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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 20-F

|  |  |                                                                                               
|- |  | ----------------------------------------------------------------------------------------------
|o |  | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g)
OF THE SECURITIES EXCHANGE ACT OF 1934

OR

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

For the fiscal year ended March 31, 2003

Commission file number 1-7616

PIONEER KABUSHIKI KAISHA

(Exact name of Registrant as specified in its charter)


PIONEER CORPORATION

(Translation of Registrants name into English)


JAPAN
(Jurisdiction of incorporation or organization)

4-1, MEGURO 1-CHOME, MEGURO-KU, TOKYO 153-8654, 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
|                                                                |  |                                          
|Common Stock, each represented by
one American Depositary Share |  | New York Stock Exchange                  

Securities 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 each of the issuers classes of
capital or common stock as of the close of the period covered by the annual
report.

|               |  |                   |             | 
|-------------- |  | ----------------- | ----------- | 
|               |  | Outstanding as of
|               |  | March 31, 2003   
|Title of class |  | (Japan time)     
|               |  |                  
|Common Stock   |  |                   | 175,434,808 | 

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

Yes x No o

Indicate by check mark which financial statement item the registrant has
elected to follow.

Item 17 x Item 18 o



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|                                                                |                                                                                       |  |  |  |  |  |  | 
|--------------------------------------------------------------- | ------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|Certain Defined Terms                                          
|Cautionary Statement with Respect to Forward-Looking Statements
|PART I                                                         
|                                                                | Item 1. Identity of Directors, Senior Management and Advisers                        
|                                                                | Item 2. Offer Statistics and Expected Timetable                                      
|                                                                | Item 3. Key Information                                                              
|                                                                | Item 4. Information on the Company                                                   
|                                                                | Item 5. Operating and Financial Review and Prospects                                 
|                                                                | Item 6. Directors, Senior Management and Employees                                   
|                                                                | Item 7. Major Shareholders and Related Party Transactions                            
|                                                                | Item 8. Financial Information                                                        
|                                                                | Item 9. The Offer and Listing                                                        
|                                                                | Item 10. Additional Information                                                      
|                                                                | Item 11. Quantitative and Qualitative Disclosures About Market Risk                  
|                                                                | Item 12. Description of Securities Other than Equity Securities                      
|PART II                                                        
|                                                                | Item 13. Defaults, Dividend Arrearages and Delinquencies                             
|                                                                | Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
|                                                                | Item 15. Controls and Procedures                                                     
|                                                                | Item 16. [Reserved]                                                                  
|PART III                                                       
|                                                                | Item 17. Financial Statements                                                        
|                                                                | Item 18. Financial Statements                                                        
|                                                                | Item 19. Exhibits                                                                    
|EX-1.01 THE ARTICLES OF INCORPORATION                          
|EX-2(A).01 SHARE HANDLING REGULATIONS                          
|EX-99.1 SECTION 906 CERTIFICATION                              



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TABLE OF CONTENTS

|                                                                                      |  |      |    | 
|------------------------------------------------------------------------------------- |  | ---- | -- | 
|                                                                                      |  | Page
|Certain Defined Terms                                                                 |  |      | 4  | 
|Cautionary Statement with Respect to Forward-Looking Statements                       |  |      | 4  | 
|                                                                                      |  |      |    | 
|PART I                                                                                |  |      |    | 
|                                                                                      |  |      |    | 
|Item 1. Identity of Directors, Senior Management and Advisers                         |  |      | 4  | 
|Item 2. Offer Statistics and Expected Timetable                                       |  |      | 4  | 
|Item 3. Key Information                                                               |  |      | 5  | 
|Item 4. Information on the Company                                                    |  |      | 13 | 
|Item 5. Operating and Financial Review and Prospects                                  |  |      | 30 | 
|Item 6. Directors, Senior Management and Employees                                    |  |      | 48 | 
|Item 7. Major Shareholders and Related Party Transactions                             |  |      | 57 | 
|Item 8. Financial Information                                                         |  |      | 58 | 
|Item 9. The Offer and Listing                                                         |  |      | 60 | 
|Item 10. Additional Information                                                       |  |      | 61 | 
|Item 11. Quantitative and Qualitative Disclosures About Market Risk                   |  |      | 76 | 
|Item 12. Description of Securities Other than Equity Securities                       |  |      | 80 | 
|                                                                                      |  |      |    | 
|PART II                                                                               |  |      |    | 
|                                                                                      |  |      |    | 
|Item 13. Defaults, Dividend Arrearages and Delinquencies                              |  |      | 81 | 
|Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds |  |      | 81 | 
|Item 15. Controls and Procedures                                                      |  |      | 81 | 
|Item 16. [Reserved]                                                                   |  |      | 81 | 
|                                                                                      |  |      |    | 
|PART III                                                                              |  |      |    | 
|                                                                                      |  |      |    | 
|Item 17. Financial Statements                                                         |  |      | 82 | 
|Item 18. Financial Statements                                                         |  |      | 82 | 
|Item 19. Exhibits                                                                     |  |      | 82 | 

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Certain Defined Terms

As used herein, the term Pioneer refers to Pioneer Corporation, the
registrant, and we and our refer to Pioneer and its consolidated
subsidiaries as a group, unless the context otherwise indicates.

References in this annual report to fiscal years refer to the 12-month
periods ended March 31 of each calendar year.

Billion is used in the American sense of one thousand million.




Cautionary Statement with Respect to Forward-Looking Statements

Statements made in this annual report with respect to our current plans,
estimates, strategies and beliefs, and other statements that are not historical
facts are forward-looking statements about our future performance.
Forward-looking statements include but are not limited to those using words
such as believe, expect, anticipate, plans, strategy, prospects,
forecast, estimate, project, may or might and words of similar
meaning in connection with a discussion of future operations or financial
performance. From time to time, oral or written forward-looking statements may
also be included in other materials released to the public. These statements
are based on managements assumptions and beliefs in light of the information
currently available to it. We caution that a number of important risks and
uncertainties could cause actual results to differ materially from those
discussed in the forward-looking statements, and therefore you should not place
undue reliance on them. You also should not rely on the belief that it is our
obligation to update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise. We disclaim any such
obligation. Risks and uncertainties that might affect us include, but are not
limited to, (i) general economic conditions in our markets, particularly levels
of consumer spending; (ii) exchange rates, particularly between the yen and the
U.S. dollar, euro, and other currencies in which we make significant sales or
in which our assets and liabilities are denominated; (iii) our ability to
continue to design and develop and win acceptance of our products and services,
which are offered in highly competitive markets characterized by continual new
product introductions, rapid developments in technology and subjective and
changing consumer preferences; (iv) our ability to implement successfully our
business strategies; (v) our ability to compete and develop and implement
successful sales and distribution strategies in light of technological
developments in and affecting our businesses; (vi) our continued ability to
devote sufficient resources to research and development, and capital
expenditure; (vii) our ability to continuously enhance our brand image; (viii)
the success of our joint ventures and alliances; and (ix) the outcome of
contingencies.




PART I




Item 1. Identity of Directors, Senior Management and Advisers



| |               
| | --------------
| | Not applicable




Item 2. Offer Statistics and Expected Timetable



| |               
| | --------------
| | Not applicable

4



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Item 3. Key Information

A. Selected financial data

The following table presents selected financial information of the registrant
at the dates and for each of the years indicated, and has been derived from our
financial statements included elsewhere herein, which are prepared in
accordance with accounting principles generally accepted in the United States
of America (U.S. GAAP), except for segment data which is prepared in
accordance with the regulations under the Securities and Exchange Law of Japan.

|                                                                                        |         |   |                                             |      |      |   |         |       |      |   |         |        |  |   |         |       |  |   |         |       | 
|--------------------------------------------------------------------------------------- | ------- | - | ------------------------------------------- | ---- | ---- | - | ------- | ----- | ---- | - | ------- | ------ |  | - | ------- | ----- |  | - | ------- | ----- | 
|                                                                                        |         |   | (In millions of yen, except per share data)
|                                                                                        |         |   |                                            
|                                                                                        |         |   | Year ended March 31                        
|                                                                                        |         |   |                                            
|                                                                                        |         |   | 1999                                        |      | 2000 |   | 2001    |       | 2002 |   | 2003   
|                                                                                        |         |   |                                             |      |      |   |         |       |      |   |        
|Consolidated Statement of Income Data:                                                  |         |   |                                             |      |      |   |         |       |      |   |         |        |  |   |         |       |  |   |         |      
|Operating revenue (Note 5) (Note 6)                                                     |         | ¥ | 581,197                                     |      |      | ¥ | 610,673 |       |      | ¥ | 640,358 |        |  | ¥ | 662,125 |       |  | ¥ | 712,268 |      
|Operating income (Note 5) (Note 6)                                                      |         |   | 17,433                                      |      |      |   | 18,852  |       |      |   | 32,905  |        |  |   | 17,941  |       |  |   | 31,352  |      
|Income before income taxes                                                              |         |   | 12,533                                      |      |      |   | 27,808  |       |      |   | 34,193  |        |  |   | 15,343  |       |  |   | 28,630  |      
|Net income                                                                              |         |   | 1,159                                       |      |      |   | 13,075  |       |      |   | 18,298  |        |  |   | 8,047   |       |  |   | 16,078  |      
|Net income per share of common stock and
per American Depositary Share (ADS) (Note 1) : |         |   |                                             |      |      |   |         |       |      |   |         |        |  |   |         |       |  |   |         |      
|                                                                                        | Basic   |   |                                             | 6.45 |      |   |         | 72.81 |      |   |         | 101.76 |  |   |         | 44.70 |  |   |         | 90.24 | 
|                                                                                        | Diluted |   |                                             | 6.45 |      |   |         | 72.80 |      |   |         | 101.70 |  |   |         | 44.69 |  |   |         | 90.24 | 
|                                                                                        |         |   |                                             |      |      |   |         |       |      |   |         |        |  |   |         |       |  |   |         |      
|Consolidated Balance Sheet Data:                                                        |         |   |                                             |      |      |   |         |       |      |   |         |        |  |   |         |       |  |   |         |      
|Total assets                                                                            |         | ¥ | 592,407                                     |      |      | ¥ | 601,137 |       |      | ¥ | 605,156 |        |  | ¥ | 645,129 |       |  | ¥ | 647,029 |      
|Short-term borrowings                                                                   |         |   | 46,153                                      |      |      |   | 41,318  |       |      |   | 37,571  |        |  |   | 45,867  |       |  |   | 29,893  |      
|Current portion of long-term debt                                                       |         |   | 6,455                                       |      |      |   | 37,235  |       |      |   | 7,996   |        |  |   | 2,551   |       |  |   | 974     |      
|Long-term debt, less current portion                                                    |         |   | 82,958                                      |      |      |   | 47,060  |       |      |   | 38,304  |        |  |   | 35,677  |       |  |   | 32,196  |      
|Shareholders equity                                                                    |         |   | 313,244                                     |      |      |   | 312,460 |       |      |   | 336,995 |        |  |   | 347,003 |       |  |   | 318,393 |      
|Number of shares issued (in thousands)                                                  |         |   | 179,573                                     |      |      |   | 179,588 |       |      |   | 179,894 |        |  |   | 180,064 |       |  |   | 180,064 |      

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|                                                                        |                   |                   |         |                         |      |      |        |                                            |      |      |         |      |      |   |         |      |      |   |         |       |      | 
|----------------------------------------------------------------------- | ----------------- | ----------------- | ------- | ----------------------- | ---- | ---- | ------ | ------------------------------------------ | ---- | ---- | ------- | ---- | ---- | - | ------- | ---- | ---- | - | ------- | ----- | ---- | 
|                                                                        |                   |                   |         |                         |      |      |        | (In millions of yen, except per share data |      |      |         |     
|                                                                        |                   |                   |         | and percentage amounts)
|                                                                        |                   |                   |         |                        
|                                                                        |                   |                   |         | Year ended March 31    
|                                                                        |                   |                   |         |                        
|                                                                        |                   |                   |         | 1999                    |      | 2000 |        | 2001                                       |      | 2002 |         | 2003
|                                                                        |                   |                   |         |                         |      |      |        |                                            |      |      |         |     
|Other Data:                                                             |                   |                   |         |                         |      |      |        |                                            |      |      |         |      |      |   |         |      |      |   |         |      
|Capital expenditures                                                    |                   | ¥                 | 33,070  |                         |      | ¥    | 25,458 |                                            |      | ¥    | 42,183  |      |      | ¥ | 46,996  |      |      | ¥ | 40,782  |      
|Research and development (R&D) expenses                                 |                   |                   | 31,131  |                         |      |      | 33,265 |                                            |      |      | 37,105  |      |      |   | 39,050  |      |      |   | 45,388  |      
|Cash flows from operating activities                                    |                   |                   | 37,904  |                         |      |      | 45,390 |                                            |      |      | 51,241  |      |      |   | 57,110  |      |      |   | 91,734  |      
|Cash flows from investing activities                                    |                   |                   | (38,157 | )                       |      |      | 11,984 |                                            |      |      | (41,581 | )    |      |   | (51,148 | )    |      |   | (35,453 | )    
|Cash flows from financing activities                                    |                   |                   | 13,112  |                         |      |      | (4,139 | )                                          |      |      | (46,567 | )    |      |   | (4,207  | )    |      |   | (34,680 | )    
|Return on equity (Note 2)                                               |                   |                   | 0.36    | %                       |      |      | 4.18   | %                                          |      |      | 5.63    | %    |      |   | 2.35    | %    |      |   | 4.83    | %    
|Return on assets (Note 3)                                               |                   |                   | 0.20    | %                       |      |      | 2.19   | %                                          |      |      | 3.03    | %    |      |   | 1.29    | %    |      |   | 2.49    | %    
|Cash dividends declared per share of common stock
and per ADS (Note 4): |                   |                   |         |                         |      |      |        |                                            |      |      |         |      |      |   |         |      |      |   |         |      
|                                                                        | Interim (in yen)  |                   |         | 5.00                    |      |      |        | 5.00                                       |      |      |         | 7.50 |      |   |         | 7.50 |      |   |         | 7.50  |     
|                                                                        |                   | (in U.S. dollars) |         |                         | 0.04 |      |        |                                            | 0.05 |      |         |      | 0.07 |   |         |      | 0.06 |   |         |       | 0.06 | 
|                                                                        | Year-end (in yen) |                   |         | 5.00                    |      |      |        | 5.00                                       |      |      |         | 7.50 |      |   |         | 7.50 |      |   |         | 10.00 |     
|                                                                        |                   | (in U.S. dollars) |         |                         | 0.04 |      |        |                                            | 0.05 |      |         |      | 0.06 |   |         |      | 0.06 |   |         |       | 0.08 | 

|       |  |  |    |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|------ |  |  | -- |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Notes: |  |  | 1. |  |  | Basic net income per share of common stock and per American
Depositary Share (ADS) has been computed based on the weighted average
number of shares outstanding during each year. Diluted net income per
share of common stock and ADS has been computed on the basis that all
dilutive warrants and stock options were exercised. One ADS represents
one share of common stock.                                                                                                                                                                                                                                                          
|       |  |  | 2. |  |  | Net income as a percentage of average shareholders equity.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|       |  |  | 3. |  |  | Net income as a percentage of average total assets.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|       |  |  | 4. |  |  | Cash dividends in U.S. dollars are based on the noon buying
rate in yen for cable transfers in New York City as certified for
customs purposes by the Federal Reserve Bank of New York on the date
of the dividend payment.                                                                                                                                                                                                                                                                                                                                                                                                                 
|       |  |  | 5. |  |  | In fiscal 2000, we changed the reporting of income from patents
and related expenses which had been previously presented in Other
income (expenses). The gross patent revenue is presented as
Royalty revenue and the related expenses are included in Selling,
general and administrative expenses. Previously reported amounts
have been reclassified to conform to this presentation.                                                                                                                                                                                                                                              
|       |  |  | 6. |  |  | In fiscal 2003, we adopted EITF (Emerging Issues Task Force)
01-9 Accounting for Consideration Given by a Vendor to a Customer
(Including a Reseller of the Vendors Products). The adoption
resulted in a reduction in net sales and a corresponding decrease in
selling, general and administrative expenses, with no effect on
operating income. Also, starting fiscal 2003, we classified losses
on sale and disposal of fixed assets, which were previously included
in Othernet in Other income (expense),
into Selling, general and
administrative expenses. Previously reported amounts have been
reclassified accordingly.

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Exchange rates (yen per U.S. dollar)

The exchange rate between the yen and the U.S. dollar, based upon the noon
buying rate in yen for cable transfers in New York City as certified for
customs purposes by the Federal Reserve Bank of New York, was ¥120.47 = US$1.00 on August 4, 2003.

|                    |          |         |   |        |  |     |   |            |  |  |   |        |  |  |   |        | 
|------------------- | -------- | ------- | - | ------ |  | --- | - | ---------- |  |  | - | ------ |  |  | - | ------ | 
|Year ended March 31 |          | Average |   | High   |  | Low |   | Period-end
|                    | 1999     |         | ¥ | 128.10 |  |     | ¥ | 108.83     |  |  | ¥ | 147.14 |  |  | ¥ | 118.43 | 
|                    | 2000     |         |   | 110.02 |  |     |   | 101.53     |  |  |   | 124.45 |  |  |   | 102.73 | 
|                    | 2001     |         |   | 111.65 |  |     |   | 104.19     |  |  |   | 125.54 |  |  |   | 125.54 | 
|                    | 2002     |         |   | 125.64 |  |     |   | 115.89     |  |  |   | 134.77 |  |  |   | 132.70 | 
|                    | 2003     |         |   | 121.10 |  |     |   | 115.71     |  |  |   | 133.40 |  |  |   | 118.07 | 
|                    |          |         |   |        |  |     |   |            |  |  |   |        |  |  |   |       
|2003                |          |         |   |        |  |     |   |            |  |  |   |        |  |  |   |       
|                    | January  |         |   |        |  |     |   | 117.80     |  |  |   | 120.18 |  |  |   |        | 
|                    | February |         |   |        |  |     |   | 117.14     |  |  |   | 121.30 |  |  |   |        | 
|                    | March    |         |   |        |  |     |   | 116.47     |  |  |   | 121.42 |  |  |   |        | 
|                    | April    |         |   |        |  |     |   | 118.25     |  |  |   | 120.55 |  |  |   |        | 
|                    | May      |         |   |        |  |     |   | 115.94     |  |  |   | 119.50 |  |  |   |        | 
|                    | June     |         |   |        |  |     |   | 117.46     |  |  |   | 119.87 |  |  |   |        | 
|                    | July     |         |   |        |  |     |   | 117.24     |  |  |   | 120.55 |  |  |   |        | 

For purposes of preparing our financial statements, we use rates obtained from
the Tokyo foreign exchange market, which differ from the rates listed above.

B.  Capitalization and indebtedness



| |               
| | --------------
| | Not applicable

C.  Reasons for the offer and use of proceeds



| |               
| | --------------
| | Not applicable

D.  Risk factors

This section describes some of the risks that could affect our business. The
factors listed below should be considered in connection with any
forward-looking statements given in this annual report and should be read in
conjunction with Item 5. Operating and Financial Review and Prospects. They
are subject to the Cautionary Statement with Respect to Forward-Looking
Statements appearing elsewhere in this annual report. This list is necessarily
incomplete, as some risks may be as yet unknown to us. Any risk factor has the
potential to adversely affect our business results, share price and financial
condition.

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Economic conditions may adversely affect our business results and financial
condition

Demand for consumer electronics products, which account for a significant
proportion of our worldwide operating revenue, may be affected by general
economic trends in the countries or regions in which our products are sold.
Purchases of our products are, to a significant extent, discretionary.
Similarly, demand for our business use products and for components we
manufacture that go into products of third parties is affected by general
economic trends in the various markets in which we sell our products. Economic
downturns and resulting declines of demand in our major markets, including
Japan, North America, Europe and Asia, may thus adversely affect our business
results and financial condition.

Additionally, our operations may be indirectly affected by the economic
conditions of regions where our competitors manufacture their products. For
example, if a competitor enjoys lower local labor costs, it may be able to
offer similar products at a lower price. As a result, our sales may be
adversely affected. Also, a decrease in the value of the local currency in a
region that produces parts and raw materials may lead to a decrease in
production costs (on a yen or a U.S. dollar basis) not only to us but to other
manufacturers as well. Such a trend may in turn bring about vigorous export
competition and price-cutting, both of which could adversely affect our
business results and financial condition.

Fluctuations in foreign currency exchange rates may adversely affect our
business results and financial condition

Our operations involve the global production and distribution of products.
Revenue and expense items that are denominated in local currency, such as
sales, expenses and assets in each region, are translated into yen in preparing
our consolidated financial statements. Depending on the rate of exchange at
the time of currency translation, the values of such items in yen may be
affected, even if their value has not changed in their original currency.
Also, fluctuations in exchange rates may affect the local prices of our
products and negatively impact their competitiveness in local markets.
Generally, an appreciation of the yen against other currencies, particularly
the yen against the U.S. dollar and the euro, in which we make significant
sales, may adversely affect our business results and financial condition.
Conversely, a depreciation of the yen against other currencies would have the
opposite effect.

An increase in the value of currencies in regions where we operate and produce
may lead to an increase in the costs of manufacturing and procurement in those
regions. Such an increase could accordingly adversely affect our profit
margins and reduce our price competitiveness, thereby adversely affecting our
business results. We engage in currency hedging transactions to attempt to
minimize the negative effects of short-term fluctuations of foreign exchange
rates among major currencies such as the U.S. dollar, euro and yen. However,
as a result of mid-to-long-term exchange rate volatility, we cannot execute
planned procurement, production, logistics, and sales activities with any
certainty and, consequently, fluctuations in exchange rates may adversely
affect our business results and financial condition.

If we are unable to innovate and to develop attractive new products, our future
growth and profitability may be adversely affected

We derive a substantial portion of our revenues from sales of innovative new
products. We expect that sales of our new products  currently including
DVD-related products, plasma and organic electroluminescent (OEL) displays and
car navigation systems  will continue to account for a substantial portion of
our revenues, and we expect our future growth to rely primarily on the
continued development and sale of innovative new products.

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While we believe that we are capable of continuing to develop innovative and
attractive new products, the industry in which we operate is characterized by
rapid changes, including technological changes. The process of developing and
marketing new products is inherently complex and uncertain, and there are a
number of risks, including the following:



| |  | We cannot assure you that we will have adequate funding and resources
necessary for investments in new products and technologies.                                                                                                                                                                                                                                   
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | We cannot assure you that our long-term investments and commitment of
significant resources will result in successful new products or
technologies. For example, we have invested substantial resources in
the expansion of our production capacity for plasma display panels to
meet anticipated demand, but such demand may not materialize.                      
| 
| |  | We cannot assure you that we can anticipate successfully the new
products and technologies which will gain market acceptance and that
such products can be successfully marketed.                                                                                                                                                                                   
| 
| |  | We cannot assure you that our newly developed products or technologies
can be successfully protected as proprietary intellectual property
rights.                                                                                                                                                                                                                   
| 
| |  | Our products may become obsolete due to rapid advancements in
technology and changes in consumer preferences.                                                                                                                                                                                                                                                       
| 
| |  | A delay in commercializing new technologies now under development may
prevent us from keeping up with market demand. For example, if we lag
behind our competitors in the commercialization of active-matrix
full-color OEL displays, which are now under development in our
affiliated company, ELDis, Inc., we may not secure significant portions
of this market.

Our failure to anticipate adequately changes in the industry and the market,
and to develop attractive new products, including any of the risks described
above, may reduce our future growth and profitability and may adversely affect
our business results and financial condition.

Competition generally, and especially on price and standardization of products,
may adversely affect our business results and financial condition

The electronics industry, including the audio, video and car electronics
industry, is intensely competitive. We expect to face increased competition in
the various product and geographic markets in which we operate. Our
competitors include manufacturers and distributors, some of which have greater
capital resources available for research, development, production and
marketing. In addition, as new technology develops and as new electronics
products gain increased market acceptance, it is possible that new competitors
or alliances among existing competitors may emerge and rapidly acquire
significant market share. While we believe we are one of the leading global
manufacturers of advanced, high-quality and value-added electronics products,
we cannot assure you that we will be able to compete effectively in the future.
Pricing pressures or loss of potential customers resulting from our failure to
compete effectively may adversely affect our business results and financial
condition.

For example, competitors in the plasma display market may substantially
increase their production capabilities or introduce alternative products at a
lower price and cause market competition to intensify further. Moreover, due
to standardization and the relative ease of imitation of products such as DVD
players, competition from manufacturers in emerging markets may also continue
to intensify. Our research into the development of new products generally
requires large costs that competitive imitators may not need to incur. In an
aggressive price-cutting environment we may find it difficult to maintain or
increase our market share or remain profitable against low-cost and low-budget
competitors.

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Failure of our DVD-recorder format to gain broad market acceptance may
adversely affect our business results and financial condition

Currently, there are a number of competing recording formats for digital
versatile discs (DVDs): the DVD-RW format commercialized by us, Sony, Sharp and
others, the DVD-RAM format commercialized by Matsushita, Hitachi, Toshiba and
others, and the DVD+RW format commercialized by Philips and others. Each of
the recording disc formats makes use of its own distinct technology and is
generally incompatible with other formats.

The question of which format will prevail as the industry standard is not yet
settled. Should the DVD- RW format fail to be accepted as the de facto
industry standard, or otherwise fails to gain wide acceptance, our business
results and financial condition would be adversely affected.

Substantial decline in our royalty revenue as a result of the expiration of our
existing patents relating to laser optical disc technologies may adversely
affect our business results and financial condition

Our patent, license and other intellectual property rights make a significant
contribution to our net income. Although less than 2% of our revenue in fiscal
2003 was generated by our worldwide patents relating to laser optical disc
technologies, these rights were responsible for approximately 35% of our
operating income in fiscal 2003. The legal protections afforded these rights
have a limited duration under applicable laws, and the length of protection
varies from country to country or region. A significant portion of such
patents expired in Europe and Japan at the end of fiscal 2003. As a result,
our royalty revenue has started to decline substantially. This decline in
royalty revenue may in turn have an adverse impact on our business results.
While we are working to acquire patents owned by third parties and licensing
such patents, we also license patents for third parties as a licensing agent.
We do not expect that the revenue, if any, from such new patents/agencies will
be sufficient to offset the decrease in royalty revenue resulting from the
expiration of our existing patents. Royalty revenue from patent licensing also
depends to a material degree on the sales of patented products by our
licensees, making it hard for us to predict actual royalty revenue amounts.
For a discussion of our patent licensing business, see Item 4.B. Business
overviewNature of operations.

If we are unable to manage successfully the risks inherent in our international
activities and our overseas expansion, our business results and financial
condition could be adversely affected

A substantial portion of our manufacturing and marketing activity is conducted
outside Japan, including in the United States, Europe, and in developing and
emerging markets in Asia. There are a number of risks inherent in doing
business in such overseas markets, including the following:



| |  | Unexpected legal or regulatory changes                                                                                                                               
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | Unfavorable political or economic factors                                                                                                                            
| 
| |  | Difficulties in recruiting and retaining personnel                                                                                                                   
| 
| |  | Labor disputes including strikes                                                                                                                                     
| 
| |  | Less developed technological infrastructure, which can affect our production or other activities or result in lower
customer acceptance of our products and services;
| 
| |  | Potentially adverse tax
consequences; and                                                                                                                            
| 
| |  | Social, political or economic turmoil due to terrorism, war, or other factors                                                                                        

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In order to produce our products competitively and to reduce costs, we aim to
continue expanding production and parts procurement in the Shanghai and
Dongguan areas of the Peoples Republic of China (China). Nevertheless, we may
experience difficulties in managing a production facility and entering into
business arrangements in China in light of unexpected events, including
political or legal changes, labor shortages or strikes or changes in economic
conditions in China. Furthermore, the current outbreak of SARS (Severe Acute
Respiratory Syndrome) in China may, depending on how this epidemic develops in
the future, adversely impact our operations in China, including delays in
production due to travel restrictions on employees, as well as disruptions in
parts procurement and factory operations. Accordingly, such incidents could
have an adverse impact on our business results and financial condition. For
information on our China plants, see Item 4.A. History and development of the
CompanyPrincipal capital expenditures, investments and divestitures.

Our dependence on certain third-party manufacturers and suppliers for parts and
components could adversely affect our business results and financial condition

While we strive to produce key components and parts internally, we are
dependent on a number of outside manufacturers and suppliers. Third parties
manufacture some of our most important components and parts, including
semiconductors. Our arrangements with third-party manufacturers and suppliers
are generally on a renewable short-term basis. While we have sought to assure
supply where necessary through strategic alliances and other measures, we
cannot assure you that we will not face shortages of key components from time
to time. See Item 4.B. Business overviewRaw materials and sources of supply
for a discussion of our outside manufacturers and suppliers. If we are forced
to change our contracted manufacturers and suppliers, this could result in a
reduction in the availability of components and parts essential to us or in an
increase of our costs. In addition, in periods of high demand for consumer
electronics products and when new components such as next generation
semiconductors are introduced, producers of components and parts may not be
able to produce enough components to meet our demand on a timely basis. We may
also experience shortages or other material disruptions in our supply of
components and parts due to natural disasters or other events beyond our
control. Shortages of key components could result in increases in their
prices, insufficient supply and quality control problems, and could adversely
affect our business results and financial condition, as well as lead to
strained relationships with our original equipment manufacturing (OEM)
customers.

Our performance in the OEM business is substantially dependent on the
performance of our customers business

We cater our OEM business to automobile manufacturers, electronics
manufacturers, personal computer (PC) makers, the broadcasting industry and
other large-scale businesses worldwide. The products we supply include car
stereo products, DVD-R/RW drives, DVD-ROM drives, set-top boxes for cable-TV
and digital satellite broadcast and OEL displays. Sales to business customers
in these areas are significantly affected by the respective customers business
results and by factors that are beyond our control. Further, price cutting to
meet customer demands may cause a reduction in our profit margin. The
under-performance of a customers business, the unexpected termination of
contracts, changes in the purchasing practices of our OEM customers or
aggressive price cutting to satisfy a large business customers demands may
adversely affect our business results and financial condition.

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Because our products and technologies are dependent on the service of capable
engineers and other key personnel, difficulty in recruiting and developing key
personnel could have an adverse impact on our future growth, business results
and financial condition

Our products and technologies are complex, and our future growth and success
depend to a significant extent on the service of capable engineers and other
key personnel, and hiring and training additional highly-skilled engineers and
other competent personnel are important for our success.

Failure to recruit and develop key personnel may adversely affect our future
growth, business results and financial condition. On the other hand,
aggressive hiring of, among others, capable engineers who are experienced with
the latest technology, may increase, sometimes substantially, both recruiting
and actual labor costs. In addition, continued re-training of currently
employed personnel, which may introduce higher costs, might also be necessary
to maintain a superior level of innovation and technological advance. Such
increased costs could have an adverse impact on our business results and
financial condition.

Limits on intellectual property protection may make us vulnerable to
competition from third parties that use our technology and expertise

While we have developed technology and expertise which differentiate our
products from those of our competitors, some of our unique technology and
expertise is either not fully capable of being protected by intellectual
property rights or protected only to a limited extent pursuant to legal
limitations in certain jurisdictions. Accordingly, we may be unable
effectively to prevent third parties from using our intellectual property
rights to produce products similar to ours. In addition, we may be unable to
prevent third parties from developing technologies that are similar or superior
to our technology, or from designing around or reverse engineering our patents
and trade secrets. Moreover, our future products and technology might later be
found to infringe upon a third partys intellectual property rights.

Product defects resulting in a large-scale product recall or successful
products liability claims against us could result in a significant cost or
impact on our reputation and adversely affect our business results and
financial condition

We manufacture various products at our plants worldwide in accordance with
internationally accepted quality-control standards. We cannot be certain,
however, that all of our products are defect-free and may not be recalled at
some later date. Furthermore, although we maintain insurance against product
liability claims, we cannot be certain that such insurance can adequately
satisfy the liabilities ultimately incurred. In addition, insurance may not
continue to be available on terms acceptable to us. A large-scale product
recall or a successful products liability claim against us could result in
significant costs or have a negative impact on our reputation, which may in
turn lead to a decrease in sales, adversely affecting our business results and
financial condition.

Failure to achieve the goals of collaborations, tie-ups, and joint ventures
with third parties may adversely affect our business results and financial
condition

As part of our technological development process, we conduct many joint
activities with other companies in the form of collaborations, technological
tie-ups, or joint ventures intended to optimize management resources and
utilize the synergy of combined technologies. We expect to continue to adopt
an active approach to exploiting these opportunities. If differences arise
among the participants of these joint activities due to managerial, financial
or other reasons, we may not achieve the goals of these development projects,
which may in turn adversely affect our business results and financial
condition.

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Governmental regulation may limit our activities or increase our costs of
operations

Pioneers business and operations are subject to various forms of government
regulation in countries in which we do business, including required
business/investment approvals, as well as export regulations based on national
security or other reasons and other export/import regulations such as tariffs.
In addition, commercial, antitrust, patent, consumer, taxation, exchange
control and environment/recycling laws and regulations also apply. If we are
unable to comply with these regulations, they can serve to limit our
activities. In addition, compliance with these regulations could result in
increased costs. Accordingly, these regulations could adversely affect our
business results and financial condition. See Item 4.B. Business
overview-Governmental regulation for a discussion of certain government
regulations applicable to us.

Damage to our production facilities as a result of disasters, outages or
similar events may significantly reduce our production capacity, and adversely
affect our business results and financial condition

We periodically carry out disaster prevention checks and facility maintenance
at all of our facilities to minimize potential negative impact caused by
disruptions on our manufacturing lines. We cannot assure you, however, that we
can completely prevent or mitigate the effect of a disaster, outage or other
disruption at our production facilities. For example, our plasma display
products are currently manufactured mainly at our Shizuoka and Kofu plants, and
we are in the process of expanding our manufacturing lines there. Accordingly,
our plasma display panel production capacity could be significantly reduced in
the event of a major earthquake or other disruption of operations at the
Shizuoka and Kofu plants.

Employee retirement benefit costs and obligations may adversely affect our
business results and financial condition

Pioneer is obligated to pay certain employee retirement benefit costs and
obligations to qualifying employees upon their retirement. The amount of such
employee retirement benefit costs and obligations are dependent on assumptions
used in the relevant actuarial calculations. These assumptions include
discount rates, future compensation levels, return on assets, retirement rates
and mortality rates, which are based upon current statistical data, as well as
long-term returns on plan assets and other factors. If actual results differ
from the assumptions or assumptions are changed, the resulting effects are
accumulated and systematically recognized over future periods and, therefore,
generally affect recognized expense and recorded obligations in future periods.
Our pension benefit costs have been increasing in recent fiscal years due to
declining discount rates and negative returns on plan assets, and further
declines of discount rates and lower returns on plan assets may adversely
affect our business results and financial condition.




Item 4. Information on the Company

A. History and development of the Company

History

Pioneer was incorporated under the Japanese Commercial Code as a joint stock
company (Kabushiki Kaisha) in May 1947, with the name Fukuin Denki Kabushiki
Kaisha, succeeding to the business founded in January 1938 by the late Mr.
Nozomu Matsumoto. The present name, Pioneer Kabushiki Kaisha, was adopted in
June 1961. Its English name was changed from Pioneer Electronic Corporation
to Pioneer Corporation in June 1999.

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Our business dates from January 1938 when we began the manufacture of audio
speakers. In June 1955 we commenced the manufacture of audio amplifiers.
During the 1960s, we expanded our line of products to include hi-fi stereo sets
and components, hi-fi car stereos, as well as telephone-related equipment.
Since the early 1960s we have established business offices and subsidiaries in
and outside Japan to support our expanding manufacturing and sales activities.
During the 1970s we expanded our business to include equipment related to
cable-TV systems. Pioneers shares of common stock were listed on the Tokyo
Stock Exchange and Osaka Securities Exchange in October 1961 and April 1968,
respectively. In addition, Pioneers ADSs were listed on the New York Stock
Exchange in December 1976.

In the 1980s, we began to expand our business base to include audio/video (AV)
equipment. We started marketing laser disc (LD) players and LDs, and commenced
our own music and video software business in Japan. Also, we introduced the
worlds first car compact disc (CD) players. We also broadened our business
base in commercial and industrial markets with such products as optical memory
disc drives for use in computers, laser karaoke (sing-along) systems and
multiscreen video systems.

In the 1990s, we released to the Japanese consumer market the worlds first car
navigation system incorporating the Global Positioning System (GPS). In
addition, we introduced DVD players and thin-profile color plasma displays and
began supplying digital direct-broadcast satellite (DBS) decoders to a European
pay-TV company. Our other recent industry firsts include four-color OEL
displays and DVD recorders.

In fiscal 2001, we started supplying to PC makers DVD-R/RW drives that can
record up to seven times as much data as conventional CD-R/RW drives. In
fiscal 2002, we introduced to the Japanese consumer market hard disk drive
(HDD) car navigation systems with faster search and display of routes to
designated destinations. In fiscal 2003, we launched in Japan DVD recorders
equipped with large-capacity HDDs, as well as car navigation systems
incorporating a data communication module for access to the latest map data.
Also, in June 2003, we began introducing recordable DVD drives for PC use,
which are compatible with DVD-R, -RW, +R and +RW discs, to worldwide markets.

Effective April 1, 2003, Pioneer Video Corporation, a wholly-owned subsidiary
of Pioneer, established Pioneer Micro Technology Corporation, by spinning off
its semiconductor business. On the same day, Shizuoka Pioneer Corporation, a
wholly-owned subsidiary of Pioneer, merged with Pioneer Video Corporation and
changed its trade name to Pioneer Display Products Corporation.

Registered office

Pioneers registered office is located at 4-1, Meguro 1-chome, Meguro-ku, Tokyo
153-8654, Japan. Its telephone number is 81-3-3494-1111.

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Principal capital expenditures, investments and divestitures

Capital expenditures were paid for principally out of our internally generated
working capital. See the table in Item 3.A. Selected financial data for
figures. The facilities for production comprised those for OEL displays and
DVD pickups, and plants and machinery for plasma displays. See the table in
Item 4.D. Property, plants and equipment, for a list of our principal plants.

To improve cost competitiveness and to reallocate a major portion of production
to China, Pioneer established two production subsidiaries in China in fiscal
2001 and these plants began operation in the fall of 2001. We continue
expanding parts procurement, designing products, and increasing the proportion
of our production in China. Capital expenditures related to these two plants
for fiscal 2002 and fiscal 2003 were ¥4.2 billion and ¥3.2 billion,
respectively. In fiscal 2004, we plan to spend ¥3.5 billion to expand
production capacity of these two plants further, which includes the
construction of an additional production line for DVD-R/RW drives in the Guang
Dong Plant. Upon completion of the new production line in the fall of 2003,
the monthly production capacity for DVD-R/RW drives is expected to reach one
million units.

In fiscal 2003, we started construction of a new manufacturing line for plasma
displays at our plant in Shizuoka, Japan, to meet potential demand for plasma
displays. Moreover, we plan to add another line in our Kofu Plant, which is
expected to start operation in the spring of 2005. This will bring our annual
production capacity to approximately 500 thousand units. The planned
investment for these two lines aggregates to approximately ¥42 billion,
including ¥5 billion paid by March 31, 2003.

In order to improve management efficiency by concentrating resources in
strategic businesses, in July 2003 Pioneer reached a preliminary agreement to
sell 100% of our shares in two of its wholly-owned subsidiaries, Pioneer LDC,
Inc. and Pioneer Entertainment (USA) Inc., to Dentsu Inc., Japans largest
comprehensive advertising agency. These subsidiaries are engaged in the
audio/video software businesses in Tokyo, Japan and in California,
U.S.A., respectively. The individual terms of these share transfers, including the
transfer price, are yet to be determined. (See Note 21 in Notes
to Consolidated Financial Statements.)

We intend to fund the capital requirement to fulfill these capital expenditure
plans through internally generated cash.

B. Business overview

Strategy

We aim to be a leading provider of advanced, high-quality, value-added
electronics products worldwide for consumer and business use. Our corporate
philosophy is to Move the Heart and Touch the Soul, with products that are
designed to increase satisfaction, comfort and convenience in everyday life.

To achieve our goals, we are pursuing the following strategies:



| |  |  | Develop innovative, technologically-advanced products that meet and
stimulate market demand
| | - |  | -------------------------------------------------------------------------------------------
|
| |  |  | Enhance our brand recognition and promote customer satisfaction                            
|
| |  |  | Leverage our leadership position in the car electronics business                           
|
| |  |  | Focus on our strategic products targeting global markets                                   
|
| |  |  | Adopt optimal production methods to maximize profitability                                 

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Develop innovative, technologically-advanced products that meet and stimulate market demand

We believe our core strength is our ability to innovate. Throughout our
history, we have focused on the development of unique products, and have
attempted to be the front-runner and market leader in our product areas. Such
areas have included dynamic speakers, car audio, LD and car navigation systems.
Consistent with our strategy, we have introduced into the market several
cutting-edge products, such as plasma displays and digital broadcast set-top
boxes. In the DVD market, we were the first to commercialize a DVD recorder.
We were also the first to introduce a four-color OEL display to the market. We
intend to continue to take advantage of this strategy and attract customers by
introducing differentiated products into the market ahead of our competitors.

Enhance our brand recognition and promote customer satisfaction

The cornerstone of our business foundation lies in the quality of our products
and their ability to inspire consumer confidence. Accordingly, we focus on the
enhancement of our brand image and customer satisfaction. In addition to the
extensive quality control and assurance measures on the production side, we
invest in various marketing campaigns to maintain and enhance the value of our
brand. Combined with our worldwide brand slogan of sound. vision. soul, we
aim to establish Pioneer as a brand driven by innovation and clearly
differentiating ourselves from our competitors. We believe customer
satisfaction is based not only on reliability and technology, but also on the
impact of the quality of sound or vision delivered by our products.

Leverage our leadership position in the car electronics business

We believe one of our strengths lies in our core business segment, the car
electronics business. We are one of the leading manufacturers in the world
market for car audio products. We were the first in the industry to introduce
car navigation systems to the Japanese consumer market in fiscal 1991 and have
maintained a leading position by offering affordably priced and easy-to-operate
DVD-ROM and advanced HDD-equipped models. In addition, in November 2002 we
released in the consumer market the worlds first car navigation system that
incorporates a data communication module for access to the latest map data.
Sales in this category are gradually shifting from the consumer market to the
OEM market as automobile manufacturers place greater emphasis on
differentiation of their cars, and we intend to expand our market share by
increasing OEM sales.

Focus on our strategic products targeting global markets

We focus on our strategic products where we are more likely to secure the
first-mover advantage as a means of establishing market leadership. As part
of our efforts to secure these leading market positions, we strive to play a
major role in setting product standards. For example, we are promoting the
DVD-RW format in DVD recorders and DVD-R/RW drives. This format has already
gained support from other major consumer electronics companies such as Sony and
Sharp. We also aim to differentiate ourselves by introducing to targeted
markets innovative plasma displays, OEL displays and HDD car navigation
systems. We market these strategic products on a global basis. Although
certain technological customization is required, most of our key products are
currently sold in virtually all major economies in the world.

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Adopt optimal production methods to maximize profitability

We strive to adopt ideal production methods catered to each type of product and
market demand. While we focus on reducing manufacturing and operating costs,
our goal is to achieve overall efficiency in production by, for example, taking
into account the proximity of the end-market, production facilities and labor
costs. Consequently, to produce our strategic products we established two new
plants in China and started production of DVD-related and car electronics
products in fiscal 2002. We are continuing to expand parts procurement, design
products, and increase the proportion of our production in China. Also, to
meet the fast-growing demand for plasma displays, we began adding production
lines in Shizuoka and Kofu in Japan, and aim to expand annual production
capacity to approximately 500 thousand units by the spring of 2005. To enhance
cost competitiveness and achieve economies of scale, we sell our key products
on an OEM basis to other manufacturers. In addition, targeting optimally
efficient control of inventory worldwide, we introduced supply chain management
in April 2002 to certain departments within the Pioneer group.

Strategic
Focus  Pioneer Group Vision

Consistent with the strategies described above, in fiscal 1999 we announced
Pioneer Group Vision, a medium-term initiative, with the intent of
revitalizing Pioneer and its business through the achievement of two financial
targets by the end of March 2006, as well as four business targets. They are
as follows.

Financial targets for the fiscal year ending March 2006:



| |  |  | ¥1.2 trillion of consolidated operating revenue
| | - |  | -----------------------------------------------
|
| |  |  | ROE (Return on Equity) in excess of 10%        

Business targets:

(i) No. 1 in DVD worldwide

We believe the DVD format will remain the dominant high-density, high-capacity
medium for sound, video and data recording, storage and playback for the
foreseeable future. As one of the leaders in this field, we have introduced
attractive models of consumer-use DVD recorders, DVD home theater systems, DVD
car navigation systems as well as DVD-R/RW drives for PC use. Pioneer believes
that these DVD products have a competitive edge in design, function and price,
contributing to the expansion of its DVD business.

(ii) Establishing a business foundation for plasma displays and OEL displays

We believe large-screen plasma displays offer significant advantages over
cathode ray tubes (CRTs). Among other advantages, plasma displays are thinner
and lighter than CRTs. Thus, we expect that plasma display panels in the
future will capture a substantial portion of the larger-screen TV market, in
which currently CRTs and projection TVs are dominant. Since introducing the
first plasma displays in fiscal 1998, we have established a solid presence both
in consumer and commercial markets worldwide as a result of our excellent
reputation for the large-screen high-resolution images of our plasma displays.
To meet increasing demand, we aim to continue expanding our production capacity
of plasma display panels by establishing production lines at our Shizuoka and
Kofu plants in Japan, enabling us to produce approximately 500 thousand units
per year by the spring of 2005.

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OEL display is another type of display, which we are promoting aggressively.
In fiscal 1998, we became the first in the world to market car electronics
products equipped with an OEL display, and in fiscal 2000 we were the first
company to mass-produce four-color OEL displays. OELs are particularly
well-suited for small size displays, and in fiscal 2001 we supplied OEL
displays for use in cellular phones of a major U.S. cellular phone
manufacturer. To strengthen our market position, Tohoku Pioneer Corporation,
Pioneers majority-owned subsidiary, established a joint venture company,
ELDis, Inc., in fiscal 2001 with Semiconductor Energy Laboratory Co., Ltd. and
Sharp Corporation to develop and manufacture active-matrix full-color OEL
displays.

(iii) From stand-alone to network

Our current approach is to develop network-related products drawing upon our
strength as a consumer- and business-use electronics product manufacturer. We
believe we have a competitive advantage in the interface function, where
information is delivered to users. We believe we have an excellent brand
image, as well as many years of experience in analog/digital cable-TV and
digital broadcast markets through the sale of our set-top boxes. We are
strengthening the synergy of digital home network-linkage of
entertainment/information systems, such as audio/video components, DVD players,
DVD recorders, plasma displays and set-top boxes.

(iv) Toward the key-device, key-technologies business

To keep up with the accelerated pace of change in the electronics industry, it
is important for us to promote key technologies and key devices, collaborating
with third parties when beneficial. We believe such collaboration generates
synergies that can create new advances in our key technologies and optimizes
the use of our resources.

We believe that a producer of key devices is better able to develop and offer
broader product differentiation and to influence the direction of market trends
than a company that merely assembles products. Our strategically important key
devices are DVD pickups, plasma display panel modules, speaker units, CD
mechanisms for car manufacturers and OEL display panels for mobile phone
companies.

Nature of operations

We develop, manufacture and sell electronics products such as audio, video and
car electronics on a global scale. We are one of the leading innovators of
differentiated DVD products and plasma displays. We also have the largest
worldwide market share of car electronics products such as car navigation
systems.

Our principal production activities are carried out in Asia, including Japan.
Our products are generally sold under our own brand names, principally
Pioneer. Our primary markets are Japan, North America, Europe and Asia. We
sell our products to customers in consumer and business markets through sales
offices in Japan, and through sales subsidiaries of Pioneer and independent
distributors outside of Japan. In addition, on an OEM basis, we market certain
products, such as car electronics products, DVD-R/RW drives, digital broadcast
set-top boxes and OEL displays to other companies.

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In fiscal 2003, we reclassified
reportable segments into four categories  Home Electronics,  Car Electronics, Patent Licensing, and Others.
Previous figures for the corresponding period have been restated accordingly.
(The consolidated financial statements included in this annual report and the
financial information below are prepared in accordance with U.S. GAAP, except
for segment data which is prepared in accordance with relevant regulations
under the Securities and Exchange Law of Japan. Specifically, such segment
information is required to be reported by reportable industrial segment,
whereas segment information is required to be reported by reportable operating
segment under U.S. GAAP.)

The profit margins in the Patent Licensing segment are substantially higher
than those in the other three segments, since costs related to patent licensing
are limited principally to amortization of patent rights and expenses for
licensing activities.

