| | | | | |
| 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. |
55
| | | | | |
| Name | | Current Position | | |
| (Date of birth) | | (Month and year of expiration) | | Prior Position |
Terumichi Tsuchida
(Aug. 22, 1921) | | Corporate Auditor
(June 2004)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;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.
There is no
None of the persons listed above was selected as a director, corporate auditor or member of senior management pursuant to an arrangement or understanding
between any Director, Executive Officerwith our major shareholders, customers, suppliers or
Corporate Auditor and any other person pursuant to which he or she was elected as Director, Executive Officer or Corporate Auditor.Mr. Kanya Matsumoto is the uncle of Mr. Satoshi Matsumoto. 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.
53
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
20032005 totaled
¥965¥1,136 million. Also, as part of Pioneer’s incentive compensation,
arrangements for Directors and Executive Officers, Pioneer has
issued bonds with detachable warrants in Japan for the periods from fiscal 1999 to 2002. Upon the issuance of bonds with detachable warrants by Pioneer, it distributed the warrants at fair market value to both Directors and Executive Officers of Pioneer, and certain other executive employees as a part of their remuneration. In fiscal 2003, Pioneer changed its incentive compensation arrangements and issued share acquisition rights for its shares of common stock to Directors, Executive Officers, and certain employees, and certain directors/officers of certain of its
subsidiaries.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
20032005 for Directors, Executive Officers and Corporate Auditors of Pioneer totaled
¥100¥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
810 in “Notes to Consolidated Financial Statements.”)
Pioneer’s Articles of Incorporation provide for a Board of Directors of three or more members and for three or more Corporate Auditors. All Directors and Corporate Auditors are elected at general meetings of shareholders. In general, under the Articles of Incorporation of Pioneer, the term of office of Directors expires at the conclusion of the ordinary general meeting of shareholders held with respect to the last closing of accounts within one year (with regard to the term of office of Directors elected at the ordinary general meeting of shareholders with respect to the business year ended March 31, 2002, two years) after their assumption of office and in the case of Corporate Auditors, within four years (with regard to the term of office of Corporate Auditors elected at or prior to the ordinary general meeting of shareholders with respect to the business year ended March 31, 2002, three years) after their assumption of office; however, Directors and Corporate Auditors may serve any number of consecutive terms. With respect to eachFor 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.”
56
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
to 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.
With respect to eachFor 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
to operate businesses of which he or she is in charge under the control of the Board of Directors and Representative Directors.
54
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,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,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,directors, executive officers, general managers or employees of Pioneer or any of its subsidiaries.
Each Corporate Auditor has the statutory duty to supervise the administration by the Directors of Pioneer’s affairs and also to examine
the consolidated and non-consolidated financial statements and business
reportsreport to be submitted by
the Board of Directorsa 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
consolidated and non-consolidated financial statements proposed to be submitted by
the Board of Directorsa Representative Director at general meetings of shareholders and to report their opinion thereon to the
Board of Corporate Auditors and the
Directors.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
the Board of Directorsa 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–association—Directors.”
57
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
58
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.
59
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 | |
| | | | | | | | | | |
| | | | | | | | | | | | | |
| | | Year ended March 31 |
| | |
|
| | | 2001 | | 2002 | | 2003 |
| | |
| |
| |
|
| Number of employees | | | 28,871 | | | | 31,220 | | | | 34,656 | |
| | | |
| | | |
| | | |
| |
Pioneer and
sixnine of its subsidiaries in Japan have their respective labor unions for the employees of each company. Each such labor union is affiliated with the Japanese Electrical Electronic & Information Union. All employees except management, supervisory and certain other employees must become union members. We have not been materially affected by any work stoppages or difficulties in connection with labor negotiations or disputes and consider our labor relations to be good.
55
The total number of shares of Pioneer’s common stock owned by our Directors, Executive Officers and Corporate Auditors as a group as of March 31, 2003June 30, 2005 is as follows:
| | | | | | | | | |
| Title of class | | Identity of person or group | | Number of shares owned | | Percent of class |
| |
| |
| |
|
| Common Stock | | Directors, Executive Officers and Corporate Auditors as a group | | 4,751,2733,448,892 shares* | | | 2.701.91 | % |
| * | | Except for Mr. Kanya Matsumoto, Chairman of Pioneer, who owns 3,878,3592,935,359 shares of common stock, which constitutes 2.21%1.63% of all outstanding shares as of March 31, 2003,June 30, 2005, none of Pioneer’s Directors, Executive Officers and Corporate Auditors is the owner of more than one percent of Pioneer’s common stock. |
Pioneer has
granted the following outstanding warrants to subscribe for shares of common stock to its Directors, Executive Officers and certain executive employees, and certain directors/officers of certain of its subsidiaries as part of their compensation.| | | | | | | | | | | | | | | | | |
| | | | | | | Total number of | | | | | | | | |
| | | | | | | shares covered by | | | | Current exercise | | Number of shares |
| | | | | | | warrants | | | | price | | exercised |
| Fiscal year granted | | (in thousands) | | Exercise period | | per share | | (in thousands) |
| |
| |
| |
| |
|
| 2000 | | | 320 | | | From July 3, 2000 to September 12, 2002 | | ¥2,188 | | | 222 | |
| | | | | | | | | | | | | | | | | |
| 2001 | | | 191 | | | From July 2, 2001 to September 11, 2003 | | ¥4,674 | | | — | |
| | | | | | | | | | | | | | | | | |
| 2001 | | | 93 | | | From July 2, 2001 to September 25, 2003 | | ¥4,839 | | | — | |
| | | | | | | | | | | | | | | | | |
| 2002 | | | 413 | | | From July 1, 2002 to August 26, 2004 | | ¥3,266 | | | — | |
Pioneer has also granted the following share subscription rights for its shares of common stock to certain of its employees.
| | | | | | | | | | | | | | | | | |
| | | | | | | Total number of | | | | | | | | |
| | | | | | | shares covered by | | | | Current exercise | | Number of shares |
| | | | | | | option | | | | price | | exercised |
| Fiscal year granted | | (in thousands) | | Exercise period | | per share | | (in thousands) |
| |
| |
| |
| |
|
| 2001 | | | 191 | | | From July 1, 2002 to June 30, 2005 | | ¥4,400 | | | — | |
| | | | | | | | | | | | | | | |
| 2002 | | | 191 | | | From July 1, 2003 to June 30, 2006 | | ¥3,791 | | | — | |
| | | | | | | | | | | | | |
| | | Total number of | | | | | | | | |
| | | shares covered by | | | | Current exercise | | | Number of shares | |
| | | option | | | | price | | | exercised | |
| Fiscal year granted | | (in thousands) | | Exercise period | | per share | | | (in thousands) | |
| 2001 | | 191 | | From July 1, 2002 to
June 30, 2005 | | ¥ | 4,400 | | | | — | |
| 2002 | | 191 | | From July 1, 2003 to
June 30, 2006 | | ¥ | 3,791 | | | | — | |
60
56
Pioneer has granted the following share acquisition rights for its shares of common stock to its Directors, Executive Officers and certain employees, and certain directors/officers of certain of its subsidiaries.
| | | | | | | | | | | | | | | | | | | |
| | | | | | | Total number of | | | | | | | | | | |
| | | | | | | shares covered by | | | | Current exercise | | Number of shares |
| | | | | | | option | | | | price | | exercised |
| Fiscal year granted | | (in thousands) | | Exercise period | | per share | | (in thousands) |
| |
| |
| |
| |
|
| 2003 | | | 564 | | | From July 1, 2004 to June 29, 2007 | | | ¥2,477 | | | — |
| | | | | | | | | | | | | | | | | | | |
| 2004 | | | 313 | | | From July 1, 2005 to June 30, 2008 | | | ¥2,931 | | | — |
| | | | | | | | | | | | | |
| | | Total number of | | | | | | | | |
| | | shares covered by | | | | Current exercise | | | Number of shares | |
| | | option | | | | price | | | exercised | |
| Fiscal year granted | | (in thousands) | | Exercise period | | per share | | | (in thousands) | |
| 2003 | | 564 | | From July 1, 2004 to
June 29, 2007 | | ¥ | 2,477 | | | | 4 | |
| 2004 | | 313 | | From July 1, 2005 to
June 30, 2008 | | ¥ | 2,951 | | | | — | |
| 2005 | | 316 | | From July 3, 2006 to
June 30, 2009 | | ¥ | 2,944 | | | | — | |
| 2006 | | 315 | | From July 2, 2007 to
June 30, 2010 | | ¥ | 1,828 | | | | — | |
As of March 31, 2003,2005, Pioneer holds 4,629,0285,635,190 shares as treasury stock with the purchase of 5,110,0001,007,095 shares and disposal of 518,4004,867 shares both in the market in fiscal 2003.2005.
Item 7. Major Shareholders and Related Party Transactions Major shareholders that owned 5% or more of Pioneer’s voting securities as of March 31,
20032005 on the register of shareholders were as follows:
| | | | | | | | | | | |
| | | | | Number of shares | | Percentage of |
| Title of class | | Name | | (in thousands) | | outstanding shares |
| |
| |
| |
|
| Common Stock | | Japan Trustee Services Bank, Ltd.
(Trust Account) | | | 15,242 | | | | 8.68 | % |
| | | | | | | | | | | |
| Common Stock | | The Master Trust Bank of Japan,Ltd.
(Trust Account) | | | 11,549 | | | | 6.58 | % |
Japan Trustee Services Bank, Ltd. and
| | | | | | | | | | | |
| | | | | Number of shares | | | Percentage of | |
| Title of class | | Name | | (in thousands) | | | outstanding shares | |
| Common Stock | | The Master Trust Bank of Japan, Ltd.
(Trust Account) | | | 13,804 | | | | 7.66 | % |
| Common Stock | | Japan Trustee Services Bank, Ltd.
(Trust Account) | | | 11,666 | | | | 6.47 | % |
| Common Stock | | Societe Generale Paris
SGOP/DAI Paris 6Z | | | 10,403 | | | | 5.77 | % |
The Master Trust Bank of Japan, Ltd.
and Japan Trustee Services Bank, Ltd. are securities processing services companies.
Societe Generale Paris SGOP/DAI Paris 6Z is one of the trust accounts of Societe Generale Paris. We understand that these shareholders are not the beneficial owner of our voting securities, but we do not have available further information concerning such beneficial ownership.
To our knowledge, there are no major shareholders that were beneficial owners of 5% or more of Pioneer’s voting securities during the past three years.
61
All shareholders of Pioneer have the same voting rights, subject to the limitation on exercise as set forth in “Item 10.B. Memorandum and articles of
association–association—Common
stock–stock—Voting rights.”
As of March 31,
2003,2005, there were
175,434,808174,428,646 shares of common stock outstanding, of which
762,6302,218,904 shares
(0.43%(1.27%) were held in the form of American Depositary Receipts
(ADRs)(“ADRs”) and
17,405,83310,571,645 shares
(9.92%(6.06%) were held of record in the form of common stock by residents in the United States (based solely on their addresses). The number of registered ADR holders of record (including DTC) was
89,92, and the number of registered holders of record in the United States (based solely on their addresses) of shares of common stock, including those who held shares through a Japanese securities clearing system, was
80.57
68.
To our knowledge, Pioneer is not directly or indirectly owned or controlled by any other corporation or by the Japanese or any foreign government.
To our knowledge, there is no arrangement, the operation of which may at a subsequent date result in a change in control of Pioneer.
B. Related party transactions C. Interests of experts and counsel Not applicable
Item 8. Financial Information A. Consolidated statements and other financial information Consolidated financial statements See the Consolidated Financial Statements beginning on page F-1.
In common with numerous other industrial companies conducting a global business, we are party to various lawsuits and administrative proceedings in the ordinary course of our business. Based on the advice of counsel in the respective matters, except as described below, we do not expect such lawsuits or administrative proceedings, individually or in the aggregate, to have a material effect on our financial condition and business results.
During the year ended March 31, 2001, we received a notice of proposed assessment from the German tax authorities for approximately EUR21 million (¥2,7212,916 million translated at the current foreign exchange rate at March 31, 2003)2005) relating to a tax position taken in prior years concerning intercompany purchase prices. We officially challenged the proposed assessment by arbitration procedures. There was no progress in this matter during the year ended March 31, 2003.2005. In the opinion of management, it is not possible at this time to determine the ultimate resolution of this matter.
62
In August 2002, we
On April 15, 2005, Pioneer Speakers, Inc. (“PSI”), a wholly-owned U.S. subsidiary of Tohoku Pioneer Corporation, a 67% owned subsidiary received
notices of proposed assessmentnotice from the United States
Internal Revenue ServiceCustoms and Border Protection (“
IRS”CBP”)
forassessing additional
taxescustoms duties and penalties of approximately
US$66$26 million (¥
7,9332,792 million translated at the foreign exchange rate at March 31,
2003) relating to an adjustment to transfer prices between affiliated companies2005) for alleged erroneous claims for preferential treatment of duties on products imported by PSI for the
years endedperiod from June 23, 1997 through December 31, 1999. In addition, on June 21, 2005, PSI received CBP’s notice that it may assess further penalties of approximately $16 million (¥1,718 million translated at the foreign exchange rate at March 31,
19972005) for alleged record-keeping violations for products imported by PSI for the period from June 12, 1998 through
December 23, 1999.
In October 2002, we filed protests withPSI has requested CBP on July 19, 2005 to consider settling both of these assessments for $7.8 million (¥837 million translated at the
IRS against the assessments and requested that the case be forwarded to the IRS’ Appeals Office.foreign exchange rate at March 31, 2005). In the opinion of management, it is not possible at this time to determine the ultimate outcome of this matter.
We are also a defendant and counterclaimant in a lawsuit in No provision was made for the United States Federal District Court in which the plaintiff, Gemstar-TV Guide International Inc. (“Gemstar”), alleges that we have infringed two patents, both of which have expired. During August 2002, the Federal District Court granted summary judgment in our favor and against Gemstar ruling that we did not infringe those two patents. We continue to prosecute our counterclaim against the plaintiff and another company.
58
In addition, the same plaintiff alleged in separate proceedings that we infringed four other patents. The plaintiff filed both a complaint before the International Trade Commission (“ITC”) alleging patent infringement relating to the importation and sale of the pertinent products in the United States and a complaint for unspecified damages in the United States Federal District Court in multi-district litigation in Atlanta, Georgia. During August 2002, the ITC adopted the findings and conclusions of the ITC’s administrative law judge that we did not infringe the patents at issue held by Gemstar. Gemstar has filed an appeal to the Federal Circuit. The related complaint filed in the District Court is stayed pending a ruling on the appeal of the ITC’s determination.
year ended March 31, 2005.
Pioneer normally pays cash dividends twice per year. Pioneer’s Board of Directors recommends year-end dividends to be paid following the end of each fiscal year. This recommended year-end dividend must then be approved by shareholders at the ordinary general meeting of shareholders usually held in June of each year. Immediately following approval of the dividend at the shareholders’ meeting, Pioneer pays the dividend to
holdersshareholders and pledges of record at the preceding March 31. In addition to these year-end dividends, Pioneer may pay interim dividends in the form of cash distributions from its retained earnings to its shareholders of record as of September 30 in each year by resolution of its Board of Directors and without shareholder approval. Pioneer normally pays interim dividends in December. See “Item 10.B. Memorandum and articles of
association – association—Common
stock –stock—Dividends.”
The following table sets forth the dividends paid by Pioneer for each of the periods shown. The U.S. dollar equivalents for the dividends shown are based on the noon buying rate for cable transfers in New York City as certified for customs purposes by the Federal Reserve Bank of New York for yen on the date of the dividend payment:
| | | | | | | | | |
| | | Dividend per share |
| | |
|
| Record date | | Yen | | Dollars |
| |
| |
|
| March 31, 1999 | | | ¥5.00 | | | $ | 0.04 | |
| September 30, 1999 | | | ¥5.00 | | | $ | 0.05 | |
| March 31, 2000 | | | ¥5.00 | | | $ | 0.05 | |
| September 30, 2000 | | | ¥7.50 | | | $ | 0.07 | |
| March 31, 2001 | | | ¥7.50 | | | $ | 0.06 | |
| September 30, 2001 | | | ¥7.50 | | | $ | 0.06 | |
| March 31, 2002 | | | ¥7.50 | | | $ | 0.06 | |
| September 30, 2002 | | | ¥7.50 | | | $ | 0.06 | |
| March 31, 2003 | | | ¥10.00 | | | $ | 0.08 | |
| | | | | | | | | |
| | | Dividend per share | |
| Record date | | Yen | | | Dollars | |
| March 31, 2001 | | | 7.50 | | | | 0.06 | |
| September 30, 2001 | | | 7.50 | | | | 0.06 | |
| March 31, 2002 | | | 7.50 | | | | 0.06 | |
| September 30, 2002 | | | 7.50 | | | | 0.06 | |
| March 31, 2003 | | | 10.00 | | | | 0.08 | |
| September 30, 2003 | | | 12.50 | | | | 0.12 | |
| March 31, 2004 | | | 12.50 | | | | 0.11 | |
| September 30, 2004 | | | 12.50 | | | | 0.12 | |
| March 31, 2005 | | | 12.50 | | | | 0.11 | |
Pioneer’s policy on dividends allows for
continued and stable dividend
continuance and stability.payment. In addition, Pioneer determines the appropriate dividend amount taking into consideration its financial condition, consolidated business results and other factors.
There were no significant changes nor have any relevant facts occurred after the date of the financial statements included in this annual report other than disclosed therein.
63
59
Item 9. The Offer and Listing A. Offer and listing details The following table sets forth for the period indicated the reported high and low sales prices per share of Pioneer’s Common Stock on the Tokyo Stock Exchange and per share of Pioneer’s
American Depositary Shares (ADSs)ADSs on the New York Stock Exchange. See “Item 9.C. Markets,” regarding the markets for Pioneer’s shares.
| | | | | | | | | | | | | | | | | | |
| | | | Tokyo Stock Exchange | | New York Stock Exchange |
| | | | Price per share of Common Stock | | Price per share of ADS |
| | | | (yen) | | (U.S. dollars) |
| | | |
| |
|
| Annual highs and lows | | High | | Low | | High | | Low |
| |
| |
| |
| |
|
| Year ended March 31, | | | | | | | | | | | | | | | | |
| | 1999 | | | ¥2,920 | | | | ¥1,720 | | | $ | 21.13 | | | $ | 14.88 | |
| | 2000 | | | 3,690 | | | | 1,711 | | | | 34.75 | | | | 16.13 | |
| | 2001 | | | 4,940 | | | | 2,085 | | | | 45.38 | | | | 20.50 | |
| | 2002 | | | 4,250 | | | | 2,150 | | | | 34.70 | | | | 16.75 | |
| | 2003 | | | 2,860 | | | | 1,805 | | | | 21.98 | | | | 14.83 | |
| Quarterly highs and lows | | | | | | | | | | | | | | | | |
| Fiscal 2002 | | | | | | | | | | | | | | | | |
| | 1st quarter | | | 4,250 | | | | 3,020 | | | | 34.70 | | | | 25.18 | |
| | 2nd quarter | | | 3,920 | | | | 2,155 | | | | 31.05 | | | | 16.85 | |
| | 3rd quarter | | | 3,290 | | | | 2,210 | | | | 26.20 | | | | 19.01 | |
| | 4th quarter | | | 3,330 | | | | 2,150 | | | | 25.06 | | | | 16.75 | |
| Fiscal 2003 | | | | | | | | | | | | | | | | |
| | 1st quarter | | | 2,860 | | | | 1,981 | | | | 21.65 | | | | 16.75 | |
| | 2nd quarter | | | 2,260 | | | | 1,900 | | | | 18.60 | | | | 16.00 | |
| | 3rd quarter | | | 2,490 | | | | 1,805 | | | | 19.50 | | | | 14.83 | |
| | 4th quarter | | | 2,620 | | | | 2,070 | | | | 21.98 | | | | 17.95 | |
| Fiscal 2004 | | | | | | | | | | | | | | | | |
| | 1st quarter | | 2,840 | | 2,225 | | 23.75 | | 18.90 | |
| Monthly highs and lows | | | | | | | | | | | | | | | | |
| 2003 | | | | | | | | | | | | | | | | |
| | January | | | 2,405 | | | | 2,070 | | | | 19.65 | | | | 17.95 | |
| | February | | | 2,600 | | | | 2,260 | | | | 21.54 | | | | 19.01 | |
| | March | | | 2,620 | | | | 2,390 | | | | 21.98 | | | | 20.25 | |
| | April | | | 2,460 | | | | 2,225 | | | | 20.50 | | | | 18.90 | |
| | May | | | 2,555 | | | | 2,290 | | | | 22.27 | | | | 19.78 | |
| | June | | | 2,840 | | | | 2,490 | | | | 23.75 | | | | 21.00 | |
| | July | | 2,970 | | 2,635 | | 25.48 | | 22.50 | |
| | | | | | | | | | | | | | | | | |
| | | Tokyo Stock Exchange | | | New York Stock Exchange | |
| | | Price per share of Common Stock | | | Price per share of ADS | |
| | | (yen) | | | (U.S. dollars) | |
| | | High | | | Low | | | High | | | Low | |
Annual highs and lows | | | | | | | | | | | | | | | | |
| Year ended March 31, | | | | | | | | | | | | | | | | |
| 2001 | | ¥ | 4,940 | | | ¥ | 2,085 | | | $ | 45.38 | | | $ | 20.50 | |
| 2002 | | | 4,250 | | | | 2,150 | | | | 34.70 | | | | 16.75 | |
| 2003 | | | 2,860 | | | | 1,805 | | | | 21.98 | | | | 14.83 | |
| 2004 | | | 3,370 | | | | 2,225 | | | | 31.25 | | | | 18.90 | |
| 2005 | | | 3,390 | | | | 1,820 | | | | 30.85 | | | | 17.11 | |
| | | | | | | | | | | | | | | | | |
Quarterly highs and lows | | | | | | | | | | | | | | | | |
| Fiscal 2004 | | | | | | | | | | | | | | | | |
| 1st quarter | | | 2,840 | | | | 2,225 | | | | 23.75 | | | | 18.90 | |
| 2nd quarter | | | 3,030 | | | | 2,515 | | | | 25.75 | | | | 20.85 | |
| 3rd quarter | | | 2,995 | | | | 2,505 | | | | 28.31 | | | | 23.30 | |
| 4th quarter | | | 3,370 | | | | 2,875 | | | | 31.25 | | | | 27.01 | |
| | | | | | | | | | | | | | | | | |
| Fiscal 2005 | | | | | | | | | | | | | | | | |
| 1st quarter | | | 3,390 | | | | 2,635 | | | | 30.85 | | | | 23.75 | |
| 2nd quarter | | | 2,850 | | | | 2,215 | | | | 25.90 | | | | 20.30 | |
| 3rd quarter | | | 2,430 | | | | 1,820 | | | | 21.85 | | | | 18.05 | |
| 4th quarter | | | 2,055 | | | | 1,827 | | | | 19.90 | | | | 17.11 | |
| | | | | | | | | | | | | | | | | |
| Fiscal 2006 | | | | | | | | | | | | | | | | |
| 1st quarter | | | 2,040 | | | | 1,655 | | | | 18.82 | | | | 15.15 | |
| | | | | | | | | | | | | | | | | |
Monthly highs and lows | | | | | | | | | | | | | | | | |
| 2005 | | | | | | | | | | | | | | | | |
| March | | | 2,015 | | | | 1,827 | | | | 19.18 | | | | 17.60 | |
| April | | | 2,040 | | | | 1,760 | | | | 18.82 | | | | 16.60 | |
| May | | | 1,815 | | | | 1,703 | | | | 17.34 | | | | 16.00 | |
| June | | | 1,783 | | | | 1,655 | | | | 16.64 | | | | 15.15 | |
| July | | | 1,687 | | | | 1,604 | | | | 15.23 | | | | 14.35 | |
| August | | | 1,785 | | | | 1,634 | | | | 16.10 | | | | 14.55 | |
B. Plan of distribution
Not applicable
64
60
B. Plan of distribution
Not applicable
The primary market for shares of Pioneer’s common stock is the Tokyo Stock Exchange
(TSE)(“TSE”). Pioneer’s shares of common stock have been listed on the TSE since October 1961 and on the Osaka Securities Exchange since April 1968.
Since December 1976, Pioneer’s ADSs have been listed and traded on the New York Stock Exchange
(NYSE)(“NYSE”), having been traded on the United States over-the-counter market since February 1970. Pioneer’s ADSs, each representing one share of common stock, are evidenced by ADRs issued by Citibank, N.A., New York, as Depositary.
In addition, Curaçao Depositary Shares of Pioneer, evidenced by Curaçao Depositary Receipts, have been listed and traded on the Euronext Amsterdam since February 1969.
Not applicable
Item 10. Additional Information B. Memorandum and articles of association Pioneer is a joint stock corporation
(kabushiki kaisha)incorporated in Japan under the Commercial Code
(shoho)of Japan. It is registered in the Commercial Register
(shogyo tokibo)maintained by the Meguro Branch Office of the Tokyo Legal Affairs Bureau.
61
Article 2 of the Articles of Incorporation of Pioneer provides that its purpose is to engage in the following lines of business:
| • | | manufacture and sale of electronic and electrical machinery and appliances,appliances; |
|
| • | | manufacture and sale of optical instruments, medical instruments, and other machinery and appliances; |
| |
| • | | planning, production, manufacture and sale of audio, video and computer software; |
| |
| • | | manufacture and sale of woodworks, agricultural products and plant for their cultivation;woodwork; |
| |
| • | | manufacture and sale of foodsagricultural products and plants for their cultivation; |
65
| • | | sale of food and beverages, including liquor, and operation of restaurants and amusement facilities; |
| |
| • | | sale and purchase, rental and lease, and management of real estate and real estate agency business; |
| |
| • | | publishing and printing business, advertising agency business, construction business and non-life insurance agency business; |
| |
| • | | acquisition, management and transfer of industrial property rights, copyrights and other intellectual property rights; and |
| |
| • | | all business incidental and related to each and every one of the businesses in the preceding businesses.paragraphs. |
Each Director has executive powers and duties to manage the affairs of Pioneer and each Representative Director, who is elected from among the Directors by the Board of Directors, has the statutory authority to represent Pioneer in all respects. Under the Commercial Code, the Directors must refrain from engaging in any business competing with Pioneer unless approved by the Board of Directors and any Director who has a material interest in the subject matter of a resolution to be taken by the Board of Directors cannot vote on such resolution. The total amount of remuneration to Directors and that to Corporate Auditors are subject to the approval of the general meeting of shareholders.
Except as stated below, neither the Commercial Code nor Pioneer’s Articles of Incorporation make special provisions as to the Directors’ or Corporate Auditors’ power to vote in connection with their compensation; the borrowing power exercisable by a Representative Director (or a Director who is given power by a Representative Director to exercise such power),
theirthe Directors’ or Corporate Auditors’ retirement age or requirement to hold any shares of capital stock of Pioneer. The Commercial Code specifically requires the resolution of the Board of Directors for a company to acquire or dispose of material assets; to borrow a substantial amount of money; to employ or discharge from employment important employees, such as general managers; and to establish, change or abolish material corporate organization such as
a branch
office.offices. The Regulations of the Board of Directors of Pioneer require a resolution of the Board of Directors for Pioneer to borrow a
largesubstantial amount of money or to give
guarantees in a
guarantee for a large amount of money.substantial amount. There is no written rule as to what constitutes a
“large”“substantial” amount in these contexts. However, it has been the general practice of Pioneer’s Board of Directors to adopt a resolution for
a borrowing or guaranteeing in an amount not less than ¥100 million or its equivalent.
62
Except as otherwise stated, set forth below is information relating to Pioneer’s Common Stock, including brief summaries of the relevant provisions of Pioneer’s Articles of Incorporation and Share Handling Regulations, as currently in effect, and of the Commercial Code of Japan and related legislation.
A bill to modernize and make overall amendments to the Commercial Code by replacing the current provisions with regard to corporations with a new company law (the “New Company Law”) was promulgated on July 26, 2005. The New Company Law will come into effect within one year and half after its promulgation, and currently, it is expected that it will take effect in May 2006.
In order to assert shareholders’ rights against Pioneer, a shareholder must have its name and address registered on Pioneer’s register of shareholders, in accordance with Pioneer’s Share Handling Regulations. The registered holder of deposited shares underlying the ADSs is the Depositary for the ADSs. Accordingly, holders of ADSs will not be able to directly to assert shareholders’ rights to Pioneer.
66
A holder of shares may choose, at its discretion, to participate in the central clearing system for share certificates under the Law Concerning Central Clearing of Share Certificates and Other Securities of Japan. Participating shareholders must deposit certificates representing all of the shares to be included in this clearing system with the Japan Securities Depository Center, Inc. (“JASDEC”). If a holder is not a participating institution in JASDEC, it must participate through a participating institution, such as
a securities company or
a commercial bank having a clearing account with JASDEC. All shares deposited with JASDEC will be registered in the name of JASDEC on Pioneer’s register of shareholders. Each participating shareholder will in turn be registered on Pioneer’s register of beneficial shareholders and be treated in the same way as shareholders registered on Pioneer’s register of shareholders. For the purpose of transferring deposited shares, delivery of share certificates is not required. Entry of the share transfer in the
booksbook maintained by JASDEC for participating institutions, or in the book maintained by a participating institution for its customers, has the same effect as delivery of share certificates. The registered beneficial shareholders may exercise the rights attached to the shares, such as voting rights, and will receive dividends (if any) and notices to shareholders directly from Pioneer. The shares held by a person as a registered shareholder and those held by the same person as a registered beneficial shareholder are aggregated for these purposes. Beneficial shareholders may at any time withdraw their shares from deposit and receive share certificates.
A new law to establish a new central clearing system for shares of listed companies and to eliminate the issuance and use of certificates for such shares was promulgated in June 2004 and the relevant part of the law will come into effect within five years of the date of the promulgation. On the effective date, a new central clearing system will be established and the shares of all Japanese companies listed on any Japanese stock exchange, including the shares of Common Stock of Pioneer, will be subject to the new central clearing system. On the same day, all existing share certificates will become null and void and the companies are not required to withdraw those share certificates from shareholders. The transfer of such shares will be effected through entry in the books maintained under the new central clearing system.
Article 5 of the Articles of Incorporation of Pioneer provides that the total number of shares authorized to be issued by Pioneer is four hundred million (400,000,000) shares.
As of March 31,
2003,2005, 180,063,836 shares of common stock were issued (including
4,629,0285,635,190 shares held as treasury stock).
All shares of common stock of Pioneer have no par value.
63
Dividends — General
The Articles of Incorporation of Pioneer provide that the accounts shall be closed on March 31 of each year. Year-end cash dividends, if any, shall be paid to shareholders, beneficial shareholders and pledgees of record as of the end of such day. After the close of the fiscal period, the Board of Directors prepares, among other things, a proposed allocation of profits for dividends and other purposes; this proposal is submitted to the Board of Corporate Auditors of Pioneer and to independent certified public accountants and then submitted for approval to the ordinary general meeting of shareholders, which is normally held in June each year. In addition to provisions for dividends, if any, and for the legal reserve and other reserves, the allocation of profits customarily includes a bonus to Directors and Corporate Auditors.
67
Under the New Company Law, subject to certain limitations on the distributable surplus as described below, dividends, if any, may be paid to shareholders, beneficial shareholders, and pledgees of record as of a record date as set forth either by the Articles of Incorporation of Pioneer or as determined by the Board of Directors from time to time. Dividends shall be paid by way of distribution of surplus. Dividends may be distributed in cash or in kind. In distributing dividends, Pioneer may determine the kind of assets to be distributed, the book value of such assets, matters regarding allocation of such assets, and the effective date of such dividends, by a resolution of a general meeting of shareholders. However, Pioneer may generally determine such matters by a resolution of the Board of Directors if (a) the Articles of Incorporation of Pioneer so provide, (b) the term of its Directors is set to be until the conclusion of the ordinary general meeting of shareholders held with respect to the last closing of accounts within one year after such Director’s assumption of office, and (c) certain requirements regarding the financial statements and certain documents of Pioneer as set forth in an ordinance of the Ministry of Justice are met; provided, however, that when Pioneer is to make in-kind dividends without giving shareholders the right to request payment of cash dividends in lieu of in-kind dividends, it shall determine such matters by a special shareholders resolution (as defined in “Voting Rights”). When Pioneer makes payment of dividends, it shall allocate such dividends in proportion to the number of shares of any specific class held by each shareholder.
Dividends — Interim cash dividends
In addition to year-end
cash dividends, the Board of Directors may by its resolution declare a cash distribution pursuant to Article 293-5 of the Commercial Code (an “interim dividend”) to shareholders, beneficial shareholders and pledgees of record as of the end of
each September 30
of each year, without shareholders’ approval, but subject to the limitations described below.
Under the New Company Law, notwithstanding the necessity of obtaining approval of a general meeting of shareholders in general under the New Company Law as described above, Pioneer is allowed to make payment of interim dividends during a fiscal year by way of distribution of surplus by resolution of the Board of Directors; provided, however, that such payment of interim dividends shall be limited to cash dividends and also limited to once per fiscal year.
Dividends — Legal reserve
The Commercial Code provides that a company may not make any distribution of profit by way of dividends or interim dividends for any fiscal period unless it has set aside in its legal reserve an amount equal to at least one-tenth of the amount paid by way of appropriation of retained earnings for such fiscal period or equal to one-tenth of the amount of such interim dividends, until the aggregate amount of additional paid-in capital and legal reserve equalsis at least one-quarter of its stated capital on a non-consolidated basis.
The New Company Law provides that when a joint stock company such as Pioneer makes a distribution of surplus, it shall set aside in its legal reserve an amount equal to 10% of the amount of the surplus to be decreased as a result of such distribution of surplus in accordance with the provisions set forth in an ordinance of the Ministry of Justice.
68
Dividends — Distributable amount
Under the Commercial Code, Pioneer is permitted to distribute profits by way of year-end or interim dividends out of the excess of its net assets,
on a non-consolidated basis, over the aggregate of:
| (i) | | its stated capital; |
| |
| (ii) | | its additional paid-in capital; |
| |
| (iii) | | its accumulated legal reserve; |
| |
| (iv) | | the legal reserve to be set aside in respect of the fiscal period concerned; and |
| |
| (v) | | such other amounts as provided for byare set out in an ordinance of the Ministry of Justice. |
In the case of interim dividends, the net assets are calculated by reference to the non-consolidated balance sheet as at the last closing date of Pioneer’s accounts,the preceding fiscal year, but adjusted to reflect; (x)(a) the legal reserve to be set aside in respect of interim dividends; (b) any subsequent payment by way of appropriation of retained earnings and transfer to legal reserve in respect thereof; (y)(c) any subsequent transfer of retained earnings to stated capital; and (z)(d) if Pioneer has been authorized, pursuant to a resolution of an ordinary general meeting of shareholders, a resolution of the Board of Directors or both, to purchase shares of its common stock (see “Acquisition by Pioneer of its common stock” below), the total amount of the purchase price of such shares so authorized by such resolution that may be paid by Pioneer,Pioneer; and (e) such other amounts as are set out in an ordinance of the Ministry of Justice, provided that (x) if Pioneer reduces its stated capital, additional paid-in capital or accumulated legal reserve after the end of the preceding fiscal year, the amount so reduced, less the amount paid to shareholders upon such reduction and certain other amounts, and (y) such other amounts as are set out in an ordinance of the Ministry of Justice, shall be added to the amount distributable as interim dividends as described above. Interim dividends may not be paid where thereif it is a riskanticipated that at the end of the fiscal year there might not be any excess of net assets, overon a non-consolidated basis, will be less than the aggregate of the amounts referred to in (i) through (v) above.
Under the New Company Law, Pioneer is permitted to make a distribution of surplus to the extent that the aggregate book value of the assets to be distributed to shareholders does not exceed the Distributable Amount (as defined below) as at the effective date of such distribution of surplus.
The amount of surplus at any given time shall be the amount of Pioneer’s assets and the book value of Pioneer’s treasury stock after subtracting the amounts of the following items (1) through (4) as they appear on Pioneer’s non-consolidated balance sheet as at the end of Pioneer’s last fiscal year, and after reflecting the changes in Pioneer’s surplus after the end of Pioneer’s last fiscal year, by adding the amounts of the following items (5), (6) and (7) and/or subtracting the amounts of the following items (8), (9) and (10):
| (1) | | its liabilities; |
|
| (2) | | its stated capital; |
|
| (3) | | its additional paid-in capital and accumulated legal reserve; |
|
| (4) | | other amounts as provided for by an ordinance of the Ministry of Justice; |
|
| (5) | | (if Pioneer transferred its treasury stock after the end of the last fiscal year) the transfer price of its treasury stock after subtracting the book value thereof; |
|
| (6) | | (if Pioneer decreased its stated capital after the end of the last fiscal year) the amount of decrease in its stated capital (excluding the amount transferred to the additional paid-in capital or legal reserve); |
|
| (7) | | (if Pioneer decreased its additional paid-in capital or legal reserve after the end of the last fiscal year) the amount of decrease in its additional paid-in capital or legal reserve (excluding the amount transferred to the stated capital); |
|
| (8) | | (if Pioneer cancelled its treasury stock after the end of the last fiscal year) the book value of its treasury stock so cancelled; |
69
| (9) | | (if Pioneer distributed surplus to shareholders after the end of the last fiscal year) the assets distributed to shareholders by way of such distribution of surplus; and |
|
| (10) | | other amounts as provided for by an ordinance of the Ministry of Justice. |
The Distributable Amount of Pioneer at any given time shall be the aggregate amount of (a) the surplus, (b) the amount of profit as recorded for the period after the end of Pioneer’s last fiscal year until the date of an extraordinary settlement of account (if any) as provided for in an ordinance of the Ministry of Justice and (c) the transfer price of its treasury stock in the same period, after subtracting the amounts of the following items:
| (1) | | the book value of its treasury stock; |
|
| (2) | | (if Pioneer transferred its treasury stock after the end of the last fiscal year) the transfer price of its treasury stock; |
|
| (3) | | the losses as recorded for the period after the end of Pioneer’s last fiscal year until the date of an extraordinary settlement of account (if any) as provided for in an ordinance of the Ministry of Justice; and |
|
| (4) | | other amounts as provided for by an ordinance of the Ministry of Justice. |
Dividends — Prescription
Under its Articles of Incorporation, Pioneer is not obligated to pay any dividends which are left unclaimed for a period of three years after the date on which they first became payable.
Dividends — Liabilities
Under the Commercial Code, if Pioneer makes interim dividends and at the end of the fiscal year there is no excess of net assets over the aggregate of the amounts referred to in (i) through (v) in “Dividends — Distributable amount” above, Directors who have made such interim dividends shall be jointly and severally liable to Pioneer for the smaller of the amount of such deficit or such dividends unless such Directors prove that they did not fail to exercise due care in determining such interim dividends.
Under the New Company Law, in cases where the distribution of surplus was made, if the aggregate amount of the following items (1), (2) and (3) as at the end of the relevant fiscal year exceeds the amount of surplus, the Directors who have distributed such dividends, shall be liable to Pioneer for the smaller of such amount in excess or the amount of money or book value of such distributed surplus unless such Directors prove that they did not fail to exercise due care in determining such distribution:
| (1) | | the book value of Pioneer’s treasury stock; |
|
| (2) | | (if Pioneer transferred its treasury stock after the end of the last fiscal year) the transfer price of its treasury stock after the end of Pioneer’s last fiscal year; and |
|
| (3) | | other amounts as provided for by an ordinance of the Ministry of Justice. |
However, the Directors shall not be liable to Pioneer for the distributions of surplus made pursuant to the resolution of the ordinary general meeting of shareholders.
