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

þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended March 31, 2005

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

o		SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of event requiring this shell company report ________________________ If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes o     No þ

Commission file number 1-7616

PIONEER KABUSHIKI KAISHA

(Exact name of Registrant as specified in its charter)

PIONEER CORPORATION

(Translation of Registrant’s name into English)

JAPAN
(Jurisdiction of incorporation or organization)

4-1, MEGURO 1-CHOME, MEGURO-KU, TOKYO 153-8654, JAPAN
(Address of principal executive offices)

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

Title of each class		Name of each exchange on which registered
Common Stock, each represented by one American Depositary Share		New York Stock Exchange

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

None

(Title of Class)

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

None

(Title of Class)

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

Title of class		Outstanding as of March 31, 2005 (Japan time)
Common Stock		174,428,646

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

 

 

TABLE OF CONTENTS

		Page
Certain Defined Terms			4
Cautionary Statement with Respect to Forward-Looking Statements			4
PART I
Item 1. Identity of Directors, Senior Management and Advisers			4
Item 2. Offer Statistics and Expected Timetable			4
Item 3. Key Information			5
Item 4. Information on the Company			13
Item 5. Operating and Financial Review and Prospects			28
Item 6. Directors, Senior Management and Employees			51
Item 7. Major Shareholders and Related Party Transactions			61
Item 8. Financial Information			62
Item 9. The Offer and Listing			64
Item 10. Additional Information			65
Item 11. Quantitative and Qualitative Disclosures About Market Risk			85
Item 12. Description of Securities Other than Equity Securities			87
PART II
Item 13. Defaults, Dividend Arrearages and Delinquencies			88
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds			88
Item 15. Controls and Procedures			88
Item 16. [Reserved]			89
Item 16A. Audit Committee Financial Expert			89
Item 16B. Code of Ethics			89
Item 16C. Principal Accountant Fees and Services			90
Item 16D. Exemptions from the Listing Standards for Audit Committees			91
Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers			91
PART III
Item 17. Financial Statements			92
Item 18. Financial Statements			92
Item 19. Exhibits			92
EX-1.01 REGULATIONS OF THE BOARD OF DIRECTORS, AS AMENDED AND CURRENTLY IN EFFECT
EX-1.02 REGULATIONS OF THE BOARD OF CORPORATE AUDITORS, AS AMENDED AND CURRENTLY IN EFFECT
EX-2.01 SHARE HANDLING REGULATIONS, AS AMENDED AND CURRENTLY IN EFFECT
EX-12.01 CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
EX-12.02 CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
EX-13.01 CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

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, severe price competition 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

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 statements of operations data for each of the three years in the period ended March 31, 2005 and the consolidated balance sheet data as of March 31, 2004 and 2005 from our audited consolidated financial statements included elsewhere herein. We derived the consolidated statement of operations data for each of the two years in the period ended March 31, 2002 and the consolidated balance sheets data as of March 31, 2001, 2002 and 2003 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 31
		2001				2002				2003				2004				2005
		(In millions of yen, except per share data)
Consolidated Statements of Operations Data:
Operating revenue (Note 4) (Note 5)		¥	610,171			¥	629,777			¥	677,259			¥	700,885			¥	733,648
Income (loss) from continuing operations before income taxes (Note 5)			34,216				14,472				28,079				41,848				(187	)
Income (loss) from discontinued operations, net of tax (Note 5)			(53	)			565				136				4,475				—
Net income (loss)			18,298				8,047				16,078				24,838				(8,789	)
Per share of common stock and per American Depositary Share (ADS):
Income (loss) from continuing operations:
Basic			102.06				41.56				89.48				116.07				(50.11	)
Diluted			102.00				41.55				89.48				115.18				(50.11	)
Net income (loss):
Basic			101.76				44.70				90.24				141.58				(50.11	)
Diluted			101.70				44.69				90.24				140.52				(50.11	)
Consolidated Balance Sheets Data:
Total assets		¥	605,156			¥	645,129			¥	647,029			¥	722,542			¥	725,167
Short-term borrowings			37,571				45,867				29,893				23,327				33,152
Current portion of long-term debt			7,996				2,551				974				4,510				19,276
Long-term debt, less current portion			38,304				35,677				32,196				89,691				81,219
Shareholders’ equity			336,995				347,003				318,393				332,938				332,239
Common stock			48,843				49,049				49,049				49,049				49,049
Number of shares issued (in thousands)			179,894				180,064				180,064				180,064				180,064

		Year ended March 31
		2001				2002				2003				2004				2005
		(In millions of yen, except per share data and percentage amounts)
Other Data:
Capital expenditures (Note 5)		¥	41,944			¥	46,909			¥	40,493			¥	57,978			¥	63,866
Research and development (R&D) expenses			37,105				39,050				45,388				51,483				55,897
Cash flows from operating activities (Note 5)			51,141				57,358				91,509				60,378				19,946
Cash flows from investing activities (Note 5)			(41,481	)			(51,396	)			(35,228	)			(52,754	)			(93,516	)
Cash flows from financing activities (Note 5)			(46,567	)			(4,207	)			(34,680	)			51,827				(4,019	)
Return on equity (Note 1)			5.6	%			2.4	%			4.8	%			7.6	%			(2.6	%)
Return on assets (Note 2)			3.0	%			1.3	%			2.5	%			3.6	%			(1.2	%)
Cash dividends declared per share of common stock and per ADS (Note 3):
Interim    (in yen)			7.50				7.50				7.50				12.50				12.50
(in U.S. dollars)			0.07				0.06				0.06				0.12				0.12
Year-end (in yen)			7.50				7.50				10.00				12.50				12.50
(in U.S. dollars)			0.06				0.06				0.08				0.11				0.11

Notes:			1.			Net income (loss) as a percentage of average shareholders’ equity.
			2.			Net income (loss) as a percentage of average total assets.
			3.			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.
			4.			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. Previously reported amounts have been reclassified accordingly.
			5.			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 the consolidated statements of operations 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.

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 ¥xxx.xx = US$1.00 on September XX, 2005.

Year ended March 31		Average				High				Low				Period-end
2001		¥	111.65			¥	104.19			¥	125.54			¥	125.54
2002			125.64				115.89				134.77				132.70
2003			121.10				115.71				133.40				118.07
2004			112.75				104.18				120.55				104.18
2005			107.28				102.26				114.30				107.22
2005
March							103.87				107.49
April							104.64				108.67
May							104.41				108.17
June							106.64				110.91
July							110.47				113.42
August							109.37				112.12

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 sales and profitability

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 sales and profitability.

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 sales and profitability.

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 and profitability 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:

•		We may be unable to obtain adequate funding and resources necessary for investments in new products and technologies.
•		Our long-term investments and commitment of significant resources may not 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.

•		We may not be able to anticipate successfully the new products and technologies which will gain market acceptance and that such products can be successfully marketed.
•		Our newly developed products or technologies may not be successfully protected as proprietary intellectual property rights.
•		Our products may become obsolete earlier than expected 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 a significant share 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.

Our exposure to the plasma display market has increased significantly as a result of our recent substantial investments in the plasma display business

We are focusing on the plasma display business to establish it as the core of our business. In order to achieve this goal, we have recently built a new production line for plasma display panels and acquired a plasma display manufacturing company, which has significantly increased our plasma display production capacity. If the plasma display market does not grow as we expect, or our products do not acquire market acceptance, we may not be able to utilize this increased production capacity efficiently and our sales and profitability could be adversely affected.

Competition generally, and especially on the basis of price and standardization of products, may adversely affect our results of operations

The electronics industry, including the audio, video and car electronics industry, is intensely competitive. We expect to face increased competition in the various product and geographic markets in which we operate. Our competitors include manufacturers and distributors, some of which have greater capital resources available for research, development, production and marketing. In addition, as new technology develops and as new electronics products gain increased market acceptance, it is possible that new competitors or alliances among existing competitors may emerge and rapidly acquire significant market share. While we believe we are one of the leading innovators of advanced, high-quality and value-added electronics products, we may not 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 results of operations.

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 next generation optical disc format to gain broad market acceptance may adversely affect our business and results of operations

Currently, there are two generally recognized competing formats for the next generation optical discs, Blu-ray Disc and HD DVD. Each of the recording disc formats makes use of its own distinct technology and is incompatible with other format.

We are focusing on the Blu-ray Disc format as the next generation optical discs and are developing products that are compatible with such format.

The question of which format will prevail as the industry standard is not yet settled. Should our adopted format fail to be accepted as the de facto industry standard, or otherwise fail to gain wide acceptance, our business strategy and results of operations may be adversely affected.

A substantial decline in our royalty revenue as a result of the expiration of many of our existing patents relating to laser optical disc technologies may adversely affect our profitability

The licensing of our patent and other intellectual property rights makes a significant contribution to our net income since costs related to patent licensing are limited principally to amortization of patent rights and expenses for licensing activities. The legal protections afforded to 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 our patent rights have expired in Europe and Japan. As a result, our royalty revenue will continue to decline in the future. This decline in royalty revenue may in turn have an adverse impact on our profitability. Royalty revenue from patent licensing also depends to a material degree on the sales of patented products by our licensees, making it hard for us to predict actual royalty revenue amounts. For a discussion of our patent licensing business, see “Item 4.B. Business overview—Nature of operations.”

If we are unable to successfully manage the risks inherent in our international activities and our overseas expansion, our results of operations and production capacity 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 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 results of operations.

