1UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONForm
Washington D.C. 20549FORM 20-F
ANNUAL REPORT PURSUANT TO SECTIONS 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year endedMarch 31,
19982001
Commission file number1-6784MATSUSHITA DENKI SANGYO KABUSHIKI KAISHA
---------------------------------------- (Exact
(Exact name ofregistrantRegistrant as specified in its charter)MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
---------------------------------------- (Translation
(Translation ofregistrant'sRegistrant’s name into English)Japan
(Jurisdiction
(Jurisdiction of incorporation or organization)1006, Oaza Kadoma,
Kadoma City,Kadoma-shi, Osaka, Japan-------------------------------------------- (Address
(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 Stock Exchange - --------------------------- -------------------------------------------------- Common Stock** New York Stock Exchange and Pacific Stock Exchange - -------------- -------------------------------------------------- * American Depositary Shares evidenced by American Depositary Receipts. Each American Depositary Share represents ten shares of Common Stock. ** Par value 50 Japanese yen per share.
Title of each class Name of each exchange on which registered American Depositary Shares* New York Stock Exchange and Pacific Exchange Common 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(Title of Class) Securities for which there is a reporting obligation pursuant
to Section 15(d) of the Act.None
(Title(Title of Class) This form contains
78103 pages.2 -2-TABLE OF CONTENTSCONTENTS
Page Cautionary Statement Regarding Forward-Looking Statements 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 4 A. History and Development of the Company 4 B. Business Overview 7 C. Organizational Structure 17 D. Property, Plants and Equipment 18 Item 5. Operating and Financial Review and Prospects 20 A. Operating Results 20 B. Liquidity and Capital Resources 26 C. Research and Development 27 D. Trend Information 28 E. New Accounting Pronouncements 29 F. Information by Segment 30 Item 6. Directors, Senior Management and Employees 33 A. Directors and Senior Management 33 B. Compensation 38 C. Board Practices 39 D. Employees 39 E. Share Ownership 39 Item 7. Major Shareholders and Related Party Transactions 41 A. Major Shareholders 41 B. Related Party Transactions 42 C. Interests of Experts and Counsel 42
Page Item 8. Financial Information 42 A. Consolidated Statements and Other Financial Information 42 B. Significant Changes 44 Item 9. The Offer and Listing 45 A. Offer and Listing Details 45 B. Plan of Distribution 46 C. Markets 46 D. Selling Shareholders 46 E. Dilution 46 F. Expenses of the Issue 47 Item 10. Additional Information 47 A. Share Capital 47 B. Memorandum and Articles of Association 47 C. Material Contracts 56 D. Exchange Controls 57 E. Taxation 57 F. Dividends and Paying Agents 60 G. Statement by Experts 60 H. Documents on Display 60 I. Subsidiary Information 60 Item 11. Quantitative and Qualitative Disclosures about Market Risk 61 Item 12. Description of Securities Other than Equity Securities 63 PART II Item 13. Defaults, Dividend Arrearages and Delinquencies 64 Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds 64 Item 15. [ Reserved ] 64 Item 16. [ Reserved ] 64 PART III Item 17. Financial Statements 65 Item 18. Financial Statements 102 Item 19. Exhibits 102 - 1 -
Indicate the number of outstanding shares of each of the
issuer'sissuer’s classes of capital or common stock as of the close of the period covered by the annual report.
Outstanding as of ---------------------------------Title of Class March 31, 1998March 30, 1998 -------------- (Japan2001March 29, 2001 (Japan Time) (New(New York Time) -------------- ---------------Common Stock -— 50 yen par value per share2,112,318,3102,079,572,737 American Depositary Shares, each
representing10 shares1 share of common stock4,287,65841,976,087 Indicate by check mark whether the
registrantCompany (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 theregistrantCompany was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No.--- ---Indicate by check mark which financial statement item the
registrantCompany has elected to follow.
Item 17. X Item 18. .--- ---All information contained in this Report is as of March 31,
19982001 or for the year ended March 31,19982001 (fiscal1998)2001) 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
22, 199812, 2001 was141.10 yen=124.10 yen = U.S.$1.Cautionary Statement Regarding Forward-Looking Statements
- --------------------------------------------------------- AnyThis annual report contains forward-looking statements in the context of the U.S. Private Securities Litigation Reform Act of 1995 about the future performance of Matsushita and its Group companies (the Matsushita Group). To the extent that statements in this
Annual Report, other thanannual report do not relate strictly to historical or current facts,arethey may constitute forward-looking statements. These forward-looking statementswhichare based on the Company’s current assumptions and beliefs in light of the information currently available to it, and involve known and unknown risks anduncertainties that could causeuncertainties. The Company’s actual actions or results may differ materially from those discussed in the forward-looking statements. The Company undertakes no obligation todiffer materially. Such potentialpublicly update any forward-looking statements after the date of this annual report, but investors are advised to consult any further disclosures by the Company in its subsequent filings pursuant to the Securities Exchange Act of 1934.Specific risks and uncertainties include,
without limitation, domestic and overseasbut are not limited to, economic conditions,such asparticularly consumer spendinghousing constructionandprivatecorporate capital expendituresespecially underin thecontinuingly sluggish economic environment ofUnited 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; currencyexchangerate fluctuations,especially amongnotably between the yen, the U.S. dollar, the euro, Asian currencies andEuropeanother 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 withwhichtimely and cost-effective introductions of new products in markets that are highly competitive in terms of both price and technology; the ability of the Matsushitaoperates its international business; and Matsushita's abilityGroup to maintainitscompetitive strength in many product and geographicalareas through new product introductionsareas; 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; and fluctuations in market prices of securities and othermeansassets ina highly competitive market, price-wise or technology-wise, pertinent to the electronics industry towhich the Companyprimarily belongs.has holdings.- 2 -
PART I
Item 1.
DescriptionIdentity ofBusiness GENERAL Matsushita Electric Industrial Co., Ltd. (hereinafter, unless the context otherwise requires, "Matsushita" or the "Company" refers to Matsushita Electric Industrial Co., Ltd.Directors, Senior Management andits consolidated subsidiaries as a group) is one of the world's leading producers of electronicAdvisersNot applicable
Item 2. Offer Statistics and
electric products.3Expected TimetableNot applicable
Item 3. Key Information
A. Selected Financial Data
Yen (billions), except per share amounts and yen exchange rates Fiscal year ended March 31, 2001 2000 1999 1998 1997 Net sales 7,682 7,299 7,640 7,891 7,676 Income before income taxes 101 219 202 356 332 Net income 42 100 24 99 138 Per common share: Net income: Basic 19.96 48.35 11.60 47.04 65.39 Diluted 19.56 46.36 11.58 44.01 60.64 Dividends 12.50 14.00 12.50 13.00 12.50 ($0.116 ) ($0.125 ) ($0.097 ) ($0.107 ) ($0.112 ) Total assets 8,156 7,955 8,055 8,661 8,857 Long-term debt 542 644 709 690 923 Stockholders’ equity 3,773 3,684 3,642 3,854 3,842 Common stock 211 210 209 209 208 Number of shares issued at year-end (thousands) 2,079,573 2,062,671 2,062,345 2,112,318 2,111,157 Year-end 125.54 102.73 118.43 133.29 123.72 Average 110.60 111.35 128.19 122.78 113.19 High 104.19 101.53 108.83 111.42 104.49 Low 125.54 124.45 147.14 133.99 124.54
Yen exchange rates for each month during the Jan. Feb. Mar. Apr. May Jun. previous six months: 2001 2001 2001 2001 2001 2001 High 114.26 114.88 117.33 121.68 118.88 119.13 Low 118.35 117.62 125.54 126.75 123.67 124.73 - 3 -
The Company was incorporated in Japan on December 15, 1935 under the laws of Japan as Matsushita Denki Sangyo Kabushiki Kaisha 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 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 (TV) sets and refrigerators. Matsushita continued to grow during the following decades by expanding its product range to include color TV sets, hi-fi components, air conditioners, video tape recorders, industrial equipment and information and communications equipment, as well as electronic components. Overseas sales and production expansion was also a significant factor
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. 2. Beginning in fiscal 2001, the Company adopted Statements of Financial Accounting Standards (SFAS) No.115, “Accounting for Certain Investments in Debt and Equity Securities,” and accordingly, 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
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 growth in these decades. 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 several trademarks, including "Panasonic," "National," "Technics," "Quasar," "Victor" and "JVC." In the 1990s, Matsushita is basing its growth on technological advancement and the use of electronics technology in every phase of life. The Company has been expanding its development activities in such areas as next-generation audiovisual equipment, multimedia products, and advanced electronic components and devices, many items of which are incorporating digital technology. Its priority product areas include optical discs (such as DVDs), mobile communications equipment, display devices and semiconductors. In early 1998, "next-generation digital TV systems" was added as the fifth mid-term priority area. In December 1990, the Company acquired MCA INC. (MCA), a leading U.S. entertainment company, for approximately U.S.$6.1 billion. In May 1993, the Company and N.V. Philips' Gloeilampenfabrieken, now Koninklijke Philips Electronics N.V. (Philips), terminated their joint venture company, Matsushita Electronics Corp. (MEC), and the Company acquired Philips' 35% equity share in MEC for 185 billion yen, thus making MEC a wholly-owned subsidiary. In April 1995, the Company merged with Matsushita Housing Products Co. Ltd., a wholly-owned subsidiary engaged in the manufacture and sale of housing-related products. In June 1995, the Company sold an 80% interest in MCA, now named Universal Studios, Inc., to The Seagram Company Ltd. for approximately U.S.$5.7 billion, leaving the Company with a 20% interest. Effective April 1, 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, speed decision making and more efficiently allocate resources across a broader range than that afforded by each single product division. In March 1998, the Company also announced a preliminary decision on a package of new management initiatives aimed at better sharing interests with shareholders. As part of this package, management decided in the following months, with approval at the annual shareholders' meeting in late June 1998, to repurchase up to 50 million shares of the parent company's common stock from the stock market for retirement, to a maximum value of 100 billion yen, within a one-year period.4 - 4 - At the same time, as an incentive to Board members and employees toward the enhancement of corporate value, the parent company decided to grant stock option rights (exercisable from July 1, 2000 to June 30, 2004) to 32 Board members and 4 select senior executives, at amounts ranging from 2,000 to 10,000 common shares each, and implemented a stock-price-linked remuneration plan, under which a modest amount of cash payment will be offered once a year in addition to ordinary salary and bonus payments to approximately 11,000 employees of manager-level or above (effective fromfiscal1999 through fiscal 2001). SALES CATEGORIES From fiscal 1998, the Company reclassified its product categories for sales breakdown reporting purposes, whereby overall Company sales are divided into three major sectors: Consumer products, Industrial products and Components, as shown in the table below. The new categories are classified by type of product and customer, rather than by product group as was previously the case, so as to more properly show the Company's current business nature, trends, areas and markets. Major changes in the reclassification are: audiovisual (AV) equipment for broadcast, business and industrial use previously included in "Video equipment" has been transferred to "Information and communications equipment" within the new "Industrial products" category; AV equipment mainly for the automotive industry previously in "Audio equipment" is now in "Industrial equipment" of the new "Industrial products" category; batteries in the "Batteries and kitchen-related products" category are now in the "Components" category; kitchen-related products previously in the same category as batteries now belong to "Home appliances and household equipment" within the "Consumer products" category; bicycles and photographic products previously in the "Other" category have been moved to "Home appliances and household equipment" of the new "Consumer products" category; and prerecorded video and audio tapes and discs also previously included in "Other" now belong to "Video and audio equipment" of the "Consumer products" category. In the following table, Matsushita's sales breakdown according to these new classifications is shown for the last three fiscal years, with prior year figures restated accordingly.
Yen (billions) -------------------------------------------------- Fiscalyear ended March 31,-------------------------------------------------- 19982001 (“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. - 4 -
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. 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, 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. - 5 -
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, 1996 ------------ ------------ --------------Consumer products Videothe Matsushita parent company established a new organizational structure, setting up four internal divisional companies – responsible for AVC (audiovisual andaudio equipment 1,885 24% 1,804 24% 1,675 25% Homecomputer products), home appliances and household equipment,1,474 18 1,638 21 1,453 21 ------ ---- ------ ---- ------ ---- Subtotal 3,359 42 3,442 45 3,128 46 Industrial products Informationair conditioners, andcommuni- cations equipment 2,264 29 2,021 26 1,552 23 Industrial equipment 701 9 701 9 685 10 ------ ---- ------ ---- ------ ---- Subtotal 2,965 38 2,722 35 2,237 33 Components 1,567 20 1,512 20 1,430 21 ------ ---- ------ ---- ------ ---- Total 7,891 100% 7,676 100% 6,795 100% ====== ==== ====== ==== ====== ====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. 5 - 5 - Consumer Products - ----------------- Consumer products is Matsushita's traditional and primary business area, in which the Company maintains a high competitive edge in Japan and overseas markets. Sales in this category, consisting of video and audio equipment and home appliances and household equipment, totaled 3,359 billion yen, representing 42% of total Company sales in fiscal 1998. Major products in this category are as follows. Video and Audio Equipment The Company's largest revenue source in the video and audio equipment field is home-use videocassette recorders (VCRs), including VCR decks, camcorders and related products. The Company's home VCR decks range broadly from high-quality picture and sound units, such as S-VHS VCR models, including those with satellite broadcast tuners and those compatible with the 16:9 wide aspect ratio (wide-screen) TV format, to easy-to-operate units, such as VHS VCR models with fewer control buttons. In camcorders, Matsushita offers a variety of compact VHS-C and S-VHS-C models to the worldwide market. In addition, to meet the trend toward digitalization of video equipment in recent years, the Company has been strengthening its new line of digital camcorders since it launched the world's first consumer-use digital model using smaller 6.35mm cassette tapes in 1995. In fiscal 1998, to add impetus to the expansion of this product line, it introduced in Japan three new compact digital camcorders equipped with liquid crystal display (LCD) monitors; a camera-style model, a palm-sized model, and a high-performance model incorporating three charge-coupled devices (CCDs), all of which were favorably received in the market. As related products, Matsushita also offers digital still cameras, as well as digital video printers that can be used to print still pictures from digital camcorders or digital still cameras. Matsushita's broad range of television receivers is designed to meet demand in all segments of the Japanese and international markets. Increasing emphasis has recently been placed, especially in Japan, on models that offer larger screens and enhanced picture quality, including wide-screen and high-definition television (HDTV) sets. Matsushita is also readying itself for the burgeoning demand for multi-channel, multi-functional digital TV broadcasting by manufacturing and selling set-top boxes (STBs) to receive new digital satellite TV broadcasts in Japan since fiscal 1997 and by preparing for introduction of STBs for digital terrestrial TV broadcasts scheduled to commence in the United States and Europe in late 1998. Matsushita is also active in promoting DVD products. Following its introduction of the industry's first DVD players in fiscal 1997, the Company has been expanding its product range, and began marketing of the world's first portable DVD players in fiscal 1998. Matsushita also provides supports for disc production and software development. Matsushita's product range of video equipment also includes color TV/VCR combination units, large-screen projection TV systems, laser disc players, and such flat screen TVs as LCD TVs and plasma display TVs. In the area of audio equipment, Matsushita produces a large variety of products, such as radio receivers, radio/cassette stereos, portable headphone players, compact disc (CD) players, video CD players and Mini Disc (MD) players, as well as stereo hi-fi equipment and electronic musical instruments.6- 6 -
In response to growing market demand for compact audio equipment in recent years, Matsushita has been strengthening such product lines as portable headphone players and CD players by offering a number of new models, including those that attained a long continuous playing time through the use of compact high-performance batteries and those with a unique design and sturdy body suitable for outdoor use. In the domestic market, the Company further introduced the world's smallest portable MD player, as well as compact stereo component system including a 5-CD and 5-MD changer, during fiscal 1998. This category also includes prerecorded video and audio tapes and discs. Home Appliances and Household Equipment Matsushita's vast array of home appliance products includes refrigerators, air conditioners, home laundry equipment (such as washing machines and dryers), vacuum cleaners, electric irons, dishwashers, microwave ovens, rice cookers and other cooking appliances, electric fans, air purifiers, and electric and kerosene heaters. 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 electric lamps, bicycles, cameras and flash units, and water purifiers. Matsushita maintains its position as a leader of the Japanese home appliance industry, consistently supplying innovative and energy-efficient products that satisfy the needs of highly discerning Japanese consumers, including their growing concern for environmental issues and energy costs. Recent examples include refrigerators equipped with inverter-driven compressors that allow low power consumption and featuring greater storage capacity, including models which employ a CFC substitute with an ozone-depletion coefficient of zero as a refrigerant, air conditioners with improved energy consumption and dehumidification and deodorizing functions using compact scroll-type compressors, and washing machines that feature shorter washing time, lower water consumption and higher energy efficiency. In the household equipment area, the Company also seeks to provide user-friendly products that meet market needs, with environmental, health and hygienic concerns in mind. Successful examples in recent years include new kitchen fixture systems featuring pull-down shelves and an electric insect guard, a bathroom shower-with-chair unit for use by the aged and the disabled, and a new home-use compact organic garbage disposal unit boasting the industry's shortest garbage decomposition time. Industrial Products - ------------------- Industrial products, comprised of information and communications equipment and industrial equipment, has been the Company's fastest growth area during the last five years, although this growth began to slow from around the middle of fiscal 1998 due mainly to a setback in private capital investment in Japan and Asia and falling price levels of several information and communications products. Sales in this category in fiscal 1998 totaled 2,965 billion yen, representing 38% of total Company sales. Major products are as follows.7
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 INVESTMENTS
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. - 7 -
Information and Communications Equipment This line mainly includes information equipment, such as personal computers (PCs), word processors, printers, copying machines, PC displays, hard disk drives, CD-ROM, DVD-ROM, and PD drives; communications equipment, such as facsimile equipment, telephones, cellular telephones, other mobile communications equipment and digital private branch exchanges; and other systems equipment, such as CATV systems, broadcast-, business- and industrial-use AV systems and equipment, communication network equipment, and traffic-related systems and equipment. Of these, Matsushita maintains a high competitive edge worldwide in particular lines of products, such as hard disk and optical disc drives, facsimile equipment, broadcast-use digital VCR equipment and airline inflight AV systems, while also enjoying a leading position in the Japanese cellular phone industry. In anticipation of the digital network age, the Company is currently strengthening its multimedia-related equipment and systems businesses, by expanding deliveries of on-demand information systems to municipal, business and other customers, accelerating international development work in third-generation mobile communications systems, marketing thin DVD-ROM drives for notebook PCs, DVD-RAM drives and personal digital assistants (PDAs), and participating in such new ventures as digital satellite broadcast operators. Furthermore, during fiscal 1998, it expanded R&D bases for digital TV systems in the United States and Europe and established a development base for digital network-related products in Silicon Valley of the United States. Industrial Equipment Matsushita's product range of industrial equipment encompasses factory automation (FA) equipment, welding machines, electric power distribution equipment, commercial 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 is also a major producer of industrial robots and electronic measuring instruments. Building on this strength, the Company has been launching new, innovative products to meet ever-more sophisticated customer requirements, including the world's fastest chip mounter, a unique Stud Bump Bonding semiconductor-mounting machine employing an ultrasonic bonding method, and an assembly robot equipped with Matsushita's own compact motors that performs multiple, precise functions in a small space. In car AV equipment as well, Matsushita is a leading Japanese manufacturer. While serving Japanese automotive manufacturers, the Company is also reinforcing deliveries to car dealers and automotive product dealers, as well as to overseas auto manufacturers and dealers. For the burgeoning domestic market for car navigation systems, in the spring of 1998 Matsushita launched a new model incorporating a DVD-ROM. Components - ---------- Matsushita produces one of the world's most extensive ranges of components and devices. Major products included in this category are a broad range of semiconductors and general components, display devices, electric motors, compressors and batteries, for use by Matsushita and other manufacturers. Sales of components as a whole in fiscal 1998, excluding in-house consumption, totaled 1,567 billion yen, accounting for some 20% of the Company total.8
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, 2001 2000 1999 Consumer products Video and audio equipment 1,756 23 % 1,706 23 % 1,895 25 % Home appliances and household
equipment1,316 17 1,306 18 1,394 18 Subtotal 3,072 40 3,012 41 3,289 43 Industrial products Information and communications equipment 2,175 28 2,022 28 2,150 28 Industrial equipment 817 11 735 10 717 10 Subtotal 2,992 39 2,757 38 2,867 38 Components 1,618 21 1,530 21 1,484 19 Total 7,682 100 % 7,299 100 % 7,640 100 %
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. - 8 -
Recognizing that components and devices hold the key to the innovation and advancement, as well as competitiveness, of finished products and systems in the digital network age, Matsushita currently places significant priority on the development of electronic components' technology and business, with special emphasis on semiconductors and display devices. The Company's range of semiconductors primarily includes integrated circuits (ICs), such as MOS LSIs and bi-polar ICs, discrete devices and CCDs. Among these, the Company is striving to strengthen the multimedia-related devices field, including single-chip multifunctional LSIs called System LSIs, digital signal processors, MPEG (Moving Picture Experts Group) chips, semiconductor lasers and ferroelectric ICs. Such efforts, especially in System LSIs, resulted in the successful development of such key devices as a Media Core Processor, an MPEG-2 video encoder LSI, and a 32-bit microcontrollor, for use in such AV equipment as digital camcorders, DVDs, digital TV-related equipment and PDAs. In display devices, the Company has been expanding its global production and supply network for mainstay cathode-ray tubes (CRTs), increasing its LCD production capacity, and strengthening plasma display panels (PDPs), a line in which the Company marketed a high quality 42-inch wide-screen model in fiscal 1998. The Company's broad spectrum of general components encompasses electronic circuit components, printed circuit boards, transformers, power supply components, coils, capacitors, resistors, tuners, switches, speakers, ceramic components, sensors and magnetic recording heads, all supporting Matsushita's finished products as well as products of other manufacturers, including electronics manufacturers and automotive makers. Electric motors are also essential parts that underpin electronics and other industries. Besides motors for consumer electronic and electric products, the Company is intensifying business for industrial products. Particularly competitive Matsushita motors include compact spindle motors for use in PC peripherals and CD and DVD players, vibration motors for cellular phones, and compact motors for FA equipment. In the area of compressors, Matsushita is positioned as a world leader, offering those primarily for air conditioners and refrigerators. Matsushita is also known as one of the world's largest battery manufacturers, producing a comprehensive range of batteries, from such primary batteries as manganese, alkaline, lithium, solar, silver oxide and zinc air cells, to rechargeable batteries, such as nickel-cadmium, nickel metal-hydride, lithium-ion 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, has been expanding in recent years, as they are increasingly used in compact electronic equipment. Matsushita also leads the industry in high-performance batteries for electric vehicles (EVs), including hybrid electric vehicles (HEVs). Following the introduction of nickel metal-hydride rechargeable batteries for EVs in fiscal 1997, and as another industry first, in fiscal 1998 Matsushita launched these batteries for HEVs, through an EV battery joint venture with Toyota Motor Corporation.9
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. - 9 -
SALES
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. - 10 -
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. - 11 -
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. - 12 -
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. - 13 -
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, 2001 2000 1999 Japan 4,034 53 % 3,698 51 % 3,752 49 % North and South America 1,380 18 1,384 19 1,513 20 Europe 849 11 906 12 1,019 13 Asia and Others 1,419 18 1,311 18 1,356 18 Total 7,682 100 % 7,299 100 % 7,640 100 %
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. - 14 -
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. - 15 -
