20-F

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 20-F

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended March 31, 2006

Commission file number 2-76735

TDK KABUSHIKI KAISHA

(Exact name of Registrant as specified in its charter)

TDK CORPORATION

(Translation of Registrant’s name into English)

Japan

(Jurisdiction of incorporation or organization)

13-1, Nihonbashi 1-chome, Chuo-ku, Tokyo 103-8272 Japan

(Address of principal executive offices)

Securities registered pursuant to Section 12(b) of the Act.

Title of each class	Name of each exchange on which registered
American Depositary Shares	New York Stock Exchange
Common stock	New York Stock Exchange

Securities registered or to be registered pursuant to Section 12(g) of the Act.

None

(Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.

None

(Title of Class)

     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, 2006: 132,266,828 shares (excluding treasury stock)

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     Indicate by check mark whether if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the securities act.
Yes þ No o.

     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 þ No o.

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ           Accelerated filer o           Non-accelerated filer o.

     Indicate by a check mark which financial statement item the registrant has elected to follow.
Item 17 þ Item 18 o.

     If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No þ.

          All information contained in this Report is as of March 31, 2006 unless otherwise specified. Fiscal 2006, fiscal 2005, fiscal 2004, fiscal 2003 and fiscal 2002 of this Report indicate TDK Corporation’s fiscal period of the fiscal years ended March 31, 2006, 2005, 2004, 2003 and 2002, 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 ¥117 = U.S.$1, the approximate exchange rate prevailing on the Tokyo Foreign Exchange Market as of March 31, 2006. (See Note 2 of the Notes to Consolidated Financial Statements.) On July 14, 2006 the noon buying rate for yen cable transfers in New York City as reported by the Federal Reserve Bank of New York was ¥116.33 = $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 material 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). These forward-looking statements are based on the current forecasts, estimates, assumptions, plans, beliefs and evaluations of TDK in light of information currently available to it, and contain known and unknown risks, uncertainties and other factors. TDK therefore wishes to caution readers that, being subject to risks, uncertainties and other factors, TDK’s actual results, performance, achievements or financial position could be materially different from any future results, performance, achievements or financial position expressed or implied by these forward-looking statements, and TDK undertakes no obligation to publicly update or revise any forward-looking statements after the issue of this material.

          The electronics markets in which TDK operates are highly susceptible to rapid changes. Risks, uncertainties and other factors that can have significant effects on TDK include, but are not limited to, shifts in technology, fluctuations in demand, prices, interest and foreign exchange rates, and changes in economic environments, conditions of competition, laws and regulations.

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PART 1
Item 1.	Identity of Directors, Senior Management and Advisers	3
Item 2.	Offer Statistics and Expected Timetable	3
Item 3.	Key Information	4
Item 4.	Information on the Company	11
Item 4A.	Unresolved Staff Comments	18
Item 5.	Operating and Financial Review and Prospects	19
Item 6.	Directors, Senior Management and Employees	48
Item 7.	Major Shareholders and Related Party Transaction	67
Item 8.	Financial Information	68
Item 9.	The Offer and Listing	69
Item 10.	Additional Information	71
Item 11.	Quantitative and Qualitative Disclosures about Market Risk	81
Item 12.	Description of Securities Other than Equity Securities	82
PART 2
Item 13.	Defaults, Dividend Arrearages and Delinquencies	83
Item 14.	Material Modifications to the Rights of Security Holders and Use of Proceeds	83
Item 15.	Controls and Procedures	83
Item 16A.	Audit Committee Financial Expert	83
Item 16B.	Code of Ethics	84
Item 16C.	Principal Accountant Fees and Services	84
Item 16D.	Exemptions from Listing Standards for Audit Committees	86
Item 16E.	Purchases of Equity Securities by the Issuer and Affiliated Purchasers	87
PART 3
Item 17.	Financial Statements	88
	Independent Auditors’ Report	89
	Consolidated Financial Statements	90
	Notes to Consolidated Financial Statements	95
	Schedule II – Valuation and Qualifying Accounts	133
Item 18.	Financial Statements	134
Item 19.	Exhibits	134
	1.1 Articles of Incorporation (English translation)
	1.2 Regulations of the Board of Directors (English translation)
	2.1 Share Handling Regulations (English translation)
	8.1 List of Significant Subsidiaries
	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 Company
	12.2 Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of CFO of the Company
	13.1 Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of CEO of the Company
	13.2 Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of CFO of the Company
EX-1.1 ARTICLES OF INCORPORATION (ENGLISH TRANSLATION)
EX-1.2 REGULATION OF THE BOARD OF DIRECTORS (ENGLISH TRANSLATION)
EX-2.1 SHARE HANDLING REGULATIONS (ENGLISH TRANSLATION)
EX-8.1 LIST OF SIGNIFICANT SUBSIDIARIES
EX-11.1 TDK CODE OF ETHICS (ENGLISH TRANSLATION)
EX-12.1 CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 OF CEO OF THE COMPANY
EX-12.2 CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 OF CFO OF THE COMPANY
EX-13.1 CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 OF CEO OF THE COMPANY
EX-13.2 CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 OF CFO OF THE COMPANY

PART 1

Item 1. Identity of Directors, Senior Management and Advisers

A.	Directors and senior management
	Not applicable.
B.	Advisers
	Not applicable.
C.	Auditors
	Not applicable.

Item 2. Offer Statistics and Expected Timetable

A.	Offer statistics
	Not applicable.
B.	Method and expected timetable
	Not applicable.

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Item 3. Key Information

A. Selected financial data

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

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	Millions of yen, except per share amounts										Thousands of
	and exchange rate for yen										U.S. dollars (1)
	2006		2005		2004		2003		2002		2006
Net working capital (3)	¥	397,131	¥	379,746	¥	360,555	¥	315,948	¥	288,865	$	3,394,282
Total assets		923,503		808,001		770,319		747,337		749,910		7,893,188
Short-term indebtedness		6,427		103		416		1,919		2,312		54,932
Long-term indebtedness		405		81		27		94		459		3,462
Retirement and severance benefits		26,790		28,839		73,521		84,971		49,992		228,974
Stockholders’ equity		702,419		639,067		576,219		553,885		583,927		6,003,581
Number of shares outstanding (in thousands)		132,267		132,245		132,409		132,625		132,860

Yen exchange rates per U.S. dollar (4)	Average		Term end		High		Low
Year ended March 31:
2002		125.64		132.70		134.77		115.89
2003		121.10		118.07		133.40		115.71
2004		112.75		104.18		120.55		104.18
2005		107.28		107.22		114.30		102.26
2006		113.67		117.48		120.93		104.64
2007 (through July 14, 2006)		114.22		116.33		118.66		110.07
January, 2006						117.55		113.96
February, 2006						118.95		115.82
March, 2006						119.07		115.89
April, 2006						118.66		113.79
May, 2006						113.46		110.07
June, 2006						116.42		111.66

Notes:

(1)	Translated, except for cash dividend amounts, for convenience of the reader into U.S. dollars at the rate of ¥117 = $1, the approximate rate on the Tokyo Foreign Exchange Market on March 31, 2006.
(2)	Translated based on the rates specified in Note (4) below on the respective dates of semi-annual payments for each year.
(3)	Net working capital is defined as current assets less current liabilities.
(4)	Based on the noon buying rate in New York City for cable transfers in foreign currencies as certified for customs purposes by the Federal Reserve Bank of New York. The average rates are computed based on the exchange rates on the last day of each month during the year.

B.	Capitalization and indebtedness
	Not applicable.
C.	Reasons for the offer and use of proceeds
	Not applicable.

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D. Risk factors

     Our business is exposed to fluctuations in economic conditions that may adversely affect our business results and financial condition.

          The electronics industry, our field of operations, is highly susceptible to economic trends in the U.S., Europe, China and Japan, which are the main markets of end products. In addition, these countries are constantly grappling with various risk factors such as international issues and economic fluctuations. Furthermore, the digital consumer products field is significantly affected by the extremely fast pace of technological innovation and competition in the development of new products as well as changes in economic conditions. Changes in the economic environments from our expectations could significantly affect our business results and financial condition.

     Fluctuations in currency exchange rates could adversely affect our business results and financial condition.

          We import and export products between different regions of the world as we conduct our business activities in countries around the globe. Sudden changes in foreign currency exchange rates affect company transactions between regions and costs and prices of our products and services at overseas bases, which consequently have effects on our business results such as sales and income. Such fluctuations also give rise to conversion differences with respect to our investments in overseas assets and liabilities, which are converted into Japanese yen in our consolidated financial statements.

          Therefore, significant fluctuations in foreign currency exchange rates could have a significant adverse effect on our business results and financial condition.

     We are susceptible to risks involved with selling our products in markets outside of Japan.

          One of our corporate strategies is to expand in markets outside Japan as we conduct business in countries around the world. Overseas sales account for more than 70 percent of total sales on a consolidated basis.

          However, in many of these markets, we may be exposed to international 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 disease, labor problems stemming from differences in cultures and customs. Such risks may give rise to changes of a far greater magnitude than we anticipate. We may also face unexpected barriers in building relationships with trading partners due to differences in commercial and business customs. Manifestation of these risks could lower productivity in manufacturing processes, undermining the competitiveness of products and also hinder sales activities and result in other negative consequences. These outcomes could in turn have a significant adverse effect on our business results and financial condition.

     A slow-down of the Chinese economy, adverse changes in political and economic policies of the Chinese government, or other factors in China may reduce our growth and profitability.

          We have many production bases in China for mainstay products, such as HDD heads. China is a country in the midst of strong economic growth. We have also established a system for supplying both local companies and customers that have been setting up operations in China. Furthermore, we plan to expand business further in this country.

          However, in the event that political factors (such as changes in laws and regulations), economic factors (such as the continuity of high growth, fluctuations in Renminbi (RMB) against U.S. dollars and problems with electric power supply and other infrastructure) and social factors cause unexpected events in China, there could be a material adverse effect on our growth and profitability.

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     We may not be able to compete effectively with respect to prices, which would have a material adverse effect on our profitability.

          We supply products in a broad range of fields in an electronics industry defined by intense competition. These fields include IT and communications devices such as digital home appliances, PCs and mobiles phones. In this industry, price is one of the main competitive factors differentiating us from other companies, while leading Japanese companies and Asian companies in South Korea and Taiwan have fueled intense price-based competition.

          However, pressure continues to mount from customers for price discounts. In the event that the fall in prices far exceeds our expectations or becomes protracted, there could be a material adverse effect on our profitability.

     Rapid changes in technology could adversely affect our business and hurt our competitive position.

          We believe that our ability to increase sales by developing appealing, innovative products has an important role to play in our growth. However, it is extremely difficult to predict future demand in the rapidly changing electronics industry and develop new technologies to meet that demand. We may fail to develop and supply in a timely manner attractive, new products with innovative technologies for this industry and our markets. In the event that we misread the industry and market and/or are slow in developing innovative technologies on a cost competitive basis, actual earnings could differ significantly from our forecasts. At the same time, we may cease to be able to compete in markets, resulting in a significant adverse effect on our business results and growth prospects.

     Claims of product liability and other issues associated with the quality of our products could adversely affect our business results and brand name.

          We manufacture various products at overseas manufacturing bases that we are developing globally in accordance with ISO (International Organization for Standardization) quality management standards (ISO 9001) and the strict standards required by customers in the electronics industry, where technological innovation is remarkable.

          We cannot be fully certain, however, that all of our products are defect-free and immune from recalls at some later date. A product recall or a product liability claim against us caused by product defects could result in recall costs or damage claims, lower sales and have a negative impact on our reputation and brand, endangering our continued existence. A situation resulting from poor product quality due to a major product defect could have a materially adverse effect on our business results and brand name.

     Our proprietary technology is difficult to protect and unauthorized use of our proprietary technology by third parties may reduce the value of our products and brand and impair our ability to compete effectively.

          Our growth depends to a great extent on our ability to obtain patents, licenses and other intellectual property rights covering our products, product designs and manufacturing processes.

          However, there are cases where our intellectual property rights cannot be fully protected in a particular region for reasons unique to that region. Furthermore, we may suffer damages resulting from the manufacture by a third party of similar products to our own with the unauthorized use of our intellectual property rights. The failure to protect intellectual property rights of others could reduce the value of our products and brand and impair our ability to compete effectively.

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     Our business may suffer if we are sued for infringing upon the intellectual property rights of third parties.

          There may be cases where it is alleged that our products infringe on the intellectual property rights of third parties. Regarding problems relating to the infringement of such intellectual property rights, we may suffer damages or may be sued for damages. In either case, settlement negotiations and legal procedures would be inevitable and could be expected to be lengthy and expensive. If our assertions are not accepted in such disputes, we may have to pay damages and royalties and suffer losses such as the loss of markets.

          The failure to prevent infringement on the rights of others could have a materially adverse effect on our business development and business results and financial condition.

     Our success depends on attracting and retaining highly-skilled employees, and we would suffer material adverse effects if we are unable to do so.

          To prevail against fierce competition in the electronics industry, we believe that it is necessary to recruit and retain staff possessing advanced technical skills. Regarding personnel with superior management ability, such as with respect to the ability to formulate strategy and organizational management, we believe that it is necessary to upgrade skills at an advanced level.

          However, intense competition to recruit such skilled employees is not limited to the industries where we are active. Moreover, in Japan, there is increasing fluidity in the labor market caused by revisions to the life-time employment system and other developments. These and other factors mean there is no guarantee that we will continue to be able to recruit and retain skilled employees. The inability to recruit and train personnel as planned could have a materially adverse effect on the our operations, business results and growth prospects.

     We are dependent on certain raw materials and other products, and our business will suffer if we are unable to procure such materials.

          Our manufacturing system is premised on deliveries of raw materials, components, equipment and other supplies in adequate quality and quantity in a timely manner from many external suppliers. In new product development, we may rely on certain irreplaceable suppliers for materials.

          Because of this, there may be cases where supplies of raw materials and other products to us are interrupted by an accident or some other event at a supplier, supply is suspended due to quality or other issues, or there is a shortage of or instability in supply due to a rapid increase in demand for finished products that use certain materials and products. If any of these situations becomes protracted, we may have difficulty finding substitutes in a timely manner from other suppliers, which could have a significant, adverse effect on our production and prevent us from fulfilling our responsibilities to supply products to our 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, there could be a material adverse effect on our business results and financial condition.

     Increased government regulation of our industry or changes in those regulations, whether in Japan or overseas, may limit our ability to compete effectively.

          We are subject to various regulations in Japan and other countries where we conduct business. These include approval for conducting business and making investments, laws and regulations governing the safety of electric and electronic products, laws and regulations relating to national security between nations, and export/import laws and regulations. We are also subject to 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, our business development could be affected in no small way and we may incur various additional operating costs. Furthermore, in the event that we are unable to respond appropriately to these laws and regulations, we may be forced to partially withdraw from certain businesses or take other actions.

          Government laws and regulations in their various forms may limit our ability to compete effectively.

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     Fluctuations in interest rates may have an adverse effect on our profitability.

          Although we attempt to limit our borrowings from third parties, from time to time, we or our subsidiaries may need to borrow funds from such third parties. To the extent that interest rates increase, we or our subsidiaries may be subject to higher interest expenses. In contrast, a protracted period of low interest rates also may have an adverse effect on us by limiting our interest income from investments. Low interest rates also may require us to make additional contributions to pension benefit funds since the assets of those funds may become under funded. Either of these changes could have a material adverse effect on our business results and financial condition.

     We are developing a business strategy whereby we sell to a concentrated number of Original Equipment Manufacturers (OEMs), and are thus susceptible to adverse changes with respect to the business of such OEMs.

          We are developing on a global scale an OEM business, whereby we supply mainly electronic components to electronics manufacturers, personal computer (PC) makers and other customers.

          However, supplies to these customers are significantly affected by various factors that are beyond our control such as changes in each customer’s business results and management strategies. 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 occurrences could result in our profit margins being reduced due to discounting pressure from customers or our being left holding large amounts of inventory.

          During fiscal 2006, Maxtor Peripherals (S) Pte. Ltd., our major customer related to the electronic materials and components business with sales of 11.5 percent of consolidated net sales in 2006, agreed to be acquired by a competitor. The acquisition was completed in May 2006. During the year ended March 31, 2007. TDK will be losing the majority of the sales from this customer that it recorded in the year ended March 31, 2006.

          Customers’ business results, changes in management strategy or other factors could thus have a material adverse effect on our business results and financial condition.

     Our operations depend on facilities throughout the world and are subject to forces of nature that could disrupt our ability to serve our customers.

          We have many production sites and R&D facilities in Japan and overseas. These facilities and plants have taken measures to prevent damage caused by natural disasters. However, these facilities and plants could still suffer significant damage due to a force majeure event such as a large earthquake, typhoon or flood that far exceeds any level expected. In the event of interruption to manufacturing, disruption of transportation routes, damage to or disconnection of information and communications infrastructure, our ability to supply our customers could be affected for a long period of time. This situation could have a material adverse effect on our business results and financial condition.

     If we are unable to comply with the various environmental laws and regulations to which we are subject, we may have to withdraw from certain business activities, which would have an adverse effect on our brand and business operations.

          We are subject to various environmental laws and regulations with respect to industrial waste and emissions into the atmosphere and water from our production processes in Japan and overseas, and specified hazardous chemical substances used in the products. From the perspective of environmental protection, environmental regulations are expected to become increasingly stringent in the future, and expenses are expected to increase for responding to these regulations.

          We are engaged in various activities to help protect the environment, including complying with environmental regulations. However, if we have difficulty responding appropriately to these demands and laws and regulations, we may be forced to withdraw from certain business activities impacting our brand name, and in consequence could have a material adverse effect on our business results and financial condition.

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     Japan’s Unit Share System could affect access to Japanese markets by holders of American Depositary Shares (“ADSs”), which could adversely affect the price of our shares.

          Pursuant to our Articles of Incorporation, 100 of our shares constitute one unit. A holder who owns ADRs evidencing less than 100 ADSs will indirectly own less than a whole unit of shares of Common Stock. Although, under the unit share system holders of less than a unit have the right to require us 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 to exercise the rights to require us to purchase such underlying shares at this time. 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.

     Holders of American Depositary Shares have limited rights, which could adversely affect the price of our shares.

          The rights of shareholders under Japanese law to take actions, including voting their shares, receiving dividends and distributions, bringing derivative actions, examining our accounting books and records and exercising appraisal rights are available only to shareholders of record. Citibank, N.A., through its custodian agent, is the record holder of the shares underlying the ADSs, and therefore only it can exercise the rights of shareholders in connection with the deposited shares. The depositary has agreed to endeavor to vote the shares underlying ADSs in accordance with the instructions of ADS holders and to pay the dividends and distributions collected from us. However, ADS holders will not be able to bring a derivative action, examine our accounting books and records or exercise appraisal rights through the depositary.

          We are incorporated in Japan and a substantial portion of our assets are located outside of the United States (U.S.). As a result, it may be more difficult for investors to enforce against us judgments obtained in U.S. courts predicated upon the civil liability provisions of the Federal securities laws of the United States, including the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, or judgments obtained in other courts outside of Japan. In addition, there is doubt as to the enforceability in Japanese courts, in original actions or in actions for enforcements of judgments of U.S. courts, of civil liabilities based solely upon violation of these Federal securities laws of the United States.

     Because we have not yet completed the implementation of the SEC’s requirements with respect to internal controls over financial reporting, we might not be aware of weaknesses in our internal controls over financial reporting that could adversely affect our ability to report our financial results timely and accurately.

          The Sarbanes-Oxley Act requires that management maintain, evaluate and report on internal controls over financial reporting. As a foreign private issuer, we will be required to comply with this requirement for our fiscal year ending March 31, 2007. Currently, we are engaged in the process of assessing our existing internal controls over financial reporting to ensure our compliance with the new requirements. As a result, we might not be aware of weaknesses that could exist and that might be identified once the evaluation of the effectiveness of our internal controls over financial reporting has been completed. In addition, there is a risk that we may not be able to implement our internal controls and procedures over financial reporting in the time frame allowed by the Sarbanes-Oxley requirements.

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Item 4. Information on the Company

     A. History and development of the Company

     History

          TDK Corporation (TDK Kabushiki Kaisha) is a corporation formed under the Commercial Code of Japan. TDK’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. The agent in the U.S. for purposes of this Item 4 is TDK U.S.A. Corporation, 901 Franklin Avenue, P.O. Box 9302, Garden City, New York, NY 11530.

          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, HDD head and other components. TDK is a Tokyo-based company founded on December 7, 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 materials technology and new recording-related products.

          In the years ended March 31, 2006, 2005 and 2004, TDK’s capital expenditures were ¥73.9 billion ($632 million), ¥61.0 billion and ¥44.5 billion, respectively. For further information of TDK’s capital expenditures, see “Capital Expenditures” included in Item 5.B. “Liquidity and capital resources”.

          TDK is planning capital expenditures of ¥70.0 billion ($598 million) in fiscal 2007, primarily for the expansion of production facilities and upgrading of facilities. Regarding TDK’s capital expenditure plans, TDK’s policy is to invest actively in targeted strategic fields to drive growth.

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     B. Business overview

     Sales by product category

          TDK’s sales are generated by two business segments: electronic materials and components, and recording media. In fiscal 2006, “Semiconductors and others” and “Recording Media and Systems” were renamed “Other electronic components” and “Recording Media”, respectively. There were no changes in product classifications.

          The following is a breakdown of consolidated net sales of TDK and its consolidated subsidiaries by business segment for fiscal 2006, 2005 and 2004:

	Years ended March 31
	2006			2005			2004			2006
				(millions of yen)						(millions of U.S.
				(%)						dollars)
Electronic Materials and Components:
Electronic materials	¥	180,766			¥174,800		¥	166,818			$1,545.0
		(22.7	)		(26.6	)		(25.4	)
Electronic devices		154,680			116,387			107,999			1,322.1
		(19.5	)		(17.7	)		(16.5	)
Recording devices		315,928			234,578			230,105			2,700.2
		(39.7	)		(35.7	)		(35.1	)
Other electronic components		36,376			19,449			14,870			310.9
		(4.6	)		(2.9	)		(2.3	)
Sub total		687,750			545,214			519,792			5,878.2
		(86.5	)		(82.9	)		(79.3	)
Recording Media		107,430			112,639			136,000			918.2
		(13.5	)		(17.1	)		(20.7	)
Total	¥	795,180			¥657,853		¥	655,792			$6,796.4
		(100.0	)		(100.0	)		(100.0	)

     Notes:

The business segment information is required by the Japanese Securities Exchange Law. Segment information is unaudited.

Electronic Materials and Components TDK’s electronic materials and components are divided into four principal categories: (i) electronic materials; (ii) electronic devices; (iii) recording devices; and (iv) other electronic components. Overall business results of each category in fiscal 2006 compared to fiscal 2005 are as follows.

(i) Electronic materials The electronics materials sector is broken down into two product categories: capacitors, and ferrite cores and magnets.

          Sales of capacitors increased marginally year over year, as the impact on sales of sluggish demand in the communications market and falling prices was offset by higher sales to the car electronics market. A weaker yen also supported sales.

          Sales of ferrite cores and magnets rose year over year. Sales of ferrite cores were largely unchanged, as higher sales from increasing demand for power supply cores was negated by lower sales of cores used in CRT TVs. Ferrite magnet sales were also largely unchanged, with lower demand stemming from customer inventory cutbacks offset by higher sales of products to the car electronics market. Sales of rare-earth magnets rose on increasing HDD demand.

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(ii) Electronic devices The electronic devices sector has three product categories: inductive devices, high-frequency components and other products.

          The growth of sales in this sector was mainly due to the inclusion of the operating results of Lambda Power Business from the second half of the fiscal year. Lambda Power Business was acquired by TDK from U.K.-based Invensys plc. on October 1, 2005. However, even excluding these sales, existing businesses in this sector posted year over year growth.

          Sales of inductive devices increased mainly due to growth in sales of power line coils for use in mobile phones and HDDs, and in sales of products for use in car electronics.

          Sales of high-frequency components were down year over year. While sales of wireless LAN components rose, total category sales were brought down by further declines in sales prices of some components for mobile phones.

          Sales of other products rose year over year. The main factors were growth in sales of DC-AC inverters for use in LCD panels and of sensors and actuators for HDDs and mobile phones. The inclusion of six months’ sales of Lambda Power Business in this category also boosted sales.

(iii) Recording devices The recording devices sector has two product categories: HDD heads and other heads.

          Sales of HDD heads increased year over year. Amid rising demand for HDDs used in PCs and consumer electronics, HDD head shipments increased. This higher volume outweighed a drop in sales prices, resulting in an increase in overall sales.

          Sales of other heads declined due to inventory reductions of optical pickups.

(iv) Other electronic components The other electronic components sector includes all other products in the electronic materials and components segment not included in the three sectors above. The main products are organic EL displays, anechoic chambers and manufacturing equipment.

          Sales of this sector surged due to higher sales of anechoic chambers, which block external electromagnetic radiation to permit the measurement of electromagnetic noise, and due to sales growth in new businesses.

Recording Media The recording media segment has three product categories: audiotapes and videotapes, optical media and other products. In March 2006, TDK decided to restructure certain of its recording media business, including the withdrawal from the manufacturing of recordable CD and DVDs. With this decision, TDK shut down the production facilities at its European subsidiary, TDK Recording Media Europe S.A. in Luxembourg in April 2006.

          Sales of audiotape and videotapes declined year over year. While TDK maintained a high market share, demand is declining for these products as a whole.

          Sales of optical media increased year over year. CD-R demand has peaked and is declining slowly. However, lower CD-R sales caused by the downturn in demand and discounting pressure were offset by higher sales of DVDs driven by increasing demand.

          Sales of other products decreased year over year. Sales of LTO-standard* (Linear Tape-Open) tape-based data storage media for computers rose on higher demand. However, sales of recording equipment and accessory products declined as TDK made progress with efforts to create a more tightly focused product lineup.

* Linear Tape-Open, LTO, LTO logo, Ultrium and Ultrium logo are trademarks of HP, IBM and Quantum Corporation in the U.S. and other countries.

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     Marketing and Distribution

     Marketing channels in Japan

          TDK markets electronic materials and components in Japan through its sales division, which had approximately 304 sales representatives at March 31, 2006.

          In Japan, TDK markets magnetic recording tapes and optical disks through 5 district sales offices with a staff of 88. Approximately 50 percent of domestic sales of TDK brand products are made to approximately 116 distribution agents. These agents in turn sell TDK brand products to over 40,000 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 70 direct and indirect foreign subsidiaries as follows: 29 manufacture various product lines and distribute their products in their country of operation and other countries; 20 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; 2 are companies for research and development 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; 1 is a company for engineering service for magnetic heads in China; 1 is a company for engineering service for magnetic heads in Korea; 1 is a holding company for the administration of Lambda’s U.S. operations; 1 is a company for the administration in Canada; 1 is a holding company for the administration of Lambda’s European operations; 1 is a company for engineering service for switching power supplies; 3 are dormant companies and 5 are companies in the course of liquidation. 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 magnets
United States	-	GMR heads, capacitors, ferrite magnets and power supplies
Luxembourg	-	Videotapes, CD-Rs and DVDs
Taiwan	-	Capacitors, ferrite cores and power supplies
Philippines	-	GMR heads
Thailand	-	Audiotapes, rare-earth metal magnets and power supplies
Malaysia	-	Capacitors and high-frequency components
Korea	-	Capacitors and inductors
Hungary	-	Capacitors and ferrite cores
Hong Kong	-	Ferrite cores

          A manufacturing subsidiary in Luxembourg has ceased operation in April 2006.

          In addition, TDK has sales subsidiaries in Germany, the United Kingdom, the United States, Hong Kong, Singapore, Australia, Brazil, Poland, China, Philippines, France, Italy and Sweden.

     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 79.0 percent in fiscal 2006, 81.9 percent in fiscal 2005 and 78.9 percent in fiscal 2004.

     Outside of Japan, TDK relies on a combination of its sales force, distribution agents, retailers and directed sales efforts to market its products.

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     Consolidated net sales of TDK and consolidated subsidiaries by geographical area for fiscal 2006, 2005 and 2004 were as follows:

	Years ended March 31
	2006				2005					2004				2006
					(millions of yen)		(%)							(millions of
														U.S. dollars)
Japan	¥	168,554	(21.2	)		¥159,487		(24.2	)	¥	161,607	(24.6	)	$	1,440.6
North America		65,931	(8.3	)		58,850		(9.0	)		71,224	(10.9	)		563.5
Europe		74,846	(9.4	)		71,085		(10.8	)		80,233	(12.2	)		639.7
Asia and others		485,849	(61.1	)		368,431		(56.0	)		342,728	(52.3	)		4,152.6
Total	¥	795,180	(100.0	)		¥657,853		(100.0	)	¥	655,792	(100.0	)	$	6,796.4

     Notes:

Net sales in each geographic area are based on the location of TDK entities where the external sales are generated.

     Patents and Licenses

          TDK has a variety of patents in Japan and other countries, and also has licenses from other companies. It believes that expiration of any one of its patents or licenses or related group of patents or licenses would not materially adversely affect its business activities. 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.

     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 are price, 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.

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     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 products manufactured in Japan, TDK purchases such raw materials from approximately 1,900 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 2006.

          TDK monitors the availability of raw materials on a regular basis to ensure that it will not encounter any shortages. TDK has not experienced any significant difficulty in obtaining raw materials and believes that it will be able to continue to obtain comparable raw materials in sufficient quantities to meet its manufacturing needs in the future. TDK also believes that the effect of price volatility with respect to raw materials that it uses in manufacturing its products can be managed.

     C. Organizational structure

          As of March 31, 2006, TDK had 70 overseas subsidiaries and 20 Japanese subsidiaries. See Exhibit 8.1 “List of Significant Subsidiaries” for further information.

- 16 -

     D. Property, plants and equipment

          TDK’s manufacturing operations are conducted primarily at 35 plants in Japan and 28 plants overseas.

          The following table sets forth information, as of March 31, 2006, with respect to TDK’s manufacturing facilities, approximately 76 percent (in terms of floor space) of which are owned by TDK.

	Number of		Floor space
	principal		(thousands of
Location	factories		square feet)		Principal products manufactured
Japan
Akita		16		2,065	Capacitors, ferrite cores, inductors and high-frequency components
Nagano		4		1,150	GMR heads and optical disks
Chiba		1		663	Rare-earth metal magnets, ferrite cores and power supplies
Yamanashi		3		603	GMR heads and data storage tapes
Oita		1		471	Videotapes
Shizuoka		2		465	Ferrite magnets
Yamagata		3		345	Inductors
Iwate		1		298	Capacitors
Ibaraki		3		219	Display and power supplies
Niigata		1		54	Power supplies
Overseas
China		9		4,155	GMR heads, inductors, ferrite cores, capacitors, transformer, power supplies and ferrite magnets
United States of America		7		746	GMR heads, capacitors, ferrite magnets and power supplies
Luxembourg		1		494	Videotapes, CD-Rs and DVDs
Philippines		1		441	GMR heads
Thailand		2		435	Audiotapes, rare-earth metal magnets and power supplies
Malaysia		2		364	Capacitors and high-frequency components
Taiwan		1		345	Capacitors, ferrite cores and power supplies
Korea		1		164	Capacitors and inductors
Hungary		1		160	Capacitors and ferrite cores
England		1		42	Power supplies
Hong Kong		1		42	Ferrite cores
Israel		1		28	Power supplies
Total		63		13,749

          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.

          Though TDK included 1 plant in Luxembourg (494 thousand square feet) in the above table, this plant has ceased operation in April 2006.

- 17 -

     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 6,530 thousand square feet, of which approximately 51 percent is owned by TDK and the balance is leased to TDK.

Item 4A. Unresolved Staff Comments

     None.

- 18 -

Item 5. Operating and Financial Review and Prospects

     Overview

          TDK was established in 1935 as the world’s first company to commercialize a magnetic material called ferrite. In the ensuing years, TDK has developed and commercialized a host of other materials and products. This drive is based on TDK’s founding spirit of “Contribute to culture and industry through creativity.”

          Looking ahead, TDK is determined to further refine its materials, process, and evaluation & simulation technologies-its core technologies-aiming to be an Exciting Company, a consummate e-material solution provider that delivers products imbuing value that customers want with perfect timing.

          TDK’s operations are affected by the economies of various regions of the world, including Japan, the United States, Europe and Asia. Looking at economic conditions worldwide during the past fiscal year, the U.S. economy grew on the back of steadily rising consumer spending, which was supported by a strong job market, and higher levels of capital expenditures in the corporate sector. Meanwhile, European economies tended toward recovery due to a strong corporate sector, led by German companies, and the add-on effects of this recovery on employment and consumer spending. In Asia, China maintained a high economic growth rate and economies elsewhere in the region grew as well. Expansion was also evident in the Japanese economy, with capital expenditures rising due to increased production activity in the corporate sector and personal spending increasing as the job market improved.

          In the electronics industry, to which TDK belongs, there was growth in the market for digital home appliances such as LCD and plasma flat-screen TVs and DVD recorders during the past fiscal year. The notebook PC, HDD and mobile phone markets also remained robust. There was rapid expansion, too, in the market for MP3 digital audio players, which store music using semiconductors or HDDs. The market for car electronics also remained firm. Strength in these markets, along with the beneficial effects of an increase in the number of components used in these products, produced solid demand in fiscal 2006 for TDK’s electronic components. Amid this operating environment, TDK made two corporate acquisitions and executed reforms to improve its profit structure in the recording media segment. In these and other ways, TDK thus actively invested to accelerate growth and increase its earnings.

          The electronic components business is constantly subject to two sources of downward pressure on prices. One is price discounting pressure from finished products manufacturers, the customers of electronic component manufacturers. The other is competition among manufacturers of electronic components.

          Demands for price discounts are the result of competition among finished product manufacturers being passed on to component manufacturers. As they compete with each other, consumer electronics manufacturers, customers of TDK, are constantly seeking ways to establish a competitive advantage. For example, these companies pursue strategies such as differentiating products by adding new functions to existing products, as well as securing a competitive edge through pricing. This sort of competition involving finished products tends to force companies to compete by launching new products, resulting in shorter product lifecycles and a greater risk of price declines.

          TDK’s electronic materials and components segment supplies products that are used mainly in digital home appliances, mobile phones and other consumer electronics as well as in automotive electronics. As such, this business is directly exposed to the effects of the competition outlined above. No change is foreseen in discounting pressure from customers in the coming years.

          Electronic component manufacturers, as with other industries, compete with peer companies. Consumer electronics manufacturers commonly certify several suppliers so that companies need to compete for orders. A company’s pricing strategy is a key element in determining the share of electronic components it supplies to finished product manufacturers. As a consequence, there is constantly downward pressure on prices.

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           The electronic components business thus requires the constant execution of initiatives to mitigate the effect of these pricing pressures. Actions to reduce costs are an obvious response. But it is also necessary to establish a position as a components manufacturer that can supply key components when customers launch new products. There is no substitute for product development activities aimed at supplying these key components. Price declines are thus inevitable in the electronic components business, but it is possible to reduce or absorb the effects of lower prices by implementing the above measures appropriately, when required. We believe that these actions are an inherently vital element that will ultimately determine the competitiveness of an electronic components business.

          TDK posted consolidated net sales of ¥795,180 million ($6,796,410 thousand) in fiscal 2006, up 20.9 percent from ¥657,853 million in fiscal 2005. Operating income rose 1.2 percent from ¥59,830 million in fiscal 2005 to ¥60,523 million ($517,291 thousand) in fiscal 2006. Income from continuing operations before income taxes increased 8.9 percent from ¥60,728 million in fiscal 2005 to ¥66,103 million ($564,983 thousand) in fiscal 2006. Net income rose 32.4 percent from ¥33,300 million in fiscal 2005 to ¥44,101 million ($376,932 thousand) in fiscal 2006. Basic net income per common share was ¥333.50 in fiscal 2006, up from ¥251.71 in fiscal 2005.

          On October 1, 2005, TDK purchased shares of Lambda Power Business (power supply business) owned by U.K.-based Invensys plc. Consequently, the operating results of 20 companies that form Lambda Power Business have been included in the TDK’s consolidated operating results beginning with the second half of fiscal 2006.

          TDK’s businesses are broadly classified into two business segments: the electronic materials and components segment and the recording media segment.

          Electronic Materials and Components Segment is made up of four product sectors: (1) electronic materials, (2) electronic devices, (3) recording devices, and (4) other electronic components, which we previously referred to as semiconductors and others. Segment net sales climbed 26.1 percent to ¥687,750 million ($5,878,205 thousand) in fiscal 2006, from ¥545,214 million in fiscal 2005, while segment operating income rose 10.1 percent to ¥74,333 million ($635,325 thousand) in fiscal 2006, from ¥67,520 million in fiscal 2005.

          Recording Media Segment, which we previously referred to as Recording Media & Systems, has three product categories: audiotapes and videotapes, optical media and other products. Segment sales declined 4.6 percent from ¥112,639 million in fiscal 2005 to ¥107,430 million ($918,205 thousand) in fiscal 2006. Operating loss of the recording media segment in fiscal 2006 was ¥13,810 million ($118,034 thousand), up ¥6,120 million from fiscal 2005. In March 2006, TDK decided to restructure certain of its recording media business, including the withdrawal from the manufacturing of recordable CD and DVDs, and recorded a restructuring cost of ¥6,825 million ($58,333 thousand).

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A. Operating Results

     Results of Operations

	Years ended March 31
	2006				2005			2004			2006
				(millions of yen)							(thousands
					(%)						of dollars)
Net sales	¥	795,180			¥	657,853		¥	655,792		$	6,796,410
		(100.0	)			(100.0	)		(100.0	)
Cost of sales		585,780				484,323			476,407			5,006,666
		(73.7	)			(73.6	)		(72.6	)
Gross profit		209,400				173,530			179,385			1,789,744
		(26.3	)			(26.4	)		(27.4	)
Selling, general and administrative expenses		142,052				119,886			122,875			1,214,120
		(17.9	)			(18.2	)		(18.8	)
Transfer to the government of the substitutional portion of Employees’ Pension Fund:
Subsidy from the government		—				(33,533	)		—			—
		—				(-5.1	)		—
Loss on settlement		—				27,347			—			—
		—				(4.2	)		—
Restructuring cost		6,825				—			—			58,333
		(0.8	)			—			—
Operating income		60,523				59,830			56,510			517,291
		(7.6	)			(9.1	)		(8.6	)
Other income (other deductions)		5,580				898			(663	)		47,692
		(0.7	)			(0.1	)		(-0.1	)
Income taxes and minority interests, net of tax		21,692				23,763			12,492			185,402
		(2.7	)			(3.6	)		(1.9	)
Loss from discontinued operations		310				3,665			1,254			2,649
		(0.1	)			(0.5	)		(0.2	)
Net income	¥	44,101			¥	33,300		¥	42,101		$	376,932
		(5.5	)			(5.1	)		(6.4	)

     Sales by Region

	Years ended March 31
	2006				2005			2004			2006
				(millions of yen)							(millions
					(%)						of dollars)
Japan	¥	173,658			¥	184,025		¥	168,623		$	1,484,256
		(21.8	)			(28.0	)		(25.7	)
Americas		90,192				77,813			88,734			770,872
		(11.4	)			(11.8	)		(13.5	)
Europe		75,895				71,702			80,710			648,675
		(9.5	)			(10.9	)		(12.3	)
Asia (excluding Japan) and Oceania		451,710				321,612			314,875			3,860,769
		(56.8	)			(48.9	)		(48.0	)
Middle East and Africa		3,725				2,701			2,850			31,838
		(0.5	)			(0.4	)		(0.5	)
Net sales	¥	795,180			¥	657,853		¥	655,792		$	6,796,410
		(100.0	)			(100.0	)		(100.0	)

     This summary of sales by region is based on the location of the customer.

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     Segment Information

          The following industry and geographic segment information is required by the Japanese Securities Exchange Law. Segment information is unaudited.

Industry Segment Information

	Years ended March 31
	2006				2005			2004			2006
				(millions of yen)							(thousands
											of dollars)
ELECTRONIC MATERIALS AND COMPONENTS
Net sales
External sales	¥	687,750			¥	545,214		¥	519,792		$	5,878,205
Intersegment		—				—			—			—
Total revenue		687,750				545,214			519,792			5,878,205
		(100.0	%)			(100.0	%)		(100.0	%)		(100.0	%)
Operating expenses		613,417				477,694			461,077			5,242,880
		(89.2	%)			(87.6	%)		(88.7	%)		(89.2	%)
Operating income	¥	74,333			¥	67,520		¥	58,715		$	635,325
		(10.8	%)			(12.4	%)		(11.3	%)		(10.8	%)
Identifiable assets		672,596				537,593			505,178			5,748,684
Depreciation and amortization		53,599				47,409			46,293			458,111
Capital expenditures		71,070				57,192			40,084			607,436
RECORDING MEDIA
Net sales
External sales	¥	107,430			¥	112,639		¥	136,000		$	918,205
Intersegment		—				—			—			—
Total revenue		107,430				112,639			136,000			918,205
		(100.0	%)			(100.0	%)		(100.0	%)		(100.0	%)
Operating expenses		121,240				120,329			138,205			1,036,239
		(112.9	%)			(106.8	%)		(101.6	%)		(112.9	%)
Operating income (loss)	¥	(13,810	)		¥	(7,690	)	¥	(2,205	)	$	(118,034	)
		(-12.9	%)			(-6.8	%)		(-1.6	%)		(-12.9	%)
Identifiable assets		79,109				84,160			97,186			676,145
Depreciation and amortization		4,941				5,397			4,433			42,231
Capital expenditures		2,841				3,813			4,387			24,282
ELIMINATIONS AND CORPORATE
Corporate assets	¥	171,798			¥	186,248		¥	167,955		$	1,468,359
TOTAL
Net sales
External sales	¥	795,180			¥	657,853		¥	655,792		$	6,796,410
Intersegment		—				—			—			—
Total revenue		795,180				657,853			655,792			6,796,410
		(100.0	%)			(100.0	%)		(100.0	%)		(100.0	%)
Operating expenses		734,657				598,023			599,282			6,279,119
		(92.4	%)			(90.9	%)		(91.4	%)		(92.4	%)
Operating income	¥	60,523			¥	59,830		¥	56,510		$	517,291
		(7.6	%)			(9.1	%)		(8.6	%)		(7.6	%)
Identifiable and corporate assets		923,503				808,001			770,319			7,893,188
Depreciation and amortization		58,540				52,806			50,726			500,342
Capital expenditures		73,911				61,005			44,471			631,718

- 22 -

Geographic Segment Information

	Years ended March 31
	2006			2005			2004			2006
	(millions of yen)									(thousands
										of dollars)
JAPAN
Net sales (1)	¥	360,210		¥	339,493		¥	329,782		$	3,078,718
Operating income		49,437			26,382			8,538			422,539
Identifiable assets		347,942			305,717			316,695			2,973,863
AMERICAS
Net sales (1)		105,979			87,594			100,971			905,803
Operating income		9,995			5,496			4,985			85,427
Identifiable assets		100,611			70,844			65,584			859,923
EUROPE
Net sales (1)		76,240			71,682			80,641			651,624
Operating income (loss)		(9,996	)		(5,125	)		(115	)		(85,436	)
Identifiable assets		45,729			44,961			51,797			390,846
ASIA AND OTHERS
Net sales (1)		531,824			400,866			380,781			4,545,504
Operating income		12,607			33,551			42,912			107,752
Identifiable assets		348,008			263,621			228,058			2,974,428
ELIMINATIONS AND CORPORATE
Net sales (1)		279,073			241,782			236,383			2,385,239
Operating income (loss)		1,520			474			(190	)		12,991
Identifiable assets		81,213			122,858			108,185			694,128
TOTAL
Net sales	¥	795,180		¥	657,853		¥	655,792		$	6,796,410
Operating income		60,523			59,830			56,510			517,291
Identifiable and corporate assets		923,503			808,001			770,319			7,893,188
OVERSEAS SALES (2)
Americas	¥	90,192		¥	77,813		¥	88,734		$	770,872
Europe		75,895			71,702			80,710			648,675
Asia and others		455,435			324,313			317,725			3,892,607
Overseas sales total	¥	621,522		¥	473,828		¥	487,169		$	5,312,154
Percentage of consolidated sales		78.2	%		72.0	%		74.3	%		78.2	%

Notes:
(1)	Net sales in each geographic area are based on the location of TDK entities where the sales are generated.
(2)	Overseas sales are based on the location of the customers.

- 23 -

Fiscal 2006 Compared to Fiscal 2005

     Sales

          Consolidated net sales increased 20.9 percent from ¥657.9 billion to ¥795.2 billion ($6,796.4 million) for the fiscal year ended March 31, 2006.

          Looking at economic conditions worldwide during the past fiscal year, the U.S. economy grew on the back of steadily rising consumer spending, which was supported by a strong job market, and higher levels of capital expenditures in the corporate sector. Meanwhile, European economies tended toward recovery due to a strong corporate sector, led by German companies, and the knock-on effects of this recovery on employment and consumer spending. In Asia, China maintained a high economic growth rate and economies elsewhere in the region grew as well. Expansion was also evident in the Japanese economy, with capital expenditures rising due to increased production activity in the corporate sector and personal spending increasing as the job market improved.

          In the electronics industry, to which TDK belongs, there was growth in the market for digital home appliances such as LCD and plasma flat-screen TVs and DVD recorders during the past fiscal year. The notebook PC, HDD and mobile phone markets also remained robust. There was rapid expansion, too, in the market for MP3 digital audio players, which store music using semiconductors or HDDs. The market for car electronics also remained firm. Strength in these markets, along with the beneficial effects of an increase in the number of components used in these products, produced solid demand in fiscal 2006 for TDK’s electronic components. Amid this operating environment, TDK made two corporate acquisitions and executed reforms to improve its profit structure in the recording media segment. In these and other ways, TDK thus actively invested to accelerate growth and increase its earnings.

          As a result, the electronic materials and components segment posted net sales of ¥687.8 billion ($5,878.2 million), up 26.1 percent from ¥545.2 billion in the previous fiscal year.

          Sales in the electronic materials sector rose 3.4 percent from ¥174.8 billion to ¥180.8 billion ($1,545.0 million). Sales of multilayer chip capacitors, a mainstay of capacitor products, increased marginally year over year, as the impact on sales of sluggish demand in the communications market and falling prices was offset by higher sales to the car electronics market. A weaker yen also supported sales. Sales of ferrite cores and magnets rose year over year. Sales of ferrite cores were largely unchanged, as higher sales from increasing demand for power supply cores was negated by lower sales of cores used in CRT TVs. Ferrite magnet sales were also largely unchanged, with lower demand stemming from customer inventory cutbacks offset by higher sales of products to the car electronics market. Sales of rare-earth magnets rose on increasing HDD demand.

          Sales in the electronic devices sector leapt 32.9 percent to ¥154.7 billion ($1,322.1 million), from ¥116.4 billion. This growth was mainly due to the inclusion of the operating results of Lambda Power Business from the second half of the fiscal year. However, even excluding these sales, existing business in this sector posted 10.8 percent year over year sales growth. Sales of inductive devices increased mainly due to growth in sales of SMD power line coils for use in mobile phones and HDDs, and in sales of products for use in car electronics. Sales of high-frequency components were down year over year. While sales of wireless LAN components rose, total category sales were brought down by further declines in sales prices of some components for mobile phones. Sales of other products rose year over year. The main factors were growth in sales of DC-AC inverters for use in LCD panels and of sensors and actuators for HDDs and mobile phones. The inclusion of six months’ sales of Lambda Power Business in this category also boosted sales.

          In the recording devices sector, sales rose 34.7 percent from ¥234.6 billion to ¥315.9 billion ($2,700.2 million). Sales of HDD heads increased year over year. Amid arising demand for HDDs used in PCs and consumer electronics, HDD head shipments increased. This higher volume outweighed a drop in sales prices, resulting in an increase in overall sales. Sales of other heads declined due to inventory reductions of optical pickups.

- 24 -

          Maxtor Peripherals (S) Pte. Ltd., TDK’s major customer related to electronic materials and components business with sales of 11.5 percent of consolidated net sales for the year ended March 31, 2006, was acquired by a company in the same industry in May 2006. During the year ended March 31, 2007, TDK will be losing the majority of sales from Maxtor Peripherals (S) Pte. Ltd. that it recorded for the year ended March 31, 2006. TDK, however, plans to set off the loss with other businesses in the electronic materials and components segment and to raise its sales further, due mainly to growing demand for digital home appliances and cell phones.

          Sales in the other electronic components sector surged 87.0 percent from ¥19.4 billion to ¥36.4 billion ($310.9 million) due to higher sales of anechoic chambers, which block external electromagnetic radiation to permit the measurement of electromagnetic noise, and due to sales growth in new businesses.

          Operating income of the electronic materials and components segment in fiscal 2006 was ¥74.3 billion ($635.3 million), up ¥6.8 billion from fiscal 2005. In spite of the deep-rooted pressure for sales price discounts, operating income increased due to higher sales of HDD heads and inductive devices, discounts in raw materials and cost improvements by rationalization.

          In the recording media segment, sales declined 4.6 percent from ¥112.6 billion to ¥107.4 billion ($918.2 million). Sales of audiotapes and videotapes declined year over year. While TDK maintained a high market share, demand is declining for these products as a whole. Sales of optical media increased year over year. CD-R demand has peaked and is declining slowly. However, lower CD-R sales caused by the downturn in demand and discounting pressure were offset by higher sales of DVDs driven by increasing demand. Sales of other products decreased year over year. Sales of LTO-standard* (Linear Tape-Open) tape-based data storage media for computers rose on higher demand. However, sales of recording equipment and accessory products declined as TDK made progress with efforts to create a more tightly focused product lineup.

          Operating loss of the recording media segment in fiscal 2006 was ¥13.8 billion (118.0 million), up ¥6.1 billion from fiscal 2005. Operating loss increased due to a decline in demand of audiotapes and videotapes as a whole, and continuous drop in sales prices mainly in optical media. In March 2006, TDK decided to restructure certain of its recording media business, including the withdrawal from the manufacturing of recordable CD and DVDs, and recorded a restructuring cost of ¥6.8 billion ($58.3 million).

          *Linear Tape-Open, LTO, LTO logo, Ultrium and Ultrium logo are trademarks of HP, IBM and Quantum Corporation in the U.S. and other countries.

          By region, sales in Japan declined 5.6 percent from ¥184.0 billion to ¥173.7 billion ($1,484.3 million). Overseas sales climbed 31.2 percent from ¥473.8 billion to ¥621.5 billion ($5,312.2 million). Overseas sales accounted for 78.2 percent of consolidated net sales.

          In Japan, sales in the recording devices sector and recording media segment declined, while higher sales were recorded in the electronic materials, electronic devices and other electronic components sectors. Operating income of the electronic materials and components segment increased by ¥24.4 billion to ¥53.4 billion. This increase was mainly due to the payment made by its subsidiary in Asia to TDK in the amount of ¥24.0 billion relating to the assessment of additional tax in fiscal 2005 on prices charged and paid by TDK in connection with sales and purchases of products involving the subsidiary. Recognition of operating expense in the subsidiary resulted in reduction of operating expenses in Japan. Operating loss of the recording media segment increased slightly, resulting in operating loss in fiscal 2006 of ¥4.6 billion, up ¥1.5 billion from fiscal 2005.

- 25 -

          In Asia (excluding Japan) and Oceania, sales increased in the electronic materials, electronic devices, recording devices and other electronic components sectors, but sales declined in the recording media segment slightly. The operating income of the electronic materials and components segment decreased by ¥21.3 billion to ¥11.6 billion. This decrease was mainly due to the payment made by its subsidiary in Asia to TDK in the amount of ¥24.0 billion relating to the assessment of additional tax in fiscal 2005 on prices charged and paid by TDK in connection with sales and purchases of products involving the subsidiary. Recognition of operating expense in the subsidiary resulted in increase of operating expenses in recording devices. Operating income of the recording media segment increased slightly, resulting in operating income for fiscal 2006 of ¥0.8 billion, ¥0.1 billion more than fiscal 2005.

          In the Americas, sales increased mainly in the electronic devices and recording devices sectors. The lower yen versus the U.S. dollar also led to increased sales in the Americas. The operating income of the electronic materials and components segment increased by ¥3.0 billion to ¥9.0 billion from fiscal 2005 due to increase in sales mainly in the recording devices sector. However, operating income of the recording media segment in fiscal 2006 was ¥0.3 billion, up ¥0.8 billion from fiscal 2005.

          In Europe, sales increased in the electronic devices sector and the recording media segment. While operating loss of the electronic materials and components reversed to the operating income of ¥0.3 billion, up ¥0.7 billion from fiscal 2005, operating loss of the recording media segment in fiscal 2006 was ¥10.3 billion, up ¥5.6 billion from fiscal 2005, mainly due to restructuring cost of ¥6.8 billion.

     Effect of foreign exchange movements

          In fiscal 2006, overseas sales accounted for 78.2 percent of consolidated net sales, up 6.2 percentage points. As a result, fluctuations in foreign exchange rates had a significant effect on TDK’s consolidated sales and income. During fiscal 2006, the yen’s value declined 5.4 percent against the U.S. dollar and 2.0 percent against the euro, based on TDK’s average internal exchange rates. Overall, exchange rate movements had the effect of increasing net sales by approximately ¥31.3 billion and operating income by approximately ¥7.7 billion in fiscal 2006.

          By region, foreign exchange fluctuations increased sales in Japan by about ¥8.6 billion, in Asia (excluding Japan) and Oceania by about ¥32.5 billion, in the Americas by about ¥6.0 billion and in Europe by about ¥3.1 billion. The effect of foreign exchange fluctuations on consolidated net sales after the elimination of intersegment transactions was about ¥31.3 billion.

          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 2006 represented 102.2 percent compared with 112.1 percent one year earlier of sales in Asia (excluding Japan) and Oceania, 22.0 percent compared with 20.9 percent one year earlier in the Americas, and 19.1 percent compared with 23.9 percent one year earlier in Europe. Overseas production accounted for 61.7 percent of total sales in fiscal 2006, compared with 59.0 percent one year earlier, and for 79.0 percent of overseas sales, compared with 81.9 percent one year earlier. The rise in the percentage of overseas production in fiscal 2006 is mainly due to higher production in Asia in the electronic materials and components segment.

          TDK and certain overseas consolidated 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.

- 26 -

     Cost and expenses

          The cost of sales increased 20.9 percent from ¥484.3 billion in fiscal 2005 to ¥585.8 billion in fiscal 2006 due primarily to higher sales. Cost of sales increased from 73.6 percent to 73.7 percent of net sales, respectively. This reflected the negative effects on earnings of strong discounting pressure in all segments, which were positively offset by cost reductions from structural reforms and numerous other actions to cut costs, including the receipt of discounts on purchased materials. As a result, gross profit was 26.3 percent in fiscal 2006, compared to gross profit of 26.4 percent in fiscal 2005.

          Selling, general and administrative expenses increased ¥22.2 billion from ¥119.9 billion in fiscal 2005 to ¥142.1 billion in fiscal 2006, but decreased from 18.2 percent to 17.9 percent of net sales, respectively. Selling, general and administrative expenses as a percentage of net sales reduced due to a 20.9 percent rise in net sales and to the improvements of sales productivity. The main components of this increase were personnel expenses of ¥4.8 billion, shipping and handling costs of ¥1.9 billion, and loss on disposal of property, plant and equipment of ¥2.0 billion. Research and development expenses included in selling, general and administrative expenses increased by ¥9.2 billion from ¥36.3 billion in fiscal 2005 to ¥45.5 billion in fiscal 2006, and increased from 5.5 percent to 5.7 percent of net sales, respectively.

          In addition, TDK decided to restructure certain of its recording media business in March 2006, including the withdrawal from the manufacturing of recordable CD and DVDs, and recorded a restructuring cost of ¥6.8 billion ($58.3 million).

     Other income and deductions

          Other income (deductions) improved ¥4.7 billion from the previous fiscal year, reflecting a ¥1.9 billion increase in interest and dividend income due to upturn in overseas interest rates and a ¥1.8 billion increase in foreign exchange gain (loss), as well as other factors.

     Income taxes and minority interests

          The ratio of income taxes to income from continuing operations before income taxes (the effective tax rate) decreased from 38.3 percent in fiscal 2005 to 31.9 percent in fiscal 2006. The decrease reflects mainly the fact that in fiscal 2005 TDK received a notification and assessment of additional tax from the Tokyo Regional Tax Bureau (Nihonbashi Tax Office) asserting that prices charged and paid by TDK in connection with sales and purchases of products involving its overseas subsidiaries have not been commensurate with the prices of similar transactions involving unrelated third parties. The period of additional assessments covers tax years ending March 1999 through March 2003. The additional tax assessed by the Tokyo Regional Tax Bureau amounted to ¥12.0 billion including interest and penalty, which has been reflected as additional tax expense and other expense, net of deferred income tax benefits, in the accompanying consolidated statements of income for the year ended March 31, 2005. In addition, the residual tax effects of ¥4,571 million previously recorded in accumulated other comprehensive income (minimum pension liability adjustments) were released and recorded as a reduction to income tax expense in the consolidated statements of income as a result of the elimination of the minimum pension liability adjustment for the year ended March 31, 2005.

     Net income

          TDK posted net income of ¥44.1 billion, resulting in net income per diluted share of ¥333.20, compared with ¥251.56 in the previous fiscal year. Return on Equity, which is net income divided by average total stockholders’ equity, increased from 5.5 percent to 6.6 percent. This was mainly due to a ¥10.8 billion increase in net income.

          Cash dividends per share paid during the fiscal year totaled ¥80. This dividend is the sum of the June 2005 year-end dividend of ¥40 and the December 2005 interim dividend of ¥40. Shareholders of record on March 31, 2006 received a cash dividend of ¥50 per share at the end of June 2006.

- 27 -

          In fiscal 2006, consolidated net income included loss from discontinued operations of ¥310 million related to TDK Semiconductor Corporation (“TSC”). See discussion at Discontinued Operations.

- 28 -

Fiscal 2005 Compared to Fiscal 2004

     Sales

          Consolidated net sales rose 0.3 percent from ¥655.8 billion to ¥657.9 billion in fiscal 2005, the year ended March 31, 2005.

          TDK’s operations are affected by the economies of various regions of the world, including Japan, the United States, Europe and China. Despite rising crude oil prices and other factors that restricted growth, the U.S. economy generally expanded steadily due in part to an upturn in capital expenditures and improvements in employment statistics and household incomes. European economies, while resilient in the first half of fiscal 2005, suffered a slowdown in the second half due to the effects of a strengthening euro, rising crude oil prices and other negative factors. China, meanwhile, maintained a high economic growth rate. In comparison, the Japanese economy slowed due to a drop-off in exports, the result of second-half production cutbacks by manufacturers of IT and digital products, despite strength in capital expenditures that was supported by strong corporate earnings.

          In the electronics industry in the first half of fiscal 2005, demand for digital home appliances, such as LCD and plasma TVs and DVD recorders, was boosted by the Summer Olympic Games in Athens and other factors. This resulted in strong demand for the TDK’s electronic components in the first half. However, demand for these components began to cool in the second half in line with production cutbacks of finished products that use them.

          In this business environment, TDK continued to implement cost structure reforms, for example, the improvement of variable expenses by reviewing terms of supply and requesting discounts from purchased materials vendors. TDK also actively made investments to drive growth, such as by ramping up production capacity of capacitors and forging a strategic alliance in HDD heads.

          As a result, the electronic materials and components segment posted net sales of ¥545.2 billion, up 4.9 percent from ¥519.8 billion in the previous fiscal year.

          Sales in the electronic materials sector rose 4.8 percent from ¥166.8 billion to ¥174.8 billion. Sales of multilayer chip capacitors, a mainstay of capacitor products, increased year over year. In the first half of fiscal 2005, the Athens Olympics propelled demand for digital home appliances higher, which had an add-on effect for components used in them. In the second half, however, demand for components cooled, this time the result of cutbacks in the production of digital home appliances, and prices also dropped. But, against this market backdrop, TDK absorbed the sales price declines and the effect of unfavorable foreign exchange movements through improvements to its product mix. In ferrite cores, sales declined from the previous fiscal year, despite higher demand for general-purpose power supply cores for digital home appliances and cores for communications equipment. This decrease was due to a reduction in output of deflection yoke cores and flyback transformer cores used in CRT TVs. Magnet sales increased year over year, the result of steadily rising demand for use in automotive and HDD applications.

          Sales in the electronic devices sector increased 7.8 percent from ¥108.0 billion to ¥116.4 billion. Inductive devices, the largest product category in this sector, posted higher sales, despite lower sales prices and the negative effect of foreign exchange movements. This increase was attributable to higher demand spurred by acceleration in the pace at which automobiles are incorporating electronics and the increasing sophistication of mobile phones, as well as by new product launches. Sales of high-frequency components declined marginally year over year because higher sales volume and an improved product mix failed to completely offset persistently strong discounting pressure from mobile phone handset manufacturers, the main customer for these components. In power systems, sales of DC-DC converters and DC-AC inverters were healthy. Sensors and actuators recorded higher sales due to growth in demand for use in PCs and peripherals and communications equipment.

- 29 -

          In the recording devices sector, sales rose 1.9 percent from ¥230.1 billion to ¥234.6 billion. Sales of HDD heads, the main product in this sector, rose year over year. However, TDK had to overcome the loss of business from a major customer that started producing heads in house in 2004, as well as the impact of falling sales prices and unfavorable foreign exchange movements. Cutbacks in HDD inventories at customers in the first half of fiscal 2005 also affected the sector’s performance. However, demand for HDD heads rose in the second half of the fiscal year following the end of these cutbacks. Sales of other heads declined year over year due to sluggish sales of optical pickups.

          Sales in the other electronic components sector climbed 30.8 percent from ¥14.9 billion to ¥19.4 billion. TDK recorded slightly higher sales of anechoic chambers for electromagnetic noise control and equipment used in these chambers. There was also growth in external sales of manufacturing equipment due to higher investments in semiconductor facilities and equipment by customers.

          Operating income of the electronic materials and components segment in fiscal 2005 was ¥67.5 billion, up ¥8.8 billion from fiscal 2004. In spite of the deep-rooted pressure for sales price discounts, operating income increased due to higher sales of capacitors and inductive devices, discounts in raw materials and cost improvements by rationalization.

          In the recording media segment, sales declined 17.2 percent from ¥136.0 billion to ¥112.6 billion. Sales of audiotapes and videotapes declined year over year. While TDK maintained a high market share, demand is declining for these products as a whole. Sales of optical media increased, with higher DVD sales volume offsetting a sharp fall in DVD prices and lower CD-R sales. Sales of other products decreased year over year. There was an increase in sales of LTO-standard* (Linear Tape-Open) tape-based data storage media for computers. However, a decline in sales caused by the sale in the previous fiscal year of a U.S. software development subsidiary and lower sales of recording equipment brought overall sales of other products down year over year.

          Operating loss of the recording media segment in fiscal 2005 was ¥7.7 billion, up ¥5.5 billion from fiscal 2004. Operating loss increased due to a decline in demand of audiotapes and videotapes as a whole, decrease in sales as a result of sale of a subsidiary in the United States of America in fiscal 2004, and continuous drop in sales prices mainly in optical media.

          *Linear Tape-Open, LTO, LTO logo, Ultrium and Ultrium logo are trademarks of HP, IBM and Quantum Corporation in the U.S. and other countries.

          By region, sales in Japan rose 9.1 percent from ¥168.6 billion to ¥184.0 billion. Overseas sales declined 2.7 percent from ¥487.2 billion to ¥473.8 billion. Overseas sales accounted for 72.0 percent of consolidated net sales.

          In Japan, sales in the electronic devices sector and recording media segment declined, while higher sales were recorded in the electronic materials, recording devices and other electronic components sectors. The electronics materials and components segment saw its operating income increase by ¥17.6 billion due to increase in operating ratio, discount in raw materials and decrease in cost by rationalization. Although operating loss of the recording media segment increased slightly, operating income in fiscal 2005 was ¥25.8 billion, up ¥16.9 billion from fiscal 2004.

          In Asia (excluding Japan) and Oceania, sales declined in the recording devices sector and recording media segment, but sales increased in the electronic materials and electronic devices sectors. The operating income of the electronic materials and components segment decreased by ¥8.8 billion. This decrease is due to a significant decline in sales prices mainly in recording devices and capacitors. Operating income of the recording media segment also decreased slightly, resulting in operating income for fiscal 2005 of ¥33.6 billion, ¥9.5 billion less than fiscal 2004.

          In the Americas, sales decreased in the electronic materials and recording devices sectors as well as the recording media segment. The higher yen versus the U.S. dollar also impacted sales in the Americas. The operating income of the electronic materials and components segment decreased by ¥0.9 billion from fiscal 2004. However, operating income in fiscal 2005 was ¥5.5 billion, up ¥0.9 billion from fiscal 2004, due to decrease in operating loss of the recording media segment as a result of sale of a subsidiary engaged in software development.

- 30 -

          In Europe, lower sales were recorded in the electronic materials and other electronic components sectors as well as the recording media segment. While operating loss of the electronic materials and components decreased, operating loss of the recording media segment in fiscal 2005 reversed from operating income in fiscal 2004 to operating loss of ¥4.7 billion by decrease of ¥5.8 billion, due to a significant decline in sales prices mainly in optical media. As a result, operating loss in fiscal 2005 was ¥5.1 billion, ¥5.0 billion up from fiscal 2004.

     Effect of foreign exchange movements

          In fiscal 2005, overseas sales accounted for 72.0 percent of consolidated net sales, down 2.3 percentage points. As a result, fluctuations in foreign exchange rates have a significant effect on TDK’s consolidated sales and income. During fiscal 2005, the yen appreciated 5.0 percent in relation to the U.S. dollar and depreciated 1.9 percent in relation to the euro, based on TDK’s average internal exchange rates. Overall, TDK estimates that each ¥1 movement in the exchange rates during fiscal 2005 had the effect of reducing net sales by about ¥4.0 billion and operating income by about ¥1.0 billion, in relation to the prior fiscal year.

          By region, foreign exchange fluctuations reduced sales in Japan by about ¥3.8 billion, in Asia (excluding Japan) and Oceania by about ¥23.6 billion and in the Americas by about ¥5.5 billion, but increased sales in Europe by about ¥1.4 billion. The effect of foreign exchange fluctuations on consolidated net sales after the elimination of intersegment transactions was about ¥20.6 billion.

          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 2005 represented 112.1 percent compared with 111.6 percent one year earlier of sales in Asia (excluding Japan) and Oceania, 20.9 percent compared with 22.5 percent one year earlier in the Americas, and 23.9 percent compared with 23.8 percent one year earlier in Europe. Overseas production accounted for 59.0 percent of total sales in fiscal 2005, compared with 58.6 percent one year earlier, and for 81.9 percent of overseas sales, compared with 78.9 percent one year earlier. The rise in the percentage of overseas production in fiscal 2005 is mainly due to higher production in Asia in the electronic materials and components segment.

          TDK and certain overseas consolidated 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 1.7 percent from ¥476.4 billion in fiscal 2004 to ¥484.3 billion in fiscal 2005 due to higher sales. Cost of sales increased from 72.6 percent to 73.6 percent of net sales, respectively. This reflected the negative effects on earnings of strong discounting pressure in all segments and foreign exchange movements, mainly the appreciation of the yen relative to the U.S. dollar. These factors outweighed positive influences such as cost reductions from structural reforms and numerous other actions to cut costs, including the receipt of discounts on purchased materials. As a result, gross profit was 26.4 percent in fiscal 2005, compared to gross profit of 27.4 percent in fiscal 2004.

- 31 -

          Selling, general and administrative expenses decreased ¥3.0 billion from ¥122.9 billion in fiscal 2004 to ¥119.9 billion in fiscal 2005, and decreased from 18.8 percent to 18.2 percent of net sales, respectively. Selling, general and administrative expenses decreased despite a 0.3 percent rise in net sales due to efforts to strictly manage fixed expenses, such as by lowering personnel expenses through greater operational efficiency. The main components of this decrease were personnel expenses of ¥3.1 billion and marketing expenses of ¥1.3 billion. Research and development expenses included in selling, general and administrative expenses increased ¥3.4 billion from ¥32.9 billion in fiscal 2004 to ¥36.3 billion in fiscal 2005, and increased from 5.0 percent to 5.5 percent of net sales, respectively.

          In addition, pursuant to the newly enacted Contributed Benefit Pension Plan Law, TDK received an exemption from the Minister of Health, Labor and Welfare, effective September 25, 2003, from the obligation to pay benefits related to future employee services with respect to the substitutional portion of its Employees’ Pension Fund (EPF). TDK was also granted an exemption from the obligation to pay benefits in relation to past employee services in October 2004 with respect to the substitutional portion of its domestic contributory plan. The transfer of the substitutional portion of TDK’s EPF liabilities to the government was completed on January 31, 2005. As a result of the transfer, TDK recognized as a subsidy from the Japanese government an amount equal to the difference between the fair value of the obligation deemed “settled” with the Japanese government and the assets required to be transferred to the government. The subsidy that TDK recognized amounted to ¥33.5 billion. In addition, TDK recognized a settlement loss in an amount equal to the product of (i) the ratio of the obligation settled to the total EPF obligation outstanding immediately prior to settlement, both of which exclude the effect of future salary progression relating to the substitutional portion of the EPF obligation, and (ii) the net unrecognized gain/loss immediately prior to settlement, which amounted to ¥27.3 billion. This gain and loss is included in operating income in the accompanying consolidated statements of income for the year ended March 31, 2005.

     Other income and deductions

          Other income (deductions) improved ¥1.6 billion from the previous fiscal year, reflecting a ¥2.2 billion decline in foreign exchange losses and a ¥1.0 billion decrease in loss on securities, net, as well as other factors.

     Income taxes and minority interests

          The ratio of income taxes to income from continuing operations before income taxes (the effective tax rate) increased from 21.7 percent in fiscal 2004 to 38.3 percent in fiscal 2005. The increase reflects mainly the fact that TDK received a notification and assessment of additional tax from the Tokyo Regional Tax Bureau (Nihonbashi Tax Office) asserting that prices charged and paid by TDK in connection with sales and purchases of products involving its overseas subsidiaries have not been commensurate with the prices of similar transactions involving unrelated third parties. The period of additional assessments covers tax years ending March 1999 through March 2003. The additional tax assessed by the Tokyo Regional Tax Bureau amounted to ¥12.0 billion including interest and penalty, which has been reflected as additional tax expense and other expense, net of deferred income tax benefits, in the accompanying consolidated statements of income for the year ended March 31, 2005.

     Net income

          TDK posted net income of ¥33.3 billion, resulting in net income per diluted share of ¥251.56, compared with ¥317.69 in the previous fiscal year. Return on Equity, which is net income divided by average total stockholders’ equity, decreased from 7.5 percent to 5.5 percent. This was due to an approximate ¥62.8 billion increase in stockholders’ equity, which reflected a decrease of about ¥38.7 billion in accumulated other comprehensive loss due to such factors as a decrease of about ¥32.9 billion in minimum pension liability adjustments following the transfer of the substitutional portion of EPF liabilities, as well as an increase in retained earnings.

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          Cash dividends per share paid during the fiscal year totaled ¥60. This dividend is the sum of the June 2004 year-end dividend of ¥30 and the December 2004 interim dividend of ¥30. Shareholders of record on March 31, 2005 received a cash dividend of ¥40 per share at the end of June 2005.

          In fiscal 2005, consolidated net income included loss from discontinued operations of ¥3,665 million related to TSC. See discussion at Discontinued Operations.

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Discontinued Operations

          On March 31, 2005, TDK entered into an agreement to sell all outstanding stock of its wholly owned subsidiary, TSC for $14,028 thousand to Golden Gates Capital (“Buyer”). The sale of TSC is part of TDK’s continuing shift away from non-core products and technologies. The sale agreement also includes earn-out payments, to be made by the Buyer to TDK, of up to $32,500 thousand. No earn-out payments were made through March 31, 2006. The payments are contingent upon certain milestones being met related to future revenue targets extending through 2007. The transaction was completed on April 8, 2005. TDK has accounted for the sale of TSC as a discontinued operation pursuant to FASB Statement No. 144, “Accounting for the impairment or Disposal of Long-Lived Assets”, as TSC meets the definition of a “component of an entity”. The results of operations for this subsidiary have been reported as discontinued operations for all periods presented and selected financial information for the years ended March 31, 2006, 2005 and 2004 for the discontinued operations, are summarized as follows:

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

See Note 21 to the Consolidated Financial Statements for further discussion.

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   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. These purchases are booked as manufacturing costs and selling, general and administrative expenses. The payment of payroll expenses, marketing expenses accompanying sales activities, and distribution-related expenses account for a significant portion of operating expenses. Personnel expenses account for a significant portion of R&D expenses. The necessary funds for these expenses are provided from cash generated by operations.

     Capital Expenditures

          In fiscal 2006, capital expenditures on a cash basis rose ¥12.9 billion from ¥61.0 billion to ¥73.9 billion ($631.7 million). This was the result of aggressive investment in IT home electronics appliances; high-speed, large-capacity networks; and car electronics, which are fields TDK regards as strategically important for growth.

          In the electronic materials and components segment, capital expenditures totaled ¥71.1 billion. The bulk of the capital expenditures were for facilities to develop and produce HDD heads with higher areal density mainly in China, the U.S. and the Philippines, and for facilities to increase production and rationalize operations for multilayer chip capacitors mainly in Japan and China.

          In the recording media segment, capital expenditures totaled ¥2.8 billion, mainly for facilities to increase production of LTO-standard tapes.

          In principle, the funds for these capital expenditures are provided from cash generated by operations. In addition, TDK paid ¥32.9 billion to acquire Lambda Power Business and Amperex Technology Limited. The funds for these acquisitions were also provided from cash generated by operations.

          Capital expenditures for fiscal 2005, which are described in detail below, increased by ¥16.5 billion, from ¥44.5 billion for fiscal 2004 to ¥61.0 billion.

          In the electronic materials and components segment, capital expenditures in 2005 totaled ¥57.2 billion. TDK invested in the expansion of production capacity of HDD heads, facilities for rationalizing these activities and the development of technology for coping with increasing areal density. These investments centered mainly on China, the U.S. and the Philippines. Furthermore, investments were made to increase production and rationalize operations in multilayer chip capacitors and inductors, where growth in sales is expected due to acceleration in the pace at which electronics are being incorporated in automobiles, the increasingly sophisticated nature of mobile phones and other factors. These investments were made mainly in Japan and China.

          In the recording media segment, capital expenditures totaled ¥3.8 billion, mainly for facilities to increase LTO production.

          Capital expenditures for fiscal 2004, which are described in detail below, increased by ¥3.5 billion, from ¥41.0 billion for fiscal 2003 to ¥44.5 billion.

          In the electronic materials and components segment, due to the expansion of the market for recording devices, TDK made investments principally in Asia, but also in the Americas and Japan, to increase production and rationalization for its recording devices. Other major expenditures include investments to increase production and rationalization for electronic materials and electronic devices (principally capacitors), and investments into the development of new products. Capital expenditures of this segment increased by ¥1.7 billion from ¥38.4 billion to ¥40.1 billion.

          In the recording media segment, investments have been made in Europe and Japan to increase production and develop optical media products, whose market was expanding. Capital expenditures of this segment increased by ¥1.8 billion from ¥2.6 billion to ¥4.4 billion.

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     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) in Japan, the U.S. and Europe. Surplus funds are invested with an emphasis on low risk and liquidity. Funds from within the group will be 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 2006, 2005 and 2004 are summarized as follows:

	Years ended March 31
	2006			2005			2004			2006
	(millions of yen)									(millions
										of dollars)
Income from continuing operations	¥	44,411		¥	36,965		¥	43,355		$	379.6
Adjustments to reconcile net income to net cash provided by operating activities		44,707			58,284			70,664			382.1
Net cash provided by operating activities		89,118			95,249			114,019			761.7
Net cash used in investing activities		(104,782	)		(62,359	)		(37,647	)		(895.6	)
Net cash used in financing activities		(7,125	)		(9,629	)		(9,860	)		(60.9	)
Net cash provided by (used in) discontinued operations		(414	)		(1,625	)		761			(3.5	)
Effect of exchange rate changes on cash and cash equivalents		10,712			2,717			(10,669	)		91.5
Net change in cash and cash equivalents	¥	(12,491	)	¥	24,353		¥	56,604		$	(106.8	)

          Fiscal 2006 cash and cash equivalents decreased ¥12.5 billion from ¥251.5 billion to ¥239.0 billion ($2,043 million). Operating activities provided net cash of ¥89.1 billion ($761.7 million), ¥6.1 billion less than in fiscal 2005. Income from continuing operations rose ¥7.4 billion to ¥44.4 billion ($380 million) and depreciation and amortization increased ¥5.7 billion to ¥58.5 billion ($500 million) mainly due to increase in the recording devices segment. In terms of changes in assets and liabilities, the increase in trade receivables climbed ¥9.5 billion, changes in inventories increased ¥3.7 billion, changes in trade payables increased ¥6.9 billion, and changes in accrued expenses increased ¥14.8 billion, while changes in income taxes payables, net declined ¥25.1 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 are appropriated from internal funds.

          Investing activities used net cash of ¥104.8 billion ($896 million), ¥42.4 billion more than the ¥62.4 billion used in the previous fiscal year. TDK used ¥73.9 billion for capital expenditures, ¥12.9 billion more than in fiscal 2005, as a result of making aggressive investments to drive growth. Furthermore, acquisition of businesses, net of cash acquired increased ¥31.4 billion and proceeds from sale and maturity of investments in securities increased ¥2.5 billion year over year, respectively.

          Financing activities used net cash of ¥7.1 billion ($60.9 million), a decrease of ¥2.5 billion from the ¥9.6 billion used in fiscal 2005. Dividends paid increased ¥2.6 billion due to a ¥20 per common share increase in the year-end dividend. On the other hand, there were an increase of ¥4.0 billion in increase (decrease) in short-term debt, net mainly in newly consolidated subsidiaries, and a decrease of ¥0.7 billion in cash paid to acquire treasury stock for stock options.

          Regarding financing 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+. These ratings allow TDK to procure funds if needed relatively at low interest rates.

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          TDK’s fundamental treasury management policy is to give consideration to a consistent increase in dividends based on factors such as the return on equity (ROE), dividends as a percentage of equity (DOE) and TDK’s results of operations on a consolidated basis. Funds for paying dividends are allocated from internal funds.

          In the dynamically changing electronics industry, it is necessary to make well-timed investments. Given this need, and the possibility that unstable financial conditions will continue in Japan, TDK’s policy is to maintain an adequate level of liquidity, considering risk factors as well as a capital requirement forecast. Based on the current liquidity, TDK does not have immediate plans of repurchasing its stock for the purpose of extinguishment.