70
64
Pioneer may at any time split shares in issue into a greater number of shares by resolution of the Board of Directors, and may amend its Articles of Incorporation to increase the number of the authorized shares to be issued to allow such stock split pursuant to a resolution of the Board of Directors, rather than relying on a special resolution of a general meeting of shareholders, which is otherwise required for amending the Articles of Incorporation.
In the event of a stock split, generally, shareholders will not be required to exchange share certificates for new share certificates, but certificates representing the additional shares resulting from the stock split will be issued to shareholders. When a stock split is to be made, Pioneer must give public notice of the stock split, specifying the record date therefor, at least two weeks prior to such record date. In addition, promptly after the stock split takes effect, Pioneer must give notice to each shareholder specifying the number of shares to which such shareholder is entitled by virtue of the stock split.
After the New Company Law becomes effective, no such notice to each shareholder is required.
Consolidation of Shares
Pioneer may at any time consolidate shares in issue into a smaller number of shares by a special shareholders resolution (as defined in “Voting Rights”). When a consolidation of shares is to be made, Pioneer must give public notice and notice to each shareholder that, within a period of not less than one month specified in the notice, share certificates must be submitted to Pioneer for exchange. A representative director of Pioneer must disclose the reason for the consolidation of shares at the general meeting of shareholders.
General meeting of shareholders The ordinary general meeting of shareholders of Pioneer for each fiscal year is
normally held in June in each year in or near Meguro-ku or in Minato-ku, Tokyo, Japan. In addition, Pioneer may hold an extraordinary general meeting of shareholders whenever necessary by giving notice of convocation thereof at least two weeks prior to the date set for the meeting.
Notice of convocation of a shareholders’ meeting, setting forth the place, time and purpose thereof, must be mailed to each shareholder having voting rights (or, in the case of a non-resident shareholder, to his or her standing proxy or mailing address in Japan) at least two weeks prior to the date set for the meeting. Such notice may be given to shareholders by electronic means, subject to the consent of the relevant shareholders. The record date for an ordinary general meeting of shareholders is March 31 of each year.
Any shareholder or group of shareholders holding at least 3% (or, when the New Company Law becomes effective and in the event that Pioneer’s Articles of Incorporation provide for a percentage lower than 3%, such lower percentage) of the total number of voting rights for a period of six months (or, when the New Company Law becomes effective and in the event that Pioneer’s Articles of Incorporation provide for a period shorter than six months, such period) or more may require the convocation of a general meeting of shareholders for a particular purpose. Unless such shareholders’ meeting is convened promptly or a convocation notice of a meeting which is to be held not later than eight weeks (or, when the New Company Law becomes effective and in the event that Pioneer’s Articles of Incorporation provide for a period shorter than eight weeks, such a period) from the day of such demand is dispatched, the requiring shareholder may, upon obtaining a court approval, convene such shareholders’ meeting.
71
Any shareholder or group of shareholders holding at least 300
(or, when the New Company Law becomes effective and in the event that Pioneer’s Articles of Incorporation provide for a number less than 300, such number) voting rights or 1%
(or, when the New Company Law becomes effective and in the event that Pioneer’s Articles of Incorporation provide for a percentage lower than 1%, such lower percentage) of the total number of voting rights for a period of six months
(or, when the New Company Law becomes effective and in the event that Pioneer’s Articles of Incorporation provide for a period shorter than six months, such shorter period) or more may propose a matter to be considered at a general meeting of shareholders by submitting a written request to a Representative Director at least eight weeks
(or, when the New Company Law becomes effective and in the event that Pioneer’s Articles of Incorporation provide for a period shorter than eight weeks, such shorter period) prior to the date set for such meeting.
65
So long as Pioneer maintains the unit share system (see
“‘“‘Unit’ share system” below; currently 100 shares constitute one unit) a holder of shares constituting one or more full units is entitled to one voting right per unit of shares subject to the limitations on voting rights set forth in the following two sentences. A corporate shareholder more than one-quarter of whose total voting rights are directly or indirectly owned by Pioneer
(or, when the New Company Law becomes effective, management of which is being controlled in substance by Pioneer as provided for by an ordinance of the Ministry of Justice) may not exercise its voting rights with respect to shares of common stock of Pioneer that it owns. In addition, Pioneer may not exercise its voting rights with respect to its shares that it owns. If Pioneer eliminates from its Articles of Incorporation the provisions relating to the unit of shares, holders of common stock will have one voting right for each share they hold. Except as otherwise provided by law or by the Articles of Incorporation, a resolution can be adopted at a general meeting of shareholders by a majority of the number of voting rights of all the shareholders present at the meeting. The Commercial Code
(or, when the New Company Law becomes effective, the New Company Law) and Pioneer’s Articles of Incorporation provide, however, that the quorum for the election of Directors and Corporate Auditors shall not be less than one-third of the total number of voting rights of all the shareholders. Pioneer’s shareholders are not entitled to cumulative voting in the election of Directors. Shareholders may exercise their voting rights through proxies, provided that the proxies are also shareholders holding voting rights. Pioneer’s shareholders also may cast their votes in writing, or exercise their voting rights by electronic means pursuant to the method thereof determined by the Board of Directors.
The Commercial Code (or, when the New Company Law becomes effective, the New Company Law) and Pioneer’s Articles of Incorporation provide thatrequire a special shareholders resolution (as defined below) in order to amend the Articles of Incorporation and in certain other instances, including, a reduction of stated capital, the removal of a Director or Corporate Auditor, dissolution, merger or consolidation pursuant to a certain exception under which a shareholders’instances. A special shareholders resolution is not required, the transfer of the whole or an important part of the business, the taking over of the whole of the business of any other corporation pursuant to a certain exception underresolution for which a shareholders’ resolution is not required, share exchange or share transfer for the purpose of establishing 100% parent-subsidiary relationships pursuant to a certain exception under which a shareholders’ resolution is not required, splitting of the corporation into two or more corporations pursuant to a certain exception under which a shareholders’ resolution is not required, or any offering of new shares at a “substantially favorable” price (or any offering of share acquisition rights to subscribe for or acquire shares of capital stock (“share acquisition rights”) or bonds with share acquisition rights at a “substantially favorable” terms) to any persons other than shareholders, the quorum shall be one-third of the total voting rights of all the shareholders, and the approval by at least two-thirds (or, when the New Company Law becomes effective and in the event that Pioneer’s Articles of Incorporation provide for a percentage greater than two-thirds, such greater percentage) of the voting rights of all the shareholders represented at the meeting is required (the “special(in addition, when the New Company Law becomes effective and in the event that Pioneer’s Articles of Incorporation provide that the approval by certain number of shareholders resolutions”)is required, such approval is also required). The instances requiring a Special Shareholders Resolution include:
| (1) | | acquisition of its own shares from a specific party; |
|
| (2) | | consolidation of shares; |
|
| (3) | | any offering of new shares at a “specially favorable” price (or any offering of stock acquisition rights to subscribe for or acquire shares of capital stock, or bonds with stock acquisition rights at “specially favorable” conditions) to any persons other than shareholders; |
|
| (4) | | the removal of a Director or Corporate Auditor (when the New Company Law becomes effective, the removal of a Director who is elected by cumulative voting); |
72
| (5) | | the exemption of liability of a Director or Corporate Auditor with certain exceptions; |
|
| (6) | | a reduction of stated capital (when the New Company Law becomes effective, with certain exceptions in which a shareholders’ resolution is not required); |
|
| (7) | | (when the New Company Law becomes effective ) a distribution of in-kind dividends which meets certain requirements; |
|
| (8) | | dissolution, merger, or consolidation with certain exceptions in which a shareholders’ resolution is not required; |
|
| (9) | | the transfer of the whole or a material part of the business; |
|
| (10) | | the taking over of the whole of the business of any other corporation with certain exceptions in which a shareholders’ resolution is not required; |
|
| (11) | | share exchange or share transfer for the purpose of establishing 100 percent parent-subsidiary relationships with certain exceptions in which a shareholders’ resolution is not required; or |
|
| (12) | | separating of the corporation into two or more corporations with certain exceptions in which a shareholders’ resolution is not required. |
Issue of additional shares and pre-emptive rights Holders of Pioneer’s shares of common stock have no pre-emptive rights under its Articles of Incorporation. Authorized but unissued shares may be issued at such times and upon such terms as the Board of Directors determines, subject to the limitations as to the
offeringissue of new shares at a
“substantially“specially favorable” price mentioned under “
Voting rights” above. The Board of Directors may, however, determine that shareholders shall be given subscription rights regarding a particular issue of new shares, in which case such rights must be given on uniform terms to all shareholders as at a record date of which not less than two weeks’ prior public notice must be given. Each of the shareholders to whom such rights are given must also be given notice of the expiry thereof at least two weeks prior to the date on which such rights expire.
66
Rights to subscribe for new shares may be made generally transferable by the Board of Directors. Whether Pioneer will make subscription rights generally transferable in future rights offerings will depend upon the circumstances at the time of such offerings. If subscription rights are not made generally transferable, transfers by a non-resident of Japan or a corporation organized under the laws of a foreign country or whose principal office is located in a foreign country will be enforceable against Pioneer and third parties only if Pioneer’s prior written consent to each such transfer is obtained. When such consent is necessary in the future for the transfer of subscription rights, Pioneer intends to consent, on request, to all such transfers by such a non-resident or foreign corporation.
Subject to certain conditions, Pioneer may issue
share acquisition rights or bonds with share acquisition rights by a resolution of the Board of Directors. Holders of
share acquisition rights or bonds with share acquisition rights may exercise their rights to acquire a certain number of shares within the exercise period as prescribed in the terms of their
share acquisition rights and bonds with share acquisition rights. Upon exercise of share acquisition rights, Pioneer will be obliged to issue the necessary number of new shares or alternatively to transfer the relevant number of
treasury stockshares held by
it.it as treasury stock.
In cases where a particular issue of new shares or stock acquisition rights (i) violates laws and regulations or Pioneer’s Articles of Incorporation, or (ii) will be performed in a manner materially unfair, and shareholders may suffer disadvantages therefrom, such shareholder may file an injunction to enjoin such issue with a court.
In the event of a liquidation of Pioneer, the assets remaining after payment of all debts, and liquidation expenses and taxes will be distributed among shareholders in proportion to the respective numbers of shares of common stock held.held by them.
73
March 31 is the record date for Pioneer’s year-end dividends. So long as Pioneer maintains the unit share system, the shareholders and beneficial shareholders who are registered as the holders of one or more full
unitunits of shares in Pioneer’s
registersregister of shareholders and/or
that of beneficial shareholders at the end of each March 31 are
also entitled to exercise shareholders’ rights at the ordinary general meeting of shareholders with respect to the fiscal year ending on such March 31. September 30 is the record date for interim dividends. In addition, Pioneer may set a record date for determining the shareholders and/or beneficial shareholders entitled to other rights
pertaining to the shares of Common Stock of Pioneer, and for other purposes, by
a resolution of the Board of Directors and giving at least two weeks’ prior public notice.
The price of shares generally goes
ex-dividendsex-dividend or ex-rights on Japanese stock exchanges on the third business day prior to a record date (or if the record date is not a business day, the fourth business day prior thereto), for the purpose of dividends or rights offerings.
67
Acquisition by Pioneer of its common stock Pioneer may acquire its own shares (a) through a stock exchange on which such shares are listed (pursuant to an ordinary resolution of an ordinary general meeting of shareholders),shareholders or a resolution of the Board of Directors) or by way of tender offer (pursuant to an ordinary resolution of an ordinary general meeting of shareholders),shareholders or a resolution of the Board of Directors); (b) by purchase from a specific party other than a subsidiary of Pioneer (pursuant to a special resolution of an ordinary general meeting of shareholders); or (c) by purchase from a subsidiary of Pioneer (pursuant to a resolution of the Board of Directors). Under the New Company Law, not only ordinary general meetings of shareholders but also extraordinary general meetings of shareholders will be able to approve the acquisition by Pioneer of its own shares in the cases of (a) and (b) above. If shares are purchased by Pioneer pursuant to a resolution of the Board of Directors, then the reason for the purchase, as well as the kind, number and aggregate purchase price of such shares must be reported to the shareholders at the ordinary general meeting of shareholders to be held immediately after such purchase of shares. When such acquisition is made by Pioneer from a specific party other than a subsidiary of Pioneer, any other shareholder may make a request to a Representative Director, more than five calendar days prior to the relevant shareholders’ meeting, to include him or her as thea seller in the proposed purchase. Under the New Company Law, however, the acquisition of its own shares at a price not exceeding the then market price to be provided under an ordinance of the Ministry of Justice will not trigger the right of any shareholder to include him or her as the seller of his or her shares in such proposed purchase. Any such acquisition of shares must satisfy certainthe requirements including that, inunder the Commercial Code. In cases other than the acquisition by Pioneer of its own shares frompursuant to a subsidiaryresolution of Pioneer,the Board of Directors, the total amount of the purchase price may not exceed the amount of the retained earnings available for dividend payments after taking into account any reduction, if any, of the stated capital, additional paid-in capital or legal reserve (if such reduction of the stated capital, additional paid-in capital or legal reserve has been authorized pursuant to a resolution of the relevant ordinary general meeting of shareholders), minus the amount to be paid by way of appropriation of retained earnings for the relevant fiscal year and the amount to be transferred from retained earnings to stated capital. If Pioneer purchases shares from its subsidiaries,pursuant to a resolution of the Board of Directors, the total amount of the purchase price may not exceed the amount of the retained earnings available for an interim dividend payment minus the amount of any interim dividend Pioneer actually paid. However, if it is anticipated that the net assets on the non-consolidated balance sheet as at the end of the relevant fiscal year will be less than the aggregate amount of the stated capital, additional paid-in capital and other items as described in (i) through (v) toin “Dividends — Distributable amount” above, Pioneer may not acquire such shares. Under the New Company Law, the restriction on the source of funds for
74
the acquisition by Pioneer of its own shares will be integrated into those for the distribution of surplus to the shareholders. See “Dividends.”
Shares acquired by Pioneer may be held by it for any period or may be cancelled by
a resolution of the Board of Directors. Pioneer may also transfer to any person the shares held by it, subject to a resolution of the Board of Directors, and subject also to other requirements similar to those applicable to the issuance of new shares, as described in “
Issue of additional shares and pre-emptive rights” above. Pioneer may also utilize its treasury stock for the purpose of transfer to any person upon exercise of share acquisition rights or for the purpose of acquiring another company by way of merger, share exchange or corporate split through exchange of treasury stock for shares or assets of the acquired company.
The Articles of Incorporation of Pioneer provide that 100 shares constitute one unit of shares of stock. Although the number of shares constituting one unit is included in the Articles of Incorporation, any amendment to the Articles of Incorporation reducing (but not increasing) the number of shares constituting one unit or eliminating the provisions for the unit of shares may be made by the resolution of the Board of Directors rather than by the special shareholders resolution, which is otherwise required for amending the Articles of Incorporation. The number of shares constituting one new unit, however, cannot exceed 1,000 or one two-hundredth (1/200) of all issued shares.
Shareholders shall have one voting right for each unit of shares that they hold. Any number of shares less than a full unit will carry no voting rights.
Unless Pioneer’s shareholders amend the Articles of Incorporation by a special shareholders resolution to eliminate the provision not to issue share certificates for less than a unit of shares, a share certificate for any number of shares less than one full unit will in general not be issued. As the transfer of shares normally requires the delivery of the share certificates therefor, any fraction of a unit for which no share certificates are issued is not transferable.
68
A holder of shares constituting less than one unit may require Pioneer to purchase such shares at their market value in accordance with the provisions of the Share Handling Regulations of Pioneer. In addition, the Articles of Incorporation of Pioneer provide that a holder of shares constituting less than one full unit may request Pioneer to sell to such holder such amount of shares which will, when added together with the shares constituting less than one full unit held by such holder, constitute one full unit of stock, in accordance with the provisions of the Share Handling Regulations of Pioneer.
A holder who owns ADRs evidencing less than 100 ADSs will indirectly own less than one full unit of shares of common stock. Although, as discussed above, under the unit share system holders of less than one full unit have the right to require Pioneer to purchase their shares or sell shares held by Pioneer to such holders, holders of ADRs evidencing ADSs that represent other than integral multiples of a unit are unable to withdraw the underlying shares of common stock representing less than one full unit and, therefore, are unable, as a practical matter, to exercise the rights to require Pioneer to purchase such underlying shares or sell shares held by Pioneer to such holders unless Pioneer’s Articles of Incorporation are amended to eliminate the provision not to issue share certificates for the numbers of shares less than a unit. As a result, access to the Japanese markets by holders of ADRs through the withdrawal mechanism will not be available for dispositions of shares of common stock in lots less than one full unit. The unit share system does not affect the transferability of ADSs, which may be transferred in lots of any size.
75
Sale by Pioneer of shares held by shareholders whose addresslocation is unknown Pioneer is not required to send a notice to a shareholder if a notice to such shareholder fails to arrive at the registered address of the shareholder in Pioneer’s register of shareholders or at the address otherwise notified to Pioneer continuously for five years or more.
In addition, Pioneer may sell or otherwise dispose of shares of common stock for which the location of the shareholder is unknown. Generally, if (i) notices to a shareholder fail to arrive continuously for five years or more at the shareholder’s registered address in Pioneer’s register of shareholders or at the address otherwise notified to Pioneer, and (ii) the shareholder fails to receive dividends on the shares continuously for five years or more at the address registered in Pioneer’s register of shareholders or at the address otherwise notified to Pioneer, Pioneer may sell or otherwise dispose of the shareholder’s shares
at the then market price of the shares by a resolution of the Board of Directors and after giving at least three months’ prior public and individual notice, and
holdingmay hold or
depositingdeposit the proceeds of such sale or disposal of shares
at the then market price of the shares for
the shareholder, the location of which is unknown.such shareholder.
Reporting of substantial shareholdings The Securities and Exchange Law of Japan and regulations thereunder require any person, regardless of residence, who has become, beneficially and solely or jointly, a holder(s) of more than 5% of the total issued shares of capital stock of a company listed on any Japanese stock exchange or whose shares are traded on the over-the-counter market in Japan to file with the
Director–Director—General of a competent Local Finance Bureau of
the Ministry of Finance within five business days a report concerning such shareholdings.
A similar report must also be filed in respect of any subsequent change of 1% or more in any such holding or any change in material matters set out in reports previously filed, with certain exceptions. For this purpose, shares issuable to such person upon conversion of convertible securities or exercise of share subscription warrants or share acquisition rights are taken into account in determining both the number of shares held by such holder and the issuer’s total issued share capital. Copies of such report must also be furnished to the issuer of such shares and all Japanese stock exchanges on which the shares are
listed or (in the case of shares traded over-the-counter) the Japan Securities Dealers Association.69
listed.
Except for the general
limitationlimitations under Japanese anti-trust and anti-monopoly regulations against holding of shares of capital stock of a Japanese corporation which leads or may lead to a restraint of trade or monopoly, and except for general limitations under the Commercial Code or Pioneer’s Articles of Incorporation on the rights of shareholders applicable regardless of residence or nationality, there is no limitation under Japanese laws and regulations applicable to Pioneer or under its Articles of Incorporation on the rights of non-resident or foreign shareholders to hold the shares of common stock of Pioneer or exercise voting rights thereon.
There is no provision in Pioneer’s Articles of Incorporation that would have an effect of delaying, deferring or preventing a change in control of Pioneer and that would operate only with respect to merger, consolidation, acquisition or corporate restructuring involving Pioneer.
C. Material contracts
None
76
Not applicable
The Foreign Exchange and Foreign Trade Law of Japan and its related cabinet orders and ministerial ordinances (the “Foreign Exchange Regulations”) govern the acquisition and holding of shares of common stock of Pioneer by “exchange non-residents” and by “foreign investors.” The Foreign Exchange Regulations currently in effect do not, however, affect transactions between exchange non-residents to purchase or sell shares outside Japan using currencies other than Japanese yen.
Exchange non-residents are:
| • | | individuals who doare not resideresident in Japan; and |
| |
| • | | corporations whose principal offices are located outside Japan. |
Generally, branches and other offices of non-resident corporations that are located within Japan are regarded as
exchange residents of Japan. Conversely, branches and other offices of Japanese corporations located outside Japan are regarded as exchange non-residents.
| • | | individuals who are exchange non residents;non-residents; |
| |
| • | | corporations that are organized under the laws of foreign countries or whose principal offices are located outside Japan; and |
| |
| • | | corporations (1) of which 50% or more of their shares are held by individuals who are exchange non-residents and/or corporations (a) that are organized under the laws of foreign countries or (b) whose principal offices are located outside Japan or (2) a majority of whose officers, or officers having the power of representation, are individuals who are exchange non-residents. |
70
In general, the acquisition of shares of a Japanese company (such as the shares of common stock of Pioneer) by an exchange non-resident from
aan exchange resident of Japan is not subject to any prior filing requirements. In certain limited circumstances, however, the Minister of Finance may require prior approval of an acquisition of this type. While prior approval, as described above, is not required, in the case where
aan exchange resident of Japan transfers shares of a Japanese company (such as the shares of common stock of Pioneer) for consideration exceeding ¥100 million to an exchange non-resident, the
exchange resident of Japan who transfers the shares is required to report the transfer to the Minister of Finance within 20 days from the date of the transfer, unless the transfer was made through a bank, securities company or financial futures trader licensed under Japanese law.
If a foreign investor acquires shares of a Japanese company that is listed on a Japanese stock exchange (such as the shares of common stock of Pioneer) or that is traded on an over-the-counter market in Japan and, as a result of the acquisition, the foreign investor, in combination with any existing holdings, directly or indirectly holds 10% or more of the issued shares of the relevant company, the foreign investor must file a report of the acquisition with the Minister of Finance and any other competent Ministers having jurisdiction over that Japanese company within 15 days from and including the date of the acquisition, except where the offering of the company’s shares was made overseas. In limited circumstances, such as where the foreign investor is in a country that is not listed on an exemption schedule in the Foreign Exchange Regulations, a prior notification of the acquisition must be filed with the Minister of Finance and any other competent Ministers, who may then modify or prohibit the proposed acquisition.
77
Under the Foreign Exchange Regulations, dividends paid on and the proceeds from sales in Japan of shares of common stock of Pioneer held by
exchange non-residents of Japan may generally be converted into any foreign currency and repatriated abroad.
E. TaxationThe discussion below is not intended to constitute a complete analysis of all tax consequences relating to the acquisition, ownership and disposition of shares of common stock and ADSs. Prospective purchasers and holders of the shares of common stock or ADSs should consult their own tax advisors concerning the tax consequences of their particular situations.
The following discussion is a summary of the principal Japanese national and U.S. federal income tax consequences of the acquisition, ownership and disposition of shares of common stock or ADSs by a U.S. Holder (as defined below) that holds those shares or ADSs as capital assets (generally, property held for investment).ADSs. This summary does not purport to address all material tax consequences that may be relevant to holders of shares of common stock or ADSs, and does not take into account the specific circumstances of any particular investors, some of which (such as tax-exempt entities, banks, insurance companies, broker-dealers, traders in securities that elect to use a mark-to-market method of accounting for their securities holdings, regulated investment companies, real estate investment trusts, investors liable for alternative minimum tax, investors that own or are treated as owning 10% or more of Pioneer’s voting stock, investors that hold shares of common stock or ADSs as part of a straddle, hedge, conversion or constructive sale transaction or other integrated transaction, persons that hold shares of common stock or ADSs through a partnership or other pass-through entity and U.S. Holders (as defined below) whose functional currency is not the U.S. dollar) may be subject to special tax rules. This summary is based on the national or federal income tax laws and regulations of Japan and of the United States, judicial decisions, published rulings and administrative pronouncements as in effect at the date hereof, as well as on the current income tax convention between the United States and Japan (the “Treaty”), all of which are subject to change (possibly with retroactive effect) andand/or to differing interpretations. U.S. Holders should note that the United States and Japan have reached an agreement in principle on the text of a new income tax convention, which after a formal signature process, will be subject to ratification according to the procedures of each of the two countries. In addition, this
This summary is based in part upon the representations of the depositary and the assumption that each obligation in the deposit agreement for ADSs and in any related agreement will be performed in accordance with its terms.
71
For purposes of this discussion, a “U.S. Holder” is any beneficial owner of shares of common stock or ADSs that, for U.S. federal income tax purposes, is:
| • | | a citizen or individual resident of the United States, |
| |
| • | | a corporation or other entity taxable as a corporation for U.S. federal income tax purposes organized in or under the laws of the United States, any State, or the District of Columbia, |
| |
| • | | an estate the income of which is subject to U.S. federal income tax without regard to its source, or |
| |
| • | | a trust that is (i) subject to the primary supervision of a U.S. court and the control of one or more U.S. persons, or (ii) that has a valid election in effect under applicable Treasury regulations to be treated as a U.S. person. |
An “Eligible U.S. Holder” is a U.S. Holder that:
| • | | is a resident of the United States for purposes of the Treaty, |
| |
| • | | does not maintain a permanent establishment or fixed base in Japan to(i) with which shares of common stock or ADSs are attributable and througheffectively connected or (ii) of which shares of common stock or ADSs form part of the U.S. Holder carries on or has carried on business (or, in the case of an individual, performs or has performed independent personal services),property, and |
| |
| • | | is otherwise eligible for benefits under the Treaty with respect to income and gain derived in connection with the shares of common stock or ADSs. |
A “Non-U.S. Holder” is any beneficial owner
The U.S. federal income tax consequences of a partner in a partnership holding shares of common stock or ADSs that, for U.S. federal incomegenerally will depend on the status of the partner and the activities of the partnership. Partners in a partnership holding shares of common stock or ADSs should consult their own tax purposes, is:advisors. This
78
• | | an individual who is classified as a non-resident; |
|
• | | a foreign corporation or other foreign entity taxable as a corporation; or |
|
• | | an estate or trust that is not a U.S. Holder. |
This
summary does not address any aspects of U.S. federal tax law other than income taxation, and does not discuss any aspects of Japanese tax law other than national income taxation, inheritance and gift taxation. This summary also does not cover any state or local, or non-U.S., non-Japanese tax considerations. Investors are urged to consult their tax advisors regarding the U.S. federal, state and local and Japanese and other tax consequences of acquiring, owning and disposing of shares of common stock or ADSs. In particular, where relevant, investors are urged to confirm their status as Eligible U.S. Holders with their tax advisors and to discuss with their tax advisors any possible consequences of their failure to qualify as Eligible U.S. Holders.
In general, taking into account the earlier
assumptions,assumption, for purposes of the Treaty and for U.S. federal income and Japanese
income tax purposes, beneficial owners of ADRs evidencing ADSs will be treated as the owners of the shares of common stock represented by those ADSs, and exchanges of shares of common stock for ADSs, and exchanges of ADSs for shares of common stock, will not be subject to U.S. federal income tax or Japanese
income tax.
The discussion below is intended for general information only and does not constitute a complete analysis of all tax consequences relating to the acquisition, ownership and disposition of shares of common stock or the ADSs. Investors in shares of common stock or the ADSs should consult their own tax advisors concerning the tax consequences of their particular situations.
The following is a summary of the principal Japanese tax consequences (limited to national taxes) to
Eligible U.S. Holders that holdholders of shares of common stock of Pioneer or ADRs evidencing ADSs representing shares of common stock of
Pioneer.Pioneer who are either individuals who are not residents of Japan or non-Japanese corporations, without a permanent establishment in Japan (“non-resident Holders”).
Generally,
an individual who is a non-resident of Japan or a non-Japanese corporation is subject to Japanese withholding tax on dividends paid by a Japanese corporation. Pioneer withholds taxes from dividends it pays as required by Japanese law. Stock splits in themselves are not subject to Japanese income tax.
72
Under
In the absence of an applicable tax treaty, convention or agreement reducing the maximum rate of Japanese withholding tax law,or allowing exemption from Japanese withholding tax, the rate of Japanese withholding tax applicable to dividends paid by Japanese corporations to individuals who are non-residents of Japan or non-Japanese corporations is generally 20%. However, with respect to dividends paid on listed shares issued by a Japanese corporation (such as the shares of common stock of Pioneer) to any corporate or individual shareholders (including those shareholders who are Eligible U.S.non-Japanese corporations or Japanese non-resident individuals, such as non-resident Holders), except for any individual shareholder who holds 5% or more of the outstanding total of theissued shares issued byof the relevant Japanese corporation, the aforementioned 20% withholding tax rate is reduced to (i) 10% for dividends due and payable on or after April 1, 2003 but on or before December 31, 2003, (ii) 7% for dividends due and payable on or after January 1, 2004 but on or before March 31, 2008, and (iii)(ii) 15% for dividends due and payable on or after April 1, 2008. At the date of this annual report, Japan has income tax treaties, conventions or agreements whereby the above-mentioned withholding tax rate is reduced, in most cases to 15 percent for portfolio investors with, among other countries, Australia, Belgium, Canada, Denmark, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, New Zealand, Norway, Singapore, Spain, Sweden, Switzerland, and the U.K.
Under the Treaty,
as currently in force, the maximum rate of Japanese withholding tax which may be imposed on dividends paid by a Japanese corporation to Eligible U.S. Holders
that are portfolio investors is generally
is limited to
15% or, if certain conditions (as provided in the Treaty) are fulfilled, 10% of the gross amount actually
distributed.Andistributed, and dividends paid by a Japanese corporation to Eligible U.S. Holders that are pension funds is exempt from Japanese taxation by way of withholding or otherwise
79
unless such dividends are derived from the carrying on of a business, directly or indirectly, by such pension funds.
If the maximum tax rate provided for in the income tax treaty applicable to dividends paid by Pioneer to any particular non-resident Holder
who is
entitled, underlower than the
Treaty, to a reduced rate of Japanese withholding tax
below the rate otherwise applicable under Japanese tax law
or any particular non-resident Holder is exempt from Japanese income tax with respect to such dividends under the income tax treaty applicable to such particular non-resident Holder, such non-resident Holder who is entitled to a reduced rate of or exemption from Japanese withholding tax on payment of dividends on Pioneer’s shares of common stock is required to submit an Application Form for Income Tax Convention Regarding Relief from Japanese Income Tax on Dividends in advance through Pioneer to the relevant tax authority before such payment of dividends.
A standing proxy for non-resident Holders of a Japanese corporation may provide this application service. With respect to
ADRs,ADSs, this reduced rate or exemption is applicable if the Depositary or its agent
will apply for this reduced treaty rate, if it is below the rate otherwise applicable under Japanese tax law, on behalf of Eligible U.S. Holders by submittingsubmits two Application Forms (one before payment of dividends, the other within eight months after Pioneer’s fiscal
year-end or semi-fiscal year-end) to the Japanese tax authorities. To claim this reduced rate
or exemption, any relevant
Eligible U.S.non-resident Holder of
ADRsADSs will be required to file a proof of taxpayer status, residence and beneficial ownership (as applicable) and to provide other information or documents as may be required by the Depositary.
An Eligible U.S.A non-resident Holder who is entitled, under
the Treaty,an applicable tax treaty, to a reduced
treaty rate
of Japaneselower than the withholding tax
below the rate otherwise applicable under Japanese tax law
or an exemption from the withholding tax, but
failsfailed to submit the required application in advance will be entitled to claim the refund of withholding taxes withheld in excess of the rate under
an applicable tax treaty (if such non-resident Holder is entitled to a reduced treaty rate under the
Treatyapplicable income tax treaty) or the whole of the withholding tax withheld (if such non-resident Holder is entitled to an exemption under the applicable income tax treaty) from the relevant Japanese tax authority. Pioneer does not assume any responsibility to ensure withholding at the reduced treaty rate
or not withholding for shareholders who would be eligible under
the Treatyan applicable tax treaty but do not follow the required procedures as stated above.
Gains derived from the sale of shares of common stock or
ADRsADSs outside Japan by
an Eligible U.S.a non-resident Holder holding such shares or
ADRsADSs as a portfolio investor are, in general, not subject to Japanese income or corporation tax. Eligible U.S. Holders are not subject to Japanese income or corporation tax with respect to such gains under the Treaty.
Japanese inheritance and gift taxes at progressive rates may be payable by an individual who has acquired shares of common stock or
ADRsADSs as a legatee, heir or donee even though neither the individual nor the deceased nor donor is a Japanese resident.
U.S.
Holders of shares of common stock of Pioneer or
ADRsADSs should consult their tax advisors regarding the effect of these taxes
as well asand, in the case of U.S. Holders, the possible application of the Estate and Gift Tax Treaty between the U.S. and Japan.
U.S. federal income taxation U.S. Holders
The following discussion is a summary of the principal U.S. federal income tax consequences to holders of shares of common stock and ADSs that are U.S. Holders and that hold those shares of common stock or ADSs as capital assets (generally, for investment purposes).
80
Taxation of Dividends
Subject to the passive foreign investment company rules discussed below,
under U.S. federal income tax law, the gross amount of any distribution made by us in respect of shares of common stock or ADSs (without reduction for Japanese withholding taxes) will constitute a taxable dividend to the extent paid out of current or accumulated earnings and profits, as determined
forunder U.S. federal income tax
purposes. Aprinciples. The U.S. dollar amount of such a dividend generally will be included in the gross income of a U.S. Holder, as ordinary income, when the
73
dividend is actually or constructively received by the U.S. Holder, in the case of shares of common stock, or by the depositary, in the case of ADSs. The dividendDividends paid by us will not be eligible for the dividends received deduction generally allowed to U.S. corporations. However, pursuant to recently enacted legislation, dividendscorporations in respect of ourdividends received from other U.S. corporations.
Subject to certain exceptions for short-term and hedged positions, and provided that we are not a passive foreign investment company (as discussed below), dividends received by certain U.S. Holders (including individuals) prior to January 1, 2009 with respect to the shares of common stock or ADSs paidwill be subject to certain U.S. Holders (including individuals) mayfederal income taxation at a maximum rate of 15%. Investors should be aware that the U.S. Treasury Department has announced its intention to promulgate rules pursuant to which shareholders (and intermediaries) will be permitted to rely on certifications from issuers to establish that dividends qualify for preferential ratesthe reduced rate of U.S. federal income tax. Ataxation. Because such procedures have not yet been issued, we are not certain that we will be able to comply with them. U.S. Holders of ADSs or shares of common stock should consult their own tax advisors regarding the availability of the reduced rate in the light of their own particular circumstances.
The U.S. dollar amount of a dividend paid in
Japanese yen will be
included in gross income in a U.S. dollar amountdetermined based on the
Japanese yen/U.S. dollar exchange rate in effect on the date that dividend is included in the gross income of the U.S. Holder, regardless of whether the payment is converted into
dollars.dollars on such date. Generally, any gain or loss resulting from currency exchange fluctuations during the period from the date the dividend payment is included in the gross income of a U.S. Holder through the date that payment is converted into U.S. dollars (or
the U.S. Holder otherwise disposed
of)the Japanese yen) will be treated as U.S. source ordinary income or loss.
U.S. Holders should consult their own tax advisors regarding the calculation and U.S. federal income tax treatment of foreign currency gain or loss.
To the extent, if any, that the amount of any distribution received by a U.S. Holder in respect of shares of common stock or ADSs exceeds our current and accumulated earnings and profits
as determined under U.S. federal income tax principles, the distribution first will be treated as a tax-free return of capital to the extent the U.S. Holder’s adjusted tax basis in those shares or ADSs, and
any balance in excess of that adjusted tax basis will be treatedthereafter as U.S. source capital gain.
We do not expect to compute our earnings and profits under U.S. federal income tax principles, and therefore holders should assume that our distributions generally will be treated as paid out of our earnings and profits for U.S. federal income tax purposes.Distributions of additional shares of common stock that are made to U.S. Holders with respect to their shares of common stock or ADSs and that are part of a pro rata distribution to all of our shareholders generally will not be subject to U.S. federal income tax.
For U.S. foreign tax credit purposes, dividends included in gross income by a U.S. Holder in respect of shares of common stock or ADSs will constitute income from sources outside the United States and generally will be treated separately, together withsubject to various classifications and other items of “passive income” (or, in the case of some holders, “financial services income”) in computing foreign tax credit limitations. Subject to generally applicable limitations under U.S. federal income tax law and the Treaty, any Japanese withholding tax imposed in respect of a dividend paid by us in respect of shares of common stock or ADSs may be claimed either as a credit against the U.S. federal income tax liability of a U.S. Holder or, if the U.S. Holder does not elect to take a credit for any foreign taxes paid that year, as a deduction from that holder’sU.S. Holder’s taxable income. In general, special rules will apply to the calculation of foreign tax credits in respect of dividend income that is subject to preferential rates of U.S. federal income tax pursuant to recently enacted legislation.tax. Additionally, special rules apply to individuals
81
whose foreign source income during the taxable year consists entirely of “qualified passive income” and whose creditable foreign taxes paid or accrued during the taxable year do not exceed $300 ($600 in the case of a joint return). Further, under some circumstances, a U.S. Holder that:
| • | | has held shares of common stock or ADSs for less than a specified minimum period, or |
| |
| • | | is obligated to make payments related to our dividends, |
will not be allowed a foreign tax credit for foreign taxes imposed on our dividends.
Finally, foreign tax credits may not be allowed in respect of arrangements in which a U.S. Holder’s expected economic return, after non-U.S. taxes, is insubstantial. U.S. Holders are urged to consult their tax advisors regarding the availability of the foreign tax credit under their particular circumstances.
Upon The Internal Revenue Service (the “IRS”) has expressed concern that parties to whom ADSs are released may be taking actions that are inconsistent with the claiming of foreign tax credits by U.S. Holders of ADSs. Accordingly, investors should be aware that the discussion above regarding the creditability of Japanese withholding tax on dividends could be affected by future actions that may be taken by the IRS.
Taxation of Capital Gains
In general upon a sale or other
taxable disposition of shares of common stock or ADSs, a U.S. Holder will recognize gain or loss for U.S. federal income tax purposes in an amount equal to the difference between the amount realized
on the sale or other taxable disposition and the U.S. Holder’s
adjusted tax basis in those shares
of common stock or ADSs (which is generally the U.S. dollar cost thereof).
In general, subjectSubject to the passive foreign investment company rules discussed below, such gain
74
or loss recognized on the sale or other taxable disposition generally will be capital gain or loss and, if the U.S. Holder’s holding period for those shares or ADSs exceeds one year, will be long-term capital gain or loss. SomeCertain U.S. Holders, including individuals, are eligible for preferential rates of U.S. federal income tax in respect of net long-term capital gain. Under U.S. federal tax law, the deduction of capital losses is subject to limitations. Any gain or loss recognized by a U.S. Holder in respect of the sale or other taxable disposition of shares of common stock or ADSs generally will be treated as derived from U.S. source income or losssources for U.S. foreign tax credit purposes.
We
Passive Foreign Investment Companies
Based on current estimates of our income and asset, we do not believe that we are a passive foreign investment company (a “PFIC”) for U.S. federal income tax purposes, and we intend to continue our operations in such a manner that it is highly unlikely that we would become a PFIC in the future although no assurances can be made regarding determination of our PFIC status in the current or any future taxable year. The PFIC determination is made annually and generally is based on either the portion of our assets (including goodwill) or the portion of our income being characterized as passive under the PFIC rules.
If we become a PFIC, unless a U.S. Holder elects to be taxed annually on a mark-to-market basis with respect to its shares of common stock or ADSs, any gain realized on a sale or other taxable disposition of shares of common stock or ADSs and certain “excess distributions” (generally distributions in excess of 125% of the average distribution over a three-year period, or shorter holding period for the shares of common stock or ADSs) would be treated as realized ratably over the U.S. Holder’s holding period for the shares of common stock or ADSs; amounts allocated to prior years during which we were a PFIC would be taxed at the highest ordinary income tax rate in effect for each such year, and an additional interest charge would be added in respectmay apply to the portion of the U.S. federal income tax attributableliability on such gains or distributions treated under the PFIC rules as having been deferred by the U.S. Holder. Moreover, dividends that a U.S. Holder receives from us will not be eligible for the reduced U.S. federal income tax rates described above if we are a PFIC either in the taxable year of the dividend or the preceding taxable year (and instead will be taxable at rates applicable to each such year. ordinary income).
