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B.		Capitalization and Indebtedness
		Not applicable

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

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.

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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;

		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:

		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:

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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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: