UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

FORM 20-F

 


FORM 20-F


ANNUAL REPORT PURSUANT TO SECTIONS 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year endedMarch 31, 2001
2004

Commission file number1-6784 1 - 6784


MATSUSHITA DENKI SANGYO KABUSHIKI KAISHA

(Exact name of Registrant as specified in its charter)


MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.

(Translation of Registrant’s name into English)


Japan

(Jurisdiction of incorporation or organization)

1006, Oaza Kadoma, Kadoma-shi, Osaka 571-8501, Japan

(Address of principal executive offices)


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

Title of each class


Name of each exchange on which registered


American Depositary Shares*New York Stock Exchange and Pacific Exchange

Common Stock**Stock

New York Stock Exchange and Pacific Exchange

*American Depositary Shares evidenced by American Depositary Receipts. Each American Depositary Share represents one share of Common Stock.
**Par value 50 Japanese yen per share.

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

None


(Title of Class)

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

None


(Title of Class)

This form contains 103 pages.

 


TABLE OF CONTENTS

Cautionary Statement Regarding Forward-Looking Statements
PART I
Item 1.Identity of Directors, Senior Management and Advisers
Item 2. Offer Statistics and Expected Timetable
Item 3. Key Information
A. Selected Financial Data
B. Capitalization and Indebtedness
C. Reasons for the Offer and Use of Proceeds
D. Risk Factors
Item 4. Information on the Company
A. History and Development of the Company
B. Business Overview
C. Organizational Structure
D. Property, Plants and Equipment
Item 5. Operating and Financial Review and Prospects
A. Operating Results
B. Liquidity and Capital Resources
C. Research and Development
D. Trend Information
E. New Accounting Pronouncements
F. Information by Segment
Item 6. Directors, Senior Management and Employees
A. Directors and Senior Management
B. Compensation
C. Board Practices
D. Employees
E. Share Ownership
Item 7. Major Shareholders and Related Party Transactions
A. Major Shareholders
B. Related Party Transactions
C. Interests of Experts and Counsel
Item 8. Financial Information
A. Consolidated Statements and Other Financial Information
B. Significant Changes
Item 9. The Offer and Listing
A. Offer and Listing Details
B. Plan of Distribution
C. Markets
D. Selling Shareholders
E. Dilution
F. Expenses of the Issue
Item 10.    Additional Information
A. Share Capital
B. Memorandum and Articles of Association
C. Material Contracts
D. Exchange Controls
E. Taxation
F. Dividends and Paying Agents
G. Statement by Experts
H. Documents on Display
I. Subsidiary Information
Item 11. Quantitative and Qualitative Disclosures about Market Risk
Item 12. Description of Securities Other than Equity Securities
PART II
Item 13. Defaults, Dividend Arrearages and Delinquencies
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
Item 15. [ Reserved ]
Item 16. [ Reserved ]
PART III
Item 17. Financial Statements
Item 18. Financial Statements
Item 19. Exhibits
EX-1 ARTICLES OF INCORPORATION, AS AMENDED
EX-2 SHARE HANDLING REGULATIONS, AS AMENDED


CONTENTS

Page

Cautionary Statement Regarding Forward-Looking Statements1
PART I
Item 1.Identity of Directors, Senior Management and Advisers2
Item 2.Offer Statistics and Expected Timetable2
Item 3.Key Information2
A. Selected Financial Data2
B. Capitalization and Indebtedness3
C. Reasons for the Offer and Use of Proceeds3
D. Risk Factors3
Item 4.Information on the Company4
A. History and Development of the Company4
B. Business Overview7
C. Organizational Structure17
D. Property, Plants and Equipment18
Item 5.Operating and Financial Review and Prospects20
A. Operating Results20
B. Liquidity and Capital Resources26
C. Research and Development27
D. Trend Information28
E. New Accounting Pronouncements29
F. Information by Segment30
Item 6.Directors, Senior Management and Employees33
A. Directors and Senior Management33
B. Compensation38
C. Board Practices39
D. Employees39
E. Share Ownership39
Item 7.Major Shareholders and Related Party Transactions41
A. Major Shareholders41
B. Related Party Transactions42
C. Interests of Experts and Counsel42


Page

Item 8.Financial Information42
A. Consolidated Statements and Other Financial Information42
B. Significant Changes44
Item 9.The Offer and Listing45
A. Offer and Listing Details45
B. Plan of Distribution46
C. Markets46
D. Selling Shareholders46
E. Dilution46
F. Expenses of the Issue47
Item 10.Additional Information47
A. Share Capital47
B. Memorandum and Articles of Association47
C. Material Contracts56
D. Exchange Controls57
E. Taxation57
F. Dividends and Paying Agents60
G. Statement by Experts60
H. Documents on Display60
I. Subsidiary Information60
Item 11.Quantitative and Qualitative Disclosures about Market Risk61
Item 12.Description of Securities Other than Equity Securities63
PART II
Item 13.Defaults, Dividend Arrearages and Delinquencies64
Item 14.Material Modifications to the Rights of Security Holders and Use of Proceeds64
Item 15.[ Reserved ]64
Item 16.[ Reserved ]64
PART III
Item 17.Financial Statements65
Item 18.Financial Statements102
Item 19.Exhibits102


- 1 -

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

103,593,084
Outstanding as of

Title of Class


March 31, 2004

(Japan Time)


March 31, 2004
(New York Time)


Common Stock

2,318,407,612

American Depositary Shares, each representing 1 share of common stock

     
Outstanding as of

Title of ClassMarch 30, 2001March 29, 2001
(Japan Time)(New York Time)


Common Stock — 50 yen par value per share2,079,572,737
American Depositary Shares, each
representing 1 share of common stock
41,976,087

Indicate by check mark whether the Company (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Company was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨X No.

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

Item 17.  ¨XItem 18.  x.

This form contains 154 pages.



CONTENTS

Page

Cautionary Statement Regarding Forward-Looking Statements

1

About the Company

1
PART I

Item 1.

Identity of Directors, Senior Management and Advisers

2

Item 2.

Offer Statistics and Expected Timetable

2

Item 3.

Key Information

2

A.

Selected Financial Data

2
B.

Capitalization and Indebtedness

3
C.

Reasons for the Offer and Use of Proceeds

3
D.

Risk Factors

3

Item 4.

Information on the Company

10

A.

History and Development of the Company

10
B.

Business Overview

15
C.

Organizational Structure

29
D.

Property, Plants and Equipment

30

Item 5.

Operating and Financial Review and Prospects

32

A.

Operating Results

32
B.

Liquidity and Capital Resources

43
C.

Research and Development

46
D.

Trend Information

47
E.

Off-Balance Sheet Arrangements

49
F.

Tabular Disclosure of Contractual Obligations

49
G.

Safe Harbor

50
H.

Accounting Principles

50

Item 6.

Directors, Senior Management and Employees

54

A.

Directors and Senior Management

54

B.

Compensation

63

C.

Board Practices

63
D.

Employees

64
E.

Share Ownership

65


Page

Item 7.

Major Shareholders and Related Party Transactions

67

A.

Major Shareholders

67

B.

Related Party Transactions

68

C.

Interests of Experts and Counsel

68

Item 8.

Financial Information

69

A.

Consolidated Statements and Other Financial Information

69

B.

Significant Changes

69

Item 9.

The Offer and Listing

70

A.

Offer and Listing Details

70

B.

Plan of Distribution

71

C.

Markets

71

D.

Selling Shareholders

71

E.

Dilution

72

F.

Expenses of the Issue

72

Item 10.

Additional Information

72

A.

Share Capital

72

B.

Memorandum and Articles of Association

72

C.

Material Contracts

82

D.

Exchange Controls

83

E.

Taxation

84

F.

Dividends and Paying Agents

89

G.

Statement by Experts

90

H.

Documents on Display

90

I.

Subsidiary Information

90

Item 11.

Quantitative and Qualitative Disclosures about Market Risk

90

Item 12.

Description of Securities Other than Equity Securities

93
PART II

Item 13.

Defaults, Dividend Arrearages and Delinquencies

94

Item 14.

Material Modifications to the Rights of Security Holders and Use of Proceeds

94

Item 15.

Controls and Procedures

94


Page

Item 16A.

Audit Committee Financial Expert

94

Item 16B.

Code of Ethics

94

Item 16C.

Principal Accountant Fees and Services

95

Item 16D.

Exemptions from the Listing Standards for Audit Committees

96

Item 16E.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

96
PART III

Item 17.

Financial Statements

97

Item 18.

Financial Statements

97

Item 19.

Exhibits

153


- 1 -

All information contained in this Report is as of March 31, 20012004 or for the year ended March 31, 20012004 (fiscal 2001)2004) unless the context otherwise indicates.

The noon buying rate for yen in New York City as certified for customs purposes by the Federal Reserve Bank of New York on July 12, 2001August 25, 2004 was 124.10110.38 yen = U.S.$1.

Cautionary Statement Regarding Forward-Looking Statements

This annual report contains forward-lookingincludes forward–looking statements in(within the contextmeaning of Section 27A of the U.S. Private Securities Litigation Reform Act of 19951933 and Section 21E of the U.S. Securities Exchange Act of 1934) about the future performance of Matsushita and its Group companies (the Matsushita Group). To the extent that statements in this annual report do not relate strictly to historical or current facts, they may constitute forward-looking statements. These forward-looking statements are based on the Company’s current assumptions and beliefs of the Matsushita Group in light of the information currently available to it, and involve known and unknown risks, uncertainties and uncertainties. The Company’sother factors. Such risks, uncertainties and other factors may cause the Matsushita Group’s actual actionsresults, performance, achievements or financial position to be materially different from any future results, may differ materially from those discussed in theperformance, achievements or financial position expressed or implied by these forward-looking statements. The CompanyMatsushita undertakes no obligation to publicly update any forward-looking statements after the date of this annual report but investors(September 2004). Investors are advised to consult any further disclosures by the CompanyMatsushita in its subsequent filings with the U.S. Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934.1934 and its other filings.

Specific

The risks, uncertainties and uncertaintiesother factors referred to above include, but are not limited to, economic conditions, particularly consumer spending and corporate capital expenditures in the United States, Europe, Japan and other Asian countries; volatility in demand for electronic equipment and components from business and industrial customers, as well as consumers in many product and geographical markets; currency rate fluctuations, notably between the yen, the U.S. dollar, the euro, Asian currencies and other currencies in which the Matsushita Group operates businesses, or in which assets and liabilities of the Matsushita Group are denominated; the ability of the Matsushita Group to respond to rapid technological changes and changing consumer preferences with timely and cost-effective introductions of new products in markets that are highly competitive in terms of both price and technology; the ability of the Matsushita Group to achieve its business objectives through joint ventures and other collaborative agreements with other companies; the ability of the Matsushita Group to maintain competitive strength in many product and geographical areas; expenses incurred in relation to its business restructuring; any changes in the Matsushita Group’s financial and operational position or business environment due to its business restructuring; current and potential, direct and indirect trade restrictions imposed by other counties;countries over trade, manufacturing, labor and operations; and fluctuations in market prices of securities and other assets in which the Matsushita Group has holdings; as well as future changes or revisions to accounting policies or accounting rules.

About the Company

Matsushita Electric Industrial Co., Ltd. (hereinafter, unless the context otherwise requires, “Matsushita” or the “Company” refers to Matsushita Electric Industrial Co., Ltd. and its consolidated subsidiaries as a group), best known for its “Panasonic” brand name, is one of the world’s leading manufacturers of electronic and electric products for a wide range of consumer, business and industrial uses, as well as a wide variety of components. Based in Osaka, Japan, the Company recorded consolidated net sales of approximately 7,480 billion yen for fiscal 2004. Over the past eight decades, the Company has holdings.grown from a small domestic household electrical equipment manufacturer into a comprehensive electronic and electric equipment, systems and components manufacturer operating internationally. Of the fiscal 2004 net sales, nearly one-half was represented by sales in Japan, with the rest by overseas sales.


- 2 -

PART I

Item 1.     
Item 1.Identity of Directors, Senior Management and Advisers

Not applicable

Item 2.     
Item 2.Offer Statistics and Expected Timetable

Not applicable

Item 3.     Key Information

A.Item 3.Key Information

A.Selected Financial Data
                       
Yen (billions), except per share amounts and yen exchange rates

Fiscal year ended March 31,

20012000199919981997





Income Statement Data:
Net sales7,6827,2997,6407,8917,676
Income before income taxes101219202356332
Net income421002499138
Per common share:
     Net income:
     Basic19.9648.3511.6047.0465.39
     Diluted19.5646.3611.5844.0160.64
     Dividends12.5014.0012.5013.0012.50
($0.116)($0.125)($0.097)($0.107)($0.112)
Balance Sheet Data:
Total assets8,1567,9558,0558,6618,857
Long-term debt542644709690923
Stockholders’ equity3,7733,6843,6423,8543,842
Common stock211210209209208
Number of shares issued at year-end (thousands)2,079,5732,062,6712,062,3452,112,3182,111,157
                
Yen exchange rates per U.S. dollar:
     Year-end125.54102.73118.43133.29123.72
     Average110.60111.35128.19122.78113.19
     High104.19101.53108.83111.42104.49
     Low125.54124.45147.14133.99124.54
                           
Yen exchange rates for
each month during theJan.Feb.Mar.Apr.MayJun.
previous six months:200120012001200120012001
High114.26114.88117.33121.68118.88119.13
Low118.35117.62125.54126.75123.67124.73

   Yen (billions), except per share amounts and yen exchange rates

 
   Fiscal year ended March 31,

 
   2004

  2003

  2002

  2001

  2000

 

Income Statement Data:

                

Net sales

  7,480  7,402  7,074  7,781  7,405 

Income (loss) before income taxes

  171  69  (538) 105  248 

Net income (loss)

  42  (19) (428) 42  106 

Per common share:

                

Net income (loss):

                

Basic

  18.15  (8.70) (206.09) 19.96  51.49 

Diluted

  18.00  (8.70) (206.09) 19.56  49.32 

Dividends

  12.50  10.00  12.50  12.50  14.00 
   ($0.109) ($0.107) ($0.100) ($0.116) ($0.125)

Balance Sheet Data:

                

Total assets

  7,438  7,835  7,768  8,295  8,076 

Long-term debt

  461  588  708  563  662 

Stockholders’ equity

  3,452  3,178  3,248  3,770  3,678 

Common stock

  259  259  259  211  210 

Number of shares issued at year-end (thousands)

  2,453,053  2,447,923  2,138,515  2,079,573  2,062,671 

Yen exchange rates per U.S. dollar:

                

Year-end

  104.18  118.07  132.70  125.54  102.73 

Average

  113.08  121.96  125.05  110.60  111.35 

High

  104.18  115.71  115.89  104.19  101.53 

Low

  120.55  133.40  134.77  125.54  124.45 

   Feb.
2004


  Mar.
2004


  Apr.
2004


  May
2004


  Jun.
2004


  Jul.
2004


Yen exchange rates for each month during the previous six months:

                  

High

  105.36  104.18  103.70  108.50  107.10  108.21

Low

  109.59  112.12  110.37  114.30  111.27  111.88


- 3 -

Note:Notes:1.Dividends per share reflect those paid during each fiscal year. The dollar amounts of the dividends per share have been computed at the exchange rates prevailing on the respective payment dates.

B.Capitalization and Indebtedness

Not applicable

C.Reasons for the Offer and Use of Proceeds

Not applicable

D.Risk Factors

Primarily because of the business areas and geographical areas where it operates and the highly competitive nature of the industry to which it belongs, Matsushita is exposed to a variety of risks and uncertainties in carrying out its businesses, including, but not limited to, the following:

Risks Related to Economic Conditions

Weakness in Japanese and global economies may cause reduced demand for the products of Matsushita

Demand for Matsushita’s products and services may be affected by general economic trends in the countries or regions in which Matsushita’s products and services are sold. Economic downturns and resulting declines in demand in Matsushita’s major markets worldwide may thus adversely affect the Company’s business results and financial condition. Although Matsushita continued to achieve improvements in its business performance in fiscal 2004, it currently does not foresee a rapid turnaround in the Japanese or global economy in the near term given the limited recovery in consumer spending. These conditions may continue in the short- to mid-term, thereby further negatively affecting Matsushita’s businesses. Furthermore, if Japanese and global economies fall into stagnation, resulting decreased demand and slowdown in capital investment may adversely affect Matsushita’s overall business.

Currency exchange rate fluctuations could adversely affect Matsushita’s financial results

Matsushita is exposed to risks of foreign currency exchange rate fluctuations. Matsushita’s consolidated financial statements, which are presented in Japanese yen, are affected by foreign exchange rate changes. These changes affect Matsushita’s international business transactions and costs and prices of Matsushita’s products and services in overseas countries in relation to the yen. They can also affect the yen value of Matsushita’s investments in overseas assets and liabilities. Generally, an appreciation of the yen against other major currencies such as the U.S. dollar and the euro may adversely affect Matsushita’s business results and financial condition. Meanwhile, a depreciation of the yen against aforementioned major currencies may have a favorable impact on Matsushita’s business results and financial condition. Although Matsushita is taking measures to reduce or hedge against foreign currency exchange risks, foreign exchange rate fluctuations may hurt its businesses, results of operations and financial condition.


- 4 -

Interest rate fluctuations may adversely affect Matsushita’s financial results

Matsushita is exposed to the risk of interest rate fluctuations, which, despite the measures taken by Matsushita to hedge a portion of its exposure to interest rate fluctuations, may affect its overall operational costs, interest expense, interest income and the value of its financial assets and liabilities.

The decrease in the value of Japanese stocks may adversely affect Matsushita’s financial results

Matsushita holds mostly Japanese stocks as part of its investment securities. The value of most of these stocks, however, dropped substantially over the past several years due to the stagnant Japanese economy. Matsushita recorded a loss in valuation declines in its investment securities. The decrease in the value of stocks may continue and adversely affect Matsushita’s financial results. The decrease in the value of Japanese stocks may also reduce stockholders’ equity in the balance sheet, as unrealized holding gains (losses) of available-for-sale securities are included as part of accumulated other comprehensive income (loss).

Risks Related to Matsushita’s Business

Matsushita is subject to intense competition in areas in which it operates, and this may adversely affect its ability to maintain its profitability

Matsushita produces a broad range of products and therefore faces many different types of competitors, from large international companies to relatively small, rapidly growing, and highly specialized organizations. Matsushita may choose not to fund or invest in one or more of its businesses to the same degree as its competitors in those businesses do, or it may not be able to do so in a timely manner or at all. These competitors may have greater financial, technological, and marketing resources available to them than Matsushita has in the respective businesses in which they compete.

Rapid declines in product prices may adversely affect Matsushita’s financial results

Matsushita’s business is subject to intense price competition worldwide, which makes it difficult for the Company to decide product prices so that it can obtain adequate profits. Such intensified price competition may adversely affect Matsushita’s profits, especially when demand decreases. For the year ending March 31, 2005, Matsushita expects prices in many product areas in which it deals to decline at the same rate as, or more rapidly than, in recent fiscal years. Matsushita believes that this trend will affect its businesses, especially those in the area of its AVC Networks category and its Components and Devices category.


- 5 -

Matsushita’s business is, and will continue to be, subject to the risks generally associated with international business operations

One of Matsushita’s business strategies is business expansion in overseas markets. In many of these markets, Matsushita may face risks generally associated with international manufacturing and other business operations, such as political instability, economic uncertainty, cultural and religious differences and labor relations, as well as foreign currency exchange risks. Matsushita may also face barriers in commercial and business customs in foreign countries, including difficulties in timely collection of accounts receivable or in building and expanding relationships with customers, subcontractors or parts suppliers. Matsushita may also experience various political, legal or other restrictions over investment, trade, manufacturing, labor or other aspects of operations, including restrictions on foreign investment or the repatriation of profits on invested capital, nationalization of local industry, changes in export or import restrictions or foreign exchange controls, and changes in the tax system or rate of taxation in countries where Matsushita operates businesses. With respect to the products exported overseas, tariffs, other barriers or shipping costs may make Matsushita’s products less competitive. Expanding its overseas business may require significant investments long before Matsushita realizes returns on such investments, and increased investments may result in expenses growing at a faster rate than revenues.

Matsushita may not be able to keep pace with technological changes and develop new products and services in a timely manner to remain competitive

Matsushita may fail to introduce new products and services in response to technological changes in a timely manner despite its efforts to develop new products and services continuously. Some of Matsushita’s core businesses, such as consumer digital electronics and key components and devices, are concentrated in industries where technological innovation is the central competitive factor. Matsushita continuously faces the challenge of developing and introducing viable and innovative new products. Matsushita must predict with reasonable accuracy both future demand and new technologies that will be available to meet such demand. If Matsushita fails to do so, it will not be able to compete in new markets.

Matsushita may not be able to develop product formats that can prevail as de factostandards

Matsushita has been forming alliances and partnerships with other major manufacturers to strengthen technologies and the development of product formats, such as next-generation home and mobile networking products, data storage devices, and software systems. Despite these efforts by Matsushita, its competitors may be the ones who develop the de facto standards for future products. If that happens, Matsushita’s business in those business areas, its results of operations and financial condition, could be adversely affected.

Matsushita may not be able to successfully recruit and retain skilled employees, particularly scientific and technical personnel

Matsushita’s future success depends largely on its ability to attract and retain certain key personnel, including scientific, technical and management personnel. Matsushita anticipates that it will need to hire additional skilled personnel in all areas of its business. Industry demand for skilled employees, however, exceeds the number of personnel available, and the competition for attracting and retaining these employees, especially scientific and technical employees, is intense. Because of this intense competition for these skilled employees, Matsushita may be unable to retain its existing personnel or attract additional qualified employees to keep up with its future business needs. If this should happen, it could adversely affect Matsushita’s future growth, results of operations and financial condition.


- 6 -

The alliances with, and strategic investments in, third parties undertaken by Matsushita may not produce positive results

Matsushita develops its business by forming alliances or joint ventures with, and making strategic investments in, other companies, including investments in venture companies. Matsushita’s reliance on the strategy of partnering with third parties is increasing. Such partnerships are crucial to Matsushita’s goal of introducing new products and services, but Matsushita may not be able to successfully collaborate or achieve expected synergies with its partners. Matsushita does not, however, control these partners, who may make decisions regarding their business undertakings with Matsushita that may be contrary to Matsushita’s interests. In addition, if these partners change their business strategies, Matsushita may fail to maintain these partnerships.

Matsushita is dependent on the ability of third parties to deliver parts, components and services in adequate quality and quantity in a timely manner, and in reasonable price

Matsushita’s manufacturing operations depend on obtaining deliveries of raw materials, parts and components, equipment and other supplies from reliable suppliers in adequate quality and quantity in a timely manner. It may be difficult for Matsushita to substitute one supplier for another, increase suppliers or change one component for another in a timely manner or at all due to the interruption of supply or increased industry demand. This may adversely affect the Matsushita Group’s operations. Although Matsushita decides purchase prices by contract, these prices may become higher due to changes in supply and demand. Some components are only available from a limited number of suppliers and may adversely affect Matsushita’s operations. For example, Matsushita uses steel and rare metals for most of its products, and an increase in prices of these products may adversely affect Matsushita’s operating results.

Matsushita is exposed to the risk that its customers, including those to whom it has provided vendor financing, may encounter financial difficulties

Matsushita provides vendor financing to its customers. As more businesses utilize vendor financing, Matsushita may also provide increased vendor financing in the future. In addition, many of Matsushita’s customers purchase products and services from it on payment terms that do not provide for immediate payment. If customers to whom Matsushita has extended or guaranteed vendor financing, or from whom it has substantial accounts receivable, encounter financial difficulties and are unable to make payments on time, Matsushita’s business, operating results and financial condition could be adversely affected.


- 7 -

Risks Related to Matsushita’s Management Plans

Matsushita has implemented its new mid-term management plan, “Leap Ahead 21,” (announced on January 9, 2004) for the three-year term ending March 2007. Matsushita’s business vision focuses on “realizing a ubiquitous networking society” and “contributing to coexistence with the global environment” through leading-edge technologies. Based on this vision, Matsushita aims to become a company that creates more value for customers. Matsushita may not be successful in achieving all the goals set out in its mid-term business plan. Furthermore, in fiscal 2004, Matsushita introduced an autonomous business domain-based organizational structure, along with a new management system that places a top priority on improving its global consolidated results and cash flows. With the objective of further enhancing profitability, Matsushita will speed up its structural reforms in several of its business domain companies. Under the management structure, Matsushita seeks to conduct its consolidated Groupwide businesses speedily and efficiently, and to achieve synergies expected from such business restructuring. Matsushita may not, however, be able to improve efficiency, reduce costs or realize growth through these measures due to unexpected additional reorganization or restructuring expenses (for restructuring expenses expected in fiscal 2005, see Section D of Item 5), improper allocation of operational resources or other unpredictable factors. Also, Matsushita has implemented its annual forecast and major initiatives (announced on April 28, 2004) for the year ending March 31, 2005. Matsushita may not be successful in achieving all the targets or in realizing the benefits expected because of external and internal factors.

Risks Related to Legal Restrictions and Litigations

Matsushita may be subject to product liability or warranty claims that could result in significant direct or indirect costs

Although Matsushita strictly follows its prescribed quality control standards for manufacturing, there is a risk that defects may occur in Matsushita’s products and services. The occurrence of defects could make Matsushita liable for damages not covered by product and completed operation liability insurance. Due to negative publicity concerning these problems, Matsushita’s reputation and corporate and brand image may be adversely affected.

Matsushita may fail to protect its proprietary intellectual property, or face a claim of intellectual property infringement by a third party, and may lose its intellectual property rights on key technologies or be liable for significant damages

Matsushita’s success depends on its ability to obtain intellectual property rights covering its products and product design. Patents may not be granted or may not be of sufficient scope or strength to provide Matsushita with enough protection or commercial advantage. In addition, effective copyright and trade secret protection may be unavailable or limited in some countries in which Matsushita operates. Competitors or other third parties may also develop technologies that are protected by patents and other intellectual property rights, which make such technologies unavailable or available only on terms unfavorable to Matsushita. Matsushita obtains licenses for intellectual property rights from others. However, such licenses may not be available at all or on acceptable terms in the future. Litigation may also be necessary to enforce Matsushita’s intellectual property rights or to defend against intellectual property infringement claims brought against Matsushita by third parties. In such cases, Matsushita may incur significant expenses for such lawsuits. Furthermore, Matsushita may become prohibited from using certain important technologies or liable for damages in cases of admitted violations of intellectual property rights of others.


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Changes in accounting standards and tax systems may adversely affect Matsushita’s financial results and condition

Introduction of new accounting standards or tax systems, or changes thereof, which Matsushita can not predict, may have a material adverse effect on the Company’s financial results and operations. In addition, if tax authorities have different opinions from Matsushita on the Company’s tax declarations, Matsushita may need to make tax payments more than estimated.

Payments or compensation related to environmental regulations may adversely affect Matsushita’s business, operating results and financial condition

Matsushita is subject to environmental regulations such as those relating to air pollution, water pollution, elimination of hazardous substances, waste management, product recycling, and soil and groundwater contamination, and may be held responsible for certain related payments or compensation, despite its strict compliance with these regulations. Furthermore, if these regulations become more strict, the payments or compensation required for the violation of these regulations may adversely affect Matsushita’s business, operating results and financial condition.

Leak of confidential information may adversely affect Matsushita’s business

In the normal course of business, Matsushita holds confidential information, including individual information on its customers. Although Matsushita keeps confidential information with utmost care, such information may be leaked due to an accident or other inevitable cause and any material leakage of confidential information may result in significant expenses for related lawsuits and adversely affect Matsushita’s image. Moreover, Matsushita’s trade secrets may be illegally leaked by a third party, and this would negatively affect Matsushita’s business.

Governmental regulations may limit Matsushita’s activities or increase its operating costs

Matsushita is subject to governmental regulations in Japan and other countries in which it conducts its business, including governmental approvals required for conducting business and investments, laws and regulations governing the telecommunications businesses and electric product safety, national security-related laws and regulations and export/import laws and regulations, as well as commercial, antitrust, patent, product liability, environmental laws and regulations, consumer protection, financial and business taxation laws and regulations due to the implementation of stricter laws and regulations and more strict interpretations. However, to the extent that Matsushita cannot comply with these laws and regulations, Matsushita’s activities would be limited. In addition, these laws and regulations could increase Matsushita’s operating costs.

Other Risks

External economic conditions may adversely affect Matsushita’s pension plans

Matsushita has contributory, funded benefit pension plans covering substantially all employees in Japan who meet eligibility requirements. A decline in interest rates may cause a decrease in the discount rate on benefit obligations. A decrease in the value of stocks may also affect the return on plan assets. As a result, the unrecognized portion of actuarial loss may increase, leading to a future recognized actuarial loss on an increase in future net periodic benefit costs of these pension plans.


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Some long-lived assets may not produce adequate returns

Matsushita has many long-lived assets, such as plant, property and equipment, and goodwill, that generate returns. The Company periodically reviews the recorded value of its long-lived assets to determine if the future cash flows to be derived from these properties will be sufficient to recover the remaining recorded asset values. If these long-lived assets do not generate sufficient cash flows, impairment losses will have to be recognized, adversely affecting Matsushita’s results of operations and financial condition.

Financial results and condition of associated companies may adversely affect Matsushita’s results of operations and financial condition

Matsushita holds equities of several associated companies. Matsushita can exercise influence over operating and financing policies of these companies. However, Matsushita does not have the right to make decisions for them since the companies operate independently. Some companies may record losses. If these associated companies do not generate profits, Matsushita’s business results and financial condition may be adversely affected.

Matsushita’s facilities and information systems could be damaged as a result of disasters or unpredictable events, which could have an adverse effect on its business operations

Matsushita’s headquarters and major facilities including manufacturing plants, sales offices and research and development centers are located in Japan. In addition, Matsushita’s operations, including procurement, manufacturing, logistics, sales and research and development facilities are located all over the world. If major disasters such as earthquakes, fires, floods, wars, terrorist attacks, computer viruses or other events occur, Matsushita’s facilities may be damaged and it may have to stop or delay its production and shipment. Matsushita may incur expenses relating to such damages.

American Depositary Share (ADS) holders have fewer rights than shareholders and may not be able to enforce judgments based on U.S. securities laws

The rights of shareholders under Japanese law to take actions, including exercising their voting rights, receiving dividends and distributions, bringing derivative actions, examining Matsushita’s accounting books and records, and exercising appraisal rights are available only to shareholders of record. Because the depositary, through its nominee, is the record holder of the shares underlying the ADSs, only the depositary can exercise those rights in connection with the deposited shares. The depositary will make efforts to exercise their voting rights underlying ADSs in accordance with the instructions of ADS holders and will pay the dividends and distributions collected from Matsushita. However, ADS holders will not be able to bring a derivative action, examine Matsushita’s accounting books and records, or exercise appraisal rights through the depositary.


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Item 4.Information on the Company

A.History and Development of the Company

GENERAL

The Company was incorporated in Japan on December 15, 1935 under the laws of Japan as Matsushita Denki Sangyo Kabushiki Kaisha (Address : 1006, Oaza Kadoma, Kadoma-shi, Osaka 571-8501, Japan. Phone : +81-6-6908-1121 / Agent : Mr. Yukitoshi Onda, President of Panasonic Finance (America), Inc.) as the successor to an unincorporated enterprise founded in 1918 by the late Konosuke Matsushita. Mr. Matsushita led the Company with his corporate philosophy of contributing to the peace, happiness and prosperity of humankind through the supply of quality consumer electric and electronic goods. The Company’s business expanded rapidly with the recovery and growth of the Japanese economy after World War II, as it met rising demand for consumer electric and electronic products, starting with washing machines, black-and-white television sets (TVs) and refrigerators. During the 1950s, Matsushita expanded its operations by establishing mass production and mass sales structures to meet increasing domestic demand, while also creating subsidiaries, making acquisitions and forming alliances. During the 1960s, Matsushita expanded its overseas businesses, and its products started obtaining worldwide recognition.

During the global recession caused by the first oil crisis in 1973, Matsushita strengthened its structure and overseas business relations. The advent and popularity of the video cassette recorder (VCR) from the late 1970s enabled Matsushita to receive worldwide recognition as a global consumer electronics manufacturer. In the 1980s, Matsushita further worked to evolve from a consumer products manufacturer to a comprehensive electronics products manufacturer, expanding its business in the areas of information and communications technology, industrial equipment and components. Since the 1990s, Matsushita has been emphasizing technological development and the use of advanced technology in every phase of life. In particular, Matsushita has been expanding its development activities in such areas as next-generation audiovisual (AV) equipment, multimedia products, and advanced electronic components and devices, many of which incorporate digital technology.

Matsushita currently offers a comprehensive range of products, systems and components for consumer, business and industrial use based on sophisticated electronics and precision technology. Most of the Company’s products are marketed under the “Panasonic” brand name worldwide, along with other product- or region-specific brand names, including “National” primarily for home appliances sold in Japan and “Technics” for certain hi-fi products. Some of its subsidiaries also use their own brand names, such as “Quasar,” “Victor” and “JVC.” To sustain the future growth in the forthcoming “ubiquitous” networking age, Matsushita continues to emphasize technological development and the creation of new businesses, concentrating on several priority areas, such as digital AV networking equipment, mobile communications, data storage devices, environmental systems and related key components and devices and software. The Company is also striving to develop new service-oriented businesses, such as systems solutions and engineering services, as areas of potential growth over the mid-term period.

In June 1995, Matsushita sold an 80% equity interest in MCA (subsequently renamed Universal Studios, Inc.) which the Company purchased in December 1990, to The Seagram Company Ltd. (currently Vivendi Universal S.A.) for approximately U.S.$5.7 billion, leaving the Company with a minority interest.


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In April 1997, Matsushita established four internal divisional companies – responsible for AVC (audiovisual and computer products), home appliances and household equipment, air conditioners, and electric motors – by grouping a majority of its some 50 product divisions, in order to facilitate strategic planning, effective decision making and more efficient allocation of resources across a broader range than that afforded by each single product division.

In March 1998, the Company announced a package of new management initiatives aimed at better sharing interests with shareholders. As part of this package, management implemented, with approval at the annual shareholders’ meeting in June 1998, the repurchase of 50 million shares of the Company’s common stock, spending approximately 99 billion yen during fiscal 1999. At the same time, as an incentive to Board members and employees toward the enhancement of corporate value, the Company introduced stock option plans for Board members and select senior executives, and a stock-price-linked remuneration plan for employees of manager-level or above. The Company has been continuing share repurchases in subsequent years.

In October 1999, EPCOS AG, a German electronic components joint venture of the Company and Siemens AG of Germany, had its initial public offering, listing its shares on German and U.S. stock exchanges. Following EPCOS AG’s public offering, Matsushita’s 45% (held by a subsidiary) and Siemens AG’s 55% holdings in EPCOS AG were reduced to nearly 12.5%, respectively. Matsushita realized a 59 billion yen gain from the sale of its shares in EPCOS AG in fiscal 2000.

In April 2000, the Company made two of its majority-owned subsidiaries, Matsushita Refrigeration Company and Wakayama Precision Company, into wholly-owned subsidiaries, by means of share exchanges. As a result of the share exchanges, Matsushita issued 16,321,187 shares of its common stock to shareholders of the respective companies.

“VALUE CREATION 21” PLAN

In June 2000, Kunio Nakamura became President of Matsushita and, under his leadership, the Company implemented its new three-year business plan, called Value Creation 21, in April 2001. As the plan’s theme “Deconstruction and Creation” indicates, its objective is to transform Matsushita into a company that meets the needs of the 21st century through structural reforms and growth strategies with emphasis on enhancing growth potential, profitability and capital efficiency, thereby ensuring the Company’s continued contribution to society.

During fiscal 2002, the Company implemented a series of structural reforms under this Value Creation 21 plan, including the restructuring of its domestic consumer sales and distribution structure, management initiatives through the use of information technology (IT) such as supply chain management (SCM), the selective integration of businesses and manufacturing locations, manufacturing reforms such as the introduction of cell-style production, the reform of the Companywide research, development and design (R&DD) structure to concentrate development resources into strategic product or core technology areas, and employment restructuring initiatives including the regional-based employee remuneration system and early retirement programs. Expenses related to the implementation of these restructuring initiatives, combined with adverse economic conditions, caused a sharp decline in the Company’s earnings results in fiscal 2002.


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In April 2001, the Company absorbed Matsushita Electronics Corporation (MEC), its wholly-owned subsidiary, by merger to implement unified operational management in such key device areas as semiconductors and display devices. By establishing new internal divisional companies directly under the control of the parent company, namely the Semiconductor, Display Devices and Lighting companies, the development, manufacturing and sales functions that were previously disbursed between Matsushita and MEC for each of these strategic businesses have been integrated.

In April 2002, Matsushita and Toshiba Corporation (Toshiba) separated their respective liquid crystal display (LCD) panel operations and established a joint venture company, Toshiba Matsushita Display Technology Co., Ltd., for the development, manufacture and sale of LCD panels and next-generation display devices. The joint venture aims at becoming one of the world’s leading LCD panel manufactures, combining Matsushita’s fast-response LCD image processing technology, Toshiba’s technology in low-temperature polysilicon LCD panel manufacturing and both companies’ expertise in consumer products, personal computers and communications devices. Of the new company’s initial stated capital of 10 billion yen, 60% was invested by Toshiba and 40% by Matsushita.

As a drastic structural reform aimed at achieving new growth under the Value Creation 21 plan, Matsushita implemented share exchanges on October 1, 2002 with five of its majority-owned subsidiaries (Matsushita Communication Industrial Co., Ltd., Kyushu Matsushita Electric Co., Ltd., Matsushita Seiko Co., Ltd., Matsushita Kotobuki Electronics Industries, Ltd. and Matsushita Graphic Communication Systems, Inc.) and transformed them into wholly-owned subsidiaries of Matsushita. Following the completion of the share exchanges, Matsushita implemented a comprehensive Groupwide business reorganization on January 1, 2003 via company splits, business combinations and business transfers among several Group companies, including the parent company’s internal divisional companies, whereby businesses of most of the Matsushita Group were reorganized into 14 new business domains as strategic units. This major reorganization was implemented with a focus on the elimination of duplicated business lines and counterproductive competition amongst the Group companies, the unification and concentration of R&D resources, and the establishment of a totally integrated operational structure from development and manufacturing to sales in each domain for full customer satisfaction.

As an extension of this Groupwide reorganization, Matsushita transformed two of its majority-owned subsidiaries, namely Matsushita Electronic Components Co., Ltd. and Matsushita Battery Industrial Co., Ltd., into its wholly-owned subsidiaries via share exchanges, effective April 1, 2003.

Also on April 1, 2003, Matsushita launched another joint venture company with Toshiba, upon separating their respective cathode ray tube (CRT) businesses with the exception of domestic CRT manufacturing operations. The new company, Matsushita Toshiba Picture Display Co., Ltd., now positioned as the third largest TV-use CRT operation in the world, aims to maintain a competitive position in the global CRT market by integrating Matsushita and Toshiba’s advanced CRT technologies, as well as both companies’ product development and manufacturing capabilities. Of the new joint venture company’s stated capital of 10 billion yen, 64.5% was invested by Matsushita and 35.5% by Toshiba.


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Upon the aforementioned Groupwide restructurings, in April 2003, to prepare a framework that enables each business domain company to implement autonomously responsible management, Matsushita established a new global consolidated management system that focuses on cash flows. Under this new management system, each business domain company aims to maximize not only growth, but also capital efficiency and cash flows through efforts to achieve a leaner balance sheet, attaining speedy management with accelerated asset turnover on a consolidated basis.

Based on an agreement with Minebea Co., Ltd. signed in August 2003, certain businesses in the information equipment motor field of Matsushita were transferred to Minebea-Matsushita Motor Corporation, a joint venture of Matsushita and Minebea established on April 1, 2004. Of the new joint venture company’s stated capital of 10 billion yen, 60% was invested by Minebea and 40% by Matsushita.

Since fiscal 2003, Matsushita has been gradually shifting its focus from restructuring to growth, implementing the following initiatives:

 Development and introduction of competitive “V-products”

To bring about a swift recovery in business results, Matsushita launched 88 “V-products” in fiscal 2003 as a driving force that can capture the top share in high-volume markets and contribute to the Company’s overall performance. As a result of a Groupwide commitment to this initiative, sales of V-products reached approximately 1 trillion yen in fiscal 2003, allowing Matsushita to achieve increased market share in many product categories. In markets with shortened product lifecycles, particularly digital audiovisual (AV) equipment, the gradual launch of products into global market results in lost sales and profit opportunities. Matsushita therefore utilizes “simultaneous global product introductions” aimed at increasing both sales and profits. In fiscal 2004, Matsushita selected 90 new V-products and increased sales through global simultaneous product introductions, particularly in digital AV equipment, such as DVD recorders. As a result, overall sales of V-products reached approximately 1.24 trillion yen on a global basis in fiscal 2004.

Expansion of overseas business

The Company is taking various initiatives to strengthen overseas operations as an engine for overall corporate growth. For the mid-term, Matsushita is aiming at achieving over 60% of total operating profit from its overseas operations. Specifically, the Company plans to accelerate operational expansion in China, aiming for a 1 trillion yen business size on a Groupwide basis in fiscal 2006.

Enhancement of brand value

In April 2003, Matsushita announced that it would position the “Panasonic” brand as a globally unified brand for overseas markets under the slogan of “Panasonic ideas for life.” This new brand strategy, conveys to customers all over the world a new image for the Company and its products, while further enhancing brand value.


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R&D strategy

In R&D, to increase efficiency, the Company realigned technological management categorization and systems. In corporate R&D functions, to encourage engineers to concentrate on prioritized R&D themes and leading-edge technologies, Matsushita introduced a new management system with which it can administrate themes at each step in the research process. In business domain companies’ R&D functions, Matsushita significantly reduced lead time for product development by introducing an innovative R&D process management developed from the standpoint of return on investment.

COLLABORATION WITH MEW

In December 2003, Matsushita reached a basic agreement regarding a comprehensive business collaboration with an affiliate, Matsushita Electric Works, Ltd. (MEW), after which Matsushita initiated a tender offer for additional shares of MEW. As a result of the tender offer in which the Company purchased an additional 140,550 thousand shares of common stock of MEW at the total cost of 147 billion yen, MEW, PanaHome Corporation and their respective group companies became consolidated subsidiaries of the Company in April 2004. Through collaboration, Matsushita and MEW aim for global excellence by maximizing synergy effects between the two companies to create new growth and increase productivity. The two companies have also agreed to integrate their brand strategies, whereby, from October 2004, the “NAIS” and “National” brands currently used by MEW will be unified under the “National” brand for products sold in Japan, and the “Panasonic” brand for those sold in overseas markets. Regarding business operations initiatives, the two companies will strive to achieve further growth in such areas as home appliances, household equipment and construction materials, electric equipment, lighting, home and building networks, environment-related systems and healthcare and medical equipment, thereby solidifying the Matsushita Group’s position as a global leader in these fields.

“LEAP AHEAD 21” PLAN

Matsushita’s business vision focuses on “realizing a ubiquitous networking society” and “contributing to coexistence with the global environment” through leading-edge technologies. Based on this vision, Matsushita will make efforts to be a company which creates more value for customers all over the world by 2010. As the midpoint toward achieving this goal, Matsushita established its new mid-term management plan “Leap Ahead 21,” for the three-year term from fiscal 2005 through 2007, and commenced initiatives for sustainable growth. The Leap Ahead 21 will mainly implement following two initiatives.

Accelerating Growth Business

Matsushita is positioning selected V-products as the main vehicle of future growth. During fiscal 2005, the initial year of the Leap Ahead 21, Matsushita plans to introduce 71 new V-products based in three core concepts: unique and advanced “black-box technologies” that cannot be easily imitated by competitors; “universal design” to make products easier to use for everyone; and, “environmental consideration,” such as saving energy and resources. The Company will develop V-products into “strong business pillars” that result in global market expansion and earning maximum profits at an early stage in product lifecycles.

In addition, the Company’s comprehensive business collaboration with MEW will commence in fiscal 2005, through which the Company aims to establish an optimum operating structure from the customer’s point of view and maximize value for the new Matsushita Group.


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Reinforcing Management Structures

With the objective of further enhancing profitability, Matsushita will speed up structural reforms in several business domain companies. Also, the Company will promote activities to reduce inventories and cut materials costs, as well as eliminate all unnecessary costs in all areas of business, thereby creating a leaner management structure.

CAPITAL INVESTMENT

Total capital investment (excluding intangibles) amounted to 320 billion yen, 251 billion yen, and 271 billion yen for fiscal 2002, 2003, and 2004, respectively. In these years, Matsushita curbed capital investment in a number of business areas, in line with an increased management emphasis on cash flows and capital efficiency, as seen in an increased adoption of cell-style production, which allowed the use of smaller scale facilities. Matsushita did, however, selectively invest in facilities for those product areas that are expected to drive future growth, including such key areas as semiconductors, plasma display panels (PDPs) and other strategic products.

For the current fiscal year ending March 31, 2005 (fiscal 2005), Matsushita expects its capital investment to increase to approximately 340 billion yen. This investment will be funded primarily through internal sources.

B.Business Overview

SALES BY PRODUCT CATEGORY

Matsushita is engaged in the production and sales of electronic and electric products in a broad array of business areas. The following table sets forth the Company’s sales breakdown by product category for the last three fiscal years:

   Yen (billions) (%)

 
   Fiscal year ended March 31,

 
   2004

  2003

  2002

 

AVC Networks:

                   

Video and audio equipment

  1,418  19% 1,398  19% 1,296  18%

Information and communications equipment

  2,206  29  2,114  29  2,100  30 
   
  

 
  

 
  

Subtotal

  3,624  48  3,512  48  3,396  48 

Home Appliances

  1,189  16  1,184  16  1,142  16 

Components and Devices

  1,142  15  1,194  16  1,090  15 

JVC

  803  11  828  11  813  12 

Other

  722  10  684  9  633  9 
   
  

 
  

 
  

Total

  7,480  100% 7,402  100% 7,074  100%
   
  

 
  

 
  


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2.

Note:

BeginningAs described in the Notes to the Consolidated Financial Statements, effective fiscal 2001,2004, the Company adopted Statements of Financial Accounting Standards (SFAS) No.115, “Accountingreclassified product categories for Certain Investments in Debtsales breakdown reporting purposes, whereby sales are now divided into five new categories: AVC Networks, Home Appliances, Components and Equity Securities,”Devices, JVC and accordingly, priorOther. Prior year figures have been restated to reflect this change.
3.Fiscal 1999 and 1998 net income represent amounts after subtracting the impact of approximately 42 billion yen and 28 billion yen, respectively, attributable to adjustments of net deferred tax assets to reflect reductions in Japan’s corporate income tax rate.

B.Capitalization and Indebtedness
Not applicable

AVC Networks

C.Reasons for the Offer and Use of Proceeds
Not applicable

D.Risk Factors
Matsushita Electric Industrial Co., Ltd. (hereinafter, unless the context otherwise requires, “Matsushita” or the “Company” refers to Matsushita Electric Industrial Co., Ltd. and its consolidated subsidiaries as a group), best known for its brand names, such as “Panasonic” and “National,” is one of the world’s leading manufacturers of electronic and electric products for a wide range of consumer, business and industrial uses, as well as a wide variety of components. Based in Osaka, Japan, the Company recorded consolidated net sales of approximately 7,682 billion yen for the fiscal year ended March 31, 2001 (“fiscal 2001”). Over the past several decades, the Company has grown from a small domestic household electrical equipment manufacturer into a comprehensive electronic and electric equipment, systems and components manufacturer operating internationally. Of the fiscal 2001 net sales, approximately one-half was represented by sales in Japan, with the rest by overseas sales.
Primarily because of the business areas and geographical areas where it operates and the highly competitive nature of the industry to which it belongs, Matsushita is exposed to a variety of risks and uncertainties in carrying out its business.
Matsushita’s principal products in the AVC Networks category include video and audio equipment and information and communications equipment. Products in this category have been undergoing rapid technological changes as a result of digitization and networking, along with rapidly evolving broadband communications, which in turn have provided new business opportunities. As a leading manufacturer in many product lines in the AVC Networks category, Matsushita has been striving to achieve new growth by offering competitive digital and networkable products based on “black-box” technologies through simultaneous global marketing, aiming at contributing to the creation of a “ubiquitous networking society.”

Video and Audio Equipment

Principal products in this sector include TVs, VCRs, camcorders, digital still cameras (DSCs), DVD players and recorders, and personal and home audio equipment. Matsushita maintains a leading share in the domestic and overseas markets for a number of major products in this field. During the three-year period ended March 31, 2004, Matsushita expanded sales in this category by taking a lead in the introduction of attractive digital and networkable products, despite the negative effects of slow consumer spending, especially in Japan, and intensified global price competition. A series of competitive V-products that the Company has introduced since fiscal 2003 has been a major factor in this growth. Matsushita’s current focus is to strengthen its “3D” value chain—consisting of secure digital memory cards (SD Memory Cards) and compatible products, DVDs and digital TVs—to create new demand in the digital networking era.

In TVs, Matsushita produces a broad range of models to meet all segments of demand in domestic and international markets, ranging from cathode ray tube (CRT) models to flat-panel TVs, such as plasma display panel (PDP) and liquid crystal display (LCD) TVs. The Company’s CRT TVs include both analog and digital models, while all of its flat-panel TVs are digital. Matsushita introduced three new 9.9cm-thick PDP TVs in 37-, 42- and 50-inch models in fiscal 2003, which were the world’s first to integrate digital tuners for broadcast satellite (BS), communications satellite and terrestrial broadcasting. In fiscal 2004, Matsushita introduced new high-definition PDP TVs in 37-, 42- and 50-inch models with built-in slots for compact SD Memory Cards and the picture enhancement accelerator with kinetic system (PEAKS) for outstanding picture quality. Meanwhile, Matsushita has also reinforced its lineup of LCD TVs. Building on its LCD TV range of 14- to 22-inch models, Matsushita introduced a 32-inch model in fiscal 2003 and new 14-, 17- and 20-inch models with PEAKS for outstanding picture quality in fiscal 2004. To promote the advantage of digital TVs in the networking era, Matsushita has recently begun offering various digital TV models with Internet connection capability called T-Navi in the Japanese market. As flat-panel TVs have entered a rapid growth phase in Japan and overseas, the Company has been expanding its PDP manufacturing facilities, aiming at maintaining its top share of the worldwide PDP TV market. (See related description of PDP facility expansion under “Components and Devices” below.)


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Specific risks and uncertainties include, but are not limited to, economic conditions, particularly consumer spending and corporate capital expenditures in the United States, Europe, Japan and other Asian countries; volatility in demand for electronic equipment and components from business and industrial customers as well as consumers in many product and geographical markets; currency rate fluctuations, notably between the yen, the U.S. dollar, the euro, Asian currencies and other currencies in which the Matsushita Group operates businesses, or in which assets and liabilities of the Matsushita Group are denominated; the ability of the Matsushita Group to respond to rapid technological changes and changing consumer preferences with timely and cost-effective introductions of new products in markets that are highly competitive in terms of both price and technology; the ability of the Matsushita Group to maintain competitive strength in many product and geographical areas; expenses incurred in relation to its business restructuring; any changes in the Matsushita Group’s financial and operational positions or business environment due to its business restructuring; current and potential, direct and indirect trade restrictions imposed by other countries; and fluctuations in market prices of securities in which the Company has holdings.

Item 4.    In the VCR and video camera area, Matsushita has been expanding its range of digital camcorders and DSC that incorporate SD Memory Card slots for data storage and enhanced networking convenience. Of these, new models of DSC that benefit from the world-renowned optical technology of Leica Camera AG achieved notable market success in fiscal 2003. In fiscal 2004, Matsushita introduced new models of DSC that leverage unique and advanced technologies, such as aspherical lenses and optical image stabilizers (OIS). A new compact, easy-to-use SD Multi AV Recorder capable of recording and playback of digital video, still images, audio and other content on an SD Memory Card was also introduced during fiscal 2003. The Company added the world’s slimmest model to this product line in fiscal 2004.

As for DVDs, Matsushita offers a wide range of DVD players and DVD recorders. Since its introduction of the first DVD recorder in 2000, the Company has been the market forerunner in this product line. The Company continued its lead by launching a series of competitive models with built-in hard disk drives (HDDs) for extended recording time and SD Memory Card slots. In fiscal 2004, Matsushita began simultaneous global introductions for its latest DVD recorders, and reinforced product range with VCR combination models with dual tuners for simultaneous recording of two channels.

In the area of audio equipment, Matsushita produces a variety of products, including compact disc (CD) players, CD radio cassette recorders and Mini Disc players, as well as radio receivers, tape recorders, portable headphone players, stereo hi-fi equipment and electronic musical instruments. Matsushita expanded its range of new audio equipment in recent years with the launch of DVD-Audio players and a series of products using the SD Memory Card, such as an ultra-compact “wearable” headphone player. Matsushita has been greatly expanding its range of SD Memory Card compatible products, covering not only audio and video equipment, but also information and communications equipment and home appliances, which has further enhanced the Company’s leadership of the SD format in the industry.

Information and Communications Equipment

Information equipment includes products such as personal computers (PCs), PC displays, CD-ROM, DVD-ROM, DVD-RAM and other optical disk drives, HDDs, copying machines and printers. Communications equipment includes products such as facsimile equipment, cordless telephones, cellular phones, other mobile communications equipment and digital private branch exchanges. Products in this sector also include other systems equipment, such as car audio and navigation equipment, cable TV systems, broadcast- and business-use AV equipment and systems, large-screen visual equipment and communications network-related equipment. Of these, Matsushita is a worldwide leader in such business lines as optical disk drives, facsimile equipment, broadcast-use digital VCR equipment and airline in-flight AV systems. The Company also maintains a leading position in the Japanese cellular phone industry.

With respect to PCs, Matsushita continued to upgrade its notebook models over the last several years, centered on slim, lightweight notebook PCs, and ruggedized notebook PCs built to resist shock. In fiscal 2002, Matsushita introduced the world’s lightest (960 grams) B5-sized notebook PC in Japan, followed by even smaller and lighter models during fiscal 2003. In fiscal 2004, Matsushita introduced the world’s lightest (1,299 grams) B5-sized notebook PC with a 12.1-inch LCD screen and a built-in DVD-ROM and CD-R/RW combination drive.


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In the area of PC peripherals, Matsushita has been focusing on upgrading its disk drive lineups. In optical disk drives, the Company introduced DVD multi drives compatible with DVD-RAM, DVD-R and DVD-RW formats in fiscal 2002. To meet demand related to slim notebook PCs, Matsushita developed the industry’s slimmest and lightest DVD multi drives in fiscal 2004. As for HDDs, the Company has become more selective in its product lineup during the past few years, focusing on upgraded models using hydro dynamic bearing spindle motors, and 1.8-inch small-form-factor HDDs for use in notebook PCs and mobile AV equipment, while substantially reducing production of conventional 3.5-inch HDDs.

In the area of mobile communications equipment, in recent years, Matsushita has developed and introduced a number of new cellular phones, including third generation (3G) format products with a focus on advanced functions, stylish designs and ease-of-use. Sales of cellular phones experienced a setback in fiscal 2002 due to both a sharp decline in demand, especially in Japan and Europe, and glitches that were found in certain models. Early in fiscal 2003, the Company launched new thin cellular phones for NTT DoCoMo, Inc. that are mobile Internet-compatible and have high picture quality and, in the second half of that fiscal year, in response to the rapid development in demand, the Company introduced new models with built-in cameras. These new models were well received and helped to boost the Company’s reputation in the Japanese cellular phone market. Meanwhile, the Company has been expanding its business in overseas markets, especially in Europe and China, centered on GSM standard cellular models including, most recently, clamshell design camera-equipped handsets and ultra-compact, stylish models. Regarding 3G cellular phones, corresponding to NTT DoCoMo’s commencement of wideband code division multiple access (W-CDMA) services in Japan during fiscal 2002, Matsushita began shipments of W-CDMA base stations and terminals. The Company was the first in the world to develop and supply W-CDMA cellular phones that provide a TV-phone function through transmission of moving images and large volumes of data. In fiscal 2003, a new W-CDMA cellular phone was launched that boasts a rotating LCD screen for camcorder-style recording of video and still images, followed by the introduction in fiscal 2004 of a new model with a built-in auto-focus 1.28 megapixel CCD camera and interchangeable decorative jackets. The Company intends to solidify its competitive position as a leader in the 3G market.

In the area of fixed-line communications, Matsushita over the years has developed businesses in such products as facsimile equipment, cordless telephones, copiers and printers, primarily as stand-alone products. Beginning with the introduction of a multifunction model that provides facsimile, copier, printer, scanner and telephone functions in a single unit, however, the Company has been placing an increased focus on integration of communications and digital imaging technologies. This move was further accelerated by the merger in early 2003 of two major subsidiaries operating in this area. Matsushita also has been developing Internet-protocol (IP) products, such as IPv6 technology-based telephones and facsimile machines, using the synergies of the merger and the advantage of possessing both imaging and communications technologies.


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In the area of car AV equipment, Matsushita supplies advanced car navigation systems for the domestic market, while further promoting global expansion in car audio equipment. Through joint efforts with automakers, Matsushita in fiscal 2002 launched a new car navigation model that can receive various mobile information services, followed by another model with a built-in HDD capable of processing a large volume of data in an instant. In fiscal 2003, the Company began supplying an upgraded model as an in-car multimedia terminal to a leading automobile company in Japan. Demand has been steadily growing for DVD-equipped car multimedia systems. In response, in fiscal 2004, the Company introduced a new car navigation system series in Japan that incorporates DVD and other AV entertainment features. Overseas, the Company launched new car audio equipment in the North American market, including a rear-seat entertainment system that features a flat-panel, large-screen LCD display with a built-in DVD player, and a digital surround sound car audio system compatible with high-quality DVD audio. Meanwhile, to address the expansion of electronic toll collection (ETC) services in Japan, the Company has been increasing sales of in-car terminals, as well as related infrastructure equipment.

In the area of broadcast-use AV equipment and systems, the DVCPRO series of digital video systems has always been the Company’s flagship product. In fiscal 2004, Matsushita announced an upgraded model, the DVCPRO P2, which is designed to use SD Memory Cards as its recording media. Meanwhile, with the start of terrestrial digital broadcasting in Japan in December 2003, Matsushita supplied digital broadcasting systems, including a compact, light DVCPRO series, to major TV broadcasting stations in Japan. Matsushita’s leading position in the global in-flight AV systems market has been strengthened by continued deliveries of popular AV systems with LCD monitors and advanced personal multimedia systems that allow passengers to enjoy in-flight entertainment and shopping from their seats.

Home Appliances

Matsushita’s principal products in this category include home appliances, such as refrigerators, room air conditioners, washing machines, clothes dryers, vacuum cleaners, electric irons, microwave ovens, cooking appliances, dishwasher/dryers; and household equipment, mainly comprising kitchen fixture systems, electric, gas and kerosene hot water supply equipment, and bath and sanitary equipment. This category also includes healthcare systems, lighting, and environmental systems.

Building upon its position as the leading manufacturer in the Japanese home appliance industry, Matsushita strives to further develop value-added products that address changing and diversifying customer lifestyles, the trend toward an aging population and rapidly growing interest in health and the environment.


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In the area of electric home appliances and household equipment, Matsushita in fiscal 2002 was one of the first manufacturers to develop a refrigerator using hydrocarbon refrigerant, which eliminates the use of ozone layer depletive refrigerants. Furthermore, Matsushita introduced an eco-friendly and energy-efficient water heating system that employs a natural refrigerant heat pump and boasts an ozone-depleting coefficient of zero in April 2002. During fiscal 2003, Matsushita introduced a fully automatic clothes washer/dryer, featuring a unique “foam washing” system; a combination steamer/microwave oven; a new series of hydrofluorocarbon (HFC)-free, large inner-capacity refrigerators; and a unique air conditioner that offers the same oxygen concentration indoors as that found in the natural environment. In fiscal 2004, the Company successfully increased its domestic market share in major appliances, as it introduced a user-friendly washer/dryer with a 30-degree tilted drum featuring lower water consumption, an air conditioner incorporating a ventilating function in addition to the above-mentioned unique oxygen charging technology, 200V flameless induction-heating (IH) cooking equipment that is compatible with cooking ware made of any metal, and a new water heating system that uses CO2 as a natural refrigerant and boasts the industry’s highest energy efficiency. Several of these new high-value added products, such as HFC-free refrigerators and air conditioners featuring the oxygen charging technology were also introduced into the Asian market, including China.

