<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Form 20-F
ANNUAL REPORT PURSUANT TO SECTIONS 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 1998
Commission file number 1-6784
MATSUSHITA DENKI SANGYO KABUSHIKI KAISHA
----------------------------------------
(Exact name of registrant as specified in its charter)
MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
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(Translation of registrant's name into English)
Japan
(Jurisdiction of incorporation or organization)
1006, Oaza Kadoma, Kadoma City, Osaka, Japan
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(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
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Common Stock** New York Stock Exchange and Pacific Stock Exchange
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* 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.
Securities registered or to be registered pursuant to Section 12(g) of the Act.
None
(Title of Class)
Securities for which there is a reporting obligation pursuant to
Section 15(d) of the Act.
None
(Title of Class)
This form contains 78 pages.
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Indicate the number of outstanding shares of each of the issuer's classes of
capital or common stock as of the close of the period covered by the annual
report.
<TABLE>
<CAPTION>
Outstanding as of
---------------------------------
Title of Class March 31, 1998 March 30, 1998
-------------- (Japan Time) (New York Time)
-------------- ---------------
<S> <C> <C>
Common Stock - 50 yen par value per share 2,112,318,310
American Depositary Shares, each
representing 10 shares of common stock 4,287,658
</TABLE>
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
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 registrant has elected
to follow. Item 17. X Item 18. .
--- ---
All information contained in this Report is as of March 31, 1998 or for the year
ended March 31, 1998 (fiscal 1998) 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, 1998 was 141.10 yen=U.S.$1.
Cautionary Statement Regarding Forward-Looking Statements
- ---------------------------------------------------------
Any statements in this Annual Report, other than historical facts, are
forward-looking statements, which involve risks and uncertainties that could
cause actual results to differ materially. Such potential risks and
uncertainties include, without limitation, domestic and overseas economic
conditions such as consumer spending, housing construction and private capital
expenditures, especially under the continuingly sluggish economic environment of
Japan and other Asian countries; currency exchange rate fluctuations, especially
among the yen, U.S. dollar, Asian currencies and European currencies, with which
Matsushita operates its international business; and Matsushita's ability to
maintain its strength in many product and geographical areas through new product
introductions and other means in a highly competitive market, price-wise or
technology-wise, pertinent to the electronics industry to which the Company
primarily belongs.
PART I
Item 1. Description of Business
GENERAL
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) is one of the
world's leading producers of electronic and electric products.
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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 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.
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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 from fiscal 1999 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.
<TABLE>
<CAPTION>
Yen (billions)
--------------------------------------------------
Fiscal year ended March 31,
--------------------------------------------------
1998 1997 1996
------------ ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Consumer products
Video and audio equipment 1,885 24% 1,804 24% 1,675 25%
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
Information and communi-
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%
====== ==== ====== ==== ====== ====
</TABLE>
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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.
<PAGE> 6
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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.
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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
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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.
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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.
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SALES AND DISTRIBUTION
Set forth below is a sales breakdown by geographical markets:
<TABLE>
<CAPTION>
Yen (billions)
-----------------------------------------------
Fiscal year ended March 31,
-----------------------------------------------
1998 1997 1996
---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Japan 3,891 49% 4,046 53% 3,727 55%
North and South America 1,458 19 1,249 16 1,067 16
Europe 949 12 836 11 721 10
Asia and Others 1,593 20 1,545 20 1,280 19
----- --- ----- --- ----- ---
Total 7,891 100% 7,676 100% 6,795 100%
===== === ===== === ===== ===
</TABLE>
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.
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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.
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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.
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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.
<PAGE> 13
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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.
<PAGE> 14
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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:
<TABLE>
<CAPTION>
Floor Space
(thousands of
Location square feet) Principal Products Manufactured
- -------- ------------ -------------------------------
<S> <C> <C>
Osaka 9,976 VCRs, television receivers, DVD products, audio
equipment, washing machines, other home
appliances, information equipment, industrial
equipment, components, batteries, kitchen fixtures.
Kanagawa 4,395 Communications, information and measuring
equipment, VCRs, audio equipment, car audio
equipment, compact discs, CRT displays,
refrigerators, batteries.
Shiga 3,592 Air conditioners, refrigerators, compressors,
vacuum cleaners.
Tochigi 2,379 Television receivers, TV picture tubes,
information equipment.
Nara 2,072 Home appliances, gas and kerosene equipment,
compact discs.
Okayama 1,866 VCRs, components, magnetic tapes and discs.
Kyoto 1,629 Semiconductors, components.
Ibaraki 1,068 Television receivers, magnetic tapes.
Shikoku 3,684 VCRs, television receivers, information
equipment, audio equipment, home appliances.