Our dependence on certain third-party manufacturers and suppliers for parts and components could adversely affect our production capacity and results of operations

While we strive to produce key components and parts such as laser pickups 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 secure supply where necessary through strategic alliances and other measures, we may face shortages of key components, reflecting changes in the market trend. 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 may prevent us from producing enough products on a timely basis, which would cause us to lose sales opportunities or lead to strained relationships with our original equipment manufacturing (“OEM”) customers. Such condition may adversely affect our sales and profitability. See “Item 4.B. Business overview—Raw materials and sources of supply” for a discussion of our outside manufacturers and suppliers.

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

We provide our OEM business to automobile manufacturers, electronics manufacturers, personal computer (“PC”) makers and other large-scale businesses worldwide. The products we supply include car stereo products, car navigation systems, recordable DVD drives, DVD-ROM drives, plasma displays 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 results of operations.

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

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. 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 profitability.

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 a negative impact on our reputation and adversely affect our business results and financial condition

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

Failure to achieve the goals of collaborations, tie-ups, and joint ventures with third parties may adversely affect our results of operations and future growth

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 results of operations and future growth.

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

Our 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 results of operations. 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

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. However, we may not 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 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 results of operations

Pioneer is obligated to pay certain employee retirement benefit costs and obligations to qualified 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 declines of discount rates and lower returns on pension plan assets may adversely affect our results of operations.

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. In fiscal 2005, we introduced recordable DVD drives for PC use, which are compatible with dual layer DVD-R discs and DVD+R double layer discs.

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.

Principal capital expenditures, investments and divestitures

In fiscal 2003, 2004 and 2005, our capital expenditures consisted principally of facilities and molds for production and totaled ¥40,493 million, ¥57,978 million and ¥63,866 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 2005, we invested ¥27 billion in building a new manufacturing line for plasma displays at the Yamanashi Plant, which started its operation in September 2004. On September 30, 2004, we acquired 100% of the issued common stock of NEC Plasma Display Corporation (“NPD”), a plasma display manufacturing subsidiary of NEC Corporation, and the intellectual property rights of NPD for cash in an aggregate amount of ¥35 billion. NPD changed its name to Pioneer Plasma Display Corporation on September 30, 2004. These investments resulted in increasing our plasma display production capacity to about 1.1 million units a year.

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. We intend to integrate functions for car navigation, audio/video control and information technologies. Sales in this category are gradually shifting from the consumer market to the OEM market as automobile manufacturers place greater emphasis on differentiation of their cars, and we intend to expand our market share by increasing OEM sales.

Focus on our strategic products targeting global markets

We focus on our strategic products where we are more likely to secure the “first-mover advantage” as a means of establishing market leadership. As part of our efforts to secure these leading market positions, we strive to play a major role in setting product standards. For example, we are promoting the DVD-RW format in DVD recorders and recordable DVD drives. This format has already gained support from other major consumer electronics companies. 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 markets 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 taking into account, for example, 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. Moreover, the acquisition of NPD was completed in September 2004. Following these measures, we established 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:

•		No.1 in DVD worldwide
•		Establishing a business foundation for plasma displays and OLED displays
•		From stand-alone to network
•		Toward the key-device, key-technologies business

The midterm plan above has been guiding our management and business direction up to the present. But we foresee that financial targets will be difficult to achieve due to the following factors: sales of karaoke business and audio/video software business, and withdrawal from cable TV set-top box business in North America, all of which dragged down the increase in our consolidated operating revenue, harsher competition and lower prices than we projected. Considering the situation, we are working hard to take action for early recovery, while we seek a new midterm business plan to get back on the track to future growth.

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 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, plasma displays 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 operations 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 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 31
		2003								2004								2005
		(In millions of yen, except for percentage amounts)
Home Electronics
Domestic		¥	86,766				12.8	%		¥	78,798				11.2	%		¥	87,954				12.0	%
Overseas			191,202				28.2				202,684				29.0				213,274				29.1
Total		¥	277,968				41.0	%		¥	281,482				40.2	%		¥	301,228				41.1	%
Car Electronics
Domestic		¥	105,736				15.6	%		¥	121,708				17.4	%		¥	120,260				16.4	%
Overseas			175,354				25.9				170,479				24.3				183,150				25.0
Total		¥	281,090				41.5	%		¥	292,187				41.7	%		¥	303,410				41.4	%
Others
Domestic		¥	62,137				9.2	%		¥	62,792				9.0	%		¥	53,935				7.3	%
Overseas			43,480				6.4				52,603				7.4				64,838				8.8
Total		¥	105,617				15.6	%		¥	115,395				16.4	%		¥	118,773				16.1	%
Patent Licensing		¥	12,584				1.9	%		¥	11,821				1.7	%		¥	10,237				1.4	%
Total Operating Revenue		¥	677,259				100.0	%		¥	700,885				100.0	%		¥	733,648				100.0	%

Home Electronics:

This segment includes DVD players, DVD recorders, recordable DVD drives, DVD-ROM drives, home-use plasma displays, stereo systems, individual stereo components, equipment for cable TV systems and telephones.

Plasma displays worldwide accounted for the largest sales in this segment for fiscal 2005. In addition, recordable DVD drives and DVD recorders also contributed significantly to sales in this segment.

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 emphasizing higher value-added DVD recorders with hard disk drives and DVD home theater systems. Moreover, our DVD-related products such as computer peripherals have shifted from DVD-ROM drives to recordable DVD drives. In our plasma display business, we continue to promote vigorously 40-inch and larger models of high-definition plasma displays in the worldwide market. We are also expanding our plasma display business on an OEM basis.

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 2005. In Japan, our car navigation systems accounted for the largest sales. In overseas, car stereos accounted for the largest sales, while car navigation systems also contributed to sales in this segment. Sales based on OEM accounted for 35.7% 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 is helping us maintain our leading market share of car electronics products in a global consumer market. 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 in the consumer market in Japan by offering affordably-priced and easy-to-operate DVD-ROM and advanced HDD-equipped models. We have started this business in Europe and North America, where the markets are expanding recently, and plan to expand it in China. 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.

Patent Licensing:

This segment includes the licensing of patents related 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.

Revenue from the Patent Licensing segment is substantially less than from our other segments, constituting approximately 1.4% of operating revenue for fiscal 2005. However, the contribution of this segment to our income is significant compared to its contribution to our operating revenue.

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 electronics devices and parts.

Electronics devices and parts, including devices for cellular phones and semiconductors related to laser pickups, accounted for the largest sales in this segment for fiscal 2005. Factory automation systems 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.

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 31
		2003								2004								2005
		(In millions of yen, except for percentage amounts)
Japan		¥	254,639				37.6	%		¥	263,298				37.6	%		¥	262,149				35.7	%
North America			190,147				28.1				170,711				24.3				174,120				23.7
Europe			132,977				19.6				146,250				20.9				150,770				20.6
Other Regions			99,496				14.7				120,626				17.2				146,609				20.0
Total		¥	677,259				100.0	%		¥	700,885				100.0	%		¥	733,648				100.0	%

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.

Raw materials and sources of supply

We purchase a variety of raw materials and parts for use in the manufacture of our products. We maintain two or more suppliers in principle to prevent a shortage of raw materials and parts. Furthermore, in accordance with corporate policy, we develop and/or 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 10% of total supply purchases in fiscal 2005. 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 2005 (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 depend on a single supplier, we seek to strengthen our partnership with such supplier to reduce the risk of shortages of key parts and, if necessary, other measures such as placing our order earlier than our usual practice. We purchase a portion (approximately 5%) 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 at favorable prices.

The rising price of crude oil has caused an increase in the price of plastic materials used in our products. In addition, the rapid economic growth in China has caused a shortage of steel materials and nonferrous metals. Although these conditions have not made a significant impact on our current operations, we are continuing our efforts to procure a stable supply of these materials and maintain costs at appropriate levels.

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, from MPEG LA, L.L.C., U.S.A. for digital video products, from Fujitsu Limited, Japan for plasma display panels and Gemstar-TV Guide International, Inc., U.S.A. for electronic program guide 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.

Competition

Our products, especially plasma displays and DVD-related products, 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, Europe and South Korea, 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 as part of efforts by electronics manufacturers to increase their market share. In addition, electronics companies in Asia, particularly those from 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 results of operations” 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.

C. Organizational structure

Our basic corporate structure, including some but not all of our operating subsidiaries, is shown in the following chart:

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

				Ownership
		Country of		interest and voting
Name of subsidiary		incorporation		interest				Principal business
Tohoku Pioneer Corporation		Japan			67.0	%		Manufacture of car electronics products, factory automation systems and OLED display panels
Pioneer Display Products Corporation		Japan			100.0	%		Manufacture of plasma displays
Pioneer Plasma Display Corporation		Japan			100.0	%		Manufacture of plasma displays
Pioneer North America, Inc.		U.S.A.			100.0	%		Coordination of the activities of Pioneer’s North American subsidiaries and affiliates
Pioneer Electronics (USA) Inc.		U.S.A.			100.0	%		Distribution of electronics products
Pioneer Electronics Capital Inc.		U.S.A.			100.0	%		Financing to Pioneer and its subsidiaries
Discovision Associates*		U.S.A.			100.0	%		Licensing of worldwide patents relating to laser optical disc technologies
Pioneer Europe NV		Belgium			100.0	%		Coordination of the activities of Pioneer’s European subsidiaries and affiliates, and distribution of electronics products
Pioneer Electronics Asiacentre, Pte. Ltd.		Singapore			100.0	%		Coordination of the activities of Pioneer’s Asian subsidiaries and affiliates, and manufacture and distribution of electronics products
Pioneer China Holding Co., Ltd.		China			100.0	%		Coordination of the activities of Pioneer’s Chinese subsidiaries and affiliates and distribution of electronics products

D. Property, plants and equipment

Our manufacturing operations are conducted principally in Japan, Southeast Asia and China. The following table sets forth information, as of March 31, 2005, with respect to our principal plants.

