UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 20-F

[  ]  REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g)
OF THE SECURITIES EXCHANGE ACT OF 1934
OR
[X]  

For the fiscal year ended March 31, 20022003

Commission file number 1-7616

PIONEER KABUSHIKI KAISHA

PIONEER CORPORATION

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.

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

None

Securities for which there is a reporting obligation pursuant to

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

None

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

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.

Yesx Noo

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

2Item 17x Item 18o

TABLE OF CONTENTS

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Certain Defined Terms

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

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

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

Cautionary Statement with Respect to Forward-Looking Statements

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

PART I

Item 1. Identity of Directors, Senior Management and Advisers

         Not applicable

	Not applicable

Item 2. Offer Statistics and Expected Timetable

	Not applicable

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Item 3. Key Information

A. Selected financial data

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

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Notes:

6

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 ¥116.62¥120.47 = US ¥1.00US$1.00 on July 11, 2002.August 4, 2003.

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 theCautionary Statement with Respect to Forward-Looking Statements appearing elsewhere.elsewhere in this annual report. This list is necessarily incomplete, as some risks may be as yet unknown to us. Any risk factor has the potential to adversely affect our business results, share price and financial condition.

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Economic conditions may adversely affect our business results and financial condition

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

AsSubstantial decline in our royalty revenue as a result of the expiration of our existing patents relating to laser optical disc technologies may adversely affect our royalty revenue is expected to decline substantially, starting in fiscal 2003business results and financial condition

Our patent, license and other intellectual property rights make a significant contribution to our net income. Although less than 5%2% of our revenue isin fiscal 2003 was generated by our worldwide patents relating to laser optical disc technologies, these rights were responsible for between approximately 60%-80%35% of our operating income in the last three fiscal years.2003. The legal protections afforded these rights have a limited duration under applicable laws, and the length of protection varies from country to country or region. Therefore, aA significant portion of such patents will expireexpired in Europe and Japan byat the end of fiscal 2003. As a result, our royalty revenue is expectedhas started to decline substantially. This decline in royalty revenue may in turn have an adverse impact on our business results. While we are tryingworking to develop newacquire patents owned by third parties and acquirelicensing such patents, we also license patents for third party patent rights, weparties as a licensing agent. We do not expect that the revenue, if any, from such new patentspatents/agencies will be sufficient to offset the decrease in royalty revenue resulting from the expiration of our existing patents. Royalty revenue from patent licensing also depends to a material degree on the sales of patented products by our licensees, making it hard for us to predict actual royalty revenue amounts. For a discussion of our patent licensing business, see “Item 4.B. Business overview–Nature of operations.”

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

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

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

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In order to produce our products competitively and to reduce costs, we established newaim to continue expanding production facilitiesand parts procurement in the Shanghai and Dongguan areas of the People’s Republic of China (China). We invested a total of ¥4 billion in fiscal 2002 to build production capacities for various products, including DVD-related components and car stereo products, in the Shanghai and Dongguan areas. In opening a new manufacturing facility, however, it typically takes time to achieve success in production. Therefore, there is no guarantee that cost savings as expected will be realized in the immediate term, if at all. Furthermore,Nevertheless, we may experience difficulties in managing a production facility and entering into business arrangements in China in light of unexpected events, including political or legal changes, labor shortages or strikes or changes in economic conditions in China. Furthermore, the current outbreak of SARS (Severe Acute Respiratory Syndrome) in China may, depending on how this epidemic develops in the future, adversely impact our operations in China, including delays in production due to travel restrictions on employees, as well as disruptions in parts procurement and factory operations. Accordingly, such incidents could have an adverse impact on our business results and financial condition. For information on our China plants, see “Item 4.A. History and development of the Company–Principal capital expenditures, investments and divestitures.”

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

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

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

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

11

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

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

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

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

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

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

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

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

InAs part of our technological development process, we carry outconduct many joint activities with other companies in the formsform of collaboration,collaborations, technological tie-ups, or joint ventures intended to optimize management resources and utilize the synergy of combined technologies. We willexpect to continue to take a positiveadopt an active approach to exploiting these opportunities. If differences arise among the partiesparticipants of these joint activities due to managerial, financial or other reasons, we may not enjoyachieve the resultsgoals of such effectivethese development and therebyprojects, which may in turn adversely affect our business results and financial condition may be adversely affected.condition.