          TDK estimates that operating cash flows and other internal resources will provide adequate liquidity in fiscal 2007. Regarding cash flows for the fiscal years ending March 31, 2007 and onward, TDK expects to provide the necessary funds from operating cash flows by increasing profitability and improving the return on assets.

          Fiscal 2005 cash and cash equivalents increased ¥24.3 billion from ¥227.2 billion to ¥251.5 billion in the previous fiscal year. Operating activities provided net cash of ¥95.2 billion, a year-on-year decrease of ¥18.8 billion. The major component of cash provided by operating activities was depreciation and amortization of ¥52.8 billion, up ¥2.1 billion. In terms of changes in assets and liabilities, inventories decreased ¥11.3 billion, the result of efforts to reduce inventories, while retirement and severance benefits declined ¥6.8 billion due to the transfer of the substitutional portion of EPF liabilities and changes to the pension system. In addition, the decrease in changes in trade payables and accrued expenses decreased ¥8.0 billion and ¥11.4 billion, respectively, and income taxes payables, net increased ¥8.8 billion.

          Investing activities used net cash of ¥62.4 billion, ¥24.7 billion more than the ¥37.6 billion used in the previous fiscal year. TDK used ¥61.0 billion for capital expenditures, ¥16.5 billion more than in fiscal 2004, as a result of making aggressive investments to drive growth. Furthermore, payment for purchase of investments in securities increased ¥2.4 billion year over year.

          Financing activities used net cash of ¥9.6 billion, a decrease of ¥0.2 billion from the ¥9.8 billion used in fiscal 2004. There was an increase of ¥1.3 billion in dividends paid due to the increase in the dividend. On the other hand, there was a decline in the repayment of debt because debt has been virtually eliminated.

          Fiscal 2004 cash and cash equivalents increased ¥56.6 billion to ¥227.2 billion from ¥170.6 billion in the previous fiscal year. Operating activities provided net cash of ¥114.0 billion, a year-on-year increase of ¥8.1 billion. This reflected mainly a ¥30.1 billion increase in net income to ¥42.1 billion and a ¥6.4 billion decrease in depreciation and amortization to ¥50.7 billion, as well as decreases in changes in trade receivables and inventories of ¥5.0 billion and ¥21.4 billion, respectively. Regarding the shortfall in pension assets, TDK planned 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 ¥37.6 billion, a decrease of ¥8.6 billion from ¥46.2 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.

          Financing activities used net cash of ¥9.8 billion, ¥1.9 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.

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Capital resources as of March 31, 2006, 2005 and 2004 are summarized as follows:

	Years ended March 31
	2006			2005			2004			2006
	(millions of yen)									(millions
	(%)									of dollars)
Short-term debt	¥	4,469		¥	—		¥	315		$	38.2
		(0.6	)		(—	)		(0.1	)
Current installments of long term debt		1,958			103			101			16.7
		(0.3	)		(0.0	)		(0.0	)
Long-term debt,		405			81			27			3.5
excluding current installments		(0.1	)		(0.0	)		(0.0	)
Stockholders’ equity		702,419			639,067			576,219			6,003.6
		(99.0	)		(100.0	)		(99.9	)
Total capital	¥	709,251		¥	639,251		¥	576,662		$	6,062.0
		(100.0	)		(100.0	)		(100.0	)

          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+.

          Total assets amounted to ¥923.5 billion ($7,893 million) as of March 31, 2006, up ¥115.5 billion from ¥808.0 billion at the previous fiscal year-end. As of March 31, 2006, trade receivables were ¥189.1 billion ($1,616 million), ¥41.1 billion higher than ¥148.0 billion and inventories were ¥89.0 billion ($760 million), ¥14.1 billion more than ¥74.9 billion a year ago, respectively. Property, plant and equipment increased ¥26.7 billion from ¥217.0 billion to ¥243.7 billion ($2,083 million), investments in securities increased ¥6.1 billion from ¥22.7 billion to ¥28.8 billion ($246 million). In addition, goodwill increased ¥10.3 billion from ¥9.2 billion to ¥19.5 billion ($166 million) and intangible assets increased ¥16.3 billion from ¥13.2 billion to ¥29.5 billion ($252 million) due to the acquisition of businesses.

          Total liabilities increased ¥43.3 billion from ¥163.8 billion to ¥207.1 billion ($1,770 million). Income taxes payables decreased ¥10.1 billion from ¥19.3 billion to ¥9.2 billion ($78 million), while trade payables rose ¥22.6 billion from ¥62.1 billion to ¥84.7 billion ($724 million), accrued expenses increased ¥12.4 billion from ¥31.1 billion to ¥43.5 billion ($372 million), and deferred income taxes increased ¥4.5 billion from ¥0.8 billion to ¥5.3 billion ($45 million).

          Total stockholders’ equity increased ¥63.3 billion from ¥639.1 billion to ¥702.4 billion ($6,004 million). Retained earnings increased ¥32.7 billion from ¥585.6 billion to ¥618.3 billion ($5,284 million) and accumulated other comprehensive loss decreased ¥29.7 billion from ¥51.7 billion to ¥21.9 billion ($188 million).

          Total assets amounted to ¥808.0 billion as of March 31, 2005, up ¥37.7 billion from ¥770.3 billion at the previous fiscal year-end. As of March 31, 2005, cash and cash equivalents were ¥251.5 billion, ¥24.3 billion higher than ¥227.2 billion a year ago. Trade receivables were ¥148.0 billion, ¥9.7 billion higher than ¥138.3 billion a year ago. Property, plant and equipment increased ¥8.1 billion from ¥208.9 billion to ¥217.0 billion and noncurrent deferred income taxes decreased ¥25.5 billion from ¥34.1 billion to ¥8.6 billion.

          Total liabilities decreased ¥27.0 billion from ¥190.8 billion to ¥163.8 billion. Trade payables rose ¥2.2 billion from ¥59.9 billion to ¥62.1 billion, and income taxes payables increased ¥14.6 billion from ¥4.7 billion to ¥19.3 billion. However, retirement and severance benefits declined ¥44.7 billion from ¥73.5 billion to ¥28.8 billion due to the transfer of the substitutional portion of EPF liabilities and changes to the pension system. Accrued expenses decreased ¥2.4 billion from ¥33.4 billion to ¥31.0 billion.

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          Total stockholders’ equity increased ¥62.9 billion from ¥576.2 billion to ¥639.1 billion. Retained earnings increased ¥24.8 billion from ¥560.8 billion to ¥585.6 billion and accumulated other comprehensive loss decreased ¥38.7 billion from ¥90.4 billion to ¥51.7 billion.

          Total assets amounted to ¥770.3 billion as of March 31, 2004, 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, ¥56.6 billion higher than ¥170.6 billion a year ago. However, property, plant and equipment decreased ¥17.0 billion to ¥208.9 billion from ¥225.9 billion, and noncurrent deferred income taxes decreased ¥9.8 billion to ¥34.1 billion from ¥43.9 billion.

          Total liabilities increased ¥0.7 billion, from ¥190.1 billion to ¥190.8 billion. Trade payables increased ¥2.9 billion, from ¥57.0 billion to ¥59.9 billion, accrued expenses increased ¥5.3 billion from ¥28.1 billion to ¥33.4 billion, and income taxes payables increased ¥3.6 billion, from ¥1.1 billion to ¥4.7 billion. Retirement and severance benefits decreased ¥11.5 billion, from ¥85.0 billion to ¥73.5 billion.

          Total stockholders’ equity increased ¥22.3 billion, from ¥553.9 billion to ¥576.2 billion. Retained earnings rose ¥34.9 billion, from ¥525.9 billion to ¥560.8 billion, while accumulated other comprehensive loss rose ¥11.6 billion, from ¥78.8 billion to ¥90.4 billion.

          TDK has various pension plans covering its employees. The unfunded amount as of March 31, 2006 was ¥20.4 billion ($175 million). As of March 31, 2006, ¥26.8 billion was accrued on the balance sheet as retirement and severance benefits, ¥2.0 billion less than a year ago.

          TDK’s policy is to utilize group funds for the development of its business, and to use loans from banks or other sources, if necessary, as a secondary method of financing.

          Regarding TDK’s capital expenditure plans, TDK’s policy is to invest actively in targeted strategic fields to drive growth. Capital expenditures will be funded using internally generated funds.

          TDK is planning capital expenditures of ¥70.0 billion in fiscal 2007, primarily for the expansion of production facilities and upgrading of facilities. 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.

     Restructuring Costs

          During the year ended March 31, 2006, TDK was fundamentally restructuring the recording media business. While reviewing the progress of the restructuring and future strategies of the recording media business, TDK looked for ways to re-strengthen the manufacturing of recordable CD & DVD foundations from various perspectives. However, a sharp drop in market prices of recordable CD & DVDs as well as the increased cost of natural resources has a material impact on the recording media business of TDK. Following further study, at a board meeting held on March 8, 2006, TDK management decided to withdraw from the manufacturing of recordable CD & DVDs, which should lead to an improvement and reform of its recording media business.

          TDK accelerated its ODM business model for the current generation of recordable CD & DVD products and the third-party supply of such products following TDK’s withdrawal. TDK also continued its R&D and manufacturing activities in Japan of the blue laser disc, a highly value-added product expected to grow in the near future. TDK has also concentrated its resources on strengthening data storage tape business, which is another core business.

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          With this decision, TDK shut down the production facilities at its European subsidiary, TDK Recording Media Europe S.A. in Luxembourg in April 2006. TDK recorded a restructuring charge of ¥6,825 million ($58,333 thousand) which included a charge of ¥3,309 million ($28,282 thousand) relating to employee termination benefits. As a result of the restructuring, a total of 350 regular employees were terminated through May 31, 2006. In addition, TDK recorded a restructuring charge of ¥2,594 million ($22,171 thousand) relating to an impairment on property, plant and equipment in connection with the decision to shut down production facilities at its European subsidiary.

          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 ¥45.5 billion ($389 million), 5.7 percent of net sales in fiscal 2006; ¥36.3 billion, 5.5 percent of net sales in fiscal 2005; and ¥32.9 billion, 5.0 percent of net sales in fiscal 2004.

          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 in three strategic areas: IT home electronic appliances; high-speed and large-capacity networks and car electronics.

          In the electronic materials and components field, development themes include commercialization of Polymer PTC thermistor with TDK’s materials technologies, commercialization of 130Gbpsi PMR heads for HDDs and 100Gbpsi TMR heads for mobile communications applications. In the recording media field, TDK has made progress with research on post DVD generation products, including commercialization of Blu-ray discs. Furthermore, TDK commercialized thin-film Common-mode Filter with TDK’s thin-film technologies.

          R&D at TDK is conducted by the Materials R&D Center, Advanced Process Technology Center, Devices Development Center, Production Engineering Development Center, Materials Analysis Center, Application Center, SQ Research Center and the R&D functions of each operating group. Each facility is developing new products and technologies in its respective 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 Materials 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.

          In terms of overseas R&D activities, TDK is conducting R&D 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 subsidiary 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 expiration of any one of its patents or licenses or related group of patents or licenses would not materially adversely affect its business activities. Total income from patents and licenses was ¥0.1 billion ($1 million) in fiscal 2006, ¥0.5 billion in fiscal 2005 and ¥0.1 billion in fiscal 2004. TDK paid ¥7.1 billion ($60 million) in fiscal 2006, ¥9.3 billion in fiscal 2005 and ¥8.1 billion in fiscal 2004 for patents and licenses, mainly royalties for licenses related to the recording devices business. 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.

- 40 -

     D. Trend information

     Economic environment

          While the world economy is expected to continue growing for the medium-term, it is relatively unstable for the short-term, largely influenced by the U.S., where the economy continues to grow despite the backdrop of a burdensome current account deficit, and China, which continues to implement a high-growth policy. Among these risk factors are the specter of inflation caused by persistently high crude oil prices and raw materials costs, trade imbalances among major countries and volatile foreign exchange rates.

          Under these economic circumstances, from a medium-term perspective, the electronics industry is expected to see the growth of digital home appliances; the convergence of information and communications, as typified by the increasingly diverse functions offered by mobile phones and advances in portable devices; and the greater use of electronics in motor vehicles. These trends are expected to result in a continued increase in demand for electronics components. TDK believes that this increase will create a large number of opportunities for its electronic components business and potential for growth.

          The electronic components business is constantly subject to two sources of downward pressure on prices. One is price discounting pressure from finished products manufacturers, the customers of electronic component manufacturers. The other is competition among manufacturers of electronic components.

          Demands for price discounts are the result of competition among finished product manufacturers being passed on to component manufacturers. As they compete with each other, consumer electronics manufacturers, customers of TDK, are constantly seeking ways to establish a competitive advantage. For example, these companies pursue strategies such as differentiating products by adding new functions to existing products, as well as securing a competitive edge through pricing. This sort of competition involving finished products tends to force companies to compete by launching new products, resulting in shorter product lifecycles and a greater risk of price declines.

          TDK’s electronic materials and components segment supplies products that are used mainly in digital home appliances, mobile phones and other consumer electronics as well as in automotive electronics. As such, this business is directly exposed to the effects of the competition outlined above. No change is foreseen in discounting pressure from customers in the coming years.

          Electronic component manufacturers, as with other industries, compete with peer companies. Consumer electronics manufacturers commonly certify several suppliers so that companies need to compete for orders. A company’s pricing strategy is a key element in determining the share of electronic components it supplies to finished product manufacturers. As a consequence, there is constantly downward pressure on prices.

          The electronic components business thus requires the constant execution of initiatives to mitigate the effect of these pricing pressures. Actions to reduce costs are an obvious response. But it is also necessary to establish a position as a components manufacturer that can supply key components when customers launch new products. There is no substitute for product development activities aimed at supplying these key components.

          Price declines are thus inevitable in the electronic components business, but it is possible to reduce or absorb the effects of lower prices by implementing the above measures appropriately, when required. We believe that these actions are an inherently vital element that will ultimately determine the competitiveness of an electronic components business.

- 41 -

     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 U.S. generally accepted accounting principles, 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

          As of March 31, 2006 and 2005, the aggregate of TDK’s property, plant and equipment and amortized intangible assets was ¥270.3 billion ($2,310 million) and ¥229.6 billion, which accounted for 29.3 percent and 28.4 percent of the total assets, respectively. TDK believes that impairment of long-lived assets are critical to TDK’s financial statements because the recoverability of the amounts or lack thereof, could significantly affect its results of operations.

          TDK’s long-lived assets and certain identifiable intangibles are reviewed for impairment when 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. If the carrying amount of the asset is considered to be impaired, an impairment charge is recorded for the amount by which the carrying value of an 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 market, with cost determined on the average cost method. The carrying value of inventory is reduced for estimated obsolescence by the difference between its cost and the estimated market value based upon assumptions about future demand. TDK evaluates the inventory carrying value for potential excess and obsolete inventory exposures by analyzing historical and anticipated demand. In addition, known and anticipated engineering change orders are evaluated against on-hand quantities for their potential obsolescence affects. As fluctuations in estimates, which become a standard in recognizing adjustments in the carrying values of inventory for expected obsolescence, are influential to business results of TDK, we conclude it as a critical accounting policy. If actual demand were to be substantially lower than estimated, additional inventory adjustments for excess or obsolete inventory may be required, which could have a material adverse effect on TDK’s business, financial condition and results of operations.

          Regarding the appropriateness of estimates in the past, TDK does not use a method based on various scenarios, but a method to reconsider every quarter by comparing estimate and actual results. For example, in the operation management of product sector with rapid development in technological innovation such as the recording devices sector, TDK revises the estimates of valuation of obsolete inventories arising from the timely response to customers’ demands for high-efficiency products on a quarterly basis.

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     Purchase Accounting

          We account for acquired businesses using the purchase method of accounting which requires that the assets acquired and liabilities assumed be recorded at the date of acquisition at their respective fair values. The judgments made in determining the estimated fair value assigned to each class of assets acquired, as well as asset lives, can materially impact net income of the periods subsequent to the acquisition through depreciation and amortization, and in certain instances by impairment charges, if the asset becomes impaired in the future.

          In determining the estimated fair value for intangible assets, we typically utilize the income approach, which employs discounting of the projected future net cash flow using an appropriate discount rate that reflects the risk factors associated with the cash flow streams.

          Determining the useful life of an intangible asset also requires judgment as different types of intangible assets will have different useful lives and certain assets may even be considered to have indefinite useful lives. Intangible assets determined to have an indefinite useful life have been reassessed periodically based on the factors prescribed in SFAS No. 142 including, but not limited to, the expected use of the asset by us, legal or contractual provisions that may affect the useful life or renewal or extension of the asset’s contractual life without substantial cost, and the effects of demand, competition and other economic factors.

     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 assumptions could negatively affect the valuations.

     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. Actual results that differ from the assumptions are accumulated and amortized over future periods and, therefore, generally affect TDK’s recognized expense and recorded obligation in future periods. While TDK believes that its assumptions used are appropriate, differences in actual experience or changes in assumptions may affect TDK’s benefit obligations and future expense.

          In preparing its financial statements for fiscal 2006, TDK established a discount rate of 2.2 percent and an expected long-term rate of return of 2.7 percent on plan assets. In estimating the discount rate, TDK uses available information about rates of return on long-term corporate bonds currently available and expected to be available during the period to the maturity of the pension benefits. TDK established the expected long-term rate of return on plan assets based on management’s expectations in respect of the long-term returns of the various plan asset categories in which it invests. Management developed expectations with respect to each plan asset category based on actual historical returns and its current expectations for future returns.

          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. A 50 basis point decrease in the discount rate would increase the projected benefit obligation by approximately 10 percent.

          An increase in the expected return on plan assets may decrease net periodic pension cost in the current year. For fiscal 2006, a 50 basis point decrease in the long-term rate of return would increase net benefit cost by approximately ¥0.9 billion. However, the difference between the expected return and the actual return on those assets could negatively affect net income in future years.

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     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 considers the planned 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 in 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 revises the assessment of the potential for realization of deferred tax assets based on other factors, deferred tax assets may be determined not to be realizable, which then would require TDK to increase a valuation allowance against the deferred tax assets resulting in additional income tax expenses.

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     New accounting pronouncements

     New Accounting Standards

          In November 2004, the FASB issued Statement of Financial Accounting Standards No. 151 (“SFAS 151”), “Inventory Costs – an amendment of Accounting Research Bulletin No. 43 (“ARB 43”), Chapter 4”. SFAS 151 amends the guidance in ARB 43, Chapter 4, “Inventory Pricing”, to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage). SFAS 151 requires that items such as idle facility expense, excessive spoilage, double freight and rehandling costs be recognized as current-period charges regardless of whether they meet the criterion of “so abnormal” as stated in ARB 43. In addition, SFAS 151 requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. SFAS 151 is effective for inventory costs incurred in fiscal periods beginning after June 15, 2005. TDK does not expect the adoption of SFAS 151 to have a material effect on TDK’s consolidated financial position and results of operations.

          In December 2004, the FASB issued Statement of Financial Accounting Standards No. 123 (revised 2004), “Share Based Payment” (“SFAS 123R”). SFAS 123R is a revision of SFAS 123, “Accounting for Stock Based Compensation”, and supersedes APB 25. SFAS 123R requires TDK to measure the cost of employee services received in exchange for equity awards based on the grant date fair value of the awards. The cost will be recognized as compensation expense over the vesting period of the awards. In April 2005, the Securities and Exchange Commission deferred the effective date of SFAS 123R to the beginning of the first annual period after June 15, 2005. TDK adopted SFAS 123R in the first quarter of fiscal 2007 and will continue to evaluate the impact of SFAS 123R on TDK’s consolidated financial position and results of operations. The pro forma information presented in Note 1(j) and Note 10 presents the estimated compensation charges under SFAS 123. TDK’s assessment of the estimated compensation charges is affected by TDK’s stock price as well as assumptions regarding a number of complex and subjective variables and the related tax impact. These variables include, but are not limited to, TDK’s stock price volatility and employee stock option exercise behaviors. TDK will recognize the compensation cost for stock-based awards issued after April 1, 2006 on a straight-line basis over the requisite service period for the entire award. In addition, TDK will recognize the unvested portion of the grant date fair value of awards issued prior to adoption based on the fair values previously calculated for disclosure purposes. At March 31, 2006, the aggregate value of unvested options, as determined using a Black-Scholes option pricing model, was ¥227 million. Upon adoption of SFAS 123R, this amount will be recognized over the remaining vesting period of these options.

          In May 2005, the FASB issued Statement of Financial Accounting Standards No. 154 (“SFAS 154”), “Accounting Changes and Error Corrections – a replacement of Opinion of the Accounting Principle Board No. 20 (“APB 20”) and Statement of Financial Accounting Standards No. 3 (“SFAS 3”)”. SFAS 154 replaces APB 20, “Accounting Changes” and SFAS 3, “Reporting Accounting Changes in Interim Financial Statements”, and provides guidance on the accounting for and reporting of accounting changes and error corrections. SFAS 154 establishes retrospective application, or the latest practicable date, as the required method for reporting a change in accounting principle and the reporting of a correction of an error. SFAS 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005.

          In July 2006, the FASB issued FASB Interpretation No. 48 (“FIN 48”), “Accounting for Uncertainty in Income Taxes”. FIN 48 establishes the threshold for recognizing the benefits of tax-return positions in the consolidated financial statements as “more-likely-than-not” to be sustained by the taxing authority, and prescribes a measurement methodology for those positions meeting the recognition threshold. FIN 48 is effective the fiscal year beginning after December 15, 2006. TDK is currently evaluating the effect that the adoption of FIN 48 will have on TDK’s consolidated financial position and results of operations.

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     E. Off-Balance Sheet Arrangements

          As part of its ongoing business, TDK does not conduct 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.

     F. Tabular Disclosure of Contractual Obligations

          On March 31, 2006, commitments outstanding for the purchase of property, plant and equipment approximated ¥13.1 billion ($112 million). TDK has entered into several purchase agreements with certain suppliers whereby TDK is committed to purchase a minimum amount of raw materials to be used in the manufacture of its products. Future minimum purchases remaining under the agreements approximated ¥4.5 billion ($39 million) at March 31, 2006. Contingent liabilities for guarantees of loans of TDK’s employees and affiliates amounted to approximately ¥5.7 billion ($49 million).

Contractual obligations on March 31, 2006 are summarized as follows:

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

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     G. Safe Harbor

          This material 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). These forward-looking statements are based on the current forecasts, estimates, assumptions, plans, beliefs and evaluations of TDK in light of information currently available to it, and contain known and unknown risks, uncertainties and other factors. TDK therefore wishes to caution readers that, being subject to risks, uncertainties and other factors, TDK’s actual results, performance, achievements or financial position could be materially different from any future results, performance, achievements or financial position expressed or implied by these forward-looking statements, and TDK undertakes no obligations to publicly update or revise any forward-looking statements after the issue of this material.

          The electronics markets in which TDK operates are highly susceptible to rapid changes. Risks, uncertainties and other factors that can have significant effects on TDK include, but are not limited to, shifts in technology, fluctuations in demand, prices, interest and foreign exchange rates, and change in economic environments, conditions of competition, laws and regulations.

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Item 6. Directors, Senior Management and Employees

     A. Directors and senior management

          Directors, corporate officers and corporate auditors of TDK as of June 29, 2006 and their respective business experience are listed below.

     Directors

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

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

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     Corporate Officers

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

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Name (Date of birth)	Position, responsibility and brief personal record
Yukio Hirokawa	Corporate Officer – since June 2002
(Feb. 19, 1947)	In charge of General Manager of Network Devices Business Group
	- Appointed Associate Director, Electronic Components Sales and Marketing Group East Japan Sales Department Senior Manager in June 2000
	- Appointed Associate Director, CRM Group Strategic Sales Department Senior Manager in April 2001
	- Appointed Associate Director, Deputy General Manager of Network Devices Business Group in October 2001
	- General Manager of Network Devices Business Group since January 2002
Masatoshi Shikanai	Corporate Officer – since June 2002
(Oct. 3, 1949)	In charge of General Manager of Recording Media and Solutions Business Group
	- Appointed General Manager of Recording Media and Systems Business Group Europe Division in April 2000
	- Appointed Deputy General Manager of Recording Media and Systems Business Group in February 2001
	- General Manager of Recording Media and Solutions Business Group since October 2001
Kenryo Namba	Corporate Officer – since June 2002
(Jan. 6, 1947)	In charge of Deputy General Manager of Technology Group, General Manager of Material Analysis Center and Organic Materials
	- Appointed General Manager of Corporate Research and Development Center in April 2001
	- Appointed Deputy General Manager of Technology Group, General Manager of Devices Development Center, General Manager of Material Analysis Center in January 2004
	- Deputy General Manager of Technology Group, General Manager of Material Analysis Center and Organic Materials since July 2004
Raymond Leung	Corporate Officer – since June 2004
(Apr. 18, 1956)	In charge of General Manager of China Operation Group, Vice Chairman of SAE Magnetics (H.K.) Ltd.
	- Appointed President of SAE Magnetics (H.K.) Ltd. in October 2000
	- Appointed Deputy General Manager of Data Storage and Thin Film Technology Components Business Group in June 2004
	- General Manager of China Operation Group, Vice Chairman of SAE Magnetics (H.K.) Ltd. since April 2005
Shunji Itakura	Corporate Officer – since June 2005
(Nov. 15, 1947)	In charge of General Manager of Display Business Department
	- Appointed President of TDK (Malaysia) Sdn. Bhd. in January 1999
	- General Manager of Display Business Department since April 2001

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Name (Date of birth)	Position, responsibility and brief personal record
Shiro Nomi	Corporate Officer – since June 2005
(May 8, 1949)	In charge of General Manager of Corporate Strategy Corporate Planning Department
	- Appointed General Manager of Corporate Planning Department in October 2000
	- General Manager of Corporate Strategy Corporate Planning Department since October 2001
	- General Manager of Corporate Strategy Management Review & Support Department since April 2006
Shinichi Araya	Corporate Officer – since June 2005
(Mar. 7, 1952)	In charge of Deputy General Manager of Circuit Devices Business Group, Inductor Group Senior Manager
	- Appointed General Manager of Mechatronics Division in January 1999
	- Appointed General Manager of Mechatronics Division, General Manager of Production Engineering Development Department in April 2000
	- Appointed Deputy General Manager of Production Engineering Development Center in April 2001
	- Appointed General Manager of Production Engineering Development Department in October 2001
	- Deputy General Manager of Circuit Devices Business Group, Inductor Group Senior Manager since April 2002

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     Corporate Auditors

Name (Date of birth)	Position, responsibility and brief personal record
Masaaki Miyoshi	Corporate Auditor – since June 2003
(Sep. 3, 1947)	- Appointed President of Korea TDK Co., Ltd. in July 2000
Takuma Otsuka	Corporate Auditor – since June 2000
(Feb. 23, 1944)	- Appointed Director of TDK in June 1998
Kazutaka Kubota	Corporate Auditor* – since June 2003
(Oct. 11, 1942)	- Appointed Vice President of Asahi Bank, Ltd. in June 2000
	- Appointed President of Asahigin Research Institute, Ltd. and Corporate Auditor of Saitama Railway Corporation in June 2002
Kaoru Matsumoto	Corporate Auditor* – since June 2003
(Dec. 8, 1947)	- Registration as a Certified Public Accountant in March 1976
	- Establishment of Kaoru Matsumoto & Co. since November 1977
Ryoichi Ohno	Corporate Auditor* – since June 2004
(Nov. 3, 1958)	- Registration as a U.S. Certified Public Accountant in November 1988
	- Appointed Senior Vice President and Chief Financial Officer of The Gibraltar Life Insurance Co., Ltd. in September 2001
	- Finance Vice President of Prudential Financial Inc. since September 2001
	- Executive Vice President and Chief Financial Officer of The Gibraltar Life Insurance Co., Ltd. since July 2005

Notes(*)

     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 2007. The term of office of Corporate Auditors is four years. The current terms for Mr. Miyoshi, Mr. Otsuka, Mr. Kubota, Mr. Matsumoto and Mr. Ohno expire 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.

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    B. Compensation

(1) The aggregate direct remuneration, including bonuses but excluding retirement allowances, paid by TDK during the years ended March 31, 2006 and 2005 to all Directors and Corporate Auditors of TDK who served during each of those years was approximately 250 million ($2,137 thousand) and 254 million, respectively. During fiscal 2006, TDK’s Directors and Corporate Officers as of June 29, 2006 received 126 and 130 stock acquisition rights as stock options, respectively. Each right represents an option to purchase 100 shares of common stock of TDK. Further details regarding the grants are listed below. For a discussion of other material terms of the issuance of these stock acquisitions rights, please see Item 6.E. “Share ownership”. TDK does not disclose individual remuneration for each Director and Corporate Auditor and aggregate direct remuneration for Corporate Officers except for compensation in the form of stock acquisition rights, because such disclosure is not required under Japanese regulations. Corporate Auditors do not receive stock acquisition rights.

		Number of stock
		acquisition rights
		granted individually
Name	Position	during fiscal 2006
Directors
Hajime Sawabe	Representative Director, Chairman and CEO		35
Takehiro Kamigama	Representative Director, President and COO		26
Jiro Iwasaki	Director, Executive Vice President		19
Shinji Yoko	Director, Senior Vice President		17
Takeshi Nomura	Director, Senior Vice President		17
Yasuhiro Hagihara	Director (outside)		2
Seiji Enami	Director and CFO		10
			126
Corporate Officers
Kiyoshi Ito	Corporate Officer, Senior Executive Vice President		24
Takaya Ishigaki	Corporate Officer, Senior Vice President		16
Minoru Takahashi	Corporate Officer, Senior Vice President		16
Michinori Katayama	Corporate Officer, Senior Vice President		10
Yukio Hirokawa	Corporate Officer		9
Masatoshi Shikanai	Corporate Officer		9
Kenryo Namba	Corporate Officer		9
Raymond Leung	Corporate Officer		10
Shunji Itakura	Corporate Officer		9
Shiro Nomi	Corporate Officer		9
Shinichi Araya	Corporate Officer		9
			130

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(2)

When a Director or Corporate Auditor retires, a proposal to pay a lump sum retirement allowance is submitted to the general meeting of shareholders for approval. If shareholder approval is obtained, the amount of the retirement allowance for a Director or Corporate Auditor is determined in the case of the Director by the Board of Directors, and in the case of the Corporate Auditor by the Corporate Auditors, and generally reflects his/her prior positions, the length of his/her service as a Director or Corporate Auditor and his/her contribution to TDK’s performance. The aggregate amount set aside as lump sum retirement allowance by TDK during fiscal 2006 and fiscal 2005 for Directors and Corporate Auditors of TDK totaled approximately 14 million ($120 thousand) and 14 million, respectively. In June 2002, TDK introduced a Corporate Officer system to improve management efficiency and expedite decision-making. With the introduction of a Corporate Officer system (See Item 6.C. “Board practices”), the remuneration system at large was reviewed and a lump sum retirement allowance for Directors was abolished.

On June 27, 2002 the Board of Directors resolved that the retirement bonus remuneration system for Directors should be abolished from the date of the resolution and that the retirement bonus reserves which had been made for, and had not been paid to, the Directors who are reappointed at the general meeting of shareholders held on June 27, 2002, should be frozen until their respective retirements. The payment of any frozen retirement bonuses upon the retirement of a director shall be subject to the consent of a general meeting of shareholders.

     TDK has a stock option plan for Directors, Corporate Officers and all other employees. See Item 6.E. “Share ownership”.

    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 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. 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 audit the financial statements and business reports to be submitted by the Representative Director to the ordinary general meeting of shareholders and also to audit the administration by the Directors. Each of the Corporate Auditors is required to attend and, if necessary, express his or her opinion at meetings of the Board of Directors, but is not entitled to vote. TDK established a Board of Corporate Auditors (at least half of which must be from outside TDK) and the term of each Corporate Auditor is four years.

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     In addition to the Corporate Auditors, TDK is required to appoint an accounting auditor which is required to be a certified public accountant or an auditing firm. The primary duty of an accounting auditor is to audit the financial statements proposed to be submitted by the Representative Director to the ordinary general meetings of shareholders for approval thereof, and to report their opinion to the Board of Corporate Auditors if they have found any wrongdoings or material facts which are in violation of laws and regulations or the Articles of Incorporation with respect to director’s performance of its duties.

     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.

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Significant differences in corporate governance practices between TDK and U.S. listed companies on the New York Stock Exchange

1. Directors’ Independence

     Under the Company Law of Japan (the “Company Law”), which became effective on May 1, 2006, TDK is a “Company with Board of Corporate Auditors,” meaning a company which has the board of corporate auditors (kansayaku-kai). The Company Law allows a company to choose to be a “Company with Committees,” meaning a company that has a nominating committee, audit committee, compensation committee and one or more executive officers, without having corporate auditors. However, TDK has not chosen to be a Company with Committees.

     Under the New York Stock Exchange Corporate Governance Rules (the “Rules”), listed companies must have a majority of independent directors. By contrast, while the Company Law requires “Companies with a Board of Directors,” meaning a company which has established or is required to establish a board of the directors, to have a minimum of three directors, it does not require that a Company with a Board of Corporate Auditors have outside directors. An “outside director” is defined as “a director who was not a managing director, executive officer, manager or employee of the company or any of its subsidiaries at any time in the past, and who is not currently a managing director, executive officer, manager or employee of the company or any of its subsidiary.”

     TDK is in compliance with the Company Law and has seven directors. In addition, although TDK is not required to have outside directors by law, it has voluntarily elected one outside director (Yasuhiro Hagihara).

2. Definition of “Independent Director”

     The meaning of “outside director” under the Company Law is not exactly the same as the meaning of “independent director” provided under the Rules.

     Under the Rules, no director qualifies as “independent” unless the board of directors affirmatively determines that the director has no material relationship with the listed company, either directly or as a partner, shareholder or officer of an organization that has a relationship with the company. Companies must identify which directors are independent and disclose the basis for that determination. In addition, a director is not independent if:

• The director is, or has been within the last three years, an employee of the listed company, or an immediate family member is, or has been within the last three years, an executive officer, of the listed company.

• The director has received, or has an immediate family member who has received, during any twelve-month period within the last three years, more than $100,000 in direct compensation from the listed company, other than director and committee fees and pension or other forms of deferred compensation for prior service (provided such compensation is not contingent in any way on continued service).

• The director or an immediate family member is a current partner of a firm that is the company’s internal or external auditor; the director is a current employee of such a firm; the director has an immediate family member who is a current employee of such a firm and who participates in the firm’s audit, assurance or tax compliance (but not tax planning) practice; or the director or an immediate family member was within the last three years (but is no longer) a partner or employee of such a firm and personally worked on the listed company’s audit within that time.

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• The director or an immediate family member is, or has been within the last three years, employed as an executive officer of another company where any of the listed company’s present executive officers at the same time serves or served on that company’s compensation committee.

• The director is a current employee, or an immediate family member is a current executive officer, of a company that has made payments to, or received payments from, the listed company for property or services in an amount which, in any of the last three fiscal years, exceeds the greater of $1 million, or 2 percent of such other company’s consolidated gross revenues.

     By contrast, the Company Law provides that an “outside director” is “a director who was not a managing director, executive officer, manager or employee of the company or any of its subsidiaries at any time in the past, and who is not currently a managing director or executive officer, manager or employee of the company or any of its subsidiary.”

     Mr. Yasuhiro Hagihara is an outside director within the meaning of the Company Law.

3. Corporate Auditors

     TDK, a Company with Board of Corporate Auditors within the meaning of the Company Law, is required to have at least three corporate auditors. At least half of such corporate auditors must be outside auditors.

     The Company Law provides that an “outside corporate auditor” is “a corporate auditor of the company who has not been a director, accounting officer (kaikei sanyo), executive officer, manager or other employee of such company or any of its subsidiaries at any time before their assumption of office as corporate auditor”. On the other hand, the Rules provide that all audit committee members satisfy the requirements for director independence.

     Of the five TDK corporate auditors, three — Mr. Kazutaka Kubota, Mr. Kaoru Matsumoto and Mr. Ryoichi Ohno — are outside corporate auditors within the meaning of the Company Law.

4. Regularly Scheduled Sessions without Management

     Japanese law does not require that TDK hold regular meetings without management as mentioned in the Rules. Since TDK is a Company with Board of Corporate Auditors, each of its corporate auditors and the board of directors audit/monitor the management, and such auditing/monitoring by the corporate auditors and the board of directors functions as TDK’s management-check system.

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5. Nominating / Corporate Governance Committee

     Whereas under the Rules, listed companies must have a nominating / corporate governance committee composed entirely of independent directors, under Japanese law, TDK, as a Company with Board of 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 Company Law. The Company Law requires directors of a Company with Board of Corporate Auditors 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 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. In order to dismiss a corporate auditor, any such dismissal must be by special resolution of a general shareholders meeting.

6. Compensation Committee

     Under the Rules, listed companies must have a compensation committee composed entirely of independent directors. On the other hand, Japanese law does not require TDK, a Company with Board of 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 (Yasuhiro Hagihara), one non-outside director (Jiro Iwasaki) and an outside expert on compensation.

     In the case of TDK, a Company with Board of Corporate Auditors, the Company Law and the Articles of Incorporation requires the following matters with respect to the amount of compensation for the Directors to be determined by the resolution of a shareholders’ meeting:

(1)	With respect to any item of compensation in a definitive amount, such amount;
(2)	With respect to any item of compensation not in a definitive amount, a concrete method for the calculation thereof; and
(3)	With respect to non-monetary items as compensation, the specific contents thereof.

7. Audit Committee

     Japanese law does not require TDK, a Company with Board of Corporate Auditors, to set up an audit committee, and TDK therefore has not established an audit committee. TDK, however, has established the board of corporate auditors pursuant to the Company Law (consisting of five corporate auditors including three outside corporate auditors) and this exempts TDK from Rule 10A-3 of the Securities Exchange Act of 1934, as amended, requiring companies to have an audit committee. This exemption is specifically provided by Rule 10A-3(c)(3) of the Securities Exchange Act of 1934, as amended, and applies to TDK because TDK meets all of the following elements that are enumerated:

(i) TDK has a Board of Corporate Auditors (kansayaku-kai) established and selected pursuant to the Company Law;

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(ii)	The Company Law requires the board of corporate auditors to be separate from the board of directors;
(iii)	Under the Company Law, the corporate auditors are not elected by management, but by the shareholders at a shareholders’ meeting. In addition, no executive officer of TDK is a member of the board of corporate auditors;
(iv)	The Company Law prohibits a corporate auditor from serving as a director, manager or other employee of the company or any of its subsidiaries, or as an accounting officer (kaikei sanyo) or executive officer of any subsidiary of the company. The Company Law requires a Company with Board of Corporate Directors to have at least half of the auditors thereof must be an outside auditor as such term is defined in the Company Law. As such, the Company Law provide for the standards for independence of the board of corporate auditors from the management of TDK;
(v)	The Company Law provides that an accounting auditor (kaikei kansanin) must be appointed at a shareholders’ meeting. However, it also provides that in order to submit a proposal concerning an appointment of an accounting auditor to a shareholders’ meeting, the directors must obtain the consent of the Board of Corporate Auditors and that the Board of Corporate Auditors may demand that the directors include the appointment of an accounting auditor in the agenda of a shareholders’ meeting or demand that the directors submit a proposal concerning the appointment of a certain accounting auditor who is recommended by the Board of Corporate Auditors. In addition, the Company Law provides that the Board of Corporate Auditors may dismiss an accounting auditor for causes such as breach of his or her duties that are enumerated in the Company Law. Further, pursuant to the Company Law and Company Accounting Regulations thereunder, the board of corporate auditors audit the financial statements separately from an audit by the accounting auditor, and if the board believes that the manner or result of an audit by the accounting auditors is not reasonable, it must indicate its objections and the reasons therefor in the audit report. To this end, a corporate auditor may, if necessary for the performance of his/her duties, request the accounting auditor to provide a report thereon. As such, in accordance with the Company Law, the Board of Corporate Auditors of TDK is responsible, to the extent permitted by law, for the appointment, retention and supervision of the work of a registered public accounting firm engaged for the purpose of preparing or issuing an audit report or performing other audit, review or attest services for TDK; and
(vi)	Under Japanese law, the establishment of the procedures for the receipt, retention, and treatment of complaints and the confidential, anonymous submission by employees is a responsibility of the board of directors, not the corporate auditors or the board of corporate auditors, and thus, the Board of Directors of TDK has established such procedures. Each Corporate Auditor of TDK may, however, investigate the status of such procedures at any time and state his/her opinion at a meeting of the Board of Directors if he/she considers it necessary. In addition, each Corporate Auditor of TDK has the authority to engage independent counsel and other advisers if such engagement is necessary to carry out his/her duties. Furthermore, each Corporate Auditor may require TDK to pay any and all expenses necessary for carrying out his/her duties, including compensation of any advisers employed by him/her and ordinary administrative expenses.