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. 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. RAW MATERIALS AND
DISTRIBUTION Set forth below is a sales breakdown by geographical markets:SOURCE OF SUPPLY
Yen (billions) ----------------------------------------------- FiscalMatsushita 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. 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 endedby year.- 16 -
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
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. - 17 -
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.:
Name of internal divisional company AVC Company Home Appliance & Housing Electronics Company Air-Conditioner Company Packaged Air-Conditioner 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. - 18 -
(2) Principal domestic subsidiaries:
Percentage Name of company owned Matsushita Communication Industrial Co., Ltd. 56.3 % Matsushita Electronic Components Co., Ltd. 99.3 Matsushita Industrial Equipment Co., Ltd. 100.0 Matsushita Battery Industrial Co., Ltd. 98.0 Matsushita Refrigeration Company 100.0 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. 57.7 Victor Company of Japan, Ltd. 52.4
(3) Principal overseas subsidiaries:
Country of Percentage Name of company incorporation owned Matsushita Electric Corporation of America U.S.A. 100.0 % Matsushita Electric Europe (Headquarters) Ltd. U.K. 100.0 Matsushita Electric Asia Pte. Ltd. Singapore 100.0 Matsushita Electric Espana S.A. Spain 100.0 Matsushita Electric (Taiwan) Co., Ltd. Taiwan 67.1 Matsushita Industrial Corporation Sdn. Bhd. Malaysia 80.0 Matsushita Television & Network Systems Co., (Malaysia) Sdn. Bhd Malaysia 100.0 Matsushita Refrigeration Industries (S) Pte. Ltd. Singapore 100.0 Matsushita Electronics (S) Pte. Ltd. Singapore 100.0
Note: Matsushita’s consolidated financial statements as of March 31, ----------------------------------------------- 1998 1997 1996 ---------- ---------- -----------2001 comprise the accounts of 321 consolidated companies plus 53 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, 3,891 49% 4,046 53% 3,727 55%other countries in Asia, North and South America1,458 19 1,249 16 1,067 16 Europe 949 12 836 11 721 10 AsiaandOthers 1,593 20 1,545 20 1,280 19 ----- --- ----- --- ----- --- Total 7,891 100% 7,676 100% 6,795 100% ===== === ===== === ===== ===Europe. The Company considers all its factories well maintained and suitable for current production requirements.Sales and Distribution in Japan Domestic sales are handled primarily by 12 sales divisions organized according to the type of customer, i.e., consumers, corporate, government, manufacturing industry, housing/construction industry and other respective industries, in order to meet the specific and ever-diversifying needs of consumers and various industries. These divisions include the Consumer Products Sales Division, Housing Equipment Sales Division, Public Systems Sales Division, Private Institution Sales Division, Industrial Sales Division, Semiconductor Sales Division, Factory Automation Sales Division and Automotive Electronics Sales Division. With the exception of light bulbs and other inexpensive products, substantially all of Matsushita's consumer products carry warranties which vary in duration from one to five years, in line with the normal practice of the industry. Service is provided by Matsushita and by approved service companies which obtain replacement parts from Matsushita and other suppliers. Overseas Activities Matsushita operates 220 companies in 44 countries outside of Japan, including five regional headquarters, 48 manufacturing/sales companies, 100 manufacturing companies, 44 sales companies, 11 research organizations and four 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. In order to promote global business development, as well as to counter currency fluctuations, Matsushita has expanded its overseas production, covering not only major consumer products, but also industrial products and components. Currently, while reinforcing production and development capabilities of each of its existing overseas manufacturing units, the Company is also building or expanding production operations in newly developing areas, such as China, India and Eastern Europe. Matsushita's current emphasis is also placed on strengthening sales networks in these markets, as well as those for industrial products and components, in addition to consumer products.10-
1019 -During fiscal 1998, the economic slowdown in Southeast Asian countries, caused by an outbreak of currency-related turmoil, had an adverse effect on Matsushita's business in those local markets. Any negative effect on Companywide results overall was, however, largely offset by an expansion of exports to other regions from several Matsushita factories in that region. Although the Company is currently endeavoring to reinforce its operations in Southeast Asia by strengthening local production and sales structures, by increasing procurement of locally-made parts and components and by providing technological and other support to its local subsidiaries, the continuing economic setback there could have negative effects on the Company's business in that region in fiscal 1999 and beyond. Overseas sales, including products manufactured outside Japan and those exported from Japan, represented approximately 51% of the Company's total consolidated sales in fiscal 1998. Customers The largest markets for Matsushita's products have traditionally been consumers and households. 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 the year ended March 31, 1998, sales of industrial products and components accounted for approximately 58% of Matsushita's total sales, rising from 47% of the total (50% of total excluding MCA) in fiscal 1994. Matsushita's business is not materially dependent upon any single customer. 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 utmost satisfaction to customers throughout the world. 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." As part of this task, focus is also directed at the five priority areas: optical discs, mobile communications equipment, display devices, semiconductors and next-generation digital TV systems. In pursuit of these goals, Matsushita operates future-oriented R&D at the Corporate Research Division and several other corporate R&D centers. The Corporate Research Division operates three research laboratories, including the Central Research Laboratories, and engages primarily in basic research for the 21st century. Other corporate R&D centers include the Multimedia Development Center, Optical Disk Systems Development Center and Human Environmental Systems Development Center. They focus on the development of multimedia- and network-related products and systems, optical disc-related equipment systems, display devices, car electronics systems, and related key components and devices, as well as R&D into environment- and energy-related technologies. In addition, several specialized R&D facilities operate independently, although they cooperate closely with the aforementioned research laboratories and development centers. These facilities include the Corporate Semiconductor Development Division, which operates four R&D centers, such as the Advanced LSI Technology Development Center and the Microprocessor Development Center, and the Production Engineering Laboratory, which engages in development of new manufacturing technology and supports production activities at Matsushita's domestic and overseas operating facilities.11 - 11 - Internal divisional companies, manufacturing divisions and certain subsidiaries also maintain their own research facilities and/or departments, engaged in specific research and development projects or engineering and design improvements, and these work in close cooperation with the above-mentioned corporate research organizations. Their current emphasis is placed on development of "Products First," which refers to outstanding products that incorporate world- or industry-first technologies or features that inspire customers. The most significant technological developments in recent years include; DVD products, including portable DVD players and DVD-ROM drives featuring the Company's twin focus pickup, DVD-RAM drives with single side recording capacity of 2.6 gigabytes, and DVD discs employing a dual-layer disc bonding technology; a DV archive that facilitates capture of video images from standard digital video camcorders and editing and playback of such moving pictures on the PC; a multimedia information providing system based on the Company's video server, featuring easy creation and editing of multimedia files consisting of AV, text and still-picture data and distribution of the data to multiple terminals; a high-density multilayered printed circuit board technology with an "any layer inner via hole" structure, which enables development of compact and light digital cellular phones and other multimedia products; an MPEG-2 video encoder LSI that has integrated moving picture compression functions on a single chip, facilitating development of compact, low power consumption DVD recorders and video camcorders; an MPEG-2 decoder LSI applicable to 18 formats of the digital terrestrial TV broadcasting which will begin in the United States during 1998; a wafer level burn-in technology which is designed to burn in all the chips on a wafer at a time, thus improving the efficiency of wafer inspection at LSI production facilities; and a resource-efficient TV incorporating highly recyclable magnesium alloy in its cabinet as an industry first and the Company's low energy consumption transformer. Total expenditures for research and development amounted to 400 billion yen, 435 billion yen and 481 billion yen for the three years ended March 31, 1996, 1997 and 1998, respectively, representing 5.9%, 5.7% and 6.1% of Matsushita's total net sales for each of those periods. CAPITAL EXPENDITURES Recognizing that building advanced technologies, equipment and processes is essential to the cost-efficient manufacturing of sophisticated electronic products and devices, the Company has gradually been increasing investment in plant and equipment in recent years. Total capital expenditures were 381 billion yen, 415 billion yen and 474 billion yen for fiscal 1996, 1997 and 1998, respectively. Besides constant investment in production automation and labor-saving facilities, increasing emphasis has been placed on expansion of strategically-important business areas, including key components and devices, mobile communications equipment and PC peripherals, as well as overseas production facilities. 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 a small number of large Japanese manufacturers. In particular categories of products it encounters additional competition from companies in the United States, Europe and Asia. In addition, Matsushita competes with a large number of smaller and more specialized companies. The Company expects that competition will continue to be intense both in Japan and abroad.12 - 12 - In addition, the emergence of several Asian countries as lower-cost production sites has applied pressure to Japanese manufacturers, including Matsushita, in terms of price competition in international markets. However, the Company has been endeavoring to minimize the effects of these negative factors primarily by devising various cost-reduction measures, increasing its overseas production with emphasis on local procurement of parts and components, and developing joint ventures and other cooperative agreements with overseas partners. TRADEMARKS Most of Matsushita's products are distributed throughout the world under the "Panasonic" and "National" trademarks. Matsushita also sells a number of hi-fi products under the "Technics" trademark. Some of the subsidiaries' products are sold under other trademarks, including "Quasar," "Victor" and "JVC." 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 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, among others, with RCA-Thomson Licensing Corporation and Thomson S.A. covering a broad range of its products, the most important of which are television receivers, VCRs , CD players and CD-ROM equipment. Matsushita has non-exclusive patent cross-license agreements, among others, with Texas Instruments Incorporated and International Business Machines Corporation, both covering semiconductors, information equipment and certain other related products. Matsushita Electronics Corporation (MEC), a consolidated subsidiary of the Company, has a non-exclusive patent cross-license agreement with Koninklijke Philips Electronics N.V. covering most of the items manufactured by MEC, including semiconductor devices, various lamps, cathode-ray and electron tubes and certain other products. 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.13 - 13 - RAW MATERIALS AND SOURCES 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 best qualified suppliers from all over the world and buying the most competitive parts and materials. Since suppliers are selected on the basis of a fair and comprehensive evaluation, the Company enjoys good business relationships with them and the sourcing is properly assured. EMPLOYEE RELATIONS As of March 31, 1998, Matsushita had approximately 276,000 employees. Most regular employees in Japan, except management personnel, are union members, principally of the Matsushita Electric Industrial Labor 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 bonuses which are paid twice a year. Matsushita also renews the terms and conditions of labor contracts, other than those relating to wages and bonuses, every other year. For more than 20 years, Matsushita has experienced no major labor strikes or disputes. The Company considers its labor relations to be excellent.14 - 14 - Item 2. Description of Property 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 of Asia, North and South America and Europe. The Company considers that all its factories are well maintained and suitable for its current production requirements. The following table sets forth information as of March 31, 1998 with respect to manufacturing facilities:
The following table sets forth information as of March 31, 2001 with respect to manufacturing facilities:
Floor Space (thousands(thousands of Location square feet) Principal Products Manufactured - -------- ------------ -------------------------------Osaka 9,9769,770 VCRs, television receivers,PDP TVs, DVD products, audio equipment, washing machines, other home appliances, information equipment, industrial equipment, components, batteries, kitchen fixtures.Kanagawa 4,3954,165 Communications, information and measuring equipment, VCRs, audio equipment, car audioAV equipment, compact discs,CRT displays,refrigerators, batteries.Shiga 3,5923,564 Air conditioners, refrigerators, compressors, vacuum cleaners. Tochigi 2,379 Television receivers,1,953 TVs, TV picture tubes, information equipment. Nara 2,0721,992 Home appliances, gas and kerosene equipment, compact discs and DVD discs. Okayama 1,8661,901 VCRs, components, magnetic tapes and discs. Kyoto 1,6291,630 Semiconductors, components. Ibaraki 1,068 Television receivers,1,059 TVs, magnetic tapes. Shikoku 3,6843,739 VCRs, television receivers,information equipment,audio equipment,home appliances.Kyushu 2,2892,353 Information and communications equipment, home appliances,PC peripherals, components, industrial equipment.North 6,744 Television receivers,America7,783 TVs, home appliances, VCRs, AmericaDVD discs, car audio equipment,information andcommunications equipment, compressors, components,semiconductors,batteries.Europe 3,3124,147 VCRs, television receivers,TVs, audio equipment, car audio equipment, home appliances, components, information and communications equipment.Asia 16,678 Television receivers,
(excluding
China)17,715 TVs, VCRs, audio equipment, air conditioners, refrigerators, other home appliances, components, semiconductors, information and communications equipment, industrial equipment, compressors, batteries. China 4,477 TVs, audio equipment, air conditioners, washing machines, other home appliances, car audio equipment, industrial equipment, compressors, components, batteries. Other 17,32316,298 Home appliances, industrial equipment, components, semiconductors, video and audio equipment, batteries, information and communications equipment. ------Total 77,007 ======82,546 15
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. -
1520 -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 6.4
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. 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 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 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. Item 5. Operating and
development facilities with an aggregate floor space of approximately 6.2 million square feet, employee housingFinancial Review andwelfare facilities with an aggregate floor space of approximately 10.9 million squarere feet, and administrative offices with an aggregate floor space of approximately 15.0 million square feet. Matsushita leased approximately 13.6 million square feet of floor space asProspects
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. - 21 -
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%. - 22 -
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: Year ended March 31,
1998, most of which was for sales office space. Item 3. 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 charged2001 compared withinfringement 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 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 of 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. The United States Court of Appeals, Ninth Circuit (1995 WL 75487 (9th Cir. (Cal.))), reversed, in part, finding that the Company violated Rule 14d-10 and remanded for further proceedings to determine damages. The Company has since 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 proceedings162000
(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. -
1623 -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 later granted Matsushita's petition for rehearing. The rehearing will be heard in August 1998. Management is of the opinion that 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, if any, resulting from these actions will not have a material effect on Matsushita's results of operations or financial position. Item 4. Control of Registrant (a) Matsushita is not, directly or indirectly, owned or controlled by other corporations or by the Japanese government or any foreign government. (b) (1) To the knowledge of the Company, no person owns more than ten percent of any class of the Company's common stock. (2) The total number of the Company's voting securities beneficially owned by the Directors and Corporate Auditors as a group as
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. (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. (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. (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. (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. - 24 -
(7) Equity in Earnings (Losses) of Associated Companies 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 stated 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,
1998 is as follows:2000 compared with 1999
Number(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 Percent Titleconsumer products continued to be impacted by sluggish consumer spending in Japan, sales ofclass Identityindustrial 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 ofpersonthe 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. - 25 -
(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 9 of the Notes to Consolidated Financial Statements.) (6) Minority Interests Minority interests decreased to negative 1 billion yen, compared to 8 billion yen in 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. -26-
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 group shares ownedasset turnover ratios, so as not to overly rely on external fund raising. This conservativeness is exemplified in the tradition ofclass -------------- --------------------------- ------------ --------Common Stockmaintaining 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, 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 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, 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. -30-
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 and also has reported sales, operating profit 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. -31-
Information by segment for fiscal 2001 and 2000 is shown in the tables below: By Business Segment:
Yen (billions) 2001 2000 Sales: Consumer products: Customers 3,072 3,012 Intersegment 4 7 Total 3,076 3,019 Industrial products: Customers 2,992 2,757 Intersegment 7 9 Total 2,999 2,766 Components: Customers 1,618 1,530 Intersegment 860 828 Total 2,478 2,358 Eliminations (871 ) (844 ) Consolidated total 7,682 7,299 Operating profit (net sales less cost of sales and selling,
general and administrative expenses):Consumer products 40 34 Industrial products 136 130 Components 89 66 Corporate and eliminations (77 ) (71 ) Consolidated total 188 159 Identifiable assets: Consumer products 2,247 2,221 Industrial products 1,973 1,942 Components 1,961 1,681 Corporate and eliminations 1,975 1,843 Consolidated total 8,156 7,687 Depreciation (including intangibles other than goodwill)*: Consumer products 68 76 Industrial products 85 86 Components 190 177 Corporate and eliminations 10 10 Consolidated total 353 349 Capital investment (including intangibles other than
goodwill)*:Consumer products 82 72 Industrial products 98 92 Components 337 179 Corporate and eliminations 14 12 Consolidated total 531 355
* Intangibles mainly represent patents, software and rights to public facilities. -32-
By Geographical Location of Companies:
Yen (billions) 2001 2000 Sales: Japan: Customers 4,982 4,706 Intersegment 1,205 1,058 Total 6,187 5,764 North and South America: Customers 1,149 1,084 Intersegment 30 31 Total 1,179 1,115 Europe: Customers 623 670 Intersegment 31 26 Total 654 696 Asia and Others: Customers 928 839 Intersegment 580 462 Total 1,508 1,301 Eliminations (1,846 ) (1,577 ) Consolidated total 7,682 7,299 Operating profit (net sales less cost of sales and selling, general and administrative expenses): Japan 214 166 North and South America 11 15 Europe (6 ) (2 ) Asia and Others 44 44 Corporate and eliminations (75 ) (64 ) Consolidated total 188 159 Identifiable assets: Japan 4,687 4,633 North and South America 546 479 Europe 345 292 Asia and Others 749 639 Corporate and eliminations 1,829 1,644 Consolidated total 8,156 7,687
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, prior year figures have been restated to reflect this change. -33-
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 18,449,342 0.87%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.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. The Corporate Auditors constitute the Board of Corporate Auditors. The Board of Corporate Auditors has a statutory duty to prepare and submit its audit report to the Board of Directors each year. A Corporate Auditor may note his opinion in the audit report if his opinion is different from the opinion expressed in the audit report. The Board of Corporate Auditors is empowered to establish audit principles, methods of examination by the Corporate Auditors of the Company’s affairs and financial position and other matters concerning the performance of the Corporate Auditors’ duties. The Corporate Auditors may not at the same time be Directors, managers or employees of the Company. Set forth below are the names 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.
Name Position, responsibilities and brief personal record (Date of birth) Yoichi Morishita (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-
Name Position, responsibilities and brief personal record (Date of birth) Masayuki Matsushita (Oct. 16, 1945) - -1986 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) - -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. Kazuhiko Sugiyama (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 (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 (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 (Feb. 13, 1941) President of AVC Company, Director of Corporate Marketing Division for Panasonic Brand, and in charge of Storage Device Business. - -1994 Director of the Company, and in charge of Home Appliance Business; - -1997 President of Home Appliance & Housing Electronics Company. Osamu Tanaka (Nov. 1, 1940) In charge of Corporate Consumer Products Distribution Division, Commodity Sales, Housing Equipment Sales, Logistics, Corporate CS Division, Corporate Credit Sales Division, Recycling Business Promotion, and Public and Private Institutions. - -1995 Director of the Company, and Director of Corporate Consumer Sales Division; - -1997 Managing Director of the Company. -35-
Name Position, responsibilities and brief personal record (Date of birth) Sukeichi Miki (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. Yukio Shohtoku (Nov. 8, 1939) In charge of Overseas Operations. - -1993 Associate Director of Corporate Management Division for Asia, Oceania and the Middle East; - -1994 Director of the Company, and Director of Corporate Management Division for China. Takami Sano (Apr. 2, 1943) In charge of Industrial Sales, Semiconductor Sales, Factory Automation Sales, and Automotive Electronics Sales. Director of Corporate Industrial Marketing & Sales Division. - -1992 Director of Matsushita Battery Industrial Co., Ltd.; - -1998 Director of the Company, and Director of Corporate Industrial Sales Division. Susumu Koike (Nov. 15, 1945) President of Semiconductor Company. - -1993 Director of Matsushita Electronics Corporation; - -1998 Director of the Company, and in charge of Semiconductor Technology. Fumio Ohtsubo (Sep. 5, 1945) Senior Vice President of AVC Company, and Business Group Executive of AVC Network Business Group. - -1998 Director of the Company, and Vice President of AVC Company. Haruo Ueno (Nov. 9, 1940) Director of Corporate Legal Affairs Division. - -1965 Joined the National Police Agency (NPA); - -1994 Joined the Company as Advisor; - -1998 Director of the Company, and Director of Corporate Legal Affairs Division. Hidetsugu Otsuru (Aug. 20, 1943) President of Display Device Company. - -1998 Director of the Company, and in charge of Corporate Quality Administration Division and Purchasing Administration Department; - -1999 President of Matsushita Electronics Corporation. -36-
Name Position, responsibilities and brief personal record (Date of birth) Yoshiaki Kushiki (Jan. 17, 1946) In charge of Multimedia Technology. Director of Multimedia Development Center, and Director of Corporate Software Development Division. - -1997 Director of Multimedia Development Center; - -1999 Director of the Company, and in charge of multimedia technology. Josei Ito (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 (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 (Nov. 3, 1942) Director of Tokyo Branch, 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 (Sep. 20, 1941) Director of Corporate Management Division for China. - -1995 President of Matsushita Electric Co., (Malaysia) Bhd.; - -1997 President of Air-conditioner Company. Toru Ishida (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 (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 (Dec. 7, 1941) In charge of Finance and Accounting. - -1996 General Manager of Corporate Accounting Department. -37-
Name Position, responsibilities and brief personal record (Date of birth) Hideaki Iwatani (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 (Jun. 7, 1946) President of Home Appliance & Housing Electronics Company, Director of Corporate Marketing Division for National Brand, and in charge of Healthcare & Medical Business Center. - -1999 Vice President of Home Appliance & Housing Electronics Company. Toshihiro Sakamoto (Oct. 27, 1946) Senior Vice President of AVC Company, Business Group Executive of Visual Network Products Business Group. - -1998 President of Matsushita Electric (Taiwan) Co., Ltd. Masaki Akiyama (Jun. 29, 1943) Director of Corporate Systems Solutions Division. - -1994 Director of Matsushita Communication Industrial Co., Ltd. (MCI); - -1998 Senior Managing Director of MCI. Yoichiro Maekawa (Jan. 6, 1944) - -1997 General Manager of Corporate Planning Office. Tomikazu Ise (Dec. 23, 1946) Director of Corporate Management Division for Europe. - -1998 President of Panasonic Deutschland GmbH; - -1999 President of Panasonic Marketing Europe GmbH. Masaharu Matsushita (Sep. 17, 1912) - -1947 Director of the Company; - -1961 President and Director of the Company; - -1977 Chairman of the Board of Directors of the Company. Motoi Matsuda (Feb. 11, 1937) - -1993 Director of the Company, and in charge of Finance and Accounting; - -1998 Senior Managing Director of the Company. Yoshitomi Nagaoka (May 31, 1941) - -1996 Director of the Company, and in charge of AVC technology; - -1997 Vice President of AVC Company, and in charge of Technology. -38-
Name Position, responsibilities and brief personal record (Date of birth) Toshiomi Uragami (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 (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: 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.
