferred to the government should be accounted
for and separately disclosed as a subsidy. On September 25, 2003, the Company was approved by the minister of Health,
Labour and Welfare for an exemption from the obligation to pay benefits for
future employee service related to the substitutional portion of an EPF plan
and will transfer the benefit obligation and related plan assets to government,
which is presently expected to be completed by February, 2005. Accordingly,
there is no effect on the Companys consolidated financial statement for the
fiscal year ended March 31, 2004. The aggregate effect of this separation will
be determined based on TDKs total pension benefits obligation as of the date
the transfer is completed and the amount of plan assets required to be
transferred. 9. Legal Reserve and Dividends The Japanese Commercial Code (JCC) had provided that earnings in an
amount equal to at least 10 percent of appropriations of retained earnings to
be paid in cash should be appropriated as a legal reserve until such reserve
equals 25 percent of the common stock by each legal-entity. Effective October 1, 2001, the JCC was amended to require earnings in an
amount to at least 10 percent of appropriations of retained earnings to be paid
in cash to be appropriated as a legal reserve until the total additional
paid-in capital and legal reserve equals 25 percent of common stock by each
legal-entity. Either additional paid-in capital or legal reserve may be
available for dividends by resolution of the shareholders to the extent that
the amount of total additional paid-in capital and legal reserve exceeds 25
percent of the common stock by each legal-entity. Certain foreign subsidiaries are also required to appropriate earnings to
legal reserve, under the laws of the respective countries. 89




---



##### Table of Contents



Cash dividends and appropriations to the legal reserve charged to retained
earnings during the periods represent dividends paid out during the periods and
related appropriations to the legal reserve. The accompanying consolidated
financial statements do not include any provision for the dividend proposed by
the Board of Directors of ¥30 ($0.28) per share aggregating ¥3,972 million
($37,472 thousand) in respect of the year ended March 31, 2004, or for the
related appropriation to the legal reserve. Cash dividends per common share are computed based on dividends paid for
the year. 10. Stock Option Plan TDK obtained approval of the Ordinary General Meeting of Shareholders held
on June 27, 2003 regarding the issuance of stock acquisition rights as stock
options (the Stock Acquisition Rights) to Board members, Corporate Officers and
select senior executives, pursuant to Articles 280-20 and 280-21 of the
Japanese Commercial Code. Upon approval, the Board of Directors adopted
resolutions to issue at no charge an aggregate of 2,547 Stock Acquisition
Rights, each representing a stock option to purchase 100 share of common stock
of TDK, to the then 197 Directors, Corporate Officers and select senior
executives of TDK, and the Directors and select senior executives of
affiliates. The Stock Acquisition Rights issued on August 7, 2003 are
exercisable during the period from August 1, 2005 to July 31, 2009. The amount
to be paid by qualified persons upon the exercise of each Stock Acquisition
Rights is set at ¥6,954 ($65.60) per share of common stock, which was
calculated by a formula approved by shareholders at the said annual
shareholders meeting and is subject to an adjustment in certain events,
including but not limited to a stock split, stock dividend and issue of new
shares at a price less than the current market price of the shares of TDK. The
exercise price of each Stock Acquisition Right was equal to or greater than the
fair market value of TDKs common stock on the date of grant. To cover these
options TDK purchased on the Tokyo Stock Exchange (TSE) a total of 260,000
common shares with an aggregate purchase price of ¥1,847 million ($17,425
thousand) from August 8, 2003 through August 18, 2003. TDK obtained approval of the Ordinary General Meeting of Shareholders held
on June 27, 2002 regarding the issuance of the Stock Acquisition Rights to
Board members, Corporate Officers and select senior executives, pursuant to
Articles 280-20 and 280-21 of the Japanese Commercial Code, as amended. Upon
approval, the Board of Directors adopted resolutions to issue at no charge an
aggregate of 2,236 Stock Acquisition Rights, each representing a stock option
to purchase 100 share of common stock of TDK, to the then 197 Directors,
Corporate Officers and select senior executives of TDK, and the Directors and
select senior executives of affiliates. The Stock Acquisition Rights issued on
August 9, 2002 are exercisable during the period from August 1, 2004 to July
31, 2008. The amount to be paid by qualified persons upon the exercise of each
Stock Acquisition Rights is set at ¥5,909 per share of common stock, which was
calculated by a formula approved by shareholders at the said annual
shareholders meeting and is subject to an adjustment in certain events,
including but not limited to a stock split, stock dividend and issue of new
shares at a price less than the current market price of the shares of TDK. The
exercise price of each Stock Acquisition Right was equal to or greater than the
fair market value of TDKs common stock on the date of grant. To cover these
options TDK purchased on TSE a total of 223,600 common shares with an aggregate
purchase price of ¥1,209 million from August 12, 2002 through August 19, 2002. 90




---



##### Table of Contents



The Ordinary General Meeting of Shareholders held on June 28, 2001
approved to implement TDKs stock option plan for Directors and certain
employees of TDK, and to purchase TDKs own shares for transfer to them under
the plan, pursuant to Article 210-2 of the Japanese Commercial Code. Stock
options (rights to purchase common shares) were provided to the then 12
Directors on the Board and 184 associate directors and officials in amounts
ranging from 500 to 10,000 common shares each, exercisable from August 1, 2003
to April 30, 2007, at an exercise price of ¥6,114 per share, which was
calculated by a formula approved by shareholders at the said annual
shareholders meeting and is subject to an adjustment in certain events,
including but not limited to a stock split, stock dividend and issue of new
shares at price less than the current market price of the shares of TDK. The
exercise price of each stock option was equal to or greater than the fair
market value of TDKs common stock on the date of grant. To cover these
options TDK purchased on TSE a total of 158,000 common shares with an aggregate
purchase price of ¥917 million from July 2, 2001 through July 23, 2001. The Ordinary General Meeting of Shareholders held on June 29, 2000
approved to implement TDKs stock option plan for Directors and certain
employees of TDK, and to purchase TDKs own shares for transfer to them under
the plan, pursuant to Article 210-2 of the Japanese Commercial Code. Stock
options (rights to purchase common shares) were provided to the then 13
Directors on the Board and 191 associate directors and officials in amounts
ranging from 500 to 10,000 common shares each, exercisable from August 1, 2002
to April 30, 2006, at an exercise price of ¥15,640 per share, which was
calculated by a formula approved by shareholders at the said annual
shareholders meeting and is subject to an adjustment in certain events,
including but not limited to a stock split, stock dividend and issue of new
shares at price less than the current market price of the shares of TDK. The
exercise price of each stock option was equal to or greater than the fair
market value of TDKs common stock on the date of grant. To cover these
options TDK purchased on TSE a total of 170,400 common shares with an aggregate
purchase price of ¥2,665 million from July 3, 2000 through August 2, 2000. TDK currently accounts for these four stock option plans as fixed plans
pursuant to APB 25. A summary of the status of TDKs four stock option plans as of March 31,
2004, 2003 and 2002, and of the activity during the years ending on those
dates, is as follows: 2004
    
    2003
    
    2002
    
    2004Number
    
    Weighted average
    
    Number
    
    Weighted average
    
    Number
    
    Weighted average
    
    Weighted averageof shares
    
    exercise price
    
    of shares
    
    exercise price
    
    of shares
    
    exercise price
    
    exercise priceYen
    
    
    
    
    
    Yen
    
    
    
    
    
    Yen
    
    U.S. DollarsOutstanding at
beginning of year
    
    
    551,000
    
    
    
    8,977
    
    
    
    328,400
    
    
    
    11,057
    
    
    
    170,400
    
    
    
    15,640
    
    
    
    84.69Granted
    
    
    254,700
    
    
    
    6,954
    
    
    
    223,600
    
    
    
    5,909
    
    
    
    158,000
    
    
    
    6,114
    
    
    
    65.60Exercised
    
    
    46,900
    
    
    
    6,114
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    57.68Forfeited or Expired
    
    
    2,300
    
    
    
    6,136
    
    
    
    1,000
    
    
    
    5,909
    
    
    
    
    
    
    
    
    
    
    
    57.89Outstanding at end
of year
    
    
    756,500
    
    
    
    8,482
    
    
    
    551,000
    
    
    
    8,977
    
    
    
    328,400
    
    
    
    11,057
    
    
    
    80.02Exercisable at end
of year
    
    
    281,500
    
    
    
    11,880
    
    
    
    170,400
    
    
    
    15,640
    
    
    
    
    
    
    
    
    
    
    
    112.08
 91




---



##### Table of Contents



Information about stock options outstanding at March 31, 2004 is as follows: Options OutstandingWeightedaverageNumber
    
    remainingoutstanding at
    
    contractual life
    
    Weighted averageRange of exercise prices
    
    March 31, 2004
    
    (years)
    
    exercise priceYen
    
    
    
    
    
    
    
    
    
    Yen
    
    U.S. Dollars6,954
    
    
    254,200
    
    
    
    5.3
    
    
    
    6,954
    
    
    
    65.605,909
    
    
    220,800
    
    
    
    4.3
    
    
    
    5,909
    
    
    
    55.756,114
    
    
    111,100
    
    
    
    3.1
    
    
    
    6,114
    
    
    
    57.6815,640
    
    
    170,400
    
    
    
    2.1
    
    
    
    15,640
    
    
    