     As discussed above, TDK has established a Board of Corporate Auditors pursuant to the Company Law (consisting of five corporate auditors including three outside corporate auditors), and therefore does not have an audit committee.

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8. Corporate Governance Guidelines

     Under the Rules, listed companies must adopt and disclose corporate governance guidelines. On the other hand, Japanese law does not require TDK to either adopt or disclose corporate governance guidelines, and thus TDK has not established such guidelines. However, TDK has disclosed “The Status Concerning Corporate Governance” in its Japanese Annual Securities Report in accordance with the Securities Exchange Law of Japan and regulations thereunder. Furthermore, in conjunction with the amendment (effective as of March 1, 2006) of the Regulations Concerning Listing of Securities issued by the Tokyo Stock Exchange, TDK has delivered to the Tokyo Stock Exchange a report titled “Report Concerning Corporate Governance”. Additionally, because the Company Law requires that Large Companies (a company with paid in capital of Five Hundred Million Japanese Yen (JPY 500,000,000) or more or debt of Twenty Billion Japanese Yen (JPY 20,000,000,000) or more) determine whether or not to establish internal control systems to ensure that the performance by directors of their duties comply with applicable laws and regulations and the articles of incorporation of such Large Company, and the internal control systems provided under the Regulations Concerning Enforcement of the Company Law to ensure the integrity of the business activities of a company (collectively referred to as the “Internal Control System”), the Board of Directors of TDK has, through resolution, determined upon the detailed content of a corporate governance system.

9. Code of Business Conduct and Ethics

     Listed companies must adopt and disclose a code of business conduct and ethics for directors, officers and employees, and promptly disclose any waivers of the code for directors or executive officers under the Rules. By contrast, 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. See Item 16B. “Code of Ethics”. Furthermore, TDK has incorporated such code of business conduct and ethics into the Internal Control System indicated in the preceding paragraph.

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    D. Employees

     The following table lists the number of TDK full-time employees as of March 31, 2006, 2005 and 2004.

As of March 31, 2006	Japan		Overseas		Total
Electronic materials and components		7,697		42,419		50,116
Recording media		993		1,258		2,251
Corporate		1,516		40		1,556
Total		10,206		43,717		53,923

As of March 31, 2005	Japan		Overseas		Total
Electronic materials and components		6,938		26,112		33,050
Recording media		1,128		1,465		2,593
Corporate		1,436		36		1,472
Total		9,502		27,613		37,115

As of March 31, 2004	Japan		Overseas		Total
Electronic materials and components		7,147		25,204		32,351
Recording media		1,173		1,734		2,907
Corporate		1,524		22		1,546
Total		9,844		26,960		36,804

     The increase in the number of employees compared with the previous fiscal year is principally attributable to the net increase in the number of employees of the electronic materials and components segment, as Lambda Power Business became subsidiaries of TDK that are included in the scope of new consolidation, and TDK increased the number of employees in order to respond to the increased orders.

     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 76 percent of full-time employees of TDK are members of the TDK Labor Union, which is affiliated with ZENKIN RENGO. About 45 percent of the full-time employees of TDK and its domestic subsidiaries are members of unions affiliated with ZENKIN RENGO.

     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.

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    E. Share ownership

     The following table lists the number of shares (which exclude shares underlying stock acquisition rights) and shares underlying stock acquisition rights owned by the Directors, Corporate Officers and Corporate Auditors of TDK as of June 29, 2006. The total number of shares held is 27,500, and the total number of share underlying acquisition rights held is 282,100, as shown below, and these numbers constituted 0.2 percent of all outstanding shares as of such date.

				Number of
				shares
				underlying
		Number of		stock acquisi-
Name	Position	shares		tion rights
Hajime Sawabe	Representative Director, Chairman and CEO		9,000		51,300
Takehiro Kamigama	Representative Director, President and COO		3,300		27,000
Jiro Iwasaki	Director, Executive Vice President		2,000		17,000
Shinji Yoko	Director, Senior Vice President		1,000		30,800
Takeshi Nomura	Director, Senior Vice President		1,000		31,000
Yasuhiro Hagihara	Director (outside)		1,000		2,500
Seiji Enami	Director and CFO		1,100		5,500
Kiyoshi Ito	Corporate Officer, Senior Executive Vice President		1,000		29,600
Takaya Ishigaki	Corporate Officer, Senior Vice President		800		9,900
Minoru Takahashi	Corporate Officer, Senior Vice President		200		9,900
Michinori Katayama	Corporate Officer, Senior Vice President		500		12,500
Yukio Hirokawa	Corporate Officer		1,400		16,700
Masatoshi Shikanai	Corporate Officer		300		12,500
Kenryo Namba	Corporate Officer		2,000		16,500
Raymond Leung	Corporate Officer		0		2,000
Shunji Itakura	Corporate Officer		600		3,300
Shiro Nomi	Corporate Officer		300		2,400
Shinichi Araya	Corporate Officer		0		1,700
Masaaki Miyoshi	Full-time Corporate Auditor		1,000		—
Takuma Otsuka	Full-time Corporate Auditor		1,000		—
Kazutaka Kubota	Corporate Auditor (outside)		0		—
Kaoru Matsumoto	Corporate Auditor (outside)		0		—
Ryoichi Ohno	Corporate Auditor (outside)		0		—
Total			27,500		282,100

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   Stock option plans

     TDK obtained approval of the Ordinary General Meeting of Shareholders held on June 29, 2006 regarding the issuance of stock acquisition rights as stock options for a stock-linked compensation plan (the Stock Acquisition Rights) to Directors. Upon approval, the Board of Directors adopted resolutions to issue an aggregate of 176 Stock Acquisition Rights, each representing a stock option to purchase 100 shares of common stock of TDK, to the 7 Directors. The Stock Acquisition Rights are exercisable during the period from August 6, 2006 to August 5, 2026. The amount to be paid by qualified persons upon the exercise of each Stock Acquisition Rights is set at ¥1 per share of common stock, which 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.

     TDK obtained approval of the Ordinary General Meeting of Shareholders held on June 29, 2006 regarding the issuance of stock acquisition rights as stock options for a stock-linked compensation plan (the Stock Acquisition Rights) to Corporate Officers, pursuant to Articles 236, 238 and 239 of the Company Law (Kaisha-ho). Upon approval, the Board of Directors adopted resolutions to issue an aggregate of 153 Stock Acquisition Rights, each representing a stock option to purchase 100 shares of common stock of TDK, to the 10 Corporate Officers. The Stock Acquisition Rights are exercisable during the period from August 6, 2006 to August 5, 2026. The amount to be paid by qualified persons upon the exercise of each Stock Acquisition Rights is set at ¥1 per share of common stock, which 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.

     TDK also obtained approval of the Ordinary General Meeting of Shareholders held on June 29, 2006 regarding the issuance of stock acquisition rights as stock options (the Stock Acquisition Rights) to select senior executives, pursuant to Articles 236, 238 and 239 of the Company Law. Upon approval, the Board of Directors adopted resolutions to issue an aggregate of 1,200 Stock Acquisition Rights, each representing a stock option to purchase 100 shares of common stock of TDK, to select senior executives of TDK, and the Directors and select senior executives of subsidiaries. The Stock Acquisition Rights are exercisable during the period from August 1, 2008 to July 31, 2012.

     TDK obtained approval of the Ordinary General Meeting of Shareholders held on June 29, 2005 regarding the issuance of stock acquisition rights as share-based compensation stock options (the Stock Acquisition Rights) to Board members and Corporate Officers, pursuant to Articles 280-20 and 280-21 of the Japanese Commercial Code. Upon approval, the Board of Directors adopted resolutions to issue an aggregate of 246 Stock Acquisition Rights, each representing an option to purchase 100 shares of common stock of TDK, to the then 17 Directors and Corporate Officers of TDK. The Stock Acquisition Rights issued on June 30, 2005 are fully vested on date of issuance and are exercisable during the period from July 1, 2005 to June 30, 2025. The amount to be paid by qualified persons upon the exercise of each Stock Acquisition Rights is set at ¥1 ($0.01) per share of common stock. Stock option related compensation cost of ¥186 million ($1,590 thousand) has been recognized in fiscal 2006, representing the amount attributed to service rendered during the current period of the amount by which the market price of the underlying common stock exceeded the exercise price of stock options approved for issuance at the Ordinary General Meeting of Shareholders held in June 2005.

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     TDK obtained approval of the Ordinary General Meeting of Shareholders held on June 29, 2005 regarding the issuance of stock acquisition rights as stock options to 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 an aggregate of 906 Stock Acquisition Rights, each representing an option to purchase 100 shares of common stock of TDK, to the then 172 select senior executives of TDK, and the Directors and select senior executives of subsidiaries. The Stock Acquisition Rights issued on August 11, 2005 are exercisable during the period from August 1, 2007 to July 31, 2011. The amount to be paid by qualified persons upon the exercise of each Stock Acquisition Rights is set at ¥8,134 ($69.52) 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 Rights was equal to or greater than the fair market value of TDK’s common stock on the date of grant.

     To cover these options and share-based compensation stock options issued on June 30, 2005, TDK purchased on the Tokyo Stock Exchange (“TSE”) a total of 115,200 common shares with an aggregate purchase price of ¥930 million ($7,949 thousand) from August 17, 2005 through August 22, 2005.

     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, pursuant to Articles 280-20 and 280-21 of the Japanese Commercial Code. Upon approval, the Board of Directors adopted resolutions to issue an aggregate of 2,343 Stock Acquisition Rights, each representing a stock option to purchase 100 shares of common stock of TDK, to the then 187 Directors, Corporate Officers and select senior executives of TDK, and the Directors and select senior executives of its subsidiaries. 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 was set at ¥8,147 per share of common stock. The exercise price of each Stock Acquisition Rights 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 TSE a total of 234,300 common shares with an aggregate purchase price of ¥1,656 million from August 9, 2004 through August 16, 2004.

     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, pursuant to Articles 280-20 and 280-21 of the Japanese Commercial Code. Upon approval, the Board of Directors adopted resolutions to issue 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 its subsidiaries. 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 was set at ¥6,954 per share of common stock. The exercise price of each Stock Acquisition Rights 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 TSE a total of 260,000 common shares with an aggregate purchase price of ¥1,847 million from August 8, 2003 through August 18, 2003.

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          TDK obtained approval of the Ordinary General Meeting of Shareholders held on June 27, 2002 regarding the issuance of stock acquisition rights as stock options, 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 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 its subsidiaries. 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 was set at ¥5,909 per share of common stock. The exercise price of each Stock Acquisition Rights 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 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.

          The Ordinary General Meeting of Shareholders held on June 28, 2001 approved the implementation 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 Japanese Commercial Code. Stock options 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, at an exercise price of ¥6,114 per share. 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 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 the implementation 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 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, at an exercise price of ¥15,640 per share. 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 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.

Employees (excluding Directors and Corporate Officers) Shareholding Association

          As of March 31, 2006, the number of members of the TDK Employees Shareholding Association totaled 1,570. 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 percent of the purchase price of shares. The subsidy amounted to ¥18 million ($156 thousand) for fiscal 2006. 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 class
Common stock	TDK Employees Shareholding Association	486,210 shares		0.37	%

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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 percent or more of TDK shares and their percentage ownership as of March 31, 2006:

	Shares owned
Name of major shareholder	(in thousands)		Percentage
The Master Trust Bank of Japan, Ltd. (Trust account)		14,660		11.00	%
Japan Trustee Services Bank, Ltd. (Trust account)		11,176		8.39	%

          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, 2006, there were 1,411,860 registered ADRs outstanding and 359 registered holders, of which 1,411,341 ADRs were held by 212 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 and its affiliates.

     C. Interests of experts and counsel

          Not applicable.

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Item 8. Financial Information

     A. Consolidated statements and other financial information

     Consolidated financial statements

          TDK’s audited financial statements are included under Item 17 “Financial Statements”. Except for TDK’s financial statements included under Item 17, no other information in this Annual Report has been audited by TDK’s independent auditors.

          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 litigation 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

          Returning earnings to shareholders is one of TDK’s highest management priorities. Therefore, TDK’s fundamental policy is to give consideration to a consistent increase in dividends based on factors such as the return on equity (ROE), dividends as a percentage of equity (DOE) and TDK’s results of operations on a consolidated basis.

     B. Significant changes

          No significant change has occurred since the date of the annual consolidated financial statements.

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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 Exchange 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.

					U.S. market
	Yen per share of				price per American
	Common stock (1)				Depositary Share (2)
	High		Low		High		Low
Annual highs and lows
Year ended March 31, 2002		8,670		4,800		69.00		40.00
Year ended March 31, 2003		7,380		4,060		57.00		32.95
Year ended March 31, 2004		8,350		3,810		77.86		32.40
Year ended March 31, 2005		8,630		6,790		80.10		61.40
Year ended March 31, 2006		10,230		7,250		85.40		62.50
Quarterly highs and lows
Year ended March 31, 2005
1st quarter		8,630		7,130		80.10		64.50
2nd quarter		8,390		6,790		77.05		61.40
3rd quarter		7,910		7,160		74.85		67.80
4th quarter		7,880		7,050		75.93		68.40
Year ended March 31, 2006
1st quarter		8,020		7,250		74.35		68.02
2nd quarter		8,740		7,480		79.25		67.05
3rd quarter		10,230		7,530		85.40		62.50
4th quarter		9,070		7,730		76.29		66.50
Year ending March 31, 2007
1st quarter		10,000		7,990		89.00		69.89
Monthly highs and lows
January 2006		8,760		7,730		73.79		68.00
February 2006		8,600		7,750		72.81		66.50
March 2006		9,070		8,030		76.29		69.43
April 2006		9,760		8,960		84.13		76.22
May 2006		10,000		9,010		89.00		81.10
June 2006		9,400		7,990		84.16		69.89

Notes:
(1)	As reported by the Tokyo Stock Exchange.
(2)	As reported by the New York Stock Exchange.

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     B. Plan of distribution

          Not applicable.

     C. Markets

          See Item 9.A. “Offer and listing details”.

     D. Selling shareholders

          Not applicable.

     E. Dilution

          Not applicable.

     F. Expenses of the issue

          Not applicable.

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Item 10. Additional Information

     A. Share capital

          Not applicable.

     B. Memorandum and articles of association

          The discussion below reflects the enactment of the Company Law, which became effective on May 1, 2006 and the latest amendments to TDK’s Articles of Incorporation, which reflects the enactment of the Company Law and was approved by the ordinary general shareholders meeting held on June 29, 2006. The Company Law integrated into a single code formerly effective legislation regarding companies, including Chapters 2, 3 and 4 of the Commercial Code, the Limited Liability Company (yugen kaisha) Law and the Law for Special Provisions for the Commercial Code concerning Audits, etc. of Joint Stock Corporations (kabushiki kaisha), all of which were now abolished. In addition, the Company Law significantly changed traditional concepts and systems under the formerly effective Commercial Code and other laws in many respects.

     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 (Registration Number: 0199-01-034849).

     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;

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• 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.

          With respect to directors, TDK’s Articles of Incorporation, bylaws and associated internal rules issued pursuant to the Articles provide in summary as follows:

(a)	a director is not entitled to vote on a proposal or arrangement or contract in which the director is materially interested;
(b)	the remuneration and retirement allowances for directors are determined at a general meeting of shareholders;
(c)	the Board of Directors have authority to approve long-term borrowing of ¥10 billion or more by resolution passed at a duly convened meeting of the Board of Directors. The Representative Director is authorized by the Board of Directors to make final decisions with respect to long-term borrowings in an amount less than ¥10 billion and short-term borrowings (including issuance of commercial paper);
(d)	there are no provisions requiring the mandatory retirement of directors at a specified age; and
(e)	share ownership is not required in order to be eligible to serve as a director.

     Common Stock

     General

          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 Company Law and related legislation.

          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 against TDK.

     Authorized capital

          Article 6 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, 2006, 133,189,659 shares of Common Stock without having any par value were issued, including 922,831 shares of treasury stock.

          There is no concept of “par value” of shares of capital stock under the Company Law. Thus, all shares of capital stock of TDK have no par value.

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     Dividends

          The Articles of Incorporation of TDK provides that the accounts shall be closed on March 31 of each year and that year-end dividends, if any, shall be paid to shareholders, beneficial shareholders and pledgees of record as of the end of such day. Under the Company Law and the Articles of Incorporation of TDK, TDK may fix a record date and, subject to certain limitation on the distributable surplus, pay dividends on retained earnings, if any, to shareholders, beneficial shareholders and pledgees of record as of that date from time to time by a resolution of a general meeting of shareholders. In addition, the Board of Directors may by its resolution declare an interim dividend pursuant to Article 454 paragraph 5 of the Company Law and the Articles of Incorporation of TDK 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. Dividends may be distributed in cash or in kind subject to certain conditions being met.

          Under the Company Law, TDK is permitted to make a distribution of surplus to the extent that the aggregate book value of the assets to be distributed to shareholders does not exceed the distributable amount provided for by the Company Law and the ordinance of the Ministry of Justice as at the effective date of such distributable surplus.

          The amount of surplus at any given time shall be the amount of TDK’s assets and the book value of TDK’s treasury stock after subtracting and adding the amounts of the items provided for by the Company Law and the ordinance of the Ministry of Justice.

          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 Company Law, 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 certificates. In respect of shares deposited with the Japan Securities Depository Center, Inc. (“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 shares 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.

          Under the Company Law, 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.

     Consolidation of shares

          TDK may at any time consolidate shares issued into a smaller number of shares by a special resolution of a general meeting of shareholders. When a consolidation of shares is to be made, TDK must give public notice or notice to each shareholder that, within a period of not less than one month specified in the notice, share certificates must be submitted to TDK for exchange. The Director of TDK must disclose the reason for the consolidation of shares at the general meeting of shareholders.

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     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 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 Company Law, 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 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 “Unit” share system, below) 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 Company Law 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 the shareholders who can exercise voting rights. TDK’s shareholders are not entitled to cumulative voting in the election of Directors and Corporate Auditors. A company, partnership or other similar business enterprise that holds shares of TDK stock may not exercise its voting rights with respect to such TDK shares if TDK and its subsidiaries, either alone or together, hold shares or membership interests representing more than 25 percent of the voting power of such shareholder or has any relationship with such shareholder provided in the ordinance of the Ministry of Justice under which TDK may substantially control the management of such shareholder. 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 TDK decides to permit such method of exercising voting rights.

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          The Company Law 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 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 percent 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 or price) 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”).

     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 or transfer of 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. Such subscription rights are nontransferable. However, a shareholder may be allotted stock acquisition rights without consideration thereto, and transfer such rights.

          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.

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     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 in accordance with the Articles of Incorporation of TDK), (ii) from a specific shareholder other than its subsidiary (pursuant to a special resolution of a general meeting of shareholders), or (iii) from its subsidiary (pursuant to a resolution of a meeting of the Board of Directors). In the case of (ii) above, any other shareholder may make a request directly to a representative director, five days prior to the relevant shareholder’s meeting, to include such other shareholder as the seller of shares in the proposed purchase. However, the acquisition of its own shares at a price not exceeding the then market price provided under the ordinance of the Ministry of Justice will not trigger the right of any shareholder to include him/her as the seller of his shares in such proposed acquisition.

          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 distributable dividends. (See Dividends above)

          Shares acquired by TDK may be held by it for any period or may be cancelled by resolution of the Board of Directors. TDK may also transfer to any person the shares held by it, subject to a resolution of the Board of Directors, and subject also to other requirements those applicable to the issuance of new shares including the limitation as to the offering of new shares at a “specially favorable” price mentioned in “Voting Rights” above. TDK may also utilize its treasury shares for the purpose of transfer to any person upon exercise of stock acquisition rights or for the purpose of acquiring another company by merger, share exchange or corporate split through exchange of treasury shares for shares or assets of the acquired company.

          The Company Law generally prohibits any subsidiary of TDK from acquiring shares of TDK.

     “Unit” share system

          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.

     —Voting rights under the unit share system

          Under the unit share system, shareholders shall have one voting right for each unit of shares that they hold. Any number of shares less than a full unit will carry no voting rights.

     —Share 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.

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     —Repurchase or sale 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, or sell such number of shares which, if combined with the shares already held by such holder, would constitute one unit of 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 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.

          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 Company Law 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.

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

Any individuals or corporations that do not correspond to any of the above may be regarded as a foreign investor when they acquire or hold shares on behalf of foreign investor.

          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 (“listed shares”) and if the foreign investor’s direct and indirect total holdings are 10 percent 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 percent), 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.

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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 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 percent 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.

     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.

          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 agreements shall be applicable except when such maximum rate is more than the Japanese statutory rate.

          TDK, as a Japanese corporation, may be obligated to withhold a certain amount from any payments by TDK to its shareholder that is a non-resident of Japan or a non-Japanese corporation. Specifically, according to Articles 212-1 and 212-2 of the Income Tax Law of Japan, TDK has the obligation to withhold the amount determined by the applicable tax rate from its dividends to such of its shareholders.

     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.

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          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:
    100 F Street, NE, Washington D.C. 20549

New 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.

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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, 2006 and 2005, 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 ¥17,726 million ($151,504 thousand) and ¥28,990 million, respectively.

          TDK and one of its subsidiaries had 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 with loans made by TDK to its subsidiaries in a total amount of ¥11,067 million at March 31, 2005. 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 following table provides information about TDK’s derivative instruments related to foreign exchange risk as of March 31, 2006 and 2005.

	2006							2005
	(millions of yen)					Average		(millions of yen)					Average
	Contract		Fair			contractual		Contract		Fair			contractual
	amounts		value			rate		amounts		value			rate
Forward exchange contracts
To sell Euro / receive Yen	¥	5,669	¥	(4	)		141.73	¥	—	¥	—			—
To sell USD / receive Yen		1,183		12			118.30		4,295		(88	)		105.00
To sell CHF / receive Euro		—		—			—		54		—			1.54
Total	¥	6,852	¥	8				¥	4,349	¥	(88	)

	(millions of yen)					Average		(millions of yen)					Average
	Contract		Fair			contractual		Contract		Fair			contractual
	amounts		value			rate		amounts		value			rate
Currency option contracts
To sell USD / receive USD	¥	4,675	¥	(27	)		116.88	¥	23,803	¥	(354	)		105.10
To sell USD / receive Yen		5,359		23			118.00		—		—			—
To sell Euro / receive Euro		840		(4	)		141.30		838		(12	)		39.07
Total	¥	10,874	¥	(8	)			¥	24,641	¥	(366	)

	(millions of yen)				Average		(millions of yen)					Average
	Contract		Fair		contractual		Contract		Fair			contractual
	amounts		value		rate		amounts		value			rate
Currency and interest rate swaps contracts
To receive Euro / pay GBP	¥	—	¥	—		—	¥	2,041	¥	(10	)		0.69
To receive Yen / pay Euro		—		—		—		9,026		(302	)		134.75
Total	¥	—	¥	—			¥	11,067	¥	(312	)

- 81 -

          TDK’s exposure to market risk related to 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, 2006 and 2005, 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 only to its equity securities categorized as available-for-sale securities. TDK purchases equity securities for the purpose of acquiring technological information and as part of its sales strategy, and not as a means of investing surplus funds. The aggregate cost and fair value of these equity securities were ¥9.2 billion ($79 million) and ¥12.1 billion ($103 million) as of March 31, 2006, and ¥6.0 billion and ¥7.0 billion as of March 31, 2005, respectively. As of March 31, 2006, these securities mainly represented investments in companies in the transportation, communications and electronic equipment industries, and the cost and fair value of these equity securities were ¥8.8 billion ($75 million) and ¥11.1 billion ($95 million), respectively. As of March 31, 2005, these securities mainly represented investments in companies in the transportation, communications and electronic equipment industries, and the cost and fair value of the equity securities were ¥5.6 billion and ¥6.5 billion, respectively.

          TDK’s portfolio of equity securities, including available-for-sale securities, at March 31, 2006 and 2005, is as follows:

2006

2005

Yen (Millions)

Yen (Millions)

Gross

Gross

Gross

Gross

unrealized

unrealized

unrealized

unrealized

holding

holding

holding

holding

Cost

gains

losses

Fair value

Cost

gains

losses

Fair value

¥     9,246

2,859

2

12,103

5,951

1,054

—

7,005

Item 12. Description of Securities Other than Equity Securities

     A. Debt securities

          Not applicable.

     B. Warrants and rights

          Not applicable.

     C. Other securities

          Not applicable.

     D. American depositary shares

          Not applicable.

- 82 -

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) 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, 2006 (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) Management’s annual report on internal control over financial reporting

          This requirement was “intentionally omitted pursuant to SEC Release No. 33-8345 dated March 2, 2005” and SEC Release No. 33-8618 dated September 22, 2005.

     (c) Attestation report of the registered public accounting firm

          This requirement was “intentionally omitted pursuant to SEC Release No. 33-8345 dated March 2, 2005” and SEC Release No. 33-8618 dated September 22, 2005.

     (d) Changes in internal control over financial reporting

          There were no 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 audit committee. TDK’s board of auditors has determined that Ryoichi Ohno qualifies as an “audit committee financial expert” as defined by the rules of SEC. Mr. Ohno is an outside corporate auditor within the meaning of the Special Audit Law. See Significant differences in corporate governance practices between TDK and U.S. listed companies on the New York Stock Exchange in Item 6.C. “Board practices”. 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.

- 83 -

Item 16B. Code of Ethics

          TDK has established a code of business ethics (“TDK Code of Ethics”) that applies to TDK’s corporate officers and all TDK employees and is actively promoting ethical business practices on a worldwide basis. TDK amended the TDK Code of Ethics as of May 25, 2005 to revise the section pertaining to the civil rights of its employees and to add a new section regarding employment conditions. Both sections apply to TDK’s corporate officers and all TDK employees. Please see Sections 2.2.3 and 2.2.4 of the TDK Code of Ethics. The TDK Business Ethics & CSR Committee (formerly named “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 11.1 to this annual report. TDK has not granted a waiver or implicit waiver from any provision of the TDK Code of Ethics in the most recent fiscal year.

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)
	Years ended March 31
	2006		2005
Audit fees		609		323
Audit-related fees		131		36
Tax fees		279		211
All other fees		0		5
Total		1,019		575

          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 or other periodic filings.

          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; (ii) Sarbanes-Oxley Act related assistance; and (iii) Financial due diligence.

          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 assistance; 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.

- 84 -

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 public accounting firm that the public accounting firm is neither the Outside Auditor nor a person associated with the Outside Auditor; and
(ii)	The Retainer has confirmed that such public accounting firm does not appear on the list of persons associated with the Outside Auditor, which is contained in the database system (“Pre-Approval Database”) within the TDK intranet system.

          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 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 as follows: (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”).

- 85 -

          The Appointed Director must confirm whether an audit or non-audit service to be rendered by the Outside Auditor meets 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 an 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
(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

          TDK is relying on the general exemption contained in Rule 10A-3(c)(3) under the Exchange Act. Because of such reliance, TDK does not have an audit committee which can act independently and satisfy the other requirements of Rule 10A-3 under the Exchange Act.

          According to Rule 10A-3 under the Exchange Act and NYSE listing standards, TDK’s Board of Corporate Auditors acts in place of an audit committee. The Board of Corporate Auditors meets the following requirements of the general exemption contained in Rule 10A-3(c)(3):

• the Board of Corporate Auditors is established pursuant to the Company Law;

• as required by the Company Law, the Board of Corporate Auditors is separate from the Board of Directors;

• the Board of Corporate Auditors is not elected by the management of TDK and no executive officer of TDK is a member of the Board of Corporate Auditors;

• the Company Law provides for the standards for independence of the Board of Corporate Auditors from the management of TDK;

• in accordance with the Company Law, the Board of Corporate Auditors of TDK is responsible, to the extent permitted by law, for the appointment, retention and supervision of the work of a registered public accounting firm engaged for the purpose of preparing or issuing an audit report or performing other audit, review or attest services for TDK; and

- 86 -

• Under the Company Law, the establishment of the procedures for the receipt, retention, and treatment of complaints and the confidential, anonymous submission by employees is a responsibility of the board of directors, not the corporate auditors or the board of corporate auditors, and thus, the Board of Directors of TDK has established such procedures. In addition, each Corporate Auditor of TDK has the authority to engage independent counsel and other advisers if such engagement is necessary to carry out his/her duties. Furthermore, each Corporate Auditor may require TDK to pay any and all expenses necessary for carrying out his/her duties, including compensation of any advisers employed by him/her and ordinary administrative expenses.

          TDK’s reliance on Rule 10A-3(c)(3) does not, in its opinion, materially adversely affect the ability of its Board of Corporate Auditors to act independently and to satisfy the other requirements of Rule 10A-3.

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

          The following table sets forth certain information with respect to TDK’s purchases of our own shares during the year ended March 31, 2006.

					(c) Total
					Number of		(d) Maximum
					Shares		Number of
					Purchased as		Shares that May
	(a) Total		(b) Average		Part of Publicly		Yet Be
	Number		Price Paid		Announced		Purchased Under
	of Shares		per Share		Plans or		the Plans or
Period	Purchased		(Yen)		Programs		Programs
April 1 to April 30, 2005		194		7,497.89		—		—
May 1 to May 31, 2005		146		7,551.51		—		—
June 1 to June 30, 2005		216		7,824.31		—		—
July 1 to July 31, 2005		242		7,727.31		—		—
August 1 to August 31, 2005		555		8,049.78		115,200		—
September 1 to September 30, 2005		296		8,382.84		—		—
October 1 to October 31, 2005		273		8,055.71		—		—
November 1 to November 30, 2005		165		8,401.52		—		—
December 1 to December 31, 2005		625		9,542.42		—		—
January 1 to January 31, 2006		—		—		—		—
February 1 to February 28, 2006		246		8,234.43		—		—
March 1 to March 31, 2006		108		8,711.30		—		—
Total		3,066		8,343.80		—		—

Note: Under the Company Law, a holder of shares constituting less than one full unit may request TDK to purchase such shares at their market value (See Item 10. Additional Information “Common Stock” “Unit” share system). All purchases described in the above table were made pursuant to such requests by shareholders excluding the reserve for stock option plans of the amount of 115,200 shares in August 2005.

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PART 3

Item 17. Financial Statements

Index of Consolidated Financial Statements of TDK Corporation and subsidiaries:

	Page
Report of Independent Registered Public Accounting Firm		89
Consolidated Statements of Income for the years ended March 31, 2006, 2005 and 2004		90
Consolidated Balance Sheets as of March 31, 2006 and 2005		91
Consolidated Statements of Stockholders’ Equity for the years ended March 31, 2006, 2005 and 2004		93
Consolidated Statements of Cash Flows for the years ended March 31, 2006, 2005 and 2004		94
Notes to Consolidated Financial Statements		95
Schedule for the years ended March 31, 2006, 2005 and 2004:
Schedule II – Valuation and Qualifying Accounts		133

          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, 2006, 2005 and 2004.

- 88 -

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. 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 declined to present segment information for each of the years in the three-year period ended March 31, 2006. In our opinion, disclosures of segment and related information about the different types of business activities in which the company engages and the different economic environments in which it operates is required by U.S. generally accepted accounting principles. The omission of segment information results in an incomplete presentation of the Company’s consolidated financial statements.

     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, 2006 and 2005, and the results of their operations and their cash flows for each of the years in the three-year period ended March 31, 2006, in conformity with U.S. generally accepted accounting principles. 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, 2006, have been translated into United States dollars solely for the convenience of the reader. We have audited 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
May 23, 2006

- 89 -

Consolidated statements of income
For the years ended March 31, 2006, 2005 and 2004

										U.S. Dollars
				Yen						(Thousands)
				(Millions)						(Note 2)
	2006			2005			2004			2006
Net sales (Notes 20 and 24)	¥	795,180			657,853			655,792		$	6,796,410
Cost of sales (Note 24)		585,780			484,323			476,407			5,006,666
Gross profit		209,400			173,530			179,385			1,789,744
Selling, general and administrative expenses (Note 24)		142,052			119,886			122,875			1,214,120
Transfer to the government of the substitutional portion of Employees’ Pension Fund (Note 8):
Subsidy from the government		—			(33,533	)		—			—
Loss on settlement		—			27,347			—			—
Restructuring cost (Note 16)		6,825			—			—			58,333
Operating income		60,523			59,830			56,510			517,291
Other income (deductions):
Interest and dividend income		3,605			1,692			1,189			30,812
Interest expense		(149	)		(967	)		(323	)		(1,274	)
Equity in earnings of affiliates		1,368			1,765			1,639			11,692
Gain (loss) on securities, net (Note 4)		(286	)		(142	)		(1,093	)		(2,444	)
Foreign exchange gain (loss)		948			(856	)		(3,064	)		8,103
Other — net		94			(594	)		989			803
		5,580			898			(663	)		47,692
Income from continuing operations before income taxes		66,103			60,728			55,847			564,983
Income taxes (Note 7)		21,057			23,284			12,133			179,974
Income from continuing operations before minority interests		45,046			37,444			43,714			385,009
Minority interests, net of tax		635			479			359			5,428
Income from continuing operations		44,411			36,965			43,355			379,581
Discontinued operations (Note 21):
Loss from operations of discontinued business (including loss on disposal of ¥224 million in 2006)		310			3,509			244			2,649
Income tax expense		—			156			1,010			—
Loss from discontinued operations		310			3,665			1,254			2,649
Net income	¥	44,101			33,300			42,101		$	376,932

	Yen (except number of							U.S. Dollars
	common shares outstanding)							(Note 2)
Amounts per share:
Income from continuing operations per share (Note 19):
Basic	¥	335.84		279.41		327.27		$	2.87
Diluted		335.54		279.25		327.15			2.87
Loss from discontinued operations per share (Note 19):
Basic	¥	(2.34	)	(27.70	)	(9.47	)	$	(0.02	)
Diluted		(2.34	)	(27.69	)	(9.46	)		(0.02	)
Net income per share (Note 19):
Basic	¥	333.50		251.71		317.80		$	2.85
Diluted		333.20		251.56		317.69			2.85
Weighted average basic common shares outstanding (in thousands) (Note 19)		132,239		132,293		132,475
Weighted average diluted common shares outstanding (in thousands) (Note 19)		132,355		132,376		132,523
Cash dividends paid during the year (Note 9)	¥	80.00		60.00		50.00		$	0.68

See accompanying notes to consolidated financial statements.

- 90 -

Consolidated balance sheets
As of March 31, 2006 and 2005

								U.S. Dollars
				Yen					(Thousands)
				(Millions)					(Note 2)
	2006				2005			2006
ASSETS
Current assets:
Cash and cash equivalents	¥	239,017				251,508		$	2,042,880
Marketable securities (Note 4)		56				1,609			479
Trade receivables (Note 20):
Notes		7,899				6,133			67,513
Accounts (Note 24)		185,224				144,426			1,583,111
Allowance for doubtful receivables		(4,064	)			(2,560	)		(34,735	)
Net trade receivables		189,059				147,999			1,615,889
Inventories (Note 5)		88,968				74,924			760,410
Income tax receivables (Note 7)		265				204			2,265
Assets held for sale (Note 17)		4,110				993			35,128
Prepaid expenses and other current assets (Notes 7 and 24)		45,278				33,366			386,992
Total current assets		566,753				510,603			4,844,043
Investments in securities (Note 4)		28,757				22,698			245,786
Property, plant and equipment, at cost:
Land		21,790				20,097			186,239
Buildings		187,810				181,581			1,605,214
Machinery and equipment		482,398				445,636			4,123,060
Construction in progress		12,687				15,206			108,436
		704,685				662,520			6,022,949
Less accumulated depreciation		(461,020	)			(445,551	)		(3,940,342	)
Net property, plant and equipment		243,665				216,969			2,082,607
Goodwill (Note 18)		19,453				9,210			166,265
Intangible assets (Note 18)		29,478				13,247			251,949
Deferred income taxes (Note 7)		7,287				8,633			62,282
Other assets (Notes 8 and 12)		28,110				26,641			240,256
	¥	923,503				808,001		$	7,893,188

See accompanying notes to consolidated financial statements.

- 91 -

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

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Consolidated statements of stockholders’ equity
For the years ended March 31, 2006, 2005 and 2004

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

See accompanying notes to consolidated financial statements.

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Consolidated statements of cash flows
For the years ended March 31, 2006, 2005 and 2004

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

See accompanying notes to consolidated financial statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Nature of Operations and Summary of Significant Accounting Policies

(a) Nature of Operations

     TDK, a Tokyo-based company founded in 1935, is a multinational manufacturer of ferrite products and a producer of inductor, ceramic capacitors, magnetic head and other components and recording media. TDK’s two business segments are electronic materials and components, and recording media, which accounted for 86.5 percent and 13.5 percent of net sales, respectively, for the year ended March 31, 2006. The main products which are manufactured and sold by the two business segments are as follows:

     (i) Electronic materials and components products:

Ferrite cores, Multilayer chip capacitors, High-frequency components, Inductors, GMR heads, and Organic electroluminescent (EL) display

     (ii) Recording media products:

Audio tapes, Video tapes, CD-Rs, MDs, DVDs, and Tape-based data storage media for computers

     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 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 U.S. generally accepted accounting principles (the “U.S. GAAP”). Such adjustments relate principally to accounting for retirement and severance benefits.

(c) Consolidation Policy

     The consolidated financial statements include the accounts of TDK, its subsidiaries and those variable interest entities where TDK is the primary beneficiary under Financial Accounting Standards Board (“FASB”) Interpretation No. 46 (revised December 2003) (“FIN 46R”), “Consolidation of Variable Interest Entities”. All significant intercompany accounts and transactions have been eliminated in consolidation.

     The investments in affiliates in which TDK’s ownership is 20 percent to 50 percent and where 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.

(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 customer circumstances change, estimates of the recoverability of receivables would be further adjusted.

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(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, 2006 and 2005, 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 the fair value of available-for-sale securities for possible impairment by taking into consideration 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 whether an event or change in circumstances may have a significant adverse effect on the fair value of the investment. Factors considered in accessing whether an indication of impairment exists include the financial and operating conditions of the issuer, the general market conditions in the issuer’s industry and other relevant factors. If an indication of impairment is present, TDK estimates the fair value of nonmarketable securities. If the fair value is less than cost and the impairment is determined to be other-than-temporary, a nonmarketable security 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 cost method.