Name of plant				Floor space
(Name of company				(square feet)
which owns the plant)		Location		[leased space]				Principal products
Japan
Kagoshima Plant (Pioneer Plasma Display Corporation)		Izumi, Kagoshima			1,197,000			Plasma displays
Yamanashi Plant (Pioneer Display Products Corporation)		Nakakoma, Yamanashi			874,000			Plasma displays
Shizuoka Plant (Pioneer Display Products Corporation)		Fukuroi, Shizuoka			730,000			Plasma displays
Kawagoe Plant (Pioneer Corporation)		Kawagoe, Saitama			553,000			Car stereos, Car navigation systems
Tokorozawa Plant (Pioneer Corporation)		Tokorozawa, Saitama			522,000			DVD recorders
Tendo Plant (Tohoku Pioneer Corporation)		Tendo, Yamagata			479,000			Car stereos, Car speakers, Loudspeakers
Yonezawa Plant (Tohoku Pioneer Corporation)		Yonezawa, Yamagata			243,000			OLED displays
Kokubo Plant (Pioneer Micro Technology Corporation)		Kofu, Yamanashi			194,000			ICs, LSIs
Tendo the 2nd Plant (Tohoku Pioneer Corporation)		Tendo, Yamagata			186,000			Factory automation systems
Mogami Plant (Mogami Denki Corporation)		Mogami, Yamagata			141,000			Speaker cone

Name of plant				Floor space
(Name of company				(square feet)
which owns the plant)		Location		[leased space]				Principal products
Outside Japan
Shanghai Plant (Shanghai Pioneer Speakers Co., Ltd.)		Shanghai, China			458,000			Car speakers
Mexico Plant (Pioneer Speakers, S.A. de C.V.)		Baja California, Mexico			397,000			Car speakers
Shanghai Plant (Pioneer Technology (Shanghai) Co., Ltd.)		Shanghai, China			374,000			DVD Recorders, Car AV systems, Car stereos
Thailand Plant (Pioneer Manufacturing (Thailand) Co., Ltd.)		Ayutthaya, Thailand			300,000			Car stereos, Stereo systems
Guang Dong Plant (Pioneer Technology (Dongguan) Co., Ltd.)		Guang Dong, China			295,000			Recordable DVD drives
Guang Dong Plant (Dongguan Monetech Electronic Co., Ltd.)		Guang Dong, China			237,000 [237,000]			Speaker systems
Malaysia Plant (Pioneer Technology (Malaysia) Sdn. Bhd.)		Johor, Malaysia			262,000			Stereo systems, Car stereos
California Plant (Pioneer Electronics Technology, Inc.)		California, U.S.A.			186,000			Plasma displays, Speaker systems
U.K. Plant (Pioneer Technology (U.K.) Ltd.)		West Yorkshire, United Kingdom			184,000			Plasma displays
Ohio Plant (Pioneer Automotive Technologies, Inc.)		Ohio, U.S.A.			157,000			Car stereos

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

As of March 31, 2005, 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 298,000 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 ¥5,999 million were pledged as collateral for certain loans on March 31, 2005.

In fiscal 2005, we invested ¥27 billion in building a new manufacturing line for plasma displays at the Yamanashi Plant, which started its operation in September 2004. On September 30, 2004, we acquired 100% of the issued common stock of NPD and the intellectual property rights of NPD for cash in an aggregate amount of ¥35 billion. NPD changed its name to Pioneer Plasma Display Corporation on September 30, 2004. These investments resulted in increasing our plasma display production capacity to about 1.1 million units a year.

We are reviewing our global production systems. For the past several years, we have been accelerating the shift to overseas production. We currently plan to shift from our emphasis on overseas manufacturing and focus more on an efficient response to fast-changing markets. We plan to consolidate our production sites and aim to reduce the number of production sites from 39 to approximately 30 worldwide.

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 operating in the aggregate 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 support 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 manufacturers 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 2005, the global economy continued steady growth by strong consumer spending in the U.S. and expanding economic growth in China, despite uncertainties in political situations and rising crude oil prices. In Japan, where we have the largest sales, the economy showed favorable growth in the first half of fiscal 2005 due to increased consumer spending. However, in the second half, the economy exhibited signs of slowdown. In the consumer electronics market, the popularity of newer products, such as flat panel TVs and DVD recorders, rose, due to the Athens Olympics, while price competition for these products intensified worldwide. In foreign exchange markets, the average value of the yen during fiscal 2005 was approximately 5% higher against the U.S. dollar and approximately 2% lower against the euro compared with fiscal 2004. In these economic conditions, our operating revenue for fiscal 2005 was ¥733.6 billion, up 4.7% from fiscal 2004. However, we recorded a net loss of ¥8.8 billion, compared with net income ¥24.8 billion posted in fiscal 2004.

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, 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, 2005.

Operating Revenue by Business Segments

		Year ended March 31
		2003								2004								2005
		(In millions of yen, except for percentage amounts)
Operating Revenue:
Home Electronics		¥	277,968				41.0	%		¥	281,482				40.2	%		¥	301,228				41.1	%
Car Electronics			281,090				41.5				292,187				41.7				303,410				41.4
Patent Licensing			12,584				1.9				11,821				1.7				10,237				1.4
Others			105,617				15.6				115,395				16.4				118,773				16.1
Total		¥	677,259				100.0	%		¥	700,885				100.0	%		¥	733,648				100.0	%

Our products are generally sold under our own brand names, principally “Pioneer.” Our primary markets are Japan, North America, Europe and Asia. We sell our products to customers in consumer and business markets through sales offices in Japan, and through sales subsidiaries of Pioneer and independent distributors outside of Japan. In addition, on an OEM basis, we market certain products, such as car electronics products, recordable DVD drives, plasma displays and OLED displays to other companies. The following are operating revenue from unaffiliated customers by geographic market for the three years ended March 31, 2005.

Operating Revenue by Geographic Market

		Year ended March 31
		2003								2004								2005
		(In millions of yen, except for percentage amounts)
Japan		¥	254,639				37.6	%		¥	263,298				37.6	%		¥	262,149				35.7	%
North America			190,147				28.1				170,711				24.3				174,120				23.7
Europe			132,977				19.6				146,250				20.9				150,770				20.6
Other Regions			99,496				14.7				120,626				17.2				146,609				20.0
Total		¥	677,259				100.0	%		¥	700,885				100.0	%		¥	733,648				100.0	%

Home Electronics, Car Electronics and Others

In our home electronics business, we are exposed to significant price competition for DVD-related products and plasma displays, which adversely affects our profitability, although we continue to see strong growth in demand for DVD recorders, recordable DVD drives and plasma displays in worldwide markets.

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.

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.

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.

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 year 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 has expired. Accordingly, we have started to experience a substantial decrease in operating revenue and segment income from this segment.

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 the balance sheet date and all revenue and expense accounts are translated using the 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 where we manufacture our products may be different from the currencies where we sell our products.

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

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

Revenue recognition

Sales are generally recorded when merchandise is shipped or delivered to customers. Recognition of sales occurs when the title and risks and rewards of ownership are transferred to customers based on sales contracts. In circumstances where sales are recorded when merchandise is shipped to customers, the shipment date is equivalent to the delivery date because of a short delivery time. In certain cases, terms of the contract require the product to pass customer inspection after delivery and we record the sale upon satisfactory customer acceptance. Royalty revenue is recognized based on royalty statements from licensees.

We normally do not accept returns except for warranty issues, noncompliance with purchase order specifications and returns from end-users to certain dealers. The financial impact of the future returns are estimated based on historical experience and adequately reserved.

Estimated reductions of revenue are recorded for cost incurred by us in connection with sales incentive related to the customers’ purchase or promotion of our products. Such costs include the estimated cost of promotional discounts, dealer price protection, dealer rebates, consumer rebates, cash discounts, and support for dealers’ promotion of our products, although the terms of sales incentive programs may be different by product, market and terms of sales contracts. Sales incentives that are dependent on future customer performance are estimated and recorded at the later of when the original sale is recorded or when the incentive is offered. Estimates of future customer performance such as purchase volume, early payments and consumer rebate redemption rate are based on historical experience. Should a greater proportion of customers redeem incentives than we estimate, additional reductions of revenue may be required.

