PIONEER CORPORATION
UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
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REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g)
OF THE SECURITIES EXCHANGE ACT OF 1934 |
OR
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended March 31, 2006
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
OR
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SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 |
Date of event requiring this shell company report
Commission file number 1-7616
PIONEER KABUSHIKI KAISHA
(Exact name of Registrant as specified in its charter)
PIONEER CORPORATION
(Translation of Registrants name into English)
JAPAN
(Jurisdiction of incorporation or organization)
4-1, MEGURO 1-CHOME, MEGURO-KU, TOKYO 153-8654, JAPAN
(Address of principal executive offices)
Securities registered pursuant to Section 12(b) of the Act.
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Title of each class
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Name of each exchange on which registered |
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None
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None |
Securities registered pursuant to Section 12(g) of the Act.
Common Stock
(Title of Class)
Securities for which there is a reporting obligation pursuant to
Section 15(d) of the Act.
None
(Title of Class)
Indicate the number of outstanding shares of each of the issuers classes of capital or common
stock as of the close of the period covered by the annual report.
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Outstanding as of March 31, 2006 |
Title of class |
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(Japan time) |
Common Stock
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174,421,890 |
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of
the Securities Act.
Yes þ No o
If this report is an annual or transition report, indicate by check mark if the registrant is not
required to file reports pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934.
Yes o No þ
Note Checking the box above will not relieve any registrant required to file reports pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those
Sections.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in
Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer þ
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Accelerated filer o
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Non-accelerated filer o |
Indicate by check mark which financial statement item the registrant has elected to follow.
Item 17 þ Item 18 o
If this is an annual report, indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act).
Yes o No þ
Certain Defined Terms
As used herein, the term Pioneer refers to Pioneer Corporation, the registrant, and we and
our refer to Pioneer and its consolidated subsidiaries as a group, unless the context otherwise
indicates.
References in this annual report to fiscal years refer to the 12-month periods ended March 31 of
each calendar year.
Billion is used in the American sense of one thousand million.
Cautionary Statement with Respect to Forward-Looking Statements
Statements made in this annual report with respect to our current plans, estimates, strategies and
beliefs, and other statements that are not historical facts are forward-looking statements about
our future performance. Forward-looking statements include but are not limited to those statements
using words such as believe, expect, intend, plan, aim, forecast, estimate,
project, anticipate, strategy, prospects, may, might or will and words of similar
meaning in connection with a discussion of future operations, financial performance, events or
conditions. From time to time, oral or written forward-looking statements may also be included in
other materials released to the public. These statements are based on our managements assumptions
and beliefs in light of the information currently available to it. We caution that a number of
important risks and uncertainties could cause actual results to differ materially from those in the
forward-looking statements, and therefore you should not place undue reliance on them. You also
should not believe that it is our obligation to update or revise any forward-looking statements,
whether as a result of new information, future events or otherwise. We disclaim any such
obligation. Risks and uncertainties that might affect us include, but are not limited to, (i)
general economic conditions in the markets in which we sell our products, particularly levels of
consumer spending; (ii) exchange rates, particularly between the yen and the U.S. dollar, euro, and
other currencies in which we make significant sales or in which our assets and liabilities are
denominated; (iii) our ability to continue to design and develop and win acceptance of our products
and services, which are offered in highly competitive markets characterized by continual new
product introductions, rapid developments in technology, severe price competition and subjective
and changing consumer preferences; (iv) our ability to implement successfully our business
strategies; (v) our ability to compete, as well as develop and implement successful sales and
distribution strategies, in light of technological developments in and affecting our businesses;
(vi) our continued ability to devote sufficient resources to research and development, and capital
expenditure; (vii) our ability to continuously enhance our brand image; (viii) the success of our
joint ventures and alliances; and (ix) the outcome of contingencies.
PART I
Item 1. Identity of Directors, Senior Management and Advisers
Not applicable
Item 2. Offer Statistics and Expected Timetable
Not applicable
3
Item 3. Key Information
A. Selected financial data
The following table presents selected consolidated financial data as of the dates and for the
periods indicated. We derived the consolidated statements of operations data for each of the three
years in the period ended March 31, 2006 and the consolidated balance sheet data as of March 31,
2005 and 2006 from our audited consolidated financial statements included elsewhere herein. We
derived the consolidated statement of operations data for each of the two years in the period ended
March 31, 2003 and the consolidated balance sheets data as of March 31, 2002, 2003 and 2004 from
our audited consolidated financial statements which are not included herein. Our audited
consolidated financial statements are prepared in accordance with accounting principles generally
accepted in the United States of America (U.S. GAAP), except for segment data which is prepared
in accordance with the regulations under the Securities and Exchange Law of Japan.
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Year ended March 31 |
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2002 |
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2003 |
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2004 |
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2005 |
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2006 |
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(In millions of yen, except per share data) |
Consolidated Statements of Operations Data: |
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Operating revenue (Note 4) (Note 5) |
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¥ |
624,978 |
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¥ |
664,828 |
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¥ |
684,749 |
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¥ |
711,042 |
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¥ |
754,964 |
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Income (loss) from continuing operations
before income taxes (Note 5) |
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7,268 |
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15,029 |
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19,464 |
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(10,112 |
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(85,758 |
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Income (loss) from discontinued operations,
net of tax (Note 5) |
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779 |
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1,049 |
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5,374 |
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1,323 |
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772 |
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Net income (loss) |
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8,047 |
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16,078 |
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24,838 |
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(8,789 |
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(84,986 |
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Per share of common stock: |
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Income (loss) from continuing operations: |
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Basic |
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40.37 |
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84.35 |
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110.95 |
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(57.65 |
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(491.66 |
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Diluted |
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40.36 |
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84.35 |
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110.09 |
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(57.65 |
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(491.66 |
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Net income (loss): |
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Basic |
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44.70 |
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90.24 |
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141.58 |
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(50.11 |
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(487.23 |
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Diluted |
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44.69 |
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90.24 |
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140.52 |
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(50.11 |
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(487.23 |
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Consolidated Balance Sheets Data: |
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Total assets |
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645,129 |
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¥ |
647,029 |
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¥ |
722,542 |
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¥ |
725,167 |
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¥ |
678,046 |
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Short-term borrowings |
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45,867 |
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29,893 |
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23,327 |
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33,152 |
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23,205 |
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Current portion of long-term debt |
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2,551 |
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974 |
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4,510 |
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19,276 |
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7,165 |
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Long-term debt, less current portion |
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35,677 |
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32,196 |
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89,691 |
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81,219 |
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92,970 |
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Shareholders equity |
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347,003 |
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318,393 |
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332,938 |
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332,239 |
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273,250 |
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Common stock |
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49,049 |
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49,049 |
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49,049 |
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49,049 |
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49,049 |
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Number of shares issued (in thousands) |
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180,064 |
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180,064 |
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180,064 |
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180,064 |
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180,064 |
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4
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Year ended March 31 |
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2002 |
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2003 |
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2004 |
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2005 |
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2006 |
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(In millions of yen,
except per share data and percentage amounts) |
Other Data: |
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Capital expenditures |
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¥ |
46,909 |
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¥ |
40,493 |
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¥ |
57,978 |
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¥ |
63,866 |
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¥ |
40,325 |
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Research and development (R&D) expenses |
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39,033 |
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45,366 |
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51,449 |
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55,858 |
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63,442 |
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Cash flows from operating activities |
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57,358 |
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91,509 |
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60,378 |
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19,946 |
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68,329 |
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Cash flows from investing activities |
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(51,396 |
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(35,228 |
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(52,754 |
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(93,516 |
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(29,759 |
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Cash flows from financing activities |
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(4,207 |
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(34,680 |
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51,827 |
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(4,019 |
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(38,551 |
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Return on equity (Note 1) |
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2.4 |
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4.8 |
% |
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7.6 |
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(2.6 |
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(28.1 |
%) |
Return on assets (Note 2) |
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1.3 |
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2.5 |
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3.6 |
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(1.2 |
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(12.1 |
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Cash dividends declared
per share of common stock (Note 3): |
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Interim (in yen) |
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7.50 |
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7.50 |
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12.50 |
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12.50 |
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7.50 |
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(in U.S. dollars) |
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0.06 |
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0.06 |
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0.12 |
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0.12 |
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0.06 |
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Year-end (in yen) |
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7.50 |
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10.00 |
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12.50 |
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12.50 |
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2.50 |
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(in U.S. dollars) |
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0.06 |
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0.08 |
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0.11 |
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0.11 |
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0.02 |
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Notes: 1. |
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Net income (loss) as a percentage of average (simple average of beginning and end of year
balances) shareholders equity. |
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2. |
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Net income (loss) as a percentage of average (simple average of beginning and
end of year balances) total assets. |
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3. |
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Cash dividends in U.S. dollars are based on the noon buying rate in yen for
cable transfers in New York City as certified for customs purposes by the Federal
Reserve Bank of New York on the date of the dividend payment. |
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4. |
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In fiscal 2003, we adopted EITF (Emerging Issues Task Force) 01-9 Accounting
for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendors
Products). The adoption resulted in a reduction in net sales and a corresponding
decrease in selling, general and administrative expenses. Previously reported amounts
have been reclassified accordingly. |
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5. |
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In fiscal 2006, we sold a subsidiary engaged in the development of cable TV
software, and reached a preliminary agreement on the sale of subsidiaries involved in
the electronic components business. As a result, the operating results of these
subsidiaries, and the gain on the sale are presented as income from discontinued
operations in the consolidated statements of operations in accordance with Statement of
Financial Accounting Standards (SFAS) No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. Corresponding figures for the previous fiscal years
have been reclassified accordingly. |
5
Exchange rates (yen per U.S. dollar)
The exchange rate between the yen and the U.S. dollar, based upon the noon buying rate in yen for
cable transfers in New York City as certified for customs purposes by the Federal Reserve Bank of
New York, was ¥115.65 = US$1.00 on July 5, 2006.
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Average |
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High |
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Low |
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Period-end |
Year ended March 31 |
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2002 |
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¥ |
125.64 |
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¥ |
115.89 |
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¥ |
134.77 |
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¥ |
132.70 |
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2003 |
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121.10 |
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115.71 |
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133.40 |
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118.07 |
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2004 |
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112.75 |
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104.18 |
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120.55 |
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104.18 |
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2005 |
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107.28 |
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102.26 |
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114.30 |
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107.22 |
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2006 |
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113.67 |
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104.41 |
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120.93 |
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117.48 |
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2006 |
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January |
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113.96 |
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117.55 |
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February |
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115.82 |
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118.95 |
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March |
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115.89 |
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119.07 |
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April |
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113.79 |
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118.66 |
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May |
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110.07 |
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113.46 |
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June |
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111.66 |
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116.42 |
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For purposes of preparing our financial statements, we use rates obtained from the Tokyo foreign
exchange market, which differ from the rates listed above.
B. Capitalization and indebtedness
Not applicable
C. Reasons for the offer and use of proceeds
Not applicable
D. Risk factors
This section describes some of the risks that could affect our business. The factors listed below
should be considered in connection with any forward-looking statements given in this annual report
and should be read in conjunction with Item 5. Operating and Financial Review and Prospects. They
are subject to the Cautionary Statement with Respect to Forward-Looking Statements
appearing elsewhere in this annual report. This list is necessarily incomplete, as some risks may
be as yet unknown to us. Any risk factor has the potential to adversely affect our business
results, share price and financial condition.
Economic conditions may adversely affect our sales and profitability
Demand for consumer electronics products, which account for a significant proportion of our
worldwide operating revenue, may be affected by general economic trends in the countries or regions
in which our products are sold. Purchases of our products are, to a significant extent,
discretionary. Similarly, demand for our business use products and for components we manufacture
that go into products of third parties is affected by general economic trends in the various
markets in which we sell our products. Economic downturns and resulting declines of demand in our
major markets, including Japan, North America, Europe and Asia, may thus adversely affect our sales
and profitability.
6
Additionally, our operations may be indirectly affected by the economic conditions of regions where
our competitors manufacture their products. For example, if a competitor enjoys lower local labor
costs, it may be able to offer similar products at a lower price. As a result, our sales may be
adversely affected. Also, a decrease in the value of the local currency in a region that produces
parts and raw materials may lead to a decrease in production costs (on a yen or a U.S. dollar
basis) not only to us but to other manufacturers as well. Such a trend may in turn bring about
vigorous export competition and price-cutting, both of which could adversely affect our sales and
profitability.
Fluctuations in foreign currency exchange rates may adversely affect our business results and
financial condition
Our operations involve the global production and distribution of products. Revenue and expense
items that are denominated in local currency, such as sales, expenses and assets in each region,
are translated into yen in preparing our consolidated financial statements. Depending on the rate
of exchange at the time of currency translation, the values of such items in yen may be affected,
even if their value has not changed in their original currency. Also, fluctuations in exchange
rates may affect the local prices of our products and negatively impact their competitiveness in
local markets. Generally, an appreciation of the yen against other currencies, particularly the yen
against the U.S. dollar and the euro, in which we make significant sales, may adversely affect our
business results and financial condition.
An increase in the value of currencies in regions where we operate and produce may lead to an
increase in the costs of manufacturing and procurement in those regions. Such an increase could
accordingly adversely affect our profit margins and reduce our price competitiveness, thereby
adversely affecting our business results. We engage in currency hedging transactions to attempt to
minimize the negative effects of short-term fluctuations of foreign exchange rates among major
currencies such as the U.S. dollar, euro and yen. However, as a result of mid-to-long-term exchange
rate volatility, we cannot execute planned procurement, production, logistics, and sales activities
with any certainty and, consequently, fluctuations in exchange rates may adversely affect our
business results and financial condition.
If we are unable to innovate and to develop attractive new products, our future growth and
profitability may be adversely affected
We derive a substantial portion of our revenues from sales of innovative new products. We expect
that sales of our new products currently including plasma displays and car navigation systems
will continue to account for a substantial portion of our revenues, and we expect our future growth
and profitability to rely primarily on the continued development and sale of innovative new
products, such as Blu-ray Disc players.
While we believe that we are capable of continuing to develop innovative and attractive new
products, the industry in which we operate is characterized by rapid changes, including
technological changes. The process of developing and marketing new products is inherently complex
and uncertain, and there are a number of risks, including the following:
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We may be unable to obtain adequate funding and resources
necessary for investments in new products and technologies. |
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Our long-term investments and commitment of significant resources
may not result in successful new products or technologies. |
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We may not be able to anticipate successfully the new products and
technologies which will gain market acceptance and that such
products can be successfully marketed. |
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Our newly developed products or technologies may not be
successfully protected as proprietary intellectual property
rights. |
7
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Our products may become obsolete earlier than expected due to
rapid advancements in technology and changes in consumer
preferences. |
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A delay in commercializing new technologies now under development
may prevent us from keeping up with market demand. |
Our failure to anticipate adequately changes in the industry and the market, and to develop
attractive new products, including any of the risks described above, may reduce our future growth
and profitability.
Competition generally, and especially on the basis of price and standardization of products,
may adversely affect our results of operations
The electronics industry, including the audio, video and car electronics industry, is intensely
competitive. We expect to face increased competition in the various product and geographic markets
in which we operate. Our competitors include manufacturers and distributors, some of which have
greater capital resources available for research, development, production and marketing. In
addition, as new technology develops and as new electronics products gain increased market
acceptance, it is possible that new competitors or alliances among existing competitors may emerge
and rapidly acquire significant market share. While we believe we are one of the leading innovators
of advanced, high-quality and value-added electronics products, we may not be able to compete
effectively in the future. Pricing pressures or loss of potential customers resulting from our
failure to compete effectively may adversely affect our results of operations.
For example, competitors in the plasma display market may substantially increase their production
capabilities or introduce alternative products at a lower price and cause market competition to
intensify further. Moreover, due to standardization and the relative ease of imitation of products
such as digital versatile disc (DVD) players, competition from manufacturers in emerging markets
may also continue to intensify. Our research into the development of new products generally
requires large costs that competitive imitators may not need to incur. In an aggressive
price-cutting environment we may find it difficult to maintain or increase our market share or
remain profitable against low-cost and low-budget competitors.
Failure of our next generation optical disc format to gain broad market acceptance may
adversely affect our business and results of operations
Currently, there are two generally recognized competing formats for the next generation optical
discs, Blu-ray Disc and HD DVD. Each of the disc formats makes use of its own distinct technology
and is incompatible with the other format.
We are focusing on the Blu-ray Disc format as the next generation optical discs and are developing
products that are compatible with such format.
The question of which format will prevail as the industry standard is not yet settled. Should our
adopted format fail to be accepted as the de facto industry standard, or otherwise fail to gain
wide acceptance, our business strategy and results of operations may be adversely affected.
A substantial decline in our royalty revenue as a result of the expiration of many of our
existing patents relating to laser optical disc technologies may adversely affect our
profitability
The licensing of our patent and other intellectual property rights makes a significant contribution
to our net income since costs related to patent licensing are limited principally to amortization
of patent rights and expenses for licensing activities. The legal protections afforded to these
rights have a limited duration
8
under applicable laws, and the length of protection varies from country to country or region. A
significant portion of our patent rights relating to laser optical disc technologies have expired
in Europe and Japan and some portion of those in North America started to expire. As a result, our
royalty revenue is expected to decline in the future. This decline in royalty revenue may in turn
have an adverse impact on our profitability. Royalty revenue from patent licensing also depends to
a material degree on the sales of patented products by our licensees, making it hard for us to
predict actual royalty revenue amounts. For a discussion of our patent licensing business, see
Item 4.B. Business overviewNature of operations.
If we are unable to successfully manage the risks inherent in our international activities and
our overseas expansion, our results of operations and production capacity could be adversely
affected
A substantial portion of our manufacturing and marketing activity is conducted outside Japan,
including in the United States, Europe, and in developing and emerging markets in Asia. There are a
number of risks inherent in doing business in such overseas markets, including the following:
|
|
Unexpected legal or regulatory changes; |
|
|
|
Unfavorable political or economic factors; |
|
|
|
Difficulties in recruiting and retaining personnel; |
|
|
|
Labor disputes including strikes; |
|
|
|
Less developed technological infrastructure, which can affect our production or other activities or result in lower
customer acceptance of our products and services; |
|
|
|
Potentially adverse tax consequences; and |
|
|
|
Social, political or economic turmoil due to terrorism, war, or other factors. |
In order to produce our products competitively and to reduce costs, we aim to continue expanding
our production and parts procurement in the Shanghai and Guang Dong areas of the Peoples Republic
of China (China). Nevertheless, we may experience difficulties in managing a production facility
and entering into business arrangements in China in light of unexpected events, including political
or legal changes, labor shortages or strikes or changes in economic conditions in China.
Furthermore, the outbreaks of epidemics may, depending on how they develop, adversely impact our
operations in China, including delays in production due to travel restrictions on employees, as
well as disruptions in parts procurement and factory operations. Accordingly, such incidents could
have an adverse impact on our results of operations.
Our dependence on certain third-party manufacturers and suppliers for parts and components
could adversely affect our production capacity and results of operations
While we strive to produce key components and parts such as laser pickups internally, we are
dependent on a number of outside manufacturers and suppliers. Third parties manufacture some of our
most important components and parts, including semiconductors. Our arrangements with third-party
manufacturers and suppliers are generally on a renewable short-term basis. While we have sought to
secure supply where necessary through strategic alliances and other measures, we may face shortages
of key components, reflecting changes in the market trend. We may also experience shortages or
other material disruptions in our supply of components and parts due to natural disasters or other
events beyond our control. Shortages of key components may prevent us from producing enough
products on a timely basis, which would cause us to lose sales opportunities or lead to strained
relationships with our original equipment manufacturing (OEM) customers. Such condition may
adversely affect our sales and profitability. See Item 4.B. Business overviewRaw materials and
sources of supply for a discussion of our outside manufacturers and suppliers.
9
Our performance in the OEM business is substantially dependent on the performance of our
customers businesses
We provide our OEM products to automobile manufacturers, electronics manufacturers, personal
computer (PC) makers and other large-scale businesses worldwide. The products we supply include
car stereo products, car navigation systems, DVD drives, plasma displays and organic light-emitting
diode (OLED) displays. Sales to business customers in these areas are significantly affected by
the respective customers business results and by factors that are beyond our control. Further,
price-cutting to meet customer demands may cause a reduction in our profit margin. The
under-performance of a customers business, the unexpected termination of contracts, changes in the
purchasing practices of our OEM customers or aggressive price-cutting to satisfy a large business
customers demands may adversely affect our results of operations.
Because our products and technologies are dependent on the service of capable engineers and
other key personnel, difficulty in recruiting and developing key personnel could have an adverse
impact on our future growth
Our products and technologies are complex, and our future growth and success depend to a
significant extent on the service of capable engineers and other key personnel; therefore, hiring
and training additional highly-skilled engineers and other competent personnel are important for
our success.
Failure to recruit and develop key personnel may adversely affect our future growth. On the other
hand, aggressive hiring of, among others, capable engineers who are experienced with the latest
technology, may increase, sometimes substantially, both recruiting and actual labor costs. In
addition, continued re-training of currently employed personnel, which may introduce higher costs,
might also be necessary to maintain a superior level of innovation and technological advance. Such
increased costs could have an adverse impact on our profitability.
Limits on intellectual property protection may make us vulnerable to competition from third
parties that use our technology and expertise
While we have developed technology and expertise which differentiate our products from those of our
competitors, some of our unique technology and expertise is either not fully capable of being
protected by intellectual property rights or protected only to a limited extent pursuant to legal
limitations in certain jurisdictions. Although we have the ability to reduce illegal imports of
such products into certain jurisdictions through exercise of our legal rights, we may be unable to
effectively prevent third parties from using our intellectual property rights to produce products
similar to ours. In addition, we may be unable to prevent third parties from developing
technologies that are similar or superior to our technology, or from designing around or reverse
engineering our patents and trade secrets. Moreover, our future products and technology might later
be found to infringe upon a third partys intellectual property rights.
Product defects resulting in a large-scale product recall or successful products liability
claims against us could result in a significant cost or a negative impact on our reputation and
adversely affect our business results of operations
We manufacture various products at our plants worldwide in accordance with internationally accepted
quality-control standards. We cannot be certain, however, that all of our products are defect-free
and may not be recalled at some later date. Furthermore, although we maintain insurance against
product liability claims, we cannot be certain that such insurance can adequately satisfy the
liabilities ultimately incurred. In addition, insurance may not continue to be available on terms
acceptable to us. A large-scale product recall or a successful products liability claim against us
could result in significant costs or have a negative
10
impact on our reputation, which may in turn lead to a decrease in sales, adversely affecting our
results of operations.
Failure to achieve the goals of collaborations, technological tie-ups, and joint ventures with
third parties may adversely affect our results of operations and future growth
As part of our technological development process, we conduct many joint activities with other
companies in the form of collaborations, technological tie-ups, or joint ventures intended to
optimize management resources and utilize the synergy of combined technologies. We expect to
continue to adopt an active approach to exploiting these opportunities. If differences arise among
the participants of these joint activities due to managerial, financial or other reasons, we may
not achieve the goals of these development projects, which may in turn adversely affect our results
of operations and future growth.
Governmental regulation may limit our activities or increase our costs of operations
Our business and operations are subject to various forms of government regulation in countries in
which we do business, including required business/investment approvals, as well as export
regulations based on national security or other reasons and other export/import regulations such as
tariffs. In addition, commercial, antitrust, patent, consumer, taxation, exchange control and
environment/recycling laws and regulations also apply. If we are unable to comply with these
regulations, they can serve to limit our activities. In addition, compliance with these regulations
could result in increased costs. Accordingly, these regulations could adversely affect our results
of operations. See Item 4.B. Business overviewGovernmental regulation for a discussion of
certain government regulations applicable to us.
Damage to our production facilities as a result of disasters, power outages or similar events
may significantly reduce our production capacity
We periodically carry out disaster prevention checks and facility maintenance at all of our
production facilities to minimize potential negative impact caused by disruptions on our
manufacturing lines. However, we may not completely prevent or mitigate the effect of a disaster,
outage or other disruption at our production facilities. For example, our plasma display panels are
currently manufactured at our Shizuoka, Yamanashi and Kagoshima plants in Japan which is an
earthquake-prone country. Accordingly, our plasma display panel production capacity could be
significantly reduced in the event of a major earthquake in Japan.
Employee retirement benefit costs and obligations may adversely affect our results of
operations
Pioneer is obligated to pay certain employee retirement benefit costs and obligations to qualified
employees upon their retirement. The amount of such employee retirement benefit costs and
obligations are dependent on assumptions used in the relevant actuarial calculations. These
assumptions include discount rates, future compensation levels, return on assets, retirement rates
and mortality rates, which are based upon current statistical data, as well as long-term returns on
pension plan assets and other factors. If actual results differ from the assumptions or assumptions
are changed, the resulting effects are accumulated and systematically recognized over future
periods and, therefore, generally affect recognized expense and recorded obligations in future
periods. Our pension benefit costs have been increasing in recent fiscal years due to declining
discount rates and negative returns on pension plan assets, and further declines of discount rates
and lower returns on pension plan assets may adversely affect our results of operations.
11
Item 4. Information on the Company
A. History and development of the Company
History
Pioneer was incorporated under the Commercial Code of Japan (the Commercial Code) as a joint
stock company (Kabushiki Kaisha) in May 1947, with the name Fukuin Denki Kabushiki Kaisha,
succeeding to the business founded in January 1938 by the late Mr. Nozomu Matsumoto. The present
name, Pioneer Kabushiki Kaisha, was adopted in June 1961. Its English name was changed from
Pioneer Electronic Corporation to Pioneer Corporation in June 1999.
Our business dates from January 1938 when we began the manufacture of audio speakers. In June 1955
we commenced the manufacture of audio amplifiers. During the 1960s, we expanded our line of
products to include hi-fi stereo sets and components, hi-fi car stereos, as well as
telephone-related equipment. Since the early 1960s we have established business offices and
subsidiaries in and outside Japan to support our expanding manufacturing and sales activities.
During the 1970s we expanded our business to include equipment related to cable TV systems.
In the 1980s, we began to expand our business base to include audio/video (AV) equipment. We
started marketing laser disc (LD) players and LDs, and commenced our own music and video software
business in Japan. Also, we introduced the worlds first car compact disc (CD) players. We also
broadened our business base in commercial and industrial markets with such products as optical
memory disc drives for use in computers, laser karaoke (sing-along) systems and multiscreen video
systems.
In the 1990s, we released to the Japanese consumer market the worlds first car navigation system
incorporating the Global Positioning System (GPS). In addition, we introduced DVD players and
thin-profile color plasma displays and began supplying digital direct-broadcast satellite (DBS)
decoders to a European pay-TV company. Our other recent industry firsts include four-color OLED
displays and DVD recorders.
In fiscal 2001, we started supplying to PC makers recordable DVD drives that can record up to seven
times as much data as conventional CD-R/RW drives. In fiscal 2002, we introduced to the Japanese
consumer market hard disk drive (HDD) car navigation systems with faster search and display of
routes to designated destinations. In fiscal 2003, we launched in Japan DVD recorders equipped with
large-capacity HDDs, as well as car navigation systems incorporating a data communication module
for access to the latest map data. Also, in June 2003, we began introducing recordable DVD drives
for PC use, which are compatible with DVD-R, -RW, +R and +RW discs, to worldwide markets. In fiscal
2004, we started supplying passive-matrix full-color OLED display panels in cellular phones. In
fiscal 2005, we introduced recordable DVD drives for PC use, which are compatible with dual layer
DVD-R discs and DVD+R double layer discs.
Registered office
Pioneers registered office is located at 4-1, Meguro 1-chome, Meguro-ku, Tokyo 153-8654, Japan.
Pioneers telephone number is 81-3-3494-1111.
Principal capital expenditures, investments and divestitures
In fiscal 2004, 2005 and 2006, our capital expenditures consisted principally of facilities and
molds for production and totaled ¥57,978 million, ¥63,866 million and ¥40,325 million,
respectively. They were
12
paid principally out of our internally generated working capital. The facilities for production
comprised those for DVD pickups, and plants and machinery for plasma displays. See the table in
Item 4.D. Property, plants and equipment, for a list of our principal plants.
In fiscal 2006, through a management buyout, we sold all of our shares in Pioneer Digital
Technologies, Inc., a wholly-owned subsidiary engaged in the development of operating software for
cable TV set-top boxes in the United States. We recognized a gain on the sale of ¥282 million, net
of taxes, in the year ended March 31, 2006.
In fiscal 2006, we cancelled plans for the mass-production of active-matrix OLEDs, as we did not
anticipate profitability in this business. Accordingly, we withdrew from the thin-film transistor
(TFT) substrate business conducted by ELDis, Inc., 47.5% owned by Tohoku Pioneer Corporation, a
67% owned subsidiary. We recorded equity in losses of affiliated companies of ¥24,139 million for
the year ended March 31, 2006. ELDis, Inc. was liquidated in March, 2006.
In order to improve management efficiency by concentrating resources in strategic business, on
March 31, 2006, we reached a preliminary agreement with OMRON Corporation concerning the transfer
of all of the shares of Pioneer Precision Machinery Corporation, a 99.5% owned subsidiary, which is
engaged in the manufacturing and marketing of high-precision parts for electronic equipment.
B. Business overview
Nature of operations
We develop, design, manufacture and sell home electronics products such as audio, video and car
electronics products on a global scale. We are one of the leading innovators of car navigation
systems, plasma displays and DVD products. We are also one of the leading manufacturers of car
audio products in the world consumer market. In addition, we derive revenue from the manufacture
and sale of industrial electronics, such as factory automation (FA) systems and parts and from
the licensing of patents that we own.
Our principal production activities are carried out in Asia, including Japan. Our products are
generally sold under our own brand names, principally Pioneer. Our primary markets are Japan,
North America, Europe and Asia and we sell our products to customers in consumer and business
markets through sales offices in Japan and through sales subsidiaries of Pioneer and independent
distributors outside of Japan. In addition, on an OEM basis, we market certain products, such as
car electronics products, recordable DVD drives, plasma displays and OLED displays to other
companies.
In fiscal 2006, we sold Pioneer Digital Technologies, Inc., a subsidiary engaged in the development
of cable TV software, and reached a preliminary agreement on the sale of Pioneer Precision
Machinery Corporation involved in the electronic components business. Consequently, the operating
results of these subsidiaries, and the gain on the sale are presented as income from discontinued
operations in this report. Corresponding figures for the previous fiscal years have been
reclassified accordingly.
Also, in fiscal 2006, we changed our business segment classification for certain businesses.
Results related to plasma displays for business use and disc jockey (DJ) equipment have been
moved from Others to Home Electronics. Corresponding figures for the previous fiscal years have
been reclassified accordingly. (The consolidated financial statements included in this annual
report and the financial information are prepared in accordance with U.S. GAAP, except for segment
data which is prepared in accordance with relevant regulations under the Securities and Exchange
Law of Japan. Specifically, such segment information is required to be reported by reportable
industrial segment,
13
whereas segment information is required to be reported by reportable operating segment under U.S.
GAAP.)
The profit margins in the Patent Licensing segment are substantially higher than those in the
other three segments, since costs related to patent licensing are limited principally to
amortization of patent rights and expenses for licensing activities.
The following table sets forth our operating revenue from unaffiliated customers by business
segment for the respective periods indicated:
14
Operating Revenue from Unaffiliated Customers by Business Segments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended March 31 |
|
|
2004 |
|
2005 |
|
2006 |
|
|
(In millions of yen, except for percentage amounts) |
Home Electronics |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic |
|
¥ |
82,580 |
|
|
|
12.1 |
% |
|
¥ |
90,838 |
|
|
|
12.8 |
% |
|
¥ |
81,998 |
|
|
|
10.9 |
% |
Overseas |
|
|
223,625 |
|
|
|
32.6 |
|
|
|
231,933 |
|
|
|
32.6 |
|
|
|
272,692 |
|
|
|
36.1 |
|
|
|
|
|
|
|
|
Total |
|
¥ |
306,205 |
|
|
|
44.7 |
% |
|
¥ |
322,771 |
|
|
|
45.4 |
% |
|
¥ |
354,690 |
|
|
|
47.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Car Electronics |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic |
|
¥ |
121,708 |
|
|
|
17.8 |
% |
|
¥ |
120,260 |
|
|
|
16.9 |
% |
|
¥ |
117,560 |
|
|
|
15.6 |
% |
Overseas |
|
|
170,479 |
|
|
|
24.9 |
|
|
|
183,150 |
|
|
|
25.8 |
|
|
|
212,962 |
|
|
|
28.2 |
|
|
|
|
|
|
|
|
Total |
|
¥ |
292,187 |
|
|
|
42.7 |
% |
|
¥ |
303,410 |
|
|
|
42.7 |
% |
|
¥ |
330,522 |
|
|
|
43.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Others |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic |
|
¥ |
44,502 |
|
|
|
6.5 |
% |
|
¥ |
37,653 |
|
|
|
5.3 |
% |
|
¥ |
33,208 |
|
|
|
4.3 |
% |
Overseas |
|
|
30,034 |
|
|
|
4.4 |
|
|
|
36,971 |
|
|
|
5.2 |
|
|
|
28,004 |
|
|
|
3.8 |
|
|
|
|
|
|
|
|
Total |
|
¥ |
74,536 |
|
|
|
10.9 |
% |
|
¥ |
74,624 |
|
|
|
10.5 |
% |
|
¥ |
61,212 |
|
|
|
8.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patent Licensing |
|
¥ |
11,821 |
|
|
|
1.7 |
% |
|
¥ |
10,237 |
|
|
|
1.4 |
% |
|
¥ |
8,540 |
|
|
|
1.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Operating Revenue |
|
¥ |
684,749 |
|
|
|
100.0 |
% |
|
¥ |
711,042 |
|
|
|
100.0 |
% |
|
¥ |
754,964 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
Home Electronics:
This segment includes plasma displays, DVD recorders, DVD players, DVD drives, stereo systems,
individual stereo components, DJ equipment, telephones and equipment for cable TV systems.
Plasma displays worldwide accounted for the largest sales in this segment for fiscal 2006. In
addition, DVD drives also contributed significantly to sales in this segment.
We believe the traditional home audio markets of Japan, North America and Europe have matured and
accordingly, price competition in these markets is strong. We do not expect the traditional home
audio markets in these regions to grow substantially. The market for DVD products and plasma
displays are growing, but prices are falling rapidly. In the DVD recorder business, we plan to curb
investment in the development of new products that entail large development expenses and do not
directly take advantage of our strengths. In optical disc drives for PCs, we plan to reduce our
business risks through collaboration with other companies and other means, while lowering costs by
increasing production. We intend to concentrate on developing and marketing Blu-ray Disc related
products, which are promising next generation optical disc products. In our plasma display
business, we continue to promote vigorously 40-inch and larger models of high-definition plasma
displays in the worldwide market. We are reducing OEM sales of panel modules, which carry the risk
of volatility in sales volumes. Instead, we plan to focus on increasing sales under Pioneers own
brands.
15
Car Electronics:
This segment includes car navigation systems, car stereos, car AV systems and car speakers.
Overall, car stereos accounted for the largest sales in this segment for fiscal 2006. In Japan, our
car navigation systems accounted for the largest sales. Overseas, car stereos accounted for the
largest sales, while car navigation systems also contributed to sales in this segment. Sales based
on OEM accounted for 35% in this segment.
Both in Japan and outside Japan, sales in this segment are generally made in the consumer market
and to automobile manufacturers on an OEM basis for installation in new cars on production lines or
as optional parts. Sales in this category are gradually shifting from the consumer market to the
OEM market, as automobile manufacturers place greater emphasis on differentiation of their cars.
Our strong brand recognition is helping us maintain our leading market share of car electronics
products in a global consumer market. We became the first manufacturer in the world to introduce
car navigation systems for the consumer market when we launched our first car navigation systems to
the Japanese market in fiscal 1991, and since then have maintained a leading position in the
consumer market in Japan by offering affordably-priced and easy-to-operate DVD-ROM and advanced
HDD-equipped models. We intend to actively press ahead with business expansion in Europe and North
America, where full-fledged consumer markets for car navigation systems are emerging. In fiscal
2006, we introduced our first car navigation systems to the Chinese consumer market. In the car
audio business, we also strive to widen our market share with new products and innovations, such as
car CD players with OLED displays and in-car entertainment systems. As we keep introducing
innovative car electronics products, we will continue to seek to distinguish our products from our
competitors.
Patent Licensing:
This segment includes the licensing of patents related to laser optical disc technologies.
Most of the royalty revenue from this segment is obtained from licensing patents relating to laser
optical disc technologies that are held by Discovision Associates (DVA), our wholly-owned U.S.
partnership. The legal protections afforded these rights have a limited duration under applicable
laws, and the length of protection varies from country to country or by region. A significant
portion of these patents have expired in certain countries/regions such as Japan and Europe and
some portion of those in North America started to expire. As a
result, our royalty revenue is expected to decline in the future.
Revenue from the Patent Licensing segment is substantially less than from our other segments,
constituting 1.1% of operating revenue for fiscal 2006. However, the contribution of this segment
to our income is significant compared to its contribution to our operating revenue, since costs
related to patent licensing are limited principally to amortization of patent rights and expenses
for licensing activities.
Others:
This segment includes products primarily for business use, such as OLED display panels, FA systems,
electronics devices and parts and business-use AV systems.
Electronics devices and parts, including devices for cellular phones, accounted for the largest
sales in this segment for fiscal 2006. FA systems also contributed materially to sales in this
segment.
16
Principal markets
The following table sets forth our operating revenue from unaffiliated customers by geographic
market for the respective periods indicated:
Operating Revenue by Geographic Market
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended March 31 |
|
|
|
2004 |
|
|
2005 |
|
|
2006 |
|
|
|
(In millions of yen, except for percentage amounts) |
|
Japan |
|
¥ |
248,790 |
|
|
|
36.3 |
% |
|
¥ |
248,751 |
|
|
|
35.0 |
% |
|
¥ |
232,766 |
|
|
|
30.8 |
% |
North America |
|
|
170,702 |
|
|
|
24.9 |
|
|
|
174,106 |
|
|
|
24.5 |
|
|
|
201,378 |
|
|
|
26.7 |
|
Europe |
|
|
146,250 |
|
|
|
21.4 |
|
|
|
150,770 |
|
|
|
21.2 |
|
|
|
171,912 |
|
|
|
22.8 |
|
Other Regions |
|
|
119,007 |
|
|
|
17.4 |
|
|
|
137,415 |
|
|
|
19.3 |
|
|
|
148,908 |
|
|
|
19.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
¥ |
684,749 |
|
|
|
100.0 |
% |
|
¥ |
711,042 |
|
|
|
100.0 |
% |
|
¥ |
754,964 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note: |
|
Operating revenue by geographic market represents revenue from unaffiliated customers, based
on the geographic location of each unaffiliated customer. |
Seasonality
Global sales of the consumer electronics products are seasonal. Sales for the third quarter (ending
December 31) of each fiscal year are generally higher than those of other quarters of the same
fiscal year, due to increased demand during the year-end holiday season. In Japan, sales of car
electronics products generally increase in the summer months, due to increased car usage for summer
vacations.