Matsushita’s efforts have also been extended to the development of home appliance business using digital networking technologies that will provide customers with solutions for safe, convenient and comfortable living. In fiscal 2004, Matsushita launched a new networked home appliance system that enables customers to control home appliances such as air conditioners, refrigerators, washing machines and microwave ovens through wireless control functions, including the ability to report irregularities or emergencies detected through various sensors.

In the healthcare systems business, in fiscal 2002 Matsushita introduced a Web-based tele-healthcare system that allows patients to measure their vital signs and doctors to remotely access the patient’s information. The Ministry of Health, Labour and Welfare of Japan officially recognized the system to be introduced for medical use. In fiscal 2004, a new system that measures the glucose level quickly and accurately with just a small amount of blood contributed to the Company’s sales increase.

In the lighting business, in fiscal 2003 Matsushita developed an electrodeless ballasted compact fluorescent lamp featuring low power consumption and extended life, and in 2004 the Company began selling a spiral-shaped ballasted compact florescent lamp, which, although the same size as an incandescent lamp, offers greater energy efficiency.

In the environment-related systems business, Matsushita began construction of ventilation facilities for the Hai Van Tunnel in Vietnam in fiscal 2003. In Japan, ventilation systems and equipment that comply with the revised construction standards law to combat “sick house” syndrome contributed to Matsushita’s sales increase in this product category in fiscal 2004. Meanwhile, the Company supplied a wind power generation system to the 2004 Athens Olympics. The Company also introduced the world’s first air purifier with a filter to neutralize allergens in fiscal 2004.

Components and Devices

Major products included in this category are semiconductors, general components, display devices, batteries and electric motors, some of which are incorporated into Matsushita’s finished products and some of which are for sale to other manufacturers.


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Matsushita is strengthening businesses in the components and devices category by concentrating efforts on “black-box,” or proprietary, technologies, particularly in the area of semiconductors such as system LSIs, the key to Matsushita’s competitive edge in digital AV and information/communications equipment. The Company is enhancing cooperation between components and devices and finished product divisions from the product development stage to create value chains around them. Matsushita also strives to expand external sales of components and devices to accelerate sales growth and strengthen the earnings base.

Matsushita’s semiconductor business is primarily made up of integrated circuits (ICs), such as metal oxide semiconductor large-scale integration (LSI) circuits and bipolar ICs, discrete devices and image sensor including charge coupled devices (CCDs). Matsushita has been focusing on five main growth businesses, comprising four system LSI fields, namely those for optical disk-related products, digital TVs, mobile communications, and networks and SD Memory Cards, and image sensors. These operations support innovative and competitive products at the Company’s finished product divisions and, as a value chain, the success of these finished products support sales of system LSIs for external customers. In particular, Matsushita has been strengthening development of multifunctional system LSI circuits, which form the basis of digital network-related equipment. Successful results in recent years include system LSI chip sets for DVD players and recorders, MPEG-2 encoder chips and 32-bit microcontrollers with embedded dynamic RAM. In fiscal 2003, Matsushita developed a power-efficient multi-codec system LSI, enabling extended continuous operating time for cellular phones that provide video phone and other video content capabilities, and a new system LSI for digital high-definition television (HDTV) broadcast receivers that accomplishes all back-end processing functions on a single chip. In fiscal 2004, Matsushita began mass production of 0.18-micron FeRAM (ferroelectric random-access memory)-embedded system-on-a chip (SoC), a system LSI for mobile network applications. Meanwhile, Matsushita has also been striving to achieve higher levels of manufacturing process technologies. In April 2002, the Company commenced production of highly integrated 0.13-micron system LSIs primarily for digital AV equipment. Furthermore, Matsushita began construction of a new semiconductor production facility in Japan, installing the cutting-edge 90-nanometer production process for 300mm wafers in May 2004. In the area of image sensors, in October 2003, Matsushita integrated its CCD and camera module businesses, thereby achieving a more effective organizational structure. In February 2004, the Company developed the industry’s smallest image sensor, featuring high picture quality and low power consumption for applications such as camera-equipped cellular phones and AV equipment.

Matsushita manufactures a variety of general components, including capacitors, modules, printed circuit boards, power supply and inductive products, circuit components, electromechanical components and speakers for AV equipment, automotive electronics and information/ communications. In fiscal 2002, Matsushita augmented its range of specialty polymer aluminum electrolytic capacitors, while also developing cutting-edge ultracompact, high-capacitance products in the field of multi-layer ceramic chip capacitors and film capacitors. Furthermore, in fiscal 2003, Matsushita developed three-dimensional integrated circuit modules that help downsize and enhance functionalities of mobile electronic devices and networked appliances. In fiscal 2004, Matsushita expanded sales of high-fidelity speakers for flat-panel TVs, weight sensors for protective airbags and multilayer printed circuit boards. In an effort to achieve growth and enhanced profitability in the general components business, the Company has continued to implement selection and concentration of management resources, especially in capacitor operations.


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In the area of display devices, Matsushita manufactures PDPs and CRTs, while production of LCDs has been shifted to a joint venture company created with Toshiba Corporation (Toshiba). Regarding PDPs, Matsushita has boosted its product lineup with the marketing of competitively-priced 37-, 42- and 50-inch units. In fiscal 2004, Matsushita introduced new 37-, 42- and 50-inch high definition PDPs for outstanding picture quality. Matsushita has been strengthening its PDP manufacturing structure through a number of initiatives, including the commencement of panel production at its PDP assembly plant in China in December 2002 and at its new manufacturing facility in Japan in April 2004. Regarding LCD devices, Matsushita and Toshiba combined their respective LCD operations and jointly established Toshiba Matsushita Display Technology Co., Ltd. in April 2002. The joint venture company has added new cutting-edge products, including low-temperature polysilicon LCD panels, to the existing product lineups of LCDs for PCs, cellular phones and TVs. Regarding CRTs, in order to strengthen competitiveness, Matsushita and Toshiba integrated their global CRT operations and launched a new company, Matsushita Toshiba Picture Display Co., Ltd., in April 2003. The new CRT joint venture seeks synergies from the combination of Matsushita and Toshiba’s advanced TV-use CRT product development capabilities and manufacturing technologies. (For additional information on the Company

LCD and CRT joint ventures, see Section A of this Item 4.)

A.History and Development of the Company

GENERALMatsushita is an industry leader in primary batteries, especially dry batteries, and is also expanding its line of rechargeable batteries. Matsushita has increased production of compact, high-performance batteries, such as long-life alkaline batteries and lithium-ion rechargeable batteries, as these products are increasingly used in compact electronic equipment such as DSCs, cellular phones and notebook PCs. In addition, the Company introduced such new long-life compact batteries as nickel manganese batteries in fiscal 2003, and another new high-performance dry battery, that boasts approximately 1.5 times the life and performance of ordinary alkaline batteries in fiscal 2004, for a wide variety of applications, including DSC and portable audio players. To strengthen its competitive position in compact rechargeable batteries, the Company further expanded its lithium-ion battery plant in Osaka in fiscal 2003, and started manufacturing these batteries in China from April 2004 to meet increasing demand from cellular phone manufacturers.

The Company was incorporated in Japan on December 15, 1935 under the laws of Japan as Matsushita Denki Sangyo Kabushiki Kaisha (Address : 1006, Oaza Kadoma, Kadoma-shi, Osaka, Japan. Phone : +81-6-6908-1121 / Agent : Mr. Shigeru Nakatani, President of Panasonic Finance (America), Inc.) as the successor to an unincorporated enterprise founded in 1918 by the late Konosuke Matsushita. Mr. Matsushita led the Company with his corporate philosophy of contributing to the peace, happiness and prosperity of mankind through the supply of quality consumer electrical goods. The Company’s business expanded rapidly with the recovery and growth of the Japanese economy after World War II, as it met rising demand for consumer electric and electronic products, starting with washing machines, black-and-white television sets (TVs) and refrigerators. Matsushita continued to grow during the following decades by expanding its product range to include color TVs, hi-fi components, air conditioners, videocassette recorders (VCRs), industrial equipment and information and communications equipment, as well as electronic components. Overseas sales and production expansion was also a significant factor for the growth in these decades.
In the 1990s, Matsushita placed emphasis on technological development and the use of advanced electronics technology in every phase of life, thus steering the Company to achieve further growth in the 21st century. In particular, the Company expanded its development activities in such areas as next-generation audiovisual (AV) equipment, multimedia products, and advanced electronic components and devices, many items of which incorporate digital technology.

Matsushita’s line of electric motors includes those for information equipment, consumer appliances and factory automation (FA) equipment. In the area of information equipment motors, Matsushita has been an industry leader in vibration motors for cellular phones and polygon mirror scanner motors for laser beam printers. Matsushita is also a major manufacturer of brushless motors for appliances and servo motors for FA equipment. Since fiscal 2003, the Company has implemented restructuring in this business area for concentration of resources into growth areas, such as brushless motors and FA servo motors. In October 2003, Matsushita transferred the HDD-use fluid dynamic bearing motor business to Matsushita Kotobuki Electronics Industries, Ltd., and closed two manufacturing locations in Japan in December of that year. Meanwhile, Matsushita accelerated expansion of operations in China for appliance and FA motors, and also shifted its information equipment motor business excluding brushless motors to a new company jointly established with Minebea Co., Ltd.

JVC

The JVC category represents businesses of Victor Company of Japan, Ltd. and its group companies (JVC). Major products in this category include consumer electronic equipment (such as VCRs, camcorders, TVs, stereo hi-fi equipment, DVD products and other AV products), professional electronic equipment and systems, components, and prerecorded audio and video software and recordable media. These products are sold under “Victor” or “JVC” brand names primarily through JVC’s own sales and distribution networks in Japan and overseas.


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Matsushita currently offers a comprehensive range of products, systems and components for consumer, business and industrial use. Most of the Company’s products are marketed under the “Panasonic” and “National” brand names. The Company also uses the “Technics” brand name for certain hi-fi products, with some of its subsidiaries using other brand names such as “Quasar,” “Victor” and “JVC.” To form the basis for growth in the evolving digital networking age, the Company continues to emphasize technological development and the creation of new businesses, identifying several priority areas, such as digital broadcasting systems, mobile communications, semiconductors, data storage devices and display devices. The Company is also striving to develop new service-oriented businesses, such as systems solutions and "e-Net” business, as areas of potential growth over the mid-term.
In June 1995, Matsushita sold an 80% equity interest in MCA (now named Universal Studios, Inc.), which the Company purchased in December 1990, to The Seagram Company Ltd. for approximately U.S.$5.7 billion, leaving the Company with a minority interest.
In April 1997, the Matsushita parent company established a new organizational structure, setting up four internal divisional companies – responsible for AVC (audiovisual and computer products), home appliances and household equipment, air conditioners, and electric motors – by grouping a majority of its some 50 product divisions. This step was taken in order to facilitate strategic planning, effective decision making and more efficient allocation of resources across a broader range than that afforded by each single product division.
In March 1998, the Company announced a package of new management initiatives aimed at better sharing interests with shareholders. As part of this package, management implemented, with approval at the annual shareholders’ meeting in late June 1998, the repurchase of 50 million shares of the parent company’s common stock from the stock market for retirement, spending approximately 99 billion yen of retained earnings during fiscal 1999. At the same time, as an incentive to Board members and employees toward the enhancement of corporate value, the parent company introduced stock option plans for Board members and select senior executives (similar option plans have been implemented in fiscal 2000, 2001 and 2002), and established a stock-price-linked remuneration plan, under which modest cash payments have been offered to employees manager-level or above once a year through fiscal 2001 in addition to ordinary salary and bonus payments.
In October 1999, EPCOS AG, a German electronic components joint venture of the Company and Siemens AG of Germany, had its initial public offering, listing its shares on German and U.S. stock exchanges. Following EPCOS AG’s public offering, Matsushita’s 45% (held by a subsidiary) and Siemens AG’s 55% holdings in EPCOS AG were reduced to nearly 12.5%, respectively. Matsushita realized a 59 billion yen gain from the sale of its shares in EPCOS AG in fiscal 2000.
On April 1, 2000, the Company made Matsushita Refrigeration Company and Wakayama Precision Company wholly-owned subsidiaries, by means of share exchanges. As a result of the share exchanges, the Company issued 16,321,187 shares of its Common Stock to shareholders of the respective companies.

Over the last three fiscal years, JVC has placed priority on creating original, high quality products, “Only One” products that incorporate JVC’s market-leading audio and visual technology. These efforts helped JVC to achieve solid sales results in its consumer electronics business in these years.

In the consumer electronics field, JVC’s technological achievements in recent years have included high-definition displays incorporating Digital Image Scaling Technology (D.I.S.T.) and digital high-density storage systems such as D-VHS and DVD recorders/players. Building upon such technological strength, JVC has further worked on enhancing the network connectivity of its mainstay AV products. In fiscal 2002, part of these efforts resulted in market success in such products as a new VHS/DVD- combination deck, DVD players, car AV systems and digital video cameras. In fiscal 2003, continued sales success was achieved in new growth products, such as high definition TVs and PDP TVs. During fiscal 2004, digital technology became more widespread in the consumer electronics industry, and JVC expanded its range of PDP TVs and DVD recorders, and also introduced LCD TVs. During these years, as part of a global manufacturing base realigning program, JVC positioned its Yokohama Plant as the “core mother base” of all worldwide consumer electronics production. JVC also implemented other restructuring initiatives to ready itself for the next phase of growth.

In the professional electronics field, JVC has focused on two categories, the security and presentation systems. As a result, over the last three fiscal years, sales of security systems, that include JVC’s high performance surveillance cameras, recorded consistent growth. During these years, businesses of other professional electronics systems experienced setbacks, with an exception of digital broadcasting equipment, which met rising demand on expansion of digital broadcasting services in Japan.

JVC’s software and media businesses have been operated mainly in Japan. During the last three fiscal years, sales in Japanese music software business fell due to the industry-wide slump. However, JVC released hit records continuously, including CDs from such artists as Keisuke Kuwata and Dragon Ash in fiscal 2002, CDs and DVDs of Keisuke Kuwata and SMAP in fiscal 2003, and albums of the Southern All Stars and SMAP in fiscal 2004. Meanwhile, JVC has been expanding its range of recordable media business, including DVD-RW and Mini DV tapes.

In its new mid-term plan (Leap Ahead 21 plan), JVC positions the consumer electronics business to play a central role in accelerating the company’s growth. Specifically, JVC will focus on display and optical disk products.

Other

Matsushita’s other category includes factory automation (FA) equipment, industrial robots, welding machines, power distribution equipment and other industrial equipment. Matsushita aims to enhance service to its customers through innovative manufacturing processes centered on circuit manufacturing technology. Specifically, responding to trends in more compact digital products, the Company provides optimum solutions in electronic component mounting, fine devices, manufacturing processes, welding machines and robots.


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In June 2000, Matsushita’s Board of Directors elected Kunio Nakamura as President of the Company to succeed to his predecessor Yoichi Morishita, who became Chairman. A new management team headed by Mr. Nakamura subsequently established the Company’s new three-year business plan, called “Value Creation 21,” which was formally implemented in April 2001. The Value Creation 21 plan was designed to take full advantage of the opportunities arising in the evolving digital networking society. Its objective is to transform Matsushita into a company that meets the needs of the 21st century through structural reforms and growth strategies with emphasis on enhancing growth potential, profitability and capital efficiency, thereby ensuring the Company’s continued contribution to society. For more information about this mid-term plan, see Section D of Item 5.
In February 2001, Matsushita entered into an agreement with Toshiba Corporation (Toshiba), under which the two companies will establish a joint venture in Singapore to manufacture low temperature polysilicon liquid crystal display (LCD) panels, with production scheduled to start in July 2002. The joint venture company’s initial capital of 50 billion yen has been 67% subscribed by Toshiba and 33% by Matsushita.
In April 2001, the Company absorbed Matsushita Electronics Corporation (MEC), its wholly-owned subsidiary, by merger to implement unified operational management in such key device areas as semiconductors and display devices. By establishing new internal divisional companies directly under the control of the parent company, namely the Semiconductor, Display Device and Lighting companies, the development, manufacturing and sales functions that were previously distributed between Matsushita and MEC for each of these strategic businesses have been integrated.

CAPITAL INVESTMENTSIn the area of FA equipment, Matsushita is one of the world’s leaders in placement machines including fine device bonding systems and fine process equipment, and also produces industrial robots. Within the mainstay placement machine, while developing and launching machines with faster processing-speeds and higher functionality, the Company has been building new core businesses by augmenting its lineups of high-growth device bonding systems in recent years. As part of this strategy, Matsushita launched modular placement machines suitable for flexible production styles, such as cell-style production in fiscal 2002, followed by the introduction of modular placement machines that were one of the highest levels of productivity in the industry in fiscal 2003. Furthermore, in fiscal 2004, the Company enhanced growth by strengthening the electronic-parts mounting system business and fine device bonding system business supported by active FA equipment demand from Euro-American Electronics Manufacturing Services (EMS) in China, Taiwan and Korea, and Taiwanese manufacturers’ Original Design Manufacturing (ODM) as a result of increasing demands of digital AV products, such as cellular phones and PCs.

Recognizing that building advanced technologies, equipment and processes is essential to the cost-efficient and speedy manufacture of sophisticated electronic products and devices, Matsushita has been attentive in planning plant and equipment investment to achieve higher competitiveness and investment efficiency. Besides constant investment in production automation and energy-saving facilities, increasing emphasis has been placed on expansion of facilities in such business areas as digital AV equipment, mobile communications equipment, and components and devices.
Total capital investment (excluding intangibles) amounted to 352 billion yen, 338 billion yen and 504 billion yen for fiscal 1999, 2000 and 2001, respectively. The increase in the Company’s capital investment for fiscal 2001 was due mainly to expanded plant and equipment investment in the components area including semiconductors and LCD devices.
For the current fiscal year ending March 31, 2002 (“fiscal 2002”), Matsushita expects its capital investment to decrease to approximately 420 billion yen as the investment in the components area has peaked. Of the projected total amount, nearly 320 billion yen will be invested in facilities in Japan and the remaining 100 billion yen overseas. This investment will be funded mainly through internal sources.


In the area of welding machines, Matsushita introduced a fully digital carbon dioxide/metal active gas automatic welding machine that allows for superior welds over a variety of materials in fiscal 2002, followed by the introduction of a fully digital welding robot in fiscal 2003. In fiscal 2004, Matsushita expanded deliveries of fully digital automatic welding machines and robots, to automobile-related industries.

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B.Business Overview

SALES BY PRODUCT CATEGORY

Matsushita is engaged in the production and sale of electronic and electric products in a broad array of business areas. The following table sets forth the Company’s sales breakdown by product category for the last three fiscal years;

                            
Yen (billions)

Fiscal year ended March 31,

200120001999



Consumer products
Video and audio equipment1,75623%1,70623%1,89525%
Home appliances and household
equipment
1,316171,306181,39418






Subtotal3,072403,012413,28943
Industrial products
Information and communications equipment2,175282,022282,15028
Industrial equipment817117351071710






Subtotal2,992392,757382,86738
Components1,618211,530211,48419






Total7,682100%7,299100%7,640100%






Consumer Products
Consumer products is Matsushita’s traditional business area, and the Company maintains a competitive edge in domestic and overseas markets, based on its market share for a number of major products. Over the last three fiscal years, sales of this category, consisting of video and audio equipment and home appliances and household equipment, did not show marked growth due to such factors as slow consumer spending, especially in Japan, intensified global price competition notably in the traditional analog AV equipment field and the high saturation rate for many home appliance items in developed nations. However, growth has been seen in sales of digital AV equipment and new, high-value-added home appliances, such as single-unit washer/dryers, cordless vacuum cleaners and induction-heating cooking equipment.
Video and Audio Equipment
Principal products in this category include TVs, VCRs, camcorders, DVD players, audio equipment, and pre-recorded audio and video software. Over the last several years, increasing emphasis has been placed on digital AV equipment and, most recently on networkable AV equipment to make Matsushita a leader in the approaching home networking age.


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In TVs, Matsushita produces a broad range of models to meet demand in all segments of Japanese and international markets. In the mainstay cathode-ray-tube (CRT) TVs, the Company has shifted production of traditional CRT models from Japan to Southeast Asian and other overseas factories. Domestic production is now concentrated on flat-surface CRT models, including the industry’s thinnest model. Also during the last three fiscal years, the Company has gradually expanded production of high-picture-quality, high definition models, as well as flat TVs such as LCD TVs and plasma display panel (PDP) TVs. Volume production of PDP TVs will start in the summer of 2001 at a newly established manufacturing venture with Toray Industries, Inc. The Company is also active in the burgeoning market for digital TVs.
In the VCR and camcorder area, Matsushita has been accelerating digitization, introducing D-VHS VCR decks and expanding its range of digital camcorders.
In DVDs, Matsushita was the first to market DVD players in 1996 and, as a forerunner in the industry, boasts a wide product range from standard to portable LCD equipped models. In addition, the Company has been expanding DVD disc production at a rapid pace, through its own facilities as well as overseas joint ventures with Universal Music Group and Eastman Kodak Company established in 1999.
In the area of audio equipment, Matsushita produces a large variety of products, including such digital products as compact disc (CD) players, CD radio cassette recorders and Mini Disc (MD) players, as well as radio receivers, tape recorders, portable headphone players, stereo hi-fi equipment and electronic musical instruments.
During fiscal 2001, the Company successfully launched new products in the digital AV equipment segment. Of these, sales of digital TVs including set-top boxes in Japan were particularly strong, mainly attributable to the launch of Broadcast Satellite (BS) digital TV broadcasting services, which commenced in December 2000.
The Company further introduced the industry’s first digital TV with a built-in AV-use hard disk (AVHDD) recorder in May 2001.
To prepare for the spring 2002 launch in Japan of digital TV-basede-Net services, Matsushita, in cooperation with other Japanese companies, established ePF Network Corporation to develop a common e-Platform as the basis for e-shopping, e-banking and other interactive services via the TV.
Matsushita also expanded its range of other new digital AV equipment in fiscal 2001, with the launch of DVD-Audio players, DVD video recorders, and a series of products using the Secure Digital (SD) Memory Card, such as an ultra-compact portable headphone player. The SD Memory Card is a new postage stamp-sized data storage device now supported by more than 200 corporate members of the SD Association worldwide.
Matsushita is working further on the expansion of its networkable AV equipment business, envisioning the creation of a future home networking environment, where digital TV, offering a wide range of functions through easy-to-use remote control operation, will serve as the information station for all digital AV and household equipment as well as outside public and mobile communications networks.


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Home Appliances and Household Equipment
Matsushita’s vast array of home appliance products includes washing machines, clothes dryers, vacuum cleaners, electric irons, microwave ovens, rice cookers and other cooking appliances, dishwashers, refrigerators, air conditioners, electric fans, air purifiers, electric and kerosene heaters and electrically-heated rugs. The line of household equipment mainly comprises kitchen fixture systems, electric, gas and kerosene hot-water supply systems, and bath and sanitary equipment. This category also includes certain healthcare equipment, electric lamps, bicycles, and optical cameras and flash units.
Matsushita continues to lead the Japanese home appliance industry, launching new technologically innovative models. Within the last three fiscal years, for instance, the Company launched the world’s first centrifugal force washing machine for home use in fiscal 1999, and the world’s first automatic top-loading washer/dryer using centrifugal force in fiscal 2001. The Company also introduced a series of space-saving refrigerators that do not sacrifice inner capacity in each year through fiscal 2000, followed by the world’s first refrigerator to employ separate cooling functions for the refrigerator compartment, vegetable drawer and freezer in fiscal 2001.
Other recent product innovations include the Company’s compact rechargeable-battery-powered cordless vacuum cleaner employing a centrifugal force dust collection system marketed in fiscal 2000, and a new cordless rechargeable vacuum cleaner for fiscal 2001, that offers approximately 40-minutes continuous operation. Furthermore, in the air conditioner field, Matsushita introduced a series of energy-efficient models, the latest one featuring a triple-panel design for precise room temperature control.
In the household equipment area, the Company is meeting market needs by providing user-friendly products. Successful examples include easy-to-operate pull-down cabinet shelves, and a barrier-free bath, designed specifically to meet the needs of elderly people.
In addition to developing and introducing high-value-added products to stimulate the matured appliance market in Japan, the Company has also been strengthening its business base by taking the lead in the newer, growth product areas, such as dish washers, frame-free induction heating cooking equipment and compact garbage processing units. Sales of these products have been rising at a faster pace than other traditional product lines during the last three years.
Furthermore, Matsushita is working on the development of new businesses to create enriched living environments in the 21st century, offering a range of products and services using digital networking technologies that focus on important issues such as the environment and energy, health and healthcare, comfort and security and greater convenience at home. Activities in progress include the development of networkable home appliances, garbage recycling services for the food industry and home healthcare services.
Industrial Products
Industrial products is comprised of information and communications equipment and industrial equipment. This has been the Company’s fastest growth category in the last decade, led by mobile communications equipment and personal computer (PC) related equipment. For the last three fiscal years, however, this category’s business has shown some volatility due to such factors as increased price competition in the PC peripherals area and the fiscal 2001 second half setbacks in global demand for information technology (IT)-related products such as PCs and cellular phones.


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Information and Communications Equipment
The line of information and communications equipment includes: information equipment, such as PCs, PC displays, hard disk drives (HDDs), CD-ROM, DVD-ROM and other optical disk drives, copying machines and printers; communications equipment, such as, telephones, cellular phones, other mobile communications equipment, digital private branch exchanges and facsimile equipment; and other systems equipment, such as CATV systems, broadcast- and business-use AV equipment and systems, large-screen visual equipment, communications network-related equipment, and traffic-related systems. Of these, Matsushita believes it has a competitive edge worldwide in such lines as HDDs and optical disc drives, facsimile equipment, broadcast-use digital VCR equipment and airline in-flight AV systems, while also maintaining a leading position in the Japanese cellular phone industry.
In PCs, Matsushita continued to upgrade its notebook models over the last three fiscal years. In fiscal 1999, the Company launched an A5-sized notebook PC with CCD camera and cellular-phone interface and, mainly for overseas markets, ruggedized notebook PCs, built to resist shock, and thereby supporting such uses as police field activities in North America. This was followed by the introduction in fiscal 2000 of ultra slim models with added features such as wireless communication. In fiscal 2001, adding further to its slim notebook series, the Company introduced the Hito, an AV-oriented notebook PC that links easily to AV equipment to better meet the needs of the digital networking age.
In the field of PC peripherals, Matsushita strengthened its disk drive lineups. In HDDs, the Company continued to introduce upgraded models to meet the need for greater data storage capacity and faster processing speed. In the optical disk drive area, Matsushita announced in fiscal 1999 a compact DVD-RAM drive with data storage capacity of 5.2 GB using both sides of a disc, which received worldwide attention. In fiscal 2000, the Company expanded its range of slim models for notebook PCs, and in fiscal 2001, introduced several new multiple disk drive models that gained popularity, including the industry’s slimmest and fastest single-unit DVD-ROM and CD-R/RW drive.
In communications equipment, Matsushita has developed and introduced a number of new mobile communications products with focus on downsizing, ease-of-use and Internet connectivity, in the last three fiscal years. In fiscal 1999, the Company marketed cellular phones and Personal Handyphone System (PHS) at the forefront of the race toward downsizing and multi-functionality. In fiscal 2000, the Company launched NTT DoCoMo’s popular i-mode cellular handsets equipped with e-mail and Internet browsing capabilities, as well as PHS terminals offering similar functions. Furthermore, in fiscal 2001, Matsushita began shipments of base transceiver stations for next-generation, W-CDMA (wideband code division multiple access) cellular phone services to be commenced by NTT DoCoMo in fiscal 2002, followed by sample shipments of W-CDMA handsets in May 2001.
Among other communications equipment, the Company launched the world’s first Internet-compatible facsimile machine in fiscal 1999. Also in fiscal 2001, the Company marketed a new multifunctional model, featuring fax, copy, printer, scanner and telephone functions. In addition, Matsushita introduced a color facsimile machine, compatible with the SD Memory Card.


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In the broadcast-use AV equipment and systems field, Matsushita launched the DVCPRO HD (high-definition) series in April 2000, building on the success of its light, compact digital DVCPRO series and, in fiscal 2001, the Company supplied major BS digital TV networks in Japan with conditional access systems (CASs) and an electronic program guide (EPG), both key systems for BS digital broadcasting. In these years, the Company has also solidified its leading position in the global in-flight AV systems market by delivering AV systems with LCD monitors and state-of-the-art personal multimedia systems that allow passengers to enjoy in-flight shopping from their seats.
Industrial Equipment
Matsushita’s product range of industrial equipment encompasses factory automation (FA) equipment, welding machines, power distribution equipment, ventilating and air conditioning equipment, vending machines and medical equipment. This category also includes car AV equipment, such as car audio and car navigation equipment.
In FA equipment, Matsushita is an industry leader in electronic-parts-mounting machines, and a major producer of industrial robots and electronic measuring instruments. Building on this strength to meet ever-more sophisticated customer requirements, the Company launched innovative products during the last three years, with a focus on smaller, lighter high-precision machines. Successful examples included a unique Stud Bump Bonding semiconductor mounting machine marketed in fiscal 1999, and the following year’s introduction of a new high-speed multifunctional chip mounter as well as an innovative laser processing machine for ultra-fine production of high-integration circuit boards. In fiscal 2001, the Company added modular components mounters to its mainstay range of parts-mounting machines. Concurrently, Matsushita introduced the world’s smallest and lightest fully digital CO2/MAG automatic welding machine. The Company also holds a competitive position in DVD disc mastering and replication equipment.
In the area of commercial-use ventilation and air-conditioning systems, Matsushita continued to expand delivery of its specialty in-tunnel dust collection and ventilation systems to Japan’s major expressways during these years. Meanwhile, the Company sourced the manufacture of packaged air conditioners to Daikin Industries, Ltd. (Daikin) in fiscal 2001 as part of an alliance between the two companies. The alliance covers a broad range, including consumer-use air conditioners in which Matsushita will provide manufacturing cooperation to Daikin, as well as joint procurement of parts and materials and co-development of eco-friendly products.
In car AV equipment, Matsushita continued to develop more advanced car navigation systems for the domestic market, as well as further promoting global expansion in car audio equipment. The Company introduced the world’s first car navigation model featuring voice control and DVD video playback functions in fiscal 1999, and in fiscal 2000, extended its DVD car navigation networking capabilities by launching new Internet capable models that interact with Electronic Toll Collection (ETC) systems. In fiscal 2001, Matsushita continued to launch upgraded car navigation systems that can receive mobile information services, while delivering infrastructure equipment for ETC services, which officially began in April 2001 as an integral part of Japan’s Intelligent Transport Systems (ITS) project.
Components
Matsushita produces a wide range of electronic and electric components and devices. Major products included in this category are semiconductors, general electronic components, display devices, electric motors, compressors and batteries, to support the Company’s finished products and for sale to other manufacturers.


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Recognizing that components and devices hold the key to innovation and advancement, as well as the competitiveness of finished products and systems in the digital networking age, Matsushita places significant priority on the development of electronic components technology and business, with special emphasis on semiconductors and display devices. As a result, sales in the components category have increased over the last three fiscal years. In recent months, however, business in this category has been adversely affected by setbacks in demand from the global IT-related industries.
The Company’s range of semiconductors is primarily made up of integrated circuits (ICs), such as MOS LSIs and bipolar ICs, discrete devices and CCDs. The Company has been strengthening development of multifunctional system LSIs, which form the basis of digital network-related equipment. Successful results included system LSI chip sets for DVD-ROM drives, MPEG-2 encoder chips, 32-bit microcontrollers with embedded DRAMs, all marketed in fiscal 1999, system LSI chip sets for digital TV tuners in fiscal 2000, and the world’s first single-chip MPEG-4 multi-codec system LSI in fiscal 2001. Matsushita has also been a leader in optical pickup semiconductors for DVDs, CCDs for video camcorders, and gallium-arsenide power modules for cellular phones. The Company is currently working to develop 0.10 micron process technology in an alliance with Mitsubishi Electric Corporation for future system LSIs for use in digital networkable products.
Matsushita maintains a broad spectrum of general components, encompassing electronic circuit components, printed circuit boards, transformers, power supply components, coils, capacitors, resistors, tuners, speakers, ceramic components, and various sensors. During the last three fiscal years, the Company has continued to focus on smaller, more advanced components for equipment downsizing and performance improvement. As part of this effort, in fiscal 1999, Matsushita expanded its production of proprietary compact Any Layer Interstitial Via Hole printed circuit boards, called ALIVHs, and high frequency components for use in compact mobile communications equipment. In areas related to digital networkable consumer products, the Company developed in fiscal 2001 a surface-mounted circuit module for Bluetooth, a short-range wireless networking protocol.
In display devices, Matsushita added high technology Semi Stretched Tension (SST) flat surface CRTs during fiscal 1999, expanding the product range in fiscal 2000 to include a model with a brightness level 20% higher than conventional models. The Company began concentrating production of flat-surface CRTs in Japan, while shifting production of traditional CRTs overseas. The Company also focused efforts on developing high-picture quality LCD devices with faster picture response and wider viewing angles. In fiscal 2001, the Company developed the world’s thinnest 32- and 36-inch flat-surface high-definition (HD) CRTs for BS digital HDTVs, and further boosted its PDP lineup, with the development of a 60-inch unit to add to its current 37-, 42- and 50-inch models.
In electric motors, Matsushita augmented its FA equipment motor lineup in fiscal 2000 through 2001, with the MINAS-A and MINAS-S, a series of smaller, high-speed servomotors with greater energy efficiency than conventional models. The lineup of AV and information and communications equipment motors have also been expanded during the last three fiscal years, including compact spindle motors for use in PC peripherals and DVD players and vibration motors for cellular phones. In compressors, the Company is a world leader, primarily for air conditioners and refrigerators.


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Matsushita is one of the world’s largest battery manufacturers, producing a comprehensive range of batteries, ranging from manganese, alkaline, lithium, silver oxide and zinc air cells, to rechargeable batteries, such as lithium-ion, nickel metal-hydride, nickel-cadmium and sealed lead-acid batteries and storage batteries for automotive use, as well as various battery powered appliances. Among these, production of compact, high-performance batteries, such as the Company’s long life alkaline batteries and lithium-ion batteries, have been expanding in recent years, as they are increasingly used in compact electronic equipment. As a technological breakthrough in fiscal 1999, Matsushita began production of thin lithium-polymer cells, while being at the forefront of nickel metal-hydride batteries for electric and hybrid electric vehicles, production of which has been expanding, as they are increasingly installed in new cars of the leading Japanese auto manufacturers. In fiscal 2000, Matsushita launched the world’s thinnest (0.4 mm) manganese dioxide-lithium battery, known as the Paper Coin for use in IC cards for e-commerce. In fiscal 2001, the Company launched rectangular lithium-ion rechargeable batteries, commencing construction of a new plant to reinforce its production capability.
While Matsushita offers total solutions by boasting such a wide array of key components and devices, the Company is currently accelerating its efforts to achieve a greater competitive edge and operating efficiency through more strategic selection of priority items in each of the above component segments.

Note:In response to new business environments created by the evolution of digital networks, the convergence of broadcasting and communications and other ongoing developments, Matsushita announced that it would reclassify its Consumer, Industrial and Components segments into four new segments: AVC Networks, Home Appliances, Industrial Equipment, and Components and Devices, effective April 2001. The Company intends to compile sales breakdown results under this new classification from the new fiscal year.

MARKETING CHANNELS

Below is a sales breakdown by geographical market:

                          
Yen (billions)

Fiscal year ended March 31,

200120001999



Japan4,03453%3,69851%3,75249%
North and South America1,380181,384191,51320
Europe84911906121,01913
Asia and Others1,419181,311181,35618






    Total7,682100%7,299100%7,640100%






Sales and Distribution in Japan
Domestic sales are handled or coordinated by several sales divisions organized according to the type of customer (consumers, corporate, government, manufacturing industry, and other respective industries) in order to meet the specific and ever-diversifying needs of consumers and various industries.
The table below shows a breakdown of Matsushita’s net sales by geographical area for the periods indicated:

   Yen (billions) (%)

 
   Fiscal year ended March 31,

 
   2004

  2003

  2002

 

Japan

  3,478  46% 3,454  47% 3,314  47%

North and South America

  1,327  18  1,421  19  1,495  21 

Europe

  1,080  15  1,000  13  839  12 

Asia and Others

  1,595  21  1,527  21  1,426  20 
   
  

 
  

 
  

Total

  7,480  100% 7,402  100% 7,074  100%
   
  

 
  

 
  

Sales and Distribution in Japan

In Japan, Matsushita’s products are sold through several sales channels, each established according to the type of products or customers: Sales of consumer and household products are handled or coordinated by relevant corporate sales divisions, such as the Corporate Marketing Division for Panasonic Brand and the Corporate Marketing Division for National Brand, while sales of general electronic components and certain other devices to manufacturers are handled by the Corporate Industrial Marketing & Sales Division, in each case to stay close to respective customers and meet their specific and ever-diversifying needs. For other products, there are also organizations under the direct control of business domain companies that conduct sales and marketing of their own products, mostly to non-consumer customers, such as industrial and business corporations, public institutions, construction companies and governments through their sales offices and subsidiaries or through outside agencies.


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For the consumer market, Matsushita maintains the industry’s most extensive sales networks, supplying a large number of consumer electronics and appliance retailers throughout Japan, and has also expanded to volume retailers.
Sales to corporate and government customers are centered on information and communications equipment, and sales to the manufacturing industry are focused on industrial equipment and components.
In April 2001, Matsushita began implementing major reorganizations of its domestic consumer sales and distribution structure. As a first step, Matsushita restructured the previous corporate consumer products sales divisions, sales functions within individual product divisions and the Corporate Advertising Division, into two new brand name-linked marketing divisions, the Corporate Panasonic Marketing Division (primarily responsible for AV and information/communications equipment) and the Corporate National Marketing Division (primarily responsible for home appliances and household equipment). Concerning distribution, Matsushita intends to consolidate its 22 regional consumer sales companies throughout Japan into a single company, along with a similar integration of credit sales (primarily installment sales) and leasing subsidiaries into a single company. By implementing these reforms and revitalizing domestic consumer sales and distribution operations, Matsushita intends to create a highly efficient structure that ensures speedy response to customer needs and realizes a significant reduction in distribution costs with an increased market share.
During fiscal 2001, the Company also inaugurated Internet-based sales systems in cooperation with local retailers in Japan.
Overseas Activities
Matsushita operates 229 companies in 44 countries outside of Japan, including five regional headquarters, 44 manufacturing/sales companies, 100 manufacturing companies, 48 sales companies, 13 research organizations and five finance subsidiaries. International marketing of Matsushita’s products is conducted through the Company’s sales subsidiaries and affiliates and also through independent distributors. In addition, certain products are sold in foreign markets on an OEM basis and marketed under the brand names of third parties. The Company has been gradually strengthening overseas sales channels for industrial products and components as well as integrated systems products, aside from existing consumer products sales networks in many countries and regions.
Overseas sales represented approximately 47% of the Company’s total consolidated sales in fiscal 2001.
In order to promote global business development and counter currency fluctuations, in recent years, the Company placed emphasis on building and expanding manufacturing facilities in newly developing areas, such as China and Eastern Europe, in addition to Southeast Asia.
Matsushita places emphasis on promoting localization of development of products and technologies to enhance competitiveness of individual overseas manufacturing sites. The Company is also reviewing the functions of its R&D, production and sales bases worldwide, integrating and relocating, as necessary, to achieve optimum efficiency of Matsushita’s global operations.

Of the above, the Corporate Marketing Division for Panasonic Brand and the Corporate Marketing Division for National Brand were established in April 2001 as part of Matsushita’s domestic consumer sales and distribution structure reorganizations, whereby the former corporate consumer products sales divisions, sales functions within individual product divisions and the Advertising Division were integrated into the two new corporate marketing divisions to provide greater customer satisfaction by shortening the distance between factories and consumers.

Also, as part of such reorganizations, in October 2001, Matsushita consolidated its 22 regional consumer sales companies throughout Japan, which handle distribution through local consumer electronics and appliance retailers, into a single company. Meanwhile, Matsushita’s sales structure for volume retailers through another single sales subsidiary is being strengthened by expanding supply chain management (SCM). In addition, also in October 2001, Matsushita’s credit sales subsidiary and leasing subsidiary were merged into one company, Matsushita Leasing & Credit Co., Ltd. By implementing these reforms and revitalizing its domestic consumer sales and distribution operations, Matsushita aimed at creation of an efficient structure that ensures speedy responses to customer needs and realizes a significant reduction in distribution costs and an increased market share.

Overseas Operations

Worldwide, Matsushita has 372 consolidated companies as well as 59 companies which are reflected by the equity method. International marketing and sales of Matsushita’s products are handled mainly through its sales subsidiaries and affiliates located in respective countries or regions in coordination with business domain companies and regional headquarter companies. In some countries, however, marketing and sales are handled through independent agents or distributors, depending on regional characteristics. Additionally, certain products are also sold on an OEM basis and marketed under the brand names of third parties.

Overseas sales represented approximately 54% of the Company’s total consolidated sales in fiscal 2004.

In order to promote global business development, Matsushita has been expanding its overseas manufacturing operations. The Company’s overseas manufacturing is conducted by overseas manufacturing subsidiaries and affiliates under the control of business domain companies in coordination with regional headquarter companies. In April 2003, a new business performance evaluation system was introduced, whereby the performance of each business domain company is now evaluated based on Capital Cost Management (CCM), which measures capital efficiency, and cash flows, on a global consolidated basis, including overseas companies under its control. This provides incentive to each business domain company to further establish globally optimized operational structures.

In recent years, the Company established a globally optimized manufacturing structure, taking into consideration cost and proximity to market as well as social, political and environmental factors. Currently, we view Asia, China and Eastern Europe as critical to this structure. Specifically, Matsushita has focused on China as a large potential market and a production site to supply global as well as Chinese markets. As such, the Company has been enhancing production capacity at its Chinese facilities for such borderless products as DVD players, microwave ovens, compressors and components, as well as such new growth products as PDPs.


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Customers
The largest markets for Matsushita have traditionally been consumer products. However, since the 1980s, the proportion of sales to non-consumer customers, such as governments, commercial and industrial corporations and other institutions, including large customers such as electric and electronic equipment manufacturers, automotive manufacturers and various other machinery makers, has been rising as Matsushita places increasing emphasis on industrial and commercial products and electronic components. In fiscal 2001, sales of industrial products and components accounted for approximately 60% of Matsushita’s total sales, rising from 48% of the total in fiscal 1995. Matsushita’s business is not materially dependent upon any single customer.

Matsushita also places an emphasis on promoting localization of research and development of products and technologies to enhance competitiveness of overseas manufacturing sites. Such endeavors included establishment of a second R&D base in China in fiscal 2003 to speed up local-based product development and to build an optimum global R&D network. In January 2004, Matsushita established a software development site in China to minimize escalating software development costs in areas such as digital consumer electronics. In Asia, the Company established “Panasonic R&D Center Malaysia” in October 2003 as a digital networking multi-media software development base.

Customers

The largest markets for Matsushita have traditionally been consumer products. However, since the 1980s, the proportion of sales to non-consumer customers, such as industrial and business corporations, governments and other institutions, including large customers such as electric and electronic equipment manufacturers, automotive manufacturers and various other machinery makers, has been rising as Matsushita places increasing emphasis on industrial and commercial products and systems and electronic components. Matsushita’s business is not materially dependent on any single customer.

SEASONALITY OF BUSINESS

The Company’s main business has no significant seasonality in terms of sales or profits. However, when it comes to the consumer electronics market, normally the fiscal third quarter is a peak because it falls in the year-end sales season for consumer durables in Japan and the holiday sales season in many overseas countries.
Additionally, seasonal appliances, such as air conditioners and refrigerators have a different business cycle, in line with the practice of the relevant Japanese industry, which starts from October and ends in September. This does not have a material effect upon the Company’s overall operation.

The Company’s business has no significant seasonality in terms of sales or profits. However, for the consumer electronics business, the fiscal third quarter (October to December) is normally a peak because it falls in the year-end shopping season in Japan and many overseas markets. Additionally, seasonal appliances, such as air conditioners and refrigerators, have different business cycles, which sales peak in summer. These do not have a material effect upon the Company’s overall operations.

RAW MATERIALS AND SOURCE OF SUPPLY

Matsushita purchases a wide variety of parts and materials from various suppliers in Japan and abroad. The Company applies a multi-sourcing policy — being not dependent upon any one source of supply for any essential item. The Company has also been endeavoring to promote a policy of global optimum purchasing by selecting the most qualified suppliers from all over the world and buying the most competitive parts and materials. Although prices of certain materials, such as metals, are volatile, the Company has managed to minimize the negative effects on its operations by maintaining favorable relations with suppliers and continuing a multi-sourcing policy.
In an attempt to improve operational efficiency and reduce parts and materials costs, Matsushita has recently introduced an Internet-based procurement system. The Company is currently expanding this system to all of its locations and, at the same time working on the increased use of common parts and the reduction of the number of suppliers.

Matsushita purchases a wide variety of parts and materials from various suppliers in Japan and abroad. The Company applies a multi-sourcing policy —not depending upon any one particular source of supply for any essential item. The Company has also been endeavoring to promote a policy of global optimum purchasing by concentrating order placements to qualified suppliers from all over the world and buying the most competitive parts and materials.

In an attempt to improve operational efficiency and to reduce parts and materials costs, Matsushita has been increasing centralized purchasing at its headquarters for materials commonly used in many product divisions throughout Matsushita, such as steels, plastics, semiconductors, electronic components, while at the same time accelerating the initiatives to standardize parts and materials. Such efforts are coordinated by the Corporate Centralized Purchasing Center established in April 2003. At the business domain companies’ level, an increasing focus has been also paid to the centralized purchasing for the parts and materials commonly used in factories within each business domain company.

For fiscal 2005, to minimize adverse effects of global price increases of raw materials, Matsushita will further strengthen materials cost reduction initiatives including a reduction in the number of parts through the standardization of design, use of “Value Engineering” techniques, and additional cost reduction activities covering indirect auxiliary materials.


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PATENT LICENSE AGREEMENTS

Matsushita holds numerous Japanese and foreign patents and utility model registrations for its products and engages in mutual exchange of technologies with a number of Japanese and foreign manufacturers. Its technical assistance, or licensing, to other manufacturers is increasing year by year.

Matsushita holds numerous Japanese and foreign patents and utility model registrations for its products, and shares technologies with a number of Japanese and foreign manufacturers. Its technical assistance, or licensing, to other manufacturers has been increasing year by year. For example, Matsushita’s patents related to MPEG2 technology, which is widely used in digital TVs, are licensed to other companies through MPEG LA LLC. Patents which are essential to DVD technology are licensed as a part of the joint licensing program operated by seven Japanese and U.S. companies. Furthermore, the Company’s patents relating to CD technology are licensed to many manufacturers.

Matsushita is a licensee under various license agreements which cover a wide range of products, including AV products, computers, communications equipment, semiconductors and other components. Matsushita has non-exclusive patent license agreements, with among others, Thomson Licensing Inc. and Thomson Licensing S.A. covering a broad range of its products, including TVs, VCRs, CD players and CD-ROM drives. Matsushita has non-exclusive patent cross-license agreements, with among others, Texas Instruments Incorporated and International Business Machines Corporation, both covering semiconductors, information equipment and certain other related products. Matsushita has non-exclusive patent cross-license agreements with Koninklijke Philips Electronics N.V. covering semiconductor devices, various lamps, cathode-ray and electron tubes and certain other products.

Most of Matsushita’s license and technical assistance agreements are for three- to ten-year periods, unless the agreements cover specific patents to be licensed therein, in which case they are normally for the life of the patent.

The Company considers all of its technical exchange and license agreements beneficial to its operations.

COMPETITION

The markets in which the Company sells its products are highly competitive. Matsushita’s principal competitors, across the full range of its products, consist of several large Japanese and overseas manufacturers and a number of smaller and more specialized companies. Advancements toward a borderless economy have also applied pressure to Japanese manufacturers, including Matsushita, in terms of global price competition, especially from Chinese and Korean manufacturers. To counter this, the Company is devising various measures to enhance its competitiveness, with a focus on the development of differentiated products and cost reduction and efficiency improvements. Such measures include the development of products with Matsushita’s “black-box” or proprietary technologies, innovation of manufacturing processes through the use of information technology, increasing overseas production for optimum manufacturing allocation from a global perspective, and shortening production and distribution lead time through the expansion of SCM in cooperation with several overseas and domestic mass-scale retailers and the introduction of cell-style production, as well as developing joint ventures and other cooperative agreements with domestic and overseas partners.

Also, with the development of digital and networking technologies, competition in terms of the so-called “de facto” standard has become crucial. In response, Matsushita has been strengthening its efforts toward alliances with leaders not only in the electronics industry but also the software, devices, broadcasting, communications services and other diverse industries.


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Matsushita is a licensee under various license agreements which cover a wide range of products, including audiovisual products, computers, communications equipment, semiconductors and other components. Matsushita has non-exclusive patent license agreements, with among others, Thomson Multimedia Licensing Inc. and Thomson Licensing S.A. covering a broad range of its products, including TVs, VCRs, CD players and CD-ROM drives. Matsushita has non-exclusive patent cross-license agreements, with among others, Texas Instruments Incorporated and International Business Machines Corporation, both covering semiconductors, information equipment and certain other related products. Certain internal divisional companies as successors to Matsushita Electronics Corporation, a former subsidiary now merged into the Company, have non-exclusive patent license agreements with Koninklijke Philips Electronics N.V. covering most of the items manufactured by such divisional companies, including semiconductor devices, various lamps, cathode-ray and electron tubes and certain other products.
Most of Matsushita’s license and technical assistance agreements are for three- to ten-year periods, unless the agreements cover specific patents to be licensed therein, in which case they are normally for the life of the patent.
The Company considers all its technical exchange and license agreements beneficial to its operations.

COMPETITION

The markets in which the Company sells its products are highly competitive in Japan, as well as abroad. Matsushita’s principal competitors, across the full range of its products, consist of several large Japanese manufacturers and a number of smaller and more specialized companies. In certain categories of products it encounters additional competition from companies in the United States, Europe and Asia. The Company expects that competition will continue to be intense both in Japan and abroad.
In addition, the recent advancement towards a borderless economy has applied pressure to Japanese manufacturers, including Matsushita, in terms of global price competition. To minimize the effects of these negative factors, the Company is devising various cost-reduction and efficiency measures to enhance competitiveness, such as innovating manufacturing processes through the use of information technology, increasing overseas production, shortening production and distribution lead time through the introduction of supply chain management (SCM) in cooperation with several overseas and domestic mass-scale retailers, and also developing joint ventures and other cooperative agreements with domestic and overseas partners. Also, with the advancement of digital networking technologies, competition around the so-called “de facto” standard has become intense. In response, Matsushita has been strengthening its efforts for alliances with leaders of not only the electronics industry but also the software, devices, broadcasting, communications services and other industries.

GOVERNMENT REGULATIONS

Like other electronics manufacturers, Matsushita is subject to government regulations related to the environment.

Matsushita has established an efficient system to collect and recycle end-of-life home appliance, comprising air conditioners, TVs, refrigerators, washing machines and PCs in compliance with the Japanese Law for Recycling of Specified Kinds of Consumer Electric Goods (the Recycling Law) effective April 1, 2001. The Company also established the Matsushita Eco Technology Center Co., Ltd. not only for dismantling used products and recycling scrapped materials, but also for research and development of recycling technology. Likewise, Matsushita, as the leader in the domestic home electric and electronic equipment industry, has been consistently working on environmental protection initiatives that appropriately meet the standards set forth in the Recycling Law or other relevant laws or regulations, including those regarding water and land-soil anti-pollution.

In January 2003, the Company announced that disposed electric equipment that contained polychlorinated byphenyls (PCB) might be buried in the ground of its four manufacturing facilities and one former manufacturing facility in Japan. The applicable laws in Japan require that PCB equipment be appropriately maintained and disposed of by July 2016. The Company estimated the total cost of approximately 8 billion yen for necessary actions, such as investigating whether the PCB equipment is buried at the facilities, including excavations, and maintaining and disposing the PCB equipment that is already discovered, which amount has been accrued since it represents management’s best estimate or minimum of the cost, but the payments are not considered to be fixed and reliably determinable.

In Europe, two environmental directives went into force in February 2003 and 25 member states are currently drawing up their state laws. One of these directives is the WEEE Directive designed to promote the recycling of electric and electronic equipments, and the other is the RoHS Directive that practically prohibits the use of six specified hazardous substances (Lead, Mercury, Cadmium, Hexavalent chromium, Polybrominated biphenyls, Polybrominated diphenyl ethers) in products. Matsushita is carrying out its compliance programs not only to meet the requirements of these two directives but also to establish cost efficient systems that will further enhance its competitive edge.

Following in the footsteps of these EU directives, an increasing number of recycling and hazardous substance-related legislations are being enacted worldwide. Based on its corporate policy of “contributing to the coexistence with the global environment,” Matsushita is implementing appropriate measures to address these legislations at each business domain company and in each region.

The Company is subject to a number of other government regulations in Japan and overseas, but overall, it presently manages to operate its business without any significant difficulty or financial burden in coping with them.


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C.Effective April 1, 2001, the Japanese government (Regulator: Ministry of the Environment and Ministry of Economy, Trade and Industry) enacted “the Law for Recycling of Specified Kinds of Consumer Electric Goods,” (the “Recycling Law”). The Recycling Law now requires that consumers, retailers and manufacturers share the responsibility of recycling used TVs, refrigerators, air conditioners and washing machines.Organizational Structure


In order to maintain production, sales and service activities effectively in broad business areas as a comprehensive electronics manufacturer, Matsushita has been operating under a decentralized divisional management structure with substantial delegation of authority to divisional companies and subsidiaries, with the headquarters focusing on Groupwide strategic functions. In January 2003, Matsushita launched a new business domain-based organizational structure, and introduced new Group management control systems from April 1, 2003. Under this new structure, each business domain company, either an internal divisional company of the parent company or a subsidiary, takes full responsibility for R&D, manufacturing and sales in its own business area, thereby establishing an autonomous management structure that expedites self-completive business operations to accelerate growth.

Principal divisional companies and subsidiaries as of March 31, 2004 are as listed below:

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To cope with the Recycling Law, Matsushita set up an effective system that can utilize its existing infrastructure of recycling and transportation companies throughout Japan for collection and recycling activities. The Company also established the Matsushita Eco Technology Center Co., Ltd. not only for dismantling used products and recycling scrapped materials, but also for research and development of recycling technology. So far, the actual recycling ratio of products has been growing steadily. Matsushita, as the industry leader in the domestic home appliance market, has been consistently working on environmental protection measures to ready itself for the Recycling Law. The Company therefore, does not believe that the new legislation will have a material adverse effect on its business, except for the current reverse effect of temporary advance consumer purchases of the four subject product items prior to the enactment of the Recycling Law.
The Company is subject to a number of other government regulations in Japan and overseas, but overall, the Company presently manages to operate its business without any significant difficulty or financial burden in coping with them.

C.Organizational Structure
In order to maintain production, sales and service activities in broad business areas as a comprehensive electronics manufacturer, Matsushita has traditionally operated under a decentralized divisional management structure with substantial delegation of authority to divisional companies and subsidiaries, with the headquarters focusing on group-wide strategic functions, such as corporate planning, personnel administration, finance and corporate communications, as well as corporate-level R&D, sales and marketing functions.
Principal divisional companies and subsidiaries at present are as listed below:

 (1)Internal divisional companies of Matsushita Electric Industrial Co., Ltd.:

Panasonic Automotive Systems Company

Panasonic System Solutions Company

Healthcare Business Company

Lighting Company

Motor Company

Name of internal divisional company


  
Name of internal divisional company

Semiconductor Company

 

Panasonic AVC Networks Company

Home Appliance & Housing Electronics Company
Air-Conditioner Company

Matsushita Home Appliances Company

Packaged Air-Conditioner Company*Company

Motor Company
Semiconductor Company*
Display Device Company*
Lighting Company*
Factory Automation Company*

  Note: The asterisk (*) indicates the new divisional companies established on April 1, 2001 upon reorganizations.


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 (2)Principal domestic subsidiaries:

Name of company


  Percentage
owned


 
Percentage
                        Name of companyowned




Matsushita Communication Industrial

Panasonic Communications Co., Ltd.

56.3100.0%

Matsushita Electronic Components Co., Ltd.

99.3
Matsushita Industrial Equipment Co., Ltd.100.0

Panasonic Mobile Communications Co., Ltd.

100.0

Panasonic Factory Solutions Co., Ltd.

100.0

Matsushita Ecology Systems Co., Ltd.

100.0

Matsushita Refrigeration Company

100.0

Matsushita Battery Industrial Co., Ltd.

98.0
Matsushita Refrigeration Company100.0
Kyushu Matsushita Electric Co., Ltd.51.1
Matsushita Seiko Co., Ltd.57.6
Matsushita Graphic Communication Systems, Inc.67.5

Matsushita Kotobuki Electronics Industries, Ltd.

100.057.7

Matsushita Industrial Information Equipment Co., Ltd.

100.0

Victor Company of Japan, Ltd.

52.652.4


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 (3)Principal overseas subsidiaries:

Name of company


  Country of
incorporation


  Percentage
owned


 
Country ofPercentage
                        Name of companyincorporationowned




Matsushita Electric Corporation of America

U.S.A.100.0%

Matsushita Electric Europe (Headquarters) Ltd.

U.K.100.0

Panasonic Mobile & Automotive Systems Czech s.r.o.

Czech100.0

Matsushita Electric Asia Pte. Ltd.

Singapore100.0
Matsushita Electric Espana S.A.

Panasonic AVC Networks Singapore Pte. Ltd.

SingaporeSpain100.0

Panasonic AVC Networks Kuala Lumpur Malaysia Sdn. Bhd.

Malaysia100.0

Matsushita Electric (Taiwan) Co., Ltd.

Taiwan69.8

Matsushita Electric (China) Co., Ltd.

China100.0

Guangzhou Matsushita Air-Conditioner Co., Ltd.

China67.8

67.1
Matsushita Industrial Corporation Sdn. Bhd.Malaysia80.0
Matsushita Television & Network Systems Co., (Malaysia) Sdn. BhdMalaysia100.0
Matsushita Refrigeration Industries (S) Pte. Ltd.Singapore100.0
Matsushita Electronics (S) Pte. Ltd.Singapore100.0

Note:

Note:  Matsushita’s consolidated financial statements as of March 31, 20012004 comprise the accounts of 321372 consolidated companies, plus 53with 59 companies reflected by the equity method.

D.Property, Plants and Equipment
The Company’s principal executive offices and key research laboratories are located in Kadoma, Osaka, Japan.
Matsushita’s manufacturing plants are located principally in Japan, other countries in Asia, North and South America and Europe. The Company considers all its factories well maintained and suitable for current production requirements.

The Company’s principal executive offices and key research laboratories are located in Kadoma, Osaka, Japan.

Matsushita’s manufacturing plants are located principally in Japan, other countries in Asia, North and South America and Europe. The Company considers all of its factories well maintained and suitable for current production requirements.


- 1931 -

The following table sets forth information as of March 31, 2004 with respect to manufacturing facilities:

The following table sets forth information as of March 31, 2001 with respect to manufacturing facilities:
Floor Space

Location


Floor Space
(thousands of

Location

square feet)


Principal Products Manufactured




Osaka

8,693    9,770

VCRs, PDP TVs, DVD products, audio equipment, washing machines, other home appliances, information equipment, industrial equipment, components, batteries, kitchen fixtures.