Promotional discounts are offered on specified products for specified periods. A price protection discount, which is the discount for the dealers’ inventory at the time of the announcement of the promotional discount, to compensate for the difference between the discounted prices and higher prices the dealers paid for their inventory, is often offered when the promotional discount program is announced. Costs for a price protection program are accrued when the program is announced by estimating discounts to be claimed by the dealers. Such estimates are based on forecasted order quantities during the promotional period and assumptions as to the amount of inventory that dealers have on hand. Dealer rebates include fixed-rate contractual rebates and volume-based rebates. Contractual rebates are recorded at the time of sale. Volume-based rebates, for which the rebate rate is dependent on the amount of the dealer’s purchase during the specified period, are accrued at the time of original sale, estimating the rebate rate the dealer will eventually achieve. We occasionally offer incentives directly to consumers in the form of mail-in rebates. Consumer rebates are accrued at the later of when the related sales are recognized or when the program is announced. The actual amounts of consumer rebates are dependent on consumers’ future actions, and our estimates are based on assumptions as to quantities to be purchased by consumers during the program period and consumer redemption rates, which is determined based on historical experience about consumer response to consumer rebate programs. Cash discounts are given for early payments in accordance with terms of the contract with customers and are recorded as a reduction of revenue at the time of original sale. The estimate of the cash discounts is based upon information about customers’ payment histories. Also, we provide reimbursements for the purpose of supporting dealers’ sales promotions of our products. The cost mainly includes subsidies for advertising, displays, cost of other sales promotion materials, and salaries of temporary floor sales personnel. We account for all the subsidy reimbursements to dealers as reductions from sales. Certain promotional allowances, such as co-op advertising, are determined as certain percentages of the respective sales amount and are recorded at the time of sale. Although reimbursement for such incentives requires dealers to perform sales promotions of our products, we assume, based on historical experience, that almost all dealers will eventually perform such sales promotions and submit claims for reimbursement. Other allowances, whose amounts are not determined by sales factors, are recorded when the subsidy is offered and the amount becomes reasonably determinable. Examples for this type of allowance are display allowances determined by the number of units displayed on the sales floor, and allowances based on agreements to share costs incurred by dealers for items such as new signboards, new display racks and salaries of temporary floor sales personnel.

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. Warranty reserve as of March 31, 2005 is ¥5.7 billion.

Inventories

The majority of our products are produced for the consumer electronics market, and our inventory is susceptible to quickly changing demands and selling prices. For the purpose of properly valuing our inventory, we record inventory reserves for excess, slow-moving and obsolete inventory. Inventory with no potential for future sale or potential use by us is subject to write-off and, inventory which is considered to be obsolete or slow-moving, but salable at reduced prices, is written down to estimated net realizable value. Estimating net realizable value requires assumptions as to uncertain matters such as selling prices and salable quantities to be made based upon judgment about future market prices of competing products and customer demand, taking current market conditions into consideration. As of March 31, 2005, an inventory reserve of ¥10.3 billion included a ¥6.6 billion reserve for inventories to be written off and a ¥3.7 billion reserve for inventories written down to net realizable value.

The following table sets forth the changes in inventory reserve during fiscal 2005. Reversal was made in connection with sale or disposal of the related inventory.

Beginning		Provision				Reversal				Other				End
(In billions of yen)
8.3			7.4				(6.3	)			0.9				10.3

Impairment of long-lived assets

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable. This review is performed using estimates of future cash flows. If the carrying amount of an asset group is considered impaired, an impairment loss is recorded for the amount by which the carrying amount of the asset group exceeds its estimated fair value. Fair value is determined using the present value of estimated cash flows. A weighted average cost of capital, which is derived from our capital structure, is used as a discount rate for calculating the present value of the estimated cash flows. In fiscal 2005, we recorded ¥4.5 billion impairment charges for plasma display production facilities of a domestic subsidiary, production facilities of a foreign subsidiary to be closed and assets used for manufacture of cable TV set-top boxes as the result of the review. While we believe that the estimates of future cash flows and fair value are reasonable, changes in estimates resulting in lower future cash flows and fair value would affect the valuations of those long-lived assets.

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.

For pension plans of the parent company and domestic subsidiaries, the discount rates are determined by using information about rates of return on currently available high-quality fixed-income bonds. The expected long-term rate of return on pension plan assets is based on weighted average of expected long-term returns on various categories of plan assets, reflecting the current and target allocations of pension plan assets. Expected long-term return by asset category is derived from historical studies by investment advisors. 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, 2005, the actual asset allocation was equity securities 53%, debt securities 34%, other 13%, compared with target asset allocation of equity securities 56%, debt securities 41%, other 3%.

The following table sets forth the effects of assumed changes in discount rates and the expected long-term rate of return for pension plans in Japan.

		Effect on shareholders’ equity				Net periodic pension cost
		as of March 31, 2005				for fiscal 2006
		(In billions of yen)
Discount rare:
0.5% increase			5.0				(0.7	)
0.5% decrease			(5.6	)			0.7
Expected long-term rate of return:
0.5% increase			—				(0.3	)
0.5% decrease			—				0.3

A. Operating results

Fiscal 2005 compared with fiscal 2004

Operating revenue

Net sales amounted to ¥723.4 billion, a 5.0% increase over fiscal 2004. Net sales in Japan came to ¥262.1 billion, down 0.4% from fiscal 2004, and overseas net sales increased 8.3% to ¥461.3 billion. Royalty revenue decreased 13.4% from fiscal 2004 to ¥10.2 billion.

Home Electronics net sales increased 7.0% over fiscal 2004, amounting to ¥301.2 billion, primarily as a result of increased sales of plasma displays and DVD recorders, while sales of recordable DVD drives for PCs, DVD players, cable TV set-top boxes and audio products decreased. Sales of plasma displays grew both in Japan and overseas, and sales of DVD recorders increased overseas. In Japan, sales rose 11.6% to ¥88.0 billion, primarily due to a large increase in sales of plasma displays. The increase was largely attributable to expansion of OEM product sales resulting from acquisition of a plasma display production subsidiary, Pioneer Plasma Display Corporation (“PPD”). Pioneer brand plasma display sales to consumer market increased as well. Sales of recordable DVD drives, DVD recorders and audio products decreased in Japan. Sales decrease of recordable DVD drives and DVD recorders were mainly attributable to the impact of a price decline resulting from intensified competition. Overseas sales also rose 5.2% to ¥213.3 billion, due to an increase in sales worldwide of plasma displays and DVD recorders, despite a decrease in sales of audio products and DVD players worldwide, recordable DVD drives in Europe and North America and DVD-ROM drives in Europe, as well as our decision to no longer sell cable TV set-top boxes in North America. In general, the market is shifting from DVD players to DVD recorders worldwide.

Car Electronics net sales rose 3.8% to ¥303.4 billion, primarily as a result of sales growth of car navigation systems overseas. In Japan, net sales decreased 1.2% to ¥120.3 billion, mainly influenced by slow demand for car navigation systems in the consumer market, reflecting shifting demand from the consumer market to the OEM market, although car navigation systems for automobile manufacturers increased. Overseas net sales increased 7.4% to ¥183.2 billion, primarily due to increased sales of car audio products for the OEM market and car navigation systems, despite decreased sales of car audio products for the consumer market in Europe and North America. Sales of car navigation systems for the consumer market, particularly map-type DVD models grew in North America and Europe. Also, sales of car audio products for the consumer market increased in Russia and South and Central America.

Royalty revenue from Patent Licensing decreased 13.4% to ¥10.2 billion, compared to that of fiscal 2004. This was attributable to expiration of patents included in a larger portfolio of patents licensed to the optical disc industry.

Net sales for Others increased 2.9% over fiscal 2004 to ¥118.8 billion, reflecting primarily increased sales of factory automation (FA) systems and component parts for cellular phones. In Japan, net sales decreased 14.1% to ¥53.9 billion. This primarily resulted from decrease in sales of organic light-emitting diode (OLED) display panels, mainly for cellular phone manufacturers, and semiconductors for laser pickups, despite an increase in sales of FA systems. Decrease in sales of semiconductors for laser pickups is due to a sales shift from Japan to China. Overseas, net sales were up 23.3% over fiscal 2004 to ¥64.8 billion. The increase is primarily due to increased sales in China of devices for cellular phones and semiconductors for laser pickups, and in Asia of speaker devices for cellular phones, while sales of plasma displays for business use decreased in North America and Europe.

Other revenues (Revenues excluding net sales and royalty revenue)

Other revenues include interest income and other income. Interest income increased from ¥1.4 billion to ¥1.9 billion due to increased return on short-term investment of proceeds from convertible bonds issued in March 2004. Other income increased from ¥0.5 billion to ¥3.4 billion, mainly due to a ¥2.3 billion gain on sale of available for sale securities.

Net loss from transfer of the substitutional portion of employee welfare pension plan

In fiscal 2005, we transferred the benefit obligation of the substitutional portion of employee welfare pension plan in Japan and related portion of the plan assets to the Japanese government. The transfer resulted in recording of a ¥48.7 billion gain as subsidy from the government. At the same time, we recognized an expense of ¥49.5 billion mainly for settlement loss of the substitutional portion, and allocated ¥25.3 billion to cost of sales and ¥24.2 billion to selling, general and administrative (SGA) expenses. Note 10 of the notes to consolidated financial statements provides detailed information.

Cost and expenses

Cost of sales increased to ¥584.1 billion from fiscal 2004’s ¥487.3 billion. After excluding ¥25.3 billion of one-time pension cost recognized as a result of the transfer of the substitutional portion of employee welfare pension plan to the Japanese government, cost of sales represented 76.2% of operating revenue, up by 6.7 percentage points from fiscal 2004’s 69.5%. The increase is primarily due to the adverse effects of harsh price competition, particularly for Home Electronics products such as plasma displays, DVD recorders and recordable DVD drives. We estimate that the average selling prices for these products dropped 20—30% during fiscal 2005. Clearing out inventory for cable TV set-top boxes in North America at reduced prices also had an adverse effect on gross profit margin. Gross profit margin in the Car Electronics business also decreased. Gross profit margin decreased for car navigation systems in the consumer market in Japan, and the decline in sales prices of car CD players worldwide decreased gross profit margin as well. Increased provision for inventory reserve, mainly for excess stock of Home Electronics products, was another reason for the higher cost of sales.

