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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 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended March 31, 2004
 OR o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 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 registeredCommon Stock, each represented by
one American Depositary Share
    
    New York Stock Exchange
 Securities registered pursuant to Section 12(g) of the Act. None   Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act. None   Indicate the number of outstanding shares of 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 ofMarch 31, 2004Title of class
    
    (Japan time)Common Stock
    
    
    175,430,874
 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 þ No o Indicate by check mark which financial statement item the registrant has
elected to follow. Item 17 þ Item 18 o




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TABLE OF CONTENTS PageCertain Defined Terms
    
    
    4Cautionary Statement with Respect to Forward-Looking Statements
    
    
    4PART IItem 1. Identity of Directors, Senior Management and Advisers
    
    
    4Item 2. Offer Statistics and Expected Timetable
    
    
    4Item 3. Key Information
    
    
    5Item 4. Information on the Company
    
    
    15Item 5. Operating and Financial Review and Prospects
    
    
    31Item 6. Directors, Senior Management and Employees
    
    
    54Item 7. Major Shareholders and Related Party Transactions
    
    
    65Item 8. Financial Information
    
    
    66Item 9. The Offer and Listing
    
    
    68Item 10. Additional Information
    
    
    69Item 11. Quantitative and Qualitative Disclosures About Market Risk
    
    
    85Item 12. Description of Securities Other than Equity Securities
    
    
    87PART IIItem 13. Defaults, Dividend Arrearages and Delinquencies
    
    
    88Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
    
    
    88Item 15. Controls and Procedures
    
    
    88Item 16. [Reserved]
    
    
    88Item 16A. Audit Committee Financial Expert
    
    
    88Item 16B. Code of Ethics
    
    
    89Item 16C. Principal Accountant Fees and Services
    
    
    89Item 16D. Exemptions from the Listing Standards for Audit Committees
    
    
    90Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
    
    
    90PART IIIItem 17. Financial Statements
    
    
    91Item 18. Financial Statements
    
    
    91Item 19. Exhibits
    
    
    91EX-1.01 The Articles of Incorporation, as amended and currently in effectEX-12.01 Certification of Chief Executive Officer pursuant to Section 302EX-12.02 Certification of Chief Financial Officer pursuant to Section 302EX-13.(a) Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906
  3




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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 statements
using words such as believe, expect, intend, plan, aim, forecast,
estimate, project, anticipate, strategy, prospects, may, might or
will and words of similar meaning in connection with a discussion of future
operations, financial performance, events or conditions. 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 our
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 in the
forward-looking statements, and therefore you should not place undue reliance
on them. You also should not believe 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 the markets in which we sell our products, 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 consolidated financial data as of the
dates and for the periods indicated. We derived the consolidated statement of
income data for each of the three years in the period ended March 31, 2004 and
the consolidated balance sheet data as of March 31, 2003 and 2004 from our
audited consolidated financial statements include elsewhere herein. We derived
the consolidated statement of income data for each of the two years in the
period ended March 31, 2001 and the consolidated balance sheet data as of March
31, 2000, 2001 and 2002 from our audited consolidated financial statements
which are not included herein. Our audited consolidated financial statements
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. Year ended March 312000
    
    2001
    
    2002
    
    2003
    
    2004(In millions of yen, except per share data)Consolidated Statement of Income Data:Operating revenue (Note 5) (Note 6)
    
    ¥
    575,559
    
    
    ¥
    610,171
    
    
    ¥
    629,777
    
    
    ¥
    677,259
    
    
    ¥
    700,885Operating income from continuing operations
(Note 5) (Note 6)
    
    
    16,443
    
    
    
    32,641
    
    
    
    16,660
    
    
    
    30,765
    
    
    
    43,719Income from continuing operations
before income taxes (Note 6)
    
    
    25,756
    
    
    
    34,216
    
    
    
    14,472
    
    
    
    28,079
    
    
    
    41,848Income (loss) from discontinued operations,
net of tax (Note 6)
    
    
    1,173
    
    
    
    (53
    )
    
    
    565
    
    
    
    136
    
    
    
    4,475Net income
    
    
    13,075
    
    
    
    18,298
    
    
    
    8,047
    
    
    
    16,078
    
    
    
    24,838Per share of common stock and
per American Depositary Share (ADS) (Note 1):Income from continuing operations:Basic
    
    
    66.28
    
    
    
    102.06
    
    
    
    41.56
    
    
    
    89.48
    
    
    
    116.07Diluted
    
    
    66.27
    
    
    
    102.00
    
    
    
    41.55
    
    
    
    89.48
    
    
    
    115.18Net income:Basic
    
    
    72.81
    
    
    
    101.76
    
    
    
    44.70
    
    
    
    90.24
    
    
    
    141.58Diluted
    
    
    72.80
    
    
    
    101.70
    
    
    
    44.69
    
    
    
    90.24
    
    
    
    140.52Consolidated Balance Sheet Data:Total assets
    
    ¥
    601,137
    
    
    ¥
    605,156
    
    
    ¥
    645,129
    
    
    ¥
    647,029
    
    
    ¥
    722,542Short-term borrowings
    
    
    41,318
    
    
    
    37,571
    
    
    
    45,867
    
    
    
    29,893
    
    
    
    23,327Current portion of long-term debt
    
    
    37,235
    
    
    
    7,996
    
    
    
    2,551
    
    
    
    974
    
    
    
    4,510Long-term debt, less current portion
    
    
    47,060
    
    
    
    38,304
    
    
    
    35,677
    
    
    
    32,196
    
    
    
    89,691Shareholders equity
    
    
    312,460
    
    
    
    336,995
    
    
    
    347,003
    
    
    
    318,393
    
    
    
    332,938Common stock
    
    
    48,452
    
    
    
    48,843
    
    
    
    49,049
    
    
    
    49,049
    
    
    
    49,049Number of shares issued (in thousands)
    
    
    179,588
    
    
    
    179,894
    
    
    
    180,064
    
    
    
    180,064
    
    
    
    180,064
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Year ended March 312000
    
    2001
    
    2002
    
    2003
    
    2004(In millions of yen,
except per share data
and percentage amounts)Other Data:Capital expenditures (Note 6)
    
    ¥
    25,435
    
    
    ¥
    41,944
    
    
    ¥
    46,909
    
    
    ¥
    40,493
    
    
    ¥
    57,978Research and development (R&D) expenses
    
    
    33,265
    
    
    
    37,105
    
    
    
    39,050
    
    
    
    45,388
    
    
    
    51,483Cash flows from operating activities (Note 6)
    
    
    45,615
    
    
    
    51,141
    
    
    
    57,358
    
    
    
    91,509
    
    
    
    60,378Cash flows from investing activities (Note 6)
    
    
    11,759
    
    
    
    (41,481
    )
    
    
    (51,396
    )
    
    
    (35,228
    )
    
    
    (52,754
    )Cash flows from financing activities (Note 6)
    
    
    (4,139
    )
    
    
    (46,567
    )
    
    
    (4,207
    )
    
    
    (34,680
    )
    
    
    51,827Return on equity (Note 2)
    
    
    4.2
    %
    
    
    5.6
    %
    
    
    2.4
    %
    
    
    4.8
    %
    
    
    7.6
    %Return on assets (Note 3)
    
    
    2.2
    %
    
    
    3.0
    %
    
    
    1.3
    %
    
    
    2.5
    %
    
    
    3.6
    %Cash dividends declared per share of common stock
and per ADS (Note 4):Interim (in yen)
    
    
    5.00
    
    
    
    7.50
    
    
    
    7.50
    
    
    
    7.50
    
    
    
    12.50(in U.S. dollars)
    
    
    0.05
    
    
    
    0.07
    
    
    
    0.06
    
    
    
    0.06
    
    
    
    0.12Year-end (in yen)
    
    
    5.00
    
    
    
    7.50
    
    
    
    7.50
    
    
    
    10.00
    
    
    
    12.50(in U.S. dollars)
    
    
    0.05
    
    
    
    0.06
    
    
    
    0.06
    
    
    
    0.08
    
    
    
    0.11
  Notes:
    1.
    Basic income from continuing operations and net income per share of
common stock and per American Depositary Share (ADS) have been computed
based on the weighted average number of shares outstanding during each
year. Diluted income from continuing operations and net income per share
of common stock and ADS have 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 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.6.
    As a result of the sale of subsidiaries in the audio/video
software business in fiscal 2004, the gain on such sale, as well as
the operating results of the discontinued operations, are presented
as a separate line item in consolidated statements of income in
accordance with Statement of Financial Accounting Standards No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets.
Previously reported amounts have been reclassified accordingly. 6




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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
¥110.60 =
US$1.00 on August 3, 2004. Year ended March 31
    
    Average
    
    High
    
    Low
    
    Period-end2000
    
    ¥
    110.02
    
    
    ¥
    101.53
    
    
    ¥
    124.45
    
    
    ¥
    102.732001
    
    
    111.65
    
    
    
    104.19
    
    
    
    125.54
    
    
    
    125.542002
    
    
    125.64
    
    
    
    115.89
    
    
    
    134.77
    
    
    
    132.702003
    
    
    121.10
    
    
    
    115.71
    
    
    
    133.40
    
    
    
    118.072004
    
    
    112.97
    
    
    
    104.18
    
    
    
    120.55
    
    
    
    104.182004February
    
    
    
    
    
    
    105.36
    
    
    
    109.59March
    
    
    
    
    
    
    104.18
    
    
    
    112.12April
    
    
    
    
    
    
    103.70
    
    
    
    110.37May
    
    
    
    
    
    
    108.50
    
    
    
    114.30June
    
    
    
    
    
    
    107.10
    
    
    
    111.27July
    
    
    
    
    
    
    108.21
    
    
    
    111.88
 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. 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. 7




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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. 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 light-emitting diode (OLED) 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. 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:  
    
    There can be no assurance that we will have adequate funding and resources necessary for investments in new products and
technologies.
    
    There can be no assurance 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 (PDPs) to meet anticipated demand, but such demand may not materialize.
    
    There can be no assurance that we can anticipate successfully the new products and technologies 8




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which will gain market acceptance and that such products can be successfully marketed.
    
    There can be no assurance 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 OLED 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. Benefits may not be gained from the acquisition of the shares in NEC Plasma
Display Corporation (NPD), the subsidiary of NEC Corporation (NEC), and
related intellectual property rights held by NEC On July 1, 2004, Pioneer and NEC concluded the stock transfer agreement under
which NEC will transfer to Pioneer 100% of the issued share capital of its
subsidiary, NPD, and the intellectual property rights relating to plasma
displays held by NEC. See Item 4.A. History and development of the
CompanyPrincipal capital expenditures, investments and divestitures. The expected acquisition of the shares in NPD and related intellectual property
right held by NEC may not yield expected benefits to us. Achieving these
benefits depends on the timely, efficient and successful execution of a number
of post-acquisition events, including integrating the business of NPD into our
operations, distribution networks, marketing programs and information systems.
Our ability to integrate the operations of NPD may be adversely affected by
many factors, including information system integration and employee relations.
In addition, NPD may not perform as we expect. Furthermore, a significant portion of NPDs customers for original equipment
manufacturer (OEM) products are major players in the electronics industry who
are in direct competition with us. There can be no assurance that such
customers will not cease to utilize NPDs services. Any failure to realize the benefits expected from the acquisition, or the
failure of NPD to perform as we anticipate, could have a material adverse
effect on our business results and financial condition. As our exposure to the PDP market as a result of the acquisition of NPD will
increase significantly, lack of growth in the PDP market may adversely affect
our business results and financial condition The acquisition of NPD will increase our production capacity significantly. In
addition, we are focusing on the plasma display business to establish it as a
core of our business. If the plasma display market does not grow as we
anticipate, such increased production capacity may not be used efficiently or
in a cost-effective manner. There can be no assurance that the PDP market will
continue to grow. Any such lack of growth 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 9




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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
innovators of advanced, high-quality and value-added electronics products,
there can be no assurance 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. 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, the DVD-RAM, and the DVD+RW, as
rewritable formats, and the DVD-R and the DVD+R, as write-once formats. Each
of the recording disc formats makes use of its own distinct technology and is
generally incompatible with other formats. Our DVD recorders for home-use adopt DVD-RW and DVD-R formats, while our
recordable DVD drives for PCs support DVD-RW/+RW and DVD-R/+R format recording
and DVD-RAM format playback. The question of which format will prevail as the industry standard is not yet
settled. Should our adopted formats fail to be accepted as the de facto
industry standard, or otherwise fails to gain wide acceptance, our business
results and financial condition will 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 The licensing of our patent and other intellectual property rights make a
significant contribution to our net income. Although less than 2% of our
revenue in fiscal 2004 was generated by our worldwide patents relating to laser
optical disc technologies, these rights were responsible for approximately 26%
of our operating income in fiscal 2004. 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 patent rights have expired in Europe and Japan during fiscal 2003 and
2004. As a result, our royalty revenue has declined substantially from
previous years and may continue to decline in the future. This decline in
royalty revenue may in turn have an adverse impact on our business results. At
the same time, we are working to acquire patents owned by third parties and
licensing such patents. We do not expect that the revenue, if any, from such
new patents 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. 10




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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. In order to produce our products competitively and to reduce costs, we aim to
continue expanding our production and parts procurement in the Shanghai and
Guang Dong 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 outbreaks of epidemics such as SARS
(Severe Acute Respiratory Syndrome) or avian influenza in China may,
depending on how they develop, 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, there
can be no assurance 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 OEM customers. 11




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Our performance in the OEM business is substantially dependent on the
performance of our customers business We provide 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, car navigation systems, DVD-R/RW drives, DVD-ROM drives,
set-top boxes for cable-TV and digital satellite broadcast and OLED 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. 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. Although we have the ability to diminish
illegal imports of such products into certain jurisdictions through exercise of
our legal rights, we may be unable to effectively 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- 12




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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. 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, power 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. There can be no assurance, 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 Yamanashi
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 Yamanashi 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 pension 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 pension
plan assets, and further 13




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declines of discount rates and lower returns on pension plan assets may
adversely affect our business results and financial condition. In connection
with the return to the Japanese government of responsibility for pension
obligations under the governmental welfare component of our pension plan, we
will transfer some of our pension plan assets to the Japanese government. Such
transfer will be accounted for upon completion of the transfer to the
government in accordance with U.S. GAAP and may result in a negative impact on
our business results and financial condition. The impact of the transfer
depends on pension plan assets to be transferred. Changes in business or economic conditions or other uncertain or unforeseen
factors may make it difficult for us to achieve strategic aims and targets Consistent with the strategies set out in Item 4.B. Business
overviewStrategy, we announced in fiscal 1999 our Pioneer Group Vision, a
medium-term initiative, with the intent of revitalizing us and our business
through the achievement of two financial targets by the end of March 2006, as
well as four business targets. See Item 4.B. Business overviewStrategic
FocusPioneer Group Vision. However, changes in business or economic
conditions or other uncertain or unforeseen factors, including (but not limited
to) the risks and uncertainties set out in Cautionary Statement with Respect
to Forward-Looking Statements, may make it difficult for us to achieve our
aims or meet the targets that have been set in time or at all, or to maintain
such aims or targets. There can be no assurance that we will be successful in
achieving our strategic aims or meeting the quantitative or qualitative targets
set out in Pioneer Group Vision or that our management will not change such
aims or targets in the future. 14




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Item 4. Information on the Company A. History and development of the Company History Pioneer was incorporated under the Commercial Code of Japan (the 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. 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 American Depositary Shares (ADSs) were
listed on the New York Stock Exchange (NYSE) 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
OLED displays and DVD recorders. In fiscal 2001, we started supplying to PC makers recordable DVD 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.
In fiscal 2004, we started supplying passive-matrix full color OLED display
panels in cellular phones. Registered office Pioneers registered office is located at 4-1, Meguro 1-chome, Meguro-ku, Tokyo
153-8654, Japan. Pioneers telephone number is 81-3-3494-1111. 15




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Principal capital expenditures, investments and divestitures In fiscal 2002, 2003 and 2004, our capital expenditures consisted principally
of facilities and molds for production and totaled ¥46,909 million, ¥40,493
million and ¥57,978 million, respectively. They were paid principally out of
our internally generated working capital. The facilities for production
comprised those for OLED 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. In fiscal 2004, in order to meet fast-growing demand for DVD recorders and
recordable DVD drives, we invested ¥1.3 billion in building the second
manufacturing line for optical pickups, which are key parts of DVD recorders
and recordable DVD drives, at Guang Dong Plant in China. This line started its
operation in November 2003 and our overall production capacity for optical
pickups reached one million units per month. To address expanding demand for plasma displays, in fiscal 2004, we invested
¥22 billion in building a more efficient production system, including the
building of new manufacturing lines at our plants in Shizuoka and Yamanashi, in
Japan. Our overall production capacity increased about 67% to 250 thousand
units annually through the expansion of the Shizuoka Plant, which was completed
in August 2003. The ongoing building of a new line of the Yamanashi Plant is
expected to be completed by fall of 2004 and increase our total production
capacity to 600 thousand units annually. In fiscal 2005, we plan to spend
approximately ¥30 billion, including ¥6.2 billion paid by June 30, 2004, in
relation to PDP-related capital expenditure not including investment related to
the acquisition of NPD as described below. On July 1, 2004, Pioneer and NEC concluded the stock transfer agreement under
which NEC will transfer to Pioneer 100% of the issued share capital of its
plasma display manufacturing subsidiary, NPD, and the intellectual property
rights relating to plasma displays held by NEC. We expect to invest
approximately ¥40 billion in the acquisition of NPD and NECs intellectual
property rights in fiscal 2005. This acquisition is expected to be completed
by September 30, 2004. With this acquisition and the new line of the Yamanashi
Plant as described above, our total capacity is expected to add up to more than
one million units a year. In order to carry out this investment, on March 5,
2004 we issued the aggregate principal amount of ¥60,000 million of its Euro
Yen Zero Coupon Convertible Bonds due 2011. See Item 4.B. Business
overviewStrategic FocusPioneer Group Vision. In order to improve management efficiency by concentrating resources in
strategic businesses, in July 2003 we reached agreements to sell 100% of our
shares in two of its wholly-owned subsidiaries, Pioneer LDC, Inc. (PLDC) and
Pioneer Entertainment (USA) Inc. (PEUSA), to Dentsu Inc. (Dentsu), Japans
largest comprehensive advertising agency. These subsidiaries were engaged in
the AV software businesses in Tokyo, Japan and in California, U.S.A.,
respectively. The transfer of all the shares of PLDC, and 90% of the shares of
PEUSA owned by us was completed by fiscal 2004. The remaining shares of PEUSA
owned by us are expected to be transferred to Dentsu by September 30, 2006. In March 2004, Q-Tec, Inc., which was a 99.26% owned subsidiary of Pioneer,
became an independent company through a Management Buyout after it acquired all
of the shares owned by Pioneer, forming a business alliance with Vision Capital
Corporation and Memory-Tech Corporation. Q-Tech, Inc. is one of the largest
manufacturers in the Japanese postproduction industry which offers high-quality
total services including editing of video and audio products such as animation,
movies, commercials, and broadcast programs, DVD encoding/authoring and
pressing. The amount paid to us in respect of these sales of subsidiaries that are
engaged in the audio/video business was ¥4.9 billion in fiscal 2004. See Note
3 in Notes to Consolidated Financial Statements. 16




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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; and
    
    adopt optimal production methods to maximize profitability. 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 DVD products. In the DVD
market, we were the first to commercialize a DVD recorder. We were also the
first to introduce a four-color OLED 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
consumer market for car audio products and car navigation systems. 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. 17




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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 recordable DVD drives. This format has
already gained support from other major consumer electronics companies such as
Sony Corporation and Sharp Corporation (Sharp). We also aim to differentiate
ourselves by introducing to targeted markets innovative plasma displays, OLED
displays and 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. 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, we have increased the proportion of our production in
China. To meet the fast-growing demand for plasma displays, we have built a
more efficient production system at our plasma display panel manufacturing
subsidiary. We are in the process of building our fourth production line in
Japan, which is expected to start operation by fall of 2004. Moreover, the
acquisition of NPD is expected to be completed by September 2004. Following
these measures, we plan to establish in fall 2004 an overall production system
capable of yielding more than one million panels annually. To enhance cost
competitiveness and achieve economies of scale, we sell our key products on an
OEM basis to other manufacturers. In addition, we introduced supply chain
management to optimize efficiency of inventory control worldwide. 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 recordable DVD 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. 18




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(ii) Establishing a business foundation for plasma displays and OLED displays We believe plasma displays offer significant advantages over cathode ray tubes
(CRTs) and liquid crystal displays (LCDs). Among other advantages, it is
technically easier to enlarge plasma displays than CRTs and LCDs. Thus, we
expect that plasma display panels in the future will capture a substantial
portion of the larger-screen TV market, which is expanding with the advent of
high-quality pictures such as DVD and digital TV broadcast. 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. OLED display is another type of display, which we are promoting aggressively.
OLEDs are particularly well-suited for small size displays, such as cellular
phone displays. In fiscal 1998, we became the first in the world to market car
electronics products equipped with an OLED display, and in fiscal 2000 we were
the first in the world to mass-produce four-color OLED displays. To strengthen
our market position, in fiscal 2001, Tohoku Pioneer Corporation, Pioneers
majority-owned subsidiary, established a joint venture company, ELDis, Inc.,
with Semiconductor Energy Laboratory Co., Ltd. and Sharp to develop and
manufacture active-matrix full-color OLED 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 AV 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 OLED display panels for mobile phone
companies. Nature of operations We develop, design, manufacture and sell electronics products such as audio,
video and car electronics on a global scale. We are one of the leading
innovators of DVD products and plasma displays. We are also one of the leading
manufactures of car audio products and car navigation systems in the consumer
market. 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 and
we sell our products to customers in consumer and business markets through
sales 19




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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, recordable DVD drives, digital
broadcast set-top boxes and OLED displays to other companies. As a result of the sale of subsidiaries in the audio/video software business in
fiscal 2004, the gain from such sale, as well as the operating results of the
discontinued operations, are presented net of tax as a separate line item in
the consolidated statement of income in accordance with Statement of Financial
Accounting Standards No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets. Also, in fiscal 2004, we changed our business segment classification for
certain businesses. Results related to DVD drives for PCs have been moved from
Others to Home Electronics, and results related to plasma displays for
business use have been moved from Home Electronics to Others.
Corresponding figures for the previous fiscal years 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 Year ended March 312002
    
    2003
    
    2004(In millions of yen,
except for percentage amounts)Home ElectronicsDomestic
    
    ¥
    70,678
    
    
    
    11.2
    %
    
    ¥
    86,766
    
    
    
    12.8
    %
    
    ¥
    78,798
    
    
    
    11.2
    %Overseas
    
    
    189,131
    
    
    
    30.0
    
    
    
    191,202
    
    
    
    28.2
    
    
    
    202,684
    
    
    
    29.0Total
    
    ¥
    259,809
    
    
    
    41.3
    %
    
    ¥
    277,968
    
    
    
    41.0
    %
    
    ¥
    281,482
    
    
    
    40.2
    %Car ElectronicsDomestic
    
    ¥
    95,578
    
    
    
    15.2
    %
    
    ¥
    105,736
    
    
    
    15.6
    %
    
    ¥
    121,708
    
    
    
    17.4
    %Overseas
    
    
    162,094
    
    
    
    25.7
    
    
    
    175,354
    
    
    
    25.9
    
    
    
    170,479
    
    
    
    24.3Total
    
    ¥
    257,672
    
    
    
    40.9
    %
    
    ¥
    281,090
    
    
    
    41.5
    %
    
    ¥
    292,187
    
    
    
    41.7
    %OthersDomestic
    
    ¥
    49,283
    
    
    
    7.8
    %
    
    ¥
    62,137
    
    
    
    9.2
    %
    
    ¥
    62,792
    
    
    
    9.0
    %Overseas
    
    
    45,425
    
    
    
    7.2
    
    
    
    43,480
    
    
    
    6.4
    
    
    
    52,603
    
    
    
    7.4Total
    
    ¥
    94,708
    
    
    
    15.0
    %
    
    ¥
    105,617
    
    
    
    15.6
    %
    
    ¥
    115,395
    
    
    
    16.4
    %Patent Licensing
    
    ¥
    17,588
    
    
    
    2.8
    %
    
    ¥
    12,584
    
    
    
    1.9
    %
    
    ¥
    11,821
    
    
    
    1.7
    %Total Operating Revenue
    
    ¥
    629,777
    
    
    
    100.0
    %
    
    ¥
    677,259
    
    
    
    100.0
    %
    
    ¥
    700,885
    
    
    
    100.0
    %
 20




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Home Electronics: This segment includes DVD players, DVD recorders, recordable DVD drives,
DVD-ROM drives, home-use plasma displays, projection TVs, stereo systems,
individual stereo components, equipment for cable-TV systems, digital broadcast
set-top boxes and telephones. Recordable DVD drives accounted for the largest sales in this segment for
fiscal 2004. In addition, home-use plasma displays contributed significantly
to sales in this segment. Moreover, DVD recorders contributed significantly to
sales in this segment reflecting a large increase in sales during fiscal 2004. 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. 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. Moreover, our DVD-related products as
computer peripherals have shifted from DVD-ROM drives to recordable DVD drives.
In our plasma display business, we continue to promote vigorously 50- and
43-inch models of high-definition plasma displays in the worldwide market.
Japan Electronics and Information Technology Industry Association (JEITA)
forecasts an approximately 37% increase in consumer DVD player and DVD recorder
sales worldwide, from 62 million units in 2003 to 85 million in 2008, and
strong growth in recordable DVD drives from 23 million units in 2003 to 88
million units in 2006 worldwide. It also forecasts that sales of plasma
displays worldwide will increase approximately 8 times, from 1 million units in
2003 to 8 million in 2008. Car Electronics: This segment includes car stereos, car AV systems, car speakers and car
navigation systems. Overall, car stereos accounted for the largest sales in this segment for fiscal
2004. In Japan, our car navigation systems accounted for the largest sales,
while overseas car stereos accounted for the largest sales in this segment.
Sales based on OEM accounted for 32.3% 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. We plan to expand this business in
Europe and North America, where the markets are expanding recently. JEITA
forecasts that sales of car navigation systems worldwide will increase
approximately 2 times, from 5.2 million units in 2003 to 10 million in 2008.
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
OLED 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. 21




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##### Table of Contents



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 (DVA), 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
countries/regions such as Japan and Europe, some have not expired and DVA
continues to collect royalty revenue. We are currently seeking to develop new
sources of revenue by acquiring patents held by third parties and licensing
such patents. Revenue from the Patent Licensing segment is substantially less than from our
other segments, constituting less than 2% of operating revenue for fiscal 2004.
However, the contribution of this segment to our operating income is
significant compared to its contribution to our operating revenue, constituting
approximately 26% of our operating income in fiscal 2004. Others: This segment includes products primarily for business use, such as business-use
plasma displays, business-use AV systems, OLED display panels, factory
automation systems and devices and parts. Devices and parts, including semiconductors related to laser pickups, accounted
for the largest sales in this segment for fiscal 2004. Factory automation
systems and business-use plasma displays also contributed materially to sales
in this segment. OLED displays, which are particularly well-suited for small size displays, such
as cellular phone displays are expected to become the next generation display.
In fiscal 2000, we were the first in the world to mass-produced four-color OLED
displays. In fiscal 2004, we started supplying passive-matrix full color OLED
display panels in cellular phones. To strengthen our market position, in
fiscal 2001, 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 to develop and manufacture
active-matrix full-color OLED displays. 22




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##### Table of Contents



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 Year ended March 312002
    
    2003
    
    2004(In millions of yen, except for percentage amounts)Japan
    
    ¥
    215,539
    
    
    
    34.2
    %
    
    ¥
    254,639
    
    
    
    37.6
    %
    
    ¥
    263,298
    
    
    
    37.6
    %North America
    
    
    189,599
    
    
    
    30.1
    
    
    
    190,147
    
    
    
    28.1
    
    
    
    170,711
    
    
    
    24.3Europe
    
    
    131,046
    
    
    
    20.8
    
    
    
    132,977
    
    
    
    19.6
    
    
    
    146,250
    
    
    
    20.9Other Regions
    
    
    93,593
    
    
    
    14.9
    
    
    
    99,496
    
    
    
    14.7
    
    
    
    120,626
    
    
    
    17.2Total
    
    ¥
    629,777
    
    
    
    100.0
    %
    
    ¥
    677,259
    
    
    
    100.0
    %
    
    ¥
    700,885
    
    
    
    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 consumer 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 recordable DVD 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 are generally 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
to 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. 23




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##### Table of Contents



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
2004. 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
2004 (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 three to four 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. The political instability in the Middle East affects the stable supply of
petroleum which may cause an increase in the price of plastic materials used in
our products. In addition, the rapid economic growth in China may cause a
shortage of steel materials and nonferrous metals. We continue our effort to
procure a stable supply of these materials and maintain costs at appropriate
levels. To date, the prices of parts
and other principal raw materials used by us 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, U.S.A. for
such devices as noise reduction, from Koninklijke Philips Electronics N.V., the
Netherlands for CD products and LD products, from Thomson Licensing S.A.,
France for CD products and LD products and from MPEG LA, L.L.C., U.S.A. 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. 24




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##### Table of Contents



Competition We believe that we compete successfully and that we are one of leading
innovators 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 us.
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. 25




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##### Table of Contents



C. Organizational structure Our basic corporate structure, including some but not all of our operating
subsidiaries, is shown in the following chart: (ORGANIZATIONAL CHART) 26




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##### Table of Contents



The following table sets forth the principal subsidiaries owned, directly or
indirectly, by Pioneer. Country of
    
    Ownership interestName of subsidiary
    
    incorporation
    
    and voting interest
    
    Principal businessTohoku Pioneer Corporation
    
    Japan
    
    
    67.0
    %
    
    Manufacture of car electronics
products, Factory automation
systems and OLED display panelsPioneer Display Products Corporation
    
    Japan
    
    
    100.0
    %
    
    Manufacture of plasma displaysPioneer Micro Technology Corporation
    
    Japan
    
    
    100.0
    %
    
    Manufacture and distribution of ICs
and LSIsPioneer North America,
Inc.
    
    U.S.A.
    