(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 years
Machinery and equipment	2 to 22 years

(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. TDK uses a specific identification method to release the residual tax effects associated with components of accumulated other comprehensive income resulting from a change in tax law or rate.

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(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, stock option related compensation cost of ¥186 million ($1,590 thousand) has been recognized in fiscal 2006, representing the amount attributed to service rendered during the current period of the amount by which the market price of the underlying common stock exceeded the exercise price of stock options approved for issuance at the Ordinary General Meeting of Shareholders held in June 2005 (note 10). No compensation cost has been recognized in fiscal 2005 and fiscal 2004 for TDK’s stock based compensation plan.

     The following table illustrates the effects on both income from continuing operations and net income 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.

	Yen									U.S. Dollars
	(Millions)									(Thousands)
	2006			2005			2004			2006
Income from continuing operations, as reported	¥	44,411			36,965			43,355		$	379,581
Add compensation expense recognized under intrinsic value method		186			—			—			1,590
Deduct total stock-based employee compensation expense determined under fair-value-based method for all awards		(607	)		(438	)		(330	)		(5,188	)
Pro forma income from continuing operations	¥	43,990			36,527			43,025		$	375,983

			Yen			U.S. Dollars
Basic income from continuing operations per share:
As reported	¥	335.84		279.41	327.27	$	2.87
Pro forma		332.66		276.11	324.78		2.84
Diluted income from continuing operations per share:
As reported	¥	335.54		279.25	327.15	$	2.87
Pro forma		332.39		275.98	324.74		2.84

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	Yen									U.S. Dollars
	(Millions)									(Thousands)
	2006			2005			2004			2006
Net income, as reported	¥	44,101			33,300			42,101		$	376,932
Add compensation expense recognized under intrinsic value method		186			—			—			1,590
Deduct total stock-based employee compensation expense determined under fair-value-based method for all awards		(607	)		(438	)		(330	)		(5,188	)
Pro forma net income	¥	43,680			32,862			41,771		$	373,334

			Yen			U.S. Dollars
Basic net income per share:
As reported	¥	333.50		251.71	317.80	$	2.85
Pro forma		330.32		248.40	315.31		2.82
Diluted net income per share:
As reported	¥	333.20		251.56	317.69	$	2.85
Pro forma		330.05		248.29	315.27		2.82

(k) Research and Development Expenses

     Research and development costs are expensed as incurred.

(l) Advertising Costs

     Advertising costs are expensed as incurred.

(m) Shipping and Handling Fees and Costs

     Shipping and handling costs amounted to ¥15,326 million ($130,991 thousand), ¥13,397 million and ¥12,163 million for the years ended March 31, 2006, 2005 and 2004, respectively, and are included in selling, general and administrative expenses in the consolidated statements of income.

(n) 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 income and are accumulated in stockholders’ equity as a component of accumulated other comprehensive income (loss).

(o) 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 the 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.

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(p) Accounting for the Impairment or Disposal of Long-Lived Assets

     Property, plant and equipment 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.

(q) Goodwill and Other Intangible Assets

     Goodwill is not amortized, but instead is tested for impairment at least annually or more frequently if certain indicators arise. Intangible assets with finite useful lives are amortized over their respective estimated useful lives. Intangible assets determined to have an indefinite useful life are not amortized, but instead are tested for impairment until the life is determined to no longer be indefinite.

     TDK conducts its annual impairment test in the fourth quarter of each fiscal year.

(r) Derivative Financial Instruments

     TDK has elected not to apply hedge accounting. Accordingly, changes in the fair value of derivatives are recognized in earnings in the period of the changes.

(s) 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. For the years ended March 31, 2006, 2005 and 2004, stock options to purchase 116,100 shares, 364,300 shares and 156,500 shares, respectively, were excluded from the calculation of diluted earnings per share as the effect would have been antidilutive.

(t) Revenue Recognition

     TDK generates revenue principally through the sale of electronic materials & components and recording media 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 products such as videotape and DVDs is also recognized when the products are received by customers based on the free-on board destination sales term.

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     TDK offers sales incentives through various programs to certain resellers and retailers. These sales incentives include product discounts, volume-based discounts, marketing development funds (“MDFs”), rebates and coupons, and are accounted for in accordance with the Emerging Issues Task Force Issue No. 01-9 “Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of Vendor’s Product)” (“EITF 01-9”). Generally, under EITF 01-9, consideration given by a vendor to a customer is presumed to be a reduction of the selling price of goods and services, and, therefore, should be recognized as a reduction of revenue in the vendor’s income statement. The presumption may be overcome based on certain factors. These sales incentives totaled to ¥13,479 million ($115,205 thousand), ¥14,292 million and ¥15,089 million for the years ended March 31, 2006, 2005 and 2004, respectively.

     A number of product discounts are based on a certain percentage off the invoice price predetermined by spot contracts or based on contractually agreed upon amounts with resellers and retailers. Product discounts are recognized as a reduction of revenue at the time the related revenue is recognized and amounted to ¥7,415 million ($63,376 thousand), ¥7,194 million and ¥5,993 million for the years ended March 31, 2006, 2005 and 2004, respectively.

     Volume-based discounts are provided only if the resellers and retailers achieve a specified cumulative level of revenue transactions in a year or less period. Liabilities are recognized as a reduction of revenue for the expected sales incentive at the time the related revenue is recognized and are initially based on the estimation of sales volume by using historical experience on an individual customer basis. Estimates of expected sales incentives are evaluated and adjusted periodically based on actual revenue transactions and forecasts for the balance of the year or incentive period. Volume-based discounts recognized as a reduction of revenue amounted to ¥2,646 million ($22,615 thousand), ¥3,005 million and ¥2,982 million for the years ended March 31, 2006, 2005 and 2004, respectively.

     MDFs are provided to certain resellers and retailers as a contribution to or a sponsored fund for customers’ marketing programs, such as customers’ coupons, catalog, sales contests and advertisements, mostly in the form of a subsidy. Under this program, we do not receive an identifiable benefit sufficiently separable from our customers. Accordingly, MDFs are accounted for as a reduction of revenue based on the annual contract or at the time TDK has incurred the obligation, if earlier, and amounted to ¥1,970 million ($16,838 thousand), ¥2,631 million and ¥2,923 million for the years ended March 31, 2006, 2005 and 2004, respectively.

     Consumer promotions mainly consist of coupons and mail-in rebates offered to end users, who are reimbursed by TDK to retailers or end users for the coupons or mail-in rebates redeemed. Liabilities are recognized at the time related revenue is recognized (or at the time of the offer if the sale to retailers occurs before the offer) for the expected number of coupons or mail-in rebates to be redeemed. TDK uses historical rates of redemption on similar offers for similar products to estimate redemption rates for current incentive offerings. Consumer promotions recognized as a reduction of revenue amounted to ¥995 million ($8,504 thousand), ¥1,061 million and ¥2,446 million for the years ended March 31, 2006, 2005 and 2004, respectively.

     TDK also provides slotting fees paid to certain retailers for putting TDK products at attractive areas or shelves in the store. Slotting fees are recognized as a reduction of revenue at the time TDK has incurred the obligation. Slotting fees recognized as a reduction of revenue amounted to ¥274 million ($2,342 thousand), ¥205 million and ¥451 million for the years ended March 31, 2006, 2005 and 2004, respectively.

     Additionally, TDK has advertising programs with certain resellers and retailers where TDK agrees to reimburse them for advertising cost incurred by them to put TDK products on their flyers, catalogs and billboards. TDK receives an identifiable benefit (advertising) in return for the consideration and that benefit is sufficiently separable because TDK could have purchased that advertising from other parties. Also, TDK can reasonably estimate the fair value of the benefit through obtaining sufficient evidence from the resellers and retailers in the form of the invoice issued by the third party providing the service to the resellers and retailers. Therefore, such advertising programs are expensed as selling, general and administrative expenses at the time TDK has incurred the obligation and amounted to ¥179 million ($1,530 thousand), ¥196 million and ¥293 million for the years ended March 31, 2006, 2005 and 2004, respectively.

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     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.

     Warranties offered on TDK’s products are insignificant.

(u) New Accounting Standards Not Yet Adopted

     In November 2004, the FASB issued Statement of Financial Accounting Standards No. 151 (“SFAS 151”), “Inventory Costs – an amendment of Accounting Research Bulletin No. 43 (“ARB 43”), Chapter 4”. SFAS 151 amends the guidance in ARB 43, Chapter 4, “Inventory Pricing”, to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage). SFAS 151 requires that items such as idle facility expense, excessive spoilage, double freight and rehandling costs be recognized as current-period charges regardless of whether they meet the criterion of “so abnormal” as stated in ARB 43. In addition, SFAS 151 requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. SFAS 151 is effective for inventory costs incurred in fiscal periods beginning after June 15, 2005. TDK does not expect the adoption of SFAS 151 to have a material effect on TDK’s consolidated financial position and results of operations.

     In December 2004, the FASB issued Statement of Financial Accounting Standards No. 123 (revised 2004), “Share Based Payment” (“SFAS 123R”). SFAS 123R is a revision of SFAS 123, “Accounting for Stock Based Compensation”, and supersedes APB 25. SFAS 123R requires TDK to measure the cost of employee services received in exchange for equity awards based on the grant date fair value of the awards. The cost will be recognized as compensation expense over the vesting period of the awards. In April 2005, the Securities and Exchange Commission deferred the effective date of SFAS 123R to the beginning of the first annual period after June 15, 2005. TDK adopted SFAS 123R in the first quarter of fiscal 2007 and will continue to evaluate the impact of SFAS 123R on TDK’s consolidated financial position and results of operations. The pro forma information presented in Note 1(j) and Note 10 presents the estimated compensation charges under SFAS 123. TDK’s assessment of the estimated compensation charges is affected by TDK’s stock price as well as assumptions regarding a number of complex and subjective variables and the related tax impact. These variables include, but are not limited to, TDK’s stock price volatility and employee stock option exercise behaviors. TDK will recognize the compensation cost for stock-based awards issued after April 1, 2006 on a straight-line basis over the requisite service period for the entire award. In addition, TDK will recognize the unvested portion of the grant date fair value of awards issued prior to adoption based on the fair values previously calculated for disclosure purposes. At March 31, 2006, the aggregate value of unvested options, as determined using a Black-Scholes option pricing model, was ¥227 million. Upon adoption of SFAS 123R, this amount will be recognized over the remaining vesting period of these options.

     In May 2005, the FASB issued Statement of Financial Accounting Standards No. 154 (“SFAS 154”), “Accounting Changes and Error Corrections – a replacement of Opinion of the Accounting Principle Board No. 20 (“APB 20”) and Statement of Financial Accounting Standards No. 3 (“SFAS 3”)”. SFAS 154 replaces APB 20, “Accounting Changes” and SFAS 3, “Reporting Accounting Changes in Interim Financial Statements”, and provides guidance on the accounting for and reporting of accounting changes and error corrections. SFAS 154 establishes retrospective application, or the latest practicable date, as the required method for reporting a change in accounting principle and the reporting of a correction of an error. SFAS 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. TDK does not expect the adoption of SFAS 154 to have a material effect on TDK’s consolidated financial position and results of operations.

(v) 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, 2006.

     In 2006 TDK has separately disclosed the operating, investing and financing portions of the cash flows attributable to its discontinued operations, which in prior periods were reported on a combined basis as a single amount.

- 101 -

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, 2006, have also been translated into U.S. dollar amounts, solely for the convenience of the reader, at the rate of ¥117=U.S.$1, the approximate exchange rate on the Tokyo Foreign Exchange Market on March 31, 2006. This translation should not be construed as a representation that the amounts shown could be converted into U.S. dollars at such rate.

3. Foreign Operations

     Amounts included in the consolidated financial statements relating to subsidiaries operating in foreign countries are summarized as follows:

							U.S. Dollars
	Yen (Millions)							(Thousands)
	2006		2005		2004		2006
Net assets	¥	435,381		360,925		318,915	$	3,721,205
Net sales		626,626		498,366		494,184		5,355,778
Net income		28,582		17,362		38,731		244,291

4. Marketable Securities and Investments in Securities

     Marketable securities and investments in securities at March 31, 2006 and 2005, are as follows:

					U.S. Dollars
	Yen (Millions)				(Thousands)
	2006		2005		2006
Short-term marketable securities	¥	56		1,609	$	479
Long-term marketable securities		13,042		7,094		111,470
Nonmarketable securities		596		1,555		5,094
Investments in affiliates		15,119		14,049		129,222
	¥	28,813		24,307	$	246,265

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     Marketable securities and investments in securities include available-for-sale securities. Information with respect to such securities at March 31, 2006 and 2005, is as follows:

As of March 31, 2006

			Gross		Gross
			Unrealized		Unrealized
			Holding		Holding
	Cost		Gains		Losses		Fair Value
Yen (Millions):
Equity securities	¥	9,246		2,859		2		12,103
Debt securities		1,002		—		7		995
	¥	10,248		2,859		9		13,098

As of March 31, 2005

			Gross		Gross
			Unrealized		Unrealized
			Holding		Holding
	Cost		Gains		Losses		Fair Value
Yen (Millions):
Equity securities	¥	5,951		1,054		—		7,005
Debt securities		1,698		—		—		1,698
	¥	7,649		1,054		—		8,703

As of March 31, 2006

			Gross		Gross
			Unrealized		Unrealized
			Holding		Holding
	Cost		Gains		Losses		Fair Value
U.S. Dollars (Thousands):
Equity securities	$	79,026		24,436		17		103,445
Debt securities		8,564		—		60		8,504
	$	87,590		24,436		77		111,949

     Debt securities classified as available-for-sale at March 31, 2006 mature in fiscal 2008 (weighted average remaining term of 1.7 years).

     The proceeds from sale and settlement of available-for-sale securities are ¥4,263 million ($36,436 thousand), ¥1,788 million and ¥1,814 million for the years ended March 31, 2006, 2005 and 2004, respectively. The gross realized gains on the sale and settlement of available-for-sale securities are ¥714 million ($6,103 thousand), ¥377 million and ¥135 million for the years ended March 31, 2006, 2005 and 2004, respectively. TDK recorded a write-down of ¥1,000 million ($8,547 thousand), ¥519 million and ¥1,228 million on certain available-for-sale securities and nonmarketable securities representing other-than-temporary declines in the fair value for the years ended March 31, 2006, 2005 and 2004, respectively.

     At March 31, 2006, all of the available-for-sale securities with unrealized losses had been in a continuous unrealized loss position for less than 12 months.

     The aggregate cost of nonmarketable securities accounted for under the cost method at March 31, 2006 and 2005 totaled ¥596 million ($5,094 thousand) and ¥1,555 million, respectively, and, as of March 31, 2006 and 2005, those securities were not evaluated for impairment because (a) TDK did not estimate the fair value of those investments as it was not practicable to estimate the fair value of the investment and (b) TDK did not identify any events or changes in circumstances that might have had significant adverse effect on the fair value of those investments.

     Investments in affiliates accounted for by the equity method consist of 26.1 percent of the common stock of Semiconductor Energy Laboratory Co., Ltd., a research and development company, 50.0 percent of the common stock of TMP Co., Ltd., a magnetic products manufacturing company, and five other affiliated companies, collectively, which are not significant. The difference between TDK’s carrying value of investments in affiliates and its share of the underlying net equity in such affiliates substantially consists of unamortized amounts of equity-method goodwill of ¥1,231 million ($10,521 thousand) as of both March 31, 2006 and 2005.

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     As of March 31, 2006 and 2005, certain debt securities in the amount of ¥989 million and ¥1,695 million, respectively were pledged as collateral for extended custom duty payments to Tokyo Customs.

5. Inventories

     Inventories at March 31, 2006 and 2005, are summarized as follows:

	Yen				U.S. Dollars
	(Millions)				(Thousands)
	2006		2005		2006
Finished goods	¥	36,826		30,819	$	314,752
Work in process		23,490		21,633		200,769
Raw materials		28,652		22,472		244,889
	¥	88,968		74,924	$	760,410

     The cost elements for finished goods and work in process include direct costs for materials such as primary materials and purchased semi-finished products, direct labor costs such as basic salaries, bonuses, and legal welfare expenses, direct costs such as expenses paid to subcontractors, and indirect manufacturing costs comprising material costs, labor costs and other overhead costs.

6. Short-Term and Long-Term Debt

     Short-term debt and weighted average interest rates at March 31, 2006 and 2005, are as follows:

	Yen				U.S. Dollars		Weighted average
	(Millions)				(Thousands)		interest rate
	2006		2005		2006		2006			2005
Short-term bank loans — unsecured	¥	4,469		—	$	38,197		1.63	%		—

     Long-term debt at March 31, 2006 and 2005, is set forth below:

	Yen				U.S. Dollars
	(Millions)				(Thousands)
	2006		2005		2006
Loans from banks, unsecured, due fiscal 2007 (weighted average: 2006-0.96%)	¥	1,700		—	$	14,530
Loans from banks, secured, due fiscal 2009-2012 (weighted average: 2006-0.95%)		345		—		2,949
Lease obligation (weighted average: 2006-5.78%, 2005-4.05%)		318		184		2,718
		2,363		184		20,197
Less current installments		1,958		103		16,735
	¥	405		81	$	3,462

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     The aggregate annual maturities of long-term debt outstanding at March 31, 2006, are as follows:

			U.S. Dollars
	Yen (Millions)		(Thousands)
Year ending March 31,
2007	¥	1,958	$	16,735
2008		196		1,675
2009		127		1,086
2010		36		308
2011		31		265
Later years		15		128
	¥	2,363	$	20,197

     Short-term and long-term bank loans were 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 to the bank.

     Property, plant and equipment having a net book value of ¥2,264 million ($19,350 thousand) is pledged as a collateral for long-term debt from banks.

     There were no debt covenants, or cross-default provisions under TDK’s financing arrangements. Furthermore, there were no subsidiary level dividend restrictions under the financing arrangements.

7. Income Taxes

     TDK and its domestic subsidiaries are subject to a national corporate tax of 30 percent, an inhabitants tax of between 5.2 percent and 6.2 percent and a deductible enterprise tax of between 7.7 percent and 8.0 percent, which in the aggregate resulted in a statutory rate of approximately 40 percent for the years ended March 31, 2006 and 2005. For the year ended March 31, 2004, the deductible enterprise tax rate was between 9.6 percent and 10.1 percent, which in the aggregate resulted in statutory rate of approximately 41 percent.

     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 percent to 40 percent effective from April 1, 2004. Current income taxes were calculated at the rate of 40 percent, in effect for the years ended March 31, 2006 and 2005, respectively, and 41 percent in the year 2004.

     For the year ended March 31, 2005, residual tax effects of ¥4,571 million previously recorded in accumulated other comprehensive income (minimum pension liability adjustments) were released and recorded as a reduction to income tax expense in the consolidated statements of income as a result of the elimination of the minimum pension liability adjustment.

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     The effective tax rates of TDK for the years ended March 31, 2006, 2005 and 2004, are reconciled with the Japanese statutory tax rate in the following table:

	2006			2005			2004
Japanese statutory tax rate		40.4	%		40.4	%		41.0	%
Expenses not deductible for tax purposes		1.6			1.1			1.2
Non taxable income		(0.1	)		(0.2	)		0.0
Difference in statutory tax rates of foreign subsidiaries		(13.9	)		(10.5	)		(23.0	)
Change in the valuation allowance		4.7			3.8			4.5
Investment tax credit		(0.1	)		(1.2	)		(1.6	)
Research and development tax credit		(1.4	)		(3.6	)		(1.3	)
Residual tax effect in minimum pension liability adjustments		—			(7.5	)		—
Additional tax related to prior years income		1.7			17.0			—
Other		(1.0	)		(1.0	)		0.9
Effective tax rate		31.9	%		38.3	%		21.7	%

     On June 29, 2005, TDK received a notification and assessment of additional tax from the Tokyo Regional Tax Bureau (Nihonbashi Tax Office) asserting that prices charged and paid by TDK in connection with sales and purchases of products involving its overseas subsidiaries have not been commensurate with the prices of similar transactions involving unrelated third parties. The period of additional assessments covers the tax years ending from March 1999 through March 2003. The additional tax assessed by the Tokyo Regional Tax Bureau amounts to ¥11,960 million including interest and penalty, which has been reflected as additional tax expense and other expense, net of deferred income tax benefits in the accompanying consolidated statements of income for the year ended March 31, 2005.

     Total income taxes for the years ended March 31, 2006, 2005 and 2004 are allocated as follows:

	Yen							U.S.Dollars
	(Millions)							(Thousands)
	2006		2005			2004		2006
Income from continuing operations	¥	21,057		23,284			12,133	$	179,974
Loss from discontinued operations		—		156			1,010		—
Stockholders’ equity, accumulated other comprehensive income (loss):
Foreign currency translation adjustments		8		8			245		68
Net unrealized gains (losses) on securities		849		(148	)		348		7,256
Minimum pension liability adjustments		2,074		29,538			9,422		17,727
Total income taxes	¥	23,988		52,838			23,158	$	205,025

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     Income from continuing operations before income taxes and income taxes for the years ended March 31, 2006, 2005 and 2004, are summarized as follows:

	Income From
	Continuing
	Operations
	Before Income		Income Taxes
	Taxes		Current		Deferred			Total
Yen (Millions):
2006
Japanese	¥	28,004		11,160		657			11,817
Foreign		38,099		10,593		(1,353	)		9,240
	¥	66,103		21,753		(696	)		21,057
2005
Japanese		36,836		22,261		(5,026	)		17,235
Foreign		23,892		6,555		(506	)		6,049
		60,728		28,816		(5,532	)		23,284
2004
Japanese		8,611		4,411		(7	)		4,404
Foreign		47,236		5,864		1,865			7,729
		55,847		10,275		1,858			12,133
U.S. Dollars (Thousands):
2006
Japanese	$	239,350		95,385		5,615			101,000
Foreign		325,633		90,538		(11,564	)		78,974
	$	564,983		185,923		(5,949	)		179,974

- 107 -

     The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at March 31, 2006 and 2005, are as follows:

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

     The net changes in the total valuation allowance for the years ended March 31, 2006, 2005 and 2004, are an increase of ¥4,889 million ($41,786 thousand), ¥4,381 million and ¥1,338 million, respectively. The valuation allowance primarily relates to deferred tax assets associated with net operating loss carryforwards incurred by certain foreign subsidiaries. The decrease in the valuation allowance attributable to preacquisition tax benefits recognized during the years ended March 31, 2006 and 2005 amounted to ¥154 million and ¥119 million, respectively. The reversal of the valuation allowance upon realization of tax benefits resulted in a 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 and tax carryforwards are utilized. 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 and tax carryforwards, net of the existing valuation allowance at March 31, 2006.

     At March 31, 2006, certain subsidiaries have net operating loss carryforwards for income tax purposes of ¥65,398 million ($558,957 thousand) which are available to offset future taxable income, if any.

- 108 -

     Periods available to offset future taxable income vary in each tax jurisdiction and range from one year to an indefinite period as follows:

			U.S. Dollars
	Yen (Millions)		(Thousands)
Within 1 year	¥	845	$	7,222
1 to 5 years		4,676		39,966
5 to 20 years		18,626		159,196
Indefinite periods		41,251		352,573
	¥	65,398	$	558,957

     At March 31, 2006, certain subsidiaries have tax credit carryforwards for income tax purposes of ¥684 million ($5,846 thousand) which are available to reduce future income taxes, if any. Approximately ¥44 million ($376 thousand) of the tax credit carryforwards expire through 2019, while the remainder have an indefinite carryforward period.

     Net deferred income tax assets and liabilities at March 31, 2006 and 2005, are reflected in the accompanying consolidated balance sheets under the following captions:

	Yen						U.S. Dollars
	(Millions)						(Thousands)
	2006			2005			2006
Prepaid expenses and other current assets	¥	7,401			6,654		$	63,257
Deferred income taxes (noncurrent assets)		7,287			8,633			62,282
Other current liabilities		(55	)		(31	)		(470	)
Deferred income taxes (noncurrent liabilities)		(5,314	)		(751	)		(45,419	)
	¥	9,319			14,505		$	(79,650	)

     As of March 31, 2006 and 2005, TDK did not recognize deferred tax liabilities of approximately ¥61,144 million ($522,598 thousand) and ¥61,663 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, 2006 and 2005, the undistributed earnings of these subsidiaries are approximately ¥258,881 million ($2,212,658 thousand) and ¥244,341 million, respectively.

8. Retirement and Severance Benefits

     TDK and certain of its subsidiaries sponsor contributory and noncontributory retirement and severance plans that provide for pension or lump-sum benefit payments, based on length of service, employee salary and certain other factors, to substantially all employees who retire or terminate their employment for reasons other than dismissal for cause. Corporate statutory auditors participate in an unfunded retirement plan sponsored by TDK.

     The contributory plan in Japan mainly represents the Employees’ Pension Fund plan (“EPF”), comprised of the substitutional portion based on the pay related part of the old age pension benefits prescribed by the Welfare Pension Insurance Law (similar to Social Security benefits in the United States) and the corporate portion based on contributory defined pension arrangements established at the discretion of TDK. The substitutional portions of the EPF represent a welfare pension plan carried out on behalf of the Japanese government. The contributory plan is funded in conformity with the funding requirements of the applicable Japanese governmental regulations.

     TDK had 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 were invested and managed as a single portfolio for the entire EPF and were not separately attributed to the substitutional and corporate portions.

- 109 -

     In June 2001, the Contributed Benefit Pension Plan Law was newly enacted. This law permits 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 contribution to JPI, and the Japanese government would be responsible for all benefit payments.

     Pursuant to the new law, TDK received an approval of exemption from the Minister of Health, Labor and Welfare, effective September 25, 2003, from the obligation for benefits related to future employee service with respect to the substitutional portion of its EPF. TDK received governmental approval of exemption from the obligation for benefits related to past employee service in October 2004 with respect to the substantial portion of its domestic contributory plan. The transfer to the government was completed on January 31, 2005.

     TDK accounted for the transfer in accordance with EITF Issue No. 03-2 “Accounting for the Transfer to the Japanese Government of the Substitutional Portion of Employee Pension Fund Liabilities” (“EITF 03-2”). As specified in EITF 03-2, the entire separation process is to be accounted for at the time of completion of the transfer to the government of the substitutional portion of the benefit obligation and related plan assets as a settlement in accordance with SFAS No. 88, “Employers’ Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits”. As a result of the transfer, TDK recognized as a subsidy from the Japanese government an amount equal to the difference between the fair value of the obligation deemed “settled” with the Japanese government and the assets required to be transferred to the government. The subsidy that TDK recognized amounted to ¥33,533 million. In addition, TDK recognized a settlement loss equal to the amount calculated as the ratio of the obligation settled to the total EPF obligation immediately prior to settlement, both of which exclude the effect of future salary progression relating to the substitutional portion, times the net unrecognized gain/loss immediately prior to settlement, which amounted to ¥27,347 million. This gain and loss is included in operating income in the accompanying consolidated statements of income for the year ended March 31, 2005.

     Effective October 1, 2004, the corporate portion of the EPF was replaced by a new defined benefit plan that provides benefits based on length of service, employee salary and other factors in a manner similar to the predecessor corporate defined benefit plan but, at a reduced rate. The reduction in the pension benefit obligation as of the effective date in the amount of ¥10,925 million has been accounted for as a negative plan amendment and included in prior service cost and is amortized into net periodic benefit cost over the weighted average remaining service period of the plan participants.

     TDK and its subsidiaries use a December 31 measurement date for the majority of the plans.

- 110 -

     Net periodic benefit cost for TDK’s employee retirement and severance defined benefit plans for the years ended March 31, 2006, 2005 and 2004 consisted of the following components:

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

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     Reconciliations of beginning and ending balances of the benefit obligations and the fair value of the plan assets are as follows:

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

     The projected benefit obligations and the fair value of plan assets for the pension plans with projected benefit obligations in excess of plan assets, and the accumulated benefit obligations and the fair value of plan assets for the pension plans with accumulated benefit obligations in excess of plan assets are as follows.

	Yen				U.S. Dollars
	(Millions)				(Thousands)
	2006		2005		2006
Plans with projected benefit obligations in excess of plan assets:
Projected benefit obligations	¥	66,613		184,997	$	569,342
Fair value of plan assets		37,405		142,648		319,701
Plans with accumulated benefit obligations in excess of plan assets:
Accumulated benefit obligations		60,200		54,504		514,530
Fair value of plan assets		36,584		28,531		312,684

- 112 -

Assumptions

Weighted-average assumptions used to determine benefit obligations at March 31:

	2006			2005
Discount rate		2.2	%		2.2	%
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:

	2006			2005			2004
Discount rate		2.2	%		2.1	%		2.1	%
Assumed rate of increase in future compensation levels		3.0	%		3.0	%		3.0	%
Expected long-term rate of return on plan assets		2.7	%		2.2	%		2.2	%

     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.

Plan assets

     The weighted-average asset allocations of TDK’s benefit plans at March 31, 2006 and 2005 by asset category are as follows:

	2006			2005
Equity securities		65.4	%		26.2	%
Debt securities		26.1	%		6.9	%
Cash		2.2	%		62.5	%
Other		6.3	%		4.4	%
		100.0	%		100.0	%

     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 annual 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.

     During the year ended March 31, 2005, the EPF sold certain assets to facilitate the funding of the payment to the Japanese government for the transfer of the substitutional portion of the plan. In addition, the strategic mix for domestic pension plans had increased asset allocation to cash based on the unclear outlook for the bond and equity market in Japan during the middle of 2004. During the year ended March 31, 2006, the strategic mix for domestic pension plans resulted in increase of asset allocation to the equity and debt securities to reflect the completion of the payment to the Japanese government for the transfer of the substitutional portion of the EPF, and the upturn of the equity and debt securities market in Japan. As a result, the relative portion of the equity and debt securities in pension assets at March 31, 2006 increased compared to March 31, 2005.

Contributions

     TDK expects to contribute ¥6,315 million ($53,974 thousand) to its defined benefit plans for the year ending March 31, 2007.

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Estimated future benefit payments

     The benefits expected to be paid from the pension plans in each year 2007 through 2016 are as follows:

	Yen		U.S. Dollars
	(Millions)		(Thousands)
Year ending March 31,
2007	¥	5,981	$	51,120
2008		6,887		58,863
2009		7,457		63,735
2010		8,002		68,393
2011		8,049		68,795
2012 - 2016	¥	41,320	$	353,162

9. Legal Reserve and Dividends

     The Japanese Company Law provides that an amount equal to 10 percent of cash dividends and other distributions from retained earnings paid by TDK and its Japanese subsidiaries be appropriated as a legal reserve. No further appropriations are required when the total amount of the additional paid-in capital and the legal reserve equals 25 percent of their respective stated capital. The Japanese Company Law also provides that to the extent that the sum of the additional paid-in capital and the legal reserve exceeds 25 percent of the stated capital, the amount of the excess (if any) is available for appropriations by resolution of the shareholders. Certain foreign subsidiaries are also required to appropriate their earnings to legal reserves under the laws of the respective countries. Cash dividends and appropriations to the legal reserve charged to retained earnings for the years ended March 31, 2006, 2005 and 2004 represent dividends paid out during those years and the 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 ¥50 ($0.43) per share aggregating ¥6,613 million ($56,521 thousand) in respect of the year ended March 31, 2006.

     Cash dividends per common share are computed based on dividends paid for the year.

10. Stock Option Plan

(a) TDK

     TDK obtained approval of the Ordinary General Meeting of Shareholders held on June 29, 2005 regarding the issuance of stock acquisition rights as share-based compensation stock options (the Stock Acquisition Rights) to Board members and Corporate Officers, pursuant to Articles 280-20 and 280-21 of the Japanese Commercial Code. Upon approval, the Board of Directors adopted resolutions to issue an aggregate of 246 Stock Acquisition Rights, each representing an option to purchase 100 shares of common stock of TDK, to the then 17 Directors and Corporate Officers of TDK. The Stock Acquisition Rights issued on June 30, 2005 are fully vested on date of issuance and are exercisable during the period from July 1, 2005 to June 30, 2025. The amount to be paid by qualified persons upon the exercise of each Stock Acquisition Rights is set at ¥1 ($0.01) per share of common stock. Stock option related compensation cost of ¥186 million ($1,590 thousand) has been recognized in fiscal 2006, representing the amount attributed to service rendered during the current period of the amount by which the market price of the underlying common stock exceeded the exercise price of stock options approved for issuance at the Ordinary General Meeting of Shareholders held in June 2005.

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     TDK obtained approval of the Ordinary General Meeting of Shareholders held on June 29, 2005 regarding the issuance of stock acquisition rights as stock options to 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 an aggregate of 906 Stock Acquisition Rights, each representing an option to purchase 100 shares of common stock of TDK, to the then 172 select senior executives of TDK, and the Directors and select senior executives of subsidiaries. The Stock Acquisition Rights issued on August 11, 2005 are exercisable during the period from August 1, 2007 to July 31, 2011. The amount to be paid by qualified persons upon the exercise of each Stock Acquisition Rights is set at ¥8,134 ($69.52) 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 Rights was equal to or greater than the fair market value of TDK’s common stock on the date of grant.

     To cover these options and the share-based compensation stock options issued on June 30, 2005, TDK purchased on the Tokyo Stock Exchange (“TSE”) a total of 115,200 common shares with an aggregate purchase price of ¥930 million ($7,949 thousand) from August 17, 2005 through August 22, 2005.

     TDK obtained approval of the Ordinary General Meeting of Shareholders held in June 2004, 2003 and 2002 regarding the issuance of stock acquisition rights as stock options, pursuant to Articles 280-20 and 280-21 of the Japanese Commercial Code. Upon approval, the Board of Directors adopted resolutions to issue an aggregate of 2,343, 2,547 and 2,236 Stock Acquisition Rights, each representing a stock option to purchase 100 shares of common stock of TDK, to the then 187, 179 and 197 Directors, Corporate Officers and selected senior executives of TDK, and the Directors and select senior executives of its subsidiaries, respectively. The amount to be paid by qualified persons upon the exercise of each Stock Acquisition Rights was set at ¥8,147, ¥6,954 and ¥5,909 per share of common stock, respectively. The exercise price of each Stock Acquisition Rights was equal to or greater than the fair market value of TDK’s common stock on the date of grant.

     The Ordinary General Meeting of Shareholders held in June 2001 and 2000 approved to implement 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 Japanese Commercial Code. Stock options were provided to the then 196 and 204 Directors on the Board and associate directors and officials in amounts ranging from 500 to 10,000 common shares each, at an exercise price of ¥6,114 and ¥15,640 per share. The exercise price of each Stock Acquisition Rights was equal to or greater than the fair market value of TDK’s common stock on the date of grant.

     TDK currently accounts for these stock option plans as fixed plans pursuant to APB 25.

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     A summary of the status of TDK’s stock option plans as of March 31, 2006, 2005 and 2004, and of the activity during the years ending on those dates, is as follows:

	2006				2005				2004				2006
			Weighted				Weighted				Weighted		Weighted
	Number		average		Number		average		Number		average		average
	of		exercise		of		exercise		of		exercise		exercise
	shares		price		shares		price		shares		price		price
			Yen				Yen				Yen		U.S. Dollars
Outstanding at beginning of year		868,600	¥	8,293		739,300	¥	8,358		548,000	¥	8,967	$	70.88
Granted		115,200		6,397		234,300		8,147		254,700		6,954		54.68
Exercised		139,700		6,308		71,700		5,979		46,900		6,114		53.90
Forfeited or Expired		15,900		14,563		33,300		13,695		16,500		13,276		124.47
Outstanding at end of year		828,200		8,244		868,600		8,293		739,300		8,358		70.46
Exercisable at end of year		504,300		8,308		380,600		9,275		264,300		11,755		71.01

Information about stock options outstanding at March 31, 2006 is as follows:

	Options Outstanding
			Weighted
	Number		average
	outstanding at		remaining		Weighted average
Range of exercise prices	March 31, 2006		contractual life		exercise price
Yen			(years)		Yen		U.S. Dollars
1		24,600		19.3		1		0.01
5,909		105,700		2.3		5,909		50.50
6,114		52,400		1.1		6,114		52.26
6,954		205,500		3.3		6,954		59.44
8,134		90,600		5.3		8,134		69.52
8,147		233,300		4.3		8,147		69.63
15,640		116,100		0.1		15,640		133.68
1 to 15,640		828,200		3.6		8,244		70.46

     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:

The Stock Acquisition Rights – the exercise price is equal to or greater than the market price of the stock on the grant date

	2006			2005			2004
Grant-date fair value	¥	2,325		¥	2,223		¥	2,290
	($	19.87	)
Expected life	4.0 years			4.0 years			4.0 years
Risk-free interest rate		0.54	%		0.59	%		0.26	%
Expected volatility		38.93	%		46.30	%		51.36	%
Expected dividend yield		0.96	%		0.85	%		0.71	%

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The Stock Acquisition Rights – the exercise price is less than the market price of the stock on the grant date

	2006
Grant-date fair value	¥	7,235
	($	61.84	)
Expected life	5.5 years
Risk-free interest rate		0.47	%
Expected volatility		44.46	%
Expected dividend yield		0.80	%

(b) Densei-Lambda

     Densei-Lambda K. K. (“Densei-Lambda”), a subsidiary of TDK, obtained approval of the Ordinary General Meeting of Shareholders held in June 2002 regarding the issuance of stock acquisition rights as stock options, pursuant to Articles 280-20 and 280-21 of the Japanese Commercial Code. Upon approval, the Board of Directors adopted resolutions to issue an aggregate of 1,147 Stock Acquisition Rights, each representing a stock option to purchase 100 shares of common stock of Densei-Lambda, to the then 201 Directors, Corporate Auditors, Corporate Officers and certain employees of Densei-Lambda, respectively. The Stock Acquisition Rights issued on January 10, 2003 are exercisable during the period from January 11, 2006 to January 10, 2013. The amount to be paid by qualified persons upon the exercise of each Stock Acquisition Rights was set at ¥789 per share of common stock. The exercise price of each Stock Acquisition Rights was equal to or greater than the fair market value of Densei-Lambda’s common stock on the date of grant.

     The Ordinary General Meeting of Shareholders held in June 2001 and 2000 approved to implement Densei-Lambda’s stock option plan for Directors, Corporate Officers and certain employees of Densei-Lambda, and the purchase of Densei-Lambda’s own shares for transfer to them under the plan, pursuant to Article 210-2 of Japanese Commercial Code. Stock options were provided to the then 97 Directors, Corporate Officers and certain employees, and 10 Directors and Corporate Officers at an exercise price of ¥1,817 and ¥2,229 per share, respectively. The exercise price of each Stock Acquisition Rights was equal to or greater than the fair market value of Densei-Lambda’s common stock on the date of grant.

     Densei-Lambda currently accounts for these stock option plans, which are immaterial, as fixed plans pursuant to APB 25.