Marketing channels
We sell our products to a large number of retailers and distributors through our sales offices in
Japan and through Pioneers sales subsidiaries and independent distributors outside Japan. In
addition, we market certain products, such as car electronics products, plasma displays and DVD
drives, on an OEM basis to other manufacturers for resale under their own brand names. Our business
is not materially dependent upon any particular customer or group of customers. Most of our sales
are made from inventory rather than against customer orders. Our products are generally sold under
our own brand names, principally Pioneer.
After-sales service
We maintain a policy of providing repair and other services in the countries where our products are
sold. In Japan, after-sales service is provided through Pioneers wholly-owned service subsidiary,
Pioneer Services Network Corporation (PSN), and authorized servicing companies. Pioneer
established PSN in April 2000 to enhance the efficiency of our operations for after-sales services
and to offer such services with higher quality. In countries where Pioneers subsidiaries are
located, such as the United States and certain European countries, after-sales services are
provided by such subsidiaries or through their authorized independent servicing companies. In other
countries, such services are generally performed by our local distributors.
In line with general industry practice, most of the products we sell to consumers are provided with
a warranty for free repair work, generally for a period of one year from the date of purchase.
Parts are kept
17
available for after-sales service for a period ranging generally from two to eight years after
discontinuation of production, depending on the characteristics of the parts.
Raw materials and sources of supply
We purchase a variety of raw materials and parts for use in the manufacture of our products. We
maintain two or more suppliers in principle to prevent a shortage of raw materials and parts.
Furthermore, in accordance with corporate policy, we develop and/or manufacture certain key parts
internally for our products, including plasma display panels, laser pickups and certain integrated
circuits (ICs) and large-scale integrations (LSIs). We also purchase certain completed
products, then sell them under our own brand names.
No single source accounted for more than 9% of total supply purchases in fiscal 2006. We have not
experienced any material difficulties in obtaining raw materials, parts and products and believe
that we will continue to be able to obtain them to meet our needs.
Semiconductors account for the largest percentage of parts purchased in fiscal 2006 (on a yen
basis), representing approximately 25% of our total purchases. We purchase semiconductors from
various suppliers, mainly pursuant to the terms of our basic supply agreement. Our basic supply
agreement generally has a term of one year, with an automatic renewal clause. Where we depend on a
single supplier, we seek to strengthen our partnership with such supplier to reduce the risk of
shortages of key parts and, if necessary, take other measures such as placing our order earlier
than our usual practice. We purchase a portion (approximately 4%) of our semiconductor parts, which
are custom-made for our needs in accordance with our designs and specifications, from
STMicroelectronics N.V. While we do not currently have an alternative source for the type of
semiconductors supplied by STMicroelectronics N.V., we have entered into a strategic alliance with
STMicroelectronics N.V. to secure a stable source of supply at favorable prices.
The rising price of crude oil has caused an increase in the price of plastic materials used in our
products. In addition, the rapid economic growth in China has caused an increase in the price of
steel materials and nonferrous metals. Although these conditions have not made a significant impact
on our current operations, we are continuing our efforts to procure a stable supply of these
materials and maintain costs at appropriate levels.
Patents and licenses
We hold a variety of patents, including those relating to laser optical disc technology, in Japan
and other countries, while we in turn are licensed to use a number of patents owned by third
parties. We consider certain patents licensed from third parties to be important to our business.
In particular, the patents licensed from Dolby Laboratories Licensing Corporation, U.S.A. for such
devices as noise reduction, from Koninklijke Philips Electronics N.V., the Netherlands for CD
products and LD products, from Thomson Licensing S.A., France for CD products and LD products, from
MPEG LA, L.L.C., U.S.A. for digital video products, from Fujitsu Limited, Japan for plasma display
panels and Gemstar-TV Guide International, Inc., U.S.A. for electronic program guides are utilized
in products accounting for a substantial portion of our net sales. Termination of such license
agreements would have a material adverse effect on our business, although we have no reason to
believe that such termination will occur.
18
Competition
Our products, especially plasma displays and DVD-related products, are exposed to intense
competition in Japan and overseas. Our competitors, which vary in size, area of distribution, range
of products and financial resources, are principally companies based in Japan, Europe and South
Korea, some of which are large, integrated home electric or electronic appliance manufacturers
having substantially larger capital resources than we do. The electronics industry in general has
been subject to substantial price competition as part of efforts by electronics manufacturers to
increase their market share. In addition, electronics companies in Asia, particularly those from
China and South Korea, pose a severe threat through price competition. To counter this intense
competition, we place great emphasis on extensive marketing to stimulate demand for innovative and
value-added products. Furthermore, we concentrate our efforts on technological research, quality
control, sales promotion and the lowering of production costs by increasing procurement of parts
and products made outside Japan and other measures. See also Item 3.D. Risk factorsCompetition
generally, and especially on price and standardization of products, may adversely affect our
results of operations.
Import restrictions
In certain areas of the world, our products encounter tariffs and other import restrictions.
Tariffs applied to our products vary depending upon the classification of such products and the
countries into which such products are imported. Import restrictions, such as prohibitions on
imports of certain products, vary from nation to nation. To respond to this situation, we
manufacture our products in certain locations outside Japan as well as commissioning their
production to independent manufacturers.
Governmental regulation
Our business activities are subject to various governmental regulations in countries in which we
operate, including regulations relating to business/investment approvals, export regulations
including those related to national security considerations, tariffs, antitrust, intellectual
property, consumer and business taxation, exchange controls, personal information protection and
environmental and recycling requirements.
19
C. Organizational structure
Our basic corporate structure, including some but not all of our operating subsidiaries, is shown
in the following chart:
20
The following table sets forth the principal subsidiaries owned, directly or indirectly, by
Pioneer.
|
|
|
|
|
|
|
|
|
|
|
|
|
Ownership |
|
|
|
|
Country of |
|
interest and |
|
|
Name of subsidiary |
|
incorporation |
|
voting interest |
|
Principal business |
Tohoku Pioneer
Corporation
|
|
Japan
|
|
|
67.0 |
% |
|
Manufacture of car electronics
products, FA systems and OLED
display panels |
|
|
|
|
|
|
|
|
|
Pioneer Display
Products Corporation
|
|
Japan
|
|
|
100.0 |
% |
|
Manufacture of plasma displays |
|
|
|
|
|
|
|
|
|
Pioneer Plasma Display
Corporation
|
|
Japan
|
|
|
100.0 |
% |
|
Manufacture of plasma displays |
|
|
|
|
|
|
|
|
|
Pioneer North America,
Inc.
|
|
U.S.A.
|
|
|
100.0 |
% |
|
Coordination of the activities of
Pioneers North American
subsidiaries and affiliates |
|
|
|
|
|
|
|
|
|
Pioneer Electronics
(USA) Inc.
|
|
U.S.A.
|
|
|
100.0 |
% |
|
Distribution of electronics products |
|
|
|
|
|
|
|
|
|
Pioneer Electronics
Capital Inc.
|
|
U.S.A.
|
|
|
100.0 |
% |
|
Financing to Pioneer and its
subsidiaries |
|
|
|
|
|
|
|
|
|
Discovision Associates*
|
|
U.S.A.
|
|
|
100.0 |
% |
|
Licensing of worldwide patents
relating to laser optical disc
technologies |
|
|
|
|
|
|
|
|
|
Pioneer Europe NV
|
|
Belgium
|
|
|
100.0 |
% |
|
Coordination of the activities of
Pioneers European subsidiaries and
affiliates, and distribution of
electronics products |
|
|
|
|
|
|
|
|
|
Pioneer Electronics
Asiacentre, Pte. Ltd.
|
|
Singapore
|
|
|
100.0 |
% |
|
Coordination of the activities of
Pioneers Asian subsidiaries and
affiliates, and manufacture and
distribution of electronics
products |
|
|
|
|
|
|
|
|
|
Pioneer China Holding
Co., Ltd.
|
|
China
|
|
|
100.0 |
% |
|
Coordination of the activities of
Pioneers Chinese subsidiaries and
affiliates and distribution of
electronics products |
|
|
|
* |
|
Discovision Associates is a general partnership organized under the laws of the State of
California in the United States. |
21
D. Property, plants and equipment
Our manufacturing operations are conducted principally in Japan, Southeast Asia and China. The
following table sets forth information, as of March 31, 2006, with respect to our principal plants.
|
|
|
|
|
|
|
|
|
Name of plant |
|
|
|
Floor space |
|
|
(Name of company |
|
|
|
(square feet) |
|
|
which owns the plant) |
|
Location |
|
[leased space] |
|
Principal products |
Japan |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kagoshima Plant |
|
Izumi, Kagoshima |
|
|
1,281,000 |
|
|
Plasma displays |
(Pioneer Plasma
Display Corporation) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Yamanashi Plant |
|
Nakakoma, Yamanashi |
|
|
874,000 |
|
|
Plasma displays |
(Pioneer Display
Products Corporation) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shizuoka Plant |
|
Fukuroi, Shizuoka |
|
|
730,000 |
|
|
Plasma displays |
(Pioneer Display
Products Corporation) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kawagoe Plant |
|
Kawagoe, Saitama |
|
|
553,000 |
|
|
Car stereos, Car navigation systems |
(Pioneer Corporation) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tendo Plant |
|
Tendo, Yamagata |
|
|
459,000 |
|
|
Car stereos, Car speakers, Loudspeakers |
(Tohoku Pioneer
Corporation) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Yonezawa Plant |
|
Yonezawa, Yamagata |
|
|
243,000 |
|
|
OLED displays |
(Tohoku Pioneer
Corporation) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kokubo Plant |
|
Kofu, Yamanashi |
|
|
194,000 |
|
|
ICs, LSIs |
(Pioneer Micro
Technology
Corporation) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tendo the 2nd Plant |
|
Tendo, Yamagata |
|
|
186,000 |
|
|
FA systems |
(Tohoku Pioneer
Corporation) |
|
|
|
|
|
|
|
|
22
|
|
|
|
|
|
|
|
|
Name of plant |
|
|
|
Floor space |
|
|
(Name of company |
|
|
|
(square feet) |
|
|
which owns the plant) |
|
Location |
|
[leased space] |
|
Principal products |
Outside Japan |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shanghai Plant |
|
Shanghai, China |
|
|
458,000 |
|
|
Car speakers |
(Shanghai Pioneer
Speakers Co., Ltd.) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mexico Plant |
|
Baja California, |
|
|
397,000 |
|
|
Car speakers |
(Pioneer Speakers, |
|
Mexico |
|
|
|
|
|
|
S.A. de C.V.) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shanghai Plant |
|
Shanghai, China |
|
|
374,000 |
|
|
DVD Recorders, Car AV systems, Car stereos |
(Pioneer Technology |
|
|
|
|
[22,000] |
|
|
|
(Shanghai) Co., Ltd.) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thailand Plant |
|
Ayutthaya, Thailand |
|
|
300,000 |
|
|
Car stereos, Stereo systems |
(Pioneer
Manufacturing
(Thailand) Co., Ltd.) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Malaysia Plant |
|
Johor, Malaysia |
|
|
262,000 |
|
|
Stereo systems, Car stereos |
(Pioneer Technology
(Malaysia) Sdn. Bhd.) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guang Dong Plant |
|
Guang Dong, China |
|
|
255,000 |
|
|
Recordable DVD drives, DVD Recorders |
(Pioneer Technology |
|
|
|
|
|
|
|
|
(Dongguan) Co., Ltd.) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guang Dong Plant |
|
Guang Dong, China |
|
|
237,000 |
|
|
Speaker systems |
(Dongguan Monetech |
|
|
|
|
[237,000] |
|
|
|
Electronic Co., Ltd.) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
California Plant |
|
California, U.S.A. |
|
|
208,000 |
|
|
Plasma displays, Speaker systems |
(Pioneer Electronics
Technology, Inc.) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.K. Plant |
|
West Yorkshire, |
|
|
184,000 |
|
|
Plasma displays |
(Pioneer Technology |
|
United Kingdom |
|
|
|
|
|
|
(U.K.) Ltd.) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ohio Plant |
|
Ohio, U.S.A. |
|
|
157,000 |
|
|
Car stereos |
(Pioneer Automotive
Technologies, Inc.) |
|
|
|
|
|
|
|
|
23
Most of the buildings of these plants and the land on which they are located are owned by us.
As of March 31, 2006, we owned our headquarters buildings in Tokyo having an approximate aggregate
floor space of 336,000 square feet. We lease approximately 34,000 square feet as additional head
office space in Tokyo.
We also own an employee training center in Tokyo with an approximate floor space of 17,000 square
feet, and R&D facilities with an approximate aggregate floor space of 298,000 square feet.
Our sales office buildings in Japan and outside Japan are mainly leased. The head office buildings
of some sales subsidiaries outside Japan are owned by us. Land and buildings for one of our
subsidiaries and one of our headquarters buildings with an aggregate book value of ¥7,366 million
were pledged as collateral for certain loans on March 31, 2006.
We are reviewing our global production systems. For the past several years, we have been
accelerating the shift to overseas production. We currently plan to shift from our emphasis on
overseas manufacturing and focus more on an efficient response to fast-changing markets. As part of
this plan, in fiscal 2006, we closed a car electronics plant in Mexico and decided to close a car
electronics plant in Belgium.
We are constantly engaged in upgrading, modernizing and revamping the operations of our
manufacturing facilities, based on our assessment of market needs and prospects. As a result, it
would be unreasonably difficult to track the exact productive capacity and the extent of
utilization of each of our manufacturing facilities. We believe that our manufacturing facilities
are generally operating in the aggregate within normal operating capacity and not substantially
below capacity. Additionally, we believe that there does not exist any material environmental
issues that may affect the utilization of our assets.
We believe that our properties are adequate to carry on our current business, though additional
investment in plant and equipment is being made to support continued growth.
Item 4A. Unresolved Staff Comments
None
24
Item 5. Operating and Financial Review and Prospects
Overview
We develop, design, manufacture and sell home electronics products such as audio, video and car
electronics products on a global scale. We are one of the leading innovators of car navigation
systems, plasma displays and DVD products. We are also one of the leading manufacturers in the
world consumer market of car audio products. In addition, we derive revenue from the manufacture
and sale of industrial electronics, such as FA systems and parts and from the licensing of patents
that we own.
During
fiscal 2006, the global economy continued steady growth, in part by robust consumer spending,
despite concerns over surging prices of raw materials, including crude oil and certain metals. In
Japan, our largest market, the economy continued to recover due to increased consumer spending
and corporate investment. In the consumer electronics market, the popularity of and demand for
newer products, such as flat panel TVs and DVD recorders continued to grow significantly. However,
we faced an extremely challenging business environment, due to severe, price-based competition
involving those core products, which adversely affected our profitability.
In response to this challenging environment we announced plans to restructure our business on
December 8, 2005 and we are currently implementing them. The primary components of our business
restructuring plans are:
Organizational restructuring. In order to improve management efficiency, we are comprehensively
reorganizing our organizational structure. On January 1, 2006 we reorganized our operations into
two business groups: the Home Entertainment Business Group and the Mobile Entertainment Business
Group. All operations related to plasma displays, DVD products and home audio products were
integrated into the Home Entertainment Business Group. Also, all operations related to car
navigation systems and car audio products were inherited by the Mobile Entertainment Business
Group. Home Entertainment Business Group staff currently based in three separate locations will be
consolidated into one location in Japan by spring of 2007. We believe that this organization
restructuring will encourage more effective inter-departmental integration and help us to operate
more efficiently.
Reduce fixed costs. To reduce fixed costs across our entire operations we are consolidating our
worldwide production sites. This plan has been already implemented or is in process for major
targeted production sites and will be completed by the spring of 2007.
Review employee numbers. In accordance with our plans to integrate our home entertainment business
operations and consolidate our production sites and headquarters functions, we adjusted our
employment levels at Pioneer and its subsidiaries in Japan. This plan resulted in the retirement of
777 employees.
As a result of these restructuring plans, we recorded involuntary special termination benefits,
contract termination costs and other associated costs of
¥4.1 billion for fiscal 2006 in connection
with the closure or scaling down of our manufacturing facilities in Europe and Mexico. At the end
of March 2006, ¥2.8 billion out of the ¥4.1 billion remained as liabilities in our consolidated
balance sheet, which we will pay in fiscal 2007. Funding will come from short-term borrowing. In
addition, Pioneer and eleven subsidiaries in Japan implemented voluntary, incentive-based early
retirement programs. As a result of such programs, we recorded special termination benefits of
¥10.8 billion which was accrued at the end of fiscal 2006 and we will pay in fiscal 2007. The
sources of these payments are mostly cash on hand and short-term borrowing.
We also recorded impairment losses on long-lived assets of ¥41.4 billion, and equity in losses of
affiliated companies in the amount of ¥24.1 billion in connection with our business restructuring
plans.
25
Because most of the costs and expenses related to our business restructuring plans were recognized
in fiscal 2006, we expect no significant negative impact on profitability for the following years
relating to our business restructuring plans.
In foreign exchange markets, the average value of the yen during fiscal 2006 was approximately 5%
weaker against the U.S. dollar and approximately 2% weaker against the euro compared with fiscal
2005.
In those business circumstances and economic conditions, our operating revenue for fiscal 2006 was
¥755.0 billion, up 6.2% from fiscal 2005. However, we recorded a net loss of ¥85.0 billion,
compared with a net loss of ¥8.8 billion posted in fiscal 2005.
We classify our business groups into four segments: Home Electronics, Car Electronics, Patent
Licensing and Others. The primary products in each segment are as follows: Home Electronics
includes plasma displays, DVD-related products, home telephones, computer peripheral equipment,
devices and others. Car Electronics includes car audio products, car navigation systems, and
others. Patent Licensing includes the licensing of patents related to optical disc recording and
playback equipment, and others. Others includes FA system, parts, and others. The following is a
summary of operating revenues by business segment for the years ended March
31, 2004, 2005 and 2006.
Operating Revenue by Business Segments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended March 31 |
|
|
|
2004 |
|
|
2005 |
|
|
2006 |
|
|
|
|
|
|
(In millions of yen, except for percentage amounts)
|
Home Electronics |
|
¥ |
306,205 |
|
|
|
44.7 |
% |
|
¥ |
322,771 |
|
|
|
45.4 |
% |
|
¥ |
354,690 |
|
|
|
47.0 |
% |
Car Electronics |
|
|
292,187 |
|
|
|
42.7 |
|
|
|
303,410 |
|
|
|
42.7 |
|
|
|
330,522 |
|
|
|
43.8 |
|
Patent Licensing |
|
|
11,821 |
|
|
|
1.7 |
|
|
|
10,237 |
|
|
|
1.4 |
|
|
|
8,540 |
|
|
|
1.1 |
|
Others |
|
|
74,536 |
|
|
|
10.9 |
|
|
|
74,624 |
|
|
|
10.5 |
|
|
|
61,212 |
|
|
|
8.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
¥ |
684,749 |
|
|
|
100.0 |
% |
|
¥ |
711,042 |
|
|
|
100.0 |
% |
|
¥ |
754,964 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note: Operating revenue represents revenue from unaffiliated customers.
26
Our products are generally sold under our own brand names, principally Pioneer. Our primary
markets are Japan, North America, Europe and Asia. We sell our products to customers in consumer
and business markets through sales offices in Japan, and through sales subsidiaries of Pioneer and
independent distributors outside Japan. In addition, on an OEM basis, we market certain products,
such as car electronics products, recordable DVD drives, plasma displays and OLED displays to other
companies. The following is a summary of operating revenues from unaffiliated customers by
geographic market for the years ended March 31, 2004, 2005 and 2006.
Operating Revenue by Geographic Market
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended March 31 |
|
|
|
2004 |
|
|
2005 |
|
2006 |
|
|
|
|
|
|
(In millions of yen, except for percentage amounts)
|
Japan |
|
¥ |
248,790 |
|
|
|
36.3 |
% |
|
¥ |
248,751 |
|
|
|
35.0 |
% |
|
¥ |
232,766 |
|
|
|
30.8 |
% |
North America |
|
|
170,702 |
|
|
|
24.9 |
|
|
|
174,106 |
|
|
|
24.5 |
|
|
|
201,378 |
|
|
|
26.7 |
|
Europe |
|
|
146,250 |
|
|
|
21.4 |
|
|
|
150,770 |
|
|
|
21.2 |
|
|
|
171,912 |
|
|
|
22.8 |
|
Other Regions |
|
|
119,007 |
|
|
|
17.4 |
|
|
|
137,415 |
|
|
|
19.3 |
|
|
|
148,908 |
|
|
|
19.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
¥ |
684,749 |
|
|
|
100.0 |
% |
|
¥ |
711,042 |
|
|
|
100.0 |
% |
|
¥ |
754,964 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note: |
|
Operating revenue by geographic market represents revenue from unaffiliated customers, based
on the geographic location of each unaffiliated customer. |
Home Electronics, Car Electronics and Others
Although we continue to see strong growth in demand for plasma displays, DVD recorders and
recordable DVD drives in worldwide markets, in our home electronics business we are exposed to
significant price competition for plasma displays and DVD-related products, which adversely affects
our profitability.
In our car electronics business, severe worldwide competition has led to strong downward pressure
on prices. However, the popularity of our car navigation systems continues to increase.
The electronics industry is characterized by rapid technological changes, and our ability to
introduce attractive new products to the market significantly affects the operating results of our
electronics businesses.
The electronics industry is also characterized by continuing sales price decreases in most product
categories, making it important for us to continually improve the efficiency of our manufacturing,
distribution, service and administrative functions.
In fiscal 2006, we changed our business segment classification for certain businesses reflecting
the changes of the market and product usage. Results related to plasma displays for business use and
DJ equipment have been moved from Others to Home Electronics. Corresponding figures for the
previously reported operating revenue by segment and segment information have been reclassified
accordingly.
Patent Licensing
Our royalty revenue from Patent Licensing depends to a material extent on the sales of patented
products by our licensees, making it difficult for us to predict actual royalty revenue each year.
Therefore, trends in the PC market have an influence on our royalty revenue. In addition, a
significant portion of our patent
27
rights relating to laser optical disc technologies in Japan and Europe has expired and some portion
of those in North America started to expire. Accordingly, we have experienced a substantial
decrease in operating revenue and segment income from this segment.
Currency fluctuations
We are affected to some extent by fluctuations in foreign currency exchange rates. We are
principally exposed to fluctuations in the value of the Japanese yen against the U.S. dollar, euro
and, to a much lesser extent, other currencies of countries where we conduct our business. Our
consolidated financial statements, which are presented in Japanese yen, are affected by foreign
currency exchange fluctuations through both translation risk and transaction risk.
Translation risk is the risk that our consolidated financial statements for a particular period or
for a particular date will be affected by changes in the prevailing exchange rates of the
currencies in which our subsidiaries prepare their financial statements against the Japanese yen.
The functional currency for all of our significant foreign operations is the local currency.
Generally, all asset and liability accounts of foreign operations are translated into Japanese yen
using the exchange rates at the balance sheet date and all revenue and expense accounts are
translated using the weighted average exchange rates for the periods. Even though the fluctuations
of currencies against the Japanese yen can be substantial and, therefore, significantly impact
comparisons with prior periods and among various geographic markets, the translation effect is a
reporting consideration, included in the other comprehensive income, and does not reflect our
underlying results of operations.
Transaction risk is the risk that the currency structure of our costs and liabilities will deviate
from the currency structure of sales proceeds and assets. Transaction risk mainly derives from the
fact the currencies of the countries where we manufacture our products may be different from the
currencies where we sell our products.
Derivative financial instruments are utilized by us to reduce the risks from fluctuations in
foreign exchange rates but are not held or issued for trading purposes. To hedge certain purchase
and sale commitments for anticipated but not yet committed transactions that are denominated in
other than functional currencies, we enter into forward exchange contracts and purchases and write
currency options. Written options are entered into only with purchased options in order to reduce
the hedging cost.
Critical accounting policies and estimates
The following analysis of financial conditions and results of operations discusses our consolidated
financial statements, which have been prepared in accordance with accounting principles generally
accepted in the United States of America, except for segment data which is prepared in accordance
with the regulations under the Securities and Exchange Law of Japan.
The preparation of the financial statements requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. On an ongoing basis, management evaluates its estimates and
judgments, including those related to revenue recognition and customer incentives, bad debts,
inventories, long-lived assets, investments, income taxes, warranty obligations, retirement
benefits, and contingencies and litigation. Management bases its estimates and judgments on
historical experience and on various other factors that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about the carrying values
of assets and liabilities and the reported amount of revenue and
28
expenses that are not readily apparent from other sources. Actual results may differ from these
estimates due to the inherent uncertainty involved in making estimates.
We believe the following critical accounting policies, among others, affect our more significant
judgments and estimates used in the preparation of our consolidated financial statements.
Revenue recognition
Sales are generally recorded when merchandise is shipped or delivered to customers. Recognition of
sales occurs when title and risks and rewards of ownership are transferred to customers based on
the facts which include the sales contract and Pioneers practice. In certain cases, terms of the
contract require the product to pass customer inspection after delivery and we record the sale upon
satisfactory customer acceptance. Royalty revenue is recognized based on royalty statements
received from licensees.
We normally do not accept returns except in connection with our obligations under product
warranties, noncompliance with purchase order specifications and returns from end-users to certain
dealers. The financial impact of the future returns are estimated based on historical experience
and adequately reserved.
Estimated reductions of revenue are recorded for costs incurred by us in connection with sales
incentive related to the customers purchase or promotion of our products. Such costs include the
estimated cost of promotional discounts, dealer price protection, dealer rebates, consumer rebates,
cash discounts, and support for dealers promotion of our products, although the terms of sales
incentive programs may be different by product, market and terms of sales contracts. Sales
incentives that are dependent on future customer performance are estimated and recorded at the
later of when the original sale is recorded or when the incentive is offered. Estimates of future
customer performance such as purchase volume, early payments and consumer rebate redemption rate
are based on historical experience. Should a greater proportion of customers redeem incentives than
we estimate, additional reductions of revenue may be required.
Promotional discounts are offered on specified products for specified periods. A price protection
discount, which is the discount for the dealers inventory at the time of the announcement of the
promotional discount, to compensate for the difference between the discounted prices and higher
prices the dealers paid for their inventory, is often offered when the promotional discount program
is announced. Costs for a price protection program are accrued when the program is announced by
estimating discounts to be claimed by the dealers. Such estimates are based on forecasted order
quantities during the promotional period and assumptions as to the amount of inventory that dealers
have on hand. Dealer rebates include fixed-rate contractual rebates and volume-based rebates.
Contractual rebates are recorded at the time of sale. Volume-based rebates, for which the rebate
rate is dependent on the amount of the dealers purchase during the specified period, are accrued
at the time of original sale, estimating the rebate rate the dealer will eventually achieve. We
occasionally offer incentives directly to consumers in the form of mail-in rebates. Consumer
rebates are accrued at the later of when the related sales are recognized or when the program is
announced. The actual amounts of consumer rebates are dependent on consumers future actions, and
our estimates are based on assumptions as to quantities to be purchased by consumers during the
program period and consumer redemption rates, which is determined based on historical experience
about consumer response to consumer rebate programs. Cash discounts are given for early payments in
accordance with terms of the contract with customers and are recorded as a reduction of revenue at
the time of original sale. The estimate of the cash discounts is based upon information about
customers payment histories. Also, we provide reimbursements for the purpose of supporting
dealers sales promotions of our products. The cost mainly includes subsidies for advertising,
displays, cost of other sales promotion materials, and salaries of temporary floor sales personnel.
We account for all the subsidy reimbursements to dealers as reductions from sales, except for the
payments in return for the evidence
29
which is sufficient to account for the payments as sales expenses. Certain promotional allowances,
such as co-op advertising, are determined as certain percentages of the respective sales amount and
are recorded at the time of sale. Although reimbursement for such incentives requires dealers to
perform sales promotions of our products, we assume, based on historical experience, that almost
all dealers will eventually perform such sales promotions and submit claims for reimbursement.
Other allowances, whose amounts are not determined by sales factors, are recorded when the subsidy
is offered and the amount becomes reasonably determinable. Examples for this type of allowance are
display allowances determined by the number of units displayed on the sales floor, and allowances
based on agreements to share costs incurred by dealers for items such as new signboards, new
display racks and salaries of temporary floor sales personnel.
Warranties
We provide for the estimated cost of product warranties at the time revenue is recognized. While we
engage in extensive product quality programs and processes, including actively monitoring and
evaluating the quality of our component suppliers, our warranty obligation is affected by product
failure rates and service costs including parts and labor that may be incurred in correcting a
product failure. The estimate of warranty cost is based on historical information, and should
actual product failure rates or service costs differ from our estimates, revisions to the estimated
warranty liability may be required. Warranty reserve at March 31, 2006 was ¥6.6 billion.
Inventories
The majority of our products are produced for the consumer electronics market, and our inventory is
susceptible to quickly changing demands and selling prices. We write-down in full inventories with
no potential for future sale or potential use by us and write-down to net realizable value
inventories which are considered to be obsolete or slow-moving, but salable at reduced prices.
Estimating net realizable value requires assumptions as to uncertain matters such as selling prices
and salable quantities to be made based upon judgment about future market prices of competing
products and customer demand, taking current market conditions into consideration. At March 31,
2006, we have inventories on hand amounting to ¥8.6 billion that we have written-down in full and
have recognized write-downs to net realizable value amounting to ¥3.6 billion.
The following table sets forth the changes in the inventory reserve during fiscal 2006. Reversal
was made in connection with sale or disposal of the related inventory.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning |
|
Provision |
|
Reversal from sale or disposal |
|
Other |
|
End |
|
(In billions of yen)
|
¥ 10.3 |
|
|
|
¥ 10.0 |
|
|
|
¥ (8.4) |
|
|
|
¥ 0.3 |
|
|
|
¥ 12.2 |
|
Impairment of long-lived assets
Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset group may not be recoverable. This review is performed using
estimates of future cash flows. If the carrying amount of an asset group is considered impaired, an
impairment loss is recorded for the amount by which the carrying amount of the asset group exceeds
its estimated fair value. Fair value is determined using the present value of estimated cash flows.
A weighted average cost of capital, which is derived from our capital structure, is used as a
discount rate for calculating the present value of the estimated cash flows. For the year ended
March 31, 2005, we recorded ¥4.5 billion representing impairment charges for plasma display
production facilities of a domestic subsidiary, production facilities of a foreign subsidiary to be
closed and assets used for manufacture of cable TV set-
30
top boxes. For the year ended March 31, 2006, we recorded ¥41.4 billion of impairment charges
consisting of ¥31.9 billion for plasma display production
facilities, ¥9.0 billion for DVD recorder-related production facilities and ¥0.6 billion for production facilities of a foreign subsidiary to
be closed. While we believe that the estimates of future cash flows and fair value are reasonable,
changes in estimates resulting in lower future cash flows and fair value would affect the
valuations of those long-lived assets.
Deferred tax assets
We record a valuation allowance to reduce deferred tax assets to the amount that we believe is more
likely than not to be realized. While we have considered future taxable income based on our
short-term and long-term business plans and feasible tax planning strategies in assessing the need
for the valuation allowance, in the event that we determine that we will not be able to realize all
or part of the net deferred tax assets in the future, an adjustment to the deferred tax assets
would be charged to income in the period such determination is made. Likewise, should we determine
that we will be able to realize deferred tax assets in the future in excess of the net recorded
amount, an adjustment to the deferred tax assets would increase income in the period such
determination was made.
Pension benefit costs
Employee retirement benefit costs and obligations are dependent on assumptions used in the
actuarial calculations. These assumptions include discount rates, future compensation levels,
retirement rates and mortality rates which are based upon current statistical data, as well as
long-term returns on plan assets and other factors.
For pension plans of the parent company and domestic subsidiaries, the discount rates are
determined by using information about rates of return on currently available high-quality
fixed-income bonds. The expected long-term rate of return on pension plan assets is based on the
weighted average of expected long-term returns on various categories of plan assets, reflecting the
current and target allocations of pension plan assets. Expected long-term return by asset category
is derived from historical studies by investment advisors. The future compensation levels are
calculated based on points. These points are accumulated based on years of service, job class and
conditions under which termination occurs. If actual results differ from the assumptions or
assumptions are changed, the resulting effects are accumulated and systematically recognized over
future periods and, therefore, generally affect recognized expense and the recorded obligations in
future periods.
The following table sets forth the effects of assumed changes in discount rates and the expected
long-term rate of return for pension plans in Japan.
|
|
|
|
|
|
|
|
|
|
|
Effect on shareholders equity |
|
Net periodic pension cost |
|
|
at March 31, 2006 |
|
for fiscal 2007 |
|
|
(In billions of yen) |
Discount rate: |
|
|
|
|
|
|
|
|
0.5% increase |
|
|
¥ 4.7 |
|
|
|
¥ (0.7 |
) |
0.5% decrease |
|
|
(5.3 |
) |
|
|
0.7 |
|
|
Expected long-term rate of return: |
|
|
|
|
|
|
|
|
0.5% increase |
|
|
|
|
|
|
(0.4 |
) |
0.5% decrease |
|
|
|
|
|
|
0.4 |
|
|
|
31
Fiscal 2006 compared with fiscal 2005
Net sales
amounted to ¥746.4 billion, a 6.5% increase over fiscal
2005. Net sales in Japan were
¥232.8 billion, down 6.4% from fiscal 2005, and overseas net sales increased 13.6% to ¥513.7
billion. The 6.4% decrease in sales in Japan pertains to the decrease in sales of DVD recorders and
own-brand plasma displays, while the 13.6% increase in our overseas net sales is largely
attributable to the increase in sales of plasma displays. Royalty revenue decreased 16.6% from
fiscal 2005 to ¥8.5 billion.
Home Electronics net sales increased 9.9% over fiscal 2005, amounting to ¥354.7 billion. Sales in
Japan decreased by 9.7% to ¥82.0 billion primarily due to the decrease in sales of DVD recorders
and own-brand plasma displays as a result of the decrease in the market prices at a pace faster
than we had anticipated because of intensified competition. On the other hand, overseas sales were
up 17.6% to ¥272.7 billion due mainly to an increase in sales of plasma displays in North America
and Europe.
Overall, sales of plasma displays increased by approximately 30%, primarily driven by an expanding
market for high-resolution models in North America and Europe, even though sales in Japan
decreased. In our North American and European markets, our newly introduced plasma display products
with high visual quality were welcomed by local consumers. Although OEM sales increased, this mainly reflects the September 30, 2004 acquisition of a plasma
display production subsidiary. We reported higher sales of DJ equipment, but sales of DVD
recorders, DVD players, and stereo systems declined.
Car Electronics net sales increased 8.9% to ¥330.5 billion. Sales of car audio products were higher
both in consumer markets and on an OEM basis. Consumer-market sales expanded primarily in Central
and South America, as well as North America and Russia, while OEM sales rose primarily in North
America and Japan. Sales of car navigation systems increased in consumer markets, with sales growth
coming mainly from Japan and North America. OEM sales increased in North America due to the start
of new OEM transactions, but dropped in Japan as a result of diminished demand for product models
rolled out in fiscal 2005. Sales in Japan decreased by 2.2% to ¥117.6 billion, due to decreased
sales in OEM car navigation systems. Overseas sales increased 16.3% to ¥213.0 billion, due to an
increase in sales of car audio products and car navigation systems. Sales of car audio products for
the consumer market increased in Central and South America, North America and Russia. Also, sales
of car audio systems and car navigation systems for the OEM market increased in North America. OEM
sales represented 35% of total car electronics sales in fiscal 2006, down from 36% in the previous
fiscal year.
Royalty revenue from Patent Licensing decreased 16.6% year on year to ¥8.5 billion. This decrease
was mainly attributable to the impact of the expiration of certain patents licensed to the optical
disc industry.
Net sales for Others declined 18.0% year on year to ¥61.2 billion. This mainly reflected falling
sales of FA systems, despite higher sales of compact speaker units for cellular phones. Sales in
Japan fell 11.8% to ¥33.2 billion due to decreased sales of FA systems. Overseas sales were down
24.3% to ¥28.0 billion due to decreased sales of FA systems in South East Asia, despite increased
sales of speaker units for cellular phones in South East Asia.
Other revenues (Revenues excluding net sales and royalty revenue)
Other revenues include interest income and other income. Interest income increased from ¥1.9
billion to ¥2.7 billion due to higher interest rates in North America. Other income increased from
¥3.4 billion to ¥6.8 billion, due mainly to an increase in gain on sale of available for sale
securities.
32
Cost and expenses
Cost of sales increased to ¥593.2 billion from fiscal 2005s ¥564.5 billion. Cost of sales for
fiscal 2006 represented 78.6% of operating revenue, down by 0.8 of a
percentage point from 79.4% for fiscal 2005.
This decrease is net of absence of one time of pension cost amounting to ¥25.3 billion recognized
as a result of the transfer of the substitutional portion of employee welfare pension plan to the
Japanese government recorded in fiscal 2005 and increase of percentage of other cost of sales due
to adverse effects of intensified competition, particularly for Home Electronics products such as
plasma displays, DVD recorders and recordable DVD drives. We estimate that the average selling
prices for these products dropped 2530% during fiscal 2006. Gross profit margin in the Car
Electronics business also decreased. This is due mainly to an increase of development costs.
Selling, general and administrative (SGA) expenses decreased by ¥16.5 billion to ¥178.1 billion
from fiscal 2005s ¥194.6 billion. This decrease is net of absence of one time pension cost
amounting to ¥24.2 billion recognized as a result of the transfer of the substitutional portion of
employee welfare pension plan to the Japanese government recorded in fiscal 2005 and increase of
other SGA expenses, such as shipping and handling costs and royalty expenses. Shipping and handling
costs and royalty expenses increased by ¥7.8 billion in total in line with the increase in the number
of shipped plasma display units.
In fiscal 2005, we transferred the benefit obligation of the substitutional portion of employee
welfare pension plan in Japan and the related portion of the plan assets to the Japanese
government. The transfer resulted in recording of a ¥48.7 billion gain as a subsidy from the
government. At the same time, we recognized an expense of ¥49.5 billion mainly for settlement loss
of the substitutional portion, and allocated ¥25.3 billion to cost of sales and ¥24.2 billion to
SGA expenses. Please see Note 12 of the notes to consolidated financial statements for additional
information.