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

Various regulations by governmentsPioneer’s business and operations are subject to various forms of government regulation in countries in which we do business, such asincluding required business/investment approvals, as well as export regulations based on national security or other reasons and other export/import regulations such as tariffs, apply to us.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, even if we are able to comply,compliance with these regulations could result in increased costs. Accordingly, these regulations could adversely affect our business results and financial condition. See “Item 4.B. Business overview–Governmentaloverview-Governmental regulation” for a discussion of certain government regulations applicable to us.

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

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

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

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

Item 4. Information on the Company

A. History and development of the Company

History

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

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

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

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

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

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

Registered office

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

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Principal capital expenditures, investments and divestitures

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

In fiscal 2002, we installed a second manufacturing line for plasma displays at our plant in Shizuoka, Japan, enabling us to produce up to 150 thousand units a year. To meet potential demand for plasma displays, we plan to add another line there, which is expected to start operation in the fall of 2003, with an expected production of 100 thousand units annually.

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

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

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

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

B. Business overview

Strategy

We aim to be a leading provider of advanced, high quality,high-quality, value-added AV electronics products worldwide for consumer and business use. Our corporate philosophy is to “Move the Heart and Touch the Soul,” with products that are designed to bring joyincrease satisfaction, comfort and entertainment toconvenience in everyday life.

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

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

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

We believe our core strength is our ability to innovate. Throughout our history, we have focused on the development of unique products, and have attempted to be the front-runner and market leader in our product areas. Such areas have included dynamic speakers, car audio, LD and car navigation systems. We intend to continue to take advantage of such strategy and gain consumer confidence by introducing differentiated products into the market ahead of our competitors.

Consistent with our strategy, we have recently introduced into the market several newcutting-edge products, such as plasma displays and digital broadcast set-top boxes. In the DVD market, we were the first to commercialize a DVD recorder. We were also the first to introduce a four-color OEL display to the market. We intend to continue to take advantage of this strategy and attract customers by introducing differentiated products into the market ahead of our competitors.

Enhance our brand recognition and promote customer satisfaction

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

Leverage our leadership position in the car electronics business

We believe one of our strengths lies in our core business segment, the car electronics business. We leadare one of the leading manufacturers in the world market for car audio products. We were the first in the industry to introduce car navigation systems to the Japanese consumer market in fiscal 1991 and have maintained a leading position by offering affordably priced and easy-to-operate DVD-ROM typeand advanced HDD-equipped models. To strengthen this product line and leadIn addition, in November 2002 we released in the car navigationconsumer market we introduced in Japan in June 2001 a newthe world’s first car navigation system incorporatingthat incorporates a HDD, which features substantially fasterdata communication module for access times than those ofto the existing DVD-ROM drive models, while in October 2001 we brought out affordably-priced and easy-to-operate DVD models.

latest map data. Sales in this category are gradually shifting from the consumer market to the OEM market as automobile manufacturers place greater emphasis on differentiation of their cars, and we intend to expand our market share by increasing OEM sales.

Focus on our strategic products targeting global markets

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

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Adopt optimal production methods to maximize profitability

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

Strategic Focus—“Vision 2005”Pioneer Group Vision”

Consistent with the strategies described above, in fiscal 1999 we announced “Vision 2005,“Pioneer Group Vision,” a medium termmedium-term initiative, with the intent of revitalizing Pioneer and its business through the achievement of two financial targets by the end of March 2006, as well as four business targets. They are as follows.