The following table sets forth our operating revenue from unaffiliated
customers by business segment for the respective periods indicated:

Operating Revenue from Unaffiliated Customers by Business Segments
(In millions of yen, except for percentage amounts)

|                        |       |   |          |         |                     |         |       |      |      |      |         |         |   |         |       |      |   |      |         |         |   |         |       |      |   |      |  
|----------------------- | ----- | - | -------- | ------- | ------------------- | ------- | ----- | ---- | ---- | ---- | ------- | ------- | - | ------- | ----- | ---- | - | ---- | ------- | ------- | - | ------- | ----- | ---- | - | ---- | -
|                        |       |   |          |         | Year ended March 31
|                        |       |   |          |         |                    
|                        |       |   |          |         | 2001                |         | 2002  |      | 2003
|                        |       |   |          |         |                     |         |       |      |     
|Home Electronics        |       |   |          |         |                     |         |       |      |      |      |         |         |   |         |       |      |   |      |         |         |   |         |       |     
|                        |       |   | Domestic |         | ¥                   | 55,201  |       |      |      | 8.6  | %       |         | ¥ | 58,111  |       |      |   | 8.8  | %       |         | ¥ | 72,487  |       |      |   | 10.2 | %
|                        |       |   | Overseas |         |                     | 164,742 |       |      |      | 25.7 |         |         |   | 157,334 |       |      |   | 23.7 |         |         |   | 156,257 |       |      |   | 21.9 |  
|                        |       |   |          |         |                    
|                        | Total |   | ¥        | 219,943 |                     |         |       | 34.3 | %    |      | ¥       | 215,445 |   |         |       | 32.5 | % |      | ¥       | 228,744 |   |         |       | 32.1 | %
|                        |       |   |          |         |                    
|Car Electronics         |       |   |          |         |                     |         |       |      |      |      |         |         |   |         |       |      |   |      |         |         |   |         |       |     
|                        |       |   | Domestic |         | ¥                   | 94,175  |       |      |      | 14.7 | %       |         | ¥ | 95,578  |       |      |   | 14.4 | %       |         | ¥ | 105,736 |       |      |   | 14.8 | %
|                        |       |   | Overseas |         |                     | 153,547 |       |      |      | 24.0 |         |         |   | 162,094 |       |      |   | 24.5 |         |         |   | 175,354 |       |      |   | 24.7 |  
|                        |       |   |          |         |                    
|                        | Total |   | ¥        | 247,722 |                     |         |       | 38.7 | %    |      | ¥       | 257,672 |   |         |       | 38.9 | % |      | ¥       | 281,090 |   |         |       | 39.5 | %
|                        |       |   |          |         |                    
|Others                  |       |   |          |         |                     |         |       |      |      |      |         |         |   |         |       |      |   |      |         |         |   |         |       |     
|                        |       |   | Domestic |         | ¥                   | 79,995  |       |      |      | 12.5 | %       |         | ¥ | 86,626  |       |      |   | 13.1 | %       |         | ¥ | 103,233 |       |      |   | 14.5 | %
|                        |       |   | Overseas |         |                     | 72,168  |       |      |      | 11.3 |         |         |   | 84,794  |       |      |   | 12.8 |         |         |   | 86,617  |       |      |   | 12.1 |  
|                        |       |   |          |         |                    
|                        | Total |   | ¥        | 152,163 |                     |         |       | 23.8 | %    |      | ¥       | 171,420 |   |         |       | 25.9 | % |      | ¥       | 189,850 |   |         |       | 26.6 | %
|                        |       |   |          |         |                    
|Patent Licensing        |       | ¥ | 20,530   |         |                     |         | 3.2   | %    |      | ¥    | 17,588  |         |   |         | 2.7   | %    |   | ¥    | 12,584  |         |   |         | 1.8   | %   
|                        |       |   |          |         |                    
|Total Operating Revenue |       | ¥ | 640,358  |         |                     |         | 100.0 | %    |      | ¥    | 662,125 |         |   |         | 100.0 | %    |   | ¥    | 712,268 |         |   |         | 100.0 | %   
|                        |       |   |          |         |                    

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Home Electronics:

This segment includes stereo systems, receivers, amplifiers, tuners, CD
players, CD recorders, minidisc (MD) systems, cassette tape decks, speaker
systems, DVD players, DVD recorders, laser disc (LD) players, plasma displays,
projection TVs, equipment for cable-TV systems, digital broadcast set-top boxes
and telephones.

Sales by product for fiscal 2003 in Home Electronics are as follows: DVD
players and DVD recorders accounted for the largest sales in this segment. In
Japan, DVD recorders, particularly those equipped with a large capacity HDD
that we launched in fall 2002, recorded a large increase in sales. Plasma
displays for home use have rapidly grown, and contributed significantly to
sales in this segment. Sales of stereo systems accounted for a significant
portion of sales as well.

We believe the traditional home audio markets of Japan, North America and
Europe have matured and accordingly, price competition in these markets is
strong. We do not expect the traditional home audio markets in these regions
to grow substantially. We believe growth will come from new products, such as
DVD-related products and plasma displays. JEITA (Japan Electronics and
Information Technology Industry Association) forecasts an approximately 50%
increase in consumer DVD player and DVD recorder sales worldwide, from 45
million units in 2002 to 68 million in 2007. It also forecasts that sales of
plasma displays worldwide will increase approximately 10 times, from 0.4
million units in 2002 to 4.4 million in 2007. In our DVD business, we are
shifting the emphasis from price-competitive DVD players to higher value-added
DVD recorders and DVD home theater systems. In our plasma display business, we
continue to vigorously promote 50- and 43-inch models of high-definition plasma
displays in the worldwide market.

Car Electronics:

This segment includes car stereos, car CD players, car MD players, car DVD
players, car speakers and car navigation systems.

Sales by product for fiscal 2003 in Car Electronics are as follows: Car CD
players accounted for the largest sales in this segment. In Japan, our car
navigation systems accounted for approximately half of sales in this segment.

Both in Japan and outside Japan, sales in this group are generally made in the
consumer market and to automobile manufacturers on an OEM basis for
installation in new cars on production lines or as optional parts. Sales in
this category are gradually shifting from the consumer market to the OEM
market, as automobile manufacturers place greater emphasis on differentiation
of their cars. Our strong brand recognition in both markets is helping us
maintain our leading market share of car electronics products on a global
basis. We became the first manufacturer in the world to introduce car
navigation systems for the consumer market when we launched our first car
navigation systems to the Japanese market in fiscal 1991, and since then have
maintained a leading position by offering affordably-priced and easy-to-operate
DVD-ROM and advanced HDD-equipped models. JEITA forecasts that sales of car
navigation systems worldwide will increase approximately 2.5 times, from 4.1
million units in 2002 to 11.4 million in 2007. In November 2002, we released
in the consumer market the worlds first car navigation system that
incorporates a data communication module for access to the latest map data. In
the car audio business, we also strive to widen our market share with new
products and innovations, such as car CD players with OEL displays and in-car
entertainment systems. As we keep introducing innovative car electronics
products, we will continue to seek to distinguish our products from our
competitors.

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Patent Licensing:

This segment includes the licensing of patents related primarily to laser
optical disc technologies.

Most of the royalty revenue from this segment is obtained from licensing
patents relating to laser optical disc technologies that are held by
Discovision Associates, our wholly-owned U.S. partnership. The legal
protections afforded these rights have a limited duration under applicable
laws, and the length of protection varies from country to country or by region.
Although a significant portion of these patents have expired in certain
regions such as Japan and Europe, some have not expired and remain valid. We
are currently seeking to develop new sources of revenue by acquiring patents
held by third parties and licensing such patents, and also by licensing patents
for third parties as a licensing agent.

Royalty revenue from Patent Licensing of digital playback/recording equipment,
such as CD-ROM and CD-R drives, accounted for a substantial portion of revenue
in this segment in fiscal 2002. In addition, patent licensing of digital discs
contributed significantly to royalty revenue. As world PC market sales
continued to slump, our revenue from patent licensing was negatively affected
in fiscal 2003. Additionally, a number of these patents in Europe and Japan
expired at the end of fiscal 2003, further resulting in a substantial decrease
in royalty revenue.

Revenue from the Patent Licensing segment is substantially less than from our
other segments, constituting less than 2% of operating revenue for fiscal 2003.
However, the contribution of this segment to our operating income is
substantial compared to its contribution to our operating revenue, constituting
approximately 35% of our operating income in fiscal 2003.

Others:

This segment includes products primarily for business use, such as DVD-R/RW
drives, DVD-ROM drives, factory automation systems, OEL display panels, devices
and parts, DVDs, LDs, prerecorded videocassettes, CDs, and optical disc
manufacturing systems.

Sales by product for fiscal 2003 in this segment are as follows: DVD-R/RW
drives accounted for the largest sales in this group. DVDs also contributed
materially to sales in this segment, due mainly to the expansion of the DVD
player market, especially in Japan.

Our computer peripheral sales have shifted from DVD-ROM to DVD-R/RW drives. In
fiscal 2001, we began supplying DVD-R/RW drives to PC makers on an OEM basis.
The DVD-R/RW drives can record, both on a write-once DVD-R disc and a
rewritable DVD-RW disc, up to seven times as much data as on a CD-R or CD-RW
disc. In fiscal 2002, we launched a Pioneer-brand DVD-R/RW drive, the worlds
first model that reads and writes data on all DVD-R, DVD-RW, CD-R and CD-RW
discs. In fiscal 2003, we introduced new DVD-R/RW models which are capable of
4X recording for DVD-R discs and 2X recording for DVD-RW discs, respectively.
JEITA forecasts strong growth in write-once/rewritable DVD drives including
DVD-R/RW drives, from 5.5 million units in 2002 to 52 million units in 2005
worldwide.

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Principal markets

The following table sets forth our operating revenue from unaffiliated
customers by geographic market for the respective periods indicated:

Operating Revenue by Geographic Market
(In millions of yen, except for percentage amounts)

|              |       |   |                     |         |      |  |      |       |   |   |         |         |  |  |      |       |   |   |         |         |  |  |      |       |  
|------------- | ----- | - | ------------------- | ------- | ---- |  | ---- | ----- | - | - | ------- | ------- |  |  | ---- | ----- | - | - | ------- | ------- |  |  | ---- | ----- | -
|              |       |   | Year ended March 31
|              |       |   |                    
|              |       |   | 2001                |         | 2002 |  | 2003
|              |       |   |                     |         |      |  |     
|Japan         |       | ¥ | 229,371             |         |      |  | 35.8 | %     |   | ¥ | 240,315 |         |  |  | 36.3 | %     |   | ¥ | 281,456 |         |  |  | 39.5 | %    
|North America |       |   | 209,639             |         |      |  | 32.8 |       |   |   | 197,135 |         |  |  | 29.8 |       |   |   | 198,297 |         |  |  | 27.8 |      
|Europe        |       |   | 125,071             |         |      |  | 19.5 |       |   |   | 131,065 |         |  |  | 19.8 |       |   |   | 132,979 |         |  |  | 18.7 |      
|Other Regions |       |   | 76,277              |         |      |  | 11.9 |       |   |   | 93,610  |         |  |  | 14.1 |       |   |   | 99,536  |         |  |  | 14.0 |      
|              |       |   |                     |         |      |  |      |       |   |   |         |         |  |  |      |       |   |   |         |         |  |  |      |      
|              | Total |   | ¥                   | 640,358 |      |  |      | 100.0 | % |   | ¥       | 662,125 |  |  |      | 100.0 | % |   | ¥       | 712,268 |  |  |      | 100.0 | %
|              |       |   |                     |         |      |  |      |       |   |   |         |         |  |  |      |       |   |   |         |         |  |  |      |      



|Note: |  | Operating revenue by geographic market represents revenue from
unaffiliated customers, based on the geographic location of each
unaffiliated customer.
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------

Seasonality

Global sales of the electronics
products are seasonal. Sales for the third
quarter (ending December 31) of each fiscal year are generally higher than
those of other quarters of the same fiscal year, due to increased demand during
the year-end holiday season. In Japan, sales of car electronics products
generally increase in the summer months, due to increased car usage for summer
vacations.

Marketing channels

We sell our products to a large number of retailers and distributors through
our sales offices in Japan and through Pioneers sales subsidiaries and
independent distributors outside Japan. In addition, we market certain
products, such as car electronics products and DVD-R/RW drives, on an OEM basis
to other manufacturers for resale under their own brand names. Our business is
not materially dependent upon any particular customer or group of customers.
Most of our sales are made from inventory rather than against customer orders.
Our products generally are sold under our own brand names, principally
Pioneer.

After-sales service

We maintain a policy of providing repair and other services in the countries
where our products are sold. In Japan, after-sales service is provided through
Pioneers wholly-owned service subsidiary, Pioneer Services Network Corporation
(PSN), and authorized servicing companies. Pioneer established PSN in April
2000 to enhance the efficiency of our operations for after-sales services and
offer such services with higher quality. In countries where Pioneers
subsidiaries are located, such as the United States and certain European
countries, after-sales services are provided by such subsidiaries or through
their authorized independent servicing companies. In other countries, such
services are generally performed by our local distributors.

In line with general industry practice, most of the products we sell to
consumers are provided with a warranty for free repair work, generally for a
period of one year from the date of purchase. Parts are kept available for
after-sales service for a period ranging generally from two to eight years
after discontinuation of production, depending on the characteristics of the parts.

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Raw materials and sources of supply

We purchase a variety of raw materials and parts for use in the manufacture of
our products. We generally maintain two or more suppliers to prevent a
shortage of raw materials and parts. In accordance with corporate policy,
however, we develop and manufacture certain key parts internally for our
products, including plasma display panels, laser pickups and certain integrated
circuits (ICs) and large-scale integrations (LSIs). We also purchase certain
completed products, then sell them under our own brand names.

No single source accounted for more than 5% of total supply purchases in fiscal
2003. We have not experienced any material difficulties in obtaining raw
materials, parts and products and believe that we will continue to be able to
obtain them to meet our needs.

Semiconductors account for the largest percentage of parts purchased in fiscal
2003 (on a yen basis), representing approximately 40% of our total purchases.
We purchase semiconductors from various suppliers, mainly pursuant to the terms
of our basic supply agreement. Our basic supply agreement generally has a term
of one year, with an automatic renewal clause. Where we do not have two or
more suppliers, we seek longer term contracts or bulk purchases and place our
order 3 to 4 months earlier than our usual practice to reduce the risk of being
unable to obtain key parts. We purchase a portion (approximately 10%) of our
semiconductor parts, which are custom-made for our needs in accordance with our
designs and specifications, from STMicroelectronics N.V. While we do not
currently have an alternative source for the type of semiconductors supplied by
STMicroelectronics N.V., we have entered into a strategic alliance with
STMicroelectronics N.V. to secure a stable source of supply.

To date, the prices of parts and other principal raw materials used by Pioneer
to produce its products have remained relatively stable.

We plan to increase the percentage of raw materials and parts we purchase
through online network systems, including the Internet. We believe this will
contribute to more timely manufacturing and a decrease in production costs.

Patents and licenses

We hold a variety of patents, including those relating to laser optical disc
technology, in Japan and other countries, while we in turn are licensed to use
a number of patents owned by third parties. We consider certain patents
licensed from third parties to be important to our business. In particular,
the patents licensed from Dolby Laboratories Licensing Corporation for such
devices as noise reduction, from Koninklijke Philips Electronics N.V. for CD
products and LD products, from Thomson Licensing S.A. for CD products and LD
products and from MPEG LA, L.L.C. for digital video products are utilized in
products accounting for a substantial portion of our net sales. Termination of
such license agreements would have a material adverse effect on our business,
although we have no reason to believe that such termination will occur.

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Competition

We believe that we compete successfully and that we have a leading market
position with respect to car electronics, plasma displays and DVD-related
products. Our products, however, are exposed to intense competition in Japan
and overseas. Our competitors, which vary in size, area of distribution, range
of products and financial resources, are principally companies based in Japan
and Europe, some of which are large, integrated home electric or electronic
appliance manufacturers having substantially larger capital resources than we
do. The electronics industry in general has been subject to substantial price
competition in light of decreased demand. In addition, electronics companies
in Asia, particularly those from Korea and China, pose a severe threat through
price competition. To counter this intense competition, we place great
emphasis on extensive marketing to stimulate demand for innovative and
value-added products. Furthermore, we concentrate our efforts on technological
research, quality control, sales promotion and the lowering of production costs
by increasing procurement of parts and products made outside Japan and other
measures. See also Item 3.D. Risk factors  Competition generally, and
especially on price and standardization of products, may adversely affect our
business results and financial condition and Item 4.B. Business
overview  Strategy.

Import restrictions

In certain areas of the world, our products encounter tariffs and other import
restrictions. Tariffs applied to our products vary depending upon the
classification of such products and the countries into which such products are
imported. Import restrictions, such as prohibitions on imports of certain
products, vary from nation to nation. To respond to this situation, we
manufacture our products in certain locations outside Japan as well as
commissioning their production to independent manufacturers.

Governmental regulation

Our business activities are subject to various governmental regulations in
countries in which we operate, including regulations relating to
business/investment approvals, export regulations including those related to
national security considerations, tariffs, antitrust, intellectual property,
consumer and business taxation, exchange controls, and environmental and
recycling requirements.

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C.  Organizational structure

Our basic corporate structure is shown in the following chart:

(ORGANIZTIONAL CHART)



|Note: |  | Effective April 1, 2003, Pioneer Video Corporation, a wholly-owned
subsidiary of Pioneer, established Pioneer Micro Technology Corporation by
spinning off its semiconductor business. On the same day, Shizuoka
Pioneer Corporation, a wholly-owned subsidiary of Pioneer, merged with
Pioneer Video Corporation and changed its trade name to Pioneer Display
Products Corporation.
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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The following table sets forth the principal subsidiaries owned, directly or
indirectly, by Pioneer.

|                                          |  |               |  |                 |       |                    |  |                                                                                                                                        
|----------------------------------------- |  | ------------- |  | --------------- | ----- | ------------------ |  | ---------------------------------------------------------------------------------------------------------------------------------------
|                                          |  |               |  | Ownership       |       |                   
|                                          |  | Country of    |  | interest and    |       |                   
|Name of subsidiary                        |  | incorporation |  | voting interest |       | Principal business
|                                          |  |               |  |                 |       |                   
|Tohoku Pioneer
Corporation                |  | Japan         |  |                 | 66.9  | %                  |  | Manufacture of car
electronics products
and OEL display panels                                                                         
|                                          |  |               |  |                 |       |                    |  |                                                                                                                                        
|Pioneer Micro
Technology Corporation*     |  | Japan         |  |                 | 100.0 | %                  |  | Manufacture and
distribution of ICs
and LSIs                                                                                           
|                                          |  |               |  |                 |       |                    |  |                                                                                                                                        
|Pioneer Display
Products Corporation*     |  | Japan         |  |                 | 100.0 | %                  |  | Manufacture of displays                                                                                                                
|                                          |  |               |  |                 |       |                    |  |                                                                                                                                        
|Pioneer North America,
Inc.               |  | U.S.A.        |  |                 | 100.0 | %                  |  | Coordination of the
activities of
Pioneers North
American subsidiaries
and affiliates                                                 
|                                          |  |               |  |                 |       |                    |  |                                                                                                                                        
|Pioneer Electronics
(USA) Inc.            |  | U.S.A.        |  |                 | 100.0 | %                  |  | Distribution of
electronics products,
and customer support
of our products and
strategic shared
services of Pioneers
U.S. subsidiaries
|                                          |  |               |  |                 |       |                    |  |                                                                                                                                        
|Pioneer Electronics
Capital Inc.          |  | U.S.A.        |  |                 | 100.0 | %                  |  | Financing to Pioneer
and its subsidiaries                                                                                              
|                                          |  |               |  |                 |       |                    |  |                                                                                                                                        
|Discovision Associates**                  |  | U.S.A.        |  |                 | 100.0 | %                  |  | Licensing of worldwide
patents relating to
laser optical disc
technologies                                                             
|                                          |  |               |  |                 |       |                    |  |                                                                                                                                        
|Pioneer Europe NV                         |  | Belgium       |  |                 | 100.0 | %                  |  | Coordination of the
activities of
Pioneers European
subsidiaries and
affiliates, and
distribution of
electronics products             
|                                          |  |               |  |                 |       |                    |  |                                                                                                                                        
|Pioneer Electronics
Asiacentre, Pte. Ltd. |  | Singapore     |  |                 | 100.0 | %                  |  | Coordination of the
activities of
Pioneers Asian
subsidiaries and
affiliates, and
manufacture and
distribution of
electronics products
|                                          |  |               |  |                 |       |                    |  |                                                                                                                                        
|Pioneer China Holding
Co., Ltd.           |  | China         |  |                 | 100.0 | %                  |  | Coordination of the
activities of
Pioneers Chinese
subsidiaries and
affiliates and
distribution of
electronics products               



|*  |  | Effective April 1, 2003, Pioneer Video Corporation, a wholly-owned
subsidiary of Pioneer, established Pioneer Micro Technology Corporation
by spinning off its semiconductor business. On the same day, Shizuoka
Pioneer Corporation, a wholly-owned subsidiary of Pioneer, merged with
Pioneer Video Corporation and changed its trade name to Pioneer Display
Products Corporation.
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|** |  | Discovision Associates (DVA) is a general partnership organized under
the laws of the State of California in the United States.                                                                                                                                                                                                                                                      

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D. Property, plants and equipment

Our manufacturing operations are conducted principally in Japan, Southeast Asia
and China. Of the total of 34 plants, 16 plants are in Japan and the remaining
18 are outside Japan. The following table sets forth information, as of March
31, 2003, with respect to our principal plants.

|                                                      |  |                     |  |                |                 |                    |  |                                                                                          
|----------------------------------------------------- |  | ------------------- |  | -------------- | --------------- | ------------------ |  | -----------------------------------------------------------------------------------------
|Name of plant                                         |  |                     |  | Floor space    |                 |                   
|(Name of company                                      |  |                     |  | (square feet)  |                 |                   
|which owns the plant)                                 |  | Location            |  | [leased space] |                 | Principal products
|                                                      |  |                     |  |                |                 |                   
|Japan                                                 |  |                     |  |                |                 |                    |  |                                                                                          
|                                                      |  |                     |  |                |                 |                    |  |                                                                                          
|Shizuoka Plant
(Shizuoka Pioneer
Corporation)         |  | Fukuroi, Shizuoka   |  |                | 558,000         |                    |  | Plasma displays                                                                          
|                                                      |  |                     |  |                |                 |                    |  |                                                                                          
|Tendo Plant
(Tohoku Pioneer
Corporation)              |  | Tendo, Yamagata     |  |                | 504,000         |                    |  | Cassette car stereos, Car
CD/MD players, Car speakers,
Loudspeakers                      
|                                                      |  |                     |  |                |                 |                    |  |                                                                                          
|Tokorozawa Plant
(Pioneer
Corporation)                |  | Tokorozawa, Saitama |  |                | 490,000         |                    |  | Stereo systems, Individual
stereo components, DVD
players, DVD-R/RW drives, DVD
recorders
|                                                      |  |                     |  |                |                 |                    |  |                                                                                          
|Kofu Plant
(Pioneer Video
Corporation)                |  | Nakakoma, Yamanashi |  |                | 428,000         |                    |  | DVDs, DVD-R/RW discs, CDs,
Plasma display panels                                         
|                                                      |  |                     |  |                |                 |                    |  |                                                                                          
|Kawagoe Plant
(Pioneer
Corporation)                   |  | Kawagoe, Saitama    |  |                | 414,000         |                    |  | Cassette car stereos, Car
CD/MD players, Car navigation
systems                          
|                                                      |  |                     |  |                |                 |                    |  |                                                                                          
|Yonezawa Plant
(Tohoku Pioneer
Corporation)           |  | Yonezawa, Yamagata  |  |                | 234,000         |                    |  | OEL displays                                                                             
|                                                      |  |                     |  |                |                 |                    |  |                                                                                          
|Kokubo Plant
(Pioneer Video
Corporation)              |  | Kofu, Yamanashi     |  |                | 204,000
[77,000 | ]                  |  | ICs, LSIs                                                                                
|                                                      |  |                     |  |                |                 |                    |  |                                                                                          
|Tendo the 2nd Plant
(Tohoku Pioneer
Corporation)      |  | Tendo, Yamagata     |  |                | 139,000         |                    |  | Factory automation systems                                                               
|                                                      |  |                     |  |                |                 |                    |  |                                                                                          
|Towada the 2nd Plant
(Towada Electronics
Corporation) |  | Towada, Aomori      |  |                | 134,000         |                    |  | DVD-ROM pickups, Cassette car
stereos                                                    
|                                                      |  |                     |  |                |                 |                    |  |                                                                                          
|Niike Plant
(Shizuoka Pioneer
Corporation)            |  | Fukuroi, Shizuoka   |  |                | 134,000         |                    |  | Plasma displays                                                                          

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|                                                            |  |                                |  |                |                  |                    |  |                                                                                   
|----------------------------------------------------------- |  | ------------------------------ |  | -------------- | ---------------- | ------------------ |  | ----------------------------------------------------------------------------------
|Name of plant                                               |  |                                |  | Floor space    |                  |                   
|(Name of company                                            |  |                                |  | (square feet)  |                  |                   
|which owns the plant)                                       |  | Location                       |  | [leased space] |                  | Principal products
|                                                            |  |                                |  |                |                  |                   
|Outside Japan                                               |  |                                |  |                |                  |                    |  |                                                                                   
|                                                            |  |                                |  |                |                  |                    |  |                                                                                   
|Mexico Plant
(Pioneer Speakers,
S.A. de C.V.)               |  | Baja California,
Mexico        |  |                | 339,000          |                    |  | Speaker systems                                                                   
|                                                            |  |                                |  |                |                  |                    |  |                                                                                   
|Thailand Plant
(Pioneer
Manufacturing
(Thailand) Co.,
Ltd.) |  | Ayutthaya, Thailand            |  |                | 300,000          |                    |  | Cassette car stereos, Car CD
players, Stereo systems                              
|                                                            |  |                                |  |                |                  |                    |  |                                                                                   
|Malaysia Plant
(Pioneer Technology
(Malaysia) Sdn.
Bhd.)    |  | Johor, Malaysia                |  |                | 262,000          |                    |  | Stereo systems, CD players,
Cassette car stereos, Car CD
players, Cable-TV systems
|                                                            |  |                                |  |                |                  |                    |  |                                                                                   
|Shanghai Plant
(Shanghai Pioneer
Speakers, Co.,
Ltd.)       |  | Shanghai, China                |  |                | 255,000          |                    |  | Speaker systems                                                                   
|                                                            |  |                                |  |                |                  |                    |  |                                                                                   
|Guang Dong Plant
(Dongguan Monetech
Electronic Co.,
Ltd.)   |  | Guang Dong, China              |  |                | 249,000
[249,000 | ]                  |  | Speaker systems                                                                   
|                                                            |  |                                |  |                |                  |                    |  |                                                                                   
|Shanghai Plant
(Pioneer Technology
(Shanghai) Co.,
Ltd.)    |  | Shanghai, China                |  |                | 233,000          |                    |  | DVD players, Car tuners,
Cassette car stereos                                     
|                                                            |  |                                |  |                |                  |                    |  |                                                                                   
|California Plant
(Pioneer
Electronics
Technology, Inc.)     |  | California, U.S.A.             |  |                | 185,000          |                    |  | Projection TVs, Speaker systems                                                   
|                                                            |  |                                |  |                |                  |                    |  |                                                                                   
|U.K. Plant
(Pioneer Technology
(UK) Ltd.)                   |  | West Yorkshire,
United Kingdom |  |                | 184,000          |                    |  | Stereo systems, CD players,
Tuners, Digital DBS decoders                          

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|                                                           |  |                   |           |                |           |                    |  |                                     
|---------------------------------------------------------- |  | ----------------- | --------- | -------------- | --------- | ------------------ |  | ------------------------------------
|Name of plant                                              |  |                   |           | Floor space    |           |                   
|(Name of company                                           |  |                   |           | (square feet)  |           |                   
|which owns the plant)                                      |  | Location          |           | [leased space] |           | Principal products
|                                                           |  |                   |           |                |           |                   
|Guang Dong Plant
(Pioneer Technology
(Dongguan) Co., Ltd.) |  | Guang Dong, China |           |                | 182,000   |                    |  | DVD-R/RW drives                     
|                                                           |  |                   |           |                |           |                    |  |                                     
|Ohio Plant
(Pioneer Industrial
Components, Inc.)           |  | Ohio, U.S.A.      |           |                | 157,000   |                    |  | Cassette car
stereos, Car CD
players
|                                                           |  |                   |           |                |           |                    |  |                                     
|Others                                                     |  |                   |           |                |           |                    |  |                                     
|(6 plants in Japan and 8 plants outside Japan)             |  |                   | 1,238,000 |                |           |                   
|                                                           |  |                   |           |                | [45,000   | ]                  |  |                                     
|                                                           |  |                   |           |                |           |                    |  |                                     
|                                                           |  |                   |           |                |           |                    |  |                                     
|Total                                                      |  |                   |           |                | 6,823,000 |                    |  |                                     
|                                                           |  |                   |           |                | [371,000  | ]                  |  |                                     
|                                                           |  |                   |           |                |           |                    |  |                                     

Most of the buildings of these plants and the land on which they are located
are owned by us.

As of March 31, 2003, we owned our headquarters buildings in Tokyo having an
approximate aggregate floor space of 336,000 square feet. We lease
approximately 34,000 square feet as additional head office space in Tokyo.

We also own an employee training center in Tokyo with an approximate floor
space of 17,000 square feet, and R&D facilities with an approximate aggregate
floor space of 282,000 square feet.

Our sales office buildings in Japan and outside Japan are mainly leased. The
head office buildings of some distribution subsidiaries outside Japan are owned
by us. Land and buildings for the Ohio Plant and one of our headquarters
buildings with an aggregate book value of ¥6,176 million were pledged as
collateral for certain loans at March 31, 2003.

To improve cost competitiveness and to reallocate a major portion of production
to China, Pioneer established two production subsidiaries in China in fiscal
2001 and these plants began operation in the fall of 2001. We continue
expanding parts procurement, designing products, and increasing the proportion
of our production in China. Capital expenditures related to these two plants
for fiscal 2002 and fiscal 2003 were ¥4.2 billion and ¥3.2 billion,
respectively. In fiscal 2004, we plan to spend ¥3.5 billion to expand
production capacity of these two plants further, which includes the
construction of an additional production line for DVD-R/RW drives in the Guang
Dong Plant. Upon completion of the new production line in the fall of 2003,
the monthly production capacity for DVD-R/RW drives is expected to reach one
million units.

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In fiscal 2003, we started construction of a new manufacturing line for plasma
displays at our plant in Shizuoka, Japan, to meet potential demand for plasma
displays. Moreover, we plan to add another line in our Kofu Plant, which is
expected to start operation in the spring of 2005. This will bring our annual
production capacity to approximately 500 thousand units. The planned
investment for these two lines aggregates to approximately ¥42 billion,
including ¥5 billion paid by March 31, 2003.

We intend to fund the capital requirement to fulfill these capital expenditure
plans through internally generated cash.

We are constantly engaged in upgrading, modernizing and revamping the
operations of our manufacturing facilities, based on our assessment of market
needs and prospects. As a result, it would be unreasonably difficult to track
the exact productive capacity and the extent of utilization of each of our
manufacturing facilities. We believe that our manufacturing facilities are
generally all operating within normal operating capacity and not substantially
below capacity. Additionally, we believe that there does not exist any
material environmental issues that may affect the utilization of our assets.

We believe that our properties are adequate to carry on our current business,
though additional investment in plant and equipment is being made to promote
continued growth.




Item 5. Operating and Financial Review and Prospects

Critical accounting policies and estimates

The following analysis of financial conditions and results of operations
discusses our consolidated financial statements, which have been prepared in
accordance with U.S. GAAP, except for segment data which is prepared in
accordance with the regulations under the Securities and Exchange Law of Japan.

The preparation of the financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. On an on-going basis, management evaluates its
estimates and judgments, including those related to customer incentives, bad
debts, inventories, investments, income taxes, financing operations, warranty
obligations, retirement benefits, and contingencies and litigation. Management
bases its estimates and judgments on historical experience and on various other
factors that are believed to be reasonable under the circumstances, the results
of which form the basis for making judgments about the carrying values of
assets and liabilities and the reported amount of revenue and expenses that are
not readily apparent from other sources. Actual results may differ from these
estimates due to the inherent uncertainty involved in making estimates.

We believe the following critical accounting policies, among others, affect our
more significant judgments and estimates used in the preparation of our
consolidated financial statements.

Revenue recognition

Sales are generally recorded when merchandise is shipped to customers based on
purchase orders or when services are rendered to the third parties. In certain
cases, terms of the contract require the product to pass customer inspection
after shipment and we record the sale upon satisfactory customer acceptance.
Royalty revenue is recognized based on royalty statements from licensees.
Estimated reductions to revenue are recorded for customer incentive offerings
such as volume incentive rebate, cash discounts and co-operative advertising,
based on experience. Should a greater proportion of customers redeem

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incentives than we estimate, additional reductions to revenue may be required.

Allowances for doubtful accounts

We maintain allowances for doubtful accounts for estimated losses resulting
from the inability of our customers to make required payments. If the financial
condition of our customers were to deteriorate, resulting in an impairment of their
ability to make payments, additional allowances may be required.

Warranties

We provide for the estimated cost of product warranties at the time revenue is
recognized. While we engage in extensive product quality programs and processes,
including actively monitoring and evaluating the quality of our component suppliers,
our warranty obligation is affected by product failure rates and service costs that
may be incurred in correcting a product failure. The estimate of warranty cost is
based on historical information, and should actual product failure rates or service
costs differ from our estimates, revisions to the estimated warranty liability may
be required.

Inventories

We write down inventory for estimated obsolescence equal to the difference between
the cost of inventory and the estimated market value based upon assumptions about
future demand and market conditions. If actual future demand or market conditions
are less favorable than those projected by the management, additional inventory
write-downs may be required.

Impairment of investments

We hold minority interests in customers and financial institutions for the purpose
of maintaining long-term relationships, some of which are in publicly traded companies
whose share prices are highly volatile and some of which are in non-publicly traded
companies whose value is difficult to determine. We record an investment impairment
charge when we believe an investment has experienced a decline in value that is other
than temporary. For investment in publicly traded stocks, we assume the decline is
other than temporary when market value is less than cost generally for a period of six
to nine months. For investment in non-publicly traded companies, we record impairment
loss when net assets of the investee declined generally by 30% to 50% due to losses
incurred. During fiscal 2003, a ¥1.3 billion impairment loss was recognized in income
as a result of decline in prices of stocks in our portfolio. The unrealized losses in
the portfolio at the end of fiscal 2003 were immaterial. Future adverse changes in stock
market conditions or poor operating results of underlying investments could result in
losses or an inability to recover the carrying value of the investments that may not be
reflected in an investments current carrying value, thereby possibly requiring an
impairment charge in the future.

Deferred tax assets

We record a valuation allowance to reduce deferred tax assets to the amount that we
believe is more likely than not to be realized. While we have considered future taxable
income and ongoing prudent and feasible tax planning strategies in assessing the need for
the valuation allowance, in the event that we determine that we will not be able to realize
all or part of the net deferred tax assets in the future, an adjustment to the deferred tax
assets would be charged to income in the period such determination is made. Likewise, should
we determine that we will be able to realize deferred tax assets in the future in excess of
the net recorded amount, an adjustment to the deferred tax assets would increase income in
the period such determination was made.

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Pension benefit costs

Employee retirement benefit costs and obligations are dependent on assumptions
used in the actuarial calculations. These assumptions include discount rates,
future compensation levels, retirement rates and mortality rates which are
based upon current statistical data, as well as long-term returns on plan
assets and other factors. For pension plans of the parent company and domestic
subsidiaries, the discount rates are based on the market yield from Japanese
Government Bonds adjusted for the assumed duration of the pension benefit
payment for current employees. The discount rate for our domestic contributory
welfare pension plan is further adjusted to reflect pension obligations that
can be transferred to the Japanese government. Expected rates of return on
assets are based on weighted average of expected long-term return on each asset
class in which pension assets are invested. If actual results differ from the
assumptions or assumptions are changed, the resulting effects are accumulated
and systematically recognized over future periods and, therefore, generally
affect recognized expense and the recorded obligations in future periods.
Recent declines of discount rates and negative returns on plan assets would
adversely affect our pension benefit costs. Amortization of unrecognized net
actuarial loss, which is a component of pension benefit costs and represents
systematic expense recognition of effects of changes in assumptions and
difference between assumptions and actual results, for our domestic pension
plans increased to ¥2.9 billion in fiscal 2003 from ¥2.0 billion in fiscal
2002, and the same trend is expected to continue in fiscal 2004. Lowering the
discount rates for pension plans in Japan by 0.5% would have increased the
projected benefit obligation at the end of fiscal 2003 by approximately ¥14
billion and would increase the pension cost for fiscal 2004 by approximately
¥1.3 billion. Lowering the expected rate of return on plan assets by 0.5%
would increase the pension cost for fiscal 2004 by approximately ¥0.4 billion.

Overview

We classify our business groups into four segments: Home Electronics, Car
Electronics, Patent Licensing and Others. Car Electronics is our
largest segment by revenue, accounting for 39.5% of operating revenue (net
sales plus royalty revenue) in fiscal 2003. In fiscal 2003, Home
Electronics, Patent Licensing and Others accounted for 32.1%, 1.8% and
26.6%, respectively, of operating revenue. Our primary markets for our
products based on operating revenues from unaffiliated customers for fiscal
2003 were Japan (40%), North America (28%) and Europe (19%).

Home Electronics, Car Electronics and Others

The electronics industry is characterized by rapid technological changes, and
our ability to introduce attractive new products to the market significantly
affects the operating results of this segment. Sales of new products such as
DVD-related products, including DVD players, DVD recorders and DVD-R/RW drives
for PC use, plasma displays, car navigation systems, digital cable-TV or
broadcast set-top boxes and OEL displays have grown rapidly and in fiscal 2003
sales of such new products accounted for approximately 43% of our total sales.
We expect to continue concentrating our resources on these strategic products
in order to expand sales even further.

The electronics industry is also characterized by continuing sales price
decreases in most product categories, making it important for us to continually
improve the efficiency of our manufacturing, distribution, service and
administrative functions. As an example of our effort, in the past five years,
we have increased the percentage of our manufacturing outside Japan from 48% to
63% in terms of the yen value of cost of goods produced, mainly by expanding
production facilities in Southeast Asia and China.

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Patent Licensing

Our royalty revenue from Patent Licensing depends to a material extent on the
sales of patented products by our licensees, making it difficult for us to
predict actual royalty revenue each year. Therefore, sluggishness in the PC
market negatively impacts our royalty revenue. In addition, a significant
portion of our patents in Japan and Europe relating to laser optical disc
technologies expired at the end of fiscal 2003. Accordingly, we have started
to experience a substantial decrease in operating revenue and operating income
from this segment. While we are working to acquire patents held by third
parties and licensing such patents, we also license patents for third parties
as a licensing agent. Although these operations may generate additional
revenue to help offset a portion of this expected decline, we do not expect
that the revenue, if any, from such new patents/agencies will be sufficient to
offset the decrease in royalty revenue resulting from the expiration of our
existing patents.

A. Operating results

Fiscal 2003 compared with fiscal 2002

Summary

During fiscal 2003, which ended March 31, 2003, economic conditions continued
to be generally unfavorable worldwide, with sluggish stock prices in the
worlds major stock markets, growing tension in the Middle East, and resulting
slow consumer spending worldwide. In the foreign exchange markets, the average
value of the yen during fiscal 2003 was approximately 3% higher against the
U.S. dollar and approximately 9% lower against the euro, compared with fiscal
2002. In these difficult economic conditions, operating revenue, the sum of
net sales and royalty revenue, for fiscal 2003 was the highest ever, at ¥712.3
billion, up 7.6% from fiscal 2002. Operating income was ¥31.4 billion, a 74.8%
increase from ¥17.9 billion recorded in fiscal 2002, and net income increased
to ¥16.1 billion, almost double that of ¥8.0 billion posted in fiscal 2002.

Reclassifications

Effective fiscal 2003, we adopted EITF (Emerging Issues Task Force) 01-9
Accounting for Consideration Given by a Vendor to a Customer (Including a
Reseller of the Vendors Products.) The adoption resulted in a reduction in
net sales and a corresponding decrease in selling, general and administrative
(SGA) expenses, with no effect on operating income. For fiscal 2002, ¥6.8
billion was reclassified from SGA expenses to a sales reduction to conform to
this presentation.

In addition, effective fiscal 2003, we classified losses on sale and disposal
of fixed assets, which were previously included in
Other  net in other income
(expense), into SGA expenses. For fiscal 2002, ¥3.3 billion was reclassified
from Other  net to SGA expenses.

Also, we reclassified reportable segments into four categories  Home
Electronics, Car Electronics, Patent Licensing and Others. Previous
figures for the corresponding periods have been restated accordingly.

Impact of foreign exchange fluctuations

The estimated effect of changes in yen exchange rates from fiscal 2002 was to
increase operating revenue and operating income by ¥4.4 billion and ¥4.3
billion, respectively. Such estimates are obtained by applying the yens daily
average exchange rates in the Tokyo foreign exchange market in fiscal 2002 to
foreign currency-denominated operating revenue, cost of sales and SGA expenses,
and do not account for
the effect of changes to sales prices implemented in accordance with foreign
exchange fluctuations.

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Net sales and royalty revenue

Net sales amounted to ¥699.7 billion, an 8.6% increase over fiscal 2002. Net
sales in Japan came to ¥281.5 billion, up 17.1% from fiscal 2002, and overseas
net sales increased 3.5% to ¥418.2 billion.

Home Electronicsnet sales increased 6.2% over fiscal 2002, amounting to ¥228.7
billion, primarily as a result of increased sales of plasma displays and DVD
recorders, and despite decreased sales of compact stereo systems worldwide.
Net sales of plasma displays, particularly for home use, grew both in Japan and
overseas to approximately twice the levels in fiscal 2002 both in terms of
units sold and yen. In Japan sales of DVD recorders increased as a result of
successful introduction of the models with a large-capacity HDD in the second
half of fiscal 2003. As a result of the increased sales of DVD recorders and
plasma displays with growth of home telephones sales, total Home Electronics
sales in Japan increased by 24.7% to ¥72.5 billion despite decreased sales of
compact stereo systems. Overseas, sales were almost the same as fiscal 2002 at
¥156.3 billion. This primarily reflects a large increase in the sale of plasma
displays for home use overseas and a favorable effect of the yens depreciation
against the euro, which increased sales in terms of yen in Europe, offsetting
falling sales of digital broadcast set-top boxes in Europe and compact stereo
systems in North America and Europe.

Car Electronicsnet sales rose 9.1% to ¥281.1 billion, growing both in Japan
and overseas. In Japan, net sales increased 10.6% to ¥105.7 billion, mainly
due to continuing strong sales in the consumer market of two types of car
navigation systems, advanced HDD models and affordable, easy-to-operate DVD
models. Overseas net sales also increased 8.2% to ¥175.4 billion, primarily
due to growing sales of car CD players in consumer markets, particularly in
North America, reflecting changes in consumer demands from cassette car stereos
to car CD players. Sales of car audio products to automobile manufacturers
increased as well, mainly in North America.

Royalty revenue from Patent Licensingdecreased 28.5% to ¥12.6 billion,
compared to that of fiscal 2002. This was attributable to a decline in royalty
revenue from digital recording products such as CD-R drives, resulting from
lower PC demand, and expiration of our optical disc-related patents in some
areas.

Net sales for Othersrose 10.8% over fiscal 2002 to ¥189.9 billion. Sales of
DVD-R/RW drives to PC makers increased both in Japan and overseas despite
generally lower PC demand, primarily reflecting a shift in demand from DVD-ROM
drives toward DVD-R/RW drives. In Japan, net sales increased 19.2% to ¥103.2
billion. In addition to increased sales of DVD-R/RW drives, sales growth of DVD
software and cellular phone-related devices, including OEL displays primarily
contributed to the increase. Overseas, net sales were up 2.1% over fiscal 2002
to ¥86.6 billion, primarily due to increased sales of DVD-R/RW drives, optical
disc manufacturing systems in Asia, and DVD software in North America, although
sales of speaker devices for cellular phones and DVD-ROM drives decreased. The
shift of our sales and manufacturing resources toward DVD-R/RW drives was a
major factor leading to decreased sales of DVD-ROM drives overseas.

Cost of sales and selling, general and administrative expenses

Cost of sales increased to ¥498.5 billion from fiscal 2002s ¥465.3 billion
associated with an increase of net sales. However, cost of sales as a
percentage of operating revenue declined 0.3 percentage points to 70.0%. Gross
profit margin in Car Electronics Business improved as a result of cost
reductions in car navigation systems and favorable effects of higher sales of
car electronics products, absorbing factory overhead. A weaker yen against the
euro favorably affected gross profit margin, as well.

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SGA expenses increased by 2.0% or ¥3.6 billion over fiscal 2002 to ¥182.4
billion. Personnel-related expenses increased by ¥6.3 billion. This primarily
reflected increased costs for pension plans in Japan and overseas due to
declines of discount rates used in calculation of pension obligations and lower
returns from pension assets as a result of poor conditions in the stock markets
worldwide. Also, losses on sale and disposal of fixed assets increased by ¥1.2
billion. The increased losses were mainly attributable to losses incurred in
conversion of optical disc production facilities at the Kofu Plant in
Yamanashi, Japan into plasma display panel production facilities to satisfy
growing demand for plasma displays. This conversion is in line with our policy
to concentrate business resources in strategically selected business areas. On
the other hand, advertising and sales promotion expense decreased compared with
fiscal 2002, when we vigorously promoted the Pioneer brand name and our
strategic products such as plasma displays worldwide. The ratio of SGA
expenses to operating revenue decreased 1.4 percentage points to 25.6%.

R&D expenditures, which are included in cost of sales and SGA expenses,
increased 16.2% to ¥45.4 billion, representing 6.4% of operating revenue. The
increase primarily reflected R&D activities to enhance our technological
advantage in our strategic products such as car navigation systems, plasma
displays, DVD recorders and digital cable-TV set-top boxes.

Operating income

Operating income in fiscal 2003 was ¥31.4 billion, a 74.8% increase from ¥17.9
billion recorded in fiscal 2002, mainly resulting from increased net sales and
improved gross profit margin. Operating income for the Home Electronics
segment was ¥0.4 billion in fiscal 2003 compared with a loss of ¥10.8 billion
in fiscal 2002, reflecting increased profit from plasma displays, primarily as
a result of expanded production and improved production efficiency. A
successful introduction of DVD recorders with HDD was another reason for the
turnaround of the profitability of this segment. Operating income for the Car
Electronicssegment in fiscal 2003 amounted to ¥26.1 billion, up 62.6% from
fiscal 2002. Increases of sales both in Japan and overseas, and improved
production efficiency as well as cost reductions in car navigation systems are
the main reasons. In the Patent Licensingsegment, operating income decreased
to ¥10.7 billion from ¥16.8 billion, mainly due to a decline of royalty
revenue. Others segment in fiscal 2003 posted ¥4.1 billion operating income,
compared with ¥0.6 billion posted in fiscal 2002. This primarily reflects
increased sales and cost reduction of DVD-R/RW drives for PC use, and increased
sales of DVD software and cellular phone-related devices. Another reason for
the improvement in operating income was that the costs incurred in fiscal 2002
in connection with withdrawal from certain businesses were no longer incurred
in fiscal 2003.

Other income (expense)

Other expense, on a net basis, increased from an expense of ¥2.6 billion to
¥2.7 billion. Net interest (interest income, less interest expense) was an
expense of ¥0.7 billion, compared with an expense of ¥0.4 billion in fiscal
2002, mainly due to decreased interest income, which reflected declining
interest rates in the U.S. financial market. Gain on sale of subsidiaries
stock was ¥0.8 billion in fiscal 2003, while there was no gain on the sale of
subsidiaries in fiscal 2002. The sale of subsidiaries, mainly in
karaoke-related business, is also in line with our policy to concentrate
business resources in strategically selected business areas. Foreign exchange
gain (loss) swung from ¥0.3 billion gain recorded in fiscal 2002 to ¥2.0
billion loss in fiscal 2003. The losses in fiscal 2003 primarily arose from
conversion of U.S. dollar deposit and receivables into yen due to the yens
appreciation against the U.S. dollar during fiscal 2003. Othernet decreased
from expense of ¥2.5 billion to expense of ¥0.8 billion. Losses on write-down
of investments decreased to ¥1.4 billion in fiscal 2003, compared with ¥2.3
billion losses recorded in fiscal 2002, as the decline in market value of our
investments in marketable equity securities was smaller in fiscal 2003.

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Income before income taxes

Income before income taxes in fiscal 2003 increased 86.6% to ¥28.6 billion
from ¥15.3 billion in fiscal 2002 mainly due to the increase in operating
income.

Income taxes

Income taxes as a percentage of pre-tax income (the effective tax rate) was
33.0%, decreased by 10.8% compared with 43.8% in fiscal 2002 and lower by 9.0%
compared with the normal statutory tax rate of 42.0% in Japan. The main reason
for the differences was the reversal of valuation allowances, which had been
provided for a tax benefit the realization of which had been judged as
unlikely, as profitability of subsidiaries particularly in Japan improved.
Profits posted in our overseas subsidiaries, for which income tax rates are
lower than in Japan, were another reason for the difference with the normal
statutory tax rate in Japan. Meanwhile, a 1.0% reduction of tax rate in Japan
effective from fiscal 2005 had the effect of increasing deferred income taxes
by ¥0.8 billion.

Minority interest in losses (earnings) of subsidiaries

Minority interest in losses (earnings) of subsidiaries, which primarily
consists of the earnings of Tohoku Pioneer Corporation and its subsidiaries
attributable to its minority shareholders, amounted to ¥0.02 billion in fiscal
2003 compared with ¥0.5 billion in fiscal 2002.

Equity in earnings (losses) of affiliated companies

Equity in earnings (losses) of affiliated companies was a loss of ¥3.1 billion
in fiscal 2003 compared with a loss of ¥0.1 billion in fiscal 2002. The
increased loss is mainly attributable to research and development cost incurred
in ELDis, Inc., where active-matrix full-color OEL displays are still at the
development stage.

Net income

Net income in fiscal 2003 was ¥16.1 billion, almost double that of fiscal
2002s ¥8.0 billion. Basic net income per share of common stock in fiscal 2003
was ¥90.24, compared with ¥44.70 in fiscal 2002. Diluted net income per share
in fiscal 2003 was ¥90.24 compared with ¥44.69 in fiscal 2002.

Fiscal 2002 compared with fiscal 2001

Reclassifications

Effective fiscal 2003, we adopted EITF 01-9 Accounting for Consideration Given
by a Vendor to a Customer (Including a Reseller of the Vendors Products.)
The adoption resulted in a reduction in net sales and a corresponding decrease
in SGA expenses, with no effect on operating income. For fiscal 2001 and 2002,
¥6.7 billion and ¥6.8 billion were reclassified from SGA expenses to sales
reductions, respectively, to conform to this presentation.

In addition, effective fiscal 2003, we classified losses on sale and disposal
of fixed assets, which were previously included in
Other  net in other income
(expense), into SGA expenses. For fiscal 2001 and 2002, ¥0.9 billion and ¥3.3
billion were reclassified from Other  net to SGA expenses.

Also, we changed reportable segments into four categories  Home Electronics,
Car Electronics, Patent Licensing and Others. Previous figures for the
corresponding periods have been restated accordingly.

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Summary

During fiscal 2002 which ended March 31, 2002, and, especially after the
terrorist attacks on September 11, 2001, economic conditions continued to slow
worldwide, with demand for information technology-related products weakening.
As for foreign exchange markets, the average value of the yen during fiscal
2002 was approximately 12% lower against the U.S. dollar, and approximately 9%
lower against the euro, compared to fiscal 2001. Under such circumstances,
operating revenue, the sum of net sales and royalty revenue, for fiscal 2002
was ¥662.1 billion, up 3.4% from fiscal 2001. Operating income was ¥17.9
billion, a 45.5% decrease from ¥32.9 billion recorded in fiscal 2001, and net
income came to ¥8.0 billion, down 56.0% from ¥18.3 billion posted in fiscal
2001.

Impact of foreign exchange fluctuations

The estimated effect of changes in yen exchange rates from fiscal 2001 was to
increase operating revenue and operating income by ¥43.5 billion and ¥14.4
billion, respectively. Such estimates were obtained by applying the yens
daily average exchange rates in the Tokyo foreign exchange market in fiscal
2001 to foreign currency-denominated operating revenue, cost of sales and SGA
expenses, and do not account for the effect of changes to sales prices
implemented in accordance with foreign exchange fluctuations.

Net sales and royalty revenue

Net sales amounted to ¥644.5 billion, a 4.0% increase over fiscal 2001. Sales
in Japan came to ¥240.3 billion, up 4.8% from fiscal 2001, and overseas net
sales increased 3.5% to ¥404.2 billion.

Home Electronicssales decreased 2.0% over fiscal 2001, amounting to ¥215.4
billion, primarily as a result of a sales decrease of digital cable-TV set-top
boxes although sales of plasma displays for home use, DVD players and DVD
recorders increased. Plasma display sales grew 16% in terms of yen, and from
35 thousand to 50 thousand in terms of units. Sales in Japan increased 5.3% to
¥58.1 billion, thanks to a large increase in the sale of plasma displays for
home use and a rise in sales of DVD recorders, despite a large decrease in
compact stereo system sales. Overseas, sales decreased by 4.5% to ¥157.3
billion primarily as a result of a sharp sales decline of digital cable-TV
set-top boxes in North America, despite the yens depreciation and encouraging
sales of plasma displays for home use and DVD home theater systems in North
America and Europe.

Car Electronicssales rose 4.0% to ¥257.7 billion, mainly as a result of
increased sales to consumer markets. In Japan, sales increased 1.5% to ¥95.6
billion, although car audio product sales to automobile manufacturers fell.
The increase was attributed to successful consumer market sales of advanced HDD
and affordable, easy-to-operate DVD car navigation systems. Revenue from car
navigation systems grew more than 80%. Overseas, sales also increased 5.6% to
¥162.1 billion, despite a sales drop in Europe due to intensified competition.
This increase was due to the yens depreciation and a sales rise in North
America, especially of car audio products incorporating a radio tuner for
digital satellite broadcasting, which started in the U.S. in 2001.

Royalty revenue from the Patent Licensingsegment decreased 14.3% to ¥17.6
billion, compared to that of fiscal 2001. This was attributable to a reduction
in royalty revenue from digital playback/recording products such as CD-ROM and
CD-R drives, as PC market sales slumped.

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Otherssales grew 12.7% to
¥171.4 billion, mainly as a result of a sales increase of
DVD-R/RW drives both in Japan and overseas. In Japan, sales increased 8.3% to
¥86.6 billion as sales of DVD-R/RW drives to PC makers increased. Overseas,
sales grew 17.5% to ¥84.8 billion, reflecting the yens depreciation and a
large increase in sales of DVD-R/RW drives to PC makers, although sales of
speaker devices for cellular phones fell.

Cost of sales and selling, general and administrative expenses

Cost of sales increased to ¥465.3 billion from fiscal 2001s ¥447.4 billion and
cost of sales as a percentage of operating revenue also increased 0.4
percentage points to 70.3%. However, cost of sales as a percentage of net
sales remained the same as in fiscal 2001 at 72.2%. The favorable effects of a
weaker yen against the U.S. dollar and the euro on gross profit margin were
offset by the unfavorable impact of declining product prices in our major
product categories, including DVD players.

SGA expenses increased by 11.7% or by ¥18.8 billion over fiscal 2001 to ¥178.8
billion. Advertising and sales promotion expense increased as a result of
vigorous marketing activities worldwide to promote the Pioneer brand name and
our strategic products such as plasma displays. Royalty expenses related to
digital technologies increased as well. Also, expenses incurred in connection
with restructuring of some production sites and withdrawal from certain
businesses facing unfavorable prospects account for a part of the increase in
SGA expenses. Losses on sale and disposal of fixed assets increased by ¥2.4
billion. The increased losses were attributable to two factors: losses on
disposal of production facilities idled as a result of shifts in production
capacities contrasted with gains realized on the sale of property in fiscal
2001. In addition, personnel-related expenses increased as costs for pension
plans in Japan and overseas increased. The ratio of SGA expenses to operating
revenue increased 2.0 percentage points to 27.0%.

R&D expenditures, which are included in cost of sales and SGA expenses,
increased 5.2% to ¥39.1 billion, representing 5.9% of operating revenue. The
increase primarily reflected R&D activities in developing a next-generation
large-capacity optical disc system and new home network control system.

Operating income

Operating income was ¥17.9 billion, a 45.5% decrease from ¥32.9 billion
recorded in fiscal 2001, reflecting decreased royalty revenue and increased SGA
expenses. The Home Electronicssegment posted a loss of ¥10.8 billion compared
with a loss of ¥4.0 billion in fiscal 2001, reflecting deteriorated
profitability resulting from intense price competition for DVD players
particularly in North America. Start-up costs incurred in fiscal 2002 for
additional plasma display production facilities were the other reason for the
increased loss. Operating income for the Car Electronicssegment amounted to
¥16.1 billion, a decrease from ¥18.1 billion posted in fiscal 2001. Cost in
connection with withdrawal from the cellular phone market incurred in fiscal
2002 was the main reason for the difference. In the Patent Licensingsegment,
operating income decreased to ¥16.8 billion from ¥19.7 billion, mainly due to a
decline of royalty revenue from digital playback/recording products such as
CD-ROM and CD-R drives, reflecting a sluggish PC market and declining unit
prices. Otherssegment posted ¥0.6 billion operating income, compared with a
loss of ¥2.0 billion posted in fiscal 2001. Increased sales and reduced costs
of DVD-R/RW drives for PC use and increased sales of DVD software were main
reasons for the reduced loss.

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Other income (expense)

Other income (expense), on a net basis, decreased from an income of ¥1.3
billion to an expense of ¥2.6 billion. The reasons included a decrease in gain
on sale of investment securities. A ¥1.6 billion gain on sale of investment
securities was realized in fiscal 2001, while there was no material sale of
investment securities in fiscal 2002. The reasons also included a ¥1.0 billion
net increase in loss on write-down of investments, reflecting the sharp decline
of stock prices in Japan. Foreign exchange losses swung from net losses of
¥1.2 billion to net gains of ¥0.3 billion. A decrease in the loss related to
the revaluation of derivative financial instruments intended to minimize
foreign currency risk accounted for the improvement. The net interest
(interest income, less interest expense) was an expense of ¥0.4 billion,
compared with an income of ¥0.6 billion in fiscal 2001. A decrease in interest
income resulting from declining interest rates in the U.S. financial market was
the main reason for the difference.

Income before income taxes

Income before income taxes decreased 55.1% to ¥15.3 billion from ¥34.2 billion
for fiscal 2001.

Income taxes

Income taxes as a percentage of pre-tax income (the effective tax rate) was
43.8%, almost the same level as 41.9% in fiscal 2001 and the normal statutory
tax rate of 42.0% in Japan.

Minority interest in losses (earnings) of subsidiaries

Minority interest in losses (earnings) of subsidiaries, which primarily
consists of the earnings of Tohoku Pioneer Corporation and its subsidiaries
attributable to its minority shareholders, amounted to ¥0.5 billion compared
with ¥1.4 billion in fiscal 2001.

Equity in earnings (losses) of affiliated companies

Equity in earnings (losses) of affiliated companies was a loss of ¥0.1 billion,
substantially unchanged from fiscal 2001.

Net income

Net income was ¥8.0 billion, a 56.0% decrease from fiscal 2001s ¥18.3 billion.
Basic net income per share of common stock was ¥44.70, compared with fiscal
2001s ¥101.76. Diluted net income per share was ¥44.69 compared with fiscal
2001s ¥101.70.

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Segment Information

The following segment information was prepared pursuant to relevant regulations
under the Securities and Exchange Law of Japan, which has been disclosed in
Japan, and is not in accordance with U.S. GAAP.

Business Segments

|                                                 |                        |       |          |                           |          |                 |          |                  |          |        |         |              |         |              |          |          |          |  |          |               |          |   |          |          |          | 
|------------------------------------------------ | ---------------------- | ----- | -------- | ------------------------- | -------- | --------------- | -------- | ---------------- | -------- | ------ | ------- | ------------ | ------- | ------------ | -------- | -------- | -------- |  | -------- | ------------- | -------- | - | -------- | -------- | -------- | 
|                                                 |                        |       |          | Millions of yen          
|                                                 |                        |       |          |                          
|                                                 |                        |       |          | Year ended March 31, 2003
|                                                 |                        |       |          |                          
|                                                 |                        |       |          |                           |          |                 |          |                  |          |        |         |              |         |              |          |          |          |  |          | Corporate and |          |   |          |         
|                                                 |                        |       |          | Home Electronics          |          | Car Electronics |          | Patent Licensing |          | Others |         | Eliminations |         | Consolidated
|                                                 |                        |      
|Operating revenue:                               |                        |       |          |                           |          |                 |          |                  |          |        |         |              |         |              |          |          |          |  |          |               |          |   |          |         
|                                                 | Unaffiliated customers |       |          | ¥228,744                  |          |                 |          | ¥281,090         |          |        |         | ¥12,584      |         |              |          | ¥189,850 |          |  |          |              |          |   |          | ¥712,268 |         
|                                                 | Inter-segment          |       |          | 1,576                     |          |                 |          | 1,271            |          |        |         | 2,014        |         |              |          | 41,922   |          |  |          | (¥46,783      | )        |   |          |         |         
|                                                 |                        |      
|                                                 |                        | Total |          |                           | ¥230,320 |                 |          |                  | ¥282,361 |        |         |              | ¥14,598 |              |          |          | ¥231,772 |  |          |               | (¥46,783 | ) |          |          | ¥712,268 | 
|Operating income                                 |                        |       | ¥384     |                           |          |                 | ¥26,126  |                  |          |        | ¥10,736 |              |         |              | ¥4,089   |          |          |  | (¥9,983  | )             |          |   | ¥31,352  |         
|Identifiable assets                              |                        |       | ¥142,428 |                           |          |                 | ¥153,644 |                  |          |        | ¥4,357  |              |         |              | ¥160,163 |          |          |  | ¥186,437 |               |          |   | ¥647,029 |         
|Depreciation and
amortization                    |                        |       | ¥9,704   |                           |          |                 | ¥13,370  |                  |          |        | ¥1,550  |              |         |              | ¥9,863   |          |          |  | ¥1,900   |               |          |   | ¥36,387  |         
|Capital expenditures
(additions to fixed assets) |                        |       | ¥13,960  |                           |          |                 | ¥13,997  |                  |          |        | ¥398    |              |         |              | ¥9,830   |          |          |  | ¥3,004   |               |          |   | ¥41,189  |         

|                                                 |                        |       |          |                           |          |                 |          |                  |          |        |         |              |         |              |          |          |          |  |          |               |          |   |          |          |          | 
|------------------------------------------------ | ---------------------- | ----- | -------- | ------------------------- | -------- | --------------- | -------- | ---------------- | -------- | ------ | ------- | ------------ | ------- | ------------ | -------- | -------- | -------- |  | -------- | ------------- | -------- | - | -------- | -------- | -------- | 
|                                                 |                        |       |          | Millions of yen          
|                                                 |                        |       |          |                          
|                                                 |                        |       |          | Year ended March 31, 2002
|                                                 |                        |       |          |                          
|                                                 |                        |       |          |                           |          |                 |          |                  |          |        |         |              |         |              |          |          |          |  |          | Corporate and |          |   |          |         
|                                                 |                        |       |          | Home Electronics          |          | Car Electronics |          | Patent Licensing |          | Others |         | Eliminations |         | Consolidated
|                                                 |                        |      
|Operating revenue:                               |                        |       |          |                           |          |                 |          |                  |          |        |         |              |         |              |          |          |          |  |          |               |          |   |          |         
|                                                 | Unaffiliated customers |       |          | ¥215,445                  |          |                 |          | ¥257,672         |          |        |         | ¥17,588      |         |              |          | ¥171,420 |          |  |          |              |          |   |          | ¥662,125 |         
|                                                 | Inter-segment          |       |          | 909                       |          |                 |          | 1,439            |          |        |         | 2,208        |         |              |          | 45,650   |          |  |          | (¥50,206      | )        |   |          |         |         
|                                                 |                        |      
|                                                 |                        | Total |          |                           | ¥216,354 |                 |          |                  | ¥259,111 |        |         |              | ¥19,796 |              |          |          | ¥217,070 |  |          |               | (¥50,206 | ) |          |          | ¥662,125 | 
|Operating income                                 |                        |       | (¥10,811 | )                         |          |                 | ¥16,071  |                  |          |        | ¥16,837 |              |         |              | ¥585     |          |          |  | (¥4,741  | )             |          |   | ¥17,941  |         
|Identifiable assets                              |                        |       | ¥134,777 |                           |          |                 | ¥154,783 |                  |          |        | ¥2,959  |              |         |              | ¥191,851 |          |          |  | ¥160,759 |               |          |   | ¥645,129 |         
|Depreciation and
amortization                    |                        |       | ¥8,857   |                           |          |                 | ¥13,047  |                  |          |        | ¥419    |              |         |              | ¥12,333  |          |          |  | ¥2,126   |               |          |   | ¥36,782  |         
|Capital expenditures
(additions to fixed assets) |                        |       | ¥17,381  |                           |          |                 | ¥13,286  |                  |          |        | ¥58     |              |         |              | ¥14,095  |          |          |  | ¥2,248   |               |          |   | ¥47,068  |         

|      |  |                                                                                                                                                                                                                                  
|----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Note: |  | Effective fiscal 2003, we changed reportable segments into
four categoriesHome Electronics, Car Electronics,
Patent Licensing, and Others. Previous figures for the
corresponding period have been restated accordingly.
|      |  | Main products in each segment are as follows:                                                                                                                                                                                    
|      |  | Home Electronics includes the manufacture and sale of
Audio/Video equipment for home use, equipment for cable-TV
systems, digital broadcast set-top boxes, home telephones and
others.                                         
|      |  | Car Electronics includes the manufacture and sale of car
audio products, car navigation systems, and others.                                                                                                                   
|      |  | Patent Licensing includes the licensing of patents related
to optical disc recording and playback equipment, and others.                                                                                                       
|      |  | Others includes manufacture and sale of computer peripheral
equipment, devices and parts, factory automation system, AV
software, and others.                                                                                  

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Geographic Segments

|                                                 |                        |       |          |                           |          |               |         |          |          |               |         |              |          |              |         |         |          |  |          |               |           |   |          |          |          | 
|------------------------------------------------ | ---------------------- | ----- | -------- | ------------------------- | -------- | ------------- | ------- | -------- | -------- | ------------- | ------- | ------------ | -------- | ------------ | ------- | ------- | -------- |  | -------- | ------------- | --------- | - | -------- | -------- | -------- | 
|                                                 |                        |       |          | Millions of yen          
|                                                 |                        |       |          |                          
|                                                 |                        |       |          | Year ended March 31, 2003
|                                                 |                        |       |          |                          
|                                                 |                        |       |          |                           |          |               |         |          |          |               |         |              |          |              |         |         |          |  |          | Corporate and |           |   |          |         
|                                                 |                        |       |          | Japan                     |          | North America |         | Europe   |          | Other Regions |         | Eliminations |          | Consolidated
|                                                 |                        |      
|Operating revenue:                               |                        |       |          |                           |          |               |         |          |          |               |         |              |          |              |         |         |          |  |          |               |           |   |          |         
|                                                 | Unaffiliated customers |       |          | ¥298,107                  |          |               |         | ¥196,008 |          |               |         | ¥132,776     |          |              |         | ¥85,377 |          |  |          |              |           |   |          | ¥712,268 |         
|                                                 | Inter-area             |       |          | 272,393                   |          |               |         | 7,594    |          |               |         | 700          |          |              |         | 168,128 |          |  |          | (¥448,815     | )         |   |          |         |         
|                                                 |                        |      
|                                                 |                        | Total |          |                           | ¥570,500 |               |         |          | ¥203,602 |               |         |              | ¥133,476 |              |         |         | ¥253,505 |  |          |               | (¥448,815 | ) |          |          | ¥712,268 | 
|Operating income (loss)                          |                        |       | ¥16,392  |                           |          |               | ¥11,749 |          |          |               | (¥462   | )            |          |              | ¥7,415  |         |          |  | (¥3,742  | )             |           |   | ¥31,352  |         
|Identifiable assets                              |                        |       | ¥222,372 |                           |          |               | ¥55,940 |          |          |               | ¥57,092 |              |          |              | ¥91,695 |         |          |  | ¥219,930 |               |           |   | ¥647,029 |         
|Depreciation and
amortization                    |                        |       | ¥22,617  |                           |          |               | ¥3,519  |          |          |               | ¥1,843  |              |          |              | ¥6,508  |         |          |  | ¥1,900   |               |           |   | ¥36,387  |         
|Capital expenditures
(additions to fixed assets) |                        |       | ¥24,247  |                           |          |               | ¥3,133  |          |          |               | ¥2,019  |              |          |              | ¥8,786  |         |          |  | ¥3,004   |               |           |   | ¥41,189  |         

|                                                 |                        |       |          |                           |          |               |         |          |          |               |         |              |          |              |         |         |          |  |          |               |           |   |          |          |          | 
|------------------------------------------------ | ---------------------- | ----- | -------- | ------------------------- | -------- | ------------- | ------- | -------- | -------- | ------------- | ------- | ------------ | -------- | ------------ | ------- | ------- | -------- |  | -------- | ------------- | --------- | - | -------- | -------- | -------- | 
|                                                 |                        |       |          | Millions of yen          
|                                                 |                        |       |          |                          
|                                                 |                        |       |          | Year ended March 31, 2002
|                                                 |                        |       |          |                          
|                                                 |                        |       |          |                           |          |               |         |          |          |               |         |              |          |              |         |         |          |  |          | Corporate and |           |   |          |         
|                                                 |                        |       |          | Japan                     |          | North America |         | Europe   |          | Other Regions |         | Eliminations |          | Consolidated
|                                                 |                        |      
|Operating revenue:                               |                        |       |          |                           |          |               |         |          |          |               |         |              |          |              |         |         |          |  |          |               |           |   |          |         
|                                                 | Unaffiliated customers |       |          | ¥253,245                  |          |               |         | ¥195,766 |          |               |         | ¥130,801     |          |              |         | ¥82,313 |          |  |          |              |           |   |          | ¥662,125 |         
|                                                 | Inter-area             |       |          | 266,487                   |          |               |         | 7,403    |          |               |         | 416          |          |              |         | 157,780 |          |  |          | (¥432,086     | )         |   |          |         |         
|                                                 |                        |      
|                                                 |                        | Total |          |                           | ¥519,732 |               |         |          | ¥203,169 |               |         |              | ¥131,217 |              |         |         | ¥240,093 |  |          |               | (¥432,086 | ) |          |          | ¥662,125 | 
|Operating income (loss)                          |                        |       | ¥5,713   |                           |          |               | ¥11,266 |          |          |               | (¥122   | )            |          |              | ¥6,323  |         |          |  | (¥5,239  | )             |           |   | ¥17,941  |         
|Identifiable assets                              |                        |       | ¥232,541 |                           |          |               | ¥58,145 |          |          |               | ¥58,782 |              |          |              | ¥92,353 |         |          |  | ¥203,308 |               |           |   | ¥645,129 |         
|Depreciation and
amortization                    |                        |       | ¥24,014  |                           |          |               | ¥2,238  |          |          |               | ¥2,262  |              |          |              | ¥6,142  |         |          |  | ¥2,126   |               |           |   | ¥36,782  |         
|Capital expenditures
(additions to fixed assets) |                        |       | ¥29,411  |                           |          |               | ¥1,735  |          |          |               | ¥1,428  |              |          |              | ¥12,246 |         |          |  | ¥2,248   |               |           |   | ¥47,068  |         

|      |  |                                                                                                                                                                                                     
|----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Note: |  | Operating revenue reported in geographic segment information above
represents that of the parent company and subsidiaries in Japan, and each
subsidiary in North America, Europe, and Other Regions.

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B. Liquidity and capital resources

Cash Flows

Fiscal 2003 compared with fiscal 2002

Net cash provided by operating activities in fiscal 2003 was ¥91.7 billion, an
increase of ¥34.6 billion compared to fiscal 2002. Net income increased
although non-cash expenses such as equity in losses of affiliated companies and
provision for pension cost increased. Changes in operating assets and
liabilities also contributed to increased cash flows from operating activities.
Trade receivable decreased, despite an increase in net sales, reflecting
reduced past due accounts and reduction of notes receivables. Trade payables
continued to increase, reflecting increased purchase of materials particularly
for DVD-R/RW drives and car electronics products, although overall inventory
continued to decrease, reflecting our continued efforts to control and reduce
inventories.

Net cash used in investing activities was ¥35.5 billion for fiscal 2003, a
decrease of ¥15.6 billion compared to ¥51.1 billion in fiscal 2002. The
difference was partly the result of a decrease in payments for the purchase of
fixed assets in fiscal 2003 compared to fiscal 2002, when investments in plasma
display production facilities and two new plants in China were higher.
Investment in affiliated companies accounted for by the equity method also
decreased. Increased proceeds from sale of fixed assets and available-for-sale
securities also accounted for part of the decrease in net cash used in
investing activities.

Net cash used in financing activities was ¥34.7 billion in fiscal 2003,
compared with ¥4.2 billion cash used for fiscal 2002. In fiscal 2003, cash was
used primarily in reduction of borrowings to solidify financial conditions,
payments of dividends and repurchase of Pioneers stock. ¥21.1 billion was
used in reducing short-term and long-term borrowings primarily in Japan, Europe
and Southeast Asia. Cash used in dividends payment was ¥2.7 billion, almost
the same level of fiscal 2002. As for repurchase of Pioneers stock, we
purchased 5.1 million shares from the market for ¥11.5 billion.

As a result of these activities and the effect of exchange rate changes on cash
and cash equivalents of overseas subsidiaries, cash and cash equivalents
increased by ¥15.4 billion to ¥142.5 billion at the end of fiscal 2003, from
¥127.1 billion at the end of fiscal 2002.

Fiscal 2002 compared with fiscal 2001

Net cash provided by operating activities was ¥57.1 billion, a ¥5.9 billion
increase compared to fiscal 2001, despite decreased net income. This mainly
reflected changes in operating assets and liabilities. Trade payables increased
as a result of increased purchase of materials particularly for DVD-R/RW drives
and car navigation systems, although overall inventory decreased, reflecting
our continued efforts to control and reduce inventories. Increased notes and
accounts receivable reflected strong sales in the last few months of fiscal
2002, compared to the equivalent period of fiscal 2001.

Net cash used in investing activities was ¥51.1 billion for fiscal 2002, a ¥9.6
billion increase compared to fiscal 2001. The difference was partly the result
of an increase in payment for purchase of fixed assets, reflecting investments
to complete expansion of plasma display production facilities and two new
plants in China. Decreased proceeds from sale of fixed assets and
available-for-sale securities also accounted for part of the increase in net
cash used in investing activities.

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Net cash used in financing activities was ¥4.2 billion in fiscal 2002, compared
with ¥46.6 billion cash used for fiscal 2001. Financing activities for fiscal
2001 included redemption of ¥30.0 billion in unsecured bonds at maturity and
reduction of other short-term and long-term borrowings.

As a result of these activities and the effect of exchange rate changes on cash
and cash equivalents of overseas subsidiaries, cash and cash equivalents
increased by ¥6.0 billion to ¥127.1 billion at the end of fiscal 2002, from
¥121.1 billion at the end of fiscal 2001.

Capital requirements

Our requirements for operating capital primarily are for the purchase of raw
materials and parts for use in the manufacture of our products. Also,
operating expenses, including manufacturing expenses and SGA expenses require a
substantial amount of operating capital. Payroll and payroll-benefits, and
marketing expenses, such as those for advertising and sales promotion, account
for a material portion of operating expenses. Our expenditure for R&D is
recorded as a part of various operating expenses, and payroll for R&D-related
personnel accounts for a material portion of R&D expenses.

Contractual obligations and commercial commitments

The following summarizes our contractual obligations at March 31, 2003.

|                         |                     |  |       |      |        |  |                       |      |           |  |                   |      |  |  |  |     |  |  |  |      | 
|------------------------ | ------------------- |  | ----- | ---- | ------ |  | --------------------- | ---- | --------- |  | ----------------- | ---- |  |  |  | --- |  |  |  | ---- | 
|(Billions of yen)       
|                        
|                         |                     |  |       |      |        |  | Payment Due by Period
|                         |                     |  |       |      |        |  |                      
|                         |                     |  |       |      |        |  | Less than             |      |           |  |                   |      |  |  |  |     |  |  | 
|                         |                     |  | Total |      | 1 year |  | 1-3 years             |      | 3-5 years |  | More than 5 years
|                        
|Contractual obligations: |                     |  |       |      |        |  |                       |      |           |  |                   |      |  |  |  |     |  |  |  |     
|                         | Short-term debt     |  |       | 29.9 |        |  |                       | 29.9 |           |  |                   |      |  |  |  |     |  |  |  |      | 
|                         | Long-term debt      |  |       | 33.2 |        |  |                       | 1.0  |           |  |                   | 20.4 |  |  |  | 0.5 |  |  |  | 11.3 | 
|                         | Operating leases    |  |       | 9.6  |        |  |                       | 3.4  |           |  |                   | 3.9  |  |  |  | 1.3 |  |  |  | 1.0  | 
|                         | Purchase commitment |  |       | 7.6  |        |  |                       | 7.6  |           |  |                   |      |  |  |  |     |  |  |  |      | 
|                        

The ¥7.6 billion purchase commitment outstanding as of March 31, 2003 was for
property, plant and equipment and advertising. This included a part of our ¥60
billion capital expenditure plan in fiscal 2004. The planned increase in
capital expenditure in fiscal 2004 from ¥40.8 billion in fiscal 2003 mainly
reflects expansion of plasma display production facilities.

We provide guarantees to third parties who provide loans to affiliated
companies and others. For each guarantee, we would have to pay the guaranteed
amount, if they were to default on a payment within contract periods of 1 year
to 10 years. The maximum potential amount of undiscounted future payments we
could be required to make under the guarantee is ¥27.3 billion at March 31,
2003.

We provide for the estimated cost of product warranties against product defects
at the time revenue is recognized. Estimates for the cost of product
warranties are primarily based on historical information about failure rates
and service costs including parts and labor. Warranty reserve at March 31,
2003 is ¥6.5 billion.

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Financial Management

At present, funds required for operating capital and capital expenditure are
financed through internally generated cash or debt financing. With regard to
debt financing, short-term debt financing, with maturity of one year or less,
is utilized to fund operating capital requirements. Short-term borrowing is
generally arranged locally in the currency in which each consolidated company
carries out its operation. As of March 31, 2003, short-term borrowings of
¥29.9 billion comprised bank loans in nine different currencies, principally
Japanese yen. On the other hand, long-term borrowing to finance long-term
funding requirements such as investment in production facilities is generally
arranged in Japan on a fixed interest rate basis. As of March 31, 2003,
substantially all of the long-term debt of ¥33.2 billion, including the portion
due within one year, was fixed-rate yen borrowings and was comprised of ¥7.5
billion loans principally from banks, ¥15.0 billion unsecured bonds due 2005,
¥10.0 billion unsecured bonds due 2008, and capital lease obligations and other
loans arranged locally.

During fiscal 2003, we repurchased 5.1 million shares of Pioneer stock from the
market for ¥11.5 billion pursuant to the approval at the general shareholders
meeting held in June 2002. Also, at the general shareholders meeting held on
June 27, 2003, repurchasing of own shares of up to 5 million shares or up to
¥20 billion was approved up to the time of the conclusion of the next ordinary
general meeting of shareholders to be held in June 2004, although the actual
size of the repurchase will depend on our cash position and share price.

We believe that our sound financial position and ability to generate positive
operating cash flows, together with uncommitted and unused credit lines of
¥236.8 billion, provide sufficient resources to fund future requirements for
operating capital and for capital expenditures to sustain the growth of
Pioneer.

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C. Research and development, patents and licenses, etc.

Our R&D activities have played a crucial role in the development of our
business. Our R&D program currently centers on optical recording/playback,
flat-panel displays, digital signal processing, information/communications, and
core LSIs. In fiscal 2001, 2002 and 2003, our R&D expenses were ¥37,105
million, ¥39,050 million and ¥45,388 million, respectively, or 5.8%, 5.9% and
6.4%, respectively, of our operating revenue. We currently plan to continue to
spend more than 5% of operating revenue on R&D each year.

As of March 31, 2003, approximately 3,800 employees worldwide were engaged in
research, product development, and production technique improvement.

Our research and development of new technologies is carried out mainly in Japan
at the Corporate Research & Development Laboratories, as well as the AV &
Network Development Center, Information & Communication Development Center and
PDP Development Center. At one of our overseas wholly-owned subsidiaries:
Pioneer Research Center USA, Inc., we are also actively engaged in research of
new technologies, and development of system software related to digital TV and
of digital network technologies. Product development and production
improvement activities are the responsibility of each business unit, and are
carried out in our various manufacturing facilities both in Japan and overseas.

Blu-ray Disc

In February 2002, a nine-company consortium including Pioneer jointly announced
a next-generation large-capacity rewritable optical disc format, Blu-ray
Disc. Using blue-violet laser beams, this format enables 23.3-, 25- or
27-gigabyte recording, rewriting and playback on a one-sided 5-inch
(12cm)-diameter disc, which is enough to hold more than two hours of digital
high-definition video recording. In June 2002, the consortium published
specifications for the Blu-ray Disc rewritable format, and began licensing it
in February 2003. In another collaboration, together with TDK Corporation,
Pioneer has developed a write-once disc with a recording layer free of
materials which may harm the environment, and highly compatible with the
Blu-ray Disc rewritable format. This new write-once disc was presented in July
2002 at ISOM/ODS 2002 (Joint International Symposium on Optical Memory and
Optical Data Storage), and in December 2002 at Eco-Products 2002, a Tokyo
exhibition showcasing environment-friendly products and services.

Streaming Video Delivery in Broadband

Pioneer is developing technology for delivering video content through optical
fiber in broadband communication environments. During fiscal 2003, five
companies, including Nippon Telegraph and Telephone Corporation (NTT) and
Pioneer, succeeded in interconnectivity tests among prototypes that employ the
video-on-demand (VOD) control protocol, which enables viewers to watch
requested video programs on demand. This is believed to be a major
contribution to the standardization of streaming video delivery technologies,
which is expected to enhance both the quantity and quality of online content
and interactive services. Together with NTT, Pioneer has developed a
technology for transferring digital high-definition video content at speeds as
high as 25 Mbps, utilizing MPEG-2, an international standard for compression of
video data, which is also used as a basic technology for DVDs. This is expected
to enrich Internet video streaming with high-quality pictures and sound.

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D. Trend information

The following is a description of the most significant recent trends in each of
our business segments.

Home Electronics

Global demand for audio/video products has been sluggish recently, which we
believe has resulted in downward price pressure and slower sales. This, in
turn, has negatively impacted our production levels and our inventory. We have
responded and expect to continue to respond to such downward pressure in sales
and production through the introduction of new value-added products and models
in Home Electronics, including home theater systems, DVD-related products and
plasma displays.

DVD products.As a result of the dramatic expansion of the market for DVD
players, they have become commodity products and suffer from significant price
competition. DVD has been one of our fastest growing product areas during the
past several fiscal years, and we believe we are well-positioned to face the
competition because of our accumulated expertise through LD development, our
expected reduction of costs as a result of shifting production to China and our
efforts to introduce new innovative, value-added products such as DVD
recorders. Recently, the DVD recorder market has undergone rapid expansion,
and this product has started to replace VCRs. There are, however, a number of
competing digital recording disc formats: the DVD-RW format commercialized by
us, Sony, Sharp and others, the DVD-RAM format commercialized by Matsushita,
Hitachi, Toshiba and others, and the DVD+RW format commercialized by Philips
and others.

Plasma displays.The large-screen display market for plasma displays has been
expanding in recent years, and several manufacturers have started mass
production of plasma displays that compete with our products. Each company is
increasing investment and expanding production. As the number of companies
entering this market increases, it is expected that the unit price will
continue to decrease due to intensifying competition. In particular, in the
market for displays under the 40-inch size, plasma displays are subject to
increasingly intense competition from liquid crystal displays. As a result of
this trend, we plan to expand production of our plasma display line, while
limiting new products to 50- and 43-inch models with higher resolution.

Set-top boxes. Recently, digital terrestrial and satellite broadcasts have
become increasingly popular worldwide. In response to this trend, we put
greater emphasis on developing and marketing digital set-top box models. In
fiscal 2000, we started shipping digital cable-TV set-top boxes in the U.S. We
have also been providing digital DBS set-top boxes in Europe since fiscal 1998,
and in fiscal 2001 we started distributing digital DBS set-top boxes and
digital cable-TV set-top boxes in Japan. Since we supply set-top boxes to
business customers, our sales in these areas may fluctuate depending on the
demand from those customers.

Car Electronics

Severe competition in the car electronics business worldwide has led to strong
downward pressure on prices. However, the popularity of car navigation
products, which we believe is a major area of our operations, continues to
increase. For example, sales of our advanced HDD models and our affordable,
easy-to-operate DVD models remain strong. These new models have been well
received by consumers due to their attractive and convenient features. With
its outstanding technologies, Pioneer remains a leader in the car navigation
market; however, our competitors have started commercializing models that are
similar to our products. In November 2002, we released in the consumer market
the worlds first car navigation system that incorporates a data communication
module for access to the latest map data. Also in the car audio business, we
plan to widen our market share with new products and innovations, such as car CD players with OEL displays.

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There is also a trend in the car electronics industry of increased OEM sales to
car manufacturers. Pioneer intends to increase its efforts to market itself
towards such car manufacturers and strengthen its foothold in OEM sales as
well.

Patent Licensing

In the current patent business environment, nearly every company follows a
policy of actively protecting their patent rights, and the number of patent
lawsuits has increased considerably. The value of patents is increasingly
recognized, and companies are seeking to maximize the utility of their patents
through the transfer or licensing of patent rights. While poor economic
conditions favor purchasers of patent rights, purchase prices generally are
increasing because of the growing importance of such intellectual property.

Our royalty revenue from the licensing of worldwide patents relating to laser
optical disc technologies has started to decline substantially, as a
significant portion of our patents in Japan and Europe expired by the end of
fiscal 2003. We intend to attempt to reduce the decline in royalty revenue by
acquiring patents from third parties and licensing such patents, and also by
licensing patents for third parties as a licensing agent. We do not, however,
expect that the revenue, if any, from such new patents/agencies will be
sufficient to offset the decrease in royalty revenue resulting from the
expiration of our existing patents. See Item 4.B. Business overviewNature of
operationsPatent licensing for more information on our patent licensing
business.

Others

DVD-R/RW drives.The computer industry is currently experiencing severe
pricing pressure, strong demand for higher-performance products and short
product life. To counter these trends, we are focusing on high-value added
products such as DVD-R/RW drives, both for PC makers and for the consumer
market. DVD-R/RW drives can record, both on a write-once DVD-R disc and a
rewritable DVD-RW disc, up to seven times as much data as on a CD-R or CD-RW
disc. In fiscal 2003, we introduced new DVD-R/RW models which are capable of
4X recording for DVD-R discs and 2X recording for DVD-RW discs, respectively.
There are two other competing formats, the DVD-RAM format and the DVD+RW
format, in the DVD drive market. Also, in June 2003 we began introducing
recordable DVD drives for PC use, which are compatible with DVD-R, -RW, +R and
+RW discs, to worldwide markets.

OEL displays. With the entry of other companies, market competition in OEL
displays is becoming even more intense, while each company in this market is
proceeding with the development of full-color OEL displays. To meet the
competition, we entered into strategic alliances with Semiconductor Energy
Laboratory Co., Ltd. and Sharp Corporation in fiscal 2001, and developed
active-matrix full-color OEL displays.

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Item 6. Directors, Senior Management and Employees

A.  Directors and senior management

Pioneers Directors, Executive Officers and Corporate Auditors as of July 1,
2003, and their pertinent information, such as position and business
experience, are as follows:

Directors

|                                 |  |                                                                                                                                        |  |                                                                                                                                                                                                               
|-------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Name                             |  | Current Position                                                                                                                       |  |                                                                                                                                                                                                               
|(Date of birth)                  |  | (Month and year of expiration)                                                                                                         |  | Prior Position                                                                                                                                                                                                
|                                 |  |                                                                                                                                        |  |                                                                                                                                                                                                               
|Kanya Matsumoto
(June 12, 1930)  |  | Chairman and Representative Director
(June 2004)                                                                                       |  | June 1996:
Vice Chairman and Representative
Director                                                                                                                                                          
|                                 |  |                                                                                                                                        |  |                                                                                                                                                                                                               
|Kaneo Ito
(Apr. 30, 1936)        |  | President and Representative Director;
Chief Executive Officer
(June 2004)                                                             |  | June 1991:
Senior Managing Director and
Representative Director; General
Manager of International
Business Group; and in charge of
overseas operations and Public
Relations Division                          
|                                 |  |                                                                                                                                        |  |                                                                                                                                                                                                               
|Yoshimichi Inada
(Sept. 8, 1936) |  | Executive Vice President and
Representative Director; in charge of
technologies, production and quality
control in general
(June 2004) |  | June 2002:
Executive Vice President and
Representative Director; in
charge of technologies,
production and quality control
in general; and in charge of
Components Business Division and
Strategic IT Division
|                                 |  |                                                                                                                                        |  |                                                                                                                                                                                                               
|Katsuhiro Abe
(Nov. 16, 1936)    |  | Executive Vice President and
Representative Director;
Chief Financial Officer;
in charge of administration
in general(June 2004)       |  | June 2001:
Senior Managing Director and
Representative Director;
Chief Financial Officer;
in charge of administration in
general; and General Manager of
Corporate Planning Division                          
|                                 |  |                                                                                                                                        |  |                                                                                                                                                                                                               
|Akira Niijima
(Mar. 9, 1944)     |  | Senior Managing Director; President
of Pioneers Home Entertainment
Company
(June 2004)                                                |  | Jan. 2001:
Managing Director; President of
Pioneers Home Entertainment
Company                                                                                                                               

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|                                   |  |                                                                                                                                                                                                                                                                                                                                     |  |                                                                                                                                                                                                                                                                                                                          
|---------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Name                               |  | Current Position                                                                                                                                                                                                                                                                                                                    |  |                                                                                                                                                                                                                                                                                                                          
|(Date of birth)                    |  | (Month and year of expiration)                                                                                                                                                                                                                                                                                                      |  | Prior Position                                                                                                                                                                                                                                                                                                           
|                                   |  |                                                                                                                                                                                                                                                                                                                                     |  |                                                                                                                                                                                                                                                                                                                          
|Takashi Kobayashi
(Sept. 27, 1940) |  | Senior Managing Director; in charge
of Corporate Communications Division,
Customer Satisfaction Planning and
Coordination Division, Intellectual
Property Division, and Business
Development Division
(June 2004)                                                                                                                   |  | Apr. 2000:
Managing Director; in charge of
Corporate Communications
Division, Customer Satisfaction
Planning and Coordination
Division, Intellectual Property
Division, Division of
Environmental Preservation, and
Business Development Division                                                                        
|                                   |  |                                                                                                                                                                                                                                                                                                                                     |  |                                                                                                                                                                                                                                                                                                                          
|Tadahiro Yamaguchi
(Mar. 24, 1946) |  | Managing Director; Executive Vice
President of Pioneers Home
Entertainment Company (in charge of
technologies, production and quality
control); in charge of Cable &
Satellite Systems Division of
Pioneers Home Entertainment Company;
and Plant Manager of Tokorozawa Plant
of Pioneers Home Entertainment
Company
(June 2004) |  | Nov. 2001:
Director; Executive
Vice President of Pioneers Home
Entertainment Company (in charge
of technologies, production and
quality control); in charge of
Cable & Satellite Systems
Division of Pioneers Home
Entertainment Company; and Plant
Manager of Tokorozawa Plant of
Pioneers Home Entertainment
Company
|                                   |  |                                                                                                                                                                                                                                                                                                                                     |  |                                                                                                                                                                                                                                                                                                                          
|Satoshi Matsumoto
(Apr. 15, 1954)  |  | Managing Director; General
Manager of Division of Environmental
Preservation
(June 2004)                                                                                                                                                                                                                                            |  | June 1998:
Director; General Manager of
Division of Environmental
Preservation                                                                                                                                                                                                                                           
|                                   |  |                                                                                                                                                                                                                                                                                                                                     |  |                                                                                                                                                                                                                                                                                                                          
|Tamihiko Sudo
(Apr. 28, 1947)      |  | Managing Director; President of
Pioneers Mobile Entertainment
Company
(June 2004)                                                                                                                                                                                                                                                  |  | June 2002:
Senior Executive Officer;
President of Pioneers Mobile
Entertainment Company                                                                                                                                                                                                                                 
|                                   |  |                                                                                                                                                                                                                                                                                                                                     |  |                                                                                                                                                                                                                                                                                                                          
|Osamu Yamada
(Mar. 16, 1944)       |  | Managing Director; General Manager of
Research and Development Group; and
General Manager of Corporate Research
and Development Laboratories
(June 2004)                                                                                                                                                                            |  | June 2002:
Senior Executive Officer;
General Manager of Research and
Development Group                                                                                                                                                                                                                                   
|                                   |  |                                                                                                                                                                                                                                                                                                                                     |  |                                                                                                                                                                                                                                                                                                                          
|Koichi Shimizu
(Feb. 3, 1944)      |  | Director; General Manager of
Production Management and
Coordination Division; General
Manager of Procurement Center; and in
charge of Strategic IT Division of
Pioneer
(June 2004)                                                                                                                                                  |  | June 2001:
Senior Executive Officer;
Managing Director of Pioneer
Electronics Asiacentre Pte. Ltd.                                                                                                                                                                                                                       

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|                                  |  |                                                                                                                            |  |                                                                                                                                       
|--------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------
|Name                              |  | Current Position                                                                                                           |  |                                                                                                                                       
|(Date of birth)                   |  | (Month and year of expiration)                                                                                             |  | Prior Position                                                                                                                        
|                                  |  |                                                                                                                            |  |                                                                                                                                       
|Hajime Ishizuka
(May 3, 1947)     |  | Director; President of Pioneers
Components Business Company; and in
charge of International Business
Division
(June 2004) |  | June 2002:
Senior Executive Officer;
General Manager of Components Business Division;
and in charge of International
Business Division
|                                  |  |                                                                                                                            |  |                                                                                                                                       
|Tatsuhiro Ishikawa
(Apr. 4, 1939) |  | Director
(June 2004)                                                                                                       |  | Dec. 2001 to present:
Attorney-at-Law                                                                                                 

Executive Officers

|                                   |  |                                                                                                                                                                                                                                              |  |                                                                                                                                                                                                                                   
|---------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Name                               |  | Current Position                                                                                                                                                                                                                             |  |                                                                                                                                                                                                                                   
|(Date of birth)                    |  | (Month and year of expiration)                                                                                                                                                                                                               |  | Prior Position                                                                                                                                                                                                                    
|                                   |  |                                                                                                                                                                                                                                              |  |                                                                                                                                                                                                                                   
|Masaru Saotome
(Aug. 20, 1944)     |  | Senior Managing Executive
Officer; Executive Vice
President of Pioneers Home
Entertainment Company (in
charge of sales and
marketing); and General
Manager of Display Business
Division of Pioneers Home
Entertainment Company
(June 2004) |  | July 2002:
Senior Executive Officer;
Executive Vice President
of Pioneers Home
Entertainment Company (in
charge of sales and
marketing); and General
Manager of Display
Business Division of
Pioneers Home
Entertainment Company
|                                   |  |                                                                                                                                                                                                                                              |  |                                                                                                                                                                                                                                   
|Kazunori Yamamoto
(Oct. 21, 1942)  |  | Senior Executive Officer;
President of Pioneer North
America, Inc.
(June 2004)                                                                                                                                                               |  | June 1999:
Executive Officer;
President of Pioneer
North America, Inc.                                                                                                                                                            
|                                   |  |                                                                                                                                                                                                                                              |  |                                                                                                                                                                                                                                   
|Shungo Minato
(Apr. 11, 1943)      |  | Senior Executive Officer; in
charge of Corporate Planning
Division, General
Administration Division and
Personnel Division
(June 2004)                                                                                                       |  | June 2001:
Senior Executive Officer;
Chairman and Managing
Director of Pioneer
Europe NV                                                                                                                                          
|                                   |  |                                                                                                                                                                                                                                              |  |                                                                                                                                                                                                                                   
|Kiyoshi Uchida
(Mar. 28, 1951)     |  | Senior Executive Officer;
President of Pioneers
Industrial Solutions and
Entertainment Company; and
Plant Manager of Ohmori Plant
(June 2004)                                                                                               |  | Feb. 2003:
Senior Executive Officer;
in charge of Business
Systems Division                                                                                                                                                       
|                                   |  |                                                                                                                                                                                                                                              |  |                                                                                                                                                                                                                                   
|Seiichiro Kurihara
(Mar. 15, 1943) |  | Senior Executive Officer;
General Manager of
Intellectual Property
Division
(June 2004)                                                                                                                                                      |  | June 2001:
Executive Officer;
General Manager of
Intellectual Property
Division                                                                                                                                                   

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|                                   |  |                                                                                                                                                                                        |  |                                                                                                                                                               
|---------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------
|Name                               |  | Current Position                                                                                                                                                                       |  |                                                                                                                                                               
|(Date of birth)                    |  | (Month and year of expiration)                                                                                                                                                         |  | Prior Position                                                                                                                                                
|                                   |  |                                                                                                                                                                                        |  |                                                                                                                                                               
|Koki Aizawa 
(Dec. 19, 1944)       |  | Executive Officer; General
Manager of External Relations
Division
(June 2004)                                                                                                          |  | June 2001:
Executive Officer; Deputy
General Manager of
Research and Development
Group; and General
Manager of Corporate
Research and Development
Laboratories
|                                   |  |                                                                                                                                                                                        |  |                                                                                                                                                               
|Toshihiko Norizuki
(May 23, 1945)  |  | Executive Officer; Managing
Director of Pioneer China
Holding Co., Ltd.
(June 2004)                                                                                                    |  | June 2001:
Executive Officer;
General Manager of
Business Systems Division
and Plant Manager of
Ohmori Plant                                                  
|                                   |  |                                                                                                                                                                                        |  |                                                                                                                                                               
|Buntarou Nishikawa
(Mar. 24, 1946) |  | Executive Officer; Executive
Vice President of Pioneers
Mobile Entertainment Company;
and General Manager of OEM
Sales Division of Pioneers
Mobile Entertainment Company
(June 2004) |  | June 2001:
Executive Officer;
General Manager of
Domestic Sales Division
of Pioneers Mobile
Entertainment Company                                            
|                                   |  |                                                                                                                                                                                        |  |                                                                                                                                                               
|Osamu Takada
(July 27, 1948)       |  | Executive Officer; General
Manager of Personnel Division
(June 2004)                                                                                                                   |  | June 1998:
General Manager of
Personnel Division                                                                                                              
|                                   |  |                                                                                                                                                                                        |  |                                                                                                                                                               
|Masao Kawabata
(Aug. 10, 1948)     |  | Executive Officer; General
Manager of Corporate
Communications Division
(June 2004)                                                                                                    |  | Apr. 2000:
General Manager of
Corporate Communications
Division                                                                                               
|                                   |  |                                                                                                                                                                                        |  |                                                                                                                                                               
|Sumitaka Matsumura
(Oct. 10, 1948) |  | Executive Officer; Deputy
General Manager of Research
and Development Group; and
General Manager of AV &
Network Development Center
(June 2004)                                        |  | Jan. 2001:
Deputy General Manager of
Research and Development
Group; and General
Manager of AV & Network
Development Center                                   
|                                   |  |                                                                                                                                                                                        |  |                                                                                                                                                               
|Yoshio Taniyama
(Nov. 9, 1948)     |  | Executive Officer; General
Manager of Finance Division
(June 2004)                                                                                                                     |  | Sept. 1999:
General Manager of
Finance Division                                                                                                               
|                                   |  |                                                                                                                                                                                        |  |                                                                                                                                                               
|Hideki Okayasu
(May 12, 1950)      |  | Executive Officer; General
Manager of Accounting
Division
(June 2004)                                                                                                                  |  | July 2000:
General Manager of
Accounting Division                                                                                                             

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|                                  |  |                                                                                                                                                                                                                     |  |                                                                                                                        
|--------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -----------------------------------------------------------------------------------------------------------------------
|Name                              |  | Current Position                                                                                                                                                                                                    |  |                                                                                                                        
|(Date of birth)                   |  | (Month and year of expiration)                                                                                                                                                                                      |  | Prior Position                                                                                                         
|                                  |  |                                                                                                                                                                                                                     |  |                                                                                                                        
|Chojuro Yamamitsu
(Mar. 26, 1946) |  | Executive Officer; Deputy
General Manager of Research
and Development Group;
General Manager of
Engineering; and in charge of
Information & Communication
Development Center and PDP
Development Center
(June 2004) |  | Apr. 2002:
Deputy General Manager of
Research and Development
Group; and General
Manager of Engineering                
|                                  |  |                                                                                                                                                                                                                     |  |                                                                                                                        
|Masaharu Yoshino
(Nov. 22, 1945)  |  | Executive Officer; Plant
Manager of Kawagoe Plant of
Pioneers Mobile
Entertainment Company
(June 2004)                                                                                                             |  | July 2000:
Plant Manager of Kawagoe
Plant of Pioneers Mobile
Entertainment Company                                    
|                                  |  |                                                                                                                                                                                                                     |  |                                                                                                                        
|Kenji Sato
(Aug. 29, 1947)        |  | Executive Officer; General
Manager of General
Administration Division
(June 2004)                                                                                                                                   |  | June 1998:
General Manager of
General Administration
Division                                                          
|                                  |  |                                                                                                                                                                                                                     |  |                                                                                                                        
|Yoichi Sato 
(Jan. 15, 1950)      |  | Executive Officer; General
Manager of Engineering
Division of Display Business
Division of Pioneers Home
Entertainment Company
(June 2004)                                                                         |  | July 2002:
General Manager of
Engineering Division of
Display Business Division
of Pioneers Home
Entertainment Company
|                                  |  |                                                                                                                                                                                                                     |  |                                                                                                                        
|Toshiyuki Ito 
(Oct. 17, 1950)    |  | Executive Officer; Managing
Director of Pioneer
Electronics Asiacentre, Pte.
Ltd.
(June 2004)                                                                                                                       |  | July 2002:
Managing Director of
Pioneer Electronics
Asiacentre, Pte. Ltd.                                              
|                                  |  |                                                                                                                                                                                                                     |  |                                                                                                                        
|Susumu Kotani
(Apr. 12, 1950)     |  | Executive Officer; Managing
Director of Pioneer Europe NV
(June 2004)                                                                                                                                               |  | Sept. 2002:
Managing Director of
Pioneer Europe NV                                                                     

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Corporate Auditors

|                                   |  |                                           |  |                                                                                            
|---------------------------------- |  | ----------------------------------------- |  | -------------------------------------------------------------------------------------------
|Name                               |  | Current Position                          |  |                                                                                            
|(Date of birth)                    |  | (Month and year of expiration)            |  | Prior Position                                                                             
|                                   |  |                                           |  |                                                                                            
|Makoto Koshiba
(Nov. 21, 1943)     |  | Corporate Auditor (full time)
(June 2007) |  | Sept. 1999:
Director; General Manager of
Accounting Division; in charge of
Finance Division
|                                   |  |                                           |  |                                                                                            
|Shinji Yasuda 
(June 10, 1945)     |  | Corporate Auditor (full time)
(June 2007) |  | July 2001:
Director; Managing Director of
Pioneer China Holding Co., Ltd.                  
|                                   |  |                                           |  |                                                                                            
|Terumichi Tsuchida
(Aug. 22, 1921) |  | Corporate Auditor
(June 2004)             |  | July 1998 to present:
Advisor of Meiji Life Insurance
Company                              
|                                   |  |                                           |  |                                                                                            
|Isao Moriya 
(Sept. 5, 1937)       |  | Corporate Auditor
 (June 2007)            |  | Mar. 1968 to present:
Certified Public Accountant                                          
|                                   |  |                                           |  |                                                                                            
|Keiichi Nishikido
(May 2, 1953)    |  | Corporate Auditor
 (June 2007)            |  | Jan. 1994 to present:
Attorney-at Law;
Managing Partner of Kohwa Sohgoh
Law Offices, Japan 

All of the above persons, with the exception of Messrs. Tatsuhiro Ishikawa,
Terumichi Tsuchida, Isao Moriya and Keiichi Nishikido devote themselves full
time to our business.