    
    100.0
    %
    
    Coordination of the activities of
Pioneers North American
subsidiaries and affiliatesPioneer Electronics
(USA) Inc.
    
    U.S.A.
    
    
    100.0
    %
    
    Distribution of electronics productsPioneer Electronics
Capital Inc.
    
    U.S.A.
    
    
    100.0
    %
    
    Financing to Pioneer and its
subsidiariesDiscovision Associates*
    
    U.S.A.
    
    
    100.0
    %
    
    Licensing of worldwide patents
relating to laser optical disc
technologiesPioneer Europe NV
    
    Belgium
    
    
    100.0
    %
    
    Coordination of the activities of
Pioneers European subsidiaries and
affiliates, and distribution of
electronics productsPioneer Electronics
Asiacentre, Pte. Ltd.
    
    Singapore
    
    
    100.0
    %
    
    Coordination of the activities of
Pioneers Asian subsidiaries and
affiliates, and manufacture and
distribution of electronics
productsPioneer China Holding
Co., Ltd.
    
    China
    
    
    100.0
    %
    
    Coordination of the activities of
Pioneers Chinese subsidiaries and
affiliates and distribution of
electronics products
  *
    
    Discovision Associates is a general partnership organized under
the laws of the State of California in the United States. 27




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##### Table of Contents



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, 2004, with respect to our principal plants. Name of plant
    
    
    
    Floor space(Name of company
    
    
    
    (square feet)which owns the plant)
    
    Location
    
    [leased space]
    
    Principal productsJapanShizuoka Plant
(Pioneer Display Products Corporation)
    
    Fukuroi, Shizuoka
    
    
    786,000
    
    
    Plasma displaysTendo Plant
(Tohoku Pioneer Corporation)
    
    Tendo, Yamagata
    
    
    504,000
    
    
    Car stereos, Car speakers, LoudspeakersTokorozawa Plant
(Pioneer Corporation)
    
    Tokorozawa, Saitama
    
    
    490,000
    
    
    Stereo systems, Individual stereo components, DVD players, Recordable DVD drives for PCs, DVD recordersKawagoe Plant
(Pioneer Corporation)
    
    Kawagoe, Saitama
    
    
    414,000
    
    
    Car stereos, Car navigation systemsYonezawa Plant
(Tohoku Pioneer Corporation)
    
    Yonezawa, Yamagata
    
    
    234,000
    
    
    OLED displaysKokubo Plant
(Pioneer Micro Technology Corporation)
    
    Kofu, Yamanashi
    
    
    204,000
    
    
    ICs, LSIsTendo the 2nd Plant
(Tohoku Pioneer Corporation)
    
    Tendo, Yamagata
    
    
    186,000
    
    
    Factory automation systemsTowada the 2nd Plant
(Towada Electronics Corporation)
    
    Towada, Aomori
    
    
    134,000
    
    
    DVD-RW pickups, Car stereosNiike Plant
(Pioneer Display Products Corporation)
    
    Fukuroi, Shizuoka
    
    
    134,000
    
    
    Plasma displaysYamanashi Plant
(Pioneer Display Products Corporation)
    
    Nakakoma, Yamanashi
    
    
    102,000
    
    
    Plasma displays
 28




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##### Table of Contents



Name of plant
    
    
    
    Floor space(Name of company
    
    
    
    (square feet)which owns the plant)
    
    Location
    
    [leased space]
    
    Principal productsOutside JapanShanghai Plant
(Shanghai Pioneer
Speakers Ltd.)
    
    Shanghai, China
    
    
    420,000
    
    
    Car speakersMexico Plant
(Pioneer Speakers,
S.A. de C.V.)
    
    Baja California,
Mexico
    
    
    352,000
    
    
    Car speakersShanghai Plant
(Pioneer Technology
(Shanghai) Co.,
Ltd.)
    
    Shanghai, China
    
    
    337,000
    
    
    Car AV systems, Car stereosThailand Plant
(Pioneer
Manufacturing
(Thailand) Co.,
Ltd.)
    
    Ayutthaya, Thailand
    
    
    300,000
    
    
    Car stereos, Stereo systemsGuang Dong Plant
(Pioneer Technology
(Dongguan) Co.,
Ltd.)
    
    Guang Dong, China
    
    
    295,000
    
    
    Recordable DVD drivesMalaysia Plant
(Pioneer Technology
(Malaysia) Sdn.
Bhd.)
    
    Johor, Malaysia
    
    
    262,000
    
    
    Stereo systems, Car stereosGuang Dong Plant
(Dongguan Monetech
Electronic Co.,
Ltd.)
    
    Guang Dong, China
    
    
    249,000
    
    
    Speaker systemsCalifornia Plant
(Pioneer
Electronics
Technology, Inc.)
    
    California, U.S.A.
    
    
    185,000
    
    
    Plasma displays, Speaker systemsU.K. Plant
(Pioneer Technology
(U.K.) Ltd.)
    
    West Yorkshire,
United Kingdom
    
    
    184,000
    
    
    Plasma displays, DVD recorders
 29




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##### Table of Contents



Name of plant
    
    
    
    Floor space(Name of company
    
    
    
    (square feet)which owns the plant)
    
    Location
    
    [leased space]
    
    Principal productsOhio Plant
(Pioneer Industrial
Components, Inc.)
Others
    
    Ohio, U.S.A.
    
    157,000
    
    Car stereos(7 plants in Japan and 8 plants outside Japan)
    
    1,253,000[45,000]Total
    
    
    
    7,182,000
[45,000]
 Most of the buildings of
these plants and the land (except those in China) on which they are located
are owned by us. As of March 31, 2004, 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 294,000 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 ¥11,902 million were pledged as
collateral for certain loans on March 31, 2004. In fiscal 2004, in order to meet fast-growing demand for DVD recorders and
recordable DVD drives, we invested ¥1.3 billion in building the second
manufacturing line for optical pickups, which are key parts of DVD recorders
and recordable DVD drives, at Guang Dong Plant in China. This line started
November 2003 and our overall production capacity for optical pickups reached
one million units per month. To address expanding demand for plasma displays, in fiscal 2004, we invested
¥22 billion in building a more efficient production system, including the
building of new manufacturing lines at our plants in Shizuoka and Yamanashi, in
Japan. Our overall production capacity increased about 67% to 250 thousand
units annually through the expansion of the Shizuoka Plant completed in August
2003. The ongoing building of a new line of the Yamanashi Plant is expected to
be completed by fall of 2004 and increase our total production capacity to 600
thousand units annually. In fiscal 2005, we plan to spend approximately ¥30
billion in relation to PDP-related capital expenditure not including investment
related to the acquisition of NPD as described below. On July 1, 2004, Pioneer and NEC concluded the stock transfer agreement under
which NEC will transfer to Pioneer 100% of the issued share capital of its
plasma display manufacturing subsidiary, NPD and the intellectual property
rights relating to plasma displays held by NEC. We expect to invest
approximately ¥40 billion in the acquisition of NPD and NECs intellectual
property rights in fiscal 2005. This acquisition is expected to be completed
by September 30, 2004. NPDs plant has an approximate aggregate floor space of
867,000 square feet in Izumi, Kagoshima, Japan. With this acquisition and the 30




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##### Table of Contents



new line of the Yamanashi Plant as described above, our total capacity will add
up to more than one million units a year. In order to apply to this
investment, on March 5, 2004 we issued the aggregate principal amount of
¥60,000 million of Euro Yen Zero Coupon Convertible Bonds due 2011. We intend to fund the capital requirement to fulfill these capital expenditure
plans through internally generated cash, except for the acquisition of NPD. 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 Overview We develop, design, manufacture and sell home electronics products such as
audio, video and car electronics products on a global scale. We are one of the
leading innovators of DVD products, plasma displays and car navigation systems.
We are also one of the leading manufactures in the world consumer market of
car audio products and car navigation systems. In addition, we derive revenue
from the manufacture and sale of industrial electronics, such as factory
automation systems and parts and from the licensing of patents that we own. During fiscal 2004, the global economy was supported by continued expansion of
the U.S. economy, despite uncertainties in Iraq and other parts of the world.
In Japan, where we have the largest sales, the economy exhibited signs of
recovery. However, uncertainties remain as to whether this trend will lead to
a sustainable growth. In the consumer electronics market, the popularity of
newer products, such as flat panel TVs and DVD recorders, rose, while price
competition for these products intensified worldwide. In foreign exchange
markets, the average value of the yen during fiscal 2004 was approximately 8%
higher against the U.S. dollar and approximately 9% lower against the euro
compared with fiscal 2003. In these economic conditions, our operating revenue
for fiscal 2004 was ¥700.9 billion, up 3.5% from fiscal 2003. Operating income
was ¥43.7 billion, a 42.1% increase from ¥30.8 billion recorded in fiscal 2003,
and net income increased to ¥24.8 billion, a 54.5% increase from ¥16.1 billion
posted in fiscal 2003. We classify our business groups into four segments: Home Electronics, Car
Electronics, Patent Licensing and Others. 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, computer peripheral equipment,
devices 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
factory automation system, parts, and others. The following are operating
revenue and operating income by business segment for the three years ended
March 31, 2004. Car Electronics is our largest segment by revenue,
accounting for 41.7% of operating revenue in fiscal 2004. 31




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##### Table of Contents



Operating Revenue and Operating Income by Business Segments Year ended March
312002
    
    2003
    
    2004(In millions of yen,
except for percentage amounts)Operating Revenue:Home Electronics
    
    ¥
    259,809
    
    
    
    41.3
    %
    
    ¥
    277,968
    
    
    
    41.0
    %
    
    ¥
    281,482
    
    
    
    40.2
    %Car Electronics
    
    
    257,672
    
    
    
    40.9
    %
    
    
    281,090
    
    
    
    41.5
    %
    
    
    292,187
    
    
    
    41.7
    %Patent Licensing
    
    
    17,588
    
    
    
    2.8
    %
    
    
    12,584
    
    
    
    1.9
    %
    
    
    11,821
    
    
    
    1.7
    %Others
    
    
    94,708
    
    
    
    15.0
    %
    
    
    105,617
    
    
    
    15.6
    %
    
    
    115,395
    
    
    
    16.4
    %Total
    
    ¥
    629,777
    
    
    
    100.0
    %
    
    ¥
    677,259
    
    
    
    100.0
    %
    
    ¥
    700,885
    
    
    
    100.0
    %Operating Income (Loss):Home Electronics
    
    ¥
    (5,717
    )
    
    
    
    
    
    ¥
    3,878
    
    
    
    
    
    
    ¥
    2,099Car Electronics
    
    
    16,071
    
    
    
    
    
    
    
    26,126
    
    
    
    
    
    
    
    28,936Patent Licensing
    
    
    16,837
    
    
    
    
    
    
    
    10,736
    
    
    
    
    
    
    
    11,398Others
    
    
    (5,790
    )
    
    
    
    
    
    
    8
    
    
    
    
    
    
    
    1,096Corporate and Elimination
    
    
    (4,801
    )
    
    
    
    
    
    
    (9,983
    )
    
    
    
    
    
    
    190Total
    
    ¥
    16,660
    
    
    
    
    
    
    ¥
    30,765
    
    
    
    
    
    
    ¥
    43,719
 Note:    Operating revenue represents revenue from unaffiliated customers. Our products are generally sold under our own brand names, principally
Pioneer. Our primary markets are Japan, North America, Europe and Asia and 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, recordable DVD drives, digital
broadcast set-top boxes and OLED displays to other companies. The following
are operating revenue from unaffiliated customers by geographic market for the
three years ended March 31, 2004. Operating Revenue by Geographic Market Year ended March 312002
    
    2003
    
    2004(In millions of yen,
except for percentage amounts)Japan
    
    ¥
    215,539
    
    
    
    34.2
    %
    
    ¥
    254,639
    
    
    
    37.6
    %
    
    ¥
    263,298
    
    
    
    37.6
    %North America
    
    
    189,599
    
    
    
    30.1
    
    
    
    190,147
    
    
    
    28.1
    
    
    
    170,711
    
    
    
    24.3Europe
    
    
    131,046
    
    
    
    20.8
    
    
    
    132,977
    
    
    
    19.6
    
    
    
    146,250
    
    
    
    20.9Other Regions
    
    
    93,593
    
    
    
    14.9
    
    
    
    99,496
    
    
    
    14.7
    
    
    
    120,626
    
    
    
    17.2Total
    
    ¥
    629,777
    
    
    
    100.0
    %
    
    ¥
    677,259
    
    
    
    100.0
    %
    
    ¥
    700,885
    
    
    
    100.0
    %
  Note:
    
    Operating revenue by geographic market represents revenue from
unaffiliated customers, based on the geographic location of each
unaffiliated customer. Our principal production activities are carried out in Asia, including Japan.
We have been expanding production activities in China. The production in China
accounted for approximately 29% of total production in fiscal 2004, compared
with 22% in fiscal 2003 and 18% in fiscal 2002. 32




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Home Electronics, Car Electronics and Others In our home electronics business, we experienced significant price competition
for conventional DVD players due to increasing competition. At the same time,
we continue to see strong growth in demand within the Japanese market and
overseas for DVD recorders and recordable DVD drives, although sales of our
CD-ROM/R/RW drives and DVD-ROM drives have shown a decrease. Demand for plasma
displays, which has been conspicuous in Japan, is expanding in the overseas
market. In our car electronics business, severe worldwide competition has led
to strong downward pressure on prices. However, the popularity of our car
navigation systems, which we believe is a major area of our operations,
continues to increase. Our royalty revenue from the licensing of worldwide
patents for our laser optical disc technologies has started to decline
substantially as a significant portion of our patents in Japan and Europe
expired during fiscal 2003 and 2004. 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 our electronics businesses. Our sales of new
products such as DVD-related products, including DVD recorders and recordable
DVD drives for PCs, plasma displays, car navigation systems and OLED displays
have grown rapidly. In fiscal 2004, sales of such new products accounted for
approximately 47% of our total sales. We expect to continue concentrating our
resources on these strategic products in order to further expand sales. 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, we have increased the
percentage of our manufacturing outside Japan from 51% in fiscal 2000 to 65% in
fiscal 2004 in terms of the yen value of cost of goods produced, mainly by
expanding production facilities in Southeast Asia and China. As a result of the sale of subsidiaries in the audio/video software business in
fiscal 2004, the gain from such sale, as well as the operating results of the
discontinued operations, are presented net of tax as a separate line item in
the consolidated statement of income in accordance with Statement of Financial
Accounting Standards No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets. See Note 3 in Notes to Consolidated Financial
Statements. Also, in fiscal 2004, we changed our business segment classification for
certain businesses. Results related to DVD drives for PCs have been moved from
Others to Home Electronics, and results related to plasma displays for
business use have been moved from Home Electronics to Others.
Corresponding figures for the previous fiscal years have been restated
accordingly. 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, trends in the PC market
have an influence on our royalty revenue. In addition, a significant portion
of our patent rights in Japan and Europe relating to laser optical disc
technologies expired during fiscal 2003 and fiscal 2004. Accordingly, we have
started to experience a substantial decrease in operating revenue and operating
income from this segment. We are currently working to acquire patents held by
third parties and licensing such patents. 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 will be
sufficient to offset the decrease in royalty revenue resulting from the
expiration of our existing patents. 33




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Currency fluctuations We are affected to some extent by fluctuations in foreign currency exchange
rates. We are principally exposed to fluctuations in the value of the Japanese
yen against the U.S. dollar, euro and, to a much lesser extent, other
currencies of countries where we conduct our business. Our consolidated
financial statements, which are presented in Japanese yen, are affected by
foreign currency exchange fluctuations through both translation risk and
transaction risk. Translation risk is the risk that our consolidated financial statements for a
particular period or for a particular date will be affected by changes in the
prevailing exchange rates of the currencies in which our subsidiaries prepare
their financial statements against the Japanese yen. The functional currency
for all of our significant foreign operations is the local currency.
Generally, all asset and liability accounts of foreign operations are
translated into Japanese yen using the exchange rates at balance sheet date and
all revenue and expense accounts are translated using weighted average exchange
rates for the periods. Even though the fluctuations of currencies against the
Japanese yen can be substantial and, therefore, significantly impact
comparisons with prior periods and among various geographic markets, the
translation effect is a reporting consideration, included in the other
comprehensive income, and does not reflect our underlying results of
operations. Transaction risk is the risk that the currency structure of our costs and
liabilities will deviate from the currency structure of sales proceeds and
assets. Transaction risk mainly derives from the fact the currencies of the
countries we manufacture our products may be different from the currencies we
sell our products in different countries. Derivative financial instruments are utilized by us to reduce risks from the
fluctuations in foreign exchange rates but are not held or issued for trading
purposes. To hedge certain purchase and sale commitments anticipated and not
yet committed transactions denominated other than functional currencies, we
enter into forward exchange contracts and purchases and writes currency
options. Written options are entered into only with purchased options in order
to reduce the hedging cost. 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 accounting principles generally accepted in the United States
of America, except for segment data which is prepared in accordance with the
regulations under the Securities and Exchange Law of Japan. The preparation of our 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. 34




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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.
Sales incentives that are dependent on future customer performance such as
volume incentive rebates or co-operative advertising are accrued based on
estimates when the original sale is recorded. Rebates and incentives given
directly to consumers are accrued earlier of when the program becomes effective
or the program is announced, to the extent related sales have been recognized.
Estimates of future customer performance such as purchase volume, early
payments and consumer rebate redemption rate are based on experience and such
estimates are reviewed monthly, quarterly or annually depending on the type of
incentive. Should a greater proportion of customers redeem 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. The changes of allowance for doubtful accounts are disclosed in Note
19 to consolidated financial statements. 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 including parts and labor 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. Our warranty reserve as of March 31, 2004 is ¥5.4 billion. Inventories We write down inventory for estimated obsolescence in amounts equal to the
difference between the cost of inventory and the estimated market value based
upon assumptions about future demand and market conditions. As of the end of
fiscal 2004, such inventory reserve amounted to ¥8.3 billion. If future demand
or market conditions are less favorable than those projected by the management,
additional inventory write-downs may be required. 35




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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 impairment charge when we believe an investment has experienced a
decline in value that is other than temporary. For investments in publicly
traded companies, we assume the decline is other than temporary when market
value is less than cost for a period of six to nine months, or sooner depending
on severity of decline or other factors. For investments in non-publicly
traded companies, an impairment is presumed to be other than temporary when net
assets of the investee decline generally by 30% to 50% due to losses incurred.
Such presumption may be overcome if there is evidence to support the judgment
that the decline in net assets of the investee is temporary. The factors that
are considered in the judgment include business plans and estimated future cash
flows of the investee. Impairment losses recognized in income during fiscal
2004 as a result of decline in prices of stocks in our portfolio was ¥0.2
billion. The unrealized losses in the portfolio at the end of fiscal 2004 were
immaterial. Future adverse changes in stock market conditions or poor
operating results of underlying investments could result in losses 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. 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. Our principal pension plans are our Japanese defined benefit pension plans.
Pioneer and its domestic subsidiaries sponsors trusteed non-contributory
defined benefit pension plans and a contributory welfare pension plan. The
contributory welfare pension plan was established under the Japanese Welfare
Pension Insurance Law (JWPIL), and is composed of a substitutional portion
based on the pay-related part of the pension benefits prescribed by JWPIL and a
corporate portion based on a defined benefit pension arrangement established at
our discretion. Pension plans for our overseas subsidiaries are insignificant
with aggregate pension assets and obligations amounting to less than 10% of
those of our Japanese pension plans. For pension plans in Japan, 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. To determine
the expected long-term rates of return on our pension plan assets, we consider
mainly the current and target asset allocations, as 36




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well as historical and expected returns on various categories of plan assets.
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. As of March 31, 2004, the actual asset allocation was equity securities 46%,
debt securities 30%, other 24%, compared with target asset allocation of equity
securities 56%, debt securities 41%, other 3%. The higher actual allocation
for other assets resulted from our temporary shift from market sensitive assets
to highly liquid assets as we plan to apply for transfer of pension obligations
and assets for a substitutional portion of our contributory welfare pension
plan. Total net periodic pension costs for our pension plans in Japan for fiscal
2002, 2003 and 2004 were ¥5.0 billion, ¥8.1 billion and ¥10.1 billion,
respectively, each representing 0.8%, 1.2% and 1.4% of operating revenue.
Declines of discount rates and negative returns on plan assets that continued
through fiscal 2003 adversely affected our pension benefit costs. Amortization
of the unrecognized net actuarial loss, which is a component of pension benefit
costs and represents a systematic expense recognition of the effects of changes
in assumptions and differences between assumptions and actual results, for our
domestic pension plans increased to ¥4.1 billion in fiscal 2004 from ¥2.9
billion in fiscal 2003 and ¥2.0 billion in fiscal 2002, although such
amortization is expected to decrease in fiscal 2005 due to higher than expected
returns on plan assets during fiscal 2004. The increases in our pension costs
are also attributable to increases of service cost mainly resulted from a
decline of discount rate, and decreases of expected return on assets reflecting
reduction of expected rate of return and decline of plan assets through the end
of fiscal 2003. Lowering the discount rates for pension plans in Japan by 0.5
percentage point would have increased the projected benefit obligation at the
end of fiscal 2004 by approximately ¥13 billion and would increase the pension
cost for fiscal 2005 by approximately ¥1.1 billion. Lowering the expected rate
of return on plan assets by 0.5 percentage point would increase the pension
cost for fiscal 2005 by approximately ¥0.5 billion. A. Operating results Fiscal 2004 compared with fiscal 2003 Operating revenue Operating revenue, the sum of
net sales and royalty revenue, for fiscal 2004 was
¥700.9 billion, up 3.5% from fiscal 2003. Net sales amounted to ¥689.1 billion, a 3.7% increase over fiscal 2003. Net
sales in Japan came to ¥263.3 billion, up 3.4% from fiscal 2003, and overseas
net sales increased 3.8% to ¥425.8 billion. Home Electronicsnet sales increased 1.3% over fiscal 2003, amounting to ¥281.5
billion, primarily as a result of increased sales of plasma displays, DVD
recorders and recordable DVD drives for PCs, while sales of DVD players,
set-top boxes and audio products decreased. Sales of plasma displays grew
overseas while sales in Japan decreased. Sales of DVD recorders, particularly
models with a hard disk drive, increased both in Japan and overseas to more
than twice the levels in fiscal 2003 in terms of units sold, while the amount
of net sales did not grow so fast because of declining average selling prices.
Consumer demand for DVD products is shifting rapidly from DVD players to DVD
recorders particularly in Japan. Accordingly, our marketing effort has shifted
from DVD players to DVD recorders. Sales of recordable DVD drives for PCs
increased overseas. In Japan, Home Electronicssales decreased by 9.2% to
¥78.8 billion as a result of decreased sales of plasma displays and DVD
players, although sales of DVD recorders increased. Overseas, sales increased
by 6.0% to ¥202.7 billion. This primarily reflects a large increase in the
sale of plasma displays in each overseas market, DVD recorders in North America
and Europe, and recordable DVD drives for PCs in Europe and Asia, offsetting
sales declines of digital cable-TV set-top boxes in North America, digital
broadcast set-top boxes in Europe and audio products in 37




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North America and Europe. Sales increase of plasma displays, DVD recorders and
recordable DVD drives overseas were attributable to growth of sales quantity,
and declines in sales of digital cable-TV set-top boxes and digital broadcast
set-top boxes were due to decreases of units sold. Car Electronicsnet sales rose 3.9% to ¥292.2 billion, primarily as a result of
sales growth of car navigation systems. In Japan, net sales increased 15.1% to
¥121.7 billion, mainly due to increased sales of car navigation systems in the
consumer market and to automobile manufacturers. Sales of car audio products
to automobile manufacturers increased as well. Overseas net sales decreased
2.8% to ¥170.5 billion, primarily due to decreased sales of car audio products
to automobile manufacturers in North America. Sales of car navigation systems
rose in North America and Europe, and sales of car audio products increased in
other areas. Royalty revenue from Patent Licensingdecreased 6.1% to ¥11.8 billion, compared
to that of fiscal 2003. This was attributable to expiration of our optical
disc-related patents in certain areas. Net sales for Othersrose 9.3% over fiscal 2003 to ¥115.4 billion, reflecting
primarily increased sales of factory automation systems, OLED display panels
and other component parts. In Japan, net sales increased slightly by 1.1% to
¥62.8 billion. This primarily resulted from increased sales of cellular
phone-related devices, mainly OLED display panels, partially offset by a
decrease in sales of commercial karaoke products resulting from the sale of the
karaoke business subsidiaries in the second half of fiscal 2003. Overseas, net
sales were up 21.0% over fiscal 2003 to ¥52.6 billion, primarily due to
increased sales of factory automation systems, mainly optical disc
manufacturing systems in Asia. The increasing popularity of DVDs as recording
media is a major factor of increased orders for the optical disc manufacturing
systems. Sales of semiconductors related to laser pickups in China and
business-use plasma displays worldwide increased as well. Operating costs and expenses Cost of sales increased to ¥487.3 billion from fiscal 2003s ¥473.2 billion,
consistent with the increase in net sales. However, cost of sales as a
percentage of operating revenue declined 0.4 percentage points to 69.5%,
despite the adverse effects of keen price competition, particularly for home
electronics products such as plasma displays and DVD recorders. Gross profit
margin in the car electronics business improved as a result of cost reductions
in car navigation systems. For recordable DVD drives, gross profit margin
improved as well as a result of cost reductions, contributing to overall gross
profit margin improvement in almost same significance with contribution from
car electronics business. Also, exchange rate fluctuations favorably affected
gross profit margin. A weaker yen against the euro increased net sales in
terms of yen, and a stronger yen against currencies in Asian countries, where
our major production facilities are located, reduced production costs in terms
of yen. Selling, general and administrative (SGA) expenses decreased by 1.4% or ¥2.3
billion over fiscal 2003 to ¥166.4 billion. This primarily reflected decreases
in personnel-related expenses, special retirement allowances and various
operating expenses. Personnel-related expenses in fiscal 2004 decreased by
¥1.9 billion, reflecting the sale of subsidiaries in the karaoke business in
the second half of fiscal 2003. The decrease of special retirement allowances
was due to ¥1.4 billion special termination benefits recorded by Tohoku Pioneer
Corporation, a subsidiary in Japan, for its voluntary early retirement plan
implemented in June 2002. Such benefits were not incurred in fiscal 2004. In
addition to these decreases, reductions in various operating expenses led to an
overall decrease of SGA expenses, offsetting the unfavorable impact of a $14
million (¥1.5 billion) one-time payment to Gemstar-TV Guide International, Inc.
as part of resolving pending litigation, ¥2.0 billion provided for estimated
costs for free inspection and repair of certain plasma TVs, and a ¥1.7 billion
increase in advertising expenses. The ratio of SGA expenses to operating
revenue decreased by 1.2 percentage points to 23.7%. 38




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Loss on sale and disposal of fixed assets decreased by ¥1.1 billion. The
decrease was mainly attributable to losses recorded in fiscal 2003 for the
conversion of optical disc production facilities at the plant in Yamanashi,
Japan into plasma display panel production facilities, which are planned to
start operations in fiscal 2005. R&D expenditures, which are included in cost of sales and SGA expenses,
increased 13.4% to ¥51.5 billion, representing 7.3% 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 OLED displays. Operating income Operating income in fiscal 2004 was ¥43.7 billion, a 42.1% increase from ¥30.8
billion recorded in fiscal 2003, mainly resulting from increased net sales,
improved gross profit margins and decreased SGA expenses. Operating income for
the Home Electronicssegment was ¥2.1 billion in fiscal 2004 compared with ¥3.9
billion in fiscal 2003, despite increased profit from DVD drives for PCs. The
decrease mainly reflected a downward trend in market product prices, slack
set-top box business and increased SGA expenses, including a one-time payment
to Gemstar-TV Guide International, Inc. and provisions for plasma TV service
costs. Operating income for the Car Electronicssegment in fiscal 2004
amounted to ¥28.9 billion, up 10.8% from fiscal 2003. Increased sales and
improved gross profit margins primarily due to cost reductions in car
navigation systems are the main reasons. In the Patent Licensingsegment,
operating income increased to ¥11.4 billion from ¥10.7 billion, despite a
decrease in royalty revenue, mainly due to decreases in operating expenses.
Otherssegment, which broke even in fiscal 2003, posted ¥1.1 billion operating
income in fiscal 2004. The increases in sales of OLED display panels and other
component parts as well as factory automation systems improved profitability. Other income (expenses) Other expense, on a net basis, decreased from an expense of ¥2.7 billion to
¥1.9 billion. Net interest (interest income, less interest expense) was almost
the same as in fiscal 2003, representing an expense of ¥0.7 billion, with both
interest income and interest expense decreasing. The decrease of interest
income mainly reflected a decline of interest rates in the U.S. financial
market, and the decrease of interest expense mainly reflected reductions of
interest bearing short-term and long-term borrowings. A ¥0.8 billion gain on
sale of subsidiaries stock posted in fiscal 2003 resulted from the sale of
karaoke related subsidiaries. Foreign exchange loss decreased by ¥0.8 billion,
to a ¥1.2 billion loss. The losses in fiscal 2004 primarily arose from
conversion of U.S. dollar receivables into yen due to the yens appreciation
against the U.S. dollar during fiscal 2004, although such losses decreased when
compared with losses incurred in fiscal 2003. Othernet was income of ¥0.1
billion compared with expense of ¥0.7 billion. A ¥1.1 billion decrease of
losses on write-down of investments to ¥0.2 billion in fiscal 2004, compared
with ¥1.3 billion losses recorded in fiscal 2003, accounted for the difference
in Othernet. During fiscal 2004, the prices of stock in our portfolio
recovered, and significant write-downs were not recorded. Income before income taxes Income before income taxes in fiscal 2004 increased 49.0% to ¥41.8 billion from
¥28.1 billion in fiscal 2003, mainly due to increased operating income. 39