    147.555,909 to 15,640
    
    
    756,500
    
    
    
    3.7
    
    
    
    8,482
    
    
    
    80.02
 The fair value of these stock options was estimated on the date of grant
using the Black-Scholes option pricing model with the following assumptions: 2004
    
    2003
    
    2002Grant-date fair value
    
    ¥
    1,849 ($17.44
    )
    
    ¥
    1,569
    
    
    ¥
    1,567Expected life
    
    4.0 years
    
    4.0 years
    
    3.9 yearsRisk-free interest rate
    
    
    0.47
    %
    
    
    0.35
    %
    
    
    0.34
    %Expected volatility
    
    
    39.65
    %
    
    
    39.96
    %
    
    
    39.86
    %Expected dividend yield
    
    
    0.75
    %
    
    
    0.80
    %
    
    
    1.03
    %
 11. Other Comprehensive Income (Loss) Change in accumulated other comprehensive income (loss) for the years
ended March 31, 2004, 2003 and 2002, are as follows: U.S. DollarsYen (Millions)
    
    (Thousands)2004
    
    2003
    
    2002
    
    2004Foreign currency translation adjustments:Balance at beginning of period
    
    ¥
    (26,520
    )
    
    
    (7,773
    )
    
    
    (23,798
    )
    
    $
    (250,189
    )Adjustments for period
    
    
    (26,287
    )
    
    
    (18,747
    )
    
    
    16,025
    
    
    
    (247,990
    )Balance at end of period
    
    
    (52,807
    )
    
    
    (26,520
    )
    
    
    (7,773
    )
    
    
    (498,179
    )Net unrealized gains (losses) on securities:Balance at beginning of period
    
    
    110
    
    
    
    379
    
    
    
    (329
    )
    
    
    1,038Adjustments for period
    
    
    538
    
    
    
    (269
    )
    
    
    708
    
    
    
    5,075Balance at end of period
    
    
    648
    
    
    
    110
    
    
    
    379
    
    
    
    6,113Minimum pension liability adjustments:Balance at beginning of period
    
    
    (52,414
    )
    
    
    (36,605
    )
    
    
    (724
    )
    
    
    (494,472
    )Adjustments for period
    
    
    14,186
    
    
    
    (15,809
    )
    
    
    (35,881
    )
    
    
    133,830Balance at end of period
    
    
    (38,228
    )
    
    
    (52,414
    )
    
    
    (36,605
    )
    
    
    (360,642
    )Total accumulated other comprehensive
income (loss):Balance at beginning of period
    
    
    (78,824
    )
    
    
    (43,999
    )
    
    
    (24,851
    )
    
    
    (743,623
    )Adjustments for period
    
    
    (11,563
    )
    
    
    (34,825
    )
    
    
    (19,148
    )
    
    
    (109,085
    )Balance at end of period
    
    ¥
    (90,387
    )
    
    
    (78,824
    )
    
    
    (43,999
    )
    
    $
    (852,708
    )
 92




---



##### Table of Contents



Tax effects allocated to each component of other comprehensive income
(loss) and reclassification adjustments for the years ended March 31, 2004,
2003 and 2002, are as follows: Yen (Millions)Before tax
    
    Tax (expense)
    
    Net-of-taxAmount
    
    or benefit
    
    amount2004Foreign 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 and
sale of investments in foreign entities
    
    
    422
    
    
    
    
    
    
    
    422Net foreign currency translation adjustments
    
    
    (26,042
    )
    
    
    (245
    )
    
    
    (26,287
    )Unrealized gains (losses) on securities:Unrealized holding gains (losses) arising for
period
    
    
    886
    
    
    
    (348
    )
    
    
    538Minimum pension liability adjustments
    
    
    23,608
    
    
    
    (9,422
    )
    
    
    14,186Other comprehensive income (loss)
    
    ¥
    (1,548
    )
    
    
    (10,015
    )
    
    
    (11,563
    )2003Foreign currency translation adjustments:Amount arising during the year on investments in
foreign entities held at end of period
    
    ¥
    (19,751
    )
    
    
    242
    
    
    
    (19,509
    )Reclassification adjustments for the portion of
gains and losses realized upon liquidation of
investments in foreign entities
    
    
    762
    
    
    
    
    
    
    
    762Net foreign currency translation adjustments
    
    
    (18,989
    )
    
    
    242
    
    
    
    (18,747
    )Unrealized gains (losses) on securities:Unrealized holding gains arising for period
    
    
    104
    
    
    
    (41
    )
    
    
    63Reclassification adjustments for (gains) losses
realized in net income
    
    
    (539
    )
    
    
    207
    
    
    
    (332
    )Net unrealized gains (losses)
    
    
    (435
    )
    
    
    166
    
    
    