Kanagawa

3,711    4,165

Communications, information and measuring equipment, VCRs, audio equipment, car AV equipment, compact discs, refrigerators, batteries.

Shiga

3,535    3,564

Air conditioners, refrigerators, compressors, vacuum cleaners.

Tochigi

1,798    1,953

TVs, TV picture tubes, information equipment.

Nara

1,948    1,992

Home appliances, gas and kerosene equipment, compact discs and DVD discs.

Okayama

1,982    1,901

VCRs, components, magnetic tapes and discs.

Kyoto

1,975    1,630

Semiconductors, components.

Ibaraki

590    1,059TVs, magnetic

Magnetic tapes.

Shikoku

2,811    3,739

VCRs, information equipment, home appliances.

Kyushu

3,285    2,353

Information and communications equipment, PC peripherals, components, industrial equipment.

North America

6,968    7,783

TVs, home appliances, VCRs, DVD discs, car audio equipment, communications equipment, compressors, components, batteries.

Europe

3,899    4,147

VCRs, PDP TVs, TVs, audio equipment, car audio equipment, home appliances, components, information and communications equipment.

Asia
(excluding
(excluding  China)

19,297    17,715

TVs, VCRs, DVD products, audio equipment, air conditioners, refrigerators, other home appliances, components, semiconductors, information and communications equipment, industrial equipment, compressors, batteries.

China

7,226    4,477

TVs, PDP TVs, DVD products, audio equipment, air conditioners, washing machines, other home appliances, car audio equipment, communications equipment, semiconductors, industrial equipment, compressors, components, batteries.

Other

16,235    16,298

Home appliances, industrial equipment, components, semiconductors, video and audio equipment, batteries, information and communications equipment.


     Total82,546

  All of the above facilities and properties are fully owned by the Company, except for the land, some parts of which are leased from companies outside of the Matsushita Group.


- 20 -

     In addition to its manufacturing facilities, Matsushita’s properties all over the world include sales offices located in various cities with an aggregate floor space of approximately 8.5 million square feet, research and development facilities with an aggregate floor space of approximately 7.0 million square feet, employee housing and welfare facilities with an aggregate floor space of approximately 11.5 million square feet, and administrative offices with an aggregate floor space of approximately 17.4 million square feet.

Total

83,953     
  As of March 31, 2001, Matsushita leased approximately 18.3 million square feet of floor space, most of which was for sales office space.
     

Substantially all of the above facilities and properties are fully owned by the Company.

In addition to its manufacturing facilities, Matsushita’s properties all over the world include sales offices located in various cities with an aggregate floor space of approximately 8.7 million square feet, research and development facilities with an aggregate floor space of approximately 6.0 million square feet, employee housing and welfare facilities with an aggregate floor space of approximately 10.1 million square feet, and administrative offices with an aggregate floor space of approximately 22.0 million square feet.


- 32 -

As of March 31, 2004, Matsushita leased approximately 19.0 million square feet of floor space, most of which was for sales office space.

Substantially all of Matsushita’s properties are free of material encumbrances and Matsushita believes such properties are in adequate condition for their purposes and suitably utilized. During fiscal 2004, there was no material problem, regarding both the productive capacity and the extent of utilization of the Company’s properties.

In terms of environmental issues, all of the Matsushita Group’s properties operate in compliance with governmental and municipal laws and regulations. Furthermore, the Company established a number of internal environmental guidelines which are stricter than those provided by the authority. In case any occasional non-compliance may take place, such as the previously mentioned PCB issue, Matsushita takes immediate and appropriate actions to meet the regulatory requirements and to ensure current good utilization standards.

For fiscal 2005, the Company will make a capital investment of approximately 340 billion yen, for the purpose of production of new products and enhancement of production capacity and efficiency with a focus on such areas as AV and information and communications equipment (approximately 93 billion yen), and electronic components and devices including semiconductors and key devices (approximately 132 billion yen).

The investments stated above will be funded mainly through internal sources.

Item 5.Operating and Matsushita believes such properties are in adequate condition for their purposesFinancial Review and suitably utilized. During fiscal 2001, there was no material problem, regarding both the productive capacity and the extent of utilization of the Company’s properties.
In terms of environmental issues, all of the Matsushita Group’s properties operate in compliance with governmental and municipal laws and regulations. Furthermore, the Company established a number of internal environmental guidelines which are stricter than those provided by the authority. In case any occasional non-compliance may take place, Matsushita takes immediate and appropriate actions to meet the regulatory requirements and to ensure current good utilization standards.
For fiscal 2002, the Company will make a capital investment of approximately 420 billion yen, for the purpose of production of new products and enhancement of production capacity and efficiency with a focus on such areas as (digital) AV and information and communications equipment (approximately 115 billion yen), and electronic components and devices including semiconductors, LCD panels and PDPs (approximately 265 billion yen).
The investments stated above will be funded mainly through internal sources.Prospects

Item 5.    Operating and Financial Review and Prospects

A.Operating Results
During the three year period ended March 31, 2001 (“fiscal 1999”, “fiscal 2000” and “fiscal 2001”), the corporate business environment surrounding Matsushita remained generally sluggish. In fiscal 1999, economic growth in Japan slowed, with a 0.6% decrease in real Gross Domestic Product (GDP), reflecting lowered corporate capital investment and consumer spending. In fiscal 2000, the Japanese economy began to show a moderate recovery, owing to government economic stimulus packages and a surge in demand for information technologies (IT), which resulted in a 1.4% increase in real GDP. The recovery continued through fiscal 2001, especially in the first half, led by IT-related corporate capital investment. In the second half of fiscal 2001, however, economic growth in Japan slowed once again due to continued sluggish consumer spending and moderating export growth. As a result, Japan’s GDP grew only an estimated 0.9% in real terms during fiscal 2001.

Overview

Matsushita is one of the world’s leading producers of electronic and electric products. Matsushita currently offers a comprehensive range of products, systems and components for consumer, business and industrial use based on sophisticated electronics and precision technology. Most of Matsushita’s products are marketed under “Panasonic,” its principle brand name, and several other brand names, including “National,” “Technics,” “Quasar,” “Victor” and “JVC.” Matsushita divides its businesses into five segments: AVC Networks, Home Appliances, Components and Devices, JVC and Other. “AVC Networks” includes video and audio equipment, and information and communications equipment. “Home Appliances” includes home appliances and household equipment. “Components and Devices” includes electronic components, semiconductors, electric motors and batteries. “JVC” includes products marketed under the brand name of JVC or Victor. “Other” includes electronic-parts-mounting machines, industrial robots and industrial equipment.

Matsushita’s results of operations and financial condition are affected by the economic environment in the markets in which it conducts its business, including Japan, other countries in Asia, the United States and Europe, as well as by fluctuations of exchange rates between the Japanese yen, the currency used in Matsushita’s financial statements, and other key currencies in which Matsushita receives revenues for sales of its products overseas, primarily the U.S. dollar and the euro.


- 2133 -

For most of the three-year period, economic conditions were generally favorable in many regions of the world outside Japan, led by the United States economy. From around the middle of fiscal 2001, however, U.S. economic growth began to slow down, coinciding with setbacks in the global IT industry, which had previously enjoyed rapid growth in demand centered on personal computers (PCs) and cellular phones. These conditions are currently having negative effects on Asian and European economies, as well as the IT and related electronic equipment and components industries around the world.
Also during the period, survival for certain enterprises became difficult and global competition intensified, which, together with sluggish consumer spending, triggered a deflationary trend in Japan. The consumer price index in Japan rose 0.2% in fiscal 1999, but declined 0.5% in fiscal 2000 and declined 0.5% again in fiscal 2001. This deflationary trend was also reflected in Matsushita’s product prices, thereby putting pressure on earnings.
Foreign currency exchange rates were volatile during the three-year period, with the Japanese yen generally strengthening against such major currencies as the U.S. dollar and the euro through the middle of fiscal 2001 and somewhat weakening thereafter (See Section A of Item 3). In order to alleviate the effects of currency-related transaction risk, Matsushita has traditionally used several currency risk hedging methods, such as forward foreign-exchange contracts and currency options contracts with leading banks. Matsushita has also implemented matching of exports and imports exchange contracts. As a basic countermeasure against currency exchange risk, the Company has been strengthening production operations outside Japan to meet overseas demand, while reducing dependence on exports. The Company does not have any material unhedged monetary assets, liabilities, or commitments denominated in currencies other than the operation’s functional currency. The strengthening of the yen has had an adverse affect on Matsushita’s financial results, as explained in more detail in the following paragraphs.
During the period, Matsushita directed companywide efforts toward building a solid foundation for future growth under its four-year Progress 2000 Plan from fiscal 1998 through fiscal 2001. Under the plan, the Company implemented a number of business reforms, including the introduction of the internal divisional company system and the selection and strengthening of strategic areas to concentrate resources. As a result, Matsushita’s five priority businesses, including, among others, digital television systems, semiconductors and mobile communications equipment have come to play an essential role in the operations of the Company. In April 2001, Matsushita implemented a new mid-term plan, Value Creation 21, centered on various restructuring and growth strategies, as explained in more detail in Section D of this Item 5.
Matsushita’s consolidated sales and earnings results during the last three fiscal years, reflecting all of the aforementioned external and internal conditions, can be summarized as follows:
In fiscal 1999, net sales decreased 3.2% to 7,640 billion yen, mainly reflecting the sluggish Japanese economy and, outside Japan, the lingering economic conditions in such regions as Southeast Asia and the Commonwealth of Independent States (CIS), both of which suffered in the aftermath of the currency-related turmoil. Net income dropped 85.5% to 14 billion yen, primarily because of decreased sales and price declines due to intensified worldwide competition. The net income decrease was further exacerbated by the negative effect of 42 billion yen in adjustments of net deferred tax assets reflecting a reduction in Japan’s corporate income tax rate. Without the effects of these adjustments, net income for fiscal 1999 would have decreased 47.7%.

Economic environment

The Japanese economy over the last three fiscal years was generally characterized by uncertainty and slow growth following the long continued stagnancy in the 1990’s. In the year ended March 31, 2002, economic growth in Japan slowed from the preceding year’s temporary recovery, due to sluggish consumer spending and exports, along with setbacks in demand for information technology (IT) and related products. In the first half of the year ended March 31, 2003, the Japanese economy showed signs of a pickup, with a revival in exports and consumer spending growth. The economic recovery, however, did not last long, and the second half of that year again met stagnant consumer spending and a decline in exports. In the year ended March 31, 2004, economic growth in Japan showed moderate improvement as a result of rising exports and increased capital investment. Reflecting the aforementioned factors, Japan’s real gross domestic product showed instability but slight signs of recovery from the worst period, recording a 1.2% decrease in fiscal 2002, a 1.1% increase in fiscal 2003, and a 3.3% increase in fiscal 2004.

Overseas, the U.S. economy showed signs of a recovery in the year ended March 31, 2002, and its moderate growth continued in the year ended March 31, 2003, despite the war in Iraq. During the same period, growth of Asian economies was somewhat slow, except for China, and European economies also experienced slow growth. In the year ended March 31, 2004, the overseas economy was generally favorable owing to the continuously steady advances in the U.S. and Chinese economies, although post-war Iraq and other unstable factors remained.

During the three-year period ended March 31, 2004, Japan experienced deflation due mainly to sluggish consumer spending and an increased inflow of products manufactured in low-cost countries. The consumer price index in Japan declined 1.0% in the year ended March 31, 2002 and declined 0.6% again in the year ended March 31, 2003. In the year ended March 31, 2004, the consumer price index continued to fall, recording a decline of 0.2%. This deflationary trend has been reflected in the declining prices of goods and services in Japan, putting pressure on the earnings of Japanese businesses.

Condition of foreign currency exchange rates and Matsushita’s policy

Foreign currency exchange rates fluctuated during the three-year period ended March 31, 2004. In the year ended March 31, 2002, the Japanese yen weakened against the U.S. dollar and the euro. In the following two years, the yen strengthened against the U.S. dollar but weakened against the euro. In order to alleviate the effects of currency-related transaction risks, Matsushita has traditionally used several currency risk hedging methods, such as forward foreign-exchange contracts and currency options contracts with leading banks. Matsushita has also increased matching of export and import exchange contracts. As a basic countermeasure against currency exchange risk, the Company has been strengthening production operations outside Japan to meet overseas demand, while reducing dependence on exports from Japan. The Company does not have any material unhedged monetary assets, liabilities or commitments denominated in currencies other than the individual operation’s functional currency.


- 2234 -

In fiscal 2000, net sales decreased 4.5% to 7,299 billion yen, mainly attributable to sluggish demand in Japan due to continued weak consumer spending, intense global price competition and yen appreciation. Net income totaled 100 billion yen increasing 636.3% over the previous year. Increased profitability in Components and improved overall efficiency could not fully offset the negative effects of price declines and yen appreciation on earnings. However, the significant net income increase was realized largely due to a non-operating gain of 59 billion yen from the sale of shares of EPCOS AG, a German electronic component manufacturing joint venture, as well as the above mentioned adjustments in net deferred tax assets in the previous year, which were not incurred in fiscal 2000.
In fiscal 2001, net sales rose 5.2% to 7,682 billion yen, due mainly to generally favorable economic conditions in Japan and overseas, as well as increased demand for IT-related products and components, especially in the first half of the fiscal year. Despite the positive effect of this sales gain and overall cost reduction and efficiency improvement efforts, net income declined 58.4% to 42 billion yen, largely because of restructuring expenses incurred to compensate employees in Japan subject to the new regional-based employee remuneration system and early retirement programs, both implemented as part of the mid-term Value Creation 21 plan. The absence of the previous year’s non-operating gain from the sale of EPCOS AG shares also adversely affected net income.
Details of operating and financial results for each of the last three fiscal years are as follows:

Initiatives implemented by Matsushita

In the face of the aforementioned severe economic environment, Matsushita introduced, in April 2001, its mid-term business plan, Value Creation 21, which covered the three-year period ended March 31, 2004. Under the theme “Deconstruction and Creation” of the plan, the Company implemented a variety of major Companywide restructuring initiatives to transform itself into a “lean and agile Matsushita” and, from the year ended March 31, 2003 (fiscal 2003), gradually shifted its focus to growth strategies, which include the development and introduction of differentiated products, such as “V-products,” the launch of a business domain-based Groupwide organizational structure and the expansion of overseas operations as a “growth engine” for the entire Company. In fiscal 2004, Matsushita continued to carry out business domain-based restructuring initiatives, while accelerating its growth strategies. (For details of the Value Creation 21 plan, see Section A of Item 4.)

Summary of operations

Matsushita’s consolidated sales and earnings results during the last three fiscal years, reflecting the aforementioned external and internal conditions, can be summarized as follows:

In fiscal 2002, net sales declined 9.1% to 7,074 billion yen. Although sales of video and audio equipment in the AVC Networks category rose, reflecting steady growth in digital AV equipment, sales in almost all other sectors dropped from the previous year. Specifically, information and communications equipment in the AVC Networks category and products in the Components and Devices category were negatively affected by a worldwide downturn in IT-related industries. A global setback in corporate capital investment also caused a steep fall in sales of FA and other industrial equipment. In addition to these sales declines, the Company incurred various restructuring expenses under the Value Creation 21 plan, including 164 billion yen related to employment restructuring programs, such as additional retirement allowances for special early retirement programs, 86 billion yen related to business restructuring expenses for the closure/integration of several manufacturing sites. Furthermore, Matsushita incurred a write-down of 92 billion yen on investments. Reflecting these adverse factors, along with corporate tax effects and a decrease in minority interests due to negative earnings of certain subsidiaries, the Company incurred a net loss of 428 billion yen.

In fiscal 2003, net sales increased 4.6% to 7,402 billion yen, led by video and audio equipment in the AVC Networks category and products in the Components and Devices category, largely on the success of V-products developed through integration of Matsushita’s Groupwide technological resources. Despite the positive effects on earnings of this sales increase and the previous year’s employment and business restructuring, the Company incurred a net loss of 19 billion yen, due in part to a write-down on investment securities, equity losses caused by losses of certain associated companies and losses related to adjustments of net deferred tax assets necessitated by the introduction of a pro-forma standard corporate taxation system in Japan.


- 35 -

In fiscal 2004, net sales increased 1.1% to 7,480 billion yen, led by strong sales of V-products, particularly digital AV products, cellular phones and factory automation (FA) equipment, which were sufficient to offset sales declines in the Components and Devices and JVC categories. The sales increase positively affected earnings. In addition, Matsushita recorded a 72 billion yen gain from the transfer to the Japanese government of the substitutional portion of Japanese Welfare Pension Insurance (JWPI) that the Company and certain of its subsidiaries operated on behalf of the Japanese government. Meanwhile, Matsushita incurred restructuring charges of 45 billion yen for early retirement programs at certain domestic group companies, and losses of 52 billion yen on valuation of investment securities, mainly stocks of affiliated companies. Reflecting all these factors, and despite an increase in minority interests due to improved earnings of certain subsidiaries and equity losses of certain associated companies, the Company recorded a net income of 42 billion yen.

Key performance indicators

The following are performance measures that Matsushita believes are key indicators of its business results for the last three fiscal years.

   Yen (billions) (%)

 
   Fiscal year ended March 31,

 
   2004

  2003

  2002

 

Net sales

  7,480  7,402  7,074 

Income (loss) before income taxes to net sales ratio

  2.3% 0.9% (7.6)%

Research and development costs to net sales ratio

  7.7% 7.4% 8.0%

Total assets

  7,438  7,835  7,768 

Stockholders’ equity

  3,452  3,178  3,248 

Stockholders’ equity to total assets ratio

  46.4% 40.6% 41.8%

Capital investment

  271  251  320 

Free cash flow

  404  687  38 

Matsushita defines “Capital investment” as purchases of property, plant and equipment on an accrual basis which reflects the effects of timing differences between acquisition dates and payment dates. Matsushita has included the information concerning capital investment because its management uses this indicator to manage its capital expenditures and it believes that such indicator is useful to investors to present accrual basis capital investments in addition to the cash basis information in its consolidated cash flow statement.

The following table shows a reconciliation of capital investment to purchases of property, plant and equipment and intangible and other assets:

   Yen (billions)

 
   Fiscal year ended March 31,

 
   2004

  2003

  2002

 

Purchases of property, plant and equipment shown as capital expenditures in consolidated statements of cash flows

  276  247  342 

Effects of timing difference between acquisition dates and payment dates

  (5) 4  (22)
   

 
  

Capital investment

  271  251  320 
   

 
  


- 36 -

Matsushita defines “Free cash flow” as the sum of net cash provided by operating activities and net cash used in investing activities. Matsushita has included the information concerning free cash flow because its management uses this indicator, and it believes that such indicator is useful to investors, to assess its cash availability after financing of its capital projects.

The following table shows a reconciliation of free cash flow to net cash provided by operating activities:

   Yen (billions)

 
   Fiscal year ended March 31,

 
   2004

  2003

  2002

 

Net cash provided by operating activities

  489  698  113 

Net cash used in investing activities

  (85) (11) (75)
   

 

 

Free cash flow

  404  687  38 
   

 

 

Consolidation of Matsushita Electric Works, Ltd. and PanaHome Corporation

As outlined in Section A of Item 4 and further discussed in Section D of this Item 5, on April 1, 2004, Matsushita increased its holding of shares of common stock of Matsushita Electric Works, Ltd. (MEW) from 31.8% to 51.0%, and MEW became a consolidated subsidiary of Matsushita. Also, as a result of that acquisition, PanaHome Corporation (PanaHome), in which Matsushita and MEW each own a 27.0% equity ownership, became a consolidated subsidiary of Matsushita, with Matsushita owning a 54.0% equity ownership. For fiscal periods starting on or after April 1, 2004, beginning with the first quarter of fiscal 2005, these two companies and their respective group companies are fully consolidated in Matsushita’s consolidated financial statements. Also, for fiscal periods starting on or after April 1, 2004, for financial reporting purposes, Matsushita has created the new business segment “MEW and PanaHome” for the business of MEW, PanaHome and their respective group companies.

Details of Matsushita’s consolidated sales and earnings results were as follows:

Year ended March 31, 20012004 compared with 20002003

(1)Sales
Consolidated net sales for fiscal 2001 increased 5.2% to 7,682 billion yen, from 7,299 billion yen in the previous year. The growth mainly reflected a moderate recovery in the Japanese economy and a favorable advance in overseas economies, along with the expansion of worldwide, IT-related investment, although toward the end of the year external conditions led to a sharp adverse turn with a slowdown in growth of the U.S. economy and rapidly weakening global demand for IT-related products and components.
Domestic sales climbed 9.1% to 4,034 billion yen. This increase was achieved through solid growth in industrial products, including mobile communications equipment and factory automation (FA) equipment, as well as components, such as general electronic components and semiconductors. A moderate recovery in consumer products, achieved mainly by growth in digital audiovisual (AV) equipment also contributed to the increase in domestic sales. Overseas sales were 3,648 billion yen, up 1.3% when translated into yen and up 5.0% on a local currency basis, with the components category leading the way, followed by consumer products.
Sales by major product category were as follows:
Sales of consumer products increased 2.0% to 3,072 billion yen. Within this category, sales of video and audio equipment were up 2.9% to 1,756 billion yen. This rise was mainly owing to robust sales of color TVs and DVD players worldwide and digital TVs and compact disc (CD) music albums in Japan, which more than offset decreased sales of VCRs and audio equipment. Sales of home appliances and household equipment edged up 0.8% to 1,316 billion yen, principally attributable to the market success of new products, mainly in Japan, such as a centrifugal force washer/dryer and a cordless rechargeable vacuum cleaner offering long continuous operation.

Consolidated net sales for fiscal 2004 increased 1.1% to 7,480 billion yen, from 7,402 billion yen in the previous year. As mentioned earlier, the business environment during fiscal 2004 remained unstable but overall economic conditions began to show signs of a moderate recovery. Amid these circumstances, Matsushita aimed to increase sales and enhance profitability through the launch of a new series of competitive V-products, particularly those in the digital AV equipment area. The Company also expanded simultaneous global product introductions as a means of increasing market share and securing profits at an early stage in product life cycles. As a result of these initiatives, consolidated sales marked gains, led by strong sales of V-products, particularly in the areas of digital AV equipment, cellular phones and FA equipment, which were sufficient to offset sales declines in the Components and Devices, and JVC categories.


- 2337 -

Domestic sales edged up 0.7% to 3,478 billion yen. Although sales of products in the Home Appliances, Components and Devices, and Other categories remained at the same level as, or below the previous year, sales of products in the AVC Networks category, especially flat-panel TVs, DVD equipment and automotive electronics increased. Overseas sales were 4,002 billion yen, up 1.4% when translated into yen and up 4.0% on a local currency basis, with sales increases recorded in the AVC Networks, Home Appliances and Other categories.

Sales of industrial products climbed 8.5% to 2,992 billion yen. In this category, sales of information and communications equipment advanced 7.6% to 2,175 billion yen, largely owing to an expansion in mobile communications equipment, such as cellular phones, along with steady increases in sales of PCs and CD-R/RW drives. However, overseas sales of information and communications equipment were down slightly, hampered by a global downturn in the IT sector in the second half of the year. Meanwhile, sales of industrial equipment surged 11.1% to 817 billion yen. This positive result was mainly attributable to solid sales of FA equipment, such as electronic-parts-mounting machines, mainly for the information and communications industry, and car AV equipment including navigation systems, in both domestic and overseas markets.
Sales of components increased 5.7% to 1,618 billion yen. This increase was attributable to solid sales in both domestic and overseas markets, in such lines as general electronic components, semiconductors, liquid crystal display (LCD) devices and electric motors, mainly for mobile communications equipment and digital AV products.
(2)Other Revenues (Revenue excluding Net Sales)
Other revenues include interest income, dividends received and other income. Of these, interest income increased 1.8% to 44 billion yen, while dividends received decreased 16.6% to 12 billion yen. Other income decreased 60.2% to 54 billion yen, as there was no significant gain recorded in this fiscal year comparable to the previous year’s gain of 59 billion yen from the sale of EPCOS AG shares.

Other revenues include interest income, dividends received, and other miscellaneous income. Of these, interest income decreased 12.1% to 20 billion yen, and dividends received increased 21.5% to 5 billion yen. In addition, Matsushita recorded a 72 billion yen non-recurring gain from the transfer to the Japanese government of the substitutional portion of JWPI, following the enactment of changes to the Welfare Pension Insurance Law. The Company believes this transfer has reduced the risks of managing plan assets related to the substitutional portion of JWPI. (For further details, see Note 10 of the Notes to Consolidated Financial Statements.) Other income totaled 60 billion yen, a 7.9% decrease from fiscal 2003 when the Company recorded a one-time gain from the sale of Panasonic Disc Services Corporation.

(3)Costs and Expenses
As net sales expanded, cost of sales increased 5.6% to 5,481 billion yen and selling, general and administrative expenses also increased 3.2% to 2,012 billion yen. However, the ratio of these operating expenses in aggregate to net sales declined by 0.3%, compared with the previous year, offsetting the adverse effects of price declines and yen appreciation. Meanwhile, interest expense also decreased 5.8% to 44 billion yen, owing to a reduction in the Company’s borrowings. However, other deductions increased 76.0% to 154 billion yen, due mainly to the aforementioned restructuring expenses, totaling approximately 100 billion yen, associated with compensation for domestic employees affected by the new regional-based employee remuneration system, as well as early retirement programs in several domestic subsidiaries. As a result, total costs and expenses increased 5.7% to 7,691 billion yen.

Despite the increase in net sales, cost of sales decreased 0.2% to 5,313 billion yen, reflecting a success in reducing materials costs. Selling, general and administrative expenses edged up 1.0% to 1,971 billion yen due mainly to an increase in research and development costs. Meanwhile, interest expense decreased 15.4% to 28 billion yen, owing to a reduction in the Company’s borrowings. Other deductions increased 32.2% to 154 billion yen. Other deductions in fiscal 2004 include restructuring charges of 45 billion yen for early retirement programs at certain domestic group companies, 20 billion yen of other expenses associated with the closure/integration of manufacturing locations. Under the newly inaugurated business domain-based organizational structure, several Group companies carried out closure/integration for certain of their facilities that suffered losses from operation. Expenses for these restructuring activities were paid or settled in fiscal 2004 and no liability existed as of March 31, 2004. The Company also incurred 12 billion yen for impairment losses on fixed assets, and a write-down of 52 billion yen on investment securities, mainly stocks of affiliated companies. (For further details, see Notes 4, 5, 7 and 8 of the Notes to Consolidated Financial Statements.)

(4)Income before Income Taxes
As a result of the above factors, income before income taxes decreased 53.9% to 101 billion yen, compared with 219 billion yen in fiscal 2000.

As a result of the above-mentioned factors, income before income taxes increased 147.9% to 171 billion yen, compared with 69 billion yen in fiscal 2003. Its ratio to net sales increased 1.4% to 2.3%, compared with 0.9% in the previous year.

(5)Provision for Income Taxes
Provision for income taxes amounted to 50 billion yen, compared with 137 billion yen in the previous year. Its ratio to income before income taxes dropped to 49.5%, from 62.7% a year ago, mainly due to a lower increase in the valuation allowance for deferred tax assets.

Provision for income taxes amounted to 99 billion yen, compared with 71 billion yen in the previous year. Its ratio to income before income taxes decreased to 57.7%, from 103.4% a year ago. This drop is caused mainly by a decrease in adjustments of net deferred tax assets to reflect the reduction in the statutory income tax rate due to revisions to local enterprise income tax laws on the introduction of a new pro-forma standard taxation system in Japan, as well as a decrease in valuation allowance allocated to income tax expenses.


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(6)Minority Interests
Minority interests increased to 22 billion yen, compared with negative 1 billion yen in fiscal 2000, reflecting the earnings improvements and turnaround from losses of certain subsidiaries.


Minority interests increased to 20 billion yen for fiscal 2004, compared with 6 billion yen in fiscal 2003, reflecting the earnings improvements of several subsidiaries.

- 24 -

(7)Equity in Earnings (Losses) of Associated Companies

Equity in losses of associated companies decreased to 11 billion yen, from the previous year’s 12 billion yen, due mainly to improved earnings or decreased losses at certain associated companies.

(8)Net Income (Loss)

As a result of all the factors stated in the preceding paragraphs, the Company recorded a net income of 42 billion yen for fiscal 2004, compared with a net loss of 19 billion yen in the previous fiscal year.

(9)Results of Operations

Results of operations by business segment for fiscal 2004, as compared with the previous fiscal year, were as follows*:

 Equity in earnings of associated companies decreased 25.8% to 13 billion yen, from the previous year’s 17 billion yen, due mainly to decreased earnings of several associated companies.
(8)Net Income
*As a result of all the factors stateddescribed in the preceding paragraphs, net income for fiscal 2001 decreased 58.4% to 42 billion yen. Net income as a percentage of net sales declined to 0.5%, compared with 1.4% a year ago.

Year ended March 31, 2000 compared with 1999

(1)Sales
Consolidated net sales for fiscal 2000 decreased 4.5% to 7,299 billion yen, from 7,640 billion yen in the previous year. The decrease was mainly attributable to sluggish demand in Japan, intense global price competition, and yen appreciation, which negatively affected overseas sales when translated into yen.
Domestic sales were 3,698 billion yen, down 1.4% from the previous year. Although domestic sales of consumer products continued to be impacted by sluggish consumer spending in Japan, sales of industrial products and components increased year on year. Overseas sales on a local currency basis increased 3.4% as local-currency based sales grew in all major markets. However, due to the appreciation of the yen, sales when translated into yen dropped 7.4% to 3,601 billion yen.
Sales by major product category were as follows:
Sales of consumer products totaled 3,012 billion yen, down 8.4% from the previous year. Within the consumer products category, sales of video and audio equipment fell 9.9%, to 1,706 billion yen. The drop in domestic sales was mainly due to setbacks in sales of VCRs and TVs; however, MD and DVD players continued to robustly grow. Overseas, sales of video and audio equipment declined over the previous year, due mainly to the strong yen negatively affecting sales when translated into yen. Meanwhile, sales of home appliances and household equipment decreased 6.3%, to 1,306 billion yen. Domestic sales in this category were down, despite increases in vacuum cleaners and small cooking appliances. Overseas sales in all regions were generally slow.
Sales of industrial products slipped 3.8%, to 2,757 billion yen. In this category, sales of information and communications equipment declined 6.0%, to 2,022 billion yen. This decrease was mainly attributable to global price declines in computer peripherals such as cathode ray tube (CRT) displays and hard disk drives, along with the negative effect of yen appreciation. However, sales of mobile communications equipment, such as cellular phones, and personal computers increased over the previous year. Furthermore, sales of industrial equipment increased 2.6%, to 735 billion yen. FA equipment, such as electronic-parts-mounting machines rebounded from the previous year’s drop, owing mainly to signs of recovery in capital investment in Japan and Southeast Asia. Gains in this category were also driven by solid growth in sales of car AV equipment.
Sales of components advanced to 1,530 billion yen, up 3.1% from the previous year. The sales increase in this category was driven by favorable growth in semiconductors, high frequency components, LCD devices and electric motors, for use in information and communications equipment.


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(2)Other Revenues
In other revenues, interest income decreased 21.1% to 43 billion yen and dividends received increased 48.7% to 15 billion yen. Other income increased 157.9% to 136 billion yen, mainly attributable to a gain of 59 billion yen from the sale of shares of EPCOS AG.
(3)Costs and Expenses
Companywide efforts to reduce manufacturing costs and raise overall efficiency resulted in decreases in cost of sales and selling, general and administrative expenses, which, however, did not fully offset the negative effects of price declines and yen appreciation. Cost of sales totaled 5,191 billion yen, down 2.9%, while selling, general and administrative expenses decreased 7.1% to 1,950 billion yen. Interest expense also decreased 25.5% to 46 billion yen as the Company reduced borrowings. However, other deductions increased 89.4% to 88 billion yen, due mainly to an impairment loss of 20 billion yen related to the write-down of machinery and equipment to manufacture CRTs and other components. As a result, overall costs and expenses decreased 3.7% to 7,274 billion yen.
(4)Income before Income Taxes
As a result of the above factors, income before income taxes increased 8.1% to 219 billion yen, compared with 202 billion yen in fiscal 1999.
(5)Provision for Income Taxes
Provision for income taxes amounted to 137 billion yen, versus 164 billion yen a year ago. Its ratio to income before income taxes declined to 62.7% from 81.3% a year ago, mainly attributable to previous year adjustments in net deferred tax assets and a decline in the normal tax rate in fiscal 2000. (See Note 919 of the Notes to Consolidated Financial Statements.)
(6)Minority Interests
Minority interests decreased to negative 1 billion yen, compared to 8 billion yen inStatements, from fiscal 1999, mainly reflecting depressed earnings results in several subsidiaries.
(7)Equity in Earnings (Losses) of Associated Companies
Equity in earnings (losses) of associated companies rebounded to 17 billion yen from a loss of 5 billion yen in the prior year, due to earnings improvements in associated companies.
(8)Net Income
Due to the factors stated in the preceding paragraphs, net income for fiscal 2000 grew 311.2% to 100 billion yen, compared with 24 billion yen in the prior year. Net income as a percentage of net sales was 1.4%, compared with 0.3% in the previous year.


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B.Liquidity and Capital Resources
(1)Company Policy on Financial Position and Liquidity
As its basic policy, Matsushita has long placed emphasis on maintaining sound balance sheets, and on generating as much available funding as possible from internal sources through efforts to raise the operational efficiency or asset turnover ratios, so as not to overly rely on external fund raising. This conservativeness is exemplified in the tradition of maintaining the ratio of stockholders’ equity to total assets at a relatively high level and keeping a large cash balance. The ratio of stockholders’ equity to total assets as of March 31, 2001 stood at 46.3%, the same level as a year ago, and the total of short-term borrowings and long-term debt continued to decrease to 1,090 billion yen as of March 31, 2001, from 1,111 billion yen a year ago. Cash balance (the total of cash and cash equivalents plus time deposits with a maturity of more than three months) also remained at the relatively high level of 1,376 billion yen as of March 31, 2001, decreasing only slightly from the previous 1,456 billion yen due mainly to increased capital investment and repayment of borrowings during fiscal 2001.
With this cash balance, combined with high credit ratings from the world’s leading credit rating agencies, Matsushita believes that it has sufficient sources of liquidity for either working capital or long-term investment needs.
As of March 31, 2001, the outstanding balance of short-term borrowings totaled 548 billion yen, and long-term debt was at 542 billion yen. Of the short-term borrowings, 99 billion yen is the current portion (maturity of less than one year) of outstanding convertible bonds. Matsushita’s borrowings are not significantly affected by seasonal factors. (For further details, see Note 7 of the Notes to Consolidated Financial Statements.) Most borrowings are at fixed rates.
It should be noted, however, that in recent years, Matsushita has focused on raising capital efficiency upon review of its balance sheet. As part of this move,2004, the Company initiated an endeavor to achieve more efficient utilization of available cash resources held by subsidiaries and associated companies. This is achieved by lending such cash resources to other Group companies, as necessary, through a network of cash management systems at financial subsidiaries located in each global region. Through this operation, the Company is working on the reduction of both excess cash and borrowings on a consolidated Groupwide basis, along with reducing interest and related cost payments to outside financial institutions to help realize a lean balance sheet.
Regarding the use of financial instruments for hedging purposes, see Item 11.
(2)Fiscal 2001 Financial Position and Liquidity
The Company’s consolidated total assets at the end of fiscal 2001 increased to 8,156 billion yen, compared with 7,955 billion yen at the end of fiscal 2000. This rise was chiefly a result of an increase in inventories, which reflected the setback in sales of IT-related products and components toward the end of the fiscal year, and the negative effects of currency translation into yen of overseas assets at year-end, along with increased capital investment in plant and equipment.
Stockholders’ equity at the end of fiscal 2001 also increased, to 3,773 billion yen, from 3,684 billion yen in the previous year. This was largely attributable to an increase in capital surplus and the favorable effect of the yen’s year-end exchange rate on cumulative translation adjustments, despite a decrease in unrealized holding gains of available-for-sale securities.


-27-

The Company’s capital investment (including intangibles other than goodwill) during fiscal 2001 totaled 531 billion yen, an increase from the previous year’s figure of 355 billion yen. This was due mainly to expanded plant and equipment investment in Components, such as semiconductors and LCD devices. Of the total capital investment, investment in Components increased by 158 billion yen, to 337 billion yen. Depreciation during the year edged up, to 345 billion yen, compared with 343 billion yen in the previous year.
Net cash provided by operating activities in fiscal 2001 amounted to 393 billion yen, compared with 476 billion yen in the previous fiscal year. This reduction was primarily attributable to a decrease in net income and increases in trade receivables and inventories that were greater than the decrease in net gain on sale of investments. Net cash used in investing activities amounted to 583 billion yen, compared with 604 billion yen in fiscal 2000, chiefly owing to an investment decrease in time deposits, which offset an increase in capital expenditures. Net cash used in financing activities fell to 113 billion yen, from 216 billion yen a year ago, mainly due to a decrease in repayment of short-term borrowings compared with fiscal 2000. All these activities, compounded by the effect of exchange rate changes, resulted in a net decrease of 267 billion yen in cash and cash equivalents during fiscal 2001. Cash and cash equivalents at the end of fiscal 2001 totaled 849 billion yen, compared with 1,116 billion yen a year ago. These are primarily held in yen (70%) and U.S. dollars (14%).
(3)Commitments for Capital Expenditures
As of March 31, 2001, commitments outstanding for the purchases of property, plant and equipment approximated 50 billion yen.

C.Research and Development
Matsushita considers research and development (R&D) to be a key factor inchanged its success and essential to the achievement of its corporate theme: to provide the utmost satisfaction to customers throughout the world through differentiated products and services and to contribute to the progress and happiness of mankind. Under this theme, the Company has been committed to “R&D that creates next generation businesses, while at the same time supporting today’s and tomorrow’s products and businesses.”
Recognizing also that R&D is an essential factor in enhancing the Company’s competitiveness within an increasingly competitive environment, particularly in the electronics industry, Matsushita has increased its R&D investment in recent years. R&D expenditures for the last three fiscal years are as follows:
Total expenditures for research and development amounted to 500 billion yen, 526 billion yen and 544 billion yen for the three fiscal years ended March 31, 1999, 2000 and 2001, respectively, representing 6.5%, 7.2% and 7.1% of Matsushita’s total net sales for each of those periods.


-28-

The main focus of Matsushita’s R&D activities has been increasingly directed to digital networks and environment & energy, which also support the Company’s five areas of expected growth, namely digital broadcasting systems, mobile communications, semiconductors, data storage devices and display devices. In order to speedily address these themes, Matsushita categorized R&D activities into four main technological areas: multimedia software, devices and environment- and energy-related technologies, semiconductors, and production engineering and quality control. Furthermore, Matsushita increased communication and collaboration between corporate R&D centers and divisional technology divisions across various product areas. This strategic approach has enabled Matsushita to launch several “product firsts” onto the market while at the same time forming the base for the creation of new growth businesses. The Company has also worked on the expansion of its global R&D networks, establishing a number of R&D centers in North America, Europe and Asia. A new R&D facility was also established in China for the development of digital network-related technology.

D.Trend Information
As previously mentioned, during the second half of fiscal 2001, slowdowns in the growth of the U.S. economy became apparent, and are currently having negative effects on Asian and European economies. At the same time, sharp setbacks occurred in the global IT industry, affecting, in particular, PCs and cellular phones. Meanwhile, growing uncertainty has also been mounting about the outlook for the Japanese economy, as it took a negative turn, posting a minus 0.8% growth rate year-on-year in real GDP during the three months from January to March 2001, according to a government’s flash report.
These conditions had negative effects on Matsushita’s business operations over the most recent several months. Within the major product categories, negative effects are being felt in cellular phones and PC-related products, as well as components and devices and FA equipment. Specifically, components and devices and FA equipment are suffering from substantially reduced orders from the global IT industry, high inventories and declining prices, along with increased depreciation costs from increased capital investment in the previous fiscal year.
The consumer products area is also suffering, due to the negative effects of slow consumer spending and a reverse effect of temporary advance consumer purchases prior to the enactment in April 2001 of a new home appliance recycling law in Japan, as well as weak overseas demand reflecting the U.S. and other regions’ economic slowdowns.
These severe conditions have caused decreases in Matsushita’s sales in a number of product areas, with significant negative impact on earnings in recent months. For fiscal 2002, the Company currently foresees possible pretax and net losses for the first quarter, with a severe earnings environment continuing through the first half of the year.
As part of the Company’s efforts to counter the effects of the above mentioned severe conditions, Matsushita is considering the implementation, during fiscal 2002, of an early retirement program in the parent company and several domestic subsidiaries, following a similar program implemented in certain domestic subsidiaries in fiscal 2001. Although details have not been solidified, the program would include one-time special retirement allowances for employees who choose early retirement. At this point, the Company is unable to estimate the total amount of such allowances, since the amount depends on the number and seniority of employees who apply to the program.


-29-

Meanwhile, after several months of preparatory work, Matsushita implemented the Value Creation 21 plan, which aims at transforming Matsushita into a company that meets the needs of the 21st century through structural reforms and new growth strategies with emphasis on enhancing growth potential, profitability and capital efficiency.
As part of the planned reforms, Matsushita reorganized, in April 2001, its domestic consumer sales and distribution structure with the aim of creating a new simplified and efficient sales organization that can quickly respond to market changes.
Matsushita is also taking several other bold steps to reform its organizational structure. While the corporate headquarters organization has been made leaner for delegation of more authority to the operational fronts, several divisional companies and subsidiaries have combined two or more product divisions into larger-scale groups as necessary, along with the establishment of several “manufacturing centers” beyond the traditional divisional borders to achieve optimum operational efficiency and resource allocation. A number of personnel-related reforms, including those mentioned earlier, aim at optimum utilization of human resources and the reduction of fixed costs.
The evolution of a digital networking society presents Matsushita with significant business opportunities. Responding to this, the Company, in its Value Creation 21 plan, has centered its growth strategy on the creation of home networking and mobile networking environments, setting the five areas of expected growth: digital broadcasting systems, mobile communications, semiconductors, data storage devices and display devices. At the same time, Matsushita is also focusing resources on the development of new service-oriented businesses, such as systems solutions ande-Net business, over the next several years.
The Company currently expects that some positive effects of the Value Creation 21 plan will begin to arise later in the current fiscal year. At present, the recovery period of the external environment cannot be predicted.

E.New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 133, “Accounting for Derivative Instruments and Hedging Activities.” In June 2000, FASB also issued SFAS No. 138, “Accounting for Certain Derivative Instruments and Certain Hedging Activities, an amendment of SFAS No. 133.” Both Statements establish accounting and reporting standards for derivative instruments and for hedging activities, and require that an entity recognize all derivatives as either assets or liabilities in the balance sheet and measure those instruments at fair value. Changes in the fair value of derivatives are recorded each period in current earnings or other comprehensive income (loss), depending on whether a derivative is designated as part of a hedge transaction and the type of hedge transaction. The ineffective portion of all hedges will be recognized in earnings. SFAS No. 133 and SFAS No. 138 are applicable for the fiscal year beginning April 1, 2001. The cumulative effect adjustment upon the adoption of SFAS No. 133 and SFAS No. 138 was not significant.


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F.Information by Segment
In accordance with the ministerial disclosure requirements under the Securities and Exchange Law of Japan, the Company has reported sales, operating profit, identifiable assets, depreciation and capital investment by business segment classifications to five new segments: AVC Networks, Home Appliances, Components and also has reported sales, operating profitDevices, JVC and identifiable assets by geographical location of companies. Business segments correspond to categories of activity classified primarily by markets and products. “Consumer products” includes video and audio equipment, as well as home appliances and household equipment. “Industrial products” includes information and communications equipment and industrial equipment. “Components” includes electronic components, semiconductors, motors and batteries.


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Information by segment for fiscal 2001 and 2000 is shown in the tables below:
By Business Segment:

             
Yen (billions)

20012000


Sales:
Consumer products:
Customers3,0723,012
Intersegment47


Total3,0763,019
Industrial products:
Customers2,9922,757
Intersegment79


Total2,9992,766
Components:
Customers1,6181,530
Intersegment860828


Total2,4782,358
Eliminations(871)(844)


Consolidated total7,6827,299


 
Operating profit (net sales less cost of sales and selling,
general and administrative expenses):
Consumer products4034
Industrial products136130
Components8966
Corporate and eliminations(77)(71)


Consolidated total188159


Identifiable assets:
Consumer products2,2472,221
Industrial products1,9731,942
Components1,9611,681
Corporate and eliminations1,9751,843


Consolidated total8,1567,687


Depreciation (including intangibles other than goodwill)*:
Consumer products6876
Industrial products8586
Components190177
Corporate and eliminations1010


Consolidated total353349


Capital investment (including intangibles other than
goodwill)*:
Consumer products8272
Industrial products9892
Components337179
Corporate and eliminations1412


Consolidated total531355


*Intangibles mainly represent patents, software and rights to public facilities.


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By Geographical Location of Companies:

             
Yen (billions)

20012000


Sales:
Japan:
Customers4,9824,706
Intersegment1,2051,058


Total6,1875,764
North and South America:
Customers1,1491,084
Intersegment3031


Total1,1791,115
Europe:
Customers623670
Intersegment3126


Total654696
Asia and Others:
Customers928839
Intersegment580462


Total1,5081,301
Eliminations(1,846)(1,577)


Consolidated total7,6827,299


 
Operating profit (net sales less cost of sales and selling, general and administrative expenses):
Japan214166
North and South America1115
Europe(6)(2)
Asia and Others4444
Corporate and eliminations(75)(64)


Consolidated total188159


Identifiable assets:
Japan4,6874,633
North and South America546479
Europe345292
Asia and Others749639
Corporate and eliminations1,8291,644


Consolidated total8,1567,687


        Notes:          1. Corporate expenses include certain corporate R&D expenditures and general corporate expenses.
          2.Corporate assets consist of cash and cash equivalents, time deposits, marketable securities in short-term investments, investments and advances and other assets related to unallocated expenses.
          3.Beginning in fiscal 2001, the Company adopted SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities,” and accordingly, priorOther. Prior year figures have been restated to reflect this change.

   Yen (billions)

     
   2004   2003     
   
   (Restated)

   Percent
change


 

Sales:

            

AVC Networks

  3,840   3,668   4.7%

Home Appliances

  1,223   1,197   2.1 

Components and Devices

  1,660   1,710   (2.9)

JVC

  819   852   (3.8)

Other

  949   819   15.8 

Eliminations

  (1,011)  (844)  —   
   

  

  

Total

  7,480   7,402   1.1%
   

  

  

Segment profit:

            

AVC Networks

  129   83   55.9%

Home Appliances

  53   45   16.6 

Components and Devices

  50   31   60.5 

JVC

  25   22   12.9 

Other

  15   13   12.7 

Corporate and eliminations

  (77)  (67)  —   
   

  

  

Total

  195   127   54.5%
   

  

  


- 39 -

Sales in the AVC Networks segment increased 4.7% to 3,840 billion yen, from 3,668 billion yen in the previous fiscal year. Within this segment, sales of video and audio equipment increased, due mainly to growth in sales of such digital AV products as flat-panel TVs and DVD recorders, which more than offset declines in CRT TVs, VCRs and audio equipment. Sales of information and communications equipment also increased owing mainly to strong sales of automotive electronics and cellular phones, although sales of fixed-line telephones and facsimile machines decreased.

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Item 6.    Directors, Senior ManagementWith respect to this segment, profit increased from 83 billion yen for fiscal 2003, to 129 billion yen for fiscal 2004. This increase was attributable mainly to higher sales in digital AV equipment, cellular phones and Employees

car electronics equipment, as well as positive effects of cost rationalization efforts.

Sales of Home Appliances increased 2.1% to 1,223 billion yen. Certain seasonal products recorded sales declines in Japan, but these were offset by solid sales of products such as washing machines, dishwashers and ventilation fans.

Profit in this segment rose 16.6% from 45 billion yen for fiscal 2003, to 53 billion yen for fiscal 2004. This increase was due mainly to the successful introduction of new value-added products and overseas sales growth, combined with the effects of various rationalization efforts.

Sales of Components and Devices decreased 2.9% to 1,660 billion yen. While semiconductor sales recorded solid gains, led by system LSIs for digital AV equipment, sales declines in general components and electronic tubes led to lower sales overall in this segment.

With respect to this segment, profit increased from 31 billion yen for fiscal 2003, to 50 billion yen for fiscal 2004, owing largely to positive effects through the increased plant operating rate on higher sales in semiconductors, which more than offset the negative effects of decreased sales and price declines in general components and certain other product lines.

Sales of JVC were 819 billion yen, down 3.8% from the previous year. Despite sales increases of flat-panel TVs and DVD recorders, overall sales of consumer electronics in Japan and the Americas declined, particularly in such products as CRT TVs and VCRs.

With respect to this segment, profit increased from 22 billion yen for fiscal 2003, to 25 billion yen for fiscal 2004, owing to such factors as a reduction in materials procurement costs and a decrease in personnel and other fixed costs, despite the decrease in sales and the effects of price declines.

Sales in the Other segment were 949 billion yen, up 15.8% from the previous year. FA equipment, especially modular placement machines increased overseas.

With respect to this segment, profit increased from 13 billion yen for fiscal 2003, to 15 billion yen for fiscal 2004, owing to sales increases of FA equipment.


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Year ended March 31, 2003 compared with 2002

A.(1)Sales

Consolidated net sales for fiscal 2003 increased 4.6% to 7,402 billion yen from 7,074 billion yen in the previous year. The business environment during fiscal 2003 was characterized by slow economic growth and persistent instability. Amid such an environment, Matsushita introduced 88 strategic V-products in Japan and overseas. The Company also implemented comprehensive Groupwide business and organizational restructuring, launching a new business domain-based management structure in January 2003 to accelerate the Company’s growth strategy. As a result of these initiatives, consolidated sales marked gains, led by video and audio equipment in the AVC Networks category and products in the Components and Devices category, with both categories benefiting from the success of V-products. An upward turn in sales of the Home Appliances category was also a positive factor.

Domestic sales increased 4.2% to 3,454 billion yen, with growth achieved in all major product categories. The AVC Networks category, especially video and audio equipment, and the Components and Devices category, especially devices for digital AV equipment, led the sales increases in Japan. Overseas sales were 3,948 billion yen, up 5.0% when translated into yen and up 4.3% on a local currency basis, with sales increases recorded in all major product categories, except for information and communications equipment of the AVC Networks category.

(2)Other Revenues (Revenue excluding Net Sales)

Other revenues include interest income, dividends received and other income. Of these, interest income decreased 35.2% to 22 billion yen, and dividends received also decreased 45.2% to 5 billion yen. Other income increased 19.4% to 65 billion yen due mainly to a gain from the sale of Panasonic Disc Services Corporation.

(3)Costs and Expenses

Despite the increase in net sales, cost of sales remained mostly flat, increasing only 0.2% to 5,324 billion yen, and selling, general and administrative expenses edged down 0.5% to 1,952 billion yen. Meanwhile, interest expense decreased 27.2% to 33 billion yen, owing to a reduction in the Company’s borrowings. Other deductions also decreased 70.2% to 116 billion yen, reflecting substantially reduced restructuring charges compared with the previous fiscal year. Other deductions in fiscal 2003 include 12 billion yen expensed as additional retirement allowances for early retirement programs of a domestic subsidiary and a write-down of 53 billion yen on investment securities. The expenses for these early retirement programs were paid or settled during fiscal 2003 and no liability existed as of March 31, 2004. In the previous fiscal year, Matsushita implemented aforementioned Companywide structural reforms to increase profitability and efficiency. In the process of these structural reforms, the Company incurred other deductions of 164 billion yen related to employment restructuring programs, such as additional retirement allowances for special early retirement programs, and 86 billion yen related to business restructuring expenses, such as impairment losses and other expenses associated with the closure or integration of several manufacturing locations. The expenses for these activities were paid or settled through fiscal 2003 and no liability existed as of March 31, 2004. The Company also recorded a write-down of 92 billion yen on investment securities during fiscal 2002. (For further details, see Notes 5, 7 and 15 of the Notes to Consolidated Financial Statements.)


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(4)Income (Loss) before Income Taxes

As a result of the above-mentioned factors, income (loss) before income taxes turned to an income of 69 billion yen, compared with a pretax loss of 538 billion yen in fiscal 2002.

(5)Provision for Income Taxes

Provision for income taxes amounted to an expense of 71 billion yen, compared with a benefit of 53 billion yen in the previous year. Its ratio to income (loss) before income taxes increased to 103.4% of pretax income, from 9.9% of pretax loss a year ago. This increase is caused mainly by adjustments of net deferred tax assets to reflect the reduction in the statutory income tax rate due to revisions to local enterprise income tax laws on the introduction of a new pro-forma standard taxation system in Japan, as well as an increase in valuation allowance allocated to income tax expenses.

(6)Minority Interests

Minority interests increased to 6 billion yen for fiscal 2003, compared with a negative 57 billion yen in fiscal 2002, reflecting the earnings improvements or a turnaround from losses of several subsidiaries.

(7)Equity in Earnings (Losses) of Associated Companies

Equity in earnings (losses) of associated companies decreased to a loss of 12 billion yen, from the previous year’s profit of 59 million yen, due mainly to losses of certain associated companies.

(8)Net Income (Loss)

As a result of all the factors stated in the preceding paragraphs, the Company recorded a net loss of 19 billion yen for fiscal 2003, compared with a net loss of 428 billion yen in the previous fiscal year.


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(9)Results of Operations

Results of operations by business segment for fiscal 2003, as compared with fiscal 2002, were as follows*:

*As mentioned above, the Company changed its business segment classifications in fiscal 2004. Accordingly, the following prior year figures are presented on a restated basis to reflect this change.

   Yen (billions)

     
   2003
(Restated)


   2002
(Restated)


   Percent
change


 

Sales:

            

AVC Networks

  3,668   3,509   4.5%

Home Appliances

  1,197   1,171   2.3 

Components and Devices

  1,710   1,535   11.4 

JVC

  852   835   2.0 

Other

  819   725   12.9 

Eliminations

  (844)  (701)  —   
   

  

  

Total

  7,402   7,074   4.6%
   

  

  

Segment profit (loss):

            

AVC Networks

  83   (36)  —  %

Home Appliances

  45   33   38.7 

Components and Devices

  31   (96)  —   

JVC

  22   (12)  —   

Other

  13   (32)  —   

Corporate and eliminations

  (67)  (56)  —   
   

  

  

Total

  127   (199)  —  %
   

  

  

AVC Networks sales increased 4.5% to 3,668 billion yen, from 3,509 billion yen in the previous year. This increase was due mainly to sharp growth in sales of digital AV equipment, such as flat-panel TVs and DVD recorders, and automotive electronics products, as well as strong sales of cellular phones overseas, although sales of PC peripherals and audio equipment overseas waned.

With respect to this segment, profit increased from a loss of 36 billion yen for fiscal 2002, to a profit of 83 billion yen for fiscal 2003. The sharp increase in segment profit was attributable mainly to higher sales in video and audio equipment, particularly digital AV equipment, and the improvement in communications equipment, as well as positive effects of the previous year’s restructuring initiatives.

Sales of Home Appliances increased 2.3% to 1,197 billion yen. Weak consumer spending and lower housing investment led to falling overall demand and a generally severe market in Japan. However, through the introduction of new products, Matsushita recorded increased domestic sales. In addition, an upturn in overseas sales also contributed to the overall sales increase in this segment. By product line, refrigerators, vacuum cleaners and microwave ovens supported domestic growth, while overseas sales increases were led by growth in air conditioners and refrigerators.


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Profit in this segment rose 38.7% from 33 billion yen for fiscal 2002, to 45 billion yen for fiscal 2003. This was due mainly to the successful introduction of new products and overseas sales increases, combined with the effects of various restructuring initiatives.

Sales of Components and Devices increased 11.4% to 1,710 billion yen. Sales of product lines, such as general electronic components and semiconductors, driven by V-products, showed strong growth in both the Japanese and overseas markets, and contributed to double-digit growth for this product segment as a whole.

With respect to this segment, profit increased from a loss of 96 billion yen for fiscal 2002, to a profit of 31 billion yen for fiscal 2003, principally owing to increased sales of components and devices for digital AV equipment and mobile communications equipment, combined with the effects of restructuring initiatives implemented in the previous fiscal year.

Sales of JVC were 852 billion yen, up 2.0% from the previous year. Despite sales decreases of digital video cameras and DVD players in the Americas, sales of AV equipment such as digital video cameras and TVs in Europe and Japan increased.

Profit in this segment increased from a loss of 12 billion yen for fiscal 2002, to a profit of 22 billion yen for fiscal 2003, owing mainly to such factors as sales increases and materials cost reduction.

Sales of Other were 819 billion yen, up 12.9% from the previous year. Sales of FA equipment centered on modular placement machines led the growth.

With respect to this segment, profit improved from a loss of 32 billion yen for fiscal 2002, to a profit of 13 billion yen for fiscal 2003, reflecting the sales gains mentioned above and positive effects of restructuring initiatives.

B.Liquidity and Capital Resources

Matsushita’s Policy on Financial Position and Liquidity

As its basic policy, Matsushita has long placed emphasis on maintaining sound balance sheets, and on generating as much available funding as possible from internal sources through efforts to raise the operational efficiency or asset turnover ratios, so as not to overly rely on external fund raising. This conservativeness is exemplified in the tradition of maintaining the ratio of stockholders’ equity to total assets at a relatively high level and keeping a large cash balance. The ratio of stockholders’ equity to total assets as of March 31, 2004 stood at 46.4%, and the total of short-term borrowings and long-term debt was 751 billion yen as of March 31, 2004, down from 922 billion yen a year ago. Cash balance (the total of cash and cash equivalents of 1,275 billion yen plus time deposits with a maturity of more than three months of 170 billion yen) also remained at the relatively high level of 1,445 billion yen as of March 31, 2004, although it decreased from the year-earlier 1,563 billion yen (the total of cash and cash equivalents of 1,167 billion yen plus time deposits of 396 billion yen).


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In order to facilitate access to global capital markets, Matsushita obtains credit ratings from the world’s two leading credit rating agencies, Moody’s Investors Service, Inc. (Moody’s) and Standard & Poor’s Rating Services (S&P). In addition, Matsushita maintains credit ratings from Rating and Investment Information, Inc. (R&I), a rating agency nationally recognized in Japan, primarily for access to the Japanese capital markets. As of March 31, 2004, Matsushita’s debt ratings are: Moody’s: Aa3(long-term); S&P: A+(long-term, outlook: stable), A-1(short-term); and R&I: AA+(long-term), a-1+(short-term).

Within the rating classification system of R&I, “a-1” is the highest of five categories for short-term debt and indicates “a strong degree of certainty regarding debt repayment,” with a plus (+) sign added to a rating in that category to indicate an especially high degree of certainty regarding debt repayment; and “AA” is the second highest of nine categories for long-term debt and indicates “a very high degree of certainty regarding debt repayment,” with a plus (+) or minus (-) sign added to a rating in that category to indicate its relative standing within that category.

Matsushita believes that its credit ratings include the rating agencies’ assessment of the general operating environment, its positions in the markets in which it competes, reputation, movements and volatility in its earnings, risk management policies, liquidity and capital management. An adverse change in any of these factors could result in a reduction of Matsushita’s credit ratings, and that could, in turn, increase its borrowing costs and limit its access to the capital markets or require it to post additional collateral and permit counterparties to terminate transactions pursuant to certain contractual obligations.

With the above-mentioned cash balance, combined with the generally high credit ratings from leading credit rating agencies, Matsushita believes that it has sufficient sources of liquidity for either working capital or long-term investment needs.

As of March 31, 2004, the outstanding balance of short-term borrowings totaled 290 billion yen, and long-term debt was 461 billion yen. Matsushita’s borrowings are not significantly affected by seasonal factors. (For further details, see Note 9 of the Notes to Consolidated Financial Statements.) Most borrowings are at fixed rates.