SGA expenses increased to ¥195.7 billion from fiscal 2004’s ¥166.4 billion. The difference was ¥5.1 billion after excluding ¥24.2 billion one-time pension cost resulting from the transfer of the substitutional portion of employee welfare pension plan. Increase in shipping and handling cost and warranty cost accounted for the majority of the increase. Shipping and handling cost increased by ¥1.5 billion in line with the increase in shipment of the number of plasma display units. Provision for warranty reserve increased by ¥2.0 billion due to extension of warranty period for plasma displays as a part of a sales promotion measure.

R&D expenditures, which are included in cost of sales and SGA expenses, increased 8.6% to ¥55.9 billion, representing 7.6% of operating revenue. The increase 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.

Loss on sale and disposal of fixed assets decreased by ¥3.4 billion. The decrease was attributable mainly to losses recorded in fiscal 2004 for relocation and replacement of production facilities for the purpose of improving production efficiencies, mainly in DVD products and plasma display panels.

Other deductions increased from ¥1.6 billion to ¥6.3 billion. The difference is mainly due to ¥4.5 billion impairment losses recognized in fiscal 2005. An impairment loss of ¥3.4 billion was recorded for production facilities of PPD due to the downward revision of sales forecast for PPD’s products after the acquisition. This downward revision resulted from decreased orders from our main OEM customers in the second half of fiscal 2005, reflecting changes in business circumstances. We also recorded a ¥0.6 billion impairment loss on assets used in manufacturing cable TV set-top boxes as a result of our decision to no longer sell cable TV set-top boxes in North America. Also, an impairment loss of ¥0.5 billion was recorded for production facilities of a foreign subsidiary, for which closure is planned as a part of reorganization of overseas production sites. Another reason for the difference was the losses incurred in connection with our decision not to sell cable TV set-top boxes in North America any longer. ¥1.8 billion was recorded for asset disposal, employee termination benefits and contract termination costs, in addition to the impairment loss discussed above.

Income (loss) before income taxes

As a result of factors discussed above, we posted ¥0.2 billion loss before income taxes in fiscal 2005, compared with income of ¥41.8 billion in fiscal 2004.

Income taxes

In fiscal 2005, the provision for income taxes was ¥4.8 billion against ¥0.2 billion loss before taxes. The relationship between loss before taxes and tax expense was distorted mainly due to valuation allowance set up for deferred tax assets of the subsidiaries which posted losses. In fiscal 2004, income taxes as a percentage of pre-tax income was 44.4%, which was 2.4% higher than the normal statutory tax rate of 42.0% in Japan.

Equity in losses of affiliated companies

Equity in losses of affiliated companies was ¥3.1 billion in fiscal 2005, compared with ¥2.2 billion in fiscal 2004. The increase in loss is mainly attributable to the increase in loss incurred by ELDis, Inc., which manufactures and markets thin film transistor substrates for active-matrix OLED display panels.

Net income (loss)

Net loss in fiscal 2005 was ¥8.8 billion, compared with net income of ¥24.8 billion posted in fiscal 2004. Basic net loss per share of common stock in fiscal 2005 was ¥50.11, compared with net income per share of ¥141.58 in fiscal 2004.

Fiscal 2004 compared with fiscal 2003

Operating revenue

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 Electronics net 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. Sales of recordable DVD drives increased overseas. In Japan, Home Electronics sales 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 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 North America and Europe.

Car Electronics net 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 regions.

Royalty revenue from Patent Licensing decreased 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 regions.

Net sales for Others rose 9.3% over fiscal 2003 to ¥115.4 billion, reflecting primarily increased sales of FA 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 karaoke business subsidiaries in fiscal 2003. Overseas, net sales were up 21.0% over fiscal 2003 to ¥52.6 billion, primarily due to increased sales of FA 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.

Other revenues (Revenues excluding net sales and royalty revenue)

Interest income decreased from ¥2.2 billion to ¥1.4 billion reflecting lower interest rates on short-term investment, mainly in the United States of America. Also, other revenues in fiscal 2003 included a ¥0.8 billion gain on sale of subsidiaries’ stock resulting from the sale of karaoke business subsidiaries in fiscal 2003.

Cost 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. 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.

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 decreased by ¥1.9 billion, reflecting the sale of karaoke business subsidiaries in fiscal 2003. The decrease of special retirement allowances was due to ¥1.4 billion special termination benefits recorded by Tohoku Pioneer Corporation 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 caused an overall decrease of SGA expenses, offsetting the unfavorable impact of a $14 million one-time payment to Gemstar-TV Guide International, Inc. to resolve pending litigation, ¥2.0 billion provided for estimated costs for free inspection and repair of certain plasma displays, 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%.

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.

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 Yamanashi Plant, Japan into plasma display panel production facilities.

Other deductions decreased from ¥3.4 billion to ¥1.6 billion. Foreign exchange loss decreased by ¥0.8 billion to a ¥1.2 billion loss from ¥2.0 billion loss in fiscal 2003. 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. Write-down of investments decreased by ¥1.2 billion to ¥0.2 billion from ¥1.4 billion losses recorded in fiscal 2003. 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.

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.

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.

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.

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, 2005
																		Corporate and
		Home Electronics				Car Electronics				Patent Licensing				Others				Eliminations				Consolidated
		(In millions of yen)
Operating revenue:
Unaffiliated customers		¥	301,228			¥	303,410			¥	10,237			¥	118,773				—			¥	733,648
Inter-segment			1,960				1,321				1,362				39,725			¥	(44,368	)			—
Total		¥	303,188			¥	304,731			¥	11,599			¥	158,498			¥	(44,368	)		¥	733,648
Segment income (loss)		¥	(22,127	)		¥	18,591			¥	9,389			¥	(272	)		¥	(2,989	)		¥	2,592
Identifiable assets		¥	227,567			¥	167,346			¥	2,852			¥	106,101			¥	221,301			¥	725,167
Depreciation and amortization		¥	21,388			¥	12,514			¥	311			¥	9,299			¥	3,478			¥	46,990
Capital expenditures (additions to fixed assets)		¥	32,261			¥	12,358				—			¥	10,299			¥	9,568			¥	64,486

		Year ended March 31, 2004
																		Corporate and
		Home Electronics				Car Electronics				Patent Licensing				Others				Eliminations				Consolidated
		(In millions of yen)
Operating revenue:
Unaffiliated customers		¥	281,482			¥	292,187			¥	11,821			¥	115,395				—			¥	700,885
Inter-segment			1,399				2,460				2,057				36,860			¥	(42,776	)			—
Total		¥	282,881			¥	294,647			¥	13,878			¥	152,255			¥	(42,776	)		¥	700,885
Segment income		¥	3,247			¥	29,963			¥	11,398			¥	2,273			¥	292			¥	47,173
Identifiable assets		¥	182,001			¥	158,913			¥	3,447			¥	109,582			¥	268,599			¥	722,542
Depreciation and amortization		¥	15,858			¥	13,798			¥	362			¥	8,272			¥	2,621			¥	40,911
Capital expenditures (additions to fixed assets)		¥	32,783			¥	13,648			¥	248			¥	7,340			¥	4,434			¥	58,453

Income (loss) by business segments

Home Electronics segment recorded a loss of ¥22.1 billion, compared to income of ¥3.2 billion in fiscal 2004. Despite increased sales, mainly for plasma displays and DVD recorders, lowered prices for DVD products, AV systems and plasma displays worsened gross profit margins. Clearing out inventory for cable TV set-top boxes in North America at reduced prices also had an adverse effect to gross profit margin.

Car Electronics segment recorded a profit of ¥18.6 billion, down 38.0% from ¥30.0 billion in fiscal 2004. Worsened gross profit margin was the main reason. Gross profit margin decreased for car navigation systems in the consumer market in Japan, and prices of car CD players fell worldwide.

Patent licensing posted ¥9.4 billion profit, down 17.6% from ¥11.4 billion in fiscal 2004. Decrease in royalty revenue is the reason for the drop in profit.

Others recorded a loss of ¥0.3 billion, compared with ¥2.3 billion profit in fiscal 2004. Although profit for factory automation systems increased due to increased sales, profitability for business-use plasma displays and organic light-emitting diode display panels suffered from decreased sales.