There is no arrangement or understanding between any Director, Executive
Officer or Corporate Auditor and any other person pursuant to which he or she
was elected as Director, Executive Officer or Corporate Auditor.

Mr. Kanya Matsumoto is the uncle of Mr. Satoshi Matsumoto. Mr. Kaneo Ito is
married to a first cousin of Mr. Kanya Matsumoto. Mr. Yoshio Taniyama is a
first cousin of Mr. Kanya Matsumoto and a brother-in-law of Mr. Kaneo Ito.

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B.  Compensation

The aggregate amount of compensation (including bonuses and stock-based
compensation) paid by Pioneer to all Directors, Executive Officers and
Corporate Auditors of Pioneer as a group for fiscal 2003 totaled
¥965 million.
Also, as part of Pioneers incentive compensation arrangements for Directors
and Executive Officers, Pioneer has issued bonds with detachable warrants in
Japan for the periods from fiscal 1999 to 2002. Upon the issuance of bonds
with detachable warrants by Pioneer, it distributed the warrants at fair market
value to both Directors and Executive Officers of Pioneer, and certain other
executive employees as a part of their remuneration. In fiscal 2003, Pioneer
changed its incentive compensation arrangements and issued share acquisition
rights for its shares of common stock to Directors, Executive Officers and
certain employees, and certain directors/officers of certain of its
subsidiaries. See Item 6.E. Share ownership for further information.

The aggregate amount set aside as lump-sum severance indemnities by Pioneer
during fiscal 2003 for Directors, Executive Officers and Corporate Auditors of
Pioneer totaled ¥100 million. The aggregate amount is calculated by the
formula as defined in the regulations of Pioneer concerning the retirement
allowance. Provision is made for lump-sum severance payments for Directors,
Executive Officers and Corporate Auditors of Pioneer on a basis considered
adequate for such future payments as may be approved by the shareholders. (See
Note 8 in Notes to Consolidated Financial Statements.)

C.  Board practices

Pioneers Articles of Incorporation provide for a Board of Directors of three
or more members and for three or more Corporate Auditors. All Directors and
Corporate Auditors are elected at general meetings of shareholders. In
general, under the Articles of Incorporation of Pioneer, the term of office of
Directors expires at the conclusion of the ordinary general meeting of
shareholders held with respect to the last closing of accounts within one year
(with regard to the term of office of Directors elected at the ordinary general
meeting of shareholders with respect to the business year ended March 31, 2002,
two years) after their assumption of office and in the case of Corporate
Auditors, within four years (with regard to the term of office of Corporate
Auditors elected at or prior to the ordinary general meeting of shareholders
with respect to the business year ended March 31, 2002, three years) after
their assumption of office; however, Directors and Corporate Auditors may serve
any number of consecutive terms. With respect to each expiration of the term
of office of Directors and Corporate Auditors, see Item 6.A. Directors and
senior management.

The Directors constitute the Board of Directors, which has the ultimate
responsibility for administration of our affairs. The Board of Directors may
elect from among its members a Chairman and Director, a Vice Chairman and
Director, a President and Director, one or more Executive Vice Presidents and
Directors, Senior Managing Directors and Managing Directors. From among the
Directors referred to above, the Board of Directors elects one or more
Representative Directors. Each of the Representative Directors has the
authority individually to represent Pioneer in the conduct of its affairs.

Pioneer introduced a Corporate Executive Officer system in June 1999 to improve
management efficiency and speed up decision-making. Executive Officers are
basically elected at the meeting of the Board of Directors held immediately
after the ordinary general meeting of shareholders. In general, the term of
office of Executive Officers expires at the conclusion of the ordinary general
meeting of shareholders held with respect to the last closing of accounts
within one year after their assumption of office. With respect to each
expiration of the term of office of Executive Officers, see Item 6.A.
Directors and senior management. The Board of Directors may elect from among
Executive Officers one or more Senior Managing Executive Officers and Senior
Executive Officers. Each of the Executive Officers has the authority
individually to operate businesses of which he or she is in charge under the
control of the Board of Directors and Representative Directors.

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The Corporate Auditors of Pioneer are not required to be certified public
accountants. However, at least one of the Corporate Auditors is required to be
a person who has not been a Director, Executive Officer, general manager or
employee of Pioneer or any of its subsidiaries during the five-year period
prior to his or her election as a Corporate Auditor. After the conclusion of the ordinary
general meeting of shareholders to be held with respect to the first fiscal
year ending on and after May 1, 2005, at least half of the Corporate Auditors
will be required to be persons who have not been a Director, Executive Officer,
general manager or employee of Pioneer or any of its subsidiaries at any time
prior to their election as Corporate Auditors. The Corporate Auditors may not
at the same time be Directors, Executive Officers, general managers or
employees of Pioneer or any of its subsidiaries.

Each Corporate Auditor has the statutory duty to supervise the administration
by the Directors of Pioneers affairs and also to examine the consolidated and
non-consolidated financial statements and business reports to be submitted by
the Board of Directors at the general meeting of shareholders. They shall
attend meetings of the Board of Directors but are not entitled to vote. In
addition to Corporate Auditors, independent certified public accountants or an
audit corporation must be appointed by general meetings of shareholders. Such
independent certified public accountants or audit corporation have, as their
primary statutory duties, the duties to examine the consolidated and
non-consolidated financial statements proposed to be submitted by the Board of
Directors at general meetings of shareholders and to report their opinion
thereon to the Corporate Auditors and the Directors.

The Corporate Auditors constitute the Board of Corporate Auditors. The Board
of Corporate Auditors has a statutory duty to prepare and submit its audit
report to the Board of Directors each year. A Corporate Auditor may note his
or her opinion in the audit report if his or her opinion is different from the
opinion expressed in the audit report. The Board of Corporate Auditors is
empowered to establish audit principles, method of examination by Corporate
Auditors of Pioneers affairs, and financial position and other matters
concerning the performance of the Corporate Auditors duties.

There are no contractual arrangements providing for benefits to Directors upon
termination of service. Also see Item 10.B. Memorandum and articles of
associationDirectors.

D.   Employees

The following table sets forth the number of our employees at the end of the
period indicated.



|                    |  |                     |        |      |  |      |        |  |  |  |        | 
|------------------- |  | ------------------- | ------ | ---- |  | ---- | ------ |  |  |  | ------ | 
|                    |  | Year ended March 31
|                    |  |                    
|                    |  | 2001                |        | 2002 |  | 2003
|                    |  |                     |        |      |  |     
|Number of employees |  |                     | 28,871 |      |  |      | 31,220 |  |  |  | 34,656 | 
|                    |  |                     |        |      |  |      |        |  |  |  |        | 

Pioneer and six of its subsidiaries in Japan have their respective labor unions
for the employees of each company. Each such labor union is affiliated with
the Japanese Electrical Electronic & Information Union. All employees except
management, supervisory and certain other employees must become union members.
We have not been materially affected by any work stoppages or difficulties in
connection with labor negotiations or disputes and consider our labor relations
to be good.

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E.  Share ownership

The total number of shares of Pioneers common stock owned by our Directors,
Executive Officers and Corporate Auditors as a group as of March 31, 2003 is as
follows:

|               |  |                                                                 |  |                        |  |                  |      |  
|-------------- |  | --------------------------------------------------------------- |  | ---------------------- |  | ---------------- | ---- | -
|Title of class |  | Identity of person or group                                     |  | Number of shares owned |  | Percent of class
|               |  |                                                                 |  |                        |  |                 
|Common Stock   |  | Directors, Executive
Officers and Corporate
Auditors as a group |  | 4,751,273 shares*      |  |                  | 2.70 | %



|* |  | Except for Mr. Kanya Matsumoto, Chairman of Pioneer, who owns 3,878,359
shares of common stock, which constitutes 2.21% of all outstanding shares
as of March 31, 2003, none of Pioneers Directors, Executive Officers and
Corporate Auditors is the owner of more than one percent of Pioneers
common stock.
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Pioneer has granted the following outstanding warrants to subscribe for shares
of common stock to its Directors, Executive Officers and certain executive
employees, and certain directors/officers of certain of its subsidiaries as
part of their compensation.

|                    |  |                |     |                 |  |                                         |  |                |  |                  |     |                  |  |  |  | 
|------------------- |  | -------------- | --- | --------------- |  | --------------------------------------- |  | -------------- |  | ---------------- | --- | ---------------- |  |  |  | 
|                    |  |                |     |                 |  | Total number of                         |  |                |  |                  |     |                  |  | 
|                    |  |                |     |                 |  | shares covered by                       |  |                |  | Current exercise |     | Number of shares
|                    |  |                |     |                 |  | warrants                                |  |                |  | price            |     | exercised       
|Fiscal year granted |  | (in thousands) |     | Exercise period |  | per share                               |  | (in thousands)
|                    |  |                |     |                 |  |                                         |  |               
|2000                |  |                | 320 |                 |  | From July 3, 2000
to September 12, 2002 |  | ¥2,188         |  |                  | 222 |                 
|                    |  |                |     |                 |  |                                         |  |                |  |                  |     |                  |  |  |  | 
|2001                |  |                | 191 |                 |  | From July 2, 2001
to September 11, 2003 |  | ¥4,674         |  |                  |    |                 
|                    |  |                |     |                 |  |                                         |  |                |  |                  |     |                  |  |  |  | 
|2001                |  |                | 93  |                 |  | From July 2, 2001
to September 25, 2003 |  | ¥4,839         |  |                  |    |                 
|                    |  |                |     |                 |  |                                         |  |                |  |                  |     |                  |  |  |  | 
|2002                |  |                | 413 |                 |  | From July 1, 2002
to August 26, 2004    |  | ¥3,266         |  |                  |    |                 

Pioneer has also granted the following share subscription rights for its shares
of common stock to certain of its employees.

|                    |  |                |     |                 |  |                                    |  |                |  |                  |   |                  |  |  |  | 
|------------------- |  | -------------- | --- | --------------- |  | ---------------------------------- |  | -------------- |  | ---------------- | - | ---------------- |  |  |  | 
|                    |  |                |     |                 |  | Total number of                    |  |                |  |                  |   |                  |  | 
|                    |  |                |     |                 |  | shares covered by                  |  |                |  | Current exercise |   | Number of shares
|                    |  |                |     |                 |  | option                             |  |                |  | price            |   | exercised       
|Fiscal year granted |  | (in thousands) |     | Exercise period |  | per share                          |  | (in thousands)
|                    |  |                |     |                 |  |                                    |  |               
|2001                |  |                | 191 |                 |  | From July 1, 2002
to June 30, 2005 |  | ¥4,400         |  |                  |  |                 
|                    |  |                |     |                 |  |                                    |  |                |  |                  |   |                  |  | 
|2002                |  |                | 191 |                 |  | From July 1, 2003
to June 30, 2006 |  | ¥3,791         |  |                  |  |                 

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Pioneer has granted the following share acquisition rights for its shares of
common stock to its Directors, Executive Officers and certain employees, and
certain directors/officers of certain of its subsidiaries.

|                    |  |                |     |                 |  |                                    |  |                |        |                  |  |                  |  |  |  |  |  | 
|------------------- |  | -------------- | --- | --------------- |  | ---------------------------------- |  | -------------- | ------ | ---------------- |  | ---------------- |  |  |  |  |  | 
|                    |  |                |     |                 |  | Total number of                    |  |                |        |                  |  |                  |  |  |  | 
|                    |  |                |     |                 |  | shares covered by                  |  |                |        | Current exercise |  | Number of shares
|                    |  |                |     |                 |  | option                             |  |                |        | price            |  | exercised       
|Fiscal year granted |  | (in thousands) |     | Exercise period |  | per share                          |  | (in thousands)
|                    |  |                |     |                 |  |                                    |  |               
|2003                |  |                | 564 |                 |  | From July 1, 2004
to June 29, 2007 |  |                | ¥2,477 |                  |  |                
|                    |  |                |     |                 |  |                                    |  |                |        |                  |  |                  |  |  |  |  |  | 
|2004                |  |                | 313 |                 |  | From July 1, 2005
to June 30, 2008 |  |                | ¥2,931 |                  |  |                

As of March 31, 2003, Pioneer holds 4,629,028 shares as treasury stock with
purchase of 5,110,000 shares and disposal of 518,400 shares both in the market
in fiscal 2003.




Item 7. Major Shareholders and Related Party Transactions

A.  Major shareholders

Major shareholders that owned 5% or more of Pioneers voting securities as of
March 31, 2003 on the register of shareholders were as follows:

|               |  |                                                     |  |                  |        |                    |  |  |      |  
|-------------- |  | --------------------------------------------------- |  | ---------------- | ------ | ------------------ |  |  | ---- | -
|               |  |                                                     |  | Number of shares |        | Percentage of     
|Title of class |  | Name                                                |  | (in thousands)   |        | outstanding shares
|               |  |                                                     |  |                  |        |                   
|Common Stock   |  | Japan Trustee Services Bank, Ltd.
(Trust Account)   |  |                  | 15,242 |                    |  |  | 8.68 | %
|               |  |                                                     |  |                  |        |                    |  |  |      |  
|Common Stock   |  | The Master Trust Bank of Japan,Ltd. (Trust Account) |  |                  | 11,549 |                    |  |  | 6.58 | %

Japan Trustee Services Bank, Ltd. and The Master Trust Bank of Japan, Ltd. are
securities processing services companies. We understand that these
shareholders are not the beneficial owner of our voting securities, but we do
not have available further information concerning such beneficial ownership.

To our knowledge, there are no major shareholders that were beneficial owners
of 5% or more of Pioneers voting securities during the past three years.

All shareholders of Pioneer have the same voting rights, subject to the
limitation on exercise as set forth in Item 10.B. Memorandum and articles of
associationCommon stockVoting rights.

As of March 31, 2003, there were 175,434,808 shares of common stock
outstanding, of which 762,630 shares (0.43%) were held in the form of American
Depositary Receipts (ADRs) and 17,405,833 shares (9.92%) were held of record in
the form of common stock by residents in the United States (based solely on
their addresses). The number of registered ADR holders of record (including
DTC) was 89, and the number of registered holders of record in the United
States (based solely on their addresses) of shares of common stock, including
those who held shares through a Japanese securities clearing system, was 80.

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To our knowledge, Pioneer is not directly or indirectly owned or controlled by
any other corporation or by the Japanese or any foreign government.

To our knowledge, there is no arrangement, the operation of which may at a
subsequent date result in a change in control of Pioneer.

B.  Related party transactions

None

C.  Interests of experts and counsel

Not applicable




Item 8. Financial Information

A.  Consolidated statements and other financial information

Consolidated financial statements

See the Consolidated Financial Statements beginning on page F-1.

Legal proceedings

In common with numerous other industrial companies conducting a global
business, we are party to various lawsuits and administrative proceedings in
the ordinary course of our business. Based on the advice of counsel in the
respective matters, except as described below, we do not expect such lawsuits
or administrative proceedings, individually or in the aggregate, to have a
material effect on our financial condition and business results.

During the year ended March 31, 2001, we received a notice of proposed
assessment from the German tax authorities for approximately EUR21 million
(¥2,721 million translated at the current foreign exchange rate at March 31,
2003) relating to a tax position taken in prior years concerning intercompany
purchase prices. We officially challenged the proposed assessment by
arbitration procedures. There was no progress in this matter during the year
ended March 31, 2003. In the opinion of management, it is not possible at this
time to determine the ultimate resolution of this matter.

In August 2002, we received notices of proposed assessment from the United
States Internal Revenue Service (IRS) for additional taxes of approximately
US$66 million (¥7,933 million translated at the foreign exchange rate at March
31, 2003) relating to an adjustment to transfer prices between affiliated
companies for the years ended March 31, 1997 through 1999. In October 2002, we
filed protests with the IRS against the assessments and requested that the case
be forwarded to the IRS Appeals Office. In the opinion of management, it is
not possible at this time to determine the ultimate outcome of this matter.

We
are also a defendant and counterclaimant in a lawsuit in the United States
Federal District Court in which the plaintiff, Gemstar-TV Guide International
Inc. (Gemstar), alleges that we have infringed two patents, both of which
have expired. During August 2002, the Federal District Court granted summary
judgment in our favor and against Gemstar ruling that we did not infringe those
two patents. We continue to prosecute our counterclaim against the plaintiff
and another company.

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In addition, the same plaintiff alleged in separate proceedings that we
infringed four other patents. The plaintiff filed both a complaint before the
International Trade Commission (ITC) alleging patent infringement relating to
the importation and sale of the pertinent products in the United States and a
complaint for unspecified damages in the United States Federal District Court
in multi-district litigation in Atlanta, Georgia. During August 2002, the ITC
adopted the findings and conclusions of the ITCs administrative law judge that
we did not infringe the patents at issue held by Gemstar. Gemstar has filed an
appeal to the Federal Circuit. The related complaint filed in the District
Court is stayed pending a ruling on the appeal of the ITCs determination.

Dividend policy

Pioneer normally pays cash dividends twice per year. Pioneers Board of
Directors recommends year-end dividends to be paid following the end of each
fiscal year. This recommended year-end dividend must then be approved by
shareholders at the ordinary general meeting of shareholders usually held in
June of each year. Immediately following approval of the dividend at the
shareholders meeting, Pioneer pays the dividend to holders of record at the
preceding March 31. In addition to these year-end dividends, Pioneer may pay
interim dividends in the form of cash distributions from its retained earnings
to its shareholders of record as of September 30 in each year by resolution of
its Board of Directors and without shareholder approval. Pioneer normally pays
interim dividends in December. See Item 10.B. Memorandum and articles of
association  Common stock  Dividends.

The following table sets forth the dividends paid by Pioneer for each of the
periods shown. The U.S. dollar equivalents for the dividends shown are based
on the noon buying rate for cable transfers in New York City as certified for
customs purposes by the Federal Reserve Bank of New York for yen on the date of
the dividend payment:

|                   |  |                    |        |         |  |   |      | 
|------------------ |  | ------------------ | ------ | ------- |  | - | ---- | 
|                   |  | Dividend per share
|                   |  |                   
|Record date        |  | Yen                |        | Dollars
|                   |  |                    |        |        
|March 31, 1999     |  |                    | ¥5.00  |         |  | $ | 0.04 | 
|September 30, 1999 |  |                    | ¥5.00  |         |  | $ | 0.05 | 
|March 31, 2000     |  |                    | ¥5.00  |         |  | $ | 0.05 | 
|September 30, 2000 |  |                    | ¥7.50  |         |  | $ | 0.07 | 
|March 31, 2001     |  |                    | ¥7.50  |         |  | $ | 0.06 | 
|September 30, 2001 |  |                    | ¥7.50  |         |  | $ | 0.06 | 
|March 31, 2002     |  |                    | ¥7.50  |         |  | $ | 0.06 | 
|September 30, 2002 |  |                    | ¥7.50  |         |  | $ | 0.06 | 
|March 31, 2003     |  |                    | ¥10.00 |         |  | $ | 0.08 | 

Pioneers policy on dividends allows for dividend continuance and stability.
In addition, Pioneer determines the appropriate dividend amount taking into
consideration its financial condition, consolidated business results and other
factors.

B. Significant changes

There were no significant changes nor have any relevant facts occurred after
the date of the financial statements included in this annual report other than
disclosed therein.

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Item 9. The Offer and Listing

A. Offer and listing details

The following table sets forth for the period indicated the reported high and
low sales prices per share of Pioneers Common Stock on the Tokyo Stock
Exchange and per share of Pioneers American Depositary Shares (ADSs) on the
New York Stock Exchange. See Item 9.C. Markets, regarding the markets for
Pioneers shares.

|                         |             |      |                                 |        |                         |      |       |        |       |  |   |       |  |  |   |       | 
|------------------------ | ----------- | ---- | ------------------------------- | ------ | ----------------------- | ---- | ----- | ------ | ----- |  | - | ----- |  |  | - | ----- | 
|                         |             |      | Tokyo Stock Exchange            |        | New York Stock Exchange
|                         |             |      | Price per share of Common Stock |        | Price per share of ADS 
|                         |             |      | (yen)                           |        | (U.S. dollars)         
|                         |             |      |                                 |        |                        
|Annual highs and lows    |             | High |                                 | Low    |                         | High |       | Low   
|                         |             |      |                                 |        |                         |      |       |       
|Year ended March 31,     |             |      |                                 |        |                         |      |       |        |       |  |   |       |  |  |   |      
|                         | 1999        |      |                                 | ¥2,920 |                         |      |       | ¥1,720 |       |  | $ | 21.13 |  |  | $ | 14.88 | 
|                         | 2000        |      |                                 | 3,690  |                         |      |       | 1,711  |       |  |   | 34.75 |  |  |   | 16.13 | 
|                         | 2001        |      |                                 | 4,940  |                         |      |       | 2,085  |       |  |   | 45.38 |  |  |   | 20.50 | 
|                         | 2002        |      |                                 | 4,250  |                         |      |       | 2,150  |       |  |   | 34.70 |  |  |   | 16.75 | 
|                         | 2003        |      |                                 | 2,860  |                         |      |       | 1,805  |       |  |   | 21.98 |  |  |   | 14.83 | 
|Quarterly highs and lows |             |      |                                 |        |                         |      |       |        |       |  |   |       |  |  |   |      
|Fiscal 2002              |             |      |                                 |        |                         |      |       |        |       |  |   |       |  |  |   |      
|                         | 1st quarter |      |                                 | 4,250  |                         |      |       | 3,020  |       |  |   | 34.70 |  |  |   | 25.18 | 
|                         | 2nd quarter |      |                                 | 3,920  |                         |      |       | 2,155  |       |  |   | 31.05 |  |  |   | 16.85 | 
|                         | 3rd quarter |      |                                 | 3,290  |                         |      |       | 2,210  |       |  |   | 26.20 |  |  |   | 19.01 | 
|                         | 4th quarter |      |                                 | 3,330  |                         |      |       | 2,150  |       |  |   | 25.06 |  |  |   | 16.75 | 
|Fiscal 2003              |             |      |                                 |        |                         |      |       |        |       |  |   |       |  |  |   |      
|                         | 1st quarter |      |                                 | 2,860  |                         |      |       | 1,981  |       |  |   | 21.65 |  |  |   | 16.75 | 
|                         | 2nd quarter |      |                                 | 2,260  |                         |      |       | 1,900  |       |  |   | 18.60 |  |  |   | 16.00 | 
|                         | 3rd quarter |      |                                 | 2,490  |                         |      |       | 1,805  |       |  |   | 19.50 |  |  |   | 14.83 | 
|                         | 4th quarter |      |                                 | 2,620  |                         |      |       | 2,070  |       |  |   | 21.98 |  |  |   | 17.95 | 
|Fiscal 2004              |             |      |                                 |        |                         |      |       |        |       |  |   |       |  |  |   |      
|                         | 1st quarter |      | 2,840                           |        | 2,225                   |      | 23.75 |        | 18.90 | 
|Monthly highs and lows   |             |      |                                 |        |                         |      |       |        |       |  |   |       |  |  |   |      
|2003                     |             |      |                                 |        |                         |      |       |        |       |  |   |       |  |  |   |      
|                         | January     |      |                                 | 2,405  |                         |      |       | 2,070  |       |  |   | 19.65 |  |  |   | 17.95 | 
|                         | February    |      |                                 | 2,600  |                         |      |       | 2,260  |       |  |   | 21.54 |  |  |   | 19.01 | 
|                         | March       |      |                                 | 2,620  |                         |      |       | 2,390  |       |  |   | 21.98 |  |  |   | 20.25 | 
|                         | April       |      |                                 | 2,460  |                         |      |       | 2,225  |       |  |   | 20.50 |  |  |   | 18.90 | 
|                         | May         |      |                                 | 2,555  |                         |      |       | 2,290  |       |  |   | 22.27 |  |  |   | 19.78 | 
|                         | June        |      |                                 | 2,840  |                         |      |       | 2,490  |       |  |   | 23.75 |  |  |   | 21.00 | 
|                         | July        |      | 2,970                           |        | 2,635                   |      | 25.48 |        | 22.50 | 

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B. Plan of distribution

Not applicable

C. Markets

The primary market for shares of Pioneers common stock is the Tokyo Stock
Exchange (TSE). Pioneers shares of common stock have been listed on the TSE
since October 1961 and on the Osaka Securities Exchange since April 1968.

Since December 1976, Pioneers ADSs have been listed and traded on the New York
Stock Exchange (NYSE), having been traded on the United States over-the-counter
market since February 1970. Pioneers ADSs, each representing one share of
common stock, are evidenced by ADRs issued by Citibank, N.A., New York, as
Depositary.

In addition, Curaçao Depositary Shares of Pioneer, evidenced by Curaçao
Depositary Receipts, have been listed and traded on the Euronext Amsterdam
since February 1969.

D. Selling shareholders

Not applicable

E. Dilution

Not applicable

F. Expenses of the issue

Not applicable




Item 10. Additional Information

A. Share capital

Not applicable

B. Memorandum and articles of association

Organization

Pioneer 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 Meguro Branch Office of the Tokyo
Legal Affairs Bureau.

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Objects and purposes

Article 2 of the Articles of Incorporation of Pioneer provides that its purpose
is to engage in the following lines of business:



| |  | manufacture and sale of electronic and electrical machinery and appliances, optical instruments, medical instruments, and
other machinery and appliances;
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | planning, production, manufacture and sale of audio, video and computer software;                                                                        
| 
| |  | manufacture and sale of woodworks, agricultural products and plant for their cultivation;                                                                
| 
| |  | sale of foods and beverages including liquor, and operation of restaurants and amusement facilities;                                                     
| 
| |  | sale and purchase, rental and lease, and management of real estate and real estate agency business;                                                      
| 
| |  | publishing and printing business, advertising agency business, construction business and non-life insurance agency business;                             
| 
| |  | acquisition, management and transfer of industrial property rights, copyrights and other intellectual property rights; and                               
| 
| |  | all business incidental and related to each and every one of the businesses in the preceding businesses.                                                 

Directors

Each Director has executive powers and duties to manage the affairs of Pioneer
and each Representative Director, who is elected from among the Directors by
the Board of Directors, has the statutory authority to represent Pioneer in all
respects. Under the Commercial Code, the Directors must refrain from engaging
in any business competing with Pioneer unless approved by the Board of
Directors and any Director who has a material interest in the subject matter of
a resolution to be taken by the Board of Directors cannot vote on such
resolution. The total amount of remuneration to Directors and that to
Corporate Auditors are subject to the approval of the general meeting of
shareholders.

Except as stated below, neither the Commercial Code nor Pioneers Articles of
Incorporation make special provisions as to the Directors or Corporate
Auditors power to vote in connection with their compensation; the borrowing
power exercisable by a Representative Director (or a Director who is given
power by a Representative Director to exercise such power), their retirement
age or requirement to hold any shares of capital stock of Pioneer. The
Commercial Code specifically requires the resolution of the Board of Directors
for a company to acquire or dispose of material assets; to borrow a substantial
amount of money; to employ or discharge from employment important employees,
such as general managers; and to establish, change or abolish material
corporate organization such as a branch office. The Regulations of the Board
of Directors of Pioneer require a resolution of the Board of Directors for
Pioneer to borrow a large amount of money or to give a guarantee for a large
amount of money. There is no written rule as to what constitutes a large
amount in these contexts. However, it has been the general practice of
Pioneers Board of Directors to adopt a resolution for a borrowing or
guaranteeing in an amount not less than ¥100 million or its equivalent.

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Common stock

General

Set forth below is information relating to Pioneers Common Stock, including
brief summaries of the relevant provisions of Pioneers Articles of
Incorporation and Share Handling Regulations, as currently in effect, and of
the Commercial Code of Japan and related legislation.

In order to assert shareholders rights against Pioneer, a shareholder must
have its name and address registered on Pioneers register of shareholders, in
accordance with Pioneers Share Handling Regulations. The registered holder of
deposited shares underlying the ADSs is the Depositary for the ADSs.
Accordingly, holders of ADSs will not be able directly to assert shareholders
rights to Pioneer.

A holder of shares may choose, at its discretion, to participate in the central
clearing system for share certificates under the Law Concerning Central
Clearing of Share Certificates and Other Securities of Japan. Participating
shareholders must deposit certificates representing all of the shares to be
included in this clearing system with the Japan Securities Depository Center,
Inc. (JASDEC). If a holder is not a participating institution in JASDEC, it
must participate through a participating institution, such as securities
company or bank having a clearing account with JASDEC. All shares deposited
with JASDEC will be registered in the name of JASDEC on Pioneers register of
shareholders. Each participating shareholder will in turn be registered on
Pioneers register of beneficial shareholders and be treated in the same way as
shareholders registered on Pioneers register of shareholders. For the purpose
of transferring deposited shares, delivery of share certificates is not
required. Entry of the share transfer in the books maintained by JASDEC for
participating institutions, or in the book maintained by a participating
institution for its customers, has the same effect as delivery of share
certificates. The registered beneficial shareholders may exercise the rights
attached to the shares, such as voting rights, and will receive dividends (if
any) and notices to shareholders directly from Pioneer. The shares held by a
person as a registered shareholder and those held by the same person as a
registered beneficial shareholder are aggregated for these purposes.
Beneficial shareholders may at any time withdraw their shares from deposit and
receive share certificates.

Authorized capital

Article 5 of the Articles of Incorporation of Pioneer provides that the total
number of shares authorized to be issued by Pioneer is four hundred million
(400,000,000) shares.

As of March 31, 2003, 180,063,836 shares of common stock were issued (including
4,629,028 shares held as treasury stock).

All shares of common stock of Pioneer have no par value.

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Dividends

The Articles of Incorporation of Pioneer provide that the accounts shall be
closed on March 31 of each year. Year-end dividends, if any, shall be paid to
shareholders, beneficial shareholders and pledgees of record as of the end of
such day. After the close of the fiscal period, the Board of Directors
prepares, among other things, a proposed allocation of profits for dividends
and other purposes; this proposal is submitted to the Board of Corporate
Auditors of Pioneer and to independent certified public accountants and then
submitted for approval to the ordinary general meeting of shareholders, which
is normally held in June each year. In addition to provisions for dividends,
if any, and for the legal reserve and other reserves, the allocation of profits
customarily includes a bonus to Directors and Corporate Auditors. In addition
to year-end dividends, the Board of Directors may by its resolution declare a
cash distribution pursuant to Article 293-5 of the Commercial Code (an interim
dividend) to shareholders, beneficial shareholders and pledgees of record as
of the end of each September 30, without shareholders approval, but subject to
the limitations described below.

The Commercial Code provides that a company may not make any distribution of
profit by way of dividends or interim dividends for any fiscal period unless it
has set aside in its legal reserve an amount equal to at least one-tenth of the
amount paid by way of appropriation of retained earnings for such fiscal period
or equal to one-tenth of the amount of such interim dividends, until the
aggregate amount of additional paid-in capital and legal reserve equals
one-quarter of its stated capital on a non-consolidated basis. Under the
Commercial Code, Pioneer is permitted to distribute profits by way of year-end
or interim dividends out of the excess of its net assets over the aggregate of:



|(i)   |  | its stated capital;                                                             
|----- |  | --------------------------------------------------------------------------------
|     
|(ii)  |  | its additional paid-in capital;                                                 
|     
|(iii) |  | its accumulated legal reserve;                                                  
|     
|(iv)  |  | the legal reserve to be set aside in respect of the fiscal period concerned; and
|     
|(v)   |  | other amounts as provided for by an ordinance of Ministry of Justice.           

In the case of interim dividends, the net assets are calculated by reference to
the non-consolidated balance sheet as at the last closing date of Pioneers
accounts, but adjusted to reflect; (x) any subsequent payment by way of
appropriation of retained earnings and transfer to legal reserve in respect
thereof; (y) any subsequent transfer of retained earnings to stated capital;
and (z) if Pioneer has been authorized, pursuant to a resolution of an ordinary
general meeting of shareholders, to purchase shares of its common stock (see
Acquisition by Pioneer of its common stock below), the total amount of the
purchase price of such shares so authorized by such resolution that may be paid
by Pioneer, provided that interim dividends may not be paid where there is a
risk that at the end of the fiscal year there might not be any excess of net
assets over the aggregate of the amounts referred to in (i) through (v) above.

Under its Articles of Incorporation, Pioneer is not obligated to pay any
dividends which are left unclaimed for a period of three years after the date
on which they first became payable.

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Stock splits

Pioneer may at any time split shares in issue into a greater number of shares
by resolution of the Board of Directors, and may amend its Articles of
Incorporation to increase the number of the authorized shares to be issued to
allow such stock split pursuant to a resolution of the Board of Directors,
rather than relying on a special resolution of a general meeting of
shareholders, which is otherwise required for amending the Articles of
Incorporation.

In the event of a stock split, generally, shareholders will not be required to
exchange share certificates for new share certificates, but certificates
representing the additional shares resulting from the stock split will be
issued to shareholders. When a stock split is to be made, Pioneer must give
public notice of the stock split, specifying the record date therefor, at least
two weeks prior to such record date. In addition, promptly after the stock
split takes effect, Pioneer must give notice to each shareholder specifying the
number of shares to which such shareholder is entitled by virtue of the stock
split.

General meeting of shareholders

The ordinary general meeting of shareholders of Pioneer for each fiscal year is
normally held in June in each year in or near Meguro-ku or in Minato-ku, Tokyo,
Japan. In addition, Pioneer 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. Such notice may be given to shareholders by electronic means, subject
to the consent of 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% 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% of the total number of voting rights for a period of six months or more may
propose a matter to be considered at a general meeting of shareholders by
submitting a written request to a Representative Director at least eight weeks
prior to the date set for such meeting.

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Voting rights

So long as Pioneer maintains the unit
share system (see Unit share system
below; currently 100 shares constitute one unit) a holder of shares
constituting one or more full units is entitled to one voting right per unit of
shares subject to the limitations on voting rights set forth in the following
two sentences. A corporate shareholder more than one-quarter of whose total
voting rights are directly or indirectly owned by Pioneer may not exercise its
voting rights with respect to shares of common stock of Pioneer that it owns.
In addition, Pioneer may not exercise its voting rights with respect to its
shares that it owns. If Pioneer eliminates from its Articles of Incorporation
the provisions relating to the unit of shares, holders of common stock will
have one voting right for each share they hold. 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 present at the meeting. The Commercial Code and Pioneers
Articles of Incorporation provide, however, that the quorum for the election of
Directors and Corporate Auditors shall not be less than one-third of the total
number of voting rights of all the shareholders. Pioneers shareholders are
not entitled to cumulative voting in the election of Directors. Shareholders
may exercise their voting rights through proxies, provided that the proxies are
also shareholders holding voting rights. Pioneers shareholders also may cast
their votes in writing, or exercise their voting rights by electronic means
pursuant to the method thereof determined by the Board of Directors.

The Commercial Code and Pioneers Articles of Incorporation provide that in
order to amend the Articles of Incorporation and in certain other instances,
including, a reduction of stated capital, the removal of a Director or
Corporate Auditor, dissolution, merger or consolidation pursuant to a certain
exception under which a 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 pursuant to a certain exception under
which a shareholders resolution is not required, share exchange or share
transfer for the purpose of establishing 100% parent-subsidiary relationships
pursuant to a certain exception under which a shareholders resolution is not
required, splitting of the corporation into two or more corporations pursuant
to a certain exception under which a shareholders resolution is not required,
or any offering of new shares at a substantially favorable price (or any
offering of share acquisition rights to subscribe for or acquire shares of
capital stock (share acquisition rights) or bonds with share acquisition
rights at a substantially favorable terms) to any persons other than
shareholders, the quorum shall be one-third of the total voting rights of all
the shareholders, and 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 Pioneer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 substantially favorable
price mentioned under Voting rights above. The Board of Directors may,
however, determine that shareholders shall be given subscription rights
regarding a particular issue of new shares, in which case such rights must be
given on uniform terms to all shareholders as at a record date of which not
less than two weeks prior public notice must be given. Each of the
shareholders to whom such rights are given must also be given notice of the
expiry thereof at least two weeks prior to the date on which such rights
expire.

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Rights to subscribe for new shares may be made generally transferable by the
Board of Directors. Whether Pioneer will make subscription rights generally
transferable in future rights offerings will depend upon the circumstances at
the time of such offerings. If subscription rights are not made generally
transferable, transfers by a non-resident of Japan or a corporation organized
under the laws of a foreign country or whose principal office is located in a
foreign country will be enforceable against Pioneer and third parties only if
Pioneers prior written consent to each such transfer is obtained. When such
consent is necessary in the future for the transfer of subscription rights,
Pioneer intends to consent, on request, to all such transfers by such a
non-resident or foreign corporation.

Subject to certain conditions, Pioneer may issue share acquisition rights by a
resolution of the Board of Directors. Holders of share acquisition rights may
exercise their rights to acquire a certain number of shares within the exercise
period as prescribed in the terms of their share acquisition rights. Upon
exercise of share acquisition rights, Pioneer will be obliged to issue the
necessary number of new shares or alternatively to transfer the relevant number
of treasury stock held by it.

Liquidation rights

In the event of a liquidation of Pioneer, 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 Pioneers year-end dividends. So long as
Pioneer maintains the unit share system, the shareholders and beneficial
shareholders who are registered as the holders of one or more full unit of
shares in Pioneer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, Pioneer 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 by Pioneer of its common stock

Pioneer may acquire its own shares through a stock exchange on which such
shares are listed (pursuant to an ordinary resolution of an ordinary general
meeting of shareholders), by way of tender offer (pursuant to an ordinary
resolution of an ordinary general meeting of shareholders), or by purchase from
a specific party other than a subsidiary of Pioneer (pursuant to a special
resolution of an ordinary general meeting of shareholders) or from a subsidiary
of Pioneer (pursuant to a resolution of the Board of Directors). When such
acquisition is made by Pioneer from a specific party other than a subsidiary of
Pioneer, any other shareholder may make a request to a Representative Director,
more than five calendar days prior to the relevant shareholders meeting, to
include him or her as the seller in the proposed purchase. Any such
acquisition of shares must satisfy certain requirements, including that, in
cases other than the acquisition by Pioneer of its own shares from a subsidiary
of Pioneer, the total amount of the purchase price may not exceed the amount of
the retained earnings available for dividend payments after taking into account
any reduction, if any, of the stated capital, additional paid-in capital or
legal reserve (if such reduction of the stated capital, additional paid-in
capital or legal reserve has been authorized pursuant to a resolution of the
relevant ordinary general meeting of shareholders), minus the amount to be paid
by way of appropriation of retained earnings for the relevant fiscal year and
the amount to be transferred to stated capital. If Pioneer purchases shares
from its subsidiaries, the total amount of the purchase price may not exceed
the amount of the retained earnings available for an interim dividend payment
minus the amount of any interim dividend Pioneer actually paid. However, if it
is anticipated that the net assets on the non-consolidated balance sheet as at
the end of the relevant fiscal year will be less than the aggregate amount of
the stated capital, additional paid-in capital and other items as described in
(i) through (v) to Dividends above, Pioneer may not acquire such shares.

Shares acquired by Pioneer may be held by it for any period or may be cancelled
by resolution of the Board of Directors. Pioneer 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 similar to those applicable
to the issuance of new shares, as described in Issue of additional shares and
pre-emptive rights above. Pioneer may also utilize its treasury stock for the
purpose of transfer to any person upon exercise of share acquisition rights or
for the purpose of acquiring another company by way of merger, share exchange
or corporate split through exchange of treasury stock for shares or assets of
the acquired company.

Unit share system

The Articles of Incorporation of Pioneer provide that 100 shares constitute one
unit of shares of stock. Although the number of shares constituting one unit
is included in the Articles of Incorporation, any amendment to the Articles of
Incorporation reducing (but not increasing) the number of shares constituting
one unit or eliminating the provisions for the unit of shares may be made by
the resolution of the Board of Directors rather than by the special
shareholders resolution, which is otherwise required for amending the Articles
of Incorporation. The number of shares constituting one new unit, however,
cannot exceed 1,000 or one two-hundredth (1/200) of all issued shares.

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.

Unless Pioneers 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 one full 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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A holder of shares constituting less than one unit may require Pioneer to
purchase such shares at their market value in accordance with the provisions of
the Share Handling Regulations of Pioneer. In addition, the Articles of
Incorporation of Pioneer provide that a holder of shares constituting less than
one full unit may request Pioneer to sell to such holder such amount of shares
which will, when added together with the shares constituting less than one full
unit held by such holder, constitute one full unit of stock, in accordance with
the provisions of the Share Handling Regulations of Pioneer.

A holder who owns ADRs evidencing less than 100 ADSs will indirectly own less
than one full unit of shares of common stock. Although, as discussed above,
under the unit share system holders of less than one full unit have the right
to require Pioneer to purchase their shares or sell shares held by Pioneer to
such holders, holders of ADRs evidencing ADSs that represent other than
integral multiples of a unit are unable to withdraw the underlying shares of
common stock representing less than one full unit and, therefore, are unable,
as a practical matter, to exercise the rights to require Pioneer to purchase
such underlying shares or sell shares held by Pioneer to such holders unless
Pioneer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 one full unit. The unit share system does not affect
the transferability of ADSs, which may be transferred in lots of any size.

Sale by Pioneer of shares held by shareholders whose address is unknown

Pioneer is not required to send a notice to a shareholder if a notice to such
shareholder fails to arrive at the registered address of the shareholder in
Pioneers register of shareholders or at the address otherwise notified to
Pioneer continuously for five years or more.

In addition, Pioneer may sell or otherwise dispose of shares of common stock
for which the location of the shareholder is unknown. Generally, if (i)
notices to a shareholder fail to arrive continuously for five years or more at
the shareholders registered address in Pioneers register of shareholders or
at the address otherwise notified to Pioneer, and (ii) the shareholder fails to
receive dividends on the shares continuously for five years or more at the
address registered in Pioneers register of shareholders or at the address
otherwise notified to Pioneer, Pioneer may sell or otherwise dispose of the
shareholders shares by a resolution of the Board of Directors and after giving
at least three months prior public and individual notice, and holding or
depositing the proceeds of such sale or disposal of shares at the then market
price of the shares for the shareholder, the location of which is unknown.