In recent years, Matsushita has focused on raising capital efficiency upon review of its balance sheet. As a part of this move, the Company initiated an endeavor to achieve more efficient utilization of available cash resources held by subsidiaries and associated companies. This is achieved by lending such cash resources to other Group companies, as necessary, through a network of cash management systems at the corporate headquarters and financial subsidiaries located in each global region.

Furthermore, with the launch of the business domain-based Groupwide organizational structure in early 2003, Matsushita has revised its system of evaluating the business performance of operating divisions (now, business domain companies), effective April 1, 2003. The system now used is based on two results-based standards, namely Capital Cost Management (CCM), which measures capital efficiency, and cash flows, which represents a company’s ability to generate cash. Both of these standards, that are deemed to share interests with investors, are applied to each business domain company’s performance on a global consolidated basis. Regarding cash flows, Matsushita uses free cash flow as an important indicator to evaluate its performance.

Regarding the use of financial instruments for hedging purposes, see Item 11.


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Fiscal 2004 Financial Position and Liquidity

The Company’s consolidated total assets as of the end of fiscal 2004 decreased to 7,438 billion yen, compared with 7,835 billion yen at the end of fiscal 2003. The decrease was mainly the result of increased capital efficiency achieved through the reduction of assets such as trade receivables and property, plant and equipment, and a decrease of deferred tax assets included in other assets.

Regarding liabilities, the balance of retirement and severance benefits decreased as a result of the transfer to the Japanese government of the substitutional portion of JWPI mentioned earlier.

Stockholders’ equity increased to 3,452 billion yen, compared with 3,178 billion yen at the end of fiscal 2003. This increase was due mainly to a decrease in minimum pension liability adjustments, owing to the factors related to retirement and pension programs. (For further details, see Note 10 of the Notes to Consolidated Financial Statements.) Furthermore, an increase in unrealized holding gains on available-for-sale securities, which resulted in a decrease in accumulated other comprehensive loss, also affected the increase in stockholders’ equity, despite an increase in the negative balance of cumulative translation adjustments caused by the appreciation of the Japanese yen. Stockholders’ equity to total assets ratio increased 5.8% to 46.4% from 40.6% at the end of fiscal 2003. In addition, Matsushita again repurchased its own shares, as an integral part of the Company’s financial strategy to improve shareholder value.

Capital investment (excluding intangibles) during fiscal 2004 totaled 271 billion yen, an increase of 7.9% from the previous fiscal year’s total of 251 billion yen. (For a reconciliation of capital investment to the most directly comparable U.S. GAAP financial measure, see “Overview—Key performance indicators” in Section A of this Item 5.) Matsushita curbed capital investment in a number of business areas, in line with increasing management emphasis on cash flows and capital efficiency. Matsushita did, however, selectively invest in facilities for those product areas that are expected to drive future growth, including such key components and devices as semiconductors, PDPs and other strategic areas.

Depreciation (excluding intangibles) during the fiscal year fell to 254 billion yen, compared with 283 billion yen in the previous fiscal year.

Net cash provided by operating activities in fiscal 2004 amounted to 489 billion yen, compared with 698 billion yen in the previous fiscal year. This decrease, despite the improvement in net income, was attributable mainly to an increase in inventories to meet anticipated strong demand for digital AV products related to the 2004 Olympic games and the non-cash gain from the aforementioned transfer to the Japanese government of the substitutional portion of JWPI included in net income. Net cash used in investing activities amounted to 85 billion yen, compared with 11 billion yen in fiscal 2003, due mainly to a decrease in proceeds from disposition of investments and advances and an increase in investment and advances, despite a decrease in time deposits. Net cash used in financing activities was 273 billion yen, compared with 443 billion yen in fiscal 2003. This was attributable mainly to smaller decreases in short-term borrowings, and decreases in repayments of long-term debt and in repurchases of the Company’s common stock. All these activities, compounded by the effect of exchange rate fluctuations, resulted in a net increase of 108 billion yen in cash and cash equivalents during fiscal 2004. Cash and cash equivalents at the end of fiscal 2004 totaled 1,275 billion yen, compared with 1,167 billion yen a year ago. These are held primarily in yen (72%), U.S. dollars (7%) and Euro (4%).


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Free cash flow in fiscal 2004 amounted to 404 billion yen, compared with 687 billion yen in fiscal 2003. (For a reconciliation of free cash flow to the most directly comparable U.S. GAAP financial measure, see “Overview—Key performance indicators” in Section A of this Item 5.)

Commitments for Capital Expenditures

As of March 31, 2004, commitments outstanding for the purchase of property, plant and equipment amounted to 16 billion yen.

C.Research and Development

Matsushita considers research and development (R&D) to be a key factor in its success and essential to the achievement of its corporate theme: to provide the utmost satisfaction to customers throughout the world through differentiated products and services and to contribute to the progress and happiness of mankind. Under this theme, Matsushita is committed to R&D activities that create next-generation businesses from a mid- to long-term viewpoint, while at the same time supporting current or ongoing products and businesses. Also, to address the 21st century’s needs for more convenient lifestyles around the evolving “ubiquitous” networking society and coexistence with the environment, the main focus of Matsushita’s R&D activities has been increasingly directed to digital networks and environmental technologies. Matsushita has concurrently been strengthening its global R&D networks to meet the needs of its overseas business expansion.

In fiscal 2001 through 2002, as part of its Value Creation 21 plan, Matsushita conducted a thorough review of all corporate-wide R&D organizations spanning various product divisions in a decentralized manner. As a result of this review, and to enable concentration of R&D resources into strategic areas, Matsushita established a “Strategic Product Platforms” structure in December 2001. Matsushita also established a development center or development task force for each business domain, concentrating all relevant development resources. Concurrently, to develop the basic and common technologies that support these strategic products, Matsushita established corporate-level “Core Technology Platforms,” which are responsible for the following areas: multimedia software technology; semiconductor technology; devices, environment and production engineering technologies; and cutting-edge technologies.

In fiscal 2003, Matsushita accelerated the development of V-products that would propel a sharp recovery in business performance through R&D efforts conducted through the above-mentioned new R&D structure. In these efforts, the Company places an emphasis on creation of its own “black-box” or proprietary technologies which cannot be easily imitated by competitors. Matsushita also implemented the “Technology Business Plan” to further increase R&D efficiency and strengthen technology management. Based on this plan, Matsushita created a system that infuses management resources in areas of comparative strength through the introduction of a scientific R&D management approach and objective evaluations of the Company’s technological competitiveness.


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In fiscal 2004, Matsushita realigned technological management categorization and systems to further increase efficiency in R&D. In corporate R&D functions, to encourage engineers to concentrate on prioritized R&D themes and leading-edge technologies, Matsushita introduced a new management system with which it can administrate themes at each step in the research process. In business domain companies’ R&D functions, Matsushita significantly reduced lead time for product development by introducing an innovative R&D process management, developed from the standpoint of return on investment. Furthermore, Matsushita formulated its “10-year Technology Vision” as a Companywide strategy to step up development of products with high potential, such as next-generation system LSIs, networking electronic home appliances and fuel cell co-generation systems. Meanwhile, to minimize escalating software development costs in areas such as digital consumer electronics, the Company established a software development site in China. Matsushita also aggressively promoted technological collaboration and industrial partnerships to further strengthen R&D capabilities. As part of this effort, the Company established the R&D Academia Collaboration Center to advance cooperative activities with prominent universities in Japan for the development of key, next-generation technologies. Besides these initiatives, the Company also reinforced its intellectual property rights initiatives by revitalizing patent application filings worldwide.

Research and development costs amounted to 567 billion yen, 551 billion yen and 579 billion yen for the three fiscal years ended March 31, 2002, 2003 and 2004, respectively, representing 8.0%, 7.4% and 7.7% of Matsushita’s total net sales for each of those periods.

D.Trend Information

To increase profitability and efficiency through structural reforms and a new growth strategy, Matsushita implemented the three-year Value Creation 21 plan in fiscal 2002. As part of this plan, the Company has effected various management reforms and restructuring initiatives as mentioned earlier. Also, under this plan, the Company commenced new growth strategies in fiscal 2003 and 2004. These included the strategic development and introduction of competitive V-products and the launch of a new business domain-based Group organizational structure. Under the new structure, business domain companies take full responsibility for R&D, manufacturing and sales in their respective business areas. Matsushita also embarked on a plan to strengthen overseas operations as a corporate growth engine.

As a result of these initiatives, Matsushita achieved a turnaround in net income in fiscal 2004 from the net loss in the preceding two fiscal years. The Company also achieved some improvements in its balance sheets in fiscal 2004 as mentioned earlier. (See Liquidity and Capital Resources in section B of this Item 5.)

Regarding the business environment for fiscal 2005, while Matsushita expects the Japanese economy to maintain gradual recovery, it views other global economies, beginning with the United States, with cautious optimism. Furthermore, Matsushita expects that trends toward a strong Japanese yen and increasing raw materials prices will continue. Amid such an environment, Matsushita embarked on its new mid-term “Leap Ahead 21” plan from fiscal 2005. Based on the plan, the Company will strive to maintain growth by increasing sales through aggressive promotion of V-products, and to enhance Groupwide profitability and cash flows by further promoting autonomous management at each business domain company. (For further details about the Leap Ahead 21 plan, see Section A of Item 4.)


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In the first year of the Leap Ahead 21 plan, Matsushita will implement still more business and employment restructuring programs at several of its business domain companies with the goal of enhancing their earnings base and cost competitiveness. Matsushita currently expects approximately 80 billion yen to be incurred as expenses or charges associated with these restructuring programs in fiscal 2005.

On April 1, 2004, upon completion of a tender offer, Matsushita acquired 19.2% of the issued shares of common stock of Matsushita Electric Works, Ltd. (MEW), in which Matsushita had already held a 31.8% equity ownership. Matsushita paid a total of 147 billion yen in cash to acquire the 19.2% equity ownership through the tender offer. This acquisition also resulted in the acquisition of a controlling interest in PanaHome Corporation (PanaHome) because the Company and MEW each have 27.0% equity ownership in PanaHome. Accordingly, MEW, PanaHome and their respective group companies became consolidated subsidiaries of Matsushita on April 1, 2004.

MEW is a comprehensive manufacturer of housing/building-related products, personal-care products, devices and plastic materials based in Osaka, Japan. MEW’s net sales amounted to 1,233 billion yen and net income was 20 billion yen for its fiscal year ended November 30, 2003. PanaHome is a builder of various types of residential houses based in Osaka, Japan. PanaHome’s net sales amounted to 264 billion yen and net income was 1 billion yen for its fiscal year ended March 31, 2004. MEW’s and PanaHome’s consolidated financial information above was prepared, for local reporting purposes, in conformity with financial reporting practices generally accepted in Japan.

The Company’s new basis of investment in MEW and PanaHome upon the acquisition of additional shares of MEW was 344 billion yen. Of this new basis of investment, approximately 11 billion yen was preliminarily allocated to intangible assets based on the current status of the valuation process. (For further details about MEW and PanaHome, see Note 20 of the Notes to Consolidated Financial Statements.)

By joining forces with these companies, Matsushita expects to become a leading provider of a comprehensive range of home electric and household equipment and systems in Japan. It also expects to reduce costs through economies of scale and sharing of research and development resources and marketing channels.

Through the aforementioned initiatives and joining of the MEW and PanaHome group companies, Matsushita currently expects to attain further improvement in earnings on a solid increase in sales in fiscal 2005, subject to external conditions including currency exchange volatility and the success of its growth strategies for the year.

For fiscal 2005, Matsushita projects its capital investment will total approximately 340 billion yen, including 40 billion yen capital investment of the MEW and PanaHome group companies. Matsushita will concentrate investment in such strategic areas as core components and devices, including semiconductors and plasma display panels, with construction of new factories for system LSIs and PDPs in Japan.

The discussion above includes forward-looking statements. For details about “Cautionary Statement Regarding Forward-Looking Statements,” see page 1.


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E.Off-Balance Sheet Arrangements

The Company established sale-leaseback arrangements for manufacturing machinery and equipment, and sale of trade accounts receivable without recourse, as off-balance sheet arrangements in order to reduce its total assets.

In fiscal 2002, Matsushita sold machinery and equipment, which are used to manufacture semiconductors for 108 billion yen. The assets were sold to a special-purpose entity, which in turn leased them back to Matsushita over a period of four years. Sumitomo Mitsui Banking Corporation provided to the special-purpose entity a loan with the same terms as those of the resulting leases. The loan paid for approximately 88% of the cost of the machinery and equipment. SMBC Leasing Company, Limited, an affiliate of Sumitomo Mitsui Banking Corporation, owns, through the special-purpose entity, an equity interest in the machinery and equipment, representing approximately 12% of the cost. Matsushita also entered into a similar sale-leaseback arrangement in the amount of 8 billion yen for machinery and equipment, which are used to manufacture semiconductors in August 2002. In March 2003, these contracts were modified to change the lessor to SMBC Leasing Company. Matsushita also entered into another sale-leaseback arrangement directly with SMBC Leasing Company in the amount of 15 billion yen for machinery and equipment used for manufacturing plasma display panels in December 2002. In fiscal 2004, Matsushita and a subsidiary also established another sale-leaseback arrangement where SMBC Leasing Company performs as a lessor in the amount of 45 billion yen for machinery and equipment used for manufacturing semiconductors and plasma display panels. These leases are classified as operating leases for U.S. GAAP purposes. (For further details, see Notes 6 and 18 of the Notes to Consolidated Financial Statements.)

In addition, the Company provides several types of guarantees and similar arrangements. (For further details, see Note 18 of the Notes to Consolidated Financial Statements.)

F.Tabular Disclosure of Contractual Obligations

The two tables below show Matsushita’s cash payment obligations and guarantees and other commercial commitments, broken down by the payment amounts due for each of the periods specified below, as of March 31, 2004:

   Yen (millions)

   Payments Due by Period

   Total

  Less than
1 year


  

1-3

years


  4-5
years


  After 5
years


Contractual Obligations:

               

Long-Term Debt Obligations

  667,727  212,677  298,867  55,699  100,484

Capital Lease Obligations

  10,087  4,498  5,067  360  162

Operating Lease Obligations

  121,272  33,035  70,407  17,829  1

Purchase Obligations

  15,535  15,535  —    —    —  
   
  
  
  
  

Total Contractual Cash Obligations

  814,621  265,745  374,341  73,888  100,647
   
  
  
  
  


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  Directors and Senior ManagementYen (millions)

 
   The ArticlesTotal Amounts
Committed


Other Commercial Commitments:

Letters of Incorporation of the Company provide that the number of Directors of the Company shall be three or more and that of Corporate Auditors shall be three or more. Directors and Corporate Auditors shall be elected by the general meeting of shareholders. The Board of Directors has ultimate responsibility for administration of the Company’s affairs. Directors may, by resolution of the Board of Directors, appoint a Chairman of the Board of Directors, a Vice Chairman of the Board of Directors, a President and Director, and one or more Executive Vice Presidents and Directors, Senior Managing Directors, and Managing Directors. The Chairman of the Board of Directors, Vice Chairman of the Board of Directors, President and Director, Executive Vice Presidents and Directors, Senior Managing Directors, and Managing Directors are Representative Directors and severally represent the Company. The term of office of Directors shall expire at the conclusion of the ordinary general meeting of shareholders with respect to the last closing of accounts within two years from their assumption of office, and in the case of Corporate Auditors, within three years from their assumption of office. However, they may serve any number of consecutive terms.Credit

6,663

Guarantees

30,905 
   The Corporate Auditors of the Company are not required to be and are not certified public accountants. However, at least one of the Corporate Auditors should be a person who has not been a director, general manager or employee of the Company or any of its subsidiaries during the five-year period prior to his election as a Corporate Auditor. Each Corporate Auditor has the statutory duty to examine the financial statements and business reports to be submitted by the Board of Directors at the general meeting of shareholders and also to supervise the administration by the Directors of the Company’s affairs. They are entitled to participate in meetings of the Board of Directors but are not entitled to vote.

Total Commercial Commitments

37,568 
   

Letters of credit generally have contractual lives of less than one year. Loan guarantees are principally provided on behalf of employees, associated companies, customers and consolidated subsidiaries and generally have long-term contractual lives coinciding with the maturities of the guaranteed obligations. (For further details, see Notes 6, 9 and 18 of the Notes to Consolidated Financial Statements.)

G.Safe Harbor

Not applicable

H.Accounting Principles

Critical Accounting Policies

The Company has identified the following critical accounting policies which are important to its financial condition and results of operations, and require management’s judgment.

Long-lived Assets

The useful lives of long-lived assets are summarized in Note 1(h) of the Notes to Consolidated Financial Statements included in this annual report and reflect the estimated period that the Company expects to derive economic benefit from their use. In estimating the useful lives and determining whether subsequent revisions to the useful lives are necessary, the Company considers the likelihood of technological obsolescence, changes in demand for the products related to such assets, and other factors which may affect their utilization of the long-lived assets. The effect of any future changes to the estimated useful lives of the long-lived assets could be significant to the Company’s results of operations.

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amounts of assets may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows (undiscounted and without interest charges) expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of are reported at the lower of the carrying amount or fair value less selling costs. Factors which may contribute to the need for future impairment charges include changes in the use of assets resulting from the Company’s restructuring initiatives, technological changes or any significant declines in the demand for related products.


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Valuation of Investment Securities

The Company holds available-for-sale securities, equity method securities and cost method securities, included in short-term investments and investments and advances. Available-for-sale securities are carried at fair value with unrealized holding gains and losses included as a component of accumulated other comprehensive income (loss), net of applicable taxes.

Individual securities are reduced to net realizable value by a charge to earnings for other than temporary declines in fair value. Management regularly reviews each investment security for impairment based on criteria that include the extent to which cost exceeds market value, the duration of that market decline and the financial health of and specific prospects for the issuer. Because such specific information may become available after the Company makes the impairment evaluation, and whether the impairment is other-than-temporary depends upon future events that may or may not occur, the Company may be required to recognize an other-than-temporary impairment in the future. Determination of whether a decline in value is other than temporary requires judgment. At March 31, 2004, the Company has recorded 419 billion yen of available-for-sale securities, 229 billion yen of equity method securities that have market values, and 592 billion yen of equity method securities that do not have market values, cost method securities and advances, part or all of which could be determined to be other-than-temporarily impaired in future periods, depending on changes to the current facts and assumptions.

For further discussion on valuation of investment securities, see Notes 4 and 5 of the Notes to Consolidated Financial Statements included in this annual report.

Valuation of Inventory

Inventories are stated at the lower of cost, determined on a first-in, first-out basis, or net realizable value. Net realizable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make a sale. The Company routinely reviews its inventories for their salability and for indications of obsolescence to determine if inventories should be written-down to net realizable value. Judgments and estimates must be made and used in connection with establishing such allowances in any accounting period. In estimating the net realizable value of its inventories, the Company considers the age of the inventories and the likelihood of spoilage or changes in market demand for its inventories.

Warranties

The Company makes estimates of potential warranty claims related to its goods sold. The Company provides for such costs based upon historical experience and its estimate of the level of future claims. Management makes judgments and estimates in connection with establishing the warranty reserve in any accounting period. Differences may result in the amount and timing of its revenue for any period if management makes different judgments or utilizes different estimates.

Valuation of Accounts Receivable and Noncurrent Receivables

The Company reviews its accounts receivable on a periodic basis and provides an allowance for doubtful receivables based on historical loss experience and current economic conditions. In evaluating the collectibility of individual receivable balances, the Company considers the age of the balance, the customers’ historical payment history, their current credit-worthiness and adequacy of collateral.


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The Company records noncurrent receivables, representing loans from finance lease transactions, at cost, less the related allowance for impaired receivables. A loan is considered to be impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. When a loan is considered to be impaired, the amount of impairment is measured based on the present value of expected future cash flows or the fair value of the collateral. Cash receipts on impaired receivables are applied to reduce the principal amount of such receivables until the principal has been recovered and are recognized as interest income thereafter. Management’s judgment is required in making estimates of the future cash flows of an impaired loan. Such estimates are based on current economic conditions and the current and expected financial condition of the debtor.

Valuation of Goodwill

Goodwill is tested for impairment on an annual basis, or more frequently if events or changes in circumstances indicate that the goodwill may be impaired, such as an adverse change in business climate. Impairment is recorded if the fair value of goodwill is less than its carrying amount. The fair value determination used in the impairment assessment requires estimates based on quoted market prices, prices of comparable businesses, present value or other valuation techniques, or a combination thereof, necessitating management to make subjective judgments and assumptions. These estimates and assumptions could result in significant differences to the amounts reported if underlying circumstances were to change. At March 31, 2004, the Company has recorded 419 billion yen of goodwill, part or all of which could be determined to be impaired in future periods, depending on changes to the current facts and assumptions. For further discussion on goodwill and other intangible assets, see Note 8 of the Notes to Consolidated Financial Statements included in this annual report.

Valuation of Deferred Tax Assets

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized based on available evidence. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment.

At March 31, 2004, the Company has recorded gross deferred tax assets of 1,040 billion yen with a total valuation allowance of 246 billion yen. Included in the gross deferred tax assets is 181 billion yen resulting from net operating loss carryforwards (NOLs) of 484 billion yen, which are available to offset future taxable income. In order to fully realize these NOLs, the Company will need to generate sufficient taxable income by the expiration of these NOLs. A substantial majority of these NOLs will expire in fiscal 2009 and thereafter. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more likely than not that the Company will realize the benefits of these deductible differences, net of the existing valuation allowance at March 31, 2004 based on available evidence. The Company could be required to increase the valuation allowance if such assumptions would change concluding that the Company would not be able to generate sufficient taxable income. For further discussion on valuation of deferred tax assets, see Note 11 of the Notes to Consolidated Financial Statements included in this annual report.


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Retirement and Severance Benefits

Retirement and severance benefits costs and obligations are dependent on assumptions used in calculating such amounts. The discount rate and expected return on assets are the most critical assumptions among others, including retirement rates, mortality rates and salary growth.

While management believes that the assumptions used are appropriate, actual results in any given year could differ from actuarial assumptions because of economic and other factors. The resulting difference is accumulated and amortized over future periods and therefore, generally affect the Company’s retirement and severance benefit cost and obligations.

The Company determines discount rates by looking to rates of return on high-quality fixed income investments, and the expected long-term rate of return on pension plan assets by considering the current and expected asset allocations, as well as historical and expected returns on various categories of plan assets.

Decreases in discount rates lead to increases in benefit obligations which, in turn, could lead to an increase in amortization cost through amortization of actuarial gain or loss, and vice versa. A decrease of 50 basis points in the discount rate is expected to increase the projected benefit obligation by approximately nine percent.

A decline in market stock values generally results in a lower expected rate of return on plan assets, which would result in an increase of future retirement and severance benefit costs.

Accounting for Derivatives

The Company has limited involvement with derivative financial instruments and does not use them for trading purposes. The Company uses derivative instruments principally to manage foreign currency risks resulting from transactions denominated in currencies other than the Japanese yen. As discussed in Note 1(o) of the Notes to Consolidated Financial Statements included in this annual report, the Company recognizes all derivatives as either assets or liabilities on the balance sheet at their fair values. Changes in the fair value of a derivative are reported in earnings or other comprehensive income depending on their use and whether they qualify for hedge accounting. The accounting for gains and losses associated with changes in the fair value of the derivative depends on its hedge designation and whether the hedge is highly effective in achieving offsetting changes in the fair value or cash flows of the hedged item. The Company evaluates and determines on a continuous basis if the derivative remains highly effective in offsetting changes in the fair value or cash flows of the hedged item. If the derivative ceases to be highly effective in offsetting changes in the fair value or cash flows of the hedged item, the Company discontinues hedge accounting prospectively. Because the derivatives the Company uses are not complex, significant judgment is not required to determine their fair values. Fair values are determined principally by receiving quotations from banks or brokers.


- 54 -

Loss Contingencies

Loss contingencies may from time to time arise from situations such as product liability claims, warranty claims, disputes over intellectual property rights, environmental remediation obligations, and other legal actions. Loss contingencies are recorded as liabilities when it is probable that a liability has been incurred and the amount of the loss is reasonably estimable. Disclosure is required when there is a reasonable possibility that the ultimate loss will exceed the recorded provision. Contingent liabilities are often resolved over long time periods. In recording liabilities for probable losses, management is required to make estimates and judgments regarding the amount or range of the probable loss. Management continually assesses the adequacy of estimated loss contingencies and, if necessary, adjusts the amounts recorded as better information becomes known.

Item 6.Directors, Senior Management and Employees

A.Directors and Senior Management

The Articles of Incorporation of the Company provide that the number of Directors of the Company shall be three or more and that of Corporate Auditors shall be three or more. Directors and Corporate Auditors shall be elected by the general meeting of shareholders. The Board of Directors has ultimate responsibility for administration of the Company’s affairs. Directors may, by resolution of the Board of Directors, appoint a Chairman of the Board of Directors, a Vice Chairman of the Board of Directors, a President and Director, and one or more Executive Vice Presidents and Directors, Senior Managing Directors and Managing Directors, as well as Representative Directors. The Chairman of the Board of Directors, Vice Chairman of the Board of Directors, President and Director, Executive Vice Presidents and Directors, and Senior Managing Directors are Representative Directors and severally represent the Company. The term of office of Directors shall, under the Articles of Incorporation of the Company, expire at the conclusion of the ordinary general meeting of shareholders with respect to the last closing of accounts within one year from their assumption of office, and in the case of Corporate Auditors, within four years from their assumption of office. However, they may serve any number of consecutive terms.

The Corporate Auditors of the Company are not required to be, and are not, certified public accountants. However, at least one of the Corporate Auditors shall be a person who has not been a Director, corporate executive officer, general manager or employee of the Company or any of its subsidiaries during the five-year period prior to his or her assumption of office as a Corporate Auditor. After the conclusion of the ordinary general meeting of shareholders to be held in June 2006, at least half of the Corporate Auditors shall be required to be persons who have not been a Director, corporate executive officer, general manager or employee of the Company or its subsidiaries, prior to his or her assumption of office as a Corporate Auditor. Each Corporate Auditor has the statutory duty to audit the non-consolidated financial statements (and, after the conclusion of the ordinary general meeting of shareholders with respect to fiscal 2004, consolidated financial statements) and business reports to be submitted by the Board of Directors at the general meeting of shareholders and also to audit the Director’s execution of their duties. The Corporate Auditors are required to attend meetings of the Board of Directors and express opinions, if necessary, at such meetings, but they are not entitled to vote.


- 55 -

The Corporate Auditors constitute the Board of Corporate Auditors. The Board of Corporate Auditors has a statutory duty to prepare and submit its audit report to a Representative Director each year. A Corporate Auditor may note his or her opinion in the audit report if his or her opinion is different from the opinion expressed in the audit report. The Board of Corporate Auditors is empowered to establish auditing policies, the manner of investigation of the status of the corporate affairs and assets of the Company, and any other matters relating to the execution of the duties of the Corporate Auditors. However, the Board of Corporate Auditors may not prevent each Corporate Auditor from exercising his or her powers.

Corporate Auditors may not at the same time be directors, corporate executive officers, managers or employees of the Company or any of its subsidiaries.

Under the Commercial Code of Japan (Commercial Code) and the Articles of Incorporation of the Company, the Company may, by a resolution of the Board of Directors, exempt Directors or Corporate Auditors from their liabilities owed to the Company arising in connection with their failure to perform their duties to the extent permitted by the Commercial Code. In addition, the Company has entered into liability limitation agreements with each of the Outside Directors which limits the maximum amount of their liabilities owed to the Company arising in connection with their failure to perform their duties to the extent permitted by the Commercial Code.

The Company implemented in fiscal 2004 the reform of its corporate management and governance structure by (i) reorganizing the role of the current Board of Directors, (ii) introducing a Matsushita’s own Executive Officer system* in its Group and (iii) strengthening its Corporate Auditor system, all tailored to the Group’s new business domain-based, autonomous management structure. (For details of the Groupwide reorganization, see explanation of the “Value Creation 21” plan in, Section A of Item 4.)

Matsushita’s Executive Officer system was introduced to address the diversity of business operations over the entire Group through delegation of authority and to help integrate the comprehensive strengths of all Group companies in Japan and overseas. The Board of Directors appoints Executive Officers mainly from the senior management personnel of business domain companies, such as internal divisional companies and subsidiaries, as well as from management personnel responsible for overseas subsidiaries and certain senior corporate staff. The Executive Officers assume responsibility as the Group’s executives regarding execution of business. The Executive Officers may be given such titles as Senior Managing Executive Officer, Managing Executive Officer and Executive Officer, depending on the extent of responsibility and achievement of each individual. The term of office of the Executive Officers shall be one year from their assumption of office. Each of the Executive Officers has the authority to operate businesses for which such Executive Officer is responsible, under the supervision of the Board of Directors and in accordance with the Board of Directors’ decisions of the management regarding corporate affairs.


*Matsushita’s Executive Officer (“Yakuin”) system is a statutory duty to preparevoluntary system and submit its audit report to the Board of Directors each year. A Corporate Auditor may note his opinion in the audit report if his opinion is different from the opinion expressedcorporate executive officer (“Shikkoyaku”) system that large Japanese corporations may adopt at their option under the new statutory corporate governance system referred to as “Company with Committees” system stipulated in the audit report. The BoardCommercial Code of Corporate Auditors is empowered to establish audit principles, methods of examination by the Corporate Auditors of the Company’s affairsJapan and financial position and other matters concerning the performance of the Corporate Auditors’ duties.related legislation, which became effective on April 1, 2003.


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The Board of Directors has, at the same time, been reformed in order to concentrate its role to establish corporate strategies and to supervise implementation thereof by the Executive Officers. The Company has reduced the number of Directors to facilitate more effective decision-making, and shortened their term of office to one year in order to clarify their responsibilities. Taking into consideration the diversified scope of Matsushita’s business operations, the Company has chosen to hold its policy of having management personnel, who are well-versed in day-to-day operations at operational fronts, be members of the Board of Directors, while Outside Directors continue to fully participate in such meetings.

Furthermore, compensation for members of the Board of Directors and Executive Officers is linked to the new business performance evaluation standards, namely CCM and cash flows, which are similar to the evaluation standards used by capital markets, to pursue management based on shareholder interests and enhance corporate value.

In fiscal 2004, the non-statutory full-time Senior Auditors were newly appointed within the Company’s internal divisional companies in order to strengthen auditing functions at each business domain company. In addition, the Company has also launched the “Group Auditor’s Meeting” in order to promote collaboration between the Company’s Corporate Auditors, the non-statutory full-time Senior Auditors of the internal divisional companies and the corporate auditors of the Company’s subsidiaries and affiliates.

The following table shows information about Matsushita’s Directors and Corporate Auditors as of June 29, 2004, including their dates of birth, positions, responsibilities and brief personal records.

        Name  


  The Corporate Auditors may not at the same time be Directors, managers or employees of the Company.

Positions, responsibilities and brief personal records


Set forth below are the names(Date of Directors and Corporate Auditors after the ordinary general meeting of shareholders held on June 28, 2001, their dates of birth, positions and responsibilities with Matsushita Electric Industrial Co., Ltd., and their brief personal records.
birth)   
NamePosition, responsibilities and brief personal record

Yoichi Morishita

(Jun. 23, 1934)


(Date of birth)
  
Yoichi Morishita

Chairman of the Board of Directors – Directors—since June 2000

(Jun. 23, 1934)-

-1987    Director of the Company;

-

-1992    Executive Vice President and Director of the Company;

-

-1993    President and Director of the Company.


-34-

Masayuki Matsushita

(Oct. 16, 1945)

  
NamePosition, responsibilities and brief personal record


(Date of birth)
Masayuki Matsushita

Vice Chairman of the Board of Directors – Directors—since June 2000

(Oct. 16, 1945)-

-1986    Director of the Company;

-

-1990    Managing Director of the Company;

-1992    Senior Managing Director of the Company;

-

-1996    Executive Vice President and Director of the Company.

Kunio Nakamura

(Jul. 5, 1939)

President and Director – Director—since June 2000

(Jul. 5, 1939)-

-1993    Director of the Company, and Director of Corporate  Management Division for the Americas;

-

-1996    Managing Director of the Company;

-

-1997    Senior Managing Director of the Company, and President of  AVC Company.


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        Name  


Positions, responsibilities and brief personal records


(Date of birth) 
Kazuhiko Sugiyama

Kazuo Toda

(Feb. 13, 1941)

Executive Vice President and Director – Director—since June 19962003

(Jan. 19, 1937)Tokyo Representative, and in charge of Systems Sales, Electrical Supplies Sales and Advertising.
- -1989 Director of the Company (resigned in June 1993);
- -1993 President of Matsushita Electronics Corporation.
Atsushi Murayama
Executive Vice President and Director – since June 2000
(Mar. 29, 1938)

In charge of Planning, Personnel and General Affairs.

- -1995 Director of the Company;
- -1998 Senior Managing Director of the Company.
Takashi Kawada
Executive Vice President and Director – since June 2001
(Mar. 13, 1937)In charge of Communications and Automotive Electronics Business.
- -1989 Director of Matsushita Communication Industrial Co., Ltd. (MCI);
- -1993 President of MCI.
Kazuo Toda
Senior Managing Director – since June 1999
(Feb. 13, 1941)President of AVC Company, Director of Corporate Marketing Division for Panasonic Brand and in chargeNational Brand, Corporate Sales Strategy Division for National / Panasonic Retailers, Commodity Products and Electrical Supplies Sales, Advertising, Logistics, Corporate CS Division, Design, Network Marketing Strategy Office, and Chairman of Storage Device Business.
- Corporate Brand Committee.

-1994    Director of the Company, and in charge of Home Appliance  Business;

-

-1996    Managing Director of the Company;

-1997    President of Home Appliance & Housing Electronics  Company.

Osamu Tanaka
Company;

-1999    Senior Managing Director – since June 1999

of the Company;

-2000    President of AVC Company;

-2001    Director of Corporate Marketing Division for Panasonic  Brand.

Osamu Tanaka

(Nov. 1, 1940)

In

Executive Vice President and Director—since June 2003

Representative in Tokyo, and in charge of Corporate Consumer Products Distribution Division, Commodity Sales, Housing Equipment Sales, Logistics, Corporate CS Division, Corporate Credit Sales Division, Recycling Business Promotion,External Relations, Panasonic Center and Public and Private Institutions.

- Panasonic System Solutions Company.

-1995    Director of the Company, and Director of Corporate Consumer  Sales Division;

-

-1997    Managing Director of the Company.


-35-

NamePosition, responsibilities and brief personal record


(Date of birth)
Sukeichi Miki
Company;

-1999    Senior Managing Director – since June 2001

(Feb. 5, 1940)In charge of Technology, Quality, Environment, Intellectual Property, and Overseas Research Laboratories.
- -1997 Director of the Company, and in charge of multimedia technology;
- -1999 Managing Director of the Company, and in charge of  Technology.Corporate Consumer Sales;

 
Yukio Shohtoku
Managing Director – since June 1999

-2001    In charge of Corporate Consumer Products Distribution  Division and Public and Private Institutions.

Yukio Shohtoku

(Nov. 8, 1939)

Executive Vice President and Director—since June 2003

In charge of Overseas Operations.

- -1993 Associate Director ofOperations, Global Strategy Research Institute, Corporate Management Division for Asia, OceaniaOverseas Planning Group and the Middle East;
- Corporate International Affairs Group, Vivendi Universal Liaison Office and Olympic Affairs.

-1994    Director of the Company, and Director of Corporate  Management Division for China.China;

 
Takami Sano

-1999    Managing Director – since June 2000

of the Company.

Takami Sano

(Apr. 2, 1943)

In

Senior Managing Director—since June 2003

President of Panasonic Automotive Systems Company, and in charge of Industrial Sales Semiconductor Sales, Factory Automation Sales, and Automotive Electronics Sales.

Director of Corporate Industrial Marketing & Sales Division.
- -1992Panasonic EV Energy Co., Ltd.

-1997    Senior Managing Director of Matsushita Battery Industrial  Co., Ltd.;

-

-1998    Director of the Company, and Director of Corporate Industrial  Marketing & Sales Division.Division;

 

-2000    Managing Director of the Company;

-2002    President of Factory Automation Company;

-2003    President of Panasonic Automotive Systems Company.


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Corporation;

-2001    President of Display Devices Company.

Susumu Koike
Managing Director – since June 2000

        Name  


Positions, responsibilities and brief personal records


(Date of birth)

Susumu Koike

(Nov. 15, 1945)

Senior Managing Director—since June 2003

In charge of Technology, Devices and Environmental Technology, Production Engineering, Intellectual Property, Overseas Research Laboratories, and President of Semiconductor Company.

- -1993Company and Camera Module Business.

-1998    Senior Managing Director of Matsushita Electronics  Corporation;

- -1998Corporation, Director of the Company, and in charge of  Semiconductor Technology.Technology;

 
Fumio Ohtsubo

-2000    Managing Director – since June 2000

of the Company;

-2001    President of Semiconductor Company.

Fumio Ohtsubo

(Sep. 5, 1945)

Senior Vice Managing Director—since June 2003

President of Panasonic AVC Networks Company, and in charge of Storage Device Business Group Executive of AVCand Digital Network Business Group.

- Strategic Planning Office.

-1998    Director of the Company, and Vice President of AVC  Company;

-2000    Managing Director of the Company;

-2001    Business Group Executive of AVC Network Business Group;

-2002    President of AVC Company;

-2003    President of Panasonic AVC Networks Company.

Haruo Ueno

Tetsuya Kawakami

(Dec. 7, 1941)

Senior Managing Director—since June 2004

In charge of Finance and Accounting.

-1996    General Manager of Corporate Accounting Department;

-2000    Director of the Company, and in charge of Accounting;

-2003    Managing Director of the Company, and in charge of Finance  and Accounting.

Hidetsugu Otsuru

(Aug. 20, 1943)

Managing Director – Director—since June 2001

(Nov. 9, 1940)Director

In charge of Corporate LegalFacility Management, Quality Assistance and Environment Affairs Division.

- -1965 Joined the National Police Agency (NPA);
- -1994 Joined the Company as Advisor;
- and Recycling Business Promotion.

-1998    Director of the Company and Director of Corporate Legal Affairs Division.

Hidetsugu Otsuru
Managing Director – since June 2001
(Aug. 20, 1943)President of Display Device Company.
- -1998 Director of the Company,(resigned in March 1999), and in  charge of Corporate Quality Administration Division and  Purchasing Administration Department;

-

-1999    President of Matsushita Electronics Corporation.


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-36-

        Name  


Positions, responsibilities and brief personal records


(Date of birth)   
NamePosition, responsibilities and brief personal record

Yoshitaka Hayashi

(Jun. 7, 1946)


(Date of birth)
  
Yoshiaki Kushiki

Managing Director – Director—since June 20012003

(Jan. 17, 1946)

In charge of Multimedia Technology.

DirectorHome Appliances Business, and President of Multimedia Development Center, and Director of
  Corporate Software Development Division.
- -1997 Director of Multimedia Development Center;
- -1999 Director of theMatsushita Home Appliances Company, and in charge of multimedia   technology.
Josei Ito
Director – since June 1994
(May 25, 1929)(Chairman of the Board of Nippon Life Insurance Co.)
- -1989 President of Nippon Life Insurance Co.;
- -1997 Chairman of the Board of Nippon Life Insurance Co.
Toshio Morikawa
Director – since June 2000
(Mar. 3, 1933)(Executive Advisor of Sumitomo Mitsui Banking Corporation)
- -1997 Chairman of the Board of The Sumitomo Bank, Ltd.;
- -2001 Executive Advisor of Sumitomo Mitsui Banking Corporation.
Hiroaki Enomoto
Director – since June 1996
(Nov. 3, 1942)Director of Tokyo Branch,Healthcare Business Company and in charge of Public and Private Institutions.
- -1965 Joined the Ministry of International Trade & Industry (MITI);
- -1995 Joined the Company as Corporate Advisor;
- -1998 Director of Tokyo Branch office, and in charge of Public and Private Institutions.
Toshio Sugiura
Director – since June 1997
(Sep. 20, 1941)Director of Corporate Management Division for China.
- -1995 President of Matsushita Electric Co., (Malaysia) Bhd.;
- -1997 President of Air-conditionerRefrigeration Company.
Toru Ishida
Director – since June 1999
(Mar. 21, 1944)In charge of Device Technology, Environmental Technology.
Director of Devices Development Center, and in charge of Production Engineering, Recycling Process Systems Business, Corporate Environmental Solutions Division.
- -1995 Director of Device Engineering Development Center.
Tameshige Hirata
Director – since June 1999
(Jan. 11, 1946)Director of Corporate Systems Sales Division.
- -1998 Director of Corporate Public Systems Sales Division;
-

-1999    Director of Systems Solutions Division.

Tetsuya Kawakami
Director – since June 2000
(Dec. 7, 1941)In charge of Finance and Accounting.
- -1996 General Manager of Corporate Accounting Department.


-37-

NamePosition, responsibilities and brief personal record


(Date of birth)
Hideaki Iwatani
Director – since June 2000
(Jul. 21, 1945)Director of Corporate Management Division for the Americas.
- -1996 President of Panasonic Consumer Electronics Company in Matsushita Electric Corporation of America.
Yoshitaka Hayashi
Director – since June 2000
(Jun. 7, 1946)Vice President of Home Appliance & Housing Electronics  Company;

-2000    Director of the Company, and President of Home Appliance &  Housing Electronics Company;

-2001    Director of Corporate Marketing Division for National Brand,  and in charge of Healthcare & Medical Business Center.Center;

- -1999 Vice

-2002    In charge of Appliance Business;

-2003    President of Home Appliance & Housing ElectronicsAppliances Company.

Toshihiro Sakamoto

Director – since June 2000

(Oct. 27, 1946)

Senior Vice President

Managing Director—since June 2004

In charge of AVC Company, Business Group ExecutivePlanning, and Associate Director of Visual Network Products Business Group.

- Corporate Management Quality Innovation Division and Corporate IT Innovation Division, and in charge of Panasonic Spin-up Fund.

-1998    President of Matsushita Electric (Taiwan) Co., Ltd.;

-2000    Director of the Company, and Vice President of AVC  Company;

-2001    Senior Vice President of AVC Company;

-2003    In charge of Corporate Planning.

Masaki Akiyama

Josei Ito

(May 25, 1929)

Director – Director—since June 20011994

(Chairman of the Board of Nippon Life Insurance Co.)

-1989    President of Nippon Life Insurance Co.;

-1997    Chairman of the Board of Nippon Life Insurance Co.

Toshio Morikawa

(Mar. 3, 1933)

Director—since June 2000

(Special Advisor of Sumitomo Mitsui Banking Corporation)

-1997    Chairman of the Board of The Sumitomo Bank, Ltd.;

-2001    Advisor of Sumitomo Mitsui Banking Corporation;

-2002    Special Advisor of Sumitomo Mitsui Banking Corporation.

Masaki Akiyama

(Jun. 29, 1943)

Director

Director—since June 2004

President of Panasonic System Solutions Company, and in charge of Corporate Systems SolutionseNet Business Division.

- -1994

-1998    Senior Managing Director of Matsushita Communication  Industrial Co., Ltd. (MCI);

-2000    Director of Corporate Systems Solutions Division of the  Company;

-2001    Director of the Company (resigned in June 2003) and Director  of Corporate Broadband Systems Division of AVC Company;

-2003    President of Panasonic System Solutions Company.


- 60 -

- -1998 Senior Managing Director

        Name  


Positions, responsibilities and brief personal records


(Date of MCI.birth)
 
Yoichiro Maekawa

Shinichi Fukushima

(Nov. 13, 1948)

Director – Director—since June 20012003

(Jan. 6, 1944)
Director

In charge of Corporatee-Net Business Division.

- Personnel, General Affairs and Social Relations.

-1997    General Manager of Corporate Planning Office.Personnel Department.

Tomikazu Ise

Mikio Ito

(Nov. 29, 1946)

Director – Director—since June 20012004

(Dec. 23, 1946)

Director of Corporate Legal Affairs Division, and in charge of Corporate Risk Management, Division for Europe.Corporate Information Security and Business Ethics.

-1997    General Manager of Industrial Relations Department;

-2001    Assistant Director of Tokyo Branch, and General Manager of  Corporate External Relations;

-2003    Director of Tokyo Branch.

- -1998 President of Panasonic Deutschland GmbH;

Masaharu Matsushita

(Sep. 17, 1912)

- -1999 President of Panasonic Marketing Europe GmbH.
  
Masaharu Matsushita

Honorary Chairman of the Board of Directors and Executive Advisor –

(Sep. 17, 1912)
Advisor—since June 2000
-

-1947    Director of the Company;

-

-1961    President and Director of the Company;

-

-1977    Chairman of the Board of Directors of the Company.

Motoi Matsuda

Kazumi Kawaguchi

(Oct. 25, 1943)

Senior Corporate Auditor – Auditor—since June 20002003

(Feb. 11, 1937)- -1993 Director of the Company, and in charge of Finance and Accounting;
- -1998

-1996    Senior Managing Director of Kyushu Matsushita Electric Co.,  Ltd.;

-1999    General Manager of Affiliates Management Department of the  Company.Company;

-2000    General Manager of Corporate Accounting Department;

-2001    In charge of Corporate Accounting Group.

Yoshitomi Nagaoka

Yukio Furuta

(Sep. 20, 1944)

Senior Corporate Auditor – Auditor—since June 20012004

(May 31, 1941)- -1996

-1995    Director of the Company, and in chargeMatsushita Electronics Corporation;

-2001    Director of AVC technology;

- -1997 Vice PresidentCorporate Manufacturing & Development Division  of AVC Company, and in charge of Technology.
Semiconductor Company;


-38-

NamePosition, responsibilities and brief personal record


(Date of birth)
Toshiomi Uragami
Corporate Auditor – since June 2000
(Nov. 4, 1935)(Executive Advisor, Sumitomo Life Insurance Co. (effective July 3, 2001))
- -1997 Chairman of the Board of Sumitomo Life Insurance Co.
Kiyosuke Imai
Corporate Auditor – since June 2000
(Nov. 14, 1934)(Chairman of the Board of Matsushita Electric Works, Ltd.)
- -2000 Chairman of the Board of Matsushita Electric Works, Ltd.

There are no family relationships between any Director or Corporate Auditor and any other Director or Corporate Auditor of the Company except as described below:
   

-2003    Vice President of Semiconductor Company.

Yasuo Yoshino

(Oct. 5, 1939)

Corporate Auditor—since June 2003

(Chairman of Sumitomo Life Insurance Co.)

-1997    Deputy President of Sumitomo Life Insurance Co.;

-2001    Chairman of Sumitomo Life Insurance Co.

Ikuo Hata

(Aug. 6, 1931)

Corporate Auditor—since June 2004

(Attorney at Law, Oh-ebashi LPC & Partners)

-1992    President of Osaka District Court;

-1995    Registered as an attorney-at-law (Osaka Bar Association);

-1998    Vice Board Chairman of Japan Federation of Arbitration  Associations;

-2001    Member of Supreme Court Committee on Construction-related  Disputes.


- 61 -

There are no family relationships among any Directors or Corporate Auditors except as described below:

Masayuki Matsushita, Vice Chairman of the Board of Directors is the son of Masaharu Matsushita, Honorary Chairman of the Board of Directors and Executive Advisor.

The following table shows information about Matsushita’s Executive Officers as of June 29, 2004, including their positions and responsibilities.

Name


                                Positions and responsibilities


Yoshiaki Kushiki

Managing Executive Officer

President, Panasonic Mobile Communications Co., Ltd.

Hajime Sakai

Managing Executive Officer

President, Panasonic Communications Co., Ltd.

Koshi Kitadai

Managing Executive Officer

President, Matsushita Electronic Components Co., Ltd., in charge of Electronic Circuit Capacitor Division and Toyama Matsushita Electric Co., Ltd.

Yasuo Katsura

Managing Executive Officer

Director, Tokyo Branch

Shunzo Ushimaru

Managing Executive Officer

Director, Corporate Marketing Division for Panasonic Brand, in charge of Matsushita Consumer Electronics Co., Ltd.

Toru Ishida

Executive Officer

President, Matsushita Battery Industrial Co., Ltd.

Tameshige Hirata

Executive Officer

President, Matsushita Ecology Systems Co., Ltd., in charge of Matsushita Environmental and Air-conditioning Engineering Co., Ltd.

Hideaki Iwatani

Executive Officer

In charge of International Affairs, Director, Global Strategy Research Institute

Yoichiro Maekawa

Executive Officer

In charge of External Relations

Tomikazu Ise

Executive Officer

Director, Corporate Management Division for China and Northeast Asia, Chairman, Matsushita Electric (China) Co., Ltd.


- 62 -

Name


                                    Positions and responsibilities


Fujio Nakajima

Executive Officer

Senior Vice President, Panasonic AVC Networks Company,

Director, AVC Development Center,

General Manager, Digital Broadcasting Business Promotion Office

Tomiyasu Chiba

Executive Officer

President, Matsushita Kotobuki Electronics Industries, Ltd.

Nobutane Yamamoto

Executive Officer

Director, Corporate Procurement Division

Kazuyoshi Fujiyoshi

Executive Officer

Vice President, Panasonic Communications Co., Ltd.

Tomio Kawabe

Executive Officer

Director, Corporate Management Division for Asia and Oceania, President, Matsushita Electric Asia Pte. Ltd.

Junji Esaka

Executive Officer

Vice President, Matsushita Home Appliances Company,

in charge of Refrigeration and Air Conditioning Business,

President, Matsushita Refrigeration Company

Takae Makita

Executive Officer

In charge of Information Systems, Associate Director, Corporate IT Innovation Division

Hitoshi Otsuki

Executive Officer

Director, Corporate Management Division for Europe,

Chairman and CEO, Matsushita Electric Europe (Headquarters) Ltd.

Takahiro Mori

Executive Officer

Director, Corporate Communications Division, in charge of CSR Office

Tsutomu Ueda

Executive Officer

Senior Vice President, Panasonic AVC Networks Company,

Director, Visual Products and Display Devices Business Group

Masashi Makino

Executive Officer

Director, Corporate Manufacturing Innovation Division

Katsutoshi Kanzaki

Executive Officer

President, Panasonic Factory Solutions Co., Ltd.

Yoshinobu Sato

Executive Officer

Director, Corporate Sales Strategy Division for National/Panasonic Retailers


- 63 -

Name


                                    Positions and responsibilities


Osamu Nishijima

Executive Officer

Vice President, Semiconductor Company in charge of Technology, General Manager, Semiconductor Technologies Strategy Office

Joachim Reinhart

Executive Officer

President and COO, Matsushita Electric Europe (Headquarters) Ltd.

Yutaka Mizuno

Executive Officer

Vice President, in charge of Sales and Director, OEM Automotive Systems Marketing and Sales Division, Panasonic Automotive Systems Company

Yoshihiko Yamada

Executive Officer

Director, Corporate Management Division for North America, Chairman, Matsushita Electric Corporation of America

Kazuhiro Tsuga

Executive Officer

In charge of Digital Network and Software Technologies

(Directors who concurrently serve as Executive Officers are not included in the above list.)

B.Compensation

The aggregate amount of remuneration, including bonuses, paid by the Company during fiscal 2004 to all Directors and Corporate Auditors (34 persons) for services in all capacities was 947 million yen.

In accordance with customary Japanese business practices, a retiring Director or Corporate Auditor receives a lump-sum retirement payment, which is subject to approval of the general meeting of shareholders. Retirement allowances provided for Directors and Corporate Auditors for fiscal 2004 amounted to 312 million yen. (For details of the Company’s stock option plans for Board members and select senior executives, see Section E of this Item 6.)

C.Board Practices

For information on the Company’s Directors and Corporate Auditors, see Section A of this Item 6.

The Company has made available on its web site (http://panasonic.co.jp/global/governance/) a general summary of the significant differences between its corporate governance practices and those followed by U.S. companies under NYSE listing standards.

The rights of ADR holders, including their rights relating to corporate governance practices, are governed by the Amended and Restated Deposit Agreement (incorporated by reference to the Registration Statement on Form F-6 (File No. 333-12694) filed on October 4, 2000).


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D.Employees

The following table lists the number of consolidated full-time employees of the Company as of March 31, 2004, 2003 and 2002:

   2004

  2003

  2002

Employees:

         

Domestic

  119,528  121,451  126,378

Overseas

  170,965  166,873  164,854
   
  
  

Total

  290,493  288,324  291,232
   
  
  

Most regular employees in Japan, except management personnel, are union members, principally of the Matsushita Electric Industrial Workers Union, which is affiliated with the Japanese Electrical Electronic & Information Union.

As is customary in Japan, Matsushita negotiates annually with the unions and executes annual wage increases. The annual bonuses of all employees are linked to the Company’s performance of the previous year. Matsushita also renews the terms and conditions of labor contracts, other than those relating to wages and bonuses, every other year. In recent years, Matsushita has introduced in Japan new comprehensive employment and personnel systems to satisfy the diversified needs of employees.

Such systems include an individual performance-oriented annual salary system, a regional-based employee remuneration system and an alternative payment system under which employees can receive retirement and fringe benefits up front as an addition to their semiannual bonuses. During the last few years, the Company and several subsidiaries have also implemented special early retirement programs for employees who wished to pursue careers outside Matsushita. For a quarter century, Matsushita has not experienced any major labor strikes or disputes. Matsushita considers its labor relations to be excellent.


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E.Share Ownership

(1)The following table lists the number of shares owned by the Directors and Corporate Auditors of the Company as of June 29, 2004. The total is 17,876,952 shares constituting 0.77% of all outstanding shares of the Company’s common stock.

Name


Position


Number of Matsushita Shares
Owned as of June 29, 2004


Yoichi Morishita

Chairman of the Board of Directors       85,568

Masayuki Matsushita

Vice Chairman of the Board of Directors  7,913,351

Kunio Nakamura

President and Director       35,000

Kazuo Toda

Executive Vice President and Director       23,299

Osamu Tanaka

Executive Vice President and Director       20,750

Yukio Shohtoku

Executive Vice President and Director       30,037

Takami Sano

Senior Managing Director       21,923

Susumu Koike

Senior Managing Director       18,562

Fumio Ohtsubo

Senior Managing Director       18,000

Tetsuya Kawakami

Senior Managing Director       11,057

Hidetsugu Otsuru

Managing Director       18,000

Yoshitaka Hayashi

Managing Director       13,798

Toshihiro Sakamoto

Managing Director       10,278

Josei Ito

Director       12,000

Toshio Morikawa

Director         5,000

Masaki Akiyama

Director       11,884

Shinichi Fukushima

Director         6,005

Mikio Ito

Director         5,000

Masaharu Matsushita

Honorary Chairman of the Board of Directors and Executive Advisor.

B.Advisor  Compensation  9,598,637

Kazumi Kawaguchi

Senior Corporate Auditor         The aggregate amount of remuneration, including bonuses, paid by the Company during fiscal 2001 to all Directors and Corporate Auditors as a group (44 persons) for services in all capacities was 1,255 million yen.10,803

Yukio Furuta

Senior Corporate Auditor           In accordance with customary Japanese business practices, a retiring Director or Corporate Auditor receives a lump-sum retirement payment, which is subject to approval of the general meeting of shareholders. Retirement allowances provided for Directors and Corporate Auditors for fiscal 2001 amounted to 619 million yen.5,000

Yasuo Yoshino

Corporate Auditor           For details of the Company’s stock option plan for Board members and select senior executives, see Section E of this Item 6.3,000


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C.

Ikuo Hata

  Board PracticesCorporate Auditor
              See Section A of this Item 6.—  

D.Employees
Following table lists the number of consolidated full-time employees of the Company as of March 31, 2001, 2000 and 1999:

              
200120001999



Employees:
Domestic143,162146,675148,524
Overseas149,628143,773133,629



 
Total292,790290,448282,153



Most regular employees in Japan, except management personnel, are union members, principally of the Matsushita Electric Industrial Workers Union, which is affiliated with the Japanese Electrical Electronic & Information Union.
As is customary in Japan, the Company negotiates annually with the unions and grants annual wage increases and semiannual bonuses. Matsushita also renews the terms and conditions of labor contracts, other than those relating to wages and bonuses, every other year. In recent years, the Company has been introducing in Japan new comprehensive employment and personnel systems which satisfy diversified needs of employees. Such systems include an individual performance-oriented annual salary system and an alternative payment system under which employees can receive retirement and fringe benefits up front as an addition to their monthly salary.
In fiscal 1999, Matsushita also introduced a stock-price-linked remuneration system (effective through fiscal 2001) for its employees manager level or above whereby a modest amount linked to the Company’s stock price is paid once a year to these employees.
For a quarter century, Matsushita has experienced no major labor strikes or disputes. The Company considers its labor relations to be excellent.

E.Share Ownership
Share ownership of all the persons listed in above A is less than one percent of the class. The total number of the Company’s voting securities beneficially owned by the Directors and Corporate Auditors as a group as of March 31, 2001 is as follows:

      

Total

17,876,952
      
Identity of personNumber of
Title of classor groupshares ownedPercentage of class




Common StockDirectors and Corporate
Auditors — 32 persons
17,375,234
shares
0.83%

In May 1998, the Board of Directors decided to implement the Company’s first stock option plan for Board members and select senior executives, and to purchase the Company’s own shares for transfer to them under the plan, pursuant to then effective Article 210-2 of the Commercial Code of Japan. Upon approval at the ordinary general meeting of shareholders held in June 1998 and subsequent Board of Directors’ resolutions, stock options (rights to purchase shares of common stock) were provided to the then 32 Directors on the Board and four select senior executives in amounts ranging from 2,000 to 10,000 shares of common stock each, exercisable from July 1, 2000 to June 30, 2004, at an exercise price of 2,291 yen per share, which was calculated by a formula approved by shareholders at the said ordinary general meeting of shareholders. To cover these options, the Company in early July 1998 purchased on the Tokyo Stock Exchange (TSE) a total of 113,000 shares of common stock with an aggregate purchase price of approximately 252 million yen.


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At the ordinary general meeting of shareholders held in June 1999, the shareholders again approved a stock option plan for Board members and select senior executives. The then 32 Directors on the Board and four select senior executives were granted stock options at a price of 2,476 yen per share, exercisable from July 1, 2001 to June 30, 2005, ranging from 2,000 to 10,000 shares of common stock each. For this purpose, the Company in early August 1999 purchased on the TSE a total of 116,000 shares of common stock with an aggregate purchase price of approximately 287 million yen.

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In June 2000, another stock option plan for Board members and select senior executives was approved at the ordinary general meeting of shareholders. The then 28 Directors on the Board and five select senior executives were granted stock options ranging from 2,000 to 10,000 shares of common stock each, at a price of 2,815 yen per share, exercisable from July 1, 2002 through June 30, 2006. For the stock option plan, the Company in early July 2000 purchased on the TSE a total of 109,000 shares of common stock with an aggregate purchase price of approximately 306 million yen.

In June 2001, another stock option plan for Board members and select senior executives was approved at the ordinary general meeting of shareholders. The then 30 Directors on the Board and nine select senior executives were granted stock options ranging from 2,000 to 10,000 shares of common stock each, at a price of 2,163 yen per share, exercisable from July 1, 2003 through June 30, 2007. For the stock option plan, the Company in early July 2001 purchased on the TSE a total of 128,000 shares of common stock with an aggregate purchase price of approximately 250 million yen.

In June 2002, the Company obtained approval at the ordinary general meeting of shareholders regarding the issue of stock acquisition rights as stock options (the Stock Acquisition Rights) for Board members and select senior executives, pursuant to Articles 280-20 and 280-21 of the Commercial Code of Japan, as amended. Upon the shareholders’ approval, the Board of Directors adopted resolutions to issue at no charge an aggregate of 116 Stock Acquisition Rights, each representing a stock option to purchase 1,000 shares of common stock of the Company, to the then 27 Directors on the Board and eight select senior executives. The Stock Acquisition Rights are exercisable during the period from July 1, 2004 through June 30, 2008. The amount to be paid by qualified persons upon exercise of each Stock Acquisition Right is set at 1,734 yen per share of common stock, which was calculated by a formula approved by shareholders at the said ordinary general meeting of shareholders.