Geographic Segments

		Year ended March 31, 2005
																		Corporate and
		Japan				North America				Europe				Other Regions				Eliminations				Consolidated
		(In millions of yen)
Operating revenue:
Unaffiliated customers		¥	300,722			¥	171,961			¥	149,117			¥	111,848				—			¥	733,648
Inter-area			294,922				5,405				805				176,198			¥	(477,330	)			—
Total		¥	595,644			¥	177,366			¥	149,922			¥	288,046			¥	(477,330	)		¥	733,648
Segment income (loss)		¥	(9,010	)		¥	(1,716	)		¥	(308	)		¥	7,029			¥	6,597			¥	2,592
Identifiable assets		¥	315,252			¥	60,799			¥	60,463			¥	112,312			¥	176,341			¥	725,167
Depreciation and amortization		¥	31,880			¥	2,394			¥	2,444			¥	6,794			¥	3,478			¥	46,990
Capital expenditures (additions to fixed assets)		¥	44,730			¥	1,953			¥	1,005			¥	7,230			¥	9,568			¥	64,486

		Year ended March 31, 2004
																		Corporate and
		Japan				North America				Europe				Other Regions				Eliminations				Consolidated
		(In millions of yen)
Operating revenue:
Unaffiliated customers		¥	294,198			¥	168,194			¥	145,390			¥	93,103				—			¥	700,885
Inter-area			278,071				8,082				967				182,929			¥	(470,049	)			—
Total		¥	572,269			¥	176,276			¥	146,357			¥	276,032			¥	(470,049	)		¥	700,885
Segment income		¥	22,003			¥	11,487			¥	2,015			¥	9,511			¥	2,157			¥	47,173
Identifiable assets		¥	233,601			¥	46,034			¥	61,754			¥	99,237			¥	281,916			¥	722,542
Depreciation and amortization		¥	26,014			¥	2,450			¥	2,130			¥	7,696			¥	2,621			¥	40,911
Capital expenditures (additions to fixed assets)		¥	40,314			¥	2,650			¥	2,113			¥	8,942			¥	4,434			¥	58,453

Notes:			1.			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.
			2.			Effective from fiscal 2005, the Company presented segment income (loss) as operating revenue less cost of sales, selling, general and administrative expenses and subsidy from the government recognized in fiscal 2005 in connection with transfer of substitutional portion of employee welfare pension plan to Japanese government. Previously reported amounts for fiscal 2004 have been reclassified accordingly.

B. Liquidity and capital resources

Cash flows

Summarized Consolidated Statements of Cash Flows

		Year ended March 31
		2004				2005
		(In millions of yen)
Net cash provided by operating activities		¥	60,378			¥	19,946
Net cash used in investing activities			(52,754	)			(93,516	)
Net cash provided by (used in) financing activities			51,827				(4,019	)
Effect of exchange rate changes on cash and cash equivalents			(9,512	)			1,851
Net increase (decrease) in cash and cash equivalents		¥	49,939			¥	(75,738	)

Net cash provided by operating activities in fiscal 2005 was ¥19.9 billion, a decrease of ¥40.4 billion compared to fiscal 2004. Net loss and changes in operating assets and liabilities were the primary cause for the decreased cash flows from operating activities. Among operating assets and liabilities, trade receivables increased due to increases in net sales. Inventories decreased primarily for plasma displays, AV systems, recordable DVD drives for PCs and factory automation systems, reflecting our effort to control and reduce inventories.

Net cash used in investing activities was ¥93.5 billion for fiscal 2005, an increase of ¥40.8 billion compared to ¥52.8 billion in fiscal 2004. The difference was mainly the result of payments for an acquisition of a plasma display production subsidiary, and an increase in the investments for expansion of plasma display production facilities.

Net cash used in financing activities was ¥4.0 billion, compared with ¥51.8 billion cash provided in fiscal 2004. Financing activities in fiscal 2004 included issuance of zero coupon convertible bonds (bonds with stock acquisition rights) due 2011 with net proceeds of ¥60.5 billion. In fiscal 2005, cash was used primarily for reducing long-term debt, payment of dividends and repurchase of shares of Pioneer’s common stock. On the other hand, short-term borrowings increased. Cash used in reducing long-term debt including capital lease obligations was ¥6.2 billion. Cash used in dividend payments amounted to ¥4.4 billion, almost the same level of fiscal 2004. Also, ¥2.0 billion was used for repurchase of shares of Pioneer’s common stock.

As a result of these activities and the effect of changes in exchange rate on cash and cash equivalents of overseas subsidiaries, cash and cash equivalents decreased by ¥75.7 billion to ¥116.7 billion at the end of fiscal 2005, from ¥192.4 billion at the end of fiscal 2004.

Capital requirements

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

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 and debt or equity financing. With regard to debt financing, short-term debt financing with maturity of one year or less is utilized to fund operating capital requirements. Short-term borrowing is generally arranged locally by each consolidated subsidiary based on its capital requirements. As of March 31, 2005, short-term borrowings of ¥33.2 billion were principally in Japanese yen, U.S. dollar, and euro. On the other hand, to finance long-term funding requirements such as investment in production facilities, financing through debt and equity securities markets are arranged in Japan, and long-term borrowing from financial institutions is arranged locally by each consolidated subsidiary. As of March 31, 2005, substantially all of the long-term debt of ¥100.5 billion, including the portion due within one year, was comprised of ¥61.8 billion zero coupon convertible bonds due 2011 including ¥1.8 billion unamortized issue premium, ¥15.0 billion unsecured bonds due 2005, ¥10.0 billion unsecured bonds due 2008, and capital lease obligations and other loans arranged locally.

During fiscal 2004, we issued zero coupon convertible bonds due 2011 in aggregate principal amount of ¥60.0 billion to finance capital requirements for expansion of plasma display business and enhancement of distribution channels.

During fiscal 2005, we repurchased 1,000,000 shares of Pioneer’s common stock in the market for ¥2.0 billion pursuant to the resolution of the board of directors in March 2005.

We believe that our sound financial position and ability to generate positive operating cash flows, together with uncommitted and unused credit lines of ¥235.1 billion, provide sufficient resources to fund future requirements for operating capital and for capital expenditures to sustain the growth of Pioneer. Also, the parent company and its four subsidiaries in Japan and China have entered a three-year global credit facility agreement for the amount of ¥70.0 billion effective from May 2005. This will ensure that these companies in Japan and China have an efficient and stable financing for their operational funding needs.

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 2003, 2004 and 2005, our R&D expenses were ¥45,388 million, ¥51,483 million and ¥55,897 million, respectively, or 6.7%, 7.3% and 7.6%, 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 Optical Disc & Systems Development Center, Information & Communication Development Center, PDP Development Center and Mobile Systems Development Center. 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.

Venturing to Innovate Flexible Displays

The Integrative Industry-Academia Partnership, including Mitsubishi Chemical Corporation, Rohm Co., Ltd. and Pioneer Corporation, with Kyoto University at the core, has developed two components for flexible displays: an organic light-emitting transistor (OLET) and the world’s first transparent substrate made of Bio Nanofiber with a low thermal expansion coefficient. Pioneer’s expertise in organic electronics devices has greatly contributed to this development.

The OLET has an electroluminescence (EL) function built into an organic transistor. Due to its embedded driver transistors and light-emitting devices, a display device comprised of OLETs requires substantially fewer components than a conventional organic EL display. The substrate, Bio Nanofiber Composite, reinforces transparent polymer with microscopic nanofibers derived from bacteria. It features a low thermal expansion to prevent circuit breakage or damage in the circuit mounting process. These innovations not only hold great promise to make display devices more light, flexible and durable; they also come at an opportune time for the next digital generation of new mobile devices, e-books, e-newspapers, e-posters and other display products coming through the commercial pipeline to gain traction in the global marketplace.

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 recorders. Although the DVD recorder market is expanding and our sales in it are increasing, we, exposed to falling prices, increasing competitors and evolving product functionality, have found it difficult to maintain a competitive advantage in this business. In order to regain competitiveness, we plan to shorten the development time by 30% by renovating IT infrastructure and enhancing software development efficiency. We aim for twice-a-year launches of new models simultaneously worldwide. We plan to cut manufacturing lead time and reduce inventory through a new production system which integrates all stages of DVD product manufacturing, from laser pickups to finished products, at our Dongguan facilities in China. We will thereby reduce costs and timely release attractive products that meet customer demands.

Recordable DVD drives. Our recordable DVD drives for PCs generate sales. However, competitors in Taiwan and South Korea are dropping prices aggressively on increasingly competitive products, so we cannot expect a return to earlier levels of high profitability. We plan to increase our share and maintain profit margins for these products, as we will focus on slim drives for notebook computers and sell more drives to both the OEM market and the consumer market worldwide. We will also take advantage of the strong synergy between our recordable DVD drive business and our home-use DVD recorder business.

Plasma displays. The large-screen display market for plasma displays has been expanding in recent years, and there are several manufacturers in Japan and South Korea. As competition for market shares is higher, the product prices continue to decrease rapidly. In the market for displays under the 40-inch size, plasma displays are also subject to increasingly intense competition from liquid crystal displays. Currently, demand for plasma displays consists of those for standard models and high-definition models. We expect that shifting from analog TV broadcasting to digital will increase demand for high-definition plasma displays. As a result of this trend, we plan to focus on new products such as 40-inch and larger models, which have higher resolution.

Japan Electronics and Information Technology Industries Association (“JEITA”) forecasts an approximately 28% increase in consumer DVD player and DVD recorder sales worldwide, from 85 million units in 2004 to 109 million in 2009, and strong growth in recordable DVD drives from 54 million units in 2004 to 127 million units in 2007 worldwide. It also forecasts that sales of plasma displays worldwide will increase 5 times, from 2.3 million units in 2004 to 11.6 million in 2009.

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. 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. In both markets we introduced in the spring of 2004 compact 1-DIN-sized units featuring all car navigation system functions as well as those for CD/MP3/DVD-Video playback. We plan to integrate functions for car navigation, audio/video control and information gathering inside and outside the vehicle, creating systems that are compatible with both home and mobile environments. In the car audio business, we will strengthen our activity in growing markets such as Brazil, Russia, India and China.

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.