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11. Other Comprehensive Income (Loss)

     Change in accumulated other comprehensive income (loss) for the years ended March 31, 2006, 2005 and 2004, are as follows:

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

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     Tax effects allocated to each component of other comprehensive income (loss) and reclassification adjustments for the years ended March 31, 2006, 2005 and 2004, are as follows:

	Yen
	(Millions)
				Tax
	Before tax			(expense)			Net-of-tax
	amount			or benefit			amount
2006
Foreign currency translation adjustments	¥	26,108			(8	)		26,100
Unrealized gains (losses) on securities:
Unrealized holding gains arising for period		2,128			(856	)		1,272
Reclassification adjustments for (gains) losses realized in net income		(387	)		7			(380	)
Net unrealized gains (losses)		1,741			(849	)		892
Minimum pension liability adjustments		4,793			(2,074	)		2,719
Other comprehensive income (loss)	¥	32,642			(2,931	)		29,711
2005
Foreign currency translation adjustments:
Amount arising during the year on investments in foreign entities held at end of period	¥	5,870			(8	)		5,862
Reclassification adjustments for the portion of gains and losses realized upon liquidation and sale of investments in foreign entities		(226	)		—			(226	)
Net foreign currency translation adjustments		5,644			(8	)		5,636
Unrealized gains (losses) on securities:
Unrealized holding gains arising for period		676			(119	)		557
Reclassification adjustments for (gains) losses realized in net income		(671	)		267			(404	)
Net unrealized gains (losses)		5			148			153
Minimum pension liability adjustments		62,479			(29,538	)		32,941
Other comprehensive income (loss)	¥	68,128			(29,398	)		38,730
2004
Foreign currency translation adjustments:
Amount arising during the year on investments in foreign entities held at end of period	¥	(26,464	)		(245	)		(26,709	)
Reclassification adjustments for the portion of gains and losses realized upon liquidation of investments in foreign entities		422			—			422
Net foreign currency translation adjustments		(26,042	)		(245	)		(26,287	)
Unrealized gains (losses) on securities:
Unrealized holding gains arising for period		886			(348	)		538
Minimum pension liability adjustments		23,608			(9,422	)		14,186
Other comprehensive income (loss)	¥	(1,548	)		(10,015	)		(11,563	)

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	U.S. Dollars
	(Thousands)
				Tax
	Before tax			(expense)			Net-of-tax
	amount			or benefit			amount
2006
Foreign currency translation adjustments	$	223,145			(68	)		223,077
Unrealized gains (losses) on securities:
Unrealized holding gains arising for period		18,188			(7,316	)		10,872
Reclassification adjustments for (gains) losses realized in net income		(3,308	)		60			(3,248	)
Net unrealized gains (losses)		14,880			(7,256	)		7,624
Minimum pension liability adjustments		40,966			(17,727	)		23,239
Other comprehensive income (loss)	$	278,991			(25,051	)		253,940

12. Leases

     TDK and its subsidiaries occupy offices and other facilities under various cancellable lease agreements expiring in fiscal 2007 through 2008. Lease deposits made under such agreements, aggregating ¥1,827 million ($15,615 thousand) and ¥1,900 million, at March 31, 2006 and 2005, 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, 2006:

	Yen		U.S. Dollars
	(Millions)		(Thousands)
Year ending March 31,
2007	¥	2,499	$	21,359
2008		1,894		16,188
2009		1,437		12,282
2010		1,090		9,316
2011		791		6,761
Later years		3,873		33,103
	¥	11,584	$	99,009

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13. Commitments and Contingent Liabilities

     At March 31, 2006, commitments outstanding for the purchase of property, plant and equipment approximated ¥13,088 million ($111,863 thousand). TDK has entered into several purchase agreements with certain suppliers whereby TDK committed to purchase a minimum amount of raw materials to be used in the manufacture of its products. Future minimum purchases remaining under the agreements approximated ¥4,539 million ($38,795 thousand) at March 31, 2006.

     TDK and certain of its subsidiaries provide guarantees to third parties on bank loans of its employees. The guarantees on behalf of the employees are made for their housing loans. For each guarantee issued, in the event the employee defaults on payment, TDK would be required to make payments under its guarantee. The maximum amount of undiscounted payments TDK would have to make in the event of default is ¥5,740 million ($49,060 thousand) and ¥6,296 million at March 31, 2006 and 2005, respectively. As of March 31, 2006, the liability recognized for the estimated fair value of TDK’s obligation under the guarantee arrangement is not material.

     Several claims against TDK and certain subsidiaries are pending. Provision has been made for the estimated liabilities for the items. In the opinion of management, based upon discussion with counsel, any additional liability not currently provided for 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; derivative financial instruments are utilized to reduce these risks. TDK and its subsidiaries do not hold or issue financial instruments for trading purposes. TDK and its subsidiaries are 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 had 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 related primarily to loans made by TDK to its subsidiaries in a total amount of ¥11,067 million at March 31, 2005. During the year ended March 31, 2006, TDK decided to use forward exchange contracts to limit the aforementioned exposure. As a result, no currency swaps or interest and currency swaps were outstanding at March 31, 2006. These swaps required TDK and the subsidiary to pay principally euros and U.S. dollars and to receive Japanese yen at a specified rate on specific dates. Gains or losses on interest and currency swaps and currency swaps were included in interest expense and foreign exchange gain (loss) in the consolidated statements of income, respectively. The swap contracts were measured at fair value and were 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, 2006 and 2005, 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 ¥17,726 million ($151,504 thousand) and ¥28,990 million, respectively. Gains or losses on forward exchange contracts and currency option contracts were included in foreign exchange gain (loss) in the consolidated statements of income. These contracts were measured at fair value and were included in prepaid expenses and other current assets or other current liabilities, as the case may be, in the consolidated balance sheets.

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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 value of TDK’s long-term debt is estimated based on the amount of future cash flows associated with the 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.

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     The carrying amounts and estimated fair values of TDK’s financial instruments at March 31, 2006 and 2005, are summarized as follows:

	Yen (Millions)
As of March 31, 2006	Carrying amount			Estimated fair value
Nonderivatives:
Assets:
Investments in securities and other assets for which it is:
Practicable to estimate fair value	¥	20,497			20,497
Not practicable to estimate fair value		801			—
Liability:
Long-term debt, including current portion		(2,363	)		(2,363	)
Derivatives:
Forward foreign exchange contracts in a:
Gain position		8			8
Loss position		—			—
Currency option contracts in a:
Gain position		—			—
Loss position		(8	)		(8	)

	Yen (Millions)
As of March 31, 2005	Carrying amount			Estimated fair value
Nonderivatives:
Assets:
Investments in securities and other assets for which it is:
Practicable to estimate fair value	¥	12,684			12,684
Not practicable to estimate fair value		1,741			—
Liability:
Long-term debt, including current portion		(184	)		(184	)
Derivatives:
Currency and interest rate swaps in a:
Gain position		—			—
Loss position		(312	)		(312	)
Forward foreign exchange contracts in a:
Gain position		—			—
Loss position		(88	)		(88	)
Currency option contracts in a:
Gain position		—			—
Loss position		(366	)		(366	)

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	U.S. Dollars (Thousands)
As of March 31, 2006	Carrying amount			Estimated fair value
Nonderivatives:
Assets:
Investments in securities and other assets for which it is:
Practicable to estimate fair value	$	175,188			175,188
Not practicable to estimate fair value		6,846			—
Liability:
Long-term debt, including current portion		(20,197	)		(20,197	)
Derivatives:
Forward foreign exchange contracts in a:
Gain position		68			68
Loss position		—			—
Currency option contracts in a:
Gain position		—			—
Loss position		(68	)		(68	)

     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.

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16. Restructuring Cost

     On March 8, 2006, TDK’s board of directors decided to restructure certain of its recording media business, including the withdrawal from the manufacturing of recordable CD and DVDs.

     Pursuant to that decision, TDK shut down the production facilities at its European subsidiary, TDK Recording Media Europe S.A. in Luxembourg in April 2006. In March 2006, TDK recorded a restructuring cost of ¥6,825 million ($58,333 thousand) which included a charge of ¥3,309 million ($28,282 thousand) relating to employee termination benefits. As a result of the restructuring, a total of 350 regular employees were terminated through May 31, 2006. In addition, TDK recorded a restructuring cost of ¥2,594 million ($22,171 thousand) relating to an impairment of property, plant and equipment in connection with the decision to shut down production facilities at its European subsidiary.

     The change of the restructuring liabilities for the year ended March 31, 2006 is as follows:

	Yen (Millions)
	2006
			Impairment on
	Workforce		property, plant
	reduction		and equipment		Other		Total
Beginning balance	¥	—		—		—		—
Costs and expenses		3,309		2,594		922		6,825
Payments		286		—		242		528
Non-cash adjustments		—		2,594		—		2,594
Ending balance	¥	3,023		—		680		3,703
	U.S. Dollars (Thousands)
Beginning balance	$	—		—		—		—
Costs and expenses		28,282		22,171		7,880		58,333
Payments		2,444		—		2,068		4,512
Non-cash adjustments		—		22,171		—		22,171
Ending balance	$	25,838		—		5,812		31,650

     Restructuring liabilities were included in Accrued expenses in the consolidated balance sheets as of March 31, 2006.

     TDK expects that the entire accrued liabilities of ¥3,703 million ($31,650 thousand) recognized at March 31, 2006 will be paid by September 30, 2006.

17. Assets Held for Sale

     At March 31, 2006, assets held for sale consists of certain property, plant and equipment, which were classified as held for sale in connection with the restructuring activities in Europe (Note 16) and certain property, plant and equipment in Japan in accordance with FASB Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”. TDK recorded write-downs to fair value less cost to sell in the amount of ¥2,594 million ($22,171 thousand) in 2006, which was included in restructuring cost in the consolidated statements of income. TDK expects these assets to be sold during the year ended March 31, 2007.

     At March 31, 2005, assets and liabilities held for sale consists of assets and liabilities of TDK’s former subsidiary TDK Semiconductor Corporation (“TSC”), which was sold during the year ended March 31, 2006 (Note 21).

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     The components of the assets and liabilities held for sale at March 31, 2006 and 2005 are as follows:

	Yen				U.S. Dollars
	(Millions)				(Thousands)
	2006		2005		2006
Assets held for sale
Current assets	¥	—		548	$	—
Net property, plant and equipment		4,110		430		35,128
Other assets		—		15		—
		4,110		993		35,128
Liabilities held for sale
Current liabilities	¥	—		92	$	—

18. Goodwill and Other Intangible Assets

     The components of acquired intangible assets excluding goodwill at March 31, 2006 and 2005, are as follows:

	Yen (Millions)
	2006
	Gross Carrying		Accumulated
	Amount		Amortization		Net Amount
Amortized intangible assets:
Patent	¥	10,350		3,226		7,124
Customer relationships		10,673		441		10,232
Software		9,268		5,389		3,879
Other		7,024		1,658		5,366
Total		37,315		10,714		26,601
Unamortized intangible assets	¥	2,877				2,877

	Yen (Millions)
	2005
	Gross Carrying		Accumulated
	Amount		Amortization		Net Amount
Amortized intangible assets:
Patent	¥	10,347		2,242		8,105
Software		7,271		4,399		2,872
Other		2,346		715		1,631
Total		19,964		7,356		12,608
Unamortized intangible assets	¥	639				639

	U.S. Dollars (Thousands)
	2006
	Gross Carrying		Accumulated
	Amount		Amortization		Net Amount
Amortized intangible assets:
Patent	$	88,462		27,573		60,889
Customer relationships		91,222		3,769		87,453
Software		79,214		46,060		33,154
Other		60,034		14,171		45,863
Total		318,932		91,573		227,359
Unamortized intangible assets	$	24,590				24,590

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     Intangible assets subject to amortization are amortized using the straight-line method over their estimated useful lives to their estimated residual value of zero. The useful lives are 11 years for the Patents, 5 to 17 years for Customer relationships, 2 to 10 years for Internal-use Software, and 8 to 10 years for Other intangible assets.

     Aggregate amortization expense for the years ended March 31, 2006, 2005 and 2004 was ¥3,618 million ($30,923 thousand), ¥2,467 million and ¥2,626 million, respectively. Estimated amortization expense for the next five years is: ¥3,779 million in 2007, ¥3,217 million in 2008, ¥2,888 million in 2009, ¥2,730 million in 2010, and ¥2,440 million in 2011.

     The changes in the carrying amount of goodwill by segment for the year ended March 31, 2006 is as follows:

	Yen (Millions)
	Electronic
	materials and			Recording
	components			media		Total
March 31, 2004	¥	10,029			—		10,029
Additions		991			—		991
Deductions		(1,975	)		—		(1,975	)
Translation adjustment		165			—		165
March 31, 2005		9,210			—		9,210
Additions		9,782			—		9,782
Deductions		(401	)		—		(401	)
Translation adjustment		862			—		862
March 31, 2006	¥	19,453			—		19,453

	U.S. Dollars (Thousands)
	Electronic
	materials and			Recording
	components			media		Total
March 31, 2005	$	78,718			—		78,718
Additions		83,607			—		83,607
Deductions		(3,427	)		—		(3,427	)
Translation adjustment		7,367			—		7,367
March 31, 2006	$	166,265			—		166,265

     Goodwill additions during the year ended March 31, 2006 represent the excess of purchase price over the fair value of assets acquired and liabilities assumed in connection with the acquisition of Lambda Power Business in the amount of ¥4,854 million (Note 23) and ¥4,928 million in connection with an immaterial acquisition made during the year. Goodwill deductions during the year ended March 31, 2006 primarily consist of an impairment loss in the amount of ¥159 million and the reclassification to deferred income taxes in the amount of ¥154 million related to post-acquisition adjustment resulting from recognition of preacquisition tax benefits.

     Goodwill additions during the year ended March 31, 2005 represent the excess of purchase price over the fair value of assets acquired and liabilities assumed for a certain immaterial acquisition made during the year. Goodwill deductions during the year ended March 31, 2005 primarily consist of an impairment loss from discontinued operations in the amount of ¥1,856 million in connection with the discontinuation of TDK’s semiconductor business (Note 21) and a reclassification to deferred income taxes in the amount of ¥119 million related to post-acquisition adjustment resulting from recognition of preacquisition tax benefits.

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19. Net Income per Share

     A reconciliation of the numerators and denominators of the basic and diluted net income per share computations is as follows:

	Yen						U.S. Dollars
	(Millions)						(Thousands)
	2006		2005		2004		2006
Income from continuing operations available to common stockholders	¥	44,411		36,965		43,355	$	379,581
Loss from discontinued operations available to common stockholders		310		3,665		1,254		2,649
Net income available to common stockholders	¥	44,101		33,300		42,101	$	376,932

	Number of shares (Thousands)
	2006		2005		2004
Weighted average common shares outstanding — Basic		132,239		132,293		132,475
Effect of dilutive stock options		116		83		48
Weighted average common shares outstanding — Diluted		132,355		132,376		132,523

	Yen									U.S. Dollars
	2006			2005			2004			2006
Income from continuing operations per share:
Basic	¥	335.84			279.41			327.27		$	2.87
Diluted		335.54			279.25			327.15			2.87
Loss from discontinued operations per share:
Basic	¥	(2.34	)		(27.70	)		(9.47	)	$	(0.02	)
Diluted		(2.34	)		(27.69	)		(9.46	)		(0.02	)
Net income per share:
Basic	¥	333.50			251.71			317.80		$	2.85
Diluted		333.20			251.56			317.69			2.85

20. Business and Credit Concentrations

     One significant customer, Maxtor Peripherals (S) Pte. Ltd., related to electronic materials and components business accounted for 11.5 percent, 12.6 percent and 12.1 percent of TDK’s net sales for the years ended March 31, 2006, 2005 and 2004, respectively, and 12.7 percent and 13.2 percent of trade receivables at March 31, 2006 and 2005, respectively.

     During the year ended March 31, 2006, the said customer agreed to be acquired by a competitor. The acquisition was completed in May 2006. During the year ended March 31, 2007, TDK will be losing the majority of the sales from this customer that it recorded in the year ended March 31, 2006.

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21. Discontinued Operations

     On March 31, 2005, TDK entered into an agreement to sell all outstanding stock of its wholly owned subsidiary, TSC for $14,028 thousand to Golden Gates Capital (“Buyer”). The sale of TSC is part of TDK’s continuing shift away from non-core products and technologies. The sale agreement also includes earn-out payments, to be made by the Buyer to TDK, of up to $32,500 thousand. No earn-out payments were made through March 31, 2006. The payments are contingent upon certain milestones being met related to future revenue targets extending through 2007. The transaction was completed on April 8, 2005. TDK has accounted for the sale of TSC as a discontinued operation pursuant to FASB Statement No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, as TSC meets the definition of a “component of an entity”. The results of operations for this subsidiary have been reported as discontinued operations for all periods presented. Accordingly, certain financial statement information and related footnote disclosures related to prior periods have been reclassified.

     Selected financial information for the years ended March 31, 2006, 2005 and 2004 for the discontinued operations, are summarized as follows:

							U.S. Dollars
	Yen (Millions)						(Thousands)
	2006		2005		2004		2006
Net sales	¥	45		2,242		3,070	$	385
Loss from operations before income taxes (including loss on disposal of ¥224 million in 2006)		310		3,509		244		2,649
Income tax expense		—		156		1,010		—
Loss from discontinued operations	¥	310		3,665		1,254	$	2,649

     Included in loss from discontinued operations for the year ended March 31, 2004, is patent infringement settlement income in the amount of ¥1,933 million which, prior to being reclassified, was previously included in income before income taxes for the year. This patent infringement settlement income has been reflected as a component of loss from discontinued operations as it directly relates to the TSC business being disposed.

     On August 6, 2001, TSC filed suit against Silicon Laboratories, Inc. (“SiLabs”) alleging infringement by SiLabs of U.S. Patent No. 5,654,984 entitled “Signal Modulation Across Capacitors” (“the ’984 patent”) owned by TSC. The patent relates to novel methods and circuitry for communicating a signal across an isolation barrier using capacitors. The patented technology is principally useful in modem applications. TDK’s lawsuit alleged that SiLabs integrated the patented technology into its competing modem products. SiLabs counterclaimed alleging (1) unfair competition and (2) intentional and negligent interference with economic relations.

     In April 2003, the parties resolved the dispute with the execution of a Settlement Agreement wherein both parties agreed to dismiss all litigation between them without admitting any liability. In exchange for the payment of $17 million to TSC, SiLabs was granted a fully paid-up, exclusive perpetual license to use the ’984 patent, as well as three ancillary patents owned by TSC. Pursuant to the Settlement Agreement, TDK has no further obligation to provide additional services, product deliverables or enhancements to the licensed technology. TSC did reserve for itself and other TDK companies the right to use the patents with regard to TDK-branded products. In addition, TSC agreed that neither it or any TDK entity would pursue a claim against SiLabs for a period of 20 years for patent infringement related to any SiLabs product in existence at the time of the settlement or any capacitive-based digital access arrangement (“DAA”) product subsequently introduced by SiLabs.

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22. Sale of a Subsidiary

     On October 1, 2004, TDK Logistics Corporation (“TDK Logistics”), a wholly owned subsidiary which provided warehousing and transportation services to only TDK, was acquired in a share for share exchange by Alps Logistics Co., Ltd. (“ALPS”), a third party listed company on the Tokyo Stock Exchange. The share exchange ratio was 0.82 of an ALPS share for one TDK Logistics share. The fair value of shares issued to effect this transaction was determined based on the market value of ALPS common shares at the consummation date and amounted to ¥3,365 million. As a result of the acquisition, TDK owns approximately 7.9 percent of the outstanding common stock of ALPS. TDK continues to use warehousing and transportation services which are now provided by ALPS. The sale of TDK Logistics does not meet the criteria for reporting as discontinued operations as the operations and cash flows of the former subsidiary will not be eliminated from the cash flows of TDK. TDK recorded a gain on sale of ¥1,799 million which is included in operating income in the consolidated statement of income for the year ended March 31, 2005.

23. Acquisition

     On October 1, 2005, TDK acquired 59 percent of the issued and outstanding common shares of Lambda Power Business from U.K.-based Invensys plc. The results of Lambda Power Business’s operations have been included in the accompanying consolidated financial statements of TDK since that date. The acquisition is intended to establish a more resilient operating base for TDK in the power supply field, which is expected to continue to grow in the years ahead, by combining TDK’s strengths with those of the various businesses of Lambda Power Business. The total purchase price was ¥24,202 million, net of cash acquired of ¥4,305 million.

     The purchase price has been allocated based on the fair value of the assets acquired, including identifiable intangible assets and liabilities assumed, at the date of acquisition. The excess of the cost of the acquisition over the net of amounts assigned to the fair value of the tangible and identifiable intangible assets acquired and the liabilities assumed is recorded as goodwill. Goodwill is not deductible for tax purposes. The following table summarizes the estimated fair value of the assets acquired and liabilities assumed at the date of the acquisition.

	Yen			U.S. Dollars
	(Millions)			(Thousands)
Current assets	¥	23,176		$	198,086
Property, plant and equipment		9,673			82,675
Intangible assets		13,686			116,974
Goodwill		4,854			41,487
Other assets		5,090			43,504
Total assets acquired		56,479			482,726
Current liabilities		(13,429	)		(114,777	)
Noncurrent liabilities		(9,583	)		(81,906	)
Minority interests		(9,265	)		(79,188	)
Total liabilities assumed		(32,277	)		(275,871	)
Net assets acquired	¥	24,202		$	206,855

     The acquired intangible assets which are being amortized have a weighted average useful life of approximately 15 years. The intangible assets include customer relationships of ¥9,778 million (16-years weighted average useful life), patented technology of ¥1,134 million (8-years weighted average useful life), and other intangible assets of ¥550 million (1-year weighted average useful life). The acquired intangible assets which are not being amortized include trademarks of ¥2,132 million and other intangible assets of ¥92 million.

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Pro Forma Results

     The following unaudited pro forma financial information presents the combined results of operations of TDK and Lambda Power Business as if the acquisition had occurred as of April 1, 2005 and 2004. The results of Lambda Power Business have been included in the historical financial statements of TDK since the date of acquisition. The unaudited pro forma financial information is not intended to represent or be indicative of TDK’s consolidated results of operations or financial condition that would have been reported had the acquisition been completed as of the beginning of the periods presented and should not be taken as indicative of the TDK’s future consolidated results of operations or financial condition.

(Unaudited)

	Yen				U.S. Dollars
	(Millions)				(Thousands)
	2006		2005		2006
Net sales	¥	816,431	¥	702,566	$	6,978,043
Income from continuing operations		44,188		35,354		377,675
Loss from discontinued operations		310		3,665		2,650
Net income		43,878		31,689		375,026

	Yen						U.S. Dollars
	2006			2005			2006
Income from continuing operations per share:
Basic	¥	334.15			267.24		$	2.86
Diluted		333.86			267.07			2.85
Loss from discontinued operations per share:
Basic	¥	(2.34	)		(27.70	)	$	(0.02	)
Diluted		(2.34	)		(27.69	)		(0.02	)
Net income per share:
Basic	¥	331.81			239.54		$	2.84
Diluted		331.52			239.38			2.83

     Unaudited pro forma net income for 2006 and 2005 includes ¥698 million (net of tax effect) for the amortization of acquired intangibles.

     On May 17, 2005, TDK acquired 100 percent of the issued and outstanding shares of Amperex Technology Limited (“ATL”), a Hong Kong based company engaged in the production and sale of Polymer Lithium Batteries with about 3,000 employees, for the total purchase price of approximately ¥8,666 million, net of cash acquired. In connection with this transaction, TDK recognized goodwill of ¥3,803 million and intangible assets of ¥3,497 million.

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24. Related party transaction

     Receivables and payables include the following balances with affiliated companies at March 31, 2006 and 2005:

	Yen				U.S. Dollars
	(Millions)				(Thousands)
	2006		2005		2006
Due from	¥	5,515		4,680	$	47,137
Due to		5,169		5,068		44,179

     Purchases, research and development expenses, and sales include the following transactions with affiliated companies for the years ended March 31, 2006, 2005 and 2004:

	Yen									U.S. Dollars
	(Millions)									(Thousands)
	2006			2005			2004			2006
Gross purchase	¥	55,963			52,351			46,608		$	478,316
Less raw materials sold with no mark-up		(46,580	)		(43,786	)		(38,133	)		398,120
Net purchases		9,383			8,565			8,475			80,196
Research and development expenses		2,141			2,089			1,130			18,299
Sales		249			198			161			2,128

25. Supplementary Information

	Yen						U.S. Dollars
	(Millions)						(Thousands)
	2006		2005		2004		2006
(a) Statement of Income
Research and development	¥	45,528		36,348		32,948	$	389,128
Rent		7,739		7,349		8,037		66,145
Maintenance and repairs		13,732		11,090		11,875		117,368
Advertising costs		4,828		4,926		6,261		41,265
(b) Statement of Cash Flows
Cash paid during year for:
Interest	¥	749		331		350	$	6,402
Income taxes	¥	32,789		13,740		4,299	$	280,248

Noncash activities

     In fiscal 2006, noncash investing activities related to the purchase of subsidiaries were as follows:

	Yen		U.S. Dollars
	(Millions)		(Thousands)
Short-term debt assumed in connection with business acquisition	¥	781	$	6,675
Long-term debt assumed in connection with business acquisition		2,107		18,009

     In fiscal 2005, TDK received a 7.9 percent ownership interest in ALPS having a fair value of ¥3,365 million in exchange for all issued and outstanding shares of TDK Logistics in a share-to-share exchange transaction.

     In fiscal 2004, there were no material noncash investing and financing activities.

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Schedule II

TDK CORPORATION AND SUBSIDIARIES
Valuation and Qualifying Accounts
(In millions of yen)
Years ended March 31, 2006, 2005 and 2004

	Balance at
	beginning of		Charged to			Bad debts		Translation			Balance at
	period		earnings			written off		adjustment			end of period
Year ended March 31, 2006:
Allowance for doubtful receivables	¥	2,560		1,355			71		220			4,064
Year ended March 31, 2005:
Allowance for doubtful receivables	¥	2,000		598			106		68			2,560
Year ended March 31, 2004:
Allowance for doubtful receivables	¥	2,850		(227	)		373		(250	)		2,000

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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	REGULATIONS OF THE BOARD OF DIRECTORS (English translation)
2.1	SHARE HANDLING REGULATIONS (English translation)
8.1	List of Significant Subsidiaries
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 Company
12.2	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of CFO of the Company
13.1	Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of CEO of the Company
13.2	Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of CFO of the Company

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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: July 27, 2006	By:	/s/Hajime Sawabe
		Hajime Sawabe
		Representative Director,
		Chairman and CEO

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EX-1.1

EXHIBIT 1. 1

[Translation]

ARTICLES OF INCORPORATION

Amended as of June 29, 2006

TDK Corporation

CHAPTER I
GENERAL PROVISIONS

(Name)

Article 1. The Company shall be called TDK Kabushiki Kaisha and indicated as TDK Corporation in English.

(Purpose of Business)

Article 2. The purpose of the Company is to conduct the following businesses:

(1)	Manufacture and sale of electric machinery and appliances;
(2)	Manufacture and sale of magnetic materials such as ferrite and magnet;
(3)	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;
(4)	Manufacture and sale of recording media such as magnetic tape, floppy disk and optical disk and of data writing, reading and storage equipment therefor;
(5)	Manufacture and sale of ceramic materials such as electricity inductive ceramics, piezoelectric ceramics, semiconductor ceramics and electricity insulating ceramics;
(6)	Manufacture and sale of circuit components such as coils and transformers;
(7)	Manufacture and sale of semiconductor;
(8)	Manufacture and sale of stabilizing power supplies (units to stabilize electric current or voltage);
(9)	Manufacture and sale of machinery and appliances for medical use and medical instruments and of components thereof;
(10)	Manufacture and sale of single crystal materials and each product applying the same;
(11)	Manufacture and sale of precious metals, precious stones, artificial precious stones and each product applying or utilizing the same;
(12)	Manufacture and sale of outer wall materials of buildings and structures;
(13)	Designing and contracting of construction work;
(14)	Development, production, sale and grant of license of software;
(15)	Manufacture, sale and contracting of applied product, machinery and tools and equipment of each of the foregoing; and
(16)	Any and all businesses incidental or relating to each of the foregoing.

(Location of Head Office)

Article 3. The Company shall have its head office in Chuo-ku, Tokyo.

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(Organization)

Article 4. The Company shall establish the following bodies in addition to the general meeting of shareholders and the Directors.

(1)	Board of Directors
(2)	Corporate Auditors
(3)	Board of Corporate Auditors
(4)	Accounting Auditors

(Method of Public Notice)

Article 5. The method to make public notices of the Company shall be made electronically. Provided, however, that in the event that such public notice can not be made due to an accident or unavoidable reason, the public notice shall be given by publication in the Nihon Keizai Shimbun.

CHAPTER II

SHARES

(Aggregate Number of Issuable Shares)

Article 6. The total number of shares that the Company may issue shall be 480,000,000 shares.

(Issuance of Share Certificates)

Article 7. The Company shall issue share certificates for its shares.

(Acquisition of the Company’s Own Shares)

Article 8. The Company may acquire its own shares by resolution of the Board of Directors through transactions in the market, etc., in accordance with the provisions of Article 165, paragraph 2 of the Corporate Law of Japan.

(Number of Shares of One Unit and Non-Issuance of Share Certificates for Shares Constituting Less Than One Unit)

Article 9.1.	The number of shares of one unit of shares of the Company shall be one hundred (100) shares.
2.	Notwithstanding the provisions of Article 7, the Company shall not issue share certificates for shares constituting less than one unit of shares (hereinafter referred to as the “shares constituting less than one unit). Provided, however, that the foregoing shall not be applicable, in the event that the Share Handling Regulations provides for otherwise.

(Rights of Shareholder Holding Shares Constituting Less Than One Unit)

Article 10. Shareholders (including beneficial shareholders, the same shall be applied hereinafter) of the Company shall not be allowed to exercise any rights in

- 2 -

respect of the shares constituting less than one unit held by them, except for the following rights:

(1)	Rights provided for in each item of Article 189, paragraph 2 of the Corporate Law of Japan;
(2)	Rights to make a request in accordance with Article 166, paragraph 1 of the Corporate Law of Japan;
(3)	Rights to receive the allotment of offered shares and offered stock acquisition rights, in proportionate to the number of shares held by the shareholder;
(4)	Rights to make a request that is provided for in Article 11.

(Purchase of Shares Constituting Less Than One Unit)

Article 11.1.

A shareholder (including beneficial shareholder, the same shall be applied hereinafter) who holds shares constituting less than one unit of the Company may request the Company to sell the relevant number of shares which shall constitute one unit of shares if combined with the shares constituting less than one unit already held by such shareholder, pursuant to the provisions of the Share Handling Regulations.

2.

When a request stated in the preceding paragraph is made, in the event the Company does not own the relevant number of shares to sell, the Company may not accept such request.

(Administrator of Shareholder’s Register)

Article 12.1.	The Company shall have an administrator of the shareholders’ register.
2.	The appointment of administrator of the shareholders’ register and the office for handling the business of such administrator shall be determined by resolution of the Board of Directors, and the Company shall give public notice thereof.
3.	The preparation and retention of shareholders’ register (including the beneficial shareholders’ register; the same shall be applied hereinafter), the register of stock acquisition rights and the register of lost share certificates of the Company, and other matters relating to shareholders’ register, the register of stock acquisition rights and the register of lost share certificates of the Company shall be entrusted to the administrator of shareholders’ register, but not handled by the Company.

(Share Handling Regulations)

Article 13. Handling of shares of the Company and fees thereof shall be governed by laws and regulations, the Articles of Incorporation as well as the Share Handling Regulations established by the Board of Directors.

(Record Date)

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Article 14.1.	The Company shall deem those shareholders whose names have been entered or recorded in the last shareholders’ register as at the end of each business year as the shareholders holding voting rights who may exercise their voting rights at the ordinary general meeting of shareholders held with respect to the business year concerned.
2.	If it is necessary in addition to the preceding paragraph, the Company may, upon giving prior notice, pursuant to the resolution of the Board of Directors, deem those shareholders and pledgees for registered shares whose names have been entered or recorded in the shareholders’ register on a certain day as the shareholders and pledgees for registered shares who may exercise the rights thereof.

CHAPTER III

GENERAL MEETING OF SHAREHOLDERS

(Convocation)

Article 15.1.	Ordinary general meetings of shareholders shall be convened within three (3) months from the day following the end of each business year. Extraordinary general meeting of shareholders may be held from time to time when necessary.
2.	General meetings of shareholders may be convened at the Head Office or any adjacent place thereto or at Ichikawa-city, Chiba Prefecture.

(Convener and Chairman)

Article 16.1.

The Representative Director shall convene and preside over the general meetings of shareholders.

2.

In case where there are two or more Representative Directors, one of the Representative Directors shall convene the meetings and act as the Chairman in the order of preference previously fixed by the Board of Directors. In the event that the Representative Director is prevented from so acting, another Director shall act in his or her place in the order of preference previously fixed by the Board of Directors.

(Disclosure via the Internet and Deemed Provision of Proxy Materials for General Meeting of Shareholders)

Article 17. When convening a general meeting of shareholders, it shall be deemed that the Company has provided shareholders with necessary information that should be described or presented in proxy materials for the general meeting of shareholders, business reports, and non-consolidated and consolidated financial statements in the event that they are disclosed via the Internet in accordance with the Ministry of Justice Ordinance.

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(Method of Resolution)

Article 18.1.

Resolutions of general meetings of shareholders shall be adopted by a majority of the voting rights of the shareholders entitled to exercise voting rights who are present at the general meeting of shareholders, except where otherwise provided for by laws and regulations or the Articles of Incorporation.

2.

Resolutions of general meetings of shareholders provided in Article 309, paragraph 2 of the Corporate Law of Japan shall be adopted by an affirmative vote of two-thirds (2/3) or more of the voting rights of shareholders present at the general meeting of shareholders, a quorum for which shall be the presence of shareholders with one-third (1/3) or more of the voting rights exercisable for such meeting.

(Exercise of Voting Rights by Proxy)

Article 19.1.	A shareholder may exercise his or her voting rights by proxy, who shall be another shareholder with voting rights of the Company.
2.	The shareholder or proxy is required to submit to the Company a document evidencing his or her representation at every general meeting of shareholders.

(Minutes)

Article 20. A summary of proceedings and results at general meeting of shareholders, and other matters provided for by laws and regulations shall be stated or recorded in the minutes

CHAPTER IV

DIRECTORS AND THE BOARD OF DIRECTORS

(Number of Directors)

Article 21. The number of Directors of the Company shall be ten (10) or less.

(Method of Appointment and Dismissal of Directors)

Article 22.1.	Directors shall be appointed or dismissed at a general meeting of shareholders.
2.	Resolution for appointment or dismissal of Directors shall be adopted by an affirmative vote of the majority of voting rights of shareholders present at the general meeting of shareholders, a quorum for which shall be the presence of shareholders with one-third (1/3) or more of the voting rights exercisable for such meeting.
3.	Resolution for appointment of Directors shall not be by cumulative voting.

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(Term of Office of Directors)

Article 23.1.	The term of office of Directors shall expire at the close of the ordinary general meeting of shareholders held with respect to the last business year that ends within one (1) year after his or her appointment.
2.	The term of office of a Director appointed to increase the number of Directors or fill a vacancy shall expire upon termination of the terms of office of the other Directors then in office.

(Representative Directors)

Article 24. By resolution of the Board of Directors, Representative Directors shall be chosen.

(Convener and Chairman of the Board of Directors)

Article 25.1.

The Representative Director shall convene and preside over the meetings of the Board of Directors, except where otherwise provided for by laws and regulations.

2.

In case where there are two or more Representative Directors, one of the Representative Directors shall convene the meetings and act as the Chairman in the order of preference previously fixed by the Board of Directors. In the event that the Representative Director is prevented from so acting, another Director shall act in his or her place in the order of preference previously fixed by the Board of Directors.

(Notice of Convocation of the Board of Directors)

Article 26.1.	A notice of convocation of the meeting of the Board of Directors shall be sent to each Director three (3) days prior to the date of such meeting. Provided, however, that in case of urgency, such period may be shortened.
2.	When all Directors and Corporate Auditors give unanimous consent, the meetings of the Board of Directors may be held without the formal convocation procedures.

(Method of Resolution)

Article 27.1.	Resolutions of the meetings of the Board of Directors shall be adopted by an affirmative vote of the majority of Directors present at meetings, a quorum for which shall be a majority of Directors present.
2.	In the event that the requirements under Article 370 of the Corporate Law of Japan are fulfilled, the Company shall deem that a proposal on agenda at the meeting of the Board of Directors is adopted by resolution of the Board of Directors.

(Minutes)

Article 28. A summary of proceedings and results at a meeting of the Board of Directors, and other matters provided for by laws and regulations shall be stated or

- 6 -

recorded in the minutes. The Directors and Corporate Auditors present shall affix signatures (including affixing their names and seals) or make electronic signatures thereto.

(Regulations of the Board of Directors)

Article 29. Any matter relating to the Board of Directors shall be governed by laws and regulations, the Articles of Incorporation as well as the Regulations of the Board of Directors established by the Board of Directors.

(Remuneration, etc. for Directors)

Article 30. The remuneration, retirement awards, bonuses and any other material benefit received from the Company in consideration of execution of the duties of the Director shall be determined by resolution of a general meeting of shareholders.

CHAPTER V

CORPORATE AUDITORS AND THE BOARD OF CORPORATE AUDITORS

(Number of Corporate Auditors)

Article 31. The number of Corporate Auditors of the Company shall be five (5) or less.

(Method of Appointment of Corporate Auditors)

Article 32.1.	Corporate Auditors shall be appointed at a general meeting of shareholders.
2.	Resolution for appointment of Corporate Auditors shall be adopted by an affirmative vote of the majority of voting rights of shareholders present at the general meeting of shareholders, a quorum for which shall be the presence of shareholders with one-third (1/3) or more of the voting rights exercisable for such meeting.

(Term of Office of Corporate Auditors)

Article 33.1.	The term of office of Corporate Auditors shall expire at the close of the ordinary general meeting of shareholders held with respect to the last business year that ends within four (4) years after his or her appointment.
2.	The term of office of a Corporate Auditor appointed to fill a vacancy of the Corporate Auditor who has resigned before termination of his or her term of office, shall expire upon termination of the term of office of the Corporate Auditor resigned.

- 7 -

(Full-time Corporate Auditors)

Article 34. Full-time Corporate Auditors shall be chosen by resolution of the Board of Corporate Auditors.

(Notice of Convocation of the Board of Corporate Auditors)

Article 35.1.	A notice of convocation of the meeting of the Board of Corporate Auditors shall be sent to each Corporate Auditor three (3) days prior to the date of such meeting. Provided, however, that in case of urgency, such period may be shortened.
2.	When all Corporate Auditors give unanimous consent, the meetings of the Board of Corporate Auditors may be held without the formal convocation procedure.

(Method of Resolution of Corporate Auditors)

Article 36. Unless otherwise provided by laws and ordinances, resolutions of the meetings of the Board of Corporate Auditors shall be adopted by a majority vote of Corporate Auditors.

(Minutes of the Board of Corporate Auditors)

Article 37. A summary of proceedings and results at a meeting of the Board of Corporate Auditors, and other matters provided by laws and regulations shall be recorded in the minutes. The Corporate Auditors present shall affix signatures or make electronic signatures thereto.

(Regulations of the Board of Corporate Auditors)

Article 38. Any matter relating to the Board of Corporate Auditors shall be governed by laws and regulations, the Articles of Incorporation as well as the Regulations of the Board of Corporate Auditors established by the Board of Corporate Auditors.

(Remuneration, etc., for Corporate Auditors)

Article 39. The remuneration, retirement awards, bonuses and any other material benefit received from the Company in consideration of execution of the duties of the Corporate Auditor shall be determined by resolution of a general meeting of shareholders.