Financial targets for the fiscal year ending March 2006:

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

Business targets:

(i) To become a leaderNo. 1 in the DVD industryworldwide

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

(ii) To establishEstablishing a business foundation for plasma displays and OEL displays

We believe large-screen plasma displays offer significant advantages over cathode ray tubes (CRTs). Among other advantages, plasma displays are thinner and lighter than CRTs. Thus, we expect that plasma display panels in the future will capture a substantial portion of the larger-screen TV market, in which currently CRTs and projection TVs are dominant. Since introducing the first plasma displays in fiscal 1998, we have established a solid presence both in consumer and commercial markets worldwide as a result of our excellent reputation for the large-screen high-resolution images of our plasma displays. To meet the expected risingincreasing demand, we expandedaim to continue expanding our production capacity in October 2001of plasma display panels by establishing a second lineproduction lines at our Shizuoka plantand Kofu plants in Japan, and we planenabling us to add another line there, which is expected to start operation inproduce approximately 500 thousand units per year by the fallspring of 2003.2005.

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

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(iii) To develop and strengthen lines of network-related productsFrom stand-alone to network

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

(iv) To expand our key deviceToward the key-device, key-technologies business and develop our key technologies

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

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

Nature of operations

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

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

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We classify our business groupsIn fiscal 2003, we reclassified reportable segments into three segments: “Electronics,four categories — “Home Electronics,” “AV Software” and“ Car Electronics,” “Patent Licensing.Licensing,” We further break down our “Electronics” segment into three product groups: “Audio/Video,” “Car Electronics” and “Others.” Operating revenue consists of net salesPrevious figures for both “Electronics” and “AV Software,” plus royalty revenue from “Patent Licensing.”the corresponding period have been restated accordingly. (The consolidated financial statements included in this annual report and the financial information below are prepared in accordance with U.S. GAAP, except for segment data which is prepared in accordance with therelevant regulations under the Securities and Exchange Law of Japan. TheSpecifically, such segment information pursuantis required to regulations in Japan isbe reported by reportable industrial segment, whereas segment information is required to be reported by reportable operating segment under U.S. GAAP.)

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

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

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

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Electronics

Audio/Video:Home Electronics:

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

Sales by product for fiscal 20022003 in the Audio/Video groupHome Electronics are as follows: Plasma displays have rapidly grown mainly for home use, accountingDVD players and DVD recorders accounted for the largest sales in this group. DVD players andsegment. In Japan, DVD recorders, alsoparticularly those equipped with a large capacity HDD that we launched in fall 2002, recorded a large increase in sales. Plasma displays for home use have rapidly grown, and contributed substantiallysignificantly to sales in this group.segment. Sales of stereo systems accounted for a materialsignificant portion of sales as well. Particularly in North America, both projection TVs and AV receivers accounted for a material portion of sales in this group.

We believe the traditional home audio markets of Japan, North America and Europe have matured and accordingly, price competition in these markets is strong. We do not expect the traditional home audio markets in these regions to grow substantially. We believe growth will come from new products, such as DVD-related products and plasma displays. JEITA (Japan Electronics and Information Technology Industry Association) forecasts an approximately 30%50% increase in consumer DVD player and DVD recorder sales worldwide, from 2945 million units in 20012002 to 3868 million in 2002.2007. It also forecasts that sales of plasma displays worldwide will increase approximately 10 times, from 0.4 million units in 2002 to 4.4 million in 2007. In our DVD business, we are shifting the emphasis from price-competitive DVD players to higher value-added DVD recorders and DVD home theater systems. In our plasma display business, we have launched newcontinue to vigorously promote 50- and 43-inch models of high-definition plasma displays in fiscal 2002 and we are promoting them vigorously in the worldwide market.

Car Electronics:

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

Sales by product for fiscal 20022003 in the Car Electronics group are as follows: Car CD players accounted for the largest sales in this group.segment. In Japan, our car navigation systems accounted for a material portionapproximately half of sales in this group.segment.