JEITA forecasts that sales of car navigation systems worldwide will increase approximately 2 times, from 6 million units in 2004 to 11 million in 2009.

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. See “Item 4.B. Business overview—Nature of operations—Patent licensing” for more information on our patent licensing business.

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.

E. Off-balance sheet arrangements

We provide guarantees to third parties who provide loans to our affiliated companies. For each guarantee, we would have to pay the guaranteed amount, if our affiliated companies were to default on a payment within contract periods of one year to eight years. The maximum potential amount of undiscounted future payments we could be required to make under the guarantee is ¥25.4 billion as of March 31, 2005. Out of this ¥25.4 billion, ¥25.0 billion is a guarantee for ELDis, Inc. which manufactures and markets thin film transistor substrates for active-matrix OLED, which is one of our new products. ELDis, Inc. is 47.5% owned by Tohoku Pioneer Corporation, a 67% owned subsidiary and is accounted for by the equity method of accounting.

F. Tabular disclosure of contractual obligation

The following summarizes our contractual obligations at March 31, 2005.

						Payment Due by Period
						Less than												More than
		Total				1 year				1-3 years				3-5 years				5 years
		(In billions of yen)
Contractual obligations:
Long-term debt			98.7				19.3				6.0				11.4				62.0
Operating leases			19.7				6.3				8.5				2.3				2.6
Purchase commitment			4.0				4.0
Interest payments			1.9				0.7				0.9				0.2				0.1
Contribution to defined benefit plans			6.5				6.5

Notes:			1.			Total long-term debt of ¥98.7 billion does not include ¥1.8 billion unamortized issue premium on convertible bonds.
			2.			Long-term debt includes capital lease obligations.
			3.			Contractual obligations do not include ¥0.7 billion deferred income which is presented as other long-term liabilities on the consolidated balance sheet.
			4.			The amount that the Company will contribute under its defined pension plans are based on a number of factors, primarily rate of salary increase and the number of employees. As such, the Company has estimated the amount of such contribution for the year ending March 31, 2006 and not the contribution for the years thereafter.

The ¥4.0 billion purchase commitment outstanding as of March 31, 2005 was for property, plant and equipment and advertising. This included a part of our ¥47.0 billion capital expenditure plan in fiscal 2006. The planned decrease in capital expenditures from ¥63.9 billion in fiscal 2005 mainly reflects decrease of investment in production facilities for plasma displays.

New Accounting Standards

Inventory Costs

In November 2004, the FASB issued SFAS No. 151, “Inventory Costs — an amendment of ARB No. 43, Chapter 4.” SFAS No. 151 clarifies the language used in Accounting Research Bulletin No. 43 with respect to accounting for abnormal amounts of idle facility expenses, freight, handling costs and spoilage. SFAS No. 151 is effective for fiscal years beginning after June 15, 2005, and is required to be adopted by the Company effective April 1, 2006. The adoption of this standard is not expected to have any material impact on the Company’s consolidated statements of operations or financial position.

Exchanges of Nonmonetary Assets

In December 2004, the FASB issued SFAS No. 153, “Exchanges of Nonmonetary Assets — an amendment of Accounting Principles Board (“APB”) Opinion No. 29,” which will become effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. APB Opinion No. 29 generally requires that exchanges of nonmonetary assets be measured based on fair value of the assets exchanged but provided an exception for nonmonetary exchanges of similar productive assets, which did not result in a change in carrying value for the new asset acquired even if the cash flows

resulting from the exchange would change significantly. SFAS No. 153 eliminates the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. Nonmonetary exchanges lack commercial substance if the cash flows to the entity will not change significantly as a result of the exchange. The adoption of this standard is not expected to have any material impact on the Company’s consolidated statements of operations or financial position.

Share-Based Payment

In December 2004, the FASB issued SFAS No. 123 (revised 2004), “Share-Based Payment.” The revised SFAS No. 123 supersedes APB Opinion No. 25, which requires recognition of an expense when goods or services are provided, and eliminates the ability to account for these instruments under the intrinsic value method prescribed by APB Opinion No. 25, and allowed under the original provisions of SFAS No. 123. The adoption of this standard is not expected to have any material impact on the Company’s consolidated statements of operations or financial position because the Company accounts for its stock-based compensation agreements using the fair value based method, not the intrinsic value method prescribed by APB Opinion No. 25.

The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments

In March 2004, the EITF confirmed as a consensus EITF Issue No. 03-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments” (“EITF 03-1”). The objective of this issue is to provide guidance on determining when an investment is considered impaired, whether that impairment is other-than-temporary, and the measurement of an impairment loss. The guidance also includes accounting considerations subsequent to the recognition of an other-than-temporary impairment and requires certain disclosures about unrealized losses that have not been recognized as other-than-temporary impairments. In September 2004, the FASB issued FASB Staff Position EITF 03-1-1 that delays the effective date for the measurement and recognition guidance included in EITF 03-1. The disclosures required by EITF 03-1 have not been deferred and are effective for the annual periods ending after June 15, 2004.

Accounting for Conditional Asset Retirement Obligations

In March 2005, the FASB issued FIN No. 47, “Accounting for Conditional Asset Retirement Obligations—an interpretation of FASB Statement No. 143” FIN No.47 clarifies that the term “conditional asset retirement obligation” as used in SFAS No. 143, “Accounting for Asset Retirement Obligations,” refers to a legal obligation to perform an asset retirement activity in which the timing and (or) method of settlement are conditional on a future event that may or may not be within the control of the entity. The obligation to perform the asset retirement activity is unconditional even though uncertainty exists about the timing and (or) method of settlement. SFAS No. 143 acknowledges that in some cases, sufficient information may not be available to reasonably estimate the fair value of an asset retirement obligation. FIN No. 47 also clarifies when an entity would have sufficient information to reasonably estimate the fair value of an asset retirement obligation. FIN No. 47 is effective no later than the end of fiscal years ending after December 15, 2005. The Company has not completed the study of what effect FIN No. 47 will have on its financial position and results of operations.

Accounting Changes and Error Corrections

In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections—a replacement of APB Opinion No. 20 and FASB Statement No. 3.” SFAS No. 154 replaces APB No. 20, “Accounting Changes,” and SFAS No. 3, “Reporting Accounting Changes in Interim Financial

Statements,” and changes the requirements for the accounting for and reporting of a change in accounting principle. SFAS No. 154 applies to all voluntary changes in accounting principle. SFAS No. 154 also applies to changes required by an accounting pronouncement in the unusual instance that the pronouncement does not include specific transition provisions. SFAS No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005, with earlier adoption permitted. Accordingly, the Company can not reasonably estimate the ultimate impact of SFAS No. 154.

Item 6. Directors, Senior Management and Employees

A. Directors and senior management

Pioneer’s Directors, Executive Officers and Corporate Auditors as of September 1, 2005, and their pertinent information, such as position and business experience, are as follows:

Directors

Name		Current Position
(Date of birth)		(Month and year of expiration)		Prior Position
Kanya Matsumoto (June 12, 1930)		Chairman and Representative Director (June 2006)		June 1996: Vice Chairman and Representative Director
Kaneo Ito (Apr. 30, 1936)		President and Representative Director; Chief Executive Officer (June 2006)		June 1991: Senior Managing Director and Representative Director; General Manager of International Business Group; and in charge of overseas operations and Public Relations Division
Tamihiko Sudo (Apr. 28, 1947)		Executive Vice President and Representative Director; Chief Financial Officer; and in charge of Corporate Strategy Planning Group, Corporate Management Group, Export Management and Quality Control in general (June 2006)		June 2004: Senior Managing Director and Representative Director; President of Pioneer’s Mobile Entertainment Company
Akira Niijima (Mar. 9, 1944)		Senior Managing Director and Representative Director; in charge of Japanese domestic subsidiaries (June 2006)		June 2004: Senior Managing Director and Representative Director; Chief Financial Officer; and in charge of administration and export management in general

Name		Current Position
(Date of birth)		(Month and year of expiration)		Prior Position
Hajime Ishizuka (May 3, 1947)		Senior Managing Director and Representative Director; President of Pioneer’s Home Entertainment Business Company and AV Business Company; and in charge of Procurement Group (June 2006)		June 2003: Director; President of Pioneer’s Components Business Company; and in charge of International Business Division
Osamu Yamada (Mar. 16, 1944)		Senior Managing Director; General Manager of Research & Development Group and Corporate Research & Development Laboratories (June 2006)		June 2003: Managing Director; General Manager of Research & Development Group and Corporate Research & Development Laboratories
Tadahiro Yamaguchi (Mar. 24, 1946)		Managing Director; Executive Vice President of Pioneer’s Plasma Display Business Company (in charge of technologies and production); and Plant Manager of Ohmori Plant (June 2006)		June 2002: 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 Plant
Satoshi Matsumoto (Apr. 15, 1954)		Managing Director; General Manager of Environmental Preservation Group and Environmental Preservation Division (June 2006)		June 2002: Managing Director; General Manager of Environmental Preservation Division
Koichi Shimizu (Feb. 3, 1944)		Managing Director; Chairman of Pioneer China Holding Co., Ltd. (June 2006)		June 2004: Managing Director; in charge of technologies, production and quality control in general; General Manager of Procurement Center; and in charge of Strategic IT Division
Yoichi Sato (Jan. 15, 1950)		Managing Director; Deputy General Manager of Research & Development Group and General Manager of PDP Development Center (June 2006)		July 2004: Executive Officer; Deputy General Manager of Research & Development Group and General Manager of PDP Development Center