82
If a mark-to-market election were made, a U.S. Holder would take into account each year the appreciation or depreciation in value of its shares of common stock or ADSs, which would be treated as ordinary income or (subject to limitations) ordinary loss, as would gains or losses on actual dispositions of shares of common stock or ADSs.
Any U.S. Holder who owns shares of common stock or ADSs during any
taxable year that we are a PFIC would be required to file Internal Revenue Service Form 8621. U.S. Holders are urged to consult their tax advisors concerning the U.S. federal income tax consequences of holding our shares of common stock or ADSs if we were considered a PFIC in any year.
Non-U.S. HoldersDistributions
The following discussion is a summary of the principal U.S. federal income tax consequences to beneficial holders of shares of common stock or ADSs that are neither U.S. Holders nor partnerships for U.S. federal income tax purposes (“Non-U.S. Holders”).
Subject to the discussion below on “Backup withholding and information reporting,” distributions received by a Non-U.S. Holder in respect of shares of common stock or ADSs generally will not be subject to any U.S. federal income or withholding tax, unless the Non-U.S. Holder conducts trade or business within the United States, and the distributions are effectively connected with that trade or business.
A
Subject to the discussion below on “Backup withholding and information reporting,” a Non-U.S. Holder generally will not be subject to U.S. federal income tax in respect of gain recognized on a sale or other disposition of shares of common stock or ADSs, unless the gain is effectively connected with a trade or business conducted by the Non-U.S. Holder within the United States, or the Non-U.S. Holder is an individual who was present in the United States for 183 or more days in the taxable year of the disposition and other conditions are met.
If an income tax treaty applies to a Non-U.S. Holder, it may require, as a condition for the Non-U.S. Holder to be subject to U.S. federal income taxation on dividends or capital gains that are effectively connected with trade or business conducted by a Non-U.S. Holder in the United States, that the dividends or capital gains be attributable to a permanent establishment or fixed base that the Non-U.S. Holder maintains in the United States.
Income that is effectively connected with a U.S. trade or business of a Non-U.S. Holder, and, if an income tax treaty applies and so requires, is attributable to a U.S. permanent establishment or fixed base of the Non-U.S. Holder, generally will be taxed in the same manner as the income of a U.S. Holder. In addition, however, under certain circumstances, any such effectively connected income that is realized by a corporate Non-U.S. Holder may be subject to an additional “branch profits tax” at the rate of 30% or at
75
a lower rate that may be prescribed by an applicable income tax treaty.
Backup withholding and information reporting In general, except in the case of certain exempt recipients (such as corporations) information reporting requirements will apply to dividends on shares of common stock or ADSs paid to U.S. Holders in the United States or through certain U.S. related financial intermediaries and to the proceeds received upon the sale, exchange or redemption of shares of common stock or ADSs by U.S. Holders within the United States or through certain U.S. related financial intermediaries. Furthermore, backup withholding currently at a rate of 28% may apply to those amounts if a U.S. Holder fails to provide an accurate tax
83
identification number or to report interest and dividends required to be shown on its U.S. federal income tax
returns. The amount of backup withholding imposed on a payment to a U.S. Holder will be allowed as a credit againstreturns or makes other appropriate certifications in the
holder’s U.S. federal income tax liability.required manner.
Dividends on shares of common stock or ADSs paid to Non-U.S. Holders and proceeds received upon the sale, exchange or redemption of shares of common stock or ADSs by
non-U.S.Non-U.S. Holders generally are exempt from information reporting and backup withholding. However, a
holderNon-U.S. Holder may be required to provide certification of non-U.S. status in order to obtain that exemption.
Persons required to establish their exempt status generally must provide such certification, under penalty of perjury, on IRS Form W-9, entitled Request for Taxpayer Identification Number and Certification, in the case of U.S. persons, and on IRS Form W-8BEN, entitled Certificate of Foreign Status (or other appropriate IRS Form W-8), in the case of non-U.S. persons. Backup withholding is not an additional tax. The amount of backup withholding imposed on a payment generally may be claimed as a credit against the holder’s U.S. federal income tax liability provided that the required information is properly furnished to the IRS.
THE SUMMARY OF U.S. FEDERAL INCOME AND JAPANESE TAX CONSEQUENCES SET OUT ABOVE IS INTENDED FOR GENERAL INFORMATION PURPOSES ONLY. INVESTORS IN THE COMMON STOCK OR ADSs ARE URGED TO CONSULT WITH THEIR OWN TAX ADVISORS WITH RESPECT TO THE PARTICULAR TAX CONSEQUENCES TO THEM OF OWNING OR DISPOSING OF COMMON STOCK OR ADSs, BASED ON THEIR PARTICULAR CIRCUMSTANCES.
F. Dividends and paying agents It is possible to read and copy documents referred to in this annual report on Form 20-F that have been filed with the SEC at the SEC’s public reference room located at
450 Fifth100 F Street,
NW,N.E., Washington, D.C. 20549. You can also access the documents at the SEC’s website (http://www.sec.gov/).
I. Subsidiary information Not applicable
84
Item 11. Quantitative and Qualitative Disclosures About Market Risk We operate internationally, giving rise to exposure to market risks from changes in foreign exchange rates and interest rates. In an effort to manage potential adverse effects caused by market fluctuations in foreign exchange rates and interest rates, we hedge these market risks by selectively using derivative financial instruments. However, we do not hedge all of our exposure, and the extent of hedge as well as type of hedging instruments to be used depends on factors including, but not limited to, type of risks exposed, market conditions and hedging cost. We do not hold or issue derivative financial instruments for trading purposes. To minimize credit risks from derivative financial instruments, we limit counterparties to reputable international financial institutions.
Marketable securities held by us are exposed to risk from changes in equity prices and consist entirely of available-for-sale securities. We do not take hedging measures against the market exposures on those securities.
76
To hedge certain purchase and sale commitments and anticipated but not yet committed transactions denominated in other than functional currencies, we enter into forward exchange contracts and
purchasepurchase- and
write currencywrite-currency options.
WrittenIn order to minimize the risk, written options are entered into only with purchased options.
The following table provides information about our derivative financial instruments related to foreign currency exchange transactions as of March 31,
2003 and 2002,2005, which have been translated into yen at the rate as of such date, together with the related weighted average contractual exchange rates at March 31,
2003 and 2002.2005. All of the contracts mature within one year.
The amount of forward exchange contract selling euro buying yenThere are no option contracts outstanding as of
Mach 31, 2003 increased compared with the amount at March 31,
2002, due to increased coverage against anticipated intercompany export transaction from Japan to Europe.2005.
March 31,
2003| | | | | | | | | | | | | | | | | | | | | | | | | |
| Forward exchange contract | | | | | | | | | | Millions of yen except average rates |
|
| | | Yen | | EUR | | A$ | | THB | | S$ | | | | |
| Functional currency | |
| |
| |
| |
| |
| | | | |
| Sell/Buy | | US$/Yen | | EUR/Yen | | A$/US$ | | THB/US$ | | US$/S$ | | Total |
| |
| |
| |
| |
| |
| |
|
| Contract amounts | | | ¥721 | | | | ¥4,674 | | | | ¥2,694 | | | | ¥46 | | | | ¥361 | | | | ¥8,496 | |
| Average contractual exchange rates | | | 120.97 | | | | 127.64 | | | | 0.5573 | | | | 42.851 | | | | 1.771 | | | | | |
| Fair value | | | ¥12 | | | | (¥58 | ) | | | (¥192 | ) | | | ¥0 | | | | ¥1 | | | | (¥237 | ) |
|
| | | | | | | | | | | | | |
| Currency option | | Millions of yen except average rates |
|
| | | Yen | | | | |
| Functional currency | |
| | | | |
| Sell/Buy | | EUR/Yen | | Yen/EUR | | Total |
| |
| |
| |
|
| Notional amount | | | ¥1,558 | | | | ¥1,558 | | | | ¥3,116 | |
| Average execution rates | | | 120.00 | | | | 0.00833 | | | | | |
| Fair value | | | ¥1 | | | | (¥8 | ) | | | (¥7 | ) |
|
Forward exchange contract
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Functional | | Yen | | | Yen | | | EUR | | | A$ | | | THB | | | THB | | | NT$ | | | Total | |
| currency | | US$/ | | | Yen/ | | | EUR/ | | | A$/ | | | THB/ | | | US$/ | | | US$/ | | | | | |
| Sell/Buy | | Yen | | | US$ | | | Yen | | | US$ | | | US$ | | | THB | | | NT$ | | | | | |
| | | |
| | | (In millions of yen except average rates) | |
| Contract amounts | | ¥ | 12,456 | | | ¥ | 490 | | | ¥ | 18,949 | | | ¥ | 1,440 | | | ¥ | 181 | | | ¥ | 1,063 | | | ¥ | 371 | | | ¥ | 34,950 | |
| average contractual exchange rates | | | 104.50 | | | | 102.00 | | | | 135.93 | | | | 0.7741 | | | | 39.1100 | | | | 38.9461 | | | | 31.2325 | | | | | |
| Fair value | | ¥ | (243 | ) | | ¥ | 23 | | | ¥ | (293 | ) | | ¥ | 16 | | | ¥ | 0 | | | ¥ | (5 | ) | | ¥ | (3 | ) | | ¥ | (505 | ) |
| |
85
March 31, 2002
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Forward exchange contract | | | | | | | | | | Millions of yen except average rates |
|
| | | Yen | | THB | | A$ | | S$ | | | | |
| Functional currency | |
| |
| |
| |
| | | | |
| Sell/Buy | | US$/Yen | | THB/US$ | | A$/Yen | | A$/US$ | | A$/GBP | | US$/S$ | | Total |
| |
| |
| |
| |
| |
| |
| |
|
| Contract amounts | | | ¥266 | | | | ¥149 | | | | ¥100 | | | | ¥1,395 | | | | ¥54 | | | | ¥1,067 | | | | ¥3,031 | |
| Average contractual exchange rates | | | 131.50 | | | | 43.407 | | | | 69.85 | | | | 0.5156 | | | | 0.3640 | | | | 1.829 | | | | | |
| Fair value | | | (¥1 | ) | | | ¥0 | | | | ¥1 | | | | (¥26 | ) | | | (¥1 | ) | | | (¥6 | ) | | | (¥33 | ) |
|
77
| | | | | | | | | | | | | |
| Currency option | | Millions of yen except average rates |
|
| | | Yen | | | | |
| Functional currency | |
| | | | |
| Sell/Buy | | EUR/Yen | | Yen/EUR | | Total |
| |
| |
| |
|
| Notional amount | | | ¥1,440 | | | | ¥1,440 | | | | ¥2,880 | |
| Average execution rates | | | 110.00 | | | | 0.00909 | | | | | |
| Fair value | | | ¥2 | | | | (¥10 | ) | | | (¥8 | ) |
|
To change the currency and interest rate features of intercompany finance transactions, we have entered into currency swap contracts with banks. Currency swap contracts effectively changed, in substance, U.S. dollars floating interest rate intercompany borrowings into yen fixed interest rate borrowings and Euro floating interest rate borrowings. The
contract amounts decreased during the year ended March 31, 2003, reflecting decreased intercompany borrowing balances. The foreign exchange risk inherent in our currency swap as of March 31,
2003 and 20022005 are summarized as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Currency swap as of March 31, 2003 | | | | | | | | | | | | | | | | | | Millions except average rates |
|
| | | | | | | | | | | Expected maturity date | | | | |
| | | Contract amounts | | (year ending March 31) | | | | |
| | |
| |
| | | | |
| | | Sell | | Buy | | 2004 | | 2005 | | 2006 | | Total | | Fair value |
|
| Functional currency: Yen | | | ¥24,860 | | | US$200 | | | ¥6,195 | | | | | | | | ¥18,665 | | | | ¥24,860 | | | | (¥586 | ) |
| | Average contractual exchange rate | | | | | | | | | | | 123.90 | | | | | | | | 124.43 | | | | | | | | | |
| Functional currency: Euro | | EUR57 | | US$50 | | | ¥7,395 | | | | | | | | | | | | ¥7,395 | | | | (¥1,490 | ) |
| | Average contractual exchange rate | | | | | | | | | | | 0.88 | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Currency swap as of March 31, 2002 | | | | | | | | | | | | | | Millions except average rates |
|
| | | | | | | | | | | Expected maturity date | | | | |
| | | Contract amounts | | (year ending March 31) | | | | |
| | |
| |
| | | | |
| | | Sell | | Buy | | 2003 | | 2004 | | 2005 | | Total | | Fair value |
|
| Functional currency: Yen | | | ¥24,678 | | | US$200 | | | ¥5,893 | | | | ¥6,195 | | | | ¥12,590 | | | | ¥24,678 | | | | ¥2,048 | |
| | Average contractual exchange rate | | | | | | | | | | | 117.85 | | | | 123.90 | | | | 125.90 | | | | | | | | | | |
| Functional currency: Euro | | EUR116 | | US$100 | | | ¥13,487 | | | | | | | | | | | | ¥13,487 | | | | (¥222 | ) |
| | Average contractual exchange rate | | | | | | | | | | | 0.86 | | | | | | | | | | | | | | | | | |
| Functional currency: Singapore dollar | | | S$65 | | | US$36 | | | ¥4,717 | | | | | | | | | | | | ¥4,717 | | | | ¥20 | |
| | Average contractual exchange rate | | | | | | | | | | | 1.84 | | | | | | | | | | | | | | | | | |
|
Currency swap as of March 31, 2005
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | Expected maturity date | | | | |
| | | Contract amounts | | | | (year ending March 31) | | | | |
| | | Buy | | | Sell | | | 2006 | | | 2007 | | | 2008 | | | Total | | | Fair value | |
| |
| | | (In millions except average rates) | |
| Functional currency: Yen | | ¥ | 24,540 | | | | US$200 | | | ¥ | 18,665 | | | ¥ | 5,875 | | | | | | | ¥ | 24,540 | | | ¥ | (3,009 | ) |
| Average contractual exchange rate | | | | | | | | | | | 124.43 | | | | 117.50 | | | | | | | | | | | | | |
| Functional currency: Euro | | | EUR76 | | | | US$100 | | | ¥ | 10,506 | | | | | | | | | | | ¥ | 10,506 | | | ¥ | 189 | |
| Average contractual exchange rate | | | | | | | | | | | 1.3218 | | | | | | | | | | | | | | | | | |
| Functional currency: Euro | | | EUR3 | | | | GBP2 | | | ¥ | 443 | | | | | | | | | | | | 443 | | | ¥ | 1 | |
| Average contractual exchange rate | | | | | | | | | | | 0.6901 | | | | | | | | | | | | | | | | | |
| |
With respect to interest rate risk inherent in our currency swaps as of March 31,
2003 and 2002,2005, see “
Interest rate risk” below.
78
Interest rate riskInterest
The following table provides information about interest rate risk inherent in the aforementioned currency swaps as of March 31,
2003 and 20022005. Variable interest rates are
summarizeddetermined using formulas such as
follows:LIBOR+a| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Currency swap as of March 31, 2003 | | | | | | | | | | | | | | | | | | Millions except average rates |
|
| | | | | | | | | | | | | Expected maturity date | | | | |
| | | | | Contract amounts | | (year ending March 31) | | | | |
| | | | |
| |
| | | | |
| | | | | Sell | | Buy | | 2004 | | 2005 | | 2006 | | Total | | Fair value |
|
| Functional currency: Yen | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Variable (US$) to Fixed (Yen) | | | ¥24,860 | | | US$200 | | | ¥6,195 | | | | | | | | ¥18,665 | | | | ¥24,860 | | | | (¥586 | ) |
| | | Average pay rate | | | | | | | | | | | 0.14 | % | | | | | | | 0.06 | % | | | | | | | | |
| | | Average receive rate | | | | | | | | | | | 1.34 | % | | | | | | | 2.13 | % | | | | | | | | |
| Functional currency: Euro | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Variable (US$) to Variable (Euro) | | EUR57 | | US$50 | | | ¥7,395 | | | | | | | | | | | | ¥7,395 | | | | (¥1,490 | ) |
| | | Average pay rate | | | | | | | | | | | 3.94 | % | | | | | | | | | | | | | | | | |
| | | Average receive rate | | | | | | | | | | | 1.38 | % | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Currency swap as of March 31, 2002 | | | | | | | | | | | | | | | | | | Millions except average rates |
|
| | | | | | | | | | | | | Expected maturity date | | | | |
| | | | | Contract amounts | | (year ending March 31) | | | | |
| | | | |
| |
| | | | |
| | | | | Sell | | Buy | | 2003 | | 2004 | | 2005 | | Total | | Fair value |
|
| Functional currency: Yen | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Variable (US$) to Fixed (Yen) | | | ¥24,678 | | | US$200 | | | ¥5,893 | | | | ¥6,195 | | | | ¥12,590 | | | | ¥24,678 | | | | ¥2,048 | |
| | | Average pay rate | | | | | | | | | | | 0.43 | % | | | 0.14 | % | | | 0.41 | % | | | | | | | | |
| | | Average receive rate | | | | | | | | | | | 2.02 | % | | | 1.91 | % | | | 2.53 | % | | | | | | | | |
| Functional currency: Euro | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Variable (US$) to Variable (Euro) | | EUR116 | | US$100 | | | ¥13,487 | | | | | | | | | | | | ¥13,487 | | | | (¥222 | ) |
| | | Average pay rate | | | | | | | | | | | 3.85 | % | | | | | | | | | | | | | | | | |
| | | Average receive rate | | | | | | | | | | | 1.89 | % | | | | | | | | | | | | | | | | |
| Functional currency: Euro | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Variable (US$) to Fixed (S$) | | | S$65 | | | US$36 | | | ¥4,717 | | | | | | | | | | | | ¥4,717 | | | | ¥20 | |
| | | Average pay rate | | | | | | | | | | | 1.14 | % | | | | | | | | | | | | | | | | |
| | | Average receive rate | | | | | | | | | | | 1.95 | % | | | | | | | | | | | | | | | | |
|
Currency swap as of March 31, 2005
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | Expected maturity date | | | |
| | | Contract amounts | | | | (year ending March 31) | | | |
| | | Buy | | | Sell | | | 2006 | | | 2007 | | | 2008 | | | Total | | | Fair value | |
| |
| | | (In millions except average rates) | |
| Functional currency: Yen | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Variable (US$) to Fixed (Yen) | | ¥ | 12,590 | | | | US$100 | | | ¥ | 12,590 | | | | | | | | | | | ¥ | 12,590 | | | ¥ | (1,761 | ) |
| Average pay rate | | | | | | | | | | | 0.41 | % | | | | | | | | | | | | | | | | |
| Average receive rate | | | | | | | | | | | 2.17 | % | | | | | | | | | | | | | | | | |
| Fixed (US$) to Fixed (Yen) | | ¥ | 11,950 | | | | US$100 | | | ¥ | 6,075 | | | ¥ | 5,875 | | | | | | | ¥ | 11,950 | | | ¥ | (1,248 | ) |
| Average pay rate | | | | | | | | | | | (0.65 | )% | | | (1.35 | )% | | | | | | | | | | | | |
| Average receive rate | | | | | | | | | | | 2.88 | % | | | 1.21 | % | | | | | | | | | | | | |
| Functional currency: Euro | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Variable (US$) to Fixed (Euro) | | | EUR76 | | | | US$100 | | | ¥ | 10,506 | | | | | | | | | | | ¥ | 10,506 | | | ¥ | 189 | |
| Average pay rate | | | | | | | | | | | 2.22 | % | | | | | | | | | | | | | | | | |
| Average receive rate | | | | | | | | | | | 2.96 | % | | | | | | | | | | | | | | | | |
| Functional currency: Euro | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Fixed (GBP) to Fixed (Euro) | | | EUR3 | | | | GBP2 | | | ¥ | 443 | | | | | | | | | | | ¥ | 443 | | | ¥ | 1 | |
| Average pay rate | | | | | | | | | | | 2.20 | % | | | | | | | | | | | | | | | | |
| Average receive rate | | | | | | | | | | | 4.61 | % | | | | | | | | | | | | | | | | |
| |
86
79
PrincipalThe following table provides information about principal cash flows by expected maturity dates, weighted average interest rates, and fair value of our debt obligations as of March 31, 2003 and 2002 are2005. The interest rate on the variable rate debt is determined based on prevailing market rates for tax-exempt municipal bonds in the U.S.
Long-term debt (including due within one year) as
follows:| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Long-term debt (including due within one year) as of March 31, 2003 | | | | | | | | | | Millions of yen except average rates |
|
| | | | | | | | | | Expected maturity date (year ending March 31) | | | | |
| | | | | | Functional | |
| | | | |
| | | | | | Currency | | 2004 | | 2005 | | 2006 | | 2007 | | 2008 | | Thereafter | | Total | | Fair value |
|
| Fixed rate (Yen) | | Yen | | | ¥973 | | | | 4,513 | | | | 15,318 | | | | 251 | | | | 244 | | | | 11,228 | | | | ¥32,527 | | | | ¥34,087 | |
| | Average interest rate | | | | | | | 2.48 | % | | | 3.87 | % | | | 2.37 | % | | | 3.74 | % | | | 3.80 | % | | | 2.91 | % | | | 2.79 | % | | | | |
| Variable rate (US$) | | US$ | | | | | | | | | | | 601 | | | | | | | | | | | | | | | | 601 | | | | 601 | |
| | Average interest rate | | | | | | | | | | | | | | | 1.59 | % | | | | | | | | | | | | | | | 1.59 | % | | | | |
| Variable rate (EUR) | | EUR | | | | | | | 7 | | | | 7 | | | | 7 | | | | 6 | | | | 12 | | | | 39 | | | | 39 | |
| | | Average interest | | | | | | | | | | | 3.52 | % | | | 3.52 | % | | | 3.52 | % | | | 3.52 | % | | | 3.52 | % | | | 3.52 | % | | | | |
|
| | | | Total | | | | | | | ¥973 | | | | 4,520 | | | | 15,926 | | | | 258 | | | | 250 | | | | 11,240 | | | | ¥33,167 | | | | ¥34,727 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Long-term debt (including due within one year) as of March 31, 2002 | | | | | | | | | | | | | Millions of yen except average rates |
|
| | | | | | | | | Expected maturity date (year ending March 31) | | | | |
| | | | | Functional | |
| | | | |
| | | | | Currency | | 2003 | | 2004 | | 2005 | | 2006 | | 2007 | | Thereafter | | Total | | Fair value |
|
| Fixed rate (Yen) | | Yen | | | ¥2,446 | | | | 1,591 | | | | 5,831 | | | | 15,326 | | | | 256 | | | | 12,007 | | | | ¥37,457 | | | | ¥38,254 | |
| | Average interest rate | | | | | | | 2.17 | % | | | 3.06 | % | | | 3.89 | % | | | 2.38 | % | | | 3.80 | % | | | 2.97 | % | | | 2.83 | % | | | | |
| Variable rate (US$) | | US$ | | | | | | | | | | | | | | | 666 | | | | | | | | | | | | 666 | | | | 666 | |
| | Average interest rate | | | | | | | | | | | | | | | | | | | 2.41 | % | | | | | | | | | | | 2.41 | % | | | | |
| Interest free loan (PTE) | | PTE | | | 43 | | | | | | | | | | | | | | | | | | | | | | | | 43 | | | | 43 | |
|
| | | Total | | | | | | | ¥2,489 | | | | 1,591 | | | | 5,831 | | | | 15,992 | | | | 256 | | | | 12,007 | | | | ¥38,166 | | | | ¥38,963 | |
|
of March 31, 2005
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Functional | | | Expected maturity date (year ending March 31) | | | | |
| | | Currency | | | 2006 | | | 2007 | | | 2008 | | | 2009 | | | 2010 | | | Thereafter | | | Total | | | Fair value | |
| |
| | | (In millions of yen except average rates) | |
| Fixed rate (Yen) | | Yen | | ¥ | 15,294 | | | | 244 | | | | 244 | | | | 10,244 | | | | 244 | | | | 62,519 | | | ¥ | 88,789 | | | ¥ | 83,724 | |
| Average interest rate | | | | | | | 2.36 | % | | | 2.90 | % | | | 2.90 | % | | | 2.80 | % | | | 2.90 | % | | | 0.03 | % | | | 0.78 | % | | | | |
| Variable rate (US$) | | US$ | | | 537 | | | | | | | | | | | | | | | | | | | | | | | | 537 | | | | 537 | |
| Average interest rate | | | | | | | 1.70 | % | | | | | | | | | | | | | | | | | | | | | | | 1.70 | % | | | | |
| Interest free loan (EUR) | | EUR | | | 4 | | | | 7 | | | | 7 | | | | 22 | | | | | | | | | | | | 40 | | | | 40 | |
| |
| Total | | | | | | ¥ | 15,835 | | | | 251 | | | | 251 | | | | 10,266 | | | | 244 | | | | 62,519 | | | ¥ | 89,366 | | | ¥ | 84,301 | |
| |
Market price risks on available-for-sale securities We do not own any marketable securities for trading purposes. Our equity investment portfolio consists almost entirely of securities issued by Japanese companies. The following table sets forth maturity dates and cost and fair values of debt securities in our investment portfolio, and the cost and fair values of equity securities therein, at March 31,
2003 and 2002.| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | Millions of yen |
|
| | | | 2003 | | 2002 |
| | | |
| |
|
| | | | Cost | | Fair value | | Cost | | Fair value |
| | | |
| |
| |
| |
|
| Debt securities (by contractual maturities) | | | | | | | | | | | | | | | | |
| | Maturing within one year | | | — | | | | — | | | | ¥3,485 | | | | ¥3,447 | |
| | Maturing over one year | | | ¥85 | | | | ¥71 | | | | 111 | | | | 78 | |
| Equity securities | | | ¥6,636 | | | | ¥14,760 | | | | ¥7,973 | | | | ¥18,290 | |
|
| | | | | | | | | |
| | | 2005 | |
| | | Cost | | | Fair value | |
| | | (In millions of yen) | |
| Debt securities (by contractual maturities) | | | | | | | | |
| Maturing over one year | | ¥ | 94 | | | ¥ | 98 | |
| Equity securities | | ¥ | 5,734 | | | ¥ | 22,170 | |
| |
Item 12. Description of Securities Other than Equity Securities Not applicable
87
80
PART II
PART II
Item 13. Defaults, Dividend Arrearages and Delinquencies None
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds Not applicable
Item 15. Controls and Procedures(a) | | Within 90 days prior to the date of this annual report, we performed an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures.Pioneer performed an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures as of the end of the fiscal 2005. Disclosure controls and procedures are designed to ensure that the material financial and non-financial information required to be disclosed in the reports that Pioneer files under the Exchange Act is accumulated and communicated to its management including the chief executive officer and the principal accounting and financial officer to allow timely decisions regarding required disclosure. The disclosure controls and procedures also ensures that the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms. The evaluation was performed under the supervision of Kaneo Ito, Pioneer’s Chief Executive Officer and Tamihiko Sudo, Pioneer’s Chief Financial Officer. Pioneer’s disclosure and controls and procedures are designed to provide reasonable assurance of achieving its objectives. Managerial judgment was necessary to evaluate the cost-benefit relationship of possible controls and procedures. Mr. Ito and Mr. Sudo have concluded that Pioneer’s disclosure controls and procedures are effective at the reasonable assurance level. There have been no changes in Pioneer internal control over financial reporting during fiscal period ended March 31, 2005 that have materially affected, or are reasonably likely to materially affect, Pioneer’s internal control over financial reporting. 88
Item 16. [Reserved] Item 16A. Audit Committee Financial Expert Pioneer maintains a corporate auditor system, in accordance with the Japanese Commercial Code (the “Code”) and the Law concerning Exceptional Measures to the Commercial Code with respect to Auditing, etc. of Joint Stock Corporations (the “Special Exception Law”). Pioneer’s Board of Corporate Auditors is comprised of five Corporate Auditors, three of whom are outside Corporate Auditors. Each Corporate Auditor has been appointed at its shareholders’ meetings and has certain statutory powers under the Code and the Special Exception Law, including auditing the business affairs and accounts of Pioneer. Pioneer’s Board of Corporate Auditors has determined that it does not have an audit committee financial expert serving on the Board of Corporate Auditors. The qualifications for, and powers of, the Corporate Auditor specified in the Code and the Special Exception Law are different from those anticipated for audit committee financial expert. Corporate Auditors have the authority to be given reports from a certified public accountant or an accounting firm concerning audits, including technical accounting matters. At the same time, each Corporate Auditor has the authority to consult internal and external experts on accounting matters. Pioneer’s Board of Corporate Auditors has confirmed that each Corporate Auditor should fulfill the requirements under Japanese laws and regulations and otherwise follow Japanese corporate governance practices. In addition, its Board of Corporate Auditors has a former General Manager of Accounting Division of Pioneer, Mr. Makoto Koshiba, as a full time Corporate Auditor, and a certified public accountant of Japan, Mr. Isao Moriya, as an outside Corporate Auditor. Accordingly, it is not necessarily fundamental for Pioneer to nominate as Corporate Auditor a person who meets the definition of audit committee financial experts. Although Pioneer does not have an audit committee financial expert on its Board of Corporate Auditors, Pioneer believes that Pioneer’s current corporate governance system, taken as a whole, including the Corporate Auditors’ ability to consult internal and external experts, is functionally equivalent to a system having an audit committee financial expert on its Board of Corporate Auditors. Item 16B. Code of Ethics We have adopted the Pioneer Group Code of Conduct (the “Code of Conduct”) for all officers and employees of the Pioneer Group. The Code of Conduct is publicly available on our website at www.pioneer.co.jp. If we make any substantive amendments to the Code of Conduct or grant any waivers, including any implicit waiver, from a provision of this code to our chief executive officer, principal financial officer or corporate controller, we will disclose the nature of such amendment or waiver on our website. 89
Item 16C. Principal Accountant Fees and Services Aggregate fees billed to the Company for the fiscal years ended March 31, 2004 and 2005 by our principal accounting firm, Deloitte Touche Tohmatsu (a Japanese member firm of Deloitte Touche Tohmatsu, Swiss Verein), the other member firms of Deloitte Touche Tohmatsu (Swiss Verein), and their respective affiliates (collectively, “Deloitte Touche Tohmatsu”), were as follows. | | | | | | | | | | | | | Year ended March 31 | | | | | 2004 | | | 2005 | | | | | (In millions of yen) | | | Audit Fees (1) | | ¥ | 339 | | | ¥ | 343 | | | Audit-Related Fees (2) | | | 42 | | | | 48 | | | Tax Fees (3) | | | 43 | | | | 58 | | | All Other Fees (4) | | | 7 | | | | 42 | | | | | | | | | | | Total | | ¥ | 431 | | | ¥ | 491 | | | | | | | | | |
| (1) | | Includes fees for the audit of our annual financial statements included in our Form 20-F and filedfor services provided in connection with the Securitiesstatutory and Exchange Commission is recorded, processed, summarizedregulatory filings or engagements. This also includes fees billed for issuance of comfort letters and reported in a timely manner. The evaluation was performed under the supervision of Kaneo Ito, Pioneer’s Chief Executive Officer, and Katsuhiro Abe, Pioneer’s Chief Financial Officer. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable, rather than absolute, assurance of achieving the desired control objectives. Managerial judgment was necessary to evaluate the cost-benefit relationship of possible controls and procedures. Based on the foregoing, Pioneer’s Chief Executive Officer and Chief Financial Officer have concluded that Pioneer’s disclosure controls and procedures were effective.consent letters. | | | (b)(2) | | There have been no significant changesIncludes fees for assurance and related services that are performed by the independent accountant which include employee benefit plan audits, accounting consultations and audits in Pioneer’sconnection with internal controlscontrol reviews, attest services that are not required by statute or regulation and consultation concerning financial accounting and reporting standards. | | | (3) | | Includes fees for services related to tax compliance, including the preparation of tax returns and claims for refund, tax planning and tax advice. | | | (4) | | Includes fees for other than the services reported in paragraphs (1) through (3). All other factors that could significantly affect internal controls subsequentfees for fiscal 2005 include consulting services relating to the date of our most recent evaluation of such internal controls. Therefore, no corrective actions were taken.compliance control. |
Policy and procedures of the Board of Corporate Auditors for pre-approval In accordance with the regulations of the SEC, the Board of Corporate Auditors has adopted the policy and procedures for the pre-approval regarding the engagements of the independent audit firm and its affiliates (the “auditor”). The following is a summary of the policy and procedures. All audit and permissible non-audit services provided by the auditor to Pioneer and its consolidated subsidiaries must be pre-approved by the Board of Corporate Auditors, prior to the engagement of the auditor. In the case that pre-approvals are requested, the description of the services including types of the service, periods of the service, and estimated fees, must be submitted to the Board of Corporate Auditors. Our pre-approval procedures have two different forms, “Comprehensive pre-approval” and “Individual pre-approval.” Under the “Comprehensive pre-approval” procedure, all audit and permissible non-audit services scheduled for the following fiscal year are pre-approved by resolution of the Board of Corporate Auditors meeting. All audit and permissible non-audit services regarding the specific projects which are not included in the “Comprehensive pre-approval” must be subject to the “Individual pre-approval.” For the purpose of providing such pre-approval in a timely manner, the Board of Corporate Auditors may delegate “Individual pre-approval” authority to full time Corporate Auditors. Full-time Corporate Auditors shall report any “Individual pre-approval” decisions to the Board of Corporate Auditors meeting to be held immediately after such pre-approval. 90 Item 16. [Reserved]
81
None of the services provided by the auditor in fiscal 2004 and 2005 were waived from the pre-approval requirement pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X. PART III
Item 16D. Exemptions from the Listing Standards for Audit Committees Not applicable Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers The following table sets forth the information with respect to any purchase made by Pioneer of its common stock during fiscal 2005 ended March 31, 2005. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (c) Total Number | | | (d) Maximum Number | | | | | | | | | | | | | of Shares Purchased | | | of Shares that | | | | | (a) Total | | | (b) Average | | | as Part of Publicly | | | May Yet Be | | | | | Number of | | | Price Paid | | | Announced | | | Purchased Under the | | | Period | | Shares Purchased | | | per Share | | | Plans or Programs | | | Plans or Programs | | | April 1 to April 30, 2004 | | | 649 | | | ¥ | 3,158.43 | | | | — | | | | — | | | May 1 to May 31, 2004 | | | 302 | | | ¥ | 2,824.09 | | | | — | | | | — | | | June 1 to June 30, 2004 | | | 162 | | | ¥ | 2,761.36 | | | | — | | | | — | | | July 1 to July��31, 2004 | | | 598 | | | ¥ | 2,660.23 | | | | — | | | | — | | | August 1 to August 31, 2004 | | | 315 | | | ¥ | 2,369.78 | | | | — | | | | — | | | September 1 to September 30, 2004 | | | 544 | | | ¥ | 2,373.78 | | | | — | | | | — | | | October 1 to October 31, 2004 | | | 683 | | | ¥ | 2,252.31 | | | | — | | | | — | | | November 1 to November 30, 2004 | | | 741 | | | ¥ | 1,953.67 | | | | — | | | | — | | | December 1 to December 31, 2004 | | | 1,533 | | | ¥ | 1,958.55 | | | | — | | | | — | | | January 1 to January 31, 2005 | | | 509 | | | ¥ | 1,999.15 | | | | — | | | | — | | | February 1 to February 28, 2005 | | | 479 | | | ¥ | 1,880.48 | | | | — | | | | — | | | March 1 to March 31, 2005 | | | 1,000,580 | | | ¥ | 1,963.14 | | | | 1,000,000 | | | | 0 | | | | | | | | | | | | | | | | | Total | | | 1,007,095 | | | ¥ | 1,965.22 | | | | 1,000,000 | | | | | |
| Notes: | 1. | A holder of shares constituting less than one unit may require Pioneer to purchase such shares at their market value in accordance with the provision of the Share Handling Regulations of Pioneer, under the Commercial Code of Japan. All shares other than purchases publicly announced were made by such requests. | | | 2. | On March 11, 2005, share repurchase approved by the Board of Directors pursuant to the Articles of Incorporation of Pioneer was announced publicly. | | | | Total number of shares approved to be purchased was up to 1,000,000 shares of common stock. | | | | Period during which shares may be purchased was from March 14, 2005 to May 11, 2005. Pioneer finished the purchase on March 23, 2005 prior to expiration. |
91
PART III Item 17. Financial Statements See Consolidated Financial Statements. Reference is made to Item 19 for a list of all financial statements filed as part of this annual report.
Item 18. Financial Statements We have responded to Item 17 in lieu of responding to this Item.