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Income taxes Income taxes as a percentage of pre-tax income (the effective tax rate) was
44.4%, an increase of 12.2 percentage points compared with 32.2% in fiscal 2003
and was 2.4% higher than the normal statutory tax rate of 42.0% in Japan. In
fiscal 2003, valuation allowances, which had been provided for a tax benefit,
the realization of which had been judged as unlikely, were reversed as
profitability of subsidiaries particularly in Japan improved. The reversal was
the main reason for the lower effective tax rate for fiscal 2003. The 2.4%
deviation from the normal statutory tax rate was due mainly to ¥0.7 billion in
charges resulting from the settlement of a proposed assessment from U.S. tax
authorities, and losses incurred at certain subsidiaries. Meanwhile, a 1.0%
reduction of the tax rate in Japan effective from fiscal 2005 had an effect of
increasing deferred income taxes by ¥0.4 billion and by ¥0.8 billion in fiscal
2004 and 2003, respectively. Minority interest in losses (earnings) of subsidiaries Minority interest in earnings of subsidiaries, which primarily consists of the
earnings of Tohoku Pioneer Corporation and its subsidiaries attributable to its
minority shareholders, amounted to ¥0.7 billion in fiscal 2004 compared with
losses of ¥0.02 billion in fiscal 2003. Equity in losses of affiliated companies Equity in losses of affiliated companies was ¥2.2 billion in fiscal 2004
compared with ¥3.1 billion in fiscal 2003. The decrease in loss is mainly
attributable to the decrease of research and development costs incurred by
ELDis, Inc., where active-matrix full-color OLED displays are still in
development. Income from continuing operations Income from continuing operations in fiscal 2004 increased 27.7% to ¥20.4
billion from ¥15.9 billion in fiscal 2003 mainly due to the increase in
operating income. Income from discontinued operations, net of tax Income from discontinued operations, net of tax, of ¥4.5 billion in fiscal 2004
is comprised mainly of a ¥1.8 billion gain on the sale of discontinued
operations and ¥2.3 billion tax benefit primarily in connection with loss on
investments in stocks of subsidiaries sold. ¥0.1 billion in fiscal 2003 solely
represented net income of the subsidiaries sold. Net income Net income in fiscal 2004 was ¥24.8 billion, a 54.5% increase compared with
fiscal 2003s ¥16.1 billion. Basic net income per share of common stock in
fiscal 2004 was ¥141.58, compared with ¥90.24 in fiscal 2003. Diluted net
income per share in fiscal 2004 was ¥140.52 compared with ¥90.24 in fiscal
2003. 40




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Fiscal 2003 compared with fiscal 2002 Operating
revenue Operating
revenue, the sum of net sales and royalty revenue, for
fiscal 2003 was ¥677.3 billion, up 7.5% from fiscal 2002. Net sales amounted to ¥664.7 billion, an 8.6% increase over fiscal 2002. Net
sales in Japan came to ¥254.6 billion, up 18.1% from fiscal 2002, and overseas
net sales increased 3.4% to ¥410.1 billion. Home Electronicsnet sales increased 7.0% over fiscal 2002, amounting to ¥278.0
billion, primarily as a result of increased sales of plasma displays, DVD
recorders and recordable DVD drives for PCs, 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. Sales
of recordable DVD 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 recordable DVD drives. As a result of the increased
sales of DVD recorders, plasma displays and recordable DVD drives with growth
of home telephones sales, total Home Electronicssales in Japan increased by
22.8% to ¥86.8 billion despite decreased sales of compact stereo systems.
Overseas, sales increased 1.1% to ¥191.2 billion. This primarily reflects a
large increase in the sale of plasma displays, increased sales of recordable
DVD drives 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 increased 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 11.5% over fiscal 2002 to ¥105.6 billion. In Japan,
net sales increased 26.1% to ¥62.1 billion. This primarily reflected sales
growth of cellular phone-related devices, including OLED displays. Overseas,
net sales were down 4.3% from fiscal 2002 to ¥43.5 billion, primarily due to
decreased sales of speaker devices for cellular phones, although sales of
optical disc manufacturing systems in Asia increased. Operating costs and expenses Cost of sales increased to ¥473.2 billion from fiscal 2002s ¥442.9 billion
associated with an increase in net sales. However, cost of sales as a
percentage of operating revenue declined 0.4 percentage points to 69.9%. 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. 41




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SGA expenses increased by 1.1% or ¥1.9 billion over fiscal 2002 to ¥168.7
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. 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 1.6 percentage points to
24.9%. 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 to strategically selected business areas. R&D expenditures, which are included in cost of sales and SGA expenses,
increased 16.2% to ¥45.4 billion, representing 6.7% of operating revenue. The
increase primarily reflected R&D activities to enhance our technological
advantage in 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 ¥30.8 billion, an 84.7% increase from ¥16.7
billion recorded in fiscal 2002, mainly resulting from increased net sales and
improved gross profit margin. Operating income for the Home Electronics
segment was ¥3.9 billion in fiscal 2003 compared with a loss of ¥5.7 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. Increased sales and cost reduction of
recordable DVD drives for PCs also contributed to the improvement. Operating
income for the Car Electronicssegment in fiscal 2003 amounted to ¥26.1
billion, up 62.6% from fiscal 2002. Increased 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 in royalty revenue. Otherssegment in fiscal 2003 broke even, compared
with ¥5.8 billion operating loss posted in fiscal 2002. This primarily
reflects increased sales of 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 (expenses) Other expense, on a net basis, increased from an expense of ¥2.2 billion to
¥2.7 billion. Net interest (interest income, less interest expense) was an
expense of ¥0.7 billion, compared with an expense of ¥0.3 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, was also in line with our policy to concentrate
business resources to 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 deposits and receivables into yen due to the yens
appreciation against the U.S. dollar during fiscal 2003. Othernet decreased
from expense of ¥2.2 billion to expense of ¥0.7 billion. Losses on write-down
of investments decreased to ¥1.4 billion in fiscal 2003, compared with ¥2.3
billion losses recorded in fiscal 42




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2002, as the decline in market value of our investments in marketable equity
securities was smaller in fiscal 2003.Income before income taxes Income before income taxes in fiscal 2003 increased 94.0% to ¥28.1 billion from
¥14.5 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
32.2%, a 12.1% decrease compared with 44.3% in fiscal 2002 and 9.8% lower than
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 earnings of subsidiaries, which primarily consists of the
earnings of Tohoku Pioneer Corporation and its subsidiaries attributable to its
minority shareholders, amounted to losses of ¥0.02 billion in fiscal 2003
compared with ¥0.5 billion in fiscal 2002. Equity in losses of affiliated companies Equity in losses of affiliated companies was ¥3.1 billion in fiscal 2003
compared with ¥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 OLED displays are still in development. Income from continuing operations Income from continuing operations in fiscal 2003 came to ¥15.9 billion, more
than twice the fiscal 2002 amount of ¥7.5 billion, mainly due to the increase
in operating income. Income from discontinued operations, net of tax Income from discontinued operations, net of tax, which represented profit and
loss of sold subsidiaries, decreased to ¥0.1 billion in fiscal 2003, compared
with ¥0.6 billion in fiscal 2002. 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. 43




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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 Year ended March 31, 2004Corporate andHome Electronics
    
    Car Electronics
    
    Patent Licensing
    
    Others
    
    Eliminations
    
    Consolidated(In millions of yen)Operating revenue:Unaffiliated customers
    
    ¥
    281,482
    
    
    ¥
    292,187
    
    
    ¥
    11,821
    
    
    ¥
    115,395
    
    
    
    
    
    
    ¥
    700,885Inter-segment
    
    
    1,399
    
    
    
    2,460
    
    
    
    2,057
    
    
    
    36,860
    
    
    ¥
    (42,776
    )
    
    
    Total
    
    ¥
    282,881
    
    
    ¥
    294,647
    
    
    ¥
    13,878
    
    
    ¥
    152,255
    
    
    ¥
    (42,776
    )
    
    ¥
    700,885Operating income
    
    ¥
    2,099
    
    
    ¥
    28,936
    
    
    ¥
    11,398
    
    
    ¥
    1,096
    
    
    ¥
    190
    
    
    ¥
    43,719Identifiable assets
    
    ¥
    182,001
    
    
    ¥
    158,913
    
    
    ¥
    3,447
    
    
    ¥
    109,582
    
    
    ¥
    268,599
    
    
    ¥
    722,542Depreciation and
amortization
    
    ¥
    15,858
    
    
    ¥
    13,798
    
    
    ¥
    362
    
    
    ¥
    8,272
    
    
    ¥
    2,621
    
    
    ¥
    40,911Capital expenditures
(additions to fixed assets)
    
    ¥
    32,783
    
    
    ¥
    13,648
    
    
    ¥
    248
    
    
    ¥
    7,340
    
    
    ¥
    4,434
    
    
    ¥
    58,453
 Year ended March 31, 2003Corporate andHome Electronics
    
    Car Electronics
    
    Patent Licensing
    
    Others
    
    Eliminations
    
    Consolidated(In millions of yen)Operating revenue:Unaffiliated customers
    
    ¥
    277,968
    
    
    ¥
    281,090
    
    
    ¥
    12,584
    
    
    ¥
    105,617
    
    
    
    
    
    
    ¥
    677,259Inter-segment
    
    
    1,718
    
    
    
    1,271
    
    
    
    2,014
    
    
    
    41,780
    
    
    ¥
    (46,783
    )
    
    
    Total
    
    ¥
    279,686
    
    
    ¥
    282,361
    
    
    ¥
    14,598
    
    
    ¥
    147,397
    
    
    ¥
    (46,783
    )
    
    ¥
    677,259Operating income
    
    ¥
    3,878
    
    
    ¥
    26,126
    
    
    ¥
    10,736
    
    
    ¥
    8
    
    
    ¥
    (9,983
    )
    
    ¥
    30,765Identifiable assets
    
    ¥
    172,316
    
    
    ¥
    153,644
    
    
    ¥
    4,357
    
    
    ¥
    130,275
    
    
    ¥
    186,437
    
    
    ¥
    647,029Depreciation and
amortization
    
    ¥
    11,596
    
    
    ¥
    13,370
    
    
    ¥
    1,550
    
    
    ¥
    7,822
    
    
    ¥
    1,900
    
    
    ¥
    36,238Capital expenditures
(additions to fixed assets)
    
    ¥
    16,798
    
    
    ¥
    13,997
    
    
    ¥
    398
    
    
    ¥
    6,774
    
    
    ¥
    3,004
    
    
    ¥
    40,971
  Note:
    
    In fiscal 2004, we changed business segment classification for certain
businesses. Results related to DVD drives have been moved from Others
to Home Electronics, and results related to plasma displays for business
use have been moved from Home Electronics to Others. Corresponding
figures for the previously reported Business Segments have been
reclassified accordingly. 44




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Geographic Segments Year ended March 31, 2004Corporate andJapan
    
    North America
    
    Europe
    
    Other Regions
    
    Eliminations
    
    Consolidated(In millions of yen)Operating revenue:Unaffiliated customers
    
    ¥
    294,198
    
    
    ¥
    168,194
    
    
    ¥
    145,390
    
    
    ¥
    93,103
    
    
    
    
    
    
    ¥
    700,885Inter-area
    
    
    278,071
    
    
    
    8,082
    
    
    
    967
    
    
    
    182,929
    
    
    ¥
    (470,049
    )
    
    
    Total
    
    ¥
    572,269
    
    
    ¥
    176,276
    
    
    ¥
    146,357
    
    
    ¥
    276,032
    
    
    ¥
    (470,049
    )
    
    ¥
    700,885Operating income
    
    ¥
    18,456
    
    
    ¥
    11,467
    
    
    ¥
    2,044
    
    
    ¥
    9,595
    
    
    ¥
    2,157
    
    
    ¥
    43,719Identifiable assets
    
    ¥
    233,601
    
    
    ¥
    46,034
    
    
    ¥
    61,754
    
    
    ¥
    99,237
    
    
    ¥
    281,916
    
    
    ¥
    722,542Depreciation and
amortization
    
    ¥
    26,014
    
    
    ¥
    2,450
    
    
    ¥
    2,130
    
    
    ¥
    7,696
    
    
    ¥
    2,621
    
    
    ¥
    40,911Capital expenditures
(additions to fixed assets)
    
    ¥
    40,314
    
    
    ¥
    2,650
    
    
    ¥
    2,113
    
    
    ¥
    8,942
    
    
    ¥
    4,434
    
    
    ¥
    58,453
 Year ended March 31, 2003Corporate andJapan
    
    North America
    
    Europe
    
    Other Regions
    
    Eliminations
    
    Consolidated(In millions of yen)Operating revenue:Unaffiliated customers
    
    ¥
    271,248
    
    
    ¥
    187,858
    
    
    ¥
    132,776
    
    
    ¥
    85,377
    
    
    
    
    
    
    ¥
    677,259Inter-area
    
    
    272,393
    
    
    
    7,594
    
    
    
    700
    
    
    
    168,128
    
    
    ¥
    (448,815
    )
    
    
    Total
    
    ¥
    543,641
    
    
    ¥
    195,452
    
    
    ¥
    133,476
    
    
    ¥
    253,505
    
    
    ¥
    (448,815
    )
    
    ¥
    677,259Operating income (loss)
    
    ¥
    16,463
    
    
    ¥
    11,091
    
    
    ¥
    (462
    )
    
    ¥
    7,415
    
    
    ¥
    (3,742
    )
    
    ¥
    30,765Identifiable assets
    
    ¥
    222,372
    
    
    ¥
    55,940
    
    
    ¥
    57,092
    
    
    ¥
    91,695
    
    
    ¥
    219,930
    
    
    ¥
    647,029Depreciation and
amortization
    
    ¥
    22,503
    
    
    ¥
    3,484
    
    
    ¥
    1,843
    
    
    ¥
    6,508
    
    
    ¥
    1,900
    
    
    ¥
    36,238Capital expenditures
(additions to fixed assets)
    
    ¥
    24,030
    
    
    ¥
    3,132
    
    
    ¥
    2,019
    
    
    ¥
    8,786
    
    
    ¥
    3,004
    
    
    ¥
    40,971
  Note:
    
    Operating revenue reported in geographic segment information above
represents that of Pioneer and its domestic subsidiaries in Japan, and
each subsidiary in North America, Europe, and Other Regions.  45




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B. Liquidity and capital resources Cash flows Summarized Consolidated Statements of Cash Flows Year ended March 312003
    
    2004(In millions of yen)Net cash provided by operating activities
    
    ¥
    91,509
    
    
    ¥
    60,378Net cash used in investing activities
    
    
    (35,228
    )
    
    
    (52,754
    )Net cash provided by (used in) financing activities
    
    
    (34,680
    )
    
    
    51,827Effect of exchange rate changes on cash and cash equivalents
    
    
    (6,234
    )
    
    
    (9,512
    )Net increase in cash and cash equivalents
    
    ¥
    15,367
    
    
    ¥
    49,939
 Fiscal 2004 compared with fiscal 2003 In fiscal 2004, net cash provided by operating activities was ¥60.4 billion.
Net income from continuing operations adjusted for non-cash expenses such as
depreciation and amortization, deferred income taxes, and equity in losses of
affiliated companies was the main source of the positive cash flows, generating
¥72.5 billion. ¥12.1 billion was used in cash requirement from operating
assets and liabilities. Among operating assets and liabilities, trade
receivables increased primarily due to increases in net sales. An increase in
prepaid expenses and other current assets primarily resulted from increases in
recoverable value-added taxes and similar indirect taxes in various countries
where operations are expanding. Inventories increased primarily for plasma
displays, car navigation systems and factory automation systems. However, the
negative impact of increased inventories on cash flows was largely offset by
the increase of trade payables, reflecting increased purchase of materials.
Plasma display inventory increased as display panel work in process inventory
was built up for overseas markets. Increase in car navigation system inventory
was mostly for OEM customers, and increases of factory automation system
inventory reflected increased orders. Although net cash provided by operating
activities decreased compared with the amount in fiscal 2003, the ¥60.4 billion
was enough to cover the net cash used in investing activities. The decrease in
net cash provided by operating cash flows in comparison with the amount in
fiscal 2003 is primarily due to the increase of accounts receivable, trade,
which is mainly attributable to increase of operating revenue in the fourth
quarter. The fourth quarter in fiscal 2004 operating revenue was 4.7% or ¥8.2
billion higher than operating revenue in the equivalent period of fiscal 2003. Net cash used in investing activities was ¥52.8 billion for fiscal 2004,
comprised mainly ¥58.0 billion used in payment for the purchase of fixed assets
and ¥4.9 billion proceeds from sale of discontinued operation. Among the ¥58.0
billion capital expenditure, investment related to plasma displays amounted to
¥22.0 billion, investment in production facilities in China amounted to ¥5.5
billion. The net cash used in investing activities in fiscal 2004 increased by
¥17.6 billion compared to ¥35.2 billion in fiscal 2003. The investments in the
expansion of the plasma display production facilities and expansion of
production capacities for plants in China accounted for the most of the
increase. Net cash provided by financing activities in fiscal 2004 was ¥51.8 billion and
was mainly comprised of ¥60.5 billion cash provided by issuance of convertible
bonds, ¥4.4 billion used in the reduction of other short-term and long-term
borrowings, and ¥3.9 billion used in dividends payment. On March 5, 2004, 46




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we issued zero coupon convertible bonds due 2011, with proceeds of ¥60.5
billion after deducting ¥1.6 billion issuance cost. The proceeds of the issue
are planned to be applied principally towards investments in the plasma display
business and the enhancement of distribution channels in Europe and China. In
fiscal 2003, financing activities included ¥21.1 billion used in reducing
short-term and long-term borrowings, ¥2.7 billion used in payments of dividends
and ¥11.6 billion used in purchase of shares of Pioneers common stock. 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 ¥49.9 billion to ¥192.4 billion at the end of fiscal 2004, from
¥142.5 billion at the end of fiscal 2003. Capital requirements Our requirements for operating capital primarily are for the purchase of raw
materials and parts for manufacturing our products. Operating expenses,
including manufacturing expenses and SGA expenses, require a substantial amount
of operating capital. Also, our capital expenditure plan for fiscal 2005 is
expected to require ¥68.0 billion, a ¥10.0 billion increase from ¥58.0 billion
in fiscal 2004, reflecting mainly expansion of plasma display production
facilities. On July 1, 2004, we concluded an agreement with NEC under which NEC will
transfer to us 100% of the issued share capital of its plasma display
manufacturing subsidiary, NPD, and the intellectual property rights relating to
plasma display held by NEC. We expect to invest approximately ¥40.0 billion in
the acquisitions scheduled effective as of September 30, 2004. A part of the
¥60.5 billion proceeds from issuance of convertible bonds on March 5, 2004 will
be used in this investment. We plan to apply for transfer of pension obligations and assets for
substitutional portion of a contributory welfare pension plan. As of March 31,
2004 our contributory welfare pension plans maintains sufficient plan assets to
complete the required transfer of plan assets, therefore, we do not expect
additional cash requirement from this transfer. We believe that our ability to generate positive operating cash flows and
liquidity discussed in the following financial management section provide
sufficient resources to fund future operating capital requirements and capital
expenditures. Financial management At present, funds required for operating capital and capital expenditure are
generally 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
borrowings are generally arranged locally in the currency in which each
consolidated company carries out its operations. As of March 31, 2004,
short-term borrowings of ¥23.3 billion with weighted average interest rate of
1.74% comprised bank loans in seven different currencies, principally Japanese
yen. On the other hand, long-term borrowings to finance long-term funding
requirements such as investment in production facilities are generally arranged
in Japan on a fixed interest rate basis. As of March 31, 2004, substantially
all of the long-term debt of ¥94.2 billion, including the portion due within
one year, was comprised of ¥62.1 billion zero coupon convertible bonds due 2011
including ¥2.1 billion unamortized issue premium, ¥6.5 billion loans
principally from banks maturing serially through 2013 with fixed interest rates
ranging from 3.06% to 3.90%, ¥15.0 billion 2.35% unsecured bonds due 2005,
¥10.0 billion 2.80% unsecured bonds due 2008, and capital lease obligations and
other loans arranged locally. 47




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As for liquidity, cash and cash equivalent amounted to ¥192.4 billion at the
end of fiscal 2004, which are held principally in Japanese yen, the U.S.
dollars and euro. Cash and cash equivalents comprised cash on hand, cash in
banks including time deposit, and investment in highly liquid financial
instruments provided by major international banks and financial institutions.
In addition, uncommitted and unused credit lines amounted to ¥229.6 billion as
of March 31, 2004 are available if there were needs for additional borrowings
arising from a possible decrease in cash flows from operating activities due to
seasonal factors such as investment in inventory for high-sales seasons, or as
a result of fluctuations in customer demands. As a part of our effort to enhance efficiencies of cash balance held by
subsidiaries, we arrange intercompany loans between the companies in different
region. To hedge the exposure to foreign exchange and interest rate
fluctuations, we enter into currency swap contracts with banks, changing
currency and interest features of intercompany finance transactions. The
currency swap contracts effectively changes, in substance, the U.S. dollar
floating interest rate intercompany borrowings into Japanese yen fixed and
floating interest rates borrowings and euro fixed interest rate borrowings. During fiscal 2003, we purchased 5.1 million shares of Pioneers common stock
from the market for ¥11.5 billion pursuant to the approval at the general
shareholders meeting held in June 2002. At the general shareholders meeting
held on June 29, 2004, our shareholders approved an amendment to the Articles
of Incorporation which permits the purchase of shares of Pioneers common stock
to be made upon resolution of the Board of Directors. This amendment allows us
more flexibility in the purchase of shares of Pioneers common stock. 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 high-density recording,
flat-panel displays, digital signal processing, information/communications, and
core LSIs. In fiscal 2002, 2003, and 2004 our R&D expenses were ¥39,050
million, ¥45,388 million and ¥51,483 million respectively, or 6.2%, 6.7% and
7.3%, respectively, of our operating revenue. We currently plan to continue to
spend more than 6% of operating revenue on R&D each year. Our research and development of new technologies is carried out mainly in Japan
at the Corporate Research & Development Laboratories, as well as the AV &
Recording Systems Development Center, Information & Communication Development Center and
PDP Development Center. In November 2003, we established the Mobile Systems
Development Center in Japan to develop advanced car electronics-related
technologies, such as next-generation car navigation systems. At Pioneer
Research Center USA, Inc. (PRA), one of our overseas wholly-owned
subsidiaries, we are also actively engaged in research of new technologies, and
development of system software related to digital TV and of digital network
technologies. At another wholly-owned overseas subsidiary in the United
Kingdom, Pioneer Digital Design Centre, Ltd., we are researching cutting-edge
technologies related to digital TV for use in Europe. 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. Multiple-Layer Optical Discs During fiscal 2004, we succeeded in developing dual-layer disc technology for
DVD-R recording, enabling up to 8.5 gigabytes of data to be recorded onto one
side of a disc. Such performance, almost equal to levels of existing
dual-layer DVD-ROM discs, allows conventional DVD-Video players to be
compatible with discs using this technology. Compatible DVD recorders will
also be developed with relative ease. The new discs will raise DVD recording capacity to
approximately 4 hours in SP mode 48




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and 12 hours in EP modealmost double the
recording capacity of DVD-R discs currently on the market. The Company is
further improving this formats performance and will propose this format to the
DVD Forum. In the field of Blu-ray Disc, which is particularly well-suited for digital
high-definition images and is expected to be the next-generation large-capacity
optical disc, Pioneer has also succeeded in developing a prototype of
playback-only four-layer disc with 100-gigabyte capacity on one side. The
multiple-layer structure of the Blu-ray Disc format requires higher-precision
control than DVDs for determining the thickness of layers between the disc
surface and each layer. Pioneer has achieved this through collaboration with
Hitachi Chemical Co., Ltd., involving joint development of photopolymer sheets
suited for optical disc material. Home AV Network PRA launched the Digital Entertainment
Network Initiative (DENi) in 2002. In January 2003, PRA and the six other
consumer electronics company members of DENi drew up comprehensive technical
specifications for simplifying network connection among home-use audio/video
products. The new DENi technology takes advantage of Ethernet and Internet
Protocol, which are commonly used for computer networking, and enables in-home
connection and sharing of audio and video sources among rooms which are distant
from one another, without troublesome additional cabling. PRA took the lead
among DENi members in promoting this technology, and in July 2003, the Consumer
Electronics Association (CEA) of the United States adopted the DENi proposal as
the digital entertainment network standard, CEA-2008. PRA is expected to
continue to advance home network technologies and promote unified industry
standards. D. Trend information The following is a description of the most significant recent trends in each of
our business segments. Home Electronics Traditional audio/video products continue to be exposed to 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 players and recorders.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, demand for the DVD recorders,
especially those with HDDs for long-time recording, has rapidly expanded, and
these products have started to replace VCRs. There are, however, a number of
competing digital recording disc formats: the DVD-RW, the DVD-RAM, the DVD+RW,
as rewritable formats, and the DVD-R, the DVD+R formats, as write-once formats. Recordable DVD drives.Demand for recordable DVD drives is growing rapidly,
although sales of CD-ROM/R/RW drives and DVD-ROM drives have shown a decrease.
This reflects great demand for DVD recording of personalized content using PCs, and the tendency of PC makers to
include recordable DVD 49




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drives in PC systems as part of their sales strategies
to differentiate their PC lineups. This sales trend is expected to continue.
In fiscal 2004, we launched recordable DVD drives for PCs, which are compatible
with DVD-R, -RW, +R and +RW discs, to worldwide markets, and also models
enabling high-speed recording of up to 8X write speed with DVD-R and +R and up
to 4X with DVD-RW and +RW discs. Plasma displays.The large-screen display market for plasma displays has been
expanding in recent years, and several manufacturers in Japan and South Korea
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
focusing on new products such as 50- and 43-inch models, which have higher
resolution. Car Electronics Severe competition in the car electronics business worldwide has led to strong
downward pressure on prices. However, the popularity of car navigation
systems, 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, we remain a leader in the car navigation market;
however, our competitors have started commercializing models that are similar
to our products. In Japan, the increase in demand for car navigation systems
has been conspicuous, and the markets in North America and Europe show signs of
expansion. We introduced in the spring of 2004 in both markets compact
1-DIN-sized units featuring all car navigation system functions as well as
those for CD/MP3/DVD-Video playback. Also in the car audio business, we plan
to widen our market share with new products and innovations, such as car CD
players with OLED displays. There is also a trend in the car electronics industry that OEM sales to car
manufacturers are increasing. We intend to increase our efforts to market
ourselves towards such car manufacturers and strengthen our 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 worldwide licensing of patents relating to laser
optical disc technologies has declined substantially from previous years, as a
significant portion of our patents in Japan and Europe has expired during
fiscal 2003 and 2004. We intend to attempt to reduce the decline in royalty
revenue by acquiring patents from third parties and licensing such patents. We
do not, however, expect that the revenue, if any, from such new patents 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. 50




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Others OLED displays. With the entry of other companies, market competition in OLED
displays is becoming even more intense, while each company in this market is
proceeding with the development of full-color OLED displays. To meet the
competition, 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 to develop and manufacture
active-matrix full-color OLED displays. E. Off-balance sheet arrangements We are a party to off-balance sheet arrangements by providing guarantees to
third parties who provide loans to our affiliated companies. For each
guarantee, we would have to pay the guaranteed amount, if affiliated companies
were to default on a payment within contract periods of one year to nine years.
The maximum potential amount of undiscounted future payments we could be
required to make under the guarantee is ¥25.5 billion as of March 31, 2004. Also, we have equity ownership interest in ELDis, Inc., which is 45% owned by
Tohoku Pioneer Corporation, our 67% owned subsidiary, and is accounted for by
the equity method. At March 31, 2004, it is reasonably possible that Tohoku
Pioneer Corporation is the primary beneficiary or holds a significant variable
interest in ELDis, Inc. ELDis, Inc. is a development state enterprise and
established to manufacture and market new products such as thin film transistor
substrates for active-matrix OLED. The related disclosure is provided in Note
21 in Notes to Consolidated Financial Statements. F. Tabular disclosure of contractual obligation The following summarizes our contractual obligations at March 31, 2004. Payment Due by PeriodLess thanTotal
    
    1 year
    
    1-3 years
    
    3-5 years
    
    More than 5 years(In billions of yen)Contractual obligations:Long-term debt
    
    
    92.1
    
    
    
    4.5
    
    
    
    16.1
    
    
    
    10.5
    
    
    
    61.0Operating leases
    
    
    7.9
    
    
    
    2.5
    
    
    
    2.5
    
    
    
    1.1
    
    
    
    1.8Purchase commitment
    
    
    3.1
    
    
    
    3.1
  Notes:
    1.
    Total long-term debt of ¥92.1 billion does not include ¥2.1 billion unamortized issue premium on convertible bonds.2.
    Contractual obligations do not include ¥0.3 billion deferred
income which is presented as other long-term liabilities on the
consolidated balance sheet. The ¥3.1 billion purchase commitment outstanding as of March 31, 2004 was for
property, plant and equipment and advertising. This included a part of our
¥68.0 billion capital expenditure plan in fiscal 2005. The planned increase in
capital expenditure in fiscal 2005 from ¥58.0 billion in fiscal 2004 mainly
reflects expansion of plasma display production facilities. 51