R&D expenses, which are included in cost of sales and SGA expenses, increased 13.6% to ¥63.4
billion, representing 8.4% of operating revenue. The increase reflected R&D activities to enhance
our technological advantage in our strategic products such as car navigation systems and plasma
displays.
Loss on sale and disposal of fixed assets increased by ¥2.7 billion. The increase was attributable
mainly to losses recorded in fiscal 2006 for disposal of production facilities for the purpose of
improving production efficiencies, mainly in OLED products and plasma display panels.
Other deductions increased from ¥6.3 billion to ¥60.0 billion. The difference is mainly due to
¥41.4 billion impairment losses recognized in fiscal 2006 related to our corporate restructuring.
During fiscal 2006, we reviewed the production facilities of plasma display and DVD recorder
related products because of decreases in gross profit margins for plasma displays and DVD recorders
due to sharp decline in market prices. As a result of the review, an impairment loss of ¥31.9
billion in plasma display and ¥9.0 billion in DVD recorder related assets were recognized as the
excess of the carrying value of the asset group over the estimated fair value of the asset group.
In addition, a foreign subsidiary recognized an impairment loss of ¥0.6 billion for fiscal 2006 in
relation to the property and equipment of the plant to be closed.
As a part of our efforts to improve business performance, 12 Pioneer group companies, including
Pioneer Corporation, implemented voluntary incentive-based early retirement programs. As a result
of these programs, we recorded special termination benefits of ¥10.8 billion in connection with the
retirement of 777 employees. As a part of the integration plan in foreign manufacturing companies,
we decided to close a car electronics plant in Belgium. As a result
of the closure of the plant in
Belgium, one-time termination benefits of ¥3.0 billion, operating lease termination costs of ¥0.3
billion and other costs of ¥0.6 billion were recorded. Finally, ¥0.2 billion was recorded for
one-time termination benefits at our plant in Mexico.
33
Income (loss) from continuing operations before income taxes
As a result of factors discussed above, we posted a ¥71.2 billion loss before income taxes in
fiscal 2006, compared with loss of ¥2.1 billion in fiscal 2005.
Income taxes
In fiscal 2006, the provision for income taxes was minus ¥4.7 billion against ¥71.2 billion loss
before taxes. The relationship between loss before taxes and tax expense was distorted mainly due
to a valuation allowance set up for deferred tax assets of the parent company and certain
subsidiaries which posted losses.
Equity in losses of affiliated companies
Equity in losses of affiliated companies was ¥24.0 billion in fiscal 2006, compared with ¥3.1
billion in fiscal 2005. The increase in losses of affiliated companies is mainly attributable to
the assumption of debt amounting to ¥25.3 billion incurred by ELDis, Inc., as a result of the
decision to withdraw from thin film transistor substrate business which had been carried out by
ELDis, Inc.
Income from discontinued operations, net of tax
In fiscal 2006, we sold a subsidiary engaged in the development of cable TV software, and reached a
preliminary agreement on the sale of subsidiaries involved in the electronic components business.
As a result, the operating results of these subsidiaries and the gain on the sale are presented as
income from discontinued operations. Corresponding figures for the previous year have been
reclassified accordingly.
Net income from discontinued operations for fiscal 2006 and 2005 was ¥0.8 billion and ¥1.3 billion
respectively.
Net loss
Net loss in fiscal 2006 was ¥85.0 billion, compared with net loss of ¥8.8 billion posted in fiscal
2005. Basic net loss per share of common stock in fiscal 2006 was ¥487.23, compared with net loss
per share of ¥50.11 in fiscal 2005.
34
Fiscal 2005 compared with fiscal 2004
Operating revenue
Net sales amounted to ¥700.8 billion, a 4.1% increase over fiscal 2004. Net sales in Japan came to
¥248.8 billion, almost the same as that of fiscal 2004, and overseas net sales increased 6.6% to
¥452.1 billion. Royalty revenue decreased 13.4% from fiscal 2004 to ¥10.2 billion.
Home Electronics net sales increased 5.4% over fiscal 2004, amounting to ¥322.8 billion, primarily
as a result of increased sales of plasma displays and DVD recorders, while sales of recordable DVD
drives for PCs, DVD players, cable TV set-top boxes and audio products decreased. Sales of plasma
displays grew both in Japan and overseas, and sales of DVD recorders increased overseas. In Japan,
sales rose 10.0% to ¥90.8 billion, primarily due to a large increase in sales of plasma displays.
The increase was largely attributable to expansion of OEM product sales resulting from the
acquisition of a plasma display production subsidiary, Pioneer Plasma Display Corporation (PPD).
Pioneer brand plasma display sales to the consumer market increased as well. Sales of recordable
DVD drives, DVD recorders and audio products decreased in Japan. Sales decrease of recordable DVD
drives and DVD recorders was mainly attributable to the impact of a price decline resulting from
intensified competition. Overseas sales also rose 3.7% to ¥231.9 billion, due to an increase in
sales worldwide of plasma displays and DVD recorders, despite a decrease in sales of audio products
and DVD players worldwide, recordable DVD drives in Europe and North America and DVD-ROM drives in
Europe, as well as our decision to no longer sell cable TV set-top boxes in North America. In
general, the market is shifting from DVD players to DVD recorders worldwide.
Car Electronics net sales rose 3.8% to ¥303.4 billion, primarily as a result of sales growth of car
navigation systems overseas. In Japan, net sales decreased 1.2% to ¥120.3 billion, mainly
influenced by slow demand for car navigation systems in the consumer market, reflecting shifting
demand from the consumer market to the OEM market, although car navigation systems for automobile
manufacturers increased. Overseas net sales increased 7.4% to ¥183.2 billion, primarily due to
increased sales of car audio products for the OEM market and car navigation systems, despite
decreased sales of car audio products for the consumer market in Europe and North America. Sales of
car navigation systems for the consumer market, particularly map-type DVD models, grew in North
America and Europe. Also, sales of car audio products for the consumer market increased in Russia
and South and Central America.
Royalty revenue from Patent Licensing decreased 13.4% to ¥10.2 billion, compared to that of fiscal
2004. This was attributable to expiration of patents included in a larger portfolio of patents
licensed to the optical disc industry.
Net sales for Others increased 0.1% over fiscal 2004 to ¥74.6 billion, reflecting primarily
increased sales of FA systems and component parts for cellular phones. In Japan, net sales
decreased 15.4% to ¥37.7 billion. This primarily resulted from decrease in sales of OLED display
panels, mainly for cellular phone manufacturers, and semiconductors for laser pickups, despite an
increase in sales of FA systems. Decrease in sales of semiconductors for laser pickups is due to a
sales shift from Japan to China. Overseas, net sales were up 23.1% over fiscal 2004 to ¥37.0
billion. The increase is primarily due to increased sales in China of semiconductors for laser
pickups and in Asia of speaker devices for cellular phones.
Other revenues (Revenues excluding net sales and royalty revenue)
Other revenues include interest income and other income. Interest income increased from ¥1.4
billion to ¥1.9 billion due to increased return on short-term investment of proceeds from
convertible bonds issued in
35
March 2004. Other income increased from ¥0.5 billion to ¥3.4 billion, mainly due to a ¥2.3 billion
gain on sale of available for sale securities.
Cost and expenses
Cost of sales increased to ¥564.5 billion from fiscal 2004s ¥474.0 billion. After excluding ¥25.3
billion of one-time pension cost recognized as a result of the transfer of the substitutional
portion of employee welfare pension plan to the Japanese government, cost of sales represented
75.8% of operating revenue, up by 6.6 percentage points from fiscal 2004s 69.2%. The increase is
primarily due to the adverse effects of harsh price competition, particularly for Home Electronics
products such as plasma displays, DVD recorders and recordable DVD drives. We estimate that the
average selling prices for these products dropped 2030% during fiscal 2005. Clearing out inventory
for cable TV set-top boxes in North America at reduced prices also had an adverse effect on gross
profit margin. Gross profit margin in the Car Electronics business also decreased. Gross profit
margin decreased for car navigation systems in the consumer market in Japan, and the decline in
sales prices of car CD players worldwide decreased gross profit margin as well. Increased provision
for inventory reserve, mainly for excess stock of Home Electronics products, was another reason for
the higher cost of sales.
SGA expenses increased to ¥194.6 billion from fiscal 2004s ¥165.0 billion. The difference was ¥5.4
billion after excluding ¥24.2 billion one-time pension cost resulting from the transfer of the
substitutional portion of employee welfare pension plan. Increases in
shipping and handling costs and
warranty cost accounted for the majority of the increase. Shipping
and handling costs increased by
¥1.4 billion in line with the increase in shipment of the number of plasma display units. Provision
for warranty reserve increased by ¥2.0 billion due to extension of warranty period for plasma
displays as a part of a sales promotion measure.
In fiscal 2005, we transferred the benefit obligation of the substitutional portion of employee
welfare pension plan in Japan and related portion of the plan assets to the Japanese government.
The transfer resulted in recording of a ¥48.7 billion gain as subsidy from the government. At the
same time, we recognized an expense of ¥49.5 billion mainly for settlement loss of the
substitutional portion, and allocated ¥25.3 billion to cost of sales and ¥24.2 billion to SGA expenses. Note 12 of the notes to consolidated financial
statements provides detailed information.
R&D expenses, which are included in cost of sales and SGA expenses, increased 8.6% to ¥55.9
billion, representing 7.9% of operating revenue. The increase reflected R&D activities to enhance
our technological advantage in our strategic products such as car navigation systems, plasma
displays, DVD recorders and OLED displays.
Loss on sale and disposal of fixed assets decreased by ¥3.4 billion. The decrease was attributable
mainly to losses recorded in fiscal 2004 for relocation and replacement of production facilities
for the purpose of improving production efficiency, mainly in DVD products and plasma display
panels.
Other deductions increased from ¥1.6 billion to ¥6.3 billion. The difference is mainly due
to ¥4.5 billion impairment losses recognized in fiscal 2005. An impairment loss of ¥3.4 billion was
recorded for production facilities of PPD due to the downward revision of sales forecast for PPDs
products after the acquisition. This downward revision resulted from decreased orders from our main
OEM customers in the second half of fiscal 2005, reflecting changes in business circumstances. We
also recorded a ¥0.6 billion impairment loss on assets used in manufacturing cable TV set-top boxes
as a result of our decision to no longer sell cable TV set-top boxes in North America. Also, an
impairment loss of ¥0.5 billion was recorded for production facilities of a foreign subsidiary, for
which closure is planned as a part of reorganization of overseas production sites. Another reason
for the difference was the losses incurred in
36
connection with our decision not to sell cable TV
set-top boxes in North America any longer. ¥1.8 billion was
recorded for asset disposal, employee termination benefits and contract termination costs, in addition to the
impairment loss discussed above.
Income (loss) from continuing operations before income taxes
As a result of factors discussed above, we posted ¥2.1 billion loss before income taxes in fiscal
2005, compared with income of ¥40.5 billion in fiscal 2004.
Income taxes
In fiscal 2005, the provision for income taxes was ¥4.3 billion against ¥2.1 billion loss before
taxes. The relationship between loss before taxes and tax expense was distorted mainly due to
valuation allowance set up for deferred tax assets of the subsidiaries which posted losses. In
fiscal 2004, income taxes as a percentage of pre-tax income were 44.8%, which was 2.8% higher than
the normal statutory tax rate of 42.0% in Japan.
Equity in losses of affiliated companies
Equity in losses of affiliated companies was ¥3.1 billion in fiscal 2005, compared with ¥2.2
billion in fiscal 2004. The increase in loss is mainly attributable to the increase in loss
incurred by ELDis, Inc.
Net income (loss)
Net loss in fiscal 2005 was ¥8.8 billion, compared with net income of ¥24.8 billion posted in
fiscal 2004. Basic net loss per share of common stock in fiscal 2005 was ¥50.11, compared with net
income per share of ¥141.58 in fiscal 2004.
37
Segment information
The following segment information is prepared pursuant to regulations under the Securities and
Exchange Law of Japan and is not in accordance with accounting principles generally accepted in the
United States of America.
Business Segments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended March 31, 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate |
|
|
|
|
Home |
|
Car |
|
Patent |
|
|
|
|
|
and |
|
|
|
|
Electronics |
|
Electronics |
|
Licensing |
|
Others |
|
Eliminations |
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
(In millions of yen) |
|
|
|
|
|
|
|
|
Operating revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unaffiliated customers |
|
¥ |
354,690 |
|
|
¥ |
330,522 |
|
|
¥ |
8,540 |
|
|
¥ |
61,212 |
|
|
|
|
|
|
¥ |
754,964 |
|
Inter-segment |
|
|
2,123 |
|
|
|
1,579 |
|
|
|
2,048 |
|
|
|
37,645 |
|
|
¥ |
(43,395 |
) |
|
|
|
|
|
|
|
Total |
|
¥ |
356,813 |
|
|
¥ |
332,101 |
|
|
¥ |
10,588 |
|
|
¥ |
98,857 |
|
|
¥ |
(43,395 |
) |
|
¥ |
754,964 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment income (loss) |
|
¥ |
(35,184 |
) |
|
¥ |
17,486 |
|
|
¥ |
7,217 |
|
|
¥ |
(3,991 |
) |
|
¥ |
(1,937 |
) |
|
¥ |
(16,409 |
) |
Identifiable assets |
|
¥ |
177,367 |
|
|
¥ |
169,338 |
|
|
¥ |
1,474 |
|
|
¥ |
74,326 |
|
|
¥ |
255,541 |
|
|
¥ |
678,046 |
|
Depreciation and
amortization |
|
¥ |
20,654 |
|
|
¥ |
11,511 |
|
|
¥ |
963 |
|
|
¥ |
8,532 |
|
|
¥ |
4,897 |
|
|
¥ |
46,557 |
|
Capital expenditures
(additions to fixed assets) |
|
¥ |
16,317 |
|
|
¥ |
12,214 |
|
|
¥ |
60 |
|
|
¥ |
8,462 |
|
|
¥ |
1,973 |
|
|
¥ |
39,026 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended March 31, 2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate |
|
|
|
|
Home |
|
Car |
|
Patent |
|
|
|
|
|
and |
|
|
|
|
Electronics |
|
Electronics |
|
Licensing |
|
Others |
|
Eliminations |
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
(In millions of yen) |
|
|
|
|
|
|
|
|
Operating revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unaffiliated customers |
|
¥ |
322,771 |
|
|
¥ |
303,410 |
|
|
¥ |
10,237 |
|
|
¥ |
74,624 |
|
|
|
|
|
|
¥ |
711,042 |
|
Inter-segment |
|
|
2,332 |
|
|
|
1,321 |
|
|
|
1,362 |
|
|
|
36,683 |
|
|
¥ |
(41,698 |
) |
|
|
|
|
|
|
|
Total |
|
¥ |
325,103 |
|
|
¥ |
304,731 |
|
|
¥ |
11,599 |
|
|
¥ |
111,307 |
|
|
¥ |
(41,698 |
) |
|
¥ |
711,042 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment income (loss) |
|
¥ |
(24,628 |
) |
|
¥ |
18,591 |
|
|
¥ |
9,389 |
|
|
¥ |
61 |
|
|
¥ |
(2,722 |
) |
|
¥ |
691 |
|
Identifiable assets |
|
¥ |
240,923 |
|
|
¥ |
167,346 |
|
|
¥ |
2,852 |
|
|
¥ |
92,478 |
|
|
¥ |
221,568 |
|
|
¥ |
725,167 |
|
Depreciation and
amortization |
|
¥ |
22,073 |
|
|
¥ |
12,514 |
|
|
¥ |
311 |
|
|
¥ |
8,439 |
|
|
¥ |
3,478 |
|
|
¥ |
46,815 |
|
Capital expenditures
(additions to fixed assets) |
|
¥ |
32,769 |
|
|
¥ |
12,358 |
|
|
|
|
|
|
¥ |
9,501 |
|
|
¥ |
9,568 |
|
|
¥ |
64,196 |
|
|
|
|
Notes: 1. |
|
Segment income (loss) represents operating revenue less cost of sales, selling, general
and administrative expenses and subsidy from the government. |
|
2. |
|
Effective from 2006, we changed our business segment classification for
certain businesses. Results related to plasma displays for business use and DJ
equipment have been moved from Others to Home Electronics. Corresponding figures
for the previously reported operating revenue by segment and segment information have
been reclassified accordingly. |
38
|
|
|
3. |
|
In fiscal 2006, we sold a subsidiary engaged in the development of cable TV
software, and reached a preliminary agreement on the sale of subsidiaries involved in
the electronic components business. As a result, the operating results of these
subsidiaries, and the gain on the sale, are presented as income from discontinued
operations in the consolidated statements of operations in accordance with Statement
of Financial Accounting Standards (SFAS) No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. Corresponding figures for the previous fiscal year
have been reclassified accordingly. |
Income (loss) by business segments
Home Electronics segment recorded a loss of ¥35.2 billion, compared to a loss of ¥24.6 billion in
fiscal 2005. Despite increased sales, mainly for plasma displays, lowered prices for plasma
displays and DVD products worsened gross profit margins.
Car Electronics segment recorded a profit of ¥17.5 billion, down 5.9% from ¥18.6 billion in fiscal
2005. Decrease of the profit of this segment is due mainly to an increase of development costs.
Patent Licensing posted ¥7.2 billion profit, down 23.1% from ¥9.4 billion in fiscal 2005 due to a
decrease in royalty revenue.
Others recorded a loss of ¥4.0 billion, compared with ¥0.1 billion profit in fiscal 2005. This loss
was principally caused by the decrease in sales of FA systems.
39
Geographic Segments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended March 31, 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate |
|
|
|
|
|
|
|
|
North |
|
|
|
|
|
Other |
|
and |
|
|
|
|
Japan |
|
America |
|
Europe |
|
Regions |
|
Eliminations |
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
(In millions of yen) |
|
|
|
|
|
|
|
|
Operating revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unaffiliated customers |
|
¥ |
270,771 |
|
|
¥ |
196,809 |
|
|
¥ |
163,361 |
|
|
¥ |
124,023 |
|
|
|
|
|
|
¥ |
754,964 |
|
Inter-area |
|
|
333,878 |
|
|
|
6,161 |
|
|
|
341 |
|
|
|
209,919 |
|
|
¥ |
(550,299 |
) |
|
|
|
|
|
|
|
Total |
|
¥ |
604,649 |
|
|
¥ |
202,970 |
|
|
¥ |
163,702 |
|
|
¥ |
333,942 |
|
|
¥ |
(550,299 |
) |
|
¥ |
754,964 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment income (loss) |
|
¥ |
(25,832 |
) |
|
¥ |
3,368 |
|
|
¥ |
3,519 |
|
|
¥ |
3,697 |
|
|
¥ |
(1,161 |
) |
|
¥ |
(16,409 |
) |
Identifiable assets |
|
¥ |
245,695 |
|
|
¥ |
43,317 |
|
|
¥ |
65,071 |
|
|
¥ |
119,273 |
|
|
¥ |
204,690 |
|
|
¥ |
678,046 |
|
Depreciation and
amortization |
|
¥ |
28,966 |
|
|
¥ |
3,109 |
|
|
¥ |
2,180 |
|
|
¥ |
7,405 |
|
|
¥ |
4,897 |
|
|
¥ |
46,557 |
|
Capital expenditures
(additions to fixed assets) |
|
¥ |
25,961 |
|
|
¥ |
1,346 |
|
|
¥ |
1,097 |
|
|
¥ |
8,649 |
|
|
¥ |
1,973 |
|
|
¥ |
39,026 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended March 31, 2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate |
|
|
|
|
|
|
|
|
North |
|
|
|
|
|
Other |
|
and |
|
|
|
|
Japan |
|
America |
|
Europe |
|
Regions |
|
Eliminations |
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
(In millions of yen) |
|
|
|
|
|
|
|
|
Operating revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unaffiliated customers |
|
¥ |
286,090 |
|
|
¥ |
171,947 |
|
|
¥ |
149,117 |
|
|
¥ |
103,888 |
|
|
|
|
|
|
¥ |
711,042 |
|
Inter-area |
|
|
288,196 |
|
|
|
5,030 |
|
|
|
805 |
|
|
|
175,698 |
|
|
¥ |
(469,729 |
) |
|
|
|
|
|
|
|
Total |
|
¥ |
574,286 |
|
|
¥ |
176,977 |
|
|
¥ |
149,922 |
|
|
¥ |
279,586 |
|
|
¥ |
(469,729 |
) |
|
¥ |
711,042 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment income (loss) |
|
¥ |
(7,106 |
) |
|
¥ |
(2,738 |
) |
|
¥ |
(308 |
) |
|
¥ |
6,986 |
|
|
¥ |
3,857 |
|
|
¥ |
691 |
|
Identifiable assets |
|
¥ |
315,252 |
|
|
¥ |
60,799 |
|
|
¥ |
60,463 |
|
|
¥ |
112,312 |
|
|
¥ |
176,341 |
|
|
¥ |
725,167 |
|
Depreciation and
amortization |
|
¥ |
31,819 |
|
|
¥ |
2,344 |
|
|
¥ |
2,444 |
|
|
¥ |
6,730 |
|
|
¥ |
3,478 |
|
|
¥ |
46,815 |
|
Capital expenditures
(additions to fixed assets) |
|
¥ |
44,658 |
|
|
¥ |
1,911 |
|
|
¥ |
1,005 |
|
|
¥ |
7,054 |
|
|
¥ |
9,568 |
|
|
¥ |
64,196 |
|
|
|
|
Notes: 1. |
|
Operating revenue reported in geographic segment information above represents that of
Pioneer and its domestic subsidiaries in Japan, and each subsidiary in North America, Europe,
and Other Regions. |
|
2. |
|
Segment income (loss) represents operating revenue less cost of sales, selling,
general and administrative expenses and subsidy from the government. |
|
3. |
|
In fiscal 2006, we sold a subsidiary engaged in the development of cable TV
software, and reached a preliminary agreement on the sale of subsidiaries involved in
the electronic components business. As a result, the operating results of these
subsidiaries, and the gain on the sale, are presented as income from discontinued
operations in the consolidated statements of operations in accordance with Statement of
Financial Accounting Standards (SFAS) No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. Corresponding figures for the previous fiscal year have
been reclassified accordingly. |
40
B. Liquidity and capital resources
Cash flows
Summarized Consolidated Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
Year ended March 31 |
|
|
|
2005 |
|
|
2006 |
|
|
|
(In millions of yen) |
|
Net cash provided by operating activities |
|
¥ |
19,946 |
|
|
¥ |
68,329 |
|
Net cash used in investing activities |
|
|
(93,516 |
) |
|
|
(29,759 |
) |
Net cash used in financing activities |
|
|
(4,019 |
) |
|
|
(38,551 |
) |
Effect of exchange rate changes on cash and cash equivalents |
|
|
1,851 |
|
|
|
4,980 |
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
¥ |
(75,738 |
) |
|
¥ |
4,999 |
|
|
|
|
|
|
|
|
Net cash provided by operating activities in fiscal 2006 was ¥68.3 billion, an increase of ¥48.4
billion compared to fiscal 2005. Changes in operating assets and liabilities were the primary cause
for the increased cash flows from operating activities. Among operating assets and liabilities,
trade receivables decreased despite increased sales due to securitization of receivables.
Inventories decreased primarily for plasma displays and car electronics products, reflecting our
effort to control and reduce inventories.
Net cash used in investing activities was ¥29.8 billion for fiscal 2006, a decrease of ¥63.7
billion compared to ¥93.5 billion in fiscal 2005. The decrease was mainly due to payments for the
acquisition of a plasma display production subsidiary of ¥34.0 billion in fiscal 2005, and a
decrease in the investments for plasma display production facilities.
Net cash used in financing activities was ¥38.6 billion, an increase of ¥34.6 billion compared to
¥4.0 billion in fiscal 2005. In fiscal 2006, cash was used primarily for reducing long-term debt,
short-term borrowings and payment of dividends. ¥31.2 billion cash was used for repayments of
long-term debt and short-term borrowings. Cash used in dividend payments amounted to ¥3.5 billion.
As a result of these activities and the effect of changes in exchange rates on cash and cash
equivalents of overseas subsidiaries, cash and cash equivalents increased by ¥5.0 billion to ¥121.7
billion at the end of fiscal 2006, from ¥116.7 billion at the end of fiscal 2005.
Capital requirements
Our requirements for operating capital primarily are for the purchase of raw materials and parts
for manufacturing our products. Also, operating expenses, including manufacturing expenses and
selling, general and administrative expenses, require a substantial amount of operating capital.
Payroll and payroll-benefits, and marketing expenses, such as those for advertising and sales
promotion, account for a primary portion of operating expenses. Our expenditure for R&D is recorded
as a part of various operating expenses, and payroll for R&D-related personnel accounts for a
material portion of R&D expenses.
We believe that our ability to generate positive operating cash flows and liquidity discussed in
the following financial management section provide sufficient resources to fund future operating
capital requirements and capital expenditures.
41
Financial management
At present, funds required for operating capital and capital expenditures are generally financed
through internally generated cash and debt or equity financing. With regard to debt financing,
short-term debt financing with maturities of one year or less is utilized to fund operating capital
requirements. Short-term borrowing is generally arranged locally by each consolidated subsidiary
based on its capital requirements. At March 31, 2006, short-term borrowings of ¥23.2 billion were
principally in Japanese yen, U.S. dollar, and euro. On the other hand, financing of long-term
funding requirements such as investments in production facilities, financing through debt and
equity securities markets are arranged in Japan, and long-term borrowing from financial
institutions is arranged locally by each consolidated subsidiary. At March 31, 2006, substantially
all of the long-term debt of ¥100.1 billion, including the portion due within one year, was
comprised of ¥61.5 billion zero coupon convertible bonds due 2011 including ¥1.5 billion
unamortized issue premium, ¥10.0 billion unsecured bonds due 2008, and capital lease obligations
and other loans arranged locally.
We believe that our sound financial position and ability to generate positive operating cash flows,
together with uncommitted and unused credit lines of ¥254.5 billion, provide sufficient resources
to fund future requirements for operating capital and for capital expenditures to sustain the
growth of Pioneer. Also, the parent company and its four subsidiaries in Japan and China entered
into a three-year global credit facility agreement for the amount of ¥70.0 billion effective from
May 2005. This will ensure that these companies in Japan and China have an efficient and stable
financing source for their operational funding needs.
C. Research and development, patents and licenses, etc.
Our R&D activities have played a crucial role in the development of our business. Our R&D program
currently centers on high-density recording, flat-panel displays, digital signal processing,
information/communications, and core LSIs. In fiscal 2004, 2005 and 2006, our R&D expenses were
¥51,449 million, ¥55,858 million and ¥63,442 million, respectively, or 7.5%, 7.9% and 8.4%,
respectively, of our operating revenue. Our R&D expenses currently account for about 8% of our
consolidated net sales. We will try to lower the burden of R&D expenses by increasing cooperation
and alliances with other companies. We currently intend to reduce the ratio of R&D expenses to
operating revenue to below 7%.
Our research and development of new technologies is carried out mainly in Japan at the Corporate
Research & Development Laboratories, as well as the Optical Disc & Systems Development Center,
Information & Communication Development Center, PDP Development Center and Mobile Systems
Development Center. At Pioneer Research Center USA, Inc. (PRA), one of our overseas wholly-owned
subsidiaries, we are also actively engaged in research of new technologies, and development of
system software related to digital TV and of digital network technologies. At another wholly-owned
overseas subsidiary in the United Kingdom, Pioneer Digital Design Centre, Ltd., we are researching
cutting-edge technologies related to digital TV for use in Europe. Product development and
production improvement activities are the responsibility of each business unit, and are carried out
in our various manufacturing facilities both in Japan and overseas.
42
D. Trend information
The following is a description of the most significant recent trends in each of our business
segments.
Home Electronics
Traditional audio/video products continue to be exposed to downward price pressure and slower
sales. This, in turn, has negatively impacted our production levels and our inventory. We have
responded and expect to continue to respond to such downward pressure in sales and production
through the introduction of new value-added products and models in Home Electronics.
DVD products. The market for DVD products is growing, but prices are falling rapidly. In the DVD
recorder business, particularly for the in-house development of new products that entail large
development expenses and do not directly take advantage of our strengths, we plan to curb
development expenses by developing products using existing assets, thus improving prospects for
profitability. This approach will enable us to concentrate on developing and launching Blu-ray Disc
players, which are promising next-generation optical disc products. In DVD drives for PCs, we aim
to reduce our business risks through collaboration with other companies and other means, while
lowering costs by increasing production. We have already shifted the main focus of our development
activities in optical disc drives for PCs to Blu-ray Disc drives. In response, we will seek to
continue to reduce costs through production in China and collaborations with other companies, and
raise the return on product development investments through external sales of key components.
Meanwhile, product development and design processes will be reviewed thoroughly to raise the
efficiency and speed of development. In DVD drives for PCs, Pioneer plans to
offer new value-added proposals by shifting the main focus of product development to Blu-ray Disc
drives. We will reduce our DVD recorder lineup to products in areas of expertise, as part of
efforts to propose value-added products that are embraced by customers.
Plasma displays. Our production output is increasing in line with strong overall market demand.
With a forecast of further growth in demand, we expect to see an increase in the capacity
utilization rates of some production lines year on year, but will suspend or shut down the
operation of certain production lines which are incompatible with new products. We are reducing OEM
sales of panel modules, which carry the risk of volatility in sales volumes. Instead, we plan to
focus on increasing sales under Pioneers own brands. In addition, we intend to bring more
innovative products to market, including the worlds first 50-inch, 1080p plasma displays, aiming
to improve our brand value and expand our business.
Car Electronics
We are targeting fast-growing consumer markets such as Brazil, Russia, India and China, in order to
retain our position of leadership in car audio products. In addition, amid the uptake and growth of
music content distribution and digital broadcasting, we will work to increase earnings growth in
the car electronics business by offering products that stand apart from those of other companies
through the creation of new value and functions.
In car navigation systems, we will actively press ahead with business expansion in Europe and North
America as well as in Japans consumer market, where our car navigation systems enjoy a strong
reputation. In Europe and North America, in addition to the fixed-type of car navigation systems,
we aim to increase our visibility by entering the fast-growing market for portable type. Aiming to
reduce increasing software development costs accompanying product advancements, we are reforming
product development processes and raising their efficiency through standardization.
43
In the OEM car navigation system business, we are increasing our focus on the growing market for
car navigation systems offered as dealer options in Japan. In parallel, we aim to capture new
orders by offering new proposals to OEM customers that leverage our own product planning
capabilities, which have been proven in consumer markets. Meanwhile, in the OEM car audio products
business, we aim to make the most of its strengths in consumer markets to drive further business
expansion.
Patent Licensing
In the current patent business environment, nearly every company follows a policy of actively
protecting their patent rights, and the number of patent lawsuits has increased considerably. The
value of patents is increasingly recognized, and companies are seeking to maximize the utility of
their patents through the transfer or licensing of patent rights. Purchase prices generally are
increasing because of the growing importance of such intellectual property.
We expect that our royalty revenue from the worldwide licensing of patents relating to laser
optical disc technologies will continue to decline, as a significant portion of our patents in
Japan and Europe has expired and some portion of those in North America started to expire.
See Item 4.B. Business overviewNature of operationsPatent licensing for more information on our
patent licensing business.
Others
OLED displays. With the entry of other companies, market competition in OLED displays is becoming
even more intense, while each company in this market is proceeding with the development of
full-color OLED displays.
E. Off-balance sheet arrangements
We provide guarantees covering a one-year period to third parties who provide loans to our
affiliated companies. If our affiliated companies were to default on a payment within the contract
period of one year, we would have to pay the guaranteed amount. The maximum potential amount of
undiscounted future payments we could be required to make under the guarantee is ¥0.2 billion at
March 31, 2006.
We have the following accounts receivable securitization programs:
In the United States of America, we have established PUSA Receivables Funding Corporation, Inc., a
wholly owned, bankruptcy remote-special purpose entity and established an accounts receivable
securitization program of eligible trade accounts receivable. A bankruptcy-remote subsidiary is a
company that has been structured to make it highly unlikely that it would be drawn into a
bankruptcy of a parent company, or any of its subsidiaries. Through this program, we can securitize
and sell, without recourse, on a revolving basis, an undivided interest up to $100,000 thousand in
that pool of receivables to third party conduits owned by a bank. These securitization transactions
are accounted for as sales in accordance with SFAS No. 140, Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities, because we have surrendered control over
the receivables. We sold a total of ¥97 billion of receivables under this
program for the year ended March 31, 2006.
In Japan, we set up several accounts receivable sales programs of eligible trade accounts
receivable. Through these programs, we can sell receivables, without recourse, to financial
institutions. These transactions are accounted for as sales in accordance with SFAS No. 140,
because we have surrendered
44
control
over the receivables. We sold a total of ¥56 billion of receivable
under this program for the year ended March 31, 2006.
We utilize this program to diversify our options to increase the flexibility of our cash flow
control. Our cash flow management does not get critically effected without this program.
F. Tabular disclosure of contractual obligation
The following summarizes our contractual obligations at March 31, 2006.
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Payment Due by Period |
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Less than |
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More than |
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Total |
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1 year |
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13 years |
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35 years |
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5 years |
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(In billions of yen) |
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Contractual obligations: |
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Long-term debt |
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¥ |
98.7 |
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¥ |
7.2 |
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¥ |
20.3 |
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¥ |
6.6 |
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¥ |
64.6 |
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Operating leases |
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8.4 |
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2.5 |
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3.4 |
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1.3 |
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1.2 |
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Purchase commitment |
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26.1 |
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26.1 |
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Interest payments |
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4.4 |
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1.2 |
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2.0 |
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1.1 |
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0.1 |
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Contribution to
defined benefit
plans |
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6.7 |
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6.7 |
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Notes: 1. |
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Total long-term debt of ¥98.7 billion does not include ¥1.5 billion unamortized issue
premium on convertible bonds. |
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2. |
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Long-term debt includes capital lease obligations. |
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3. |
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Contractual obligations do not include ¥0.2 billion deferred income which is
presented as other long-term liabilities on the consolidated balance sheets. |
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4. |
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The amount that we will contribute under our defined pension plans is based on
a number of factors, primarily rate of salary increase and the number of employees. As
such, we have estimated the amount of such contribution for the year ending March 31,
2007 and not the contribution for the years thereafter. |
The ¥26.1 billion purchase commitment outstanding at March 31, 2006 was for raw material, property,
plant and equipment and advertising. This included a part of our ¥54.0 billion capital expenditure
plan in fiscal 2007. The planned increase in capital expenditures from ¥40.3 billion in fiscal 2006
mainly reflects investments needed to concentrate planning, development and design personnel
currently based at three separate locations in a single site for the Home Electronics business.
New Accounting Standards
Inventory Costs
In November 2004, the FASB issued SFAS No. 151, Inventory Costsan 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 us effective April 1, 2006. The adoption of this standard is not expected to have
any material impact on our consolidated statements of operations or financial position.
45
Exchanges of Nonmonetary Assets
In December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary Assetsan 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 our
consolidated statements of operations or financial position.
Share-Based Payment
In December 2004, the FASB issued SFAS No. 123 (revised 2004), Share-Based Payment, or SFAS No.
123R. SFAS No. 123R 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. SFAS No. 123R is effective at the beginning of the first interim and
annual reporting period beginning after June 15, 2005. The adoption of this standard is not
expected to have any material impact on our consolidated statements of operations or financial
position because we account for its stock-based compensation agreements using the fair value based
method, not the intrinsic value method prescribed by APB Opinion No. 25.
Accounting Changes and Error Corrections
In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Correctionsa replacement
of APB Opinion No. 20 and FASB Statement No. 3. SFAS No. 154 replaces APB No. 20, Accounting
Changes, and SFAS No. 3, Reporting Accounting Changes in Interim Financial Statements, and
changes the requirements for the accounting for and reporting of a change in accounting principle.
SFAS No. 154 applies to all voluntary changes in accounting principle. SFAS No. 154 also applies to
changes required by an accounting pronouncement in the unusual instance that the pronouncement does
not include specific transition provisions. SFAS No. 154 is effective for accounting changes and
corrections of errors made in fiscal years beginning after December 15, 2005. The adoption of this
standard is not expected to have any material impact on our consolidated statements of operations
or financial position.
Accounting for Electronic Equipment Waste Obligations
In June 2005, the FASB issued FSP 143-1, Accounting for Electronic Equipment Waste Obligations
(FSP 143-1). FSP 143-1 provides guidance on the accounting for certain obligations associated
with the Waste Electrical and Electronic Equipment Directive (the Directive) adopted by the
European Union (EU). Under the Directive, the waste management obligation for historical
equipment (products put on the market on or prior to August 13, 2005) remains with the commercial
user until the customer replaces the equipment. FSP 143-1 is required to be applied to the later of
the first reporting period ending after June 8, 2005, or the date of the Directives adoption into
law by the applicable EU-member countries. We adopted FSP 143-1 during the year ended March 31,
2006 and has determined that its effect did not have a material impact on its consolidated results
of operations and financial position.
46
The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments
In November 2005, the FASB staff issued FASB Staff Position or FSP on Statements 115 and 124, The
Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments ( FSP
115-1), which effectively replaces EITF Issue No. 03-1. FSP 115-1 contains a three-step model for
evaluating impairments and carries forward the disclosure requirements in EITF Issue No. 03-1
pertaining to securities in an unrealized loss position is considered impaired; an evaluation is
made to determine whether the impairment is other-than-temporary; and, if an impairment is
considered other-than-temporary, a realized loss is recognized to write the securitys cost or
amortized cost basis down to fair value. FSP 115-1 references existing other-than-temporary
impairment guidance for determining when impairment is other-than-temporary and clarifies that
subsequent to the recognition of an other-than-temporary impairment loss for debt securities, an
investor shall account for the security using the constant effective yield method. FSP 115-1 is
effective for reporting periods beginning after December 15, 2005, with earlier application
permitted. The adoption of this standard is not expected to have any material impact on our
consolidated statements of operations or financial position.
Accounting for Certain Hybrid Financial Instruments
In February 2006, the FASB issued SFAS No. 155, Accounting for Certain Hybrid Financial
Instruments, which amends SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities, and SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities, and improves the financial reporting of certain hybrid financial
instruments by requiring more consistent accounting that eliminates exemptions and provides a means
to simplify the accounting for these instruments. Specifically, SFAS No. 155 allows financial
instruments that have embedded derivatives to be accounted for as a whole (eliminating the need to
bifurcate the derivative from its host) if the holder elects to account for the whole instrument on
a fair value basis. SFAS No. 155 is effective for all financial instruments acquired or issued
after the beginning of an entitys first fiscal year that begins after September 15, 2006. The
adoption of this standard is not expected to have any material impact on our consolidated
statements of operations or financial position.