Reporting of substantial shareholdings

The Securities and Exchange Law of Japan and regulations thereunder require any
person, regardless of residence, who has become, beneficially and solely or
jointly, a holder(s) of more than 5% of the total issued shares of capital
stock of a company listed on any Japanese stock exchange or whose shares are
traded on the over-the-counter market in Japan to file with the
DirectorGeneral of a competent Local Finance Bureau of 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%
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 share acquisition rights are taken into
account in determining both the number of shares held by such holder and the
issuers total issued share capital. Copies of such report must also be
furnished to the issuer of such shares and all Japanese stock exchanges on
which the shares are listed or (in the case of shares traded over-the-counter)
the Japan Securities Dealers Association.

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Except for the general limitation under Japanese anti-trust and anti-monopoly
regulations against holding of shares of capital stock of a Japanese
corporation which leads or may lead to a restraint of trade or monopoly, and
except for general limitations under the Commercial Code or Pioneer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 Pioneer or under its Articles of Incorporation on the
rights of non-resident or foreign shareholders to hold the shares of common
stock of Pioneer or exercise voting rights thereon.

There is no provision in Pioneers Articles of Incorporation that would have an
effect of delaying, deferring or preventing a change in control of Pioneer and
that would operate only with respect to merger, consolidation, acquisition or
corporate restructuring involving Pioneer.

C.  Material contracts

Not applicable

D.  Exchange controls

The Foreign Exchange and Foreign Trade Law of Japan and its related cabinet
orders and ministerial ordinances (the Foreign Exchange Regulations) govern
the acquisition and holding of shares of common stock of Pioneer by exchange
non-residents and by foreign investors. The Foreign Exchange Regulations
currently in effect do not, however, affect transactions between exchange
non-residents to purchase or sell shares outside Japan using currencies other
than Japanese yen.

Exchange non-residents are:



| |  | individuals who do not reside in Japan; and                    
|- |  | ---------------------------------------------------------------
| 
| |  | corporations whose principal offices are located outside Japan.

Generally, branches and other offices of non-resident corporations that are
located within Japan are regarded as residents of Japan. Conversely, branches
and other offices of Japanese corporations located outside Japan are regarded
as exchange non-residents.

Foreign investors are:



| |  | individuals who are exchange non residents;                                                                                                                                                                                                                                                                                                                                              
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | corporations that are organized under the laws of foreign countries or
whose principal offices are located outside Japan; and                                                                                                                                                                                                                                                            
| 
| |  | corporations (1) of which 50% or more of their shares are held by
individuals who are exchange non-residents and/or corporations (a)
that are organized under the laws of foreign countries or (b) whose
principal offices are located outside Japan or (2) a majority of whose
officers, or officers having the power of representation, are
individuals who are exchange non-residents.

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In general, the acquisition of shares of a Japanese company (such as the shares
of common stock of Pioneer) by an exchange non-resident from a resident of
Japan is not subject to any prior filing requirements. In certain limited
circumstances, however, the Minister of Finance may require prior approval of
an acquisition of this type. While prior approval, as described above, is not
required, in the case where a resident of Japan transfers shares of a Japanese
company (such as the shares of common stock of Pioneer) for consideration
exceeding ¥100 million to an exchange non-resident, the resident of Japan who
transfers the shares is required to report the transfer to the Minister of
Finance within 20 days from the date of the transfer, unless the transfer was
made through a bank, securities company or financial futures trader licensed
under Japanese law.

If a foreign investor acquires shares of a Japanese company that is listed on a
Japanese stock exchange (such as the shares of common stock of Pioneer) or that
is traded on an over-the-counter market in Japan and, as a result of the
acquisition, the foreign investor, in combination with any existing holdings,
directly or indirectly holds 10% or more of the issued shares of the relevant
company, the foreign investor must file a report of the acquisition with the
Minister of Finance and any other competent Ministers having jurisdiction over
that Japanese company within 15 days from and including the date of the
acquisition, except where the offering of the companys shares was made
overseas. In limited circumstances, such as where the foreign investor is in a
country that is not listed on an exemption schedule in the Foreign Exchange
Regulations, a prior notification of the acquisition must be filed with the
Minister of Finance and any other competent Ministers, who may then modify or
prohibit the proposed acquisition.

Under the Foreign Exchange Regulations, dividends paid on and the proceeds from
sales in Japan of shares of common stock of Pioneer held by non-residents of
Japan may generally be converted into any foreign currency and repatriated
abroad.

E.  Taxation

The discussion below is not intended to constitute a complete analysis of all
tax consequences relating to the acquisition, ownership and disposition of
shares of common stock and ADSs. Prospective purchasers and holders of the
shares of common stock or ADSs should consult their own tax advisors concerning
the tax consequences of their particular situations.

The following is a summary of the principal Japanese national and U.S. federal
tax consequences of the acquisition, ownership and disposition of shares of
common stock or ADSs by a U.S. Holder (as defined below) that holds those
shares or ADSs as capital assets (generally, property held for investment).
This summary does not purport to address all material tax consequences that may
be relevant to holders of shares of common stock or ADSs, and does not take
into account the specific circumstances of any particular investors, some of
which (such as tax-exempt entities, banks, insurance companies, broker-dealers,
investors liable for alternative minimum tax, investors that own or are treated
as owning 10% or more of Pioneers voting stock, investors that hold shares of
common stock or ADSs as part of a straddle, hedge, conversion transaction or
other integrated transaction, persons that hold shares of common stock or ADSs
through a partnership or other pass-through entity and U.S. Holders whose
functional currency is not the U.S. dollar) may be subject to special tax
rules. This summary is based on the national or federal tax laws of Japan and
of the United States as in effect at the date hereof, as well as on the current
income tax convention between the United States and Japan (the Treaty), all
of which are subject to change (possibly with retroactive effect) and to
differing interpretations. U.S. Holders should note that the United States and
Japan have reached an agreement in principle on the text of a new income tax
convention, which after a formal signature process, will be subject to
ratification according to the procedures of each of the two countries. In
addition, this summary is based in part upon the representations of the
depositary and the assumption that each obligation in the deposit agreement for
ADSs and in any related agreement will be performed in accordance with its
terms.

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For purposes of this discussion, a U.S. Holder is any beneficial owner of
shares of common stock or ADSs that, for U.S. federal income tax purposes, is:



| |  | a citizen or individual resident of the United States,                                                                                                                                                                      
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | a corporation or other entity taxable as a corporation organized in or under the laws of the United
States, any State, or the District of Columbia,                                                                         
| 
| |  | an estate the income of which is subject to U.S. federal income tax without regard to its source, or                                                                                                                        
| 
| |  | a trust that is subject to the primary supervision of a U.S. court and the control of one or more U.S.
persons, or that has a valid election in effect under applicable Treasury regulations to be treated as
a U.S. person.

An Eligible U.S. Holder is a U.S. Holder that:



| |  | is a resident of the United States for purposes of the Treaty,                                                                                                                                                                                                                                      
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | does not maintain a permanent establishment or fixed base in Japan to which shares of common stock or
ADSs are attributable and through which the U.S. Holder carries on or has carried on business (or, in
the case of an individual, performs or has performed independent personal services), and
| 
| |  | is otherwise eligible for benefits under the Treaty with respect to income and gain derived in
connection with the shares of common stock or ADSs.                                                                                                                                                  

A Non-U.S. Holder is any beneficial owner of shares of common stock or ADSs
that, for U.S. federal income tax purposes, is:



| |  | an individual who is classified as a non-resident;                        
|- |  | --------------------------------------------------------------------------
| 
| |  | a foreign corporation or other foreign entity taxable as a corporation; or
| 
| |  | an estate or trust that is not a U.S. Holder.                             

This summary does not address any aspects of U.S. federal tax law other than
income taxation, and does not discuss any aspects of Japanese tax law other
than national income taxation, inheritance and gift taxation. Investors are
urged to consult their tax advisors regarding the U.S. federal, state and local
and Japanese and other tax consequences of acquiring, owning and disposing of
shares of common stock or ADSs. In particular, where relevant, investors are
urged to confirm their status as Eligible U.S. Holders with their tax advisors
and to discuss with their tax advisors any possible consequences of their
failure to qualify as Eligible U.S. Holders. In general, taking into account
the earlier assumptions, for purposes of the Treaty and for U.S. federal income
and Japanese tax purposes, beneficial owners of ADRs evidencing ADSs will be
treated as the owners of the shares of common stock represented by those ADSs,
and exchanges of shares of common stock for ADSs, and exchanges of ADSs for
shares of common stock, will not be subject to U.S. federal income tax or
Japanese tax.

Japanese taxation

The following is a summary of the principal Japanese tax consequences (limited
to national taxes) to Eligible U.S. Holders that hold shares of common stock of
Pioneer or ADRs evidencing ADSs representing shares of common stock of Pioneer.

Generally, a non-resident of Japan or a non-Japanese corporation is subject to
Japanese withholding tax on dividends paid by a Japanese corporation. Pioneer
withholds taxes from dividends it pays as required by Japanese law. Stock
splits in themselves are not subject to Japanese income tax.

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Under Japanese tax law, the rate of Japanese withholding tax applicable to
dividends paid by Japanese corporations to non-residents of Japan or
non-Japanese corporations is generally 20%. However, with respect to dividends
paid on listed shares issued by a Japanese corporation (such as the shares of
common stock of Pioneer) to any corporate or individual shareholders (including
those shareholders who are Eligible U.S. Holders), except for any individual
shareholder who holds 5% or more of the outstanding total of the shares issued
by the relevant Japanese corporation, the aforementioned 20% withholding tax
rate is reduced to (i) 10% for dividends due and payable on or after April 1,
2003 but on or before December 31, 2003, (ii) 7% for dividends due and payable
on or after January 1, 2004 but on or before March 31, 2008, and (iii) 15% for
dividends due and payable on or after April 1, 2008. Under the Treaty, as
currently in force, the maximum rate of Japanese withholding tax which may be
imposed on dividends paid by a Japanese corporation to Eligible U.S. Holders
generally is limited to 15% or, if certain conditions (as provided in the
Treaty) are fulfilled, 10% of the gross amount actually distributed.

An Eligible U.S. Holder who is entitled, under the Treaty, to a reduced rate of
Japanese withholding tax below the rate otherwise applicable under Japanese tax
law on payment of dividends on Pioneers shares of common stock is required to
submit an Application Form for Income Tax Convention Regarding Relief from
Japanese Income Tax on Dividends in advance through Pioneer to the relevant tax
authority before such payment of dividends. With respect to ADRs, the
Depositary or its agent will apply for this reduced treaty rate, if it is below
the rate otherwise applicable under Japanese tax law, on behalf of Eligible
U.S. Holders by submitting two Application Forms (one before payment of
dividends, the other within eight months after Pioneers fiscal year-end) to
the Japanese tax authorities. To claim this reduced rate, any relevant
Eligible U.S. Holder of ADRs will be required to file a proof of taxpayer
status, residence and beneficial ownership (as applicable) and to provide other
information or documents as may be required by the Depositary. An Eligible
U.S. Holder who is entitled, under the Treaty, to a reduced rate of Japanese
withholding tax below the rate otherwise applicable under Japanese tax law, but
fails to submit the required application in advance will be entitled to claim
the refund of withholding taxes withheld in excess of the rate under the Treaty
from the relevant Japanese tax authority. Pioneer does not assume any
responsibility to ensure withholding at the reduced treaty rate for
shareholders who would be eligible under the Treaty but do not follow the
required procedures as stated above.

Gains derived from the sale of shares of common stock or ADRs outside Japan by
an Eligible U.S. Holder holding such shares or ADRs are not subject to Japanese
income or corporation tax with respect to such gains under the Treaty.

Japanese inheritance and gift taxes at progressive rates may be payable by an
individual who has acquired shares of common stock or ADRs as a legatee, heir
or donee even though neither the individual nor the deceased nor donor is a
Japanese resident.

U.S. Holders of shares of common stock of Pioneer or ADRs should consult their
tax advisors regarding the effect of these taxes as well as the possible
application of the Estate and Gift Tax Treaty between the U.S. and Japan.

U.S. federal income taxation

U.S. Holders

Subject to the passive foreign investment company rules discussed below, under
U.S. federal income tax law, the gross amount of any distribution made by us in
respect of shares of common stock or ADSs (without reduction for Japanese
withholding taxes) will constitute a taxable dividend to the extent paid out of
current or accumulated earnings and profits, as determined for U.S. federal
income tax purposes. A dividend generally will be included in the gross income
of a U.S. Holder, as ordinary income, when the

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dividend is actually or constructively received by the U.S. Holder, in the case
of shares of common stock, or by the depositary, in the case of ADSs. The
dividend will not be eligible for the dividends received deduction generally
allowed to U.S. corporations. However, pursuant to recently enacted
legislation, dividends in respect of our shares of common stock or ADSs
paid to certain U.S. Holders (including individuals) may qualify for
preferential rates of U.S. federal income tax. A dividend paid in yen will be
included in gross income in a U.S. dollar amount based on the yen/U.S. dollar
exchange rate in effect on the date that dividend is included in the gross
income of the U.S. Holder, regardless of whether the payment is converted into
dollars. Generally, any gain or loss resulting from currency exchange
fluctuations during the period from the date the dividend payment is included
in the gross income of a U.S. Holder through the date that payment is converted
into U.S. dollars (or otherwise disposed of) will be treated as U.S. source
ordinary income or loss.

To the extent, if any, that the amount of any distribution received by a U.S.
Holder in respect of shares of common stock or ADSs exceeds our current and
accumulated earnings and profits, the distribution first will be treated as a
tax-free return of capital to the extent the U.S. Holders adjusted tax basis
in those shares or ADSs, and any balance in excess of that adjusted tax basis
will be treated as U.S. source capital gain. We do not expect to compute our
earnings and profits under U.S. federal income tax principles, and therefore
holders should assume that our distributions generally will be treated as paid
out of our earnings and profits for U.S. federal income tax purposes.

Distributions of additional shares of common stock that are made to U.S.
Holders with respect to their shares of common stock or ADSs and that are part
of a pro rata distribution to all of our shareholders generally will not be
subject to U.S. federal income tax.

For U.S. foreign tax credit purposes, dividends included in gross income by a
U.S. Holder in respect of shares of common stock or ADSs will constitute income
from sources outside the United States and generally will be treated
separately, together with other items of passive income (or, in the case of
some holders, financial services income) in computing foreign tax credit
limitations. Subject to generally applicable limitations under U.S. federal
income tax law and the Treaty, any Japanese withholding tax imposed in respect
of a dividend paid by us in respect of shares of common stock or ADSs may be
claimed either as a credit against the U.S. federal income tax liability of a
U.S. Holder or, if the U.S. Holder does not elect to take a credit for any
foreign taxes that year, as a deduction from that holders taxable income. In
general, special rules will apply to the calculation of foreign tax credits in
respect of dividend income that is subject to preferential rates of U.S.
federal income tax pursuant to recently enacted legislation. Additionally,
special rules apply to individuals whose foreign source income during the
taxable year consists entirely of qualified passive income and whose
creditable foreign taxes paid or accrued during the taxable year do not exceed
$300 ($600 in the case of a joint return). Further, under some circumstances,
a U.S. Holder that:



| |  | has held shares of common stock or ADSs for less than a specified minimum period, or
|- |  | ------------------------------------------------------------------------------------
| 
| |  | is obligated to make payments related to our dividends,                             

will not be allowed a foreign tax credit for foreign taxes imposed on our
dividends. Finally, foreign tax credits may not be allowed in respect of
arrangements in which a U.S. Holders expected economic return, after non-U.S.
taxes, is insubstantial. U.S. Holders are urged to consult their tax advisors
regarding the availability of the foreign tax credit under their particular
circumstances.

Upon a sale or other disposition of shares of common stock or ADSs, a U.S.
Holder will recognize gain or loss for U.S. federal income tax purposes in an
amount equal to the difference between the amount realized and the U.S.
Holders tax basis in those shares or ADSs (which is generally the U.S. dollar
cost thereof). In general, subject to the passive foreign investment company
rules discussed below, such gain

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or loss generally will be capital gain or loss and, if the U.S. Holders
holding period for those shares or ADSs exceeds one year, will be long-term
capital gain or loss. Some U.S. Holders, including individuals, are eligible
for preferential rates of U.S. federal income tax in respect of net long-term
capital gain. Under U.S. federal tax law, the deduction of capital losses is
subject to limitations. Any gain or loss recognized by a U.S. Holder in
respect of the sale or other disposition of shares of common stock or ADSs
generally will be treated as U.S. source income or loss for U.S. foreign tax
credit purposes.

We do not believe that we are, a passive foreign investment company (a PFIC)
for U.S. federal income tax purposes, and we intend to continue our operations
in such a manner that it is highly unlikely that we would become a PFIC in the
future although no assurances can be made regarding determination of our PFIC
status in the current or any future taxable year. The PFIC determination is
made annually and generally is based on either the portion of our assets
(including goodwill) or the portion of our income being characterized as
passive under the PFIC rules. If we become a PFIC, unless a U.S. Holder elects
to be taxed annually on a mark-to-market basis with respect to its shares of
common stock or ADSs, any gain realized on a sale or other disposition of
shares of common stock or ADSs and certain excess distributions would be
treated as realized ratably over the U.S. Holders holding period for the
shares of common stock or ADSs; amounts allocated to prior years during which
we were a PFIC would be taxed at the highest ordinary income tax rate in effect
for each such year, and an additional interest charge would be added in respect
of the tax attributable to each such year. If a mark-to-market election were
made, a U.S. Holder would take into account each year the appreciation or
depreciation in value of its shares of common stock or ADSs, which would be
treated as ordinary income or (subject to limitations) ordinary loss, as would
gains or losses on actual dispositions of shares of common stock or ADSs. Any U.S.
Holder who owns shares of common stock or ADSs during any year that we are a
PFIC would be required to file Internal Revenue Service Form 8621. U.S.
Holders are urged to consult their tax advisors concerning the U.S. federal
income tax consequences of holding our shares of common stock or ADSs if we
were considered a PFIC in any year.

Non-U.S. Holders

Distributions received by a Non-U.S. Holder in respect of shares of common
stock or ADSs generally will not be subject to any U.S. federal income or
withholding tax, unless the Non-U.S. Holder conducts trade or business within
the United States, and the distributions are effectively connected with that
trade or business.

A Non-U.S. Holder generally will not be subject to U.S. federal income tax in
respect of gain recognized on a sale or other disposition of shares of common
stock or ADSs, unless the gain is effectively connected with a trade or business
conducted by the Non-U.S. Holder within the United States, or the Non-U.S.
Holder is an individual who was present in the United States for 183 or more
days in the taxable year of the disposition and other conditions are met.

If an income tax treaty applies to a Non-U.S. Holder, it may require, as a
condition for the Non-U.S. Holder to be subject to U.S. federal income taxation
on dividends or capital gains that are effectively connected with trade or
business conducted by a Non-U.S. Holder in the United States, that the
dividends or capital gains be attributable to a permanent establishment or
fixed base that the Non-U.S. Holder maintains in the United States.

Income that is effectively connected with a U.S. trade or business of a
Non-U.S. Holder, and, if an income tax treaty applies and so requires, is
attributable to a U.S. permanent establishment or fixed base of the Non-U.S.
Holder, generally will be taxed in the same manner as the income of a U.S.
Holder. In addition, however, under certain circumstances, any such
effectively connected income that is realized by a corporate Non-U.S. Holder
may be subject to an additional branch profits tax at the rate of 30% or at

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a lower rate that may be prescribed by an applicable income tax treaty.

Backup withholding and information reporting

In general, information reporting requirements will apply to dividends on
shares of common stock or ADSs paid to U.S. Holders in the United States or
through certain U.S. related financial intermediaries and to the proceeds
received upon the sale, exchange or redemption of shares of common stock or
ADSs by U.S. Holders within the United States or through certain U.S. related
financial intermediaries. Furthermore, backup withholding may apply to those
amounts if a U.S. Holder fails to provide an accurate tax identification number
or to report interest and dividends required to be shown on its U.S. federal
income tax returns. The amount of backup withholding imposed on a payment to a
U.S. Holder will be allowed as a credit against the holders U.S. federal
income tax liability.

Dividends on shares of common stock or ADSs paid to Non-U.S. Holders and
proceeds received upon the sale, exchange or redemption of shares of common
stock or ADSs by non-U.S. Holders generally are exempt from information
reporting and backup withholding. However, a holder may be required to provide
certification of non-U.S. status in order to obtain that exemption.

F. Dividends and paying agents

Not applicable

G. Statement by experts

Not applicable

H. Documents on display

It is possible to read and copy documents referred to in this annual report on
Form 20-F that have been filed with the SEC at the SECs public reference room
located at 450 Fifth Street, NW, Washington, D.C. 20549. You can also access
the documents at the SECs website (http://www.sec.gov/).

I. Subsidiary information

Not applicable




Item 11. Quantitative and Qualitative Disclosures About Market Risk

We operate internationally, giving rise to exposure to market risks from
changes in foreign exchange rates and interest rates. In an effort to manage
potential adverse effects caused by market fluctuations in foreign exchange
rates and interest rates, we hedge these market risks by selectively using
derivative financial instruments. However, we do not hedge all of our
exposure, and the extent of hedge as well as type of hedging instruments to be
used depends on factors including, but not limited to, type of risks exposed,
market conditions and hedging cost. We do not hold or issue derivative
financial instruments for trading purposes. To minimize credit risks from
derivative financial instruments, we limit counterparties to reputable
international financial institutions.

Marketable securities held by us are exposed to risk from changes in equity
prices and consist entirely of available-for-sale securities. We do not take
hedging measures against the market exposures on those securities.

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Foreign exchange risk

To hedge certain purchase and sale commitments and anticipated but not yet
committed transactions denominated in other than functional currencies, we
enter into forward exchange contracts and purchase and write currency
options. Written options are entered into only with purchased options.

The following table provides information about our derivative financial
instruments related to foreign currency exchange transactions as of March 31,
2003 and 2002, which have been translated into yen at the rate as of such date,
together with the related weighted average contractual exchange rates at March
31, 2003 and 2002. All of the contracts mature within one year. The amount of
forward exchange contract selling euro buying yen as of Mach 31, 2003 increased
compared with the amount at March 31, 2002, due to increased coverage against
anticipated intercompany export transaction from Japan to Europe.

March 31, 2003

|                                   |  |         |        |         |  |        |        |         |  |                                      |        |       |  |  |        |  |  |  |       |  |  |  |        |  
|---------------------------------- |  | ------- | ------ | ------- |  | ------ | ------ | ------- |  | ------------------------------------ | ------ | ----- |  |  | ------ |  |  |  | ----- |  |  |  | ------ | -
|Forward exchange contract          |  |         |        |         |  |        |        |         |  | Millions of yen except average rates
|                                  
|                                   |  | Yen     |        | EUR     |  | A$     |        | THB     |  | S$                                   |        |       |  | 
|Functional currency                |  |         |        |         |  |        |        |         |  |                                      |        |       |  | 
|Sell/Buy                           |  | US$/Yen |        | EUR/Yen |  | A$/US$ |        | THB/US$ |  | US$/S$                               |        | Total
|                                   |  |         |        |         |  |        |        |         |  |                                      |        |      
|Contract amounts                   |  |         | ¥721   |         |  |        | ¥4,674 |         |  |                                      | ¥2,694 |       |  |  | ¥46    |  |  |  | ¥361  |  |  |  | ¥8,496 |  
|Average contractual
exchange rates |  |         | 120.97 |         |  |        | 127.64 |         |  |                                      | 0.5573 |       |  |  | 42.851 |  |  |  | 1.771 |  |  |  |        |  
|Fair value                         |  |         | ¥12    |         |  |        | (¥58   | )       |  |                                      | (¥192  | )     |  |  | ¥0     |  |  |  | ¥1    |  |  |  | (¥237  | )
|                                  

|                        |  |                                      |        |         |  |       |         |   |  |  |        |  
|----------------------- |  | ------------------------------------ | ------ | ------- |  | ----- | ------- | - |  |  | ------ | -
|Currency option         |  | Millions of yen except average rates
|                       
|                        |  | Yen                                  |        |         |  |      
|Functional currency     |  |                                      |        |         |  |      
|Sell/Buy                |  | EUR/Yen                              |        | Yen/EUR |  | Total
|                        |  |                                      |        |         |  |      
|Notional amount         |  |                                      | ¥1,558 |         |  |       | ¥1,558  |   |  |  | ¥3,116 |  
|Average execution rates |  |                                      | 120.00 |         |  |       | 0.00833 |   |  |  |        |  
|Fair value              |  |                                      | ¥1     |         |  |       | (¥8     | ) |  |  | (¥7    | )
|                       

March 31, 2002

|                                   |  |         |        |         |  |        |        |        |  |                                      |       |        |  |       |        |   |  |  |        |   |  |  |        |   |  |  |        |  
|---------------------------------- |  | ------- | ------ | ------- |  | ------ | ------ | ------ |  | ------------------------------------ | ----- | ------ |  | ----- | ------ | - |  |  | ------ | - |  |  | ------ | - |  |  | ------ | -
|Forward exchange contract          |  |         |        |         |  |        |        |        |  | Millions of yen except average rates
|                                  
|                                   |  | Yen     |        | THB     |  | A$     |        | S$     |  |                                      |       |       
|Functional currency                |  |         |        |         |  |        |        |        |  |                                      |       |       
|Sell/Buy                           |  | US$/Yen |        | THB/US$ |  | A$/Yen |        | A$/US$ |  | A$/GBP                               |       | US$/S$ |  | Total
|                                   |  |         |        |         |  |        |        |        |  |                                      |       |        |  |      
|Contract amounts                   |  |         | ¥266   |         |  |        | ¥149   |        |  |                                      | ¥100  |        |  |       | ¥1,395 |   |  |  | ¥54    |   |  |  | ¥1,067 |   |  |  | ¥3,031 |  
|Average contractual
exchange rates |  |         | 131.50 |         |  |        | 43.407 |        |  |                                      | 69.85 |        |  |       | 0.5156 |   |  |  | 0.3640 |   |  |  | 1.829  |   |  |  |        |  
|Fair value                         |  |         | (¥1    | )       |  |        | ¥0     |        |  |                                      | ¥1    |        |  |       | (¥26   | ) |  |  | (¥1    | ) |  |  | (¥6    | ) |  |  | (¥33   | )
|                                  

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|                        |  |                                      |        |         |  |       |         |   |  |  |        |  
|----------------------- |  | ------------------------------------ | ------ | ------- |  | ----- | ------- | - |  |  | ------ | -
|Currency option         |  | Millions of yen except average rates
|                       
|                        |  | Yen                                  |        |         |  |      
|Functional currency     |  |                                      |        |         |  |      
|Sell/Buy                |  | EUR/Yen                              |        | Yen/EUR |  | Total
|                        |  |                                      |        |         |  |      
|Notional amount         |  |                                      | ¥1,440 |         |  |       | ¥1,440  |   |  |  | ¥2,880 |  
|Average execution rates |  |                                      | 110.00 |         |  |       | 0.00909 |   |  |  |        |  
|Fair value              |  |                                      | ¥2     |         |  |       | (¥10    | ) |  |  | (¥8    | )
|                       

To change the currency and interest rate features of intercompany finance
transactions, we have entered into currency swap contracts with banks.
Currency swap contracts effectively changed, in substance, U.S. dollars
floating interest rate intercompany borrowings into yen fixed interest rate
borrowings and Euro floating interest rate borrowings. The contract amounts
decreased during the year ended March 31, 2003, reflecting decreased
intercompany borrowing balances. The foreign exchange risk inherent in our
currency swap as of March 31, 2003 and 2002 are summarized as follows:

|                                   |                                   |                  |         |                        |  |        |        |      |        |                        |  |        |  |            |  |  |         |                               |        |        |         |  |         |   |       |   |  |  | 
|---------------------------------- | --------------------------------- | ---------------- | ------- | ---------------------- |  | ------ | ------ | ---- | ------ | ---------------------- |  | ------ |  | ---------- |  |  | ------- | ----------------------------- | ------ | ------ | ------- |  | ------- | - | ----- | - |  |  | 
|Currency swap as of March 31, 2003 |                                   |                  |         |                        |  |        |        |      |        |                        |  |        |  |            |  |  |         | Millions except average rates
|                                  
|                                   |                                   |                  |         |                        |  |        |        |      |        | Expected maturity date |  |        |  |           
|                                   |                                   | Contract amounts |         | (year ending March 31) |  |        |        |     
|                                   |                                   |                  |         |                        |  |        |        |     
|                                   |                                   | Sell             |         | Buy                    |  | 2004   |        | 2005 |        | 2006                   |  | Total  |  | Fair value
|                                  
|Functional currency: Yen           |                                   |                  | ¥24,860 |                        |  | US$200 |        |      | ¥6,195 |                        |  |        |  |            |  |  | ¥18,665 |                               |        |        | ¥24,860 |  |         |   | (¥586 | )
|                                   | Average contractual exchange rate |                  |         |                        |  |        |        |      |        |                        |  | 123.90 |  |            |  |  |         |                               |        | 124.43 |         |  |         |   |       |   |  |  | 
|Functional currency: Euro          |                                   | EUR57            |         | US$50                  |  |        | ¥7,395 |      |        |                        |  |        |  |            |  |  |         |                               | ¥7,395 |        |         |  | (¥1,490 | )
|                                   | Average contractual exchange rate |                  |         |                        |  |        |        |      |        |                        |  | 0.88   |  |            |  |  |         |                               |        |        |         |  |         |   |       |   |  |  | 
|                                  

|                                      |                                   |                  |         |                        |  |        |         |      |        |                        |  |        |        |                               |  |        |         |  |         |        |         |  |       |   |        |  |  |  | 
|------------------------------------- | --------------------------------- | ---------------- | ------- | ---------------------- |  | ------ | ------- | ---- | ------ | ---------------------- |  | ------ | ------ | ----------------------------- |  | ------ | ------- |  | ------- | ------ | ------- |  | ----- | - | ------ |  |  |  | 
|Currency swap as of March 31, 2002    |                                   |                  |         |                        |  |        |         |      |        |                        |  |        |        | Millions except average rates
|                                     
|                                      |                                   |                  |         |                        |  |        |         |      |        | Expected maturity date |  |        |        |                              
|                                      |                                   | Contract amounts |         | (year ending March 31) |  |        |         |     
|                                      |                                   |                  |         |                        |  |        |         |     
|                                      |                                   | Sell             |         | Buy                    |  | 2003   |         | 2004 |        | 2005                   |  | Total  |        | Fair value                   
|                                     
|Functional currency: Yen              |                                   |                  | ¥24,678 |                        |  | US$200 |         |      | ¥5,893 |                        |  |        | ¥6,195 |                               |  |        | ¥12,590 |  |         |        | ¥24,678 |  |       |   | ¥2,048 | 
|                                      | Average contractual exchange rate |                  |         |                        |  |        |         |      |        |                        |  | 117.85 |        |                               |  | 123.90 |         |  |         | 125.90 |         |  |       |   |        |  |  |  | 
|Functional currency: Euro             |                                   | EUR116           |         | US$100                 |  |        | ¥13,487 |      |        |                        |  |        |        |                               |  |        |         |  | ¥13,487 |        |         |  | (¥222 | )
|                                      | Average contractual exchange rate |                  |         |                        |  |        |         |      |        |                        |  | 0.86   |        |                               |  |        |         |  |         |        |         |  |       |   |        |  |  |  | 
|Functional currency: Singapore dollar |                                   |                  | S$65    |                        |  | US$36  |         |      | ¥4,717 |                        |  |        |        |                               |  |        |         |  |         |        | ¥4,717  |  |       |   | ¥20    | 
|                                      | Average contractual exchange rate |                  |         |                        |  |        |         |      |        |                        |  | 1.84   |        |                               |  |        |         |  |         |        |         |  |       |   |        |  |  |  | 
|                                     

With respect to interest rate risk inherent in our currency swaps as of March
31, 2003 and 2002, see Interest rate risk below.

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Interest rate risk

Interest rate risk inherent in the aforementioned currency swaps as of March
31, 2003 and 2002 are summarized as follows:

|                                   |                                   |                      |       |                  |       |                        |        |        |  |        |  |                        |      |       |  |            |  |                               |  |        |      |         |  |         |   |       |   |  |  | 
|---------------------------------- | --------------------------------- | -------------------- | ----- | ---------------- | ----- | ---------------------- | ------ | ------ |  | ------ |  | ---------------------- | ---- | ----- |  | ---------- |  | ----------------------------- |  | ------ | ---- | ------- |  | ------- | - | ----- | - |  |  | 
|Currency swap as of March 31, 2003 |                                   |                      |       |                  |       |                        |        |        |  |        |  |                        |      |       |  |            |  | Millions except average rates
|                                  
|                                   |                                   |                      |       |                  |       |                        |        |        |  |        |  | Expected maturity date |      |       |  |           
|                                   |                                   |                      |       | Contract amounts |       | (year ending March 31) |        |        |  |       
|                                   |                                   |                      |       |                  |       |                        |        |        |  |       
|                                   |                                   |                      |       | Sell             |       | Buy                    |        | 2004   |  | 2005   |  | 2006                   |      | Total |  | Fair value
|                                  
|Functional currency: Yen           |                                   |                      |       |                  |       |                        |        |        |  |        |  |                        |      |       |  |            |  |                               |  |        |      |         |  |         |   |       |   | 
|                                   | Variable (US$) to Fixed (Yen)     |                      |       | ¥24,860          |       |                        | US$200 |        |  | ¥6,195 |  |                        |      |       |  |            |  | ¥18,665                       |  |        |      | ¥24,860 |  |         |   | (¥586 | )
|                                   |                                   | Average pay rate     |       |                  |       |                        |        |        |  |        |  |                        | 0.14 | %     |  |            |  |                               |  |        | 0.06 | %       |  |         |   |       |   |  |  | 
|                                   |                                   | Average receive rate |       |                  |       |                        |        |        |  |        |  |                        | 1.34 | %     |  |            |  |                               |  |        | 2.13 | %       |  |         |   |       |   |  |  | 
|Functional currency: Euro          |                                   |                      |       |                  |       |                        |        |        |  |        |  |                        |      |       |  |            |  |                               |  |        |      |         |  |         |   |       |   | 
|                                   | Variable (US$) to Variable (Euro) |                      | EUR57 |                  | US$50 |                        |        | ¥7,395 |  |        |  |                        |      |       |  |            |  |                               |  | ¥7,395 |      |         |  | (¥1,490 | )
|                                   |                                   | Average pay rate     |       |                  |       |                        |        |        |  |        |  |                        | 3.94 | %     |  |            |  |                               |  |        |      |         |  |         |   |       |   |  |  | 
|                                   |                                   | Average receive rate |       |                  |       |                        |        |        |  |        |  |                        | 1.38 | %     |  |            |  |                               |  |        |      |         |  |         |   |       |   |  |  | 
|                                  

|                                   |                                   |                      |        |                  |        |                        |        |         |  |        |  |                        |      |        |  |            |      |                               |  |         |      |         |  |       |   |        |  |  |  | 
|---------------------------------- | --------------------------------- | -------------------- | ------ | ---------------- | ------ | ---------------------- | ------ | ------- |  | ------ |  | ---------------------- | ---- | ------ |  | ---------- | ---- | ----------------------------- |  | ------- | ---- | ------- |  | ----- | - | ------ |  |  |  | 
|Currency swap as of March 31, 2002 |                                   |                      |        |                  |        |                        |        |         |  |        |  |                        |      |        |  |            |      | Millions except average rates
|                                  
|                                   |                                   |                      |        |                  |        |                        |        |         |  |        |  | Expected maturity date |      |        |  |           
|                                   |                                   |                      |        | Contract amounts |        | (year ending March 31) |        |         |  |       
|                                   |                                   |                      |        |                  |        |                        |        |         |  |       
|                                   |                                   |                      |        | Sell             |        | Buy                    |        | 2003    |  | 2004   |  | 2005                   |      | Total  |  | Fair value
|                                  
|Functional currency: Yen           |                                   |                      |        |                  |        |                        |        |         |  |        |  |                        |      |        |  |            |      |                               |  |         |      |         |  |       |   |        |  | 
|                                   | Variable (US$) to Fixed (Yen)     |                      |        | ¥24,678          |        |                        | US$200 |         |  | ¥5,893 |  |                        |      | ¥6,195 |  |            |      | ¥12,590                       |  |         |      | ¥24,678 |  |       |   | ¥2,048 | 
|                                   |                                   | Average pay rate     |        |                  |        |                        |        |         |  |        |  |                        | 0.43 | %      |  |            | 0.14 | %                             |  |         | 0.41 | %       |  |       |   |        |  |  |  | 
|                                   |                                   | Average receive rate |        |                  |        |                        |        |         |  |        |  |                        | 2.02 | %      |  |            | 1.91 | %                             |  |         | 2.53 | %       |  |       |   |        |  |  |  | 
|Functional currency: Euro          |                                   |                      |        |                  |        |                        |        |         |  |        |  |                        |      |        |  |            |      |                               |  |         |      |         |  |       |   |        |  | 
|                                   | Variable (US$) to Variable (Euro) |                      | EUR116 |                  | US$100 |                        |        | ¥13,487 |  |        |  |                        |      |        |  |            |      |                               |  | ¥13,487 |      |         |  | (¥222 | )
|                                   |                                   | Average pay rate     |        |                  |        |                        |        |         |  |        |  |                        | 3.85 | %      |  |            |      |                               |  |         |      |         |  |       |   |        |  |  |  | 
|                                   |                                   | Average receive rate |        |                  |        |                        |        |         |  |        |  |                        | 1.89 | %      |  |            |      |                               |  |         |      |         |  |       |   |        |  |  |  | 
|Functional currency: Euro          |                                   |                      |        |                  |        |                        |        |         |  |        |  |                        |      |        |  |            |      |                               |  |         |      |         |  |       |   |        |  | 
|                                   | Variable (US$) to Fixed (S$)      |                      |        | S$65             |        |                        | US$36  |         |  | ¥4,717 |  |                        |      |        |  |            |      |                               |  |         |      | ¥4,717  |  |       |   | ¥20    | 
|                                   |                                   | Average pay rate     |        |                  |        |                        |        |         |  |        |  |                        | 1.14 | %      |  |            |      |                               |  |         |      |         |  |       |   |        |  |  |  | 
|                                   |                                   | Average receive rate |        |                  |        |                        |        |         |  |        |  |                        | 1.95 | %      |  |            |      |                               |  |         |      |         |  |       |   |        |  |  |  | 
|                                  

79



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Principal cash flows by expected maturity dates, weighted average interest
rates, and fair value of our debt obligations as of March 31, 2003 and 2002 are
as follows:

|                                                                    |                       |                  |       |  |            |  |      |      |                                               |                                      |      |      |        |       |      |      |            |        |       |      |            |     |  |      |        |     |  |      |         |        |  |      |         |         |  |  |  |         | 
|------------------------------------------------------------------- | --------------------- | ---------------- | ----- |  | ---------- |  | ---- | ---- | --------------------------------------------- | ------------------------------------ | ---- | ---- | ------ | ----- | ---- | ---- | ---------- | ------ | ----- | ---- | ---------- | --- |  | ---- | ------ | --- |  | ---- | ------- | ------ |  | ---- | ------- | ------- |  |  |  | ------- | 
|Long-term debt (including due within one year) as of March 31, 2003 |                       |                  |       |  |            |  |      |      |                                               | Millions of yen except average rates
|                                                                   
|                                                                    |                       |                  |       |  |            |  |      |      | Expected maturity date (year ending March 31) |                                      |      |      |       
|                                                                    |                       |                  |       |  | Functional |  |      |      |                                               |                                      |     
|                                                                    |                       |                  |       |  | Currency   |  | 2004 |      | 2005                                          |                                      | 2006 |      | 2007   |       | 2008 |      | Thereafter |        | Total |      | Fair value
|                                                                   
|Fixed rate (Yen)                                                    |                       | Yen              |       |  | ¥973       |  |      |      | 4,513                                         |                                      |      |      | 15,318 |       |      |      | 251        |        |       |      | 244        |     |  |      | 11,228 |     |  |      | ¥32,527 |        |  |      | ¥34,087 |        
|                                                                    | Average interest rate |                  |       |  |            |  |      | 2.48 | %                                             |                                      |      | 3.87 | %      |       |      | 2.37 | %          |        |       | 3.74 | %          |     |  | 3.80 | %      |     |  | 2.91 | %       |        |  | 2.79 | %       |         |  |  | 
|Variable rate (US$)                                                 |                       | US$              |       |  |            |  |      |      |                                               |                                      |      |      | 601    |       |      |      |            |        |       |      |            |     |  |      |        |     |  |      | 601     |        |  |      | 601     |        
|                                                                    | Average interest rate |                  |       |  |            |  |      |      |                                               |                                      |      |      |        |       |      | 1.59 | %          |        |       |      |            |     |  |      |        |     |  |      |         |        |  | 1.59 | %       |         |  |  | 
|Variable rate (EUR)                                                 |                       | EUR              |       |  |            |  |      |      | 7                                             |                                      |      |      | 7      |       |      |      | 7          |        |       |      | 6          |     |  |      | 12     |     |  |      | 39      |        |  |      | 39      |        
|                                                                    |                       | Average interest |       |  |            |  |      |      |                                               |                                      |      |      | 3.52   | %     |      |      | 3.52       | %      |       |      | 3.52       | %   |  |      | 3.52   | %   |  |      | 3.52    | %      |  |      | 3.52    | %       |  |  |  |        
|                                                                   
|                                                                    |                       |                  | Total |  |            |  |      |      |                                               | ¥973                                 |      |      |        | 4,520 |      |      |            | 15,926 |       |      |            | 258 |  |      |        | 250 |  |      |         | 11,240 |  |      |         | ¥33,167 |  |  |  | ¥34,727 | 
|                                                                   

|                                                                    |                       |       |  |            |        |      |  |                                               |        |      |  |      |                                      |      |  |            |        |       |  |            |        |  |  |      |        |  |  |      |         |  |  |      |         |  |  |  |         | 
|------------------------------------------------------------------- | --------------------- | ----- |  | ---------- | ------ | ---- |  | --------------------------------------------- | ------ | ---- |  | ---- | ------------------------------------ | ---- |  | ---------- | ------ | ----- |  | ---------- | ------ |  |  | ---- | ------ |  |  | ---- | ------- |  |  | ---- | ------- |  |  |  | ------- | 
|Long-term debt (including due within one year) as of March 31, 2002 |                       |       |  |            |        |      |  |                                               |        |      |  |      | Millions of yen except average rates
|                                                                   
|                                                                    |                       |       |  |            |        |      |  | Expected maturity date (year ending March 31) |        |      |  |     
|                                                                    |                       |       |  | Functional |        |      |  |                                               |        |     
|                                                                    |                       |       |  | Currency   |        | 2003 |  | 2004                                          |        | 2005 |  | 2006 |                                      | 2007 |  | Thereafter |        | Total |  | Fair value
|                                                                   
|Fixed rate (Yen)                                                    |                       | Yen   |  |            | ¥2,446 |      |  |                                               | 1,591  |      |  |      | 5,831                                |      |  |            | 15,326 |       |  |            | 256    |  |  |      | 12,007 |  |  |      | ¥37,457 |  |  |      | ¥38,254 | 
|                                                                    | Average interest rate |       |  |            |        |      |  | 2.17                                          | %      |      |  | 3.06 | %                                    |      |  | 3.89       | %      |       |  | 2.38       | %      |  |  | 3.80 | %      |  |  | 2.97 | %       |  |  | 2.83 | %       |  |  |  |        
|Variable rate (US$)                                                 |                       | US$   |  |            |        |      |  |                                               |        |      |  |      |                                      |      |  |            | 666    |       |  |            |        |  |  |      |        |  |  |      | 666     |  |  |      | 666     | 
|                                                                    | Average interest rate |       |  |            |        |      |  |                                               |        |      |  |      |                                      |      |  |            |        |       |  | 2.41       | %      |  |  |      |        |  |  |      |         |  |  | 2.41 | %       |  |  |  |        
|Interest free loan
(PTE)                                            |                       | PTE   |  |            | 43     |      |  |                                               |        |      |  |      |                                      |      |  |            |        |       |  |            |        |  |  |      |        |  |  |      | 43      |  |  |      | 43      | 
|                                                                   
|                                                                    |                       | Total |  |            |        |      |  |                                               | ¥2,489 |      |  |      | 1,591                                |      |  |            | 5,831  |       |  |            | 15,992 |  |  |      | 256    |  |  |      | 12,007  |  |  |      | ¥38,166 |  |  |  | ¥38,963 | 
|                                                                   

Market price risks on available-for-sale securities

We do not own any marketable securities for trading purposes. Our equity
investment portfolio consists almost entirely of securities issued by Japanese
companies. The following table sets forth maturity dates and cost and fair
values of debt securities in our investment portfolio, and the cost and fair
values of equity securities therein, at March 31, 2003 and 2002.

|                                            |                          |  |        |     |            |  |         |     |            |  |                 |        |  |  |         |        | 
|------------------------------------------- | ------------------------ |  | ------ | --- | ---------- |  | ------- | --- | ---------- |  | --------------- | ------ |  |  | ------- | ------ | 
|                                            |                          |  |        |     |            |  |         |     |            |  | Millions of yen
|                                           
|                                            |                          |  | 2003   |     | 2002      
|                                            |                          |  |        |     |           
|                                            |                          |  | Cost   |     | Fair value |  | Cost    |     | Fair value
|                                            |                          |  |        |     |            |  |         |     |           
|Debt securities (by contractual maturities) |                          |  |        |     |            |  |         |     |            |  |                 |        |  |  |         |       
|                                            | Maturing within one year |  |        |    |            |  |         |    |            |  |                 | ¥3,485 |  |  |         | ¥3,447 | 
|                                            | Maturing over one year   |  |        | ¥85 |            |  |         | ¥71 |            |  |                 | 111    |  |  |         | 78     | 
|Equity securities                           |                          |  | ¥6,636 |     |            |  | ¥14,760 |     |            |  | ¥7,973          |        |  |  | ¥18,290 |       
|                                           




Item 12. Description of Securities Other than Equity Securities

Not applicable

80



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##### Table of Contents






PART II




Item 13. Defaults, Dividend Arrearages and Delinquencies

None




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

Not applicable




Item 15. Controls and Procedures



|(a) |  | Within 90 days prior to the date of this annual report, we performed an
evaluation of the effectiveness of the design and operation of our
disclosure controls and procedures. Disclosure controls and procedures
are designed to ensure that the material financial and non-financial
information required to be disclosed in Form 20-F and filed with the
Securities and Exchange Commission is recorded, processed, summarized and
reported in a timely manner. The evaluation was performed under the
supervision of Kaneo Ito, Pioneers Chief Executive Officer, and Katsuhiro
Abe, Pioneers Chief Financial Officer. In designing and evaluating the
disclosure controls and procedures, management recognized that any
controls and procedures, no matter how well designed and operated, can
provide only reasonable, rather than absolute, assurance of achieving the
desired control objectives. Managerial judgment was necessary to evaluate
the cost-benefit relationship of possible controls and procedures. Based
on the foregoing, Pioneers Chief Executive Officer and Chief Financial
Officer have concluded that Pioneers disclosure controls and procedures
were effective.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(b) |  | There have been no significant changes in Pioneers internal controls or
in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation of such internal
controls. Therefore, no corrective actions were taken.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            




Item 16. [Reserved]

81



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##### Table of Contents






PART III




Item 17. Financial Statements

See Consolidated Financial Statements. Reference is made to Item 19 for a
list of all financial statements filed as part of this annual report.




Item 18. Financial Statements

We have responded to Item 17 in lieu of responding to this Item.