Both in Japan and outside Japan, sales in this group are generally made in the consumer market and to automobile manufacturers on an OEM basis for installation in new cars on production lines or as optional parts. Sales in this category are gradually shifting from the consumer market to the OEM market, as automobile manufacturers place greater emphasis on differentiation of their cars. Our strong brand recognition in both markets is helping us maintain our leading market share of car electronics products on a global basis. EspeciallyWe became the first manufacturer in the fieldworld to introduce car navigation systems for the consumer market when we launched our first car navigation systems to the Japanese market in fiscal 1991, and since then have maintained a leading position by offering affordably-priced and easy-to-operate DVD-ROM and advanced HDD-equipped models. JEITA forecasts that sales of car navigation systems worldwide will increase approximately 2.5 times, from 4.1 million units in 2002 to 11.4 million in 2007. In November 2002, we launchedreleased in June 2001, HDD models which have substantially fasterthe consumer market the world’s first car navigation system that incorporates a data communication module for access timesto the latest map data. In the car audio business, we also strive to widen our market share with new products and have attractive and convenient features,innovations, such as their faster searchcar CD players with OEL displays and display of routes to designated destinations. Our affordable, easy-to-operate DVD models, which were launched in October 2001, have earned excellent reputations as well. In addition, car audio products incorporating a radio tuner for digital satellite broadcasting were well received.in-car entertainment systems. As we keep introducing innovative car electronics products, we will continue to seek to distinguish our products from our competitors.

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Others:

This group includes products primarily for business use, such as equipment for cable-TV systems, DVD-ROM drives, DVD-R/RW drives, factory automation systems, digital broadcast set-top boxes, OEL display panels and telephones for consumer use.

Sales by product for fiscal 2002 in this group are as follows: DVD-R/RW drives accounted for the largest sales in this group. Set-top boxes of cable-TV systems and digital broadcast, and DVD-ROM drives also accounted for a material portion of sales in this group. In Japan, factory automation systems such as for car-related systems, also contributed to sales.

Our computer peripheral sales are shifting from DVD-ROM to DVD-R/RW drives. In fiscal 2001, we began supplying DVD-R/RW drives to PC makers on an OEM basis. The DVD-R/RW drives can record both on a write-once blank DVD-R disc and a rewritable blank DVD-RW disc up to seven times as much data as that of a CD-R or CD-RW disc. In fiscal 2002, we launched a Pioneer-brand DVD-R/RW drive, the world’s first model that reads and writes data on all DVD-R, DVD-RW, CD-R and CD-RW discs.

AV Software

This segment includes the production, manufacture and sale of prerecorded DVDs, LDs, videocassettes, CDs and optical disc manufacturing systems.

Sales in this segment are substantially smaller than those of the Electronics segment. Characteristically, they show much volatility year to year, depending upon the presence or absence of hit movie and music titles. The main markets of this segment are Japan and North America. Sales analysis by product for fiscal 2002 in this segment is as follows: DVDs accounted for the largest sales in this category, due mainly to the expansion of the DVD player market, especially in Japan.

Patent LicensingLicensing:

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

Most of the royalty revenue from this segment is obtained from patent, license and other intellectual property rightslicensing patents relating to laser optical disc technologies that are held by Discovision Associates, our wholly-owned U.S. partnership. These intellectual propertyThe legal protections afforded these rights expire over time, althoughhave a limited duration under applicable laws, and the periods involved depend on thelength of protection varies from country to country or by region. While continuingAlthough a significant portion of these patents have expired in certain regions such as Japan and Europe, some have not expired and remain valid. We are currently seeking to research and develop new technologies, we also acquiresources of revenue by acquiring patents held by third parties.parties and licensing such patents, and also by licensing patents for third parties as a licensing agent.

Royalty revenue from patent licensingPatent Licensing of digital playbackplayback/recording equipment, such as CD-ROM and CD-R drives, accounted for a substantial portion of revenue in this segment in fiscal 2002. In addition, patent licensing of digital discs contributed significantly to royalty revenue. As world PC market sales slumped,continued to slump, our revenue from patent licensing was negatively affected in fiscal 2002.2003. Additionally, a number of these patents in Europe and Japan expired at the end of fiscal 2003, further resulting in a substantial decrease in royalty revenue.

Revenue from the Patent Licensing segment is substantially less than from our other segments, constituting less than 5%2% of operating revenue for fiscal 2002.2003. However, the contribution of this segment to our operating revenueincome is substantial compared to its contribution to our operating revenue, constituting between approximately 60%-80%35% of our operating revenueincome in eachfiscal 2003.