Kyushu 2,289 Information and communications
equipment, home appliances, components,
industrial equipment.
North 6,744 Television receivers, home appliances, VCRs,
America car audio equipment, information and
communications equipment, compressors,
components, semiconductors, batteries.
Europe 3,312 VCRs, television receivers, audio equipment,
car audio equipment, home appliances,
components, information and communications
equipment.
Asia 16,678 Television receivers, VCRs, audio equipment,
air conditioners, refrigerators, other home
appliances, components, semiconductors,
information equipment, industrial equipment,
compressors, batteries.
Other 17,323 Home appliances, industrial equipment,
components, semiconductors, video and audio
equipment, batteries, information equipment.
------
Total 77,007
======
</TABLE>
<PAGE> 15
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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 million square feet, research and development
facilities with an aggregate floor space of approximately 6.2 million square
feet, employee housing and welfare 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 as of
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 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 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 proceedings
<PAGE> 16
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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 of
March 31, 1998 is as follows:
<TABLE>
<CAPTION>
Number of Percent
Title of class Identity of person or group shares owned of class
-------------- --------------------------- ------------ --------
<S> <C> <C> <C>
Common Stock Directors and Corporate 18,449,342 0.87%
Auditors -- 36 persons shares
</TABLE>
(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.
Item 5. Nature of Trading Market
Common Stock, American Depositary Receipts
The primary 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 TSE and is
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's American Depositary Shares
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.
<PAGE> 17
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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:
<TABLE>
<CAPTION>
Tokyo Stock Exchange New York Stock Exchange
-------------------- -----------------------
Price per Share of Price per American
Common Stock (yen) Depositary Share (dollars) (a)
-------------------- ------------------------------
Calendar Period High Low High Low
--------------- ---- --- ---- ---
<S> <C> <C> <C> <C>
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 1,820 163.94 143.06
</TABLE>
Note: (a) The prices of American Depositary Shares, each
representing 10 shares of Common Stock, are based
upon reports by the NYSE, with all 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.
<PAGE> 18
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(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 of a par value of 50 yen per 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.
<PAGE> 19
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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.
<PAGE> 20
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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 a
<PAGE> 21
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"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.
<PAGE> 22
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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 its
<PAGE> 23
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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).
<PAGE> 24
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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.
<PAGE> 25
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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.
<PAGE> 26
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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
<TABLE>
<CAPTION>
Yen (billions), except per share amounts and yen
--------------------------------------------------------
exchange rates
Fiscal year ended March 31,
--------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Income Statement Data:
----------------------
Net sales 7,891 7,676 6,795 6,948 6,624
Income before income
taxes 356 332 77 232 128
Net income (loss) 94 138 (57) 90 24
Per common share:
Net 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 exchange rates per
----------------------
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 133.99 124.54 107.29 105.38 114.20
</TABLE>
<PAGE> 27
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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. 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 taxes 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.
<PAGE> 28
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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.
<PAGE> 29
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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.)
<PAGE> 30
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(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.
<PAGE> 31
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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.
<PAGE> 32
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(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.
<PAGE> 33
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(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.
<PAGE> 34
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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) Market Risk Management (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:
The Company holds available-for-sale securities included in short-term
investments and investments and advances. In general, highly-liquid and
low risk instruments are preferred in the portfolio. Available-for-sale
securities included in investments and advances are held as longer term
investments. The Company does not hold marketable securities for trading
purposes.
Maturities and fair values of available-for-sale securities were as
follows at March 31, 1998.
<TABLE>
<CAPTION>
Yen (millions)
------------------------
1998
------------------------
Carrying Fair
amount value
-------- --------
<S> <C> <C>
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
======= =======
</TABLE>
Foreign Exchange Risk:
The primary purpose of the Company's foreign currency hedging activities
is to protect against the volatility associated with foreign currency
transactions. The Company primarily utilizes forward exchange contracts
and options with 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.
<PAGE> 35
- 35 -
The following table provides the contract amounts and fair values of
foreign exchange contracts, primarily hedging U.S. dollar revenues, at
March 31, 1998. Amounts related to foreign exchange contracts entered
into in connection with long-term debt denominated in foreign currencies
which eliminate all foreign currency exposures, are shown at the table
of "Interest Rate Risk."
<TABLE>
<CAPTION>
Yen (millions)
---------------------
1998
---------------------
Contract Fair
amount value
--------- -----
<S> <C> <C>
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
</TABLE>
Interest Rate Risk:
The Company's exposure to market risk for changes in interest rates
relates principally to its debt obligations. The Company has long-term
debt primarily with fixed rates. 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, 1998 were not material.