Accounting for Servicing of Financial Assets
In March 2006, the FASB issued SFAS No. 156, Accounting for Servicing of Financial Assets. SFAS
No. 156 was issued to simplify the accounting for servicing assets and servicing liabilities and
reduce the volatility that results from the use of different measurement attributes for servicing
rights and the related financial instruments used to hedge risks associated with those servicing
rights. SFAS No. 156 clarifies when to separately account for servicing rights, requires separately
recognized servicing rights to be initially measured at fair value, and provides the option to
subsequently account for those servicing rights at either fair value or under the amortization
method previously required under SFAS No. 140, Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities. SFAS No. 156 is effective for fiscal years beginning
after September 15, 2006. The adoption of this standard is not expected to have any material impact
on our consolidated statements of operations or financial position.
47
Item 6. Directors, Senior Management and Employees
A. Directors and senior management
Pioneers Directors, Executive Officers and Corporate Auditors as of July 1, 2006, and their
pertinent information, such as position and business experience, are as follows:
Directors
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Name |
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Current Position |
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(Date of birth) |
|
(Month and year of expiration) |
|
Prior Position |
Tamihiko Sudo
(Apr. 28, 1947)
|
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President and Representative Director;
Chief Executive Officer
(June 2007)
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June 2005:
Executive Vice President and
Representative Director;
Chief Financial Officer; and in
charge of Corporate Strategy
Planning Group, Corporate
Management Group, Export
Management and Quality Control in
general |
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Hajime Ishizuka
(May 3, 1947)
|
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Senior Managing Director and
Representative Director;
Chief Financial Officer;
in charge of Corporate Management Group,
export management in general, and
Procurement Group
(June 2007)
|
|
July 2005:
Senior Managing Director and
Representative Director; President
of Pioneers Home Entertainment
Business Company and AV Business
Company; and in charge of
Procurement Group |
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Osamu Yamada
(Mar. 16, 1944)
|
|
Senior Managing Director;
General Manager of Research & Development
Group and Corporate Research &
Development Laboratories
(June 2007)
|
|
June 2003:
Managing Director; General Manager
of Research & Development Group
and Corporate Research &
Development Laboratories |
|
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Satoshi Matsumoto
(Apr. 15, 1954)
|
|
Managing Director;
in charge of Quality Control Division
(June 2007)
|
|
Nov. 2003:
Managing Director; General Manager
of Environmental Preservation
Group and Environmental
Preservation Division |
48
|
|
|
|
|
Name |
|
Current Position |
|
|
(Date of birth) |
|
(Month and year of expiration) |
|
Prior Position |
Akira Haeno
(Feb. 14, 1949)
|
|
Managing Director;
General Manager of Mobile Entertainment
Business Group
(June 2007)
|
|
June 2004:
Executive Officer; Plant Manager
of Kawagoe Plant; and General
Manager of Production Division of
Kawagoe Plant of Pioneers Mobile
Entertainment Company |
|
|
|
|
|
Shinji Yasuda
(June 10, 1945)
|
|
Managing Director;
General Manager of Home Entertainment
Business Group and General Manager of
Omori Plant
(June 2007)
|
|
Jan. 2006:
Senior Executive Officer;
General Manager of Home
Entertainment Business Group and
General Manager of Omori Plant |
|
|
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|
Tatsuhiro Ishikawa
(Apr. 4, 1939)
|
|
Director
(June 2007)
|
|
Dec. 2001 to present:
Attorney-at-Law |
|
|
|
|
|
Shunichi Sato
(Feb. 10, 1941)
|
|
Director
(June 2007)
|
|
Apr. 2000:
Japanese Ambassador Extraordinary
and Plenipotentiary to Belgium |
Executive Officers
|
|
|
|
|
Name |
|
Current Position |
|
|
(Date of birth) |
|
(Month and year of expiration) |
|
Prior Position |
Masao Kawabata
(Aug. 10, 1948)
|
|
Senior Executive Officer;
General Manager of Corporate Branding and
Communications Division
(June 2007)
|
|
June 2001:
Executive Officer; General Manager
of Corporate Communications
Division |
|
|
|
|
|
Yoshio Taniyama
(Nov. 9, 1948)
|
|
Senior Executive Officer;
General Manager of Corporate Planning
Division
(June 2007)
|
|
June 2001:
Executive Officer; General Manager
of Finance Division |
|
|
|
|
|
Hideki Okayasu
(May 12, 1950)
|
|
Senior Executive Officer;
General Manager of Finance and Accounting
Division
(June 2007)
|
|
June 2001:
Executive Officer; General Manager
of Accounting Division |
49
|
|
|
|
|
Name |
|
Current Position |
|
|
(Date of birth) |
|
(Month and year of expiration) |
|
Prior Position |
Buntarou Nishikawa
(Mar. 24, 1946)
|
|
Senior Executive Officer;
in charge of OEM Sales Division and
Domestic Sales Division of Mobile
Entertainment Business Group, and in
charge of Pioneer Marketing Corporation
and Pioneer Solutions Corporation
(June 2007)
|
|
June 2001:
Executive Officer; General Manager
of Domestic Sales Division of
Pioneers Mobile Entertainment
Company |
|
|
|
|
|
Yoichi Sato
|
|
Senior Executive Officer;
|
|
June 2005: |
(Jan. 15, 1950)
|
|
Chief Technology Executive, Deputy
General Manager of Research & Development
Group, General Manager of PDP Development
Center, and in charge of Plasma Panel
Engineering Division of Home
Entertainment Business Group
(June 2007)
|
|
Managing Director; Deputy General
Manager of Research & Development
Group; and General Manager of PDP
Development Center |
|
|
|
|
|
Sumitaka Matsumura
(Oct. 10, 1948)
|
|
Executive Officer;
Deputy General Manager of Research &
Development Group; General Manager of
Optical Disc & Systems Development
Center; and in charge of Standards &
Copyright Management Center
(June 2007)
|
|
Jan. 2001:
Deputy General Manager of Research
& Development Group; and General
Manager of AV & Network
Development Center |
|
|
|
|
|
Kenji Sato
(Aug. 29, 1947)
|
|
Executive Officer;
General Manager of General Administration
Division
(June 2007)
|
|
June 1998:
General Manager of General
Administration Division |
|
|
|
|
|
Susumu Kotani
(Apr. 12, 1950)
|
|
Executive Officer;
General Manager of International Business
Division
(June 2007)
|
|
Sept. 2002:
Managing Director of Pioneer Europe
NV |
|
|
|
|
|
Tsutomu Haga
(June 2, 1948)
|
|
Executive Officer;
President & Chief Operating Officer of
Pioneer North America, Inc.
(June 2007)
|
|
July 2003:
President & Chief Operating
Officer of Pioneer Electronics
(USA) Inc. |
|
|
|
|
|
Kaoru Sato
(July 27, 1948)
|
|
Executive Officer; General Manager of
Tokorozawa Plant of Home Entertainment
Business Group
(June 2007)
|
|
June 2004:
President of Components Business
Company of Home Entertainment
Business Company |
50
|
|
|
|
|
Name |
|
Current Position |
|
|
(Date of birth) |
|
(Month and year of expiration) |
|
Prior Position |
Keiichi Yamauchi
(Apr. 12, 1952)
|
|
Executive Officer;
in charge of software and platform
development of Home Entertainment
Business Group; and General Manager of
Engineering Division of Tokorozawa Plant
(June 2007)
|
|
Nov. 2003:
General Manager of Mobile Systems
Development Center of Research &
Development Group |
|
|
|
|
|
Kazumi Kuriyama
(Sept. 12, 1953)
|
|
Executive Officer;
General Manager of Intellectual Property
Division
(June 2007)
|
|
July 2005:
Deputy General Manager of
Corporate Research & Development
Laboratories of Research &
Development Group |
|
|
|
|
|
Toshiyuki Ito
(Oct. 17, 1950)
|
|
Executive Officer;
Chairman & Managing Director of Pioneer
Europe NV
(June 2007)
|
|
Apr. 2005:
Managing Executive Officer of
Tohoku Pioneer Corporation |
|
|
|
|
|
Tatsuo Takeuchi
(Oct. 23, 1950)
|
|
Executive Officer;
General Manager of Personnel Division
(June 2007)
|
|
Dec. 2004:
Managing Director of Pioneer
Electronics Asiacentre, Pte. Ltd. |
|
|
|
|
|
Masanori Kurosaki
(Aug. 12, 1952)
|
|
Executive Officer;
General Manager of OEM Sales Division of
Mobile Entertainment Business Group
(June 2007)
|
|
Nov. 2002:
General Manager of Planning &
Coordination Division of Mobile
Entertainment Company |
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 |
|
|
|
|
|
Isao Moriya
(Sept. 5, 1937)
|
|
Corporate Auditor
(June 2007)
|
|
Mar. 1968 to present:
Certified Public Accountant |
|
|
|
|
|
Keiichi Nishikido
(May 2, 1953)
|
|
Corporate Auditor
(June 2007)
|
|
Jan. 1994 to present:
Attorney-at-Law;
Managing Partner of Kohwa Sohgoh
Law Offices, Japan |
51
All of the above persons, with the exception of Messrs. Tatsuhiro Ishikawa, Shunichi Sato, Isao
Moriya and Keiichi Nishikido, devote themselves full time to our business.
None of the persons listed above was selected as a director, corporate auditor or member of senior
management pursuant to an arrangement or understanding with our major shareholders, customers,
suppliers or others.
Mr. Satoshi Matsumoto is a first cousin once removed of Mr. Yoshio Taniyama.
B. Compensation
The aggregate amount of compensation (including bonuses and stock-based compensation) paid by
Pioneer to all Directors, Executive Officers and Corporate Auditors of Pioneer as a group for
fiscal 2006 totaled ¥974 million. Also, as part of Pioneers incentive compensation, Pioneer has
issued stock acquisition rights for its shares of common stock to Directors, Executive Officers,
and certain employees, and certain directors/officers of certain of its subsidiaries from fiscal
2003. See Item 6.E. Share ownership for further information.
The aggregate amount set aside as lump-sum severance indemnities by Pioneer during fiscal 2006 for
Directors, Executive Officers and Corporate Auditors of Pioneer totaled ¥75 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 12 in Notes to Consolidated Financial
Statements.)
C. Board practices
Under the Company Law, Pioneer has elected to structure its corporate governance system as a
company with a board of corporate auditors as set forth below.
Pioneers Articles of Incorporation provide for three or more Directors 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 a
Director expires at the conclusion of the Ordinary General Meeting of Shareholders held with
respect to the last business year ending within one year after their election and in the case of a
Corporate Auditor, within four years after their election; however, Directors and Corporate
Auditors may serve any number of consecutive terms. For information regarding the expiration of the
term of office for each of the Directors and Corporate Auditors, see Item 6.A. Directors and
senior management.
The Directors constitute the Board of Directors, which has the ultimate responsibility for
administration of our affairs. The Board of Directors may elect from among its members a Chairman
and Director, a Vice Chairman and Director, a President and Director, one or more Executive Vice
Presidents and Directors, Senior Managing Directors and Managing Directors. From among the
Directors referred to above, the Board of Directors elects one or more Representative Directors. Each of the
Representative Directors has the authority to individually represent Pioneer in the conduct of its
affairs.
52
Pioneer introduced an 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 Officer expires at the conclusion of the ordinary general
meeting of shareholders held with respect to the last business year ending within one year after
their assumption of office. For information regarding the expiration of the term of office of each
of the Executive Officers, see Item 6.A. Directors and senior management. The Board of Directors
may elect from among Executive Officers one or more Senior Managing Executive Officers and Senior
Executive Officers. Each of the Executive Officers has the authority to individually operate
businesses of which he or she is in charge under the control of the Board of Directors and
Representative Directors.
Corporate Auditors of Pioneer are not required to be certified public accountants. However, at
least half of the Corporate Auditors are required to be persons who have not been a director,
accounting counselor, corporate executive officer, general manager or any other 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 a director, accounting counselor, corporate executive officer,
general manager or any other employee of Pioneer or any of its subsidiaries.
Each Corporate Auditor has the statutory duty to supervise the administration by the Directors of
Pioneers affairs and also to examine our annual consolidated and non-consolidated financial
statements and business reports proposed to be submitted by a Representative Director at the
general meeting of shareholders and, based upon such examination and a report of the Accounting
Auditor referred to below, to individually prepare their audit reports. They shall attend meetings
of the Board of Directors but are not entitled to vote. In addition to Corporate Auditors, an
independent certified public accountant or an audit corporation must be appointed by general
meetings of shareholders as the Accounting Auditor of Pioneer. Such Accounting Auditor has, as its
primary statutory duties, the duty to examine our annual consolidated and non-consolidated
financial statements proposed to be submitted by a Representative Director at general meetings of
shareholders and to report their opinion thereon to certain Corporate Auditors designated by the
Board of Corporate Auditors to receive such report (if such Corporate Auditors are not designated,
all Corporate Auditors) and the Directors designated to receive such report (if such Directors are
not designated, the Directors who are responsible for preparing the financial statements).
The Corporate Auditors constitute the Board of Corporate Auditors. The Board of Corporate Auditors
has the statutory duty to, based upon the reports prepared by respective Corporate Auditors,
prepare and submit its audit report to the accounting auditor and certain Directors designated to
receive such report (if such Directors are not designated, the Directors who are responsible for
preparing the financial statements and the business report). A Corporate Auditor may note his or
her opinion in the audit report if his or her opinion expressed in his or her audit report is
different from the opinion expressed in the audit report. The Board of Corporate Auditors shall
elect one or more full-time Corporate Auditors from among its members. The Board of Corporate
Auditors is empowered to establish audit principles, method of examination by Corporate Auditors of
Pioneers 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 associationDirectors.
53
D. Employees
The following table sets forth the number of our employees at the end of the period indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended March 31 |
|
|
2004 |
|
2005 |
|
2006 |
Number of employees |
|
|
32,526 |
|
|
|
33,409 |
|
|
|
38,826 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pioneer and nine of its subsidiaries in Japan have their respective labor unions for the employees
of each company. Each such labor union is affiliated with the Japanese Electrical Electronic &
Information Union. All employees except management, supervisory and certain other employees must
become union members. We have not been materially affected by any work stoppages or difficulties in
connection with labor negotiations or disputes and consider our labor relations to be good.
E. Share ownership
The total number of shares of Pioneers common stock owned by our Directors, Executive Officers and
Corporate Auditors as a group as of June 30, 2006 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
|
|
484,000 shares*
|
|
|
0.27% |
|
|
|
|
* |
|
None of Pioneers Directors, Executive Officers and Corporate Auditors is the owner of more
than one percent of Pioneers common stock. |
Pioneer has granted the following stock 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 |
|
Number of shares |
Fiscal year |
|
option |
|
|
|
exercise price |
|
exercised |
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 |
|
|
54
Item 7. Major Shareholders and Related Party Transactions
A. Major shareholders
Major shareholders that owned 5% or more of Pioneers voting securities as of March 31, 2006 on the
register of shareholders were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of shares |
|
Percentage of |
Title of class |
|
Name |
|
(in thousands) |
|
outstanding shares |
Common Stock
|
|
The Master Trust Bank of Japan,
Ltd. (Trust Account)
|
|
|
11,980 |
|
|
|
6.65 |
% |
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Japan Trustee Services Bank, Ltd.
(Trust Account)
|
|
|
11,020 |
|
|
|
6.12 |
% |
The Master Trust Bank of Japan, Ltd. and Japan Trustee Services Bank, Ltd. are securities
processing services companies. We understand that these shareholders are not the beneficial owner
of our voting securities, but we do not have available further information concerning such
beneficial ownership.
To our knowledge, there are no major shareholders that were beneficial owners of 5% or more of
Pioneers voting securities during the past three years.
All shareholders of Pioneer have the same voting rights, subject to the limitation on exercise as
set forth in Item 10.B. Memorandum and articles of associationCommon stockVoting rights.
As of March 31, 2006, there were 174,421,890 shares of common stock outstanding, of which 401,534
shares (0.22%) were held in the form of American Depositary Receipts (ADRs) and 14,106,845 shares
(7.83%) 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 Depositary
Trust Company) was 85, 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 70. See Item 9.C. Markets, regarding the market for
Pioneers shares.
To our knowledge, Pioneer is not directly or indirectly owned or controlled by any other
corporation or by the Japanese or any foreign government.
To our knowledge, there is no arrangement, the operation of which may at a subsequent date result
in a change in control of Pioneer.
B. Related party transactions
None
C. Interests of experts and counsel
Not applicable
55
Item 8. Financial Information
A. Consolidated statements and other financial information
Consolidated financial statements
See the Consolidated Financial Statements beginning on page F-1.
Legal proceedings
In common with numerous other industrial companies conducting a global business, we are party to
various lawsuits and administrative proceedings in the ordinary course of our business. Based on
the advice of counsel in the respective matters, except as described below, we do not expect such
lawsuits or administrative proceedings, individually or in the aggregate, to have a material effect
on our financial condition and results of operations.
Pioneer Electronics Deutschland GmbH (PED), a wholly owned subsidiary, received an assessment
from the German tax authorities in December 2000, which stated income adjustment of EUR44.4 million
(¥6,341 million translated at the foreign exchange rate at March 31, 2006) covering the fiscal
years ended March 31, 1993 to 1995, concerning its intercompany purchase prices from Pioneer Europe
NV, a wholly owned subsidiary in Belgium. PED, in 2001, contested the assessment and has requested
the German and the Belgian tax authorities to try to reach an agreement (through an arbitration
proceeding) on the arms length transfer prices and avoid double taxation. The German tax
authorities notified PED in February 2006 that they were not able to reach an agreement with the
Belgian tax authorities. PED has requested the German and Belgian tax authorities to continue the
arbitration proceeding to resolve the issue. PED, in February 2006, received a tax audit memo
(which outlines its preliminary views but does not yet constitute an assessment) from the German
tax authorities which stated income adjustment of EUR50.7 million (¥7,240 million) covering the
fiscal years ended March 31, 1996 to 1999. PED made objection to the German tax authorities
regarding the basis of this memo. The German tax authorities have not yet issued an assessment for
the fiscal years covered in the said tax audit memo. Also, PED understands that the German tax
authorities have completed transfer pricing audit for the fiscal years ended March 31, 2000 to
2004. The result of the audit has not been communicated to PED. We, at the date of this report, are
unable to reasonably determine the resolution and is unable to currently estimate the amount of the
loss, if any, associated with the foregoing assessment, tax audit memo and completed transfer
pricing audit.
Dividend policy
Pioneer normally pays cash dividends twice per year. Pioneers Board of Directors recommends
year-end dividends to be paid in the form of distribution of surplus following the end of each
fiscal year. This recommended year-end dividend must then be approved by shareholders at the
Ordinary General Meeting of Shareholders usually held in June of each year. Immediately following
approval of the dividend at the shareholders meeting, Pioneer pays the dividend to shareholders
and pledgees of record at the preceding March 31. In addition to these year-end dividends, Pioneer
may pay interim dividends in the form of distribution of surplus 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 associationCommon stockDividends.
56
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, 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 |
|
September 30, 2005 |
|
|
7.50 |
|
|
|
0.06 |
|
March 31, 2006 |
|
|
2.50 |
|
|
|
0.02 |
|
Pioneer sets dividend payments appropriately in light of its financial position, consolidated
operating results, and other factors, but has a basic policy of maintaining stable dividends.
B. Significant changes
There were no significant changes nor have any relevant facts occurred after the date of the
financial statements included in this annual report other than disclosed therein.
57
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 Pioneers Common Stock on the Tokyo Stock Exchange and
per share of Pioneers American Depositary Shares
(ADSs) on the
New York Stock Exchange. See Item 9.C. Markets, regarding the markets for Pioneers shares.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
2006 |
|
|
2,040 |
|
|
|
1,410 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarterly highs and lows |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
2nd quarter |
|
|
1,785 |
|
|
|
1,604 |
|
|
|
16.10 |
|
|
|
14.23 |
|
3rd quarter |
|
|
1,764 |
|
|
|
1,410 |
|
|
|
15.03 |
|
|
|
12.22 |
|
4th quarter |
|
|
1,989 |
|
|
|
1,530 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1st quarter |
|
|
2,120 |
|
|
|
1,628 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Monthly highs and lows |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January |
|
|
1,695 |
|
|
|
1,530 |
|
|
|
|
|
|
|
|
|
February |
|
|
1,952 |
|
|
|
1,682 |
|
|
|
|
|
|
|
|
|
March |
|
|
1,989 |
|
|
|
1,792 |
|
|
|
|
|
|
|
|
|
April |
|
|
2,120 |
|
|
|
1,888 |
|
|
|
|
|
|
|
|
|
May |
|
|
2,120 |
|
|
|
1,828 |
|
|
|
|
|
|
|
|
|
June |
|
|
1,963 |
|
|
|
1,628 |
|
|
|
|
|
|
|
|
|
B. Plan of distribution
Not applicable
58
C. Markets
Pioneers common stock has been listed on the Tokyo Stock Exchange (TSE) since October 1961.
On December 8, 2005, Pioneers Board of Directors approved a resolution to withdraw its common
stock from listing on the Osaka Securities Exchange, its ADSs from the New York Stock Exchange and
its Curaçao Depositary Shares from the Euronext Amsterdam. These delistings were completed on
January 27, 2006, January 23, 2006 and January 2, 2006, respectively. Pioneers ADR program was
terminated effective March 10, 2006. Pioneer is currently considering options to terminate its
Curaçao Depositary Receipt program.
D. Selling shareholders
Not applicable
E. Dilution
Not applicable
F. Expenses of the issue
Not applicable
Item 10. Additional Information
A. Share capital
Not applicable
B. Memorandum and articles of association
Organization
Pioneer is a joint stock corporation (kabushiki kaisha) incorporated in Japan under the Company Law
(Kaishaho) of Japan. It is registered in the Commercial Register (shogyo tokibo) maintained by the
Meguro Branch Office of the Tokyo Legal Affairs Bureau.
Objects and purposes
The Articles of Incorporation of Pioneer provides that its purpose is to engage in the following
lines of business:
|
|
manufacture and sale of electronic and electrical machinery and appliances; |
|
|
|
manufacture and sale of optical instruments, medical instruments, and other machinery and appliances; |
|
|
|
planning, production, manufacture and sale of audio, video and computer software; |
|
|
|
manufacture and sale of woodwork; |
|
|
|
manufacture and sale of agricultural products and plants for their cultivation; |
|
|
|
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; |
59
|
|
acquisition, management and transfer of industrial property
rights, copyrights and other intellectual property rights;
and |
|
|
|
all business incidental and related to each and every one of
the businesses in the preceding paragraphs. |
Directors
Each Director has executive powers and duties to manage the affairs of Pioneer and each
Representative Director, who is elected from among the Directors by the Board of Directors, has the
statutory authority to represent Pioneer in all respects. Under the Company Law, 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 Company Law nor Pioneers 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), the Directors or Corporate
Auditors retirement age or requirement to hold any shares of capital stock of Pioneer. The Company
Law 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; to establish, change or abolish material
corporate organization such as branch offices, to determine conditions concerning offering of
corporate bonds, and to establish and maintain an internal control system. The Regulations of the
Board of Directors of Pioneer require a resolution of the Board of Directors for Pioneer to borrow
a substantial amount of money or to give guarantees in a substantial amount. There is no written
rule as to what constitutes a substantial amount in these contexts. However, it has been the
general practice of Pioneers Board of Directors to adopt a resolution for borrowing or
guaranteeing in an amount not less than ¥100 million or its equivalent.
Common Stock
General
Unless indicated otherwise, set forth below is information relating to Pioneers common stock,
including brief summaries of the relevant provisions of Pioneers Articles of Incorporation and
Share Handling Regulations, as currently in effect, and of the Company Law, which came into effect
on May 1, 2006, and related legislation.
All issued shares are fully-paid and non-assessable, and are in registered form. Transfer of shares
is effected by delivery of share certificates, but in order to assert shareholders rights against
Pioneer, a shareholder must have its name and address registered on Pioneers register of
shareholders, in accordance with Pioneers Share Handling Regulations. The registered holder of
deposited shares underlying the ADSs is the Depositary for the ADSs. Accordingly, holders of ADSs
will not be able to directly assert shareholders rights to Pioneer.
A holder of shares may choose, at its discretion, to participate in the central clearing system for
share certificates under the Law Concerning Central Clearing of Share Certificates and Other
Securities of Japan. Participating shareholders must deposit certificates representing all of the
shares to be included in this clearing system with the Japan Securities Depository Center, Inc.
(JASDEC). If a holder is not a participating institution in JASDEC, it must participate through a
participating institution, such as a
60
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 Pioneers register of
shareholders. Each participating shareholder will in turn be registered on Pioneers register of
beneficial shareholders and be treated in the same way as shareholders registered on Pioneers
register of shareholders. For the purpose of transferring deposited shares, delivery of share
certificates is not required. Entry of the share transfer in the book maintained by JASDEC for
participating institutions, or in the book maintained by a participating institution for its
customers, has the same effect as delivery of share certificates. The registered beneficial
shareholders may exercise the rights attached to the shares, such as voting rights, and will
receive dividends (if any) and notices to shareholders directly from Pioneer. The shares held by a
person as a registered shareholder and those held by the same person as a registered beneficial
shareholder are aggregated for these purposes. Beneficial shareholders may at any time withdraw
their shares from deposit and receive share certificates.
A 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. The transfer of such shares will be effected through entry
in the books maintained under the new central clearing system.
Authorized capital
Under the Articles of Incorporation of Pioneer, the total number of shares authorized to be issued
by Pioneer is four hundred million (400,000,000) shares.
As of March 31, 2006, 180,063,836 shares of Common Stock were issued (including 5,641,946 shares
held as treasury stock).
All shares of Common Stock of Pioneer have no par value.
Distribution of Surplus
General
Under the Company Law, distributions of cash or other assets by joint stock corporations to their
shareholders, so called dividends, are referred to as distributions of Surplus (Surplus is
defined in Restriction on Distributions of Surplus). Pioneer may make distributions of Surplus
to the shareholders any number of times per business year, subject to certain limitations described
in Restriction on Distributions of Surplus. Distributions of Surplus are required in principle
to be authorized by a resolution of a General Meeting of Shareholders, but may also be made
pursuant to a resolution of the Board of Directors if (a) Pioneers Articles of Incorporation so
provide; (b) the normal term of office of the Directors is no longer than one year; and (c) its
non-consolidated annual financial statements and certain documents for the last business year
fairly present its assets and profit or loss, as required by ordinances of the Ministry of Justice.
Moreover, even if the requirements described in (a) through (c) are not met, Pioneer may make
distributions of Surplus in cash to the shareholders by resolutions of the Board of Directors once
per fiscal year. Such distribution of Surplus is called interim dividends.
61
Distributions of Surplus may be made in cash or in kind in proportion to the number of shares of
common stock held by each shareholder. A resolution of a General Meeting of Shareholders or the
Board of Directors authorizing a distribution of Surplus must specify the kind and aggregate book
value of the assets to be distributed, the manner of allocation of such assets to shareholders, and
the effective date of the distribution. If a distribution of Surplus is to be made in kind, Pioneer
may, pursuant to a resolution of a General Meeting of Shareholders or (as the case may be) the
Board of Directors, grant a right to the shareholders to require Pioneer to make such distribution
in cash instead of in kind. If no such right is granted to shareholders, the relevant distribution
of Surplus must be approved by a special shareholders resolution at a General Meeting of
Shareholders (see Voting Rights with respect to a special shareholders resolution).
Under the Articles of Incorporation of Pioneer, year-end dividends and interim dividends may be
distributed to shareholders of record as of March 31 and September 30 each year, respectively, in
proportion to the number of shares of common stock held by each shareholder following approval by
the General Meeting of Shareholders or the Board of Directors. Pioneer is not obliged to pay any
dividends unclaimed for a period of three years after the date on which they first became payable.
In Japan, the ex-dividend date and the record date for dividends precede the date of determination
of the amount of the dividends to be paid. The price of the shares of common stock generally
becomes ex-dividend on the third business day prior to the record date.
Restriction on distribution of Surplus
In making a distribution of Surplus, Pioneer must, until the sum of its additional paid-in capital
and legal reserve reaches one-quarter of its stated capital, set aside in its additional paid-in
capital and/or legal reserve an amount equal to one-tenth of the amount of Surplus so distributed.
The amount of Surplus at any given time must be calculated in accordance with the following
formula:
A +
B + C + D - (E + F + G)
In the above formula:
A = the total amount of other capital surplus and other retained earnings, each such amount
being that appearing on the non-consolidated balance sheet as of the end of the last business year
B = (if Pioneer has disposed of its treasury stock after the end of the last business year)
the amount of the consideration for such treasury stock received by Pioneer less the book value
thereof
C = (if Pioneer has reduced its stated capital after the end of the last business year) the
amount of such reduction less the portion thereof that has been transferred to additional paid-in
capital or legal reserve (if any)
D = (if Pioneer has reduced its additional paid-in capital or legal reserve after the end of
the last business year) the amount of such reduction less the portion thereof that has been
transferred to stated capital (if any)
E = (if Pioneer has cancelled its treasury stock after the end of the last business year)
the book value of such treasury stock
62
F = (if Pioneer has distributed Surplus to its shareholders after the end of the last
business year) the total book value of the Surplus so distributed
G = certain other amounts set forth in ordinances of the Ministry of Justice, including (if
Pioneer has reduced Surplus and increased its stated capital, additional paid-in capital or legal
reserve after the end of the last business year) the amount of such reduction and (if Pioneer has
distributed Surplus to the shareholders after the end of the last business year) the amount set
aside in additional paid-in capital or legal reserve (if any) as required by ordinances of the
Ministry of Justice.
The aggregate book value of Surplus distributed by Pioneer may not exceed a prescribed
distributable amount (the Distributable Amount), as calculated on the effective date of such
distribution. The Distributable Amount at any given time shall be equal to the amount of Surplus
less the aggregate of the followings:
(a) the book value of its treasury stock;
(b) the amount of consideration for any of treasury stock disposed of by Pioneer after the end
of the last business year; and
(c) certain other amounts set forth in ordinances of the Ministry of Justice, including (if
the sum of one-half of goodwill and the deferred assets exceeds the total of stated capital,
additional paid-in capital and legal reserve, each such amount being that appearing on the
non-consolidated balance sheet as of the end of the last business year) all or certain part of such
exceeding amount as calculated in accordance with the ordinances of the Ministry of Justice.
If Pioneer has become at its option a company with respect to which consolidated balance sheets
should also be considered in the calculation of the Distributable Amount (renketsu haito kisei
tekiyo kaisha), Pioneer shall further deduct from the amount of Surplus the excess amount, if any,
of (x) the total amount of stockholders equity appearing on the non-consolidated balance sheet as
of the end of the last business year and certain other amounts set forth by an ordinance of the
Ministry of Justice over (y) the total amount of stockholders equity and certain other amounts set
forth by an ordinance of the Ministry of Justice appearing on the consolidated balance sheet as of
the end of the last business year.
If Pioneer has prepared interim financial statements as described below, and if such interim
financial statements have been approved by the Board of Directors or (if so required by the Company
Law) by a General Meeting of Shareholders, then the Distributable Amount must be adjusted to take
into account the amount of profit or loss, and the amount of consideration for any of the treasury
stock disposed of by Pioneer, during the period in respect of which such interim financial
statements have been prepared. Pioneer may prepare non-consolidated interim financial statements
consisting of a balance sheet as of any date subsequent to the end of the last business year and an
income statement for the period from the first day of the current business year to the date of such
balance sheet. Interim financial statements so prepared by Pioneer must be audited by the Corporate
Auditors and the independent auditor, as required by ordinances of the Ministry of Justice.
Stock splits
Pioneer may at any time split shares in issue into a greater number of shares by resolution of the
Board of Directors, and may amend its Articles of Incorporation to increase the number of the
authorized shares to be issued to allow such stock split pursuant to a resolution of the Board of
Directors, rather than relying on a special resolution of a General Meeting of Shareholders, which
is otherwise required for amending the Articles of Incorporation.
63
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.
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 is held in June each year. 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 General Meeting of Shareholders, setting forth the place, time and
purpose thereof, must be mailed to each shareholder having voting rights (or, in the case of a
non-resident shareholder, to his or her standing proxy or mailing address in Japan) at least two
weeks prior to the date set for the meeting. Such notice may be given to shareholders by electronic
means, subject to the consent of the relevant shareholders. The record date for an Ordinary General
Meeting of Shareholders is March 31 of each year.
Any shareholder or group of shareholders holding at least 3% of the total number of voting rights
for a period of six months or more may require the convocation of a General Meeting of Shareholders
for a particular purpose. Unless such shareholders meeting is convened promptly or a convocation
notice of a meeting which is to be held not later than eight weeks from the day of such demand is
dispatched, the requiring shareholder may, upon obtaining a court approval, convene such
shareholders meeting.
Any shareholder or group of shareholders holding at least 300 voting rights or 1% of the total
number of voting rights for a period of six months or more may propose a matter to be considered at
a General Meeting of Shareholders by submitting a written request to a Representative Director at
least eight weeks prior to the date set for such meeting.
If the Articles of Incorporation so provide, any of the minimum voting rights or percentages, time
periods and number of voting rights necessary for exercising the minority shareholder rights
described above may be decreased or shortened.
Voting rights
So long as Pioneer maintains the unit share system (see Unit share system below; currently 100
shares constitute one unit) a holder of shares constituting one or more full units is entitled to
one voting right per unit of shares subject to the limitations on voting rights set forth in the
following two sentences. A corporate or certain other entity more than one-quarter of whose total
voting rights are directly or indirectly owned by Pioneer may not exercise its voting rights with
respect to shares of Common Stock of Pioneer that it owns. In addition, Pioneer may not exercise
its voting rights with respect to its shares that it owns. If Pioneer eliminates from its Articles
of Incorporation the provisions relating to the unit of
64
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 Company Law and Pioneers 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. Pioneers
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. Pioneers 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 Company Law and Pioneers Articles of Incorporation require a special shareholders resolution
(as defined below) in order to amend the Articles of Incorporation and in certain other instances.
A special shareholders resolution is a resolution for which the quorum shall be one-third of the
total voting rights of all the shareholders, and the approval by at least two-thirds of the voting
rights of all the shareholders represented at the meeting is required. The instances requiring a
special shareholders resolution include:
(1) |
|
acquisition of its own shares from a specific party other than its subsidiaries;
|
|
(2) |
|
consolidation of shares; |
|
(3) |
|
any offering of new shares at a specially favorable price (or any offering of stock
acquisition rights to 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 Corporate Auditor; |
|
(5) |
|
the exemption of liability of a Director, Corporate Auditor or independent auditor with
certain exceptions; |
|
(6) |
|
a reduction of stated capital with certain exceptions in which a shareholders resolution is
not required; |
|
(7) |
|
a distribution of in-kind dividends which meets certain requirements; |
|
(8) |
|
dissolution, merger, consolidation, or corporate split 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; or |
|
(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. |
Issue of additional shares and pre-emptive rights
Holders of Pioneers shares of Common Stock have no pre-emptive rights under its Articles of
Incorporation. Authorized but unissued shares may be issued at such times and upon such terms as
the Board of Directors determines, subject to the limitations as to the issue of new shares at a
specially favorable price mentioned under Voting rights above. The Board of Directors may,
however, determine that shareholders shall be given subscription rights regarding a particular
issue of new shares, in which case such rights must be given on 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.
Subject to certain conditions, Pioneer may issue stock acquisition rights or bonds with stock
acquisition rights by a resolution of the Board of Directors. Holders of stock acquisition rights
or bonds with stock acquisition rights may exercise their rights to acquire a certain number of
shares within the exercise
65
period as prescribed in the terms of their stock acquisition rights and bonds with stock
acquisition rights. Upon exercise of stock acquisition rights, Pioneer will be obliged to issue the
necessary number of new shares or alternatively to transfer the relevant number of shares held by
it as treasury stock.
In cases where a particular issue of new shares or stock acquisition rights (i) violates laws and
regulations or Pioneers 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.
Liquidation rights
In the event of a liquidation of Pioneer, the assets remaining after payment of all debts,
liquidation expenses and taxes will be distributed among shareholders in proportion to the
respective numbers of shares of Common Stock held by them.
Record date
As mentioned above, March 31 is the record date for Pioneers year-end dividends. So long as
Pioneer maintains the unit share system, the shareholders and beneficial shareholders who are
registered as the holders of one or more full units of shares in Pioneers register of shareholders
and/or that of beneficial shareholders at the end of each March 31 are entitled to exercise
shareholders rights at the Ordinary General Meeting of Shareholders with respect to the business
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.
Acquisition by Pioneer of its Common Stock
Under the Company Law and the Articles of Incorporation of Pioneer, Pioneer may acquire shares of
common stock (i) by soliciting all the shareholders to offer to sell shares held by them (in this
case, certain terms of such acquisition, such as the total number of shares to be purchased and the
total amount of consideration, shall be set by an ordinary resolution of a General Meeting of
Shareholders in advance, and acquisition shall be effected pursuant to a resolution of the Board of
Directors), (ii) from a specific shareholder other than any of its subsidiaries (pursuant to a
special resolution of a General Meeting of Shareholders), (iii) from any of its subsidiaries
(pursuant to a resolution of the Board of Directors), or (iv) by way of purchase on any Japanese
stock exchange on which Pioneers shares of common stock is listed or by way of tender offer (in
either case pursuant to an ordinary resolution of a General Meeting of Shareholders or a resolution
of the Board of Directors). In the case of (ii) above, any other shareholder may make a request to
a Representative Director that such other shareholder be included as a seller in the proposed
purchase, provided that no such right will be available if the purchase price or any other
consideration to be received by the relevant specific shareholder will not exceed the last trading
price of the shares on the relevant stock exchange on the day immediately preceding the date on
which the resolution mentioned in (ii) above was adopted (or, if there is no trading in the shares
on the stock exchange or if the stock exchange is not open on such day, the price at which the
shares are first traded on such stock exchange thereafter).
The total amount of the purchase price of shares of common stock may not exceed the Distributable
Amount, as described in Distributions of Surplus
Restriction on distributions of Surplus.
66
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 stock acquisition rights or for the purpose of acquiring another
company by way of merger, share exchange or corporate split through exchange of treasury stock for
shares or assets of the acquired company.
Unit share system
The Articles of Incorporation of Pioneer provide that 100 shares constitute one unit of shares of
stock. Although the number of shares constituting one unit is included in the Articles of
Incorporation, any amendment to the Articles of Incorporation reducing (but not increasing) the
number of shares constituting one unit or eliminating the provisions for the unit of shares may be
made by the resolution of the Board of Directors rather than by the special shareholders
resolution, which is otherwise required for amending the Articles of Incorporation. The number of
shares constituting one new unit, however, cannot exceed 1,000.
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. Moreover, holders of shares constituting
less than one unit will have no other shareholder rights, except that such holders may not be
deprived of certain rights specified in the Company Law or an ordinance of the Ministry of Justice
or Pioneers Articles of Incorporation, including the right to receive distribution of Surplus and
the right to receive an allotment of offered shares and offered stock acquisition rights in
proportion to the number of shares held.
Unless Pioneers shareholders amend the Articles of Incorporation by a special shareholders
resolution to eliminate the provision not to issue share certificates for less than a unit of
shares, a share certificate for any number of shares less than one full unit will in general not be
issued. As the transfer of shares normally requires the delivery of the share certificates
therefor, any fraction of a unit for which no share certificates are issued is not transferable.
A holder of shares constituting less than one unit may require Pioneer to purchase such shares at
their market value in accordance with the provisions of the Share Handling Regulations of Pioneer.
In addition, the Articles of Incorporation of Pioneer provide that a holder of shares constituting
less than one full unit may request Pioneer to sell to such holder such amount of shares which
will, when added together with the shares constituting less than one full unit held by such holder,
constitute one full unit of stock, in accordance with the provisions of the Share Handling
Regulations of Pioneer.
A holder who owns ADRs evidencing less than 100 ADSs will indirectly own less than one full unit of
shares of Common Stock. Although, as discussed above, under the unit share system holders of less
than one full unit have the right to require Pioneer to purchase their shares or sell shares held
by Pioneer to such holders, holders of ADRs evidencing ADSs that represent other than integral
multiples of a unit are unable to withdraw the underlying shares of Common Stock representing less
than one full unit and, therefore, are unable, as a practical matter, to exercise the rights to
require Pioneer to purchase such underlying shares or sell shares held by Pioneer to such holders
unless Pioneers 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.
67
Sale by Pioneer of shares held by shareholders whose location is unknown
Pioneer is not required to send a notice to a shareholder if a notice to such shareholder fails to
arrive at the registered address of the shareholder in Pioneers 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 shareholders registered address in Pioneers register
of shareholders or at the address otherwise notified to Pioneer, and (ii) the shareholder fails to
receive distributions of Surplus on the shares continuously for five years or more at the address
registered in Pioneers register of shareholders or at the address otherwise notified to Pioneer,
Pioneer may sell or otherwise dispose of the shareholders 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 may hold or deposit the proceeds of such sale or disposal of
shares for 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-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 stock acquisition rights are taken into
account in determining both the number of shares held by such holder and the issuers 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.
Except for the general limitations 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 Company Law or Pioneers
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 Pioneers 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
68
D. Exchange controls
The Foreign Exchange and Foreign Trade Law of Japan and its related cabinet orders and ministerial
ordinances (the Foreign Exchange Regulations) govern the acquisition and holding of shares of
Common Stock of Pioneer by exchange non-residents and by foreign investors. The Foreign
Exchange Regulations currently in effect do not, however, affect transactions between exchange
non-residents to purchase or sell shares outside Japan using currencies other than Japanese yen.
Exchange non-residents are:
|
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individuals who are not resident in Japan; and |
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corporations whose principal offices are located outside Japan. |
Generally, branches and other offices of non-resident corporations that are located within Japan
are regarded as exchange residents of Japan. Conversely, branches and other offices of Japanese
corporations located outside Japan are regarded as exchange non-residents.
Foreign investors are:
|
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individuals who are exchange non-residents; |
|
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corporations that are organized under the laws of foreign
countries or whose principal offices are located outside Japan;
and |
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corporations (1) of which 50% or more of their shares are held by
individuals who are exchange non-residents and/or corporations (a)
that are organized under the laws of foreign countries or (b)
whose principal offices are located outside Japan or (2) a
majority of whose officers, or officers having the power of
representation, are individuals who are exchange non-residents. |
In general, the acquisition of shares of a Japanese company (such as the shares of Common Stock of
Pioneer) by an exchange non-resident from an exchange resident of Japan is not subject to any prior
filing requirements. In certain limited circumstances, however, the Minister of Finance may require
prior approval of an acquisition of this type. While prior approval, as described above, is not
required, in the case where an exchange resident of Japan transfers shares of a Japanese company
(such as the shares of Common Stock of Pioneer) for consideration exceeding ¥100 million to an
exchange non-resident, the exchange resident of Japan who transfers the shares is required to
report the transfer to the Minister of Finance within 20 days from the date of the transfer, unless
the transfer was made through a bank, securities company or financial futures trader licensed under
Japanese law.
If a foreign investor acquires shares of a Japanese company that is listed on a Japanese stock
exchange (such as the shares of Common Stock of Pioneer) or that is traded on an over-the-counter
market in Japan and, as a result of the acquisition, the foreign investor, in combination with any
existing holdings, directly or indirectly holds 10% or more of the issued shares of the relevant
company, the foreign investor must file a report of the acquisition with the Minister of Finance
and any other competent Ministers having jurisdiction over that Japanese company within 15 days
from and including the date of the acquisition, except where the offering of the companys 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.
69
Under the Foreign Exchange Regulations, dividends paid on and the proceeds from sales in Japan of
shares of Common Stock of Pioneer held by exchange non-residents of Japan may generally be
converted into any foreign currency and repatriated abroad.
E. Taxation
The following discussion is a summary of the principal Japanese national and U.S. federal income
tax consequences of the acquisition, ownership and disposition of shares of common stock or ADSs.
This summary does not purport to address all material tax consequences that may be relevant to
holders of shares of common stock or ADSs, and does not take into account the specific
circumstances of any particular investors, some of which (such as tax-exempt entities, banks,
insurance companies, broker-dealers, traders in securities that elect to use a mark-to-market
method of accounting for their securities holdings, regulated investment companies, real estate
investment trusts, investors liable for alternative minimum tax, investors that own or are treated
as owning 10% or more of Pioneers 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) and/or to differing interpretations.
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:
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a citizen or individual resident of the United States, |
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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, |
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an estate the income of which is subject to U.S. federal income tax without regard to its source, or |
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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:
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is a resident of the United States for purposes of the Treaty, |
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does not maintain a permanent establishment in Japan (i) with which shares of common stock or ADSs are
effectively connected and through which the U.S. holder carries on or has carried on business or (ii)
of which shares of common stock or ADSs form part of the business property, and |
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is eligible for benefits under the Treaty with respect to income and gain derived in connection with
the shares of common stock or ADSs. |
The U.S. federal income tax consequences of a partner in a partnership holding shares of common
stock or ADSs generally will depend on the status of the partner and the activities of the
partnership. Partners in a partnership holding shares of common stock or ADSs should consult their
own tax advisors. This summary does not address any aspects of U.S. federal tax law other than
income taxation, and does not discuss any aspects of Japanese tax law other than national income
taxation, inheritance and gift taxation. This summary also does not cover any state or local, or
non-U.S., non-Japanese tax considerations.
70
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.
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.
In general, 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.
Japanese taxation
The following is a summary of the principal Japanese tax consequences (limited to national taxes)
to holders of shares of common stock of Pioneer or ADRs evidencing ADSs representing shares of
common stock of Pioneer who are either individuals who are not residents of Japan or non-Japanese
corporations, without a permanent establishment in Japan (non-resident Holders).
Generally, an individual who is a non-resident of Japan or a non-Japanese corporation is subject to
Japanese withholding tax on dividends paid by a Japanese corporation. Pioneer withholds taxes from
dividends it pays as required by Japanese law. Stock splits are, in general, not a taxable event.
In the absence of an applicable tax treaty, convention or agreement reducing the maximum rate of
Japanese withholding tax or allowing exemption from Japanese withholding tax, the rate of Japanese
withholding tax applicable to dividends paid by Japanese corporations to individuals who are
non-residents of Japan or non-Japanese corporations is generally 20%, provided, with respect to
dividends paid on listed shares issued by a Japanese corporation (such as the shares of common
stock of Pioneer) to any non-resident corporate or individual shareholders (including those
shareholders who are non-resident Holders) other than any individual shareholder who holds 5% or
more of the total issued shares of the relevant Japanese corporation, the aforementioned 20%
withholding tax rate is reduced to (i) 7% for dividends due and payable on or before March 31,
2008, and (ii) 15% for dividends due and payable on or after April 1, 2008. At the date of this
annual report, Japan has income tax treaties, conventions or agreements whereby the above-mentioned
withholding tax rate is reduced, in most cases to 15 percent for portfolio investors with, among
other countries, Australia, Belgium, Canada, Denmark, Finland, France, Germany, Ireland, Italy,
Luxembourg, the Netherlands, New Zealand, Norway, Singapore, Spain, Sweden, Switzerland, and the
U.K.
Under the Treaty, the maximum rate of Japanese withholding tax which may be imposed on dividends
paid by a Japanese corporation to Eligible U.S. Holders that are portfolio investors is generally
reduced to 10% of the gross amount actually distributed, and dividends paid by a Japanese
corporation to Eligible U.S. Holders that are pension funds is exempt from Japanese taxation by way
of withholding or otherwise
71
unless such dividends are derived from the carrying on of a business, directly or indirectly, by
such pension funds.
If the maximum tax rate provided for in the income tax treaty applicable to dividends paid by
Pioneer to any particular non-resident Holder is lower than the withholding tax rate otherwise
applicable under Japanese tax law or any particular non-resident Holder is exempt from Japanese
income tax with respect to such dividends under the income tax treaty applicable to such particular
non-resident Holder, such non-resident Holder who is entitled to a reduced rate of or exemption
from Japanese withholding tax on payment of dividends on Pioneers shares of common stock is
required to submit an Application Form for Income Tax Convention Regarding Relief from Japanese
Income Tax on Dividends (together with any other required forms and documents) in advance through
Pioneer to the relevant tax authority before such payment of dividends. A standing proxy for
non-resident Holders of a Japanese corporation may provide this application service. With respect
to ADSs, this reduced rate or exemption is applicable if the Depositary or its agent submits two
Application Forms (one before payment of dividends, the other within eight months after Pioneers
fiscal year-end or semi-fiscal year-end) to the Japanese tax authorities. To claim this reduced
rate or exemption, any relevant non-resident Holder of ADSs will be required to file a proof of
taxpayer status, residence and beneficial ownership (as applicable) and to provide other
information or documents as may be required by the Depositary. A non-resident Holder who is
entitled, under an applicable tax treaty, to a reduced treaty rate lower than the withholding tax
rate otherwise applicable under Japanese tax law or an exemption from the withholding tax, but
failed to submit the required application in advance will be entitled to claim the refund of
withholding taxes withheld in excess of the rate under an applicable tax treaty (if such
non-resident Holder is entitled to a reduced treaty rate under the applicable income tax treaty) or
the whole of the withholding tax withheld (if such non-resident Holder is entitled to an exemption
under the applicable income tax treaty) from the relevant Japanese tax authority. Pioneer does not
assume any responsibility to ensure withholding at the reduced treaty rate or not withholding for
shareholders who would be eligible under an applicable tax treaty but do not follow the required
procedures as stated above.
Gains derived from the sale of shares of common stock or ADSs outside Japan by a non-resident
Holder holding such shares or ADSs as a portfolio investor are, in general, not subject to Japanese
income tax 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 ADSs as a legatee, heir or donee even though neither the
individual nor the deceased nor donor is a Japanese resident.
Holders of shares of common stock of Pioneer or ADSs should consult their tax advisors regarding
the effect of these taxes and, in the case of U.S. Holders, the possible application of the Estate
and Gift Tax Treaty between the U.S. and Japan.
U.S. federal income taxation
U.S. Holders
The following discussion is a summary of the principal U.S. federal income tax consequences to
holders of shares of common stock and ADSs that are U.S. Holders and that hold those shares of
common stock or ADSs as capital assets (generally, for investment purposes).
72
Taxation of Dividends
Subject to the passive foreign investment company rules discussed below, the gross amount of any
distribution made by us in respect of shares of common stock or ADSs (without reduction for
Japanese withholding taxes) will constitute a taxable dividend to the extent paid out of current or
accumulated earnings and profits, as determined under U.S. federal income tax principles. The U.S.
dollar amount of such a dividend generally will be included in the gross income of a U.S. Holder,
as ordinary income, when the dividend is actually or constructively received by the U.S. Holder, in
the case of shares of common stock, or by the depositary, in the case of ADSs. Dividends paid by us
will not be eligible for the dividends received deduction generally allowed to U.S. corporations in
respect of dividends received from other U.S. corporations.
Subject to certain exceptions for short-term and hedged positions, and provided that we are not a
passive foreign investment company (as discussed below), dividends received by certain U.S. Holders
(including individuals) with respect to the shares of common stock or ADSs will be subject to U.S.
federal income taxation at a maximum rate of 15%. Investors should be aware that the U.S. Treasury
Department has announced its intention to promulgate rules in proposed form pursuant to which
shareholders (and intermediaries) will be permitted to rely on certifications from issuers to
establish that dividends qualify for the reduced rate of U.S. federal income taxation. Because such
proposed certification procedures have not yet been issued, we are not certain that we will be able
to comply with them. U.S. Holders of ADSs or shares of common stock should consult their own tax
advisors regarding the availability of the reduced rate in the light of their own particular
circumstances.
The U.S. dollar amount of a dividend paid in Japanese yen will be determined based on the Japanese
yen/U.S. dollar exchange rate in effect on the date that dividend is included in the gross income
of the U.S. Holder, regardless of whether the payment is converted into dollars on such date.
Generally, any gain or loss resulting from currency exchange fluctuations during the period from
the date the dividend payment is included in the gross income of a U.S. Holder through the date
that payment is converted into U.S. dollars (or the U.S. Holder otherwise disposed the Japanese
yen) will be treated as U.S. source ordinary income or loss. U.S. Holders should consult their own
tax advisors regarding the calculation and U.S. federal income tax treatment of foreign currency
gain or loss.
To the extent, if any, that the amount of any distribution received by a U.S. Holder in respect of
shares of common stock or ADSs exceeds our current and accumulated earnings and profits as
determined under U.S. federal income tax principles, the distribution first will be treated as a
tax-free return of capital to the extent the U.S. Holders adjusted tax basis in those shares or
ADSs, and thereafter as U.S. source capital gain.
Distributions of additional shares of common stock that are made to U.S. Holders with respect to
their shares of common stock or ADSs and that are part of a pro rata distribution to all of our
shareholders generally will not be subject to U.S. federal income tax.
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 will be subject to various classifications and other 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 U.S. Holders taxable income. In general, special rules will apply to the
calculation of foreign tax credits in respect of dividend income that is subject to preferential
rates of U.S. federal income tax. Additionally, special rules may apply to
73
individuals whose foreign source income during the taxable year consists entirely of qualified
passive income and whose creditable foreign taxes paid or accrued during the taxable year do not
exceed $300 ($600 in the case of a joint return). Further, under some circumstances, a U.S. Holder
that:
|
|
has held shares of common stock or ADSs for less than a specified minimum period, or |
|
|
is obligated to make payments related to our dividends, |
will not be allowed a foreign tax credit for foreign taxes imposed on our dividends. U.S. Holders
are urged to consult their tax advisors regarding the availability of the foreign tax credit under
their particular circumstances. The Internal Revenue Service (the IRS) has expressed concern that
parties to whom ADSs are released may be taking actions that are inconsistent with the claiming of
foreign tax credits by U.S. Holders of ADSs. Accordingly, investors should be aware that the
discussion above regarding the creditability of Japanese withholding tax on dividends could be
affected by future actions that may be taken by the IRS.
Taxation of Capital Gains
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.
Holders adjusted tax basis in those shares of common stock or ADSs (which is generally the U.S.
dollar cost thereof). Subject to the passive foreign investment company rules discussed below, such
gain or loss recognized on the sale or other taxable disposition generally will be capital gain or
loss and, if the U.S. Holders holding period for those shares or ADSs exceeds one year, will be
long-term capital gain or loss. Certain U.S. Holders, including individuals, are eligible for
preferential rates of U.S. federal income tax in respect of long-term capital gain. Under U.S.
federal tax law, the deduction of capital losses is subject to limitations. Any gain or loss
recognized by a U.S. Holder in respect of the sale or other taxable disposition of shares of common
stock or ADSs generally will be treated as derived from U.S. sources for U.S. foreign tax credit
purposes.
Passive Foreign Investment Companies
Based on current estimates of our income and asset, we do not believe that we are a passive foreign
investment company (a PFIC) for U.S. federal income tax purposes, and we intend to continue our
operations in such a manner that it is 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. Holders holding period for the shares of common stock or ADSs; amounts allocated to prior
years during which we were a PFIC would be taxed at the highest ordinary income tax rate in effect
for each such year, and an additional interest charge may apply to the portion of the U.S. federal
income tax liability on such gains or distributions treated under the PFIC rules as having been
deferred by the U.S. Holder. Moreover, dividends that a U.S. Holder receives from us will not be
eligible for the reduced U.S. federal income tax rates described above if we are a PFIC either in
the taxable year of the dividend or the preceding taxable year (and instead will be taxable at
rates applicable to ordinary income).
74
If a mark-to-market election were made, a U.S. Holder would take into account each year the
appreciation or depreciation in value of its shares of common stock or ADSs, which would be treated
as ordinary income or (subject to limitations) ordinary loss, as would gains or losses on actual
dispositions of shares of common stock or ADSs.
Any U.S. Holder who owns shares of common stock or ADSs during any taxable year that we are a PFIC
would be required to file Internal Revenue Service Form 8621. U.S. Holders are urged to consult
their tax advisors concerning the U.S. federal income tax consequences of holding our shares of
common stock or ADSs if we were considered a PFIC in any year.
Non-U.S. Holders
The following discussion is a summary of the principal U.S. federal income tax consequences to
beneficial holders of shares of common stock or ADSs that are neither U.S. Holders nor partnerships
for U.S. federal income tax purposes (Non-U.S. Holders).
Subject to the discussion below on Backup withholding and information reporting, distributions
received by a Non-U.S. Holder in respect of shares of common stock or ADSs generally will not be
subject to any U.S. federal income or withholding tax, unless the Non-U.S. Holder conducts a trade
or business within the United States, and the distributions are effectively connected with that
trade or business.
Subject to the discussion below on Backup withholding and information reporting, a Non-U.S.
Holder generally will not be subject to U.S. federal income tax in respect of gain recognized on a
sale or other disposition of shares of common stock or ADSs, unless the gain is effectively
connected with a trade or business conducted by the Non-U.S. Holder within the United States, or
the Non-U.S. Holder is an individual who was present in the United States for 183 or more days in
the taxable year of the disposition and other conditions are met.
If an income tax treaty applies to a Non-U.S. Holder, it may require, as a condition for the
Non-U.S. Holder to be subject to U.S. federal income taxation on dividends or capital gains that
are effectively connected with trade or business conducted by a Non-U.S. Holder in the United
States, that the dividends or capital gains also 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, under certain circumstances, any effectively connected earnings and
profits that is realized by a corporate Non-U.S. Holder may be subject to an additional branch
profits tax at the rate of 30% or at a lower rate that may be prescribed by an applicable income
tax treaty.
Backup withholding and information reporting
In general, except in the case of certain exempt recipients (such as corporations) information
reporting requirements will apply to dividends on shares of common stock or ADSs paid to U.S.
Holders in the United States or through certain U.S. related financial intermediaries and to the
proceeds received upon the sale, exchange or redemption of shares of common stock or ADSs by U.S.
Holders within the United States or through certain U.S. related financial intermediaries.
Furthermore, backup withholding currently at a rate of 28% may apply to those amounts if a U.S.
Holder fails to provide an accurate tax identification
75
number or to report interest and dividends required to be shown on its U.S. federal income tax
returns or makes other appropriate certifications in the required manner.
Dividends on shares of common stock or ADSs paid to Non-U.S. Holders and proceeds received upon the
sale, exchange or redemption of shares of common stock or ADSs by Non-U.S. Holders generally are
exempt from information reporting and backup withholding. However, a Non-U.S. Holder may be
required to provide certification of non-U.S. status in order to obtain that exemption.
Persons required to establish their exempt status generally must provide such certification, 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 holders 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 NATIONAL TAX CONSEQUENCES SET OUT ABOVE IS INTENDED
FOR GENERAL INFORMATION PURPOSES ONLY. INVESTORS IN THE COMMON STOCK OR ADSs ARE URGED TO CONSULT
WITH THEIR OWN TAX ADVISORS WITH RESPECT TO THE PARTICULAR TAX CONSEQUENCES TO THEM OF OWNING OR
DISPOSING OF COMMON STOCK OR ADSs, BASED ON THEIR PARTICULAR CIRCUMSTANCES.
F. Dividends and paying agents
Not applicable
G. Statement by experts
Not applicable
H. Documents on display
It is possible to read and copy documents referred to in this annual report on Form 20-F that have
been filed with the SEC at the SECs public reference room located at 100 F Street, N.E.,
Washington, D.C. 20549. You can also access the documents at the SECs website
(http://www.sec.gov/).
I. Subsidiary information
Not applicable
76
Item 11. Quantitative and Qualitative Disclosures About Market Risk
We operate internationally, giving rise to exposure to market risks from changes in foreign
exchange rates and interest rates. In an effort to manage potential adverse effects caused by
market fluctuations in foreign exchange rates and interest rates, we hedge these market risks by
selectively using derivative financial instruments. However, we do not hedge all of our exposure,
and the extent of hedge as well as type of hedging instruments to be used depends on factors
including, but not limited to, type of risks exposed, market conditions and hedging cost. We do not
hold or issue derivative financial instruments for trading purposes. To minimize credit risks from
derivative financial instruments, we limit counterparties to reputable international financial
institutions.
Marketable securities held by us are exposed to risk from changes in equity prices and consist
entirely of available-for-sale securities. We do not take hedging measures against the market
exposures on those securities.
Foreign exchange risk
To hedge certain purchase and sale commitments and anticipated but not yet committed transactions
denominated in other than functional currencies, we enter into forward exchange contracts and
purchase- and write-currency options. Written options are entered into only with purchased options.
The following tables provide information about our derivative financial instruments related to
foreign currency exchange transactions as of March 31, 2006, 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, 2006. All of the contracts and the options mature within one year.
Forward exchange contract
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Yen |
|
Yen |
|
Yen |
|
Yen |
|
A$ |
|
EUR |
|
|
Functional currency |
|
US$/ |
|
Yen/ |
|
EUR/ |
|
THB/ |
|
A$/ |
|
EUR/ |
|
|
Sell/Buy |
|
Yen |
|
US$ |
|
Yen |
|
Yen |
|
US$ |
|
GBP |
|
Total |
|
|
(In millions of yen except average rates) |
Contract amounts |
|
¥ |
12,652 |
|
|
¥ |
446 |
|
|
¥ |
23,053 |
|
|
¥ |
144 |
|
|
¥ |
1,290 |
|
|
¥ |
1,279 |
|
|
¥ |
38,864 |
|
Average contractual
exchange rates |
|
|
116.28 |
|
|
|
114.29 |
|
|
|
139.72 |
|
|
|
2.8900 |
|
|
|
0.7495 |
|
|
|
0.6970 |
|
|
|
|
|
Fair value |
|
¥ |
28 |
|
|
¥ |
3 |
|
|
¥ |
(336 |
) |
|
¥ |
(5 |
) |
|
¥ |
62 |
|
|
¥ |
1 |
|
|
¥ |
(247 |
) |
|
Currency option
|
|
|
|
|
|
|
|
|
|
|
|
|
Functional currency |
|
Yen |
|
|
Sell/Buy |
|
US$/Yen |
|
Yen/US$ |
|
Total |
|
|
(In millions of yen except average rates) |
Notional amount |
|
¥ |
9,128 |
|
|
¥ |
9,128 |
|
|
¥ |
18,256 |
|
Average execution
rates |
|
|
115.44 |
|
|
|
115.44 |
|
|
|
|
|
Fair value |
|
¥ |
(37 |
) |
|
¥ |
46 |
|
|
¥ |
9 |
|
|
77
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 of intercompany borrowings into yen fixed interest
rate borrowings. The foreign exchange risk inherent in our currency swap as of March 31, 2006 are
summarized as follows:
Currency swap as of March 31, 2006
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|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected maturity date |
|
|
|
|
|
|
Contract amounts |
|
|
(year ending March 31) |
|
|
|
|
|
|
Buy |
|
|
Sell |
|
|
2007 |
|
|
2008 |
|
|
2009 |
|
|
Total |
|
|
Fair value |
|
|
|
(In millions except average rates) |
|
Functional currency: Yen |
|
¥ |
55,667 |
|
|
US$ |
490 |
|
|
¥ |
49,148 |
|
|
|
|
|
|
¥ |
6,519 |
|
|
¥ |
55,667 |
|
|
¥ |
(2,581 |
) |
Average contractual exchange rate |
|
|
|
|
|
|
|
|
|
|
114.30 |
|
|
|
|
|
|
|
108.65 |
|
|
|
|
|
|
|
|
|
|
With respect to interest rate risk inherent in our currency swaps as of March 31, 2006, see
Interest rate risk below.
Interest rate risk
The following table provides information about interest rate risk inherent in the aforementioned
currency swaps as of March 31, 2006.
Currency swap as of March 31, 2006
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected maturity date |
|
|
|
|
|
|
Contract amounts |
|
|
(year ending March 31) |
|
|
|
|
|
|
Buy |
|
|
Sell |
|
|
2007 |
|
|
2008 |
|
|
2009 |
|
|
Total |
|
|
Fair value |
|
|
|
(In millions except average rates) |
|
Functional currency: Yen |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed (US$) to Fixed (Yen) |
|
¥ |
55,667 |
|
|
US$ |
490 |
|
|
¥ |
49,148 |
|
|
|
|
|
|
¥ |
6,519 |
|
|
¥ |
55,667 |
|
|
¥ |
(2,581 |
) |
Average pay rate |
|
|
|
|
|
|
|
|
|
|
(0.37 |
)% |
|
|
|
|
|
|
(0.24 |
)% |
|
|
|
|
|
|
|
|
Average receive rate |
|
|
|
|
|
|
|
|
|
|
3.73 |
% |
|
|
|
|
|
|
3.43 |
% |
|
|
|
|
|
|
|
|
|
The following table provides information about principal cash flows by expected maturity dates,
weighted average interest rates, and fair value of our debt obligations as of March 31, 2006. The
interest rate on the variable rate debt is determined based on prevailing market rates for
tax-exempt municipal bonds in the U.S.
Long-term debt (including due within one year) as of March 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Functional |
|
|
Expected maturity date (year ending March 31) |
|
|
|
|
|
|
Currency |
|
|
2007 |
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
|
2011 |
|
|
Thereafter |
|
|
Total |
|
|
Fair value |
|
|
|
(In millions of yen except average rates) |
|
Fixed rate (Yen) |
|
Yen |
|
¥ |
4,064 |
|
|
|
4,064 |
|
|
|
13,064 |
|
|
|
2,664 |
|
|
|
2,664 |
|
|
|
65,327 |
|
|
¥ |
91,847 |
|
|
¥ |
86,279 |
|
Average interest rate |
|
|
|
|
|
|
2.03 |
% |
|
|
2.03 |
% |
|
|
2.70 |
% |
|
|
2.57 |
% |
|
|
2.57 |
% |
|
|
0.15 |
% |
|
|
0.82 |
% |
|
|
|
|
Interest free loan
(EUR) |
|
EUR |
|
|
7 |
|
|
|
7 |
|
|
|
23 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37 |
|
|
|
37 |
|
|
Total |
|
|
|
|
|
¥ |
4,071 |
|
|
|
4,071 |
|
|
|
13,087 |
|
|
|
2,664 |
|
|
|
2,664 |
|
|
|
65,327 |
|
|
¥ |
91,884 |
|
|
¥ |
86,316 |
|
|
78
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, 2006.
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
Cost |
|
Fair value |
|
|
(In millions of yen) |
Debt securities (by contractual maturities) |
|
|
|
|
|
|
|
|
Maturing over one year |
|
¥ |
94 |
|
|
¥ |
124 |
|
Equity securities |
|
¥ |
4,627 |
|
|
¥ |
24,609 |
|
|
Item 12. Description of Securities Other than Equity Securities
79
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
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 2006. 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 are
recorded, processed, summarized and reported within the time periods specified in the Commissions
rules and forms. The evaluation was performed under the supervision of Tamihiko Sudo, Pioneers
Chief Executive Officer and Hajime Ishizuka, Pioneers Chief Financial Officer. Pioneers
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. Sudo and Mr. Ishizuka have concluded that Pioneers
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, 2006 that have materially affected, or are reasonably likely to materially
affect, Pioneers internal control over financial reporting.
80
Item 16. [Reserved]
Item 16A. Audit Committee Financial Expert
Pioneer maintains a corporate auditor system, in accordance with the Company Law of Japan.
Pioneers Board of Corporate Auditors is comprised of three Corporate Auditors, two of whom are
outside Corporate Auditors. Each Corporate Auditor has been appointed at its shareholders meetings
and has certain statutory powers under the Company Law, including auditing the business affairs and
accounts of Pioneer.
Pioneers 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 Company 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. Pioneers 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 Pioneers 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
http://pioneer.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.
81
Item 16C. Principal Accountant Fees and Services
Aggregate fees billed to the Company for the fiscal years ended March 31, 2005 and 2006 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 |
|
|
|
2005 |
|
|
2006 |
|
|
|
(In millions of yen) |
|
Audit Fees (1) |
|
¥ |
343 |
|
|
¥ |
417 |
|
Audit-Related Fees (2) |
|
|
48 |
|
|
|
96 |
|
Tax Fees (3) |
|
|
58 |
|
|
|
74 |
|
All Other Fees (4) |
|
|
42 |
|
|
|
46 |
|
|
|
|
|
|
|
|
Total |
|
¥ |
491 |
|
|
¥ |
633 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes fees for the audit of our annual financial statements included in our Form 20-F and
for services provided in connection with statutory and regulatory filings or engagements. This
also includes fees billed for issuance of comfort letters and consent letters. |
|
(2) |
|
Includes fees for assurance and related services that are performed by the independent
accountant which include employee benefit plan audits, accounting consultations and audits in
connection with internal control reviews, attest services that are not required by statute or
regulation and consultation concerning financial accounting and reporting standards. |
|
(3) |
|
Includes fees for 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). |
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.
82
None of the services provided by the auditor in fiscal 2005 and 2006 were waived from the
pre-approval requirement pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.
Item 16D. Exemptions from the Listing Standards for Audit Committees
Not applicable
Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
The following table sets forth the information with respect to any purchase made by Pioneer of its
common stock during fiscal 2006 ended March 31, 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(c) Total Number |
|
|
(d) Maximum |
|
|
|
|
|
|
|
|
|
|
|
of Shares |
|
|
Number of |
|
|
|
|
|
|
|
|
|
|
|
Purchased as |
|
|
Shares that May |
|
|
|
(a) Total |
|
|
|
|
|
|
Part of Publicly |
|
|
Yet Be |
|
|
|
Number of |
|
|
(b) Average |
|
|
Announced |
|
|
Purchased Under |
|
|
|
Shares |
|
|
Price Paid per |
|
|
Plans or |
|
|
the Plans or |
|
Period |
|
Purchased |
|
|
Share |
|
|
Programs |
|
|
Programs |
|
April 1 to April 30, 2005 |
|
|
287 |
|
|
¥ |
1,909.01 |
|
|
|
|
|
|
|
|
|
May 1 to May 31, 2005 |
|
|
208 |
|
|
¥ |
1,759.39 |
|
|
|
|
|
|
|
|
|
June 1 to June 30, 2005 |
|
|
241 |
|
|
¥ |
1,702.98 |
|
|
|
|
|
|
|
|
|
July 1 to July 31, 2005 |
|
|
982 |
|
|
¥ |
1,651.51 |
|
|
|
|
|
|
|
|
|
August 1 to August 31, 2005 |
|
|
1,142 |
|
|
¥ |
1,695.36 |
|
|
|
|
|
|
|
|
|
September 1 to September 30, 2005 |
|
|
638 |
|
|
¥ |
1,716.43 |
|
|
|
|
|
|
|
|
|
October 1 to October 31, 2005 |
|
|
442 |
|
|
¥ |
1,637.51 |
|
|
|
|
|
|
|
|
|
November 1 to November 30, 2005 |
|
|
678 |
|
|
¥ |
1,542.05 |
|
|
|
|
|
|
|
|
|
December 1 to December 31, 2005 |
|
|
798 |
|
|
¥ |
1,646.15 |
|
|
|
|
|
|
|
|
|
January 1 to January 31, 2006 |
|
|
625 |
|
|
¥ |
1,596.48 |
|
|
|
|
|
|
|
|
|
February 1 to February 28, 2006 |
|
|
592 |
|
|
¥ |
1,789.29 |
|
|
|
|
|
|
|
|
|
March 1 to March 31, 2006 |
|
|
559 |
|
|
¥ |
1,832.59 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
7,192 |
|
|
¥ |
1,688.21 |
|
|
|
|
|
|
|
|
|
|
|
|
Note: |
|
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 Company Law of Japan. All purchases in the above table were
made in accordance with such requests. |
83
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-1 |
|
|
|
|
F-2 |
|
Consolidated Balance Sheets as of March 31, 2005 and 2006 |
|
|
F-3 |
|
Consolidated Statements of Operations for the years ended March 31, 2004, 2005 and 2006 |
|
|
F-5 |
|
Consolidated Statements of Shareholders Equity for the years ended March 31, 2004, 2005 and 2006 |
|
|
F-6 |
|
Consolidated Statements of Cash Flows for the years ended March 31, 2004, 2005 and 2006 |
|
|
F-7 |
|
Notes to Consolidated Financial Statements |
|
|
F-8 |
|
|
|
|
Exhibits |
|
|
1.01
|
|
The Articles of Incorporation, as amended and currently in effect (English translation) |
|
|
|
1.02
|
|
Regulations of the Board of Directors, as amended and currently in effect (English
translation) |
|
|
|
2.01
|
|
Share Handling Regulations, as amended and currently in effect (English translation) |
|
|
|
12.01
|
|
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act
of 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
of the Sarbanes-Oxley Act of 2002 |
84
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and
that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
|
|
|
|
|
|
|
PIONEER CORPORATION
(Registrant)
|
|
Date: July 7, 2006 |
By |
/s/ Hajime Ishizuka
|
|
|
|
Hajime Ishizuka |
|
|
|
Chief Financial Officer |
|
|
85
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
Page |
|
|
Consolidated financial statements |
|
|
|
|
|
|
|
|
|
Report of Independent Registered Public Accounting Firm |
|
|
F-2 |
|
Consolidated Balance Sheets as of March 31, 2005 and 2006 |
|
|
F-3 |
|
Consolidated Statements of Operations
for the years ended March 31, 2004, 2005 and 2006 |
|
|
F-5 |
|
Consolidated Statements of Shareholders Equity
for the years ended March 31, 2004, 2005 and 2006 |
|
|
F-6 |
|
Consolidated Statements of Cash Flows
for the years ended March 31, 2004, 2005 and 2006 |
|
|
F-7 |
|
Notes to Consolidated Financial Statements |
|
|
F-8 |
|
F-1
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Pioneer Corporation:
We have audited the accompanying consolidated balance sheets of Pioneer Corporation and
subsidiaries as of March 31, 2005 and 2006, and the related consolidated statements of operations,
shareholders equity, and cash flows for each of the three years in the period ended March 31, 2006
(all expressed in Japanese yen). These financial statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these financial statements based on our
audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. 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 Companys 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, 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 Companys operations which, in our opinion, is required for a complete presentation of the
Companys 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, 2005 and 2006, and the results of their operations and
their cash flows for each of the three years in the period ended March 31, 2006, 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 |
|
|
|
|
|
Tokyo, Japan |
|
|
June 29, 2006
F-2
Consolidated Balance Sheets
Pioneer Corporation and Subsidiaries
March 31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thousands of |
|
|
|
|
|
|
|
|
|
|
|
U.S. Dollars |
|
|
|
Millions of Yen |
|
|
(Note 1) |
|
Assets |
|
2005 |
|
|
2006 |
|
|
2006 |
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
Cash, including time deposits of ¥48,211 million
$412,060 thousand (¥52,275 million in 2005) |
|
¥ |
116,681 |
|
|
¥ |
121,680 |
|
|
$ |
1,040,000 |
|
Trade receivables |
|
|
|
|
|
|
|
|
|
|
|
|
Notes |
|
|
2,516 |
|
|
|
1,729 |
|
|
|
14,778 |
|
Accounts (Note 6) |
|
|
132,110 |
|
|
|
108,893 |
|
|
|
930,709 |
|
Allowance for doubtful notes and accounts (Note 23) |
|
|
(2,450 |
) |
|
|
(3,059 |
) |
|
|
(26,145 |
) |
Inventories (Note 7) |
|
|
109,015 |
|
|
|
104,226 |
|
|
|
890,820 |
|
Deferred income taxes (Note 13) |
|
|
25,519 |
|
|
|
27,802 |
|
|
|
237,624 |
|
Assets held for sale (Note 4) |
|
|
|
|
|
|
25,577 |
|
|
|
218,607 |
|
Prepaid expenses and other current assets |
|
|
43,505 |
|
|
|
41,824 |
|
|
|
357,470 |
|
|
Total current assets |
|
|
426,896 |
|
|
|
428,672 |
|
|
|
3,663,863 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments and long-term receivables: |
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities (Note 5) |
|
|
22,268 |
|
|
|
24,733 |
|
|
|
211,393 |
|
Investments in and advances to affiliated companies (Note 8) |
|
|
2,987 |
|
|
|
1,705 |
|
|
|
14,573 |
|
Sundry investments (Notes 5 and 21) |
|
|
3,388 |
|
|
|
3,189 |
|
|
|
27,257 |
|
Long-term receivables, less allowance for doubtful accounts of
¥106 million$906 thousand (¥160 million in 2005) (Note 23) |
|
|
185 |
|
|
|
145 |
|
|
|
1,239 |
|
|
Total investments and long-term receivables |
|
|
28,828 |
|
|
|
29,772 |
|
|
|
254,462 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment (Note 10 and 11): |
|
|
|
|
|
|
|
|
|
|
|
|
Land |
|
|
32,965 |
|
|
|
30,611 |
|
|
|
261,633 |
|
Buildings |
|
|
136,372 |
|
|
|
119,312 |
|
|
|
1,019,761 |
|
Machinery and equipment |
|
|
293,359 |
|
|
|
243,811 |
|
|
|
2,083,855 |
|
Construction in progress |
|
|
1,056 |
|
|
|
1,999 |
|
|
|
17,085 |
|
|
Total |
|
|
463,752 |
|
|
|
395,733 |
|
|
|
3,382,334 |
|
Accumulated depreciation |
|
|
(253,607 |
) |
|
|
(235,502 |
) |
|
|
(2,012,838 |
) |
|
Net property, plant and equipment |
|
|
210,145 |
|
|
|
160,231 |
|
|
|
1,369,496 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets (Note 9) |
|
|
24,052 |
|
|
|
20,576 |
|
|
|
175,863 |
|
Deferred income taxes (Note 13) |
|
|
25,420 |
|
|
|
28,933 |
|
|
|
247,291 |
|
Other |
|
|
9,826 |
|
|
|
9,862 |
|
|
|
84,290 |
|
|
Total other assets |
|
|
59,298 |
|
|
|
59,371 |
|
|
|
507,444 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
¥ |
725,167 |
|
|
¥ |
678,046 |
|
|
$ |
5,795,265 |
|
|
See notes to consolidated financial statements.
