[ 3rd Quarter of fiscal 2004 Performance Briefing ]Consolidated Results

Mr. Seiji Enami
General Manager
Finance & Accounting Department

Good afternoon. I am Seiji Enami. Thank you for braving the cold and taking the time to attend today's presentation. Your support is always much appreciated. Without further ado, I would like to report on TDK's consolidated operating results for the third quarter of fiscal 2004, which ended on December 31, 2003. As I speak, please refer to the earnings release that has been handed out.

Although I will touch on parent-company results, in principle, my presentation will concentrate on our consolidated third-quarter results.

TDK posted net sales of ¥181,851 million, up approximately ¥20.2 billion, or 12.5%, year on year. Operating income climbed approximately ¥12.0 billion, or 193.9%, to ¥18,139 million. Income before income taxes rose 209.0% to ¥18,712 million, and net income jumped 208.9% to ¥14,132 million. So both our top and bottom lines grew. Basic net income per common share was ¥106.75, meaning that for the first nine months of fiscal 2004 it was ¥252.02.

Average third-quarter yen exchange rates for the U.S. dollar and euro were ¥108.92 (previous year ¥122.62) and ¥129.48 (previous year ¥122.51), respectively, as the yen appreciated 11.2% versus the dollar and depreciated 5.7% against the euro. The yen's appreciation against the U.S. dollar hit results hard, lowering net sales by approximately ¥13.0 billion and operating income by approximately ¥5.4 billion.

The higher net sales and earnings were attributable to three main factors:

1.We recorded strong sales of HDD heads (80 GB/P heads) in the recording devices sector.
2.We are gradually seeing the benefits of our strategy to create a framework capable of generating earnings without sales growth in electronic materials and electronic devices. This is evidenced by the fact that there was only a marginal increase in net sales compared with the third quarter of the previous fiscal year, when sales weren't that high, because of sales discounts and the yen's appreciation against the dollar.
3.In non-operating items, we were able to absorb foreign exchange losses resulting from the yen's appreciation with a gain on the sale of a U.S. game software company.

In the lower part of page 1, you'll see a sales breakdown. I would like to give an overview of the composition of sales, as well as draw comparisons with the previous fiscal year.

Firstly, the electronic materials and components segment generated net sales of ¥142.1 billion, 16.6% higher than in the previous fiscal year, and accounted for 78.2% of total net sales. Sales in the electronic materials and electronic devices sectors increased, albeit slightly. These sectors overcame the effects of price discounts and the yen's rise against the dollar due to growth in the digital household appliances market, which includes DVD players, and rebounding mobile phone demand, among other factors. The increase in segment sales was largely thanks to a sharp rise in sales of recording devices, notably HDD heads.

Within this segment, sales in the electronic materials sector increased 3.5% year on year to ¥43.0 billion and accounted for 23.7% of net sales.
(Capacitors) Sales increased, reflecting stronger demand in a wide range of fields, but particularly in information and communications products.
(Ferrite cores) Sales decreased due to lower demand for deflection yoke and other large cores, as demand continued to shift rapidly from CRT monitors to flat panel displays.
(Magnets) Sales decreased largely due to falling sales prices. Sales volumes were largely the same, supported by factors such as the increasing use of electronics in automobiles.

As a result, capacitors accounted for 70% of sector sales, up 11% year on year. Ferrite cores and magnets accounted for the remaining 30%, down 11% year on year.

In the electronic devices sector, sales were ¥29.0 billion, representing a marginal increase of 0.3% year on year and 15.9% of total net sales.
(Inductive devices) Sales increased on higher demand accompanying expansion in the digital audio and visual products market, greater use of electronics in cars, and advances in the performance of mobile phones.
(High-frequency components) Sales of high-frequency components decreased, due to pressure for discounts, even though unit volume rose, particularly for components used in mobile phones.
(Other products) Overall, sales of other products decreased, despite sales of actuators and chip varistors remaining strong in the PCs and peripherals and communications products sectors. The main reason was lower sales of power systems as demand remained soft.

Inductive devices accounted for 55% of sector sales, up 8% year on year. High-frequency components accounted for 15% of sector sales, down 8%. Other products represented 30% of sector sales, down 8%.

Recording devices sales were ¥65.4 billion, 36.8% higher year on year, and accounted for 36.0% of total net sales.
(HDD Heads) HDD heads accounted for 90% of sector sales, up 38%.
(Other Heads) Sales of other heads, which accounted for the remaining 10% of sector sales, were up 28%.