The following tables provide information about the Company's financial
instruments that are sensitive to changes in interest rates at March 31,
1998. The table presents principal cash flows by expected maturity
dates, related weighted average interest rates and fair values of
financial instruments.
<TABLE>
<CAPTION>
Yen (millions)
-----------------------------------------------------------------------
Carrying amount and maturity date (year ended March 31)
---------------------------------------------------------------
Average
interest There- Fair
rate Total 1999 2000 2001 2002 2003 after value
-------- ----- ---- ---- ---- ---- ---- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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
---------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 36
- 36 -
(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.
<PAGE> 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:
<TABLE>
<CAPTION>
Yen (billions)
-------------------
1998 1997
---- ----
<S> <C> <C>
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
====== ======
</TABLE>
<PAGE> 38
- 38 -
<TABLE>
<CAPTION>
Yen (billions)
-----------------
1998 1997
---- ----
<S> <C> <C>
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
====== ======
</TABLE>
<PAGE> 39
- 39 -
By Geographical Location of Companies:
<TABLE>
<CAPTION>
Yen (billions)
------------------
1998 1997
----- -----
<S> <C> <C>
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
====== ======
</TABLE>
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.
<PAGE> 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.
<PAGE> 41
- 41 -
<TABLE>
<CAPTION>
Director/
Corporate
Name Positions with registrant Auditor since
---- ------------------------- -------------
<S> <C> <C>
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
</TABLE>
(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.
<PAGE> 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.
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
None
<PAGE> 43
- 43 -
PART II
Item 14. Description of Securities to be Registered
Not applicable
PART III
Item 15. Defaults upon Senior Securities
None
Item 16. Changes in Securities and Changes in Security for Registered Securities
None
<PAGE> 44
- 44 -
PART IV
Item 17. Financial Statements
Index of Consolidated Financial Statements of Matsushita Electric Industrial
Co., Ltd. and Subsidiaries:
<TABLE>
<CAPTION>
Page
number
------
<S> <C>
Independent Auditors' Report 45
Consolidated Balance Sheets as of 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
</TABLE>
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.
<PAGE> 45
-45-
Independent Auditors' Report
The Board of Directors and Stockholders
Matsushita Electric Industrial Co., Ltd.:
We have audited the consolidated financial statements of Matsushita Electric
Industrial Co., Ltd. and subsidiaries as listed in the accompanying index. In
connection with our audits of the consolidated financial statements, we also
have audited the financial statement schedule as listed in the accompanying
index. These consolidated financial statements and financial statement schedule
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements and financial
statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing standards
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
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
United States generally accepted accounting principles 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 opinion, except for the effects of the departure from SFAS No. 115 in
accounting for certain investments in debt and equity securities discussed in
the third paragraph of this report, and except for the omission of the segment
information discussed in the preceding 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, 1998 and 1997, and the results of their operations and their
cash flows for each of the years in the three-year period ended March 31, 1998,
in conformity with Untied States generally accepted accounting principles. Also
in our opinion, the related financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
KPMG PEAT MARWICK
Osaka, Japan
May 20, 1998, except as to Note 17,
which is as of June 26, 1998
<PAGE> 46
-46-
MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
AND SUBSIDIARIES
Consolidated Balance Sheets
March 31, 1998 and 1997
<TABLE>
<CAPTION>
Yen (millions)
--------------------
Assets 1998 1997
------ ---- ----
<S> <C> <C>
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
========== ==========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
<PAGE> 47
-47-
MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, 1998 and 1997
<TABLE>
<CAPTION>
Yen (millions)
--------------
Liabilities and Stockholders' Equity 1998 1997
------------------------------------ ---- ----
<S> <C> <C>
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
========== ==========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
<PAGE> 48
-48-
MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended March 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
Yen (millions)
----------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
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)
========== ========== ==========
<CAPTION>
Yen
----------------------------------
<S> <C> <C> <C>
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)
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
<PAGE> 49
-49-
MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
AND SUBSIDIARIES
Consolidated Statements of Surplus
Years ended March 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
Yen (millions)
--------------------------------------------------
Cumulative
Retained Capital Legal translation
earnings surplus reserve adjustments
---------- ----------- ---------- ------------
<S> <C> <C> <C> <C>
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)
========== ======= ======= ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
<PAGE> 50
-50-
MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended March 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
Yen (millions)
------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
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
-------- -------- --------
</TABLE>
(Continued)
<PAGE> 51
-51-
MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended March 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
Yen (millions)
-----------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
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
========== ========== ==========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
<PAGE> 52
-52-
MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 1998, 1997 and 1996
(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.
<PAGE> 53
-53-
MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
AND SUBSIDIARIES
Notes 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.
