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[ Financial Results for Fiscal 2012 Performance Briefing ]Consolidated Full Year Results of FY March, 2012
Consolidated 4Q Results of FY March, 2012

Mr. Takakazu Momozuka Corporate Officer,General Manager of Finance & Accounting Department

Mr. Takakazu Momozuka
Corporate Officer
General Manager
Finance & Accounting Dept.

Good afternoon. I'm Takakazu Momozuka, General Manager of the Finance & Accounting Dept. at TDK. I will provide you with some further information about our full-year results for fiscal 2012, the year ended March 31, 2012, and also look at the fourth quarter.

Reclassification of Reporting Segments

Effective from this presentation, we will report segment information using new reporting segments due to a reclassification. Let me explain.

In the past, recording media belonged to the Magnetic Application Products Segment. However, due to the acquisition of a business making battery separators, which are a key component in lithium batteries, and the termination of some products such as audio tapes, the main products in recording media are now functional film products. For these reasons, we have renamed recording media applied films. Along with this, we grouped energy devices (rechargeable batteries), which share similar core technologies and markets, with recording media to form a new reporting segment from fiscal 2012 called Film Application Products. So we now have three reporting segments: Passive Components, Magnetic Application Products and Film Application Products, and another segment called Other.

Supplementary Information for Fiscal 2012

Here, I would like to discuss our results for fiscal 2012 in comparison with fiscal 2011 in terms of the new reporting segments. Note that net sales and operating income for fiscal 2011 and fiscal 2012 both exclude discontinued operations.

Net Sales

Passive Components sales declined ¥44.0 billion, or 10.3%, from ¥425.5 billion to ¥381.6 billion. Ceramic capacitors and inductive devices both saw sales decline on account of the impact of the Great East Japan Earthquake. Demand was also soft for applications in flat-screen TVs and PC-related markets. Moreover, sales of high-frequency components to the telecommunications equipment market were sluggish. As a result, sales to the home information appliance and telecommunications equipment markets declined. Orders also declined to the telecommunications equipment market from a certain major customer. Compared with fiscal 2011, capacitor sales were down 9%, while inductive device sales fell 6.9% and other passive components sales dropped 14.6%.

In the Magnetic Application Products Segment, as explained earlier, recording media has been excluded from this reporting segment. Segment sales declined ¥40.1 billion, or 11.2%, from ¥356.5 billion to ¥316.4 billion. Recording devices sales declined 18.9%. In addition to a decline in HDD head sales volumes in line with lower HDD production because of the floods in Thailand in the third quarter, this result mainly reflected lower sales prices and the impact of the yen's appreciation against the U.S. dollar. Similarly, the floods in Thailand damaged a HDD suspension assembly manufacturing facility, affecting both products and sales, which caused a sales decrease. Sales of other magnetic application products increased 8.8% year on year. Sales of magnets increased substantially to the automobile market. Our magnet factory in Thailand saw production affected by the floods, but production resumed in April 2012 as planned.

In the new reporting segment, Applied Film Products, which is made up of recording media products and rechargeable batteries, sales rose ¥34.1 billion, or 58.2%, from ¥58.6 billion to ¥92.7 billion. Sales of rechargeable batteries increased markedly, particularly for use in smartphones and tablet devices.

The Other Segment recorded sales of ¥23.8 billion, down ¥7.5 billion, or 24.1%, from ¥31.3 billion.

Operating Income

Operating income fell ¥45.6 billion from ¥64.3 billion to ¥18.7 billion. The Passive Components Segment recorded an operating loss of ¥6.6 billion, ¥31.1 billion worse than the operating income of ¥24.5 billion recorded in fiscal 2011. Earnings deteriorated because of lower sales volume and sales prices. Another reason was structural reform expenses incurred at the end of fiscal 2012. On the other hand, the segment recorded a ¥6.7 billion gain on sale of some idle assets in fiscal 2012.

The Magnetic Application Products Segment recorded operating income of ¥39.0 billion, down ¥12.4 billion from ¥51.4 billion in fiscal 2011. This decline mainly reflected the impact of the strong yen, lower sales prices and the impact of the Thailand floods. The Applied Film Products Segment recorded operating income of ¥6.3 billion, ¥5.0 billion, or 4.1 times, more than the ¥1.2 billion in fiscal 2011. This was attributable to a large increase in sales of rechargeable batteries. The Other Segment recorded an operating loss of ¥4.8 billion, compared with operating income of ¥0.5 billion in fiscal 2011.

Amortization expenses of goodwill from the EPCOS acquisition was ¥4.6 billion, ¥0.6 billion down on the ¥5.2 billion booked in fiscal 2011. One-time restructuring costs, as I will explain later, were ¥13.0 billion for the full year.

Breakdown of Operating Income Changes

This slide shows the reasons for the ¥45.6 billion decrease in operating income from the previous fiscal year. In terms of factors that boosted earnings, higher sales, including capacity utilization and product mix, contributed ¥3.8 billion; rationalization, cost reductions and purchased materials sales discounts contributed ¥8.0 billion; restructuring benefits were ¥9.7 billion; and SG&A expenses declined ¥3.8 billion, including gains on the sale of land. In terms of the main factors that had a negative impact on operating income, sales price reductions negatively impacted earnings by ¥37.5 billion; the Great East Japan Earthquake had a ¥1.8 billion impact; the flooding in Thailand had a ¥4.9 billion impact; restructuring cost was ¥8.4 billion; and a change in the pension plan in the first quarter of fiscal 2012 had a ¥3.1 billion impact. Also, the strong yen had a ¥15.2 billion negative impact.