Item 19. Exhibits
| | | | | | | | | Page | | |
| Consolidated financial statements | | | | | | | | | | | Index to Consolidated Financial Statements | | | F-1 | | Report of Independent Auditors’ ReportRegistered Public Accounting Firm | | | F-2 | | Consolidated Balance Sheets as of March 31, 20022004 and 20032005 | | | F-3 | | Consolidated Statements of IncomeOperations for the years ended March 31, 2001, 20022003, 2004 and 20032005 | | | F-5 | | Consolidated Statements of Shareholders’ Equity for the years ended March 31, 2001, 20022003, 2004 and 20032005 | | | F-6 | | Consolidated Statements of Cash Flows for the years ended March 31, 2001, 20022003, 2004 and 20032005 | | | F-7 | | | Notes to Consolidated Financial Statements | | | F-8 | |
Exhibits | | | | | | 1.01 | | The Articles | Regulations of Incorporation,the Board of Directors, as amended and currently in effect (English translation) | | | | | | | 2(a).01 | 1.02 | | | Regulations of the Board of Corporate Auditors, as amended and currently in effect (English translation) | | | | | | | 2.01 | | | Share Handling Regulations, as amended and currently in effect (English translation) | | | | | | | 99.1 | 12.01 | | | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | | | | | | | 12.02 | | | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | | | | | | | 13.01 | | | Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 Certificationof the Sarbanes-Oxley Act of 2002 |
92 82
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf. | | | | | | PIONEER CORPORATION | | | (Registrant)
| | | Date: September 8, 2005 | By | /s/ Tamihiko Sudo | | | | Tamihiko Sudo | | | | Chief Financial Officer | | |
93
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS | | | | | | | | | | | PIONEER CORPORATION | | | | |
| | | | | (Registrant) | | | | Page | | | | | | | Date: August 6, 2003 | | By | | /s/ Katsuhiro Abe | | | | |
| | | | | Katsuhiro Abe
Chief Financial Officer |
83
CERTIFICATIONS
I, Kaneo Ito, certify that:
1. | | I have reviewed this annual report on Form 20-F of Pioneer Corporation; | | 2. | | Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; | | 3. | | Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; | | 4. | | The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: |
| a. | | designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; | | | b. | | evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and | | | c. | | presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; |
5. | | The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function): |
| a. | | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and | | | b. | | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and |
6. | | The registrant’s other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. |
| | | Date: August 6, 2003 | | /s/ Kaneo Ito | | |
| | | Kaneo Ito
Chief Executive Officer
Pioneer Corporation |
84
CERTIFICATIONS
I, Katsuhiro Abe, certify that:
1. | | I have reviewed this annual report on Form 20-F of Pioneer Corporation; | | 2. | | Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; | | 3. | | Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; | | 4. | | The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: |
| a. | | designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; | | | b. | | evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and | | | c. | | presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; |
5. | | The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function): |
| a. | | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and | | | b. | | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and |
6. | | The registrant’s other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. |
| | | Date: August 6, 2003 | | /s/ Katsuhiro Abe | | |
| | | Katsuhiro Abe
Chief Financial Officer
Pioneer Corporation |
85
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
| | | | | | | Page | | |
| Consolidated financial statements | | | | | | | | | | | Report of Independent Auditors’ ReportRegistered Public Accounting Firm | | | F-2 | | Consolidated Balance Sheets as of March 31, 20022004 and 20032005 | | | F-3 | | Consolidated Statements of IncomeOperations for the years ended March 31, 2001, 20022003, 2004 and 20032005 | | | F-5 | | Consolidated Statements of Shareholders’ Equity for the years ended March 31, 2001, 20022003, 2004 and 20032005 | | | F-6 | | Consolidated Statements of Cash Flows for the years ended March 31, 2001, 20022003, 2004 and 20032005 | | | F-7 | | | Notes to Consolidated Financial Statements | | | F-8 | |
F-1
Report of Independent Auditors’ ReportRegistered Public Accounting Firm To the Board of Directors and Shareholders of Pioneer Corporation: We have audited the accompanying consolidated balance sheets of Pioneer Corporation and subsidiaries as of March 31, 20022004 and 2003,2005, and the related consolidated statements of income,operations, shareholders’ equity, and cash flows for each of the three years in the period ended March 31, 20032005 (all expressed in Japanese yen). These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditingthe standards generally accepted inof the United States of America.Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includesstatements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. The accompanying consolidated financial statements do not present segment information concerning the Company’s operations which, in our opinion, is required for a complete presentation of the Company’s consolidated financial statements in accordance with accounting principles generally accepted in the United States of America. In our opinion, except for the omission of segment information disclosures, such consolidated financial statements present fairly, in all material respects, the financial position of Pioneer Corporation and subsidiaries as of March 31, 20022004 and 2003,2005, and the results of their operations and their cash flows for each of the three years in the period ended March 31, 20032005, in conformity with accounting principles generally accepted in the United States of America. Our audits also comprehended the translation of Japanese yen amounts into U.S. dollar amounts and, in our opinion, such translation has been made in conformity with the basis stated in Note 1. Such U.S. dollar amounts are presented solely for the convenience of readers outside Japan. | | | | /s/ Deloitte Touche Tohmatsu
| | | | | | Deloitte Touche Tohmatsu
Tokyo, Japan | | |
June 9, 2003, except for Note 21, as to which the date is July 17, 2003
May 6, 2005 F-2
Consolidated Balance Sheets
Pioneer Corporation and Subsidiaries
March 31 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Thousands of
U.S. Dollars | | | | | | | | Millions of Yen | | | (Note 1) | | | | | | | |
| | |
| | | Assets | | 2002 | | | 2003 | | | 2003 | |
| Current assets: | | | | | | | | | | | | | | | Cash and cash equivalents— | | | | | | | | | | | | | | | | | Cash, including time deposits of ¥44,413 million— $370,108 thousand (¥55,915 million in 2002) | | ¥ | 127,113 | | | ¥ | 142,480 | | | $ | 1,187,333 | | | | Available-for-sale securities (Note 3) | | | 3,455 | | | | – | | | | – | | | | Trade receivables— | | | | | | | | | | | | | | | | Notes | | | 10,240 | | | | 5,252 | | | | 43,766 | | | | | Accounts | | | 120,456 | | | | 113,135 | | | | 942,792 | | | | | Allowance for doubtful notes and accounts (Note 18) | | | (5,133 | ) | | | (4,519 | ) | | | (37,658 | ) | | | Inventories (Note 4) | | | 96,910 | | | | 93,620 | | | | 780,167 | | | | Deferred income taxes (Note 9) | | | 26,270 | | | | 29,958 | | | | 249,650 | | | | Prepaid expenses and other current assets | | | 32,509 | | | | 36,056 | | | | 300,467 | |
| | | | | Total current assets | | | 411,820 | | | | 415,982 | | | | 3,466,517 | |
| Investments and long-term receivables: | | | | | | | | | | | | | | | Available-for-sale securities (Note 3) | | | 18,360 | | | | 14,831 | | | | 123,592 | | | | Investments in and advances to affiliated companies (Note 5) | | | 11,067 | | | | 7,841 | | | | 65,342 | | | | Sundry investments (Note 16) | | | 3,203 | | | | 2,907 | | | | 24,225 | | | | Long-term receivables, less allowance for doubtful accounts of ¥112 million—$934 thousand (¥186 million in 2002) (Note 18) | | | 374 | | | | 292 | | | | 2,433 | |
| | | | | Total investments and long-term receivables | | | 33,004 | | | | 25,871 | | | | 215,592 | |
| Property, plant and equipment (Note 7): | | | | | | | | | | | | | | | Land | | | 26,525 | | | | 25,548 | | | | 212,900 | | | | Buildings | | | 110,869 | | | | 107,309 | | | | 894,242 | | | | Machinery and equipment | | | 242,600 | | | | 237,086 | | | | 1,975,716 | | | | Construction in progress | | | 2,163 | | | | 6,132 | | | | 51,100 | |
| | | | | Total | | | 382,157 | | | | 376,075 | | | | 3,133,958 | | | | Accumulated depreciation | | | (231,397 | ) | | | (230,376 | ) | | | (1,919,800 | ) |
| | | | | Net property, plant and equipment | | | 150,760 | | | | 145,699 | | | | 1,214,158 | |
| Other assets: | | | | | | | | | | | | | | | Intangible assets (Note 6) | | | 15,561 | | | | 15,619 | | | | 130,158 | | | | Deferred income taxes (Note 9) | | | 25,151 | | | | 35,734 | | | | 297,783 | | | | Other | | | 8,833 | | | | 8,124 | | | | 67,700 | |
| | | | | Total other assets | | | 49,545 | | | | 59,477 | | | | 495,641 | |
| | | | | Total assets | | ¥ | 645,129 | | | ¥ | 647,029 | | | $ | 5,391,908 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | Thousands of | | | | | | | | | | | | | U.S. Dollars | | | | | Millions of Yen | | | (Note 1) | | | Assets | | 2004 | | | 2005 | | | 2005 | | | | Current assets: | | | | | | | | | | | | | | Cash and cash equivalents— | | | | | | | | | | | | | | Cash, including time deposits of ¥52,275 million—$488,551 thousand (¥88,425 million in 2004) | | ¥ | 192,419 | | | ¥ | 116,681 | | | $ | 1,090,477 | | | Trade receivables— | | | | | | | | | | | | | | Notes | | | 2,988 | | | | 2,516 | | | | 23,514 | | | Accounts | | | 112,411 | | | | 132,110 | | | | 1,234,673 | | | Allowance for doubtful notes and accounts (Note 20) | | | (3,344 | ) | | | (2,450 | ) | | | (22,897 | ) | | Inventories (Note 6) | | | 107,806 | | | | 109,015 | | | | 1,018,831 | | | Deferred income taxes (Note 11) | | | 28,886 | | | | 25,519 | | | | 238,495 | | | Prepaid expenses and other current assets | | | 38,622 | | | | 43,505 | | | | 406,589 | | | | | Total current assets | | | 479,788 | | | | 426,896 | | | | 3,989,682 | | | | | | | | | | | | | | | | | | Investments and long-term receivables: | | | | | | | | | | | | | | Available-for-sale securities (Note 5) | | | 24,516 | | | | 22,268 | | | | 208,112 | | | Investments in and advances to affiliated companies (Note 7) | | | 5,573 | | | | 2,987 | | | | 27,916 | | | Sundry investments (Notes 5 and 18) | | | 3,383 | | | | 3,388 | | | | 31,664 | | | Long-term receivables, less allowance for doubtful accounts of ¥160 million—$1,495 thousand (¥190 million in 2004) (Note 20) | | | 253 | | | | 185 | | | | 1,729 | | | | | Total investments and long-term receivables | | | 33,725 | | | | 28,828 | | | | 269,421 | | | | | | | | | | | | | | | | | | Property, plant and equipment(Note 9): | | | | | | | | | | | | | | Land | | | 25,050 | | | | 32,965 | | | | 308,084 | | | Buildings | | | 113,863 | | | | 136,372 | | | | 1,274,505 | | | Machinery and equipment | | | 239,081 | | | | 293,359 | | | | 2,741,673 | | | Construction in progress | | | 7,568 | | | | 1,056 | | | | 9,869 | | | | | Total | | | 385,562 | | | | 463,752 | | | | 4,334,131 | | | Accumulated depreciation | | | (229,361 | ) | | | (253,607 | ) | | | (2,370,159 | ) | | | | Net property, plant and equipment | | | 156,201 | | | | 210,145 | | | | 1,963,972 | | | | | | | | | | | | | | | | | | Other assets: | | | | | | | | | | | | | | Intangible assets (Note 8) | | | 18,966 | | | | 24,052 | | | | 224,785 | | | Deferred income taxes (Note 11) | | | 24,276 | | | | 25,420 | | | | 237,570 | | | Other | | | 9,586 | | | | 9,826 | | | | 91,832 | | | | | Total other assets | | | 52,828 | | | | 59,298 | | | | 554,187 | | | | | | | | | | | | | | | | | | | Total assets | | ¥ | 722,542 | | | ¥ | 725,167 | | | $ | 6,777,262 | | | |
See notes to consolidated financial statements. F-3
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Thousands of | | | | | | | | | | | | | | | | U.S. Dollars | | | | | | | | Millions of Yen | | | (Note 1) | | | | | | | |
| | |
| | | Liabilities and Shareholders’ Equity | | 2002 | | | 2003 | | | 2003 | |
| Current liabilities: | | | | | | | | | | | | | | | Short-term borrowings (Note 7) | | ¥ | 45,867 | | | ¥ | 29,893 | | | $ | 249,108 | | | | Current portion of long-term debt (Note 7) | | | 2,551 | | | | 974 | | | | 8,117 | | | | Trade payables | | | 57,231 | | | | 67,173 | | | | 559,775 | | | | Accrued liabilities— | | | | | | | | | | | | | | | | Taxes on income | | | 4,642 | | | | 8,653 | | | | 72,108 | | | | | Payroll | | | 15,662 | | | | 17,616 | | | | 146,800 | | | | | Royalty | | | 13,312 | | | | 14,111 | | | | 117,592 | | | | | Other | | | 32,509 | | | | 36,784 | | | | 306,533 | | | | Warranty reserve (Note 18) | | | 6,481 | | | | 6,493 | | | | 54,108 | | | | Dividends payable | | | 1,350 | | | | 1,754 | | | | 14,617 | | | | Other current liabilities | | | 14,705 | | | | 23,079 | | | | 192,325 | |
| | | | | Total current liabilities | | | 194,310 | | | | 206,530 | | | | 1,721,083 | |
| Long-term liabilities: | | | | | | | | | | | | | | | Long-term debt (Note 7) | | | 35,677 | | | | 32,196 | | | | 268,300 | | | | Accrued pension and severance cost (Note 8) | | | 46,270 | | | | 70,800 | | | | 590,000 | | | | Deferred income taxes (Note 9) | | | 918 | | | | 496 | | | | 4,133 | | | | Other long-term liabilities | | | 1,707 | | | | 335 | | | | 2,792 | |
| | | | | Total long-term liabilities | | | 84,572 | | | | 103,827 | | | | 865,225 | |
|
Commitments and contingent liabilities (Note 19)
| Minority interests | 19,244 | | | | 18,279 | | | | 152,325 | |
| | | Shareholders’ equity(Note 10): | | | | | | | | | | | | | | | Common stock, No par value | | | | | | | | | | | | | | | | Authorized— 400,000,000 shares | | | | | | | | | | | | | | | | Issued—180,063,836 shares—2002 and 2003 | | | 49,049 | | | | 49,049 | | | | 408,742 | | | | Capital surplus | | | 82,010 | | | | 82,159 | | | | 684,658 | | | | Retained earnings | | | 240,692 | | | | 253,266 | | | | 2,110,550 | | | | Accumulated other comprehensive income (loss) (Note 12) | | | (24,736 | ) | | | (55,629 | ) | | | (463,575 | ) | | | Treasury stock, at cost 4,272 shares—2002 and 4,629,028 shares—2003 | | | (12 | ) | | | (10,452 | ) | | | (87,100 | ) |
| | | | | Total shareholders’ equity | | | 347,003 | | | | 318,393 | | | | 2,653,275 | |
| | | | | | | Total liabilities and shareholders’ equity | | ¥ | 645,129 | | | ¥ | 647,029 | | | $ | 5,391,908 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | Thousands of | | | | | | | | | | | | | U.S. Dollars | | | | | Millions of Yen | | | (Note 1) | | | Liabilities and Shareholders’ Equity | | 2004 | | | 2005 | | | 2005 | | | | Current liabilities: | | | | | | | | | | | | | | Short-term borrowings (Note 9) | | ¥ | 23,327 | | | ¥ | 33,152 | | | $ | 309,832 | | | Current portion of long-term debt (Note 9) | | | 4,510 | | | | 19,276 | | | | 180,150 | | | Trade payables | | | 79,439 | | | | 96,335 | | | | 900,327 | | | Accrued liabilities— | | | | | | | | | | | | | | Taxes on income | | | 9,341 | | | | 4,938 | | | | 46,150 | | | Payroll | | | 17,604 | | | | 17,203 | | | | 160,776 | | | Royalty | | | 18,688 | | | | 14,811 | | | | 138,420 | | | Other | | | 35,626 | | | | 36,843 | | | | 344,327 | | | Warranty reserve (Note 20) | | | 5,419 | | | | 5,722 | | | | 53,477 | | | Dividends payable | | | 2,193 | | | | 2,180 | | | | 20,374 | | | Other current liabilities | | | 27,151 | | | | 20,710 | | | | 193,551 | | | | | Total current liabilities | | | 223,298 | | | | 251,170 | | | | 2,347,384 | | | | | | | | | | | | | | | | | | Long-term liabilities: | | | | | | | | | | | | | | Long-term debt (Note 9) | | | 89,691 | | | | 81,219 | | | | 759,056 | | | Accrued pension and severance cost (Note 10) | | | 57,143 | | | | 40,022 | | | | 374,037 | | | Deferred income taxes (Note 11) | | | 1,327 | | | | 1,630 | | | | 15,234 | | | Other long-term liabilities | | | 301 | | | | 719 | | | | 6,720 | | | | | Total long-term liabilities | | | 148,462 | | | | 123,590 | | | | 1,155,047 | | | | | | | | | | | | | | | | | | Commitments and contingent liabilities(Note 21) | | | | | | | | | | | | | | | | | | | | | | | | | | | Minority interests | | | 17,844 | | | | 18,168 | | | | 169,794 | | | | | | | | | | | | | | | | | | Shareholders’ equity(Note 12): | | | | | | | | | | | | | | Common stock, no par value | | | | | | | | | | | | | | Authorized— 400,000,000 shares | | | | | | | | | | | | | | Issued—180,063,836 shares—2004 and 2005 | | | 49,049 | | | | 49,049 | | | | 458,402 | | | Capital surplus | | | 82,464 | | | | 82,735 | | | | 773,224 | | | Retained earnings | | | 273,718 | | | | 260,556 | | | | 2,435,103 | | | Accumulated other comprehensive loss (Note 14) | | | (61,829 | ) | | | (47,669 | ) | | | (445,505 | ) | | Treasury stock, at cost 4,632,962 shares—2004 and 5,635,190 shares—2005 | | | (10,464 | ) | | | (12,432 | ) | | | (116,187 | ) | | | | Total shareholders’ equity | | | 332,938 | | | | 332,239 | | | | 3,105,037 | | | | | | | | | | | | | | | | | | | Total liabilities and shareholders’ equity | | ¥ | 722,542 | | | ¥ | 725,167 | | | $ | 6,777,262 | | | |
See notes to consolidated financial statements. F-4
Consolidated Statements of IncomeOperations
Pioneer Corporation and Subsidiaries
Year ended March 31
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Thousands of | | | | | | | | | | | | | | | | | | | U.S. Dollars | | | | | | | Millions of Yen | | | (Note 1) | | | | | | |
| | |
| | | | | | | 2001 | | | 2002 | | | 2003 | | | 2003 | |
| Operating revenue: | | | | | | | | | | | | | | | | | | | Net sales | | ¥ | 619,828 | | | ¥ | 644,537 | | | ¥ | 699,684 | | | $ | 5,830,700 | | | | Royalty revenue | | | 20,530 | | | | 17,588 | | | | 12,584 | | | | 104,867 | |
| | | | Total operating revenue | | | 640,358 | | | | 662,125 | | | | 712,268 | | | | 5,935,567 | |
| Operating costs and expenses: | | | | | | | | | | | | | | | | | | | Cost of sales | | | 447,389 | | | | 465,336 | | | | 498,492 | | | | 4,154,100 | | | | Selling, general and administrative | | | 160,064 | | | | 178,848 | | | | 182,424 | | | | 1,520,200 | |
| | | | Total operating costs and expenses | | | 607,453 | | | | 644,184 | | | | 680,916 | | | | 5,674,300 | |
| Operating income | | | 32,905 | | | | 17,941 | | | | 31,352 | | | | 261,267 | | Other income (expenses): | | | | | | | | | | | | | | | | | | | Interest income | | | 4,920 | | | | 3,039 | | | | 2,192 | | | | 18,267 | | | | Gain on sale of subsidiaries’ stock | | | – | | | | – | | | | 768 | | | | 6,400 | | | | Foreign exchange gain (loss) | | | (1,192 | ) | | | 297 | | | | (2,042 | ) | | | (17,017 | ) | | | Interest expense | | | (4,301 | ) | | | (3,445 | ) | | | (2,887 | ) | | | (24,059 | ) | | | Other—net (Note 13) | | | 1,861 | | | | (2,489 | ) | | | (753 | ) | | | (6,275 | ) |
| | | | Total other income (expenses) | | | 1,288 | | | | (2,598 | ) | | | (2,722 | ) | | | (22,684 | ) |
| Income before income taxes | | | 34,193 | | | | 15,343 | | | | 28,630 | | | | 238,583 | | Income taxes (Note 9): | | | | | | | | | | | | | | | | | | | Current | | | 15,011 | | | | 11,107 | | | | 14,762 | | | | 123,017 | | | | Deferred | | | (691 | ) | | | (4,385 | ) | | | (5,315 | ) | | | (44,292 | ) |
| | | | Total income taxes | | | 14,320 | | | | 6,722 | | | | 9,447 | | | | 78,725 | |
| Income before minority interest and equity in losses | | | 19,873 | | | | 8,621 | | | | 19,183 | | | | 159,858 | | Minority interest in losses (earnings) of subsidiaries | | | (1,445 | ) | | | (504 | ) | | | 21 | | | | 175 | | Equity in losses of affiliated companies (Note 5) | | | (130 | ) | | | (70 | ) | | | (3,126 | ) | | | (26,050 | ) |
| Net income | | ¥ | 18,298 | | | ¥ | 8,047 | | | ¥ | 16,078 | | | $ | 133,983 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | Yen | | | U.S. Dollars | | | | | | |
| | |
| | | | | | | 2001 | | | 2002 | | | 2003 | | | 2003 | |
| Per share of common stock and per American Depositary Share: | | | | | | | | | | | | | | | | | | | Net income (Note 6 and 17) | | | | | | | | | | | | | | | | | | | | Basic | | ¥ | 101.76 | | | ¥ | 44.70 | | | ¥ | 90.24 | | | $ | 0.75 | | | | | Diluted | | | 101.70 | | | | 44.69 | | | | 90.24 | | | | 0.75 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Thousands of | | | | | | | | | | | | | | | | | U.S. Dollars | | | | | Millions of Yen | | | (Note 1) | | | | 2003 | | | 2004 | | | 2005 | | | 2005 | | | | Revenues: | | | | | | | | | | | | | | | | | | Operating revenue: | | | | | | | | | | | | | | | | | | Net sales | | ¥ | 664,675 | | | ¥ | 689,064 | | | ¥ | 723,411 | | | $ | 6,760,850 | | | Royalty revenue | | | 12,584 | | | | 11,821 | | | | 10,237 | | | | 95,673 | | | | | Total operating revenue | | | 677,259 | | | | 700,885 | | | | 733,648 | | | | 6,856,523 | | | Interest income | | | 2,153 | | | | 1,420 | | | | 1,930 | | | | 18,037 | | | Gain on sale of subsidiaries’ stock | | | 768 | | | | — | | | | — | | | | — | | | Other income (Note 15) | | | 641 | | | | 504 | | | | 3,415 | | | | 31,916 | | | | | Total revenues | | | 680,821 | | | | 702,809 | | | | 738,993 | | | | 6,906,476 | | | | Cost and expenses: | | | | | | | | | | | | | | | | | | Cost of sales | | | 473,239 | | | | 487,297 | | | | 584,060 | | | | 5,458,504 | | | Selling, general and administrative expenses | | | 168,736 | | | | 166,415 | | | | 195,693 | | | | 1,828,906 | | | Subsidy from the government (Note 10) | | | — | | | | — | | | | (48,697 | ) | | | (455,112 | ) | | Interest expense | | | 2,814 | | | | 2,154 | | | | 1,746 | | | | 16,318 | | | Loss on sale and disposal of fixed assets | | | 4,519 | | | | 3,454 | | | | 40 | | | | 374 | | | Other deductions (Note 15) | | | 3,434 | | | | 1,641 | | | | 6,338 | | | | 59,234 | | | | | Total cost and expenses | | | 652,742 | | | | 660,961 | | | | 739,180 | | | | 6,908,224 | | | | Income (loss) from continuing operations before income taxes | | | 28,079 | | | | 41,848 | | | | (187 | ) | | | (1,748 | ) | Income taxes(Note 11): | | | | | | | | | | | | | | | | | | Current | | | 14,477 | | | | 17,829 | | | | 7,688 | | | | 71,850 | | | Deferred | | | (5,445 | ) | | | 758 | | | | (2,846 | ) | | | (26,598 | ) | | | | Total income taxes | | | 9,032 | | | | 18,587 | | | | 4,842 | | | | 45,252 | | | | Income (loss) from continuing operations before minority interest and equity in losses | | | 19,047 | | | | 23,261 | | | | (5,029 | ) | | | (47,000 | ) | Minority interest in losses (earnings) of subsidiaries | | | 21 | | | | (654 | ) | | | (692 | ) | | | (6,467 | ) | Equity in losses of affiliated companies(Note 7) | | | (3,126 | ) | | | (2,244 | ) | | | (3,068 | ) | | | (28,673 | ) | | | | Income (loss) from continuing operations | | | 15,942 | | | | 20,363 | | | | (8,789 | ) | | | (82,140 | ) | | Income from discontinued operations, net of tax (Note 4) | | | 136 | | | | 4,475 | | | | — | | | | — | | | | Net income (loss) | | ¥ | 16,078 | | | ¥ | 24,838 | | | ¥ | (8,789 | ) | | $ | (82,140 | ) | | |
| | | | | | | | | | | | | | | | | | | | | Yen | | | U.S. Dollars | | | | 2003 | | | 2004 | | | 2005 | | | 2005 | | | | Per share of common stock and per American Depositary Share(Note 19): | | | | | | | | | | | | | | | | | | Basic: | | | | | | | | | | | | | | | | | | Continuing operations | | ¥ | 89.48 | | | ¥ | 116.07 | | | ¥ | (50.11 | ) | | $ | (0.47 | ) | | Discontinued operations | | | 0.76 | | | | 25.51 | | | | — | | | | — | | | | | Net income (loss) | | ¥ | 90.24 | | | ¥ | 141.58 | | | ¥ | (50.11 | ) | | $ | (0.47 | ) | | | | Diluted: | | | | | | | | | | | | | | | | | | Continuing operations | | ¥ | 89.48 | | | ¥ | 115.18 | | | ¥ | (50.11 | ) | | $ | (0.47 | ) | | Discontinued operations | | | 0.76 | | | | 25.34 | | | | — | | | | — | | | | | Net income (loss) | | ¥ | 90.24 | | | ¥ | 140.52 | | | ¥ | (50.11 | ) | | $ | (0.47 | ) | | |
See notes to consolidated financial statements. F-5
Consolidated Statements of Shareholders’ Equity
Pioneer Corporation and Subsidiaries
Year ended March 31
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Millions of Yen | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | Accumulated | | | | | | | | | | | | | | Number of | | | | | | | | | | | | | | | Other | | | | | | | Total | | | | | | Shares Issued | | | Common | | | Capital | | | Retained | | | Comprehensive | | | Treasury | | | Shareholders’ | | | | | | (Thousands) | | | Stock | | | Surplus | | | Earnings | | | Income (Loss) | | | Stock | | | Equity | |
| | Balance at March 31, 2000 | | | 179,588 | | | ¥ | 48,452 | | | ¥ | 80,705 | | | ¥ | 219,745 | | | (¥ | 36,442 | ) | | | | | | ¥ | 312,460 | | | Comprehensive income | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net income | | | | | | | | | | | | | | | 18,298 | | | | | | | | | | | | 18,298 | | | | Other comprehensive income | | | | | | | | | | | | | | | | | | | 7,791 | | | | | | | | 7,791 | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Comprehensive income | | | | | | | | | | | | | | | | | | | | | | | | | | | 26,089 | | | Exercise of warrants | | | 306 | | | | 391 | | | | 391 | | | | | | | | | | | | | | | | 782 | | | Value ascribed to warrants and stock options (Note 11) | | | | | | | | | | | 362 | | | | | | | | | | | | | | | | 362 | | | Cash dividends (¥15.00 per share) | | | | | | | | | | | | | | | (2,698 | ) | | | | | | | | | | | (2,698 | ) |
| | Balance at March 31, 2001 | | | 179,894 | | | | 48,843 | | | | 81,458 | | | | 235,345 | | | | (28,651 | ) | | | | | | | 336,995 | | | Comprehensive income | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net income | | | | | | | | | | | | | | | 8,047 | | | | | | | | | | | | 8,047 | | | | Other comprehensive income | | | | | | | | | | | | | | | | | | | 3,915 | | | | | | | | 3,915 | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Comprehensive income | | | | | | | | | | | | | | | | | | | | | | | | | | | 11,962 | | | Exercise of warrants | | | 170 | | | | 206 | | | | 206 | | | | | | | | | | | | | | | | 412 | | | Value ascribed to warrants and stock options (Note 11) | | | | | | | | | | | 346 | | | | | | | | | | | | | | | | 346 | | | Purchase and sale of treasury stock, net | | | | | | | | | | | | | | | | | | | | | | (¥ | 12 | ) | | | (12 | ) | | Cash dividends (¥15.00 per share) | | | | | | | | | | | | | | | (2,700 | ) | | | | | | | | | | | (2,700 | ) |
| | Balance at March 31, 2002 | | | 180,064 | | | | 49,049 | | | | 82,010 | | | | 240,692 | | | | (24,736 | ) | | | (12 | ) | | | 347,003 | | | Comprehensive income (loss) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net income | | | | | | | | | | | | | | | 16,078 | | | | | | | | | | | | 16,078 | | | | Other comprehensive income (loss) | | | | | | | | | | | | | | | | | | | (30,893 | ) | | | | | | | (30,893 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Comprehensive income (loss) | | | | | | | | | | | | | | | | | | | | | | | | | | | (14,815 | ) | | Value ascribed to stock options (Note 11) | | | | | | | | | | | 149 | | | | | | | | | | | | | | | | 149 | | | Repurchase of common stock (Note 10) | | | | | | | | | | | | | | | | | | | | | | | (11,566 | ) | | | (11,566 | ) | | Sales of treasury stock | | | | | | | | | | | | | | | (412 | ) | | | | | | | 1,126 | | | | 714 | | | Cash dividends (¥17.50 per share) | | | | | | | | | | | | | | | (3,092 | ) | | | | | | | | | | | (3,092 | ) |
| | Balance at March 31, 2003 | | | 180,064 | | | ¥ | 49,049 | | | ¥ | 82,159 | | | ¥ | 253,266 | | | (¥ | 55,629 | ) | | (¥ | 10,452 | ) | | ¥ | 318,393 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Thousands of U.S. Dollars (Note 1) | | | | | |
| | | | | | | | | | | | | | | | | Accumulated | | | | | | | | | | | | | | | | | | | | | | | | | Other | | | | | | | Total | | | | | | Common | | | Capital | | | Retained | | Comprehensive | | | Treasury | | | Shareholders’ | | | | | | Stock | | | Surplus | | | Earnings | | Income (Loss) | | | Stock | | | Equity | |
| | Balance at March 31, 2002 | | $ | 408,742 | | | $ | 683,416 | | | $ | 2,005,767 | | | ($ | 206,133 | ) | | ($ | 100 | ) | | $ | 2,891,692 | | | Comprehensive income (loss) | | | | | | | | | | | | | | | | | | | | | | | | | | | Net income | | | | | | | | | | | 133,983 | | | | | | | | | | | | 133,983 | | | | Other comprehensive income (loss) | | | | | | | | | | | | | | | (257,442 | ) | | | | | | | (257,442 | ) | | | | | | | | | | | | | | | | | | | | | | | |
| | | Comprehensive income (loss) | | | | | | | | | | | | | | | | | | | | | | | (123,459 | ) | | Value ascribed to stock options (Note 11) | | | | | | | 1,242 | | | | | | | | | | | | | | | | 1,242 | | | Repurchase of common stock (Note 10) | | | | | | | | | | | | | | | | | | | (96,383 | ) | | | (96,383 | ) | | Sales of treasury stock | | | | | | | | | | | (3,433 | ) | | | | | | | 9,383 | | | | 5,950 | | | Cash dividends ($0.15 per share) | | | | | | | | | | | (25,767 | ) | | | | | | | | | | | (25,767 | ) |
| | Balance at March 31, 2003 | | $ | 408,742 | | | $ | 684,658 | | | $ | 2,110,550 | | | ($ | 463,575 | ) | | ($ | 87,100 | ) | | $ | 2,653,275 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Millions of Yen | | | | | Number of | | | | | | | | | | | | | | | Accumulated | | | | | | | | | | | | Shares | | | | | | | | | | | | | | | Other | | | | | | | Total | | | | | Issued | | | Common | | | Capital | | | Retained | | | Comprehensive | | | Treasury | | | Shareholders’ | | | | | (Thousands) | | | Stock | | | Surplus | | | Earnings | | | Loss | | | Stock | | | Equity | | | | | | Balance at March 31, 2002 | | | 180,064 | | | ¥ | 49,049 | | | ¥ | 82,010 | | | ¥ | 240,692 | | | ¥ | (24,736 | ) | | ¥ | (12 | ) | | ¥ | 347,003 | | | Comprehensive income (loss): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net income | | | | | | | | | | | | | | | 16,078 | | | | | | | | | | | | 16,078 | | | Other comprehensive loss | | | | | | | | | | | | | | | | | | | (30,893 | ) | | | | | | | (30,893 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Comprehensive loss | | | | | | | | | | | | | | | | | | | | | | | | | | | (14,815 | ) | | Value ascribed to stock options (Note 13) | | | | | | | | | | | 149 | | | | | | | | | | | | | | | | 149 | | | Purchase of treasury stock (Note 12) | | | | | | | | | | | | | | | | | | | | | | | (11,566 | ) | | | (11,566 | ) | | Sales of treasury stock | | | | | | | | | | | | | | | (412 | ) | | | | | | | 1,126 | | | | 714 | | | Cash dividends (¥17.50 per share) | | | | | | | | | | | | | | | (3,092 | ) | | | | | | | | | | | (3,092 | ) | | | | Balance at March 31, 2003 | | | 180,064 | | | | 49,049 | | | | 82,159 | | | | 253,266 | | | | (55,629 | ) | | | (10,452 | ) | | | 318,393 | | | Comprehensive income (loss): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net income | | | | | | | | | | | | | | | 24,838 | | | | | | | | | | | | 24,838 | | | Other comprehensive loss | | | | | | | | | | | | | | | | | | | (6,200 | ) | | | | | | | (6,200 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Comprehensive income | | | | | | | | | | | | | | | | | | | | | | | | | | | 18,638 | | | Value ascribed to stock options (Note 13) | | | | | | | | | | | 305 | | | | | | | | | | | | | | | | 305 | | | Purchase of treasury stock (Note 12) | | | | | | | | | | | | | | | | | | | | | | | (14 | ) | | | (14 | ) | | Sales of treasury stock | | | | | | | | | | | | | | | | | | | | | | | 2 | | | | 2 | | | Cash dividends (¥25.00 per share) | | | | | | | | | | | | | | | (4,386 | ) | | | | | | | | | | | (4,386 | ) | | | | Balance at March 31, 2004 | | | 180,064 | | | | 49,049 | | | | 82,464 | | | | 273,718 | | | | (61,829 | ) | | | (10,464 | ) | | | 332,938 | | | Comprehensive income (loss): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net loss | | | | | | | | | | | | | | | (8,789 | ) | | | | | | | | | | | (8,789 | ) | | Other comprehensive income | | | | | | | | | | | | | | | | | | | 14,160 | | | | | | | | 14,160 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Comprehensive income | | | | | | | | | | | | | | | | | | | | | | | | | | | 5,371 | | | Value ascribed to stock options (Note 13) | | | | | | | | | | | 270 | | | | | | | | | | | | | | | | 270 | | | Purchase of treasury stock (Note 12) | | | | | | | | | | | | | | | | | | | | | | | (1,979 | ) | | | (1,979 | ) | | Sales of treasury stock | | | | | | | | | | | 1 | | | | | | | | | | | | 11 | | | | 12 | | | Cash dividends (¥25.00 per share) | | | | | | | | | | | | | | | (4,373 | ) | | | | | | | | | | | (4,373 | ) | | | | Balance at March 31, 2005 | | | 180,064 | | | ¥ | 49,049 | | | ¥ | 82,735 | | | ¥ | 260,556 | | | ¥ | (47,669 | ) | | ¥ | (12,432 | ) | | ¥ | 332,239 | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | Thousands of U.S. Dollars (Note 1) | | | | | | | | | | | | | | | | | Accumulated | | | | | | | | | | | | | | | | | | | | | | | | Other | | | | | | | Total | | | | | Common | | | Capital | | | Retained | | | Comprehensive | | | Treasury | | | Shareholders’ | | | | | Stock | | | Surplus | | | Earnings | | | Loss | | | Stock | | | Equity | | | | | Balance at March 31, 2004 | | $ | 458,402 | | | $ | 770,692 | | | $ | 2,558,112 | | | $ | (577,841 | ) | | $ | (97,795 | ) | | $ | 3,111,570 | | | Comprehensive income (loss): | | | | | | | | | | | | | | | | | | | | | | | | | | Net loss | | | | | | | | | | | (82,140 | ) | | | | | | | | | | | (82,140 | ) | | Other comprehensive income | | | | | | | | | | | | | | | 132,336 | | | | | | | | 132,336 | | | | | | | | | | | | | | | | | | | | | | | | | | | | Comprehensive income | | | | | | | | | | | | | | | | | | | | | | | 50,196 | | | Value ascribed to stock options (Note 13) | | | | | | | 2,523 | | | | | | | | | | | | | | | | 2,523 | | | Purchase of treasury stock (Note 12) | | | | | | | | | | | | | | | | | | | (18,495 | ) | | | (18,495 | ) | | Sales of treasury stock | | | | | | | 9 | | | | | | | | | | | | 103 | | | | 112 | | | Cash dividends ($0.23 per share) | | | | | | | | | | | (40,869 | ) | | | | | | | | | | | (40,869 | ) | | | | Balance at March 31, 2005 | | $ | 458,402 | | | $ | 773,224 | | | $ | 2,435,103 | | | $ | (445,505 | ) | | $ | (116,187 | ) | | $ | 3,105,037 | | | |
See notes to consolidated financial statements. F-6
Consolidated Statements of Cash Flows
Pioneer Corporation and Subsidiaries
Year ended March 31
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Thousands of | | | | | | | | | | | | | | | | | | | | U.S. Dollars | | | | | | | | Millions of Yen | | | (Note 1) | | | | | | | |
| | |
| | | | | | | | 2001 | | | 2002 | | | 2003 | | | 2003 | |
| Operating activities: | | | | | | | | | | | | | | | | | | | Net income | | ¥ | 18,298 | | | ¥ | 8,047 | | | ¥ | 16,078 | | | $ | 133,983 | | | | Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | | | | | | | | | | | | | Depreciation and amortization | | | 32,405 | | | | 36,782 | | | | 36,387 | | | | 303,225 | | | | | Minority interest in losses (earnings) of subsidiaries | | | 1,445 | | | | 504 | | | | (21 | ) | | | (175 | ) | | | | Equity in losses of affiliated companies, less dividends | | | 136 | | | | 79 | | | | 3,184 | | | | 26,533 | | | | | Deferred income taxes | | | (691 | ) | | | (4,385 | ) | | | (5,315 | ) | | | (44,292 | ) | | | | Provision for pension and severance cost, less payments | | | (1,993 | ) | | | 392 | | | | 3,815 | | | | 31,792 | | | | | Loss on sale and disposal of fixed assets | | | 914 | | | | 3,340 | | | | 4,521 | | | | 37,675 | | | | | (Gain) loss on sale and write-down of investments and securities | | | (254 | ) | | | 2,287 | | | | 1,393 | | | | 11,608 | | | | | Impairment losses of fixed assets | | | 1,163 | | | | – | | | | – | | | | – | | | | | Gain on sale of subsidiaries’ stock | | | – | | | | – | | | | (768 | ) | | | (6,400 | ) | | | | Decrease (increase) in trade notes and accounts receivable | | | (6,729 | ) | | | (2,225 | ) | | | 9,668 | | | | 80,567 | | | | | Decrease in inventories | | | 5,786 | | | | 3,288 | | | | 715 | | | | 5,959 | | | | | Increase in prepaid expenses and other current assets | | | (2,430 | ) | | | (2,706 | ) | | | (1,603 | ) | | | (13,358 | ) | | | | Increase in trade payables | | | 177 | | | | 9,304 | | | | 11,856 | | | | 98,800 | | | | | Increase (decrease) in accrued taxes on income | | | (1,204 | ) | | | (1,473 | ) | | | 5,533 | | | | 46,108 | | | | | Increase in other accrued liabilities | | | 1,184 | | | | 2,716 | | | | 8,363 | | | | 69,692 | | | | | Other | | | 3,034 | | | | 1,160 | | | | (2,072 | ) | | | (17,267 | ) |
| | | | | Net cash provided by operating activities | | | 51,241 | | | | 57,110 | | | | 91,734 | | | | 764,450 | |
| Investing activities: | | | | | | | | | | | | | | | | | | | Payment for purchase of fixed assets | | | (42,183 | ) | | | (46,996 | ) | | | (40,782 | ) | | | (339,850 | ) | | | Payment for investment securities | | | (5,798 | ) | | | (4,566 | ) | | | (1,543 | ) | | | (12,858 | ) | | | Payment for available-for-sale securities | | | (1,233 | ) | | | (2,031 | ) | | | (10 | ) | | | (83 | ) | | | Proceeds from sale of fixed assets and investment securities | | | 5,631 | | | | 2,203 | | | | 3,086 | | | | 25,716 | | | | Proceeds from sale of available-for-sale securities | | | 1,789 | | | | 177 | | | | 3,502 | | | | 29,183 | | | | Decrease in loans receivable | | | 410 | | | | 1,071 | | | | 169 | | | | 1,408 | | | | Other | | | (197 | ) | | | (1,006 | ) | | | 125 | | | | 1,042 | |
| | | | | Net cash used in investing activities | | | (41,581 | ) | | | (51,148 | ) | | | (35,453 | ) | | | (295,442 | ) |
| Financing activities: | | | | | | | | | | | | | | | | | | | Payment of long-term debt | | | (37,760 | ) | | | (7,560 | ) | | | (4,914 | ) | | | (40,950 | ) | | | Increase (decrease) in short-term borrowings | | | (7,078 | ) | | | 5,866 | | | | (16,214 | ) | | | (135,117 | ) | | | Repurchase of common stock (Note 10) | | | – | | | | (159 | ) | | | (11,566 | ) | | | (96,383 | ) | | | Proceeds from sale of treasury stock | | | – | | | | 147 | | | | 714 | | | | 5,950 | | | | Dividends paid | | | (2,247 | ) | | | (2,699 | ) | | | (2,688 | ) | | | (22,400 | ) | | | Other | | | 518 | | | | 198 | | | | (12 | ) | | | (100 | ) |
| | | | | Net cash used in financing activities | | | (46,567 | ) | | | (4,207 | ) | | | (34,680 | ) | | | (289,000 | ) |
| | Effect of exchange rate changes on cash and cash equivalents | | | 6,229 | | | | 4,231 | | | | (6,234 | ) | | | (51,950 | ) |
| Net increase (decrease) in cash and cash equivalents | | | (30,678 | ) | | | 5,986 | | | | 15,367 | | | | 128,058 | | | Cash and cash equivalents, beginning of year | | | 151,805 | | | | 121,127 | | | | 127,113 | | | | 1,059,275 | |
| Cash and cash equivalents, end of year | | ¥ | 121,127 | | | ¥ | 127,113 | | | ¥ | 142,480 | | | $ | 1,187,333 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Thousands of | | | | | | | | | | | | | | | | | U.S. Dollars | | | | | Millions of Yen | | | (Note 1) | | | | 2003 | | | 2004 | | | 2005 | | | 2005 | | | | Operating activities: | | | | | | | | | | | | | | | | | | Net income (loss) | | ¥ | 16,078 | | | ¥ | 24,838 | | | ¥ | (8,789 | ) | | $ | (82,140 | ) | | Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | | | | | | | | | | | | | | | | Income from discontinued operations, net of tax | | | (136 | ) | | | (4,475 | ) | | | — | | | | — | | | Depreciation and amortization | | | 36,238 | | | | 40,911 | | | | 46,990 | | | | 439,159 | | | Minority interest in (losses) earnings of subsidiaries | | | (21 | ) | | | 654 | | | | 692 | | | | 6,467 | | | Equity in losses of affiliated companies, less dividends | | | 3,184 | | | | 2,248 | | | | 3,072 | | | | 28,710 | | | Deferred income taxes | | | (5,445 | ) | | | 758 | | | | (2,846 | ) | | | (26,598 | ) | | Provision for pension and severance cost, less payments | | | 3,812 | | | | 3,579 | | | | 2,463 | | | | 23,019 | | | Loss on sale and disposal of fixed assets | | | 4,519 | | | | 3,454 | | | | 40 | | | | 374 | | | Impairment of long-lived assets | | | — | | | | — | | | | 4,460 | | | | 41,682 | | | Write-down of available-for-sale securities and sundry investments | | | 1,369 | | | | 245 | | | | 51 | | | | 477 | | | (Gains) losses on sale of available-for-sale securities and sundry investments | | | 20 | | | | (37 | ) | | | (2,309 | ) | | | (21,579 | ) | | Gain on sale of subsidiaries’ stock | | | (768 | ) | | | — | | | | — | | | | — | | | Stock-based compensation expenses | | | 149 | | | | 305 | | | | 270 | | | | 2,523 | | | Decrease (increase) in trade notes and accounts receivable | | | 8,481 | | | | (10,186 | ) | | | (12,322 | ) | | | (115,159 | ) | | Decrease (increase) in inventories | | | 838 | | | | (20,707 | ) | | | 6,317 | | | | 59,037 | | | Increase in prepaid expenses and other current assets | | | (1,122 | ) | | | (12,413 | ) | | | (5,051 | ) | | | (47,206 | ) | | Increase in trade payables | | | 13,221 | | | | 18,989 | | | | 4,405 | | | | 41,168 | | | Increase (decrease) in accrued taxes on income | | | 5,450 | | | | 3,782 | | | | (4,473 | ) | | | (41,804 | ) | | Increase (decrease) in other accrued liabilities | | | 8,172 | | | | 7,654 | | | | (5,898 | ) | | | (55,121 | ) | | Other | | | (2,530 | ) | | | 779 | | | | (7,126 | ) | | | (66,598 | ) | | | | Net cash provided by operating activities | | | 91,509 | | | | 60,378 | | | | 19,946 | | | | 186,411 | | | | Investing activities: | | | | | | | | | | | | | | | | | | Payment for purchase of fixed assets | | | (40,493 | ) | | | (57,978 | ) | | | (63,866 | ) | | | (596,879 | ) | | Payment for purchase of investment securities | | | (1,543 | ) | | | (595 | ) | | | (510 | ) | | | (4,766 | ) | | Payment for purchase of available-for-sale securities | | | (10 | ) | | | (53 | ) | | | — | | | | — | | | Payment for purchase of a subsidiary, net of cash acquired | | | — | | | | — | | | | (34,015 | ) | | | (317,897 | ) | | Payment for other assets | | | (568 | ) | | | (953 | ) | | | (1,252 | ) | | | (11,701 | ) | | Proceeds from sale of fixed assets | | | 2,982 | | | | 1,458 | | | | 2,184 | | | | 20,411 | | | Proceeds from sale of discontinued operations | | | — | | | | 4,897 | | | | — | | | | — | | | Proceeds from sale of investment securities | | | 103 | | | | 53 | | | | 12 | | | | 112 | | | Proceeds from sale of available-for-sale securities | | | 3,493 | | | | 156 | | | | 3,091 | | | | 28,888 | | | Other | | | 808 | | | | 261 | | | | 840 | | | | 7,851 | | | | | Net cash used in investing activities | | | (35,228 | ) | | | (52,754 | ) | | | (93,516 | ) | | | (873,981 | ) | | | Financing activities: | | | | | | | | | | | | | | | | | | Proceeds from issuance of convertible bonds (net of issuance cost ¥1,586 million) | | | — | | | | 60,514 | | | | — | | | | — | | | Payment of long-term debt | | | (4,914 | ) | | | (934 | ) | | | (6,246 | ) | | | (58,374 | ) | | Increase (decrease) in short-term borrowings | | | (16,214 | ) | | | (3,509 | ) | | | 9,025 | | | | 84,346 | | | Purchase of treasury stock (Note 12) | | | (11,566 | ) | | | (14 | ) | | | (1,979 | ) | | | (18,495 | ) | | Proceeds from sale of treasury stock | | | 714 | | | | 2 | | | | 12 | | | | 112 | | | Dividends paid | | | (2,688 | ) | | | (3,947 | ) | | | (4,386 | ) | | | (40,991 | ) | | Dividends paid to minority interests | | | (12 | ) | | | (285 | ) | | | (445 | ) | | | (4,159 | ) | | | | Net cash provided by (used in) financing activities | | | (34,680 | ) | | | 51,827 | | | | (4,019 | ) | | | (37,561 | ) | | | | Effect of exchange rate changes on cash and cash equivalents | | | (6,234 | ) | | | (9,512 | ) | | | 1,851 | | | | 17,299 | | | | Net increase (decrease) in cash and cash equivalents | | | 15,367 | | | | 49,939 | | | | (75,738 | ) | | | (707,832 | ) | | Cash and cash equivalents, beginning of year | | | 127,113 | | | | 142,480 | | | | 192,419 | | | | 1,798,309 | | | | Cash and cash equivalents, end of year | | ¥ | 142,480 | | | ¥ | 192,419 | | | ¥ | 116,681 | | | $ | 1,090,477 | | | |
See notes to consolidated financial statements. F-7
Notes to Consolidated Financial Statements
Pioneer Corporation and Subsidiaries
1. Basis of presentation and significant accounting policies: Basis of Financial Statements—
The accompanying consolidated financial statements are stated in Japanese yen, the currency of the country in which Pioneer Corporation (Pioneer Kabushiki Kaisha) (the “parent company”) is incorporated. The translation of Japanese yen amounts into U.S. dollar amounts for the year ended March 31, 20032005 is included solely for the convenience of readers outside Japan and has been made at the rate of ¥120¥107 to U.S.$1.00, the approximate rate of exchange prevailing at the Tokyo Foreign Exchange Market at March 31, 2003.2005. Such translation should not be construed as a representation that Japanese yen amounts could be converted into U.S. dollars at the above or any other rate. The accompanying consolidated financial statements have been prepared on the basis of accounting principles generally accepted in the United States of America (U.S. GAAP)(“U.S. GAAP”) except for the omission of segment information concerning the operations of the parent company and its majority-owned subsidiaries (together, the “Company”), as required by Statement of Financial Accounting Standards (“SFAS”) No.131.No. 131. The accompanying consolidated financial statements reflect the adjustments which management believes are necessary to conform them with U.S. GAAP. Effect has been given in the consolidated financial statements to adjustments which, because of either customary accounting practices in Japan or income tax law requirements, have not been entered in the Company’s general books of account. Nature of Operations—
The Company is engaged in the development, manufacture and sale of electronics products. The Company is one of the leading manufacturers of consumer- and commercial-use electronics such as audio, video and car electronics on a global scale. The principal production activities of the Company are carried out in Asia including Japan. The Company’s products are generally sold under its own brand names, principally “Pioneer.” The principal markets for the Company are Japan, the United States of America, European countries and Asia. The Company sells its products to customers in consumer and commercial markets through its sales offices in Japan, and its sales subsidiaries and independent distributors overseas. On an original-equipment-manufacturer basis, the Company markets certain products, such as car electronics products, to other companies. The preparation of the consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of these statements and the reported amounts of revenues and expenses during the reporting period. Due to the inherent uncertainty involved in making estimates, actual results could differ from those estimates. 2) Summary of Significant Accounting Policies
Consolidation and Investments in Affiliated Companies—The consolidated financial statements include the accounts of the parent company and its majority-owned subsidiaries. Investments in 20% to 50% owned companies are accounted for by the equity method of accounting. All significant intercompany transactions have been eliminated. Gains and losses resulting from the issuance of subsidiaries’ stock are recognized in consolidated earnings. For the year ended March 31, 2005, the Company adopted the Financial Accounting Standards Board (“FASB”) Interpretation No. 46 (revised December 2003), “Consolidation of Variable Interest Entities” (“FIN46R”) which requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. The adoption of FIN46R had no impact on its financial position and results of operations. Foreign Currency Translation—
For all significant foreign operations, the functional currency is the local currency. Generally, all asset and liability accounts of foreign operations are translated into Japanese yen at year-end rates and all revenue and expense accounts are translated at rates prevailing at the time of the transactions. The resulting translation adjustments are accumulated and reported as a component of accumulated other comprehensive income (loss). Foreign currency receivables and payables are translated at year-end exchange rates and resulting exchange gains and losses are recognized in earnings currently. F-8
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 purchase orders orsales contracts. In circumstances where sales are recorded when services are renderedmerchandise is shipped to customers, the shipment date is equivalent to the third parties.delivery date because of a short delivery time. In certain cases, terms of the contract require the product to pass customer inspection after shipmentdelivery and the Company records the sale upon satisfactory customer acceptance. Royalty revenue, which is based on actual amounts produced or sold by the licensee, is recognized when either a royalty report or payment is received from the licensee, whichever is earlier. Until such time, this revenue is not considered to have met the recognition criterion of being fixed or determinable, nor is collectibility reasonably assured. The Company normally does not accept returns except for warranty issues, non-compliance with purchase order specifications and returns from end-users to certain dealers. The financial impact of the future returns are estimated and reserved based on royalty statements from licensees.historical experience.