F-3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thousands of |
|
|
|
|
|
|
|
|
|
|
|
U.S. Dollars |
|
|
|
Millions of Yen |
|
|
(Note 1) |
|
Liabilities and Shareholders Equity |
|
2005 |
|
|
2006 |
|
|
2006 |
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Short-term borrowings (Note 11) |
|
¥ |
33,152 |
|
|
¥ |
23,205 |
|
|
$ |
198,333 |
|
Current portion of long-term debt (Note 11) |
|
|
19,276 |
|
|
|
7,165 |
|
|
|
61,239 |
|
Trade payables |
|
|
96,335 |
|
|
|
102,082 |
|
|
|
872,496 |
|
Accrued liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
Taxes on income |
|
|
4,938 |
|
|
|
6,987 |
|
|
|
59,718 |
|
Payroll |
|
|
17,203 |
|
|
|
16,640 |
|
|
|
142,222 |
|
Royalty |
|
|
14,811 |
|
|
|
17,579 |
|
|
|
150,248 |
|
Other |
|
|
36,843 |
|
|
|
56,656 |
|
|
|
484,239 |
|
Warranty reserve (Note 23) |
|
|
5,722 |
|
|
|
6,603 |
|
|
|
56,436 |
|
Dividends payable |
|
|
2,180 |
|
|
|
436 |
|
|
|
3,727 |
|
Liabilities held for sale (Note 4) |
|
|
|
|
|
|
17,863 |
|
|
|
152,675 |
|
Other current liabilities |
|
|
20,710 |
|
|
|
17,076 |
|
|
|
145,949 |
|
|
Total current liabilities |
|
|
251,170 |
|
|
|
272,292 |
|
|
|
2,327,282 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt (Note 11) |
|
|
81,219 |
|
|
|
92,970 |
|
|
|
794,615 |
|
Accrued pension and severance cost (Note 12) |
|
|
40,022 |
|
|
|
23,475 |
|
|
|
200,641 |
|
Deferred income taxes (Note 13) |
|
|
1,630 |
|
|
|
1,718 |
|
|
|
14,684 |
|
Other long-term liabilities |
|
|
719 |
|
|
|
232 |
|
|
|
1,983 |
|
|
Total long-term liabilities |
|
|
123,590 |
|
|
|
118,395 |
|
|
|
1,011,923 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingent liabilities (Note 24) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interests |
|
|
18,168 |
|
|
|
14,109 |
|
|
|
120,590 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity (Note 14): |
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, no par value |
|
|
|
|
|
|
|
|
|
|
|
|
Authorized 400,000,000 shares |
|
|
|
|
|
|
|
|
|
|
|
|
Issued180,063,836 shares2005 and 2006 |
|
|
49,049 |
|
|
|
49,049 |
|
|
|
419,222 |
|
Capital surplus |
|
|
82,735 |
|
|
|
82,910 |
|
|
|
708,632 |
|
Retained earnings |
|
|
260,556 |
|
|
|
173,826 |
|
|
|
1,485,692 |
|
Accumulated other comprehensive loss (Note 16) |
|
|
(47,669 |
) |
|
|
(20,092 |
) |
|
|
(171,726 |
) |
Treasury stock at cost, 5,635,190 shares2005
and 5,641,946 shares2006 |
|
|
(12,432 |
) |
|
|
(12,443 |
) |
|
|
(106,350 |
) |
|
Total shareholders equity |
|
|
332,239 |
|
|
|
273,250 |
|
|
|
2,335,470 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity |
|
¥ |
725,167 |
|
|
¥ |
678,046 |
|
|
$ |
5,795,265 |
|
|
See notes to consolidated financial statements.
F-4
Consolidated Statements of Operations
Pioneer Corporation and Subsidiaries
Years ended March 31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thousands of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Dollars |
|
|
|
|
|
|
|
Millions of Yen |
|
|
(Note 1) |
|
|
|
2004 |
|
|
2005 |
|
|
2006 |
|
|
2006 |
|
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
¥ |
672,928 |
|
|
¥ |
700,805 |
|
|
¥ |
746,424 |
|
|
$ |
6,379,692 |
|
Royalty revenue |
|
|
11,821 |
|
|
|
10,237 |
|
|
|
8,540 |
|
|
|
72,991 |
|
|
Total operating revenue |
|
|
684,749 |
|
|
|
711,042 |
|
|
|
754,964 |
|
|
|
6,452,683 |
|
Interest income |
|
|
1,420 |
|
|
|
1,929 |
|
|
|
2,658 |
|
|
|
22,718 |
|
Other income (Notes 5 and 18) |
|
|
479 |
|
|
|
3,424 |
|
|
|
6,789 |
|
|
|
58,026 |
|
|
Total revenues |
|
|
686,648 |
|
|
|
716,395 |
|
|
|
764,411 |
|
|
|
6,533,427 |
|
|
Cost and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales (Note 12) |
|
|
473,972 |
|
|
|
564,457 |
|
|
|
593,238 |
|
|
|
5,070,410 |
|
Selling, general and administrative expenses (Note 12) |
|
|
164,951 |
|
|
|
194,591 |
|
|
|
178,135 |
|
|
|
1,522,522 |
|
Subsidy from the government (Note 12) |
|
|
|
|
|
|
(48,697 |
) |
|
|
|
|
|
|
|
|
Interest expense |
|
|
2,154 |
|
|
|
1,741 |
|
|
|
1,479 |
|
|
|
12,641 |
|
Loss on sale and disposal of fixed assets |
|
|
3,454 |
|
|
|
34 |
|
|
|
2,704 |
|
|
|
23,111 |
|
Other deductions (Notes 10, 17 and 18) |
|
|
1,589 |
|
|
|
6,336 |
|
|
|
60,020 |
|
|
|
512,991 |
|
|
Total cost and expenses |
|
|
646,120 |
|
|
|
718,462 |
|
|
|
835,576 |
|
|
|
7,141,675 |
|
|
Income (loss) from continuing operations before income taxes |
|
|
40,528 |
|
|
|
(2,067 |
) |
|
|
(71,165 |
) |
|
|
(608,248 |
) |
Income taxes (Note 13): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
|
17,118 |
|
|
|
7,169 |
|
|
|
8,074 |
|
|
|
69,009 |
|
Deferred |
|
|
1,051 |
|
|
|
(2,882 |
) |
|
|
(12,734 |
) |
|
|
(108,838 |
) |
|
Total income taxes |
|
|
18,169 |
|
|
|
4,287 |
|
|
|
(4,660 |
) |
|
|
(39,829 |
) |
|
Income (loss) from continuing operations before minority interest
and equity in losses |
|
|
22,359 |
|
|
|
(6,354 |
) |
|
|
(66,505 |
) |
|
|
(568,419 |
) |
Minority interest in losses (earnings) of subsidiaries |
|
|
(651 |
) |
|
|
(690 |
) |
|
|
4,774 |
|
|
|
40,804 |
|
Equity in losses of affiliated companies (Note 8) |
|
|
(2,244 |
) |
|
|
(3,068 |
) |
|
|
(24,027 |
) |
|
|
(205,359 |
) |
|
Income (loss) from continuing operations |
|
|
19,464 |
|
|
|
(10,112 |
) |
|
|
(85,758 |
) |
|
|
(732,974 |
) |
Income from discontinued operations, net of tax (Note 4) |
|
|
5,374 |
|
|
|
1,323 |
|
|
|
772 |
|
|
|
6,598 |
|
|
Net income (loss) |
|
¥ |
24,838 |
|
|
¥ |
(8,789 |
) |
|
¥ |
(84,986 |
) |
|
$ |
(726,376 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Yen |
|
|
U.S. Dollars |
|
|
|
2004 |
|
|
2005 |
|
|
2006 |
|
|
2006 |
|
|
Per share of common stock (Note 22): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
¥ |
110.95 |
|
|
¥ |
(57.65 |
) |
|
¥ |
(491.66 |
) |
|
$ |
(4.20 |
) |
Discontinued operations |
|
|
30.63 |
|
|
|
7.54 |
|
|
|
4.43 |
|
|
|
0.04 |
|
|
Net income (loss) |
|
¥ |
141.58 |
|
|
¥ |
(50.11 |
) |
|
¥ |
(487.23 |
) |
|
$ |
(4.16 |
) |
|
Diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
¥ |
110.09 |
|
|
¥ |
(57.65 |
) |
|
¥ |
(491.66 |
) |
|
$ |
(4.20 |
) |
Discontinued operations |
|
|
30.43 |
|
|
|
7.54 |
|
|
|
4.43 |
|
|
|
0.04 |
|
|
Net income (loss) |
|
¥ |
140.52 |
|
|
¥ |
(50.11 |
) |
|
¥ |
(487.23 |
) |
|
$ |
(4.16 |
) |
|
See notes to consolidated financial statements.
F-5
Consolidated Statements of Shareholders Equity
Pioneer Corporation and Subsidiaries
Years ended March 31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 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 (Note 16) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,200 |
) |
|
|
|
|
|
|
(6,200 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,638 |
|
Value ascribed to stock
options (Note 15) |
|
|
|
|
|
|
|
|
|
|
305 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
305 |
|
Purchase of treasury stock (Note 14) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 (Note 16) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,160 |
|
|
|
|
|
|
|
14,160 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,371 |
|
Value ascribed to stock
options (Note 15) |
|
|
|
|
|
|
|
|
|
|
270 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
270 |
|
Purchase of treasury stock (Note 14) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 |
|
Comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(84,986 |
) |
|
|
|
|
|
|
|
|
|
|
(84,986 |
) |
Other comprehensive income (Note 16) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,577 |
|
|
|
|
|
|
|
27,577 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(57,409 |
) |
Value ascribed to stock
options (Note 15) |
|
|
|
|
|
|
|
|
|
|
175 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
175 |
|
Purchase of treasury stock (Note 14) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12 |
) |
|
|
(12 |
) |
Sales of treasury stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
1 |
|
Cash dividends (¥10.00 per share) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,744 |
) |
|
|
|
|
|
|
|
|
|
|
(1,744 |
) |
|
Balance at March 31, 2006 |
|
|
180,064 |
|
|
¥ |
49,049 |
|
|
¥ |
82,910 |
|
|
¥ |
173,826 |
|
|
¥ |
(20,092 |
) |
|
¥ |
(12,443 |
) |
|
¥ |
273,250 |
|
|
|
|
|
|
|
|
|
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, 2005 |
|
|
|
|
|
$ |
419,222 |
|
|
$ |
707,137 |
|
|
$ |
2,226,974 |
|
|
$ |
(407,427 |
) |
|
$ |
(106,256 |
) |
|
$ |
2,839,650 |
|
Comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(726,376 |
) |
|
|
|
|
|
|
|
|
|
|
(726,376 |
) |
Other comprehensive income (Note 16) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
235,701 |
|
|
|
|
|
|
|
235,701 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(490,675 |
) |
Value ascribed to stock
options (Note 15) |
|
|
|
|
|
|
|
|
|
|
1,495 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,495 |
|
Purchase of treasury stock (Note 14) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(103 |
) |
|
|
(103 |
) |
Sales of treasury stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9 |
|
|
|
9 |
|
Cash dividends ($0.09 per share) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14,906 |
) |
|
|
|
|
|
|
|
|
|
|
(14,906 |
) |
|
Balance at March 31, 2006 |
|
|
|
|
|
$ |
419,222 |
|
|
$ |
708,632 |
|
|
$ |
1,485,692 |
|
|
$ |
(171,726 |
) |
|
$ |
(106,350 |
) |
|
$ |
2,335,470 |
|
|
See notes to consolidated financial statements.
F-6
Consolidated Statements of Cash Flows
Pioneer Corporation and Subsidiaries
Years ended March 31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thousands of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Dollars |
|
|
|
Millions of Yen |
|
|
(Note 1) |
|
|
|
2004 |
|
|
2005 |
|
|
2006 |
|
|
2006 |
|
|
Operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
¥ |
24,838 |
|
|
¥ |
(8,789 |
) |
|
¥ |
(84,986 |
) |
|
$ |
(726,376 |
) |
Adjustments to reconcile net income (loss) to net cash provided |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
41,047 |
|
|
|
46,990 |
|
|
|
46,703 |
|
|
|
399,171 |
|
Minority interest in (losses) earnings of subsidiaries |
|
|
654 |
|
|
|
692 |
|
|
|
(4,773 |
) |
|
|
(40,795 |
) |
Equity in losses of affiliated companies, less dividends |
|
|
2,248 |
|
|
|
3,072 |
|
|
|
24,031 |
|
|
|
205,393 |
|
Deferred income taxes |
|
|
758 |
|
|
|
(2,846 |
) |
|
|
(13,056 |
) |
|
|
(111,590 |
) |
Provision for pension and severance cost, less payments |
|
|
3,579 |
|
|
|
2,463 |
|
|
|
(2,862 |
) |
|
|
(24,462 |
) |
Loss on sale and disposal of fixed assets |
|
|
3,464 |
|
|
|
40 |
|
|
|
2,704 |
|
|
|
23,111 |
|
Impairment of long-lived assets |
|
|
|
|
|
|
4,460 |
|
|
|
41,422 |
|
|
|
354,034 |
|
Write-down of available-for-sale securities and sundry investments |
|
|
245 |
|
|
|
51 |
|
|
|
133 |
|
|
|
1,137 |
|
Gains on sale of available-for-sale securities and
sundry investments, net |
|
|
(37 |
) |
|
|
(2,309 |
) |
|
|
(5,673 |
) |
|
|
(48,487 |
) |
Gain on sale of discontinued operations |
|
|
(1,825 |
) |
|
|
|
|
|
|
(434 |
) |
|
|
(3,709 |
) |
Stock-based compensation expenses |
|
|
305 |
|
|
|
270 |
|
|
|
175 |
|
|
|
1,495 |
|
Decrease (increase) in trade notes and accounts receivable |
|
|
(7,797 |
) |
|
|
(12,322 |
) |
|
|
19,329 |
|
|
|
165,205 |
|
Decrease (increase) in inventories |
|
|
(20,724 |
) |
|
|
6,317 |
|
|
|
9,530 |
|
|
|
81,453 |
|
Increase in prepaid expenses and other current assets |
|
|
(12,688 |
) |
|
|
(5,051 |
) |
|
|
(7,898 |
) |
|
|
(67,504 |
) |
Increase in trade payables |
|
|
18,289 |
|
|
|
4,405 |
|
|
|
13,941 |
|
|
|
119,154 |
|
Increase (decrease) in accrued taxes on income |
|
|
3,559 |
|
|
|
(4,473 |
) |
|
|
2,069 |
|
|
|
17,684 |
|
Increase (decrease) in other accrued liabilities |
|
|
7,530 |
|
|
|
(5,898 |
) |
|
|
22,045 |
|
|
|
188,419 |
|
Other |
|
|
(3,067 |
) |
|
|
(7,126 |
) |
|
|
5,929 |
|
|
|
50,676 |
|
|
Net cash provided by operating activities |
|
|
60,378 |
|
|
|
19,946 |
|
|
|
68,329 |
|
|
|
584,009 |
|
|
Investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment for purchase of fixed assets |
|
|
(57,978 |
) |
|
|
(63,866 |
) |
|
|
(40,325 |
) |
|
|
(344,658 |
) |
Payment for purchase of investment securities |
|
|
(595 |
) |
|
|
(510 |
) |
|
|
(6 |
) |
|
|
(51 |
) |
Payment for purchase of available-for-sale securities |
|
|
(53 |
) |
|
|
|
|
|
|
(1 |
) |
|
|
(9 |
) |
Payment for purchase of a subsidiary, net of cash acquired |
|
|
|
|
|
|
(34,015 |
) |
|
|
|
|
|
|
|
|
Payment for other assets |
|
|
(953 |
) |
|
|
(1,252 |
) |
|
|
(578 |
) |
|
|
(4,940 |
) |
Proceeds from sale of fixed assets |
|
|
1,458 |
|
|
|
2,184 |
|
|
|
3,049 |
|
|
|
26,060 |
|
Proceeds from sale of discontinued operations |
|
|
4,897 |
|
|
|
|
|
|
|
754 |
|
|
|
6,444 |
|
Proceeds from sale of investment securities |
|
|
53 |
|
|
|
12 |
|
|
|
282 |
|
|
|
2,410 |
|
Proceeds from sale of available-for-sale securities |
|
|
156 |
|
|
|
3,091 |
|
|
|
7,068 |
|
|
|
60,410 |
|
Other |
|
|
261 |
|
|
|
840 |
|
|
|
(2 |
) |
|
|
(16 |
) |
|
Net cash used in investing activities |
|
|
(52,754 |
) |
|
|
(93,516 |
) |
|
|
(29,759 |
) |
|
|
(254,350 |
) |
|
Financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of convertible bonds
(net of issuance cost ¥1,586 million) |
|
|
60,514 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment of long-term debt |
|
|
(934 |
) |
|
|
(6,246 |
) |
|
|
(26,123 |
) |
|
|
(223,274 |
) |
Increase (decrease) in short-term borrowings |
|
|
(3,509 |
) |
|
|
9,025 |
|
|
|
(8,616 |
) |
|
|
(73,641 |
) |
Purchase of treasury stock (Note 14) |
|
|
(14 |
) |
|
|
(1,979 |
) |
|
|
(12 |
) |
|
|
(103 |
) |
Proceeds from sale of treasury stock |
|
|
2 |
|
|
|
12 |
|
|
|
1 |
|
|
|
9 |
|
Dividends paid |
|
|
(3,947 |
) |
|
|
(4,386 |
) |
|
|
(3,499 |
) |
|
|
(29,906 |
) |
Dividends paid to minority interests |
|
|
(285 |
) |
|
|
(445 |
) |
|
|
(302 |
) |
|
|
(2,581 |
) |
|
Net cash provided by (used in) financing activities |
|
|
51,827 |
|
|
|
(4,019 |
) |
|
|
(38,551 |
) |
|
|
(329,496 |
) |
|
Effect of exchange rate changes on cash and cash equivalents |
|
|
(9,512 |
) |
|
|
1,851 |
|
|
|
4,980 |
|
|
|
42,563 |
|
|
Net increase (decrease) in cash and cash equivalents |
|
|
49,939 |
|
|
|
(75,738 |
) |
|
|
4,999 |
|
|
|
42,726 |
|
Cash and cash equivalents, beginning of year |
|
|
142,480 |
|
|
|
192,419 |
|
|
|
116,681 |
|
|
|
997,274 |
|
|
Cash and cash equivalents, end of year |
|
¥ |
192,419 |
|
|
¥ |
116,681 |
|
|
¥ |
121,680 |
|
|
$ |
1,040,000 |
|
|
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:
1) Basis of Presentation
Basis of Financial Statements
The accompanying consolidated financial statements are stated in Japanese yen, the currency of the
country in which Pioneer Corporation (Pioneer Kabushiki Kaisha) (the parent company) is
incorporated. The translation of Japanese yen amounts into U.S. dollar amounts for the year ended
March 31, 2006 is included solely for the convenience of readers outside Japan and has been made at
the rate of ¥117 to U.S.$1.00, the approximate rate of exchange prevailing at the Tokyo Foreign
Exchange Market at March 31, 2006. Such translation should not be construed as a representation
that Japanese yen amounts could be converted into U.S. dollars at the above or any other rate.
The accompanying consolidated financial statements have been prepared on the basis of
accounting principles generally accepted in the United States of America (U.S. GAAP) except for
the omission of segment information concerning the operations of the parent company and its
majority-owned subsidiaries (together, the Company), as required by Statement of Financial
Accounting Standards (SFAS) No. 131.
The accompanying consolidated financial statements reflect the adjustments which management
believes are necessary to conform them with U.S. GAAP. Effect has been given in the consolidated
financial statements to adjustments which, because of either customary accounting practices in
Japan or income tax law requirements, have not been entered in the Companys 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 Companys products are generally sold under its own brand names, principally Pioneer. The
principal markets for the Company are Japan, the United States of America, European countries and
Asia. The Company sells its products to customers in consumer and commercial markets through its
sales offices in Japan, and its sales subsidiaries and independent distributors overseas. On an
original-equipment-manufacturer basis, the Company markets certain products, such as car
electronics products, to other companies.
Use of Estimates
The preparation of the consolidated financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities
at the dates of these statements and the reported amounts of revenues and expenses during the
reporting period.
Due to the inherent uncertainty involved in making estimates, actual results could differ from
those estimates.
2) Summary of Significant Accounting Policies
Consolidation and Investments in Affiliated Companies
The consolidated financial statements include the accounts of the parent company and its
majority-owned
F-8
subsidiaries. Investments in 20% to 50% owned companies are accounted for by the equity method
of accounting. All significant intercompany transactions have been eliminated.
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 assets and liabilities are translated at year-end exchange rates and
resulting exchange gains and losses are recognized in earnings currently.
Revenue Recognition
Sales are generally recorded when merchandise is shipped or delivered to customers. Recognition of
sales occurs when the title and risks and rewards of ownership are transferred to customers based
on sales contracts. In certain cases, terms of the contract require the product to pass customer
inspection after delivery 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, noncompliance 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 historical experience.
Costs incurred by the Company in connection with sales incentives related to the purchase or
promotion of the Companys 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 Companys 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
Cash and cash equivalents include cash on hand and deposits in bank including time deposits. The
Company considers all time deposits with an original maturity of one year or less to be cash
equivalents. Such time deposits can be withdrawn at any time without diminution of the principal
amount.
Available-for-Sale Securities
Under SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities, all debt
securities and marketable equity securities held by the Company are classified as
available-for-sale securities, and are carried at their fair values with unrealized gains and
losses reported 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
F-9
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. 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 other than temporary.
Inventories
Inventories are valued at the lower of cost, which is determined principally by the average-cost
method, or market, which is net realizable value. Inventories are reviewed periodically and items
considered to be slow moving or obsolete are written down to market, net realizable value.
Property, Plant and Equipment and Depreciation
Property, plant and equipment are stated at cost. Depreciation is computed principally using the
declining-balance method for assets located in Japan and under the straight-line method for assets
located outside Japan, using rates based on the estimated useful lives of the assets.
The principal ranges of estimated useful lives are as follows:
|
|
|
|
|
|
|
|
|
Buildings
|
|
1565 years
|
|
|
|
|
Machinery and equipment
|
|
210 years |
|
|
Goodwill and Other Intangible Assets
Under SFAS No. 142, Goodwill and Other Intangible Assets, acquired goodwill and other intangible
assets that are determined to have an indefinite life are no longer amortized. Instead, the
carrying values of these assets are reviewed for impairment at least annually, or more frequently
if events or changes in circumstances indicate that the asset might be impaired. Intangible assets
that are determined to have a definite life are amortized over their estimated useful lives. At
March 31, 2006, the Company had no goodwill. Amortization of intangible assets with definite lives
is computed using the straight-line method with no residual value. The cost of patents is amortized
principally over seven years and software is amortized principally over two to five years.
Long-Lived Assets
Under SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, the Company
reviews its long-lived assets and certain identifiable intangibles for impairment whenever events
or changes in
circumstances indicate that the carrying amount of an asset group may not be recoverable. For the
purpose of assessment of an impairment loss, the Company groups long-lived assets with other assets
and liabilities at the lowest level for which identifiable cash flows are largely independent of
the cash flows of other assets and liabilities. When the sum of expected future cash flows is less
than the carrying amount of the asset group, an impairment loss is recognized. Such impairment loss
is measured as the amount by which the carrying amount of the asset group exceeds the fair value of
the asset group.
Warranty Reserve
The Company engages in extensive product quality programs and processes including actively
monitoring and
F-10
evaluating the quality of component suppliers. The Companys 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.
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 ¥11,151 million, ¥12,502 million and ¥16,512 million ($141,128
thousand) for the years ended March 31, 2004, 2005 and 2006, respectively, and are included in
selling, general and administrative expenses in the consolidated statements of 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, Accounting for Stock-Based Compensation.
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 potential common stocks were exercised.
Derivatives
Derivative financial instruments utilized by the Company are comprised principally of forward
exchange contracts, currency options and currency swaps. Forward exchange contracts and currency
options, the majority of which mature within six months, and currency swaps, which mature from 2006
to 2008, are utilized to hedge exposures to foreign exchange risk and interest risk. The Company
does not hold or issue derivative financial instruments for trading purposes.
The Company adopted SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities, as amended by SFAS No. 138, Accounting for Certain Derivative Instruments and Certain
Hedging Activitiesan amendment of FASB Statement No. 133, and by SFAS No. 149, Amendment of SFAS
No. 133 on Derivative Instruments and Hedging Activities. Under SFAS No. 133, all derivative
instruments are recognized in the balance sheet at their fair values and changes in fair value are
recognized immediately in
F-11
earnings, unless the derivatives qualify as hedges of future cash flows.
For derivatives qualifying as hedges of future cash flows, the effective portion of changes in fair
value is recorded in other comprehensive income, then recognized in earnings along with the related
effects of the hedged items. Any ineffective portion of hedges is reported in earnings as it
occurs.
Forward exchange contracts and currency swaps 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, 2004, 2005 and 2006. Unrealized gains and losses on
such instruments are recognized currently in earnings.
Reclassifications
Certain reclassifications have been made to prior year amounts to conform to the current year
presentation. In 2006, the cash flows attributable to the operating, investing and financing
activities of the discontinued operations were not presented separately from the cash flows
attributable to such activities of the continuing operations. In prior periods, the cash flows
attributable to such activities of continuing operations were reported separately from the cash
flows of discontinued operations.
New Accounting Standards
In November 2004, the FASB issued SFAS No. 151, Inventory Costsan 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 Companys consolidated statements of operations or financial
position.
In December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary Assetsan
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 Companys consolidated statements of operations or financial position.
In December 2004, the FASB issued SFAS No. 123 (revised 2004), Share-Based Payment, or SFAS
No. 123R. SFAS No. 123R 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. SFAS No. 123R is effective at the beginning of the first interim and
annual reporting period beginning after June 15, 2005. The adoption of this standard is not
expected to have any material impact on the Companys 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 May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Correctionsa
replacement of APB Opinion No. 20 and FASB Statement
No. 3. SFAS No. 154 replaces APB Opinion No. 20,
F-12
Accounting Changes, and SFAS No. 3, Reporting Accounting Changes in Interim Financial
Statements, and changes the requirements for the accounting for and reporting of a change in
accounting principle. SFAS No. 154 applies to all voluntary changes in accounting principle. SFAS
No. 154 also applies to changes required by an accounting pronouncement in the unusual instance
that the pronouncement does not include specific transition provisions. SFAS No. 154 is effective
for accounting changes and corrections of errors made in fiscal years beginning after December 15,
2005. The adoption of this standard is not expected to have any material impact on the Companys
consolidated statements of operations or financial position.
In
June 2005, the FASB staff issued FASB Staff Position
(FSP) FAS 143-1, Accounting for Electronic Equipment Waste
Obligations (FSP 143-1). FSP 143-1 provides guidance on the accounting for certain obligations
associated with the Waste Electrical and Electronic Equipment Directive (the Directive) adopted
by the European Union (EU). Under the Directive, the waste management obligation for historical
equipment (products put on the market on or prior to August 13, 2005) remains with the commercial
user until the customer replaces the equipment. FSP 143-1 is required to be applied to the later of
the first reporting period ending after June 8, 2005, or the date of the Directives adoption into
law by the applicable EU-member countries. The Company adopted FSP 143-1 during the year ended
March 31, 2006 and has determined that its effect did not have a material impact on its
consolidated results of operations and financial position.
In
November 2005, the FASB staff issued FSP FAS 115-1 and FAS 124-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments (FSP
115-1), which effectively replaces EITF Issue No. 03-1. FSP 115-1 contains a three-step model for
evaluating impairments and carries forward the disclosure requirements in EITF Issue No. 03-1
pertaining to securities in an unrealized loss position is considered impaired; an evaluation is
made to determine whether the impairment is other-than-temporary; and, if an impairment is
considered other-than-temporary, a realized loss is recognized to write the securitys cost or
amortized cost basis down to fair value. FSP 115-1 references existing other-than-temporary
impairment guidance for determining when impairment is other-than-temporary and clarifies that subsequent to the recognition of an other-than-temporary
impairment loss for debt securities, an investor shall account for the security using the constant
effective yield method. FSP 115-1 is effective for reporting periods beginning after December 15,
2005, with earlier application permitted. The adoption of this standard is not expected to have any
material impact on the Companys consolidated statements of operations or financial position.
In February 2006, the FASB issued SFAS No. 155, Accounting for Certain Hybrid Financial
Instruments, which amends SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities, and SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities, and improves the financial reporting of certain hybrid financial
instruments by requiring more consistent accounting that eliminates exemptions and provides a means
to simplify the accounting for these instruments. Specifically, SFAS No. 155 allows financial
instruments that have embedded derivatives to be accounted for as a whole (eliminating the need to
bifurcate the derivative from its host) if the holder elects to account for the whole instrument on
a fair value basis. SFAS No. 155 is effective for all financial instruments acquired or issued
after the beginning of an entitys first fiscal year that begins after September 15, 2006. The
adoption of this standard is not expected to have any material impact on the Companys consolidated
statements of operations or financial position.
In March 2006, the FASB issued SFAS No. 156, Accounting for Servicing of Financial Assets.
SFAS No. 156 was issued to simplify the accounting for servicing assets and servicing liabilities
and reduce the volatility that results from the use of different measurement attributes for
servicing rights and the related financial instruments used to hedge risks associated with those
servicing rights. SFAS No. 156 clarifies when to separately account for servicing rights, requires
separately recognized servicing rights to be initially measured
F-13
at fair value, and provides the
option to subsequently account for those servicing rights at either fair value or under the
amortization method previously required under SFAS No. 140, Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities. SFAS No. 156 is effective for fiscal years
beginning after September 15, 2006. The adoption of this standard is not expected to have any
material impact on the Companys consolidated statements of operations or financial position.
2. Supplemental cash flow information:
Selected cash payments and noncash activities for the years ended March 31, 2004, 2005 and
2006 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thousands of |
|
|
|
Millions of Yen |
|
|
U.S. Dollars |
|
|
|
2004 |
|
|
2005 |
|
|
2006 |
|
|
2006 |
|
|
Cash payment for interest |
|
¥ |
2,458 |
|
|
¥ |
2,038 |
|
|
¥ |
1,652 |
|
|
$ |
14,120 |
|
Cash payment for income taxes |
|
|
14,260 |
|
|
|
17,195 |
|
|
|
9,039 |
|
|
|
77,256 |
|
Noncash investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of a subsidiary: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of assets, net of cash acquired |
|
|
|
|
|
|
60,736 |
|
|
|
|
|
|
|
|
|
Liability assumed including capital lease obligation of
¥12,882 million |
|
|
|
|
|
|
(26,721 |
) |
|
|
|
|
|
|
|
|
|
|
|
Payment for acquisition of a subsidiary, net of cash acquired |
|
|
|
|
|
|
34,015 |
|
|
|
|
|
|
|
|
|
|
|
|
Sales of discontinued operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transferred assets |
|
|
14,932 |
|
|
|
|
|
|
|
1,527 |
|
|
|
13,051 |
|
Transferred liabilities |
|
|
(11,823 |
) |
|
|
|
|
|
|
(1,080 |
) |
|
|
(9,231 |
) |
Foreign currency translation adjustments |
|
|
(37 |
) |
|
|
|
|
|
|
(127 |
) |
|
|
(1,085 |
) |
Gain on sales |
|
|
1,825 |
|
|
|
|
|
|
|
434 |
|
|
|
3,709 |
|
|
|
|
Cash receivednet |
|
|
4,897 |
|
|
|
|
|
|
|
754 |
|
|
|
6,444 |
|
Noncash financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumption of long-term debts from an affiliated company |
|
|
|
|
|
|
|
|
|
|
25,357 |
|
|
|
216,726 |
|
|
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 seven years which is based on legal
provisions that may limit the useful life.
F-14
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 Companys 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 |
|
¥ |
736,697 |
|
|
¥ |
731,563 |
|
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 |
) |
|
4. Discontinued operations:
In accordance with SFAS No. 144, the Company presented the results of discontinued operations
(including operations of subsidiaries that either have been disposed of or are classified as held
for sale) as a separate line item in the consolidated statements of operations under Income from
discontinued operations, net of tax. The cash flows attributable to the operating, investing and
financing activities of the discontinued operations were not presented separately from the cash
flows attributable to activities of the continuing operations.
The discontinued operations for the year ended March 31, 2004 were as follows:
Pioneer LDC, Inc. and Pioneer Entertainment (USA) Inc.
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., Japans 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
transfers of 100% of the shares of Pioneer LDC, Inc. and 90% of the shares of Pioneer Entertainment
(USA) Inc. owned by the Company were completed in the year ended
March 31, 2004. The remaining shares of Pioneer Entertainment (USA) Inc. are expected to be
transferred to Dentsu Inc. during the year ending March 31, 2007.
F-15
Q-Tec, Inc.
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 year ended March 31, 2004 for the
discontinued operations reclassified during the year ended March 31, 2004 was as follows:
|
|
|
|
|
|
|
Millions of Yen |
|
|
|
2004 |
|
|
Revenues |
|
¥ |
16,664 |
|
Cost and expenses |
|
|
16,324 |
|
|
Income before income taxes |
|
|
340 |
|
Gain on sales of discontinued operations |
|
|
1,825 |
|
Income taxes benefit |
|
|
2,310 |
|
|
Income from discontinued operations |
|
¥ |
4,475 |
|
|
The discontinued operations for the year ended March 31, 2006 were as follows:
Pioneer Digital Technologies, Inc.
During the year ended March 31, 2006, the Company decided to sell 100% of its shares in Pioneer
Digital Technologies, Inc. through a management buyout. Pioneer Digital Technologies, Inc. was a
wholly-owned subsidiary which was engaged in development of operating software for cable TV set-top
boxes in the United States. The Company sold the shares for a cash consideration of ¥754 million
($6,444 thousand) and recognized a gain on the sale of ¥282 million ($2,410 thousand), net of
taxes, in the year ended March 31, 2006. The Company has no continuing involvement with Pioneer
Digital Technologies, Inc.
Pioneer Precision Machinery Corporation and its subsidiaries
In order to improve management efficiency by concentrating resources in strategic business, on
March 31, 2006, the Company reached a preliminary agreement with OMRON Corporation on the transfer
to OMRON of the Companys entire shares of Pioneer Precision Machinery Corporation, a 99.5% owned
subsidiary of the Company, which was engaged in manufacturing and marketing of high-precision parts
for electronic equipment.
Assets and liabilities of Pioneer Precision Machinery Corporation and its subsidiaries have
been classified as held for sale at March 31, 2006. In accordance with SFAS No. 144, assets held
for sale of Pioneer Precision Machinery Corporation and its subsidiaries were recorded at the lower
of their carrying amount or fair value less costs to sell and no impairment adjustment was
necessary.
F-16
The major classes of assets and liabilities included in the consolidated balance sheet at
March 31, 2006 relating to assets and liabilities held for sale of Pioneer Precision Machinery
Corporation and its subsidiaries were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thousands of |
|
|
|
Millions of Yen |
|
|
U.S. Dollars |
|
|
|
2006 |
|
|
2006 |
|
|
Current assets held for sale: |
|
|
|
|
|
|
|
|
Trade receivables |
|
¥ |
10,421 |
|
|
$ |
89,068 |
|
Inventories |
|
|
1,569 |
|
|
|
13,410 |
|
Other current assets |
|
|
10,775 |
|
|
|
92,094 |
|
Property, plant and equipment |
|
|
2,258 |
|
|
|
19,299 |
|
Other assets |
|
|
554 |
|
|
|
4,736 |
|
|
Total |
|
¥ |
25,577 |
|
|
$ |
218,607 |
|
|
Current liabilities held for sale: |
|
|
|
|
|
|
|
|
Trade payables |
|
¥ |
10,673 |
|
|
$ |
91,222 |
|
Accrued liabilities |
|
|
1,129 |
|
|
|
9,650 |
|
Other current liabilities |
|
|
4,629 |
|
|
|
39,564 |
|
Other long-term liabilities |
|
|
1,432 |
|
|
|
12,239 |
|
|
Total |
|
¥ |
17,863 |
|
|
$ |
152,675 |
|
|
Summarized selected financial information for the years ended March 31, 2004, 2005 and 2006
for the discontinued operations reclassified during the year ended March 31, 2006 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thousands of |
|
|
|
Millions of Yen |
|
|
U.S. Dollars |
|
|
|
2004 |
|
|
2005 |
|
|
2006 |
|
|
2006 |
|
|
Revenues |
|
¥ |
16,161 |
|
|
¥ |
22,598 |
|
|
¥ |
30,282 |
|
|
$ |
258,821 |
|
Cost and expenses |
|
|
14,844 |
|
|
|
20,720 |
|
|
|
29,462 |
|
|
|
251,812 |
|
|
Income before income taxes |
|
|
1,317 |
|
|
|
1,878 |
|
|
|
820 |
|
|
|
7,009 |
|
Gain on sales of discontinued operations |
|
|
|
|
|
|
|
|
|
|
434 |
|
|
|
3,709 |
|
Income taxes |
|
|
418 |
|
|
|
555 |
|
|
|
482 |
|
|
|
4,120 |
|
|
Income from discontinued operations |
|
¥ |
899 |
|
|
¥ |
1,323 |
|
|
¥ |
772 |
|
|
$ |
6,598 |
|
|
F-17
5. Available-for-sale 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, 2005 and 2006 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Yen |
|
|
|
2005 |
|
|
2006 |
|
|
|
|
|
|
|
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 |
|
¥ |
5,734 |
|
|
¥ |
16,438 |
|
|
¥ |
2 |
|
|
¥ |
22,170 |
|
|
¥ |
4,627 |
|
|
¥ |
19,982 |
|
|
|
|
|
|
¥ |
24,609 |
|
Marketable debt securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current |
|
|
94 |
|
|
|
4 |
|
|
|
|
|
|
|
98 |
|
|
|
94 |
|
|
|
30 |
|
|
|
|
|
|
|
124 |
|
|
Total |
|
¥ |
5,828 |
|
|
¥ |
16,442 |
|
|
¥ |
2 |
|
|
¥ |
22,268 |
|
|
¥ |
4,721 |
|
|
¥ |
20,012 |
|
|
|
|
|
|
¥ |
24,733 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thousands of U.S. Dollars |
|
|
|
2006 |
|
|
|
|
|
|
|
Gross |
|
|
Gross |
|
|
|
|
|
|
|
|
|
|
Unrealized |
|
|
Unrealized |
|
|
|
|
|
|
|
|
|
|
Holding |
|
|
Holding |
|
|
Aggregate |
|
|
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
Fair Value |
|
|
Marketable equity securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current |
|
$ |
39,547 |
|
|
$ |
170,786 |
|
|
|
|
|
|
$ |
210,333 |
|
Marketable debt securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current |
|
|
803 |
|
|
|
257 |
|
|
|
|
|
|
|
1,060 |
|
|
Total |
|
$ |
40,350 |
|
|
$ |
171,043 |
|
|
|
|
|
|
$ |
211,393 |
|
|
At March 31, 2006, 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
¥124 million ($1,060 thousand).