Financial Position

Next, let me discuss our financial position at March 31, 2012. Total assets stood at ¥1,072.8 billion, up ¥12.0 billion from March 31, 2011. In liabilities, interest-bearing debt increased ¥27.8 billion to ¥272.8 billion. Stockholders' equity declined ¥36.1 billion, to ¥498.2 billion. Of this, comprehensive loss increased ¥12.9 billion to ¥230.8 billion. During fiscal 2012, TDK repurchased its own shares at a cost of ¥13.3 billion. As a result of the above, the stockholders' equity ratio declined 4 percentage points from 50.4% to 46.4%.

Segment Information (Fiscal 2012 4Q vs. Fiscal 2012 3Q, and Fiscal 2012 4Q vs. Fiscal 2011 4Q )

Now I will give you a comparison of segment results in the fourth quarter of fiscal 2012 with the third quarter of fiscal 2012. Overall, fourth-quarter sales were up ¥15.7 billion, or 8.2%, from ¥191.3 billion to ¥207.0 billion. Meanwhile, TDK posted an operating loss of ¥3.2 billion, a change of ¥10.6 billion from the ¥7.4 billion in operating income recorded in the third quarter of fiscal 2012. Fourth-quarter restructuring costs were ¥11.2 billion, an increase of ¥10.9 billion from ¥0.3 billion in the third quarter. The impact of flood damage in Thailand, which was ¥3.9 billion in the third quarter, declined ¥2.9 billion to ¥1.0 billion in the fourth quarter. In the fourth quarter, TDK also booked a ¥2.7 billion gain on the sale of idle (unemployed) assets.

By segment, fourth-quarter Passive Components sales rose ¥1.0 billion, or 1.1%, from ¥89.5 billion in the third quarter to ¥90.5 billion. The Passive Components Segment, however, posted a fourth-quarter operating loss of ¥13.2 billion, ¥14.7 billion worse than the ¥1.5 billion operating income recorded in the third quarter. This reflected production adjustments to reduce inventories in the fourth quarter, as well as the absence of the ¥4.0 billion gain on the sale of land that was recorded in the third quarter, as well as structural reform expenses incurred in the fourth quarter.

The Magnetic Application Products Segment posted net sales of ¥87.8 billion, up ¥19.8 billion, or 29.1%, from ¥68.0 billion in the third quarter of fiscal 2012. The single biggest factor for this change was a 38.6% increase in sales of recording devices in the fourth quarter to ¥58.2 billion, from ¥42.0 billion in the third quarter. This large increase was attributable to two main factors. One was a marked increase in TDK's HDD head sales volume, along with a steady recovery from the third-quarter flood damage in Thailand. The other factor was a recovery in sales following the resumption of operations at HDD suspension assembly facilities that were damaged in the Thailand floods. The Magnetic Application Products Segment posted operating income in the fourth quarter of ¥14.0 billion, representing a two-fold increase of ¥7.0 billion from ¥7.0 billion in the third quarter of fiscal 2012. In addition to a reduced impact from the Thailand floods, this reflected a large increase in HDD head sales.

Film Application Products sales declined 14.2% to ¥24.2 billion. This segment posted an operating loss of ¥0.5 billion, a change of ¥3.4 billion from operating income of ¥2.9 billion in the third quarter. This result reflected the lower sales as well as structural reform expenses in the fourth quarter.

Corporate and eliminations operating income were minus ¥0.9 billion, a change of ¥2.5 billion from minus ¥3.4 billion in the third quarter. This included a ¥2.7 billion gain on the sale of idle assets.

Restructuring Measures Current Status

Now I'd like to report on progress with our restructuring measures. In the past, we have announced that we plan to strengthen our manufacturing capabilities, as well as restructure production sites in the Tohoku region as part of our actions to improve our earnings power. These actions are proceeding as planned. We have also announced plans to reduce our workforce by 11,000 people. As of March 31, 2012, we had reduced our headcount by 9,274, mainly overseas, compared with September 30, 2011. Regarding unprofitable businesses, on April 1 we completed the sale of the display business. With regards to idle assets, we recorded a gain on sale of ¥4.0 billion in the third quarter of fiscal 2012 and completed sales in the fourth quarter, which resulted in the posting of a gain of ¥2.7 billion.

Previously, we announced we expected to record restructuring costs of ¥12.3 billion in the second half of fiscal 2012. We actually recorded restructuring costs of ¥11.5 billion. Combined with the ¥1.5 billion in charges in the first half of fiscal 2012, total restructuring costs for fiscal 2012 were ¥13.0 billion. Of this amount, ¥6.6 billion related to fixed assets associated with site restructuring. The other major components were impairment losses on facilities and costs related to disposal. Accordingly, most of the charges did not involve the payment of cash. In the year ending March 2013, we are projecting restructuring costs of approximately ¥5.0 billion, mainly related to site transfers. In terms of benefits from restructuring, we estimate the benefits in the second half of fiscal 2012 at approximately ¥16.9 billion, including ¥6.7 billion from gain on sales of land. However, this ¥16.9 billion includes sales benefits from discontinued operations. Regarding the projected restructuring benefits for fiscal 2013, previously we put them at around ¥22.0 billion, compared with fiscal 2012. We are now projecting benefits in fiscal 2013 of approximately ¥16.5 billion, which excludes the benefits from sale of discontinued operations previously included.

That concludes my report. Thank you.

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