F-8
Costs incurred by the Company in connection with sales incentives related to the purchase or promotion of the Company’s products are classified as a reduction of revenues in accordance with Emerging Issues Task Force (“EITF”) Issue No. 01-9, “Accounting for Consideration Given by a Vendor to a Customer.” Such costs include the estimated cost of promotional discounts, dealer price protection, dealer rebates, consumer rebates, cash discounts, and support for dealers’ promotion of the Company’s products. Sales incentives that are dependent on future customer performance are estimated and recorded at the later of when the original sale is recorded and when the incentive is offered. Cash and Cash Equivalents—
Consolidated cash Cash and cash equivalents include cash on hand and deposits in bank including time deposits. The Company considers all time deposits with an original maturity of one year or less to be cash equivalents. Generally, suchSuch time deposits can be withdrawn at any time without diminution of the principal amount. Available-for-Sale Securities—
Under SFAS No.115,No. 115, “Accounting for Certain Investments in Debt and Equity Securities,” all debt securities and marketable equity securities held by the Company are classified as available-for-sale securities, and are carried at their fair values with unrealized gains and losses reported as a component of shareholders’ equity.in other comprehensive income (loss). The cost of securities is determined using the average-cost method. The Company reviews the fair value of its available-for-sale securities on a regular basis to determine if the fair value of any individual security has declined below its cost and if such decline is other than temporary. If the decline in value is judged to be other than temporary, the cost basis of the security is written down to fair value and the resulting realized loss is included in the consolidated statements of consolidated income.operations. For such marketable debt and equity securities, we assume the decline is other than temporary when market value is less than cost for a period of six months, or sooner depending on severity of decline or other factors. Sundry Investments—
Sundry investments are stated at cost andcost. The Company reviews the investments for impairment when the events or changes in circumstances that may have significant adverse effect on the value of those investments are identified. The investments are written down if the value of investments is estimated to have declined and such decline is judged to be other than temporary. Inventories—
Inventories are valued at the lower of cost, which is determined principally by the average-cost method, or market.market, which is net realizable value. Cost of finished goods and work in process inventories include the cost of materials, labor and applied factory overhead. Applied factory overhead includes depreciation on production related assets, utilities of the production area, and production tools and equipment that are not capitalized. Inventories are reviewed periodically and items considered to be slow moving or obsolete are written down to their estimatedmarket, net realizable value. F-9
Property, Plant and Equipment and Depreciation—
Property, plant and equipment are stated at cost. Depreciation is computed principally using the declining-balance method for assets located in Japan and under the straight-line method for assets located outside Japan, using rates based on the estimated useful lives of the assets. The principal ranges of estimated useful lives are as follows: | | | | | Buildings | 15-65 years | 15–65 years | | Machinery and equipment | 2-10 years | 2–10 years |
Goodwill and Other Intangible Assets—
In July 2001, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 141, “Business Combinations” and Under SFAS No. 142, “Goodwill and Other Intangible Assets.Assets,” SFAS No. 141 requires the purchase method of accounting for business combinations initiated after June 30, 2001, eliminates the pooling-of-interests method, and addresses the initial recognition and measurement of goodwill and other intangible assets acquired in a business combination. Under SFAS No. 142, acquired goodwill and other intangible assets that are determined to have an indefinite life willare no longer be amortized. Instead, the carrying value of these assets will beare reviewed for impairment at least annually, or more frequently if events or changes in circumstances indicate that the asset might be impaired. Intangible assets that are determined to have a definite life will continue to beare amortized over their estimated useful lives. At April 1, 2002,March 31, 2005, the Company had no goodwill. The Company has adopted SFAS No. 142 effective April 1, 2002. Adoption of SFAS No. 142 had no significant effect on the Company’s operating income and income before income taxes for the year ended March 31, 2003. Amortization of intangible assets with definite lives is computed using the straight-line method with no residual value. The cost of patents is amortized over 7seven to 19nineteen years and software is amortized principally over 2two to 5five years.
Long-Lived Assets—
On April 1, 2002, the Company adopted SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” which applied to all long-lived assets. The Company reviews its long-lived assets and certain identifiable intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable. For the purpose of assessment of an impairment loss, the Company groups long-lived assets with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. When the sum of expected future cash flows is less than the carrying amount of the asset group, an impairment loss is recognized. Such impairment loss is measured as the amount by which the carrying amount of the asset group exceeds the fair value of the asset. During the year ended March 31, 2001, the Company recorded an impairment loss of ¥1,163 million related to intangible assets of its karaoke business reflecting reduced revenue expectations from the business.
asset group. In fiscal 2003, the Company sold its subsidiaries’ stock and recorded gains of ¥768 million ($6,400 thousand). Subsidiaries’million. The subsidiaries’ main operation was Karaokekaraoke business.
F-9
The Company engages in extensive product quality programs and processes including actively monitoring and evaluating the quality of component suppliers. The Company’s warranty obligation is affected by product failure rates and service costs incurred in correcting product failure. The Company provides for the estimated cost of product warranties at the time revenue is recognized. These estimates are established using historical information. Long-term Debt— Premiums and issuance costs of long-term debt are amortized over the term of long-term debt using the interest method. Income Taxes—
Income taxes are provided based on the asset and liability method of accounting. Deferred income taxes are recorded to reflect the tax consequences in future years of differences between the tax basis of assets and liabilities and their financial reporting amounts at year-end. These deferred taxes are measured by applying currently enacted tax laws. A valuation allowance is established to reduce deferred tax assets if it is more likely than not that all, or some portion, of such deferred tax assets will not be realized. Sales Incentives—
At April 1, 2002, the Company adopted Emerging Issues Task Force (“EITF”) 01-09, “Accounting for Consideration given by a Vendor to a Customer.” EITF 01-09 clarifies the income statement classification of costs incurred by a vendor in connection with the reseller’s purchase or promotion of the vendor’s products, resulting in certain cooperative advertising and product placement costs previously classified as selling expenses to be reflected as a reduction of revenues earned from that activity. The adoption of EITF 01-09 resulted in a reduction of sales of ¥6,711 million, ¥6,774 million and ¥9,588 million ($79,900 thousand) and a corresponding decrease in selling, general and administrative expenses, with no effect on net income for the years ended March 31, 2001, 2002 and 2003, respectively. Previous figures for the corresponding periods have been reclassified to conform to this presentation.
Research and Development Costs and Advertising Cost— Research and development costs and advertising cost are expensed as incurred. Shipping and Handling Charges—
Shipping and handling costs totaled ¥8,691¥10,373 million, ¥10,178¥11,282 million and ¥10,816¥12,830 million ($ 90,133119,907 thousand) for the years ended March 31, 2001, 20022003, 2004 and 2003,2005, respectively, and are included in selling, general and administrative expenses in the consolidated statements of income.operations. Accounting for Stock-Based Compensation—
The Company accounts for its stock-based compensation agreements using the fair value based method in accordance with SFAS No.123,No. 123, “Accounting for Stock-Based Compensation.” F-10
Earnings (loss) per Share—
Basic net income (loss) per share has been computed by dividing net income (loss) available to holders of common stock by the weighted-average number of shares of common stock outstanding during each year. Diluted net income per share reflects the potential dilution and has been computed on the basis that all dilutive warrants and stock optionspotential common stocks were exercised. Derivatives—
Derivative financial instruments utilized by the Company are comprised principally of forward exchange contracts currency options and currency swaps. Forward exchange contracts, and currency options, the majority of which mature within six months, and currency swaps, which mature from 20032005 to 2005,2006, are utilized to hedge exposures to foreign exchange risk and interest risk. The Company does not hold or issue derivative financial instruments for trading purposes. Prior to April 1, 2001, gains and losses on hedges of existing assets and liabilities were included in the carrying amounts of those assets and liabilities and were ultimately recognized in other income (expenses). Gains and losses related to qualifying hedges of firm commitments or anticipated transactions were also deferred and were recognized in other income (expenses) or as adjustments of carrying amounts when the hedged transaction occurred. Unrealized gains and losses on forward contracts including foreign currency options intended as hedges for foreign currency risk of anticipated transactions with companies within the consolidated group were recognized currently in other income (expenses).
F-10
At April 1, 2001, the The Company adopted SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended by SFAS No. 138, “Accounting for Certain Derivative Instruments and Certain Hedging Activities — Activities—an amendment of FASB Statement No.133.No. 133,” and by SFAS No. 149, “Amendment of SFAS No. 133 on Derivative Instruments and Hedging Activities.” Under SFAS No. 133, all derivative instruments are recognized in the balance sheet at their fair values and changes in fair value are recognized immediately in earnings, unless the derivatives qualify as hedges of future cash flows. For derivatives qualifying as hedges of future cash flows, the effective portion of changes in fair value is recorded in other comprehensive income, then recognized in earnings along with the related effects of the hedged items. Any ineffective portion of hedges is reported in earnings as it occurs.
The cumulative effect of adopting this accounting change at April 1, 2001, was not significant.
Forward exchange contracts currency swaps and currency optionsswaps are utilized to hedge certain foreign currency and interest rate exposures. However, none of these derivatives were designated as hedging instruments under SFAS No. 133 at March 31, 20022003, 2004 and 2003.2005. Unrealized gains and losses on such instruments are recognized currently in earnings. Reclassifications—
Starting fiscal 2003, the Company classified losses on sale and disposal of fixed assets, which were previously included in Other — net in Other income (expense), into selling, general and administrative expenses. Previously reported amounts have been reclassified to conform to this presentation. Other Certain reclassifications and format changes have been made to prior year amounts to conform to the current year presentation. New Accounting Standards—
In June 2001,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. In December 2004, the FASB issued SFAS No. 153, “Exchanges of Nonmonetary Assets — an amendment of APB Opinion No. 29,” which will become effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. Accounting Principles Board (“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. 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. 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” F-11
(“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. 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 effective for years beginning after June 15, 2002, which willunconditional 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 the Company’s fiscal year 2004. FAS 143 addresses legal obligations associated with the retirement of tangible long-lived assets that result from the acquisition, construction, development or normal operation of a long-lived asset. The standard requires thatavailable to reasonably estimate the fair value of a liability for an asset retirement obligation be recognized inobligation. FIN No. 47 also clarifies when an entity would have sufficient information to reasonably estimate the period in which it is incurred if a reasonable estimate of fair value can be made. Any associatedof an asset retirement costs are to be capitalized as partobligation. FIN No. 47 is effective no later than the end of the carrying amount of the long-lived asset and expensed over the life of the asset.fiscal years ending after December 15, 2005. The Company has not yet determinedcompleted the study of what the effect of FAS 143FIN No. 47 will have on the earnings or theits financial position and results of the Company.operations. In April 2002,May 2005, the FASB issued SFAS No. 145, “Rescission154, “Accounting Changes and Error Corrections—a replacement of FASB StatementsAPB Opinion No. 4, 4420 and 64, Amendment of FASB Statement No. 13, and Technical Corrections.3.” SFAS No. 145, among other things, rescinds154 replaces APB No. 20, “Accounting Changes,” and SFAS No. 4, which required all gains3, “Reporting Accounting Changes in Interim Financial Statements,” and losses fromchanges the extinguishmentrequirements for the accounting for and reporting of debt to be classified as an extraordinary item and amendsa change in accounting principle. SFAS No. 13154 applies to require that certain lease modifications that have economic effects similarall voluntary changes in accounting principle. SFAS No. 154 also applies to sale-leaseback transactions be accounted forchanges required by an accounting pronouncement in the same manner as sale-leaseback transactions.unusual instance that the pronouncement does not include specific transition provisions. SFAS No. 145154 is effective for accounting changes and corrections of errors made in fiscal years beginning after MayDecember 15, 20022005, with earlier adoption encouraged. The adoptionpermitted. Accordingly, the Company can not reasonably estimate the ultimate impact of SFAS No. 145 is not expected to have a material impact on the Company’s consolidated financial position, results of operations or cash flows.154.
2. Supplemental cash flow information:
Selected cash payments and noncash activities for the years ended March 31, 2001, 20022003, 2004 and 20032005 were as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Thousands of | | | | | | Millions of Yen | | | U.S. Dollars | | | | | |
| | |
| | | | | | 2001 | | | 2002 | | | 2003 | | | 2003 | |
| | Cash payment for interest | | ¥ | 4,889 | | | ¥ | 3,281 | | | ¥ | 2,654 | | | $ | 22,117 | | | Cash payment for income taxes | | | 16,245 | | | | 12,580 | | | | 9,047 | | | | 75,392 | | | Noncash investing activities: | | | | | | | | | | | | | | | | | | | Capitalized lease obligations incurred | | | 141 | | | | – | | | | – | | | | – | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Thousands of | | | | | Millions of Yen | | | U.S. Dollars | | | | | 2003 | | | 2004 | | | 2005 | | | 2005 | | | | | Cash payment for interest | | ¥ | 2,654 | | | ¥ | 2,458 | | | ¥ | 2,038 | | | $ | 19,047 | | | Cash payment for income taxes | | | 9,047 | | | | 14,260 | | | | 17,195 | | | | 160,701 | | | Noncash investing activities: | | | | | | | | | | | | | | | | | | Acquisition of a subsidiary: | | | | | | | | | | | | | | | | | | Fair value of assets, net of cash acquired | | | — | | | | — | | | | 60,736 | | | | 567,626 | | | Liability assumed including capital lease obligation of ¥12,882 million ($120,393 thousand) | | | — | | | | — | | | | (26,721 | ) | | | (249,729 | ) | | | | | | Payment for acquisition of a subsidiary, net of cash acquired | | | — | | | | — | | | | 34,015 | | | | 317,897 | | | | | | | Sales of discontinued operations: | | | | | | | | | | | | | | | | | | Transferred assets | | | — | | | | 14,932 | | | | — | | | | — | | | Transferred liabilities | | | — | | | | (11,823 | ) | | | — | | | | — | | | Foreign currency translation adjustments | | | — | | | | (37 | ) | | | — | | | | — | | | Gain on sales | | | — | | | | 1,825 | | | | — | | | | — | | | | | | | Cash received—net | | | — | | | | 4,897 | | | | — | | | | — | | | |
F-12 F-11
3. Acquisition: On September 30, 2004, the Company acquired 100% of the issued common stock of NEC Plasma Display Corporation (“NPD”), a subsidiary of NEC Corporation, and the intellectual property rights of NPD for cash in an aggregate amount of ¥35,097 million. NPD changed its name to Pioneer Plasma Display Corporation (“PPD”) on September 30, 2004. This acquisition was to meet a fast-growing global demand of plasma displays and to ensure its leading role in this market. The consolidated financial statements for the year ended March 31, 2005 include the operating results of PPD from the date of acquisition. In connection with this acquisition, ¥6,937 million was assigned to intangible asset of patents subject to amortization with an amortization period of 7 years which is based on legal provisions that may limit the useful life. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition: | | | | | | | Millions of Yen | | | | Current assets | | ¥ | 15,390 | | | Property, plant and equipment | | | 37,426 | | | Acquired intangible asset of patent | | | 6,937 | | | Other assets | | | 2,065 | | | Current liabilities | | | (17,420 | ) | | Long-term liabilities | | | (9,301 | ) | | | Net assets acquired | | ¥ | 35,097 | | |
The following unaudited pro forma information shows the results of the Company’s consolidated operations for the years ended March 31, 2004 and 2005 as if the acquisition had been completed at the beginning of each fiscal year presented. | | | | | | | | | | | | | Unaudited | | | | Millions of Yen | | | | 2004 | | | 2005 | | | | | Revenues | | ¥ | 752,858 | | | ¥ | 754,161 | | | Net income (loss) | | | 17,332 | | | | (19,002 | ) | | |
| | | | | | | | | | | | | | | | | Yen | | | | 2004 | | | 2005 | | | | | Net income (loss) per share: | | | | | | | | | | Basic | | ¥ | 98.80 | | | ¥ | (108.34 | ) | | Diluted | | | 98.02 | | | | (108.34 | ) | | |
F-13
3. 4. Discontinued operations:
For the year ended March 31, 2004 in accordance with SFAS No. 144, the Company presented the results of discontinued operations as a separate line item in the consolidated statements of operations under “Income from discontinued operations, net of tax.” In order to improve management efficiency by concentrating resources in strategic business, the Company reached an agreement to sell 100% of its shares in two of its wholly-owned subsidiaries, Pioneer LDC, Inc. and Pioneer Entertainment (USA) Inc., to Dentsu Inc., Japan’s largest comprehensive advertising agency. These subsidiaries were engaged in the audio/video software businesses in Tokyo, Japan and in California, the United States of America, respectively. The transfer of 100% of the shares of Pioneer LDC, Inc. and 90% of the shares of Pioneer Entertainment (USA) Inc. owned by the Company were each completed in the year ended March 31, 2004. The remaining shares of Pioneer Entertainment (USA) Inc. are expected to be transferred to Dentsu Inc. by September 30, 2006. In March 2004, Q-Tec, Inc., which had been a 99.26% owned subsidiary of the Company, became an independent company through a management buyout after acquiring all of the shares owned by the Company, with a business alliance of Vision Capital Corporation and Memory-Tech Corporation. Summarized selected financial information for the years ended March 31, 2003 and 2004 for the discontinued operations reclassified during the year ended March 31, 2004 was as follows: | | | | | | | | | | | | | Millions of Yen | | | | 2003 | | | 2004 | | | | | Revenues | | ¥ | 35,051 | | | ¥ | 16,664 | | | Cost and expenses | | ¥ | 34,500 | | | ¥ | 16,324 | | | | | Income before income taxes | | ¥ | 551 | | | ¥ | 340 | | | Gain on sales of discontinued operations | | | — | | | | 1,825 | | | Income taxes (benefit) | | | 415 | | | | (2,310 | ) | | | | Income from discontinued operations | | ¥ | 136 | | | ¥ | 4,475 | | | |
F-14
5.Available-for-sale securities:
securities and sundry investments: Cost, gross unrealized holding gains, gross unrealized holding losses and the aggregate fair value of available-for-sale securities at March 31, 20022004 and 20032005 were as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Millions of Yen | | | | | | |
| | | | | | | 2002 | | | 2003 | | | | | | |
| | |
| | | | | | | | | | | Gross | | | Gross | | | | | | | | | | | Gross | | | Gross | | | | | | | | | | | | | | | Unrealized | | | Unrealized | | | | | | | | | | | Unrealized | | | Unrealized | | | | | | | | | | | | | | | Holding | | | Holding | | | Aggregate | | | | | | | Holding | | | Holding | | | Aggregate | | | | | | | Cost | | | Gains | | | Losses | | | Fair Value | | | Cost | | | Gains | | | Losses | | | Fair Value | |
| | Marketable equity securities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Current | | ¥ | 10 | | | | – | | | ¥ | 2 | | | ¥ | 8 | | | | – | | | | – | | | | – | | | | – | | | | Non-current | | | 7,963 | | | ¥ | 10,805 | | | | 486 | | | | 18,282 | | | ¥ | 6,636 | | | ¥ | 8,187 | | | ¥ | 63 | | | ¥ | 14,760 | | | Marketable debt securities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Current | | | 3,485 | | | | – | | | | 38 | | | | 3,447 | | | | – | | | | – | | | | – | | | | – | | | | Non-current | | | 111 | | | | – | | | | 33 | | | | 78 | | | | 85 | | | | – | | | | 14 | | | | 71 | |
| | | | Total | | ¥ | 11,569 | | | ¥ | 10,805 | | | ¥ | 559 | | | ¥ | 21,815 | | | ¥ | 6,721 | | | ¥ | 8,187 | | | ¥ | 77 | | | ¥ | 14,831 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | Thousands of U.S. Dollars | | | | | | |
| | | | | | | 2003 | | | | | | |
| | | | | | | | | | | Gross | | | Gross | | | | | | | | | | | | | | | Unrealized | | | Unrealized | | | | | | | | | | | | | | | Holding | | | Holding | | | Aggregate | | | | | | | Cost | | | Gains | | | Losses | | | Fair Value | |
| | Marketable equity securities: | | | | | | | | | | | | | | | | | | | Non-current | | $ | 55,300 | | | $ | 68,225 | | | $ | 525 | | | $ | 123,000 | | | Marketable debt securities: | | | | | | | | | | | | | | | | | | | Non-current | | | 708 | | | | – | | | | 116 | | | | 592 | |
| | | | Total | | $ | 56,008 | | | $ | 68,225 | | | $ | 641 | | | $ | 123,592 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Millions of Yen | | | | | 2004 | | | 2005 | | | | | | | | | Gross | | | Gross | | | | | | | | | | | Gross | | | Gross | | | | | | | | | | | | Unrealized | | | Unrealized | | | | | | | | | | | Unrealized | | | Unrealized | | | | | | | | | | | | Holding | | | Holding | | | Aggregate | | | | | | | Holding | | | Holding | | | Aggregate | | | | | Cost | | | Gains | | | Losses | | | Fair Value | | | Cost | | | Gains | | | Losses | | | Fair Value | | | | | Marketable equity securities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Non-current | | ¥ | 6,520 | | | ¥ | 17,890 | | | ¥ | 1 | | | ¥ | 24,409 | | | ¥ | 5,734 | | | ¥ | 16,438 | | | ¥ | 2 | | | ¥ | 22,170 | | | Marketable debt securities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Non-current | | | 106 | | | | 1 | | | | — | | | | 107 | | | | 94 | | | | 4 | | | | — | | | | 98 | | | | | Total | | ¥ | 6,626 | | | ¥ | 17,891 | | | ¥ | 1 | | | ¥ | 24,516 | | | ¥ | 5,828 | | | ¥ | 16,442 | | | ¥ | 2 | | | ¥ | 22,268 | | | | | | | | | | | | | | | | | | | | | | | | | Thousands of U.S. Dollars | | | | | | | | | | | | | | | | | | | | | 2005 | | | | | | | | | | | | | | | | | | | | | | | | | Gross | | | Gross | | | | | | | | | | | | | | | | | | | | | | | | | | | | Unrealized | | | Unrealized | | | | | | | | | | | | | | | | | | | | | | | | | | | | Holding | | | Holding | | | Aggregate | | | | | | | | | | | | | | | | | Cost | | | Gains | | | Losses | | | Fair Value | | | | | Marketable equity securities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Non-current | | | | | | | | | | | | | | | | | | $ | 53,589 | | | $ | 153,626 | | | $ | 19 | | | $ | 207,196 | | | Marketable debt securities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Non-current | | | | | | | | | | | | | | | | | | | 878 | | | | 38 | | | | — | | | | 916 | | | | | Total | | | | | | | | | | | | | | | | | | $ | 54,467 | | | $ | 153,664 | | | $ | 19 | | | $ | 208,112 | | | |
The following table presents fair value and unrealized losses of available-for-sale marketable equity securities, aggregated by length of time that the individual securities have been in a continuous unrealized loss position at March 31, 2005. | | | | | | | | | | | | | | | | | | | | | Millions of Yen | | | Thousands of U.S. Dollars | | | | | Less than 12 Months | | | Less than 12 Months | | | | | Fair | | | Unrealized | | | Fair | | | Unrealized | | | | | Value | | | Losses | | | Value | | | Losses | | | | | Marketable equity securities | | ¥ | 16 | | | ¥ | 2 | | | $ | 150 | | | $ | 19 | | | |
F-15
At March 31, 2003,2005, the fair values of marketable debt securities by contractual maturities for securities classified as available-for-sale due in one year through five years were ¥ 71¥98 million ($ 592916 thousand). Gross realized gain on available-for-sale securities for the yearyears ended March 31, 2001 was ¥1,556 million.2004 and 2005 were ¥43 million and ¥2,300 million ($21,495 thousand), respectively. Gross realized losses for the years ended March 31, 20012003, 2004 and 20032005 were ¥2¥16 million, ¥6 million and ¥20¥1 million ($1669 thousand), respectively. NeitherThere was no gross realized gain nor loss on available-for-sale securities was recorded for the year ended March 31, 20022003. The Company holds marketable equity securities of customers and no gross realized gain on available-for-sale securities was recordedfinancial institutions for the year endedpurpose of maintaining long-term relationships, whose share prices are highly volatile. The Company has one investment in Japan which was in an unrealized loss position due to the share price’s poor performance at March 31, 2003.
2005. The duration of the impairment was less than six months. The Company evaluated the near-term prospects of the issuer in relation to the severity and duration of the impairment. Based on that evaluation and the Company’s ability and intent to hold this investment for a reasonable period of time sufficient for a forecasted recovery of fair value, the Company does not consider this investment to be other-than-temporarily impaired at March 31, 2005. For the years ended March 31, 2001, 20022003, 2004 and 2003,2005, losses on write-downother than temporary impairment of marketable equity securities were recognized to reflect the decline in market value considered to be other than temporary totaling ¥246¥1,346 million, ¥1,828¥27 million and ¥1,346¥3 million ($11,21728 thousand), respectively. For the year ended March 31, 2005, a loss on other-than-temporary impairment of marketable debt securities was ¥3 million ($28 thousand).
F-12
4. Sundry investments consist of non-marketable equity securities and memberships. The aggregate cost of the Company’s non-marketable equity securities totaled ¥2,977 million ($27,823 thousand) at March 31, 2005. Investments with an aggregate cost of ¥2,970 million ($27,757 thousand) were not evaluated for impairment because (a) those investments were not practicable to estimate the fair value and (b) the Company did not identify any events or changes in circumstances that may have had significant adverse effect on the fair value of those investments.
Inventories at March 31, 20022004 and 20032005 comprise the following: | | | | | | | | | | | | | | | | | | | | | | | | | | | Thousands of | | | | | | Millions of Yen | | | U.S. Dollars | | | | | |
| | |
| | | | | | 2002 | | | 2003 | | | 2003 | |
| | | Finished products | | ¥ | 53,912 | | | ¥ | 50,202 | | | | $418,350 | | | Work in process | | | 18,813 | | | | 19,158 | | | | 159,650 | | | Materials and supplies | | | 24,185 | | | | 24,260 | | | | 202,167 | |
| | | | Total | | ¥ | 96,910 | | | ¥ | 93,620 | | | | $780,167 | |
| |
| | | | | | | | | | | | | | | | | | | | | | | | | Thousands of | | | | | Millions of Yen | | | U.S. Dollars | | | | | 2004 | | | 2005 | | | 2005 | | | | | Finished products | | ¥ | 51,360 | | | ¥ | 52,807 | | | $ | 493,523 | | | Work in process | | | 27,956 | | | | 26,330 | | | | 246,075 | | | Materials and supplies | | | 28,490 | | | | 29,878 | | | | 279,233 | | | | | Total | | ¥ | 107,806 | | | ¥ | 109,015 | | | $ | 1,018,831 | | | |
5. 7.Investments in and advances to affiliated companies:
Investments in and advances to affiliated companies principally represent the Company’s equity in the underlying assets of 20% to 50% owned companies. Dividends received from companies accounted for on an equity basis were ¥6¥58 million, ¥9¥4 million and ¥58¥4 million ($ 48337 thousand), respectively, for the years ended March 31, 2001, 20022003, 2004 and 2003.2005. Retained earnings include the parent company’s and its consolidated subsidiaries’ equity in undistributed earnings of 20% to 50% owned companies accounted for on an equity basis in the amount of ¥163¥310 million and ¥245¥329 million ($2,0423,075 thousand) at March 31, 20022004 and 2003,2005, respectively. Summarized financial information of companies owned 20% to 50%, including ELDis, Inc., 45%47.5% owned by Tohoku Pioneer Corporation, a 67% owned subsidiary, accounted for by the equity method of accounting is as follows: F-16
| | | | | | | | | | | | | | | | | | | | | | | | | | Thousands of | | | | | Millions of Yen | | | U.S. Dollars | | | | |
| | |
| | | | | 2002 | | | 2003 | | | 2003 |
| | Current assets | | ¥ | 8,546 | | | ¥ | 19,802 | | | $ | 165,017 | | Property, plant and equipment | | | 15,579 | | | | 27,209 | | | | 226,742 | | Other assets | | | 2,928 | | | | 338 | | | | 2,816 |
| | | Total assets | | ¥ | 27,053 | | | ¥ | 47,349 | | | $ | 394,575 |
| | Current liabilities | | ¥ | 5,359 | | | ¥ | 4,857 | | | $ | 40,475 | | Long-term liabilities | | | 660 | | | | 27,430 | | | | 228,583 | | Shareholders’ equity | | | 21,034 | | | | 15,062 | | | | 125,517 |
| | | Total liabilities and shareholders’ equity | | ¥ | 27,053 | | | ¥ | 47,349 | | | $ | 394,575 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Thousands of | | | | | | | | Millions of Yen | | | U.S. Dollars | | | |
| | |
| | Year ended March 31 | | 2001 | | | 2002 | | | 2003 | | | 2003 |
| | Net sales | | ¥ | 4,281 | | | ¥ | 7,404 | | | ¥ | 7,845 | | | $ | 65,375 | | Gross profit | | | 849 | | | | 996 | | | | 808 | | | | 6,733 | | Net loss | | | 173 | | | | 237 | | | | 6,802 | | | | 56,683 |
|
F-13
6. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Thousands of | | | | | | | | | Millions of Yen | | | U.S. Dollars | | | | | | | | 2004 | | | 2005 | | | 2005 | | | | | Current assets | | | | | | ¥ | 10,619 | | | ¥ | 8,427 | | | $ | 78,757 | | | Property, plant and equipment | | | | | | | 28,978 | | | | 25,326 | | | | 236,692 | | | Other assets | | | | | | | 393 | | | | 403 | | | | 3,766 | | | | | Total assets | | | | | | ¥ | 39,990 | | | ¥ | 34,156 | | | $ | 319,215 | | | | | Current liabilities | | | | | | ¥ | 2,822 | | | ¥ | 5,116 | | | $ | 47,813 | | | Long-term liabilities | | | | | | | 27,110 | | | | 24,736 | | | | 231,178 | | | Shareholders’ equity | | | | | 10,058 | | | | 4,304 | | | | 40,224 | | | | | Total liabilities and shareholders’ equity | | | | | | ¥ | 39,990 | | | ¥ | 34,156 | | | $ | 319,215 | | | | | | | | | | | | | | | | | | | | | Thousands of | | | | | Millions of Yen | | | U.S. Dollars | | | Year ended March 31 | | 2003 | | | 2004 | | | 2005 | | | 2005 | | | | | Net sales | | ¥ | 7,845 | | | ¥ | 8,408 | | | ¥ | 9,229 | | | $ | 86,252 | | | Gross profit (loss) | | | 808 | | | | 1,004 | | | | (1,932 | ) | | | (18,056 | ) | | Net loss | | | 6,802 | | | | 5,023 | | | | 5,801 | | | | 54,215 | | | |
8.Intangible assets:Upon the adoption of SFAS No. 142, as discussed in Note 1, the Company reassessed the useful lives of its intangible assets and determined that it does not have any intangible assets with indefinite lives.