B. Compensation 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. 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. For details of the Company’s stock option plan for Board members and select senior executives, see Section E of this Item 6. -39-
C. Board Practices 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:
2001 2000 1999 Employees: Domestic 143,162 146,675 148,524 Overseas 149,628 143,773 133,629 Total 292,790 290,448 282,153
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:
Identity of person Number of Title of class or group shares owned Percentage of class Common Stock Directors and Corporate
Auditors — 32 persons17,375,234
shares0.83 % -40-
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. 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 Article 210-2 of the Japanese Commercial Code. Upon approval at the ordinary general meeting of shareholders held in June 1998 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. -41-
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, which is the only class of stock it has issued. The ten major shareholders of record and their share holdings as of the end of the last fiscal year are as follows:
Share ownership Percentage of total Name (in thousands of shares) issued shares The Sumitomo Bank, Ltd. 97,648 4.69 % Japan Trustee Services Bank, Ltd. (trust account) 96,026 4.61 Nippon Life Insurance Co. 82,188 3.95 Sumitomo Life Insurance Co. 76,764 3.69 Matsushita Investment & Development Co., Ltd. 55,129 2.65 The Mitsubishi Trust and Banking Co. (trust account) 53,885 2.59 Moxley & Co. 42,085 2.02 The Asahi Bank, Ltd. 41,704 2.00 The Sumitomo Marine & Fire Insurance Co. 36,445 1.75 State Street Bank & Trust Co. 31,717 1.52
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. -42-
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, approximately 8.84% of the Company’s Common Stock was owned by 247 United States shareholders of record including the ADR Depositary’s nominee, Moxley & Co., considered as one shareholder of record, owning approximately 2.02% of the total Common Stock. (3) Matsushita is not, directly or indirectly, owned or controlled by other corporations or by the Japanese government or any foreign government. (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
C. Interests of Experts and Counsel Not applicable 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. -43-
(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 personsother 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. (c) 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.-44-
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.
B. Significant Changes No significant changes have occurred since the date of the annual financial statements included in this annual report. -45-
Item
5. Nature of Trading Market Common Stock, American Depositary Receipts9.Theprimary market for the Company's Common Stock is the Tokyo Stock Exchange (the "TSE"). The Common Stock is traded on the First Section of the TSEOffer andis also listed on seven 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 under the ASAS system, 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'sListing
A. Offer and Listing Details 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 (the "NYSE") and the Pacific Stock 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 the American Depositary Shares in the United States.17 - 17 - ADRs are issuable pursuant to a Deposit Agreement dated as of April 28, 1970, as amended and restated as of November 20, 1975 and as further amended as of October 1, 1982 (the "Deposit Agreement"), among the Company, Morgan Guaranty Trust Company of New York as Depositary (the "Depositary"), and the holders of ADRs. ADRs evidence American Depositary Shares, each representing 10 shares of Common Stock deposited under the Deposit Agreement with The Sumitomo Bank, Limited, as agent of the Depositary, or any successor or successors to such agent or agents. 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 prices of the Company's American Depositary Shares on the NYSE:
Tokyo Stock ExchangeNew York Stock Exchange-------------------- ----------------------- Price per Share(NYSE) and the Pacific Exchange in the form ofPrice perAmerican 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 (yen)on the TSE, and the reported high and low sales composite prices of the Company’s ADSs on the NYSE:
Tokyo Stock Exchange New York Stock Exchange Price per Share of Price per American Common Stock (yen) Depositary Share (dollars)* Fiscal Year ended March 31 High Low High Low 1997 2,070 1,670 18.75 14.33 1998 2,520 1,750 21.00 13.59 1999 2,375 1,640 19.34 13.00 2000 3,320 2,050 30.30 17.48 2001 3,190 1,932 29.90 16.30 -46-
Tokyo Stock Exchange New York Stock Exchange Price per Share of Price per American Common Stock (yen) Depositary Share (dollars)* Fiscal Year ended March 31 High Low High Low 2000 1st quarter 2,520 2,135 20.50 17.48 2nd quarter 2,980 2,050 23.70 19.87 3rd quarter 2,915 2,050 28.91 19.33 4th quarter 3,320 2,640 30.30 25.00 2001 1st quarter 3,070 2,410 28.99 22.80 2nd quarter 2,995 2,660 28.05 25.10 3rd quarter 3,190 2,430 29.90 22.63 4th quarter 2,800 1,932 24.81 16.30 2002 1st quarter 2,360 1,901 19.15 15.60 Most recent 6 months High Low High Low January, 2001 2,800 2,550 24.81 22.06 February, 2001 2,625 2,155 22.65 18.50 March, 2001 2,350 1,932 19.30 16.30 April, 2001 2,360 2,025 18.95 16.50 May, 2001 2,340 2,010 19.15 16.95 June, 2001 2,230 1,901 18.15 15.60
* 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
C. Markets See Section A of Item 9.
D. Selling Shareholders Not applicable
E. Dilution Not applicable -47-
F. Expenses of the Issue Not applicable
Item 10. Additional Information
A. Share (dollars) (a) -------------------- ------------------------------ Calendar Period High Low High Low --------------- ---- --- ---- ---1996 1st quarter 1,790 1,640 171.00 157.25 2nd quarter 2,070 1,730 188.00 159.50 3rd quarter 2,050 1,790 187.50 163.38 4th quarter 2,010 1,810 176.50 159.00 1997 1st quarter 2,000 1,670 166.00 142.88 2nd quarter 2,320 1,890 206.00 153.25 3rd quarter 2,520 2,070 211.00 170.00 4th quarter 2,300 1,750 189.56 135.13 1998 1st quarter 2,140 1,820 163.94 143.06CapitalNot applicable Note: (a) The prices of American Depositary Shares, each representing
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. 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, lighting equipment, gas, kerosene and kitchen equipment, machinery and equipment for building and housing, office and transportation, medical, health and hygienic equipment, apparatus and material, optical and precision machinery and equipment, batteries, battery-operated products, carbon and manganese and other chemical and metal products, air conditioning and anti-pollution equipment, industrial machinery and equipment, and other machinery and equipment; engineering and installation of machinery and equipment related to any of the preceding items, engineering and performance of and contracting for other construction work; production and sale of software; sale of iron and steel, nonferrous metals, minerals, oil, gas, ceramics, paper, pulp, rubber, leather, fiber and their products, foods, beverages, liquor and other alcoholics, agricultural, livestock, dairy and marine products, animal feed and their raw materials; manufacture and sale of drugs, quasi-drugs, cosmetics, fertilizer, poisonous and deleterious substance and other chemical products; sale of woods and other construction materials and general merchandise; motion picture and musical entertainment business and promotion of sporting events; export and import of products, materials and software mentioned above; providing repaid and maintenance services for the products, goods and software mentioned above for itself and on behalf of others; provisions of information and communication services, and broadcasting business; business related to publishing, printing, freight, forwarding, security, maintenance of buildings, dispatch of workers, general leasing, financing, non-life insurance agency and buying, selling maintaining and leasing of real estate; investment in various businesses; accepting commission for investigations, research, development and consulting related to any of the preceding items, and all other businesses incidental or related to any of the preceding items. -48-
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 are based upon reports by the NYSE,withall fractional figures rounded up to the nearest two decimal points. As of March 31, 1998, approximately 8.61% of the Company's Common Stock was owned of record by a total of 209 United States shareholders including the Depositary's nominee, considered as one shareholder of record, owning approximately 2.04% of the total Common Stock. Item 6. Exchange Controls and Other Limitations Affecting Security Holders (a) Japanese Foreign Exchange Controls Effective from April 1, 1998 the Foreign Exchange and Foreign Trade Control Law was amended and the title of the statute was changed to the Foreign Exchange and Foreign Trade Law. Under the amended Law all aspects of regulations on foreign exchange and foreign trade transactions which were subject to licensing or other approval or prior notification requirements are, with minor exception relating to certain inward direct investment (which is not applicable to the Company's shares), substituted by the post facto reporting requirements. However, the Minister of Finance has the power to impose a licensing requirement for certain transactions in limited circumstances.18 - 18 - (b) Description of Common Stock Set forth below is certain information relating to the Common Stock of the Company, including brief summaries of certain provisions of the Company's Articles of Incorporation and Share Handling Regulations, as currently in effect, and of the Commercial Code of Japan relating to a joint stock company (Kabushiki Kaisha) and certain related legislation. General The presently authorized capital stock of the Company is 5,000,000,000 shares, which may be issued with a par value or without a par value. The Commercial Code requires that shares be in registered form. Under the Commercial Code shares are transferable by delivery of share certificates, but in order to assert shareholders' rights against the Company, the transferee must have his name registered in the Company's register of shareholders. All of the presently outstanding shares of the Company are ofa par value of 50 yenper share. The Company may, by a resolution of the Board of Directors, convert par value shares into non-par value shares or vice versa. Shareholders are required to file their names, addresses and seals with The Chuo Trust & Banking Co., Ltd., the transfer agent for the Company's Common Stock, and shareholders not resident in Japan are required to file a mailing address in Japan or appoint a resident proxy in Japan. These requirements do not apply to the holders of ADRs. The central clearing system of share certificates under the Law Concerning Central Clearing of Share Certificates and Other Securities of Japan applies to the shares of Common Stock of the Company. Pursuant to this system a holder of shares of Common Stock is able to choose, at his discretion, to participate in this system and all certificates of shares of Common Stock elected to be put into this system are deposited with the central clearing system and all such shares are registered in the name of the clearing house in the Company's register of shareholders. Each participating shareholder is in turn registered in the register of beneficial shareholders and treated the same way as shareholders registered in the Company's register of shareholders. 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 the shareholders of record as of the end of such fiscal period. 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 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 annual dividends, the Board of Directors of the Company may by its resolution declare a cash distribution pursuant to Article 293-5 of the Commercial Code (an "interim dividend") to shareholders who are registered in the Company's register of shareholders at the end of each September 30, subject to the limitations described below.19 - 19 - The Commercial Code provides that a company may not make any distribution of profits 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 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 (i) its stated capital, (ii) its 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 preparation for commencement of business and in connection with research and development expense over the aggregate of amounts referred to in (ii), (iii) and (iv) above. If the Company has on its balance sheet a number of shares of its Common Stock which the Company 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 shall be deducted from the amount available for payment of dividends. 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 earnings 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), (ii), (iii), (iv) and (v) above, and, in addition to the deduction referred to in the immediately preceding sentence, if the Company's shareholders have adopted a resolution for the Company's 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. The Commercial Code, currently in effect, does not provide for "stock dividends." However, under the Code, the shareholders may by resolution transfer any amount which is distributable as dividends to stated capital and the Board of Directors may by resolution issue additional shares by way of a stock split up to the aggregate par value equal to the amount so transferred; thus, the same effect as a stock dividend can be achieved. In Japan the "ex-dividend" date and the record date for dividends precede the date of determination of the amount of the dividend to be paid. Transfer of capital surplus and legal reserve to stated capital and stock splits (free share distributions) When the Company issues new shares of Common Stock, the entire amount of the issue price of such new shares is required to be accounted for as stated capital, although the Company may account for an amount not exceeding one-half of such issue price as capital surplus (subject to the remainder being not less than the total par value of the new shares being issued). The Board of Directors may transfer the whole or any part of capital surplus and legal reserve to stated capital and grant to shareholders additional shares of Common Stock free of charge by way of a stock split, without affecting the par value thereof, with reference to the whole or any part of the amount of capital surplus and legal reserve so transferred to stated capital; such additional shares may also be granted by reference to the amount representing the portion of the issue price of shares of Common Stock in excess of the par value thereof which has been accounted for as stated capital.20 - 20 - The Commercial Code permits the Company to make a partially free distribution to shareholders by way of a rights issue at a subscription price per share which is less than the par value thereof if (a) the difference between the subscription price and the par value does not exceed the amount of the stated capital minus the aggregate par value of all outstanding shares, divided by the number of new shares to be issued pursuant to such rights issue, (b) the sum of the net assets of the Company (as appearing on the latest balance sheet) and the total subscription price, divided by the number of the shares outstanding immediately after the issue of the new shares, is at least 50 yen and (c) the subscription rights are made transferable. In order to satisfy the requirement mentioned in (a) above, the Board of Directors may transfer the whole or any part of capital surplus or legal reserve to stated capital. General meeting of shareholders The ordinary general meeting of shareholders to settle accounts of the Company for each fiscal period is normally held in June each year in Kadoma, Osaka, Japan. In addition, the Company may hold an extraordinary general meeting of shareholders whenever necessary by giving at least two 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 two weeks prior to the date set for the meeting. Any shareholder holding at least 300 units of shares or 1% of the total number of outstanding shares for 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 six weeks prior to the date set for such meeting. Voting rights 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. 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. The Commercial Code provides that in order to amend the Articles of Incorporation and in certain other instances, including an increase in the total number of shares authorized to be issued, a reduction of the stated capital, the removal of a Director or Corporate Auditor, dissolution, merger (with an exception of the merger of a small company) or consolidation of a corporation, 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, any offering of new shares at a21 - 21 - "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, 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"). Subscription rights Holders of the Company's Common Stock have no pre-emotive 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 above. The Board of Directors may, however, determine that shareholders shall be given subscription rights regarding a particular issue of new shares, in which case such rights must be given on uniform terms to all shareholders as at a record date of which not less than two weeks' 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 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 country or whose principal office is located in a foreign country will be enforceable against the Company 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 1997 amendments to the Commercial Code permit 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 Company's Articles of Incorporation do not so provide. Dilution In the future it is possible that market conditions and other factors might make a rights offering to shareholders at par or substantially below the market price of shares of Common Stock desirable. If the number of shares offered in a rights offering is substantial in relation to the number of shares outstanding and the market price exceeds the subscription price at the time of the offering, a shareholder who does not exercise and is unable otherwise to realize the full value of his subscription rights would suffer economic dilution of his equity interest in the Company. If the rights to subscribe for new shares are granted to the Company's Directors and/or employees which rights are exercisable at a price below the market price of the shares and the number of shares issuable upon such exercise is substantial, existing shareholders' equity interest in the Company will be diluted.22 - 22 - 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 the shareholders in proportion to the respective numbers of shares held. Liability to further calls or assessments All the Company's presently outstanding shares of Common Stock including shares represented by the American Depository Shares are fully paid and non-assessable. Transfer agent The Chuo Trust & Banking Co., Ltd. is the transfer agent for the Company's Common Stock; as such transfer agent, it keeps the Company's register of shareholders in its office at 6-26, Kitahama 2-chome, Chuo-ku, Osaka, Japan, and makes transfer of record ownership upon presentation of the certificates representing the transferred shares. Record date March 31 is the record date for the Company's year-end dividends. The shareholders who are registered as the holders of 1,000 shares or more in the Company's register of shareholders at the end of each March 31 are also entitled to exercise shareholders' rights at the ordinary general meeting of shareholders with respect to the fiscal period 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 entitled to other rights and for other purposes by giving at least two weeks' public notice. The price of the shares generally goes ex-dividend or ex-rights on Japanese stock exchanges on the third business day prior to a record date (or if the record date is not a business day, the fourth business day prior thereto), for the purpose of dividends or rights offerings. Repurchase by the Company of its common stock Except as otherwise permitted by the Commercial Code and the Law of Special Exception to the Commercial Code Concerning Retirement of Shares enacted in 1997 (the "Special Retirement Law") 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 provided in the Commercial Code. The Company may acquire its Common Stock in response to a shareholder's request for purchase of his 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" below. Shares so purchased must be sold or otherwise transferred to a third party within a reasonable period thereafter. The 1994 and 1997 amendments to the Commercial Code and the Special Retirement Law enable the Company to acquire its Common Stock for the following purposes, subject to the authorization of shareholders at an ordinary general meeting (if the Articles of Incorporation provide that the shares may be purchased for the purpose of retirement by resolution of the Board of Directors if the Board deems it especially necessary to do so in view of general economic condition, the business and financial condition of the Company and other factors, by the resolution of the Board of Directors): (1) for the purpose of transferring the same to its23 - 23 - Directors and/or employees if there exists a justifiable reason; and (2) for the purpose of retirement thereof with retained earnings. Acquisition by the Company of shares of its Common Stock for the above purposes is subject to, among other things, the following restrictions: (a) the number of shares to be acquired does not exceed 10% of all issued and outstanding shares (except in the case of purchase of shares for retirement pursuant to shareholders' authorization); (b) 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. No such acquisition 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. The Company's shareholders have, at the ordinary general meeting of shareholders held in June 1998, given an authorization for the acquisition of not exceeding 120,000 shares of Common Stock for the purpose of transferring the same to its all Directors then in office and certain executive employees. The Company amended its Articles of Incorporation in June 1998 to purchase not exceeding 200,000,000 shares by resolution of the Board of Directors for the purpose of retirement thereof with retained earnings. No Board resolution has been made for this purpose. The Special Retirement Law was amended in March 1998 enabling the Company to acquire its own shares for the purpose of retiring the same with capital surplus by resolution of the Board of Directors if the Articles of Incorporation so provide and if the Board deems it especially necessary to do so in view of general economic condition, the business and financial condition of the Company and other factors. The acquisition of shares under this authorization is subject to the restriction that (x) the total amount of the purchase price does not exceed the total amount of capital surplus and accumulated legal reserve minus the amount equal to one-fourth of stated capital, and (y) if the aggregate of the amounts of (i) through (v) referred to under "Dividends" above and the amount of interim dividend distributed exceeds the net assets appearing on the balance sheets as at the latest closing of the Company's accounts, no purchase of shares for this purpose can be made. The Company's Articles of Incorporation do not so provide. "Unit" share system Pursuant to the Commercial Code 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 one 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 one 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 one unit).24 - 24 - Right of a holder of shares representing less than one unit to require the Company to purchase such shares A holder of shares representing less than one unit may at any time require the Company to purchase such shares at their last reported sale price on 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. The usual securities transfer tax is applicable to such transactions. Other rights of a holder of shares representing less than one unit A holder of shares representing less than one unit has the following rights in respect of such shares: (i) the right to receive dividends (including interim dividends), (ii) the right to receive shares and/or cash by way of a stock split or upon consolidation or subdivision of shares or upon a capital decrease or merger of the Company, (iii) the right to be allotted subscription rights with respect to new shares, convertible bonds and bonds with warrants to subscribe for shares when such rights are granted to shareholders, (iv) the right to participate in the distribution of surplus 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 one unit. Voting rights of a holder of shares representing less than one unit A holder of shares representing less than one 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 one 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 such share, except as stated in "Voting rights" above. Consolidation by operation of law of shares constituting one unit into one share The unit share system is intended to be an interim measure with a view ultimately to achieve shares of a much higher denomination than at present. On a date to be specified by separate legislation, the shares comprising one unit will be deemed to be consolidated into one share. Presently it is not known when the bill specifying such date will be submitted to the Japanese parliament. If the consolidation takes place, the holder of any fractional share constituting one-hundredth of one share or any integral multiple thereof, which may result from such consideration, will be registered as the holder thereof in the register of fractional shares and the holder of any fraction representing less than a whole hundredth of one share will be entitled to receive a cash payment. (c) Reporting of Substantial Shareholdings The Securities and Exchange Law of Japan, as amended, requires any person who has become, beneficially and solely or jointly, a holder of more than 5% of the total issued shares 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 Minister of Finance within five business days a report concerning such shareholdings.25 - 25 - A similar report must also be made in respect of any subsequent change of 1% or more in any such holding. 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 each 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. Item 7. Taxation Generally, a non-resident of Japan or a non-Japanese corporation is subject to Japanese withholding tax on dividends paid by a Japanese corporation. Stock splits in themselves (whether for the purpose of making a free distribution or dividend in shares), subject as set out below, are not subject to Japanese income tax. However, a transfer of retained earnings or legal reserve (but not capital surplus) to stated capital is treated as a dividend payment to shareholders for Japanese tax purposes and is, in general, subject to Japanese income tax. Under the Income Tax Convention between the U.S. and Japan (the "Convention"), the maximum rate of Japanese withholding tax that may be imposed on dividends paid to a U.S. resident or corporation not having a "permanent establishment" (as defined therein) in Japan is generally 15%. For purposes of the 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 American Depositary Shares evidenced by the ADRs. In the absence of an applicable tax treaty, convention or agreement reducing the maximum rate of withholding tax, the rate of Japanese withholding tax on dividends paid by Japanese corporation to non-residents of Japan or non-Japanese corporation is 20%. Gains derived by a non-resident of Japan or a non-Japanese corporation from the sale of Common Stock or ADRs outside Japan, or from the sale of Common Stock within Japan by a non-resident of Japan or by a non-Japanese corporation not having a permanent establishment in Japan, are in general not subject to Japanese income or corporation tax. Japanese inheritance or gift tax at progressive rates may be payable by an individual who has acquired Common Stock or ADRs as a legatee, heir or donee. Dividends received by a U.S. holder of ADRs or Common Stock will be includable in income for U.S. federal income tax purposes to the extent paid out of current or accumulated earnings and profits of the Company as determined for U.S. federal income tax purposes. Subject to limitations set out in the Code, a U.S. holder of ADRs or Common Stock of the Company will be entitled to a credit for Japanese tax withheld from dividends paid by the Company. For purposes of the foreign tax credit limitation, dividends will be foreign source income, but will constitute "passive" or "financial services" income. Dividends paid by the Company to U.S. corporate holders of ADRs or Common Stock will not be eligible for the dividends-received deduction.26 - 26 - If the Company purchases shares of its Common Stock by way of a tender offer for the purpose of retirement with retained earnings as described under "Item 6. Exchange Controls and Other Limitations Affecting Security Holders (b) Description of Common Stock -- Repurchase by the Company of its Common Stock" and so retires such shares, the selling shareholders are deemed to have received a dividend in an amount equal to the selling price less the aggregate of the stated capital and the capital surplus attributable to the shares so sold, except that if such retirement is made on or before March 31, 1999, no such dividend is deemed to have been received but the entire profits realized by the selling shareholders from such sales are treated as gains realized from the ordinary sales of the shares and is subject to income tax or corporation tax, as appropriate. In addition, when shares acquired by the Company (whether by way of a tender offer or otherwise) for the purpose of retirement with retained earnings are retired by the Company with retained earnings, the shareholders existing at the time of such retirement are deemed to have received a dividend in an amount equal to the amount of the stated capital attributable to the retired shares and calculated in proportion to each shareholder's shares at the time of such retirement, except that if such retirement is made on or before March 31, 1999, no income tax is payable with respect to such portion deemed as a dividend. If the Company purchases shares of its Common Stock for the purpose of retirement with capital surplus and so retires such shares, the entire profits realized by the selling shareholders from such sales are treated as gains realized from ordinary sales of the shares and is subject to income tax or corporation tax, as appropriate. In this case, no taxable event is deemed to accrue from such retirement to the shareholders existing at the time of retirement. Item 8. Selected Financial Data
Yen (billions), exceptper shareamountswere issued andyen -------------------------------------------------------- exchange rates Fiscal year endedoutstanding as of March 31,-------------------------------------------------------- 1998 1997 1996 1995 1994 ---- ---- ---- ---- ----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. -49-
(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:
(i) its stated capital; (ii) its additional paid-in capital; (iii) its accumulated legal reserve; (iv) the legal reserve to be set aside in respect of the fiscal period concerned; (v) the excess, if any, of unamortized expenses incurred in preparation 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 assets of the Company are stated at market value pursuant to the provisions of the Commercial Code, the aggregate amount of the difference between their market value and acquisition cost.