Item 19. Exhibits

|                                                                                                  |  |      |     | 
|------------------------------------------------------------------------------------------------- |  | ---- | --- | 
|                                                                                                  |  | Page
|                                                                                                  |  |     
|Consolidated financial statements                                                                 |  |      |     | 
|                                                                                                  |  |      |     | 
|Index to Consolidated Financial Statements                                                        |  |      | F-1 | 
|Independent Auditors Report                                                                      |  |      | F-2 | 
|Consolidated Balance Sheets as of March 31, 2002 and 2003                                         |  |      | F-3 | 
|Consolidated Statements of Income
for the years ended March 31, 2001, 2002 and 2003               |  |      | F-5 | 
|Consolidated Statements of Shareholders Equity
for the years ended March 31, 2001, 2002 and 2003 |  |      | F-6 | 
|Consolidated Statements of Cash Flows
for the years ended March 31, 2001, 2002 and 2003           |  |      | F-7 | 
|Notes to Consolidated Financial Statements                                                        |  |      | F-8 | 

Exhibits

|        |  |                                                                                        
|------- |  | ---------------------------------------------------------------------------------------
|1.01    |  | The Articles of Incorporation, as amended and currently in effect (English translation)
|        |  |                                                                                        
|2(a).01 |  | Share Handling Regulations, as amended and currently in effect (English translation)   
|        |  |                                                                                        
|99.1    |  | Section 906 Certification                                                              

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SIGNATURES

The registrant hereby certifies that it meets all of the requirements for
filing on Form 20-F and that it has duly caused and authorized the undersigned
to sign this annual report on its behalf.

|                     |  |    |  |                                      
|-------------------- |  | -- |  | -------------------------------------
|                     |  |    |  | PIONEER CORPORATION                  
|                     |  |    |  |                                      
|                     |  |    |  | (Registrant)                         
|                     |  |    |  |                                      
|                     |  |    |  |                                      
|Date: August 6, 2003 |  | By |  | /s/ Katsuhiro Abe                    
|                     |  |    |  |                                      
|                     |  |    |  | Katsuhiro Abe
Chief Financial Officer

83



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##### Table of Contents



CERTIFICATIONS

I, Kaneo Ito, certify that:



|1. |  | I have reviewed this annual report on Form 20-F of Pioneer Corporation;                                                                                                                                                                                                                                                 
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this annual 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 annual report;
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual
report;                   
|  
|4. |  | The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:                                                                                                  



| | a. |  | designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report
is being prepared;
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b. |  | evaluated the effectiveness of the registrants disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this annual report (the Evaluation Date); and                                                                                                  
|
| | c. |  | presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        



|5. |  | The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a. |  | all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrants
ability to record, process, summarize and report financial data and
have identified for the registrants auditors any material weaknesses
in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b. |  | any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrants
internal controls; and                                                                                                                                        



|6. |  | The registrants other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                     |  |                                                      
|-------------------- |  | -----------------------------------------------------
|Date: August 6, 2003 |  | /s/ Kaneo Ito                                        
|                     |  |                                                      
|                     |  | Kaneo Ito
Chief Executive Officer
Pioneer Corporation

84



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##### Table of Contents



CERTIFICATIONS

I, Katsuhiro Abe, certify that:



|1. |  | I have reviewed this annual report on Form 20-F of Pioneer Corporation;                                                                                                                                                                                                                                                 
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this annual 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 annual report;
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual
report;                   
|  
|4. |  | The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:                                                                                                  



| | a. |  | designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report
is being prepared;
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b. |  | evaluated the effectiveness of the registrants disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this annual report (the Evaluation Date); and                                                                                                  
|
| | c. |  | presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        



|5. |  | The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a. |  | all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrants
ability to record, process, summarize and report financial data and
have identified for the registrants auditors any material weaknesses
in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b. |  | any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrants
internal controls; and                                                                                                                                        



|6. |  | The registrants other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                     |  |                                                          
|-------------------- |  | ---------------------------------------------------------
|Date: August 6, 2003 |  | /s/ Katsuhiro Abe                                        
|                     |  |                                                          
|                     |  | Katsuhiro Abe
Chief Financial Officer
Pioneer Corporation

85



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##### Table of Contents



INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES

|                                                                                                  |  |      |     | 
|------------------------------------------------------------------------------------------------- |  | ---- | --- | 
|                                                                                                  |  | Page
|                                                                                                  |  |     
|Consolidated financial statements                                                                 |  |      |     | 
|                                                                                                  |  |      |     | 
|Independent Auditors Report                                                                      |  |      | F-2 | 
|Consolidated Balance Sheets as of March 31, 2002 and 2003                                         |  |      | F-3 | 
|Consolidated Statements of Income
for the years ended March 31, 2001, 2002 and 2003               |  |      | F-5 | 
|Consolidated Statements of Shareholders Equity
for the years ended March 31, 2001, 2002 and 2003 |  |      | F-6 | 
|Consolidated Statements of Cash Flows
for the years ended March 31, 2001, 2002 and 2003           |  |      | F-7 | 
|Notes to Consolidated Financial Statements                                                        |  |      | F-8 | 

F-1



---



##### Table of Contents



Independent Auditors Report

To the Board of Directors and Shareholders of Pioneer Corporation:

We have audited the accompanying consolidated balance sheets of Pioneer
Corporation and subsidiaries as of March 31, 2002 and 2003, and the related
consolidated statements of income, shareholders equity and cash flows for each
of the three years in the period ended March 31, 2003 (all expressed in
Japanese yen). These financial statements are the responsibility of the
Companys management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. 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 accompanying consolidated financial statements do not present segment
information concerning the Companys operations which, in our opinion, is
required for a complete presentation of the Companys consolidated financial
statements in accordance with accounting principles generally accepted in the
United States of America.

In our opinion, except for the omission of segment information disclosures,
such consolidated financial statements present fairly, in all material
respects, the financial position of Pioneer Corporation and subsidiaries as of
March 31, 2002 and 2003, and the results of their operations and their cash
flows for each of the three years in the period ended March 31, 2003 in
conformity with accounting principles generally accepted in the United States
of America.

Our audits also comprehended the translation of Japanese yen amounts into U.S.
dollar amounts and, in our opinion, such translation has been made in
conformity with the basis stated in Note 1. Such U.S. dollar amounts are
presented solely for the convenience of readers outside Japan.

|                                                                    |  | 
|------------------------------------------------------------------- |  | 
|/s/ Deloitte Touche Tohmatsu

Deloitte Touche Tohmatsu
Tokyo, Japan |  | 

June 9, 2003, except for Note 21, as to which the date is July 17, 2003

F-2



---



##### Table of Contents



Consolidated Balance Sheets

Pioneer Corporation and Subsidiaries
March 31


|                                        |                                                                                                                            |                                                     |                                                                                               |          |                 |         |  |          |         |         |  |            |                          |           | 
|--------------------------------------- | -------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------- | --------------------------------------------------------------------------------------------- | -------- | --------------- | ------- |  | -------- | ------- | ------- |  | ---------- | ------------------------ | --------- | 
|                                        |                                                                                                                            |                                                     |                                                                                               |          |                 |         |  |          |         |         |  |            | Thousands
ofU.S. Dollars |          
|                                        |                                                                                                                            |                                                     |                                                                                               |          | Millions of Yen |         |  | (Note 1) |        
|                                        |                                                                                                                            |                                                     |                                                                                               |          |                 |         |  |          |        
|Assets                                  |                                                                                                                            | 2002                                                |                                                                                               |          | 2003            |         |  | 2003     |        
|                                       
|Current assets:                         |                                                                                                                            |                                                     |                                                                                               |          |                 |         |  |          |         |         |  |           
|                                        | Cash and cash equivalents                                                                                                 |                                                     |                                                                                               |          |                 |         |  |          |         |         |  |            |                         
|                                        |                                                                                                                            |                                                     | Cash, including time deposits of ¥44,413 million
$370,108 thousand (¥55,915 million in 2002) |          | ¥               | 127,113 |  |          | ¥       | 142,480 |  |            | $                        | 1,187,333 | 
|                                        | Available-for-sale securities (Note 3)                                                                                     |                                                     |                                                                                               | 3,455    |                 |         |  |         |         |         |  |           |                         
|                                        | Trade receivables                                                                                                         |                                                     |                                                                                               |          |                 |         |  |          |         |         |  |            |                         
|                                        |                                                                                                                            | Notes                                               |                                                                                               |          | 10,240          |         |  |          | 5,252   |         |  |            | 43,766                   |          
|                                        |                                                                                                                            | Accounts                                            |                                                                                               |          | 120,456         |         |  |          | 113,135 |         |  |            | 942,792                  |          
|                                        |                                                                                                                            | Allowance for doubtful notes and accounts (Note 18) |                                                                                               |          | (5,133          | )       |  |          | (4,519  | )       |  |            | (37,658                  | )        
|                                        | Inventories (Note 4)                                                                                                       |                                                     |                                                                                               | 96,910   |                 |         |  | 93,620   |         |         |  | 780,167    |                         
|                                        | Deferred income taxes (Note 9)                                                                                             |                                                     |                                                                                               | 26,270   |                 |         |  | 29,958   |         |         |  | 249,650    |                         
|                                        | Prepaid expenses and other current assets                                                                                  |                                                     |                                                                                               | 32,509   |                 |         |  | 36,056   |         |         |  | 300,467    |                         
|                                       
|                                        |                                                                                                                            |                                                     | Total current assets                                                                          |          |                 | 411,820 |  |          |         | 415,982 |  |            |                          | 3,466,517 | 
|                                       
|Investments and long-term receivables:  |                                                                                                                            |                                                     |                                                                                               |          |                 |         |  |          |         |         |  |           
|                                        | Available-for-sale securities (Note 3)                                                                                     |                                                     |                                                                                               | 18,360   |                 |         |  | 14,831   |         |         |  | 123,592    |                         
|                                        | Investments in and advances to affiliated companies (Note 5)                                                               |                                                     |                                                                                               | 11,067   |                 |         |  | 7,841    |         |         |  | 65,342     |                         
|                                        | Sundry investments (Note 16)                                                                                               |                                                     |                                                                                               | 3,203    |                 |         |  | 2,907    |         |         |  | 24,225     |                         
|                                        | Long-term receivables, less allowance for doubtful accounts of
¥112 million$934 thousand (¥186 million in 2002) (Note 18) |                                                     |                                                                                               | 374      |                 |         |  | 292      |         |         |  | 2,433      |                         
|                                       
|                                        |                                                                                                                            |                                                     | Total investments and long-term receivables                                                   |          |                 | 33,004  |  |          |         | 25,871  |  |            |                          | 215,592   | 
|                                       
|Property, plant and equipment (Note 7): |                                                                                                                            |                                                     |                                                                                               |          |                 |         |  |          |         |         |  |           
|                                        | Land                                                                                                                       |                                                     |                                                                                               | 26,525   |                 |         |  | 25,548   |         |         |  | 212,900    |                         
|                                        | Buildings                                                                                                                  |                                                     |                                                                                               | 110,869  |                 |         |  | 107,309  |         |         |  | 894,242    |                         
|                                        | Machinery and equipment                                                                                                    |                                                     |                                                                                               | 242,600  |                 |         |  | 237,086  |         |         |  | 1,975,716  |                         
|                                        | Construction in progress                                                                                                   |                                                     |                                                                                               | 2,163    |                 |         |  | 6,132    |         |         |  | 51,100     |                         
|                                       
|                                        |                                                                                                                            |                                                     | Total                                                                                         |          |                 | 382,157 |  |          |         | 376,075 |  |            |                          | 3,133,958 | 
|                                        | Accumulated depreciation                                                                                                   |                                                     |                                                                                               | (231,397 | )               |         |  | (230,376 | )       |         |  | (1,919,800 | )                       
|                                       
|                                        |                                                                                                                            |                                                     | Net property, plant and equipment                                                             |          |                 | 150,760 |  |          |         | 145,699 |  |            |                          | 1,214,158 | 
|                                       
|Other assets:                           |                                                                                                                            |                                                     |                                                                                               |          |                 |         |  |          |         |         |  |           
|                                        | Intangible assets (Note 6)                                                                                                 |                                                     |                                                                                               | 15,561   |                 |         |  | 15,619   |         |         |  | 130,158    |                         
|                                        | Deferred income taxes (Note 9)                                                                                             |                                                     |                                                                                               | 25,151   |                 |         |  | 35,734   |         |         |  | 297,783    |                         
|                                        | Other                                                                                                                      |                                                     |                                                                                               | 8,833    |                 |         |  | 8,124    |         |         |  | 67,700     |                         
|                                       
|                                        |                                                                                                                            |                                                     | Total other assets                                                                            |          |                 | 49,545  |  |          |         | 59,477  |  |            |                          | 495,641   | 
|                                       
|                                        |                                                                                                                            |                                                     | Total assets                                                                                  |          | ¥               | 645,129 |  |          | ¥       | 647,029 |  |            | $                        | 5,391,908 | 
|                                       

See notes to consolidated financial statements.


F-3



---



##### Table of Contents



|                                                 |                                                                     |                                         |                                            |         |                 |         |   |          |         |         |   |           |              |           | 
|------------------------------------------------ | ------------------------------------------------------------------- | --------------------------------------- | ------------------------------------------ | ------- | --------------- | ------- | - | -------- | ------- | ------- | - | --------- | ------------ | --------- | 
|                                                 |                                                                     |                                         |                                            |         |                 |         |   |          |         |         |   |           | Thousands of |          
|                                                 |                                                                     |                                         |                                            |         |                 |         |   |          |         |         |   |           | U.S. Dollars |          
|                                                 |                                                                     |                                         |                                            |         | Millions of Yen |         |   | (Note 1) |        
|                                                 |                                                                     |                                         |                                            |         |                 |         |   |          |        
|Liabilities
and Shareholders Equity             |                                                                     | 2002                                    |                                            |         | 2003            |         |   | 2003     |        
|                                                
|Current liabilities:                             |                                                                     |                                         |                                            |         |                 |         |   |          |         |         |   |          
|                                                 | Short-term borrowings (Note 7)                                      |                                         | ¥                                          | 45,867  |                 |         | ¥ | 29,893   |         |         | $ | 249,108   |             
|                                                 | Current portion of long-term debt (Note 7)                          |                                         |                                            | 2,551   |                 |         |   | 974      |         |         |   | 8,117     |             
|                                                 | Trade payables                                                      |                                         |                                            | 57,231  |                 |         |   | 67,173   |         |         |   | 559,775   |             
|                                                 | Accrued liabilities                                                |                                         |                                            |         |                 |         |   |          |         |         |   |           |             
|                                                 |                                                                     | Taxes on income                         |                                            |         | 4,642           |         |   |          | 8,653   |         |   |           | 72,108       |          
|                                                 |                                                                     | Payroll                                 |                                            |         | 15,662          |         |   |          | 17,616  |         |   |           | 146,800      |          
|                                                 |                                                                     | Royalty                                 |                                            |         | 13,312          |         |   |          | 14,111  |         |   |           | 117,592      |          
|                                                 |                                                                     | Other                                   |                                            |         | 32,509          |         |   |          | 36,784  |         |   |           | 306,533      |          
|                                                 | Warranty reserve (Note 18)                                          |                                         |                                            | 6,481   |                 |         |   | 6,493    |         |         |   | 54,108    |             
|                                                 | Dividends payable                                                   |                                         |                                            | 1,350   |                 |         |   | 1,754    |         |         |   | 14,617    |             
|                                                 | Other current liabilities                                           |                                         |                                            | 14,705  |                 |         |   | 23,079   |         |         |   | 192,325   |             
|                                                
|                                                 |                                                                     |                                         | Total current liabilities                  |         |                 | 194,310 |   |          |         | 206,530 |   |           |              | 1,721,083 | 
|                                                
|Long-term liabilities:                           |                                                                     |                                         |                                            |         |                 |         |   |          |         |         |   |          
|                                                 | Long-term debt (Note 7)                                             |                                         |                                            | 35,677  |                 |         |   | 32,196   |         |         |   | 268,300   |             
|                                                 | Accrued pension and severance cost (Note 8)                         |                                         |                                            | 46,270  |                 |         |   | 70,800   |         |         |   | 590,000   |             
|                                                 | Deferred income taxes (Note 9)                                      |                                         |                                            | 918     |                 |         |   | 496      |         |         |   | 4,133     |             
|                                                 | Other long-term liabilities                                         |                                         |                                            | 1,707   |                 |         |   | 335      |         |         |   | 2,792     |             
|                                                
|                                                 |                                                                     |                                         | Total long-term liabilities                |         |                 | 84,572  |   |          |         | 103,827 |   |           |              | 865,225   | 
|                                                
|Commitments
and contingent liabilities (Note 19)
|Minority
interests                               | 19,244                                                              |                                         |                                            |         | 18,279          |         |   |          | 152,325 |        
|                                                
|                                                
|Shareholders equity(Note 10):                   |                                                                     |                                         |                                            |         |                 |         |   |          |         |         |   |          
|                                                 | Common stock, No par value                                          |                                         |                                            |         |                 |         |   |          |         |         |   |           |             
|                                                 |                                                                     | Authorized 400,000,000 shares          |                                            |         |                 |         |   |          |         |         |   |           |              |          
|                                                 |                                                                     | Issued180,063,836 shares2002 and 2003 |                                            |         | 49,049          |         |   |          | 49,049  |         |   |           | 408,742      |          
|                                                 | Capital surplus                                                     |                                         |                                            | 82,010  |                 |         |   | 82,159   |         |         |   | 684,658   |             
|                                                 | Retained earnings                                                   |                                         |                                            | 240,692 |                 |         |   | 253,266  |         |         |   | 2,110,550 |             
|                                                 | Accumulated other comprehensive income (loss) (Note 12)             |                                         |                                            | (24,736 | )               |         |   | (55,629  | )       |         |   | (463,575  | )           
|                                                 | Treasury stock, at cost 4,272 shares2002 and 4,629,028 shares2003 |                                         |                                            | (12     | )               |         |   | (10,452  | )       |         |   | (87,100   | )           
|                                                
|                                                 |                                                                     |                                         | Total shareholders equity                 |         |                 | 347,003 |   |          |         | 318,393 |   |           |              | 2,653,275 | 
|                                                
|                                                
|                                                 |                                                                     |                                         | Total liabilities and shareholders equity |         | ¥               | 645,129 |   |          | ¥       | 647,029 |   |           | $            | 5,391,908 | 
|                                                

F-4



---



##### Table of Contents



Consolidated Statements of Income

Pioneer Corporation and Subsidiaries
Year ended March 31


|                                                       |                                     |                                    |        |                 |         |   |          |         |         |      |        |         |         |   |         |              |           |  
|------------------------------------------------------ | ----------------------------------- | ---------------------------------- | ------ | --------------- | ------- | - | -------- | ------- | ------- | ---- | ------ | ------- | ------- | - | ------- | ------------ | --------- | -
|                                                       |                                     |                                    |        |                 |         |   |          |         |         |      |        |         |         |   |         | Thousands of |          
|                                                       |                                     |                                    |        |                 |         |   |          |         |         |      |        |         |         |   |         | U.S. Dollars |          
|                                                       |                                     |                                    |        | Millions of Yen |         |   | (Note 1) |        
|                                                       |                                     |                                    |        |                 |         |   |          |        
|                                                       |                                     |                                    |        | 2001            |         |   | 2002     |         |         | 2003 |        |         | 2003    |  
|                                                      
|Operating revenue:                                     |                                     |                                    |        |                 |         |   |          |         |         |      |        |         |         |   |         |             
|                                                       | Net sales                           |                                    | ¥      | 619,828         |         |   | ¥        | 644,537 |         |      | ¥      | 699,684 |         |   | $       | 5,830,700    |          
|                                                       | Royalty revenue                     |                                    |        | 20,530          |         |   |          | 17,588  |         |      |        | 12,584  |         |   |         | 104,867      |          
|                                                      
|                                                       |                                     | Total operating revenue            |        |                 | 640,358 |   |          |         | 662,125 |      |        |         | 712,268 |   |         |              | 5,935,567 |  
|                                                      
|Operating costs and expenses:                          |                                     |                                    |        |                 |         |   |          |         |         |      |        |         |         |   |         |             
|                                                       | Cost of sales                       |                                    |        | 447,389         |         |   |          | 465,336 |         |      |        | 498,492 |         |   |         | 4,154,100    |          
|                                                       | Selling, general and administrative |                                    |        | 160,064         |         |   |          | 178,848 |         |      |        | 182,424 |         |   |         | 1,520,200    |          
|                                                      
|                                                       |                                     | Total operating costs and expenses |        |                 | 607,453 |   |          |         | 644,184 |      |        |         | 680,916 |   |         |              | 5,674,300 |  
|                                                      
|Operating income                                       |                                     |                                    | 32,905 |                 |         |   | 17,941   |         |         |      | 31,352 |         |         |   | 261,267 |             
|Other income (expenses):                               |                                     |                                    |        |                 |         |   |          |         |         |      |        |         |         |   |         |             
|                                                       | Interest income                     |                                    |        | 4,920           |         |   |          | 3,039   |         |      |        | 2,192   |         |   |         | 18,267       |          
|                                                       | Gain on sale of subsidiaries stock |                                    |        |                |         |   |          |        |         |      |        | 768     |         |   |         | 6,400        |          
|                                                       | Foreign exchange gain (loss)        |                                    |        | (1,192          | )       |   |          | 297     |         |      |        | (2,042  | )       |   |         | (17,017      | )        
|                                                       | Interest expense                    |                                    |        | (4,301          | )       |   |          | (3,445  | )       |      |        | (2,887  | )       |   |         | (24,059      | )        
|                                                       | Othernet (Note 13)                 |                                    |        | 1,861           |         |   |          | (2,489  | )       |      |        | (753    | )       |   |         | (6,275       | )        
|                                                      
|                                                       |                                     | Total other income (expenses)      |        |                 | 1,288   |   |          |         | (2,598  | )    |        |         | (2,722  | ) |         |              | (22,684   | )
|                                                      
|Income before income taxes                             |                                     |                                    | 34,193 |                 |         |   | 15,343   |         |         |      | 28,630 |         |         |   | 238,583 |             
|Income
taxes (Note 9):                                 |                                     |                                    |        |                 |         |   |          |         |         |      |        |         |         |   |         |             
|                                                       | Current                             |                                    |        | 15,011          |         |   |          | 11,107  |         |      |        | 14,762  |         |   |         | 123,017      |          
|                                                       | Deferred                            |                                    |        | (691            | )       |   |          | (4,385  | )       |      |        | (5,315  | )       |   |         | (44,292      | )        
|                                                      
|                                                       |                                     | Total income taxes                 |        |                 | 14,320  |   |          |         | 6,722   |      |        |         | 9,447   |   |         |              | 78,725    |  
|                                                      
|Income before minority interest and equity in losses   |                                     |                                    | 19,873 |                 |         |   | 8,621    |         |         |      | 19,183 |         |         |   | 159,858 |             
|Minority interest in losses (earnings) of subsidiaries |                                     |                                    | (1,445 | )               |         |   | (504     | )       |         |      | 21     |         |         |   | 175     |             
|Equity in losses of affiliated companies (Note 5)      |                                     |                                    | (130   | )               |         |   | (70      | )       |         |      | (3,126 | )       |         |   | (26,050 | )           
|                                                      
|Net income                                             |                                     | ¥                                  | 18,298 |                 |         | ¥ | 8,047    |         |         | ¥    | 16,078 |         |         | $ | 133,983 |             
|                                                      

|                                                             |                            |         |  |      |        |  |              |   |       |      |  |   |       |  |  |   |      | 
|------------------------------------------------------------ | -------------------------- | ------- |  | ---- | ------ |  | ------------ | - | ----- | ---- |  | - | ----- |  |  | - | ---- | 
|                                                             |                            |         |  | Yen  |        |  | U.S. Dollars |  
|                                                             |                            |         |  |      |        |  |              |  
|                                                             |                            |         |  | 2001 |        |  | 2002         |   |       | 2003 |  |   | 2003  | 
|                                                            
|Per share of common stock and per American Depositary Share: |                            |         |  |      |        |  |              |   |       |      |  |   |       |  |  |  
|                                                             | Net income (Note 6 and 17) |         |  |      |        |  |              |   |       |      |  |   |       |  |  |   |     
|                                                             |                            | Basic   |  | ¥    | 101.76 |  |              | ¥ | 44.70 |      |  | ¥ | 90.24 |  |  | $ | 0.75 | 
|                                                             |                            | Diluted |  |      | 101.70 |  |              |   | 44.69 |      |  |   | 90.24 |  |  |   | 0.75 | 
|                                                            

See notes to consolidated financial statements.


F-5



---



##### Table of Contents



Consolidated Statements of Shareholders Equity

Pioneer Corporation and Subsidiaries
Year ended March 31


|                                                       |                                   |  |               |  |  |        |                 |  |         |   |        |          |  |   |               |        |  |          |             |         |               |    |         |   |       |   |         |         |  
|------------------------------------------------------ | --------------------------------- |  | ------------- |  |  | ------ | --------------- |  | ------- | - | ------ | -------- |  | - | ------------- | ------ |  | -------- | ----------- | ------- | ------------- | -- | ------- | - | ----- | - | ------- | ------- | -
|                                                       |                                   |  |               |  |  |        | Millions of Yen | 
|                                                       |                                   |  |               |  |  |        |                 | 
|                                                       |                                   |  |               |  |  |        |                 |  |         |   |        |          |  |   |               |        |  |          | Accumulated |         |               |    |         |   |       |   |         |        
|                                                       |                                   |  | Number of     |  |  |        |                 |  |         |   |        |          |  |   |               |        |  | Other    |             |         |               |    |         |   | Total |  
|                                                       |                                   |  | Shares Issued |  |  | Common |                 |  | Capital |   |        | Retained |  |   | Comprehensive |        |  | Treasury |             |         | Shareholders |   
|                                                       |                                   |  | (Thousands)   |  |  | Stock  |                 |  | Surplus |   |        | Earnings |  |   | Income (Loss) |        |  | Stock    |             |         | Equity        |   
|                                                      
|Balance at March 31, 2000                              |                                   |  | 179,588       |  |  | ¥      | 48,452          |  |         | ¥ | 80,705 |          |  | ¥ | 219,745       |        |  | (¥       | 36,442      | )       |               |    |         |   |       | ¥ | 312,460 |        
|Comprehensive income                                   |                                   |  |               |  |  |        |                 |  |         |   |        |          |  |   |               |        |  |          |             |         |               |    |         |   |       |   |         |        
|                                                       | Net income                        |  |               |  |  |        |                 |  |         |   |        |          |  |   |               | 18,298 |  |          |             |         |               |    |         |   |       |   |         | 18,298  |  
|                                                       | Other comprehensive income        |  |               |  |  |        |                 |  |         |   |        |          |  |   |               |        |  |          |             | 7,791   |               |    |         |   |       |   |         | 7,791   |  
|                                                       |                                   |  |               |  |  |        |                 |  |         |   |        |          |  |   |               |        |  |          |             |         |               |    |         |   |       |   |        
|Comprehensive income                                   |                                   |  |               |  |  |        |                 |  |         |   |        |          |  |   |               |        |  |          |             |         |               |    |         |   |       |   | 26,089  |        
|Exercise of warrants                                   |                                   |  | 306           |  |  |        | 391             |  |         |   | 391    |          |  |   |               |        |  |          |             |         |               |    |         |   |       |   | 782     |        
|Value ascribed to warrants
and stock options (Note 11) |                                   |  |               |  |  |        |                 |  |         |   | 362    |          |  |   |               |        |  |          |             |         |               |    |         |   |       |   | 362     |        
|Cash dividends (¥15.00 per share)                      |                                   |  |               |  |  |        |                 |  |         |   |        |          |  |   | (2,698        | )      |  |          |             |         |               |    |         |   |       |   | (2,698  | )      
|                                                      
|Balance at March 31, 2001                              |                                   |  | 179,894       |  |  |        | 48,843          |  |         |   | 81,458 |          |  |   | 235,345       |        |  |          | (28,651     | )       |               |    |         |   |       |   | 336,995 |        
|Comprehensive income                                   |                                   |  |               |  |  |        |                 |  |         |   |        |          |  |   |               |        |  |          |             |         |               |    |         |   |       |   |         |        
|                                                       | Net income                        |  |               |  |  |        |                 |  |         |   |        |          |  |   |               | 8,047  |  |          |             |         |               |    |         |   |       |   |         | 8,047   |  
|                                                       | Other comprehensive income        |  |               |  |  |        |                 |  |         |   |        |          |  |   |               |        |  |          |             | 3,915   |               |    |         |   |       |   |         | 3,915   |  
|                                                       |                                   |  |               |  |  |        |                 |  |         |   |        |          |  |   |               |        |  |          |             |         |               |    |         |   |       |   |        
|Comprehensive income                                   |                                   |  |               |  |  |        |                 |  |         |   |        |          |  |   |               |        |  |          |             |         |               |    |         |   |       |   | 11,962  |        
|Exercise of warrants                                   |                                   |  | 170           |  |  |        | 206             |  |         |   | 206    |          |  |   |               |        |  |          |             |         |               |    |         |   |       |   | 412     |        
|Value ascribed to warrants
and stock options (Note 11) |                                   |  |               |  |  |        |                 |  |         |   | 346    |          |  |   |               |        |  |          |             |         |               |    |         |   |       |   | 346     |        
|Purchase and sale of treasury
stock, net               |                                   |  |               |  |  |        |                 |  |         |   |        |          |  |   |               |        |  |          |             |         |               | (¥ | 12      | ) |       |   | (12     | )      
|Cash dividends (¥15.00 per share)                      |                                   |  |               |  |  |        |                 |  |         |   |        |          |  |   | (2,700        | )      |  |          |             |         |               |    |         |   |       |   | (2,700  | )      
|                                                      
|Balance at March 31, 2002                              |                                   |  | 180,064       |  |  |        | 49,049          |  |         |   | 82,010 |          |  |   | 240,692       |        |  |          | (24,736     | )       |               |    | (12     | ) |       |   | 347,003 |        
|Comprehensive income (loss)                            |                                   |  |               |  |  |        |                 |  |         |   |        |          |  |   |               |        |  |          |             |         |               |    |         |   |       |   |         |        
|                                                       | Net income                        |  |               |  |  |        |                 |  |         |   |        |          |  |   |               | 16,078 |  |          |             |         |               |    |         |   |       |   |         | 16,078  |  
|                                                       | Other comprehensive income (loss) |  |               |  |  |        |                 |  |         |   |        |          |  |   |               |        |  |          |             | (30,893 | )             |    |         |   |       |   |         | (30,893 | )
|                                                       |                                   |  |               |  |  |        |                 |  |         |   |        |          |  |   |               |        |  |          |             |         |               |    |         |   |       |   |        
|Comprehensive income (loss)                            |                                   |  |               |  |  |        |                 |  |         |   |        |          |  |   |               |        |  |          |             |         |               |    |         |   |       |   | (14,815 | )      
|Value ascribed to stock
options (Note 11)              |                                   |  |               |  |  |        |                 |  |         |   | 149    |          |  |   |               |        |  |          |             |         |               |    |         |   |       |   | 149     |        
|Repurchase of common
stock (Note 10)                   |                                   |  |               |  |  |        |                 |  |         |   |        |          |  |   |               |        |  |          |             |         |               |    | (11,566 | ) |       |   | (11,566 | )      
|Sales of treasury stock                                |                                   |  |               |  |  |        |                 |  |         |   |        |          |  |   | (412          | )      |  |          |             |         |               |    | 1,126   |   |       |   | 714     |        
|Cash dividends (¥17.50 per share)                      |                                   |  |               |  |  |        |                 |  |         |   |        |          |  |   | (3,092        | )      |  |          |             |         |               |    |         |   |       |   | (3,092  | )      
|                                                      
|Balance at March 31, 2003                              |                                   |  | 180,064       |  |  | ¥      | 49,049          |  |         | ¥ | 82,159 |          |  | ¥ | 253,266       |        |  | (¥       | 55,629      | )       |               | (¥ | 10,452  | ) |       | ¥ | 318,393 |        
|                                                      

|                                          |                                   |   |                                    |  |  |         |         |  |          |   |               |         |  |             |         |          |               |    |         |   |       |   |           |          |  
|----------------------------------------- | --------------------------------- | - | ---------------------------------- |  |  | ------- | ------- |  | -------- | - | ------------- | ------- |  | ----------- | ------- | -------- | ------------- | -- | ------- | - | ----- | - | --------- | -------- | -
|                                          |                                   |   | Thousands of U.S. Dollars (Note 1) | 
|                                          |                                   |   |                                    | 
|                                          |                                   |   |                                    |  |  |         |         |  |          |   |               |         |  | Accumulated |         |          |               |    |         |   |       |   |          
|                                          |                                   |   |                                    |  |  |         |         |  |          |   |               |         |  | Other       |         |          |               |    |         |   | Total |  
|                                          |                                   |   | Common                             |  |  | Capital |         |  | Retained |   | Comprehensive |         |  | Treasury    |         |          | Shareholders |   
|                                          |                                   |   | Stock                              |  |  | Surplus |         |  | Earnings |   | Income (Loss) |         |  | Stock       |         |          | Equity        |   
|                                         
|Balance at March 31, 2002                 |                                   | $ | 408,742                            |  |  | $       | 683,416 |  |          | $ | 2,005,767     |         |  | ($          | 206,133 | )        |               | ($ | 100     | ) |       | $ | 2,891,692 |         
|Comprehensive income (loss)               |                                   |   |                                    |  |  |         |         |  |          |   |               |         |  |             |         |          |               |    |         |   |       |   |           |         
|                                          | Net income                        |   |                                    |  |  |         |         |  |          |   |               | 133,983 |  |             |         |          |               |    |         |   |       |   |           | 133,983  |  
|                                          | Other comprehensive income (loss) |   |                                    |  |  |         |         |  |          |   |               |         |  |             |         | (257,442 | )             |    |         |   |       |   |           | (257,442 | )
|                                          |                                   |   |                                    |  |  |         |         |  |          |   |               |         |  |             |         |          |               |    |         |   |       |   |          
|Comprehensive income (loss)               |                                   |   |                                    |  |  |         |         |  |          |   |               |         |  |             |         |          |               |    |         |   |       |   | (123,459  | )       
|Value ascribed to stock options (Note 11) |                                   |   |                                    |  |  |         | 1,242   |  |          |   |               |         |  |             |         |          |               |    |         |   |       |   | 1,242     |         
|Repurchase of common stock (Note 10)      |                                   |   |                                    |  |  |         |         |  |          |   |               |         |  |             |         |          |               |    | (96,383 | ) |       |   | (96,383   | )       
|Sales of treasury stock                   |                                   |   |                                    |  |  |         |         |  |          |   | (3,433        | )       |  |             |         |          |               |    | 9,383   |   |       |   | 5,950     |         
|Cash dividends ($0.15 per share)          |                                   |   |                                    |  |  |         |         |  |          |   | (25,767       | )       |  |             |         |          |               |    |         |   |       |   | (25,767   | )       
|                                         
|Balance at March 31, 2003                 |                                   | $ | 408,742                            |  |  | $       | 684,658 |  |          | $ | 2,110,550     |         |  | ($          | 463,575 | )        |               | ($ | 87,100  | ) |       | $ | 2,653,275 |         
|                                         

See notes to consolidated financial statements.


F-6



---



##### Table of Contents



Consolidated Statements of Cash Flows

Pioneer Corporation and Subsidiaries
Year ended March 31


|                                                             |                                                                                   |                                                                  |                                           |         |                 |         |         |          |        |         |         |         |        |         |           |          |              |          |  
|------------------------------------------------------------ | --------------------------------------------------------------------------------- | ---------------------------------------------------------------- | ----------------------------------------- | ------- | --------------- | ------- | ------- | -------- | ------ | ------- | ------- | ------- | ------ | ------- | --------- | -------- | ------------ | -------- | -
|                                                             |                                                                                   |                                                                  |                                           |         |                 |         |         |          |        |         |         |         |        |         |           |          | Thousands of |         
|                                                             |                                                                                   |                                                                  |                                           |         |                 |         |         |          |        |         |         |         |        |         |           |          | U.S. Dollars |         
|                                                             |                                                                                   |                                                                  |                                           |         | Millions of Yen |         |         | (Note 1) |       
|                                                             |                                                                                   |                                                                  |                                           |         |                 |         |         |          |       
|                                                             |                                                                                   |                                                                  |                                           |         | 2001            |         |         | 2002     |        |         | 2003    |         |        | 2003    |          
|                                                            
|Operating activities:                                        |                                                                                   |                                                                  |                                           |         |                 |         |         |          |        |         |         |         |        |         |           |         
|                                                             | Net income                                                                        |                                                                  | ¥                                         | 18,298  |                 |         | ¥       | 8,047    |        |         | ¥       | 16,078  |        |         | $         | 133,983  |             
|                                                             | Adjustments to reconcile net income to net cash provided
by operating activities: |                                                                  |                                           |         |                 |         |         |          |        |         |         |         |        |         |           |          |             
|                                                             |                                                                                   | Depreciation and amortization                                    |                                           |         | 32,405          |         |         |          | 36,782 |         |         |         | 36,387 |         |           |          | 303,225      |         
|                                                             |                                                                                   | Minority interest in losses (earnings) of subsidiaries           |                                           |         | 1,445           |         |         |          | 504    |         |         |         | (21    | )       |           |          | (175         | )       
|                                                             |                                                                                   | Equity in losses of affiliated companies, less dividends         |                                           |         | 136             |         |         |          | 79     |         |         |         | 3,184  |         |           |          | 26,533       |         
|                                                             |                                                                                   | Deferred income taxes                                            |                                           |         | (691            | )       |         |          | (4,385 | )       |         |         | (5,315 | )       |           |          | (44,292      | )       
|                                                             |                                                                                   | Provision for pension and severance cost, less payments          |                                           |         | (1,993          | )       |         |          | 392    |         |         |         | 3,815  |         |           |          | 31,792       |         
|                                                             |                                                                                   | Loss on sale and disposal of fixed assets                        |                                           |         | 914             |         |         |          | 3,340  |         |         |         | 4,521  |         |           |          | 37,675       |         
|                                                             |                                                                                   | (Gain) loss on sale and write-down of investments and securities |                                           |         | (254            | )       |         |          | 2,287  |         |         |         | 1,393  |         |           |          | 11,608       |         
|                                                             |                                                                                   | Impairment losses of fixed assets                                |                                           |         | 1,163           |         |         |          |       |         |         |         |       |         |           |          |             |         
|                                                             |                                                                                   | Gain on sale of subsidiaries stock                              |                                           |         |                |         |         |          |       |         |         |         | (768   | )       |           |          | (6,400       | )       
|                                                             |                                                                                   | Decrease (increase) in trade notes and accounts receivable       |                                           |         | (6,729          | )       |         |          | (2,225 | )       |         |         | 9,668  |         |           |          | 80,567       |         
|                                                             |                                                                                   | Decrease in inventories                                          |                                           |         | 5,786           |         |         |          | 3,288  |         |         |         | 715    |         |           |          | 5,959        |         
|                                                             |                                                                                   | Increase in prepaid expenses and other current assets            |                                           |         | (2,430          | )       |         |          | (2,706 | )       |         |         | (1,603 | )       |           |          | (13,358      | )       
|                                                             |                                                                                   | Increase in trade payables                                       |                                           |         | 177             |         |         |          | 9,304  |         |         |         | 11,856 |         |           |          | 98,800       |         
|                                                             |                                                                                   | Increase (decrease) in accrued taxes on income                   |                                           |         | (1,204          | )       |         |          | (1,473 | )       |         |         | 5,533  |         |           |          | 46,108       |         
|                                                             |                                                                                   | Increase in other accrued liabilities                            |                                           |         | 1,184           |         |         |          | 2,716  |         |         |         | 8,363  |         |           |          | 69,692       |         
|                                                             |                                                                                   | Other                                                            |                                           |         | 3,034           |         |         |          | 1,160  |         |         |         | (2,072 | )       |           |          | (17,267      | )       
|                                                            
|                                                             |                                                                                   |                                                                  | Net cash provided by operating activities |         |                 | 51,241  |         |          |        | 57,110  |         |         |        | 91,734  |           |          |              | 764,450  |  
|                                                            
|Investing activities:                                        |                                                                                   |                                                                  |                                           |         |                 |         |         |          |        |         |         |         |        |         |           |         
|                                                             | Payment for purchase of fixed assets                                              |                                                                  |                                           | (42,183 | )               |         |         | (46,996  | )      |         |         | (40,782 | )      |         |           | (339,850 | )           
|                                                             | Payment for investment securities                                                 |                                                                  |                                           | (5,798  | )               |         |         | (4,566   | )      |         |         | (1,543  | )      |         |           | (12,858  | )           
|                                                             | Payment for available-for-sale securities                                         |                                                                  |                                           | (1,233  | )               |         |         | (2,031   | )      |         |         | (10     | )      |         |           | (83      | )           
|                                                             | Proceeds from sale of fixed assets and investment securities                      |                                                                  |                                           | 5,631   |                 |         |         | 2,203    |        |         |         | 3,086   |        |         |           | 25,716   |             
|                                                             | Proceeds from sale of available-for-sale securities                               |                                                                  |                                           | 1,789   |                 |         |         | 177      |        |         |         | 3,502   |        |         |           | 29,183   |             
|                                                             | Decrease in loans receivable                                                      |                                                                  |                                           | 410     |                 |         |         | 1,071    |        |         |         | 169     |        |         |           | 1,408    |             
|                                                             | Other                                                                             |                                                                  |                                           | (197    | )               |         |         | (1,006   | )      |         |         | 125     |        |         |           | 1,042    |             
|                                                            
|                                                             |                                                                                   |                                                                  | Net cash used in investing activities     |         |                 | (41,581 | )       |          |        | (51,148 | )       |         |        | (35,453 | )         |          |              | (295,442 | )
|                                                            
|Financing activities:                                        |                                                                                   |                                                                  |                                           |         |                 |         |         |          |        |         |         |         |        |         |           |         
|                                                             | Payment of long-term debt                                                         |                                                                  |                                           | (37,760 | )               |         |         | (7,560   | )      |         |         | (4,914  | )      |         |           | (40,950  | )           
|                                                             | Increase (decrease) in short-term borrowings                                      |                                                                  |                                           | (7,078  | )               |         |         | 5,866    |        |         |         | (16,214 | )      |         |           | (135,117 | )           
|                                                             | Repurchase of common stock (Note 10)                                              |                                                                  |                                           |        |                 |         |         | (159     | )      |         |         | (11,566 | )      |         |           | (96,383  | )           
|                                                             | Proceeds from sale of treasury stock                                              |                                                                  |                                           |        |                 |         |         | 147      |        |         |         | 714     |        |         |           | 5,950    |             
|                                                             | Dividends paid                                                                    |                                                                  |                                           | (2,247  | )               |         |         | (2,699   | )      |         |         | (2,688  | )      |         |           | (22,400  | )           
|                                                             | Other                                                                             |                                                                  |                                           | 518     |                 |         |         | 198      |        |         |         | (12     | )      |         |           | (100     | )           
|                                                            
|                                                             |                                                                                   |                                                                  | Net cash used in financing activities     |         |                 | (46,567 | )       |          |        | (4,207  | )       |         |        | (34,680 | )         |          |              | (289,000 | )
|                                                            
|Effect of exchange rate changes on cash and cash equivalents |                                                                                   |                                                                  | 6,229                                     |         |                 |         | 4,231   |          |        |         | (6,234  | )       |        |         | (51,950   | )       
|                                                            
|Net increase (decrease) in cash and cash equivalents         |                                                                                   |                                                                  | (30,678                                   | )       |                 |         | 5,986   |          |        |         | 15,367  |         |        |         | 128,058   |         
|Cash and cash equivalents, beginning of year                 |                                                                                   |                                                                  | 151,805                                   |         |                 |         | 121,127 |          |        |         | 127,113 |         |        |         | 1,059,275 |         
|                                                            
|Cash and cash equivalents, end of year                       |                                                                                   | ¥                                                                | 121,127                                   |         |                 | ¥       | 127,113 |          |        | ¥       | 142,480 |         |        | $       | 1,187,333 |         
|                                                            

See notes to consolidated financial statements.


F-7



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##### Table of Contents



Notes to Consolidated Financial Statements

Pioneer Corporation and Subsidiaries




---

1. Basis of presentation and significant accounting policies:




1) Basis of Presentation
Basis of Financial Statements
The accompanying consolidated financial statements
are stated in Japanese yen, the currency of the
country in which Pioneer Corporation (Pioneer
Kabushiki Kaisha) (the parent company) is
incorporated. The translation of Japanese yen
amounts into U.S. dollar amounts for the year
ended March 31, 2003 is included solely for the
convenience of readers outside Japan and has been
made at the rate of ¥120 to U.S.$1.00, the
approximate rate of exchange prevailing at the
Tokyo Foreign Exchange Market at March 31, 2003.
Such translation should not be construed as a
representation that Japanese yen amounts could be
converted into U.S. dollars at the above or any
other rate. The accompanying consolidated financial
statements have been prepared on the basis of
accounting principles generally accepted in the
United States of America (U.S. GAAP) except for
the omission of segment information concerning the
operations of the parent company and its
majority-owned subsidiaries (together, the
Company), as required by Statement of Financial
Accounting Standards (SFAS) No.131. The accompanying consolidated financial
statements reflect the adjustments which
management believes are necessary to conform them
with U.S. GAAP. Effect has been given in the
consolidated financial statements to adjustments
which, because of either customary accounting
practices in Japan or income tax law requirements,
have not been entered in the Companys general
books of account. Nature of Operations
The Company is engaged in the development,
manufacture and sale of electronics products. The
Company is one of the leading manufacturers of
consumer- and commercial-use electronics such as
audio, video and car electronics on a global
scale. The principal production activities of the
Company are carried out in Asia including Japan.
The Companys products are generally sold under
its own brand names, principally Pioneer. The
principal markets for the Company are Japan, the
United States of America, European countries and
Asia. The Company sells its products to customers
in consumer and commercial markets through its
sales offices in Japan, and its sales subsidiaries
and independent distributors overseas. On an
original-equipment-manufacturer basis, the Company
markets certain products, such as car electronics
products, to other companies.


Use of Estimates
The preparation of the consolidated financial
statements in conformity with generally accepted
accounting principles requires management to make
estimates and assumptions that affect the reported
amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at
the dates of these statements and the reported
amounts of revenues and expenses during the
reporting period. Due to the inherent uncertainty involved in
making estimates, actual results could differ from
those estimates. 2) Summary of Significant Accounting Policies
Consolidation and Investments in Affiliated
CompaniesThe consolidated financial statements
include the accounts of the parent company and its
majority-owned subsidiaries. Investments in 20% to
50% owned companies are accounted for by the
equity method of accounting. All significant
intercompany transactions have been eliminated. Gains and losses resulting from the issuance
of subsidiaries stock are recognized in
consolidated earnings. Foreign Currency Translation
For all significant foreign operations, the
functional currency is the local currency.
Generally, all asset and liability accounts of
foreign operations are translated into Japanese
yen at year-end rates and all revenue and expense
accounts are translated at rates prevailing at the
time of the transactions. The resulting
translation adjustments are accumulated and
reported as a component of accumulated other
comprehensive income (loss). Foreign currency receivables and payables are
translated at year-end exchange rates and
resulting exchange gains and losses are recognized
in earnings currently. Revenue Recognition
Sales are generally recorded when merchandise is
shipped to customers based on purchase orders or
when services are rendered to the third parties.
In certain cases, terms of the contract require
the product to pass customer inspection after
shipment and the Company records the sale upon
satisfactory customer acceptance. Royalty revenue
is recognized based on royalty statements from
licensees.




F-8



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##### Table of Contents





Cash and Cash Equivalents
Consolidated cash and cash equivalents include
cash on hand and deposits in bank including time
deposits. The Company considers all time deposits
with an original maturity of one year or less to
be cash equivalents. Generally, such time deposits
can be withdrawn at any time without diminution of
the principal amount. Available-for-Sale Securities
Under SFAS No.115, Accounting for Certain
Investments in Debt and Equity Securities, all
debt securities and marketable equity securities
held by the Company are classified as
available-for-sale securities, and are carried at
their fair values with unrealized gains and losses
reported as a component of shareholders equity.
The cost of securities is determined using the
average-cost method. The Company reviews the fair value of its
available-for-sale securities on a regular basis
to determine if the fair value of any individual
security has declined below its cost and if such
decline is other than temporary. If the decline in
value is judged to be other than temporary, the
cost basis of the security is written down to fair
value and the resulting realized loss is included
in the statements of consolidated income. Sundry Investments
Sundry investments are stated at cost and are
written down if the value of investments is
estimated to have declined and such decline is
judged to be other than temporary. Inventories
Inventories are valued at the lower of cost, which
is determined principally by the average-cost
method, or market. Inventories are reviewed
periodically and items considered to be slow
moving or obsolete are written down to their
estimated net realizable value. Property, Plant and Equipment and Depreciation
Property, plant and equipment are stated at cost.
Depreciation is computed principally using the
declining-balance method for assets located in
Japan and under the straight-line method for
assets located outside Japan, using rates based on
the estimated useful lives of the assets. The principal ranges of estimated useful lives
are as follows: Buildings
    
    1565 yearsMachinery and equipment
    
    210 years


Goodwill and Other Intangible Assets
In July 2001, the Financial Accounting Standards
Board (FASB) issued SFAS No. 141, Business
Combinations and SFAS No. 142, Goodwill and
Other Intangible Assets. SFAS No. 141 requires
the purchase method of accounting for business
combinations initiated after June 30, 2001,
eliminates the pooling-of-interests method, and
addresses the initial recognition and measurement
of goodwill and other intangible assets acquired
in a business combination. Under SFAS No. 142, acquired goodwill and
other intangible assets that are determined to
have an indefinite life will no longer be
amortized. Instead, the carrying value of these
assets will be reviewed for impairment at least
annually, or more frequently if events or changes
in circumstances indicate that the asset might be
impaired. Intangible assets that are determined to
have a definite life will continue to be amortized
over their estimated useful lives. At April 1,
2002, the Company had no goodwill. The Company has
adopted SFAS No. 142 effective April 1, 2002.
Adoption
of SFAS No. 142 had no significant effect on
the Companys operating income and income before
income taxes for the year ended March 31, 2003.
Amortization of intangible assets with definite
lives is computed using the straight-line method
with no residual value. The cost of patents is
amortized over 7 to 19 years and software is
amortized principally over 2 to 5 years. Long-Lived Assets
The Company reviews its long-lived assets and
certain identifiable intangibles for impairment
whenever events or changes in circumstances
indicate that the carrying amount of an asset may
not be recoverable. When the sum of expected
future cash flows is less than the carrying amount
of the asset, an impairment loss is recognized.
Such impairment loss is measured as the amount by
which the carrying amount of the asset exceeds the
fair value of the asset. During the year ended March 31, 2001, the
Company recorded an impairment loss of ¥1,163
million related to intangible assets of its
karaoke business reflecting reduced revenue
expectations from the business. In fiscal 2003, the Company sold its
subsidiaries stock and recorded gains of ¥768
million ($6,400 thousand). Subsidiaries main
operation was Karaoke business.