Gross realized gain on available-for-sale securities for the years ended March 31, 2004, 2005
and 2006 were ¥43 million, ¥2,300 million and ¥5,626 million ($48,085 thousand), respectively.
Gross realized losses for the years ended March 31, 2004 and 2005 were ¥6 million, ¥1 million,
respectively. There was no gross realized loss on available-for-sale securities recorded for the
year ended March 31, 2006. The Company owns marketable equity securities of customers and financial
institutions for the purpose of maintaining long-term relationships, whose share prices are highly
volatile. For the years ended March 31, 2004 and 2005, losses on other than temporary impairment of
marketable equity securities were ¥27 million, ¥3 million, respectively. There was no loss on other
than temporary impairment of marketable equity securities recorded for the year ended March 31,
2006. For the year ended March 31, 2005, a loss on other-than-temporary impairment of marketable
debt securities was ¥3 million. There was no loss on other than temporary impairment of marketable
debt securities recorded for the years ended March 31, 2004 and 2006.
Sundry investments consist of non-marketable equity securities and memberships. The aggregate
cost of the Companys non-marketable equity securities totaled ¥2,977 million and ¥2,793 million
($23,872 thousand) at March 31, 2005 and 2006, respectively. Investments with an aggregate cost of
¥2,970 million and ¥2,690 million ($22,991 thousand) were not evaluated for impairment because (a)
it was 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.
F-18
6. Accounts receivable securitization programs:
In the United States of America, the Company has established PUSA Receivables Funding Corporation,
Inc., a wholly owned bankruptcy remote-special purpose entity and set up an accounts receivable
securitization program of eligible trade accounts receivable. A bankruptcy-remote subsidiary is a
company that has been structured to make it highly unlikely that it would be drawn into a
bankruptcy of the Company, or any of its subsidiaries. Through this program, the Company can
securitize and sell, without recourse, on a revolving basis, an undivided interest up to $100,000
thousand in that pool of receivables to third party conduits owned by a bank. The value assigned to
undivided interests retained in securitized trade receivables is based on the relative fair values
of the interest retained and sold in the securitization. The Company has assumed that the fair
value of the retained interest is equivalent to its carrying value as the receivables are
short-term in nature and high quality. These securitization transactions are accounted for as sales
in accordance with SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities, because the Company has surrendered control over the receivables.
The Company sold a total of ¥9,706 million ($82,957 thousand) of receivables under this
program for the year ended March 31, 2006. The Companys subordinated net retained interest in
accounts receivable for securitization and recorded, as a component of accounts receivable, was
¥5,268 million ($45,026 thousand) at March 31, 2006. The Company recognized a loss of ¥42 million
($359 thousand) on the securitization of receivables for the year ended March 31, 2006. The Company
continues to service the sold receivables and is compensated at what we believe to be market rates.
Accordingly, no servicing asset or liability has been recorded.
In Japan, the Company set up several accounts receivable sales programs of eligible trade
accounts receivable. Through these programs, the Company can sell receivables, without recourse, to
financial institutions. These transactions are accounted for as sales in accordance with SFAS No.
140, because the Company has surrendered control over the receivables. The Company sold a total of
¥5,636 million ($48,171 thousand) of receivable under this program for the year ended March 31,
2006. Losses from these transactions were ¥24 million ($205 thousand) for the year ended March 31,
2006. Although the Company continues servicing the sold receivables, no servicing liabilities are
recorded because costs for collection of the sold receivables are immaterial.
7. Inventories:
Inventories at March 31, 2005 and 2006 comprise the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thousands of |
|
|
|
Millions of Yen |
|
|
U.S. Dollars |
|
|
|
2005 |
|
|
2006 |
|
|
2006 |
|
|
Finished products |
|
¥ |
52,807 |
|
|
¥ |
48,622 |
|
|
$ |
415,572 |
|
Work in process |
|
|
26,330 |
|
|
|
27,175 |
|
|
|
232,265 |
|
Materials and supplies |
|
|
29,878 |
|
|
|
28,429 |
|
|
|
242,983 |
|
|
Total |
|
¥ |
109,015 |
|
|
¥ |
104,226 |
|
|
$ |
890,820 |
|
|
F-19
8. Investments in and advances to affiliated companies:
Investments in and advances to affiliated companies principally represent the Companys equity in
the underlying assets of 20% to 50% owned companies. Dividends received from companies accounted
for by the equity method of accounting were ¥4 million, ¥4 million and ¥4 million ($34 thousand),
respectively, for the years ended March 31, 2004, 2005 and 2006.
Retained earnings include the parent companys and its consolidated subsidiaries equity in
undistributed earnings of 20% to 50% owned companies accounted for by the equity method of
accounting in the amount of ¥329 million and ¥339 million ($2,897 thousand) at March 31, 2005 and
2006, respectively.
Summarized financial information of companies owned 20% to 50%, including ELDis, Inc. which
was 47.5% owned by Tohoku Pioneer Corporation, a 67.1% owned subsidiary, and was liquidated in
March, 2006 (See Note 17), accounted for by the equity method of accounting is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thousands of |
|
|
|
Millions of Yen |
|
|
U.S. Dollars |
|
|
|
2005 |
|
|
2006 |
|
|
2006 |
|
|
Current assets |
|
¥ |
8,427 |
|
|
¥ |
2,528 |
|
|
$ |
21,607 |
|
Property, plant and equipment |
|
|
25,326 |
|
|
|
638 |
|
|
|
5,453 |
|
Other assets |
|
|
403 |
|
|
|
210 |
|
|
|
1,795 |
|
|
Total assets |
|
¥ |
34,156 |
|
|
¥ |
3,376 |
|
|
$ |
28,855 |
|
|
Current liabilities |
|
¥ |
5,116 |
|
|
¥ |
1,110 |
|
|
$ |
9,487 |
|
Long-term liabilities |
|
|
24,736 |
|
|
|
294 |
|
|
|
2,513 |
|
Shareholders equity |
|
|
4,304 |
|
|
|
1,972 |
|
|
|
16,855 |
|
|
Total liabilities and shareholders equity |
|
¥ |
34,156 |
|
|
¥ |
3,376 |
|
|
$ |
28,855 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thousands of |
|
|
|
Millions of Yen |
|
|
U.S. Dollars |
|
Years ended March 31 |
|
2004 |
|
|
2005 |
|
|
2006 |
|
|
2006 |
|
|
Net sales |
|
¥ |
8,408 |
|
|
¥ |
9,229 |
|
|
¥ |
6,974 |
|
|
$ |
59,607 |
|
Gross profit (loss) |
|
|
1,004 |
|
|
|
(1,932 |
) |
|
|
941 |
|
|
|
8,043 |
|
Net loss |
|
|
5,023 |
|
|
|
5,801 |
|
|
|
24,720 |
|
|
|
211,282 |
|
|
F-20
9. Intangible assets:
Intangible assets subject to amortization acquired during the year ended March 31, 2006 totaled
¥9,223 million ($78,829 thousand) and primarily consisted of software of ¥8,941 million ($76,419
thousand) and patents of ¥29 million ($248 thousand). The weighted-average amortization periods for
software, patents and total acquired during the year ended March 31, 2006 were 3.6 years, 12.6
years and 3.9 years, respectively.
Intangible assets subject to amortization are comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thousands of |
|
|
|
Millions of Yen |
|
|
U.S. Dollars |
|
|
|
2005 |
|
|
2006 |
|
|
2006 |
|
|
|
Gross |
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
Carrying |
|
|
Accumulated |
|
|
Carrying |
|
|
Accumulated |
|
|
Carrying |
|
|
Accumulated |
|
|
|
Amount |
|
|
Amortization |
|
|
Amount |
|
|
Amortization |
|
|
Amount |
|
|
Amortization |
|
|
Software |
|
¥ |
34,281 |
|
|
¥ |
(19,595 |
) |
|
¥ |
30,503 |
|
|
¥ |
(17,164 |
) |
|
$ |
260,709 |
|
|
$ |
(146,701 |
) |
Patents |
|
|
28,107 |
|
|
|
(20,538 |
) |
|
|
30,319 |
|
|
|
(24,593 |
) |
|
|
259,137 |
|
|
|
(210,197 |
) |
Other |
|
|
2,737 |
|
|
|
(940 |
) |
|
|
2,588 |
|
|
|
(1,077 |
) |
|
|
22,120 |
|
|
|
(9,205 |
) |
|
Total |
|
¥ |
65,125 |
|
|
¥ |
(41,073 |
) |
|
¥ |
63,410 |
|
|
¥ |
(42,834 |
) |
|
$ |
541,966 |
|
|
$ |
(366,103 |
) |
|
The aggregate amortization expense for intangible assets for the years ended March 31, 2004,
2005 and 2006 was ¥6,109 million, ¥7,229 million and ¥8,662 million ($74,034 thousand),
respectively. The estimated aggregate amortization expense for intangible assets for the next five
years is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thousands of |
|
Years ending March 31 |
|
Millions of Yen |
|
|
U.S. Dollars |
|
|
|
|
|
2007 |
|
¥ |
7,786 |
|
|
$ |
66,547 |
|
2008 |
|
|
4,485 |
|
|
|
38,333 |
|
2009 |
|
|
3,109 |
|
|
|
26,573 |
|
2010 |
|
|
1,539 |
|
|
|
13,154 |
|
2011 |
|
|
827 |
|
|
|
7,068 |
|
|
F-21
10. Impairment losses of long-lived assets:
The Company recognized impairment losses of long-lived assets in accordance with the provisions of
SFAS No. 144 during the years ended March 31, 2005 and 2006. Impairment losses are included in
other deductions of cost and expenses in the consolidated statements of operations (See Note 18).
See Note 17, Restructuring plans for the impairment losses of long-lived assets recognized in
connection with the restructuring plans.
The Company recognized impairment losses of long-lived assets in the aggregate of ¥4,460
million for the year ended March 31, 2005.
For the year ended March 31, 2005, the Company reviewed PPDs production facilities for
impairment because of the unfavorable post-acquisition changes in market conditions for plasma
displays. As a result of the review, an impairment loss of ¥3,396 million 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 the present value of estimated cash flows.
The Company recognized impairment losses of long-lived assets in the aggregate of ¥41,422
million ($354,034 thousand) for the year ended March 31, 2006.
During the year ended March 31, 2006, the Company reviewed the production facilities of plasma
display (PPDs production facilities and other) and DVD recorder related products for impairment
because of significant decreases in gross profit margins for plasma display and DVD recorder
related products due to a sharp decline in market prices. As a result of the review, an impairment
loss of ¥31,915 million ($272,778 thousand) in plasma display and ¥8,950 million ($76,496 thousand)
in DVD recorder related products were 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 the present
value of estimated cash flows.
F-22
11. Short-term borrowings and long-term debt:
Short-term borrowings at March 31, 2005 and 2006 comprise the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thousands of |
|
|
Millions of Yen |
|
U.S. Dollars |
|
|
2005 |
|
2006 |
|
2006 |
|
Bank loans: |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average interest rate 1.25% at March 31, 2005
and 1.62% at March 31, 2006: |
|
|
|
|
|
|
|
|
|
|
|
|
Uncollateralized |
|
¥ |
33,152 |
|
|
¥ |
23,205 |
|
|
$ |
198,333 |
|
|
Long-term debt at March 31, 2005 and 2006 comprises the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thousands of |
|
|
|
Millions of Yen |
|
|
U.S. Dollars |
|
|
|
2005 |
|
|
2006 |
|
|
2006 |
|
|
Loans, principally from banks, maturing serially through 2013
interest ranging from 2.90% to 3.06% at March 31, 2005 and from 0.95%
to 2.90% at March 31, 2006: |
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized |
|
¥ |
1,960 |
|
|
¥ |
4,916 |
|
|
$ |
42,017 |
|
Uncollateralized |
|
|
50 |
|
|
|
15,452 |
|
|
|
132,068 |
|
2.35% Uncollateralized bonds due 2005 |
|
|
15,000 |
|
|
|
|
|
|
|
|
|
2.80% Uncollateralized bonds due 2008 |
|
|
10,000 |
|
|
|
10,000 |
|
|
|
85,470 |
|
Zero coupon convertible bonds due 2011, including unamortized issue premium,
¥1,779 million at March 31, 2005 and ¥1,479 million ($12,641 thousand)
at March 31, 2006 (effective annual rate 0.5%) |
|
|
61,779 |
|
|
|
61,479 |
|
|
|
525,462 |
|
Long-term capital lease obligations, 1.25% to 3.26% at March 31, 2005
and 2006 due principally 2012 |
|
|
11,129 |
|
|
|
8,251 |
|
|
|
70,521 |
|
Industrial development U.S. dollar revenue bonds due 2005 with fluctuating
interest rates (1.70% at March 31, 2005), subject to maximum rate of 15%
in 2005 and other |
|
|
577 |
|
|
|
37 |
|
|
|
316 |
|
|
Total |
|
|
100,495 |
|
|
|
100,135 |
|
|
|
855,854 |
|
Less Portion due within one year |
|
|
19,276 |
|
|
|
7,165 |
|
|
|
61,239 |
|
|
Total |
|
¥ |
81,219 |
|
|
¥ |
92,970 |
|
|
$ |
794,615 |
|
|
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 Exchanges 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.
The 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.
F-23
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 the parent company (a) for any consolidation or
amalgamation of the parent company with any company, or (b) for any split of parent companys
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, 2006 approximated ¥254,482
million ($2,175,060 thousand) of which ¥30,000 million ($256,410 thousand) relates to commercial
paper programs. There were no unused commitments for long-term financing arrangements at March 31,
2006. There were no commitment fees.
Land and buildings with a book value of ¥7,366 million ($62,957 thousand) were pledged as
collateral for certain long-term loans of the Company at March 31, 2006.
The aggregate annual maturities of long-term debt during the five years ending March 31, 2011
and thereafter are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thousands of |
|
Years ending March 31 |
|
Millions of Yen |
|
|
U.S. Dollars |
|
|
|
|
|
2007 |
|
¥ |
7,165 |
|
|
$ |
61,239 |
|
2008 |
|
|
6,632 |
|
|
|
56,684 |
|
2009 |
|
|
13,694 |
|
|
|
117,043 |
|
2010 |
|
|
3,271 |
|
|
|
27,957 |
|
2011 |
|
|
3,267 |
|
|
|
27,923 |
|
2012 and thereafter |
|
|
66,106 |
|
|
|
565,008 |
|
|
Total |
|
¥ |
100,135 |
|
|
$ |
855,854 |
|
|
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-24
12. Pension plans and accrued severance cost:
The parent company and major domestic subsidiaries have 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 sum of cumulative points. The points are
accumulated based on years of service, job class and conditions under which termination occurs. The
Companys policy is to fund amounts required to maintain sufficient plan assets to provide for
accrued benefits, subject to the limitation on deductibility imposed by the Japanese income tax
laws.
The Company also sponsors a domestic non-contributory defined-benefit Corporate Pension Fund
(CPF) under the Defined Benefit Corporate Pension Law which covers substantially all of its
Japanese employees. The benefits are based on sum of cumulative points; which are accumulated based
on years of service, job class and conditions under which termination occurs.
The Company had sponsored a domestic defined-benefit welfare pension plan (the Welfare
Pension Plan) covering substantially all of its Japanese employees. The benefits under the Welfare
Pension Plan were primarily based on years of service and the average compensation during years of
service subject to governmental regulations. The Welfare Pension Plan consisted of a substitutional
portion, which had been contributory and specified by the Japanese governments welfare pension
regulations, and a corporate portion representing a non-contributory plan established by the
Company. Management considered that a substitutional portion of the Welfare Pension Plan, which was
administered by a board of trustees composed of management and labor representatives, represented
the Welfare Pension Plan carried on behalf of the Japanese government.
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 of the
substitutional 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 for the year ended March 31, 2005. The
transfer resulted in the Company recording a subsidy from the government of ¥48,697 million
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 and a settlement loss of ¥51,893 million. The total amount of derecognition of previously
accrued salary progression and settlement loss is allocated to cost of sales of ¥25,339 million and
selling, general and administrative expenses of ¥24,152 million.
As a result of the transfer of the substitutional portion, in 2005, the remaining corporate
portion of the Welfare Pension Plan was called the CPF since it became subject to the Defined
Benefit Corporate Pension Law with reduced benefits payment rate and shorter benefit payment
period. In addition, the Company amended the CPF to introduce a point based retirement benefit
plan. The foregoing amendment generated an unrecognized prior service gain of ¥9,602 million for
the year ended March 31, 2005.
Substantially all of the employees of U.S. and European subsidiaries are covered by defined
benefit pension plans. Under such plans, the related cost of benefit is funded or accrued. The
benefits are based on the level of salary at retirement or earlier termination of employment, the
years of service and conditions under which termination occurs.
F-25
The plan assets and pension obligations for the defined benefit pension plans of domestic and
foreign defined benefit pension plans are measured at March 31 in each fiscal year.
Net periodic benefit costs for the domestic and foreign defined benefit pension plans for the
years ended March 31, 2004, 2005 and 2006 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thousands of |
|
|
|
Millions of Yen |
|
|
U.S. Dollars |
|
|
|
2004 |
|
|
2005 |
|
|
2006 |
|
|
2006 |
|
|
|
Domestic |
|
|
Foreign |
|
|
Domestic |
|
|
Foreign |
|
|
Domestic |
|
|
Foreign |
|
|
Domestic |
|
|
Foreign |
|
|
|
Plans |
|
|
Plans |
|
|
Plans |
|
|
Plans |
|
|
Plans |
|
|
Plans |
|
|
Plans |
|
|
Plans |
|
|
Service cost |
|
¥ |
5,752 |
|
|
¥ |
542 |
|
|
¥ |
4,540 |
|
|
¥ |
565 |
|
|
¥ |
4,552 |
|
|
¥ |
417 |
|
|
$ |
38,906 |
|
|
$ |
3,564 |
|
Interest cost |
|
|
4,819 |
|
|
|
639 |
|
|
|
5,224 |
|
|
|
693 |
|
|
|
2,361 |
|
|
|
755 |
|
|
|
20,179 |
|
|
|
6,453 |
|
Expected return on assets |
|
|
(3,127 |
) |
|
|
(442 |
) |
|
|
(3,729 |
) |
|
|
(580 |
) |
|
|
(2,313 |
) |
|
|
(684 |
) |
|
|
(19,769 |
) |
|
|
(5,846 |
) |
Amortization of unrecognized
net actuarial loss |
|
|
4,060 |
|
|
|
11 |
|
|
|
3,225 |
|
|
|
52 |
|
|
|
2,211 |
|
|
|
45 |
|
|
|
18,897 |
|
|
|
385 |
|
Amortization of unrecognized
net assets at date of application |
|
|
(504 |
) |
|
|
|
|
|
|
(504 |
) |
|
|
|
|
|
|
(504 |
) |
|
|
|
|
|
|
(4,308 |
) |
|
|
|
|
Amortization of unrecognized
prior service (gain) loss |
|
|
(899 |
) |
|
|
16 |
|
|
|
(899 |
) |
|
|
4 |
|
|
|
(1,573 |
) |
|
|
3 |
|
|
|
(13,444 |
) |
|
|
25 |
|
Settlement loss |
|
|
|
|
|
|
|
|
|
|
51,893 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Curtailment (gain) loss |
|
|
|
|
|
|
(18 |
) |
|
|
|
|
|
|
26 |
|
|
|
(15 |
) |
|
|
|
|
|
|
(128 |
) |
|
|
|
|
Derecognition of previously
accrued salary progression |
|
|
|
|
|
|
|
|
|
|
(2,402 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost |
|
¥ |
10,101 |
|
|
¥ |
748 |
|
|
¥ |
57,348 |
|
|
¥ |
760 |
|
|
¥ |
4,719 |
|
|
¥ |
536 |
|
|
$ |
40,333 |
|
|
$ |
4,581 |
|
|
Actuarial assumptions used to
determine net periodic
pension cost: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate |
|
|
3.2 |
% |
|
|
6.1 |
% |
|
|
3.4 |
% |
|
|
5.6 |
% |
|
|
2.5 |
% |
|
|
5.4 |
% |
|
|
|
|
|
|
|
|
Rate of salary increase |
|
|
2.6 |
% |
|
|
3.9 |
% |
|
|
2.6 |
% |
|
|
4.0 |
% |
|
|
|
* |
|
|
4.0 |
% |
|
|
|
|
|
|
|
|
Long-term rate of return
on plan assets |
|
|
3.9 |
% |
|
|
7.6 |
% |
|
|
3.9 |
% |
|
|
7.0 |
% |
|
|
3.9 |
% |
|
|
7.2 |
% |
|
|
|
|
|
|
|
|
|
* |
|
The net periodic pension costs are determined using cumulative points and not salaries. The net
periodic pension costs for the year ended March 31, 2006 was calculated on the basis of an annual
increase in points of 3.0%. |
F-26
Reconciliations of beginning and ending balances of benefit obligations and the fair
value of the plan assets of the domestic and foreign defined benefit pension plans are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thousands of |
|
|
|
Millions of Yen |
|
|
U.S. Dollars |
|
|
|
2005 |
|
|
2006 |
|
|
|
|
|
|
2006 |
|
|
|
Domestic |
|
|
Foreign |
|
|
Domestic |
|
|
Foreign |
|
|
Domestic |
|
|
Foreign |
|
|
|
Plans |
|
|
Plans |
|
|
Plans |
|
|
Plans |
|
|
Plans |
|
|
Plans |
|
|
Change in benefit obligation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year |
|
¥ |
154,125 |
|
|
¥ |
12,574 |
|
|
¥ |
94,410 |
|
|
¥ |
13,595 |
|
|
$ |
806,923 |
|
|
$ |
116,197 |
|
Service cost |
|
|
4,540 |
|
|
|
565 |
|
|
|
4,552 |
|
|
|
417 |
|
|
|
38,906 |
|
|
|
3,564 |
|
Interest cost |
|
|
5,224 |
|
|
|
693 |
|
|
|
2,361 |
|
|
|
755 |
|
|
|
20,179 |
|
|
|
6,453 |
|
Plan participants contribution |
|
|
39 |
|
|
|
110 |
|
|
|
|
|
|
|
113 |
|
|
|
|
|
|
|
966 |
|
Actuarial loss |
|
|
36,091 |
|
|
|
781 |
|
|
|
1,222 |
|
|
|
1,784 |
|
|
|
10,444 |
|
|
|
15,248 |
|
Lump-sum cash payments |
|
|
(1,878 |
) |
|
|
|
|
|
|
(2,462 |
) |
|
|
|
|
|
|
(21,043 |
) |
|
|
|
|
Benefits paid |
|
|
(1,910 |
) |
|
|
(228 |
) |
|
|
(1,655 |
) |
|
|
(298 |
) |
|
|
(14,145 |
) |
|
|
(2,547 |
) |
Transfer of substitutional portion |
|
|
(92,219 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan amendment |
|
|
(9,602 |
) |
|
|
|
|
|
|
(1,219 |
) |
|
|
|
|
|
|
(10,419 |
) |
|
|
|
|
Curtailment |
|
|
|
|
|
|
(1,412 |
) |
|
|
(141 |
) |
|
|
|
|
|
|
(1,204 |
) |
|
|
|
|
Translation adjustments |
|
|
|
|
|
|
512 |
|
|
|
|
|
|
|
695 |
|
|
|
|
|
|
|
5,940 |
|
|
Benefit obligation at end of year |
|
¥ |
94,410 |
|
|
¥ |
13,595 |
|
|
¥ |
97,068 |
|
|
¥ |
17,061 |
|
|
$ |
829,641 |
|
|
$ |
145,821 |
|
|
Change in plan assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year |
|
¥ |
95,595 |
|
|
¥ |
7,656 |
|
|
¥ |
59,325 |
|
|
¥ |
9,330 |
|
|
$ |
507,051 |
|
|
$ |
79,744 |
|
Actual return on plan assets |
|
|
2,704 |
|
|
|
499 |
|
|
|
14,385 |
|
|
|
1,339 |
|
|
|
122,949 |
|
|
|
11,444 |
|
Employer contribution |
|
|
5,895 |
|
|
|
990 |
|
|
|
7,661 |
|
|
|
726 |
|
|
|
65,479 |
|
|
|
6,205 |
|
Plan participants contribution |
|
|
39 |
|
|
|
110 |
|
|
|
|
|
|
|
113 |
|
|
|
|
|
|
|
966 |
|
Lump-sum cash payments |
|
|
(1,878 |
) |
|
|
|
|
|
|
(2,462 |
) |
|
|
|
|
|
|
(21,043 |
) |
|
|
|
|
Benefits paid |
|
|
(1,910 |
) |
|
|
(228 |
) |
|
|
(1,655 |
) |
|
|
(298 |
) |
|
|
(14,145 |
) |
|
|
(2,547 |
) |
Transfer of substitutional portion |
|
|
(41,120 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation adjustments |
|
|
|
|
|
|
303 |
|
|
|
|
|
|
|
538 |
|
|
|
|
|
|
|
4,598 |
|
|
Fair value of plan assets at end of year |
|
¥ |
59,325 |
|
|
¥ |
9,330 |
|
|
¥ |
77,254 |
|
|
¥ |
11,748 |
|
|
$ |
660,291 |
|
|
$ |
100,410 |
|
|
Funded status |
|
|
(35,085 |
) |
|
|
(4,265 |
) |
|
|
(19,814 |
) |
|
|
(5,313 |
) |
|
|
(169,350 |
) |
|
|
(45,411 |
) |
Unrecognized actuarial loss |
|
|
44,957 |
|
|
|
1,814 |
|
|
|
31,770 |
|
|
|
2,775 |
|
|
|
271,538 |
|
|
|
23,719 |
|
Unrecognized net assets at the date of application |
|
|
(935 |
) |
|
|
|
|
|
|
(431 |
) |
|
|
|
|
|
|
(3,684 |
) |
|
|
|
|
Unrecognized prior service cost (gain) |
|
|
(20,612 |
) |
|
|
58 |
|
|
|
(20,258 |
) |
|
|
55 |
|
|
|
(173,145 |
) |
|
|
470 |
|
|
Net amount recognized |
|
¥ |
(11,675 |
) |
|
¥ |
(2,393 |
) |
|
¥ |
(8,733 |
) |
|
¥ |
(2,483 |
) |
|
$ |
(74,641 |
) |
|
$ |
(21,222 |
) |
|
Amounts recognized in the statement of financial
position consist of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued benefit liabilities |
|
¥ |
(32,759 |
) |
|
¥ |
(3,263 |
) |
|
¥ |
(15,893 |
) |
|
¥ |
(4,106 |
) |
|
$ |
(135,838 |
) |
|
$ |
(35,094 |
) |
Accumulated other comprehensive income |
|
|
21,084 |
|
|
|
870 |
|
|
|
7,160 |
|
|
|
1,623 |
|
|
|
61,197 |
|
|
|
13,872 |
|
|
Net amount recognized |
|
¥ |
(11,675 |
) |
|
¥ |
(2,393 |
) |
|
¥ |
(8,733 |
) |
|
¥ |
(2,483 |
) |
|
$ |
(74,641 |
) |
|
$ |
(21,222 |
) |
|
Accumulated benefit obligation at end of year |
|
¥ |
92,074 |
|
|
¥ |
12,344 |
|
|
¥ |
92,161 |
|
|
¥ |
15,435 |
|
|
$ |
787,701 |
|
|
$ |
131,923 |
|
|
Actuarial assumptions used to determine benefit
obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate |
|
|
2.5 |
% |
|
|
5.4 |
% |
|
|
2.5 |
% |
|
|
4.9 |
% |
|
|
|
|
|
|
|
|
Rate of salary increase |
|
|
|
* |
|
|
4.0 |
% |
|
|
|
* |
|
|
2.5 |
% |
|
|
|
|
|
|
|
|
|
* |
|
The benefit obligations are determined using cumulative points and not salaries. The benefit
obligations at March 31, 2005 and 2006 were calculated on the basis of an annual increase in points
of 3.0%. |
The aggregate projected benefit obligations and the aggregate fair value of plan assets
for the domestic pension plans for which projected benefit obligations exceed plan assets are
¥90,741 million ($775,564 thousand) and ¥70,872 million ($605,744 thousand) at March 31, 2006.
The aggregate accumulated benefit obligations and the aggregate fair value of plan assets for
the domestic pension plans for which accumulated benefit obligations exceed plan assets are ¥87,035
million ($743,889 thousand) and ¥70,872 million ($605,744 thousand) at March 31, 2006.
F-27
The aggregate accumulated benefit obligations and the aggregate fair value of plan assets for
the U.S. and European pension plans for which accumulated benefit obligations exceed plan assets
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thousands of |
|
|
|
Millions of Yen |
|
|
U.S. Dollars |
|
|
|
2005 |
|
|
2006 |
|
|
2006 |
|
|
Accumulated benefit obligations |
|
¥ |
11,474 |
|
|
¥ |
15,161 |
|
|
$ |
129,581 |
|
Fair value of plan assets |
|
|
8,369 |
|
|
|
11,447 |
|
|
|
97,838 |
|
|
The unrecognized prior service 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.
The Company determines the expected long-term rate of return on pension plan assets based on
weighted average of expected long-term returns on various categories of plan assets, reflecting the
current and 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, 2005 and 2006, by asset
category are as follows:
|
|
|
|
|
|
|
|
|
Asset Category |
|
2005 |
|
|
2006 |
|
|
|
|
|
Equity securities |
|
|
53 |
% |
|
|
57 |
% |
Debt securities |
|
|
34 |
|
|
|
35 |
|
Other |
|
|
13 |
|
|
|
8 |
|
|
Total |
|
|
100 |
% |
|
|
100 |
% |
|
The Companys 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 Companys
contribution, will maintain the funds ability to meet future cash requirements for pension benefit
payments. For primary domestic pension plans, the target asset allocation is established based on
long-term pension plan asset/liability studies, and the weighted-average target asset allocation
for these plans at March 31, 2006 is; equity securities 56%, debt securities 41%, other 3%. All the
assets are externally managed and investment managers have discretion to carry out investment
operations within their respective mandates specified by the Company.
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.
The Company expects to contribute ¥6,701 million ($57,274 thousand) to its defined benefit
plans in the year ending March 31, 2007.
F-28
The following benefit payments, which reflect expected future service, as appropriate, are
expected to be paid:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thousands of |
|
Years ending March 31 |
|
Millions of Yen |
|
|
U.S. Dollars |
|
|
|
|
2007 |
|
¥ |
9,402 |
|
|
$ |
80,359 |
|
2008 |
|
|
3,435 |
|
|
|
29,359 |
|
2009 |
|
|
3,878 |
|
|
|
33,145 |
|
2010 |
|
|
4,309 |
|
|
|
36,829 |
|
2011 |
|
|
4,965 |
|
|
|
42,436 |
|
Years 2012
2016 |
|
|
25,830 |
|
|
|
220,769 |
|
|
13. Income taxes:
The Company is subject to a number of different income taxes which, in the aggregate, indicate a
normal statutory tax rate of approximately 42% for the year ended March 31, 2004 and 41% for the
years ended March 31, 2005 and 2006 in Japan.
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 Companys provision for income taxes differed from the provision for income taxes at
the normal statutory tax rates in Japan as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thousands of |
|
|
|
Millions of Yen |
|
|
U.S. Dollars |
|
|
|
2004 |
|
|
2005 |
|
|
2006 |
|
|
2006 |
|
|
Computed tax expense at normal statutory tax rate |
|
¥ |
17,022 |
|
|
¥ |
(847 |
) |
|
¥ |
(29,178 |
) |
|
$ |
(249,385 |
) |
Increase (decrease) resulting from: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss operations |
|
|
1,294 |
|
|
|
6,137 |
|
|
|
39,814 |
|
|
|
340,291 |
|
Realization of tax benefit of operating loss carryforwards |
|
|
(395 |
) |
|
|
(671 |
) |
|
|
(1,005 |
) |
|
|
(8,590 |
) |
Expenses not deductible for tax purpose: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic |
|
|
272 |
|
|
|
243 |
|
|
|
192 |
|
|
|
1,641 |
|
Foreign |
|
|
120 |
|
|
|
413 |
|
|
|
205 |
|
|
|
1,752 |
|
Difference in foreign and Japanese tax rates |
|
|
(1,535 |
) |
|
|
(1,784 |
) |
|
|
(1,383 |
) |
|
|
(11,820 |
) |
Effect of tax rate change on deferred taxes |
|
|
432 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Liquidation of ELDis, Inc. |
|
|
|
|
|
|
|
|
|
|
(13,503 |
) |
|
|
(115,410 |
) |
Tax benefit for discontinued operations |
|
|
3,025 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax credit for research and development expenses |
|
|
(898 |
) |
|
|
(232 |
) |
|
|
(141 |
) |
|
|
(1,205 |
) |
Other |
|
|
(1,168 |
) |
|
|
1,028 |
|
|
|
339 |
|
|
|
2,897 |
|
|
Provision for income taxes |
|
¥ |
18,169 |
|
|
¥ |
4,287 |
|
|
¥ |
(4,660 |
) |
|
$ |
(39,829 |
) |
|
F-29
Total income taxes provided for the years ended March 31, 2004, 2005 and 2006 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thousands of |
|
|
|
Millions of Yen |
|
|
U.S. Dollars |
|
|
|
2004 |
|
|
2005 |
|
|
2006 |
|
|
2006 |
|
|
Provision for income taxes (benefit) on income from continuing operations |
|
¥ |
18,169 |
|
|
¥ |
4,287 |
|
|
¥ |
(4,660 |
) |
|
$ |
(39,829 |
) |
Provision for income taxes (benefit) on income from discontinued operations |
|
|
(1,892 |
) |
|
|
555 |
|
|
|
482 |
|
|
|
4,120 |
|
Shareholders equity directly charged (credited): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum pension liability adjustments |
|
|
6,953 |
|
|
|
8,225 |
|
|
|
5,505 |
|
|
|
47,051 |
|
Net unrealized gains on securities |
|
|
4,009 |
|
|
|
(593 |
) |
|
|
1,460 |
|
|
|
12,479 |
|
|
Total |
|
¥ |
27,239 |
|
|
¥ |
12,474 |
|
|
¥ |
2,787 |
|
|
$ |
23,821 |
|
|
Income from continuing operations before income taxes and income taxes comprised the
following components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thousands of |
|
|
|
Millions of Yen |
|
|
U.S. Dollars |
|
|
|
2004 |
|
|
2005 |
|
|
2006 |
|
|
2006 |
|
|
Income (loss) from continuing operations before income taxes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic |
|
¥ |
16,737 |
|
|
¥ |
2,649 |
|
|
¥ |
(69,834 |
) |
|
$ |
(596,872 |
) |
Foreign |
|
|
23,791 |
|
|
|
(4,716 |
) |
|
|
(1,331 |
) |
|
|
(11,376 |
) |
|
Total |
|
¥ |
40,528 |
|
|
¥ |
(2,067 |
) |
|
¥ |
(71,165 |
) |
|
$ |
(608,248 |
) |
|
Income taxes Current: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic |
|
¥ |
9,935 |
|
|
¥ |
6,260 |
|
|
¥ |
5,232 |
|
|
$ |
44,718 |
|
Foreign |
|
|
7,183 |
|
|
|
909 |
|
|
|
2,842 |
|
|
|
24,291 |
|
|
Total |
|
¥ |
17,118 |
|
|
¥ |
7,169 |
|
|
¥ |
8,074 |
|
|
$ |
69,009 |
|
|
Income taxes Deferred: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic |
|
¥ |
(837 |
) |
|
¥ |
(1,659 |
) |
|
¥ |
(13,854 |
) |
|
$ |
(118,410 |
) |
Foreign |
|
|
1,888 |
|
|
|
(1,223 |
) |
|
|
1,120 |
|
|
|
9,572 |
|
|
Total |
|
¥ |
1,051 |
|
|
¥ |
(2,882 |
) |
|
¥ |
(12,734 |
) |
|
$ |
(108,838 |
) |
|
F-30
The significant components of the deferred tax assets and liabilities at March 31, 2005
and 2006 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thousands of |
|
|
|
Millions of Yen |
|
|
U.S. Dollars |
|
|
|
2005 |
|
|
2006 |
|
|
2006 |
|
|
|
Deferred |
|
|
Deferred |
|
|
Deferred |
|
|
Deferred |
|
|
Deferred |
|
|
Deferred |
|
|
|
Tax |
|
|
Tax |
|
|
Tax |
|
|
Tax |
|
|
Tax |
|
|
Tax |
|
|
|
Assets |
|
|
Liabilities |
|
|
Assets |
|
|
Liabilities |
|
|
Assets |
|
|
Liabilities |
|
|
Inventories |
|
¥ |
5,590 |
|
|
|
|
|
|
¥ |
6,198 |
|
|
|
|
|
|
$ |
52,974 |
|
|
|
|
|
Marketable equity securities |
|
|
2,040 |
|
|
¥ |
4,445 |
|
|
|
2,092 |
|
|
¥ |
7,074 |
|
|
|
17,880 |
|
|
$ |
60,461 |
|
Allowance for notes and accounts receivable |
|
|
824 |
|
|
|
|
|
|
|
871 |
|
|
|
|
|
|
|
7,445 |
|
|
|
|
|
Accrued expenses |
|
|
16,316 |
|
|
|
|
|
|
|
22,549 |
|
|
|
|
|
|
|
192,726 |
|
|
|
|
|
Warranty reserve |
|
|
1,863 |
|
|
|
|
|
|
|
1,969 |
|
|
|
|
|
|
|
16,829 |
|
|
|
|
|
Tax loss carryforwards |
|
|
21,232 |
|
|
|
|
|
|
|
52,832 |
|
|
|
|
|
|
|
451,556 |
|
|
|
|
|
Pension and severance cost |
|
|
15,116 |
|
|
|
|
|
|
|
8,905 |
|
|
|
|
|
|
|
76,111 |
|
|
|
|
|
Property |
|
|
4,230 |
|
|
|
|
|
|
|
17,981 |
|
|
|
|
|
|
|
153,684 |
|
|
|
|
|
Depreciation |
|
|
3,029 |
|
|
|
490 |
|
|
|
4,119 |
|
|
|
342 |
|
|
|
35,205 |
|
|
|
2,923 |
|
Royalty receivable |
|
|
539 |
|
|
|
|
|
|
|
472 |
|
|
|
|
|
|
|
4,034 |
|
|
|
|
|
Other |
|
|
6,539 |
|
|
|
2,469 |
|
|
|
2,275 |
|
|
|
4,718 |
|
|
|
19,445 |
|
|
|
40,325 |
|
|
Total |
|
|
77,318 |
|
|
|
7,404 |
|
|
|
120,263 |
|
|
|
12,134 |
|
|
|
1,027,889 |
|
|
|
103,709 |
|
Valuation allowance |
|
|
(20,605 |
) |
|
|
|
|
|
|
(53,112 |
) |
|
|
|
|
|
|
(453,949 |
) |
|
|
|
|
|
Total |
|
¥ |
56,713 |
|
|
¥ |
7,404 |
|
|
¥ |
67,151 |
|
|
¥ |
12,134 |
|
|
$ |
573,940 |
|
|
$ |
103,709 |
|
|
The changes in the valuation allowance for the years ended March 31, 2004, 2005 and 2006
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thousands of |
|
|
|
Millions of Yen |
|
|
U.S. Dollars |
|
Valuation Allowance |
|
2004 |
|
|
2005 |
|
|
2006 |
|
|
2006 |
|
|
Balance at beginning of year |
|
¥ |
15,292 |
|
|
¥ |
11,591 |
|
|
¥ |
20,605 |
|
|
$ |
176,111 |
|
Addition* |
|
|
1,956 |
|
|
|
12,851 |
|
|
|
35,118 |
|
|
|
300,154 |
|
Deduction |
|
|
(5,469 |
) |
|
|
(3,963 |
) |
|
|
(2,948 |
) |
|
|
(25,196 |
) |
Translation adjustments |
|
|
(188 |
) |
|
|
126 |
|
|
|
337 |
|
|
|
2,880 |
|
|
Balance at end of year |
|
¥ |
11,591 |
|
|
¥ |
20,605 |
|
|
¥ |
53,112 |
|
|
$ |
453,949 |
|
|
*
Addition includes valuation allowance of ¥7,953 million 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.