    (269
    )Minimum pension liability adjustments
    
    
    (26,759
    )
    
    
    10,950
    
    
    
    (15,809
    )Other comprehensive income (loss)
    
    ¥
    (46,183
    )
    
    
    11,358
    
    
    
    (34,825
    )2002Foreign currency translation adjustments
    
    ¥
    16,667
    
    
    
    (642
    )
    
    
    16,025Unrealized gains (losses) on securities:Unrealized holding gains arising for period
    
    
    1,144
    
    
    
    (436
    )
    
    
    708Minimum pension liability adjustments
    
    
    (60,782
    )
    
    
    24,901
    
    
    
    (35,881
    )Other comprehensive income (loss)
    
    ¥
    (42,971
    )
    
    
    23,823
    
    
    
    (19,148
    )
 93




---



##### Table of Contents



U.S. Dollars(Thousands)Before tax
    
    Tax (expense)
    
    Net-of-taxamount
    
    or benefit
    
    amount2004Foreign currency translation adjustmentsAmount arising during the year on investments
in foreign entities held at end of period
    
    $
    (249,660
    )
    
    
    (2,311
    )
    
    
    (251,971
    )Reclassification adjustments for the portion
of gains and losses realized upon liquidation
and sale of investments in foreign entities
    
    
    3,981
    
    
    
    
    
    
    
    3,981Net foreign currency translation adjustments
    
    
    (245,679
    )
    
    
    (2,311
    )
    
    
    (247,990
    )Unrealized gains (losses) on securities:Unrealized holding gains (losses) arising for
period
    
    
    8,358
    
    
    
    (3,283
    )
    
    
    5,075Minimum pension liability adjustments
    
    
    222,717
    
    
    
    (88,887
    )
    
    
    133,830Other comprehensive income (loss)
    
    $
    (14,604
    )
    
    
    (94,481
    )
    
    
    (109,085
    )
 12. Leases TDK occupy offices and other facilities under various cancellable lease
agreements expiring in fiscal 2005 through 2006. Lease deposits made under
such agreements, aggregating ¥2,079 million ($19,613 thousand) and ¥1,838
million, at March 31, 2004 and 2003, respectively, are included in other assets
on the accompanying consolidated balance sheets. The following is a schedule by years of future minimum rental payments
required under operating leases that have initial or remaining noncancellable
lease terms in excess of one year as of March 31, 2004: Yen
    
    U.S. Dollars(Millions)
    
    (Thousands)Year ending March 31,2005
    
    ¥
    3,347
    
    
    $
    31,5752006
    
    
    2,444
    
    
    
    23,0572007
    
    
    1,892
    
    
    
    17,8492008
    
    
    1,266
    
    
    
    11,9432009
    
    
    731
    
    
    
    6,896Later years
    
    
    1,229
    
    
    
    11,595¥
    10,909
    
    
    $
    102,915
 13. Commitments and Contingent Liabilities At March 31, 2004, commitments outstanding for the purchase of property,
plant and equipment approximated ¥8,846 million ($83,453 thousand). TDK has
entered into several purchase agreements with certain suppliers whereby TDK
committed to purchase minimum amount of raw materials to be used in the
manufacture of its products. Future minimum purchase remaining under the
agreements approximated ¥1,411 million ($13,311 thousand) at March 31, 2004. 94