F-9



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##### Table of Contents





Warranty Reserve
The Company engages in extensive product quality
programs and processes including actively
monitoring and evaluating the quality of component
suppliers. The Companys warranty obligation is
affected by product failure rates and service
costs incurred in correcting product failure. The
Company provides for the estimated cost of product
warranties at the time revenue is recognized.
These estimates are established using historical
information. Income Taxes
Income taxes are provided based on the asset and
liability method of accounting. Deferred income
taxes are recorded to reflect the tax consequences
in future years of differences between the tax
basis of assets and liabilities and their
financial reporting amounts at year-end. These
deferred taxes are measured by applying currently
enacted tax laws. A valuation allowance is
established to reduce deferred tax assets if it is
more likely than not that all, or some portion, of
such deferred tax assets will not be realized. Sales Incentives
At April 1, 2002, the Company adopted Emerging
Issues Task Force (EITF) 01-09, Accounting for
Consideration given by a Vendor to a Customer.
EITF 01-09 clarifies the income statement
classification of costs incurred by a vendor in
connection with the resellers purchase or
promotion of the vendors products, resulting in
certain cooperative advertising and product
placement costs previously classified as selling
expenses to be reflected as a reduction of
revenues earned from that activity. The adoption
of EITF 01-09 resulted in a reduction of sales of
¥6,711 million, ¥6,774 million and ¥9,588 million
($79,900 thousand) and a corresponding decrease in
selling, general and administrative expenses, with
no effect on net income for the years ended March
31, 2001, 2002 and 2003, respectively. Previous
figures for the corresponding periods have been
reclassified to conform to this presentation. Research and Development Costs and Advertising
CostResearch and development costs and
advertising cost are expensed as incurred.


Shipping and Handling Charges
Shipping and handling costs totaled ¥8,691
million, ¥10,178 million and ¥10,816 million
($90,133 thousand) for the years ended March 31,
2001, 2002 and 2003,
respectively, and are included in selling, general
and administrative expenses in the consolidated
statements of income. Accounting for Stock-Based Compensation
The Company accounts for its stock-based
compensation agreements using the fair value based
method in accordance with SFAS No.123, Accounting
for Stock-Based Compensation. Earnings per Share
Basic net income per share has been computed by
dividing net income available to holders of common
stock by the weighted-average number of shares of
common stock outstanding during each year. Diluted
net income per share reflects the potential
dilution and has been computed on the basis that
all dilutive warrants and stock options were
exercised. Derivatives
Derivative financial instruments utilized by the
Company are comprised principally of forward
exchange contracts, currency options and currency
swaps. Forward exchange contracts and currency
options, the majority of which mature within six
months, and currency swaps, which mature from 2003
to 2005, are utilized to hedge exposures to
foreign exchange risk and interest risk. The
Company does not hold or issue derivative
financial instruments for trading purposes. Prior to April 1, 2001, gains and losses on
hedges of existing assets and liabilities were
included in the carrying amounts of those assets
and liabilities and were ultimately recognized in
other income (expenses). Gains and losses related
to qualifying hedges of firm commitments or
anticipated transactions were also deferred and
were recognized in other income (expenses) or as
adjustments of carrying amounts when the hedged
transaction occurred. Unrealized gains and losses
on forward contracts including foreign currency
options intended as hedges for foreign currency
risk of anticipated transactions with companies
within the consolidated group were recognized
currently in other income (expenses).




F-10



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##### Table of Contents





At April 1, 2001, the Company adopted SFAS
No. 133, Accounting for Derivative Instruments
and Hedging Activities, as amended by SFAS No.
138, Accounting for Certain Derivative
Instruments and Certain Hedging Activities  an
amendment of FASB Statement No.133. Under SFAS
No. 133, all derivative instruments are recognized
in the balance sheet at their fair values and
changes in fair value are recognized immediately
in earnings, unless the derivatives qualify as
hedges of future cash flows. For derivatives
qualifying as hedges of future cash flows, the
effective portion of changes in fair value is
recorded in other comprehensive income, then
recognized in earnings along with the related
effects of the hedged items. Any ineffective
portion of hedges is reported in earnings as it
occurs. The cumulative effect of adopting this
accounting change at April 1, 2001, was not
significant. Forward exchange contracts, currency swaps
and currency options are utilized to hedge certain
foreign currency and interest rate exposures.
However, none of these derivatives were designated
as hedging instruments under SFAS No. 133 at March
31, 2002 and 2003. Unrealized gains and losses on
such instruments are recognized currently in
earnings. Reclassifications
Starting fiscal 2003, the Company classified
losses on sale and disposal of fixed assets, which
were previously included in Other  net in Other
income (expense), into selling, general and
administrative expenses. Previously reported
amounts have been reclassified to conform to this
presentation. Other reclassifications and format
changes have been made to prior year amounts to
conform to the current year presentation.


New Accounting Standards
In June 2001, the FASB issued SFAS No. 143,
Accounting for Asset Retirement Obligations,
which is effective for years beginning after June
15, 2002, which will be the Companys fiscal year
2004. FAS 143 addresses legal obligations
associated with the retirement of tangible
long-lived assets that result from the
acquisition, construction, development or normal
operation of a long-lived asset. The standard
requires that the fair value of a liability for an
asset retirement obligation be recognized in the
period in which it is incurred if a reasonable
estimate of fair value can be made. Any associated
asset retirement costs are to be capitalized as
part of the carrying amount of the long-lived
asset and expensed over the life of the asset. The
Company has not yet determined what the effect of
FAS 143 will have on the earnings or the financial
position of the Company. In April 2002, the FASB issued SFAS No. 145,
Rescission of FASB Statements No. 4, 44 and 64,
Amendment of FASB Statement No. 13, and Technical
Corrections. SFAS No. 145, among other things,
rescinds SFAS No. 4, which required all gains and
losses from the extinguishment of debt to be
classified as an extraordinary item and amends
SFAS No. 13 to require that certain lease
modifications that have economic effects similar
to sale-leaseback transactions be accounted for in
the same manner as sale-leaseback transactions.
SFAS No. 145 is effective for fiscal years
beginning after May 15, 2002 with earlier adoption
encouraged. The adoption of SFAS No. 145 is not
expected to have a material impact on the
Companys consolidated financial position, results
of operations or cash flows.






---

2.     Supplemental
cash flow information:
Selected cash payments and noncash activities for the years ended March 31,
2001, 2002 and 2003 were as follows:


|                              |                                        |   |                 |     |  |              |        |   |      |   |       |      |  |   |              |   | 
|----------------------------- | -------------------------------------- | - | --------------- | --- |  | ------------ | ------ | - | ---- | - | ----- | ---- |  | - | ------------ | - | 
|                              |                                        |   |                 |     |  |              |        |   |      |   |       |      |  |   | Thousands of |  
|                              |                                        |   | Millions of Yen |     |  | U.S. Dollars |       
|                              |                                        |   |                 |     |  |              |       
|                              |                                        |   | 2001            |     |  | 2002         |        |   | 2003 |   |       | 2003 | 
|                             
|Cash payment for interest     |                                        | ¥ | 4,889           |     |  | ¥            | 3,281  |   |      | ¥ | 2,654 |      |  | $ | 22,117       |  
|Cash payment for income taxes |                                        |   | 16,245          |     |  |              | 12,580 |   |      |   | 9,047 |      |  |   | 75,392       |  
|Noncash investing activities: |                                        |   |                 |     |  |              |        |   |      |   |       |      |  |   |              |  
|                              | Capitalized lease obligations incurred |   |                 | 141 |  |              |        |  |      |   |       |     |  |   |              |  | 
|                             

F-11



---



##### Table of Contents



3. Available-for-sale securities:

Cost, gross unrealized holding gains, gross unrealized holding losses and the
aggregate fair value of available-for-sale securities at March 31, 2002 and
2003 were as follows:

|                              |             |       |   |                 |        |  |       |            |        |        |            |     |            |           |   |        |        |  |       |       |         |            |   |         |            |  |           |    |    |  |   |        |        | 
|----------------------------- | ----------- | ----- | - | --------------- | ------ |  | ----- | ---------- | ------ | ------ | ---------- | --- | ---------- | --------- | - | ------ | ------ |  | ----- | ----- | ------- | ---------- | - | ------- | ---------- |  | --------- | -- | -- |  | - | ------ | ------ | 
|                              |             |       |   | Millions of Yen |       
|                              |             |       |   |                 |       
|                              |             |       |   | 2002            |        |  | 2003  |           
|                              |             |       |   |                 |        |  |       |           
|                              |             |       |   |                 |        |  |       | Gross      |        |        | Gross      |     |            |           |   |        |        |  |       |       |         | Gross      |   |         | Gross      |  |           |    |    | 
|                              |             |       |   |                 |        |  |       | Unrealized |        |        | Unrealized |     |            |           |   |        |        |  |       |       |         | Unrealized |   |         | Unrealized |  |           |    |    | 
|                              |             |       |   |                 |        |  |       | Holding    |        |        | Holding    |     |            | Aggregate |   |        |        |  |       |       | Holding |            |   | Holding |            |  | Aggregate |   
|                              |             |       |   | Cost            |        |  | Gains |            |        | Losses |            |     | Fair Value |           |   | Cost   |        |  | Gains |       |         | Losses     |   |         | Fair Value | 
|                             
|Marketable equity securities: |             |       |   |                 |        |  |       |            |        |        |            |     |            |           |   |        |        |  |       |       |         |            |   |         |            |  |           |    |    |  |   |       
|                              | Current     |       | ¥ | 10              |        |  |       |           |        |        | ¥          | 2   |            |           | ¥ | 8      |        |  |       |      |         |            |   |        |            |  |           |   |    |  |   |       |       
|                              | Non-current |       |   | 7,963           |        |  | ¥     | 10,805     |        |        |            | 486 |            |           |   | 18,282 |        |  | ¥     | 6,636 |         |            | ¥ | 8,187   |            |  | ¥         | 63 |    |  | ¥ | 14,760 |       
|Marketable debt securities:   |             |       |   |                 |        |  |       |            |        |        |            |     |            |           |   |        |        |  |       |       |         |            |   |         |            |  |           |    |    |  |   |       
|                              | Current     |       |   | 3,485           |        |  |       |           |        |        |            | 38  |            |           |   | 3,447  |        |  |       |      |         |            |   |        |            |  |           |   |    |  |   |       |       
|                              | Non-current |       |   | 111             |        |  |       |           |        |        |            | 33  |            |           |   | 78     |        |  |       | 85    |         |            |   |        |            |  |           | 14 |    |  |   | 71     |       
|                             
|                              |             | Total |   | ¥               | 11,569 |  |       | ¥          | 10,805 |        |            | ¥   | 559        |           |   | ¥      | 21,815 |  |       | ¥     | 6,721   |            |   | ¥       | 8,187      |  |           | ¥  | 77 |  |   | ¥      | 14,831 | 
|                             

|                              |             |       |   |                           |        |  |       |            |        |        |            |     |            |           |   |         |         | 
|----------------------------- | ----------- | ----- | - | ------------------------- | ------ |  | ----- | ---------- | ------ | ------ | ---------- | --- | ---------- | --------- | - | ------- | ------- | 
|                              |             |       |   | Thousands of U.S. Dollars |       
|                              |             |       |   |                           |       
|                              |             |       |   | 2003                      |       
|                              |             |       |   |                           |       
|                              |             |       |   |                           |        |  |       | Gross      |        |        | Gross      |     |            |           |   |        
|                              |             |       |   |                           |        |  |       | Unrealized |        |        | Unrealized |     |            |           |   |        
|                              |             |       |   |                           |        |  |       | Holding    |        |        | Holding    |     |            | Aggregate |  
|                              |             |       |   | Cost                      |        |  | Gains |            |        | Losses |            |     | Fair Value |          
|                             
|Marketable equity securities: |             |       |   |                           |        |  |       |            |        |        |            |     |            |           |   |        
|                              | Non-current |       | $ | 55,300                    |        |  | $     | 68,225     |        |        | $          | 525 |            |           | $ | 123,000 |        
|Marketable debt securities:   |             |       |   |                           |        |  |       |            |        |        |            |     |            |           |   |        
|                              | Non-current |       |   | 708                       |        |  |       |           |        |        |            | 116 |            |           |   | 592     |        
|                             
|                              |             | Total |   | $                         | 56,008 |  |       | $          | 68,225 |        |            | $   | 641        |           |   | $       | 123,592 | 
|                             



At March 31, 2003, the fair values of
marketable debt securities by contractual
maturities for securities classified as
available-for-sale due in one year through five
years were ¥ 71 million ($592 thousand). Gross realized gain on available-for-sale
securities for the year ended March 31, 2001 was
¥1,556 million. Gross realized losses for the
years ended March 31, 2001 and 2003 were ¥2
million and ¥20 million ($166 thousand),
respectively. Neither gross realized gain nor loss
on available-for-sale securities was recorded for the year ended March
31, 2002 and no gross realized gain on


available-for-sale securities was recorded for the
year ended March 31, 2003. For the years ended March 31, 2001, 2002 and
2003, losses on write-down of marketable equity
securities were recognized to reflect the decline
in market value considered to be other than
temporary totaling ¥246 million, ¥1,828 million
and ¥1,346 million ($11,217 thousand),
respectively.




F-12



---



##### Table of Contents



---



4.     Inventories: Inventories at March 31, 2002 and 2003 comprise the following:


Thousands ofMillions of Yen
    
    
    U.S. Dollars2002
    
    
    2003
    
    
    2003Finished products
    
    ¥
    53,912
    
    
    ¥
    50,202
    
    
    
    $418,350Work in process
    
    
    18,813
    
    
    
    19,158
    
    
    
    159,650Materials and supplies
    
    
    24,185
    
    
    
    24,260
    
    
    
    202,167Total
    
    ¥
    96,910
    
    
    ¥
    93,620
    
    
    
    $780,167




---



5.     Investments in and advances to affiliated companies: Investments in and advances to affiliated
companies principally represent the
Companys equity in the underlying assets
of 20% to 50% owned companies. Dividends
received from companies accounted for on
an equity basis were
¥6 million, ¥9 million and ¥58 million
($483 thousand), respectively, for the
years ended March 31, 2001, 2002 and 2003. Retained earnings include the parent companys and its


consolidated subsidiaries equity in
undistributed earnings of 20% to 50% owned
companies accounted for on an equity basis
in the amount of ¥163 million and ¥245
million ($2,042 thousand) at March 31,
2002 and 2003, respectively. Summarized financial information of
companies owned 20% to 50%, including
ELDis, Inc., 45% owned by Tohoku Pioneer
Corporation, a 67% owned subsidiary,
accounted for by the equity method of
accounting is as follows:




|                              |                                            |   |                 |        |  |              |        |        |      |   |              |        
|----------------------------- | ------------------------------------------ | - | --------------- | ------ |  | ------------ | ------ | ------ | ---- | - | ------------ | -------
|                              |                                            |   |                 |        |  |              |        |        |      |   | Thousands of
|                              |                                            |   | Millions of Yen |        |  | U.S. Dollars
|                              |                                            |   |                 |        |  |             
|                              |                                            |   | 2002            |        |  | 2003         |        |        | 2003
|                             
|Current assets                |                                            | ¥ | 8,546           |        |  | ¥            | 19,802 |        |      | $ | 165,017     
|Property, plant and equipment |                                            |   | 15,579          |        |  |              | 27,209 |        |      |   | 226,742     
|Other assets                  |                                            |   | 2,928           |        |  |              | 338    |        |      |   | 2,816       
|                             
|                              | Total assets                               |   | ¥               | 27,053 |  |              | ¥      | 47,349 |      |   | $            | 394,575
|                             
|Current liabilities           |                                            | ¥ | 5,359           |        |  | ¥            | 4,857  |        |      | $ | 40,475      
|Long-term liabilities         |                                            |   | 660             |        |  |              | 27,430 |        |      |   | 228,583     
|Shareholders equity          |                                            |   | 21,034          |        |  |              | 15,062 |        |      |   | 125,517     
|                             
|                              | Total liabilities and shareholders equity |   | ¥               | 27,053 |  |              | ¥      | 47,349 |      |   | $            | 394,575
|                             

|                    |  |      |       |  |      |                 |       |      |              |   |       |  |  |              |       
|------------------- |  | ---- | ----- |  | ---- | --------------- | ----- | ---- | ------------ | - | ----- |  |  | ------------ | ------
|                    |  |      |       |  |      |                 |       |      |              |   |       |  |  | Thousands of
|                    |  |      |       |  |      | Millions of Yen |       |      | U.S. Dollars
|                    |  |      |       |  |     
|Year ended March 31 |  | 2001 |       |  | 2002 |                 |       | 2003 |              |   | 2003 
|                   
|Net sales           |  | ¥    | 4,281 |  |      | ¥               | 7,404 |      |              | ¥ | 7,845 |  |  | $            | 65,375
|Gross profit        |  |      | 849   |  |      |                 | 996   |      |              |   | 808   |  |  |              | 6,733 
|Net loss            |  |      | 173   |  |      |                 | 237   |      |              |   | 6,802 |  |  |              | 56,683
|                   

F-13



---



##### Table of Contents



---



6.     Intangible assets: Upon the adoption of SFAS No. 142, as
discussed in Note 1, the Company
reassessed the useful lives of its
intangible assets and determined that it
does not have any intangible assets with
indefinite lives. Intangible assets subject to
amortization acquired during the year ended
March 31, 2003 totaled ¥9,083 million
($75,692 thousand) and primarily consist of
software


of ¥8,076 million ($67,300 thousand) and patents of
¥511 million ($4,258 thousand). The
weighted average amortization periods for
software and patents acquired during the
year ended March 31, 2003 are 4.1 years and
7.3 years, respectively. Intangible assets
subject to amortization are comprised of
the following:




|         |  |                 |        |  |              |      |          |          |       |   |              |  |  |          |          |       |              |              |         |  |  |  |           |  
|-------- |  | --------------- | ------ |  | ------------ | ---- | -------- | -------- | ----- | - | ------------ |  |  | -------- | -------- | ----- | ------------ | ------------ | ------- |  |  |  | --------- | -
|         |  |                 |        |  |              |      |          |          |       |   |              |  |  |          |          |       |              | Thousands of |        
|         |  | Millions of Yen |        |  | U.S. Dollars |     
|         |  |                 |        |  |              |     
|2002     |  |                 | 2003   |  |              | 2003 |         
|         |  |                 |        |  |              |      |         
|         |  | Gross           |        |  |              |      |          |          | Gross |   |              |  |  |          |          | Gross |              |              |         |  | 
|         |  | Carrying        |        |  | Accumulated  |      |          | Carrying |       |   | Accumulated  |  |  | Carrying |          |       | Accumulated  |             
|         |  | Amount          |        |  | Amortization |      |          | Amount   |       |   | Amortization |  |  | Amount   |          |       | Amortization |             
|         | 
|Software |  | ¥               | 18,990 |  |              |      | (¥8,414  | )        |       | ¥ | 23,726       |  |  |          | (¥11,441 | )     |              | $            | 197,717 |  |  |  | ($95,342  | )
|Patents  |  |                 | 28,849 |  |              |      | (25,562  | )        |       |   | 25,472       |  |  |          | (23,623  | )     |              |              | 212,266 |  |  |  | (196,858  | )
|Other    |  |                 | 3,061  |  |              |      | (1,363   | )        |       |   | 2,850        |  |  |          | (1,365   | )     |              |              | 23,750  |  |  |  | (11,375   | )
|         | 
|Total    |  | ¥               | 50,900 |  |              |      | (¥35,339 | )        |       | ¥ | 52,048       |  |  |          | (¥36,429 | )     |              | $            | 433,733 |  |  |  | ($303,575 | )
|         | 



The aggregate amortization expense for intangible assets for the year ended March
31, 2003 is ¥7,978 million ($66,483 thousand). The estimated aggregate amortization expense for intangible assets
for the next five years is as follows:


Thousands ofYear ending March 31
    
    Millions of Yen
    
    
    U.S. Dollars2004
    
    ¥
    5,188
    
    
    $
    43,2332005
    
    
    4,102
    
    
    
    34,1832006
    
    
    2,824
    
    
    
    23,5332007
    
    
    1,361
    
    
    
    11,3422008
    
    
    839
    
    
    
    6,992




F-14



---



##### Table of Contents





Amounts previously reported for net
income and basic and diluted earnings per
share for the years ended March 31, 2001
and 2002 are reconciled to amounts
adjusted to


exclude the amortization expense related
to goodwill and net income and basic and
diluted earnings per share for the year
ended March 31, 2003 as follows:




|                                |  |      |        |  |      |   |       |      |  |                 |        |  |              |              |      |  |  |   |         | 
|------------------------------- |  | ---- | ------ |  | ---- | - | ----- | ---- |  | --------------- | ------ |  | ------------ | ------------ | ---- |  |  | - | ------- | 
|                                |  |      |        |  |      |   |       |      |  |                 |        |  |              | Thousands of |     
|                                |  |      |        |  |      |   |       |      |  | Millions of Yen |        |  | U.S. Dollars |             
|                                |  |      |        |  |     
|                                |  | 2001 |        |  | 2002 |   |       | 2003 |  |                 |        |  |              |              | 2003
|                               
|Reported net income             |  | ¥    | 18,298 |  |      | ¥ | 8,047 |      |  | ¥               | 16,078 |  |              |              |      |  |  | $ | 133,983 | 
|Add back: Goodwill amortization |  |      | 610    |  |      |   | 748   |      |  |                 |       |  |              |              |      |  |  |   |        | 
|                               
|Adjusted net income             |  | ¥    | 18,908 |  |      | ¥ | 8,795 |      |  | ¥               | 16,078 |  |              |              |      |  |  | $ | 133,983 | 
|                               

|                            |                       |  |      |        |  |              |   |       |      |  |   |       |  |  |   |      | 
|--------------------------- | --------------------- |  | ---- | ------ |  | ------------ | - | ----- | ---- |  | - | ----- |  |  | - | ---- | 
|                            |                       |  | Yen  |        |  | U.S. Dollars |  
|                            |                       |  |      |        |  |              |  
|                            |                       |  | 2001 |        |  | 2002         |   |       | 2003 |  |   | 2003  | 
|                           
|Basic earnings per share:   |                       |  |      |        |  |              |   |       |      |  |   |       |  |  |   |     
|                            | Reported net income   |  | ¥    | 101.76 |  |              | ¥ | 44.70 |      |  | ¥ | 90.24 |  |  | $ | 0.75 | 
|                            | Goodwill amortization |  |      | 3.39   |  |              |   | 4.15  |      |  |   |      |  |  |   |     | 
|                           
|                            | Adjusted net income   |  | ¥    | 105.15 |  |              | ¥ | 48.85 |      |  | ¥ | 90.24 |  |  | $ | 0.75 | 
|                           
|Diluted earnings per share: |                       |  |      |        |  |              |   |       |      |  |   |       |  |  |   |     
|                            | Reported net income   |  | ¥    | 101.70 |  |              | ¥ | 44.69 |      |  | ¥ | 90.24 |  |  | $ | 0.75 | 
|                            | Goodwill amortization |  |      | 3.39   |  |              |   | 4.15  |      |  |   |      |  |  |   |     | 
|                           
|                            | Adjusted net income   |  | ¥    | 105.09 |  |              | ¥ | 48.84 |      |  | ¥ | 90.24 |  |  | $ | 0.75 | 
|                           



---

7.     Short-term borrowings and long-term debt:

Short-term borrowings at March 31, 2002 and 2003 comprise the following:

|                                                                                               |                  |  |                 |        |  |              |   |        |      |  |              |         | 
|---------------------------------------------------------------------------------------------- | ---------------- |  | --------------- | ------ |  | ------------ | - | ------ | ---- |  | ------------ | ------- | 
|                                                                                               |                  |  |                 |        |  |              |   |        |      |  | Thousands of |        
|                                                                                               |                  |  | Millions of Yen |        |  | U.S. Dollars |  
|                                                                                               |                  |  |                 |        |  |              |  
|                                                                                               |                  |  | 2002            |        |  | 2003         |   |        | 2003 | 
|                                                                                               |                 
|Bank loans
Weighted average interest rate 2.04% at March 31, 2002
and 2.01% at March 31, 2003: |                  |  |                 |        |  |              |   |        |      |  |              |        
|                                                                                               | Uncollateralized |  | ¥               | 45,867 |  |              | ¥ | 29,893 |      |  | $            | 249,108 | 
|                                                                                               |                 

F-15



---



##### Table of Contents



Long-term debt at March 31, 2002 and 2003 comprises the following:

|                                                                                                                                                                                                             |                  |  |                 |        |  |              |        |        |      |  |              |          | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ---------------- |  | --------------- | ------ |  | ------------ | ------ | ------ | ---- |  | ------------ | -------- | 
|                                                                                                                                                                                                             |                  |  |                 |        |  |              |        |        |      |  | Thousands of |         
|                                                                                                                                                                                                             |                  |  | Millions of Yen |        |  | U.S. Dollars |       
|                                                                                                                                                                                                             |                  |  |                 |        |  |              |       
|                                                                                                                                                                                                             |                  |  | 2002            |        |  | 2003         |        |        | 2003 | 
|                                                                                                                                                                                                            
|Loans, principally from banks, maturing serially through 2013 interest ranging from
1.39% to 4.00% at March 31, 2002 and from 1.85% to 3.90% at March 31, 2003:                                              |                  |  |                 |        |  |              |        |        |      |  |              |         
|                                                                                                                                                                                                             | Collateralized   |  | ¥               | 6,172  |  |              | ¥      | 3,048  |      |  |              | $25,400  | 
|                                                                                                                                                                                                             | Uncollateralized |  |                 | 6,160  |  |              |        | 4,370  |      |  |              | 36,417   | 
|2.35% Uncollateralized bonds due 2005                                                                                                                                                                        |                  |  | 15,000          |        |  |              | 15,000 |        |      |  | 125,000      |         
|2.80% Uncollateralized bonds due 2008                                                                                                                                                                        |                  |  | 10,000          |        |  |              | 10,000 |        |      |  | 83,333       |         
|Industrial development U.S. dollar revenue bonds due 2005 with fluctuating interest rates (1.65% at
March 31, 2002, and 1.59% at March 31, 2003),
subject to maximum rates of 15% in 2002 and 2003 and other |                  |  | 896             |        |  |              | 752    |        |      |  | 6,267        |         
|                                                                                                                                                                                                            
|                                                                                                                                                                                                             | Total            |  |                 | 38,228 |  |              |        | 33,170 |      |  |              | 276,417  | 
|LessPortion due within one year                                                                                                                                                                             |                  |  | 2,551           |        |  |              | 974    |        |      |  | 8,117        |         
|                                                                                                                                                                                                            
|                                                                                                                                                                                                             | Total            |  | ¥               | 35,677 |  |              | ¥      | 32,196 |      |  |              | $268,300 | 
|                                                                                                                                                                                                            



The outstanding bond indentures
generally require the parent company to
provide collateral for the outstanding
bonds if the parent company provides
collateral to new bonds issued in Japan. Unused lines of credit for short-term
financing at March 31, 2003 approximated
¥231,829 million ($1,931,908 thousand) of
which ¥30,000 million ($250,000 thousand)
relates to commercial paper programs.
Unused commitments for long-term financing
arrangements at March 31, 2003 amounted to ¥5,000
million ($41,667 thousand). There were no
commitment fees. Land and buildings with a book value
of ¥6,176 million ($51,467 thousand) were
pledged as collateral for certain
long-term loans of the Company at March
31, 2003.


The aggregate annual maturities of
long-term debt during the five years
ending March 31, 2008 are as follows: Thousands ofYear ending March 31
    
    Millions of Yen
    
    
    U.S. Dollars2004
    
    
    ¥974
    
    
    
    $8,1172005
    
    
    4,521
    
    
    
    37,6752006
    
    
    15,927
    
    
    
    132,7252007
    
    
    258
    
    
    
    2,1502008
    
    
    250
    
    
    
    2,083 Substantially all short-term and
long-term loans from banks are made under
agreements which, as is customary in Japan,
provide that the bank may, under certain
conditions, require the borrower to provide
collateral (or additional collateral) or
guarantors with respect to the loans, and
that the bank may treat any collateral,
whether furnished as security for
short-term or long-term loans or otherwise,
as collateral for all indebtedness to such
bank. The Company has no compensating
balance arrangements with any lending bank.




F-16



---



##### Table of Contents



---



8.     Pension plans and accrued severance cost: The parent company and major domestic
subsidiaries have trusteed non-contributory
defined benefit pension plans which cover
substantially all of their employees. The
benefits are in the form of annuity
payments and/or lump-sum payments and are
based on points and length of service and
conditions under which termination occurs.
The Companys policy is to fund amounts
required to maintain sufficient plan assets
to provide for accrued benefits, subject to
the limitation on deductibility imposed by
the Japanese income tax laws. The plan
assets are invested primarily in
interest-bearing securities, marketable
equity securities and loan receivables. The Company also sponsors a domestic
contributory welfare pension plan covering
substantially all of its Japanese
employees. The benefits of the welfare
pension plan are primarily based on years
of service and on the average compensation
during years of service and subject to
governmental regulations. The welfare plan
consists of a basic component, which has
been specified by the Japanese governments
welfare pension regulations, and components established by the
Company. During the year
ended


March 31, 2003, the Company
established a new component within the
welfare pension plan. The new component
covers a part of the parent companys
employees. Management considers that a
portion of the contributory plan, which is
administered by a board of trustees
composed of management and labor
representatives, represents a welfare
pension plan carried on behalf of the
Japanese government. Management believes
that the benefit obligation for the
additional component is approximately one
fifth of the total benefit obligation. The
welfare pension plan is funded in
conformity with the funding requirements of
applicable governmental regulations. The
plan assets are invested primarily in
interest-bearing securities, marketable
equity securities and loan receivables. Net periodic benefit costs for the
non-contributory plans and the contributory
plan of the parent company and certain
domestic subsidiaries for 2001, 2002 and
2003 consisted of the following:




|                                                               |                                         |                           |        |                 |        |      |              |      |        |              |        |     |              |  |        |              |        |      |              |     |        |              |        |     |              |  |         |              |         |  |         |   |         | 
|-------------------------------------------------------------- | --------------------------------------- | ------------------------- | ------ | --------------- | ------ | ---- | ------------ | ---- | ------ | ------------ | ------ | --- | ------------ |  | ------ | ------------ | ------ | ---- | ------------ | --- | ------ | ------------ | ------ | --- | ------------ |  | ------- | ------------ | ------- |  | ------- | - | ------- | 
|                                                               |                                         |                           |        |                 |        |      |              |      |        |              |        |     |              |  |        |              |        |      |              |     |        |              |        |     |              |  |         | Thousands of |        
|                                                               |                                         |                           |        | Millions of Yen |        |      | U.S. Dollars |     
|                                                               |                                         |                           |        |                 |        |      |              |     
|                                                               |                                         |                           |        | 2001            |        | 2002 |              | 2003 |        | 2003        
|                                                               |                                         |                           |        |                 |        |      |              |      |        |             
|                                                               |                                         |                           |        | Non-            |        |      |              |      |        |              | Non-   |     |              |  |        |              |        | Non- |              |     |        |              |        |     | Non-         |  |         |              |         | 
|                                                               |                                         |                           |        | Contributory    |        |      | Contributory |      |        | Contributory |        |     | Contributory |  |        | Contributory |        |      | Contributory |     |        | Contributory |        |     | Contributory | 
|                                                               |                                         |                           |        | Plans           |        |      | Plan         |      |        | Plans        |        |     | Plan         |  |        | Plans        |        |      | Plan         |     |        | Plans        |        |     | Plan         | 
|                                                              
|Service cost                                                   |                                         |                           | ¥2,519 |                 |        |      | ¥1,312       |      |        |              | ¥2,657 |     |              |  | ¥1,288 |              |        |      | ¥2,884       |     |        |              | ¥2,400 |     |              |  | $24,033 |              |         |  | $20,000 |  
|Interest cost                                                  |                                         |                           | 1,732  |                 |        |      | 2,954        |      |        |              | 1,662  |     |              |  | 2,926  |              |        |      | 1,695        |     |        |              | 3,195  |     |              |  | 14,125  |              |         |  | 26,625  |  
|Expected return on assets                                      |                                         |                           | (2,091 | )               |        |      | (2,450       | )    |        |              | (1,907 | )   |              |  | (2,245 | )            |        |      | (1,606       | )   |        |              | (1,941 | )   |              |  | (13,383 | )            |         |  | (16,175 | )
|Amortization of unrecognized
net actuarial loss                |                                         |                           | 171    |                 |        |      | 276          |      |        |              | 744    |     |              |  | 1,287  |              |        |      | 1,021        |     |        |              | 1,853  |     |              |  | 8,508   |              |         |  | 15,442  |  
|Amortization of unrecognized
net assets at date of application |                                         |                           | (163   | )               |        |      | (344         | )    |        |              | (163   | )   |              |  | (344   | )            |        |      | (163         | )   |        |              | (344   | )   |              |  | (1,358  | )            |         |  | (2,867  | )
|Amortization of unrecognized
prior service gain                |                                         |                           | (535   | )               |        |      |             |      |        |              | (535   | )   |              |  | (364   | )            |        |      | (535         | )   |        |              | (364   | )   |              |  | (4,458  | )            |         |  | (3,033  | )
|                                                              
|                                                               |                                         | Net periodic benefit cost |        |                 | ¥1,633 |      |              |      | ¥1,748 |              |        |     | ¥2,458       |  |        |              | ¥2,548 |      |              |     | ¥3,296 |              |        |     | ¥4,799       |  |         |              | $27,467 |  |         |   | $39,992 | 
|                                                              
|Actuarial assumptions:                                         |                                         |                           |        |                 |        |      |              |      |        |              |        |     |              |  |        |              |        |      |              |     |        |              |        |     |              |  |         |              |         |  |         |  
|                                                               | Discount rate                           |                           |        | 2.8             | %      |      |              | 4.5  | %      |              |        | 2.7 | %            |  |        | 4.3          | %      |      |              | 2.2 | %      |              |        | 4.1 | %            |  |         |              |         |  |         |   |        
|                                                               | Rate of salary increase                 |                           |        | *              |        |      |              | 3.1  | %      |              |        | *  |              |  |        | 2.7          | %      |      |              | *  |        |              |        | 2.6 | %            |  |         |              |         |  |         |   |        
|                                                               | Long-term rate of return
on plan assets |                           |        | 4.5             | %      |      |              | 4.5  | %      |              |        | 4.5 | %            |  |        | 4.5          | %      |      |              | 3.9 | %      |              |        | 3.9 | %            |  |         |              |         |  |         |   |        
|                                                              

*Non-contributory plans are not pay-related.

F-17



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##### Table of Contents



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

|                                                                      |                                                    |                                          |         |                 |         |      |              |          |         |              |              |          |              |   |         |              |         |      |              |           |          |   |          |              |          | 
|--------------------------------------------------------------------- | -------------------------------------------------- | ---------------------------------------- | ------- | --------------- | ------- | ---- | ------------ | -------- | ------- | ------------ | ------------ | -------- | ------------ | - | ------- | ------------ | ------- | ---- | ------------ | --------- | -------- | - | -------- | ------------ | -------- | 
|                                                                      |                                                    |                                          |         |                 |         |      |              |          |         |              |              |          |              |   |         |              |         |      |              |           |          |   |          | Thousands of |         
|                                                                      |                                                    |                                          |         | Millions of Yen |         |      |              |          |         |              | U.S. Dollars |         
|                                                                      |                                                    |                                          |         |                 |         |      |              |         
|                                                                      |                                                    |                                          |         | 2002            |         | 2003 |              | 2003     |        
|                                                                      |                                                    |                                          |         |                 |         |      |              |          |        
|                                                                      |                                                    |                                          |         | Non-            |         |      |              |          |         |              | Non-         |          |              |   |         |              |         | Non- |              |           |          |   |         
|                                                                      |                                                    |                                          |         | Contributory    |         |      | Contributory |          |         | Contributory |              |          | Contributory |   |         | Contributory |         |      | Contributory |          
|                                                                      |                                                    |                                          |         | Plans           |         |      | Plan         |          |         | Plans        |              |          | Plan         |   |         | Plans        |         |      | Plan         |          
|                                                                     
|Change in benefit obligation:                                         |                                                    |                                          |         |                 |         |      |              |          |         |              |              |          |              |   |         |              |         |      |              |           |          |   |          |             
|                                                                      | Benefit obligation at beginning of year            |                                          |         | ¥59,391         |         |      |              | ¥65,023  |         |              |              | ¥62,802  |              |   |         | ¥74,305      |         |      |              | $523,350  |          |   |          | $619,209     |         
|                                                                      | Service cost                                       |                                          |         | 2,657           |         |      |              | 1,288    |         |              |              | 2,884    |              |   |         | 2,400        |         |      |              | 24,033    |          |   |          | 20,000       |         
|                                                                      | Interest cost                                      |                                          |         | 1,662           |         |      |              | 2,926    |         |              |              | 1,695    |              |   |         | 3,195        |         |      |              | 14,125    |          |   |          | 26,625       |         
|                                                                      | Plan participants contribution                    |                                          |         |                |         |      |              | 1,080    |         |              |              |         |              |   |         | 1,063        |         |      |              |          |          |   |          | 8,858        |         
|                                                                      | Actuarial loss                                     |                                          |         | 1,492           |         |      |              | 4,718    |         |              |              | 5,086    |              |   |         | 534          |         |      |              | 42,383    |          |   |          | 4,450        |         
|                                                                      | Lump-sum cash payments                             |                                          |         | (2,078          | )       |      |              |         |         |              |              | (2,607   | )            |   |         |             |         |      |              | (21,725   | )        |   |          |             |         
|                                                                      | Benefits paid                                      |                                          |         | (322            | )       |      |              | (730     | )       |              |              | (414     | )            |   |         | (985         | )       |      |              | (3,450    | )        |   |          | (8,208       | )       
|                                                                     
|                                                                      |                                                    | Benefit obligation at end of year        |         |                 | ¥62,802 |      |              |          | ¥74,305 |              |              |          | ¥69,446      |   |         |              | ¥80,512 |      |              |           | $578,716 |   |          |              | $670,934 | 
|                                                                     
|Change in plan assets:                                                |                                                    |                                          |         |                 |         |      |              |          |         |              |              |          |              |   |         |              |         |      |              |           |          |   |          |             
|                                                                      | Fair value of plan assets at beginning of year     |                                          |         | ¥42,334         |         |      |              | ¥49,899  |         |              |              | ¥41,167  |              |   |         | ¥49,778      |         |      |              | $343,058  |          |   |          | $414,817     |         
|                                                                      | Actual return on plan assets                       |                                          |         | (2,494          | )       |      |              | (2,855   | )       |              |              | (6,198   | )            |   |         | (7,963       | )       |      |              | (51,650   | )        |   |          | (66,358      | )       
|                                                                      | Employer contribution                              |                                          |         | 3,727           |         |      |              | 2,384    |         |              |              | 3,975    |              |   |         | 2,746        |         |      |              | 33,125    |          |   |          | 22,883       |         
|                                                                      | Plan participants contribution                    |                                          |         |                |         |      |              | 1,080    |         |              |              |         |              |   |         | 1,063        |         |      |              |          |          |   |          | 8,858        |         
|                                                                      | Lump-sum cash payments                             |                                          |         | (2,078          | )       |      |              |         |         |              |              | (2,607   | )            |   |         |             |         |      |              | (21,725   | )        |   |          |             |         
|                                                                      | Benefits paid                                      |                                          |         | (322            | )       |      |              | (730     | )       |              |              | (414     | )            |   |         | (985         | )       |      |              | (3,450    | )        |   |          | (8,208       | )       
|                                                                     
|                                                                      |                                                    | Fair value of plan assets at end of year |         |                 | ¥41,167 |      |              |          | ¥49,778 |              |              |          | ¥35,923      |   |         |              | ¥44,639 |      |              |           | $299,358 |   |          |              | $371,992 | 
|                                                                     
|                                                                      | Funded status                                      |                                          |         | (¥21,635        | )       |      |              | (¥24,527 | )       |              |              | (¥33,523 | )            |   |         | (¥35,873     | )       |      |              | ($279,358 | )        |   |          | ($298,942    | )       
|                                                                      | Unrecognized actuarial loss                        |                                          |         | 24,605          |         |      |              | 33,798   |         |              |              | 36,474   |              |   |         | 42,383       |         |      |              | 303,950   |          |   |          | 353,192      |         
|                                                                      | Unrecognized net assets at the date of application |                                          |         | (809            | )       |      |              | (1,641   | )       |              |              | (646     | )            |   |         | (1,297       | )       |      |              | (5,384    | )        |   |          | (10,808      | )       
|                                                                      | Unrecognized prior service gain                    |                                          |         | (8,770          | )       |      |              | (4,937   | )       |              |              | (8,235   | )            |   |         | (4,573       | )       |      |              | (68,625   | )        |   |          | (38,109      | )       
|                                                                     
|                                                                      |                                                    | Net amount recognized                    |         |                 | (¥6,609 | )    |              |          | ¥2,693  |              |              |          | (¥5,930      | ) |         |              | ¥640    |      |              |           | ($49,417 | ) |          |              | $5,333   | 
|                                                                     
|Amounts recognized in the statement of financial
position consist of: |                                                    |                                          |         |                 |         |      |              |          |         |              |              |          |              |   |         |              |         |      |              |           |          |   |          |             
|                                                                      | Accrued benefit liabilities                        |                                          |         | (¥19,358        | )       |      |              | (¥22,063 | )       |              |              | (¥31,037 | )            |   |         | (¥33,013     | )       |      |              | ($258,642 | )        |   |          | ($275,108    | )       
|                                                                      | Accumulated other comprehensive income             |                                          |         | 12,749          |         |      |              | 24,756   |         |              |              | 25,107   |              |   |         | 33,653       |         |      |              | 209,225   |          |   |          | 280,441      |         
|                                                                     
|                                                                      |                                                    | Net amount recognized                    |         |                 | (¥6,609 | )    |              | ¥        | 2,693   |              |              |          | (¥5,930      | ) |         |              | ¥640    |      |              |           | ($49,417 | ) |          |              | $5,333   | 
|                                                                     
|Accumulated benefit obligation at end of year                         |                                                    |                                          | ¥60,438 |                 |         |      | ¥71,841      |          |         |              | ¥66,960      |          |              |   | ¥77,652 |              |         |      | $558,000     |           |          |   | $647,100 |             
|                                                                     

F-18



---



##### Table of Contents





The unrecognized prior service gain,
the unrecognized actuarial loss and the
unrecognized net assets at the date of
initial application are being amortized
over the average remaining service period
of employees, both for the non-contributory
plans and for the contributory plan. Substantially all of the employees of
major U.S. and European subsidiaries are
covered by a defined benefit
pension plan. The projected benefit
obligations for the plan and related fair
value of plan assets were ¥9,805 million
and ¥ 7,045 million, respectively, at March 31, 2002 and
¥10,732 million ($89,433 thousand) and
¥6,248 million ($52,067 thousand),
respectively, at March 31, 2003. With respect to directors, provision
is made for lump-sum severance indemnities
on a basis considered adequate for such
future payments as may be approved by the
shareholders. In February 2002, the Company announced the closure


of the Hiwada plant in Fukushima, Japan
because of the transfer of production sites
to China. In relation to this closure, the
Company recorded special termination
benefits for employees voluntary
termination of ¥906 million for the year
ended March 31, 2002. In June 2002, Tohoku
Pioneer Corporation implemented a voluntary
early retirement plan. In relation to this
plan, the Company recorded special
termination benefits of
¥1,424 million ($11,867 thousand). These
special termination benefits were included
in the selling, general and administrative
expenses. The net charges to income for
worldwide pension plans, severance
indemnities and special termination
benefits for the years ended March 31,
2001, 2002 and 2003 were
¥4,560 million, ¥8,947 million and ¥13,432
million ($111,933 thousand), respectively.




---



9.     Income taxes: The Company is subject to a number of
different income taxes which, in the
aggregate, indicate a normal statutory tax
rate of approximately 42% for the years
ended March 31, 2001, 2002 and 2003 in
Japan. A change in the tax rate was
enacted in Japan in March, 2003 and the
normal effective statutory tax rate effective for the year
beginning April 1, 2004 was changed from
42% to 41%.