<PAGE> 54
-54-
MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
AND SUBSIDIARIES
Notes 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.
<PAGE> 55
-55-
MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
AND SUBSIDIARIES
Notes 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.
<PAGE> 56
-56-
MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
AND SUBSIDIARIES
Notes 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.
<PAGE> 57
-57-
MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
AND SUBSIDIARIES
Notes 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:
<TABLE>
<CAPTION>
Yen (millions)
-----------------------
1998 1997
---- ----
<S> <C> <C>
Finished goods 588,660 547,494
Work in process 193,727 204,400
Raw materials 319,226 327,541
--------- ---------
1,101,613 1,079,435
========= =========
</TABLE>
(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.
<PAGE> 58
-58-
MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
Yen (millions)
-----------------
1998 1997
---- ----
<S> <C> <C>
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's equity in net assets 274,823 440,048
========= =========
</TABLE>
<TABLE>
<CAPTION>
Yen (millions)
------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
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 41,564
</TABLE>
Purchases and dividends received from the associated companies for the
three years ended March 31, 1998 are as follows:
<TABLE>
<CAPTION>
Yen (millions)
------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Purchases from 259,451 257,150 199,310
Dividends received 9,875 6,032 7,147
</TABLE>
Retained 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:
<TABLE>
<CAPTION>
Yen (millions)
---------------------
1998 1997
---- ----
<S> <C> <C>
Carrying amount 270,312 274,070
Market value 366,585 340,238
</TABLE>
<PAGE> 59
-59-
MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(5) Short-term Investments and Investments and Advances
As discussed 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. The short-term investments and
investments and 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:
<TABLE>
<CAPTION>
Yen (millions)
---------------
1998 1997
---- ----
<S> <C> <C>
Stockholders' equity as reported 3,770,114 3,695,709
Net increase in the carrying amount of:
Short-term investments 18,314 85,372
Investments and advances 152,548 223,327
Net decrease in deferred tax assets and increase
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
========= =========
</TABLE>
<PAGE> 60
-60-
MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
AND SUBSIDIARIES
Notes 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 of available-for-sale securities
included in short-term investments and investments and advances at
March 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
Yen (millions)
--------------------------------------------
1998
--------------------------------------------
Gross Gross
unrealized unrealized
Carrying Fair holding holding
amount value gains losses
------- ------- ------- -------
<S> <C> <C> <C> <C>
Current:
Available-for-sale:
Equity securities 3,754 21,550 17,796 --
Japanese and foreign
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
======= ======= ======= ===
</TABLE>
<PAGE> 61
-61-
MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
Yen (millions)
----------------------------------------------
1997
----------------------------------------------
Gross Gross
unrealized unrealized
Carrying Fair holding holding
amount value gains losses
------- ------- -------- ----------
<S> <C> <C> <C> <C>
Current:
Available-for-sale:
Equity securities 9,195 93,608 84,413 --
Japanese and foreign
government bonds 107,043 107,793 809 59
Convertible and straight
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 --
Japanese 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
======= ======= ======= =======
</TABLE>
Maturities of short-term investments and investments and advances
classified as available-for-sale at March 31, 1998 and 1997 are as
follows:
<TABLE>
<CAPTION>
Yen (millions)
--------------------------------------------
1998 1997
------------------ -------------------
Carrying Fair Carrying Fair
amount value amount value
------- ------- ------- --------
<S> <C> <C> <C> <C>
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
======= ======= ======= =======
</TABLE>
<PAGE> 62
-62-
MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
AND SUBSIDIARIES
Notes 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.
<PAGE> 63
-63-
MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
AND SUBSIDIARIES
Notes 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:
<TABLE>
<CAPTION>
Yen (millions)
-------------------
1998 1997
---- ----
<S> <C> <C>
Straight bonds, due 1997, interest 4.35% -- 99,650
Convertible bonds, due 1999, interest 1.3% 198,357 198,370
Convertible bonds, due 2002, interest 1.3% 99,021 99,879
Convertible bonds, due 2004, interest 1.4% 98,917 99,932
Convertible bonds issued by subsidiaries, due 1997,
1999, 2000, 2002 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 issued by a subsidiary, due 1997 - 2000,
effective interest 5.6% in 1998 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
========= =========
</TABLE>
The aggregate annual maturities and sinking fund requirements of
long-term debt after March 31, 1998 are as follows:
<TABLE>
<CAPTION>
Yen (millions)
--------------
Year ending March 31:
<S> <C>
1999 359,952
2000 75,451
2001 141,570
2002 173,613
2003 165,882
</TABLE>
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.
<PAGE> 64
-64-
MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
AND SUBSIDIARIES
Notes 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.