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New Accounting Standards Employers Disclosures about Pensions and Other Postretirement Benefits In December 2003, the Financial Accounting Standards Board (FASB) issued SFAS
No. 132 (revised 2003), Employers Disclosures about Pensions and Other
Postretirement Benefits. The revised SFAS No. 132 retains the disclosure
requirements in the original statement and requires additional disclosures
about pension plan assets, benefit obligations, cash flows, benefit costs and
other relevant information. The new disclosures are effective for financial
statements with fiscal years ended after December 15, 2003. However, the
revised SFAS No. 132 provides that disclosures of information about foreign
plans and estimated future benefit payment shall be effective for fiscal years
ending after June 15, 2004. See Note 9 in Notes to Consolidated Financial
Statements for these disclosures. Impairment of Investments in Securities In November 2003, the EITF reached a consensus on Issue No. 03-1 (EITF No.
03-1), The Meaning of Other-Than-Temporary Impairment and Its Application to
Certain Investments, as it relates to disclosures for SFAS No. 115. In
addition to the disclosures already required by SFAS No. 115, EITF No. 03-1
requires both quantitative and qualitative disclosures for marketable equity
and debt securities. The new disclosure is effective for fiscal years ended
after December 15, 2003. See Note 4 in Notes to
Consolidated Financial Statements for this disclosure. In March 2004, EITF reached another consensus on EITF No. 03-1 which presents
the guidance for the assessment of other-than-temporary impairment. The
guideline should be used to determine whether an investment is
other-than-temporarily impaired and provides 3 steps for assessment. The
guidance is applicable for investments in debt and equity securities that are
within the scope of SFAS No. 115, and cost method equity investments. The
investor should make an evidenced-based judgment about a market price recovery
of investment by considering the severity (extent to which fair value is below
cost) and the duration (period of time that a security has been impaired) of
impairment in relation to the forecasted market price recovery. An
other-than-temporary impairment should be recognized in earnings in an amount
equal to the difference between the investors adjusted cost basis and its fair
value at the balance sheet date of the reporting period for which the
assessment is made. The guidance is required to be applied for fiscal years
beginning after June 15, 2004. The adoption of the guidance will not have a
material impact on our consolidated financial position, result of operation or
cash flow. Transfer to the Japanese Government of the Substitutional Portion of Employer
Pension Fund Liabilities In January 2003, the EITF reached a consensus on Issue No. 03-2 (EITF No.
03-2), Accounting for the Transfer to the Japanese Government of the
Substitutional Portion of Employer Pension Fund Liabilities.
EITF No. 03-2 addresses accounting for the transfer to Japanese government of a
substitutional portion of a domestic contributory welfare pension plan, which
is a defined benefit pension plan established by the Welfare Pension Insurance
Law. EITF No. 03-2 requires employers to account for the entire separation
process of a substitutional portion from an entire plan (including a corporate
portion) upon completion of the transfer to the government of the
substitutional portion of the benefit obligation and related plan assets as a
culmination of a series of steps in a single settlement transaction. Under
this approach, the difference between the fair value of the obligation and the
assets required to be transferred to the government should be accounted for and
separately disclosed as a subsidy. October 29, 2003, we received approval from the government for an exemption
from the obligation to pay benefits for future employee service related to the
substitutional portion. In addition, we will submit another application to
separate the remaining substitutional portion related to past service by our 52




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employees. We are expected to receive final approval from the government for
our second application during the year ending March 31, 2005. Upon receipt of
the final approval, we will be relieved of all obligations pertaining to the
substitutional portion by transferring the benefit obligation and the related
government-specified portion of the plan assets, which will be computed by the
government. The related gain or loss, which is expected to be recorded during
the year ending March 31, 2005 based on completion of the entire process, has
not yet been determined because the amount of the benefit obligation and the
related plan assets to be transferred to the government may change
significantly. Revenue Recognition In December 2003, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletins (SAB) No. 104, Revenue Recognition, which supersedes
SAB No. 101, Revenue Recognition in Financial Statements, and updates
portions of the interpretative guidance included in Topic 13 of the
codification of SAB in order to make this interpretative guidance consistent
with current authoritative accounting guidance. SAB No. 104 rescinds the SECs
Revenue Recognition in Financial Statements Frequently Asked Questions and
Answers (FAQ) issued with SAB No. 101 that had been codified in SAB Topic 13.
Selected portions of the FAQ have been incorporated into SAB No. 104. The
revenue recognition principles of SAB No. 101 remain largely unchanged by the
issuance of SAB No. 104. The adoption of SAB No. 104 did not have an effect on
our consolidated results of operations or financial position. Consolidation of Variable Interest Entities In January 2003, the FASB issued FASB Interpretation No. 46 (FIN 46),
Consolidation of Variable Interest Entities, an Interpretation of Accounting
Research Bulletins No. 51, Consolidated Financial Statements, and subsequently
revised in December 2003 with the issuance of FIN 46 (revised 2003). This
interpretation requires certain variable interest entities to be consolidated
by the primary beneficiary of the entity if the equity investors in the entity
do not have the characteristics of a controlling financial interest or do not
have sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties. We are required
to apply this interpretation for periods ending after April 1, 2004. We are
currently evaluating the impact of the adoption of the revised FIN 46 on our
financial position and results of operations. It is reasonably possible that
we are a primary beneficiary of or hold a significant variable interest in a
variable interest entity. See Note 21 in Notes to Consolidated
Financial Statements for the required disclosures. Earnings per Share In March 2004, the EITF reached a consensus on Issue No. 03-06 (EITF No.
03-06), Participating Securities and the Two-Class Method Under FASB
Statement No. 128, Earnings Per Share. EITF No. 03-06 addresses a number of
questions regarding the computation of earnings per share by companies that
have issued securities other than common stock that contractually entitle the
holder to participate in dividends and our earnings when, and if, it declares
dividends on its common stock. The Issue also provides further guidance in
applying the two-class method of calculating earnings per share, clarifying
what constitutes a participating security and how to apply the two-class method
of computing earnings per share once it is determined that a security is
participating, including how to allocate undistributed earnings to such a
security. EITF No. 03-06 is effective for fiscal periods beginning after March
31, 2004. We are evaluating the potential impact of the Issue on our financial
statements. 53




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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,
2004, 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 PositionKanya Matsumoto
    
    Chairman and Representative Director
    
    June 1996:(June 12, 1930)
    
    (June 2005)
    
    Vice Chairman and
Representative DirectorKaneo Ito
    
    President and Representative
    
    June 1991:(Apr. 30, 1936)
    
    Director;
Chief Executive Officer
(June 2005)
    
    Senior Managing
Director and
Representative
Director; General
Manager of
International Business
Group; and in charge of
overseas operations and
Public Relations
DivisionAkira Niijima
    
    Senior Managing Director and Representative
    
    June 2002:(Mar. 9, 1944)
    
    Director;
Chief Financial Officer; and
in charge of administration
and export control in
general
(June 2005)
    
    Senior Managing
Director; President of
Pioneers Home
Entertainment CompanyTakashi Kobayashi
    
    Senior Managing Director and
    
    June 2002:(Sept. 27, 1940)
    
    Representative Director; in
charge of Corporate
Communications Division,
Customer Satisfaction
Planning and Coordination
Division, Intellectual
Property Division, and
Business Development Division
(June 2005)
    
    Senior Managing Director; in charge of Corporate
Communications
Division, Customer
Satisfaction Planning
and Coordination
Division, Intellectual
Property Division, and
Business Development DivisionTamihiko Sudo
    
    Senior Managing Director and
    
    June 2003:(Apr. 28, 1947)
    
    Representative Director;
President of Pioneers Mobile
Entertainment Company
(June 2005)
    
    Managing Director;
President of Pioneers
Mobile Entertainment
Company
 54




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##### Table of Contents



Name
    
    Current Position(Date of birth)
    
    (Month and year of expiration)
    
    Prior PositionHajime Ishizuka
    
    Senior Managing Director and
    
    June 2003:(May 3, 1947)
    
    Representative Director;
President of Pioneers Home
Entertainment Business
Company
(June 2005)
    
    Director; President of Pioneers Components
Business Company; and
in charge of
International Business
DivisionTadahiro Yamaguchi
    
    Managing Director; Executive
    
    June 2002:(Mar. 24, 1946)
    
    Vice President of Pioneers
Plasma Display Business
Company (in charge of
technologies and production;
and Plant Manager of Ohmori
Plant
(June 2005)
    
    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; and
Plant Manager of
Tokorozawa PlantSatoshi Matsumoto
    
    Managing Director; General
    
    June 2002:(Apr. 15, 1954)
    
    Manager of Environmental
Preservation Group
(June 2005)
    
    Managing Director; General Manager of Division of
Environmental
PreservationOsamu Yamada
    
    Managing Director; General
    
    Apr. 2002:(Mar. 16, 1944)
    
    Manager of Research and
Development Group; and
General Manager of Corporate
Research and Development
Laboratories
(June 2005)
    
    Senior Executive
Officer; General
Manager of Research and
Development GroupKoichi Shimizu
    
    Managing Director; in charge
    
    June 2003:(Feb. 3, 1944)
    
    of technologies, production
and quality control in
general; General Manager of
Procurement Center; and in
charge of Strategic IT
Division
(June 2005)
    
    Director; General Manager of Production
Management and
Coordination Division;
General Manager of
Procurement Center; and
in charge of Strategic
IT DivisionTatsuhiro Ishikawa
    
    Director
    
    Dec. 2001 to present:(Apr. 4, 1939)
    
    (June 2005)
    
    Attorney-at-LawShunichi Sato
    
    Director
    
    Apr. 2000:(Feb. 10, 1941)
    
    (June 2005)
    
    Japanese Ambassador
Extraordinary and
Plenipotentiary to
Belgium
 55




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##### Table of Contents



Executive Officers Name
    
    Current Position(Date of birth)
    
    (Month and year of expiration)
    
    Prior PositionMasaru Saotome
    
    Senior Managing Executive Officer;
    
    June 2003:(Aug. 20, 1944)
    
    President of
Pioneers Plasma Display
Business Company
(June 2005)
    
    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 DivisionKazunori Yamamoto
    
    Senior Managing Executive Officer;
    
    June 2001:(Oct. 21, 1942)
    
    General Manager of
International Business Group
(June 2005)
    
    Senior Executive Officer;
President of Pioneer North
America, Inc.Kiyoshi Uchida
    
    Senior Executive Officer;
    
    Feb. 2003:(Mar. 28, 1951)
    
    President of Pioneers
Industrial Solutions and
Entertainment Company
(June 2005)
    
    Senior
Executive Officer;
in charge of Business
Systems DivisionSeiichiro Kurihara
    
    Senior Executive Officer;
    
    June 2001:(Mar. 15, 1943)
    
    General Manager of
Intellectual Property
Division
(June 2005)
    
    Executive
Officer; General
Manager of Intellectual
Property DivisionMasao Kawabata
    
    Senior Executive Officer; General Manager
    
    June 2001:(Aug. 10, 1948)
    
    of Corporate
Communications Division
(June 2005)
    
    Executive Officer; General
Manager of Corporate
Communications DivisionYoshio Taniyama
    
    Senior Executive Officer;
    
    June 2001:(Nov. 9, 1948)
    
    General Manager of Corporate
Planning Division
(June 2005)
    
    Executive Officer; General
Manager of Finance
DivisionHideki Okayasu
    
    Senior Executive Officer; General Manager
    
    June 2001:(May 12, 1950)
    
    of Finance
and Accounting Division
(June 2005)
    
    Executive Officer; General
Manager of Accounting
Division
 56




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##### Table of Contents



Name
    
    Current Position(Date of birth)
    
    (Month and year of expiration)
    
    Prior PositionKoki Aizawa
    
    Executive Officer; General
    
    June 2001:(Dec. 19, 1944)
    
    Manager of External Relations
Division
(June 2005)
    
    Executive Officer; Deputy
General Manager of
Research and Development
Group; and General Manager
of Corporate Research and
Development LaboratoriesToshihiko Norizuki
    
    Executive Officer; Managing
    
    June 2001:(May 23, 1945)
    
    Director of Pioneer China
Holding Co., Ltd.
(June 2005)
    
    Executive Officer; General Manager of Business Systems Division
and Plant Manager of
Ohmori PlantBuntarou Nishikawa
    
    Executive Officer; Executive Vice President
    
    June 2001:(Mar. 24, 1946)
    
    of Pioneers
Mobile Entertainment Company;
and General Manager of OEM
Sales Division
(June 2005)
    
    Executive Officer; General
Manager of Domestic Sales
Division of Pioneers
Mobile Entertainment
CompanyOsamu Takada
    
    Executive Officer; General
    
    June 1998:(July 27, 1948)
    
    Manager of Personnel Division
(June 2005)
    
    General Manager of
Personnel DivisionSumitaka Matsumura
    
    Executive Officer; Deputy
    
    Jan. 2001:(Oct. 10, 1948)
    
    General Manager of Research
and Development Group; and in
charge of AV & Recording
Systems Development Center
(June 2005)
    
    Deputy General Manager of
Research and Development
Group; and General Manager
of AV & Network
Development CenterChojuro Yamamitsu
    
    Executive Officer; Deputy
    
    Sep. 2002:(Mar. 26, 1946)
    
    General Manager of
Environmental Preservation
Group (in charge of Eco
Products)
(June 2005)
    
    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
CenterKenji Sato
    
    Executive Officer; General
    
    June 1998:(Aug. 29, 1947)
    
    Manager of General
Administration Division
(June 2005)
    
    General
Manager of General
Administration Division
 57




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##### Table of Contents



Name
    
    Current Position(Date of birth)
    
    (Month and year of expiration)
    
    Prior PositionYoichi Sato
    
    Executive Officer; Deputy General Manager
    
    June 2003:(Jan. 15, 1950)
    
    of Research
and Development Group and
General Manager of PDP
Development Center
(June 2005)
    
    Executive Officer; General Manager of Engineering
Division of Display
Business Division of
Pioneers Home
Entertainment CompanyToshiyuki Ito
    
    Executive Officer; Managing
    
    July 2002:(Oct. 17, 1950)
    
    Director of Pioneer
Electronics Asiacentre, Pte.
Ltd.
(June 2005)
    
    Managing
Director of
Pioneer Electronics
Asiacentre, Pte. Ltd.Susumu Kotani
    
    Executive Officer; Managing
    
    Sept. 2002:(Apr. 12, 1950)
    
    Director of Pioneer Europe NV
(June 2005)
    
    Managing Director of
Pioneer Europe NVRyoji Menjo
    
    Executive Officer; General
    
    Sep. 1997:(Nov. 22, 1947)
    
    Manager of Customer
Satisfaction Planning and
Coordination Division
(June 2005)
    
    General Manager of
Customer Satisfaction
Planning and Coordination
DivisionTsutomu Haga
    
    Executive Officer; President
    
    July 2003:(June 2, 1948)
    
    of Pioneer North America,
Inc.
(June 2005)
    
    President
of Pioneer
Electronics (USA) Inc.Akira Haeno
    
    Executive Officer; Plant
    
    July 2000:(Feb. 14, 1949)
    
    Manager of Kawagoe Plant and
General Manager of Production
Division of Pioneers Mobile
Entertainment Company
(June 2005)
    
    Managing Director of
Pioneer Technology Belgium NV
 58




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##### Table of Contents



Corporate Auditors Name
    
    Current Position(Date of birth)
    
    (Month and year of expiration)
    
    Prior PositionMakoto Koshiba
    
    Corporate Auditor (full time)
    
    Sept. 1999:(Nov. 21, 1943)
    
    (June 2007)
    
    Director; General Manager of
Accounting Division; in charge of
Finance DivisionShinji Yasuda
    
    Corporate Auditor (full time)
    
    July 2001:(June 10, 1945)
    
    (June 2007)
    
    Director; Managing Director of Pioneer China Holding Co., Ltd.Terumichi Tsuchida
    
    Corporate Auditor
    
    July 1998 to present:(Aug. 22, 1921)
    
    (June 2008)
    
    Advisor of Meiji Yasuda Life Insurance CompanyIsao Moriya
    
    Corporate Auditor
    
    Mar. 1968 to present:(Sept. 5, 1937)
    
    (June 2007)
    
    Certified Public AccountantKeiichi Nishikido
    
    Corporate Auditor
    
    Jan. 1994 to present:(May 2, 1953)
    
    (June 2007)
    

Attorney-at-Law;
Managing Partner of Kohwa Sohgoh
Law Offices, Japan
 All of the above persons, with the exception of Messrs. Tatsuhiro Ishikawa,
Shunichi Sato, Terumichi Tsuchida, Isao Moriya and Keiichi Nishikido devote
themselves full time to our business. None of the persons listed above was selected as a director, corporate auditor
or member of senior management pursuant to an arrangement or understanding with
our major shareholders, customers, suppliers or others. 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. 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 2004 totaled ¥1,238
million. Also, as part of Pioneers incentive compensation arrangements for
Directors and Executive Officers, Pioneer issued bonds with detachable warrants
in Japan in fiscal 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. 59




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##### Table of Contents



The aggregate amount set aside as lump-sum severance indemnities by Pioneer
during fiscal 2004 for Directors, Executive Officers and Corporate Auditors of
Pioneer totaled ¥500 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 9 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
after their assumption of office and in the case of Corporate Auditors, within
four years after their assumption of office; however, Directors and Corporate
Auditors may serve any number of consecutive terms. For information regarding
the expiration of the term of office for each of the 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 to individually represent Pioneer in the conduct of its affairs. Pioneer introduced a Corporate Executive Officer (shikko yakuin) 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. For information
regarding the expiration of the term of office of each of the 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 to individually operate businesses of which he or
she is in charge under the control of the Board of Directors and Representative
Directors. 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 financial statements
and business report to be submitted by a Representative Director 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 60




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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
financial statements proposed to be submitted by a Representative Director at
general meetings of shareholders and to report their opinion thereon to the
Board of Corporate Auditors and the Representative Director. 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 a Representative Director 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. Significant Differences in Corporate Governance Practices Between Pioneer
Corporation and U.S. Companies Listed on the NYSE Pursuant to home country practices exemptions granted by the NYSE, Pioneer is
permitted to follow certain corporate governance practices complying with
Japanese laws, regulations and stock exchange rules in lieu of NYSEs listing
standards. Pioneers corporate governance practices and those followed by U.S.
companies under the NYSE listing standards (NYSE Corporate Governance) have
the following significant differences: Directors Pioneer currently has two (2) non-management directors on its board of
directors who satisfy the requirements of outside directors under the
Commercial Code of Japan. Outside director is defined as a director who does
not engage in the execution of business operations of a company and who (i) has
never been a director responsible for the execution of business operations, an
executive officer, a manager, or other employee of the company or any of its
subsidiaries, and (ii) is not a director responsible for the execution of
business operations or executive officer of any subsidiary of the company, and
(iii) is not a manager or other employee of the company or any of its
subsidiaries. The Commercial Code of Japan and related legislation (including
the Law concerning Exceptional Measures to the Commercial Code with respect to
Auditing, etc. of Joint Stock Corporations (the Special Exception Law), and
collectively, the Code) do not require Japanese companies with boards of
corporate auditors, such as Pioneer, to have any independent (in the meaning
given by the NYSE listing standards) or outside (in the meaning given by the
Code) directors on their boards of directors. Consistent with most Japanese
companies but unlike NYSE Corporate Governance, Pioneers non-management
directors do not hold regularly scheduled sessions without management.
Moreover, the Code does not require, and accordingly Pioneer does not have, an
internal corporate body or committee comprised of only independent or outside
directors. Committees Under the Code, Pioneer has elected to structure its corporate governance
system as a company with a board of corporate auditors, which has a statutory
duty to monitor, review and report on the administration of the affairs of
Pioneer. Pioneer, consistent with other Japanese companies with boards of
corporate auditors, but unlike NYSE Corporate Governance, does not have
specified committees, 61




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including those that are responsible for director nomination, corporate
governance and executive compensation. Pursuant to the Code, Pioneers board of directors nominates and submits a
proposal for appointment of directors for shareholder approval. The
shareholders vote on such nomination at Pioneers general meeting of
shareholders. The Code requires that the respective total amount of
remuneration to be paid to all directors and all corporate auditors must be
determined by a resolution of the general meeting of shareholders, unless their
remuneration is provided for in the Articles of Incorporation. The
distribution of remuneration among directors is broadly delegated to Pioneers
board of directors and the distribution of remuneration among corporate
auditors is determined by consultation among Pioneers corporate auditors. Audit Committee Pioneer plans to avail itself of paragraph (c) (3) of Rule 10A-3 of the U.S.
Securities Exchange Act of 1934 as amended, which provides a general exemption
from the audit committee requirements to a foreign private issuer with a board
of corporate auditors, subject to certain requirements which continue to be
applicable under Rule 10A-3. Consistent with the requirements of the Code, Pioneer elects its corporate
auditors through a resolution adopted at a general meeting of shareholders.
Pioneer currently has five (5) corporate auditors, which exceeds a minimum of
three (3) corporate auditors required pursuant to the Code. Unlike NYSE Corporate Governance, the Code, among others, does not require
corporate auditors to have expertise in accounting or other special knowledge
and experience. Under the Code, the board of corporate auditors may determine
the auditing policies, method of investigating the conditions of the business
and the assets of a company, and may resolve other matters concerning the
execution of the corporate auditors duties, prepare corporate auditors
reports and give consent to proposals of the nomination of corporate auditors
and registered public accounting firms. Pioneer currently has three (3) corporate auditors who satisfy the requirements
of outside auditors under the Special Exception Law. Unlike NYSE Corporate
Governance, under the Code, at least one of the corporate auditors of Pioneer
must be an outside person, who was not a director, executive officer,
manager, or employee of Pioneer or any of its subsidiaries during the five-year
period prior to such corporate auditors election. 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, manager, or employee of Pioneer or any of its subsidiaries at any time
prior such corporate auditors election. Corporate auditors may not at the
same time be directors, executive officers, managers, or employees of Pioneer
or any of its subsidiaries. Corporate Governance Guidelines Unlike NYSE Corporate Governance, Pioneer is not required to adopt or disclose
corporate governance guidelines under Japanese laws and regulations, including
the Code and the Securities and Exchange Law of Japan or stock exchange rules.
However, Pioneer is required to disclose policies and the present status of its
corporate governance in its annual securities report and certain other
disclosure documents in accordance with the Securities and Exchange Law of
Japan and regulations thereunder, and stock exchange rules in respect of timely
disclosure. 62




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Code of Business Conduct and Ethics Unlike NYSE Corporate Governance, under Japanese law (including the Code and
the Securities and Exchange Law of Japan), and stock exchange rules, Pioneer is
not required to adopt and disclose a code of business conduct and ethics for
directors, officers and employees. However, Pioneer maintains a Pioneer Group
Code of Conduct which we believe is consistent with the Code of Ethics
described under Section 406 of the Sarbanes-Oxley Act. See Item 16B. Code of
Ethics. Shareholder Approval of Equity Compensation Plans Unlike NYSE Corporate Governance, in which material revisions to
equity-compensation plans of the listed companies are subject to shareholder
approval, pursuant to the Code, if Pioneer desires to adopt an
equity-compensation plan under which stock acquisition rights are granted on
specially favorable terms to the recipients under the plan, then Pioneer must
obtain shareholder approval by a special resolution of a general meeting of
shareholders, where the quorum is one-third of the total number of voting
rights and the approval of at least two-thirds of the voting rights represented
at the meeting is required. D. Employees The following table sets forth the number of our employees at the end of the
period indicated. Year ended March 312002
    
    2003
    
    2004Number of employees
    
    
    31,220
    
    
    
    34,656
    
    
    
    36,360
 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. 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, 2004 is as
follows: Title of class
    
    Identity of person or group
    
    Number of shares owned
    
    Percent of classCommon Stock
    
    Directors, Executive
Officers and Corporate
Auditors as a group
    
    4,323,042 shares*
    
    
    2.46
    %
  *
    
    Except for Mr. Kanya Matsumoto, Chairman of Pioneer, who owns 3,785,359
shares of common stock, which constitutes 2.15% of all outstanding shares
as of March 31, 2004, 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. 63




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Total number ofshares covered by
    
    
    
    Current exercise
    
    Number of shareswarrants
    
    
    
    price
    
    exercisedFiscal year granted
    
    (in thousands)
    
    Exercise period
    
    per share
    
    (in thousands)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 ofshares covered by
    
    
    
    Current exercise
    
    Number of sharesoption
    
    
    
    price
    
    exercisedFiscal 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
    
    
 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 ofshares covered by
    
    
    
    Current exercise
    
    Number of sharesoption
    
    
    
    price
    
    exercisedFiscal 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
    
    ¥2,951
    
    2005
    
    
    
    350
    
    
    From July 3, 2006 to June 30, 2009
    
    ¥2,944
    
    
 As of March 31, 2004, Pioneer holds 4,632,962 shares as treasury stock with the
purchase of 5,002 shares and disposal of 1,068 shares both in the market in
fiscal 2004. 64




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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, 2004 on the register of shareholders were as follows: Number of shares
    
    Percentage ofTitle of class
    
    Name
    
    (in thousands)
    
    outstanding sharesCommon Stock
    
    Japan Trustee Services Bank, Ltd.(Trust Account)
    
    
    16,366
    
    
    9.32%Common Stock
    
    The Master Trust Bank of Japan, Ltd.(Trust Account)
    
    
    14,196
    
    
    8.09%
 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, 2004, there were 175,430,874 shares of common stock
outstanding, of which 2,086,930 shares (1.18%) were held in the form of
American Depositary Receipts (ADRs) and 19,552,181 shares (11.1%) 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 87, 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 76. 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 65




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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
(¥2,706 million translated at the current foreign exchange rate at March 31,
2004) 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, 2004. In the opinion of management, it is not possible at this
time to determine the ultimate resolution of this matter. In June 2004, we received preliminary information from the United States
Internal Revenue Service (IRS) proposing additional taxes of approximately
US$58 million (¥6,148 million translated at the foreign exchange rate at March
31, 2004) relating to an adjustment to transfer prices between affiliated
companies for the years ended March 31, 2000 through 2002. We intend to
contest the adjustment. In the opinion of management, it is not possible at
this time to determine the ultimate outcome of this matter. We were a defendant in legal proceedings in which Gemstar-TV Guide
International, Inc. (Gemstar), and certain of its affiliates alleged that we
had infringed certain of their patents. On February 24, 2004, we fully settled
all disputes and legal proceedings with Gemstar and we made a payment of US$14
million to Gemstar. 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 shareholders and pledges 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. 66




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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 shareRecord date
    
    Yen
    
    DollarsMarch 31, 2000
    
    
    ¥  5.00
    
    
    
    $0.05September 30, 2000
    
    
    7.50
    
    
    
    0.07March 31, 2001
    
    
    7.50
    
    
    
    0.06September 30, 2001
    
    
    7.50
    
    
    
    0.06March 31, 2002
    
    
    7.50
    
    
    
    0.06September 30, 2002
    
    
    7.50
    
    
    
    0.06March 31, 2003
    
    
    10.00
    
    
    
    0.08September 30, 2003
    
    
    12.50
    
    
    
    0.12March 31, 2004
    
    
    12.50
    
    
    
    0.11
 Pioneers policy on dividends allows for continued and stable dividend payment.
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. 67




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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 ExchangePrice per share of Common Stock
    
    Price per share of ADS(yen)
    
    (U.S. dollars)Annual highs and lows
    
    High
    
    Low
    
    High
    
    LowYear ended March 31,2000
    
    
    ¥3,690
    
    
    
    ¥1,711
    
    
    
    $34.75
    
    
    
    $16.132001
    
    
    4,940
    
    
    
    2,085
    
    
    
    45.38
    
    
    
    20.502002
    
    
    4,250
    
    
    
    2,150
    
    
    
    34.70
    
    
    
    16.752003
    
    
    2,860
    
    
    
    1,805
    
    
    
    21.98
    
    
    
    14.832004
    
    
    3,370
    
    
    
    2,225
    
    
    
    31.25
    
    
    
    18.90Quarterly
highs and lowsFiscal 20031st quarter
    
    
    2,860
    
    
    
    1,981
    
    
    
    21.65
    
    
    
    16.752nd quarter
    
    
    2,260
    
    
    
    1,900
    
    
    
    18.60
    
    
    
    16.003rd quarter
    
    
    2,490
    
    
    
    1,805
    
    
    
    19.50
    
    
    
    14.834th quarter
    
    
    2,620
    
    
    
    2,070
    
    
    
    21.98
    
    
    
    17.95Fiscal 20041st quarter
    
    
    2,840
    
    
    
    2,225
    
    
    
    23.75
    
    
    
    18.902nd quarter
    
    
    3,030
    
    
    
    2,515
    
    
    
    25.75
    
    
    
    20.853rd quarter
    
    
    2,995
    
    
    
    2,505
    
    
    
    28.31
    
    
    
    23.304th quarter
    
    
    3,370
    
    
    
    2,875
    
    
    
    31.25
    
    
    
    27.01Fiscal 20051st quarter
    
    
    3,390
    
    
    
    2,635
    
    
    
    30.85
    
    
    
    23.75Monthly
highs and lows2004January
    
    
    3,370
    
    
    
    2,875
    
    
    
    31.25
    
    
    
    27.24February
    
    
    3,270
    
    
    
    2,930
    
    
    
    30.16
    
    
    
    27.01March
    
    
    3,250
    
    
    
    2,890
    
    
    
    30.00
    
    
    
    27.04April
    
    
    3,390
    
    
    
    3,000
    
    
    
    30.85
    
    
    
    28.55May
    
    
    3,120
    
    
    
    2,660
    
    
    
    28.80
    
    
    
    23.76June
    
    
    2,880
    
    
    
    2,635
    
    
    
    26.46
    
    
    
    23.75July
    
    2,850
    
    
    2,310
    
    
    25.90
    
    
    21.20
 B. Plan of distribution Not applicable 68




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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. 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;
    
    manufacture and sale of optical instruments, medical instruments, and other machinery and appliances;
    
    planning, production, manufacture and sale of audio, video and computer software;
    
    manufacture and sale of woodwork;
    
    manufacture and sale of agricultural products and plants for their cultivation; 69




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
    
    sale of food 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 paragraphs. 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 branch offices. The Regulations of the Board of
Directors of Pioneer require a resolution of the Board of Directors for Pioneer
to borrow a substantial amount of money or to give guarantees in a substantial
amount. There is no written rule as to what constitutes a substantial amount
in these contexts. However, it has been the general practice of Pioneers
Board of Directors to adopt a resolution for borrowing or guaranteeing in an
amount not less than ¥100 million or its equivalent. 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 to directly 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 a securities
company or a commercial bank having a clearing account with JASDEC. All shares
deposited 70




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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 book 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, 2004, 180,063,836 shares of common stock were issued (including
4,632,962 shares held as treasury stock). All shares of common stock of Pioneer have no par value. 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 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 September 30 of each year, 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 is at least
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, on a non-consolidated
basis, 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)
    
    such other amounts as are set out in an ordinance of the Ministry of Justice. 71




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In the case of interim dividends, the net assets are calculated by reference to
the non-consolidated balance sheet as at the last date of the preceding fiscal
year, but adjusted to reflect; (a) the legal reserve to be set aside in respect
of interim dividends; (b) any subsequent payment by way of appropriation of
retained earnings and transfer to legal reserve in respect thereof; (c) any
subsequent transfer of retained earnings to stated capital; (d) if Pioneer has
been authorized, pursuant to a resolution of an ordinary general meeting of
shareholders, a resolution of the Board of Directors or both, 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; and (e) such other amounts as are
set out in an ordinance of the Ministry of Justice, provided that (x) if
Pioneer reduces its stated capital, additional paid-in capital or accumulated
legal reserve after the end of the preceding fiscal year, the amount so
reduced, less the amount paid to shareholders upon such reduction and certain
other amounts, and (y) such other amounts as are set out in an ordinance of the
Ministry of Justice, shall be added to the amount distributable as interim
dividends as described above. Interim dividends may not be paid if it is
anticipated that at the end of the fiscal year net assets, on a
non-consolidated basis, will be less than 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. 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
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
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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. 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 a substantial 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 issue of new shares at a specially favorable price (or any issue of
share acquisition rights to subscribe for or acquire shares of capital stock
(share acquisition rights) or bonds with share acquisition rights at
specially 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 issue of new shares at a specially favorable price
mentioned under Voting rights above. The Board of Directors may, however,
determine that shareholders shall be given subscription rights regarding a
particular issue of new shares, in which case such rights must be given on
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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. Subject to certain conditions, Pioneer may issue share acquisition rights or
bonds with share acquisition rights by a resolution of the Board of Directors.
Holders of share acquisition rights or bonds with 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 and bonds
with 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 shares held by it as treasury
stock. Liquidation rights In the event of a liquidation of Pioneer, the assets remaining after payment of
all debts, liquidation expenses and taxes will be distributed among
shareholders in proportion to the respective numbers of shares of common stock
held by them. 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 units of
shares in Pioneers register of shareholders and/or that of beneficial
shareholders at the end of each March 31 are 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
pertaining to the shares of Common Stock of Pioneer, and for other purposes, by
a resolution of the Board of Directors and giving at least two weeks prior
public notice. The price of shares generally goes ex-dividends or ex-rights on Japanese stock
exchanges on the third business day prior to a record date (or if the record
date is not a business day, the fourth business day prior thereto), for the
purpose of dividends or rights offerings. Acquisition 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 or a resolution of the Board of Directors), by way of
tender offer (pursuant to an ordinary resolution of an ordinary general meeting
of shareholders or a resolution of the Board of Directors), 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). If shares are
purchased by Pioneer pursuant to a resolution of the Board of Directors, then
the reason for the purchase, as well as the kind, number and aggregate purchase
price of such shares must be reported to the shareholders at the ordinary
general meeting of shareholders to be held immediately after such purchase of
shares. 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 a 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 pursuant to a resolution of the Board of Directors, 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
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(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 from retained earnings to stated capital. If Pioneer
purchases shares pursuant to a resolution of the Board of Directors, 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. 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 75




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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 location 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 may hold or
deposit 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. 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
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C. Material contracts None 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 are not resident 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 exchange 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. 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 an exchange
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 an exchange 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 exchange 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. 77




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Under the Foreign Exchange Regulations, dividends paid on and the proceeds from
sales in Japan of shares of common stock of Pioneer held by exchange
non-residents of Japan may generally be converted into any foreign currency and
repatriated abroad. E. Taxation The following discussion is a summary of the principal Japanese national and
U.S. federal income tax consequences of the acquisition, ownership and
disposition of shares of common stock or ADSs. 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, traders in securities
that elect to use a mark-to-market method of accounting for their securities
holdings, regulated investment companies, real estate investment trusts,
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 or constructive
sale 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 (as defined below) 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 and regulations of Japan and of the United States,
judicial decisions, published rulings and administrative pronouncements as in
effect at the date hereof, as well as on the current income tax convention
between the United States and Japan, all of which are subject to change
(possibly with retroactive effect) and/or to differing interpretations. U.S. Holders should note that the United States and Japan ratified the new
income tax convention (the New Treaty), which is to replace its predecessor
income tax convention signed on March 8, 1971 (the Prior Treaty). The New
Treaty entered into force on March 30, 2004 and shall be applicable in Japan,
in place of the Prior Treaty, (i) with respect to taxes withheld at source, for
amounts taxable on or after July 1, 2004, and (ii) with respect to taxes on
income which are not withheld at source and the enterprise taxes, as regards
income for any taxable year beginning on or after January 1, 2005 (subject to
certain transitional rules with respect to both items (i) and (ii) above). The
Prior Treaty shall cease to have effect in relation to any tax from the date on
which the New Treaty shall be applicable (subject to certain transitional rules
allowing for exceptions). Where relevant, U.S. Holders are urged to confirm
whether they are entitled to the treaty benefit provided under the Prior Treaty
or the New Treaty, as the case may be, with their tax advisors. 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. 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 for U.S. federal income tax purposes 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 (i) subject to the primary supervision of a U.S. court and the control of one or more
U.S. persons, or (ii) that has a valid election in effect under applicable Treasury regulations to be
treated as a U.S. person. 78




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An Eligible U.S. Holder is a U.S. Holder that:  
    
    is a resident of the United States for purposes of the Prior Treaty or the New Treaty, as applicable
from time to time,
    
    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 Prior Treaty or the New Treaty, as applicable, with
respect to income and gain derived in connection with the shares of common stock or ADSs. The U.S. federal income tax consequences of a partner in a partnership holding
shares of common stock or ADSs generally will depend on the status of the
partner and the activities of the partnership. Partners in a partnership
holding shares of common stock or ADSs should consult their own tax advisors.
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. This summary
also does not cover any state or local, or non-U.S., non-Japanese tax
considerations. 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 assumption, for purposes of the
Prior Treaty and the New Treaty, as applicable, and for U.S. federal income and
Japanese income 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 income tax. The discussion below is intended for general information only and does not
constitute a complete analysis of all tax consequences relating to the
acquisition, ownership and disposition of shares of common stock or the ADSs.
Investors in shares of common stock or the ADSs should consult their own tax
advisors concerning the tax consequences of their particular
situations. Japanese taxation The following is a summary of the principal Japanese tax consequences (limited
to national taxes) to holders of shares of common stock of Pioneer or ADRs
evidencing ADSs representing shares of common stock of Pioneer who are either
individuals who are not residents of Japan or non-Japanese corporations,
without a permanent establishment in Japan (non-resident Holders). Generally, an individual who is 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. In the absence of an applicable tax treaty, convention or agreement reducing
the maximum rate of Japanese withholding tax or allowing exemption from
Japanese withholding tax, the rate of Japanese withholding tax applicable to
dividends paid by Japanese corporations to individuals who are non-residents of
Japan or non-Japanese corporations is 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
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Japanese non-resident individuals, such as non-resident Holders), except for
any individual shareholder who holds 5% or more of the total issued shares of
the relevant Japanese corporation, the aforementioned 20% withholding tax rate
is reduced to (i) 7% for dividends due and payable on or before March 31, 2008,
and (ii) 15% for dividends due and payable on or after April 1, 2008. At the
date of this annual report, Japan has income tax treaties, conventions or
agreements whereby the above-mentioned withholding tax rate is reduced, in most
cases to 15 percent for portfolio investors with, among other countries,
Australia, Belgium, Canada, Denmark, Finland, France, Germany, Ireland, Italy,
Luxembourg, the Netherlands, New Zealand, Norway, Singapore, Spain, Sweden,
Switzerland, and the U.K. Under the Prior Treaty, the maximum rate of Japanese withholding tax which may
be imposed on dividends paid by a Japanese corporation to Eligible U.S. Holders
that are portfolio investors was limited to 15% of the gross amount actually
distributed. However, under the New Treaty which would become applicable to
dividends declared by Pioneer on or after July 1, 2004, the maximum rate of
Japanese withholding tax which may be imposed on dividends paid by a Japanese
corporation to Eligible U.S. Holders that are portfolio investors is generally
limited to 10% of the gross amount actually distributed, and dividends paid by
a Japanese corporation to Eligible U.S. Holders that are pension funds is
exempt from Japanese taxation by way of withholding or otherwise unless such
dividends are derived from the carrying on of a business, directly or
indirectly, by such pension funds. If the maximum tax rate provided for in the income tax treaty applicable to
dividends paid by Pioneer to any particular non-resident Holder is lower than
the withholding tax rate otherwise applicable under Japanese tax law or any
particular non-resident Holder is exempt from Japanese income tax with respect
to such dividends under the income tax treaty applicable to such particular
non-resident Holder, such non-resident Holder who is entitled to a reduced rate
of or exemption from Japanese withholding tax 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. A standing proxy for non-resident Holders of a Japanese corporation
may provide this application service. With respect to ADSs, this reduced rate
or exemption is applicable if the Depositary or its agent submits 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 or exemption, any relevant non-resident Holder of ADSs
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. A non-resident Holder who is entitled, under an
applicable tax treaty, to a reduced treaty rate lower than the withholding tax
rate otherwise applicable under Japanese tax law or an exemption from the
withholding tax, but failed to submit the required application in advance will
be entitled to claim the refund of withholding taxes withheld in excess of the
rate under an applicable tax treaty (if such non-resident Holder is entitled to
a reduced treaty rate under the applicable income tax treaty) or the whole of
the withholding tax withheld (if such non-resident Holder is entitled to an
exemption under the applicable income tax treaty) from the relevant Japanese
tax authority. Pioneer does not assume any responsibility to ensure
withholding at the reduced treaty rate or not withholding for shareholders who
would be eligible under an applicable tax treaty but do not follow the required
procedures as stated above. Gains derived from the sale of shares of common stock or ADSs outside Japan by
a non-resident Holder holding such shares or ADSs as a portfolio investor are,
in general, not subject to Japanese income or corporation tax. Eligible U.S.
Holders are not subject to Japanese income or corporation tax with respect to
such gains under the Prior Treaty and the New Treaty, as applicable. Japanese inheritance and gift taxes at progressive rates may be payable by an
individual who has acquired shares of common stock or ADSs as a legatee, heir
or donee even though neither the individual nor the deceased nor donor is a
Japanese resident. 80




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Holders of shares of common stock of Pioneer or ADSs should consult their tax
advisors regarding the effect of these taxes and, in the case of U.S. Holders,
the possible application of the Estate and Gift Tax Treaty between the U.S. and
Japan. U.S. federal income taxation U.S. Holders The following discussion is a summary of the principal U.S. federal income tax
consequences to holders of shares of common stock and ADSs that are U.S.
Holders and that hold those shares or ADSs as capital assets (generally, for
investment purposes). Taxation of Dividends 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 under U.S. federal
income tax principles. The U.S. dollar amount of such a dividend generally
will be included in the gross income of a U.S. Holder, as ordinary income, when
the 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.
Dividends paid by us will not be eligible for the dividends received deduction
generally allowed to U.S. corporations in respect of dividends received from
other U.S. corporations. Subject to certain exceptions for short-term and
hedged positions, and provided that we are not a passive foreign investment
company (as discussed below), dividends received by certain U.S. Holders
(including individuals) prior to January 1, 2009 with respect to the shares of
common stock or ADSs will be subject to U.S. federal income taxation at a
maximum rate of 15%. Investors should be aware that the U.S. Treasury
Department has announced its intention to promulgate rules pursuant to which
shareholders (and intermediaries) will be permitted to rely on certifications
from issuers to establish that dividends qualify for the reduced rate of U.S.
federal income taxation. Because such procedures have not yet been issued, we
are not certain that we will be able to comply with them. U.S. Holders of ADSs
or shares of common stock should consult their own tax advisors regarding the
availability of the reduced rate in the light of their own particular
circumstances. The U.S. dollar amount of a dividend paid in Japanese yen will be determined
based on the Japanese 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 on such date. 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 the
U.S. Holder otherwise disposed the Japanese yen) will be treated as U.S. source
ordinary income or loss. U.S. Holders should consult their own tax advisors
regarding the calculation and U.S. federal income tax treatment of foreign
currency gain 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 as determined under U.S. federal income tax
principles, 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 thereafter as U.S. source capital gain. 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. 81




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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 U.S. 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. 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. U.S. Holders are urged to consult their tax advisors regarding the
availability of the foreign tax credit under their particular circumstances.
The Internal Revenue Service (the IRS) has expressed concern that parties to
whom ADSs are released may be taking actions that are inconsistent with the
claiming of foreign tax credits by U.S. Holders of ADSs. Accordingly,
investors should be aware that the discussion above regarding the creditability
of Japanese withholding tax on dividends could be affected by future actions
that may be taken by the IRS. Taxation of Capital Gains and Losses In general upon a sale or other taxable 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 on
the sale or other taxable disposition and the U.S. Holders adjusted tax basis
in those shares or ADSs (which is generally the U.S. dollar cost thereof).
Subject to the passive foreign investment company rules discussed below, such
gain or loss recognized on the sale or other taxable disposition 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.
Certain U.S. Holders, including individuals, are eligible for preferential
rates of U.S. federal income tax in respect of 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 taxable disposition of shares of common stock or ADSs generally
will be treated as derived from U.S. sources for U.S. foreign tax credit
purposes. Passive Foreign Investment Companies Based on current estimates of our income and asset, 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 taxable disposition
of 82




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shares of common stock or ADSs and certain excess distributions (generally
distributions in excess of 125% of the average distribution over a three-year
period, or shorter holding period for the shares of common stock or ADSs) 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 may apply to the portion
of the U.S. federal income tax liability on such gains or distributions treated
under the PFIC rules as having been deferred by the U.S. Holder. Moreover,
dividends that a U.S. Holder receives from us will not be eligible for the
reduced U.S. federal income tax rates described above if we are a PFIC either
in the taxable year of the distribution or the preceding taxable year (and
instead will be taxable at rates applicable to ordinary income). 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 taxable 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 The following discussion is a summary of the principal U.S. federal income tax
consequences to beneficial holders of shares of common stock or ADSs that are
neither U.S. Holders nor partnerships for U.S. federal income tax purposes
(Non-U.S. Holders). Subject to the discussion below on Backup withholding and information
reporting, 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. Subject to the discussion below on Backup withholding and information
reporting, 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 a lower rate that may be prescribed by an
applicable income tax treaty. 83




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Backup withholding and information reporting In general, except in the case of certain exempt recipients (such as
corporations) 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 currently at a rate
of 28% 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 or makes other appropriate
certifications in the required manner. 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 Non-U.S. Holder may be required
to provide certification of non-U.S. status in order to obtain that exemption. Persons required to establish their exempt status generally must provide such
certification on IRS Form W-9, entitled Request for Taxpayer Identification
Number and Certification, in the case of U.S. persons, and on IRS Form W-8BEN,
entitled Certificate of Foreign Status (or other appropriate IRS Form W-8), in
the case of non-U.S. persons. Back up withholding is not an additional tax.
The amount of backup withholding imposed on a payment generally may be claimed
as a credit against the holders U.S. federal income tax liability provided
that the required information is properly furnished to the IRS. THE SUMMARY OF U.S. FEDERAL INCOME AND JAPANESE TAX CONSEQUENCES SET OUT ABOVE
IS INTENDED FOR GENERAL INFORMATION PURPOSES ONLY. INVESTORS IN THE COMMON
STOCK OR ADSs ARE URGED TO CONSULT WITH THEIR OWN TAX ADVISORS WITH RESPECT TO
THE PARTICULAR TAX CONSEQUENCES TO THEM OF OWNING OR DISPOSING OF COMMON STOCK
OR ADSs, BASED ON THEIR PARTICULAR CIRCUMSTANCES. 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 84




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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. 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,
2004, 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, 2004.
All of the contracts mature within one year. There are no option contracts
outstanding as of March 31, 2004.  Forward exchange contract as of March 31, 2004
 
 Functional currency
    
    Yen
    
    EUR
    
    A$
    
    THB
    
    NT$
    
    SEKSell/Buy
    
    US$/Yen
    
    EUR/Yen
    
    A$/US$
    
    THB/US$
    
    US$/NT$
    
    NOK/SEK
    
    Total(In millions of yen
except average rates)Contract amounts
    
    ¥
    5,409
    
    
    ¥
    12,338
    
    
    ¥
    1,041
    
    
    ¥
    870
    
    
    ¥
    744
    
    
    ¥
    103
    
    
    ¥
    20,505Average contractual
exchange rates
    
    
    110.40
    
    
    
    134.10
    
    
    
    0.6894
    
    
    
    39.5017
    
    
    
    33.23
    
    
    
    1.0588Fair value
    
    ¥
    248
    
    
    ¥
    542
    
    
    ¥
    (87
    )
    
    ¥
    (2
    )
    
    ¥
    (6
    )
    
    ¥
    0
    
    
    ¥
    695
 85




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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, the U.S. dollar
floating interest rate intercompany borrowings into yen fixed and floating
interest rate borrowings and euro fixed interest rate borrowings. The foreign
exchange risk inherent in our currency swap as of March 31, 2004 is summarized
as follows:  Currency swap as of March 31, 2004
 
 Expected maturity dateContract amounts
    
    (year ending March 31)Buy
    
    Sell
    
    2005
    
    2006
    
    2007
    
    Total
    
    Fair value(Millions except average rates)Functional currency: Yen
    
    
    ¥24,540
    
    
    
    US$200
    
    
    
    
    
    
    
    ¥18,665
    
    
    
    ¥5,875
    
    
    
    ¥24,540
    
    
    ¥
    (3,106
    )Average contractual exchange rate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    124.43
    
    
    
    117.50Functional currency: Euro
    
    
    EUR82
    
    
    
    US$100
    
    
    
    ¥10,566
    
    
    
    
    
    
    
    
    
    
    
    ¥10,566
    
    
    
    ¥(73
    )Average contractual exchange rate
    
    
    
    
    
    
    
    
    
    
    1.220
 With respect to interest rate
risk inherent in our currency swaps as of March 31, 2004, see
Interest rate risk below. Interest rate risk The following table provides information about interest rate risk inherent in
the aforementioned currency swaps as of March 31, 2004. Variable interest
rates are determined using formulas such as LIBOR+a.  Currency swap as of March 31, 2004
 
 Expected maturity dateContract amounts
    
    (year ending March 31)Buy
    
    Sell
    
    2005
    
    2006
    
    2007
    
    Total
    
    Fair value(Millions except average rates)Functional currency: YenVariable (US$) to Fixed (Yen)
    
    
    ¥12,590
    
    
    
    US$100
    
    
    
    
    
    
    
    ¥12,590
    
    
    
    
    
    
    
    ¥12,590
    
    
    
    ¥(2,028
    )Average pay rate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.41
    %Average receive rate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.18
    %Fixed (US$) to Fixed (Yen)
    
    
    ¥11,950
    
    
    
    US$100
    
    
    
    
    
    
    
    ¥  6,075
    
    
    
    ¥5,875
    
    
    
    ¥11,950
    
    
    
    ¥(1,078
    )Average pay rate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.65
    )%
    
    
    (1.35
    )%Average receive rate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2.88
    %
    
    
    1.21
    %Functional currency: EuroVariable (US$) to Fixed (Euro)
    
    
    EUR82
    
    
    
    US$100
    
    
    
    ¥10,566
    
    
    
    
    
    
    
    
    
    
    
    ¥10,566
    
    
    
    ¥(73
    )Average pay rate
    
    
    
    
    
    
    
    
    
    
    2.13
    %Average receive rate
    
    
    
    
    
    
    
    
    
    
    1.12
    %
 86




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The following table provides information about principal cash flows by expected
maturity dates, weighted average interest rates, and fair value of our debt
obligations as of March 31, 2004. The interest rate on the variable rate debt
is determined based on prevailing market rates for tax-exempt municipal bonds
in the U.S.  Long-term debt (including due within one year) as of March 31, 2004
 
 Expected maturity date (year ending March 31)FunctionalCurrency
    
    2005
    
    2006
    
    2007
    
    2008
    
    2009
    
    Thereafter
    
    Total
    
    Fair value(In millions of yen except average rates)Fixed rate (Yen)
    
    Yen
    
    
    ¥4,507
    
    
    
    15,314
    
    
    
    248
    
    
    
    247
    
    
    
    10,244
    
    
    
    63,063
    
    
    
    ¥93,623
    
    
    
    ¥88,929Average interest rate
    
    
    
    
    
    
    3.87
    %
    
    
    2.37
    %
    
    
    3.77
    %
    
    
    3.77
    %
    
    
    2.82
    %
    
    
    0.06
    %
    
    
    0.95
    %Variable rate (US$)
    
    US$
    
    
    
    
    
    
    528
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    528
    
    
    
    528Average interest rate
    
    
    
    
    
    
    
    
    
    
    1.29
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.29
    %Interest free loan
(US$)
    
    US$
    
    
    3
    
    
    
    6
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11
    
    
    
    11Interest free loan
(EUR)
    
    EUR
    
    
    
    
    
    
    9
    
    
    
    5
    
    
    
    25
    
    
    
    
    
    
    
    
    
    
    
    39
    
    
    
    39Total
    
    
    
    
    
    
    ¥4,510
    
    
    
    15,857
    
    
    
    255
    
    
    
    272
    
    
    
    10,244
    
    
    
    63,063
    
    
    
    ¥94,201
    
    
    
    ¥89,507
 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, 2004. 2004Cost
    
    Fair value(In millions of yen)Debt securities (by contractual maturities)Maturing over one year
    
    ¥
    106
    
    
    ¥
    107Equity securities
    
    ¥
    6,520
    
    
    ¥
    24,409
 
 Item 12. Description of Securities Other than Equity Securities Not applicable 87




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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)
    
    As of the end of the period covered by 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 Akira
Niijima, 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)
    
    During the annual period covered by the annual report, 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] 
 Item 16A. Audit Committee Financial Expert Pioneer maintains a corporate auditor system, in accordance with the Japanese
Commercial Code (the Code) and the Law concerning Exceptional Measures to the
Commercial Code with respect to Auditing, etc. of Joint Stock Corporations (the
Special Exception Law). Rule 10A-3(c)(3) under the Exchange Act prescribes a
general exemption from the audit committee member independence requirements for
a foreign private issuer maintaining, among others, a board of corporate
auditors established and selected pursuant to home country laws. Pioneers
Board of Corporate Auditors is comprised of five Corporate Auditors, three of
whom are outside Corporate Auditors. Each Corporate Auditor has been appointed
at its shareholders meetings and has certain statutory powers independently,
including auditing the business affairs and accounts of Pioneer. 88




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At the present time, Pioneers Board of Corporate Auditors has determined that
it does not have an audit committee financial expert serving on the Board of
Corporate Auditors. The qualifications for, and powers of, the Corporate
Auditor delineated in the Code and the Special Exception Law are different from
those anticipated for any audit committee financial expert. Corporate Auditors
have the authority to be given reports from a certified public accountant or an
accounting firm concerning audits, including technical accounting matters. At
the same time, each Corporate Auditor has the authority to consult internal and
external experts on accounting matters. Pioneers Board of Corporate Auditors
has confirmed that each Corporate Auditor should fulfill the requirements under
Japanese laws and regulations and otherwise follow Japanese corporate
governance practices. In addition, its Board of Corporate Auditors has a
former General Manager of Accounting Division of Pioneer, Mr. Makoto Koshiba,
as a full time Corporate Auditor, and a certified public accountant of Japan,
Mr. Isao Moriya, as an outside Corporate Auditor. Accordingly, it is not
necessarily in Pioneers best interest to nominate as Corporate Auditor a
person who meets the definition of audit committee financial experts. Although
Pioneer does not have an audit committee financial expert on its Board of
Corporate Auditors, Pioneer believes that Pioneers current corporate
governance system, taken as a whole, including the Corporate Auditors ability
to consult internal and external experts, is fully equivalent to a system
having an audit committee financial expert on its Board of Corporate Auditors. 
 Item 16B. Code of Ethics We have adopted the Pioneer Group Code of Conduct (the Code of Conduct) for
all officers and employees of the Pioneer Group. The Code of Conduct is
publicly available on our website at www.pioneer.co.jp. If we make any
substantive amendments to the Code of Conduct or grant any waivers, including
any implicit waiver, from a provision of this code to our chief executive
officer, principal financial officer or corporate controller, we will disclose
the nature of such amendment or waiver on our website. 
 Item 16C. Principal Accountant Fees and Services Aggregate fees billed to the Company for the fiscal years ended March 31, 2003
and 2004 by our principal accounting firm, Deloitte Touche Tohmatsu (a Japanese
member firm of Deloitte Touche Tohmatsu, Swiss Verein), the other member firms
of Deloitte Touche Tohmatsu (Swiss Verein), and their respective affiliates
(collectively, Deloitte Touche Tohmatsu), were as follows. Year ended March 312003
    
    2004(In millions of yen)Audit Fees (1)
    
    
    ¥329
    
    
    
    ¥339Audit-Related Fees (2)
    
    
    13
    
    
    
    42Tax Fees (3)
    
    
    39
    
    
    
    43All Other Fees (4)
    
    
    46
    
    
    
    7Total
    
    
    ¥427
    
    
    
    ¥431
  (1)
    
    Includes fees for the audit of our annual financial statements included
in our Form 20-F and for services that normally would be provided in
connection with statutory and regulatory filings or engagements. This
category also may include services that generally only the independent
accountant reasonably can provide, such as comfort letters, statutory
audits, attest services, consents and assistance with and review of
documents filed with the SEC. 89




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(2)
    
    Includes fees for assurance and related services that traditionally are
performed by the independent accountant which include employee benefit
plan audits, due diligence related to mergers and acquisitions, accounting
consultations and audits in connection with acquisitions, internal control
reviews, attest services that are not required by statute or regulation
and consultation concerning financial accounting and reporting standards.(3)
    
    Includes fees for all services performed by professional staff in the
independent accountants tax division except those services related to the
audit, such as review of the tax provision (which would be included in the
Audit Fee category). Typically, it would include fees for tax compliance,
tax planning, and tax advice. Tax compliance generally involves
preparation of original and amended tax returns, claims for refund and tax
payment-planning services. Tax planning and tax advice encompass a
diverse range of services, including assistance with tax audits and
appeals, tax advice related to mergers and acquisitions, employee benefit
plans and requests for rulings or technical advice from taxing
authorities.(4)
    
    Includes fees for other than the services reported in paragraphs (1)
through (3). All other fees for fiscal 2003 include consulting services
relating to reorganization of our subsidiaries and the management of
software development process. Policy and procedures of the Board of Corporate Auditors for pre-approval In accordance with the regulations of the SEC, the Board of Corporate Auditors
has adopted the policy and procedures for the pre-approval regarding the
engagements of the independent audit firm and its affiliates (the auditor).
The following is a summary of the policy and procedures. All audit and permissible non-audit services provided by the auditor to Pioneer
and its consolidated subsidiaries must be pre-approved by the Board of
Corporate Auditors, prior to the engagement of the auditor. In the case that
pre-approvals are requested, the description of the services including types of
the service, periods of the service, and estimated fees, must be submitted to
the Board of Corporate Auditors. Our pre-approval procedures have two
different forms, Comprehensive pre-approval and Individual pre-approval.
Under the Comprehensive pre-approval procedure, all audit and permissible
non-audit services scheduled for the following fiscal year are pre-approved by
resolution of the Board of Corporate Auditors meeting. All audit and
permissible non-audit services regarding the specific projects which are not
included in the Comprehensive pre-approval must be subject to the Individual
pre-approval. For the purpose of providing such pre-approval in a timely
manner, the Board of Corporate Auditors may delegate Individual pre-approval
authority to full time Corporate Auditors. Full-time Corporate Auditors shall
report any Individual pre-approval decisions to the Board of Corporate
Auditors meeting to be held immediately after such pre-approval. None of the services provided by the auditor in fiscal 2003 and 2004 were
waived from the pre-approval requirement pursuant to paragraph (c)(7)(i)(C) of
Rule 2-01 of Regulation S-X. 
 Item 16D. Exemptions from the Listing Standards for Audit Committees Not applicable 
 Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers Not applicable 90




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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 Consolidated financial
statements
    
    PageIndex to Consolidated Financial Statements
    
    
    F-1Report of Independent Registered Public Accounting Firm
    
    
    F-2Consolidated Balance Sheets as of March 31, 2003 and 2004
    
    
    F-3Consolidated Statements of Income for the years ended March 31, 2002, 2003 and 2004
    
    
    F-5Consolidated Statements of Shareholders Equity for the years ended March 31, 2002, 2003 and 2004
    
    
    F-6Consolidated Statements of Cash Flows for the years ended March 31, 2002, 2003 and 2004
    
    
    F-7Notes to Consolidated Financial Statements
    
    
    F-8
 Exhibits 1.01
    
    
    The Articles of Incorporation, as amended and currently in effect (English translation)12.01
    
    
    Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 200212.02
    
    
    Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 200213.(a)
    
    
    Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 91




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##### Table of Contents



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, 2004
    
    By
    
    /s/ Akira NiijimaAkira Niijima
Chief Financial Officer
 92




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##### Table of Contents



INDEX TO CONSOLIDATED FINANCIAL STATEMENTS PageConsolidated financial statementsReport of Independent Registered Public Accounting Firm
    
    
    F-2Consolidated Balance Sheets as of March 31, 2003 and 2004
    
    
    F-3Consolidated Statements of Income for the years ended March 31, 2002, 2003 and 2004
    
    
    F-5Consolidated Statements of Shareholders Equity for the years ended March 31, 2002, 2003 and 2004
    
    
    F-6Consolidated Statements of Cash Flows for the years ended March 31, 2002, 2003 and 2004
    
    
    F-7Notes to Consolidated Financial Statements
    
    
    F-8
 F-1




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##### Table of Contents



Report of Independent Registered Public Accounting Firm 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, 2003 and 2004, and the related
consolidated statements of income, shareholders equity, and cash flows for
each of the three years in the period ended March 31, 2004 (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 the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion. The 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, 2003 and 2004, and the results of their operations and their cash
flows for each of the three years in the period ended March 31, 2004, 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 May 3, 2004, except for Note 23.a and b, as to which the dates are June 29,
2004 and July 1, 2004, respectively. F-2




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##### Table of Contents



Consolidated Balance Sheets 
 Thousands ofU.S. DollarsMillions of Yen
    
    
    (Note 1)Assets
    
    2003
    
    
    2004
    
    
    2004Current assets:Cash and cash equivalentsCash, including time deposits of ¥88,425 million
$834,198 thousand (¥44,413 million in 2003)
    
    ¥
    142,480
    
    
    ¥
    192,419
    
    
    $
    1,815,274Trade receivablesNotes
    
    
    5,252
    
    
    
    2,988
    
    
    
    28,189Accounts
    
    
    113,135
    
    
    
    112,411
    
    
    
    1,060,481Allowance for doubtful notes and accounts (Note 19)
    
    
    (4,519
    )
    