- 8 -

CHAPTER VI

ACCOUNTING AUDITORS

(Method of Appointment of Accounting Auditors)

Article 40. Accounting Auditors shall be appointed at a general meeting of shareholders.

(Notice of Convocation of the Board of Corporate Auditors)

Article 41.1.	The term of office of Accounting Auditors shall expire at the close of the ordinary general meeting of shareholders held with respect to the last business year that ends within one (1) year after his or her appointment.
2.	Except where otherwise resolved at the general meeting of shareholders referred to in the preceding paragraph, an Accounting Auditor shall be deemed to have been re-appointed at such general meeting of shareholders.

CHAPTER VII

ACCOUNTS

(Business Year)

Article 42. The business year of the Company shall be one (1) year commencing from April 1 of each year to March 31 of the following year.

(Record Date for Dividends on Retained Earnings)

Article 43.1.	The record date for the year-end dividends of the Company shall be March 31 of each year.
2.	In addition to the preceding paragraph, the Company may from time to time fix a record date and pay dividends on retained earnings.

(Interim Dividends)

Article 44. By resolution of the Board of Directors, the Company may pay interim dividends on September 30 of each year as a record date.

(Period of Limitation of Dividends)

Article 45.1.	In case of cash dividends, where any dividend is not received after elapse of three (3) full years from the date of offer of payment, the Company shall be discharged from liability for payment of such dividends and interim dividends.
2.	No interest shall accrue on unpaid cash dividends on retained earnings.

- 9 -

Prepared	November 2, 1935
Approved	December 7, 1935
Amended	January 1, 1940
Amended	May 17, 1940
Amended	July 1, 1943
Amended	August 18, 1943
Amended	July 31, 1948
Amended	October 26, 1948
Amended	July 18, 1951
Amended	July 22, 1952
Amended	July 19, 1953
Amended	August 4, 1955
Amended	July 30, 1957
Amended	January 31, 1960
Amended	July 30, 1962
Amended	January 30, 1965
Amended	January 30, 1967
Amended	July 29, 1967
Amended	January 30, 1969
Amended	July 30, 1969
Amended	January 30, 1973
Amended	January 30, 1974
Amended	January 30, 1975
Amended	February 27, 1976
Amended	February 27, 1978
Amended	February 27, 1979
Amended	February 27, 1982
Amended	February 25, 1983
Amended	February 27, 1989
Amended	June 27, 1991
Amended	June 29, 1994
Amended	June 26, 1998
Amended	June 29, 2000
Amended	June 27, 2002
Amended	June 27, 2003
Amended	June 29, 2004
Amended	June 29, 2006

- 10 -

EX-1.2

EXHIBIT 1. 2

[Translation]

REGULATIONS OF THE BOARD OF DIRECTORS

Amended as of June 29, 2006

TDK Corporation

TSG-21 (11)

REGULATIONS OF THE BOARD OF DIRECTORS

1 GENERAL PROVISIONS

Purpose

1 Except as may be otherwise specifically provided for under laws and regulations, and the Articles of Incorporation, matters relating to the board of directors of TDK Corporation (the “Board of Directors”) shall be as set forth in this Regulations of the Board of Directors (this “Regulations”).

Duties

2 The Board of Directors shall determine important matters relating to the execution of the business of TDK Corporation (the “Company”), and supervise the performance by the Representative Director, Directors and Corporate Officers of their respective duties.

Composition

3 The Board of Directors shall be composed of all Directors.

Corporate Auditors

4 Corporate Auditors shall attend meetings of the Board of Directors, and shall, if deemed necessary by such Corporate Auditors, state their opinions thereat.

Time of Convocation of the Meeting

5 (1)	An ordinary meeting of the Board of Directors shall be held at least once every month. Provided, however, that the date and time of an ordinary meeting of the Board of Directors may be changed due to unavoidable reasons.
(2)	In addition to the preceding paragraph and if necessary, an extraordinary meeting of the Board of Directors may be held.

Place of the Meeting

6 Meetings of the Board of Directors shall be held at the head office of the Company. Provided, however, that such meetings may be held at other locations for convenience.

- 1 -

Convener and Chairman of Meetings of the Board of Directors

7 (1)	Except as may be otherwise specifically provided for under laws and regulations, the Representative Director shall convene and be the chairman of meetings of the Board of Directors. If there are multiple Representative Directors, the Representative Director with preference over the other Representative Director(s) pursuant to the pre-determined order of preference established by the Board of Directors shall convene such meetings and act as a chairman thereat. If such Representative Director with preference is unable to take such action, pursuant to the pre-determined order of preference established by the Board of Directors, the Director with preference over the remaining Directors shall substitute for such Representative Director..
(2)	Each of Directors may demand the convocation of a meeting of the Board of Directors by submitting a document stating the purpose of such meeting to the Representative Director.
(3)	If necessary under the provisions of laws and regulations, each Corporate Auditor may demand the convocation of a meeting of the Board of Directors.

Notice of Convocation of a Meeting of the Board of Directors

8 (1)	A notice of convocation of a meeting of the Board of Directors shall set forth the date and time, place and agenda for such meeting, and shall be sent to each Director and each Corporate Auditor no later than three (3) days prior to the date of such meeting. Provided, however, that if time is of the essence, such period may be shortened.
(2)	If there is unanimous consent of all Directors and Corporate Auditors, a meeting of the Board of Directors may be held without satisfaction of the procedures provided under the preceding paragraph.

Presence of Outsider

9 The Board of Directors may, as may be necessary, request the attendance of persons other than Directors and Corporate Auditors at meetings of the Board of Directors and ask for their opinion or explanation.

Method of Resolution

10 (1) Resolutions of meetings of the Board of Directors shall be made by a majority vote of Directors present at such meetings to which a majority of the Directors attend.

- 2 -

     (2) A Director who has a special interest in the resolutions provided under the preceding paragraph may not participate in the vote thereon.

Resolutions in writing

11 (1)

If a Director proposes a matter for inclusion in an agenda for a meeting of the Board of Directors, the Director may request all Directors to express in writing or electromagnetic record form their intention of consent to such proposal, upon delivery of the content of and related materials for such matter to all Directors and Corporate Auditors in writing or electromagnetic record form.

(2)

In the event that the circumstances of the preceding paragraph are applicable, and if all Directors and Corporate Auditors unanimously consent to the proposal in writing or electromagnetic record form, the Company shall deem that a resolution of a meeting of the Board of Directors adopting such proposal was made. Provided, however, that such shall not be the case if a Corporate Auditor expresses its objection to such proposal.

Matters to be Resolved

12 Matters that require determination by a resolution of a meeting of the Board of Directors shall be as set forth in Schedules 1-4 attached hereto.

Matters to be Reported

13 (1)	The Representative Directors and Directors shall, at least once every three (3) months and whether personally or through Corporate Officers, report to a meeting of the Board of Directors the status of execution of business of the Company that are set forth in Schedule 5 attached hereto, and other matters considered to be necessary by the Representative Directors and Directors.
(2)	A Director who conducted transactions provided under any paragraph of Article 356, paragraph 1 of the Company Law must, without delay, report to a meeting of the Board of Directors the important fact relating to such transactions.
(3)	If the Representative Directors and Directors provide notice of the matter that should be reported to the Board of Directors to all Directors and Corporate Auditors in writing or electromagnetic record form, such matter needs not to be reported to a meeting of the Board of Directors. Provided, however, that such shall not be the case as in relation to the reporting of the status of execution of business of the Company provided under paragraph 1.

- 3 -

Minutes

14 (1)	A summary of proceedings and results at a meeting of the Board of Directors, and other matters provided for by laws and regulations shall be stated or recorded in the minutes. The Directors and Corporate Auditors present shall affix their names and seals or make electronic signatures thereto.
(2)	The summary of proceedings and results at the meeting of the Board of Directors shall be notified to the absent Directors and Corporate Auditors.

Secretariat

15 The secretariat of the Board of Directors shall be the legal department.

Changes in the Regulations of the Board of Directors

16 Any amendments to this Regulations shall require resolution of a meeting of the Board of Directors.

- 4 -

2. SUPPLEMENTARY RULES

Establishment and Amendments:

June 1, 1970	Establishment (00)
February 1, 1975	Amendment (01)
October 1, 1982	Amendment (02)
December 1, 1986	Amendment (03)
December 1, 1990	Amendment (04)
May 1, 1994	Amendment (05)
June 26, 1998	Amendment (06)
June 27, 2002	Amendment (07)
September 24, 2003	Amendment (08)
October 29, 2003	Amendment (09)
June 29, 2006	Amendment (10)
June 29, 2006	Amendment (11)

- 5 -

Schedule 1

Matters to be resolved at the Meeting of the Board of Directors

I. Matters provided for by laws and regulations:

1. Matters relating to shares:

(1)	Acquisition of own shares held by subsidiaries (Article 163 of the Company Law)
(2)	Acquisition of own shares through transactions in the market, etc. (Article 165, paragraph 2 and paragraph 3, Article 157, paragraph 2 of the Company Law, and Article 8 of the Articles of Incorporation)
(3)	Cancellation of treasury stock (Article 178, paragraph 2 of the Company Law)
(4)	Stock split (Article 183, paragraph 2 of the Company Law)
(5)	Gratis allotment of shares (Article 186, paragraph 3 of the Company Law)
(6)	Amendments to the Articles of Incorporation to decrease the number of shares constituting one unit or abolition of the provisions of the Articles of Incorporation relating to the number of shares constituting one unit (Article 195, paragraph 1 of the Company Law)
(7)	Matters relating to sale and purchase of shares held by missing shareholders (Article 197, paragraph 4 of the Company Law)
(8)	Issuance of offered shares and disposition of own shares (Article 201, paragraph 1, and Article 202, paragraph 3, item 3 of the Company Law)
(9)	Matters relating to disposing of any fraction of a share that is less than one share (Article 234, paragraph 5 of the Company Law)
(10)	Issuance of offered stock acquisition rights (Article 240, paragraph 1, Article 241, paragraph 3, item 3, and Article 243, paragraph 2 of the Company Law)
(11)	Approval of the transfer of stock acquisition rights with restrictions on transfer (Article 265, paragraph 1 of the Company Law)
(12)	Approval of the date prescribed by Article 236, paragraph 1, item 7(b) of the Company Law in the case that stock acquisition rights with terms on reacquisition contain provisions prescribed by Article 236, paragraph 1, item 7(b) (Article 273, paragraph 1 of the Company Law)
(13)	Decision etc. on acquisition of stock acquisition rights with terms on

- 6 -

	reacquisition (Article 274, paragraph 2 of the Company Law)
(14)	Gratis allotment of stock acquisition rights (Article 278, paragraph 3 of the Company Law)
(15)	Convocation of a general meeting of shareholders (Article 298, paragraph 4 of the Company Law)
(16)	Issuance of bonds (Article 362, paragraph 4, item 5 of the Company Law)
(17)	Decrease of the amount of paid-in capital which is effected simultaneously with the issuance of shares; provided, however, that this is limited to the case where the amount of paid-in capital after the date when the decrease of the amount of paid-in capital takes effect, is not less than the amount of paid-in capital before such effective date (Article 447, paragraph 3 of the Company Law)
(18)	Decrease of the amount of reserve which is effected simultaneously with the issuance of shares; provided, however, that this is limited to the case where the amount of reserve after the date when the decrease of the amount of reserve takes effect, is not less than the amount of reserve before such effective date (Article 448, paragraph 3 of the Company Law)
(19)	Decision on interim dividends (Article 454, paragraph 5 of the Company Law, and Article 44 of the Articles of Incorporation)

2. Matters relating to Directors:

(1)	Appointment and dismissal of Representative Directors (Article 362, paragraph 2, item 3 of the Company Law, and Article 24 of the Articles of Incorporation)
(2)	Approval of competitive transactions conducted by Director, transactions conducted by Director with the Company for the benefit of himself or herself, or a third party, guarantee by the Company of a debt of Director and other transactions conducted by a person other than Director where interests of the Company and the Director are in conflict (Article 365, paragraph 1 of the Company Law)
(3)	Convener of a meeting of the Board of Directors (Article 366, paragraph 1 of the Company Law, and Article 25, paragraph 2 of the Articles of Incorporation)

- 7 -

3. Matters to be proposed at the general meeting of shareholders:

(1)	Acquisition of own shares not through transactions in the market, etc. (Article 156, paragraph 1, and Article 160, paragraph 1 of the Company Law)
(2)	Consolidation of shares (Article 180, paragraph 2 of the Company Law)
(3)	Disposition of own shares for a specially favorable amount to be paid (Article 199, paragraph 2, Article 201, paragraph 1, and Article 199, paragraph 3 of the Company Law)
(4)	Issuance of offered shares by a specially favorable amount to be paid (Article 199, paragraph 2, Article 201, paragraph 1, and Article 199, paragraph 3 of the Company Law)
(5)	Issuance of offered stock acquisition rights by a specially favorable amount to be paid (Article 238, paragraph 2, Article 240, paragraph 1, and Article 238, paragraph 3 of the Company Law)
(6)	Appointment and dismissal of Directors, Corporate Auditors and Accounting Auditors (Article 329, paragraph 1, and Article 339, paragraph 1 of the Company Law)
(7)	Decision on remunerations, etc. to Directors and Corporate Auditors (Article 361, paragraph 1, and Article 387, paragraph 1 of the Company Law)
(8)	Partial exemption of liabilities of a Director, Corporate Auditor or Accounting Auditor (Article 425, paragraph 1 of the Company Law)
(9)	Approval of accounting documents including the balance sheet and the statement of profit and loss, etc. and the business report and their supporting schedules, or the fact that the accounting documents fulfill the requirements under Article 163 of the Company Accounting Regulations (Article 436, paragraph 3, and Article 439 of the Company Law)
(10)	Approval of temporary accounting documents (Article 441, paragraph 3 of the Company Law)
(11)	Approval of consolidated accounting documents (Article 444, paragraph 5 of the Company Law)
(12)	Decrease of the amount of paid-in capital (Article 447, paragraph 1 of the Company Law)
(13)	Decrease of the amount of reserve (Article 448, paragraph 1 of the Company Law)
(14)	Increase in paid-in capital due to decrease in retained earnings (Article

- 8 -

450 of the Company Law)

(15)	Increase in reserve due to decrease in retained earnings (Article 451 of the Company Law)
(16)	Disposition of retained earnings (Article 452 of the Company Law)
(17)	Distribution of retained earnings (Article 454, paragraph 1 of the Company Law)
(18)	Amendment of the Articles of Incorporation (Article 466 of the Company Law)
(19)	Transfer of business, etc., ex post facto establishment (Article 467, paragraph 1 of the Company Law)
(20)	Winding-up of the Company (Article 471, item 3 of the Company Law)
(21)	Appointment and dismissal of liquidators and representative liquidators (Article 478, paragraph 1, item 3, Article 479, paragraph 1, and Article 483, paragraph 3 of the Company Law)
(22)	Demerger (Article 783, paragraph 1, Article 795, paragraph 1, and Article 804, paragraph 1 of the Company Law)
(23)	Share exchange (Article 783, paragraph 1, and Article 795, paragraph 1 of the Company Law)
(24)	Merger (Article 783, paragraph 1, Article 795, paragraph 1, and Article 804, paragraph 1 of the Company Law)
(25)	Share transfer (Article 804, paragraph 1 of the Company Law)

- End -

- 9 -

Schedule 2

Matters to be resolved at the Meeting of the Board of Directors

II. Important Matters for Businesses pursuant to Article 362, paragraph 4 of the Company Law:

1. Matters relating to shares:

(1) Establishment, amendments and abolition of the Share Handling Regulations

2. Matters relating to Directors:

(1)	Allotment of duties to Directors, and commission and release of services as employees
(2)	Assumption of positions with executive power of affiliates of the Company and other business companies by Directors
(3)	Establishment, amendments and abolition of the regulations and internal rules for Directors

3. Matters relating to Corporate Officers:

(1)	Appointment and dismissal of Corporate Officers
(2)	Establishment, amendments and abolition of the regulations and internal rules for Corporate Officers
(3)	Appointment and dismissal of positions with executive power of Corporate Officers
(4)	Assumption of positions with executive power of affiliates of the Company and other business companies by Corporate Officers
(5)	Allotment of duties to Corporate Officers
(6)	Remunerations and bonuses to Corporate Officers
(7)	Approval of competitive transactions and transactions in conflict with the interests of the Company conducted by Corporate Officers

4. Matters relating to management:

(1)	TDK Group’s basic management policy
(2)	Important business plans
(3)	Important acquisition and disposition of company, etc.
(4)	Important business expansion and contraction, and abolition of important businesses
(5)	Important business alliances and technical alliances
(6)	Establishment, changes and abolition of important business offices,

- 10 -

branches, manufacturing facilities and research institutes

5. Matters relating to organization and personnel affairs:

(1)	Rearrangement of TDK Group’s organization
(2)	Appointment and dismissal of members and chairpersons of important committees
(3)	Appointment and dismissal of important employees
(4)	Important labor-management agreements
(5)	Establishment, amendments and abolition of important employment regulations
(6)	Important disciplinary measures and discharges
(7)	Commission and release of counselors

6. Matters relating to facilities:

(1)	Sale and purchase, and lease and rental, etc. of important facilities
(2)	Sale and purchase, and lease and rental, etc. of important land and buildings
(3)	Sale and purchase, and lease and rental, etc. of important welfare facilities
(4)	Decision on a budget for important facilities of TDK Group

7. Matters relating to development and technology:

(1)	Sale and purchase, license and disposition of important intellectual property rights with third parties
(2)	Management of important complaints
(3)	Commencement, suspension and amendment of important research and development activities with third parties

8. Matters relating to financial affairs:

(1)	Establishment of important security interest
(2)	Important donations, patronages and contributions, etc.
(3)	Important investments, loans, etc.
(4)	Important debt or performance guarantees
(5)	Important borrowings
(6)	Acquisition and disposition of important bonds or shares of other companies held for the purpose other than the investment
(7)	Disposition of important uncollectible debts
(8)	Important fund plans

9. Matters relating to consolidated subsidiaries and equity method affiliates:

(1) Incorporation, merger, liquidations, business transfer etc., share

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exchange, share transfer, demerger and changes in the company name of a consolidated subsidiary and an equity method affiliate

(2)	Capital increase or decrease of a consolidated subsidiary and an equity method affiliate
(3)	Changes in the shareholding ratio of shares of a company held by the Company that will influence the judgment as to whether the company is a consolidated subsidiary or whether the company is an equity method affiliate; changes in the number of shares of a company held by the Company resulting in the Company holding a management power over the company
(4)	Other important matters relating to the consolidated subsidiaries and equity method affiliates

10.	Matters relating to important litigations, settlements and applications for patents or other intellectual property rights;
11.	Approval of the allotment of non-audit services to the Accounting Auditors and dismissal thereof in accordance with the Sarbanes-Oxley Act of 2002 of the U.S.;
12.	Matters relating to the establishment of systems to ensure that the execution of duties by Directors is in compliance with laws and regulations, and the Articles of Incorporation, or other systems to ensure that businesses of the Company are duly performed;
13.	Amendments and abolition of important committee charters
14.	Approval for disclosure of information through the documents set forth below, which the company information concerning financial affairs contained therein had been decided as accurate and reasonable by the Information Disclosure Committee

(1)	Notices of the convocation of the general meeting of shareholders
(2)	Annual securities reports
(3)	Annual reports on Form 20-F
(4)	Semiannual securities reports
(5)	Financial reports in the abbreviated form, interim financial reports, summary of quarterly financial and business reports
(6)	Amendments to the reports stated in items (2) and (4) above

15. Specially important matters for businesses or matters equally important to each item as set forth above pursuant to the “Regulations for the Determination of Duties” etc.

- End -

- 12 -

Schedule 3

Matters to be resolved at the Meeting of the Board of Directors

III. Matters provided for by the Articles of Incorporation:

1. Matters relating to shares:

(1)	Determination of an administrator of the shareholders’ register and the location for handling the business of such administrator (Article 12, paragraph 2 of the Articles of Incorporation)
(2)	Determination of record date (Article 14, paragraph 2 of the Articles of Incorporation)

2. Matters relating to Directors:

(1)	Determination of the order of preference of the Director in becoming the convener and chairperson of general meetings of shareholders (Article 16, paragraph 2 of the Articles of Incorporation)
(2)	Determination of the order of preference of the Director in becoming the convener and chairperson of meetings of the Board of Directors (Article 25, paragraph 2 of the Articles of Incorporation)

- End -

- 13 -

Schedule 4

Matters to be resolved at the Meeting of the Board of Directors

IV. Matters entrusted by the general meeting of shareholders:

- End -

- 14 -

Schedule 5

Matters to be reported to the Meeting of the Board of Directors

1.	The Representative Directors shall prepare balance sheets, profit and loss statements and cash flow statements, and report to the Board of Directors.
2.	The Representative Directors and Directors shall personally or through the Corporate Officers report the following items to meetings of the Board of Directors when necessary pursuant to the “Regulations for the Decision on Duties” and the like. (Article 363, paragraph 2 of the Company Law)

(1)	Process and results of the execution of the matters resolved at a meeting of the Board of Directors
(2)	Important items among the items that were decided by the Representative Director
(3)	Status of implementation of business plans
(4)	Status of material procurement division
(5)	Status of implementation of technology development plans
(6)	Important matters for financial affairs
(7)	Important matters for employees and salaries
(8)	Important matters for legal affairs and public affairs
(9)	Important matters for environment preservation and engineering works
(10)	Important matters for facilities
(11)	Personnel affairs for Directors, Corporate Auditors and Corporate Officers of consolidated subsidiaries
(12)	Other important matters

3. Matters necessary to be reported to meetings of the Board of Directors pursuant to laws and regulations, and the Articles of Incorporation (including but not limited to, the transactions, etc. prescribed by Article 356, paragraph 1 of the Company Law)

- End -

- 15 -

EX-2.1

EXHIBIT 2. 1

[Translation]

SHARE HANDLING REGULATIONS

Amended as of June 29, 2006

TDK Corporation

CHAPTER I
GENERAL PROVISIONS

(Object)

Article 1. In accordance with Article 13 of the Articles of Incorporation, the handling procedures for shares of the Company and fees therefor shall be governed by these Regulations. Provided, however, that handling procedures with respect to shares held by the beneficial shareholders shall be governed by these Regulations as well as the provisions of The Japan Securities Depositary Center, Inc. (hereinafter referred to as the “Center”).

(Administrator of Shareholders’ Register)

Article 2.	The administrator of shareholders’ register of the Company, its place of business and forwarding offices are as follows:
	Administrator of shareholders’ register:
		The Chuo Mitsui Trust & Banking Co., Ltd.
		33-1 Shiba, 3-chome
		Minato-ku, Tokyo
	Office for handling the business:
		The Chuo Mitsui Trust & Banking Co., Ltd.
		33-1 Shiba, 3-chome
		Minato-ku, Tokyo (Head Office)
	Forwarding offices:
		All branch offices of The Chuo Mitsui Trust & Banking Co., Ltd. and all branches offices of Japan Securities Agents, Ltd. in Japan

(Denominations of Share Certificates)

Article 3.1.	The share certificates to be issued by the Company shall be in denominations of 100 shares, 500 shares and 1,000 shares. Provided, however, that share certificates representing the specified number of shares less than 100 shares may be issued for the shares constituting less than 100 shares.
2.	The shareholders shall not apply for the re-issuance of share certificates representing the number of shares constituting less than one unit, except as provided for in the Article 22 (Re-issuance of share certificates due to mutilation or defacement) and Article 23 (Re-issuance of share certificates due to a filled column).

(Application and Notice, etc.)

Article 4.1. Any applications and notices, etc. with respect to business entrusted to the administrator of shareholders’ register by the Company shall be made to the administrator of shareholders’ register.

- 1 -

2.	All application, notice, request or notification to be made under these Regulations shall be in the form prescribed by the Company and shall be impressed with the seal filed with the Company in accordance with the provisions of Article 15 hereof.
3.	With respect to any application, notice, request or notification in the preceding paragraph, in the event that it is made or given by a proxy, a document evidencing his or her power shall be submitted to the Company. In the event that it requires the consent of his or her curator or assistant, a document evidencing the consent shall be submitted to the Company.

CHAPTER II
ENTRY OR ELECTROMAGNETIC RECORD, ETC.
IN THE SHAREHOLDERS’ REGISTER

(Registration of Transfer of Shares)

Article 5.1.	In case of an application for the entry or record in the shareholders’ register (hereinafter referred to as the “Registration of Transfer of Shares”), a written application form shall be submitted together with the share certificates.
2.	In case of an application for the Registration of Transfer of Shares acquired due to causes other than assignment, in addition to taking the procedures prescribed in the previous paragraph, a document evidencing the acquisition thereof shall be submitted. Provided, however, that in case the share certificates concerned have not been issued, no submission thereof shall be required.

(Registration of Transfer of Shares When Specific Procedures Therefor are Provided For in Laws and Regulations)

Article 6. In the event that a specific procedure is required by laws and regulations with respect to the transfer of shares, a written application form shall be submitted together with share certificates concerned and a document evidencing the completion of such procedure.

(Entry in Share Certificates)

Article 7. Names of the applicants shall be stated in the share certificates as set forth in the preceding two Articles.

(Entry or Record in Beneficial Shareholders’ Register)

Article 8. Entry or record in the beneficial shareholders’ register shall be made upon notification from the Center addressed to the beneficial shareholders and beneficial shareholders’ form.

(Beneficial Shareholders’ Form)

Article 9. Beneficial shareholders shall submit the beneficial shareholders’ form through a

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participant in the central depositary and book-entry delivery system of share certificates (hereinafter referred to as the “Participant”).

(Addition)
Article 10.	In the event that a shareholder entered or recorded in the shareholders’ register is identified with a beneficial shareholder entered or recorded in the beneficial shareholders’ register according to the address and the name, the number of shares of each of such shareholders shall be added up with regard to the exercise of the shareholders’ rights.

CHAPTER III
REGISTRATION OF PLEDGE AND INDICATION OF TRUST PROPERTY

(Registration of Pledge or Cancellation Thereof)

Article 11. In case of an application for the registration, change or cancellation of a pledge for shares, a written application form shall be submitted under joint signatures of the pledgor and pledgee together with the share certificates concerned.

(Indication of Trust Property or Cancellation Thereof)

Article 12. In case of an application for indication of trust property or cancellation thereof for shares, a written application form shall be submitted by a trustor or a trustee, together with the share certificates concerned.

CHAPTER IV
NON-POSSESSION OF SHARE CERTIFICATES

(Request of Non-possession of Share Certificates)

Article 13. In case of a request for the non-possession of share certificates, a written request shall be submitted together with the share certificates concerned. Provided, however, that in case the share certificates concerned have not been issued, no submission thereof shall be required.

(Request for Delivery of Non-possessed Share Certificates)

Article 14.1.	In the event that a shareholder who has requested non-possession of share certificates applies for the issuance or return of such share certificates, a written application form to that effect shall be submitted.
2.	In the case of the preceding paragraph, a shareholder is unable to apply for the issuance of share certificates for the shares constituting less than one unit.

CHAPTER V

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VARIOUS NOTICES

(Notice of Address, Name and Seal Impression)

Article 15.1.	Shareholders, beneficial shareholders and pledgees for registered shares or their legal representatives shall notify the Company of their addresses, names and seal impressions. Provided, however, that foreigners may substitute their specimen signatures for such seal impressions.
2.	The same shall apply in case of any change in the matters notified pursuant to the preceding paragraph.

(Notice of Place for Receiving Notices for Shareholder Residing Abroad, etc.)

Article 16.1.	Shareholders, beneficial shareholders and pledgees for registered shares or their legal representatives residing abroad shall, in addition to procedures stipulated in the preceding Article, appoint a standing proxy in Japan or designate a mailing address in Japan to receive notices and notify the Company thereof in advance.
2.	The provisions of the preceding Article shall apply mutatis mutandis to the standing proxy.

(Representative of Corporation)

Article 17.1.	In the event that a corporation is a shareholder or beneficial shareholder, such corporation shall notify the Company of one (1) representative.
2.	In case of any change in the representative, a written notice shall be submitted together with a certified extract copy of the registered matters.

(Representative of Co-shareholders)

Article 18.1.	Shareholders or beneficial shareholders who co-own shares shall appoint one (1) representative and notify the Company of such representative.
2.	The same shall apply to the change of the representative.

(Alteration of Indications in of Shareholders’ Register,

Beneficial Shareholders’ Register and Share Certificates)

Article 19.1. In case of any changes in indications of the shareholders’ register, the beneficial shareholders’ register and share certificates due to any of the following events, a written notice shall be submitted together with the share certificates concerned and any documents evidencing the fact of the following events. Provided, however, that in case the share certificates have not been issued, and in case of alterations of the indications in the beneficial shareholders’ register, no submission of the share certificates concerned shall be required:

(1)	Alteration of a surname or a first name;
(2)	Establishment, alteration or discharge of legal representative such as a person in parental authority or a guardian and the like;
(3)	Alteration of a trade name or corporate name; and

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(4) Alteration of an organization of a corporate entity.

(Various Notices by Beneficial Shareholders)

Article 20.1.	The provisions of Chapter V shall apply mutatis mutandis to the beneficial shareholders. Provided, however, that no submission of share certificates is required in case of alterations of the indications in the beneficial shareholders’ register.
2.	In the event that beneficial shareholders submit the notice in the preceding paragraph, such notices shall be made through the Participant. Provided, however, that no beneficial shareholder is required to submit any notice through the Participant in case of a change only of his or her seal impression.

CHAPTER VI
RE-ISSUANCE OF SHARE CERTIFICATES

(Re-issuance of Share Certificates Due to Sub-division or Consolidation)

Article 21.1.	In case of an application for issuance of new share certificates due to stock split or consolidation of share certificates, a written application form shall be submitted together with the share certificate concerned.
2.	No application shall be made for the issuance of share certificates representing the shares constituting less than one unit due to sub-division or consolidation of share certificates.

(Re-issuance of Share Certificates Due to Mutilation or Defacement)

Article 22. In case of an application for issuance of new share certificates due to defacement or mutilation of share certificates, a written application form shall be submitted together with the related share certificates. Provided, however, that if it is difficult to ascertain the authenticity of the share certificates, the provisions of Chapter VII shall apply.

(Issuance of Share Certificates Due to a Filled Column)

Article 23. In the event that the column of the shareholders’ names on a share certificate is filled out, the Company shall collect such share certificates and shall issue a new share certificate.

(Automatic Consolidation of Shares Constituting Less Than One Unit)

Article 24. In the event that share certificates representing the shares constituting less than one unit are submitted for the Registration of Transfer of Shares and any combination of such certificates could represent the number of shares constituting one unit, such certificates shall be combined into share certificates representing shares constituting one unit unless an applicant for such

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Registration of Transfer of Shares otherwise specifically expresses his or her intention.

CHAPTER VII
REGISTRATION OF LOST SHARE CERTIFICATES

(Application for Registration of Lost Share Certificates)

Article 25. An applicant for the registration of lost share certificates shall submit a written application form together with a document evidencing the fact of the acquisition of share certificates, a document evidencing the fact of the loss of such share certificates and an identification document. Provided, however, that in case of the applicant for the registration of lost share certificates is a nominee, only a document evidencing the fact of the loss of share certificates shall be attached to a written application form.

(Cancellation of Registration by Registrant of Lost Share Certificates)

Article 26. In the event that a registrant of lost share certificates applies for the cancellation of the registration in the preceding paragraph, a written application form shall be submitted.

(Cancellation of Registration of Lost Share Certificates by Holder of Share Certificates)

Article 27. In the event that a person who holds the share certificate that has been registered as the lost share certificate applies for cancellation of the registration, a written application form shall be submitted together with the share certificate concerned and an identification document. Provided, however, that in the event that a shareholder or a pledgee for registered shares applies for cancellation of the registration, no submission of the identification document shall be required.

(Application mutatis mutandis to Various Notices)

Article 28. In the event that a registrant of lost share certificates is not a shareholder or a pledgee for registered shares, when altering the statement or record of the register of lost share certificates, the provisions of Article 12 to Article 16 hereof shall apply mutatis mutandis.

CHAPTER VIII
PURCHASE OF SHARES CONSTITUTING LESS THAN ONE UNIT

(Application Method for Request of Purchase)

Article 29. In the even that a shareholder who holds shares constituting less than one unit requests the Company to purchase such shares constituting less than on unit, a

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written application form shall be submitted together with the share certificates concerned to the place of business for handling shares or the forwarding offices provided for in Article 2. Provided, however, that in case the share certificates have not been issued, no submission thereof shall be required.

(Determination of Purchase Price)

Article 30.1.

The purchase price per share constituting less than one unit shall be the last sale price of the shares of the Company reported by the Tokyo Stock Exchange on the day on which the written application form and the share certificates concerned have been received at the place of business for handling shares or forwarding offices provided for in Article 2. Provided, however, that in case no trading is effected on that day or such day falls on a holiday of such stock exchange, the purchase price shall be the price at which the shares of the Company are first traded on such stock exchange subsequent thereto.

2.

The total purchase price shall be the amount equal to the purchase price per share constituting less than one unit stated in the preceding paragraph multiplied by the number of shares constituting less than one unit for which the application for request of the purchase was made.

(Payment of Purchase Price)

Article 31.1.	Unless otherwise determined by the Company, the purchase price shall be paid to the applicant at the place where the application for the purchase was received on the sixth (6) business day immediately following the day on which the purchase price in the preceding Article is determined. Provided, however, that when such purchase prices cum right for dividends on retained earnings or stock splits and the like, the purchase price shall be paid on or prior to the record date.
2.	The applicant for purchase of shares by the Company may require that payment of the purchase price shall be made by remitting to the bank account or the post office account designated by such applicant.
3.	At the time of remitting the purchase price, the handling fee provided for in Article 38, paragraph 3 shall be deducted.

(Transfer of Shares Purchased)

Article 32. The shares constituting less than one unit for which an application for the purchase by the Company has been made shall be transferred to the Company on a day on which payment of the purchase price or procedures for payment is completed pursuant to the preceding Article.

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CHAPTER IX
ADDITIONAL PURCHASE OF SHARES
CONSTITUTING LESS THAN ONE UNIT

(Application Method of Additional Purchase)

Article 33. In the event that a shareholder or a beneficial shareholder who holds shares constituting less than one unit make an application to the Company to sell such number of shares constituting less than one unit which, if combined with the shares constituting less than one unit already held by such shareholder (hereinafter referred to as the “Application for the Additional Purchase”), shall constitute one unit of shares, a written form of the Application for the Additional Purchase and the share certificates concerned, together with an estimated price of additional purchase, the details of which are provided in the following Article, shall be submitted to the place of business for handling shares or forwarding offices provided for in Article 2. Provided, however, that in case the share certificates have not been issued, no submission thereof shall be required.

(Estimated Price of Additional Purchase)

Article 34.1.

The estimated price of additional purchase shall be obtained by multiplying the last sale price of the shares of the Company reported by the Tokyo Stock Exchange on the day prior to the day on which the documents relating to the Application for the Additional Purchase stated in the preceding Article have been received at the place of business for handling shares or forwarding offices provided for in Article 2 (if no trading is effected on that day, it shall be the last sale price of the shares of the Company which are traded on the Tokyo Stock Exchange on the day immediately preceding such date), by the number of the shares constituting less than one unit for which an Application for the Additional Purchase has been made, further multiplied by 1.3. Any amount less than 1,000 Japanese yen arising out of the above calculation shall be rounded upward to 1,000 Japanese yen.

2.

In case of an Application for the Additional Purchase in accordance with the provisions of the preceding Article, if the estimated price of the Additional Purchase is less than the amount provided for in the preceding paragraph, the Company shall not accept such Application for the Additional Purchase.

(Application for Additional Purchase Exceeding Number of Treasury Stock)

Article 35. In the event that the total of several Applications for Additional Purchase on the same day exceeds the number of treasury stock of the Company to be transferred (excluding treasury stock held for a specified purpose), all Applications for the Additional Purchase made on that day shall become null and void.

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(Effective Date)

Article 36. The Application for the Additional Purchase shall take effect when the documents relating to the Application for the Additional Purchase provided for in Article 29 and the estimated price of the Additional Purchase provided for in Article 30 reach the place of business for handling shares or forwarding offices provided for in Article 2.

(Suspended Period for Acceptance of Application for Additional Purchase)

Article 37.1.	The Company shall suspend acceptance of any Application for the Additional Purchase from twelve (12) business days prior to March 31 to March 31 of each year, and from twelve (12) business days prior to September 30 to September 30 of each year.
2.	Notwithstanding the foregoing paragraph, in addition to the above-mentioned period, the Company may fix any period to suspend acceptance of any Application for the Additional Purchase when it deems necessary.

(Determination of Additional Purchase Price)

Article 38.1.	The additional purchase price per share constituting less than one unit shall be the last sale price of the shares of the Company reported by the Tokyo Stock Exchange on the effective date of the Application for the Additional Purchase. Provided, however, that in case no trading is effected on that day or such day falls on a holiday of such stock exchange, the additional purchase price shall be the price at which the shares of the Company are first traded on such stock exchange subsequent thereto.
2.	The total additional purchase price shall be the amount equal to the additional purchase price per share constituting less than one unit stated in the preceding paragraph multiplied by the number of shares constituting less than one unit for which the Application for the Additional Purchase was made.
3.	In the event that the estimated price of additional purchase provided for in Article 34 is less than the total amount of the additional purchase price provided for in the preceding paragraph and the handling fee provided for in Article 42 (hereinafter referred to the “Additional Purchase Cost”), the Company shall charge such deficit to the shareholder who made an Application for the Additional Purchase. In such case, if the deficit is not paid within five (5) business days from the day immediately following the day on which it has been charged, the relevant Application for the Additional Purchase shall be cancelled.

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(Receipt of Additional Purchase Cost)

Article 39.1.

The Company shall receive the Additional Purchase Cost out of the estimated price of the Additional Purchase on any day within six (6) business days from the day immediately following the day that the additional purchase price is determined or the deficit as stated in paragraph 3 of the preceding Article is paid, which is designated by the Company. Provided, however, that in case the additional purchase price is a price cum rights such as rights to receive dividends on retained earnings or make stock splits and the like, the Additional Purchase Cost shall be received prior to the record date or the allotment date.

2.

The Company shall repay any surplus amount obtained after deducting the Additional Purchase Cost in the preceding paragraph from the estimated price of the Additional Purchase by either remitting such amount to the bank account, or the cash payment by postal transfer, which is designated by the shareholder who made an Application for the Additional Purchase.

(Transfer of Shares Constituting Less Than One Unit for which Application for the Additional Purchase was Made)

Article 40. Treasury stock for which an Application for the Additional Purchase has been made shall be transferred to the shareholder who made an Application for the Additional Purchase on the day when the Selling Cost is fully received pursuant to the preceding Article.

(Delivery of Share Certificates)

Article 41. A share certificate shall be immediately issued for the shares constituting one unit as a result of an Application for the Additional Purchase and delivered to the shareholder who mad an Application for the Additional Purchase.

CHAPTER X
HANDLING FEES

(Handling Fees)

Article 42. Handling fees for handling of the shares of the Company shall be as follows:

(1) In case of delivery of share certificates pursuant to Article 14 (Request for Delivery of Non-possessed Share Certificates) and Article 22 (Re-issuance of Share Certificates Due to Mutilation or Defacement):

The fee shall be ¥250 per share certificate

(2) In case of an application for the registration of lost share certificates pursuant to Article 25 (Application for Registration of Lost Share Certificates):

The fee shall be ¥8,600 per application for the registration of lost share certificates and ¥500 per share certificate which will be registered as the lost share certificate.