Intangible assets subject to amortization acquired during the year ended March 31, 20032005 totaled ¥9,083¥12,189 million ($75,692113,916 thousand) and primarily consist of software of ¥8,076¥4,853 million ($67,30045,355 thousand) and patents of ¥511¥6,937 million ($4,25864,832 thousand) (see Note 3). The weighted averageweighted-average amortization periods for software, patents and patentstotal acquired during the year ended March 31, 20032005 are 4.13.5 years, 7.0 years and 7.35.9 years, respectively. Intangible assets subject to amortization are comprised of the following:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Thousands of | | | | | Millions of Yen | | | U.S. Dollars | | | | |
| | |
| | | 2002 | | | 2003 | | | 2003 | |
| | |
| | |
| | | | | Gross | | | | | | | Gross | | | | | | | Gross | | | | | | | | | Carrying | | | Accumulated | | | Carrying | | | Accumulated | | | Carrying | | | Accumulated | | | | | Amount | | | Amortization | | | Amount | | | Amortization | | | Amount | | | Amortization | |
| | | Software | | ¥ | 18,990 | | | | (¥8,414 | ) | | ¥ | 23,726 | | | | (¥11,441 | ) | | $ | 197,717 | | | | ($95,342 | ) | | Patents | | | 28,849 | | | | (25,562 | ) | | | 25,472 | | | | (23,623 | ) | | | 212,266 | | | | (196,858 | ) | | Other | | | 3,061 | | | | (1,363 | ) | | | 2,850 | | | | (1,365 | ) | | | 23,750 | | | | (11,375 | ) |
| | | Total | | ¥ | 50,900 | | | | (¥35,339 | ) | | ¥ | 52,048 | | | | (¥36,429 | ) | | $ | 433,733 | | | | ($303,575 | ) |
| |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Thousands of | | | | | Millions of Yen | | | U.S. Dollars | | | | | 2004 | | | 2005 | | | 2005 | | | | | Gross | | | | | | | Gross | | | | | | | Gross | | | | | | | | Carrying | | | Accumulated | | | Carrying | | | Accumulated | | | Carrying | | | Accumulated | | | | | Amount | | | Amortization | | | Amount | | | Amortization | | | Amount | | | Amortization | | | | | Software | | ¥ | 31,161 | | | ¥ | (15,412 | ) | | ¥ | 34,281 | | | ¥ | (19,595 | ) | | $ | 320,383 | | | $ | (183,131 | ) | | Patents | | | 22,798 | | | | (21,426 | ) | | | 28,107 | | | | (20,538 | ) | | | 262,682 | | | | (191,944 | ) | | Other | | | 2,693 | | | | (848 | ) | | | 2,737 | | | | (940 | ) | | | 25,580 | | | | (8,785 | ) | | | | Total | | ¥ | 56,652 | | | ¥ | (37,686 | ) | | ¥ | 65,125 | | | ¥ | (41,073 | ) | | $ | 608,645 | | | $ | (383,860 | ) | | |
The aggregate amortization expense for intangible assets for the yearyears ended March 31, 2003, is ¥7,9782004 and 2005 was ¥7,949 million, ¥6,109 million and ¥7,229 million ($66,48367,561 thousand)., respectively. The estimated aggregate amortization expense for intangible assets for the next five years is as follows: | | | | | | | | | | | | | | | | | Thousands of | | | Year ending March 31 | | Millions of Yen | | | U.S. Dollars | | | | | 2006 | | ¥ | 6,811 | | | $ | 63,654 | | | 2007 | | | 5,929 | | | | 55,411 | | | 2008 | | | 4,192 | | | | 39,178 | | | 2009 | | | 3,059 | | | | 28,589 | | | 2010 | | | 2,346 | | | | 21,925 | | | |
F-17 | | | | | | | | | | | | | | | | | Thousands of | | | Year ending March 31 | | Millions of Yen | | | U.S. Dollars | |
| |
| | 2004 | | ¥ | 5,188 | | | $ | 43,233 | | | 2005 | | | 4,102 | | | | 34,183 | | | 2006 | | | 2,824 | | | | 23,533 | | | 2007 | | | 1,361 | | | | 11,342 | | | 2008 | | | 839 | | | | 6,992 | |
|
F-14
Amounts previously reported for net income and basic and diluted earnings per share for the years ended March 31, 2001 and 2002 are reconciled to amounts adjusted to
exclude the amortization expense related to goodwill and net income and basic and diluted earnings per share for the year ended March 31, 2003 as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Thousands of | | | | | | | | | | | | | Millions of Yen | | | U.S. Dollars | | | | |
| | |
| | | | 2001 | | | 2002 | | | 2003 | | | | | | | 2003 |
| | Reported net income | | ¥ | 18,298 | | | ¥ | 8,047 | | | ¥ | 16,078 | | | | | | | $ | 133,983 | | | Add back: Goodwill amortization | | | 610 | | | | 748 | | | | – | | | | | | | | – | |
| | Adjusted net income | | ¥ | 18,908 | | | ¥ | 8,795 | | | ¥ | 16,078 | | | | | | | $ | 133,983 | |
|
| | | | | | | | | | | | | | | | | | | | | | | Yen | | | U.S. Dollars | | | | | |
| | |
| | | | | | 2001 | | | 2002 | | | 2003 | | | 2003 | |
| | Basic earnings per share: | | | | | | | | | | | | | | | | | | | Reported net income | | ¥ | 101.76 | | | ¥ | 44.70 | | | ¥ | 90.24 | | | $ | 0.75 | | | | Goodwill amortization | | | 3.39 | | | | 4.15 | | | | – | | | | – | |
| | | Adjusted net income | | ¥ | 105.15 | | | ¥ | 48.85 | | | ¥ | 90.24 | | | $ | 0.75 | |
| | Diluted earnings per share: | | | | | | | | | | | | | | | | | | | Reported net income | | ¥ | 101.70 | | | ¥ | 44.69 | | | ¥ | 90.24 | | | $ | 0.75 | | | | Goodwill amortization | | | 3.39 | | | | 4.15 | | | | – | | | | – | |
| | | Adjusted net income | | ¥ | 105.09 | | | ¥ | 48.84 | | | ¥ | 90.24 | | | $ | 0.75 | |
|
7. 9.Short-term borrowings and long-term debt:
Short-term borrowings at March 31, 20022004 and 20032005 comprise the following: | | | | | | | | | | | | | | | | | | | | | | | | | | | Thousands of | | | | | | Millions of Yen | | | U.S. Dollars | | | | | |
| | |
| | | | | | 2002 | | | 2003 | | | 2003 | |
| | Bank loans
Weighted average interest rate 2.04% at March 31, 2002 and 2.01% at March 31, 2003: | | | | | | | | | | | | | | | Uncollateralized | | ¥ | 45,867 | | | ¥ | 29,893 | | | $ | 249,108 | |
| |
| | | | | | | | | | | | | | | | | | | | | | | | | Thousands of | | | | | Millions of Yen | | | U.S. Dollars | | | | | 2004 | | | 2005 | | | 2005 | | | | | Bank loans: | | | | | | | | | | | | | | Weighted-average interest rate 1.74% at March 31, 2004 and 1.25% at March 31, 2005: | | | | | | | | | | | | | | Uncollateralized | | ¥ | 23,327 | | | ¥ | 33,152 | | | $ | 309,832 | | | | | | | Long-term debt at March 31, 2004 and 2005 comprises the following: | | | | | | | | | | | | | | Thousands of | | | | | Millions of Yen | | | U.S. Dollars | | | | | 2004 | | | 2005 | | | 2005 | | | | | Loans, principally from banks, maturing serially through 2013 interest ranging from 3.06% to 3.90% at March 31, 2004 and from 2.90% to 3.06% at March 31, 2005: | | | | | | | | | | | | | | Collateralized | | ¥ | 2,804 | | | ¥ | 1,960 | | | $ | 18,318 | | | Uncollateralized | | | 3,680 | | | | 50 | | | | 467 | | | 2.35% Uncollateralized bonds due 2005 | | | 15,000 | | | | 15,000 | | | | 140,187 | | | 2.80% Uncollateralized bonds due 2008 | | | 10,000 | | | | 10,000 | | | | 93,458 | | | Zero coupon convertible bonds due 2011, including unamortized issue premium, ¥1,779 million ($16,626 thousand) (effective annual rate 0.5%) | | | 62,079 | | | | 61,779 | | | | 577,374 | | | Long-term capital lease obligations, 1.25% to 3.26% at March 31, 2005, due principally to 2012 | | | — | | | | 11,129 | | | | 104,009 | | | Industrial development U.S. dollar revenue bonds due 2005 with fluctuating interest rates (1.29% at March 31, 2004 and 1.70% at March 31, 2005), subject to maximum rate of 15% in 2004 and 2005 and other | | | 638 | | | | 577 | | | | 5,393 | | | | | Total | | | 94,201 | | | | 100,495 | | | | 939,206 | | | Less—Portion due within one year | | | 4,510 | | | | 19,276 | | | | 180,150 | | | | | Total | | ¥ | 89,691 | | | ¥ | 81,219 | | | $ | 759,056 | | | |
F-18 F-15
Long-term debt at March 31, 2002 and 2003 comprises the following:
| | | | | | | | | | | | | | | | | | | | | | | | | | | Thousands of | | | | | | Millions of Yen | | | U.S. Dollars | | | | | |
| | |
| | | | | | 2002 | | | 2003 | | | 2003 | |
| | Loans, principally from banks, maturing serially through 2013 interest ranging from 1.39% to 4.00% at March 31, 2002 and from 1.85% to 3.90% at March 31, 2003: | | | | | | | | | | | | | | | Collateralized | | ¥ | 6,172 | | | ¥ | 3,048 | | | | $25,400 | | | | Uncollateralized | | | 6,160 | | | | 4,370 | | | | 36,417 | | | 2.35% Uncollateralized bonds due 2005 | | | 15,000 | | | | 15,000 | | | | 125,000 | | | 2.80% Uncollateralized bonds due 2008 | | | 10,000 | | | | 10,000 | | | | 83,333 | | | Industrial development U.S. dollar revenue bonds due 2005 with fluctuating interest rates (1.65% at March 31, 2002, and 1.59% at March 31, 2003), subject to maximum rates of 15% in 2002 and 2003 and other | | | 896 | | | | 752 | | | | 6,267 | |
| | | Total | | | 38,228 | | | | 33,170 | | | | 276,417 | | | Less—Portion due within one year | | | 2,551 | | | | 974 | | | | 8,117 | |
| | | Total | | ¥ | 35,677 | | | ¥ | 32,196 | | | | $268,300 | |
|
The outstanding bond indentures generally require the parent company to provide collateral for the outstanding bonds if the parent company provides collateral to new bonds issued in Japan. On March 5, 2004, the parent company issued ¥60,000 million zero coupon convertible bonds due 2011 (bonds with stock acquisition rights) (“Bonds”) at 103.5% of their principal amount. The Bonds do not bear interest. The stock acquisition rights are not transferable separately from the Bonds. The Bonds are traded on the London Stock Exchange’s market for listed securities. The Bonds were issued in the denomination of ¥5 million each and each bondholder is entitled to exercise the stock acquisition right from April 1, 2006 until February 18, 2011 (unless previously redeemed) into common shares at an initial conversion price, subject to adjustment in certain events, of ¥4,022. Market price of common stock at the date of issuance of the Bonds was ¥3,220. Parent company may redeem all, but not some of the Bonds, with advance irrevocable notice to bondholders in each case (1) if the closing price of common stock for each of the 30 consecutive trading days is at least 120% of the conversion price on or after March 4, 2007 and prior to maturity, or (2) if the laws or regulations of Japan having power to tax is changed, or (3) if a resolution is passed at the general meeting of shareholders of the parent company to become a wholly-owned subsidiary of another company. The stock acquisition right is also exercisable on or after March 19, 2004 if the parent company issues an irrevocable notice to bondholders for (2) or (3) above, or if a resolution passes at a general meeting of shareholders of parent company (a) for any consolidation or amalgamation of parent company with any company, or (b) for any split of parent company’s business, or (c) for the parent company to become a wholly-owned subsidiary of another company. The parent company will redeem the outstanding Bonds at 100% of their principal amount on March 4, 2011. Unused lines of credit for short-term financing at March 31, 20032005 approximated ¥231,829¥230,109 million ($ 1,931,9082,150,551 thousand) of which ¥30,000 million ($ 250,000280,374 thousand) relates to commercial paper programs. Unused commitments for long-term financing arrangements at March 31, 20032005 amounted to ¥5,000 million ($ 41,66746,729 thousand). There were no commitment fees. Land and buildings with a book value of ¥6,176¥5,999 million ($51,46756,065 thousand) were pledged as collateral for certain long-term loans of the Company at March 31, 2003.2005. The aggregate annual maturities of long-term debt during the five years ending March 31, 20082010 and thereafter are as follows: | | | | | | | | | | | | | | | | | Thousands of | | | Year ending March 31 | | Millions of Yen | | | U.S. Dollars | |
| | |
| | | 2004 | | | ¥974 | | | | $8,117 | | | 2005 | | | 4,521 | | | | 37,675 | | | 2006 | | | 15,927 | | | | 132,725 | | | 2007 | | | 258 | | | | 2,150 | | | 2008 | | | 250 | | | | 2,083 | |
|
| | | | | | | | | | | | | | | | | Thousands of | | | Year ending March 31 | | Millions of Yen | | | U.S. Dollars | | | | | 2006 | | ¥ | 19,276 | | | $ | 180,150 | | | 2007 | | | 3,338 | | | | 31,196 | | | 2008 | | | 2,649 | | | | 24,757 | | | 2009 | | | 10,740 | | | | 100,374 | | | 2010 | | | 716 | | | | 6,692 | | | 2011 and thereafter | | | 63,776 | | | | 596,037 | | | | | Total | | ¥ | 100,495 | | | $ | 939,206 | | | |
Substantially all short-term and long-term loans from banks are made under agreements which, as is customary in Japan, provide that the bank may, under certain conditions, require the borrower to provide collateral (or additional collateral) or guarantors with respect to the loans, and that the bank may treat any collateral, whether furnished as security for short-term or long-term loans or otherwise, as collateral for all indebtedness to such bank. The Company has no compensating balance arrangements with any lending bank. F-19
F-16
8. 10.Pension plans and accrued severance cost: The parent company and major domestic subsidiaries have trusteed non-contributory defined benefit pension plans which cover substantially all of their employees. The benefits are in the form of annuity payments and/or lump-sum payments and are based on points and length of service and conditions under which termination occurs. The Company’s policy is to fund amounts required to maintain sufficient plan assets to provide for accrued benefits, subject to the limitation on deductibility imposed by the Japanese income tax laws. The plan assets are invested primarily in interest-bearing securities, marketable equity securities and loan receivables. The Company also sponsors a domestic contributory defined-benefit welfare pension plan (the “welfare pension plan”) covering substantially all of its Japanese employees. The benefits of the welfare pension plan are primarily based on years of service and on the average compensation during years of service and subject to governmental regulations. The welfare pension plan consists of a basic component,substitutional portion, which has been specified by the Japanese government’s welfare pension regulations, and componentsa corporate portion established by the Company. During the year ended March 31, 2003, the Company established a new component within the welfare pension plan. The new component covers a part of the parent company’s employees. Management considers that a portion of the contributorywelfare pension plan, which is administered by a board of trustees composed of management and labor representatives, represents a welfare pension plan carried on behalf of the Japanese government. Management believes that
The Company received approval from the government for an exemption from the obligation to pay benefits for future employee service related to the substitutional portion on October 29, 2003 and an exemption from the obligation to pay benefits for past employee service related to the substitutional portion on November 1, 2004. On March 11, 2005, the benefit obligation for the additional component is approximately one fifth of the total benefit obligation. Thesubstitutional portion and the related government-specified portion of plan assets of the welfare pension plan were transferred to the government. In accordance with EITF Issue No. 03-2, “Accounting for the Transfer to the Japanese Government of the Substitutional Portion of Employee Pension Fund Liabilities,” the Company recorded the transaction upon completion of transfer to the government of the substitutional portion of the benefit obligation and related plan assets. The transfer resulted in the Company recording a subsidy from the government of ¥48,697 million ($455,112 thousand) representing the difference between the accumulated benefit obligation of the substitutional portion and the related plan assets. Additionally, the Company recorded a reduction in net periodic benefit cost related to the derecognition of previously accrued salary progression of ¥2,402 million ($22,448 thousand) and a settlement loss of ¥51,893 million ($484,981 thousand). The total amount of derecognition of previously accrued salary progression and settlement loss is fundedallocated to cost of sales of ¥25,339 million ($236,813 thousand) and selling, general and administrative expenses of ¥24,152 million ($225,720 thousand). In the year ended March 31, 2005, the Company amended the corporate portion of the contributory plan. A major change was a change in conformity with the funding requirementsbenefits calculation factor and the period of applicable governmental regulations.benefit payments. The amendment generated an unrecognized prior service gain of ¥9,602 million ($89,738 thousand). The plan assets and pension obligation for the non-contributory plans and the contributory plan of the parent company and certain subsidiaries are invested primarilymeasured at March 31 in interest-bearing securities, marketable equity securities and loan receivables.each fiscal year. Net periodic benefit costs for the non-contributory plans and the contributory plan of the parent company and certain domestic subsidiaries for 2001, 2002the years ended March 31, 2003, 2004 and 20032005 consisted of the following: F-20
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Thousands of | | | | | | | Millions of Yen | | | U.S. Dollars | | | | | | |
| | |
| | | | | | | 2001 | | 2002 | | 2003 | | 2003 | | | | | |
| |
| |
| |
| | | | | | Non- | | | | | | | Non- | | | | | | | Non- | | | | | | | Non- | | | | | | | | | | | Contributory | | | Contributory | | | Contributory | | | Contributory | | | Contributory | | | Contributory | | | Contributory | | | Contributory | | | | | | | Plans | | | Plan | | | Plans | | | Plan | | | Plans | | | Plan | | | Plans | | | Plan | |
| | Service cost | | | ¥2,519 | | | | ¥1,312 | | | | ¥2,657 | | | | ¥1,288 | | | | ¥2,884 | | | | ¥2,400 | | | | $24,033 | | | | $20,000 | | | Interest cost | | | 1,732 | | | | 2,954 | | | | 1,662 | | | | 2,926 | | | | 1,695 | | | | 3,195 | | | | 14,125 | | | | 26,625 | | | Expected return on assets | | | (2,091 | ) | | | (2,450 | ) | | | (1,907 | ) | | | (2,245 | ) | | | (1,606 | ) | | | (1,941 | ) | | | (13,383 | ) | | | (16,175 | ) | | Amortization of unrecognized net actuarial loss | | | 171 | | | | 276 | | | | 744 | | | | 1,287 | | | | 1,021 | | | | 1,853 | | | | 8,508 | | | | 15,442 | | | Amortization of unrecognized net assets at date of application | | | (163 | ) | | | (344 | ) | | | (163 | ) | | | (344 | ) | | | (163 | ) | | | (344 | ) | | | (1,358 | ) | | | (2,867 | ) | | Amortization of unrecognized prior service gain | | | (535 | ) | | | – | | | | (535 | ) | | | (364 | ) | | | (535 | ) | | | (364 | ) | | | (4,458 | ) | | | (3,033 | ) |
| | | | Net periodic benefit cost | | | ¥1,633 | | | | ¥1,748 | | | | ¥2,458 | | | | ¥2,548 | | | | ¥3,296 | | | | ¥4,799 | | | | $27,467 | | | | $39,992 | |
| Actuarial assumptions: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Discount rate | | | 2.8 | % | | | 4.5 | % | | | 2.7 | % | | | 4.3 | % | | | 2.2 | % | | | 4.1 | % | | | | | | | | | | | Rate of salary increase | | | –* | | | | 3.1 | % | | | –* | | | | 2.7 | % | | | –* | | | | 2.6 | % | | | | | | | | | | | Long-term rate of return on plan assets | | | 4.5 | % | | | 4.5 | % | | | 4.5 | % | | | 4.5 | % | | | 3.9 | % | | | 3.9 | % | | | | | | | | |
|
*Non-contributory plans are not pay-related.
F-17
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Thousands of | | | | | Millions of Yen | | | U.S. Dollars | | | | | 2003 | | | 2004 | | | 2005 | | | 2005 | | | | | Non- | | | | | | | Non- | | | | | | | Non- | | | | | | | Non- | | | | | | | | contributory | | | Contributory | | | contributory | | | Contributory | | | contributory | | | Contributory | | | contributory | | | Contributory | | | | | Plans | | | Plan | | | Plans | | | Plan | | | Plans | | | Plan | | | Plans | | | Plan | | | | | Service cost | | ¥ | 2,884 | | | ¥ | 2,400 | | | ¥ | 2,892 | | | ¥ | 2,860 | | | ¥ | 2,795 | | | ¥ | 1,745 | | | $ | 26,121 | | | $ | 16,308 | | | Interest cost | | | 1,695 | | | | 3,195 | | | | 1,518 | | | | 3,301 | | | | 1,712 | | | | 3,512 | | | | 16,000 | | | | 32,823 | | | Expected return on assets | | | (1,606 | ) | | | (1,941 | ) | | | (1,386 | ) | | | (1,741 | ) | | | (1,692 | ) | | | (2,037 | ) | | | (15,813 | ) | | | (19,037 | ) | | Amortization of unrecognized net actuarial loss | | | 1,021 | | | | 1,853 | | | | 1,632 | | | | 2,428 | | | | 1,185 | | | | 2,040 | | | | 11,075 | | | | 19,065 | | | Amortization of unrecognized net assets at date of application | | | (163 | ) | | | (344 | ) | | | (160 | ) | | | (344 | ) | | | (160 | ) | | | (344 | ) | | | (1,495 | ) | | | (3,215 | ) | | Amortization of unrecognized prior service gain | | | (535 | ) | | | (364 | ) | | | (535 | ) | | | (364 | ) | | | (535 | ) | | | (364 | ) | | | (5,000 | ) | | | (3,402 | ) | | Settlement loss | | | — | | | | — | | | | — | | | | — | | | | — | | | | 51,893 | | | | — | | | | 484,981 | | | Derecognition of previously accrued salary progression | | | — | | | | — | | | | — | | | | — | | | | — | | | | (2,402 | ) | | | — | | | | (22,448 | ) | | | | Net periodic benefit cost | | ¥ | 3,296 | | | ¥ | 4,799 | | | ¥ | 3,961 | | | ¥ | 6,140 | | | ¥ | 3,305 | | | ¥ | 54,043 | | | $ | 30,888 | | | $ | 505,075 | | | | Actuarial assumptions used to determine net periodic pension cost: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Discount rate | | | 2.7 | % | | | 4.3 | % | | | 2.2 | % | | | 4.1 | % | | | 2.5 | % | | | 4.1 | % | | | | | | | | | | Rate of salary increase | | | — | * | | | 2.7 | % | | | — | * | | | 2.6 | % | | | — | * | | | 2.6 | % | | | | | | | | | | Long-term rate of return on plan assets | | | 3.9 | % | | | 3.9 | % | | | 3.9 | % | | | 3.9 | % | | | 3.9 | % | | | 3.9 | % | | | | | | | | | | |
| | | | * | | Non-contributory plans are not pay-related. |
F-21
Reconciliations of beginning and ending balances of benefit obligations and the fair value of the plan assets are as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Thousands of | | | | | | | Millions of Yen | | | | | | | U.S. Dollars | | | | | | |
| | |
| | | | | | | 2002 | | 2003 | | 2003 | | | | | | |
| |
| |
| | | | | | | Non- | | | | | | | Non- | | | | | | | Non- | | | | | | | | | | | Contributory | | | Contributory | | | Contributory | | | Contributory | | | Contributory | | | Contributory | | | | | | | Plans | | | Plan | | | Plans | | | Plan | | | Plans | | | Plan | |
| Change in benefit obligation: | | | | | | | | | | | | | | | | | | | | | | | | | | | Benefit obligation at beginning of year | | | ¥59,391 | | | | ¥65,023 | | | | ¥62,802 | | | | ¥74,305 | | | | $523,350 | | | | $619,209 | | | | Service cost | | | 2,657 | | | | 1,288 | | | | 2,884 | | | | 2,400 | | | | 24,033 | | | | 20,000 | | | | Interest cost | | | 1,662 | | | | 2,926 | | | | 1,695 | | | | 3,195 | | | | 14,125 | | | | 26,625 | | | | Plan participants’ contribution | | | – | | | | 1,080 | | | | – | | | | 1,063 | | | | – | | | | 8,858 | | | | Actuarial loss | | | 1,492 | | | | 4,718 | | | | 5,086 | | | | 534 | | | | 42,383 | | | | 4,450 | | | | Lump-sum cash payments | | | (2,078 | ) | | | – | | | | (2,607 | ) | | | – | | | | (21,725 | ) | | | – | | | | Benefits paid | | | (322 | ) | | | (730 | ) | | | (414 | ) | | | (985 | ) | | | (3,450 | ) | | | (8,208 | ) |
| | | | Benefit obligation at end of year | | | ¥62,802 | | | | ¥74,305 | | | | ¥69,446 | | | | ¥80,512 | | | | $578,716 | | | | $670,934 | |
| Change in plan assets: | | | | | | | | | | | | | | | | | | | | | | | | | | | Fair value of plan assets at beginning of year | | | ¥42,334 | | | | ¥49,899 | | | | ¥41,167 | | | | ¥49,778 | | | | $343,058 | | | | $414,817 | | | | Actual return on plan assets | | | (2,494 | ) | | | (2,855 | ) | | | (6,198 | ) | | | (7,963 | ) | | | (51,650 | ) | | | (66,358 | ) | | | Employer contribution | | | 3,727 | | | | 2,384 | | | | 3,975 | | | | 2,746 | | | | 33,125 | | | | 22,883 | | | | Plan participants’ contribution | | | – | | | | 1,080 | | | | – | | | | 1,063 | | | | – | | | | 8,858 | | | | Lump-sum cash payments | | | (2,078 | ) | | | – | | | | (2,607 | ) | | | – | | | | (21,725 | ) | | | – | | | | Benefits paid | | | (322 | ) | | | (730 | ) | | | (414 | ) | | | (985 | ) | | | (3,450 | ) | | | (8,208 | ) |
| | | | Fair value of plan assets at end of year | | | ¥41,167 | | | | ¥49,778 | | | | ¥35,923 | | | | ¥44,639 | | | | $299,358 | | | | $371,992 | |
| | | Funded status | | | (¥21,635 | ) | | | (¥24,527 | ) | | | (¥33,523 | ) | | | (¥35,873 | ) | | | ($279,358 | ) | | | ($298,942 | ) | | | Unrecognized actuarial loss | | | 24,605 | | | | 33,798 | | | | 36,474 | | | | 42,383 | | | | 303,950 | | | | 353,192 | | | | Unrecognized net assets at the date of application | | | (809 | ) | | | (1,641 | ) | | | (646 | ) | | | (1,297 | ) | | | (5,384 | ) | | | (10,808 | ) | | | Unrecognized prior service gain | | | (8,770 | ) | | | (4,937 | ) | | | (8,235 | ) | | | (4,573 | ) | | | (68,625 | ) | | | (38,109 | ) |
| | | | Net amount recognized | | | (¥6,609 | ) | | | ¥2,693 | | | | (¥5,930 | ) | | | ¥640 | | | | ($49,417 | ) | | | $5,333 | |
| Amounts recognized in the statement of financial position consist of: | | | | | | | | | | | | | | | | | | | | | | | | | | | Accrued benefit liabilities | | | (¥19,358 | ) | | | (¥22,063 | ) | | | (¥31,037 | ) | | | (¥33,013 | ) | | | ($258,642 | ) | | | ($275,108 | ) | | | Accumulated other comprehensive income | | | 12,749 | | | | 24,756 | | | | 25,107 | | | | 33,653 | | | | 209,225 | | | | 280,441 | |
| | | | Net amount recognized | | | (¥6,609 | ) | | ¥ | 2,693 | | | | (¥5,930 | ) | | | ¥640 | | | | ($49,417 | ) | | | $5,333 | |
| | Accumulated benefit obligation at end of year | | | ¥60,438 | | | | ¥71,841 | | | | ¥66,960 | | | | ¥77,652 | | | | $558,000 | | | | $647,100 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Thousands of | | | | | Millions of Yen | | | U.S. Dollars | | | | | 2004 | | | 2005 | | | 2005 | | | | | Non- | | | | | | | Non- | | | | | | | Non- | | | | | | | | contributory | | | Contributory | | | contributory | | | Contributory | | | contributory | | | Contributory | | | | | Plans | | | Plan | | | Plans | | | Plan | | | Plans | | | Plan | | | | Change in benefit obligation: | | | | | | | | | | | | | | | | | | | | | | | | | | Benefit obligation at beginning of year | | ¥ | 69,446 | | | ¥ | 80,512 | | | ¥ | 68,465 | | | ¥ | 85,660 | | | $ | 639,860 | | | $ | 800,561 | | | Service cost | | | 2,892 | | | | 2,860 | | | | 2,795 | | | | 1,745 | | | | 26,121 | | | | 16,308 | | | Interest cost | | | 1,518 | | | | 3,301 | | | | 1,712 | | | | 3,512 | | | | 16,000 | | | | 32,823 | | | Plan participants’ contribution | | | — | | | | 659 | | | | — | | | | 39 | | | | — | | | | 364 | | | Actuarial loss (gain) | | | (3,004 | ) | | | (543 | ) | | | (922 | ) | | | 37,013 | | | | (8,617 | ) | | | 345,916 | | | Lump-sum cash payments | | | (1,429 | ) | | | — | | | | (1,878 | ) | | | — | | | | (17,551 | ) | | | — | | | Benefits paid | | | (507 | ) | | | (1,129 | ) | | | (623 | ) | | | (1,287 | ) | | | (5,822 | ) | | | (12,028 | ) | | Transfer of substitutional portion | | | — | | | | — | | | | — | | | | (92,219 | ) | | | — | | | | (861,860 | ) | | Plan amendment | | | — | | | | — | | | | — | | | | (9,602 | ) | | | — | | | | (89,738 | ) | | Decrease due to sales of discontinued operations | | | (451 | ) | | | — | | | | — | | | | — | | | | — | | | | — | | | | | Benefit obligation at end of year | | ¥ | 68,465 | | | ¥ | 85,660 | | | ¥ | 69,549 | | | ¥ | 24,861 | | | $ | 649,991 | | | $ | 232,346 | | | | Change in plan assets: | | | | | | | | | | | | | | | | | | | | | | | | | | Fair value of plan assets at beginning of year | | ¥ | 35,923 | | | ¥ | 44,639 | | | ¥ | 43,375 | | | ¥ | 52,220 | | | $ | 405,374 | | | $ | 488,037 | | | Actual return on plan assets | | | 5,739 | | | | 5,670 | | | | 2,016 | | | | 688 | | | | 18,841 | | | | 6,430 | | | Employer contribution | | | 4,040 | | | | 2,381 | | | | 4,074 | | | | 1,821 | | | | 38,074 | | | | 17,019 | | | Plan participants’ contribution | | | — | | | | 659 | | | | — | | | | 39 | | | | — | | | | 364 | | | Lump-sum cash payments | | | (1,429 | ) | | | — | | | | (1,878 | ) | | | — | | | | (17,551 | ) | | | — | | | Benefits paid | | | (507 | ) | | | (1,129 | ) | | | (623 | ) | | | (1,287 | ) | | | (5,822 | ) | | | (12,028 | ) | | Transfer of substitutional portion | | | — | | | | — | | | | — | | | | (41,120 | ) | | | — | | | | (384,299 | ) | | Decrease due to sales of discontinued operations | | | (391 | ) | | | — | | | | — | | | | — | | | | — | | | | — | | | | | Fair value of plan assets at end of year | | ¥ | 43,375 | | | ¥ | 52,220 | | | ¥ | 46,964 | | | ¥ | 12,361 | | | $ | 438,916 | | | $ | 115,523 | | | | | Funded status | | ¥ | (25,090 | ) | | ¥ | (33,440 | ) | | ¥ | (22,585 | ) | | ¥ | (12,500 | ) | | $ | (211,075 | ) | | $ | (116,823 | ) | | Unrecognized actuarial loss | | | 27,476 | | | | 35,483 | | | | 25,045 | | | | 19,912 | | | | 234,066 | | | | 186,094 | | | Unrecognized net assets at the date of application | | | (486 | ) | | | (953 | ) | | | (326 | ) | | | (609 | ) | | | (3,047 | ) | | | (5,691 | ) | | Unrecognized prior service gain | | | (7,700 | ) | | | (4,209 | ) | | | (7,165 | ) | | | (13,447 | ) | | | (66,963 | ) | | | (125,673 | ) | | | | Net amount recognized | | ¥ | (5,800 | ) | | ¥ | (3,119 | ) | | ¥ | (5,031 | ) | | ¥ | (6,644 | ) | | $ | (47,019 | ) | | $ | (62,093 | ) | | | Amounts recognized in the statement of financial position consist of: | | | | | | | | | | | | | | | | | | | | | | | | | | Accrued benefit liabilities | | ¥ | (23,017 | ) | | ¥ | (27,302 | ) | | ¥ | (20,589 | ) | | ¥ | (12,170 | ) | | $ | (192,421 | ) | | $ | (113,738 | ) | | Accumulated other comprehensive income | | | 17,217 | | | | 24,183 | | | | 15,558 | | | | 5,526 | | | | 145,402 | | | | 51,645 | | | | | Net amount recognized | | ¥ | (5,800 | ) | | ¥ | (3,119 | ) | | ¥ | (5,031 | ) | | ¥ | (6,644 | ) | | $ | (47,019 | ) | | $ | (62,093 | ) | | | | Accumulated benefit obligation at end of year | | ¥ | 66,392 | | | ¥ | 79,522 | | | ¥ | 67,543 | | | ¥ | 24,531 | | | $ | 631,243 | | | $ | 229,261 | | | | Actuarial assumptions used to determine benefit obligations: | | | | | | | | | | | | | | | | | | | | | | | | | | Discount rate | | | 2.5 | % | | | 4.1 | % | | | 2.5 | % | | | 2.5 | % | | | | | | | | | | Rate of salary increase | | | — | * | | | 2.6 | % | | | — | * | | | — | ** | | | | | | | | | | |
| | | | * | | Non-contributory plans are not pay-related. | | | ** | | Corporate portion of contributory plan are not pay-related. |
F-22 F-18
Substantially all of the employees of U.S. and European subsidiaries are covered by defined benefit pension plans. The plan assets and pension obligations for the defined benefit pension plans of U.S. and European subsidiaries are measured at March 31 in each fiscal year. Net periodic benefit costs for the defined benefit pension plans of U.S. and European subsidiaries for the years ended March 31, 2003, 2004 and 2005 consisted of the following: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Thousands of | | | | | Millions of Yen | | | U.S. Dollars | | | | | 2003 | | | 2004 | | | 2005 | | | 2005 | | | | | Service cost | | ¥ | 566 | | | ¥ | 542 | | | ¥ | 565 | | | $ | 5,280 | | | Interest cost | | | 632 | | | | 639 | | | | 693 | | | | 6,477 | | | Expected return on assets | | | (166 | ) | | | (442 | ) | | | (580 | ) | | | (5,420 | ) | | Amortization of unrecognized net actuarial loss (gain) | | | (9 | ) | | | 11 | | | | 52 | | | | 486 | | | Amortization of unrecognized prior service cost | | | 17 | | | | 16 | | | | 4 | | | | 37 | | | Curtailment/settlement loss (gain) | | | (168 | ) | | | (18 | ) | | | 26 | | | | 243 | | | | | Net periodic benefit cost | | ¥ | 872 | | | ¥ | 748 | | | ¥ | 760 | | | $ | 7,103 | | | | Actuarial assumptions used to determine net periodic pension cost: | | | | | | | | | | | | | | | | | | Discount rate | | | 6.5 | % | | | 6.1 | % | | | 5.6 | % | | | | | | Rate of salary increase | | | 4.3 | % | | | 3.9 | % | | | 4.0 | % | | | | | | Long-term rate of return on plan assets | | | 7.5 | % | | | 7.6 | % | | | 7.0 | % | | | | | | |
F-23
Reconciliations of beginning and ending balances of benefit obligations and the fair value of the plan assets are as follows: | | | | | | | | | | | | | | | | | | | | | | | | | Thousands of | | | | | Millions of Yen | | | U.S. Dollars | | | | | 2004 | | | 2005 | | | 2005 | | | | Change in benefit obligation: | | | | | | | | | | | | | | Benefit obligation at beginning of year | | ¥ | 10,732 | | | ¥ | 12,574 | | | $ | 117,514 | | | Service cost | | | 542 | | | | 565 | | | | 5,280 | | | Interest cost | | | 639 | | | | 693 | | | | 6,477 | | | Plan participants’ contribution | | | 103 | | | | 110 | | | | 1,028 | | | Actuarial loss | | | 1,496 | | | | 781 | | | | 7,299 | | | Benefits paid | | | (235 | ) | | | (228 | ) | | | (2,131 | ) | | Curtailment | | | (80 | ) | | | (1,412 | ) | | | (13,196 | ) | | Translation adjustments | | | (623 | ) | | | 512 | | | | 4,785 | | | | | Benefit obligation at end of year | | ¥ | 12,574 | | | ¥ | 13,595 | | | $ | 127,056 | | | | Change in plan assets: | | | | | | | | | | | | | | Fair value of plan assets at beginning of year | | ¥ | 6,248 | | | ¥ | 7,656 | | | $ | 71,551 | | | Actual return on plan assets | | | 1,249 | | | | 499 | | | | 4,664 | | | Employer contribution | | | 703 | | | | 990 | | | | 9,252 | | | Plan participants’ contribution | | | 103 | | | | 110 | | | | 1,028 | | | Benefits paid | | | (232 | ) | | | (228 | ) | | | (2,131 | ) | | Translation adjustments | | | (415 | ) | | | 303 | | | | 2,832 | | | | | Fair value of plan assets at end of year | | ¥ | 7,656 | | | ¥ | 9,330 | | | $ | 87,196 | | | | | Funded status | | ¥ | (4,918 | ) | | ¥ | (4,265 | ) | | $ | (39,860 | ) | | Unrecognized actuarial loss | | | 2,317 | | | | 1,814 | | | | 16,954 | | | Unrecognized prior service cost | | | 62 | | | | 58 | | | | 542 | | | | | Net amount recognized | | ¥ | (2,539 | ) | | ¥ | (2,393 | ) | | $ | (22,364 | ) | | | Amounts recognized in the statement of financial position consists of: | | | | | | | | | | | | | | Accrued benefit liabilities | | ¥ | (3,096 | ) | | ¥ | (3,263 | ) | | $ | (30,495 | ) | | Accumulated other comprehensive income | | | 557 | | | | 870 | | | | 8,131 | | | | | Net amount recognized | | ¥ | (2,539 | ) | | ¥ | (2,393 | ) | | $ | (22,364 | ) | | | | Accumulated benefit obligation at end of year | | ¥ | 10,556 | | | ¥ | 12,344 | | | $ | 115,364 | | | | Actuarial assumptions used to determine benefit obligations: | | | | | | | | | | | | | | Discount rate | | | 5.6% | | | | 5.4% | | | | | | | Rate of salary increase | | | 4.0% | | | | 4.0% | | | | | | | |
The accumulated benefit obligations and the fair value of plan assets for the pension plans with accumulated benefit obligations in excess of plan assets are as follows: | | | | | | | | | | | | | | | | | | | | | | | | | Thousands of | | | | | Millions of Yen | | | U.S. Dollars | | | | | 2004 | | | 2005 | | | 2005 | | | | | Accumulated benefit obligations | | ¥ | 10,430 | | | ¥ | 11,474 | | | $ | 107,234 | | | Fair value of plan assets | | | 7,483 | | | | 8,369 | | | | 78,215 | | | |
F-24
The unrecognized prior service gain,gain/cost, the unrecognized actuarial loss and the unrecognized net assets at the date of initial application are being amortized over the average remaining service period of employees, both foremployees. The Company determines the non-contributory plans and for the contributory plan. Substantially allexpected long-term rate of the employeesreturn on pension plan assets based on weighted average of major U.S. and European subsidiaries are covered by a defined benefit pension plan. The projected benefit obligations for the plan and related fair valueexpected long-term returns on various categories of plan assets, were ¥9,805 millionreflecting the current and ¥ 7,045 million, respectively,target allocations of pension plan asset. Expected long-term return by asset category is derived from historical studies by investment advisors.
The pension plan weighted-average asset allocations at March 31, 20022004 and ¥10,732 million ($89,433 thousand)2005, by asset category are as follows: | | | | | | | | | | | Asset Category | | 2004 | | | 2005 | | | | | Equity securities | | | 46 | % | | | 53 | % | | Debt securities | | | 30 | | | | 34 | | | Real estate and other | | | 24 | | | | 13 | | | | | Total | | | 100 | % | | | 100 | % | | |
The Company’s investment policy is to maintain a diversified portfolio of asset classes with the primary goal of producing an adequate return that, when combined with the Company’s contribution, will maintain the fund’s ability to meet future cash requirements for pension benefit payments. For primary domestic pension plans, the target asset allocation is established based on long-term pension plan asset/liability studies, and ¥6,248 million ($52,067 thousand)the current weighted-average target asset allocation for these plans is; equity securities 56%, respectively, at March 31, 2003.debt securities 41%, other 3%. All the assets are externally managed and investment managers have discretion to carry out investment operations within their respective mandates specified by the Company. With respect to directors, provision is made for lump-sum severance indemnities on a basis considered adequate for such future payments as may be approved by the shareholders. In February 2002, the Company announced the closure
of the Hiwada plant in Fukushima, Japan because of the transfer of production sites to China. In relation to this closure, the Company recorded special termination benefits for employees’ voluntary termination of ¥906 million for the year ended March 31, 2002. In June 2002, Tohoku Pioneer Corporation, a 67% owned subsidiary, implemented a voluntary early retirement plan. In relation to this plan, the Company recorded special termination benefits of ¥1,424 million ($11,867 thousand).million. These special termination benefits were included in the selling, general and administrative expenses.
The net chargesCompany expects to income for worldwide pensioncontribute ¥6,522 million ($60,953 thousand) to its defined benefit plans severance indemnities and special termination benefits forin the years endedyear ending March 31, 2001, 2002 and 2003 were ¥4,560 million, ¥8,947 million and ¥13,432 million ($111,933 thousand), respectively.2006.
9. The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid:
| | | | | | | | | | | | | | | | | Thousands of | | | Year ending March 31 | | Millions of Yen | | | U.S. Dollars | | | | | 2006 | | ¥ | 2,314 | | | $ | 21,626 | | | 2007 | | | 2,905 | | | | 27,150 | | | 2008 | | | 3,567 | | | | 33,336 | | | 2009 | | | 4,028 | | | | 37,645 | | | 2010 | | | 4,499 | | | | 42,047 | | | Years 2011–2015 | | | 26,888 | | | | 251,290 | | | |
The Company is subject to a number of different income taxes which, in the aggregate, indicate a normal statutory tax rate of approximately 42% for the years ended March 31, 2001, 20022003 and 20032004 and 41% for the year ended March 31, 2005 in Japan. A change in the tax rate was enacted in Japan in March 2003 and the normal effective statutory tax rate effective for the year beginning April 1, 2004 was changed from 42% to 41%. Income tax expense for the year ended March 31, 2004 included ¥682 million charges resulting from the settlement of a proposed assessment from the U.S. Internal Revenue Service relating to an adjustment to transfer prices between affiliated companies for the years ended March 31, 1997 through 1999. The Company’s provision for income taxes differed from the provision for income taxes at the normal statutory tax rates in Japan as follows: F-25
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Thousands of | | | | | | | Millions of Yen | | | U.S. Dollars | | | | | | |
| | |
| | | | | | | 2001 | | | 2002 | | | 2003 | | | 2003 | |
| | Computed tax expense at normal statutory tax rate | | ¥ | 14,361 | | | ¥ | 6,444 | | | ¥ | 12,025 | | | $ | 100,208 | | | Increase (decrease) resulting from: | | | | | | | | | | | | | | | | | | | Changes in valuation allowance, net of effects of carryforward loss expiration and exchange rate changes | | | 2,004 | | | | 74 | | | | (1,975 | ) | | | (16,458 | ) | | | Expenses not deductible for tax purpose | | | | | | | | | | | | | | | | | | | | Domestic | | 563 | | | | 737 | | | | 284 | | | | 2,367 | | | | | Foreign | | | 229 | | | | 221 | | | | 442 | | | | 3,683 | | | | Amortization of goodwill | | | 256 | | | | 314 | | | | – | | | | – | | | | Difference in foreign and Japanese tax rates | | | (2,739 | ) | | | (1,958 | ) | | | (1,643 | ) | | | (13,692 | ) | | | Effect of tax rate change on deferred taxes | | | – | | | | – | | | | 836 | | | | 6,967 | | | | Write-down of investment in a subsidiary | | | (1,092 | ) | | | – | | | | – | | | | – | | | | Other | | | 738 | | | | 890 | | | | (522 | ) | | | (4,350 | ) |
| | Provision for income taxes | | ¥ | 14,320 | | | ¥ | 6,722 | | | ¥ | 9,447 | | | $ | 78,725 | |
|
F-19
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Thousands of | | | | | Millions of Yen | | | U.S. Dollars | | | | | 2003 | | | 2004 | | | 2005 | | | 2005 | | | | | Computed tax expense at normal statutory tax rate | | ¥ | 11,793 | | | ¥ | 17,576 | | | ¥ | (77 | ) | | $ | (720 | ) | | Increase (decrease) resulting from: | | | | | | | | | | | | | | | | | | Loss operations | | | 992 | | | | 1,294 | | | | 6,137 | | | | 57,355 | | | Realization of tax benefit of operating loss carryforwards | | | (1,056 | ) | | | (395 | ) | | | (671 | ) | | | (6,271 | ) | | Expenses not deductible for tax purpose: | | | | | | | | | | | | | | | | | | Domestic | | | 269 | | | | 280 | | | | 251 | | | | 2,346 | | | Foreign | | | 439 | | | | 149 | | | | 325 | | | | 3,037 | | | Difference in foreign and Japanese tax rates | | | (1,595 | ) | | | (1,608 | ) | | | (1,848 | ) | | | (17,271 | ) | | Effect of tax rate change on deferred taxes | | | 835 | | | | 447 | | | | — | | | | — | | | Tax benefit for discontinued operations | | | — | | | | 3,025 | | | | — | | | | — | | | Tax credit for research and development expenses | | | (530 | ) | | | (898 | ) | | | (232 | ) | | | (2,168 | ) | | Other | | | (2,115 | ) | | | (1,283 | ) | | | 957 | | | | 8,944 | | | | | Provision for income taxes | | ¥ | 9,032 | | | ¥ | 18,587 | | | ¥ | 4,842 | | | $ | 45,252 | | | | | | | Total income taxes provided for the years ended March 31, 2003, 2004 and 2005 are as follows: | | | | | | | | | | | | | | | | | | Thousands of | | | | | Millions of Yen | | | U.S. Dollars | | | | | 2003 | | | 2004 | | | 2005 | | | 2005 | | | | | Provision for income taxes on income from continuing operations | | ¥ | 9,032 | | | ¥ | 18,587 | | | ¥ | 4,842 | | | $ | 45,252 | | | Provision for income taxes (benefit) on income from discontinued operations | | | 415 | | | | (2,310 | ) | | | — | | | | — | | | Shareholders’ equity—directly charged (credited): | | | | | | | | | | | | | | | | | | Minimum pension liability adjustments | | | (8,927 | ) | | | 6,953 | | | | 8,225 | | | | 76,869 | | | Net unrealized gains on securities | | | (899 | ) | | | 4,009 | | | | (593 | ) | | | (5,542 | ) | | | | Total | | ¥ | (379 | ) | | ¥ | 27,239 | | | ¥ | 12,474 | | | $ | 116,579 | | | | | | | Income from continuing operations before income taxes and income tax expense comprised the following components: | | | | | | | | | | | | | | | | | | Thousands of | | | | | Millions of Yen | | | U.S. Dollars | | | | | 2003 | | | 2004 | | | 2005 | | | 2005 | | | | | Income (loss) from continuing operations before income taxes: | | | | | | | | | | | | | | | | | | Domestic | | ¥ | 10,137 | | | ¥ | 18,481 | | | ¥ | (8,656 | ) | | $ | (80,897 | ) | | Foreign | | | 17,942 | | | | 23,367 | | | | 8,469 | | | | 79,149 | | | | | Total | | ¥ | 28,079 | | | ¥ | 41,848 | | | ¥ | (187 | ) | | $ | (1,748 | ) | | | | Income taxes—Current: | | | | | | | | | | | | | | | | | | Domestic | | ¥ | 6,643 | | | ¥ | 10,799 | | | ¥ | 4,091 | | | $ | 38,233 | | | Foreign | | | 7,834 | | | | 7,030 | | | | 3,597 | | | | 33,617 | | | | | Total | | ¥ | 14,477 | | | ¥ | 17,829 | | | ¥ | 7,688 | | | $ | 71,850 | | | | | Income taxes—Deferred: | | | | | | | | | | | | | | | | | | Domestic | | ¥ | (3,296 | ) | | ¥ | (385 | ) | | ¥ | (1,576 | ) | | $ | (14,729 | ) | | Foreign | | | (2,149 | ) | | | 1,143 | | | | (1,270 | ) | | | (11,869 | ) | | | | Total | | ¥ | (5,445 | ) | | ¥ | 758 | | | ¥ | (2,846 | ) | | $ | (26,598 | ) | | |
F-26 Total income taxes provided for the years ended March 31, 2001, 2002 and 2003 are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Thousands of | | | | | | | | | | | | | | Millions of Yen | | U.S. Dollars | | | | | | |
| | |
| | | | | | | 2001 | | | 2002 | | | 2003 | | | 2003 | |
| | Provision for income taxes | | ¥ | 14,320 | | | ¥ | 6,722 | | | ¥ | 9,447 | | | $ | 78,725 | | | Shareholders’ equity—directly charged (credited): | | | | | | | | | | | | | | | | | | | Minimum pension liability adjustments | | | (6,456 | ) | | | (6,460 | ) | | | (8,927 | ) | | | (74,391 | ) | | | Net unrealized gains on securities | | | (3,638 | ) | | | (1,502 | ) | | | (899 | ) | | | (7,492 | ) |
| | | | Total | | ¥ | 4,226 | | | (¥ | 1,240 | ) | | (¥ | 379 | ) | | ($ | 3,158 | ) |
|
Income before income taxes and income tax expense comprised the following components:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Thousands of | | | | | | Millions of Yen | | U.S. Dollars | | | | | |
| | |
| | | | | | 2001 | | | 2002 | | | 2003 | | | 2003 | |
| | Income (loss) before income taxes: | | | | | | | | | | | | | | | | | | | Domestic | | ¥ | 5,967 | | | (¥ | 3,655 | ) | | ¥ | 9,994 | | | $ | 83,283 | | | | Foreign | | | 28,226 | | | | 18,998 | | | | 18,636 | | | | 155,300 | |
| | | | ¥ | 34,193 | | | ¥ | 15,343 | | | ¥ | 28,630 | | | $ | 238,583 | |
| | Income taxes—Current: | | | | | | | | | | | | | | | | | | | Domestic | | ¥ | 4,906 | | | ¥ | 3,879 | | | ¥ | 6,824 | | | $ | 56,867 | | | | Foreign | | | 10,105 | | | | 7,228 | | | | 7,938 | | | | 66,150 | |
| | | | ¥ | 15,011 | | | ¥ | 11,107 | | | ¥ | 14,762 | | | $ | 123,017 | |
| | Income taxes—Deferred: | | | | | | | | | | | | | | | | | | | Domestic | | (¥ | 872 | ) | | (¥ | 4,501 | ) | | (¥ | 3,286 | ) | | ($ | 27,383 | ) | | | Foreign | | | 181 | | | | 116 | | | | (2,029 | ) | | | (16,909 | ) |
| | | | (¥ | 691 | ) | | (¥ | 4,385 | ) | | (¥ | 5,315 | ) | | ($ | 44,292 | ) |
|
F-20
The significant components of the deferred tax assets and liabilities at March 31, 20022004 and 20032005 are as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Thousands of | | | | | | Millions of Yen | | | U.S. Dollars | | | | | |
| | |
| | | | | | 2002 | | 2003 | | | 2003 | | | | | |
| |
| | |
| | | | | | Deferred | | | Deferred | | | Deferred | | | Deferred | | | Deferred | | | Deferred | | | | | | Tax | | | Tax | | | Tax | | | Tax | | | Tax | | | Tax | | | | | | Assets | | | Liabilities | | | Assets | | | Liabilities | | | Assets | | | Liabilities | |
| | Inventories | | ¥ | 9,214 | | | | – | | | ¥ | 8,197 | | | | – | | | $ | 68,308 | | | | – | | | Marketable equity securities | | | 443 | | | ¥ | 24 | | | | 3,831 | | | ¥ | 1,018 | | | | 31,925 | | | $ | 8,484 | | | Accrued expenses | | | 7,901 | | | | – | | | | 9,106 | | | | – | | | | 75,883 | | | | – | | | Tax loss carryforwards | | | 15,184 | | | | – | | | | 11,723 | | | | – | | | | 97,692 | | | | – | | | Pension and severance cost | | | 18,589 | | | | – | | | | 28,341 | | | | – | | | | 236,175 | | | | – | | | Land | | | 2,347 | | | | 248 | | | | 2,216 | | | | – | | | | 18,467 | | | | – | | | Depreciation | | | 958 | | | | 293 | | | | 1,563 | | | | 387 | | | | 13,025 | | | | 3,225 | | | Royalty receivable | | | 953 | | | | – | | | | 1,395 | | | | – | | | | 11,625 | | | | – | | | Other | | | 17,346 | | | | 3,568 | | | | 18,384 | | | | 2,863 | | | | 153,200 | | | | 23,858 | |
| | | Total | | | 72,935 | | | | 4,133 | | | | 84,756 | | | | 4,268 | | | | 706,300 | | | | 35,567 | | | Valuation allowance | | | (18,299 | ) | | | – | | | | (15,292 | ) | | | – | | | | (127,433 | ) | | | – | |
| | | Total | | ¥ | 54,636 | | | ¥ | 4,133 | | | ¥ | 69,464 | | | ¥ | 4,268 | | | $ | 578,867 | | | $ | 35,567 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Thousands of | | | | | Millions of Yen | | | U.S. Dollars | | | | | 2004 | | | 2005 | | | 2005 | | | | | Deferred | | | Deferred | | | Deferred | | | Deferred | | | Deferred | | | Deferred | | | | | Tax | | | Tax | | | Tax | | | Tax | | | Tax | | | Tax | | | | | Assets | | | Liabilities | | | Assets | | | Liabilities | | | Assets | | | Liabilities | | | | | Inventories | | ¥ | 6,911 | | | | — | | | ¥ | 5,590 | | | | — | | | $ | 52,243 | | | | — | | | Marketable equity securities | | | 2,971 | | | ¥ | 5,017 | | | | 2,040 | | | ¥ | 4,445 | | | | 19,066 | | | $ | 41,542 | | | Allowance for notes and accounts receivable | | | 1,040 | | | | — | | | | 824 | | | | — | | | | 7,701 | | | | — | | | Accrued expenses | | | 11,893 | | | | — | | | | 16,316 | | | | — | | | | 152,486 | | | | — | | | Warranty reserve | | | 2,784 | | | | — | | | | 1,863 | | | | — | | | | 17,411 | | | | — | | | Tax loss carryforwards | | | 9,297 | | | | — | | | | 21,232 | | | | — | | | | 198,430 | | | | — | | | Pension and severance cost | | | 22,268 | | | | — | | | | 15,116 | | | | — | | | | 141,271 | | | | — | | | Property | | | 1,840 | | | | — | | | | 4,230 | | | | — | | | | 39,533 | | | | — | | | Depreciation | | | 1,907 | | | | 302 | | | | 3,029 | | | | 490 | | | | 28,308 | | | | 4,580 | | | Royalty receivable | | | 974 | | | | — | | | | 539 | | | | — | | | | 5,037 | | | | — | | | Other | | | 10,268 | | | | 3,408 | | | | 6,539 | | | | 2,469 | | | | 61,112 | | | | 23,075 | | | | | Total | | | 72,153 | | | | 8,727 | | | | 77,318 | | | | 7,404 | | | | 722,598 | | | | 69,197 | | | Valuation allowance | | | (11,591 | ) | | | — | | | | (20,605 | ) | | | — | | | | (192,570 | ) | | | — | | | | | Total | | ¥ | 60,562 | | | ¥ | 8,727 | | | ¥ | 56,713 | | | ¥ | 7,404 | | | $ | 530,028 | | | $ | 69,197 | | | |
The changes in the valuation allowance for the years ended March 31, 2003, 2004 and 2005 are as follows: | | | | | | | | | | | | | | | | | | | | | | | | | Millions of Yen | | | | | Balance at | | | | | | | | | | | | | | | Balance at | | | | | Beginning | | | | | | | | | | | Translation | | | End | | | Valuation Allowance | | of Period | | | Addition* | | | Deduction | | | Adjustments | | | of Period | | | | | 2003 | | ¥ | 18,299 | | | ¥ | 5,741 | | | ¥ | (8,912 | ) | | ¥ | 164 | | | ¥ | 15,292 | | | 2004 | | | 15,292 | | | | 1,956 | | | | (5,469 | ) | | | (188 | ) | | | 11,591 | | | 2005 | | | 11,591 | | | | 12,851 | | | | (3,963 | ) | | | 126 | | | | 20,605 | | | | | | | | | Thousands of U.S. Dollars | | | | | Balance at | | | | | | | | | | | | | | | Balance at | | | | | Beginning | | | | | | | | | | | Translation | | | End | | | Valuation Allowance | | of Period | | | Addition* | | | Deduction | | | Adjustments | | | of Period | | | | | 2005 | | $ | 108,327 | | | $ | 120,103 | | | $ | (37,037 | ) | | $ | 1,177 | | | $ | 192,570 | | | |
| | | | * | | “Addition” includes valuation allowance of ¥7,953 million ($74,327 thousand) recognized by PPD at the time of acquisition at September 30, 2004. |
The valuation allowance principally relates to deferred tax assets for loss carryforwards of subsidiaries. During
Decrease in valuation allowance for the yearsyear ended March 31, 2002 and 2003 was mainly due to the reversal of valuation allowances were increased by ¥507 million and decreased by ¥3,007 million ($25,058 thousand), respectively.allowance which had been provided for a tax benefit, the realization of which had been determined to be not more likely than not, as profitability of subsidiaries improved. Decrease in valuation allowance for the year ended March 31, 2004 was mainly due to the reversal of valuation allowance for discontinued operations. Increase in valuation allowance for the year ended March 31, 2005 was mainly due to losses incurred for which the realization of the related deferred tax assets was determined to be not more likely than not. F-27
At March 31, 2003,2005, the Company has tax loss carryforwardscarry-forwards which are available to reduce taxable income in subsequent periods. If not utilized, such loss carryforwards expire as follows: | | | | | | | | | | | | | | | | | | | | | Year ending March 31 | | | Millions of Yen | | | | Thousands of
U.S. Dollars | |
| | 2004 | | ¥ | 728 | | | $ | 6,067 | | | 2005 | | | 2,070 | | | | 17,250 | | | 2006 | | | 247 | | | | 2,058 | | | 2007 | | | 2,113 | | | | 17,608 | | | 2008 | | | 1,678 | | | | 13,983 | | | Thereafter | | | 25,775 | | | | 214,792 | |
| | | Total | | ¥ | 32,611 | | | $ | 271,758 | |
|
| | | | | | | | | | | | | | | | | Thousands of | | | Year ending March 31 | | Millions of Yen | | | U.S. Dollars | | | | | 2006 | | ¥ | 203 | | | $ | 1,897 | | | 2007 | | | 536 | | | | 5,009 | | | 2008 | | | 593 | | | | 5,542 | | | 2009 | | | 155 | | | | 1,449 | | | 2010 | | | 6,630 | | | | 61,963 | | | Thereafter | | | 47,973 | | | | 448,346 | | | | | Total | | ¥ | 56,090 | | | $ | 524,206 | | | |
No provision for income taxes is recognized on undistributed earnings of foreign subsidiaries wherethat are not expected to be remitted in the Company considers that such earnings are reinvested or would not, under the present Japanese tax laws, be subject to additional taxation should they be distributed to the parent company.foreseeable future. Undistributed earnings of foreign subsidiaries (including related foreign currency translation adjustments) at March 31, 20022004 and 20032005 amounted to approximately ¥133,934¥116,689 million and ¥133,923¥115,606 million ($ 1,116,0251,080,430 thousand), respectively. It is not practical to estimate the amount of taxes that might be payable on the eventual remittance of such earnings. The domestic undistributed earnings would not, under the present Japanese tax laws, be subject to additional taxation.
F-21
10. 12.Shareholders’ equity:
Common Stock and Capital Surplus—
As permitted by the Commercial Code of Japan (the “Code”) prior to April 1, 1991, the parent company had made free share distributions which were accounted for by a transfer from capital surplus to common stock or without any transfers in the capital accounts. Companies in the United States issuing shares in similar transactions would be required to account for them as stock dividends. Had the distributions been accounted for in the manner adopted by the United States companies, ¥179,076 million ($ 1,492,3001,673,607 thousand) would have been transferred from retained earnings to appropriate capital accounts as of March 31, 2003.Retained Earnings—
Retained earnings consist2005.
The Code requires that all shares of legal reservecommon stock are recorded with no par value and unappropriated retained earnings. The parent company is subject to the Code amendments which became effective from October 1, 2001. Prior to October 1, 2001, the Code required at least 50% of the issue price of new shares with a minimum of the par value thereof,is required to be designatedrecorded as stated capital as determined by resolution of the Board of Directors. Proceeds in excess of amounts designated as stated capital were credited to capital surplus. Effective October 1, 2001, the revised Code eliminated common stock par values resulting in all shares being recorded with no par value.
Prior to October 1, 2001,and the remaining net proceeds as capital surplus.
Retained Earnings— Retained earnings consist of legal reserve and unappropriated retained earnings. The Code also providedprovides that an amount at least equal to 10% of the aggregate amount of cash dividends and certain other cash payments which are made as an appropriation of retained earnings applicable to each fiscal period shall be appropriated and set aside as a legal reserve until such reserve and capital surplus equals 25% of stated capital. Effective October 1, 2001, the revised Code allows for such appropriations to be determined based on total capital surplus and legal reserve.common stock. The amount of total capital surplus and legal reserve which exceeds 25% of stated capitalthe common stock is available for appropriations by resolution of the shareholders. The In addition, the Code permits companies tothe transfer of a portion of capital surplus and legal reserve to stated capitalthe common stock by resolution of the
The Code also permitsallows companies to transfer a portion of unappropriated retained earnings, available for dividends, to stated capital by resolution of the shareholders. Prior to October 1, 2001, the Code imposed certain restrictions on the purchase and sale ofrepurchase treasury stock. Effective October 1, 2001, the Code eliminated these restrictions allowing companies to purchase treasury stock by a resolution of the shareholders at the general shareholders’ meeting and dispose of such treasury stock by resolution of the Board of Directors on and after April 1, 2002.Directors. The repurchased amount of treasury stock cannot exceed the amount available for future dividend plus amount of common stock, capital surplus or legal reserve to be reduced in the case where such reduction was resolved at the general shareholders meeting.
F-28
The amount available for dividends under the Code was ¥132,962¥128,882 million ($ 1,108,0171,204,505 thousand) as of March 31, 2003,2005, that is based on the amount recorded in the parent company’s general books and records maintained in accordance with accepted Japanese accounting practices. The adjustments are included in the accompanying consolidated financial statements to conform with U.S. GAAP, but are not recorded in the books, and have no effect on the determination of retained earnings available for dividends under the Code. In addition to the provision that requires an appropriation for a legal reserve in connection with the cash payment as described above, the Code imposes certain limitations on the amount of retained earnings available for dividends. At the general shareholders meeting held on June 27, 2002, the shareholders of the parent company authorized the repurchasepurchase of up to 10,000,000 shares of theirthe parent company’s common stock at the maximum.stock. In August 2002, November 2002 and February 2003, the parent company repurchasedpurchased 1,610,000 shares, 2,000,000 shares and 1,500,000 shares of their common stock, respectively, in the market for the aggregate cost of ¥11,492 million ($95,767 thousand) as a publicly announced plan to improve capital efficiency pursuant to a revision in the Code. In March 2005, the parent company purchased 1,000,000 shares of its common stock in the market for the cost of ¥1,963 million as a publicly announced plan. The appropriations of retained earnings for the year ended March 31, 2003,2005, which have been incorporated in the accompanying consolidated financial statements, will be proposed for approval at the general shareholders’ meeting to be held on June 27, 2003,29, 2005, and will be recorded in the parent company’s general books of account after shareholders’ approval.
F-22
11.13. Stock-based compensation plans:
The Company has two types of stock-based compensation plansa stock option plan as an incentive plansplan for directors and selected employees. Warrant plan—
Upon issuance of detachable warrant bonds by the parent company, a consolidated subsidiary purchased all of the bonds and the Company distributed the warrants at fair value to directors and certain employees of the Company as a part of their remuneration.
Stock option plan—
In accordance with approval ofat shareholders’ meetings on June 29, 2000 and June 28, 2001, the Company granted share subscription rights to employees. Also, in accordance with approval ofat shareholders’ meetingmeetings on June 27, 2002, June 27, 2003 and June 29, 2004, the Company granted share acquisition rights to directors and certain employees of the Company. These options vest over two years and expire in five years from the date of grant. The Company recorded the fair value of the stock option as a part of their remuneration.
A summary of information for the Company’s stock-based compensationstock option plans is as follows: | | | | | | | | | | | | | | | | | | | | | | | | | Yen | | | | | | | | | | | | | | | | Weighted-Average | | | Number of | | | | | | | | | Weighted-Average | | | Grant Date | | | Shares | | | Year | | Plan | | Exercisable Period | | Exercise Price | | | Share Price | | | (Thousands) | | | | | 2001 | | Stock option | | From July 1, 2002 to June 30, 2005 | | ¥ | 4,400 | | | ¥ | 4,250 | | | | 191 | | | 2002 | | Stock option | | From July 1, 2003 to June 30, 2006 | | | 3,791 | | | | 3,750 | | | | 191 | | | 2003 | | Stock option | | From July 1, 2004 to June 29, 2007 | | | 2,477 | | | | 2,170 | | | | 564 | | | 2004 | | Stock option | | From July 1, 2005 to June 30, 2008 | | | 2,951 | | | | 2,845 | | | | 313 | | | 2005 | | Stock option | | From July 3, 2006 to June 30, 2009 | | | 2,944 | | | | 2,660 | | | | 316 | | | |
| | | | | | | | | | | | | | | | | | | | | U.S. Dollars | | | | | | | | | | | | | Weighted-Average | | | | | | | | | Weighted-Average | | | Grant Date | | | Year | | Plan | | Exercisable Period | | Exercise Price | | | Share Price | | | | | 2005 | | Stock option | | From July 3, 2006 to June 30, 2009 | | $ | 27.51 | | | $ | 24.86 | | | |
F-29
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Yen | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | Weighted-Average | | | Number of | | | | | | | | | | | | | Weighted-Average | | | Grant Date | | | Shares | | | Year | | | Plan | | | Exercisable Period | | Exercise Price | | | Share Price | | | (Thousands) | |
| | | 2001 | | | Warrant | | From July 2, 2001 to September 25, 2003 | | ¥ | 4,728 | | | ¥ | 4,543 | | | | 284 | | | | 2001 | | | Stock option | | From July 1, 2002 to June 30, 2005 | | | 4,400 | | | | 4,250 | | | | 191 | | | | 2002 | | | Warrant | | From July 1, 2002 to August 26, 2004 | | | 3,266 | | | | 2,700 | | | | 413 | | | | 2002 | | | Stock option | | From July 1, 2003 to June 30, 2006 | | | 3,791 | | | | 3,750 | | | | 191 | | | | 2003 | | | Stock option | | From July 1, 2004 to June 29, 2007 | | | 2,477 | | | | 2,170 | | | | 564 | |
|
| | | | | | | | | | | | | | | | | U.S. Dollars | | | | | | | |
| | | | | | | | | | Weighted-Average | | | | | | | | Weighted-Average | | Grant Date | | Year | | Plan | | Exercisable Period | | Exercise Price | | Share Price |
| | 2003 | | Stock option | | From July 1, 2004 to June 29, 2007 | | $20.64 | | $18.08 |
|
Remuneration cost recognized for stock-based compensation plans for the years ended March 31, 2001, 20022003, 2004 and 20032005 were ¥362¥149 million, ¥346¥305 million and ¥149¥270 million ($1,2422,523 thousand), respectively.