    
    (3,344
    )
    
    
    (31,547
    )Inventories (Note 5)
    
    
    93,620
    
    
    
    107,806
    
    
    
    1,017,038Deferred income taxes (Note 10)
    
    
    29,958
    
    
    
    28,886
    
    
    
    272,509Prepaid expenses and other current assets
    
    
    36,056
    
    
    
    38,622
    
    
    
    364,358Total current assets
    
    
    415,982
    
    
    
    479,788
    
    
    
    4,526,302Investments and long-term receivables:Available-for-sale securities (Note 4)
    
    
    14,831
    
    
    
    24,516
    
    
    
    231,283Investments in and advances to affiliated companies (Note 6)
    
    
    7,841
    
    
    
    5,573
    
    
    
    52,575Sundry investments (Note 17)
    
    
    2,907
    
    
    
    3,383
    
    
    
    31,915Long-term receivables, less allowance for doubtful accounts of
¥190 million$1,792 thousand (¥112 million in 2003) (Note 19)
    
    
    292
    
    
    
    253
    
    
    
    2,387Total investments and long-term receivables
    
    
    25,871
    
    
    
    33,725
    
    
    
    318,160Property, plant and equipment(Note 8):Land
    
    
    25,548
    
    
    
    25,050
    
    
    
    236,321Buildings
    
    
    107,309
    
    
    
    113,863
    
    
    
    1,074,179Machinery and equipment
    
    
    237,086
    
    
    
    239,081
    
    
    
    2,255,481Construction in progress
    
    
    6,132
    
    
    
    7,568
    
    
    
    71,396Total
    
    
    376,075
    
    
    
    385,562
    
    
    
    3,637,377Accumulated depreciation
    
    
    (230,376
    )
    
    
    (229,361
    )
    
    
    (2,163,783
    )Net property, plant and equipment
    
    
    145,699
    
    
    
    156,201
    
    
    
    1,473,594Other assets:Intangible assets (Note 7)
    
    
    15,619
    
    
    
    18,966
    
    
    
    178,925Deferred income taxes (Note 10)
    
    
    35,734
    
    
    
    24,276
    
    
    
    229,019Other
    
    
    8,124
    
    
    
    9,586
    
    
    
    90,434Total other assets
    
    
    59,477
    
    
    
    52,828
    
    
    
    498,378Total assets
    
    ¥
    647,029
    
    
    ¥
    722,542
    
    
    $
    6,816,434
  F-3




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##### Table of Contents



Thousands ofU.S. DollarsMillions of Yen
    
    
    (Note 1)Liabilities and Shareholders Equity
    
    2003
    
    
    2004
    
    
    2004Current liabilities:Short-term borrowings (Note 8)
    
    ¥
    29,893
    
    
    ¥
    23,327
    
    
    $
    220,066Current portion of long-term debt (Note 8)
    
    
    974
    
    
    
    4,510
    
    
    
    42,547Trade payables
    
    
    67,173
    
    
    
    79,439
    
    
    
    749,425Accrued liabilitiesTaxes on income
    
    
    8,653
    
    
    
    9,341
    
    
    
    88,123Payroll
    
    
    17,616
    
    
    
    17,604
    
    
    
    166,075Royalty
    
    
    14,111
    
    
    
    18,688
    
    
    
    176,302Other
    
    
    36,784
    
    
    
    35,626
    
    
    
    336,094Warranty reserve (Note 19)
    
    
    6,493
    
    
    
    5,419
    
    
    
    51,123Dividends payable
    
    
    1,754
    
    
    
    2,193
    
    
    
    20,689Other current liabilities
    
    
    23,079
    
    
    
    27,151
    
    
    
    256,141Total current liabilities
    
    
    206,530
    
    
    
    223,298
    
    
    
    2,106,585Long-term liabilities:Long-term debt (Note 8)
    
    
    32,196
    
    
    
    89,691
    
    
    
    846,142Accrued pension and severance cost (Note 9)
    
    
    70,800
    
    
    
    57,143
    
    
    
    539,085Deferred income taxes (Note 10)
    
    
    496
    
    
    
    1,327
    
    
    
    12,519Other long-term liabilities
    
    
    335
    
    
    
    301
    
    
    
    2,839Total long-term liabilities
    
    
    103,827
    
    
    
    148,462
    
    
    
    1,400,585Commitments and contingent liabilities(Note 20)Minority interests
    
    
    18,279
    
    
    
    17,844
    
    
    
    168,340Shareholders equity(Note 11):Common stock, No par valueAuthorized400,000,000 sharesIssued180,063,836 shares2003 and 2004
    
    
    49,049
    
    
    
    49,049
    
    
    
    462,726Capital surplus
    
    
    82,159
    
    
    
    82,464
    
    
    
    777,962Retained earnings
    
    
    253,266
    
    
    
    273,718
    
    
    
    2,582,245Accumulated other comprehensive loss (Note 13)
    
    
    (55,629
    )
    
    
    (61,829
    )
    
    
    (583,292
    )Treasury stock, at cost 4,629,028 shares2003 and 4,632,962 shares2004
    
    
    (10,452
    )
    
    
    (10,464
    )
    
    
    (98,717
    )Total shareholders equity
    
    
    318,393
    
    
    
    332,938
    
    
    
    3,140,924Total liabilities and shareholders equity
    
    ¥
    647,029
    
    
    ¥
    722,542
    
    
    $
    6,816,434
  F-4




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##### Table of Contents



Consolidated Statements of Income 
 Thousands ofU.S. DollarsMillions of Yen
    
    
    (Note 1)2002
    
    
    2003
    
    
    2004
    
    
    2004Operating revenue:Net sales
    
    ¥
    612,189
    
    
    ¥
    664,675
    
    
    ¥
    689,064
    
    
    $
    6,500,604Royalty revenue
    
    
    17,588
    
    
    
    12,584
    
    
    
    11,821
    
    
    
    111,519Total operating revenue
    
    
    629,777
    
    
    
    677,259
    
    
    
    700,885
    
    
    
    6,612,123Operating costs and expenses:Cost of sales
    
    
    442,924
    
    
    
    473,239
    
    
    
    487,297
    
    
    
    4,597,142Selling, general and administrative
    
    
    166,862
    
    
    
    168,736
    
    
    
    166,415
    
    
    
    1,569,953Loss on sale and disposal of fixed assets
    
    
    3,331
    
    
    
    4,519
    
    
    
    3,454
    
    
    
    32,585Total operating costs and expenses
    
    
    613,117
    
    
    
    646,494
    
    
    
    657,166
    
    
    
    6,199,680Operating income from continuing operations
    
    
    16,660
    
    
    
    30,765
    
    
    
    43,719
    
    
    
    412,443Other income (expenses):Interest income
    
    
    2,985
    
    
    
    2,153
    
    
    
    1,420
    
    
    
    13,396Gain on sale of subsidiaries stock
    
    
    
    
    
    
    768
    
    
    
    
    
    
    
    Foreign exchange gain (loss)
    
    
    295
    
    
    
    (2,045
    )
    
    
    (1,244
    )
    
    
    (11,736
    )Interest expense
    
    
    (3,314
    )
    
    
    (2,814
    )
    
    
    (2,154
    )
    
    
    (20,321
    )Othernet (Note 14)
    
    
    (2,154
    )
    
    
    (748
    )
    
    
    107
    
    
    
    1,010Total other income (expenses)
    
    
    (2,188
    )
    
    
    (2,686
    )
    
    
    (1,871
    )
    
    
    (17,651
    )Income from continuing operations before income taxes
    
    
    14,472
    
    
    
    28,079
    
    
    
    41,848
    
    
    
    394,792Income taxes(Note 10):Current
    
    
    10,795
    
    
    
    14,477
    
    
    
    17,829
    
    
    
    168,198Deferred
    
    
    (4,379
    )
    
    
    (5,445
    )
    
    
    758
    
    
    
    7,151Total income taxes
    
    
    6,416
    
    
    
    9,032
    
    
    
    18,587
    
    
    
    175,349Income from continuing operations before minority interest
and equity in losses
    
    
    8,056
    
    
    
    19,047
    
    
    
    23,261
    
    
    
    219,443Minority interest in losses (earnings) of subsidiaries
    
    
    (504
    )
    
    
    21
    
    
    
    (654
    )
    
    
    (6,170
    )Equity in losses of affiliated companies(Note 6)
    
    
    (70
    )
    
    
    (3,126
    )
    
    
    (2,244
    )
    
    
    (21,170
    )Income from continuing operations
    
    
    7,482
    
    
    
    15,942
    
    
    
    20,363
    
    
    
    192,103Income from discontinued operations, net of tax (Note 3)
    
    
    565
    
    
    
    136
    
    
    
    4,475
    
    
    
    42,217Net income
    
    ¥
    8,047
    
    
    ¥
    16,078
    
    
    ¥
    24,838
    
    
    $
    234,320
 Yen
    
    
    U.S. Dollars2002
    
    2003
    
    2004
    
    2004Per share of common stock and per American Depositary
Share(Notes 7 and 18):Basic:Continuing operations
    
    ¥
    41.56
    
    
    ¥
    89.48
    
    
    ¥
    116.07
    
    
    $
    1.10Discontinued operations
    
    
    3.14
    
    
    
    0.76
    
    
    
    25.51
    
    
    
    0.24Net income
    
    ¥
    44.70
    
    
    ¥
    90.24
    
    
    ¥
    141.58
    
    
    $
    1.34Diluted:Continuing operations
    
    ¥
    41.55
    
    
    ¥
    89.48
    
    
    ¥
    115.18
    
    
    $
    1.09Discontinued operations
    
    
    3.14
    
    
    
    0.76
    
    
    
    25.34
    
    
    
    0.24Net income
    
    ¥
    44.69
    
    
    ¥
    90.24
    
    
    ¥
    140.52
    
    
    $
    1.33
  F-5




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##### Table of Contents



Consolidated Statements of Shareholders Equity 
 Millions of YenNumber of
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    AccumulatedShares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    
    
    
    
    Totalissued
    
    
    Common
    
    
    Capital
    
    
    Retained
    
    
    Comprehensive
    
    
    Treasury
    
    
    Shareholders(Thousands)
    
    
    Stock
    
    
    Surplus
    
    
    Earnings
    
    
    Loss
    
    
    Stock
    
    
    EquityBalance at March 31, 2001
    
    
    179,894
    
    
    ¥
    48,843
    
    
    ¥
    81,458
    
    
    ¥
    235,345
    
    
    
    ¥(28,651
    )
    
    
    
    
    
    
    ¥336,995Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,047
    
    
    
    
    
    
    
    
    
    
    
    8,047Other comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,915
    
    
    
    
    
    
    
    3,915Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,962Exercise of warrants
    
    
    170
    
    
    
    206
    
    
    
    206
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    412Value ascribed to warrants
and stock options (Note 12)
    
    
    
    
    
    
    
    
    
    
    346
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    346Purchase 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
    )
    
    
    347,003Comprehensive income (loss):Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,078
    
    
    
    
    
    
    
    
    
    
    
    16,078Other comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (30,893
    )
    
    
    
    
    
    
    (30,893
    )Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14,815
    )Value ascribed to stock
options (Note 12)
    
    
    
    
    
    
    
    
    
    
    149
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    149Purchase of treasury stock (Note 11)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11,566
    )
    
    
    (11,566
    )Sales of treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (412
    )
    
    
    
    
    
    
    1,126
    
    
    
    714Cash 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
    )
    
    
    318,393Comprehensive income (loss):Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24,838
    
    
    
    
    
    
    
    
    
    
    
    24,838Other comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,200
    )
    
    
    
    
    
    
    (6,200
    )Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18,638Value ascribed to stock
options (Note 12)
    
    
    
    
    
    
    
    
    
    
    305
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    305Purchase of treasury stock (Note 11)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14
    )
    
    
    (14
    )Sales of treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    2Cash dividends (¥25.00 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,386
    )
    
    
    
    
    
    
    
    
    
    
    (4,386
    )Balance at March 31, 2004
    
    
    180,064
    
    
    ¥
    49,049
    
    
    ¥
    82,464
    
    
    ¥
    273,718
    
    
    
    ¥(61,829
    )
    
    ¥
    (10,464
    )
    
    
    ¥332,938
 Thousands of U.S. Dollars (Note 1)AccumulatedOther
    
    
    
    
    
    TotalCommon
    
    Capital
    
    Retained
    
    Comprehensive
    
    Treasury
    
    ShareholdersStock
    
    Surplus
    
    Earnings
    
    Loss
    
    Stock
    
    EquityBalance at March 31, 2003
    
    $
    462,726
    
    
    $
    775,085
    
    
    $
    2,389,302
    
    
    $
    (524,802
    )
    
    $
    (98,604
    )
    
    $
    3,003,707Comprehensive income (loss):Net income
    
    
    
    
    
    
    
    
    
    
    234,320
    
    
    
    
    
    
    
    
    
    
    
    234,320Other comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (58,490
    )
    
    
    
    
    
    
    (58,490
    )Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    175,830Value ascribed to stock
options (Note 12)
    
    
    
    
    
    
    2,877
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,877Purchase of treasury stock
(Note 11)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (132
    )
    
    
    (132
    )Sales of treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19
    
    
    
    19Cash dividends ($0.24 per share)
    
    
    
    
    
    
    
    
    
    
    (41,377
    )
    
    
    
    
    
    
    
    
    
    
    (41,377
    )Balance at March 31, 2004
    
    $
    462,726
    
    
    $
    777,962
    
    
    $
    2,582,245
    
    
    $
    (583,292
    )
    
    $
    (98,717
    )
    
    $
    3,140,924
  F-6




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##### Table of Contents



Consolidated Statements of Cash Flows 
 Thousands ofU.S. DollarsMillions of Yen
    
    
    (Note 1)2002
    
    
    2003
    
    
    2004
    
    
    2004Operating activities:Net income
    
    ¥
    8,047
    
    
    ¥
    16,078
    
    
    ¥
    24,838
    
    
    $
    234,320Adjustments to reconcile net income to net cash provided
by operating activities:Income from discontinued operations, net of tax
    
    
    (565
    )
    
    
    (136
    )
    
    
    (4,475
    )
    
    
    (42,217
    )Depreciation and amortization
    
    
    36,666
    
    
    
    36,238
    
    
    
    40,911
    
    
    
    385,953Minority interest in (losses) earnings of subsidiaries
    
    
    504
    
    
    
    (21
    )
    
    
    654
    
    
    
    6,170Equity in losses of affiliated companies, less dividends
    
    
    79
    
    
    
    3,184
    
    
    
    2,248
    
    
    
    21,208Deferred income taxes
    
    
    (4,379
    )
    
    
    (5,445
    )
    
    
    758
    
    
    
    7,151Provision for pension and severance cost, less payments
    
    
    378
    
    
    
    3,812
    
    
    
    3,579
    
    
    
    33,764Loss on sale and disposal of fixed assets
    
    
    3,331
    
    
    
    4,519
    
    
    
    3,454
    
    
    
    32,585Write-down of available-for-sale securities and sundry investments
    
    
    2,341
    
    
    
    1,369
    
    
    
    245
    
    
    
    2,311(Gains) losses on sale of available-for-sale securities and
sundry investments
    
    
    (54
    )
    
    
    20
    
    
    
    (37
    )
    
    
    (349
    )Gain on sale of subsidiaries stock
    
    
    
    
    
    
    (768
    )
    
    
    
    
    
    
    Stock-based compensation expenses
    
    
    346
    
    
    
    149
    
    
    
    305
    
    
    
    2,877Decrease (increase) in trade notes and accounts receivable
    
    
    (2,134
    )
    
    
    8,481
    
    
    
    (10,186
    )
    
    
    (96,094
    )Decrease (increase) in inventories
    
    
    3,034
    
    
    
    838
    
    
    
    (20,707
    )
    
    
    (195,349
    )Increase in prepaid expenses and other current assets
    
    
    (4,097
    )
    
    
    (1,122
    )
    
    
    (12,413
    )
    
    
    (117,104
    )Increase in trade payables
    
    
    9,879
    
    
    
    13,221
    
    
    
    18,989
    
    
    
    179,142Increase (decrease) in accrued taxes on income
    
    
    (1,632
    )
    
    
    5,450
    
    
    
    3,782
    
    
    
    35,679Increase in other accrued liabilities
    
    
    3,275
    
    
    
    8,172
    
    
    
    7,654
    
    
    
    72,208Other
    
    
    2,339
    
    
    
    (2,530
    )
    
    
    779
    
    
    
    7,349Net cash provided by operating activities
    
    
    57,358
    
    
    
    91,509
    
    
    
    60,378
    
    
    
    569,604Investing activities:Payment for purchase of fixed assets
    
    
    (46,909
    )
    
    
    (40,493
    )
    
    
    (57,978
    )
    
    
    (546,962
    )Payment for investment securities
    
    
    (4,566
    )
    
    
    (1,543
    )
    
    
    (595
    )
    
    
    (5,613
    )Payment for available-for-sale securities
    
    
    (2,031
    )
    
    
    (10
    )
    
    
    (53
    )
    
    
    (500
    )Payment for other assets
    
    
    (1,013
    )
    
    
    (568
    )
    
    
    (953
    )
    
    
    (8,990
    )Proceeds from sale of fixed assets
    
    
    1,564
    
    
    
    2,982
    
    
    
    1,458
    
    
    
    13,754Proceeds from sale of discontinued operations
    
    
    
    
    
    
    
    
    
    
    4,897
    
    
    
    46,198Proceeds from sale of investment securities
    
    
    638
    
    
    
    103
    
    
    
    53
    
    
    
    500Proceeds from sale of available-for-sale securities
    
    
    177
    
    
    
    3,493
    
    
    
    156
    
    
    
    1,472Decrease in loans receivable
    
    
    731
    
    
    
    169
    
    
    
    5
    
    
    
    47Other
    
    
    13
    
    
    
    639
    
    
    
    256
    
    
    
    2,415Net cash used in investing activities
    
    
    (51,396
    )
    
    
    (35,228
    )
    
    
    (52,754
    )
    
    
    (497,679
    )Financing activities:Proceeds from issuance of convertible bonds [net of issuance cost
¥1,586 million ($14,962 thousand)]
    
    
    
    
    
    
    
    
    
    
    60,514
    
    
    
    570,887Payment of long-term debt
    
    
    (7,560
    )
    
    
    (4,914
    )
    
    
    (934
    )
    
    
    (8,811
    )Increase (decrease) in short-term borrowings
    
    
    5,866
    
    
    
    (16,214
    )
    
    
    (3,509
    )
    
    
    (33,104
    )Proceeds from issuance of common stock
    
    
    412
    
    
    
    
    
    
    
    
    
    
    
    Purchase of treasury stock (Note 11)
    
    
    (159
    )
    
    
    (11,566
    )
    
    
    (14
    )
    
    
    (132
    )Proceeds from sale of treasury stock
    
    
    147
    
    
    
    714
    
    
    
    2
    
    
    
    19Dividends paid
    
    
    (2,699
    )
    
    
    (2,688
    )
    
    
    (3,947
    )
    
    
    (37,236
    )Dividends paid to minority interests
    
    
    (214
    )
    
    
    (12
    )
    
    
    (285
    )
    
    
    (2,689
    )Net cash provided by (used in) financing activities
    
    
    (4,207
    )
    
    
    (34,680
    )
    
    
    51,827
    
    
    
    488,934Effect of exchange rate changes on cash and cash equivalents
    
    
    4,231
    
    
    
    (6,234
    )
    
    
    (9,512
    )
    
    
    (89,736
    )Net increase in cash and cash equivalents
    
    
    5,986
    
    
    
    15,367
    
    
    
    49,939
    
    
    
    471,123Cash and cash equivalents, beginning of year
    
    
    121,127
    
    
    
    127,113
    
    
    
    142,480
    
    
    
    1,344,151Cash and cash equivalents, end of year
    
    ¥
    127,113
    
    
    ¥
    142,480
    
    
    ¥
    192,419
    
    
    $
    1,815,274
  F-7




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##### Table of Contents



Notes to Consolidated Financial Statements    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, 2004 is included solely for the
convenience of readers outside Japan and
has been made at the rate of ¥106 to
U.S.$1.00, the approximate rate of exchange
prevailing at the Tokyo Foreign Exchange
Market at March 31, 2004. 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. Because of
the short delivery time, in all cases, the
shipment date is equivalent to the delivery
date. 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
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. 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
consolidated statements of income. For such
marketable debt and equity securities, we
assume the decline is other than temporary
when market value is less than cost for a
period of six to nine months, or sooner
depending on severity of decline or other
factors. 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, which
is net realizable value. Inventories are
reviewed periodically and items considered
to be slow moving or obsolete are written
down to market, 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
Under SFAS No. 142, Goodwill and Other
Intangible Assets, acquired goodwill and
other intangible assets that
are determined to have an indefinite life
are no longer amortized. Instead, the
carrying value of these assets are 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 are
amortized over their estimated useful
lives. At March 31, 2004, the Company had
no goodwill. 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 seven to nineteen years and
software is amortized principally over two
to five years. Long-Lived Assets
On April 1, 2002, the Company adopted SFAS
No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets which
applied to all 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 group may not be
recoverable. For the purpose of assessment
of an impairment loss, the Company groups
long-lived assets with other assets and
liabilities at the lowest level for which
identifiable cash flows are largely
independent of the cash flows of other
assets and liabilities. When the sum of
expected future cash flows is less than the
carrying amount of the asset group, an
impairment loss is recognized. Such
impairment loss is measured as the amount
by which the carrying amount of the asset
group exceeds the fair value of the asset
group. In fiscal 2003, the Company sold its
subsidiaries stock and recorded gains of
¥768 million. The subsidiaries main
operation was karaoke business. 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. Long-term Debt
Premiums and issuance costs of long-term
debt are amortized over the term of
long-term debt using the interest method. F-9




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##### Table of Contents



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
Certain costs incurred by the Company in
connection with the resellers purchase or
promotion of the Companys products are
classified as a reduction of revenues in
accordance with Emerging Issues Task Force
(EITF) 01-9, Accounting for
Consideration Given by a Vendor to a
Customer. 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 ¥9,646
million, ¥10,373 million and ¥11,282
million ($106,434 thousand) for the years
ended March 31, 2002, 2003 and 2004,
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 potential common stocks
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 2004 to 2006, 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. 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,
and by SFAS No. 149, Amendment of SFAS No.
133 on Derivative Instruments and Hedging
Activities. 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. 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,
2003 and 2004. Unrealized gains and losses
on such instruments are recognized
currently in earnings. Reclassifications
As a result of the sales of subsidiaries
for the year ended March 31, 2004, the
gain on such sale, as well as the business
results of the discontinued operations,
are presented as a separate line in
consolidated statements of income.
Reclassifications have been made to
previously reported consolidated
statements of income and consolidated
statements of cash flows related to
discontinued operations to conform to this
presentation. F-10




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##### Table of Contents



Other reclassifications and format
changes have been made to prior year
amounts to conform to the current year
presentation. New Accounting Standards
In December 2003, the Financial Accounting
Standards Board (FASB) issued SFAS No.
132 (revised 2003), Employers Disclosures
about Pensions and Other Postretirement
Benefits. The revised SFAS No. 132 retains
the disclosure requirements in the original
statement and requires additional
disclosures about pension plan assets,
benefit obligations, cash flows, benefit
costs and other relevant information. The
new disclosures are effective for financial
statements with fiscal years ended after
December 15, 2003. However, the revised
SFAS No. 132 provides that disclosures of
information about foreign plans and
estimated future benefit payment shall be
effective for fiscal years ending after
June 15, 2004. See Note 9 to the
consolidated financial statements for these
disclosures. In November 2003, the EITF reached a
consensus on Issue No. 03-1 (EITF No.
03-1), The Meaning of
Other-Than-Temporary Impairment and Its
Application to Certain Investments, as it
relates to disclosures for SFAS No. 115. In
addition to the disclosures already
required by SFAS No. 115, EITF No. 03-1
requires both quantitative and qualitative
disclosures for marketable equity and debt
securities. The new disclosure is effective
for fiscal years ended after December 15,
2003. See Note 4 to the consolidated
financial statements for this disclosure. In March 2004, EITF reached another
consensus on EITF No. 03-1 which presents
the guidance for the assessment of
other-than-temporary impairment. The
guideline should be used to determine
whether an investment is
other-than-temporarily impaired and
provides 3 steps for assessment. The
guidance is applicable for investments in
debt and equity securities that are within
the scope of SFAS No. 115, and cost method
equity investments. The investor should
make an evidenced-based judgment about a
market price recovery of investment by
considering the severity (extent to which
fair value is below cost) and the duration
(period of time that a security has been
impaired) of impairment in relation to the
forecasted market price recovery. An
other-than-temporary impairment should be
recognized in earnings in an amount equal
to the difference
between the investors adjusted cost basis
and its fair value at the balance sheet
date of the reporting period for which the
assessment is made. The guidance is
required to be applied for fiscal years
beginning after June 15, 2004. The adoption
of the guidance will not have a material
impact on the Companys consolidated
financial position, result of operation or
cash flow. In January 2003, the EITF reached a
consensus on Issue No. 03-2 (EITF No.
03-2), Accounting for the Transfer
to the Japanese Government of the
Substitutional Portion of Employer Pension
Fund Liabilities. EITF No. 03-2 addresses
accounting for the transfer to Japanese
government of a substitutional portion of a
domestic contributory welfare pension plan,
which is a defined benefit pension plan
established by the Welfare Pension
Insurance Law. EITF No. 03-2 requires
employers to account for the entire
separation process of a substitutional
portion from an entire plan (including a
corporate portion) upon completion of the
transfer to the government of the
substitutional portion of the benefit
obligation and related plan assets as a
culmination of a series of steps in a
single settlement transaction. Under this
approach, the difference between the fair
value of the obligation and the assets
required to be transferred to the
government should be accounted for and
separately disclosed as a subsidy. October 29, 2003, the Company received
approval from the government for an
exemption from the obligation to pay
benefits for future employee service
related to the substitutional portion. In addition, the Company will submit
another application to separate the
remaining substitutional portion related to
past service by its employees. The Company
is expected to receive final approval from
the government for its second application
during the year ending March 31, 2005. Upon
receipt of the final approval, the Company
will be relieved of all obligations
pertaining to the substitutional portion by
transferring the benefit obligation and the
related government-specified portion of the
plan assets, which will be computed by the
government. The related gain or loss, which
is expected to be recorded during the year
ending March 31, 2005 based on completion
of the entire process, has not yet been
determined because the amount of the
benefit obligation and the related plan
assets to be transferred to the government
may change significantly. F-11




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##### Table of Contents



In December 2003, the Securities and
Exchange Commission (SEC) issued Staff
Accounting Bulletins (SAB) No. 104,
Revenue Recognition, which supersedes SAB
No. 101, Revenue Recognition in Financial
Statements, and updates portions of the
interpretative guidance included in Topic
13 of the codification of SAB in order to
make this interpretative guidance
consistent with current authoritative
accounting guidance. SAB No. 104 rescinds
the SECs Revenue Recognition in Financial
Statements Frequently Asked Questions and
Answers (FAQ) issued with SAB No. 101
that had been codified in SAB Topic 13.
Selected portions of the FAQ have been
incorporated into SAB No. 104. The revenue
recognition principles of SAB No. 101
remain largely unchanged by the issuance of
SAB No. 104. The adoption of SAB No. 104
did not have an effect on the
consolidated results of operations or
financial position of the Company. In January 2003, the FASB issued FASB Interpretation
No. 46 (FIN 46), Consolidation of
Variable Interest Entities, an
Interpretation of ARB No. 51, Consolidated
Financial Statements, and subsequently
revised in December 2003 with the issuance
of FIN 46 (revised 2003). This
interpretation requires certain variable
interest entities to be consolidated by the
primary beneficiary of the entity if the
equity investors in the entity do not have
the characteristics of a controlling
financial interest or do not have
sufficient equity at risk for the entity to
finance its activities without additional
subordinated financial support from other
parties. The Company is required to apply
this Interpretation for periods ending
after April 1, 2004. The Company is
currently evaluating the impact of the
adoption of the revised FIN 46 on its
financial position and results of
operations. It is reasonably possible that
the Company is a primary beneficiary of or
holds a significant variable interest in a
variable interest entity. See Note 21 for
the required disclosures.   2. Supplemental cash flow information:
 Selected cash payments and noncash activities for the years ended March 31,
2002, 2003 and 2004 were as follows: Thousands ofMillions of Yen
    
    
    U.S. Dollars2002
    
    
    2003
    
    
    2004
    
    
    2004Cash payment for interest
    
    ¥
    3,281
    
    
    
    ¥2,654
    
    
    ¥
    2,458
    
    
    $
    23,189Cash payment for income taxes
    
    
    12,580
    
    
    
    9,047
    
    
    
    14,260
    
    
    
    134,528Noncash investing activities:Sales of discontinued operations:Transferred assets
    
    
    
    
    
    
    
    
    
    
    14,932
    
    
    
    140,868Transferred liabilities
    
    
    
    
    
    
    
    
    
    
    (11,823
    )
    
    
    (111,538
    )Foreign currency translation adjustments
    
    
    
    
    
    
    
    
    
    
    (37
    )
    
    
    (349
    )Gain on sales
    
    
    
    
    
    
    
    
    
    
    1,825
    
    
    
    17,217Cash receivednet
    
    
    
    
    
    
    
    
    
    
    4,897
    
    
    
    46,198
 F-12




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##### Table of Contents



3. Discontinued operations:
 In accordance with SFAS No. 144, the
Company presents the results of
discontinued operations as a separate line
item in the consolidated statements of
income under Income from discontinued
operations, net of tax. In order to
improve management efficiency by
concentrating resources in strategic
business, the Company reached an agreement
to sell 100% of its 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 were
engaged in the audio/video software
businesses in Tokyo, Japan and in
California, the United States of America,
respectively. The transfer of 100% of the
shares of Pioneer LDC, Inc. and 90% of the
shares of Pioneer Entertainment (USA) Inc.
owned by the Company were each completed in
the year ended March 31, 2004. The
remaining shares
of Pioneer Entertainment (USA) Inc. are
expected to be transferred to Dentsu Inc.
by September 30, 2006. In March 2004, Q-Tec, Inc., which was
a 99.26% owned subsidiary of the Company,
became an independent company through a
Management Buyout after acquiring all of
the shares owned by the Company, with a
business alliance Vision Capital
Corporation and Memory-Tech Corporation.
Q-Tec, Inc. is one of the larger
manufacturers in the Japanese
postproduction industry which offers
high-quality total services including
editing of video and audio products such as
animation, movies, commercials, and
broadcast programs, DVD encoding/authoring
and pressing. Summarized selected financial
information for the years ended March 31,
2002, 2003 and 2004 for the discontinued
operations reclassified during the year
ended March 31, 2004 is as follows: Thousands ofMillions of Yen
    