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 earnings 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.) -50-
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 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, 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. -51-
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, share 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.’ (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, determine that shareholders shall be given subscription rights regarding a particular issue of new shares, in which case such rights must be given on uniform terms to all shareholders as at a record date of which not less than 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 country or whose principal office is located in a foreign country will be enforceable against the Company 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. -52-
(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 number of shares of Common Stock held. (Record date) March 31 is the record date for the Company’s year-end dividends. The shareholders and beneficial shareholders who are registered as the holders of 1,000 shares 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 shares under the new unit share system, the number of shares constituting one unit or more) in the Company’s registers of shareholders and/or beneficial shareholders at the end of each March 31 are also entitled to exercise shareholders’ rights at the ordinary general meeting of shareholders with respect to the fiscal year ending on such March 31. September 30 is the record date for interim dividends. In addition, 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):
(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. -53-
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. -54-
("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) the right to receive dividends (including interim dividends); (ii) 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 splitting of the Company into two or more companies; (iii) the right to be allotted subscription rights with respect to new shares, convertible bonds or bonds with warrants when such rights are granted to shareholders; (iv) 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 rights of a holder 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. -55-
(New "unit" share system) After the effectiveness of the 2001 Amendments, the unit share system described above will be abolished and 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. -56-
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. - 57 -
D. Exchange Controls
The Japanese Foreign Exchange and Foreign Trade Law, currently in effect (the “Law”), does not affect or restrict the rights of non-residents or foreign corporations 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 Statement Data: ---------------------- NetTax 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:
(i) is a resident of the United States for purposes of the Tax Convention, (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 are attributable and through which the beneficial owner carries on or has carried on business (or in the case of an individual, performs or has performed independent personal services), and (iv) is not otherwise ineligible for benefits under the Tax Convention with respect to income and gains 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. - 58 -
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 7,891 7,676 6,795 6,948 6,624 Income beforeof 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 incometaxes 356 332 77 232 128 Nettax 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(loss) 94 138 (57) 90 24 Per common share: Nettax (generally 20 percent, subject to applicable income(loss): Basic 44.32 65.39 (27.12) 43.15 11.69 Diluted 41.53 60.64 (27.12) 41.04 11.67 Dividends 13.00 12.50 12.50 13.50 12.50 ($0.107) ($0.112) ($0.136) ($0.136) ($0.116) Balance Sheet Data: ------------------- Total assets 8,564 8,696 8,012 8,202 8,193 Long-term debt 690 923 1,019 1,291 1,260 Minority interests 618 611 560 556 558 Stockholders' equity 3,770 3,696 3,398 3,255 3,289 Yen exchangetax treaty provisions); otherwise, except in certain exceptional cases, no further Japanese tax will be imposed.Japanese inheritance or gift tax at progressive rates per ----------------------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. - 59 -
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. dollar: ------------ Year-end 133.29 123.72 107.00 86.85 102.40 Average 122.78 113.19 97.09 98.48 107.13 High 111.42 104.49 81.12 86.85 101.10 Low 133.99 124.54 107.29 105.38 114.20holder. 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. 27-
2760 -Notes: 1.
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), gain realized 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. F. 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 prevailingand Paying Agents
Not applicable G. Statement by Experts
Not applicable H. Documents on
the respective payment dates. 2. In June 1995, the Company sold an 80% equity interest in MCA INC. (MCA). Accordingly, beginning in fiscal 1996, MCA, now named Universal Studios, Inc., is no longer treated as a consolidated subsidiary. The Company registered a one-time, non-operating loss on the sale of its investment in MCA of approximately 164 billion yen in fiscal 1996, primarily stemming from the realization of foreign currency translation adjustments, which led to a substantial decrease in income before income taxesDisplay
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. 20549New York Stock Exchange:
20 Broad Street, New York, New York 10005Pacific 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.govI. Subsidiary Information
Not applicable - 61 -
Item 11. Quantitative and
a net loss. Item 9. Management's Discussion and Analysis of Financial Condition and Results of Operations (a) Results of Operations For the three-year period ended March 31, 1998 ("fiscal 1996," "fiscal 1997," and "fiscal 1998"), the Japanese economy showed a mixed picture: in fiscal 1996 and 1997, it continued moderate recovery from the recessionary climate in the early 1990s, owing to the government's fiscal and monetary policies to stimulate the domestic economy and the consequent revival in demand from the private sector such as corporate capital investment and consumer spending. However, the Japanese economy again experienced a setback in fiscal 1998, as a result of decline in demand from the private sector, largely due to the lack of confidence by consumers in their spending, triggered by a rise in the consumption tax rate and failures of several financial institutions. Overseas economic conditions were generally favorable during this three-year period, especially in North America and Europe. The economies of Asian countries, however, showed a slowdown or setback in growth during fiscal 1998, following the outbreak of currency-related turmoil in Southeast Asia in the summer of 1997. Reflecting the aforementioned factors, Japan's Gross Domestic Product in real terms showed moderate growth of 2.9% and 3.5% in fiscal 1996 and 1997 and then negative growth of 0.6% in fiscal 1998. Inflation rates in Japan for the three-year period were low, even showing a sign of marginal deflation in the wholesale price index in fiscal 1998. This trend, however, had no substantial impact on the Company's operations. A large portion of the Company's overseas business is conducted in low-inflation areas, and operations in highly inflationary environments are not material. The Company's business was adversely affected, in terms of export-price competitiveness, by the yen's appreciation in fiscal 1996, and favorably affected by the yen's depreciation in fiscal 1997 and 1998. To alleviate the effects of currency exchange rate fluctuation, the Company has been increasing production outside Japan to meet increasing overseas demand while reducing its dependence on exports. The Company is also using various currency risk hedging techniques, including forward foreign-exchange contracts and options with leading world-class banks in exports and imports and matching of export and import exchange contracts. The Company does not have any material unhedged monetary assets, liabilities or commitments denominated in currencies other than the operation's functional currency.28 - 28 - During this period, the Company completed a three-year Matsushita Revitalization Plan, which commenced in fiscal 1995, to revitalize and strengthen its corporate structure with emphasis on improved profitability. In fiscal 1998, the Company further implemented its four-year Progress 2000 Plan. The basic objective of this new mid-term plan is to build a stronger management structure leading to the creation of an enterprise that provides the utmost in customer satisfaction in the 21st century. At the same time, the Progress 2000 Plan emphasizes the enhancement of its earnings ratio through the achievement of balanced growth in three primary business sectors--consumer products, industrial products and components--along with domestic and overseas operations. In June 1995, the Company sold an 80% share of its equity interest in the U.S. entertainment company, MCA INC. (MCA), to The Seagram Company Ltd. for approximately U.S.$5.7 billion. Consequently, MCA, now named Universal Studios, Inc., is no longer treated as a consolidated subsidiary. Due primarily to the accounting treatments related to the sale of the Company's controlling interest in MCA, as described in further detail below, the Company reported a 2.2% decline in net sales and a net loss of 57 billion yen in fiscal 1996. In fiscal 1997, net sales increased 13.0% to 7,676 billion yen, reflecting a favorable economic environment worldwide and management initiatives. The Company reported net income of 138 billion yen, as compared with the net loss in fiscal 1996. In fiscal 1998, net sales increased 2.8% to 7,891 billion yen, due mainly to growth in overseas sales, notably in North America and Europe. Net income decreased 32.1% to 94 billion yen, compared with 138 billion yen in fiscal 1997, due mainly to slowed market demand in Japan and Asia and intensified price competition at the operating profit level, and further exacerbated by the negative effect of 33 billion yen from one-time adjustments of net deferred tax assets to reflect a reduction in Japan's corporate income tax rate. Without the effects of these adjustments, net income for fiscal 1998 would have decreased 8.0%. Year ended March 31, 1998 compared with 1997 -------------------------------------------- (1) Sales Consolidated net sales in fiscal 1998 reached 7,891 billion yen, up 2.8% from the previous year's 7,676 billion yen. This increase was mainly attributable to growth in overseas sales, notably in North America and Europe, which more than offset a decline in domestic sales. Domestic sales decreased 3.8% to 3,891 billion yen, largely owing to sluggish sales of home appliances and household equipment, reflecting such factors as slow consumer spending and housing starts and unseasonable weather, which suppressed sales of seasonal products such as air conditioners, and slowdown of growth in the second half in other principal product lines such as information and communications equipment and components, due partly to price declines. Overseas sales increased 10.2% to 4,000 billion yen, owing to substantial expansion of sales in North America and Europe, led by video and audio equipment and information and communications equipment.29 - 29 - Sales by major categories were as follows: Sales of Consumer products, consisting of video and audio equipment, and home appliances and household equipment, decreased 2.4% to 3,359 billion yen. Sales of video and audio equipment advanced 4.5% to 1,885 billion yen, thanks mainly to strong gains by the Company's digital video camcorders in Japan and steady growth of VCR decks, TVs and audio products overseas. Sales of home appliances and household equipment, meanwhile, decreased 10.0% to 1,474 billion yen, due largely to the aforementioned decline in domestic sales of major appliances such as air conditioners, refrigerators and washing machines. Sales of Industrial products, consisting of information and communications equipment, and industrial equipment, increased 8.9% to 2,965 billion yen. Sales of information and communications equipment grew 12.1% to 2,264 billion yen, reflecting solid advances in overseas sales of personal computers (PCs) and PC peripherals, video systems for commercial and industrial use, and facsimile machines. Industrial equipment sales remained almost flat at 701 billion yen, as a moderate increase in sales of factory automation equipment and car audiovisual (AV) equipment offset a decline in demand for other industrial equipment such as power distribution equipment and vending machines. Sales of Components rose 3.6% to 1,567 billion yen. This result was principally attributable to firm sales of general components and semiconductors for use in information and communications equipment and digital AV equipment. Sales of electric motors and batteries, notably compact high-performance types, also advanced steadily. (2) Operating Profit Operating profit decreased 9.7% to 338 billion yen, compared with the previous year's 374 billion yen, reflecting the adverse effects of decreased or negative sales gains in Japan and other Asian markets due to declining demand and intensified worldwide price competition. (3) Other Income (Deductions) Other income (net) registered a gain of 18 billion yen in fiscal 1998, compared with a loss of 42 billion yen in fiscal 1997, when the Company recorded impairment losses of 153 billion yen related to NL Finance Co., Ltd. (NLF), a financial subsidiary, along with gross realized gains of 104 billion yen from the sale of available-for-sale securities. During fiscal 1998, the Company recognized an impairment loss of 57 billion yen associated with the machinery and equipment of subsidiaries to manufacture semiconductors, of which the prices have significantly decreased, along with an impairment loss of 31 billion yen related to the decline in value of land held, and foreign exchange losses of 25 billion yen mainly related to currency devaluations in Southeast Asian countries. On the other hand, the Company recorded gross realized gains of 118 billion yen from the sale of available-for-sale securities. (See Notes 5, 6 and 7 of the Notes to Consolidated Financial Statements.)30 - 30 - (4) Provision for Income Taxes Provision for income taxes amounted to 235 billion yen. Its ratio to income before income taxes increased to 66.0%, compared with 46.8% in fiscal 1997, mainly due to adjustments of net deferred tax assets during fiscal 1998 to reflect a reduction in Japan's corporate income tax rate. (See Note 10 of the Notes to Consolidated Financial Statements.) (5) Minority Interests Minority interests totaled 26 billion yen, compared with 44 billion yen in fiscal 1997, reflecting the earnings decrease of several subsidiaries. (6) Equity in Earnings (Losses) of Associated Companies Equity in earnings (losses) of associated companies was a loss of 1 billion yen, compared with a gain of 6 billion yen in the prior year, due to increased losses of certain associated companies, including the one for production of components for PC peripherals which became an associated company during fiscal 1998. (7) Net Income Due to the factors stated in the preceding paragraphs, net income for fiscal 1998 decreased to 94 billion yen, compared with 138 billion yen in fiscal 1997. Its ratio to sales was 1.2%, compared with 1.8% in the previous year. Year ended March 31, 1997 compared with 1996 -------------------------------------------- (1) Sales Consolidated net sales in fiscal 1997 reached 7,676 billion yen, up 13.0% from the previous year's 6,795 billion yen. This increase was achieved in a generally favorable worldwide economic environment as discussed above. Domestic sales rose 8.5% to 4,046 billion yen, largely because of continued strong demand for information and communications equipment, as well as a steady growth in sales of video and audio equipment and home appliances. Overseas sales grew 18.3% to 3,630 billion yen, due mainly to sales growth in all major categories and the depreciation of the yen. On a local currency basis, overseas sales increased 8.3%. Sales by major product categories, as restated in accordance with the category reclassifications effective in fiscal 1998, were as follows: Sales of Consumer products increased 10.0% to 3,442 billion yen. Within this category, sales of video and audio equipment advanced 7.7% to 1,804 billion yen, due largely to the solid growth of high-definition TVs and digital video camcorders in Japan, increased sales of color TVs in overseas markets, and solid growth of headphone stereos and CD players worldwide. Sales of home appliances and household equipment grew 12.7% to 1,638 billion yen, with a steady increase in demand for fully-automatic washing machines, vacuum cleaners and microwave ovens, as well as lower-power consumption models of large-sized refrigerators and air-conditioners mainly in Japan.31 - 31 - Sales of Industrial products increased 21.7% to 2,722 billion yen. Of this, sales of information and communications equipment increased 30.2% to 2,021 billion yen, led by mobile communications equipment such as cellular phones, and computer peripherals such as hard-disk drives and PC displays. Industrial equipment sales rose 2.3% to 701 billion yen, thanks mainly to increased demand for welding machines, air conditioning equipment and vending machines in Japan. Sales of Components rose 5.7% to 1,512 billion yen, as the adverse effect of price declines in semiconductors was more than offset by growth in sales of general components, liquid crystal display (LCD) panels, and compact lithium-ion rechargeable batteries. (2) Operating Profit Despite the negative effect of worldwide price declines, operating profit increased 41.4% to 374 billion yen, compared with the previous year's 264 billion yen, due principally to the Company's efforts to lower manufacturing costs and other expenses, the growth in sales, and the favorable effects of the yen's depreciation. (3) Other Income (Deductions) Other income (net) registered a loss of 42 billion yen in fiscal 1997, compared with a loss of 188 billion yen in fiscal 1996, when the Company incurred a one-time, non-operating loss of approximately 164 billion yen, primarily stemming from the realization of foreign currency translation adjustments relating to the sale of the MCA equity interest. During fiscal 1997, the Company recognized a loss of 107 billion yen associated with impaired receivables related to NLF, a financial subsidiary, along with an impairment loss of 46 billion yen related to the decline in value of real estate held for sale which had been received by NLF in satisfaction of impaired receivables. The Company recorded gross realized gains of 104 billion yen from the sale of available-for-sale securities in fiscal 1997. (4) Provision for Income Taxes Provision for income taxes amounted to 155 billion yen. Its ratio to income before income taxes decreased to 46.8%, compared with 150.7% in fiscal 1996, when the Company incurred the aforementioned, non-tax-deductible loss relating to the MCA equity sale. (5) Minority Interests Minority interests totaled 44 billion yen, compared with 22 billion yen in fiscal 1996, reflecting the earnings improvement of several subsidiaries. (6) Equity in Earnings of Associated Companies Equity in earnings of associated companies increased to 6 billion yen from 4 billion yen in the prior year, due to the improvement in earnings of certain associated companies.32 - 32 - (7) Net Income Due to the factors stated in the preceding paragraphs, net income for fiscal 1997 grew to 138 billion yen, compared with the prior year's net loss of 57 billion yen. Its ratio to sales was 1.8%, compared with (0.8%) in the previous year. Year ended March 31, 1996 compared with 1995 -------------------------------------------- (1) Sales Consolidated net sales in fiscal 1996 were 6,795 billion yen, down 2.2% from the previous year's 6,948 billion yen, primarily owing to the exclusion of MCA's revenues from fiscal 1996 consolidated results. Were MCA's revenues excluded from the previous year's results, sales would have risen in fiscal 1996. Consolidated domestic sales rose 7.9% to 3,727 billion yen. Overseas sales decreased 12.2% (11.6% on a local-currency basis) to 3,068 billion yen, due mainly to the exclusion of MCA's revenues from consolidated sales. Sales by major product categories, as restated in accordance with category reclassifications effective in fiscal 1998, were as follows: Sales of Consumer products increased 3.4% to 3,128 billion yen. Of this, sales of video and audio equipment grew 3.5% to 1,675 billion yen, with advanced unit shipment of TVs, VCRs and audio equipment in both domestic and overseas markets more than offsetting the negative effect of falling price levels. Sales of home appliances and household equipment advanced 3.3% to 1,453 billion yen, as a result of firm demand for such products as refrigerators, microwave ovens and seasonal products, such as air conditioners and heating equipment, aided also by favorable weather conditions in Japan. Sales of Industrial products increased 13.4% to 2,237 billion yen. Sales of information and communications equipment grew 10.6% to 1,552 billion yen, reflecting surging demand for mobile communications equipment and PCs in Japan and overseas. Industrial equipment sales increased 20.2% to 685 billion yen, as increased capital investment by information and communications equipment manufacturers boosted sales of factory automation equipment. Sales of Components rose 6.8% to 1,430 billion yen, primarily owing to strong domestic and overseas sales of semiconductors, cathode-ray tubes (CRTs) and general components for use in information and communications equipment, such as PCs and cellular phones. Batteries also showed continued growth in domestic and overseas markets, led by strong sales of compact, rechargeable batteries for use in information, communications and AV equipment. (2) Operating Profit Despite adverse factors, such as intensified price competition and appreciation of the yen's average rate, as well as the exclusion of MCA from fiscal 1996 consolidated results, operating profit increased 1.6% to 264 billion yen, compared with the previous year's 260 billion yen, due mainly to sales gains and the Company's efforts of lowering manufacturing costs and raising overall management efficiency.33 - 33 - (3) Other Income (Deductions) Other income (net) registered a loss of 188 billion yen in fiscal 1996, compared with a loss of 28 billion yen in fiscal 1995, due mainly to the one-time, non-operating loss of approximately 164 billion yen relating to the MCA equity sale. (4) Provision for Income Taxes Provision for income taxes amounted to 115 billion yen. Its ratio to income before income taxes jumped to 150.7%, compared with 56.4% for the previous fiscal year, due primarily to the aforementioned, non-tax-deductible loss relating to MCA. (5) Minority Interests Minority interests were 22 billion yen, compared with 17 billion yen in fiscal 1995, owing mainly to the earnings improvement of certain subsidiaries. (6) Equity in Earnings of Associated Companies Equity in earnings of associated companies decreased to 4 billion yen from the previous year's 6 billion yen because of the decreased earnings of certain overseas associated companies. (7) Net Income (Loss) Due to the factors stated in the preceding paragraphs (in particular, the non-operating loss relating to MCA), the Company registered a net loss of 57 billion yen, compared with net income of 90 billion yen in the previous year. Its ratio to sales was (0.8%), compared with the previous year's 1.3%. (b) Liquidity and Capital Resources The Company's total assets at the end of fiscal 1998 decreased to 8,564 billion yen, compared with 8,696 billion yen a year ago. Decreases in cash and cash equivalents and trade receivables were major factors contributing to this decrease. Stockholders' equity increased to 3,770 billion yen, from 3,696 billion yen a year ago, due mainly to an increase in retained earnings and the positive effects of the yen's year-end exchange rate on cumulative translation adjustments. The Company's capital investment during the year totaled 474 billion yen, up from 415 billion yen in fiscal 1997. This increase was primarily due to expanded investment in such areas as key components and devices, including semiconductors and LCD devices. Depreciation also increased to 360 billion yen, from 345 billion yen. Net cash provided by operating activities in fiscal 1998 fell to 529 billion yen, from 635 billion yen in the previous year, due mainly to decreases in net income and accrued income taxes. Net cash used in investing activities amounted to 431 billion yen, compared with the previous year's 448 billion yen. This decrease was primarily attributable to a smaller degree of increase in investments and advances than in fiscal 1997.34 - 34 - Net cash used in financing activities increased to 224 billion yen, from 86 billion yen a year ago, reflecting less cash provided due mainly to decreases in short-term borrowings and proceeds from long-term debt. These activities, along with the effects of exchange rate changes, resulted in a net decrease of 119 billion yen in cash and cash equivalents. Cash and cash equivalents at the end of fiscal 1998 were 1,906 billion yen, compared with 2,025 billion yen a year ago. (c)Qualitative Disclosures about Market RiskManagement (Item 9A)The Company is exposed to market risk, including changes of foreign exchange rates, interest rates and prices of marketable securities. In order to hedge the risks of changes in foreign exchange rates and interest rates, 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:RiskThe 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.
Maturities, costs and fair values of available-for-sale securities were as follows at March 31,
1998.2001 and 2000:
Yen (millions) ------------------------ 1998 ------------------------ Carrying Fair amount value -------- --------Due within one year 123,396 123,901 Due after one year through five years 92,813 92,616 Due after five years 253 178 Equity securities 400,383 571,012 ------- ------- 616,845 787,707 ======= =======
Yen (millions) 2001 2000 Fair Fair Cost value Cost value Due within one year 11,401 11,421 132,238 132,314 Due after one year through five years 173,167 172,050 113,426 112,517 Due after five years — — 2,000 2,000 Equity securities 369,972 533,421 377,069 756,820 554,540 716,892 624,733 1,003,651 Foreign Exchange
Risk:RiskThe primary purpose of the
Company'sCompany’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.35-
3562 -The following table provides the contract amounts and fair values of foreign exchange contracts, primarily hedging U.S. dollar revenues, at March 31,
1998.2001 and 2000. 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 shownatin the table of"Interest“Interest Rate Risk."”
Yen (millions) --------------------- 1998 --------------------- Contract Fair amount value --------- -----Forward: To sell foreign currencies 419,806 (9,182) To buy foreign currencies 132,567 200 Options purchased to sell foreign currencies 7,620 (73) Options purchased to buy foreign currencies 2,378 55
Yen (millions) 2001 2000 Contract Fair Contract Fair amount value amount value Forward: To sell foreign currencies 350,087 (4,997 ) 373,417 3,439 To buy foreign currencies 109,523 2,283 82,444 171 Options purchased to sell foreign currencies 16,430 (334 ) 26,711 119 Options purchased to buy foreign currencies 34,412 1,327 1,260 11 Options written to buy foreign currencies 24,956 (1,483 ) 24,820 (74 ) Options written to sell foreign currencies 40,080 246 4,734 (89 ) Interest Rate
Risk:RiskThe
Company'sCompany’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. Interest rate swaps may be entered into from time to time by the Company to hedge cash flows of interests and fair values of debt. However, interest rate swaps utilized by the Company at March 31,19982001 and 2000 were not material.The following tables provide information about the
Company'sCompany’s financial instruments that are sensitive to changes in interest rates at March 31,1998.2001 and 2000. 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 (year ended March 31) --------------------------------------------------------------- Average interest There- Fair rate Total 1999 2000 2001 2002 2003 after value -------- ----- ---- ---- ---- ---- ---- ------- -----Long-term debt, including current portion: Japanese yen convertible bonds 1.4% 498,020 233,600 21,000 99,021 16,999 127,400 576,152 U.S. dollar unsecured bonds 5.8% 131,730 131,730 142,317 Euro medium-term notes 5.6% 5,284 5,284 5,255 Unsecured yen loans from banks and insurance companies and others 2.2% 421,332 121,068 75,451 120,570 74,592 23,986 5,665 416,319 --------------------------------------------------------------------------------------------------------- Subtotal 1,056,366 359,952 75,451 141,570 173,613 172,715 133,065 1,140,043 Foreign exchange contracts (6,833) (6,833) (12,077) --------------------------------------------------------------------------------------------------------- Total 1,049,533 359,952 75,451 141,570 173,613 165,882 133,065 1,127,966 ---------------------------------------------------------------------------------------------------------36
Yen (millions) Carrying amount and maturity date (as of March 31, 2001) Average interest There- Fair rate Total 2002 2003 2004 2005 2006 after value Long-term debt, including current portion: Japanese yen convertible bonds 1.2 % 241,934 98,708 16,999 97,744 11,483 17,000 332,641 Straight bonds issued by a subsidiary 1.8 % 50,000 5,000 5,000 10,000 30,000 51,535 U.S. dollar unsecured bonds 5.8 % 123,785 123,785 126,874 Unsecured yen loans from banks and insurance companies and others 1.2 % 393,392 165,229 96,986 72,568 41,241 16,246 1,122 392,648 Subtotal 809,111 268,937 237,770 175,312 52,724 43,246 31,122 903,698 Foreign exchange contracts 1,367 1,367 1,399 Total 810,478 268,937 239,137 175,312 52,724 43,246 31,122 905,097 -
3663 -(d) Regarding Environment In June 1998, certain prefectural and municipal authorities announced based on the Company and its subsidiaries' reports that a higher level of harmful substances than allowed by Japan's current environmental standards was detected in underground water taken from factory sites of the Company and certain of its subsidiaries. These substances, called chlorine-based solvents, include trichloroethylene, tetrachloroethylene and trichloroethane, and were used in the past for washing metal parts and semiconductors. It is believed that the contamination of the underground water was caused by the sinking of a small quantity of these substances, into the soil in the past. Matsushita ceased the use of such substances for the above purposes before the end of 1995 in all of its domestic factories. The Company intends to take measures necessary to remove the excess level of such substances at the factory sites mentioned above. Although the financial implications of this incident cannot be assessed precisely at this stage, the Company does not believe they will have a material adverse effect on its liquidity, financial position, or results of operations. Besides the aforementioned, the Company is not aware of any other incidents of this kind that may have a material adverse effect on its liquidity, financial position, or results of operations. It is difficult to estimate future environmental expenditures because of the many uncertainties involved, including the future status of the law, regulations and technology. However, the Company believes that capital expenditures and expenses to be incurred in complying with current laws and regulations for environmental protection will not have a material effect upon its liquidity, financial position, or result of operations. (e) Year 2000 Issue Through a preliminary assessment, the Company has identified operating and application software challenges in computer usage related to the year 2000. Therefore, the Company expects to implement successfully the systems and programming changes necessary to address the year 2000 issue substantially through normal replacement and upgrades of software by the end of fiscal 1999, and does not believe that the cost of such actions will have a material effect on the Company's results of operations or financial condition. However, there can be no assurance that there will not be delays in, or increased costs associated with, the implementation of such changes, and that inability to properly implement such changes by the Company or by those with which it conducts business could have an adverse effect on future results of operations. (f) New Accounting Pronouncements In June 1997, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income." This Statement establishes standards for reporting and display of comprehensive income and its components in a full set of general-purpose financial statements and requires that all items that are required to be recognized under accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. The Company will adopt SFAS No. 130, beginning April 1, 1998 as permitted, except for the effects on stockholders' equity of its departure from the provisions of SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities." The Company does not expect that the adoption will affect the results of operations or financial position.37 - 37 - In June 1997, FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," applicable for the fiscal year beginning April 1, 1998. This Statement establishes standards for the way that public business enterprises report information about operating segments. It also establishes standards for related disclosures about products and services, geographic areas, and major customers. The Company is evaluating the adoption of SFAS No. 131. Foreign issuers are presently exempted from the segment information disclosure requirements regulated by SFAS No. 14, "Financial Reporting for Segments of a Business Enterprise" in Securities Exchange Act filings with the United States Securities and Exchange Commission. (g) 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 and also has reported sales, operating profit and identifiable assets by geographical location of companies. Business segments correspond to categories of activity classified primarily by markets and products. "Consumer products" includes consumer-use 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. Information by segment for fiscal 1998 and 1997 is shown in the tables on the following pages. By Business Segment:
Yen (billions) ------------------- 1998 1997 ---- ----Sales: Consumer products: Customers 3,359 3,442 Intersegment 7 5 ------ ------ Total 3,366 3,447 Industrial products: Customers 2,965 2,722 Intersegment 5 5 ------ ------ Total 2,970 2,727 Components: Customers 1,567 1,512 Intersegment 768 729 ------ ------ Total 2,335 2,241 Eliminations (780) (739) ------ ------ Consolidated total 7,891 7,676 ====== ======38 - 38 -
Yen (billions) ----------------- 1998 1997 ---- ----Operating profit: Consumer products 100 131 Industrial products 222 199 Components 86 106 Corporate and eliminations (70) (62) ------ ------ Consolidated total 338 374 ====== ====== Identifiable assets: Consumer products 2,455 2,484 Industrial products 2,087 2,080 Components 1,754 1,767 Corporate and eliminations 2,268 2,365 ------ ------ Consolidated total 8,564 8,696 ====== ====== Depreciation: Consumer products 78 77 Industrial products 84 77 Components 190 178 Corporate and eliminations 8 13 ------ ------ Consolidated total 360 345 ====== ====== Capital investment (including intangibles other than goodwill)*: Consumer products 81 75 Industrial products 111 96 Components 280 246 Corporate and eliminations 8 7 ------ ------ Consolidated total 480 424 ====== ======39 - 39 - By Geographical Location of Companies:
Yen (billions) ------------------ 1998 1997 ----- -----Sales: Japan: Customers 5,265 5,322 Intersegment 991 815 ------ ------ Total 6,256 6,137 North and South America: Customers 1,058 900 Intersegment 42 43 ------ ------ Total 1,100 943 Europe: Customers 614 549 Intersegment 28 29 ------ ------ Total 642 578 Asia and Others: Customers 954 905 Intersegment 428 441 ------ ------ Total 1,382 1,346 Eliminations (1,489) (1,328) ------ ------ Consolidated total 7,891 7,676 ====== ====== Operating profit: Japan 326 359 North and South America 11 13 Europe 15 11 Asia and Others 52 57 Corporate and eliminations (66) (66) ------ ------ Consolidated total 338 374 ====== ====== Identifiable assets: Japan 4,781 4,880 North and South America 533 476 Europe 317 270 Asia and Others 762 805 Corporate and eliminations 2,171 2,265 ------ ------ Consolidated total 8,564 8,696 ====== ======Notes: 1. Corporate expenses include certain corporate R&D expenditures and general corporate expenses. 2. Corporate assets consist of cash and cash equivalents, marketable securities in short-term investments, investments and advances and other assets related to unallocated expenses. 3. Effective fiscal 1998, the Company reclassified and expanded business segments as well as segments by geographical location of companies operating outside Japan. Prior year figures have been restated accordingly. * Intangibles mainly represent rights to public facilities and patents.40 - 40 - Item 10. Directors and Officers of Registrant (a) Matsushita's Articles of Incorporation provide that the number of Directors of the registrant 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 registrant'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 registrant. 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. The Corporate Auditors of the registrant 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 registrant 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 registrant's affairs. They are entitled to participate in meetings of the Board of Directors but are not entitled to vote. The Corporate Auditors constitute the Board of Corporate Auditors. The Board of Corporate Auditors has a statutory duty to prepare and submit its audit report to the Board of Directors each year. A Corporate Auditor may note his opinion in the audit report if his opinion is different from the opinion expressed in the audit report. The Board of Corporate Auditors is empowered to establish audit principles, method of examination by Corporate Auditors of the registrant's affairs and financial position and other matters concerning the performance of the Corporate Auditors' duties. The Corporate Auditors may not at the same time be Directors, managers or employees of the registrant. Set forth below are the names of Directors and Corporate Auditors after the ordinary general meeting of shareholders held on June 26, 1998, their positions and offices with Matsushita Electric Industrial Co., Ltd. and the periods during which they have served as Director or Corporate Auditor.41 - 41 -
Director/ Corporate Name Positions with registrant Auditor since ---- ------------------------- -------------Masaharu Matsushita Chairman of the Board of Directors 1944 Yoichi Morishita President and Director 1987 Kazuhiko Sugiyama Executive Vice President and Director 1996 Masayuki Matsushita Executive Vice President and Director 1986 Tsutomu Fukuhara Senior Managing Director 1988 Kunio Nakamura Senior Managing Director 1993 Motoi Matsuda Senior Managing Director 1993 Atsushi Murayama Senior Managing Director 1995 Kazuo Toda Managing Director 1994 Reiji Sano Managing Director 1995 Osamu Tanaka Managing Director 1995 Katsuro Sakakibara Managing Director 1992 Seinosuke Kuraku Managing Director 1994 Susumu Ishihara Managing Director 1994 Kyonosuke Ibe Director 1979 Josei Ito Director 1994 Tsuneharu Nitta Director 1991 Masahiro Nagasawa Director 1992 Yukio Shotoku Director 1994 Tokio Miyao Director 1996 Yoshinori Kobe Director 1996 Yoshitomi Nagaoka Director 1996 Hiroaki Enomoto Director 1996 Seiichi Wakino Director 1997 Sukeichi Miki Director 1997 Yoshio Hino Director 1997 Toshio Sugiura Director 1997 Haruo Ueno Director 1998 Takami Sano Director 1998 Hidetsugu Otsuru Director 1998 Susumu Koike Director 1998 Fumio Otsubo Director 1998 Kazuo Ichikawa Senior Corporate Auditor 1998 Mamoru Furuichi Senior Corporate Auditor 1997 Masaaki Arai Corporate Auditor 1974 Toshio Miyoshi Corporate Auditor 1994(b) 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: Masayuki Matsushita, Executive Vice President and Director is a son of Masaharu Matsushita, Chairman of the Board of Directors.42 - 42 - Item 11. Remuneration of Directors and Officers (a) The aggregate amount of remuneration, including bonuses, paid by the Company during fiscal 1998 to all Directors and Corporate Auditors as a group (41 persons) for services in all capacities was 1,372 million yen. (b) 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 1998 amounted to 325 million yen.
Yen (millions) Carrying amount and maturity date (as of March 31, 2000) Average interest There- Fair rate Total 2001 2002 2003 2004 2005 after value Long-term debt, including current portion: Japanese yen convertible bonds 1.5 % 263,874 21,000 98,893 16,999 98,499 11,483 17,000 446,953 Straight bonds issued by a subsidiary 1.9 % 20,000 5,000 5,000 10,000 20,250 U.S. dollar unsecured bonds 5.8 % 105,950 105,950 106,086 Unsecured yen loans from banks and insurance companies and others 1.7 % 402,978 147,079 128,186 75,027 40,228 11,759 699 402,328 Subtotal 792,802 168,079 232,079 197,976 143,727 23,242 27,699 975,617 Foreign exchange contracts 19,117 19,117 19,106 Total 811,919 168,079 232,079 217,093 143,727 23,242 27,699 994,723 Item 12.
Options to Purchase Securities from Registrant or Subsidiaries The Board of Directors decided at its meeting held on May 20, 1998 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 Article 210-2 of the Japanese Commercial Code. Upon the approval of shareholders at the ordinary general meeting of shareholders held on June 26, 1998 and subsequent Board of Directors' resolutions, the stock options (rights to purchase common shares) have been provided to the 32 Directors currently on the Board and four select senior executives, at amounts ranging from 2,000 to 10,000 common shares each. The stock options are exercisable from July 1, 2000 to June 30, 2004, at 2,291 yen per common share, as determined pursuant to the approval of shareholders at the said annual shareholders' meeting. In order to meet these options the Company in early July 1998 purchased a total of 113,000 common shares of the Company with an aggregate purchase price of 252,555,000 yen at the Tokyo Stock Exchange. Item 13. Interest of Management in Certain Transactions None43 - 43 - PART II Item 14.Description of Securitiesto be RegisteredOther than Equity SecuritiesNot applicable
- 64 -
PART
IIIIIItem 13. Defaults, Dividend Arrearages and Delinquencies
None
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
None
Item 15.
Defaults upon Senior Securities None[ Reserved ]Item 16.
Changes in Securities and Changes in Security for Registered Securities None44[ Reserved ]-
4465 -PART
IVIIIItem 17. Financial Statements
Index of Consolidated Financial Statements of Matsushita Electric Industrial Co., Ltd. and Subsidiaries:
Page number ------Independent Auditors'Auditors’ Report4566 Consolidated Balance Sheets as of March 31, 19982001 and1997 46200067 Consolidated Statements of OperationsIncome for the years ended March 31,1998, 19972001, 2000 and1996 48199969 Consolidated Statements of SurplusStockholders’ Equity for the years ended March 31,1998, 19972001, 2000 and1996 49199970 Consolidated Statements of Cash Flows for the years ended March 31, 1998, 19972001, 2000 and1996 50199972 Notes to Consolidated Financial Statements 5274 Schedule for the years ended March 31, 1998, 19972001, 2000 and1996:1999:Schedule VIIIII Valuation and Qualifying Accounts and Reserves
for the years ended March 31,1998, 19972001, 2000 and1996 761999101 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 of nonconsolidated subsidiaries and affiliates 20% to 50% owned are omitted because none of such subsidiaries and affiliates constitute a significant subsidiary.
45 -45-- 66 -
Independent
Auditors'Auditors’ ReportThe 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'sCompany’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 auditing standards generally accepted
auditing standardsin the UnitedStates.States of America. 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.Matsushita Electric Industrial Co., Ltd. and subsidiaries have not applied Statement of Financial Accounting Standards (SFAS) No. 115 in accounting for certain investments in debt and equity securities but have provided the disclosures required by SFAS No. 115 as of March 31, 1998 and 1997, and for each of the years in the three-year period ended March 31, 1998. The effects on the consolidated financial statements of not adopting SFAS No. 115 are summarized in Note 5 of the notes to consolidated financial statements.The segment information required to be disclosed in financial statements under accounting principles generally accepted in the United States
generally accepted accounting principlesof 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
SFASStatement of Financial Accounting Standards No. 115 in accounting for certain investments in debt and equity securitiesdiscussedand 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 thethird paragraphUnited States ofthis report,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
precedingthird 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 31,19982001 and1997,2000, and the results of their operations and their cash flows for each of the years in the three-year period ended March 31,1998,2001, in conformity withUntied Statesaccounting principles generally acceptedaccounting principles.in the United States of America. 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 PEAT MARWICK Osaka, Japan May 20, 1998, except as to Note 17, which is as of June 26, 199846 -46-
KPMG Osaka, Japan
April 27, 2001, except as to Note 10,
which is as of July 2, 2001- 67 -
MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
AND SUBSIDIARIESConsolidated Balance Sheets
March 31,
19982001 and19972000
Yen (millions) -------------------- Assets 1998 1997 ------ ---- ----Current assets: Cash and cash equivalents (Note 8) 1,906,226 2,024,830 Short-term investments (Notes 5 and 15) 130,204 157,919 Trade receivables (Note 8): Related companies (Note 4) 25,245 30,769 Notes 115,213 144,931 Accounts 1,271,804 1,307,112 Allowance for doubtful receivables (62,742) (60,810) ---------- ---------- Net trade receivables 1,349,520 1,422,002 ---------- ---------- Inventories (Notes 3 and 8) 1,101,613 1,079,435 Other current assets (Notes 5 and 10) 437,006 426,430 ---------- ---------- Total current assets 4,924,569 5,110,616 ---------- ---------- Noncurrent receivables (Note 6) 282,838 272,773 Investments and advances (Notes 5 and 15): Associated companies (Note 4) 333,967 513,205 Other investments and advances 995,213 732,484 ---------- ---------- Total investments and advances 1,329,180 1,245,689 ---------- ---------- Property, plant and equipment (Note 7): Land 223,806 255,389 Buildings 1,171,255 1,118,338 Machinery and equipment 3,026,070 2,936,775 Construction in progress 76,411 89,610 ---------- ---------- 4,497,542 4,400,112 Less accumulated depreciation 2,975,675 2,871,755 ---------- ---------- Net property, plant and equipment 1,521,867 1,528,357 ---------- ---------- Other assets (Notes 5, 7 and 10) 505,058 538,470 ---------- ---------- 8,563,512 8,695,905 ========== ==========
Yen (millions) 2001 2000 Assets (Restated-Note 1(i)) Current assets: Cash and cash equivalents (Note 7) 848,878 1,116,262 Time deposits (Note 7) 527,145 340,000 Short-term investments (Notes 4 and 15) 11,421 136,883 Trade receivables (Note 7): Related companies (Note 3) 21,945 20,731 Notes 106,334 92,939 Accounts 1,310,329 1,226,043 Allowance for doubtful receivables (42,530 ) (42,098 ) Net trade receivables 1,396,078 1,297,615 Inventories (Notes 2 and 7) 1,047,615 942,205 Other current assets (Note 9) 486,812 417,650 Total current assets 4,317,949 4,250,615 Noncurrent receivables (Note 5) 246,419 268,288 Investments and advances (Notes 4 and 15): Associated companies (Note 3) 336,221 328,816 Other investments and advances 1,175,116 1,316,614 Total investments and advances 1,511,337 1,645,430 Property, plant and equipment (Note 6): Land 223,910 220,971 Buildings 1,265,932 1,212,634 Machinery and equipment 3,188,884 3,021,725 Construction in progress 152,126 89,512 4,830,852 4,544,842 Less accumulated depreciation 3,252,791 3,144,157 Net property, plant and equipment 1,578,061 1,400,685 Other assets (Note 9) 502,522 390,057 8,156,288 7,955,075 See accompanying Notes to Consolidated Financial Statements.