---



##### Table of Contents



TDK and certain of its subsidiaries provide guarantees to third parties of
bank loans of its employees. The guarantees for the employees are principally
made for their housing loans. For each guarantees issued, if the employees
default on a payment, TDK would be required to make payments under its
guarantees. The maximum amount of undiscounted payments TDK would have to make
in the event of default is ¥6,605 million ($62,311 thousand) and ¥7,247 million
at March 31, 2004 and 2003, respectively. As of March 31, 2004, the liability
recognized for TDKs obligation under the guarantee arrangement is not
material. Several claims and legal actions against TDK and certain subsidiaries are
pending. Provision has been made for the estimated liabilities for certain
items. In the opinion of management, based upon discussion with counsel, any
additional liability will not materially affect the consolidated financial
position and results of operations of TDK. 14. Risk Management Activities and Derivative Financial Instruments TDK and its subsidiaries operate internationally which exposes them to the
risk of changes in foreign exchange rates and interest rates, and therefore
utilize derivative financial instruments to reduce these risks. TDK and its
subsidiaries do not hold or issue financial instruments for trading purposes.
TDK is exposed to credit related losses in the event of nonperformance by the
counterparties to those financial instruments, but does not expect any
counterparties to fail to meet their obligations given their high credit
ratings. The credit exposure of currency swaps, interest rate and currency
swaps, forward foreign exchange contracts and currency option contracts is
represented by the fair values of contracts. TDK and one of its subsidiaries have currency swaps and interest rate and
currency swaps with certain financial institutions to limit their exposure to
fluctuations in foreign exchange rates and interest rates involved mainly in
loans made by TDK to its subsidiaries in a total amount of ¥12,605 million
($118,915 thousand) and ¥13,794 million at March 31, 2004 and 2003,
respectively. These swaps require TDK and the subsidiary to pay principally
euros and U.S. dollars and to receive Japanese yen at a specified rate on
specific dates. The remaining terms of these swaps range from one month to
six months as of March 31, 2004. Gains or losses on interest and currency
swaps and currency swaps are included in interest expense and foreign exchange
gain (loss) in the consolidated statements of operations, respectively. The
swap contracts are measured at fair value and are included in prepaid expenses
and other current assets or other current liabilities, as the case may be, in
the consolidated balance sheets. Forward exchange contracts and currency option contracts have been entered
into to hedge adverse effects of foreign currency exchange rate fluctuations
mainly on foreign-currency-denominated trade receivables and
foreign-currency-denominated forecasted transactions. At March 31, 2004 and 2003, TDK and certain of its subsidiaries had
forward exchange contracts to sell and buy foreign currencies (principally U.S.
dollars and Japanese Yen) and currency option contracts for a contract amount
of ¥34,978 million ($329,981 thousand) and ¥19,016 million, respectively.
Gains or losses on forward exchange contracts and currency option contracts are
included in foreign exchange gain (loss) in the consolidated statements of
operations. These contracts are measured at fair value and are included in
prepaid expenses and other current assets or other current liabilities, as the
case may be, in the consolidated balance sheets. 95




---



##### Table of Contents



15. Fair Value of Financial Instruments The following methods and assumptions were used to estimate the fair value
of financial instruments in cases for which it is practicable: (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. The carrying amount approximates fair value because of the short maturity
of these instruments. (b) Marketable securities and Investments in securities The fair values of marketable securities and investments in securities are
estimated based on quoted market prices for these instruments. For other
securities for which there are no quoted market prices, a reasonable estimate
of fair values could not be made without incurring excessive costs. Additional
information pertinent to the value of unquoted investments is provided below. (c) Long-term debt The fair values of each of TDKs long-term debts are estimated based on
the amount of future cash flows associated with each instrument discounted
using TDKs current borrowing rate for similar debt of comparable maturity, or
based on the quoted market prices for the same or similar issues. (d) Currency Swaps, Currency and Interest Rate Swaps, Forward Foreign
Exchange Contracts and Foreign Currency Option Contracts The fair values of currency swaps, currency and interest rate swaps,
forward foreign exchange contracts and foreign currency option contracts are
estimated by obtaining quotes from financial institutions. The carrying amounts and estimated fair values of TDKs financial
instruments at March 31, 2004 and 2003, are summarized as follows: Yen (Millions)As of March 31, 2004
    
    Carrying amount
    
    Estimated fair valueNonderivatives:Assets:Investments in securities and other
assets for which it is:Practicable to estimate fair value
    
    ¥
    6,180
    
    
    
    6,180Not practicable to estimate fair value
    
    
    1,135
    
    
    
    Liability:Long-term debt, including current portion
    
    
    (128
    )
    
    
    (128
    )Derivatives:Currency and interest rate swaps in a:Gain position
    
    
    287
    
    
    
    287Loss position
    
    
    (35
    )
    
    
    (35
    )Forward foreign exchange contracts in a:Gain position
    
    
    403
    
    
    
    403Loss position
    
    
    (7
    )
    
    
    (7
    )Currency option contracts in a:Gain positions
    
    
    91
    
    
    
    91
 96




---



##### Table of Contents



Yen (Millions)As of March 31, 2003
    
    Carrying amount
    
    Estimated fair valueNonderivatives:Assets:Investments and advances for which it is:Practicable to estimate fair value
    
    ¥
    5,205
    
    
    
    5,205Not practicable to estimate fair value
    
    
    3,290
    
    
    
    Liability:Long-term debt, including current portion
    
    
    (582
    )
    
    
    (582
    )Derivatives:Currency and interest rate swaps in a:Gain position
    
    
    6
    
    
    
    6Loss position
    
    
    (293
    )
    
    
    (293
    )Forward foreign exchange contracts in a:Gain position
    
    
    62
    
    
    
    62Loss position
    
    
    (23
    )
    
    
    (23
    )U.S. Dollars (Thousands)As of March 31, 2004
    
    Carrying amount
    
    Estimated fair valueNonderivatives:Assets:Investments in securities and other
assets for which it is:Practicable to estimate fair value
    
    $
    58,302
    
    
    
    58,302Not practicable to estimate fair value
    
    
    10,708
    
    
    