    
    U.S. Dollars2002
    
    
    2003
    
    
    2004
    
    
    2004Operating revenue
    
    ¥
    32,348
    
    
    ¥
    35,009
    
    
    ¥
    16,650
    
    
    $
    157,075Operating income
    
    ¥
    1,281
    
    
    ¥
    587
    
    
    ¥
    382
    
    
    $
    3,604Income before income taxes
    
    ¥
    871
    
    
    ¥
    551
    
    
    ¥
    340
    
    
    $
    3,208Gain on sale of discontinued operations
    
    
    
    
    
    
    
    
    
    
    1,825
    
    
    
    17,217Income taxes (benefit)
    
    
    306
    
    
    
    415
    
    
    
    (2,310
    )
    
    
    (21,792
    )Income from discontinued operations
    
    ¥
    565
    
    
    ¥
    136
    
    
    ¥
    4,475
    
    
    $
    42,217
 The assets and liabilities for sold
subsidiaries, excluding intercompany
balances, at March 31, 2003 are summarized
as follows: Millions of YenCurrent assets
    
    ¥
    15,585Property, plant and equipment, less depreciation
    
    
    407Other assets
    
    
    558Total assets
    
    ¥
    16,550Current liabilities
    
    ¥
    9,200Long-term liabilities
    
    
    61Total liabilities
    
    ¥
    9,261
 F-13




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4. 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, 2003 and
2004 were as follows: Millions of Yen2003
    
    
    
    
    
    
    2004Gross
    
    
    Gross
    
    
    
    
    
    
    
    
    
    
    Gross
    
    
    GrossUnrealized
    
    
    Unrealized
    
    
    
    
    
    
    
    
    
    
    Unrealized
    
    
    UnrealizedHolding
    
    
    Holding
    
    
    Aggregate
    
    
    
    
    
    
    Holding
    
    
    Holding
    
    
    AggregateCost
    
    
    Gains
    
    
    Losses
    
    
    Fair Value
    
    
    Cost
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueMarketable equity securities:Non-current
    
    
    ¥6,636
    
    
    
    ¥8,187
    
    
    
    ¥63
    
    
    
    ¥14,760
    
    
    
    ¥6,520
    
    
    
    ¥17,890
    
    
    
    ¥1
    
    
    
    ¥24,409Marketable debt securities:Non-current
    
    
    85
    
    
    
    
    
    
    
    14
    
    
    
    71
    
    
    
    106
    
    
    
    1
    
    
    
    
    
    
    
    107Total
    
    
    ¥6,721
    
    
    
    ¥8,187
    
    
    
    ¥77
    
    
    
    ¥14,831
    
    
    
    ¥6,626
    
    
    
    ¥17,891
    
    
    
    ¥1
    
    
    
    ¥24,516
 Thousands of U.S. Dollars2004Gross
    
    
    GrossUnrealized
    
    
    UnrealizedHolding
    
    
    Holding
    
    
    AggregateCost
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueMarketable equity
securities:Non-current
    
    
    $61,509
    
    
    
    $168,774
    
    
    
    $9
    
    
    
    $230,274Marketable debt securities:Non-current
    
    
    1,000
    
    
    
    9
    
    
    
    
    
    
    
    1,009Total
    
    
    $62,509
    
    
    
    $168,783
    
    
    
    $9
    
    
    
    $231,283
 The following table presents fair
value and gross unrealized losses of
available-for-sale marketable equity
securities, aggregated by length of time
that the individual securities
have been in a continuous unrealized loss
position at March 31, 2004. Millions of Yen
    
    
    Thousands of U.S. DollarsLess than 12 Months
    
    
    Less than 12 MonthsFair
    
    
    Unrealized
    
    
    Fair
    
    
    UnrealizedValue
    
    
    Losses
    
    
    Value
    
    
    LossesMarketable equity securities
    
    
    ¥14
    
    
    
    ¥1
    
    
    
    $132
    
    
    
    $9
 F-14




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##### Table of Contents



At March 31, 2004, 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 ¥107 million ($1,009
thousand). Gross realized gain on
available-for-sale securities for the year
ended March 31, 2004 was ¥43 million ($406
thousand). Gross realized losses for the
years ended March 31, 2003 and 2004 were
¥16 million and ¥6 million ($57 thousand),
respectively. There was no gross realized
gain or loss on available-for-sale
securities 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. The Company holds marketable equity
securities of customers and financial
institutions for the purpose of maintaining
long-term relationships, whose share prices
are highly volatile. The Company has one
investment in Japan which was in an
unrealized loss position due to the share
prices poor performance at March 31, 2004.
The duration of the impairment was less
than six months. The Company evaluated the
near-term prospects of the issuer in
relation to the severity and duration of
the impairment. Based on that evaluation
and the Companys ability and intent to
hold this investment for a reasonable
period of time sufficient for a forecasted
recovery of fair value, the Company does
not consider this investment to be
other-than-temporarily impaired at March
31, 2004. For the years ended March 31,
2002, 2003 and 2004, losses on other than
temporary impairment of marketable equity
securities were ¥1,828 million, ¥1,346
million and ¥27 million ($255 thousand),
respectively.   5. Inventories: Inventories at March 31, 2003 and 2004 comprise the following: Thousands ofMillions of Yen
    
    
    U.S. Dollars2003
    
    
    2004
    
    
    2004Finished products
    
    
    ¥50,202
    
    
    ¥
    51,360
    
    
    $
    484,528Work in process
    
    
    19,158
    
    
    
    27,956
    
    
    
    263,736Materials and supplies
    
    
    24,260
    
    
    
    28,490
    
    
    
    268,774Total
    
    
    ¥93,620
    
    
    ¥
    107,806
    
    
    $
    1,017,038
   6. 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 ¥9 million, ¥58 million
and ¥4 million ($38 thousand),
respectively, for the years ended March 31,
2002, 2003 and 2004. 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 ¥245 million and ¥310
million ($2,925 thousand) at March 31,
2003 and 2004, 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: F-15




---



##### Table of Contents



Thousands ofMillions of Yen
    
    
    U.S. Dollars2003
    
    
    2004
    
    
    2004Current assets
    
    
    ¥19,802
    
    
    
    ¥10,619
    
    
    $
    100,179Property, plant and equipment
    
    
    27,209
    
    
    
    28,978
    
    
    
    273,377Other assets
    
    
    338
    
    
    
    393
    
    
    
    3,708Total assets
    
    
    ¥47,349
    
    
    
    ¥39,990
    
    
    $
    377,264Current liabilities
    
    
    ¥  4,857
    
    
    
    ¥  2,822
    
    
    $
    26,622Long-term liabilities
    
    
    27,430
    
    
    
    27,110
    
    
    
    255,755Shareholders equity
    
    
    15,062
    
    
    
    10,058
    
    
    
    94,887Total liabilities and shareholders equity
    
    
    ¥47,349
    
    
    
    ¥39,990
    
    
    $
    377,264
 Thousands ofMillions of Yen
    
    
    U.S. DollarsYear ended March 31
    
    2002
    
    
    2003
    
    
    2004
    
    
    2004Net sales
    
    
    ¥7,404
    
    
    
    ¥7,845
    
    
    
    ¥8,408
    
    
    
    $79,321Gross profit
    
    
    996
    
    
    
    808
    
    
    
    1,004
    
    
    
    9,472Net loss
    
    
    237
    
    
    
    6,802
    
    
    
    5,023
    
    
    
    47,387
   7. Intangible assets: Intangible assets subject to amortization
acquired during the year ended March 31,
2004 totaled ¥9,687 million ($91,387
thousand) and primarily consist of software
of ¥8,860 million ($83,585 thousand) and
patents of ¥240 million ($2,264 thousand).
The weighted average amortization periods
for software, patents and total acquired
during the year ended March 31, 2004 are
4.0 years, 6.3 years and 4.5 years,
respectively. Intangible assets subject to
amortization are comprised of the
following: Thousands ofMillions of Yen
    
    
    U.S. Dollars2003
    
    
    2004
    
    
    2004Gross
    
    
    
    
    
    
    Gross
    
    
    
    
    
    
    GrossCarrying
    
    
    Accumulated
    
    
    Carrying
    
    
    Accumulated
    
    
    Carrying
    
    
    AccumulatedAmount
    
    
    Amortization
    
    
    Amount
    
    
    Amortization
    
    
    Amount
    
    
    AmortizationSoftware
    
    
    ¥23,726
    
    
    
    ¥(11,441
    )
    
    
    ¥31,161
    
    
    
    ¥(15,412
    )
    
    
    $293,972
    
    
    
    $(145,396
    )Patents
    
    
    25,472
    
    
    
    (23,623
    )
    
    
    22,798
    
    
    
    (21,426
    )
    
    
    215,075
    
    
    
    (202,132
    )Other
    
    
    2,850
    
    
    
    (1,365
    )
    
    
    2,693
    
    
    
    (848
    )
    
    
    25,406
    
    
    
    (8,000
    )Total
    
    
    ¥52,048
    
    
    
    ¥(36,429
    )
    
    
    ¥56,652
    
    
    
    ¥(37,686
    )
    
    
    $534,453
    
    
    
    $(355,528
    )
 The aggregate amortization expense for
intangible assets for the years ended March
31, 2003 and 2004 was ¥7,949 million and
¥6,109 million ($57,632 thousand),
respectively. 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. Dollars2005
    
    
    ¥5,969
    
    
    
    $56,3112006
    
    
    4,616
    
    
    
    43,5472007
    
    
    2,955
    
    
    
    27,8772008
    
    
    1,793
    
    
    
    16,9152009
    
    
    1,222
    
    
    
    11,528
 F-16




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##### Table of Contents



Amounts previously reported for net
income and basic and diluted earnings per
share for the year ended March 31, 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 years ended
March 31, 2003 and 2004 as follows: Thousands ofMillions of Yen
    
    
    U.S. Dollars2002
    
    
    2003
    
    
    2004
    
    
    2004Reported net income
    
    
    ¥8,047
    
    
    
    ¥16,078
    
    
    
   ¥24,838
    
    
    
    $234,320Add back: Goodwill
amortization
    
    
    748
    
    
    
    
    
    
    
    
    
    
    
    Adjusted net income
    
    
    ¥8,795
    
    
    
    ¥16,078
    
    
    
    ¥24,838
    
    
    
    $234,320
 Yen
    
    
    U.S. Dollars2002
    
    
    2003
    
    
    2004
    
    
    2004Basic earnings per share:Reported net income
    
    
    ¥44.70
    
    
    
    ¥90.24
    
    
    
    ¥141.58
    
    
    
    $1.34Goodwill amortization
    
    
    4.15
    
    
    
    
    
    
    
    
    
    
    
    Adjusted net income
    
    
    ¥48.85
    
    
    
    ¥90.24
    
    
    
    ¥141.58
    
    
    
    $1.34Diluted earnings per share:Reported net income
    
    
    ¥44.69
    
    
    
    ¥90.24
    
    
    
    ¥140.52
    
    
    
    $1.33Goodwill amortization
    
    
    4.15
    
    
    
    
    
    
    
    
    
    
    
    Adjusted net income
    
    
    ¥48.84
    
    
    
    ¥90.24
    
    
    
    ¥140.52
    
    
    
    $1.33
   8. Short-term borrowings and long-term debt:
 Short-term borrowings at March 31, 2003 and 2004 comprise the following: Thousands ofMillions of Yen
    
    
    U.S. Dollars2003
    
    
    2004
    
    
    2004Bank loans:Weighted-average interest rate
2.01% at March 31, 2003
and 1.74% at March 31, 2004:Uncollateralized
    
    
    ¥29,893
    
    
    
    ¥23,327
    
    
    
    $220,066
 F-17




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##### Table of Contents



Long-term debt at March 31, 2003 and 2004 comprises the following: Thousands ofMillions of Yen
    
    
    U.S. Dollars2003
    
    
    2004
    
    
    2004Loans, principally from banks, maturing serially through 2013
interest ranging from 1.85% to 3.90% at March 31, 2003 and from 3.06%
to 3.90% at March 31, 2004:Collateralized
    
    
    ¥   3,048
    
    
    
    ¥   2,804
    
    
    
    $   26,453Uncollateralized
    
    
    4,370
    
    
    
    3,680
    
    
    
    34,7172.35% Uncollateralized bonds due 2005
    
    
    15,000
    
    
    
    15,000
    
    
    
    141,5092.80% Uncollateralized bonds due 2008
    
    
    10,000
    
    
    
    10,000
    
    
    
    94,340Zero coupon convertible bonds due 2011, including unamortized issue
premium,
¥2,079 million ($19,613 thousand) (effective annual rate 0.5%)
    
    
    
    
    
    
    62,079
    
    
    
    585,651Industrial development U.S. dollar revenue bonds due 2005 with fluctuating
interest rates (1.59% at March 31, 2003 and 1.29% at March 31, 2004),
subject to maximum rate of 15% in 2003 and 2004 and other
    
    
    752
    
    
    
    638
    
    
    
    6,019Total
    
    
    33,170
    
    
    
    94,201
    
    
    
    888,689LessPortion due within one year
    
    
    974
    
    
    
    4,510
    
    
    
    42,547Total
    
    
    ¥32,196
    
    
    
    ¥89,691
    
    
    
    $846,142
 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. On March 5, 2004, the parent company
issued ¥60,000 million zero coupon
convertible bonds due 2011 (bonds with
stock acquisition rights) (Bonds) at
103.5% of their principal amount. The Bonds
do not bear interest. The stock acquisition
rights are not transferable separately from
the Bonds. The Bonds are traded on the
London Stock Exchanges market for listed
securities. The Bonds were issued in the
denomination of ¥5 million each and each
bondholder is entitled to exercise the
stock acquisition right from April 1, 2006
until February 18, 2011 (unless previously
redeemed) into common shares at an initial
conversion price, subject to adjustment in
certain events, of ¥4,022 ($37.94). Market
price of common stock at the date of
issuance of the Bonds was ¥3,220 ($30.38). Parent company may redeem all, but
not some of the Bonds, with advance
irrevocable notice to bondholders in each
case (1) if the closing price of common
stock for each of the 30 consecutive
trading days is at least 120% of the
conversion price on or after March 4,
2007 and prior to maturity, or (2) if the
laws or regulations of Japan having
power to tax is changed, or (3) if a
resolution is passed at the general
meeting of shareholders of the parent
company to become a wholly-owned
subsidiary of another company. The stock acquisition right is also
exercisable on or after March 19, 2004 if
the parent company issues an irrevocable
notice to bondholders for (2) or (3)
above, or if a resolution passes at a
general meeting of shareholders of parent
company (a) for any consolidation or
amalgamation of parent company with any
company, or (b) for any split of parent
companys business, or (c) for the parent
company to become a wholly-owned
subsidiary of another company. The parent company will redeem the
outstanding Bonds at 100% of their
principal amount on March 4, 2011. Unused lines of credit for short-term
financing at March 31, 2004 approximated
¥224,631 million ($2,119,160 thousand) of
which ¥30,000 million ($283,019 thousand)
relates to commercial paper programs.
Unused commitments for long-term financing
arrangements at March 31, 2004 amounted to
¥5,000 million ($47,170 thousand). There
were no commitment fees. Land and buildings with a book value
of ¥11,902 million ($112,283 thousand)
were pledged as collateral for certain
long-term loans of the Company at March
31, 2004. F-18




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##### Table of Contents



The aggregate annual maturities of
long-term debt during the five years
ending March 31, 2009 are as follows: Thousands ofYear ending March 31
    
    Millions of Yen
    
    
    U.S. Dollars2005
    
    
    ¥   4,510
    
    
    
    $   42,5472006
    
    
    15,857
    
    
    
    149,5942007
    
    
    255
    
    
    
    2,4062008
    
    
    272
    
    
    
    2,5662009
    
    
    10,244
    
    
    
    96,642
 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.   9. 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 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 and pension
obligation for the non-contributory plans
and the contributory plan of the parent
company and certain subsidiaries are
measured at March 31 in each fiscal year. Net periodic benefit costs for the
non-contributory plans and the contributory
plan of the parent company and certain
domestic subsidiaries for the years ended
March 31, 2002, 2003 and 2004 consisted of
the following: F-19




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##### Table of Contents



Thousands ofMillions of Yen
    
    
    U.S. Dollars2002
    
    
    2003
    
    
    2004
    
    
    2004Non-
    
    
    
    
    
    
    Non-
    
    
    
    
    
    
    Non-
    
    
    
    
    
    
    Non-contributory
    
    
    Contributory
    
    
    contributory
    
    
    Contributory
    
    
    contributory
    
    
    Contributory
    
    
    contributory
    
    
    ContributoryPlans
    
    
    Plan
    
    
    Plans
    
    
    Plan
    
    
    Plans
    
    
    Plan
    
    
    Plans
    
    
    PlanService cost
    
    ¥
    2,657
    
    
    ¥
    1,288
    
    
    ¥
    2,884
    
    
    ¥
    2,400
    
    
    ¥
    2,892
    
    
    ¥
    2,860
    
    
    $
    27,283
    
    
    $
    26,981Interest cost
    
    
    1,662
    
    
    
    2,926
    
    
    
    1,695
    
    
    
    3,195
    
    
    
    1,518
    
    
    
    3,301
    
    
    
    14,321
    
    
    
    31,142Expected return on assets
    
    
    (1,907
    )
    
    
    (2,245
    )
    
    
    (1,606
    )
    
    
    (1,941
    )
    
    
    (1,386
    )
    
    
    (1,741
    )
    
    
    (13,075
    )
    
    
    (16,425
    )Amortization of unrecognized
net actuarial loss
    
    
    744
    
    
    
    1,287
    
    
    
    1,021
    
    
    
    1,853
    
    
    
    1,632
    
    
    
    2,428
    
    
    
    15,396
    
    
    
    22,906Amortization of unrecognized
net assets at date of application
    
    
    (163
    )
    
    
    (344
    )
    
    
    (163
    )
    
    
    (344
    )
    
    
    (160
    )
    
    
    (344
    )
    
    
    (1,510
    )
    
    
    (3,245
    )Amortization of unrecognized
prior service gain
    
    
    (535
    )
    
    
    (364
    )
    
    
    (535
    )
    
    
    (364
    )
    
    
    (535
    )
    
    
    (364
    )
    
    
    (5,047
    )
    
    
    (3,434
    )Net periodic benefit cost
    
    ¥
    2,458
    
    
    ¥
    2,548
    
    
    ¥
    3,296
    
    
    ¥
    4,799
    
    
    ¥
    3,961
    
    
    ¥
    6,140
    
    
    $
    37,368
    
    
    $
    57,925Actuarial assumptions used to
determine net periodic
pension cost: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
    %
    
    
    3.9
    %
    
    
    3.9
    %
    
    
    3.9
    %
    
    
    3.9
    %
 *Non-contributory plans are not pay-related. F-20




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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 ofMillions of Yen
    
    
    U.S. Dollars2003
    
    
    2004
    
    
    2004Non-
    
    
    
    
    
    
    Non-
    
    
    
    
    
    
    Non-contributory
    
    
    Contributory
    
    
    contributory
    
    
    Contributory
    
    
    contributory
    
    
    ContributoryPlans
    
    
    Plan
    
    
    Plans
    
    
    Plan
    
    
    Plans
    
    
    PlanChange in benefit obligation:Benefit obligation at beginning of year
    
    ¥
    62,802
    
    
    ¥
    74,305
    
    
    ¥
    69,446
    
    
    ¥
    80,512
    
    
    $
    655,151
    
    
    $
    759,547Service cost
    
    
    2,884
    
    
    
    2,400
    
    
    
    2,892
    
    
    
    2,860
    
    
    
    27,283
    
    
    
    26,981Interest cost
    
    
    1,695
    
    
    
    3,195
    
    
    
    1,518
    
    
    
    3,301
    
    
    
    14,321
    
    
    
    31,142Plan participants contribution
    
    
    
    
    
    
    1,063
    
    
    
    
    
    
    
    659
    
    
    
    
    
    
    
    6,217Actuarial loss (gain)
    
    
    5,086
    
    
    
    534
    
    
    
    (3,004
    )
    
    
    (543
    )
    
    
    (28,340
    )
    
    
    (5,123
    )Lump-sum cash payments
    
    
    (2,607
    )
    
    
    
    
    
    
    (1,429
    )
    
    
    
    
    
    
    (13,481
    )
    
    
    Benefits paid
    
    
    (414
    )
    
    
    (985
    )
    
    
    (507
    )
    
    
    (1,129
    )
    
    
    (4,783
    )
    
    
    (10,651
    )Decrease due to sales of discontinued operations
    
    
    
    
    
    
    
    
    
    
    (451
    )
    
    
    
    
    
    
    (4,255
    )
    
    
    Benefit obligation at end of year
    
    ¥
    69,446
    
    
    ¥
    80,512
    
    
    ¥
    68,465
    
    
    ¥
    85,660
    
    
    $
    645,896
    
    
    $
    808,113Change in plan assets:Fair value of plan assets at beginning of year
    
    ¥
    41,167
    
    
    ¥
    49,778
    
    
    ¥
    35,923
    
    
    ¥
    44,639
    
    
    $
    338,896
    
    
    $
    421,123Actual return on plan assets
    
    
    (6,198
    )
    
    
    (7,963
    )
    
    
    5,739
    
    
    
    5,670
    
    
    
    54,142
    
    
    
    53,491Employer contribution
    
    
    3,975
    
    
    
    2,746
    
    
    
    4,040
    
    
    
    2,381
    
    
    
    38,113
    
    
    
    22,462Plan participants contribution
    
    
    
    
    
    
    1,063
    
    
    
    
    
    
    
    659
    
    
    
    
    
    
    
    6,217Lump-sum cash payments
    
    
    (2,607
    )
    
    
    
    
    
    
    (1,429
    )
    
    
    
    
    
    
    (13,481
    )
    
    
    Benefits paid
    
    
    (414
    )
    
    
    (985
    )
    
    
    (507
    )
    
    
    (1,129
    )
    
    
    (4,783
    )
    
    
    (10,651
    )Decrease due to sales of discontinued operations
    
    
    
    
    
    
    
    
    
    
    (391
    )
    
    
    
    
    
    
    (3,689
    )
    
    
    Fair value of plan assets at end of year
    
    ¥
    35,923
    
    
    ¥
    44,639
    
    
    ¥
    43,375
    
    
    ¥
    52,220
    
    
    $
    409,198
    
    
    $
    492,642Funded status
    
    ¥
    (33,523
    )
    
    ¥
    (35,873
    )
    
    ¥
    (25,090
    )
    
    ¥
    (33,440
    )
    
    $
    (236,698
    )
    
    $
    (315,471
    )Unrecognized actuarial loss
    
    
    36,474
    
    
    
    42,383
    
    
    
    27,476
    
    
    
    35,483
    
    
    
    259,208
    
    
    
    334,745Unrecognized net assets at the date of application
    
    
    (646
    )
    
    
    (1,297
    )
    
    
    (486
    )
    
    
    (953
    )
    
    
    (4,585
    )
    
    
    (8,991
    )Unrecognized prior service gain
    
    
    (8,235
    )
    
    
    (4,573
    )
    
    
    (7,700
    )
    
    
    (4,209
    )
    
    
    (72,642
    )
    
    
    (39,708
    )Net amount recognized
    
    ¥
    (5,930
    )
    
    ¥
    640
    
    
    ¥
    (5,800
    )
    
    ¥
    (3,119
    )
    
    $
    (54,717
    )
    
    $
    (29,425
    )Amounts recognized in the statement of financial
position consist of:Accrued benefit liabilities
    
    ¥
    (31,037
    )
    
    ¥
    (33,013
    )
    
    ¥
    (23,017
    )
    
    ¥
    (27,302
    )
    
    $
    (217,142
    )
    
    $
    (257,566
    )Accumulated other comprehensive income
    
    
    25,107
    
    
    
    33,653
    
    
    
    17,217
    
    
    
    24,183
    
    
    
    162,425
    
    
    
    228,141Net amount recognized
    
    ¥
    (5,930
    )
    
    ¥
    640
    
    
    ¥
    (5,800
    )
    
    ¥
    (3,119
    )
    
    $
    (54,717
    )
    
    $
    (29,425
    )Accumulated benefit obligation at end of year
    
    ¥
    66,960
    
    
    ¥
    77,652
    
    
    ¥
    66,392
    
    
    ¥
    79,522
    
    
    $
    626,340
    
    
    $
    750,208Actuarial assumptions used to determine benefit
obligations:Discount rate
    
    
    2.2
    %
    
    
    4.1
    %
    
    
    2.5
    %
    
    
    4.1
    %Rate of salary increase
    
    
    
    *
    
    
    2.6
    %
    
    
    
    *
    
    
    2.6
    %
 *Non-contributory plans are not pay-related. F-21




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##### 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. To determine the expected long-term
rate of return on pension plan assets, the
Company considers the current and target
asset allocations, as well as historical
and expected returns on various categories
of plan assets, adjusted as deemed
appropriate to reflect more recent capital
market experiences as well as the rate of
inflation and interest rates. The pension plan weighted-average
asset allocations at March 31, 2003 and
2004, by asset category are as follows: Asset category
    
    2003
    
    
    2004Equity securities
    
    
    44
    %
    
    
    46
    %Debt securities
    
    
    35
    %
    
    
    30
    %Real estate and other
    
    
    21
    %
    
    
    24
    %Total
    
    
    100
    %
    
    
    100
    %
 The Companys investment policy is to
maintain a diversified portfolio of asset
classes with the primary goal of producing
an adequate return that, when combined with
the Companys contribution, will maintain
the funds ability to meet future cash
requirements for pension benefit
payments. For primary domestic pension
plans, the target asset allocation is
established based on long-term pension plan
asset/liability studies, and the current
weighted-average target asset allocation
for these plans is; equity securities 56%,
debt securities 41%, other 3%. All the
assets are externally managed and
investment managers have discretion to
carry out investment operations within
their respective mandates specified by the
Company. Substantially all of the employees of
U.S. and European subsidiaries are covered
by defined benefit pension plans. The
projected benefit obligation for the plans
and related fair value of plan assets are
as follows: Thousands ofMillions of Yen
    
    
    U.S. Dollars2003
    
    
    2004
    
    
    2004Projected benefit obligation
    
    ¥
    10,732
    
    
    ¥
    12,574
    
    
    
    $118,623Plan assets
    
    
    6,248
    
    
    
    7,656
    
    
    
    72,226Actuarial assumptions used
to determine benefit
obligation (PBO weighted):Discount rate
    
    
    6.1
    %
    
    
    5.6
    %Rate of salary increase
    
    
    3.9
    %
    
    
    4.0
    %
 Net periodic pension costs for these plans for the years ended March 31, 2002,
2003 and 2004 are as follows: Thousands ofMillions of Yen
    
    
    U.S. Dollars2002
    
    
    2003
    
    
    2004
    
    
    2004Total net periodic pension cost
    
    
    ¥1,034
    
    
    
    ¥872
    
    
    
    ¥748
    
    
    
    $7,057Actuarial assumptions used to determine
net periodic pension cost:Discount rate
    
    
    6.2
    %
    
    
    6.5
    %
    
    
    6.1
    %Rate of salary increase
    
    
    4.3
    %
    
    
    4.3
    %
    
    
    3.9
    %Long-term rate of return on plan assets
    
    
    7.2
    %
    
    
    7.5
    %
    
    
    7.6
    %
 Accumulated other comprehensive income of ¥557 million ($5,255 thousand)
was recorded for European plans at March 31, 2004. F-22




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##### Table of Contents



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. These special termination
benefits were included in the selling,
general and administrative expenses. The Company expects to contribute
¥5,756 million ($54,302 thousand) to its
domestic defined benefit plan in the year
ending March 31, 2005.   10. 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, 2002, 2003 and 2004 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%. Income tax expense for the year ended March 31, 2004
included ¥682 million ($6,434 thousand)
charges resulting from the settlement of a
proposed assessment from the U.S. Internal
Revenue Service relating to an adjustment
to transfer prices between affiliated
companies for the years ended March 31,
1997 through 1999. 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 ofMillions of Yen
    
    
    U.S. Dollars2002
    
    
    2003
    
    
    2004
    
    
    2004Computed tax expense at normal statutory tax rate
    
    ¥
    6,078
    
    
    ¥
    11,793
    
    
    ¥
    17,576
    
    
    $
    165,811Increase (decrease) resulting from:Changes in valuation allowance
    
    
    507
    
    
    
    (3,007
    )
    
    
    (3,701
    )
    
    
    (34,915
    )Expenses not deductible for tax purpose:Domestic
    
    
    713
    
    
    
    269
    
    
    
    280
    
    
    
    2,642Foreign
    
    
    221
    
    
    
    439
    
    
    
    149
    
    
    
    1,406Amortization of goodwill
    
    
    314
    
    
    
    
    
    
    
    
    
    
    
    Difference in foreign and Japanese tax rates
    
    
    (1,934
    )
    
    
    (1,595
    )
    
    
    (1,608
    )
    
    
    (15,170
    )Effect of tax rate change on deferred taxes
    
    
    
    
    
    
    835
    
    
    
    447
    
    
    
    4,217Tax benefit for discontinued operations
    
    
    
    
    
    
    
    
    
    
    3,025
    
    
    
    28,538Tax credit for research and development expenses
    
    
    (186
    )
    
    
    (530
    )
    
    
    (898
    )
    
    
    (8,472
    )Other
    
    
    703
    
    
    
    828
    
    
    
    3,317
    
    
    
    31,292Provision for income taxes
    
    ¥
    6,416
    
    
    ¥
    9,032
    
    
    ¥
    18,587
    
    
    $
    175,349
 F-23




---



##### Table of Contents



Total income taxes provided for the years ended March 31, 2002, 2003 and 2004
are as follows: Thousands ofMillions of Yen
    