The weighted-average fair value per share at the date of grant for the warrants and the stock options granted during the years ended March 31, 2001, 20022003, 2004 and 20032005 were ¥762, ¥573¥704, ¥907 and ¥704¥654 ($5.87)6.11), respectively. The fair value of the warrants and the stock options granted on the date of grant, which is amortized to expense over the vesting period, is estimated using the Black-Scholes option- valuationoption-valuation model with the following weighted-average assumptions: | | | | | | | | | | | | | | | | | 2001 | | 2002 | | 2003 |
| |
| |
| | Risk-free interest rate | | | 0.86 | % | | | 0.25 | % | | | 0.24 | % | | Expected lives | | 3.48 years | | 3.48 years | | 3.48 years | | Expected volatility | | | 48.19 | % | | | 50.61 | % | | | 52.81 | % | | Expected dividends | | | 0.36 | % | | | 0.41 | % | | | 0.69 | % |
|
F-23
| | | | | | | | | | | | | | | 2003 | | | 2004 | | | 2005 | | Risk-free interest rate | | | 0.24 | % | | | 0.34 | % | | | 0.50 | % | | Expected lives | | 3.48 years | | 3.48 years | | 3.48 years | | Expected volatility | | | 52.81 | % | | | 48.13 | % | | | 40.02 | % | | Expected dividends | | | 0.69 | % | | | 0.88 | % | | | 0.93 | % | | |
A summary of the status of the Company’s warrants, which expired up until August 26, 2004, and options as of March 31, 2001, 20022003, 2004 and 2003,2005, and changes during the years is as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Weighted-Average Exercise | | | | | | | | | Weighted-Average | | | Price per Share | | | | | Number of Shares | | | Remaining Life | | |
| | | | | (Thousands) | | | (Years) | | | Yen | | | U.S. Dollars |
| |
| | Outstanding at March 31, 2000 | | | 574 | | | | 1.9 | | | ¥ | 2,452 | | | | | | | | Granted | | | 475 | | | | | | | | 4,597 | | | | | | | | Exercised | | | (306 | ) | | | | | | | 2,551 | | | | | |
| | | | | | Outstanding at March 31, 2001 | | | 743 | | | | 2.4 | | | | 3,782 | | | | | | | | Granted | | | 604 | | | | | | | | 3,432 | | | | | | | | Exercised | | | (170 | ) | | | | | | | 2,425 | | | | | |
| | Outstanding at March 31, 2002 | | | 1,177 | | | | 2.5 | | | ¥ | 3,798 | | | | | | | | Granted | | | 564 | | | | | | | | 2,477 | | | | $20.64 | | | | Expired | | | (98 | ) | | | | | | | 2,188 | | | | 18.23 | |
| | Outstanding at March 31, 2003 | | | 1,643 | | | | 2.5 | | | ¥ | 3,441 | | | | $28.68 | |
| | Exercisable at March 31, 2002 | | | 382 | | | | | | | ¥ | 4,075 | | | | | |
| | Exercisable at March 31, 2003 | | | 888 | | | | | | | ¥ | 3,977 | | | | $33.14 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | Weighted-Average | | | Weighted-Average Exercise | | | | | Number of Shares | | | Remaining Life | | | Price per Share | | | | | (Thousands) | | | (Years) | | | | Yen | | | U.S. Dollars | | | | | | | Outstanding at March 31, 2002 | | | 1,177 | | | | 2.5 | | | ¥ | 3,798 | | | | | | | Granted | | | 564 | | | | | | | | 2,477 | | | | | | | Expired | | | (98 | ) | | | | | | | 2,188 | | | | | | | | | | | | | Outstanding at March 31, 2003 | | | 1,643 | | | | 2.5 | | | ¥ | 3,441 | | | | | | | Granted | | | 313 | | | | | | | | 2,951 | | | | | | | Expired | | | (284 | ) | | | | | | | 4,728 | | | | | | | | | Outstanding at March 31, 2004 | | | 1,672 | | | | 2.4 | | | ¥ | 3,131 | | | | | | | Granted | | | 316 | | | | | | | | 2,944 | | | $ | 27.51 | | | Exercised | | | (4 | ) | | | | | | | 2,477 | | | | 23.15 | | | Expired | | | (413 | ) | | | | | | | 3,266 | | | | 30.52 | | | | | Outstanding at March 31, 2005 | | | 1,571 | | | | 2.5 | | | ¥ | 3,059 | | | $ | 28.59 | | | | | Exercisable at March 31, 2004 | | | 795 | | | | | | | ¥ | 3,664 | | | | | | | | | Exercisable at March 31, 2005 | | | 942 | | | | | | | ¥ | 3,133 | | | $ | 29.28 | | | |
F-30
12.14. Other comprehensive income: Change in accumulated other comprehensive income (loss) is as follows: | | | | | | | | | | | | | | | | | | | | | Millions of Yen | | | |
| | | | | | | | | | | | Foreign Currency | | | Total Accumulated | | | | Minimum Pension | | | Net Unrealized | | | Translation | | | Other Comprehensive | | | | Liability Adjustments | | | Gains on Securities | | | Adjustments | | | Income (Loss) |
| | Balance at March 31, 2000 | | (¥ | 2,792 | ) | | ¥ | 11,747 | | | (¥ | 45,397 | ) | | (¥ | 36,442 | ) | | Adjustments for the year | | | (8,847 | ) | | | (5,085 | ) | | | 21,723 | | | | 7,791 | |
| | Balance at March 31, 2001 | | | (11,639 | ) | | | 6,662 | | | | (23,674 | ) | | | (28,651 | ) | | Adjustments for the year | | | (8,848 | ) | | | (2,079 | ) | | | 14,842 | | | | 3,915 | |
| | Balance at March 31, 2002 | | | (20,487 | ) | | | 4,583 | | | | (8,832 | ) | | | (24,736 | ) | | Adjustments for the year | | | (12,188 | ) | | | (1,235 | ) | | | (17,470 | ) | | | (30,893 | ) |
| | Balance at March 31, 2003 | | (¥ | 32,675 | ) | | ¥ | 3,348 | | | (¥ | 26,302 | ) | | (¥ | 55,629 | ) |
|
| | | | | | | | | | | | | | | | | | | | | Thousands of U.S. Dollars | | | |
| | | | | | | | | | | | Foreign Currency | | | Total Accumulated | | | | Minimum Pension | | | Net Unrealized | | | Translation | | | Other Comprehensive | | | | Liability Adjustments | | | Gains on Securities | | | Adjustments | | | Income (Loss) |
| | Balance at March 31, 2002 | | | ($170,725 | ) | | | $38,192 | | | | ($73,600 | ) | | | ($206,133 | ) | | Adjustments for the year | | | (101,567 | ) | | | (10,292 | ) | | | (145,583 | ) | | | (257,442 | ) |
| | Balance at March 31, 2003 | | | ($272,292 | ) | | | $27,900 | | | | ($219,183 | ) | | | ($463,575 | ) |
|
| | | | | | | | | | | | | | | | | | | | | Millions of Yen | | | | | | | | | | | | | Foreign Currency | | | Total Accumulated | | | | | Minimum Pension | | | Net Unrealized | | | Translation | | | Other Comprehensive | | | | | Liability Adjustments | | | Gains on Securities | | | Adjustments | | | Income (Loss) | | | | | Balance at March 31, 2002 | | ¥ | (20,487 | ) | | ¥ | 4,583 | | | ¥ | (8,832 | ) | | ¥ | (24,736 | ) | | Adjustments for the year | | | (12,188 | ) | | | (1,235 | ) | | | (17,470 | ) | | | (30,893 | ) | | | | Balance at March 31, 2003 | | | (32,675 | ) | | | 3,348 | | | | (26,302 | ) | | | (55,629 | ) | | Adjustments for the year | | | 9,745 | | | | 5,755 | | | | (21,700 | ) | | | (6,200 | ) | | | | Balance at March 31, 2004 | | | (22,930 | ) | | | 9,103 | | | | (48,002 | ) | | | (61,829 | ) | | Adjustments for the year | | | 11,744 | | | | (853 | ) | | | 3,269 | | | | 14,160 | | | | | Balance at March 31, 2005 | | ¥ | (11,186 | ) | | ¥ | 8,250 | | | ¥ | (44,733 | ) | | ¥ | (47,669 | ) | | |
| | | | | | | | | | | | | | | | | | | | | Thousands of U.S. Dollars | | | | | | | | | | | | | Foreign Currency | | | Total Accumulated | | | | | Minimum Pension | | | Net Unrealized | | | Translation | | | Other Comprehensive | | | | | Liability Adjustments | | | Gains on Securities | | | Adjustments | | | Income (Loss) | | | | | Balance at March 31, 2004 | | $ | (214,299 | ) | | $ | 85,075 | | | $ | (448,617 | ) | | $ | (577,841 | ) | | Adjustments for the year | | | 109,757 | | | | (7,972 | ) | | | 30,551 | | | | 132,336 | | | | | Balance at March 31, 2005 | | $ | (104,542 | ) | | $ | 77,103 | | | $ | (418,066 | ) | | $ | (445,505 | ) | | |
F-31 F-24
Tax effects allocated to each component of other comprehensive income (loss) and reclassification adjustments are as follows: | | | | | | | | | | | | | | | | | | | | | | | Millions of Yen | | | | |
| | | | | Before-Tax | | | Tax (Expense) | | | Minority | | | Net-of-Tax | | | | | Amount | | | or Benefit | | | Interest | | | Amount |
| | 2001: | | | | | | | | | | | | | | | | | | Minimum pension liability adjustments | | (¥ | 15,375 | ) | | ¥ | 6,456 | | | ¥ | 72 | | | (¥ | 8,847 | ) | | Net unrealized gains on securities: | | | | | | | | | | | | | | | | | | | Unrealized holding losses arising during year | | | (7,432 | ) | | | 3,121 | | | | 45 | | | | (4,266 | ) | | | Less—Reclassification adjustment for gains realized in net income | | | (1,308 | ) | | | 517 | | | | (28 | ) | | | (819 | ) | | | |
| | | Net unrealized losses | | | (8,740 | ) | | | 3,638 | | | | 17 | | | | (5,085 | ) | | Foreign currency translation adjustments | | | 22,353 | | | | – | | | | (630 | ) | | | 21,723 | |
| | Other comprehensive income (loss) | | (¥ | 1,762 | ) | | ¥ | 10,094 | | | (¥ | 541 | ) | | ¥ | 7,791 | |
| | 2002: | | | | | | | | | | | | | | | | | | Minimum pension liability adjustments | | (¥ | 15,380 | ) | | ¥ | 6,460 | | | ¥ | 72 | | | (¥ | 8,848 | ) | | Net unrealized gains on securities: | | | | | | | | | | | | | | | | | | | Unrealized holding losses arising during year | | | (5,404 | ) | | | 2,270 | | | | 7 | | | | (3,127 | ) | | | Less—Reclassification adjustment for losses realized in net income | | | 1,828 | | | | (768 | ) | | | (12 | ) | | | 1,048 | | | | |
| | | Net unrealized losses | | | (3,576 | ) | | | 1,502 | | | | (5 | ) | | | (2,079 | ) | | Foreign currency translation adjustments | | | 15,338 | | | | – | | | | (496 | ) | | | 14,842 | |
| | Other comprehensive income (loss) | | (¥ | 3,618 | ) | | ¥ | 7,962 | | | (¥ | 429 | ) | | ¥ | 3,915 | |
| | 2003: | | | | | | | | | | | | | | | | | | Minimum pension liability adjustments | | (¥ | 21,255 | ) | | ¥ | 8,927 | | | ¥ | 140 | | | (¥ | 12,188 | ) | | Net unrealized gains on securities: | | | | | | | | | | | | | | | | | | | Unrealized holding losses arising during year | | | (3,502 | ) | | | 1,472 | | | | 7 | | | | (2,023 | ) | | | Less—Reclassification adjustment for losses realized in net income | | | 1,366 | | | | (573 | ) | | | (5 | ) | | | 788 | | | | |
| | | Net unrealized losses | | | (2,136 | ) | | | 899 | | | | 2 | | | | (1,235 | ) | | Foreign currency translation adjustments | | | (18,178 | ) | | | – | | | | 708 | | | | (17,470 | ) |
| | Other comprehensive income (loss) | | (¥ | 41,569 | ) | | ¥ | 9,826 | | | ¥ | 850 | | | (¥ | 30,893 | ) |
| | | | | | | Thousands of U.S. Dollars | | | | |
| | | | | Before-Tax | | | Tax (Expense) | | | Minority | | | Net-of-Tax | | | | | Amount | | | or Benefit | | | Interest | | | Amount |
| | 2003: | | | | | | | | | | | | | | | | | | Minimum pension liability adjustments | | | ($177,125 | ) | | | $74,391 | | | $ | 1,167 | | | | ($101,567 | ) | | Net unrealized gains on securities: | | | | | | | | | | | | | | | | | | | Unrealized holding losses arising during year | | | (29,183 | ) | | | 12,267 | | | | 58 | | | | (16,858 | ) | | | Less—Reclassification adjustment for losses realized in net income | | | 11,383 | | | | (4,775 | ) | | | (42 | ) | | | 6,566 | | | | |
| | | Net unrealized losses | | | (17,800 | ) | | | 7,492 | | | | 16 | | | | (10,292 | ) | | Foreign currency translation adjustments | | | (151,483 | ) | | | – | | | | 5,900 | | | | (145,583 | ) |
| | Other comprehensive income (loss) | | | ($346,408 | ) | | | $81,883 | | | $ | 7,083 | | | | ($257,442 | ) |
|
| | | | | | | | | | | | | | | | | | | | | Millions of Yen | | | | | Before-Tax | | | Tax (Expense) | | | Minority | | | Net-of-Tax | | | | | Amount | | | or Benefit | | | Interest | | | Amount | | | | | 2003: | | | | | | | | | | | | | | | | | | Minimum pension liability adjustments | | ¥ | (21,255 | ) | | ¥ | 8,927 | | | ¥ | 140 | | | ¥ | (12,188 | ) | | Net unrealized gains on securities: | | | | | | | | | | | | | | | | | | Unrealized holding losses arising during year | | | (3,502 | ) | | | 1,472 | | | | 7 | | | | (2,023 | ) | | Less—Reclassification adjustment for losses realized in net income | | | 1,366 | | | | (573 | ) | | | (5 | ) | | | 788 | | | | | | | Net unrealized losses | | | (2,136 | ) | | | 899 | | | | 2 | | | | (1,235 | ) | | Foreign currency translation adjustments | | | (18,178 | ) | | | — | | | | 708 | | | | (17,470 | ) | | | | Other comprehensive income (loss) | | ¥ | (41,569 | ) | | ¥ | 9,826 | | | ¥ | 850 | | | ¥ | (30,893 | ) | | | | 2004: | | | | | | | | | | | | | | | | | | Minimum pension liability adjustments | | ¥ | 16,803 | | | ¥ | (6,953 | ) | | ¥ | (105 | ) | | ¥ | 9,745 | | | Net unrealized gains on securities: | | | | | | | | | | | | | | | | | | Unrealized holding gains arising during year | | | 9,790 | | | | (4,013 | ) | | | (16 | ) | | | 5,761 | | | Less—Reclassification adjustment for gains realized in net income | | | (10 | ) | | | 4 | | | | — | | | | (6 | ) | | | | | | Net unrealized gains | | | 9,780 | | | | (4,009 | ) | | | (16 | ) | | | 5,755 | | | Foreign currency translation adjustments: | | | | | | | | | | | | | | | | | | Foreign currency translation adjustments arising during year | | | (23,010 | ) | | | — | | | | 912 | | | | (22,098 | ) | | Less—Reclassification adjustment for losses realized in net income | | | 398 | | | | — | | | | — | | | | 398 | | | | | | | Net foreign currency translation adjustments | | | (22,612 | ) | | | — | | | | 912 | | | | (21,700 | ) | | | | Other comprehensive income (loss) | | ¥ | 3,971 | | | ¥ | (10,962 | ) | | ¥ | 791 | | | ¥ | (6,200 | ) | | | | 2005: | | | | | | | | | | | | | | | | | | Minimum pension liability adjustments | | ¥ | 20,003 | | | ¥ | (8,225 | ) | | ¥ | (34 | ) | | ¥ | 11,744 | | | Net unrealized gains on securities: | | | | | | | | | | | | | | | | | | Unrealized holding gains arising during year | | | 843 | | | | (347 | ) | | | 4 | | | | 500 | | | Less—Reclassification adjustment for gains realized in net income | | | (2,293 | ) | | | 940 | | | | — | | | | (1,353 | ) | | | | | | Net unrealized losses | | | (1,450 | ) | | | 593 | | | | 4 | | | | (853 | ) | | Foreign currency translation adjustments | | | 3,292 | | | | — | | | | (23 | ) | | | 3,269 | | | | | Other comprehensive income (loss) | | ¥ | 21,845 | | | ¥ | (7,632 | ) | | ¥ | (53 | ) | | ¥ | 14,160 | | | |
| | | | | | | | | | | | | | | | | | | | | Thousands of U.S. Dollars | | | | | Before-Tax | | | Tax (Expense) | | | Minority | | | Net-of-Tax | | | | | Amount | | | or Benefit | | | Interest | | | Amount | | | | | 2005: | | | | | | | | | | | | | | | | | | Minimum pension liability adjustments | | $ | 186,944 | | | $ | (76,869 | ) | | $ | (318 | ) | | $ | 109,757 | | | Net unrealized gains on securities: | | | | | | | | | | | | | | | | | | Unrealized holding gains arising during year | | | 7,879 | | | | (3,243 | ) | | | 37 | | | | 4,673 | | | Less—Reclassification adjustment for gains realized in net income | | | (21,430 | ) | | | 8,785 | | | | — | | | | (12,645 | ) | | | | | | Net unrealized losses | | | (13,551 | ) | | | 5,542 | | | | 37 | | | | (7,972 | ) | | Foreign currency translation adjustments | | | 30,766 | | | | — | | | | (215 | ) | | | 30,551 | | | | | Other comprehensive income (loss) | | $ | 204,159 | | | $ | (71,327 | ) | | $ | (496 | ) | | $ | 132,336 | | | |
F-32 F-25
13.15. Supplemental information: Supplemental information for the years ended March 31, 2001, 20022003, 2004 and 20032005 is as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Thousands of | | | | Millions of Yen | | | U.S. Dollars | | | |
| | |
| | | | 2001 | | | 2002 | | | 2003 | | | 2003 |
| | Research and development expenses charged to cost and expenses | | | ¥37,105 | | | | ¥39,050 | | | | ¥45,388 | | | | $378,233 | | | Advertising costs charged to expense as incurred | | | 10,434 | | | | 13,117 | | | | 11,836 | | | | 98,633 | |
|
Other—net as shown in other
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Thousands of | | | | | Millions of Yen | | | U.S. Dollars | | | | | 2003 | | | 2004 | | | 2005 | | | 2005 | | | | | Research and development expenses charged to cost and expenses | | ¥ | 45,388 | | | ¥ | 51,483 | | | ¥ | 55,897 | | | $ | 522,402 | | | Advertising costs charged to expense as incurred | | | 11,089 | | | | 12,813 | | | | 11,599 | | | | 108,402 | | | |
Other income (expenses)of revenues for the years ended March 31, 2001, 20022003, 2004 and 20032005 consisted of the following: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Thousands of | | | | Millions of Yen | | | U.S. Dollars | | | |
| | |
| | | | 2001 | | | 2002 | | | 2003 | | | 2003 |
| | Gains (losses) on sale and write-down of investments and securities | | | ¥ 254 | | | | (¥2,287 | ) | | | (¥1,393 | ) | | | ($11,608 | ) | | Other | | | 1,607 | | | | (202 | ) | | | 640 | | | | 5,333 | |
| | Total | | | ¥1,861 | | | | (¥2,489 | ) | | | (¥753 | ) | | | ($6,275 | ) |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Thousands of | | | | | Millions of Yen | | | U.S. Dollars | | | | | 2003 | | | 2004 | | | 2005 | | | 2005 | | | | | Gain on sale of available-for-sale securities and sundry investments | | | — | | | ¥ | 37 | | | ¥ | 2,309 | | | $ | 21,579 | | | Foreign exchange gain, net | | | — | | | | — | | | | 462 | | | | 4,318 | | | Dividend income | | ¥ | 283 | | | | 326 | | | | 385 | | | | 3,598 | | | Other | | | 358 | | | | 141 | | | | 259 | | | | 2,421 | | | | | Total other income | | ¥ | 641 | | | ¥ | 504 | | | ¥ | 3,415 | | | $ | 31,916 | | | |
Other deductions of cost and expenses for the years ended March 31, 2003, 2004 and 2005 consisted of the following: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Thousands of | | | | | Millions of Yen | | | U.S. Dollars | | | | | 2003 | | | 2004 | | | 2005 | | | 2005 | | | | | Impairment losses of long-lived assets | | | — | | | | — | | | ¥ | 4,460 | | | $ | 41,682 | | | Write-down of available-for-sale securities and sundry investments | | ¥ | 1,369 | | | ¥ | 245 | | | | 51 | | | | 477 | | | Foreign exchange loss, net | | | 2,045 | | | | 1,244 | | | | — | | | | — | | | Other | | | 20 | | | | 152 | | | | 1,827 | | | | 17,075 | | | | | Total other deductions | | ¥ | 3,434 | | | ¥ | 1,641 | | | ¥ | 6,338 | | | $ | 59,234 | | | |
The Company recognized impairment losses of long-lived assets of ¥4,460 million ($41,682 thousand) for the year ended March 31, 2005 in accordance with the provisions of SFAS No. 144. The Company reviewed PPD’s production facilities for impairment because of the unfavorable post-acquisition changes in market conditions for plasma displays. For the impairment review purpose, PPD’s production facilities were grouped with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities, and as a result, an impairment loss of ¥3,396 million ($31,738 thousand) was recognized as the excess of the carrying value of the asset group over the estimated fair value of the asset group. Fair value was determined using an expected present value technique. In addition, a foreign subsidiary recognized an impairment loss of ¥477 million ($4,458 thousand) for the year ended March 31, 2005 related to the property and equipment of the plant to be closed. During the year ended March 31, 2005, the Company decided to no longer sell set-top boxes for cable TV providers in the United States in order to shift its research and development resources toward products for the open cable market. The Company continues to manufacture and sell cable TV set-top boxes in Japan and there was no separate financial reporting for the distribution of the cable TV set-top boxes to the U.S. market. As a result of this decision, the Company recognized an impairment loss of ¥587 million ($5,486 thousand) related to intangible assets of software in Japan for the manufacture of cable TV set-top boxes to the U.S. market and, in addition to the impairment loss, charged ¥1,783 million ($16,664 thousand) in “Other” of other deductions of cost and expenses for asset disposal cost, employee termination benefits and contract termination costs for the year ended March 31, 2005. F-33
14.16. Leased assets:
The Company leases certain land, machinery and equipment, office space, warehouses, computer equipment and employees’ residential facilities primarilyfacilities. An analysis of assets under operating leases.capital leases was as follows: | | | | | | | | | | | | | | | | | Thousands of | | | | | Millions of Yen | | | U.S. Dollars | | | | | 2005 | | | 2005 | | | | | Machinery and equipment | | ¥ | 12,625 | | | $ | 117,991 | | | Accumulated depreciation | | | (1,794 | ) | | | (16,767 | ) | | | | Total | | ¥ | 10,831 | | | $ | 101,224 | | | |
The following is a schedule by year of the future minimum lease payments under capital leases together with the present value of the net minimum lease payments as of March 31, 2005: | | | | | | | | | | | | | | | | | Thousands of | | | Year ending March 31 | | Millions of Yen | | | U.S. Dollars | | | | | 2006 | | ¥ | 3,710 | | | $ | 34,673 | | | 2007 | | | 3,261 | | | | 30,476 | | | 2008 | | | 2,478 | | | | 23,159 | | | 2009 | | | 509 | | | | 4,757 | | | 2010 | | | 499 | | | | 4,663 | | | 2011 and thereafter | | | 1,289 | | | | 12,047 | | | | | Total minimum lease payments | | | 11,746 | | | | 109,775 | | | | | Less—Amount representing interest | | | 617 | | | | 5,766 | | | | | Present value of net minimum lease payment | | | 11,129 | | | | 104,009 | | | Less—Current obligations | | | 3,441 | | | | 32,159 | | | | | Long-term capital lease obligations | | ¥ | 7,688 | | | $ | 71,850 | | | |
Rental expenses under operating leases for the years ended March 31, 2001, 20022003, 2004 and 20032005 aggregated ¥5,962¥6,068 million, ¥6,777¥6,268 million and ¥6,806¥8,376 million ($56,71778,280 thousand), respectively. Such rentals relate principally to cancelable leases which are renewable upon expiration.
The net minimum rental payments under operating leases that have initial or remaining noncancelable lease terms in excess of one year at March 31, 20032005 are as follows: | | | | | | | | | | | | | | | | | | | Thousands of | | Year ending March 31 | | Millions of Yen | | | U.S. Dollars |
| |
| | 2004 | | | ¥3,403 | | | | $28,358 | | | 2005 | | | 2,406 | | | | 20,050 | | | 2006 | | | 1,461 | | | | 12,175 | | | 2007 | | | 862 | | | | 7,183 | | | 2008 | | | 435 | | | | 3,625 | | | Thereafter | | | 992 | | | | 8,267 | |
| | | Total minimum future rentals | | | ¥9,559 | | | | $79,658 | |
|
| | | | | | | | | | | | | | | | | Thousands of | | | Year ending March 31 | | Millions of Yen | | | U.S. Dollars | | | | | 2006 | | ¥ | 6,335 | | | $ | 59,206 | | | 2007 | | | 4,925 | | | | 46,028 | | | 2008 | | | 3,585 | | | | 33,505 | | | 2009 | | | 1,249 | | | | 11,673 | | | 2010 | | | 1,051 | | | | 9,822 | | | Thereafter | | | 2,552 | | | | 23,850 | | | | | Total minimum future rentals | | ¥ | 19,697 | | | $ | 184,084 | | | |
F-34
F-26
15.17. Financial instruments:
Derivatives—
The Company operates internationally, giving rise to exposure to market risks from changes in foreign exchange rates and interest rates. Derivative financial instruments are utilized by the Company to reduce those risks but are not held or issued for trading purposes. To hedge certain purchase and sale commitments and anticipated but not yet committed transactions denominated in other than functional currencies, the Company enters into forward exchange contracts and purchases and writes currency options. Written options are entered into only with purchased options.contracts. The notional amounts of forward exchange contracts as of March 31, 20022004 and 20032005 were ¥3,031¥20,505 million and ¥8,496¥34,950 million ($ 70,800326,636 thousand), respectively. The notional amounts of currency options purchased were ¥1,440 million and ¥1,558 million ($12,983 thousand) as of March 31, 2002 and 2003, respectively. The notional amount of currency options written was ¥1,440 million and ¥1,558 million ($12,983 thousand) as of March 31, 2002 and 2003, respectively. To change currency and interest rate features of intercompany finance transactions, the Company entered into currency swap contracts with banks. Currency swap contracts effectively changed, in substance, the U.S. dollars floating interest rate intercompany borrowings into Japanese yen fixed and floating interest rate borrowings and
euro floatingfixed interest rate borrowings. The notional amounts of currency swap contracts as of March 31, 20022004 and 20032005 were ¥42,882¥35,106 million and ¥32,255¥35,489 million ($268,792331,673 thousand), respectively. Concentration of Credit Risk—
The Company distributes its products to a diverse group of domestic and foreign customers. Trade receivables arising from these sales represent credit risk to the Company. However, due to the large number and diversity of the Company’s customer base, concentration of credit risk with respect to trade receivables is limited. The Company performs ongoing credit evaluation of its customers’ financial condition and, generally, requires no collateral from its customers. Derivative financial instruments that the Company holds or issues may expose the Company to credit risks if the counterparties are unable to meet the terms of such contracts. The Company minimizes credit risk exposure of these derivatives by limiting the counterparties to major international banks and financial institutions as well as avoiding concentration with certain counterparties, and also by making frequent credit reviews of these counterparties. Management does not expect to incur any significant losses as the result of counterparty default. F-35
F-27
16.18. Fair value of financial instruments:The following table presents the carrying amounts and fair values of the Company’s financial instruments at March 31, 20022004 and 2003:| | | | | | | | | | �� | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Thousands of | | | | | | | Millions of Yen | | | U.S. Dollars | | | | | | |
| | |
| | | | | | | 2002 | | | 2003 | | | 2003 | | | | | | |
| | |
| | |
| | | | | | | Assets (liabilities) | | | Assets (liabilities) | | | Assets (liabilities) | | | | | | |
| | |
| | |
| | | | | | | Carrying | | | Fair | | | Carrying | | | Fair | | | Carrying | | | Fair | | | | | | | Amounts | | | Value | | | Amounts | | | Value | | | Amounts | | | Value | |
| | Assets: | | | | | | | | | | | | | | | | | | | | | | | | | | | Available-for-sale securities | | ¥ | 21,815 | | | ¥ | 21,815 | | | ¥ | 14,831 | | | ¥ | 14,831 | | | $ | 123,592 | | | $ | 123,592 | | | | Long-term receivables | | | 374 | | | | 365 | | | | 292 | | | | 288 | | | | 2,433 | | | | 2,400 | | | | Other financial instruments | | | | | | | | | | | | | | | | | | | | | | | | | | | | Forward exchange contracts | | | – | | | | – | | | | 13 | | | | 13 | | | | 108 | | | | 108 | | | | | Currency swap | | | 1,846 | | | | 1,846 | | | | – | | | | – | | | | – | | | | – | | | | | Currency option | | | 2 | | | | 2 | | | | – | | | | – | | | | – | | | | – | | | Liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | | | Long-term debt, including current maturity | | | (38,228 | ) | | | | | | | (33,170 | ) | | | | | | | (276,417 | ) | | | | | | | Less—Capital lease obligations | | | 62 | | | | | | | | 3 | | | | | | | | 25 | | | | | | | | |
| | | Long-term debt—net | | | (38,166 | ) | | | (38,963 | ) | | | (33,167 | ) | | | (34,727 | ) | | | (276,392 | ) | | | (289,392 | ) | | | Other financial instruments: | | | | | | | | | | | | | | | | | | | | | | | | | | | | Forward exchange contracts | | | (33 | ) | | | (33 | ) | | | (250 | ) | | | (250 | ) | | | (2,083 | ) | | | (2,083 | ) | | | | Currency swap | | | – | | | | – | | | | (2,076 | ) | | | (2,076 | ) | | | (17,300 | ) | | | (17,300 | ) | | | | Currency option | | | (10 | ) | | | (10 | ) | | | (7 | ) | | | (7 | ) | | | (58 | ) | | | (58 | ) |
|
2005: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Millions of Yen | | | Thousands of U.S. Dollars | | | | | 2004 | | | 2005 | | | 2005 | | | | | Carrying | | | Fair | | | Carrying | | | Fair | | | Carrying | | | Fair | | | | | Amounts | | | Value | | | Amounts | | | Value | | | Amounts | | | Value | | | | | Assets: | | | | | | | | | | | | | | | | | | | | | | | | | | Available-for-sale securities | | ¥ | 24,516 | | | ¥ | 24,516 | | | ¥ | 22,268 | | | ¥ | 22,268 | | | $ | 208,112 | | | $ | 208,112 | | | Sundry investments | | | 528 | | | | 541 | | | | 411 | | | | 452 | | | | 3,841 | | | | 4,224 | | | Long-term receivables | | | 253 | | | | 244 | | | | 185 | | | | 179 | | | | 1,729 | | | | 1,673 | | | Other financial instruments: | | | | | | | | | | | | | | | | | | | | | | | | | | Forward exchange contracts | | | 790 | | | | 790 | | | | 50 | | | | 50 | | | | 467 | | | | 467 | | | Currency swap | | | — | | | | — | | | | 190 | | | | 190 | | | | 1,776 | | | | 1,776 | | | Liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | | Long-term debt, including current maturity | | | (94,201 | ) | | | | | | | (100,495 | ) | | | | | | | (939,206 | ) | | | | | | Less—Capital lease obligations | | | — | | | | | | | | 11,129 | | | | | | | | 104,009 | | | | | | | | | | | Long-term debt—net | | | (94,201 | ) | | | (89,507 | ) | | | (89,366 | ) | | | (84,301 | ) | | | (835,197 | ) | | | (787,860 | ) | | | | | | Other financial instruments: | | | | | | | | | | | | | | | | | | | | | | | | | | Forward exchange contracts | | | (95 | ) | | | (95 | ) | | | (555 | ) | | | (555 | ) | | | (5,187 | ) | | | (5,187 | ) | | Currency swap | | | (3,179 | ) | | | (3,179 | ) | | | (3,009 | ) | | | (3,009 | ) | | | (28,121 | ) | | | (28,121 | ) | | |
Estimation of Fair Values—
The following notes summarize the major methods and assumptions used in estimating the fair values of financial instruments. Short-term financial instruments are valued at their carrying amounts included in the consolidated balance sheets, which are reasonable estimates of fair value due to the relatively short period to maturity of the instruments. This approach is applied to cash and cash equivalents, trade receivables, short-term borrowings and trade payables. The carrying amounts and the fair values of available-for-sale securities are disclosed in Note 3.5. Sundry investments included non-marketable equity interests in non-public companies,securities, amounting to ¥2,591¥2,855 million and ¥2,404¥2,977 million ($20,03327,823 thousand) at March 31, 20022004 and 2003,2005, respectively, and memberships amounting to ¥612¥528 million and ¥503¥411 million ($4,192 ($3,841 thousand) at March 31, 20022004 and 2003,2005, respectively. The corresponding fair values of non-marketable equity securities at those dates were not computed as such estimation is not practicable.
The fair values of memberships were estimated based on the market price. The fair values of long-term receivables were estimated by discounting estimated future cash flows using current interest rates. The fair values of the Company’s long-term debt were estimated using a discounted cash flow analysis based on incremental borrowing rates for similar types of borrowing arrangements. The fair values of forward exchange contracts were estimated based on the quoted market rates of similar contracts. The currency swap and the interest rate swap were valued at replacement cost. The fair values of foreign currency options were measured using valuation models.the Company’s contingent liabilities for guarantees of loans are not significant. F-36
F-28
17.19. Basic and diluted earnings (loss) per share:
A reconciliation of the numerators and denominators of basic and diluted net income (loss) per share computation for the years ended March 31, 2001, 20022003, 2004 and 20032005 is as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Thousands of | | | | | Millions of Yen | | | U.S. Dollars | | | | |
| | |
| | | | | 2001 | | | 2002 | | | 2003 | | | 2003 | |
| | Net income available to common shareholders | | ¥ | 18,298 | | | ¥ | 8,047 | | | ¥ | 16,078 | | | $ | 133,983 | |
| | | | Number of Shares (Thousands) | | | | | |
| | Weighted average common shares outstanding | | | 179,813 | | | | 180,032 | | | | 178,168 | | | | | | | Effect of dilutive warrants | | | 103 | | | | 32 | | | | 2 | | | | | | | Effect of stock options | | | – | | | | – | | | | 1 | | | | | |
| | Diluted common shares outstanding | | | 179,916 | | | | 180,064 | | | | 178,171 | | | | | |
| | | | Yen | | | U.S. Dollars | |
| | Net income per share | | | | | | | | | | | | | | | | | | Basic | | ¥ | 101.76 | | | ¥ | 44.70 | | | ¥ | 90.24 | | | $ | 0.75 | | | Diluted | | | 101.70 | | | | 44.69 | | | | 90.24 | | | | 0.75 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Thousands of | | | | | Millions of Yen | | | U.S. Dollars | | | | | 2003 | | | 2004 | | | 2005 | | | 2005 | | | | | Income (loss) from continuing operations | | ¥ | 15,942 | | | ¥ | 20,363 | | | ¥ | (8,789 | ) | | $ | (82,140 | ) | | Effect of dilution—Zero coupon convertible bonds | | | — | | | | (21 | ) | | | — | | | | — | | | | | Income (loss) from continuing operations—diluted | | ¥ | 15,942 | | | ¥ | 20,342 | | | ¥ | (8,789 | ) | | $ | (82,140 | ) | | | | Income from discontinued operations, net of tax | | ¥ | 136 | | | ¥ | 4,475 | | | | — | | | | — | | | | | Net income (loss) | | ¥ | 16,078 | | | ¥ | 24,838 | | | ¥ | (8,789 | ) | | $ | (82,140 | ) | | Effect of dilution—Zero coupon convertible bonds | | | — | | | | (21 | ) | | | — | | | | — | | | | | Net income (loss)—diluted | | ¥ | 16,078 | | | ¥ | 24,817 | | | ¥ | (8,789 | ) | | $ | (82,140 | ) | | |
| | | | | | | | | | | | | | | Number of Shares (Thousands) | | | | | | Weighted-average common shares outstanding | 178,168 | | | | 175,433 | | | | 175,389 | | | Effect of dilutive convertible bonds | — | | | | 1,115 | | | | — | | | Effect of dilutive warrants | 2 | | | | — | | | | — | | | Effect of stock options | 1 | | | | 61 | | | | — | | | | | Diluted common shares outstanding | 178,171 | | | | 176,609 | | | | 175,389 | | | |
| | | | | | | | | | | | | | | | | | | | | Yen | | | U.S. Dollars | | | | | | | Basic net income per share: | | | | | | | | | | | | | | | | | | Income (loss) from continuing operations | | ¥ | 89.48 | | | ¥ | 116.07 | | | ¥ | (50.11 | ) | | $ | (0.47 | ) | | Income from discontinued operations, net of tax | | | 0.76 | | | | 25.51 | | | | — | | | | — | | | | | Net income (loss) | | ¥ | 90.24 | | | ¥ | 141.58 | | | ¥ | (50.11 | ) | | $ | (0.47 | ) | | | | Diluted net income per share: | | | | | | | | | | | | | | | | | | Income (loss) from continuing operations | | ¥ | 89.48 | | | ¥ | 115.18 | | | ¥ | (50.11 | ) | | $ | (0.47 | ) | | Income from discontinued operations, net of tax | | | 0.76 | | | | 25.34 | | | | — | | | | — | | | | | Net income (loss) | | ¥ | 90.24 | | | ¥ | 140.52 | | | ¥ | (50.11 | ) | | $ | (0.47 | ) | | |
F-37
18.20. Supplemental schedule:
The changes in the allowance for doubtful receivables for the years ended March 31, 2001, 20022003, 2004 and 20032005 are as follows: | | | | | | | | | | | | | | | | | | | | | | | | | Millions of Yen | | | | |
| | | | | Balance at | | | Charged (Credited) | | | Deductions for | | | | | | | | | | | | | Beginning | | | to Costs and | | | Accounts | | | Translation | | | Balance at End | | | Allowance for Doubtful Receivables | | of Period | | | Expenses | | | Written Off | | | Adjustments | | | of Period | |
| | 2001 | | ¥ | 8,993 | | | ¥ | 1,164 | | | | (¥861 | ) | | ¥ | 525 | | | ¥ | 9,821 | | | 2002 | | | 9,821 | | | | (153 | ) | | | (4,660 | ) | | | 311 | | | | 5,319 | | | 2003 | | | 5,319 | | | | 411 | | | | (765 | ) | | | (334 | ) | | | 4,631 | |
| | | | Thousands of U.S. Dollars | | | | |
| | | | | Balance at | | | Charged (Credited) | | | Deductions for | | | | | | | | | | | | | Beginning | | | to Costs and | | | Accounts | | | Translation | | | Balance at End | | | Allowance for Doubtful Receivables | | of Period | | | Expenses | | | Written Off | | | Adjustments | | | of Period | |
| | 2003 | | $ | 44,325 | | | $ | 3,425 | | | | ($6,375 | ) | | | ($2,783 | ) | | $ | 38,592 | |
|
F-29
| | | | | | | | | | | | | | | | | | | | | | | | | Millions of Yen | | | | Balance at | | | Charged (Credited) | | | Deductions for | | | | | | | | | | | Beginning | | | to Costs and | | | Accounts | | | Translation | | | Balance at End | | | Allowance for Doubtful Receivables | | of Period | | | Expenses | | | Written Off | | | Adjustments | | | of Period | | | | | 2003 | | ¥ | 5,319 | | | ¥ | 411 | | | ¥ | (765 | ) | | ¥ | (334 | ) | | ¥ | 4,631 | | | 2004 | | | 4,631 | | | | (667 | ) | | | (13 | ) | | | (417 | ) | | | 3,534 | | | 2005 | | | 3,534 | | | | (515 | ) | | | (497 | ) | | | 88 | | | | 2,610 | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | Thousands of U.S. Dollars | | | | Balance at | | | Charged (Credited) | | | Deductions for | | | | | | | | | | | Beginning | | | to Costs and | | | Accounts | | | Translation | | | Balance at End | | | Allowance for Doubtful Receivables | | of Period | | | Expenses | | | Written Off | | | Adjustments | | | of Period | | | | | 2005 | | $ | 33,028 | | | $ | (4,813 | ) | | $ | (4,645 | ) | | $ | 822 | | | $ | 24,392 | | | |
The changechanges in the warranty reserve for the yearyears ended March 31, 2003, is2004 and 2005 are as follows: | | | | | | | | | | | | | | | | | | | | | | | | | Millions of Yen | | | | |
| | | | | Balance at | | | | | | | | | | | | | | | | | | | | | Beginning | | | | | | | | | | | Translation | | | Balance at End | | | Warranty Reserve | | of Period | | | Provision | | | Payments | | | Adjustments | | | of Period | |
| | 2003 | | | ¥6,481 | | | | ¥7,642 | | | | (¥7,374 | ) | | | (¥256 | ) | | ¥ | 6,493 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | Thousands of U.S. Dollars | | | | |
| | | | | Balance at | | | | | | | | | | | | | | | | | | | | | Beginning | | | | | | | | | | | Translation | | | Balance at End | | | Warranty Reserve | | of Period | | | Provision | | | Payments | | | Adjustments | | | of Period | |
| | 2003 | | | $54,008 | | | | $63,683 | | | | ($61,450 | ) | | | ($2,133 | ) | | $ | 54,108 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | Millions of Yen | | | | Balance at | | | | | | | | | | | | | | | | | | | Beginning | | | | | | | | | | | Translation | | | Balance at End | | | Warranty Reserve | | of Period | | | Provision | | | Payments | | | Adjustments | | | of Period | | | | | 2003 | | ¥ | 6,481 | | | ¥ | 7,642 | | | ¥ | (7,374 | ) | | ¥ | (256 | ) | | ¥ | 6,493 | | | 2004 | | | 6,493 | | | | 6,050 | | | | (6,669 | ) | | | (455 | ) | | | 5,419 | | | 2005 | | | 5,419 | | | | 8,030 | | | | (7,844 | ) | | | 117 | | | | 5,722 | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | Thousands of U.S. Dollars | | | | Balance at | | | | | | | | | | | | | | | | | | | Beginning | | | | | | | | | | | Translation | | | Balance at End | | | Warranty Reserve | | of Period | | | Provision | | | Payments | | | Adjustments | | | of Period | | | | | 2005 | | $ | 50,645 | | | $ | 75,047 | | | $ | (73,308 | ) | | $ | 1,093 | | | $ | 53,477 | | | |
F-38
19.21. Commitments and contingent liabilities:
Commitments outstanding at March 31, 20032005 for the purchase of property, plant and equipment and advertisement payments approximated ¥7,562¥3,967 million ($63,01737,075 thousand). Contingent liabilities at March 31, 20032005 principally for loans guaranteed in the ordinary course of business amounted to ¥27,469¥25,403 million ($228,908237,411 thousand). Loans guaranteed at March 31, 2003 consist of2005 are as follows:
| | | | | | | | | | | | | | | | | | | | | Guaranteed amount | | | | | | | | |
| | | | | | | | | | | | | Thousands of | | | Guarantee for | | Guaranteed until | | | Millions of Yen | | | U.S. Dollars | |
| | Affiliated company | | May 31, 2012–October 22, 2012 | | ¥ | 25,000 | | | $ | 208,333 | | | Affiliated company | | March 31, 2004–October 25, 2004 | | | 1,142 | | | | 9,517 | | | Customer | | March 31, 2004 | | | 1,127 | | | | 9,392 | |
| | Total | | | | | | ¥ | 27,269 | | | $ | 227,242 | |
|
| | | | | | | | | | | | | | | | | Guaranteed Amount | | | | | | | | | | | Thousands of | | | Guarantee for | | Guaranteed until | | Millions of Yen | | | U.S. Dollars | | | | | Affiliated company | | May 31, 2012–October 22, 2012 | | ¥ | 25,000 | | | $ | 233,645 | | | Affiliated company | | April 1, 2005–March 31, 2006 | | | 403 | | | | 3,766 | | | | | Total | | | | ¥ | 25,403 | | | $ | 237,411 | | | |
The Company entered into these guarantee agreements to sustain the business relationships. The Company will be required to pay the guaranteed amounts if the affiliated companies or customers are unable to repay. During the year ended March 31, 2001, the Company received a notice of proposed assessment from the German tax authorities for approximately EUR21EUR 21 million (¥2,7212,916 million translated at the current foreign exchange rate at March 31, 2003)2005) relating to a tax position taken in prior years concerning intercompany purchase prices. The Company officially challenged the proposed assessment by arbitration procedures. There was no progress during the year ended March 31, 2003.2005. In the opinion of management, it is not possible at this time to determine the ultimate resolution of this matter. In June 2002,
22. Remuneration of directors, executive officers and corporate auditors: The aggregate remuneration (including bonuses and stock-based compensation [see Note 13]) charged to income by the Companyparent company for directors, executive officers and corporate auditors for the years ended March 31, 2003, 2004 and 2005 totaled ¥965 million, ¥1,238 million and ¥1,136 million ($10,617 thousand), respectively. 23. Subsequent event: On April 15, 2005, Pioneer Speakers, Inc. (“PSI”), a wholly-owned U.S. subsidiary of Tohoku Pioneer Corporation received a notice from the United States Internal Revenue Service (“IRS”) forCustoms and Border Protection proposing additional taxescustom duty and penalty of approximately $66$26 million (¥7,9332,792 million translated at the foreign exchange rate at March 31, 2003) relating to an adjustment to transfer prices between affiliated companies2005) for alleged erroneous claims for preferential treatment of duties on products imported by PSI for the years ended March 31,period of June 23, 1997 through December 31, 1999. In October 2002, the Company filed protest against the assessment.PSI intends to file a petition for relief from this penalty action. In the opinion of management, it is not possible at this time to determine the ultimate outcome of this matter. F-39
20. Remuneration of directors, executive officers and corporate auditors:
The aggregate remuneration (including bonuses and stock-based compensation [See Note 11]) charged to income by the parent company for directors, executive officers and corporate auditors
for the years ended March 31, 2001, 2002 and 2003 totaled ¥811 million, ¥876 million and ¥965 million ($8,042 thousand), respectively.
F-30
21. Subsequent events:
On July 17, 2003, the Company announced that it had reached a preliminary agreement with Dentsu Inc., an advertising agency in Japan, to sell to Dentsu Inc. shares of two of its wholly-owned subsidiaries, Pioneer LDC, Inc., in Tokyo and Pioneer Entertainment (USA) Inc., in California, U.S.A., both engaged in the audio/video software businesses in Japan and the United States, respectively. The specific conditions, timetable and other matters of the dispositions are yet to be determined under definitive agreements
separately governing the two dispositions in Japan and in the United States, and therefore the management is unable to determine with reasonable accuracy the impact of these dispositions on the Company’s financial conditions and results of operation until more information is available. Net sales posted by the two subsidiaries for the year ended March 31, 2003 amounted to ¥32,431 million.
F-31
|