    Liability:Long-term debt, including current portion
    
    
    (1,208
    )
    
    
    (1,208
    )Derivatives:Currency and interest rate swaps in a:Gain position
    
    
    2,708
    
    
    
    2,708Loss position
    
    
    (330
    )
    
    
    (330
    )Forward foreign exchange contracts in a:Gain position
    
    
    3,802
    
    
    
    3,802Loss position
    
    
    (66
    )
    
    
    (66
    )Currency option contracts in a:Gain positions
    
    
    858
    
    
    
    858
 The carrying amounts of the nonderivative assets and liabilities are
included in the consolidated balance sheets under the indicated captions. The
carrying amounts of the currency swaps, the currency and interest rate swaps,
forward foreign exchange contracts and foreign currency option contracts in a
gain position are included in prepaid expenses and other current assets, while
those in a loss position are included in other current liabilities. It is not practicable to estimate the fair value of investments in
untraded companies. Management believes that the carrying amounts approximate
fair value. Limitations Fair value estimates are made at a specific point in time, based on
relevant market
information and information about the financial instrument. These
estimates are subjective in nature and involve uncertainties and matters of
significant judgment and therefore cannot be determined with precision.
Changes in assumptions could significantly affect the estimates. 97




---



##### Table of Contents



16. Restructuring Charges During the year ended March 31, 2003, TDK recorded a restructuring charge
of ¥5,345 million. As a result of the restructuring, a total of 1,302 regular
employees were terminated through March 31, 2003. TDK and domestic
subsidiaries released 237 employees in Japan and overseas subsidiaries released
1,065 employees mainly in the Americas and Europe. TDK recorded a workforce
reduction charge of approximately ¥2,346 million relating primarily to
severances. TDK recorded a restructuring charge of ¥2,999 million mainly
relating to losses in the disposal of property, plant and equipment in Japan,
in the Americas and in Europe. The downturn in the U.S. economy from the fourth quarter ended March 31,
2001 and the recent reduction in IT investment volume on a world-wide basis had
an adverse effect on TDK. Under the circumstances, TDK believes offering
competitive pricing is essential to maintaining its advantageous position in
the market of electronic components. Additionally, many of TDKs customers who
manufacture consumer products have transferred their manufacturing facilities
to Asian countries, in particular China. As a result, TDK, as a supplier of
electronic components to these customers, will be required to transfer certain
of its factories to these Asian countries in order to meet the customers
logistical needs. Given the global economic conditions, TDK decided to
restructure its organization to improve its competitive and financial position
on a world-wide basis. The structural reforms implemented over the past two
years, including manufacturing plant integration and closure, reduction of
headcount and other rationalization plans, have almost been accomplished on
schedule through March 31, 2003. During the year ended March 31, 2002, TDK recorded a restructuring charge
of ¥25,872 million. As a result of the restructuring, a total of 5,066 regular
employees were terminated across all business functions, operating units and
geographic regions through March 31, 2002. TDK recorded a workforce reduction
charge of approximately ¥19,884 million relating primarily to severances. In
Japan, TDK released 853 employees and domestic subsidiaries released 1,709
employees. Overseas subsidiaries released 2,504 employees mainly in the
Americas and Asia (excluding Japan). TDK recorded a restructuring charge of
¥5,988 million mainly relating to losses in the disposal of property, plant and
equipment in Japan and in the Americas. TDK reorganized several production
lines to strengthen the competitive power of the existing plant in Asia. Changes of the restructuring liabilities for the years ended March 31,
2004 and 2003, are outlined as follows: Yen (millions)2004
    
    2003Loss on disposal of
    
    
    
    
    
    
    
    
    
    Loss on disposal ofWorkforce
    
    property, plant and
    
    
    
    
    
    Workforce
    
    property, plant andreduction
    
    equipment
    
    Total
    
    reduction
    
    equipment
    
    TotalBeginning balance
    
    ¥
    226
    
    
    
    
    
    
    
    226
    
    
    
    11,272
    
    
    
    
    
    
    
    11,272Costs and expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,346
    
    
    
    2,999
    
    
    
    5,345Payments
    
    
    226
    
    
    
    
    
    
    
    226
    
    
    
    13,392
    
    
    
    2,999
    
    
    
    16,391Ending balance
    
    ¥
    
    
    
    
    
    
    
    
    
    
    
    
    226
    
    
    
    
    
    
    
    226U.S. Dollars (Thousands)Beginning balance
    
    $
    2,132
    
    
    
    
    
    
    
    2,132Costs and expenses
    
    
    
    
    
    
    
    
    
    
    Payments
    
    
    2,132
    
    
    
    
    
    
    
    2,132Ending balance
    
    $
    
    
    
    
    
    
    
    
    