    
    U.S. Dollars2002
    
    
    2003
    
    
    2004
    
    
    2004Provision for income taxes on income from continuing operations
    
    ¥
    6,416
    
    
    ¥
    9,032
    
    
    ¥
    18,587
    
    
    $
    175,349Provision for income taxes (benefit) on income from discontinued operations
    
    
    306
    
    
    
    415
    
    
    
    (2,310
    )
    
    
    (21,792
    )Shareholders equitydirectly charged (credited):Minimum pension liability adjustments
    
    
    (6,460
    )
    
    
    (8,927
    )
    
    
    6,953
    
    
    
    65,594Net unrealized gains on securities
    
    
    (1,502
    )
    
    
    (899
    )
    
    
    4,009
    
    
    
    37,821Total
    
    ¥
    (1,240
    )
    
    ¥
    (379
    )
    
    ¥
    27,239
    
    
    $
    256,972
 Income from continuing operations before income taxes and income tax expense
comprised the following components: Thousands ofMillions of Yen
    
    
    U.S. Dollars2002
    
    
    2003
    
    
    2004
    
    
    2004Income (loss) from continuing operations before income taxes:Domestic
    
    ¥
    (4,187
    )
    
    ¥
    10,137
    
    
    ¥
    18,481
    
    
    $
    174,349Foreign
    
    
    18,659
    
    
    
    17,942
    
    
    
    23,367
    
    
    
    220,443¥
    14,472
    
    
    ¥
    28,079
    
    
    ¥
    41,848
    
    
    $
    394,792Income taxesCurrent:Domestic
    
    ¥
    3,684
    
    
    ¥
    6,643
    
    
    ¥
    10,799
    
    
    $
    101,877Foreign
    
    
    7,111
    
    
    
    7,834
    
    
    
    7,030
    
    
    
    66,321¥
    10,795
    
    
    ¥
    14,477
    
    
    ¥
    17,829
    
    
    $
    168,198Income taxesDeferred:Domestic
    
    ¥
    (4,490
    )
    
    ¥
    (3,296
    )
    
    ¥
    (385
    )
    
    $
    (3,632
    )Foreign
    
    
    111
    
    
    
    (2,149
    )
    
    
    1,143
    
    
    
    10,783¥
    (4,379
    )
    
    ¥
    (5,445
    )
    
    ¥
    758
    
    
    $
    7,151
 F-24




---



##### Table of Contents



The significant components of the deferred tax assets and liabilities at March
31, 2003 and 2004 are as follows: Thousands ofMillions of Yen
    
    
    U.S. Dollars2003
    
    
    2004
    
    
    2004Deferred
    
    
    Deferred
    
    
    Deferred
    
    
    Deferred
    
    
    Deferred
    
    
    DeferredTax
    
    
    Tax
    
    
    Tax
    
    
    Tax
    
    
    Tax
    
    
    TaxAssets
    
    
    Liabilities
    
    
    Assets
    
    
    Liabilities
    
    
    Assets
    
    
    LiabilitiesInventories
    
    ¥
    8,197
    
    
    
    
    
    
    ¥
    6,911
    
    
    
    
    
    
    $
    65,198
    
    
    
    Marketable equity securities
    
    
    3,831
    
    
    
    ¥1,018
    
    
    
    2,971
    
    
    
    ¥5,017
    
    
    
    28,028
    
    
    $
    47,330Accrued expenses
    
    
    9,106
    
    
    
    
    
    
    
    10,411
    
    
    
    
    
    
    
    98,217
    
    
    
    Tax loss carryforwards
    
    
    11,723
    
    
    
    
    
    
    
    9,297
    
    
    
    
    
    
    
    87,708
    
    
    
    Pension and severance cost
    
    
    28,341
    
    
    
    
    
    
    
    22,268
    
    
    
    
    
    
    
    210,075
    
    
    
    Land
    
    
    2,216
    
    
    
    
    
    
    
    1,840
    
    
    
    
    
    
    
    17,358
    
    
    
    Depreciation
    
    
    1,563
    
    
    
    387
    
    
    
    1,907
    
    
    
    302
    
    
    
    17,991
    
    
    
    2,849Royalty receivable
    
    
    1,395
    
    
    
    
    
    
    
    974
    
    
    
    
    
    
    
    9,189
    
    
    
    Other
    
    
    18,384
    
    
    
    2,863
    
    
    
    15,574
    
    
    
    3,408
    
    
    
    146,925
    
    
    
    32,151Total
    
    
    84,756
    
    
    
    4,268
    
    
    
    72,153
    
    
    
    8,727
    
    
    
    680,689
    
    
    
    82,330Valuation allowance
    
    
    (15,292
    )
    
    
    
    
    
    
    (11,591
    )
    
    
    
    
    
    
    (109,349
    )
    
    
    Total
    
    ¥
    69,464
    
    
    
    ¥4,268
    
    
    ¥
    60,562
    
    
    
    ¥8,727
    
    
    $
    571,340
    
    
    $
    82,330
 The changes in the valuation allowance for the years ended March 31, 2002, 2003
and 2004 are as follows: Millions of YenBalance at
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance atBeginning
    
    
    
    
    
    
    
    
    
    
    Translation
    
    
    EndValuation allowance
    
    of Period
    
    
    Addition
    
    
    Deduction
    
    
    Adjustments
    
    
    of Period2002
    
    ¥
    17,792
    
    
    
    ¥ 2,720
    
    
    ¥
    (2,762
    )
    
    
    ¥   549
    
    
    ¥
    18,2992003
    
    
    18,299
    
    
    
    5,741
    
    
    
    (8,912
    )
    
    
    164
    
    
    
    15,2922004
    
    
    15,292
    
    
    
    1,956
    
    
    
    (5,469
    )
    
    
    (188
    )
    
    
    11,591
 Thousands of U.S. DollarsBalance at
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance atBeginning
    
    
    
    
    
    
    
    
    
    Translation
    
    EndValuation allowance
    of Period
    
    Addition
    
    Deduction
    
    Adjustments
    
    of Period2004
    
    $
    144,264
    
    
    $
    18,453
    
    
    $
    (51,594
    )
    
    
    $(1,774
    )
    
    $
    109,349
 The valuation allowance principally
relates to deferred tax assets for loss
carryforwards of subsidiaries. Decrease in valuation allowance for
the year ended March 31, 2003 was mainly
due to the reversal of valuation allowance
which had been provided for a tax benefit,
the realization of which had been judged as
unlikely, as profitability of subsidiaries
improved. Decrease in valuation allowance
for the year ended March 31, 2004 was
mainly due to the reversal of valuation
allowance for discontinued operations. F-25




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##### Table of Contents



At March 31, 2004, 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: Thousands ofYear ending March 31
    
    Millions of Yen
    
    
    U.S. Dollars2005
    
    ¥
    706
    
    
    $
    6,6602006
    
    
    152
    
    
    
    1,4342007
    
    
    1,138
    
    
    
    10,7362008
    
    
    1,512
    
    
    
    14,2642009
    
    
    1,557
    
    
    
    14,689Thereafter
    
    
    17,319
    
    
    
    163,387Total
    
    ¥
    22,384
    
    
    $
    211,170
 No provision for income taxes is
recognized on undistributed earnings of
foreign subsidiaries that are not expected
to be remitted in the foreseeable future.
Undistributed earnings of foreign
subsidiaries (including related foreign
currency translation adjustments) at March
31, 2003 and 2004 amounted to approximately
¥133,923 million and ¥116,689 million
($1,100,840 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.   11. 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 ($1,689,396 thousand) would have
been transferred from retained earnings to
appropriate capital accounts as of March
31, 2004. 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. F-26




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##### Table of Contents



The amount available for dividends
under the Code was ¥135,697 million
($1,280,160 thousand) as of March 31, 2004,
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 purchase of up to
10,000,000 shares of the parent companys
common stock. In August 2002, November 2002
and February 2003, the parent company
purchased 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 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,
2004, which have been incorporated in the
accompanying financial statements, will be
proposed for approval at the general
shareholders meeting to be
held on June 29, 2004, and will be
recorded in the parent companys general
books of account after shareholders
approval.   12. 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. These warrants vest over one
year and expire in three years from the
date of issuance. Stock option plan
In accordance with approval at
shareholders meetings on June 29, 2000 and
June 28, 2001, the Company granted share
subscription rights to employees. Also, in
accordance with approval at shareholders
meeting on June 27, 2002 and June 27, 2003,
the Company granted share acquisition
rights to directors and certain employees
of the Company. These options vest over two
years and expire in five years from the
date of grant. 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: YenWeighted-Average
    
    Number ofWeighted-Average
    
    Grant Date
    
    SharesYear
    
    Plan
    
    Exercisable Period
    
    Exercise Price
    
    Share Price
    
    (Thousands)2001
    
    Stock option
    
    From July 1, 2002 to June 30, 2005
    
    
    ¥4,400
    
    

    
    ¥4,250
    
    
    
    1912002
    
    Warrant
    
    From July 1, 2002 to August 26, 2004
    
    
    3,266
    
    
    
    2,700
    
    
    
    4132002
    
    Stock option
    
    From July 1, 2003 to June 30, 2006
    
    
    3,791
    
    
    
    3,750
    
    
    
    1912003
    
    Stock option
    
    From July 1, 2004 to June 29, 2007
    
    
    2,477
    
    
    
    2,170
    
    
    
    5642004
    
    Stock option
    
    From July 1, 2005 to June 30, 2008
    
    
    2,951
    
    
    
    2,845
    
    
    
    313
 U.S. DollarsWeighted-AverageWeighted-Average
    
    Grant DateYear
    
    Plan
    
    Exercisable Period
    
    Exercise Price
    
    Share Price2004
    
    
    Stock option
    
    From July 1, 2005 to June 30, 2008
    
    
    $27.84
    
    
    
    $26.84
 F-27




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##### Table of Contents



Remuneration cost recognized for
stock-based compensation plans for the
years ended March 31, 2002, 2003 and 2004
were ¥346 million, ¥149 million and ¥305
million ($2,877 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, 2002,
2003 and 2004 were ¥573, ¥704 and ¥907
($8.56), 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: 2002
    
    2003
    
    2004Risk-free interest rate
    
    
    0.25
    %
    
    
    0.24
    %
    
    
    0.34
    %Expected lives
    
    3.48 years
    
    3.48 years
    
    3.48 yearsExpected volatility
    
    
    50.61
    %
    
    
    52.81
    %
    
    
    48.13
    %Expected dividends
    
    
    0.41
    %
    
    
    0.69
    %
    
    
    0.88
    %
 A summary of the status of the Companys warrants and options as of March
31, 2002, 2003 and 2004, and changes during the years is as follows: Weighted-Average ExerciseWeighted-Average
    
    
    Price per ShareNumber of Shares
    
    Remaining Life(Thousands)
    
    (Years)
    
    Yen
    
    U.S. DollarsOutstanding at
March 31, 2001
    
    
    743
    
    
    
    2.4
    
    
    
    ¥3,782Granted
    
    
    604
    
    
    
    
    
    
    
    3,432Exercised
    
    
    (170
    )
    
    
    
    
    
    
    2,425Outstanding at
March 31, 2002
    
    
    1,177
    
    
    
    2.5
    
    
    
    ¥3,798Granted
    
    
    564
    
    
    
    
    
    
    
    2,477Expired
    
    
    (98
    )
    
    
    
    
    
    
    2,188Outstanding at
March 31, 2003
    
    
    1,643
    
    
    
    2.5
    
    
    
    ¥3,441Granted
    
    
    313
    
    
    
    
    
    
    
    2,951
    
    
    
    $27.84Expired
    
    
    (284
    )
    
    
    
    
    
    
    4,728
    
    
    
    44.60Outstanding at
March 31, 2004
    
    
    1,672
    
    
    
    2.4
    
    
    
    ¥3,131
    
    
    
    $29.54Exercisable at
March 31, 2003
    
    
    888
    
    
    
    
    
    
    
    ¥3,977Exercisable at
March 31, 2004
    
    
    795
    
    
    
    
    
    
    
    ¥3,664
    
    
    
    $34.57
   13. Other comprehensive income: Change in accumulated other comprehensive income (loss) is as follows: Millions of YenForeign Currency
    
    
    Total AccumulatedMinimum Pension
    
    
    Net Unrealized
    
    
    Translation
    
    
    Other ComprehensiveLiability Adjustments
    
    
    Gains on Securities
    
    
    Adjustments
    
    
    Income (Loss)Balance at March 31, 2001
    
    ¥
    (11,639
    )
    
    ¥
    6,662
    
    
    ¥
    (23,674
    )
    
    ¥
    (28,651
    )Adjustments for the year
    
    
    (8,848
    )
    
    
    (2,079
    )
    
    
    14,842
    
    
    
    3,915Balance 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
    )Adjustments for the year
    
    
    9,745
    
    
    
    5,755
    
    
    
    (21,700
    )
    
    
    (6,200
    )Balance at March 31, 2004
    
    ¥
    (22,930
    )
    
    ¥
    9,103
    
    
    ¥
    (48,002
    )
    
    ¥
    (61,829
    )
 Thousands of U.S. DollarsForeign Currency
    
    
    Total AccumulatedMinimum Pension
    
    
    Net Unrealized
    
    
    Translation
    
    
    Other ComprehensiveLiability Adjustments
    
    
    Gains on Securities
    
    
    Adjustments
    
    
    Income (Loss)Balance at March 31,
2003
    
    $
    (308,255
    )
    
    $
    31,585
    
    
    $
    (248,132
    )
    
    $
    (524,802
    )Adjustments for the year
    
    
    91,934
    
    
    
    54,293
    
    
    
    (204,717
    )
    
    
    (58,490
    )Balance at March 31,
2004
    
    $
    (216,321
    )
    
    $
    85,878
    
    
    $
    (452,849
    )
    
    $
    (583,292
    )
 F-28




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##### Table of Contents



Tax effects allocated to each component of other comprehensive income (loss)
and reclassification adjustments are as follows: Millions of YenBefore-Tax
    
    Tax (Expense)
    
    Minority
    
    Net-of-TaxAmount
    
    or Benefit
    
    Interest
    
    Amount2002: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
    )
    
    
    1,048Net unrealized losses
    
    
    (3,576
    )
    
    
    1,502
    
    
    
    (5
    )
    
    
    (2,079
    )Foreign currency translation adjustments
    
    
    15,338
    
    
    
    
    
    
    
    (496
    )
    
    
    14,842Other comprehensive income (loss)
    
    ¥
    (3,618
    )
    
    ¥
    7,962
    
    
    ¥
    (429
    )
    
    ¥
    3,9152003: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
    )
    
    
    788Net 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
    )2004:Minimum pension liability adjustments
    
    ¥
    16,803
    
    
    ¥
    (6,953
    )
    
    ¥
    (105
    )
    
    ¥
    9,745Net unrealized gains on securities:Unrealized holding gains arising during year
    
    
    9,790
    
    
    
    (4,013
    )
    
    
    (16
    )
    
    
    5,761LessReclassification adjustment for gains realized in net income
    
    
    (10
    )
    
    
    4
    
    
    
    
    
    
    
    (6
    )Net unrealized gains
    
    
    9,780
    
    
    
    (4,009
    )
    
    
    (16
    )
    
    
    5,755Foreign currency translation adjustments:Foreign currency translation adjustments arising during year
    
    
    (23,010
    )
    
    
    
    
    
    
    912
    
    
    
    (22,098
    )LessReclassification adjustment for losses realized in net income
    
    
    398
    
    
    
    
    
    
    
    
    
    
    
    398Net foreign currency translation adjustments
    
    
    (22,612
    )
    
    
    
    
    
    
    912
    
    
    
    (21,700
    )Other comprehensive income (loss)
    
    ¥
    3,971
    
    
    ¥
    (10,962
    )
    
    ¥
    791
    
    
    ¥
    (6,200
    )
 Thousands of U.S. DollarsBefore-Tax
    
    Tax (Expense)
    
    Minority
    
    Net-of-TaxAmount
    
    or Benefit
    
    Interest
    
    Amount2004:Minimum pension liability adjustments
    
    $
    158,519
    
    
    $
    (65,594
    )
    
    $
    (991
    )
    
    $
    91,934Net unrealized gains on securities:Unrealized holding gains arising during year
    
    
    92,359
    
    
    
    (37,859
    )
    
    
    (151
    )
    
    
    54,349LessReclassification adjustment for gains realized in net income
    
    
    (94
    )
    
    
    38
    
    
    
    
    
    
    
    (56
    )Net unrealized gains
    
    
    92,265
    
    
    
    (37,821
    )
    
    
    (151
    )
    
    
    54,293Foreign currency translation adjustments:Foreign currency translation adjustments arising during year
    
    
    (217,076
    )
    
    
    
    
    
    
    8,604
    
    
    
    (208,472
    )LessReclassification adjustment for losses realized in net income
    
    
    3,755
    
    
    
    
    
    
    
    
    
    
    
    3,755Net foreign currency translation adjustments
    
    
    (213,321
    )
    
    
    
    
    
    
    8,604
    
    
    
    (204,717
    )Other comprehensive income (loss)
    
    $
    37,463
    
    
    $
    (103,415
    )
    
    $
    7,462
    
    
    $
    (58,490
    )
 F-29




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##### Table of Contents





---

14. Supplemental information:


Supplemental information for the years ended March 31, 2002, 2003 and 2004 is
as follows:

Thousands ofMillions of Yen
    
    U.S. Dollars2002
    
    2003
    
    2004
    
    2004Research and development expenses charged to cost and expenses
    
    ¥
    39,050
    
    
    ¥
    45,388
    
    
    ¥
    51,483
    
    
    $
    485,689Advertising costs charged to expense as incurred
    
    
    12,352
    
    
    
    11,089
    
    
    
    12,813
    
    
    
    120,877


Othernet as shown in other income (expenses) for the years ended March
31, 2002, 2003 and 2004 consisted of the following:

Thousands ofMillions of Yen
    
    U.S. Dollars2002
    
    2003
    
    2004
    
    2004Write-down of available-for-sale securities and sundry investments
    
    ¥
    (2,341
    )
    
    ¥
    (1,369
    )
    
    ¥
    (245
    )
    
    $
    (2,311
    )Gains (losses) on sale of available-for-sale securities and
sundry investments
    
    
    54
    
    
    
    (20
    )
    
    
    37
    
    
    
    349Other
    
    
    133
    
    
    
    641
    
    
    
    315
    
    
    
    2,972Total
    
    ¥
    (2,154
    )
    
    ¥
    (748
    )
    
    ¥
    107
    
    
    $
    1,010


15. 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, 2002,
2003 and 2004 aggregated ¥6,058 million,
¥6,068 million and ¥6,268 million ($59,132
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, 2004 are
as follows: Thousands ofYear ending March 31
    
Millions of Yen
    
    U.S. Dollars2005
    
    ¥2,467
    
    $
    23,2742006
    
    1,512
    
    
    14,2642007
    
    1,026
    
    
    9,6792008
    
    694
    
    
    6,5472009
    
    486
    
    
    4,585Thereafter
    
    1,760
    
    
    16,604Total minimum future rentals
    
    ¥7,945
    
    $
    74,953
 F-30




---



##### Table of Contents





---

16. 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, 2003 and
2004 were ¥8,496 million and ¥20,505
million ($193,443 thousand), respectively.
The notional amounts of currency options
purchased were ¥1,558 million as of March
31, 2003. The notional amount of currency
options written was ¥1,558 million as of
March 31, 2003.

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 and
floating interest rate borrowings and euro
fixed interest rate borrowings. The
notional amounts of
currency swap contracts as of March 31,
2003 and 2004 were ¥32,255 million and
¥35,106 million ($331,189 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.

F-31



---



##### Table of Contents





---

17. Fair value of financial instruments:


The following table presents the carrying amounts and fair values of the
Companys financial instruments at March 31, 2003 and 2004:

Thousands ofMillions of Yen
    
    U.S. Dollars2003
    
    2004
    
    2004Assets (Liabilities)
    
    Assets (Liabilities)
    
    Assets (Liabilities)Carrying
    
    Fair
    
    Carrying
    
    Fair
    
    Carrying
    
    FairAmounts
    
    Value
    
    Amounts
    
    Value
    
    Amounts
    
    ValueAssets:Available-for-sale securities
    
    ¥
    14,831
    
    
    ¥
    14,831
    
    
    ¥
    24,516
    
    
    ¥
    24,516
    
    
    $
    231,283
    
    
    $
    231,283Long-term receivables
    
    
    292
    
    
    
    288
    
    
    
    253
    
    
    
    244
    
    
    
    2,387
    
    
    
    2,302Other financial instruments:Forward exchange contracts
    
    
    13
    
    
    
    13
    
    
    
    790
    
    
    
    790
    
    
    
    7,453
    
    
    
    7,453Liabilities:Long-term debt, including current maturity
    
    
    (33,170
    )
    
    
    (34,730
    )
    
    
    (94,201
    )
    
    
    (89,507
    )
    
    
    (888,689
    )
    
    
    (844,406
    )Other financial instruments:Forward exchange contracts
    
    
    (250
    )
    
    
    (250
    )
    
    
    (95
    )
    
    
    (95
    )
    
    
    (896
    )
    
    
    (896
    )Currency swap
    
    
    (2,076
    )
    
    
    (2,076
    )
    
    
    (3,179
    )
    
    
    (3,179
    )
    
    
    (29,991
    )
    
    
    (29,991
    )Currency option
    
    
    (7
    )
    
    
    (7
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    


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 4.

Sundry investments included equity
interests in non-public companies,
amounting to ¥2,404 million and ¥2,855
million ($26,934 thousand) at March 31,
2003 and 2004, respectively, and
memberships amounting to ¥503 million and
¥528 million ($4,981 thousand) at March
31, 2003
and 2004, 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.

The fair values of the Companys
contingent liabilities for guarantees of
loans are not significant.

F-32



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18. 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, 2002, 2003 and 2004
is as follows:

Thousands ofMillions of Yen
    
    U.S. Dollars2002
    
    2003
    
    2004
    
    2004Income from continuing operations
    
    ¥
    7,482
    
    
    ¥
    15,942
    
    
    ¥
    20,363
    
    
    $
    192,103Effect of dilutionZero coupon convertible
bonds
    
    
    
    
    
    
    
    
    
    
    (21
    )
    
    
    (198
    )Income from continuing operationsdiluted
    
    ¥
    7,482
    
    
    ¥
    15,942
    
    
    ¥
    20,342
    
    
    $
    191,905Income from discontinued operations, net of tax
    
    ¥
    565
    
    
    ¥
    136
    
    
    ¥
    4,475
    
    
    $
    42,217Net income
    
    ¥
    8,047
    
    
    ¥
    16,078
    
    
    ¥
    24,838
    
    
    $
    234,320Effect of dilutionZero coupon convertible
bonds
    
    
    
    
    
    
    
    
    
    
    (21
    )
    
    
    (198
    )Net incomediluted
    
    ¥
    8,047
    
    
    ¥
    16,078
    
    
    ¥
    24,817
    
    
    $
    234,122


Number of Shares (Thousands)Weighted-average common shares outstanding
    
    
    180,032
    
    
    
    178,168
    
    
    
    175,433Effect of dilutive convertible bonds
    
    
    
    
    
    
    
    
    
    
    1,115Effect of dilutive warrants
    
    
    32
    
    
    
    2
    
    
    
    Effect of stock options
    
    
    
    
    
    
    1
    
    
    
    61Diluted common shares outstanding
    
    
    180,064
    
    
    
    178,171
    
    
    
    176,609


Yen
    
    
    U.S. DollarsBasic net income per share:Income from continuing operations
    
    ¥
    41.56
    
    
    ¥
    89.48
    
    
    ¥
    116.07
    
    
    $
    1.10Income from discontinued operations, net of tax
    
    
    3.14
    
    
    
    0.76
    
    
    
    25.51
    
    
    
    0.24Net income
    
    ¥
    44.70
    
    
    ¥
    90.24
    
    
    ¥
    141.58
    
    
    $
    1.34Diluted net income per share:Income from continuing operations
    
    ¥
    41.55
    
    
    ¥
    89.48
    
    
    ¥
    115.18
    
    
    $
    1.09Income from discontinued operations, net of tax
    
    
    3.14
    
    
    
    0.76
    
    
    
    25.34
    
    
    
    0.24Net income
    
    ¥
    44.69
    
    
    ¥
    90.24
    
    
    ¥
    140.52
    
    
    $
    1.33


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19. Supplemental schedule:


The changes in the allowance for doubtful receivables for the years ended March
31, 2002, 2003 and 2004 are as follows:

Millions of YenBalance at
    
    Charged (Credited)
    
    Deductions forBeginning
    
    to Costs and
    
    Accounts
    
    Translation
    
    Balance at EndAllowance for Doubtful Receivables
    
    of Period
    
    Expenses
    
    Written Off
    
    Adjustments
    
    of Period2002
    
    ¥
    9,821
    
    
    ¥
    (153
    )
    
    ¥
    (4,660
    )
    
    ¥
    311
    
    
    ¥
    5,3192003
    
    
    5,319
    
    
    
    411
    
    
    
    (765
    )
    
    
    (334
    )
    
    
    4,6312004
    
    
    4,631
    
    
    
    (667
    )
    
    
    (13
    )
    
    
    (417
    )
    
    
    3,534


Thousands of U.S. DollarsBalance at
    
    Charged (Credited)
    
    Deductions forBeginning
    
    to Costs and
    
    Accounts
    
    Translation
    
    Balance at EndAllowance for Doubtful Receivables
    
    of Period
    
    Expenses
    
    Written Off
    
    Adjustments
    
    of Period2004
    
    $
    43,689
    
    
    $
    (6,293
    )
    
    $
    (123
    )
    
    $
    (3,934
    )
    
    $
    33,339


The changes in the warranty reserve for the year ended March 31, 2004 are as
follows:

Millions of YenBalance atBeginning
    
    
    
    
    
    
    
    
    
    Translation
    
    Balance at EndWarranty Reserve
    
    of Period
    
    Provision
    
    Payments
    
    Adjustments
    
    of Period2002
    
    ¥
    5,478
    
    
    ¥
    10,976
    
    
    ¥
    (10,290
    )
    
    ¥
    317
    
    
    ¥
    6,4812003
    
    
    6,481
    
    
    
    7,642
    
    
    
    (7,374
    )
    
    
    (256
    )
    
    
    6,4932004
    
    
    6,493
    
    
    
    6,050
    
    
    
    (6,669
    )
    
    
    (455
    )
    
    
    5,419


Thousands of U.S. DollarsBalance atBeginning
    
    
    
    
    
    
    
    
    
    Translation
    
    Balance at EndWarranty Reserve
    
    of Period
    
    Provision
    
    Payments
    
    Adjustments
    
    of Period2004
    
    $
    61,255
    
    
    $
    57,075
    
    
    $
    (62,915
    )
    
    $
    (4,292
    )
    
    $
    51,123


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20. Commitments and contingent liabilities:


Commitments outstanding at March 31, 2004
for the purchase of property, plant and
equipment and advertisement payments
approximated ¥3,114 million ($29,377
thousand).

Contingent liabilities at March 31,
2004 principally for loans guaranteed in
the ordinary course of business amounted to
¥25,634 million ($241,830 thousand).

Loans guaranteed at March 31, 2004 are as follows:

Guaranteed AmountThousands ofGuarantee for
    
    Guaranteed until
    
    Millions of Yen
    
    U.S. DollarsAffiliated company
    
    May 31, 2012October 22, 2012
    
    
    ¥25,000
    
    
    
    $235,849Affiliated company
    
    October 25, 2004March 31, 2005
    
    
    502
    
    
    
    4,736Total
    
    
    
    
    ¥25,502
    
    
    
    $240,585


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 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 EUR 21 million (¥2,706
million translated at the foreign exchange
rate at March 31, 2004) 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,
2004. In the opinion of management, it is
not possible at this time to determine the
ultimate resolution of this matter.



---

21. Variable interest entity:


ELDis, Inc. was established in March 2001
to manufacture and market new products,
thin film transistor substrates for
active-matrix organic light-emitting
diode. ELDis, Inc., 45% owned by Tohoku
Pioneer Corporation, a 67% owned
subsidiary is accounted for by equity
method of accounting.

At March 31, 2004, total assets and
total of common stock and capital surplus
of ELDis, Inc. was ¥35,496 million
($334,868 thousand) and ¥20,000 million
($188,679 thousand), respectively. At March
31, 2004, it is reasonably possible that
Tohoku Pioneer Corporation is the
primary beneficiary of or holds a
significant variable interest in
ELDis, Inc., a development stage
enterprise. Tohoku Pioneer Corporations
maximum exposure to loss as a result of its
involvement with ELDis, Inc. at March 31,
2004 is as follows:

Thousands ofVariable interests
    
    Millions of Yen
    
    U.S. DollarsInvestments in equity
    
    ¥
    9,000
    
    
    $
    84,906Guarantee of loans
    
    
    25,000
    
    
    
    235,849Total
    
    ¥
    34,000
    
    
    $
    320,755




---

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


The aggregate remuneration (including
bonuses and stock-based compensation [see
Note 12]) charged to income by the parent
company for directors, executive officers
and corporate
auditors for the years ended March 31,
2002, 2003 and 2004 totaled ¥876 million,
¥965 million and ¥1,238 million ($11,679
thousand), respectively.

F-35



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23. Subsequent events: a. In June 2004, we received preliminary
information from the United States
Internal Revenue Service proposing
additional taxes of approximately $58
million (¥6,148 million translated at the
foreign exchange rate at March 31, 2004)
relating to an adjustment to transfer
prices between affiliated companies for
the years ended March 31, 2000 through
2002. We intend to contest the adjustment.
In the opinion of management, it is not
possible at this time to determine the
ultimate outcome of this matter. b. On July 1, 2004, the Company and NEC
Corporation (NEC) concluded the stock
transfer agreement under which NEC will
transfer to the Company 100% of the issued
share capital of its plasma display
manufacturing subsidiary, NEC Plasma
Display Corporation (NPD) and the
intellectual property rights relating to
plasma displays held by NEC. We expect to
pay approximately ¥40,000 million ($377,358
thousand) for the acquisition of NPD and
NECs intellectual property rights which is
scheduled to be effective as of September
30, 2004. F-36