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(3) Handling fee for the application for request of the purchase of Shares Constituting Less Than One Unit pursuant to Article 29 (Application Method for Request of Purchase) and the Application for the Additional Purchase pursuant to Article 33 (Application Method of Additional Purchase):

The fee shall be an amount equivalent to the brokerage fee for trading of shares, as determined separately.

Handling Fee for
Purchase of Shares Constituting Less Than One Unit
and Application for Additional Purchase of Shares Constituting Less Than One Unit

The fee to be charged pursuant to Section 3, Article 42 of the Share Handling Regulations (Handling Fee for an Application for the purchase of shares constituting less than one unit and Application for the Additional Purchase) shall be obtained by prorating the fee per one unit, calculated according to the following formula (the “unit fee”), to the Shares Constituting Less Than One Unit purchased or sold.

(Formula for the unit fee)

The unit fee shall be an amount equivalent to the percentage of the purchase price or the additional purchase price per unit as determined in accordance with Article 30 or Article 38, as the case may be, obtained by multiplying the number of shares constituting one unit:

Purchase/Sale price per unit	Fee rate
Less than and including ¥1 million		1.150	%
Over ¥1 million but less than and including ¥5 million		0.900	%
Over ¥5 million but less than and including ¥10 million		0.700	%
Over ¥10 million but less than and including ¥30 million		0.575	%
Over ¥30 million but less than and including ¥50 million		0.375	%
(Any amount less than ¥1 is to be disregarded.)

Provided, however, that in the case that the fee per unit is less than ¥2,500, such fee shall be ¥2,500.

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EX-8.1

EXHIBIT 8. 1

List of Significant Subsidiaries

	Head office		Percentage
Name of company	location	Function	owned
SAE Magnetics (H.K.) Ltd.	Hong Kong	Production of electronic materials and components		100.0	%
TDK Hong Kong Co., Ltd.	Hong Kong	Production of electronic materials and components		100.0	%
TDK Taiwan Corporation	Taipei, Taiwan	Production of electronic materials and components		95.4	%
TDK Xiamen Co., Ltd.	Xiamen, China	Production of electronic materials and components		100.0	%
TDK Fujitsu Philippines      Corporation	Laguna, Philippines	Production of electronic materials and components		65.8	%
Headway Technologies, Inc.	California, U.S.A.	Production of electronic materials and components		100.0	%
Allied Focus Industry Ltd.	Hong Kong	Production of electronic materials and components		100.0	%
TDK Dalian Corporation	Dalian, China	Production of electronic materials and components		100.0	%
TDK Corporation of America	Illinois, U.S.A.	Sale of electronic materials and components		100.0	%
TDK Electronics Europe GmbH	Düsseldorf, Germany	Sale of electronic materials and components		100.0	%
TDK Singapore (Pte) Ltd.	Singapore	Sale of electronic materials and components, and      recording media		100.0	%
TDK Marketing Europe GmbH	Ratingen, Germany	Sale of recording media		100.0	%
TDK Electronics Corporation	New York, U.S.A.	Sale of recording media		100.0	%
TDK (Thailand) Co., Ltd.	Bangkok, Thailand	Production of recording media, and electronic      materials and components		100.0	%
TDK U.S.A. Corporation	New York, U.S.A.	Others		100.0	%
TDK Europe S.A.	Luxembourg	Others		100.0	%
Lambda Holdings Inc.	California, U.S.A.	Others		100.0	%
Lambda Far East Ltd.	Devon, United Kingdom	Others		100.0	%
TDK-MCC Corporation	Akita, Japan	Production of electronic materials and components		100.0	%
Densei-Lambda K.K.	Tokyo, Japan	Production of electronic materials and components		58.9	%
TDK Shonai Corporation	Yamagata, Japan	Production of electronic materials and components		100.0	%
TDK Ugo Corporation	Akita, Japan	Production of electronic materials and components		100.0	%
Media Technology Corporation	Yamanashi, Japan	Production of recording media		70.0	%
TDK Marketing Corporation	Tokyo, Japan	Sale of recording media		100.0	%
TDK Core Co., Ltd.	Tokyo, Japan	Others		100.0	%
TDK Service Corporation	Tokyo, Japan	Others		100.0	%

EX-11.1

EXHIBIT 11. 1

TDK Code of Ethics

Amended: May 25, 2005

Foreword

TDK Corporation (“TDK”) has established a corporate code of ethics (“TDK Code of Ethics”). The TDK Code of Ethics provides the standards and guidelines for compliance with all laws, regulations and social norms, to be followed by all directors, officers, employees and corporate auditors of TDK and its consolidated subsidiaries (collectively “TDK Group”) in the conduct of the TDK business.

The TDK Code of Ethics consists of the following three elements:

1.	Corporate philosophy of ethics (“Philosophy”), which is a basic charter of TDK Group applicable to all directors, officers, employees and corporate auditors of the TDK Group (“TDK Members”);
2.	Corporate standards of business conduct and its Supplementary Provisions (“Standards”), which provide guidelines for conducting the business of TDK Group; and
3.	Program of the TDK Code of Ethics (“Program”), which provides the procedures for observance of the Philosophy and the Standards.

Creation, revocation and/or amendment of the TDK Code of Ethics shall be subject to review and approval of the board of directors of TDK. Violations of the Code may result in a disciplinary action in accordance with applicable laws and regulations, the internal company work rules and/or other applicable company rules, depending upon the particular circumstances involved.

For the purpose of observance of the TDK Code of Ethics, each member organization of TDK Group will:

1.	Prepare a handbook on the TDK Code of Ethics and distribute copies of the handbook to its directors, officers and employees, and also place the TDK Code of Ethics on the website of TDK Business Ethics & CSR Committee (“TDK Business Ethics & CSR Committee Website”) on the intranet system of TDK Group;
2.	Periodically hold internal seminars/trainings regarding observance of the TDK Code of Ethics; and
3.	Establish consultation offices for its employees, to which the employees of TDK Group may direct their questions and concerns regarding the TDK Code of Ethics and seek advice.

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Table of Contents

Chapter 1	Corporate Ethical Philosophy
Chapter 2	Corporate Standards of Business Conduct
2.1	Business Activities
	2.1.1      Supply of excellent products and services, and maintenance of safety
	2.1.2      Maintenance of sound and good relationship with customers, suppliers and other business partners
	2.1.3     Maintenance and promotion of fair and free competitions
	2.1.4     Protection of intellectual property rights
	2.1.5.     Conflict of Interest
	2.1.6.     Confidentiality
	2.1.7.     Business opportunities of TDK Group
	2.1.8.     Fair dealing
	2.1.9.     Protection and proper use of TDK Group’s assets
2.2	TDK Group and Employees
	2.2.1     Respect for the personality and individuality of each employee
	2.2.2     Respect for the privacy
	2.2.3     Respect for human rights
	2.2.4     Working conditions
	2.2.5     Maintenance of safe, healthy and comfortable work environment
2.3	TDK Group and Society
	2.3.1     Observance of laws and regulations
	2.3.2     Disclosure of information
	2.3.3     Protection of the global environment
	2.3.4     Contribution to society and the community
2.4	Supplemental Provisions
	Code of Ethics Applicable to All Senior Financial Officers, Members of the Board and Executive Officers of TDK Group
Chapter 3	Program of the TDK Code of Ethics
3.1	Purpose
3.2	Functions
3.3	Business Ethics & CSR Committee of TDK
3.4	Consultation Office
3.5	Educating the TDK Code of Ethics
3.6	Organization for observing the TDK Code of Ethics

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3.7	Duty to Report to the Board of Directors and to the Board of Corporate Auditors
3.8	Corrections and Preventive Actions
3.9	Reporting of Illegal and Unethical Behavior
3.10	Violations of the TDK Code of Ethics
3.11	Revocation and Amendment

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Chapter 1
Corporate Ethical Philosophy

TDK has a corporate motto, “Contribute to culture and society through creativity.” This corporate motto is recognized as the fundamental spirit of TDK Group and TDK Members should act in accordance with the motto. TDK also has corporate principles: Vision, Courage and Trust.

“Vision”	Always take a new step forward with a vision in mind. Creation and construction are not born without vision.
“Courage”	Always perform with courage. Performing power is born by confronting contradiction and overcoming it.
“Trust”	Always try to build trust. Trust is born from a spirit of honesty and service.

In the process of conducting the TDK business, TDK Members are expected to follow the corporate motto and respect the corporate principles. TDK Members are also expected to actively increase an awareness of, and facilitate common understanding of, the importance and meaning of the TDK Code of Ethics.

1)	TDK Group and TDK Members shall observe the laws, regulations and standards of society applicable to the TDK, and conduct business in a fair and sound manner;
2)	TDK Group shall contribute to society by providing excellent products and services;
3)	TDK Group shall respect each employee’s personality and individuality, and ensure a safe and comfortable work environment;
4)	TDK Group shall maintain a strong and amicable relationship with its customers, suppliers, employees, shareholders and other stakeholders;
5)	TDK Group shall constantly seek to be “a good corporate citizen,” by contributing to the society and the community; and
6)	TDK Group shall contribute to protecting the global environment and to building secured and comfortable society.

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Chapter 2
Corporate Standards of Business Conduct

The Standards provides guiding principles and concrete rules to be followed by TDK Members in the course of conducting the TDK business.

2.1 Business Activities

2.1.1

Supply of excellent products and services and maintenance of safety

Excellent products and services are the essence of TDK Group. In order to assure their excellence, TDK Group shall make every effort to reinforce and improve its Research & Development, Manufacturing and Engineering Technologies divisions. It should be noted that excellent products and services entail that they are high in quality, safe, non-harmful to human health and other properties. TDK Group has committed itself to product and service excellence.

(i)	Good comprehension of customer needs
	Directors, officers and employees of TDK Group shall always pay close attention to the market evolution and be sensitive to the customer needs. Since TDK Group sells not only industrial products but also products for end-users (collectively “TDK Product”), it is important for directors, officers and employees of TDK to understand the needs of various consumer groups. Directors, officers and employees of TDK Group should make efforts to actively gather timely and accurate information on the customer needs for various groups.
(ii)	Quality Control
	It is imperative to constantly check safety of all TDK Products at each and every stage of manufacture and sales (research, design, manufacture and sales) in order to avoid accidents and injuries arising out of defective products. TDK Members shall comply with laws and regulations concerning safety of products, and official guidelines, if any.
(iii)	Easy-to-understand instruction manuals
	Misuse of products often causes accidents. Accidents by misuse, however, can be prevented by labeling an appropriate warning on the product. Instructions for TDK Products should be written in a simple and plain language to make sure that consumers use TDK Products in a proper manner.
(iv)	Damage control
	When accident occurs due to the defective TDK Product, steps for damage control must be immediately taken. If necessary, the TDK

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	Product that caused the accident should be recalled and information regarding the defective TDK Product should be promptly disseminated to the users and the consumers of the TDK Product. It is TDK Group’s belief that the duty to prevent further accidents from the same defective product is owed by a supplier of such product, and the supplier must commit itself to fully performing the duty.
(v)	Prevention of the recurrence of any product quality or safety related problems
	When TDK Product is found to be defective, unless the cause of such defect is investigated and the problem is completely eliminated, the same and similar accidents are likely to recur. Therefore, for the purpose of preventing the same or similar accidents from happening, TDK Group should establish an internal system, by which information and records regarding any and all defective products are properly maintained and exchanged within relevant departments or organizations of TDK Group.

2.1.2	Maintenance of sound and good relationship with customers, suppliers and other business partner
	Giving and accepting improper personal benefit through business transactions must be strictly avoided. TDK Members are required to exercise good judgment and take sensible actions to avoid misinterpretation and any negative effect on the reputation of TDK Group or other TDK Members.

(i)	Customer Relations
	Entertainment and gifts shall be moderate, of reasonable value and within the socially acceptable norms. TDK Members are strictly prohibited from giving customers rebates, commissions and other forms of compensation that would personally benefit the customer or that are made discretionarily.
(ii)	Supplier Relations
	Suppliers shall be selected based upon rational criteria, such as pricing, quality and delivery of goods. TDK Members may be entertained by or receive gifts from suppliers, as long as they are consistent with customary business practices and of reasonable value. When a TDK Member receives a gift or certain entertainment that is apparently excessive or not consistent with customary business practices, he or she must reject to accept or, if he or she has accepted it, return it in a timely manner.
(iii)	Relationship with other member organizations of TDK Group
	Transactions among and between member organizations of TDK Group shall be as fair and transparent as those with third party

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companies. Entertainment and gifts to other member organization of TDK Group must also be within socially acceptable limits.

2.1.3	Maintenance and promotion of fair and free competitions
	In general, the purpose of antitrust laws or similar competition laws in many countries is to encourage free competitions or trade and to protect consumer interests. TDK Members must exercise special care to ensure that any business activity with representatives of other companies is not contrary to such antitrust laws or similar anti-competition laws of other countries, where applicable. Each member organization of TDK Group should have its compliance company policy with regard to its respective applicable antitrust laws or similar anti-competition laws, and such policy must be respected or observed by TDK Members of the member organization.
2.1.4	Protection of intellectual property rights
	Intellectual property rights are the rights given to creations and inventions made from intellectual activities and to commercially-cultivated good-will. Examples of intellectual property rights include patents, industrial design, trade dress, trademarks, copyrights, business know-how and other trade secrets on technology or marketing. For industrial companies, intellectual property rights are the source of income and profits, and thus, intellectual property rights deserve vigorous protection on the world-wide level. TDK Members must facilitate creativity of others and protection of existing intellectual property rights of TDK Group, and must also be careful not to infringe upon the intellectual property rights of the others.

(i)	Trade secrets of TDK Group
	Improper disclosure of trade secrets belonging to TDK Group could damage the interest and repute of TDK Group. Trade secrets may be transmitted and communicated by means of electronic medium, product medium, oral communication or written form. In order to achieve a proper management and maintenance of the trade secrets of TDK Group, it is important to clarify the way in which trade secrets are identified and clearly labeled as “trade secrets” in a manner that a third party will understand that the labeled items are protected intellectual property rights. TDK Members shall handle the trade secrets of TDK Group in accordance with internal company rules concerning trade secrets established and adopted by each member organization of TDK Group.
(ii)	Intellectual property rights of third parties
	TDK Group respects intellectual property rights of third parties. TDK Members are expected to act and behave in a lawful manner and avoid potential civil or criminal liabilities arising out of use of unlawfully-obtained trade secrets of others under applicable laws.

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2.1.5.

Conflict of Interest

TDK Members should avoid any situation that may involve or even appear to involve a conflict between their personal interests and the interests of TDK Group. In dealing with current or potential customer, suppliers, contractors or competitors, TDK Members should act in the best interests of TDK Group, to the exclusion of any personal advantage. Each TDK Member must make prompt and full disclosure in writing to his or her supervisor or manager of any situation that may involve or even appear to involve a potential conflict of interest including the following:

(i)	Ownership by an employee, or a family member, of a significant interest in any outside enterprise which does or seeks to do business with TDK Group, or is a competitor of TDK Group;
(ii)	Serving as a director, officer, partner, consultant or any other key role in any outside enterprise that does or seeks to do business with TDK Group, or is a competitor of TDK Group;
(iii)	Acting as a broker, finder or other intermediary for the benefit of a third party in transactions involving TDK Group or its interests; or
(iv)	Any other arrangement or circumstance, including family or other personal relationships, which might dissuade the employee from acting in the best interests of TDK Group.

2.1.6.	Confidentiality
	Nonpublic information regarding TDK Group or its business, employees, customers and suppliers is confidential. TDK Members are trusted with confidential information and are expected only to use such confidential information for the intended business purpose of TDK Group. TDK Members shall not to share confidential information with anyone outside of TDK Group, including family and friends, or with other TDK Members who do not need the information to carry out their duties. Each TDK Member may be required to sign a specific confidentiality agreement in the course of his or her employment at TDK Group. Each TDK Member’s obligation to keep all information confidential shall continue even if his or her employment with TDK Group ends.
	The following is a non-exclusive list of confidential information:

(i)	material, non-public financial information regarding the TDK Group;
(ii)	trade secrets, which include any business or technical information, such as a program, method, technique, compilation or information that is valuable because it is not generally known;
(iii)	all rights to any invention or process developed by an employee using TDK Group’s facilities or trade secrets, resulting from any work for

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	TDK Group, or relating to TDK Group’s business, is considered to be “work-for-hire” under the applicable copyright laws or similar laws concerning intellectual property rights, and belongs to TDK Group; and
(iv)	proprietary information such as customer lists.

	All public and media communications involving TDK Group must have prior clearance by the senior management of the relevant member organization of TDK Group.
2.1.7	Business Opportunities of TDK Group
	Using confidential information about TDK Group or its business, TDK Members, customers or suppliers for personal benefit or disclosing such information to others outside your normal duties is prohibited.
	TDK Members are prohibited from:

(i)	personally benefiting from opportunities that are discovered through the use of TDK Group’s property, or through their contacts, information or position with TDK Group;
(ii)	accepting employment or engaging in a business (including consulting or similar arrangements) that may conflict with the performance of his or her duties for TDK Group or TDK Group’s business interest;
(iii)	soliciting, demanding, accepting or agreeing to accept anything of value from any person in conjunction with the performance of his or her employment or duties for TDK Group; or
(iv)	acting on behalf of TDK Group in any transaction in which he or she, or any member of his or her immediate family, has a significant direct or indirect financial interest.

2.1.8	Fair Dealing
	Each TDK Member shall undertake to deal fairly with TDK Group’s customers, suppliers, competitors and employees. Additionally, no TDK Member should take advantage of another through manipulation, concealment, abuse or privileged information, misrepresentation of material facts or any other unfair business practices.
	At or prior to their hiring date, TDK Members must disclose the existence of any employment agreement, non-compete or non-solicitation agreement, confidentiality agreement or similar agreement with a former employer that in any way restricts or prohibits their performance of any duties or responsibilities of their positions with TDK Group. Copies of such agreement should be provided to an appropriate supervising personnel of the relevant member organization of TDK Group to permit evaluation of the agreement in

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	light of the employee’s position. In no event shall any of TDK Members use any trade secrets, proprietary information or other similar property, acquired in the course of his or her employment with another employer, in the performance of his or her duties for or on behalf of TDK Group.
2.1.9	Protection and Proper Use of TDK Group’s Assets
	TDK Members shall protect the TDK Group’s property and assets and ensure their proper use. Theft, carelessness and waste can directly impact the TDK Group’s profitability, reputation and success. Permitting the TDK Group’s property (including data transmitted or stored electronically and computer resources) to be damaged, lost or used in an unauthorized manner is strictly prohibited. TDK Members may not use official stationery for personal purposes.

2.2 TDK Group and Employees

2.2.1	Respect for each employee’s personality and individuality
	TDK Group respects each employee’s personality and individuality, and continues to improve its human resources systems and work conditions to assure fairness and reasonableness to all employees. TDK Group evaluates its employees in a fair and objective manner based on their performance. TDK Group supports its employees by keeping the principle of “equal opportunities to all” so that the professionalism and creativeness may be facilitated among employees.
2.2.2	Respect for privacy
	TDK Group respects each of its employee’s privacy and shall properly manage the personal information of the employees with utmost care and prudence.
2.2.3	Respect for human rights
	The TDK Group respects the human rights of its employees and will not illegally or unjustly discriminate among its employees in respect of employment, compensation, opportunities to participate in training sessions, advancement opportunities or any other similar matters based on race, beliefs, gender, religion, nationality, age, marital status, disability or sexual orientation. The TDK Group will not tolerate any conduct that is insulting or degrading to others, including corporal punishment, psychological or physical abuse, violent or lewd language or sexual harassment.
	Under no circumstances shall any member of the TDK Group make use of forced labor or employ child labor in violation of any applicable law, rule, regulation, order or restriction of any country or region in which a member of the TDK Group conducts business.

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2.2.4	Working conditions
	TDK Group members shall operate in full compliance with all applicable laws, rules and regulations prescribing minimum wage, working hours and other working conditions.
2.2.5	Maintenance of safe, healthy and comfortable work environment
	TDK Group considers ensuring safe, healthy and comfortable work environment as its first priority and to that end, TDK Group shall abide by all relevant and applicable laws and regulations, enhance internal safety control and prepare safety manuals for the employees.

(i)	Eradication of labor accidents
	Maintaining safety and health of employees is one of the essential parts of business operation. In order to prevent any labor-related accidents, TDK Group strictly complies with all applicable and relevant laws and regulations, and also with internal company rules and regulations concerning safety of work place established and adopted by each member organization of TDK Group. It is also important to regularly hold safety-training sessions by which employees are systematically trained to detect potential problems and eliminate such potential problems prior to the happening of accidents.
(iii)	Environmental protection and disaster prevention
	Compliance with applicable environmental laws is a social duty of any corporation. TDK Group shall make use of internal company policies concerning environmental protection, established and adopted by each member organization of TDK Group, in order to assure that environment of the community in which each member organization of TDK Group conducts its business will be properly protected. Each TDK Member is expected to fully understand and use internal company manuals or guidebook for crisis management, established and adopted by each member organization of TDK Group, (i) to prevent disastrous events or accidents that may be fatal to the interest or repute of TDK Group and (ii) once such serious event occurs, to minimize and control the damage.

2.3 TDK Group and Society

2.3.1

Compliance with applicable laws and regulations

TDK Group shall abide by the applicable laws, regulations, social norms and rules of society in the course of conducting its business. TDK Members should be fully aware of the importance and meaning of the applicable laws and regulations and must act lawfully under any circumstances. TDK Group shall pay special attention to certain laws, compliance of which is highly demanded by the society. Such laws include:

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(i)	Foreign Exchange and Foreign Trade Control Law
	TDK Members who are involved in exporting and importing activities shall fully understand and act in accordance with internal company rules or guidelines concerning trade control, established and adopted by each member organization of TDK Group, and shall perform one’s duty in compliance with the applicable foreign exchange or trade control laws.
(ii)	Securities and Exchange Law
	TDK Members shall comply with the applicable insider trading laws or regulations and internal company rules or guidelines concerning insider trading prevention, established and adopted by each member organization of TDK Group. No TDK Member shall buy, sell, trade or otherwise participate in transaction involving the securities of member organizations of TDK Group which are public while in possession of material information concerning TDK Group gained through his or her employment at TDK Group that has not been released to the general public. No TDK Member shall also buy, sell trade or otherwise participate in transaction involving the securities of any other public company while in possession of similar non-public material information concerning such company gained directly from insiders of the public company.
(iii)	Law Banning Bribery
	TDK Members shall not offer or provide any illegal or unfair benefit to any person in connection with work performance by domestic or foreign governmental employees.

2.3.2	Disclosure of information
	TDK Group maintains its fairness and transparency in virtue of timely and accurate disclosure of certain information that is demanded by the general public, except confidential information. TDK Group shall make efforts to identify types of information that are demanded by each group of customers, suppliers, employees, shareholders or investors. TDK Group shall attempt to respond to any inquiries through the Public Relations, General Affairs, Sales & Marketing, Procurement and other related divisions in a fair and sincere manner.
2.3.3	Protection of the global environment
	TDK Group recognizes that one of its important social duties is to contribute to protecting the global environmental conditions through its business activities. TDK Group shall, therefore, abide by the all applicable environmental laws and regulations, and make its best efforts to assure that its business, products or services will not adversely affect the global environment

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in any way. TDK Group shall continue its efforts in energy-saving, waste-reduction, efficient recycling and development of environment-friendly technologies and products. TDK Group shall also continue to be involved in the following activities:

(i)	Development of environment-friendly products;
(ii)	Energy saving, waste reduction and recycling at all TDK Group’s facilities and offices;
(iii)	Active disclosure of information or updates regarding environment protection to TDK Members and outsiders; and
(iv)	Internal training of the employees on environment protection issues.

2.3.4	Contribution to society and the community
	TDK Group shall maintain close and harmonious relationships with the communities where member organizations of TDK Group are located. TDK Group shall always seek to be “a good corporate citizen” through such contributions to the communities as providing assistance in sports, culture and art areas.

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2.4 Supplementary Provisions

Code of Ethics Applicable to All Senior Financial Officers,
Members of the Board and Executive Officers of TDK Group

In light of the importance of responsibilities vested in directors, executive officers, senior financial and accounting officers, financial and accounting managers and corporate auditors of TDK Group (each of them, a “Management Member”), they are required to observe and comply with the following special duties, in addition to the duties enumerated in the TDK Code of Ethics applicable to TDK Members.

1.	Each Management Member shall act with honesty and integrity in carrying out his/her respective responsibilities and endeavor to avoid any conduct that causes or threatens to cause a conflict of interest, whether such conduct is within the course of the performance of his/her duties at TDK Group or otherwise.
2.	Each Management Member shall endeavor to obtain, on a timely basis, all relevant and material information regarding the operation and finances of TDK Group within his/her scope of authority and report such information accurately, completely and objectively, and in an easily understandable form, to other responsible persons.
3.	Each Management Member shall comply with all applicable laws, rules and regulations issued by any relevant national, state, provincial, local or private governmental or regulatory authorities.
4.	No Management Member shall distort material facts or information or compromise his/her own independent judgment in the conduct of his/her duties for TDK Group. He/she shall carry out his/her duties with the due care and diligence required of a reasonable manager in the same position and situation, while at all times being conscious of his/her own ability and responsibility.
5.	Each Management Member shall strictly observe the confidentiality of the information acquired in the course of his/her performance of duties except when its disclosure is authorized or legally required. Confidential information acquired in the course of the performance of his/her duties shall in no instance be used for personal advantage or gain.
6.	Each Management Member shall at all times endeavor to improve the abilities and skills required for the performance of his/her duties. Each Management Member shall share with other responsible persons any relevant information that comes into his/her possession.
7.	Each Management Member shall take initiative in stressing to his/her colleagues and subordinates the importance of the corporate ethical principles of TDK Group, and conduct his/her business duties with full consciousness of the importance of such principles.

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8.	Each Management Member shall administer all corporate assets and other management resources under his/her scope of authority and fully and responsibly utilize these assets and resources pursuant to the authority granted by and for the benefit of TDK Group.
9.	Each Management Member shall promptly report any actual or suspected violations of the TDK Code of Ethics to the TDK Business Ethics & CSR Committee, the Ethics Conference, or the Consultation Office.
10.	Each Management Member will be held accountable for his or her adherence to the TDK Code of Ethics. The failure of any Management Member to comply with the TDK Code of Ethics may result in disciplinary action. Violations of the TDK Code of Ethics may also constitute violations of law and may result in civil, administrative or criminal responsibilities of the Management Members and/or TDK Group.

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Chapter 3
Program of the TDK Code of Ethics

3.1	Purpose
	This Program has been established for the purpose of maintaining the TDK Code of Ethics valid and effective. This Program shall provide procedural rules for observance of the Philosophy and the Standards.
3.2	Functions
	For the purpose of executing the TDK Code of Ethics, two new functions, the “TDK Business Ethics & CSR Committee” and the “Consultation Office,” have been established in TDK Group. Each of these functions shall act independently of each other to maintain their objectivity, neutrality and impartiality. Each function shall promptly exchange information to each other to quickly resolve problems relating to the TDK Code of Ethics.
3.3	TDK Business Ethics & CSR Committee

3.3.1 Organization

(i)	Nomination of Chairperson
	The TDK Business Ethics & CSR Committee shall fall within the direct control of the board of directors of TDK and the board of directors shall nominate Chairperson of the committee.
(ii)	Committee members
	Chairperson shall appoint as committee members general managers for each of the following departments within TDK: the Management Review & Support, the Finance & Accounting, the Human Resources, the General Affairs and the Legal and Corporate Communications.
(iii)	Establishment of branches and nomination of branch managers
	Chairperson shall, if necessary, establish branches of TDK Business Ethics & CSR Committee, and nominate managers for each branch.
(iv)	Ethics conference
	Each branch manager shall establish an ethics conference which shall deals with corporate ethical issues within each branch.
(v)	Administration office
	Administration office shall be established in the Legal department of TDK.
(vi)	Organization chart

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The latest updates on the organization and its members of the TDK Business Ethics & CSR Committee are available on the TDK Business Ethics & CSR Committee Website.

3.3.2	Duties and Responsibilities
(i)	Education and enlightenment
	The TDK Business Ethics & CSR Committee and the ethics conference of each branch (“Ethics Conference”) shall devote itself to educating and enlightening TDK Members on the TDK Code of Ethics.
(ii)	Problem resolutions
	One of the duties of the TDK Business Ethics & CSR Committee and the Ethics Conference is to resolve problems and issues related to the TDK Code of Ethics. Depending on the nature of problem, either the TDK Business Ethics & CSR Committee or the Ethics Conference, or both, shall act in a cooperative manner to resolve such problems or issues.
(iii)	Investigations
	In order to resolve a problem relating to the TDK Code of Ethics, the TDK Business Ethics & CSR Committee and the Ethics Conference may conduct an investigation if they determine it to be necessary, or may request a relevant organization to conduct such investigation.
(iv)	Duty of confidentiality and protection of consultor (*1)
	The TDK Business Ethics & CSR Committee and the Ethics Conference shall have the duty of confidentiality concerning the information that has been revealed to them through the operation of the TDK Code of Ethics. The TDK Business Ethics & CSR Committee and the Ethics Conference must protect the consultor in such a manner that the consultor will not receive any unjust treatment or disadvantage due to his or her act of consulting.
(v)	Proposal of corrective measures
	In the event that a material violation by TDK Members of the law, regulation, the TDK Code of Ethics, the articles of incorporation of TDK Group or other internal company rules becomes apparent, the TDK Business Ethics & CSR Committee and the Ethics Conference must hold a meeting to discuss corrective measures and propose the corrective measures to each of the relevant member organization of TDK Group.
(vi)	Report on the corrective measures
	Chairperson or the branch manager shall have the right to give general managers of the relevant member organization of TDK Group instructions that

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	the proposed corrective measures should be taken immediately, pursuant to the decision of the TDK Business Ethics & CSR Committee or the Ethics Conference. Chairperson or the branch manager shall report to, or obtain approval from, the board of directors of the relevant member organization of TDK Group regarding the matters or issues that he or she reasonably believes are especially important. Chairperson or the branch manager shall also instruct the general managers of the relevant member organization of TDK to submit reports on the results of taking the corrective measures.
(vii)	Evaluation and reporting
	The TDK Business Ethics & CSR Committee shall evaluate and review from time to time the content and operation of the TDK Code of Ethics. The TDK Business Ethics & CSR Committee shall promptly inform branch managers of any decisions that the TDK Business Ethics & CSR Committee makes.
(viii)	Meeting
	Each of the TDK Business Ethics & CSR Committee and the Ethics Conference shall hold a meeting once per quarter or more if necessary.

3.4 Consultation Office

3.4.1	Organization
	TDK Group shall be divided into three regional groups for the purpose of enforcing the TDK Code of Ethics. The Consultation Office shall be divided into three local offices, each of which shall serve the respective local region. The latest updates on the Consultation Office and its members are available on the TDK Business Ethics & CSR Committee Website.
3.4.2	Duties and Responsibilities
(i)	Receipt of consultations
	The Consultation Office shall receive from TDK Members complaints, information, problems, opinions, questions, requests, consultation concerning the TDK Code of Ethics. The Consultation Office shall allow anonymous submission of such complaints, information, problems, opinions, questions, requests or consultation and shall not make any distinction in treatment between those anonymously-submitted complaints, information, problems, opinions, questions, request or consultation and ones submitted onymously.
(ii)	Investigation
	The Consultation Office shall examine the complaints, information, problems, opinions, questions, requests, consultation and others that it receives from TDK Members, regardless of whether they were submitted anonymously or onymously. The Consultation Office shall have the right to conduct a necessary investigation, or to request the TDK Business Ethical Committee or

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	the relevant Ethics Conference to conduct such investigation, to identify proper and suitable methods for resolving the problems or dealing with the complaints, depending upon the particular circumstance involved. When the Consultation Office makes an investigation, it shall promptly inform the TDK Business Ethics & CSR Committee or the relevant Ethics Conference of the investigation result.
(iii)	Duty of confidentiality and priority of protection of consultor
	The Consultation Office shall have the duty of confidentiality concerning the information that has been revealed to it through the operation of the TDK Code of Ethics. Priority shall be given by the Consultation Office to the protection of the interest of consultor. When the Consultation Office determines it necessary, for the purpose of resolving consultor’s problem, to disclose certain information that has been revealed to it by the consultor, the Consultation Office shall act in accordance with the will of the consultor.
(iv)	Replies by the Consultation Office
	Where necessary, the Consultation Office shall inform a consultor, who has directed complaints, information, problems, opinions, questions, requests and or consultation to the Consultation Office, of results of investigations conducted by, and countermeasures discussed by, the Consultation Office, the TDK Business Ethics & CSR Committee, the Ethics Conference and/or other relevant member organization of TDK.
(v)	Retention of records
	The Consultation Office, the TDK Business Ethics & CSR Committee and/or the Ethics Conference shall retain records of all the complaints, information, problems, opinions, questions, requests and/or consultation directed to them from TDK Members, regardless of whether they were submitted anonymously or onymously, for a period of three years.

3.5	Educating the TDK Code of Ethics
	For the purpose of familiarizing TDK Members with the TDK Code of Ethics, the Human Resources department of TDK and the relevant department of each member organization of TDK Group shall establish training programs of the TDK Code of Ethics, and give regular trainings to TDK Members.
3.6	Organization for Observing the TDK Code of Ethics

3.6.1	Placement on Website
	The TDK Code of Ethics shall be placed on the TDK Business Ethics & CSR Committee Web, so that TDK Members may refer to it at any time. The Administration Office in the Legal department within TDK shall be responsible for maintaining the TDK Business Ethics & CSR Committee Website with the help of its Information Systems department.

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3.6.2	Consultation and others
	“Help Line (e-mail)” shall be set up on the TDK Business Ethics & CSR Committee Website. The purpose of the “Help Line (e-mail)” is to enable TDK Members to send in electronic form complaints, information, problems, opinions, questions, requests, consultations or concerns to the Consultation Office, mentioned in 3.4 above.
3.6.3	Consultation Offices
	The following Consultation Offices shall be established:

(i)	Japan and Asia-Pacific Region
	Corporate Auditors Office of TDK
(ii)	Americas Region
	CCO (Corporate Compliance Officers) appointed by TUC
(iii)	European Region
	Legal departments at TEE and TRE (including in house counsels)

3.7	Duty to Report to the Board of Directors and to the Board of Corporate Auditors
	The TDK Business Ethics & CSR Committee shall have the duty to report on the execution and operation of the TDK Code of Ethics to the board of directors and to the board of corporate auditors of TDK in the beginning of every quarter term.
3.8	Corrections and preventive actions
	When any actual or suspected deviation from the TDK Code of Ethics, internal company rules, guidelines or manuals within TDK Group is reported, senior or managing personnel responsible for the relevant department of the member organization of TDK, or the member organization itself, must investigate causes for such deviation and take preventive actions, including improvement of the management system within the relevant member organization of TDK Group.
3.9	Reporting of Illegal or Unethical Behavior
	TDK Group requires TDK Members to talk to supervisors, managers or the Consultation Office to report and discuss any known or suspected criminal activity involving TDK Group or TDK Members. If, during the course of his or her employment, TDK Member become aware of any suspicious activity or behavior, including concerns regarding questionable accounting or auditing matters, he or her must report such suspicious activity or behavior to supervisors, managers or the Consultation Office.

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Reporting the suspicious or known criminal activity will not subject the reporting TDK Member to discipline absent a knowingly false report. Any TDK Member who, in good faith, reports a violation or possible violation of the Code of Ethics or the underlying corporate policy is protected against retaliatory behavior. No TDK Member shall be fired, demoted, suspended, harassed or discriminated against based on the fact that the TDK Member lawfully provided information to, or otherwise assisted or participated in, any investigation or proceeding by a governmental regulatory or law enforcement agency, any member of the governmental legislative body or the TDK Member’s manager, relating to what the TDK Member reasonably believes is a violation of the securities laws or an act of fraud. All reports made by TDK Members will be treated confidentially.

3.10

Violations of the TDK Code of Ethics

3.10.1	Violations of the TDK Code of Ethics
	Violation of the TDK Code of Ethics may result in a disciplinary action in accordance with the work rules of the relevant member organization of TDK Group (or, collective agreement or other employment contract).
3.10.2	Voluntary notification of violations
	A violator who voluntarily notifies of his or her violation of the TDK Code of Ethics to the Consultation Office shall be favorably considered and such voluntary notification may be considered as a mitigating factor in a subsequent disciplinary action.

3.11 Revocation and Amendment of Provisions of the TDK Code of Ethics

3.11.1	Procedures for revocation and amendment
	The TDK Business Ethics & CSR Committee may discuss revoking or amending certain provisions of the TDK Code of Ethics and propose such revocation or amendment to the board of directors of TDK. The board of directors shall have the right to final decision regarding such proposed revocation or amendment of the TDK Code of Ethics.
3.11.2	Record of amendments

Adopted:	April 23, 2002
Amended:	September 26, 2002	Program added
Amended:	July 1, 2003	Code of ethics applicable to all senior financial officers, members of the board and executive officers of TDK added.
Amended:	June 29, 2004	New provisions added.
Amended:	May 25, 2005	Working conditions, Name change etc.

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(*1) The word “consultor” is used in this Program for meaning collectively the person who requires the consultation, or wishes explanation, replies to questions or any information in conjunction with the TDK Code of Ethics.

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EX-12.1

EXHIBIT 12. 1

CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of TDK Corporation on Form 20-F for the fiscal year ended March 31, 2006 as filed with the Securities and Exchange Commission on the date hereof (the “Report”).

I, Hajime Sawabe, Chief Executive Officer of TDK Corporation, certify that:

1. I have reviewed this annual report on Form 20-F of TDK Corporation;

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

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

4. The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the company and have:

(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)	Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(c)	Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and

5. The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions):

(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and
(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting.

	/s/ Hajime Sawabe
	Hajime Sawabe
Date: July 27, 2006	Chairman, Representative Director and Chief Executive Officer

EX-12.2

EXHIBIT 12. 2

CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of TDK Corporation on Form 20-F for the fiscal year ended March 31, 2006 as filed with the Securities and Exchange Commission on the date hereof (the “Report”).

I, Seiji Enami, Chief Financial Officer of TDK Corporation, certify, that:

1. I have reviewed this annual report on Form 20-F of TDK Corporation;

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

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

4. The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the company and have:

(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)	Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(c)	Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and

5. The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions):

(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and
(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting.

	/s/ Seiji Enami
	Seiji Enami
Date: July 27, 2006	Director and Chief Financial Officer

EX-13.1

EXHIBIT 13. 1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of TDK Corporation (“TDK”) on Form 20-F for the fiscal year ended March 31, 2006 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Hajime Sawabe, Chief Executive Officer of TDK, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1.	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of TDK.

	/s/ Hajime Sawabe
	Hajime Sawabe
Date: July 27, 2006	Chairman, Representative Director and Chief Executive Officer

EX-13.2

EXHIBIT 13. 2

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of TDK Corporation (“TDK”) on Form 20-F for the fiscal year ended March 31, 2006 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Seiji Enami, Chief Financial Officer of TDK, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1.	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of TDK.

	/s/ Seiji Enami
	Seiji Enami
Date: July 27, 2006	Director and Chief Financial Officer