47 -47-- 68 -
MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETSConsolidated Balance Sheets
March 31,
19982001 and19972000
Yen (millions) -------------- Liabilities and Stockholders' Equity 1998 1997 ------------------------------------ ---- ----Current liabilities: Short-term borrowings, including current portion of long-term debt (Notes 8 and 15) 887,841 917,319 Commercial paper 138,460 81,743 Trade payables: Related companies (Note 4) 17,784 19,121 Notes 68,028 62,549 Accounts 593,687 610,925 ---------- ---------- Total trade payables 679,499 692,595 ---------- ---------- Accrued income taxes (Note 10) 94,585 174,108 Accrued payroll 171,428 169,538 Other accrued expenses 582,255 565,179 Deposits and advances from customers 102,407 95,810 Employees' deposits 150,343 149,395 Other current liabilities (Note 5) 223,400 190,390 ---------- ---------- Total current liabilities 3,030,218 3,036,077 ---------- ---------- Noncurrent liabilities: Long-term debt (Notes 8 and 15) 689,581 923,474 Retirement and severance benefits (Note 9) 454,406 427,300 Other liabilities (Notes 5 and 10) 1,559 1,873 ---------- ---------- Total noncurrent liabilities 1,145,546 1,352,647 ---------- ---------- Minority interests (Note 5) 617,634 611,472 Stockholders' equity (Note 5): Common stock of 50 yen par value (Notes 8 and 11): Authorized - 5,000,000,000 shares Issued - 2,112,318,310 shares (2,111,156,851 shares in 1997) 209,416 208,473 Capital surplus (Notes 8 and 11) 570,628 573,780 Legal reserve (Note 11) 84,039 81,663 Retained earnings (Note 11) 2,938,539 2,874,763 Cumulative translation adjustments (Note 1(g)) (32,508) (42,970) ---------- ---------- Total stockholders' equity 3,770,114 3,695,709 Commitments and contingent liabilities (Note 16) ---------- ---------- 8,563,512 8,695,905 ========== ==========
Yen (millions) 2001 2000 Liabilities and Stockholders' Equity (Restated-Note 1(i)) Current liabilities: Short-term borrowings, including current portion of long-term debt (Notes 7 and 15) 470,965 424,461 Commercial paper 77,494 42,408 Trade payables: Related companies (Note 3) 18,860 19,094 Notes 73,430 56,724 Accounts 585,433 581,132 Total trade payables 677,723 656,950 Accrued income taxes (Note 9) 55,343 81,964 Accrued payroll 158,697 153,441 Other accrued expenses 663,541 551,426 Deposits and advances from customers 114,179 109,563 Employees’ deposits 153,147 150,109 Other current liabilities 321,698 287,000 Total current liabilities 2,692,787 2,457,322 Noncurrent liabilities: Long-term debt (Notes 7 and 15) 541,541 643,840 Retirement and severance benefits (Note 8) 558,396 528,878 Other liabilities (Note 9) 23,075 46,292 Total noncurrent liabilities 1,123,012 1,219,010 Minority interests 567,809 594,414 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) 210,994 209,708 Capital surplus (Notes 7 and 10) 621,267 570,964 Legal reserve (Note 10) 88,251 86,553 Retained earnings (Note 10) 2,924,071 2,911,665 Accumulated other comprehensive income (loss) (Notes 4 and 11): Cumulative translation adjustments (150,027 ) (294,711 ) Unrealized holding gains of available-for-sale securities 78,863 200,690 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’ equity 3,772,680 3,684,329 Commitments and contingent liabilities (Note 16) 8,156,288 7,955,075 See accompanying Notes to Consolidated Financial Statements.
48 -48-- 69 -
MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONSConsolidated Statements of Income
Years ended March 31,
1998, 19972001, 2000 and19961999
Yen (millions) ---------------------------- 1998 1997 1996 ---- ---- ----Net sales: Related companies (Note 4) 257,366 291,271 283,156 Other 7,633,296 7,384,641 6,511,696 ---------- ---------- ---------- Total net sales 7,890,662 7,675,912 6,794,852 Cost of sales (Note 4) 5,494,746 5,316,390 4,689,691 ---------- ---------- ---------- Gross profit 2,395,916 2,359,522 2,105,161 Selling, general and administrative expenses (Note 13) 2,058,358 1,985,621 1,840,667 ---------- ---------- ---------- Operating profit 337,558 373,901 264,494 Other income (deductions): Interest and dividend income (Note 4) 68,164 63,111 65,438 Interest expense (61,573) (66,532) (76,270) Other, net (Notes 5, 6, 7 and 13) 11,475 (38,355) (12,841) Loss relating to sale of MCA INC. (Note 2) -- -- (164,198) ---------- ---------- ---------- 18,066 (41,776) (187,871) ---------- ---------- ---------- Income before income taxes 355,624 332,125 76,623 Provision for income taxes (Note 10): Current 195,948 223,187 141,418 Deferred 38,901 (67,800) (25,931) ---------- ---------- ---------- 234,849 155,387 115,487 ---------- ---------- ---------- Income (loss) before minority interests and equity in earnings (losses) of associated companies 120,775 176,738 (38,864) Minority interests 25,777 44,391 22,423 Equity in earnings (losses) of associated companies (Note 4) (1,394) 5,506 4,416 ---------- ---------- ---------- Net income (loss) 93,604 137,853 (56,871) ========== ========== ==========Yen ----------------------------------Net income (loss) per depositary share, each representing 10 shares of common stock (Notes 1(m) and 12): Basic 443 654 (271) Diluted 415 606 (271)
Yen (millions) 2001 2000 1999 (Restated-Note 1(i)) Revenues: Net sales: Related companies (Note 3) 171,756 168,774 204,339 Other 7,509,805 7,130,613 7,435,780 Total net sales 7,681,561 7,299,387 7,640,119 Interest income 43,712 42,949 54,430 Dividends received 12,237 14,674 9,865 Other income (Notes 4 and 13) 54,082 135,746 52,638 Total revenues 7,791,592 7,492,756 7,757,052 Costs and expenses: Cost of sales (Notes 3 and 13) 5,481,314 5,190,791 5,346,914 Selling, general and administrative expenses (Note 13) 2,011,843 1,949,542 2,099,521 Interest expense 43,538 46,237 62,083 Other deductions (Notes 4, 5, 6 and 13) 154,162 87,581 46,241 Total costs and expenses 7,690,857 7,274,151 7,554,759 Income before income taxes 100,735 218,605 202,293 Provision for income taxes (Note 9): Current 117,855 178,445 152,303 Deferred (67,994 ) (41,430 ) 12,076 49,861 137,015 164,379 Income before minority interests and equity in earnings (losses) of associated companies 50,874 81,590 37,914 Minority interests 22,125 (941 ) 8,330 Equity in earnings (losses) of associated companies (Note 3) 12,751 17,178 (5,338 ) Net income 41,500 99,709 24,246 Yen Net income per share of common stock (Note 12): Basic 19.96 48.35 11.60 Diluted 19.56 46.36 11.58 See accompanying Notes to Consolidated Financial Statements.
49 -49-- 70 -
MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
AND SUBSIDIARIESConsolidated Statements of
SurplusStockholders’ EquityYears ended March 31,
1998, 19972001, 2000 and19961999
Yen (millions) -------------------------------------------------- Cumulative Retained Capital Legal translation earnings surplus reserve adjustments ---------- ----------- ---------- ------------Balance at March 31, 1995 2,852,604 567,201 75,360 (438,313) Net loss for year (56,871) Cash dividends (Note 11) (26,216) Increase in capital surplus arising on conversion of bonds (Notes 11 and 13) 334 Transfer of ownership in MCA INC. (Notes 2 and 13) (4,659) 136,504 Transfer to legal reserve (Note 11) (3,457) 3,457 Translation adjustments (Note 1(g)) 92,947 ---------- -------- ------- -------- Balance at March 31, 1996 2,766,060 562,876 78,817 (208,862) Net income for year 137,853 Cash dividends (Note 11) (26,304) Increase in capital surplus arising on conversion of bonds (Notes 11 and 13) 9,765 Transfer of ownership arising on capital transactions by consolidated and associated companies (Note 13) 1,139 Transfer to legal reserve (Note 11) (2,846) 2,846 Translation adjustments (Note 1(g)) 165,892 ---------- ------- ------- -------- Balance at March 31, 1997 2,874,763 573,780 81,663 (42,970) Net income for year 93,604 Cash dividends (Note 11) (27,452) Increase in capital surplus arising on conversion of bonds (Notes 11 and 13) 944 Transfer of ownership arising on capital transactions by consolidated and associated companies (Note 13) (4,096) Transfer to legal reserve (Note 11) (2,376) 2,376 Translation adjustments (Note 1(g)) 10,462 ---------- ------- ------- -------- Balance at March 31, 1998 2,938,539 570,628 84,039 (32,508) ========== ======= ======= ========
Yen (millions) 2001 2000 1999 (Restated-Note 1(i)) Common stock (Notes 10 and 13): Balance at beginning of year 209,708 209,444 209,416 Conversion of bonds 470 264 28 Stock issued under exchange offering 816 — — Balance at end of year 210,994 209,708 209,444 Capital surplus (Notes 10 and 13): Balance at beginning of year 570,964 567,696 570,628 Conversion of bonds 470 264 28 Stock issued under exchange offering 49,291 — — Transfer from retained earnings due to a merger of a subsidiary 1,511 — — Transfer of ownership arising on capital transactions by consolidated and associated companies (969 ) 3,004 (2,960 ) Balance at end of year 621,267 570,964 567,696 Legal reserve (Note 10): Balance at beginning of year 86,553 86,112 84,039 Transfer from retained earnings 1,698 441 2,073 Balance at end of year 88,251 86,553 86,112 Retained earnings (Note 10): Balance at beginning of year 2,911,665 2,841,268 2,944,282 Net income 41,500 99,709 24,246 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 year 2,924,071 2,911,665 2,841,268 Accumulated other comprehensive income (loss) (Note 11): Balance at beginning of year (94,021 ) (62,117 ) 45,317 Other comprehensive income (loss), net of tax 22,857 (31,904 ) (107,434 ) Balance at end of year (71,164 ) (94,021 ) (62,117 ) (Continued)
- 71 -
MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
AND SUBSIDIARIESConsolidated Statements of Stockholders’ Equity
Years ended March 31, 2001, 2000 and 1999
Yen (millions) 2001 2000 1999 (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 options 83 — — Sale of treasury stock 25 — — Retirement of treasury stock — — 98,883 Balance at end of year (739 ) (540 ) (252 ) Disclosure of comprehensive income (loss) (Note 11): Net income 41,500 99,709 24,246 Other comprehensive income (loss), net of tax: Translation adjustments 144,684 (139,946 ) (122,257 ) Unrealized holding gains of available-for-sale securities (121,827 ) 108,042 14,823 Total comprehensive income (loss) 64,357 67,805 (83,188 ) See accompanying Notes to Consolidated Financial Statements.
50 -50-- 72 -
MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
AND SUBSIDIARIESConsolidated Statements of Cash Flows
Years ended March 31,
1998, 19972001, 2000 and19961999
Yen (millions) ------------------------ 1998 1997 1996 ---- ---- ----Cash flows from operating activities (Note 13): Net income (loss) 93,604 137,853 (56,871) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 365,129 349,646 297,684 Loss relating to sale of MCA INC. (Note 2) -- -- 164,198 Net gain on sale of investments (113,234) (98,554) (8,399) Provision for doubtful receivables 20,565 120,604 41,146 Deferred income taxes 38,901 (67,800) (25,931) Impairment loss on long-lived assets (Note 7) 88,662 45,800 -- Minority interests 25,777 44,391 22,423 Change in assets and liabilities net of effects in 1996 from sale of MCA INC.: (Increase) decrease in trade receivables 43,046 (125,230) (149,852) (Increase) decrease in inventories (49,299) (9,426) (116,537) (Increase) decrease in other current assets (24,041) (22,096) (15,709) (Increase) decrease in noncurrent receivables (26,413) (28,394) (1,033) Increase (decrease) in trade payables 1,175 74,557 (20,491) Increase (decrease) in accrued income taxes (77,003) 75,653 (2,983) Increase (decrease) in accrued expenses and other current liabilities 84,834 96,600 82,358 Increase (decrease) in retirement and severance benefits 29,178 34,605 24,144 Other 28,398 6,300 20,838 -------- -------- -------- Net cash provided by operating activities 529,279 634,509 254,985 -------- -------- -------- Cash flows from investing activities (Note 13): Proceeds from sale of MCA INC. (Note 2) -- -- 479,780 Proceeds from sale of short-term investments 488,887 434,186 262,075 Purchase of short-term investments (348,350) (328,780) (173,396) Proceeds from disposition of investments and advances 203,644 247,379 266,847 Increase in investments and advances (322,790) (408,259) (261,883) Capital expenditures (475,906) (405,595) (379,870) Other 23,166 12,836 14,109 -------- -------- -------- Net cash provided by (used in) investing activities (431,349) (448,233) 207,662 -------- -------- --------
Yen (millions) 2001 2000 1999 (Restated-Note 1(i)) Cash flows from operating activities (Note 13): Net income 41,500 99,709 24,246 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 374,102 364,966 373,155 Net gain on sale of investments (13,706 ) (98,278 ) (14,198 ) Provision for doubtful receivables 16,449 11,980 13,505 Deferred income taxes (67,994 ) (41,430 ) 12,076 Impairment loss on long-lived assets (Note 6) — 19,565 — Minority interests 22,125 (941 ) 8,330 (Increase) decrease in trade receivables (69,146 ) (28,889 ) (37,724 ) (Increase) decrease in inventories (56,335 ) 17,564 36,587 (Increase) decrease in other current assets 27,682 (14,274 ) (21,951 ) (Increase) decrease in noncurrent receivables 21,656 6,387 6,527 Increase (decrease) in trade payables (4,284 ) 30,042 2,213 Increase (decrease) in accrued income taxes (28,839 ) 261 (7,743 ) Increase (decrease) in accrued expenses and other current liabilities 101,747 65,995 29,994 Increase (decrease) in retirement and severance benefits 26,789 34,625 42,231 Other 706 8,854 31,903 Net cash provided by operating activities 392,452 476,136 499,151 Cash flows from investing activities (Note 13): Proceeds from sale of short-term investments 145,870 259,485 376,174 Purchase of short-term investments (105,127 ) (278,243 ) (362,062 ) Proceeds from disposition of investments and advances 110,405 146,885 84,014 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 ) 10,180 20,612 Net cash used in investing activities (582,588 ) (604,354 ) (377,755 ) (Continued)
51 -51-- 73 -
MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
AND SUBSIDIARIESConsolidated Statements of Cash Flows
Years ended March 31,
1998, 19972001, 2000 and19961999
Yen (millions) ----------------------------- 1998 1997 1996 ---- ---- ----Cash flows from financing activities (Note 13): Increase (decrease) in short-term borrowings (85,660) 28,353 (39,660) Increase in deposits and advances from customers and employees 7,545 4,231 54 Proceeds from long-term debt 129,109 228,360 125,676 Repayments of long-term debt (238,029) (312,385) (291,353) Dividends paid (27,452) (26,304) (26,216) Dividends paid to minority interests (9,232) (8,613) (6,799) ---------- ---------- ---------- Net cash used in financing activities (223,719) (86,358) (238,298) ---------- ---------- ---------- Effect of exchange rate changes on cash and cash equivalents 7,185 76,133 79,399 ---------- ---------- ---------- Net increase (decrease) in cash and cash equivalents (118,604) 176,051 303,748 Cash and cash equivalents at beginning of year 2,024,830 1,848,779 1,545,031 ---------- ---------- ---------- Cash and cash equivalents at end of year 1,906,226 2,024,830 1,848,779 ========== ========== ==========
Yen (millions) 2001 2000 1999 (Restated-Note 1(i)) Decrease in short-term borrowings (44,573 ) (156,619 ) (100,202 ) Increase in deposits and advances from customers and employees 3,822 7,576 3,441 Proceeds from long-term debt 380,185 240,485 186,717 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 ) 35,478 (73,096 ) (60,323 ) (267,384 ) (417,323 ) (372,641 ) 1,116,262 1,533,585 1,906,226 848,878 1,116,262 1,533,585 52 -52-- 74 -
MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
AND SUBSIDIARIESNotes to Consolidated Financial Statements
March 31,
1998, 19972001, 2000 and1996 (1) Summary of Significant Accounting Policies (a) DESCRIPTION OF BUSINESS Matsushita Electric Industrial Co., Ltd. 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 1998 were categorized as follows: video and audio equipment -- 24%, home appliances and household equipment -- 18%, information and communications equipment -- 29%, industrial equipment -- 9%, and components -- 20%. A sales breakdown in fiscal 1998 by geographical market was as follows: Japan -- 49%, North and South America -- 19%, Europe -- 12%, and Asia and Others -- 20%. 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 United States generally accepted accounting principles. (c) PRINCIPLES OF CONSOLIDATION (SEE NOTES 2 AND 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.53 -53-1999
(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. (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. (c) Principles of Consolidation (See Note 3) 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. - 75 -
MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
AND SUBSIDIARIESNotes to 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 Revenues from sales are recognized when products are shipped to customers. (e) LEASES 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. (f) INVENTORIES (SEE NOTE 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. (g) FOREIGN CURRENCY TRANSLATION 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, "Cumulative translation adjustments," a separate component of stockholders' equity. (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 estimated useful lives.54 -54-
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. (e) Leases 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. (f) Inventories (See Note 2) 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) 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. - 76 -
MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
AND SUBSIDIARIESNotes to Consolidated Financial Statements
(i) SHORT-TERM INVESTMENTS AND INVESTMENTS AND ADVANCES (SEE NOTE 5) Marketable equity securities included in short-term investments and in investments and advances are carried at the lower of cost or market, cost being determined by the average method. Other items included in short-term investments, primarily marketable securities classified as current assets and those included in investments and advances, are carried at cost or less. In May 1993, the Financial Accounting Standards Board (FASB) issued SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities," applicable for the fiscal year beginning April 1, 1994. This addresses the accounting and reporting for investments in equity securities that have readily determinable fair values and for all investments in debt securities. The Company decided not to apply SFAS No. 115 in the body of its consolidated financial statements in order to maintain comparability to consolidated financial statements prepared in accordance with accounting principles generally accepted in Japan where such debt and equity securities are reported at historical cost. The effects on the consolidated financial statements of not adopting SFAS No. 115 are summarized in Note 5. This treatment was approved by the United States Securities and Exchange Commission. (j) NONCURRENT RECEIVABLES (SEE NOTE 6) 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. (k) INCOME TAXES (SEE NOTE 10) 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.55 -55-
(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 5 to 50 years Machinery and equipment 2 to 10 years
(i) Investments in Available-for-Sale Securities (See Notes 4 and 11) 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. - 77 -
MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
AND SUBSIDIARIESNotes to Consolidated Financial Statements
(l) ADVERTISING (SEE NOTE 13) Advertising costs are expensed as incurred. (m) NET INCOME (LOSS) PER DEPOSITARY SHARE (SEE NOTES 8, 11 AND 12) The Company adopted SFAS No. 128, "Earnings per Share," in the fiscal year beginning April 1, 1997. This Statement establishes standards for computing net income per share and simplifies the standards for computing net income per share previously found in APB Opinion No. 15, "Earnings per Share." It 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. All prior years net income (loss) per share data presented were restated to conform with the provisions of SFAS No. 128. 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 convertible bonds or similar securities were converted into common stock or exercised to result 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. (o) DERIVATIVE FINANCIAL INSTRUMENTS (SEE NOTES 14 AND 15) 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.56 -56-
(k) Income Taxes (See Note 9) 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. (l) Advertising (See Note 13) Advertising costs are expensed as incurred. (m) Net Income per Share (See Notes 7, 10 and 12) 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. (n) Cash Equivalents Cash equivalents include all highly liquid debt instruments purchased with a maturity of three months or less. (o) Derivative Financial Instruments (See Notes 14 and 15) 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 SUBSIDIARIESNotes to Consolidated Financial Statements
(p) IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF (SEE NOTE 7) The Company adopted SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," on April 1, 1996. 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 exceed the fair 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) 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. (r) NEW ACCOUNTING PRONOUNCEMENTS In June 1997, FASB issued SFAS No. 130, "Reporting Comprehensive Income." This statement establishes standards for reporting and display of comprehensive income and its components in a full set of general-purpose financial statements and requires that all items that are required to be recognized under accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. The Company will adopt SFAS No. 130, beginning April 1, 1998 as permitted, except for the effects on stockholders' equity of its departure from the provisions of SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities" (See Note 5). The Company does not expect that the adoption will affect the results of operations or financial position. In June 1997, FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," applicable for the fiscal year beginning April 1, 1998. This Statement establishes standards for the way that public business enterprises report information about operating segments. It also establishes standards for related disclosures about products and services, geographic areas, and major customers. The Company is evaluating the adoption of SFAS No. 131. Foreign issuers are presently exempted from the segment information disclosure requirements regulated by SFAS No. 14, "Financial Reporting for Segments of a Business Enterprise" in Securities Exchange Act filings with the United States Securities and Exchange Commission.57 -57-
(p) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of (See Note 6) The Company accounts for long-lived assets in accordance with 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 fair 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) 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. (r) New Accounting Pronouncements 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. - 79 -
MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
AND SUBSIDIARIESNotes to Consolidated Financial Statements
(2) Disposition On June 5, 1995, the Company transferred an 80% share of its equity interest in MCA INC. (MCA), now named Universal Studios, Inc. (Universal), to the Seagram Company Ltd. (Seagram) for approximately U.S.$5.7 billion. As a result of this transaction, the Company registered a one-time, non-operating loss on the sale of this investment of approximately 164.2 billion yen primarily stemming from the realization of foreign currency translation adjustments related to MCA. MCA was no longer treated as a consolidated subsidiary from fiscal 1996. On December 8, 1997, Universal issued new shares to Seagram. As a result, the Company's ownership interest in Universal fell below 20%. (3) Inventories Inventories at March 31, 1998 and 1997 are summarized as follows:
Yen (millions) ----------------------- 1998 1997 ---- ----Finished goods 588,660 547,494 Work(2) Inventories Inventories at March 31, 2001 and 2000 are summarized as follows:
Yen (millions) 2001 2000 Finished goods 516,972 479,439 Work in process 187,309 168,066 Raw materials 343,334 294,700 1,047,615 942,205
(3) Investments in process 193,727 204,400 Raw materials 319,226 327,541 --------- --------- 1,101,613 1,079,435 ========= =========and Transactions with Associated CompaniesCertain 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. (4) Investments in and Transactions with Associated Companies Certain financial information in respect of associated companies at March 31, 1998 and 1997 and for the three years ended March 31, 1998 is shown below. The most significant of these associated companies is Matsushita Electric Works, Ltd. (MEW). At March 31, 1998, the Company has a 31.2% equity ownership in MEW. As discussed in Note 2, on December 8, 1997, the Company's ownership interest in Universal fell below 20%. The financial information of Universal for fiscal 1998 is not included in the following.58 -58-
Yen (millions) 2001 2000 Current assets 851,026 955,235 Other assets 1,552,170 1,421,067 2,403,196 2,376,302 Current liabilities 585,769 631,560 Other liabilities 869,257 809,695 Net assets 948,170 935,047 Company’s equity in net assets 279,266 267,454
Yen (millions) 2001 2000 1999 Net sales 1,807,373 1,835,138 2,175,672 Gross profit 492,107 500,373 502,972 Net income (loss) 8,399 47,651 (11,829 ) - 80 -
MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
AND SUBSIDIARIESNotes to Consolidated Financial Statements
Yen (millions) ----------------- 1998 1997 ---- ----Current assets 1,092,931 1,448,091 Other assets 1,449,442 2,331,167 --------- --------- 2,542,373 3,779,258 Current liabilities 697,723 896,764 Other liabilities 846,485 1,051,396 --------- --------- Net assets 998,165 1,831,098 ========= ========= Company'sPurchases and dividends received from associated companies for the three years ended March 31, 2001 are as follows:
Yen (millions) 2001 2000 1999 Purchases from 177,865 235,599 258,881 Dividends received 5,089 7,935 10,995
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) 2001 2000 Carrying amount 278,199 272,343 Market value 355,851 310,311
(4) Investments in net assets 274,823 440,048 ========= =========Available-for-Sale SecuritiesAs 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.
Yen (millions) ------------------------------------ 1998 1997 1996 ---- ---- ----Net sales 2,306,649 3,062,556 2,740,359 Gross profit 553,459 816,730 688,230 Net income 23,690 46,217 41,564Purchases and dividends received from the associated companies for the three years ended March 31, 1998 are as follows:
Yen (millions) ------------------------------------ 1998 1997 1996 ---- ---- ----Purchases from 259,451 257,150 199,310 Dividends received 9,875 6,032 7,147Retained earnings include undistributed earnings of associated companies in the amount of 85,889 million yen and 81,214 million yen, respectively, as of March 31, 1998 and 1997. Investments in associated companies include equity securities which have quoted market values at March 31, 1998 and 1997 compared with related carrying amounts as follows:
Yen (millions) --------------------- 1998 1997 ---- ----Carrying amount 270,312 274,070 Market value 366,585 340,23859 -59-- 81 -
MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
AND SUBSIDIARIESNotes to Consolidated Financial Statements
(5) Short-term Investments and Investments and Advances As discussed
The cost, fair value, gross unrealized holding gains, and gross unrealized holding losses of available-for-sale securities included in Note 1(i), the Company does not apply SFAS No. 115 in the body of its consolidated financial statements. The effects on the consolidated financial statements of not adopting SFAS No. 115 are disclosed in this note. SFAS No. 115 requires that certain investments in debt and equity securities be classified as held-to-maturity, trading, or available-for-sale securities. Theshort-term investments and investmentsand advances of the Company consist of available-for-sale securities. The consolidated statements of operations for the three years ended March 31, 1998 were not materially affected by SFAS No. 115. The effects on balance sheet items of the Company's departure from SFAS No. 115 as of March 31, 1998 and 1997 are summarized as follows:
Yen (millions) --------------- 1998 1997 ---- ----Stockholders' equity as reported 3,770,114 3,695,709 Net increase in the carrying amount of: Short-term investments 18,314 85,372 Investmentsand advances152,548 223,327 Net decrease in deferred tax assetsat March 31, 2001 andincrease in deferred tax liabilities: Current deferred tax assets (decrease) (4,135) (38,304) Noncurrent deferred tax assets (decrease) (72,613) (114,332) Current deferred tax liabilities (increase) (4,582) (5,402) Noncurrent deferred tax liabilities (increase) -- (2) Net unrealized gain on securities held by associated companies 2,892 4,556 Net increase in minority interests (8,856) (9,162) ---------- --------- Total adjustments to stockholders' equity 83,568 146,053 --------- --------- Stockholders' equity in accordance with U.S. generally accepted accounting principles 3,853,682 3,841,762 ========= =========2000 are as follows:60 -60-
Yen (millions) 2001 Gross Gross unrealized unrealized Fair holding holding Cost value gains losses Current: Japanese and foreign government bonds 3,288 3,299 21 10 Convertible and straight bonds 3,042 3,046 5 1 Investment trusts 77 77 — — Other debt securities 4,994 4,999 5 — 11,401 11,421 31 11 Noncurrent: Equity securities 369,972 533,421 179,305 15,856 Japanese and foreign government bonds 58,441 57,056 70 1,455 Convertible and straight bonds 6,973 6,953 17 37 Investment trusts 68,418 67,889 48 577 Other debt securities 39,335 40,152 817 — 543,139 705,471 180,257 17,925 - 82 -
MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
AND SUBSIDIARIESNotes to Consolidated Financial Statements
As a result of the above adjustments, total assets at March 31, 1998 and 1997 would increase by 97,006 million yen and 160,619 million yen, respectively. The carrying amount, fair value, gross unrealized holding gains, and gross unrealized holding losses
Yen (millions) 2000 Gross Gross unrealized unrealized Fair holding holding Cost value gains losses Current: Equity securities 2,478 4,569 2,091 — Japanese and foreign government bonds 84,748 84,795 47 — Convertible and straight bonds 14,619 14,648 29 — Investment trusts 74 74 — — Other debt securities 32,797 32,797 — — 134,716 136,883 2,167 — Noncurrent: Equity securities 374,591 752,251 377,660 — Japanese and foreign government bonds 5,128 5,071 — 57 Convertible and straight bonds 1,863 1,874 11 — Investment trusts 95,804 94,942 210 1,072 Other debt securities 12,631 12,630 — 1 490,017 866,768 377,881 1,130
Maturities of investments in available-for-sale securities included in short-term investments and investments and advances at March 31, 1998 and 1997 are as follows:
Yen (millions) -------------------------------------------- 1998 -------------------------------------------- Gross Gross unrealized unrealized Carrying Fair holding holding amount value gains losses ------- ------- ------- -------Current: Available-for-sale: Equitysecurities3,754 21,550 17,796 -- Japaneseat March 31, 2001 andforeign government bonds 85,783 86,205 470 48 Convertible and straight bonds 16,269 16,258 10 21 Investment trust 102 114 12 -- Other debt securities 24,296 24,391 145 50 ------- ------- ------- --- 130,204 148,518 18,433 119 ======= ======= ======= === Noncurrent: Available-for-sale: Equity securities 396,629 549,462 152,833 -- Japanese and foreign government bonds 2,946 2,998 52 -- Convertible and straight bonds 1,355 1,375 20 -- Investment trust 81,107 80,757 30 380 Other debt securities 4,604 4,597 2 9 ------- ------- ------- --- 486,641 639,189 152,937 389 ======= ======= ======= ===2000 are as follows:61 -61-
Yen (millions) 2001 2000 Fair Fair Cost value Cost value Due within one year 11,401 11,421 132,238 132,314 Due after one year through five years 173,167 172,050 113,426 112,517 Due after five years — — 2,000 2,000 Equity securities 369,972 533,421 377,069 756,820 554,540 716,892 624,733 1,003,651 - 83 -
MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
AND SUBSIDIARIESNotes to Consolidated Financial Statements
Yen (millions) ---------------------------------------------- 1997 ---------------------------------------------- Gross Gross unrealized unrealized Carrying Fair holding holding amountProceeds 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. (6) Long-Lived Assets The Company periodically reviews the recorded value gains losses ------- ------- -------- ----------Current: Available-for-sale: Equity securities 9,195 93,608 84,413 -- Japaneseof 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.The Company recognized an impairment loss of 19,565 million yen during fiscal 2000 related to the write-down of the machinery and foreign government bonds 107,043 107,793 809 59 Convertibleequipment to manufacture CRTs andstraight bonds 4,881 4,938 108 51 Investment trust 4,891 4,891 -- -- Other debt securities 31,909 32,061 306 154 ------- ------- ------- ------- 157,919 243,291 85,636 264 ======= ======= ======= ======= Noncurrent: Available-for-sale: Equity securities 299,451 526,593 227,142 -- Japaneseother components.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 net operating loss. An impairment loss recorded in fiscal 2000 is included in other deductions of costs and foreign government bonds 7,061 7,156 95 -- Convertible and straight bonds 1,968 1,994 26 -- Investment trust 100,109 96,137 156 4,128 Other debt securities 15,935 15,971 36 -- ------- ------- ------- ------- 424,524 647,851 227,455 4,128 ======= ======= ======= =======expenses in the consolidated statements of income.Maturities of short-term investments and investments and advances classified as available-for-sale at March 31, 1998 and 1997 are as follows:
Yen (millions) -------------------------------------------- 1998 1997 ------------------ ------------------- Carrying Fair Carrying Fair amount value amount value ------- ------- ------- --------Due within one year 123,396 123,901 142,671 143,630 Due after one year through five years 92,813 92,616 127,456 123,784 Due after five years 253 178 3,670 3,527 Equity securities 400,383 571,012 308,646 620,201 ------- ------- ------- ------- 616,845 787,707 582,443 891,142 ======= ======= ======= =======62 -62-- 84 -
MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
AND SUBSIDIARIESNotes to Consolidated Financial Statements
The change in net unrealized holding gain on available-for-sale securities, net of related taxes and minority interests, for the years ended March 31, 1998, 1997 and 1996 was a decrease of 62,485 million yen, a decrease of 122,484 million yen and an increase of 72,054 million yen, respectively. Proceeds from sale of available-for-sale securities for the years ended March 31, 1998, 1997 and 1996 were 657,449 million yen, 652,504 million yen and 495,565 million yen, respectively. The gross realized gains for the years ended March 31, 1998, 1997 and 1996 were 118,370 million yen, 104,393 million yen and 21,416 million yen, respectively. The gross realized losses for the years ended March 31, 1998, 1997 and 1996 were 5,136 million yen, 5,839 million yen and 13,017 million yen, respectively. The cost of securities sold in computing gross realized gains and losses is determined by the average cost method. (6) Noncurrent Receivables The recorded investment in noncurrent receivables relating to NL Finance Co., Ltd. (NLF), a financial subsidiary, for which impairment has been recognized at March 31, 1998 and 1997 was 15,343 million yen and 95,676 million yen, respectively. Related allowance for doubtful receivables was not significant at March 31, 1998, and was 63,171 million yen at March 31, 1997. The average recorded investment in impaired receivables during the years ended March 31, 1998, 1997 and 1996 was 73,954 million yen, 133,225 million yen and 184,480 million yen, respectively. Additions charged to bad debt expenses for the years ended March 31, 1998, 1997 and 1996 were 12,249 million yen, 107,302 million yen and 38,790 million yen, respectively. Write-downs charged against the allowance for the years ended March 31, 1998, 1997 and 1996 were 74,897 million yen, 113,041 million yen and 45,497 million yen, respectively. (7) Long-Lived Assets As is discussed in Note 1(p), the Company adopted SFAS No. 121, effective April 1, 1996. As the prices of semiconductors, mainly 16-megabit DRAMs and 64-megabit DRAMs, have significantly decreased during fiscal 1998, due to highly competitive market conditions, the Company projected that future business of subsidiaries manufacturing those products would result in a net operating loss. As a result of the comparison of future net cash flows expected to be generated by the machinery and equipment to manufacture those products and their carrying amounts, the Company recognized an impairment loss of 57,290 million yen, included in other (net) of other income (deductions), during fiscal 1998. The Company recognized an impairment loss of 31,372 million yen, included in other (net) of other income (deductions), during fiscal 1998 related to the decline in value of land held. The Company recognized an impairment loss of 45,800 million yen, included in other (net) of other income (deductions), during fiscal 1997 related to the decline in value of real estate held for sale (included in other assets) which had been received by NLF in satisfaction of impaired receivables.63 -63-
(7) Long-term Debt and Short-term Borrowings Long-term debt at March 31, 2001 and 2000 is set forth below:
Yen (millions) 2001 2000 Convertible bonds, due 2002, interest 1.3% 98,708 98,893 Convertible bonds, due 2004, interest 1.4% 97,744 98,499 Convertible bonds issued by subsidiaries, due 2002 and 2005,
interest 0.35%—1.5%45,482 66,482 U.S. dollar unsecured bonds, due 2002, effective interest 5.8% 125,152 125,067 Straight bonds issued by a subsidiary, due 2001—2007,
interest 1.38%—2.15%50,000 20,000 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 2000393,392 402,930 Other long-term debt — 48 810,478 811,919 Less current portion 268,937 168,079 541,541 643,840
The aggregate annual maturities of long-term debt after March 31, 2001 are as follows:
Yen (millions) Year ending March 31: 2002 268,937 2003 239,137 2004 175,312 2005 52,724 2006 43,246
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. - 85 -
MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
AND SUBSIDIARIESNotes to Consolidated Financial Statements
(8) Long-term Debt and Short-term Borrowings Long-term debt at March 31, 1998 and 1997 is set forth below:
Yen (millions) ------------------- 1998 1997 ---- ----StraightEach 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 due 1997, interest 4.35% -- 99,650 Convertiblematuring 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 due 1999, interest 1.3% 198,357 198,370 Convertiblematuring 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 due 2002, interest 1.3% 99,021 99,879 Convertible bonds, due 2004, interest 1.4% 98,917 99,932 Convertible bondsmaturing through 2005 issued by subsidiariesdue 1997, 1999, 2000, 2002are redeemable at the option of the subsidiaries at prices ranging from 104% of principal to 100% of principal near maturity.(8) Retirement and 2005, interest 0.35% - 4.3% 101,725 126,609 U.S. dollar unsecured bonds, due 2002, effective interest 5.8% 124,897 124,812 Euro medium-term notes issuedSeverance BenefitsThe 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 a subsidiary, due 1997 - 2000, effective interest 5.6%death, the severance payment is greater than in1998 and 5.3% in 1997 5,284 17,374 Unsecured yen loans from banks and insurance companies, principally by financial subsidiaries, due 1997 - 2005, effective interest 2.2% in 1998 and 3.0% in 1997 421,249 392,307 Other long-term debt 83 1,490 --------- --------- 1,049,533 1,160,423 Less current portion 359,952 236,949 --------- --------- 689,581 923,474 ========= =========the case of voluntary termination. The lump-sum payment plans are not funded.The aggregate annual maturities and sinking fund requirements of long-term debt after March 31, 1998 are as follows:
Yen (millions) -------------- Year ending March 31:1999 359,952 2000 75,451 2001 141,570 2002 173,613 2003 165,882As 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.64 -64-- 86 -
MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
AND SUBSIDIARIESNotes to Consolidated Financial Statements
Each of the loan agreements grants the lender the right to request additional security or mortgages on property, plant and equipment. At March 31, 1998 and 1997, short-term loans subject to such general agreements amounted to 325,109 million yen and 491,169 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, 1998 and 1997 were 5.1% and 3.6%, respectively. Acceptances payable by foreign subsidiaries, in the amount of 6,580 million yen and 10,323 million yen at March 31, 1998 and 1997, 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 1999 are currently redeemable at the option of the Company at prices ranging from 101% of principal to 100% of principal near maturity, and are currently convertible into approximately 81,284,000 shares of common stock at 2,440.30 yen per share. The 1.3% convertible bonds maturing in 2002 are redeemable from 1999 at the option of the Company at prices ranging from 102% of principal to 100% of principal, and are currently convertible into approximately 61,124,000 shares of common stock at 1,620.00 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 61,060,000 shares of common stock at 1,620.00 yen per share. The convertible bonds maturing through 2005 issued by subsidiaries are redeemable at the option of the subsidiaries at prices ranging from 107% of principal to 100% of principal near maturity. (9) Retirement and Severance Benefits 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 plans are not funded.65 -65-
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) 2001 2000 Service cost – benefits earned during the year 89,737 86,391 Interest cost on projected benefit obligation 84,665 84,619 Expected return on plan assets (57,415 ) (49,389 ) Amortization of net transition obligation 9,972 9,972 Recognized actuarial loss 11,054 15,561 Net periodic benefit cost 138,013 147,154 - 87 -
MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
AND SUBSIDIARIESNotes to Consolidated Financial Statements
Retirement and severance benefit liabilities in the consolidated balance sheets are stated at the amount of the vested benefit obligation which would exist if all employees voluntarily terminated their employment at that date. Such liability exceeds the projected benefit obligation under the plans. Pension costs charged to income represent benefit payments plus or minus the change in the vested benefit obligation. Pension costs of unfunded benefit pension plans for the years ended March 31, 1998, 1997 and 1996 amounted to 50,522 million yen, 51,714 million yen and 49,838 million yen, respectively. In addition to the plans described above, substantially all employees of the Company and certain subsidiaries are covered by contributory, funded benefit pension plans which 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. The pension funds do not account for participants on an individual basis. Therefore, assets cannot be attributed to each participant. The plans require that the actuarial liability reserve and annual contributions be calculated by the open aggregate cost method for social security tax under the Welfare Pension Insurance Law and by the open aggregate cost method or the entry-age method for the companies. Pension costs excluding the social security tax portion for the years ended March 31, 1998, 1997 and 1996 amounted to 60,071 million yen, 37,935 million yen and 25,642 million yen, respectively. The Company decided not to apply accounting for Single-Employer Defined Benefit Pension Plans under SFAS No. 87 for those funded benefit pension plans as the effects on the consolidated financial statements of the implementation of SFAS No. 87 are immaterial. However, the following table summarizes the funded status based on the actuarial funding method for the contributory benefit pension plans of the Company at March 31, 1997 and 1996 with the latest information available:
Yen (millions) --------------- 1997 1996 ---- ----Liability reserve 846,705 798,418 FairReconciliation 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, primarily marketable securitiesandloans 850,072 796,752 -------- -------- Fair value of plan assets greater than (less than) the liability reserve 3,367 (1,666) ======== ========actuarial assumptions used at March 31, 2001 and 2000 are as follows:66 -66-
Yen (millions) 2001 2000 Change in benefit obligations: Benefit obligations at beginning of year 2,136,223 1,951,275 Service cost 89,737 86,391 Interest cost 84,665 84,619 Plan participants’ contributions 13,902 13,714 Prior service cost (64,171 ) — Actuarial loss 39,341 64,649 Benefits paid (68,965 ) (60,399 ) Foreign currency exchange impact 4,478 (4,026 ) Benefit obligations at end of year 2,235,210 2,136,223 Change in plan assets: Fair value of plan assets at beginning of year 1,410,872 1,191,545 Actual return on plan assets (134,692 ) 164,084 Employer contributions 78,084 67,797 Plan participants’ contributions 13,902 13,714 Benefits paid (31,260 ) (23,652 ) Foreign currency exchange impact 3,731 (2,616 ) Fair value of plan assets at end of year 1,340,637 1,410,872 Funded status (894,573 ) (725,351 ) Unrecognized net transition obligation 13,270 23,242 Unrecognized prior service cost (64,171 ) — Unrecognized actuarial loss 387,078 173,231 Accrued retirement and severance benefits recognized in the consolidated balance sheet (558,396 ) (528,878 ) Actuarial assumptions: Discount rate 4.0% 4.0% Expected return on plan assets 4.0% 4.0% Rate of compensation increase 2.6% 2.6% - 88 -
MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
AND SUBSIDIARIESNotes to Consolidated Financial Statements
The assumed rates of salary increase, expected long-term rate of return and discount rate for the above contributory pension plans were 2.7%-3.9%, 5.5% and 5.5%, respectively. The contributions to these plans for the years ended March 31, 1997 and 1996 for the portion of social security tax were 22,756 million yen and 22,063 million yen, respectively. Approximately half of the portion of social security tax was contributed by the employees and half was contributed by the companies. The balance of past service costs in the amount of 29,647 million yen as of March 31, 1997 is being amortized over a seven- to ten-year period. Contributions to amortize the past service costs for the years ended March 31, 1997 and 1996 totaled 2,576 million yen and 2,442 million yen, respectively. The companies are not required by regulation to report the actuarially computed value of vested benefits, and such information, therefore, is not presented. (10) Income Taxes Income before income taxes and income taxes for the three years ended March 31, 1998 are summarized as follows:
Yen (millions) -------------------------------- Domestic Foreign Total -------- ------- -----1998: Income before income taxes 258,582 97,042 355,624 Income taxes: Current 160,275 35,673 195,948 Deferred 43,252 (4,351) 38,901 -------- -------- -------- Total income taxes 203,527 31,322 234,849 ======== ======== ======== 1997: Income before income taxes 234,255 97,870 332,125 Income taxes: Current 193,369 29,818 223,187 Deferred (61,838) (5,962) (67,800) -------- -------- -------- Total income taxes 131,531 23,856 155,387 ======== ======== ======== 1996: Income before income taxes 154,209 (77,586) 76,623 Income taxes: Current 114,759 26,659 141,418 Deferred (25,038) (893) (25,931) -------- -------- -------- Total income taxes 89,721 25,766 115,487 ======== ======== ========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. 67 -67-- 89 -
MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
AND SUBSIDIARIESNotes 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) Domestic Foreign Total 2001: Income before income taxes 49,542 51,193 100,735 Income taxes: Current 95,820 22,035 117,855 Deferred (68,585 ) 591 (67,994 ) Total income taxes 27,235 22,626 49,861 2000: Income before income taxes 99,538 119,067 218,605 Income taxes: Current 125,155 53,290 178,445 Deferred (33,251 ) (8,179 ) (41,430 ) Total income taxes 91,904 45,111 137,015 1999: Income before income taxes 153,047 49,246 202,293 Income taxes: Current 117,925 34,378 152,303 Deferred 15,810 (3,734 ) 12,076 Total income taxes 133,735 30,644 164,379