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 at certain subsidiaries for which
the realization of the related deferred tax assets was determined not to be more likely than not.
Increase in valuation allowance for the year ended March 31, 2006 was mainly due to losses incurred
at the parent company and certain subsidiaries.
F-31
At March 31, 2006, the Company has tax loss carryforwards which are available to reduce
taxable income in subsequent periods. If not utilized, such loss carryforwards expire as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thousands of |
|
Years ending March 31 |
|
Millions of Yen |
|
|
U.S. Dollars |
|
|
|
|
2007 |
|
¥ |
542 |
|
|
$ |
4,633 |
|
2008 |
|
|
624 |
|
|
|
5,333 |
|
2009 |
|
|
285 |
|
|
|
2,436 |
|
2010 |
|
|
3,196 |
|
|
|
27,316 |
|
2011 |
|
|
7,307 |
|
|
|
62,453 |
|
Thereafter |
|
|
123,075 |
|
|
|
1,051,923 |
|
|
Total |
|
¥ |
135,029 |
|
|
$ |
1,154,094 |
|
|
No provision for income taxes is recognized on undistributed earnings of foreign subsidiaries
that are not expected to be remitted in the foreseeable future. Undistributed earnings of foreign
subsidiaries (including related foreign currency translation adjustments) at March 31, 2005 and
2006 amounted to approximately ¥115,606 million and ¥134,148 million ($1,146,564 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.
14. 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 ($1,530,564 thousand) would have been transferred
from retained earnings to appropriate capital accounts at March 31, 2006.
The Code requires that all shares of common stock be issued with no par value and at least 50%
of the issue price of new shares is required to be recorded as common stock and the remaining net
proceeds are required to be presented as additional paid-in capital, which is included in capital
surplus.
Retained Earnings
Retained earnings consist of legal reserve and unappropriated retained earnings.
The Code also provides that an amount of 10% or more of the aggregate amount of cash dividends
and certain other appropriations of retained earnings associated with cash payments applicable to
each period (such as bonuses to directors) shall be appropriated as a legal reserve (a component of
retained earnings) until the total of such reserve and additional paid-in capital equals 25% of
common stock. The amount of total legal reserve and additional paid-in capital that exceeds 25% of
the common stock may be available for appropriations by resolution of the shareholders after
transferring such excess in accordance with the Code. In addition, the Code permits the transfer of
a portion of additional paid-in capital and legal reserve to the common stock by resolution of the
Board of Directors.
The Code allows companies to purchase treasury stock and dispose of such treasury stock by
resolution of the Board of Directors. The aggregate purchased amount of treasury stock cannot
exceed the
F-32
amount available for future dividends plus the amount of common stock, additional
paid-in capital or legal reserve that could be transferred to retained earnings or other capital
surplus other than additional paid-in capital upon approval of such transfer at the general meeting
of shareholders.
In addition to the provision that requires an appropriation for a legal reserve in connection
with the cash payments as
described above, the Code also imposes certain limitations on the amount of capital surplus and
retained earnings available for dividends. The amount of capital surplus and retained earnings
available for dividends under the Code was ¥77,625 million ($663,462 thousand) at March 31, 2006,
based on the amount recorded in the parent companys general books and records maintained in
accordance with accepted Japanese accounting practices. The adjustments are included in the
accompanying consolidated financial statements to conform to 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.
On May 1, 2006, the Company Law became effective, which reformed and replaced the Code with
various revisions that would, for the most part, be applicable to events or transactions which
occur on or after May 1, 2006 and for the fiscal years ending on or after May 31, 2006. The
significant changes in the Company Law that affect financial and accounting matters are summarized
below;
(a) Dividends
Under the Company Law, companies can pay dividends at any time during the fiscal year in addition
to the year-end dividend upon resolution at the shareholders meeting. For companies that meet
certain criteria such as; (1) having the Board of Directors, (2) having independent auditors, (3)
having the Board of Corporate Auditors, and (4) the term of service of the directors is prescribed
as one year rather than two years of normal term by its articles of incorporation, the Board of
Directors may declare dividends if the company has prescribed so in its articles of incorporation.
Semiannual interim dividends may also be paid once a year upon resolution by the Board of Directors
if the articles of incorporation of the company so stipulate. Under the Code, certain limitations
were imposed on the amount of capital surplus and retained earnings available for dividends.
(b) Increases/decreases and transfer of common stock, reserve and surplus
The Company Law requires that an amount equal to 10% of dividends must be appropriated as a legal
reserve (a component of retained earnings) or as additional paid-in capital (a component of capital
surplus) depending on the equity account charged upon the payment of such dividends until the total
of aggregate amount of legal reserve and additional paid-in capital equals 25% of common stock.
Under the Code, the aggregate amount of additional paid-in capital and legal reserve that exceeds
25% of the common stock may be made available for dividends by resolution of the shareholders.
Under the Company Law, the total amount of additional paid-in capital and legal reserve may be
reversed without limitation of such threshold. The Company Law also provides that common stock,
legal reserve, additional paid-in capital, other capital surplus and retained earnings can be
transferred among the accounts under certain conditions upon resolution of the shareholders.
(c) Treasury stock and treasury stock acquisition rights
The Company Law also provides for companies to purchase treasury stock and dispose of such treasury
stock by resolution of the Board of Directors. The amount of treasury stock purchased cannot exceed
the amount available for distribution to the shareholders which is determined by specific formula.
At the general meeting of shareholders held on June 27, 2002, the shareholders of the parent
company authorized the purchase of up to 10,000,000 shares of the parent companys common stock. In
August 2002, November 2002, February 2003 and March 2005, the parent company purchased 1,610,000
shares, 2,000,000 shares, 1,500,000 shares and 1,000,000 shares of its common stock, respectively,
in the market for the aggregate cost of ¥13,455 million as a publicly announced plan to improve
capital efficiency
F-33
pursuant to a revision in the Code.
The appropriations of retained earnings for the year ended March 31, 2006, which have been
incorporated in the accompanying consolidated financial statements, will be proposed for approval
at the general meeting of shareholders to be held on June 29, 2006 and will be recorded in the
parent companys general books of account after shareholders approval.
15. Stock-based compensation plans:
The Company has a stock option plan as an incentive plan for directors, executive officers and
selected employees.
In accordance with approval at the general meeting of shareholders on June 28, 2001, the
Company granted share subscription rights to employees. Also, in accordance with approval at the
general meetings of shareholders on June 27, 2002, June 27, 2003, June 29, 2004, and June 29, 2005,
the Company granted share acquisition rights to directors, executive officers and certain
employees of the Company. These options are vested and immediately exercisable after two years from
the date of grant, and exercise periods are three years from the vesting. The Company recorded the
fair value of the stock option as a part of their remuneration.
A summary of information for the Companys stock option plans is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Yen |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average |
|
|
Number of |
|
|
|
|
|
|
|
Weighted-Average |
|
|
Grant Date |
|
|
Shares |
|
Years ended March 31 |
|
Plan |
|
Exercisable Period |
|
Exercise Price |
|
|
Share Price |
|
|
(Thousands) |
|
|
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 |
|
2006 |
|
Stock option |
|
From July 2, 2007 to June 30, 2010 |
|
|
1,828 |
|
|
|
1,658 |
|
|
|
315 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Dollars |
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average |
|
|
|
|
|
|
|
Weighted-Average |
|
|
Grant Date |
|
Year ended March 31 |
|
Plan |
|
Exercisable Period |
|
Exercise Price |
|
|
Share Price |
|
|
2006 |
|
Stock option |
|
From July 2, 2007 to June 30, 2010 |
|
$ |
15.62 |
|
|
$ |
14.17 |
|
|
Remuneration costs recognized for stock-based compensation plans for the years ended
March 31, 2004, 2005 and 2006 were ¥305 million, ¥270 million and ¥175 million ($1,495 thousand),
respectively.
F-34
The weighted-average fair value per share at the date of grant for the stock options granted
during the years ended March 31, 2004, 2005 and 2006 were ¥907, ¥654 and ¥306 ($2.62),
respectively. The fair value of the stock options granted on the date of grant, which is amortized
to expense over the vesting period, is estimated using the Black-Scholes option-valuation model
with the following weighted-average assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
|
2005 |
|
|
2006 |
|
|
|
|
|
|
Risk-free interest rate |
|
|
0.34 |
% |
|
|
0.50 |
% |
|
|
0.23 |
% |
Expected lives |
|
3.48 years |
|
3.48 years |
|
3.48 years |
Expected volatility |
|
|
48.13 |
% |
|
|
40.02 |
% |
|
|
31.98 |
% |
Expected dividends |
|
|
0.88 |
% |
|
|
0.93 |
% |
|
|
0.90 |
% |
|
A summary of the status of the Companys warrants, which expired through August 26, 2004, and
options at March 31, 2004, 2005 and 2006, and changes during the years is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average |
|
|
Weighted-Average Exercise |
|
|
|
Number of Shares |
|
|
Remaining Life |
|
|
Price per Share |
|
|
|
(Thousands) |
|
|
(Years) |
|
|
Yen |
|
|
U.S. Dollars |
|
|
|
|
|
|
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 |
|
|
|
|
|
Exercised |
|
|
(4 |
) |
|
|
|
|
|
|
2,477 |
|
|
|
|
|
Expired |
|
|
(413 |
) |
|
|
|
|
|
|
3,266 |
|
|
|
|
|
|
Outstanding at March 31, 2005 |
|
|
1,571 |
|
|
|
2.5 |
|
|
¥ |
3,059 |
|
|
$ |
26.15 |
|
Granted |
|
|
315 |
|
|
|
|
|
|
|
1,828 |
|
|
|
15.62 |
|
Expired |
|
|
(191 |
) |
|
|
|
|
|
|
4,400 |
|
|
|
37.61 |
|
|
Outstanding at March 31, 2006 |
|
|
1,695 |
|
|
|
2.3 |
|
|
¥ |
2,679 |
|
|
$ |
22.90 |
|
|
Exercisable at March 31, 2005 |
|
|
942 |
|
|
|
|
|
|
¥ |
3,133 |
|
|
|
|
|
|
Exercisable at March 31, 2006 |
|
|
1,064 |
|
|
|
|
|
|
¥ |
2,852 |
|
|
$ |
24.38 |
|
|
F-35
16. 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, 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 |
) |
Adjustments for the year |
|
|
7,506 |
|
|
|
2,102 |
|
|
|
17,969 |
|
|
|
27,577 |
|
|
Balance at March 31, 2006 |
|
¥ |
(3,680 |
) |
|
¥ |
10,352 |
|
|
¥ |
(26,764 |
) |
|
¥ |
(20,092 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 2005 |
|
$ |
(95,607 |
) |
|
$ |
70,513 |
|
|
$ |
(382,333 |
) |
|
$ |
(407,427 |
) |
Adjustments for the year |
|
|
64,154 |
|
|
|
17,966 |
|
|
|
153,581 |
|
|
|
235,701 |
|
|
Balance at March 31, 2006 |
|
$ |
(31,453 |
) |
|
$ |
88,479 |
|
|
$ |
(228,752 |
) |
|
$ |
(171,726 |
) |
|
F-36
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 |
|
|
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 |
|
LessReclassification 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 |
) |
LessReclassification 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 |
|
LessReclassification 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 |
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum pension liability adjustments |
|
¥ |
13,171 |
|
|
¥ |
(5,505 |
) |
|
¥ |
(160 |
) |
|
¥ |
7,506 |
|
Net unrealized gains on securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding gains arising during year |
|
|
9,534 |
|
|
|
(3,904 |
) |
|
|
(10 |
) |
|
|
5,620 |
|
LessReclassification adjustment for gains realized in net income |
|
|
(5,962 |
) |
|
|
2,444 |
|
|
|
|
|
|
|
(3,518 |
) |
|
|
|
Net unrealized gains |
|
|
3,572 |
|
|
|
(1,460 |
) |
|
|
(10 |
) |
|
|
2,102 |
|
Foreign currency translation adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments arising during year |
|
|
18,986 |
|
|
|
|
|
|
|
(865 |
) |
|
|
18,121 |
|
LessReclassification adjustment for gains realized in net income |
|
|
(152 |
) |
|
|
|
|
|
|
|
|
|
|
(152 |
) |
|
|
|
Foreign currency translation adjustments |
|
|
18,834 |
|
|
|
|
|
|
|
(865 |
) |
|
|
17,969 |
|
|
Other comprehensive income (loss) |
|
¥ |
35,577 |
|
|
¥ |
(6,965 |
) |
|
¥ |
(1,035 |
) |
|
¥ |
27,577 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thousands of U.S. Dollars |
|
|
|
Before-Tax |
|
|
Tax (Expense) |
|
|
Minority |
|
|
Net-of-Tax |
|
|
|
Amount |
|
|
or Benefit |
|
|
Interest |
|
|
Amount |
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum pension liability adjustments |
|
$ |
112,573 |
|
|
$ |
(47,051 |
) |
|
$ |
(1,368 |
) |
|
$ |
64,154 |
|
Net unrealized gains on securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding gains arising during year |
|
|
81,487 |
|
|
|
(33,368 |
) |
|
|
(85 |
) |
|
|
48,034 |
|
LessReclassification adjustment for gains realized in net income |
|
|
(50,957 |
) |
|
|
20,889 |
|
|
|
|
|
|
|
(30,068 |
) |
|
|
|
Net unrealized gains |
|
|
30,530 |
|
|
|
(12,479 |
) |
|
|
(85 |
) |
|
|
17,966 |
|
Foreign currency translation adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments arising during year |
|
|
162,273 |
|
|
|
|
|
|
|
(7,393 |
) |
|
|
154,880 |
|
LessReclassification adjustment for gains realized in net income |
|
|
(1,299 |
) |
|
|
|
|
|
|
|
|
|
|
(1,299 |
) |
|
|
|
Foreign currency translation adjustments |
|
|
160,974 |
|
|
|
|
|
|
|
(7,393 |
) |
|
|
153,581 |
|
|
Other comprehensive income (loss) |
|
$ |
304,077 |
|
|
$ |
(59,530 |
) |
|
$ |
(8,846 |
) |
|
$ |
235,701 |
|
|
F-37
17. Restructuring plans:
As part of its effort to improve the performance of the various businesses, the Company implemented
a number of restructuring initiatives. The following is a summary of significant restructuring
activities:
During the year ended March 31, 2005, the Company decided to withdraw from the sale of 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 related to software used in the manufacture of cable
TV set-top boxes to the U.S. market; and, in addition to the impairment loss, recorded ¥1,758
million for asset disposal and contract termination costs and ¥25 million for special termination
benefits in Other and Special termination benefits of other deductions of cost and expenses in
the consolidated statements of operations for the year ended March 31, 2005.
During
the year ended March 31, 2005, the Company made a decision to close a car electronics
plant in Mexico as part of the integration plan in foreign manufacturing companies. As a result of
this closure, this subsidiary recognized an impairment loss of ¥477 million for the year ended
March 31, 2005 and recorded involuntary special termination benefits of ¥197 million ($1,684
thousand) for the year ended March 31, 2006. These were recorded in Impairment of long-lived
assets and Special termination benefits of other deductions of cost and expenses, respectively.
This restructuring activity was substantially completed in the year ended March 31, 2006 and no
liability existed at March 31, 2006.
During
the year ended March 31, 2006, the Company decided to close a car electronics plant in
Belgium as part of the integration plan in foreign manufacturing companies. As a result of this
decision, this subsidiary recorded involuntary special termination benefits of ¥2,977 million
($25,444 thousand) and an impairment loss of ¥557 million ($4,761 thousand) related to the property
and equipment for the year ended March 31, 2006. These were included in Special termination
benefits and Impairment of long-lived assets of other deductions of cost and expenses,
respectively. Furthermore, the Company recorded contract termination costs of ¥253 million ($2,162
thousand) and other associated costs of ¥595 million ($5,085 thousand) which were included in
Other of other deductions of cost and expenses for the year ended March 31, 2006. This
restructuring activity was substantially completed and the remaining liability balance at March 31,
2006 was ¥2,754 million ($23,538 thousand).
In addition to the restructuring efforts disclosed above, the Company has undergone several
head count reduction programs to further reduce operating costs. In Japan, twelve Pioneer Group
domestic companies, including the parent company, implemented voluntary early retirement programs
in February 2006. In relation to these programs, the Company recorded special termination benefits
of ¥10,760 million ($91,966 thousand) for the year ended March 31, 2006 when employees accepted the
offer and the amount could be reasonably estimated. The remaining liability balance at March 31,
2006 of ¥10,760 million ($91,966 thousand) will be paid during the year ending March 31, 2007. In
addition, certain foreign subsidiaries recorded voluntary special termination benefits of ¥161
million ($1,376 thousand) for the year ended March 31, 2006. There were included in Special
termination benefits of other deductions of cost and expenses in the consolidated statements of
operations.
In connection with the restructuring plan, during the year ended March 31, 2006, the Company
decided to withdraw from the TFT substrate business which had been carried out by ELDis, Inc., an
equity method investee, which was 47.5% owned by Tohoku Pioneer Corporation, a 67.1% owned
subsidiary. ELDis, Inc. was liquidated in March 2006 with the Company assuming its long-term debt
amounting to ¥25,357 million ($216,726 thousand). The Company recorded losses of ¥24,139 million
($206,316 thousand) in Equity in losses of affiliated companies in the consolidated statements of
operations for the year ended March 31, 2006; which included the long-term debt assumed of ¥25,357
million and gain on disposal and others of ¥1,922 million ($16,427 thousand).
F-38
18. Supplemental information:
Supplemental information for the years ended March 31, 2004, 2005 and 2006 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thousands of |
|
|
|
Millions of Yen |
|
|
U.S. Dollars |
|
|
|
2004 |
|
|
2005 |
|
|
2006 |
|
|
2006 |
|
|
Research and development expenses charged to cost and expenses |
|
¥ |
51,449 |
|
|
¥ |
55,858 |
|
|
¥ |
63,442 |
|
|
$ |
542,239 |
|
Advertising costs charged to expense as incurred |
|
|
12,813 |
|
|
|
11,587 |
|
|
|
10,961 |
|
|
|
93,684 |
|
|
Other income of revenues for the years ended March 31, 2004, 2005 and 2006 consisted of
the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thousands of |
|
|
|
Millions of Yen |
|
|
U.S. Dollars |
|
|
|
2004 |
|
|
2005 |
|
|
2006 |
|
|
2006 |
|
|
Gain on sale of available-for-sale securities and sundry investments |
|
¥ |
37 |
|
|
¥ |
2,309 |
|
|
¥ |
5,711 |
|
|
$ |
48,812 |
|
Foreign exchange gain, net |
|
|
|
|
|
|
480 |
|
|
|
|
|
|
|
|
|
Dividend income |
|
|
319 |
|
|
|
378 |
|
|
|
481 |
|
|
|
4,111 |
|
Other |
|
|
123 |
|
|
|
257 |
|
|
|
597 |
|
|
|
5,103 |
|
|
Total other income |
|
¥ |
479 |
|
|
¥ |
3,424 |
|
|
¥ |
6,789 |
|
|
$ |
58,026 |
|
|
Other deductions of cost and expenses for the years ended March 31, 2004, 2005 and 2006
consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thousands of |
|
|
|
Millions of Yen |
|
|
U.S. Dollars |
|
|
|
2004 |
|
|
2005 |
|
|
2006 |
|
|
2006 |
|
|
Impairment of long-lived assets |
|
|
|
|
|
¥ |
4,460 |
|
|
¥ |
41,422 |
|
|
$ |
354,034 |
|
Special termination benefits |
|
|
|
|
|
|
25 |
|
|
|
14,095 |
|
|
|
120,470 |
|
Write-down of available-for-sale securities and sundry investments |
|
¥ |
245 |
|
|
|
51 |
|
|
|
133 |
|
|
|
1,137 |
|
Foreign exchange loss, net |
|
|
1,192 |
|
|
|
|
|
|
|
2,326 |
|
|
|
19,880 |
|
Other |
|
|
152 |
|
|
|
1,800 |
|
|
|
2,044 |
|
|
|
17,470 |
|
|
Total other deductions |
|
¥ |
1,589 |
|
|
¥ |
6,336 |
|
|
¥ |
60,020 |
|
|
$ |
512,991 |
|
|
19. Leased assets:
The Company leases certain land, machinery and equipment, office space, warehouses, computer
equipment and employees residential facilities.
An analysis of assets under capital leases was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thousands of |
|
|
|
Millions of Yen |
|
|
U.S. Dollars |
|
|
|
2005 |
|
|
2006 |
|
|
2006 |
|
|
Machinery and equipment |
|
¥ |
12,625 |
|
|
¥ |
13,041 |
|
|
$ |
111,461 |
|
Accumulated depreciation |
|
|
(1,794 |
) |
|
|
(5,066 |
) |
|
|
(43,299 |
) |
|
Total |
|
¥ |
10,831 |
|
|
¥ |
7,975 |
|
|
$ |
68,162 |
|
|
F-39
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 at March 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thousands of |
|
Years ending March 31 |
|
Millions of Yen |
|
|
U.S. Dollars |
|
|
|
|
2007 |
|
¥ |
3,277 |
|
|
$ |
28,009 |
|
2008 |
|
|
2,649 |
|
|
|
22,641 |
|
2009 |
|
|
650 |
|
|
|
5,555 |
|
2010 |
|
|
640 |
|
|
|
5,470 |
|
2011 |
|
|
629 |
|
|
|
5,376 |
|
2012 and thereafter |
|
|
790 |
|
|
|
6,752 |
|
|
Total minimum lease payments |
|
|
8,635 |
|
|
|
73,803 |
|
|
LessAmount representing interest |
|
|
384 |
|
|
|
3,282 |
|
|
Present value of net minimum lease payment |
|
|
8,251 |
|
|
|
70,521 |
|
LessCurrent obligations |
|
|
3,094 |
|
|
|
26,444 |
|
|
Long-term capital lease obligations |
|
¥ |
5,157 |
|
|
$ |
44,077 |
|
|
Rental expenses under operating leases for the years ended March 31, 2004, 2005 and 2006
aggregated ¥5,991 million, ¥8,123 million and ¥7,520 million ($64,274 thousand), respectively. Such
rentals relate principally to cancelable leases which are renewable upon expiration.
F-40
The net minimum rental payments under operating leases that have initial or remaining
noncancelable lease terms in excess of one year at March 31, 2006 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thousands of |
|
Years ending March 31 |
|
Millions of Yen |
|
|
U.S. Dollars |
|
|
|
|
2007 |
|
¥ |
2,511 |
|
|
$ |
21,462 |
|
2008 |
|
|
1,976 |
|
|
|
16,889 |
|
2009 |
|
|
1,470 |
|
|
|
12,564 |
|
2010 |
|
|
849 |
|
|
|
7,256 |
|
2011 |
|
|
472 |
|
|
|
4,034 |
|
Thereafter |
|
|
1,171 |
|
|
|
10,009 |
|
|
Total minimum future rentals |
|
¥ |
8,449 |
|
|
$ |
72,214 |
|
|
20. Financial instruments:
Derivatives
The Company operates internationally, giving rise to exposure to market risks from changes in
foreign exchange rates and interest rates. Derivative financial instruments are utilized by the
Company to reduce those risks but are not held or issued for trading purposes.
To hedge certain purchase and sale commitments and anticipated but not yet committed
transactions denominated in other than functional currencies, the Company enters into forward
exchange contracts and purchases and writes currency options. Written options are entered into only
with purchased options.
The notional amounts of forward exchange contracts at March 31, 2005 and 2006 were ¥34,950
million and ¥38,864 million ($332,171 thousand), respectively. The notional amounts of currency
options purchased at March 31, 2006 were ¥9,128 million ($78,017 thousand). The notional amounts of
currency options written at March 31, 2006 were ¥9,128 million ($78,017 thousand).
To change currency and interest rate features of intercompany finance transactions, the
Company enters into currency swap contracts with banks. Currency swap contracts effectively change,
in substance, the U.S. dollars floating interest rate intercompany borrowings into Japanese yen
fixed and floating interest rate borrowings and euro fixed interest rate borrowings. The notional
amounts of currency swap contracts at March 31, 2005 and 2006 were ¥35,489 million and ¥
55,667million ($475,786 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 Companys 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 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-41
21. Fair value of financial instruments:
The following table presents the carrying amounts and fair values of the Companys financial
instruments at March 31, 2005 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thousands of |
|
|
|
Millions of Yen |
|
|
|
|
|
|
U.S. Dollars |
|
|
|
2005 |
|
|
2006 |
|
|
2006 |
|
|
|
Carrying |
|
|
Fair |
|
|
Carrying |
|
|
Fair |
|
|
Carrying |
|
|
Fair |
|
|
|
Amounts |
|
|
Value |
|
|
Amounts |
|
|
Value |
|
|
Amounts |
|
|
Value |
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities |
|
¥ |
22,268 |
|
|
¥ |
22,268 |
|
|
¥ |
24,733 |
|
|
¥ |
24,733 |
|
|
$ |
211,393 |
|
|
$ |
211,393 |
|
Sundry investments |
|
|
411 |
|
|
|
452 |
|
|
|
396 |
|
|
|
479 |
|
|
|
3,385 |
|
|
|
4,094 |
|
Long-term receivables |
|
|
185 |
|
|
|
179 |
|
|
|
145 |
|
|
|
140 |
|
|
|
1,239 |
|
|
|
1,197 |
|
Other financial instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward exchange contracts |
|
|
50 |
|
|
|
50 |
|
|
|
105 |
|
|
|
105 |
|
|
|
897 |
|
|
|
897 |
|
Currency swap |
|
|
190 |
|
|
|
190 |
|
|
|
2,706 |
|
|
|
2,706 |
|
|
|
23,128 |
|
|
|
23,128 |
|
Currency option |
|
|
|
|
|
|
|
|
|
|
69 |
|
|
|
69 |
|
|
|
590 |
|
|
|
590 |
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, including current maturity |
|
|
(100,495 |
) |
|
|
|
|
|
|
(100,135 |
) |
|
|
|
|
|
|
(855,854 |
) |
|
|
|
|
LessCapital lease obligations |
|
|
11,129 |
|
|
|
|
|
|
|
8,251 |
|
|
|
|
|
|
|
70,521 |
|
|
|
|
|
|
|
|
Long-term debtnet |
|
|
(89,366 |
) |
|
|
(84,301 |
) |
|
|
(91,884 |
) |
|
|
(86,316 |
) |
|
|
(785,333 |
) |
|
|
(737,744 |
) |
|
|
|
Other financial instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward exchange contracts |
|
|
(555 |
) |
|
|
(555 |
) |
|
|
(352 |
) |
|
|
(352 |
) |
|
|
(3,009 |
) |
|
|
(3,009 |
) |
Currency swap |
|
|
(3,009 |
) |
|
|
(3,009 |
) |
|
|
(125 |
) |
|
|
(125 |
) |
|
|
(1,068 |
) |
|
|
(1,068 |
) |
Currency option |
|
|
|
|
|
|
|
|
|
|
(60 |
) |
|
|
(60 |
) |
|
|
(513 |
) |
|
|
(513 |
) |
|
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 5.
Sundry investments included non-marketable equity securities, amounting to ¥2,977 million and
¥2,793 million ($23,872 thousand) at March 31, 2005 and 2006, respectively, and memberships
amounting to ¥411 million and ¥ 396million ($3,385 thousand) at March 31, 2005 and 2006,
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 Companys 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 estimated current
replacement cost.
The fair values of the Companys contingent liabilities for guarantees of loans are not
significant.
F-42
22. Basic and diluted earnings 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, 2004, 2005 and 2006 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thousands of |
|
|
|
Millions of Yen |
|
|
U.S. Dollars |
|
|
|
2004 |
|
|
2005 |
|
|
2006 |
|
|
2006 |
|
|
Income (loss) from continuing operations |
|
¥ |
19,464 |
|
|
¥ |
(10,112 |
) |
|
¥ |
(85,758 |
) |
|
$ |
(732,974 |
) |
Effect of dilutionZero coupon convertible bonds |
|
|
(21 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operationsdiluted |
|
¥ |
19,443 |
|
|
¥ |
(10,112 |
) |
|
¥ |
(85,758 |
) |
|
$ |
(732,974 |
) |
|
Income from discontinued operations, net of tax |
|
¥ |
5,374 |
|
|
¥ |
1,323 |
|
|
¥ |
772 |
|
|
$ |
6,598 |
|
|
Net income (loss) |
|
¥ |
24,838 |
|
|
¥ |
(8,789 |
) |
|
¥ |
(84,986 |
) |
|
$ |
(726,376 |
) |
Effect of dilutionZero coupon convertible bonds |
|
|
(21 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)diluted |
|
¥ |
24,817 |
|
|
¥ |
(8,789 |
) |
|
¥ |
(84,986 |
) |
|
$ |
(726,376 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares (Thousands) |
|
|
Weighted-average common shares outstanding |
|
|
175,433 |
|
|
|
175,389 |
|
|
|
174,426 |
|
Effect of dilutive convertible bonds |
|
|
1,115 |
|
|
|
|
|
|
|
|
|
Effect of stock options |
|
|
61 |
|
|
|
|
|
|
|
|
|
|
Diluted common shares outstanding |
|
|
176,609 |
|
|
|
175,389 |
|
|
|
174,426 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Yen |
|
|
U.S. Dollars |
|
|
|
|
Basic net income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
¥ |
110.95 |
|
|
¥ |
(57.65 |
) |
|
¥ |
(491.66 |
) |
|
$ |
(4.20 |
) |
Income from discontinued operations, net of tax |
|
|
30.63 |
|
|
|
7.54 |
|
|
|
4.43 |
|
|
|
0.04 |
|
|
Net income (loss) |
|
¥ |
141.58 |
|
|
¥ |
(50.11 |
) |
|
¥ |
(487.23 |
) |
|
$ |
(4.16 |
) |
|
Diluted net income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
¥ |
110.09 |
|
|
¥ |
(57.65 |
) |
|
¥ |
(491.66 |
) |
|
$ |
(4.20 |
) |
Income from discontinued operations, net of tax |
|
|
30.43 |
|
|
|
7.54 |
|
|
|
4.43 |
|
|
|
0.04 |
|
|
Net income (loss) |
|
¥ |
140.52 |
|
|
¥ |
(50.11 |
) |
|
¥ |
(487.23 |
) |
|
$ |
(4.16 |
) |
|
23. Supplemental schedule:
The changes in the allowance for doubtful receivables for the years ended March 31, 2004, 2005 and
2006 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thousands of |
|
|
|
Millions of Yen |
|
|
U.S. Dollars |
|
Allowance for Doubtful Receivables |
|
2004 |
|
|
2005 |
|
|
2006 |
|
|
2006 |
|
|
Balance at beginning of year |
|
¥ |
4,631 |
|
|
¥ |
3,534 |
|
|
¥ |
2,610 |
|
|
$ |
22,308 |
|
Charged (credited) to costs and expenses |
|
|
(667 |
) |
|
|
(515 |
) |
|
|
850 |
|
|
|
7,265 |
|
Deductions for accounts written off |
|
|
(13 |
) |
|
|
(497 |
) |
|
|
(517 |
) |
|
|
(4,419 |
) |
Translation adjustments |
|
|
(417 |
) |
|
|
88 |
|
|
|
222 |
|
|
|
1,897 |
|
|
Balance at end of year |
|
¥ |
3,534 |
|
|
¥ |
2,610 |
|
|
¥ |
3,165 |
|
|
$ |
27,051 |
|
|
F-43
The changes in the warranty reserve for the years ended March 31, 2004, 2005 and 2006 are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thousands of |
|
|
|
Millions of Yen |
|
|
U.S. Dollars |
|
Warranty Reserve |
|
2004 |
|
|
2005 |
|
|
2006 |
|
|
2006 |
|
|
Balance at beginning of year |
|
¥ |
6,493 |
|
|
¥ |
5,419 |
|
|
¥ |
5,722 |
|
|
$ |
48,906 |
|
Provision |
|
|
6,050 |
|
|
|
8,030 |
|
|
|
9,506 |
|
|
|
81,248 |
|
Payments |
|
|
(6,669 |
) |
|
|
(7,844 |
) |
|
|
(8,972 |
) |
|
|
(76,684 |
) |
Translation adjustments |
|
|
(455 |
) |
|
|
117 |
|
|
|
347 |
|
|
|
2,966 |
|
|
Balance at end of year |
|
¥ |
5,419 |
|
|
¥ |
5,722 |
|
|
¥ |
6,603 |
|
|
$ |
56,436 |
|
|
24. Commitments and contingent liabilities:
Commitments outstanding at March 31, 2006 for the purchase of property, plant and equipment and raw
materials, and other payments approximated ¥26,133 million ($223,359 thousand).
Contingent liabilities at March 31, 2006 principally for loans guaranteed in the ordinary
course of business amounted to ¥235 million ($2,009 thousand).
Loans guaranteed at March 31, 2006 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guaranteed Amount |
|
|
|
|
|
|
|
|
|
Thousands of |
|
Guarantee for |
|
Guaranteed until |
|
Millions of Yen |
|
|
U.S. Dollars |
|
|
|
|
Affiliated company |
|
April 1, 2006March 31, 2007 |
|
¥ |
235 |
|
|
$ |
2,009 |
|
|
The Company entered into this guarantee agreement to sustain the business relationships.
The Company will be required to pay the guaranteed amounts if the affiliated companies are
unable to repay.
Pioneer Electronics Deutschland GmbH (PED), a wholly owned subsidiary, received an
assessment from the German tax authorities in December 2000, which stated income adjustment of
EUR44.4 million (¥6,341 million translated at the foreign exchange rate at March 31, 2006) covering
the fiscal years ended March 31, 1993 to 1995, concerning its intercompany purchase prices from
Pioneer Europe NV, a wholly owned subsidiary in Belgium. PED, in 2001, contested the assessment and
has requested the German and the Belgian tax authorities to try to reach an agreement (through an
arbitration proceeding) on the arms length transfer prices and avoid double taxation. The German
tax authorities notified PED in February 2006 that they were not able to reach an agreement with
the Belgian tax authorities. PED has requested the German and Belgian tax authorities to continue
the arbitration proceeding to resolve the issue. PED, in February 2006, received a tax audit memo
(which outlines its preliminary views but does not yet constitute an assessment) from the German
tax authorities which stated income adjustment of EUR50.7 million (¥7,240 million) covering the
fiscal years ended March 31, 1996 to 1999. PED made objection to the German tax authorities
regarding the basis of this memo. The German tax authorities have not yet issued an assessment for
the fiscal years covered in the said tax audit memo. Also, PED understands that the German tax
authorities have completed transfer pricing audit for the fiscal years ended March 31, 2000 to
2004. The result of the audit has not been communicated to PED.
The Company, at the date of this report, is unable to reasonably determine the resolution and
is unable to currently estimate the amount of the loss, if any, associated with the foregoing
assessment, tax audit memo and completed transfer pricing audit.
25. Remuneration of directors, executive officers and corporate auditors:
The aggregate remuneration (including bonuses and stock-based compensation [see Note 15]) charged
to income by the parent company for directors, executive officers and corporate auditors for the
years ended March 31, 2004, 2005 and 2006 totaled ¥1,238 million, ¥1,136 million and ¥974 million
($8,325 thousand), respectively.
F-44