<PAGE> 65
-65-
MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
AND SUBSIDIARIES
Notes 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:
<TABLE>
<CAPTION>
Yen (millions)
---------------
1997 1996
---- ----
<S> <C> <C>
Liability reserve 846,705 798,418
Fair value of plan assets, primarily
marketable securities and loans 850,072 796,752
-------- --------
Fair value of plan assets greater than
(less than) the liability reserve 3,367 (1,666)
======== ========
</TABLE>
<PAGE> 66
-66-
MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
AND SUBSIDIARIES
Notes 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:
<TABLE>
<CAPTION>
Yen (millions)
--------------------------------
Domestic Foreign Total
-------- ------- -----
<S> <C> <C> <C>
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
======== ======== ========
</TABLE>
<PAGE> 67
-67-
MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The Company and its subsidiaries are subject to a number of taxes based
on earnings which, in aggregate, resulted in an average normal tax rate
of approximately 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:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Normal tax rate 51.2 % 51.2 % 51.2 %
Tax credit for increased research expenses (1.0) (1.7) (2.5)
Lower tax rates 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 to
income tax expenses (1.7) (4.3) 5.4
Adjustments of deferred tax assets and
liabilities for enacted changes in tax
laws and rates 10.5 -- --
Other 4.0 1.4 (11.9)
---- ---- -----
Effective tax rate 66.0 % 46.8 % 150.7 %
==== ==== =====
</TABLE>
The significant components of deferred income tax expenses for the
three years ended March 31, 1998 are as follows:
<TABLE>
<CAPTION>
Yen (millions)
--------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Deferred tax expense (exclusive of the
effects of other components listed below) 7,342 (53,476) (30,081)
Adjustments of deferred tax assets and
liabilities for enacted changes in tax
laws and rates 37,423 -- --
Increase (decrease) in the balance of
valuation allowance for deferred
tax assets (5,864) (14,324) 4,150
------ ------- -------
38,901 (67,800) (25,931)
====== ======= =======
</TABLE>
<PAGE> 68
-68-
MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
March 31, 1998 and 1997 are presented below:
<TABLE>
<CAPTION>
Yen (millions)
---------------
1998 1997
---- ----
<S> <C> <C>
Deferred tax assets:
Inventory valuation 92,636 97,253
Expenses accrued for financial statement purposes
but not currently included in taxable income 146,890 153,827
Depreciation 143,741 153,358
Retirement 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
======== ========
</TABLE>
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.
<PAGE> 69
-69-
MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
AND SUBSIDIARIES
Notes 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:
<TABLE>
<CAPTION>
Yen (millions)
----------------------
1998 1997
---- ----
<S> <C> <C>
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
======== ========
</TABLE>
(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:
<TABLE>
<CAPTION>
Fiscal Number of Common stock
year Nature shares Yen (millions)
------ ------ --------- --------------
<S> <C> <C> <C>
1998 Conversion of bonds 1,161,459 943
1997 Conversion of bonds 13,441,895 9,767
1996 Conversion of bonds 458,126 333
</TABLE>
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.
<PAGE> 70
-70-
MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(12) Net Income (Loss) per Depositary 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:
<TABLE>
<CAPTION>
Yen (millions)
--------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
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 --
------- ------- -------
Diluted net income (loss) 96,168 140,430 (56,871)
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
Number of shares
------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Average common shares outstanding 2,112,052,091 2,108,067,837 2,097,339,494
Dilutive effect of 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
============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
Yen
-------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net income (loss) per depositary share:
Basic 443 654 (271)
Diluted 415 606 (271)
</TABLE>
<PAGE> 71
-71-
MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
AND SUBSIDIARIES
Notes 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:
<TABLE>
<CAPTION>
Yen (millions)
-------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Research and development costs 480,539 434,874 399,712
Advertising costs 125,774 117,222 104,967
</TABLE>
Included 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:
<TABLE>
<CAPTION>
Yen (millions)
-----------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
a) Cash paid:
Interest 77,254 86,244 96,296
Income taxes 272,951 147,534 139,609
b) Noncash investing and financing activities:
Conversion of bonds 1,887 19,532 699
Transfer of ownership arising on
capital transactions by
consolidated and associated
companies 4,096 1,139 --
Transfer of ownership in MCA -- -- 4,659
</TABLE>
<PAGE> 72
-72-
MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(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:
<TABLE>
<CAPTION>
Yen (millions)
-----------------
1998 1997
---- ----
<S> <C> <C>
Forward:
To sell foreign currencies 419,806 308,320
To buy foreign currencies 132,567 51,107
Options purchased to sell foreign currencies 7,620 33,877
Options purchased to buy foreign currencies 2,378 --
Options written to sell foreign currencies -- 1,180
Options written to buy foreign currencies -- 3,538
</TABLE>
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.