 98




---



##### Table of Contents



Restructuring liabilities were included in Accrued expenses in the
consolidated balance sheets as of March 31, 2003. Through March 31, 2003, TDK had paid ¥5,119 million of the ¥5,345 million
restructuring charges. TDK paid all of the remaining restructuring costs by
the end of first quarter of fiscal 2004. 17. Goodwill and Other Intangible Assets TDK adopted Statement of Financial Accounting Standards No.142 (SFAS
142), Goodwill and Other Intangible Assets, effective April 1, 2001. Under
SFAS 142, goodwill is no longer amortized but is reviewed for impairment
annually, or more frequently if certain indicators arise. In addition, the
statement requires reassessment of the useful lives of previously recognized
intangible assets. With the adoption of SFAS 142, TDK ceased amortization of
goodwill as of April 1, 2001. As of March 31, 2004 and 2003, TDK completed a
goodwill impairment test. No impairment was indicated at that time. The components of acquired intangible assets excluding goodwill at March
31, 2004 and 2003, are as follows: Yen (Millions)2004
    
    2003Gross
    
    
    
    
    
    
    
    
    
    GrossCarrying
    
    Accumulated
    
    
    
    
    
    Carrying
    
    AccumulatedAmount
    
    Amortization
    
    Net Amount
    
    Amount
    
    Amortization
    
    Net AmountAmortized intangible assets:Patent
    
    ¥
    10,349
    
    
    
    1,259
    
    
    
    9,090
    
    
    
    11,213
    
    
    
    1,122
    
    
    
    10,091Software
    
    
    7,359
    
    
    
    4,207
    
    
    
    3,152
    
    
    
    6,985
    
    
    
    3,471
    
    
    
    3,514Other
    
    
    2,739
    
    
    
    870
    
    
    
    1,869
    
    
    
    2,235
    
    
    
    692
    
    
    
    1,543Total
    
    ¥
    20,447
    
    
    
    6,336
    
    
    
    14,111
    
    
    
    20,433
    
    
    
    5,285
    
    
    
    15,148Unamortized
intangible assets
    
    ¥
    916
    
    
    
    
    
    
    
    916
    
    
    
    1,270
    
    
    
    
    
    
    
    1,270U.S. Dollars (Thousands)GrossCarrying
    
    AccumulatedAmount
    
    Amortization
    
    Net AmountAmortized intangible assets:Patent
    
    $
    97,632
    
    
    
    11,877
    
    
    
    85,755Software
    
    
    69,425
    
    
    
    39,689
    
    
    
    29,736Other
    
    
    25,840
    
    
    
    8,208
    
    
    
    17,632Total
    
    $
    192,897
    
    
    
    59,774
    
    
    
    133,123Unamortized
intangible assets
    
    $
    8,641
    
    
    
    
    
    
    
    8,641
 Aggregate amortization expense for the years ended March 31, 2004, 2003
and 2002 was ¥2,626 million ($24,774 thousand), ¥1,762 million and ¥1,394
million, respectively. Estimated amortization expense for the next five years
is: ¥2,364 million in 2005, ¥2,198 million in 2006, ¥1,677 million in 2007,
¥1,316 million in 2008, and ¥1,093 million in 2009. 99




---



##### Table of Contents



The changes in the carrying amount of goodwill by segment for the year
ended March 31, 2004 is as follows: Yen (Millions)Electronicmaterials and
    
    Recording mediacomponents
    
    and systems
    
    TotalApril 1, 2002
    
    ¥
    11,003
    
    
    
    497
    
    
    
    11,500Additions
    
    
    3,553
    
    
    
    
    
    
    
    3,553Translation adjustment
    
    
    (922
    )
    
    
    
    
    
    
    (922
    )March 31, 2003
    
    
    13,634
    
    
    
    497
    
    
    
    14,131Additions
    
    
    76
    
    
    
    
    
    
    
    76Deductions
    
    
    (2,128
    )
    
    
    (497
    )
    
    
    (2,625
    )Translation adjustment
    
    
    (1,553
    )
    
    
    
    
    
    
    (1,553
    )March 31, 2004
    
    ¥
    10,029
    
    
    
    
    
    
    
    10,029
 U.S. Dollars (Thousands)Electronicmaterials and
    
    Recording mediacomponents
    
    and systems
    
    TotalMarch 31, 2003
    
    $
    128,623
    
    
    
    4,689
    
    
    
    133,312Additions
    
    
    717
    
    
    
    
    
    
    
    717Deductions
    
    
    (20,076
    )
    
    
    (4,689
    )
    
    
    (24,765
    )Translation adjustment
    
    
    (14,651
    )
    
    
    
    
    
    
    (14,651
    )March 31, 2004
    
    $
    94,613
    
    
    
    
    
    
    
    94,613
 Goodwill deductions during the years ended March 31, 2004 consists of a
reclassification to intangible assets in the amount of ¥1,006 million resulting
from the finalization of the purchase price allocation of a subsidiary acquired
in 2003, a reclassification to deferred income taxes in the amount of ¥1,122
million related to post-acquisition adjustment resulting from recognition of
preacquisition tax benefits, and sale of a certain subsidiary in the amount of
¥497 million. Goodwill addition during the year ended March 31, 2003 principally
represents the excess of purchase price over the fair value of assets acquired
and liabilities assumed for several immaterial acquisitions made during the
year. 100




---



##### Table of Contents



18. Net Income per Share A reconciliation of the numerators and denominators of the basis and
diluted net income per share computations is as follows: U.S. DollarsYen (Millions)
    
    (Thousands)2004
    
    2003
    
    2002
    
    2004Net income (loss) available to
common stockholders
    
    ¥
    42,101
    
    
    
    12,109
    
    
    
    (25,771
    )
    
    $
    397,179
  Number of shares
(Thousands)2004
    
    2003
    
    2002Weighted average common shares
outstanding
    
    
    132,475
    
    
    
    132,716
    
    
    
    132,900Effect of dilutive stock options
    
    
    48
    
    
    
    
    
    
    
    Diluted common shares outstanding
    
    
    132,523
    
    
    
    132,716
    
    
    
    132,900
  Yen
    
    U.S. Dollars2004
    
    2003
    
    2002
    
    2004Net income (loss) per share:Basic
    
    ¥
    317.80
    
    
    
    90.56
    
    
    
    (193.91
    )
    
    $
    3.00Diluted
    
    
    317.69
    
    
    
    90.56
    
    
    
    (193.91
    )
    
    
    3.00
 19. Business and Credit Concentrations One significant customer related to electronic materials and components
business accounted for 12.1% of the TDKs net sales for the year ended March
31, 2004 and 10.2% of trade receivables at March 31, 2004. 20. Supplementary Information U.S. DollarsYen (Millions)
    
    (Thousands)2004
    
    2003
    
    2002
    
    2004(a) Statement of OperationsResearch and development
    
    ¥
    34,495
    
    
    
    31,862
    
    
    
    38,630
    
    
    $
    325,425Rent
    
    
    8,230
    
    
    
    9,410
    
    
    
    11,538
    
    
    
    77,642Maintenance and repairs
    
    
    12,184
    
    
    
    11,534
    
    
    
    11,437
    
    
    
    114,943Advertising costs
    
    
    6,269
    
    
    
    5,546
    
    
    
    10,489
    
    
    
    59,142(b) Statement of Cash FlowsCash paid during year for:Interest
    
    ¥
    350
    
    
    ¥
    646
    
    
    
    1,162
    
    
    $
    3,302Income taxes
    
    ¥
    4,299
    
    
    
    (1,270
    )
    
    
    22,026
    
    
    $
    40,557
 Noncash activities In 2004, 2003 and 2002, there were no material noncash investing and
financing activities. 101




---



##### Table of Contents



Schedule II TDK CORPORATION AND SUBSIDIARIES Valuation and Qualifying Accounts (In millions of yen)
 Years ended March 31, 2004, 2003 and 2002
 Balance at
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balancebeginning
    
    Charged to
    
    Bad debts
    
    Translation
    
    at end ofof period
    
    earnings
    
    written off
    
    adjustment
    
    periodYear ended March 31, 2004:Allowance for doubtful receivables
    
    ¥
    2,850
    
    
    
    (227
    )
    
    
    373
    
    
    
    (250
    )
    
    
    2,000Year ended March 31, 2003:Allowance for doubtful receivables
    
    ¥
    3,770
    
    
    
    (218
    )
    
    
    440
    
    
    
    (262
    )
    
    
    2,850Year ended March 31, 2002:Allowance for doubtful receivables
    
    ¥
    2,740
    
    
    
    917
    
    
    
    90
    
    
    
    203
    
    
    
    3,770
 102




---



##### Table of Contents



Item 18. Financial Statements Not applicable. 
 Item 19. Exhibits Documents filed as exhibits to this annual report are as follows:  1.1
    
    ARTICLES OF INCORPORATION (English translation)1.2
    
    SHARE HANDLING REGULATIONS (English translation)11.1
    
    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 103




---



##### Table of Contents



SIGNATURES Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the Registrant certifies that it meets all the requirements for filing
of Form 20-F and has duly caused this annual report to be signed on its behalf
by the undersigned, thereunto duly authorized. TDK Corporation
(Registrant)Date: August 10, 2004
    
    By:
    
    /s/ Hajime SawabeHajime Sawabe
President, Representative Director and CEO
 104