Sales in the semiconductors and others sector were ¥4.7 billion, representing a year-on-year increase of 31.1%. These sales accounted for 2.6% of total net sales. While sales of semiconductors for LAN applications were lackluster, sales of anechoic chambers for noise control and equipment used in these chambers were comparatively strong.

Next, I would like to look at the recording media & systems segment. Sales were largely flat, decreasing 0.2% year on year to ¥39.7 billion and accounted for 21.8% of total net sales.
(Audiotapes and Videotapes) Sales decreased in both categories amid a general decline in demand for these products.
(Optical Discs) Sales increased on robust demand for CD-Rs and an expanding DVD market. This growth offset lower sales prices.
(Tape-based data storage media for computers, recording equipment and others) Sales decreased overall as more growth in sales of LTO-standard* (Linear Tape-Open) tape-based data storage media for computers failed to offset lower software-related and recording equipment sales.

*Linear Tape-Open, LTO, LTO logo, Ultrium and Ultrium logo are trademarks of HP, IBM and Certance LLC in the U.S., other countries or both.

Audiotapes accounted for 6% of segment sales, down 28%. Videotapes accounted for 28% of segment sales, down 15%. Optical discs accounted for 34% of segment sales, up 35%. And tape-based data storage media for computers, recording equipment and others accounted for the remaining 32% of segment sales, down 6%.

Please turn to the consolidated income statements for the third quarter, which is on the top of page 8.

One of the most noteworthy features of our results is that, while the operating income margin for the nine months through to December 31, 2003 was only 8.5%, it is rising steadily, almost reaching 10% in the third quarter. This improvement is partly attributable to the recovery in HDD heads. The higher margin is also due to our resolute actions in regards to structural reform, which we started three years ago, progress with the selection and concentration of resources in our businesses and R&D, and the increasing proportion of sales generated by newly developed products. Together, these factors point to the progress we have made in improving our operating framework.

Operating income increased by ¥12.0 billion from the previous fiscal year. Higher sales, including an improved capacity utilization rate and changed product mix, contributed ¥24.8 billion; lower materials costs contributed ¥5.0 billion and rationalization and cost cutting contributed ¥7.0 billion. Positive factors thus lifted earnings by a total of ¥36.8 billion.

One negative factor was sales price discounts, which brought down earnings by ¥15.4 billion. And, as reported earlier, the appreciation of the yen against the U.S. dollar brought down net sales by ¥13.0 billion and operating income by ¥5.4 billion. Selling general and administrative expenses increased by ¥4.0 billion, excluding the effects of foreign exchange movements, which amounted to ¥1.5 billion. Negative factors thus brought down earnings by ¥24.8 billion. Overall sales prices fell by about 8% year on year as discounting pressure persisted.

I would like to give you our restructuring costs for reference purposes even though we stopped showing then separately this fiscal year. Structural reform expenses in the third quarter of fiscal 2003 amounted to ¥2.8 billion. This includes expenses recorded in both cost of sales and selling, general and administrative expenses. Structural reform expenses in the third quarter of fiscal 2004 were ¥1.7 billion, so there was a ¥1.1 billion reduction. This can be seen as another reason for the higher operating income.

In "other-net" in other income (deductions), there was a ¥1.3 billion positive change. The main reasons for this were a ¥0.8 billion gain on sale of shares in a U.S.-based game software company and a ¥0.2 billion increase from equity interests in affiliated companies.

Please turn to the balance sheets on page 9 of the earnings release. I would like to discuss our financial position with reference also to the cash flows on page 10. The comparisons I will draw are with the end of the interim period, September 30, 2003.

Total assets at December 31, 2003 stood at ¥761.1 billion, an increase of ¥10.4 billion.

The yen appreciated ¥4.12, or 3.7%, against the U.S. dollar, from ¥111.25 to ¥107.13. During the same period, the yen weakened ¥4.55, or 3.5%, against the euro, falling from ¥129.19 to ¥133.74. These changes had the effect of decreasing total assets by ¥10.4 billion.

Cash and cash equivalents were ¥200.6 billion, returning to this level for the first time since the March 1999 fiscal year, although the increase was only ¥7.2 billion. This is because the third quarter is a period in which there is demand for cash, such as for paying year-end bonuses and interim dividends. Also there was a large increase in net trade receivables of ¥17.8 billion in line with higher sales during the quarter. So this brought down free cash flows calculated from earnings, depreciation and amortization and capital expenditures, which should increase.

This increase in trade receivables almost mirrored the ¥18.8 billion increase in net sales from ¥163.1 billion in the second quarter to ¥181.9 billion in the third quarter. The trade receivables turnover was the same for both quarters at 2.6 months.

Operating activities provided net cash of ¥22.4 billion, investing activities used net cash of ¥8.9 billion and financing activities used net cash of ¥3.1 billion. Including a ¥3.2 billion negative effect of exchange rate changes, cash and cash equivalents rose ¥7.2 billion to ¥200.6 billion at December 31, 2003. Cash flows from operating activities increased by more than ¥3.0 billion compared with the previous fiscal year.

Accumulated other comprehensive income (loss) was about ¥2.9 billion higher than one year earlier, lowering stockholders' equity. Please refer to Note 3 on page 11 for more information.

The yen's strength caused foreign currency translation adjustments to worsen by ¥7.6 billion. However, rebounding stock prices increased pension plan assets by ¥8.1 billion, thus reducing minimum pension liability adjustments by ¥4.9 billion net of a 40% tax adjustment.

The ¥3.2 billion reduction for taxes brought down deferred taxes in the other assets section of noncurrent assets by the same amount.

The stock market recovery was also responsible for the decline in retirement and severance benefits in noncurrent liabilities.

Please turn to segment information on page 11. First, look at industry segment information on the top half of the page.

Operating income in the electronic materials and components segment was up ¥13.1 billion, or 225.0%, year on year to ¥18.9 billion. The recording media & systems segment, however, saw operating income fall by ¥1.1 billion to a loss of ¥0.8 billion.

The strong performance of HDD heads in the recording devices sector was mainly responsible for the much higher earnings in the electronic materials and components segment. Excluding HDD heads, there was only a marginal increase in sales due to the effects of price discounting and the yen's appreciation. But, as was noted earlier, we are gradually realizing a framework that can generate earnings without relying on sales growth. This applies to capacitors, inductive devices, sensors, actuators and other components.

The operating loss in the recording media & systems segment was caused by weakness in the software business and an additional ¥1.2 billion in equipment-related structural reform expenses were not in our original plan.

However, the sale of a software company generated a gain of approximately ¥0.8 billion in non-operating items.

At the very bottom of the page you will see a breakdown of sales by region. In Japan, higher sales of electronic materials and recording devices, chiefly HDD heads, outweighed the effects of the yen's strength to lift sales 7.4% to ¥46.2 billion.

In the Americas, sales were down 12.5% to ¥24.6 billion due to the yen's appreciation and lower sales in almost all categories.

In Europe, sales increased 1.1% to ¥22.2 billion. This was mainly attributable to the euro's appreciation relative to the yen, but strong sales of CD-Rs, DVDs and other optical media also contributed.

In Asia (excluding Japan) and Others, sales increased 29.6% to ¥88.8 billion as sales rose in all product categories, including recording devices, electronic materials and electronic devices. This growth lifted this region to 48.8% of total sales.

Due to these factors, overseas sales increased 14.3% to ¥135.6 billion, and rose by 1.2 percentage points from 73.4% to 74.6% of total sales.

The geographic segment information in the middle of the page shows that only Japan recorded lower operating income, a ¥1.5 billion decrease, despite posting higher sales. This was because a foreign exchange loss of ¥3.2 billion, caused by the yen's strength, negated the benefits of the ¥3.0 billion increase in sales.

Finally, please turn to the forecasts for the current fiscal year on page 6.

We have revised our average U.S. dollar exchange rate assumption from the previous ¥110 to ¥105, which is near the actual market rate in the fourth quarter.

As the fourth quarter follows the year-end holiday season, operations are normally based on the assumption that sales in this quarter will be lower than in the third quarter. Consequently, we have no good or bad news at this time on any need for significant inventory adjustments.

TDK regards the upturn in HDD head demand in the third quarter as a short-term event. The HDD head sales forecast is being reexamined based on the fourth-quarter forecast released with first half results and on current market conditions.

TDK plans to record structural reform expenses of about ¥4.0 billion in the fourth quarter, mostly for ferrite operations.

This completes my remarks concerning third-quarter operating results and our outlook for the fiscal year.

Thank you.