<PAGE> 73
-73-
MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
AND SUBSIDIARIES
Notes 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:
<TABLE>
<CAPTION>
Yen (millions)
-----------------------------------------------
1998 1997
--------------------- --------------------
Carrying Fair Carrying Fair
amount value amount value
-------- ----- -------- -----
<S> <C> <C> <C> <C>
Non-derivatives:
Assets:
Short-term investments 130,204 148,518 157,919 243,291
Investments and advances 806,756 959,564 552,393 777,088
Liabilities:
Long-term debt, including
current portion (1,056,366) (1,140,043) (1,159,256) (1,202,096)
Derivatives relating to long-term
debt, including current portion 6,833 12,077 (1,167) (1,725)
</TABLE>
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.
<PAGE> 74
-74-
MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
AND SUBSIDIARIES
Notes 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 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:
<TABLE>
<CAPTION>
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)
----- ------ ---------- ---------
<S> <C> <C> <C> <C>
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 38,996 184 171
March 31 1,909,210 (2,595) (12) (8)
--------- ------- ---- ----
7,890,662 93,604 443 415
========= ======= ==== ====
</TABLE>
<PAGE> 75
-75-
MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
Yen (millions), except per share information
---------------------------------------------------------
1997
---------------------------------------------------------
Net income Net income
per depositary per depositary
Net Net share: share:
sales income basic (yen) diluted (yen)
----- ------ -------------- --------------
<S> <C> <C> <C> <C>
Quarter ended
-------------
June 30 1,719,590 18,545 88 83
September 30 1,884,858 24,091 114 107
December 31 2,032,365 45,321 215 198
March 31 2,039,099 49,896 237 218
--------- -------- ---- ----
7,675,912 137,853 654 606
========= ======== ==== ====
</TABLE>
<PAGE> 76
-76-
Schedule VIII
MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
AND SUBSIDIARIES
Valuation and Qualifying Accounts and Reserves
(In millions of yen)
Years ended March 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
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
------------ ------- ------- -------- -------- ------- ------------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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 -- -- 68,910
</TABLE>
<PAGE> 77
-77-
Item 19. Financial Statements and Exhibits
(a) Financial Statements
The following financial statements and schedules 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 Sheets as of 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)
<PAGE> 78
-78-
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the registrant 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
<PAGE> 1
EXHIBIT
(TRANSLATION)
ARTICLES OF INCORPORATION
(Amended on June 26, 1998)
MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
<PAGE> 2
(TRANSLATION)
ARTICLES OF INCORPORATION
OF
MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
(Matsushita Denki Sangyo Kabushiki Kaisha)
CHAPTER I
GENERAL PROVISIONS
ARTICLE 1. (Trade Name)
The Company shall be called Matsushita Denki Sangyo Kabushiki Kaisha,
and written in English as Matsushita Electric Industrial Co., Ltd.
ARTICLE 2. (Principal Office)
The principal office of the Company shall be located in Kadoma City,
Osaka-fu.
ARTICLE 3. (Purpose)
The purpose of the Company shall be to engage in the following
businesses:
1. manufacture and sale of electric machinery and equipment,
communication and electronic equipment, as well as lighting
equipment;
2. manufacture and sale of gas, kerosene and kitchen equipment,
as well as machinery and equipment for building and housing;
3. manufacture and sale of machinery and equipment for office and
transportation, as well as for sales activities;
4. manufacture and sale of medical, health and hygienic
equipment, apparatus and material;
5. manufacture and sale of optical and precision machinery and
equipment;
6. manufacture and sale of batteries, battery-operated products,
carbon and manganese and other chemical and metal products;
1
<PAGE> 3
7. manufacture and sale of air conditioning and anti-pollution
equipment, as well as industrial machinery and equipment;
8. manufacture and sale of other machinery and equipment;
9. engineering and installation of machinery and equipment
related to any of the preceding items as well as engineering
and performance of and contracting for other construction
work;
10. production and sale of software;
11. sale of iron and steel, nonferrous metals, minerals, oil, gas,
ceramics, paper, pulp, rubber, leather, fibre and their
products;
12. sale of foods, beverages, liquor and other alcoholics,
agricultural, livestock, dairy and marine produces, animal
feed and their raw materials;
13. manufacture and sale of drugs, quasi-drugs, cosmetics,
fertilizer, poisonous and deleterious substance and other
chemical products;
14. sale of woods and other construction materials and general
merchandise;
15. motion picture and musical entertainment business and
promotion of sporting events;
16. export and import of products, materials and software
mentioned in each of the preceding items (other than item 9);
17. providing repair and maintenance services for the products,
goods and software mentioned in each of the preceding items
for itself and on behalf of others;
18. provision of information and communication services, and
broadcasting business;
19. 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;
20. investment in various businesses;
21. accepting commission for investigations, research, development
and consulting related to any of the preceding items; and
22. all other business or businesses incidental or related to any
of the preceding items.