The Companys provision for income
taxes differed from the provision for
income taxes at the normal statutory tax
rates in Japan as follows:




|                                                  |                                                                                                          |          |        |                 |     |   |              |        |     |      |        |        |      |   |         |              |      
|------------------------------------------------- | -------------------------------------------------------------------------------------------------------- | -------- | ------ | --------------- | --- | - | ------------ | ------ | --- | ---- | ------ | ------ | ---- | - | ------- | ------------ | -----
|                                                  |                                                                                                          |          |        |                 |     |   |              |        |     |      |        |        |      |   |         | Thousands of |      
|                                                  |                                                                                                          |          |        | Millions of Yen |     |   | U.S. Dollars |       
|                                                  |                                                                                                          |          |        |                 |     |   |              |       
|                                                  |                                                                                                          |          |        | 2001            |     |   | 2002         |        |     | 2003 |        |        | 2003 |  
|                                                 
|Computed tax expense at normal statutory tax rate |                                                                                                          | ¥        | 14,361 |                 |     | ¥ | 6,444        |        |     | ¥    | 12,025 |        |      | $ | 100,208 |             
|Increase (decrease) resulting from:               |                                                                                                          |          |        |                 |     |   |              |        |     |      |        |        |      |   |         |             
|                                                  | Changes in valuation allowance, net of effects of
carryforward loss expiration and exchange rate changes |          |        | 2,004           |     |   |              | 74     |     |      |        | (1,975 | )    |   |         | (16,458      | )    
|                                                  | Expenses not deductible for tax purpose                                                                  |          |        |                 |     |   |              |        |     |      |        |        |      |   |         |              |      
|                                                  |                                                                                                          | Domestic |        | 563             |     |   |              | 737    |     |      |        | 284    |      |   |         | 2,367        |      
|                                                  |                                                                                                          | Foreign  |        |                 | 229 |   |              |        | 221 |      |        |        | 442  |   |         |              | 3,683
|                                                  | Amortization of goodwill                                                                                 |          |        | 256             |     |   |              | 314    |     |      |        |       |      |   |         |             |      
|                                                  | Difference in foreign and Japanese tax rates                                                             |          |        | (2,739          | )   |   |              | (1,958 | )   |      |        | (1,643 | )    |   |         | (13,692      | )    
|                                                  | Effect of tax rate change on deferred taxes                                                              |          |        |                |     |   |              |       |     |      |        | 836    |      |   |         | 6,967        |      
|                                                  | Write-down of investment in a subsidiary                                                                 |          |        | (1,092          | )   |   |              |       |     |      |        |       |      |   |         |             |      
|                                                  | Other                                                                                                    |          |        | 738             |     |   |              | 890    |     |      |        | (522   | )    |   |         | (4,350       | )    
|                                                 
|Provision for income taxes                        |                                                                                                          | ¥        | 14,320 |                 |     | ¥ | 6,722        |        |     | ¥    | 9,447  |        |      | $ | 78,725  |             
|                                                 

F-19



---



##### Table of Contents



Total income taxes provided for the years ended March 31, 2001, 2002 and 2003 are as follows:

|                                                  |                                       |       |        |        |       |   |       |        |       |      |                 |        |              |   |              |         |       |  
|------------------------------------------------- | ------------------------------------- | ----- | ------ | ------ | ----- | - | ----- | ------ | ----- | ---- | --------------- | ------ | ------------ | - | ------------ | ------- | ----- | -
|                                                  |                                       |       |        |        |       |   |       |        |       |      |                 |        |              |   | Thousands of |        
|                                                  |                                       |       |        |        |       |   |       |        |       |      | Millions of Yen |        | U.S. Dollars |  
|                                                  |                                       |       |        |        |       |   |       |       
|                                                  |                                       |       |        | 2001   |       |   | 2002  |        |       | 2003 |                 |        | 2003         |  
|                                                 
|Provision for income taxes                        |                                       | ¥     | 14,320 |        |       | ¥ | 6,722 |        |       | ¥    | 9,447           |        |              | $ | 78,725       |        
|Shareholders equitydirectly charged (credited): |                                       |       |        |        |       |   |       |        |       |      |                 |        |              |   |              |        
|                                                  | Minimum pension liability adjustments |       |        | (6,456 | )     |   |       | (6,460 | )     |      |                 | (8,927 | )            |   |              | (74,391 | )    
|                                                  | Net unrealized gains on securities    |       |        | (3,638 | )     |   |       | (1,502 | )     |      |                 | (899   | )            |   |              | (7,492  | )    
|                                                 
|                                                  |                                       | Total |        | ¥      | 4,226 |   |       | (¥     | 1,240 | )    |                 | (¥     | 379          | ) |              | ($      | 3,158 | )
|                                                 

Income before income taxes and income tax expense comprised the following components:

|                                   |          |    |                 |        |              |      |        |        |      |    |        |        |   |              |         |         |  
|---------------------------------- | -------- | -- | --------------- | ------ | ------------ | ---- | ------ | ------ | ---- | -- | ------ | ------ | - | ------------ | ------- | ------- | -
|                                   |          |    |                 |        |              |      |        |        |      |    |        |        |   | Thousands of |        
|                                   |          |    | Millions of Yen |        | U.S. Dollars |     
|                                   |          |    |                 |        |              |      |       
|                                   |          |    | 2001            |        |              | 2002 |        |        | 2003 |    |        | 2003   |  
|                                  
|Income (loss) before income taxes: |          |    |                 |        |              |      |        |        |      |    |        |        |   |              |         |        
|                                   | Domestic |    | ¥               | 5,967  |              |      | (¥     | 3,655  | )    |    | ¥      | 9,994  |   |              | $       | 83,283  |  
|                                   | Foreign  |    |                 | 28,226 |              |      |        | 18,998 |      |    |        | 18,636 |   |              |         | 155,300 |  
|                                  
|                                   |          | ¥  | 34,193          |        |              | ¥    | 15,343 |        |      | ¥  | 28,630 |        |   | $            | 238,583 |        
|                                  
|Income taxesCurrent:              |          |    |                 |        |              |      |        |        |      |    |        |        |   |              |         |        
|                                   | Domestic |    | ¥               | 4,906  |              |      | ¥      | 3,879  |      |    | ¥      | 6,824  |   |              | $       | 56,867  |  
|                                   | Foreign  |    |                 | 10,105 |              |      |        | 7,228  |      |    |        | 7,938  |   |              |         | 66,150  |  
|                                  
|                                   |          | ¥  | 15,011          |        |              | ¥    | 11,107 |        |      | ¥  | 14,762 |        |   | $            | 123,017 |        
|                                  
|Income taxesDeferred:             |          |    |                 |        |              |      |        |        |      |    |        |        |   |              |         |        
|                                   | Domestic |    | (¥              | 872    | )            |      | (¥     | 4,501  | )    |    | (¥     | 3,286  | ) |              | ($      | 27,383  | )
|                                   | Foreign  |    |                 | 181    |              |      |        | 116    |      |    |        | (2,029 | ) |              |         | (16,909 | )
|                                  
|                                   |          | (¥ | 691             | )      |              | (¥   | 4,385  | )      |      | (¥ | 5,315  | )      |   | ($           | 44,292  | )      
|                                  

F-20



---



##### Table of Contents



The significant components of the deferred tax assets and liabilities at March 31, 2002 and 2003 are as follows:

|                             |       |   |                 |        |      |              |       |       |          |   |         |             |  |   |          |       |  |             |              |         |  |   |        |        | 
|---------------------------- | ----- | - | --------------- | ------ | ---- | ------------ | ----- | ----- | -------- | - | ------- | ----------- |  | - | -------- | ----- |  | ----------- | ------------ | ------- |  | - | ------ | ------ | 
|                             |       |   |                 |        |      |              |       |       |          |   |         |             |  |   |          |       |  |             | Thousands of |        
|                             |       |   | Millions of Yen |        |      | U.S. Dollars |      
|                             |       |   |                 |        |      |              |      
|                             |       |   | 2002            |        | 2003 |              |       | 2003  |         
|                             |       |   |                 |        |      |              |       |       |         
|                             |       |   | Deferred        |        |      | Deferred     |       |       | Deferred |   |         | Deferred    |  |   | Deferred |       |  | Deferred    |             
|                             |       |   | Tax             |        |      | Tax          |       |       | Tax      |   |         | Tax         |  |   | Tax      |       |  | Tax         |             
|                             |       |   | Assets          |        |      | Liabilities  |       |       | Assets   |   |         | Liabilities |  |   | Assets   |       |  | Liabilities |             
|                            
|Inventories                  |       | ¥ | 9,214           |        |      |              |      |       |          | ¥ | 8,197   |             |  |   |         |       |  | $           | 68,308       |         |  |   |       |       
|Marketable equity securities |       |   | 443             |        |      | ¥            | 24    |       |          |   | 3,831   |             |  | ¥ | 1,018    |       |  |             | 31,925       |         |  | $ | 8,484  |       
|Accrued expenses             |       |   | 7,901           |        |      |              |      |       |          |   | 9,106   |             |  |   |         |       |  |             | 75,883       |         |  |   |       |       
|Tax loss carryforwards       |       |   | 15,184          |        |      |              |      |       |          |   | 11,723  |             |  |   |         |       |  |             | 97,692       |         |  |   |       |       
|Pension and severance cost   |       |   | 18,589          |        |      |              |      |       |          |   | 28,341  |             |  |   |         |       |  |             | 236,175      |         |  |   |       |       
|Land                         |       |   | 2,347           |        |      |              | 248   |       |          |   | 2,216   |             |  |   |         |       |  |             | 18,467       |         |  |   |       |       
|Depreciation                 |       |   | 958             |        |      |              | 293   |       |          |   | 1,563   |             |  |   | 387      |       |  |             | 13,025       |         |  |   | 3,225  |       
|Royalty receivable           |       |   | 953             |        |      |              |      |       |          |   | 1,395   |             |  |   |         |       |  |             | 11,625       |         |  |   |       |       
|Other                        |       |   | 17,346          |        |      |              | 3,568 |       |          |   | 18,384  |             |  |   | 2,863    |       |  |             | 153,200      |         |  |   | 23,858 |       
|                            
|                             | Total |   |                 | 72,935 |      |              |       | 4,133 |          |   |         | 84,756      |  |   |          | 4,268 |  |             |              | 706,300 |  |   |        | 35,567 | 
|Valuation allowance          |       |   | (18,299         | )      |      |              |      |       |          |   | (15,292 | )           |  |   |         |       |  |             | (127,433     | )       |  |   |       |       
|                            
|                             | Total |   | ¥               | 54,636 |      |              | ¥     | 4,133 |          |   | ¥       | 69,464      |  |   | ¥        | 4,268 |  |             | $            | 578,867 |  |   | $      | 35,567 | 
|                            



The valuation allowance principally
relates to deferred tax assets for loss
carryforwards of subsidiaries. During the years ended March 31, 2002
and 2003, the valuation allowances were
increased by ¥507 million and decreased by
¥3,007 million ($25,058 thousand),
respectively. At March 31, 2003, the Company has
tax loss carryforwards which are
available to reduce taxable income in
subsequent periods. If not utilized, such
loss carryforwards expire as follows: Year ending March 31
    
    
    Millions of Yen
    
    
    
    Thousands ofU.S. Dollars2004
    
    ¥
    728
    
    
    $
    6,0672005
    
    
    2,070
    
    
    
    17,2502006
    
    
    247
    
    
    
    2,0582007
    
    
    2,113
    
    
    
    17,6082008
    
    
    1,678
    
    
    
    13,983Thereafter
    
    
    25,775
    
    
    
    214,792Total
    
    ¥
    32,611
    
    
    $
    271,758


No provision for income taxes is
recognized on undistributed earnings of
foreign subsidiaries where the Company
considers that such earnings are reinvested
or would not, under the present Japanese
tax laws, be subject to additional taxation
should they be distributed to the parent
company. Undistributed earnings of foreign
subsidiaries (including related foreign
currency translation adjustments) at March
31, 2002 and 2003 amounted to approximately
¥133,934 million and ¥133,923 million
($1,116,025 thousand), respectively. It is
not practical to estimate the amount of
taxes that might be payable on the eventual
remittance of such earnings. The domestic
undistributed earnings would not, under the
present Japanese tax laws, be subject to
additional taxation.




F-21



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##### Table of Contents



---



10.     Shareholders equity: Common Stock and Capital SurplusAs permitted by the Commercial Code of
Japan (the Code) prior to April 1, 1991,
the parent company had made free share
distributions which were accounted for by
a transfer from capital surplus to common
stock or without any transfers in the
capital accounts. Companies in the United States
issuing shares in similar transactions
would be required to account for them as
stock dividends. Had the distributions
been accounted for in the manner adopted
by the United States companies, ¥179,076
million ($1,492,300 thousand) would have
been transferred from retained earnings to
appropriate capital accounts as of March
31, 2003. Retained Earnings
Retained earnings consist of legal reserve
and unappropriated retained earnings. The parent company is subject to the
Code amendments which became effective from
October 1, 2001. Prior to October 1, 2001,
the Code required at least 50% of the issue
price of new shares, with a minimum of the
par value thereof, to be designated as
stated capital as determined by resolution
of the Board of Directors. Proceeds in
excess of amounts designated as stated
capital were credited to capital surplus.
Effective October 1, 2001, the revised Code
eliminated common stock par values
resulting in all shares being recorded with
no par value. Prior to October 1, 2001, the Code
also provided that an amount at least equal
to 10% of the aggregate amount of cash
dividends and certain other cash payments
which are made as an appropriation of
retained earnings applicable to each fiscal
period shall be appropriated and set aside
as a legal reserve until such reserve
equals 25% of stated capital. Effective
October 1, 2001, the revised Code allows
for such appropriations to be determined
based on total capital surplus and legal
reserve. The amount of total capital
surplus and legal reserve which exceeds 25%
of stated capital is available for
appropriations by resolution of the
shareholders. The Code permits companies to transfer
a portion of capital surplus and legal
reserve to stated capital by resolution of the


Board of Directors. The
Code also permits companies to transfer a
portion of unappropriated retained
earnings, available for dividends, to
stated capital by resolution of the
shareholders. Prior to October 1, 2001, the Code
imposed certain restrictions on the
purchase and sale of treasury stock.
Effective October 1, 2001, the Code
eliminated these restrictions allowing
companies to purchase treasury stock by a
resolution of the shareholders at the
general shareholders meeting and dispose
of such treasury stock by resolution of the
Board of Directors on and after April 1,
2002. The amount available for dividends under the Code was
¥132,962 million ($1,108,017 thousand) as
of March 31, 2003, that is based on the
amount recorded in the parent companys
general books and records maintained in
accordance with accepted Japanese
accounting practices. The adjustments are
included in the accompanying consolidated
financial statements to conform with U.S.
GAAP, but are not recorded in the books,
and have no effect on the determination of
retained earnings available for dividends
under the Code. In addition to the
provision that requires an appropriation
for a legal reserve in connection with the
cash payment as described above, the
Code imposes certain limitations on the
amount of retained earnings available for
dividends. At the general shareholders meeting
held on June 27, 2002, the shareholders of
the parent company authorized the
repurchase of 10,000,000 shares of their
common stock at the maximum. In August,
2002, November, 2002 and February, 2003,
the parent company repurchased 1,610,000
shares, 2,000,000 shares and 1,500,000
shares of their common stock,
respectively, in the market for the
aggregate cost of ¥11,492 million ($95,767
thousand) as a publicly announced plan to
improve capital efficiency pursuant to a
revision in the Code. The appropriations of retained
earnings for the year ended March 31,
2003, which have been incorporated in the
accompanying financial statements, will be
proposed for approval at the general
shareholders meeting to be held on June
27, 2003, and will be recorded in the
parent companys general books of account
after shareholders approval.




F-22



---



##### Table of Contents



---

11.     Stock-based compensation plans: The Company has two types of stock-based compensation plans as incentive plans for directors and selected employees. Warrant plan
Upon issuance of detachable warrant bonds
by the parent company, a consolidated
subsidiary purchased all of the bonds and
the Company distributed the warrants at
fair value to directors and certain
employees of the Company as a part of their
remuneration.


Stock option plan
In accordance with approval of
shareholders meetings on June 29, 2000
and June 28, 2001, the Company granted
share subscription rights to employees.
Also, in accordance with approval of
shareholders meeting on June 27, 2002,
the Company granted share acquisition
rights to directors and certain employees
of the Company. The Company recorded the
fair value of the stock option as a part
of their remuneration. 
     A
summary of information for the
Companys stock-based compensation plans
is as follows:




|     |      |  |      |              |  |                                         |  |                |       |                  |             |   |            |                  |  |        |           |  |  | 
|---- | ---- |  | ---- | ------------ |  | --------------------------------------- |  | -------------- | ----- | ---------------- | ----------- | - | ---------- | ---------------- |  | ------ | --------- |  |  | 
|     |      |  |      |              |  |                                         |  |                |       | Yen              |             |   |            |                  | 
|     |      |  |      |              |  |                                         |  |                |       |                  |             |   |            |                  | 
|     |      |  |      |              |  |                                         |  |                |       |                  |             |   |            | Weighted-Average |  |        | Number of | 
|     |      |  |      |              |  |                                         |  |                |       | Weighted-Average |             |   | Grant Date |                  |  | Shares |          
|Year |      |  | Plan |              |  | Exercisable Period                      |  | Exercise Price |       |                  | Share Price |   |            | (Thousands)      | 
|    
|     | 2001 |  |      | Warrant      |  | From July 2, 2001 to September 25, 2003 |  | ¥              | 4,728 |                  |             | ¥ | 4,543      |                  |  |        | 284       | 
|     | 2001 |  |      | Stock option |  | From July 1, 2002 to June 30, 2005      |  |                | 4,400 |                  |             |   | 4,250      |                  |  |        | 191       | 
|     | 2002 |  |      | Warrant      |  | From July 1, 2002 to August 26, 2004    |  |                | 3,266 |                  |             |   | 2,700      |                  |  |        | 413       | 
|     | 2002 |  |      | Stock option |  | From July 1, 2003 to June 30, 2006      |  |                | 3,791 |                  |             |   | 3,750      |                  |  |        | 191       | 
|     | 2003 |  |      | Stock option |  | From July 1, 2004 to June 29, 2007      |  |                | 2,477 |                  |             |   | 2,170      |                  |  |        | 564       | 
|    

|     |  |              |  |                                    |  |                  |  |                 
|---- |  | ------------ |  | ---------------------------------- |  | ---------------- |  | ----------------
|     |  |              |  |                                    |  | U.S. Dollars    
|     |  |              |  |                                    |  |                 
|     |  |              |  |                                    |  |                  |  | Weighted-Average
|     |  |              |  |                                    |  | Weighted-Average |  | Grant Date      
|Year |  | Plan         |  | Exercisable Period                 |  | Exercise Price   |  | Share Price     
|    
|2003 |  | Stock option |  | From July 1, 2004 to June 29, 2007 |  | $20.64           |  | $18.08          
|    



Remuneration cost recognized for
stock-based compensation plans for the
years ended March 31, 2001, 2002 and 2003
were ¥362 million, ¥346 million and ¥149
million ($1,242 thousand), respectively. 
     The
weighted-average fair value per
share at the date of grant for the
warrants and the stock options granted
during the years ended March 31, 2001,
2002 and 2003 were
¥762, ¥573 and ¥704 ($5.87), respectively.
The fair value of the warrants and the
stock options granted on the date of


grant, which is amortized to expense over
the vesting period, is estimated using the
Black-Scholes option-
valuation model with the following
weighted-average assumptions: 2001
    
    2002
    
    2003Risk-free interest rate
    
    
    0.86
    %
    
    
    0.25
    %
    
    
    0.24
    %Expected lives
    
    3.48 years
    
    3.48 years
    
    3.48 yearsExpected volatility
    
    
    48.19
    %
    
    
    50.61
    %
    
    
    52.81
    %Expected dividends
    
    
    0.36
    %
    
    
    0.41
    %
    
    
    0.69
    %




F-23



---



##### Table of Contents



A summary of the status of the Companys warrants and options as of March
31, 2001, 2002 and 2003, and changes during the years is as follows:

|                              |           |  |                  |      |   |                |                  |  |     |                 |                           |              |  |  |        |        | 
|----------------------------- | --------- |  | ---------------- | ---- | - | -------------- | ---------------- |  | --- | --------------- | ------------------------- | ------------ |  |  | ------ | ------ | 
|                              |           |  |                  |      |   |                |                  |  |     |                 | Weighted-Average Exercise
|                              |           |  |                  |      |   |                | Weighted-Average |  |     | Price per Share
|                              |           |  | Number of Shares |      |   | Remaining Life |                  |  |    
|                              |           |  | (Thousands)      |      |   | (Years)        |                  |  | Yen |                 |                           | U.S. Dollars
|                              |           | 
|Outstanding at March 31, 2000 |           |  | 574              |      |   |                | 1.9              |  |     | ¥               | 2,452                     |              |  |  |        |       
|                              | Granted   |  |                  | 475  |   |                |                  |  |     |                 |                           | 4,597        |  |  |        |        | 
|                              | Exercised |  |                  | (306 | ) |                |                  |  |     |                 |                           | 2,551        |  |  |        |        | 
|                              |           |  |                  |     
|Outstanding at March 31, 2001 |           |  | 743              |      |   |                | 2.4              |  |     |                 | 3,782                     |              |  |  |        |       
|                              | Granted   |  |                  | 604  |   |                |                  |  |     |                 |                           | 3,432        |  |  |        |        | 
|                              | Exercised |  |                  | (170 | ) |                |                  |  |     |                 |                           | 2,425        |  |  |        |        | 
|                             
|Outstanding at March 31, 2002 |           |  | 1,177            |      |   |                | 2.5              |  |     | ¥               | 3,798                     |              |  |  |        |       
|                              | Granted   |  |                  | 564  |   |                |                  |  |     |                 |                           | 2,477        |  |  |        | $20.64 | 
|                              | Expired   |  |                  | (98  | ) |                |                  |  |     |                 |                           | 2,188        |  |  |        | 18.23  | 
|                             
|Outstanding at March 31, 2003 |           |  | 1,643            |      |   |                | 2.5              |  |     | ¥               | 3,441                     |              |  |  | $28.68 |       
|                             
|Exercisable at March 31, 2002 |           |  | 382              |      |   |                |                  |  |     | ¥               | 4,075                     |              |  |  |        |       
|                             
|Exercisable at March 31, 2003 |           |  | 888              |      |   |                |                  |  |     | ¥               | 3,977                     |              |  |  | $33.14 |       
|                             



---

12. Other comprehensive income:


Change in accumulated other comprehensive income (loss) is as follows:

|                          |  |                       |         |   |                     |   |        |             |  |                  |                     |   |                   |    |         |  
|------------------------- |  | --------------------- | ------- | - | ------------------- | - | ------ | ----------- |  | ---------------- | ------------------- | - | ----------------- | -- | ------- | -
|                          |  | Millions of Yen      
|                          |  |                      
|                          |  |                       |         |   |                     |   |        |             |  | Foreign Currency |                     |   | Total Accumulated
|                          |  | Minimum Pension       |         |   | Net Unrealized      |   |        | Translation |  |                  | Other Comprehensive
|                          |  | Liability Adjustments |         |   | Gains on Securities |   |        | Adjustments |  |                  | Income (Loss)      
|                         
|Balance at March 31, 2000 |  | (¥                    | 2,792   | ) |                     | ¥ | 11,747 |             |  | (¥               | 45,397              | ) |                   | (¥ | 36,442  | )
|Adjustments for the year  |  |                       | (8,847  | ) |                     |   | (5,085 | )           |  |                  | 21,723              |   |                   |    | 7,791   |  
|                         
|Balance at March 31, 2001 |  |                       | (11,639 | ) |                     |   | 6,662  |             |  |                  | (23,674             | ) |                   |    | (28,651 | )
|Adjustments for the year  |  |                       | (8,848  | ) |                     |   | (2,079 | )           |  |                  | 14,842              |   |                   |    | 3,915   |  
|                         
|Balance at March 31, 2002 |  |                       | (20,487 | ) |                     |   | 4,583  |             |  |                  | (8,832              | ) |                   |    | (24,736 | )
|Adjustments for the year  |  |                       | (12,188 | ) |                     |   | (1,235 | )           |  |                  | (17,470             | ) |                   |    | (30,893 | )
|                         
|Balance at March 31, 2003 |  | (¥                    | 32,675  | ) |                     | ¥ | 3,348  |             |  | (¥               | 26,302              | ) |                   | (¥ | 55,629  | )
|                         

|                          |  |                           |           |   |                     |  |         |             |  |                  |                     |   |                   |  |           |  
|------------------------- |  | ------------------------- | --------- | - | ------------------- |  | ------- | ----------- |  | ---------------- | ------------------- | - | ----------------- |  | --------- | -
|                          |  | Thousands of U.S. Dollars
|                          |  |                          
|                          |  |                           |           |   |                     |  |         |             |  | Foreign Currency |                     |   | Total Accumulated
|                          |  | Minimum Pension           |           |   | Net Unrealized      |  |         | Translation |  |                  | Other Comprehensive
|                          |  | Liability Adjustments     |           |   | Gains on Securities |  |         | Adjustments |  |                  | Income (Loss)      
|                         
|Balance at March 31, 2002 |  |                           | ($170,725 | ) |                     |  | $38,192 |             |  |                  | ($73,600            | ) |                   |  | ($206,133 | )
|Adjustments for the year  |  |                           | (101,567  | ) |                     |  | (10,292 | )           |  |                  | (145,583            | ) |                   |  | (257,442  | )
|                         
|Balance at March 31, 2003 |  |                           | ($272,292 | ) |                     |  | $27,900 |             |  |                  | ($219,183           | ) |                   |  | ($463,575 | )
|                         

F-24



---



##### Table of Contents



Tax effects allocated to each component of other comprehensive income (loss)
and reclassification adjustments are as follows:

|                                         |                                                                    |    |                           |         |   |               |         |        |          |    |       |            |   |    |           |         |  
|---------------------------------------- | ------------------------------------------------------------------ | -- | ------------------------- | ------- | - | ------------- | ------- | ------ | -------- | -- | ----- | ---------- | - | -- | --------- | ------- | -
|                                         |                                                                    |    | Millions of Yen          
|                                         |                                                                    |    |                          
|                                         |                                                                    |    | Before-Tax                |         |   | Tax (Expense) |         |        | Minority |    |       | Net-of-Tax
|                                         |                                                                    |    | Amount                    |         |   | or Benefit    |         |        | Interest |    |       | Amount    
|                                        
|2001:                                    |                                                                    |    |                           |         |   |               |         |        |          |    |       |            |   |    |           |        
|Minimum pension liability adjustments    |                                                                    | (¥ | 15,375                    | )       |   | ¥             | 6,456   |        |          | ¥  | 72    |            |   | (¥ | 8,847     | )      
|Net unrealized gains on securities:      |                                                                    |    |                           |         |   |               |         |        |          |    |       |            |   |    |           |        
|                                         | Unrealized holding losses arising during year                      |    |                           | (7,432  | ) |               |         | 3,121  |          |    |       | 45         |   |    |           | (4,266  | )
|                                         | LessReclassification adjustment for gains realized in net income  |    |                           | (1,308  | ) |               |         | 517    |          |    |       | (28        | ) |    |           | (819    | )
|                                         |                                                                    |   
|                                         | Net unrealized losses                                              |    |                           | (8,740  | ) |               |         | 3,638  |          |    |       | 17         |   |    |           | (5,085  | )
|Foreign currency translation adjustments |                                                                    |    | 22,353                    |         |   |               |        |        |          |    | (630  | )          |   |    | 21,723    |        
|                                        
|Other comprehensive income (loss)        |                                                                    | (¥ | 1,762                     | )       |   | ¥             | 10,094  |        |          | (¥ | 541   | )          |   | ¥  | 7,791     |        
|                                        
|2002:                                    |                                                                    |    |                           |         |   |               |         |        |          |    |       |            |   |    |           |        
|Minimum pension liability adjustments    |                                                                    | (¥ | 15,380                    | )       |   | ¥             | 6,460   |        |          | ¥  | 72    |            |   | (¥ | 8,848     | )      
|Net unrealized gains on securities:      |                                                                    |    |                           |         |   |               |         |        |          |    |       |            |   |    |           |        
|                                         | Unrealized holding losses arising during year                      |    |                           | (5,404  | ) |               |         | 2,270  |          |    |       | 7          |   |    |           | (3,127  | )
|                                         | LessReclassification adjustment for losses realized in net income |    |                           | 1,828   |   |               |         | (768   | )        |    |       | (12        | ) |    |           | 1,048   |  
|                                         |                                                                    |   
|                                         | Net unrealized losses                                              |    |                           | (3,576  | ) |               |         | 1,502  |          |    |       | (5         | ) |    |           | (2,079  | )
|Foreign currency translation adjustments |                                                                    |    | 15,338                    |         |   |               |        |        |          |    | (496  | )          |   |    | 14,842    |        
|                                        
|Other comprehensive income (loss)        |                                                                    | (¥ | 3,618                     | )       |   | ¥             | 7,962   |        |          | (¥ | 429   | )          |   | ¥  | 3,915     |        
|                                        
|2003:                                    |                                                                    |    |                           |         |   |               |         |        |          |    |       |            |   |    |           |        
|Minimum pension liability adjustments    |                                                                    | (¥ | 21,255                    | )       |   | ¥             | 8,927   |        |          | ¥  | 140   |            |   | (¥ | 12,188    | )      
|Net unrealized gains on securities:      |                                                                    |    |                           |         |   |               |         |        |          |    |       |            |   |    |           |        
|                                         | Unrealized holding losses arising during year                      |    |                           | (3,502  | ) |               |         | 1,472  |          |    |       | 7          |   |    |           | (2,023  | )
|                                         | LessReclassification adjustment for losses realized in net income |    |                           | 1,366   |   |               |         | (573   | )        |    |       | (5         | ) |    |           | 788     |  
|                                         |                                                                    |   
|                                         | Net unrealized losses                                              |    |                           | (2,136  | ) |               |         | 899    |          |    |       | 2          |   |    |           | (1,235  | )
|Foreign currency translation adjustments |                                                                    |    | (18,178                   | )       |   |               |        |        |          |    | 708   |            |   |    | (17,470   | )      
|                                        
|Other comprehensive income (loss)        |                                                                    | (¥ | 41,569                    | )       |   | ¥             | 9,826   |        |          | ¥  | 850   |            |   | (¥ | 30,893    | )      
|                                        
|                                        
|                                         |                                                                    |    | Thousands of U.S. Dollars
|                                         |                                                                    |    |                          
|                                         |                                                                    |    | Before-Tax                |         |   | Tax (Expense) |         |        | Minority |    |       | Net-of-Tax
|                                         |                                                                    |    | Amount                    |         |   | or Benefit    |         |        | Interest |    |       | Amount    
|                                        
|2003:                                    |                                                                    |    |                           |         |   |               |         |        |          |    |       |            |   |    |           |        
|Minimum pension liability adjustments    |                                                                    |    | ($177,125                 | )       |   |               | $74,391 |        |          | $  | 1,167 |            |   |    | ($101,567 | )      
|Net unrealized gains on securities:      |                                                                    |    |                           |         |   |               |         |        |          |    |       |            |   |    |           |        
|                                         | Unrealized holding losses arising during year                      |    |                           | (29,183 | ) |               |         | 12,267 |          |    |       | 58         |   |    |           | (16,858 | )
|                                         | LessReclassification adjustment for losses realized in net income |    |                           | 11,383  |   |               |         | (4,775 | )        |    |       | (42        | ) |    |           | 6,566   |  
|                                         |                                                                    |   
|                                         | Net unrealized losses                                              |    |                           | (17,800 | ) |               |         | 7,492  |          |    |       | 16         |   |    |           | (10,292 | )
|Foreign currency translation adjustments |                                                                    |    | (151,483                  | )       |   |               |        |        |          |    | 5,900 |            |   |    | (145,583  | )      
|                                        
|Other comprehensive income (loss)        |                                                                    |    | ($346,408                 | )       |   |               | $81,883 |        |          | $  | 7,083 |            |   |    | ($257,442 | )      
|                                        

F-25



---



##### Table of Contents





---

13. Supplemental information:


Supplemental information for the years ended March 31, 2001, 2002 and 2003 is
as follows:

|                                                               |  |                 |         |  |              |  |         |      |  |  |         |  |  |              |          | 
|-------------------------------------------------------------- |  | --------------- | ------- |  | ------------ |  | ------- | ---- |  |  | ------- |  |  | ------------ | -------- | 
|                                                               |  |                 |         |  |              |  |         |      |  |  |         |  |  | Thousands of
|                                                               |  | Millions of Yen |         |  | U.S. Dollars
|                                                               |  |                 |         |  |             
|                                                               |  | 2001            |         |  | 2002         |  |         | 2003 |  |  | 2003   
|                                                              
|Research and development expenses charged to cost and expenses |  |                 | ¥37,105 |  |              |  | ¥39,050 |      |  |  | ¥45,388 |  |  |              | $378,233 | 
|Advertising costs charged to expense as incurred               |  |                 | 10,434  |  |              |  | 13,117  |      |  |  | 11,836  |  |  |              | 98,633   | 
|                                                              

Othernet as shown in other income (expenses) for the years ended March
31, 2001, 2002 and 2003 consisted of the following:

|                                                                    |  |                 |         |  |              |  |         |      |  |  |         |   |  |              |          |  
|------------------------------------------------------------------- |  | --------------- | ------- |  | ------------ |  | ------- | ---- |  |  | ------- | - |  | ------------ | -------- | -
|                                                                    |  |                 |         |  |              |  |         |      |  |  |         |   |  | Thousands of
|                                                                    |  | Millions of Yen |         |  | U.S. Dollars
|                                                                    |  |                 |         |  |             
|                                                                    |  | 2001            |         |  | 2002         |  |         | 2003 |  |  | 2003   
|                                                                   
|Gains (losses) on sale and write-down of investments and securities |  |                 | ¥   254 |  |              |  | (¥2,287 | )    |  |  | (¥1,393 | ) |  |              | ($11,608 | )
|Other                                                               |  |                 | 1,607   |  |              |  | (202    | )    |  |  | 640     |   |  |              | 5,333    |  
|                                                                   
|Total                                                               |  |                 | ¥1,861  |  |              |  | (¥2,489 | )    |  |  | (¥753   | ) |  |              | ($6,275  | )
|                                                                   



---

14. Leased assets:
 The Company leases certain land, machinery
and equipment, office space, warehouses,
computer equipment and employees
residential facilities primarily under
operating leases.Rental
expenses under operating
leases for the years ended March 31, 2001,
2002 and 2003 aggregated ¥5,962 million,
¥6,777 million and ¥6,806 million ($56,717
thousand), respectively. Such rentals
relate principally to cancelable leases
which are renewable upon expiration.


The net minimum rental payments under
operating leases that have initial or
remaining noncancelable lease terms in
excess of one year at March 31, 2003 are
as follows: Thousands ofYear ending March 31
    
    Millions of Yen
    
    
    U.S. Dollars2004
    
    
    ¥3,403
    
    
    
    $28,3582005
    
    
    2,406
    
    
    
    20,0502006
    
    
    1,461
    
    
    
    12,1752007
    
    
    862
    
    
    
    7,1832008
    
    
    435
    
    
    
    3,625Thereafter
    
    
    992
    
    
    
    8,267Total minimum future rentals
    
    
    ¥9,559
    
    
    
    $79,658




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##### Table of Contents





---

15. Financial instruments:
 Derivatives
The Company operates internationally,
giving rise to exposure to market risks
from changes in foreign exchange rates and
interest rates. Derivative financial
instruments are utilized by the Company to
reduce those risks but are not held or
issued for trading purposes.To
hedge certain purchase and sale
commitments and anticipated but not yet
committed transactions denominated in
other than functional currencies, the
Company enters into forward exchange
contracts and purchases and writes
currency options. Written options are
entered into only with purchased options.The
notional amounts of forward
exchange contracts as of March 31, 2002 and
2003 were ¥3,031 million and
¥8,496 million ($70,800 thousand),
respectively. The notional amounts of
currency options purchased were
¥1,440 million and ¥1,558 million ($12,983
thousand) as of March 31, 2002 and 2003,
respectively. The notional amount of
currency options written was ¥1,440 million
and
¥1,558 million ($12,983 thousand) as of
March 31, 2002 and 2003, respectively.To
change currency and interest rate
features of intercompany finance
transactions, the Company entered into
currency swap contracts with banks.
Currency swap contracts effectively
changed, in substance, the U.S. dollars floating interest rate intercompany
borrowings into Japanese yen fixed interest
rate borrowings and


euro floating interest
rate borrowings. The notional amounts of
currency swap contracts as of March 31,
2002 and 2003 were ¥42,882 million and
¥32,255 million ($268,792 thousand),
respectively. Concentration of Credit Risk
The Company distributes its products to a
diverse group of domestic and foreign
customers. Trade receivables arising from
these sales represent credit risk to the
Company. However, due to the large number
and diversity of the Companys customer
base, concentration of credit risk with
respect to trade receivables is limited.
The Company performs ongoing credit
evaluation of its customers financial
condition and, generally, requires no
collateral from its customers.Derivative
financial instruments that
the Company holds or issues may expose the
Company to credit risks if the
counterparties are unable to meet the terms
of such contracts.The
Company minimizes credit risk
exposure of these derivatives by limiting
the counterparties to major international
banks and financial institutions as well
as avoiding concentration with certain
counterparties, and also by making
frequent credit reviews of these
counterparties. Management does not expect
to incur any significant losses as the
result of counterparty default.




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##### Table of Contents



16. Fair value of financial instruments:

The following table presents the carrying amounts and fair values of the
Companys financial instruments at March 31, 2002 and 2003:

|             |                                            |                            |   |                      |       |   |                      |         |       |                      |   |         |        |   |   |          |        |   |       |              |         |   |   |          |         |  
|------------ | ------------------------------------------ | -------------------------- | - | -------------------- | ----- | - | -------------------- | ------- | ----- | -------------------- | - | ------- | ------ | - | - | -------- | ------ | - | ----- | ------------ | ------- | - | - | -------- | ------- | -
|             |                                            |                            |   |                      |       |   |                      |         |       |                      |   |         |        |   |   |          |        |   |       | Thousands of |        
|             |                                            |                            |   | Millions of Yen      |       |   | U.S. Dollars         |        
|             |                                            |                            |   |                      |       |   |                      |        
|             |                                            |                            |   | 2002                 |       |   | 2003                 |         |       | 2003                 |  
|             |                                            |                            |   |                      |       |   |                      |         |       |                      |  
|             |                                            |                            |   | Assets (liabilities) |       |   | Assets (liabilities) |         |       | Assets (liabilities) |  
|             |                                            |                            |   |                      |       |   |                      |         |       |                      |  
|             |                                            |                            |   | Carrying             |       |   | Fair                 |         |       | Carrying             |   |         | Fair   |   |   | Carrying |        |   | Fair  |             
|             |                                            |                            |   | Amounts              |       |   | Value                |         |       | Amounts              |   |         | Value  |   |   | Amounts  |        |   | Value |             
|            
|Assets:      |                                            |                            |   |                      |       |   |                      |         |       |                      |   |         |        |   |   |          |        |   |       |              |         |   |   |         
|             | Available-for-sale securities              |                            | ¥ | 21,815               |       |   | ¥                    | 21,815  |       |                      | ¥ | 14,831  |        |   | ¥ | 14,831   |        |   | $     | 123,592      |         |   | $ | 123,592  |        
|             | Long-term receivables                      |                            |   | 374                  |       |   |                      | 365     |       |                      |   | 292     |        |   |   | 288      |        |   |       | 2,433        |         |   |   | 2,400    |        
|             | Other financial instruments                |                            |   |                      |       |   |                      |         |       |                      |   |         |        |   |   |          |        |   |       |              |         |   |   |          |        
|             |                                            | Forward exchange contracts |   |                      |      |   |                      |         |      |                      |   |         | 13     |   |   |          | 13     |   |       |              | 108     |   |   |          | 108     |  
|             |                                            | Currency swap              |   |                      | 1,846 |   |                      |         | 1,846 |                      |   |         |       |   |   |          |       |   |       |              |        |   |   |          |        |  
|             |                                            | Currency option            |   |                      | 2     |   |                      |         | 2     |                      |   |         |       |   |   |          |       |   |       |              |        |   |   |          |        |  
|Liabilities: |                                            |                            |   |                      |       |   |                      |         |       |                      |   |         |        |   |   |          |        |   |       |              |         |   |   |         
|             | Long-term debt, including current maturity |                            |   | (38,228              | )     |   |                      |         |       |                      |   | (33,170 | )      |   |   |          |        |   |       | (276,417     | )       |   |   |          |        
|             | LessCapital lease obligations             |                            |   | 62                   |       |   |                      |         |       |                      |   | 3       |        |   |   |          |        |   |       | 25           |         |   |   |          |        
|             |                                            |                           
|             | Long-term debtnet                         |                            |   | (38,166              | )     |   |                      | (38,963 | )     |                      |   | (33,167 | )      |   |   | (34,727  | )      |   |       | (276,392     | )       |   |   | (289,392 | )      
|             | Other financial instruments:               |                            |   |                      |       |   |                      |         |       |                      |   |         |        |   |   |          |        |   |       |              |         |   |   |          |        
|             |                                            | Forward exchange contracts |   |                      | (33   | ) |                      |         | (33   | )                    |   |         | (250   | ) |   |          | (250   | ) |       |              | (2,083  | ) |   |          | (2,083  | )
|             |                                            | Currency swap              |   |                      |      |   |                      |         |      |                      |   |         | (2,076 | ) |   |          | (2,076 | ) |       |              | (17,300 | ) |   |          | (17,300 | )
|             |                                            | Currency option            |   |                      | (10   | ) |                      |         | (10   | )                    |   |         | (7     | ) |   |          | (7     | ) |       |              | (58     | ) |   |          | (58     | )
|            



Estimation of Fair Values
The following notes summarize the major methods and
assumptions used in estimating the fair values of financial
instruments. Short-term financial instruments are valued at their
carrying amounts included in the consolidated balance
sheets, which are reasonable estimates of fair value due to
the relatively short period to maturity of the instruments.
This approach is applied to cash and cash equivalents, trade
receivables, short-term borrowings and trade payables. The carrying amounts and the fair values of available-for-sale securities are disclosed in Note 3. Sundry investments included equity interests in non-public companies, amounting to ¥2,591 million and ¥2,404
million ($20,033 thousand) at March 31, 2002 and 2003,
respectively, and memberships amounting to ¥612 million and ¥503 million


($4,192 thousand) at March 31, 2002
and 2003, respectively. The corresponding fair values at
those dates were not computed as such estimation is
not practicable. The fair values of long-term receivables were estimated
by discounting estimated future cash flows using current
interest rates. The fair values of the Companys long-term debt were
estimated using a discounted cash flow analysis based on
incremental borrowing rates for similar types of borrowing
arrangements. The fair values of forward exchange contracts were
estimated based on the quoted market rates of similar
contracts. The currency swap and the interest rate swap
were valued at replacement cost. The fair values of foreign
currency options were measured using valuation models.




F-28



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##### Table of Contents



17. Basic and diluted earnings per share:

A reconciliation of the numerators and denominators of basic and diluted net
income per share computation for the years ended March 31, 2001, 2002 and 2003
is as follows:

|                                            |  |                              |         |  |              |   |         |      |  |   |         |  |  |              |         | 
|------------------------------------------- |  | ---------------------------- | ------- |  | ------------ | - | ------- | ---- |  | - | ------- |  |  | ------------ | ------- | 
|                                            |  |                              |         |  |              |   |         |      |  |   |         |  |  | Thousands of |        
|                                            |  | Millions of Yen              |         |  | U.S. Dollars |  
|                                            |  |                              |         |  |              |  
|                                            |  | 2001                         |         |  | 2002         |   |         | 2003 |  |   | 2003    | 
|                                           
|Net income available to common shareholders |  | ¥                            | 18,298  |  |              | ¥ | 8,047   |      |  | ¥ | 16,078  |  |  | $            | 133,983 | 
|                                           
|                                            |  | Number of Shares (Thousands) |         |  |              |   |        
|                                           
|Weighted average common shares outstanding  |  |                              | 179,813 |  |              |   | 180,032 |      |  |   | 178,168 |  |  |              |         | 
|Effect of dilutive warrants                 |  |                              | 103     |  |              |   | 32      |      |  |   | 2       |  |  |              |         | 
|Effect of stock options                     |  |                              |        |  |              |   |        |      |  |   | 1       |  |  |              |         | 
|                                           
|Diluted common shares outstanding           |  |                              | 179,916 |  |              |   | 180,064 |      |  |   | 178,171 |  |  |              |         | 
|                                           
|                                            |  | Yen                          |         |  | U.S. Dollars |  
|                                           
|Net income per share                        |  |                              |         |  |              |   |         |      |  |   |         |  |  |              |         | 
|Basic                                       |  | ¥                            | 101.76  |  |              | ¥ | 44.70   |      |  | ¥ | 90.24   |  |  | $            | 0.75    | 
|Diluted                                     |  |                              | 101.70  |  |              |   | 44.69   |      |  |   | 90.24   |  |  |              | 0.75    | 
|                                           

18. Supplemental schedule:
The changes in allowance for doubtful receivables for the years ended March 31, 2001, 2002 and 2003 are as follows:

|                                   |  |                           |        |  |                    |   |       |                |  |  |             |   |  |                |         |   |  |   |        | 
|---------------------------------- |  | ------------------------- | ------ |  | ------------------ | - | ----- | -------------- |  |  | ----------- | - |  | -------------- | ------- | - |  | - | ------ | 
|                                   |  | Millions of Yen           |       
|                                   |  |                           |       
|                                   |  | Balance at                |        |  | Charged (Credited) |   |       | Deductions for |  |  |             |   |  |                |         |   | 
|                                   |  | Beginning                 |        |  | to Costs and       |   |       | Accounts       |  |  | Translation |   |  | Balance at End |        
|Allowance for Doubtful Receivables |  | of Period                 |        |  | Expenses           |   |       | Written Off    |  |  | Adjustments |   |  | of Period      |        
|                                  
|2001                               |  | ¥                         | 8,993  |  |                    | ¥ | 1,164 |                |  |  | (¥861       | ) |  | ¥              | 525     |   |  | ¥ | 9,821  | 
|2002                               |  |                           | 9,821  |  |                    |   | (153  | )              |  |  | (4,660      | ) |  |                | 311     |   |  |   | 5,319  | 
|2003                               |  |                           | 5,319  |  |                    |   | 411   |                |  |  | (765        | ) |  |                | (334    | ) |  |   | 4,631  | 
|                                  
|                                   |  | Thousands of U.S. Dollars |       
|                                   |  |                           |       
|                                   |  | Balance at                |        |  | Charged (Credited) |   |       | Deductions for |  |  |             |   |  |                |         |   | 
|                                   |  | Beginning                 |        |  | to Costs and       |   |       | Accounts       |  |  | Translation |   |  | Balance at End |        
|Allowance for Doubtful Receivables |  | of Period                 |        |  | Expenses           |   |       | Written Off    |  |  | Adjustments |   |  | of Period      |        
|                                  
|2003                               |  | $                         | 44,325 |  |                    | $ | 3,425 |                |  |  | ($6,375     | ) |  |                | ($2,783 | ) |  | $ | 38,592 | 
|                                  

F-29



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##### Table of Contents



The change in warranty reserve for the year ended March 31, 2003 is as follows:

|                 |  |                 |        |  |           |  |        |          |  |  |             |   |             |           |       |                |  |   |       | 
|---------------- |  | --------------- | ------ |  | --------- |  | ------ | -------- |  |  | ----------- | - | ----------- | --------- | ----- | -------------- |  | - | ----- | 
|                 |  | Millions of Yen |       
|                 |  |                 |       
|                 |  | Balance at      |        |  |           |  |        |          |  |  |             |   |             |           |       |                |  |   |      
|                 |  | Beginning       |        |  |           |  |        |          |  |  |             |   | Translation |           |       | Balance at End | 
|Warranty Reserve |  | of Period       |        |  | Provision |  |        | Payments |  |  | Adjustments |   |             | of Period |      
|                
|2003             |  |                 | ¥6,481 |  |           |  | ¥7,642 |          |  |  | (¥7,374     | ) |             |           | (¥256 | )              |  | ¥ | 6,493 | 
|                

|                 |  |                           |         |  |           |  |         |          |  |  |             |   |             |           |         |                |  |   |        | 
|---------------- |  | ------------------------- | ------- |  | --------- |  | ------- | -------- |  |  | ----------- | - | ----------- | --------- | ------- | -------------- |  | - | ------ | 
|                 |  | Thousands of U.S. Dollars |        
|                 |  |                           |        
|                 |  | Balance at                |         |  |           |  |         |          |  |  |             |   |             |           |         |                |  |   |       
|                 |  | Beginning                 |         |  |           |  |         |          |  |  |             |   | Translation |           |         | Balance at End | 
|Warranty Reserve |  | of Period                 |         |  | Provision |  |         | Payments |  |  | Adjustments |   |             | of Period |        
|                
|2003             |  |                           | $54,008 |  |           |  | $63,683 |          |  |  | ($61,450    | ) |             |           | ($2,133 | )              |  | $ | 54,108 | 
|                

19. Commitments and contingent liabilities:

Commitments outstanding at March 31, 2003 for the
purchase of property, plant and equipment and advertisement payments approximated ¥7,562 million ($63,017
thousand).


Contingent liabilities at March 31, 2003 principally for
loans guaranteed in the ordinary course of business
amounted to ¥27,469 million ($228,908 thousand). Loans guaranteed at March 31, 2003 consist of follows:




|                   |  |                                 |  |   |                 |                   |        |              |         |              |         | 
|------------------ |  | ------------------------------- |  | - | --------------- | ----------------- | ------ | ------------ | ------- | ------------ | ------- | 
|                   |  |                                 |  |   |                 | Guaranteed amount |       
|                   |  |                                 |  |   |                 |                   |       
|                   |  |                                 |  |   |                 |                   |        |              |         | Thousands of |        
|Guarantee for      |  | Guaranteed until                |  |   | Millions of Yen |                   |        | U.S. Dollars |        
|                  
|Affiliated company |  | May 31, 2012October 22, 2012   |  | ¥ | 25,000          |                   |        | $            | 208,333 |             
|Affiliated company |  | March 31, 2004October 25, 2004 |  |   | 1,142           |                   |        |              | 9,517   |             
|Customer           |  | March 31, 2004                  |  |   | 1,127           |                   |        |              | 9,392   |             
|                  
|Total              |  |                                 |  |   |                 | ¥                 | 27,269 |              |         | $            | 227,242 | 
|                  



The Company entered into these guarantee agreements
to sustain the business relationships. The Company will be required to pay the guaranteed
amounts if the affiliated companies or customers are unable
to repay. During the year ended March 31, 2001, the Company
received a notice of proposed assessment from the German
tax authorities for approximately EUR21 million (¥2,721
million translated at the current foreign exchange rate
at March 31, 2003) relating to a tax position taken in
prior years concerning intercompany purchase prices. The
Company officially challenged the proposed assessment by
arbitration procedures. There was no progress during the


year ended March 31, 2003. In the opinion of management,
it is not possible at this time to determine the ultimate
resolution of this matter. In June 2002, the Company received a notice from
the United States Internal Revenue Service (IRS) for
additional taxes of approximately $66 million (¥7,933
million translated at the foreign exchange rate at March 31,
2003) relating to an adjustment to transfer prices between
affiliated companies for the years ended March 31, 1997
through 1999. In October 2002, the Company filed protest
against the assessment. In the opinion of management, it is
not possible at this time to determine the ultimate outcome
of this matter.




20. Remuneration of directors, executive officers and corporate
auditors:

The aggregate remuneration (including bonuses and stock-based compensation [See Note 11]) charged to income by the
parent company for directors, executive officers and corporate auditors


for the years ended March 31, 2001, 2002 and 2003
totaled ¥811 million, ¥876 million and ¥965 million
($8,042 thousand), respectively.




F-30



---



##### Table of Contents



21. Subsequent events:

On July 17, 2003, the Company announced that it had
reached a preliminary agreement with Dentsu Inc., an
advertising agency in Japan, to sell to Dentsu Inc. shares of
two of its wholly-owned subsidiaries, Pioneer LDC, Inc., in
Tokyo and Pioneer Entertainment (USA) Inc., in California,
U.S.A., both engaged in the audio/video software businesses
in Japan and the United States, respectively. The specific
conditions, timetable and other matters of the dispositions
are yet to be determined under definitive agreements


separately governing the two dispositions in Japan and in
the United States, and therefore the management is unable
to determine with reasonable accuracy the impact of these
dispositions on the Companys financial conditions and
results of operation until more information is available. Net
sales posted by the two subsidiaries for the year ended
March 31, 2003 amounted to ¥32,431 million.




F-31