In June 2003, the Company introduced new business performance evaluation standards (See Section A of this Item 6.) which affect compensation of Directors and Executive Officers. This new evaluation system is intended to encourage pursuit of continuous growth and enhanced profitability for the Group as a whole, thereby accomplishing the goal of increasing corporate value in the interest of shareholders. Upon the introduction of this incentive type compensation system, Stock Acquisition Rights as stock options for Directors and select senior executives have not been offered since June 2003.

(For more details, see Note 12 of the Notes to Consolidated Financial Statements.)


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(2)As far as is knownThe full-time employees of Matsushita Electric Industrial Co., Ltd. and its major subsidiaries in Japan are eligible to participate in the Matsushita Electric Employee Shareholding Association, whereby participating employees contribute a portion of their salaries to the Company, there is no arrangement,Association and the operationAssociation purchases shares of which may at a subsequent date result in a change in control of Matsushita.
In May 1998, the Board of Directors decided to implement the Company’s firstcommon stock option plan for Board members and select senior executives, andon their behalf. The Company had uniformly provided a 10% subsidy on top of any funds employees contribute to purchasethe Association. However, from July 2004 the Company started to provide the subsidy in proportion to the number of points that each employee selects to exchange within certain limitations under the “Cafeteria Plan,” the Company’s ownnew flexible benefit plan. Under the Cafeteria Plan, each employee is allotted a certain number of points based on prescribed standards, which he or she may exchange for various benefits, including the Company’s subsidy for contributions to the Association, housing subsidies, subsidies for asset building savings, educational assistance, hotel accommodations, etc. As of March 31, 2004, the Association owned 37,193 thousand shares for transfer to them under the plan, pursuant to Article 210-2 of the Japanese Commercial Code. Upon approval atCompany’s common stock constituting 1.60% of all outstanding shares of the ordinary general meeting of shareholders held in June 1998Company’s common stock.

Item 7.Major Shareholders and subsequent Board of Directors’ resolutions, stock options (rights to purchase common shares) were provided to the then 32 Directors on the Board and four select senior executives in amounts ranging from 2,000 to 10,000 common shares each, exercisable from July 1, 2000 to June 30, 2004, at an exercise price of 2,291 yen per share, which was calculated by a formula approved by shareholders at the said annual shareholders meeting. To cover these options the Company in early July 1998 purchased on the Tokyo Stock Exchange (TSE) a total of 113,000 common shares with an aggregate purchase price of approximately 252 million yen.
At the ordinary general meeting of shareholders held in June 1999, the shareholders again approved a stock option plan for Board members and select senior executives. The then 32 Directors on the Board and four select senior executives were granted stock options at a price of 2,476 yen per common share, exercisable from July 1, 2001 to June 30, 2005, in amounts ranging from 2,000 to 10,000 shares each. For this purpose, the Company in early August 1999 purchased on the TSE a total of 116,000 common shares with an aggregate purchase price of approximately 287 million yen.
In June 2000, another stock option plan for Board members and select senior executives was approved at the ordinary general meeting of shareholders. The then 28 Directors on the Board and five select senior executives were granted stock options ranging from 2,000 to 10,000 shares each, at a price of 2,815 yen per common share, exercisable from July 1, 2002 through June 30, 2006. For the stock option plan, the Company in early July 2000 purchased on the TSE a total of 109,000 common shares with an aggregate purchase price of approximately 306 million yen.
In June 2001, another stock option plan for Board members and select senior executives was approved at the ordinary general meeting of shareholders. The current 30 Directors on the Board and nine select senior executives were granted stock options ranging from 2,000 to 10,000 shares each, at a price of 2,163 yen per common share, exercisable from July 1, 2003 through June 30, 2007. For the stock option plan, the Company in early July 2001 purchased on the TSE a total of 128,000 common shares with an aggregate purchase price of approximately 250 million yen.Related Party Transactions


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Item 7.Major Shareholders and Related Party Transactions

A.Major Shareholders

(1)To the knowledge of the Company, no shareholders beneficially own more than five percent of the Company’s Common Stock,common stock, which is the only class of stock it has issued. The shareholders that owned more than five percent of the Company’s common stock on the register of shareholders as of March 31, 2004 were The Master Trust Bank of Japan, Ltd. (trust account) and Japan Trustee Services Bank, Ltd. (trust account), which are securities processing services companies. The Company understands that these shareholders are not the beneficial owners of the Company’s common stock, but the Company does not have available further information concerning such beneficial ownership. The ten majorlargest shareholders of record and their share holdings as of the end of the last fiscal year are as follows:
         
Share ownershipPercentage of total
Name(in thousands of shares)issued shares



 
The Sumitomo Bank, Ltd.97,6484.69%
Japan Trustee Services Bank, Ltd. (trust account)96,0264.61
Nippon Life Insurance Co.82,1883.95
Sumitomo Life Insurance Co.76,7643.69
Matsushita Investment & Development Co., Ltd.55,1292.65
The Mitsubishi Trust and Banking Co. (trust account)53,8852.59
Moxley & Co.42,0852.02
The Asahi Bank, Ltd.41,7042.00
The Sumitomo Marine & Fire Insurance Co.36,4451.75
State Street Bank & Trust Co.31,7171.52

Name


  

Share ownership

(in thousands of shares)


  Percentage of
total issued
shares


The Master Trust Bank of Japan, Ltd. (trust account)

  167,220  6.81%

Japan Trustee Services Bank, Ltd. (trust account)

  165,982  6.76   

Moxley & Co.

  103,610  4.22   

Nippon Life Insurance Co.

    67,796  2.76   

Matsushita Investment & Development Co., Ltd.

    56,949  2.32   

Sumitomo Life Insurance Co.

    54,212  2.20   

Sumitomo Mitsui Banking Corporation

    48,824  1.99   

State Street Bank and Trust Co.

    40,069  1.63   

Matsushita Electric Employee Shareholding Association

    37,193  1.51   

Mitsui Sumitomo Insurance Co., Ltd.

    35,106  1.43   


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Except as otherwise provided by law or by the Company’s 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 represented at the meeting. The Commercial Code and the Company’s Articles of Incorporation provide, however, that the quorum for the election of Directors and Corporate Auditors shall not be less than one-third of the total number of voting rights of all the shareholders. The Company’s shareholders are not entitled to cumulative voting in the election of Directors. A corporate shareholder, more than one-quarter of whose total voting rights are directly or indirectly owned by the Company, may not exercise its voting rights in respect of the shares of common stock of the Company it owns. The Company has no voting rights with respect to its own common stock. Shareholders may exercise their voting rights through proxies, provided that the proxies are also shareholders holding voting rights. The Company’s shareholders also may cast their votes in writing, or exercise their voting rights by electronic means pursuant to the method determined by the Board of Directors.

The Commercial Code and the Company’s Articles of Incorporation provide that in order to amend the Articles of Incorporation and in certain other instances, including a reduction of stated capital, the removal of a Director or a Corporate Auditor, a merger or dissolution with a certain exception under which a shareholders resolution is not required, the transfer of the whole or an important part of the business, the taking over of the whole of the business of any other corporation with a certain exception under which a shareholders resolution is not required, share exchange or share transfer for the purpose of establishing 100% parent-subsidiary relationships with a certain exception under which a shareholders resolution is not required, splitting of the corporation into two or more corporations with a certain exception under which a shareholders resolution is not required, or any offering of new shares at a “specially favorable” price (or any offering of stock acquisition rights to subscribe for or acquire shares of common stock (“stock acquisition rights”) or bonds with stock acquisition rights at a “specially favorable” exercise conditions) to any persons other than shareholders, the quorum shall be one-third of the total voting rights of all the shareholders and the approval by at least two-thirds of the voting rights of all the shareholders represented at the meeting is required (the “special shareholders resolution”).

Note:On April 1, 2001, The Sumitomo Bank, Ltd. merged with The Sakura Bank, Ltd. and became Sumitomo Mitsui Banking Corporation. Sumitomo Mitsui Banking Corporation does not beneficially own more than five percent of the Company’s Common Stock as of April 1, 2001.

A shareholder is entitled to one vote per share subject to the limitations on voting rights set forth in the following paragraph and‘(“Unit” share system)Voting rights of a holder of shares representing less than one unit’below.After effectiveness of the 2001 Amendments to the Commercial Code, so long as the Company continues to maintain the unit share system thereunder, a shareholder will be entitled to one voting right for each unit of shares that he/she holds under the unit share system. See‘(New “unit” share system) — Voting rights under the new unit share system.’ Except as otherwise provided by law or by the Company’s Articles of Incorporation, a resolution can be adopted at a general meeting of shareholders by a majority of the shares having voting rights represented at the meeting. The Commercial Code and the Company’s Articles of Incorporation provide, however, that the quorum for the election of Directors and Corporate Auditors shall not be less than one-third of the total number of outstanding shares having voting rights. The Company’s shareholders are not entitled to cumulative voting in the election of Directors. A corporate shareholder, more than one-quarter of whose outstanding shares are directly or indirectly owned by the Company, may not exercise its voting rights in respect of the shares of the Company. The Company has no voting rights with respect to its own Common Stock. Shareholders may exercise their voting rights through proxies provided that the proxies are also shareholders holding voting rights. The Company’s shareholders also may cast their votes in writing.


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The Commercial Code provides that in order to amend the Articles of Incorporation and in certain other instances, including a reduction of the stated capital, the removal of a Director or a Corporate Auditor, dissolution, merger or consolidation of the Company requiring shareholders resolutions, the transfer of the whole or an important part of the business, the taking over of the whole of the business of any other corporation, share exchange or share transfer requiring shareholders resolutions for the purpose of establishing 100% parent-subsidiary relationships, any offering of new shares at a “specially favorable” price (or any offering of convertible bonds or debentures with “specially favorable” conversion conditions or of bonds or debentures with warrants or rights to subscribe for new shares with “specially favorable” conditions) to persons other than shareholders, or granting to Directors and/or employees rights to subscribe for new shares if the Articles of Incorporation so permit, the quorum shall be a majority of the total number of shares having voting rights outstanding and the approval of the holders of at least two-thirds of the shares having voting rights represented at the meeting is required (the “special shareholders resolution”).
(2)As of March 31, 2001,2004, approximately 8.84%10.51% of the Company’s Common Stockcommon stock was owned by 247167 United States shareholders, of record including the ADR Depositary’s nominee, Moxley & Co., considered as one shareholder of record, owning approximately 2.02%4.22% of the total Common Stock.common stock.

(3)Matsushita is not, directly or indirectly, owned or controlled by other corporations, or by the Japanese government or any foreign government.government or by any natural or legal person or persons severally or jointly.

(4)As far as is known to the Company, there is no arrangement, the operation of which may at a subsequent date result in a change in control of Matsushita.

B.Related Party Transactions
None

Matsushita is not a party to any material related party transactions.

C.Interests of Experts and Counsel
Not applicable

Item 8.    Financial Information

Not applicable


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A.Item 8.Financial Information

A.Consolidated Statements and Other Financial Information

(1)Consolidated Statements
Refer to Consolidated Financial Statements and Notes to Consolidated Financial Statements (see Item 17).
Finished goods and materials sent out of Japan are mainly bound for consolidated subsidiaries of the Matsushita Group, and are not, therefore, recorded as exports on a consolidated basis. For this reason, the proportion of exports to total net sales is not significant.


Refer to Consolidated Financial Statements and Notes to Consolidated Financial Statements (see Item 18).

Finished goods and materials sent out of Japan are mainly bound for consolidated subsidiaries of the Matsushita Group, and are not, therefore, recorded as exports on a consolidated basis. For this reason, the proportion of exports to total net sales is not significant.

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(2)Legal Proceedings
In November 1991, Loral Fairchild Corporation, a Delaware corporation, filed two lawsuits in the United States District Court for the District of Virginia against the Company, Matsushita Electric Corporation of America and 36 other defendants. The suits were consolidated. All defendants were charged with infringement of two U.S. patents by virtue of the production abroad and sale in the United States of certain charge coupled devices (CCDs), which are used in products such as video cameras and facsimile machines. In December 1991, this action was transferred to the United States District Court for the Eastern District of New York. The action seeks damages, attorneys’ fees and a permanent injunction. The Company has asserted that the patents are invalid and not infringed upon by its products incorporating CCDs. This litigation has been bifurcated between liability and damages and has been stayed as to all defendants except one defendant. In a first liability trial involving this defendant, a jury held that it infringed the two U.S. patents at issue. In July 1996, the court granted, among other things, its subsequent motion for judgment as a matter of law, overturning the verdict. Loral Fairchild Corporation appealed this decision to the Court of Appeals for the Federal Circuit and oral argument was held in June 1997. In June 1999, the Federal Circuit affirmed the district court’s claim construction and its non-infringement decision.
In July 1992, Matsushita Electronics Corporation (MEC), which manufactures CCDs, commenced a suit in the United States District Court for the Southern District of New York seeking a declaration that MEC’s CCDs and all end products incorporating MEC’s CCDs (collectively “products”) are licensed under the two U.S. patents at issue. In April 1993, the district court granted MEC’s motion for summary judgment and ruled that the products were licensed. The Court of Appeals for the Federal Circuit affirmed the decision in September 1994, and denied Loral Fairchild’s petition for rehearing in November 1994. MEC’s tort claim against Loral Fairchild and its parent, Loral Corporation, concerning certain liability issues was denied by the District Court in August 1997. The decision has not been appealed.
Matsushita is a co-defendant in a class-action lawsuit relating to the acquisition of MCA in 1990. Certain former stockholders of MCA who tendered their shares to Matsushita in such acquisition brought actions in the United States District Court for the Central District of California claiming, in part, that the Company violated Securities and Exchange Commission Rule 14d-10 by treating the then chairman and chief executive officer of MCA differently than other MCA stockholders in such acquisition. The district court denied plaintiffs’ motion for summary judgment and subsequently granted Matsushita’s motion for summary judgment in 1992. The United States Court of Appeals, Ninth Circuit, reversed, in part, finding that the Company violated Rule 14d-10 and remanded for further proceedings to determine damages. The Company has filed a petition for a writ of certiorari with the United States Supreme Court. In February 1996, the Court reversed, finding that the separate class-action settlement judgment rendered by the Delaware Supreme Court is entitled to full faith and credit even though it released claims within the exclusive jurisdiction of the federal courts, and remanded for proceedings consistent with the Court’s opinion. In October 1997, the Ninth Circuit further reversed, holding that it should withhold full faith and credit from the Delaware judgment, because, as a matter of law, plaintiffs were not adequately represented in Delaware. The Ninth Circuit reheard the case and, in June 1999, withdrew its 1997 opinion and affirmed the district court’s 1992 decision dismissing the action. In November 1999, the United States Supreme Court denied plaintiffs’ petition for a writ of certiorari. In December 1999, the Ninth Circuit issued its decision and mandate affirming the district court’s 1992 decision. On July 20, 2000, the Ninth Circuit issued an order clarifying that its decision and mandate does not purport to terminate the federal actions involving those former MCA shareholders who opted out of the Delaware settlement. Subsequently, one of the shareholders settled with the Matsushita defendants and one action was dismissed by the district court as untimely filed. Currently, trial is scheduled to commence on September 11, 2001 in the remaining actions, and an appeal is pending in the Ninth Circuit with respect to the dismissal of the above-mentioned action.


The appeal by Loral Fairchild to the Court of Appeals for the Federal Circuit described in this section last year was dismissed by an Order entered by the Federal Circuit.

There are a number of other legal actions and administrative investigations against Matsushita. Management is of the opinion that damages, based on the information currently available, if any, resulting from these actions will not have a material effect on Matsushita’s results of operations or financial position.

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On December 13, 1999, certain plaintiffs moved to intervene in the above-referenced action in order to vacate the final settlement-judgment entered by the Delaware Court of Chancery on February 22, 1993 and affirmed by the Delaware Supreme Court on September 21, 1993. On August 4, 2000, the Delaware Court of Chancery denied the motions to intervene and vacate the final settlement-judgment. On September 13, 2000, the plaintiffs filed a Notice of Appeal with the Delaware Supreme Court. Briefing on the appeal by the plaintiffs is complete and oral argument before the Delaware Supreme Court sitting en banc has been scheduled for July 24, 2001.
Management is of the opinion that, based on the information currently available, any outcome of these actions against Matsushita will not have a material adverse effect on Matsushita’s operations or financial position.
There are a number of other legal actions and administrative investigations against the Company and subsidiaries. Management is of the opinion that damages, based on the information currently available, if any, resulting from these actions will not have a material effect on Matsushita’s results of operations or financial position.
(3)Dividend Policy
Maximizing benefit for shareholders has always been one of the fundamental policies of the Company. Consistent with this policy, Matsushita has distributed regular dividends to its shareholders on a periodic basis. The Company has also increased dividends or instituted stock splits on certain commemorative occasions of the Company.
At the ordinary general meeting of shareholders held on June 28, 2001, a year-end cash dividend per share of Matsushita Electric Industrial Co., Ltd. was approved at the rate of 6.25 yen. The Company had already paid an interim dividend of 6.25 yen per share to each shareholder; accordingly the annual cash dividend per share was 12.50 yen.
Matsushita plans to utilize retained earnings for future business growth and to strengthen the corporate management structure.

Maximizing benefit for shareholders has always been one of the fundamental policies of the Company. Consistent with this policy, Matsushita Electric Industrial Co., Ltd. (MEI) traditionally has distributed regular dividends to its shareholders on a periodic basis.

At the ordinary general meeting of shareholders held on June 29, 2004, a year-end cash dividend for fiscal 2004 of MEI was approved at the rate of 7.75 yen per share of common stock, consisting of a 6.25 yen ordinary dividend and 1.50 yen special dividend to commemorate the 85 th anniversary of the Company’s founding. The Company had already paid an interim dividend of 6.25 yen per share to each shareholder during the year; accordingly the annual cash dividend for fiscal 2004 was 14.00 yen per share.

Matsushita plans to utilize retained earnings for future business growth and to strengthen the corporate management structure.

B.Significant Changes
No significant changes have occurred since the date of the annual financial statements included in this annual report.

No significant changes have occurred since the date of the annual financial statements included in this annual report.


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Item 9.The Offer and Listing

A.Item 9.The Offer and Listing

A.Offer and Listing Details

The primary market for the Company’s common stock (Common Stock) is the Tokyo Stock Exchange (TSE). The Common Stock is traded on the First Section of the TSE and is also listed on two other stock exchanges (Osaka and Nagoya) in Japan. In addition, the Company’s Common Stock is listed on the Euronext Amsterdam Stock Exchange in the form of original Common Stock of the Company, and on the Frankfurt Stock Exchange in the form of co-ownership shares in a Global Bearer Certificate. In the United States, the Company’s American Depositary Shares (ADSs) have been listed on and traded in the New York Stock Exchange (NYSE) in the form of American Depositary Receipts (ADRs). There may from time to time be a differential between the Common Stock’s price on exchanges outside the United States and the market price of ADSs in the United States.

Matsushita delisted its shares from two stock exchanges (Fukuoka and Sapporo) in Japan in January 2004, the Pacific Exchange in March 2004, Euronext Paris Stock Exchange in April 2004 and Dusseldorf Stock Exchange in February 2004.

ADRs were originally issued pursuant to a Deposit Agreement dated as of April 28, 1970, as amended from time to time (Deposit Agreement), among the Company, the Depositary for ADRs, and the holders of ADRs. The current Depositary for ADRs is JP Morgan Chase Bank, which succeeded to this business from Morgan Guaranty Trust Company of New York upon their merger. Effective December 11, 2000, Matsushita again revised its ADR Deposit Agreement and executed a 10:1 ADS ratio change. As a result, one ADS now represents one share of Common Stock. ADRs evidence ADSs that represent the underlying Common Stock deposited under the Deposit Agreement with Sumitomo Mitsui Banking Corporation, as agent of the Depositary.

The following table sets forth for the periods indicated the reported high and low closing prices of the Company’s Common Stock on the TSE, and the reported high and low closing composite prices of the Company’s ADSs on the NYSE:

     Tokyo Stock Exchange

    New York Stock Exchange

     

Price per Share of

Common Stock (yen)


    Price per American
Depositary Share (dollars) *


Fiscal Year ended March 31


    High

  Low

    High

  Low

2000

    3,230  2,060    30.30  17.48

2001

    3,180  1,994    29.90  16.30

2002

    2,325  1,408    19.15  11.33

2003

    1,780  1,011    14.47  8.53

2004

    1,648  875    15.57  7.33


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   Tokyo Stock Exchange

    New York Stock Exchange

   Price per Share of
Common Stock (yen)


    Price per American
Depositary Share (dollars) *


Fiscal Year ended March 31


  High

  Low

    High

  Low

2003

              

1st quarter

  1,780  1,528    14.47  12.27

2nd quarter

  1,682  1,259    14.29  10.36

3rd quarter

  1,303  1,121    10.88  9.37

4th quarter

  1,258  1,011    10.53  8.53

2004

              

1st quarter

  1,189  875    10.05  7.33

2nd quarter

  1,580  1,210    13.68  10.19

3rd quarter

  1,529  1,322    14.06  12.21

4th quarter

  1,648  1,494    15.57  13.95

2005

              

1st quarter

  1,685  1,452    15.80  12.72

Most recent 6 months


  High

  Low

    High

  Low

February, 2004

  1,593  1,503    15.13  14.31

March, 2004

  1,640  1,554    15.57  13.95

April, 2004

  1,685  1,580    15.80  14.33

May, 2004

  1,595  1,452    14.96  12.72

June, 2004

  1,580  1,485    14.60  13.21

July, 2004

  1,549  1,417    14.22  13.07

 The primary market for the Company’s Common Stock is the Tokyo Stock Exchange (TSE). The Common Stock is traded on the First Section of the TSE and is also listed on four other stock exchanges in Japan. In addition, the Company’s Common Stock is listed on the Amsterdam Stock Exchange in the form of original Common Stock, on the Frankfurt Stock Exchange and Duesseldorf Stock Exchange in the form of co-ownership shares in a Global Bearer Certificate and on the Paris Stock Exchange in the form of original Common Stock of the Company. In the United States, the Company’s American Depositary Shares (ADSs) have been listed on and traded in the New York Stock Exchange (NYSE) and the Pacific Exchange in the form of American Depositary Receipts (ADRs). There may from time to time be a differential between the Common Stock’s price on exchanges outside the United States and the market price of ADSs in the United States. The majority of Matsushita stock traded outside of Japan is traded on the NYSE.
ADRs were originally issued pursuant to a Deposit Agreement dated as of April 28, 1970, as amended from time to time (Deposit Agreement), among the Company, Morgan Guaranty Trust Company of New York as Depositary (Depositary), and the holders of ADRs. Effective December 11, 2000, Matsushita again revised its ADR Deposit Agreement and executed a 10:1 ADS ratio change. As a result, one ADS now represents one share of Common Stock. ADRs evidence ADSs deposited under the Deposit Agreement with Sumitomo Mitsui Banking Corporation, as agent of the Depositary, or successor(s) to such agent(s).
The following table sets forth for the periods indicated the reported high and low sales prices of the Company’s Common Stock on the TSE, and the reported high and low sales composite prices of the Company’s ADSs on the NYSE:
                 
Tokyo Stock ExchangeNew York Stock Exchange


Price per Share ofPrice per American
Common Stock (yen)Depositary Share (dollars)*


Fiscal Year ended March 31HighLowHighLow





19972,0701,67018.7514.33
19982,5201,75021.0013.59
19992,3751,64019.3413.00
20003,3202,05030.3017.48
20013,1901,93229.9016.30


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Tokyo Stock ExchangeNew York Stock Exchange


Price per Share ofPrice per American
Common Stock (yen)Depositary Share (dollars)*


Fiscal Year ended March 31HighLowHighLow





2000
1st quarter2,5202,13520.5017.48
2nd quarter2,9802,05023.7019.87
3rd quarter2,9152,05028.9119.33
4th quarter3,3202,64030.3025.00
2001
1st quarter3,0702,41028.9922.80
2nd quarter2,9952,66028.0525.10
3rd quarter3,1902,43029.9022.63
4th quarter2,8001,93224.8116.30
2002
1st quarter2,3601,90119.1515.60
Most recent 6 monthsHighLowHighLow





January, 20012,8002,55024.8122.06
February, 20012,6252,15522.6518.50
March, 20012,3501,93219.3016.30
April, 20012,3602,02518.9516.50
May, 20012,3402,01019.1516.95
June, 20012,2301,90118.1515.60

*The prices of American Depositary Shares are based upon reports by the NYSE, with all fractional figures rounded up to the nearest two decimal points. The prices of ADSs, prior to the December 11, 2000 ADS ratio change, have been restated on the current basis that each ADS represents one share of Common Stock.

B.Plan of Distribution
Not applicable

Not applicable

C.Markets
See Section A of Item 9.

See Section A of this Item 9.

D.Selling Shareholders
Not applicable

Not applicable


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E.Dilution
Not applicable


Not applicable

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F.Expenses of the Issue
Not applicable

Not applicable

Item 10.Additional Information

A.Share Capital
Not applicable

Not applicable

B.Memorandum and Articles of Association

Organization

The Company is a joint stock corporation (kabushiki kaisha) incorporated in Japan under the Commercial Code (shoho) of Japan (Commercial Code). The Company is registered in the Commercial Register (shogyo tokibo) maintained by the Moriguchi Branch Office of the Osaka Legal Affairs Bureau.

Objects and purposes

Article 3 of the Articles of Incorporation of the Company provides that its purpose is to engage in the following lines of business:

 1.Organization
The Company is a joint stock corporation(kabushiki kaisha)incorporated in Japan under the Commercial Code(shoho)of Japan. It is registered in the Commercial Register(shogyou tokibo)maintained by the Moriguchi Branch Office of the Osaka Legal Affairs Bureau and several other registry offices of the Ministry of Justice.
Objects and Purposes
Article 3 of the Articles of Incorporation of the Company provides that its purpose is to engage in the following business activities: manufacture and sale of electric machinery and equipment, communication and electronic equipment, as well as lighting equipment,equipment;

2.manufacture and sale of gas, kerosene and kitchen equipment, as well as machinery and equipment for building and housing,housing;

3.manufacture and sale of machinery and equipment for office and transportation, as well as for sales activities;

4.manufacture and sale of medical, health and hygienic equipment, apparatus and material,material;

5.manufacture and sale of optical and precision machinery and equipment,equipment;

6.manufacture and sale of batteries, battery-operated products, carbon and manganese and other chemical and metal products,products;

7.manufacture and sale of air conditioning and anti-pollution equipment, as well as industrial machinery and equipment,equipment;


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8.manufacture and sale of other machinery and equipment;

9.engineering and installation of machinery and equipment related to any of the preceding items as well as engineering and performance of and contracting for other construction work;

10.production and sale of software;

11.sale of iron and steel, nonferrous metals, minerals, oil, gas, ceramics, paper, pulp, rubber, leather, fiberfibre and their products,products;

12.sale of foods, beverages, liquor and other alcoholics, agricultural, livestock, dairy and marine products,produces, animal feed and their raw materials;

13.manufacture and sale of drugs, quasi-drugs, cosmetics, fertilizer, poisonous and deleterious substance and other chemical products;

14.manufacture and sale of woodsbuildings and other construction materialsstructures and general merchandise; components thereof;

15.motion picture and musical entertainment business and promotion of sporting events;

16.export and import of products, materials and software mentioned above; in each of the preceding items (other than item 9);

17.providing repaidrepair and maintenance services for the products, goods and software mentioned abovein each of the preceding items for itself and on behalf of others; provisions

18.provision of information and communication services, and broadcasting business;

19.provision of various services utilizing the Internet including Internet access and e-commerce;

20.business related to publishing, printing, freight forwarding, security, maintenance of buildings, nursing care, dispatch of workers, general leasing, financing, non-life insurance agency and buying, selling, maintaining and leasing of real estate;

21.investment in various businesses;

22.accepting commission for investigations, research, development and consulting related to any of the preceding items,items; and

23.all other business or businesses incidental or related to any of the preceding items.


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Directors

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Directors
Under the Commercial Code, each Director has executive powers and duties to manage the affairs of the Company and each Representative Director, who is elected from among the Directors by the Board of Directors, has the statutory authority to represent the Company in all respects. Under the Commercial Code, the Directors must refrain from engaging in any business competing with the Company 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 in such resolution. The total amounts of remuneration to Directors and that to Corporate Auditors are subject to the approval of the general meeting of shareholders. Within such authorized amounts the Board of Directors and the Board of Corporate Auditors respectively determine the compensation to each Director and Corporate Auditor.
Except as stated below, neither the Commercial Code nor the Company’s Articles of Incorporation make special provisions as to the Director’s or Corporate Auditor’s power to vote in connection with their compensation; the borrowing power exercisable by a Representative Director (or a Director who is given power by a Representative Director to exercise such power), their retirement age or requirement to hold any shares of capital stock of the Company. The Commercial Code specifically requires the resolution of the Board of Directors for a corporation to acquire or dispose of material assets; to borrow a substantial amount of money; to employ or discharge from employment important employees, such as corporate executive officers; and to establish, change or abolish material corporate organization such as a branch office. The Regulations of the Board of Directors of the Company require a resolution of the Board of Directors for the Company to borrow a large amount of money or to give a guarantee in a large amount. There is no written rule as to what constitutes a “large” amount in these contexts. However, it has been the general practice of the Company’s Board of Directors to adopt a resolution for a borrowing or guaranteeing in an amount not less than 10 billion yen or its equivalent.
Common Stock
Set forth below is information relating to the Company’s Common Stock, including brief summaries of the relevant provisions of the Company’s Articles of Incorporation and Share Handling Regulations, as currently in effect, and of the Commercial Code of Japan and related legislation. The discussion of the Commercial Code below reflects certain amendments to the Commercial Code (the “2001 Amendments”) that were promulgated on June 29, 2001, and which will come into force not later than six months from their promulgation (the “effectiveness of the 2001 Amendments”).
(Authorized capital)
Article 5 of the Articles of Incorporation of the Company provides that the total number of shares authorized to be issued by the Company is four billion nine hundred and fifty million (4,950,000,000) shares.
Under the Company’s Articles of Incorporation, currently in effect, only shares of Common Stock are issuable and 2,079,572,737 shares of Common Stock with a par value of 50 yen per share were issued and outstanding as of March 31, 2001. The 2001 Amendments eliminate the concept of “par value” of shares of capital stock. Thus, after the effectiveness of the 2001 Amendments, all shares of capital stock of the Company will have no par value.
Each Director (excluding an outside Director) has executive powers and duties to manage the affairs of the Company and each Representative Director, who is elected from among the Directors by the Board of Directors, has the statutory authority to represent the Company in all respects. Under the Commercial Code, the Directors must refrain from engaging in any business competing with the Company unless approved by the Board of Directors and any Director who has a special interest in the subject matter of a resolution to be taken by the Board of Directors cannot vote on such resolution. The maximum total amount of remuneration to Directors and that to Corporate Auditors are subject to the approval of the general meeting of shareholders. Within such authorized amounts the amount of remuneration for each Director is determined by the Company’s Representative Director who is delegated to do so by the Board of Directors, and the amount of remuneration for each Corporate Auditor is determined upon discussions amongst the Corporate Auditors.

Except as stated below, neither the Commercial Code nor the Company’s Articles of Incorporation make special provisions as to the Directors’ or Corporate Auditors’ power to vote in connection with their own compensation or retirement age, the borrowing power exercisable by a Representative Director (or a Director who is given power by a Representative Director to exercise such power), or requirements to hold any shares of Common Stock of the Company. The Commercial Code requires the resolution of the Board of Directors in specific circumstances, e.g. for a company to acquire or dispose of material assets; to borrow a substantial amount of money; to appoint or dismiss important employees, such as Executive Officers; and to establish, change or abolish material corporate organizations such as a branch office. The Regulations of the Board of Directors of the Company require a resolution of the Board of Directors for the Company to borrow a large amount of money or to give a guarantee in a large amount. There is no statutory requirement as to what constitutes a “large” amount in these contexts. However, it has been the general practice of the Company’s Board of Directors to adopt a resolution for a borrowing in an amount not less than 10 billion yen or its equivalent.

Common Stock

General

Set forth below is information relating to the Company’s Common Stock, including brief summaries of the relevant provisions of the Company’s Articles of Incorporation and Share Handling Regulations, as currently in effect, and of the Commercial Code of Japan and related legislation.

In order to assert shareholders’ rights against the Company, a shareholder must have its name and address registered on the Company’s register of shareholders, in accordance with the Company’s Share Handling Regulations. The registered beneficial holder of deposited shares underlying the ADSs is the Depositary for the ADSs. Accordingly, holders of ADSs will not be able directly to assert shareholders’ rights to the Company.

Authorized capital

Article 5 of the Articles of Incorporation of the Company provides that the total number of shares authorized to be issued by the Company is four billion nine hundred and fifty million (4,950,000,000) shares.


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As of March 31, 2004, 2,453,053,497 shares of Common Stock were issued. All shares of Common Stock of the Company have no par value.

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(Dividends)
The Articles of Incorporation of the Company provide that the accounts shall be closed on March 31 of each year and that dividends, if any, shall be paid to shareholders, beneficial shareholders and pledgees of record as of the end of such day. After the close of the fiscal period, the Board of Directors prepares, among other things, a proposed allocation of profits for dividends and other purposes; this proposal is submitted to the Corporate Auditors of the Company and to independent certified public accountants and then submitted for approval to the ordinary general meeting of shareholders, which is normally held in June of each year. In addition to provisions for dividends, if any, and for the legal reserve and other reserves, the allocation of profits customarily includes a bonus to Directors and Corporate Auditors. In addition to year-end dividends, the Board of Directors may by its resolution declare a cash distribution pursuant to Article 293-5 of the Commercial Code (an “interim dividend”) to shareholders, beneficial shareholders and pledgees of record at the end of each September 30, without shareholders’ approval, but subject to the limitations described below.
The Commercial Code provides that a company may not make any distribution of profit by way of dividends or interim dividends for any fiscal period unless it has set aside in its legal reserve an amount equal to at least one-tenth of the amount paid by way of appropriation of retained earnings for such fiscal period until the amount of legal reserve (after the effectiveness of the 2001 Amendments, the aggregate amount of additional paid-in capital and legal reserve) is one-quarter of its stated capital. Under the Commercial Code, the Company is permitted to distribute profits by way of year-end or interim dividends out of the excess of its net assets over the aggregate of:
Dividends

The Articles of Incorporation of the Company provide that the accounts shall be closed on March 31 of each year and that year-end dividends, if any, shall be paid to shareholders, beneficial shareholders and pledgees of record as of the end of such day. After the close of the fiscal period, the Board of Directors prepares, among other things, a proposed allocation of profits for year-end dividends and other purposes; this proposal is submitted to the Board of Corporate Auditors of the Company and to independent certified public accountants and then submitted for approval at the ordinary general meeting of shareholders, which is normally held in June each year. In addition to provisions for year-end dividends, if any, and for the legal reserve and other reserves, the allocation of profits customarily includes a bonus to Directors and Corporate Auditors. In addition to year-end dividends, the Board of Directors may by its resolution declare a cash distribution pursuant to Article 293-5 of the Commercial Code and Article 34 of the Articles of Incorporation (an “interim dividend”) to shareholders, beneficial shareholders and pledgees of record as of the end of each September 30, without the shareholders’ approval, but subject to the limitations described below.

The Commercial Code provides that a company may not make any distribution of profit by way of year-end dividends or interim dividends for any fiscal period unless it has set aside in its legal reserve an amount equal to at least one-tenth of the amount paid by way of appropriation of retained earnings for such fiscal period and equal to one-tenth of the amount of such interim dividends until the aggregate amount of capital surplus and legal reserve equals to at least one-quarter of its stated capital. Under the Commercial Code, the Company is permitted to distribute profits by way of year-end or interim dividends out of the excess of its net assets, as appearing on its non-consolidated balance sheet as at the end of the preceding fiscal year, over the aggregate of:

 (i)its stated capital;

 (ii)its additional paid-in capital;capital surplus;

 (iii)its accumulated legal reserve;

 (iv)the legal reserve to be set aside in respect of the fiscal period concerned; and

 (v)the excess, if any, of unamortized expenses incurred in preparationsuch other amounts as provided for commencement of business and in connection with research and development over the aggregate of amounts referred to in (ii), (iii) and (iv) above;
(vi)if the Company has on its balance sheet a number of shares of its capital stock which it has acquired for the purpose of transferring the same to its Directors and/or employees but such shares are yet to be so transferred, the book value of such shares; and
(vii)if certain assetsby ordinance of the Company are stated at market value pursuant to the provisionsMinistry of the Commercial Code, the aggregate amount of the difference between their market value and acquisition cost.Justice.


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In the case of interim dividends, the net assets are calculated by reference to the non-consolidated balance sheet as at the last closing of the Company’s accounts in the same manner as year-end dividends, but adjusted to reflect; (a) the legal reserve to be set aside in respect of such interim dividends; (b) any subsequent payment by way of appropriation of retained earnings; (c) any subsequent transfer of retained earnings to stated capital; (d) if the Company has been authorized, pursuant to a resolution of an ordinary general meeting of shareholders or a Board of Directors, to purchase shares of its Common Stock (see “Item 10.B. Memorandum and Articles of Association—Common StockAcquisition by the Company of its Common Stock”), the total amount of the purchase price of such shares so authorized by such resolution that may be paid by the Company; and (e) such other amounts as are set out in an ordinance of the Ministry of Justice, provided that (x) if the Company reduces its stated capital, capital surplus or accumulated legal reserve after the end of the preceding fiscal year, the amount so reduced, less the amount paid to shareholders upon such reduction and certain other amounts, and (y) such other amounts as are set out in an ordinance of the Ministry of Justice, shall be added to the amount distributable as interim dividends as described above. Interim dividends may not be paid when the net assets amount on the balance sheet at the end of the fiscal year is likely to fall below the total of the amounts referred to in (i) through (v) above.

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.

Under its Articles of Incorporation, the Company is not obligated to pay any dividends which are left unclaimed for a period of three years after the date on which they first became payable.

For information as to Japanese taxes on shareholder dividends, see “E. Taxation—Japanese Taxation.”

Stock splits

The Company may at any time split shares in issue into a greater number of shares by resolution of the Board of Directors, and may in principle amend its Articles of Incorporation to increase the number of authorized shares to be issued in proportion to the relevant stock split pursuant to a resolution of the Board of Directors rather than a special resolution of a general meeting of shareholders as is otherwise required for amending the Articles of Incorporation.

In the event of a stock split, generally, shareholders will not be required to exchange share certificates for new share certificates, but certificates representing the additional shares resulting from the stock split will be issued to shareholders. When a stock split is to be made, the Company must give public notice of the stock split, specifying the record date therefor, at least two weeks prior to such record date. In addition, promptly after the stock split takes effect, the Company must give notice to each shareholder specifying the number of shares to which such shareholder is entitled by virtue of the stock split.

General meeting of shareholders

The ordinary general meeting of shareholders of the Company for each fiscal year is normally held in June in each year in Kadoma-shi, Osaka, Japan. In addition, the Company 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.


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Notice of convocation of a shareholders’ meeting setting forth the place, time and purpose thereof, must be mailed to each shareholder having voting rights (or, in the case of a non-resident shareholder, to his or her standing proxy or mailing address in Japan) at least two weeks prior to the date set for the meeting. Under the Commercial Code, 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 three percent 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 by submitting a written request to a Representative Director. 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 one percent 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 of such meeting.

Voting rights

So long as the Company maintains the unit share system (see “Item 10.B. Memorandum and Articles of Association—Common StockUnit share system” below; currently 1,000 shares constitute one unit) a holder of shares constituting one or more full units is entitled to one voting right per unit of shares subject to the limitations on voting rights set forth in the following two sentences. A corporate shareholder, more than one-quarter of whose total voting rights are directly or indirectly owned by the Company, may not exercise its voting rights with respect to shares of Common Stock of the Company that it owns. In addition, the Company may not exercise its voting rights with respect to its shares that it owns. If the Company eliminates from its Articles of Incorporation the provisions relating to the unit of shares, holders of Common Stock will have one voting right for each share they hold. Except as otherwise provided by law or by the Articles of Incorporation, a resolution can be adopted at a general meeting of shareholders by a majority of the number of voting rights of all the shareholders represented at the meeting. The Commercial Code and the Company’s Articles of Incorporation provide, however, that the quorum for the election of Directors and Corporate Auditors shall not be less than one-third of the total number of voting rights of all the shareholders. The Company’s shareholders are not entitled to cumulative voting in the election of Directors. Shareholders may exercise their voting rights through proxies, provided that the proxies are also shareholders holding voting rights. The Company’s shareholders also may cast their votes in writing, or exercise their voting rights by electronic means pursuant to the method determined by the Board of Directors.


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The Commercial Code and the Company’s Articles of Incorporation provide that in order to amend the Articles of Incorporation and in certain other instances, including a reduction of stated capital, the removal of a Director or Corporate Auditor, a merger or dissolution with a certain exception under which a shareholders resolution is not required, the transfer of the whole or an important part of the business, the taking over of the whole of the business of any other corporation with a certain exception under which a shareholders resolution is not required, share exchange or share transfer for the purpose of establishing 100% parent-subsidiary relationships with a certain exception under which a shareholders resolution is not required, splitting of the corporation into two or more corporations with a certain exception under which a shareholders resolution is not required, or any issue of new shares at a “specially favorable” price (or any issue of stock acquisition rights to subscribe for or acquire shares of Common Stock (“stock acquisition rights”) or bonds with stock acquisition rights at a “specially favorable” exercise conditions) to any persons other than shareholders, the quorum shall be one-third of the total voting rights of all the shareholders and the approval by at least two-thirds of the voting rights of all the shareholders represented at the meeting is required (the “special shareholders resolutions”).

Pursuant to the terms of the Amended and Restarted Deposit Agreement relating to American Depositing Receipts (ADRs) evidencing American Depositing Shares (ADSs), each ADS representing one share of Common Stock of the Company, as soon as practicable after receipt of notice of any meeting of shareholders of the Company, the depositary (currently JP Morgan Chase Bank) will mail to the record holders of ADRs a notice which will contain the information in the notice of the meeting. The record holders of ADRs on a date specified by the depositary will be entitled to instruct the depositary as to the exercise of the voting rights pertaining to the shares of Common Stock of the Company represented by their ADSs. The depositary will endeavor, in so far as practicable, to vote the number of shares of Common Stock of the Company represented by such ADSs in accordance with such instructions. In the absence of such instructions, the depositary has agreed to give a discretionary proxy to a person designated by the Company to vote in favor of any proposals or recommendations of the Company. However, such proxy may not be given with respect to any matter which the Company informs the depositary that the Company does not wish such proxy given, or for any proposal that has, in the discretion of the depositary, a materially adverse effect on the rights of shareholders of the Company.

Issue of additional shares and pre-emptive rights

Holders of the Company’s shares of Common Stock have no pre-emptive rights under its Articles of Incorporation. Authorized but unissued shares may be issued at such times and upon such terms as the Board of Directors determines, subject to the limitations as to the offering 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 at least two weeks prior to which 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.

Rights to subscribe for new shares may be made generally transferable by a resolution of the Board of Directors. Whether the Company will make subscription rights generally transferable in future rights offerings will depend upon the circumstances at the time of such offerings.


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Subject to certain conditions, the Company may issue stock acquisition rights or bonds with stock acquisition rights by a resolution of the Board of Directors. Holders of stock acquisition rights may exercise their rights to acquire a certain number of shares within the exercise period as prescribed in the terms of their stock acquisition rights. Upon the exercise of stock acquisition rights, the Company will be obliged to issue the relevant number of new shares or alternatively to transfer the necessary number of treasury stock held by it.

Liquidation rights

In the event of a liquidation of the Company, the assets remaining after payment of all debts and liquidation expenses and taxes will be distributed among shareholders in proportion to the respective numbers of shares of Common Stock held.

Record date

March 31 is the record date for the Company’s year-end dividends. So long as the Company maintains the unit share system, the shareholders and beneficial shareholders who are registered as the holders of one or more units of shares in the Company’s registers of shareholders and/or that of beneficial shareholders at the end of each March 31 are entitled to exercise shareholders’ rights at the ordinary general meeting of shareholders with respect to the fiscal year ending on such March 31. September 30 is the record date for interim dividends. In addition, the Company may set a record date for determining the shareholders and/or beneficial shareholders entitled to other rights and for other purposes by giving at least two weeks’ prior public notice.

The price of shares generally goes ex-dividends or ex-rights on Japanese stock exchanges on the third business day prior to a record date (or if the record date is not a business day, the fourth business day prior thereto), for the purpose of dividends or rights offerings.


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Acquisition by the Company of its Common Stock

The Company may acquire its own shares through a stock exchange on which such shares are listed (pursuant to an ordinary resolution of an ordinary general meeting of shareholders or a resolution of the Board of Directors), by way of tender offer (pursuant to an ordinary resolution of an ordinary general meeting of shareholders or a resolution of the Board of Directors), by purchase from a specific party other than a subsidiary of the Company (pursuant to a special resolution of an ordinary general meeting of shareholders) or from a subsidiary of the Company (pursuant to a resolution of the Board of Directors). If shares are purchased by the Company pursuant to a resolution of the Board of Directors, then the reason for the purchase, as well as the kind, number and aggregate purchase price of such shares must be reported to the shareholders at the ordinary general meeting of shareholders to be held immediately after such purchase of shares. When the proposal for such acquisition by the Company from a specific party other than a subsidiary of the Company is submitted to an ordinary general meeting of shareholders, any other shareholder may make a written request to a Representative Director, more than five calendar days prior to the relevant shareholders’ meeting, to include him/her as the seller in the proposed purchase. Any such acquisition of shares must satisfy certain requirements, including that, in the case of the acquisition by the Company of its own shares pursuant to an ordinary resolution of an ordinary general meeting of shareholders, the total amount of the purchase price may not exceed the amount of the retained earnings available for dividend payments after taking into account a reduction, if any, of the stated capital, capital surplus or legal reserve (if such reduction of the stated capital, capital surplus or legal reserve has been authorized pursuant to a resolution of the relevant ordinary general meeting of shareholders), minus the amount to be paid by way of appropriation of retained earnings for the relevant fiscal year and the amount to be transferred from retained earnings to stated capital. If the Company purchases shares pursuant to a resolution of the Board of Directors, the total amount of the purchase price may not exceed the amount of the retained earnings available for interim dividend payments minus the amount of any interim dividend the Company actually paid. However, if it is anticipated that the net assets on the non-consolidated balance sheet as at the end of the relevant fiscal year will be less than the aggregate amount of the stated capital, capital surplus and other items as described in (i) through (v) to “Dividends” above, the Company may not acquire such shares.

Shares acquired by the Company may be held by it for any period or may be cancelled by a resolution of the Board of Directors. The Company may also transfer to any person the shares held by it, subject to a resolution of the Board of Directors and 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. The Company 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 the Company provide that 1,000 shares constitute one unit of shares of Common 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 a resolution of the Board of Directors rather than by a special shareholders resolution, which is otherwise required for amending the Articles of Incorporation. The number of shares constituting one unit, however, cannot exceed 1,000 or one two-hundredth (1/200) of all issued shares.


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Under the unit share system, shareholders shall have one voting right for each unit of shares that they hold. Any number of shares less than a full unit will carry no voting rights.

Unless the Company’s Board of Directors adopts a resolution to eliminate the provision for the unit shares from the Articles of Incorporation or the 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 the Company to purchase such shares at their market value in accordance with the provisions of the Share Handling Regulations of the Company. In addition, the Articles of Incorporation of the Company provide that a holder of shares constituting less than one full unit may request the Company 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 the Company.

A holder who owns ADRs evidencing less than 1,000 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 the Company to purchase their shares or sell shares held by the Company to such holders, holders of ADRs evidencing ADSs that represent other than integral multiples of full units 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 the Company to purchase such underlying shares or sell shares held by the Company to such holders unless the Company’s Articles of Incorporation are amended to eliminate the provision not to issue share certificates for the numbers of shares less than a unit. As a result, access to the Japanese markets by holders of ADRs through the withdrawal mechanism will not be available for dispositions of shares of Common Stock in lots less than one full unit. The unit share system does not affect the transferability of ADSs, which may be transferred in lots of any size.

Sale by the Company of shares held by shareholders whose location is unknown

The Company 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 the Company’s register of shareholders or at the address otherwise notified to the Company continuously for five years or more.

In addition, the Company may sell or otherwise dispose of shares of Common Stock for which the location of the shareholder is unknown. Generally, if (i) notices to a shareholder fail to arrive continuously for five years or more at the shareholder’s registered address in the Company’s register of shareholders or at the address otherwise notified to the Company, and (ii) the shareholder fails to receive dividends on the shares continuously for five years or more at the address registered in the Company’s register of shareholders or at the address otherwise notified to the Company, the Company may sell or otherwise dispose of the shareholder’s shares by a resolution of the Board of Directors and after giving at least three months’ prior public and individual notice, and hold or deposit the proceeds of such sale or disposal of shares at the then market price of the shares for the shareholder, the location of which is unknown.


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Reporting of substantial shareholdings

The Securities and Exchange Law of Japan and regulations thereunder requires any person, regardless of his/her residence, who has become, beneficially and solely or jointly, a holder of more than five percent of the total issued shares of Common Stock of a company listed on any Japanese stock exchange or whose shares are traded on the over-the-counter market in Japan, to file with the Director-General of a competent Local Finance Bureau of Ministry of Finance within five business days a report concerning such shareholdings.

A similar report must also be filed in respect to any subsequent change of one percent 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 issuer’s total issued share capital. Copies of such report must also be furnished to the issuer of such shares and all Japanese stock exchanges on which the shares are listed or (in the case of shares traded over-the-counter) the Japan Securities Dealers Association.

Except for the general limitation under Japanese anti-trust and anti-monopoly regulations against holding of shares of Common Stock of a Japanese corporation which leads or may lead to a restraint of trade or a monopoly, and except for general limitations under the Commercial Code or the Company’s Articles of Incorporation on the rights of shareholders applicable regardless of residence or nationality, there is practically no limitation under Japanese laws and regulations applicable to the Company or under its Articles of Incorporation on the rights of non-resident or foreign shareholders to hold the shares of Common Stock of the Company or exercise voting rights thereon.

There is no provision in the Company’s Articles of Incorporation that would have an effect of delaying, deferring or preventing a change in control of the Company and that would operate only with respect to merger, consolidation, acquisition or corporate restructuring involving the Company.

Daily price fluctuation limits under Japanese stock exchange rules

Stock prices on Japanese stock exchanges are determined on a real-time basis by the balance between bids and offers. These stock exchanges are order-driven markets without specialists or market makers to guide price formation. In order to prevent excessive volatility, these stock exchanges set daily upward and downward price range limitations for each listed stock, based on the previous day’s closing price. Although transactions may continue at the upward or downward limit price if the limit price is reached on a particular trading day, no transactions may take place outside these limits. Consequently, an investor wishing to sell at a price above or below the relevant daily limit on these stock exchanges may not be able to effect a sale at such price on a particular trading day, or at all.

C.Material Contracts

All contracts concluded by the Company during the two years preceding the date of this report were entered into in the ordinary course of business.


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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 the Company 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, except in limited circumstances.

Exchange non-residents are:

 (i)In the case of interim dividends, the net assets are calculated by reference to the balance sheet as at the last closing of the Company’s accounts, but adjusted to reflect any subsequent payment by way of appropriation of retained earningsindividuals who do not reside in Japan; and transfer to legal reserve in respect thereof, provided that interim dividends may not be paid where there is a risk that at the end of the fiscal year there might not be any excess of net assets over the aggregate of the amounts referred to in (i) through (vii) above. In addition, if the Company’s shareholders have adopted a resolution for its purchase of shares of its Common Stock for the purpose of transferring the same to its Directors and/or employees or for the purpose of retiring the same with retained earnings, the total amount of purchase price authorized by such resolution shall, so long as such resolution has not expired, and whether or not such purchase has been effected, be deducted from the amount available for interim dividends. (After the effectiveness of the 2001 Amendments, item (vi) above will be eliminated.)


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 (ii)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.
Under its Articles of Incorporation, the Company is not obligated to pay any dividends whichcorporations whose principal offices are left unclaimed for a period of 3 years after the date on which they first became payable.
(General meeting of shareholders)
The ordinary general meeting of shareholders to settle accounts of the Company for each fiscal year is normally held in June in each year in Kadoma-shi, Osaka,located outside Japan. In addition, the Company may hold an extraordinary general meeting of shareholders whenever necessary by giving at least 2 weeks advance notice to shareholders.
Notice of a shareholders’ meeting setting forth the place, time and purpose thereof, must be mailed to each shareholder having voting rights (or, in the case of a non-resident shareholder, to his resident proxy or mailing address in Japan) at least 2 weeks prior to the date set for the meeting.
Any shareholder holding at least 300 units of shares (see‘(“Unit” share system)’below) or 1 percent of the total number of outstanding shares (after the effectiveness of the 2001 Amendments, 300 voting rights or 1 percent of the total voting rights) for 6 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 6 weeks prior to the date set for such meeting.
(Voting rights)
A shareholder is entitled to one vote per share (after the effectiveness of the 2001 Amendments, if the Company provides or is deemed to provide in its Articles of Incorporation for the unit of shares under the new unit share system (see‘(New “unit” share system)’below), one vote per unit) subject to the limitations on voting rights set forth in the following paragraph and‘(“Unit” share system) – Voting rights of a holder of shares representing less than one unit’below. 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 shares having voting rights (after the effectiveness of the 2001 Amendments, a majority of the voting rights) represented at the meeting. The Commercial Code and the Company’s Articles of Incorporation provide, however, that the quorum for the election of Directors and Corporate Auditors shall not be less than one-third of the total number of outstanding shares having voting rights (after the effectiveness of the 2001 Amendments, one-third of the total voting rights). The Company’s shareholders are not entitled to cumulative voting in the election of Directors. A corporate shareholder, more than one-quarter of whose outstanding shares are directly or indirectly owned by the Company, may not exercise its voting rights with respect to shares of Common Stock of the Company that it owns. Shareholders may exercise their voting rights through proxies, provided that the proxies are also shareholders holding voting rights. The Company’s shareholders also may cast their votes in writing.


Generally, branches and other offices of non-resident corporations that are located within Japan are regarded as 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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 (i)The Commercial Code provides that in order to amend the Articles of Incorporation and in certain other instances, including a reduction of stated capital, the removal of a Director or Corporate Auditor, dissolution, merger or consolidation requiring shareholders resolution, the transfer of the whole or an important part of the business, the taking over of the whole of the business of any other corporation requiring shareholders resolution, shareindividuals who are exchange or share transfer requiring shareholders resolution for the purpose of establishing 100 percent parent-subsidiary relationships, splitting of the corporation into two or more corporations requiring shareholders resolution, any offering of new shares at a “specially favorable” price (or any offering of convertible bonds or bonds with warrants to subscribe for new shares of capital stock at a “specially favorable” conversion or exercise conditions) to any persons other than shareholders or granting to Directors and/or employees rights to subscribe for new shares if the Articles of Incorporation so permit, the quorum shall be a majority of the total number of shares having voting rights outstanding (after the effectiveness of the 2001 Amendments, a majority of the total voting rights) and the approval of the holders of at least two-thirds of the shares having voting rights (after the effectiveness of the 2001 Amendments, two-thirds of the voting rights) represented at the meeting is required (the “special shareholders resolutions”); provided that upon effectiveness of the 2001 Amendments to the Commercial Code of Japan, any amendment to the Articles of Incorporation reducing the number of shares constituting a 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, as set forth in ‘(New “unit” share system) —Voting rights under the new unit share system.non-residents;

 (ii)(Subscription rights)
Holders of the Company’s shares of Common Stock have no pre-emptive rights under its Articles of Incorporation. Authorized but unissued shares may be issued at such times and upon such terms as the Board of Directors determines, subject to the limitations as to the offering of new shares at a “specially favorable” price mentioned under “(Voting rights)” above. The Board of Directors may, however, determinecorporations 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 2 weeks prior public notice must be given. Each of the shareholders to whom such rights are given must also be given notice of the expiration thereof at least 2 weeks prior to the date on which such rights expire.
Rights to subscribe for new shares may be made generally transferable by the Board of Directors. Whether the Company will make subscription rights generally transferable in future rights offerings will depend upon the circumstances at the time of such offerings. If subscription rights are not made generally transferable, transfers by a non-resident of Japan or a corporation organized under the laws of a foreign countrycountries or whose principal office isoffices are located in a foreign country will be enforceable against the Companyoutside of Japan; and third parties only if the Company’s prior written consent to each such transfer is obtained. When such consent is necessary in the future for the transfer of subscription rights, the Company intends to consent, on request, to all such transfers by such a non-resident or foreign corporation.
The Commercial Code permits a company to provide in its articles of incorporation that it may, by a special shareholders resolution, grant to its directors and/or employees rights to subscribe for new shares if there exists a justifiable reason. The Articles of Incorporation of the Company do not have such a provision.


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 (iii)(Liquidation rights)
In the eventcorporations (1) of a liquidationwhich 50% or more of the Company, the assets remaining after payment of all debts and liquidation expenses and taxes will be distributed among shareholders in proportion to the respective number oftheir shares of Common Stock held.
(Record date)
March 31 is the record date for the Company’s year-end dividends. The shareholders and beneficial shareholdersare held by individuals who are registered as the holders of 1,000 shares exchange non-residents and/or more (after the effectiveness of the 2001 Amendments, insofar as the Company provides or is deemed to provide in its Articles of Incorporation for the unit of sharescorporations (a) that are organized under the new unit share system,laws of foreign countries or (b) whose principal offices are located outside of Japan or (2) a majority of whose officers, or officers having the numberpower of shares constituting one unit or more) in the Company’s registers of shareholders and/or beneficial shareholders at the end of each March 31representation, are also entitled to exercise shareholders’ rights at the ordinary general meeting of shareholders with respect to the fiscal year ending on such March 31. September 30 is the record date for interim dividends. In addition, the Company may set a record date for determining the shareholders and/or beneficial shareholders entitled to other rights and for other purposes by giving at least 2 weeks prior public notice.
The price of shares generally goes ex-dividends or ex-rights on Japanese stock exchanges on the third business day prior to a record date (or if the record date is not a business day, the fourth business day prior thereto), for the purpose of dividends or rights offerings.
(Repurchase by the Company of its Common Stock)
Except as otherwise permitted by the Commercial Code or the Law of Special Measures to the Commercial Code Concerning Retirement of Shares (the “Special Retirement Law”, which will be abolished upon the effectiveness of the 2001 Amendments) as set out below, the Company or any of its subsidiaries cannot acquire the Company’s Common Stock except by means of a reduction of capital in the manner prescribed by the Commercial Code.
The Company may acquire shares of its Common Stock in response to a shareholder’s request for purchase of his/her shares representing less than one unit. See‘(“Unit” share system) – Right of a holder of shares representing less than one unit to require the Company to purchase such shares’and‘(New “unit” share system) – Repurchase by the Company of shares constituting less than a full unit’below. Shares so purchased must, until the effectiveness of the 2001 Amendments, be sold or otherwise transferred to a third party within a reasonable period thereafter.
Under the Commercial Code and the Special Retirement Law, the Company may acquire shares of its Common Stock for the following purposes, subject to the authorization of shareholders at an ordinary general meeting of shareholders (if the Articles of Incorporation provide that the shares may be purchased for the purpose of retirement by a resolution of the Board of Directors if the Board deems it especially necessary to do so in view of general economic conditions, the business and financial condition of the Company and other factors, by the resolution of the Board of Directors):individuals who are exchange non-residents.