Name		Current Position
(Date of birth)		(Month and year of expiration)		Prior Position
Akira Haeno (Feb. 14, 1949)		Managing Director; President of Pioneer’s Mobile Entertainment Company (June 2006)		June 2004: Executive Officer; Plant Manager of Kawagoe Plant; and General Manager of Production Division of Kawagoe Plant of Pioneer’s Mobile Entertainment Company
Tatsuhiro Ishikawa (Apr. 4, 1939)		Director (June 2006)		Dec. 2001 to present: Attorney-at-Law
Shunichi Sato (Feb. 10, 1941)		Director (June 2006)		Apr. 2000: Japanese Ambassador Extraordinary and Plenipotentiary to Belgium

Executive Officers

Name		Current Position
(Date of birth)		(Month and year of expiration)		Prior Position
Masaru Saotome (Aug. 20, 1944)		Senior Managing Executive Officer; President of Pioneer’s Plasma Display Business Company (June 2006)		June 2003: Senior Managing Executive Officer; Executive Vice President of Pioneer’s Home Entertainment Company (in charge of sales and marketing); and General Manager of Display Business Division
Kazunori Yamamoto (Oct. 21, 1942)		Senior Managing Executive Officer; General Manager of International Business Group (June 2006)		June 2001: Senior Executive Officer; President of Pioneer North America, Inc.
Seiichiro Kurihara (Mar. 15, 1943)		Senior Executive Officer; General Manager of Intellectual Property Division of Research & Development Group (June 2006)		June 2001: Executive Officer; General Manager of Intellectual Property Division
Masao Kawabata (Aug. 10, 1948)		Senior Executive Officer; General Manager of Corporate Branding and Communications Division (June 2006)		June 2001: Executive Officer; General Manager of Corporate Communications Division

Name		Current Position
(Date of birth)		(Month and year of expiration)		Prior Position
Yoshio Taniyama (Nov. 9, 1948)		Senior Executive Officer; General Manager of Corporate Planning Division (June 2006)		June 2001: Executive Officer; General Manager of Finance Division
Hideki Okayasu (May 12, 1950)		Senior Executive Officer; General Manager of Finance and Accounting Division (June 2006)		June 2001: Executive Officer; General Manager of Accounting Division
Buntarou Nishikawa (Mar. 24, 1946)		Executive Officer; Executive Vice President of Pioneer’s Mobile Entertainment Company; and General Manager of OEM Sales Division (June 2006)		June 2001: Executive Officer; General Manager of Domestic Sales Division of Pioneer’s Mobile Entertainment Company
Osamu Takada (July 27, 1948)		Executive Officer; General Manager of Personnel Division (June 2006)		June 1998: General Manager of Personnel Division
Sumitaka Matsumura (Oct. 10, 1948)		Executive Officer; Deputy General Manager of Research & Development Group; and in charge of Optical Disc & Systems Development Center (June 2006)		Jan. 2001: Deputy General Manager of Research & Development Group; and General Manager of AV & Network Development Center
Chojuro Yamamitsu (Mar. 26, 1946)		Executive Officer; Deputy General Manager of Environmental Preservation Group (in charge of Eco Products) (June 2006)		Sept. 2002: Executive Officer; Deputy General Manager of Research & Development Group; General Manager of Engineering; and in charge of Information & Communication Development Center and PDP Development Center
Kenji Sato (Aug. 29, 1947)		Executive Officer; General Manager of General Administration Division (June 2006)		June 1998: General Manager of General Administration Division
Susumu Kotani (Apr. 12, 1950)		Executive Officer; Chairman & Managing Director of Pioneer Europe NV (June 2006)		Sept. 2002: Managing Director of Pioneer Europe NV

Name		Current Position
(Date of birth)		(Month and year of expiration)		Prior Position
Tsutomu Haga (June 2, 1948)		Executive Officer; President & Chief Operating Officer of Pioneer North America, Inc. (June 2006)		July 2003: President & Chief Operating Officer of Pioneer Electronics (USA) Inc.
Kenji Tokuyama (Dec. 16, 1945)		Executive Officer; Executive Vice President of Plasma Display Business Company (in charge of OEM); and President of Pioneer Plasma Display Corporation (June 2006)		Jan. 2003: President of NEC Plasma Display Corporation
Kaoru Sato (July 27, 1948)		Executive Officer; Vice President of Home Entertainment Business Company; and Plant Manager of Tokorozawa Plant (June 2006)		June 2004: President of Components Business Company of Home Entertainment Business Company
Keiichi Yamauchi (Apr. 12, 1952)		Executive Officer; General Manager of Mobile Systems Development Center of Research & Development Group (June 2006)		Nov. 2003: General Manager of Mobile Systems Development Center of Research & Development Group
Kazumi Kuriyama (Sept. 12, 1953)		Executive Officer; Deputy General Manager of Corporate Research & Development Laboratories of Research & Development Group (June 2006)		Sept. 2002: General Manager of Nano Process Technology Department of Corporate Research & Development Laboratories of Research & Development Group

Corporate Auditors

Name		Current Position
(Date of birth)		(Month and year of expiration)		Prior Position
Makoto Koshiba (Nov. 21, 1943)		Corporate Auditor (full time) (June 2007)		Sept. 1999: Director; General Manager of Accounting Division; in charge of Finance Division
Shinji Yasuda (June 10, 1945)		Corporate Auditor (full time) (June 2007)		July 2001: Director; Managing Director of Pioneer China Holding Co., Ltd.

Name		Current Position
(Date of birth)		(Month and year of expiration)		Prior Position
Terumichi Tsuchida (Aug. 22, 1921)		Corporate Auditor (June 2008)		July 1998 to present: Advisor of Meiji Yasuda Life Insurance Company
Isao Moriya (Sept. 5, 1937)		Corporate Auditor (June 2007)		Mar. 1968 to present: Certified Public Accountant
Keiichi Nishikido (May 2, 1953)		Corporate Auditor (June 2007)		Jan. 1994 to present: Attorney-at-Law; Managing Partner of Kohwa Sohgoh Law Offices, Japan

All of the above persons, with the exception of Messrs. Tatsuhiro Ishikawa, 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. Kaneo Ito is married to a first cousin of Mr. Kanya Matsumoto. Mr. Satoshi Matsumoto is a nephew 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 2005 totaled ¥1,136 million. Also, as part of Pioneer’s incentive compensation, Pioneer has 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 from fiscal 2003. See “Item 6.E. Share ownership” for further information.

The aggregate amount set aside as lump-sum severance indemnities by Pioneer during fiscal 2005 for Directors, Executive Officers and Corporate Auditors of Pioneer totaled ¥790 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 10 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 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

Companies listed on the NYSE must comply with certain listing standards regarding corporate governance (“NYSE Corporate Governance”). Listed companies that are foreign private issuers, such as Pioneer, however, are permitted to follow home country practices in lieu of NYSE Corporate Governance. Pioneer’s corporate governance practices which comply with Japanese laws, regulations and stock exchange rules, and NYSE Corporate Governance followed by U.S. listed companies have the following significant differences:

Directors

Pioneer currently has two (2) non-executive 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 not been a director responsible for the execution of business operations, executive officer, manager or 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 as well as accounts of Pioneer. Pioneer, consistent with other Japanese companies with boards of corporate auditors, but unlike NYSE Corporate Governance, does not have specified committees, 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 election of directors for shareholder approval. The shareholders elect directors by a simple majority of votes at Pioneer’s general meeting of shareholders. The Code requires that the total amount of remuneration to be paid to all directors and the total amount of remuneration to be paid to 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 the board of directors and the distribution of remuneration among corporate auditors is determined by consultation among the corporate auditors.

Audit Committee

Pioneer avails 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 for foreign

private issuers 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 by a resolution at a general meeting of shareholders. Pioneer currently has five (5) corporate auditors, which exceeds a minimum of three (3) corporate auditors required by 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 accounting auditors. Corporate auditors may not at the same time be directors, executive officers, managers or employees of Pioneer or any of its subsidiaries.

Unlike NYSE Corporate Governance, the Special Exception Law currently requires at least one of the corporate auditors of a company must be a person who has not been a director, executive officer, manager or employee of the company or any of its subsidiaries during the five-year period prior to such corporate auditor’s election. However, 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 must be persons who have not been directors, executive officers, managers or employees of the company or any of its subsidiaries at any time prior to such corporate auditors’ election. Pioneer already has, out of a total of five (5) corporate auditors, three (3) “outside auditors” who satisfy such new requirements.

Corporate Governance Guidelines

Unlike NYSE Corporate Governance, under Japanese laws and regulations, including the Code and the Securities and Exchange Law and stock exchange rules, Pioneer is not required to adopt or disclose corporate governance guidelines. 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.

Code of Business Conduct and Ethics

Unlike NYSE Corporate Governance, under Japanese laws and regulations, including the Code and the Securities and Exchange Law and stock exchange rules, Pioneer is not required to adopt or disclose a code of business conduct and ethics for directors, officers and employees. However, Pioneer maintains a “Pioneer Group Code of Conduct” which Pioneer believes is consistent with the code of ethics described under Section 406 of the U.S. Sarbanes-Oxley Act of 2002. 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 in which stock acquisition rights are granted on specially favorable terms to the plan’s recipients, 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 31
		2003				2004				2005
Number of employees			34,656				36,360				39,362