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ARTICLE 4. (Method of Public Notice)
Public notices of the Company shall be given in the "Asahi Shimbun"
published in Osaka City.
CHAPTER II
SHARES
ARTICLE 5. (Total Number of Shares and Par Value of Each Share)
The total number of shares authorized to be issued by the Company shall
be five billion (5,000,000,000).
The amount of each share having par value shall be fifty yen (yen 50).
ARTICLE 6. (Retirement of Shares)
After June 26, 1998, the Company may, by a resolution of the Board of
Directors, purchase up to two hundred million (200,000,000) of the
Company's shares with profits and retire them.
ARTICLE 7. (Number of Shares Constituting One Unit of Shares)
The number of shares constituting one unit of shares shall be one
thousand (1,000).
ARTICLE 8. (Record Date)
The Company shall deem those shareholders (including beneficial
shareholders; hereinafter the same interpretation being applicable)
having voting rights whose names are registered as such on the
register of shareholders (including register of beneficial
shareholders; hereinafter the same interpretation being applicable)
as of the end of each fiscal period as the shareholders entitled to
exercise their rights as shareholders at the ordinary general meeting
of shareholders for such fiscal period.
In addition to the preceding paragraph, the Company shall, by a
resolution of the Board of Directors and upon giving prior public
notice, determine those shareholders and registered pledgees whose
names appear as such on the register of shareholders as of a
designated date as the shareholders or pledgees entitled to exercise
their rights.
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ARTICLE 9. (Transfer Agent)
The Company shall appoint a transfer agent with respect to shares.
The transfer agent and its handling office shall be designated by a
resolution of the Board of Directors, and public notice shall be given
with regard thereto.
The register of shareholders of the Company shall be kept at the
handling office of the transfer agent, and the handling business
related to shares, such as registration of transfer of shares,
purchase by the Company of shares not constituting a full unit, etc.,
shall be handled by the transfer agent and the Company shall not
handle such business.
ARTICLE 10. (Share Handling Regulations)
Registration of transfers of shares, purchase by the Company of shares
constituting less than one unit of shares and other handling business
related to shares of the Company shall be governed by, in addition to
these Articles of Incorporation, the Share Handling Regulations
established by the Board of Directors.
CHAPTER III
GENERAL MEETINGS OF SHAREHOLDERS
ARTICLE 11. (Convocation)
An ordinary general meeting of shareholders of the Company shall be
convened within three (3) months from the day immediately following
the day on which the accounts are closed, and an extraordinary general
meeting of shareholders may be convened whenever necessary.
ARTICLE 12. (Chairman of General Meetings of Shareholders)
Chairmanship of general meetings of shareholders shall be assumed by
the President. Should the President be unable to act, one of the other
Representative Directors shall take his/her place as previously
determined by the Board of Directors.
ARTICLE 13. (Method of Adopting Resolutions)
Unless otherwise provided by laws or orders or by these Articles of
Incorporation, resolutions of general meetings of shareholders shall
be adopted by a majority of the votes of shareholders present or
represented at the meeting.
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ARTICLE 14. (Exercise of Voting Rights through Proxy)
A shareholder may exercise his/her voting rights through a proxy who
is also a shareholder of the Company entitled to exercise voting
rights; provided, however, that the proxy must submit to the Company a
power of attorney authorizing such proxy.
CHAPTER IV
DIRECTORS AND BOARD OF DIRECTORS
ARTICLE 15. (Number of Directors)
The number of Directors of the Company shall be three (3) or more.
ARTICLE 16. (Election of Directors)
Directors shall be elected at a general meeting of shareholders.
Resolutions for such election shall be adopted by a majority of the
votes of the shareholders present who hold shares representing in the
aggregate not less than one-third of the total outstanding shares
which carry voting rights.
No cumulative voting shall be used with respect to the resolutions for
the election of Directors.
ARTICLE 17. (Representative Directors and Directors with Special Titles)
The Company may, by a resolution of the Board of Directors, appoint
from among the Directors one Chairman of the Board of Directors, one
Vice Chairman of the Board of Directors, one President, and one or
more Executive Vice Presidents, Senior Managing Directors and
Managing Directors.
The Chairman of the Board of Directors, the Vice Chairman of the Board
of Directors, the President, Executive Vice Presidents, Senior
Managing Directors and Managing Directors shall severally
represent the Company.