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. - 90 -
MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
AND SUBSIDIARIESNotes 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 51.2% for the three years ended March 31, 1998. The effective rates for the years differ from the normal tax rates for the following reasons:
1998 1997 1996 ---- ---- ----Normaltax rate51.2 % 51.2 % 51.2 % Tax creditof approximately 41.9% forincreased research expenses (1.0) (1.7) (2.5) Lowerthe 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:
2001 2000 1999 Normal tax rate 41.9 % 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 purposes 11.2 6.6 7.6 Change in valuation allowance allocated to income tax expenses 5.4 18.7 6.8 Adjustments of deferred tax assets and liabilities for enacted changes in tax laws and rates — — 24.8 Other 1.3 — 5.0 Effective tax rate 49.5 % 62.7 % 81.3 %
The significant components of overseas subsidiaries (1.3) (4.9) (7.7) Expenses not deductible for tax purposes 4.3 5.1 28.5 Cumulative translation adjustment loss relating to sale of MCA -- -- 87.7 Change in valuation allowance allocated todeferred income tax expenses(1.7) (4.3) 5.4 Adjustmentsfor the three years ended March 31, 2001 are as follows:
Yen (millions) 2001 2000 1999 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 rates — — 50,052 Increase in the balance of valuation allowance for deferred tax assets 5,453 40,837 13,845 (67,994 ) (41,430 ) 12,076 - 91 -
MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
AND SUBSIDIARIESNotes 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) 2001 2000 Deferred tax assets: Inventory valuation 98,749 87,229 Expenses accrued for financial statement purposes but not currently included in taxable income 180,465 145,235 Depreciation 135,719 130,556 Retirement and severance benefits 149,540 124,979 Tax loss carryforwards 76,920 73,709 Other 103,613 99,644 Total gross deferred tax assets 745,006 661,352 Less valuation allowance 80,807 75,720 Net deferred tax assets 664,199 585,632 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 assets 568,915 397,977
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. - 92 -
MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
AND SUBSIDIARIESNotes to Consolidated Financial Statements
Net deferred tax assets and liabilities for enacted changesat March 31, 2001 and 2000 are reflected intax laws and rates 10.5 -- -- Other 4.0 1.4 (11.9) ---- ---- ----- Effective tax rate 66.0 % 46.8 % 150.7 % ==== ==== =====the accompanying consolidated balance sheets under the following captions:The significant components of deferred income tax expenses for the three years ended March 31, 1998 are as follows:
Yen (millions) 2001 2000 Other current assets 309,432 252,168 Other assets 282,558 192,101 Other liabilities (23,075 ) (46,292 ) Net deferred tax assets 568,915 397,977
Yen (millions) -------------------------- 1998 1997 1996 ---- ---- ----Deferred tax expense (exclusive(10) Stockholders’ Equity In accordance with the Japanese Commercial Code, at least 50% of the effectsamount ofother components listed below) 7,342 (53,476) (30,081) Adjustmentsconverted 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 ofdeferred tax assetsbonds for the years ended March 31, 2001, 2000 andliabilities1999, 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 enacted changesan aggregate cost of 98,883 million yen. The entire repurchase cost of retired shares was charged to retained earnings intax lawsaccordance 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 rates 37,423 -- -- Increase (decrease)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 thebalance of valuation allowanceyear ended March 31, 2001 or fordeferred tax assets (5,864) (14,324) 4,150 ------ ------- ------- 38,901 (67,800) (25,931) ====== ======= =======the related appropriation.68 -68-- 93 -
MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
AND SUBSIDIARIESNotes 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, 1998 and 1997 are presented below:
Yen (millions) --------------- 1998 1997 ---- ----Deferred tax assets: Inventory valuation 92,636 97,253 Expenses accruedThe 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:
Number Weighted average of shares exercise price (yen) Balance at March 31, 1998 — — Granted 113,000 2,291 Balance at March 31, 1999 113,000 2,291 Granted 116,000 2,476 Balance at March 31, 2000 229,000 2,385 Granted 109,000 2,815 Exercised (33,000 ) 2,291 Forfeited (10,000 ) 2,291 Balance at March 31, 2001, weighted average remaining life – 4.38 years 295,000 2,557
The Company applies Accounting Principles Board (APB) Opinion No. 25, “Accounting for financial statement purposes butStock 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 notcurrently includedbe 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 taxable income 146,890 153,827 Depreciation 143,741 153,358 Retirementconnection 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 severance benefits 93,882 91,381 Tax loss carryforwards 52,006 58,406 Other 93,046 139,509 -------- -------- Total gross deferred tax assets 622,201 693,734 Less valuation allowance 39,612 55,019 -------- -------- Net deferred tax assets 582,589 638,715 Deferred tax liabilities: Purchase accounting step-up of identifiable assets (3,082) (19,377) Other (30,348) (33,843) -------- -------- Total gross deferred tax liabilities (33,430) (53,220) -------- -------- Net deferred tax assets 549,159 585,495 ======== ========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.The net change in total valuation allowance for the years ended March 31, 1998 and 1997 was a decrease of 15,407 million yen and 28,097 million yen, respectively. At March 31, 1998, certain subsidiaries had, for tax reporting purposes, net operating loss carryforwards of approximately 119,817 million yen, which will generally expire between 1999 and 2013.69 -69-- 94 -
MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
AND SUBSIDIARIESNotes to Consolidated Financial Statements
Net deferred tax assets and liabilities at March 31, 1998 and 1997 are reflected in the accompanying consolidated balance sheets under the following captions:
Yen (millions) ---------------------- 1998 1997 ---- ----(11) Other current assets 263,560 279,573 Other assets 287,158 307,795 Other liabilities (1,559) (1,873) -------- -------- Net deferred tax assets 549,159 585,495 ======== ========(11) 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 increase in the common stock account resulting from conversion of bonds for the respective fiscal years is as follows:
Fiscal NumberComprehensive Income (Loss)Components of Common stock year Nature shares Yen (millions) ------ ------ --------- --------------1998 Conversion of bonds 1,161,459 943 1997 Conversion of bonds 13,441,895 9,767 1996 Conversion of bonds 458,126 333other comprehensive income (loss) for the three years ended March 31, 2001 are as follows: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, 1998 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 13,201 million yen, planned to be proposed in June 1998 in respect of the year ended March 31, 1998 or for the related appropriation.70 -70-
Yen (millions) Pre-tax Tax Net-of-tax amount expense amount For the year ended March 31, 2001: Translation adjustments 144,684 — 144,684 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 ) 84,457 22,857 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 period 225,671 (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 period 42,486 (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 ) - 95 -
MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
AND SUBSIDIARIESNotes to Consolidated Financial Statements
(12) Net Income (Loss) per Depositary Share
(12) Net Income per Share A reconciliation of the numerators and denominators of the basic and diluted net income (loss) per depositary share computation for the three years ended March 31, 1998 is as follows:
Yen (millions) -------------------------------- 1998 1997 1996 ---- ---- ----Net income (loss) available to common stockholders 93,604 137,853 (56,871) Effect of assumed conversions: Convertible bonds, due 1999, interest 1.3% 1,259 1,259 -- Convertible bonds, due 2002, interest 1.3% 629 634 -- Convertible bonds, due 2004, interest 1.4% 676 683 -- Others -- 1 -- ------- ------- ------- Dilutednet income(loss) 96,168 140,430 (56,871) ======= ======= =======per share computation for the three years ended March 31, 2001 is as follows:
Yen (millions) 2001 2000 1999 Net income available to common stockholders 41,500 99,709 24,246 Effect of assumed conversions: Convertible bonds, due 2002, interest 1.3% 747 747 674 Convertible bonds, due 2004, interest 1.4% 795 802 — Diluted net income 43,042 101,258 24,920
Number of shares 2001 2000 1999 Average common shares outstanding 2,079,235,871 2,062,295,743 2,089,988,449 Dilutive effect of assumed conversions: Convertible bonds, due 2002, interest 1.3% 60,941,152 61,090,690 61,117,490 Convertible bonds, due 2004, interest 1.4% 60,376,132 60,941,462 — Stock options 23,848 15,403 — Diluted common shares outstanding 2,200,577,003 2,184,343,298 2,151,105,939
Yen 2001 2000 1999 Net income per share: Basic 19.96 48.35 11.60 Diluted 19.56 46.36 11.58
NumberApproximately 136 million of shares ------------------------------------ 1998 1997 1996 ---- ---- ----Averagethe potential common sharesoutstanding 2,112,052,091 2,108,067,837 2,097,339,494 Dilutivewere 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 effectof assumed conversions: Convertible bonds, due 1999, interest 1.3% 81,285,840 81,289,186 -- Convertible bonds, due 2002, interest 1.3% 61,267,028 61,666,616 -- Convertible bonds, due 2004, interest 1.4% 61,181,174 61,712,449 -- Others -- 3,122,125 -- ------------- ------------- ------------- Diluted common shares outstanding 2,315,786,133 2,315,858,213 2,097,339,494 ============= ============= =============
Yen ------------------------- 1998 1997 1996 ---- ---- ----Neton net income(loss)perdepositary share: Basic 443 654 (271) Diluted 415 606 (271)share.71 -71-- 96 -
MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
AND SUBSIDIARIESNotes to Consolidated Financial Statements
(13) Supplementary Information to the Statements of Operations and Cash Flows Research and development costs and advertising costs charged to income for the three years ended March 31, 1998 are as follows:
Yen (millions) ------------------------------- 1998 1997 1996 ---- ---- ----(13) Supplementary Information to the Statements of Income and Cash Flows Research and development costs, 480,539 434,874 399,712 Advertisingadvertising costs125,774 117,222 104,967Included in other (net) of other income (deductions) for the year ended March 31, 1998 are foreign exchange losses of 25,086 million yen. Foreign exchange gains and losses included in the consolidated statements of operations for the two years ended March 31, 1997 were not significant. Included in other (net) of other income (deductions) for the year ended March 31, 1997 is a loss of 107,302 million yen associated with impaired receivables of NLF, a financial subsidiary. Income taxes and interest expenses paid and noncash investing and financing activities for the three years ended March 31, 1998 are as follows:
Yen (millions) ----------------------- 1998 1997 1996 ---- ---- ----a) Cash paid: Interest 77,254 86,244 96,296 Income taxes 272,951 147,534 139,609 b) Noncash investingandfinancing activities: Conversionshipping and handling costs charged to income for the three years ended March 31, 2001 are as follows:
Yen (millions) 2001 2000 1999 Research and development costs 543,804 525,557 499,986 Advertising costs 112,139 114,587 128,285 Shipping and handling costs 149,563 152,387 159,177
Included in other deductions of bonds 1,887 19,532 699 Transfercosts and expenses for the year ended March 31, 2001 is a loss ofownership arising on capital transactions100,195 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 associated companies 4,096 1,139 -- Transfer1999 were not significant.Shipping and handling costs are included in selling, general and administrative expenses in the consolidated statements of ownership in MCA -- -- 4,659income.72 -72-- 97 -
MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
AND SUBSIDIARIESNotes to Consolidated Financial Statements
(14) Foreign Exchange Contracts
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) 2001 2000 1999 a) Cash paid: Interest 48,985 47,729 70,672 Income taxes 146,694 178,184 160,046 b) Noncash investing and financing activities: Conversion of bonds 940 528 56 Transfer of ownership arising on capital transactions by consolidated and associated companies 969 3,004 2,960 Stock issued under exchange offering 50,107 — —
(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, 1998 and 1997 are as follows:
Yen (millions) ----------------- 1998 1997 ---- ----Forward: To sellforeigncurrencies 419,806 308,320 To buyexchange rates. Derivative financial instruments are comprised principally of foreigncurrencies 132,567 51,107 Options purchasedexchange contracts utilized by the Company and some of its subsidiaries tosellhedge 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 currencies 7,620 33,877 Options purchased to buyexchange contracts, but such risk is considered minor because of the high credit rating of the counterparties.The contract amounts of foreign currencies 2,378 -- Options written to sell foreign currencies -- 1,180 Options written to buy foreign currencies -- 3,538exchange contracts at March 31, 2001 and 2000 are as follows: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, 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.73 -73-
Yen (millions) 2001 2000 Forward: To sell foreign currencies 350,087 373,417 To buy foreign currencies 109,523 82,444 Options purchased to sell foreign currencies 16,430 26,711 Options purchased to buy foreign currencies 34,412 1,260 Options written to buy foreign currencies 24,956 24,820 Options written to sell foreign currencies 40,080 4,734 - 98 -
MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
AND SUBSIDIARIESNotes to Consolidated Financial Statements
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 the 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 the 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, consisting principally of foreign exchange contracts, all of which are used for hedging purposes, are estimated by obtaining quotes from brokers. The estimated fair values of financial instruments, all of which are held or issued for purposes other than trading, at March 31, 1998 and 1997 are as follows:
Yen (millions) ----------------------------------------------- 1998 1997 --------------------- -------------------- CarryingThe 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 Carrying FairValue of Financial InstrumentsThe 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 amount value -------- ----- -------- -----Non-derivatives: Assets:because of the short maturity of these instruments.Short-term investments 130,204 148,518 157,919 243,291The 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 806,756 959,564 552,393 777,088 Liabilities: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. Long-term debt including current portion (1,056,366) (1,140,043) (1,159,256) (1,202,096) Derivatives relating toThe fair value of long-term debt includingis estimated based on the quoted market prices or the present value of future cash flows using appropriate currentportion 6,833 12,077 (1,167) (1,725)discount rates.Derivative financial instruments 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. 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.74 -74-- 99 -
MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
AND SUBSIDIARIESNotes to Consolidated Financial Statements
(16) Commitments and Contingent Liabilities At March 31, 1998, commitments outstanding for the purchase of property, plant and equipment approximated 18,296 million yen. Contingent liabilities
The estimated fair values of financial instruments, all of which are held or issued for purposes other than trading, at March 31, 1998 for discounted export bills of exchange and guarantees of loans amounted to approximately 67,175 million yen, including 43,254 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. (17) Subsequent Events On June 26, 1998, the annual shareholders' meeting approved to purchase up to 50 million shares of common stock from the market, to a maximum value of 100 billion yen, for retirement, which would be effective for one year following the annual shareholders' meeting. (18) Quarterly Financial Data (Unaudited) Quarterly net sales, net income (loss) and net income (loss) per depositary share for the two years ended March 31, 1998 are set forth in the following table:
Yen (millions), except per share information ------------------------------------------------- 1998 ------------------------------------------------- Net income Net income (loss) per (loss) per depositary depositary Net share: share: Net income basic diluted sales (loss) (yen) (yen) ----- ------ ---------- ---------Quarter ended ------------- June 30 1,892,648 26,291 125 116 September 30 2,005,925 30,912 146 136 December 31 2,082,879 38,996 184 171March 31,1,909,210 (2,595) (12) (8) --------- ------- ---- ---- 7,890,662 93,604 443 415 ========= ======= ==== ====2001 and 2000 are as follows:75 -75-
Yen (millions) 2001 2000 Carrying Fair Carrying Fair amount value amount value Non-derivatives: Assets: Short-term investments 11,421 11,421 136,883 136,883 Investments and advances 1,008,170 1,009,122 1,161,757 1,164,740 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 SUBSIDIARIESNotes to Consolidated Financial Statements
Yen (millions), except(17) Quarterly Financial Data (Unaudited) Quarterly net sales, net income (loss) and net income (loss) per share information --------------------------------------------------------- 1997 --------------------------------------------------------- Net income Net income per depositary per depositary Net Net share: share: sales income basic (yen) diluted (yen) ----- ------ -------------- --------------Quarterfor the two years ended------------- June 30 1,719,590 18,545 88 83 September 30 1,884,858 24,091 114 107 December 31 2,032,365 45,321 215 198March 31,2,039,099 49,896 237 218 --------- -------- ---- ---- 7,675,912 137,853 654 606 ========= ======== ==== ====2001 are set forth in the following table:76 -76-
Yen (millions), except per share information 2001 Net Net income Net income Net income (loss) per share: (loss) per share: sales (loss) basic (yen) diluted (yen) Quarter ended June 30 1,772,375 9,399 4.52 4.45 September 30 1,964,666 41,973 20.19 19.25 December 31 1,992,628 22,782 10.96 10.53 March 31 1,951,892 (32,654 ) (15.70 ) (15.70 ) Yen (millions), except per share information 2000 Net income Net income Net Net per share: per share: sales income basic (yen) diluted (yen) Quarter ended June 30 1,755,406 9,552 4.63 4.55 September 30 1,837,286 24,514 11.89 11.40 December 31 1,866,736 60,656 29.41 27.95 March 31 1,839,959 4,987 2.42 2.42 - 101 -
Schedule
VIIIIIMATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
AND SUBSIDIARIESValuation and Qualifying Accounts and Reserves
(In(In millions of yen)
Years ended March 31,
1998, 19972001, 2000 and1996
Deduct -------------------- Add Balance Add- Bad (deduct) Balance at beginning charged debt Sale of -cumulative at end of to written MCA translation of period income off Reversal Transfer INC. adjustments period ------------ ------- ------- -------- -------- ------- ------------ -------Allowance for doubtful trade receivables: 1998 60,810 8,316 4,824 1,240 -- -- (320) 62,742 1997 53,826 13,302 6,887 956 -- -- 1,525 60,810 1996 153,558 30,303 26,452 1,495 (75,617) (27,899) 1,428 53,826 Allowance for doubtful noncurrent receivables: 1998 63,171 12,249 74,897 -- -- -- -- 523 1997 68,910 107,302 113,041 -- -- -- -- 63,171 1996 -- 38,790 45,497 -- 75,617 -- -- 68,91077 -77-1999
Deduct Balance Add at Add- Bad (deduct)- Balance beginning charged debts cumulative at end of to written translation of period income off Reversal adjustments period Allowance for doubtful
trade receivables:2001 42,098 13,289 12,460 1,929 1,532 42,530 2000 63,649 10,252 28,670 1,473 (1,660 ) 42,098 1999 62,742 13,505 8,781 2,454 (1,363 ) 63,649 Allowance for doubtful
noncurrent receivables:2001 144 3,160 3,206 — — 98 2000 304 1,728 1,888 — — 144 1999 523 — 219 — — 304 - 102 -
Item 18. Financial Statements
Not applicable
Item 19.
Financial Statements andExhibits(a) Financial Statements The following financial statements and schedulesDocuments filed as exhibits to this annual report are
filed in Part IV, Item 17 of this report: Consolidated Financial Statements of Matsushita Electric Industrial Co., Ltd. and Consolidated Subsidiaries: Page number ------ Independent Auditors' Report 45 Consolidated Balance Sheetsasof March 31, 1998 and 1997 46 Consolidated Statements of Operations for the years ended March 31, 1998, 1997 and 1996 48 Consolidated Statements of Surplus for the years ended March 31, 1998, 1997 and 1996 49 Consolidated Statements of Cash Flows for the years ended March 31, 1998, 1997 and 1996 50 Notes to Consolidated Financial Statements 52 Schedule for the years ended March 31, 1998, 1997 and 1996: Schedule VIII Valuation and Qualifying Accounts and Reserves for the years ended March 31, 1998, 1997 and 1996 76 (b) Exhibits ARTICLES OF INCORPORATION as amended on June 26, 1998 (English translation)78 -78-follows;
(1) ARTICLES OF INCORPORATION, as amended (English translation) (2) SHARE HANDLING REGULATIONS, as amended (English translation) - 103 -
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the
registrantCompany 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 31, 1998 By /s/ Shigeru Nakatani -------------------------------------- Shigeru Nakatani President of Panasonic Finance (America), Inc. 375 Park Avenue New York, N.Y. 10152
MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD. (Registrant) Date: July 24, 2001 By /s/ Shigeru Nakatani Shigeru Nakatani
President of
Panasonic Finance (America), Inc.
1 Rockefeller Plaza, Suite 1001,
New York, N.Y. 10020-2002