In general, the acquisition of shares of a Japanese company (such as the shares of Common Stock of the Company) by an exchange non-resident from a 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 a resident of Japan transfers shares of a Japanese company (such as the shares of Common Stock of the Company) for consideration exceeding 100 million yen to an exchange non-resident, the 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 the Company) or that is traded on an over-the-counter market in Japan and, as a result of the acquisition, the foreign investor, in combination with any existing holdings, directly or indirectly holds 10% or more of the issued shares of the relevant company, the foreign investor must file a report of the acquisition with the Minister of Finance and any other competent Ministers having jurisdiction over that Japanese company within 15 days from and including the date of the acquisition, except where the offering of the company’s shares was made overseas. In limited circumstances, such as where the foreign investor is in a country that is not listed on an exemption schedule in the Foreign Exchange Regulations, a prior notification of the acquisition must be filed with the Minister of Finance and any other competent Ministers, who may then modify or prohibit the proposed acquisition.


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Under the Foreign Exchange Regulations, dividends paid on and the proceeds from the sale in Japan of shares of Common Stock of the Company held by non-residents of Japan may generally be converted into any foreign currency and repatriated abroad.

E.    (i)for the purpose of transferring the same to its Directors and/or employees if there exists a justifiable reason; and
    (ii)for the purpose of retirement thereof with retained earnings.Taxation

The discussion below is not intended to constitute a complete analysis of all tax consequences relating to the ownership and disposition of shares of Common Stock and ADSs. Prospective purchasers and holders of the shares of Common Stock or ADSs should consult their own tax advisors concerning the tax consequences of their particular situations.

The following is a summary of the principal Japanese national and U.S. federal tax consequences of the ownership and disposition of shares of Common Stock or ADSs by an Eligible U.S. Holder and a U.S. Holder (each as defined below), as the case may be, that holds those shares or ADSs as capital assets (generally, property held for investment). 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 the Company’s voting stock, investors that hold shares of Common Stock or ADSs as part of a straddle, hedge, conversion or constructive sale transaction or other integrated transaction, persons that hold shares of Common Stock or ADSs through a partnership or other pass-through entity and Eligible U.S. Holders and U.S. Holders, as the case may be, whose functional currency is not the U.S. dollar) may be subject to special tax rules. This summary is based on the national or federal tax laws of Japan and of the United States as in effect on the date hereof, as well as on the current income tax convention between the United States and Japan, all of which are subject to change (possibly with retroactive effect) and to differing interpretations.

U.S. Holders should note that the United States and Japan have ratified the new income tax convention (the “New Treaty”), which is to replace its predecessor income tax convention signed on March 8, 1971 (the “Prior Treaty”). The New Treaty entered into force on March 30, 2004 and shall be applicable in Japan, in place of the Prior Treaty, (i) with respect to taxes withheld at source, for amounts taxable on or after July 1, 2004, and (ii) with respect to taxes on income which are not withheld at source and the enterprise taxes, as regards income for any taxable year beginning on or after January 1, 2005 (subject to certain transitional rules with respect to both items (i) and (ii) above). The Prior Treaty shall cease to have effect in relation to any tax from the date on which the New Treaty shall be applicable (subject to certain transitional rules allowing for exceptions). Where relevant, U.S. Holders are urged to confirm whether they are entitled to the treaty benefit provided under the Prior Treaty or the New Treaty, as the case may be, with their tax advisors.

In addition, this summary is based in part upon the representations of the Depositary and the assumption that each obligation in the Deposit Agreement for ADSs and in any related agreement will be performed in accordance with its terms.


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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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Acquisition by the Company of shares of its Common Stock for the purpose of (i) above is subject to, among other things, the following restrictions:

(a)the sum of the number of shares to be acquired, the number of shares acquired but not yet transferred to its Directors and/or employees and the number of shares subject to the subscription rights granted to its Directors and/employees pursuant to the resolution of the Board of Directors as authorized under the Company’s Articles of Incorporation does not exceed 10 percent of all issued and outstanding shares;
(b)the total amount of purchase price does not exceed the amount of the retained earnings available for dividend payment minus the amount to be paid by way of appropriation of retained earnings for the fiscal year and, if any amount of retained earnings is to be capitalized, such amount (if the purchase is made pursuant to the resolution of the Board of Directors as referred to in the parentheses above, one-half of such permitted amount); and
(c)acquisition shall be made through a stock exchange transaction or by way of tender offer.

Acquisition by the Company of shares of its Common Stock for the purpose of (ii) above is subject to, among other things, the same restrictions as described in (b) and (c) above.
The Company’s Articles of Incorporation provide that it may purchase up to 200,000,000 shares of Common Stock by a resolution of the Board of Directors for the purpose of retiring the same with retained earnings. No such purchase pursuant to a resolution of the Board of Directors may be made after the conclusion of the ordinary general meeting of shareholders for the fiscal year ending immediately after the Board resolution. No Board resolution has been made for this purpose.
The 2001 Amendments permit the Company to effect purchases of shares of its Common Stock pursuant to the above authorization until the conclusion of the ordinary general meeting of shareholders for the fiscal year ending March 31, 2002 and to hold such shares as its treasury shares regardless of the time of any such purchase.
Upon the effectiveness of the 2001 Amendments, the Special Retirement Law will be abolished and the provisions of the Commercial Code with respect to the purchase and holding by a company of its own shares for the purpose of retirement and for transfer to its Directors or employees will be materially amended. Under the 2001 Amendments, in order for the Company to purchase its own shares a resolution of an ordinary general meeting of shareholders is required with respect to (i) the total number of shares and the total acquisition price which the Company may purchase during the period ending the conclusion of the next ordinary general meeting of shareholders, or (ii) if the purchase(s) is/are to be made from a specified person or persons, the identity of such person(s). The total amount of purchase price referred to above cannot exceed the amount which can be distributed as dividends as described under“(Dividends)”above. The shareholders resolution for (ii) above shall be by a special shareholders resolution and any shareholder who received a convocation notice of the general meeting of shareholders where the resolution on item (ii) above is sought may require the Company in writing not later than 5 days prior to the date set for the meeting to include him/her as the seller of his/her shares in the proposed purchase. Any purchase by the Company of its shares pursuant to the shareholders resolutions except in the case of (ii) above should be made either on the stock exchange or by way of tender offer. Shares so purchased may be retired by a resolution of the Board of Directors or held by the Company as treasury shares.


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("Unit" share system)
Pursuant to the Commercial Code, currently in effect, the Company has adopted 1,000 shares as one unit of shares.
Transferability of shares representing less than one unit
Certificates for shares representing less than a unit may only be issued in certain limited circumstances. Since the transfer of shares normally requires delivery of the certificates therefor, fractions of a unit for which no share certificates are issued are not transferable. Shares representing less than a unit for which share certificates have been issued continue to be transferable, but the transfer may be registered in the Company’s register of shareholders only if the transferee is already a registered shareholder (whether in respect of units or of shares representing less than a unit).
Right of a holder of shares representing less than a unit to require the Company to purchase such shares
A holder of shares representing less than a unit may at any time require the Company to purchase such shares at their last reported sale price on the Osaka Securities Exchange on the day when such request is made or, if no sale takes place on the Osaka Securities Exchange on such day, the last reported sale price on the Tokyo Stock Exchange on such day, and if a sale takes place on neither of such exchanges on such day, the price at which the first sale of the shares is effected on the Osaka Securities Exchange thereafter, less applicable brokerage commission.
Other rights of a holder of shares representing less than a unit
A holder of shares representing less than a unit has the following rights in respect of such shares:

 (i)a citizen or individual resident of the right to receive dividends (including interim dividends);United States,

 (ii)a corporation or other entity taxable as a corporation for U.S. federal income tax purposes organized in or under the right to receive shares and/or cash by way of a stock split or upon consolidation or subdivision of shares, a capital decrease, merger or consolidation, share exchange or share transfer for the purpose of establishing 100 percent parent-subsidiary relationship or splittinglaws of the Company into twoUnited States, any State, or more companies;the District of Columbia,

 (iii)an estate the rightincome of which is subject to be allotted subscription rights with respectU.S. federal income tax without regard to new shares, convertible bondsits source, or bonds with warrants when such rights are granted to shareholders;

 (iv)a trust that is subject to the right to participate in the distribution of residual assets in the event of the liquidation of the Company; and
(v)the right to require the Company to issue replacement share certificates for lost, stolen or destroyed share certificates.

All other rights, including voting rights, cannot be exercised with respect to shares representing less than a unit.
Voting rightsprimary supervision of a holderU.S. court and the control of shares representing less than a unit
A holder of shares representing less than a unit cannot exercise any voting rights with respect to such shares. In calculating the quorum for various voting purposes, the aggregate number of shares representing less than a unit will be excluded from the number of outstanding shares. A holder of shares representing one or more whole units will have one vote for each unit of such shares, except as stated in“(Voting rights)”above.


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(New "unit" share system)
After the effectiveness of the 2001 Amendments, the unit share system described above will be abolished andU.S. persons, or that has a new unit share system called “tangen-kabushiki” will be introduced. Whether to adopt the new unit system by providing in its Articles of Incorporation for the number of shares constituting the new unit or not to do so is at the discretion of the Company. However, under the 2001 Amendments, it is deemed that the Company has provided in the Articles of Incorporation 1,000 shares (the same number of shares constituting the present unit) as its new unit of shares and that a provision is also made in the Articles of Incorporation that no share certificate for any number less than a full unit shall be issued. Under the 2001 Amendments, any amendment to the Articles of Incorporation reducing the number of shares constituting a 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. The number of shares constituting one unit cannot exceed 1,000 or one two-hundredth (1/200) of all issued shares.
Voting rights under the new unit share system
Under the new unit share system, 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.
Share certificates for less than a unit of shares
Under the new unit share system, the Company has an option either to issue share certificates for less than a unit shares or to provide in its Articles of Incorporation not to issue share certificates for less than a unit of shares. As stated above, upon the effectiveness of the 2001 Amendments, the Company is deemed to have provided in the Articles of Incorporation not to issue share certificates for less than a unit of shares. Thus, unless the Company’s Board of Directors takes a resolution to eliminate the provision for the unit shares from the Articles of Incorporation or the shareholders amend the Articles of Incorporation by a special shareholders resolution to eliminate the provision for not to issue share certificates for less than a unit of shares, a share certificate for any number of shares less than a 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.
Repurchase by the Company of shares constituting less than a full unit
A holder of shares constituting less than one unit may require the Company to purchase such shares at their market value.


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Effect of the unit share system on holders of ADRs
A holder who owns ADRs evidencing less than 1,000 ADSs will indirectly own less than a whole unit. Although, as discussed above, under the unit share system (whether the existing unit share system or the new unit share system) holders of less than a unit have the right to require the Company to purchase their shares, holders of ADRs evidencing ADSs that represent other than integral multiples of whole units are unable to withdraw the underlying shares of capital stock representing less than a unit and, therefore, are unable, as a practical matter, to exercise the rights to require the Company to purchase such underlying shares unless the Company’s Articles of Incorporation are amended to eliminate the provision not to issue share certificates for the numbers of shares less than a whole 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 in lots less than a unit. The unit share system does not affect the transferability of ADSs, which may be transferred in lots of any size.
Reporting of Substantial Shareholdings
The Securities and Exchange Law of Japan requires any person who has become, beneficially and solely or jointly, a holder of more than 5 percent 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 Prime Minister within 5 business days a report concerning such shareholdings.
A similar report must also be filed in respect of any subsequent change of 1 percent or more in any such holding, with certain exceptions. For this purpose, shares issuable to such person upon conversion of convertible securities or exercise of share subscription warrants are taken into account in determining both the number of shares held by such holder and the issuer’s total issued share capital. Copies of such report must also be furnished to the issuer of such shares and all Japanese stock exchanges on which the shares are listed or (in the case of shares traded over-the-counter) the Japan Securities Dealers Association.
Except for the general limitation under Japanese anti-trust and anti-monopoly regulations against holding of shares of capital stock of a Japanese corporation which leads or may lead to a restraint of trade or monopoly, and except for general limitations under the Commercial Code or the Company’s Articles of Incorporation on the rights of shareholders applicable regardless of residence or nationality, there is no limitation under Japanese laws and regulations applicable to the Company or under its Articles of Incorporation on the rights of non-resident or foreign shareholders to hold or exercise voting rights on the shares of Common Stock of the Company.
There is no provision in the Company’s Articles of Incorporation or by-laws that would have an effect of delaying, deferring or preventing a change in control of the Company and that would operate only with respect to merger, consolidation, acquisition or corporate restructuring involving the Company.

C.Material Contracts
All contracts concluded by Matsushita during the 2 years preceding the date of this report were entered into in the ordinary course of business.


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D.   Exchange Controls

The Japanese Foreign Exchange and Foreign Trade Law, currentlyvalid election in effect (the “Law”), does not affect or restrict the rights of non-residents or foreign corporationsunder applicable Treasury regulations to acquire or hold shares of Common Stock of the Company except that in the event of acquisition of shares of Common Stock, unless such acquisition is made through a securities company or other financial institution, the acquiring non-resident or foreign corporation is subject to a post-transaction reporting requirement under the Law. However, the Minister of Finance has the power to impose a licensing requirement in certain acquisitions in extremely limited circumstances. Under the Law, dividends paid on, and the proceeds of sales in Japan of, shares of Common Stock of the Company held by non-residents may in general be converted into any foreign currency and repatriated abroad.

E.   Taxation

The following is a general summary of the major Japanese and U.S. federal tax consequences of the ownership, acquisition and disposition of shares of Common Stock of the Company and of ADRs evidencing ADSs representing shares of Common Stock of the Company by a non-resident of Japan or a non-Japanese corporation which holds those shares or ADSs, and is not purposed to be comprehensive to cover all situations that may be relevant to any particular investors. Holders of shares of Common Stock of the Company or ADSs are strongly urged to consult their tax advisers regarding their tax positions.
For purposes of the Income Tax Convention between the United States and Japan (the “Tax Convention”) and the U.S. Internal Revenue Code of 1986, as amended (the “Code”), U.S. holders of ADRs will be treated as the owners of the Common Stock underlying the ADSs evidenced by the ADRs. For the purposes of the following discussion, a “U.S. holder” is a holder that:U.S. person.

An “Eligible U.S. Holder” is a U.S. Holder that:

 (i)is a resident of the United States for purposes of the Tax Convention,Prior Treaty or the New Treaty, as applicable from time to time,

 (ii)is a citizen of the United States,
(iii)does not maintain a permanent establishment or fixed base in Japan to which ADRs or shares of Common Stock or ADSs are attributable and through which the beneficial ownerU.S. Holder carries on or has carried on business (or, in the case of an individual, performs or has performed independent personal services), and

 (iv)(iii)is not otherwise ineligibleeligible for benefits under the Tax ConventionPrior Treaty or the New Treaty, as applicable, with respect to income and gainsgain derived in connection with the ADRs or shares of Common Stock.

Japanese Taxation of Common Stock or ADRs
Generally, a non-resident of Japan or a non-Japanese corporation is subject to Japanese withholding tax on dividends paid by Japanese corporations. Stock splits in themselves are not subject to Japanese income tax.
In the absence of an applicable tax treaty, convention or agreement reducing the maximum rate of withholding tax, the rate of Japanese withholding tax applicable to dividends paid by Japanese corporations to non-residents of Japan or non-Japanese corporations is 20 percent. At the date of this document, 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, the United Kingdom and the United States.


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Under the Tax Convention, as currently in force, the maximum rate of Japanese withholding tax which may be imposed on dividends paid by a Japanese corporation to eligible U.S. holders generally is limited to 15 percent of the gross amount actually distributed. A non-resident holder who is entitled to a reduced rate of Japanese withholding tax on payment of dividends by the Company is required to submit an Application Form for Income Tax Convention Regarding Relief from Japanese Income Tax on Dividends in advance through the Company to the relevant tax authority before payment of dividends. A standing proxy for a non-resident holder may provide this application service. With respect to ADRs, this reduced rate is applicable if the Depositary or its agent submits two Application Forms (one before payment of dividends, the other within 8 months after the Company’s fiscal year-end). To claim this reduced rate, a non-resident holder of ADRs 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 does not submit an application in advance will be entitled to claim a refund of withholding taxes withheld in excess of the rate under an applicable tax treaty from the relevant Japanese tax authority.
Gains derived by a non-resident of Japan or a non-Japanese corporation from the sale of shares of Common Stock or ADRs outside Japan or from the sale of shares of Common Stock within Japan by a non-resident of Japan or a non-Japanese corporation not having a permanent establishment in Japan, are in general not subject to Japanese income or corporation tax.
If the Company purchases shares of its Common Stock by way of a tender offer and retire the same with retained earnings available for dividend payment, individual shareholders who sold the shares to the Company in such tender offer who are residents of Japan or non-residents of Japan having a permanent establishment within Japan, if such purchases are made on or before March 31, 2002, will be subject to Japanese taxation applicable to gains realized by individuals from sales of shares – 26 percent separate taxation upon filing tax returns (although up to March 31, 2003, the taxpayers may choose a 1.05 percent withholding tax on the gross sales proceeds). However, this is an interim measure applicable to the period ending March 31, 2002 and after such date, unless the present treatment is extended, a similar treatment as those currently applicable to foreign corporations having a permanent establishment within Japan as discussed in the next sentence will be applicable. If the sellers are foreign corporations having a permanent establishment within Japan, the portion of the proceeds received from the Company corresponding to the excess over the aggregate of the portions attributable to stated capital and additional paid-in capital will be deemed dividends and subject to taxation on dividends and the rest of the net proceeds will be subject to taxation treatment on gains realized from sales of shares. For non-resident individuals having no permanent establishment within Japan, no Japanese income tax will accrue, except in certain exceptional circumstances. For foreign corporations having no permanent establishment within Japan, the portion of the proceeds received from the Company which is deemed dividends as discussed in the third sentence of this paragraph will be subject to withholding income tax (generally 20 percent, subject to applicable income tax treaty provisions); otherwise, except in certain exceptional cases, no further Japanese tax will be imposed.
Japanese inheritance or gift tax at progressive rates may be payable by an individual who has acquired shares of Common Stock or ADRs 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 or ADRs should consult their tax advisers regarding the effect of these taxes.


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United States Taxation of Common Stock or ADRs
The following is a summary of certain United States federal income tax consequences of the ownership shares of Common Stock or ADRs by a U.S. holder. This summary is based on United States tax laws, including the United States Internal Revenue Code of 1986, as amended, and on the Convention all of which are subject to change possibly with retroactive effect.
Taxation of dividends
Subject to the passive foreign investment company (PFIC) rules discussed below, U.S. holders will include in gross income the gross amount of any dividends received (before reduction for Japanese withholding taxes) to the extent paid out of the Company’s current or accumulated earnings and profits (as determined for United States federal income tax purposes) as ordinary income. The dividend will not be eligible for the dividends-received deduction allowed to United States corporations in respect of dividends received from other United States corporations. The amount of the dividend will be the U.S. dollar value of the Japanese yen payments made, determined at the spot Japanese yen/U.S. dollar rate on the date the dividend is includible in the U.S. holder’s income.
Subject to certain limitations, the Japanese tax withheld in accordance with the Convention will be creditable against the U.S. holder’s United States federal income tax liability. For foreign tax credit limitation purposes, the dividend will be income from sources without the United States, but generally will be treated separately, together with other items of “passive income” and “financial services income.”
Taxation of capital gains
Subject to the PFIC rules discussed below, upon a sale or other disposition of shares of Common Stock or ADRs, a U.S. holder will recognize gain or loss in an amount equal to the difference between the U.S. dollar value of the amount realized and the U.S. holder’s tax basis (determined in U.S. dollars) in such shares of Common Stock or ADRs. Generally, such gain or loss will be capital gain or loss and will be long-term capital gain or loss if the U.S. holder’s holding period for such shares of Common Stock or ADRs exceeds 1 year. Any such gain or loss will be income or loss from sources within the United States for foreign tax credit limitation purposes.
Transfers of retained earnings and sales of Common Stocks to the Company
A transfer of retained earnings or legal reserve to stated capital is treated as a dividend payment for Japanese tax purposes subject to withholding tax. A sale of shares of Common Stock or ADRs to the Company results in a deemed dividend to the selling shareholders to the extent that the sales price exceeds the aggregate of the stated capital and the capital surplus attributable to the shares sold. Transfers of retained earnings or legal reserves to stated capital and deemed dividends that may result from sales of shares of Common Stock to the Company are not generally taxable events for United States federal income tax purposes and therefore would not give rise to foreign source income and U.S. holders would not be able to use the foreign tax credit arising from any Japanese withholding tax imposed on such transactions unless they can apply the credit (subject to limitations) against U.S. tax due or other foreign source income in the appropriate category for foreign tax credit purposes.


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Passive foreign investment company considerations
The Company believes that shares of Common Stock and ADRs should not be treated as stock of a PFIC for United States federal income tax purposes, but this conclusion is a factual determination made annually and thus may be subject to change. If the Company were to be treated as a PFIC (unless a U.S. holder elects to be taxed annually on a mark-to-market basis with respect to the shares of Common Stock or ADRs)ADSs.

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. Investors are urged to consult their tax advisors regarding the U.S. federal, state and local and Japanese and other tax consequences of owning and disposing of shares of Common Stock or ADSs. In particular, where relevant, investors are urged to confirm their status as Eligible U.S. Holders with their tax advisors and to discuss with their tax advisors any possible consequences of their failure to qualify as Eligible U.S. Holders. In general, taking into account the earlier assumption, for purposes of the Prior Treaty and the New Treaty, as applicable, and for U.S. federal income and Japanese 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.

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 the Company or ADRs evidencing ADSs representing shares of Common Stock of the Company 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. The Company withholds taxes from dividends it pays as required by Japanese law. Stock splits in themselves are not subject to Japanese income tax.


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In the absence of an applicable treaty, convention or agreement reducing the maximum rate of Japanese withholding tax or allowing exemption from Japanese withholding tax, the rate of Japanese withholding tax applicable to dividends paid by Japanese corporations to individuals who are non-residents of Japan or non-Japanese corporations is 20%. However, with respect to dividends paid on listed shares issued by a Japanese corporation (such as the shares of Common Stock of the Company) to any corporate or individual shareholders (including those shareholders who are non-Japanese corporations or Japanese non-resident individuals, such as non-resident Holders), except for any individual shareholder who holds 5% or more of the 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% for portfolio investors with, among other countries, Australia, Belgium, Canada, Denmark, Finland, France, Germany, Ireland, Italy, Luxembourg, The Netherlands, New Zealand, Norway, Singapore, Spain, Sweden, Switzerland, and the U.K.

Under the Prior Treaty, the maximum rate of Japanese withholding tax which may be imposed on dividends paid by a Japanese corporation to an Eligible U.S. Holder that is a portfolio investor was limited to 15% of the gross amount actually distributed. However, under the New Treaty which would become applicable to dividends declared by the Company on or after July 1, 2004, the maximum rate of Japanese withholding tax which may be imposed on dividends paid by a Japanese corporation to an Eligible U.S. Holder that is a portfolio investor is generally limited to 10% of the gross amount actually distributed, and dividends paid by a Japanese corporation to an Eligible U.S. Holder that is a pension fund is exempt from Japanese taxation by way of withholding or otherwise unless such dividends are derived from the carrying on of a business, directly or indirectly, by such pension fund.


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If the maximum tax rate provided for in the income tax treaty applicable to dividends paid by the Company 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 the Company’s shares of Common Stock is required to submit an Application Form for Income Tax Convention Regarding Relief from Japanese Income Tax on Dividends in advance through the Company 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 the Company’s fiscal year-end) to the Japanese tax authorities. To claim this reduced rate or exemption, any relevant non-resident Holder of ADSs will be required to file a proof of taxpayer status, residence and beneficial ownership (as applicable) and to provide other information or documents as may be required by the Depositary. A non-resident Holder who is entitled, under an applicable income 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. The Company does not assume any responsibility to ensure withholding at the reduced treaty rate or not withholding for shareholders who would be eligible under an applicable tax treaty but do not follow the required procedures as stated above.

Gains derived from the sale of shares of Common Stock or ADSs outside Japan by a non-resident Holder holding such shares or ADSs as a portfolio investor are, in general, not subject to Japanese income or corporation tax. Eligible U.S. Holders are not subject to Japanese income or corporation tax with respect to such gains under the Prior Treaty and the New Treaty, as applicable.

Japanese inheritance and gift taxes at progressive rates may be payable by an individual who has acquired shares of Common Stock or ADSs as a legatee, heir or donee even though neither the individual nor the deceased nor donor is a Japanese resident.

Holders of shares of Common Stock of the Company 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

The following is a summary of certain United States federal income tax consequences of the ownership of shares of Common Stock or ADSs by a U.S. Holder. This summary is based on United States tax laws, including the United States Internal Revenue Code of 1986, as amended, and on the New Treaty all of which are subject to change possibly with retroactive effect.


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Taxation of dividends

Under the United States federal income tax laws, and subject to the passive foreign investment company (PFIC) rules discussed below, the gross amount of any dividends received by a U.S. Holder (before reduction for Japanese withholding taxes) to the extent paid out of the Company’s current or accumulated earnings and profits (as determined for United States federal income tax purposes) will be subject to U.S. federal taxation. Dividends paid to non-corporate U.S. Holders in taxable years beginning after December 31, 2002 and before January 1, 2009 that constitute qualified dividend income will be taxable at a maximum tax rate of 15% provided that the U.S. Holders held the shares of Common Stock or ADSs for more than 60 days during the 120-day period beginning 60 days before the ex-dividend date and meet other holding period requirements. The IRS has announced that it will permit taxpayers to apply a proposed legislative change to the holding period requirement described in the preceding sentence as if such change were already effective. This legislative “technical correction” would change the minimum required holding period, retroactive to January 1, 2003, to more than 60 days during the 121-day period beginning 60 days before the ex-dividend date. Dividends the Company pays with respect to the shares of Common Stock or ADSs generally will be qualified dividend income. The U.S. Holder must include any Japanese tax withheld from the dividend payment in this gross amount even though it does not in fact receive it. The dividend is taxable to the U.S. Holder when the U.S. Holder, in the case of shares of Common Stock, or the Depositary, in the case of ADSs, receives the dividend, actually or constructively. The dividend will not be eligible for the dividends-received deduction allowed to United States corporations in respect of dividends received from other United States corporations. The amount of the dividend will be the U.S. dollar value of the Japanese yen payments made, determined at the spot Japanese yen/U.S. dollar rate on the date the dividend is includible in the U.S. Holder’s income, regardless of whether the payment is in fact converted into U.S. dollars. Generally, any gain or loss resulting from currency exchange fluctuations during the period from the date the U.S. Holder includes the dividend payment in income to the date the U.S. Holder converts the payment into U.S. dollars will be treated as ordinary income or loss and will not be eligible for the special tax rate applicable to qualified dividend income. The gain or loss generally will be income or loss from sources within the United States for foreign tax credit limitation purposes. Distributions in excess of current and accumulated earnings and profits, as determined for United States federal income tax purposes, will be treated as a non-taxable return of capital to the extent of the U.S. Holder’s basis in the shares of Common Stock or ADSs and thereafter as capital gain.

Subject to certain limitations, the Japanese tax withheld in accordance with the Treaty will be creditable against the U.S. Holder’s United States federal income tax liability. Special rules apply in determining the foreign tax credit limitation with respect to dividends that are subject to the maximum 15% tax rate. For foreign tax credit limitation purposes, the dividend will be income from sources outside the United States, but generally will be treated separately, together with other items of “passive income” or “financial services income.”


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Taxation of capital gains

Subject to the PFIC rules discussed below, upon a sale or other disposition of shares of Common Stock or ADSs, a U.S. Holder will recognize gain or loss in an amount equal to the difference between the U.S. dollar value of the amount realized and the U.S. Holder’s tax basis (determined in U.S. dollars) in such shares of Common Stock or ADSs. Generally, such gain or loss will be capital gain or loss and will be long-term capital gain or loss if the U.S. Holder’s holding period for such shares of Common Stock or ADSs is greater than 1 year. Long-term capital gain of a non-corporate U.S. Holder that is recognized on or after May 6, 2003 and before January 1, 2009 is generally taxed at a maximum rate of 15%. Any such gain or loss will be income or loss from sources within the United States for foreign tax credit limitation purposes.

Transfers of retained earnings and sales of shares of Common Stock to the Company

A transfer of retained earnings or legal reserve to stated capital is generally treated as a dividend payment for Japanese tax purposes subject to withholding tax. A sale of shares of Common Stock or ADSs to the Company results in a deemed dividend to the selling shareholders to the extent that the sales price exceeds the aggregate of the stated capital and the capital surplus attributable to the shares sold. Transfers of retained earnings or legal reserves to stated capital and deemed dividends that may result from sales of shares of Common Stock to the Company are not generally taxable events that give rise to foreign source income for U.S. federal income tax purposes and U.S. Holders would not be able to use the foreign tax credit arising from any Japanese withholding tax imposed on such transactions unless they can apply the credit (subject to limitations) against U.S. tax due or other foreign source income in the appropriate category for foreign tax credit purposes.

Passive foreign investment company considerations

The Company believes that shares of Common Stock and ADSs should not be treated as stock of a PFIC for United States federal income tax purposes, but this conclusion is a factual determination made annually and thus may be subject to change. If the Company were to be treated as a PFIC (unless a U.S. Holder elects to be taxed annually on a mark-to-market basis with respect to the shares of Common Stock or ADSs), gain realized on the sale or other disposition of shares of Common Stock or ADSs would in general not be treated as capital gain, and a U.S. Holder would be treated as if such holder had realized such gain and certain “excess distributions” ratably over the holder’s holding period for the shares of Common Stock or ADSs and would be taxed at the highest tax rate in effect for each such year to which the gain was allocated, together with an interest charge in respect of the tax attributable to each such year. In addition, notwithstanding any election a U.S. Holder makes with regard to the shares of Common Stock or ADSs, dividends that a U.S. Holder receives from the Company will not constitute qualified dividend income if the Company is a PFIC either in the taxable year of the distribution or the preceding taxable year. Dividends that a U.S. Holder receives that do not constitute qualified dividend income are not eligible for taxation at the 15% maximum rate applicable to qualified dividend income. Instead, the U.S. Holder must include the gross amount of any such dividend paid by the Company out of its accumulated earnings and profits (as determined for United States federal income tax purposes) in the U.S. Holder’s gross income, and it will be subject to tax at rates applicable to ordinary income.

F.Dividends and Paying Agents

Not applicable


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G.Statement by Experts

Not applicable

H.Documents on the sale or other disposition of shares of Common Stock or ADRs would in general not be treated as capital gain, and a U.S. holder would be treated as if such holder had realized such gain and certain “excess distributions” ratably over the holder’s holding period for the shares of Common Stock or ADRs and would be taxed at the highest tax rate in effect for each such year to which the gain was allocated, together with an interest charge in respect of the tax attributable to each such year.Display

F.   DividendsAccording to the Securities Exchange Act of 1934, as amended, Matsushita is subject to the requirements of informational disclosure. Matsushita files various reports and Paying Agentsother information, including its annual report on Form 20-F, with the U.S. Securities and Exchange Commission. These reports and other information may be inspected at the public reference room at the Securities and Exchange Commission, 450 Fifth Street, N.W., Washington D.C. 20549. You can also obtain a copy of such material by mail from the public reference room of the Securities and Exchange Commission at prescribed fees. You may obtain information on the operation of the Securities and Exchange Commission public reference room by calling the Securities and Exchange Commission in the United States at 1-800-SEC-0330.

Also, documents filed via the Electronic Data Gathering, Analysis, and Retrieval system (EDGAR) are available at the website of the U.S. Securities and Exchange Commission (http://www.sec.gov).

I.Not applicableSubsidiary Information

G.   Statement by ExpertsNot applicable

Not applicable

H.   Documents on Display

According to the Securities Exchange Act of 1934, as amended, Matsushita is subject to the requirements of informational disclosure. Matsushita files various reports and other information, including this annual report on Form 20-F, to the U.S. Securities and Exchange Commission, the New York Stock Exchange and Pacific Exchange. These reports may be inspected at the following sites.

U.S. Securities and Exchange Commission:
   450 Fifth Street, N.W., Washington D.C. 20549
New York Stock Exchange:
   20 Broad Street, New York, New York 10005
Pacific Exchange:
   301 Pine Street, San Francisco, California 94104

Form 20-F is also available at the Electronic Data Gathering, Analysis, Retrieval system (EDGAR) website which is maintained by the U.S. Securities and Exchange Commission.

U.S. Securities and Exchange Commission Home Page:
   http://www.sec.gov

I.    Subsidiary Information

Not applicable


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Item 11.Item 11.   Quantitative and Qualitative Disclosures about Market Risk

The Company is exposed to market risk, including changes of foreign exchange rates, interest rates and prices of marketable securities.securities and commodities. In order to hedge the risks of changes in foreign exchange rates, and interest rates and commodity prices, the Company uses derivative financial instruments. The Company does not hold or issue financial instruments for trading purposes. Although the use of derivative financial instruments exposes the Company to the risk of credit-related losses in the event of nonperformance by counterparties, the Company believes that such risk is minor because of the high credit rating of the counterparties.

Equity Price Risk

The Company holds available-for-sale securities included in short-term investments and investments and advances. In general, highly-liquid and low risk instruments are preferred in the portfolio. Available-for-sale securities included in investments and advances are held as longer term investments. The Company does not hold marketable securities for trading purposes.


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Maturities, costs and fair values of available-for-sale securities were as follows at March 31, 20012004 and 2000:

                 
Yen (millions)

20012000


FairFair
CostvalueCostvalue




Due within one year11,40111,421132,238132,314
Due after one year through five years173,167172,050113,426112,517
Due after five years2,0002,000
Equity securities369,972533,421377,069756,820




554,540716,892624,7331,003,651




2003:

   Yen (millions)

   2004

  2003

   Cost

  Fair
value


  Cost

  Fair
value


Due within one year

  2,683  2,684  1,196  1,196

Due after one year through five years

  18,325  18,300  34,514  33,584

Equity securities

  217,470  398,425  242,946  254,032
   
  
  
  
   238,478  419,409  278,656  288,812
   
  
  
  

Foreign Exchange Risk

The primary purpose of the Company’s foreign currency hedging activities is to protect against the volatility associated with foreign currency transactions. The Company primarily utilizes forward exchange contracts and options with a duration of less than a few months. The Company also enters into foreign exchange contracts from time to time to hedge the risk of fluctuation in foreign currency exchange rates associated with long-term debt that is denominated in foreign currencies. Foreign exchange contracts related to such long-term debt have the same maturity as the underlying debt.


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The following table provides the contract amounts and fair values of foreign exchange contracts, primarily hedging U.S. dollar revenues, at March 31, 20012004 and 2000.2003. Amounts related to foreign exchange contracts entered into in connection with long-term debt denominated in foreign currencies which eliminate all foreign currency exposures, are shown in the table of “Interest Rate Risk.”

   Yen (millions)

 
   2004

  2003

 
   Contract
amount


  Fair
value


  Contract
amount


  Fair
value


 

Forward:

             

To sell foreign currencies

  398,782  9,446  387,605  (1,383)

To buy foreign currencies

  205,039  (469) 214,075  1,664 

Options purchased to sell foreign currencies

  44,886  746  50,883  127 

Options written to sell foreign currencies

  29,046  (455) —    —   

Cross currency swaps

  14,914  227  8,420  (26)

Commodity Price Risk

                  
Yen (millions)

20012000


ContractFairContractFair
amountvalueamountvalue




Forward:
To sell foreign currencies350,087(4,997)373,4173,439
To buy foreign currencies109,5232,28382,444171
Options purchased to sell foreign currencies16,430(334)26,711119
Options purchased to buy foreign currencies34,4121,3271,26011
Options written to buy foreign currencies24,956(1,483)24,820(74)
Options written to sell foreign currencies40,0802464,734(89)

The Company is exposed to market risk of changes in prices of commodities including various non-ferrous metals used in the manufacturing of electronic components and devices. The Company enters into commodity future contracts to offset such exposure.


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The following table provides the contract amounts and fair values of commodity futures, at March 31, 2004 and 2003.

   Yen (millions)

 
   2004

  2003

 
   Contract
amount


  Fair
value


  Contract
amount


  Fair
value


 

Commodity futures:

             

To sell commodity

  14,915  (1,223) 13,341  672 

To buy commodity

  52,888  5,709  43,214  (1,940)

Interest Rate Risk

The Company’s exposure to market risk for changes in interest rates relates principally to its debt obligations. The Company has long-term debt primarily with fixed rates. Fixed-rate debt obligations expose the Company to variability in their fair values due to changes in interest rates. To manage the variability in the fair values caused by interest rate changes, the Company enters into interest rate swaps when it is determined to be appropriate based on market conditions. Interest rate swaps may be enteredchange fixed-rate debt obligations to variable-rate debt obligations by entering into from time to time by the Company to hedge cash flows of interests and fair values of debt. However,fixed-receiving, variable -paying interest rate swap contracts. The hedging relationship between interest rate swaps utilized by the Company at March 31, 2001 and 2000 were not material.

hedged debt obligations is highly effective in achieving offsetting changes in fair values resulting from interest rate risk. The following tables provide information about the Company’s derivative financial instruments and other financial instruments that are sensitive to changes in interest rates at March 31, 20012004 and 2000. The2003. For debt obligations, the table presents principal cash flows by expected maturity dates, related weighted average interest rates and fair values of financial instruments.

                                       
Yen (millions)

Carrying amount and maturity date (as of March 31, 2001)

Average
interestThere-Fair
rateTotal20022003200420052006aftervalue









Long-term debt, including current portion:
Japanese yen convertible bonds1.2%241,93498,70816,99997,74411,48317,000332,641
Straight bonds issued by a subsidiary1.8%50,0005,0005,00010,00030,00051,535
U.S. dollar unsecured bonds5.8%123,785123,785126,874
Unsecured yen loans from banks and insurance companies and others1.2%393,392165,22996,98672,56841,24116,2461,122392,648

Subtotal809,111268,937237,770175,31252,72443,24631,122903,698
Foreign exchange contracts1,3671,3671,399


Total810,478268,937239,137175,31252,72443,24631,122905,097

For interest rate swaps, the table presents notional principal amounts and weighted average interest rates by expected maturity dates. Notional principal amounts are used to calculate the contractual payments to be exchanged under the contracts.

Long-term debt, including current portion:

   Average
interest
rate


 Yen (millions)

   Carrying amount and maturity date (as of March 31, 2004)

  Fair
value


   Total

  2005

  2006

  2007

  2008

  2009

  There-
after


  

Japanese yen convertible bonds

  0.9% 27,496  10,968  16,528              28,272

Straight bonds

  1.0% 300,135  100,086     100,049        100,000  306,210

Straight bonds issued by subsidiaries

  1.8% 46,364     16,364  20,000  10,000        47,633

Unsecured yen loans from banks and insurance companies

  0.5% 293,732  101,623  85,928  59,998  30,616  15,083  484  292,112
     
  
  
  
  
  
  
  

Total

    667,727  212,677  118,820  180,047  40,616  15,083  100,484  674,227
     
  
  
  
  
  
  
  


- 6393 -

                                       
Yen (millions)

Carrying amount and maturity date (as of March 31, 2000)

Average
interestThere-Fair
rateTotal20012002200320042005aftervalue









Long-term debt, including current portion:
Japanese yen convertible bonds1.5%263,87421,00098,89316,99998,49911,48317,000446,953
Straight bonds issued by a subsidiary1.9%20,0005,0005,00010,00020,250
U.S. dollar unsecured bonds5.8%105,950105,950106,086
Unsecured yen loans from banks and insurance companies and others1.7%402,978147,079128,18675,02740,22811,759699402,328

Subtotal792,802168,079232,079197,976143,72723,24227,699975,617
Foreign exchange contracts19,11719,11719,106


Total811,919168,079232,079217,093143,72723,24227,699994,723

 

     Yen (millions)

     Carrying amount and maturity date (as of March 31, 2003)

  Fair
value


   Average
interest
rate


 Total

  2004

  2005

  2006

  2007

  2008

  There-
after


  

Japanese yen convertible bonds

  1.3% 126,225  97,742  11,483  17,000           128,334

Straight bonds

  1.0% 300,272     100,120     100,152     100,000  308,407

Straight bonds issued by subsidiaries

  1.8% 52,206  5,000     17,206  20,000  10,000     54,192

Unsecured yen loans from banks and insurance companies

  0.5% 322,630  115,680  86,259  80,331  31,107  8,850  403  321,975
     
  
  
  
  
  
  
  

Total

    801,333  218,422  197,862  114,537  151,259  18,850  100,403  812,908
     
  
  
  
  
  
  
  

Interest rate swaps:

          Yen (millions)

          

Notional amount and maturity

date (as of March 31, 2004)


  Fair
value


Average
receive
rate


    

Average pay rate


    2005

  2006

  2007

  

2008


  

    2009    


    There-  
after


  

0.42%

    JPY6M LIBOR + 0.21%    100,000                          86

0.87%

    JPY6M LIBOR + 0.40%            15,000           49
          

Notional amount and maturity date

(as of March 31, 2003)


  Fair
value


Average
receive
rate


    

Average pay rate


    2004

  2005

  2006

  2007

  2008

  There-
after


  

0.42%

    JPY6M LIBOR + 0.21%       100,000              120

0.87%

    JPY6M LIBOR + 0.40%               15,000        152

Item 12.Description of Securities Other than Equity Securities

Item 12.   Description of Securities Other than Equity Securities

Not applicable


- 94 -

- 64 -

PART II

 

Item 13.Item 13.   Defaults, Dividend Arrearages and Delinquencies

None

 

Item 14.Item 14.   Material Modifications to the Rights of Security Holders and Use of Proceeds

None

 

Item 15.Controls and Procedures

The Company’s management, with the participation of its principal executive and principal financial officers, evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15 (e) under the U.S. Securities Exchange Act of 1934) as of March 31, 2004. Based on that evaluation, the Company’s principal executive and principal financial officers concluded that the disclosure controls and procedures were effective as of that date.

No change in the Company’s internal control over financial reporting (as defined in Rules 13a-15 (f) under the U.S. Securities Exchange Act of 1934) occurred during the year ended March 31, 2004 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

Item 16A.Audit Committee Financial Expert

Matsushita’s Board of Corporate Auditors has determined that Kazumi Kawaguchi, a Senior Corporate Auditor of Matsushita, is an “audit committee financial expert” as such term is defined by Item 16A of Form 20-F.

Item 16B.Code of Ethics

Matsushita has adopted a Code of Ethics applicable to the Chief Executive Officer, the Chief Financial Officer and other Executive Officers. The Code of Ethics is attached as an exhibit to this annual report on Form 20-F.


- 95 -

Item 16C.Principal Accountant Fees and Services

Item 15.   [ Reserved ]Fees and services by the Company’s principal accountant

 

The following table shows the aggregate fees accrued or paid to KPMG AZSA & Co. and its member firms (KPMG), the Company’s principal accountant for the years ended March 31, 2004 and 2003:

   Yen (millions)

   2004

  2003

Audit fees

  1,195  1,146

Audit-related fees

  242  187

Tax fees

  465  603

All other fees

  15  6
   
  

Total

  1,917  1,942
   
  

Audit fees are fees for professional services for the audit of the Company’s annual financial statements or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements. Audit-related fees are fees for assurance and related services that are reasonably related to the performance of the audit or review of the Company’s financial statements and are not reported under the Audit fees category, such as assistance in due diligence and issuance of certificated documents. Tax fees are fees for professional services rendered mainly for tax compliance, tax advice, tax consulting associated with international transfer prices and expatriate employee tax services. All other fees are fees for those services not reported under the Audit fees, Audit-related fees, and Tax fees categories, such as professional advices related to environmental regulations.

No services were provided for which pre-approval was waived pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.

Item 16.   [ Reserved ]Policy of the Company’s Board of Corporate Auditors on pre-approval of audit or non-audit services


In accordance with paragraph (c)(7)(i) of Rule 2-01 of Regulation S-X and the related adopting release of the U.S. Securities and Exchange Commission, the Company’s Board of Corporate Auditors must pre-approve the engagement of the Company’s principal accountant, currently KPMG, by Matsushita or its subsidiaries to render audit or non-audit services. Also, paragraph (c)(4) of Rule 2-01 of Regulation S-X provides that an accountant is not independent from an audit client if the accountant provides certain non-audit services to the audit client. Under the policy adopted by the Company’s Board of Corporate Auditors, all audit or non-audit services provided by KPMG must be specifically pre-approved by the Board of Corporate Auditors. Such pre-approval is considered at the monthly meetings of the Board of Corporate Auditors. Any service that either falls into a category of services that are not permitted by the applicable law or regulation or is otherwise deemed by the Board of Corporate Auditors to be inconsistent with the maintenance of the principal accountant’s independence is rejected. Management’s requests for proposed engagement of the principal accountant to render services that require immediate approval, if considered necessary, are pre-approved by a designated member of the Board of Corporate Auditors, and then reported to the Board of Corporate Auditors at its next meeting.


- 96 -

Item 16D.Exemptions from the Listing Standards for Audit Committees

Not applicable

Item 16E.Purchases of Equity Securities by the Issuer and Affiliated Purchasers

Not applicable


- 6597 -

PART III

Item 17.Item 17.   Financial Statements

Not applicable

Item 18.Financial Statements

Index of Consolidated Financial Statements of Matsushita Electric Industrial Co., Ltd. and Subsidiaries:

   Page

Report of Independent Registered Public Accounting Firm

  98
Page

Independent Auditors’ Report66

Consolidated Balance Sheets as of March 31, 20012004 and 20002003

99
67

Consolidated Statements of IncomeOperations for the years ended March 31, 2001, 20002004, 2003 and 19992002

101
69

Consolidated Statements of Stockholders’ Equity for the years ended March 31, 2001, 20002004, 2003 and 19992002

102
70

Consolidated Statements of Cash Flows for the years ended March 31, 2001, 20002004, 2003 and 19992002

104
72

Notes to Consolidated Financial Statements

106

Schedule for the years ended March 31, 2004, 2003 and 2002:

152
74

Schedule for the years ended March 31, 2001, 2000 and 1999:

Schedule II     Valuation and Qualifying Accounts and Reserves
for the years ended March 31, 2001, 20002004, 2003 and 19992002

101

All other schedules are omitted as permitted by the rules and regulations of the Securities and Exchange Commission as the required information is presented in the consolidated financial statements or notes thereto, or the schedules are not applicable.

Financial statements


- 98 -

Report of nonconsolidated subsidiaries and affiliates 20% to 50% owned are omitted because none of such subsidiaries and affiliates constitute a significant subsidiary.Independent Registered Public Accounting Firm


- 66 -

Independent Auditors’ Report

The Board of Directors and Stockholders

Matsushita Electric Industrial Co., Ltd.:

We have audited the consolidated financial statements of Matsushita Electric Industrial Co., Ltd. and subsidiaries as listed in the accompanying index. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedule as listed in the accompanying index. These consolidated financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with auditingthe standards generally accepted inof the United States of America.Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

The segment information required to be disclosed in financial statements under accounting principles generally accepted in the United States of America is not presented in the accompanying consolidated financial statements. Foreign issuers are presently exempted from such disclosure requirement in Securities Exchange Act filings with the United States Securities and Exchange Commission.

In our report dated May 10, 2000, we expressed an opinion, that the 2000 and 1999 consolidated financial statements of Matsushita Electric Industrial Co., Ltd. and subsidiaries presented fairly, in all material respects, the financial position, the results of their operations and their cash flows in conformity with accounting principles generally accepted in the United States of America except for the effects of the departure from Statement of Financial Accounting Standards No. 115 in accounting for certain investments in debt and equity securities and except for the omission of the segment information. As described in Note 1(i) of the notes to the consolidated financial statements, Matsushita Electric Industrial Co., Ltd. and subsidiaries have changed their method of accounting for such investments in debt and equity securities and restated their 2000 and 1999 consolidated financial statements to conform with accounting principles generally accepted in the United States of America. Accordingly, our present opinion on the 2000 and 1999 consolidated financial statements, as presented herein, is different from that expressed in our previous report.

In our opinion, except for the omission of the segment information discussed in the third paragraph, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Matsushita Electric Industrial Co., Ltd. and subsidiaries as of March 31, 20012004 and 2000,2003, and the results of their operations and their cash flows for each of the years in the three-year period ended March 31, 2001,2004, in conformity with accounting principlesU.S. generally accepted in the United States of America.accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

KPMG
Osaka, Japan
April 27, 2001, except as to Note 10,
which is as of July 2, 2001

As described in Notes 1(i) and 8 of the notes to the consolidated financial statements, effective April 1, 2002, the Company changed its method of accounting for goodwill and other intangible assets as a result of the adoption of Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets.”

KPMG AZSA & Co.

Osaka, Japan

April 28, 2004


- 6799 -

MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.

AND SUBSIDIARIES

Consolidated Balance Sheets

March 31, 20012004 and 20002003

            
Yen (millions)

20012000
Assets (Restated-Note 1(i))



Current assets:
Cash and cash equivalents (Note 7)848,8781,116,262
Time deposits (Note 7)527,145340,000
Short-term investments (Notes 4 and 15)11,421136,883
Trade receivables (Note 7):
Related companies (Note 3)21,94520,731
Notes106,33492,939
Accounts1,310,3291,226,043
Allowance for doubtful receivables(42,530)(42,098)


Net trade receivables1,396,0781,297,615



Inventories (Notes 2 and 7)1,047,615942,205
Other current assets (Note 9)486,812417,650


Total current assets4,317,9494,250,615



Noncurrent receivables (Note 5)246,419268,288
 
Investments and advances (Notes 4 and 15):
Associated companies (Note 3)336,221328,816
Other investments and advances1,175,1161,316,614


Total investments and advances1,511,3371,645,430



Property, plant and equipment (Note 6):
Land223,910220,971
Buildings1,265,9321,212,634
Machinery and equipment3,188,8843,021,725
Construction in progress152,12689,512


4,830,8524,544,842
Less accumulated depreciation3,252,7913,144,157


Net property, plant and equipment1,578,0611,400,685


Other assets (Note 9)502,522390,057


8,156,2887,955,075


   Yen (millions)

 

Assets


  2004

  2003

 

Current assets:

       

Cash and cash equivalents (Note 9)

  1,275,014  1,167,470 

Time deposits (Note 9)

  170,047  395,559 

Short-term investments (Notes 5 and 17)

  2,684  1,196 

Trade receivables (Notes 6 and 9):

       

Related companies (Note 4)

  15,071  18,389 

Notes

  62,762  67,351 

Accounts

  1,037,707  1,114,208 

Allowance for doubtful receivables

  (47,873) (53,043)
   

 

Net trade receivables

  1,067,667  1,146,905 
   

 

Inventories (Notes 3 and 9)

  777,540  783,262 

Other current assets (Notes 11 and 17)

  482,025  491,786 
   

 

Total current assets

  3,774,977  3,986,178 
   

 

Noncurrent receivables (Note 6)

  280,398  299,239 

Investments and advances (Notes 5 and 17):

       

Associated companies (Note 4)

  372,732  427,189 

Other investments and advances

  864,695  592,948 
   

 

Total investments and advances

  1,237,427  1,020,137 
   

 

Property, plant and equipment (Notes 6 and 7):

       

Land

  251,419  264,148 

Buildings

  1,253,350  1,280,448 

Machinery and equipment

  2,705,251  2,840,184 

Construction in progress

  46,037  64,792 
   

 

   4,256,057  4,449,572 

Less accumulated depreciation

  3,046,555  3,150,677 
   

 

Net property, plant and equipment

  1,209,502  1,298,895 
   

 

Other assets:

       

Goodwill (Notes 2 and 8)

  418,907  410,627 

Intangible assets (Note 8)

  73,099  74,810 

Other assets (Note 11)

  443,702  744,807 
   

 

Total other assets

  935,708  1,230,244 
   

 

   7,438,012  7,834,693 
   

 

See accompanying Notes to Consolidated Financial Statements.


- 68100 -

MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.

AND SUBSIDIARIES

Consolidated Balance Sheets

March 31, 20012004 and 20002003

             
Yen (millions)

20012000
Liabilities and Stockholders' Equity (Restated-Note 1(i))



Current liabilities:
Short-term borrowings, including current portion of long-term debt (Notes 7 and 15)470,965424,461
Commercial paper77,49442,408
Trade payables:
Related companies (Note 3)18,86019,094
Notes73,43056,724
Accounts585,433581,132


Total trade payables677,723656,950



Accrued income taxes (Note 9)55,34381,964
Accrued payroll158,697153,441
Other accrued expenses663,541551,426
Deposits and advances from customers114,179109,563
Employees’ deposits153,147150,109
Other current liabilities321,698287,000


Total current liabilities2,692,7872,457,322



Noncurrent liabilities:
Long-term debt (Notes 7 and 15)541,541643,840
Retirement and severance benefits (Note 8)558,396528,878
Other liabilities (Note 9)23,07546,292


Total noncurrent liabilities1,123,0121,219,010


Minority interests567,809594,414

Stockholders’ equity:
Common stock of 50 yen par value (Notes 7 and 10):
Authorized - 4,950,000,000 shares
Issued - 2,079,572,737 shares (2,062,671,309 shares in 2000)210,994209,708
Capital surplus (Notes 7 and 10)621,267570,964
Legal reserve (Note 10)88,25186,553
Retained earnings (Note 10)2,924,0712,911,665
Accumulated other comprehensive income (loss) (Notes 4 and 11):
Cumulative translation adjustments(150,027)(294,711)
Unrealized holding gains of available-for-sale securities78,863200,690


Total accumulated other comprehensive income (loss)(71,164)(94,021)


Treasury stock, at cost (Note 10):
295,000 shares (229,000 shares in 2000)(739)(540)



Total stockholders’ equity3,772,6803,684,329
 
Commitments and contingent liabilities (Note 16)


8,156,2887,955,075


   Yen (millions)

 

Liabilities and Stockholders’ Equity


  2004

  2003

 

Current liabilities:

       

Short-term borrowings, including current portion of long-term debt (Notes 6, 9 and 17)

  290,208  333,686 

Trade payables:

       

Related companies (Note 4)

  41,325  32,104 

Notes

  36,162  29,615 

Accounts

  707,247  665,565 
   

 

Total trade payables

  784,734  727,284 
   

 

Accrued income taxes (Note 11)

  44,179  33,499 

Accrued payroll

  141,932  150,095 

Other accrued expenses (Note 18)

  696,741  683,569 

Deposits and advances from customers

  83,798  100,469 

Employees’ deposits

  124,800  125,024 

Other current liabilities (Notes 11 and 17)

  403,394  417,206 
   

 

Total current liabilities

  2,569,786  2,570,832 
   

 

Noncurrent liabilities:

       

Long-term debt (Notes 6, 9 and 17)

  460,639  588,202 

Retirement and severance benefits (Note 10)

  801,199  1,375,143 

Other liabilities (Note 11)

  26,697  11,939 
   

 

Total noncurrent liabilities

  1,288,535  1,975,284 
   

 

Minority interests

  128,115  110,177 

Stockholders’ equity:

       

Common stock (Notes 9 and 12):

       

Authorized    - 4,950,000,000 shares

Issued            - 2,453,053,497 shares (2,447,923,088 shares in 2003)

  258,740  258,738 

Capital surplus (Notes 9 and 12)

  1,230,476  1,219,686 

Legal reserve (Note 12)

  83,175  80,700 

Retained earnings (Note 12)

  2,442,504  2,432,052 

Accumulated other comprehensive income (loss) (Notes 5, 10, 13 and 16):

       

Cumulative translation adjustments

  (282,287) (161,124)

Unrealized holding gains (losses) of available-for-sale securities

  88,104  (18,082)

Unrealized gains (losses) of derivative instruments

  6,676  (1,090)

Minimum pension liability adjustments

  (211,995) (525,346)
   

 

Total accumulated other comprehensive income (loss)

  (399,502) (705,642)
   

 

Treasury stock, at cost (Note 12):

       

134,645,885 shares (88,606,377 shares in 2003)

  (163,817) (107,134)
   

 

Total stockholders’ equity

  3,451,576  3,178,400 

Commitments and contingent liabilities (Note 18)

       
   

 

   7,438,012  7,834,693 
   

 

See accompanying Notes to Consolidated Financial Statements.


- 69101 -

MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.

AND SUBSIDIARIES

Consolidated Statements of IncomeOperations

Years ended March 31, 2001, 20002004, 2003 and 19992002

                
Yen (millions)

200120001999
  (Restated-Note 1(i))



Revenues:
Net sales:
Related companies (Note 3)171,756168,774204,339
Other7,509,8057,130,6137,435,780



Total net sales7,681,5617,299,3877,640,119
Interest income43,71242,94954,430
Dividends received12,23714,6749,865
Other income (Notes 4 and 13)54,082135,74652,638



Total revenues7,791,5927,492,7567,757,052

Costs and expenses:
Cost of sales (Notes 3 and 13)5,481,3145,190,7915,346,914
Selling, general and administrative expenses (Note 13)2,011,8431,949,5422,099,521
Interest expense43,53846,23762,083
Other deductions (Notes 4, 5, 6 and 13)154,16287,58146,241



Total costs and expenses7,690,8577,274,1517,554,759



Income before income taxes100,735218,605202,293

Provision for income taxes (Note 9):
Current117,855178,445152,303
Deferred(67,994)(41,430)12,076



49,861137,015164,379



Income before minority interests and equity in earnings (losses) of associated companies50,87481,59037,914
Minority interests22,125(941)8,330
Equity in earnings (losses) of associated companies (Note 3)12,75117,178(5,338)



Net income41,50099,70924,246



Yen

Net income per share of common stock (Note 12):
Basic19.9648.3511.60
Diluted19.5646.3611.58

   Yen (millions)

 
   2004

  2003

  2002

 

Revenues:

          

Net sales:

          

Related companies (Note 4)

  179,270  150,920  116,354 

Other

  7,300,474  7,250,794  6,957,483 
   

 

 

Total net sales

  7,479,744  7,401,714  7,073,837 

Interest income

  19,564  22,267  34,361 

Dividends received

  5,475  4,506  8,219 

Gain from the transfer of the substitutional portion of Japanese Welfare Pension Insurance (Note 10)

  72,228  —    —   

Other income (Notes 5, 6, 15 and 16)

  59,544  64,677  54,146 
   

 

 

Total revenues

  7,636,555  7,493,164  7,170,563 

Costs and expenses:

          

Cost of sales (Notes 4 and 15)

  5,313,065  5,323,605  5,312,039 

Selling, general and administrative expenses (Note 15)

  1,971,187  1,951,538  1,960,796 

Interest expense

  27,744  32,805  45,088 

Other deductions (Notes 4, 5, 7, 8, 15 and 16)

  153,737  116,300  390,419 
   

 

 

Total costs and expenses

  7,465,733  7,424,248  7,708,342 
   

 

 

Income (loss) before income taxes

  170,822  68,916  (537,779)

Provision for income taxes (Note 11):

          

Current

  77,375  51,704  33,902 

Deferred

  21,160  19,572  (87,177)
   

 

 

   98,535  71,276  (53,275)
   

 

 

Income (loss) before minority interests and equity in earnings (losses) of associated companies

  72,287  (2,360) (484,504)

Minority interests

  19,618  5,505  (56,666)

Equity in earnings (losses) of associated companies (Note 4)

  (10,524) (11,588) 59 
   

 

 

Net income (loss)

  42,145  (19,453) (427,779)
   

 

 

   Yen

 

Net income (loss) per share of common stock (Note 14):

          

Basic

  18.15  (8.70) (206.09)

Diluted

  18.00  (8.70) (206.09)

See accompanying Notes to Consolidated Financial Statements.


- 70102 -

MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.

AND SUBSIDIARIES

Consolidated Statements of Stockholders’ Equity

Years ended March 31, 2001, 20002004, 2003 and 19992002

              
Yen (millions)

200120001999
 (Restated-Note 1(i))


Common stock (Notes 10 and 13):
Balance at beginning of year209,708209,444209,416
Conversion of bonds47026428
Stock issued under exchange offering816



Balance at end of year210,994209,708209,444



Capital surplus (Notes 10 and 13):
Balance at beginning of year570,964567,696570,628
Conversion of bonds47026428
Stock issued under exchange offering49,291
Transfer from retained earnings due to a merger of a subsidiary1,511
Transfer of ownership arising on capital transactions by consolidated and associated companies(969)3,004(2,960)



Balance at end of year621,267570,964567,696



Legal reserve (Note 10):
Balance at beginning of year86,55386,11284,039
Transfer from retained earnings1,6984412,073



Balance at end of year88,25186,55386,112




Retained earnings (Note 10):
Balance at beginning of year2,911,6652,841,2682,944,282
Net income41,50099,70924,246
Cash dividends(25,885)(28,871)(26,304)
Transfer to legal reserve(1,698)(441)(2,073)
Transfer to capital surplus due to a merger of a subsidiary(1,511)
Retirement of treasury stock(98,883)



Balance at end of year2,924,0712,911,6652,841,268




Accumulated other comprehensive income (loss) (Note 11):
Balance at beginning of year(94,021)(62,117)45,317
Other comprehensive income (loss), net of tax22,857(31,904)(107,434)



Balance at end of year(71,164)(94,021)(62,117)



   Yen (millions)

 
   2004

  2003

  2002

 

Common stock (Notes 12 and 15):

          

Balance at beginning of year

  258,738  258,737  210,994 

Issuance of common stock for conversion of bonds

  2  1  47,743 
   

 

 

Balance at end of year

  258,740  258,738  258,737 
   

 

 

Capital surplus (Notes 12 and 15):

          

Balance at beginning of year

  1,219,686  682,848  621,267 

Issuance of common stock for conversion of bonds

  2  1  47,743 

Treasury stock provided for conversion of bonds

  4,209  —    —   

Stock issued under exchange offering (Note 2)

  6,579  537,487  —   

Transfer from legal reserve and retained earnings due to merger of subsidiaries

  —    —    11,008 

Capital transactions by consolidated and associated companies

  —    (650) 2,830 
   

 

 

Balance at end of year

  1,230,476  1,219,686  682,848 
   

 

 

Legal reserve (Note 12):

          

Balance at beginning of year

  80,700  82,647  88,499 

Transfer from (to) retained earnings

  2,475  (1,947) 816 

Transfer to capital surplus due to merger of subsidiaries

  —    —    (6,668)
   

 

 

Balance at end of year

  83,175  80,700  82,647 
   

 

 

Retained earnings (Note 12):

          

Balance at beginning of year

  2,432,052  2,470,356  2,929,281 

Net income (loss)

  42,145  (19,453) (427,779)

Cash dividends

  (29,218) (20,798) (25,990)

Transfer from (to) legal reserve

  (2,475) 1,947  (816)

Transfer to capital surplus due to merger of subsidiaries

  —    —    (4,340)
   

 

 

Balance at end of year

  2,442,504  2,432,052  2,470,356 
   

 

 

Accumulated other comprehensive income (loss) (Note 13):

          

Balance at beginning of year

  (705,642) (154,543) (79,089)

Other comprehensive income (loss), net of tax

  306,140  (551,099) (75,454)
   

 

 

Balance at end of year

  (399,502) (705,642) (154,543)
   

 

 

(Continued)


- 71103 -

MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.

AND SUBSIDIARIES

Consolidated Statements of Stockholders’ Equity

Years ended March 31, 2001, 20002004, 2003 and 19992002

               
Yen (millions)

200120001999
 (Restated-Note 1(i))


Treasury stock (Note 10):
Balance at beginning of year(540)(252)
Repurchase of common stock(307)(288)(99,135)
Exercise of stock options83
Sale of treasury stock25
Retirement of treasury stock98,883



Balance at end of year(739)(540)(252)



 
Disclosure of comprehensive income (loss) (Note 11):
Net income41,50099,70924,246
Other comprehensive income (loss), net of tax:
Translation adjustments144,684(139,946)(122,257)
Unrealized holding gains of available-for-sale securities(121,827)108,04214,823



Total comprehensive income (loss)64,35767,805(83,188)



   Yen (millions)

 
   2004

  2003

  2002

 

Treasury stock (Note 12):

          

Balance at beginning of year

  (107,134) (92,185) (739)

Repurchase of common stock

  (69,394) (115,770) (91,969)

Stock exchanged under exchange offering (Note 2)

  —    100,821  —   

Sale of treasury stock

  —    —    523 

Conversion of bonds

  12,711  —    —   
   

 

 

Balance at end of year

  (163,817) (107,134) (92,185)
   

 

 

Disclosure of comprehensive income (loss) (Note 13):

          

Net income (loss)

  42,145  (19,453) (427,779)

Other comprehensive income (loss), net of tax:

          

Translation adjustments

  (121,163) (106,003) 102,832 

Unrealized holding gains (losses) of available-for-sale securities

  106,186  (68,894) (28,052)

Unrealized gains (losses) of derivative instruments

  7,766  (1,218) 128 

Minimum pension liability adjustments

  313,351  (374,984) (150,362)
   

 

 

Total comprehensive income (loss)

  348,285  (570,552) (503,233)
   

 

 

See accompanying Notes to Consolidated Financial Statements.


- 72104 -

MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.

AND SUBSIDIARIES

Consolidated Statements of Cash Flows

Years ended March 31, 2001, 20002004, 2003 and 19992002

                
Yen (millions)

200120001999
  (Restated-Note 1(i))



Cash flows from operating activities (Note 13):
Net income41,50099,70924,246
Adjustments to reconcile net income to net cash provided by operating activities:
    Depreciation and amortization374,102364,966373,155
    Net gain on sale of investments(13,706)(98,278)(14,198)
    Provision for doubtful receivables16,44911,98013,505
    Deferred income taxes(67,994)(41,430)12,076
    Impairment loss on long-lived assets (Note 6)19,565
    Minority interests22,125(941)8,330
    (Increase) decrease in trade receivables(69,146)(28,889)(37,724)
    (Increase) decrease in inventories(56,335)17,56436,587
    (Increase) decrease in other current assets27,682(14,274)(21,951)
    (Increase) decrease in noncurrent receivables21,6566,3876,527
    Increase (decrease) in trade payables(4,284)30,0422,213
    Increase (decrease) in accrued income taxes(28,839)261(7,743)
    Increase (decrease) in accrued expenses and other current liabilities101,74765,99529,994
    Increase (decrease) in retirement and severance benefits26,78934,62542,231
    Other7068,85431,903




          Net cash provided by operating activities392,452476,136499,151




Cash flows from investing activities (Note 13):
Proceeds from sale of short-term investments145,870259,485376,174
Purchase of short-term investments(105,127)(278,243)(362,062)
Proceeds from disposition of investments and advances110,405146,88584,014
Increase in investments and advances(71,203)(71,186)(137,456)
Capital expenditures(480,844)(331,475)(359,037)
Increase in time deposits(160,576)(340,000)
Other(21,113)10,18020,612



          Net cash used in investing activities(582,588)(604,354)(377,755)



   Yen (millions)

 
   2004

  2003

  2002

 

Cash flows from operating activities (Note 15):

          

Net income (loss)

  42,145  (19,453) (427,779)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

          

Depreciation and amortization

  278,177  302,141  362,052 

Net gain on sale of investments

  (11,327) (93) (6,160)

Provision for doubtful receivables

  3,154  17,621  4,428 

Deferred income taxes

  21,160  19,572  (87,177)

Write-down of investment securities (Notes 4 and 5)

  52,492  52,611  92,297 

Impairment loss on long-lived assets (Notes 7 and 8)

  11,666  2,375  24,420 

Minority interests

  19,618  5,505  (56,666)

(Increase) decrease in trade receivables

  35,248  (72,604) 200,966 

(Increase) decrease in inventories

  (37,016) 82,573  270,360 

(Increase) decrease in other current assets

  13,450  27,996  (35,579)

Increase (decrease) in trade payables

  87,226  162,378  (130,275)

Increase (decrease) in accrued income taxes

  12,254  4,960  (31,505)

Increase (decrease) in accrued expenses and other current liabilities

  10,782  79,252  9,199 

Increase (decrease) in retirement and severance benefits

  (67,332) 16,622  (86,144)

Other

  17,435  16,861  10,509 
   

 

 

Net cash provided by operating activities

  489,132  698,317  112,946 
   

 

 

Cash flows from investing activities (Note 15):

          

Proceeds from sale of short-term investments

  —    10,523  36,976 

Purchase of short-term investments

  (702) —    (27,509)

Proceeds from disposition of investments and advances

  68,468  121,001  172,763 

Increase in investments and advances

  (207,869) (80,774) (123,330)

Capital expenditures

  (275,544) (246,603) (342,107)

Proceeds from disposals of property, plant and equipment

  113,008  58,270  142,924 

(Increase) decrease in finance receivables

  30,697  29,158  60,731 

(Increase) decrease in time deposits

  202,808  96,371  29,742 

Other

  (16,311) 877  (24,662)
   

 

 

Net cash used in investing activities

  (85,445) (11,177) (74,472)
   

 

 

(Continued)


- 73105 -

MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.

AND SUBSIDIARIES

Consolidated Statements of Cash Flows

Years ended March 31, 2001, 20002004, 2003 and 19992002

                        
Yen (millions)

200120001999
  (Restated-Note 1(i))



Cash flows from financing activities (Note 13):
     Decrease in short-term borrowings(44,573)(156,619)(100,202)
     Increase in deposits and advances from customers and employees3,8227,5763,441
     Proceeds from long-term debt380,185240,485186,717
     Repayments of long-term debt(415,838)(269,915)(388,233)
     Dividends paid(25,885)(28,871)(26,304)
     Dividends paid to minority interests(8,027)(8,377)(9,998)
     Repurchase of common stock (Note 10)(307)(288)(99,135)
     Decrease of treasury stock (Note 10)108
     Other(2,211)



          Net cash used in financing activities(112,726)(216,009)(433,714)




Effect of exchange rate changes on cash and cash equivalents
35,478(73,096)(60,323)




Net increase (decrease) in cash and cash equivalents
(267,384)(417,323)(372,641)

Cash and cash equivalents at beginning of year
1,116,2621,533,5851,906,226




Cash and cash equivalents at end of year
848,8781,116,2621,533,585



   Yen (millions)

 
   2004

  2003

  2002

 

Cash flows from financing activities (Note 15):

          

Decrease in short-term borrowings

  (39,577) (106,630) (83,703)

Increase (decrease) in deposits and advances from customers and employees

  (15,787) (20,589) (22,739)

Proceeds from long-term debt

  108,026  122,288  447,458 

Repayments of long-term debt

  (228,039) (293,088) (218,159)

Dividends paid

  (29,218) (20,798) (25,990)

Dividends paid to minority interests

  (4,675) (8,267) (10,112)

Repurchase of common stock (Note 12)

  (69,394) (115,770) (91,969)

Decrease of treasury stock (Note 12)

  —    —    523 

Other

  5,963  —    5,107 
   

 

 

Net cash provided by (used in) financing activities

  (272,701) (442,854) 416 
   

 

 

Effect of exchange rate changes on cash and cash equivalents

  (23,442) (9,948) 16,541 
   

 

 

Net increase in cash and cash equivalents

  107,544  234,338  55,431 

Cash and cash equivalents at beginning of year

  1,167,470  933,132  877,701 
   

 

 

Cash and cash equivalents at end of year

  1,275,014  1,167,470  933,132 
   

 

 

See accompanying Notes to Consolidated Financial Statements.


- 74106 -

MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

March 31, 2001, 20002004, 2003 and 19992002

(1)Summary of Significant Accounting Policies

 (a)Description of Business
Matsushita Electric Industrial Co., Ltd. (hereinafter, the “Company,” including consolidated subsidiaries, unless the context otherwise requires) is one of the world’s leading producers of electronic and electric products. The Company currently offers a comprehensive range of products, systems and components for consumer, business and industrial use based on sophisticated electronics and precision technology. Most of the Company’s products are marketed under several trade names, including “Panasonic,” “National,” “Technics,” “Quasar,” “Victor” and “JVC.”
Sales in fiscal 2001 were categorized as follows: video and audio equipment—23%, home appliances and household equipment—17%, information and communications equipment—28%, industrial equipment—11%, and components—21%. A sales breakdown in fiscal 2001 by geographical market was as follows: Japan—53%, North and South America—18%, Europe—11%, and Asia and Others—18%.
The Company is not dependent on a single supplier, and has no significant difficulty in obtaining raw materials from suppliers.

Matsushita Electric Industrial Co., Ltd. (hereinafter, the “Company,” including consolidated subsidiaries, unless the context otherwise requires) is one of the world’s leading producers of electronic and electric products. The Company currently offers a comprehensive range of products, systems and components for consumer, business and industrial use based on sophisticated electronics and precision technology. Most of the Company’s products are marketed under “Panasonic” and several other trade names, including “National,” “Technics,” “Quasar,” “Victor” and “JVC.”

Sales in fiscal 2004 were categorized as follows: AVC Networks—48%, Home Appliances—16%, Components and Devices—15%, JVC—11%, and Other—10%. A sales breakdown in fiscal 2004 by geographical market was as follows: Japan—46%, North and South America—18%, Europe—15%, and Asia and Others—21%.

The Company is not dependent on a single supplier, and has no significant difficulty in obtaining raw materials from suppliers.

 (b)Basis of Presentation of Consolidated Financial Statements
The Company and its domestic subsidiaries maintain their books of account in conformity with financial accounting standards of Japan, and its foreign subsidiaries in conformity with those of the countries of their domicile.
The consolidated financial statements presented herein have been prepared in a manner and reflect the adjustments which are necessary to conform with accounting principles generally accepted in the United States of America.

The Company and its domestic subsidiaries maintain their books of account in conformity with financial accounting standards of Japan, and its foreign subsidiaries in conformity with those of the countries of their domicile.

The consolidated financial statements presented herein have been prepared in a manner and reflect the adjustments which are necessary to conform with U.S. generally accepted accounting principles.

 (c)Principles of Consolidation (See Note 3)4)
The consolidated financial statements include the accounts of the Company and its subsidiaries. Significant intercompany accounts and transactions have been eliminated on consolidation.
Investments in certain associated companies in which the Company’s ownership is 20% to 50% are stated at their underlying net equity value after elimination of intercompany profits.

The consolidated financial statements include the accounts of the Company and its subsidiaries. Significant intercompany accounts and transactions have been eliminated on consolidation.

Investments in associated companies, including the companies in which the Company’s ownership is 20% to 50% and corporate joint ventures, are stated at their underlying net equity value after elimination of intercompany profits.


- 75107 -

MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

The difference between the acquisition cost and the Company’s equity in net assets of associated companies at acquisition was being amortized on a straight-line basis over periods ranging from ten to forty years prior to the adoption of Statement of Financial Accounting Standards (SFAS) No. 142, “Goodwill and Other Intangible Assets” as of April 1, 2002. Subsequent to the adoption of SFAS No. 142, the unamortized balance of such equity method goodwill is not amortized and is instead tested for impairment.

Investments in associated companies are reduced to fair value by a charge to earnings for other-than-temporary declines in fair value.

In accordance with FASB Interpretation No. 46 (revised December 2003), “Consolidation of Variable Interest Entities” (FIN 46R), variable interest entities, of which the Company has controlling financial interests through means other than voting rights, are consolidated. FIN 46R was effective as of March 31, 2004, except for special purpose entities, to which FIN 46R should be applied as of December 31, 2003. The adoption of FIN 46R did not have a material effect on the accompanying consolidated financial statements.

 The difference between the cost and underlying net equity at acquisition of investments in subsidiaries and associated companies accounted for on an equity basis is allocated to identifiable assets based on fair market value at the date of acquisition. The unallocated portion of the difference, which is recognized as goodwill, is being amortized over a ten- to forty-year period.
(d)Revenue Recognition
The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the seller’s price to the buyer is fixed or determinable, and collectibility is reasonably assured.
In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin (SAB) No. 101, “Revenue Recognition in Financial Statements.” SAB No. 101 as amended, summarizes certain of the United States Securities and Exchange Commission’s views in applying generally accepted accounting principles to revenue recognition in financial statements and provides guidance on revenue recognition issues in the absence of authoritative literature addressing a specific arrangement or a specific industry. The Company adopted SAB No. 101 for the year ended March 31, 2001. Adoption of this guidance did not have a material effect on the Company’s consolidated financial position or results of operations.

The Company generates revenue principally through the sale of consumer and industrial products, equipment, and supplies. The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred, and title and risk of loss have been transferred to the customer or services have been rendered, the sales price is fixed or determinable, and collectibility is reasonably assured.

Revenue from sales of products is generally recognized when the products are received by customers. Revenue from sales of certain products with customer acceptance provisions related to their functionality is recognized when the product is received by the customer and the specific criteria of the product functionality are successfully tested and demonstrated.

The Company enters into arrangements with multiple elements, which may include any combination of products, equipment, installment and maintenance. The Company allocates revenue to each element based on its relative fair value if such element meets the criteria for treatment as a separate unit of accounting as prescribed in the Emerging Issues Task Force (EITF) Issue 00-21, “Revenue Arrangements with Multiple Deliverables” (EITF 00-21). EITF 00-21 was effective for revenue arrangements entered into after June 30, 2003. EITF 00-21 did not have a material effect on the accompanying consolidated financial statements.

 (e)Leases (See Note 6)
Certain subsidiaries of the Company lease machinery and equipment. Leases of such assets are principally accounted for as direct financing leases and included in “Trade receivables—Accounts” and “Noncurrent receivables” in the accompanying balance sheets.

A subsidiary of the Company leases machinery and equipment. Leases of such assets are principally accounted for as direct financing leases and included in “Trade receivables—Accounts” and “Noncurrent receivables” in the accompanying consolidated balance sheets.


- 108 -

MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 (f)Inventories (See Note 2)3)
Finished goods and work in process are stated at the lower of cost (average) or market. Raw materials are stated at cost, principally on a first-in, first-out basis, not in excess of current replacement cost.

Finished goods and work in process are stated at the lower of cost (average) or market. Raw materials are stated at cost, principally on a first-in, first-out basis, not in excess of current replacement cost.

 (g)Foreign Currency Translation (See Note 11)13)
Foreign currency financial statements are translated in accordance with Statement of Financial Accounting Standards (SFAS) No. 52, “Foreign Currency Translation,” under which all assets and liabilities are translated into yen at year-end rates and income and expense accounts are translated at weighted average rates. Adjustments resulting from the translation of financial statements are reflected under the caption, “Accumulated other comprehensive income (loss),” a separate component of stockholders’ equity.


Foreign currency financial statements are translated in accordance with SFAS No. 52, “Foreign Currency Translation,” under which all assets and liabilities are translated into yen at year-end rates and income and expense accounts are translated at weighted-average rates. Adjustments resulting from the translation of financial statements are reflected under the caption, “Accumulated other comprehensive income (loss),” a separate component of stockholders’ equity.

- 76 -

MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 (h)Property, Plant and Equipment

Property, plant and equipment is stated at cost. Depreciation is computed primarily using the declining balance method based on the following estimated useful lives:

Buildings ......................................................................

  Property, plant and equipment is stated at cost. Depreciation is computed primarily using the declining balance method based on the following estimated useful lives:
Buildings5 to 50 years

Machinery and equipment ............................................

2 to 10 years

 (i)Goodwill and Other Intangible assets (See Note 8)

Goodwill represents the excess of costs over the fair value of net assets of businesses acquired. The Company adopted the provisions of SFAS No. 142 for the fiscal year beginning April 1, 2002. Goodwill and intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized, and are instead tested for impairment at least annually in accordance with the provisions of SFAS No. 142. SFAS No. 142 also requires that intangible assets with estimable useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment in accordance with SFAS No. 144, “Accounting for Impairment or Disposal of Long-Lived Assets.” SFAS No. 142 required the Company to perform an assessment of whether there was an indication that goodwill is impaired as of the date of adoption. The results of this assessment did not require the Company to recognize an impairment loss. Prior to the adoption of SFAS No. 142, goodwill was being amortized on a straight-line basis over periods ranging from ten to forty years.


- 109 -

MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(j)Investments in Available-for-Sale Securities (See Notes 45 and 11)13)
The Company adopted SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities,” in the fiscal year beginning April 1, 2000, and accordingly, prior year figures have been restated to reflect this change.
SFAS No. 115 requires that certain investments in debt and equity securities be classified as held-to-maturity, trading, or available-for-sale securities. The Company classifies its existing marketable equity securities other than investments in associated companies and all debt securities as available-for-sale. Available-for-sale securities are carried at fair value with unrealized holding gains or losses included as a component of accumulated other comprehensive income (loss), net of applicable taxes.
Individual securities classified as available-for-sale are reduced to net realizable value by a charge to income for other than temporary declines in fair value. Realized gains and losses are determined on the average cost method and are reflected in income.
As a result of the application of SFAS No. 115, total assets increased 268,192 million yen, stockholders’ equity increased 217,138 million yen and comprehensive income increased 108,042 million yen in the consolidated financial statements as of and for the year ended March 31, 2000, and net income increased 10,705 million yen and comprehensive income increased 25,528 million yen in the consolidated financial statements for the year ended March 31, 1999.
(j)Noncurrent Receivables (See Note 5)
Noncurrent receivables are recorded at cost, less the related allowance for impaired receivables. A loan is considered to be impaired when, based on current information and events, it is probable that a creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement. When a loan is considered to be impaired, the amount of impairment is measured based on the present value of expected future cash flows or the fair value of the collateral. Cash receipts on impaired receivables are applied to reduce the principal amount of such receivables until the principal has been recovered and are recognized as interest income, thereafter.


The Company accounts for debt and equity securities in accordance with SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities.”

SFAS No. 115 requires that certain investments in debt and equity securities be classified as held-to-maturity, trading, or available-for-sale securities. The Company classifies its existing marketable equity securities other than investments in associated companies and all debt securities as available-for-sale. Available-for-sale securities are carried at fair value with unrealized holding gains or losses included as a component of accumulated other comprehensive income (loss), net of applicable taxes.

- 77 -

MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
AND SUBSIDIARIESIndividual securities classified as available-for-sale are reduced to net realizable value by a charge to earnings for other-than-temporary declines in fair value. Realized gains and losses are determined on the average cost method and reflected in earnings.

Notes to Consolidated Financial Statements

 (k)Income Taxes (See Note 9)11)
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards.
Income taxes have not been accrued for undistributed earnings of foreign subsidiaries and associated companies, as these amounts are considered to be reinvested indefinitely. Calculation of the unrecognized deferred tax liability related to these earnings is not practicable.

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and operating loss and tax credit carryforwards.

Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

 (l)Advertising (See Note 13)15)
Advertising costs are expensed as incurred.

Advertising costs are expensed as incurred.

 (m)Net Income (Loss) per Share (See Notes 7, 109, 12 and 12)14)
The Company accounts for net income per share in accordance with SFAS No. 128, “Earnings per Share.” This Statement establishes standards for computing net income per share and requires dual presentation of basic and diluted net income per share on the face of the income statement for all entities with complex capital structures.
Under SFAS No. 128, basic net income per share is computed based on the weighted average number of common shares outstanding during each period, and diluted net income per share assumes the dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock.

The Company accounts for net income (loss) per share in accordance with SFAS No. 128, “Earnings per Share.” This Statement establishes standards for computing net income (loss) per share and requires dual presentation of basic and diluted net income (loss) per share on the face of the statements of operations for all entities with complex capital structures.


- 110 -

MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Under SFAS No. 128, basic net income (loss) per share is computed based on the weighted-average number of common shares outstanding during each period, and diluted net income per share assumes the dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock.

 (n)Cash Equivalents
Cash equivalents include all highly liquid debt instruments purchased with a maturity of three months or less.

Cash equivalents include all highly liquid debt instruments purchased with a maturity of three months or less.

 (o)Derivative Financial Instruments (See Notes 1416 and 15)17)

Derivative financial instruments utilized by the Company and its subsidiaries are comprised principally of foreign exchange contracts, interest rate swaps, cross currency swaps and commodity futures used to hedge currency risk, interest rate risk and commodity price risk.

The Company adopted SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended, for the fiscal year beginning April 1, 2001. The cumulative effect upon adoption was not significant. After the adoption of SFAS No. 133, as amended, the Company recognizes derivatives in the consolidated balance sheets at their fair value in “Other current assets,” “Other assets,” “Other current liabilities” or “Other liabilities.” On the date the derivative contract is entered into, the Company designates the derivative as either a hedge of the fair value of a recognized asset or liability or of an unrecognized firm commitment (“fair-value” hedge), a hedge of a forecasted transaction or of the variability of cash flows to be received or paid related to a recognized asset or liability (“cash-flow” hedge), or a foreign-currency fair-value or cash-flow hedge (“foreign-currency” hedge). The Company formally documents all relationships between hedging instruments and hedged items, as well as its risk-management objective and strategy for undertaking various hedge transactions. The Company also formally assesses, both at the hedge’s inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items.


- 111 -

MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Changes in the fair value of a derivative that is highly effective and that is designated and qualifies as a fair-value hedge, along with the loss or gain on the hedged asset or liability or unrecognized firm commitment of the hedged item that is attributable to the hedged risk, are recorded in earnings. Changes in the fair value of a derivative that is highly effective and that is designated and qualifies as a cash-flow hedge are recorded in other comprehensive income (loss), until earnings are affected by the variability in cash flows of the designated hedged item. Changes in the fair value of derivatives that are highly effective as hedges and that are designated and qualify as foreign-currency hedges are recorded in either earnings or other comprehensive income (loss), depending on whether the hedge transaction is a fair-value hedge or a cash-flow hedge. The ineffective portion of the change in fair value of a derivative instrument that qualifies as either a fair-value hedge or a cash-flow hedge is reported in earnings.

(p)Impairment of Long-Lived Assets (See Note 7)

The Company adopted SFAS No. 144 for the fiscal year beginning April 1, 2002. The adoption of SFAS No. 144 did not affect the Company’s consolidated financial statements. SFAS No. 144 provides a single accounting model for long-lived assets to be disposed of. SFAS No. 144 also changes the criteria for classifying an asset as held for sale, and broadens the scope of businesses to be disposed of that qualify for reporting as discontinued operations and changes the timing of recognizing losses on such operations.

In accordance with SFAS No. 144, long-lived assets, such as property, plant, and equipment, and purchased intangibles subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized for the amount by which the carrying amount of the asset exceeds the fair value of the asset.

Prior to the adoption of SFAS No. 144, the Company accounted for long-lived assets in accordance with SFAS No. 121, “Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of.”

(q)Stock-Based Compensation (See Note 12)

The Company applies Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations in accounting for its stock option plans described in Note 12.


- 112 -

MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

As the option price at the date of grant exceeded the fair market value of common stock, no compensation costs have been recognized in connection with the plans. If the accounting provision of SFAS No. 123, “Accounting for Stock-Based Compensation,” had been adopted, the impact on the Company’s net income (loss) for the three years ended March 31, 2004 would not be material.

(r)Product Warranties (See Note 18)

A liability for the estimated product warranty related cost is established at the time revenue is recognized, and is included in “Other accrued expenses.” Estimates for accrued warranty cost are primarily based on historical experience and current information on repair costs.

(s)Use of Estimates

Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates.

(2)Acquisition

On October 1, 2002, Matsushita Electric Industrial Co., Ltd. (MEI) transformed Matsushita Communication Industrial Co., Ltd. (MCI), Kyushu Matsushita Electric Co., Ltd. (KME), Matsushita Seiko Co., Ltd. (MSC), Matsushita Kotobuki Electric Industries, Ltd. (MKEI) and Matsushita Graphic Communication Systems, Inc. (MGCS) into wholly owned subsidiaries, through share exchange transactions, in order to facilitate optimum groupwide allocation of management resources, as well as enhance management speed. Prior to these transactions, MEI owned 56.3%, 51.5%, 57.6%, 57.6% and 67.8% of common stock of MCI, KME, MSC, MKEI and MGCS, respectively. The share exchange ratios were one share of MCI, KME, MSC, MKEI and MGCS for 2.884, 0.576, 0.332, 0.833 and 0.538 shares of MEI, respectively. MEI provided 309,407,251 shares of newly issued common stock and 59,984,408 shares of its treasury stock to the minority shareholders.

These transactions were accounted for using the purchase method of accounting. The fair value of the acquired minority interests was determined based on the weighted-average quoted market price of 1,728 yen per share of MEI for a few days before and after January 10, 2002 when the terms of the share exchanges were agreed to and announced.


- 113 -

MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Effects of the transactions to the consolidated balance sheet at October 1, 2002 are as follows:

Yen (millions)

Acquisition costs:

Fair value of shares provided to minority interests

638,308

Direct costs

�� 424 
   
Derivative financial instruments utilized by the Company and its subsidiaries are comprised principally of foreign exchange contracts used to hedge currency risk. Gains and losses on derivatives used to hedge existing assets or liabilities denominated in foreign currencies are recognized in income currently, as are the offsetting foreign exchange gains and losses on the items hedged. Gains and losses related to qualifying hedges of firm commitments denominated in foreign currencies are deferred and recognized in income when the transaction occurs. Derivative financial instruments that do not meet the criteria for hedge accounting are marked to market.


- 78 -

MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(p)

Total acquisition costs

  Impairment638,732

Book value of Long-Lived Assets and Long-Lived Assets to Be Disposed Of (See Note 6)acquired minority interests

336,763 
   
The Company accounts for long-lived assets in accordance with

Excess costs over the provisions of SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.” This Statement requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows (undiscounted and without interest charges) expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fairbook value of the assets. Assets to be disposed of are reported at the lower of carrying amount or fair value less cost to sell.

(q)minority interests

  Use of Estimates301,969
 
   
Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates.

Excess of costs allocated to:

Current assets

1,216

Property, plant and equipment

38,343

Other assets:

Goodwill

314,436

Intangible assets

610

Other assets

8,386

Noncurrent liabilities

(61,022)
 (r)

  New Accounting Pronouncements301,969
 
   
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities.” In June 2000, FASB also issued SFAS No. 138, “Accounting for Certain Derivative Instruments and Certain Hedging Activities, an amendment of SFAS No. 133.” Both Statements establish accounting and reporting standards for derivative instruments and for hedging activities, and require that an entity recognize all derivatives as either assets or liabilities in the balance sheet and measure those instruments at fair value. Changes in the fair value of derivatives are recorded each period in current earnings or other comprehensive income (loss), depending on whether a derivative is designated as part of a hedge transaction and the type of hedge transaction. The ineffective portion of all hedges will be recognized in earnings. SFAS No. 133 and SFAS No. 138 are applicable for the fiscal year beginning April 1, 2001. The cumulative effect adjustment upon the adoption of SFAS No. 133 and SFAS No. 138 was not significant.

The amount of goodwill by reportable segment recognized through the above transactions is as follows. As discussed in Note 19, the Company has reclassified its segments effective April 1, 2003 and accordingly restated the figures of prior periods.

Yen (millions)

(Restated)


AVC Networks

305,780

Home Appliances

7,562

Other

1,094

314,436

The total amount of goodwill is not deductible for tax purposes.

Prior to these transactions, those five subsidiaries were consolidated subsidiaries, and the Company’s consolidated statements of operations included the operating results of those subsidiaries for the full year. After the date of the transactions, minority interests relating to these subsidiaries were no longer recognized in the Company’s consolidated financial statements.


- 79114 -

MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

The following unaudited pro forma information shows the results of the Company’s consolidated operations for the years ended March 31, 2003 and 2002 as though the transactions had been completed at the beginning of each fiscal year presented.

   Unaudited

 
   Yen (millions)

 
   2003

  2002

 

Net loss

  (18,995) (465,479)
   Yen

 
   2003

  2002

 

Net loss per share:

       

Basic

  (7.85) (190.38)

Diluted

  (7.85) (190.38)

(2)(3)Inventories
Inventories at March 31, 2001 and 2000 are summarized as follows:
          
Yen (millions)

20012000



Finished goods516,972479,439
Work in process187,309168,066
Raw materials343,334294,700



1,047,615942,205


Inventories at March 31, 2004 and 2003 are summarized as follows:

   Yen (millions)

   2004

  2003

Finished goods

  427,674  426,834

Work in process

  126,215  129,180

Raw materials

  223,651  227,248
   
  
   777,540  783,262
   
  


- 115 -

MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(3)(4)Investments in and Advances to, and Transactions with Associated Companies
Certain financial information in respect of associated companies at March 31, 2001 and 2000 and for the three years ended March 31, 2001 is shown below. The most significant of these associated companies is Matsushita Electric Works, Ltd. (MEW). At March 31, 2001, the Company has a 32.4% equity ownership in MEW.
          
Yen (millions)

20012000



Current assets851,026955,235
Other assets1,552,1701,421,067


2,403,1962,376,302

Current liabilities585,769631,560
Other liabilities869,257809,695



Net assets948,170935,047



Company’s equity in net assets279,266267,454


             
Yen (millions)

200120001999




Net sales1,807,3731,835,1382,175,672
Gross profit492,107500,373502,972
Net income (loss)8,39947,651(11,829)

Certain financial information in respect of associated companies in aggregate at March 31, 2004 and 2003 and for the three years ended March 31, 2004 is shown below. The most significant of these associated companies is Matsushita Electric Works, Ltd. (MEW). At March 31, 2004, the Company has a 31.8% equity ownership in MEW.

   Yen (millions)

   2004

    2003

Current assets

  1,047,518    887,752

Other assets

  1,429,442    1,489,617
   
    
   2,476,960    2,377,369

Current liabilities

  996,607    907,947

Other liabilities

  706,644    628,438
   
    

Net assets

  773,709    840,984
   
    

Company’s equity in net assets

  276,966    312,682
   
    

   Yen (millions)

   2004

   2003

   2002

Net sales

  2,552,682   1,969,387   1,629,396

Gross profit

  577,451   479,985   436,936

Net income (loss)

  (6,598)  (57,088)  4,495

Purchases and dividends received from associated companies for the three years ended March 31, 2004 are as follows:

   Yen (millions)

   2004

    2003

    2002

Purchases from

      366,943        234,608        212,577

Dividends received

  5,525    7,927    5,693

Retained earnings include undistributed earnings of associated companies in the amount of 56,303 million yen and 91,355 million yen, as of March 31, 2004 and 2003, respectively.


- 80116 -

MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

During the year ended March 31, 2004, the Company incurred a write-down of 50,793 million yen for other-than-temporary impairment of investments in associated companies. The write-down is included in other deductions of costs and expenses in the consolidated statements of operations.

Investments in associated companies include equity securities which have quoted market values at March 31, 2004 and 2003 compared with related carrying amounts as follows:

   Yen (millions)

   2004

    2003

Carrying amount

  229,169    255,352

Market value

  261,476    165,918

Purchases and dividends received from associated companies for the three years ended March 31, 2001 are as follows:
             
Yen (millions)

200120001999




Purchases from177,865235,599258,881
Dividends received5,0897,93510,995

Retained earnings include undistributed earnings of associated companies in the amount of 89,413 million yen and 81,660 million yen, respectively, as of March 31, 2001 and 2000.
Investments in associated companies include equity securities which have quoted market values at March 31, 2001 and 2000 compared with related carrying amounts as follows:

         
Yen (millions)

20012000



Carrying amount278,199272,343
Market value355,851310,311

(4)(5)Investments in Available-for-Sale Securities
As discussed in Note 1(i), the Company adopted SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities,” in the fiscal year beginning April 1, 2000, and accordingly, prior year figures have been restated to reflect this change.
The Company classifies its existing marketable equity securities other than investments in associated companies and all debt securities as available-for-sale.

The Company classifies its existing marketable equity securities other than investments in associated companies and all debt securities as available-for-sale.

The cost, fair value, gross unrealized holding gains, and gross unrealized holding losses of available-for-sale securities included in short-term investments and investments and advances at March 31, 2004 and 2003 are as follows:

   Yen (millions)

   2004

   Cost

  Fair
value


  Gross
unrealized
holding
gains


  Gross
unrealized
holding
losses


Current:

            

Convertible and straight bonds

  1,000  1,001  1  —  

Other debt securities

  1,683  1,683  —    —  
   
  
  
  
   2,683  2,684  1  —  
   
  
  
  

Noncurrent:

            

Equity securities

  217,470  398,425  181,219  264

Convertible and straight bonds

  8,254  8,229  4  29

Other debt securities

  10,071  10,071  —    —  
   
  
  
  
   235,795  416,725  181,223  293
   
  
  
  


- 81117 -

MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

The cost, fair value, gross unrealized holding gains, and gross unrealized holding losses of available-for-sale securities included in short-term investments and investments and advances at March 31, 2001 and 2000 are as follows:

                  
Yen (millions)

2001

GrossGross
unrealizedunrealized
Fairholdingholding
Costvaluegainslosses




Current:
  Japanese and foreign government bonds3,2883,2992110
  Convertible and straight bonds3,0423,04651
  Investment trusts7777
  Other debt securities4,9944,9995





11,40111,4213111





Noncurrent:
  Equity securities369,972533,421179,30515,856
  Japanese and foreign government bonds58,44157,056701,455
  Convertible and straight bonds6,9736,9531737
  Investment trusts68,41867,88948577
  Other debt securities39,33540,152817





543,139705,471180,25717,925





- 82 -

MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements

                  
Yen (millions)

2000

GrossGross
unrealizedunrealized
Fairholdingholding
Costvaluegainslosses




Current:
Equity securities2,4784,5692,091
Japanese and foreign government bonds84,74884,79547
Convertible and straight bonds14,61914,64829
Investment trusts7474
Other debt securities32,79732,797





134,716136,8832,167





Noncurrent:
Equity securities374,591752,251377,660
Japanese and foreign government bonds5,1285,07157
Convertible and straight bonds1,8631,87411
Investment trusts95,80494,9422101,072
Other debt securities12,63112,6301





490,017866,768377,8811,130





   Yen (millions)

   2003

   Cost

  Fair
value


  Gross
unrealized
holding
gains


  Gross
unrealized
holding
losses


Current:

            

Convertible and straight bonds

  4  4  —    —  

Other debt securities

  1,192  1,192  —    —  
   
  
  
  
   1,196  1,196  —    —  
   
  
  
  

Noncurrent:

            

Equity securities

  242,946  254,032  37,913  26,827

Japanese and foreign government bonds

  21,138  20,372  1  767

Convertible and straight bonds

  2,525  2,542  35  18

Investment trusts

  605  557  —    48

Other debt securities

  10,246  10,113  1  134
   
  
  
  
   277,460  287,616  37,950  27,794
   
  
  
  

Maturities of investments in available-for-sale securities at March 31, 2004 and 2003 are as follows:

   Yen (millions)

   2004

  2003

   Cost

  Fair
value


  Cost

  Fair
value


Due within one year

  2,683  2,684  1,196  1,196

Due after one year through five years

  18,325  18,300  34,514  33,584

Equity securities

  217,470  398,425  242,946  254,032
   
  
  
  
   238,478  419,409  278,656  288,812
   
  
  
  

Proceeds from sale of available-for-sale securities for the years ended March 31, 2004, 2003 and 2002 were 40,611 million yen, 94,864 million yen and 174,396 million yen, respectively. The gross realized gains for the years ended March 31, 2004, 2003 and 2002 were 12,391 million yen, 4,839 million yen and 10,582 million yen, respectively. The gross realized losses on sale of available-for-sale securities for the years ended March 31, 2004, 2003 and 2002 were 1,064 million yen, 4,746 million yen and 4,422 million yen, respectively. The cost of securities sold in computing gross realized gains and losses is determined by the average cost method.


- 118 -

MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

During the years ended March 31, 2004, 2003 and 2002, the Company incurred a write-down of 1,699 million yen, 52,611 million yen and 92,297 million yen, respectively, for other-than-temporary impairment of investment securities, mainly reflecting the aggravated condition of the Japanese stock market. The write-down is included in other deductions of costs and expenses in the consolidated statements of operations.

Gross unrealized holding losses on investment securities and the fair value of the related securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at March 31, 2004, are as follows:

   Yen (millions)

   Less than 12 months

  12 months or more

  Total

   Fair
value


  Unrealized
losses


  Fair
value


  Unrealized
losses


  Fair
value


  Unrealized
losses


Equity securities

  13,334  264  —    —    13,334  264

Convertible and straight bonds

  971  29  —    —    971  29
   
  
  
  
  
  
   14,305  293  —    —    14,305  293
   
  
  
  
  
  

Because the gross unrealized loss position has been continuing for a relatively short period of time, these investments are not considered other-than-temporarily impaired. The Company has not held unrealized losses for twelve months or more length at March 31, 2004.

(6)Leases

The Company and its subsidiaries have capital and operating leases for certain machinery and equipment. At March 31, 2004 and 2003, the gross amount of machinery and equipment was 19,726 million yen and 15,753 million yen, and the related accumulated depreciation recorded under capital leases was 10,148 million yen and 8,239 million yen, respectively.

During the years ended March 31, 2004, 2003 and 2002, the Company and its subsidiary sold and leased back certain machinery and equipment for 44,636 million yen, 21,083 million yen and 108,024 million yen, respectively. The lease base term is 4 to 5 years. The resulting leases are being accounted for as operating leases. The resulting gains of these transactions, included in other income, were not significant. The Company has options to purchase the leased assets, or to terminate the leases and guarantee a specified value of the leased assets thereof, subject to certain conditions, during or at the end of the lease term.

Rental expenses for operating leases, including the above-mentioned sale-leaseback transactions were 29,049 million yen, 25,323 million yen and 6,811 million yen for the years ended March 31, 2004, 2003 and 2002, respectively.


- 119 -

MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Future minimum lease payments under non-cancelable capital leases and operating leases at March 31, 2004 are as follows:

   Yen (millions)

   Capital
leases


  Operating
leases


Year ending March 31

      

2005

  4,928  33,035

2006

  3,894  36,519

2007

  1,227  33,888

2008

  231  12,667

2009

  132  5,162

Thereafter

  164  1
   
  

Total minimum lease payments

  10,576  121,272
      

Less amount representing interest

  489   
   
   

Present value of net minimum lease payments

  10,087   

Less current portion

  4,498   
   
   

Long-term capital lease obligations

  5,589   
   
   

A subsidiary of the Company leases machinery and equipment. Leases of such assets are principally accounted for as direct financing leases. Investments in non-cancelable financing leases at March 31, 2004 and 2003 are as follows:

   Yen (millions)

   2004

  2003

Total minimum lease payments to be received

  375,948  421,913

Less amounts representing estimated executory cost

  15,405  17,908

Less unearned income

  18,720  37,106
   
  
   341,823  366,899

Less allowance for doubtful receivables

  4,733  4,536
   
  

Net investment in financing leases

  337,090  362,363

Less current portion

  118,358  124,795
   
  

Long-term investment in financing leases

  218,732  237,568
   
  


- 120 -

MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

The aggregate annual maturities of the investments in non-cancelable financing leases after March 31, 2004 are as follows:

   Yen (millions)

Year ending March 31

   

2005

  133,756

2006

  98,946

2007

  69,909

2008

  43,363

2009

  20,416

Thereafter

  9,558
   

Total minimum lease payments to be received

  375,948
   

(7)Long-Lived Assets

The Company periodically reviews the recorded value of its long-lived assets to determine if the future cash flows to be derived from these properties will be sufficient to recover the remaining recorded asset values. As discussed in Note 1 (p), the Company accounts for impairment of long-lived assets in accordance with SFAS No. 144 and SFAS No. 121 (prior to the adoption of SFAS No. 144).

The Company recognized impairment losses of 10,623 million yen of property, plant and equipment during fiscal 2004. One of the impairment losses is related to write-down of certain land and buildings at a domestic sales subsidiary to the fair value. Those assets are currently unused and the Company estimated the carrying amounts would not be recovered by the future cash flows. The fair value was determined by estimating the market value. The remaining impairment loss is mainly related to write-down of machinery and equipment to manufacture certain electric components at a foreign subsidiary. As the prices of these products significantly decreased due to highly competitive market, the Company projected that the future business of those products would result in operating losses. The fair value was determined by estimating the market value.

Due to the sale of certain assets and liabilities that consisted of a portion of the entertainment media disc manufacturing business at Panasonic Disc Services Corporation, the Company estimated that the carrying value of the remaining assets is impaired. As a result, the Company recognized an impairment loss of 2,375 million yen during fiscal 2003 related to write-down of the carrying value of machinery and equipment to manufacture entertainment media discs to their estimated fair values.


- 121 -

MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

The Company recognized an impairment loss of 24,420 million yen during fiscal 2002 related to the write-down of machinery and equipment to manufacture display devices and other components. As the prices of these products significantly decreased due to highly competitive market conditions, the Company projected that the future business of those products would result in operating losses.

Impairment losses recorded in fiscal 2004, 2003 and 2002 are included in other deductions of costs and expenses in the consolidated statements of operations.

(8)Goodwill and Other Intangible Assets

The changes in the carrying amount of goodwill by business segment for the years ended March 31, 2004 and 2003 are as follows. As discussed in Note 19, the Company has reclassified its segments effective April 1, 2003 and accordingly restated the figures of prior periods.

   Yen (millions)

 
   

AVC

Networks


  

Home

Appliances


  

Components

and Devices


  JVC

  Other

  Total

 

Balance at March 31, 2002 (Restated)

  3,197  12,880  70,506  2,943  6,312  95,838 

Goodwill acquired during the year (Restated)

  307,731  8,828  1,313  —    1,094  318,966 

Goodwill transferred to investments in associated companies (Restated)

  —    —    (4,177) —    —    (4,177)
   
  
  

 
  
  

Balance at March 31, 2003 (Restated)

  310,928  21,708  67,642  2,943  7,406  410,627 

Goodwill acquired during the year

  1,072  82  2,889  —    4,237  8,280 
   
  
  

 
  
  

Balance at March 31, 2004

  312,000  21,790  70,531  2,943  11,643  418,907 
   
  
  

 
  
  

The following table reconciles previously reported net loss and basic and diluted net loss per share as provisions of SFAS No. 142 were in effect for the year ended March 31, 2002.

 Maturities of investments in available-for-sale securities at March 31, 2001 and 2000 are as follows:
                   
Yen (millions)

20012000


FairFair
CostvalueCostvalue





Due within one year11,40111,421132,238132,314
Due after one year through five years173,167172,050113,426112,517
Due after five years2,0002,000
Equity securities369,972533,421377,069756,820





554,540716,892624,7331,003,651






- 83 -

MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements

  Yen (millions)

Proceeds from sale of available-for-sale securities for the years ended March 31, 2001, 2000 and 1999 were 202,023 million yen, 326,811 million yen and 434,082 million yen, respectively. The gross realized gains for the years ended March 31, 2001, 2000 and 1999 were 16,638 million yen, 40,590 million yen and 14,594 million yen, respectively. The gross realized losses for the years ended March 31, 2001, 2000 and 1999 were 2,932 million yen, 878 million yen and 396 million yen, respectively. The cost of securities sold in computing gross realized gains and losses is determined by the average cost method.
(5)Noncurrent Receivables
 
   The recorded investment in noncurrent receivables for which impairment has been recognized at March 31, 2001 and 2000 was 3,332 million yen and 4,903 million yen, respectively. Related allowance for doubtful receivables was not significant at March 31, 2001 and 2000. The average recorded investment in impaired receivables during the years ended March 31, 2001, 2000 and 1999 was 4,347 million yen, 6,462 million yen and 13,126 million yen, respectively. Additions charged to bad debt expenses were not significant for the years ended March 31, 2001, 2000 and 1999. Write-downs charged against the allowance were not significant for the years ended March 31, 2001, 2000 and 1999.2002

 
(6)

Reported net loss

  Long-Lived Assets(427,779)

Add back: goodwill amortization

7,190 
   The Company periodically reviews the recorded value of its long-lived assets to determine if the future cash flows to be derived from these properties will be sufficient to recover the remaining recorded asset values. As discussed in Note 1(p), the Company accounts for impairment of long-lived assets in accordance with SFAS No. 121.

Adjusted net loss

(420,589)



- 122 -

MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Yen

 
   The Company recognized an impairment2002

Basic net loss of 19,565 million yen during fiscal 2000 related to the write-down of the machinery and equipment to manufacture CRTs and other components.per share:

Reported net loss per share

(206.09)

Add back: goodwill amortization

3.46 
   As the prices of these products significantly decreased due to highly competitive market conditions, the Company projected that the future business of subsidiaries manufacturing those products would result in a

Adjusted basic net operating loss.loss per share

(202.63)


Diluted net loss per share:

Reported diluted net loss per share

(206.09)

Add back: goodwill amortization

3.46 
   An impairment

Adjusted diluted net loss recorded in fiscal 2000 is included in other deductions of costs and expenses in the consolidated statements of income.per share

(202.63)


Acquired intangible assets, excluding goodwill, at March 31, 2004 and 2003 are as follows:

   Yen (millions)

   
   2004

  2003

   
   Gross
carrying
amount


  Accumulated
amortization


  Gross
carrying
amount


  Accumulated
amortization


  Average
amortization
period


Amortizing intangible assets:

               

Patents

  34,449  24,769  31,827  22,757  8 years

Software

  112,470  61,099  97,243  40,233  3 years

Other

  11,838  6,461  9,822  6,402  15 years
   
  
  
  
   
   158,757  92,329  138,892  69,392   
   
  
  
  
   

   Yen (millions)

   2004

    2003

Non-amortizing intangible assets:

        

Leasehold

  4,464    1,407

Other

  2,207    3,903
   
    
   6,671    5,310
   
    


- 84123 -

MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Aggregate amortization expense for amortizing intangible assets for the years ended March 31, 2004 and 2003 was 23,789 million yen and 17,499 million yen, respectively. Estimated amortization expense for the next five years is as follows:

   Yen (millions)

Year ending March 31

   

2005

  20,339

2006

  16,217

2007

  9,655

2008

  2,161

2009

  1,353

The Company recognized an impairment loss of 1,043 million yen during fiscal 2004 related to write-down of non-amortizing intangible assets to the fair value, in connection with the decline of the market value. The impairment loss is included in other deductions of costs and expenses in the consolidated statements of operations.

(7)(9)Long-term Debt and Short-term Borrowings
Long-term debt at March 31, 2001 and 2000 is set forth below:
         
Yen (millions)

20012000


Convertible bonds, due 2002, interest 1.3%98,70898,893
Convertible bonds, due 2004, interest 1.4%97,74498,499
Convertible bonds issued by subsidiaries, due 2002 and 2005,
interest 0.35%—1.5%
45,48266,482
U.S. dollar unsecured bonds, due 2002, effective interest 5.8%125,152125,067
Straight bonds issued by a subsidiary, due 2001—2007,
interest 1.38%—2.15%
50,00020,000
Unsecured yen loans from banks and insurance companies,
principally by financial subsidiaries, due 2000—2006,
effective interest 1.2% in 2001 and 1.7% in 2000
393,392402,930
Other long-term debt48


810,478811,919
Less current portion268,937168,079



541,541643,840


The aggregate annual maturities of long-term debt after March 31, 2001 are as follows:

      
Yen (millions)


Year ending March 31:
2002268,937
2003239,137
2004175,312
200552,724
200643,246
Long-term debt at March 31, 2004 and 2003 is set forth below:

As is customary in Japan, short-term and long-term bank loans are made under general agreements which provide that security and guarantees for future and present indebtedness will be given upon request of the bank, and that the bank shall have the right, as the obligations become due, or in the event of their default, to offset cash deposits against such obligations due to the bank.

   Yen (millions)

   2004

  2003

Convertible bonds, due 2004, interest 1.4%

  —    97,742

Convertible bonds issued by a subsidiary, due 2005, interest 0.55% - 1.5%

  27,496  28,483

Straight bonds, due 2005, interest 0.42%

  100,086  100,120

Straight bonds, due 2007, interest 0.87%

  100,049  100,152

Straight bonds, due 2011, interest 1.64%

  100,000  100,000

Straight bonds issued by subsidiaries, due 2003 - 2007, interest 1.5% - 2.15%

  46,364  52,206

Unsecured yen loans from banks and insurance companies, principally by financial subsidiaries, due 2003 - 2008, effective interest 0.5% in 2004 and 2003

  293,732  322,630

Capital lease obligations

  10,087  8,473
   
  
   677,814  809,806

Less current portion

  217,175  221,604
   
  
   460,639  588,202
   
  


- 85124 -

MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

The aggregate annual maturities of long-term debt after March 31, 2004 are as follows:

   Yen (millions)

Year ending March 31

   

2005

  217,175

2006

  122,673

2007

  181,261

2008

  40,845

2009

  15,214

As is customary in Japan, short-term and long-term bank loans are made under general agreements which provide that security and guarantees for future and present indebtedness will be given upon request of the bank, and that the bank shall have the right, as the obligations become due, or in the event of their default, to offset cash deposits against such obligations due to the bank.

Each of the loan agreements grants the lender the right to request additional security or mortgages on property, plant and equipment. At March 31, 2004 and 2003, short-term loans subject to such general agreements amounted to 1,245 million yen and 27,062 million yen, respectively. The balance of short-term loans also includes borrowings under acceptances and short-term loans of foreign subsidiaries. The weighted-average interest rate on short-term borrowings outstanding at March 31, 2004 and 2003 was 4.6% and 4.8%, respectively.

Acceptances payable by foreign subsidiaries, in the amount of 549 million yen and 54 million yen at March 31, 2004 and 2003, respectively, are secured by a portion of the cash, accounts receivable and inventories of such subsidiaries. The amount of assets pledged is not calculable.

The convertible bonds maturing in 2005 issued by a subsidiary are redeemable at the option of the subsidiary at prices ranging from 101% of principal to 100% of principal near maturity.

Each of the loan agreements grants the lender the right to request additional security or mortgages on property, plant and equipment. At March 31, 2001 and 2000, short-term loans subject to such general agreements amounted to 88,069 million yen and 151,970 million yen, respectively. The balance of short-term loans represents borrowings under commercial paper, acceptances and short-term loans of foreign subsidiaries. The weighted average interest rates on short-term borrowings outstanding at March 31, 2001 and 2000 were 4.2% and 3.1%, respectively.
Acceptances payable by foreign subsidiaries, in the amount of 187 million yen and 242 million yen at March 31, 2001 and 2000, respectively, are secured by a portion of the cash, accounts receivable and inventories of such subsidiaries. The amount of assets pledged is not calculable.
The 1.3% convertible bonds maturing in 2002 are currently redeemable at the option of the Company at prices ranging from 101% of principal to 100% of principal, and are currently convertible into approximately 60,931,000 shares of common stock at 1,620 yen per share.
The 1.4% convertible bonds maturing in 2004 are redeemable from 2000 at the option of the Company at prices ranging from 103% of principal to 100% of principal, and are currently convertible into approximately 60,336,000 shares of common stock at 1,620 yen per share.
The convertible bonds maturing through 2005 issued by subsidiaries are redeemable at the option of the subsidiaries at prices ranging from 104% of principal to 100% of principal near maturity.
(8)(10)Retirement and Severance Benefits
The Company and certain subsidiaries have contributory, funded benefit pension plans covering substantially all employees who meet eligibility requirements. Benefits under the plans are primarily based on the combination of years of service and compensation.
The contributory, funded benefit pension plans include a portion of social security tax calculated in accordance with the Welfare Pension Insurance Law. The Company and certain subsidiaries contribute to the pension funds as well as to the social security tax portion. The employees contribute only to the social security tax portion.
In addition to the plans described above, upon retirement or termination of employment for reasons other than dismissal, employees are entitled to lump-sum payments based on the current rate of pay and length of service. If the termination is involuntary or caused by death, the severance payment is greater than in the case of voluntary termination. The lump-sum payment plans are not funded.

The Company and certain subsidiaries have contributory, funded benefit pension plans covering substantially all employees who meet eligibility requirements. Benefits under the plans are primarily based on the combination of years of service and compensation.

Effective April 1, 2002, the Company and certain of its subsidiaries amended their benefit pension plans by introducing a “point-based benefits system,” under which benefits are calculated based on accumulated points allocated to employees each year according to their job classification and years of service.


- 86125 -

MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Effective April 1, 1999, the Company adopted SFAS No. 87, “Employers’ Accounting for Pensions,” and SFAS No. 132, “Employers’ Disclosures about Pensions and Other Postretirement Benefits,” for the contributory, funded benefit pension plans and the unfunded lump-sum payment plans, as the effect of the current discount rate of actuarial assumptions on the pension funded status is expected to have a material effect in subsequent years. However, the effect of this change on consolidated financial statements for the year ended March 31, 2000 was not significant. Prior year consolidated financial statements have not been restated as the effects of the implementation of SFAS No. 87 and SFAS No. 132 are immaterial.
Net periodic benefit cost for the contributory, funded benefit pension plans and the unfunded lump-sum payment plans of the Company for the years ended March 31, 2001 and 2000 consisted of the following components:

         
Yen (millions)

20012000


 
Service cost – benefits earned during the year89,73786,391
Interest cost on projected benefit obligation84,66584,619
Expected return on plan assets(57,415)(49,389)
Amortization of net transition obligation9,9729,972
Recognized actuarial loss11,05415,561


 
Net periodic benefit cost138,013147,154


 


The contributory, funded benefit pension plans include those under Employees Pension Funds (EPF) as is stipulated by the Welfare Pension Insurance Law (the “Law”). The pension plans under the EPF are composed of the substitutional portion of Japanese Welfare Pension Insurance that the Company and certain of its subsidiaries operate on behalf of the Japanese Government, and the corporate portion which is the contributory defined benefit pension plan covering substantially all of their employees and provides benefits in addition to the substitutional portion.

In addition to the plans described above, upon retirement or termination of employment for reasons other than dismissal, employees are entitled to lump-sum payments based on the current rate of pay and length of service. If the termination is involuntary or caused by death, the severance payment is greater than in the case of voluntary termination. The lump-sum payment plans are not funded.

Effective April 1, 2002, the Company and certain of its subsidiaries amended their lump-sum payment plans to cash balance pension plans. Under the cash balance pension plans, each participant has an account which is credited yearly based on the current rate of pay and market-related interest rate.

Effective October 1, 2003, the Company and certain of its subsidiaries amended a part of their contributory, funded benefit pension plans.

Following the enactment of changes to the Law, the Company and certain of its subsidiaries obtained Government’s approval for exemption from the benefit obligation related to future employee services under the substitutional portion in fiscal 2003. After obtaining the approval, some of these companies obtained another approval for separation of the remaining benefit obligation of substitutional portion which is related to past employee services and returned the remaining benefit obligation along with the plan assets calculated pursuant to the Government formula by March 31, 2004. In accordance with EITF 03-2, “Accounting for the Transfer to the Japanese Government of the Substitutional Portion of Employee Pension Fund Liabilities,” the Company recognized a gain of 72,228 million yen under the caption of “Gain from the transfer of the substitutional portion of Japanese Welfare Pension Insurance” for the year ended March 31, 2004. This consists of 287,145 million yen of a subsidy from the Government calculated as the difference between accumulated benefit obligation settled and the amount transferred to the Government, 69,756 million yen of derecognition of previously accrued salary progression and 284,673 million yen of recognition of related unrecognized actuarial loss, at the time when the past benefit obligation was transferred.

The measurement date used to determine the pension measures for pension plans is December 31.


- 87126 -

MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Reconciliation of beginning and ending balances of the benefit obligations of the contributory, funded benefit pension plans and the unfunded lump-sum payment plans and the fair value of the plan assets, and actuarial assumptions used at March 31, 2001 and 2000 are as follows:

          
Yen (millions)

20012000


 
Change in benefit obligations:
Benefit obligations at beginning of year2,136,2231,951,275
Service cost89,73786,391
Interest cost84,66584,619
Plan participants’ contributions13,90213,714
Prior service cost(64,171)
Actuarial loss39,34164,649
Benefits paid(68,965)(60,399)
Foreign currency exchange impact4,478(4,026)


Benefit obligations at end of year2,235,2102,136,223


 
Change in plan assets:
Fair value of plan assets at beginning of year1,410,8721,191,545
Actual return on plan assets(134,692)164,084
Employer contributions78,08467,797
Plan participants’ contributions13,90213,714
Benefits paid(31,260)(23,652)
Foreign currency exchange impact3,731(2,616)


Fair value of plan assets at end of year1,340,6371,410,872


 
Funded status(894,573)(725,351)


Unrecognized net transition obligation13,27023,242
Unrecognized prior service cost(64,171)
Unrecognized actuarial loss387,078173,231


 
Accrued retirement and severance benefits recognized in the
consolidated balance sheet(558,396)(528,878)


 
Actuarial assumptions:
Discount rate4.0%4.0%
Expected return on plan assets4.0%4.0%
Rate of compensation increase2.6%2.6%

 


Net periodic benefit cost for the contributory, funded benefit pension plans, the unfunded lump-sum payment plans, and the cash balance pension plans of the Company for the three years ended March 31, 2004 consisted of the following components:

   Yen (millions)

 
   2004

  2003

  2002

 

Service cost – benefits earned during the year

  69,614  73,536  86,465 

Interest cost on projected benefit obligation

  73,665  78,909  84,846 

Expected return on plan assets

  (35,741) (46,496) (51,458)

Amortization of net transition obligation

  —    3,298  9,974 

Amortization of prior service benefit

  (9,879) (6,442) (3,965)

Recognized actuarial loss

  63,746  45,347  17,215 
   

 

 

Net periodic benefit cost

  161,405  148,152  143,077 
   

 

 


- 88127 -

MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Prior to April 1, 1999, the Company did not adopt SFAS No. 87 for the contributory, funded benefit pension plans of the Company as the effects on the consolidated financial statements of the implementation of SFAS No. 87 were immaterial.
Pension costs, excluding the social security tax portion, for the year ended March 31, 1999 amounted to 79,570 million yen. The contributions to the plans for the year ended March 31, 1999 for the portion of social security tax were 28,197 million yen. Approximately half of the portion of social security tax was contributed by the employees and half was contributed by the companies.
In addition, prior to April 1, 1999, retirement and severance benefit liabilities in the consolidated balance sheet were stated at the amount of the vested benefit obligation under the unfunded lump-sum payment plans, which would exist if all employees voluntarily terminated their employment at that date. Such liability exceeded the projected benefit obligation under the lump-sum payment plans. Benefit costs of the lump-sum payment plans represented benefit payments plus or minus the change in the vested benefit obligation and amounted to 49,306 million yen for the year ended March 31, 1999.

 


Reconciliation of beginning and ending balances of the benefit obligations of the contributory, funded benefit pension plans, the unfunded lump-sum payment plans, and the cash balance pension plans, and the fair value of the plan assets at March 31, 2004 and 2003 are as follows:

   Yen (millions)

 
   2004

  2003

 

Change in benefit obligations:

       

Benefit obligations at beginning of year

  2,787,688  2,481,297 

Service cost

  69,614  73,536 

Interest cost

  73,665  78,909 

Plan participants’ contributions

  —    3,442 

Prior service benefit

  (174,600) (6,570)

Actuarial (gain) loss

  (34,189) 213,564 

Benefits paid

  (69,626) (53,261)

Transfer of the substitutional portion

  (747,917) —   

Foreign currency exchange impact

  (3,978) (3,229)
        
   

 

Benefit obligations at end of year

  1,900,657  2,787,688 
   

 

Change in plan assets:

       

Fair value of plan assets at beginning of year

  1,256,922  1,310,040 

Actual return on plan assets

  117,406  (163,296)

Employer contributions

  148,927  137,273 

Plan participants’ contributions

  —    3,442 

Benefits paid

  (57,403) (28,089)

Transfer of the substitutional portion

  (391,016) —   

Foreign currency exchange impact

  (2,215) (2,448)
   

 

Fair value of plan assets at end of year

  1,072,621  1,256,922 
   

 

Funded status

  (828,036) (1,530,766)
   

 

Unrecognized prior service benefit

  (261,857) (97,136)

Unrecognized actuarial loss

  599,252  1,103,917 
   

 

Net amount recognized

  (490,641) (523,985)
   

 

Amounts recognized in the consolidated balance sheets consist of:

       

Retirement and severance benefits

  (801,199) (1,375,143)

Accumulated other comprehensive income (loss), gross of tax

  310,558  851,158 
   

 

Net amount recognized

  (490,641) (523,985)
   

 


- 89128 -

MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(9)Income Taxes
Income before income taxes and income taxes for the three years ended March 31, 2001 are summarized as follows:

                
Yen (millions)

DomesticForeignTotal



2001:
Income before income taxes49,54251,193100,735
Income taxes:
Current95,82022,035117,855
Deferred(68,585)591(67,994)



 
Total income taxes27,23522,62649,861



 
2000:
Income before income taxes99,538119,067218,605
Income taxes:
Current125,15553,290178,445
Deferred(33,251)(8,179)(41,430)



 
Total income taxes91,90445,111137,015



 
1999:
Income before income taxes153,04749,246202,293
Income taxes:
Current117,92534,378152,303
Deferred15,810(3,734)12,076



 
Total income taxes133,73530,644164,379



For the year ended March 31, 1999, domestic income taxes, deferred include the impact of 50,052 million yen, attributable to adjustments of net deferred tax assets to reflect reductions in Japan’s corporate income tax rate.

 


The accumulated benefit obligation for the pension plans was 1,834,134 million yen and 2,603,143 million yen at March 31, 2004 and 2003, respectively.

Weighted-average assumptions used to determine benefit obligations at March 31, 2004 and 2003 are as follows:

     

2004


    

2003


  

Discount rate

    2.7%    2.7% 

Rate of compensation increase

    1.8%    2.0% 

Weighted-average assumptions used to determine net cost for the three years ended March 31, 2004 are as follows:

   

2004


  

2003


  

2002


Discount rate

  2.7%  3.2%  4.0%

Expected return on plan assets

  2.7%  3.5%  4.0%

Rate of compensation increase

  2.0%  2.6%  2.6%

The expected return on plan assets is based on the portfolio as a whole and not on the sum of the returns on individual asset categories.

During the year ended March 31, 2004, the balance of “retirement and severance benefits” decreased, as a result of the derecognition of an additional minimum pension liability, due to the transfer of the substitutional portion of Japanese Welfare Pension Insurance, a plan amendment of the Company and certain of its domestic subsidiaries and an improved return on plan assets.

The weighted-average asset allocation of the Company’s pension plans at March 31, 2004 and 2003 are as follows:

     

2004


    

2003


  

Asset category:

           

Equity securities

    39%    45% 

Debt securities

    31    31 

Life insurance company general accounts

    13    13 

Other

    17    11 
     
    
 

Total

    100%    100% 
     
    
 


- 90129 -

MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

The Company and its subsidiaries are subject to a number of taxes based on earnings which, in aggregate, resulted in an average normal tax rate of approximately 41.9% for the years ended March 31, 2001 and 2000 and 47.6% for the year ended March 31, 1999.
The effective rates for the years differ from the normal tax rates for the following reasons:

              
200120001999



 
Normal tax rate41.9%41.9%47.6%
Tax credit for increased research expenses(2.8)(1.3)(0.9)
Lower tax rates of overseas subsidiaries(7.5)(3.2)(9.6)
Expenses not deductible for tax purposes11.26.67.6
Change in valuation allowance allocated to income tax expenses5.418.76.8
Adjustments of deferred tax assets and liabilities for enacted changes in tax laws and rates24.8
Other1.35.0



 
Effective tax rate49.5%62.7%81.3%



The significant components of deferred income tax expenses for the three years ended March 31, 2001 are as follows:

             
Yen (millions)

200120001999



 
Deferred tax expense (exclusive of the effects of other components listed below)(73,447)(82,267)(51,821)
Adjustments of deferred tax assets and liabilities for enacted changes in tax laws and rates50,052
Increase in the balance of valuation allowance for deferred tax assets5,45340,83713,845



 
(67,994)(41,430)12,076



 


Each plan of the Company has a different investment policy, which is designed to ensure sufficient plan assets available to provide future payments of pension benefits to the eligible plan participants and is individually monitored for compliance and appropriateness on an on-going basis. Considering the expected long-term rate of return on plan assets, each plan of the Company establishes a “basic” portfolio comprised of the optimal combination of equity securities and debt securities. Plan assets are invested in individual equity and debt securities using the guidelines of the “basic” portfolio in order to generate a total return that will satisfy the expected return on a mid-term to long-term basis. The Company evaluates the difference between expected return and actual return of invested plan assets on an annual basis to determine if such differences necessitate a revision in the formulation of the “basic” portfolio. The Company revises the “basic” portfolio when and to the extent considered necessary to achieve the expected long-term rate of return on plan assets.

The Company expects to contribute 142,174 million yen to its domestic defined benefit plans in the year ending March 31, 2005.

(11)Income Taxes

Income (loss) before income taxes and income taxes for the three years ended March 31, 2004 are summarized as follows:

   Yen (millions)

   Domestic

  Foreign

  Total

For the year ended March 31, 2004

         

Income before income taxes

  40,353  130,469  170,822

Income taxes:

         

Current

  43,723  33,652  77,375

Deferred

  25,702  (4,542) 21,160
   

 

 

Total income taxes

  69,425  29,110  98,535
   

 

 

For the year ended March 31, 2003

         

Income (loss) before income taxes

  (46,634) 115,550  68,916

Income taxes:

         

Current

  27,224  24,480  51,704

Deferred

  18,162  1,410  19,572
   

 

 

Total income taxes

  45,386  25,890  71,276
   

 

 


- 91130 -

MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at March 31, 2001 and 2000 are presented below:

           
Yen (millions)

20012000


Deferred tax assets:
Inventory valuation98,74987,229
Expenses accrued for financial statement purposes but not currently included in taxable income180,465145,235
Depreciation135,719130,556
Retirement and severance benefits149,540124,979
Tax loss carryforwards76,92073,709
Other103,61399,644


Total gross deferred tax assets745,006661,352
Less valuation allowance80,80775,720


Net deferred tax assets664,199585,632
 
Deferred tax liabilities:
Purchase accounting step-up of identifiable assets(3,971)(2,723)
Net unrealized holding gains of available-for-sale securities(65,968)(159,123)
Other(25,345)(25,809)


Total gross deferred tax liabilities(95,284)(187,655)


 
Net deferred tax assets568,915397,977


   Yen (millions)

 
   Domestic

  Foreign

  Total

 

For the year ended March 31, 2002

          

Loss before income taxes

  (537,387) (392) (537,779)

Income taxes:

          

Current

  12,450  21,452  33,902 

Deferred

  (77,619) (9,558) (87,177)
   

 

 

Total income taxes

  (65,169) 11,894  (53,275)
   

 

 

The net change in total valuation allowance for the years ended March 31, 2001 and 2000 were increases of 5,087 million yen and 37,445 million yen, respectively.
At March 31, 2001, certain subsidiaries had, for tax reporting purposes, net operating loss carryforwards of approximately 196,676 million yen, which will generally expire between 2002 and 2021.
For the years ended March 31, 2004 and 2003, domestic income taxes—deferred include the impact of 8,614 million yen and 22,317 million yen, respectively, attributable to adjustments of net deferred tax assets to reflect the reduction in the statutory income tax rate due to revisions to local enterprise income tax law on introduction of a new pro forma standard taxation system.

 


The Company and its subsidiaries in Japan are subject to a National tax of 30%, an Inhabitant tax of approximately 20.5%, and a deductible Enterprise tax of approximately 9.9% varying by local jurisdiction, which, in aggregate, resulted in a combined statutory tax rate in Japan of approximately 41.9% for the years ended March 31, 2004, 2003 and 2002.

The effective tax rates for the years differ from the combined statutory tax rates for the following reasons:

   2004

  2003

  2002

 

Combined statutory tax rate

  41.9% 41.9% (41.9)%

Tax credit related to research expenses

  (1.3) (2.3) (0.2)

Lower tax rates of overseas subsidiaries

  (10.6) (18.7) (0.8)

Expenses not deductible for tax purposes

  3.0  4.9  1.8 

Change in valuation allowance allocated to income tax expenses

  14.8  46.5  25.8 

Adjustments of deferred tax assets and liabilities for enacted changes in tax laws and rates

  5.0  32.4  —   

Other

  4.9  (1.3) 5.4 
   

 

 

Effective tax rate

  57.7% 103.4% (9.9)%
   

 

 


- 92131 -

MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Net deferred tax assets and liabilities at March 31, 2001 and 2000 are reflected in the accompanying consolidated balance sheets under the following captions:

         
Yen (millions)

20012000


 
Other current assets309,432252,168
Other assets282,558192,101
Other liabilities(23,075)(46,292)


 
Net deferred tax assets568,915397,977


(10)Stockholders’ Equity
In accordance with the Japanese Commercial Code, at least 50% of the amount of converted debt must be credited to the common stock account. The Company issued 580,241 shares, 326,535 shares and 26,464 shares in connection with the conversion of bonds for the years ended March 31, 2001, 2000 and 1999, respectively.
On April 1, 2000, the Company issued 16,321,187 shares under exchange offering in connection with the integration of two subsidiaries.
For the year ended March 31, 1999, 50,000,000 shares of the Company’s common stock were repurchased from the market and retired for an aggregate cost of 98,883 million yen. The entire repurchase cost of retired shares was charged to retained earnings in accordance with the Japanese Commercial Code.
The Japanese Commercial Code provides that an amount equal to at least 10% of appropriations paid in cash be appropriated as a legal reserve until such reserve equals 25% of stated capital. This reserve is not available for dividends but may be used to reduce a deficit or may be transferred to stated capital.
Cash dividends and transfers to the legal reserve charged to retained earnings during the three years ended March 31, 2001 represent dividends paid out during the periods and related appropriation to the legal reserve. The accompanying consolidated financial statements do not include any provision for the semi-annual dividend of 6.25 yen per share, totaling 12,995 million yen, proposed in June 2001 in respect of the year ended March 31, 2001 or for the related appropriation.

 


The significant components of deferred income tax expenses for the three years ended March 31, 2004 are as follows:

   Yen (millions)

 
   2004

  2003

  2002

 

Deferred tax expense (exclusive of the effects of other components listed below)

  20,376  27,608  (31,402)

Adjustment to deferred tax assets and liabilities for enacted changes in tax laws and regulations

  8,614  22,317  —   

Benefits of net operating loss carryforwards

  (7,830) (30,353) (55,775)
   

 

 

   21,160  19,572  (87,177)
   

 

 

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at March 31, 2004 and 2003 are presented below:

   Yen (millions)

 
   2004

  2003

 

Deferred tax assets:

       

Inventory valuation

  77,476  81,552 

Expenses accrued for financial statement purposes but not currently included in taxable income

  223,884  201,835 

Property, plant and equipment

  154,415  160,076 

Retirement and severance benefits

  236,071  410,816 

Tax loss carryforwards

  181,214  254,189 

Other

  166,878  139,861 
   

 

Total gross deferred tax assets

  1,039,938  1,248,329 

Less valuation allowance

  246,026  241,209 
   

 

Net deferred tax assets

  793,912  1,007,120 

Deferred tax liabilities:

       

Net unrealized holding gains of available-for-sale securities

  (71,185) (3,175)

Other

  (43,341) (35,888)
   

 

Total gross deferred tax liabilities

  (114,526) (39,063)
   

 

Net deferred tax assets

  679,386  968,057 
   

 


- 93132 -

MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

The Company’s directors and certain senior executives may be granted options to purchase the Company’s common stock. All stock options have a four-year term and become fully exercisable two years from the date of grant. Information with respect to stock options is as follows:

          
NumberWeighted average
of sharesexercise price (yen)


 
Balance at March 31, 1998
Granted113,0002,291


Balance at March 31, 1999113,0002,291
Granted116,0002,476


Balance at March 31, 2000229,0002,385
Granted109,0002,815
Exercised(33,000)2,291
Forfeited(10,000)2,291


Balance at March 31, 2001,
weighted average remaining life – 4.38 years295,0002,557


The Company applies Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations in accounting for its stock option plans described above. Accordingly, as the option price at the date of grant exceeded the fair market value of common shares, no compensation costs have been recognized in connection with the plans. If the accounting provision of SFAS No. 123, “Accounting for Stock Based Compensation,” had been adopted, the impact on the Company’s net income for the three years ended March 31, 2001 would not be material.
Treasury stock reserved for options at March 31, 2001 and 2000 was 295,000 shares and 229,000 shares, respectively. In accordance with the Japanese Commercial Code, there are certain restrictions on payment of dividends in connection with the treasury stock repurchased for stock options. As a result of restrictions on the treasury stock repurchased for stock options, retained earnings of approximately 739 million yen at March 31, 2001 are restricted as to the payment of cash dividends.
On June 28, 2001, the annual shareholders’ meeting approved that the Company’s stock option rights would be allotted to 30 directors and 9 senior executives at amounts ranging from 2,000 to 10,000 common shares each. These stock option rights are exercisable from July 1, 2003 to June 30, 2007. Pursuant to such authorization in June 2001, 128,000 common shares were repurchased on July 2, 2001.

 


In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more likely than not that the Company will realize the benefits of these deductible differences, net of the existing valuation allowances at March 31, 2004.

The net change in total valuation allowance for the years ended March 31, 2004 and 2003 was an increase of 4,817 million yen and 15,259 million yen, respectively.

At March 31, 2004, the Company and certain of its subsidiaries had, for income tax purposes, net operating loss carryforwards of approximately 483,924 million yen, the substantial majority of which expire in fiscal 2009 and thereafter.

Net deferred tax assets and liabilities at March 31, 2004 and 2003 are reflected in the accompanying consolidated balance sheets under the following captions:

   Yen (millions)

 
   2004

  2003

 

Other current assets

  320,098  293,653 

Other assets

  388,295  688,384 

Other current liabilities

  (2,310) (4,518)

Other liabilities

  (26,697) (9,462)
   

 

Net deferred tax assets

  679,386  968,057 
   

 

The Company has not recognized a deferred tax liability for the undistributed earnings of its foreign subsidiaries and foreign corporate joint ventures of 649,059 million yen as of March 31, 2004, because the Company currently does not expect those unremitted earnings to reverse and become taxable to the Company in the foreseeable future. A deferred tax liability will be recognized when the Company no longer plans to permanently reinvest undistributed earnings. Calculation of related unrecognized deferred tax liability is not practicable.


- 94133 -

MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(11)(12)Other Comprehensive Income (Loss)Stockholders’ Equity
Components of other comprehensive income (loss) for the three years ended March 31, 2001 are as follows:
                       
Yen (millions)

Pre-taxTaxNet-of-tax
amountexpenseamount



For the year ended March 31, 2001:
Translation adjustments144,684144,684
Unrealized holding gains of available-for-sale securities:
Unrealized holding gains (losses) arising during the period(192,578)78,714(113,864)
Less: Reclassification adjustment for gains included in net income(13,706)5,743(7,963)



Net unrealized gains (losses)(206,284)84,457(121,827)



Other comprehensive income (loss)(61,600)84,45722,857



 
For the year ended March 31, 2000:
Translation adjustments(139,946)(139,946)
Unrealized holding gains of available-for-sale securities:
Unrealized holding gains (losses) arising during the period225,671(94,556)131,115
Less: Reclassification adjustment for gains included in net income(39,712)16,639(23,073)



Net unrealized gains (losses)185,959(77,917)108,042



Other comprehensive income (loss)46,013(77,917)(31,904)



 
For the year ended March 31, 1999:
Translation adjustments(122,257)(122,257)
Unrealized holding gains of available-for-sale securities:
Unrealized holding gains (losses) arising during the period42,486(20,223)22,263
Less: Reclassification adjustment for gains included in net income(14,198)6,758(7,440)



Net unrealized gains (losses)28,288(13,465)14,823



Other comprehensive income (loss)(93,969)(13,465)(107,434)



In accordance with the Japanese Commercial Code, at least 50% of the amount of converted debt must be credited to the common stock account. The Company issued 2,468 shares, 1,234 shares and 58,941,866 shares in connection with the conversion of bonds for the years ended March 31, 2004, 2003 and 2002, respectively.

 


The Company also provided 10,444,421 shares of its treasury stock in connection with the conversion of bonds for the year ended March 31, 2004. The difference of carrying values of the bonds converted and treasury stocks provided was charged to capital surplus.

On April 1, 2003, the Company issued 5,127,941 shares under share exchange transactions to transform two subsidiaries into wholly owned subsidiaries. On October 1, 2002, the Company issued 309,407,251 shares for the share exchange transactions described in Note 2.

The Company may repurchase its common stock from the market pursuant to a revision in the Japanese Commercial Code. For the years ended March 31, 2004 and 2003, respectively, 56,483,929 and 93,797,377 shares were repurchased for the aggregate cost of approximately 69,394 million yen and 115,770 million yen, respectively, primarily with the intention to hold as treasury stock to improve capital efficiency. For the year ended March 31, 2002, 54,000,000 shares were repurchased for the aggregate cost of approximately 90,598 million yen, primarily with the intention to hold as treasury stock to improve capital efficiency, and to use for the share exchange transactions described in Note 2.

As discussed in Note 2, MEI transformed MCI, KME, MSC, MKEI and MGCS into wholly owned subsidiaries through share exchange transactions on October 1, 2002. MEI provided 309,407,251 shares of newly issued common stock and 59,984,408 shares of its treasury stock to the minority shareholders.

The Japanese Commercial Code provides that an amount equal to at least 10% of appropriations paid in cash be appropriated as a legal reserve until the aggregated amount of capital surplus and legal reserve equals 25% of stated capital. The capital surplus and legal reserve, up to 25% of stated capital, are not available for dividends but may be used to reduce a deficit or may be transferred to stated capital. The capital surplus and legal reserve, exceeding 25% of stated capital, are available for distribution upon approval of the shareholders’ meeting.

Cash dividends and transfers to the legal reserve charged to retained earnings during the three years ended March 31, 2004 represent dividends paid out during the periods and related appropriation to the legal reserve. The accompanying consolidated financial statements do not include any provision for the year-end dividend of 7.75 yen per share, totaling approximately 17,968 million yen, planned to be proposed in June 2004 in respect of the year ended March 31, 2004 or for the related appropriation.


- 95134 -

MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(12)Net Income per Share
A reconciliation of the numerators and denominators of the basic and diluted net income per share computation for the three years ended March 31, 2001 is as follows:

              
Yen (millions)

200120001999



 
Net income available to common stockholders41,50099,70924,246
Effect of assumed conversions:
Convertible bonds, due 2002, interest 1.3%747747674
Convertible bonds, due 2004, interest 1.4%795802



 
Diluted net income43,042101,25824,920



             
Number of shares

200120001999



 
Average common shares outstanding2,079,235,8712,062,295,7432,089,988,449
Dilutive effect of assumed conversions:
Convertible bonds,
due 2002, interest 1.3%60,941,15261,090,69061,117,490
Convertible bonds,
due 2004, interest 1.4%60,376,13260,941,462
Stock options23,84815,403



 
Diluted common shares outstanding2,200,577,0032,184,343,2982,151,105,939



              
Yen

200120001999



 
Net income per share:
Basic19.9648.3511.60
Diluted19.5646.3611.58

Approximately 136 million of the potential common shares were excluded from the computation of diluted net income per share for the year ended March 31, 1999, because their inclusion would have had an antidilutive effect on net income per share.

 


In accordance with the Japanese Commercial Code, there are certain restrictions on payment of dividends in connection with the treasury stock repurchased. As a result of restrictions on the treasury stock repurchased, retained earnings of approximately 163,817 million yen at March 31, 2004 were restricted as to the payment of cash dividends.

The Company’s directors and certain senior executives were granted options to purchase the Company’s common stock. All stock options have a four-year term and become fully exercisable two years from the date of grant. Information with respect to stock options is as follows:

   Number of
shares


  Weighted-average
exercise price (Yen)


Balance at March 31, 2001

  295,000  2,557

Granted

  128,000  2,163

Forfeited

  (28,000) 2,490
   

 

Balance at March 31, 2002

  395,000  2,434

Granted

  116,000  1,734

Forfeited

  (40,000) 2,398
   

 

Balance at March 31, 2003

  471,000  2,265

Forfeited

  (57,000) 2,574
   

 

Balance at March 31, 2004, weighted-average remaining life – 2.76 years

  414,000  2,223
   

 

Treasury stock reserved for options at March 31, 2004 and 2003 was 298,000 shares and 355,000 shares, respectively.


- 96135 -

MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(13)Other Comprehensive Income (Loss)

Components of other comprehensive income (loss) for the three years ended March 31, 2004 are as follows:

   Yen (millions)

 
   Pre-tax
amount


  Tax
expense


  Net-of-tax
amount


 

For the year ended March 31, 2004

          

Translation adjustments

  (121,163) —    (121,163)

Unrealized holding gains of available-for-sale securities:

          

Unrealized holding gains (losses) arising during the period

  179,822  (67,626) 112,196 

Less: Reclassification adjustment for gains included in net income

  (9,628) 3,618  (6,010)
   

 

 

Net unrealized gains (losses)

  170,194  (64,008) 106,186 
   

 

 

Unrealized holding gains of derivative instruments:

          

Unrealized holding gains (losses) arising during the period

  13,410  (5,462) 7,948 

Less: Reclassification adjustment for gains included in net income

  (314) 132  (182)
   

 

 

Net unrealized gains (losses)

  13,096  (5,330) 7,766 
   

 

 

Minimum pension liability adjustments

  502,543  (189,192) 313,351 
   

 

 

Other comprehensive income (loss)

  564,670  (258,530) 306,140 
   

 

 


- 136 -

MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

   Yen (millions)

 
   Pre-tax
amount


  Tax
expense


  Net-of-tax
amount


 

For the year ended March 31, 2003

          

Translation adjustments

  (106,003) —    (106,003)

Unrealized holding gains of available-for-sale securities:

          

Unrealized holding gains (losses) arising during the period

  (166,295) 63,963  (102,332)

Less: Reclassification adjustment for losses included in net loss

  52,518  (19,080) 33,438 
   

 

 

Net unrealized gains (losses)

  (113,777) 44,883  (68,894)
   

 

 

Unrealized holding gains of derivative instruments:

          

Unrealized holding gains (losses) arising during the period

  (7,315) 3,077  (4,238)

Less: Reclassification adjustment for losses included in net loss

  5,198  (2,178) 3,020 
   

 

 

Net unrealized gains (losses)

  (2,117) 899  (1,218)
   

 

 

Minimum pension liability adjustments

  (605,507) 230,523  (374,984)
   

 

 

Other comprehensive income (loss)

  (827,404) 276,305  (551,099)
   

 

 


- 137 -

MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

   Yen (millions)

 
   Pre-tax
amount


  Tax
expense


  Net-of-tax
amount


 

For the year ended March 31, 2002

          

Translation adjustments

  102,832  —    102,832 

Unrealized holding gains of available-for-sale securities:

          

Unrealized holding gains (losses) arising during the period

  (133,095) 53,314  (79,781)

Less: Reclassification adjustment for losses included in net loss

  85,337  (33,608) 51,729 
   

 

 

Net unrealized gains (losses)

  (47,758) 19,706  (28,052)
   

 

 

Unrealized holding gains of derivative instruments:

          

Unrealized holding gains (losses) arising during the period

  (28,241) 11,821  (16,420)

Less: Reclassification adjustment for losses included in net loss

  28,482  (11,934) 16,548 
   

 

 

Net unrealized gains (losses)

  241  (113) 128 
   

 

 

Minimum pension liability adjustments

  (199,175) 48,813  (150,362)
   

 

 

Other comprehensive income (loss)

  (143,860) 68,406  (75,454)
   

 

 


- 138 -

MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(14)Net Income (Loss) per Share

A reconciliation of the numerators and denominators of the basic and diluted net income (loss) per share computation for the three years ended March 31, 2004 is as follows:

   Yen (millions)

 
   2004

  2003

  2002

 

Net income (loss) available to common stockholders

       42,145      (19,453) (427,779)

Effect of assumed conversions:

          

Convertible bonds, due 2004, interest 1.4%

  727  —    —   
   
  

 

Diluted net income (loss)

  42,872  (19,453)   (427,779)
   
  

 

   Number of shares

   2004

  2003

  2002

Average common shares outstanding

  2,321,835,314  2,234,968,907  2,075,667,943

Dilutive effect of assumed conversions:

         

Convertible bonds, due 2004, interest 1.4%

  59,460,443  —    —  
   
  
  

Diluted common shares outstanding

  2,381,295,757  2,234,968,907  2,075,667,943
   
  
  

   Yen

 
   2004

  2003

  2002

 

Net income (loss) per share:

          

Basic

      18.15      (8.70) (206.09)

Diluted

      18.00      (8.70) (206.09)

The effect of potentially dilutive securities was not included in the calculation of diluted net loss per share for the years ended March 31, 2003 and 2002 as their effect would be antidilutive due to the net loss incurred for the respective year.


- 139 -

MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(15)Supplementary Information to the Statements of IncomeOperations and Cash Flows
Research and development costs, advertising costs and shipping and handling costs charged to income for the three years ended March 31, 2001 are as follows:
             
Yen (millions)

200120001999



 
Research and development costs543,804525,557499,986
Advertising costs112,139114,587128,285
Shipping and handling costs149,563152,387159,177

Included in other deductions of costs and expenses for the year ended March 31, 2001 is a loss of 100,195 million yen associated with the implementation of the regional-based employee remuneration system and early retirement program in several domestic subsidiaries.
Included in other income of revenues for the year ended March 31, 2000 is a gain of 58,566 million yen from the sale of EPCOS AG shares, a German electronic components manufacturing joint venture, held by a subsidiary, upon its initial public offering.
Included in other deductions of costs and expenses for the year ended March 31, 1999 is a loss of 11,277 million yen related to liquidation of a U.S. joint venture for production of computer peripherals components.
Foreign exchange losses of 6,730 million yen is included in other deductions of costs and expenses for the year ended March 31, 2001. Foreign exchange gains and losses included in the consolidated statements of income for the years ended March 31, 2000 and 1999 were not significant.
Shipping and handling costs are included in selling, general and administrative expenses in the consolidated statements of income.
Research and development costs, advertising costs, shipping and handling costs and depreciation charged to operations for the three years ended March 31, 2004 are as follows:

   Yen (millions)

   2004

  2003

  2002

Research and development costs

  579,230  551,019  566,567

Advertising costs

  146,046  130,426  116,867

Shipping and handling costs

  141,570  140,498  137,681

Depreciation

  253,762  283,434  341,549

Included in other deductions of costs and expenses for the years ended March 31, 2004 and 2003 is a loss of 45,056 million yen and 12,476 million yen, respectively, associated with the implementation of the early retirement programs in some domestic companies, and for the year ended March 31, 2002 is a loss of 164,056 million yen associated with the implementation of the early retirement programs and the regional-based employee remuneration system in some domestic companies.

 


Included in other deductions of costs and expenses for the years ended March 31, 2004 and 2002 is a loss of 19,572 million yen and 61,622 million yen, respectively, associated with the closure or integration of several manufacturing facilities or locations. Of 61,622 million yen, a total of 6,660 million yen was accrued at March 31, 2002 and paid during fiscal 2003.

Included in other income of revenues for the year ended March 31, 2003 is a gain of 10,805 million yen from the sale of Panasonic Disc Services Corporation.

Foreign exchange gains and losses included in other deductions of costs and expenses for the years ended March 31, 2004, 2003 and 2002 is a loss of 13,588 million yen, 7,962 million yen and 13,209 million yen, respectively.

Shipping and handling costs are included in selling, general and administrative expenses in the consolidated statements of operations.

In fiscal 2004, the Company sold, without recourse, trade accounts receivable of 4,661 million yen to independent third parties for proceeds of 4,657 million yen, and recorded losses on the sale of trade accounts receivable of 4 million yen, which is included in selling, general and administrative expenses. The Company is responsible for servicing the receivables. The sale of the receivables was accounted for under SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.”


- 97140 -

MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Income taxes and interest expenses paid and noncash investing and financing activities for the three years ended March 31, 2001 are as follows:

              
Yen (millions)

200120001999



 
a) Cash paid:
 Interest48,98547,72970,672
 Income taxes146,694178,184160,046
 
b) Noncash investing and financing activities:
 Conversion of bonds94052856
 Transfer of ownership arising on capital
     transactions by consolidated and
     associated companies9693,0042,960
 Stock issued under exchange offering50,107

(14)Foreign Exchange Contracts
The Company and its subsidiaries operate internationally, giving rise to significant exposure to market risks arising from changes in foreign exchange rates. Derivative financial instruments are comprised principally of foreign exchange contracts utilized by the Company and some of its subsidiaries to hedge these risks. The Company and its subsidiaries do not hold or issue financial instruments for trading purposes.
The Company and its subsidiaries are exposed to credit risk in the event of nonperformance by counterparties to foreign exchange contracts, but such risk is considered minor because of the high credit rating of the counterparties.
The contract amounts of foreign exchange contracts at March 31, 2001 and 2000 are as follows:

          
Yen (millions)

20012000


 
Forward:
To sell foreign currencies350,087373,417
To buy foreign currencies109,52382,444
Options purchased to sell foreign currencies16,43026,711
Options purchased to buy foreign currencies34,4121,260
Options written to buy foreign currencies24,95624,820
Options written to sell foreign currencies40,0804,734

 


Interest expenses and income taxes paid, and noncash investing and financing activities for the three years ended March 31, 2004 are as follows:

   Yen (millions)

   2004

  2003

  2002

Cash paid:

         

Interest

  30,505  32,587  53,055

Income taxes

  65,121  46,744  65,407

Noncash investing and financing activities:

         

Conversion of bonds

  16,924  2  95,486

Capital transactions by consolidated and associated companies

  —    650  2,830

Stock provided under exchange offering

  6,579  638,308  —  

Contribution of assets and liabilities to associated companies

  3,278  31,740  —  

(16)Derivatives and Hedging Activities

The Company and its subsidiaries operate internationally, giving rise to significant exposure to market risks arising from changes in foreign exchange rates, interest rates and commodity prices. The Company assesses these risks by continually monitoring changes in these exposures and by evaluating hedging opportunities. Derivative financial instruments utilized by the Company and some of its subsidiaries to hedge these risks are comprised principally of foreign exchange contracts, interest rate swaps, cross currency swaps and commodity derivatives. The Company does not hold or issue derivative financial instruments for any purposes other than hedging.

Gains and losses related to derivative instruments are classified in other income (deductions) in the consolidated statements of operations. The amount of the hedging ineffectiveness and net gain or loss excluded from the assessment of hedge effectiveness is not material for the three years ended March 31, 2004. Amounts included in accumulated other comprehensive income (loss) at March 31, 2004 are expected to be recognized in earnings principally over the next twelve months. The maximum term over which the Company is hedging exposures to the variability of cash flows for foreign currency exchange risk is approximately five months.

The Company and its subsidiaries are exposed to credit risk in the event of non-performance by counterparties to the derivative contracts, but such risk is considered mitigated by the high credit rating of the counterparties.


- 98141 -

MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

The contract amounts of foreign exchange contracts, interest rate swaps, cross currency swaps and commodity futures at March 31, 2004 and 2003 are as follows:

   Yen (millions)

   2004

  2003

Forward:

      

To sell foreign currencies

  398,782  387,605

To buy foreign currencies

  205,039  214,075

Options purchased to sell foreign currencies

  44,886  50,883

Options written to sell foreign currencies

  29,046  —  

Variable-paying interest rate swaps

  115,000  115,000

Cross currency swaps

  14,914  8,420

Commodity futures:

      

To sell commodity

  14,915  13,341

To buy commodity

  52,888  43,214

(17)The Company and its subsidiaries enter into forward exchange contracts and options to hedge firm commitments expected to be denominated in foreign currencies, principally U.S. dollars. The terms of these foreign exchange contracts rarely extend beyond a few months.
(15)Fair Value of Financial Instruments

The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value:

Cash and cash equivalents, Time deposits, Trade receivables, Short-term borrowings, Trade payables and Accrued expenses

The carrying amount approximates fair value because of the short maturity of these instruments.

Short-term investments

The fair value of short-term investments is estimated based on quoted market prices.

Noncurrent receivables

The carrying amount which is generally stated at the net realizable value approximates fair value.

Investments and advances

The fair value of investments and advances is estimated based on quoted market prices or the present value of future cash flows using appropriate current discount rates.

Long-term debt

The fair value of long-term debt is estimated based on quoted market prices or the present value of future cash flows using appropriate current discount rates.

Derivative financial instruments

The fair value of derivative financial instruments, all of which are used for hedging purposes, are estimated by obtaining quotes from brokers.


- 142 -

MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

The estimated fair values of financial instruments, all of which are held or issued for purposes other than trading, at March 31, 2004 and 2003 are as follows:

   Yen (millions)

 
   2004

  2003

 
   Carrying
amount


  Fair
value


  Carrying
amount


  Fair
value


 

Non-derivatives:

             

Assets:

             

Short-term investments

  2,684  2,684  1,196  1,196 

Investments and advances

  812,586  813,750  544,544  545,194 

Liabilities:

             

Long-term debt, including current portion

  (677,814) (684,314) (809,806) (821,381)

Derivatives:

             

Other current assets:

             

Forward:

             

To sell foreign currencies

  9,446  9,446  —    —   

To buy foreign currencies

  —    —    1,664  1,664 

Options purchased to sell foreign currencies

  746  746  127  127 

Variable-paying interest rate swaps

  135  135  298  298 

Cross currency swaps

  229  229  19  19 

Commodity futures:

             

To sell commodity

  —    —    672  672 

To buy commodity

  5,709  5,709  —    —   

Other current liabilities:

             

Forward:

             

To sell foreign currencies

  —    —    (1,383) (1,383)

To buy foreign currencies

  (469) (469) —    —   

Options written to sell foreign currencies

  (455) (455) —    —   

Cross currency swaps

  (2) (2) (45) (45)

Commodity futures:

             

To sell commodity

  (1,223) (1,223) —    —   

To buy commodity

  —    —    (1,940) (1,940)

Limitations

Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instruments. These estimates are subjective in nature and involve uncertainties and matters of significant judgements and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.


- 143 -

MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(18)Commitments and Contingent Liabilities

The Company provides guarantees to third parties on bank loans provided to its employees, associated companies and customers. The guarantees for the employees are principally made for their housing loans. The guarantees for the associated companies and customers are made to enhance the credit of these companies. For each guarantee provided, the Company is required to perform under the guarantee if the guaranteed party defaults on a payment. The maximum amount of undiscounted payments the Company would have to make in the event of default is 7,488 million yen. The carrying amount of the liabilities recognized for the Company’s obligations as a guarantor under those guarantees at March 31, 2004 and 2003 was insignificant.

A financial subsidiary of the Company provides guarantees to third parties on certain consumer loans of its customers. For each guarantee provided, the subsidiary is required to perform under the guarantee if the guaranteed party defaults on a payment. The maximum amount of undiscounted payments the subsidiary would have to make in the event of default is 23,417 million yen. The carrying amount of the liabilities recognized for the subsidiary’s obligations as a guarantor under those guarantees at March 31, 2004 and 2003 was insignificant.

As discussed in Note 6, in connection with the sale and lease back of certain machinery and equipment, the Company and its subsidiary guarantee a specific value of the leased assets. For each guarantee provided, the Company or the subsidiary are required to perform under the guarantee if certain conditions are met during or at the end of the lease term. The maximum amount of undiscounted payments the Company or the subsidiary would have to make in the event of these conditions are met is 27,771 million yen. The carrying amount of the liabilities recognized for the Company and the subsidiary’s obligations as guarantors under those guarantees at March 31, 2004 and 2003 was insignificant.

The Company issues contractual product warranties under which it generally guarantees the performance of products delivered and services rendered for a certain period or term. The change in accrued warranty costs for the years ended March 31, 2004 and 2003 are summarized as follows:

   Yen (millions)

 
   2004

  2003

 

Balance at beginning of year

  24,834  20,202 

Liabilities accrued for warranties issued during the period

  39,409  38,102 

Warranty claims paid during the period

  (31,805) (33,293)

Changes in liabilities for pre-existing warranties during the period, including expirations

  (1,718) (177)
   

 

Balance at end of year

  30,720  24,834 
   

 


- 144 -

MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

At March 31, 2004, commitments outstanding for the purchase of property, plant and equipment approximated 15,535 million yen.

Contingent liabilities at March 31, 2004 for discounted export bills of exchange amounted to 6,663 million yen.

Liabilities for environmental remediation costs are recorded when it is probable that obligations have been incurred and the amounts can be reasonably estimated. In January 2003, the Company announced that disposed electric equipment that contained polychlorinated biphenyls (“PCB equipment”) might be buried in the ground of its four manufacturing facilities and one former manufacturing facility. The applicable laws require that PCB equipment be appropriately maintained and disposed of by July 2016. The Company estimated the total cost of 8,274 million yen for necessary actions such as investigating whether the PCB equipment is buried at the facilities, including excavations, and maintaining and disposing the PCB equipment that is already discovered, which amount has been accrued since it represents management’s best estimate or minimum of the cost, but the payments are not considered to be fixed and reliably determinable.

There are a number of legal actions against the Company and certain subsidiaries. Management is of the opinion that damages, if any, resulting from these actions will not have a material effect on the Company’s consolidated financial statements.

(19)Segment Information

In accordance with SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information,” the segments reported below are the components of the Company for which separate financial information is available that is evaluated regularly by the chief operating decision maker of the Company in deciding how to allocate resources and in assessing performance. In January 2003, the Company launched a new business domain-based organizational structure, followed by the introduction of a new groupwide management system effective from April 1, 2003.

The Company has reclassified its previous four business segments: AVC Networks, Home Appliances, Industrial Equipment, and Components and Devices, into five new segments effective from April 1, 2003. Accordingly, the figures of all prior periods presented have been restated.

The five new segments are: “AVC Networks,” “Home Appliances,” “Components and Devices,” “JVC,” and “Other.” Business segments correspond to categories of activity classified primarily by markets, products and brand names. “AVC Networks” includes video and audio equipment, and information and communications equipment. “Home Appliances” includes home appliances and household equipment. “Components and Devices” includes electronic components, semiconductors, electric motors and batteries. “JVC” includes products marketed under the brand name of JVC or Victor. “Other” includes electronic-parts-mounting machines, industrial robots and industrial equipment.


- 145 -

MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Information by segment for the three years ended March 31, 2004 is shown in the tables below:

By Business Segment:

   Yen (millions)

 
   2004  2003  2002 
   
  (Restated)

  (Restated)

 

Sales:

          

AVC Networks:

          

Customers

  3,771,516  3,621,211  3,473,339 

Intersegment

  68,752  46,984  35,285 
   

 

 

Total

  3,840,268  3,668,195  3,508,624 

Home Appliances:

          

Customers

  1,174,138  1,169,608  1,141,543 

Intersegment

  49,052  27,873  29,242 
   

 

 

Total

  1,223,190  1,197,481  1,170,785 

Components and Devices:

          

Customers

  1,073,108  1,145,092  1,066,456 

Intersegment

  586,564  564,640  468,272 
   

 

 

Total

  1,659,672  1,709,732  1,534,728 

JVC:

          

Customers

  802,650  827,967  812,479 

Intersegment

  16,349  23,542  22,340 
   

 

 

Total

  818,999  851,509  834,819 

Other:

          

Customers

  658,332  637,836  580,020 

Intersegment

  290,396  181,219  145,337 
   

 

 

Total

  948,728  819,055  725,357 

Eliminations

  (1,011,113) (844,258) (700,476)
   

 

 

Consolidated total

  7,479,744  7,401,714  7,073,837 
   

 

 


- 146 -

MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

   Yen (millions)

 
   2004  2003  2002 
   
  (Restated)

  (Restated)

 

Segment profit (loss):

          

AVC Networks

  129,102  82,828  (35,626)

Home Appliances

  52,759  45,240  32,611 

Components and Devices

  50,099  31,213  (95,714)

JVC

  24,675  21,863  (12,345)

Other

  14,701  13,042  (32,388)

Corporate and eliminations

  (75,844) (67,615) (55,536)
   

 

 

Total segment profit (loss)

  195,492  126,571  (198,998)
   

 

 

Interest income

  19,564  22,267  34,361 

Dividends received

  5,475  4,506  8,219 

Gain from the transfer of the substitutional portion of Japanese Welfare Pension Insurance

  72,228  —    —   

Other income

  59,544  64,677  54,146 

Interest expense

  (27,744) (32,805) (45,088)

Other deductions

  (153,737) (116,300) (390,419)
   

 

 

Consolidated income (loss) before income taxes

  170,822  68,916  (537,779)
   

 

 

Identifiable assets:

          

AVC Networks

  2,090,130  2,355,671  2,026,953 

Home Appliances

  701,143  805,437  895,931 

Components and Devices

  1,157,984  1,317,882  1,456,440 

JVC

  503,943  488,595  520,543 

Other

  754,117  795,103  830,256 

Corporate and eliminations

  2,230,695  2,072,005  2,038,334 
   

 

 

Consolidated total

  7,438,012  7,834,693  7,768,457 
   

 

 

Depreciation (including intangibles other than goodwill):

          

AVC Networks

  85,085  81,332  108,513 

Home Appliances

  31,674  39,367  41,757 

Components and Devices

  103,898  133,113  159,265 

JVC

  16,339  16,596  28,009 

Other

  28,954  20,570  6,469 

Corporate and eliminations

  11,601  9,955  9,639 
   

 

 

Consolidated total

  277,551  300,933  353,652 
   

 

 


- 147 -

MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

   Yen (millions)

   2004  2003  2002
   
  (Restated)

  (Restated)

Capital investment (including intangibles other than goodwill):

         

AVC Networks

  80,543  77,008  98,052

Home Appliances

  26,268  34,720  33,658

Components and Devices

  142,540  119,639  174,509

JVC

  17,735  14,709  16,303

Other

  28,298  20,525  8,366

Corporate and eliminations

  21,376  21,213  13,814
   
  
  

Consolidated total

  316,760  287,814  344,702
   
  
  

Corporate expenses include certain corporate R&D expenditures and general corporate expenses.

Corporate assets consist of cash and cash equivalents, time deposits, marketable securities in short-term investments, investments and advances and other assets related to unallocated expenses.

Intangibles mainly represent patents and software.

By Geographical Area:

Sales attributed to countries based upon the customer’s location and long-lived assets are as follows:

   Yen (millions)

   2004

  2003

  2002

Sales:

         

Japan

  3,477,492  3,453,836  3,313,912

North and South America

  1,326,940  1,420,802  1,495,258

Europe

  1,080,143  999,637  839,248

Asia and Others

  1,595,169  1,527,439  1,425,419
   
  
  

Consolidated total

  7,479,744  7,401,714  7,073,837
   
  
  

United States of America included in North and South America

  1,184,446  1,282,861  1,353,502


- 148 -

MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

   Yen (millions)

   2004

  2003

  2002

Long-lived assets:

         

Japan

  1,359,677  1,412,415  1,171,115

North and South America

  64,955  80,104  137,981

Europe

  54,456  68,216  68,155

Asia and Others

  222,420  223,597  270,414
   
  
  

Consolidated total

  1,701,508  1,784,332  1,647,665
   
  
  

United States of America included in North and South America

  58,297  71,554  129,439

There are no individually material countries of which sales and long-lived assets should be separately disclosed in North and South America, Europe and Asia and Others, except for the United States of America.

Transfers between business segments or geographic segments are made at arms-length prices. There are no sales to a single external major customer for the three years ended March 31, 2004.


- 149 -

MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

The following information shows sales, geographical profit (loss) and identifiable assets which are attributed to geographic areas based on the country location of the Company or its subsidiaries for the three years ended March 31, 2004. In addition to the disclosure requirements under SFAS No. 131, the Company discloses this information as supplemental information in light of the disclosure requirements of the Japanese Securities and Exchange Law, which a Japanese public company is subject to:

   Yen (millions)

 
   2004

  2003

  2002

 

Sales:

          

Japan:

          

Customers

  3,989,576  4,032,432  3,866,575 

Intersegment

  1,521,459  1,107,962  1,150,530 
   

 

 

Total

  5,511,035  5,140,394  5,017,105 

North and South America:

          

Customers

  1,271,914  1,364,283  1,408,838 

Intersegment

  25,269  26,116  36,910 
   

 

 

Total

  1,297,183  1,390,399  1,445,748 

Europe:

          

Customers

  1,014,687  922,312  770,886 

Intersegment

  12,648  16,938  15,907 
   

 

 

Total

  1,027,335  939,250  786,793 

Asia and Others:

          

Customers

  1,203,567  1,082,687  1,027,538 

Intersegment

  972,843  754,725  802,986 
   

 

 

Total

  2,176,410  1,837,412  1,830,524 

Eliminations

  (2,532,219) (1,905,741) (2,006,333)
   

 

 

Consolidated total

  7,479,744  7,401,714  7,073,837 
   

 

 

Geographical profit (loss):

          

Japan

  131,796  88,152  (166,134)

North and South America

  23,258  22,449  (4,092)

Europe

  16,325  21,741  (14,600)

Asia and Others

  89,706  71,016  48,530 

Corporate and eliminations

  (65,593) (76,787) (62,702)
   

 

 

Consolidated total

  195,492  126,571  (198,998)
   

 

 


- 150 -

MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

   Yen (millions)

   2004

  2003

  2002

Identifiable assets:

         

Japan

  3,887,504  4,445,983  4,170,989

North and South America

  411,615  526,918  602,427

Europe

  308,687  335,813  402,238

Asia and Others

  858,238  831,289  872,628

Corporate and eliminations

  1,971,968  1,694,690  1,720,175
   
  
  

Consolidated total

  7,438,012  7,834,693  7,768,457
   
  
  

(20)Subsequent Event

On April 1, 2004, the Company acquired 19.2% of the issued common shares of MEW through a tender offer, of which the Company had a 31.8% equity ownership until then, to obtain its controlling interest.

This acquisition also resulted in another acquisition of controlling interest of PanaHome Corporation (PanaHome) because both the Company and MEW have 27% equity ownership.

The results of operations of MEW and PanaHome will be included in the consolidated financial statements since that date. MEW is a manufacturer of household electric equipment, building products and related materials based in Osaka, Japan. As a result of the acquisition, the Company is expected to be a leading provider of a comprehensive range of home electric and household equipment and systems in Japan. It also expects to reduce costs through economies of scale and sharing of research and development resources and marketing channels. The aggregate purchase cost of additional MEW shares was 147,187 million yen and was paid in cash. The carrying value of the Company’s common shares of MEW immediately before the acquisition was 200,174 million yen. The carrying value of the Company’s existing common shares of PanaHome at April 1, 2004 was 22,861 million yen.


- 151 -

MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

The purchase price of additional MEW shares has been preliminarily allocated based upon the initial estimated fair value of the identifiable assets acquired and liabilities assumed at the date of acquisition. The excess of the purchase price over fair value of net identifiable assets was preliminarily allocated to goodwill. The Company’s new basis of investments in MEW and PanaHome upon the acquisition of additional shares of MEW was 343,844 million yen, which consisted of the purchase price of acquired shares and the carrying value of the existing shares, net of deferred tax liabilities of 26,378 million yen on the outside basis of existing shares that had been accounted for using the equity method. Such new basis of investments in MEW and PanaHome was allocated as follows:

   The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value:Yen (millions)

Current assets

  Cash and cash equivalents, Time deposits, Trade receivables, Short-term borrowings, Trade payables and Accrued expenses658,544

Property, plant and equipment

440,584

Other assets

287,998
   The carrying amount approximates fair value because of the short maturity of these instruments.

Total assets acquired

  Short-term investments
1,387,126
   The fair value of short-term investments is estimated based on quoted market prices.

Current liabilities

  Noncurrent receivables335,899

Noncurrent liabilities

419,803
   The carrying amount which is generally stated at the net realizable value approximates fair value.

Total liabilities assumed

  Investments and advances
755,702
   The fair value of investments and advances is estimated based on the quoted market prices or the present value of future cash flows using appropriate current discount rates.

Minority interests

  Long-term debt
287,580
   The fair value of long-term debt is estimated based on the quoted market prices or the present value of future cash flows using appropriate current discount rates.

Net assets acquired

  Derivative financial instruments
343,844
   The fair value of derivative financial instruments, consisting principally of foreign exchange contracts, all of which are used for hedging purposes, are estimated by obtaining quotes from brokers.

The allocation of the purchase price is preliminary and subject to adjustments following the completion of the valuation process.


- 152 -

 


Schedule II

- 99 -

MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

The estimated fair values of financial instruments, all of which are held or issued for purposes other than trading, at March 31, 2001 and 2000 are as follows:

                   
Yen (millions)

20012000


CarryingFairCarryingFair
amountvalueamountvalue




 
Non-derivatives:
Assets:
Short-term investments11,42111,421136,883136,883
Investments and advances1,008,1701,009,1221,161,7571,164,740
Liabilities:
Long-term debt, including current portion(809,111)(903,698)(792,802)(975,617)
Derivatives relating to long-term debt, including current portion(1,367)(1,399)(19,117)(19,106)

Limitations
Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instruments. These estimates are subjective in nature and involve uncertainties and matters of significant judgments and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.
(16)Commitments and Contingent Liabilities
At March 31, 2001, commitments outstanding for the purchase of property, plant and equipment approximated 50,379 million yen. Contingent liabilities at March 31, 2001 for discounted export bills of exchange and guarantees of loans amounted to approximately 105,246 million yen, including 78,965 million yen for loans guaranteed principally on behalf of associated companies and customers.
There are a number of legal actions against the Company and certain subsidiaries. Management is of the opinion that damages, if any, resulting from these actions will not have a material effect on the Company’s consolidated financial statements.

 


- 100 -

MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(17)Quarterly Financial Data (Unaudited)
Quarterly net sales, net income (loss) and net income (loss) per share for the two years ended March 31, 2001 are set forth in the following table:

                 
Yen (millions), except per share information

2001

NetNet incomeNet income
Netincome(loss) per share:(loss) per share:
sales(loss)basic (yen)diluted (yen)




Quarter ended
 
June 301,772,3759,3994.524.45
September 301,964,66641,97320.1919.25
December 311,992,62822,78210.9610.53
March 311,951,892(32,654)(15.70)(15.70)
 
 
Yen (millions), except per share information

2000

Net incomeNet income
NetNetper share:per share:
salesincomebasic (yen)diluted (yen)




Quarter ended
 
June 301,755,4069,5524.634.55
September 301,837,28624,51411.8911.40
December 311,866,73660,65629.4127.95
March 311,839,9594,9872.422.42


- 101 -

Schedule II

MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
AND SUBSIDIARIES

Valuation and Qualifying Accounts and Reserves

(In millions of yen)

Years ended March 31, 2001, 20002004, 2003 and 1999

                          
Deduct

BalanceAdd
atAdd-Bad(deduct)-Balance
beginningchargeddebtscumulativeat end
oftowrittentranslationof
periodincomeoffReversaladjustmentsperiod






Allowance for doubtful
trade receivables:
 
        200142,09813,28912,4601,9291,53242,530
 
        200063,64910,25228,6701,473(1,660)42,098
 
        199962,74213,5058,7812,454(1,363)63,649
 
Allowance for doubtful
noncurrent receivables:
 
        20011443,1603,20698
 
        20003041,7281,888144
 
        1999523219304
2002

 

         Deduct

      
   Balance
at
beginning
of
period


  Add-
charged
to
income


  Bad
debts
written
off


  Reversal

  Add (deduct)-
cumulative
translation
adjustments


  Balance
at end of
period


Allowance for doubtful trade receivables:

                  

2004

  53,043  3,154  3,088  3,662  (1,574) 47,873

2003

  43,265  17,621  2,919  3,011  (1,913) 53,043

2002

  45,239  4,507  3,729  4,013  1,261  43,265

Allowance for doubtful noncurrent receivables:

                  

2004

  —    —    —    —    —    —  

2003

  50  —    —    50  —    —  

2002

  98  1,514  1,562  —    —    50


- 102153 -

Item 18.    Financial Statements

Item 19.Exhibits

Not applicable

Item 19.    Exhibits

Documents filed as exhibits to this annual report are as follows;follows:

(1)
1.1  ARTICLES OF INCORPORATION, as amendedArticles of Incorporation of the Registrant (English translation)
(2)1.2  SHARE HANDLING REGULATIONS, as amendedShare Handling Regulations of the Registrant (English translation)
1.3Regulations of the Board of Directors of the Registrant (English translation) [incorporated by reference to the Annual Report on Form 20-F (File No. 1-06784) filed on September 10, 2003]
1.4Regulations of the Board of Corporate Auditors of the Registrant (English translation) [incorporated by reference to the Annual Report on Form 20-F (File No. 1-06784) filed on September 10, 2003]
2.1Specimen common stock certificates of the Registrant (English translation) [incorporated by reference to the Annual Report on Form 20-F (File No. 1-06784) filed on September 10, 2003]
2.2Form of Amended and Restated Deposit Agreement among the Registrant, Morgan Guaranty Trust Company of New York (now JP Morgan Chase Bank) as Depositary and all owners and holders from time to time of American Depositary Receipts, including the form of American Depositary Receipt [incorporated by reference to the Registration Statement on Form F-6 (File No. 333-12694) filed on October 4, 2000]
4.1Liability Limitation Agreement (English translation) [Matsushita and each of Josei Ito and Toshio Morikawa, entered into a Liability Limitation Agreement, each dated June 27, 2003, in the form of this Exhibit.] [incorporated by reference to the Annual Report on Form 20-F (File No. 1-06784) filed on September 10, 2003]
8.1Subsidiaries of the Registrant [List of significant subsidiaries (see Section C of Item 4)]
11.1Code of Ethics for Directors and Executive Officers (English translation)
12.1Certification of the principal executive officer of the Company required by Rule 13a-14(a)
12.2Certification of the principal financial officer of the Company required by Rule 13a-14(a)
13.1Certification required by Rule 13a-14(a) and Section 1350 of Chapter 63 of Title 18 of the United States Code

The Company has not included as exhibits certain instruments with respect to its long-term debt, the amount of debt authorized under each of which does not exceed 10% of its total assets, and it agrees to furnish a copy of any such instrument to the Securities and Exchange Commission upon request.


- 154 -

 


- 103 -

SIGNATURES

Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the Company certifies that it meets all of the requirements for filing on Form 20-F and has duly caused this annual report to be signed on its behalf by the undersigned, thereunto duly authorized.

   
 

MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.


(Registrant)
Date: July 24, 2001By/s/ Shigeru Nakatani

Date:

Shigeru Nakatani

September 10, 2004

By/s/    Yukitoshi Onda

Yukitoshi Onda

President of

Panasonic Finance (America), Inc.

1 Rockefeller Plaza, Suite 1001,

New York, N.Y. 10020-2002


Index to Exhibits

 

Documents filed as exhibits to this annual report are as follows:

1.1Articles of Incorporation of the Registrant (English translation)
1.2Share Handling Regulations of the Registrant (English translation)
1.3Regulations of the Board of Directors of the Registrant (English translation) [incorporated by reference to the Annual Report on Form 20-F (File No. 1-06784) filed on September 10, 2003]
1.4Regulations of the Board of Corporate Auditors of the Registrant (English translation) [incorporated by reference to the Annual Report on Form 20-F (File No. 1-06784) filed on September 10, 2003]
2.1Specimen common stock certificates of the Registrant (English translation) [incorporated by reference to the Annual Report on Form 20-F (File No. 1-06784) filed on September 10, 2003]
2.2Form of Amended and Restated Deposit Agreement among the Registrant, Morgan Guaranty Trust Company of New York (now JP Morgan Chase Bank) as Depositary and all owners and holders from time to time of American Depositary Receipts, including the form of American Depositary Receipt [incorporated by reference to the Registration Statement on Form F-6 (File No. 333-12694) filed on October 4, 2000]
4.1Liability Limitation Agreement (English translation) [Matsushita and each of Josei Ito and Toshio Morikawa, entered into a Liability Limitation Agreement, each dated June 27, 2003, in the form of this Exhibit.] [incorporated by reference to the Annual Report on Form 20-F (File No. 1-06784) filed on September 10, 2003]
8.1Subsidiaries of the Registrant [List of significant subsidiaries (see Section C of Item 4)]
11.1Code of Ethics for Directors and Executive Officers (English translation)
12.1Certification of the principal executive officer of the Company required by Rule 13a-14(a)
12.2Certification of the principal financial officer of the Company required by Rule 13a-14(a)
13.1Certification required by Rule 13a-14(a) and Section 1350 of Chapter 63 of Title 18 of the United States Code