ARTICLE 18. (Terms of Office of Directors)
The terms 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 (2) years from their assumption of
office.
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The term of office of a Director elected to fill a vacancy shall
expire at the time his/her predecessor's full term of office would
have expired.
ARTICLE 19. (Remuneration and Retirement Allowances for Directors)
Remuneration and retirement allowances for Directors shall be
determined at a general meeting of shareholders.
ARTICLE 20. (Notice of Convocation of a Meeting of Board of Directors)
Notice of convocation of a meeting of the Board of Directors shall be
dispatched to each Director and Corporate Auditor three (3) days in
advance of the date set for the meeting; provided, however, that in
case of urgency this period may be shortened.
ARTICLE 21. (Regulations of Board of Directors)
Matters to be resolved by the Board of Directors and any other details
concerning the Board of Directors shall be governed by the Regulations
of the Board of Directors established by the Board of Directors.
CHAPTER V
CORPORATE AUDITORS AND
BOARD OF CORPORATE AUDITORS
ARTICLE 22. (Number of Corporate Auditors)
The number of Corporate Auditors of the Company shall be three (3) or
more.
ARTICLE 23. (Election of Corporate Auditors)
Corporate Auditors shall be elected at a general meeting of
shareholders.
Resolutions for such election shall be adopted by a majority of the
votes of the shareholders present who hold shares representing in the
aggregate not less than one-third of the total outstanding shares
which carry voting rights.
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ARTICLE 24. (Full-time Corporate Auditors and Senior Corporate Auditors)
The Company shall appoint one or more Full-time Corporate Auditor(s)
who shall be selected by the Corporate Auditors from among their
number.
The Company may appoint one or more Senior Corporate Auditor(s) who
shall be selected by the Corporate Auditors from among their number.
ARTICLE 25. (Terms of office of Corporate Auditors)
The terms of office of Corporate Auditors shall expire at the
conclusion of the ordinary general meeting of shareholders with
respect to the last closing of accounts within three (3) years from
their assumption of office.
The term of office of a Corporate Auditor elected to fill a vacancy
shall expire at the time his/her predecessor's full term of office
would have expired.
ARTICLE 26. (Remuneration and Retirement Allowances for Corporate Auditors)
Remuneration and retirement allowances for Corporate Auditors shall be
determined at a general meeting of shareholders.
ARTICLE 27. (Notice of Convocation of a Meeting of Board of Corporate Auditors)
Notice of convocation of a meeting of the Board of Corporate Auditors
shall be dispatched to each Corporate Auditor three (3) days in
advance of the date set for the meeting; provided, however, that in
case of urgency this period may be shortened.
ARTICLE 28. (Regulations of Board of Corporate Auditors)
Matters to be resolved by the Board of Corporate Auditors and any
other details concerning the Board of Corporate Auditors shall be
governed by the Regulations of the Board of Corporate Auditors
established by the Board of Corporate Auditors.
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CHAPTER VI
ACCOUNTS
ARTICLE 29. (Fiscal Year and Closing of Accounts)
The fiscal year of the Company shall commence on April 1 each year and
end on March 31 the next following year and the accounts shall be
closed on the last day of each fiscal year.
ARTICLE 30. (Dividends)
Dividends of the Company shall be paid to those shareholders or
registered pledgees whose names appear as such on the register of
shareholders at the end of each fiscal period.
ARTICLE 31. (Interim Dividends)
The Company may, by a resolution of the Board of Directors, pay
interim dividends (cash distributions as provided in Article 293-5 of
the Commercial Code; hereinafter the same being applicable) to those
shareholders or registered pledgees whose names appear as such on the
register of shareholders as of the close of September 30 of each
year.
ARTICLE 32. (Expiration Period for Dividends and Interim Dividends)
In case dividends or interim dividends shall not be received within
three (3) years from the commencement of payment thereof, the Company
shall be relieved from the obligation for the payment thereof.
Dividends and interim dividends shall bear no interest.
ARTICLE 33. (Timing of Conversion of Convertible Debentures and Dividends)
With respect to the first payment of dividends on shares issued upon
conversion of convertible debentures, such conversion shall be deemed
to have been made at the beginning of the business year in which the
application for conversion was made and the dividends shall be
paid accordingly.
For the purpose of the application of the above provisions, the
interim dividends pursuant to the provisions of Article 31 shall be
deemed as the dividends and each of the periods from April 1 to
September 30 and from October 1 to March 31 of the next following year
shall be deemed a business year respectively.
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CHAPTER VII
MISCELLANEOUS RULES
ARTICLE 34. (Transfer Agent of Bonds or Debentures)
The Company shall appoint a transfer agent or agents in respect to
bonds or debentures issued by the Company.
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