Others:

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

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

Our computer peripheral sales have shifted from DVD-ROM to DVD-R/RW drives. In fiscal years. A number of these patents in Europe2001, we began supplying DVD-R/RW drives to PC makers on an OEM basis. The DVD-R/RW drives can record, both on a write-once DVD-R disc and Japan will expire bya rewritable DVD-RW disc, up to seven times as much data as on a CD-R or CD-RW disc. In fiscal 2002, we launched a Pioneer-brand DVD-R/RW drive, the end ofworld’s first model that reads and writes data on all DVD-R, DVD-RW, CD-R and CD-RW discs. In fiscal 2003, we introduced new DVD-R/RW models which will resultare capable of 4X recording for DVD-R discs and 2X recording for DVD-RW discs, respectively. JEITA forecasts strong growth in a substantial decreasewrite-once/rewritable DVD drives including DVD-R/RW drives, from 5.5 million units in royalty revenue.2002 to 52 million units in 2005 worldwide.

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Principal markets

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

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

Seasonality

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

Marketing channels

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

After-sales service

We maintain a policy of providing repair and other services in the countries where our products are sold. In Japan, after-sales service is provided through Pioneer’s wholly-owned service subsidiary, Pioneer Services Network Corporation (PSN), and authorized servicing companies. Pioneer established PSN in fiscal 2001April 2000 to enhance the efficiency of our operations for after-sales services and offer such services with higher quality. In countries where Pioneer’s subsidiaries are located, such as the United States and certain European countries, after-sales services are provided by such subsidiaries or through their authorized independent servicing companies. In other countries, such services are generally performed by our local distributors.

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

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Raw materials and sources of supply

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

No single source accounted for more than 6%5% of total supply purchases in fiscal 2002.2003. We have not experienced any material difficulties in obtaining raw materials, parts and products and believe that we will continue to be able to obtain them to meet our needs.

Semiconductors account for the largest percentage of parts purchased in fiscal 20022003 (on a yen basis), representing approximately 40% of our total purchases. We purchase semiconductors from various suppliers, mainly pursuant to the terms of our basic supply agreement. Our basic supply agreement generally has a term of one year, with an automatic renewal clause. Where we do not have two or more suppliers, we seek longer term contracts or bulk purchases and place our order 3 to 4 months earlier than our usual practice to reduce the risk of being unable to obtain key parts. We purchase a portion (approximately 10%) of our semiconductor parts, which are custom-made for our needs in accordance with our designs and specifications, from STMicroelectronics N.V. While we do not currently have an alternative source for the type of semiconductors supplied by STMicroelectronics N.V., we have entered into a strategic alliance with STMicroelectronics N.V. to assuresecure a stable source of supply.

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

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

Patents and licenses

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

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Competition

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

Import restrictions

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

Governmental regulation

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

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C.  Organizational structure

Our basic corporate structure is shown in the following chart:

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Note:

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

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

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

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D. Property, plants and equipment

Our manufacturing operations are conducted principally in Japan, Southeast Asia and China. Of the total of 3834 plants, 1716 plants are in Japan and the remaining 2118 are outside Japan. The following table sets forth information, as of March 31, 2002,2003, with respect to our principal plants.

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

As of March 31, 2002,2003, we owned our headquarters buildings in Tokyo having an approximate aggregate floor space of 336,000 square feet. We lease approximately 34,000 square feet as additional head office space in Tokyo.

We also own an employee training center in Tokyo with an approximate floor space of 17,000 square feet, and R&D facilities with an approximate aggregate floor space of 288,000282,000 square feet.

Our sales office buildings in Japan and outside Japan are mainly leased. The head office buildings of some distribution subsidiaries outside Japan are owned by us. Land and buildings for the Fukuroi Plant, the Ohio Plant R&D facilities, and one of our headquarters buildings with an aggregate book value of ¥15,978¥6,176 million were pledged as collateral for certain loans at March 31, 2002.2003.

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

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

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

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

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

Item 5. Operating and Financial Review and Prospects

Critical accounting policies and estimates

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

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

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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

Allowances for doubtful accounts

Warranties

Inventories

Impairment of investments

Deferred tax assets

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Pension benefit costs